Division of Labour: January 2009 Archives
January 30, 2009
When Having One Tax Cheat in Your Cabinet Isn't Enough ...
Tom Daschle, President Barack Obama's choice for secretary of Health and Human Services, paid about $140,000 in back taxes and interest after questions surfaced during the vetting of his nomination, according to documents being prepared by the Senate Finance Committee.

Mr. Daschle made the payments to cover a luxury car and driver provided to him by an investment firm where he was an adviser after leaving the U.S. Senate in 2005, but which he didn't report as income, people familiar with the report said. The payments also covered unreported consulting income and unwarranted charitable deductions. The tax period covered 2005 through 2007.

Source.

Posted by E. Frank Stephenson at 11:16 PM in Politics

Some folks noticed

I was one of 200 economists to sign the Cato petition, which ran as a full-page ad in the New York Times and Washington Post, opposing the "stimulus" (pork) bill. Many bloggers took notice of the petition. Today the online Wall St. Journal ran a story featuring a photo of three Republican senators holding up a copy of the ad.

Posted by Lawrence H. White at 06:16 PM in Economics

Atlas Shrugs in Florida: Falaschetti and Douglass on Political Risk

Dino Falaschetti was kind enough to send me this op-ed he and Christopher Douglass published in yesterday's Orlando Sentinel. State Farm has decided not to insure Florida property anymore because they can't get the regulators to go along with a proposed increase in rates. In addition to being a tidy summary of how insurance markets work, Falaschetti and Douglass cust straight to the heart of the issue:

Choosing a short-term solution can lead to long-term problems. We often hear that Florida's problems come from insurers not wanting to be in a risky place. But what kind of risks are they worried about? Risk of the next catastrophe or risk that politicians will change the rules after the next catastrophe?

Posted by Art Carden at 05:41 PM in Economics

Double-plus unfunny

Art's post reminds me of a conversation that I had with an Ed major some time ago. We were discussing the rationale for government schooling. As we went through the arguments, I realized that all arguments carried more force if applied to feeding infants. I said as much to the student, and I discovered that she was quite convinced--convinced that government direction of feeding infants was probably a good idea.

The Onion post missed this important point: Parents are not up to the important task of doing what it takes "to completely eliminate their curiosity, crush their spirit of amazement, and eradicate their childlike glee." For that, we need a Ministry of Wonder.

Posted by Wilson Mixon at 05:29 PM in Economics

Convenient Ethics & Market Segmentation

From The Economist

“There is a real hostility in this country to the use of agents,” says Mitch Leventhal, vice-provost for international affairs at the University of Cincinnati. “Some universities think it is illegal—it’s not, what’s illegal is recruiting American students via agents. Some think it’s unethical—but it’s only unethical when done unethically.

Funny that American university officials would worry about the ethics of using agents. Shouldn't the concern be with the ethics of supporting laws that ban their use, thereby depriving students of information?

Posted by Wilson Mixon at 05:04 PM in Economics

I Can't Tell if This is Funny...

...or if I should expect to see it in my lifetime. From The Onion's archives, here's "Child-Safety Experts Call For Restrictions on Childhood Imagination." Here are the last three paragraphs:

"Many of the suggestions are really quite simple, like breaking down cardboard boxes or sewing cushions to couches so they cannot be converted into forts or playhouses," McMillan said. "Blank pieces of paper, which can inspire non-reality-based drawings, should be discarded unless they are used in one of our recommended diagonal folding and unfolding activities. And all loose sticks left lying in the yard should be carefully labeled 'Not a Sword.'"

Unfortunately, removing everything from a child's field of view that could stimulate his active young mind is extremely time-consuming, and infeasible as a long-term solution, McMillan acknowledges. "To truly protect your children, you must go to great lengths to completely eliminate their curiosity, crush their spirit of amazement, and eradicate their childlike glee. Watch for the danger signs: faraway expressions, giggle fits, and a general air of carefree contentment."

Added McMillan: "Remember, if you see a single sparkle of excitement in their eyes, you haven't done enough."

Posted by Art Carden at 02:57 PM in Culture

Mises Quotes of the Day

Here are two great quotes from Ludwig von Mises's Bureaucracy, originally written in 1944:

"The outstanding fact of intellectual history of the last hundred years is the struggle against economics." p. 89

"He who is unfit to serve his fellow citizens wants to rule them." p. 100

Posted by Art Carden at 02:32 PM in Politics

January 29, 2009
Spot the Idiot Contradiction

Friday's WSJ contains a letter from Terence M. O'Sullivan, General President of the Laborers' International Union of North America. A snip (emphasis added):

The Beacon Hill Institute study cited in the Journal's Jan. 21 editorial "How to Save $40 Billion" is contradicted by voluminous research based on real-life projects showing that prevailing wage requirements do not raise overall construction costs. Higher wages, when coupled with training and a dedicated work force, are generally offset by greater productivity, cost-savings related to safer job sites and the local economic development resulting from family-supporting wages.

The purpose of any recovery package is to create jobs and get our economy back on track. Creating jobs with poverty-level wages might enrich large construction contractors, but it won't help the economy recover.

If it really is the case that prevailing wages are offset by higher productivity (doubtful given union work rules) then union workers and "poverty wage" workers should have the same total cost and the same effect on construction firms' bottom lines. Of course, if prevailing wage union workers were productive enough to offset their higher wages, then construction firms would gladly hire them and prevailing wage laws would be unnecessary.

Posted by E. Frank Stephenson at 11:36 PM in Economics

Nice pic, Art, but...

...this is my kid, Keri, at age 3. I swear this wasn't staged. I came in the room and there she was with my copy of the book. She's 13 now and you can just imagine how much she loves this pic now. Ok, not.

kerirand.jpg

Posted by Robert Lawson at 02:17 PM in Personal

An NFL bleg

Whereas the Super Bowl is the best sporting event in the known universe;

Whereas going to work on the Monday after the Super Bowl just sucks;

And Whereas "Super Bowl Saturday" has the same alliterative appeal as "Super Bowl Sunday";

Let It Hereby Be Resolved that the NFL will MOVE THE DAMNED GAME TO SATURDAY!

Posted by Robert Lawson at 12:11 PM in Sports

RE: Friday Night at the Carden House

Cool picture Art. Last summer, I read the first several chapters of the book to my son--he's now one well-informed second grader on how to make a pencil.

I have a (very positive) review of the book forthcoming in The Freeman and am using it in my principles course this semester.

Posted by E. Frank Stephenson at 10:21 AM

Friday Night at the Carden House

Jacob loves a good book. Picture below the Fold.

Read More »

Posted by Art Carden at 09:33 AM in Economics

Corruption & the Financial Crisis

Dani Kauffman, who has left the World Bank for Brookings, writes about corruption and the financial crisis:

First, the public sector is reshaping regulation; second, the government is becoming an owner of financial institutions; third, it is bailing out selected private concerns through a quick and massive infusion of funds; fourth, it is to provide almost a huge fiscal stimulus into infrastructure; and fifth, it intends to extend the social (and housing) safety net for millions of vulnerable citizens.

There are governance and corruption risks in each of these areas. Lobbyists are already at the door...

Deep-seated transparency reforms need to be a cornerstone in the government's plan, and should apply to U.S. public agencies as well as domestic and international financial institutions. Regulations supporting effective disclosure, as well as improved audit, accounting and risk-rating standards, should be preferred to restrictive regulatory controls that block innovation and growth.

ATSRTWT

HT: Irene Mia

Posted by Robert Lawson at 08:55 AM in Economics

January 28, 2009
An ode to C.Q.D. c. 1909

On January 23, 1909 the SS Florida collided with the RMS Republic off the island of Nantucket (I missed the original story). There was considerable response by other ships in the area after the call "C.Q.D." went out over the wireless. This collision was the first time the call had been used after it was standardized in February 1904 (which sounds like a long time to me).

Here's a poem commemorating the "first responders" in this accident printed in the Jan. 28, 1909 NYT:

"C.Q.D.! C.Q.D.!!"
Binns sent it flashing out over the sea
To where'er a ship or a port might be -
"C.Q.D.! C.Q.D.!!"
On went the message of peril and fear,
Winging its way to whoever might hear
The call borne out on the ether's thin breath,
A cry of disaster and imminent death.
And, instant, wherever a ship could be found,
Homeward or outward or anywhere bound,
That caught the alarm, it turned in its course
And rushed through the dark with all of the force
Of steam-driven speed to rescue and save,
Heedless themselves of a possible grave
For them and their crews in the fog-covered wave.
And, again, as so oft, out of peril were born
Names that shall live till earth's final morn,
Names of true heroes as great as of old,
The records of daring and honor have told -
Ruspini and Sealby and Ranson, and he
Who fearless, persistent, sent over the sea
That call of distress, "C.Q.D.! C.Q.D.!!"

J.A. METS

Posted by Craig Depken at 08:38 PM in Culture

A Thought Experiment

I did a thought experiment with some of my students after class yesterday that, I think, illustrates the importance of the economic way of thinking. Imagine the following three pairs of people:

1. LBJ and FDR
2. Bill Gates and Sam Walton
3. Mother Teresa and Gandhi

Now identify which pair people would classify as heroes, which pair people would classify as saints, and which pair people would classify as villains. As one might expect, LBJ and FDR are perceived as heroes, Gates and Walton are perceived as villains, and Mother Teresa and Gandhi are perceived as saints.

I then asked them to rank the group in order of the degree to which they have alleviated genuine human suffering. The students anticipated where I was going with this: I think Gates and Walton are the runaway winners, followed by Mother Teresa and Gandhi. If Robert Higgs is correct, LBJ and FDR have actually created human suffering instead of alleviating it. On ranking the presidents, here's John Denson's edited volume Reassessing the Presidency, which includes a chapter by Richard Vedder and Lowell Galloway on ranking the presidents.

Posted by Art Carden at 03:06 PM in Economics

Live today on KMOX

My colleague Dave Rose and I will be chatting live in-studio with host Mark Reardon this afternoon from 2:10 to 3:00 pm Central time on KMOX 1120 AM ("the Voice of St. Louis"). We'll be discussing the state of the economy, the financial mess, the "stimulus" bill, and specifically our recent op-ed piece "We Can't Spend Our Way out of This Quagmire". Key point: we should let the recession do its job of correcting the bad investments made during the boom. Public policy should not be aimed at stopping the correction.

KMOX provides live streaming audio here. A podcast should be available subsequently.

UPDATE: I just got home from doing the show, and the podcast is already available, here!

Posted by Lawrence H. White at 10:54 AM in Economics

Starbucks Eschews Marginal Reasoning

Another example for my principles of economics course: Starbucks announced today that they will no longer automatically brew decaf coffee after the noon hour. They say the process takes about four minutes. They claim that demand for decaf slows in the afternoon and this creates much waste in many of their stores. The new policy does not apply to espresso-based drinks, which are customized for each order.

