Division of Labour: January 2010 Archives
January 31, 2010
The money will be here for a while


I don’t think Ben will pull the money out anytime soon.

“For example, it is likely that [the credit channel linking monetary policy to the real economy] ha[s] at various times affected residential investment (which, remember, accounts for the largest fraction of the decline in economic activity immediately following a monetary tightening). …. In fact, Boldin's mortgage burden variable has a close positive correlation with the federal funds rate, which we have used as a proxy for changes in monetary policy. The correlation arises both because nominal interest rates rise and household incomes fall following a tightening of monetary policy. The funds rate is also positively correlated with indicators of up-front housing costs, such as the average number of "points" charged on mortgages. The effects of monetary policy on such variables as the mortgage burden and mortgage terms help explain its strong impact on housing demand, despite the presumably weak link between monetary policy and long-term real interest rates.”

That’s from “Inside the Black Box: The Credit Channel of Monetary Policy Transmission,” Ben S. Bernanke and Mark Gertler, The Journal of Economic Perspectives, Vol. 9, No. 4 (Autumn, 1995), pp. 27-48. Sorry, but my copy is gated from Jstor.

Posted by Noel Campbell at 08:07 PM

On Prying and Gossip

In his excellent book Fair Play, Steven Landsburg relates an incident in which he learns never to underestimate the power of those who hate to see others enjoy themselves. In the same vein, I would caution people to never underestimate the power and malevolence of those who love destruction for its own sake. Consider the following passage from Les Miserables:

"No one pries as effectively into other people's business as those whose business it most definitely is not. 'Why does that gentleman only ever come at dusk?' 'Why doesn't what's-his-name ever hang his keys on the hook on Thursdays?' 'Why does she always take the backstreets?' 'Why does Madame always get out of her fiacre before it drives into her hard?' 'Why does she send someone out for a block of writing paper when she has loads of stationery in the house?' And so on and so forth. There are beings who, to find the answer to such teasing riddles, about which, furthermore, they don't actually give a fig, spend more money, devote more time, go to much more trouble than ten good deeds would require; and do so gratuitiously, just for the hell of it, without being rewarded for their curiosity except by curiosity itself. They will follow this or that person for days at a time, while away the hours loitering on sundry street corners, under the arches of passageways, at night, in the cold and the rain, bribe desk attendants, get coach drivers and lackeys roaring drunk, buy off a chambermaid, put a porter in their pocket. What for? For nothing. For the sake of finding out, knowing, penetrating the mystery. Out of an itching need to be able to tell. And often, once these secrets are out, the mysteries broadcast, the enigmas exposed to the light of day, they lead to catastrophe, duels, bankruptcies, ruined families, shattered existences--to the great joy of those who 'got to the bottom of it all' for no apparent reason than through sheer instinct. Sad.

"Some people are malicious out of a simple need to have something to say. Their conversation, parlor talk, antechamber gossip, is reminiscent of those fireplaces that swiftly go through the wood--they need a lot of fuel, and the fuel is their neighbor."

Victor Hugo, Les Miserables, trans. 2009 by Julie Rose, New York: Modern Library, p. 150.

Posted by Art Carden at 03:55 PM in Misc.

Mea culpa

Responding to my previous post , alert and punctilious reader, Mr. S.E., writes (in its entirety):

I suggest you check with the NBER.

The depression had two (2) separate recessions,
not the three(3) you incorrectly claimed.

Ah, yes, indeed, Mr. S.E. Thank you so much.

Posted by Noel Campbell at 02:09 PM

January 30, 2010
Keynes/Hayek Rap with Chinese Subtitles

Here (HT: Russ Roberts).

Posted by Art Carden at 09:35 PM in Economics

Inconsistencies in Public Discourse: Che Guevara

I've been thinking a lot about some apparent inconsistencies in public discourse. For example, I would expect a very high correlation between the view that we need to do all we can to curb carbon dioxide emissions because "the science is settled" on global warming and the view that we need to raise the minimum wage in order to help the poor.

Similarly, I would expect a very high correlation between the probability that you think we need to close Guantanamo and the probability that you own (and have worn proudly) a Che Guevara t-shirt. Lord Acton said that great men are almost invariably and always very bad men. Che Guevara was not a great man. He was just a very bad man. Here's more (HT: Humberto Fontova):

Addendum: here's Glenn Beck's entire documentary on communism.

Posted by Art Carden at 03:25 PM in Misc.

Chez Schumpeter: Creative Destruction in the Kitchen

I guest-post on No More Nuggets here.

Posted by Art Carden at 02:44 PM in Personal

"Education Secretary Duncan calls Hurricane Katrina good for New Orleans schools"

Is this story another data point for Mancur Olson's thesis in The Rise and Decline of Nations?

Posted by Mike DeBow at 11:28 AM in Politics

Cavalcade of Miscellany: Politics & Power, Moral Decline, Arachno-Capitalism

1. Sheldon Richman's recent TGIF column on the State of the Union Address is not to be missed. I ask: do people go into politics to pursue virtue, truth, and charity, or do they go into politics to pursue power? Consider Summer 2008, when the Obama campaign threw Austan Goolsbee under the bus and then moved toward the center on trade. This is consistent with the power motive rather than the virtue/truth/charity motive (here are some potentially useful links from Wednesday).

2. Cultural conservatives spend a lot of time denouncing the moral decay of American society, but I'm not sure where they would place the heights from which we have allegedly fallen. Consider this passage from Gordon S. Woods, Empire of Liberty, p. 342:

"For many observers it seemed as if sexual passions were running amuck. Premarital pregnancies dramatically increased, at rates not reached again until the 1960s. In some communities one third of all marriages took place after the woman was pregnant. Between 1785 and 1797 Martha Ballard, a midwife in Lincoln County, Maine, delivered 106 women of their first babies; forty, or 38 percent, were conceived out of wedlock. All these statistics suggest that many sons and daughters were selecting their mates without waiting for parental approval."

3. Arachno-Capitalism. I posted it a link to the video on the Mises Blog yesterday. Best comment so far: "Eight legs good. Two legs bad."

Posted by Art Carden at 10:58 AM in Misc.

January 29, 2010
Bilateral Monopoly in Action

Study shows married people living together gain more weight than singles do. Shallow t.v. news story here.

Posted by Edward J. Lopez at 06:08 PM in Economics

Generic News

Warning: some salty language.

HT: Reason.TV.

Posted by Art Carden at 02:44 PM in Funny Stuff

Nattering Nabobs of Economic Ignorance

A little neo-Hooverite nonsense from the AP:

Wages and benefits paid to U.S. workers posted a modest gain in the fourth quarter, ending a year in which recession-battered workers saw their compensation rise by the smallest amount on records going back more than a quarter-century.

The anemic gains have raised concerns about the durability of the economic recovery. The fear is that consumer spending, which accounts for 70 percent of economic activity, could falter if households don't have the income growth to support their spending.

The Labor Department said Friday that wages and benefits rose by 0.5 percent in the three months ending in December. For the entire year, wages and benefits were up 1.5 percent, the weakest showing on records that go back to 1982.

With 10% unemployment, you'd think it just might dawn on them that wages might fall or remain relatively flat as part of the great recalculation.

BTW, speaking of neo-Hooverite nonsense, didn't Obama's SOTU call for some sort of subsidy to encourage firms to raise wages?

Posted by E. Frank Stephenson at 01:31 PM in Economics

Geithner on fixing recessions

Treasury Boss Tim Geithner offers this impassioned conclusion to his testimony before Congress on the AIG bailout.

In 1930, many people thought that the financial system was going through a necessary adjustment, that the healthy process was to let the fire burn itself out, and that the best thing the government could do was to do nothing.

Today, few believe that. Today, we know that when confronting a severe economic crisis the government must respond with overwhelming force. That is the basic lesson of the Great Depression. That is the basic insight that informed every judgment we made. And that is the reason we are now emerging from a recession and not still in the midst of a second Great Depression. In confronting this crisis, we learned from the past. Now we must learn from more recent failures, especially those that required AIG's rescue.

If we had stronger supervision and regulation in place, the government could have acted sooner to avert the crisis. If we had better crisis management tools in place, the government would have had better options. If we could have done it any differently, we would have done it differently.

Instead, we had no other choice. That is the basic lesson of this great recession.

In the future, when another generation of Americans confronts a new crisis born of new risks, the question will be whether we provided them the tools we did not have, whether we turned our collective outrage into concrete action, whether we passed comprehensive financial reform.
I hope we will.

All of this from a man one respected economist described as “very smart and… conceptually stronger than one might have expected.”

I could, of course, devote considerable blog space to dissecting and rebutting nearly every sentence Secretary Geithner wrote. In the end, though, that would be tedious and depressing. I will limit myself to a few simple observations.

