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[Assistant] Okay, you consume less today. By definition, if the price of something goes up, the substance effect always says you do less of it. You consume less today, which means you'll save more. Remember, savings


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[Assistant] Savings is just income minus consumption period one. So if we solve for consumption period one, we get savings.


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[Assistant] People see that? Now, so basically, the point here is the substitution effect says, well gee, the price of consumption period one just went up.


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[Assistant] It's more costly in terms of future consumption. I'm gonna do less, but there my savings is gonna go up. Substitution effect says you save more.


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[Assistant] But the Ingham effect says, wait a second, you're now richer.


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[Assistant] Every dollar of your savings you were doing now yields twice as much in interest.


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[Assistant] If you're richer, you'll consume more of everything, including period one consumption. Syndrome effect takes you back the other way.


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[Assistant] Now whether you think of effect dominates or not, we don't know. In this case, it doesn't dominate. In this case, you still on net end up consuming less in period one and saving more. But we don't know what's gonna dominate.


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[Assistant] Okay? And in fact, the evidence here is incredibly weak. I won't spend a long time on the evidence because it's not nearly as interesting and strong as labor supply. The evidence is incredibly weak even about the sign.


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[Assistant] And let's come to the intuition that was given for why. Well think about your, your, think about how people make savings decisions. Lots of people have savings goals. I want to have X by the time I retire.


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[Assistant] Typical way, if you ask people about their savings, if you ask them, they typically say, I want to make sure I have X in the bank in case I'm in an accident. I want to make sure I have Y by the time I retire.


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[Assistant] Well in those models, if the interest rate goes up, savings rates go down.


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[Assistant] Because after all, to hit a target with a higher interest rate, I can save less.


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[Assistant] So it's actually not that surprising that you'd have a higher rate leading to less savings. It's kind of intuitive actually. If people have savings targets, a higher rate leads to less savings so they can get to their target more easily.


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[Assistant] So actually we don't even know which way this goes. It's one, I think one of the great unsolved mysteries in economics empirically. Is we, we, once again, we typically assume


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[Assistant] And with a gun to my head, I would sort of say it's probably true. The higher straight leads to more savings. But the evidence on which that rests is pretty weak. Okay? And the key point for you is to understand it's uncertain. And it depends on whether income and substitution effects dominate. Questions about that?


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[Assistant] Okay, so now let's step back and put it all together and think about you making your, like, decision about life. You could think about your decisions about your life in sort of three steps. Okay? Step one is you decide how hard to work.


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[Assistant] Okay? Step one is you decide, how much money do I want to make?


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[Assistant] Well that's about maximizing utility over consumption and leisure.


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[Assistant] Step two is having decided how much you're going to make, and that yields your labor.


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[Assistant] How much do I consume today versus tomorrow? Well that's about a temporal choice. That's about deciding on C1 versus C2. And that's going to yield your savings.


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[Assistant] Step three is, now that I know how much I'm going to consume each period, now I want to maximize utility across all my goods I might want to consume, x2, across all the goods I want to consume. That was our original cookies and pizza example.


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[Assistant] So you can think of it as sort of a hierarchical set of consumer optimization problems that you're going to solve.


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[Assistant] Now, you might say, well gee, John, that's sort of confusing because, in fact, the interest rate and how much I get out of my savings could determine how hard I work.


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[Assistant] Right? Let's say the interest rate goes way up, and I have a savings target. I have to work less hard to hit that savings target. And I'd say to you, good for you, take more advanced economics.


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[Assistant] More advanced economics we recognize as one integrated whole and we allow these systems to affect each other.


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[Assistant] Okay. But for here, just thinking of the separate separatable steps.


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[Assistant] Okay, independent steps. But in practice, I hope you can see the steps will be integrated and they'll affect each other.


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[Assistant] Okay, think of it, if the price of a good you really want to buy goes up a lot,


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[Assistant] Not only will you buy less of that good, you might save more to buy it and work harder. So you can imagine how these things are integrated, but for now we'll keep them separable. Okay? Question about that.


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[Assistant] Okay, next time we're gonna come back and talk about all the interesting stuff in capital markets and how we make decisions about how much to save and things like that.


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[Assistant] Ah, Peter I presume. Harry talks about you frequently. So nice to meet you.


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[Assistant] With the population growing and the climate changing unpredictably, we need to adapt more quickly than nature normally would.


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[Assistant] Genetic recombination can customize crops to best meet these new challenges, be it extreme weather or an increase in pests.


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[Assistant] The idea is to tweak a plant's genes to maximize optimal qualities. For instance, a plant that can thrive in drought conditions. In our simulation, the goal is to maximize growth. Why don't you practice on this?


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[Assistant] We're on track to end world hunger by 2035. Wow.


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[Assistant] I knew a rooftop you could use for a real world test if you're interested. Oh, very much so. Harry was right. You'll be a real asset here.


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[Assistant] Hunters and scorpions and explosions, oh my. So I'm opposed to the new guy story.


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[Assistant] Pete? You look tense. Coffee?


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[Assistant] Must get hired making the world a better place every single day.


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[Assistant] For months I've been trying to be something I'm not.


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[Assistant] Chapter 2 Sherlock Holmes Discourses


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[Assistant] It was one of those dramatic moments for which my friend existed.


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[Assistant] It would be an overstatement to say that he was shocked or even excited by the amazing announcement.


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[Assistant] He was undoubtedly callous from long overstimulation.


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[Assistant] Yet if his emotions were dulled, his intellectual perceptions were exceedingly active.


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[Assistant] There was no trace then of the horror which I had myself felt at this curt declaration.


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[Assistant] But his face showed rather the quiet and interested composure of the chemist, who sees the crystals falling into position from his over-saturated solution. Remarkable, said he. Remarkable. You don't seem surprised. Interested, Mr. Mack, but hardly surprised.


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[Assistant] Why should I be surprised? I receive an anonymous communication from a quarter which I know to be important.


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[Assistant] Warning me that danger threatens a certain person.


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[Assistant] Within an hour I learn that this danger has actually materialised, and that the person is dead.


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[Assistant] I am interested, but as you observe I am not surprised.


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[Assistant] In a few short sentences he explained to the inspector the facts about the letter and the cipher.


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[Assistant] McDonald sat with his chin on his hands, and his great sandy eyebrows bunched into a yellow tangle.


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[Assistant] I was going down to Burlstone this morning," said he. I'd come to ask you if you cared to come with me—you and your friend here.


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[Assistant] Hang it all, Mr. Holmes," cried the inspector. The papers will be full of the Burlston mystery in a day or two. But where's the mystery if there's a man in London who prophesied the crime before ever it occurred?


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[Assistant] But how do you propose to lay your hands on the so-called Porlock?" Macdonald turned over the letter which Holmes had handed him. Posted in Camberwell. That doesn't help as much. Name, you say, is assumed. Not much to go on, certainly. Didn't you say that you sent him money? Twice. And how? In notes to Camberwell Post Office. Did you ever trouble to see who called for them?


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[Assistant] The inspector looked surprised and a little shocked. Why not?


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[Assistant] Because I always keep faith. I had promised when he first wrote that I would not try to trace him. You think there's someone behind him. I know there is. This professor that I've heard you mention. Exactly.


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[Assistant] Inspector MacDonald smiled and his eyelid quivered as he glanced towards me.


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[Assistant] I won't conceal from you, Mr. Holmes, that we think in the CID that you have a wee bit of a bee in your bonnet over this Professor.


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[Assistant] I made some inquiries myself about the matter. He seems to be a very respectable, learned, and talented sort of man. I am glad you have got so far as to recognize the talent.


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[Assistant] Man, you can't but recognise it after I heard your view. I made it my business to see him. I had a chat with him on eclipses. How the talk got that way, I cannot think.


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[Assistant] But he had out a reflector lantern and a globe, and he made it all clear in a minute.


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[Assistant] He lent me a book, but I don't mind saying that it was a bit above my head, though I had a good Aberdeen upbringing.


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[Assistant] He had made a grand minister with his thin face and grey hair and solemn-like way of talking. When he put his hand on my shoulder, as we were parting, it was like a father's blessing before you go out into the cold, cruel world." Holmes chuckled and rubbed his hands.


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[Assistant] Tell me, friend MacDonald, this pleasing and touching interview was, I suppose, in the Professor's study. That's so. A fine room, is it not?


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[Assistant] Very fine, very handsome indeed, Mr. Holmes. You sat in front of his writing desk? Just so. Sun in your eyes and his face in the shadow?


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[Assistant] Well, it was evening, but amine that the lamp was turned on my face.


