Division of Labour: May 2008 Archives
May 31, 2008
Baptists, Bootleggers, and Stormy Weather

From the Wall Street Journal:

As hurricane season begins, Democrats in Congress want to nationalize a chunk of the insurance business that covers major storm-damage claims. The proposal -- backed by giant insurers Allstate Corp. and State Farm Mutual Automobile Insurance Co., as well as Florida lawmakers -- focuses on "reinsurance," the policies bought by insurers themselves to protect against catastrophic losses. The proposal envisions a taxpayer-financed reinsurance program covering all 50 states, which would essentially backstop the giant insurers in case of disaster. The program could save homeowners roughly $500 apiece in annual premiums in Florida, according to an advocacy group backed by Allstate and State Farm, the largest writers of property insurance in the U.S. But environmentalists and other critics -- including the American Insurance Association, a major trade group -- say lower premiums would more likely spur irresponsible coastal development, already a big factor in insurance costs. The program could also shift costs to taxpayers in states with fewer natural-disaster risks. [...]

To gin up national attention for the program, Allstate and State Farm have teamed up with the American Red Cross in an advocacy group, ProtectingAmerica.org, pushing for better emergency preparedness, providing disaster news and education to prevent lawsuits. The group also pushes for the federal program.

Red Cross says it didn't lobby for the federal bill, and doesn't take a position on it. Its interest in ProtectingAmerica is solely to encourage preparedness, it says.

Posted by Wilson Mixon at 05:25 PM in Economics

May 30, 2008
Building Brand Equity: The Third Man

Mike Hammock and I show a few movies every semester to illustrate basic economic principles. One of our favorites is The Third Man. Our educational note (under review at The American Economist) about the movie is here.

Posted by Art Carden at 04:19 PM in Economics

Markets in Something

A wonderful blog that I don't read often enough is Long or Short Capital. Think Tyler Cowen meets The Onion, a paring that's nowhere more clear than in yesterday's post titled, "Markets in Something".

Markets in Something

by Mr Juggles

It’s frequently said that you can’t get something for nothing. This is true. But what is the price of something? Difficult to know. This has been a market that lacked liquidity and price discovery.

Luckily, the Something Store has started making a market in somethings. You can buy as many as you like for $10 per something. I suspect they are capturing a large producer surplus here — somethings may well be worth less than $10 — but I nonetheless admire their willingness to make a market in something.

Read the whole thing for their "Recommendation," in which they think through how to make a market in anything. I've just added the Long or Short feed. Thanks to Jennifer Thompson here at Liberty Fund for the pointer.

Posted by Edward J. Lopez at 03:26 PM in Economics

Building Brand Equity: AIER, ISNIE, IHS

It'll be a busy summer. Co-blogger Larry White and I will both be in residence at the American Institute for Economic Research in Great Barrington, MA during June. You can also catch me giving a "Brain Candy" lecture entitled "Homer Economicus Responds to Incentives" at a Rhodes Summer Writing Workshop for high schoolers on June 16 or 17, in the audience at the International Society for New Institutional Economics meetings at the University of Toronto's Rotman School of Management on June 20-21 and at the Institute for Humane Studies "Liberty and Society" seminar at Bryn Mawr, where co-blogger Josh Hall--who coined the term Homer Economicus--and I will give the economics lectures. My only time in New England consists of a couple of trips to Boston, so I'm really looking forward to the AIER trip. If anyone can recommend a good Asian restaurant in Toronto, please let me know (Mrs. Carden and I will be celebrating our fifth anniversary while we're there). Finally, my only other trip to Philadelphia was in eighth grade; I'm looking forward to going back. The Mint was closed the last time I was there, so it would be neat to be able to take a tour and watch as my currency is debased before my very eyes. We'll be back in Memphis for good around July 6, just in time for the late-summer heat.

Posted by Art Carden at 03:22 PM in Misc.

Farmers’ Harvest a Bumper Crop of Subsidies

Bill Shughart on the farm bill:

In truth, America’s farmers are wards of the state.

If you thought things had changed for the better following passage of the landmark “Freedom to Farm Act” in 1996, you’d be wrong. Indeed, that law was intended to phase out federal farm subsidies by 2002, perhaps tolling the death knell of politically influential agri-businesses and their Gucci-shod lobbyists. Soon thereafter, farmers, aided and abetted by delegations representing Midwestern and Plains states, persuaded Washington to authorize “emergency” payments to offset the pending loss of crop price supports.

The predictable result: although Congress reinstated price supports in 2002 to try to end emergency payments, farmers get both.

So, every year since then, billions in price support and other emergency payments are forcibly transferred from ordinary taxpayers’ pockets into farmers’ bank accounts—when it is too wet, when it’s too dry, when crops fail, and when produce prices are too low. Farmers even get money for natural disasters not affecting them, as in 2003, when a nonexistent drought was declared, and 2006, when an earthquake struck Washington state. The old joke about how to starve a farmer—weld his mailbox shut so he can’t collect his government checks—is no laughing matter.

Full article here.

Posted by E. Frank Stephenson at 01:36 PM in Economics

On immigrants c. 1908

Just to prove that there are no "new problems" only "our problems" the May 30, 1908, NYT has a letter to the editor concerning Italian immigrants:

Italians come here to better the condition. They come here in response to demand for their labor. As long as these demands are made they will continue to come, and no missionary work in the world can stop them. Admitting this fact, it is desirable that they should become American in thought and aspiration in the shortest time possible. This can only be done by having them learn about American life and institutions through a knowledge of the English language. The danger Italians run here through the demonstration of the "Black Hand," as pointed out by "An American" [a previous letter writer], would therefore necessarily end, for of course no Americanized Italian would think of paying blackmail to a criminal countryman.

Now, as to this criminal countryman: His presence here is due to inadequate immigration laws rather than to a laxity in enforcing extradition laws. Possibly "An American" will be able to tell his Government how to keep the criminal Italian out; possibly,also, he may have some special ideas as to how the good Italian can be made a useful American citizen without a knowledge of the English language and without a knowledge of American institutions.

Posted by Craig Depken at 11:35 AM in Culture

On Memorial Day c. 1908

Memorial Day 1908 was celebrated on Saturday May 30 (I suppose the labor movement had not yet lobbied for the National holiday). An editorial in the May 30, 1908 NYT shows two things: a) for statists, the 100 years war continues (indeed, with a few victories), and b) how far the editorial page of the New York Times has moved in the past 100 years:

To-day, by National agreement, we remember the dead who gave their lives for the preservation of the Republic and its Constitution, its just laws for every man, the liberty it insures to all alike. Most of the people of this broad land believe that its Government is the wisest and best ever established by man, its institutions the safest. From time to time they may develop obvious defects which must be judiciously corrected; there is nothing perfect in the works of man. But the country since the beginning has been one providing the best chance to the honest, sensible human being to develop body, mind, and soul; a country worth dying for.

A small but vociferous number of our fellow-citizens, scattered in all parts of the country, seem bent on its destruction. They are trying to change it into a huge Socialistic community, in which the chances of individual development shall be restricted, and industry and talent hampered. They demand, insanely, the demolition of the Government, and the substitution for it of a vaguely constituted paternal machine which shall support the incompetent and lazy at the expense of the competent and industrious. They clamor for State insurance against unemployment, accident, and the diseases incidental to old age. They demand the abolition of private ownership in productive property.

If they could have their way the Republic would be destroyed and a tyrannical form of government, with an imperator or dictator at the head, eventually established. That i the lesson of history. Of course, they will not have their way, but they are doing much to unsettle the minds of the young, to stir up the discontented, to check progress. It is well to bear in mind, in to-day's ceremonies, what they are striving to accomplished.

The blood that was shed for the preservation of the Union would be shed in vain would be shed in vain in independence and the right of every man to make his way in the world, so long as he respects his neighbor's rights, were denied under the Stars and Stripes. The heroes of the Union fought and died for the Republic as it is. The people who are crying out for the abolition of the Supreme Court, and of the President's veto power, and the other safeguards of the Nation, can have no sympathy with today's exercises, and no tender regrets for the sacrifices of our National heroes.

Wow!! If there were more editorials like this, I might actually read contemporaneous newspapers. It is a shame that both major parties seem content going down the road many seem to have found troubling 100 years ago.

Cross-posted at Heavy Lifting

Posted by Craig Depken at 11:27 AM in Culture

Graduate Student Sessions at SEA

This announcement arrived in my email today. I participated in one of these sessions a few years ago, and it's a great opportunity to get on the circuit in the early stages of the job market.

A number of sessions at the 2008 conference of the Southern Economic Association, to be held at the Grand Hyatt in Washington, D.C. on November 20-23, 2008 (academic sessions will begin at 8 am on November 21st), are designated as graduate student sessions. These sessions provide an opportunity for graduate students to present their scholarly work, and to receive feedback from members of the organization who hold professional positions. Each southern university with a Ph.D. program in Economics is invited to nominate one advanced graduate student, preferably a student who will be on the job market, to participate in one of the sessions designed for graduate students. The graduate students selected will receive a $100 cash award, complimentary one year membership to the SEA, and the registration fee for attending the conference will be waived. I am writing to encourage you, if you are at an institution that grants a Ph.D. in Economics, to ask your department head or graduate coordinator to nominate a graduate student to participate in this initiative.

The Association recognizes the importance for young scholars to establish a habit of attending professional meetings with the idea of placing their work before an audience of professionals in their field. This experience will provide them with feedback that can sharpen their ideas. Moreover, they will have an opportunity to meet scholars from other institutions interested in their area of research. In addition, at the 2008 SEA conference, graduate students will have the opportunity to observe the presentation styles and ideas of prominent members of the profession by attending the Presidential Address of James D. Gwartney (Florida State University), the Distinguished Guest Lecture featuring Peter Diamond (Massachusetts Institute of Technology), and the Association Lecture delivered by David Laibson (Harvard University).

Please ask your department head to provide me with the name of the graduate student selected to represent your department via e-mail at (GoldsmithA@wlu.edu). In addition, please have the graduate student selected provide me with a word file containing an abstract, 200 words or less, of the paper they plan to present, along with their complete contact information (mailing address, e-mail address, fax and phone numbers) by August 15, 2008--although the earlier the better. For additional information about the 2008 conference, please visit www.southerneconomic.org.

I want to thank you in advance for participating in this initiative and for providing this important opportunity for professional growth for one of your outstanding graduate students.

Art Goldsmith
Graduate Student Program Manager

Posted by Art Carden at 11:21 AM in Misc.

On party pride c. 1908

Something to think about in the current election cycle comes from the May 30, 1908 NYT:

Col. Watterson knows perfectly well that the Republican Party organs regard Mr. Bryan's possible nomination cheerfully. They would like to feel sure of having no stronger man to beat, and have been hopefully predicting his nomination.

The opposition to Bryan's nomination comes from men who have the welfare of the whole Nation at heart, rather than party triumph. They want a strong, sane opposition to the Republican Party. They want the Democratic Party to cleanse itself, hold up its head, and do its duty bravely. They know perfectly well there is no danger of Bryan's election, and so does Col. Watterson.

Posted by Craig Depken at 11:02 AM in Politics

Building Brand Equity: Mike Moffatt's Coasean Bargain

You may recall that we here at DOL get $100 from Mike Moffatt if he doesn't lose 1% of his body fat in the month of June. After careful vote-tallying, it was decided that our $100 would go to co-blogger Michael Munger's Campaign for Governor of North Carolina.