The Secretary seems to have little time for the hypotheses that (a) there is always choice, (b) for every choice there is opportunity cost, (c) aggressively activist fiscal and monetary policy before and during his tenure largely created the economic crisis, and (d) the frenetic, unpredictably lurching policy initiatives on his watch have significantly increased uncertainty in market, making a bad situation worse.

Why, o why--apart from the answers found in the voluminous public choice literature about the incentives and constraints facing government officials—would he say such foolish things?

If only I could believe as the Secretary does, that "we are now emerging from a recession and not still in the midst of a second Great Depression."

People, don't forget that the Great Depression was composed of at least three separate recessions, separated by brief periods of rapid economic growth.

Posted by Noel Campbell at 12:13 PM in Economics

Toyota Enacts Stimulus Package

One of my stellar students asks:

Isn't Toyota's recall of 2.3 million vehicles going to be terrific for the economy? Think of all the jobs that will be created replacing those vehicles! What a perfect way to stimulate the economy!

Seriously, shouldn't defenders of programs like Cash for Clunkers be making arguments like this?

Yep. (BTW, the point holds even though Toyota is apparently replacing the accelerators rather than the entire vehicles.)

NB, Honda gets into the stimulus recall gig.

Posted by E. Frank Stephenson at 09:10 AM in Economics

Hey, Honey, Please Pass the Bacon

Argentine president: Eat pork, spice your sex life

Can't laugh too hard--it's no more nonsensical than some of the utterances from our dear leader.

Posted by E. Frank Stephenson at 08:49 AM

January 28, 2010
Brilliant Protest

wikipedian_protester.png

During last night's SOTU, Jeremy Horpedahl and Wafa Hakim Orman drew my attention to this bit of brilliance from XKCD.

Posted by Art Carden at 11:20 PM in Economics

On the Road Again...

It's almost February, and I'll be doing a bit of traveling. Next week, I'm spending Thursday at Buena Vista University in Storm Lake, Iowa (campus lecture at 4:00 PM, public lecture at 7:00 PM, both on Walmart) and then giving a seminar on a paper that Charles Courtemanche and I have in the works at the University of Nebraska-Omaha. On Wednesday, 2/17 I'm giving my Walmart public talk and (possibly) a seminar at Indiana University, and then I'll be doing the same at Saint Lawrence University in beautiful Canton, NY on Thursday, February 25. If you'll be in Storm Lake, Bloomington, or Canton while I'm around, be sure to let me know.

Posted by Art Carden at 09:37 PM in Misc.

Meltzer on the Fed's Incomplete Exit Strategy

I commend Allan Meltzer's op-ed in yesterday's Wall St. Journal. I plan to show it to my students in money and banking later this semester when teaching the "money multiplier" to persuade them that it can matter a great deal! Meltzer writes:

The exit strategy is incomplete. Proponents are guilty of practicing economics without prices. They never say what the interest rate on reserves must be to get banks to hold the approximately $1 trillion of reserves above the minimum they're legally required to hold. That's the critical question.

[...] No economist doubts that the Fed can induce banks to hold some more reserves by paying interest. But how much?

I do have to say that Meltzer's critique, like Bernanke's strategy, is also somewhat incomplete. What might stop the Fed from raising the interest rate on reserves as high as necessary? He doesn't spell that out. Meltzer shows that the Fed has sometimes found it unpopular to raise the Fed Funds rate and abandoned the effort too soon, fueling inflation. But raising the rate on bank reserves realtive to the Fed Funds rate is not the same as raising the Fed Funds rate.

Posted by Lawrence H. White at 05:26 PM in Economics

Obama vs. the Supreme Court

I confess that I did not watch the State of the Union address, but I have seen the clip where the President calls out the Supreme Court over its 5-4 campaign finance/First Amendment decision last week -- and I have to say that that's the creepiest thing he's done to date, IMO. The standing O he got from Congressional Democrats added immeasurably to the creepiness factor. Legal Insurrection makes some very good points and links to an Instapundit post. (If Legal Insurrection is not already part of your web routine, you really should think about adding it.)

Posted by Mike DeBow at 02:17 PM in Politics

Menacing Electric Blankets

US slaps duties on electric blankets from China

The article of course begs for a Mark Perry rewrite.

UPDATE: The admin may slap tariffs on blankets or tires or ... but it's American consumers who feel the smackdown; case in point:

As an accountant, Terri Bricker of Omaha works with numbers every day.

But the digits on a recent tire purchase stumped her.

When she replaced two car tires in December, each cost $100. The same exact tire at the same store had cost her only $90 three months earlier when she had a blowout.

“I couldn't quite figure out why they went up 10 dollars in three months,” said Bricker, 48. “Obviously, I wasn't happy.”

Tire dealers and wholesalers say a tariff on Chinese-manufactured tires imposed in September is contributing to price increases on many tires. Some tire manufacturers say the resulting shift in demand and the rising cost of raw materials also are behind the price increases.

The three-year, tiered tariff — 35 percent the first year, 30 the second year and 25 the third year — was one of the first major trade policy decisions by President Barack Obama back in September.

HT: Andy Roth

Posted by E. Frank Stephenson at 08:32 AM in Economics

SOTU Takeaway Points

Rhodes philosopher and blogger Doctor J offers a complete transcript and video of President Obama's SOTU address. I link to her transcript rather than another because if you don't read her blog, you should. Here's her SOTU wishlist; I look forward to reading her evaluation of the speech itself. Eleven statements on the content are below the fold, which raises a question: if thirteen is a baker's dozen, is eleven an economist's dozen?

Read More »

Posted by Art Carden at 02:00 AM in Economics

January 27, 2010
Google Chrome's Invisible Hand

Users of Google's web browser, Chrome, may have noticed a new "extension" feature that they are calling InvisibleHand. Here is a description from Google:

InvisibleHand discreetly notifies you if the product you’re browsing is available more cheaply from another retailer. The notification provides a convenient link straight to the relevant product page on the competing retailer’s website.

InvisibleHand supports over 100 retailers in US, UK and Germany. Support for Canadian retailers is coming soon.

This money saving extension gets its name from the 18th century economist Adam Smith's concept of the invisible hand of the market. Smith didn't have Google Chrome to help prove his point, but we hope he would approve.

Details.

FTC-mandated disclosure: Google sent a team of engineers over to my condo to vacuum the carpets and clean the windows in exchange for my little blurb above. In other words, what Bob said.

Posted by Edward J. Lopez at 05:54 PM in Economics

A Bad Idea for a Drinking Game

Anyone taking a gulp anytime Obama said "I" in this speech likely ended up more hungover than Keynes in the rap video.

Posted by E. Frank Stephenson at 04:32 PM in Politics

Irrational politics, and are you a real person?

It's getting hard to maintain the illusion that fiscal policy is done in a rational way when the solution to a recession one year is to spend $787 billion and the solution a year later is to freeze spending.

On CNN.com's homepage, there are links to "Stimulus doesn't help middle class" and "Stimulus helps real people," so I guess you can use your W2s to figure out whether you and your family earn enough income to be considered real.

Posted by Tim Shaughnessy at 03:13 PM in Politics

Steve Jobs Unveiled an Amazing New Product...

...in 1984, the year I started Kindergarten:

Then, in 2001, when I finished college and started grad school, he introduced the iPod:

Today, he unveiled the iPad. Of course, not all responses have been positive, and the Twitter feed shows the iPad getting iPanned (one comment on the Gizmodo liveblog asks "Does anyone else feel the same way they felt 12 minutes into Phantom Menace?"). It does look like an oversized iPhone, but I'll be interested in seeing what the reactions are over the next couple of days, and I fully expect that Jobs's critics will ultimately be iPwned (sorry, couldn't resist). And no, I don't plan to buy one.

Yet.

Posted by Art Carden at 01:43 PM in Misc.

Baptists, Bootleggers, and Bingo

Gambling interests gave money to the head of Alabama's anti-gambling task force when he was running for Attorney General. Public choice exam: explain. What are the implications for the "public interest" view of the state?

Posted by Art Carden at 12:13 PM in Economics

Jobs, Power, Politics, Tolkien

Courtesy of the Mises Institute, here's a podcast on libertarian themes in J.R.R. Tolkien's Lord of the Rings is embedded below. This is especially appropriate in light of two events that are happening today. The first is Apple's announcement of some kind of new iProduct, which will improve people's lives in ways we cannot foresee. The second is the State of the Union Address, which is the President's carefully choreographed exercise in truthiness followed by another carefully choreographed exercise in truthiness from the President's political opposition (here's Lew Rockwell on the contrast). Here's the video of Steve Jobs introducing the first iPod in 2001. Here's Tyler Cowen's "simple theory of political jobs," which go to "(p)eople who truly, deeply love the power." Here's a passage from Chapter 28 of Douglas Adams's The Restaurant at the End of the Universe that deserves some reflection on a day like today:

"The major problem — one of the major problems, for there are several — one of the many major problems with governing people is that of whom you get to do it; or rather of who manages to get people to let them do it to them.

