Division of Labour: August 2007 Archives
August 31, 2007
The Wonders of Capitalism--New Car Edition

We just bought a Honda Odyssey for my better half. We paid about 4% more than we did for a similar vehicle 10 years ago. In real terms we paid about 20% less than we did a decade ago. Moreover, it ignores the fact that the Odyssey has lots of improvements (airbags all around not just in the front, a 6 CD changer, remote control sliding doors for letting Pee Wee in and out, and more) over our old car.

Our good deal got me wondering about the new car price component of the CPI. According to the Economic Report of the President (Table B-61), the CPI for new cars fell from 141.7 in 1997 to 136.4 in December 2006.

Posted by E. Frank Stephenson at 04:30 PM in Misc.

Do as I Say, Not as I Do

Jon Ham of The Locker Room points to this photo of John--people should sacrifice their SUVs--Edwards's house. There are lots of SUVs in the driveway. Maybe they all belong to guests ...

Posted by E. Frank Stephenson at 04:20 PM in Politics

Michael Jackson Dies

No, not, freak show Michael Jackson--beer hunter Michael Jackson:

“He was simply the best beer writer we’ve ever known,” said Tim Hampson, chairman of the British Guild of Beer Writers. “He told wonderful stories about beer, breweries and far away places. He told the story of beer through people, and he was humorous and erudite at the same time,” Hampson told The Associated Press.

Jackson especially loved Belgian brews. His books “The Great Beers of Belgium” and “World Guide to Beer” introduced them to many export markets, including the United States.

By identifying beers by their flavors and styles, and by pairing them with particular foods and dishes, Jackson helped give birth to a renaissance of interest in beer and breweries worldwide that began in the 1970s, including the North American microbrewery movement.

His TV documentary series, “The Beer Hunter” — which popularized his nickname — was filmed around the world and shown in 15 countries.

He worked as a beer critic for more than 30 years, writing in newspapers and gastronomic magazines, holding seminars and giving speeches, appearing on U.S. talk shows and writing books about beer and whiskeys published in 18 languages.

Jackson knew he would never be as famous as Michael Jackson the rock star, and that was reflected on the beer critic’s Web site. “Hello, my name is Michael Jackson. No, not that Michael Jackson, but I am on a world tour. My tour is in pursuit of exceptional beer. That’s why they call me the Beer Hunter,” it says.

HT: Kara

Posted by E. Frank Stephenson at 04:07 PM in Culture

On the value of facial hair c. 1907

From the Aug. 31, 1907 NYT:

George Palmer, a well-to-do farmer of Parksville, Sullivan County, has brought suit for $2,000 in the Supreme Court against John J. Reisler, proprietor of the Herald Square Barber Shop, at Thirty-eighth Street and Broadway.

Palmer wants the $2,000 as balm for the loss of as fine a crop of whiskers as ever tossed in the breezes of Sullivan County, and he alleges that one of Reisler's barbers, through stupidity, cut off his beard and shaved his face while he slept in the barber's chair...

When he was awakened by the application of a hot towel to his face Palmer realized what had happened.

"My whiskers!" he moaned. "Oh, my whiskers! My whiskers!"

For twenty years the Palmer whiskers had been the pride and delight of their owner...

Palmer went to the office of Jacob S. Strahl, a lawyer, of 280 Broadway, told his story, and called upon him to begin suit for $1,000,000 [$22,129,527 in 2006 dollars]. The lawyer told him that he could not sue for as much as a million, and finally got him to consent to a suit for $2,000 [$44,259 in 2006 dollars], which was brought immediately.

Posted by Craig Depken at 02:28 PM in Economics

Markets for queues

In general I think there aren't many bills lying on the sidewalks in DC (see Tullock's efficient rent seeking). Not even when you're standing in line for a congressional hearings. The guys at http://www.linestanding.com/ will hold your place, for a fee.

Posted by Edward J. Lopez at 01:57 PM in Economics

August 30, 2007
What would Tyler's Inner Economist think of this?
ORLANDO, Fla. -- Some outraged motorists have scrawled warning messages and curse words on gas pumps after paying up to $4.50 for a gallon for gasoline at a station near Orlando International Airport.

Residents and tourists said they were shocked to see the gas prices at the Landing Strip gas station located on Semoran Boulevard, just north of the airport.

[Whole thing.]

My inner economist, says screw 'em. If they don't like paying $4.50/gal. then go somewhere else. But I'm sure Bryan Caplan's irrational voters will soon be clamoring that someone "do something" about this outrage.

HT: Paul G.

Posted by Robert Lawson at 03:01 PM in Economics

Funding for Big Apples

I'm back from getting married, a honeymoon, and starting a new semester, so I'll try to get to my usual blog rate of one post whenever I get an idea.

National Review's blog links to a map of Manhattanites who receive, yes, agriculture subsidies. For some reason the map isn't visible anymore, but just the fact that a map exists that shows NYC dwellers who receive more than $250,000 in farm subsidies is troubling. Granted, I've only been to Gotham once about a decade ago for a FEE conference, and it seemed pretty built up then. Maybe there is more green space now. For a quarter million a pop, those guys better be growing some big apples.

HT: Fark

Posted by Tim Shaughnessy at 01:26 PM in Politics

August 29, 2007
Studying Matters ... Who Knew?

[U]sing results from our full sample, an increase in study-effort of one hour per day (an increase of approximately .67 of a standard deviation in our sample) is estimated to have the same effect on grades as a 5.21 point increase in ACT scores (an increase of 1.40 standard deviations in our sample and 1.10 standard deviations among all ACT test takers).

Paper here.

Quick quiz: This paper is based on survey data of Berea College students. What is the mean number of hours per day that they report studying? Answer below the fold.

Read More »

Posted by E. Frank Stephenson at 11:53 AM in Misc.

The Bayou Belles: They've got soul!

Now two years after Katrina, we have heard innumerable stories of government failure along the Gulf Coast (check out Leeson and Sobel's forthcoming paper, "Weathering Corruption"). Yet most "men on the street" probably think the government just isn't doing enough. Meanwhile, the federal government keeps touting its success (of course, measured in billions of dollars spent, see Leeson-Sobel corruption link above), and promises it's ready for the next disaster:

FEMA has dramatically increased its stockpiles of relief supplies, such as emergency meals and ice, and the ability to track them.

Aaaaack!!! Never mind FEMA wastes dollars on such stockpiles faster than ice melts in this age of global warming and C5 hurricanes! But still. Proponents of government planning can't be bothered with details of efficacy when they're tugging on heart strings to sell their ideas. Question: why do government critics seem to be outmatched by statists on the "sell"?

A few years ago James Buchanan wrote an article, "The Soul of Classical Liberlism," for The Independent Review. Buchanan essentially argues that science is only one component in the overall battle for ideas. The man on the street can't evaluate findings of statistical robustness, for example. But put a hungry baby or a homeless family or a wrecked business in front of him, and he understands. Buchanan chides classical liberals for spurning emotional appeals.

Science and self-interest, especially as combined, do indeed lend force to any argument. But a vision of an ideal, over and beyond science and self-interest, is necessary, and those who profess membership in the club of classical liberals have failed singularly in their neglect of this requirement.... Scientific evidence, on its own, cannot be made convincing; it must be supplemented by persuasive argument that comes from the genuine conviction that can be possessed only by those who do understand the soul of classical liberalism.

But what is the "soul of classical liberalism" and how does one know whether one understands it? One of my all-time favorite economists and personalities, Dwight Lee, wrote a comment on Buchanan's article and explains:

...[C]lassical liberals should articulate a vision of freedom and sponteneous order as emotionally animating as the vision proffered by the advocates of state intervention and social constructivism. Classical liberalism has a "comprehensive vision" of the ideal of social harmony and cooperation (its "soul," in Buchanan's account) that transcends the logic of how markets promote economic efficiency.... Buchanan is surely correct in arguing that the case for classical liberal principles will never be widely persuasive if made entirely in terms of economic science. To paraphrase Joseph Schumpeter, efficiency is a poor substitute for the Holy Grail.

In Dwight's considered opinion, libertarians need to infuse their arguments with more of the "human drama" whose salience can and should complement any scientific finding. Dwight even offers a recipe: tell stories of entrepreneurship! "Most of us," he says, "are touched emotionally by stories of struggles against obstacles, struggles that sometimes end in success but often in failure." Or ask Dierdre McCloskey, who'd say the "soul" of classical liberalism lies in the bourgeois virtues. Not only has capitalism given us longer, healther and happier lives, but we are better people for it! More ethical people!! Can such a claim possibly be true outside the lecture halls of the libertarian "clerisy"?

Meet the Bayou Belles, a living embodiment of Dierdre's virtues and Dwight's vision thing. What a story! The "Belles of Bayou Road," as they're officially known, are a group of women entrepreneurs in a gutted New Orleans neighborhood helping each other grow their businesses---restaurants, salons, a bookstore and a day care. One of the Belles explains,

"As entrepreneurs, we share everything: advice, services, customers, food, and even phone lines! Without governmental assistance, we have grown determined to help each other and help ourselves."
A Marketplace interview today elaborates:

Yashica Jordan: I'm Yashica Jordan, owner and director of Jordan's Learning Academy. I've been in child care 11 years but this is the first chance that I've had after Katrina to open my own business.

Jordan, and the three other Belles, have come to see Katrina as an opportunity, and not because of any help from the government.

