Division of Labour: September 2005 Archives
September 30, 2005
Fear and loathing c. 1905
From the Sept. 30, 1905 NYT:
The anti-automobile movement that developed a few days ago in the organization of the Anti-Mobile Association of North Branch seems likely to spread throughout New Jersey....The speaker's at last night's meeting declared that the laws concerning the use of the highways of the State must be remodeled, so as to throw as many restrictions around automobile travel as possible. It was decided to oppose every candidate for the State Senate or Assembly who owns or has ever been known to ride in an automobile (emphasis added).
An Islamic guide on how to beat your wife
MADRID -- An imam who wrote a book on how to beat your wife without leaving marks on her body has been ordered by a judge in Spain to study the country's constitution.
Barbaric. Full story here; registration required.
Another Kid Who Needs a Voucher
HT: Best of the Web Today
It must be fall: pumpkin beer is here
Big news from St. Louis: Anheuser-Busch launches “a series of seasonal beers available on tap”. This fall’s offering is Jack’s Pumpkin Spice Ale, whose flavor the AB product manager describes as “a wicked blend of cinnamon, ginger, nutmeg, clove and real delicious pumpkins." Seriously.
The pumpkin beer will also be available in stores as part of the Michelob Special Sampler Collection, “a seasonal package of bottled specialty beers”.
No word yet on the flavoring of the winter brew that AB will make available in December. Cranberry? Sugar cookie? Peppermint candy cane?
Smart beer mat orders refills
A beer mat that knows when a glass is nearly empty and automatically asks for a refill has been created by thirsty researchers in Germany.
Andreas Butz at the University of Munich and Michael Schmitz from Saarland University came up with the idea while out drinking with their students.
The disc-shaped mat can be attached to a normal beer mat so that it still soaks up spilt liquid and displays an advertisement. But it also contains a pressure sensor and radio transmitter to alert bar staff of the need for a refill.
Full story here.
HT Wilson Mixon.
More Perdue Gasbaggery
From today's AJC:
With fuel prices climbing again, Gov. Sonny Perdue extended the "state of emergency" Thursday for two weeks to protect drivers from price gouging at the pumps.
September 29, 2005
I received this interesting e-mail on Wednesday from a friend and I thought I'd pass it along (with permission).
Here is a report from Hurricane Rita ravaged Nacogdoches, TX.
With the pending hurricane, I had the wife and the kids move up to Mom’s home in northern, TX to ride out the storm. The university President cancelled classes Thursday afternoon until they were to restart on the following Tuesday. However, the university would “remain open” and he required all administration and staff to remain on the job throughout the whole period. As an administrator I had to remain here to step in for my boss who was stuck out of town due to the closure of the Houston airport. The hurricane hit on Saturday afternoon, with the eye of the storm passing just 30 miles to the east. Electricity went out for most people in the area early Saturday morning. Water and phone service remained available for most homes within the city throughout the storm, but those living out in the country had neither. Power has since been restored to most businesses in town and to the university as well, but half the residential neighborhoods in town and most of the country residents remain without any power (including the Stroup household).
Standing in for the boss can be fairly interesting. I was called by the University President at 5:00am Friday morning. He asked me to attend an “emergency” meeting at 6:00am at the university. There the college Deans and various university administrators discussed how to coordinate notifying the remainder of the university administration and staff that they could turn around and go home once they came to work at 8:00am that morning. For some reason, the fact that this decision process could have taken place before the close of business Thursday afternoon, after classes had already been cancelled and before all these people went home for the day, was not discussed. (You gotta love bureaucracy.)
But one learns some interesting things going through a scenario like this. Every time you enter a dark room you turn on the light switch despite knowing full well that there is no power—sometimes you do this twice within a matter of fifteen seconds. Sometimes you even find yourself looking for those little nightlights to plug in the hallway to help you see, only to realize that, just like the light bulbs in the ceiling, they require power, too. Then you’re glad that nobody is with you to make fun of your stupidity. Also, the entire (slightly smelly) contents of a medium sized chest freezer can be placed comfortably into three large plastic garbage bags, making convenient hauling it all to the city dump. I was one of many people there, all holding black trash bags and tossing them into a pile and smelling the pungent aroma.
Cleaning up the storm debris from the yard allows you to notice that half the town seems to be burning scarce gasoline by driving around neighborhoods in some gruesome spectator sport. They slow down and gawk, mouth fully agape and finger pointing, at the neighbor’s 50 foot tall oak tree that unfortunately has bisected her roof. You feel like putting up traffic cones and charging a dollar per vehicle for admission. Also, you learn to entertain yourself when it is only 7:00pm at night and there is no television, no light to read books by, and only two radio stations remain on the air to listen to on your transistor radio. Unfortunately, one is a rap station and the other one country. You can’t make out what the rappers are saying so you pick country one, only to wonder just how many songs can be written about having yet another beer to try to forget about the fact that you’re such an dolt that your lady’s been cheatin’ on ya with your “best friend”? It makes you wonder just how much of a dolt you’ve been yourself lately. Then the guilty feelings make you turn off the radio, preferring the silence to the introspection.
But it all could have been worse. Our house was spared any damage, as our only fallen tree out in the back yard had landed perfectly in a spot that did not hurt any structure or any other trees. Merely a foot to the right or left would have damaged something. A couple of good friends came over with a chain saw and we three made quick work of cleaning it up. Of course sharing an obligatory cold beer followed all the hard work (yes, I had a small stash sitting on ice in the cooler—for morale purposes, of course). And unlike many of my friends, at least I had no “refugees” to house that had come up from the Houston area. I really feel for those poor folks from the Houston-Galveston-Beaumont areas on the Texas coast. They all spent 24 to 36 hours driving northward only a hundred miles on super-congested highways in the 95 degree weather with the A/C turned off to save precious gasoline (which was nowhere to be found along the way). They were trying to escape the potential of having to endure high winds, extended power outages and heavy rains on the coast, only to arrive in Nacogdoches exhausted and cranky, to sleep on the hard floors with dozens of their extended (and, let’s face it, usually “extended” for good reason) relatives, where they experienced heavy winds, extended power outages and heavy rains. Of course, when they had enough of all that, they then tried to return home on the same super-congested highways with the same shortage of gasoline in the same heat without A/C, trying to return to neighborhoods that the police may or may not yet deem to be open for the public.
Yup, every time I get hot, tired and frustrated I think about their ordeal and I tell myself, “It could always be worse.”
I still complain, though… and I think you would, too.
"Those hurricanes do say that God is real"
Aha! So it really wasn't global warming, 30-year weather cycles, and the like. The reason hurricanes hit where they did is because of "gambling, sin and wickedness." Of course, everyone knows that Lake Charles, LA and Galveston, TX are the national homes of wickedness and gambling, respectively.
Erwin said the catastrophic storms are part of a pattern evident in the terror attacks of Sept. 11, 2001, claiming God has removed an umbrella of protection from America due to an increase in abortion, pornography and prostitution.
I wonder if the guy in the grocery cart stole the umbrella of protection.
If God wanted to punish gambling, sin, and wickedness, don't you think he would go after much easier targets? I'm sure you'd find more such behavior per square foot in the state capitals and Congress than in New Orleans or Vegas.
Hat tip to Boortz again. Oh, and BTW, I'm Catholic so don't worry about the destination of my soul, dear readers. I really don't see how statements like the good Senator's are effective in bringing people to Christ. They do seem pretty successful at making us Christians look like boobs.
P.S. Rumor has it that the AWOL New Orleans cops never existed except on the forms directing federal law enforcement money to the city. So who was cashing their paychecks?...
September 28, 2005
I don't know much about protecting property in a hurricane because I choose to visit rather than live where hurricanes strike. I don't know what to say about this one, but maybe the Aggies know something other people don't?
Aggies and Tea-sippers can chime in.
From the Sept. 28, 1905 NYT article "Give us $25,000,000 says Board of Education" :
Commissioner Collier, who presented the budget, said that the estimate was the lowest the Finance Committee could frame. He said the increase was due largely to the increases in teachers' salaries, according to the Davis law, and the appointment of new teachers.
The rhetoric hasn't changed a single bit in 100 years. Perhaps this is because the rhetoric is almost always successful?
Another statement in the article describes a situation you wouldn't see in any legislature in this great land:
When the budget was presented to the board many of the Commissioners whistled softly. It called for an appropriation of $25,178,540.96 just $3,181,523.19 more than was awarded last year - and the board had to fight hard for that appropriation.
I like the idea of politicians, or anybody else spending public money, emanating the "soft whistle." I let out one after Bush's call for $200,000,000,000 to rebuild New Orleans.
How about the appropriation being listed to the penny? Today, appropriation numbers are so huge that we round up (or down) to the nearest BILLION. If Bush had asked for $200,000,000,112.53 would that have rattled more cages?
Jerry Springer households c. 1905
From the Sept. 28, 1905 NYT:
Alleging that her husband had compelled her to go around their home on roller skates and had done other strange things, Mrs. Emma Kopp appeared before Justice Garretson in Special Term of the Supreme Court, Brooklyn, and opposed his release from the Long Island Home for the Insane in Amityville...Mrs. Kopp in her affidavit said that he had for some time taken fifteen or twenty drinks of whisky each day, and on some days had consumed two quarts.
Poor guy. Today he would have had an all-expenses paid trip to Chicago or some other city to be the object of ridicule or fascination (depending on one's take) on one of the daily shows. Of course, fifteen to twenty snorts of whisky a day will make just about anybody "crazy."
What's in a "competitiveness" ranking?
The principle of comparative advantage teaches us that two traders don’t compete for shares of a fixed pie -- their trade enlarges the pie. Likewise, trading nations don't compete for shares of a fixed world pie -- they trade, and thereby enlarge the world pie. Even the country with the least absolute advantage (poorest at turning inputs into outputs) has a comparative advantage (low opportunity cost in foregone outputs) in producing something, and thus can successfully export that something (can “compete” in some world markets). Even the richest country can't successfully export everything (cannot "compete" in some world markets).
Nonetheless the World Economic Forum (the folks who annually hold a confab for movers and shakers in Davos, Switzerland) has released a ranking of the overall “competitiveness” of 117 of the world’s economies. According to the International Herald Tribune,
The study assigned scores to nations by looking at factors like government economic policy, the strength of local institutions and the degree to which technology has been used to bolster growth.
In other words, it ranks how well a country’s economic policies and institutions match the set of policies and institutions desired by the World Economic Forum. Which is all very interesting – but it isn’t really a measure of competitiveness. The notion of overall competitiveness is simply nonsense. Finland, which was ranked first, can't compete in producing bananas or wine.
September 27, 2005
Give me some aloe for this Reich
I just finished watching Stephen Moore and Robert Reich on Kudlow & Company on CNBC, and after both agreeing that the highway and energy bills should be stripped of their pork, the two disagreed about cutting taxes on income, dividends and capital gains, and dying (the estate tax; I didn't know how to end that sentence).
Moore of course was for cutting all, but Reich countered that cutting taxes would be absolutely the wrong move right now. He mentioned the Conference Board's report recently that consumer sentiment dropped sharply in September and that the U of M Survey of Consumers also dropped in August. He then said what I figured he'd say (paraphrasing): "when consumers and the poor are upset the last thing we want to do is enact policies that only help the rich."
Reich, now an econ professor, obviously knows what I know and what I tell my students, that pessimistic expectations can reduce GDP. Of course, it doesn't help when an economics professor on national TV begs the question. Perhaps the poor in New Orleans would not approve of the tax cuts because YOU, Prof. Reich, told them on TV that cuts in dividend taxes, etc., will only help the rich and not them, without any evidence whatsoever to back up your claim. Certainly the poor (or anyone) will interpret news in innumerable ways, but it seems disingenuous to conclude, as a supposed outside observer, that they will loudly disapprove of a policy whose empirical effects you actively distort to a general audience.
Since he's relatively out of politics now, you'd think Reich would have ground all of his axes and could return to the world of impartiality. For you non-economist readers of DoL, please note that only a few of us in the profession are this dismal.
Maybe it's Reich's beard, but I'm reminded of my earlier post about Marx. Why are some people so actively involved in the business of wealth-destruction and regression (philosophically speaking, not OLS)?
Why stop at two days?