Now, I am a simple guy, a straight black coffee man who has no taste for those complex, fluffed up, specialty coffee drinks. But I am still willing to wait in line watching each person take up to two minutes just to order their fifteen-step, specialty coffee drink (for which they pay almost as much as I pay for my lunch).

Given that Starbucks brews their drip coffee into very high quality thermo-urns that keep it piping hot for hours, I must ask myself: What is the marginal cost in each store making two or three "uneccesary" thermo-urns of decaf coffee each afternoon (assuming almost nobody orders decaf after noontime and they are ulitimately wasted)?

Further: What is the marginal benefit (in saving potentially lost revenues) of NOT ticking off those few good customers (like yours truly) who don't feel like they have any more available time to wait yet an additional five minutes beyond the normal waiting period, just to get a cup 'o decaf joe?

Marginal benefit versus marginal cost--maybe I need to offer my consulting services to Howard Shultz.

Posted by Mike Stroup at 10:31 AM in Economics

January 27, 2009
The Minimum Wage and Busboys

Today's WSJ has an article on restaurants cutting busboy jobs because of difficult economic times:

For two decades as a Bob Evans waitress, Ms. Baker relied on a busboy to clear syrup-plastered dishes and wipe biscuit crumbs from her tabletops. But with restaurants in a sharp downturn amid the recession, Bob Evans is among a growing number of full-service eateries that are eliminating busboys to cut costs. Instead, servers are primarily responsible for clearing their tables.

But check out this paragraph--it appears that recent minimum wage increases bear some of the blame for busboy job cuts:

In many states, it's cheaper to keep servers on the clock than bussers because of a loophole that allows restaurants to pay servers who earn tips less than the minimum wage -- as little as $2.13 an hour. Bussers must be paid at least $6.55 an hour.
Posted by E. Frank Stephenson at 10:34 PM in Economics

Repeat After Munger ...

... "Golly, I wish Public Choice were not such a deadly accurate way of understanding the political world." Case in point, the abstract of Shawn Cole's paper (gated) in the initial issue of the American Economic Journal: Applied Economics:

This paper integrates theories of political budget cycles with theories of tactical electoral redistribution to test for political capture in a novel way. Studying banks in India, I find that government-owned bank lending tracks the electoral cycle, with agricultural credit increasing by 5-10 percentage points in an election year. There is significant cross-sectional targeting, with large increases in districts in which the election is particularly close. This targeting does not occur in nonelection years or in private bank lending. I show capture is costly: elections affect loan repayment, and election-year credit booms do not measurably affect agricultural output.
Posted by E. Frank Stephenson at 10:08 PM in Economics

Vending Beckham

Co-blogger Ed points us to this report that Milan might pay 4.5 million pounds (or $6.3m) to obtain David Beckham from the LA Galaxy. In our paper (previous post here) on Beckham's effect on MLS attendance, Bob, Kate, and I made a back of the envelope guess that Beckham's marginal revenue product for the Galaxy in 2007 was $20m. Reports indicate that the Galaxy pay Beckham about $10m thereby implying a net gain of $10m (a figure that has probably declined a bit after the initial excitement over Beckham's arrival). So a $6.3m transfer fee looks like we might have been in the neighborhood.

But here's an interesting question--Beckham is also highly valuable to the other MLS teams. I wonder if the other teams might increase the amount the league pays toward the salary of star players, its Designated Player Rule, in order to entice the Galaxy to keep Beckham.

Posted by E. Frank Stephenson at 07:49 PM in Sports

Once More on Krugman and Air Traffic Control

Many thanks to the reader who sends along this email:

Paul Krugman, Nobel Prize winner, appears ignorant of examples of privatized air traffic control, such as Nav Canada (a private sector, non-share capital corporation financed through publicly-traded debt), and the 50% public/private National Air Traffic Services of the UK.

Several air traffic control organizations are government-owned independent organizations, such as Airservices Australia and Deutsche Flugsicherung GmbH (limited liability company). Deutsche Flugsicherung was to be 75% privatized, but recently the German government has gone back on the plan.

Previous post here. Here's more on Nav Canada.

Posted by E. Frank Stephenson at 07:33 PM

Plagiarism is the Sincerest Form of Flattery

Bet you didn't know that I had an alter ego named Ricardo Valenzeula. Neither did I, but two of my posts--the one on broken windows Krugman and the one on condoms as stimulus--are posted above his name on the Liberty Post blog (here for Krugman; here for condoms).

Posted by E. Frank Stephenson at 11:03 AM

Building Brand Equity: Journal of Wine Economics Book Review

The latest issue of the Journal of Wine Economics is now out. In the issue I have a book review of Wine and Philosophy: A Symposium on Thinking and Drinking, which can be found here.

The full table of contents of the issue is below the fold. Thanks to Karl Storchmann for the notice.

Read More »

Posted by Joshua Hall at 10:10 AM in Economics

Best David Hume Phrase I've Read Today

"...our modern expedient, which has become very general, is to mortgage the public revenues, and to trust that posterity will pay off the incumbrances contracted by their ancestors: And they, having before their eyes, so good an example of their wise fathers, have the same prudent reliance on their posterity; who, at last, from necessity more than choice, are obliged to place the same confidence in a new posterity." David Hume, "Of Public Credit," Essays, Moral, Political, and Literary II.IX.2

Posted by Art Carden at 09:58 AM in Economics

Best Blog Post Title That Should Be An Album Title That I've Read Today

Here's Don Boudreaux's latest in the Pittsburgh Tribune-Review. The Cafe Hayek post in which Don alerted his readers to the article was titled "Parliament of Pimps," a play on the 1992 P.J. O'Rourke Book Parliament of Whores and a great phrase for a musician looking for an album title.

Don argues that the pimp metaphor is more appropriate than the whore metaphor because while prostitutes (usually) trade their services voluntarily, the art of politics consists of "truck(ing) and barter(ing) with other people's property."

Posted by Art Carden at 09:24 AM in Economics

Nationalize the banks?

Yesterday I spoke by phone with Alan Bock of the Orange County Register, as reported in his editorial here.

Posted by Lawrence H. White at 09:19 AM in Economics

What monetary arrangements for an independent Scotland?

If Scotland becomes an independent nation-state, should the government create a new national fiat currency? (We can assume that a commodity standard is off the table.) Or should it join the Eurozone? Or should it remain on sterling? Last year I wrote a brief (9 pp. single-spaced) monograph on this interesting set of questions at the invitation of a small but feisty Scottish think tank, The Policy Institute. Publication was held up while the Policy Institute merged with another like outfit, Reform Scotland. Somewhat to my surprise, I find that the piece has now appeared online.

Posted by Lawrence H. White at 12:24 AM in Economics

January 26, 2009
New Issue of Econ Journal Watch

Among the goodies:

The Race between Education and Technology is the title of a new book by Claudia Goldin and Lawrence Katz. In a review essay, Arnold Kling and John Merrifield hail the book for its formulation of the problem and theoretical core, but find ideological distortions in the execution, diagnosis, and prescriptions.

Desperately Seeking Smithians: Dan Klein's questionnaire finds some takers, including Peter Boettke, Bryan Caplan, David Henderson, Steven Horwitz, Deirdre McCloskey, Thomas Mayer, Robert Nelson, Edward Prescott, Colin Robinson, Richard Timberlake, Robert Tollison, and Leland Yeager.

Posted by E. Frank Stephenson at 11:38 PM in Economics

Which Rents Should We Seek?

The local paper wants to know.

Naturally, the highest-value use of the stimulus money would be to pay more cops to patrol my streets (which will be freshly paved, thanks to stimulus dough) and to provide massive cash infusions for economists at local liberal arts colleges.

Posted by Art Carden at 05:39 PM in Economics

Two Good Questions

First Greg Mankiw (in a NYT forum on questions to pose at the Geithner confirmation hearing):

President Obama supports the estate tax. Why should a person who leaves his money to his children pay more in taxes than another person with the same lifetime income who spends all his money on himself?

Second, Mankiw posts an email from a prominent economist:

Discussion question.

Scenario 1. AmeriBank of Holland, Ohio, receives TARP funds and uses $20,000 to hire Joe the Plumber to remodel a bathroom in one of its banks.

Scenario 2. AmeriBank of Holland, Ohio, receives TARP funds and loans $20,000 to Bob the Baker to remodel a bathroom in his house.

Explain the difference in macroeconomic stimulus in these two scenarios.

Posted by E. Frank Stephenson at 05:16 PM in Economics

Best Parenthetical Sentence Fragment I've Read Today

Steve Horwitz:

"And the evidence against The Shock Doctrine is now approaching that of The Population Bomb."

Posted by Art Carden at 05:05 PM in Economics

Narrative and ideology

What does my exchange last month with Brad DeLong on Cato Unbound, and other such debates, have to tell us about the philosophy and psychology of economics? Russ Roberts offers some thoughts on his podcast.

Russ comments that offering a narrative account of a singular event is "not the best place to do science". True. It's the place to do history, which is not the same as doing science.

Posted by Lawrence H. White at 04:12 PM in Economics

Quote of the week

CNN.com reports: "Two Minnesota lawmakers are asking the state's legislature to consider a proposal that would sell to private firms the Minneapolis-St. Paul International Airport, along with other state property and programs, in an effort to bring in roughly $6 billion or more."

It includes this bewildering remark (bewildering, considering its source):

They also say their proposal is a way to spark debate over whether government should be in control of certain entities in the first place.

"Government doesn't always have to do it," [Republican State Sen. Geoff] Michel says.

Well, count that as change I can believe in.

"The airport is a significant asset," Brod adds. "Why is the state running the airport, which provides restaurants and shops and the functions and the operations that a private business probably would do very well?

"So what we're looking at is just ... raising the real question of 'what should government be doing?'"

Posted by Tim Shaughnessy at 03:16 PM in Economics

Building Brand Equity: Free-Riding on William Easterly

William Easterly has a new blog on foreign aid. Here's his last paragraph (HT: Arnold Kling):

If you are not accountable for promises, if you try to do everything and focus on nothing, and if you obsess about aid money raised rather than results achieved, haven’t you already told us that the money will not be “well spent”?

Arnold Kling applies these insights to the stimulus package. If we take the principle that people respond to incentives seriously, then we have to follow it wherever it leads. Economists with free-market sympathies are often accused of having naive faith in perfect markets, but the case for interventionism makes awfully heroic assumptions about what governments can and will do if we would only give them the power to do it.

I've been reading a lot of papers about corruption today while working on revisions of a couple of projects (1, 2), and I think we're making a lot of progress toward better understanding why government isn't a cure for all that ails us. While I'm shamelessly self-promoting, my paper combining some of Easterly's empirical findings with the theoretical framework of the New Institutional Economics will be published in the Journal of Private Enterprise soon.

Posted by Art Carden at 02:17 PM in Economics

Broken Windows Krugman at His Best

Paul Krugman sayeth:

Next, write off anyone who asserts that it’s always better to cut taxes than to increase government spending because taxpayers, not bureaucrats, are the best judges of how to spend their money.

