Division of Labour: September 2009 Archives
September 30, 2009
Forgot One...

I just saw a note to myself to add Steven Pinker's discussion of violence to my list-o-links from the "Think Global, Act Local" panel. Here's his TED Talk, and here's an article based on that talk. The list has been updated, too.

Posted by Art Carden at 07:07 PM in Economics

Think Globally, Act Locally: References and Readings (Revised)

I spoke as part of a faculty panel last night on thinking globally and acting locally. I've updated the list-o-links I assembled a a couple of weeks ago in light of our discussion; an updated list is below the fold.

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Posted by Art Carden at 11:42 AM in Economics

Calculation and Action: Descriptive of Prescriptive?

As part of last night's "Think Global, Act Local" panel at Rhodes, we had a discussion of the motives for action. Here's an assessment by one of my co-panelists, who nails it. The panel illustrated nicely some of the points Thomas Sowell makes in A Conflict of Visions. The students who organized the panel are to be commended for putting together an absolutely fantastic discussion that featured real and meaningful disagreement between people of good will who are earnestly and intently interested in discovering truth.

I argued that by our nature we engage in calculation--we compare costs (what we give up) with benefits (what we get) and act accordingly. One of the most unfortunate and enduring myths about economics is that it is about money and material ends to the exclusion of other values. It isn't. Monetary and material considerations are a subset of properly "economic" problems. Economics is an exercise in the logic of choice, which is necessitated by the fact that our values and wants are infinite but the resources (knowledge, matter, time, etc) available at any point in time are finite. Further, people have conflicting values and conflicting plans that have to be reconciled somehow. Economics is not in a position to evaluate people's ends or values. Economics as such cannot tell me whether it is good or bad in any moral sense to consume more today or save more for tomorrow. Economics can trace out the implications and consequences of these choices.

Any choice means that we will incur a cost and receive a benefit, by the very nature of choice. This is a fact of action rather than a prescription or worldview. Anamaria Berea, Jeremy Horpedahl, and I explore this in a paper on James Buchanan's Cost and Choice and F.A. Hayek's The Sensory Order.

Perhaps serendipitously, I started re-reading Ludwig von Mises's Human Action yesterday (which was also his birthday). It's the first time I've read it since my first year of grad school; after about sixty pages I'm blown away with just how much of an intellectual tour de force it is. Mises places economics within a broader category of the sciences of human action (praxeology) and in turn places the sciences of human action within the broader framework of human knowledge. A few choice passages that speak to action and calculation (and that clarify my point from last night) are below the fold.

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Posted by Art Carden at 11:08 AM in Economics

“Choice” Doesn’t Mean You’ll Like the Alternatives

Yesterday I chose not to take a dog out of the local shelter into the animal rescue group I’m part of. By now the city’s euthanized him. His name was Deuce. He was a young, healthy, sweet-natured, beautiful Basset/Blue Tick mix. Hours later, I’m still upset and angry; devastated, really, as I always am in this situation.

Why did I make this decision? Of course, the ultimate cause is scarcity. My rescue operates under stringent constraints; we’re small and poor. “Mix” mutts take longer to place into new homes than do pure-breed bassets. Had I accepted Deuce, two or three bassets my group could have taken would have been euthanized while Deuce was being fostered. Those were my options, then: save one dog now, or save two or three dogs in the future.

What can I note out of this personal tragedy that may be of use or interest to the wider DoL audience?

1). People, PLEASE, spay/neuter your animals. Do not force people like me to make these gruesome, agonizing decisions in the future. There are strong elements of externality in owning a dog or cat.

2). Many folks tend to think about choice in terms of selecting the option they like the most. As has been noted on this board, people look for solutions, rather than making trade-offs. Life, however, often presents choice among horrible outcomes. We teaching economists may be part of the problem. In class, I resolve to do fewer “beer or pizza” examples, and do more “save a child or save a habitat” examples.

3). Let’s stop the galloping nationalization of our economy, pronto. (Do what? Huh?) Well, the evidence is quite overwhelming. As the state intrudes further into an economy, the poorer that society becomes. The evidence is also clear that charity is a normal good. Anecdotally, I can vouch for that. As income growth has crashed, our donations and animal adoptions have crashed, too. The U.S. is considering a raft of Federal policies that will extend government influence and ultimately reduce our incomes. Ceteris paribus, that means I will have to sign more death warrants on dogs than otherwise. I don’t want that.

OK, rant over. Thanks for reading.

Posted by Noel Campbell at 10:19 AM

September 29, 2009
Pennies for Astroturf?

I might as well pick up on Art's and Craig's stadium economics posts. In Wednesday's Rome News-Tribune I take a swipe at an upcoming tax referendum to raise $3 million to astroturf the local football stadium in order to retain the NAIA Football Championship. Last year's game, featuring Carroll College of Montana and the U of Sioux Falls, was played in a rainy quagmire and the NAIA apparently wants future games (beyond 2009 which is already committed to Rome) to be played on artificial turf.

The timing of my piece probably won't win me any friends among local astroturf supporters--the RNT reports that a big announcement on the future of the NAIA championship game will be made on Thursday.

Posted by E. Frank Stephenson at 11:10 PM in Economics

On Art's Football Letter

I was at ground zero for the Arlington Cowboys Stadium debate (while on staff at UT Arlington). There are a number of reasons I don't live there anymore - and the stadium is one of them. Likely if I had stayed in the Metroplex I would have relocated to another city - more on principle and concerns about the opportunity costs of the stadium than the actual out-of-pocket expenses.

I agree that, in general, the development gains from new stadiums are generally overblown, but I think the jury is out on this stadium (and perhaps a few other ones such as new Yankee Stadium). As Mark Rosentraub has documented in his new book "Major League Winners" there are a few (just a few) examples of stadiums/arenas yielding some gain (I am reading it for review at the moment).*

Whether there are gains, monetary or non-monetary, is somewhat a question of fact and somewhat a question of ideology, especially when it comes to the measurement of quality of life compared to the opportunity costs of the stadium.

I admit to fighting the good fight against the taxpayer's of Arlington (at least) paying for a portion of the stadium, actually drawing some attention to myself as I howled in the wind. However, the stadium referendum passed (relatively overwhelmingly 55-45) and I ended up taking a new position at UNC Charlotte.

From my contacts with those still in Arlington, the general spirit is one of optimism concerning the stadium - perhaps there is no other way to feel about the stadium at the moment. .

However, I have strong evidence (N=6) that the Arlington Cowboys Stadium did provide third-party benefits for myself and two co-authors. Using the stadium debate and the Arlington referendum, we were able publish two ground-breaking papers (one in Contemporary Economic Policy and one in the Journal of Urban Economics). I know that those two publications helped in my tenure bid at UNC Charlotte and likely ended up translating into some permanent increase in my income. In the end, this is perhaps the strongest evidence I have found of third-party benefits of a new publicly built stadium in Arlington Texas.

We have more projects underway concerning the Arlington stadium so we will see in the next few years (decade?) whether this particular stadium can be grouped with Rosentraub's "Winners" or with Rosentraub's "Losers."

Read More »

Posted by Craig Depken at 04:05 PM in Sports

And so the streak begins c. 1909

Of course, in the fall of 1909 no one really knew it was a streak, but the headline is telling for those of us around 100 years later:


As mentioned before (half tounge-in-cheek) when the Cubs let their 1908 World Series flag fly away upon being displayed, the baseball gods were none-to-pleased.

Still aren't evidently.

Posted by Craig Depken at 03:52 PM in Sports

Coercion for Dummies

I sent this letter to the WSJ in response to the ever execrable Thomas Frank's column last week:

Thomas Frank ("Liberals and Civility" Sept. 23) is puzzled "that every government action, due to some mysterious law of freedom physics, produces an equal and opposite diminution of personal liberty." The reason is actually quite simple--every governmental "bid for social justice" sought by Frank and his preferred Democrats comes via the coercive power of the state rather than voluntary interactions between free and equal people. Thus it is not surprising that, in a column bemoaning the lack of civility by politicians, Frank would conveniently overlook the Obama Administration's call to "punch back twice as hard" or Democrats' demonization of their opponents as Nazis.

Frank Stephenson
Rome, Ga.

Posted by E. Frank Stephenson at 11:12 AM

September 28, 2009
On Football's Taj Mahal

Here's a letter I sent to the Saint Louis Post-Dispatch a few days ago re: Cowboys Stadium:

"I read Bernie Miklasz's recent column on the new Cowboys stadium with some interest. I too am appalled, but not because of the video board or the plush amenities. I'm appalled because taxpayers were forced to help pick up the tab. Montgomery Burns said it best when he described his taxpayer-funded arena on The Simpsons as "a billionaire using public funds to build a private playground for the rich and powerful." Further, Arlington taxpayers who voted for the stadium because of "economic development" benefits have been sold snake oil: according to the best available estimates, the economic benefits from stadiums are trivial if not negative."

Posted by Art Carden at 09:45 PM in Economics

Star Wars Technology and Childbirth

In the technologically advanced Star Wars universe, how did they not know that Padme was carrying twins? Yoda said that the dark side clouds everything--are we to assume that means the sonogram machine, as well?

Posted by Art Carden at 06:28 PM in Economics

What's the Point of Capitalism, or, Has Hayek Missed a Foothold?

Michael Maiello makes the mistake of conflating free-market capitalism with state corporatism; my fear is that many with leftish sympathies are going to see Moore's movie and throw the capitalist baby out with the statist bathwater. Actually, strike that. I'm afraid they're going to throw the capitalist baby out and keep the statist bathwater.

A lot of people have trouble dealing with the fact that capitalism doesn't have a "point," and a lot of others are scared by the fact that no one is in charge in a free market. This is one of the essential points Hayek raises and discusses throughout his work, and it is not a point for which free markets should be condemned. If anything, our experience with the state suggests that our ability to improve on undirected, voluntary processes is limited. Here's my review of Paul Heyne's 'Are Economists Basically Immoral?' and Other Essays on Economics, Ethics, and Religion in which I discuss some of these points.

Posted by Art Carden at 04:54 PM in Economics

XKCD Learn-a-Long

1. Say it with me: transaction costs! One more time!

2. I'm speaking on a faculty panel on "What's Wrong With the World?" tomorrow night as part of "Think Global, Act Local" week. I hope this doesn't happen, but I probably wouldn't be able to keep a straight face if it does.

3. This has "econ 339 research paper" written all over it.

Posted by Art Carden at 03:56 PM in Economics

Incentives Matter: Doctor Edition

The abstract of a new Journal of Health Economics paper (gated) by Lori Melichar:

The empirical literature that explores whether physicians respond to financial incentives has not definitively answered the question of whether physicians alter their treatment behavior at the margin. Previous research has not been able to distinguish that part of a physician response that uniformly alters treatment of all patients under a physician's care from that which affects some, but not all of a physician's patients. To explore physicians’ marginal responses to financial incentives while accounting for the selection of physicians into different financial arrangements where others could not, I use data from a survey of physician visits to isolate the effect that capitation, a form of reimbursement wherein physicians receive zero marginal revenue for a range of physician provided services, has on the care provided by a physician. Fixed effects regression results reveal that physicians spend less time with their capitated patients than with their non-capitated patients.
Posted by E. Frank Stephenson at 01:29 PM in Economics

September 27, 2009
Barney Frank heard my name

... at Congressional hearings on Paul's "Audit the Fed" bill, thanks to Tom Woods' kindly recommending my 2005 Econ Journal Watch article on the Fed's influence on monetary policy research. The mention comes 2'40" into CSPAN's coverage of the hearings here.

Posted by Lawrence H. White at 07:10 PM in Economics

September 24, 2009
Best Question of the Year

In one of my Principles classes, I had covered demand & supply in isolation. Today's topic was market coordination and the emergence of price and quantity.

Before I could get started, a student asked, "Could you use supply and demand to figure out what's gonna happen when we socialize medicine? (he looks around) Well, pass the health care law? And what about that carbon cap thing?"

They're so cute when they think for themselves.

Posted by Noel Campbell at 09:44 PM

Make Your Own Sheryl Crow Joke

Environmentalists Seek to Wipe Out Plush Toilet Paper

Snark aside, doesn't cutting trees and growing replacements trap carbon (at least temporarily)? And, by contrast, don't trees that are left standing eventually fall and release carbon when they rot?

Posted by E. Frank Stephenson at 09:36 PM

Best Question of the Year

Background: one of my principles classes. I had finished demand & supply in isolation. Today's class was introducing market coordination and the emergence of market prices and quantities. Before I could launch into lecture, a student asked:

"Could you somehow use supply and demand to figure out what's gonna happen when we socialize medicine?," looks around, "...well, if we pass the health care law? And can you do the same for that carbon cap thingy?"

They're so cute when they think for themselves.

Several minutes of explication later...

Student: So the health care law will be a bad thing.

Noel: I can't answer that. That answer depends on what you think is important. What's important to you?

Student: Jobs, income, products, and low prices....

Noel: Then, yes, you will think the current health care bills are bad policy.

Posted by Noel Campbell at 11:36 AM

Hernando de Soto on the Power of the Poor

HT: Josh McCabe at The Sociological Imagination.

Posted by Art Carden at 11:35 AM in Economics

End-of-the-world festivities c. 1909

The Sept. 24, 1909 NYT follows up on yesterday's story concerning the sect planning for the end of the world tomorrow (Sept. 25, 1909):

Three hundred men and women of the Free Christian Society, at their camp five miles from here [DUXBURY, Mass], began at 10 o'clock to-day their final preparation for the end of the world, which they are convinced will come tomorrow night. The service, which consisted of prayer, penitence, and baptism, was observed with fanatical enthusiasm. It is to be kept up until tomorrow night.
Okay, so the moonbats faithful are still at it 24 hours later. But where, you might ask, did they find this prophesy that the wold was to end? From a highly credible source:
Practically all of the 300 adherents of the queer sect have disposed of all their worldly goods in anticipation of the ending of all things. The cause of all this was the revelation that came to Eva Brown of Pawtucket, who declares that the destruction of the world was foretold to her in a dream a year ago.
Yes, there is no reason at all to be suspicious of the claim that whatever Supreme Being there is would choose a generic person in Pawtucket to get the word out.

