Division of Labour: March 2009 Archives
March 31, 2009
Quintomom c. 1909
From the March 31, 1909 NYT:
The wife of a farmer named Turner, residing near the Forsythe County [North Carolina] line, has given birth to five healthy children, three boys and two girls. The weights of the children range from four to six pounds. All of them are living and thriving, and the mother is doing nicely. The birth rate in this family heretofore has been normal.No new problems, just our problems.
Driving Drunk on a Motorized Bar Stool
That's what happened to an Ohio man earlier this month. A photo of his ride is below--maybe he could sell the idea to GM. (HT Drudge)
Posted by E. Frank Stephenson at 12:47 PM
Big Gestures: Earth Hour, Buy Nothing Day, Etc.
Here's an excellent take from Mike Hammock. I look forward to discussing it over lunch. "Earth Hour" reminds me of a movement during the California Energy Crisis of 2000/2001: voluntary rolling blackouts, wherein activists across the country were supposed to shut everything off at roughly the same time so that they could reduce the spot price of electricity. Needless to say, it didn't work.
Of course, if enough people had participated in Earth Hour, it would have lowered the spot price of electricity and then given people an incentive to do all of their energy-intensive activity during Earth Hour (note to self: plug in and charge cell phone, laptop, and anything else that's rechargeable during Earth Hour next year). There would be a small dip in consumption, perhaps, but it isn't likely to be that big.
I describe myself as a small-e environmentalist: I like nature, I don't like pollution, and I oppose policies with perverse outcomes (recycling in many manifestations, for example), but a lot of big-E Environmentalism is either silly or counterproductive (or both). The contrarian and Randian in me thinks that a useful protest against Earth Hour might be to have "Mind Hour." Participants in Mind Hour would switch all of their lights on when the world goes dark to symbolize how the mind is the ultimate resource. The mind is the faculty that allows us to fill the Earth and subdue it.
There's a Randian parallel, and here is another setting in which Ayn Rand is (perhaps) prophetic. I won't spoil Atlas Shrugged for those of you who haven't read it, but lights going out is an important part of the book. Further, Rand has numerous discussions of cigarettes as a symbol of man's mind. Particularly for non-smokers, electric lightbulbs are a similar metaphor--and over time, they're likely to bring similar opprobrium.
March 30, 2009
The witty gritty on Billy Gillispie
The quality of sports writing continues to improve, I think. Check out ESPN Page Two writer, Jeff MacGregor on Kentucky firing basketball coach Billy Gillispie after two years.
Taking a page directly out of Sun Tzu's "The Art of What Have You Done For Us In The Last 15 Minutes?" the strategic deciders at UK last Friday made the unstunning decision to unhire a guy they never should have hired in the first place. This, the Great Uncoupling, might cost the state another $6 million in prenuptial penalties. How high the price of sweet freedom! And poor decidering! That they then chose not to fire or tar and feather themselves for having engineered the whole boondoggle comes as a surprise to no one.
Meanwhile, with 50 wins and two second-round tourney trips in his first two seasons, Mark Turgeon is looking mighty handsome as the Texas A&M head coach.
Economies of scope c. 1909
From the March 30, 1909 NYT:
Hugh McLean of Chelsea, holder of the world's middle-distance motor-paced bicycle championship, and also holder of the world's record for one and two miles, motor paced, announced to-day his retirement from the bicycle track. Hereafter, it is understood, he will manage the boxing career of Sandy Ferguson.Because nothing prepares you for managing a boxer than a cycling career.
Palin as Dorothy; Pelosi as Queen of the Field Mice
NPR interviews Liberty Fund Resident Scholar Quentin Taylor on the monetary-political allegory of The Wizard of Oz. Story and audio here, including links to the 1964 essay by Henry Littlefield that lays out the monetary parable.
DOLers know this story well, but at about 4:00 Quentin brilliantly casts today's pols like Pelosi and Palin into roles from the novel. HT: Jason Drubert, a.k.a. "The Reverend Ed," who wonders why no mention of WJB's cross of gold speech.
March 29, 2009
"A National of Jailers"
There are few things rarer than a major politician doing something that is genuinely courageous and principled, but Jim Webb's impassioned commitment to fundamental prison reform is exactly that. Webb's interest in the issue was prompted by his work as a journalist in 1984, when he wrote about an American citizen who was locked away in a Japanese prison for two years under extremely harsh conditions for nothing more than marijuana possession. After decades of mindless "tough-on-crime" hysteria, an increasingly irrational "drug war," and a sprawling, privatized prison state as brutal as it is counter-productive, America has easily surpassed Japan -- and virtually every other country in the world -- to become what Brown University Professor Glenn Loury recently described as a "a nation of jailers" whose "prison system has grown into a leviathan unmatched in human history." [...] And, most important of all, Webb is addressing head-on one of the principal causes of our insane imprisonment fixation: our aberrational insistence on criminalizing and imprisoning non-violent drug offenders (when we're not doing worse to them). That is an issue most politicians are petrified to get anywhere near, as evidenced just this week by Barack Obama's adolescent, condescending snickering when asked about marijuana legalization, in response to which Obama gave a dismissive answer that Andrew Sullivan accurately deemed "pathetic."
Greenwald quotes at length from Webb's Senate speech (link provided). Here's the first quote:
Let's start with a premise that I don't think a lot of Americans are aware of. We have 5% of the world's population; we have 25% of the world's known prison population. We have an incarceration rate in the United States, the world's greatest democracy, that is five times as high as the average incarceration rate of the rest of the world. There are only two possibilities here: either we have the most evil people on earth living in the United States; or we are doing something dramatically wrong in terms of how we approach the issue of criminal justice.
Then, this on the Public Choice aspects:
It's hard to overstate how politically thankless, and risky, is Webb's pursuit of this issue -- both in general and particularly for Webb. Though there has been some evolution of public opinion on some drug policy issues, there is virtually no meaningful organized constituency for prison reform. ... Moreover, the privatized Prison State is a booming and highly profitable industry, with an army of lobbyists, donations, and other well-funded weapons for targeting candidates who threaten its interests.
Media Sightings Etc.
A few things that have caught my eye over the past couple of days.
JC Bradbury has a piece on the new United Football League in ESPN The Magazine. I can't find a link on the ESPN site and Bradbury's taken a blogging hiatus, but he suggests that the UFL has a chance of success because it is playing on Friday nights and has teams in large cities lacking NFL teams (Vegas, Hartford, Orlando).
Dan Klein on Paul Krugman (in Newsweek): "He's become more and more outspoken. A lot of what he says is wrong and not considered." Dan also has an interesting article on group think in academia in the spring issue of The Independent Review.
Hillsdale history prof Burt Folsom is now blogging; I especially liked this post in which Burt and his wife Anita offer up three questions that were not posed at the Obama press conference.
March 28, 2009
Downloadable Menger's Investigations
The NYU Press (1985) edition of Carl Menger's classic Investigations into the Method of the Social Sciences with Special Reference to Economics (1883), with an introduction by your truly, is now available as a free pdf download, courtesy of the Mises Institute.
From the introduction:
In criticizing the view that such social institutions as law, language, money, and markets were deliberately designed or rationally constructed, Hayek comments that the Investigations "contains still the best earlier treatment of these problems."
HT: Jeff Tucker
Dish Soap Smuggling
The quest for squeaky-clean dishes has turned some law-abiding people in Spokane into dishwater-detergent smugglers. They are bringing Cascade or Electrasol in from out of state because the eco-friendly varieties required under Washington state law don't work as well. Spokane County became the launch pad last July for the nation's strictest ban on dishwasher detergent made with phosphates, a measure aimed at reducing water pollution. The ban will be expanded statewide in July 2010, the same time similar laws take effect in several other states.
The last two paragraphs are a great example of Sowell's maxim that there are not solutions, just trade-offs. Not only do people use more water in their dishwashers but the extra trips to Idaho burn gas, increase road congestion, etc.
March 27, 2009
The Referees score it: 1 for Alan Greenspan, 5 for John Taylor
Today's Wall St. Journal has an interesting symposium on whether the Greenspan Fed caused the housing bubble, following John Taylor's op-ed indictment and Greenspan's self-defense.
Here's my and my colleague David Rose's take on Greenspan versus Taylor, in an unpublished letter we emailed to the WSJ on 11 March:
Alan Greenspan’s non mea culpa (“The Fed Didn’t Cause the Housing Bubble, March 11) is unpersuasive. Greenspan tries to blame the housing bubble entirely on a global savings glut causing a decline in long-term interest rates. He deems irrelevant his pushing down and holding short-term rates to historic lows during 2001-2006, on the grounds that a house’s price should be based on discounting its future housing services at 30-year rates only. Not so. House buyers can borrow at one-year rates through an Adjustable Rate Mortgage. Greenspan himself has elsewhere acknowledged that because he pushed one-year rates farther below 30-year rates, the share of adjustable-rate mortgages rose (indeed it doubled from one-fifth to two-fifths of new mortgages). The demand from new ARM borrowers was critical to fueling the housing boom.
