Division of Labour: March 2007 Archives
March 31, 2007
Euroization vs. dollarization
Counterfeiters in Russia now reportedly prefer to forge the euro over the dollar. This may be a leading indicator that the Fed will be losing international market share to the European Central Bank.
The Gentle Cynic c. 1907
From the March 31, 1907 NYT:
March 30, 2007
Ten men go into a bar ...
It's an old chestnut, but Kamerschen (not Kamerschen as it turns out; see update below) lays it out so nicely.
Bar Stool Economics
Suppose that every day, ten men go out for beer and the bill for all ten comes to $100. If they paid their bill the way we pay our taxes, it would go something like this:
The ten men drank in the bar every day and seemed quite happy with the arrangement, until one day, the owner threw them a curve. "Since you are all such good customers," he said, "I'm going to reduce the cost of your daily beer by $20."
Drinks for the ten now cost just $80.
The group still wanted to pay their bill the way we pay our taxes so the first four men were unaffected. They would still drink for free. But what about the other six men - the paying customers? How could they divide the $20 windfall so that everyone would get his 'fair share?' They realized that $20 divided by six is $3.33. But if they subtracted that from everybody's share, then the fifth man and the sixth man would each end up being paid to drink his beer. So, the bar owner suggested that it would be fair to reduce each man's bill by roughly the same amount, and he proceeded to work out the amounts each should pay.
Each of the six was better off than before. And the first four continued to drink for free. But once outside the restaurant, the men began to compare their savings.
And that, boys and girls, journalists and college professors, is how our tax system works. The people who pay the highest taxes get the most benefit from a tax reduction. Tax them too much, attack them for being wealthy, and they just may not show up anymore. In fact, they might start drinking overseas where the atmosphere is somewhat friendlier.
For those who understand, no explanation is needed. For those who do not understand, no explanation is possible.
David R. Kamerschen, Ph.D.
What's in a word? c. 1907
The March 30, 1907 NYT reports that the Oklahoma state constitution has been sent to the printer:
The printer who has charge of getting out the Oklahoma Constitution announces that the work will be finished next week and the distribution commenced.
My version of the U.S. Constitution, sans all amendments, is 4,426 words. Including the first ten amendments adds another 482 words (and what a contentious 482 words they have proved to be!).
From 1789 to 1907, the constitution of a state-to-be required 22.5 times as many words as the U.S. Constitution? I wonder whether the Oklahoma territory faced more and more complicated issues that required more words to clarify. Another hypothesis is that by 1907 government had intruded into the lives of individuals 22.5 times more than it had in 1789. Another possibility (my personal favorite), is that the 100,000 word Oklahoma constitution is a testimony to the genius of the Founders, who knew how to say what they wanted to say without extra verbiage.
If the state constitution of Oklahoma was intended to outline the same rights at the state level as are conveyed in the U.S. Constitution, yet it took 22.5 times as many words to do so, would this suggest that the (legal/moral/explicative) value per word in the Oklahoma constitution was lower? If so, was this the effect of demand side or supply side influences (or both)?
Ben Powell on Penn & Teller's Bull$h!t
Ben Powell appeared on Penn & Teller's Showtime show, Bull$h!t, last night talking about Wal-Mart and sweatshops.
The show airs again tonight and several other times this week [schedule]. Here's a youtube clip teaser. Here's another clip that includes Ben. [UPDATE: Did you notice the nifty Economic Freedom of the World map behind him?!]
March 29, 2007
Rape Statistics in Need of "The Diff"
During a typical college year, 3 percent of female students experience rape or attempted rape. During their four years of college, one in every four female students will be sexually assaulted, according to the UNCW Police Web site. While women often feel they're safe on campus, the opportunity for disaster is always there.
It seems like somebody at UNCW didn't too well in math. Trying to go from a 3% annual incidence of rape or attempted rape to a 25% rape incidence over a 4 year college career takes a bit of fuzzy math. Maybe UNCW needs "The Diff" or a new model called "The Product."
UPDATE: A reader points out that the UNCW stats might be consistent if rape/attempted rape is a narrower category of behavior than sexual assault. A fair point; thanks.
Ben Powell on Penn & Teller
My colleague Ben Powell has many publications and speaking engagements on the sweatshop issue. Tonight Ben and his sweatshop research will be featured on Penn and Teller's Showtime series "Bullsh*t".
Short preview/teaser here: http://www.sho.com/site/ptbs/home.do
There's a great line in the teaser, something like "working in sweatshop sucks, but it sure beats tilling soil with grampa's femur."
$300 dollar hammers c. 1907
A wise man once said that the only good monopoly is the one you own. The March 29, NYT reports on a hearing concerning the decorating and furnishing of the Pennsylvania State Capitol in which there seemed to be extraordinary overcharges by the main contractor. The testimony before the Penn. State Legislature focused on how much the contractor, one Sanderson & Co., had marked up the prices charged by the various subcontractors involved.
Conveniently, the article reports on what sub-contractors were paid for their goods and services and what the state paid the primary contractor:
Subcontractor: $65 each
Contractor: $264.60 each
Subcontractor: $70 to $75 each
Contractor: $285.73 each
Subcontractor: $10 each
Contractor: $73.60 each
Subcontractor: $14 each
Contractor: Between $36.80 and $73 each
I especially like the markup on the woodworking subcontracting.
Consumer spending and Say’s Law
I offer a homely lesson in the continuing relevance of a venerable economic doctrine here.
What's the point? c. 1907
File this in the "why did we try that?" drawer. The March 29, NYT reports from Memphis, TN:
John W. Schorr, prominent in the past in the ownership of thoroughbred horses, has volunteered his services as starter at the matinee racing to be held here on April 6 by horsemen who will experiment in holding horse races with the betting feature eliminated... [emphasis added]I guess that niche market didn't pan out.
On immigration c. 1907
The March 29, NYT has the following report on the population of the United States:
There are now nearly 8,000,000 more people in the Continental United States than there were six years ago, according to an estimate based upon the figures compiled by the Census Bureau in a special report issued to-day. According to its estimates the population of the Continental United States in 906 wasa 83,941,510, an increase over 1900 of 7,946,935....The growth in population in the Continental United States from 1905 to 1906 was 1,367,315.
A Curious Balance
Diane Rehm’s guests this morning on National Public Radio, to discuss the “Impact of Free Trade on American Workers”:
Alan S. Blinder, professor of economics at Princeton University
So, let’s see, that’s:
Alan S. Blinder, member of Bill Clinton’s Council of Economic Advisers, liberal Democrat, Trilateralist;
C. Fred Bergsten, member of Jimmy Carter's Treasury Department, liberal Democrat, Trilateralist; and
Jeff Faux, founder of a left-wing think tank, ultra-liberal Democrat, author of The Global Class War.
Yep, that’s balance for you. Not surprisingly, they all favored an increase in tax-funded retraining programs and tax-funded “wage insurance”. The first two did disagree with Faux’s proposal that the US should stop signing trade agreements.
The Baseball Economist
I have just finished reading J.C. Bradbury's The Baseball Economist: The Real Game Exposed and I highly recommend it to anyone interested in the economics of baseball or sabermetrics (the statistical analysis of baseball).
J.C. has first rate discussions on a number of baseball issues such as hit batsmen, hitters "protecting" each other in the line up, the absense of left-handed catchers, and coaching prowess in lobbying umpires (though I thought this was the weakest chapter). He also breaks down the myths about large market teams dominating small market teams and explains that the sudden explosion of hitting had a lot to do with the league's expansion (without denying the possible steroid connection). His economic analysis of the game in terms of player values and the supposed monopoly power of MLB is also excellent.
The best thing is that now I have a reply to the folks on the street who ask me about Freakonomics. I will say “yea that’s an ok book, but you should read The Baseball Economist if you want to really see how economists think.”
Nesbit/Sobel Nascar News
My former student Todd Nesbit and good friend Russ Sobel are making some news in the blogosphere and elsewhere with their views on Nascar's "Car of Tomorrow."
