Division of Labour: August 2009 Archives
August 31, 2009
The Russ-n-Mike Show!
Another installment of the "Russ and Mike" show, on EconTalk.
Also, always available on iTunes U, under "Duke", for you podcastroids.
Posted by Michael Munger at 06:53 PM
Summer 2010 Opportunity
The Levy Economics Institute of Bard College is sponsoring a summer seminar based on the work of Keynesian economist Hyman Minsky. More information is available here. I've always thought that Minsky and Mises have more in common than at first appears, at least in terms of their business cycle theories.
HT: Economic Perspectives from Kansas City.
Speaking of the South...
I think Tim Hawkins speaks for all of us. I, for one, am moved:
And here he is on government in a video that seems to be making the viral rounds:
The Southern Economy
My paper "The Southern Economy" is finally available. Here's the abstract:
"This essay surveys some of the key themes in Southern economic history and traces the development of the region through the colonial and revolutionary eras, the antebellum period, the Civil War and Reconstruction, the post-bellum period, and the modern period. In particular, I highlight the findings of economic historians on the economics of slavery and focus on the development of Southern institutions in light of the antebellum slave society. The resurgence of the Southern economy is examined in light of recent hypotheses about technological change, policy, and productivity growth."
A lot of topics that deserve very detailed analysis are treated only briefly, but I see this paper as a loose outline of the eventual book that I hope to write on Southern economic history. I don't know what kind of revisions the editors will request, but comments are always appreciated.
File under "what crisis?"
WASHINGTON (Reuters) – Fewer Americans are afraid that they will be unable to pay for healthcare services and fewer expect to postpone medical treatments due to costs, according to a Thomson Reuters survey published on Monday.
A Paper I Look Forward to Reading
Lee E. Ohanian, "What-Or Who-Started the Great Depression?" The Abstract:
Herbert Hoover. I develop a theory of labor market failure for the Great Depression based on Hoover's industrial labor program that provided industry with protection from unions in return for keeping nominal wages fixed. I find that the theory accounts for much of the depth of the Depression and for the asymmetry of the depression across sectors. The theory also can reconcile why deflation and low levels of nominal spending apparently had such large real effects during the 1930s, but not during other periods of significant deflation.
August 30, 2009
Health Care Outtakes
Here are some outtakes from the Health Care article I'm working on.
You've probably seen Megan McArdle's blog post on health care arguing that the rate of increase for spending on health spending for pets is roughly equal to the rate of increase in spending for people. The usual cases for single-payer care aren't as obvious as they appear at first glance, and this ignores the fact that US health care is currently not provided in a free market. Here are a few thoughts:
1. Bryan Caplan is right; third-party payment is still a problem: it leads to inefficient levels of health care consumption.
2. Savings on administrative costs under a single-payer system are not a free lunch. Administrative costs are the costs, but reductions in fraud and increases in efficiency are the benefits. Here's Greg Mankiw with more.
3. Life is much more than high life expectancy and low infant mortality, as Glenn Reynolds notes in a post that Megan McArdle discusses in the link above. I don't think knee replacements and back surgeries really affect life expectancy that much, and I'd be really surprised if they affected infant mortality. In my experience with people who have had them, their effects on quality-of-life are substantial.
4a. The life expectancy and infant mortality data might be misleading. I suspect that this might be true for two reasons. First, improving quality-of-life and maternal nutrition might shade the life expectancy data upward and the infant mortality data upward. With improving health, marginal infertilities became marginal pregnancies, marginal miscarriages became marginal births, marginal infant mortalities became marginal child mortalities, and so on. People who would have shown up as unsuccessful pregnancies make it to term and end up affecting infant mortality and life expectancy statistics. This is a variation on the "diseases of affluence" argument: heart disease and cancer are rising in prevalence because people are living long enough to get heart disease and cancer. This remains untested, as far as I know.
4b. Abortion probably affects the infant mortality data, though once again I am not aware of any systematic study of this issue apart from one paper I saw that was done in the late 1970s or early 1980s that attributed declines in infant mortality to abortion legalization.
5. The market for health care is pretty large. I don't have data handy, but particularly since anywhere from 75%-90% of the Canadian population lives within 100 miles of the US border, I would be surprised if ultra-rich Canadians don't have most of their elective procedures done in the US. Just like American prohibitions on abortion generated "abortion tourism" for the ultra-rich before Roe v. Wade, the international market for top-flight health care might mean that the US is taking the pressure off other countries' national health care systems. I've seen a couple of papers in Health Affairs suggesting that Canadians aren't using US medical services in great numbers.
6. Alex Tabarrok explains the narrow and specific conditions under which a perfectly-provided government-provided health insurance option makes sense. Notice also that also helps explain why some insurance companies and other firms are on board with Obama's plan. Policies that makes consumers' demand for your product less elastic are going to make you rich(er). Alex rightly points out that even if there is a semi-plausible case for a government option, whether "it actually fulfills its purpose is an open question." In light of our experience with ethanol subsidies and "Cash for Clunkers," just to give two examples, I'm skeptical of the government's ability to intervene wisely in the insurance market.
August 29, 2009
Proof That Infectious Buzzwords Have Reached China
Check out the company profile
“PetroChina, under the guidance of the concept of scientific development, is dedicated to implementing three strategies of resources, markets and internationalization. PetroChina is committed to accelerating the transformation of economic growth, improving the self-innovation capacity, establishing long-efficient mechanism of safety, environmental protection and energy conservation and creating a harmonious enterprise, in order to transform itself to be an international energy company with strong competitiveness.”
While I’m on PetroChina, I’m sure I don't understand because I’m jus’ a simple country economist, but if an entity of the national government is the controlling shareholder of a publicly traded company, how does anyone determine the expected value of a share? After all, a sovereign government can do all sorts of things neither a private shareholder nor a corporate board of directors can do, and a government cannot establish a credible commitment.
Posted by Noel Campbell at 09:42 PM
Health Care Bleg
I'm working on a piece about health care for FEE and wondering what in the government's track record suggests that replacing the profit motive with the political motive is a good idea. I'm willing to be convinced: which programs offering twelve- and thirteen-figure pots of free money have been implemented effectively and sustainably (i.e., accomplishing their stated goals while remaining actuarially sound)?
Here's a specific question: should "Cash for Clunkers," ethanol subsidies, the Post Office, and military profligacy increase or decrease the probability with which I think government involvement in health care is a good idea? Why or why not?
I also have a related question for health care Europhiles. Is the European model sustainable? A couple of years ago, I saw that debt per capita in France is about 68% higher than in the US, and an expert on French economic history noted in conversation once that French standards of living are only possible "because they've spent the next two generations' incomes."
August 28, 2009
Energy Sucking Climate Change Computer
I don't know if global warming or climate change or whatever they're calling it this week is happening or if any warming that is happening is attributable to human activity. But before hectoring us with a cap and tax program maybe folks who claim dire consequences should (unlike Al Gore) get their own houses in order. Case in point,
Posted by E. Frank Stephenson at 07:31 PM
Stuff Worth Reading
1. Sheldon Richman on "Proposers versus Producers." Here's a choice passage; I'm going to borrow the last sentence for Econ 101 and public lectures:
"The dynamic leader who gives impassioned speeches and sponsors legislation on behalf of social justice is portrayed as heroic in part because few people can find the logical flaws in the program. As a result, all that counts are presumed motives. But motives divorced from understanding are worthless — even dangerous. In a more sensible world, proposing ends while oblivious to means would be a sign of irresponsibility, the intellectual equivalent of drunk driving."
2. Mike Munger compares Krugman to Keynes, writing that Keynes "never let what he knew as an economist get in the way of what he believed as an ideologue."
3. Speaking of Krugman, here's one of my favorite essays by any economist, ever. It's Krugman at his best.
4. Again speaking of Krugman, if he ever wins a second Nobel, it will be for this.
The estimable David Zetland is teaching an environmental econ course at Berkeley. Here's a choice quote:
"Teaching is difficult because it requires that you present your messy, complicated, evolved knowledge in an orderly and incremental manner that can be learned."
Just speaking, of course, is easy: go on autopilot, ramble for about 50-75 minutes, and then blame the students' moral and intellectual deficiencies when they have a hard time instantly grasping stuff you've been thinking about all day every day for the last decade or two or three or four or five. Actually teaching, on the other hand, is really, really difficult. And, I might add, it is really, really rewarding.
Speaking of which, the first assignment for Econ 101 and the reading & discussion questions for Econ 339 are below the fold.
Read More »
Health care reform is one of the most contentious issues in the United States. Finish reading A Conflict of Visions and be prepared to discuss it in class on Tuesday, September 1. In a short essay (1-2 double-spaced pages), use what you learn by reading Sowell and the “Ten Key Elements of Economics” article to craft a proposal for how we should—or should not—reform the health care system. Your essay should do the following:
Consider what Sowell means by the “locus of discretion” and “mode of discretion,” and explain what these imply about the sources of order in the constrained and unconstrained visions (4 points).
Along the same lines, consider “Key Elements” 6, 9, and 10. Explain how these are related to Sowell’s loci and modes of discretion and explain what this implies about health care (4 points).
You will benefit from forming a study group and meeting with them on a regular basis. List the members of your study group and their favorite flavors of ice cream (2 points).
Economics 339: Reading and Discussion Questions for Tuesday, September 1, 2009
1. What, according to North, is “the task of economic history?” How might it be accomplished? What are “the key problems” faced by economic historians? Hint: the first question is answered in chapter 1, the last question is answered in chapter 3.
2. What are the “building blocks” of North’s theory of institutions?
3. What is the “basic tension that has been and remains the center of economic history?” Why is it basic, and why is it tension?
4. What is North’s argument, and why is a theory of the state necessary?
5. What, according to North, is a state, and what does North mean by the following: “The existence of the state is essential for economic growth; the state, however, is the source of man-made economic decline”?