Here’s how to think about this argument: it implies that we should shut down the air traffic control system. After all, that system is paid for with fees on air tickets — and surely it would be better to let the flying public keep its money rather than hand it over to government bureaucrats. If that would mean lots of midair collisions, hey, stuff happens.

This is breathtakingly bad economics--does Krugman really believe the airlines would fly their airplanes, worth millions of dollars, without an effective air traffic control system? Of course they wouldn't. And they just might develop a system of their own that works much better than the FAA.

Krugman continues:

The point is that nobody really believes that a dollar of tax cuts is always better than a dollar of public spending.

I doubt anyone is saying a dollar of tax cuts is ALWAYS better than a dollar of spending. Instead, folks calling for tax cuts over spending as the best form of stimulus are thinking at the margin. That is, they are taking the current condition as the reference point and asking what the more useful change would be. If we were starting from a basis of no government spending or much lower government spending then maybe, but just maybe, a dollar of spending would be preferable.

ADDENDUM: The broken windows reference is explained here.

Posted by E. Frank Stephenson at 12:56 PM in Economics

Condoms as Stimulus--What's Next Viagra?

I've heard of supply side economics and demand side economics, but apparently there is now bed side economics (transcript from ABC's "This Week" via Drudge:

STEPHANOPOULOS: Hundreds of millions of dollars to expand family planning services. How is that stimulus?

PELOSI: Well, the family planning services reduce cost. They reduce cost. The states are in terrible fiscal budget crises now and part of what we do for children's health, education and some of those elements are to help the states meet their financial needs. One of those - one of the initiatives you mentioned, the contraception, will reduce costs to the states and to the federal government.

STEPHANOPOULOS: So no apologies for that?

PELOSI: No apologies. No. we have to deal with the consequences of the downturn in our economy.

Posted by E. Frank Stephenson at 12:10 PM

How to Bailout the States (If We Must)

Here's the rough draft of an op-ed I'm working on:

Appearing recently on ABC’s “This Week,” Senate Minority Leader Mitch McConnell suggested that stimulus funds for the states take the form of loans rather than grants. "It will make them spend it more wisely," McConnell said. "The states that didn't need it at all wouldn't take any."

Since, alas, some sort of aid to states seems to be a foregone conclusion, Sen. McConnell’s approach may have merit. Indeed, one refinement of Sen. McConnell’s proposal—tying the interest rate on the loans to state thriftiness or lack thereof—might provide a useful antidote to state profligacy.

Many states have rapidly increased their spending in recent years. Delaware, for example, increased its spending by 21.4%, some 5.3% per year, above the rate of inflation and population growth over the 2003-2007 period. (Spending growth equal to inflation plus population growth yields constant real spending per capita.) In the same four years, my state, Georgia, increased its spending by some 10.9% (or 2.7% per year) above inflation and population growth. Other states with rapid spending increases include Hawaii, Massachusetts, and Indiana.

By contrast, some states have maintained commendable fiscal discipline in recent years. Texas and South Carolina, states with governors who have publicly stated they do not want federal aid, have both held spending growth below inflation plus population growth. Oregon, Washington, and Connecticut have even more impressive records of controlling spending. And the most fiscally conservative state over the past four years is West Virginia which decreased spending by a whopping 22.7% below inflation and population growth.

In order to avoid moral hazard—encouraging states to grow spending in anticipation that Uncle Sam will bail them out come the next cyclical downturn—aid to states should reflect states’ fiscal discipline in recent years. Sen. McConnell’s loan idea can accomplish this objective by tying states’ interest rates to their rate of spending growth.

Here’s how such a scheme might work. Interest rates could be based on five year Treasury notes which currently carry an interest rate around 2%. States that kept their spending at or below the rates of population growth and inflation could borrow at the 2%. States with more rapid spending growth would pay interest rates equal to 2% plus their rate of spending above population growth and inflation. Delaware, for example, would pay 7.3% to borrow and Georgia’s interest rate would be 4.7%.

An additional improvement over simply sending funds to states would be to tie the bailout funds--be they grants or loans--to states' adoption of meaningful tax and spending limitations. Such limits could slow increases in state spending when economic growth returns and mitigate the boom/bust cycle in state fiscal policy.

Although there would be a few details to be resolved (perhaps tweaking the interest rate formula for Louisiana and Mississippi which had large increases in spending in the aftermath of Katrina), providing state aid in the form of loans with interest rates tied to fiscal discipline ameliorates the moral hazard created by federal grants to states, rewards well managed states, and acts as a disincentive for irresponsible spending growth.

Note: The spending reduction for WV strikes me as implausibly large so I'm taking another look at the Census data.

Posted by E. Frank Stephenson at 08:32 AM

January 25, 2009
My turn ...

to be shocked, that is. Lobbyists won't be marginalized after all, according to this AP release.

President Barack Obama's ban on earmarks in the $825 billion economic stimulus bill doesn't mean interest groups, lobbyists and lawmakers won't be able to funnel money to pet projects.

They're just working around it — and perhaps inadvertently making the process more secretive.

[...]

"'No earmarks' isn't a game-ender," said Peter Buffa, former mayor of Costa Mesa, Calif. "It just means there's a different way of going about making sure the funding is there."

It won't be in legislative language that overtly sets aside money for them. That's the infamous practice known as earmarking, which Obama and Democratic congressional leaders have agreed to nix for the massive stimulus package, expected to come up for a House vote this week.

Instead, the money will be doled out according to arcane formulas spelled out in the bill and in some cases based on the decisions of Obama administration officials, governors and state and local agencies that will choose the projects.


Posted by Wilson Mixon at 11:07 AM in Politics

January 24, 2009
Paul Krugman, stickler on the history of economic thought?

Paul Krugman writes:

Is it too much to ask that someone criticizing Keynes actually, you know, read Keynes …?

It is, of course, a perfectly reasonable request. But it’s pretty funny for the request to come from the same person who declared:

Until John Maynard Keynes published The General Theory of Employment, Interest, and Money in 1936, economics—at least in the English-speaking world—was completely dominated by free-market orthodoxy. Heresies would occasionally pop up, but they were always suppressed.

Krugman’s declaration here shows that has not actually, you know, read the pre-1936 economics literature to which he refers. (He has, instead, read and repeated Keynes’ mis-characterization of it.) Never mind that the anti-free-market Institutionalists were not "completely dominated" or "suppressed". The two leading neoclassical economists of the English-speaking world c. 1910, Alfred Marshall and Irving Fisher, both explicitly rejected the doctrine of laissez faire.

Posted by Lawrence H. White at 12:23 AM in Economics

I'm Shocked, Part Deux

From the WSJ:

Two Illinois congressmen urged the Treasury in October to avoid taking any regulatory action against a struggling bank in their state, illustrating the aggressive efforts some politicians are taking to help hometown lenders during the bank crisis.

In a letter they sent, Democratic Reps. Danny K. Davis and Luis Gutierrez also asked government officials to provide financial aid to National Bank of Commerce, based in the Chicago suburb of Berkeley, Ill.

Posted by E. Frank Stephenson at 12:00 AM

January 23, 2009
Bullseye!

Mike Lester of the Rome News-Tribune nails the Geithner nomination. (Geithner is a target-rich environment--Don Boudreaux smacks down Geithner's ignorance of international economics.)

LesterGeithnerCartoon.jpg

Posted by E. Frank Stephenson at 08:02 PM

Bryan Caplan on Parental Investment in Kids

Here's a very interesting article by Bryan Caplan on the amount of time we spend parenting (HT: Bryan Caplan). The main point I take from it is that our parenting effort features too much quantity and not enough quality. We can probably be happier, better parents (with happier, better kids) if we rest when we need to and don't do things we fundamentally don't want to do just because we feel like the kids need "face time." It's an interesting idea, to be sure, and I look forward to Bryan's forthcoming book giving us "Selfish Reasons to Have More Kids."

Posted by Art Carden at 03:44 PM in Misc.

What I've Been Reading and Writing Lately (Updated)

Blogging has been light recently because of the beginning of the semester and a very enjoyable, fascinating (but very time-consuming) prep for Classical and Marxian Political Economy. This has made for a lot of really interesting reading:

Murray Rothbard, Economic Thought Before Adam Smith. I had resisted reading this for some time because it's part of Rothbard's unfinished history of economic thought. The first volume is nothing short of magisterial, and it lends a lot of credence to Deirdre McCloskey's developing thesis that rhetorical changes were part and parcel of what laid the groundwork for modern economic growth. Very specifically, it's likely difficult to have a capital market in a world where charging interest is considered by many to be a mortal sin. The main text for the course is Ekelund and Hebert's A History of Economic Theory and Method, 5th edition, but Rothbard has helped considerably as I've prepped lectures. Students will be reading the chapter on the Scottish Enlightenment on Thursday.

David Hume, Essays, Moral, Political, and Literary. Hume and Adam Smith were close personal friends; we're reading essays 1-9 in part II for class on Thursday.

Karl Marx, The Communist Manifesto. See here.

Paul Krugman, "Ricardo's Difficult Idea." For all our differences, economists at least agree on the fundamentals. And there are few things as fundamental as the law of comparative advantage. Here, Krugman offers a very useful contribution to the General Theory of the Theory Class and points out why, in his opinion, so many learned people either refuse or fail to understand the law of comparative advantage. On the subject of refusal to understand, here's Lou Dobbs offering a cogent criti--...er, calling economists, particularly Alex Tabarrok and Ben Powell, names.

I've also recently posted a couple of papers on SSRN.

"How to Be a Great Conference Participant." The tongue-in-cheek product of a multi-hour delay at the airport in New Orleans after the 2007 SEA meetings. The abstract:

Being an academic, particularly an academic economist, is a task that requires a great deal of preparation and effort. It also requires a great deal of travel. This essay provides helpful suggestions on how to be a Great Conference Participant.

Revenue and Regulation: Lessons for E.U. Leaders from the Roman Empire to the Modern Era (with Alex Tokarev). This is a draft of a book chapter that should appear in print sometime soon. The abstract:

Government structures are more bureaucratic (and their policies more redistributive) in the European Union than in the United States. The more 'statist' character of Europe is hardly a surprise given the leading role of France in the post-WWII integration of the continent. Economic freedom was never a priority for the French monarchs and republican parliaments. Admiration for the "invisible hand" of the market may have inspired brilliant thinkers such as Cantillon, Say, and Bastiat, but theirs were voices crying in the desert of interventionism. We explore European bureaucracy from the institutional changes of the late Roman Empire through the French Revolution.

Posted by Art Carden at 03:18 PM in Economics

January 22, 2009
I'm Shocked (a la Capt. Renault)

From the WSJ:

Troubled OneUnited Bank in Boston didn't look much like a candidate for aid from the Treasury Department's bank bailout fund last fall.