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[Assistant] It would be. Did you happen to observe a picture over the Professor's head?


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[Assistant] I don't miss much, Mr. Holmes. Maybe I learned that from you. Yes, I saw the picture. A young woman with her head on her hands, peeping at you sideways. That painting was by Jean-Baptiste Greuze. The inspector endeavoured to look interested.


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[Assistant] Jean Baptiste Greuze, Holmes continued, joining his fingertips and leaning well back in his chair.


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[Assistant] Was a French artist who flourished between the years 1750 and 1800. I allude, of course, to his working career.


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[Assistant] Modern criticism has more than endorsed the high opinion formed of him by his contemporaries. The inspector's eyes grew abstracted. Hadn't we better—he said. We are doing so, Holmes interrupted.


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[Assistant] All that I am saying has a very direct and vital bearing upon what you have called the Burlstone Mystery.


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[Assistant] In fact, it may in a sense be called the very centre of it.


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[Assistant] You leave out a link or two, and I can't get over the gap.


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[Assistant] What in the whole wide world can be the connection between this dead painting-man and the affair


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[Assistant] All knowledge comes useful to the detective, remarked Holmes.


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[Assistant] Even the trivial fact that in the year 1865 a picture by Greuze entitled La jeune fille à la nuo fetched one million two hundred thousand francs, more than forty thousand pounds, at the Portales sale may start a train of reflection in your mind. It was clear that it did. The inspector looked honestly interested. I may remind you, Holmes continued,


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[Assistant] That the professor's salary can be ascertained in several trustworthy books of reference. It is seven hundred a year. How could he buy? Quite so. How could he?


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[Assistant] Aye, that's remarkable," said the inspector thoughtfully. Talk away, Mr. Holmes. I'm just loving it. It's fine. Holmes smiled.


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[Assistant] We've time yet, said the inspector, glancing at his watch.


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[Assistant] I have a cab at the door, and it won't take us twenty minutes to Victoria. But about this picture.


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[Assistant] I thought you told me once, Mr. Holmes, that you had never met Professor Moriarty. No, I never have. And how do you know about his rooms?


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[Assistant] Ah, that's another matter. I have been three times in his rooms, twice waiting for him under different pretexts and leaving before he came.


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[Assistant] Once, well, I can hardly tell about the once to an official detective.


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[Assistant] It was on the last occasion that I took the liberty of running over his papers with the most unexpected results. You found something compromising? Absolutely nothing. That was what amazed me. However, you have now seen the point of the picture. It shows him to be a very wealthy man. How did he acquire wealth?


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[Assistant] He is unmarried, his younger brother is a station-master in the west of England, his chair is worth seven hundred a year, and he owns a Greuse. Well, surely the inference is plain.


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[Assistant] You mean that he has a great income, and that he must earn it in an illegal fashion? Exactly. Of course, I have other reasons for thinking so. Dozens of exiguous threads which lead vaguely up towards the centre of the web where the poisonous, motionless creature is lurking.


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[Assistant] I only mention the Greuse because it brings the matter within the range of your own observation.


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[Assistant] Well, Mr. Holmes, I admit that what you say is interesting. It's more than interesting, it's just wonderful.


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[Assistant] Let us have it a little clearer if you can. Is it forgery, coining, burglary? Where does the money come from? Have you ever read of Jonathan Wilde? Well, the name has a familiar sound. Someone in a novel, was he not?


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[Assistant] I don't take much stock of detectives in novels. Chaps that do things and never let you see how they do them. That's just inspiration, not business. Jonathan Wilde wasn't a detective, and he wasn't in a novel. He was a master criminal, and he lived last century, 1750 or thereabouts.


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[Assistant] The most practical thing that you ever did in your life would be to shut yourself up for three months and read twelve hours a day at the annals of crime.


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[Assistant] Everything comes in circles, even Professor Moriarty.


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[Assistant] Jonathan Wilde was the hidden force of the London criminals, to whom he sold his brains and his organisation on a fifteen percent commission. The old wheel turns, and the same spoke comes up. It's all been done before, and will be again.


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[Assistant] I'll tell you one or two things about Moriarty which may interest you. You'll interest me right enough.


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[Assistant] I happen to know who is the first link in his chain. A chain with this Napoleon gone wrong at one end, and a hundred broken fighting men, pickpockets, blackmailers, and card sharpers at the other, with every sort of crime in between.


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[Assistant] His Chief of Staff is Colonel Sebastian Moran.


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[Assistant] As aloof and guarded and inaccessible to the law as himself. What do you think he pays him? I'd like to hear. Six thousand a year. That's paying for brains. You see, the American business principle. I learned that detail quite by chance. It's more than the Prime Minister gets.


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[Assistant] That gives you an idea of Moriarty's gains and of the scale on which he works.


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[Assistant] Another point. I made it my business to hunt down some of Moriarty's cheques lately.


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[Assistant] Just common innocent cheques that he pays his household bills with. They were drawn on six different banks. Does that make any impression on your mind? Queer, certainly. But what you gather from it? That he wanted no gossip about his wealth. No single man should know what he had.


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[Assistant] I have no doubt that he has twenty banking accounts, the bulk of his fortune abroad in the Deutsche Bank or the Crédit Lyonnais, as likely as not.


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[Assistant] Sometime, when you have a year or two to spare, I commend to you the study of Professor Moriarty.


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[Assistant] Inspector MacDonald had grown steadily more impressed as the conversation proceeded. He had lost himself in his interest.


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[Assistant] Now his practical Scotch intelligence brought him back with a snap to the matter in hand.


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[Assistant] He can keep anyhow," said he. You've got us side-tracked with your interesting anecdotes, Mr. Holmes. What really counts is your remark that there is some connection between the Professor and the crime.


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[Assistant] That you get from the warning received through the man Porlock.


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[Assistant] Can we for our present practical needs get any further than that?


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[Assistant] We may form some conception as to the motives of the crime. It is, as I gather from your original remarks, an inexplicable or at least an unexplained murder.


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[Assistant] Now, presuming that the source of the crime is as we suspect it to be, there might be two different motives. In the first place, I may tell you that Moriarty rules with a rod of iron over his people. His discipline is tremendous. There is only one punishment in his code. It is death.


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[Assistant] Now we might suppose that this murdered man, this Douglas, whose approaching fate was known by one of the arch-criminal's subordinates, had in some way betrayed the chief.


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[Assistant] His punishment followed and would be known to all, if only to put the fear of death into them. Well, that is one suggestion, Mr Holmes.


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[Assistant] The other is that it has been engineered by Moriarty in the ordinary course of business. Was there any robbery? I have not heard. If so, it would of course be against the first hypothesis and in favour of the second.


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[Assistant] Moriarty may have been engaged to engineer it on a promise of part spoils, or he may have been paid so much down to manage it. Either is possible.


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[Assistant] But whichever it may be, or if it is some third combination, it is down at Burlston that we must seek the solution.


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[Assistant] I know our man too well to suppose that he has left anything up here which may lead us to him.


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[Assistant] Then to Burlstone we must go," cried Macdonald, jumping from his chair. My word! It's later than I thought. I can give you gentlemen five minutes for preparation, and that is all.


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[Assistant] And ample for us both, said Holmes, as he sprang up and hastened to change from his dressing-gown to his coat.


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[Assistant] While we are on our way, Mr. Mac, I will ask you to be good enough to tell me all about it.


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[Assistant] All about it proved to be disappointingly little.


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[Assistant] And yet there was enough to assure us that the case before us might well be worthy of the expert's closest attention.


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[Assistant] He brightened and rubbed his thin hands together as he listened to the meagre but remarkable details.


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[Assistant] A long series of sterile weeks lay behind us, and here at last there was a fitting object for those remarkable powers which, like all special gifts, become irksome to their owner when they are not in use—that razor-brain blunted and rusted within action.


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[Assistant] Sherlock Holmes' eyes glistened, his pale cheeks took a warmer hue, and his whole eager face shone with an inward light when the call for work reached him.


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[Assistant] Leaning forward in the cab, he listened intently to MacDonald's short sketch of the problem which awaited us in Sussex.


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[Assistant] The inspector was himself dependent, as he explained to us, upon a scribbled account forward to him by the milk train in the early hours of the morning.


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[Assistant] White Mason. The local officer was a personal friend.


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[Assistant] And hence MacDonald had been notified much more promptly than is usual at Scotland Yard, when provincials need their assistance.


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[Assistant] It is a very cold scent upon which the metropolitan expert is generally asked to run.


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[Assistant] Dear Inspector MacDonald, said the letter which he read to us. Official requisition for your services is in separate envelope. This is for your private eye.


