Author: Zachary Bartsch

Spending Like a…

Zachary Bartsch2 Comments

Is the federal government spending at a faster rate? Your answer probably has more to do with your biases than with anything else. Most people don’t know the numbers or they imagine some more appropriate past. Below is logged current federal expenditures (this does not include government fixed investment, only consumption. Yes, we can argue about measures. This doesn’t include transfers).

The line of best fit is about 1.6% per quarter or 6.4% per year. Golly! Our spending is rising so fast! But, US federal spending grew relatively slowly in the 90s – maybe due to that fiscal conservative, Bill Clinton. And our federal spending grew even more slowly between 2010 and 2016 – maybe due to that other fiscal conservative, Barack Obama.

But, inflation varied over this period. What about real, inflation adjusted federal spending? See Below.

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Minor Investment

Zachary Bartsch8 Comments

Gary Becker, the Nobel laureate in economics, applied economic reasoning to social circumstances and particularly to families. He argued that children are a normal consumption good, and people consume more children with higher incomes. However, he also emphasized a quantity-quality trade-off. More children in a family means fewer resources and attention for each child. Higher-income couples may opt to invest in classes, training, and spend more time with a unitary child rather than increasing the number of children.

However, goods have multiple attributes and children do not merely provide a stream of consumption value while in the household. They offer access to future resources when they become employed themselves. Having more children or higher-quality children increases the economic benefits that older parents can enjoy, such as more help with household activities and the ability to travel with their adult children. Old-age benefits such as social security now serve the function of insulating people from their prior investments in future consumption.

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Fed Priority #1: Financial System Stability

Zachary Bartsch2 Comments

The Fed was founded after a spat of banking crises.

We know that the Federal Reserve also has the goals of full employment and steady, moderate inflation. Since the 1990s, that’s meant 2%. But it’s a relatively recent addition to the Fed’s policy goals. The primary purpose was initially and always has been financial system stability.


In 2008, the Fed demonstrated that it’s willing to attain financial stability at the cost of employment. After and during the financial crisis, the Fed purchased mortgage backed securities (MBS) from private banks at a time when their value was highly uncertain (and discounted). The purpose was to replace these assets of uncertain value with less risky assets. At the time, there was resentment that these security holders were insulated from losses while the homeowners whose loans composed the MBS did not get comparable relief. I remember arguing that the Fed, with the cooperation of congress, could have just paid part of the mortgages on behalf of the homeowners such that there were fewer foreclosures and fewer personal bankruptcies. That way, both the borrowers wouldn’t default and the debt holders would enjoy stable returns.


But, the primary goal of the Fed is financial system stability. Pre-financial crisis, banks had loaded-up on securities of uncertain value with the help of regulatory arbitrage and some lending shenanigans. The Fed needed to avoid the ensuing catastrophe that was a consequence of the greater-than-anticipated realized risk. Importantly, catastrophe to the Fed is financial-sector specific. Markets losing liquidity, bank-runs, and financial sector business failures all qualify as the stuff of concern (all of which occurred). While making mortgage payments for specific mortgages would have been popular amongst many debtors, it also would have taken much more time to implement. The Fed wanted to avoid more financial instability than had already occurred. And frankly, the Fed’s first priority isn’t to take care of the public. Given the alternative between a slow popular option and a quick adequate option, the Fed has demonstrated an inclination toward the latter.

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Deaf Census Speculations

Zachary Bartsch1 Comment

Between 1850 and 1910, most US censuses asked whether an individual was deaf. There were four alternative descriptions among the combinations of deafness and dumbness. Seems straightforward enough. The problem is that these aren’t discrete categories, they’re continuous. That is, one’s ability to hear can be zero, very good, bad, or just middling. What constitutes the threshold for deafness? In practice, it was the discretion of the enumerator. Understandably, there was a lot of variation in judgement from one enumerator to another. A lot of older people were categorized as deaf, even if they had some hearing loss.

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Self-Replicating Machines: A Practical Human Response

Zachary Bartsch3 Comments

Currently, we have software that can write software. What about physical machines that can produce physical machines? Indeed, what about machines that can produce other machines without human direction?

First of all, machines-building machines (MBM) still require resources: energy, transportation, time, and other inputs. A well-programmed machine that self-replicates quickly can grow in number exponentially. But where would the machines get the resources that enable self-replication? They’d have to purchase them (or conquer the world sci-fi style). Where would a machine get the resources to make purchases of necessary inputs? The same place that everyone else gets them.

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The Allure of Overconfidence

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I say what economists are supposed to say. I tell everyone who will listen that they should invest in index funds and then don’t check their balances. I explain that abnormal returns stem from abnormal information. Individuals are unlikely to have abnormal insight about publicly traded companies because other people have more time and resources to find that information. Further, even if a professional has abnormal insight, it’s not likely to persist over time. Index funds get around the problem of idiosyncratic risk and the brevity of abnormal insight by riding on the back of the more informed. I say all of this and I believe it in my heart.

I teach macroeconomics and I’ve published about asset volatility. I know more about inflation and the macroeconomy than the typical investor. From mid-2020 through now the S&P500 has gained 11.3% annually. My personal return has been 21% annually. It’s true, however, that the first half of 2022 was rough. But I can’t help but feel happy and confident.*

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Self-Conception, Relative Prices, & Confabulation

Zachary Bartsch7 Comments

We all like to think that we are individuals. We like to think that we grow and that our tastes develop and mature. We begin to appreciate different things in life, and among other behaviors, our spending habits change.

