Division of Labour: October 2009 Archives
October 31, 2009
Cavalcade of Miscellany: Overcoming Bias in College Football Edition

1. I <3 the modern world: blogging from the front porch, passing out candy to trick-or-treaters. FWIW, Starburst "GummiBursts" are pretty good. Shannon chose our Halloween candy well. We also have bite-size Snickers, 3 Musketeers, and Milky Way bars. My prior is that due the complex array of subsidies in agriculture, junk food is much cheaper than it would be in an unregulated market.

2. I'm a big fan of Robin Hanson's blogging at Overcoming Bias, and I think there's an excellent opportunity to learn a lot about bias by studying college sports and, in particular, sports coverage. An announcer just said something about USC being the "best one-loss team in the country," and my question is "by what standard?" Judging from the quality of the loss, they aren't even the best one-loss team in their own conference (Oregon lost to unbeaten Boise State and USC lost to 3-5 Washington, but they're about to settle this on the field). Since there's so much randomness in sports, team superiority isn't transitive. Houston beat Oklahoma State and UTEP beat Houston, but I'm pretty sure UTEP isn't better than Oklahoma State.

I trust rankings like Matt Ryan's Gus Rankings and Sagarin/ELO-CHESS a lot more because while they aren't perfect, they rank teams according to their on-the-field performance rather than their brand name, and they consider an entire season worth of information rather than one game. According to the Week 8 Gus rankings, Iowa is #1. No argument there, the Northern Iowa game notwithstanding. The Gus Rankings also suggest that Oregon is the best one-loss team in the country--and that Oregon is better than Boise State based on the quality of the teams they've vanquished. USC is #13 and the sixth-best one-loss team in the country, with two-loss Virginia Tech and two-loss Ohio State ahead of them.

Obviously, there's no perfect way to do this, but if I had a vote in the polls I would use the Gus rankings or something similar to cast my ballot.

Posted by Art Carden at 07:38 PM in Sports

Sentence of the Day

I know I should grade these papers, but I can't tear myself away from teh interwebs or the Twilight Zone Championship Game (aka Iowa-Indiana). Here's the Mises Institute's Jeffrey Tucker:

"Unlike at Christmas, where kids must only be good little citizens all year in order to be showered with gifts from their beneficent Guardians, at Halloween, kids must actually work in real time for their candy."

FWIW, Jeff is one of my favorite thinkers on 21st century education, and not just because he publishes a lot of my articles. Here's his Mises.org media archive; one of my favorites is his talk "Dissident Publishing: Then and Now."

Posted by Art Carden at 03:13 PM in Misc.

Mises versus Minsky

John Authers of the Financial Times on the ideological core of the debate over financial regulation.

HT: John Cochran

Posted by Lawrence H. White at 02:08 PM in Economics

Soros in Budapest, Roger Garrison at Rhodes

Blogging: it's the perfect distraction when a stack of ungraded papers is staring at you.

Commentary has been circulating about the founding of the Institute for New Economic Thinking, which is being funded in part by George Soros. Here, for example, is Michael Giberson, and here is Michael Hirsh's Newsweek story on which Giberson is commenting. Hirsh argues that the "market-skeptic school" was "marginalized during the era of 'free-market fundamentalism.'" Laying aside for a second the fact that "free-market fundamentalism" is hardly an apt description of the policies most economists endorse--to say nothing of the policies that actually get implemented--a quick scan of the INET Advisory Board puts me with Giberson. At the risk of being cheeky, I wasn't aware that Berkeley, Cambridge, Stanford, Columbia, Princeton, the LSE, NYU, Oxford, UCLA, Harvard, the Central Bank of India, and the Bank of International Settlements constituted the neglected and shunned outer darkness of the economics profession--nor was I aware that the Times of London and the Financial Times were publications bereft of influence because they are neglected by the mainstream.

To the Institute's credit, two members of the Advisory Board are at institutions with clear non-mainstream bona fides (the New School and UMass-Boston), but that's only two out of 22 Advisory Board members. It's a little like a radio station calling itself an "Indie Rock Alternative" and then playing at least one U2 song every fifteen minutes. It would be a much more credible challenge to the mainstream, I think, if Soros had stocked the Advisory Board with economists from (say) the University of Missouri-Kansas City (here's their blog) or endowed a research center named after Hyman Minsky.

In their defense, they have a very good point: mainstream economics is at a loss to explain why, exactly, the crisis happened, and we need to broaden the economic conversation a little bit (actually, a lot bit). Enter Austrian business cycle theory, which did predict and can explain the crisis in terms of central bank policy errors. One of the leading thinkers in the Austrian tradition is visiting Rhodes this week. On Thursday evening at 7:00 in Barret Library, Roger Garrison will give a lecture on business cycle theory and the Great Depression. To tide you over until then, here's Garrison's Mises University lecture on the Austrian Theory of the Trade Cycle.

Posted by Art Carden at 02:05 PM in Economics

What I've Been Writing Lately: Comment on Leeson

Here's a draft of my comment on Peter Leeson's The Invisible Hook, which I'm presenting in a symposium on the book at the Southern Economic Association meetings in San Antonio on November 23. The abstract:

"In The Invisible Hook, Peter T. Leeson explores “the hidden economics of pirates.” The implications of his work are many, and there are several clear ways in which scholars can build on his insights. First, exploring piracy helps us better understand the rent-seeking societies of mercantilist Europe. Second, public and private policy toward pirates helps us better understand the institutions and organizations that emerge in order to govern and manage common resources. Third, the nearly universal condemnation of pirates by religious authorities and political leaders as well as the association of pirates with the demonic and Satanic suggests further directions for research into the interactions between ideology, politics, and economic institutions."

Posted by Art Carden at 11:48 AM

Funny or Serious? Quotes from the Morning Paper

From this morning's Commercial Appeal, here's an editorial entitled "Voters deserve more than this." Here's a key passage:

Whether Herenton is guilty of a federal offense or not, a comparison of his performance as the city's chief executive for 17½ years, compared to Cohen's performance as a state and federal legislator for 27 years, should be the primary issue.

If the editorial writer is trying to be funny, this is hilarious. If the editorial writer is trying to be serious, this is terrifying.

Posted by Art Carden at 08:48 AM in Economics

October 30, 2009
La Tragédie de la Bicyclette

I spent this afternoon giving a tragedy of the schwinn talk to some homeschoolers in Chattanooga and--deja vu--I see this in the NYT:

But this latest French utopia has met a prosaic reality: Many of the specially designed bikes, which cost $3,500 each, are showing up on black markets in Eastern Europe and northern Africa. Many others are being spirited away for urban joy rides, then ditched by roadsides, their wheels bent and tires stripped.

With 80 percent of the initial 20,600 bicycles stolen or damaged, the program’s organizers have had to hire several hundred people just to fix them. And along with the dent in the city-subsidized budget has been a blow to the Parisian psyche.

Thanks to JC for the pointer.

Posted by E. Frank Stephenson at 11:41 PM in Economics

Paragraph of the Day, So Far

Here's co-blogger Mike Munger on the most recent GDP report:

"But all the increase is in G, financed by the increased deficit. It's fake. It's not real growth. It's just shifting money from taxpayers tomorrow into Obama's approval rating today."

Posted by Art Carden at 01:26 PM in Economics

October 29, 2009
We all find our equilibrium price one leg at a time

The Gray Lady's Fashion & Style section reminisces about the bygone days of ultra spendy jeans.

But the denim bubble has burst, and only a handful of such extravagantly priced jeans remain at the jeans bar — labels like PRPS and 45rpm, which, in tacit acknowledgment of the decline of the premium business, are now more often referred to as “artisanal” jeans. Meanwhile, the sweet spot for designer jeans has relocated to a neighborhood just below $200, even though the styles do not look substantially different from the $300 jeans that were on the sales floors of Barneys New York and Bloomingdale’s only two years ago.

“The key price is under $200 now,” said Eric Jennings, the men’s fashion director at Saks Fifth Avenue. “The superexpensive stuff is not performing as well.”

The story suggests it's not just the business cycle decreasing demand for status goods. Competitors are figuring out ways to deliver similar materials and designs for less.

Now designers are facing pressure from stores and from their competitors to rethink prices, in many cases resulting in less expensive jeans or more styles at the lower end of each designer’s range. It has not gone unnoticed by executives behind the great denim rush of 2005 that even mainstream retailers like Gap and J. Crew have caught on to the appeal of Japanese denim, whisker treatments and fading details, and that they are now produce comparable premium-look jeans that cost around $60. Banana Republic has a new denim line coming in January.

There are more interesting tid bits of applied micro in the article. I find the apparel industry is interesting on many levels.

Posted by Edward J. Lopez at 10:24 AM in Economics

October 27, 2009
Rule of Law versus Rule of Central Bankers

I gave the keynote address at the Economic Freedom Network Asia annual conference in Cambodia earlier this month, on the topic "Avoiding and Resolving Financial Crises: The Rule of Law or the Rule of Central Bankers?". The text of the talk is now available in pdf on the EFN-Asia website here. Comments are welcome (email me privately) as I think about turning it into a publishable paper.