March 26, 2009
Not From the Onion
Read this headline carefully:
March 25, 2009
Selgin on Good Money
Here's George Selgin giving an entertaining account of private token coinage during the Industrial Revolution in England and Wales, the topic of his new book Good Money.
HT: George Selgin
The seen and the unseen c. 1909
The March 25, 1909 NYT has yet another letter to the editor concerning the laundry industry, this time rising to the defense using the "seen and unseen" argument normally associated with Frederic Bastiat (More from The Law):
The public forgets that laundries perform a service on goods which are not their property, and in case of accident or carelessness the goods must be returned or accounted for, so that the patrons are fully aware of all cases of the kind. In manufacturing plants, on the other hand, if goods are poorly made they are scrapped and no outsider is the wiser. This is the main reason for laundries, as a whole, being looked upon as inefficient and destructive.A nice insight by the letter writer. However, the writer goes on to point out that many of the problems being pinned on the laundry industry might have a different source:
The same proportion of mistakes is made by collar and cuff, shirt, ladies waist, vest makers, &c, and as the purchaser seldom examines new goods carefully the laundries are blamed for some things that are plainly the fault of manufactures.
Two Thoughts on the Obama Presser
Below are two paragraphs that were part of President Obama's response to a question on his plan to reduce tax deductions for charitable contributions:
People are still going to be able to make charitable contributions. It just means if you give $100 and you're in this tax bracket, at a certain point, instead of being able to write off 36 (percent) or 39 percent, you're writing off 28 percent. Now, if it's really a charitable contribution, I'm assuming that that shouldn't be the determining factor as to whether you're giving that hundred dollars to the homeless shelter down the street.
The first paragraph reminds me of something I've wondered for awhile--I doubt he's taken even a single semester of economics. What's more fundamental than people respond to incentives, including tax incentives for charitable contributions. The elasticity of the response may not be large, but the direction should be unambiguous. (Of course, the clause "the determining factor" may be a Clintonian weasel wording.) I also suspect that Obama is not consistent on this matter--I bet he thinks people respond mightily to incentives for, say, enviro friendly cars or the like.
Re the second paragraph: I'm not in the 39% tax bracket but I'd gladly take a deal to cap the rate at which I could deduct contributions if he'd tax my income at the same rate as lower income people. When he said--just before the grafs above--that he wanted to go back to the deductibility rate that existed under Ronald Reagan, what he neglected to mention is that deductions and income were both at 28% under Reagan.
UPDATE: A reader emails to inform me that Obama's memoir indicates he took an economics course at Occidental.
Posted by E. Frank Stephenson at 12:55 PM
Thugs Called Out
This letter to Edward Liddy addresses at least three questions:
March 24, 2009
Looks Like a Bootlegger, Walks Like a Bootlegger, Quacks Like a Bootlegger
The headline of a news item:
Retailers pitch 'third way' in union fight: Starbucks, Costco and Whole Foods offer alternative proposal in battle over bill that business says would make it easier for workers to organize.
Posted by E. Frank Stephenson at 11:29 PM
Demand curves slope downward: A queue for "free" ice cream in Macon, GA.
Supply and demand for sperm--surpluses make prices fall.
For your musical enjoyment, a music video calling for Paul Krugman to be Treasury Secretary (needless to say, I don't share the singer's enthusiasm):
Mapping the Road to Serfdom: Communism Can't Handle Dissent
The latest issue of the Independent Review has an interesting article by Paul R. Gregory on how the Soviets purged dissident intellectuals. Here's a summary; the full thing will be online for free in six months.
Welcome cynicism on the Geithner plan from the left
The idea that fixing legacy banks is prerequisite to fixing the broad economy is a lie perpetrated by legacy bankers.
The rest of his post is an interesting mixed bag, and of course we would disagree about the best alternative to Geithner's plan, but Steve Randy Waldman nails it in that line.
On raising rivals costs? c. 1909
The March 24, 1909 NYT prints a letter to the editor supporting the recent push for regulation in....laundries:
The laundry business is one which needs regulating, and the introduction of a bill by Assemblyman Bauman of New York into the Legislature is gratifying, and is supported by the best laundries of Manhattan.Every and any measure? No concern for the costs of "every and any" measure? The appeal to public health is evidently not a new tactic for the regulator or, evidently, those who beg to be regulated. This smacks of aiming to raise rivals' costs, as the letter-writer admits that it is the best (that is the most expensive) laundries in Manhattan that seek to be regulated.
Letting the cat out of the bag c. 1909
A story in the March 24, 1909 NYT reports on a shyster with a convenient last name:
Fritb F. Marx, who was arrested in Hoboken on Monday charged with swindling John Steneck & Sons, bankers, of 95 River Street, Hoboken, out of $44,250 by using forged letters on credit purporting to come from a Bremen bank, at first agreed to let John Steneck & Sons have the $7,000 in cash which was found on him...
So far so good. The story is one of a financial swindler who played a local bank for some cash but got pinched. The last paragraph of the story is rather odd:
Marx, who is only 22 years old, occupied a luxurious apartment at 363 Riverside Drive, employing a butler and several other servants. His young wife, who gave birth to a boy on Sunday, has not been told her husband is in jail. She thinks he is absent on a business trip.Being postpartum, I suppose she wasn't reading the New York Times either.
On regulating prices c. 1909
The March 24, 1909 NYT has a letter to the editor that starts out in a manner that would make Hayek proud:
The regulation of rates on local [rail] lines should be left to the local lines themselves, as a commission appointed by the Congress at Washington, or the Legislature at Albany, many of whom live at widely separated parts of the country, cannot be supposed to know the local conditions applying to any small community, and all rates for carrying the commodities of that special territory should be regulated according to conditions prevailing therein, and which these men from widely separated parts of the country cannot be expected to know much about.How many times in the past 100 years has the government ignored this advice, despite its soundness? The lure of "control" for the benefit of the many or the few results in the same outcome - distorted prices sending the wrong signals to market participants thereby leading to mistaken action.
The letter continues:
Even in the matter of the Public Service commission of the State of New York, we doubt very much if any one member is thoroughly conversant with the situation in his own district, let alone being able to decide questions arising concerning some other part of the State remote from his own home territory.This point is rammed home every time Congress holds yet another committee meeting to discuss the financial "crisis" and the responses by public and private entities.
Unfortunately, after building up a good head of steam, the letter-writer flubs the ending:
The Toxic Assets We Elected
That's the title of today's superb column by George Will. Here are three paragraphs but read the whole thing:
TARP funds have, however, semi-purchased, among many other things, two automobile companies (and, last week, some of their parts suppliers), which must amaze Sweden. That unlikely tutor of America regarding capitalist common sense has said, through a Cabinet minister, that the ailing Saab automobile company is on its own: "The Swedish state is not prepared to own car factories."
I haven't read it yet, but this paper looks important. The abstract:
A group of studies, rapidly gaining popularity, promise that a massive program of government mandates, subsidies, and forced technological interventions will reward the nation with an economy brimming with green jobs. Not only will these jobs allegedly improve the environment, but they will pay well, be very interesting, and foster unionization. These claims are built on 7 myths about economics, forecasting, and technology. Our team of researchers from universities across the nation surveyed this green jobs literature, analyzed its assumptions, and found that the special interest groups promoting the idea of green jobs have embedded dubious assumptions and techniques within their analyses. We found that the prescribed undertaking would lead to restructuring and possibly impoverishing our society. Therefore, our citizens deserve careful analysis and informed public debate about these assumptions and resulting recommendations before our nation can move forward towards a more eco-friendly nation. To do so, we need to expose these myths so that we can see the facts more clearly.
I don't know if the paper raises this point, but much of the green jobs chatter strikes me as the old wine of import substitution (e.g., clear coal or solar for imported petroleum) in new bottles.
In a related note, yesterday's WSJ had an article States Vie for Share of Clean Coal Cash--nothing like a little rent dissipation. A snip:
The Texas political establishment launched a campaign this month to press Energy Secretary Steven Chu to consider funding a project proposed by Summit Power Group for a site near Odessa, in western Texas.
March 23, 2009
Renaissance Men: "Ask U2"
HT: Robert Donaldson. I finally got the new disc yesterday and haven't listened to it yet. I look forward to it.
And here they are delivering Letterman's Top 10 List:
All in the family: Thugs version
I wondered why ABC News would spend 2 1/2 minutes of their Sunday night broadcast interviewing the granddaughter of Bank of America's founder, who trashed current management. No suggestion was made that she has any expertise. Then this article ("Cuomo wins ruling to name Merrill bonus recipients") made it clear. Andrew Cuomo is, of course, the brother of Chris Cuomo of ABC News.