To summarize: it is a well known fact, that those people who most want to rule people are, ipso facto, those least suited to do it. To summarize the summary: anyone who is capable of getting themselves made President should on no account be allowed to do the job. To summarize the summary of the summary: people are a problem.

And so this is the situation we find: a succession of Galactic Presidents who so much enjoy the fun and palaver of being in power that they very rarely notice that they're not.

And somewhere in the shadows behind them — who?

Who can possibly rule if no one who wants to do it can be allowed to?"

Posted by Art Carden at 11:22 AM in Economics

"Do You Have a Minute?"

Jason Womack is one of my favorite thinkers on productivity; I contributed a bit to his book The Promise Doctrine, and I'm going to review it for Lifehack.org. In the video below, he offers a couple of useful tips for dealing with interruptions. Here's a classic from co-blogger and music video superstar Michael Munger on meetings.

A proposal: Assume the average worker's time is worth $0.33/minute. Would meetings be more efficient if attendees were penalized $0.33*(other people in the meeting)*(number of minutes late), so that someone arriving five minutes late to a meeting with three other people is penalized $5 (perhaps to be redistributed to those who were there on time)? Or would that be a recipe for mutiny? Or would people be later more often since they're paying for their lateness with money rather than social capital? Are there any examples of policies like this? What do you think?

Posted by Art Carden at 10:28 AM in Misc.

On the Bookshelf: Paris Under Water

Historian Jeffrey H. Jackson--one of my colleagues at Rhodes--recently published a book called Paris Under Water: How the City of Light Survived the Great Flood of 1910 (find out more here). I picked up a copy a few days ago and look forward to reading it in light of my ongoing projects about the 1866 Memphis riot, the couple of papers I've written on Katrina, and the growing body of scholarship being produced by the Mercatus Center's Hurricane Katrina-Gulf Coast Recovery project. My prior is that I'm going to find the book interesting and useful.

Posted by Art Carden at 09:52 AM in Economics

January 26, 2010
Hit and Run

A few things--other than the cool Keynes/Hayek rap--that have caught my eye over the past few days:

William Shughart on Haiti and the broken window fallacy.

Robert Higgs on disappearing private sector jobs.

Peter Schiff on the minimum wage hike in American Samoa.

Federal Subsidy Programs Top 2,000

Two NBER WP on labor supply elasticities (here and here): The second one has an important finding vis-a-vis supply side economics:

[W]e find that standard microeconometric methods underestimate structural labor supply elasticities by an order of magnitude.

UPDATE: Some interesting papers in the current REStat: Ugly Criminals, war is bad, trade is good, and institutions matter.

"Marketplace" has a piece on corruption in China.

"Marketplace's" Scott Jagow isn't impressed with the Obama spending freeze (a question for Obama and Jared Bernstein: If it's possible to cut $250B of wasteful spending from the budget then why did you sign the bill(s) that included said wasteful spending?).

UPDATE2: Casey Mulligan on the minimum wage.

The regressivity of carbon taxes.

Posted by E. Frank Stephenson at 06:24 PM in Economics

Rand's political philosophy

Cato Unbound has an interesting discussion this month under the title "What's Living & Dead in Ayn Rand's Political and Moral Philosophy?" Of course, it's of special interest in MY household, because my wife is one of the discussants ...

Posted by Lawrence H. White at 01:41 PM in Politics

On the Hayek/Keynes Video (Updated)

Co-bloggers Larry White and Mike Munger discuss the video below; I liked it, and (SPOILER ALERT) I thought the placement of a copy of The General Theory in Hayek's hotel room where a Gideon Bible would normally be was a stroke of genius. The YouTube video now has about 74,000 views, and I look forward to more from the team behind it.

While we're on the subject of great music videos, Nickelback's "Rockstar" is below the fold. From what I can tell, the YouTube upload is licensed, legal, and official.

Read More »

Posted by Art Carden at 01:25 PM in Economics

Wise Words

"Do not meddle in the affairs of dragons, for you are crunchy and good with ketchup."

--Seen on a bumper sticker in Memphis

Posted by Art Carden at 12:50 PM in Funny Stuff

January 25, 2010
Latest on Policy Communicators Contest

A brief reminder that the 2010 Policy Communicators Contest is still open to entries.

Basics:
The research question is "How do public policies influence measures of economic performance?". Awards are $15,000 for first prize, $7,500 for second, and $4,000 for third. Top three receive travel money to present their papers at APEE 2010 in Las Vegas. Please visit APEE's conference website for complete details.

New information:
1. The extended deadline for entries is now midnight Pacific time on February 20.

2. The all-star panel of judges has been set: Bruce Yandle and Ben Powell are the headliners; this guy (me) brings up the rear.

3. Feel free to get in touch with me with any questions.

Posted by Edward J. Lopez at 06:12 PM in Admin

Hayek vs. Keynes, in rap

The much-awaited video from Russ Roberts and John Papola, linked to by Mike Munger below, is a hoot. My only complaint: in real life Hayek was younger than Keynes.

A larger-screen version, plus lyrics, credits, and background info on Hayek and Keynes are at http://econstories.tv/home.html. The site also promises to soon have "clips from interviews with leading economists on macroeconomic concepts and the current state of macroeconomics". I was one interviewed, and I'll pass the word when my interview goes up.

Posted by Lawrence H. White at 05:06 PM in Economics

The VIDEO!

The video. I humbly present the video: Fear the Boom & Bust.....

I am the Limo Driver to the Stars. Where to now, Lord Keynes?

Posted by Michael Munger at 04:20 PM in Economics

Why do economists criticize the Fed so little?

Steve Hanke in the National Post:

Chairman Bernanke’s denial of the Fed’s culpability raises an interesting question: How can the Fed make fantastic claims without being brought to account?

In search of an answer Steve cites Milton Friedman, Gordon Tullock, and kindly my work on the Fed's influence on research in monetary economics, which is available here.

Posted by Lawrence H. White at 11:14 AM in Economics

A New Addition to the Bookshelf

My copy of Literature and the Economics of Liberty: Spontaneous Order in Culture just arrived (buy for $20 here, or download for $0 here; I've done both). I'm really looking forward to it; as I've come under the influence of Deirdre McCloskey in the last seven or eight years I've come to realize that there are a lot of unrealized gains from trade to be enjoyed through multi-disciplinary conversation.

FTC-Mandated disclosure: I have received valuable consideration from the Mises Institute in the past in exchange for writing and lectures. I have not received any valuable consideration in exchange for endorsing this book.

Posted by Art Carden at 11:04 AM in Economics

January 24, 2010
Spontaneous order . . . or something like it

According to the Wikipedia entry for Phenix City, Alabama --

"Although Alabama is legally part of the Central Time Zone, Phenix City's proximity to the larger city of Columbus, Georgia means that Phenix City and areas within a 10-15 mile radius (such as Smiths Station, Alabama) observe Eastern Time on a de facto basis, including the Phenix City municipal government."

Posted by Mike DeBow at 07:34 PM in Misc.

January 23, 2010
A great First Amendment win

The Supreme Court's decision this week in Citizens United v. Federal Election Commission is a wonderful blow in favor of free speech and free elections. I won't go into detail here - suffice it to say that it frees up tens of thousands of small businesses and union locals to participate directly in politics, speaking out on issues of importance to them as corporations and unions. And suffice to say that the government argued - I'm not kidding - that the Constitution allowed it to ban books, movies, Kindle downloads, if they were produced or distributed (as they all are) by corporations.

I've got a piece at the Wall Street Journal, one at USA Today, and a third up at AOL News. Collect them all!

You can check out the Center for Competitive Politics links here and here for more news and round up.

Also, here you can find my broadcast on NRA Radio last night. Look at the links on the right to go directly to my segment. I'll also be on NPR at 2:15 on Monday.

And finally, there is an important corporate law issue to this case, and I recommend you go to ProfessorBainbridge.com to read up on them - scroll down a bit, he's got several entries on the case.

Posted by Brad Smith at 11:38 AM in Law

January 22, 2010
Econ Journal Watch

The new issue of Econ Journal Watch is now available. The lead article by Lars Jonung and Eoin Drea reviews what American economists have written about the Euro project over the years and discusses why they seem to have been overly pessimistic about its survival. Mostly they thought that the Euro Zone didn't meet "optimum currency area" criteria. But, as a few presciently argued, there's a Lucas Critique problem with making such a judgment about the Euro Zone based on observations while it was under a different regime.