6. What are transaction costs, and why are they important?
7. According to John Nye, what did western civilization accomplish in the last several centuries, and how was this accomplishment undermined by the Great Depression?
8. What are the apparent tensions between ideology and individual interests explored in chapter 5?
9. What are the “three aspects of ideology” North stresses, and how do they affect the development of economic institutions?
10. Why was “(t)he wedding of science and technology in the late nineteenth century” an economic revolution “in the same sense as the development of agriculture”?
11. What is missing from the story?
« Close It
August 27, 2009
Session with Dr. Bullard, continued
Dr. Bullard declared that Bagehot’s Rule is “lend freely to anyone with good collateral,” and is the appropriate method to get through a crisis without tipping into a full blown panic. The Fed initially loaned to banks and bank holding companies, and with collateral. That has been the “lion’s share” of the Fed’s loans in the last 12 months. However, Citi, Bear Stearns, and AIG “required some unconventional lending.” I wonder whether Bagehot would have been satisfied with AIG’s collateral.
He also stated that the doctrine of too big to fail is actually “too big to fail quickly,” and is, in any form, unsustainable in a capitalist system. Dr. Bullard suggested that the appropriate solution might be to levy a surtax on banks that become too big to fail, in order to fund bailouts of such banks, or to use regulation to force these banks into units small enough to allow them to fail. He suggested the loss of economies of scale would be worth it. Answering the criticism that such regulatory action would allow foreign banks to acquire a dominant position in the U.S. economy, he said, “If UBS fails, then the Swiss have to worry about the issue of too big to fail.” Never mind that if the Swiss aren’t up to the task, liquidity stops flowing through the U.S. economy, and the United States will have abdicated an integral part of its monetary policy to a foreign, sovereign nation.
When asked whether the increase in the monetary base—and the promise to continue doing so for months or years to come—is inflationary, Dr. Bullard responded that “our number one goal is to control inflation,” and “there is good reason for concern,” and that the Fed would keep “close watch” on the price level. He went on to say that “it is not clear what the implications are of doubling the monetary base.” I submit that my principles students can answer that one. However, Dr. Bullard was confident that the Fed will be able to “work down the monetary base” over, perhaps, the next five years. I found this timeline troubling. We were already promised loose money for the foreseeable future, but were then assured the Fed would work down the monetary base in the intermediate term. My professional response was to say, “Huh?” He concluded that, “We may be at some risk of undesirably high inflation.” So, as far as I could follow Dr. Bullard’s argument, it goes something like this: “We’re smart enough to get it right; to put in the right amount of money at the right time and pull out the right amount of money at the right time, and to foresee and avoid untoward consequences.” I wonder why I am having trouble believing this argument.
I finally identified the odor that pervaded the room. It was the ripe and spicy tang of hubris.
Posted by Noel Campbell at 09:57 PM
Undergraduate Research Journal
Berry's Campbell School of Business is launching the Undergraduate Business and Economics Journal. The first issue is scheduled for Spring 2010 and submissions are being solicted. The UBER Journal is not intended to be a Berry "house journal." Indeed, I'm told--I've had little to do with it--that the presumption is that issues will normally contain no more than one article contributed by a Berry student.
More information is available here. I'd love to see submissions by co-bloggers students, DOL student readers, or students of DOL faculty readers.
UPDATE: A point of clarification--the UBER Journal website reads as if only Berry students will serve as reviewers. This is not the case; the journal welcomes capable student reviewers from any college.
Session with Dr. Bullard, President of the St. Louis Fed
Top quote: “There are legitimate reasons to worry about inflation in the future.”
Q. Velocity and the M2 multiplier were in freefall, but no longer. Have they stabilized or begun to increase?
A. “Velocity is a way to talk about money demand…. The economy is turning the corner…velocity is increasing.” The implications of this statement were ignored.
In a related comment, he re-iterated what we’ve heard before. The Fed took the target rate to zero percent, and plans to keep the rate at zero for “quite a while into the future.” That is, even if the economy IS turning around, the Fed is not going to remove money; instead, it is going to pump even more money into the economy.
Dr. Bullard went on to say that since the Fed had taken targets to zero, target rates couldn’t go lower; therefore, if the Fed wanted to increase the monetary base even more, ingenious new asset purchase programs would be needed. Thus were born the Fed’s direct purchases of mortgage backed securities and Treasuries. (Sarcasm alert) Apparently, this is “just buying assets,” and not, oh…say… directly monetizing the Federal debt.
Dr. Bullard said that the original plan was to buy $300 billion directly from the Treasury, but that program is being wound down, starting in September or October. However, I suspect this answer may come from the Fed’s smoke & mirrors factory: www.chrismartenson.com
Speaking of buying assets…
A. “The housing market is turning the corner.” The Fed is currently purchasing MBS issued by Fannie and Freddie, but “Congress and the Treasury are the guarantors (Although see Dr. Bullard’s later comments about the “blurring lines” between the Fed and the Treasury.).” He said, “The Fed buys good assets and these [MBS] are good assets.” (Sarcasm alert 2) It must be true because I’ve always associated the word “quality” with the word “toxic.”
Q. Several public figures have remarked that this was the year of fiscal accommodation, and that the Fed has become an adjunct of the Treasury. How would you respond to that?
A. “In a crisis, it’s a good thing for the central bank to work closely with the treasury.” “Central bank independence is important…the lines are currently blurred between the Treasury and the Fed,” although “the Fed will re-assert our independence at some time going forward.” My translation is, “It’s all true. We are Treasury’s, um… consort. But we won’t be the painted lady forever!” In a related comment, Dr. Bullard said that a Congressional audit of the Fed would threaten the Fed’s independence.
More to follow…
Posted by Noel Campbell at 04:16 PM
ECO 110: Day 1
Following Art's lead, here's how I handle the first day of my principles course.
I start--even before the blah blah of the syllabus--with a trading exercise. Each student receives a small item such as a tube of toothpaste or a bag of chips. I try to include a few items that might have a giggle factor or a yuck factor--a can of dip (i.e., chewing tobacco), a bottle of nail polish (often given to a male student), or a can of Spam. Students can then exchange items with other students. The exercise lets me cover lots of ground--voluntary exchange, subjective value, trade-offs/opportunity cost--and to do so in a way that serves as a light-hearted ice breaker for the semester. I reinforce some of the concepts with examples such as the opportunity cost of college or movie clips (this semester I used the latrine/helicopter scene early in "Slumdog Millionaire"). I conclude class with 15 minutes or so for the syllabus and with a homework assignment (read Bastiat's "Seen and Unseen" and apply it to the cash for clunkers program) that will be the jumping off point for the second class.
Something that I hope is evident both to my students and to people reading the preceding paragraph is that I really enjoy teaching principles. Unlike some folks, I consider teaching principles to be a high calling rather than something that is beneath me.
Comments are open for a few days until the spammers hit us.
UPDATE: Since both Art's post and Steve's comment gave some indication of the books used in their courses, I'll add a bit about the assigned readings in my principles class.
Ordinary, i.e., non-honors, sections use the Gwartney et al. text and a non-textbook supplement that varies by instructor and semester. My section this semester is an honors section and Berry's honors program prefers that honors courses assign readings that are not textbooks. This semester, I'm going with Russ Roberts "The Price of Everything," Robert Guest's "The Shackled Continent," and Pietra Rivoli's "The Travels of a T-Shirt in the Global Economy." I'm also assigning selections from Landsburg's "Armchair Economist" (the chapter on incentives is a big part of the second class meeting), Shlaes's "The Forgotten Man," Friedman and Schwartz's "The Great Contraction," Robert Frank's "The Economic Naturalist," Timothy Brook's "Vermeer's Hat" (thanks to George Leef for making me aware of this book), and Smith's "The Wealth of Nations." I also list some optional chapters from Gwartney et al. for students who'd like to follow up class discussions with a textbook explanation.
Gordon Brown Gets Pwned
HT: Justin Ross.
The Don Lavoie Memorial Graduate Student Essay Competition Is Open
Details here. I was one of the winners in 2005, and I got pretty detailed comments on my paper (WP version here). If you're a grad student interested in Austrian economics and you're within a year of the job market, you should definitely submit.
Posted by Art Carden at 10:33 AM
Economic History and Econ 101: Days 1 & 2
Classes started yesterday; my first classes are today. In Economic History, we're discussing chapters 1-4 of Structure and Change in Economic History and John Nye's recent essay on the New Deal that discusses a lot of the things we're going to talk about in the class. We discuss chapters 1-6 of Structure on Tuesday.
Cash for Clunkers: Under Budget?
Secretary of Car Crushing Ray LaHood is bragging that "Cash for Clunkers" has come in "under budget," spending a total of 2.88 billion.
Now, let's review this. The government passed a $1 billion program, that was supposed to last until November. The program went through the $1 billion in a week, so Congress appropriated $2 billion more. After $1.88 billion of that second appropriation was spent, they shut down the program early, and now brag that this amounts to coming in under budget.
Only in Washington could a program that is originally budgeted for $1 billion wind up costing $2.88 billion, and have that be considered "under budget."
The Obama administration also claims that the program created 42,000 jobs. Ya gotta love 'em.
Posted by Brad Smith at 01:19 AM
August 26, 2009
Cash for Crooks
One day after the Herald reported some surprised Bay State inmates - including murderers and rapists - were cashing in $250 stimulus checks, federal officials revealed the same behind-bars bonus was mailed to nearly 4,000 cons nationwide.
Posted by E. Frank Stephenson at 10:58 PM
Important visitor on campus
Tomorrow morning Dr. James Bullard, the president of the St. Louis Fed, visits us at UCA. He’ll be speaking to my friend Mike Casey’s finance students, and I get to attend and maybe ask questions. I’ll let you know how it goes.
Posted by Noel Campbell at 10:33 PM
…only here a couple of weeks, and already blegging. How needy can I get?