Deirdre McCloskey Comes to Rhodes Wednesday Evening
Deirdre McCloskey, a veritable walking university who holds appointments in numerous departments at the University of Illinois-Chicago, Academia Vitae (Deventer, Netherlands), and the University of the Free State in South Africa, will give a public lecture on her book "The Bourgeois Virtues: Ethics for an Age of Commerce" at Rhodes on Wednesday evening. The lecture is free and open to the public, and it will take place at 7:00 PM in the McCallum Ballroom at the Bryan Campus Life Center.
Real March Madness
Michael Goodwin on the recent witch hunt:
Everybody makes mistakes, and I made a beaut the other day. I was wrong to call members of Congress blow-hards and buffoons and declare them worse than useless.
Some simple math from xkcd
I also confess to not really understanding the hullabaloo about these AIG (et al.) bonuses at least not in the context of the times.
Randy Barnett: The presumption of liberty; Mario Rizzo: Of Human Design; and Gary Becker: Save the Ideas
I spent the past weekend at Liberty Fund discussing Randy Barnett's important book, Restoring the Lost Constitution: The Presumption of Liberty. Barnett's is a daring project on several levels (get rid of consent as a basis for legitimacy, replace original intent methods with original public meaning, rehabilitate the necessary and proper clause, and resurrect the 9th Amendment en route to a constitutional order with strong judgicial review that presumes liberty first when delineating the government's sphere). But I am left scratching my head on many levels. For example, Barnett emphasizes writtenness of formal rules as the essential characteristic that maintains constitutional integrity over time. While writtenness may be crucial to establishing a reference point for individual liberty vs. state power, it's an empirical truth that written passages do get interpreted differently over time, and that's a general description of where we are today versus where the framers meant to put us. As the book's opening line states, "If judges had done their job this book would not be necessary." Interpretation creep, if you will, is largely determined by the unwritten traits of a constitutional order, the informal institutions that supplement and substitute for formal rules, and the movement of public opinion and our instruments used to gauge it. Writtenness can help (or not) judges to get it right on specific cases, but the overall constitutional order, and the places of liberty and power within it, are informed by the forces of human action in addition to explicit human design. How, then, are we to presume liberty without falling vulnerable to the charge that we simply do according to the imperfect wisdom of the framers who aren't exactly representative---white, male slave holders long since in the grave?
Mario Rizzo's recent post at Think Markets, "In Defense of Reasonable Ideology", gets us somewhere. Answering Keynes, who "believed that one of the most important functions of economics is to determine what belongs to the State’s agenda and what does not," Mario continues:
Keynes is rejecting any presumption that the “results of human action but not of human design” (F. A. Hayek citing Adam Ferguson) are beneficial. He seems to be saying that we can operate without any presumptions at all; we can simply look at each “problem” on its own merits and make an individualized decision in each case. But a presumption is not an arbitrary belief; it is not “metaphysical” in the sense that it is completely impervious to new evidence. A presumption is a belief we accept until sufficient evidence to the contrary is forthcoming.
Mario goes on to defend a scientifically informed ideology, one that first uses our best abilities to understand the world empirically and that second defends the institutional arrangements that the emiprical work shows to benefit society the most. It's not an unyielding position either, because measuring a complex, extended social order is---like government or liberty or popular beliefs---imperfect.
Most people are not scientists, economists or intellectuals. They are not testing hypotheses. They have other things to do. They are often rationally ignorant. How can they make up their minds about public policy? Many, though not all, are ideological. They choose a set or complex of beliefs that comports best with their observations and experience. For them too it is not rational to give up the world view because some (few) observations seem to conflict. Forgive some of them who are not willing to throw away long-held beliefs on the say-so of a president who is someone most never heard of eighteen months ago.
In short, the argument for marekts is neither an unfounded nor an unyielding belief. It is firstly informed by economic science. And to the best of economic knowledge, society benefits the most when government is limited and markets are allowed to flourish. How do we know? Don't ask macroeconomics, there are only macroeconomists left.
Instead, ask a man who for 50 years has sought emprical truth through the lens of microeconomists, "a solid empiricist genuinely in search of answers." The Wall Street Journal's weekend interview is Mary Anastasia O'Grady interviewing Gary Becker at the Mont Pelerin Society meetings last weekend in New York.
As a young academic in 1956, Mr. Becker wrote an important paper against conscription. He was discouraged from publishing it because, at the time, the popular view was that the military draft could never be abolished. Of course it was, and looking back, he says, "that taught me a lesson." Today as Washington appears unstoppable in its quest for more power and lovers of liberty are accused of tilting at windmills, he says it is no time to concede.
The presumption of liberty is best for society. Call that ideology if you like. But dig deeper and you'll see it's actually more scientific conviction. The current tide of public opinion and government action, rushing away from the shores of our constitutional framers, is all the more reason to do economics and---as Hayek said---to save the ideas.
March 21, 2009
Kevin Dowd on the financial crisis
Here is video of Kevin's talk, delivered on Tuesday as the Chris Tame Memorial Lecture for the UK's Libertarian Alliance. I highly recommend it for content if not cinematography. The skippable introduction of the speaker lasts 7:05. The entire video including Q&A lasts 1:16:37
UPDATE: If you'd rather read a summary of Dowd's lecture rather than listen to it, Johnathan Pearce of Samizdata provides one.
ADDENDUM: Reason.tv briefly interviews John B. Taylor on the crisis here.
Charles Murray is back on ground that he covered in his second (and, of the ones I've read, best) book, In Pursuit: Of Happiness and Good Government. Here's the central paragraph, plus one sentence:
For some years a metaphor has been stuck in my mind: The 20th century was the adolescence of Homo sapiens. Nineteenth-century science, from Darwin to Freud, offered a series of body blows to ways of thinking about human life that had prevailed since the dawn of civilization. Humans, just like adolescents, were deprived of some of the comforting simplicities of childhood and exposed to more complex knowledge about the world. And 20th-century intellectuals reacted precisely the way adolescents react when they think they have discovered that Mom and Dad are hopelessly out of date. It was as if they thought that if Darwin was right about evolution, then Aquinas was no longer worth reading; that if Freud was right about the unconscious mind, then the Nicomachean Ethics had nothing to teach us.
Let's hope that the last sentence is correct.
Downloadable Free Banking in Britain
At the kind invitation of Dave Birch, I will be giving the leadoff talk (“Currency 2.0”) at the Digital Money Forum in London on 31 March. In connection with that event, I inquired at the Institute of Economic Affairs, publishers of the 2nd edition of my Free Banking in Britain, whether they might not like to unload some of their unsold book stock at the Forum. Turns out they didn’t have any. Now they’ve heroically made the title available again, not only as hard copy for £10 through print-on-demand, but also as a free PDF download (13.55MB). Details and download access here.
ADDENDUM: Adam Myers, Director of Marketing at the IEA, informs me that the print version is available in bulk for classroom use at £4 per copy. Bargain!
March 20, 2009
Going for the Capillaries
I don't think Krauthammer hammers enough on the rank indecency of the posturing over the AIG bonuses, but he gets in some zingers. Two follow:
It is time for the president to state the obvious: This recession is not caused by excessive executive compensation in government-controlled companies. The economy has been sinking because of a lack of credit, stemming from a general lack of confidence, stemming from the lack of a plan to detoxify the major lending institutions, mainly the banks, which, to paraphrase Willie Sutton, is where the money used to be.
Obama on Leno
1. Leno said (not verbatim) that Mr. Potter's lending at a interest rate of 2% in It's a Wonderful Life made current banks look like Mother Teresa. I doubt it. A 2% nominal rate in the early 1930s might have corresponded to a much steeper real real interest rate than a borrower today would pay. Why? Because the early 1930s was a period of deflation; a deflation rate of, say, 5% would have meant a 7% real rate for Mr. Potter's borrowers. Maybe we can sign Leno up for a principles of macro class.
2. Earlier today I read somewhere (Drudge?) that Obama made a Special Olympics gaffe during his appearance. I didn't hear it; either I missed it or NBC edited it out (that woudn't be much of a surprise). [UPDATE: I must have missed it, because this transcipt of the appearance includes the Special Olympics reference.]
3. Leno asked Obama about his NCAA brackets. After Obama indicated that he'd picked UNC, Leno asked if Obama favored teams from swing states. Obama replied that teams from NC, IN, and IA made out well in his brackets. This study--thanks to
ADDENDUM: Barack Obama's Teleprompter's Blog is a must read--it is staggeringly funny.