Here are some excerpts:

At the core of the “rule of law” concept, as I understand it, is the liberal principle of non-discretionary governance that stands in contrast to the arbitrary or discretionary rule of men in authority. In shorthand, a political community faces a choice: either “the rule of law” or “the rule of men”. ...

Central bankers today are discretionary rulers over the economy’s monetary and financial institutions. Defenders of the rule of law, who in general decry the arbitrary rule of men, should specifically decry the rule of central bankers. Central bankers today are not “slaves of the law” but exercise wide discretion in monetary policy and regulatory rulemaking under the legislation that created and empowered the central bank. ...

In their policies for addressing the current crisis, central bankers ... and
Treasury ministers have been unorthodox and undeniably arbitrary, bestowing favors on some firms and burdens on others.

Posted by Lawrence H. White at 11:19 PM in Economics

Steve Horwitz Talks at Berry

Former students and local DOL readers might want to join us tonight and tomorrow night for lectures by St. Lawrence University's Steve Horwitz. Tonight's topic is "The Great Depression as Government Failure: What Your High School History Course Didn’t Teach You" and tomorrow night's topic is "Wal-Mart to the Rescue: Private Enterprise’s Response to Hurricane Katrina." Both lectures will be in the Evans Auditorium at 7 p.m.

Posted by E. Frank Stephenson at 09:40 AM

October 26, 2009
Fictional Character Quote of the Day

Call me a killjoy, but I think that because this is not to my taste, no one else should be able to enjoy it.

-Marge Simpson on Ultimate Punching.

Posted by Art Carden at 12:39 PM in Funny Stuff

Large Changes in Fiscal Policy: Taxes Versus Spending

A new NBER WP by Alesina and Ardagna:

We examine the evidence on episodes of large stances in fiscal policy, both in cases of fiscal stimuli and in that of fiscal adjustments in OECD countries from 1970 to 2007. Fiscal stimuli based upon tax cuts are more likely to increase growth than those based upon spending increases. As for fiscal adjustments, those based upon spending cuts and no tax increases are more likely to reduce deficits and debt over GDP ratios than those based upon tax increases. In addition, adjustments on the spending side rather than on the tax side are less likely to create recessions. We confirm these results with simple regression analysis.
Posted by E. Frank Stephenson at 08:35 AM in Economics

October 25, 2009
The People's Romance and The Census

Here's an excellent post from Jim Fedako on the Census's programming for schools. Here's Daniel Klein on The People's Romance.

Speaking of which, some surprising responses to my recent Mises.org article on tire tariffs have gotten me interested in the narrative of "national greatness" in the last few weeks. Some of the comments on the Mises Blog and some of the emails people have sent suggest that somehow our "national greatness" is diminished by free trade. I must confess that I'm at a loss for how overpaying for tires is an exercise in historically meaningful national virtue.

So what's to be done about it? Here's Robert Frank on economics education.

Posted by Art Carden at 08:29 AM in Economics

October 24, 2009
Moral Hazard in National Parks

My stellar student Shawn Regan alerts me to this tidbit:

On the evening of September 23rd, rangers began a search for hikers who repeatedly activated their rented SPOT satellite tracking device. The GEOS Emergency Response Center in Houston reported that someone in the group of four hikers – two men and their two teenaged sons – had pressed the “help” button on their SPOT unit. The coordinates for the signal placed the group in a remote section of the park, most likely on the challenging Royal Arch loop. Due to darkness and the remoteness of the location, rangers were unable to reach them via helicopter until the following morning. When found, they’d moved about a mile and a half to a water source. They declined rescue, as they’d activated the device due to their lack of water. Later that same evening, the same SPOT device was again activated, this time using the “911” button. Coordinates placed them less than a quarter mile from the spot where searchers had found them that morning. Once again, nightfall prevented a response by park helicopter, so an Arizona DPS helicopter whose crew utilized night vision goggles was brought in. They found that the members of the group were concerned about possible dehydration because the water they’d found tasted salty, but no actual emergency existed. The helicopter crew declined their request for a night evacuation, but provided them with water before departing. On the following morning, another SPOT “help” activation came in from the group. This time they were flown out by park helicopter. All four refused medical assessment or treatment. The group’s leader had reportedly hiked once at the Grand Canyon; the other adult had no Grand Canyon and very little backpacking experience. When asked what they would have done without the SPOT device, the leader stated, “We would have never attempted this hike.” The group leader was issued a citation for creating a hazardous condition (36 CFR 2.34(a)(4)).

This is a great example of J.R. Clark and Dwight Lee's rescue laffer curves.

Posted by E. Frank Stephenson at 10:01 PM in Economics

October 23, 2009
File Under "Econ 101 Notes: Price Controls"

Here are questions 1c and 1d from Econ 101 Midterm #1, administered on October 8:

c. People have debated whether the federal government should control executive pay. Use a supply and demand diagram to explain how binding controls would affect the market for executives.


d. Does the price control increase or decrease the efficiency of the market? How do you know? How might market participants circumvent the controls?

Here's a headline from yesterday's Wall Street Journal: "Pay Czar to Slash Compensation at Seven Firms."

I realize that these are firms that have gotten enormous sums from the Banking Sector Unification Plan, but it isn't clear to me how one can get strong economic performance by further distorting the market for executive talent. Wasn't the goal all along to make sure that these firms stay afloat? How do the feds plan to do this after all the talent jumps ship? Or maybe--just maybe--they should have been allowed to go bankrupt to begin with.

Posted by Art Carden at 03:24 PM in Economics

October 22, 2009
Best... Sentence... Ever...

Thus gem is from Anne Flaherty at the AP:

Congress wants another government regulator to cut through the red tape and protect your pocketbook.

...for the WIN! Wow! If anyone out there is currently preparing an undergraduate Public Choice class for the Spring, I think it would be a relatively simple matter to plan 16 weeks of lecture and readings around this one, simple sentence. You know, start every lecture with this sentence as the opening PowerPoint slide, with different words highlighted to indicate the day's lecture.

As always, my question for Ms. Flaherty and similar purveyors of journalistic excellence is to what extent is she a "true believer," and to what extent is she a knowing shill?

Here is the sentence in its natural habitat

Posted by Noel Campbell at 06:46 PM

October 21, 2009
Inflation, Institutional Decay, and the Evolution of a Cliche

1969: "Good intentions and a quarter will get you a cup of coffee."

1989: "Good intentions and a dollar will get you a cup of coffee."

2009: "Good intentions and two dollars will get you a cup of coffee."

2029: "Good intentions, twenty dollars, the appropriate ration stamps, two copies of form Z-49a, two forms of photo ID, and an afternoon in line at the Bureau will get you a cup of coffee."

Posted by Art Carden at 01:22 PM in Economics

Long Weekend in La Jolla

I was lucky enough to get a coveted invitation to a Liberty Fund Colloquium. It's this Thursday through Sunday at a seaside hotel in La Jolla, California. I'll spend my time hobnobbing with Vernon Smith, Ed Lopez, Ben Powell, Pete Boettke, Catherine Eckel, Robert Higgs, Barkley Rosser, and Bonnie Wilson. I'll drink a beer, smoke a cigar, and watch the sun set over the So-Cal Pacific Ocen with Social Distortion on the iPod. And this is all on someone else's dime!

Don't you wish you were me?

Posted by Noel Campbell at 11:08 AM

Can You Hook Me Up? Drug Legalization Bleg

On Sunday, I'm speaking to a church group on the economics of drug legalization. Most of my arguments will rely on Mark Thornton's The Economics of Prohibition, the recent IEA book on prohibition edited by John Meadowcroft, and the 1996 Miron & Zweibel paper on the economics of prohibition. If you have any other reading suggestions, please let me know. Comprehensive links are forthcoming.

Posted by Art Carden at 09:47 AM in Economics

October 20, 2009
Mrs. Carden's Food Blog

My wife is chronicling her experiments in the kitchen on an interesting new food blog.

Posted by Art Carden at 09:48 PM in Economics

The Onion on Aid Policy

Someday, I plan to write a book called Onionomics, which will look at basic economic principles through the eyes of Onion articles and videos. This video will be featured prominently in the chapter on foreign aid and signaling.


How Can We Raise Awareness In Darfur Of How Much We're Doing For Them?

Posted by Art Carden at 11:34 AM in Economics

Vaccines and Transplants

A podcast....on EconTalk.

...in which I make the (to my mind, ENTIRELY self-evident) claim that the optimal rate of infant mortality is positive, possibly substantially so.

Posted by Michael Munger at 10:38 AM in Economics

October 19, 2009
They Allowed This on PBS?! (updated)

HT: Tom Woods.

Update: Steve Horwitz reminds me that he is guest-blogging for PBS's Nightly Business Report. So what does PBS stand for now? Praxeology Broadcasting Station? I'm expecting Ashton Kutcher to fling my office door open and explain that I've been punk'd.