Posted by Art Carden at 09:33 AM in Economics

Public Choice and Bureaucrats

A commenter on MR takes a swipe at Alex and at public choice:

Well, of course you'd sneer. You're a public choicer at GMU.

If you regard humans as nothing more than self-interested utility maximizers, then such claims about the motives and intentions of the Sierra Club are silly.

But we have other social identities besides being consumers. We're also citizens, family members and members of organized religions. These roles/identities can influence our motives and goals.

I think in 50 years we will look back on public choice theory and wonder how so many smart people could have so stupid. The equivalent of vulgar Marxism.

Let's see--one public choice concept is that bureaucrats aren't the selfless public servants as they are often portrayed. Consider these news items:

1. A crane collapsed in NYC this morning causing injuries (perhaps 2 dead according to one news report) and substantial damage. It's the latest of several crane collapses in NYC over the past year or so. One crane inspector has been arrested on charges of fililng false inspection reports--it's not clear why he allegedly filed false reports (napping? taking bribes?). So much for the selfless public servant.

2. An NPR report on the Chinese earthquake:

At the Fuxing primary school Wednesday, funeral music played as parents lined the driveway. Each wore a black armband and carried the photo of a lost child. Their faces were drawn with sleeplessness and grief.

At least 127 students died when the three-story school collapsed. The buildings around the school are largely undamaged — leaving parents angry.

"We parents don't believe our children died in a natural disaster," said Chen Hupei, his eyes red. "It was man-made."

Chen Hupei's 10-year-old son, Chen Xin, who loved roller skating and basketball, died in a ground-floor classroom because he couldn't escape in time.

Another parent tapped the steel rebar in the concrete pillars. The parents believe there was too little steel in the building's structure, that its foundations weren't sunk deep enough and that there were no emergency exits.

"I believe the government meant well when it built this school," Chen said. "But some corrupt officials were saving money to pocket themselves. This school was built in 1989 when the safety guidelines weren't so strict. But it should have been subject to safety checks twice a year, under a law passed two years ago."

One angry parent shouted that none of the buildings fell down as he gestured at surrounding blocks, while following the official around.

Many noticed the town's government buildings were largely undamaged. It is a pattern that has been repeated elsewhere.

That is because China is building its schools on the cheap. Regulations allow a budget of $350 per square meter to build government offices in towns. That compares with the cost of $64 per square meter for schools in one nearby county. Money is at the heart of what went wrong here.

Another parent accused the school authorities of renting out the newer one-story classrooms to a business to make money — moving the children into the older building. The newer classrooms were unscathed. She says that the authorities condemned the children to death.

The parents were also angry with the school's teachers, all of whom escaped the building and fled the scene.

"Look at my hands," one parent says. "I dug through the rubble to look for my children. Then look at the teachers' hands."

Posted by E. Frank Stephenson at 09:27 AM in Economics

Wal-Mart's "Green" Behavior
Ever wonder why that cereal box is only two-thirds full? Foodmakers love big boxes because they serve as billboards on store shelves. Wal-Mart has been working to change that by promising suppliers that their shelf space won't shrink even if their boxes do. As a result, some of its vendors have reengineered their packaging. General Mills' Hamburger Helper is now made with denser pasta shapes, allowing the same amount of food to fit into a 20% smaller box at the same price. The change has saved 890,000 pounds of paper fiber and eliminated 500 trucks from the road, giving General Mills a cushion to absorb some of the rising costs.

Wal-Mart has been going green, but not entirely for the reasons you might think. By sourcing more produce locally - it now sells Wisconsin-grown yellow corn in 56 stores in or near Wisconsin - it is able to cut shipping costs. "We are looking at how to reduce the number of miles our suppliers' trucks travel," says Kohn. Marc Turner, whose Bushwick Potato Co. supplies Wal-Mart stores in the Northeast, says the cost of shipping one truck of spuds from his farm in Maine to local Wal-Mart stores costs less than $1,000, compared with several thousand dollars for a big rig from Idaho.

Two paragraphs of a fine article on Wal-Mart. The profits are bad crowd should take notice that it is the profit motive that is underlies Wal-Mart's green behavior.

Posted by E. Frank Stephenson at 08:55 AM in Economics

May 29, 2008
More gold for your ears

I did a half-hour radio show by phone this week, “It’s Your Money” from Omaha, Nebraska. It's available here (May 25th show) in Real Audio or Windows Media. It’s more or less an audio version of my Cato piece on the gold standard: they asked about the common objections to a gold standard, and I summarized my answers. I come on at about 3:40 into it.

Posted by Lawrence H. White at 03:57 PM in Economics

On Congressional spending c. 1908

The May 29, 1908 NYT reports that Congress, for only the second time in the country's history, has appropriated more than $1 billion (the first time was in 1865).

The first paragraph says a lot:

When Congress packs its carpet bag this week and goes home, it will have established a record for expenditures never reached before in the United States in times of peace.

The same can be said of our current congress.

The article suggests that $1,007,086,569 will have been appropriated by the Congress (plus a little more perhaps). EH.net indicates that total GDP in 1908 was about $30.1 billion (in current dollars). Hence, Congress appropriated about 3% of total GDP. Today, it is closer to 20%.

In 1908, the U.S. Congress appropriated about $11.27 per capita, whereas today it is approximately $6,000 per capita.

In 1908, the U.S. Congress appropriated $391,474,342 for the U.S. Army and Navy (about 40% of the budget and about 1.3% of GDP) whereas today the U.S. government spends less than 5% of GDP and 20-25% of federal spending on the military (five branches rather than two).

The article does provide the totals by appropriation bill (where is such information today?):

  • Urgent deficiency $24,11,805
  • Indian 8,748,687
  • Legislative 32,833,821
  • Army 95,382,247
  • Post Office 224,065,142
  • Pensions 163,053,000
  • Fortifications 9,570,745
  • Agriculture 11,672,106
  • District of Columbia 10,117,669
  • Diplomatic 3,947,539
  • Naval 122,662,716
  • Sundry Civil 112,937,314
  • Military Academy 845,634
  • General deficiency 30,782,848
  • Permanent annual 154,194,296
  • Additional urgent 2,163,500
  • Posted by Craig Depken at 03:10 PM in Politics

    On entry fees c. 1908

    From the May 29, 1908 NYT:

    From now on it will cost more to become a citizen of the United States. Congress passed a bill to-day permitting clerks of courst to charge $4 instead of $1 for receiving and filing a declaration of intention; $3 instead of $2 for docketing the petition, and $3 instead of $2 for entering the final order of citizenship.

    Posted by Craig Depken at 02:49 PM in Economics

    Are you headed to law school? Do you know someone who is?

    If your answer to either or both of these questions is "Yes," then I invite you to learn more about "American Law and Liberty: Structure and History," a one-day course designed primarily for students entering law school this fall and other "pre-law" students, by clicking here. It will be taught -- by yours truly -- on Friday, June 27, from 9:00 a.m. to 4:30 p.m., at the offices of the Alabama Policy Institute, 400 Office Park Circle, Birmingham, Alabama. There's a $25 registration fee -- but that covers lunch and a couple of very useful books, in addition to a fine short course. If you have any questions at all about the program, call me at (205) 726-2434 or email me at medebow [at] samford [dot] edu.

    Thank you for your attention. Here endeth my shameless self-promoting post of the day.

    Posted by Mike DeBow at 01:13 PM in Law

    Research 2.0

    For about the last year and a half, I've used PowerPoint to make research notecards, which can be printed and reorganized. It's fairly convenient, but there are inefficiencies (searching is cumbersome). I just downloaded the new beta version of Evernote, which allows one to create searchable note files that can be synchronized across platforms. If you've used Evernote before and have any comments or suggestions, please pass them along.

    Also, if anyone knows how to do batch uploads to Google Docs, please let me know.

    Posted by Art Carden at 12:44 PM in Economics

    Just a bit outside low

    Mariah Carey's first pitch:

    Not as bad as the Cincinnati Mayor's last year:

    Posted by Robert Lawson at 12:40 PM in Funny Stuff ~ in Sports

    "The earth....plus plastic"

    The infamous stand up comedian, George Carlin, has his own inimitable style of using caustic wit to gain stark insight into the human condition. In a recent act (I couldn't recall or find out when & where, so if anyone knows please email me), Carlin mocks the notion that we can "save the planet." YouTube.com carries it here (warning, lots of expletives!), starting at minute 5:00:

    The planet will be here for a long, long, LONG time after we're gone, and it will heal itself, it will cleanse itself, 'cause that's what it does. It's a self-correcting system. The air and the water will recover, the earth will be renewed, and if it's true that plastic is not degradable, well, the planet will simply incorporate plastic into a new pardigm: the earth...plus plastic.

    The earth doesn't share our prejudice towards plastic. Plastic came out of the earth. The earth probably sees plastic as just another one of its children. Could be the only reason the earth allowed us to be spawned from it in the first place. It wanted plastic for itself. Didn't know how to make it. Needed us. Could be the answer to our age-old egocentric philosophical question, "Why are we here?" Plastic...

    And lo! Some kid in Waterloo just figured out a way for The Earth to degrade plastic bags, in three months! From the May 22 Waterloo Record, "WCI Student Isolates Microbe That Lunches on Plastic Bags"

    Daniel [Burd], a 16-year-old Grade 11 student at Waterloo Collegiate Institute, got the idea for his project from everyday life.

    "Almost every week I have to do chores and when I open the closet door, I have this avalanche of plastic bags falling on top of me," he said. "One day, I got tired of it and I wanted to know what other people are doing with these plastic bags."

    The answer: not much. So he decided to do something himself.

    The full story goes into interesting detail about Burd's experiments and results. The upshot: an inexpensive way to deal with plactic bags instead of banning them along with all their conveniences. The earth...plus plastic, indeed!

    Thanks to Ben Powell and Pierre Lemieux for the pointers--and fun discourse!

    Posted by Edward J. Lopez at 09:32 AM in Economics

    May 28, 2008
    Politics as usual?

    The blatant selling-out of politicians never ceases to amaze me. What is even more amazing is that the electorate seems fairly comfortable with the entire process. The ideal of one-man-one-vote and that average schleps like me might be able to gain access to members of Congress or the executive branch seem far away from today's political antics (perhaps there never was a golden era).

    Today's New York Times reports that the Democratic party is having a hard time "raising" the money for its convention in Denver this August. The term "raising" is a bit of a stretch because it doesn't seem like the party is reaching out to the individual party members but to the corporate bigwigs without even attepting to veil their selling-out:

    Denver’s mayor, John W. Hickenlooper, has suggested that the Democrats’ long nominating battle has distracted potential donors. But, no matter the obstacles, the Denver host committee is aggressively packaging corporate sponsorships that promise corporate executives access to key politicians in return for writing a check to the host committee.

    In addition, the Denver committee is appealing to civic pride.

    Hosting a political convention isn't worth much to the local economy in terms of net new spending. As shown in this paper by Dennis Coates and myself, Houston lost approximately $19 million in taxable activity when it hosted the Republican convention in 1992. This negative net result is not refuted by this study by Baade, Baumann, and Matheson [note: incorrect abstract] which shows that hosting a political convention does nothing for employment, per-capita income, or income growth.

    Thus the appeal to civic pride, the last bastion of the politician who wants to spend other peoples' money to enlarge their own reputation and stature.