In conjunction with the new issue, my new EconJournalWatch Audio podcast is also up. Taking off from his article in the previous issue of EJW, I chat with Bruce Benson about his transition from a math-econ "game player" (his term) to an applied-econometrician-critic of non-robust results used for spinning policy advice, thence to his current persona as a "narrative political economist". Bruce makes some interesting observations about the sociology of the economics profession.

Posted by Lawrence H. White at 04:52 PM

January 21, 2010
Sailing from Byzantium

I finished reading Colin Well's Sailing from Byzantium: How a Lost Empire Shaped the World. It's "cannot put it down" history. If, like me, your knowledge of the Eastern Roman Empire begins with Diocletian and stops with Justinian, this is the book for you.

The book is actually less about Byzantium than it is about the enormous legacy bequeathed by Byzantium to three younger civilizations that grew up around it: "the West," Islam, and the Slavs. Wells's hypothesis is that, in radiating waves, Byzantium sent out classical Greek learning and orthodox Christianity. These waves of thought prfoundly influenced the three surrounding civilizations. For example, Wells argues that the Byzantine spread of classical Greek rationalism triggered first Scholasticism and then the Rennaissance in the West.

For reasons unclear, this is the passage that stuck with me the most:

A devout people with its back to the wall can be pushed deeper and deeper into hardening religious nativism, in the end preferring national suicide to religious compromise. This is what happened to the Byzantines. In that sense, Byzantium chose its fate. Military conquest by the Turks was less of an evil than spiritual submission to the hated Catholics.

The book has done nothing to dissuade me from "Noel's Grand, If Unproven, Hypothesis." But, more on that later....

Posted by Noel Campbell at 08:08 PM

Externalities explained...

by the Onion:

"It's fine, it's fine," thought Maine native Sheila Hodge, echoing the exact sentiments of Chicago-area resident Phillip Ragowski, recent Florida transplant Margaret Lowery, and Kansas City business owner Brian McMillan, as they tossed the polyethylene terephthalate object into an awaiting trash can. "It's just one bottle. And I'm usually pretty good about this sort of thing."
Posted by Robert Lawson at 01:45 PM in Economics

January 20, 2010
Is the Welfare State Justified?

Philosopher Danny Shapiro says "probably not" in this 8-minute C-SPAN interview. He gives straightforward consequentialist economic reasons why not, namely, he explains how the welfare state hinders rather than promotes the fairness, etc., that its proponents cite as justifications.

Posted by Lawrence H. White at 10:38 AM in Economics

"Politics is getting so weird"

A friend writes:

Politics is getting so weird.

Last month I was blessing the commies in China for killing the Copenhagen conference.

Now I’m blessing the most liberal state in the union for burying Ted Kennedy and Obama’s agenda.

Posted by Brad Smith at 09:39 AM in Politics

January 19, 2010
Kelo and Government Size

The abstract of a paper by Geoffrey Turnbull and Rob Salvino:

The 2005 U.S. Supreme Court decision Kelo v New London allows using eminent domain to transfer property from one private party to another when it serves a broadly defined public purpose such as economic development. This paper examines the effect of this doctrine on the size of state and local governments. In the leviathan model, constitutional constraints are needed to control government expansion. The Kelo decision removes one such constitutional constraint on how state and local governments gain command over privately owned resources. The empirical results show that the breadth of eminent domain power affects the size of the public sector; states that explicitly empower their local governments to use eminent domain for private economic development have larger state and local public sectors than those that do not.
Posted by E. Frank Stephenson at 04:00 PM in Economics

Score one for the good guys?

Vic Matheson, Phillip Porter and I were cited in this reasonably balanced Miami Herald story concerning the net economic benefits of hosting the Super Bowl, especially in the case of South Florida.

It is somewhat telling about who declined to be interviewed for the story (economic impact study authors) and the "arguments" offered against the increasingly large number of academic studies showing ex post how little net economic impact the biggest sporting events seem to have on local host economies.

There is one interesting paragraph in the story:

Advocates of the Super Bowl as an economic engine dismiss its academic skeptics as using complicated formulas to obscure the obvious. And they note that the reports bashing NFL figures bring the professors coveted media coverage as the big game approaches.

This is an interesting argument. First, it is possible to paint the OLS estimator as a "complicated formula" but it is immensely more elegant than the strained assumptions and calculations that go into the generic regional economic impact study. Rather than making assumptions about what will be spent, in what sectors money will be spent, and what multipliers to assign to these dollars, the ex post studies (by myself, Dennis Coates, and Vic Matheson, to name a few) look at tax revenues, taxable activity, hotel occupancy rates, and so forth, all after the event takes place. This is a vital distinction and does not make us skeptics.

Indeed, I think most of the sports economists I know would be happy to find the magic formula that turns sporting events into big impact events. Without sporting events, stadiums, leagues and franchises, sports economists have very little to talk about. We are "skeptics" only to the extent that we investigate the impact of the events ex post and let the data speak rather than imposing our priors onto the results.

As for "coveted media coverage," I didn't seek out the reporter, he called me. Do I like spending 1.5 hours discussing the findings of myself and other economists? Sure. Do I care if I make into a newspaper story in the process? Not really. I get no raise from my college, I get no free coffee at the local gas station, and after being mentioned in over 75 articles in publications ranging from the Wall Street Journal to Newsweek to Bloomberg, the marginal "press coverage" is no longer coveted.

The more lucrative approach would be to find evidence that the NFL Super Bowl generated $500 million or more dollars for the host economy and sell that peer-reviewed research to the NFL in exchange for tickets to the game.

I probably read too much into such nameless accusations, but I wonder if such accusations come from others projecting their own "coveting." It is dangerous to claim knowledge about the motivations of others, although there is no shortage of people willing to do so. In my case, the accusation is unfounded and mistaken. I hope, in the end, such accusations come across as fairly weak and the reading audience sees them that way.

Outside of about thirty (or slightly more) macro-economists who have a hot-line to the White House or Congress, it often feels that most of us (economists) have little impact on public policy and the public debate. However, in the case of sports economics and the stadium game, my sense is that we are are having some success in alerting the public to the true costs and benefits of building stadiums, hosting franchises, and bidding on events.

Does this imply that sports economists do not want Miami to build a new stadium for the Dolphins? I can only speak for myself and say, I don't really care what they do. I do care, however, that the public debate (at least about this little corner of the collective sandbox) be based on, as much as possible, accurate measures of costs and benefits. Once that is done, the actual outcome of the public choice experiment is of little concern to me.

Posted by Craig Depken at 02:14 PM in Sports

Haiti, Immigration, and Development

I've argued several times that open immigration is an idea whose time has come (below, for example). Austin the Undergrad disagrees and raises a number of good points, but a) I think that the empirical literature still suggests a net gain and b) his criticisms aren't criticisms of immigration per se but of the welfare state (I discuss discrimination and forced association here). The problem is that for open immigration to work to its fullest potential, a lot of things would have to change at once.

Ilya Somin links to an interesting piece by Paul Romer and offers intriguing commentary (HT: Will Wilkinson). I share their concern that a massive humanitarian/military/colonial/whatever exercise in state-building is a recipe for disaster.

Posted by Art Carden at 09:12 AM in Economics

January 18, 2010
MLK and Poverty

Here's an article from today's Memphis Commercial Appeal that contains an entire econ 101 exam or two worth of possible questions. What's missing from the article?

Posted by Art Carden at 03:41 PM in Economics

Lindsey Graham opposes the industrial revolution

Wow. “'All the cars and trucks and plants that have been in existence since the Industrial Revolution, spewing out carbon day-in and day-out, you’ll never convince me that’s a good thing for your children and the future of the planet,' [Graham] told a crowd in South Carolina,... ."

Graham thinks it would be a good thing if we had no cars and trucks, no electricity in amounts that could serve any purpose (and no serious means to construct hydroelectric plants in any case)? He thinks it would be better for us and our children if we lived as in 1800, when the average life expectancy was about 40 - if you survived childhood?

Wow.

Posted by Brad Smith at 11:42 AM in Economics ~ in Funny Stuff ~ in Politics ~ in Science

Podcast of Many Colors

For podcast fans: An econ version of "Pardon the Interruption."

With the indefatigable Russ Roberts as the interruption.

And as always, available on iTunes U, for use while driving or exercising. Makes a GREAT gift!

Posted by Michael Munger at 11:41 AM

January 16, 2010
The Hurt Locker

Last night I watched Bigelow's "The Hurt Locker" on DVD. It's a fictional movie that puports to follow a squad of EOD techs (an IED disposal squad) over the last two months of their 2004 deployment in Iraq. In this case, the critics were right. In order to make a great movie about the Iraq war, Bigelow had to remove the politics. The movie is completely apolitical, and it is a great movie. Bigelow reminds us that after we strip away the politics, ordinary Americans did (and continue to do) a difficult, dreadful job under chaotic, horrific circumstances. The job and the conditions can be soul killing or personally defining.