In 2006, Todd Nesbit, assistant professor of economics at Penn State Erie, and Russell Sobel, professor of economics at West Virginia University, produced a study that explored how drivers react to having cars so safe that they can generally walk away with no injuries after crashing into a concrete wall or another car at a very high rate of speed. "Based on results of our study, we would project that drivers will drive more recklessly and take more risks while driving the Car of Tomorrow," Nesbit said.
March 28, 2007
Bush yucks it up a notch
There's a surrealness to this AP story about the Prez yuckin it up good for the correspondents dinner.
In keeping with the lighthearted traditions of the Radio and Television Correspondents' Association dinner, Bush poked fun at himself and a few others in remarks that drew laughter and applause at the Washington Hilton Hotel.
Iran's nuclear banknotes
Iran’s new 50,000 rial note, first issued earlier this month, has attracted some international attention for the defiant picture on its reverse: the atomic symbol of orbiting electrons. I find more startling the fact that the newest and largest banknote in circulation in Iran is worth only US$5.41. The Iranian authorities can't even keep up with their own inflation.
Before Iran became an Islamic Republic in 1979, 70 rials could get you US$1. Today (according to XE.com) it takes 9,238 rials. Being a country without credit cards, an Iranian making a million-rial payment (equivalent to US$108) either has to carry a large wad of cash (20 of the new notes), or go to a bank to get a million-rial cashier’s check. The current official inflation rate is 13 per cent per annum, but unofficially inflation is an estimated 30 per cent.
You might suspect that monetary expansion by the Iranian central bank is behind the rampant inflation. According to this news story, you wouldn’t be alone: “The government of President Mahmoud Ahmadinejad has been criticised by economists for expansionary policies that risk fuelling inflation.” But an Iranian government spokesman denies it all. The priceless quote, useful for amusing students who are learning the quantity theory of money:
The head of printing at the Islamic republic's central bank, Jalal Jalilian, denied there was any link between the issuing of the note and rising prices of basic foodstuffs in Iran.
Yes, and bananas are a fruit, but bountiful production does have something to do with a falling price per banana.
UPDATE: Clifford Thies echoes the above and adds a discussion of hyperinflations in other countries.
March 27, 2007
No Smoking Comrade
I'm not a smoker and don't like the habit in others, but I love liberty more than I hate smoking. Click above for some great anti-ban gear.
Now this is real March Madness
A cricket fan committed suicide while another died of a heart attack in India after watching their national team's crushing defeat to Sri Lanka in the World Cup match in the Caribbean, police said on Sunday.
HT: Saurav Roychoudhury
Don't look under this rock
I warn the readers of our fair blog to sit down before taking a look at this graphic.
If you haven't already jumped off the nearest bridge, you might want to read the accompanying story, which discusses in more detail how ignorant many people are about their mortgage.
There is rational ignorance and then there is plain stupidity. In which bin does this one belong?
Couple this with the revelation that some subprime mortgage brokers are deciding who will assess the property, thereby obtaining the "right" number (see below), and there is no wonder why there are problems in many areas of the real estate market.
Class warfare c. 1907
From the March 27, 1907 NYT:
Laborers employed at Golf House, John D. Rockefeller's country estate here, have had their wages increased 15 cents a day. They now receive $1.65 for ten hours' work instead of $1.50.Thank goodness the government wasn't involved with the wage increase or it might have only kept up with inflation, 2.47% in 1906 and 4.7% in 1907.
From eh.net, $1.50 and $1.65 in 1907 would be $32.16 and $35.37, respectively, in 2005 dollars. Not too shabby for planting trees on a big-wig's estate.
[Update (3/28/2007, 10:34 CDT): Colleague Mike Ward points out that I implicitly acted as if laborers on Rockefeller's estate were paid $32.16 per hour, which of course is not true. The workers were paid approximately $3.21 per hour in 2005 dollars, slightly more than half of today's minimum wage. However, the folks at EH.net put the per-capita income at $391 per year in 1907 ($5649 in 2005 dollars). Assuming a 300 day work year, this would put daily wages in the area of $1.30 in 1907 dollars or $18.83 in 2005 dollars. I would maintain that landscaping and trail-blazing are relatively low-skill chores, so the fact that Rockefeller paid his workers well above the national average seems consistent with my previous comments.
Thanks to Mike for his persistent vigilance over my words.]
What's a Final Four worth?
It is common to confuse causation with correlation, but in the case of George-Mason University's 2006 final four appearance I think we can dispense with the debate. Today's Advertising Age reports:
Other than a 15-second spot for the school, GMU did no advertising. But its success on the court and the subsequent national TV and print coverage resulted in a whopping windfall in the aftermath.This supports the findings of several authors, although the evidence that big-time sports or sports success leads to big-time donations is mixed. I provide a hat-tip to Andrew Zimbalist for pointing out that schools should not expect the financial benefits from one-time shocks to athletic success to be sustained over time.
My take: In 2006 GMU won a "lottery." GMU wasn't expected to go as far in the tournament as they did, and it is unlikely that such a performance will become the norm (witness that this year's Final Four includes only 1 and 2 seeds). The unexpected exposure of the University might well result in a "thatta-boy" feeling amongst alumni and would also be expected to generate a larger number of applications (although matriculations might not increase). However, as Zimbalist warns, such shocks likely have a very short half-life. Unless GMU can repeat its performance (or something close to it) in the near future, the glow of the 2006 GMU season will quickly fade for potential students. The freshman class of 2010 is currently in ninth grade, how many will remember the 2006 final four?
Windfall benfits like those enjoyed by GMU could be considered "spotlight benefits" inasmuch as small schools not normally considered by the national media or potential students in distant states naturally focus on the school precisely because of a sporting event. While spotlight benefits are largely ignored by anti-NCAA, anti-sports-on-campus folks, the NCAA qua cartel likely does not.
The end-of-season tournaments in football (as much as the bowl system can be considered a tournament) and in basketball are clearly aimed at maximizing joint profit, but also provide spotlight benefits to smaller members who occasionally play the role of Cinderella. To the extent that such benefits help smaller schools increase their profile, the NCAA cartel has been effective if not efficient.
Incentives Matter: Campaign Cash Edition
BOSTON (AP) - A millionaire thanks to his work as a venture capitalist, Mitt Romney is acutely aware of the motivating power of money. His presidential campaign hopes it will have a similar effect on college students, which is why it's offering them a cut of their fundraising.
Participants in "Students for Mitt" will get 10 percent of the money they raise for the campaign beyond the first $1,000. While candidates often offer professional fundraisers commissions up to 8 percent, campaign experts believe the Massachusetts Republican is the first to do so with the legion of college students who have historically served as campaign volunteers.
Kudos for the GA Senate
The GA Senate has passed a constitutional amendment limiting government spending to inflation plus population growth. (Kudos for Sen. Chip Rogers for his leadership to this issue.) Alas, I'm told the measure is likely to die because the GA House is not likely to pass the measure.
Two great quotes on eminent domain
...and they're both from the same article in Saturday's Dallas Morning News metro section.
First this fiery exclamation from a Texas Representative:
State Sen. Royce West, D-Dallas, pledged Friday evening to fight possible legislation expanding government power to take private property... [O]n Friday, about 300 community members appeared largely critical of the project and an accompanying legislative proposal, speaking out during a community meeting at a local recreation center gymnasium. The criticism, tinged with memories of historical neglect and families displaced by previous government property seizures, climaxed when state Rep. Terri Hodge, D-Dallas, spoke out.
And second, this somehow incisive bit:
March 26, 2007
On moral hazard in the subprime lending market
I am back from an enjoyable trip to Morgantown, West Virginia, at the invitation of co-blogger Josh Hall. It was my first time to the city and university and it was very fun.
While wading through a few days worth of backlogged emails, I came across the U.S. Economic Briefing by Comerica Bank. This briefing spent considerable space discussing the subprime lending market and what is happening and is expected to happen in the next few months. The discussion contains this shocking paragraph:
In 2006, 38 percent of subprime originations were for 100 percent of the value of the home. To make matters worse, the appraisal process often allowed brokers to choose who will assess home values rather than having appraisers assigned randomly. Last year, so called “liar loans” that involve little or no documentation of the borrower’s financial condition reportedly accounted for as much as 45 percent of subprime originations. Many subprime mortgages had adjustable rate structures with low teaser rates that imply unrealistically high debt burdens unless the loan could be refinanced before the rate adjusts higher.How can brokers choose who will asses home values? Now that's an interesting moral hazard problem.