The Treasury had said it would give money only to healthy banks, to jump-start lending. But OneUnited had seen most of its capital evaporate. Moreover, it was under attack from its regulators for allegations of poor lending practices and executive-pay abuses, including owning a Porsche for its executives' use.

Nonetheless, in December OneUnited got a $12 million injection from the Treasury's Troubled Asset Relief Program, or TARP. One apparent factor: the intercession of Rep. Barney Frank, the powerful head of the House Financial Services Committee.

Mr. Frank, by his own account, wrote into the TARP bill a provision specifically aimed at helping this particular home-state bank. And later, he acknowledges, he spoke to regulators urging that OneUnited be considered for a cash injection.

As Mike Munger recently said, "Golly, I wish Public Choice were not such a deadly accurate way of understanding the political world."

Posted by E. Frank Stephenson at 10:46 AM

Econotourism: India, part 2

Many arrangements in India’s cities are puzzling until you remember that land and capital are dear while labor is cheap. You don’t do your own shopping at a chemist’s shop (pharmacy): one of the half-dozen clerks behind the sidewalk counter jots down and fetches your order. (Btw, almost any medicine is available without a prescription.) Self-service supermarkets are rare and small, as in Manhattan, but unlike Manhattan's the one we visited in Bombay had a clerk stationed in every aisle. Nobody replaces broken appliances or electronics: guys in hole-in-the-wall booths, in grimy arcades bordering the corrugated-steel shantytowns, fix them cheaply. In one such arcade, where we took clothes for alterations, two booths down from the tailor, four men sat on the floor hand-sewing flowers together into garlands. In one home we visited, a tailor was making a house call to do alterations using the homeowner's sewing machine.

And this is the country where, fifty years ago, Nehru thought that capital-intensive heavy industry was the way to go?!

In homes, a shower or bath is typically warmed, somewhat, only by a small wall-mounted on-demand electric water heater (commonly known as a "geezer"). Supposing that there is a shower head, and not just a bucket for collecting warm bathing water, it is seldom within a stall, and often the bathing area is not separated from the rest of the bathroom even by a low wall, so water splashes all over the bathroom. The design assumes that a servant will come and mop up after each shower. But even pensioners of modest means do have servants.

ADDENDUM: Here's another example of capital-labor substitution. In the U.S., if you want a large outdoor tent for a reception, you typically rent one with an expensive, pre-fabricated, jointed metal frame that a small crew can quickly put up and take down. At the Delhi Golf Club, on January 2nd, I watched a large crew dissassembling a tent frame that had been custom-built entirely from long bamboo poles tied together with twine.

Posted by Lawrence H. White at 12:56 AM in Economics

January 21, 2009
We can't spend our way out of this quagmire

My UMSL colleague David Rose and I have an op-ed piece in today's St. Louis Post-Dispatch. Topic: how bad fiscal and monetary policies contributed to the financial mess and how they threaten to perpetuate the problem. Here's a nugget on how Federal Reserve policy disabled the economy's interest-rate brake:

But if the Fed hadn't increased the money supply from 2002 to 2006, increased demand for credit resulting from deficit spending and the increased demand for real estate would have pushed up interest rates. This would have discouraged borrowing. Rising interest rates would have thwarted the process by which an increase in borrowing by the government and by the public artificially inflates asset prices, begetting even more borrowing.
Posted by Lawrence H. White at 11:58 AM in Economics

Pith & Wisdom for Bailout Nation

The best two sentences I've read today:

Every man must bear the loss of a bad bargain legally and honestly made. If not, he could not enjoy in safety the fruits of a good one.

That's from a famous 1855 case on mistakes & fraud in contract, Harris v. Tyson (24 PA. 347). Full text of the opinion is fascinating and pasted beneath the fold.

Read More »

Posted by Edward J. Lopez at 11:46 AM in Law

Economic Freedom Correlates with Peace

Global Peace Index World Map:
peacemap.gif

Economic Freedom of the World Map:
Econ-Freedom-2008-cover150 map only.jpg

efandpeace.JPG

Posted by Robert Lawson at 11:36 AM in Economics

Hedge Fund of Last Resort

The Wall St. Journal today channels the message of James Hamilton's blog and of the second half of my paper for the November Cato monetary conference: the Fed has radically expanded its balance sheet while transforming itself into a highly leveraged holder of risky assets. Losses will fall on American taxpayers.

HT: Ivan Pongracic, Jr.

Posted by Lawrence H. White at 12:37 AM in Economics

January 20, 2009
Selection bias

Ugh. I'll let CNN.com speak for itself:

Stimulus: Spend or cut taxes?--Most economists agree that both are needed. The debate comes when they ask how split it.

later on...

Most economists support the emphasis on spending [rather than tax cuts], saying government expenditure does more to boost gross domestic product, a key indicator of fiscal health.

In other words, spending delivers more bang for the buck because each dollar paid to a worker building a wind turbine, for example, is then re-spent on groceries or clothing, causing a fiscal ripple-effect. Conversely, a worker might save a third of the money he is given in a tax cut, with some of the spending going toward imports, which would also reduce the stimulus to GDP.

According to a Jan. 6 study by Mark Zandi, chief economist at Moody's Economy.com, GDP grows by $1.59 for every dollar spent on infrastructure, while the increase from a corporate tax cut is only $0.30.

Haven't we been over this? Of course, the story never discusses the logical conclusions of such arguments: why not double the government budgets and build millions of wind turbines? Why not triple it? A multiplier greater than one seems tantamount to a perpetual motion machine; if they actually existed they'd be pretty cool. I can't believe people are still convinced of the "paradox of thrift" argument either.

Even though we're worrying here at our University about our jobs since the state budget is bad, stories like this always remind me that the problem of economic ignorance is likely to never be solved so I will always have a certain amount of job security.

Posted by Tim Shaughnessy at 03:22 PM in Economics

How Can He Say This @#$! With a Straight Face?

I felt left out when I didn't make the list of ethics free Republican hacks like Ed and some other folks I know. So try, try again.

In his inauguaral address, President Obama called for a "new era of responsibility." This from the president who wants an $800B "stimulus package" (The Real Voodoo Economics) and plans for deficit spending in excess of $1 trillion.

There was also some blather about ""our collective failure to make hard choices." This is offensive. For example, my wife and I have bought two houses, making a large downpayment on both. We've been aggressively saving for retirement (only to see our savings nearly halved by the Fed and the pols). The fact that many other citizens and our spendthrift pols have not similarly lived within their means does not make me complicit in their failure. Alas, genuinely responsible chumps people are likely the ones who will bear the cost of Obama's grandiose schemes.

Posted by E. Frank Stephenson at 01:22 PM in Politics

Re Running--Berry Half Marathon

On March 7, Berry's 26,000 acre campus is the host for the 2nd annual Berry Half Marathon--there are also 5k and 10k races (rumor has it, a marathon will be added in coming years). Other events include a kite day, and a kids fun run. I'm not running, but I'll be on my mountain bike as a sweeper.

Posted by E. Frank Stephenson at 11:50 AM in Misc.

Carden - Lawson Running Throwdown

Co-blogger Art has begun running and plans to run the Mike Cody 4 Mile Classic at Rhodes College in a couple weeks. As a new runner, he's smartly starting with a run/walk strategy to make the distance.

I've run only one 4 mile race, the Ohio-Michigan 4 Mile Run in July 2006, and ran it in 24:22.

So here's the bet: If Art runs his 4 miler in less than twice the time (48:44) I ran mine, then I owe him a beer at the APEE meeting in April. Otherwise he owes me the beer.


In other running news:
Congrats to Scott Beaulier on his 3:07 marathon on Saturday at the Museum of Aviation Foundation Marathon in Warner Robins, GA. That's a new PR for Scott and a BQ.

Posted by Robert Lawson at 11:00 AM in Sports

Econotourism: India, part 1

I've just returned from three weeks in India, mostly in Bombay and Delhi. Here's the first installment of some observations.

The sweeping Marine Drive in Bombay (aka Mumbai) hugs the shoreline of the Arabian Sea. Near the Drive's southern end is the 5-star Oberoi Hilton hotel. A block or two to the hotel's north begins a long row of Art Deco apartment buildings facing the Sea to the west. The area could be the Miami Beach of India -- if not for the sad and startling fact that about half of the apartment buildings are shabby and stained. They look like they haven’t been painted in 10 years. Why would such a high-rent district be left in such disrepair? Ah, but it isn't a high-rent district: it happens that Bombay has had severe rent controls for decades. What a shame, what a waste.

Streets and other public places in Bombay are often dirty or in disrepair. On the other hand, in the seaside Juhu neighborhood north of downtown one can walk or jog in a beautifully landscaped and maintained park. What gives? It turns out that the park is private, owned by the surrounding apartment co-ops. Admission is Rs. 5 (about US$0.11). Maintenance is provided by the HSBC bank, which has a few discrete signs posted about the park.

Posted by Lawrence H. White at 12:26 AM in Economics

January 19, 2009
Dead Letter Office

I have a decent batting average on letters to the editor in the WSJ, but my last two were misses. Here's one (I thought this one had a decent chance of running):

To the editor:

Your article “Big Slide in 401(k)s Spurs Calls for Change” (Jan. 8) reports that “Many retirement experts have come to a similar conclusion: The 401(k) system, which has turned countless amateurs into their own pension-fund managers, has serious shortcomings.” Perhaps.

On the other hand, the recent market downturn has also resulted in big losses for many funds managed by professionals. Harvard, for example, is widely reported to have suffered large losses to its endowment, and star mutual fund manager Bill Miller’s Legg Mason Value Trust is down by half (a loss larger than that experienced by the people profiled in your article) over the past year.

Instead, what is needed by both amateurs and professionals is an end to the unsound monetary policy and other imprudent government actions that deserve much blame for the current crisis.

E. Frank Stephenson
Chairman, Department of Economics
Berry College
Rome, Ga.

The second (not too bummed over this one being rejected):

To the editor:

The contention (“Toyota Delays Mississippi Prius Factory” Dec. 16) that “Congressional efforts to provide loans [to Ford, GM, and Chrysler] failed this month mainly due to opposition by Republicans from Southern states that are home to foreign auto plants” is simply incorrect. The five Southern states with foreign auto plants (Alabama, Georgia, Mississippi, South Carolina, and Tennessee) have only ten Senate seats, far short of the 41 that would be needed to block loans via a filibuster. Fortunately, the ten Southern Republican senators were joined by many of their colleagues who, for a welcome change, decided to protect taxpayers rather than fleece them.

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

Posted by E. Frank Stephenson at 09:50 PM

For Your Viewing Enjoyment

Two highly recommended videos:

1. A PBS (!) clip on the corrupt Congressional earmarking process.

2. A Cato event on the relationship between education spending and economic growth. My friend George Leef is the first speaker.