It's a movie that will definitely stay with you and cause you to reflect about the violence humans inflict on one another. I recommend it.

Oh, the promo materials suggest that the movie stars Guy Pierce, Ralph Fiennes and David Morse. However, those three guys have only about ten minutes of screen time, combined.

The Amazon link is here.

Posted by Noel Campbell at 03:29 PM

Haiti and the Development Idea that Hasn't Been Tried

The world is still reacting to the horrific death and destruction in Haiti, and a lot of people are asking "what can I do to help the world's poor?" Here's Michael Clemens with an answer on "The biggest idea in development that no one really tried." In short, open the borders. I've written on this at DOL before (1, 2, 3, 4), but the recent disaster in Haiti illustrates the human tragedy caused by poverty--poverty that can be substantially reduced by adopting markets without borders.

Posted by Art Carden at 01:58 PM in Economics

January 15, 2010
The New Paternalism Crashes Down the Slippery Slope

Here's Glenn Greenwald on Cass Sunstein's recommendations for how the government can deal with conspiracy theories (HT: Will Wilkinson). Along the same lines, here's the latest installment of "New Paternalism on the Slippery Slopes" from Glen Whitman at ThinkMarkets.

Posted by Art Carden at 07:11 PM in Economics

Best Quote of the Month, 01/10 edition
"My attitude is this: if you are getting attacked by Krugman, you must be doing something right." --Eugene Fama

Read the full interview here.

Posted by Noel Campbell at 06:55 PM

Once politicians began taking credit for homeownership rates it was all over

Vernon Smith at Big Think, answering the posed question, "How has the government response to the crisis impacted household incomes, housing policies, and tax changes?"

And of course what the Administration is doing is the same thing any Administration would do in this, probably, in this crisis, and that is to try to prevent the price of homes from falling. So they're shoring up the demand for homes by more subsidies. Now if you think about that you realize that the proposed solution now is exactly what the problem was. So the solution is the problem, more of the same. And the question is how do you get out of this sort of vicious circle. What's important is, you try not to get there in the first place. Because once you're in this kind of a downturn all of the political pressures are to further artificially expand the demand for homes and to shore up those prices. Even though what we really need is for those prices to come down relative to the prices of other things in the economy.
Posted by Edward J. Lopez at 06:22 PM in Economics

Money I Found Today

In an attempt to gin up some followers, I announce my latest (third) blog: Money I Found Today. It is an experiment in documenting how much money I find laying on the ground over the next year or two.

I know, there is a solid argument that such an endeavor is a fool's errand as my time is worth more doing other things. Yet, doesn't that characterize almost all blogs?

Posted by Craig Depken at 01:52 PM in Economics

January 13, 2010
Did a Deal With the Devil Cause the Haitian Earthquake?

According to Pat Robertson, the Haitians won their freedom from the French by swearing "a pact to the Devil." Again according to Robertson, their history of poverty is due to this unholy bargain.

There are a couple of problems with this explanation, though. First, it doesn't account for Haiti's prosperity relative to other countries that, as far as I know, haven't made any bargains with Satan or their pre-quake growth.

Second, a few minutes with the Google turned up a three-part series of articles by Jean R. Gelin in which he argues that the "Haitian deal with the Devil" claim is a myth (Part 1, Part 2, Part 3).

Here's Tyler Cowen on Haitian poverty.

HT: Charles McKinney for the Robertson link.

Posted by Art Carden at 05:45 PM in Misc.

Economic Fallacies from the Laffer Curve

My recent letter to the editor of the Chronicle of Higher Education:

I enjoyed the article about stand up comedian and economist Yoram Bauman, who is a truly funny guy. However, I was disappointed that the reporter, Peter Monaghan, propagated an economic fallacy with his misleading definition of the Laffer curve. On page A9 of the January 8th edition, Monaghan states, "Who, apart form the odd audience member, would know that the Laffer curve plots out the tax (rate) that governments should levy to achieve an optimal balance of revenue and economic activity?"

The Laffer curve simply tracks the amount of total potential tax revenues that can be collected by the government at different tax rates. In the case of income taxes, the Laffer curve reveals how potential total income tax revenues first increase as the income tax rate increases from 0%, but then eventually decrease as the tax rate nears 100%. Because nobody will continue to work at a 100% tax rate, it stands to reason that increasing the tax rate beyond some identifiable rate would actually decrease the total revenues collected.

This means the Laffer curve can identify an unique tax rate that maximizes total potential tax revenues. However, it neither identifies an optimal tax rate that would maximize potential economic activity, nor does it identify the optimal level of tax revenue to be collected by the government. In other words, the Laffer curve does not reveal an optimal tax rate that balances economic activity against tax revenues. (Nor does it imply that the optimal tax rate is the one which maximizes total potential tax revenues!)

Economics is less a dismal science than a too often misunderstood science.

Sincerely,

Michael D. Stroup

Posted by Mike Stroup at 04:40 PM  ·  Comments (7)

Political FAIL, c. 1866

I'm slogging my way through the records of the US government investigation of the 1866 Memphis Riot for a couple of papers Chris Coyne and I are working on. It's one of the more difficult reads I've ever encountered: it's 371 pages of very tiny print with something important and relevant on almost every line. The more I read the more I'm convinced that turning over the provision of law and order to a monopolist that is only accountable through political channels creates more problems than it solves. Chris and I will explore this in greater detail when we finish the paper, but I had to stop and blog this, from page 214. It's from lines 3330, 3331, and 3332 of the testimony of B.F.C. Brooks, editor of the Republican.

I have heard the remark again and again, "By God, we'll clean you all out. Just get the troops away, and we'll show you, when we get things into our own hands."

3331. Mention any one from whom you have heard such sentiments. Colonel Saffrons.

3332. Has he not recently been elected to office here? Yes sir; judge of the county court. He added something to the effect, "we shall some time get things into our own hands. True, we cannot vote now, but we have friends who can, and we will soon get you fellows out of here, and then we will take things into our own hands."

Posted by Art Carden at 03:49 PM in Economics

facebook ad -- FAIL

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Posted by Robert Lawson at 02:49 PM in Funny Stuff

New Paper: Economic Progress and Entrepreneurial Innovation

"Economic Progress and Entrepreneurial Innovation: Case Studies from Memphis," available at SSRN. The abstract:

"Entrepreneurial innovation encourages economic progress, and an institutional climate that encourages risk taking, rewards success, and weeds out failure is essential to a well-functioning economic system. This essay explores a cluster of path-breaking entrepreneurial innovations with common roots in Memphis, Tennessee: Piggly Wiggly’s popularization of self-serve grocery shopping, Holiday Inn’s innovations in standards and quality, Autozone’s adaption of insights from other industries, and FedEx’s creation of a distribution network that has made overnight shipping a reality."

Posted by Art Carden at 02:30 PM in Economics

Bet You Didn't Know That ...

... at UNC-Chapel Hill one can earn a minor in social and economic justice without taking an economics course. See for yourself here (scroll down)--the minor includes some economics courses as electives but does not require even a single principles course.

Posted by E. Frank Stephenson at 01:06 PM in Culture

Failure Insurance: An Incentive to Fail?

Georgia's HOPE Scholarship program requires students to maintain a B average to maintain funding; I think some other state scholarship programs contain similar incentives. Now comes a different idea--failure insurance:

Imagine a first-generation college student whose high-school preparation was less than ideal. She has just finished her first semester, and she realizes now that college is going to be tougher than she had hoped. She failed one course and struggled to earn C's in her other subjects. She worries that she'll eventually flunk out, and she wonders whether she should walk away now before she accumulates any more student debt.

But what if she could hedge her risks by buying a "failure insurance" policy that would reimburse her for a portion of her student-loan debts if she did flunk out? Would that make her more willing to stay for another semester?

Failure insurance might sound outlandish—but a well-designed insurance system could actually improve students' effort and their attainment rates, according to a working paper that was presented in Atlanta last week at the annual meeting of the American Economic Association.

Seems like there's some potential for moral hazard here--garner an F and get ones college debts forgiven. Here's the paper.

UPDATE: A co-blogger points me to this company that already offers grade insurance of sorts.

Posted by E. Frank Stephenson at 12:58 PM in Economics

Segregation and Public Choice

Here's a very nice post from Brian Pitt at The Sociological Imagination. In light of MLK Day this coming Monday, here's a one-sentence summary of my viewpoint on just about everything:

Our moral failings, character flaws, and biases are rewarded and magnified through the political process but punished and reduced through the market process.

Posted by Art Carden at 10:47 AM in Economics

Don't think it can't happen here

The news coming out of Haiti is breath-taking. The local news this morning questioned why there are no construction codes in Haiti pertaining to earthquakes, bringing in comparisons with China, Turkey, Iran, Afghanistan, and other countries where earthquakes are not completely uncommon and yet there seems to be few precautions taken in construction.