Pam Thompson owns the Coco Hut Caribbean Restaurant next door. She says she applied for the Small Business Association's Disaster Loan Program when she was still sleeping on the floor of her flood-damaged restaurant.

Pam Thompson: But when I send my papers into them: nothing. I never hear from them as of this day almost two years now.

All of the Belles have had to dig into their personal savings to get their businesses off the ground. But Dwana Makeba, who opened a natural hair salon on the block, says it was their pooled efforts that paid off."

These ladies represent the entrepreneurship that will "rebuild" the Gulf Coast. These ladies are, in the words of the famously un-emotional von Mises, "filling the wants of the people in the best possible and cheapest way." But they're doing it with soul. Two classical liberal cheers for the Bayou Belles!!

Posted by Edward J. Lopez at 11:26 AM in Economics

August 28, 2007
Fat State, Red State; Thin State, Blue State

The Trust for America's Health has released data on obesity rates by state. The fattest state, as measured by the percentage of obese residents, is Mississippi, at 30.6% (giving them the dubious distinction of being the first state ever to break the 30% rate in the survey). The thinnest? Colorado at 17.6%

Let's look at the states by how they voted in the last presidential election, from fattest to thinest:
1. Mississippi - Bush
2. West Virginia - Bush
3. Alabama - Bush
4. Louisiana - Bush
5. South Carolina - Bush
5. Tennessee - Bush
7. Kentucky - Bush
8. Arkansas - Bush
9. Indiana - Bush
9. Oklahoma - Bush
9. Michigan - Kerry
12. Missouri - Bush
12. Texas - Bush
14. Georgia - Bush
15. Ohio - Bush
16. Alaska - Bush
17. North Carolina - Bush
18. Nebraska - Bush
19. North Dakota - Bush
20. Iowa - Bush
20. South Dakota - Bush
22. Wisconsin - Kerry
23. Virginia - Bush

These are the fattest 23 states. Twenty-one of them, totaling 209 electoral votes, went for Bush. Two, totaling 29 electoral votes, went for Kerry. But it's worth noting that in Wisconsin (#22 on the list) Kerry's margin was a razor thin 11,000 votes (50%-49%), while Michigan, the only non-Bush state in the top 10, was also competitive, falling to Kerry by just 51% to 48%.

So what are we to make of this? Is Karl Rove manipulating the minds of obese people with subliminal messages in Bush commercials? Why would heavy people be more likely to vote Republican?

Is this odd, given that data also shows - according to this guy - that Republicans tend to lead more active lives than Democrats. But maybe we can truly say that Republicans are "fat and happy."

Below the fold is the rest of the data:

Read More »

Posted by Brad Smith at 03:29 PM in Politics

On free(r) trade c. 1907

Yet another example of how dramatically different today's NYT is from that of the early 1900s: from the August 28, 1907 NYT:

The comparison is made with the last full fiscal year before reciprocity. It shows that in these four years trade [with Cuba] has increased so that for every dollar's worth purchased by us in 1903 we now buy $1.50 worth, and for every dollar's worth sold we now sell $2.25 worth. Practically the total trade has doubled, and the variety in our sales to Cuba is increased much more than 100 per cent. What has been done on a small scale with this relatively unimportant market could be done on a larger scale all over the world if we had the sense to remove from our commerce the heavy handicaps we have stupidly loaded upon it.

Posted by Craig Depken at 12:46 PM in Economics

The Mythology of Panics

In his piece “Panic on Wall Street: A brief history of fear,” Fortune contributing editor Jerry Useem gets off to a bad start – and goes downhill from there.

Writes Useem:

Andrew Jackson rid the nation of a central bank in 1836, which helped produce the Panic of 1837. An unforeseen effect of his policies - a host of barely regulated banks flooding the nation with paper money - produced bad results as well as some innovations: Reserve requirements could be met, for instance, by adding a layer of gold coins over a much bigger pile of tenpenny (or subprime) nails.

This is a slapdash account. In fact Andrew Jackson rid the nation of the 2nd Bank of the United States, which was not a full-fledged central bank, but rather a large commercial bank with the exclusive privilege to branch across state lines. Of the five key central bank roles, it played only one: it was a banker’s bank in the limited sense that state-chartered banks held its notes as reserves for the benefit of traveling customers. It did not have a monopoly of note-issue, as state-chartered banks issued most of the currency. It did not regulate other banks. It did not act as a lender of last resort. It did not deliberately vary the nation’s money stock in pursuit of macroeconomic goals.

The demise of the 2nd Bank of the United States was not responsible for the Panic of 1837. Nor did it unleash “a host of barely regulated banks flooding the nation with paper money”. The BUS2 never regulated the state-chartered banks to begin with. The state governments did -- mostly in ways that weakened the banks, like restricting their branching. The state-chartered banks did not “flood[ ] the nation with paper money”. The gold standard restrained them. Bank stability actually improved after 1837, as an increasing number of states enacted “free banking” laws, ushering in freer competition. Sound banks could now enter local markets where previously only unsound banks were available. Stories about banks meeting their reserve requirements fraudulently are colorful, but are not representative.

For a review of academic research on “free banking” episodes in the United States and elsewhere, Useem should begin with Briones and Rockoff. For a debunking of the standard myths about banking panics he should read Selgin.

HT: Bob Murphy

Posted by Lawrence H. White at 11:19 AM in Economics

Crowding Out Private Insurance

Keep this paper in mind next time you hear teeth gnashing over kids losing insurance because of miserly funding of SCHIP:

The continued interest in public insurance expansions as a means of covering the uninsured highlights the importance of estimates of "crowd-out", or the extent to which such expansions reduce private insurance coverage. Ten years ago, Cutler and Gruber (1996) suggested that such crowd-out might be quite large, but much subsequent research has questioned this conclusion. We revisit this issue by using improved data and incorporating the research approaches that have led to varying estimates. We focus in particular on the public insurance expansions of the 1996-2002 period. Our results clearly show that crowd-out is significant; the central tendency in our results is a crowd-out rate of about 60%. This finding emerges most strongly when we consider family-level measures of public insurance eligibility. We also find that recent anti-crowd-out provisions in public expansions may have had the opposite effect, lowering take-up by the uninsured faster than they lower crowd-out of private insurance.

Posted by E. Frank Stephenson at 11:04 AM in Economics

Bartlett on the Fair Tax Plan

Bruce Bartlett hammered the Fair Tax plan in an op-ed in Saturday's WSJ. I am not a Fair Tax supporter (I prefer the Hall-Rabuska flat tax), but I think Bartlett is unduly harsh in his criticism. Take this passage:

FairTax [sponsors] assert that a rate of 23% would be sufficient to replace federal individual and corporate income taxes as well as payroll and estate taxes. Mr. Linder's Web site claims that U.S. gross domestic product will rise 10.5% the first year after enactment, exports will grow by 26%, and real investment spending will increase an astonishing 76%.

In reality, the FairTax rate is not 23%. Messrs. Linder and Chambliss get this figure by calculating the tax as if it were already incorporated into the price of goods and services. (This is known as the tax-inclusive rate.) Calculating it the conventional way that every other (This is called the tax-exclusive rate.)

The distinction is confusing, but think of it this way. If a product costs $1 at retail, the FairTax adds 30%, for a total of $1.30. Since the 30-cent tax is 23% of $1.30, FairTax supporters say the rate is 23% rather than 30%.

Quoting the Fair Tax rate as a tax-inclusive rate makes it comparable to the current income tax which is a tax-inclusive rate. If someone pays $20,000 in tax out of an income of $100,000 we say his tax rate is 20% (=20,/100k) not 25% (=20k/80k where 80k is the 100k income less the 20k in tax). Quoting the Fair Tax as a tax-exclusive rate while thinking of the current regime in tax-inclusive terms would bias the discussion against the Fair Tax.

Bartlett also ignores the effect of eliminating the current tax system on retail prices. The economic (as opposed to statutory) incidence of business taxes is tricky, but it's possible that some of the burden of those taxes (e.g., the corporate income tax) is passed along to consumers in the form of higher prices. If so, items that cost $1 in the current system would cost less than $1 (pre-tax) under the Fair Tax plan.

I think Bartlett is on sounder ground when he objects to the Fair Tax's rebate/personal allowance scheme (a public choice nightmare?) and to the administrative and enforcement difficulties of the Fair Tax. While proponents tout the abolition of the IRS, a 23% (or 30% if thinking in tax-exclusive terms) tax rate will provide a strong incentive for cheating and will require an intrusive enforcement agency even if has different initials.

Of course the real problem isn't so much form of the tax system as the bloated government and the pols' fondness for using the tax code for social engineering. Any tax system hauling in over $2 trillion per year is going to be obnoxious.

Posted by E. Frank Stephenson at 09:04 AM in Economics

Bootlegger Sighting: Zinc Supplier Edition

Mark Perry of the excellent Carpe Diem points to an article on a company lobbying to keep pennies made of zinc instead of steel. An excerpt:

With the price of zinc soaring amid a worldwide commodities boom, it costs the government almost 2 cents to make each 1-cent coin - a pretty penny considering roughly 8 billion new ones are placed into circulation annually.

While it is unlikely the penny will be pulled from circulation, there are some lawmakers who would like to ditch zinc as a raw material and instead use steel or some other less expensive metal.

