Agricultural economist is criticized by Steven Payson in his book "Economics, Science and Technology" that, 'price per pound' is a variable with a strong historical precedence in agricultural economics. My first reaction is that Steven should be right about this assertion. I have not read many published papers in agricultural economics and applied economics where sort of measurement unit is used to digitalize (numerically) variables. But my experience tells me that, in general economic theoretical research, economists do not have to specify the unit of a variable after a standardization on everything (or simply with an assumption of unit as 1 at the beginning or by default). In this case, the objective of economic modelling and associated mathematical manipulation is to tell an economic logic or reasoning story (not necessarily an easy to understand answer). As long as the direction of specification (assumed economic relationship) is correct, then there is no need to worry about numbers. The potential issue of measurement error has been taken away in structural research, a skeleton without flesh never needs to worry about the issue of obesity, the probability is no larger than 0.
In agricultural economics, one of the biggest applied area of economics, research is dominated by empirical application of economic analysis. However, often time, the data employed by these research is not collected by researchers themselves (including agricultural economists in different research institutions and graduate students). People who collect the first hand data are usually people who are not supposed to do economic analysis (and they may not be interested in doing so). They are staffs in statistics bureaus, USDA extensions, marketing research companies and so on. They follow the tradition and associate every column of data with an unit as 'per pound', 'per gallon' or 'per acre'. By this way, they also find it is easy to communicate with people who actually work on farm daily. Economists barely bother to do field data collection-the input of research activity. So there is an inconsistency, the academic researchers try very hard to explore and understand the laws and mechanisms behind the economic activities of non-academia. When the data collectors proceed their job, however, there is a communication need to be considered as I mentioned above. The numbers and measures they are using have to be easy to understand for different people, almost all of them are not economists.
So when people outside of academia criticize the research output of economics, they do not always realize the difference between applied economics and theoretical economics. What usually happens is that, when there is a critique, theoretical economists tend to defend for entire economics. Why? because they are more famous than applied economists, and they won Nobel prizes, so people know them pretty well (at least better than they know about applied economists). When people get questions about their economic life, they come to theoretical economists for answers. But they barely know that relatively precise answer can and should only be provided (more or less, good or bad) by applied economists. And another important fact is that, theoretical economists are good at telling story and making arguments.
This inconsistency and the silence of applied economists make a big distinction between economics and natural science. In physics, for example, people know Bill Gates, Henry Ford, Thomas Edison very well. Why, because they are applied physicists (or engineers). However, when you ask people do you know any theoretical physicists? I am afraid they can only tell you Einstein, and the reason they know Einstein is not because they want to understand or they have already understood the Theory of Relativity. It is because that Einstein spent almost 1/3 of his life to make himself (or the Theory of Relativity) famous.
Therefore, what an applied economist should do is obvious. It is not trying to adjust or reduce your standard error of estimators, since you never get large enough sample size, and you never know how much is the measurement error involved in your data. What you should do is that, to start answering question from people who do not understand economics and people who are not interested in understanding economics. Do not let theoretical economists take your position and suppress you in a corner; it is too bad that is the case now, but you can change your silent status by speaking out. And do not always ask or even make up a question by yourself, and then answer it by yourself. That is what theoretical economists should do, do not take their position because you would have a more suitable and more pleasant position if you do something different and something more important.
Reference:
[1] "Economics, Science and Technology", by Steven Payson, pp.43, Edward Elgar, Cheltenham, UK.
Jan 29, 2011
Jan 8, 2011
Why did the chicken cross road?
Because it maximized his utility, this is the answer from Charles Wheelan and his Naked Economics.
Because he is forward-looking, I guess this is my answer. If one has chance to grow up in a traditional farm (either American style or non-American style), he or she may have a good observation on the behavior of a chicken. Can a chicken step back like other animals or a human being? I guess no. So when a chicken is searching for food (normally, this is the only utility maximization activity), he always searches forward and by chance he may cross the road under danger. This logic does not seem to make too much sense, but the point is that a chicken crosses the road by instinct. And mostly, the instinct of a chicken involves searching food and surviving from danger, which are all featured by his forward-looking behavior.
