Benjamin Studebaker

Yet Another Attempt to Make the World a Better Place by Writing Things

Tag: Wage Stickiness

Oregon’s College Funding Scheme

In the state of Oregon a new mechanism for funding university studies has been proposed. The scheme is called “Pay It Forward“. The idea is that instead of charging students tuition to go to universities, the state will fund their education and then extract payment after the degree is finished as a percentage of their income. For a student with a bachelor’s degree, the expected repayment would be 3% of income for the following 20 years. This presents a very different alternative to the university funding system presently in force throughout the United States, so let’s dissect it. Would Pay It Forward make Oregon’s university system better than it presently is? Is it the ideal alternative, and if not, in what respects does it differ from that ideal?

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The Mother of All Output Gaps

There’s an interesting assumption going on behind the estimation of the output gaps (the difference between the economy’s current output and the economy’s estimated maximum potential output)–that not only did the economy decline during the recent crisis, but that the economy’s potential declined as well. This assumption leads to governments believing that their economies are less capable than perhaps they are, that the output gaps are not especially large, and that there is little revenue to be raised to offset stimulus spending, but what if it is not true? The idea comes from Capital Economics, a macroeconomics research company, has received attention from the Financial Times and Paul Krugman, and now it will receive attention from me as today’s topic.

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