Division of Labour: July 2004 Archives
July 29, 2004
The Ultimate Example of the Cheap Labor Fallacy

We've all heard the business about how workers in some less developed country will work for something like $1 per day thereby giving them an unfair advantage relative to U.S. workers.

One of the many flaws in the argument is that it ignores international productivity differences. Workers willing to work for, say, 10% of what American workers earn are not a bargain if they are less than 10% as productive. This is often the case because of international differences in education, transportation and education infrastructure, capital, etc.

For the ultimate example of the pitfall of ignoring productivity differences, consider the following conversation between James Taranto (author of the WSJ's "Best of the Web Today" emailing) and a Boston public school teacher protesting at the Democrat convention (comments in brackets are mine):

When we [Taranto, using the royal we] tell him [the teacher] we work for The Wall Street Journal, he informs us that "20,000 children will starve to death today, and it's good for the stock market." We ask how it's good for the stock market, and he answers, "Hungry people work cheap."

Let's just humor the teacher a bit and see where his logic leads us. Suppose some sweatshop hired all 20,000 starved children at the miserly rate of 1 cent per day. Even at this rate, the cost of producing, say, a pair of Nikes would be infinite since children who have starved to death are incapable of producing anything (Dead people don't work at all, as the teacher might put it). And, although I'm not a finance prof., I doubt that infinitely expensive sneakers would do anything particularly good for Wall Street. Readers can draw their own conclusions about the wisdom of having this chap teaching innocent children.

The quote comes from Taranto's July 28 issue.

Posted by E. Frank Stephenson at 04:29 PM  ·  TrackBack (125)

Defense and Attitude

Bill James:

It seems obvious that jerks cluster on the left end of the defensive spectrum, the positions (1B, LF, RF) requiring the least defense, where the big hitters play. The more defense is required of a position, the more nice people seem to congregate there.

I’m speculating, and argue with me if you disagree, but playing defense is, by it’s nature, a selfless, team-oriented skill, while hitting is a glamour job. Thus, it is perhaps natural that defensive positions would attract and develop players whose focused extended beyond their self-interest, while hitting spots would appeal more to people who were looking out for number one.

[Bill James, The New Bill James Historical Baseball Abstract (New York: The Free Press, 2001), p. 543]

My take: Maybe good fielders are easier to replace than good hitters. After all, the minor leagues are filled with players of whom it is said could “field in the majors right now, but their hitting needs some work.” The opposite is not true. If you can hit major league pitching, you are in the majors. Good defensive players, therefore, can generally not afford to be jerks, because they easily replaced if the general manager feels that their attitude isn’t worth the few additional points of fielding percentage.

Posted by Joshua Hall at 10:10 AM

Another Victory for Public Choice Economics

Airport screeners at the Phoenix airport are apparently deliberately increasing passenger wait times in order to win themselves additional screeners:

Internal e-mails written by Fred Carter, screening chief at Phoenix Sky Harbor International Airport, and obtained by The Arizona Republic, alerted staffers to the move on April 5.

"I directed that the Screening Managers redistribute screeners as appropriate today as a beginning step in our effort to increase our wait times," Carter wrote to his supervisor, Marcia Florian, federal security director for Arizona.

Click here for the full story.

So Fred Carter is the first winner of our "What Bureaucrat is Most in Need of a Tail-Kicking" prize. I'll send $5 to the first person who can send me evidence that Fred Carter has been fired. I suspect my money is safe.

Posted by E. Frank Stephenson at 09:21 AM  ·  TrackBack (102)

Conservative Colleges

My alma mater tops a list of the top 10 conservative colleges.

It seems to me that there are two obvious omissions: Hillsdale College and Grove City College.

As for W&L's ranking, I suspect it has more to with the students than with the faculty. While I recall there being a couple of conservative faculty members (which, come to think of it, might actually give W&L a more conservative faculty than most colleges), there were plenty of leftist ones as well.