It can be argued that forward-looking behavior is common in the natural world. But we should bear in mind the fact that a chicken never rolls forward, and, a badger does this often time. It turns out rolling forward behavior is pretty efficient in the world of a badger's existence. Now let's ask the question again, why did the badger cross road? One possible answer is that he is constrained. Because when we build a road, we keep the slope of road from this side to another side minimized to prevent roll-over. Hence, there is no slope for him to roll forward, there is a physical constraint.Of course, this does not necessarily conflict with the possibility that his utility is maximized by doing this.
So for different animals, the answer to this question tends to be different and varies by their instinct and nature of their existence. How about human beings? We are the most organized animal on the earth. We have a very complicated society and hence we are called advanced animal by ourselves. When we are not self-sufficient (almost surely everyone in U.S. is not self-sufficient at least), we play a role in the market economy, where we exchange everything possible for different level of needs. And every of us in the market can be called a businessman or entrepreneur, the only difference comes from the scale of each one's business.
Again, the same question, why did the businessman/entrepreneur (potentially every of us) cross the road? Charles Wheelan answered the question this way: because he could make more money on the other side. I agree with him since utility of every of us (a market player) is highly correlated with money in different patterns or formats. Therefore, if an individual is not out of mind (for different reason, subjective or objective) at a specific moment, then he or she crosses the road for a purpose. And the purpose is somehow connected with money making or utility maximization.
My another question is that, in terms of economics study and research, can we really study the economic behavior of any individual beyond this highly organized human being society? Put other way, is economy a specialized word and only applicable in human being society? I tend to say yes, otherwise it is hard to differentiate instinct from utility maximizing behavior. And this may also be the reason why I get confused when I come across some parts of experimental economics, a new field of economics.
Reference:
1. Charles Wheelan, Naked Economics, 2002, New York, pp.8-11.
Because he is forward-looking, I guess this is my answer. If one has chance to grow up in a traditional farm (either American style or non-American style), he or she may have a good observation on the behavior of a chicken. Can a chicken step back like other animals or a human being? I guess no. So when a chicken is searching for food (normally, this is the only utility maximization activity), he always searches forward and by chance he may cross the road under danger. This logic does not seem to make too much sense, but the point is that a chicken crosses the road by instinct. And mostly, the instinct of a chicken involves searching food and surviving from danger, which are all featured by his forward-looking behavior.
It can be argued that forward-looking behavior is common in the natural world. But we should bear in mind the fact that a chicken never rolls forward, and, a badger does this often time. It turns out rolling forward behavior is pretty efficient in the world of a badger's existence. Now let's ask the question again, why did the badger cross road? One possible answer is that he is constrained. Because when we build a road, we keep the slope of road from this side to another side minimized to prevent roll-over. Hence, there is no slope for him to roll forward, there is a physical constraint.Of course, this does not necessarily conflict with the possibility that his utility is maximized by doing this.
So for different animals, the answer to this question tends to be different and varies by their instinct and nature of their existence. How about human beings? We are the most organized animal on the earth. We have a very complicated society and hence we are called advanced animal by ourselves. When we are not self-sufficient (almost surely everyone in U.S. is not self-sufficient at least), we play a role in the market economy, where we exchange everything possible for different level of needs. And every of us in the market can be called a businessman or entrepreneur, the only difference comes from the scale of each one's business.
Again, the same question, why did the businessman/entrepreneur (potentially every of us) cross the road? Charles Wheelan answered the question this way: because he could make more money on the other side. I agree with him since utility of every of us (a market player) is highly correlated with money in different patterns or formats. Therefore, if an individual is not out of mind (for different reason, subjective or objective) at a specific moment, then he or she crosses the road for a purpose. And the purpose is somehow connected with money making or utility maximization.
My another question is that, in terms of economics study and research, can we really study the economic behavior of any individual beyond this highly organized human being society? Put other way, is economy a specialized word and only applicable in human being society? I tend to say yes, otherwise it is hard to differentiate instinct from utility maximizing behavior. And this may also be the reason why I get confused when I come across some parts of experimental economics, a new field of economics.
