--E. Frank Stephenson

... Miller beer is an inferior good:

Cash-strapped drinkers are starting to trade down to economy beers, the chief executive of Miller Brewing Co. said Thursday.

The Milwaukee-based brewer saw some shift between higher-priced, premium beers and economy beers such as Miller High Life and Milwaukee's Best starting in January, Tom Long told reporters on a conference call.

--Edward J. Lopez

"Do I have a gambling problem? Yeah, I do have a gambling problem," Barkley said. "But I don't consider it a problem because I can afford to gamble."

That is the inimitable Charles Barkeley, quoted in May 2006 by ESPN. Today the Wynn Las Vegas went public trying to collect a 7-month old $400,000 gambling debt.

--Craig Depken

A letter writer provides valuable insight into the relationship between government spending, property taxes and rental rates (before the era of rent-control) in the May 15, 1908 NYT :

I am a native-born New Yorker, have lived in many sections of the greater city, but have never seen as many apartments to let as this year. This city is run in such a loose, un-businesslike manner that it would bankrupt any private concern or corporation following such an administrative system. Officials seem to think of nothing but adding enormous expenses to the budget for useless and unnecessary things. Where is this money to come from?

Why, from the owners of property of course, who in turn, to meet their expenses, must raise the rents.

If the people would keep tab on our officials and make them toe the mark of honesty we could live for just one-half the rents we are now paying, and the owners of property could make as much, if not more, profit than they do.

Might the Tiebout effect been at play before there was a Tiebout effect?

--Craig Depken

Corporations in the early 1900s are often depicted as being callously indifferent about the safety of their employees (even more so than today), famously described in Sinclair's The Jungle and Thomas Bell's Out of this Furnace. As Sam Peltzman<,/a> and others have pointed out, government regulation of the workplace tends to yield more safety or other intended "benefit" than is socially efficient and often fails in providing safety that might otherwise have been provided by the private sector.

An example of self-regulation in the workplace long before OSHA is reported in the May 15, 1908 NYT:

Extreme measures to prevent future mine disasters have been taken by the H.C. Frick Coke Company, the coking division of the United States Steel Corporation. Orders have been issued providing for the dismissal of miners who become so intoxicated while off duty that they are incapacitated for work the following day...

They declare that the use of intoxicants among the miners, particularly the foreign element, has been so pronounced in recent years that they cannot afford to employ them. At such times, they allege, the men take chances that they would not take if in their normal condition.

In mining, one mistake can have substantial negative externalities on the other workers in the mine. Therefore, the company doesn't seem to be singling out drinkers because of their individual health-related problems, unlike many firms today that propose limits on off-duty activity such as smoking, drinking, and sky-diving to save money on "health insurance" rather than ensuring the safety of co-workers.

--Edward J. Lopez

Roger Koppl has a column in the new online and print editions of Forbes, called "What's Wrong with CSI". The editors also run this accompanying editorial. From the opening lines of Roger's column.

Forensic evidence is foolproof, right? It's how those clever cops on CSI always catch the killer. DNA evidence springs innocent men from prison. Fingerprints nab the bad guys.

If only forensics were that reliable.

Roger goes on to discuss error rates in fiber, paint, body fluids, fingerprints, and DNA testing, and then talks about a few of the many "horror stories" that come from these error rates. Roger then summarizes his economic and institutional analysis.

The core problem with the forensic system is monopoly. Once evidence goes to one lab, it is rarely examined by any other. That needs to change. Each jurisdiction should include several competing labs. Occasionally the same DNA evidence, for instance, could be sent to three different labs for analysis.

This procedure may seem like a waste. But such checks would save taxpayer money. Extra tests are inexpensive compared to the cost of error, including the cost of incarcerating the wrongfully convicted. A forthcoming study I wrote for the Independent Institute (a government-reform think tank) shows that independent triplicate fingerprint examinations in felony cases would not only eliminate most false convictions that result from fingerprint errors but also would reduce the cost of criminal justice if the false-positive error rate is more than 0.115%, or about one in a thousand.