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[Assistant] Wire me what train in the morning you can get for Burlston, and I will meet it. Or have it met if I am too occupied. This case is a snorter. Don't waste a moment in getting started. If you can bring Mr. Holmes, please do so, for he will find something after his own heart.


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[Assistant] We would think the hole had been fixed up for theatrical effect, if there wasn't a dead man in the middle of it. My word, it is a snorter."


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[Assistant] No sir, White Mason is a very live man if I'm any judge. Well, have you anything more? Only that he'll give us every detail when we meet.


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[Assistant] Then how did you get at Mr. Douglas and the fact that he had been horribly murdered?


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[Assistant] That was in the enclosed official report. It didn't say horrible. That's not a recognized official term.


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[Assistant] It gave the name John Douglas. It mentioned that his injuries had been in the head from the discharge of a shotgun.


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[Assistant] It also mentioned the hour of the alarm which was close on to midnight last night.


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[Assistant] It added that the case was undoubtedly one of murder, but that no arrests had been made.


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[Assistant] That the case was one which presented some very perplexing and extraordinary features. That's absolutely all we have at present, Mr Holmes. Then, with your permission, we will leave it at that, Mr Mack.


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[Assistant] The temptation to form premature theories upon insufficient data is the bane of our profession.


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[Assistant] I can see only two things for certain at present. A great brain in London, and a dead man in Sussex. It's the chain between that we are going to trace. End of chapter 2


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[Assistant] Oh. How was your visit with Harry?


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[Assistant] Fine. I leave that it's over. Ashamed at what I did.


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[Assistant] That's the story I was telling you about. I wanted to get your thoughts. Looks amazing, MJ. Can't wait to read it.


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[Assistant] So today we're going to continue our discussion of equity and efficiency. We started last time talking about the equity efficiency trade off.


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[Assistant] Well first we talked about why we think redistribution might be necessary in the striking facts on inequality and poverty in the U.S.


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[Assistant] Then we talked about the trade-off, the equity efficiency trade-off and the fact that when you try to deal with a problem like redistribution through taxation or transfers, you're going to have a leaky bucket.


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[Assistant] That there's gonna be inefficiencies associated with both taxing individuals to raise the money and transferring to individuals to spend the money. Are both gonna cause deadweight loss.


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[Assistant] So what I want to do today is take that abstract framework from last time, put it in some real terms.


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[Assistant] By talking first about how taxation works in the US and the kind of issues we face in taxing people.


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[Assistant] And when I talk about taxation, I want to talk about two topics primarily. The first topic is who bears taxes.


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[Assistant] This is a topic that we call in public finance, the field I specialize in, the topic of tax incidents.


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[Assistant] Now you might think this is sort of a silly question. I mean, if you pay tax, you bear the tax. Why is this an interesting question? And the answer is, it's an interesting question because it's not true that the person that bears the tax pays the tax. That in fact, when you impose taxes, they have complicated effects on multiple parties because of the operation of the market.


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[Assistant] Okay, so as a result, the party that actually sends the check to the government may not actually bear all that tax.


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[Assistant] And so that's sort of the interesting insight we'll start with today. So to think about that, let's go to figure 22-1. And let's think about a tax, the market for gasoline. Okay, you've got demand and supply.


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[Assistant] You've got an initial 100 billion gallons of gas being sold at a price of 150. Those were the days. Back when gas was 150. Okay? Now.


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[Assistant] Imagine the government comes in and says, we're going to levy a 50 cent tax per gallon on the suppliers of gasoline. So the gas stations or the gas companies or whatever, for every gallon they sell,


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[Assistant] They will send us 50 cents. You'll literally cut a check to go on 50 cents for every gallon you sell.


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[Assistant] What does that do? And you might stop there and say, okay, well,


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[Assistant] Then the incidence of that tax is, that tax is borne by producers. That's great. I don't have to worry about it. I'm buying gas. It's those guys selling gas stuff to bear it.


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[Assistant] But you'd be wrong. And the reason you'd be wrong is shown in the right hand side diagram. Which is to think through the market effect of such intervention.


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[Assistant] What does the differential do? Well, it has no effect of the demand for gas. Okay, the fundamental demand curve. Your underlying utility of the marginal gallon of gas hasn't changed. But it has changed the supply curve. Because essentially we've introduced a new marginal cost. The marginal cost of gas has gone up by 50 cents a gallon.


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[Assistant] Every gallon of gas you produce and sell now bears an extra 50 cent cost.


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[Assistant] So that's a shift upward of the supply curve. The supply curve is the marginal cost curve. So if I increase the marginal cost of every gallon by 50 cents, that's literally just a parallel shift upwards in the supply curve. So the supply curve shifts from S1 to S2. That's the new supply curve. Well, at that new supply curve,


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[Assistant] You cannot continue to charge the old price. If you can charge the old price of a dollar 50.


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[Assistant] People would still want to buy 100 billion gallons of gas, but companies would only want to sell 80 billion gallons. Why? Because the marginal cost has gone up.


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[Assistant] And we have an upward sloping supply curve, so at a higher marginal cost, they're going to want to sell fewer gallons. Okay? So you have a disequilibrium.


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[Assistant] What happens is that the gas company adjusts by sliding up the supply curve to the new equilibrium point D.


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[Assistant] Where they sell 90 billion gallons at a new price of $1.80.


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[Assistant] What's interesting here is to note that what this means is that part of the tax is born by consumers.


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[Assistant] Okay, part of the tax is borne by consumers. What I mean by that, what I mean is consumers used to pay $1.50 a gallon, and now they pay $1.80 a gallon.


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[Assistant] So the tax has increased what they pay by 30 cents a gallon. Now they're not sending that check to the government, but it's the same thing. It's the same effect.


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[Assistant] The point is this tax has increased the amount that consumers pay for gas by 30 cents a gallon. So the incidents on consumers


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[Assistant] Is a little more complicated. They now get $1.80 per gallon, right? That's great.


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[Assistant] But for every gallon they sell, they have to send a 50 cent check to the government. So their net price per gallon is $1.30. So we can see that by taking the new price at point D and subtracting off the 50 cent tax they have to pay.


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[Assistant] Okay, which, which now, which says that instead of a dollar eighty, they get a dollar thirty. We call that the tax wedge. The tax wedge is the difference between


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[Assistant] What, what people get before they pay the tax and what they get after paying the tax. That's the tax wedge. We have a 50 cent tax wedge here.


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[Assistant] Okay, and so what is the burden of the tax on producers? Well, they used to get $1.50 a gallon.


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[Assistant] Now they get a dollar eighty, but pay fifty cents to the government. So the burden on the producers is twenty cents.


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[Assistant] Okay, so even though the producers are sending the check to the government, the gas stations, the gas companies send the check to the government, they actually pay less than half the tax.


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[Assistant] Now, normally they pay the 50 cents, but we don't care about that.


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[Assistant] We just came out where they end up after the market is adjusted. After the market is adjusted, they are 20 cents per gallon worse off than they were before. And consumers are 30 cents per gallon worse off than they were before.


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[Assistant] This is the fundamental insight of tax incidents. That you can't just look at the paper version of who pays the tax.


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[Assistant] You have to consider who really bears the consequences of the tax. And that's why it gets interesting.


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[Assistant] Because the party that bears the consequences is not necessarily the party that actually sends the check to the government. Okay? That's the fundamental insight of tax incentives. Questions about how that all works.


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[Assistant] Okay, so bottom line is, all you do is you say, look, think about how the tax affects the market. In this case, it's an upward shift in supply curve. Shift the supply curve up. Find the new equilibrium. That gives you the price. That gives you the new equilibrium price.


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[Assistant] And then the burden on the party not paying the tax is different between the new price and the old price.


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[Assistant] So the first bold claim I'm going to make is actually doesn't matter who sends the check to the government. The first bold claim, let me say what?


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[Assistant] The first bold claim I'm going to make is that the amount set on check to the government is not the amount you actually bear of the tax. The amount you bear of the tax comes out of this analysis.


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[Assistant] Here's the second bold claim I'm gonna make. It doesn't matter who sends the check to the government.


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[Assistant] If you impose the same 50 cent tax on consumers of gas in the same market, you get the same outcome. How's that possible? Let's look at figure 22 too.


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[Assistant] This tax is now, every time you buy a gallon of gas, you pay 50 cents.


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[Assistant] Could you imagine the headlines? The outcry? Government screwing the little guy to favor the oil companies. Okay? But in fact, those headlines would all be wrong.


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[Assistant] Because in fact, it doesn't matter. To see why, let's look at the diagram 22.2. Now imagine we have 50 cent tax on consumers.