This is probably a good time to make explicit what has been implicit in some of my previous postings--my political leanings. I consider myself to be a libertarian (note the small "l") rather than a conservative, but some who know me (e.g., my friend Brad Birzer at Hillsdale) think the term free market conservative is a better fit. Ironically, I grew up in a die-hard Democrat family and was not particularly libertarian (or conservative or whatever) while at W&L.

Hat tip to my colleague Gary Roseman for sending me the conservative colleges list.

Posted by E. Frank Stephenson at 09:04 AM  ·  TrackBack (37)

Amish in the City

Last night my addiction to reality TV drew me to a new program on UPN. Called "Amish in the City," it assembles a "Real World"-like cast of attractive young people in a beautiful California home, but then--here's the twist--it brings in five Amish kids who have never experienced life away from their communities. The Amish are in the midst of rumspringa, a period in which they are encouraged to experience life outside the community before being baptized and committing themselves wholly to the Amish way.

Read More »

Posted by at 08:08 AM  ·  TrackBack (130)

July 28, 2004
Compared to What?

I was reading a recently reading a review of Teacher Pay and Teacher Quality in The Journal of Policy Analysis and Management. The reviewer, while applauding the analysis in the book, argues that the authors’ policy prescriptions don’t flow from their analysis. Essentially the authors - according to my reading of the review as I haven’t read the book – are arguing that the solution to improving the labor market for teacher is to increase competition through privatization, charter schools and other forms of school choice.

Read More »

Posted by Joshua Hall at 11:13 PM

Who favors concentrated wealth?

I've been thinking about Frank's post on the concentration of wealth/income and about Clinton's claim that "Republicans favor concentrated wealth."

Maybe this is so, but big government democrats favor the biggest concentration of wealth (and income) of all: the government itself.

Read More »

Posted by Robert Lawson at 09:28 AM  ·  TrackBack (11)

July 27, 2004
Homebrew, Sweet Homebrew

This evening I opened the first bottle of my first batch of home-brewed beer. A pilsner, slightly ruddy in complexion, hoppy up front, with a strong aftertaste. On the whole I think it's pretty good for my first time out, especially given that I had no way of storing it at the ideal pilsner temperature, which is between 55 and 60 degrees Fahrenheit. The best I could do was the basement, which hovered somewhere between 65 and 70. It makes for a stronger tasting beer, but still satisfactory.

Now I need to come up with a name. Right now I'm partial to "Moserbrau," but I'm open to suggestions.

Posted by at 05:55 PM  ·  TrackBack (33)

I've got the BMV Blues

Twice in the last two weeks, I've had occasion to visit Ohio's Bureau of Motor Vehicles. First to transfer a car title (thanks Josh, I love the new car!) and today to renew my license.

Grrrrrr.

No, I won't comment on the long wait or rude service. These are to be expected. I want to know why they don't accept credit cards!?! In the case of the title transfer, we were talking about a transaction of several hundred dollars what with the sales tax.

In contrast, last week at the Seattle Airport I bought a $1 Snickers bar from a vending machine with my American Express card.

How anyone can believe these bumbling morons should be in charge of [fill in the blank] is beyond me.

On the other hand, keeping the BMV around is probably the best advertising for markets we could ask for. My friend Russ Roberts has a nice post about using these sorts of visits as "teachable moments" with your kids.

UPDATE: My wife just got back from her own trip to the BMV to renew her license (our birthdays are two days apart so we're on the same schedule to renew them). They took her new picture and she sat there for 15 minutes before she finally asked how long it would be before the license was ready. They told her "oh yea" the machine screwed up and she would need to retake the picture. Apparently they were going to let her sit there all day. Total time to renew a license: 1 hour. Her words: "If we had any choice and they had to run a profit, they'd be out of business!"

Posted by Robert Lawson at 03:31 PM  ·  TrackBack (33)

Man Bites Dog Again!!

In today's WSJ, Scott Simon of NPR (yes, that NPR!) writes that there is "more McCarthy than Murrow in the work of Michael Moore."

Read the full article here.

Posted by E. Frank Stephenson at 01:37 PM  ·  TrackBack (117)

Coming Soon to a Theater Near You

Work is progressing on the remake of Woody Allen's campy 1972 film Everything You Always Wanted to Know About Sex.