    Not to be outdone by the mis-remembering and mis-speaking that the two party candidates seem to engage in on a daily basis, the next paragraph contains a juicy statement by the spokesman for the Denver host committee:

    "This is a historic event for Denver," Mr. Lopez said. "It's the first national convention in the interior West. It gives Denver a chance to demonstrate that it can host a national convention and show that Denver has the wherewithal to raise money and be the place where you want to be."
    Perhaps Mr. Lopez (no relation, I hope to our co-blogger Ed) doesn't consider the 1908 Democrat national convention in Denver to have been a national convention? Perhaps the convention took place so long ago that no-one remembers or should remember?

    My guess is that CNN or Fox or some news network will hearken back to the Denver (19)08 convention to bring up WJB, the platform of the day, and how it relates to contemporary issues. At that point, will anyone remember (or better yet even care) that the spokesman for the Denver hosting committee was so incorrect?

    Posted by Craig Depken at 06:00 PM in Politics

    Sports as the World: Income Inequality Edition

    Thanks to Richard Reinsch here at Liberty Fund for pointing me to an excellent essay by Steven Malanga at Real Clear Markets, "Income Inequality in the NFL." Malanga looked at payrolls in the NFL and found that the highest payroll team last year (Redskins, boooo) paid out $123 million to 59 players and the top quintile of players (basically half the starters) got 63 percent of the total. Other top payroll teams like the Patriots (62%) and Saints (60%) were not much different. Perhaps surprisingly, the lowest payroll team, the football Giants, paid 59 percent to the top quintile. Interesting enough on its own, I think. But Malanga wants to take it somewhere.

    Is this fair? I suppose that depends on your definition of fairness. But by way of comparison, I took a look at how this income structure compares with household incomes in the United States. According to U.S. Census data, the top quintile, or 20 percent of households, captured about 51 percent of total family income, while the second quintile earned about 23 percent off all family income. Together, that amounts to about 74 percent of all household income. In other words, income is actually slightly more concentrated in the NFL than it is within our larger society, and there is a bigger gap between the richest and everyone else in football.

    What makes this so astonishing is that the NFL has all sorts of mechanisms in place that we lack in our general labor market which are supposed to smooth out income inequality. For one thing, the NFL is entirely unionized, and we keep hearing (most recently from Barack Obama) that income inequality in America is in part a function of the decline in unions. The NFL also distributes talent to teams through a draft, which minimizes competition among employers for entry-level workers. No such check on bidding wars for the most talented exists within our general economy. The NFL has a cap on the amount of salaries it allows teams to pay, which presumably acts as a curb on salaries at the top of the wage scale. And players cannot jump to other teams until they have been in the league for four years, meaning that their employment mobility is far more limited than within our labor markets in general.


    Still, it’s not as if the top players are capturing all of the rewards of the growth in professional sports, to the exclusion of everyone else. As MLB and especially the NFL have cashed in over the years, everyone’s share has grown. The total payroll of the Washington Redskins has doubled in the past five years. While the top players (who’ve changed over time) got a chunk of that gain, the median salary on the team also increased 85 percent to $855,000.

    Something similar is going on in the rest of society, where the premium paid for talent has been rising, pushing up salaries fastest among those at the top even as everyone gains.

    He goes on to discuss the returns to developing human capital through education.

    Couple of points. First, we have much thinner markets in pro sports than in life, so you'd expect greater variance in abilities. Second, human capital in sports is far more connected to physical endowment and dedication to training, not so much to education as in the world. Third, it's not clear what teams are maximizing in a given season, wins or revenues (exhibit a: trading Pau Gasol for Kwame Brown). My former colleagues Todd Jewell and Dave Molina have a couple of papers showing that MLB teams with greater payroll inequality don't win as much. Finally, income inequality in the world is far less than the Census data show, after adjusting for taxes & transfers, household size, and hours worked (Heritage study here).

    Even so, it's a really interesting article, and a great example of how the economics of sports is an important window through which to view the world.

    Posted by Edward J. Lopez at 05:03 PM in Economics

    Government is a Force That Gives us Meaning

    David Boaz's article in today's Wall Street Journal on the Presidential Candidates' exhortations to "collective service" (?!) has already made the rounds on the blogosphere. Arnold Kling weighs in here. Here's Will Wilkinson on the insufficiency of "meaning" as a criterion for indulgence.

    I want to add a couple of points. First, it's ironic that mutli-millionaire politicians like Obama and McCain are tut-tutting us for our alleged devotion to unrighteous mammon. Second, I borrow here a meme from co-blogger Wilson Mixon and ask whether it is better to feel good than to do good. Are the candidates interested in outcomes, or is it the sacrifice per se that is important? Comments are open until I get spammed with the first offer for porn, mortgage refinancing, or no-limit Texas Hold 'em.

    Posted by Art Carden at 04:03 PM in Politics  ·  Comments (2)

    Baptists, Bootleggers & Horrid History

    From The Economist's review of "Fatal Misconception" by Michael Connelly (Harvard University Press):

    All too easily arrogance slides into inhumanity. Much of the evil done in the name of slowing population growth had its roots in an uneasy coalition between feminists, humanitarians and environmentalists, who wished to help the unwillingly fecund, and the racists, eugenicists and militarists who wished to see particular patterns of reproduction, regardless of the desires of those involved. The first group knew perfectly well that economic development, education and rights for women were very effective in reducing birth rates. But the second regarded promoting these ends as too slow and expensive. And even suggesting them risked shattering the coalition: among the hardliners were many who found the tendency of educated women to have fewer children almost as problematic as that of uneducated ones to breed prolifically.

    As the world population soared, the population controllers came to believe they were fighting a war, and there would be collateral damage. Millions of intra-uterine contraceptive devices were exported to poor countries although they were known to cause infections and sterility. “Perhaps the individual patient is expendable in the general scheme of things,” said a participant at a conference on the devices organised in 1962 by the Population Council, a research institute founded by John D. Rockefeller, “particularly if the infection she acquires is sterilising but not lethal.” In 1969 Robert McNamara, then president of the World Bank, said he was reluctant to finance health care “unless it was very strictly related to population control, because usually health facilities contributed to the decline of the death rate, and thereby to the population explosion.”


    Mr Connelly's most devastating critique of population control is not that it destroyed lives, or was based on imperialist or eugenic ideas, but that it did not work. In country after country—even in China—birth rates were already falling when the government began implementing more coercive policies. Furthermore, statistical estimates suggest that as much as 90% of the reason that women have families of a particular size is simply because that is the number of children they want.

    I disagree with the view that the most devastating critique is that population control policies didn't work, but the review is most compelling and quite well done.

    Posted by Wilson Mixon at 10:56 AM in Politics

    Teen Employment Letter in Today's WSJ

    Yours truly in today's WSJ:

    Your Weekend Journal article "My Virtual Summer Job" (May 16) blames declining teen employment on "a downward trend made worse this year by the faltering economy." Maybe so. Or maybe the reduction in teen employment is caused by the other side of the market -- the demand side -- as increasingly affluent teens and their families forgo summer jobs. Instead of bemoaning that "only about a third of teenagers are expected to work this summer," you might consider the pleasant possibility that two-thirds of teens now have the option of traveling, attending camps, or merely relaxing during their summers.

    E. Frank Stephenson
    Department of Economics
    Berry College
    Mount Berry, Ga.

    A footnote: Although we eco geeks normally think of firms as the demand side of the labor market and workers as the supply side, the article I was responding to focused on firms supplying jobs thereby making it sensible for me to write about teens as demanders of jobs.

    Posted by E. Frank Stephenson at 12:05 AM in Economics

    May 27, 2008
    Drip: Baby "Travel Systems"

    We expect Jacob Henry Carden to join us on the outside sometime around August 8. Paternity has given me cause to think about things in a new way, from great inventions to historical economic demography. One significant change in standards of living that would only be crudely captured in per-capita income concerns maternal and infant wellbeing: infant and maternal mortality are both fractions of fractions of what they were in 1900.

    Yesterday, I spent part of the afternoon and evening unpacking and assembling a "travel system" that my mother-in-law was kind enough to get for us. This is a combination stroller and car seat that is assembled by a series of interlocking pieces. It was relatively easy to put together, even though I am very mechanically challenged. It isn't an earth-shaking product, but it illustrates a meme I've been meaning to start for a while: it's another drop in what Don Boudreaux called "the prosperity pool." By itself, it might only lead to marginal increases in comfort or convenience, though I suspect these are not so marginal when compared to William H. Richardson's baby carriage that he patented in 1889. But when you add this to other drops in the pool, you end up with something rather substantial.

    Posted by Art Carden at 03:26 PM in Economics

    May 26, 2008
    Supply of dog catchers c. 1908

    An interesting story concerning man's best friend from the May 23, 1908 NYT:

    Before the arrival of President Roosevelt at Oyster Bay, L.I., for the summer, every stray dog in Oyster Bay, Locust Valle, Mill Neck, Glen Cove, Sea Cliff, and East Norwich is to be killed. There has never been before been any effort to rid these villages of stray curs. Nobody wanted the job of dog catcher at 25 cents a head, and the constables turned up their official noses at the suggestion thatthey should kill the dogs.

    All this is changed now, however. The Town Board is offering $2 a piece for all dogs killed. A dog catcher is to be appointed in each of the fourteen election districts, and men are said to be tumbling over one another to get the jobs.

    Labor supply curves are typically upward sloping, at least for a range of wages. In 2006 dollars, each dead dog had increased in value from $5.65 to $45.20. We don't receive any information on the number of dogs to be killed nor the number of people who are volunteering to be a dog catcher, but if the supply of labor was unitary elastic, one might expect a lot of dogs killed in the next few days: a 700% increase to be exact.

    The dramatic increase in the price of each dead dog might have created a perverse incentive to find "strays" that weren't really strays. For instance, perhaps a dog that wanders off their owner's property by only a few feet immediately becomes a stray. If killed, turned in for the bounty, and immediately (or nearly immediately) destroyed, what recourse would the original owner of the dog have? It would seem difficult for the owner to prove anything.

    Similar perverse incentives seem endemic to any "buy back" program, whether stray dogs, hand guns; indeed, anything deemed "bad" by the government/society. Buy-backs often have good intentions, but not every instance of whatever is being "bought back" is a negative situation, however, high enough prices would seem to encourage at least some to see a "good" situation turn into a "bad" situation. I wonder if anyone is familiar with evidence from gun buy-back programs that when initiated gun thefts increase?

    Posted by Craig Depken at 02:10 PM in Economics  ·  Comments (1)

    May 25, 2008
    Bootleggers, Baptists, and Liquor Store Owners, Part Deux

    Yours truly in the AJC (background here):

    Explaining his lobbying against Sunday alcohol sales, liquor store owner Richard Tucker complains that "It's not a level playing field between [liquor stores] and the grocery stores and convenience stores. ... Many are already open 24 hours a day. They have a lot of items to sell. We just have one —- alcohol."

    Poor thing. Instead of crying over his beer and competing via government rather than the marketplace, Tucker might consider expanding his product line to include groceries, Beanie Babies or whatever else might float his boat.



    Posted by E. Frank Stephenson at 01:48 PM in Economics

    May 24, 2008
    Smashing the state radio monopoly

    Richard Cockett’s 1994 book Thinking the Unthinkable: Think-Tanks and the Economic Counter-Revolution, 1931-1983, is a history of the UK battle of ideas centered on the role of the Institute for Economic Affairs. I already knew the broad outlines of the story, but the book is filled with novel tidbits. Like this one (p. 126): Oliver Smedley, the co-founder of the IEA with Antony Fisher, also “acquired a measure of popular acclaim as the man who broke the monopoly of the state-run BBC over the airwaves when he founded Radio Caroline. Less well known was the fact that he regarded the offshore transmitter as the last bastion of freedom if the country finally went Communist.”