Posted by E. Frank Stephenson at 12:58 AM
March 19, 2009
If It Keeps Them Busy: NCAA Brackets Edition*
Barack Obama picked North Carolina to defeat Louisville for the NCAA championship, a relatively safe selection for a trailblazing president.
Actually, I'd prefer that Obama not focus on the economy. Source.
*HT to Justin Ross for the meme
Posted by E. Frank Stephenson at 10:07 AM
March 18, 2009
Talented political performer that he is, Obama primed the audience by promising that Caterpillar would give some workers their jobs back if Congress passed the rescue plan.
Caterpillar Inc. on Tuesday announced plans to lay off more than 2,400 employees at five plants in Illinois, Indiana and Georgia as the heavy equipment maker continues to cut costs amid the global economic downturn.
Wonder if these jobs are some of the ones that the stimulus plan was supposed to save.
Live Blogging Steve Horwitz
I've spent the week teaching at an IHS seminar in Atlanta (a fun week--great students, faculty, and IHS staffers). Tonight we have a guest lecture from Steve Horwitz (prof at St. Lawrence U and blogger at The Austrian Economists). I can't type nearly as fast as Steve talks, but I'm going to have a go at live blogging it.
Steve's talk is an analysis of the high school history version of the Great Depression and argues that the following 4 points are incorrect:
Note that the Fed is nowhere present in the h.s. history version of the Great Depression.
A quick review of money, inflation, and prices: Inflation is "too much" money and results in rising prices and artificially low interest rates that lead to a false boom (a la Austrian bus cycle theory). Deflation is "too little" money leading to reduced consumption and falling prices (sticky prices result in temporary surpluses, inventory accumulation, etc.). Of course, wages and prices also reflect changes in productivity.
Understanding the 1920s helps understand the stock market crash: Austrians argue the 20s were an inflationary boom. Rising productivity offset rising prices, concealing them in a mostly stable price level. The boom is unsustainable and the stock market crash is a symptom of the bust that started the previous summer.
Contra pop history, Herbert Hoover did not sit idly by in 1929-1933. Unemployment was as high as 25% in 1933 and was above 9% for the entire decade of the 30s. Another big feature was bank failures; over 8,000 of 25,000 banks failed in 1930-33 (6 banks per day). Most were small, "unit" banks as a result of anti-branching regulation. Contrast to only 1 bank failing in Canada where branching was allowed. Massive deflation of the money supply--30% drop was allowed by the Fed--a massive screw up.
Hoover makes matters worse. His history is as an intervener. [EFS--Amity Shlaes The Forgotten Man speaks to this pt.] He signed the Smoot-Hawley tariff in 1930 and followed a "high wage" or purchasing power policy. Hoover believed high wages caused prosperity, not vice versa. [EFS--"living wage" advocates are you listening?] Collaboration with industrial leaders causes massive unemployment. Productivity real wages rose in the early 30s instead of falling to clear the unemployment in the labor market.
Hoover's new deal:
[EFS--Use Kevin Grier voice here: Holy crap people! No laissez-faire going on with Hoover.]
New Deal under Roosevelt--the first 100 days:
Regime uncetainty from Roosevelt rhethoric and frequently changing policy impeded recovery and led to decreasing investment. Discusses evidence from Higgs; destruction of hogs and cotton crops; and cartel pricing with NIRA.
So what did bring the end? Drafting millions of people reduces unemployment. Wars are destruction, not growth so GDP growth is misleading. Wartime controls make wartime data questionable. [EFS--There's an Econtalk podcast with Higgs that discusses these points.] Consumption and investment decline during the war; consumption does not recover until 1946.
Students clap. Thanks Steve. More info here.
Silencing the silencer c. 1909
The March 18, 1909 NYT reports on the development of Maxim's silencer for firearms:
Who shall be authorized to carry and use firearms equipped with Mr. Hudson Maxim's "silencer"? No private person, surely. A true sportsman would not use it, and the "pot hunter" must be forbidden to hunt silently. The burglar, the highway robber, and the Black Hand assassin are the only other persons to whom it could be of advantage...When the silencer is outlawed, only outlaws will have silencers?
I wonder if the editorial suggests that the pot hunter should forbidden to hunt silently because to do so would pose a negative externality on others. When a gun is fired by the pot hunter did the report serve as a warning to others in the area that someone was blasting away? The only other reason I can see is to provide a warning to the other (non human) animals in the area.
More seriously, I always find it interesting that our problems are not new - gun control issues have evidently been with us for quite some time.
On the alcohol problem c. 1909
The March 18, 1909 NYT has an interesting report of a meeting in Washington, DC, of doctors and scientists who discussed the "alcohol problem":
A somewhat striking solution of the problem of the use and abuse of alcohol was suggested by Dr. T. D. Crothers of Hartford, Conn. When suitable engines have been invented, said Dr. Crothers, which make it possible to use commercially for heat, light, and power, the force which alcohol furnishes, when this substance with it unlimited source of supply begins to replace electricity and steam in doing the world's work, then all the distilleries and breweries in the country will be needed for the manufacture of alcohol for working purposes. And then, by Dr. Crother's diagnosis beer spirits and all forms of alcohol used as beverages will disappear.What an interesting world we would have if our gasoline stations were, instead, alcohol stations.
The story later mentions a most bizarre (and completely unsubstantiated) set of politically incorrect claims concerning the impact of alcohol:
Dr. Parks, who is the editor of The Altruist, said that many of the characteristics of the effects of alcohol on the body were governed by race and nationality.It is not clear how Dr. Parks defined an "American." I suppose he meant a person who was born and raised in the late 19th century United States. Otherwise, he would have to explain how a German immigrant could have a glass of wine before getting on his ship to the New World and feel anaesthetic influences but when that German stepped onto U.S. soil his first glass of beer would only yield a "feeling of power and capacity."
Perhaps at the time such discussion seemed learned and scientifically motivated. Perhaps in a hundred years our current debates over our "problems," such as stem cells, when life begins, and how best to address "too big to fail," will seem equally silly.
March 17, 2009
Video contest: "Free market capitalism is the best path to prosperity"
TCS daily has announced the video equivalent of an essay contest. It will split $4000 among the three best videos, uploaded to its YouTube group before 11:59 PM on May 14, 2009, illustrating the theme "free market capitalism is the best path to prosperity." (For unknown reasons they identify this idea with Larry Kudlow.)
Lester on Tax Hikes
Here's today's offering from Mike Lester of the Rome News-Tribune.
Cross-Price Elasticity of Demand: Hybrid Car Edition
Americans have cut back on buying vehicles of all types as the economy continues its slide. But the slowdown has been particularly brutal for hybrids, which use electricity and gasoline as power sources. They were the industry's darling just last summer, but sales have collapsed as consumers refuse to pay a premium for a fuel-efficient vehicle now that the average price of a gallon of gasoline nationally has slipped below $2.
March 16, 2009
What's my problem?
I have a classic Nerf basketball set in my office. It's only fun when playing from my chair. But rebounding is a chore when the ball goes in--sometimes I even have to get up. What is my problem? And what is your proposed solution? Comments are open or email me.
That 70's Show?
Stephen Moore says that it's the 70s and not the 30s that we should be worried about repeating:
What are the lessons of the 1970s? That price controls, profits taxes, high inflation, high tax rates, reregulation, a reckless monetary policy, and out-of-control spending can ruin the U.S. economy. The '70s produced the worst performance for incomes and wealth than at any other time since the Great Depression. Policy matters and policy mistakes can lead to grievous misery for American families and businesses. There is someone in the Obama White House or in the Democractic Congress who has proposed the return of every dimwitted and destructive policy of the 1970s. Be warned: if we repeat those mistakes, we will repeat the misery.
March 15, 2009
Hayek and Robbins, Friedman and DeLong
In his latest, Brad DeLong forgoes the opportunity to rebut my criticism of his caricatures of Herbert Hoover and Andrew Mellon, but in response to my last paragraph continues to insist on caricaturing the views of Hayek on monetary policy in the Great Depression. He correctly notes that Milton Friedman advanced the same caricature, namely that Hayek and Robbins favored central bank inaction in the face of a huge money stock collapse. The intent of my article“Did Hayek and Robbins Deepen the Great Depression?” (JMCB June 2008; pre-pub version here) was to provide evidence that Hayek’s actual view (which Robbins echoed) was more complex and does not match the do-nothing-to-stabilize-M view that Friedman and DeLong understandably reject. Friedman’s and DeLong’s target should not be Hayek and Robbins, but the Real Bills Doctrine adherents on the Federal Reserve Board at the time.
To reiterate for those joining us late, Hayek’s monetary policy norm for a central bank, clearly stated in his writings, was to stabilize nominal income (MV or PQ in the equation of exchange MV=PQ). A collapse of the money stock M or its velocity V calls for the central bank counteraction to increase M and thereby restore MV. (Steve Horwitz spells this out in his comment on DeLong’s blog entry.)