Posted by Art Carden at 11:51 PM in Politics

The Hazards of Working with Youth

Today's topic was nominal GDP vs. real GDP. I went through the general explanation and a simple example calculation. Then I wrote on the board 1970 nominal GDP and 2008 nominal GDP and calculated the growth rate. I said, "But this may not be a truly accurate comparison. Why not? What significant event did we experience from the mid-70s to the mid-80s? You probably didn't live it, but you know about it."

Dead silence. Finally, a girl in the back declares, "VietNam!"

Heavy sigh, for so many reasons.

Posted by Noel Campbell at 01:03 PM

Rhodes Barbeque Seminar Blog

Here's the official blog of the Rhodes College Barbeque Seminar, organized by mathematician and voting theorist Eric Gottlieb. Our first outing (to Payne's) was successful. I still owe Eric money, so this is my credible commitment to pay him plus interest ASAP.

Posted by Art Carden at 12:15 PM in Economics

Blaming Fee for Service

Yesterday I sent this letter to The Economist in response to this leader:

SIR -- In your leader on American health care ("What a waste", October 17th) you opine that the "worst flaw in the Finance Committee's bill is its failure to address the ["fee-for-service"] way that providers of health care are paid."

You misdiagnose the problem. Every day, millions of "fee-for-service" transactions occur for hair cuts, auto repairs, and other services, and all of these markets function reasonbly well. Health care is different, however, because the "fee-for-service" is paid by a third party such as Medicare or a health insurance company. Hence, both buyers and sellers are, as you say, "unconstrained either by medical necessity or value for money." With neither side of the health care market directly bearing the cost of the services provided, both are willing to exchange the medical equivalent of filet mignon when they'd exchange only a sirloin in the absence of a third party payer.

E. Frank Stephenson
Professor of Economics
Berry College
Rome, Ga.

Don Boudreaux makes the same point in this column; see also Vernon Smith's piece in the WSJ. The steak metaphor comes from Russ Roberts.

Posted by E. Frank Stephenson at 11:45 AM in Economics

Stimulating Go Fish Georgia?

Stimulus is the real voodoo economics so on Friday I sent this letter to the AJC:

You report (Oct. 15) that “Georgia says stimulus funds created or saved more than 23,000 jobs” and that 12,923 of the jobs were retained. The difference, a bit more than 10,000 jobs, would then have been created. Some 9,000 of those folks must have taken Gov. Perdue’s advice to “Go Fish Georgia” and been unable to be counted by the federal government because the national recovery.gov website reports that only 1,046 jobs have been created in Georgia. Even that estimate is likely to be on the high side because federal government officials have an incentive to make the stimulus look as effective as possible and because recovery.gov ignores any offsetting job losses arising from the increased deficit and the concomitant higher future taxes.

E. Frank Stephenson
Professor of Economics
Berry College
Rome Ga.

I was responding to this article; here's the recovery.gov website.

Posted by E. Frank Stephenson at 11:26 AM in Economics

Marginal Analysis Misses a Foothold at the TSA

This is a reasonably accurate depiction of my internal monologue every time I go through airport security, though I didn't know that about laptop batteries:

bag_check.png

Posted by Art Carden at 10:12 AM in Economics

October 18, 2009
Michael Moore never met a strawman he didn't like

Sheldon Richman on Michael Moore's "Capitalism"

To the extent that intervention hampers competition by erecting barriers to entry — which is the usual effect, intended or not — protected firms are free to charge higher prices and reap more profits than would have been the case in an open market. Corporate power and privilege derive from political power and can’t exist without it. In contrast to existing capitalism, the truly free market would have no legal barriers to competitive entry, assuring that prices and returns are economically justified and not the fruits of privilege.

What would Moore think about a system in which no one could collude with politicians to legally plunder the rest of us for their own benefit and everyone was free to enter into any cooperative arrangements to produce and offer goods to others in voluntary exchange? Michael, that’s the free market!

Posted by Edward J. Lopez at 11:59 PM in Economics

October 16, 2009
Nothing Succeeds Like Political Failure

Check out Dwight Lee's column in today's Investors Business Daily, for a double shot of public choice and wry humor.

Posted by Mike DeBow at 11:55 PM in Economics ~ in Politics

I Buy Stuff: The Mises Silver Coin

I bought ten of these last week. I'm keeping some of them and will probably give a few away as gifts (nothing says "Merry Christmas" like honest money bearing the visage of Ludwig von Mises). One is currently in my office, propped up against a chunk of the Berlin Wall. Tu Ne Cede Malis, indeed.

FTC-Mandated Disclaimer: I have in the past received valuable consideration from the Mises Institute in exchange for writing and speaking, but they did not pay me to endorse this product.

Cross-Posted at the Mises Blog.

Posted by Art Carden at 05:24 PM in Economics

The Indentured Servitude Czar

From today's WSJ:

The Treasury Department's pay czar pushed outgoing Bank of America Corp. Chief Executive Kenneth D. Lewis into giving back about $1 million he received so far this year and forgoing the rest of his $1.5 million salary for 2009, say people familiar with the matter.

Translation--the pay czar has just confiscated Mr. Lewis's 2009 pay or coerced him into returning it to BOA. He'll get nada, zip, zero for the year--no bonus either.

I guess minimum wage laws, which should be abolished, only apply to workers who aren't having their arms twisted by one of Obama's minions.

Posted by E. Frank Stephenson at 04:02 PM

What I've Been Writing Lately: Opportunity Cost of Voting Edition

At Forbes.com, I argue that we should repeal the minimum wage.

Posted by Art Carden at 02:55 PM in Economics

A Consulting Opportunity for Pete Leeson?

Downtown Atlanta could get pirate museum

Posted by E. Frank Stephenson at 01:50 PM

Nye on Williamson & Ostrom

I'm a slow blogger these days, sorry. But I want to highlight John Nye's short piece for Forbes.com on the recent Nobel. First, money quote on Oliver Williamson

When firms and suppliers have to make large-scale, highly contract-specific investments, naive notions of market competition and competitive exchange get thrown out the window.... [This] helps us understand how we went from a world 50 years ago in which General Motors was the paradigmatic large firm for its ability to manage multiple subunits and hold large inventories to the modern world where Wal-Mart ( WMT - news - people ) is lauded not for producing in-house but for managing a complex network of competing suppliers worldwide under restrictive contracts.

And Elinor Ostrom:

But as Elinor has demonstrated, ham-fisted reforms that attempt to bring the illusion of modernity to the developing world by a naive adoption of Western best-practice laws without the structures that support and enforce those rules often leads to a destruction of indigenous practice that works reasonably well without substituting a functioning and reliable market of impersonal exchange. Much of the disaster that is foreign aid can be tied to the blunt importation of best-practice rules without understanding how their implementation interacts with existing practice.
Posted by Edward J. Lopez at 01:49 PM in Economics

Conservative Magazines and Liberty

Dan Klein and Jason Briggeman have a fantastic piece in the latest issue of The Independent Review. Here's the abstract:

More often than not, National Review, The Weekly Standard, The American Spectator, and the now-defunct American Enterprise have failed to oppose government intrusion into America’s bedrooms, gambling places, and drug activities. Whatever political principles these leading conservative magazines have espoused, the presumption of liberty is not among them.

Since the mags (esp. The Weekly Standard) aren't always consistent defenders of small government and economic freedom, the Klein/Briggeman piece reminded me of a letter I sent to the WSJ about 10 days ago:

Irwin Stelzer ("Notable & Quotable" Oct. 5) contends that workers "relieved ... of credit card terms that are excessively onerous, and helped to retain ... their homes" is an indication that market capitalism has not collapsed in the current recession.

One of the fundamental underpinnings of market capitalism is contract law; the expectation that contracts will be honored or altered according to the established doctrines of contract law is what makes credit card and mortgage lenders willing to make credit available to borrowers. If the current crisis has led borrowers and lenders to mutually agreeable contract alterations, then Mr. Stelzer is correct to conclude that market capitalism, or at least its foundation of contract law, has survived the current economic crisis. If, as is more likely correct, credit card or mortgage loan terms have been changed via government legislation or regulation, then Mr. Stelzer is mistaken in concluding that these changes in contracts herald the survival of market capitalism.

NB--Stelzer is frequent contributor to The Weekly Standard. I was responding to this piece in the WSJ.

Posted by E. Frank Stephenson at 12:32 PM in Economics

And the Winner Is...

...in the Division of Labour "Should I vote in the Memphis Mayoral Election? Essay Contest": Brent Butgereit, a Rhodes student (and the peer tutor for my econ 101 classes) whose entry comparing voting to cheering at a football game is below the fold. The takeaway point: "so should you vote? If you like to show that you can make noise for its own sake, then you should." Brent wins a book. I don't know which one yet, but he wins a book.

It should be pointed out that I am a college professor. I have opportunities to "make noise for its own sake" every week in class.