The nation's sole supplier of zinc "penny blanks," Jarden Zinc Products, is lobbying the federal government to protect its interests.

The subsidiary of Rye, N.Y.-based Jarden Corp., paid Baker & Daniels LLP $180,000 in 2006 to fight legislation that would have allowed retailers to round off cash transactions to the nearest nickel, effectively creating a penniless society. Fortunately for Jarden, the House legislation did not gain traction, and its author, Rep. Jim Kolbe, R-Ariz., has since retired.

Jarden's lobbyist in Washington, Mark Weller of the law firm Sonnenschein Nath & Rosenthal LLP, said House staffers recently assured him the latest bills won't open the door to another effort to rid the penny. "We're satisfied, but we need to stay on top of that," Weller said.

A federal disclosure form filed Tuesday shows that Jarden spent up to $10,000 in the first half of 2007 on lobbying expenses.

Weller, who has long lobbied for the penny with a group called Americans for Common Cents, argues the penny is good for the economy. Its absence, he said, would lead retailers to raise prices, influencing inflation. Weller also said past polls have shown a majority of Americans favor the coin, which was first produced in the United States in the 1790s.

Posted by E. Frank Stephenson at 08:25 AM in Economics

August 27, 2007
When is a CAT a dog?

The Gongwer news service reports,

Rejecting claims of the Ohio Grocers Association, a judge ruled Friday that the state's new Commercial Activities Tax (CAT) was a levy on the privilege of doing business - not an unconstitutional fee on the sale or purchase of food.

The judge's decision hinged on the differences in the statutory incidence of the two taxes. The statutory incidence of the CAT is on sellers, while the statutory incidence of the sales tax is on buyers.

"While the tax may ultimately be passed on to the consumers in the form of higher prices, it cannot be directly billed to and paid by the purchaser. As such, the court finds that the CAT is significantly different from a sales tax," Judge Bessey said.

Full disclosure: I was an expert witness on behalf of the OGA in this case. I argued that there is no meaninful economic distinction between the CAT and a sales tax.

The judge's decision is here.

Posted by Robert Lawson at 03:32 PM in Economics

Advice to Freshmen

It's the first day of school here. As I do every year, I offer the following advice to new college students:

There are basically three things you can do with your time in college: (1) Study, (2) Drink, or (3) Work at a job/Play a sport. My advice is to pick only 2. You cannot do (1), (2), and (3). Well you can but not well. Options (1) and (2) work together well as do Options (1) and (3). If you pick options (2) and (3), then drop out now and save yourself/your parents/the taxpayers a lot money.

Posted by Robert Lawson at 10:45 AM in Misc.

August 25, 2007
Set your Tivo: Politically Incorrect Weekend on Book TV (CSpan2)

All time Eastern.

Saturday
7:00 - 7:37 pm
Robert Murphy, The Politically Incorrect Guide to Capitalism

11:30 pm - 12:05 am
Tom Bethell, The Politically Incorrect Guide to Science

Sunday
7:10 - 7:48 am
Robert Spencer, The Politically Incorrect Guide to Islam (and the Crusades)

3:00 - 3:26 pm
Elizabeth Kantor, The Politically Incorrect Guide to English and American Literature

Monday
2:00 - 3:10 am
Ron Paul debates Dinesh D'Souza on US foreign Policy, from FreedomFest 2007

Posted by Lawrence H. White at 02:26 PM in Economics

August 24, 2007
We're # 30

Todays about.economics contains a few interesting items:


  • Ross McKitrick's proposal for a carbon tax. I think a carbon tax is the way to go, relative to cap-and-trade. The latter just has too much potential for mischief.

  • DOL ranks #30 among economics blogs, based on incoming links from other blogs.

  • A link to Stephen T. Easton's calculation on the revenue the government could realize from legalizing and taxing marijuana

Posted by Wilson Mixon at 11:39 AM in Misc.

August 22, 2007
Heads I win, tails you lose

Among the many foolish ideas in Sen. Charles Schumer’s open letter to the Fed Chairman and the Treasury Secretary (and others) regarding the subprime mortgage market, there is this:

Furthermore, the prevalence of unscrupulous lending fueled by the increased appetite for subprime mortgage securitizations has resulted in a growing number of homeowners facing payment shocks as rates reset that could cause them to lose their homes. In order for them to keep their homes, their loans must be modified.

Borrowers face payment shocks (a jump in monthly payments) only when they have taken out a floating-rate mortgage and rates have risen. Why do borrowers ever take floating-rate mortgages? Because, by the accepting risk of a rise in market rates (the risk of a “payment shock”) they get a lower base interest rate compared to a fixed-rate mortgage (and a lower expected present value of payments over the life of the mortgage). With a fixed-rate mortgage, the payment never rises, and if market interest rates drop, the borrower can refinance. The lower rate on floating mortgages is the price the bank pays to the borrower for the value of that option. Is it unscrupulous for a lender to offer both fixed and floating rates on those terms? Securitization, by the way, does nothing to affect that risk-return tradeoff faced by the floating-rate borrower.

Schumer wants borrowers who took lower floating rates and accepted the risk of upward adjustment, and now find rates moving upward, to be relieved of the risk at the lender’s expense: “their loans must be modified”. Senator Schumer nowhere recognizes that if floating-rate loans are prevented from adjusting payments upward, banks would stop offering floating-rate loans. If they are prevented from adjusting payments upward by more than a certain amount, the base floating rate would correspondingly rise toward the fixed rate. Many of the borrowers whose home-ownership he wants to protect would never have become home-owners in the first place.

Posted by Lawrence H. White at 07:35 PM in Economics

On rising sea levels c. 1907

From the August 22, 1907 NYT:

Dr. R. F. Schaff of Dublin, a delegate to the International Zoological Congress...gave it as his opinion that indications point to the gradual submergence of the eastern coast of North America and the gradual upheaval of the Pacific Coast.

"Boston," he said," will ultimately sink into the sea. It will not happen in your lifetime, or mine. We cannot speak of geological changes in hundreds or thousands of years; they are very gradual, yet they do take place.

Posted by Craig Depken at 10:46 AM in Science

Consumer Protection = Less Information?

I hopped on the Chipotle website the other day looking for nutritional information on my favorite meal (carnitas burrito, rice, black beans, mild, hot, and green salsa, lettuce). But thanks to the nanny state, THEY CAN'T TELL ME!.

Unfortunately, for the time being Chipotle can no longer publicly post calorie and nutritional information on our website, due to a regulation recently enacted by the New York City Department of Health. This regulation states that if a restaurant posts calorie information online, it must also post that information on the menu boards of its New York City Restaurants. Unfortunately, as written, this regulation would require us to post (using the same size type as is on the menu) the calorie information for every possible burrito, taco, and burrito bowl configuration. As you can imagine, there are thousands and thousands of possible combinations, making it impossible to post this information in our New York City restaurants.

Here's a link to a site where you can figure it out. My fav burrito comes in at a whopping 1000 calories. Better switch to the Burrito Bol (670 cal.)

Posted by Robert Lawson at 07:40 AM in Economics

August 21, 2007
The Unintended Consequences of Gun Control?

In the news (w/ a HT to WSJ's Best of the Web Today):

A robber who held up a bookmaker's shop in Leicester with his girlfriend's vibrator has been jailed.

Nicki Jex, 27, of Braunstone, Leicester, hid the sex toy in a carrier bag pretending it was a gun, Leicester Crown Court heard.

Posted by E. Frank Stephenson at 09:31 PM in Misc.

Markets in Everything: Birth Permit Edition

A letter to the editor (scroll down) from this week's issue of The Economist:

SIR – You provided an interesting analysis of how specific market factors can indirectly influence population growth. However, your initial assumptions, of undistorted commodity markets and no environmental scarcity, led you to ignore a logical conclusion. The market needs to be directly harnessed towards the goal of stabilising population growth at a sustainable level. This could be achieved through a cap-and-trade system by issuing each adult with 1.05 of a birth permit (ie, 2.1 permits per couple to achieve the replacement fertility rate) and allowing such permits to be tradable.

Adam Drucker
Charles Darwin University
Darwin, Australia

Good grief, mate, this is one of the scariest notions I've seen in awhile. Would there be forced abortions for people not having a permit for a third child? Would people be thrown in jail for a third child if they didn't get permits?

BTW, while scrolling down you might have noticed Jeff Sachs attributing over-fishing and similar ills to overpopulation (hey, Jeff, ever heard of property rights, institutions, and the like?) and two Berkeley profs connecting nuclear weapons and terrorist cells to rapid population growth in Pakistan. In short, we see from all three letters exactly what Bryan Caplan calls the Malthusian zombie.

HT to MR for the markets in everything notion even though I shouldn't refer to such a coercive scheme as a market.

Posted by E. Frank Stephenson at 07:15 PM in Economics

Calling Santayana

If those who cannot learn from history are doomed to repeat history's errors, what can we expect from those who don't even know currrent events? Hit and Run reports this remarkable quote from John Edwards, which first appeared at ABC News, so it must be true:

"I'm going to be honest with you—I don't know a lot about Cuba's healthcare system. Is it a government-run system?"

And this guy wants to be leader of the free world.