Posted by E. Frank Stephenson at 09:35 PM

Quote of the Day: Charles Koch
The role of business is to produce goods and services that make people's lives better. And if you have to get a subsidy -- if you have to force other people to support your profit -- you're not doing that. You're not making them better off; you're making them worse off.

More here.

Posted by Joshua Hall at 08:32 PM in Economics

Building Brand Equity: Short Selling

Together with Scott Beaulier, my student Nick Abraham and I have an op-ed on short-selling in Saturday's Macon Telegraph.

Posted by Joshua Hall at 04:40 PM in Economics

Building Brand Equity: Wal-Mart Review

My review of The Local Economic Impact of Wal-Mart is now out in the Journal of Regional Analysis and Policy (Warning, .pdf).

P.S. Good luck to the new editor Richard Cebula.

Posted by Joshua Hall at 04:30 PM in Economics

Quote of the Day: Zimbabwe Edition
Baltazar shot me a look, and said, “The occupation of land was very popular after the liberation, because the whites owned it and they were rich, and so the people, and many war vets, thought that if we took over the farms then we will automatically be well-to-do, like the whites whom we removed. We didn’t realize that it took them decades to make those farms productive. Most of us now realize that farming is not a simple process.”*:

Jon Lee Anderson, "The Destroyer," New Yorker, 27 October 2008.

Posted by Joshua Hall at 04:24 PM in Economics

On presidential salaries c. 1909

An interesting, if not very "Progressive," take on the salary of the President of the United States is offered in a letter to the editor in the Jan. 19, 1909 NYT:

I think were our people to realize that the President of Haiti received all told $35,000 a year, but $15,000 less than the President of these United States, and the President of the French Republic something like $200,000 or more, who is merely a figurehead, a feeling of National pride would compel our lawmakers to take action to grant proper compensation to those who occupy positions of such great responsibility.
I suspect such an argument used to justify CEO compensation would run into considerable static both yesterday and today.

Posted by Craig Depken at 04:07 PM in Economics

On government financing c. 1909

An interesting parallel to current local and state tax revenue problems is the subject of a letter to the editor in the Jan. 19, 1909 NYT:

A house in this city which was sold ten years ago (not in foreclosure) for $21,000 was at the time assessed at $11,000. This year it would hardly bring $25,000, and yet it is assessed at $22,000. Only seven years ago the city could borrow on this same property but $1,100; now it can borrow and actually borrowed $2,200. By the former mode of tax valuation this property would be assessed for not more than $14,000, and the 10 per cent. debt limit would be only $1,400. By the trick of full valuation the debt was extended by $800, and this without legislative sanction. One can see that the underlying security for the city's present debt is relatively much smaller than it was seven years ago. A provident government would reserve at least a fifty-million-dollar margin for the possibility of a decline in values, but our city government has apparently adopted for its motto, "After us the deluge."
States and local governments are begging for bailout money as property values, and subsequent tax revenues, fall. However, consistent with this letter writer's intuition, if property values are held a little lower than current prices, then if a market correction occurs, the taxing authority might not be in such a pickle.

Unfortunately, too much to hope for.

Posted by Craig Depken at 04:03 PM in Economics

January 16, 2009
Hot Air

This, on the inauguration of The One who will, inter alia, reverse the trend toward global warming:

The carbon footprint of Barack Obama's inauguration could exceed 575 million pounds of CO2. According to the Institute for Liberty, it would take the average U.S. household nearly 60,000 years of naughty ecological behavior to produce a carbon footprint equal to the largest self-congratulatory event in the history of humankind.
Posted by Wilson Mixon at 04:52 PM in Politics

On Lying Bank Presidents c. 1909

From the Jan. 16, 1909 NYT:

T.S. Anderson, former President of the defunct Davies County Bank and Trust Company, was found guilty of swearing falsely to a statement of the bank's condition and was sentenced to three years in the penitentiary.
Perhaps we could use a little more of this these days?

Posted by Craig Depken at 01:31 PM in Economics

Only 4 Days Left ... Things to Do ... Another Two More Bailouts!

George W. Bailout is at it again ...

... the government cemented a deal at midnight Thursday to supply Bank of America with a fresh $20 billion capital injection and absorb as much as $98.2 billion in losses on toxic assets, according to people involved in the transaction.

UPDATE: Oops here he goes again--more dough for Chrysler's financing division.

Posted by E. Frank Stephenson at 11:54 AM

On bigness c. 1909

For some, there is an innate aversion to "bigness," at least in the context of private business. Those who distrust "bigness" in the private sector often (but not always) seem to have little problem with "bigness" in the public sector. There is another segment of the population (perhaps smaller) that feels the reverse: distrust in big government and little concern about big business.

Those who rail against Microsoft and champion Apple would likely reverse themselves if the market share of Apple was in the 94% range, even if Apple was doing everything they are doing "right" today. This aversion to "bigness" for "bigness" sake is one of the underlying roots (and problems) with US antitrust laws, especially the Sherman Antitrust Act.

The argument against "bigness" might be most famously rendered by Judge Louis Brandeis and was the focus of an editorial in the Jan. 16, 1909 NYT concerning the limitations placed on New York Insurance companies:

According to Mr. Kingsley's statement, the New York Life Company has been prevented from taking enough new business to make good its losses. It lost 69,000 members, and would have been able to replace them but for the operation of the law which limited its new business to 63,000 members. It would have been criminal to do enough business merely to make good its losses, and the company reduced its outstanding business by $68,000,000.
The setup is in place: Big company is bad and therefore must be limited by government fiat. There is an implicit lack of faith in either the market or the firm to limit firm size. The former would limit firm size through competition and product differentiation, the latter through the profit motive (the profit maximizing size of the insurance company is determined by demand, technology, and factor prices; as the insurance market does not seem conducive to natural monopoly, the size of the individual insurance company is therefore less than the overall market for insurance). The next paragraph begins to outline the "Progressive" reasons behind the law:

The law was enacted for reasons rather obscure. It seemed to have been thought that mere bigness was a menace, and the competition for bigness resulted in excessive cost of business. It was contended that it was necessary both to protect the companies against themselves and the community against the companies. Therefore the cost of getting business was restricted, and the law was made favorable - as was thought - to the smaller companies.
This reads like a scene out of Atlas Shrugged. Using the political process to hamstring your business competition is not new, and language such as "competition for bigness resulted in excessive cost of business" sounds good to the layman, but ultimately is clap-trap. Why would the government care at all about private business incurring extra cost? Rather, the spin is that firms are caught in a prisoner's dilemma and chase the grail of "size" to their collective detriment, as if "size" was the objective of firm management rather than profitability. Perhaps, but it seems unlikely. This reads more like the "Equalization of Opportunity Act" in Rand's opus.

The next paragraph lays out the almost immediate and, perhaps, unintended consequences of the law change:

The operation of the law has been otherwise. The smaller companies have not prospered by the overflow of business which it was forbidden the large companies to do. One has failed, one has reinsured, two have made good deficiencies of capital. The business which they lost and which the large companies were forbidden to take went outside the State. The deterioration in character of risks is even more serious than the limitation of volume. The companies thus lost the new blood which keeps any company vigorous.
Assuming the editorial is telling the truth, the smaller companies were not small because of first-mover advantage or because they were otherwise limited by the "big firms." Rather, they were small because that was their natural market size, either because of their clientel, the products they offered, their location, or for some other reason not nefariously concocted by the bigger firms. Moreover, those who were able to "vote with their feet" and buy insurance, say, in New Jersey, increased the relative riskiness of those insured by New York companies. This would be expected to raise the price of insurance (simultaneously reducing the consumer surplus of those who still purchased insurance and pricing others out of the market for insurance), it would also put the remaining firms in a less profitable situation for a given price of insurance. As with most, if not all, attempts by government to mandate human choice, government doesn't have sufficient information to write the mandate but that clever, and pesky, humans can outwit the bureaucrat's intentions. In this case, the New York legislature evidently forgot about the fact that the New York border wasn't protected by nature or law.

The paragraph continues with language that reminds me of the "how do you expect me to survive" analysis Hank Reardon offers when introduced to the "Steel Unification Plan" in Atlas Shrugged:

For four years Mr. Kingsley's company had done $300,000,000 of new business, and had an unimpaired plant and organization for doing so indefinitely. Now it is suddenly limited by law to $150,000,000. Meanwhile the companies of other states have gained $245,000,000 of new business, or $54,000,000 (sic?) more than the law allows the New York companies to do. The need of insurance is proportioned to population, and the business is being done, but not by New York companies.

The editorial goes on to question why big is bad:

As Mr. Kingsley says, it is queer logic which cures evils by limiting size. A big man or business may be sick, certainly, but not because of bigness. Neither need the big man or business therefore be bad. The Federal antitrust law punishes trusts merely because they are alive. It will not allow them to do good acts because the capacity to do anything implies the capacity to do bad things.

The paragraph is correct at the time of writing. The "rule of reason" applied to antitrust law is still a couple of years away when the Supreme Court rules on the the Standard Oil case (which incidentally wrapped up on Jan. 15, 1909) in 1911.

The conclusion:

Similarly, the New York statute - passed under a similar exaltation of sentiment - punishes mere bigness, irrespective of how the bigness employs itself. There is a sort of life insurance which ought to be pressed by law, equally, whether it is written by small or large companies. But the argument that a good company should be restricted merely because of its size is difficult to maintain now that we are calmer, and have otherwise cured the faults against which this singular law was leveled.

Thus, the bad policy was passed after the financial panic in 2007 1907? Say it isn't so. How many bad policies - then, now and all the years in between - have been introduced, passed, and implemented all in the name of "responding" to a real or supposed crisis? How many bad policies are being considered as I write this?

Perhaps you can look here for starters?

Posted by Craig Depken at 11:50 AM in Economics

Course Syllabi

Recent posts by Pete Leeson and Pete Boettke at The Austrian Economists have inspired me to share my course syllabi. I think we all benefit from thiis kind of collaboration, so I'll make problem sets and assignments available, as well. If you're in the Memphis area, we're hosting Randall Holcombe, the DeVoe Moore Professor of Economics at Florida State University, on Tuesday evening at 7:00 in Barret 051. Professor Holcombe will discuss his book Entrepreneurship and Economic Progress, and one of the papers on which his book is based is available at www.mises.org in their archives for the Quarterly Journal of Austrian Economics. Here are my syllabi for Econ 101, Classical & Marxian Political Economy, and Economic History. I last taught Economic History in Fall 2007 and plan to teach it again in Fall 2009; if you have any suggestions, I would be grateful.

Posted by Art Carden at 11:32 AM in Economics

On Sunday Baseball c. 1909

Having lived in Arlington, Texas, for 11 years before moving to Charlotte, NC, I enjoyed a boost in my quality of life by living about ten minutes drive time from the Ballpark in Arlington (now Rangers Ballpark in Arlington). Unfortunately, while I was in Texas, the Rangers appeared in the playoffs three times and were waxed each time by the Yankees (the rangers were a combined 1-9 against the Bombers). Usually sometime in the summer, when the temperature became obnoxious and the team's quality became ever more apparent, attendance would fade off.