In re: homestate governor's "two day holiday." Notwithstanding the ambiguity about net gasoline consumption (see below), I wonder if he hasn't stumbled on something. I bet there are more than two days of school that are essentially "extra." Why can't we cut those out as well? In the limit, all of public education? The monetary and non-monetary savings could sum to something considerable.
Regarding the policy qua political decision, the "gasoline saving initiative" seems to be a classic example of political calculation trumping good economic policy. The policy is chosen if the political gain to "saving" gasoline is greater than the expected political costs of Georgian school-kids not performing well on their skills tests (because of fewer days in school). As the expected political costs are a combination of actual political costs if school performance drops and the probability of school performance dropping, if Perdue and his handlers (correctly?) figure the odds that student performance will drop are small then "saving gasoline" is the political policy chosen, regardless of economic efficacy.
Touchdowns c. 1905
In the Sept. 27, 1905 NYT is a short article concerning Yale football:
The first scoring of the season came to-day at Yale Field, when the Varsity, after a series of short and hard rushes, carried the ball back over the substitutes' goal line for a touch-down. Roome, Varsity half back, had the honor of being the first to score at Yale this year.
What a far cry from today's ESPN highlights.
Pink Locker Room Update
September 26, 2005
Sign a left wing petition for every cause!
Sonny's Not Too Bright
Declaring "snow days," Georgia Gov Sonny Perdue closed schools today and tomorrow to save gas and reduce supply problems in the wake of Rita. The gov claims the school closings will save 500,000 gallons of gas by idling school buses.
It's entirely possible, of course, that Gov. Perdue's policy will result in greater gas usage than having schools operate as usual. Georgia had 1.38 million government school kids in 2002-2003 (data obtained from the Georgia Statistics System); if each kid's parents use about four-tenths of a gallon (=500,000 gallons divided by 1.38 million kids) more gas than they would if the kids were in school then total gas usage would increase. Would this happen? Hard to say, but it's certainly possible if having the little tykes out of school results in extra driving.
Now the kicker: What's even worse than having policymakers guided by shaky economic thinking? Hypocrisy. Earlier this evening I was watching a few innings of the Braves game--guess which gas conserving politician was seated in the stands? Yup, our beloved governor who wasn't so concerned about gas availability that he couldn't drive across town to catch a ballgame.
Blockbuster...not, but still
There is a documentary coming out this fall, an extension of the short film, "Brainwashing 101."
It is described here.
The main film should be out in the next few months. And in THAT FILM, you will see (ahem), well....me. Kgrease, speaking truth to flowers. I'm giving it two thumbs up, way up.
Had loads of trouble getting on, for some reason. Finally, after months of trying gave up. Haven't posted here since May. Pretty lame, but...
But now: new computer, no problems and no worries.
So--a link to a piece I enjoyed writing, on EconLib
The part that matters:
Do people do things for us because those people are good, because they love us? Sometimes they do. Your family loves you, and your friends would sacrifice things for you. But for most of us, family and friends is a pretty small group. We can't rely on just those few people for all the things we need in the world. Something other than love, and altruism, has to organize all the thousands of activities and choices we all depend on every day.
There are principles and then there are principles
An excellent article by Robert Dunn at George Washington University pointing to hypocricy on campus (shock and awe!), to wit the lack of income redistribution schemes in academia - both intra and intercampus.
Why isn't there more of this in the MSM? Calling people out would seem to be such good sport. I suppose the "smart people" wouldn't want to hang out with the media types if they were reminded of how the "smart people arguments" only apply for certain people.
September 23, 2005
More on the welfare state and race
Andrew McGuinness of the blog AnomalyUK has pointed me to a study by Alesina, Glaeser and Sacerdote that may have been the basis for Paul Krugman's claim that racial diversity (plus racial animosity) explains America's smaller welfare state in comparison to Europe. I haven't read the study. But given that the Scandanavian countries have the least racial diversity and the most generous welfare states, and the US the reverse, a correlation across OECD countries does seem plausible.
Andrew rightly notes that "all this is quite orthogonal to the argument over the effectiveness of state welfare systems in reducing poverty."
If there is a correlation across OECD countries, it raises the question of reverse causation. A country with an expensive welfare state can't afford to just let the whole world in. I experienced this effect firsthand some years ago when I was offered a job in Australia, but the immigration authorities barred entry of my kids (who need special education). A country with an expensive welfare state will impose immigration policies that tend to maintain its ethnic homogeneity. Which are the racist countries now? If we consider the racially disparate impact of immigration barriers against the world's poor, the causal story becomes quite different from Krugman's: America can afford to be less racialst in its immigration policies (e.g. against Latinos) because it has a less expensive welfare state.
Testing the correlation across US states would remove the immigration-restriction factor, because mobility across states is unrestricted. But that also means that we need a time-series test, because if the (disproportionately black and Latino) poor have migrated to states with larger welfare benefits, a cross-section will spuriously suggest (contra Krugman) that a whiter state population causes lower welfare benefits.
ADDENDUM: Having now perused the Alesina-Glaeser-Sacerdote paper, it's obvious that Krugman was drawing heavily on that paper -- so heavily that it's shameful that he didn't mention it in his column.
2nd ADDENDUM: Frank Stephenson has pointed me to a paper by Erzo Luttmer [Journal of Political Economy, 2001, vol. 109, no. 3], which seems to reinforce AGS. Its abstract states that "levels of welfare benefits are relatively low in racially heterogeneous states."
Neal Boortz's recent appearance on "Hannity and Colmes" has resulted in a big stink over whether Boortz referred to people who favor the estate/death tax are Marxists. (See Cathy Young and Neal Boortz for more details.)
Pulling The Marx-Engels Reader off the bookshelf, I turn to the "Manifesto of the Communist Party" (p. 490 of the book) and find a 10-point program. The third item on that list is "Abolition of all right of inheritance." Strictly speaking, the death tax doesn't abolish "all right of inheritance." It is also possible (though I think unlikely) that someone might favor abolishing inheritance but oppose the other nine items in Marx's program. Nonetheless, it looks like ole Neal might be onto something. The strong reaction from the Media Matters crowd suggests that Neal just might have hit a nerve.
ADDENDUM: Speaking of Marx, I loved co-blogger Tim's line:
"We are ready to fire the heads of FEMA, Homeland Security, even Bush himself, over a thousand dead from Katrina, yet people love the figurehead of a philosophical movement that has killed tens of millions. If only we could tie Marx to Halliburton, maybe people would stop idolizing him."
Don Boudreaux writes about economic freedom in his Pittsburgh Tribune-Review column.
September 22, 2005
Oh yeah, my grandma used to talk about property rights
Not sure if this expands on Craig's "Property rights? What property rights?" line of thinking. The BBC had a vote for greatest philosopher of all time. The winner likely will generate less controversy than the votes on the next season of American Idol, but is anyone surprised that BBC voters chose Marx (Karl, not Richard)? GWB's favorite philosopher didn't even make the top ten, but you could argue that one of his more famous students did; St. Thomas Aquinas came in 7th. Both holy candidates were beaten by Friedrich "God is Dead" Nietzsche who just missed the bronze.
We make fun of the flat-earth society, but is being a Marxist much different? The typical rejoinder is "true Marxism has never been tried anywhere. It always gets corrupted by the people trying to implement it." I've been trying to get people to subscribe to my philosophy of anti-gravitism or levitism on the same grounds. Sure, things fall to the earth but my belief in a world without gravity just hasn't been attempted in the proper circumstances yet. I think I need someone with a rugged, bearded face as my primary proponent. Maybe this comes close.
What I've never understood is that, since Marx believed that communism was the inevitable result of capitalism's also inevitable implosion, should not all Marxists be the biggest champions of capitalism? Championing capitalism's progress will hasten its demise, if Marx is right. Of course, it leads a Marxist into the predicament of criticizing a system that, historically speaking, has done the most, relative to all other economic systems, to better the lives of those Marxists are supposedly trying to help.
We are ready to fire the heads of FEMA, Homeland Security, even Bush himself, over a thousand dead from Katrina, yet people love the figurehead of a philosophical movement that has killed tens of millions. If only we could tie Marx to Halliburton, maybe people would stop idolizing him.
Hat tip to Acton's Samuel Gregg.
St. Louis voters oust eminent-domain-pushing alderman
City planners beware: the backlash against the Kelo decision continues.
Back before the Kelo decision, Alderman Thomas E. Bauer was pushing a plan for the city to use eminent domain to acquire several commercial properties (from owners who didn’t want to sell) which would then be turned over to a private developer to build a QuikTrip gas station and minimart at the corner of Manchester and McCausland in the Dogtown neighborhood of St. Louis. Dogtown residents didn’t like the use of eminent domain, despite Bauer’s promise that sales taxes from the mart would pay for road-widening. They were concerned that their homes could be next. They instituted a recall against Bauer.
It takes a lot of chutzpah for an alderman to think it’s up to him to decide that a certain corner should be awarded to a certain business firm, existing property owners be damned. And Bauer did not lack for chutzpah. He filed a $2 million defamation suit against five of his critics. After Kelo he accused his political opponents of exploiting the "hysteria over eminent domain", and called them "dissident crazies." (More on the dispute here.)
On Tuesday, in a special election, 60% voted to oust Bauer.
A special election will be held later in the year to fill Bauer’s seat. I happily expect the candidates to outdo one another in their opposition to using eminent domain for private redevelopment.
Property rights? What property rights?
The local rag has an article describing action by the U.S. Senate passing a one-year moratorium on horse slaughter in the United States. There are only three horse slaughterhouses in the country, two of which are located here in the DFW area, so the good folks in San Francisco aren't too worried. However, according to horse owners, it takes approximately $500 to "properly" dispose of a horse. Ranchers have been able to sell their horses to a slaugherhouse for approximately $500, which suggests mutually beneficial trade - but Trigger is involved so it must be immoral, or at least legislated out of existence.
Animal activists have evidently lobbied for years to get horse slaughter rendered illegal, and they have achieved a minor victory. I wonder what the response by farmers will be - perhaps a more cruel end to the aged horse? I can imagine ranchers taking aged horses to national parks, etc. and setting them "free" and letting the rest of us pick up the bill for caring, feeding, disposing of the animals when they perish. Perhaps ranchers should show up with their aging horses on the doorstep of the Society for Animal Protective Legislation and the Doris Day Animal League (the groups lobbying for the moratorium) - ranchers could just tie the horses to the hitching post out front and walk away. These activist groups have installed said hitcing posts haven't they? If not, just leave a bunch of horses over night in the parking lot.
As one of our Texas senators remarked, "[i]s government going to declare that personal property is valueless without just compensation? Apparently so."
A Celebrity Florist--Who Knew?
TAKAMATSU, Japan -- A rose by any other name is still a rose, but in the hands of Shogo Kariyazaki -- the celebrity florist who has bloomed into one of Japan's richest men -- a rose is as good as gold.
One part Liberace, one part Martha Stewart, Japan's gender-blending home guru was greeted this week by a standing-room-only crowd in this sleepy western town. With glossy lips, flowing bleached-blond hair and a black silk shirt embroidered with birds of paradise in flight, the slight 46-year-old exclaimed, "Beauty is the essential thing in life!" He then tossed yellow roses and pansies into a vase as his audience offered enthusiastic "oohs" and "aahs."
An estimated 20,000 locals -- one in every 15 residents of Takamatsu -- paid $5 each to view his "fantasy forest exhibition" of day-glo trees and heart-shaped anthuriums at the city's largest department store. Kariyazaki is so popular through his TV appearances, live shows and corporate sponsorships that he ranked as one of the country's biggest individual taxpayers last year, earning 10 times the average salary of Toyota's top executives, according to Japan's National Tax Agency.
Note: The article focuses on eight Democrat governors, but several Republican govs (including Perdue of GA and Blunt of MO) have been huffing and puffing about so-called price gouging.
HT: Lynne Kiesling
A news item (ht Drudge):
Police found cases of food, clothing and tools intended for hurricane victims at the home of the chief administrative officer for a New Orleans suburb, authorities said Wednesday.
Officers searched Cedric Floyd's home because of complaints that city workers were helping themselves to donations for hurricane victims. Floyd, who runs the day-to-day operations in the suburb of Kenner, was in charge of distributing the goods.