The story is complicated by the fact that Hayek, as I note in the article, failed to call for M expansion in 1932, and so failed to give timely advice consistent with his own norm. With the price level P and real output Q both falling, it should have been obvious at the time that MV was falling. I also note that Hayek later (1975) owned up to and regretted his failure. This is the germ of truth in the Friedman-DeLong indictment.
Brad DeLong writes:
I think that White's painting of Hayek and Robbins as people who wanted to stabilize MV is completely wrong--it is Ben Bernanke and the inflation targeters who want to stabilize MV, not Hayek and Robbins. If you had asked Hayek back at the time, he would have said that increasing the monetary base from 1929-1933 in order to offset the decline in monetary velocity was the very last thing that he wanted to see done. Stabilizing MV at its 1929 level was not on his or Robbins's agenda by any means.
Painting Hayek and Robbins as people who wanted to stabilize MV is not "completely wrong", nor is it the complete picture, for the reasons stated above. DeLong’s painting of Hayek and Robbins as one-note advocates of doing nothing to offset M collapse commits a serious error of omission.
Technical note: adherence to the gold standard implies that MV cannot be kept at just any arbitrary level. Stabilizing MV at its 1929 level would not have been the right objective.
The only basis for knowing what Hayek "would have said" is to read what he actually wrote. It might help us to understand why DeLong insists on his one-note interpretation of Hayek if he would confront the passages (quoted in my article) where Hayek enunciated the stable-MV norm. Why does DeLong ignore, or how does he explain away, what Hayek actually wrote?
Continued below the fold. Comments are open.
Read More »
DeLong to Horwitz:
You seem to be saying that the real Hayek was agreeing with Friedman and Viner on what the right policy was in 1932--but kept it a deep, dark secret, and only you today 77 years later have figured out what he really meant...
“The real Hayek,” i.e. Hayek’s theoretical norm for the right monetary policy, was not a secret in 1932. It is clear in Prices and Production (1931) and later writings.
DeLong offers evidence that Hayek denounced policies to stabilize the price level. And Hayek indeed did denounce them because, as Horwitz points out, stabilizing MV or PQ implies letting P fall as Q grows, not stabilizing P by injecting M as Q grows. Hayek feared that needlessly injecting M to offset Q growth means distorting the market interest rate and thereby disrupting intertemporal equilibrium. With the market interest rate below the equilibrium ("natural") rate, the time-profile of output planned by producer-investors will change so that it no longer matches the time-profile of consumption intended by household savers.
De Long responds in the midst of Horwitz’s comment:
But one wants to stop fluctuations in Q. The point of the exercise is to stop fluctuations in Q. The fluctuation in Q is called the "Great Depression." It is not a good thing...
In Hayek’s view, one does indeed want to stop fluctuations due to an excess demand for money. Hayek and others called this the “secondary” depression, where M collapses and economy overshoots beyond correcting any excesses of a previous boom. It is indeed not a good thing. And Hayek recognized that it was not a good thing.
What does "allow[ing] changes in [the price level] P to emerge from changes in [aggregate output] Q possibly mean? Does it mean that when Q goes down P should then go up--but if Q falls, V falls to, and so M has to go up enormously?
It’s simple. When Q goes up for non-monetary-stimulus reasons, say due to productivity growth, MV should remain stable and thus P should be allowed to fall. And yes, when Q goes down for non-monetary reasons, say a negative supply shock, P should then go up. If V falls too, then offset the drop in V by increasing M in the same proportion. M has to go up enormously if and only if V falls enormously.
« Close It
Inferior Goods--Condom Edition
Instapundit points to a piece in the Columbus Dispatch on condom sales:
A conversation with Brian Frank of Undercover Condoms in Hilliard is a day-brightener in the gloomy world of layoffs and bankruptcies.
Instapundit also points to interesting pieces on the origin of play-doh and enviros objecting to the "science based" decision to remove gray wolves from the endangered species list.
March 14, 2009
DeLong versus Zingales
Debating Keynesianism with Luigi Zingales online at Economist.com, Brad DeLong once again begins his account of the financial crisis with an endogenous event, i.e. an event that itself needs to be accounted for:
What is the crisis? The crisis comes in six stages:
Zingales in rebuttal unfortunately does not challenge but seems to accept the endogenous starting point:
First, since the root of the crisis is the housing market, this is the first place where we should intervene ... [to prevent] inefficient foreclosures.
Otherwise, Zingales is doing a good job pointing out that the Keynesian emperor has no clothes.
What Jon Stewart failed to mention while dressing down Jim Cramer
Jon Stewart is not an economist, even though his name sounds like two-thirds of John Stuart Mill. So we can forgive him for seeming to suggest, in his lecture to Jim Cramer on Thursday night, that some major part of the responsibility for the financial boom and bust can be pinned on Jim Cramer and CNBC. Yes, they failed to expose the hollowness of the boom. Yes, they failed to provide investigative reporting on Wall Street “shenanigans” like the over-leveraging of investment banks. Yes, Cramer is a buffoon and not a serious source of information. But the boom should not be seen as a bubble self-inflated by over-leveraging and other imprudent or even shady practices.
The over-leveraging was itself a creature of the boom. In a market where house prices only went up, lots of imprudent coin-flipping practices repeatedly came up heads, allowing the bets to be redoubled.
The hollow boom was inflated by expansionary monetary policy, and steered into housing by federal policies for artificially boosting housing finance, particularly the unholy leveraging privileges bestowed on Fannie Mae and Freddie Mac by government guarantees. Stewart did not mention any of these underlying policy causes. I would love to see Stewart bring them up while grilling Alan Greenspan, or Freddie Mac’s best friend Rep. Barney Frank, or former Treasury Secretary Hank Paulson.
March 13, 2009
Deficit Hawk Blues
After my recent post showing North Dakota's "deficit hawk" Sen. Kent Conrad holding up a copy of the Obama budget with a big grin on his face, I was pleased to see Kim Strassel's column in today's WSJ. It's good to see a big media platform like the WSJ digging into Sen. Conrad's fiscal conservative phoney baloney; there's even a picture of the senator grinning holding up the Obama budget.
No Such Thing as Free Laundry
My student Shawn Regan explains.
A CEO in Need of "The Diff"
Some quick history--the Cleveland Cavaliers have a feature called "The Diff" on their scoreboard to aid fans who are subtractionally (is that a word?) challenged.
The following statement by Bank of America CEO Ken Lewis suggests that he just might need a Diff of his own:
Nevertheless, he said for every dollar the bank spends in sports marketing, it gets $10 in revenue and $3 in profit.
Normally when one spends $1 and receives $10 in revenue one earns $9 in profit instead of $3. As for the $6 of missing profit, I'm guessing that Lewis must filter his sports marketing dollars through mortgage backed securities.
Isn't it comforting to know that a company led by a chap as capable as Lewis has gotten billions of bailout dollars?
HT: Skip Sauer
UPDATE: I've gotten a few emails about this post suggesting that Lewis means something like "when BofA spends $1 on sports marketing and incurs $6 in related expenses, it receives $10 of revenue and $3 in profit." Certainly possible.
1. "Should We Still Make Things?" from Dissent Magazine. (Aside: What makes you think there's a we?)
4. The Economics of Place Making Policies by Glaeser and Gottlieb. (Warning .pdf).
5. An appropriate Watchmen review for fanboys (and girls!)
6. Congrats to two excellent young economists!
March 12, 2009
March 11, 2009
Property Rights Matter: Karol Boudreaux on Community-Based Natural Resource Management
Here's an interesting interview with Karol Boudreaux on TVO's The Agenda with Steve Paikin:
Glenn Beck notices: the monetary base has skyrocketed
Lant Pritchett on Immigration
Lant Pritchett argues forcefully that increasing labor mobility will reduce global poverty and points out the moral bankruptcy of immigration restrictions. The entire book is available for free download.
To look at immigration as a moral question, I checked out the Southern Baptist Convention's Ethics and Religious Liberty Commission's essay on immigration, written by Richard Land. Read the whole thing, but notice that Land contradicts himself. He defends charity extended toward illegal immigrants, writing that "(o)ur government should not criminalize private citizens who give a cup of cold water, a hot meal, a warm bed, or medical assistance to those who are in our country illegally." In his view, we should only "criminalize private citizens" who voluntarily trade with "those who are in our country illegally" and therefore help them buy "a cup of cold water, a hot meal, a warm bed, or medical assistance" for themselves.