Thanks to everyone who submitted entries. I was looking for a blend of cost/benefit calculus and reasoning about engaged citizenship. For the record, I didn't vote. Was I forsaking my civic duty? I think not. First, the election was a complete blowout. Second, I was teaching and hosting David Zetland, who gave a handful of excellent talks and spent a lot of time with students at Rhodes. Third, there are a lot of other, very productive and civically-engaged ways to spend my time. Fourth, I received an automated phone call from one of the candidates urging me to get out and vote (the candidate lost). If voting is going to encourage political telemarketing, this is a disincentive to vote. Yes, I could have voted early, but that would have involved jumping through hoops to find out where, when, and how I could do so. Given everything else I had going on and the near-certainty that it was going to be a blowout, early voting runs into basically the same cost/benefit calculus.

One entrant, a Rhodes 2008 graduate, offered the following reason to vote that applies an insight from one of our on-campus lectures: "Bryan Caplan has thrown down the gauntlet and outright challenges smart people, such as yourself, to vote. Don't be noise; rather, be one of Caplan's informed elite who actually counts in the tallies."

Read More »

Posted by Art Carden at 12:21 PM in Economics

Mexico: Curioser and curioser

See my last post about Mexico here.

Now check out this story.

Interesting developments.

Posted by Noel Campbell at 12:18 PM

Economic Illiteracy: Declining Wages Edition

I just send the letter below to USA Today in response to this article:

Your article reporting on the "biggest annual decline in real wages since 1991" carries the misleading headline "Wages tumble toward 18-year low." Even with this year's decline, real wages will remain above their 1991 level. Indeed, wages will remain above their 2007 level because the chart accompanying your article reports that real wages increased 2.4% in 2008.

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

I'd say that with economic illiteracy of this sort it's no big surprise that USA Today has had a massive decrease in circulation. Unfortunately, I doubt bet the correlation betwen economic literacy and circulation is more likely negative than positive.

BTW, I found this piece via an Instapundit link that was accompanied by the comment "uh oh." Actually, with 9.8% unemployment falling wages are not surprising are probably a good sign that necessary labor market adjustments are taking place.

UPDATE: I just received a response to my letter--the headline has been changed to "Wages could hit steepest plunge in 18 years."

Posted by E. Frank Stephenson at 12:13 PM in Economics

October 15, 2009
Man vs. Beast c. 1909

From the Oct. 15, 1909 NYT:

Overexertion while whipping a balky horse caused the death of John Duffy, a wealthy farmer of Elmsford, to-day. Duffy was driving up the State road toward East View when his horse balked. He took out the whip and hit the horse a few times and then fell over the dashboard dead.

Posted by Craig Depken at 10:30 AM in Culture

Time to Buy Some Votes

If your approval rating is down and seniors think you want to send them before death panels, what's your next move? Buy 'em off:

President Barack Obama said he will press Congress to provide $250 payments to 57 million seniors, veterans and people with disabilities next year, a $13 billion effort to offset an expected announcement this week that there will be no cost-of-living increase in Social Security payments.

The proposed $250 payment is equivalent to a 2% increase for the average retiree receiving Social Security benefits, the White House said. Notably, it would act as additional economic stimulus at a time when the government is concerned about rising joblessness.

Posted by E. Frank Stephenson at 08:29 AM

October 14, 2009
My hometown makes the Associated Press!

Don't tase me, bro!

Posted by Noel Campbell at 08:14 PM in Culture

There's an Election Tomorrow?!

Here's Geoff Calkins from the Memphis Commercial Appeal on the extremely low turnout for early voting in tomorrow's mayoral election. You have until 6:00 AM tomorrow to submit via email a 250-500 word essay explaining why I should or shouldn't vote in tomorrow's mayoral election. There is a valuable prize for the winner, who will be announced on Friday.

Posted by Art Carden at 10:03 AM in Economics

Marktets in Everything: MJ's Burnt Hair Edition

Singed strands of Michael Jackson's hair that were burned in a Pepsi advert are coming up for sale.

Posted by E. Frank Stephenson at 09:03 AM

October 13, 2009
Sums It Up Nicely

A bumper sticker I observed earlier today:

Obamanomics: Trickle Up Poverty
Posted by E. Frank Stephenson at 03:58 PM

The only question is when

I don't think anyone can dismiss this assertion by Sawhill and Aaron.

Anyone who thinks that health-care reform alone is going to close the massive current -- and even larger projected -- U.S. budget deficit is deluded. President Obama has pledged that health-care reform will not make matters worse. But that isn't good enough. There is no way to restore this nation to fiscal health without higher taxes -- for the middle class as well as for the rich. The only question is when. Those increases should be enacted now, phased in gradually after the recovery is well established, and tied to the increased spending that health-care reform will generate. [Emphasis added.]

My only question regards timing. Why didn't this column appear last year, when Obama's platform made the conclusion inescapable?

Posted by Wilson Mixon at 11:16 AM in Politics

Elinor Ostrom on the Commons

Here's recently-crowned Nobel Laureate Elinor Ostrom on voluntary management of the commons. Ostrom's win can be considered a win for the Hayekian worldview as opposed to the Samuelsonian worldview. HT: Brian Hollar.

Posted by Art Carden at 10:57 AM in Economics

On lightening up

Maybe Italy has it right, if the conclusion of this WaPo article is correct.

Besides, with Berlusconi as your prime minister, you don't have to take yourself too seriously. You don't have to trouble yourself with geopolitics or the state of the planet, or poverty and failed states. You can stay at home, remain unserious and argue about the latest legal scandal. And maybe that, too, is part of the Italian prime minister's appeal.

I disagree with one point. I would write the first two sentences this way: "Besides, with Berlusconi as your prime minister, you don't have to ... trouble yourself with geopolitics or ...." You can take yourself and things that really matter quite seriously, while marginalizing the goings-on of the state, treating it as the absurdist theater that it often is.

Given Bastiat's provisional definition of the state, "the great fictitious entity by which everyone seeks to live at the expense of everyone else," having it generate a bit of humor is probably not a bad thing.

You may insert your latest Nobel Peace Prize joke here.

To quote the fine theologian, M*A*S*H's Father Mulcahy: Jocularity, jocularity, jocularity.

Posted by Wilson Mixon at 10:56 AM in Politics

An endangered species c. 1909

The October 13, 1909 NYT has a headline you won't see today:

SENATOR FLINT WILL RETIRE.

MUST LEAVE THE SENATE, HE SAYS, TO EARN MONEY FOR HIS FAMILY.

Turns out the good Senator from California felt that there wasn't enough money in being a Senator and that he had to go out in the real world to earn some scratch:

Senator Frank P. Flint announced yesterday that when his present term expires, on March 4, 1911, he would not be a candidate for re-election.

"If I were a rich man," said Senator Flint," I would like nothing better than to remain in the Senate all my life. But I feel that I owe it to my family to get out of politics and gain a competency while I am able.

"My associations in the Senate are very congenial, indeed. I have practically no opposition for a renomination, and the sole reason for contemplated retirement is the urgent necessity of providing for my family.

It is quaint that a U.S. Senator would suggest that there wasn't enough money in national politics to make it worth his while. Perhaps there was a time when this was true. Perhaps Mr. Flint was "clean" and didn't partake of the largess his position would seem to attract.

On the other hand, perhaps this is a thinly veiled jab at the lobbyists of the day. In essence, Flint throws down the gauntlet saying "pay up or I'm outta here and I'm taking my political capital with me."

Do you wonder, as I, whether Flint really retires from public service in 1911? Oh wait, I can look that up (see below the fold for the spoiler)....

Read More »

Posted by Craig Depken at 10:55 AM in Politics

On appropriations and fraud c. 1909

The October 13, 1909 NYT prints the following funny letter to the editor:

By an edict of Postmaster General Hitchcock cats are authorized to be provided food and lodging by all Post Offices of the first and second class. That is to say, each of the largest offices is entitled to an appropriation for the maintenance of is tutelary cat. In the present fiscal year it is estimated the department will spend $135 for cat meat.

But we think the appropriation is ridiculously below the actual cost of providing Post Office cats with the provender they need. Unless it is proposed to stint their rations as a means of encouraging them to prey on rats and mice, it would seem, from a superficial view, to be a piece of niggardly economy. But even then, as we reckon, there are in round numbers 6,000 Presidential offices, so that each would be entitled to only two and a quarter cents annually for cat meat.

Gauging the Post Office cat's appetite is a more delicate operation than assigning a limit to the political aspirant's greed, or measuring an office holder's capacity for emoluments. "The harmless, necessary cat," to borrow Shylock's phrase, should be well fed rather than starved to excite a predatory spirit, lest in its hunger and search for delicatessen it is driven to tamper with the mails.

But unless the cat can be taught to lick stamps for its customers, is it not apt to be regarded as a mere ornamental appanage of the Postal Service? Rats and mice that infest first and second class Post Offices can be as easily caught in traps. Would not excessive bills for cat meat form a convenient cover for fraud and peculation when accounts are rendered for official disbursement? But perish the thought.