For a photo from new version of the sperm scene click here or here.

Here's a photo of Woody and pals in the original scene. Kudos to co-blogger Bob for finding this gem.

Posted by E. Frank Stephenson at 12:07 PM  ·  TrackBack (101)

An additional note re: Harry Potter

Regarding the question of whether or not the Harry Potter books are set in a pro-free market universe: The comments on this question thus far have been well made. I wanted to make just a couple additional observations before this topic disappeared entirely.

JK Rowling does give great credit to the departure of one of the main character's two older brothers from Hogwarts (Ron's older twin brothers) in the middle of their last year (their final grade) in order to start their own entrepreneurial venture (a joke shop -- for which they get their seed money from Harry Potter). Their departure from the school comes after at least two years of careful planning and is given heroic tenor in its execution.

I do not think there is any doubt that JK Rowling's universe is both unashamedly pro-free market and consistently critical of the potential overextension of government.* As Bob Lawson mentioned before, and as mentioned in the newspaper article, the Ministry of Magic (in Harry Potter’s world) is regularly represented as blundering and bureaucratic. One of my favorite asides that JK takes in this arena is her making light of a study on the thickness of cauldron bottoms by one of the characters who turns to "dark side" (a report he writes in his official government position). He simply cannot understand why no one else finds his work interesting or important.

* To be clear, JK Rowling does not specifically define the threat of the over-reach of government -- I am simply suggesting that her representation of government often suggests this potential.

Posted by at 11:51 AM

Big Government and Economic Freedom

The folks over at Crooked Timber have picked up on an on-going controversy related to the economic freedom index project.

Specifically, if you look at the measures for "big government" they tend to correlate negatively with other parts of the economic freedom index (as well as positively with nice things like income and gender equality). This is most pronounced when looking at the size of government (Area 1 of the index) and the rule of law area (Area 2). Big government nations tend to have better rule of law (and better monetary policy and be more open to foreign trade).

Read More »

Posted by Robert Lawson at 09:41 AM  ·  TrackBack (32)

Spousal Support of Career Changes

Given the importance of my wife's aid and counsel to my decision to go back to school, I couldn't help but appreciate this scene from Thomas Sowell's A Personal Odyssey, (New York: Free Press, 2000), 177.

Sowell was teaching an economics class for engineering students and they were doing terrible in it - half the class was in danger of failing when the chairman of the economics department came to him to explain why he should change his class and grading format. The chairman explains that the department is being paid by the engineering department to teach the class and that money is very important to those in the department who will be voting to renew Sowell's contract. Sowell's response, and his subsequent discussion with his wife, follow.

"Since I intend to keep on making my own decisions as I see fit, I assume that others will make their decisions as they see fit," I said as I got up and walked out.

When my wife picked me up after work, I told here as I got into the car:

"Well, you needn't worry any more about our settling permanently in Ithaca."

After hearing what had happened, she said:

"Suppose you get fired?"

"Then I'll go back to work in private industry. We can use the extra money."

"In that case, give 'em hell."

Posted by Joshua Hall at 08:23 AM

It's All About Perspective

From Thomas Sowell, A Personal Oddessy (New York: The Free Press, 2000), 134-135.

Although I preferred the Bureau of the Budget as a place to work, I was in no financial condition to pass up higher-paying jobs elsewhere. The Bureau of the Budget assured me, however, that they would hire me as a GS-9, so I declined offers from the Federal Reserve and the Labor Department. ... I soon realized I had been deceived [and was being brought in as a GS-7]. After only three days on the job, I resigned on Thursday - effective Friday.

That got a lot of people's attention, which is what I intended. I did not want who want whoever was responsible for this double-dealing to escape scrutiny. One of the people who became involved was a black secretary who took me aside in the hall, to ask me to reconsider. She pointed out to me how recently blacks had begun to be hired in worthwhile positions in many government agencies.