As I've mentioned previously, one of Roger's studies that focuses primarily on fingerprinting standards is forthcoming in my book, Law without Romance (preview here). In fact, it's the study he cites above. In his chapter, Roger does the cost-benefit analysis to support his results, and he also lays out a series of institutional reforms to forensic science administration that would promote greater efficiency and fewer wrongful convictions. (Independent Institute will be sending the book to publishers soon, and I'll have more to say about the other chapters in due course.)

In the past six months or so, Roger has published a series of studies and op-eds and he's testified before the National Academy of Sciences. Congratulations to Roger for his increasing exposure on this important issue. For more, see his Institute for Forensic Science Administration website, with links to articles and other columns.

--Art Carden

I finally figured out some of the problems I've had with uploading papers to SSRN. It works in Internet Explorer; I haven't been able to do it with Firefox. In any event, I've uploaded two papers about Hurricane Katrina, one under review, the other forthcoming. Finally, with the gracious permission of the journal editors, I have uploaded my review of Benjamin Powell's edited volume Making Poor Nations Rich, forthcoming in the Review of Austrian Economics.

"Sound and Fury: Rhetoric and Results After Hurricane Katrina"
Under Review, Journal of Business Valuation and Economic Loss Analysis

Abstract:

Free markets in capital and labor are essential to rapid recovery from natural disaster. Political and rhetorical responses to Hurricane Katrina included denunciation of “price gougers” in the market for gasoline; the arbitrariness associated with anti-price gouging legislation may create uncertainty that reduces the attractiveness of the investment climate.

"Beliefs, Bias, and Regime Uncertainty after Hurricane Katrina"
Forthcoming, International Journal of Social Economics

Abstract:

This essay explores the relationship between beliefs and economic policy in the context of gasoline prices Hurricane Katrina. Evidence of anti-market bias is identified in polling data, press releases, and legislation, and it is argued that the uncertainty emanating from statutes restricting price gouging may reduce investment in the provision of necessary goods and services after natural disasters.

--Art Carden

Greg Mankiw discusses reasons to veto the Farm Bill. Here are two posts from Mike on the biases discussed by Caplan and a debate about agricultural subsidies featured in an issue of the Costco newsletter about a year ago.

--Craig Depken

The May 14, 1908 NYT has a four line "story" that would today generate hundreds of pages of print, hundreds if not thousands of hours of air time, and perhaps a march of several thousand in Washington:

The Senate to-day passed without amendment the House bill restoring the motto "In God We Trust" on coins of the United States.

--Craig Depken

The May 14, 1908 NYT reports on advancements by the Wright Brothers in North Carolina:

The Wright brothers' aeroplane made a flight of three miles at Kill Devil Hill to-day. The most remarkable thing about the flight was the presence of both the Wrights in the machine. They were unmistakenly seen in it as the machine soared by a group of responsible observers, and then were seen to step from the machine when it halted.

One wonders if one of the "responsible observers" dreamed of passenger plane service, but on a larger scale.

However successful the three mile flight, air travel obviously had a long way to go. One might grant the skeptic at the time a bit of slack, as the story reports:

A short flight of three-quarters of a mile was made by the machine earlier in the day. That was stopped by a tree, which could not be avoided without danger. The machine was brought to the ground in an instant. It struck with considerable force, but both the navigator and machine escaped without injury.

Furthermore, the primary motive power of the aeroplane didn't invoke a lot of confidence at the time:

Having seemingly mastered the new steering gear of the machine, they [the Wrights] have now to contend with the unreliability of its gas engine. The engine of thirty horse power and weighing but 150 pounds is fully able to sustain the machine in flights as long as it runs, but its operation for any specified time cannot be guaranteed.

Thankfully the Wrights (and others) didn't give up.

--E. Frank Stephenson

1. President Bush wants to limit farm subsidies to farmers earning $200k or less; Democrats want millionaire farmers to continue to be eligible for subsidies. (Source here; scroll down to #1.)

2. While wanting to continue to subsidize millionaire farmers, Democrats want to increase taxes on people earning as little as $102k (e.g., Obama thinks the taxable earnings cap on the payroll tax should be eliminated; Obama also favors eliminating the Bush tax cuts).