Restaurants: Bastions of Asymmetric Information?
A Bay Area network affiliate has this story (http://www.ktvu.com/money/11347011/detail.html), "Ten Things Your Restaurant Won't Tell You."
1. "It's more about the sizzle than the steak." Business is good for the restaurant industry. Americans now spend roughly half their food budget dining out, and restaurants expect revenue of more than $537 billion in 2007. That's a 67% increase since 1997. But it's not just our collective avoidance of the kitchen that's pumping profits: Restaurants work every angle these days, using marketing psychology to get you to spend more.
Some examples are trite, such as bacteria/cleanliness, price markups, and cheaper fish passing as higher cost goodies on the menu. Other examples are intriguing:
4. Big brother is watching you eat.
At New York City's four-star Daniel, for example, four closed-circuit cameras monitor the dining rooms, offering a bird's-eye view of every plate. "It's about maintaining a quality of service," says Daniel spokesperson Georgette Farkas. "With the cameras the chef can tell when each course needs to be plated and served."
7. "Specials" means "food that's going to go bad if we don't get it out of the kitchen today".
9. There's a claimed increasing trend toward tip pooling, including among management.
And my favorite:
10. Never go out to eat on a Monday (the equivalent of "never buy a car made on a Friday").
Here We Go Again ...
... a revolutionary crackpot is going to impoverish his people:
CARACAS, Venezuela: President Hugo Chavez announced Sunday that his government's sweeping reforms toward socialism will include the creation of "collective property."
Vowing to undermine capitalism's continued influence in Venezuela during his television and radio program "Hello President," Chavez said state-financed cooperatives would operate under a new concept in which workers would share profits.
"It's property that belongs to everyone and it's going to benefit everyone," said Chavez, a close ally of Cuban leader Fidel Castro whom opponents accuse of leading Venezuela toward Cuba-style communism.
March 24, 2007
Global Warming and Arctic Wealth
Here's a story with quite a few angles.
[T]he prospect of timesaving sea lanes that could transform the shipping industry the way the Suez Canal did in the 19th century.
2. Response to the criticism that businesses focus on the next quarterly report:
Alan Murray, an analyst with the consulting firm Wood Mackenzie, said most petroleum companies are now focusing research and exploration on the far north. Russia is developing the vast Shkotman natural gas field off its Arctic coast, and Norwegians hope their advanced technology will find a place there.
3. Issues regarding sovereignty and prior claims
Norway and Russia have issues in the Barents Sea; the U.S. and Russia in Beaufort Sea; the U.S. and Canada over rights to the Northwest Passage; and even Alaska and Canada's Yukon province over their offshore boundary.
Want to take bets on how much the indigenous peoples get out of this?
And 4. Traditional environmental concerns: "Apart from the risk of oil spills, more vessels could carry alien organisms into the Northwest Passage, posing a risk to indigenous life forms."
Posner's dubious case for cost-of-living differentials
Judge Richard Posner debunks the case for a general raise in federal judge’s salaries, by noting that there isn’t any shortage of quality applicants, and resignations by judges returning to the private sector continue to be rare. But at the end of his piece, Posner tags on the following:
But there is one compensation measure that is long overdue and could be effectuated at minimum cost to the federal fisc. That would be to introduce a cost of living differential. The cost of living differs very widely among different communities in the United States. Boston’s cost of living is 40 percent above the average for the nation; the cost of living in Kanakee, Illinois, is 12 percent below the average; and these are not the extremes. Modest cost of living differentials, constituting raises limited to high cost-of-living areas, for federal judges would go some distance toward remedying any perceived problem of judicial undercompensation.
It is far from obvious that this proposal would survive the same scrutiny that Posner applies to the proposal for an across-the-board raise. Is there any shortage of quality applicants to judgeships in cities where the cost of living is high? Are resignations more frequent?
Armen Alchian in class used to debunk the equivalent proposition that the University of California needs to pay higher salaries on campuses located where the cost of living is higher. Why not? The cost-of-living difference between (say) Los Angeles and Fresno isn’t in the price of groceries, or anything else that can be shipped between the two cities, to any significant degree. Arbitrage rules that out. The difference is all in the price of housing or real estate. And why is real estate in LA more expensive than in Fresno? Because more people would rather live in LA (price aside). In equilibrium, the price of housing in LA is just enough higher to equalize the attractiveness of the two communities to the marginal resident. It follows that the UC system needn’t pay higher salaries to attract employees to places where people would rather live (at an equal cost), i.e. are just as happy to live when facing the higher cost of living. Ditto the federal judicial system.
HT: Ilya Somin at the Volokh Conspiracy, who unfortunately endorses Posner’s proposal for a cost-of-living pay differential.
March 23, 2007
RIAA Sues....Some More
From yesterday's S.F. Chronicle, which AP later picked up: Music industry threatens student downloaders at UC
The music industry has sent hundreds of threatening letters to college students across the nation, including dozens at UC Berkeley and UC Santa Cruz, as part of its campaign against illegal music downloading. ... sending more than 400 "prelitigation" letters that order the students to pay a settlement fee or face a lawsuit.
Sound familiar? It should:
The letters are the latest escalation in the industry's battle against peer-to-peer music sharing on the Internet. Years after the rise and fall of Napster, the file-sharing program that popularized illegal downloading in the 1990s, the music industry continues to lose millions of dollars in music sales because consumers are getting their tunes for free on the Web.
The strategy that seemed so effective a few years ago--sue the pants off a few to reduce demand among many--gets a new and much broader boost.
For comic relief, Mother Jones is always a good choice. Try their April 2006 litany of IP follies here.
AMONG THE 16,000 people thus far sued for sharing music files was a 65-year-old woman who, though she didn’t own downloading software, was accused of sharing 2,000 songs, including Trick Daddy’s “I’m a Thug.” She was sued for up to $150,000 per song.
A FRENCH DIRECTOR had to pay $1,300 after a character in his film whistled the communist anthem, “The Internationale,” without permission.
And couldn't resist:
HOOTERS SUED a competitor for stealing its “trade dress,” i.e., the packaging of its waitresses.
(Woops. Did I just over quote? Sue me.)
March 22, 2007
Pills for everything: Cow Burping Edition
Thanks to Wilson for pointing yesterday to Robert Samuelson's trenchant op-ed on global warming, which says there's little that consumer habits can do to curb global warming compared to the coal effect.
Well, how about cutting down on bovine gas? An article in today's The Guardian offers another route:
Cut down on flying, sell the car and recycle your bottles. But if you really want to tackle global warming, you should stop your cow from burping.
I've never heard a cow burp, but I thought the big problem was on the other end. Anyway, article here.
I appreciate Jim Couch of University of North Alabama visiting Berry on Tuesday. Jim gave a talk "Dealing from the Bottom of the Deck: The Political Economy of the New Deal" based on his research (with Bill Shughart) on public choice aspects of New Deal spending. Thanks Jim.
1. The AJC on the joys of Georgia in the spring: "Atlanta's pollen count skyrocketed to nearly 2,600 Thursday, more than 20 times the level considered "extremely high" by allergists." Even with my daily dose of Claritin, a short walk between buildings leaves me with watery, itchy eyes.
3. Part of my post on tenure has reproduced in The Chronicle of Higher Education (no link, the article behind the firewall). [HT: George Leef]
4. Andrew Young is back in the news--this time for having connections to a firm that "is entangled in a controversy concerning the firm's dealings with Nigerian President Olusegun Obasanjo." At least this time he isn't spouting off about inner city markets selling "stale bread and bad meat and wilted vegetables."