Restrictions on international labor mobility bear an uncomfortable resemblance to restrictions on African-American migration during the nineteenth century and during the Jim Crow era. Here's a passage recounting a tragic incident from Leon Litwack's North of Slavery, pp. 69-70:
"In southern Ohio, an aroused populace forcibly thwarted an attempt to settle the 518 emancipated slaves of Virginia's John Randolph. Defending that action, an Ohio congressman warned that 'if the test must come and they must resort to force to effect their object, the banks of the Ohio...would be lined with men with muskets on their shoulders to keep off the emancipated slaves.'"
Article on Email
Among my various activities, I'm a periodic contributor to Stepcase Lifehack. Today's article applies economics to everyone's favorite time-waster and stress-creator: email. Be sure to forward it to all your friends.
March 10, 2009
Ease Up on the Gas Pedal, Chairman Bernanke
Dave Rose and I have a new op-ed piece on Forbes.com sounding an alarm on the Fed's hugely expansionary recent policy.
Corruption in Romania
My colloquium class this semester is reading Ben Powell's edited volume Making Poor Nations Rich. In class this week, we're covering the Boettke, Coyne, and Leeson chapter on Romania. Thus yesterday's NYT piece on Romania is very timely; a snip:
Alina Lungu, 30, said she did everything necessary to ensure a healthy pregnancy in Romania: she ate organic food, swam daily and bribed her gynecologist with an extra $255 in cash, paid in monthly installments handed over discreetly in white envelopes.
HT: Shawn Regan
Doing Good, Feeling Good, and Looking Out the Window: Best Sentences of the Morning
From an excellent piece by Ed Glaeser:
"Living surrounded by concrete is actually pretty green. Living surrounded by trees is not."
"The policy prescription that follows from this is that environmentalists should be championing the growth of more and taller skyscrapers. Every new crane in New York City means less low-density development. The environmental ideal should be an apartment in downtown San Francisco, not a ranch in Marin County.
"Of course, many environmentalists will still prefer to take their cue from Henry David Thoreau, who advocated living alone in the woods. They would do well to remember that Thoreau, in a sloppy chowder-cooking moment, burned down 300 acres of prime Concord woodland. Few Boston merchants did as much environmental harm, which suggests that if you want to take good care of the environment, stay away from it and live in cities."
Contra Brad DeLong on Herbert Hoover and Andrew Mellon
I have a few things to add. (It would be pointless to try to add them as comments on DeLong’s blog, because DeLong notoriously deletes or "edits" posts that challenge his views.)
In response to Murphy and Horwitz, DeLong writes:
In a thumbnail, Herbert Hoover was a Keynesian avant le lettre with his heart but a liquidationist in his head. Hoover wished that he could do something to alleviate the Great Depression, but his head would not. … Hoover was eager to use government's powers to cushion--note not cure--the Great Depression.
This acknowledgement of Hoover as at least having proto-Keynesianism in his heart, and being eager to use government’s powers, represents a welcome major shift from DeLong’s prior position, which was that Hoover was a liquidationist through and through.
De Long continues:
The policies advocated by Mellon were the views that ruled the policies of the Hoover administration. Because Hoover kept Mellon as his Treasury Secretary and followed his led [sic], Hoover did not: • nationalize any banks. • rescue any bank depositor businesses whose accounts are now frozen. • abandon the gold standard to expand the money supply. • do anything else to expand the money supply. • abandon the balanced-budget principle as a constraint on relief spending.
Let’s consider this five-point list and the subsequent add-ons.
• Neither did FDR nationalize banks. Is that evidence that FDR was a liquidationist?
• What is meant by “now frozen” businesses accounts? Does this refer to businesses that lost their deposits in bank failures? Did FDR rescue such businesses? Rescuing them is, in any case, orthogonal to expanding the money supply.
• True, Hoover did not abandon the gold standard. But he didn’t need to – the Fed had plenty of room to expand the monetary base to stabilize M1 or M2 if it had wanted to. Unfortunately it wasn’t tracking such aggregates. Concern with the money supply as such was not even on the table. The Fed’s focus was on credit conditions, which (under the influence of the Real Bills Doctrine) it misread as sufficiently easy because nominal interest rates were low. The principal blame lies with the Fed, not with Hoover. DeLong appears to be innocent of the influence of the Real Bills Doctrine.
• The Fed did do something else to expand the money supply: it cut the discount rate after the market crash in 1929. The cut came at the urging of Andrew Mellon, who as Treasury Secretary was an ex officio member of the Board of Governors. Mellon also voted for subsequent cuts. DeLong simply overlooks these facts, which he should be aware of, as though he is blind to any evidence that conflicts with regarding Mellon as a die-hard liquidationist.
• Hoover did something else: he created the Reconstruction Finance Corporation to bail out troubled banks.
• Hoover did engage in deficit-finance relief expenditures. And Mellon supported the effort. Federal spending rose under Hoover, most of the increase deficit financed.
Mellon’s views were not those of a one-formula liquidationist. As an ex-officio member of the Federal Reserve Board, he successfully urged the central bank to cut its discount rate after the stock market crash in October 1929, and supported subsequent rate cuts. In November 1929 he recommended tax cuts to stimulate the economy. He supported Hoover’s proposal to increase federal construction spending. … Mellon – wisely or not – supported the Administration’s initiative to create a National Credit Corporation, and its successor the Reconstruction Finance Corporation, to lend billions to illiquid banks.
As Bob Murphy notes, in recent remarks available online, DeLong cites Milton Friedman's critique of what Friedman took to be the LSE-Austrian view of the early 1930s, that government shouldn't do anything to interfere with the recession running its course. Here DeLong acts as though he is unaware (though elsewhere he has indicating having read my paper) that Hayek's and Robbins' monetary policy norm was not that the central bank should let a deflationary monetary contraction procede. Rather, the central bank should stabilize nominal income MV, meaning expand M to offset a drop in V, and expand the monetary base to offset a drop in the money multiplier.
I have enabled comments in case Brad DeLong wishes to respond. And I promise not to edit his comments.
March 09, 2009
Are Strong Borders a Human Rights Violation?
Here are slides from a presentation by Lant Pritchett that might suggest "yes" (HT: Will Wilkinson). They summarize some key points and make a forceful case for open borders as a force for poverty alleviation. There are some who reflexively quote Milton Friedman's statement that a country cannot have both free immigration and a welfare state, but I think this is more of an argument against a welfare state than it is against free immigration.
Posted by Art Carden at 03:40 PM
1. Congratulations Scott Beaulier!
2. A new state freedom index.
4. Best Steelers Themed Song Remake Ever
6. "Ocular Least Squares" (.pdf)
March 08, 2009
Income Elasticity of Demand: Shoe Repair and Pawn Shop Edition
The economic slowdown in recent months has had more people pinching pennies wherever they can. That trend has kept shoe repairmen and pawn shops busy.
Here's a previous entry on Miller beer; here's a similar article on Spam, my favorite example of an inferior good. (A personal Spam story: My first semester teaching I must have belabored the example of Spam as an inferior good b/c at the end of the semester a student gave me a Spam t-shirt. The student, if I remember correctly, was the daughter of (in?)famous professor Stanley Fish who was then at Duke.)
March 06, 2009
Non sequitur on democracy
From CQ Global Researcher (Feb. 2009):
In a recent Gallup Poll [conducted in certain countries outside the US] ... more than 85 percent of [adherents to a certain religion] surveyed said they believe democracy is the best form of government. Thus, they are not interested in imposing their views on others but wish to live according to the teachings of their religion while respecting people of other religions or opinions.
How does belief in democratic selecting the government imply disinterest in imposing one's views on others? If members of a single religious group are in the majority, can't they use majority rule to elect legislators who will impose their views and their restrictions on others?
They can. This been famously emphasized by Fareed Zakaria in his warnings about the dangers of illiberal democracy.
Hey, Hugo, He's Doing It Already
The current headline at Drudge: CHAVEZ CALLS ON OBAMA TO FOLLOW PATH OF SOCIALISM
Posted by E. Frank Stephenson at 10:30 PM
On the interregnum c. 1909
The 1909 inauguration of William Howard Taft was not a pleasant experience, either for Democrats or for the bystanders. As reported in the March 6, 1909 NYT, "[t]he results of the exposure are to be found in the crowded conditions of the hospitals to-day, scores having been taken ill because of the weather." The story goes on to report:
Speaker Cannon agreed to-day to assist in the movement for change [of the inauguration date]. Two bills have passed the Senate in times gone, the date in each being fixed for the last Thursday in April. The speaker believes, however, that this date is not late enough, and favors the substitution of May 1.If this had been accomplished, we might have had three more months of Bushco, to the dismay of Obamaco, but then we might have actually heard rather than just watched Yo Yo Ma play his cello.