Was there any specifics on the end of the world? Oh yes:

Believing, as they do, that the top crust of the earth will peel off and that the damned souls will be hurled into a cauldron of boiling fire, the intensity of their closing services may be imagined.
I wonder how the physics of this particular scenario was imagined to play out.

De gustibus.

Posted by Craig Depken at 09:51 AM in Culture

Leeson on The Invisible Hook

Here's a Fox Business interview with Peter Leeson on The Invisible Hook. If you're attending the Southern Economic Association meetings in San Antonio, Session 01J is a symposium on Pete's book featuring comments from me, Charles North, Per Bylund, and Virgil Storr along with Pete's response. The symposium is on Monday morning, November 23 from 8:00 AM until 9:45 AM.

Immediately after this session will be an economic history session in which I will present a paper co-authored with Chris Coyne on the Memphis Riot of 1866, Nevins Prize winner Melinda Miller will present a paper entitled "The Effect of Slavery on Family Formation," and Nevins Prize finalist Linda Carter will provide commentary and discussion.

Posted by Art Carden at 09:26 AM in Economics

September 23, 2009
Great Moments in Economics Homework Typos

For a sheet of problems on supply and demand and comparative advantage, I usually include "Consult the sheet I passed on [DATE] for the definitions of a 'surplus' and a 'shortage.'" This semester, I eliminated the date and meant to write "Consult the sheet I passed out during our discussion..."

After removing 56 copies out of the copier, I saw that the text was "Consult the sheet I passed out on during our discussion..."

I have been feeling a tad narcoleptic recently...

Posted by Art Carden at 04:34 PM in Economics

Does the history of banknotes show us that government must regulate banks?

Writing on the VoxEU blog, economists Oren Levintal and Joseph Zeira draw lessons for the current crisis from their working paper on "The Evolution of Paper Money". (The paper is gated, but Prof. Levintal has kindly sent me a copy.)

An introductory three-sentence summary of their blog piece refers to the "18th century emergence of the inconvertible banknote, a 'toxic asset' ended by government regulation". I don't know whether the authors are reponsible for this blurb. Whoever is should consider that banknotes are among a bank's liabilities, not among its assets, so it doesn't make sense to liken them to present day "toxic assets" held by banks.

L&Z describe the development of banknotes redeemable for silver, then write: "Competition imposes discipline on the issuing banks, because agents can always move to other forms of money." So far so good. Then they add: "However, if some bank becomes the dominant issuer of notes (as was the case many times) and if silver is scarce, these notes face little competition. Thus, the issuing bank has incentive to over-issue notes, which might lead to inflation. This happened in several episodes of free banking and ultimately led to government intervention."

This is a puzzling passage. According to standard sources like Vera Smith, The Rationale of Central Banking, in the leading historical cases where a bank became the dominant issuer of notes it was because the government gave it a legal grant of monopoly. The Bank of England is a case in point. It did not happen in episodes of free banking. Kurt Schuler, "The World History of Free Banking" in Kevin Dowd, ed., The Experience of Free Banking, reports that of the sixty free banking cases he found, not one gave rise to a single dominant issuer through market forces (natural monopoly). Even on the tiny island of Malta, two issuers competed.

A legally protected monopoly issuer, e.g. the Bank of England, could and did over-issue notes. The problem of over-issue did not plague free banking episodes. Over-issue was the result and not the cause of intervention (the grant of monopoly) abridging freedom of note-issue. As L&Z wrote, competition imposes discipline on issuing banks. Competition in note-issue is not self-extinguishing.

L&Z mention a historical episode described by Adam Smith, in which Scottish banks around 1763 invoked their contractual option to defer redemption, with the result that their notes fell to a discount. I don't think we fully understand what happened in that episode. But it clearly isn't explained by L&Z's dominant-issuer scenario, because there was no dominant issuer in the Scottish system at that time. There were three large banks, not one, and dozens of smaller banks. L&Z's working paper cites Checkland's Scottish Banking: A History and my Free Banking in Britain, so they must know that there was no dominant issuer.

Posted by Lawrence H. White at 02:33 PM in Economics

Option value lost c. 1909

Life is full of options. Generally speaking, options have value. Thus, the amazing fits of charity by those predicting that the world is going to end in the near future would seem to violate economic reasoning. After all, if the world truly ends when predicted, what use to anyone are the goods given away? If the world happens not to end then life can continue as before with little loss in material well-being (although the mental state of the individual who is let down that the earth didn't dematerialized is beyond the economist's purview).

However, showing up to the end-of-the-world rally with all your possessions in tow, or not being able to credibly signal that the possessions are no longer yours, doesn't send a strong signal of solidarity with the rest of the moonbats faithful. This then leads to a bizarre question - if the price of joining in with the moonbats faithful is all your worldly goods what kind of person joins such a group? I would generally suspect that the relative poor (or those with relatively few possessions in the first place) would find such a price none too high for a night or two of excitement and frenzy. This would imply that moonbat end-of-the-world-celebrating is an inferior good.

De gustibus non est disputandum.

Giving it all away seems like a silly way to go about preparing for the end of the world. However, if the primary reason for doing so is to be accepted by the group then it might actually be consistent with economic reasoning. It would seem much better than drinking the (poisoned) kool-aid, which definitely removes all future options.

The Sept. 23, 1909 NYT reports on such an event:


Crust of the Earth to Peel Off, Followers of Queer Religion Say.


Believers Dispose of All Their Possessions and Gather at Massachusetts Town to Await the Millennium.

WEST DUXBURY, Mass - Firm in their conviction that the world will come to an end at 10 A.M. next Friday, about 300 members of the denomination known as the Latter Reign of the Apostolic Church are spending the few remaining hours in prayer, song, and exhortation...

Worldly tasks have been laid aside and jobs have been thrown up that the faithful may prepare themselves for the millennium. Many have disposed of all their possessions. Believers are here from all over New England, especially large delegations having come from Springfield, Mass., and Providence and Pawtucket, R.I.

Wonder what the faithful did on Saturday?

Posted by Craig Depken at 01:50 PM in Culture

Deterrence vs. Retribution c. 1909

From the Sept. 23, 1909 NYT:

VALENCE, Drome, France - A triple execution by guillotine took place in this city at daylight to-day.

Three men, Berruyer, David, and Liottard were decapitated for a series of atrocious crimes in the Department of Drome which created a reign of terror. No less than twelve murders and 200 robberies are laid at the doors of these men. They often tortured their victims with red hot irons.

A great crowd witnessed the executions and applauded wildly every time the knife fell.

How would such an event be viewed today? Oh my.

Posted by Craig Depken at 01:22 PM in Culture

Real Members of Congress

Ht: Instapundit

Posted by E. Frank Stephenson at 08:22 AM in Politics

Harvard Econ demonstrates case for Tullock Nobel

Over at Greg Mankiw's Blog, the Harvard econ folks are running a numbers game over who wins the Nobel on Oct 12.

HOW TO ENTER: Nominate who you think will win the 2009 Memorial Prize in Economics. Each name that you enter costs $1. You can also guess that no entrant will correctly guess the recipient(s). You can enter as many times for as many names you’d like.


All money collected will be divided between the winners of the pool. If there is one recipient of the prize, the payout will be divided among all those entrants who guessed correctly, with each of those correct guessers receiving a share in proportion to her/his share of the total number of bets placed on the prize recipient. If no one guesses correctly, the votes will be divided in the same fashion among those who entered "No Correct Guess." If there are n>1 recipients, exactly 1/n of the payout will be allocated to each and distributed as per the rules for one recipient.

This sure sounds a lot like Tullock's second big rent seeking paper ("Efficient Rent Seeking," 1980). This one paper set off a firestorm of academic work into game theory, political economy, and welfare economics, one which lasted a generation and then some. Nowadays, whenever we think of people sinking time and resources into unproductive activities, the phrase "rent seeking" comes to mind and Gordon Tullock is somewhere nearby, probably wagging his finger at you or low-talking into his recorder. The man had it figured out before anyone else -- not every detail and not every sub-game perfect equilibrium solution, but the idea intact and ready for delivery. Seriously. If we're talking pure merit, can anyone legitimately deny that there is a strong case for Tullock (and Tullock alone)?

Posted by Edward J. Lopez at 03:09 AM in Economics

September 22, 2009
On Presidential Busy-ness c. 1909

From an op-ed piece in the Sept. 22, 1909 NYT:

It is true that our new President [President Taft] during the first six months of his term had the extraordinary session of Congress on his hands, called expressly to redeem the pledges of the party - pledges made on his personal initiative and strong recommendation. It was natural, and, in a sense, unavoidable, that for this important task he should hold himself peculiarly accountable, and that he should hasten to render his account to the people as soon as practicable.

So, another president, this one a Republican, also brought an active agenda to the first few months of his administration? Haven't heard anyone bring that up lately.

The op-ed continues:

But that chapter is but one of many which he plainly intends to present to the attention, we may say to the anxious and somewhat weary attention, of his fellow-citizens. Even while the tariff job was still unfinished, and at a point where the honest and decent fulfillment of the pledges of his party and himself was trembling in the balance, Mr. Taft sprung upon the country the twin projects of a tax on corporations, avowedly intended as the first step toward minute and comprehensive Federal inquisition and of corporation business, and an income tax, requiring a Constitutional amendment.
Ambitious projects indeed. Would we characterize today's uncertainty regarding public policy as drawing "anxious and weary attention?"

We continue:

Here in the very dawning of his Administration, before he had had an opportunity to address a formal regular message to Congress, we have thrown upon the country a scheme of change more far reaching, more intimately affecting the affairs of all classes of the people than any accomplished, or even proposed during the seven crowded years of Mr. Roosevelt's incumbency.
Change the names to reflect their modern analogues and the statement might apply equally (more so?) today.

But then comes the coup de grace:

It is true that the Constitutional amendment authorizing the income tax and the tax on corporate business were, in effect, if not in intent, a diversion which saved Mr. Aldrich and "his men" from a damaging defeat. It is not exactly reassuring, however, that measures of such scope and portent can be made a mere incident in the campaign of the protracted interests for control of the taxing power of the Government in the pursuit of their selfish interests.


Posted by Craig Depken at 01:57 PM in Politics

Yes, Virginia, it did sometimes happen

From the Sept. 22, 1909 NYT is the following headline:

"Cy" Young Beaten by Boston
Posted by Craig Depken at 12:34 PM in Sports

Did I pick a great time to go to Europe or what

From x-rate.com, here is USD / Euro last 120 days.

graph120 (1).png

Posted by Edward J. Lopez at 11:44 AM in Economics

September 21, 2009
The Stimulus in Cash for Clunkers: Giving Economists Something to Do

Burton Abrams and George Parsons chime in on the silly cash for clunkers program, and find that the costs outweigh the benefits by approximately $2000 per vehicle.

No surprise here. Move along.

Posted by Brad Smith at 06:05 PM in Economics

Health Care Costs

New baby + new prep (History of Economic Thought) = not much time blogging

Let's leave comments open and see what everyone thinks: Health care costs are supposed to be spiraling out of control. Then why are the Lasik prices for my wife, who is going under the laser this Friday, exactly the same as they were a year ago when I had it done?

P.S. She couldn't get through the exam without laughing thinking of this.

Posted by Tim Shaughnessy at 02:50 PM in Economics  ·  Comments (3)

Seen and Unseen: Demo Derby Edition

Yep--more blowback from the cash for clunkers scheme:

With 690,000 vehicles sentenced to one final gargle of sodium silicate, thanks to the now-defunct Cash for Clunkers program, demolition-derby drivers seem to have been left holding the short end of the driveshaft. What the government seems to have forgotten is that many cars, hobbling and sputtering as they near death, prefer to make one final trip to the local county fair (assuming they escape a 24 Hours of LeMons team). There, stripped of glass and with fuel tanks moved safely inward, the clunkers die an honorable death smashed gloriously to pieces in front of large (and often well-hydrated), cheering crowds.

HT: Mark Steckbeck

Posted by E. Frank Stephenson at 02:14 PM in Economics

Global Debt Clock

Here is a global debt clock that enables handy comparisons across countries. I was struck by the differences in public debt per capita and public debt as a percentage of GDP in the US, Canada, and France. I had thought the Canadian debt picture was better than the American debt picture, but apparently not.

Posted by Art Carden at 12:15 PM in Economics

September 20, 2009
Money and Evil in the Bible and Atlas Shrugged

I re-read Francisco d'Anconia's money speak from Atlas Shrugged last night. I've been thinking about it a lot in light of Christian denunciations of "the love of money," which is either "the root of all evil" or "a root of all kinds of evil" depending on your particular translation. I think that, unfortunately, a lot of Christian views of money are held over from societies in which expropriation and redistribution rather than production and exchange were the routes to wealth. Indeed, here's 1 Timothy 6:9-10 (KJV), which suggests that the desire to get money leads people to commit all sorts of evil deeds:

"But they that will be rich fall into temptation and a snare, and into many foolish and hurtful lusts, which drown men in destruction and perdition. For the love of money is the root of all evil: which some coveted after, they have erred from the faith, and pierced themselves through with many sorrows."