Wouldn't it be nice if "cat meat" was the "fraud" about which we had to be concerned.

Posted by Craig Depken at 10:42 AM in Funny Stuff

On the squirrel c. 1909

A letter to the editor in the October 13, 1909 NYT:

On a trip through the northern part of the Bronx Park on Saturday afternoon I discovered that the squirrels are in an actual state of starvation. The parasite that has destroyed the chestnut trees has left nothing for them to live on. They are not fond of acorns, except in a pinch, and the boys are seen gathering those up in bags, which they cart away to their homes, leaving the squirrels actually without food to go through this Winter.

Will you kindly call it to the attention of those in power, so that a remedy may be taken whereby a supply of nuts can be scattered broadcast, so that the boys will not get them but the squirrels may?

Posted by Craig Depken at 10:34 AM in Culture

Ummmm...I think I'll let Tyler read this one and blog on it

Capitalism and the Dialectic: The Uno-Sekine Approach to Marxian Political Economy

Description:
From the 1960s to the 1990s the ground-breaking Japanese economists Kozo Uno and Thomas Sekine developed a masterful reconfiguration of Marxist economics. The most well-known aspect of which is the levels of analysis approach to the study of capitalism. Written in Japanese, the Uno-Sekine approach to Marx's work is little understood in West. John Bell seeks to correct this, explaining how problematic elements of Marxian Political Economy such as the law of value and the law of relative surplus population can be solved by using a more rigourous dialectical analysis. Bell's clear and accessible synthesis provides economists with the tools to interrogate capitalism in a more powerful way than ever before.

Posted by Robert Lawson at 08:49 AM in Economics

Best sentence I read today or probably will read this week.

From Munger:

As I always tell my students, an economist is someone who believes, sincerely believes as a matter of moral justice, that the infant mortality rate should be positive.
Posted by Robert Lawson at 08:46 AM in Economics

October 12, 2009
Ostrom and Williamson

Start with a Pigovian question: what to do about externality? Entertain a Coasean solution: bargain it away. Get stuck on transaction costs due to a Buchanan problem: collective action. Arrive at this year's Nobel: voluntary collective action can and often does work toward the emergence of good institutions. It's not private property rights per se, but well-defined and enforced rules of exclusion, which support beneficial social organization. As Alex Tabarrok aptly puts it, for Ostrom it's not the tragedy of the commons but the opportunity of the commons.

For Williamson, I suppose you could replace "get stuck on transaction costs" in the above with "managerial" or "monitoring" costs. In short, one solution that Coase poses to externality is merger, the problems with which are worked out in Williamson's contract theory of firms.

Both laureates underscore non-coercive governance. I applaud deeply. For a good introduction, here is the scientific background provided by the Nobel committee.

Posted by Edward J. Lopez at 10:24 AM in Economics

What I've Been Writing Lately: Tires, Trade, and Comparative Advantage

Here. In the comments on the Mises Blog, I'm advised to "take [my] globalist cr@p" elsewhere. I confess I'm at a loss for the appropriate outlet for my globalist cr@p--if not the website of an institution bearing the name of an economist who thought Ricardo's law of comparative advantage is the wellspring of all social behavior, then where?

Posted by Art Carden at 10:04 AM in Economics

On the Ostrom and Williamson Nobel

I've been rooting for Gordon Tullock to win the Nobel for as long as I can remember, but I can't say I'm surprised or disappointed that this year's prize went to Elinor Ostrom and Oliver Williamson. In fact, I'm thrilled. Arnold Kling offers an excellent summary of the Ostrom and Williamson win here.

Posted by Art Carden at 09:15 AM in Economics

October 10, 2009
On the Economics Nobel

Here are Bob Subrick's predictions (HT: Scott Beaulier). Bob suggests a possible prize for Gordon Tullock, Anne Krueger, and Jagdish Bhagwati for their work on rent-seeking. I've been rooting for Tullock for a long time, and I think that now more than ever he deserves the prize. By and large, government policy is made by ignoring Tullock's entire research program, with disastrous consequences. First, it is widely assumed that people will behave irrationally and opportunistically--except for a small caste of enlightened worthies who can be trusted to transcend their individual interests, behave perfectly rationally, and nudge the rest of us as hard as we need to be nudged in order to lead us to utopia.

Second, policy is made by ignoring what Tullock had to say about rent-seeking. Consider, for example, policies that are justified on distributional grounds. Even among some of those who acknowledge its disemployment effects, minimum wages remain popular because the increased income transferred to unskilled workers is supposedly worth incurring a little bit of deadweight loss. According to Tullock, however, the prospect of a transfer from employers to employees encourages rent-seeking on the part of employers (who seek to protect themselves from the transfer) and on the part of employees (who seek to acquire the transfer). The full value of the transfer will be frittered away through the political process.

Arguments for supposedly more efficient (or less inefficient) programs like the EITC or other tax-and-transfer schemes are undermined by the theory of rent-seeking. Even if we could implement a perfect tax-and-transfer scheme, the full value of the transfer will disappear down the political drain. From what I can tell about policy debates, however, this is only considered when people express surprise at the unintended consequences of the policies they endorse. Even only then, it is usually treated as a moral failing rather than a predictable consequence of the incentives in place.

Tullock has made a series of contributions that should have, by now, changed the way everyone looks at human action. If we had taken him seriously, we probably wouldn't have made the host of policy mistakes that caused the current crisis. If that doesn't deserve a Nobel Prize, what does?

Posted by Art Carden at 10:51 AM in Economics

October 09, 2009
Is the U.S. Federal government undergoing a crisis of legitimacy?

Discuss amongst yourselves...

Comments are open. If you care to respond, please try for communicative efficiency. Our creaky old system can't handle multiple magnum opi in the comments!

Posted by Noel Campbell at 01:52 PM  ·  Comments (6)

Guest Blogger: Ludwig von Mises on Reason and Error

We are honored to celebrate both the 250th anniversary of The Theory of Moral Sentiments and the 60th anniversary of Human Action with a guest post from Ludwig von Mises, below the fold. The post is excerpted from Human Action and published here. This is going to go into my introductory readings for Econ 101.

Read More »

Posted by Art Carden at 01:39 PM in Economics

Michael Moore and Capitalism (Updated)

Here he makes a couple of crucial admissions in this clip featuring a great question from Chad Swarthout, a student at George Washington University and a participant in the Institute for Humane Studies "Liberty and Society" Summer Seminar I taught at last summer. Sadly, Moore doesn't realize that the "ideal" system he describes in which everyone's voice is heard is a system based on private property and free markets, nor does he answer Chad's question meaningfully.

Update: readers who were at the 2009 Liberty & Society Seminar at Wake Forest might remember Kyle McNeel's exhortation to "stand in front of a tank" in reference to the 20th anniversary of Tiananmen Square. This is a pretty good example of someone doing exactly that.

Posted by Art Carden at 01:12 PM in Misc.

Dogs Bark, Cats Meow, and ...

Congressmen seek money for pork

Posted by E. Frank Stephenson at 11:56 AM

Nobel Anecdote (Updated)

Here's an entry from Greg Mankiw that reminds me of an exchange from Grad School. I was Douglass C. North's TA and RA from 2002-2005. Around the beginning of 2003, he knocked on my door and said that he had to nominate someone for the economics Nobel. Before he could continue, I interrupted and told him how amazingly flattered I was since I didn't even have a dissertation topic yet. Suffice it to say he wasn't nominating me.

This could, however, signal a shift in Nobel logic. If potential is what matters, I think the committee should reconsider and award the Prize to Chris Coyne. Like Obama, he isn't George W. Bush, so he meets at least one of the selection criteria. The tiebreaker would be Coyne's excellent After War, which, I hope, will be an input into Obama's foreign policy.

Update: Here's Kevin Grier wondering whether an Obama prize will make it harder for Obama to pursue an aggressive foreign policy. Maybe we aren't giving the prize committee enough credit: maybe they aren't giving him a medal to wear, but an albatross. Are they hoping that this will render politically unsaleable a lot of possible foreign policy options that would be unbecoming of a Nobel Peace Prize winner?

Posted by Art Carden at 10:17 AM in Economics

The Revolution Will be Facebooked: Reactions to the Obama Nobel

I must admit I was surprised by Obama's Nobel Peace Prize. It increased the probability with which I believe the timing of Krugman's economics prize was in part politically motivated. Here are some FB status updates from people on my "friends" list reacting to the prize, in no particular order (names redacted, obviously). The hits just keep on coming:

1. ...knows what next week's episode of South Park will be about.

2. ...wishes she could extend the Patriot Act and occupy a sovereign state, killing not only her own citizens but those of the occupied country, 'cause then she could get the Nobel Peace Prize!

3. War is peace.

4. Tonight we're gonna party like it's 1984!

5. If they're giving out Nobel prizes for not being George W. Bush, I want one too.

6. Art Carden likes some of President Obama's cosmopolitan rhetoric but wonders how tire tariffs and other restrictions on international trade are "extraordinary efforts to strengthen international diplomacy and cooperation between peoples."