Posted by Brad Smith at 05:38 PM

Paper Envy

Newmark has already blogged it, but a new paper on cell phone usage and driving is so clever that I'm posting part of the abstract:

We investigate the causal link between cellular usage and crash rates by exploiting a natural experiment induced by a popular feature of cell phone plans in recent years—the discontinuity in marginal pricing at 9 pm on weekdays when plans transition from “peak” to “off-peak” pricing. We first document a jump in call volume of about 20-30% at “peak” to “off-peak” switching times for two large samples of callers from 2000-2001 and 2005. Using a double difference estimator which uses the era prior to price switching as a control (as well as weekends as a second control), we find no evidence for a rise in crashes after 9 pm on weekdays from 2002-2005. The 95% CI of the estimates rules out any increase in all crashes larger than .9% and any increase larger than 2.4% for fatal crashes. These estimates are at odds with the crash risks implied by the existing research. We confirm our results with three additional empirical approaches—we compare trends in cell phone ownership and crashes across areas of contiguous economic activity over time, investigate whether differences in urban versus rural crash rates mirror identified gaps in urban-rural cellular ownership, and finally estimate the impact of legislation banning driver cell phone use on crash rates. None of the additional analyses produces evidence for a positive link between cellular use and vehicle crashes.

Posted by E. Frank Stephenson at 03:29 PM in Economics

Letter in the WSJ

This letter from yours truly appears in today's WSJ:

Mr. Peter Navarro claims that 1,028 economists (including me) who oppose protectionist legislation against China ignore China's "extremely lax environmental and health and safety regulations that encourage the rest of the world to export their pollution and sweatshops to China via offshoring."

This argument is a red herring. Research on the environment and globalization by Jeffrey Frankel of Harvard's Kennedy School of Government finds, "little statistical evidence, on average across countries, that openness to international trade undermines national attempts at environmental regulation through a race to the bottom effect. If anything, favorable gains from trade effects dominate on average, for measures of air pollution such as SO2 concentrations."

E. Frank Stephenson
Chairman, Department of Economics
Berry College
Mount Berry, GA

The Frankel quote is from the abstract of this paper; he (and Andrew Rose) have a similar paper here.

In a related vein, "The Informed Reader" feature in yesterday's WSJ summarized a Boston Globe article "Old Equipment Gets New Chance to Pollute." Apparently poor countries are buying used industrial equipment from the U.S. instead of more modern, cleaner, technology. While this would seem to cut against my letter, the article points out that used equipment "is more efficient than the even-more-antiquated machinery it replaces."

Finally, it'll come as no surprise that Don Boudreaux also responds to Navarro in today's WSJ. I'll add a link if he posts his letter on Cafe Hayek.

ADDENDUM: Don has now posted his letter. I suggested one minor improvement to him, changing his last sentence to read "... it is Mr. Navarro who spreads beggar-thyself fallacies."

Posted by E. Frank Stephenson at 08:31 AM in Economics

August 20, 2007
Charleston Peak

cpsmallpic.jpg

Ben Powell (Suffolk University) and Ed Lopez (SJSU and Liberty Fund) and I hiked up Charleston Peak (11,918') outside of Las Vegas in July. We lucked out with beautiful clear skies and warm temps (it can be quite cold even in July). There was no snow at all unlike the last time I hiked it (aslo in July).

cpsummitpicsmall.jpg

Posted by Robert Lawson at 08:56 AM in Sports

August 19, 2007
Pandora Radio

Stuck in an iTunes rut? Pandora Radio will take a couple of your favorite artists, analyze them and stream in similar music. It's dynamic and gives very cool descriptions of what it's doing as it goes along. HT: Noel Campbell.

Posted by Edward J. Lopez at 10:19 PM in Misc.

A shrinking story?

Here's the headline for a recent AP story: "Arctic sea ice shrinks to record low"

Here's the first paragraph: "There was less sea ice in the Arctic on Friday than ever before on record, and the melting is continuing, the National Snow and Ice Data Center reported."

The amount of ice has fallen about 1.5 percent in two years.

Here's the 7th paragraph: "Scientists began monitoring the extent of Arctic sea ice in the 1970s when satellite images became available."

So the headline could read: "Slight reduction in Arctic ice, to lowest level in 35 years."

Posted by Wilson Mixon at 08:40 PM in Politics

Roach: The subprime bubble is a failure of central banking

Stephen S. Roach (Chairman, Morgan Stanley Asia) on what fed the bubble that is now bursting:

Basking in the warm glow of a successful battle against inflation, central banks decided that easy money was the world's just reward. That set in motion a chain of events that has allowed one bubble to beget another--from equities to housing to credit.

... As the increasing prevalence of bubbles indicates, a failure to recognize the interplay between the state of asset markets and the real economy is an egregious policy error.

That doesn't mean central banks should target asset markets. It does mean, however, that they need to break their one-dimensional fixation on CPI-based inflation and also give careful consideration to the extremes of asset values.

Wise words. Read the whole thing.

I make a similar argument for a target index broader than the CPI here, noting an earlier op-ed piece by Roach.

Hat tip: Bob Murphy

Posted by Lawrence H. White at 12:34 PM in Economics

August 17, 2007
Hurricane Dean vs. Howard Dean

Current forecast is for Hurricane Dean to hit land between Corpus Christi and Houston. Damages could be severe.

Any more severe than Howard Dean?

Only time will tell.

AP story on the Hurricane Dean.


Posted by Edward J. Lopez at 11:53 AM in Misc.

Your Tax Dollars at Work

Pentagon Paid $998,798 to Ship Two 19-Cent Washers

Hard to believe some folks think government run medical care would be cheaper.

Posted by E. Frank Stephenson at 09:04 AM in Misc.

August 16, 2007
Redenominating the Naira

If there ever is a purely nominal change in the quantity of money, surely it comes when a currency is redenominated by lopping off zeros. If (say) each old N100 banknote is converted to a new N1 note, it stands to reason that all pricetags will be redenominated accordingly. Relative prices will not be affected. The only real effect will be the greater ease of computation when dealing with fewer zeros. Which is enough of a rationale for the reform, one would think.

Now contrast this view with the Central Bank of Nigeria’s announcement that it wants to redenominated the Naira by lopping off two zeros. Currently the Naira trades at about N125 to the US dollar; afterward it will trade at N1.25 to the dollar. The Central Bank governor Prof Charles Chukwuma Soludo claims the reform will:

better anchor inflationary expectations, strengthen public confidence in the Naira, make for easier conversion to other currencies, reverse tendency for currency substitution, eliminate higher denomination notes with lower value, reduce the cost of production, distribution and processing of currency, promote the usage of coins and thus a more efficient pricing and payments system, and lay the foundation for the convertibility of the Naira as well as make it the 'Reference currency' in Africa.

It should be needless to say that the inflation rate – the rate of change of the price index -- depends on the rate of growth that the central bank produces in the stock of Naira over time, not on the nominal level of the money stock at one moment. Low inflation follows from a low money growth rate, not from a low level. Given that expectations depend on experience, it is the growth rate and not the level that determines the anchoring of inflation-rate expectations, the degree of public confidence, and the public's incentive to substitute other (lower-inflation) currencies.

Reducing the cost of producing currency means substituting fewer notes of high purchasing power for more notes of lower purchasing power. That could be done without the redenomination reform, simply by substituting one N10,000 note for each hundred N100 notes. Promoting the use of coins depends on changing the values of coins relative to notes, which can likewise be done with or without changing the unit of account.

One local critic of the Nigerian redenomination has suggested that the change should be “implemented in phases to enable its monitoring and ensure workability.” Huh? How exactly would it work to “phase in” the lopping off of zeros?

Posted by Lawrence H. White at 12:38 PM in Economics

Bo Knows Economics, and So Does Sally

From the Newspaper of Record:

The Department of Education translates student scores on the test, known as
the National Assessment of Educational Progress, into three achievement
levels: advanced, proficient and basic. On the economics test, 42 percent of
12th graders performed at or above the proficient level, and 79 percent
performed at or above the basic level. An economics course is required for
graduation in only about one-third of the states. 'The numbers here are
pretty good, really,' said Darvin M. Winick, the chairman of the bipartisan
body set up by Congress to oversee the test. 'Given the number of students
who finish high school with a limited vocabulary, not reading well and weak
in math, the results may be as good or better than we should expect.' In
contrast, only 13 percent of 12th grade students performed at or above
proficient, and only 47 percent performed at or above the basic level on the
national assessment test in history that was administered last year. On a
similar test in science in 2005, only 54 percent of 12th grade students
performed at or above the basic level, and just 18 percent at or above
proficient.

The full report is here.

Read More »

Posted by Michael Munger at 09:01 AM

August 15, 2007
Economics and Marriage

In yesterday's WSJ, Naomi Schaefer Riley had a profile of Yale law prof Stephen Carter. This paragraph caught my eye:

He is no less willing to explain the motivations of the novel's academics, who he maintains are "shameless exaggerations of campus types" (though anyone who has spent time on campus recently might find them surprisingly realistic). There is, for instance, the economics professor in an "open" relationship with his wife who "is not even sure there is a rational case to be made for traditional marriage any more." Mr. Carter, who in his life as a Christian intellectual would have no trouble mounting a spirited defense of such old-fashioned arrangements, tells me: "It's not that by his own lights he's amoral. It's that he would find most of what others would call immorality to be inefficient interference with the pursuit of happiness."