If you who are familiar with Atlas Shrugged, that sounds a lot more like a condemnation of Orren Boyle, Jim Taggart, and their ilk than Hank Rearden or Francisco d'Anconia. I think the out-of-context "money=evil" meme is a holdover from a world of illiteracy, venality, and corruption in which the kings and priests could exploit the credulity of the unwashed masses for personal gain (anyone wanna buy an indulgence?). What I say here is tentative rather than authoritative, to say the least; if you have any comments or suggestions for further reading, I would be grateful. Comments are open or you can email me. Choice passages from d'Anconia's money speech are below the fold; at first they seem to run counter to Christian teachings about money, but I think they can be reconciled.

Read More »

Posted by Art Carden at 09:44 AM in Economics  ·  Comments (11)

September 19, 2009
We have socialized fire protection. Why not socialized medicine?

Some have invoked government provision of fire protection services as an apologetic for government provision of health services; indeed, there is at least one Facebook group devoted to it. I don't think it works. Here's Fred McChesney on how we got socialized fire protection, and here's his Journal of Legal Studies paper on the development of socialized fire protection. HT: Jeremy Horpedahl.

Update: a few people tell me the links don't work, and I can't figure out why (I've checked the HTML tags, and I think the syntax is OK). Here are the URLs:


http://www.jstor.org/pss/724362 (gated)

Posted by Art Carden at 09:59 AM in Economics

September 18, 2009
Another Reply to Krugman: David Levine

David K. Levine is writing a series of pieces for the Huffington Post. Particularly worth reading is his Open Letter to Paul Krugman.

Posted by Art Carden at 10:17 PM in Economics

From the Department of "Oh, Really?"

A friend and I are trying to break into the non-fiction popular business press market. We have a proposal for a book explaining why we think significant inflation will be nearly impossible to avoid in the next decade (unfunded mandates, Laffer curve, Fed accommodation of Congress, etc.), and what one can do to minimize its effects (investment advice plus practical tips like, acquire additional skills).

We're currently shopping the idea to agents, who would then shop the idea to publishers. Here, in its entirety, is the best rejection we've gotten so far:

I'm confident others will be interested, but this seems a bit irresponsible to me, so I'm going to decline.

I'm tempted to write back and ask where our professional irresponsibility lies: (a) in daring to predict inflation?, or (b) in daring to propose telling the general public that we predict inflation when, in fact, we really DO predict inflation?

Posted by Noel Campbell at 08:28 PM

Economic History Resources: "Drunk History"

To be added to yesterday's list of history resources on YouTube, Drunk History. George Michael from "Arrested Development" gives a pretty good performance as Alexander Hamilton.

Posted by Art Carden at 05:34 PM in Economics

References and Readings for "Think Globally, Act Locally"

Here are some links and readings on which I'm basing my remarks at the "Think Globally, Act Locally" faculty panel at Rhodes on September 29:

1. Ayn Rand, Atlas Shrugged. Rand demonstrates a clear understanding of the unintended consequences of policies and actions, and she shows in detail how intentions do not translate into outcomes.

2. Friedrich Hayek, The Road to Serfdom. Hayek argues that interventionism kills liberalism and leads to totalitarianism.

3. Milton Friedman, Capitalism and Freedom. Friedman shows how economic freedom is consistent with and indeed essential to human flourishing. Before you reach for your copy of Naomi Klein's The Shock Doctrine to support your claim that Friedman is "The Proud Father of Global Misery," read my essay on The Shock Doctrine and Tyler Cowen's review.

4. Lant Pritchett, Let Their People Come. The entire book can be downloaded here. This book convinced me that removing restrictions on free immigration is not just a good idea but a moral imperative.

5. Frederic Bastiat, "What is Seen and What is Not Seen" and The Law (online, PDF, audio). Bastiat is an economist, journalist, and polemicist who is the originator of the "broken window fallacy."

6. Henry Hazlitt, Economics in One Lesson. Hazlitt's book is a series of lessons drawn from Bastiat's central insight.

7. Ludwig von Mises, Socialism (online, PDF). This is a greatly-expanded exploration of Mises's argument that rational economic calculation under socialism is impossible.

8. Deirdre McCloskey, The Bourgeois Virtues: Ethics for an Age of Commerce (Google Books, PDF of rough draft). The first sixty pages are essential; McCloskey surveys how bourgeois capitalism has not just made us richer, but better and more ethical.

8. Art Carden and Josh Hall, "Why Are Some Places Rich While Others are Poor? The Institutional Necessity of Economic Freedom." We discuss the definition of economic institutions and the role of economic freedom in creating prosperity. I discuss the relationship between foreign aid and economic growth in this paper.

9. My Mises.org audio archive. I gave five lectures: Production and the Firm, Environmental and Resource Economics, Common Objections to Capitalism, Consumer Product Regulation, and Short Selling: Explanation and Defense.

10. Links from my lectures at IHS and Mises University this past summer. The Mises U links in particular deal with environmental issues.

11. My "Blog Action Day: Poverty" entry from last year.

12. Lynne Kiesling's excellent discussion of the "man of system" passage in Adam Smith's Theory of Moral Sentiments.

Posted by Art Carden at 04:27 PM in Economics

The Emerging Class Struggle

Report: Growing Ranks Of Nouveau Poor Facing Discrimination From Old Poor

As always, The Onion nails it. This will have a page in Onionomics, which is my as-yet-undefined book on economics in the Onion that resides on my Someday/Maybe list and which I will write if no one beats me to the punch.

Posted by Art Carden at 01:54 PM in Funny Stuff

Health Care and the Baucus Plan

Tyler Cowen and Uwe Reinhardt discuss health care plans.

Posted by Art Carden at 10:18 AM in Economics

September 17, 2009
Cowboys Stadium and Economic Development

ESPN oohs and aahs, calling it "Jerry Jones' creation" and "a tribute to excess." Instead of ruminating on the economics of stadiums--they're classic broken glass--I thought I would yield the floor to C. Montgomery Burns:

Posted by Art Carden at 09:38 PM in Economics

Gus Rankings: Alabama is Tied for #1!

Matt Ryan posts the first edition of The Gus Rankings, with my Alabama Crimson Tide tied for #1 with something like half a dozen other teams. I like the basic idea of the Gus Rankings: you get a point for every game won by a team you beat, and you lose a point for every game lost by a team that beat you. Matt explains it in greater detail; one thing I like is that he is eliminating games against I-AA/FCS teams, so massive mismatches like Florida/Charleston Southern or the Michigan-App State game from a few years ago (oh, wait...) are eliminated. I doubt they matter much in the polls and the computers, but giving Florida any kind of credit for beating Charleston Southern is like counting the St. Louis Cardinals' win in a preseason game against the Memphis Redbirds (their AAA affiliate). My gut reaction is that the Gus Rankings would eliminate the incentive to schedule games like that. I climb the soapbox below the fold.

Read More »

Posted by Art Carden at 08:00 PM in Economics

Milton Friedman on Health Care

Here's Milton Friedman, that flunky apologist for the rich and powerful...telling rich and powerful people that they should be less rich and less powerful (HT: Will Wilkinson). From the vault, here's my essay on Naomi Klein's The Shock Doctrine, which takes on new relevance given that Friedman is still getting bad press.

Posted by Art Carden at 07:21 PM in Economics

Ok, maybe I am a sore loser but...

Having been the plaintiffs' sole expert witness I confess that did check to see if the Ohio Supreme Court mentioned me or my testimony in their decision. And sure enough they did but only once.

The state (and both courts that ruled against us) relied heavily on differences in the statutory incidence between sales taxes (levied on buyers) and gross receipts taxes (levied on sellers).

To economists this is pretty damned stupid and I tried to make this point in my testimony by saying that the burden of taxes will be distibuted to buyers, sellers, and factors of production independently of the statutory incidence regardless of the type of tax.

The court wrote,

And even with greater CAT liability, the cost of the tax might never cause grocers to increase the price of food. As recognized by the Grocers’ own expert, the seller might respond to the cost of the CAT by cutting wages or taking lower profits.

Yes, $#@%^$ %$&$#@!, I said this also the case with SALES TAXES. The whole point was that this doesn't matter in determining what kind of tax it is. A sales tax doesn't seize to be a sales tax if some (or all of it) can be passed on to owners or workers.

Posted by Robert Lawson at 05:05 PM in Economics

Final word on the Ohio CAT

As expected , by a vote of 6-1, the Ohio Supreme Court today ruled that the Ohio Commercial Activities Tax (CAT), a tax levied on a firm's gross receipts, is not a sales tax, and thus not in violation of the state constitutional prohibition against sales taxes on food.

Writing for the Court in today’s decision, Justice O’Connor noted that laws duly enacted by the General Assembly are entitled to a strong presumption of constitutionality, and also observed that when a party sues the state seeking a tax exemption, courts are required to strictly construe the laws cited by the plaintiff. She wrote: “These precepts require us to uphold the CAT if it may plausibly be interpreted as permissible under Sections 3(C) and 13 (of the Ohio Constitution).

"The actual wording of Sections 3(C) and 13 does not prohibit the state from using gross receipts to compute the amount of a privilege-of-doing-business tax, even if those gross receipts include proceeds from the sale of food. And ... interpreting Sections 3(C) and 13 to allow such a tax is not only faithful to the text, it is (1) consonant with long-settled legal principles governing the taxation of the privilege of doing business, (2) implied by the structure of Sections 3(C) and 13, and (3) confirmed by the history both preceding and succeeding the enactment of those provisions. And when the CAT’s practical operation is considered, it becomes evident that it is what it purports to be: a permissible tax on the privilege of doing business, not a proscribed tax upon the sale or purchase of food. For these reasons, we reverse the judgment of the court of appeals.

Got that? "consonant with..." "implied by..." "confirmed by..." Gotta love lawyers.

Justice Paul E. Pfeifer entered a dissent stating that in his view collection of the CAT from grocers and other businesses based on their gross receipts from the sale of food is “an excise tax upon the sale or purchase of food” and is therefore prohibited by Sections 3(C) and 13 of the state constitution.

He wrote: “It is an incontrovertible fact that if a retailer has sales over $1 million and he sells an additional 40 gallons of milk at $2.50 per gallon, for a total of $100, a tax of 26 cents is levied upon him and the state collects 26 cents. Is this not a tax ‘levied or collected upon the sale or purchase of food?’ That 26 cents per $100 is a small sum does not mean that this tax is de minumus, as the majority suggests as to the $150 flat fee. Though there are more than 11 million Ohio residents, assume that only ten million people actually live in Ohio. Further assume that they each consume exactly one gallon of milk per month, that milk costs $2.50 per gallon, and that all of the milk is purchased from a retailer with sales in excess of $1 million – that is, any milk purchased from Kroger, UDF, Giant Eagle, Meijer, Target, Whole Foods, Sam’s Club, Costco, and the like. The excise tax levied and collected by the state based on the sale of ten million gallons of milk would be $65,000. Would this not be a tax ‘levied or collected upon the sale or purchase of food?’”

Justice Pfeifer, that would be EXACTLY the same as a 0.26% sales tax on milk. You get an A in my class, sir.

Posted by Robert Lawson at 04:49 PM in Economics

Are Economics Departments the most dsyfunctional?

Exhibits A, B, C, D.

Posted by Robert Lawson at 01:57 PM in Economics

Health Care Redux: What central planning of health care looks like

Yesterday I said it's amazing how little has changed in health care debates over the past century. Today I illustrate by asking: What would more central planning in health care look like?

The economics staff of the Joint Economic Committee picture this:

I worked as a staff economist on the Joint Economic Committee for about seven months in 1993-94. During my short time there, I worked on two projects that influenced the debate over the Clinton health care proposal. The first was a flow chart that diagrammed the Clinton plan, in particular how it would allocate resources through command and control (global budgets, patient queuing, lots of new federal agencies, a patient ombudsman in Washington, and so on). Counter-critics said the diagram was a caricature, but no one said it wasn't accurate. Everything in it came right out of the Clinton plan that Ira Magaziner wrote and leaked to Congress in the fall of 1993. The chart was published in the Wall Street Journal on October 13, 1993, and later dubbed by an admittedly self-serving Dick Armey as "the chart that killed the Clinton health plan." A couple of months later, then-Senator Bob Dole displayed another chart to anchor his response to President Clinton's State of the Union Address. Fancier than mine, with lots of colors and slick lines, Dole's chart was likened New York Subway map.

In those days there were lots of charts flying around. Call it an age of charts -- thanks in part to Ross Perot's 1992 campaign for president. Hello again, age of charts. Here's a scan of my chart.
The Chart001.jpg

Posted by Edward J. Lopez at 12:19 PM in Economics

Economic History: The Constitution

Over the summer, I had the privilege of meeting historian Gordon S. Wood at the Jack Miller Center's Summer Institute. There are a lot of videos of Professor Wood on teh interwebs in which he discusses the Revolution, the Constitution, and other matters. I wasn't familiar with the Gilder Lehrman Institute of American History before this morning, but they seem to offer a lot of excellent resources via their YouTube Channel. This is an interesting exercise in Tyler Cowen's discussion of assembling and ordering "small bits" in Create Your Own Economy (review forthcoming). A couple of clips I'll be assigning are below the fold.

Read More »

Posted by Art Carden at 09:28 AM in Economics

September 16, 2009
Markets in Everything: Class Notes Edition
At least 11 students, and perhaps professors, at the University of Richmond are using NoNotes.com, an online audio transcription service, according to Matt Whitteker, director of business development for NoNotes.com.

Students record their classes, lectures or study and tutoring sessions and upload the file. Those who work for NoNotes.com will type up and send back their class notes in one to three business days, and will also share the class notes on its server for anyone else in — or otherwise interested in — that class, according to the NoNotes.com Web site.