Two potential reasons for the absence of earthquake construction codes came to mind immediately. First would be corruption (explicit or implicit) of the political process in which the "general welfare" is ignored for personal gain on the part of those in the positions of influence. The second, and less knee-jerk, reason is that earthquake codes (along with airbags, clean-coal, etc.) are luxury goods which the countries I enumerated above might not have the means to purchase. Our tsk-tsking does not solve that problem.

In April 1906 an earthquake devastated San Francisco in a pre-post-industrial world. The destruction was wide-spread and in many cases complete. I had plenty of "circa" postings concerning this event in the past (list here) Given that experience, and other more recent earthquakes, there is an expectation that another "big one" will hit in California. The unpredictable nature of earthquakes, coupled with our affluence (and, some might say, intrusive government regulation), California and other states have introduced construction codes aimed at mitigating the damage inflicted by earthquakes.

It seems less obvious to me whether the codes instituted in this country are sufficient to allow buildings to survive the "big-big one," something that seems to be taken for granted by those who comment on the lack of codes elsewhere. That is an empirical question I hope we don't have a natural experiment to test.

However, those of us in the Southland (and in the Midwest and in the Northeast) should not rest too easy. I am in the middle of reading "A Crack in the Edge of the World," which is about the 1906 SF earthquake but also, in the long run up to the actual event, about the whole reason there are earthquakes in California to begin with.

In a nutshell, and from a layman's perspective, the North American tectonic plate butts up against the Pacific tectonic plate somewhat west of California and butts up against the European tectonic plate somewhere east of Greenland. Unexpectedly and without current explanation, the North American plate has experienced seismic activity in a rather wide diagonal through its middle basically from New England through the Appalachians and out into Missouri, over the past 200-plus years (in recorded history but obviously much longer than that).

For example there have been tremendous earthquakes in the past in New Madrid, Missouri (1811), York (1884), Memphis TN (1845), and Charleston SC (1886), to name just a few places that would not seem to be obvious candidates for earthquakes.

My point is not to suggest perpetual vigilance and fear of an earthquake in the South but rather to avoid the "It can't happen here" syndrome.

Posted by Craig Depken at 10:13 AM in Economics

Jocks > Nerds


Posted by Robert Lawson at 09:41 AM

Quality and the Commons: The Surf Gangs of California

That's a new Journal of Law and Econ paper by Daniel T. Kaffine; the abstract (ungated version here):

In open‐access settings, high‐quality resources are lucrative, yet fencing out potential entrants may be very costly. I examine the endogenous creation of property rights, focusing on the incentives that resource quality provides to close the commons. Analytical examples explore the incentives of locals to increase or decrease the strength of property rights conditional on how locals and nonlocals value the quality of the resource. The empirical analysis looks at a unique resource—surf breaks—and estimates the relationship between the exogenous quality of the resource (waves at the surf break) and local attempts to seize the common surf break. Using cross‐sectional data on 86 surf breaks along the southern California coast, this paper finds that a 10 percent increase in quality leads to a 7–17 percent increase in the strength of property rights.
Posted by E. Frank Stephenson at 09:33 AM in Economics

Markets in everything: Bobby Cremins Edition

The College of Charleston beat UNC Chapel Hill in basketball last week. Given that this is likely the biggest win in the program's history, the CoC has come up with an interesting fund-raiser: auctioning off the seat of head coach Bobby Cremins.

I get no finder's fee, but here is the link if you wish to bid on this historic perch. Deadline is (at the moment) January 20.

Current bid (8:58AM) is $400.

Surely they can get more than that.

Posted by Craig Depken at 09:00 AM in Sports

January 12, 2010
Eschatology Bleg

I had a very interesting conversation at lunch today with someone who wanted to discuss a paper he had written for the meetings of the Evangelical Theological Society. I learned a few things about eschatology (the study of the Biblical end times) that I didn't know before, and I want to make a further study of premillennialism, postmillennialism, and amillennialism. I just read an interesting essay by Gary North on the eschatological schizophrenia of the American right, and I want to learn more. In my limited understanding, the premillennialist view that things will get progressively worse and progressively darker doesn't square with the global spread of Christianity or the explosive growth in prosperity that we've seen in the last two hundred and fifty years. If you have any reading suggestions, I would be grateful.

Posted by Art Carden at 08:55 PM in Culture

Walter Block on Tour

Someone needs to print t-shirts.

Posted by Art Carden at 05:14 PM in Misc.

Big Mac

So Mark McGwire took steroids. He was my favorite player from the time he broke into the league until the time he retired. I'm disappointed, but I think the real question is this: what business did Congress have asking McGwire, Rafael Palmeiro, and others what they were putting in their bodies?

Update: Steve Horwitz sends this along.

Posted by Art Carden at 02:24 PM in Sports

The Caveman Diet

This looks pretty interesting, but I wonder if their plans also involve dying of treatable diseases or foodborne illnesses by age 35. HT: Jeremy Horpedahl.

Posted by Art Carden at 02:15 PM in Economics

Integrity distinguished from morality and ethics

I did not realize that Michael Jensen is writing with Werner Ehrhard. For a related interview of Jensen, click here.

Posted by Mike DeBow at 12:38 PM in Economics

Watching paint dry c. 1910

From the January 12, 1910 NYT:

Yale opened the basket ball season to-night by a defeat at the hands of Trinity, 17 to 16. All the way Trinity led and had a safe lead when the first half closed by the score, 12 to 4. Yale's spurt in the second half was unexpected and came within 1 point of tying the score. Gildersleeve and Cook starred for Trinity, while Goodwin's goal-throwing and Eames's defensive play featured the Yale game.

Goals from the field: Gildersleeve, 3; Abbey, 1; Carroll, 1; Goodwin, 5; Finnessy, 2.

Goals from the foul - Cook, 5; Eames, 2.


Wow.

Posted by Craig Depken at 11:43 AM in Sports

January 11, 2010
Krugman Being Krugman

In today's column (thanks to Mankiw for the pointer), Paul Krugman pulls out one of his favorite nuggets:

And Europeans are quite productive, too: they work fewer hours, but output per hour in France and Germany is close to U.S. levels.

A more accurate statement would be that output per hour is roughly equal because French and Germans work fewer hours. I took up this issue in a 2005 post which I repost below (lightly edited):

Consider a thought experiment: Suppose countries A and B each have 10 people employed and that output per worker in the two countries is equal. Workers within each country are not equally productive but the distribution of productivity is the same in both countries. (If it is easier to grasp--assume 10 sets of identical twins have been separated at birth with one child from each set of twins going to each country.)

Now suppose that country B decides to enact some sort of tax or labor market regulation. As a result of this policy the least productive worker in country B is no longer employed. (For concreteness, the policy might be a minimum wage law that makes it unprofitable for a firm to hire the worker at the minimum wage.)

What effect does this policy have on the productivity of workers in the two countries? Country B's productivity now appears to be higher than country A's because the least productive worker in country B is no longer employed and no longer counts in the productivity calculations. (This is akin to having one's course average increase when the lowest grade is dropped.) Stated differently, if one averaged over all 10 people in each country, A's productivity would be greater than B's because B has one worker producing nothing.

[snip]

The key part here is per hour worked. The difference in employment between the two countries is quite large--France's 2003 employment to population ratio was 51.9% while it was 62.3% in the U.S. I bet that French output per working age adult--that is adjusted in some manner for people who are out of work--is lower than in the U.S. Stated differently, I bet the most productive 51.9% of the U.S. population is more productive than the 51.9% of the French who are employed.

Is it too much to ask that a Nobel Prize winner know about thinking at the margin?

Posted by E. Frank Stephenson at 11:12 PM in Economics

Snark and Run

The real meaning of green jobs: Obama's Green Jobs Program: $135, 294 Per Job

Dogs Bark, Cats Meow, and Democrats Tax: Obama Planning New Fee on Banks

Posted by E. Frank Stephenson at 10:41 PM

Stimulus: The Real Voodoo Economics
A federal spending surge of more than $20 billion for roads and bridges in President Barack Obama's first stimulus has had no effect on local unemployment rates, raising questions about his argument for billions more to address an "urgent need to accelerate job growth."

An Associated Press analysis of stimulus spending found that it didn't matter if a lot of money was spent on highways or none at all: Local unemployment rates rose and fell regardless. And the stimulus spending only barely helped the beleaguered construction industry, the analysis showed.

Source.

Posted by E. Frank Stephenson at 10:30 PM in Economics

Markets in everything: BCS Grass Edition

From Saturday's "Sporting News Today":

Get your BCS sod

Parts of the Rose Bowl turf from Thursday night’s Texas- Alabama BCS National
Championship game will be sold in freeze-dried, encased three-inch by three-inch squares for $99.99, Sports Business Journal’s Don Muret reported.