From this story:
A week after selling the naming rights to its practice facility, the Columbus Blue Jackets are getting the naming rights to Columbus Children's Hospital's planned family center.
Perhaps they could have cut out the middle man?
Public benefits exceed private costs
This is a picture from our local fish wrap depicting northbound traffic on I-45 from Houston. The TxDOT has requested permission to introduce contraflow traffic, i.e., letting people drive North on Southbound lanes. But it seems that a "request" should be unneccesary.
Georgia learned the value of contraflow with Floyd a few years ago - my brother took two hours to go fifteen miles on I-16 to I-95. Once he got off on GA17, he made it to Athens in another two and a half hours (speeding, of course, because all the cops were at the interstate). Meanwhile, another mutual friend took twenty four hours to get to Atlanta - which on a good day can be done in about three hours (okay, probably a bit longer if you don't speed).
The contraflow concept is a good example of public benefits (or aggregated private benefits) of outbound traffic exceeding the private costs of the relatively few people heading inbound. When an evacuation route is in place and an evacuation order has been issued, why isn't contraflow immediately instituted?
Evidently, sheople are not willing to take matters into their own hands and impose contraflow - although I think some of that might have happened in the exodus from Savannah during Floyd. In general, our society operates relatively very well because people obey the "rules" even when the rules are not specifically enforced, such as stopping at a stop sign in the middle of the night when it is obvious there is no one around. However, when a potentially life threatening storm is right behind you, perhaps a bit of "controlled illegality" (I can't come up with a better term), rather than complete anarchy, can be welfare improving?
Moreover, another question that makes me scratch my head is why people wait on the government to make traffic flow easier? Why don't people get an Atlas and "find" the U.S. or state highways where there are fewer cars? After all, the roads are still free.
Note: Colleague Dennis Wilson postulates that evacuees only want to drive on big roads. There are other reasons people don't get off the main interstate and take the back roads, but they don't seem convincing to me.
Nifty Paper on Property Rights
At an IHS seminar last summer I gave a lecture on property rights. I talked about the usual stuff--property rights reduce the tragedy of the commons, property rights are a prequisite for investment and economic progress, and property rights are necessary to guarantee other rights such as freedom of religion and freedom of the press. During the Q&A following the lecture, an Argentinian student in the audience told us about a study of granting property rights in a Buenos Aires squatters' camp. She explained that the study confirmed my arguments about the beneficial effects of private property. I have now located (but not read) the paper; here's the abstract:
The empirical evaluation of the causal effects of land property rights typically suffers
ACLU and Others Sue Georgia
Earlier this year, Georgia passed a law requiring voters show a government issued ID (instead of something such as a work badge or utility bill) at the polls. Now the ACLU and other have filed suit claiming that the new ID requirement is a new "poll tax" because one has to pay up to $35 for a government issued ID. Kudos to GA and shame on the ACLU--part of having the right to vote is having reasonable requirements that other voters don't vote more than once, don't vote out of district, etc.
For a real public interest, civil liberties legal organization check out the Institute for Justice.
Mike Lester New Orleans Cartoon
Craig's last post brought to mind today's Mike Lester cartoon in the RNT:
Lump sum hurricane relief
Lump sum transfers seem to be difficult for politiicians to understand or buy into. This article by Steven Landsburg starts out on the right track.
$200,000,000,000/1,000,000 people in New Orleans = $200,000 per New Orleans evacuee. It gets worse (or better), if one assumed four people per household. Let's not forget the good folks of Mississippi and Alabama.
Rita is heading our way, unfortunately by the time it gets to the DFW area it will likely be a Cat 1 or Tropical storm. We can use the rain, but we won't flood like other areas. Alas, no pay day for us.
Summers Kerfuffle Update
Things have been quiet on the Larry Summers front lately, but I've found a couple of items suggesting that just maybe Summers was onto something.
First the abstract of a recent NBER Working Paper from Muriel Niederle and Lise Vesterlund:
Competitive high ranking positions are largely occupied by men, and women remain scarce in engineering and sciences. Explanations for these occupational differences focus on discrimination and preferences for work hours and field of study. We examine if absent these factors gender differences in occupations may still occur. Specifically we explore whether women and men, on a leveled playing field, differ in their selection into competitive environments. Men and women in a laboratory experiment perform a real task under a non-competitive piece rate and a competitive tournament scheme. Although there are no gender differences in performance under either compensation, there is a substantial gender difference when participants subsequently choose the scheme they want to apply to their next performance. Twice as many men as women choose the tournament over the piece rate. This gender gap in tournament entry is not explained by performance either before or after the entry decision. Furthermore, while men are more optimistic about their relative performance, differences in beliefs only explain a small share of the gap in tournament entry. In a final task we assess the impact of non-tournament-specific factors, such as risk and feedback aversion, on the gender difference in compensation choice. We conclude that even controlling for these general factors, there is a large residual gender gap in tournament entry.
Next the NYT's (aptly named) Louise Story reports:
At Yale and other top colleges, women are being groomed to take their place in an ever more diverse professional elite. It is almost taken for granted that, just as they make up half the students at these institutions, they will move into leadership roles on an equal basis with their male classmates.
There is just one problem with this scenario: many of these women say that is not what they want.
Many women at the nation's most elite colleges say they have already decided that they will put aside their careers in favor of raising children. Though some of these students are not planning to have children and some hope to have a family and work full time, many others, like Ms. Liu, say they will happily play a traditional female role, with motherhood their main commitment.
Just to be absolutely clear--men and women should be equally free to pursue their dreams. But if it turns out that a smaller share of women than men want to be scientists (or any other occupation) then people who suggest that any observed differences might reflect individual choices rather than discrimination should not be treated as though they have violated some taboo.
September 21, 2005
To Krugman, anti-welfare-statism is racism
From Paul Krugman’s latest column:
And who can honestly deny that race is a major reason America treats its poor more harshly than any other advanced country? To put it crudely: a middle-class European, thinking about the poor, says to himself, "There but for the grace of God go I." A middle-class American is all too likely to think, perhaps without admitting it to himself, "Why should I be taxed to support those people?"
“America treats its poor more harshly” in Krugmanspeak means, of course, that the welfare state gives away slightly fewer goods and services than in Europe. Never mind that the US economy offers more upward mobility and freer immigration. Never mind the greater support for fraternal organizations and charities that respectively help the working and non-working poor, regardless of race.
A middle-class American is indeed likely to think “Why should I be taxed to support those people who don’t support themselves?,” even while he makes out a check to the Red Cross. He might also think “How wasteful is government bureaucracy?” and “How is it doing the poor a favor to create a culture of welfare-state dependency?”. But what does any of that have to do with race?
We have here another example of Krugman’s tendency, aptly noted by Arnold Kling, to skip making arguments about “the consequences of policies”, and instead attack “the alleged motives of individuals who advocate policies”. Krugman’s tactic, in Kling’s words, is to “deny the legitimacy of one's opponents to even state their case. [Such] arguments do not give rise to constructive discussion. They are almost impossible to test empirically.”
In this case, Krugman might have offered empirical evidence to back his racial hypothesis, but he didn’t even try. Is there any? For example, are welfare programs more generous in cities and states (say, West Virginia) where the poor population is whiter? I honestly doubt it, but I could be wrong.
Will the insanity never end?
Minneapolis is the next city to drink the coolaid (misspelled to avoid trademark infringement) and propose a new stadium. In this case, the 68,000 retractable roof stadium is thought to cost $675m!! Cost breakdown is proposed as follows:
The county and the team are proposing a financing package for the stadium that would have the Vikings pay $280 million of stadium costs. Anoka County would fund the same amount from a 0.75% countywide sales tax. State-issued general obligation bonds would cover roughly $115 million of the costs for on-site infrastructure and a portion of the retractable roof.
Private contribution of 41% is a bit more than average over the past decade. as is the $9,926 construction cost per seat. Our boondoggle here in Arlington is supposedly going to run $650m for a 75,000 seat stadium - fifty percent public/private and only $9,000 construction cost per seat.
The end of the story contains a little nugget worth thinking about:
According to the county, initial estimates suggest that the project will, over time, generate a revenue surplus for the state in excess of $245 million.
Sports economists have been howling in the wind for years, but here is yet more evidence (albeit indirect and unintentional) that stadiums are terrible investments for governments. Over the course of thirty years the entire project will yield the state (on its nominal investment) a 213% return? Sounds great, but according to my arithmetic this backs out to a 2.5% annual return on investment. Ouch.
September 20, 2005
Republican Spending/Club for Growth Suit
Brendan Miniter wonders: "Republicans have abandoned small government. Why shouldn't voters abandon them?"
The conservative Congress has brought back the welfare state.
This isn't all Katrina's fault. Republicans have been kidding themselves for years that they are still the stewards of fiscal conservatism and limited government. The Medicare prescription drug plan is just one example. Run down the list of the some 80 federal entitlements--including Medicare, Medicaid, farm subsidies, Pell Grants and so much more--and it becomes clear that little has been done to take these massive programs off of spending autopilot. Welfare reform and Freedom to Farm in the 1990s were nice, but what has the GOP done lately? In many cases Republicans have ramped up spending and then bragged about it.
What we're seeing in the wake of Katrina is that despite all the winks and assurances to the contrary as they passed the energy and transportation bills, Republicans in Congress don't know how to control spending and are at a loss as to why they even should. That's one way to govern. But if Republicans no longer believe in smaller government, why not put the Democrats back in charge?
Meanwhile, the FEC has filed a lawsuit against the Club for Growth, one of the few true advocates of limited government and the most effective organization at persuading Republicans (and the occasional Democrat) to stick to their limited government principles. Of course there's more at stake than one's tax bill--like McCain-Feingold and other so-called campaign finance reform, the suit also endangers political free speech. Here's hoping the club prevails.
A Win for the Good Guys
It looks like the Fulton County government schools will not be using eminent domain to seize land for a planned Jewish school. Story here.
Dueling units of account in Iran
The Iranian rial is one of the least valuable currency units in the world. At today’s exchange rate, it takes 9015 rials to buy one US dollar. (The only currencies worth even less are the Indonesian rupiah at 10,184 to the dollar, the Vietnamese dong at 15,875, the Romanian lei at 28,670, and the Turkish lira at 1.342 million.) Rial prices are accordingly high in nominal terms.
Traders in Iran’s unofficial markets, who evidently don’t like prices with so many zeroes, are reportedly using an unofficial unit of account called the “tooman”, equal to 10 rials. The tooman has become so popular that the Central Bank of Iran has found it necessary to announce that it is not planning to replace the rial with the tooman. Apart from easing calculations a bit, and requiring the reprinting of currency notes and coins, lopping off a zero from all currency and all pricetags would have no real effect. Nor would it seem to matter whether the new unit were called a “new rial” or a “tooman”. So this account of the debate over currency reform seems a bit surreal:
Experts are divided on the issue of changing national currency. Some believe that it is not necessary to change the national currency from the rial to the tooman and that it would be favorable to knock off a zero from the rial.
New Issue of RAE available
The latest issue of the Review of Austrian Economics is available. There are some very good articles in this issue, including Chris Coyne's, "The Institutional Prerequisites for Post-conflict Reconstruction.
The work that Pete Boettke and his students are doing on the role of institutions in promoting economic growth is extremely interesting and important work. One of the things that I particularly enjoy is that this line of inquiry is almost singlehandedly bringing applied political economy back into Austrian Economics. Ben Powell's paper on "State Development Planning: Did it Create an East Asian Miracle?" is a great example of this.
September 19, 2005
Will They Never Learn?
A freeze on the price of vodka is sure to follow.
Vintage Base Ball with Conan
Conan O'Brien visits Old Bethpage to play 1864 vintage base ball.
Speaking for Josh and myself, this isn't funny!
[Warning: Ads on page not necessarily workplace safe.]
As of today, the San Diego Padres stand in first place in the NL West division with a mediocre record of 74-74 (after a couple of wins this past weekend). They are 5.5 games up on the second place Giants with 14 games to go, and look likely to win the division possibly even with a losing record.
Here's my vote for a new rule in the MLB that no team can make the playoffs without at least a .500 record.
Russ Sobel at WVU has had a big couple weeks in the media talking about his research on the economics of FEMA.