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[Assistant] Now the supply curve doesn't shift, because marginal cost hasn't changed. But the demand curve shifts down.


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[Assistant] Because for every gallon you buy, you have to send 50 cents to the government.


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[Assistant] Well the demand curve represents your willingness to pay. You are now willing to pay 50 cents less per gallon.


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[Assistant] If you're willing to pay, before at point A, the 100 billionth gallon sold, they're willing to pay exactly $1.50.


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[Assistant] Well if they don't pay a dollar fifty, and I've said fifty cents to the government, well now they're only willing to pay a dollar for that gas.


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[Assistant] So what that means is consumers now, with the shift in demand curve, if the price stayed at $1.50, they would only want 80 billion gallons at point C. They would only want 80 billion gallons at a price of $1.50. Why? Because the price to them isn't $1.50 anymore.


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[Assistant] Okay, they now, they pay the 150 plus they pay the 20 cents, they'd have to pay another 50 cent check to the government. So they only want, so the, so to them,


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[Assistant] Uh, they don't want 80 billion gallons. So if you need to move to a new equilibrium, once again we know about these adjustments, we talked about that. You're gonna slide down the demand, down the supply curve, and you're gonna end up at a new point D.


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[Assistant] D is the new equilibrium where the new demand curve, reflecting the much lower willingness to pay, intersects the supply curve.


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[Assistant] That point, interestingly, is that 90 million, 90 billion gallons flip the page back to 221. That's the same quantity we had before. So we get the same effect on the amount of gas sold.


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[Assistant] What's the difference is the market price. In 2021, the market price rose to 180.


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[Assistant] Okay, but the burdens are the same. Think about the burden on the consumer. The consumer used to pay a dollar fifty.


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[Assistant] Now they pay a dollar 30, so they've saved 20 cents, but they have to send a 50 cent check to the government. So the burden on the consumer is 30 cents.


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[Assistant] They saved 20 cents on the price and sent a 50 cent check to the government. What's the burden on producers? Well, the producers used to get a dollar 50. Now they get a dollar 30. So what's the burden on producers? 20 cents. Same as before.


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[Assistant] The point is for any given total tax wedge, for any given total amount of tax.


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[Assistant] Who bears it does not depend on who sends the check into the government. That's irrelevant. The side of the market's irrelevant.


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[Assistant] All that matters is the underlying demand and supply curves and the size of the tax switch.


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[Assistant] Okay, and so tax incidents, this is an incredible insight of tax incidents.


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[Assistant] Which is that something I'd imagine most of you walk in this room today, and I quickly said to you,


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[Assistant] Doesn't matter if the gas condom hits 50 cents, you face 50 cents, you'd say yeaah, it matters. Okay, but it turns out it doesn't.


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[Assistant] Turns out it doesn't. As long, as long given a given tax budget, given a set of supply and demand curves, it doesn't matter who actually pays.


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[Assistant] And that's why, when you read articles in the paper about, you know, this tax is bad because it's on people, this tax is good because it's on corporations, that's not the way to think about it. The way to think about it is what's the total tax wedge, and what does the market look like? Yeaah.


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[Assistant] Excellent point. All of this of course is within our standard 1401 framework.


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[Assistant] Once you depart from that, by the way, it's also true even if there's monopoly and stuff. That's still true. So this does not depend on


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[Assistant] Perfectly competitive markets. This is also true in non-perfectly competitive markets. So, monopoly oligopoly will still feature these two rules.


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[Assistant] However, once you depart from perfectly rational consumers.


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[Assistant] Then things can change. So for example, there's a lot of interesting research on what's called tax salience.


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[Assistant] And as I said, since I won't have time for a lecture on behavioral economics this semester, I'm gonna throw some behavioral economics nuggets at you. But if you find this interesting, take 1413, it's really exciting. And here's a kind of insight, which is what if people pay attention to taxes when it's in the price, but not when it's rung up at the register? So they ran a cool experiment at supermarkets in California. They randomly, in some cases,


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[Assistant] Increase the price on the shelf by the sales tax.


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[Assistant] In other cases, they kept the price fixed and the sales taxes rang up at the counter, like we normally do. And they found that affected demand.


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[Assistant] That affected how much people wanted the good. Even though the net price was the same.


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[Assistant] Because it was more salient when it was built into the price than what it's like at the end when you just bring it up, you don't pay attention to it. Yeah.


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[Assistant] Well that's exactly what I said. That's exactly what, there's two questions. One is how to affect the demand curve. That's what I was saying. That basically the demand curve


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[Assistant] I mean, it's not quite your question. Your question is about sort of like a moral, like do I feel differently if one's being taxed another? Or are you talking about the salience point?


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[Assistant] Yes. I think, I think we don't, I think we don't know for sure sort of the moral aspect, but the salience aspect we do know for sure, which is how the tax is presented affects people's demand, even though it shouldn't.


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[Assistant] Now there's another question, which I thought you were going to ask, which is how does the fact that you can see a tax affect people, how people feel about taxes? So here's a super cool study my colleague Amy Finkelstein did.


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[Assistant] You guys know what easy tack, easy pass, the thing on the highway where you, okay, so.


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[Assistant] When states move, when I was a kid, you just wait in line and pay cash to get through the tolls. Okay? Now you just drive through with your EC pass. So what's happened is it made the tax less salient.


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[Assistant] Right, it used to be you'd feel pain every time you go through the toll. Now it's just some bill you get at the end of the month. What she found is when states switched to easy pass, they rapidly raised their taxes on roads. They raised their tolls. Cause people didn't mind as much. So they could raise them more.


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[Assistant] So there's sort of an interesting politics aspect to this, uh, to this as well. So this matters. Having said that, I'm gonna ignore it. But this stuff does matter, and that's why behavioral economics is fascinating. Okay? Now, there's a third point I want to make about taxes.


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[Assistant] So I talked about who bears taxes, I talked about the side of the market. Side of the market is irrelevant.


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[Assistant] And then the third point I want to make about taxes is it's all about the elasticity.


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[Assistant] For a given tax wedge, who bears the taxes all determined by the elasticity supply and demand curve? Okay. And in particular, inelastic parties get stuck with taxes while elastic parties avoid taxes.


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[Assistant] But it's a little easier to see with suppliers of gasoline. Let's go back to our text, suppliers of gasoline. So we have a supply curve that's been shifted up by 50 cents.


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[Assistant] In the market with perfectly inelastic demand, we used to sell 100 billion gallons at a price of 150.


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[Assistant] Now we levy a 50 cent tax on suppliers. Where do we end up? We end up still selling 100 billion gallons of gas. You have to.


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[Assistant] Cause it's inelastic. Well, if you're going to still sell 150 gallons of gas, then the suppliers can't bear any of the tax.


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[Assistant] They have to be able to fully pass the tax under price. That is, they have to be able to charge $2. Think of the logic. Suppliers have to be on their supply curve. The supply curve has just shifted up by 50 cents.


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[Assistant] Therefore, if you're gonna sell the same quantity, the price must go up by 50 cents. So in that case, who bears the tax?


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[Assistant] The supplier said, you're sending a 50 cent check to the government, but you're getting 50 cent higher price. So you don't care. Okay.


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[Assistant] Okay, so, so you, uhm, so you, so you don't care. Okay? Now let's flip the case. Let's imagine demand for, uhm, demand for gas is perfectly elastic. Okay? Now, the supply curve has shifted up by 50 cents. Okay? Supply curve has shifted up by 50 cents.


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[Assistant] Now what happens is, consumers say, look, I don't care how you feel Mr. Supplier, I'm not paying more than the $1.50 for gas. I have perfectly elastic demand.


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[Assistant] Supplier has no choice then, but to eat the whole tax. Because if they try to pass any of it onto the consumer, the consumer will bolt.


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[Assistant] So the new equilibrium is that the, where the price stays the same of a dollar 50 and the quantity falls.


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[Assistant] In this case, the producer bears the whole tax. The consumer pays no more than they did before.


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[Assistant] The gas company gets the same price they did before but has to send a 50 cent check to the government.


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[Assistant] So the entire burden is borne by the producer. What is going on? Why do, why would inelastic demand, what's the intuition here?


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[Assistant] For why with inelastic demand, consumers end up getting stuck with the tax. And with elastic demand, consumers avoid it. Yeaah.


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[Assistant] Right, exactly. I like to think of this as a very good explanation. I like to think of this in terms of almost like negotiating power. It's not the right way to think about it if it's useful intuition.


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[Assistant] That when you've got inelastic demand, you've got no negotiating power. You just want insulin. You're gonna pay anything for insulin.