5. Readers thinking it's been too long since I've blogged on Wal-Mart (the indirect reference to Wal-Mart in the Andrew Young post above doesn't count) might turn to this column by WaPo's Sebatian Mallaby. [HT: Mark Perry] An excerpt:
The average Wal-Mart customer earns $35,000 a year, compared with $50,000 at Target and $74,000 at Costco. Moreover, Wal-Mart's "every day low prices" make the biggest difference to the poor, since they spend a higher proportion of income on food and other basics. As a force for poverty relief, Wal-Mart's $200 billion-plus assistance to consumers may rival many federal programs. Those programs are better targeted at the needy, but they are dramatically smaller. Food stamps were worth $33 billion in 2005, and the earned-income tax credit was worth $40 billion.
Set against these savings for consumers, Wal-Mart's alleged suppression of wages appears trivial. Arindrajit Dube of the University of California at Berkeley, a leading Wal-Mart critic, has calculated that the firm has caused a $4.7 billion annual loss of wages for workers in the retail sector.
6. John McCain issued a warning about the spead of socialism in Latin America. While he's correct in thinking Chavez is a menace, I'm also concerned about the socialism peddled by McCain. Senators who live in glass houses ...
7. The International Property Rights Index looks to be an interesting project.
8. A new NBER Working Paper co-authored by Princeton's Harvey Rosen finds that financial market liberalization over the past 35 years has benefitted mortgage borrowers. The paper also finds no evidence that GSEs Fannie Mae and Freddy Mac have contributed to households' gains.
March 21, 2007
From Sunday's San Francisco Chronicle, a story of entrepreneurship, war commerce, and an "I, Pencil" type of glimpse into what it takes to get a soldier a decent cup of coffee.
Just what does it take to get a good organic double latte in Balad or Fallujah? A shipping container of whole coffee beans roasted in South San Francisco. A double-wide trailer stocked with espresso machines and driven under military escort from Kuwait. A crew of baristas flown in from India, Sri Lanka and the Philippines. And a Marin County man and his brother who make it all happen. Jason and Jon Araghi have built a $16 million business setting up and running gourmet coffeehouses on American military bases in the Middle East, Africa and Asia -- including bases in the war zones of Iraq and Afghanistan.
A cool story, and touching in ways. But the economist in me imagines all the foregone value of having to supply coffee (etc.) to war zones in the first place. Read it all here.
Global Warming Debate
Robert J. Samuelson nails it as regards global warming policy discussion:
What's most popular and acceptable (say, more solar) may be the least consequential in its effects; and what's most consequential in its effects (a hefty energy tax) may be the least popular and acceptable.
March 20, 2007
Chicken Hawks and Corn Chips
Thanks to Frank for remembering and noting my paper. This appeared in the St. Croix Review in 1995. I've posted an HTML version here. The insight is Henry George's, that both people and chicken hawks eat chicken but with different implications for the number of chickens extant. The "corn chips" part is due to an old Fritos ad with Jay Leno.
March 19, 2007
Of Elephants and Bison
Readers of Cafe Hayek have probably seen the link to Karol Boudreaux's piece urging Kenya's government to allow trophy hunting of elephants to increase the country's elephant population.
Now comes a Time piece on how ranchers are responsible for increasing the bison population. Excerpts:
Sometimes you have to eat an animal to save it. That paradox may disturb vegetarians, but consider the bison: 500 years ago, perhaps 30 million of these enormous mammals inhabited North America. By the late 1800s, several forces--natural climate changes and Buffalo Bill--style mass killings among them--had slashed the bison population to something like 1,000. And yet today North America is home to roughly 450,000 bison, a species recovery that has a lot to do with our having developed an appetite for them.
Conservationists saved a few--there were probably more bison at the Bronx Zoo in 1900 than there were in all of Oklahoma--and gradually bison were reintroduced to natural habitats like the Wichita Mountains Wildlife Refuge. But it wasn't until the '70s, when ranchers began acquiring bison with an eye toward encouraging a boutique meat market (Native Americans, Old West enthusiasts, health nuts), that the species rebounded in numbers significant enough to ensure genetic diversity and protection against disasters like that 1841 freeze. Today private owners care for 97% of the world's bison population, according to Cormack Gates, who chairs the World Conservation Union's North American Bison Specialist Group.
The ranchers care for bison because they can make money selling their meat.
This really shouldn't come as a great surprise. If you make elephants more valuable by allowing trophy hunting or bison become more valuable because of changing diets then people have an incentive to preserve and create more of the animals.
The article also takes on some myths about bison, Native Americans, and 19th century settlers. ATSRTWT.
Note to co-blogger Wilson: Didn't you write a similar piece about chickens 10 years or so ago?
Forgive me this snarky anarcho comment, but...
...when I read this story,
WASHINGTON Mar 19, 2007 (AP)— Banana company Chiquita Brands International admitted in federal court Monday that, for years, it paid terrorists to protect its Colombian banana-growing operations.
I had to wonder: How is this any different from paying taxes?
Happy Feet & Unhappy Bears?
‘They [polar bears] cling precariously to the top of what is left of the ice floe, their fragile grip the perfect symbol of the tragedy of global warming. Captured on film by Canadian environmentalists, the pair of polar bears look stranded on chunks of broken ice….’ says an article on global warming. According to the article from which the following excerpts are taken, the only factually correct part of this quote is that the image was captured on film.
This is the Disneyfication of politics: bad, greedy people on one side, and ‘cuddly’, helpless polar bears on the other. How long till we get an animated fable about polar bears to sit alongside the penguin eco-flick Happy Feet?
March 18, 2007
Nobody drives to work any more – the roads are too congested
By Barbara Hagenbaugh, USA TODAY [March 12]
WASHINGTON — Ridership on public transportation jumped to the highest level in nearly five decades in 2006 as high gas prices and expanded bus and train service enticed people to park their cars. […]
"Certainly, a lot of the growth last year was with the high gas prices," APTA President William Millar says. But Millar says a number of other factors, such as increased road congestion and improved transit service, were also likely in play.”
Emphasis added. Hat tip: Peter Gordon’s blog.
March 16, 2007
The cost of raising a dollar - Federal Government Edition c. 1907
In this case, it's not even a dollar.
From the March 16, 1907 NYT:
As a result of a public auction fully advertised in advance, the United States Government added 10 cents to its revenues yesterday when two bottles of sauce officially described as "unclaimed perishable merchandise" found a purchaser after some difficulty.The sauce had been discovered on the steamship Maranhense and was unmatched to any passenger thereon. The government seized the sauce and the appraiser appraised the sauce at 25 cents a bottle.
Deputy Collector Storey then reeled off the usual amount of red tape. Col Storey certified to Collector Stranahan that he had received the sauce from the steamship company. The next step was to send out advertisements announcing the sale and summoning the official auctioneer to be on hand. When the sale was declared open yesterday morning there was a dearth of bidders. Auctioneer J.B. Sheldon wore a sad look. His compensation from the Government is at the rate of 5 per cent. on sales.
Common Sense on Global Warming
Hans von Storch is one of Germany's leading researchers on climate change. DER SPIEGEL spoke with him about why fears of global warming are exaggerated and and the doom-mongering tendencies of German scientists.
SPIEGEL: Is it even possible to prevent global warming at this point? Storch: No. Because of the inherent time lag in the climate system, the greenhouse gases that have already been pumped into the atmosphere will undoubtedly lead to a certain increase in temperature in the coming decades. We can no longer completely avoid anthropogenic climate change. At best, limiting the temperature rise to two degrees is just about possible, according to optimistic estimates. That's why we should spend more time talking about adjusting to the inevitable and not about reducing CO2 emissions. We have to take away people's fear of climate change.
Posted by Wilson Mixon at 05:01 PM
135,789 safe Virginians
After obtaining a list of all 135,789 Virginians who are permitted to carry a concealed weapon, Trejbal [a writer with the Roanoke Times in Virginia] and his employer posted them in a searchable online database. ... Trejbal unintentionally created a "do not mess with" list of Virginians, but what about all the folks who are not on that list?
March 15, 2007
Riding a bike? Wear a wig
Who knew that wigs make you safer while riding? John Stossel provides great examples of unintended consequences of safety regulation in this column.
A joint study by the Brookings Institution and American Enterprise Institute found that government regulations that are supposed to save lives actually end up killing more people.
You'd think that individuals would have progressed to the point where they understood that the mere title of something is not necessarily indicative of its contents or effects. Bike helmet regulations, airbags, the security provided by Social Security, etc. I guess what is common sense for an economist is not so common for the populace in general.