Huh?

--E. Frank Stephenson

The Lexus LS600H, which costs £84,000, was a gift from Lexus to the 65-year-old former Beatle [Paul McCartney], who helped promote the hybrid vehicle.

But instead of arriving by boat as expected, the car was flown to Britain on a Korean Air flight, creating a carbon footprint almost 100 times bigger than if it had come by sea.

Source. NB--The article suggests the blame may lie with Lexus not McCartney.

--Art Carden

Thomas Sowell gets in touch with his inner Bryan Caplan. My favorite passage:

The problem is not that supply and demand is such a complex explanation. The problem is that supply and demand is not an emotionally satisfying explanation. For that, you need melodrama, heroes and villains.

Oil companies enjoying record or even obscene profits while we watch the price of gas go up and up and up and up makes for a great morality tale. But Sowell asks an important question about the supposed obscenity of those profits: compared to what? Sure, $40 billion is an enormous chunk of money relative to most sums with which I deal on a daily basis, but Exxon/Mobil's profit margin is 10.82%, which compares favorably with long-run average market returns. By comparison, Google's profit margin is on the order of 25%. Exxon's profit margins are higher than profit margins for most of the firms I looked at on the Business Ethics 100 Best Corporate Citizens 2007 List, but profits as such are nothing to get upset about; if anything, they should be celebrated because they show that the profitable firm is using resources to create something people value.

This comes with obvious caveats about the political economy and public choice considerations in oil markets. However, I'm skeptical of the view that oil companies are manipulating the marketplace. In its "Investigation of Gasoline Price Manipulation and Post-Katrina Gasoline Price Increases," the FTC found that firms up and down the gasoline supply chain are price-takers rather than market manipulators. Conspiracy theories can be fun and international political instability definitely plays a role in determining oil market conditions, but I'm not convinced that there's anything more fundamentally nefarious than the normal operations of supply and demand driving up oil prices, all other things equal.

HT: Greg Mankiw.

--E. Frank Stephenson

Re Bob's recent post, here are the abstracts of two papers on payday or predatory lending. Banning such lending looks like a typical case of government busybodies wanting to feel good rather than actually doing good.

Paper 1:

We define predatory lending as a welfare-reducing provision of credit. Using a textbook model, we show that lenders profit if they can tempt households into debt traps, that is, overborrowing and delinquency. We then test whether payday lending fits our definition of predatory. We find that in states with higher payday loan limits, less educated households and households with uncertain income are less likely to be denied credit, but are not more likely to miss a debt payment. Absent higher delinquency, the extra credit from payday lenders does not fit our definition of predatory. Nevertheless, it is expensive. On that point, we find somewhat lower payday prices in cities with more payday stores per capita, consistent with the hypothesis that competition limits payday loan prices.

Paper 2:

Payday loans are widely condemned as a predatory debt trap. We test that claim by researching how households in Georgia and North Carolina have fared since those states banned payday loans in May 2004 and December 2005. Compared with households in all other states, households in Georgia have bounced more checks, complained more to the Federal Trade Commission about lenders and debt collectors, and filed for Chapter 7 bankruptcy protection at a higher rate. North Carolina households have fared about the same. This negative correlation-reduced payday credit supply, increased credit problems contradicts the debt trap critique of payday lending, but is consistent with the hypothesis that payday credit is preferable to substitutes such as the bounced-check protection sold by credit unions and banks or loans from pawnshops.

--Art Carden

I've uploaded a very preliminary version of a paper entitled "Economic Growth and the Entrepreneurial Environment" (co-authored with Lisa Verdon, Florida State University) to SSRN. Comments and suggestions welcome. My co-author will present this paper at George Mason in September and at the Southern Economic Association meetings in November. Here's the abstract:

Corruption supposedly reduces economic development by creating an uncertain contracting environment and by preventing the state from efficiently providing public goods and correcting externalities. However, corruption can be efficiency-enhancing in countries with relatively little economic freedom. Corruption in the military appears to reduce economic growth, while corruption in the educational environment appears to increase economic growth.