My friend Kirk Heriot (Columbus State University) and I helm the Southern Journal of Entrepreneurship, an interdisciplinary, peer-reviewed entrepreneurship journal. It’s Cabell’s listed, indexed on ProQuest Entrepreneurship and EBSCO host. I’m currently wrangling to get it indexed on EconLit, too.
This October, we’ll hold our first ever annual conference on campus at Columbus State. It was not really our decision to hold the first conference this year, but what are ya gonna do? Still, we have high hopes. After all, our keynote speaker will be the incomparable Bob Lawson, the man behind DoL, and all-around super-genius.
Anyway, as all academic know, this is not an auspicious year to hold a first-ever conference, with travel budgets being what they are. We still have room on our program. If anyone in any discipline out there in Blog Land has a manuscript dealing with entrepreneurship (broadly interpreted), consider sending it to us. We’d love to have you help make our conference a success.
Check us out at http://www.southernjournalentrepreneurship.org
Posted by Noel Campbell at 10:25 PM
Quote of the Day
I'm writing a piece on the profit motive in health care for the Foundation for Economic Education. I just came across this gem from Steve Horwitz:
"Profit is not just a motive; it is also integral to the irreplaceable social learning process of the market. Critics may consider eliminating the profit motive the equivalent of giving the Tin Man from Oz a heart; in fact it’s much more like Oedipus’ gouging out his own eyes."
HT: John Stossel, via Steve Horwitz.
Clunky Morning Reading and Watching
2. The Obama legacy: YouTube videos of very nice "clunkers" being destroyed.
August 25, 2009
Cash for Clunkers: Why not a demolition derby?
It occured to me today that if the Obama administration had any real imagination, they would not have simply immobilized and crushed the "clunkers" traded in as part of the "cash for clunkers" program.
No, a creative impressario would have launched "Obama's Cash for Clunkers Demolition Derbymania!" With state and county fairs going on all over the country in August, we could have had some of the best demolition derbies ever using Obama's "clunker cars." And, of course, using the President's theories, that would have meant still more "stimulus" in ticket sales, corndog and fried cheesecake purchases, and who knows what.
Would that have been popular or what? Another missed opportunity.
Cash for Clunkers Idiocy on Display
Thanks to the glories of YouTube, we can watch as the government mandates the destruction of perfectly good automobiles to "help the economy." Here is a very nice 1990s Dodge Dakota 4X4 being destroyed. It is a much better vehicle than my pick up truck.
This is a Corvette that looks to be in pretty good condition. Black, pretty sharp car. I'm sure there are a lot of young men crammed into 2001 Malibus who would have liked this car.
Really, you ought to look at at least a couple of these videos, and the hundreds more like them on YouTube. Are these "clunkers?" Can it really help the economy to destroy perfectly good assets? Are the people running the government the most economically illiterate bunch since FDR ruled the roost? Or are they dumber?
Labour Standards or Liberty?
Josh Hall and I consider international labour standards on the IEA's blog. It's based on our forthcoming "Economic Viewpoints" article in Economic Affairs. That article is based on Josh's IHS "Liberty & Society" lectures on sweatshops and labor standards.
August 24, 2009
Cavalcade of Miscellany
1. Megan McArdle comments on a discussion about American Europhilia. Tyler Cowen says Americans are smitten with Europe because of majestic, stately architecture and says that if it featured predominantly postwar buildings, "most Americans would think of Europe as some kind of dump." Tyler is responding to Bryan Caplan, who argues that "Touristic Bias" explains "why Americans overrate Europe, and Europeans underrate America." I haven't spent much time in Europe, but after a couple of days in Amsterdam in 2007 the charm started to wear off and I started wishing I could find a Starbucks or a grocery store that opened before 10:00 AM.
2. David Goldhill offers essential reading on health care (HT: Marc Law, Radley Balko). Here's the most important paragraph:
"...I suspect that our collective search for villains—for someone to blame—has distracted us and our political leaders from addressing the fundamental causes of our nation’s health-care crisis. All of the actors in health care—from doctors to insurers to pharmaceutical companies—work in a heavily regulated, massively subsidized industry full of structural distortions. They all want to serve patients well. But they also all behave rationally in response to the economic incentives those distortions create. Accidentally, but relentlessly, America has built a health-care system with incentives that inexorably generate terrible and perverse results. Incentives that emphasize health care over any other aspect of health and well-being. That emphasize treatment over prevention. That disguise true costs. That favor complexity, and discourage transparent competition based on price or quality. That result in a generational pyramid scheme rather than sustainable financing. And that—most important—remove consumers from our irreplaceable role as the ultimate ensurer of value."
The policies being seriously considered are not about capitalism versus socialism. They are about replacing a statist status quo with a different kind of statism.
3. Gary Becker on a clunker of an idea.
4. We had this for dinner this evening. It was awesome.
5. John Smoltz had a great first game with the Cardinals. Five scoreless innings, three hits, nine strikeouts--including seven in a row. At $100,000, that's a bargain even if it's the only game he ever pitches for the Cardinals. By comparison, if Chris Carpenter pitched 250 innings--which is probably impossible right now--he would come in at $56,000 per inning.
Expanding My Musical Horizons Bleg
I'm trying to expand my musical horizons a bit and have asked friends and students for recommendations. Several have come in so far, and one of the clearest indicators that the modern world is a uniquely great place to live was the phrase "Swedish jazz-swing-hip hop sensation" that appeared in one recommendation. Last summer, I posted about a friend's defunct-but-not-forgotten band Poor Yorick, and I've enjoyed listening to them and reliving the halcyon days of college (you can download their stuff at the link!). You can also download some of TEDster Jill Sobule's stuff here. Comments are open if you have any (preferably free) music suggestions.
Politics Corrupts Money
Here's David Henderson correcting a common mistake. Corporations aren't allowed to give money to candidates directly. Tracing money in politics is wickedly difficult, but I'm struck by the disproportionate representation of labor unions in big-money politics. At the very least, this suggests that people deriding opposition to the President's health care plan as an elaborate corporation-funded-and-directed "astroturf" movement need to check their premises--particularly since Big Pharma, insurance companies, and Walmart are in bed with the administration on this issue.
Southern Miss Economics, RIP?
Amid the worst economic crisis since the Great Depression, the University of Southern Mississippi is poised to eliminate -- of all things -- its economics department, faculty were informed this week.
Things have been bad at USM in economics for some time, but all I can say is wow.
Rut roh..., China Edition
Source: click here
Banks extended 355.9 billion yuan in loans, down from 1.53 trillion yuan in June, the People's Bank of China reported on its website last week. M2, the broadest measure of money supply, rose 28.4 percent [over the previous twelve months].
( Jeenkies! That’s M2, people, not the monetary base!)
Premier Wen Jiabao reiterated in a statement on Aug 9 that a "moderately loose" monetary policy and "proactive" fiscal policy will remain unchanged because the economy faces problems including sliding export demand and industrial overcapacity.
(Imagine Premier Wen as J. Wellington Wimpy: “I’ll gladly pay you Tuesday with money I created today.” Or is that one too many cartoon comparisons?)
Stephen Roach, chairman of Morgan Stanley Asia, said on July 29 that surging lending and infrastructure spending worsened imbalances in the Chinese economy and "could sow the seeds for a new wave of non-performing bank loans".
Posted by Noel Campbell at 10:33 AM
Paging Professor Friedman
Can you say, "Long and variable lags?"...anyone? Anyone...? Anyone...?
“The Obama administration is also working on a plan to get banks buying and selling risky bonds. But the public-private partnership announced this spring is still in the works and has yet to help investors figure out what those bonds are worth. By creating [a new type of derivative security] banks can help start the process themselves.”
The market is correcting a problem by itself, while waiting on Federal action? Isn’t that the idea behind the argument that activist stabilization policy may, in fact, create instability?
I'm still learning the controls, so here you go:
Posted by Noel Campbell at 10:24 AM
August 22, 2009
A posting less definitive and more musing….
I wonder whether (or to what extent) we are deluding ourselves by characterizing the violence in northern Mexico as a “central government crackdown on violent smugglers,” instead of as a “civil war in northern Mexico, with multiple antagonists.” Recall that in their day, Villa and Zapata were derided as gangsters and violent criminals. From one angle, they certainly were these things, but they were also revolutionaries, who opposed a government they viewed as illegitimate and oppressive.
Despite the free and fair elections of Fox and Calderon at the Federal level, the legal governments in Mexico continue to face crises of legitimacy. Mexico’s legal governments are widely perceived as thoroughly corrupt and inefficient. The drug gangs provide direct employment, some public goods and services, and a massive indirect economic effect by redistributing their U.S. consumers’ wealth across Mexico. My suspicion is that many citizens in Mexico would be largely indifferent between being ordered about by the drug cartels and being ordered about by the existing government.
Perhaps the drug gangs are mobile bandits in transition to becoming stationary bandits, and are being opposed by the incumbent stationary bandit. I wonder what would be the result if the Gulf coalition and the Sinaloa coalition joined together to make Mexico’s Federal government their primary enemy, instead of warring with each other first, and the government second.
Posted by Noel Campbell at 03:34 PM
Cavalcade of Miscellany
1. Arnold Kling examines "Health Reform's Intellectual Failures."
2. My colleague Sarah Estelle and I are leading a Memphis Connection excursion to the Memphis Rock & Soul Museum in about twenty minutes. To this end, here are some resources on intellectual property and intellectual monopoly: video of Stephan Kinsella's lecture at the 2008 Austrian Scholars' Conference and the full text of Michele Boldrin and David K. Levine's Against Intellectual Monopoly. I tend to agree that a lot of intellectual property law exists to create rents for monopolists rather than to incentivize innovation, but it's a difficult issue.
3. We're richer.
Can you tell us about your first time?
You know, your first time reading Mises' Human Action? Here are my reflections, taped at the Foundation for Economic Education earlier this month. Click on "More from: feeseminars" to see similar 4-5 minute video interviews on the same topic with Bruce Caldwell, Larry Reed, Peter Lewin, Steve Horwitz, and Sheldon Richman.