Source. HT: Shawn Regan

Posted by E. Frank Stephenson at 10:28 PM

Economics and Health: Response to Forbes Piece

A reader sends an email to Steve Horwitz and me in response to our article commenting on Jane Smiley and gives us permission to post:

Hello Gentlemen, I read your article. I found it very interesting and informative. I wanted to comment on one particular part of the article, but by applying it to another subject. A subject we are all watching and in front of our faces at this time. The following copy and paste below from your article, which is a quote from Murray Rothbard as described in your piece, will be the subject of my email to you. "Murray Rothbard once said that "it is no crime to be ignorant of economics," but that it is "totally irresponsible to have a loud and vociferous opinion on economic subjects while remaining in this state of ignorance."" I can't say that I haven't said something similar to this quite a few times the past few months on our current Healthcare Debate. I live in Texas, a well known and documented Conservative Red State. To make matters worse, I live in the Dallas area, where G Bush now resides, and I am in a profession loaded with the opposition Party. I'm a Texas Democrat. I am in the minority in this state, even though I believe the numbers to be shifting just a little bit. BUT, this is Texas, and I digress. The reason for me wasting your time is this: Applying, or interchanging, "Healthcare" for "Economics", in this quote seems to describe, in my opinion, exactly what is going in Town Hall meetings across out nation regarding the Healthcare debate. I have personally witnessed a Town Hall meeting here in Texas, and watch, or listen to, the news, a large part of the day everyday, so I've seen a ton of signs with very derogatory remarks and criticisms. To back up a bit, I am in no way stating that Americans shouldn't protest, or show up in large numbers to question a Government practice. To make this short, we all know that is Our American Right. However, most of the people at these events seem to be the older generation, on Medicare, and protesting an ideal that they are already using themselves. There are so many holes in the argument against the naysayers in the Healthcare debate in my opinion, but the most evident in my mind is the fact that the biggest bulk of the audience appears to be using government funded, government subsidized, Healthcare already. How can one scream and yell "Socialism" and "Government Takeover of Healthcare" when they themselves are on a very similar or same program? I'm not an economist, or involved in politics as a career or for gain, but I do consider myself a very intellectual person, and my view on this doesn't take much intelligence to recognize the hypocrisy spilling out of these Town Hall Meetings. So to my point: in changing the words to "it is no crime to be ignorant of Healthcare Reform," but that it is "totally irresponsible to have a loud and vociferous opinion on Healthcare Reform subjects while remaining in this state of ignorance", pretty much sums up the Healthcare Reform debate, as it relates to these Town Hall Meetings, in my opinion. Not only has the debate gone hypocritical, but most of the questions, fears, concerns, and shouting, has been about false statements, false propaganda, and without common sense, fed to them by media sources or by the opposition Party. But it goes without saying, they are loud, they are vociferous, they are uneducated on the issues, thus ignorant on the subject. Notwithstanding your own political views, or even engaging in an exchange of opinions, I really wanted to comment on that quote you used with this little bit of spin, since I believe it to be the perfect way to describe this debate. Again, sorry to take up your time, I'm just pretty warn out with the extremism and attention this debate has gotten in all it's hypocrisy.........Thanks for listening and for a very informative article. Have a great day!!!
Posted by Art Carden at 06:10 PM in Economics

Bumper Sticker Hilarity

Funny bumper stickers and t-shirts I've seen recently:

1. Driving to Rhodes today: "Midwives help people out!"

2. Rhodes parking lot, Monday: "Honk if I'm Paying Your Mortgage"

3. At DragonCon, this t-shirt.

Posted by Art Carden at 04:56 PM in Economics

Media and Discourse

I'm working on a review of Tyler Cowen's Create Your Own Economy, and I thought this passage was pretty interesting even though it doesn't really fit into the review:

"Media coverage brings similar problems of oversimplification. The tendency is to fit all facts into the format of a story, usually with a memorable protagonist, even when the reality is more complex. Haven't you noticed how many movies and TV shows offer an underdog struggling against the system and receiving ultimate vindication? It makes for a good tale. Yet this isn't always the most appropriate or the most accurate way of organizing information. The media is good at portraying heroes and villains and conspiracies, while it is bad at giving people an understanding of abstract or unseen social and economic forces." (p. 115)

This is a pretty good discussion of bad cognitive habits that reinforce other bad cogntive habits. I offer the health care debate as a case in point. Unfortunately, the discussion of Tea Party and Town Hall protests has been crafted into a narrative of morally unambiguous solutions thwarted by a combination of evil and ignorance. The assumption that anyone who opposes the President's health plan is a racist, an AstroTurf flunky, or both does not do anything to advance the debate in a useful direction. Of course, some of the President's more outspoken critics aren't helping their causes with inflammatory rhetoric. Referring to the President as an "Indonesian Muslim turned welfare thug" certainly doesn't invite sympathy and will almost certainly alienate reasonable people who support the President (HT: Chuck McKinney for the link).

Posted by Art Carden at 04:53 PM in Economics

Production and the Firm

Here's my very first Mises U lecture and my first video on YouTube. Topics include capital, productivity, trade, comparative advantage, and the firm.

Posted by Art Carden at 04:01 PM in Economics

Health Care Redux: Teddy Roosevelt

The Gray Lady has an excellent interactive archive of the history of health reform in the U.S. Clicking on Theodore Roosevelt's 1912 campaign platform, we see early glimpses of the eventual breadth and depth of central government control. "[O]ur aim should be," said Roosevelt, "to use the Government as an efficient agency for the practical betterment of social and economic conditions throughout this land." Praising the social plans of Bismarck, Roosevelt blames America's woes on the Republican Party (and no, notwithstanding spastic claims to the contrary, I am not an "ethics-free GOP hack") en route to declaring, "In the National Government one department should be intrusted with all the agencies relating to the public health... This department, through its special health service, would co-operate intelligently with the various State and municipal bodies established for the same end.... [T]he aim would be merely to secure under one administrative body efficient sanitary regulation in the interest of the people as a whole."

Notice the implicit assumptions of benevolence and omniscience that support the claim of government achieving an efficient outcome. There is also, but more subtly, a tension between two conceptions of liberty: the liberty of individuals that informed the American Founding versus the liberty of people as members of a noble collective that was successfully advanced by the Progressives.

Today, the faces have changed. The tag lines are new. The delivery is honed on both all sides to tip-toe around these basic tensions. But the politics and the principles are ancient. I wonder: what have we learned?

Posted by Edward J. Lopez at 02:36 PM in Politics

Learning Economics at Harvard Medical School

When you peel back a few rhetorical layers of the current health care debate, it is amazing how little has changed since 1993 (Clinton care), or 1965 (Medicare & Medicaid), or 1954 (ESIs tax exempt), or even 1912 when Teddy Roosevelt campaigned for national health insurance. (More on TR here.) In an imperfect world, empathy and good intentions naturally move us to seek solutions, and rational ignorance naturally moves us to favor vivid solutions with quick-fix promises backed by technocratic awe. On deeper consideration, or when later confronted with unintended consequences, we might appreciate the limitations of resting the outcomes for millions in the hands of the few, however smart and well-intentioned the latter may be. In turn, we might even consider subtler, more opaque, less obvious solutions, which might not even look like solutions at all but instead -- well, processes. Like the processes of innovation, or of developing best practices, or of discovering productive efficiencies, or of human competition in general. The division of labor, while an ancient concept (HT: Xenophon), isn't the first stop along the mind's route to choice (HT: Vernon Smith). Yet it underlies each and all of the processes that subtly and dynamically improve the human condition -- not to perfection, but certainly to betterment.

We live in an imperfect world -- a simple and obvious point that the current political climate simply and obviously ignores. So it is noteworthy when prominent voices urge our policies in the direction of processes that, while imperfect, will make us better off.

Last week Jeffrey S. Flier, who is the Dean of Harvard Medical School, published "Health Care Reform: Without a Correct Diagnosis, There is no Cure" Journal of Clinical Investigation, Sep 10, 2009. (HT: Jeffrey Flier). Dr. Flier argues that we ought to give policymakers some pause, and we should resist the temptation of falling for a major systemic overhaul that impossibly purports to fix all problems in one fell swoop. Rather, based on a sound (rather than political) understanding of the problems, we should: 1) neutralize the tax privilege of employer sponsored insurance; 2) eliminate barriers to entry in medical services and especially innovation; and 3) look seriously at Medicare and Medicaid (although he doesn't elaborate, he is noteworthy for even going near these third rails). Dr. Flier's paper is also discussed in today's WSJ editorial. Elsewhere, and earlier, Dr. Flier co-authored with Terry Flier a lengthier essay on the principles of freedom and beneficial consequences of exchange in health care markets. Greg Mankiw blogged about it favorably here.

Dr. Flier's colleagues at Harvard Medical School, Gerome Groopman and Pamela Hartzband, peel back the rhetoric offered in President Obama's summer health care stumps. Underneath, they shed light on the intersection of economics and medicine. The best section in Drs. Groopman and Hartzband's article shows us how best practices in medical treatment are discovered. Best treatments change quickly with new evidence, new drugs, new devices, and good judgment at the individual doctor-patient level. It cannot be centrally planned, even by good, smart people.

Even when experts examine the same data, they can come to different conclusions. For example, millions of Americans have elevated cholesterol levels and no heart disease. Guidelines developed in the U.S. about whom to treat with cholesterol-lowering drugs are much more aggressive than guidelines in the European Union or the United Kingdom, even though experts here and abroad are extrapolating from the same scientific studies. An illuminating publication from researchers in Munich, Germany, published in March 2003 in the Journal of General Internal Medicine showed that of 100 consecutive patients seen in their clinic with high cholesterol, 52% would be treated with a statin drug in the U.S. based on our guidelines while only 26% would be prescribed statins in Germany and 35% in the U.K. So, different experts define "best practice" differently. Many prominent American cardiologists and specialists in preventive medicine believe the U.S. guidelines lead to overtreatment and the Europeans are more sensible. After hearing of this controversy, some patients will still want to take the drug and some will not.

This is how doctors and patients make shared decisions—by considering expert guidelines, weighing why other experts may disagree with the guidelines, and then customizing the therapy to the individual. With respect to "best practices," prudent doctors think, not just follow, and informed patients consider and then choose, not just comply.

What would be a man of systems' preference for developing best practices? Quoting Groopman and Hartzband, "The president also said there should be financial incentives 'to allow doctors to do the right thing'."

I've never been, but I suspect you can learn more than good medicine at Harvard Medical School. These are refreshing and informative reads, well worth being absorbed in their entirety, both for understanding health reform and for learning good economics.

Posted by Edward J. Lopez at 02:30 PM in Economics

Race and Development

The always-excellent William Easterly has a great post entitled "How the British Invented 'Development' to Keep the Empire and Substitute for Racism." After doing a lot of reading on the development of ideological justifications for slavery in the US and after searching through the papers of the Association of Southern Women for the Prevention of Lynching, I think classical liberals and libertarians don't pay enough attention to what our friends on the left have to say about race, racism, and how these affect institutions. In my Mises U lecture on "Common Objections to Capitalism," I pointed out that history is smeared with racism, bigotry, and the unfortunate effects of tribalism. If you take two racist societies that are alike in every respect and give one society capitalist institutions while giving the other society statist institutions, I would expect the capitalist society to be less racist as time goes on.

What does this have to do with Easterly? Easterly discusses the late twentieth century fetish for "development" and argues that it has its roots in the racist assumptions of European imperialism (am I starting to sound like a Marxist?!). I would argue that its appeal is that it flatters the paternalist conceit of the man of system. I think this was particularly true in the technocratic intellectual environment of the 1940s and 1950s. Here is his punchline, lest Easterly be misunderstood:

Why does this history matter today? After all, the Empire fell apart much sooner than expected, and racism did diminish a lot over time. And I do NOT mean to imply guilt by association for development as imperialist and racist; there are many theories of development and many who work on development (including many from developing countries themselves) that have nothing to do with imperialism and racism.

But I think the origin of development as cover for imperialism and racism did have toxic legacies for some. First, it meant that the concept of development was determined to fit a propaganda imperative; it was NOT a breakthrough in thought by economists. Second, it followed that development from the beginning would stress the central role of Western aid to help the helpless natives (which shows up in the early development theories like the “poverty trap” and the “Big Push,” and the lack of interest in local entrepreneurs and market incentives). Third, the paternalism was so extreme at the beginning that it would last for a long time – I still think it is widespread today, especially after today’s comeback of the early development ideas in some parts of the aid system. And this history also seems strangely relevant with today’s “humanitarian” nouveau-imperialism to invade and fix “failed states” like Iraq and Afghanistan.

Membership in the development elites is far more diverse than in Lord Hailey’s time, but I fear that, to use Wolton’s words, “in the end, the elites still believe in their fundamental superiority.”

Cross-posted at The Beacon.

Posted by Art Carden at 12:49 PM in Economics

Recession's over? Well...

See the sad and a little-bit-creepy story here

HT to my boss, Mike Casey

Posted by Noel Campbell at 10:44 AM

More on Norma Rae

Norma Rae was certainly brave, committed, and all that. But you know what they say about good intentions. What about the results? I'm sure all those unionize textile workers in North Carolina are living fine socially just lives these days, right?

Oh wait...

Posted by Robert Lawson at 08:31 AM in Economics

September 15, 2009
"Norma Rae" has passed away

See the story here

I'm not speaking ill of the dead, but I cannot help but wonder whether, had Crystal Sutton had been less effective at organizing Southern textile mills, there might still be a Southern textile industry today.

In 1973, Sutton was a 33-year-old mother of three earning $2.65 an hour folding towels at J.P. Stevens when a manager fired her for pro-union activity.....Sutton, who had worked at the plant for 16 years....

Ok, folding towles for $2.65 sounds like the recipe for a very unpleasant life. However, if she was still folding towels after 16 years of experience, what was her marginal product of labor?

Union organizers had targeted J.P. Stevens, then the country's second-largest textile manufacturer, because the industry was deeply entwined in Southern culture and spread across the region's small towns.