"Do you realize that I am the first black secretary in the history of the Bureau of the Budget-and that you are the first black professional?" she said. So you see, you can't leave."

"On the contrary," I said. "Now I will have the further distinction of being the first black professional to resign from the Bureau of the Budget."

Posted by Joshua Hall at 07:49 AM

Dusting Off the Clinton Truth-o-meter

In his Democratic convention speech, former president Clinton claimed that "Republicans favor concentrated wealth."

Let's see what the Census Bureau has to say.

I propose to evaluate the Clinton proposition by comparing the Gini coefficient (a measure of income inequality; a bigger Gini means less income equality) and the share of income earned by the top 5% of income earners in the 1980-1988 and 1992-2000 periods:

Year Gini Top 5% Share
1980 0.403 15.8%
1988 0.427 18.3%
Gini Change 80 to 88= 0.024
Top 5% Share change 80 to 88= 2.5%

Year Gini Top 5% Share
1992 0.434 18.6%
2000 0.462 22.1%
Gini Change 92 to 00= 0.028
Top 5% Share change 92 to 00= 3.5%

So, ladies and gentlemen, whose presidency seemed to "favor concentrated wealth?"

By the way, the most recent data available are for 2002. They show a Gini of 0.462 (unchanged since the departure of Clinton) and a top 5% share of 21.7%, down slightly since Clinton.

Since precision is particularly important to the president known for carefully parsing the meaning of "is," let me give some caveats to the discussion above:
1. Yes, the Census Bureau data are income not wealth. I suspect wealth data exhibit a similar, if not more pronounced, pattern but those data are not readily available.

2. Unlike USDA surplus cheese, income is earned not distributed. Moreover, income "distribution" data are sensitive to things such as the age distribution of the underlying population.

3. No, I don't really think Clinton policies were more tilted (or whatever) toward the rich; I suspect that the changes in both periods reflect business cycle conditions and the like.

4. Since Clinton was probably referring to the Bush tax cuts of 2001 and 2003 wouldn't after tax data be more relevant? Perhaps, but again I suspect we'd see the same trend. Who hasn't heard those statistics about the increasing share of income taxes being paid by high earners? As with other major tax legislation of the last two decades, the Bush cuts removed many low income earners from the tax rolls.

5. If this posting makes me seem like a Bush flack, please refer back to my earlier posting on the "dismal details on the 'thickening' of government under the Bush Administration."

Posted by E. Frank Stephenson at 12:59 AM  ·  TrackBack (126)

July 26, 2004
The Olympics, Now and Then

As we move toward this year's Summer Olympics in Athens, it's worth reflecting on what the games were like in the Greco-Roman era. This interesting article (found via Fark) suggests that they weren't as squeaky clean as we'd like to think.

My favorite part: "Olympic corruption peaked under Roman influence; in AD 67, emperor Nero bribed the judges to include poetry reading as an event. They also declared him the chariot champion, overlooking that he fell out and never finished the race."

It's good to be the emperor.

Posted by at 07:19 PM  ·  TrackBack (180)

Voting With The Feet

In The Armchair Economist, Steve Landsburg writes that economics can be summarized as "People respond to incentives."

Consistent with Landsburg's notion, a Goldwater Institute report finds that people migrated from high tax states to low tax states in the latter half of the 1990s.

Posted by E. Frank Stephenson at 04:56 PM  ·  TrackBack (25)

Lance Armstrong Rules!

Anybody want to bet against 7 in a row?

I've been a huge fan of Lance Armstrong ever since I read his book about overcoming cancer. (I read it when my mom was fighting her own bout and it was nothing short of inspirational.)

I had no idea how important the teamwork was in cycling until I read his book. Sure he's the best rider in the world. But he wins because he has the best team in the world. Put him on one of the other teams and he doesn't win.

Alex Tabarrok blogs on the game theory associated with cycling.

Here's an interesting article about how fast Armstrong could run a marathon. I think with a little bit of training he'd easily run a 2:20 marathon. (I'm training for my first one now and will be happy to break 4 hours!)