Eminent Domain Use
The groundbreaking ceremony Sunday afternoon was supposed to celebrate the start of construction of the private Jewish high school's 18-acre campus in Sandy Springs.
Instead, a mood of uncertainty and apprehension mixed with the hot late-summer air as parents and school officials grappled with the realization that all the plans they've made may be in jeopardy.
The Fulton County school system wants to buy the Weber School site and use the land to build a new elementary school. In a strongly worded letter sent earlier this month, the school district indicated that unless Weber sold the property by today, the school board would use eminent domain to obtain the land.
Dog Shoots Man
Sofia - A tussle between a hunter and his dog in north-east Bulgaria over prey ended with the dog shooting the man ...
The man lost his temper ... and began beating it with the rifle.
But the dog's paw caught the trigger and the hunter ended up with buckshot hitting him. The extent of his injuries was not reported ...
Full story here.
HT: Wilson Mixon
How far we have come
Going through old owners manuals for VHS machines and so forth, I came across the owners manual for an old Ericsson analogue phone and tucked inside was a brochure describing AT&Ts wireless plans - along with pricing - from 1997/1998 period. Interesting to compare yesterday's coverage/prices to the coverage/prices of today.
September 18, 2005
On government employment c. 1905
From Page 6 of the Sept. 18, 1905 NYT :
Service under the Federal Government is not an occupation to which we should recommend capable and energetic young men. For the brighter ones the South must afford many opportunities for a better career, a career more profitable and more useful. Not that service of the Nation is necessarily unworthy of the best ability; but as a matter of fact under existing conditions it is apt to be depressing and demoralizing. In the lower ranks the pay is decidedly easier that in business life, and that is, for most men, a benumbing combination. It is true that Government service leaves a man leisure which, if he wish, he may put to excellent use; but those who wish to do so are exceptional.
September 17, 2005
Kydland and Prescott (Journal of Political Economy 85 (3), June 1977, pp. 473-92) famously provided three examples of “time-consistency” problems.
1. If inventors think that their patents will be cancelled after they successfully invent (e.g. because consumers will lobby the authorities to allow lower-priced generic versions of drugs), we’ll get fewer new inventions. If we assume for the sake of argument that patents have (more invention) benefits in excess of (monopoly pricing) costs, the threat of patent cancellation means too few inventions.
2. If people who move into a flood plain believe that they will be relieved of much of the cost of rebuilding should a flood occur, we’ll get too many people in the flood plain. (People will locate there for whom the benefit falls short of the full cost.) Once people move in, levees that were ex ante wasteful may subsequently be built at public expense to reduce the expected losses.
3. If the public believes that the central bank will want to use surprise inflation to reduce unemployment, the public’s expected inflation rate will rise, facing the central bank with a worse short-run tradeoff (raising the SR Phillips Curve). The result is an equilibrium of higher inflation with no reduction in unemployment.
Few in Congress seemed to understand #1 in the debate over allowing re-importation of patented drugs sold at lower prices in Canada.
Katrina has sadly made #2 relevant, but I haven’t heard anyone worrying about problem #2 in the rush to subsidize the rebuilding of New Orleans (parts of which were built more in a flood bowl than on a flood plain).
#3 will become ever more relevant when Greenspan steps down in January, because his successor will initially lack his credibility, and the Fed will still have no formal commitment to low inflation. Events like last month’s 0.5% (more than 6% annualized) increase in the CPI will then be much more worrisome.
So why does US public policy avoid the time-consistency problem better in patent policy than in flood-plain policy? That is, why does Congress not cancel patents, yet encourage building on the flood plain? Comments are open.
The difference 25 years can make
In politics, it seems that parties can dramatically change in twenty five years. Is George Bush a Reagan-type Republican? Seems not.
In 1930, the Republicans backed the Smoot-Hawley tariff bill - one of the most vilified pieces of legislation ever passed by a U.S. Congress. While the Repubs might have been protectionist in general, twenty five years earlier, the Sept. 17, 1905 NYT reported on this suggested plank in the Republican platform by Massachusetts Republicans:
"We demand that (illegible), coal, iron ore, lumber, and wood pulp be placed by Congress on the free list, and that duties upon manufactured and other articles be reduced wherever existing duties are higher than are useful for any just purpose of protection."
Admittedly, there is some loose language - "higher than are useful for any just purpose"? - but at least some Republicans wanted to move towards freer trade.
Survey of Hurricane Katrina Evacuees
Before we start throwing money around New Orleans in an effort to help the poor, maybe we ought to take a closer look at who the poor are. A nice beginning is the survey of hurricane Katrina Evacuees at the Houston Astrodome by the Kaiser Family Foundation.
Almost half, 44 percent, do not want to return to the city that the government is willing to spend billions on and another 12 percent are unsure about their desire to return. Most of these people do not own the homes the government will subsidize rebuilding. Only 33 percent owned the home they lived in. Paying benefits to a rich landlord in New Orleans does not benefit a poor evacuee who has no intention of returning to New Orleans.
Most of these evacuees are extremely poor. 68 percent don’t have a savings or a checking account. 32 percent have a household annual income of less than $10,000 and 59 percent have household income of less than $20,000. About, 13 percent were unemployed. For 45 percent their main source of health care was a hospital.
About 73 percent indicated that they heard that an order to evacuate had been given and 66 percent thought the instructions on how to evacuate were clear. However, 62 percent did not know if it covered the area they lived in and 61 percent did not evacuate before the storm hit. The two major reasons for not leaving were a lack of transportation and physical limitations.
Surprisingly, 85 percent list their conditions at the Astrodome as good to excellent. Just maybe Barbara Bush was right.
September 16, 2005
Price goes up, quantity demanded goes down
Something politicians have a hard time understanding, but for the record here is yet another example, from the gasoline industry no less.
I stole these graphs from the EIA, and even though the graphs aren't exactly on the same scale, the lesson seems clear - price increased, and folks didn't buy as much gasoline.
I originally posted these pictures for their interest-value, but after reading Frank's post below, my post seems to offer some eerie synergy (BTW, I hate that word).
Were the recent increases (and this week's decreases) in gasoline prices simply supply shocks sliding us up and down the demand curve? Did the demand for gasoline increased immediately post-Katrina at the same time the supply of gasoline was curtailed (which would combine for double upward pressure on price while perhaps causing a net-decrease in quantity sold on the market)? Did speculative price increases led to a temporary disequilibrium between quantity demanded and quantity supplied immediately post-Katrina? These are interesting questions, the answers to which are vitally important to understand before hastily suggested, debated, and enacted public policy such as price caps and so forth are instituted.
Unfortunately, from these two simple graphs it is not possible to identify supply and demand shocks - the time series of "gasoline demanded" is actually a time series of "gasoline sold" or equilibrium quantities. Nor is it possible to divine the truth from claims of "price gouging" or from other anecdotal evidence. Diving into the historical data at EIA would likely reveal more but, alas, where is the time?
Travis Gets an A
From the Locker Room:
It's something I've noticed a lot lately: prices changing demand. The only problem is that current prices cannot change (shift) demand; prices only change quantity demanded. What people usually mean when they say "changing demand" is really "changing quantity demanded". This may seem trivial, but as my headline suggests, I have an obligation to my professors to make the distinction.
Thank you, thank you, thank you. I, too, have read lots of stories confusing a change in demand with a change in quantity demanded.
George Leef has a new book out on the history of the right-to-work movement. I haven't yet read it, but I skimmed a copy when I visited George's office in Raleigh a few months back. The book looked good, but, if by some longshot it's not, it's probably still worth reading just for George's excellent prose.
Why NOT to be a Government Lawyer
Attention prospective lawyers, my former student Dan Alban has a nice take on why not to be a government lawyer.
James Madison on Disaster Relief
“President Bush pledged Thursday night to put the full might and money of the federal government behind the reconstruction of the Gulf Coast and vowed to its people that ‘in the journey ahead, you are not alone.’” (CNN, Friday)
From James Madison (1794):
"I cannot undertake to lay my finger on that article of the Constitution which granted a right to Congress of expending, on objects of benevolence, the money of their constituents."
HT: From fee.org via Wilson Mixon
ADDENDUM: While the juxtaposition of these quotes probably seems miserly, I note that my family has donated to disaster relief. Bush, however, plans to use the confiscatory power of the federal government to turn over some $667 (=$200 billion/300 million people) per person to the relief, reconstruction, and social engineering schemes.
Pay for Katrina with pork
How to pay for the $62 billion that the president has promised in federal Katrina relief? Well, it's only a fraction of the $286 billion in pork-barrel spending authorized by the recent highway bill. Ronald D. Utt of the Heritage Foundation has made the reasonable suggestion that Katrina reconstruction take priority over pork:
As Mississippi and Louisiana confront the replacement of dozens of wrecked bridges, is it possible that Rep. Don Young (R-AK) could give up one of the two $200 million dollar bridges he secured for his state? Perhaps Alaskans could go without the one that will serve a town of just fifty people, who now ride a ferry? Such an example of leadership and sacrifice by a senior Member like Rep. Young could persuade the rest of the Congress to follow his lead and give up there [sic] own wasteful earmarks and pork until the $12 or $13 billion dollars is redirected to those whose need is dire.
A recent Wall St. Journal editorial adds a nice twist: some residents of Bozeman, Montana, another highway pork earmark recipient, have already volunteered to give up their city's earmark for the sake of Katrina relief. The Lone Star Times has the money quote from the WSJ:
Some public-spirited folks in Bozeman, Montana, have come up with a wonderful idea to help Uncle Sam offset some of the $62 billion federal cost of Hurricane Katrina relief. The Bozeman Daily Chronicle reports that Montanans from both sides of the political aisle have petitioned the city council to give the feds back a $4 million earmark to pay for a parking garage in the just-passed $286 billion highway bill. As one of these citizens, Jane Shaw, told us: "We figure New Orleans needs the money right now a lot more than we need extra downtown parking space."
Gee, I know a Jane Shaw from Bozeman, Montana – she’s the past president of the Association for Private Enterprise Education. According to the Bozeman Daily Chronicle, the idea originated with Tracy Velazquez, current vice-chair of the Montana Democratic Party. Good idea, Tracy!
Let’s hope the Bozeman city council does the right thing, and that Bozeman’s example shames the Alaskans and other pork recipients. The idea was mentioned on NPR this morning, so it seems to be spreading.
Rummel v Gartzke
I had hoped that Erik Gartzke's interesting work on "Economic Freedom and Peace" would get a lot of attention, and it certainly has.
First, Drezner pointed to it and made some comments.
Then, R.J. Rummel, a well-known international relations scholar, wrote a stinging criticism of Gartzke's article.
Drezner blogged again about the controversy.
And finally Gartzke has written a (imo thoughtful) reply.
September 15, 2005
(UN)Constitution Day Bleg
My university is planning a series of events next week in celebration of Constitution Day. A new federal law requires schools receiving federal funding to "implement an educational program pertaining to the United States Constitution ...." A summary of the law can be found here (.pdf).
Leaving aside the desirability or (un)constitutionality of this mandate I have a question to ask of the academics out there: (1) Can you tell me what if anything your school has planned for this event? (2) Specifically have any schools out there cancelled any classes to encourage attendance at a particular event?
Comments are open--or e-mail me at rlawson at capital dot edu.
The President will likely 'apologize" in his speech tonight. He will apologize for the hurricane, the damage, for owning the Texas Rangers baseball team at one time, and for various other sins, real and imagined. It might be nice if he would apologize for declaring roughly the entire country a disaster area.
From FEMA's press release page it is apparent that the so-called "disaster" or "state of emergency" status is a new way to distribute money from the federal treasury to the various states. Lord Keynes must smiling somewhere.
Which state is not in a state of emergency and how do I, personally, get rich off the deal?
Emergency Declaration Ordered for North Carolina, Sep 15
And that's just for the month of September!!
Alabama, Mississippi, and Louisiana were declared to be states of emergency in August.
More on Doing Business In
The World Bank is having a blog-like open discussion about the 2006 Doing Business In publication.
I think we agree more than we disagree. I am a fan of the project. I too think looking at the actual laws along with expert analysis of the laws as is done by the World Bank researchers is a tremendously valuable undertaking. In part, this is because of the ability to pin-point more precisely the nature of the problem and also to act as a more objective source of data.