--E. Frank Stephenson

I've done some sniffing around about the clothes hanger antidumping tariff. (Previous posts here and here.)

The dumping complaint that led to the tariff was filed by M&B Metal Products Company of Leeds, Al. Here are the thoughts of M&B's president Milton Magnus on the Chinese firms accused of dumping:

"The price they pay for wire is about 30 percent less than what we pay," he said. "They're paying workers 83 cents an hour. Ours, with benefits, are getting $15 to $20 (an hour)."

Ah, yes, the cheap foreign labor bit--of course, lower costs abroad make it unlikely that the Chinese firms have truly dumped (i.e., sold their product below cost). But that's not the real point of this post.

Instead, here's the kicker--M&B has a plant in Mexico. Maybe M&B's plant is located in Mexico for the sunny weather or easier access to tequila, but my guess is that it has something to do with cheap labor. On the one hand, M&B whines about cheap labor in China; on the other hand, it locates a plant in Mexico. That takes Big Onions!

--Robert Lawson

Greg Mankiw writes:

A key question in the design of the system is how those carbon allowances are allocated. Are they given out for free to power companies and other established carbon emitters? Or are they sold at auction so the revenue can be used to reduce government debt, fund public programs, or reduce distortionary taxation? If the allowances are sold, their price resembles a Pigovian tax, which readers of this blog will recognize as the optimal policy response.

I beg to differ. As the Coase Theorem suggests, the method of initial allocation of the carbon allowances should make little difference to the real economic outcome. Even if the allowances are given out for free, they immediately would command a price on the carbon allowance market, and thus any firm that used its carbon allowance would incur a current opportunity cost for doing so. The incentive to reduce the firm's use of carbon would be in place -- just like a Pigouvian tax.

If you gave me the choice, I'd rather give the damned things away because if the government sells off the allowances (or uses Mankiw's Pigouvian tax instead) it will only feed the rent seekers in Washington. Does he really think the new revenue would be used to pay down the debt or reduce distortionary taxes or even fund (useful) government programs? As John Stossel would say: Gimme a break!

--Lawrence H. White

In his New York Times Economic View column of 11 May, “When Should the Fed Crash the Party?,” Peter L. Bernstein unfortunately perpetuates a myth based on an almost certainly spurious quotation. He puts in Treasury Secretary Andrew W. Mellon’s mouth, using quotation marks, the declaration that the proper response to the crash of 1929 was: “Liquidate labor, liquidate stocks, liquidate the farmers, liquidate real estate.” We do not, however, have any good reason to believe that Mellon ever spoke those words, or the other words Bernstein attributes to him. The sole and original source of these phrases is The Memoirs of Herbert Hoover (1952), which introduces them with the preamble “Mr. Mellon had only one formula: ”. The sentences in question appear in a passage where Hoover depicts himself as an enlightened economic policy activist in 1929, in contrast to Mellon, whom he depicts as leader of “the leave-it-alone liquidationists”. One must strongly suspect that Hoover was caricaturing Mellon to make himself look good.

Mellon’s public statements, writings, and a recent biography drawing on his papers all belie the caricature. His speeches contain no statement of liquidationist views; rather they urge that the Federal Reserve System should counter crises and “promote stabilization”. Mellon’s views on anti-Depression policy were less activist than Hoover’s. For example, Mellon was understandably not keen on Hoover’s policy of summoning businessmen to the White House to urge them not to cut wages even as product sales and prices collapsed. But Mellon’s views were not those of a one-formula liquidationist. As an ex-officio member of the Federal Reserve Board, he successfully urged the central bank to cut its discount rate after the stock market crash in October 1929, and supported subsequent rate cuts. In November 1929 he recommended tax cuts to stimulate the economy. He supported Hoover’s proposal to increase federal construction spending. Most damaging to Bernstein’s use of (Hoover’s caricature of) Mellon to disparage current-day non-interventionists, Mellon – wisely or not – supported the Administration’s initiative to create a National Credit Corporation, and its successor the Reconstruction Finance Corporation, to lend billions to illiquid banks.

Many well-known economists have perpetuated the myth by treating Hoover's "quotation" of Mellon as authentic. For details see my forthcoming JMCB paper.