Reference:
1. Charles Wheelan, Naked Economics
Jan 2, 2011
W-9 form and U.S. tax system
Recently, I run into a new thing, W-9 form. As a Ph.D student, I only need to file a W-4 form. However, following my first guess, I have to say that W-9 form is a very confused form in the U.S. tax system as long as a non-citizen person is involved, this is why I wanna talk about it. Hopefully I can get it clear while I have to doubt about my capability of doing that, because even Albert Einstein said: "The hardest thing in the world to understand is the income tax". So what can I do with it, well, at least I can try, at least this is 21th century.
So, what does W-9 form mean? An IRS form, also known as "Request for Taxpayer Identification Number and Certification", which is used by an individual defined as a "U.S. person" (see notes below) or a resident alien to verify his or her taxpayer identification number (TIN). An entity that is required to file an information return with the IRS must obtain your correct TIN to report, for example, income paid to you, real estate transactions, mortgage interest you paid, etc. For example, companies that issue dividends use the W-9 form to verify a shareholder's TIN. An client or company will use the information collected on the W-9, or substitute W-9, to produce a Form 1099 which details the earnings that the independent contractor received from that client that tax year. The Form 1099 is sent to both the independent contractor and the IRS; some states may also require a separate mailing of the 1099 as well.
In brief, if you are requested by a company or institution (for example, a research institute like NBER) to file a W-9 form, which basically means you receive payment from them no matter what is the reason of this payment. And when this payment is issued to you, they do not withhold tax in an usual way (usually your main employer withholds tax on your paycheck for IRS via payroll system regularly, e.g. monthly or biweekly). Put another way, these payments have not gone through tax deduction, and you have to report these income to IRS when you do your tax return. I can think of two possible reasons for a company or institution doing this. First, the payment they issue to you does not follow a consistent and continuous fashion, then it is hard to management it via a payroll system. Second, the amount of these kinds of payment has a very large variation, but generally is very small amount, like 5-50 dollars; so it is not efficient to invest human resources to manage tax on these payments. Of course, there also could be some regulatory reason for this, and I am not patient enough to figure it out.
Now, we can see the difference between W-9 and W-4. Unlike the Form W-4, which employees use to authorize an automatic tax withholding from their paychecks (via a payroll system, and done by their employers), the W-9 does not withhold taxes or social security payments. Individuals or entities are solely liable for the full amount of taxes assessed to earned income. In some cases (for example, small business like individual contractors or designers), you are typically required to submit quarterly estimated tax payments to the IRS and possibly your state tax board as well. But in most of cases, you can report it yearly when you do the tax return I guess.
So, why we are doing business in such an inefficient way? why the companies and institutions who pay us just do not simply report the payment to IRS? Fortunately or unfortunately, we have lots of law, and one of them has something to do with this: Even though employees are legally required to provide certain personal information to their employers, an employee's privacy is protected by law. An employer that discloses an employee's personal information in any unauthorized way may be subjected to civil and criminal prosecution.
So far we know some basics about W-9 form, then for a student like me what should be known about it and how to proceed with it? An usual question, and I have a simple semi-official answer for you. According to payroll service of University of Southern California:
Form W-9 is a tax document which declares you to be a "resident alien for tax purposes." Filing a W-9 has two immediate consequences:
1. It negates all tax treaty protections and provisions.
2. It gives you more options in what you want to claim on your W-4 (any marital status, number of allowances, or "exempt").
Generally, you should file a W-9 only after you have been in the U.S. for at least the periods of time noted for the following visa types, and then only if you feel it is appropriate:
F-1, J-1 Student After 5 years in the U.S.
J-1 Scholar After 2 years in the U.S.
H-1 After 183 days in the U.S.
The University cannot give advice on whether or not you should file a W-9; however be aware that you are responsible for all potential consequences if you decide to claim residence in the U.S.