    Radio Caroline’s web page tells a slightly different version of Smedley’s role in its history.

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

    May 23, 2008
    "Nothing but Misogynists"

    A fine offering from Don Boudreaux. There's magic in his keyboard!

    Posted by E. Frank Stephenson at 10:51 PM

    Happy Feet
    The St. Paul Saints will give away 2,500 "bobble foot" dolls before Sunday's game at Midway Stadium.

    The baseball team says the promotion, which coincides with National Tap Dance Day, is "in tribute to all their toe-tapping friends and fans from around the nation who may ever have set foot in Minneapolis-St. Paul… even for just a change of planes. The one-of-a-kind collector’s item depicts a restroom stall and a bobble foot peaking out from underneath."


    Posted by E. Frank Stephenson at 07:51 PM in Sports

    Oil Potpourri

    My apologies for being a bit scattered, but this genuinely frightens me. Greg Mankiw quotes from the New York Times writeup of the federal saber-rattling about oil.

    Then a friend sends me this clip from Fox News in which Maxine Waters suggests possible future support for nationalizing the oil industry. A previous post on gas prices is available here. Exxon-Mobil's profits are very high, but their profit margins are not excessive relative to the rest of the market.

    Here is Bryan Caplan's defense of Hillary Clinton's proposal to suspend the gas tax. One of his main takeaway points was that even though economists know it won't reduce the at-the-pump price of oil, it might crowd out even worse policies. To the extent that the gas tax is too high relative to what would be socially optimal (more on that later), reducing the gas tax could be efficiency-improving even if it doesn't reduce gas prices.

    Posted by Art Carden at 06:33 PM in Economics

    Another Rent-Seeking _______

    Over the past few weeks, I've posted on domestic clothes hanger makers using political competition (aka the Commerce Department's antidumping investigations) rather than the market process (most recent here--it has links to earlier posts).

    Today's WSJ (sub req) profiles a domestic tire manufacturer following the same strategy:

    Leading the charge against Chinese tires is Maurice "Morry" Taylor Jr., one-time Republican presidential candidate, co-author of the book "Kill All the Lawyers and Other Ways to Fix the Government" and chief executive of tire maker Titan International Inc.

    But rather than targeting Chinese producers, Mr. Taylor's latest crusade has evolved into a battle between him and GPX International Tire Corp, a Malden, Mass.-based tire manufacturer and importer.

    In a petition filed with the Commerce Department and the International Trade Commission, Mr. Taylor accuses GPX and other importers of dumping tires subsidized by the Chinese government.

    Posted by E. Frank Stephenson at 04:28 PM in Economics

    Verbing Weirds Language*

    Regarding my earlier post about "thinkiness," co-blogger Bob sent me an email about one of Hayek's favorite words, "scientistic," which is not in the Urban Dictionary. The Urban Dictionary is a slang dictionary that strikes me as an opportunity for armchair lexicographers to have their voice. I checked and "scientistic" does have definitions in the unabridged Merriam-Webster dictionary, www.dictionary.com, and the OED.

    *--Do you know the reference?

    For your weekend enjoyment, here's a fascinating TED talk by lexicographer Erin McKean entitled "Redefining the Dictionary."

    Posted by Art Carden at 03:53 PM in Culture

    On white overalls c. 1908

    Regulation often takes bizarre forms. The May 23, 1908 NYT has an example:

    The orders issued by the Board of Health of New York City, requiring that all persons who milk cows must wear white duck overalls and jackets, otherwise the milk will not be allowed to enter New York, has placed the majority of the milk producers in a predicament.
    We'll get to the predicament in a second, but why white overalls? Was white considered more hygienic or was the thinking that white overalls would make it easier for an inspector to determine if a worker was despoiled by cow poop? Interest group theory would predict that a lobbyist who made white overalls manipulated the regulation at the expense of her competitors who made yellow overalls or blue overalls.

    But what is the predicament in which the dairy farmers find themselves? Pesky humans who don't necessarily want to do what the Board of Health says:

    Much of the milking has heretofore been done by the wives and daughters of farmers all of whom declare they will never don the overalls. The farmers think they cannot afford to dispense with their female help, and they are at a loss to know what to do.
    In the short run, the farmers are in a pickle if their help won't work because of exogenously mandated regulations. In the medium run, the dairy farmers could hire replacement workers - the wages paid might be higher than a farmer might have paid his wife or daughter, but the hired help might be more productive (as pointed out this little-cited article). In the long run, if mom and daughter refuse to wear white overalls, and the hired help is proving too expensive, then technology would (and did) advance to provide a reasonable substitute for labor.

    I don't pretend that white overalls led to the technological change that would eventually displace mom and daughter from their milking pails (which in itself was probably not a bad thing, not withstanding the protestations of some). However, blind bureaucracy passing mandates from above might well have such perverse effects: witness the outcomes of No Child Left Behind, Americans with Disabilities Act, our current ethanol mandate, and watch out for the "2008 farm bill" which is without-any-concept-of-irony formally called "The Food, Conservation, and Energy Act of 2008."

    Posted by Craig Depken at 12:30 PM in Economics

    Quick Hits

    1. Matt Ryan and I sniffed around some MLB game data looking for interesting trends about extra inning games. The basic idea is that some moves that a manager might undertake to win an extra inning game could reduce the likelihood of winning the team's next game. Indeed, it looks like teams are less likely to play an extra inning game if they have a game (instead of an off day) the next day. Matt provides details. BTW, Matt's going to be on the market next year; he's a clever and collegial guy who'd be a nice addition to a department.

    2. Demand curves are downward sloping: Driving in the US becomes a luxury.

    3. The proposed area of oil drilling in ANWR is 1/13 the size of Berry College; Mark Perry has nifty graphics. BTW, the offer still stands for Mankiw to locate Harvard South on our back forty.

    4. My reading list just got longer--Russell Roberts has a new book out this summer. I've used his previous books The Choice and The Invisible Heart in class; the description makes me think this one will also make its way into my classes.

    5. Our mediocre president gets so few things right it's worth pointing out that his veto of the farm bill is spot on. My congressman, who proclaims "[h]e is committed to lowering taxes for hardworking Georgians and protecting the traditional values so important to Northwest Georgia," voted for it. Grrrrr.

    6. Great moments in government schooling: State throws out CRCT results.

    7. For kicks and giggles: Suspect to police: I drive with pants down and Clayton Co. teen accused of biting butts at Wal-Mart

    Posted by E. Frank Stephenson at 09:37 AM in Misc.

    May 22, 2008
    High School rankings

    Newsweek's new ranking of 1300 public high schools is out. The school district we're leaving, Bexley, Ohio, came in 404, but the one we're moving to, Auburn, AL, came in 369 so that's good I guess. The rankings are based solely on the percentage of graduating seniors taking AP or IB exams.

    Needless to say, not everyone is happy with the simple Newsweek methodology. US News has a ranking based on a more complicated formula created by SchoolMatters.

    The advantage of the Newsweek methodology is that AP and IB exams are the same nationwide while just about all other data are not comparable across states. The US News rankings plow ahead despite the comparability issues looking at state test scores primarily and placing greater emphasis on the relative performance of disadvantaged and minority students.*

    Anyway in the US News report, Bexley High made the cut with a "silver medal" but, Auburn High was left out in the cold, so that's not so good. I suspect the reason is that Bexley has very few of disadvantaged and minority students (just 5% qualify for federally subsidized lunches), and the ones it has do relatively well. Auburn, in contrast has a more diverse student body with more disadvantaged and minority students (25% qualify for subsidized lunches), many of whom one may presume don't do that well on state tests.

    From my point of view, as a parent of a non-disadvantaged, non-minority student, I suspect Auburn will serve our needs quite well with lots of AP opportunities and participation opportunities in the IB program.

    As you might guess, unlike many commenters on these rankings, I think it's better to measure badly than not to measure at all. Bad measurements at least start the conversation and overtime can lead to calls for better measurements.

    My own alma mater was on neither list.

    *I must note that SchoolMatters' own Compare Schools utility won't compare schools from different states "because most states use a unique test to measure student performance."

    Posted by Robert Lawson at 12:01 PM in Misc.

    Thinkiness: Adding to the Spontaneous Order

    A few weeks ago I started using the term "thinkiness." In academia, one might say that something is very "thinky" if it is heavy on big ideas but light on precision. It's a quality I'm trying to expunge from my own work. I googled it this morning to see if there was a commonly accepted definition. Google helps us find out that there is indeed nothing new under the sun: I got 1100 hits, but couldn't find a clear definition after scanning a few entries. There was no entry at urbandictionary.com, so I proposed the following, which is under review by their editors:

    noun. The appearance of careful consideration, importance, substance, or profundity while lacking each.

    Adjective: thinky.

    cf. truthiness [NB: "truthiness" was Merriam-Webster's 2006 Word of the Year]
    1. The book was a masterpiece of thinkiness: there were a lot of big ideas, but it wasn't at all clear what the author was actually saying.

    2. The ideas here are half-baked; cut down on the thinkiness and try to increase the substance.

    etymology: 1100 hits in a Google search conducted on May 22, 2008, no immediate definition proposed.

    Posted by Art Carden at 10:16 AM in Culture

    May 21, 2008
    Cross-Price Elasticity of Demand: Mule Edition

    A news item:

    MCMINNVILLE, Tenn. (AP) - High gas prices have driven a Warren County farmer and his sons to hitch a tractor rake to a pair of mules to gather hay from their fields. T.R. Raymond bought Dolly and Molly at the Dixon mule sale last year. Son Danny Raymond trained them and also modified the tractor rake so the mules could pull it.
    Posted by E. Frank Stephenson at 09:02 PM in Economics

    Another non-magic bullet

    Anyone who knows much about any energy source knows that source won't provide massive amounts of energy without attendant potential for environmental damage. Now it's biofuels. As the New York Times reports:

    “Some of the most commonly recommended species for biofuels production are also major invasive alien species,” the paper says, adding that these crops should be studied more thoroughly before being cultivated in new areas.

    Controlling the spread of such plants could prove difficult, the experts said, producing “greater financial losses than gains.” The International Union for Conservation of Nature encapsulated the message like this: “Don’t let invasive biofuel crops attack your country.”

    To reach their conclusions, the scientists compared the list of the most popular second-generation biofuels with the list of invasive species and found an alarming degree of overlap. They said little evaluation of risk had occurred before planting.

    “With biofuels, there’s always a hurry,” said Geoffrey Howard, an invasive species expert with the International Union for Conservation of Nature. “Plantations are started by investors, often from the U.S. or Europe, so they are eager to generate biofuels within a couple of years and also, as you might guess, they don’t want a negative assessment.”

    Of course, fears are often overstated:

    The biofuels industry said the risk of those crops morphing into weed problems is overstated, noting that proposed biofuel crops, while they have some potential to become weeds, are not plants that inevitably turn invasive.

    “There are very few plants that are ‘weeds,’ full stop,” said Willy De Greef, incoming secretary general of EuropaBio, an industry group. “You have to look at the biology of the plant and the environment where you’re introducing it and ask, are there worry points here?” He said that biofuel farmers would inevitably introduce new crops carefully because they would not want growth they could not control.

