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. [...]
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.
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
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.
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.
Farmers’ Harvest a Bumper Crop of Subsidies
Bill Shughart on the farm bill:
In truth, America’s farmers are wards of the state.
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.
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:
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
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.
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.
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.
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.
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.
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.
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.
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.
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?):
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.
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.
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.
Just a bit
Mariah Carey's first pitch:
Not as bad as the Cincinnati Mayor's last year:
"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.
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.
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!
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.
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?
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.
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.
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.
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.
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.
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.
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.
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.
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.
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?
May 25, 2008
Bootleggers, Baptists, and Liquor Store Owners, Part Deux
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."
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.
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
The St. Paul Saints will give away 2,500 "bobble foot" dolls before Sunday's game at Midway Stadium.
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.
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.
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.
For your weekend enjoyment, here's a fascinating TED talk by lexicographer Erin McKean entitled "Redefining the Dictionary."
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."
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
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.
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."
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:
cf. truthiness [NB: "truthiness" was Merriam-Webster's 2006 Word of the Year]
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.
May 21, 2008
Cross-Price Elasticity of Demand: Mule Edition
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.
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.
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.
HT NCPA Digest
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.
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.
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.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]
At least they could try to be original in their disputes, but alas...
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.
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.
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.
Cross-Price Elasticity of Demand: Gas Cap Lock Edition
Sales over the last few months have just been growing like crazy for locking gas caps. As gas prices go up, sales go up.
Here's an AJC story about three men arrested siphoning gas.
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.
Cross-Price Elasticity of Demand: Scooter Edition
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.
May 18, 2008
Bootleggers, Baptists, and Liquor Store Owners
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.
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.
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.
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.
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.”
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.)
May 15, 2008
Something I've Known All Along ...
Cash-strapped drinkers are starting to trade down to economy beers, the chief executive of Miller Brewing Co. said Thursday.
"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.
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?Might the Tiebout effect been at play before there was a Tiebout effect?
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...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.
Koppl in Forbes on Forensics
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.
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.
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.
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"
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"
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.
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.
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.
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.
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).
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.
Source. NB--The article suggests the blame may lie with Lexus not McCartney.
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.
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.
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.
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.
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.
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!
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!
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.
Collars for Dollars
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."
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).
Geologic time includes now.*
*Title explained (p. 31).
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.$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).
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.
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
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).
"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.
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1. The online encyclopedia at EH.net has several articles on the Great Depression. I drew primarily from Randall Parker's "Overview of the Great Depression" and Frank Steindl's "Economic Recovery in the Great Depression," both of which I assign in my economic history class. Here is Professor Parker's website, where you can download the transcript of his one-hour interview with Ben Bernanke.
2. We discussed the case for and against the gold standard, though I didn't give the case for the gold standard the attention it deserves. Lawrence H. White (my co-blogger here at DOL) has a very good Briefing Paper for the Cato Institute in which he deals with common objections to the gold standard. For a more detailed debate about banking in theory and practice, here are articles by J.G. Hulsmann and Professor White on fractional-reserve banking. Here's James Hamilton's aforementioned post on the gold standard and how it might have worked today. Hamilton makes the important point that any country which can go on the gold standard can also go off of it. I remain in Professor White's camp in my support of free-market money. If you want to write contracts payable in gold, silver, euros, yen, or potatoes, go right ahead. Given the weak dollar. I might argue that the best-performing asset in my portfolio is the extra euro-denominated airport shuttle pass I accidentally bought in Amsterdam last year. But I digress.
3. We also talked about Robert Higgs and his contributions to the theory of "wartime prosperity," and we concluded that the conventional "World War II ended the Great Depression" explanation is at best wanting, at worst false. Here is his re-assessment of "wartime prosperity." His discussion of "regime uncertainty" and the institutional conditions that created the microeconomic disaster that was the New Deal and prolonged the Depression is available here.
4. Finally, we discussed the Clinton/McCain gas tax controversy and why that makes me pessimistic about the ability of the political system to produce constructive policy. Here's Bryan Caplan's defense of the Clinton proposal and N. Gregory Mankiw's evaluation of why economists should be concerned. Finally, here's the Colbert Report on the proposed gas tax holiday (courtesy of Greg Mankiw).