More on river ownership
On many European rivers, even sportfishing rights are privately owned. If you aren't one of the owners and you want to cast your line into the waters, you must rent the right to do so-at prices that can exceed $1,000 per day.
Another PERC article shows how private contracts in the US have provided some of the same gains. In yet another, Bruce Yandle shows the untoward effects of the absence of private ownershp in river quality. Finally, among my favorites, is this account of the flaming Cuyahoga, how common law was mitigating the problem and how an "environmental protection" agency was used to reverse these gains.
Kilimanjaro Trip Report
I've posted a complete trip report (.pdf) online. Enjoy.
Time Article on Ghana
Story here; it documents the economic ups and downs since Ghana became independent. It includes the usual suspects--bribery, misgovernment, and the like. Repeat after Doug North--institutions matter.
March 14, 2007
Caught My Eye
1. Among those of us who discuss property rights in class, it is pretty standard to compare private ownership to open access. Sometimes my students will respond "Nice idea in theory, but who actually owns a [fill in the blank with an open access resource]?" Conveniently, the WSJ recently ran had an article on the Duke of Devonshire's ownership of a river in Ireland. Alas the article is not available on the web, but this info conveys the same point:
Ireland's river and lake waters have been privately owned and managed for centuries. In the Lismore area it is the Duke of Devonshire, Lord of Lismore Castle, who owns most of the river rights. He leases out the best fishing waters for the day. In the case of salmon, these are stretches of river from 100 to 500 yards long with clean gravel breeding beds. These rented stretches, called beats, can cover either one or sometimes both banks of the river.
Depending on the time of year and the particular beat, prices for a day's rental run between €35 and €100 Irish pounds. Bank fishing or wading is the method allowed. There are no quotas - the rule is NOT catch and release.
The beauty of the system is that it keeps the river from being fished to death! The beats are well managed, well policed, and stocks are conserved.
2. The WSJ also had an article last week on increasing pay for leaders of non-profits. It isn't really a surprise since incentives matter and skilled leaders possess scarce talent. An excerpt:
People who work at charities generally aren't in it for the money. But a growing number of nonprofits are paying salaries that approach those in the corporate world, a trend highlighted by a new survey.
"Salaries have become much more competitive," says Marilyn M. Machlowitz, who runs a New York-based executive-placement firm for nonprofits. She says her firm has lured corporate types to fill a number of nonprofit jobs paying in excess of $200,000. That's at least $50,000 higher than five years ago, she adds.
Salaries for top executives at nonprofits have climbed 25% to 50% since 2000, says Jennifer Bol, head of the education, nonprofit and public-policy practice at Spencer Stuart, an executive-placement firm. A new survey of New York-area nonprofits by Professionals for Nonprofits, another search firm, found that among nonprofits with operating budgets over $20 million, 15% more chief executives and executive directors of these organizations earned $250,000 to $350,000 last year than in 2005.
Several factors are boosting pay: greater competition among nonprofits to attract top talent, difficulty in retaining staff and a lack of internal candidates for some important positions.
Keystone Kops Election Bureau
A news item on election security:
Some key components of one of Georgia's most sacred institutions — that had been discovered in discarded office furniture — were recently auctioned on eBay.
About 40 voter access cards and three electronic ballot encoders belonging to DeKalb County were purchased earlier this month on the auction Web site, according to Secretary of State Karen Handel. Another seven supervisor's cards, used to activate the encoders, also were up for bid.
From the AJC [bold added for emphasis]:
"We call on Congress to reauthorize SCHIP," [Georgia Governor Sonny] Perdue said at an event that highlighted a study showing a drop in the number of working families nationally that get insurance through their employers. "We call on Congress to fix SCHIP's inadequate funding formulas. And we call on Congress to provide funding to states like Georgia who have successfully implemented the program and now face an immediate federal funding shortfall.
"Georgia stands ready to do our part," the governor said, "but we simply cannot go it alone."
"Government is the great fiction through which everybody endeavors to live at the expense of everybody else."
Tim's post reminds me of a joke that I heard when I was an undergraduate: The Vatican is considering freezing holy water and selling it as Popesicles. Which goes to show that reporting people's actions is funnier than making up jokes.
The Greening of the US ...
The United States and much of Europe have reversed years of deforestation and are showing a net increase in wooded areas, while most developing countries continue to cut down their trees, a U.N. agency said Tuesday.
Of course, the UN is only about two decades behind Julian Simon in reporting this breaking news.
And speaking of the greening of Oscar, consider this assertion (HT: NCPA Daily Policy Digest) that the Prius is less eco-friendly than the Hummer.
March 13, 2007
Markets in Everything: Holy Water Edition
Can you really sell anything on Ebay? Apparently some people wanted to find out:
The Ebay headlines suggest themselves: "Baptise yourself with REAL Holy Water from Pope's House!!! L@@K!!!"
A Rewrite of History
This article conveys a sense of the historical nonsense that appears to be found in 300. The closing sentence provides an apt summary and an indication of the nature of the state that "Spartan virtues" would yield: "Most Greeks would have traded their homes in Athens for hovels in Sparta about as willingly as I would trade my apartment in Toronto for a condo in Pyongyang."
I hope to write up a complete trip report soon, but in the meantime, here's the money shot from Kilimanjaro.
I am happy to announce the publication of Unleashing Capitalism: Why Prosperity Stops at the West Virginia Border and How to Fix It published by the Public Policy Foundation of West Virginia. The book is edited by Russell S. Sobel, with Matt Ryan and myself as associate editors. The book focuses on West Virginia policy but is applicable to most any state in the nation. Free dowloads of individual chapters are available at the above link, and the entire book can be purchased there as well (and soon through Amazon).
Executive Summary and Table of Contents below the fold.
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This volume of original research contains specific policy reform proposals for promoting prosperity in West Virginia from scholars across the nation. The authors present the case for why state policy should focus more heavily on promoting long-run economic growth, and discuss policies that can be used to accomplish it.
The authors review the scientific evidence on which policies best promote growth and conclude that a policy climate consistent with capitalism, or ‘economic freedom,’ is the best way to accomplish growth and increases in living standards. These policies work because they result in increased capital formation, higher labor productivity, reduced levels of wasteful rent-seeking and lobbying activity, and investment being better channeled to the most productive uses.
The authors also address the reasons why West Virginia has been so historically reluctant to follow the rest of the nation, and the world, in adopting a more free-market policy climate. Our state’s somewhat unusual cultural opposition to capitalism, which is rooted in folklore from our unique economic past, has resulted in a policy climate that halts business formation at our state border. Sadly, this general cultural opposition is rooted in stories that are, to a great extent, simply untrue. The authors attempt to dispel these myths of capitalism through scientific evidence and a careful examination of historical data.
This volume concludes with a set of specific growth-oriented policy reforms that address the broad spectrum from tax policy to legal reform to the security of private property rights. We hope that readers of this volume will come away with a better understanding of capitalism’s true potential to generate the long-run economic progress necessary to lift West Virginia out of poverty, as well as ideas for policy reforms that could accomplish it in our lifetimes.