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[Assistant] So the supplier knows that, so he's gonna make you pay the whole tax. It doesn't matter if you send the check to the government, he sends the check to the government, he's gonna pass the whole cost to you. But if you think about fast food, if you think about a tax on hamburgers,


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[Assistant] Then the supplier knows they're screwed. They have no leverage. You have all the leverage. You have all the negotiating power. So they can't raise the price on you.


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[Assistant] So the bottom line is inelastic factors get stuck with taxes, and elastic factors avoid taxes.


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[Assistant] So at the end of the day, all that matters, if you think about any tax being imposed in the U.S.


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[Assistant] All you need to know is the elasticity is the applying demand and the size of the tax and you're done. You can figure out who bears the tax.


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[Assistant] Okay, and the Congressional Budget Office, for example, does these exercises all the time and has estimates of how given tax changes will affect the income distribution as a result. Okay? Now, uhm,


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[Assistant] And actually there's a pretty cool study of this. Let me ask the question. We have hospital taxes.


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[Assistant] We have a hospital. We have hotel taxes. I've got too much healthcare on the brain. We've got, we've got hotel taxes in many major cities. Okay?


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[Assistant] There's some instance of hotel tax. You can imagine Diagram have got supply demand.


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[Assistant] How does the incidence of the hotel tax change when Airbnb comes in?


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[Assistant] Exactly, what you see, and how would you test that? How would you test that?


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[Assistant] Hotel prices have, hotel taxes are passed less on to price.


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[Assistant] Hotel owners are more bearing the taxes compared to consumers, because consumers are more elastic. So that's sort of an example of how this can matter. Okay. So now, let me say one other, one other thing about taxes. The last thing I want to say about taxes is, uh, what to tax.


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[Assistant] And this is a fundamental debate that goes back to the 17th century.


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[Assistant] Which is essentially, should we tax people based on what they produce? That is their income. Or should we tax people based on what they consume? Their consumption. Okay, the philosopher Thomas Hobbes in like 17, whatever, talked about why should we tax people based on the fruits of their labor? Let's tax them based on what they take out of society. That is what they consume. And this is a debate economists have had for centuries. Should we tax consumption?


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[Assistant] This is a debate which shows the real world because in Europe, they rely much more on consumption taxes than we do.


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[Assistant] Uh, I'm gonna show you why it matters. So in Europe, they rely much more on consumption taxes than we do. So in the US, most of our taxes come from income taxes. In Europe,


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[Assistant] A lot of their tax payment comes from what's called the value added tax. And if you've traveled in Europe, you'll know about the value added tax, which is a form of consumption taxation.


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[Assistant] So this is a debate that plays out internationally. In the US, we have sales taxes, but they're quite small, uh, as a share of revenues compared to European nations. Now,


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[Assistant] Why do we care? Well, we care because the following equation.


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[Assistant] Why your income can either be spent on stuff or saved?


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[Assistant] And we, and as I talked about a few lectures ago, savings is a major engine of growth in the economy. More savings means a broader pool of capital.


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[Assistant] So we like promoting savings in the long run. In the short run, a recession may feel differently, but in the long run, we like having more savings. So in the long run, we like having more savings. If you tax income, you tax both my consumption and my savings. If you tax my consumption,


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[Assistant] Then you don't tax my savings. That is you relatively favor.


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[Assistant] Savings over consumption. You promote people to save rather than consuming. Okay?


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[Assistant] So, that's why many economists, I think probably if you did a poll of economists and said should we be taxing for consumption, the majority would say consumption.


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[Assistant] And the reason they would give is because we need to, we need more savings in society and we need to promote that. Yeah.


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[Assistant] That would be identically equivalent. If you give a 100% tax credit.


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[Assistant] For all of your savings, that'd be identical. Now in the US we have some partial credits like that, but far from 100%. Okay? So, the question is, what's the counter argument? Well the counter argument is all about fairness.


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[Assistant] Which is that it turns out that the rich save and nobody else does.


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[Assistant] Basically, almost all the savings society is done by the top, probably 10% of individuals in society. And,


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[Assistant] So essentially, what this means is for most Americans, for the typical American, this debate is irrelevant. Because they have no savings. They tax their income, they tax their consumption, it's the same thing. For rich Americans, it would be a much better deal to tax consumption. Because they have savings that then wouldn't be taxed.


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[Assistant] So the problem with the consumption tax base is it would mean a massive redistribution from the poor to the rich. Because the rich folks do the savings.


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[Assistant] Now, there would be a simple answer to, there would be an answer to this.


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[Assistant] We could answer this, because ultimately, right, the rich folks die. It doesn't matter how rich they are, they die eventually. Okay?


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[Assistant] And if at that point, we taxed all their savings, we could then equalize things. So in other words, if we took all the money that was left,


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[Assistant] Let's say we had this consumption tax, but we counted its consumption the money you left behind when you died.


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[Assistant] Then it would solve the problem, because the rich would, during their life they'd pay less tax, but they'd pay it all at the end.


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[Assistant] But the, but that, so that's why such, we have such a critical debate in this country over the estate tax or the so-called death tax.


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[Assistant] Okay, this notion of sort of whether you should be taxed on their estates, because it's very important for thinking about this. If we had an estate tax literally at the same rate as all the taxes, then we could move to tax and consumption, it would be the same. In fact, we would essentially have a consumption tax at that point.


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[Assistant] Okay, but in fact we have an estate tax that is paid by the top point, is paid only by the top 0.04% of people who die each year.


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[Assistant] Uhm, and it's paid on only a fraction of their assets.


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[Assistant] So we don't have that. So that's why the fairness sort of debate comes in.


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[Assistant] Okay, so I just want to point out just another, these are all just sort of topics I'm hitting to sort of whet your appetite.


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[Assistant] These are sort of interesting things we need to think about when we think about how to set up our tax systems.


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[Assistant] Is basically, uh, things like do we tax income or consumption? Okay? Questions about that.


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[Assistant] Okay, that's taxes. Now I want to turn to, so that's one side of the equation, which is taxes. We know they cause inefficiencies. We know they cause deadweight losses.


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[Assistant] Okay, we know there's some, and we know that there's some question about who bears them. But the bottom line is tax are putting some leak in the bucket and that's a problem. The other side of the leak in the bucket is transfers.


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[Assistant] Which is, as we saw in the diagram last time, if you tax, if you essentially condition my getting money on my working, I'll work less. If you say to me, hey, John,


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[Assistant] If you, you're currently making $5,000 a year, I'm going to give you $10,000 no matter what you do, but any money you earn will come off that $10,000. I'll say, great. I'll just quit.


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[Assistant] Okay, if you take the transfers and phase them out, take them away from people, they have a similar effect. In fact, we call transfers an implicit tax. So our transfer system from last time, which is the amount you got was the max of zero, was the max


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[Assistant] Right? Because for every dollar you earn, we take it away. Because you get 10,000 no matter what. So this is a tax, basically.


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[Assistant] If we want to target money to poor people. If we just gave everyone $10,000, it wouldn't be a tax. Okay?


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[Assistant] We just gave her $10,000. Now, it would impact how hard people work. Why? Well, it impacts how hard people work, yeaah.


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[Assistant] No, no, no, I'm going to like labor supply theory. What's the name of the effect for why that would affect how everyone would get $10,000? The income effect. So it would affect how our people work.


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[Assistant] But it wouldn't really distort people's labors. We think of distortions arising from the substitution effect. People making different decisions because of tax rates.


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[Assistant] The reason we get a problem, the reason we get dead weight loss is because I'm take, I'm not going to give you $10,000 that I'm taking away as you get richer. Okay. That's the problem. So then the question is what can we do about this?


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[Assistant] What can we do about the fact that we're essentially imposing implicit taxes on poor people by giving them money? So there's a couple answers. The first is categorical transfers.


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[Assistant] That is instead of giving the money to everybody, just give it to deserving populations.


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[Assistant] Okay. So for example, one of them, the largest single cash transfer program, pure cash transfer program in the U S.


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[Assistant] Uhm, is to, uh, that's literally giving cash is what's called the SSI program, the Supplemental Security Income program. It's about 80 billion dollars a year.


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[Assistant] And what this does is give cash grants to low income families that have disabled children. So it's not just that you're low income, but that you have a disabled child in your house. Okay? Likewise, we have something called the TANF program.


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[Assistant] Which is what is traditionally called, you know, I've used the term welfare in this course to mean well-being. Traditionally in America, when you say welfare with sort of a sneer on your face, you're referring to TANF.


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[Assistant] Okay, TANF is cash grants to low income single family, single parent households.