HT: Pete Boettke.
August 21, 2009
I Dreamed I Saw Joe the Plumber Last Night: Health Care & Guns Edition
When I first saw these clips, my gut reaction was "there is no way this is true; the MSNBC video has to have been doctored to make the network look bad." From what I can tell, the MSNBC video is unadulterated. It's a tale of two clips: one is an MSNBC clip in which commentators discuss racial tension and people bringing openly-carried firearms to rallies. The discussion is motivated by video footage of someone carrying an AR-15. You can't identify him from the MSNBC video, but the other clip (and a story on MSNBC.com) reveals that he is an African-American. Needless to say, right-wing groups are seizing on the apparent shenanigans and claiming outright dishonesty on the part of the Liberal Elite Media. I think some of the anti-Obama backlash is racially motivated--see the flood of "Barack Obama is a secret Muslim" emails that went around during his campaign and the Statement of Principles from the Council of Conservative Citizens, which affirms a commitment to "Cultural, national, and racial integrity"--and I don't think the presence of one African-American man toting a gun and protesting the President's plan blows this thesis out of the water. In this light, I thought I'd do a bit of political prognostificationizing. I see two possibilities:
1. MSNBC used judiciously-edited footage of an African-American man carrying an AR-15 at a health care rally to scare viewers about well-armed white racists. If this is true, then I predict that it will strengthen the right's conviction that there is a liberal media bias. Right-wing groups will have an easier time raising funds because they will have clear evidence that the Elite Liberal Media is distorting the news to further a political agenda. Further, the gentleman carrying the AR-15 will become the Right's next Joe the Plumber.
2. Newsbusters.org or a similar conservative group created a judiciously-edited clip that will backfire. Current developments and an MSNBC statement suggest that this isn't the case, but if it is true, then I predict that it will strengthen the left's conviction that the protesters are dishonest corporate flunkies. Left-wing groups will have an easier time raising funds because they will have clear evidence that the Corporate Conservative Media is lying about them to further a political agenda. Still, the gentleman carrying the AR-15 will become the Right's next Joe the Plumber.
Comments are open. HT: Natalie Danielshen, Mason Drake.
The maximum amount of marijuana considered to be for “personal use” under the new law is 5 grams — the equivalent of about four marijuana cigarettes. Other limits are half a gram of cocaine, 50 milligrams of heroin, 40 milligrams for methamphetamine and 0.015 milligrams of LSD.
August 20, 2009
What I've Been Writing Lately
1. Review of Michael Heller's The Gridlock Economy in the new issue of The Freeman.
2. "Corruption Creates Growth When People Aren't Free," with Lisa Verdon. This is a complete overhaul of an earlier paper, and it's now under review. Update, 8/21: Dean Stansel sent me a note to say that we reported their result incorrectly. I'll post a revision post-haste.
3. Course syllabi for this semester's courses: Economic History plus two sections of Econ 101. Both will be interesting in light of the health care debate, and we'll be focusing a lot of attention on the Great Depression in Economic History in light of the current crisis. Robert Higgs visits Rhodes on 11/10, and students will read his Depression, War, and Cold War in preparation for his visit. Speaking of the Great Depression, John Nye sent me this piece he wrote for The American Interest. It's worth a look, and I'm going to have my Economic History students read it for the first day of class.
GM Bails out Cash for Clunkers
At Marketplace.org, Scott Jagow lays out some of the main issues, and he does so nicely until the takeaway:
[Cash 4 clunkers] does seem to be decent stimulus, but car sales will collapse, at least temporarily, no matter when this program ends. C4c is a drug. It even sounds like one. At some point, the car makers need to stop relying on incentives. The car-buying public is addicted to them. Not to mention, these particular incentives are being paid for by the taxpayers.
In the comments, I added:
Market prices are incentives. Government subsidies are distortions. To get correct, car makers and buyers need to stop relying on subsidies, not incentives.
Sorry for being all word police. But it’s a really, really important word. Incentives matter. The rest is commentary.
New season, new city, new network: Project Runway is back
Evidently I will be watching the Lifetime channel this fall (at least until college football season starts--then I'll DVR it). Slate's Troy Patterson dishes hints at what to expect:
In moving from New York to Los Angeles this season, Project Runway has gone Hollywood in order to get to middle America. The initial challenge finds the 16 contestants whipping up dresses appropriate for an awards show. I'll take this as a sign that PR, already increasingly celebrity-infested, is trying to broaden its reach by cultivating an US Weekly populism and making its take on the grammar of chic more approachable. Every good American, after all, knows how to eyeball a girl in a gown on a red carpet. "Here, it's as much about who you're wearing as who you are," says Heidi, dashing off a fashion-semiotics line while the local sunlight enhances her smile and vice versa.
Email me if you'd like a working copy of my paper, "Of Human Action and Human Design: Adaptive Entrepreneurship and the Marketization of Fashion."
Cap and Swindle
Posted by E. Frank Stephenson at 10:07 AM
The Rhetorical Road to Hitler
The last time I taught Economic History, I enjoined my students to avoid using Hitler and the Nazis as rhetorical devices because such comparisons are almost always irrelevant. If you're talking about Stalin, Mao, and democide, then Hitler comparisons might be appropriate. If you're debating the merits of a vegetarian diet, then invoking Hitler's vegetarianism lends nothing to the debate. Here's Barney Frank dismissing such a comparison in the context of the health care debate; I ultimately think that reductio ad Hitlerum arguments will ultimately weaken the impact of the opposition to President Obama's health care proposals.
Leviathan on the Move
Something to keep in mind next time you see or hear a news report about state and local governments being strapped for cash:
While the private sector has shed 6.9 million jobs since the beginning of the recession, state and local governments have expanded their payrolls and added 110,000 jobs, according to a report to be issued Thursday by the Nelson A. Rockefeller Institute of Government.
Posted by E. Frank Stephenson at 08:23 AM
Rest in peace, Rose Friedman
August 19, 2009
What To Do With What You Did Over Your Summer Vacation (2009 Edition)
So you've been to a summer program sponsored by Mises, IHS, FEE, Cato, Independent, or any of a number of other organizations dedicated to economic research and education. You're excited, and you're firmly grounded in your understanding of the classical liberal tradition. You wonder: what now? Here are a few suggestions that will help you make a difference and contribute to the discussion while developing your writing ability.
Read More »
Here's a quick example. I revised this on a plane from Dallas to Albuquerque, and just to prove my point I picked up a copy of the in-flight magazine and looked for anything that could be addressed from an economic perspective. I found an article about a shark dive in the Farallon Islands near San Francisco. I wrote the following in about five minutes, and I emailed it to the editor (firstname.lastname@example.org) at my next opportunity:
Amy Sorlie's 8/1/2009 article on shark diving in the Farallon Islands piqued my interest because I'm a lifelong shark enthusiast and an economist with an interest in conservation. Perhaps counter-intuitively, the key to conservation is not government-mandated protection, but the establishment of clear private property rights over sharks and shark habitats. Since sharks are commonly owned, no one profits directly from their survival and, therefore, no one has an incentive to conserve them. Indeed, in some places it is actually illegal to own and farm sharks. This is exactly the opposite of what we should be doing.
"Even though we kill and eat far, far more shrimp, salmon, and catfish than sharks, no one is really worried about shrimp, salmon, and catfish going extinct anytime soon. That is in large part because they can be privately owned and farmed. If we really want to conserve sharks, we should take a similar approach.
Why letters to editors? They aren't "scholarly," but they're a great way to practice packing a tight, easily accessible argument into a small space. Letters to the editor also get read. I write letters for several reasons. First, they help me satisfy my attraction to the intellectual equivalent of bright, shiny objects. Second, they help me satisfy my urge to (try to) save the world. Third, they help me practice writing and thinking clearly. When you're writing a 250 word letter on a specific issue for an audience of novices and laypeople, you don't have a lot of room for subtlety and nuance, but you also don't have room for sloppiness.
A second way to contribute is to write op-eds for your campus newspaper or for another local publication (an independent weekly, perhaps). Your local daily newspaper and other outlets might be hard to get your work into, but campus publications are usually well-read and looking for good content. Don't be afraid to write for free, particularly if you're just starting out.
What should you write about? I assume you have a lot of notes from the lectures you attended at Mises, FEE, IHS, etc. It might take some work, but you can certainly use these as a very rich source of material for articles and letters. If you are interested in academia, write with an eye toward a future as a researcher: look for ways to hone and sharpen your arguments, and look for opportunities to get involved in research projects. Your professors are usually looking for help, and if you have opportunities to do your own independent research, there are outlets for these projects, too.
A third way to contribute and practice is to review books. If you are a graduate student, you might want to volunteer to review for professional journals, organizations, or websites (not too many, and nothing that isn't directly related to your research agenda). Other outlets like newspapers and magazines sometimes feature book reviews, as well. You probably won't start out by reviewing books for the New York Review of Books or the Most Important Economics Journal, but it's a fair bet that there is someone out there who is looking to publish well-done book reviews. You have to engage with the books' arguments in a way that is suitable for publication, and you can be reasonably certain that the authors will read the published reviews.
If you don't really fancy yourself much of a writer or speaker, a fourth way to contribute would be to start and edit a publication or website. If you're not ready to produce your own content, there are tons of sites (mises.org, independent.org, and many, many others) that have a lot of content you can link to or reproduce for a price of $0.00. Look at Lewrockwell.com and Strike-the-root.com for examples.
A word of caution is in order, especially if you're blogging. Remember that the Internet is forever, Google knows everything, and if you're self-publishing you don't have a gatekeeper that can keep your less civilized thoughts from seeing the proverbial light of day. Practice the virtues of temperance, prudence, patience, and kindness. Just as sending email while angry is a bad idea, blogging while angry is a bad idea. Long screeds about how Eminent Scholar is a whore of The Establishment is a pretty good signal that you should probably be ignored, and anonymous cheap shots in blog comments are childish and unprofessional. Don't let a couple of rants or clever-but-inappropriate barbs disqualify you from the Great Conversation.