Edited by: Russell S. Sobel
Associate Editors: Joshua C. Hall and Matt E. Ryan
Table of Contents:
Title Page & Publisher/ISBN Information
Table of Contents
Preface [by Russell S. Sobel]
Part I: Introduction: The Role of Government in Economic Growth
Chapter 1: The Case for Growth [by Russell S. Sobel and Susane J. Daniels]
Chapter 2: The Sources of Economic Growth [by Russell S. Sobel and Joshua C. Hall]
Chapter 3: Why Capitalism Works [by Russell S. Sobel and Peter T. Leeson]
Chapter 4: The Cultural Opposition to Capitalism: Mythbusting through Our Past [by Claudia R. Williamson]
Part II: Specific Policy Reforms for Increasing Economic Growth
Chapter 5. When it Comes to Taxes: Focus on Being Competitive [by Justin M. Ross and Joshua C. Hall]
Chapter 6. Three Specific Tax Reforms for Increasing Growth [by Robin C. Capehart and Pavel A. Yakovlev]
Chapter 7. Make Property Rights More Secure: Limit Eminent Domain [by Edward J. López, Carrie B. Kerekes, George D. Johnson]
Chapter 8. Quit Playing Favorites: Why Business Subsidies Hurt Our Economy [by Michael J. Hicks and William F. Shughart II]
Chapter 9. Lower Business Regulation: Costs and Unintended Consequences [by Joab N. Corey and Nicholas A. Curott]
Chapter 10. Reduce Labor Restrictions: From School Choice to Right to Work [by Nathan J. Ashby and Mark T. Gillis]
Chapter 11. Quit Punishing the Working Poor: Reduce Work Disincentives in the Welfare System [by Anthony C. Gregory and J. Sebastian Leguizamon]
Chapter 12. Reduce the Cost of Civil Litigation and Depoliticize the Courts [by Michael J. Hicks]
Chapter 13. Legal Reform: Specific Changes to Promote Economic Growth [by Kristen M. Leddy and Matthew T. Yanni]
Chapter 14. Reduce, Decentralize, and Constitutionally Constrain Government [by Daniel S. Sutter and Rex J. Pjesky]
Summary of Chapter Conclusions
About the Authors
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March 12, 2007
According to this article by Stephen Pinker,
Violence has been in decline over long stretches of history, and today we are probably living in the most peaceful moment of our species' time on earth.
The other major challenge posed by the decline of violence is how to explain it. A force that pushes in the same direction across many epochs, continents, and scales of social organization mocks our standard tools of causal explanation ... No one knows why our behavior has come under the control of the better angels of our nature, but there are four plausible suggestions.
I suspect (3) is the major player, but who knows?
On the value of a reputation c. 1907
I have previously mentioned lawsuits filed by women because of slights to their reputation. In Nov. 2005, I mentioned a 1905 case of a woman suing for $10,000 ( $208,000 in 2005 dollars) because of a stolen kiss. In November 2006, I mentioned a 1906 suit filed for a broken engagement and damages of $25,000 ($560,000 in CPI adjusted 2005 dollars) and property of $2,000.
In the March 12, 2007 NYT is another reported stolen kiss, this time in Newburg, New York:
John J. Scannell...is to be sued for $15,000 by Mrs. Laura White of Central Valley, N.Y.
$15,000 in 1907 would be $321,570 in 2005 dollars.
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All that follows is, of course, tounge-in-cheek.
We now have three observations on the cost of reputation:
1905: kiss = $208,000
At least as far as kisses go, the damages incurred seem to be falling. Assuming all reputations are equal and all stolen kisses are equal, the two year reduction on the damages incurred by a kiss was approximately 51%.
This "trend" would put the damages of a stolen kiss at a penny by 1950.
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Local Harvest c. 1907
From the March 12, 1907 NYT:
The typical small farmer...is trying to cultivate imperfectly from 50 to 150 acres almost single handed, and the expense of such work is economically fatal...It is true that he "does to many things to do any of them really well;" but his rivals who cultivate thousands of acres derive their economic superiority, not from specialization, but from new and cheap lands, which, however, because of distance from markets are adapted to only a few crops.This sounds a lot like the Local Harvest movement of 2007.
Why Krugman is wrong about Friedman
In his New York Review of Books article “Who Was Milton Friedman?,” Paul Krugman notoriously charged Friedman with “intellectual dishonesty”. In a nutshell, Krugman views the Fed’s behavior in the 1930s as evidence that government should do more to manage the macroeconomy, whereas Friedman viewed it as evidence of the opposite. Krugman accused Friedman of “intellectual dishonesty” because he thinks Friedman in his popular writings misrepresented Friedman and Schwartz’s own account of the 1930s found in the Monetary History. Anna Schwartz and co-author Edward Nelson have now responded to Krugman with a letter to the NYRB, and Krugman has replied.
Krugman summarizes his position nicely in his reply:
First, the letter from Anna Schwartz and Edward Nelson actually illustrates Friedman's slippery treatment of the Fed's role in the Depression even better than the examples I used in the article. On one side the letter says, as Friedman did, that the problem was that the Fed did too little—that it failed to exercise its power to rescue the banks. But on the other side the letter approvingly quotes Friedman saying that the Fed did too much—that in the absence of the Fed, with its "enormous power," we wouldn't have had a downturn on "anything like the scale we experienced." I'm sorry, but those are contradictory positions.
Krugman is wrong: those are not contradictory positions.
To see why they are not contradictory, we need to spell out Friedman’s institutional counter-factual. That is, what did Friedman think would have happened without a central bank? Friedman understood something that Krugman never mentions, namely that before the Federal Reserve Act financial panics in the US were mitigated by the actions of private commercial bank clearinghouses. (The key article here is “The Central Banking Role of Clearinghouse Associations," JMCB Feb. 1984, by Richard H. Timberlake, a Friedman student. JSTOR pdf here.) Friedman and Schwartz’s view of the 1930s was that the Fed, having nationalized the roles of the clearinghouse associations, particularly the lender-of-last-resort role, did less to mitigate the panic than the CHAs had done in earlier panics like 1907 and 1893. In that sense, the economy would have been better off if the Fed had not been created.
This position is perfectly consistent with the position that, provided we take the Fed’s nationalization of the clearinghouse roles for granted, the Fed was guilty of not doing its job. Given that proviso, Krugman is right that Friedman’s account indicates that the Fed should have been more active. But because we can consider a world where the proviso doesn't hold, Krugman is wrong to think that Friedman’s account can’t honestly support the view that government should have stayed out.
ADDENDUM: Pushmedia1 uses symbolic logic to characterize Krugman's mistake.
Reaction to rejection letter
I usually take journal rejection letters in stride, but I just had to push back a little after receiving one this week. This is the letter I sent to the journal editor.
March 11, 2007
Are we buying this one?
The OMB has released a "study' of the costs and benefits of major legislations and rules changes at the Federal level. I haven't digested all of the report, but this graph (and associated paragraph) was a bit too much:
The difference between cost and benefits shows the net benefits of major regulations from 1992 though September 2006. We were unable to go back beyond 1992 because of a lack of comparable data on benefits. Figure 2-2 also shows that in no year were costs significantly greater than benefits, even though benefits are likely understated relative to the costs since agencies estimate costs but not benefits for some of the rules reviewed by OMB over this time period.52 Figure 2-2 also shows that over its first 6 years, this Administration issued regulations with average annual net benefits 262 percent greater than the average annual net benefits produced by the regulations issued during the previous eight years.
It seems the graph is attempting to depict the marginal cost and marginal benefit of regulation, i.e. the costs and benefits of new regulations and rules changes. As an economist, I recognize the possibility (if not the probability) that public policy can provide significantly greater marginal benefits than marginal costs. However, after more than 100 years of active legislation and rules changes, would not diminishing returns set in? Is it likely that, in the 21st century, new regulations are uncovering vast oceans of previously unrealized benefits? I am not so sure.
I have a hard time believing that every major regulation over the past fourteen years has been an overwhelming success in this arena, but perhaps my priors are clouding my judgement.
Government Did It
The partisans who are scoring political points by gnashing their teeth over the outpatient failures at Walter Reed Army Medical Center are missing the point: The government did it.
Really bad news for the French
From this article in The Telegraph: "Just a few miles from the birthplace of ... Davy Crockett, mushroom expert Tom Michaels has unlocked the secret of commercial production of the famous Périgord black truffle.
HT: American Thinker
March 10, 2007
The Gentle Cynic c. 1907
From the March 10, 1907 NYT:
March 09, 2007
Markets in Everything: Swedish Bed Edition
With a heart-stopping price tag approaching $50,000 — $49,500 to be exact, although the price will climb to $59,750 in April — the Vividus bed launched last year by the Swedish manufacturer Hastens is among the most expensive sold in the U.S.
But the Vividus, which means "full of life" in Latin, is just the latest bed to target a growing consumer appetite for high-end beds made from materials such as latex, flax, memory foam, silk, cashmere, lambswool and hand-tufted horse hair.
For $50k it should probably come with the Swedish Bikini Team included.
HT to MR for the markets in everything concept.