Ahhh.... I begin to get a more accurate picture. Yes, Ms. Sutton's life sounds unpleasant, but she appears to have been something other than a lone hero who finally said, "Enough!" She was the tool of a national organization's carefully targeted effort, and, apparently, an expendable tool, at that.

The textile industry has left Ms. Sutton's South, but many other industries have arrived and expanded. Why? The evidence very powerfully states it is because the South is "right to work."

Another gem:

''Crystal was an amazing symbol of workers standing up in the South against overwhelming odds -- and standing up and winning,'' Raynor said Monday.

Ahhh... gotta love those gratuitous jabs at the South... delivered by a Long Island native and Cornell graduate. But perhaps I'm hypersensitive.

Posted by Noel Campbell at 07:29 PM

MIE: Dead Alumni Edition

Wow. I'm a big fan of the alma mater, but this is a little extreme:

Death might be final, but allegiance to the Gator Nation is forever. Same goes for the Seminoles.

And soon, die-hard fans of both the University of Florida and Florida State University might be able to rest eternally at their beloved schools.

A state law that went into effect July 1 allows Florida's 11 public universities to build columbariums on campus for cremated remains.

Posted by Robert Lawson at 10:50 AM

September 14, 2009
Calling All Rogues!

Berry is pleased to host Peter Leeson tomorrow for a talk on his fantastic book The Invisible Hook. The Jolly Roger will be raised at 5:00 tomorrow in the Science Auditorium and students coming in pirate costumes will have a chance to win a $50 gift card to LongJohn Silvers Outback.

ADDENDUM: Friends and alumni might also want to mark their calendars for talks by Steve Horwitz on Oct 27-28. Details are forthcoming.

Posted by E. Frank Stephenson at 01:58 PM

Top 50 Business Education Bloggers

DOL makes the cut for the Top 50 Business Education Bloggers compiled by The Biz-learner. Many thanks for including us.

Posted by E. Frank Stephenson at 01:51 PM

The Rocky Harbor Picture Show

I was thinking last night that the biggest oxymoron in all of public policy is the term "trade war." Trade is cooperation for mutual benefit while war is a negative-sum game in which a lot of stuff gets destroyed. In light of the recent tire tariff, it looks like things are going to get gruesome as China retaliates. Here's Greg Mankiw with a few links and here, like clockwork, is a letter from Don Boudreaux pointing out that the tariffs punish Americans. Here's a bit of wisdom attributed to Joan Robinson:

"If your trading partner throws rocks into his harbor, that is no reason to throw rocks into your own."

And here's the Google Books link for Don's Globalization, which was one of the first things that came up when I googled (Joan Robinson rocks harbors).

Posted by Art Carden at 01:30 PM in Economics

Review Of International Organizations

The editor of the Review of International Organizations, Axel Dreher, sent me a link to the the most recent issue of the journal. While I had not heard of it before, it seems quite interesting. In particular, the forthcoming article by Peter Bernholz titled "Are international organizations like the Bank for International Settlements unable to die?" seems quite nice. From its abstract:

International Organizations seem to be immortal or at least long-lived. In this paper several factors which may be responsible for this fact are put forward and then analyzed by studying the empirical case of the Bank for International Settlements (BIS), which has now survived for seventy-eight years all threats to its existence. This is the more surprising since it was heavily attacked by the government of the most powerful country of the world, the USA for some years. This country demanded the dissolution of the BIS at the Bretton Woods Conference in 1944 as a precondition for allowing nations to join the planned International Monetary Fund. Before this the Bank was also able to master the crisis resulting from the demise of the gold (exchange) standard and the end of the German reparation payments agreed on in the Dawes and Young Plans, both consequences of the Great Depression.

It seems to me that most public choice scholars would find this paper of interest.
An underexplored area of economics for public choicers is the political economy of international organizations (although The Political Economy of International Organizations: A Public Choice Approach by Vaubel and Willett is great and Dreher himself does nice work as well).

Posted by Joshua Hall at 11:44 AM in Economics

Interesting approach to college financing

See the story here

In exchange for access to the town's high school athletic fields and ownership of the soon-to-be-abandoned middle school, Finlandia University offers free tuition to all of the town's high school graduates who qualify for admission to Finlandia over the next twelve years.

However, Finlandia's offer apparently made no stipulation about new consumers entering the market by moving to Hancock, MI. It will be interesting to observe. Will positive transactions costs prevent a tragedy of the commons from developing?

Posted by Noel Campbell at 10:54 AM

EFW 2009 is out!

The new Economic Freedom of the World: 2009 Annual Report was released today.

A short summary:

Economic Freedom of the World, 2007

Chapter 1 provides an overview of the economic freedom of the world project and the results of this report. It also reviews some causes of the current economic crisis and looks back at the Great Depression, examining briefly some of the policy responses—monetary contraction, trade restrictions, and increased government spending and taxation—that, perversely, prolonged that economic downturn. It warns against repeating similar mistakes.

The Impact of Financial and Economic Crises on Economic Freedom

Chapter 3 reviews the impact of banking crises, and their negative economic impact, on economic freedom. While the study finds that economic freedom may decline in the short term in response to crises, the results also indicate that, over a longer time, economic freedom had a tendency to increase after a banking crisis. As this case study shows, in Norway and Sweden the banking crisis did not distract these countries from continuing with their market-based reform policies.

The econometric results for changes in the level of economic freedom based on observations at 5-year intervals from 1970 to 2005 suggest that countries that had a banking crisis in the previous period increased their level of economic freedom. This result stands in sharp contrast to the chapter’s findings for the sample of annual observations over the period from 2001 to 2006 that suggest that in the short term a banking crisis lowers economic freedom. However, the authors warn that, due to the global nature of the current crisis, their results may underestimate the impact of the crisis on economic freedom. In other words, evidence based on previous crises may not capture the impact of the current crisis fully. As most countries in the world are in a serious economic downturn at the same time, the authors caution that it will be much harder to get out of this recession.

The Effects of American Recession-Fighting Policies on Economic Freedom

The third chapter examines the recession-fighting policies of the US government and concludes that many policy responses will reduce the country’s overall level of economic freedom in, at least, the short-term, through the following mechanisms.

• Monetary policy will likely cause inflation.
• The fiscal-stimulus package will likely result in unprecedented levels of deficits and interest payments that reduce the amount of credit going to the private sector.
• Federal spending on infrastructure, social programs, and transfers to the states will increase government consumption and transfers, lead to more regulation and, in some cases, encroach on state responsibilities, damaging the integrity of the legal system.
• Bailout policies involve changes in existing rules, damaging property rights, the integrity of the legal system, and the legal enforcement of contracts.
• Other measures, or proposed measures, that will reduce economic freedom include higher marginal incometax rates, increased regulation of the financial and manufacturing industries, and increased regulation related to the cap-and-trade system.

The policy implications of these findings are simple, the author argues. Since reductions in economic freedom lower economic growth and the overall well-being of Americans, the policies should be evaluated in the light of these costs
when they are undergoing detailed desgn, are implemented, and when they are reviewed in the future.

You can read the whole thing here.

Posted by Robert Lawson at 08:58 AM in Economics

September 13, 2009
Norman Borlaug, R.I.P.

Norman Borlaug, the most important man in history you've never heard of (or maybe the most important you have heard of) has died.

I've nothing to add to this obituary at Reason.

Posted by Brad Smith at 10:22 PM in Science

DeLong on a Principle for Policy Evaluation

I sent Forbes.com a piece on tire tariffs earlier today; I wish I'd waited long enough to be able to include this:

"That's the point: when the policy you are adopting is worse for everybody than a policy you agree is stupid, the policy you are adopting is best characterized as really stupid."

That's Brad DeLong's criticism of Tire Tariffs, along with a couple of back-of-the-envelope calculations.

HT: Will Wilkinson.

Posted by Art Carden at 09:15 PM in Economics

Cavalcade of Miscellany

1. During his administration, President W. Bush made us poorer with steel tariffs. Now, President Obama will make us poorer with tire tariffs. Is that supposed to be change I can believe in?

2. Congratulations to Melinda Miller of the US Naval Academy, who won the 2009 Nevins Prize from the Economic History Association for the best dissertation in American economic history. Here's an old MetaFilter post discussing her work and offering links.

3. Recent posts from John Cochrane, including his response to Paul Krugman's NYT Magazine article on how economists got it all wrong. It appears the gloves are off.

4. Sheldon Richman on the immorality of forcing insurance companies to cover preexisting conditions. It's a pretty good argument.

Posted by Art Carden at 02:48 AM in Misc.

September 12, 2009
Carden and Horwitz on Smiley on Krugman on Economists

Steve Horwitz and I address Jane Smiley's HuffPo piece about economists. Here's relevant wisdom from Murray Rothbard:

"It is no crime to be ignorant of economics, which is, after all, a specialized discipline and one that most people consider to be a 'dismal science.' But it is totally irresponsible to have a loud and vociferous opinion on economic subjects while remaining in this state of ignorance."

Posted by Art Carden at 05:27 PM in Economics

September 11, 2009
Should Obama Be More Like Reagan?

Rasmussen Reports has a poll out on political labels, and it seems that people want politicians who are "like Reagan."

Results below the fold.

Read More »

Posted by Brad Smith at 11:39 PM in Politics

Mr. Rogers Obama: Can you say, serve the state? Yes you can!

My 14 yr old daughter sent me this txt msg on Wednesday, "had to watch the effin obama speech, soooooooo stupid. very mad. please complain," which I posted on Facebook because I thought it was pretty funny. Several friends chimed in with less than flattering things to say about the Great Leader's speech.

An old and dear, and left-of-center, friend wrote me:

Are your friends ACTUALLY advocating that their chidlren NOT listen to a speech by the leader of the free world? Seriously, this is not a statement in the form of a question.

I was just wondering with a colleague why anyone would keep kids from listening to the POTUS - even if it was only to build your case for debate.

(Though why anyone would debate - work hard, keep trying, etc. is a bit...well way...beyond me.)

My reply:

As Thomas Sowell would say it's a conflict of visions. You see him as the leader of the free world. I see him as a power-hungry man who managed to win some kind of beauty contest. I owe him no fealty for this per se. In my book I owe my plumber more respect than my president. He at least provides me with something I want on an honest basis.

I felt the same about Bush and Clinton too (Reagan not so much then but my views have changed a lot since then). Most of my fb friends would have felt the same I bet. Though I have to be honest that some of them wouldn't have minded one bit if Bush had done this. Be honest, what you you have thought if Bush wanted to do this?

Btw, I could have gotten her out of it. But didn't because I figured she should hear him out. But she was genuinely unhappy with the message: "Work hard and stay in school so you can serve the almighty State?!"

Oddly we really don't talk politics much at all. Obviously, my kid has picked this attitude up from me/us, but I really don't push it on her. She's her own person.

My daughter and I had a nice conversation (thank you, Prez Obama for that much at least) this morning. I told her about Aron Ralston who quit his big fancy corporate job to become a full-time mountain climber bum (and had an unfortunate accident if you remember his story).

In Obama's view I guess Ralston is a bad person for "dropping out" and not contributing to the economy and government as much as he should. What a waste of a great college education Obama would say. But in my world view, he's following his own dream on his own terms and not those of the state or society (whatever that is) and is worthy of respect.

Posted by Robert Lawson at 11:55 AM in Politics

A Gem I had overlooked

Economic Freedom and Service Industry Growth in the United States
Entrepreneurship Theory and Practice
Volume 32, Issue 5, Date: September 2008, Pages: 855-874
Stephan F. Gohmann, Bradley K. Hobbs, Myra McCrickard

Gated version here

Sample quote:

If increased economic freedom leads to an increase in the number of firms and employment in an industry, it indicates that this industry is engaged in what Baumol (1990) has defined as productive entrepreneurship. However, if decreased economic freedom leads to an increase in the number of firms and employment in an industry, it indicates that this industry is engaged in what Baumol has identified as unproductive or even destructive entrepreneurship.

Posted by Noel Campbell at 10:56 AM

Best two paragraphs in a while: Bruce Yandle
Writing long before the discovery of Public Choice, Pigou saw government as an exogenous force, unconnected to unbridled market forces. Pigou implicitly saw government as being neutral and efficiency-bound at worst and benevolent at best. There is clearly no recognition that government enterprises could become the worst polluters and the least likely to respond to the spur of competition. To cap it all off, Pigou seems to assume that information can be obtained at no cost. Pigou armed the state with an appealing, informed, and logical analysis, and dignified market intervention and regulation, and armed future generations of political favor seekers with a kind of Old Testament interpreation of how to make the world a better place. If enough rules are written and enforced, better things will emerge, especially for well organized interest groups. (p.127)


In thinking about Coase versus Pigou, we should also recall the purpose of Coase's investigation; he wanted to understand a world in which transaction costs are positive. When we investigate that world, a rich array of quality assurance devices are observed. Rules of liability and common law rules form a minor part of that world. Brand name capital, capital market monitoring, concern for community, and third-party monitoring form a major part. These are evidence of positive transaction costs that limit direct Coasean bargaining. Among the world players are governments and other organizations that are immune to the spur of competition and have no need for quality assurance. It is this part of the world that Pigou was really addressing: It is government itself that must be controlled with government regulation.
At first blush, suggesting that government should focus on itself, imposing command-and-control regulation on government enterprises and leaving the unfettered forces of the market to deal with private firms and individuals, seems itself to be a Pigovian prescription. The recommendation implicity assumes that a centralized authority managed by wise welfare-maximizing economists will rule the day. Yet if Public Choice theory has taught us anything, it is that government is endogenous to the political economy. Barring benevolent dictatorships, there is no ruling authority. Process alone determines outcomes, and it is in analyzing process that Coase has the advantage over Pigou. (pp.148-9)

Bruce Yandle, "Coase, Pigou, and Environmental Rights," in Hill and Meiners (eds.) Who Owns the Environment? (1998). The chapter draws on Bruce's book, Common Sense and Common Law for the Environment (1997). HT: Liberty Fund conference later this month.