In fact, we are going to be evaluating whether and how we might incorporate some of the DBI data into the economic freedom index at some future point in time. It is because of this that I have done a little bit of work to compare the DBI results with the survey data from other sources. My original post expresses concern about the surpisingly weak relationship between the Doing Business In results and at least some of the business survey results.
The ultimate problem is that the law as written can be a poor indication of practice. A relative liberal regulatory regime on paper can still be a nightmare for businesses if the few regulations that do exist are haphazardly enforced or are used to extract bribes. On the other hand, a relatively strict regulatory regime on paper that is enforced fairly and without discrimination may be better from the standpoint of doing business (and even from the standpoint of freedom).
Our goals are the same, "to cut senseless red tape and improve the quality of economic institutions", but I worry that these measures will have less impact if they don't conform more closely to the general views among businesses.
Drug regulation c. 1905
From Page 5 of the Sept. 14, 1905 NYT:
WASHINGTON -- The Commissioner of Internal Revenue to-day rendered a decision that will seriously affect a number of patent medicines composed largely of distilled liquors...the manufacturers of these medicines must take out licenses as rectifiers and liquor dealers and...druggists and others handling them will have to pay the usual retail liquor dealer's license.
Prohibition at the local level was avoided through the NyQuill-approach? Go figure.
Was this a public safety issue or a revenue issue? To me it reads like a revenue issue - whether basic principle (against tax evasion) or revenue-hunger on the part of the government is less clear.
Over time the medicinal use of alcohol gave way to better compounds - whether that was an outcome of such regulation is an interesting question. I doubt the tax savings were greater than the revenue enhancement from more effective drugs, but if the extended reach of the tax man increased incentives for research and development of new drugs? Hmmm....
Kudos to Pat Rishe
Fellow sports economist Pat Rishe, at Wbster University, got some ink for his study of the economic impact of the NCAA Final Four (story here).
I haven't read the report, but I trust Pat did a good job (he has in the past). His estimate of approximately $71.9 million impact for the Final Four in St. Louis passes the smell test for me - a heck of a lot better than the estimated $36.25 million dollar impact PER GAME that the Cowboys are supposedly going to bring to Arlington ("study" here).
Nature vs. Nurture
Before you attribute all the devastation you see to hurricane Katrina, you should remember how poor this region was before the hurricane.
Ranking Among States 2003: American Community Survey
Median Household Income
Percent of People Below Poverty Level in the Past 12 Months
Percent of Related Children Under 18 Years Below Poverty Level in the Past 12 Months
Percent of People 65 Years and Over Below Poverty Level in the Past 12 Months
September 14, 2005
OMG! After 3,195 games of backgammon played against the computer, I finally won with an actual honest to god "backgammon". See picture below!
Btw, I use a nifty little freeware program called Quick Backgammon. The quality of the computer's play is described as "very competent" and is about at my level. I have a winning percentage of 53.8% (1720-1475) against it.
How to get PETA activated
A bio-diesel made, in part, with dead cats:
Koch said around 20 dead cats added into the mix could help produce enough fuel to fill up a 50-liter (11 gallon) tank.
I bet the trains run on time in Singapore too.
I've long thought that Thomas Friedman is the best (i.e., least bad) liberal (in the modern corrupted sense of the word) columnist in the MSM. His recent NYT aritcle (registration required) is about the U.S.'s inept handling of Katrina with comparisons to Singapore's efficient government. Here are the final two paragraphs from his column:
Janadas Devan, a Straits Times columnist, tried to explain to his Asian readers how the U.S. is changing. "Today's conservatives," he wrote, "differ in one crucial aspect from yesterday's conservatives: the latter believed in small government, but believed, too, that a country ought to pay for all the government that it needed.
"The former believe in no government, and therefore conclude that there is no need for a country to pay for even the government that it does have. ... [But] it is not only government that doesn't show up when government is starved of resources and leached of all its meaning. Community doesn't show up either, sacrifice doesn't show up, pulling together doesn't show up, 'we're all in this together' doesn't show up."
Ahem, did he say "starved of resources"? Horse pucky! No one can seriously claim, especially in comparison to low tax Singapore, that the U.S. government is "starved of resources." No one. No one.
Inept, yes; corrupt, maybe; starved of resources; no way.
There is much to like about Singapore and much not to like. I find myself having to defend Singapore's high ranking in the economic freedom index all the time in fact. But I would take our inept and possibly corrupt democracy over an efficient and honest dictatorship any day. Holding up dictatorships (even high functioning ones like Singapore's) as examples for the world to follow is dangerous business and Friedman of all people should know better.
A slight conflict of interest
The editor of Zimbabwe’s Financial Gazette, seeking to deflect the charge that the newspaper is actually owned by the government’s intelligence agency, has disclosed that the paper’s (unnamed) major shareholder “is a prominent banker, Zimbabwe's best known turnaround expert, farmer and businessman." Newzimababwe.com points out that this description best fits one Gideon Gono, who also happens to be governor of the nation’s central bank, the Reserve Bank of Zimbabwe. Some Zimbabweans are understandably disturbed:
Observers and readers who called the Independent said the fact that Gono could own a financial paper was in itself a scandal.
The US Federal Reserve system owns and publishes a raft of journals and newsletters that fail to criticize its policies, but it’s no secret that these are house organs. As far as we know, Alan Greenspan doesn’t own the Wall St. Journal.
More Wal-Mart Bashing
The story of a union hiring people to picket a Las Vegas Wal-Mart has been noted elsewhere, but it's just too incredible to let pass. An excerpt:
The shade from the Wal-Mart Neighborhood Market sign is minimal around noon; still, six picketers squeeze their thermoses and Dasani bottles onto the dirt below, trying to keep their water cool. They're walking five-hour shifts on this corner at Stephanie Street and American Pacific Drive in Henderson—anti-Wal-Mart signs propped lazily on their shoulders, deep suntans on their faces and arms—with two 15-minute breaks to run across the street and use the washroom at a gas station.
Periodically one of them will sit down in a slightly larger slice of shade under a giant electricity pole in the intersection. Four lanes of traffic rush by, some drivers honk in support, more than once someone has yelled, "assholes!" but mostly, they're ignored.
They're not union members; they're temp workers employed through Allied Forces/Labor Express by the union—United Food and Commercial Workers (UFCW). They're making $6 an hour, with no benefits; it's 104 F, and they're protesting the working conditions inside the new Wal-Mart grocery store.
Almost as incredible is this news item:
Wal-Mart workers on four continents sued the giant retailer today in California Superior Court in Los Angeles. They maintain that Wal-Mart failed to meet its contractual duty to ensure that its suppliers pay basic wages due; forced them to work excessive hours seven days a week with no time off for holidays; obstructed their attempts to form a union; and, made false and misleading statements to the American public about the company's labor and human rights practices.
Talk about globalization.
Give me a knife
A news item:
House Majority Leader Tom DeLay said yesterday that Republicans have done so well in cutting spending that he declared an "ongoing victory," and said there is simply no fat left to cut in the federal budget.
No, sir, Republicans have passed a series of bloated budgets and presided over an orgy of pork barrel ranging from bridges to nowhere in Alaska to flowers for the Ronald Reagan freeway in California. To suggest otherwise is to reveal yourself as being disconnected from reality.
Bureaucracy and relief aid c. 1905
Red tape is nothing new, but it seems too many people expected red tape to be reduced rather than increased when the Congress and the Executive branch rushed to create the Department of Homeland Security. Bad mistake, that.
From Page 4 of the Sept. 14, 1905 NYT:
ST. JOHN'S N.F. -- Urgent inquiries were received here to-day by telegraph from the Hudson Bay colony concerning the whereabouts of the relief steamer Neptune, which, with the Hudson Bay Company's supplies on board for the Winter, has been expected in the Northern waters for more than a month. The message expressed the fear that the Neptune had been lost.
Red tape - the cause of externalities we have yet to internalize to the politician/bureaucrat.
Patience in war c. 1905
From Page 4 of the Sept. 14, 1905 NYT is a little lesson in patience in war/rebellion that might serve us well today (and in the future):
Okay, so this isn't the same Ferdinand assassinated in July 1914, but the intent of the dissidents was the same regardless of their ultimate target.
Patience might be one of the most valuable weapons in asymmetric warfare. Understanding this and acting upon that understanding seems a difficult feat - whether in 1905 or 2005.
Alan Greenspan, central banking skeptic
Citing Greenspan's 1997 talk to the APEE, published in the Journal of Private Enterprise, Tibor Machan compares Greenspan to a pope who doubts whether the church is a force for good.
September 13, 2005
Is Hong Kong really #1?
The view that Hong Kong is the most free economy in the world is often challenged. Liu Kin-ming has written an interesting column for the Weekly Standard on the issue.
My usual reaction when someone says Hong Kong isnt' that free is to ask, "compared to what?" Though the Hong Kong government interferes a lot in the economy and that interference is on the rise, the fact is that it does so less than any other government on earth.
Last year, when I was in Hong Kong I heard noted Hong Kong economist Richard Wong complain about rising welfare spending in the government budget. It has gone all the way up to 2.5% of GDP! If only we were that unfree here in the US!
Children as retirement plan c. 1905
From Page 1 of the Sept. 13, 1905 NYT:
Ninety years old, six times married, and the father of forty-four children [emphasis added], is the record of Jacob Kinney, better known as "Major," who applied for an secured a license at the Henrico County Clerk's office this morning to wed one Ann Green, who is also no novice on the matrimonial sea and is sixty years of age.
Business Regulation measure
Tyler Cowen at MR plugs the work being done at the World Bank to measure business regulations of various types. I too think this work is exciting, and if nothing else, demostrates how much the Bank has changed over the years.
However, I remain skeptical of the quality of their measures. They do not jibe well with business surveys such at those by the World Economic Forum. [Insert debate about surveys v. "hard" data here.] I previously did a little analysis of their labor market flexibility measures and was unimpressed.
"Beef" -- The Rest of the Story
Second Greatest Hockey Player Retires
Mark Messier has retired.
I did not miss the NHL the year it was gone. I am saddened, however, that it perhaps cost me one more year of watching Mark Messier. As someone who grew up watching the 1980s Oiler's teams on Hockey Night in Canada he was one of my hockey heroes.
September 12, 2005
I get double bonus points
... from Alex Tabarrok at Marginal Revolution.
Here’s the back story: In a grad school Industrial Organization class I had to write a paper for a professor whose second-favorite topic was price discrimination, but who was known never to actually read students’ papers. (His favorite topic was post-contractual opportunistic behavior, so how would you expect him to behave?) I wrote a semi-tongue-in-cheek paper on why differential nightclub pricing for men and women isn’t the usual kind of price discrimination: admitting women at a zero price or giving them free drinks (as some nightclubs do) clearly can’t be maximizing profits from the female segment of the market. My (obvious) hypothesis: clubs want to attract women in order to attract more full-price-paying men. A falsifiable implication, which I mentioned to Alex: we should not see this pricing strategy at gay bars.
Jacoby on "Price Gouging"
Jeff Jacoby has a nifty column on so-called price gouging. An excerpt:
What is it about the price of gasoline that turns seemingly normal politicians into barking economic demagogues?
When Jill puts her house on the market for $450,000 -- triple what she paid 10 years ago, but the going price in her neighborhood today -- the politicos understand that the 200 percent markup is the result of supply and demand in the real estate market. Senators don't call press conferences to denounce Jill as a profiteer. Attorneys general don't threaten to prosecute her. Governors don't compare her to looters.
As good as Jacoby's column and lots of excellent posts on familiar blogs are, I think there is something that no one has explicitly stated. Suppose that so-called price gouging really is evil (I don't really believe this of course--it's just a hypothetical), there is still a reason to defend people's right to engage in it--the sanctity of private property, freedom of contract, freedom of association, etc. Even if I think the station owner near Atlanta who tried to get nearly $6 per gallon is a jerk of the highest order, I defend his right to do so without a bumpkin governor or publicity seeking attorney general hectoring him. And, needless to say, I'll be exercising my right to shop elsewhere.
1. Christopher Westley compares FEMA to Enron.
2. John Tierney (how'd this guy get hired by the NYT?) sorts out the blame--hint much resides with the grandstanding, finger-pointing clowns of Capitol Hill.