I am still interested in getting another semi-official answer from my employer, Penn State University. We will see how it goes. Back to the beginning, anyway, please notice that this is just a tip of the iceberg. How complicated the U.S. tax system can be? I am not sure there is anyone who can answer this question. But I can give you some rough numbers. In a 2004 press release the IRS stated they have around 116,675 full time employees. The IRS has a budget of $11.1 billion to hire additional workers be its part time or full time employees. According to an IRS report titled "Workforce of Tomorrow Task Force: Final Report August, 2009" the IRS has 88,203 full-time employees. This number is derived from a chart on page 7 of the report that shows the age breakdown of full-time IRS employees. Adding the numbers up comes to the 88,203 figure. At the end of the report one of the summary pages mentions the IRS 100,000 employee workforce. Obviously this number is an estimate off all full and part-time employees.
So roughly 100,000 people work for IRS every business day every year, how can you live in United States without paying taxes? That is something almost surely impossible! Do you know how many people work for Google? 23,331 (2010, worldwide, not U.S. only). Do you know how many people working for Microsoft? 89,000 (2010, worldwide, not U.S. only). It seems IRS is the biggest money-seeking organization in U.S.
I have also realized that recently, lots of people have proposed to reform U.S. tax system. Let's know about it a little bit, so we can watch our pocket. How about starting with this one:
Taxing Ourselves, 4th Edition: A Citizen's Guide to the Debate over Taxes, Joel Slemrod & Jon Bakija.
---------------------
Notes: U.S. Person
A "U.S. person" is a citizen of United States, a lawful permanent resident alien of the US, (a "Green Card" holder), a refugee or someone here as a protected political asylee or under amnesty. US persons also include organizations and entities, such as universities, incorporated in the US. The general rule is that only US persons are eligible to receive controlled items, software or information without first obtaining an export license from the appropriate agency unless a license exception or exclusion is available.
A "foreign person" is anyone who is not a US person. A foreign person also means any foreign corporation, business association, partnership or any other entity or group that is not incorporated to do business in the US. Foreign persons may include international organizations, foreign governments and any agency or subdivision of foreign governments such as consulates.
Reference:
1. http://www.wisegeek.com/what-is-a-form-w-9.htm
2. http://www.investopedia.com/terms/w/w9form.asp
3. http://ais-ss.usc.edu/empldoc/faq/faq4.html#7
4. http://en.wikipedia.org/wiki/Microsoft
5. http://en.wikipedia.org/wiki/Google
6. http://rph.stanford.edu/10-2.html
So, what does W-9 form mean? An IRS form, also known as "Request for Taxpayer Identification Number and Certification", which is used by an individual defined as a "U.S. person" (see notes below) or a resident alien to verify his or her taxpayer identification number (TIN). An entity that is required to file an information return with the IRS must obtain your correct TIN to report, for example, income paid to you, real estate transactions, mortgage interest you paid, etc. For example, companies that issue dividends use the W-9 form to verify a shareholder's TIN. An client or company will use the information collected on the W-9, or substitute W-9, to produce a Form 1099 which details the earnings that the independent contractor received from that client that tax year. The Form 1099 is sent to both the independent contractor and the IRS; some states may also require a separate mailing of the 1099 as well.
In brief, if you are requested by a company or institution (for example, a research institute like NBER) to file a W-9 form, which basically means you receive payment from them no matter what is the reason of this payment. And when this payment is issued to you, they do not withhold tax in an usual way (usually your main employer withholds tax on your paycheck for IRS via payroll system regularly, e.g. monthly or biweekly). Put another way, these payments have not gone through tax deduction, and you have to report these income to IRS when you do your tax return. I can think of two possible reasons for a company or institution doing this. First, the payment they issue to you does not follow a consistent and continuous fashion, then it is hard to management it via a payroll system. Second, the amount of these kinds of payment has a very large variation, but generally is very small amount, like 5-50 dollars; so it is not efficient to invest human resources to manage tax on these payments. Of course, there also could be some regulatory reason for this, and I am not patient enough to figure it out.