Posted by Robert Lawson at 02:49 PM  ·  TrackBack (38)

Doug North and EFW

A riddle: What do Douglass North and I have in common? (Answer below.)

First, something we don't have in common: North won the 1993 Nobel Prize for his research on the importance of institutions to economic performance.

Co-blogger Bob Lawson (see his recent Economic Freedom of the World posting) and his mentor Jim Gwartney have built on North's work by constructing their EFW database. Their work makes lots of empirical investigation of the role institutions possible [for an example (.pdf file) click here]. While economists are often criticized for research lacking relevance, Gwartney and Lawson's work is of great importance.

Now the answer to the riddle: Our wives are both from Benzonia Michigan. While visiting Benzonia in the mid-1990s, Prof. North graciously had me over for a Coke and hour of conversation. He must have been bored beyond belief spending an hour with a green and naive graduate student, but I'm grateful for his time and hospitality.

Posted by E. Frank Stephenson at 10:25 AM

Man Bites Dog

The following quote would be right at home at the Heritage Foundation or the Cato Institute:

Unlike the private sector, which extols the virtues of less is more when it comes to management layers, Congress and presidents continue to behave as if new layers of management and more managers at each layer somehow improve accountability and performance. In fact, more is actually less when it comes to making sure the frontlines of government have the resources and guidance they need to faithfully execute the laws.

But guess what? The quote does not come from Heritage or Cato--it comes from Paul Light of the center/left Brookings Institution. In addition to examing the organizational behavior/lack of accountability in bureaucracies, Light's article also reports some dismal details on the "thickening" of government under the Bush Administration.

Thanks to my colleague Wilson Mixon for the heads-up.

Posted by E. Frank Stephenson at 09:50 AM  ·  TrackBack (36)

Reforming Higher Education

Arnold Kling, in a review of Richard Vedder's new book Going Broke By Degree, relays the following anectdote:

Student: Why is society paying me to go to graduate school in economics?

Professor: Society doesn't know what the heck it's doing.

This interchange, which took place in 1975 at the Massachusetts Institute of Technology, was relayed to me by Jeff Hammer, a classmate of the student. The Professor, Nobel laureate Robert Solow, is known for his sense of humor, and he was surely joking. I am confident that Professor Solow would subscribe to the conventional wisdom, which is that government spending on higher education has great benefits for society and is particularly helpful to people with low incomes.

Read the whole review as Kling raises some very interesting puzzles regarding higher education.

Posted by Joshua Hall at 09:36 AM

Better News from the Dem. Convention

This was going to be a good news/bad news posting. However, since John's posting on Marie Antoinette Kerry's civility has taken care of the bad news part, I'm left with the happy task of posting some better news.

Here's another quote (scroll down) from a prominent Democrat:

“I understand the basic premise that Bill Cosby is talking about, and I think he’s right about it,” [Democratic Illinois Senate candidate Barack] Obama said on NBC’s “Meet the Press.”

Don't get too excited--Obama also spouts some stuff about "community responsibility."

Of course, Cosby and Obama are johnny-come-latelies. For an earlier example, see John McWhorter's excellent book Losing the Race .

Posted by E. Frank Stephenson at 09:36 AM  ·  TrackBack (35)

Economic Freedom of the World

We recently released the 2004 edition of the Economic Freedom of the World report that I co-author with Jim Gwartney (Florida State University).

Jim and I did a press conference at the Cato Institute which generated quite a lot of press.

An AP wire story was picked up many places including Yahoo! and Forbes.com. The Economist (subscription only) ran a story. NRO and Investor's Business Daily (not online) ran different op-eds by Jim and me.

Finally, we've had a lot of blog action including a nice post by Alex Tabarrok at Marginal Revolution.

The entire report can be purchased from Amazon.com here.

Or it can be downloaded from here.

Posted by Robert Lawson at 09:31 AM in Economics

Thou shalt be civil, except toward Republicans

Meeting with a group of Pennsylvania delegates before the Democratic National Convention, Teresa Heinz Kerry emphasized the importance of good manners and civility. "We need to turn back some of the creeping, un-Pennsylvanian and sometimes un-American traits that are coming into some of our politics," she told them. When she was finished, Colin McNickle of the conservative Pittsburgh Tribune-Review asked her to clarify what she meant by "un-American." She denied using the term. When pressed, she told McNickle to "shove it."