Be careful what you write
Blogging is obviously an immediate means of disseminating ideas and comments. Many of us blog for enjoyment, most of us do not blog for profit. Over at Heavy Lifting I had posted about a small econometric model relating hurricane related deaths to hurricane damages. Cute, interesting, not really worth a journal article, so a blog entry seemed a reasonable alternative.
Local columnist O.K. Carter saw my post and dedicated his Sunday article to examining, explaining, and ultimately, quoting from my blog. here. Thanks for the props.
I wonder if any DOL posts have made it into the MSM? If not, it is likely only a matter of time, so I suppose we should all be careful about what we say (not to suggest that we aren't already).
EFW News Roundup
Selected media hits from this year's release of Economic Freedom of the World:
Japan Post privatization back on track
Running on a pro-privatization, pro-market platform, Japan's Liberal Democratic Party has won an outright majority for the first time in 15 years, a stunning electoral victory. The party is expected soon to reintroduce its plan to privatize Japan Post, whose postal savings and insurance divisions make it the world's largest financial institution by assets.
Ugly politics department
Bumper sticker seen today: "SHOOT the LOOTERS: Halliburton, KRB, Exxon, Shell"
So, just the executives, or all the employees? The shareholders too?
September 11, 2005
If you dig, will you end up in China?
According to this Google Earth hack if I dig straight down from Arlington, I would end up somewhere in the Indian Ocean (I think) - I am not sure if that is correct.
September 09, 2005
The predictive power of econometrics
In general, I do not like to claim that econometric models are very good at predicting actual values, rather econometric models are useful for general predictions, more like guideposts rather than exact numbers.
Over at Heavy Lifting I posted a simple econometric model that predicted somewhere in the neighborhood of 2,300 deaths associated with the initial estimates of damage caused by Katrina. This prediction was considerably lower than the initial guesstimates of how many might have perished in the storm.
I suggested that a number considerably higher than 2,300 deaths might suggest that there was something amiss in the case of Katrina, relative to the other hurricanes we have had over the past hundred years. Whether that would warrant an "investigation" of some kind is, in my mind, still unclear.
However, Drudge linked to a story that suggests that there might have been considerably fewer than 10,000 dead.
Hmmm....sometims the simple econometric model has more predictive power than expected.
Thanks for gouging me
Who knew Katrina would provide so many useful classroom illustrations?
We had a genuine bank run of sorts here last Thursday. The rumor going around that day was that, because of "gas shortages," you wouldn't be able to buy gas after 6pm. Result? Big gas lines at all the stations on my route home. Luckily I had 3/4 of a tank. Of course on Friday, once everyone stopped freaking out, the gas lines stopped and you could pull up and fill up.
I pass a Diamond Shamrock (DS) and a Chevron station on my way to school. I told my class the other day I was a bit confused why the Chevron, with its cheaper gas, never seemed to have many customers while the DS, with its more expensive gas, had a lot. I thought I was clever when I pulled into Chevron this morning to fill up. Nope! Little plastic bags over the nozzles (not visible from the road, BTW) and the lady telling me they were out of gas. So I grumbled my displeasure and filled up with more expensive but plentiful gas down the street.
Now I can relate to my parents' buying gas in the 70s (I didn't get to kindergarten until 1980, so I don't remember the gas lines). Which made me more upset? Buying plenty of more expensive gas or buying zero gallons of cheap gas?
Cato on TV
In the summer of 1976 (I think it was), I was commissioned to write a biographical essay on Cato the Younger, also known as Cato the Utican (the adjectives are to distinguish him from Cato the Elder, aka Cato the Censor), as a backgrounder for his then-fledging namesake the Cato Institute. I’m not entirely sure how I got the job; probably via someone who’d heard that I’d had four years of high school Latin.
With that personal history, forgive me for registering the following complaint about HBO’s new series Rome: the actor who plays Cato is too old. Marcus Porcius Cato was born 95 BC. Gaius Julius Caesar was born 102 or 100 BC; so in real life Cato was 5 or 7 years younger than Caesar. Cato was 46 when Caesar crossed the Rubicon in 49 BC. In the HBO series, the actor playing Cato (Karl Johnson) looks about 60-65 years old, about 10-15 years older than the actor playing Caesar. (I haven’t been able to find out Karl Johnson’s actual age.)
Otherwise, I like the series so far. The writers have done their historical homework. (E.g., Cato was in fact known for oddly wearing a toga without a tunic underneath.) I especially like Indira Varma (from Mira Nair’s Kama Sutra) as Niobe.
HBO’s Rome is like HBO’s Deadwood in its multiple interweaving plot lines and generous helpings of violence and nudity (though without as much cursing), but it places them in exactly the opposite political setting. Deadwood is a cynical take on a stateless society. Rome is a cynical take on a state-dominated society.
Goole Maps and NO flooding
Flood map from New Orleans.
Somewhat interesting, if accurate.
September 08, 2005
Koizumi, the privatization samurai
When his plan to privatize Japan Post – the world’s largest financial institution (see previous applause here) – failed in the upper house of Japan’s parliament, Prime Minister Junichiro Koizumi took decisive action. He dissolved Parliament on August 8, booted out of his party 37 members who had voted against his plan in Parliament, and called a snap election as a virtual referendum on the postal reform. Forbes now reports that Koizumi's Liberal Democratic Party “has maintained a comfortable lead which would secure it victory in this weekend's general election, according to several opinion polls.” Which means that the push for postal privatization is not dead; a victory for the LDP on Sept. 11 will re-invigorate the plan.
The privatization initiative is only part of the LDP's broader free-market platform, reports the National Post of Canada:
Koizumi believes the days of government-orchestrated growth that drove modernization of the world's second largest economy after World War II are over, and believes that privatizing the postal system, with its 330 trillion yen ($3 trillion) in household savings, would make more efficient use of the funds.
Bloomberg notes that the privatization initiative is popular among the young and in the cities, not among the old or in the countryside. Japan Times reports that 70% of business firms support the initiative. Because the LDP has traditionally relied on rural support, the election is re-aligning Japanese politics.
Gee, it all makes me wish that the US had a political leader willing to stick his neck out to trim public spending, dismantle protectionism, and – dare I say it – privatize the postal system.
Sachs v. Easterly
Tim Worstall has a nice essay at TCS about the mostly misguided advice coming out of the UN Development Program (its Human Development Index was released earlier this week) as well as from economist Jeffrey Sachs.
Worstall touts some new work by economist William Easterly that uses the economic freedom index and other measures of institutions to argue that it is poor quality institutions that keeps nations poor not some mystical "poverty trap".
Comment on Opportunity Cost
With the indulgence of the blog mediator, I am posting a comment on the opportunity cost debate referenced below and on Marginal Revolution. I do this as a favor to Chris, but promise not do this on a regular basis. I am only the messenger.
This is in response to a recent article by Professor Robert H. Frank that appeared in the Friday, September 2nd, 2005 issue of the New York Times titled "The Opportunity Cost of Economics Education." The article concerned the economic concept of opportunity cost, citing work by Ferraro and Taylor of Georgia State University showing that most professional and
You won a free ticket to see an Eric Clapton concert (which has no resale value). Bob Dylan is performing on the same night and is your next-best alternative activity. Tickets to see Dylan cost $40. On any given day, you would be willing to pay up to $50 to see Dylan. Assume there are no other costs of seeing either performer. Based on this information, what is the opportunity cost of seeing Eric Clapton?
(a) 0, (b) $10, (c) $40, or (d) $50.
The answer given as the correct answer was b) $10. The article went on to say that only about 21% or so of respondents got this answer correct.
Moreover, the article goes to say that $10 is the "unambiguously" correct answer. I don't know this for sure since the article did not provide information on the percentage of responds to selected d) $50, but I strongly suspect that the most popular answer was indeed d) $50.
In what follows I would like to offer an argument for $50 as an answer to the above question - one that is as equally correct as $10, and perhaps offer a rationale for why $50 may in fact be a superior answer to the above question.
Read More »
Basically there are at least two approaches to answering the above question that can lead to two different "opportunity cost" answers. While this might be a troubling result, I also suggest that so long as the decision maker is consistent in his calculation, both procedures will result in the correct decision being made. Hence, the study the Times' article cites may be "much ado about nothing" rather than an indictment of the economics profession.
Let me start with a couple of basic definitions of opportunity cost. Taken from their Economics and Strategy, 2nd ed. text, Besanko, Dranove (both of Northwestern University) and Shanley (of Perdue University) define opportunity cost as "a concept which states that the economic cost of deploying resources in a particular activity is the value of the best foregone alternative use of those resources." In his Principles of Microeconomics text, 3rd ed., Mankiw defines the opportunity cost of an item as "what you give up to get that item." The basic elements of these definitions appear to be shared by at least a half a dozen Principles of Microeconomics texts that I happen to have in my office. While I'm sure that there is likely universal acceptance of the content of these definitions, from the perspective of the question and answer given in the Times' piece, it is telling to highlight what these definitions do not say opportunity cost is. Indeed, the answer given in the Times' article is based on a calculation suggesting that opportunity cost is, strictly speaking, not the foregone benefit from making a decision but rather the forgone net benefit of making a decision. Again, as I show below, this may be a reasonable way to go, but it is not the only way to go and, indeed, it may be, at best, a rather "exotic" way to proceed.
Let me demonstrate what I believe is going on here.
Two Methods for Calculating Opportunity Cost from the Times' example.
From the above question, whether someone arrives at an answer of $10 or $50 for opportunity cost rests completely on how exactly the $40 cost of a Dylan ticket is treated. Does it act to reduce opportunity cost as the Times article asserts, or is it in fact a "cost savings" benefit that one realizes if the decision is made to go to the Clapton concert? I contend that treating this $40 explicitly as a benefit is 1) more logical and 2) more consistent with the basic definitions of opportunity cost. True, some may disagree and in the end this may be a matter of taste. At any rate, however, to see the ramifications of this question, consider the following.
Let's define some key variables first:
Now, the decision to see Clapton over Dylan depends on the payoff from seeing Clapton instead of Dylan. Let's call this PAYOFFc. If this payoff is greater than zero then the decision should be to go to see Clapton. If it's negative, the decision is to go see Dylan. Let's consider two different representation of PAYOFFc.
This method compares the net payoff from seeing Clapton with the net payoff of seeing Dylan, mathematically represented as
(1) PAYOFFc = (Bc-Cc) - (Bd-Cd).
Now with Cc=0, the Timesâ€™ article claims that the pportunity cost of seeing Clapton is the term in the second set of parentheses in (1); that is, the net benefit of seeing Dylan that is forgone when the decision maker goes to see Clapton: (50-40 = 10).
While the above procedure seems logical, an alternative approach would be to reconsider (1) by grouping the total benefits of seeing Clapton over Dylan against the total cost of seeing Clapton over Dylan. Doing so we have
(2) PAYOFFc = (Bc+Cd) - (Cc+Bd).
The first two terms in the first set of parentheses in (2) are in fact the total benefits of seeing Clapton over Dylan. Bc is the benefit of seeing Clapton and Cd is a cost savings benefit the decision maker realizes if he chooses not to see Dylan. Indeed, Cd can logically be thought of as a benefit since the ticket cost savings represents resources the decision maker can now divert towards the purchase of other items. The second two terms in the second set of parentheses of (2) are the total costs of seeing Clapton. Cc is the explicit cost of the Clapton ticket and Bd is the foregone benefit of not seeing Dylan.
In the example given in the paper then, when we employ this second method of directly comparing all benefits against all costs, we have
PAYOFFc = Bc +40 - (50+0).
Hence, total opportunity costs are $50 (not $10) as $50 is the foregone benefit of not seeing Dylan. This to me seems much more consistent with the basic definitions of opportunity cost given above.
The Important Lesson of Opportunity Cost (and why method may not matter so much).
Let us remember that the most important lesson we learn from an analysis of opportunity cost is that failure to consider the foregone benefits will generally lead to a non-ultility or non-profit maximizing decision. As it turns out, whether or not one uses Method 1 or Method 2, the correct decision will still be made. To see this, consider the following. Let's assume that the benefit one realizes from seeing Clapton (which was not given in the Times article) is $5. The decidedly incorrect decision would be to go see Clapton simply because the ticket is free (i.e. PAYOFFc = $5-$0 = $5 is the wrong measure of PAYOFFc). Clearly a measure of the foregone benefit of seeing Dylan needs to be considered.