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[Assistant] Essentially, if you're low income and you're a single mom, typically, uh, you get a grant from the government. Now, the question we've always asked is,


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[Assistant] Why do we impose these conditions? Why do we make people disabled? Why do we make them be single moms? Why not just give them the money? Why not have this? Why have these other conditions? And the answer is because that basically we think this is a way of reducing the distortion that arises from transfers.


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[Assistant] Think of it this way. Imagine all of us were born with on our forehead, an unremovable tattoo that said hardworking and lazy.


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[Assistant] Okay, and that, so I know your underlying ability. Then I would simply say, look, if you're high skill, you don't get any money. I don't care if you're poor, if you're poor just means you're lazy. Cause I know you're high skill. If you're low skill, I'm gonna give you money. And that would not distort behavior at all. Cause people couldn't change what's on their head. So they would just continue to work as hard as they always were.


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[Assistant] This is the idea of trying to find signals like that. You're trying to find ways of identifying the people who need the help.


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[Assistant] And by doing so, who need the help, but need the help in a way that's not changeable by their behavior.


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[Assistant] Okay, we think that a kid being disabled, they didn't choose to be disabled or mom being single mom. She didn't choose to be a single mom. That starts to get a little very interesting.


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[Assistant] Okay, so essentially the idea of categorical welfare is to basically say,


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[Assistant] Can we find things about people that they didn't choose on which we can base giving them money? Okay, so blindness is a good example, et cetera. Okay.


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[Assistant] Well, you might say, well of course a kid can't choose to be disabled, but mom, people can choose to be single moms.


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[Assistant] Okay. In fact, the evidence is the opposite. Let me explain what I mean. If you give people money tied to being a single mom,


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[Assistant] It doesn't cause them to be a single mom. The evidence is very clear on that. So there's been hundreds of studies.


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[Assistant] Showing that paying women money conditional on making a single mom doesn't cause them to get divorced or have kids out of wedlock. That's been clear.


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[Assistant] If you give family money based on kids being disabled, more disabled kids show up. Why? Because disability is a tough thing to assess. Most disabilities are musculoskeletal or mental. And those are hard things. You can tell if a kid's missing a limb.


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[Assistant] But it's hard to evaluate truly musculoskeletal or mental disabilities and interestingly,


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[Assistant] People changing their behavior to qualify, at least changing behavior meaning not becoming disabled but claiming they're disabled, uh, is here and not in single motherhood.


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[Assistant] So categorical transfers help, but not as much as you might think, because the categories are hard to measure. Okay? And that's why another tool we've used to try to get at this is in-kind transfers.


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[Assistant] Which is kind of, you know, uh, which is sort of how do you deal with co-residing people and that's something that complicates a set of rules about.


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[Assistant] Awesome question. And so basically here's the trade off. Okay, give me a better way to teach it. Here's the trade off.


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[Assistant] The trade-off is, the more you target, let's say I said I'm gonna replace our entire wealth versus America with just transfers to the blind. Unless soon people don't blind themselves to get money.


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[Assistant] Okay, you laugh, but there is a city in Florida, uh, where, uhm, where, uh, they found that over a certain period of time, the vast majority of US claims for lost limbs came from one city in Florida. And it turned out,


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[Assistant] So, uh, you laugh, this stuff does happen, but by and large, we assume it doesn't. Okay, so let's say I want to replace the entire U.S. welfare system with, uh, with one just people who are blind. On the one hand, that would be great because you wouldn't cause any distortion. People wouldn't work any less hard because you can't change whether you're blind. On the other hand, you'd leave all these people out in the cold who need help.


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[Assistant] So that's the trade-off, which is the broader you spread it, the more you move towards sort of a universal system, the more potential distortion you cause in terms of people changing their work behavior.


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[Assistant] Uhm, but the broader set of people you can help. And that's why there's a big move now for what's called universal basic income. UBI.


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[Assistant] Is a big movement now around the world to say, look, forget these things, SSI, TANF. They're all messy to measure. They're, uhm, stigmatizing. People could change them anyway. Let's just give people money. And that's sort of a, that's sort of one motivation for that.


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[Assistant] Now, but the other way to get at this that people come at is, look, the problem all here.


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[Assistant] Is a simple one, which is everyone loves money. Rich or poor, we all love money. But what if what we gave people was not money?


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[Assistant] But things that poor people need and rich people don't. Like for example, mediocre public housing. Not a mansion, but an apartment.


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[Assistant] A rich person isn't gonna pretend they're poor to get a crappy apartment or a mediocre apartment. For a poor person to be homeless otherwise, we'll happily take it.


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[Assistant] Rich people can afford food. Poor, uh, uh, poor people can.


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[Assistant] Here the problem is people might pretend they're poor to get the money. They might quit. Even if they're not, even if they can afford it, they might quit. Here we say, well look, you're not gonna quit your job to get a mediocre, you, you guys with your, you know, make it a hundred grand a year at MIT, are gonna quit your jobs to get some mediocre public sector apartments.


[User] Please transcribe this text

[Assistant] Okay, but if I said I'll give you 100 grand whether you work or not, you might quit your job. If I say I'll give you a mediocre apartment, you won't.


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[Assistant] It's the idea by giving people in kind benefits to get them to self-reveal.


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[Assistant] Whether they're actually, uhm, whether they're actually poor or not.


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[Assistant] Now, that's not the main reason why I give income transfers. This is the economist reason. The main reason is because politicians are what we call paternalistic.


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[Assistant] And this comes all the way back. You guys remember when we discussed food stamps and we did budget constraints and I said, well, we never gave people food stamps, we want to give them money. And they said, but what if the wax is labeled cocaine? Then we would want to give them food stamps because they don't want to spend their money on cocaine. Well, that's how politicians feel about poor people. They feel that poor people, if you give them money, will just waste it.


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[Assistant] And that's why the vast majority of transfers due in America are in kind. If you add up all the money we give people in cash, versus the money we give in kind, particularly medical care,


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[Assistant] The in-kind dollars vastly outweigh the cash dollars.


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[Assistant] And that's because politicians are paternalistic. They're afraid. Now, that, I mean, the economics reason is because there's all this model of self-revelation, but that's not why politicians do it. They do it because they're worried people will waste the money if you give them cash.


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[Assistant] And I think we showed with the food stamps and the evidence, that's not really the right way to think about it. Okay? Questions about that? Okay. Now.


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[Assistant] This is all kind of negative and nebulous. So let me sort of conclude with a great example. Which example of a public policy


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[Assistant] Which actually doesn't stop the leak in the bucket, actually puts a patch in the bucket.


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[Assistant] So it's actually the other way, the other thing that you can call it as a wage subsidy.


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[Assistant] So here's how the ITC works. Let's go to figure 22-4. I'll show you how the ITC works. Here's how the ITC works.


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[Assistant] For every dollar on the x-axis is how much earned income you have. On the y-axis is the check you're gonna get from the government. What this says is on every dollar you earn,


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[Assistant] Until you earn 13,870, these numbers have been out of date a little more now, but roughly gives you the idea.


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[Assistant] For every dollar you earn, the government gives you 40 cents more. So if you earn a, if you're someone who starts with zero and you earn a dollar, you take home a dollar 40. It's a negative tax. It's a subsidy.


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[Assistant] So every dollar you're gonna take on $1.40 until you reach earnings of $13.870.


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[Assistant] So that by the time, uh, and what we're gonna do is we're gonna take that 5548 check down by 21 cents for every dollar we earn. It's gonna flip from a negative tax to a positive tax at a 21% rate.


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[Assistant] So that by the time you've earned 44, 454.


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[Assistant] Okay, you have, uh, you've zeroed out your ITC. So for most of you, the ITC will be irrelevant. Okay, for most of your families, the ITC is irrelevant. So it's a targeted transfer program. Conditional transfer is conditional, because basically, it's conditioned on working.


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[Assistant] Let's consider the three segments of this graph. Let's start with the first segment. Let's say you are earning zero. And I said, for every dollar you earn, I will give you 40 cents more. Okay. What effect does that have on your labor supply? Starting from zero.


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[Assistant] Substitution Effect will make you work more, because essentially we've raised the price of leisure by 40%. What about the income effect?


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[Assistant] So the point is for someone at zero, this unambiguously increased their labor supply.


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[Assistant] So if you take guys who aren't working, this definitely will, I mean, it might be a zero effect, but it's non-negative effect in labor supply. Likewise, with low income, working low hours, the income effect will be small. I mean, income effect's proportional to how much you're actually earning.


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[Assistant] So for these people on the left hand segment, upward sloping, it should cause them to work more. Because the substitution effect will be big and the income effect will be small.