But relax. Above all, read critically, write critically, and have fun. Know where you're starting, work to get better, and realize that improvement is a long and sometimes painful process. I'm still unsatisfied with the work I'm doing right now, but it's leaps and bounds better than what I was doing in graduate school. A place at the table is worth the time and effort to secure. Good luck!
Cross-Posted at The Mises Blog and The Beacon.
« Close It
Investment in non-transferable, intangible capital in Mexico and drug decriminalization
Lately I’ve been thinking about Mexico, as I frequently do. It’s a great country with great people, but I’m always asking myself why Mexico can’t be more like the U.S. and Canada, and less like the world’s other middle-income countries. (Mexico’s per capita income is greater than that of China or the Ukraine, and less than Poland’s.)
This often leads me to think about the drug-related violence and public corruption in Mexico, which serves to discourage FDI as well as internal investment in human capital. This leads to the relatively common argument of free-marketers that U.S. decriminalization of some drugs would lead to less violence, less corruption, and more productive private investment in the U.S. and in Mexico. I concur with that argument, but I wonder whether we free-marketers might overstate the likely benefits of de-criminalization, even if only to ourselves.
Mexico’s drug gangs are not drug gangs, per se. They are organizations that have made enormous investment in non-transferable, intangible, yet durable capital. They have invested in the human capital of inflicting violence, evading laws, and corrupting public institutions. They have applied that capital in the market which currently yields the largest returns, smuggling drugs.
If the U.S. de-criminalizes some drugs, the capital will not wither away over night; it will be re-deployed. Furthermore, the capital’s owners will resist allowing something as trivial as a legal reform having too great an effect on their capital’s returns.
For example, consider the Mob after prohibition was repealed. The capital in violence still existed, but after the legislatively created abnormal profits in alcohol were legislated away, the Mob deployed its capital into new industries, such as construction, shipping, trucking, garment making, and worker’s unions. Similarly, Mexico’s drug gangs will move into new industries. Though the violence and corruption may be reduced, they will continue. Furthermore, even if marijuana (for example) is de-criminalized, Wal-Mart and Kroger will not retail marijuana and they will not revolutionize the marijuana supply chain. Though legal, marijuana will be taxed and regulated like alcohol and tobacco are. There will still be profit for violent smuggling organizations. The profit will now arise from evading taxes and controlling distribution networks, rather than from prohibition.
Do I think decriminalization would be preferable to the status quo? Yes, I do, but it will not be a panacea. Perhaps this is another overlooked cost of the war on drugs. It created the incentives and opportunity to produce human capital that destabilizes societies on a global scale, and insured that the destabilizing capital will survive for decades after the war on drugs ends.
A few years ago, I had an idea for a children's book based on Frederic Bastiat's "That Which is Seen, and That Which is Not Seen." People fall for the broken window fallacy and destroy the town they live in, thinking that it will bring them prosperity. Then someone--Freddie, we'll call him--shows up and explains that no, destruction does not bring prosperity. I never took the time to do it, but I now wish I had because the "Cash for Clunkers" program has turned Bastiat's nightmare into a policy reality.
Some are apparently applying the "Cash for Clunkers" idea to other items, like computers. Here's an online version of Henry Hazlitt's classic Economics in One Lesson for anyone who thinks these are good ideas. Chapters 1-3 are probably the most relevant.
If you think that minimizing emissions is a virtue that should be rewarded and subsidized--and I agree that under current institutions, there are some genuine externality problems--you can do your part by helping to underwrite our monthly payments on the "Ultra-Low Emissions Certified" 2006 Honda Pilot that we bought at the end of June. You can donate via PayPal by clicking the button below.
BONUS: There will be a prize of some kind--what, I haven't decided yet--for whoever can send me the best efficiency-based economic argument for why you shouldn't donate.
5:40 PM Update: A friend wants the government to start a "Dollars for Dumps" program through which they will subsidize the destruction of his current house and the purchase of a new one.
What I (and others) have Been Writing (and Saying) Lately
1. Here's a massive overhaul of Charles Courtemanche's and my paper on Walmart, warehouse clubs, and obesity, currently under review at the Journal of Urban Economics.
2. Should we regulate video games, or are the unintended consequences too great? A reader sent me a link to this paper arguing that in the short- and medium-run, violent movies either decrease violent crime or have no effect. He also sent me a paper showing a similar effect for video games, but I can't find a publicly-available copy anywhere. Here's my year-old take on the porn-and-rape literature, which inicidentally isn't the first thing that comes up if you enter "sex" in the search box on Mises.org.
3. Here are audio and video from Mises University 2009. I promised notes, links, and advice to the students. That will all appear online soon.
4. LvMI is also hosting audio of some other lectures. Here's my lecture "The Global Economy: A Symphony of (Creative) Destruction," given at Rhodes College's Meeman Center for Lifelong Learning on October 13, 2008. Here's my lecture on Walmart, given to the Federalist Society at Samford University's Cumberland School of Law on October 17, 2008. Here's a lecture on Sweden by Per Bylund, one of Peter Klein's PhD students at the University of Missouri, given at Rhodes College on November 19, 2008. Finally, here's Randall Holcombe's lecture "Entrepreneurship and Economic Progress," given at Rhodes College on January 20, 2009.
August 18, 2009
Cavalcade of Miscellany: Health Care, Recent Writing, and High Honor
I'm back from New Mexico, feverishly preparing for the beginning of the semester, and getting ready to make good on a number of commitments about things I'm going to write about. But not before this.
1. Paul Rothstein, formerly of Wash U and currently of the Federal Trade Commission, is live-blogging the Health Care Bill. I never took a class from Paul, but we had a lot of interesting conversations while I was in grad school. I propose that we refer to an undertaking like this as a "slog-n-blog."
3. I got to spend part of last week in Santa Fe, New Mexico at the Jack Miller Center Summer Institute with co-blogger Mike Munger. His post-event blog post includes a claim that I'm definitely putting in my tenure file. Thanks to the coaching staff at Rhodes for the basketball shorts.
Bike Sharing in Montreal
An update on the bike program in Montreal:
Good news: In the almost two months of service, the over 225,000 BIXI trips were taken by almost 47,000 users of which over 6,300 are long term subscribers.
HT: Shawn Regan
How long do you wait for a sub sandwhich?
At our local mall a *** subway shop recently opened in the food court. Generally speaking, the mall food court (in my opinion) ranks near the bottom of desirable locations to gain sustenance. Faced with the options of bad Chinese, bad Cajun, bad fish and chips, bad pizza, and bad hamburgers, I was willing to give the *** sub shop a chance. After all, how bad can a sub sandwich be relative to the other choices.
Admission: Today was the first time I ever ordered/ate anything from a *** Sub Shop so if I am off base here, please let me know.
My prediction is that the *** sub shop in our local mall will be out of business within a few months. I ordered a #5 turkey and roast beef without the onions at 11:17 AM. I took delivery of my sandwich at 11:30 AM. Now, I may be willing to wait for the greatest sub sandwich I have ever tasted, but the old #5 was not that.
Is the shtick of the *** sub shop to make you wait ten plus minutes for your sub? If so, then I humbly suggest they take that shtick somewhere else.
The whole idea of a food court (misdirected as I think it is) is to churn-and-burn, that is, to move people through the line as quick as possible. In the sub shop there were three people making sandwiches (as far as I could tell) and plenty of customers waiting for sandwiches who I had not seen in line (I was number two in a two deep line when I ordered). Thus, I assume that the folks waiting ahead of me had a somewhat similar experience - that is ten+ minutes for a single sub (with a bit lower average wait time if two or more people ordered multiple subs on the same ticket).
The capacity at which they were operating at 11:15AM was around eighteen sandwiches per hour - I'll be generous and go up to 20 per hour. At a price of $8 per sandwich that's $164 in total revenue per hour at full capacity. Let's assume the store operates at the equivalent of four peak-capacity hours per day - that's $640 per day. That doesn't sound sufficient to survive very long - they better get a lot more efficient really quick.
I am open to possibilities that the *** sub shop will get better.
1. As I mentioned, this was my first (and probably last) time ordering from a *** Subs, so maybe I was supposed sit and wait with pregnant anticipation for my old #5 rather than surfing the web on my iPhone and getting frustrated that I had already paid and trying to decide if it was worth it to demand my money back.
2. The shop is relatively new so there might be some learning-by-doing on the part of the sub-shop workers. I could imagine myself in the same position of learning to make sub sandwiches. I would likely take my time making sure that the sandwich was perfect when, in the end, the marginal difference in quality and appearance is likely very low. Thus, over time the folks making sandwiches will figure out how to do things better and more efficiently.
3. Unlike a Subway or a Jimmy Johns, the *** sub seemed to not embrace division of labor beyond the cashier and sandwich maker distinction. This might change over time.
4. The folks making the sandwiches might have been "playing down" to the relatively moderate demand the shop was facing at the time - perhaps the sandwich makers become much more efficient when facing a line of folks ten deep. But my "robust inference on one observation" is that they do not.
In today's environment I don't want to see anyone who has the guts to open their own business/franchise to flame out. Thus my "free" advice to the store owner. Perhaps I will print this post out and slide it under their door sometime, I suppose I won't be able to charge them for my consulting fee.
A passing question
I am not an education economist, but found the following data concerning our local high school interesting:
I wonder if there is a negative correlation between the politicization and increasing bureaucratization of secondary public education and the length of time a principal stays in one place? I haven't lived in Concord NC long enough to know if local secondary education is any more politicized or bureaucratized today than it was in 1966 - but my guess is that it is.
Whoever writes a dissertation on this topic, my name is spelled with an "e" not an "i".
August 17, 2009
Last posting on the Fed for a while
…of course, I no more capable of making a credible commitment than the Fed is….