Now, using Method 1, we calculate the payoff from seeing Clapton over Dylan as
PAYOFFc = $5-($50-$40) = -$5.
Since the benefit from seeing Clapton $5 is less than the net opportunity cost of seeing Dylan ($50-$40 = $10), the decision is clear: Don't use the free ticket to see Clapton.
Now, using method 2, we can calculate the payoff from seeing Clapton over Dylan as
PAYOFFc = ($5+$40)-($0+$50) = -$5.
Since the Total benefit from seeing Clapton (the $5 benefit of the Clapton show and the $40 cost savings from not having purchased the Dylan ticket) is less than the opportunity cost form seeing Claption over Dylan (i.e., the foregone benefit form seeing Dylan, $50). The decision is clear, however: Don't use the free ticket to see Clapton.
Irrespective of method, the correct decision is made.
A Consideration favoring Method 2.
While I believe that $10 is a reasonable answer to the question posed in the Times' article (so long as it is recognized that the $10 is the net benefit forgone), it does strike me that this is a more exotic representation of opportunity cost than the $50 measure given by method 2.
I truly think, however, that method 2 would be a better way to proceed, not only as a matter of professional practice but also from a pedagogical perspective. Suppose, for instance that the benefit one realizes from seeing Dylan is not $50 but rather $40. Should we then conclude that there is NO opportunity cost of seeing Clapton? This can't be correct since the problem states clearly that there is a value to seeing Dylan (and if one goes to Clapton one must forgo this benefit).
Furthermore, suppose that the benefit one realizes from seeing Dylan is not $50 but rather $30. Should we then conclude that the opportunity cost of seeing Clapton is negative $10? This strikes me as not only conceptually clumsy but upon additional thought highlights, in my judgment, the merits of treating the $40 cost savings benefit realized from not purchasing the Dylan ticket rather than as a direct determinant in calculating opportunity cost.
Some Concluding Considerations.
I wish to state that I was in no way involved with the Ferraro and Taylor study at any time, I was only privy to their study via the Times' article. I must admit however, that while my first answer to the above question was $50 (one in which I stand by), upon further reflection I can see how some would say the correct answer is $10. The only point I wish to make here is that, as the question is framed, $50 is as good, and may even be a slightly better, answer than $10.
Economists often get a bad rap in the popular press, and often with some reason. However, I strongly believe this Times article, by asserting that most economists don't understand the basics of opportunity costs, is, at least as presented, an unfair criticism. I must admit that it would be troubling if a significant percentage of economists surveyed said that the correct answer of question posed in the article was $40. However, no such data was given and I do suspect that the majority said the correct answer was $50.
Moreover, I have to say I feel pretty strongly about this issue and the criticism the Times article levies against the economics profession. Indeed, this must be the case since I've spent my time writing this response rather than spending my time on some other task (which itself may indicate my personal limitations in understanding the concept of opportunity cost!). There are two things, however, that are eminently clear to me. First, whether one said the opportunity cost was $10 or $50, the correct economic decision would have been made so long as the forgone benefits entered into the decision-making calculus. Second, the statement made in Times article that "the unambiguously the correct answer to the question is $10" may be, in light of the standard definitions typically given for opportunity cost, a bit too strong of a statement.
Christopher S. Decker
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Nothing is new.
Cartoon by Thomas Nast in Harper's Weekly, May 13, 1882:
Broken window theory revisted
From page 8 of Sept. 8, 1905 NYT comes this interesting tidbit:
An athletic San Francisco girl, accosted by a street loafer, picked him up and tossed him through a shop window. In paying for the broken pane she remarked that she did not grudge the money.
Adverse selection c. 1905
In the Sept. 8, 1905 NYT is a story about a Kentucky judge refused a life insurance policy. Why?
The Mutual Life Insurance Company of New York refused to give Judge John J. C. Back of Jackson, Greathitt County, a $5,000 life insurance policy because he was attorney for...the noted feud leaders of Breathitt County, and was in danger of assasination...Judge Back passed the examination all right, but the [company] officials would take no chances because of the applicant's connection with feudal troubles.
I've been away from DOL for a few days because we took a family trip to Virginia and I've had a few hectic days since returning. We saw several convoys of military vehicles and utility trucks headed south; otherwise the traffic seemed pretty light for a normally busy holiday weekend.
The trip to VA was a reunion of sorts for three college buddies and their families. My friend Don is married to woman who grew up in New Orleans and whose parents still live there (at least until Katrina). Their house escaped the flooding but had a tree fall on it; they're hoping that having a police officer living next door deterred looters.
I don't have much to add to the Katrina discussion; I'm especially disgusted by the whining about so-called price gouging and by the political finger pointing. This article on sending evacuees to the wrong city pretty well captures the government bungling (though we probably shouldn't expect otherwise).
The New Orleans debacle is partly a case study in something economists have known for awhile--institutions matter.* New Orleans has long had a reputation for corrupt and inept government; heck, Louisiana had a gubernatorial election between a wizard (David Duke) and a lizard (Edwin Edwards). For more see Thomas Lifson's comparison of the institutions of New Orleans and Houston.
*Kudos to co-blogger Bob for another installment of the EFW.
ADDENDUM: While in VA, I hitched up Pee Wee's trail-a-bike and we rode the Virginia Creeper trail. The trail runs through scenic valleys and along a mountain creek. Downhill is a fun ride with kids; uphill is a better workout.
Don't Cry for Me, Venezuela
Heinz plant seized by government: A Heinz tomato processing plant in Caicara in the eastern state of Monagas was seized Monday by troops under the command of an army general. [Story.]
Venezuela scored 124th out of 127 countries in the economic freedom index released today.
The Glories of the Internet
Like Bob, when I was an undergraduate I couldn't wait to sell back my textbooks. One of the great things about the Internet, though, is that I am no longer beholden to price the college bookstore is willing to pay. Through Amazon.com used I can list any textbook for sale and make far more money than the bookstore is offering, even once transactions costs are included.
To those of you who like to keep your textbooks I have a piece of advice. Sell it now! For a $80 textbook you should be able to get about $30 after transactions costs. Once the new edition comes out the used price of the edition you were going to keep will drop to $3 to $5. You can then buy a copy of the old edition, pocketing the difference.
September 07, 2005
I have a question for those who oppose gasoline price “gouging” …
…where “gouging” is defined as a larger-than-normal markup over the price a gas station paid to fill its tanks two or three weeks ago. Would you mind if I siphon the gas out of your car’s tank, and pay you for it the price you paid last week, before the price of refilling went up?
Economic Freedom and Peace
These two graphs are from the previously mentioned research by Columbia political scientist Erik Gartzke. Powerful stuff.
The first graphs shows the relationship between the probability of military conflict with another nation (y axis) versus economic freedom (x axis). Clearly, the risk of military conflict diminishes with higher degrees of economic freedom.
Meanwhile the same can not be said for democracy. As democracy increases, there is basically no decrease in the risk of war.
Economic Freedom of the World: 2005 Annual Report
The new edition of the Economic Freedom of the World report that I co-author with Jim Gwartney is now out and available here.
In addition to the updated economic freedom index (where there is little new to report) you might want to look at the special chapter contributed by Columbia University political scientist Erik Gartzke on "Economic Freedom and Peace". In this chapter Gartzke shows that it is economic freedom, not democracy, that is the most important contributor to peace. This is very important research and we hope it gets a lot of attention.
LA Wants the Winner's Curse
Los Angeles announces that it will throw its hat in the ring for the 2016 Olympics. New York will likely also be in the running, but only one city per country can be nominated. Therefore the U.S. Olympic committee will make a decision about which city is more worthy the winner's curse.
LA has hosted the games twice, and has a considerable amount of sports infrastructure. Unlike Beijing and Athens, the city would not have to build everything from scratch. Unfortunately, any bid from LA will likely have hundreds of millions (if not billions) of dollars to be spent on rebuilding the city's sports infrastructure.
September 06, 2005
Privatization in action?
From the September 6, 1905 NYT:
BARCELONA, Spain - The merchants of this city have united in a manifesto demanding the abolition of the present police as being incompetent to prevent Anarchistic outbreaks. They offer to pay for a reorganization of the force.
Gas Tax Debate
Hurricane Katrina has stirred up the debate about gasoline taxes. Some are suggesting that we should cut the gasoline tax to reduce the price at the pump.
Alex Tabarrok at Marginal Revolution argues that any reduction in the gas tax will simply line the pockets of the gas sellers and will do nothing to lower the price to consumers. And he is right. At least he is right in the very short run. In the language of economists, the supply elasticity in the short run is near zero--meaning that the supply of gasoline is what it is and can't respond to changes in prices (or taxes). This analysis is quite accurate right now. With a number of refineries down or damaged and the rest running at capacity, there is no way for the supply of gasoline to increase even if the gas tax is reduced (or if the price rises). The purpose of prices in this context is not to stimulate supply but to ration the good among demanders.
In the long run, however, the elasticity of supply is probably very elastic (maybe infinitely so) and lowering the gas tax should lower gas prices in the long run. The problem here is that the long run in this market takes decades to play out as it can take 10 years or more to build a new refinery and thanks the the radical environmentalists we haven't invested much in new refinery capacity in the last generation.
Bottom line: cutting the gas tax will not lower the price of gasoline in the near term, but could in the long term if the suppliers are allowed to expand refining capacity.
September 05, 2005
Absurd Economics of Mangal Pandey – The Rising
I made it to the theater Saturday night to see one of the summer Bollywood blockbusters I’d been waiting to see, Mangal Pandey – The Rising. The movie has gotten mixed reviews; this review lists all the clichés that weighed it down. Count me among the disappointed.
One minor annoyance in the film is a gratuitous slap at free-market economics that is so out of place it’s absurd. Mangal Pandey is a sepoy, an Indian soldier in the private army of the East India Company in the 1850s. An English officer explains to him how the East India Company works, then adds with a sneer: “And they call it the free market.” Excuse me? They – at least those in the know – called it mercantilism. The company operated under a legally rigged monopoly franchise, not in a free competitive market.
Adam Smith, the great 18th century champion of the free market, was a relentless critic of the company. He contrasted the bad deal the Company offered Indian workers with the beneficial results of the relatively free market that the British allowed in North America. Smith wrote (Wealth of Nations: B.I, Ch.8, Of the Wages of Labour, paragraph I.8.26):
The difference between the genius of the British constitution which protects and governs North America, and that of the mercantile company which oppresses and domineers in the East Indies, cannot perhaps be better illustrated than by the different state of those countries.
The film actually shows the soldiers enforcing at the point of a gun the company’s statutory monopoly on the growing of opium. Blocking competition with guns is the antithesis of the free market.
History repeats itself? Part II
From 1947 (courtesy Hurricane City):
Is it REALLY Pres. Bush's fault? Is it REALLY man-made global warming that would have been fixed in less than five years if we had only signed onto the Kyoto protocol? Or is New Orleans simply in the path of hurricanes and local and state government's in New Orleans and Baton Rouge played chicken with fate - and lost?
James Robert "Beef" Ward
Published in The Columbus Dispatch from 9/3/2005 - 9/4/2005.
September 04, 2005
The four [reality TV stars visiting a local school] were paid $1,700 apiece for their half-days at the school — from a Smaller Learning Communities grant funded by the U.S. Department of Education. [Story.]
Uh, how many bottles of water can you buy with $6,800?
September 03, 2005
Why weren't the levees stronger?
Numerous pundits – especially Louisiana politicians and ex-politicians – have been on TV blaming the federal government for having failed to maintain and strengthen the levees that once kept New Orleans dry. USA Today has commented that “when it was time to find money to strengthen them, the city's defenses ended up far down the federal government's priority list.”
But why was it a federal job? The beneficiaries of the levees were entirely in one city, in one state. Why didn’t the city or the state pay for levee improvements? According to one source, the US Army Corps of Engineers became responsible for the levees during the War of 1812. Before that New Orleans levied its own taxes (on shippers who used the port) for levee maintenance. After that taxpayers all over the US would pay, and folks in DC rather than Louisiana would choose how much would be spent on levee maintenance.