On the good old days c. 1909
The March 6, 1909 NYT reports on an inheritance tax proposed by a New York State Assemblyman. The graduated tax kicks in for estates valued at $500 or more. A proposed 1% tax on estates from $500-$10,000 with the highest rate being 25% on estates of more than $20,000,000 [$488,215,419.50 in 2008 dollars]. In justifying the tax, the Assemblyman, one Mr. Oliver, had this to say, as reported in the story:
Speaking of his bill Mr. Oliver said today that a little more than fifty years ago there were very few millionaires in the country...Sound familiar?
I understand there is an economics literature that claims to show that "wealth envy" is a real issue and that in some "games" people are willing to take less if that means someone else also has less (more here). However, I wonder about that finding.
In a mano-a-mano interaction the findings might play out. However, day to day, my bet is that most people do not think about the wealth or income of those that are far removed from themselves. This would play into Smith's Theory of Moral Sentiments. For example, I do not know Alex Rodgriguez, although I saw him play for three years in Arlington, Texas, and therefore do not think about him on a daily basis. More importantly, I do not think about his accumulated millions and I certainly do not keep myself up at night worried about how his millions have somehow deprived me of the ability to earn a dollar. If I was the first baseman of the New York Yankees, perhaps my sentiments would be different.
However, I have never understood how the government taking dollars away from someone else is supposed to make me FEEL better about myself. I might get some benefit from the theft in the form of government services, or in the case of Mr. Oliver's reckoning, a reduction in my rent bill. However, it would seem immaterial whether that subsidy is funded by import taxes, excise taxes, or an estate tax. In one sense, it is more "efficient" on the part of the government to take 25% of a $40,000,000 estate than it is to tax a dollar on 10,000,000 different transactions, but efficient theft is not a justification for theft.
Whether income concentration leads to social unrest seems to be an untested hypothesis. It is easy enough to create ex post narratives about how income concentration led to revolutions in the past. However, it is also plausible that egregious political behavior of those with the concentration of wealth led to social unrest.
I have no direct experience, but I wonder how many robbers, pick pockets, and muggers justify their theft with the "good old days" argument. Indeed, it seems that this argument is most often employed by politicians, many of whom might have been "more content" in that distant past than the average person (at least as measured by material goods).
Just another example of how our problems aren't new, they are just ours.
Best Economics Jokes Ever
Be sure to click on the honorable mentions. My favorite is:
"Kevin Murphy does not need compensated demand. He just demands that you compensate him."
Unintended Consequences: Biofuel and Food Prices
Here's an interesting paper on the big runup in food prices in the last few years. The ultimate impact of the negative institutional/political changes emanating from US/EU biofuel policies remains to be seen. Here's the abstract:
"The rapid rise in food prices has been a burden on the poor in developing countries, who spend roughly half of their household incomes on food. This paper examines the factors behind the rapid increase in internationally traded food prices since 2002 and estimates the contribution of various factors such as the increased production of biofuels from food grains and oilseeds, the weak dollar, and the increase in food production costs due to higher energy prices. It concludes that the most important factor was the large increase in biofuels production in the U.S. and the EU. Without these increases, global wheat and maize stocks would not have declined appreciably, oilseed prices would not have tripled, and price increases due to other factors, such as droughts, would have been more moderate. Recent export bans and speculative activities would probably not have occurred because they were largely responses to rising prices. While it is difficult to compare the results of this study with those of other studies due to differences in methodologies, time periods and prices considered, many other studies have also recognized biofuels production as a major driver of food prices. The contribution of biofuels to the rise in food prices raises an important policy issue, since much of the increase was due to EU and U.S. government policies that provided incentives to biofuels production, and biofuels policies which subsidize production need to be reconsidered in light of their impact on food prices."
Interesting Working Papers
Email has piled up recently, so I'm moving toward Inbox Zero this morning. Part of the task includes going through my SSRN Working Paper Series updates. Here are some papers that caught my eye.
"Employment Laws in Developing Countries" (Simeon Djankov and Rita Ramalho); Fee download.
"We survey the research on the effect of employment laws in developing countries, using papers published since 2004. The survey is further supported by cross-country correlation analyses. Both exercises show that developing countries with rigid employment laws tend to have larger informal sectors and higher unemployment, especially among young workers. A number of countries, especially in Eastern Europe and West Africa, have recently undergone significant reforms to make employment laws more flexible. Conversely, several countries in Latin America have made employment laws more rigid. These reforms are larger in magnitude than any reforms in developed countries and their study can produce new insights on the benefits of labor regulation."
"History Without Evidence: Latin American Inequality Since 1491" (Jeffrey G. Williamson, NBER Working Paper No. 14766). Fee download.
"Most analysts of the modern Latin American economy hold to a pessimistic belief in historical persistence - they believe that Latin America has always had very high levels of inequality, suggesting it will be hard for modern social policy to create a more egalitarian society. This paper argues that this conclusion is not supported by what little evidence we have. The persistence view is based on an historical literature which has made little or no effort to be comparative. Modern analysts see a more unequal Latin America compared with Asia and the rich post-industrial nations and then assume that this must always have been true. Indeed, some have argued that high inequality appeared very early in the post-conquest Americas, and that this fact supported rent-seeking and anti-growth institutions which help explain the disappointing growth performance we observe there even today. This paper argues to the contrary. Compared with the rest of the world, inequality was not high in pre-conquest 1491, nor was it high in the postconquest decades following 1492. Indeed, it was not even high in the mid-19th century just prior Latin America's belle époque. It only became high thereafter. Historical persistence in Latin American inequality is a myth."
"In Search of Microjustice: Five Basic Elements of a Dispute System" (Maurits Barendrecht). Free Download.
"This paper integrates findings from legal needs studies, institutional economics, and interdisciplinary conflict research to develop a framework for analyzing dispute systems. Five essential tasks that a dispute system facilitates are identified and the basic technologies for supplying them. Complementarities between these five types of services are discussed, as well as common elements of dispute systems that may be useful add-ons, but do not seem to belong to the essential core.
"Establishing the necessary and sufficient elements of a dispute system leads to useful insights about the place of dispute services such as mediation, lawyers, and courts in the broader institutional setting of a dispute system. The framework is also a contribution to the emerging discipline of dispute system design. The framework can be a tool for evaluating existing dispute systems, and for developing innovative, affordable and sustainable access to justice (microjustice)."
"Lessons from the Laureates" (William Breit and Barry T. Hirsch). Free Download.
"This paper uses as source material twenty-three autobiographical essays by Nobel economists presented since 1984 at Trinity University (San Antonio, Texas) and published in Lives of the Laureates (MIT Press). A goal of the lecture series is to enhance understanding of the link between biography and the development of modern economic thought. We explore this link and identify common themes in the essays, relying heavily on the words of the laureates. Common themes include the importance of real-world events coupled with a desire for rigor and relevance, the critical influence of teachers, the necessity of scholarly interaction, and the role of luck or happenstance. Most of the laureates view their research program not as one planned in advance but one that evolved via the marketplace for ideas."
Mike Lester on the Mortgage Bailout
Today's offering from Mike Lester of the Rome News-Tribune:
See also this bumper sticker from the Tennessee Republican Party. Wonder if they'll make one that says "Honk if I'm paying your mortgage"?
xkcd: Association equals 'look over there'
Love the scrollover: "Association doesn't imply causation, but it does waggle its eyebrows suggestively and gesture furtively while mouthing 'look over there'."
Score One for Perceptive Reporting
Either UPS or the Memphis Commercial Appeal is being refreshingly frank. Here's a quote from an article on the FAA Reauthorization Act, which would make it easier for unions to organize at FedEx:
"The Teamsters have unsuccessfully attempted to organize FedEx for many years. UPS, whose drivers are largely represented by the Teamsters, supports the language because it would increase FedEx expenses and make it less competitive."
Of course, our local legislator opposes it for predictable reasons:
"'The No. 1 industry in my town has problems with this bill,' Cohen said. 'I believe the law is clear and has been enunciated by courts throughout this land ... that Federal Express belongs under the Railway Labor Act.'"
It's actually a very interesting read. Here's the link: http://www.commercialappeal.com/news/2009/mar/05/house-bill-would-open-fedex-unionization/
March 05, 2009
Atlas Sound Money Project
The Atlas Economic Research Foundation has announced the launch of its Sound Money Project. Given their excellent list of recommended readings (thanks to Leonard Liggio), I’d have to say that they’re off to a fine start. If you represent a think tank or research project related to sound money, participate in the brief survey to let them know what you’re doing and thinking. Atlas will later issue a Request for Proposals for research that they will consider helping to fund.
Inauguration Tickets and the Failure of Central Planning
That's the title of a Mises.org article by my student Shawn Regan. Kudos Shawn.
David Hart on Karl Marx
Here's a lecture by David Hart on "Class Theories Before Karl Marx." He makes the important point that while the Marxist elements of Marxism are incorrect, Marxism asks the right questions.