But what would you say if I told you that your maturing tastes didn’t cause your maturing consumption patterns? Indeed, what if it’s the other way around? Maybe, you’re just a bumbling ball bearing bouncing about and pinging off of various stimuli in a very predictable fashion. What if the prices that you face changed over the course of the past two decades, adjusting your optimal bundle of consumption, and then you contrived reasons for your new behavior in an elegant post-hoc fashion.

Have you *really* taken a liking to whole wheat bread and pasta over the past decade because your tastes have developed? Or maybe it’s because you found that scrumptious New York Times recipe that turned you away from potatoes and toward rice. Whether it’s a personal experience, a personal influence, or a personal development, we like to think about ourselves as complex organisms with a narrative that makes sense of the way in which we interact with the world.

On the other hand, we have price theory. Price theory still accepts that you are special and that you have preferences. Then, it asserts that your preferences remain fixed and that your changes in behavior are merely responses to changing costs and benefits that you perceive in the world. Maybe you’re not any more inclined to eat healthily than you were previously, but the price ratio of whole wheat bread to white bread is 10% less than it use to be. Maybe your east-Asian inspired recipe didn’t cause you to spurn potatoes, but instead the price ratio of rice to potatoes fell by 20%.   

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Twenty Years of Animal Protein Affordability

Zachary Bartsch2 Comments

Have you heard the hubbub about eggs? People say that they’re expensive. My wife told me that if she’s going to pay an arm and a leg, then she may as well get the organic, pasture raised eggs. Absolutely. That’s what the substitution effect predicts. As the price ratio of low-quality to high-quality eggs rises, we’re incentivized to consume more of the high-quality version. It has to do with opportunity costs.

Consider a world in which the low-quality eggs cost $2 and the high-quality eggs cost $6 per dozen. Every high-quality egg costs 3 low-quality eggs. You might still choose the high-quality option, but you know that you’re giving up a lot by doing so. Consider the current world where low-quality eggs are priced on par with high-quality eggs. Now, the opportunity cost of consuming the fancy, pasture-raised eggs has fallen. When consuming one high-quality egg costs you one low-quality egg, it’s much easier to opt for the high-quality version. You’re not giving up as much when you purchase it.

For vegetarians, the recent price swing has probably been rough. Not eating meat, they’re facing the price squeeze more so than their omnivorous counterparts. Through the magic of math, median wages, and average retail prices, the figure below charts the affordability of eggs and dairy products.* The median person has been facing falling egg affordability for two decades. Indeed, it’s only been the past few years, punctuated by the Covid crisis, that consumers experienced more affordable eggs.

Dairy products, however, have become much more affordable. The median American can now afford 50% more of their namesake cheese. Further, we can afford 20-25% more whole milk and cheddar cheese. So, the vegetarians are not so poorly off after all.

But how do meatier sources of protein compare?

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Renting From the Government?

Zachary Bartsch2 Comments

When I was younger, and a more disagreeable libertarian, I was staunchly against almost all taxes. And not just all taxes in general. Each type of tax was a specific affront to human dignity in its own egregious way.

  • Sales taxes represented government meddling in private contracts.
  • Income taxes represented government stealing people’s time.
  • Property tax represented that living on land was a privilege provided by the state landlord. Private property was a myth.

I won’t win the fight over whether the state governments should be spending money. But, given that we have to pay for services, I can definitely opine on the desirable and undesirable traits of one tax or another. Economists tend to like sales taxes because they encourage saving, investment, capital formation, and greater output. Maybe that’s a good idea. But it’s not clear to me that we should incentivize consumption tomorrow at the cost of consumption today.  There is no singular right answer to that tradeoff.

I would love to have a per-adult lump sum tax in which everyone pays the same dollar figure no matter what. I would also love to receive a million dollars – and that ain’t going to happen either. In lieu of a lump sum tax on people, I think that the next best thing is a lump sum tax on land. Each acre in a county can pay the same tax bill. On the margin, firms would economize on land and tend toward density. That would bring lots of agglomeration and economies of scale. Jeremy wrote recently about land taxes, which have a lot of proponents. I share the concerns about estimating land value and I think that it’s a non-trivial challenge.

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Itching to Change (Property Rights)

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I live in southwest Florida where it is quite tropical. We don’t have four seasons. We mark the passage of time with the rainy season for 8 months and the dry season for 4 months. We also mark time with ‘season’. Season is when the snow-birds – those who live in places further north – migrate to and occupy Florida for about 4-5 months. During those times the roads are more crowded and the grocery store customers are less friendly. We can also mark the passage of time with mosquitos. January has fewer mosquitos. The rest of the year we know not to go outside at dusk.

Therefore, we have the Collier Mosquito Control District. This little government entity does several things. But I want to focus on spraying. On some nights, more so during the rainy season, the CMCD flies airplanes and sprays our inland bodies of water that are susceptible to mosquito infestation. Let’s put aside for the moment any alleged negative human health effects that spraying might cause.

I want to talk about taxes.

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