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[Assistant] Now what about people in the flat segment? Someone else raise their hand and tell me. What's this going to do to the labor supply of people in the flat segment?


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[Assistant] Well, there's no, their wage hasn't changed, but something has changed.


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[Assistant] More generally, the point is, I've taken someone and made them $5,000 richer. So compared to a world without the ITC, that's how you should, a better world without the ITC, I will now work less. There's no substitution effect, only an income effect. So now I'll work less.


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[Assistant] So the first part is income and substitution effects. The second part is just an income effect. Now what about the third segment? Assuming leisure is normal, do I work more or less?


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[Assistant] They work more or less assuming, assuming leisure's, assuming leisure's normal. Yeaah.


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[Assistant] As, because as you, because the point is, as you work more, your income is falling. So here both the substitution and income effect combine to make you want to work less.


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[Assistant] So if you look at this graph, this doesn't look very promising. On the left we've got a bunch of guys working more.


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[Assistant] In the middle we got guys working less, and on the other side we got many guys working way less, because you have a substitution and income effect. Okay?


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[Assistant] So the question then is, what effect does the EITC have?


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[Assistant] And the answer is it turns out it has an enormously positive effect on labor supply.


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[Assistant] That it gets a lot of guys who are working zero to stop working zero.


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[Assistant] But it doesn't seem to lower the hours among those who are working more than zero hours. Now why is that? Unclear.


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[Assistant] It could be because there's different elasticities along the income distribution.


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[Assistant] Probably because, probably it's because of tax salience, wherever I wrote that. Wherever the hell I wrote that. Tax salience. Which is that people understand, gee, if I go to work, I get a big check. They don't understand, by the way, the marginal hour I work is being taxed to 21 cents more.


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[Assistant] So probably tax aliens, I don't know, but the bottom line is the studies show convincingly that interest in the ITC massively increased labor supply and distributed to the poorest people in society. This is a reverse leaky bucket. Literally managed to take money, give it to poor people and make the pie bigger. So this is enormous victory.


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[Assistant] For thinking about how we can, for getting around this problem of how we can transfer to people.


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[Assistant] Now, it doesn't solve all our problems because, if you have a good comment up here, it doesn't help people who don't work.


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[Assistant] So there's still, this isn't the only solution we need, because some people literally can't work, so they can't benefit from a program like this. But for workers,


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[Assistant] This is an enormously successful program that is really one of the great sort of government success stories in terms of both transferring to poor people and increasing the size of the pie.


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[Assistant] Alright, I'm gonna stop there, uhm, and so we'll come back, uh, we'll come, uh, I'll see you guys on Wednesday.


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[Assistant] Harlem Cultural Center, 116th and Convent. That was my friend Angela on the phone.


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[Assistant] And if this donor doesn't cover the costs, the museum might have to close.


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[Assistant] Craven. The serum, he had it around his neck. That's what he used on Dr. Connors.


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[Assistant] One of the friends got its wires all crossed with an old hunter transmission. Figured you might want to look into it. Maybe it'll lead to Lee? Sending you the source coordinates.


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[Assistant] No problem. Everything good? Haley and I are a little worried.


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[Assistant] I will never get tired of watching you kick serious ass. And, we got our birdie! See if your suit can override the drone's motherboard.


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[Assistant] God bless Unix. Okay, rebooting the altimeter and...


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[Assistant] Next morning, after breakfast, we found Inspector MacDonald and White Mason seated in close consultation in the small parlour of the local police sergeant.


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[Assistant] On the table in front of them were piled a number of letters and telegrams, which they were carefully sorting and docketing. Three had been placed on one side.


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[Assistant] Still on the track of the elusive bicyclist, Holmes asked cheerfully, what is the latest news of the ruffian? MacDonald pointed roofily to his heap of correspondence.


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[Assistant] He is at present reported from Leicester, Nottingham, Southampton, Derby, Eastman, Richmond, and fourteen other places.


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[Assistant] In three of them—East Ham, Leicester and Liverpool—there is a clear case against him, and he has actually been arrested. This country seems to be full of the fugitives with yellow coats."


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[Assistant] Now, Mr Mac, and you, Mr White Mason, I wish to give you a very earnest piece of advice.


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[Assistant] When I went into this case with you I bargained as you will no doubt remember that I should not present you with half-proved theories.


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[Assistant] For this reason I am not at the present moment telling you all that is in my mind.


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[Assistant] On the other hand, I said that I would play the game fairly by you, and I do not think it is a fair game to allow you for one unnecessary moment to waste your energies upon a profitless task.


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[Assistant] Therefore I'm here to advise you this morning, and my advice to you is summed up in three words. Abandon the case.


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[Assistant] I consider your case to be hopeless I do not consider that it is hopeless to arrive at the truth


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[Assistant] But this cyclist is not an invention. We have his description, his valise, his bicycle. The fellow must be somewhere. Why should we not get him?


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[Assistant] Yes, yes, and no doubt he is somewhere, and no doubt we shall get him, but I would not have you waste your energies in East Ham or Liverpool.


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[Assistant] You know my methods of work, Mr. Mack, but I will hold it back for the shortest time possible.


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[Assistant] I only wish to verify my details in one way, which can very readily be done, and then I make my bow and return to London, leaving my results entirely at your service.


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[Assistant] I owe you too much to act otherwise, for in all my experience I cannot recall any more singular and interesting study.


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[Assistant] This is clean beyond me, Mr. Holmes. We saw you when we returned from Tunbridge Wells last night, and you are in general agreement with our results. What has happened since then to give you a completely new idea of the case?


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[Assistant] Well, since you asked me, I spent, as I told you that I would, some hours last night at the manor house. Well, what happened?


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[Assistant] Ah, I can only give you a very general answer to that for the moment. By the way, I have been reading a short but clear and interesting account of the old building.


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[Assistant] Purchasable at the modest sum of one penny from the local tobacconist.


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[Assistant] Here Holmes drew a small tract, embellished with a rude engraving of the ancient manor-house from his waistcoat pocket.


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[Assistant] It immensely adds to the zest of an investigation, my dear Mr. Mack, when one is in conscious sympathy with the historical atmosphere of one's surroundings.


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[Assistant] Don't look so impatient, for I assure you that even so bald an account as this raises some sort of picture of the past in one's mind. Permit me to give you an example.


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[Assistant] Erected in the fifth year of the reign of James I, and standing upon the site of a much older building,


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[Assistant] The manor house of Burlston presents one of the finest surviving examples of the moated Jacobian residence. You're making fools of us, Mr. Holmes. Tup-tup, Mr. Mack. The first sign of temper I have detected in you.


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[Assistant] Well, I won't read it verbatim since you feel so strongly upon the subject.


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[Assistant] But when I tell you that there is some account of the taking of the place by a Parliamentary Colonel in 1644 of the concealment of Charles for several days in the course of the Civil War,


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[Assistant] And finally of a visit there by the second George.


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[Assistant] You will admit that there are various associations of interest connected with this ancient house.


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[Assistant] Breads of view, my dear Mr. Mac, is one of the essentials of our profession.


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[Assistant] The interplay of ideas and the oblique uses of knowledge are often of extraordinary interest. You will excuse these remarks from one who, though a mere connoisseur of crime, is still rather older and perhaps more experienced than yourself.


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[Assistant] I'm the first to admit that," said the detective heartily.


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[Assistant] I admit, but you have such a deuce round the corner way of doing it.


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[Assistant] Well well, I'll drop past history and get down to present day facts.


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[Assistant] I called last night, as I have already said, at the manor house. I did not see either Barker or Mrs. Douglas. I saw no necessity to disturb them, but I was pleased to hear that the lady was not visibly pining, and that she had partaken of an excellent dinner.


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[Assistant] My visit was specially made to the good Mr. Ames, with whom I exchanged some Amy abilities which culminated in his allowing me, without reference to anyone else, to sit alone for a time in the study.


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[Assistant] No, no, everything is now in order. You gave permission for that, Mr. Mack. As I am informed, the room was in its normal state, and in it I passed an instructive quarter of an hour. What were you doing?


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[Assistant] Well, not to make a mystery of so simple a matter. I was looking for the missing dumbbell.


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[Assistant] Ah, there we come to the edge of the unexplored. Let me go a little further, a very little further, and I will promise that you shall share everything that I know.


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[Assistant] Well, we're bound to take you on your own terms, said the inspector.


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[Assistant] But when it comes to telling us to abandon the case,


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[Assistant] Why in the name of goodness should we abandon the case?


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[Assistant] For the simple reason, my dear Mr Mac, that you have not got the first idea what it is that you are investigating.