7. ...wonders how long before someone makes a Kanye West mashup of him on stage with Obama saying that while the President has done a good job, Beyonce should've won the Nobel Peace Prize.

8. One that's in a language I don't speak, but it talks about Gore and Carter, and the last line is "El el 2010 sera para Paris Hilton."

9. ...is hoping that Kanye attends the Nobel awards ceremony.

10. ...started reading his Facebook feed and had to make sure that the links to Obama winning the Peace Prize weren't all from The Onion.

Posted by Art Carden at 10:04 AM in Economics

Best Blog Title I've Read Today

"Too Big To Bail," from this testimonial about the Mises Institute and Austrian Economics.

Posted by Art Carden at 09:19 AM in Economics

October 08, 2009
Another Division of Labour Essay Contest on Voting

On October 15, Memphians will choose a new mayor in a special election. I'm deep in the same moral and intellectual crisis that faces me every election: should I vote? I decided that (once again) I will farm this out to Division of Labour readers. I'll offer a prize of some kind for the best 250-500 word essay explaining why I should or should not vote, and the winning entry will be published on DOL. Entries will be accepted via email, and I'm looking for something that addresses the opportunity cost of voting.

Update: Here's Per Bylund on voting.

Posted by Art Carden at 09:35 AM in Politics

Pyramid Schemes in Memphis

Here's the letter I mentioned a few days ago on what we might do about the Memphis Pyramid, published in this morning's Memphis Commercial Appeal:

"How about a boondoggle museum

I read your Oct. 5 article about debates over what to do with The Pyramid with some interest (“Plans for Pyramid differing widely / Candidates’ ideas often outside the box”). I propose a different solution: Privatize it by distributing ownership shares to all Memphis and Shelby County taxpayers. I would then encourage the new owners to convert it into an International Museum of Resource-Wasting Boondoggles.

Visitors could be greeted with a clip of Montgomery Burns from one of last season’s episodes of “The Simpsons” in which he describes “the American Dream: a billionaire using public funds to build a private playground for the rich and powerful.”

The museum could include an exhibit explaining the broken-window fallacy and another exhibit on badly done and arguably dishonest “economic impact” studies that tell stadium proponents what they want to hear, and it could offer numerous exhibits on how stadium projects fail to live up to their promises. They could start with an entire exhibit about how long it is taking to fill the giant mud puddle in downtown St. Louis where the old Busch Stadium used to be.

Art Carden

Memphis"

Posted by Art Carden at 09:23 AM in Economics

Tonight: "The Legacy of Adam Smith and the Future of Capitalism"

If you're in the Memphis area and you're looking for something to do this evening, Rhodes is hosting a Symposium on "The Legacy of Adam Smith and the Future of Capitalism" through the Project for the Study of Liberal Democracy. This year marks the 250th anniversary of Adam Smith's The Theory of Moral Sentiments, and we will hear comments from James Otteson, Professor of Philosophy and Economics at Yeshiva University and Charles G. Koch Senior Fellow at the Fund for American Studies, and Peter McNamara, Associate Professor and Graduate Director in the Department of Political Science at Utah State University. I'm the discussant. If you saw Brian C. Anderson's review of Michael Hardt and Antonio Negri's Commonwealth in this morning's Wall Street Journal, you understand why this discussion takes on added importance. The fun begins at 7:00 PM in the Bryan Campus Life Center.

Posted by Art Carden at 09:12 AM in Misc.

October 07, 2009
Austrian Empiricism... Not an Oxymoron!

Prof. Kopple responds to my question, "How do you most effectively combat the perception that Austrians are anti-empirical?" by saying....

"Do empirical work!"

In an email, he expounded:
"Lots of Austrians have done lots of empirical work. A few of us have done statistical work on asset markets. A lot of GMU grads have done economic history or relatively simple empirics on, e.g., freedom indices. Emily Chamlee-Wright's book on entrepreneurship is an exemplary use of field methods. And so n. It's a long list! We're there. The trouble is that once the label "anti-empirical" was on us, it became almost impossible to peel it off. Psychologists have discovered that humans often fail to update their first impressions. The anti-empirical reputation of Austrians seems an illustration."

This seems like a perfect opportunity for me to shill my journal! If you're an Austrian doing empirical work in entrepreneurship--any type of empirical work; just confront a research question with the outside world--we would love to review it the Southern Journal of Entrepreneurship.

Check us out at:
http://www.southernjournalentrepreneurship.org/

Posted by Noel Campbell at 07:48 PM

"The Great Debate of October" revisited

To everyone who emailed me, I apologize for disappearing for a couple of days, but the pesky taxpayers of Arkansas expected me to do some, you know, "work" work.

Prof. Dan Klein of George Mason University sent me this chestnut on the fifth, responding to Emily Schaeffer's response to my thoroughly deserved, yet curiously unprovoked, defensive pre-emptive attack on Art.

I'll post the note in its entirety below.

Read More »

Posted by Noel Campbell at 07:24 PM

Most Interesting Paragraph I've Written Today

Here is what we believe is occurring. As state and local governments become less intrusive into their economies, economic freedom increases. As economic freedom increases, state income increases. This, in turn, will increase the state’s Federal tax liability, as a percentage of state GDP. The rising Federal tax liability induces a state’s residents to seek more income-sheltering financial services from banks. These services are profitable, increasing the banks’ bottom lines. In other words, as Federal tax liabilities fall—due to falling freedom at the sub-national level—then people have less need for profitable banking services, which shelter their income from Federal taxation. This would reduce banks’ return on equity.

Posted by Noel Campbell at 01:29 PM

Thoughts from a Dull Moment: Frank Steindl on Endogenous Propagation

Office entropy is out of control, so I'm spending part of the--I was going to say morning, but it's now afternoon--cleaning up. Here's a paper that we'll read in econ 339 later in the semester: Frank Steindl's "What Ended the Great Depression? It Was Not World War II," which has taken on a new relevance since it was first published in 2007.

Posted by Art Carden at 01:24 PM in Economics

New Airline Fees?

I saw this on Drudge:

A Japanese airline has started asking passengers to go to the toilet before boarding in a bid to reduce carbon emissions.

All Nippon Airways (ANA) claims that empty bladders mean lighter passengers, a lighter aircraft and thus lower fuel use.

It won't be long now before some airline works this idea into its fee structure. Perhaps a $5 fee for people who don't go #1 before boarding, a $10 fee for people who don't go #2 before boarding, and $15 fee for people who do neither.

Posted by E. Frank Stephenson at 01:07 PM

Update on Payday Lending in Ohio

Some snips from a Heartland Institute piece on Ohio's payday lending ban:

Last November, 64 percent of the state’s voters favored approving an Ohio House bill capping payday lenders’ annualized rates at 28 percent. Legislators had passed the bill in June 2008.

The impact on the payday lending industry was swift. Already 700 of the 1,600 payday loan offices in the state have closed, said Kursman. Check ‘n Go has just 28 locations left in the state, down from 72 before the law changed, he said.

Payday lenders in Ohio argue banks have filled the void since the law changed. They don’t fall under the same regulations, so a few have started offering direct deposit advances. They typically charge $10 for an advance of $100 for up to 30 days. Banks market them as loans at 120 percent annual rates.

It wouldn't come as a surprise to learn that banks backed the payday loan ban, but I didn't find anything in an cursory Google search.

Previous DoL posts on Ohio's payday loan ban are here and here.

Posted by E. Frank Stephenson at 11:56 AM in Economics

On Sarkozy's Happiness Adjusted GDP

French President Sarkozy recently called for adjusting tradional GDP calculations for happiness (which I tend to think is a bunch of bunk, but that's another post). Maybe the French are happier than Americans (or, more generally, countries that have higher GDPs than France)--after all, they have good wine, fine cheese, the scenic countryside that's displayed so vividly in the Tour de France coverage each summer. However, Sarkozy might want to rethink his call for a happiness-adjusted GDP.

Consider suicide rates. French suicide rates for men are roughly 50% higher than American male suicide rates. For women, the French rate is double the American rate. (Source--pay attention to the graph on the lefthand side of the article.)

Then there's the matter of car burning--a rather unusual way to indicate happiness but de gustibus non est disputandum. Here are some snips from a Time article:

For much of the world, they became iconic of France's worst social ills: the burned-out carcasses of thousands of cars set ablaze during nearly three weeks of nationwide rioting in 2005. But as yet another orgy of automobile arson on Wednesday demonstrated, the torching of cars in France has not only become an everyday event; it's also now a regular form of expression for disenfranchised suburban youths wanting to make sure the rest of the country doesn't forget they exist. And their fiery presence is never felt so strongly as it is each New Year's Eve — the day of France's unofficial festival of car-burning.

According to figures from the French Interior Ministry, 1,147 cars went up in smoke on New Year's Eve — a 30% rise on the 879 autos torched the same night in 2007.

Nearly 43,000 cars were torched in France over the whole of 2007 — an average of almost 118 per day.