Now, we can see the difference between W-9 and W-4. Unlike the Form W-4, which employees use to authorize an automatic tax withholding from their paychecks (via a payroll system, and done by their employers), the W-9 does not withhold taxes or social security payments. Individuals or entities are solely liable for the full amount of taxes assessed to earned income. In some cases (for example, small business like individual contractors or designers), you are typically required to submit quarterly estimated tax payments to the IRS and possibly your state tax board as well. But in most of cases, you can report it yearly when you do the tax return I guess.
So, why we are doing business in such an inefficient way? why the companies and institutions who pay us just do not simply report the payment to IRS? Fortunately or unfortunately, we have lots of law, and one of them has something to do with this: Even though employees are legally required to provide certain personal information to their employers, an employee's privacy is protected by law. An employer that discloses an employee's personal information in any unauthorized way may be subjected to civil and criminal prosecution.
So far we know some basics about W-9 form, then for a student like me what should be known about it and how to proceed with it? An usual question, and I have a simple semi-official answer for you. According to payroll service of University of Southern California:
Form W-9 is a tax document which declares you to be a "resident alien for tax purposes." Filing a W-9 has two immediate consequences:
1. It negates all tax treaty protections and provisions.
2. It gives you more options in what you want to claim on your W-4 (any marital status, number of allowances, or "exempt").
Generally, you should file a W-9 only after you have been in the U.S. for at least the periods of time noted for the following visa types, and then only if you feel it is appropriate:
F-1, J-1 Student After 5 years in the U.S.
J-1 Scholar After 2 years in the U.S.
H-1 After 183 days in the U.S.
The University cannot give advice on whether or not you should file a W-9; however be aware that you are responsible for all potential consequences if you decide to claim residence in the U.S.
I am still interested in getting another semi-official answer from my employer, Penn State University. We will see how it goes. Back to the beginning, anyway, please notice that this is just a tip of the iceberg. How complicated the U.S. tax system can be? I am not sure there is anyone who can answer this question. But I can give you some rough numbers. In a 2004 press release the IRS stated they have around 116,675 full time employees. The IRS has a budget of $11.1 billion to hire additional workers be its part time or full time employees. According to an IRS report titled "Workforce of Tomorrow Task Force: Final Report August, 2009" the IRS has 88,203 full-time employees. This number is derived from a chart on page 7 of the report that shows the age breakdown of full-time IRS employees. Adding the numbers up comes to the 88,203 figure. At the end of the report one of the summary pages mentions the IRS 100,000 employee workforce. Obviously this number is an estimate off all full and part-time employees.
So roughly 100,000 people work for IRS every business day every year, how can you live in United States without paying taxes? That is something almost surely impossible! Do you know how many people work for Google? 23,331 (2010, worldwide, not U.S. only). Do you know how many people working for Microsoft? 89,000 (2010, worldwide, not U.S. only). It seems IRS is the biggest money-seeking organization in U.S.
I have also realized that recently, lots of people have proposed to reform U.S. tax system. Let's know about it a little bit, so we can watch our pocket. How about starting with this one:
Taxing Ourselves, 4th Edition: A Citizen's Guide to the Debate over Taxes, Joel Slemrod & Jon Bakija.
---------------------
Notes: U.S. Person
A "U.S. person" is a citizen of United States, a lawful permanent resident alien of the US, (a "Green Card" holder), a refugee or someone here as a protected political asylee or under amnesty. US persons also include organizations and entities, such as universities, incorporated in the US. The general rule is that only US persons are eligible to receive controlled items, software or information without first obtaining an export license from the appropriate agency unless a license exception or exclusion is available.
A "foreign person" is anyone who is not a US person. A foreign person also means any foreign corporation, business association, partnership or any other entity or group that is not incorporated to do business in the US. Foreign persons may include international organizations, foreign governments and any agency or subdivision of foreign governments such as consulates.
Reference:
1. http://www.wisegeek.com/what-is-a-form-w-9.htm
2. http://www.investopedia.com/terms/w/w9form.asp
3. http://ais-ss.usc.edu/empldoc/faq/faq4.html#7
4. http://en.wikipedia.org/wiki/Microsoft
5. http://en.wikipedia.org/wiki/Google
6. http://rph.stanford.edu/10-2.html
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