--Edward J. Lopez

In a new editorial, Jacob Sullum at Reason writes of New York City's little-noticed marijuana crackdown.

While marijuana arrests have risen between two- and three-fold nationwide since 1990, the increase in New York has been much more dramatic. "From 1997 to 2006," sociologist Harry Levine and drug policy activist Deborah Small note in the NYCLU report, "the New York City Police Department arrested and jailed more than 353,000 people simply for possessing small amounts of marijuana. This was eleven times more marijuana arrests than in the previous decade."

Based on their analysis of arrest data and their interviews with police, arrestees, and public defenders, Levine and Small conclude that the pot busts are largely a byproduct of the NYPD's aggressive "stop and frisk" tactics. The U.S. Supreme Court has ruled that police may briefly detain people they suspect of involvement in criminal activity and, as a precautionary measure, pat them down for weapons. Taking advantage of this Fourth Amendment loophole, New York City police stopped and frisked people more than half a million times in 2006.

...

Levine and Small note that busting pot smokers is a relatively safe and easy way to pad arrest figures, which creates the illusion of productivity, and generate overtime pay, a practice known as "collars for dollars."

From the collars' perspective, getting arrested for a trivial, victimless offense, which saddles them with criminal records that can impair their ability to obtain an education and make a living, is humiliating and embittering. It is especially rankling because police seem to be targeting poor black and Hispanic men for treatment that would not be tolerated if it were aimed at affluent white New Yorkers.

Survey data indicate that among 18-to-25-year-olds, the age group where the pot busts are concentrated, whites are more likely than blacks or Hispanics to smoke marijuana. Yet Levine and Small found that in New York blacks and Hispanics are, respectively, five and three times as likely to be arrested for marijuana possession.

--E. Frank Stephenson

As night follows day, it was inevitable that the Commerce Department's preliminary finding of dumping in the market for hangers had disrupted dry cleaners and led to higher prices for consumers. From today's RN-T:

Food prices are rising. Rice is rationed. Politicians are pointing fingers. (OK, that’s not news).

What’s next, you wonder?

Have you looked in your closet?

Clothes hangers are costing more and are in diminishing supply, and Rome cleaners are asking customers to recycle.

The sudden shortage is a direct result of an “anti-dumping” tariff imposed by the U.S. Department of Commerce in March on hangers imported from China.

The tariff, according to Phenix Supply Co, a laundry and dry-cleaning supplier, was imposed “in order to allow United States manufacturing to return to an environment that will allow them to compete and return jobs to this country.”

Marie Sledge, co-owner of Rome Cleaners with husband Shayne, shared a letter from one of the business’s suppliers, Morris & Eckels. It states: “We strongly recommend that our customers implement an aggressive hanger recycling program to supplement the shortage of hangers.”

“Hangers last year at this time were $28 a box, where now they are $56,” Marie Sledge said.

There are 500 hangers per box, she said.

It will take a while for American manufacturers to step up production, Patel said, and there’s no guessing where the price of hangers will land.

--Robert Lawson

*Title explained (p. 31).

--Craig Depken

From the May 11, 1908 NYT:

One night in jail was enough for Edwald Siebert. Rather than pay a fine of $10 and costs, assessed on a charge of being disorderly, Siebert, who is 60 years old and reputed to be worth $60,000, declared he would work it out in the county workhouse.

After spending last night in a cell, Siebert sent for his secretary and had him go to Justice Wangelin's court and pay $18.50, the fine and costs.

$10 in 1908 was approximately $226 in 2006 dollars. It seems that Mr. Siebert had a mistaken impression of the net costs of jail. However, given that his information set had changed, particularly that the value of time behind bars was considerably less than the value of time not behind bars, at least Mr. Siebert had a buy-out option (for $418 2006 dollars).

--E. Frank Stephenson

Officials at First Baptist Church of Snellville want to pay for your gas and maybe even give your teenager a car.

Actually, they want to entice newcomers and backsliders to their May crusade and they're using ever-rising gas pump prices as a clever draw. And one blessed teenager will drive away with a 2000 Ford Explorer.