March 04, 2009
Bourgeois Rhetoric: Respect for Individuals
William Easterly offers an interesting post (with compelling visuals) on the relationship between respect for individuals and prosperity. High regard for individuals (as distinct from collectives) is highly correlated with democratic institutions and with development. Easterly addresses the causal question, arguing that culture is the product of deep-seated long-run factors (I oversimplify his simplification, but it's close enough for a blog post). We just started studying the Industrial Revolution in Classical & Marxian Political Economy, and students are working on a research paper about why some people are very rich while other people are very poor. I'm very sympathetic to the argument Easterly discusses and summarizes.
On a related note, I read Ludwig von Mises's essay "The Idea of Liberty is Western" yesterday, and I think it contributes to Deirdre McCloskey's broader program about the rhetorical foundations of prosperity. Mises notes that for all the inexcusable crimes of Western civilization, the idea of individual autonomy, which appears in embryonic form in the writing of the ancient Greeks and which flowers fully in the European liberal movement of eighteenth and nineteenth centuries, is what sets the western tradition apart from the others. It is true that European nobles spent centuries "perfecting the fine art of hacking one another to pieces," to borrow a phrase from Joel Mokyr, but for all its imperfections schooling in the classics was part of the elites' upbringing. To (over)simplify, the emergence from the Dark Ages was a long, bloody experiment in social organization. Finally, in the century or so between the Glorious Revolution and the publication of The Wealth of Nations, Europeans started getting things right.
I'm not a philosopher, linguist, or cultural historian, so my perspective is admittedly limited. If anyone can direct me to good sources on the idea of liberty in eastern philosophy, I would be grateful.
Best Working Paper I Just Finished Reading
After reading Bryan Caplan's post on chapter 7 of Murray Rothbard's For a New Liberty, I decided to go ahead and read this paper by Lant Pritchett and Martina Viarengo (I think I got the tip to this paper from an earlier Econlog post, but I can't find the link). They argue that, in spite of ample evidence that private provision is superior to public provision and no evidence that public provision is superior to private provision, governments generally tend to produce education instead of relying on private suppliers. I found this particularly interesting in light of our discussions of Adam Smith and Karl Marx on education in Classical & Marxian Political Economy and my recent experience judging one of the "dramatic interpretation" competitions at a forensics tournament for homeschoolers. In The Communist Manifesto, state-provided and state-controlled education is part of the articulated logic of Marx's revolutionary program.
Pritchett and Viarengo argue that government schools exist to produce not just values-neutral skills like literacy and mathematical competence, but beliefs and values. In other words, governments have a stake in controlling schools for the same reason they have a stake in controlling media: socialization and inculcation of regime-friendly values.
Their new wrinkle is that they expand conventional models of schooling supply and demand to include provision of beliefs in addition to skills. As evidence, they cite the prevalence of religious schools as the alternative to government schools. Both governments and religious organizations "are willing to subsidize skill acquisition in order to link it with socialization and the inculcation of belief" (p. 8). They argue that while it might be easy to measure the acquisition of skills, it is difficult to accurately measure the degree to which people have acquired beliefs because consumers could contract for "insincere instruction" (pp. 9-10) One can be taught to say prayers, to pledge allegiance to the flag, or to recite the Gettysburg address without actually absorbing the beliefs these activities represent. The ability to recite the Pledge of Allegiance is not a credible signal that one in fact feels a sense of allegiance to the republic for which it stands.
They posit the existence of a "regime" with preferences that can be modeled; I think an interesting next step for the paper would be to introduce a theory of the polity that examines how sensitive the regime's objective function is different decision-making institutions and initial conditions. Casual empricism and my experience with American schools suggests that the key problem is common ownership with multiple parties claiming the legitimate right to be "the regime." The ideological commitments of the polity should then determine the degree to which regime-ownership is contested. For example, the Christian Coalition and Americans United for Separation of Church and State are likely to have irreconcilable differences about the form and function of education, particularly if that education is financed or provided by the state.
I think this is an important contribution to the literature on positive political economy. I look forward to seeing how this project evolves and how it contributes to Dan Klein's project on "The People's Romance."
Coming Events: Lectures at Rhodes
Kenneth G. Elzinga will give a talk this evening at 7:00 in the McCallum Ballroom at the Rec Center entitled "The Economic Logic of Vertical Price Agreements." Here's the official publicity info.
Lawrence H. White will give a talk on Monday evening at 7:00 in Barret 051 (the library) entitled "Can the Monetary System Regulate Itself?" Here's the official publicity info, and here's his recent article on the financial bailouts.
A cure for insomnia II c. 1909
The March 4, 1909 NYT reports on another awe-inspiring display of caging:
Williams College was victorious tonight in basketball over the Wesleyan College five, scoring 25 points to Wesleyan's 17.
PERC environmental summer programs
The Property and Environment Research Center in Bozeman, MT, has a summer-long graduate fellowship program and a week-long colloquium on market environmentalism. Both are paid. Application deadlines are March 15 and 23, respectively. See description and links beneath the fold.
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By email from faculty directors Holly Fretwell and Daniel Benjamin:
The colloquium "Free Market Environmentalism and the Institutions of Liberty" is co-sponsored with Liberty Fund, Inc., and will be held June 15-20, 2009, at the Wingate Inn in Bozeman, Montana. As you may know, the colloquium is designed to introduce undergraduate students to a property rights and market approach to environmental issues. The colloquium is a combination of lectures and Socratic style discussions of assigned readings that address specific themes. Successful applicants will receive a scholarship for tuition, meals, lodging, and a travel stipend of $500. While it is helpful if the students are familiar with basic economic principles, we encourage non-economics majors to also apply. Students can apply online at perc.org. The deadline for submitting applications is March 23, 2009, but we encourage students to apply as soon as possible.
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March 03, 2009
People err, so let's use markets
Thoughtful words from William Easterly:
The huge fallibility of human actors makes the case for markets stronger, not weaker. The market itself triggers the corrective actions by both public and private actors when these actors do stupid things, like give too many mortgages to people who were not creditworthy and then try to cover it up with fancy securitization. The collapse of financial markets was a severe wake up call to change this stupid behavior; creative destruction is wiping out firms that made huge mistakes … . Since we recovered from all the previous crises of capitalism, it seems likely we will recover from this one.
Closing the Barn Door After the Horses Escape
Current headline on WSJ.com:
Geithner Warns Over U.S. Deficit
This from the crowd that brought us the porkulus bill. What next, an arsonist warning us not to play with matches?
UPDATE: Here's another headline:
Geithner: Obama to fight international tax dodgers
This must mean they'll invite the IRS to the next cabinet meeting.
Posted by E. Frank Stephenson at 02:03 PM
March 02, 2009
My piece in the March Freeman giving a critical account of the US Treasury's and Federal Reserve's bailouts of financial institutions, "See the Needle and the Damage Done," is now online here.
HT: Don Boudreaux
The Economics and Politics of Prohibition
First they came for pot. Then they came for cigarettes. Then they came for fatty foods.
Stone-Throwing and Glass Houses
HT: Don Boudreaux.
Economics Is the 'Just Right' Liberal-Arts Major
So says David Colander of Middlebury.
UPDATE: Mark Perry points to an NPR story on the growing popularity of the economics major.
March 01, 2009
Adam Smith Fellow, Pembroke College, Cambridge
Nigel Ashford forwards an assistant professor job announcement for the "Adam Smith Fellow." It's a 5-year renewable research position with some teaching, for economists "in one or more of the areas of urban and regional economics, development economics, environmental economics or the economics of property or planning. ..."
The ad is here. Note the March 16 deadline.
Wisdom, Compassion, and Responsibility
Are wisdom and compassion complements or substitutes? The Crisis and public policy responses to it call to mind this passage from "Atlas Shrugged" (p. 385 of the 1996 Signet edition), right after Francisco d'Anconia's multi-page Jeremiad defending money. Interestingly, d'Anconia echoes a common theme in Old Testament prophecy and in New Testament eschatology:
"There were people who had listened, but now hurried away, and people who said, 'It's horrible'--'It's not true!'--'How vicious and selfish!'--saying it loudly and guardedly at once, as if wishing that their neighbors would hear them, but hoping that Francisco would not.
"'Senor d'Anconia,' declared the woman with the earrings, 'I don't agree with you!'
"'If you can refute a single sentence I uttered, madame, I shall hear it gratefully.'
"'Oh, I can't answer you. I don't have any answers, my mind doesn't work that way, but I don't feel that you're rights, so I know that you're wrong.'
"'How do you know it?'
"I feel it. I don't go by my head, but by my heart. You might be good at logic, but you're heartless.'
"'Madame, when we'll see men dying of starvation around us, your heart won't be of any earthly use to save them. And I'm heartless enough to say that when you'll scream, "but I didn't know it!"--you will not be forgiven.'"
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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