The good old economist as hedonist caricature. I don't buy it--lots of folks (nowhere near all of them Christians motivated by moral concerns) get married. As with any voluntary exchange, I expect people getting married think they are better off than they would be unmarried. One reason (albeit a depressing one) is that they might not think marriage interferes with their pursuit of other sexual partners (I assume this is Carter's meaning of pursuit of happiness since he has the economics professor in an open relationship). Another reason is that people might voluntary give up their pursuit of other sexual partners in exchange for the benefits provided by marriage partners. Comments are open for a day or two; feel free to suggest other ways that marriage might not be "an inefficient interference with the pursuit of happiness."

Posted by E. Frank Stephenson at 12:44 PM in Economics  ·  Comments (4)

Incentives Matter--Electricity Pricing Edition

From Forbes:

The idea: smart grid technology. In its simplest form, it lets your "smart" electric meter talk back to the utility and record your usage by hour, so you can adjust your habits to take advantage of lower, off-peak rates.

Maybe, for example, you 'd be ready to put off running your dishwasher until 3 a.m. if you could do it with electricity that costs 5 cents a kilowatt hour, instead of 25 cents. (Today, most residential consumers pay a flat rate--a national average of 9 cents a kilowatt hour, though local rates vary widely.)

Customers who don't want their thermostat on autopilot could change their habits, by keeping the thermostat higher some days and running the electricity-hogging clothes dryer when off-peak prices are in effect. Or, they could decide not to change their power consumption ways and pay a much bigger bill.

Will customer behavior really change? And how expensive must electricity be to spark a change? In a California test that ran from 2003 through 2005, the average customer reduced his usage by 13% during the hottest summer hours when rates were five times higher. Customers with smart thermostats reduced their usage by 27%, and customers with gateway systems, which adjust the electricity use of multiple appliances, reduced their usage by 43% during the peak hours.

I think the same principle should also be applied to water pricing. Rather than having silly watering restrictions (as we currently do in GA) such as watering on odd or even days, just let prices increase during droughts. The rub here, of course, is that most water systems are government bureaucracies.

Posted by E. Frank Stephenson at 11:25 AM in Economics

A New Form of Family Leave

In the news:

Moscow - A Russian region of Ulyanovsk has found a novel way to fight the nation's birth-rate crisis: It has declared Sept. 12 the Day of Conception and for the third year running is giving couples time off from work to procreate.

Posted by E. Frank Stephenson at 10:31 AM in Misc.

August 14, 2007
Are taxes like prices?

Some people, let's say the Paul Krugmans of the world, like to argue that taxes are the prices we pay for living in a civilized society and for all the great government services we get to enjoy.

But what if the government "services" suck? Can you stop paying your taxes?

A business owner in Columbus, fed up with the vandals and other criminals afflicting his business, is trying to do just that. He recently sent this message to the city:

“Since neither the mayor or City Council have responded to my letters, from this date all monies due to the city will be placed in an escrow account. Funds will be forthcoming when the politicians start looking out for the rights, welfare and safety of the citizens.”

ATSRTWT.

Good luck pal.

Posted by Robert Lawson at 04:19 PM in Economics

The Four Mistakes of Nonlibertarians ...

... splendidly explained by George Leef.

Posted by E. Frank Stephenson at 02:20 PM in Misc.

Nasdaq going private

Tomorrow Nasdaq begins to broker private equity into its listed firms. Washington Post story, "Nasdaq gives high rollers a market free of regulation"

Any private firm can list on Nasdaq's new platform, which is called the Portal Market, and raise money by selling stock to an elite group of shareholders. These companies would remain private and not have to make public their financial statements or submit to federal regulation, such as the Sarbanes-Oxley corporate accountability law.

"One of the problems that business faces in America today is what I would call 'short-termism,' " said Howard S. Marks, chairman of Oaktree Capital, an investment firm that was the first to list on the private market developed by Goldman Sachs called GSTrUE. "There's a lot of expense and complication associated with being a public company today. . . . Now it is possible to gain most of the advantages of being public while sidestepping the disadvantages."

The private market, Marks said, shields companies from regulation and from wild swings in their share prices that are caused by a temporary drop in earnings or a bad rumor.

In just a few years, Nasdaq officials predict, stock offerings on private markets will far exceed IPOs on public exchanges.

Posted by Edward J. Lopez at 09:11 AM in Economics

August 13, 2007
Bootlegger Sighting

Last week the WSJ ran an article on doctors' efforts to stiffle competition from drugstore clinics. Excerpts:

Physician groups, including the American Medical Association, contend that the in-store clinics increase the risks of infection for both patients and shoppers. They also question the quality of their care, noting that most are staffed by nurse practitioners instead of doctors.

Retail clinics argue that the safety concerns raised by groups like the AMA are overblown and motivated by financial concerns. After all, they point out, primary-care physicians stand to lose business if patients with minor ailments head to CVS instead of their regular doctors.

Now state health regulators, who have typically granted the clinics extensive waivers from hygiene and safety restrictions, are taking a closer look at the business. Rhode Island has balked at allowing retail clinics despite repeated efforts by MinuteClinic. California passed a law this year that retail clinics must be owned by physicians.

The article does raise some seemingly reasonable issues about hygiene (e.g., bathrooms for patients giving urine samples and handwashing facilities for nurse practitioners), but these issues are no reason to mandate physician ownership.

Posted by E. Frank Stephenson at 11:49 PM in Economics

Central bank scandal of the month: Burundi

The International Herald Tribune reports:

Police have arrested Burundi's central bank governor for allegedly embezzling state funds, a senior police officer said Sunday. Issac Bizimana is the highest profile individual to be arrested in the government's drive to fight graft.

… For the past two months local media have reported allegations Bizimana was involved in a scandal where the government made double payments for oil imports to the tune of 17 billion francs (US$17 million; €12.4 million) earlier this year.

Media reports also name Bizimana in a scandal involving illegal money transfers to Belgium, Switzerland and Luxembourg from the treasury.

Posted by Lawrence H. White at 11:03 PM in Economics

John Kunze clarifies hedge funds’ withdrawal provisions

From the email inbox:

I've been working in prime brokerage for 12 years, so your post on hedge funds and bank runs attracted my interest. I of course agree that hedge funds withdrawals are not like checking-deposit withdrawals.

Your first point is that banks offer withdrawal on demand for a fixed number of dollars without actually having the liquid assets to fulfill the obligation if more than a small number of depositors want to withdraw at the same time. This would cause shaky banks to be "run" unless deposit insurance is available. In the U.S. it is assumed that banks will be bailed out even beyond the explicit $100,000 deposit insurance per account.

Few securities and no hedge funds guarantee the right to demand at par. I would think some CDs and other short term securities are an exception to this, but that those instruments can be issued only by companies with liquid assets and only for a fraction of their equity.

Your second strong point was that such securities and certainly hedge fund shares are not checking accounts and thus do not threaten it.

But your other points are perhaps less strong.

First, hedge fund shares are held by pension funds and college endowments, so perhaps some will shed tears for them. The response would be that such investors should be diversified, so they should not be overly hurt by any one event. Though the sub-prime meltdown killed a few concentrated hedge funds, most hedge funds have had limited losses and some even prospered in July.

Secondly and more importantly, hedge fund lockups and secondary markets are not as broad as you suggest. The lock up-period starts when one invests and most investors stick with most of their investments for years. So the typical one-year lockup on smaller funds has expired for most investors in most long/short equity hedge funds. These are the most common category of hedge fund, though they don't get as much press as macro and stat arb funds, which generally are more restrictive about withdrawals. Private equity funds that take major stakes in a few companies at a time may lock up all investors for the life of the fund.

Of course even in the long-short equity world, investors can only withdraw at fixed times of the year and must give notice in advance. That may be only once, twice or four times a year, but is often any month end in practice. Notice periods are usually 30-60 days. Often five percent of an investment will be held back until the following year-end audit has taken place.

Nevertheless, when a large hedge fund is rumored to be in serious trouble, it can be forced by withdrawals into a fire-sale liquidation. Last year's Amaranth natural gas case and the recent sub-prime cases were surely fire-sales. But you are right to distinguish them from bank-type runs.

John Kunze
Prime Brokerage
Jefferies & Co.

Posted by Lawrence H. White at 10:20 PM in Economics

Katrina Aid Goes Toward Football Condos

From the AJC:

TUSCALOOSA, Ala. — With large swaths of the Gulf Coast still in ruins from Hurricane Katrina, rich federal tax breaks designed to spur rebuilding are flowing hundreds of miles inland to investors who are buying up luxury condos near the University of Alabama's football stadium.

About 10 condominium projects are going up in and around Tuscaloosa, and builders are asking up to $1 million for units with granite countertops, king-size bathtubs and 'Bama decor, including crimson couches and Bear Bryant wall art.

While many of the buyers are Crimson Tide alumni or ardent football fans not entitled to any special Katrina-related tax breaks, many others are real estate investors who are purchasing the condos with plans to rent them out.

And they intend to take full advantage of the generous tax benefits available to investors under the Gulf Opportunity Zone Act of 2005, or GO Zone, according to Associated Press interviews with buyers and real estate officials.

The GO Zone contains a variety of tax breaks designed to stimulate construction in Mississippi, Louisiana and Alabama. It offers tax-free bonds to developers to finance big commercial projects like shopping centers or hotels. It also allows real estate investors who buy condos or other properties in the GO Zone to take accelerated depreciation on their purchases when they file their taxes.