Posted by Edward J. Lopez at 10:00 AM in Economics

September 10, 2009
"Fantasy is Not a Serious Policy Option."

That's Gene Callahan on health care. Here's Steven Horwitz's excellent "Ought Implies Can" (the version published in The Freeman) and a few of my comments from last semester.

Posted by Art Carden at 11:31 PM in Economics

"How the Federal Reserve Bought the Economics Profession"

A "HuffPost Reporting" piece on the Huffington Post blog on Monday, as its title above suggests, raises the possibility that the Federal Reserve's funding of so many monetary economists imparts a pro-Fed bias to the economics profession. The author, Ryan Grim, insightfully offers this an explanation for why economists haven't been more critical of the Fed's policies leading to and since the financial crisis. The article points to some of the same evidence suggestive of the danger of a corrupting Fed influence that I discussed in my 2005 EJW piece, "The Federal Reserve System's Influence on Research in Monetary Economics", for example the prevalence of Fed-affiliated economists as "gatekeepers" at the leading field journals in monetary economics.

Jeff Tucker of the Mises Institute, independently of my noticing the article, emailed the author to ask why he hadn't mentioned my piece. He replied that he hadn't known about it. The article relies mostly on two Fed critics on the left, James Galbraith and Robert Auerbach, both at the University of Texas. Of course, their preferred alternative institutions could be even farther from mine than the status quo. But if the Fed is ever to be dis-entrenched from power, the more Fed skeptics from across the spectrum the better.

Posted by Lawrence H. White at 10:59 PM in Economics

Stossel Moving to Fox

His take here. I hope it improves the economic commentary on Fox (which features folks like this who belong on Lou Dobbs' program) and nudges it from conservative toward libertarian. Unfortunately my cable provider doesn't run the Fox Business Network.

Posted by E. Frank Stephenson at 10:27 PM

Reason.tv: No American Should Have to Choose Between Health Insurance and ...

Posted by E. Frank Stephenson at 10:15 PM

This One Time, at Band Camp...

Baptists and bootleggers meet up to regulate marching bands: there's a bill being pushed by the one company that does professional band instrument sterilization to require Massachusetts schools to have instruments professionally sterilized (HT: Radley Balko). I know from experience that band instruments can get pretty gross, but they can be cleaned easily and most of the possible public health problems can be fixed by using your own mouthpiece. Further, I doubt that the marginal benefit of professional sterilization is worth the marginal cost. What are the specific threats that require professional sterilization rather than soap and water? And how do internal monitoring institutions fail?

Posted by Art Carden at 02:24 PM in Economics

State, Society, and European Economic History

Posted by Art Carden at 11:25 AM

Giberson on Smiley on Krugman on Economists

Here. Steve Horwitz and I are going into the breach with two articles responding to Smiley. The first will appear on Forbes.com after it has been edited and such, and the second will appear as an "It Just Ain't So!" column for The Freeman. More soon; Giberson's post is well worth reading.

Posted by Art Carden at 11:06 AM in Economics

Arnold Kling on the Obama Speech

Best line of the night.

[Obama] said,
Reducing the waste and inefficiency in Medicare and Medicaid will pay for most of this plan.

And if we don't pass this plan, does he intend to keep the waste and inefficiency, out of spite?

HT: Elliott

Posted by Joshua Hall at 10:22 AM in Politics

Two Hernando de Soto Items

1. There will be a Hernando de Soto PBS special this fall called "The Power of the Poor." The one-hour special will air on October 8th. (Note the blog contest, for those interested).

2. de Soto is the focus of the 2nd Annual Upton Forum at Beloit College. The Miller Upton Forum at Beloit College honors the work of intellectuals who have made important contributions to our understanding of the wealth and well-being of nations. In addition to a public lecture by de Soto in Beloit in late October, we have several speakers throughout the year whose work has influenced by de Soto, such as Claudia Williamson, Tyler Cowen, and DOLs own Ed Lopez and Bob Lawson. If you are in the area and interested in attending any of the public events, a registration form can be found here.

Posted by Joshua Hall at 10:06 AM in Economics

September 09, 2009
Boo, two

An ungated draft version dated April 2009 is available here.

Posted by Wilson Mixon at 09:44 PM in Economics

Boo journal rankings?

Wall, Howard J. (2009) "Don't Get Skewed Over by Journal Rankings," The B.E. Journal of Economic Analysis & Policy: Vol. 9 : Iss. 1 (Topics), Article 34.

Abstract: Nearly all journal rankings in economics use some weighted average of citations to calculate a journal's impact. These rankings are often used, formally or informally, to help assess the publication success of individual economists or institutions. Although ranking methods and opinions are legion, scant attention has been paid to the usefulness of any ranking as representative of the many articles published in a journal. First, because the distributions of citations across articles within a journal are seriously skewed, and the skewness differs across journals, the appropriate measure of central tendency is the median rather than the mean. Second, large shares of articles in the highest-ranked journals are cited less frequently than typical articles in much-lower-ranked journals.

Gated version here.

Posted by Edward J. Lopez at 08:22 PM in Economics

"I'm from the government, and I'm here to help you"

Camille Paglia in Salon (emphasis added):

An example of the provincial amateurism of current White House operations was the way the president's innocuous back-to-school pep talk got sandbagged by imbecilic support materials soliciting students to write fantasy letters to "help" the president (a coercive directive quickly withdrawn under pressure). Even worse, the entire project was stupidly scheduled to conflict with the busy opening days of class this week, when harried teachers already have their hands full. Comically, some major school districts, including New York City, were not even open yet. And this is the gang who wants to revamp national healthcare?
Posted by Wilson Mixon at 05:42 PM in Politics

Fall 2009 Economics Speakers at Rhodes

David Zetland, Thursday, October 15, 7:00 PM, Orgill Room. Tentative Title: “Sustainable Resource Use.” David Zetland is an S.V. Ciriacy-Wantrup Postdoctoral Fellow in Natural Resource Economics and Political Economy in the Department of Agricultural and Resource Economics at the University of California, Berkeley, where he teaches a course entitled “Environmental Economics and Policy.” He is the author of Conflict and Cooperation within an Organization: A Case Study of the Metropolitan Water District of Southern California (2009, VDM Verlag) and a regular contributor to the popular economics blog www.aguanomics.com.

Roger Garrison, TBA. Tentative Title: “The Austrian Theory of the Trade Cycle.”
Roger Garrison is Professor of Economics at Auburn University, where he teaches courses in macroeconomics and the history of economic thought. He is the author of Time and Money: The Macroeconomics of Capital Structure (Routledge, 2000).

Robert Higgs, Tuesday, 11/10, 7:00 PM, Blount Auditorium. Tentative Title: “The Great Depression and World War II.”
Robert Higgs is Senior Fellow in Political Economy at the Independent Institute and editor of The Independent Review. He is a distinguished economic historian and regular contributor to scholarly journals and other publications, and he has taught previously at the University of Washington, Lafayette College, Seattle University, and the University of Economics, Prague. He is the author of Competition and Coercion: Blacks in the American Economy, 1865-1914, Crisis and Leviathan: Critical Episodes in the Growth of American Government, Depression, War, and Cold War, and numerous other books.

Posted by Art Carden at 02:57 PM in Economics

A Little of This, A Little of That

Busy week but here are a few things that have caught my eye:

1. Mike Lester had two cartoons on the Obama school speech--see them here and here.

2. George Leef asks what would have happened if Obama's teleprompter had failed him at Valley Forge. Very funny.

3. Martin Feldstein rightly worries about deficits and stagnation from Obamacare, but it's hard to take him seriously when just last month he called for spending $200 billion to write down principal on underwater mortgages.

4. Speaking of cognitive dissonance: The Rome News-Tribune recent reprinted two editorials from the Philadelphia Inquirer. In one, the Philly paper calls on lawmakers to "get a grip on debt" while in the other it extols the deficit financed cash for clunkers program.

5. Something for the reading list--a new paper on property rights.

6. My favorite Labor Day essay.

Posted by E. Frank Stephenson at 11:48 AM

Incentives Affect Behavior Everywhere

We’re very egalitarian, here in the Burdick Business Center building. There are no faculty restrooms. This means—o joy!—I get to observe the toilet habits of a large cross-section of humanity.

We have a couple of confirmed cases of H1N1 flu on campus. The provost and VP-Students have widely publicized these cases and the general effectiveness of hand washing as a sickness preventative.

My observations are anecdotal, not scientific, but now that incentive to remain hygienic has increased, hand washing has also increased; not just the proportion of people, but the length of time washing, quantity of soap used, and temperature of the water have all increased.

Just thought I’d share.

Posted by Noel Campbell at 11:46 AM

Health Data Bleg

The British NHS refuses treatment to a premature baby because he was born a couple of days before the cutoff. I hesitate to draw inferences from anecdotes and want to adjust my sensationalism filters accordingly. I'm also sure things like this have happened in the US, too.

The story suggests a thought experiment. Let's suppose we have a baby born at 21 weeks under a regime of socialized medicine with NHS-ish guidelines about not treating babies born at (say) less than 22 weeks. Would it be illegal for me to pay for treatment? Who has the moral authority to use force to prohibit me from using every resource at my disposal to save my child?

And, finally, a bleg: one of the comments on the article mentions that the baby in question would have been counted as a miscarriage under British statistics but as a live birth under US statistics. Therefore, cross-national comparisons are misleading. Does anyone know of a source of data that has been adjusted to allow international comparisons? Comments are open; I'm also happy to receive email.

HT: Anthony Gregory.

Posted by Art Carden at 11:43 AM in Economics  ·  Comments (1)

September 08, 2009
Interesting (and a little weird) initial result

I’ve been messing around with the Economic Freedom Index of North America and banks’ annual average return on equity by state. (That variable, by itself, is pretty odd, I know)

I’m unable to test for the effect of monetary or Federal banking regulation policy, but…

a). Using the sub-national EFNA index, bank average ROE is higher in states with more freedom, and lower in states with less freedom. This result is pretty much in line with the literature, but I expected to find nothing at all, due to the nature of the state average ROE variable.

b). However, using the “all government” EFNA index, the relationship becomes insignificant. This may be due to purely mechanical issue within the data. But taken at face value, the results imply Federal fiscal policy is canceling out state fiscal policy as regards bank returns/bank performance. Federal action is dampening/mitigating state action, regardless of what the state is doing, for better or worse.

I think that’s pretty weird.

However, given so much of the recent government efforts have been explicitly shilled as preserving banks and preserving liquidity, expanding the Federal fiscal footprint will have no impact on bank performance, but will negatively impact other variables dependent on economic freedom.

I still have some work to do before I hang my hat on these results. However, it’s held up so far, so who knows?

Posted by Noel Campbell at 04:07 PM in Economics

Post-Atlanta Thoughts on Economics, Culture, and Academia

My friend Daniel, a Virginia Tech alum who was kind enough to handle the trip logistics, has suffered humiliation because the sports team form my area defeated the sports team from his area. I also saw a lot of DragonCon attendees dressed as superheroes. After spending Friday and Saturday reading about racist violence, I think sports and sci-fi are much healthier outlets for humankind's inherent tribalism.

The preponderance of costumes at DragonCon suggest the hip thing to do if you go to a conference in Atlanta is to wear a costume. The American Economic Association is meeting in Atlanta in January; I'll be going dressed as Greg Mankiw.

Posted by Art Carden at 02:48 PM in Economics

Markets in Everything: Fake Presidents

From Slate:

Butler is a professional actor with a full-time job playing Oscar on "True Jackson, VP" on Nickelodeon. Now he is trying to break into a more specialized field. Top-tier presidential impersonators make appearances at conventions, corporate meetings, and the like. And the battle to become First Impersonator is real.

HT: Al Maag

Posted by Robert Lawson at 12:25 PM in Economics

File Under "Econ 101 Notes: Subsidies"

Bryan Caplan points to an excellent review essay by Daniel Klein on parking. Having spent a lot of time driving in the last few months and having spent the weekend in Atlanta, I think this will be a pretty good topic for amended versions of my lectures on subsidies and the environment.

Posted by Art Carden at 11:47 AM in Economics

Assorted Links

1. A great question for candidates from Jim Fedako. I would like to see questions like this raised during debates. Any question that requires comparison or calculation cannot, by its very nature, be answered rationally without profits and losses.

2. This morning's EconTalk with Tyler Cowen on Create Your Own Economy. If I had to make a list of people I don't know personally who have contributed the most to the development of my worldview and, therefore, my personal happiness, Tyler would be near the top. And it's not because of his recent "markets in everything" link to an article about lingerie football.

3. A nice front-page article about Rhodes President William Troutt.

4. A nice video for Pink Floyd's "Pigs." Is it art? Will it be taken down because of copyright infringement? Does it increase the probability that I buy more Pink Floyd music? My answers: yes, maybe, and yes.

Posted by Art Carden at 09:49 AM in Economics

September 07, 2009
Why I hate Obama's Speech to School Kids

I describe in a pair of posts at the Politico, here and here, why I don't like Obama speaking to school kids. I wouldn't mind, actually, if he were using the kids as a backdrop to make a major policy speech - what I dislike is the fact that there is no reason for this speech, really, except that the President seems to think he needs to step in and help us all parent our kids. It's really obnoxious.

But looking at the text of his message, that's pretty obnoxious, too. Some excerpts below the fold.

Read More »

Posted by Brad Smith at 11:48 PM in Politics

File under "there are no free lunches in politics either!"

U.S. climate change bill to compete with health care

...as the debate over healthcare legislation rages and with President Barack Obama due to address a joint session of Congress on Wednesday to try to rescue the faltering plan, it was unclear whether rattled lawmakers will have the time -- or the inclination -- to take on climate change.