Stadium Associates, Major League Baseball’s official licensee for selling authentic
sod from big-league parks, planned to cut 75,000 pieces of turf from the two end zones and 50,000 pieces from midfield and sell them.

The end-zones of a football field are 30ft x 160ft each for a total of 9,600 ft-squared or 1,382,400 inches squared. This area would be equal to 153,600 nine-inch squared pieces of sod, more than enough to provide the 75,000 pieces advertised. The rest of the field is 300ft x 160 ft for a total square footage of 48,000 ft-squared or 6,912,000 inches squared. There is plenty of sod available for the 50,000 pieces to be cut from midfield.

Let's start with what we know: If all pieces are sold then total revenue will be (75,000 + 50,000)x99.99 = $12,498,750 in total revenue.

Let's start making some assumptions (for illustration purposes):

Let's assume that the used field was purchased for $5 million.
Let's assume that the marginal cost for preparing each piece is $10.

These assumptions yield an average fixed cost of $40.
These assumptions yield an average total cost of $10.

Given the assumption of MC=$10 and the factual $99.99 price, the price elasticity of demand (e) for the sod-selling monopolist would this be:

1/|e| = (P-MC)/P

1/|e| = (99.99-10)/99.99 => 1/|e|= 0.0.8999 => |e| = 1.111

This would suggest that sod from the game is (barely) a luxury good (duh, thanks to Mark S. for the pointer) barely price elastic. I would buy that if the marginal cost is relatively close to zero.

The average total cost for each piece of sod is $50 and total profits (assuming all 125,000 are sold) would be $6,248,750. This would represent a total profit margin of approximately 100% (profit is 99.98% of total cost).

If the sod-selling monopolist is only going to use 125,000 of a possible 768,000 3x3 inch squares, what do they do with the remaining sod? Perhaps they have to pay to dispose of it. If that costs another $500,000, this would reduce the profit of the enterprise to $5,748,000. Still not bad for a little bit of effort and creativity.

What if the Rose Bowl committee negotiated for a higher fixed price for the field, perhaps to provide additional monies for scholarships or whatever sounds good. How high could they push price before driving the sod-selling monopolist to zero accounting profit?

(P-ATC)Q = 0 => ATC = P => AFC + 10 = 99.99 or an average fixed cost of 88.99 or a total fixed cost of 88.99x125,000 = $11,123,750.

What if the Rose Bowl committee were to charge a price for the field that would allow the sod-selling monopolist a "reasonable" return of, say, 10% gross profit instead of nearly 100%? This would reduce the price to nearly $10 million. I doubt (but have no proof) that the price of the used sod was remotely close to this.

Rather, let's go the other direction and assume that the the field sold for only $1 million. If we still assume a $10 marginal cost per piece, this would reduce the average total cost to $18 and increase total profit to (99.99-18)x125,000 = $10,248,750!! If there were still $500,000 in disposal costs, the profit would be $9,748,750.

So much for the supply side. Is this an example of a monopolist putting their customers over a barrel and extracting unwarranted monopoly rents? Relative to a perfectly competitive market, perhaps, but such a market couldn't exist in this case. That said, there is likely to be considerable consumer surplus in this market, especially for Alabama fans. What that consumer surplus equals is impossible to calculate on the back of an envelope, however it is likely to be positive and, as such, this "emergent" market will make any number of college football fans better off than they would have otherwise been.

I wonder how many men-on-the-street are willing to celebrate that?

Posted by Craig Depken at 11:32 AM in Sports

Stossel on Atlas Shrugged

Starting here on YouTube (HT: Steve Horwitz). The first guest is John Allison from BB&T.

Update: Yaron Brook's discussion of selfishness near the end of segment three is not to be missed. Selfishness, for Rand, is a much more subtle, nuanced, and rational concept than selfishness as it is described by a lot of other people.

Posted by Art Carden at 10:46 AM in Economics

A City Attorney Who Might Need "The Diff"

From the AJC:

A numerical blunder has cost the Snellville city attorney his job, officials said.

Mike Williams, who was hired in 2008, won’t be reappointed at tonight’s City Council meeting. In late September, he miscounted the number of days required between the call of a Sunday alcohol sales referendum and the actual vote.

“We need a city attorney who can count to 40,” said Councilman Tod Warner, noting that Williams’ miscalculation meant the city was three days shy of the state-mandated time period. “He screwed up.”

The blunder led to the council changing its liquor laws by council vote, rather than referendum. Although Williams told the city it was on firm legal ground to do so, the vote prompted a lawsuit and temporary restraining order against Snellville.

Background on "The Diff."

Posted by E. Frank Stephenson at 08:53 AM

Coming Up Short on History: Robert Reich Edition

Reich may be a Rhodes Scholar, but his knowledge of economic history is pint-sized. Here's a snip of him from yesterday's "This Week" program on ABC:

The most important thing government can do is stimulate the economy. And right now, you have Republicans who are sounding like Herbert Hoover, who are saying, "Don't do anything. Just allow the economy to do what it's going to do on its own."

Bob, Bob, Bob--Hoover was an activist. Here's Amity Shlaes (The Forgotten Man, p. 91):

Right away [following the stock market crash]--in November 1929--Hoover pushed to expand an existing public buildings program by the healthy sum of $423 million on the theory that the spending would boost the economy. In Washington, builders put up great structures--a new agriculture department, for example.

Government spending didn't exactly follow a "don't do anything" path under Hoover: It went from $3.127B in 1929, $3.32B in 1930, $3.377B in 1931, and $4.659B in 1932.

Posted by E. Frank Stephenson at 08:44 AM in Economics

January 10, 2010
The Right Kind of Nothing

An article in the most recent Chronicle of Higher Ed.

Excerpt:

In Europe, grocery stores require cart deposits. You put a euro in a slot to (paraphrasing Ray Charles) unchain your cart. Return the cart, get your euro back. It's a fine system.

But I knew nothing of it. And I didn't know that I didn't know.

Well, an elderly woman was pushing her cart back toward the rack. I couldn't speak to her, but I pantomimed that I would save her the trouble of returning it. Her reaction surprised me: She scowled, and then dodged left and right. I had the angle on her, though, and cut her off, grabbing at the cart.

She surprised me even more by screaming. And then a large policeman ran up and started yelling at me. I tried to explain that I didn't speak German. He shouted, "What are you doin'?" The uber-Oma (she was five feet tall, in heels) rammed the cart into the rack, chained it, got her euro, and held it aloft, a gleaming talisman of victory.

ATSRTWT

Posted by Michael Munger at 04:51 PM

January 09, 2010
Letter to the WSJ

In response to this piece in today's WSJ, I sent the following letter to the editor:

Paul Campos ("Undressing the Terror Threat" Jan. 9-10) claims "there is little doubt that banning private gun ownership ... would reduce the homicide rate in America significantly." The U.K.'s experience suggests otherwise. The murder rate in England and Wales was 11.8 per million people in 1997, the year that gun ownership was banned (except for very narrow exceptions). The subsequent years saw the homicide rate steadilly increase to a peak of 18.1 in 2002-2003, and it remained at 14.1 in 2007-2008 (the most recent year available).

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

NB, the crime stats come from Table 1.01 of this document.

Posted by E. Frank Stephenson at 11:05 PM

So Which Is It?

I'm currently reading Jonathan Levine's Zoned Out as preparation for one of my spring courses. The book makes an important point: Although it is often portrayed as a market outcome, suburban sprawl is at least partly the result of government zoning regulation. Indeed, zoning laws typically prohibit denser development alternatives such as so-called New Urbanism.

I do have one quibble--the author can't quite make up his mind what we economists think of zoning:

p. 80: "[T]he very meaning of zoning as a collective property right--a view now broadly adopted by the economics profession ..."

p. 87: "Economists and other social scientists have split on the nature of zoning--with some viewing it as governmental regulation and others viewing it as more akin to a 'collective property right.'"

I have about one-third of the book remaining so maybe the author will make up his mind in the remaining chapters.

Posted by E. Frank Stephenson at 10:44 PM in Economics

Looks Like Mike Lester Has Read Freakonomics

Sunday's cartoon from the Rome News-Tribune's Mike Lester.

LesterBabyNames.jpg

Posted by E. Frank Stephenson at 10:17 PM

If Rush Can't Play "Tom Sawyer" on Rock Band...

...can we trust doctors, climate scientists, college professors, activists, and lobbyists to redesign the global economy? I've linked to this before--it's a video of Rush trying to play "Tom Sawyer" on Rock Band before their appearance on The Colbert Report--but after my most recent viewing it suggests a lot about the role of knowledge in a spontaneous order. Two quotes bear almost infinite repetition:

Friedrich Hayek: "The curious task of economics is to demonstrate to men how little they know about what they imagine they can design."