The GO Zone was drawn to include the Tuscaloosa area even though it is about 200 miles from the coast and got only heavy rain and scattered wind damage from Katrina.

Posted by E. Frank Stephenson at 04:56 PM in Politics

Doh! (Law of Unintended Consequences Edition)

The local fishwrapper reports on some unintended consequences of Ohio's tough new law "protecting" people from predatory lenders:

Praised by Democrats, Republicans and consumer advocates alike, the law has done much of what it was supposed to do, mortgage brokers and real-estate professionals say, by protecting consumers from incurring debt they can't afford to repay.

But the law also has made it harder -- close to impossible, some say -- for certain previously well-qualified borrowers to get a loan.

And file this one away under in your "rule of man" file:

"[Ohio's new Attorney General]Marc Dann is looking for someone to break his rules, and nobody wants to be his test case."
Posted by Robert Lawson at 02:54 PM in Economics

August 12, 2007
Not a "new kind of bank run"

Floyd Norris of the New York Times, in a column widely blogged about, calls last week’s financial market events “the 21st-century equivalent of a run on a bank.” But the comparison doesn’t hold water. Securities markets and hedge funds are not structured like banks, and investor liquidations of positions are not like checking-deposit withdrawals.

Norris writes:

A few generations ago, savers responded to financial panics with runs on banks, and even healthy institutions could fail if they could not raise enough cash quickly enough. For a long time, that all seemed to be safely relegated to the past. But now the runs are back — and this time the targets are not banks but the securities that have replaced them as the prime generators of credit in the new financial system.

… a new financial architecture emerged in the last decade — one that relied more on securities and less on banks as intermediaries. With the worth of those securities now being questioned — and no equivalent of deposit insurance — some who financed the securities want their money out, a fact that has created the 21st-century equivalent of a run on a bank.

There is a very basic flaw in Norris’s comparison. A bank depositor has a claim against the bank for redemption on demand into a fixed number of dollars. He runs on the bank out of fear that the last in line to demand redemption will get less than par value. A security holder has no such claim to redemption on demand. If he wants immediate cash, he can sell his security in the market at the currently prevailing price. Security prices are marked to market every day, so the seller has no incentive to run. There is no expected gain from being first rather than last in line to sell. There is no equivalent of a run.

Mark Thoma endorses and expands the comparison, applying it to hedge funds rather than securities. Better, but it still doesn’t fit. Writes Thoma:

Floyd Norris makes a good point about modern bank runs, or something just like them. The problem is that entities outside the traditional banking sector have been engaged in bank-like functions and are hence subject to bank-like problems such as bank-runs. Here's how it works.

Hedge funds can be hit with withdrawals even if they are not in trouble themselves, at least initially, due to uncertainties about the future state of the market.

But like a bank who lends out most of the deposit it receives, a hedge fund uses the deposits it receives to purchase securities and other assets for its portfolio. Thus, unless it has substantial cash reserves on-hand (part of the scramble now is to build cash reserves), when investors make withdrawals the fund must begin to liquidate its portfolio to pay them off.

… And it can feed on itself, just like a bank run. If investors hear that people are having trouble getting their money out of a particular fund, or from funds generally, they will rush to get their money out before the fund fails, and the problems get worse as funds try to sell assets to raise the needed cash.

So it's sort of like a bank run, but without a standing lending facility (i.e. the equivalent of a discount window) available to meet the demand for liquidity, though such institutions could be created.

Thoma neglects three basic institutional facts about hedge funds. First, their shares are sold only to high-net-worth investors, so we need shed no tears about hedge fund collapses impoverishing anyone.

Second, hedge fund shares are not checking accounts, so hedge fund losses do not threaten the payment system.

Third and most importantly, hedge fund share liquidations are usually subject to an advance-notice clause or “lock-up period” of one to two years. For this reason they cannot be run upon: investors simply do not have the option of demanding immediate liquidation. Hence there can be no problem of fire-sale losses from the fund being forced into hasty liquidation, what standard theory identifies as the inefficient result of a bank run.

There does exist, however, a secondary market for hedge fund shareholders who want to get out, namely Hedgebay. There shares can be sold to other investors who are willing to get in, at whatever discount or premium is necessary to clear the market.

The current problem at hedge funds is not self-feeding runs, but bad investments. Leveraged hedge funds have collapsed because of losses on bad assets, not because of withdrawals and fire-sale losses.

There is no good rationale for a “standing lending facility,” such as suggested by Thoma, to provide subsidized liquidity to hedge funds. Much less is there any rationale for “hedge fund insurance” to investors.

Posted by Lawrence H. White at 11:14 PM in Economics

August 11, 2007
Tiger had a good day yesterday

Odds of winning the PGA championship before the tournament started on Thursday:
Tiger Woods 5/2
Field (all others) 9/5

Odds this morning, after Tiger shot a 63 on Friday:
Tiger Woods 1/5
Field (all others) 5/1

Posted by Lawrence H. White at 07:11 PM in Sports

August 10, 2007
Set your Tivo

Bumper crop this weekend on BookTV, aka CSpan2 (all times Eastern):

Saturday, August 11, at 8:00 AM
Sunday, August 12, at 7:00 PM
Kevin Gutzman
The Politically Incorrect Guide to the Constitution
and Thomas Woods
The Politically Incorrect Guide to American History

Saturday, August 11, at 12:00 PM
Johan Van Overtveldt
The Chicago School: How the University of Chicago Assembled the Thinkers Who Revolutionized Economics and Business

Saturday, August 11, at 8:20 PM
Sunday, August 12, at 11:15 PM
Michael Belfiore
Rocketeers: How a Visionary Band of Business Leaders, Engineers, and Pilots is Boldly Privatizing Space

Sunday, August 12, at 11:00 AM
Monday, August 13, at 12:00 AM
John Lott
Freedomnomics: Why the Free Market Works and Other Half-Baked Theories Don't

Monday, August 13, at 2:00 AM
Brink Lindsey
The Age of Abundance: How Prosperity Transformed America's Politics and Culture

Posted by Lawrence H. White at 07:21 PM in Economics

Asking the Wrong Question

While home for lunch, I briefly had the tv tuned to CNN and Fox News. Both networks were covering the arrest of someone for some killings in New Jersey. Apparently the suspect is an illegal immigrant who allegedly committed the shootings while out on bail after being charged with 31 counts including the rape of a 5 year old. Both networks' anchors questioned guests or reporters about why an illegal immigrant had been released on bail. Seems to me that's the wrong question--if I was living in NJ I'd like to know why someone, whether legally in the country or not, could be released on bail when facing charges on 31 counts including rape. Regardless of immigration status, someone facing such severe charges should stay behind bars until his trial.

Posted by E. Frank Stephenson at 02:44 PM in Law

Inspired by Michael Vick or A New Event for the Redneck Games?

Woman Kills Raccoon With Her Bare Hands

Posted by E. Frank Stephenson at 09:22 AM in Misc.

Headline Meet Article

The headline on a story in today's AJC:

Number of Black Murder Victims on Rise

A paragraph from the article:

An estimated 16,400 people were murdered in the United States in 2005, down from a peak of 21,400 a decade ago. Similarly, the number of black people slain dropped over the last 10 years, from 10,400 in 1995 to almost 8,000 in 2005.

Here's another paragraph from the article:

Two years ago, 6,783 black men were murdered, up from 6,342 in 2004, the study shows. The murder rate among white men also rose, but less dramatically: 5,850 were slain in 2005, compared with 5,769 the year before.

So there's been a decline in both white and black murder victims over the past decade albeit with a small (compared to the 10-year decline) increase over the last two years of the period. How does it get reported? Not the good news of an overall decline; not the bad news that the there's been a small increase in both black and white murders over the 2004-2005 period. Instead, the headline points only to the increase in black murders.

BTW, the article also mentions that the vast majority (93% for black victims; 85% for white victims) of people had killers of the same race. Since the number of black and white victims is roughly equal (actually approx 15% more black victims), the fact that nearly all killers are of the same race means that the number of people of each race convicted should be roughly equal. Just for the record: I doubt the justice system is color blind--this article finds it is not--the murder data suggest that a color blind system would not yield incarceration rates proportionate to population. For actual data on executions by race and death row population by race see this page; whites outnumber blacks in both cases.

Posted by E. Frank Stephenson at 09:20 AM in Misc.

August 09, 2007
On Preschool as a Poverty Fighter

Today's WSJ has an article (here but a subscription may be required) about states expanding preschooling programs in attempt to reduce future poverty. The part of the article that caught my eye was a chart showing a positive correlation between household income and preschool enrollment. (For example, 80% of kids in households with income over $100k are in preschool whereas 49% of kids with household income of $50-60k are in preschool.) This chart made me wonder if studies finding that preschool enrollment leads to better future educational achievement might be contaminated by omitted variable bias. Families earning over $100k probably have both parents present and both in the labor force; families with only 1 adult present have lower earnings. Regardless of earnings and regardless of preschool enrollment, kids in two parent households probably do better in school (perhaps because they get more parental attention) than kids with only one adult present. Similarly, earnings are correlated with educational attainment so one probably expects kids in high earning families to do better in school than kids in lower income families. (Note that the previous two sentences are meant to be "on average" and are not meant to sound deterministic.)