After the incident a spokesperson for Heinz Kerry helped to clear things up. "This was sheer frustration," said Marla Romash, "aimed at a right-wing rag, that has consistently and purposely misrepresented the facts in reporting on Mrs. Kerry and her family."

Posted by at 07:54 AM  ·  TrackBack (26)

July 24, 2004
Windschuttle and the Aborigines

It seems Keith Windschuttle is making waves again. The Australian historian, who in 1998 attacked the creeping of postmodernist literary theory into the historical community in The Killing of History, has a new book out, entitled The Fabrication of Aboriginal History. This time he is taking issue with something even dearer to the hearts of left-wing Australian historians than postmodernism--that is, the notion that British settlers waged a campaign of extermination in Australia against the aboriginal population. According to Windschuttle, the sources do not justify this interpretation, which has held sway in academe for at least the past thirty years.

What is most interesting--and, alas, predictable--is the reaction of the historians' guild, the Australian Historical Association. Rather than take issue with Windschuttle's sources, or his interpretation, members of the organization apparently simply assume that he is wrong. A panel discussion on The Fabrication of Aboriginal History was devoted not so much to discussing it, even to refute it, but rather to complain that the book was published at all. They suggested that it was part of a media conspiracy to promote a right-wing agenda "to lift a burden of national shame from Australian shoulders over the Aboriginal issue."

Not everyone at the event appreciated its tone. One attendee told reporters, "I was quite astonished. It was like 'let's get a group of people together to ambush Windschuttle'. I think they feel under threat and that's why they concoct these conspiracy theories."

Posted by at 04:06 PM  ·  TrackBack (160)

July 23, 2004
More Choice = More Competition

It looks like widespread school choice (e.g. universal vouchers/tax credits) is unlikely to come anytime soon. But it's amazing how even a touch of competition can generate results. To wit, consider that the Columbus Public School District is considering opening a charter school of its own. And get this...it may be non-union.

Read the article here.

Posted by Robert Lawson at 10:45 PM

Along Came Polly

Do you remember the Odd Couple, the classic TV series? Felix and Oscar epitomized opposities. Felix kept everything straight and Oscar was a slob. There is a recent twist on the odd couple, Along Came Polly, which stars Ben Stiller and Jennifer Aniston. Ben Stiller's character cleans compulsively and Jennifer Aniston's character is so carefree that she can never find what she needs in her apartment.

There is an intersting lesson here for those who want to examine efficient behavior in a funny and compelling way. It turns out that you can clean too much (like Ben Stiller) or too little (like Jennfier Aniston). If you want to get across the power of marginal thinking and optimal behavior this is great way to enliven your course. Along Came Polly was released on DVD in June of 2004. Check it out.

Posted by at 06:29 PM  ·  TrackBack (24)

Re: Harry Potter, Capitalist?

Regarding Frank's posting on Harry Potter:

I have read the books and seen all the movies multiple times. The author of this piece is correct that Harry Potter's world, while so different from our own, is quite similar economically. These wizards still live in a world of scarcity and largely organize themselves using market exchanges. The bumbling bureaucracy of the Ministry of Magic also echoes our own world.

Naturally, the author of the Times article thinks this is a bad thing. Au contraire. It's great! Finally a popular kids book with a realistic understanding of economics.

It is a good contrast to another favorite fantasy world of mine: Star Trek. Although many of the values embedded in Gene Roddenberry's concept are individualistic (especially in the original series), the Star Trek world seems to get by (impossibly) without market exchange.

Posted by Robert Lawson at 01:08 PM

Adam Smith's Pin Factory

I thought it fitting that my first post to the blog be to quote from Adam Smith's pin factory example from the Wealth of Nations. Obviously, this was the inspiration for our blog name and the logo.