Why do the poor seem to have more free time than the rich?
So asks Steven Landsburg in Slate. Excerpts:
As you've probably heard, there's been an explosion of inequality in the United States over the past four decades. The gap between high-skilled and low-skilled workers is bigger than ever before, and it continues to grow.
How can we close the gap? Well, I suppose we could round up a bunch of assembly-line workers and force them to mow the lawns of corporate vice presidents. Because the gap I'm talking about is the gap in leisure time, and it's the least educated who are pulling ahead.
In 1965, leisure was pretty much equally distributed across classes. People of the same age, sex, and family size tended to have about the same amount of leisure, regardless of their socioeconomic status. But since then, two things have happened. First, leisure (like income) has increased dramatically across the board. Second, though everyone's a winner, the biggest winners are at the bottom of the socioeconomic ladder ...
[A] certain class of pundits and politicians are quick to see any increase in income inequality as a problem that needs fixing—usually through some form of redistributive taxation. Applying the same philosophy to leisure, you could conclude that something must be done to reverse the trends of the past 40 years—say, by rounding up all those folks with extra time on their hands and putting them to (unpaid) work in the kitchens of their "less fortunate" neighbors. If you think it's OK to redistribute income but repellent to redistribute leisure, you might want to ask yourself what—if anything—is the fundamental difference.
HT: Dan; he also points me to a Second Amendment victory in DC. WaPo story here; see Volokh for more.
March 07, 2007
Did they really get the message?
CAGW estimates pork spending in FY2007 (thus far) at 13 billion, down from $29b in FY2006.
That's a savings of $53 for every man, woman, and child (including non-citizens)! How about that.
Now, if it will only stick.
Dan Klein on “The Smith-Hayek Economist”
Dan Klein has written an interesting new piece, now up at EconLib, on “The Smith-Hayek Economist: From Character to Identity”. In it he points out that not all economists share the same approach to their discipline: some fancy themselves white-lab-coat scientists, while others are more upfront about discussing their normative social-philosophy commitments. Klein argues that we econ professors should let our students in on the existence of such differences. He estimates that perhaps a 10% minority of economists operate in the broad tradition of Adam Smith and F. A. Hayek: basically Austrians, Virginia Public Choice types, Coaseans, and Marshallian/Chicago/UCLA microeconomists. This minority would include Klein and those of us here at DoL. Klein ruminates on how we should identify ourselves for the sake of better solidarity and better public relations. As they say, read the whole thing.
I’m basically on board with Dan's message. I’m teaching History of Economic Thought this semester as a history of policy debates among economists: Mises versus Lange, Hayek versus Keynes versus Friedman, Mill versus Menger versus Veblen, Currency School versus Banking School versus Free Banking School. Following Kirzner, however, I do think there is such a thing as non-normative economic analysis. Rent control causes a housing shortage, no matter what your view on the (in)justice of redistributing wealth.
One quibble: one of the characteristics Klein lists for our minority group is “a sensibility that economic reality is incredibly complex, inspiring the eschewal of efforts to paint a picture of the economy or how it ‘really’ works”. I wouldn’t put it that way. I think good economists, like Hayek in “The Use of Knowledge in Society,” do try to paint a picture in broad strokes of the economy and how it “really” works. What they don’t do is imagine that any such picture can be complete in its details or imagine, like Oskar Lange in “On the Economic Theory of Socialism,” that it is suitable to use as a blueprint for social engineering.
Markets in Everything: Love-making gets green light from adult stores
You've heard of green cars, green tourism and green weddings. Now Canadians should ready themselves for green sex.
For those who like to make love to the soundtrack of the global warming documentary An Inconvenient Truth, Greenpeace has released a list of strategies for "getting it on for the good of the planet," suggesting "you can be a bomb in bed without nuking the planet." TreeHugger, an online magazine edited by Ontario's Michael Graham Richard, has just published a guide on "how to green your sex life." The famed adult store Good Vibrations announced last week they would no longer sell sex toys containing phthalates, controversial chemical plasticizers believed by some to be hazardous to humans and the environment alike.
And throughout Canada and the U.S., people who want to pleasure the planet can now buy everything from bamboo bed sheets to organic lubricant and "eco-undies."
Listening to the sound track of "An Inconvenient Truth"? Oh, never mind.
HT: Chad Adams of the Locker Room for the story and MR for the markets in everything concept
Pell Grants and College Tuition
Looks like colleges grab the subsidies by jacking up prices; this won't stop folks from bleating about the need to increase Pells to make college more affordable. The abstract of a new paper:
The Pell grant program is the largest federal program for college students, with support to over three million students at more than six thousand institutions. A prominent question in public debate is whether Pell grants tend to be appropriated by universities through increases in tuition – consistent with what is known as the Bennett hypothesis. Based on a panel of 1554 colleges and universities from 1989 to 1996, we find little evidence of the Bennett hypothesis for in-state tuition for public universities. For private universities, though, increases in Pell grants appear to be matched nearly one for one by increases in list (and net) tuition. Results for out-of- state tuition for public universities are similar to those for private universities, suggesting that they behave more like private ones in setting out-of-state tuition. Institutional responses in these latter cases appear at odds with federal grants-in-aid policy.
[UPDATE--Oct 20, 2012--Welcome fellow Instapundit readers. The link above is has been updated. It takes you to a gated copy of the paper but I'd be happy to email a copy to anyone who contacts me.]
One of the authors of the Pell Grant paper also has a paper examining the employment effects of recent minimum wage hikes in Washington and Oregon. I've put the abstract to that paper below the fold.
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Recent studies yield mixed evidence regarding the employment effects of the minimum wage. This paper exploits a unique natural experiment initiated by two voter referendums that raised the minimum wage over three successive years and at different times in Oregon and Washington. Employment and employment growth specifications using BLS data indicate that the minimum wage generates consistently negative employment effects for eating and drinking workers where the minimum is shown to be relatively binding, but not for hotel and lodging workers where the minimum is less binding. Regressions using job-specific, want-ad data from Portland and Seattle newspapers also indicate a reduction in search relating to the extent that the minimum wage binds. Overall, the results suggest the minimum wage to be a blunt instrument that differentially affects lowwage workers within and across industries.
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Institutions Matter: Somaliland Edition
Today's NYT on the peaceful northwest part of Somalia:
HARGEYSA, Somalia, March 1 — When the sun rises over the craggy hills of Hargeysa, it sheds light on a different kind of Somalia.
Ice cream trucks selling bona fide soft serve hit the streets. Money changers, unarmed and unguarded, push cash through the market in wheelbarrows. Politicians from three distinct parties get ready for another day of debate, which recently included an animated discussion on registering nomadic voters.
It’s all part of a Somali puzzle: how one area of the country, the northwest, also known as Somaliland, can seem so peaceful and functional — so normal, in fact — while the rest continues to be such a violent, chaotic mess.
This tale of two Somalias is especially striking now, as thousands of African Union peacekeepers prepare to rescue Mogadishu, the nation’s bloodstained capital, from itself. The internationally backed transitional government that seized Mogadishu in late December with Ethiopia’s help says it cannot survive without foreign aid and foreign peacekeepers to quell clan fighting and an escalating insurgency.
[Somaliland] leaders, with no Western experts at their elbow, have devised a political system that minimizes clan rivalries while carving out a special role for clan elders, the traditional pillars of Somali society. They have demobilized thousands of the young gunmen who still plague Somalia and melded them into a national army. They have even held three rounds of multiparty elections, no small feat in a region, the Horn of Africa, where multiparty democracy is mostly a rumor. Somalia, for one, has not had free elections since the 1960s.
Of course, Somaliland has not always been so stable, and Somalia has not always been so chaotic. Even now, critics say the Somaliland government can be repressive and inefficient ...
So, what happened?
“It all goes back to the Brits,” according to Hajji Abdi Waraabe, an 89-year-old member of Somaliland’s upper house of Parliament.
When the colonial powers sliced up the Horn of Africa in the 19th century, the British got Somaliland and the Italians got Somalia. While the British relied mostly on clan chiefs to govern, the Italians created an entire Italian-speaking administration and imported thousands of people from Italy to farm bananas, build cathedrals and teach the people how to pour espresso.