Obviously, my indifference curves over these two policies increase in utility toward the origin.

Posted by Edward J. Lopez at 05:01 PM in Economics

Emerging Economic Development Takings Cases

1. Minnesota's state supreme court will hear a case that was ruled by the lower court in the property owners' favor. According to the Star-Tribune:

In question is whether the city's Economic Development Authority had the power to take land owned by businesses as part of a 70-acre redevelopment along Hwy. 13, just off Cedar Avenue. Also at issue is exactly how a city may modify those powers.

The issues revolve around whether the city must first transfer this power to the EDA on a case-by-case basis or whether the EDA has that power under state statute. The heart of the case is how much power cities' economic development authorities have.

In 2006 Minnesota updated its eminent domain statute to impose additional procedural requirements on condemning authorities. The new law also defined "public use" more narrowly and gave property owners right of first refusal if the city did not eventually use the property for redevelopment. However, the new law did include a blight exemption. Sure enough, the city blighted the area in question as a precursor to centrally planning its redevelopment. The Minnesota Free Market Institute sums it up:

City government has invested seven years in an effort to redo the area. It used its power of eminent domain to forcibly acquire properties in the area. Together with a commercial developer and community activists, it developed grand plans. In other words, it substituted the political process for the free market.

During these seven years, the city has incurred carrying costs for the project, which it had hoped would someday pay off....

It’s certainly not an easy situation for Eagan officals or taxpayers. But the seven wasted years, and the costs incurred during that time, could have been saved had the city stayed out of the business of land speculation. After all, that’s what the free market is for.

For more on recent changes to state eminent domain legislation, you can see my 2008 Review of Law and Economics paper, "Pass a Law, Any Law, Fast!". On why using eminent domain to centrally plan economic development fails, see my 2007 article in The Independent Review.

2. New York is one of the worst abusers of the takings power. Up next, The New York Daily News reports a case in Williamsburg, NY:

While the loudest battles over the plan to build 1,895 low-rise apartments on the 31-acre Triangle site have been over the allegations of political corruption, little attention has been focused on the fate of the existing small businesses in the area.

The city plans to use eminent domain to force five property owners to sell. Another 14 businesses could be displaced by zoning rules that will limit their activities

3. Down the road from me in Sausalito, CA, the city's lust for waterfront development exemplifies how itchy trigger fingers can make the takings power a tool of first resort. The Contra Costa Times reports:

The city of Sausalito is still hoping to acquire a 16-acre waterfront parcel near Dunphy Park at the foot of Locust Street that it lost to a higher bidder earlier this year. City officials are negotiating with the new owner, but said they will consider eminent domain - a process in which government can acquire private land for the public good - if talks are not successful. The new owner, Marin builder Dan Morgan, said he was caught off-guard by the eminent domain discussion, noting that he has met with city officials, had the land appraised and offered a purchase price. "I never heard back from them, and now I'm hearing eminent domain," Morgan said. "I'm willing to sell it."
Posted by Edward J. Lopez at 04:26 PM in Economics

Cleaned by Capitalism

Riviera Beach, Lake Geneva, Wisconsin. Highly recommended. Hooray closed access and non-zero prices!

riviera beach.jpg

HT: Don Boudreaux, for the C by C concept.

Posted by Joshua Hall at 02:49 PM in Economics

What I've Been Writing Lately

A couple of outlets published articles that are appropriate in light of today's institutionalized celebration of anti-economics:

1. A piece summarizing some of our work on Walmart, for Forbes.com.

2. A piece on the unpopularity of capitalism, for Mises.org.

Posted by Art Carden at 01:35 PM in Economics

September 05, 2009
What is Wrong with Me?!

It's the first Saturday of the college football season, after noon here in the CST, and I'm blogging about China's monetary policy! Do what?

Posted by Noel Campbell at 01:46 PM

Politicians Unclear on the Concept

See the story here

The finance ministers and central bank governors of Brazil, Russia, India and China -- the so-called BRIC countries -- gathered in London on Friday to call on the G20 countries to maintain stimulus measures to promote financial stability and economic growth.

Let’s focus on China here, the capital “C” in what should be written as “briC.” China’s growth over the last thirty years has been sustained by governmental policy that deliberately undervalues the yuan, in order to promote export growth. Basically, China’s government has expanded the money supply for decades in order to depreciate the yuan, and make China’s products inexpensive for Americans (and other G20 consumers) to buy.

But now, China is at risk for some very significant inflation. To the extent that G20 stimulus measures become inflationary, they will devalue the G20 currencies in world markets. To protect their export markets (recall that China’s domestic consumption is very weak), this would require the Chinese to increase their money supply growth that much more, raising the risk of a devastating Chinese inflation even higher.

Still, briC leaders understand something that our leaders in the United States appear not to understand:

The four countries stressed that protectionism remains a real threat to the global economy and should be avoided, both in direct and indirect forms. Ongoing regulatory reforms in the financial sector should not impede cross-border capital flows and investments. Failure to do so would risk compromising the expected recovery of the world economy.

True dat! For anyone my age or older, with clear memories of the Soviet Union and “Communist” China, did you ever imagine a day would come when the “Commies” would (correctly) lecture us on the benefits of free trade and free capital flows?

Posted by Noel Campbell at 01:41 PM

September 04, 2009
On the Intergenerational Correlation of IQ

Greg Mankiw had a series of posts (last one here)--including an exchange with Krugman--on SAT scores, income, and the intergenerational transmission of IQ. As if on cue the new issue of Economics Letters contains an article (gated) by Sandra E. Black, Paul J. Devereux, and Kjell G. Salvanes addressing this question; the abstract:

Using a large population-based dataset, we estimate a substantial intergenerational transmission of IQ scores; a 10% increase in father's score at age 18 is associated with a 3.2% increase in son's score. This relationship also holds true for various subpopulations.

I doubt this finding surprises many people other than, alas, Krugman.

Posted by E. Frank Stephenson at 10:17 PM in Economics

My health care rant

An old high school friend, who has had many health problems, and who favors socialized medicine (of some kind) asks me what I would do about health care. Just off the top of my head and without much deep thought here's what I wrote:

Of course I would love to see no government involvement in health care or insurance at all, but government completely dominates almost everything about health care (as in finance). The system we have is based on the rules and incentives created by government. I honestly don't know what health care would look like without the government being involved. And given this starting place, it is all but impossible to disentangle the government's tentacles from the system.

But as far as logical first steps for policy: (1) end the tax advantage for obtaining health insurance from your employer. We HAVE to decouple health insurance from employment. Either allow individuals to deduct health costs or end the employer tax deduction. (2) End insurance policy mandates (e.g., mental health parity and the like) so people can buy insurance plans to fit their needs (3) Dramatically loosen (I would eliminate) medical licensing rules so that nurses and other health care pros can compete with doctors. (4) Drop prescription requirements for all drugs so we can get drugs without doctor approval.

It would be vastly better to handle most health care expenses out of pocket like we do everything else in life with insurance only used for catastrophic events. Medical savings accounts would help here perhaps. Insurance markets work well for fire, life, serious car accidents, etc. and can work for health care too but we can't insure day to day costs (well we can, but it is dumb to do so).

Alas, I expect we will always have some uninsured and some who have trouble paying for health care no matter what we do. Some people will die and suffer for lack of care or money. I know this bothers you. I don't like this myself but I accept that we live in a world of scarcity and that we will not have everything in life we want no matter how rich "we" become. I see health care as no more of a "right" than I do food or anything else. We can socialize medicine as you wish, but it will not end hardship or injustice. At best, socialized medicine will shift the margins of suffering to other areas (such as reducing medical innovation and economic growth in general).

Also I expect health care will continue to be very very expensive no matter what. If we want to drop a lot of money on wasteful and ineffective end-of-life procedures, which is the big problem, and we're spending our own money, then that's what we're going to do.

Posted by Robert Lawson at 04:15 PM in Economics

Dispatches from Atlanta: Jim Crow, Legislator?

I'm spending the weekend looking at microfilm and documents at the Atlanta University Center's Woodruff Library, and I came across the following on Reel 86, Frames 357 and 357B of the W.E.B. DuBois papers (quoted verbatim, hand-written):

"Mississippi Code of 1930, of the Public Statute Laws of the State of M. Published by Authority of the Legisltaure by the Code Commission
"Ch. 20, Sec. 1115
Railroads-not providing separate cars.--
If any person or corporation operating a railroad shall fail to provide two or more passenger cars for each passenger train, or to divide the passenger cars by a partition, to secure separate accomodations (sic) for the white and colored races, as provided by law, or if any railroad passenger conductor shall fail to assign each passenger to the car or compartment of the car used for the race to which the passenger belongs, he or it shall be guilty of a misdemeanor, and on conviction shall be find not less than twenty dollars nor more than five hundred dollars."

Jim Crow wasn't a market phenomenon, but why would railroads--who had disproportionate political power--go along with it? My gut reaction is that it stifled competition: railroads acquiesced to Jim Crow for the same reason Wal-Mart has gotten enthusiastic about health care mandates. I'll have to check the data, but it would be interesting to see whether railroads were more or less profitable during and after Jim Crow.

And here's another gem from Chapter 20, section 1103 of the Mississippi Code that illustrates some of the cultural constraints on the market (frame 357B):
"Races-social equality, marriages between - advocacy of punished.--Any person, firm, or corporation also shall be guilty of printing, publishing, or circulating printed, typewritten, or written matter urging or presenting for public acceptance or general information, arguments or suggestions in favor of social equality, or of intermarriage between whites and negroes, shall be guilty of a misdemeanor and subject to a fine not exceeding five hundred dollars or imprisonment not exceeding six months or both fine and imprisonment in the discretion of the court."

Naturally, this raises an empirical question: how often were people prosecuted for advocating racial equality?

Complete Cite, if you find this useful:
Papers of W.E.B. DuBois, Reel 86. Robert W. Woodruff Library, Atlanta University Center.

Posted by Art Carden at 03:16 PM in Misc.

More Gold from China.Org.cn

See the story here

China's top economic planner said Thursday the country would avoid large, widespread and long-term price rises as overall supply would match demand in the foreseeable future.

The National Development and Reform Commission (NDRC) said in a statement that a "surge in credit and continuous price rises of certain products and property resulted in rising inflation expectations in the country."

"Sufficient material supply," such as ample reserves of grain and competitive pressures would help stabilize prices, the NDRC said, without providing details.

The NDRC asked local authorities to step up strict price monitoring and to stabilize prices of important products, including food, gas and transport.

Efforts should be made to avoid concentrated price rises and large price rises, said the statement.

My initial reactions:
1). This is a post-socialist economy? Even though it (apparently) retains local governmental authorities that attempt to set local retail prices?
2). Changing market outcomes via government fiat, hmmm…. Well it hasn’t worked in the past, but this time it will be different! This time, prices will change because a government wants them to change.

However, the [price] rises [of pork, eggs, gasoline, etc.] were a natural result of previous prices being too low, said Lin Songli, a microeconomic analyst with Guosen Securities Thursday.

Really? As opposed to a price rising for other reasons, I suppose….

"Pork and egg prices often acted as major driving force for inflation in the past, so though the price hikes pose no immediate threat to inflation, the government should be cautious," Lin said.

Surely this says something about China’s domestic economy. Can you imagine the U.S. CPI-U increasing because the price of eggs and pork chops go up?

Posted by Noel Campbell at 01:05 PM in Economics

Listening Tip

I caught a few minutes of radio while driving back from lunch. Much to my delight, Walter Williams is doing the Limbaugh program today. Here's one station that streams the show over the web.

UPDATE: Williams has Thomas Sowell on as a guest.

Posted by E. Frank Stephenson at 01:04 PM

Citizens United: Corporate Political Speech and Shareholder Rights

On Tuesday of next week the Supreme Court will meet in special session to rehear the case of Citizens United v. Federal Election Commission. In Citizens United, the government argued that a documentary produced by Citizens United, Hillary: The Movie, could be banned from distribution as a partisan political communication. The Court has specifically asked the parties to argue whether or not it should overrule Austin v. Michigan Chamber of Commerce, a 1990 decision that upheld a ban on all corporate funded political expenditures. The Court's concern was prompted by the government's argument, at oral argument in March, that under Austin it could ban even the publication of books and films containing so much as one line of political candidate advocacy.

Supporters of the ban are in a rhetorical hole, because the reality is that, if Austin is good law and means what is says, the government is right. Yet few really believe that the First Amendment allows for book banning. And while advocates of "campaign finance reform" have long advocated limiting speech, they don't really like to be seen as quite so nakedly in favor of limiting political speech.

Hence, the latest tack of the "reform" community is to claim that corporate spending on politics should be prohibited in order to protect shareholder rights. Below the fold, we slice and dice this argument.

Read More »

Posted by Brad Smith at 12:30 PM in Politics

In Today's Mail

Housing America: Building Out of a Crisis, edited by Randy Holcombe and Ben Powell.

Lots of interesting chapters by great folks, including DOLers such as Larry White and myself. Table of comments below the fold. (Update: Sorry Larry, wrong Larry White).

Read More »

Posted by Joshua Hall at 11:23 AM in Economics

September 03, 2009

George Leef:

I strongly suspect that Obama’s decision to “reform” American health care by thoroughly politicizing it will become his Spain — a short-run victory that will in the long run prove disastrous for him.
Posted by E. Frank Stephenson at 10:55 AM

September 02, 2009
Cavalcade of Miscellany: Office-Cleaning Edition

Deirdre McCloskey suggests that the active scholar should "clean up in a dull moment." Here are a few tidbits from a dull moment cleaning up files and catching up on reading:

1. "Economics is about constructing a coherent, consistent worldview. It's about asking (and knowing how to answer) the right questions." Scribbled on a post-it note, to be used to motivate the study of economics.