I doubt all of the studies are contaminated by the omitted variable bias; the WSJ reports that Chicago econometrician James Heckman is the author of one preschooling study. However, consistent with my conjecture, Douglas Besharov of AEI states, "The current full-scale Head Start program is having a disappointing impact on kids." Of course, other explanations are also consistent with Besharov's observation about Head Start--for example, preschool as traditionally provided by churches and private schools might be beneficial whereas educrat provided Head Start might be useless.

Posted by E. Frank Stephenson at 10:11 PM in Economics

Best Sentence I Read Yesterday

In yesterday's WSJ (here; scroll down to the part "Not By Geeks Alone") Chester E. Finn, Jr. and Diane Ravitch argue that education policy should not just focus on science, technology, engineering, and math (aka STEM). Along the way they write,

Indeed, many of today's foremost (and wealthiest) entrepreneurs, people like Warren Buffett, studied economics--not a STEM subject--in college.

Posted by E. Frank Stephenson at 09:42 PM in Economics

What's the optimal number of donkeys?

Tuesday's Dallas Morning News runs the (literally) most ass kicking story I've read, "Guard Donkeys Used to Protect Texas Herds." It illustrates some interseting examples of entrepreneurial discovery, tacit knowledge and substitution between animals as productive inputs.

MILANO, Texas - Coyotes and wild dogs were slaughtering calves on Herbie Vaughan's ranch in the Cedar Creek valley south of Milano until about eight years ago when he took an old-timer's advice and installed guard donkeys in the herd.

"When I put the donkeys out there, I no longer had a coyote problem," says Vaughan. "It's like they disappeared. I don't know why, but it worked."

Sage ranchers have learned to take advantage of the intrinsic aggression between members of the Equidae and Canidae families, said Jon Gersbach, Texas Cooperative Extension county agent for ag and natural resources in Milam County.

In short, horses, donkeys, mules, and zebras loathe the company of dogs, wolves and their coyote cousins, and they are not too nice about it either, Gersbach said.

Donkeys, the most intolerant of the family, will "attack and kick" coyotes and dogs, Gersbach said.

"They will bray, run them down, bite them, and either chase them off, or if they get the chance, they will kick them, and they will pound them."

They are very protective in the right environment, thus, there is a formula for a successful donkey security system, Gersbach said.

Jennies rather than the jacks of the species are superior pasture guards because of maternal, protective characteristics, Gersbach said. Donkeys, or burros, gravitate toward bonding with whatever livestock happens to share their pasture, whether it is horses, cattle, sheep, or goats.

However, too many donkeys in one meadow will encourage herd behavior and yield less effective protection. The most effective pasture guardians arrive at a young age and grow up among their animal neighbors. Donkeys have the advantage over working dogs in pasture settings because they eat the same food as other livestock, Gersbach said.

Posted by Edward J. Lopez at 12:04 PM in Economics

Eleanor Roosevelt's Utopia

George Leef points to an article on Arthurdale WV. An excerpt:

Clarence Pickett, a staunch advocate of Arthurdale, sadly recorded his concern on "seeing many prompt, if not hasty actions" taken on behalf of Eleanor's pet project.[8] And it all started to unravel from the very first step — the "purchase" of the land from Mr. Arthur.

The land turned out to be unsuitable for the large scale habitation envisioned by the planners, as Professor Thomas's An Appalachian New Deal relates, since a "stratum of porous rock lay beneath the land [and] caused great expense in making the water supply safe"[9].

Not to be outdone, Louis Howe, one of the project managers, promptly purchased fifty pre-fabricated summer cottages that were "totally inadequate for West Virginia winters" (Thomas 1998, p. 170), not to mention that they didn't fit the pre-fabricated foundations waiting for them. Architects had to be brought in from New York "at great expense" to make the summer cottages suitable for West Virginia (and make them fit their foundations), pushing back the initial move-in date six months.[10]

Mrs. Nancy Hoffman's Eleanor Roosevelt and the Arthurdale Experiment called it "the first and most notable fiasco" during the community's construction, but the purchase of the stratum of porous rock has my vote.

Delivered late and vastly over budget,[11] Arthurdale displayed all the characteristics of a boondoggle, a political creature that "puts people over profits" and is widely familiar to all Americans, circa 2007. The pre-fabricated houses, even when it was known that they were unsuitable for West Virginia winter and wouldn't fit their foundations, were still built but then torn to pieces and remodeled. An article in the August 1934 Saturday Evening Post speaks of how chimneys were built eight feet away from their houses' sides, after which the houses were reconstructed to meet the chimneys.

From padded payrolls, to houses stuffed with goodies ("most Arthurdale families found their new homes lavish," Hoffman 2001, p. 44), to the importing of rhododendrons (a flower native to the Arthurdale area) from sixty miles away (just to leave them to rot), to wells being drilled at great expense and then abandoned, the project was every bit the financial disaster that one should expect when giving management over obscene sums of cash to people who believe "profit" is a curse word.

Modern utopians want our health care system (already a mess b/c of too much government meddling--e.g., the tax preference for employer based insurance) to look like Arthurdale. No thanks.

Posted by E. Frank Stephenson at 10:55 AM in Economics

August 08, 2007
On battleships c. 1907

I have mentioned in previous posts (here) and (here) that in 1906-1907 the United States was building two new battleships to compete with the largest ships the rest of the world was producing. In the battleship arms race two things mattered, speed and firepower, with, in general, an inverse relationship between the two.

The two ships being built at the time, the Connecticut and the Louisiana, are interesting because the Connecticut was built by a government run shipyard whereas the Louisiana was built by a private contractor. Previous stories had pointed out that the Louisiana was coming in under budget and being built faster than the Connecticut. However, towards the end of the construction phase, the Louisiana was given extra armor plating which increased the cost to nearly that which the Connecticut commanded.

In the Aug. 8, 1907 NYT the two ships are reported to have had their initial speed trials:

In a series of fourteen runs over a measured mile course...the first-class battleship Connecticut, the first battleship of the class built by the government, made a showing that was highly satisfactory to Rear Admiral Robley D. Evans and the Trial Board. The average speed of the best five runs was 18.73 knots.

In her five best runs the Louisiana, a sister ship of the Connecticut, which was built by the Newport News Shipbuilding Company, attained an average speed of 18.59.

The difference was likely not statistically significant but the cost of the Louisiana was still lower than that of the Connecticut. Hmmm....

Posted by Craig Depken at 01:21 PM in Science

August 07, 2007
On ticket scalping c. 2007

From the August 7, 2007 Wall Street Journal's Op-Ed page:

Studies now show that consumers are usually the big winners when the ticket resale market is allowed to operate. Florida recently deregulated its resale market and prices fell because of a greater on-demand inventory of seats. In about 40% of the cases, tickets are resold for less than the face value. A study last year by Craig Depken, an economist at the University of Texas Arlington, found that "cities with anti-scalping laws average per-game season ticket prices $2 greater in baseball and $10 greater in football."
The reporter did a good job of praising the governor of New York who has seen the light, so to speak, and is pushing to repeal the state's anti-scalping laws. Several states around the country are pushing to repeal their anti-scalping laws.

The only "mistake" is my current affiliation is the University of North Carolina - Charlotte. However, the paper referenced was written and published while I was at UTA.

As for getting rid of anti-sclaping laws - chalk one up for the free(er) market.

Adobe version of the op-ed piece here

here is a PDF version of the study cited as it appeared earlier this year in Public Choice.

Posted by Craig Depken at 01:50 PM in Economics  ·  Comments (0)

August 06, 2007
Rodrik's critique

Dani Rodrik has offered a methodological critique of free-market economists (citing Gary Becker, Tyler Cowen, and Greg Mankiw as examples among blogging economists), grounded on the claim that in recommending “first best” free-market policies they (simplistically) overlook complications introduced by “second best” problems: market imperfections, information asymmetries, distributional issues, general-equilibrium feedbacks. He constrasts them with the (more sophisticated) second-best-oriented interventionists: Joe Stiglitz, George Akerlof, Bob Shiller, Paul Krugman, himself. Tyler Cowen offers a reply.

Here is Rodrik’s take on the “first-best” group:

You can tell what kind of an economist someone is by the nature of the response s/he offers when confronted with a policy issue. The gut instinct of the members of the first group is to apply a simple supply-demand framework to the question at hand. In this world, every tax has an economic deadweight loss, every restriction on individual behavior reduces the size of the economic pie, distribution and efficiency can be neatly separated, market failures are presumed non-existent unless proved otherwise (and to be addressed only by the appropriate Pigovian tax or subsidy), people are rational and forward-looking to the first order of approximation, demand curves always slope down (and supply curves up), and general-equilibrium interactions do not overturn partial-equilibrium logic. The First Fundamental Theorem of Welfare Economics is proof that unfettered markets work best. No matter how technical, complex, and full of surprises these economists' own research might be, their take on the issues of the day are driven by a straightforward, almost knee-jerk logic.

As a "first-bester" myself, let me ask: is this an accurate picture of my beliefs? Let’s go down the checklist:

• Apply a simple supply-demand framework? Whenever possible, yes. Especially when writing for a nonspecialist audience. The economic way of thinking is our comparative advantage as economists.

• Every tax has an economic deadweight loss? Every tax on desired goods and services (as opposed to say pollution), yes. Doesn’t it?

• Every restriction on individual behavior reduces the size of the economic pie? Again, if we are talking about restrictions on voluntary exchange and production (and not restrictions against theft and assault), yes. Don’t they?