Note that Smith estimates somewhere between a 240 and 4800 fold increase in productivity by dividing the labour in this pin factory!


To take an example, therefore,*19 from a very trifling manufacture; but one in which the division of labour has been very often taken notice of, the trade of the pin-maker; a workman not educated to this business (which the division of labour has rendered a distinct trade),*20 nor acquainted with the use of the machinery employed in it (to the invention of which the same division of labour has probably given occasion), could scarce, perhaps, with his utmost industry, make one pin in a day, and certainly could not make twenty. But in the way in which this business is now carried on, not only the whole work is a peculiar trade, but it is divided into a number of branches, of which the greater part are likewise peculiar trades. One man draws out the wire, another straights it, a third cuts it, a fourth points it, a fifth grinds it at the top for receiving the head; to make the head requires two or three distinct operations; to put it on, is a peculiar business, to whiten the pins is another; it is even a trade by itself to put them into the paper; and the important business of making a pin is, in this manner, divided into about eighteen distinct operations, which, in some manufactories, are all performed by distinct hands, though in others the same man will sometimes perform two or three of them.*21 I have seen a small manufactory of this kind where ten men only were employed, and where some of them consequently performed two or three distinct operations. But though they were very poor, and therefore but indifferently accommodated with the necessary machinery, they could, when they exerted themselves, make among them about twelve pounds of pins in a day. There are in a pound upwards of four thousand pins of a middling size. Those ten persons, therefore, could make among them upwards of forty-eight thousand pins in a day. Each person, therefore, making a tenth part of forty-eight thousand pins, might be considered as making four thousand eight hundred pins in a day. But if they had all wrought separately and independently, and without any of them having been educated to this peculiar business, they certainly could not each of them have made twenty, perhaps not one pin in a day; that is, certainly, not the two hundred and fortieth, perhaps not the four thousand eight hundredth part of what they are at present capable of performing, in consequence of a proper division and combination of their different operations.

You can read the entire Wealth of Nations here

Posted by Robert Lawson at 11:23 AM

July 22, 2004
Everyone Needs A Little Bastiat

Even, apparently, Chief Financial Officers…

Letter to the Editor, Cleveland Plain Dealer
Wednesday, July 21, 2004

In response to Dick Feagler's July 11 column, "Even non smokers must buy tobacco":

I must take issue with his economic assessment. As a chief financial officer, I understand money, so I did some calculations of my own. Feagler talks about the taxes he pays on tobacco and regards it as "his civic duty to smoke." He continues that it "bolsters the economy" and he has "built two stadiums."

But Feagler can't look at his taxes as a benefit without viewing the deficit cost to taxpayers as a whole. Our taxes have to pay to put out the fires caused by careless smokers, trash cleanup, increased insurance premiums and health-care costs due to health problems of smokers. Ohioans spend $3.4 billion every year treating tobacco-related diseases. Medicaid costs are $600 million a year. Every Ohio household pays $400 in taxes just to cover the health costs created by Ohio smokers. Feagler's column itself refers to $9.6 billion in taxes that subsidize tobacco farmers.

I'm sorry, Mr. Feagler, you may delude yourself into thinking that you are doing me a favor by smoking, but the numbers say otherwise. The cost of tobacco addiction on our society is simply too high to be taken lightly.

Gordon Hewitt,
Cleveland

Hewitt is chief financial officer of Recovery Resources.

What is not seen, by Mr. Feagler or Mr. Hewitt, is that smokers die earlier than nonsmokers. An honest attempt to calculate the net cost or benefit to society from smoking has to take this fact into account as Harvard Law School economist W. Kip Viscusi has frequently pointed out. For an overview on the social cost of smoking, this article by McCormick, Tollison, and Wagner is a good place to start.

Posted by Joshua Hall at 02:58 PM

On Deficits

Today's WSJ quotes Robert Greenstein, head of the left-leaning Center on Budget and Policy Priorities, as saying "The deficit picture keeps getting worse, and we keep digging the whole deeper."