Anyway, I’ve been wondering, how can the Fed unwind its position?
Pulling the money out requires that the Fed engage in open market sales. Of course, this would push down the price of treasuries and drive the yield up. This will tend to increase interest rates throughout the economy. Higher rates will either choke off economic growth or contribute to a sort of “cost push” inflation, or a combination of both. Unless there is a ready buyer for billions of dollars of Treasuries currently waiting in the wings; but, of course, there aren’t any.
Or the Fed can leave the money in the economy, and this seems to have been relatively benign, so far. However, any event that could threaten to trigger even temporary inflation—from increased bank lending, a decline in the household saving rate, or a supply shock—becomes built into inflationary premia charged on loans. Then interest rates rise, etc., etc., etc.
How will the Fed get out of its position? I guess we can trust that the Fed will flawlessly tap dance on the razor blades, and pull out precisely the right amount of money at precisely the right time, and avoid any dire consequences.
Posted by Noel Campbell at 09:37 PM
Doin' it wrong...
Note to fellow caffeine addicts:
Move the canister of dog treats far, far away from the whole bean coffee.
My UMSL colleague Dave Rose, in a Christian Science Monitor op-ed, offers a low-cost competition-friendly way of officially providing universal coverage through vouchers. It's a constrained second-best argument: he starts with the fact that we already have de facto universal coverage, takes for granted that won't change. No nationalization and no government rationing are needed.
August 15, 2009
Money supply, inflation, and envelopes, part 3….
Yes, it does, but the contraction of credit is reflected in the decline in velocity. One of the things reducing turnover in the money supply (velocity) is the fact that banks have withdrawn so much credit from the economy.
“The contraction of credit means we can withstand a large increase in the money supply without risking inflationary pressure” is equivalent to “Without the decline in velocity, the massive increase in the monetary base would already be massively inflationary”
Playing with my envelope, let’s suppose that the monetary base and velocity both grow by 4 percent over the next twelve months; both figures well within recent experience. Let’s allow an (optimistic) 1.5 percent growth in real output. That says my “price level” will experience 6.4 percent inflation.
My calculated price level and the CPI-U (everything included) explain 69 percent of the contemporaneous variation in each other. That’s either a pretty good fit, or a pretty bad fit, depending on your point of view. My “inflation rate” is negatively biased by about 1.3 percentage points. Therefore, that could indicate CPI inflation of about 7.7 percent, contingent on the accuracy of my admittedly half-rumped assumptions about M, V, and Q. (note to those unfamiliar with the terminology: a “half-rumped assumption” is the same as a “SWAG”). In short, much higher-than-normal inflation is easily possible, and is likely to be held in check only by continued weakness in real output and continuing low velocity.
Mind you, the level of excess reserves in the banking system is extremely high. The potential remains for explosive growth in the money supply, should credit markets become more fluid.
Belly-Up for Some Bellyaching
Here's a letter I just sent to the Rome News-Tribune:
A local couple has some folks over to belly-up for some bellyaching about health care (“Romans Tell Health Care Woes,” Aug. 15). That’s the hosts’ choice, though it’s not my idea of an entertaining party. I’d like to know, however, what makes this couple’s soiree newsworthy. I have a nephew who was born with heart defect that was skillfully repaired by a pediatric cardiologist. My father and father-in-law have both had joint replacements to remedy debilitating hip and knee deterioration. A family friend lives a healthy life today because her breast tumor was detected and treated at an early stage. If I invite these people and others who have benefited from modern medical care over for a party will the Rome News-Tribune be there to cover it?
Here's the article that prompted my letter. Note that one of the people quoted has been HIV positive for 20 years. Presumably he's alive because of meds he's been taking--meds that he may not have had to pay the full cost of. Maybe this fellow should be praising the health care he's received rather than griping about it.
Posted by E. Frank Stephenson at 10:27 AM
August 14, 2009
George Selgin on auditing the Fed
George gave an excellent interview early this morning (6am Central!) on Wisconsin Public Radio. I agree with him that traditional respect for the Fed's independence in monetary policy doesn't apply to actions in which the Fed buys impaired assets, makes loans to non-banks, and otherwise goes beyond the traditional bounds of monetary policy. The Fed's mere say-so (merely calling these acts "monetary policy") should not exempt such assets from GAO audits.
Real and nominal effects of monetary policy
Follow up on an off-line conversation about my post yesterday…
Milton Friedman convinced most of us that changing the money supply has different short run and long run consequences: in the short run, monetary policy may influence real activity, but it will have only nominal effects in the long run. He also convinced most of us that monetary policy affects the economy only after “long and variable lags.”
I’ve spent the year polling my contacts who are more macro-specialized than I, including a former FOMC member and President of the St. Louis Fed. In practice “long and variable” seems to mean twelve months for real effects, with nominal effects beginning to dominate by 24 months. If this belief is roughly accurate, we ought to be seeing the (temporary, but) real effects beginning now. Perhaps we have, as the advance figures of GDP might indicate a slowing of the contraction.
However, I fear the massive increase in uncertainty that the Administration has created (Nationalize health care? Nationalize the auto industry? Regulate access to liquidity? Regulate executive pay? etc., but never delivered with the specifics to allow the economy to form an expectation; this list seems endless.) has short-circuited the “real” bounce.
Unless Bernanke reduces the money supply, or unless velocity stabilizes at a historically low value, then total spending in the economy WILL rise. Given the massive dose of uncertainty in the economy, I don’t expect real output to grow strongly. The extra spending will have nowhere to go except into inflation.
Bernanke has strongly indicated a willingness to pursue “loose money” indefinitely. Thus, economic performance seems to hinge on velocity. I, for one, will watch velocity like a hawk watches a field mouse.
Creating Jobs Obama-Style
Today's cartoon from the Rome News-Tribune's Mike Lester:
August 13, 2009
Back of the envelope calculations
Hello, all- Thanks for the introduction and welcome. This is my first, ever, blogpost, so I'm only a decade or so behind the times. As this is my first rodeo, the post may be long.
In Principles class we learned an identity, the Equation of Exchange: the product of the money supply and velocity must always equal the product of the price level and real output, or MV=PQ. By the definition of these terms, this relationship must always be true. Using government figures for the monetary base (M), nominal output (PQ), and real output (Q), I calculated solutions for velocity (V) and the “monetary-base” price level (P).
What does the envelope reveal? The Federal Reserve turned the world upside down in Q3 of 2008 and the auguries are not reassuring.
From July 08 to July09, the monetary base grew from $839 billion to $1.68 trillion, slightly more than a 100 percent increase. Velocity plunged, falling from 17.3 to 8.4, a decrease of around 51 percent. On the other side of the equation, real output fell from $13.4 trillion to $12.9 trillion, a decline of 4 percent, although I believe the advance GDP figures for Q2 are rather too large. Finally, despite the public hand-wringing about deflation that one can find in the media, the price level rose by 1.6 percent.
Here’s what’s worrisome: Chairman Bernanke has publicly committed himself to continued increases in the monetary base for quite some time, i.e., M isn’t going to come down. However, velocity seems to have stopped its free-fall and begun to rise again. Starting five quarters ago, velocity has been 17.3, 12.9, 8.1, 8.1, and now 8.4.
So suppose there’s no growth in the monetary base (patently wishful thinking), but velocity continues to grow at its current 8 percent annual pace (or the product, MV, grows at a combined 8 percent—easily do-able), then—of course—to achieve price level stability over the next year, real output must grow at an annual rate of 8 percent over the next twelve months! That would not only be a recovery, but would be the highest level that real output has ever been... all in twelve months. Bear in mind that the long run growth rate of real output is in the neighborhood of two percent.
Perhaps we should keep the back of the envelope in mind the next time a policy maker announces that we can achieve “x” in the near term without causing inflation….
Once More on Cash for Clunkers
The popular US cash-for-clunkers programme may be drawing money from other consumer purchases and could also undermine future car sales, US economists have warned.
As for the "green" benefits from the clunkers program, this article reports that folks trading in cars are buying lots of low mpg vehicles.
ADDENDUM--welcome Noel to our merry band of bloggers.
DOL welcomes Noel Campbell
DOLers are happy to welcome Noel Campbell to our merry band of bloggers. Noel is a George Mason economics Ph.D. (like me, only he finished a month later!). He is now at University of Central Arkansas and he has built up an impressive body of work in public finance, public choice, entrepreneurship, and related areas. He's also an associate editor of the Southern Journal of Entrepreneurship. Welcome aboard, Noel!
Mini Cooper dealers evidently have the following bumper sticker:
UPDATE: This was in Chicago not the U.K. So I guess we need a 6th Amendment.
Clifton Williams, 33, of Richton Park, is facing six months in jail for making what court documents call a yawn-like sound in Will County Judge Daniel Rozak's court last month. The yawn happened as Williams' cousin, Jason Mayfield, was being sentenced for a drug charge on July 23.Rozak found Williams in contempt of court and sentenced him to six months in jail...Six months is the maximum sentence judges can give for criminal contempt without a jury trial.
Incentives Matter: Canadian Sperm Donor Edition
At one time Canada had two dozen sperm banks but when the Assisted Human Reproduction Act made it illegal to pay for sperm or egg donors they dried up in 2004.
Thanks for GR for the pointer.
What Kind of Munger?
"The young grass-roots army that swept Obama into office has yet to mobilize
Politics Corrupts Money, or, The Obama Administration Needs Bootleggers*
Robert Reich offers an interesting story about a deal between drug companies and the administration that (almost certainly unintentionally) makes a case against government involvement in health care. Even if we assumed that a perfect government perfectly staffed with perfect people could implement and administer a well-functioning health care system, the coalition-building process that would get us from here to there is virtually certain to create distortions.
*--Here's an EconTalk podcast with Bruce Yandle in which he discusses the "Baptists and Bootleggers" phenomenon.
Update: Here's an article on the coalitions.
HT: Arnold Kling.