    HT NCPA Digest

    Posted by Wilson Mixon at 12:56 PM in Economics

    On party politics c. 1908

    On May 20, 1908, a number of state Democratic conventions were held. The majority of delegates instructed on that day were for Bryan. However, the May 21, 1908 NYT has an amazing piece of writing that is as relevant today as it was yesterday (and that is unfortunate):

    Intimating that the system of party government in this country is threatened with disintegration by the progress of intelligence and free thought in themselves, and declaring that already there are signs of its demoralization by the gathering independent forces outside of the party organization, Goldwin Smith, the English scholar, has written from his home in Toronto to students at Cornell bidding them to take a careful study of present conditions, with a view of determining for themselves that party government and parties are not the best means for the welfare of the state.
    The first paragraph already asks a lot of the reader. How many college students today have been asked or, better yet, thought to ask themselves if party politics is the best way? My guess is very few. As for why the parties still exist 100 years later with barely any viable competition? Perhaps one way to continue party dominance is to retard the progress of intelligence and free thought? It worked (for a while) in Soviet Russia and elsewhere.

    Smith goes on to describe the forthcoming presidential campaign:

    "But in a few weeks Democrats and Republicans will be organizing a political war against each other in a spirit hardly less bellicose than that of actual warfare, with arsenals full of political projectiles on both sides; while the community will be inflamed; intrigue, and perhaps not a little corruption of different kinds, will be at work, and the press on both sides will be blowing the trumpets with more regard to effect than truth.
    The only difference today is that there is an Orwellian feel of "ongoing war" in today's politics, although there was a similar if less ubiquitous banter in the early 1900s.

    Smith then asks the important question that many "independents" may have already answered:

    Is this an institution in which a Nation can forever acquiesce? Are there not symptoms or signs of a change already in the shape of independent forces gathering outside the regular organizations and threatening to disorganize them in time? will not the progress of intelligence and free thought of themselves bring disintegrations?"
    While the parties might have faced competition, Teddy Roosevelt will run a third-party campaign in the next election (1912), economic theory would predict that they would use the power of the government to protect their duopoly (joint monopoly) status, which indeed it seems they have. The parties have raised the costs of potential rivals, directly and indirectly, that the possibility of a legitimate third party competitor is unlikely.

    Smith finishes by providing a bit of U.S. history concerning parties:

    "It is needless to say that nothing like this was contemplated by the framers of your [U.S.] Constitution. Washington sought, by putting Hamilton and Jefferson together in his Administration, to stifle partyism in its birth. The present intensity of party perhaps hardly antedates the Jacksonian era.

    "You see to what party has come in England. What is called the Liberal Party is made up of motley and discordant elements - Liberals, Radicals, Laborites, Socialists, and Irish Home Rulers - combined to hold possession of the Government and tampering with vital interests for that purpose."

    Indeed, how many "motley and discordant elements" comprise every party today? However, the interesting point Smith offers is that parties necessarily cobble together a coalition but each member has to sacrifice "vital interests" to do so. In cartel theory, economists propose that a cartel member might voluntarily sacrifice some sovereignty for a chance at higher profits. Without sufficient monitoring of behavior and enforcement against cheating against the cartel, solidarity is hard to maintain.

    Political parties would seem to have a similar problem. It is difficult to monitor certain behaviors, such as voting in secret ballots. However, one thing the party has over the private cartel is the ability to tax and bribe those "discordant elements" to maintain solidarity.

    Posted by Craig Depken at 10:45 AM in Politics

    May 20, 2008
    Delegate dilemma c. 1908

    Just so that we know that delegate allocation has been a problem in the past, the May 20, 1908 NYT reports on possible shenanigans in Pennsylvania:

    The Democratic State Convention, which meets here to-morrow, promises to be one of the warmest in the recent history of that party. The fight, which has divided the Democracy of the State, is on the question of whether the convention shall send the four delegates at large to the National Convention under binding instructions to vote for William J. Bryan or whether they shall go to Denver unfettered.

    Col. James M. Guffey of Pittsburg, State leader and the National committeeman, to-night was positive that the convention will not instruct the delegates. He said that he and his followers would control the convention two to one. The Bryanites assert that they will have a safe majority and that the delegates will go to Denver under instructions. The Executive Committee to-day formally ratified Col. Guffey's choice for temporary chairman. The fight will be precipitated over the selection of the permanent Chairman.

    This is amazing.

    Democrats go to Denver in 1908 and 2008. Delegate dilemmas abound in 1908 and 2008. However, if these dilemmas were truly problematic in picking a candidate, the party would have revamped the way it chooses delegates. However, because the same dilemmas persist 100 years later, it must be that someone benefits from the confusion and wiggle-room. I'd presume it's the party insiders.

    The headline of the 1908 NYT story reads:

    "Both Bryanites and Their Foes Claim Victory in To-day's Convention."

    "Headlines" from the May 20, 2008 Drudge Report:

    DECLARE, IF YOU DARE... [Hillary referring to Obama]

    Obama seeks delegate majority in Ore., Ky. primaries...



    At least they could try to be original in their disputes, but alas...

    Posted by Craig Depken at 05:16 PM in Politics

    Kentucky endorsement c. 1908

    Interesting enough, May 19, 1908, was the day the Kentucky state Democratic "decided" to go for William Jennings Bryan for the 1908 Presidential election. From the May 20, 1908 NYT:

    Kentucky's Democratic Central Committee met here [Frankfort, KY] today and decided to hold the state convention at Lexington on June 11. A resolution indorsing [sic] William Jennings Bryan for the Presidential nomination was adopted.
    One hundred years later, which of the contending Democratic candidates is most like WJB? Comments open for a day or two.

    Posted by Craig Depken at 05:05 PM in Politics  ·  Comments (3)

    May 19, 2008
    John McCain: True Anti-federalist

    John McCain dishes it dry on "Saturday Night Live". Speaking out against porkbarrell spending, he says:

    Most of these projects are at best unnecessary... [Such as] $160,000,000 to the Department of Defense for developing a device that can jam gaydar. [laughter] Now, I don't know if this is anti-gay or pro-gay or if such a device would even work. But I do know this. Jamming gaydar is not a federal responsibility. That's something best left to state and local governments.

    Posted by Edward J. Lopez at 10:49 AM in Funny Stuff

    Good ole QWERTY

    The co-CEO of RIM (maker of Blackberry), Mike Lazaridis, says the most exciting trend in mobile phones is...

    Full Qwerty keyboards. I'm sorry, it really is. I'm not making this up. People are running out of their two-year contracts and they're coming into the stores and they want to be able to do Facebook and they want to be able to do instant messaging and they want to be able to do e-mail and they ask for those features thinking that they're going to get another flip phone and they're walking out with a (BlackBerry) Curve or a Pearl because they're the best devices for doing those kinds of activities. And so what is the defining factor? The keyboard.

    Hmm. Wonder why not the Dvorak layout? Because it's not any better.

    Posted by Edward J. Lopez at 10:23 AM in Economics

    Cross-Price Elasticity of Demand: Gas Cap Lock Edition

    From "Marketplace":

    Sales over the last few months have just been growing like crazy for locking gas caps. As gas prices go up, sales go up.

    Hoffman says sales are almost three times what they were a year ago. So maybe somebody is happy that the national average for a gallon of gas is now almost $3.78.

    Here's an AJC story about three men arrested siphoning gas.

    Posted by E. Frank Stephenson at 09:35 AM in Economics

    Sob Story

    The Chronicle of Higher Ed has a story about deferred maintenance at colleges. The teaser just below the link to the story laments:

    Public colleges compete with other state agencies when making their case for maintenance money.

    How awful--public colleges having to compete with other state agencies for funding. Private colleges have to compete with public colleges that get taxpayer provided funding.

    Posted by E. Frank Stephenson at 08:49 AM in Misc.

    Cross-Price Elasticity of Demand: Scooter Edition

    From today's RN-T:

    The price of gas is $3.75 a gallon and rising. The convenience of pay at the pump, buckle up and go has left most dragging. The high cost of gasoline is stressful, but local scooter and motorcycle owners are trying to leave those gas guzzling ways behind them.

    Jaime Maddox, 28, a medical assistant at Rome Family Dermatology and mother of two, is not your ordinary biker. She had never owned or ridden a two-wheel motorized vehicle before getting her scooter.

    Road safety is a big concern for first-timer Jaime. However, saving money is a bigger concern for the Maddox family.

    Her husband, Chad Maddox, makes an 80-mile round trip commute to Dalton [so] Jaime and her husband made an economical decision to downsize.

    She recently purchased a red Suzuki Burgman 400, with an electric starter and automatic transmission, which gets 70 mpg. She is able to fill her tank for about $14.

    Her main vehicle is a 2007 Chevy Trailblazer, which takes $73 to fill up and usually is refilled once a week.

    Rebecca Arendt, general manager of Honda and Suzuki Sales, estimates motorcycle and scooter sales will rise this year about 15 percent.

    John Cummings, owner of Easy Living Yamaha, estimates a 7 percent increase in scooter sales since last year.

    Posted by E. Frank Stephenson at 08:13 AM in Economics

    May 18, 2008
    Bootleggers, Baptists, and Liquor Store Owners

    From the AJC:

    The Christian Right and Gov. Sonny Perdue get credit for killing a bill to allow Sunday sales of packaged alcohol again this year, but lobbyists and lawmakers say credit also goes to a surprising opponent: a Gwinnett County liquor store owner.

    For two years in a row, they say, Richard Tucker, co-owner of Suwanee's Beverage SuperStore and chairman of the Gwinnett County Convention and Visitors Bureau, has worked behind the scenes to stop legislation that would have let voters decide whether beer, wine and liquor should be sold in stores on Sundays.

    It seems counter-intuitive: Wouldn't a liquor store owner want more days to sell booze? But Tucker and some other liquor store owners say opening another day probably would cost them more in payroll and overhead than they would bring in at the cash register. Meanwhile, other retailers already open on Sundays would just rack up more revenue, they say.

    "We're a small business," said Tucker, whose store advertises itself on the Internet as "North Georgia's Largest Volume Spirits Retailer."

    "It's not a level playing field between [liquor stores] and the grocery stores and convenience stores," Tucker said. "Many are already open 24 hours a day. They have a lot of items to sell. We just have one — alcohol."

    Poor thing. Boo hoo. And if he thinks he has it so bad by only having alcohol to sell then he should expand his product line. There's no law against him selling groceries, beach towels, or whatever floats his boat.

    Posted by E. Frank Stephenson at 10:39 PM in Economics

    May 16, 2008
    Remember shutting down the horse slaughterhouses?

    An op-ed piece in BEEF/Cow Weekly by Troy Marshall concerning the lack of horse slaughtering in the United States:

    The banning of horse slaughter in the U.S. was one of those emotional ideas everyone agreed with initially and that rather handily passed into law. Unfortunately, the experts were right. Since the nation’s three horse-slaughter plants were closed by the pulling of federal inspection services last year, horse prices have fallen throughout the system, and neglect has skyrocketed as people have no way of disposing of unwanted animals.

    This week, the Livestock Marketing Association (LMA), as part of its legislative efforts, called on members of Congress to change the law. LMA President Jim Santomaso said the industry is seeing “more and more reports of abandoned horses, and of horses turned out and left to starve, because owners can’t afford their upkeep, or have the means to properly dispose of them.” Santomaso, the operator of a Sterling, CO market, said LMA members report that horses are being left at their facilities when they don’t sell, “because their owners don’t want them back.”

    Of course, the Humane Society of the U.S. looks to take the suffering even further, seeking legislation that would also ban the transport of horses to outside countries for slaughter. I suppose a bright side to all this is that the “wild” horse population stands to get a big new infusion of genetics, as people increasingly turn horses they can’t care for out onto public lands.