2. Robin Hanson discusses the charitable activities of a recently-deceased entrepreneur and illustrates nicely how economists are the wet blankets of the world. I agree with him 100%, of course, but unfortunately this argument tends to meet with a lot of resistance.

3. Here's another paper I look forward to reading. Neal McCluskey examines "How Public Schools Cause Social Conflict."

4. I still owe someone something for the best efficiency-based argument for why they shouldn't subsidize my car payment. I got a few contest submissions, but no donations.

5. I think this is from Tim Harford's The Undercover Economist; it was in some old econ 101 notes on sustainability, recycling, and opportunity cost: "there is a good deal more to life...than British Thermal Units."

Posted by Art Carden at 05:07 PM in Economics

If It Keeps Them Busy

Connecticut legislators play solitaire during a legislative session.

HT to Justin Ross for the meme

Posted by E. Frank Stephenson at 04:38 PM

Government Schooling as Indoctrination

President Obama's upcoming teleprompter reading to all the government school kiddies in the land brings to mind John Lott's 1999 JPE paper on government schooling and indoctrination. Ungated version here; abstract:

Governments use public education and public ownership of schools and the media to control the information that their citizens receive. More totalitarian governments as well as those with larger wealth transfers make greater investments in publicly controlled information. This finding is borne out from cross sectional time-series evidence across countries, and is confirmed when specifically examining the recent fall of communism. My results reject the standard public good's view linking education and democracy, and I find evidence that public educational expenditures vary in similar ways to government ownership of television stations.
Posted by E. Frank Stephenson at 04:32 PM

Check the Numbers, Dude

Earlier today I sent this letter to the WSJ:

AARP’s John Rother (Letters, Sept. 2) claims it is “troublesome” that Social Security recipients will receive no cost of living increase this year because prescription drugs and other items “far surpass inflation.”

This assertion is incorrect, at least for the two most recent years. In 2007, overall inflation was 2.85% while prescription drug inflation was 1.44%, and in 2008 overall inflation was 3.84% while prescription drug inflation was 2.47%.

It’s also worth noting that Wal-Mart, a “public option” offering “always low prices” via its $4 prescription program, and competitors such as Kroger copying the low price prescription program are likely responsible for the lower than overall average inflation rate for prescription drugs.

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

Rother's letter is here. See also this post on Carpe Diem.

Posted by E. Frank Stephenson at 03:38 PM in Economics

Myth of the Rational Voter

Here's the abstract of an interesting looking paper:

Do voters effectively hold elected officials accountable for policy decisions? Using data on natural disasters, government spending, and election returns, we show that voters reward the incumbent presidential party for delivering disaster relief spending, but not for investing in disaster preparedness spending. These inconsistencies distort the incentives of public officials, leading the government to underinvest in disaster preparedness, thereby causing substantial public welfare losses. We estimate that $1 spent on preparedness is worth about $15 in terms of the future damage it mitigates. By estimating both the determinants of policy decisions and the consequences of those policies, we provide more complete evidence about citizen competence and government accountability.
Posted by E. Frank Stephenson at 03:34 PM in Economics

Congratulations, Bryan Caplan

Congratulations are in order for the Caplans: young Simon Caplan was born today.

Posted by Art Carden at 03:33 PM in Misc.

Terminology, Part 3

Let's take a quick swipe another piece of statist terminology--today's entry is "cost sharing" which is simply a word for using the tax or regulatory powers of government to compel one person to provide a benefit for another. "Cost sharing" or the similar formulation "share the cost," in other words, is simply a polite term for confication or redistribution. Expect to find it in the same sentence as "by the more fortunate" or "by the wealthy."

Previous terminology posts here.

Posted by E. Frank Stephenson at 03:30 PM

More on the Ohio CAT

The Ohio Supreme Court heard arguments yesterday on dispute between the Ohio Grocer's Association (OGA) and the state regarding the state's Commerical Activities Tax (CAT). The CAT is a tax on a firm's gross receipts.

The state says this is a "tax on the privilege of doing business in the state" and I (as the expert witness for the OGA) say it's effectively identical to a sales tax. The state's constitution expressly forbids any sales taxation on food so if we're correct, the CAT is unconstitutional as it applies to food.

The state won at the trial court level, but the grocers won on appeal, so here we are.

I am pretty sure we're going to lose in the end for two reasons. (1) Lawyers live is a strange world and they will probably contort themselves in to seeing the minor administrative differences between the CAT and sales taxes as being important enough to declare the CAT not to be a sales tax. I have been simply amazed at the ridiculous "yea buts" they have raised as they try to differentiate a gross receipts tax from a sales tax. (2) Several hundred million tax dollars are on the line and I can't imagine the elected Ohio Supreme Court putting the legislature in a budgetary bind on this scale especially during this recession.

I have a paper on this case with DoL buddy Frank submitted to a journal, but here's the question for you academic economists out there. What do you think?

Economically speaking, is a tax on a firm's gross receipts functionally the same as a sales tax? If not, why not?

Email me at rlawson at auburn dot edu.

Posted by Robert Lawson at 03:26 PM in Economics

Oh, the Places You'll Go

It's a different world (HT: Grant Monda):

Here's Ray Kurzweil on technology:

Posted by Art Carden at 02:22 PM

What are my Google Reader Feeds?

A conversation with a friend sparked me to go ahead and list everything that's in my Google Reader feed (83 unread items as of right now). I keep up with the following:

Academic & Policy Blogs: Marginal Revolution, Division of Labour, Cafe Hayek, Greg Mankiw, Dani Rodrik, EconLog, The Austrian Economists, Mike Hammock, the Becker-Posner Blog, Arts & Letters Daily, Freakonomics, Organizations & Markets, Will Wilkinson, LewRockwell.com, Cato Unbound, EconTalk, Grant McCracken, Mises Daily, ThinkMarkets, SSRN feeds from Lant Pritchett, Daron Acemoglu, and Dani Rodrik, FEE Podcasts, The Beacon (Independent Institute), ReadMoreWriteMoreThinkMoreBeMore (a colleague in the philosophy department), Mises Institute Media, Aguanomics, Aid Watch, Cato Weekly Video, IHS Ceteris Paribus (students from "Liberty & Society" over the summer), Economic Perspectives from Kansas City, Education & Liberty, NBER Working Papers, Economix (NY Times Economics blog), Overcoming Bias, The Agitator (Radley Balko), The Perfect Substitute, the Sociological Imagination, Free Association (Sheldon Richman), Kids Prefer Cheese, The Knowledge Problem, the Market Process Blog (Peter Calcagno), The Atlantic Business Channel, The Economic Way of Thinking. I also subscribe to a lot of working papers series and journal table of contents updates via email.

Rhodes: Rhodes News, The Dean's Blog

Religion: Marc Driscoll, but I haven't listened in a long time.

Productivity: Lifehacker.com, Lifehack.org, David Allen Company, Jason Womack, Tim Ferriss.

Humor & the Arts: Piled Higher and Deeper (PhDComics.com), XKCD.com, Dracula.

Am I missing anything? Have any suggestions?

Posted by Art Carden at 10:07 AM in Economics

To guarantee or not guarantee? That is the question.

In my disgust at the Cincinnati Bengals Bungals latest draft choice debacle, a question occured to me.

Andre Smith, the team's number one pick fat lazy bum from that school in Tuscaloosa, had some $21 million of his $42 million contract guaranteed. Whilst not uncommon for top NFL draft picks to have some guaranteed money, most NFL player contracts do not have much if any guaranteed cash. For the typical NFL player, if you get hurt and don't play, you don't get paid.

In contrast almost all MLB player contracts are fully guaranteed. Players can get paid for years even after career-ending injuries.

My question is why the difference? In football the risk of injury is largely borne by the players, while in baseball by the owners.

Is this because baseball is less risky and players have longer average/median longevities (I don't even know if this is true)? Is it because evaluating baseball talent is easier than football talent? Is it because of differences in the bargaining strengths between the respective leagues and players' unions? Is is just some kind of random path dependency?

Comments open (for a short time only).

Posted by Robert Lawson at 09:58 AM in Sports  ·  Comments (5)

September 01, 2009
Stuff We Can Stop Subsidizing

For all of our disagreements, I would like to think that pretty much everyone would agree that redistributing resources from poor people to rich people is a bad idea. With this in mind, I suggest that we stop subsidizing most food- and travel-related public television shows. While it could be argued that this provides "vicarious travel" for the poor, I'm guessing that the median income of people who are helped by tips on which out-of-the-way Italian villages have the best prosciutto and which high-end restaurants in Mexico City offer the best Mexican/Asian fusion is higher than the median income of people who are paying for those tips.

Posted by Art Carden at 08:15 PM in Economics

On downward sloping demand curves c. 1909

The Sept. 1, 1909 NYT publishes the following letter to the editor which would make a good discussion piece in a microeconomics principles class:

The reason of poor business at Coney Island is that the hotel keepers have boosted their prices so high that eating down there is prohibitive. The crowds have been larger there this Summer than ever, but they have spent less money, and the hotel restaurant keepers are to blame. The public cannot pay 50 cents for roast beef and 50 cents for bathing suits. Hotel keepers have killed the goose with the golden egg, and they alone are to blame if the public bring their lunches. Coney Island is fast becoming a resort for the wealthy only.
In how many ways is the letter writer potentially correct and in how many ways is the letter writer potentially incorrect?

Read More »

Posted by Craig Depken at 03:57 PM in Economics  ·  Comments (0)

On "city" hospitals c. 1909

I am not sure what a "city hospital" was in New York City in 1909, however the Sept. 1, 1909 NYT prints the following letter to the editor:

In one of our city hospitals there are as many as 400 people attending the clinic every day. At the entrance of this clinic there stands a water cooler with one cup; there is no way provided for the proper cleansing of this cup, and men, women, and children use the same, some of whom are suffering from tuberculosis, syphilis, cancer, ulcerated mouths, and other infectious diseases. If the city cannot provide paper cups that can be destroyed, or washed, sterilized, and used again, would it not be wise to remove the cooler?

Most of the people are ignorant of their danger. Are the doctors who are fighting these dread diseases carelessly ignorant, or are those in authority criminally negligent?

Posted by Craig Depken at 03:41 PM in Misc.

"So I Guess Social Norms Didn't Protect Your Lunch Today."

That's what our student worker (an economic history student) said when I returned from lunch. In economic history, we had discussed the role of social norms in constraining opportunistic behavior, and I discovered after class that someone from our department mistakenly took my lunch today. I was made whole: social norms provided me with my co-worker's lunch, which was similar in quality and composition.

Advantage: students.

Posted by Art Carden at 01:59 PM in Economics

Afternoon Industrial Organization: Monopoly

Bryan Caplan asks where monopoly power comes from. I would follow this with another question: is the standard textbook account a result of intellectual path dependence--the hangover of 1950s-ish theories of market power combined with the fact that it's easy to teach and test? Here are a couple of links of interest:

1. A claim that MySpace is a natural monopoly.

2. A claim that Facebook is a natural monopoly.

3. A claim that Twitter is a natural monopoly.

4. Google search results for The Boy Who Cried Wolf.

5. Discussion of whether the DOJ will go after Google; after all, they're a natural monopoly.

Posted by Art Carden at 11:52 AM in Economics

Economic History, 9/1/09

We're discussing chapters 1-6 of Structure and Change in Economic History and will discuss chapters 1-9 on Thursday, 9/3/09. Students should also watch Hans Rosling's first TED Talk, and I encourage everyone to watch his other three TED talks of time allows. Useful resources on teh interwebs include EconTalk, Economic History Services, TED, the Mises Institute, and Division of Labour.

Here are the questions we will consider on Thursday:

1. What was the First Economic Revolution? Why was it revolutionary, and what were its consequences?

2. Why does agriculture require "a much more complicated social and economic organization?"

3. What are the key similarities and differences between the ancient societies discussed in chapters 8 and 9?

4. What do North and Rosling tell us about the world today, both in terms of explanation (how we got here), prediction (where we're going), and policy prescription (how to get where we'd like to be)?

Posted by Art Carden at 11:38 AM

Towards a Theory of Gustatory Preferences

A good friend spent August teaching in Vietnam. He told me the story of his guide eating the Vietnamese version of balut—soft-boiled embryonic duck still in the shell—with evident enjoyment, which quite put him off of his feed. The next day, she gagged and couldn’t finish her slice of meat lover’s pizza at Pizza Inn. This got me thinking of gustatory preferences.

In many societies of Europe, Africa, and western Asia, the process of income development seems to be related to changes in diet. We become pickier about our protein. Specifically, as income rises, many people eat less offal, connective tissue, skin, bones, and blood. Yet this seems not to have happened in east and south-east Asia. Why not? Honduras and Vietnam all have similar income, but consider the differences between Honduran preferences regarding protein and Vietnamese preferences. Income per capita in Guatemala and Jordan is about $1000 per year less than in China, in the $300-$500 per year area. Guatemalan and Jordanian protein preferences are similar, and run toward muscle tissue of a limited number of animals; which is not true of Chinese preferences. I realize that American food preferences are particularly narrowly circumscribed, but that’s not my question. I’m not concerned about the few “cultural heritage” food remnants that persist, such as haggis or lutefisk. I’m asking why lunch counter foods in Tegucigalpa, Atlanta, and Amman are so different from lunch counter foods in Hong Kong, Hanoi, and Manila.

I’m very dissatisfied with the answer, “It’s because of cultural differences.” I don’t like black boxes that explain everything. Besides, that not an answer, that’s just pushing the question back one step further.

To spare our software’s capabilities, comments are NOT open, but interested readers may email me any trenchant, insightful analysis at: noelecon@gmail.com I may share the good ones with everyone.

Posted by Noel Campbell at 10:53 AM

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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