August 12, 2009
Now, They Have Second Thoughts
In the 1960s, a University of Wisconsin graduate student named Thomas Crocker came up with a novel solution for environmental problems: cap emissions of pollutants and then let firms trade permits that allow them to pollute within those limits.
Guest Post: Sheldon Richman on The Healthcare-Reform Protests
With his permission, I'm reproducing verbatim this excellent post by FEE's Sheldon Richman. I haven't been following it closely, but I'm inclined to agree that poorly-informed shouting is not conducive to the advancement of liberty. Further, a friend pointed out that we're still spending billions of dollars fighting overseas wars, and I wouldn't be surprised if these wars are as costly (or more costly) in lives or treasure than socialized medicine. Here's Sheldon:
"Many of the people attending congressional district meetings to protest the emerging healthcare reform harm the cause of freedom when they are unruly and, more importantly, when they repeat unfounded rumors they’ve heard on the radio or read on the Internet. My advice is to get your facts straight and act in a dignified way. Reason should be in for forefront. Passion too prominently displayed looks like blind emotion and alienates those who might be persuaded by calm argument. Don’t call people names. Coolly state the moral and economic reasons against government control. Remember: Statism did not begin with Obama.
That said, I must point out that the critics of the protesters — those who want to continue the status quo of government-dominated health care but even more so — are off base in their sneering dismissal of the people who are worried about the so-called reform. Why would anyone have confidence in an 1,000-page-plus piece of legislation, obscurely written, that would give not-fully-defined powers to the secretary of Health and Human Services? Because Barack Obama, Ted Kennedy, Henry Waxman, Barney Frank, and Chris Dodd say so? Excuse me, but that’s not good enough.
Anyone who doesn’t have an instinctual revulsion at such a bill needs to read some history."
Posted by Art Carden at 03:23 PM
Just Wondering ...
In a dog and pony show yesterday, President Obama incorrectly claimed that the AARP was "onboard" with his health care reforms. Hmmm ... a fishy claim ... I wonder if anyone has alerted email@example.com.
August 11, 2009
Government Announces "Rebates for Recipes" Program
One element of the economy hit particularly hard by the recession has been the restaurant industry. Superchef Gordon Ramsey's restaurants are in a "free fall." The industry as a whole is facing especially lean times as people eat more at home.
Following up on the popular "cash for clunkers," the government has created a plan to save the restaurant industry while attacking America's growing obesity problem. It's called "Rebates for Recipes." Under the program, individuals can take a meal to a restaurant. If they order a new meal at the restaurant that has at least 20 percdent fewer calories, the government will provide a rebate of between $3.50 and $4.50 (depending on the savings in calories) for any entre priced at $45 or less. The restaurant is required to destroy the trade in meal (which must be edible at the time you enter the restaurant) by putting it down the disposal. Presidential spokesman Robert Gibbs said, "there is no end to cross subsidies with catchy slogans that we can create. And destroying perfectly good assets seems to be a proven way to improve the economic health of the nation."
Senate sources say they expect the projected cost of the program to treble within a week.
Reform Health at the Margins
So says DOL friend Dwight Lee in IBD.
Movin' On Up
Some news for/about Berry econ grads. Although his arrival won't generate as much buzz as the breastfeeding Angelina statue, my former student, the aptly named Blake Smart, has accepted a position as the assistant men's golf coach at the University of Oklahoma.
Posted by E. Frank Stephenson at 08:39 AM
August 10, 2009
How about this for government accuracy
From this report on thepredicted "benefits" of passing health care reform for the State of North Carolina (other states here). The report doesn't mention from which of the five pending bills the benefits were to be derived, so I suppose we are to take these predictions as being generic to all five bills? The site is a White House site, so it is not surprising that there is not one single negative aspect of health insurance/prepaid healthcare reform listed.
However, in the Status Quo section of the report on North Carolina was this gem:
I wonder why the document takes things out to the seventh decimal place - on a percentage no less. Further, the 70 percent number seems awfully high but it is applied to the 17.248 percent not the entire population - so that makes it around
12.0738449 percent of the people in North Carolina who are uninsured live in a family with at least one full-time worker.
In 2009, our fair state had around 9,397,397 folks so that means around 283,656.784 families of four are uninsured in NC.
Cash for Clunkers Hurts Some Charities
More of the seen and the unseen from the clunker program:
Vehicles already were lined up for one of the weekly auto auctions benefiting Texans Can, a charity that helps at-risk teenagers and their families, when prospective donors started to call, saying they had changed their minds.
Previous post here.
The Use of Billboards for College Football Recruiting
From the AJC we see another margin on which colleges are competing for the rents generated by unpaid athletes:
Joey Harrington’s 10-story billboard in New York did not help him win the Heisman Trophy, as was its intent.
A Bike Program That Might Work
From the Columbus Dispatch (emphasis added):
Ten bicycles are up for grabs at businesses in the Short North. And they're free, as long as riders bring them back within two hours.
The bold part is the key to success--establishing a link between riders and bikes in a way that mistreatment of bikes can be billed to the person responsible. However, the need to return bikes to the place where they were checked out reduces the attractiveness of the program to riders. Thanks to Dave Reed for the pointer.
The Health Care "System" and U.S. Life Expectancy
The abstract of a new NBER WP by Samuel Preston and Jessica Ho:
Life expectancy in the United States fares poorly in international comparisons, primarily because of high mortality rates above age 50. Its low ranking is often blamed on a poor performance by the health care system rather than on behavioral or social factors. This paper presents evidence on the relative performance of the US health care system using death avoidance as the sole criterion. We find that, by standards of OECD countries, the US does well in terms of screening for cancer, survival rates from cancer, survival rates after heart attacks and strokes, and medication of individuals with high levels of blood pressure or cholesterol. We consider in greater depth mortality from prostate cancer and breast cancer, diseases for which effective methods of identification and treatment have been developed and where behavioral factors do not play a dominant role. We show that the US has had significantly faster declines in mortality from these two diseases than comparison countries. We conclude that the low longevity ranking of the United States is not likely to be a result of a poorly functioning health care system.
Why the quote marks around the word system in the title of this post? Explanation here.
August 09, 2009
Boudreaux on Vegas
Don Boudreaux summarizes why we should all love Las Vegas. This caught my eye because I'm headed to another desert tomorrow (Santa Fe, New Mexico).* These are basically my views, too--every time I've been to Sin City I've been struck with how alive it is and with how much human ingenuity has gone into making it not only livable, but pleasant. As Don points out, Vegas is a (very) bright counterexample to stories about underdevelopment that rely on geography.
*--I've never been to New Mexico, so I'm pretty excited about it. A friend in college who was from New Mexico claimed to have once had this email address: firstname.lastname@example.org.
The Administrative State
The Heritage Foundation paper "Congressional Ethics and the Administrative State" contains the following conclusion: "The system of government that has transformed congressmen from legislators to ombudsmen has spawned the corrupt favoritism that once defined New York's Tammany Hall, but now defines Washington and its emerging scandals. The framers of the Constitution understood the inevitable corruption of the administrative state, and had sought to avoid it with their constitutional prescriptions of federalism and separated powers."
The occasion for this paper was the S & L corruption (McCain, Keating, et al.), but the the analysis applies broadly. One of my favorite applications is to ethanol. There, EPA experts argued in Congress against allowing ethanol onto the list of oxygenating fuels, which Congress was about to mandate. Congress punted by refusing to specify a list. Rather, the EPA was to construct the list. After a few contacts from the likes of Bob Dole, the EPA saw the light and added ethanol to the list. Before long, it became the only oxygenating additive on the list.
A recent column by John Stossel brought this ancient history to mind. He says, "They've given us a system that now can be saved only if bureaucrats limit coverage by second-guessing retirees' decisions. Government will decide which Medicare services have value and which do not. Retirees may have a different opinion."
Dollars to donuts that the legislation, for all of its bulk, contains little specificity. Rather, the bureaucracy that will be created will surpass the EPA as a target of lobbying efforts by members of Congress, as the details are worked out.
August 08, 2009
The Seen and The Unseen: Cash for Clunkers Edition
Who doesn't like the government's "cash for clunkers" program? Your mechanic, for one.
*Two more members of the rent-seeking society.
UPDATE: Germany also had a cash for clunkers program and saw some similar seen/unseen effects. From the Financial Times:
But there are also problems in Germany. Retailers, for instance, say the bonus is shifting spending patterns rather than creating demand. Higher February car sales coincided with falling turnover at consumer electronics stores. Stefan Genth, managing director of the HDE retailers’ federation, slammed the bonus last week, saying it was “sucking out spending” from the retail sector.
How About "Underwater" Taxpayers?
Harvard's Martin Feldstein has an op-ed "How to Save an ‘Underwater’ Mortgage" in today's WSJ. Here's the letter I sent in response:
Calling his program "fair to taxpayers," Martin Feldstein ("How to Save an 'Underwater' Mortgage" Aug. 8-9) proposes $200 billion of government spending to write down mortgage principal for people with loan-to-value ratios exceeding 120%. On behalf of my young son and the rest of the future generation of "underwater" taxpayers already facing trillions of dollars of government debt and tens of trillions more of unfunded liabilities, I'll pass on yet another dose of fiscal child abuse.
August 07, 2009
Sheryl Crow's Paradise
Snark aside, it's hard to imagine that many folks thought a communism would be some sort of utopia when in reality it can't even produce toilet paper.
Posted by E. Frank Stephenson at 06:10 PM
August 06, 2009
In Praise of Justin Ross: Kiwi Fruit vs. Going Postal
A few weeks ago the WSJ had a piece on econ blogs. There were several good blogs--MR, Mankiw--listed in the piece but I spent a couple of minutes thinking about my favorite econ blogs and decided that if forced to name a favorite blogger it would probably be Justin Ross of The Perfect Substitute. His post today comparing the USPS to kiwi fruit grown in New Zealand is a good example of the creativity that makes Justin's posts such a good read. Read the whole thing--including a couple of reasonble quibbles raised in the comments.