    It turns out I predicted much the same thing back in September 2005. The author claims that shutting down the slaughterhouses led to unintended consequences. Perhaps. However, I wonder if the consequences are intentional precisely because the sometimes bad treatement of domesticated horses after the slaughterhouses were shut down might make it easier to ban the private ownership of horses.

    Posted by Craig Depken at 05:24 PM in Economics

    I, Pencil Skirt

    The Fashion & Style section of the New York Times has a recent story, "Tightening the Belt: Is This The World's Cheapest Dress?" The article tells the remarkable story of Steve & Barry's, a rapidly growing chain of clothing stores where all items sell for $10 or less. The article proclaims,

    Fashion has surpassed music...as the retail touchstone of youth. And cheap fashion has become infinitely more respectable, even cool...

    It helps that Steve & Barry's has teamed up with celebrity figureheads like Sarah Jessica Parker, Stephon Marbury, Amanda Bynes, and Venus Williams. The article also details many of the ways that the company obsessively cuts costs. The management philosophy is captured pithily by mantras like "fashion isn't luxury" and by focal points such as under pricing Wal-Mart. The article quotes co-founder Steve Shore:

    “To be great, you have to have these ridiculous, insane prices, and not sacrifice quality,” Mr. Shore said. “The question we constantly ask ourselves is how to hit the price point that even Wal-Mart is not hitting.”

    Okay, first of all I hate when people say price point. It's price, people. Just price! But second, I want to gush a bit and say that I admire and applaud these entrepreneurs. I can also vouch for the quality of their products. My favorite jeans the past two years have been a $10 pair of Steve & Barry denims that I've probably washed 50 times and they're still good to go. (My wife also bought me a S&B cotton shirt, thick and comfortable, emblazoned with "DORK" across the front.)

    I also think the Times article gives us a chance to appreciate--and even admire and applaud--the spontaneous order of the market process. I say "gives us a chance" because the article focuses too much on Steve & Barry's own cost-cutting techniques and not enough on the market contexts within which the company works. These entrepreneurs aren't doing this alone. In fact, they don't even know how to make an $8.98 dress--because no one does. They're succeeding first because of the coordinating functions of market prices--especially, in this case, prices of factor inputs--and secondly because of their own entrepreneurial efforts. Steve & Barry's isn't just using low prices as an effective marketing strategy; they are guided by prices to make all their management and production decisions.

    In a famous passage of his 1922 treatise Socialism: An Economic and Sociological Analysis, Mises explains that the price system (pp.100-1):

    provides a guide amid the bewildering throng of economic possibilities. It enables us to extend judgements of value which apply directly only to consumption goods--or at best to production goods of the lowest order--to all goods of higher orders. Without it, all production by lengthy and roundabout processes would be so many steps in the dark.

    Hayek further analyzes the coordinating role of prices. Prices are incentives to make sound decisions with scarce resources, yes. A market price is also an encapsulation of all the bits of local and time specific, often contradictory, knowledge about relative values that is dispersed among the innumerable individuals in the market. No other "mechanism" aggregates dispersed value information as well as the competitive price system. Entrepreneurs discover profit opportunities by comparing prices across time and space, and looking for ways to arbitrage or innovate. As Hayek showed in his famous articles on economics and knowledge, thinking about markets in this way fundamentally shifts the types of questions that are important to ask. "Is this the world's cheapest dress?" Obviously not, and that's not even the interesting question. But the Times writer does get the question right. Quoting the founders of Steve & Barry's:

    “There’s been a revolution, a full-blown revolution,” Mr. Shore said, sounding, at times, just a bit like Crazy Eddie. “We just haven’t told anyone yet. If the Gap or Abercrombie & Fitch or J. Crew said that everything in the store is going to be $8.98 or less, it would be front-page news. But while no one was noticing, we opened stores across the country that have identical clothes for much lower prices.”

    The question, again, is how.

    Good question. Coverage like this helps us see the remarkable new economic reality that is affordable--i.e., marketized--fashion. But it serves us well to understand that its cause is not random, nor is marketized fashion due to a single visionary company. Instead it emerges by the coordination of innumerable dispersed entrepreneurs making the best use of their specialized knowledge under the incentive-guides of competitive market prices. Friend Steve Horwitz at The Austrian Economists states it another way (and provides, in the rest of his post, some theory for context):

    We cannot understand spontaneous order without entrepreneurship and monetary calculation, and a focus only on intentional human action misses the ways in which such action produces the unintended but orderly outcomes that are the benefits produced by markets.

    In 1850 Frederic Bastiat aptly noted the spontaneous order by which Paris gets fed. In the new world of marketized fashion, Paris gets clothed too. (On this, also see my previous post on the relationship between abstract and specific in fashion.)

    Posted by Edward J. Lopez at 08:41 AM in Economics

    May 15, 2008
    Something I've Known All Along ...

    ... Miller beer is an inferior good:

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

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

    Posted by E. Frank Stephenson at 04:33 PM in Economics

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

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

    Posted by Edward J. Lopez at 02:40 PM in Sports

    Taxes, rental rates and bureaucracy c. 1908

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

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

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

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

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

    Posted by Craig Depken at 11:03 AM in Economics

    Pre-OSHA workplace regulation c. 1908

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

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

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

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

    In mining, one mistake can have substantial negative externalities on the other workers in the mine. Thus, unlike companies today that seek to limit off-campus behavior in order to lower health insurance costs, the mining company seemed to be creating efficient self-regulation.

    Posted by Craig Depken at 10:57 AM in Economics

    Koppl in Forbes on Forensics

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

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

    If only forensics were that reliable.

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

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

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

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

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

    Posted by Edward J. Lopez at 09:07 AM in Law

    May 14, 2008
    Papers on Katrina, Review of "Making Poor Nations Rich"

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

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


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

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


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

    Posted by Art Carden at 06:12 PM in Economics

    The Farm Bill: Rent-Seeking and Rational Irrationality

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

    Posted by Art Carden at 05:21 PM in Economics

    Four lines c. 1908

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

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

    Posted by Craig Depken at 12:40 PM in Culture

    Learning by doing c. 1908

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

    The Wright brothers' aeroplane made a flight of three miles at Kill Devil Hill to-day. The most remarkable thing about the flight was the presence of both the Wrights in the machine. They were unmistakenly seen in it as the machine soared by a group of responsible observers, and then were seen to step from the machine when it halted.
    One wonders if one of the "responsible observers" dreamed of passenger plane service, but on a larger scale.

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

    A short flight of three-quarters of a mile was made by the machine earlier in the day. That was stopped by a tree, which could not be avoided without danger. The machine was brought to the ground in an instant. It struck with considerable force, but both the navigator and machine escaped without injury.
    Furthermore, the primary motive power of the aeroplane didn't invoke a lot of confidence at the time:
    Having seemingly mastered the new steering gear of the machine, they [the Wrights] have now to contend with the unreliability of its gas engine. The engine of thirty horse power and weighing but 150 pounds is fully able to sustain the machine in flights as long as it runs, but its operation for any specified time cannot be guaranteed.
    Thankfully the Wrights (and others) didn't give up.

    Posted by Craig Depken at 12:31 PM in Science

    May 13, 2008
    Subsidies for Millionaires; Tax Hikes if You Make $100k

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

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


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

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

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

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

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

    Thomas Sowell, Caplanian

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

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

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

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

    HT: Greg Mankiw.

    Posted by Art Carden at 05:24 PM in Economics

    Re: Ohio about to pass the "Loan Shark Full Employment Act"

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

    Paper 1:

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

    Paper 2:

    Payday loans are widely condemned as a predatory debt trap. We test that claim by researching how households in Georgia and North Carolina have fared since those states banned payday loans in May 2004 and December 2005. Compared with households in all other states, households in Georgia have bounced more checks, complained more to the Federal Trade Commission about lenders and debt collectors, and filed for Chapter 7 bankruptcy protection at a higher rate. North Carolina households have fared about the same. This negative correlation-reduced payday credit supply, increased credit problems contradicts the debt trap critique of payday lending, but is consistent with the hypothesis that payday credit is preferable to substitutes such as the bounced-check protection sold by credit unions and banks or loans from pawnshops.
    Posted by E. Frank Stephenson at 11:22 AM in Economics

    Paper on Corruption, Economic Freedom, and Economic Growth

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

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

    Posted by Art Carden at 09:35 AM in Economics

    Big Onions

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

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

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

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

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

    Posted by E. Frank Stephenson at 08:55 AM in Economics

    Dr. Mankiw meet Drs. Coase and Tullock

    Greg Mankiw writes:

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

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

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

    Posted by Robert Lawson at 08:17 AM in Economics

    May 12, 2008
    The myth of Andrew W. Mellon the liquidationist

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

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

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

    Posted by Lawrence H. White at 10:31 PM in Economics

    Collars for Dollars

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

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

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


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

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

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

    Posted by Edward J. Lopez at 01:27 PM in Politics

    Preliminary Idiocy Continued

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

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

    What’s next, you wonder?

    Have you looked in your closet?

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

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

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

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

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

    There are 500 hangers per box, she said.

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

    Posted by E. Frank Stephenson at 08:39 AM in Economics

    Geologic time includes now.*

    *Title explained (p. 31).

    Posted by Robert Lawson at 08:22 AM in Science

    May 11, 2008
    Value of time c. 1908

    From the May 11, 1908 NYT:

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

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

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

    Posted by Craig Depken at 10:36 AM in Culture

    May 09, 2008
    Incentives Matter: Gas for Church Edition
    Officials at First Baptist Church of Snellville want to pay for your gas and maybe even give your teenager a car.

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

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

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

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

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


    Posted by E. Frank Stephenson at 08:44 PM in Economics

    Won't Somebody Please Think of the Children?

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

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

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

    Posted by Art Carden at 06:30 PM

    Moving Harvard?

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

    Posted by Art Carden at 03:14 PM in Economics  ·  Comments (4)

    "Lessons from the Great Depression" (Updated)

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

    Read More »

    Posted by Art Carden at 11:11 AM in Economics

    Keynes, Galbraith & Schumpeter

    Read More »

    Posted by Wilson Mixon at 11:04 AM in Economics

    No Such Thing as a 23-Cent Pizza

    Matt Ryan explains.

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

    Posted by E. Frank Stephenson at 09:10 AM in Economics


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

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

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

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

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

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

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

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

    Posted by E. Frank Stephenson at 08:49 AM in Economics

    May 08, 2008
    Happy Birthday, Dear Peter...

    I learned from the comments in Steve Horwitz's post on Hayek that today is also the birthday of University of Missouri economist Peter G. Klein. From the Mises Institute's excellent repository of online media, here's Peter speaking on a bunch of topics (scroll down a bit for his talk on "The Economics of F.A. Hayek"). Here are some of his articles published or distributed by the Mises Institute. Here is his website at the University of Missouri, with a link to his work on institutions, entrepreneurship, and the firm. Peter was kind enough to arrange for me to give a talk at CORI in Fall 2005; that led to a fruitful collaboration with Harvey James.

    Posted by Art Carden at 04:40 PM in Economics

    Dilbert, Hayekian?

    From Hayek's Nobel lecture:

    "We know...the general conditions in which what we call, somewhat misleadingly, an equilibrium will establish itself: but we never know what the particular prices or wages are which would exist if the market were to bring about such an equilibrium. We can merely say what the conditions are in which we can expect the market to establish prices and wages at which demand will equal supply. But we can never produce statistical information which would show how much the prevailing prices and wages deviate from those which would secure a continuous sale of the current supply of labour."