Frustrated and very warm Rangers fans might agree with a proposed legislation in Texas reported in the Jan. 16, 1909 NYT:

The bill introduced in the Texas House of Representatives yesterday by Mr. Bowles to prohibit the playing of baseball on Sunday has caused much uneasiness among the owners of the clubs of the Texas League and many friends of the sport. They declare if th e bill becomes a law it will kill professional baseball in Texas.
I could see that, in 1909, weekend games were much better attended than weekday games as there were no lights on stadiums at that time. Essentially taking one half of the most profitable games away would have been a blow to the industry, no doubt.

Posted by Craig Depken at 10:57 AM in Sports

January 15, 2009
Best Sentence I've Read Today: Nicholas Kristof On Alleviating Poverty with Sweatshops

"In the hierarchy of jobs in poor countries, sweltering at a sewing machine isn’t the bottom." Hat Tip: Gregory Mankiw.

My classes started today; I'll be wearing my "I buy goods from poorer countries" wristband that the Adam Smith Institute sent me at least through our discussions of comparative advantage.

Posted by Art Carden at 06:36 PM in Economics

Building Brand Equity: Mises Podcast

Jeff Tucker over at the Mises Institute and I did this podcast today...talking about the financial crisis and lawn jarts.

Posted by Robert Lawson at 04:20 PM in Economics

"Don't leave me, come back"

Newsflash from Hammond, Indiana. This just in.

Boy's Tongue Stuck on Pole NBCChicago.com January 15, 2009

Remember what happened to Flick?

In the 1983 film "A Christmas Story," based in the 1940s, Flick, a friend of the young protagonist, Ralphie, gets his tongue stuck to a flag pole when he tries tasting the frozen metal.

Who would DO that? Well, apparently, Flick is not alone.

In Hammond, Ind., police were called to the scene of a similar crisis Tuesday night. A 10-year-old boy got his tongue stuck on a frozen street light.

The Field Elementary School fourth-grader managed to mumble to police that a friend had dared him to lick the fixture, and as the NW Indiana Times reported, "He must have been triple dared."

Ahem. I believe it was a triple dog dare that got Flick. BTW, you can buy leg lamps here. The fishnet nylons are genuine, and the leg lights up. They're "indescribably beautiful" and "remind of the Fourth of July."

Posted by Edward J. Lopez at 09:19 AM in Funny Stuff

January 14, 2009
Today's Reading: Macroeconomic Populism

Last week I revised and shortened this paper for the Journal of Lutheran Ethics. Assuming the paper is published, the longer version will remain on the web. I've also been collecting notes for a wholesale revision of the larger project about institutional change that Bob, Josh, and I are working on. To this end, I've been reading Rudiger Dornbusch and Sebastian Edwards (eds)., The Macroeconomics of Populism in Latin America. The first chapter contains an excellent organizing framework for understanding Latin American economic crises in the late 20th century (which, not surprisingly, weren't the product of a Friedmanite conspiracy) and the rest of the book consists of specific case studies. There is much here about institutional dynamics and, I hope, lessons that we can learn in the face of a populist surge in the United States.

Posted by Art Carden at 04:39 PM in Economics

Laundry Worker Full Employment Act c. 1909

The Jan. 14, 1909 NYT reports on potentially misguided legislation proposed in Nebraska:

Traveling men in this State [Nebraska] will be handsomely treated at country hotels so far as the bedding is concerned if a bill introduced in the State Legislature to-day becomes law.

This bill provides for sheets at least nine feet long and made of white linen or cotton, with the emphasis on white. Pillow slips are to be of the same material as the sheets, and sheets and pillow slips are to be changed for each new occupant of the bed and must be washed and ironed before being used a second time. Also quilts, blankets, and comforts must be, according to the provisions of the bill, aired every day.

I wonder if the legislator proposing the bill had any relatives in the cotton industry? Perhaps someone with friends in the legislature was "stuck" with hundreds or thousands of nine foot sheets for which there was no market. Perhaps the proposed law was intended to legislate a market into existence? On the other hand, it might have been much more Progressive in spirit. Perhaps the law was intended to ensure a legislated demand for quilt airers and ironers.

Will we get a flurry of similar legislative interventions in the coming months, all carrying the word "stimulus," "fairness," "security" or "stabilization"?

Posted by Craig Depken at 11:17 AM in Economics

What is THE Multiplier?

Arnold Kling channels his inner Walter Block (HT: Cafe Hayek) and asks whether the government spending multiplier is 1.57 universally, or just over some restricted range. Two gut reactions:

1. My first thought is that discussions of the spending multiplier are probably like "economic impact" studies for stadiums and Super Bowls, though my prior is that the people doing the calculating in this case are more competent. Still, Kling asks the right question: if the multiplier is 1.57 over the entire range of government spending levels, then why are we stopping at a trillion dollars? If government spending is the wellspring of prosperity, why stop? People probably start to anticipate spending increases in the same way they start to anticipate inflation and, therefore, any short-run gains from government spending have to be gains from unanticipated spending. A bleg: cites on this?

2. The Keynesian story is that government spending is needed to solve a collective action problem that would otherwise produce insufficient aggregate demand. For a useful explanation of this, here's one of my grad school mentors Steve Fazzari on EconTalk.

Posted by Art Carden at 10:21 AM in Economics

January 13, 2009
Stimulus: The Real Voodoo Economics

Today's offering from Mike Lester of the Rome News-Tribune:

ObamaStimulus.jpg

Posted by E. Frank Stephenson at 07:27 PM in Economics

On the paparazzi c. 1909

We like to think that the paparazzi today is something new but it is really more of an evolution over time. For instance, the Jan. 13, 1909 NYT reports on the marriage of one John J. Evers. That name probably doesn't evoke a lot of interest from the average person. Perhaps the name is more recognizable after a hint from the baseball refrain "Tinkers to Evers to Chance"?

John Evers, the famous Cubs second basemen got married on January 12, 1909 and merited a total of 17 lines of text in the NYT. Here is the entirety of the story:

John J. Evers, the second baseman of the Chicago Cubs, this afternoon was married to Miss Helen Fitzgibbons, one of Troy's most popular young women. The ceremony was performed at St. Joseph's church by the Rev. Father Leo O'Haire, in the presence of relatives. The pride was attended by Miss Ellen C. Evers, a sister of the groom. Edward Wansbro of Albany, a cousin of the groom, was the best man. The second baseman's gift to his bride was a pair of diamond earrings. He gave the bridesmaid a diamond brooch and the best man a diamond stickpin.

Mr. and Mrs. Evers will spend their honeymoon in New York, Washington, and Palm Beach. They will return home Feb. 1.

Granted, this is a lot more information than was ever printed about my wedding, but I am not nor ever will be a famous second baseman.

An interesting question is why we have so much more paparazzi today than we did a century ago. Clearly there are influences on both the supply and the demand side. On the supply side there are two distinct influences: first the technology to distribute information about Britney and Paris is much more developed today than a century ago. Thus the costs of providing information about the rich and famous has declined. Ceteris paribus, we would expect a lower cost of production to lead to more coverage.

However, this is not guaranteed if those who are the subject of paparazzi focus truly wanted the paparazzi to go away. The rich and famous could lobby for legislation that would restrict the paparazzi snooping around their private lives, or they could continually sue individual paparazzi or their sponsors to drive up the cost of providing coverage of private lives. The fact that there are so few law suits in this area (regardless of the true legal standing of the claim), suggests to me that a) those who are the focus of paparazzi are resigned to their fate or b) are not that torn up about it. It seems, on the surface at least, that those subjected to paparazzi treatment often seek out the "coverage" in an attempt to improve their marketability, improve their image, or simply to "have a gas" at being in the magazines in the grocery store.

There are enough counter-factuals that suggest that famous people can keep a low(er) profile if they wish - I don't hear much about the daily goings-on of Clint Eastwood. Admittedly there seem to be times when famous people wish to keep a low profile and this desire is seemingly ignored, such as the case of Princess Diana. However, cases such as Princess Diana seem to be relatively rare. On the contrary, it seems the paparazzi provide a middle-man service to those members of the rich and famous who want to have some portions of their private lives exposed to their "fans." In return, the rich and famous pay for this service by suffering the "snooping." Perhaps the endogenously determined "price" between the paparazzi and the rich and famous leads to a natural limit for how far the paparazzi can go. If true, this would partially explain why the Diana-type scenario seems relatively rare.

On the demand side, there are a lot more people in this country who seem to have an insatiable appetite for other people's business. This is clearly not unique to the modern era, but the number of people and their willingness and ability to pay for information about where [insert name here] had a latte seems different than a century ago. Perhaps this is a function of affluence and increased leisure time which is filled with liviing vicariously through Tom Cruise rather than through Cousin Melba.

Another thought experiment is whether there is feedback between all-star salaries of athletes and actors and the interest people have in their daily lives. The feedback would arise if some/enough individuals feel a sense of "ownership" of their favorite athlete or actor, perhaps because they directly contribute to the athlete's/actor's high salary by attending games or movies. As interest in the private actions of the actor/athlete increases, this could cause an increase peoples' interest in the public/professional actions (such as games or movies) thereby increasing the salary of the athlete/actor.

While some condemn the paparazzi for invading the privacy of individuals, in many cases it is less clear whether paparazzi coverage is truly an "invasion." Both supply and demand-side effects seem to encourage more revelations of what might have been considered private or uninteresting behavior in the past.

Posted by Craig Depken at 12:21 PM in Culture

January 12, 2009
Technology and Household Bargains

If I remember the literature correctly a standard argument in the literature on the economics of the family is that people "save" by investing in their children as a response to capital market imperfections, and norms like bequests, dowries, bridewealth, etc. evolved in response to the fact that in their absence the intergenerational bargain is unenforceable: if we invest heavily in our son, there's nothing really to prevent him from shirking during his peak earning years unless we can forge a pair of golden handcuffs.

Fatherhood and rapid technological advances have led me to wonder about whether the efficiency of parent-child bargains will change. My parents' stories about the trials and travails of caring for me as a young child are backed up by a few pictures, but mostly I have to take their word for it. In this day and age of digital cameras and practically unlimited electronic storage space, the trials and travails of raising our son will be much more extensively documented. I see a couple of implications here:

1. Since the costs we're bearing are much easier to document, our son's future uncertainty about how much we really love him falls. The efficiency of the household bargain increases.

2. But well-documented sacrifice is a substitute for future sincerity. Instead of investing in familial social capital I can point to the pictures and go on my merry way. The efficiency of the household bargain is unchanged.

3. "I can't believe you took a picture of that!" Our son spends his teenage years and early adulthood in therapy grappling with his alienation from camera-happy Mom & Dad. The efficiency of the household bargain falls.

And yes, I've been watching my son this afternoon.