Cavalcade of Miscellany: Semi-Random Thoughts from Joe's Coffee in Panama City, Florida
1. Mises University was awesome. Much more--including notes and links based on my lectures--to come when I get back into the swing of normal life (sometime after the middle of the month).
2. Will communications technology make traditional vacations obsolete, and is this a bad thing? Is the traditional vacation model of lumpy leisure optimal, or is it better to smooth your leisure? Does this depend on the kind of job you have? What if you're a workaholic who loves to travel but doesn't like being a tourist? What if your idea of relaxing involves a pile of books, a laptop, and a large supply of coffee--in other words, what most people consider work? More on this later--Tyler Cowen's new book should be waiting for me in Memphis, and I'm planning to review it for Lifehack.org.
3. After I defended my dissertation, I made a list of long-term goals. By age 75, I want to have written the definitive economic history of the South. After working on a survey paper about it all summer, I'm realizing now that such a volume would probably occupy me until I'm at least 125 (how should my expectations about the probability of The Singularity affect the production process?). The working title, which borrows from Ekelund and Tollison: The South as a Rent-Seeking Society.
4. In a market economy with secure private property rights, what kind of footprint is a carbon footprint? Is it like Neil Armstrong's unshaken, unstirred footprint on the moon that will presumably last for eternity, or is it like a footprint on a beach that disappears with the winds and the tides? Given the complexity and resilience of spontaneous natural and social systems, my money is on the latter.
5. Speaking of footprints, Jacob took his first steps last night. He has provided a lot of help pushing the shopping cart while we've been collecting data at Super Walmarts and Sam's Clubs in a couple of different places, but this was the first time he has walked unassisted. His assistance on a couple of Walmart data-gathering exercises has been considerable.
Money and banking lectures in Guatemala
In late June I gave a series of three lectures at Universidad Francisco Marroquin in Guatemala City. The topics were the evolution of monetary institutions, the operation of a free banking system, and the financial crisis. Here is a UFM press release (translated via Google Translate -- for the Spanish original go here) with links to videos of the three lectures. The woman in the first row who asks a question during the Q&A following the second lecture, by the way, is the head of Guatemala's central bank. There are also links to photos of me and my wife touring the campus.
On the death tax c. 1909
The Aug. 6, 1909 NYT prints a letter to the editor from "UNDERTAKER":
The Payne tariff not only increases the cost of living, but it also increases the cost of dying. Undertakers' gloves, which were formally bought at 75 cents a dozen wholesale, and which paid a duty of about 20 cents a dozen, have had this duty raised from 20 cents to 70 cents a dozen. If people, therefore, figure that under the new bill it will be cheaper to die than to live they will find themselves mistaken in this also.I am not sure that the duty makes it more expensive to die rather than to live, but it does make it potentially more expensive for those the deceased leaves behind once the deceased has become deceased.
Alternative energy c. 1909
The Aug. 6, 1909 NYT reports (in seven lines) on a technological improvement (for the time) which would lead to dramatically reduced emissions and improved efficiency - all, it seems, based on private decision making:
The trial of an oil-burning locomotive on the Southern Pacific Division between Sparks and Carlin, Nev., has proved so satisfactory that the company has decided to retire all the coal-burning engines on that division. The change will be made at once.Perhaps there were government subsidies aimed at creating an alternative to the black-smoke belching coal-burning locomotives. Perhaps the subsidies offered the rail-roads in the form of right-of-way and easements, among any number of other policies, indirectly encouraged the development of the new technology. Perhaps the pressure from local citizenries around the country to cut down on the smoke and fire-risk generated by coal-burning locomotives increased the incentive to move to a new technology.
On the other hand, perhaps the Southern Pacific realized that the technology of oil-burning locomotives had improved sufficiently that it was economically viable to utilize the new machines and, in the process, reduce negative externalities.
Does this provide any lesson for today?
I do wish I had more time to dig deeper into the backgrounds of these short stories. There has to be a lot more going on than seven lines worth of text.
August 04, 2009
Strapped local and state governments are still spending on at least one activity: seeking stimulus money.
Paging Dr. Bradbury (and Dr. Drinen)
From today's WSJ:
Slugger Albert Pujols was supposed to start seeing better pitches after his St. Louis Cardinals traded for Matt Holliday to bat after him. Lest pitchers walk Mr. Pujols too often, Mr. Holliday, a sound hitter in his own right, would have more at-bats with players on base. But since the move, Mr. Pujols is batting .200 with zero homers, his longest drought of the year. Mr. Holliday, though, is batting .541, with three home runs.
Here's the abstract of Bradbury and Drinen in the J of Sports Econ:
Past studies estimating the marginal revenue products of baseball players have assumed individual players' hitting performances to be independent of teammate spillovers. However, the baseball community's widely held belief in "protection"—that a good (bad) player can improve (diminish) the hit probability of the batter who precedes him in the batting order—violates the assumption of the independence of batting outcomes. In this paper, the authors identify two possible hitting externalities in baseball. Using play-by-play data the authors find evidence contrary to the protection hypothesis—the quality of the on-deck hitter negatively impacts the preceding hitter—though the magnitude of the effect is very small.
August 03, 2009
Reason.tv on Buying American
Very well done--my favorite of the Reason.tv pieces I've seen--and it features DOL friend Don Boudreaux.
Rental Bikes In Paris Prove Popular With Vandals
But what has surprised everyone is vandalism: 16,000 bikes have been replaced because of damage or theft. Tires have been slashed, frames smashed, chains cut. And 8,000 bikes have been stolen.
I strive hard to avoid what I call Youtube moments - especially when a student asks a loaded question the answer to which might be very easily taken out of context. I am not sure if this compilation is necessarily taken out of context but it would definitely seem to be a "Youtube moment":
On substitute goods c. 1909
The August 3, 1909 NYT reports on the impacts of prohibition on federal revenues:
The wave of prohibition that has been sweeping over the United States in the last few years cost the Government $7,641,978.42 in revenue the fiscal year ended with June 30...I love the accuracy down to the penny.
The story ends with an interesting comment about how the good folks of 1909 still find ways to engage in vice notwithstanding the best intentions of the temperance movement:
A peculiarity of the report [by Secretary of the Treasury MacVeagh] is that the people of the United States, while throttling thirst, have let their craving for narcotics apparently go unchecked. The increased revenue from tobacco exceeded $2,000,000, and the army of cigarette smokers contributed a good proportion of this, the increased amount paid in as a result of the growth of the habit over last year being $722,245.30. That the cigarette is supplanting the cigar is shown by the fact that the loss of revenue on cigars over the previous fiscal year was nearly a half million dollars.Thus far in the story the revenue figures suggest a substitution between alcohol and tobacco on one level, and perhaps substitution into cigarettes and away from cigars. However, it is not possible to truly infer this without some price and quantity data. The NYT reported on one half of what is needed, quantities:
In summing up his report Acting Commissioner Williams declares that the losses are attributable to the falling of in consumption of certain commodities. The decrease in distilled spirits consumed exceeds 5,000,000 gallons, and in ale and beer nearly 2,500,000 barrels. There were 152,183,830 fewer cigars smoked. On the other hand the cigarette smokers of the country burned up 703,105,065 more cigarettes than in the previous year.Unfortunately there are no prices reported so we can't calculate a cross-price elasticity.Yet, in theory prohibition alone would alter the shadow relative prices of the products encouraging substitution into the non-restricted products.
As a side note, the tax per cigarette in 1909 was $0.001027 cents or $0.025 in 2008 dollars (according to the folks at EH.net). The federal tax on cigarettes is now $1.101 per pack or $0.0505 per cigarette.
August 01, 2009
Evidently Some Scare Tactics Are Better Than Others
In his town hall dog and pony show (transcript) held in Raleigh earlier this week, President Obama decried the use of "scare tactics" by people opposed to his health care
Dispatches from Mises U: Network Effects and Standards of Living
I just got back from Peter Klein's lecture on network effects and information economics. I'm interested in arguments about path dependence because it's a classic example of a halfway plausible theory with no empirical support that informs a lot of policy decisions. In this spirit, here's a 2006 blog post from Parks Associates arguing that MySpace is a natural monopoly. I also found an unopened Betamax cassette of the original "Rocky" movie with a list price of $19.95. Assume the tape was released in 1979. Adjusting for inflation with the CPI, it would cost $59.19 in 2008 dollars (the most recent year on measuringworth.com). By comparison, Rocky: The Complete Saga--all six movies on DVD--can be purchased brand new from Amazon.com for $33.99.
10:42 AM Bonus Update: Google is attracting antitrust scrutiny. Here's a May article on whether Google is a natural monopoly. The irony: if you click on "share" at the top of the page, you get Twitter, Yahoo! Buzz, Digg, Facebook, Del.icio.us, Reddit, Stumble Upon, Myspace, and Mixx It. Clicking on RSS allows you to add to Google, My AOL, My MSN, My Yahoo, and Netvibes. There appears to be a pretty competitive market for information aggregation and search platforms from which you can read about Google's monopoly power.
The social cost of rent seeking in Europe
Direct measurement of the social cost of rent seeking is impeded by non-observable and non-reported activities. We use a dynamic stochastic general equilibrium model to compute the social cost of rent seeking in Europe. Our estimate is based on competition among interest groups for privileges provided by governments, including income transfers, subsidies, and preferential tax treatment. The model, which is calibrated to the euro area as a whole and also to individual euro member countries for 1980–2003, performs well vis-à-vis the data. We find that significant proportions of GDP are extracted as rents available to be sought by rent seekers.
Mises Audio Archive
So I now have an audio archive at Mises.org. "Common Objections to Capitalism," "Environmental and Resource Economics," and "Production and the Firm" are all available now. If they're recorded, I assume yesterday's talk on consumer product regulation and today's talk on financial markets will be available soon.
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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