As for 2005, this Wikipedia page reports that 8,900 cars were burned over 20 days of rioting.

UPDATE: The Economist asks, "Why are the French so prone to suicide?"

Posted by E. Frank Stephenson at 11:31 AM in Economics

Interview on Radio Free Market

Here's an interview I did with Radio Free Market during Mises U at the beginning of August and broadcast on September 25.

Posted by Art Carden at 10:20 AM in Economics

Hanson and Easterly On Aid and Charity

Filtered through warped minds at The Onion:

OnionMagazine.jpg

I'm going to assume there's a lot of overlap between readers of DoL, Easterly's Aid Watch, and Hanson's Overcoming Bias. Easterly and Hanson are two of my favorite scholars, and they offer complementary views on aid. Easterly argues that a lot of aid resources are wasted, and Hanson offers a signaling explanation for why we keep wasting resources on ineffective foreign aid. We care more about showing we care than about results, and accumulating poverty porn is a lot easier than making tough decisions, supporting unpopular policies, and actually doing things that will alleviate that poverty.

Speaking of people who care, here's Scott Beaulier's interesting take on his recent trip to see U2. FWIW, one of my most cherished music memories was being there when Bono skipped a verse in "I Will Follow" at Ohio Stadium in 1997. I have to give Bono credit for earnestness and for at least making an effort to understand what he's talking about. He just picked the wrong New York-based development economist to serve as his guru (Jeffrey Sachs).

Posted by Art Carden at 09:40 AM

October 06, 2009
U.S. Energy Policy and the Presumption of Market Failure
This article will argue that government energy policy has been based on faulty premises not only about the existence of market failure but also about the nature and process of innovation. Moreover, as this article will show, there is evidence that the private sector can develop energy alternatives more efficiently than the government.

That's a paragraph from what looks to be a good article by Peter Z. Grossman in the new issue of the Cato Journal.

Posted by E. Frank Stephenson at 01:15 PM in Economics

Boettke and Caplan on Austrian Economics (Brought to you by Carl's Jr.)

Here are two of my favorite economists, Peter Boettke and Bryan Caplan, debating Austrian economics. It's a 13-part video, which raises a question: I have a video of Deirdre McCloskey's lecture at Rhodes, but YouTube won't take it. How can I cut it up, or where can I put the entire uncut video online? If you have a suggestion, please let me know.

Obligatory FTC Disclosure: I wasn't paid to write this.

Posted by Art Carden at 09:03 AM in Economics

The FTC is here to protect you, dear reader.

Tyler Cowen reports that the FTC wants us pajama-wearing bloggers to disclose all the goodies we receive.

For the record I: I am open to payment if any of you want to pay me to write something on this blog. Let's make a deal baby!

For the record II: I have received exactly one book (unsolicited) hoping for a review on this blog, which I did not review, though it was a good book.

For the record III: The FTC can kiss my ass.

Posted by Robert Lawson at 08:56 AM in Economics

October 05, 2009
I'll concede the big issues, but not the small ones

I've had my evening cigar. I find a cigar, an iPod, and a porch swing to be very effective aids to cogitation.

What I won't concede: I find Mises' prose to be very difficult and unrewarding. I very much doubt I'll ever finish Human Action. That says more about me than about Prof. Mises.

What I'll concede: Prof. Koppl's comments, examples, and assertions lead me to say that HA is a work of science. I'll assume that Mises supported his arguments with evidence. It's no fault of Mises' that the standards of good empirical work are now, 90 years later, different than when he wrote.

I also know better than to say that good empirical evidence equates to regression analysis. I've spent my career to date in small business schools, so I've observed how other fields conduct empirical studies. There are many good empirical techniques that most economists don't know or use.

So the question I have for the genuine Austrians out there is this: I venture to say that the most common perception of Austrians is that they are anti-empirical. When dealing with humans, perceptions are very important. How do you most effectively combat the perception that Austrians are anti-empirical?

I won't open the comments (largely because I don't know how), but I do invite replies at noelecon@gmail.com. I'll be happy to share any replies that strike me as particularly apt.

Posted by Noel Campbell at 11:06 PM

Dogpile on Campbell!

(I appear to be incompetent at embedding links. Prof. Schaeffer’s and Will Luther’s comments are available at The Perfect Substitute, while Prof. Koppl’s remarks are at ThinkMarkets. Thanks for the interest and the high quality of the comments, y’all.)

Others continue to flock to Art’s defense. In the words of a former co-worker, “We decided to whup his *** by committee.” Or, in the words (more or less) of Ron White, “I didn’t know how many of ‘em it was gonna take to throw me out of the bar, but I knew how many of ‘em they was gonna use.” Ah, well, no Southern man should ever be afraid to fight, even against long odds.

It occurs to me: Art and I know each other, but…. I’ve met Prof. Schaeffer, but I doubt she remembers me; I don’t think I’ve met Mr. Luther. I know Prof. Koppl on sight, but I very much doubt that he knows me. Folks, please permit me to buy the first round at the soonest opportunity.

More below the fold

Read More »

Posted by Noel Campbell at 08:51 PM

What are the 10 best Supreme Court decisions?

Libertarians generally tend to believe that the Supreme Court has largely failed to protect individual rights in accordance with the Constitution. Last year, Chip Mellor of the Institute for Justice and Robert Levy of the Cato Institute published "The Dirty Dozen: How 12 Supreme Court Cases Radically Expanded Government and Eroded Freedom," outlining Supreme Court decisions that, well, radically expanded government and eroded freedom.

But obviously, not all Supreme Court decisions are bad. Sometimes the Court has stood for freedom. So what are the Top 10 Supreme Court cases for freedom? I'll open comments - please share your thoughts on the 10 best Supreme Court decisions for liberty, with a few sentences, if you can, on why you think that.

Just to start, I'll name just one case that would be on my list - not necessarily at the top, but definitely on the list: Schecter Poultry Corp. v. United States. I think most Americans don't realize how close the United States came to adopting a fascist economic system during the Great Depression, and the extent to which the National Industrial Recovery Act (NIRA) threatened freedom. The Court's decision was instrumental in keeping the U.S. operating as, mainly, a market based economy. Additionally, people don't realize the extent to which the National Recovery Administration fostered populist, extra-legal assaults on all dissent from the system it sought to impose. When I tell students what the NIRA actually required, most can't believe that the U.S. would ever have adopted so fascist a system for production. The Court's invocation of the non-delegation doctrine (never invoked since) to strike down the NIRA is one of the few times the Court has stood against mass popular opinion to strike down a law grossly infringing on economic freedom.

So please, have at it. What are the Top 10 Supreme Court decisions for freedom? (More below the fold, and be sure to check out comments)

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Posted by Brad Smith at 08:43 PM in Law  ·  Comments (41)

Coase on a Plane

I'm cleaning out some old notes and I came across the following, which might someday be a question I would ask on an exam or in a job interview:

Crying babies and loud children are among the common complaints of frequent flyers; indeed, I can say from personal experience that a screaming infant can make for a long flight. Describe the reciprocal nature of the externality. How does the private market internalize the externality? To what extent does the possibility of an upgrade to first class help mitigate the externality? What is the role of reasonable expectations in deciding on a policy? What is the parent's responsibility? What is the responsibility of the other flyers?

Posted by Art Carden at 01:44 PM in Economics

The Memphis Pyramid

This morning's Memphis Commercial Appeal had an article about what to do with the Pyramid, the empty basketball arena in Memphis that will reflect sunlight directly into your eyes if you're approaching downtown on North Parkway at the right time of day. They've been talking about this at least since we moved here in 2006; where's Hernando de Soto when you need him?

I sent them a letter (which I copied, and then copied over, so I can't post it) proposing that it be privatized and turned into a museum of resource-wasting boondoggles.

Posted by Art Carden at 09:49 AM in Economics

Brevity

Paper title: When is the government spending multiplier large?

Paper abstract: When the nominal interest rate is constant.

The paper is by Christiano, Eichenbaum, and Rebelo.

Posted by E. Frank Stephenson at 08:15 AM in Economics

October 04, 2009
Correction and nota bene

First, my wife, an observant being, informs me that the correct saying is, "It's on like Donkey Kong."

Second, I refer to myself as an orthodox, mainstream neoclassical economist, as have others in this fun conversation we've had. I believe, though, that the majority of orthodox economists would consider me to be an Austrian because (1) I've read a chapter in Human Action, (2) I earned my doctorate at George Mason University, (3) I have an old article in Review of Austrian Economics. Go figger, as they say.

I might add that I'm very proud of my RAE article. It's on my mental list of "articles," as opposed to "publications to play the game." I should also add that, though he probably doesn't realize it, our own Ed Lopez was pivotally instrumental in writing that article. I had two conversations with him wherein after he expressed his opinion, I said to myself, "Oh, snap! He's right. I gotta do that." I could've acknowledged this in a footnote, but I'm too mean and egocentered. While I'm airing my dirty laundry, I should point out that the article was similarly facilitated by Hillsdale College's Ivan Pongracic, a jen-yoo-wine Austrian economist. Sorry, guys.