5. In addition to what we talked about last night, the internet is filled with resources exploring the Great Depression and economic policy more broadly. The Ludwig von Mises Institute maintains an excellent online audio and video archive; here are several lectures on the Great Depression. Auburn University economist Roger W. Garrison is perhaps the leading exponent of what is called "capital-based macroeconomics" or "Austrian Business Cycle Theory." His website contains numerous resources (including several entertaining Powerpoint presentations) in which he shows how credit expansion leads to economic instability.
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Keynes, Galbraith & Schumpeter
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Nice essay in the Claremont Review:
[W]ithin a year of the first edition of The New Industrial State, Intel was founded out of Fairchild Semiconductor. The 1970s saw the appearance of firms such as FedEx, Microsoft, Apple, and Home Depot, and the expansion of companies such as Target and Wal-Mart, all of which became fast-growing parts of an entrepreneurial economy.
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No Such Thing as a 23-Cent Pizza
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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The most enjoyable essay, by Christopher Hitchens, is its best when he poignantly describes the revolutionary contradictions he witnessed in 1968 Cuba. But there is much more to the entry by Hitchens. In summary:
Looking back on that year of color and rage and excitement and (yes) hope, I can now see well enough to separate the different kinds of revolutionary with whom I became acquainted. Some of one kind went on to become victorious rulers, either of nascent dictatorships in Vietnam and Angola or of nascent democracies in Spain, Portugal, Greece, and South Africa. Some of a second kind would invert the hieroglyph “68” on the odometer and become the triumphant figures of the anti-Communist revolution of ’89. (For this particular irony, see Tom Stoppard’s brilliant play Rock and Roll.) And some of another kind wound up either dead or in prison, having tried to launch movements of “armed struggle” from Northern Ireland to West Germany. The first two evolved a sort of social-democratic modus vivendi that has some battle honors to its credit; the third lot mutated into the fans of Saddam Hussein and the apologists for al-Qaida and the Muslim Brotherhood—in other words, into the most reactionary force on the planet. There are also soixante-huitards whose adventures are less well known and far from over. I have met them among the tiny minority, from Bosnia to Zimbabwe to Iraq, who have struggled to evolve a consistent antitotalitarian politics and to marry it to a thoroughgoing internationalism. One day, perhaps, their less glamorous story will also be told. The owl of Minerva, as Hegel put it, takes wing at dusk. Only at the close of an epoch can one begin to evaluate it.
The entry by Stefan Kanfer, who lived across the street from Columbia University at that time, shows that the main impact of those student protests, like that of recent anti-globalization protestors, may have been a lot of destroyed property:
My memories of the Columbia student uprising are somewhat different: I think of April and May 1968 as the Spring of Ralph. I was then Time’s cinema critic. My family and I lived at 520 West 114th Street, just across from Columbia’s Butler Library. The campus was our backyard. Every day, my six-year-old daughter and three-year-old son wandered around the thick grass and admired the lush floral arrangements designed by Mrs. Grayson Kirk, wife of the university president. It was like living in a botanical showcase. ...
Kay S. Hymowitz writes of the shamefully dashed hopes of a feminist movement gone awry.
This could have been a promising moment. Women might have taken stock of how the sexual revolution had ignored female preferences—love, fidelity, male solicitude—in favor of self-centered, male-friendly amusement. Instead, they translated the inescapable difference between the sexes into political and pop-scientific grievance. The reason that women were unhappy with the new order was not that low-commitment sex was an easier game for men; it was that men were intent on denying women’s sexuality. The patriarchy had promoted “the myth of the vaginal orgasm,” these younger feminists explained. Men got what they wanted, but all women got were those lousy faked orgasms.
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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.
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.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.
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."
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.
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.
May 05, 2008
If I may....a new essay on externalities.
It may be of interest to some readers here at DoL.
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:
 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.
 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.
 For an application of this idea to mountaineering, see this paper by Clark and Lee.
HT: Dave Reed
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.
So, how can you tell when a bureaucrat is doing his/her work? Preliminarily, I'm guessing that this one wasn't.
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:
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.
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.
May 02, 2008
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.
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.
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).
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.
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.
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.
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.
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'.
Spring Haiku--work ethic version
Co-bloggers post poems;
Here's a Louisiana version:
Found state budget funds;
Spring Haiku -- Liberty Fund edition
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).
Spring Haiku - Bowling Green State U version
Sun- and keg-filled yards
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
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:
Meanwhile, for local loan sharks in the 'hood, good times they are a comin'!
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.
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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