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[Assistant] We are investigating the murder of Mr. John Douglas of Burlston Manor. Yes, yes, so you are.


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[Assistant] But don't trouble to trace the mysterious gentleman upon the bicycle. I assure you that it won't help. Then what do you suggest we do? I will tell you exactly what to do if you will do it.


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[Assistant] Well, I'm bound to say. I've always found you had reason behind all your queer ways. I'll do what you advise. And you, Mr. Whitemason?


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[Assistant] The country detective looked helplessly from one to the other. Holmes and his methods were new to him.


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[Assistant] Well, if it is good enough for the inspector, it is good enough for me," he said at last.


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[Assistant] Well then, I should recommend a nice, cheery country walk for both of you.


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[Assistant] They tell me that the views from Burlston Ridge over the Weald are very remarkable.


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[Assistant] No doubt lunch could be got at some suitable hostelry, though my ignorance of the country prevents me from recommending one. In the evening, tired but happy,


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[Assistant] "'Man, this is getting past a joke!' cried MacDonald, rising angrily from his chair.


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[Assistant] Well, well, spend the day as you like, said Holmes, patting him cheerfully upon the shoulder. Do what you like, and go where you will.


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[Assistant] All of it was excellent advice, but I don't insist so long as you are here when I need you. But now,


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[Assistant] It has struck me that it is our duty to drain the moat in the hope that we might find some


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[Assistant] In the hope that we might find something which may bear upon our investigation.


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[Assistant] I have made arrangements, and the workmen will be at work early tomorrow morning, diverting the stream. Impossible! Diverting the stream! So I thought it best to explain matters beforehand.


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[Assistant] Now sign that and send it by hand about four o'clock. At that hour we shall meet again in this room. Until then we may each do what we like.


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[Assistant] For I can assure you that this inquiry has come to a definite pause.


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[Assistant] Evening was drawing in when we reassembled. Holmes was very serious in his manner, myself curious, and the detectives obviously critical and annoyed.


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[Assistant] I am asking you now to put everything to the test with me, and you will judge for yourselves whether the observations I have made justify the conclusions to which I have come.


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[Assistant] It is a chill evening, and I do not know how long our expedition may last, so I beg that you will wear your warmest coats. It is of the first importance that we should be in our places before it grows dark.


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[Assistant] Until we came to a place where there was a gap in the rails which fenced it.


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[Assistant] Through this we slipped, and then in the gathering gloom we followed Holmes until we had reached a shrubbery, which lies near by opposite to the main door and the drawbridge. The latter had not been raised,


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[Assistant] Holmes crouched down behind a screen of laurels, and we all three followed his example.


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[Assistant] Well, what are we to do now? asked McDonald with some gruffness.


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[Assistant] Possess our souls in patience and make as little noise as possible, Holmes answered.


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[Assistant] What are we here for at all? I really think you might treat us with some more frankness." Holmes laughed. Watson insists that I am the dramatist in real life, said he. Some touch of the artist wells up within me, and calls insistently for a well-staged performance.


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[Assistant] Surely our profession, Mr. Mack, would be a drab and sordid one if we did not sometimes set the scene so as to glorify our results. The blunt accusation, the brutal tap upon the shoulder, what can one make of such a denouement?


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[Assistant] but the quick inference the subtle trap the clever forecast of coming events the triumphant vindication of bold theories


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[Assistant] Are these not the pride and the justification of our life's work?


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[Assistant] At the present moment you thrill with the glamour of the situation and the anticipation of the hunt.


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[Assistant] Where would be that thrill if I had been as definite as a timetable? I only ask a little patience, Mr. Mac, and all will be clear to you.


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[Assistant] Well, I hope the pride and justification, and the rest of it will come before we all get our death of cold," said the London detective with comic resignation. We all had good reason to join in the aspiration, for our vigil was a long and bitter one.


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[Assistant] Slowly the shadows darkened over the long, sombre face of the old house. A cold, damp reek from the moat chilled us to the bones and set our teeth chattering. There was a single lamp over the gateway and a steady glow of light in the fatal study. Everything else was dark and still.


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[Assistant] How long is this to last? asked the inspector finally. And what is it we're waiting for?


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[Assistant] I have no more notion than you how long it is to last," Holmes answered with some asperity. If criminals would always schedule their movements like railway trains, it would certainly be more convenient for all of us. As to what it is we—well, that's what we're watching for.


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[Assistant] As he spoke, the bright yellow light in the study was obscured by somebody passing to and fro before it. The laurels among which we lay were immediately opposite the window, and not more than a hundred feet from it.


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[Assistant] Presently it was thrown open with a whining of hinges, and we could dimly see the dark outline of a man's head and shoulders looking out into the gloom.


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[Assistant] For some minutes he peered forth in furtive, stealthy fashion as one who wishes to be assured that he is unobserved.


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[Assistant] Then he leaned forward and in the intense silence we were aware of the soft lapping of agitated water. He seemed to be stirring up the moat with something which he held in his hand.


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[Assistant] Then, suddenly, he hauled something in as a fisherman lands a fish.


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[Assistant] We were all upon our feet, staggering after him, with our stiffened limbs, while he ran swiftly across the bridge and rang violently at the bell.


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[Assistant] There was the rasping of bolts from the other side, and the amazed Ames stood in the entrance. Holmes brushed him aside without a word, and followed by all of us, rushed into the room which had been occupied by the man whom we had been watching.


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[Assistant] The oil lamp on the table represented the glow which we had seen from outside.


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[Assistant] It was now in the hand of Cecil Barker, who held it towards us as we entered.


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[Assistant] It's light shone upon his strong, resolute, clean-shaved face and his menacing eyes.


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[Assistant] What the devil is the meaning of all this?" he cried. What are you after, anyhow? Holmes took a swift glance around.


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[Assistant] This is what we are after, Mr. Barker. This bundle, weighted with a dumbbell which you have just raised from the bottom of the moat. Barker stared at Holmes with amazement in his face.


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[Assistant] How in thunder came you to know anything about it?" he asked. Simply that I put it there. You put it there? You? Perhaps I should have said, replaced it there, said Holmes.


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[Assistant] You will remember, Inspector MacDonald, that I was somewhat struck by the absence of a dumbbell.


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[Assistant] I drew your attention to it, but with the pressure of other events you had hardly the time to give it the consideration which would have enabled you to draw deductions from it.


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[Assistant] When water is near and a weight is missing, it is not a very far-fetched supposition that something has been sunk in the water.


[User] Please transcribe this text

[Assistant] The idea was at least worth testing, so with the help of Ames, who admitted me to the room, and the crook of Dr. Watson's umbrella, I was able last night to fish up and inspect this bundle.


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[Assistant] It was of the first importance, however, that we should be able to prove who placed it there.


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[Assistant] This we accomplished by the very obvious device of announcing that the moat would be dried to-morrow, which had of course the effect that whoever had hidden the bundle would most certainly withdraw it the moment that darkness enabled him to do so.


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[Assistant] We have no less than four witnesses as to who it was who took advantage of the opportunity. And so, Mr. Barker, I think the word lies now with you.


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[Assistant] Sherlock Holmes put the sopping bundle upon the table beside the lamp, and undid the cord which bound it.


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[Assistant] From within he extracted a dumbbell, which he tossed down to its fellow in the corner. Next he drew forth a pair of boots.


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[Assistant] American, as you perceive," he remarked, pointing to the toes.


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[Assistant] Then he laid upon the table a long, deadly sheathed knife. Finally he unraveled a bundle of clothing, comprising a complete set of underclothes, socks, a grey tweed suit, and a short yellow overcoat.


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[Assistant] The clothes are commonplace, remarked Holmes, save only the overcoat which is full of suggestive touches. He held it tenderly towards the light.


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[Assistant] Here, as you perceive, is the inner pocket prolonged into the lining in such a fashion as to give ample space for the truncated fouling piece. The tailor's tab is on the back.


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[Assistant] I've spent an instructive afternoon in the rector's library, and have enlarged my knowledge by adding the fact that Vermissa is a flourishing little town at the head of one of the best known coal and iron valleys in the United States.


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[Assistant] I have some recollection, Mr. Barker, that you associated the coal districts with Mr. Douglas's first wife.


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[Assistant] And it would surely not be too far-fetched an inference that the V V upon the card by the dead body might stand for Vermissa Valley, or that this very valley, which sends forth emissaries of murder, may be that valley of fear which we have heard. So much is fairly clear


[User] Please transcribe this text

[Assistant] And now, Mr Barker, I seem to be standing rather in the way of your explanation.