Posted by Art Carden at 05:40 PM in Economics

Acemoglu almost discovers Public Choice?

Daron Acemoglu writes about the financial crisis basically blaming it on greedy people and a blind ideology based on "Ayn Rand novels". As if greed were new and as if the Bush/Clinton/Bush years had turned America into Galt's Gulch. Spare me.

But there is this little nugget of wisdom in his article:

...even within firms, monitoring must be done by individuals: the chief executives, the managers, the accountants. And in the same way as we should not have blindly trusted the incentives of stockbrokers willing to take astronomical risks for which they were not the residual claimants, we should not have put our faith in individuals mon- itoring others simply because they were part of larger organizations.

Nothing wrong with that in my book.

He goes on to write that we need to save regulated, free-market capitalism (oxmoron alert!) from an anti-market backlash. How to do this, you ask?

A comprehensive stimulus plan, even with all of its imperfections, is probably the best way of fighting off these dangers, and on balance, there are sufficient reasons for academic economists as well as concerned citizens to support current efforts as insurance against the worst outcomes we may face. Nevertheless, the details of the stimulus plan should be designed so as to cause minimal disruption to the process of reallocation and innovation. (Emphasis added)

Um? Hello! Designed by whom? Oh yes, we should blindly trust the incentives of politicians, government bureaucrats, and MIT academics to design a comprehensive plan because they're nothing at all like those greedy stockbrokers working for large organizations.

Posted by Robert Lawson at 11:20 AM in Economics

January 11, 2009
Best Sentence I've Read This Afternoon

"The numbers involved are larger, but conceptually the policy talk is as if the past forty years did not happen."

Mario Rizzo at http://thinkmarkets.wordpress.com on the policy debate about how the economy should be stimulated.

Posted by Art Carden at 04:57 PM in Economics

On All-stars and Churches c. 1909

An interesting example of an "all star" type salary is reported in the Jan 11, 1909 NYT:

Mrs. Corinne Rider Kelsey has accepted an offer of $5,000 a year for several years to become the soprano soloist in the First Church of Christ, Scientist, in this city. The contract will begin immediately. This is said to be the highest fee ever paid to a singer in the history of church music in America. Clementine De Vere, well known here some years ago, received for her services while with the West Presbyterian Church in West Forty-second Street $3,500 and this remained the record until the engagement of Mrs. Kelsey by the First Church of Christ, where Mrs. Kelsey will sing every Sunday morning when not on her concert tours.

In 1909 the per-capita nominal income was about $350. Thus, it might have seemed a bit over the top to pay more than 14 times the per-capita income for someone to sing during Church services. However, similar to professional athletes and Hollywood actors, it is possible to recast the salary in terms of impressions.

Assume Mrs. Kelsey was going to sing for 50 Sundays each year. The $5,000 annual salary could be reduced to $100 per Sunday (give or take). If there were 1,000 people in attendance (I have no idea what the size of the First Church of Christ was at the time), the per-capita expenditure to secure Mrs. Kelsey was about ten cents.

Now, it might seem a bit out of touch to pay so much for a single person to sing during Church, however if the ten cents per person guaranteed "pretty" singing rather than off-key singing, then the cost might have actually been viewed as a real bargain. Moreover, as the First Church of Christ was in competition with other churches in the area, securing a headline singer might have provided a non-spiritual edge that might have increased membership or at least dissuaded members from leaving.

Posted by Craig Depken at 03:14 PM in Economics

It Depends on Your Perspective...

SCENE: The office/sewing room/guest room at the Carden house. It's Sunday afternoon and the Cardens are cleaning out the filing cabinet, closet, desk, etc. ART has been feeding several years' worth of useless documents (old phone bills, etc) into the shredder.

ART (economist): Wow. There's so much shredded paper in here that it looks like the Nixon White House.

SHANNON (CPA): Or Enron.

Posted by Art Carden at 02:58 PM in Economics

Headline Double-Take

I'm clearing out some stuff on the desk and came across an interesting headline. From the October 13, 2005 Harris Poll:

"Three-Quarters of U.S. Adults Agree Environmental Standards Cannot Be Too High and Continuing Improvements Must Be Made Regardless of Cost"

Posted by Art Carden at 12:33 PM in Economics

January 10, 2009
On business cycles c. 1909

From the Jan. 10, 1909 NYT:

Few years in the history of American finance and business have opened under conditions so unpromising as those which surrounded the birth of 1908, and it is equally safe to say that in no previous twelve-month have such serious handicaps been so far overcome and the country as a whole set so far forward upon the return road to prosperity....In the money market at the opening of January, 1908, the legacies of the [1907] panic were still undisposed of, for the premium on currency had barely disappeared, call money ruled at 20 per cent, the Clearing House banks were working under a deficit of $20,170,000 and had still some $50,000,000 of Clearing House certificates outstanding, while the Bank of England, the world's money barometer, had just reduced its discount rate from 7 to 6 per cent. On the Stock Exchange the movements of securities were feverish and uncertain, reflecting the unsettlement of sentiment everywhere, and the average price of sixty active railroad stocks stood at 79.66. The position of the railroads was disclosed both int eh great declines in earnings reported from week to week and in the official statement of the American Car Association that standing idle on the tracks were 341,000 freight cars. The sinister side of this situation was well brought out by the appointment on Jan. 8 of receivers for the Chicago Great Western Railway. Trade conditions were bad, consumption of merchandise had dropped sharply to 35 per cent. of normal, factories were going on part time or closing down, and leading to the return to Europe of thousands of foreign workmen. In the iron and steel trades curtailment had gone so far that December pig iron production figures, which were published in January, disclosed an output of only 1,234,000 tons as against 2,336,972 tons in October.
This was the never heard of "great recession" of 1908!! Consumption of merchandise, which I read to mean non-food, non-housing expenditures, fell to 35% of the norm!! If that were to happen today we would be truly in meltdown - instead we are on the precipice when consumption is down 6-10%.

There is very little discussion in the story about government intervention in markets. The author actually points out that the courts shut down a number of hastily passed laws against railroads and public utilities that mandated maximum prices - the story hints that many of the laws were passed in the panic that followed the currency crisis of 1907 but would have proved more damaging than helpful.

It is interesting to see how similar our current situation is to what happened in 1907-1908 and yet it seems that our situation might not be even as bad as that which occured in 1908!! Of course, yesterday's recession (or 100 years ago) doesn't mean much to the guy who lost his job this week. However, the fact that no one has ever heard of the recession of 1908 should provide a glimmer of hope - that the business cycle is just that - a cycle.

Will history books talk about the great recession of 2007-2008? Perhaps. But likely in the context of the presidential election and how the recession influenced the election's outcome rather than as an historical sea-change on the par of the 1929-1941 depression.

Posted by Craig Depken at 09:01 PM in Economics

The Musing Philosopher c. 1909

From the Jan 10, 1909 NYT:


  • The man who forgets what he ought to know seldom knows what he ought to forget.

  • There isn't anything much more uncomfortable than a professional hero who has lost his job.

  • The hardest obstacle a man has to overcome is frequently himself.

  • The pen may be mightier than the sword, but the sword swallower generally makes more money than the poet.

  • The quarrelsome man should remember that a chip on the shoulder never won a jackpot.

  • Posted by Craig Depken at 08:19 PM in Culture

    Progressive economics c. 1909

    From the January 10, 1909 NYT:

    "Now children," commanded the austere instructor in advanced arithmetic, "you will recite in unison the table of values."

    Thereupon the pupils repeated in chorus:

    "Ten mills make a trust,
    "Ten trusts make a combine,
    "Ten combines make a merger,
    "Ten mergers make a magnate,
    "One magnate makes the money."

    Alas, too many people still think this way.

    Posted by Craig Depken at 08:16 PM in Economics

    On Mere Man c. 1909

    From the January 10, 1909 NYT:


  • Man that is born of woman is small potatoes and few to the hill, and usually about as necessary as a smokestack on a watering cart.

  • He takes pride to himself, in his indomitable will, but it only needs an 89-cent alarm clock to wake him up in the morning.

  • Man goes about in a spike-tailed coat and a skyscraper hat and declares bridges and tunnels open "in the name of the Commonwealth," and he wouldn't know a Commonwealth if he fell over one.

  • His wife takes his name, his creditors take his money, his tailor takes his measure - but none of them take him seriously.

  • Man is merely a matter of opinion - his wife's opinion. And that is a serial without an end.

  • Posted by Craig Depken at 08:13 PM in Culture

    January 09, 2009
    Black-Market Kidney Sales

    Economics + The Empire Strikes Back = Teaching Example Comedy Gold.

    Posted by Art Carden at 01:53 PM in Economics

    On president-elect propriety c. 1909

    The Jan 9, 1909 NYT reports on a very different approach to announcing the incoming cabinet than the current "Office of the President-elect":

    The Taft-Knox Cabinet conference is over and the Pennsylvania Senator is to-night on his way back to Washington. Neither the President-elect nor his adviser will discuss the result, and it is strongly hinted by Mr. Taft to-night that his Cabinet will be made known for the first time when he sends the names of the men who are to compose it to the Senate for confirmation after March 4.

    There is more to the story, primarily discussing the Taft will attend a barbecue in South Carolina and that Governor-elect Joe Brown of Georgia had visited with Taft.

    Perhaps it is better to release the names of the proposed cabinet members earlier than later so that the public and those with axes to grind in Congress can have time to amass their arguments against any proposed cabinet member. Moreover, there might be Richardson-like outcomes of a nomination that any president-elect would rather have occur before the actual nomination hearings or votes occur.

    Nevertheless, given the extended announcements and bromide-filled press conferences held by the new species "Office of the President-elect" over the past two months, Taft's approach might have been preferred.

    Posted by Craig Depken at 12:11 PM in Politics

    Valuable New York insights c. 1909

    The Jan. 9, 1909 NYT reports:

    DALLAS, Texas - A corps of auditors from new York have for some time been checking up the accounts of all the State Departments at Austin. today they astonished Gov. Campbell and other State officials with the statement that the Texas Capitol building was in danger of being blown to pieces at any moment. They then called attention to the fact that all of the Texas National Guard ammunition under charge of the State's Adjutant General was stored in the basement of the Capitol.

    They recommended that all these explosives be removed at once.

    Posted by Craig Depken at 12:01 PM in Funny Stuff

    On Congressional license c. 1909

    The January 9, 1909 NYT reports:

    The Post Office Department is now engaged in an effort to collect $16 from Senator Tillman in postage on a typewriter, which he franked from his home in South Carolina to Washington recently.

    Yesterday the department had a letter from him refusing to pay, and saying that the department could burn up the machine or do what it liked with it, as it was Government property and he would not pay postage on it.

    Posted by Craig Depken at 11:56 AM in Politics

    Who's The Top Two?

    I car pool with William Keech, the political economist who used to be Head of the Decision Sciences Dept at Carnegie Mellon, and is now a Research Prof. at Duke.