From Sunday morning through Wednesday night, each time regulars or religious freshman stroll through the doors to attend a revival, they'll get another chance to win one of two $500 gas cards.

Teenagers will qualify for a drawing Tuesday night for one of 10 car keys. Then, one-by-one those fortunate few will take turns starting the SUV's engine to learn who gets to keep it.

"A lot of folks have gotten excited about this opportunity," head pastor Rusty Newman said.

For decades, churches have tried to entice wayward residents through their doors through spaghetti supers, revivals and summer camps. This a new twist was thought up by James Lee, the church's pastor for senior adults.

Source.

--Art Carden

Bryan Caplan will. Kids want parents to be less stressed out and tired, not just parents who give them "more time." According to Caplan:

The upshot: If you really don't want to do something with your kid, think twice about doing it. If you're going to be a grump about it, he'd probably prefer not to do it either. It might sound like a convenient rationalization, but it's true.

A very useful insight, since Jacob Henry Carden is about three months in the offing.

--Art Carden

Greg Mankiw has an intriguing post about whether Harvard could or should leave Massachusetts in response to a proposed MA plan to tax large university and college endowments. Mankiw wonders specifically whether the University should create "Harvard South" in another state. I would think Rhode Island would be a natural choice; according to Google Maps, Providence is only about an hour south of Cambridge, and though I've never been there I've heard it's very nice. That raises another interesting question: would colleges and universities be able to shake down state and local governments for subsidies the way pro sports franchises have been able to do? How would Division I sports factor into the bargaining? Given that private schools would have more mobility than public schools--I doubt my alma mater could credibly threaten to move to Atlanta, Seattle, or Los Angeles--how would this change the distribution of resources going into higher education? Perhaps most importantly, how would donors respond? Comments are open if anyone has any ideas (or offers for mortgage refinancing or no-limit Texas Hold 'em).

--Art Carden

I gave a speech last night to the Phi Beta Kappa Association of the Mid-South on "Lessons from the Great Depression" and promised my hosts that I would post links to my sources and other resources on DOL. I summarized the received wisdom on the Depression (inept monetary policy) and then we talked briefly about credit expansion during the Q&A. Resources are below. NB: right after I saved this entry the first time, I saw James Hamilton's post from this morning asking "what if we'd been on the gold standard" today. It's now included among the links.

Read More »

--Wilson Mixon

Read More »

--E. Frank Stephenson

Matt Ryan explains.

NB--One of the commenters on Matt's post points out that the time people were willing to stand in line for a cheap pizza indicates they value their time at $3-4 per hour. Something to keep in mind next time someone whines that raising the minimum wage is necessary to avoid exploiting workers. Maybe minimum wage advocates should advocate price floors for pizzas.

--E. Frank Stephenson

In the same vein as Art's recent post on cross-price elasticity of demand:

Howard Gendron stopped driving his 28-foot cabin cruiser on Rhode Island's Narragansett Bay two years ago because gas prices were up and his waterborne gas hog sent his fuel costs "out of sight," he says.

But the mechanic had to satisfy his love of water, he says, so he bought a 21-foot Sea Ray with better mileage. "We downsized," says Gendron, 44, of Warwick, R.I.

Even so, the smaller boat was no match for recent gas prices. "We're not even putting it in this year because of the cost of fuel," he says.

Boaters and jet-ski owners are feeling the pinch of rising gas prices. Some are trying to sell their boats. Others are changing their habits. Instead of gunning their engines at high speeds, they're slowing down or drifting.

They're shortening trips or just hanging out in marinas, says Scott Croft, spokesman for the 650,000-member Boat Owners Association of the United States. He calls himself the "poster child" for boaters' reaction to gas prices.

MarineMax, which calls itself the country's largest recreational boat retailer, saw same-store sales fall 28% in the quarter ending in March compared with the same quarter last year. Glenn Sandridge, vice president for marketing, says gas prices don't affect consumer decisions as much as concerns about the overall economy.

Gendron, who has been trying unsuccessfully to sell his cabin cruiser, says both of his boats will sit in his backyard this year. "You cannot give a boat away up here."