Larry Kudlow, in his July 15 column, begs to differ:

The latest budget numbers show a $19.1 billion surplus for June, $3 billion higher than the $16 billion Wall Street expectation. It seems that a flood of new tax collections, spurred by fatter employment payrolls and corporate profits, is rapidly reducing the federal budget gap. Tax receipts from businesses rose an astonishing 38 percent over the past 12 months, and personal income-tax collections increased almost 9 percent. What's happening? Could it be that stronger economic growth from lower tax rates is producing more tax receipts? I believe it's called supply-side economics.

Just as the 1.5 million new jobs created since last August has terminated talk of a jobless recovery, the chatter over widening budget deficits will end. The fiscal-year 2004 budget deficit now looks to come in around $435 billion, less than 4 percent of GDP. This would be almost $100 billion below early year estimates from the Office of Management and Budget and about $50 billion less than Congressional Budget Office forecasts. The administration is also getting its arms around federal spending. Fiscal year to date, domestic discretionary program spending has slowed to 2.7 percent from 6.8 percent a year ago.

Of course, many academic economists (e.g., Robert Barro of Harvard, my mentor John Seater at N.C. State) think budget deficits are of little concern. Alan Reynolds, perhaps the best of the policy economists/columnists, has a recent study (.pdf file) that reaches the same conclusion.

My take: I'm much more concerned about reducing the size of government than with the mix of current taxes and future taxes (i.e., deficits) used to finance it.

Posted by E. Frank Stephenson at 01:56 PM

Harry Potter, Capitalist?

A recent New York Times article reports on a debate about the pro-capitalist or anti-globalization leanings of the Harry Potter books and films. An excerpt:

The success of the Harry Potter series has provoked a lively discussion among French literary theorists about the novels' underlying message and the structure of Harry's school, Poudlard (Hogwarts). This article, which appeared last month in the French daily Le Monde, got particular attention, including an essay published in response arguing that Harry is an antiglobalist crusader.

I've not read any of the books or seen any of the films so I can't intelligently weigh-in on the debate. Any thoughts?

Posted by E. Frank Stephenson at 01:08 PM

July 17, 2004
The Benefits of Competition: The Case of Baseball Cards

I just received the most recent issue of The SABR Bulletin (vol. 34, no. 4 July/August 2004) in the mail this morning. A regular feature of the newsletter is “SABR Nine Questions.” This issue’s interview is with Sy Berger. From the introduction:

Any way you slice it, Sy Berger is a legend. By most accounts, in 1951 the Bowman Company dominated the baseball card market. But in 1952, Topps took the industry by storm with a redesigned card that would literally change the face of popular culture for decades to come. Berger, with help from Woody Gelman, designed the 1952 Topps series which is considered by experts as the prototype of the modern baseball card. But that’s only half the story. In order to produce the now classic cards that featured such greats as Mickey Mantle, Topps had to get signed contracts from every player whose card they produced. For decades, the man at Topps responsible for securing those contracts was also Berger.

In his response to the first question, Berger discusses how the entry of Topps into the baseball card market improved the quality of cards offered.

1. What do you think made your card design more appealing that Bowman?
Well, if you go back to the Bowman cards of 1948 and they were black and white…they were small…the pictures did not have any names on the front…they weren’t designed. They did not put in a large card until we started to because they had it [the card market] to themselves, and what the heck, they didn’t have to do anything fancy. We came out in 1952 with a card in color, beautiful color…and a card that was large. Our first cards were 2 5/8 by 3 ¾…much larger [than Bowman’s]…and for the first time we had a team logo. Also, we had the 1951 line statistics and their lifetime statistics. I mean, no one else did it. Ours was the card of the fan…we stormed on them, we knocked them out of the box.

Posted by Joshua Hall at 05:22 PM

The statesman who should attempt to direct private people in what manner they ought to employ their capitals would not only load himself with a most unnecessary attention, but assume an authority which could safely be trusted, not only to no single person, but to no council or senate whatever, and which would nowhere be so dangerous as in the hands of a man who had folly and presumption enough to fancy himself fit to exercise it. -Adam Smith

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