    In the car, we got to discussing a question he had raised in class this week: Who were (are) the TWO most important economists of the 20th century?

    Where...."important" means influential, having the biggest impact on the way people think and the way government acts.

    Read More »

    Posted by Michael Munger at 09:54 AM in Economics  ·  Comments (6)

    EconTalk: Best PodCast? It's Up to YOU!

    Hey, Econtalk got nominated again.

    The competition is tough.

    But you can vote once per day per IP address.

    Vote early AND OFTEN, please!

    Posted by Michael Munger at 09:42 AM in Economics

    Economic Viagra for the Porn Industry?
    In an announcement that launched a thousand unprintable puns, adult-entertainment moguls Larry Flynt and Joe Francis said Wednesday that they are asking Washington for a $5 billion federal bailout, claiming that the porn business is suffering from the soft economy.

    Article. Would this be any more obscene than Washington's recent spending orgy?

    Posted by E. Frank Stephenson at 09:30 AM in Misc.

    January 08, 2009
    On progress c. 1909

    The January 8, 1909 NYT has the following poem:

    A CENTURY OF PROGRESS

    1809

    It seems so rash, their setting forth
    To Western wilds, this youthful pair,
    Forsaking homefolk, comforts, friends,
    For life of toil, privations, care!

    A prairie schooner holds their all.
    Through weary weeks they keep their way;
    Cross dusty plains, ford swollen streams,
    Dire perils brave by night and day.

    Content when rough log cabin's built,
    Secure from storm, from savage beast.
    Still grateful for life's common joys;'
    For land reclaimed for crops increased.

    1909

    Their grandson's coming East this week,
    To see the home of his sires
    In prairie schooner does not jolt,
    But glides along on rubber tires.

    His family quite comfy is
    In car six-cylinder, or so;
    Still, last year's model; chances are
    He'll buy a costlier at the Show!

    It would seem that a new stanza should be added. Suggestions taken.

    Posted by Craig Depken at 10:43 AM in Culture  ·  Comments (3)

    January 07, 2009
    Morningstar CEO of the Year

    CNBC is reporting that Warren Buffet is the winner of Morningstar's CEO of the Year award. Runner up is John Allison of BB&T Corp. From Morningstar's press release at the nomination stage.

    It may seem odd to nominate a bank CEO after all the trouble that imprudent lending has caused to our financial system, but John Allison, BB&T's retiring CEO, is a worthy candidate. During his tenure, he has used the combination of conservative underwriting with timely expansion to create a Southeast banking giant. With an intense focus on culture, Allison's personality and ethics are ingrained throughout the organization.

    Allison's conservatism shined strongly in the past year's dismal banking environment. While BB&T has not been immune to the problems, its strong capital position and underwriting standards have helped tremendously. In the first nine months of 2008, earnings declined only 9% from the same period in 2007, and in a landscape of dividend cuts, Allison actually increased BB&T's dividend slightly.

    BB&T could post these kind of results because losses at its peers were 50% higher than BB&T's. The bank's resilience has largely come from Allison's ability to portray BB&T as a safe haven for its customers, helping the bank to soak up deposits and profitable small and mid-sized business clients from its troubled peers at a rapid rate, as well as Allison's long-term efforts to enter the insurance brokerage business, which now accounts for 14.5% of total revenues. Most important of all, Allison's focus on the company's culture and his close relationship with his fellow managers have assured us that even though he will retire at the end of the year, BB&T's conservatism will remain its backbone and, we believe, will help reward shareholders for years to come.

    Posted by Edward J. Lopez at 10:08 AM in Economics

    January 06, 2009
    On the costs of TB c. 1909

    The Jan. 6, 1909 NYT reports on a report issued by the New York State Board of Charities concerning the economic cost of tuberculosis:

    Considered from an economic standpoint, the annual cost of tuberculosis in this State is estimated by the State Board of Charities, in a statement given out to-day, to approximate $63,000,000, which includes the value of workers prematurely lost to the State.

    "In the death of the young as well as the mature," says the statement, "the State sustains a direct financial loss, as such death means the elimination of future workers and by premature death of adults the Commonwealth is deprived of the earnings which should have accrued between the date of the death and the end of the productive period of `probable life,' less the cost of maintenance during the period."

    In 2007 dollars, the total is approximately $1.5 billion, but this figure grossly understates the true social cost of the disease. One would want to account for non-monetary costs of premature deaths suffered by loved ones and the monetary costs people incurred in trying to avoid the disease (even if those efforts were ineffective).

    According to this World Health Organization report on tuberculosis, 13,000 cases of TB were diagnosed in the US in 2006 with 1,300 cases proving fatal. According to this entry in the "Classic Encyclopedia," in the month of October 1917 there were 1,089 TB deaths in the state of New York alone.

    I just finished listening to Gregg Easterbrook's interview on Russ Robert's Econ Talk concerning Easterbrook's 2007 book "The Progress Paradox" in which it is outlined how things in our modern world are substantially better than they were 100 years ago (and less) yet people seem to not appreciate the improvements. It would seem that TB, or rather the substantially reduced threat it poses in the United States, is another example of what Easterbrook describes.

    Posted by Craig Depken at 11:50 AM in Economics

    Property Rights and the Right of Retrieval

    Property rights are sometimes described as bundles of sticks. This NPR story about Virginia's right for hunters to go on other people's land to retrieve their dogs provides a nice illustration. Although the current issue seems to be primarily an attempt by animal rights folks to decrease deer hunting, it shows that the current bundle of property rights in VA does not include the right to exclude hunters seeking to retrieve their dogs.

    Posted by E. Frank Stephenson at 11:13 AM in Economics

    Politics Without the Romance

    I've almost finished reading Amity Shlaes's magnificent book The Forgotten Man. Last night I came across this quote (on p. 338) from Keynes: "It is a mistake to think businessmen are more immoral than policiticians." Keynes and public choice--who knew?

    Posted by E. Frank Stephenson at 10:51 AM in Economics

    January 05, 2009
    On Bashing the Rich c. 1909

    From the Jan 5, 1909 NYT:

    ASHEVILLE, N.C. - County school teachers here have not received their pay because the Biltmore estate failed to pay its $24,000 county taxes as expected. The county authorities have cabled Mr. Vanderbilt direct at Paris.

    In the past Mr. Vanderbilt has paid half his taxes in December and half in January, and the estate office promised to make such payment this year. The taxes on an assessment of two and a half millions on Biltmore village and the estate proper were due in October.

    I do not know what the operating budget of Buncombe County was in 1909, but I would wager it was considerably more than $24,000 per year. To blame the failure to pay teachers on a single tax payer is pathetic but, I suppose, rather Progressive.

    Posted by Craig Depken at 12:55 PM in Politics

    Selgin on Argentina's Currency Shortage

    I recently posted on a currency shortage in Argentina (and previously on a similar problem in Guatemala); George Selgin addresses the same topic in today's WSJ. A snip:

    Suppose you want to ride the bus or feed a parking meter without exact change. Or suppose you just want to drop a few cents in a street musician's hat. Nothing easier, right? Not if you live in Argentina. Try doing any of these things there, and you could be in for a major hassle.

    Why? Because Argentina is in the grips of a small-change shortage. Want change for a five-peso (about $1.70) note? Don't try getting it at a store, unless you plan to buy something -- and be ready in that case to have the merchant refuse your business rather than part with precious centavos, or to have him hand you bon-bons instead of coins. Banks aren't much help either. The law says they're supposed to give you up to 20 pesos worth of change; but most openly flout that rule, supplying just a few pesos worth, or even hanging out "No Change" signs, like the ones at retailers' kiosks.

    Why the shortage? Argentina's central bank blames it on "speculators," meaning everyone from ordinary citizens, who stockpile coins, to Maco, the private cash-transport company (think of Brinks) that repackages change gathered from bus companies to resell at an 8% premium. But those explanations ring false. "Black marketeering" would not exist if coins were easy to get in the first place. After all, Argentines could just as easily hoard razor blades or matchbooks. Yet there's no shortage of those. What's so special about coins?

    The answer is that coins are supplied by the government alone. "Put the federal government in charge of the Sahara desert," Milton Friedman said, "and in five years there'd be a sand shortage." If Argentina wants to end the coin shortage, it ought to give up its monopoly.

    Posted by E. Frank Stephenson at 09:55 AM in Economics

    January 02, 2009
    California Dreamin'

    The Division of Labour team will be pretty busy at the ASSA meetings. Craig Depken is presenting in a session on real estate tomorrow morning at 10:15. Bob Lawson and I are in a concurrent session, Josh Hall is presenting in the economic education poster session, and Ed Lopez is hosting the IHS reception tomorrow evening. I expect that a good time will be had by all. Good luck to any and all job candidates who are reading this, and remember to have a good time. Most of the people you will meet here will be genuinely interested in you and your work. Remember that there's a demand curve in this market, too.

    I'll be extending my West Coast stay by a couple of days. On Tuesday, I'm presenting the torture and economic liberalization paper at the Naval Postgraduate School (thanks, David Henderson) and then speaking on the Great Depression and World War II to a group in Monterey (thanks again, David Henderson).

    I'll also plug Deirdre McCloskey's talk tonight at 6:30. Her topic: "Smith's Proposal: An Ethically Serious Capitalism." It should be especially interesting since I'm having my Classical & Marxian students read parts of "The Bourgeois Virtues." My flight gets in a little before 5:00, so I hope to make it in in time.

    Posted by Art Carden at 08:18 AM in Misc.

    January 01, 2009
    Is the Productivity Bubble Popping?

    Among the hats I picked up in 2008 was a semi-regular gig writing for Lifehack.org, a popular personal productivity website. I started reading it and other related sites a few months before I finished my dissertation in 2006, and it seems like during my years in the productivity business (first as an observer, now as a writer), pretty much everything useful about list-making, goal-setting, etc. was said and a bubble of sorts developed. I wonder if that bubble is popping. Here's Lifehack.org editor Dustin Wax starting a multi-part series entitled "Toward a New Vision of Productivity" in which he points out that many of the leaders of the web worker productivity movement have moved on and will be focused on actually getting things done instead of discussing meta-issues about productivity. It's worth a look, and as a social scientist I wonder if there are models in our toolkit than can explain it.

    Posted by Art Carden at 03:30 PM in Misc.

    For 2009: McCloskey on the Bourgeois Virtues, Once More with Feeling

    I'm prepping discussion questions on McCloskey's apology for capitalism for the first day of Classical & Marxian Political Economy. Here are a couple of passages I mentioned a while back that we should dwell on as we move into 2009.

    Posted by Art Carden at 01:19 PM in Economics

    The statesman who should attempt to direct private people in what manner they ought to employ their capitals would not only load himself with a most unnecessary attention, but assume an authority which could safely be trusted, not only to no single person, but to no council or senate whatever, and which would nowhere be so dangerous as in the hands of a man who had folly and presumption enough to fancy himself fit to exercise it. -Adam Smith

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