    Here's Dilbert on a similar issue.

    Posted by Art Carden at 03:59 PM in Funny Stuff

    Protecting consumers from low prices

    Chicago's city fathers (stepfathers?) have stepped up to save South Side denizens from the obloquy that might attach to buying precription drugs for $4, according to this report.

    Wal-Mart got the word from city officials last month that Mayor Richard Daley doesn't want to risk a messy showdown with unions over Wal-Mart—like the big-box store battle of 2006—while Chicago is still in the running as a host city for the 2016 Olympics, according to people familiar with the matter. The International Olympic Committee is slated to make that decision in October 2009.

    Posted by Wilson Mixon at 02:19 PM in Economics

    Happy Birthday, Dear Hayek...

    On this, F.A. Hayek's 109th birthday, Steve Horwitz offers his favorite Hayek quote:

    The curious taxsk of economics is to demonstrate to men how little they really know about what they imagine they can design.--The Fatal Conceit, p. 76

    Steve offers further comments. I'm giving a talk this evening entitled "Lessons from the Great Depression," and I think I'll make use of Steve's favorite quote.

    Posted by Art Carden at 01:43 PM in Economics

    May 07, 2008
    Scooping Up Surplus

    1. I've really come to enjoy Jill Sobule's performances on TED (probably my favorite website). Last night, I downloaded her "Live at Joe's Pub" show, attractively priced to move at $0.00. The sound quality is great, and it's been a fun listen so far.

    2. I took another step toward getting in touch with my inner Tyler Cowen today. Mike and I went to A-Tan's for lunch. I'm certainly no food expert, but we enjoyed it and will probably be back. The wonton soup was especially good, and Mike reported that the hot & sour soup was also excellent. Mike got right to the heart of the my failure to recognize the relevant conditional probabilities in our end-of-meal exchange over fortune cookies:

    Me: (reading Mike's fortune) "A shooting star tonight brings good luck tomorrow." So does this mean that a shooting star will certainly appear tonight and then bring you good luck tomorrow, or is it conditional, saying that you will have good luck tomorrow if there's a shooting star tonight?

    Mike: It's conditional. It's also conditional on fortune cookies not being a load of crap.

    Posted by Art Carden at 02:15 PM in Economics

    Not Too Chaotic

    Calling his effort "Operation Chaos," Rush Limbaugh has been urging Republicans to cross over and vote for Hillary. There are competing claims about how successful his effort has been (here and here), so I decided to exploit variation in the Indiana and NC primary rules to see how much influence Limbaugh had on yesterday's results.

    Here's the key idea--Indiana has an open primary but NC does not permit Republicans to vote in the Democrat primary (unaffiliated voters can). Moreover, NC had a contested primary for the GOP nomination for governor that would serve to keep NC Republicans in their own election.

    So I estimated a regression model for the percent of the vote received by Hillary in NC and IN counties. RHS variables include the black percent of the population, the percent of the population between ages 16 & 24, the percent of the population over 65, the percent of the population that is male, and per capita income. The model also includes a dummy variable taking a value of 1 for IN counties--this variable should pick up any support for Hillary that is not explained by the other variables thereby making it a crude measure of the Rush effect.

    So what do the results find? The Indiana dummy has a coefficient of 0.53 meaning that on average Hillary got a about one-half percentage point larger share in Indiana than would be explained by the control variables. The point estimate is not statistically significant (t = 0.43). The regressors perform as one would expect, except the percent male has no effect (either in magnitude or significance).

    My student worker Katie compiled data for me and is compiling more as I type. Look for updates later.

    BTW, Limbaugh has just come on. He is claiming credit for tilting IN to Hillary and playing audio to that effect from John Kerry. My results suggest otherwise.

    Posted by E. Frank Stephenson at 12:09 PM in Politics

    Dr. Ricardo I presume?

    Justin Ross channels David Ricardo re: Chrysler's idea to cap gas prices at $2.99 for three years for anyone buying one of its cars.

    Lets say you believe the weighted average of gas prices over the next 36,000 miles of 3 years to remain at $3.61 and you get that $355 in savings for each of the next 3 years. At a 5% discount rate, that is $967 in net present value. We can safely assume then that demand will push the price of a Chrysler buy or lease up around $1,000. However, applying the Winner's Curse from game theory, those who most overestimate the price of future gas prices will be the ones making the actual purchases by out-bidding all others, meaning they will likely pay more up-front than those who would just pay the market gas prices over the next 3 years.
    Posted by Robert Lawson at 08:27 AM in Economics

    May 06, 2008
    1968: The revolution that wasn't

    City Journal has a retrospective of of the 1968 student protests, most notably the May 1968 Paris unrest. Six accomplished contributors talk about the political, sexual, journalistic, and other cultural inheritances of the 60's. I don't pretend to know a lot about those days; I'm barely a sixty-niner myself (born with 33 days left in the decade). But these six essays leave me with the impression that the events of 40 years ago had an influence that was narrow and misdirected. See below the fold for my top three excerpts. The whole thing is worth a read. Hat tip, Emilio Pacheco.

    Read More »

    Posted by Edward J. Lopez at 04:47 PM in Culture

    Food crises c. 1908

    As there are bad policies today concerning food, there were bad policies yesterday. From the May 6, 1908 NYT:

    ST. PETERSBURG [Russia] - The Russian sugar industry centering at Kiev is passing through a serious crisis. it already has resulted in the suspension of payments by two of the great manufacturing and refining firms...The trouble in the sugar industry is due in large measure to restriction of exports; the production is far in excess of the Russian market.

    Posted by Craig Depken at 03:38 PM in Politics

    In-kind Taxation c. 1908

    Taxation can take a number of forms, but the most insidious are those that are non-monetary in nature. A good example comes from the May 6, 1908 NYT:

    George H. Fearons, General Attorney for the Western Union Telegraph Company, addressed the House Committee on Inter-State and Foreign Commerce to-day in opposition to the bill introduced by Mr. Carey of Wisconsin to require telegraph companies to transmit with telegrams the time of filing messages and the time of putting them on the wire.

    Mr. Fearons said that 60 per cent. of the telegraph business of the country was the transmission of information for Exchanges, Boards of Trade, and similar commercial bodies, 20 per cent. was newspaper matter, 15 per cent. railroad intelligence, and less than 3 per cent. "private and social telegrams."

    He said that on the basis of 74,805,000 telegrams transmitted annually, the additional number of words imposed by the bill upon the Western union Company for transmission would be equal to 17,454,000 ten word-messages.

    The extra messages would represent an in-kind tax because the marginal cost of an additional message was not zero - there were congestion problems, no doubt. Assuming the attorney was telling the truth, the 17+ million requred additional messages would represet a 23% increase in the number of messages sent. Western Union would likely have respond by sending fewer non-required messages.

    I wonder what political interest group Rep. Carey was trying to appease: were there claims that Western Union sat on certain messages and gave preference to other messages, sort of a 1908-version of net neutrality? My hunch is that Rep. Carey was responding to a complaint from one or more "private and social" consumers.

    If the Boards and Exchanges were anxious about timely delivery of information, given their market share of telegrams sent they would have been able to exert some pressure on Western Union to improve service. The same woudl have gone for the newspapers and the railroads.

    I wonder if this bill, like many bills, was submitted to "protect the rights" of small-time consumers and in the process tax the heck out of the firm that provided a valuable service. This sounds a lot like many of the bad policies proffered today.

    However, history shows that Western Union already faced competition: the postal service, the telephone, the wireless, and eventually the fax, and the Internet. It took a while but roughly 100 years later Western Union sent its last telegram.

    Posted by Craig Depken at 03:36 PM in Politics

    Paternalistic Mission Creep: A Paper I Look Forward to Reading

    By Mario Rizzo and Glen Whitman, the cleverly-titled "Little Brother is Watching You: New Paternalism on the Slippery Slopes."

    Their abstract:

    The new paternalism claims that careful policy interventions can help people make better decisions in terms of their own welfare, with only mild or nonexistent infringement of personal autonomy and choice. This claim to moderation is not sustainable. Applying the insights of the modern literature on slippery slopes to new paternalist policies suggests that such policies are particularly vulnerable to expansion. This is true even if policymakers are fully rational. More importantly, the slippery-slope potential is especially great if policymakers are not fully rational, but instead share the behavioral and cognitive biases attributed to the people their policies are supposed to help. Accepting the new paternalist approach creates a risk of accepting, in the long run, greater restrictions on individual autonomy than have been heretofore acknowledged.

    Posted by Art Carden at 01:42 PM in Economics

    Trent Reznor, Price Discriminator (Updated)

    I'm listening to Nine Inch Nails' Ghosts I, which they offered for free on their website a few months ago (the rest of the album, Ghosts II-IV, costs money). I was getting ready to write a short post on NIN's price discrimination scheme when I came across this article pointing out that their next album will also be available online for a price of $0.00. It's available now. I'd speculate on the economics of it all but Tyler Cowen already did it last year when Radiohead offered an album online for free. Cowen points out that free music online is a good strategy for artists that get a large share of their income from live performances--Wikipedia says that "on stage, NIN often employs spectacular visual elements to accompany its performances, which frequently culminate with the band destroying their instruments"--and for artists that want to expand their fan bases. I for one have never really been an NIN fan, but I will certainly take them up on their offer of free stuff, and the probability with which I will buy some of their earlier material is now substantially higher.

    Afternoon Update: I downloaded "The Slip" (NIN's new album). After one listen, it's certainly worth the price. I enjoyed it, but I think "Ghosts I" is better with a probability of about 0.6 or 0.7, if for no other reason than that it's instrumental and provides decent background music for writing.

    Posted by Art Carden at 10:52 AM in Economics

    May 05, 2008

    If I may....a new essay on externalities.

    It may be of interest to some readers here at DoL.

    Posted by Michael Munger at 08:31 AM in Economics

    Too safe at any speed?

    Volvo Promises an Injury-Proof Car by 2020. Yikes! In this driver's personal opinion, most Volvo drivers are already menaces on the road. I hate to imagine what they'll be like when they can drive without risking personal injury!

    Personally, I'd reduce accidents (and injuries and deaths) this way:

    hermanxxxx99 Moral Hazard Tullock Dagger.jpg

    Related issues:

    [1] This idea that increasing safety will cause us to behave more recklessly is generally attributed to Sam Peltzman. Here's a study on safety/accidents/deaths in NASCAR.

    [2] Here's a short story about how people would drive if they could do so without risking injury, which was the inspiration for my favorite Rush song Red Barchetta.

    [3] Most people I know attribute the steering wheel idea to Gordon Tullock though I've heard also that it came from Armen Alchian. The idea of increasing overall safety by making things more risky is getting some traction. I was just reading a book by a mountaineer in which the author (Joe Simpson of Thouching the Void fame) mentioned the steering wheel concept.

    [4] For an application of this idea to mountaineering, see this paper by Clark and Lee.

    HT: Dave Reed

    Posted by Robert Lawson at 08:04 AM in Economics

    May 03, 2008
    Surfing on the taxpayer's dime -- er, yen

    Applied research, I'm sure.

    A Japanese civil servant has been demoted for viewing pornographic websites more than 780,000 times during office hours over a nine-month period. [...] Despite his frequent porn viewing, none of his colleagues noticed his activities.

    The man's superiors discovered his extensive porn site visits after his computer became infected with a virus [...].

    So, how can you tell when a bureaucrat is doing his/her work? Preliminarily, I'm guessing that this one wasn't.

    Posted by Wilson Mixon at 06:03 PM in Funny Stuff

    Is the Fed on a Bender?

