Differences in Scientific Judgments

Several centuries ago, astronomers debated whether the earth or the sun was at the center of the solar system. More recently, meteorologists have debated whether the earth is experiencing global warming and. If so why. Science is a search for understanding about the world around us. It is not

surprising that as the search continues, scientists can disagree about the direction in which truth lies.

Economists often disagree for the same reason. Economics is a young science, and there is still much to be learned. Economists sometimes disagree because they have different hunches about the validity of alternative theories or about the size of important parameters that measure how economic variables are related.

For example, economists disagree about whether the government should tax a household’s income or its consumption (spending). Advocates of a switch from the current income tax to a consumption tax believe that the change would encourage households to save more because income that is saved would not be taxed. Higher saving, in turn, would lead to more rapid growth in productivity and living standards. Advocates of the current income tax system belive that household saving would not respond much to a change in the tax laws. These two groups of economists hold different normative views about the tax system because they have different positive views about the responsiveness of saving to tax incentives.

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RENT CONTROL IN THE SHORT RUN AND LONG RUN

One common example of a price ceiling is rent control. In many cities the local government places a ceiling on rents that landlords may charge their tenants. The goal of this policy is to help the poor by making housing more affordable. Economists often criticize rent control arguing that it is a highly inefficient way to help the poor raise their standard of living. One economists called rent control the best way to destroy city other than bombing. The adverse effects of rent control are less apparent to the general population because these effects occur over many years. In the short run landlords have a fixed number of apartments to rent and they cannot adjust this number quickly as market conditions change. Moreover the number of people searching for housing in a city may not be highly responsive to rents in the short run because people take time to adjust their housing arrangements. Therefore the short-run supply and demand for housing are relatively inelasti...

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CAN CONGRESS DISTRIBUTE THE BURDEN OF PAYROLL TAX

If you have ever received a paycheck you probably noticed that taxes were deducted from the amount you earned. One ot these taxes is called FICA an acronym for the Federal Insurance Contribution Act. The federal government uses the revenue from the FICA tax pay for Social Security and Medicare the income support and healthcare programs for the elderly. FICA is an example of a payroll tax which is a tax on the wages that firms pay their workers. In 2005 the total FICA tax for the typical worker was of earnings. Who do you think bears the burden of this payroll tax firms or workers. When Congress passed this legislation it tried to mandate a division of the tax burden. According to the law half of the tax is paid by firms and half is paid by workers. That is half of the tax is paid out of firms revenues and half is deducted from workers paychecks. The amount that shows up as a deduction on your pay stup is the worker contribution. Our analysis of tax incidenc...

The Variety of Demand Curves

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