Posted by Noel Campbell at 03:22 PM

Carden’s Already Committing His Reserves

So Art had to call in reinforcements… a girl! (Juuuust kidding, Prof. Schaeffer. I recently met a nice young lady who trains MMA fighters for a living. She frightened me.)

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Posted by Noel Campbell at 02:47 PM

TARP one year later: $700 billion down the drain

Was it necessary? No. Did it accomplish anything? Only partial nationalizations, which are a negative. In an op-ed in the SF Examiner, Randy Holcombe lays out the details.

Posted by Lawrence H. White at 12:38 PM in Economics

On Human Action, Continued

I was hoping others would jump into the discussion. Emily Schaeffer does. In the process of an excellent discussion, she points out (correctly, in my view) that what Mises is doing is laying out everything that is prior to observation.

Per co-blogger Ed Lopez's suggestion, comments are open.

Posted by Art Carden at 08:51 AM in Economics  ·  Comments (8)

Curious roll call vote patterns in Italian Parliament...

... a.k.a. "The Pianists".

HT: Mario Pagliero

Posted by Edward J. Lopez at 12:05 AM in Politics

October 03, 2009
It's on like King Kong!
“I propose that we settle this in the manner that Austrian economists and Austrian sympathizers settle such things: pistols at ten paces at the Southern Economic Association meetings.”
Ah, Carden, Carden, Carden…how fortunate it is for you—as I possess pinpoint accuracy, nerves of steel, a ruthless heart, and lofty disdain for Crimson Tide fans—that my employer is funding no travel this year.

More below the fold.

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Posted by Noel Campbell at 10:54 AM

Responding to Noel's Challenge

Co-blogger Noel has taken issue with Human Action. I propose that we settle this in the manner that Austrian economists and Austrian sympathizers settle such things: pistols at ten paces at the Southern Economic Association meetings. I'll email Tony Carilli from the Society for the Development of Austrian Economics to see if they can squeeze us into one of their sessions, or perhaps we could do it after the SDAE dinner. Further discussion is below the fold.

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Posted by Art Carden at 08:26 AM in Economics

October 02, 2009
Pickin’ a fight with Art…

…And with very many DoL readers, too. Well, not picking a fight, but you know what I mean.

Art recently posted about his re-discovery of the excellence of Human Action. I’ve never had that reaction. I’ve always found Mises’ writings to be a chore rather than a revelation.

Caveats are in order: I am not particularly well read in the Austrian canon. I’ve never read Human Action once, much less twice. I’ve only read those bits assigned in a grad class, and I struggled with those. I’ve not read many of the other Austrian classics (though I somehow own Menger’s book), much less the moderns.

Art describes how Mises constructs a systemization of human decision making, contingent upon calculation, of which economic decisions form a subset. Agreed, but I always conceived of Mises’ efforts as attempting to build a logically correct and (therefore) irrefutable description of human behavior. As such, I always viewed Human Action as a work of philosophy, not science, nor economics—a subset of science. As such, I found the book largely uninteresting and, dare I say it, chimerical.

I admit that I am in awe of the scientific method and experimental thinking, the entire point of which is to NOT build logically irrefutable descriptions of the world. Austrian friends have told me many times of the devastating arguments which philosophy has brought to bear against scientific thinking (refutation of hypotheses, etc.) Perhaps this is true. I am not smart enough to follow the arguments whenever I’ve tried to read these philosophers. However, I can see the overwhelming increases in human well-being which have been caused by the scientific revolution. Personally, this inclines me to hold the jury on science until its critics can likewise effect similar increases in human well-being using their methods.

None of this means I’m slighting Mises’ genius. Nor am I unfriendly to what I think of as the “Austrian project.” Indeed Hayek has shaped how I think and has been the backbone of how I teach since I read “Use of knowledge in society” in the first month of grad school, and Schumpeter and Kirzner began for me a continuing—and professionally very rewarding—interest in entrepreneurship.

Still, as far as Human Action is concerned, I guess I don’t get it. OK, after writing such potentially inflammatory remarks, it’s only fair to remind readers that I can be reached at noelecon@gmail.com

Posted by Noel Campbell at 10:47 PM

Thoughts about Rio

First, obviously, is the Duran Duran album. My subjective criteria for a "great band" are (1) they have three songs I like; (2) all the songs are at least ten years old; (3) I like the songs for reasons other than nostalgia. Thus Duran Duran is a great band, but all of the songs are on Rio. Perhaps I need more discriminating criteria.

Second, I'm relieved that U.S. citizens (of both the at-large and the Illinois varieties) won't be socked with a massive tax bill for the upcoming boondoggle.

Third, the "Olympic Games" industry is notoriously corrupt. Brazil is not noted for the strength of its judicial institutions. I'm curious to see how much money gets waylaid, and to what ends.

Fourth, Barcelona, Atlanta, Athens, Sydney, and Beijing all expended considerable resources to "clean up" and displace the riff-raff before the games. I think the governments of those places wield the whip-hand of government coercion more effectively and efficiently than Brazil or Rio. I'm curious to see how the "unsightly" populations of Rio react to the upcoming police crackdown.

Fifth, I'm sure someone knows, but I'm curious about the nature and variety of logrolling that go on in the IOC selection process.

Posted by Noel Campbell at 10:04 PM

A Sad Realization

I have only a handful of months' worth of eligibility left for the John Bates Clark award. Perhaps I can draw some solace from Swift's aphorism about the confederacies of dunces. Perhaps it's time to shift my focus to the Nobel. I calculate that I only need to continue publishing for another three centuries before I'll win it.

Posted by Noel Campbell at 09:49 PM

Choices and Tradeoffs

This is the punch line from a good article on the healthcare and the choices people make:

If individuals prefer to buy luxury items rather than pay for their healthcare needs, that preference should not be rewarded while taxpayers struggle to foot their own bills.

HT Gary R.

Posted by E. Frank Stephenson at 05:32 PM in Economics

October 01, 2009
An Interesting Abstract: Do Markets Make Us More or Less Trusting and Trustworthy?

Here's the abstract from this paper (gated). I find this interesting and compelling in light of the anti-capitalist critique of markets as dehumanizing, atomizing institutions. I look forward to reading the paper.

This paper documents a strong positive relationship between individual reported trust levels (obtained from the US General Social Survey) and the competitiveness of the sector in which an individual works (obtained from the US census of firms). This correlation is robust to the inclusion of all of the previously studied determinants of individual trust, e.g., income, education, age, sex, marital status, city size, religion, and is large; a one standard deviation increase in sectoral competitiveness makes respondents approximately five percent more likely to answer the canonical trust question with a "usually trust" as opposed to a "usually don’t trust" response. The addition of a rich set of workplace controls shows that this correlation is not likely to be driven by the size of the workplace, the amount of supervision, or related to a congenial work culture. It also appears that it is not due to selection (i.e., trustworthy or trusting individuals selecting into competitive sectors) or risk aversion, but instead seems to be due to individuals becoming more trusting the longer their experience in competitive sectors. We conjecture that trust levels are high when workplaces are characterized by high contributions of discretionary effort, i.e., when co-workers are more likely to be trustworthy. We develop a model which shows that such discretionary efforts are more likely to arise when competition within a sector is high. Competition mitigates incentives for free-riding by imposing costly shut-down on poor performing firms, makes employees more trustworthy, and thus increases trust. The model generates a positive correlation between trust and sectoral competitiveness, displays a threshold effect, suggests a non-monotonic relationship between competition and job security, and predicts patterns for a number of other variables. The data displays a high degree of consistency with these predictions.
Posted by Art Carden at 02:52 PM in Economics

On Foreclosures and Contagion

One of the rationales offered for government bailouts support for underwater homeowners is the supposed effect that foreclosures have on nearby properties. The new issue of the Journal of Urban Economics has an article (ungated version here) addressing just this issue by John P. Harding, Eric Rosenblatt, and Vincent W. Yao. The do find evidence of a foreclosure contagion effect, but it's size is very small and is therefore difficult to use as justification for any sort of large aid to folks who may be facing foreclosure. The abstract of their paper:

Although previous research shows that prices of homes in neighborhoods with foreclosures are lower than those in neighborhoods without foreclosures, it remains unclear whether the lower prices are the result of a general decline in neighborhood values or whether foreclosures reduce the prices of nearby non-distressed sales through a contagion effect. We provide robust evidence of a contagion discount by simultaneously estimating the local price trend and the incremental price impact of nearby foreclosures. At its peak, the discount is roughly 1% per nearby foreclosed property. The discount diminishes rapidly as the distance to the distressed property increases. The contagion discount grows from the onset of distress through the foreclosure sale and then stabilizes. This pattern is consistent with the contagion effect being the visual externality associated with deferred maintenance and neglect.

I have a question about another paper in the same issue of the JUE; I'll put it under the fold.

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Posted by E. Frank Stephenson at 01:52 PM in Economics

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

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