• Distribution and Efficiency can be neatly separated? In principle, yes. See Coase.

• Market failures are assumed non-existent unless proved otherwise? Yes, placing the burden of proof on the would-be market-corrector is more reasonable than assuming that market failures exist merely because someone imagines or asserts it to be so.

• Market failures are to be addressed only by the appropriate Pigovian tax or subsidy? Maybe in Mankiw’s view, but not in mine. In my view they are to be addressed by appropriately defining and enforcing property rights. We don’t know enough to find the right Pigovian tax or subsidy. Giving the government the power to tax an externality and trusting it to optimize is extremely foolish.

• People are rational and forward-looking to the first order of approximation? Sure. At least I trust John Doe to know his own rational interests than I trust a philosopher-economist (e.g. Joe Stiglitz or Robert Frank) to divine Mr. Doe’s rational interest.

• Demand curves always slope down? Yes. Is there a serious counter-example?

• Supply curves always slope up? No, in some cases they can be vertical. I’ll even believe backward-bending if you show me evidence.

• General equilibrium interactions do not overturn partial-equilibrium logic? On the contrary, they can. For example, general-equilibrium reasoning shows that major tenets of Keynesian economics are based on a partial-equilibrium reasoning combined with the fallacy of composition. See Roger Garrison.

• The First Fundamental Theorem of Welfare Economics is proof that unfettered markets work best? No, not at all. The theorem merely provides a set of sufficient conditions for reaching an optimum. It is mostly used by critics of the market, who fallaciously argue that the failure of one of the sufficient conditions to hold is proof that the unfettered market is not best (as though we were talking about a necessary condition). The reasons for believing (not “proof,” because it’s not a mathematical proposition) that unfettered markets work best are not in Arrow-Debreu but in Mises, Hayek, and Kirzner.

Comments are open.

Posted by Lawrence H. White at 07:05 PM in Economics  ·  Comments (3)

Lott versus Levitt: Steve Levitt issues a “doozy of a concession”

As part of a settlement over part of John Lott’s libel suit, Steve Levitt has issued a “letter of clarification” taking back what he said about a Lott-organized issue of the JLE in an email he sent John McCall. David Glenn of The Chronicle of Higher Education news blog calls it a “doozy of a concession”. Story here.

The actual letter from Levitt is now available on Lott’s blog here.

My view is that libel law is a bad idea, and in particular that a suit between academics is an unfortunate precedent that violates the norms of academic discourse. Nonetheless it’s good to have Levitt’s correction out there. And one can understand Lott’s frustration in trying to get the truth out.

Craig Newmark details Lott’s amended complaint on the other libel charge – hinging on a passage in Freakonomics -- here. If example (g) of “Levitt’s hostility to [Lott]” cited there is for real, then Levitt has also unfortunately violated the norms of academic discourse.

So far, Levitt has not commented on the letter. Nothing about it can be found on the Freakonomics blog site.

Disclaimer: Lott is a personal friend from my UCLA days, and remains so despite my criticism of his lawsuit.

Posted by Lawrence H. White at 05:52 PM in Economics

On infant mortality c. 1907

From the Aug. 6, 1907 NYT:

The increase in New York's death rate in the last two weeks over the corresponding two weeks of 1906 has swelled the death list of New York City to 3,615 against 2,907 last year. In the seven days ended last Saturday there were 1,804 deaths in the five boroughs: 1,653 of these deaths were those of children under 5 years old. In the corresponding week last year but 1,156 children under 5 years died.

Dr. Guilfoy of the Board of Health, commenting on the increase in infant mortality, said that the improper feeding of infants was to blame.

"We have been trying to teach the mothers in the poorer sections of the city not to feed their infants meat and unripe fruit in the Summer. We have made considerable progress among the mothers..."

If the numbers are correct, the infant mortality accounted for 92% of all deaths in New York City during this week in 1907!! Without doing any research on this topic, I am confident that infant mortality in NYC during the same week in 2007 was considerably lower. Wow - what a difference 100 years has made.

Posted by Craig Depken at 11:33 AM in Science

Children's Book Suggestion

While on vacation in June, we bought Wendie Old's To Fly: The Story of the Wright Brothers for Pee Wee. We bought the book because we planned to visit the Wright sites (and the spectacular Museum of the Air Force) in Dayton later in our trip, so we thought the book would give Pee Wee some good background on the places we'd visit. The book fulfilled that purpose well, and, to my delight, it also takes a swipe at government funded competition to the Wrights. Olds writes (p. 43), "People like Samuel Langley, who received more than $55,000 from the government, could not solve the problems of flight. It took two bicycle repairmen from Dayton, Ohio to solve them."

Posted by E. Frank Stephenson at 10:57 AM in Misc.

Markets in Everything: Corpse Bride Edition

From The Economist:

Parts of rural China are seeing a burgeoning market for female corpses, the result of the reappearance of a strange custom called “ghost marriages”. Chinese tradition demands that husbands and wives always share a grave. Sometimes, when a man died unmarried, his parents would procure the body of a woman, hold a “wedding” and bury the couple together.

HT: MR for the markets in everything concept.

ADDENDUM: A less grisy example: The 7/26 WSJ (no link, sorry) had an article about ParkingSearch.com, an online parking space market.

Posted by E. Frank Stephenson at 10:40 AM in Economics

August 05, 2007
Credit Snobbery vs. Credit Access

This week's issue of The Economist has an article on credit snobbery (it gives appropriate credit to MR's Alex for the "credit snobs" idea). The summarizes a paper on credit access:

Dean Karlan, a Yale economist who is co-director of the Financial Access Initiative, and Jonathan Zinman, of Dartmouth College, studied a profit-seeking lender that served some of South Africa's poorer neighbourhoods. Suspecting that its credit standards were too strict, the lender was willing to experiment with a looser provision of credit. It asked its loan officers in Cape Town, Port Elizabeth and Durban to reconsider 325 out of 787 applicants who had narrowly missed out on approval for a loan. The lucky 325 were chosen at random—nothing distinguished them from the remaining 462, except the luck of the draw. This allowed the researchers to establish a causal link between the loan and changes in the lives of the applicants.

Most of the new customers took a four-month loan at an annual interest rate of about 200%: a 1,000-rand loan, for example, would be repaid in four monthly instalments of 367.50 rand. For the bank, the study proved the wisdom of stretching its lending limits. The new clients were profitable, if not as profitable as the borrowers already on their books. The authors reckon the bank made a gain of at least 201 rand per loan.

Did these profits come at the expense of the poor? On the contrary. Despite the demanding terms on offer, those reconsidered for a loan seemed to prosper. Six to twelve months later, they were less likely to go hungry, and their chances of being in poverty fell by 19%. Not coincidentally, they were also more likely to have kept their jobs, perhaps because the credit helped them to overcome emergencies that might otherwise have forced them to abandon their posts. About a fifth of them, for example, spent their loan on transport, such as buying or repairing a car that they might have needed to get to work.

The results were not all as happy: the authors found some evidence of higher stress, especially among female borrowers. But people also reported more control over their lives and a more positive outlook. Perhaps the easier access to credit allowed them to take a longer-term perspective, even if “longer term” is measured in months or weeks rather than the more conventional notion of decades.

Contrary to the fears of the credit snobs, the readier access to credit did not tempt the new customers into a debt trap. Over 15-27 months, those reconsidered for a loan were more likely to have a formal credit score. And this score suffered no harm as a result of their easier borrowing.

The Karlan/Zinman paper is available here.

Posted by E. Frank Stephenson at 05:25 AM in Economics

August 03, 2007
Say what?

Heard on National Public Radio yesterday afternoon, during a sponsor’s blurb for an educational foundation: “We guide children to think outside the box.” Say what? If you’re guiding them, it can’t really be outside the box, can it? “No, no, Johnny, that’s not how to think outside the box. This is how to think outside the box!”

Seen on a store sign at the mall: “Every jean on sale.” Say what? Will you really sell me one jean?

Posted by Lawrence H. White at 09:52 AM in Funny Stuff

August 02, 2007
Corporate Welfare or Bigger Government?

Greg Mankiw writes,

Economists recognize that a cap-and-trade system is equivalent to a tax on carbon emissions with the tax revenue rebated to existing carbon emitters, such as energy companies. That is,

Cap-and-trade = Carbon tax + Corporate welfare.

I would have expressed the equation this way:

Carbon tax = Cap-and-trade + Bigger Government

Posted by Robert Lawson at 08:53 AM in Economics

August 01, 2007
DOLers Against Protectionism

Several DOLers, including yours truly, signed this petition against protectionism that ran in today's WSJ.

Posted by E. Frank Stephenson at 01:01 PM in Economics

Sicko

The joys of socialism:

A 108-year-old woman has been told she must wait at least 18 months before she receives a new hearing aid.

Olive Beal, who has failing eyesight and uses a wheelchair, finds it difficult to hear with her five-year-old analogue aid and needs a digital version that cuts out background noise and makes conversation easier.

Mrs Beal, a former piano teacher who was involved in the suffragette movement, would be 110 by the time she gets her new hearing aid. "I could be dead by then," she said yesterday.

Her family said they had been shocked to be told there was an 18-month waiting list by the Eastern and Coastal Kent Primary Care Trust. A digital hearing aid costs about £1,000 on the open market.

Posted by E. Frank Stephenson at 10:03 AM in Economics

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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