Clearly most New Orleans or Louisiana taxpayers would have been willing to pay for levee maintenance if they knew they had to, but of course the city and state didn’t volunteer – even though they knew the need for strengthening – because they were counting on the federal taxpayers to pay for it. Live by the federal subsidy, die by the diversion of federal subsidies to other priorities. A tragedy of over-centralization.
Labor day celebrations c. 1905
This Labor Day weekend is somewhat complicated with Katrina's aftermath, higher gasoline prices, and war in Iraq. However, most of us will be watching college football (Go DAWGS!) and enjoying the long weekend.
From the Sept. 3, 1905 NYT, a description of Labor Day celebrations circa 1905. Three parades were to be held in New York City, one of the largest being comprised of some 17,000 janitors and "janitresses." All those walking in the parade were to be given a new broom, which they would carry (brandish?) along the route.
However, the article points out:
The observance of Labor Day by the unions to-morrow will be more general than it has been in the last two or three years. The reason is that there have been few strikes this year and the unions are in good shape.
Interesting. The Labor Day celebrations of today are extremely general - to the point of having almost nothing to do with the union/labor/proletariat moevement. Save for a few industries, today we could say that there are relatively few strikes and the unions are not in good shape.
History repeats itself?
From the Sept. 3, 1905 NYT, is a story about refugees in the South, fleeing this time Yelow Fever.
Friar's Point, Miss., with a population of 1,500 has been reduced to less than 300 by the flight of refugrees to Memphis and further North. The City of Natchez lost about 30 per cent. by departures, and Vicksburg about 20 per cent.
The story focuses on a "new" form of graft that had developed during the Yellow Fever outbreak and subsequent quarantines - selling health certificates, which were required to leave one town and enter another. Descriptions of scenes eerily similar to what is happening in New Orleans:
Refugees and the general public are suffering. Mothers with babes in their arms have been foced to remain in detention camps at the Arkansas end of the [Memphis] bridge, in some instances for six days, before being allowed to continue through Arkansas.
It seems that, no matter how sophisticated we think we are (what with Starbucks lattes and BMW's and DVDs) in times of crisis there is almost never a complete or well executed plan in place.
There are a lot of people blaming Washington, the President, and Congress, for what seems to be a slow response. I tend to sympathize with the argument that something could have been done before yesterday - after all, wouldn't Bill Gates or Ross Perot be able to make a phone call and have water/food delivered within hours? - but if one sits back and thinks about it for a second, to have a reasonable response in place in less than a week is actually quite impressive.
The lessons to be learned. First, get out if you can. Second, you need five to seven days of food and water. Five to seven days is simply the amount of time it will take to engage the logistics of the plan to get help to any disaster-struck large city.
September 02, 2005
Do You Shoot Looters?
Economics is the study of choice. It can also be thought of as the study of consequences. Through the mass media pundits can call for policies without ever having to confront the consequences. The latest policy suggestion from the chattering heads is that the government should have had a zero tolerance policy on looting.
How do you enforce a zero tolerance policy on looting in either Baghdad or New Orleans? You don’t have the resources to arrest and detain looters during an emergency. The only viable means of stopping looting is to shoot looters. Unless you are willing to mount that credible threat, waving guns and issuing warnings will have no effect. Marauding looters scurry past burly cops waving shotguns without a thought. Any attempt to stop the looting is simply a charade for the MSM. Both the cops and the looters know that the use of deadly force will land the cop in jail and the police chief in front of a congressional commission.
There may be times when civic order may be exchanged for a few lives, especially when it saves more lives in the long run. But this is not an easy decision. Looters liberating milk for their babies may be difficult to distinguish from those stealing drugs. In any case, it is the demonstration of force and not who is shot that restores civic order. Those who criticize the government for not having a zero tolerance policy on looting should be forced to confront the consequences. Will they also propose shooting looters?
Civil War Sites vs. Katrina
Those interested in the status of Civil War sites, both in New Orleans and across the Gulf Coast, can go to The Present Past blog. It has reports and links to pics and video of what Katrina did. It seems to be written by historical preservation folks, so it is on point.
Here is an overhead pic of the damage at Beauvoir.
My graduate school colleague Laura Taylor was cited in Robert Frank's NYT column yesterday:
Virtually all economists consider opportunity cost a central concept. Yet a recent study by Paul J. Ferraro and Laura O. Taylor of Georgia State University suggests that most professional economists may not really understand it. At the 2005 annual meetings of the American Economic Association, the researchers asked almost 200 professional economists to answer this question:
"You won a free ticket to see an Eric Clapton concert (which has no resale value). Bob Dylan is performing on the same night and is your next-best alternative activity. Tickets to see Dylan cost $40. On any given day, you would be willing to pay up to $50 to see Dylan. Assume there are no other costs of seeing either performer. Based on this information, what is the opportunity cost of seeing Eric Clapton? (a) $0, (b) $10, (c) $40, or (d) $50."
Stunningly, more than 3/4 of economists--not just any Joe Blow economists but the high powered types who attend the AEA meetings--got the question wrong. Here's the correct answer:
The opportunity cost of seeing Clapton is the total value of everything you must sacrifice to attend his concert - namely, the value to you of attending the Dylan concert. That value is $10 - the difference between the $50 that seeing his concert would be worth to you and the $40 you would have to pay for a ticket. So the unambiguously correct answer to the question is $10.
DOL having an impact?
I doubt my posts are being watched by those in charge, but from the Whitehouse.gov comes this information:
EPA Has Issued Fuel Waivers To Expedite Relief and Recovery. EPA has issued temporary waivers to make additional supplies of gasoline and diesel fuel available in those areas of the country with shortages of specific fuel blends required under the Clean Air Act.
Following up on Tim's post below, UTA is evidently throwing the doors open to displaced students - waiving entrance and documentation requirements - evidently so too is SMU, and I would wager other Metroplex schools will likewise (TCU, UNT, DBU, TWU, the other TWU, and U of Dallas). We anticipate displaced families to be housed in Dallas's Reunion Arena, which is generally unused after Dallas built the AA arena. It is not clear if the Metroplex has more shelters on tap, but I am sure that there are plenty of dispalced people in the area. The state of Texas is enrolling displaced children in elementary, middle, and high schools - no questions asked.
The long-term ramifications of this event are mind numbing, not just the rebuilding effort (which will undoubtedly occur) but likely changes in Congressional representation after the Tiebout effect, permanent changes in population in cities like Baton Rouge, Memphis, Jackson (MS), and so forth.
September 01, 2005
The Price System at Work: Atlanta Transit Edition
The fear of a gasoline shortage apparently is convincing more metro Atlanta drivers to ditch their cars and take public transportation.
Gwinnett County's 3-year-old bus service into downtown Atlanta recorded record ridership Thursday morning, and MARTA, which operates buses and a rail system serving Fulton and DeKalb counties, said it was increasing the frequency of train service on its north-south and east-west lines.
Of course, what the AJC incorrectly refers to as a shortage is what we geeks call a supply decrease.
Quasi-personal Katrina stories
Okay, I'm 6 hours north of New Orleans, but Katrina is having an effect here in Shreveport.
Our gymnasium here at LSUS is a Red Cross shelter, and we are currently at capacity in hosting about 800 escapees. There are tons of cots and sleeping bags in the gym, and a big pet tent out front. Even though I'm sickened by the looting occurring in N.O., it makes me proud when I hear that our gym is no longer accepting donations of water, food, etc. because they are overwhelmed by the amount of donations already. I'll have to go across town and donate elsewhere. Hopefully I'll be able to go play soccer with some of the kids this weekend and give their parents a rest.
I've been trying to contact a friend (started the MS program at FSU when I started the PhD program) who lives in N.O.; his cell phone is still out. He's a smart enough guy that I'm sure he and his wife left early enough.
My former officemate's wife's parents live in Mandeville, north of Lake Ponchartrain, and they have a half tank of gas in their car. They can't take I-10 east to FSU, and they are looking for assurance that if they drive anywhere, they will be able to fill up again. Gas is available here in Shreveport, but price is rising. At least my lecture on bank runs will be easier for students to understand this semester.
I now have two additional students in my classes who are here from the University of New Orleans. In thinking about how our enrollment will climb slightly, and of how new houses and businesses may start here in Shreveport from displaced New Orleans residents, I got to revisit the Broken Window fallacy in class.
It is very sobering to leave my home that I purchased last year, drive my two-year old car into school, and step into my boring office, and then to go visit the gym and see an elderly couple sitting on a bench looking completely disoriented.
Abolish the rupiah
In light of the plummeting value of Indonesia's currency, Bloomberg News analyst Andy Mukherjee aptly raises the question: wouldn’t Indonesia be better off without a central bank? He calls for dollarization and cites dollarization champions Kurt Schuler and Steve Hanke.
Once a Husker, A Husker for Life
I just hope he can bring back the competency and excitement of the Jim Grobe era. If we can go an entire game without completing a pass again (and winning) I'll be satisfied.
When Lord Sandwich predicted to [John] Wilkes that he would die either "of a pox or on the gallows," Wilkes replied, "That depends, my lord, on whether I embrace your mistress or your principles."*
*Cynthia Crossen, "American Colonists Found Unlikely Hero in Salty British Author," Wall Street Journal, 31 August 2005.
How high will gas prices go?
How high will gas prices go? Well, according to my morning paper about 10 percent of the refining capacity in the U.S. is currently off-line. (The bottleneck in our gasoline system is NOT crude oil supplies; it is refinery capacity and the distribution network.)
I don't know what the inventories of petrol are, but I believe we measure our inventory stock in days not weeks. So let's assume the 10 percent reduction in gasoline production will last a few weeks and the inventories we have are largely exhausted. By how much will gas prices rise? Assuming a 0.1 - 0.2 short run elasticity of demand for gasoline (as reasonable estimate based on the research I've seen), a 10 percent reduction in quantity should equate to a 50-100% increase in price. Using $2.50 as a base, this means we're looking at $3.75 to $5.00 per gallon.
Now, I don't think it will get as high as $5.00 for a variety of reasons. First, I expect that the refineries will be back on-line sooner than some people expect. Second, the short run elasticity estimates are based on studies of small price/quantity changes. A change of this magnitude is quite simply beyond the scope of our research knowledge. My gut feeling is that elasticities of 0.1-0.2 are reasonable for small price changes, but larger price changes will engender even larger consumer responses. If we use a (still low) estimate of 0.3 for the elasticity, the predicted price increase would be only 30 percent--not far off the mark of what's already happened.
California Wine Smog
The San Joaquin Valley Air Pollution Control District is considering imposing the nation's first air quality control on wineries, focusing on the largest vintners — companies such as E&J Gallo, Delicato, and Constellation Wines.
Wineries are the latest target of the district, which has struggled for years to clean up the valley's persistent pollution, by first going after manufacturers, the construction industry, and even home fireplaces....
Wineries have come under scrutiny because the fermentation process that turns grape sugars to alcohol releases ethanol, methanol and other organic compounds into the atmosphere, where they react with sunlight and heat to form ozone, one of the components of smog, air regulators said. [Full story.]
I just hope the EPA doesn't sniff out my homebrew set-up.
HT: Wilson Mixon
So, will McDonald’s now be adding popcorn to its menu?
Highway billboard noted on my way to the office this morning: “I rent my DVDs @ Mickey D’s.” Meaning: McDonald’s restaurants in St. Louis are now renting DVDs from automated kiosks. A Washington Post story gives details:
This summer, McDonald's began testing the movie-rental service in five metropolitan areas. The sixth will be Baltimore, where DVDs will be available for rental starting Labor Day weekend. The rentals cost $1 per night plus tax.
Of course, "more relevant and more contemporary" are really just code words for generating more foot traffic. Supermarkets rent DVDs for the same reason.
A Boston Globe story has more details and a photo of a Redbox kiosk at a supermarket. If the kiosks begin showing up everywhere, Blockbuster's market niche will be reduced to old and obscure movies -- where it already faces tough competition from Netflix.
Questions: Will Redboxes at McDonald's be renting the anti-McDonald’s pseudo-documentary Super Size Me? How about Harold and Kumar Go to White Castle?
New Orleans: Before and After
Audio and video coverage via ResourceShelf
Stump the Judge
The Gong Show is about to get under way at the Senate. The Left are looking for questions that might make Judge Roberts look like a fool. You can send in your qestion to the Ask Roberts web site.
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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