    On Wednesday the Federal Reserve reduced its target for the fed funds rate to 2.00%, the latest in a series of reductions that started from 5.25% in September 2007. In its April 28 editorial entitled “The Fed’s Bender” (also linked to by Frank Stephenson below) the Wall St. Journal refers these target rate reductions as “easy money,” “easier money,” and “the Fed's decision to open the general monetary spigots”. Normally rate-cutting and monetary expansion do go hand in hand. An injection of new base money shifts the supply curve for fed funds rightward and, given a constant demand curve, drives down the price.

    But in the present case, the Fed is not vigorously expanding the monetary base. Here, courtesy the St. Louis Fed, are the data for the adjusted monetary base:

    2007-03-01 813.857
    2007-09-01 820.020
    2008-03-01 825.613

    The base is up only 1.4% over the last twelve months, only 0.6% over the last six months. (Above figures are the Board of Governors adjusted base; the St. Louis adjusted base tells the same story.) These numbers suggest that the Fed’s rate adjustments are not driving the market’s fed funds rate down by injecting base money, but have largely been following the market rate down. The demand curve for fed funds must be shifting inward, because the supply curve is hardly shifting outward.

    Some of the broader monetary aggregates are growing. M1 is flat. But M2, which has shown a fairly stable velocity in recent years, is up about 7 percent over a year ago. This is consistent with market forecasts of higher price inflation. (MZM is up about 15 percent, but its velocity has been dropping.) Why the M2 money multiplier (M2/base) should be rising in this way is unclear, but the current growth of M2 (or MZM) is not due to Fed injections of base money.

    Standard monetary policy rules seem to give a mixed picture. McCallum’s Rule for base money growth, as tracked by the St. Louis Fed, indicates that recent Fed policy has not been very expansionary: recent base growth has been consistent with a price inflation rate of only 1%. On the other hand the Taylor Rule for the fed funds target, with PCE inflation currently running above 3%, indicates that the current fed funds target is much too low to be consistent with 1% inflation, and even too low to be consistent with 4% inflation. But the Taylor Rule, at least in the form tracked by the St. Louis Fed does not incorporate any adjustment for shocks to the demand for fed funds (independent of inflation and real GDP). This may explain why it seems a poor guide at present to inferring the degree of monetary ease.

    Posted by Lawrence H. White at 02:10 PM in Economics

    Cross-Price Elasticity of Demand: Gas and Camels in India

    This example has "Fall 2008 exam question" written all over it.

    NB: The "cross-price elasticity of demand" meme in the blogosphere is from Pigou Club founder and Harvard economist Greg Mankiw, who periodically posts on news stories about how people change their consumption in the face of changing gas prices.

    Posted by Art Carden at 12:59 PM in Economics

    May 02, 2008

    Michael Greinecker directs readers to another rich online resource: The Cowles Foundation Monographs in economics. (HT: Peter Klein)

    Posted by Art Carden at 01:01 PM

    Thailand, the world's biggest rice exporter, said it wants to form an OPEC-style cartel with Laos, Myanmar, Cambodia and Vietnam to give them more control over international rice prices.

    "Though we are the food center of the world, we have had little influence on the price," Thai government spokesman Vichienchot Sukchokrat said. "With the oil price rising so much, we import expensive oil but sell rice very cheaply, and that's unfair to us and hurts our trade balance."

    Laos Foreign Ministry spokesman Yong Chanthalansy said Friday his country would "seriously consider" the idea, saying a cartel would give the five countries "bargaining power."

    The hike in rice prices has come amid global food inflation, poor weather in some rice-producing nations and demand that has outstripped supply. Some Asian countries, including India and Vietnam, have contributed to the problem by curbing rice exports to guarantee their own supplies.

    Cambodia, which in the past has championed the rice cartel idea, also welcomed the latest proposal and said it was a "necessity" given the current global food crisis.

    "By forming an association, we can help prevent a price war and exchange information about food security," Cambodia's chief government spokesman Khieu Kanharith said.

    But the rice institute's Zeigler said it would be difficult to apply the OPEC model to rice.

    "Rice is grown by millions of farmers in one, two, three hectares (acres) of land. Oil is produced by a few multinational companies in a few countries," Zeigler said. "So I think the differences are so large as to make any comparison between the two wild fantasies."

    Chookiat Ophaswongse, president of the Thai Rice Exporters Association, said any rice cartel would have little impact because it would exclude big producers like India and Pakistan.


    Posted by E. Frank Stephenson at 12:11 PM in Economics

    I Preliminarily Found Idiocy

    From the AJC (emphasis added):

    In March, a federal tariff was placed on wire hangers imported from China after the U.S. Department of Commerce found evidence of dumping.

    Dumping is illegal and occurs when a foreign company floods the U.S. market with products sold at cheaper prices to try to drive American competitors out of business.

    The federal tariff caused Chinese suppliers to reduce their exports, creating hanger shortages and causing prices to rise.

    "We preliminarily found dumping," said Brittany Eck, a spokeswoman for the Commerce Department's Import Administration.

    When told of the tariff's impact on dry cleaners, Eck said, "We do accept comments from all interested parties." The department will issue its final ruling in June, Eck said.

    In the meantime, that global trade drama now reaches into the clothes bins and cash registers of America's dry cleaners.

    Won now pays twice as much for hangers than he did last July. Dry cleaners use thousands of hangers, and thousands more end up being tossed out by customers.

    The shortage prompted Patel to post a sign in his Marietta business asking customers to return hangers.

    Won recently wrote Commerce officials protesting the higher hanger costs. He asked the agency to "lift the taxes on the Chinese hangers," saying they were hurting American dry cleaners.

    More importantly, Won said, "This impacts consumers' pockets."

    Posted by E. Frank Stephenson at 11:59 AM in Economics

    Gas Prices (Partially) Explained

    Co-blogger Wilson forwarded me the photo below. I'd suggest a couple of improvments--carve out 50 cents or so for taxes and a dollar or so for Ben Bernanke's debasing the dollar (see the 8th and 9th paragraphs of this WSJ editorial and the accompanying graph).


    Posted by E. Frank Stephenson at 10:59 AM in Economics

    Funniest sentence I read today.

    From a Canadian colleague about an upcoming conference he's attending in the middle east that Al Jazeera is covering:

    This is good from a Canadian point of view. Al Jazeera is far to the right of the CBC and much less sympathetic to terrorists.
    Posted by Robert Lawson at 09:55 AM in Politics

    Insuring & Ensuring Disaster

    From CEI's Eli Lehrer:

    Sometime before Memorial Day, the United States Senate will consider several proposals to put taxpayers on the hook for "national catastrophe insurance" liabilities that could easily top $100 billion. The proposed legislation, intended mostly to reduce soaring homeowners insurance premiums along the Atlantic seaboard, would damage the environment while likely failing to keep consumers' insurance costs down. It's a terrible idea.

    Government-backed catastrophe insurance, also known as "backstopping," would transform the U.S. Treasury into the insurer of last resort for nearly every disaster-prone home in the country.

    Posted by Wilson Mixon at 09:34 AM in Economics

    Energy Policy

    Thomas Friedman gets off to a good start, in characterizing the McCain-Clinton tax rebate suggestion:

    This is money laundering: we borrow money from China and ship it to Saudi Arabia and take a little cut for ourselves as it goes through our gas tanks. What a way to build our country.

    When the summer is over, we will have increased our debt to China, increased our transfer of wealth to Saudi Arabia and increased our contribution to global warming for our kids to inherit.

    It's downhill thereafter. The rest of the article consists of (1) being shocked that politicians act like politicians, and (2) insisting that we need an "energy policy" that consists of taxpayers dumping loads of money into wind and solar power.

    Posted by Wilson Mixon at 09:24 AM in Economics

    May 01, 2008
    Hayek’s Denationalisation of Money at a zero price

    Thanks to the Institute of Economic Affairs. Download it here.

    In this groundbreaking work, first published in 1976, Friedrich von Hayek argues that the government monopoly of money must be abolished to stop recurring bouts of inflation and deflation. Abolition is also the cure for the more deep-seated disease of the recurring waves of depression and unemployment attributed to 'capitalism'.
    Posted by Lawrence H. White at 04:12 PM in Economics

    Spring Haiku--work ethic version

    Co-bloggers post poems;
    Gotta appear productive.
    But wait... I'm tenured!

    Here's a Louisiana version:

    Found state budget funds;
    could give it to taxpayers.
    Nah, need to buy votes.

    Posted by Tim Shaughnessy at 02:45 PM in Funny Stuff

    Spring Haiku -- Liberty Fund edition

    Sunshine, liberty
    No classes here in Indy
    Baby on the way

    Posted by Edward J. Lopez at 01:13 PM in Funny Stuff

    Review of The Dirty Dozen

    In today's WSJ, Amity Shlaes reviews The Dirty Dozen: How Twelve Supreme Court Decisions Radically Expanded Government and Eroded Freedom, by Robert Levy of the Cato Institute and Chip Mellor of the Institute for Justice.

    Robert A. Levy and William Mellor, both constitutional lawyers, examine 12 notorious court opinions affecting everything from wartime internments and medical-school admissions to tax policy and the rights of the homebuyers. The starting point for their survey is 1933, their reasonable assumption being that modern American law began with the New Deal. They went about compiling their list by asking other lawyers and scholars to name the cases they considered to be the most damaging to our constitutional rights.

    I haven't read this book yet, so I don't have a take on it. Do you? Comments open just in case.

    Elsewhere, LAT columnist George Skelton tells Californians how to vote on Prop 98 and 99 (both aim to restrict takings powers).

    Posted by Edward J. Lopez at 01:07 PM in Law  ·  Comments (0)

    Spring Haiku - Bowling Green State U version

    Sun- and keg-filled yards
    Dozens tossing “cornhole” bags
    One group playing Jarts!

    Posted by Lawrence H. White at 11:22 AM in Culture

    Mises profile

    Investor’s Business Daily offers a nice profile of the remarkable economist Ludwig von Mises in their “Leaders and Success” series. Previous honorees in the series include Evel Knievel. One risked his life ... and the other rode motorcycles off ramps.

    HT: Steve Hanke

    Posted by Lawrence H. White at 11:10 AM in Economics

    Ohio about to pass the "Loan Shark Full Employment Act"

    Ohio is about to legislate some 1600 so-called Payday lenders, employing some 6000 workers, out of business.

    Highlights of House Bill 545, which passed the Ohio House yesterday and now moves to the Senate:

    • The annual interest rate would be capped at 28 percent (down from current 391 percent). Additional fees would be prohibited.

    • A person could not borrow more than $500, or 25 percent of the customer's base monthly income. The current rate is $800, with no income check.

    • Loan terms would have to run at least 31 days. Current loans are usually two weeks.

    • A borrower would be allowed four payday loans per year. There's no current loan limit.

    • Internet payday lending would be banned, and illegal out-of-state lenders would have no access to Ohio small-claims courts.

    Meanwhile, for local loan sharks in the 'hood, good times they are a comin'!

    Posted by Robert Lawson at 08:07 AM in Economics

    No one's a Keynesian now!

    The local fishwrapper reports that a left-wing think tank in Cleveland wants Ohio to raise taxes:

    If the state's economy and budget woes continue to worsen, the group proposes restoring the income-tax rates that were in effect in 2007 across the board. That would raise everyone's taxes and generate an additional $1.164 billion in 2009, the group said.

    Keynes is dead my friends.

    Posted by Robert Lawson at 08:00 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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