One result was that Mogadishu, along the southern coast, became a major commercial hub and one of the most beautiful cities in Africa, but its traditional systems of authority were weakened. That is partly why, many Somalia analysts say, warlords were able to outmuscle clan elders and dominate Mogadishu in the vacuum that formed after the central government fell.
HT: Anne L.
It must not be that simple because few schools have tried [to abolish tenure], and my sense is that those that took a stab at it capitulated quickly and reinstated tenure. What am I missing?
One question that Steve does not address is how department hiring would work in a world without tenure. Now, senior hiring is done by existing senior faculty. If those faculty could start firing one another, the political dynamics of hiring would become complicated and probably untenable. (Here is a related paper.) A university without tenure would likely have to move toward a more hierarchical system with a "boss" in charge of hiring and other major decisions. That is, one cannot abolish tenure and expect university governance to remain the same. Deans would likely have more power over hiring. In my experience, anything that gives deans more authority is a step in the wrong direction, for deans have less information about what is going on in the field or in the classroom than the faculty do.
My take: I probably value tenure less than most faculty members, but I'm not as dismissive as Levitt. To me (as with Mankiw's concern about faculty hiring), tenure solves a principal-agent problem. Berry College asks me to do lots of things that have little or no value in the labor market; for example, this past weekend I participated in an event for prospective students. In a world without tenure in which I could be dismissed, I'd be much less likely to do things that are valuable to Berry College but not valued in the labor market. Instead, I'd spend much more time on research to maintain my market value. I should add that my estimate of how economists' skills are valued in the market is about 3/4 based on research, roughly 1/4 based on teaching, and virtually nothing (beyond an assessment of collegiality) based on service. My estimate is intended as an average--places like mine place more value on teaching while doctoral institutions probably place less value on teaching.
Although I suggest that tenure may exist, at least in part, to solve a principal-agent problem, I'm not claiming it is the optimal solution. (As an aside--I think the institution of "making partner" in law firms and the like is analogous to tenure.) Nor do I deny that tenure protects the lazy; however, there are some limited ways (e.g., freeze or cut their pay) to deal with folks who retire on the job.
I've opened comments for a couple of days; I'll probably close them on Friday to choke off the spammers.
March 05, 2007
Incentives Matter: Teacher Bonus Edition
The abstract of a new NBER Working Paper:
For a three-year time period beginning in 2001, North Carolina awarded an annual bonus of $1,800 to certified math, science and special education teachers working in high poverty or academically failing public secondary schools. Using longitudinal data on teachers, we estimate hazard models that identify the impact of this differential pay by comparing turnover patterns before and after the program’s implementation, across eligible and ineligible categories of teachers, and across eligible and barely-ineligible schools. Results suggest that this bonus payment was sufficient to reduce mean turnover rates of the targeted teachers by 12%. Experienced teachers exhibited the strongest response to the program. Finally, the effect of the program may have been at least partly undermined by the state’s failure to fully educate teachers regarding the eligibility criteria. Our estimates most likely underpredict the potential outcome of a program of permanent salary differentials operating under complete information.
Of course it takes government schools until the 21st century to figure out that bonuses and other forms of increased compensation can retain valued employees. Wonder what they'll discover next ...
Market Based Management
Today's AJC has an article about Koch's introduction of market based management to Georgia-Pacific. An excerpt:
A little more than a year ago, Koch Industries bought Georgia-Pacific — one of Georgia's biggest public companies with $20 billion-plus in revenue. Overnight, Georgia-Pacific became a private, independently run entity under the Koch umbrella. The acquisition made Wichita, Kan.-based Koch (pronounced coke) the biggest private company in the nation.
The company has created new job titles at mills — optimizers, asset availability leaders and gatekeepers. It has adopted new corporate principles and sent thousands of employees to two-day training sessions to drive the points home.
The new leadership eliminated annual single-digit percentage merit pay increases and installed an incentive system that is supposed to let executives give significant pay bumps to workers judged to have added the most value to the business. Employees judged to have added no value stand to get no pay increase.
It's all part of Koch's free-market philosophy of management: Make everyone an entrepreneur and measure their contributions with an eye toward profit and loss.
"If we had a perfect system, we would have a P&L on every employee," said Moeller, who replaced Georgia-Pacific's longtime leader Pete Correll.
Forensic Economics Blog
Former DOLer Ralph Frasca has started The Forensic Economist blog. A brief description:
This blog is mainly concerned with topics of interest to forensic economists. This would include posts on the evaluation of damages in litigation. Of primary interest are economic issues related to litigation in personal injury and wrongful death suits. However, economic issues that involve other types of litigation may also be discussed.
I recount a funny moment as a forensic economist in this post.
Listen to Milan Kundera
From Russell Banks' NYT review of Milan Kundera's The Curtain: An Essay in Seven Parts, the next book I'll buy.
...reading “The Curtain” is like spending a long desultory afternoon into the evening sitting over coffee and cigarettes in a pleasant cafe listening to Milan Kundera hold forth on history, literature, music, politics, large countries versus small, East versus West, the lyric versus the novelistic, Paris versus Prague and so on into the night....
March 03, 2007
Is Climate Change Science a Cottage Industry?
This Congressional Research Service white paper concerning climate change reports the amount of spending on "Climate Change Science" by the federal government since FY1989. Annual spending peaked in FY2004 at just under $2 billion.
The total amount of spending since 1989? $32.5 billion in 2005 dollars (through FY2007)!!
In some sense, the spending might be a small price to pay if it were possible to come to a conclusion about what is causing climate change and if we (humans or the United States, depending on your viewpoint) can or want to do anything about it. However, if we did come to a conclusion, would it be politically feasible for either political party to reduce the spending on climate change science?
Two billion dollars is about one half of the economy of Arlington, Texas.
The World Bank and the UK’s Department for International Development have refused to finance the Indian government’s purchase of condoms to fight HIV/Aids because of an alleged lack of transparency in procurement procedures, the Financial Times has learnt.
The government now obtains condoms from local manufacturers such as the state-owned Hindustan Latex, which supplies hundreds of millions of contraceptives required under National Aids Control Program-III, a five-year plan starting next month.
HIV prevention organisations are angry about the high cost of government-procured condoms, saying that scarce funds are being wasted in India, which has the world’s biggest HIV caseload, according to UNAIDS, with an estimated 5.7m carriers last year.
“Domestic preference is playing a role here that it wouldn’t in other countries, leading to a situation where India is paying 30-40 per cent more than the world average,” said a senior international civil servant running an HIV programme in India. “It is very frustrating but the government says it’s non-negotiable.”
K. Sujatha Rao, director-general of the National Aids Control Organisation, which runs the NACP-III, said she knew donors wanted international bidders involved in the procurement process but quality was a critical issue. “Korean condoms are very cheap but they are quite suspect and are bound to be disastrous. I want good-quality condoms,” she said.
South Korea's birthrate is about 1.15 child per woman. While there are many other ways to prevent pregnancy, a 1.15 birthrate doesn't suggest Korean condoms are of such a "suspect" quality that they lead to "disastrous" results.
The On-Star System (tm) c. 1907
From the March 3, 1907 NYT:
I think with elevators, Ritz restaurants, cafes, palm gardens, flats, gymnasiums, Turkish baths, and swimming tanks, the limit of luxury [on transatlantic ocean liners] has been reached, though perhaps they may yet introduce billiard tables and bowling alleys.
The Gentle Cynic c. 1907
From the March 3, 1907 NYT:
March 01, 2007
On taxation c. 1907
The March 1, 1907 NYT has a letter to the editor concerning the personal income/property tax:
A Virginia Grand Jury has just spent nine days examining the assessment rolls of 250 people, with the result that $50,000 worth of personal property, mostly incomes, was added to the assessment roll. This means an increased revenue of probably $8000; a small return for the time wasted. The county could have got more money by putting the jurors and witnesses to sawing wood for the same length of time. Such compulsion would have been no more arbitrary than the usual methods of personal assessment, and would have added to the wealth of the State instead of merely transferring some of it from individual pockets to the public treasury. [emphasis added]
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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