Adam Smith:

"The man of system...is apt to be very wise in his own conceit; and is often so enamoured with the supposed beauty of his own ideal plan of government, that he cannot suffer the smallest deviation from any part of it. He goes on to establish it completely and in all its parts, without any regard either to the great interests, or to the strong prejudices which may oppose it. He seems to imagine that he can arrange the different members of a great society with as much ease as the hand arranges the different pieces upon a chess-board. He does not consider that the pieces upon the chess-board have no other principle of motion besides that which the hand impresses upon them; but that, in the great chess board of human society, every single piece has a principle of motion of its own, altogether different from that which the legislature might chuse to impress upon it. If those two principles coincide and act in the same direction, the game of human society will go on easily and harmoniously, and is very likely to be happy and successful. If they are opposite or different, the game will go on miserably and the society must be at all times in the highest degree of disorder."

HT: Tom Woods.

Posted by Art Carden at 11:28 AM in Economics

Easterly, Acton, and Visionary Leadership

In prepping for my appearance on Radio Free Market this afternoon I've done some thinking about society's search for Great Leaders and Great Men. This made me think about a recent post on Aid Watch by William Easterly that everyone should read and a few passages in Democracy in Deficit, which I'm ashamed to say I'm only now reading. I have come to believe more and more in the explanatory power of ideas, and I think the presumption that They need Us to govern them--or more specifically, that You need Me to govern You--is especially pernicious. It also got me thinking about Lord Acton's insight about how very Great Men are almost always very bad men. Here are some quotes from Lord Acton that are especially relevant (I'm going to assume Wikiquote is accurate here):

"The danger is not that a particular class is unfit to govern. Every class is unfit to govern. The law of liberty tends to abolish the reign of race over race, of faith over faith, of class over class."

"I cannot accept your canon that we are to judge Pope and King unlike other men, with a favorable presumption that they did not wrong. If there is any presumption it is the other way against holders of power, increasing as the power increases. Historic responsibility has to make up for the want of legal responsibility. All power tends to corrupt and absolute power corrupts absolutely. Great men are almost always bad men, even when they exercise influence and not authority: still more when you superadd the tendency or the certainty of corruption by authority."

"There is no worse heresy than that the office sanctifies the holder of it."

"Advice to Persons About to Write History--Don't."

"Liberty is not a means to a higher political end. It is itself the highest political end."

"Truth is the only merit that gives dignity and worth to history."

Cross-posted at the Mises Blog and The Beacon.

Posted by Art Carden at 09:42 AM in Economics

Predictions: Indentification Strategies Through Sports

Regarding my earlier post, Kyle Jackson emailed me to ask about another intersection between my college sports loyalties and my research interests: "will the display have a negative effect on lynchings in the area?" See on this one of my papers on lynching here; several are another revision or two away from being circulated again. I have an idea for a paper on the rise of college football and the decline in violence in the South, but I'm skeptical about a relationship. There hasn't been a lynching in Tuscaloosa in many, many years, but I'll make the following predictions:

1. Alabama will see an explosion of babies born in early-to mid-September.

1a. It also occurs to me that, tragically, there will probably be an increase in the number of abortions in Alabama in the next couple of months.

I'm not sure how 1 and 1a would change if the University of Alabama hadn't canceled the first three days of classes in anticipation of the game. My guess is that since college students are probably more likely than others to engage in risky (i.e., unprotected) sex, both will be lower.

2. When the data are reported, they will show a rise in domestic violence in parts of Texas and a fall in domestic violence in parts of Alabama.

The more I think about it, the more I think that sports can be used as an identification strategy for topics related very broadly to reproduction, crime, teen pregnancy, sexual assault, and all sorts of other things. A recent paper by Card and Dahl argues that football upsets increase domestic violence. Collecting localized data on abortion, births, crime, etc. might be a little tricky, but with college football alone you have thousands of possible observations. For example, there changes in abortions, birth, and crime near schools that pulled off major upsets? Is the effect for football different from the effect for March Madness? How do effects change based on the size and type of the school? The mind boggles, but I think there are enough data here to give us clearer answers to important questions.

Posted by Art Carden at 08:17 AM in Misc.

January 08, 2010
The BCS Trophy Goes to Walmart

According to this story. HT: Matt Ryan.

Posted by Art Carden at 04:29 PM in Economics

Happy B Day Elvis -- are you out there?

Is there a better tribute to the King than Gary Busey's proclamation in the final minutes of the 1983 classic, D.C. Cab?


Posted by Edward J. Lopez at 01:29 PM in Funny Stuff

Blogometrics

That's the title of a paper by Franklin Mixon and Kamal Upadhyaya that reports rankings of bloggers based on their academic research. The rankings look about right--heavyweights such as Becker, Mankiw, and Posner top the list, peons like me are well down the list--but there is a problem with the rankings. Table 1 reports that I have 120 citations for a rate of 2.67 per year. Dividing those numbers implies I've been getting cited for more than 40 years. Similarly co-blogger Bob has over 1,800 cites and roughly 51 per year thereby implying that he's been getting cited for about 38 years. Since we're both just north of 40, there's no way we've been cited for 40 years. Luckily the error seems to be harmless because the rankings seem, at least to this low ranked scribbler, sensible.

Posted by E. Frank Stephenson at 01:23 PM in Economics

Update on "nonpersons" post

Diligent reader Steven J. has done my legwork for me by finding the links here and here. He was helping me with my previous post here. He writes, "You seem to have bought into some hyperbole by the plaintiffs' lawyers claiming that the court ruled that their clients were nonpersons.You will most likely strongly disagree with the decision, but I think you'll see that it's not as egregious as the second-hand reports make it out to be."

Steven J., correct on all counts. This is probably not Justice if The World Were Normatively Organized To Please Noel (and why shouldn't it be?), but this was not a good lawsuit under the correct statutes or case law. The rulings appears not to be a comprehensive destruction of individual liberty, as plaintiff's lawyers made them out to be, but rulings that seem to say (a) one cannot claim Constitutional protections if one is an alien and outside of U.S. territory, and (b) Congress left things a little vague in a couple of recent statutes.

Posted by Noel Campbell at 12:45 PM

Review of The Retail Revolution

My review of Nelson Lichtenstein's The Retail Revolution: How Wal-Mart Created a Brave New World of Business is online here.

Posted by Art Carden at 12:09 PM in Economics

Boettke on Academia

There has been a bit of chatter in the econ blogosphere about Thomas H. Benton's article in the Chronicle of Higher Education (see Bryan Caplan and Tyler Cowen, for example; I agree with Bryan's claim that people interested in the humanities should get PhDs in economics). Pete Boettke nails the conditions under which one should go into academia and explains some of the reasons why being a professor is such a great job. it has its aggravations, to be sure, but it also offers an incredible amount of freedom.

Posted by Art Carden at 12:08 PM in Economics

"I know the rules"

I had a nice Hayekian (Ostromian?) moment the other day.

The colleague next door to me in the department and I both attended the Gator Bowl last week to watch my alma mater (FSU) play his (WVU).

FSU won. (Go 'Noles!)

After the game, they were passing out free posters showing the score (33-21), and one of them miraculously showed up on his office door. (Dunno how that happened.)

Anyway, after a few days I mentioned that I was impressed that he hadn't taken the poster down yet. He said, "Hey, I know the rules."

Indeed. If he'd taken the poster down right away he'd be breaking the rules. But how did he know it was a rule? How did I know it was a rule?

Posted by Robert Lawson at 12:05 PM

Broken Window Panes

Ross Kaminsky on Bastiat, as applied to Pelosi:

Nancy Pelosi ... said that she wants whatever compromise health care bill emerges from their closed-door negotiations to "lower costs at every stage" of our health care system.

... I found her statement troubling not only because I know she's lying about what she wants. It took me a few minutes, but then it hit me. The Bastiat fallacy lies in the word "costs."

What Pelosi really means is that she wants to lower prices paid by end-user consumers of health care.

She wants it to appear that costs have gone down, but in fact the bill will exacerbate the single greatest existing flaw in our health care system: the insulation of consumers of health care from the costs of what they consume. The majority of Americans, when they go to the doctor, feel as if they're spending someone else's money -- a situation which both Milton Friedman and common sense tell us cannot lead to disciplined spending.

Posted by Wilson Mixon at 10:13 AM in Economics

Humorous Blog Comment of the Day

In response to a discussion about comparative advantage and economists being cheap, a commenter asked whether economists take in the exercise value of cutting the lawn. “Economist do exercise, don’t you?” the commenter asked.

To which commenter "Davis X. Machina" replied "Unless it’s really hard, the exercise is usually left to the reader."

Posted by Joshua Hall at 09:41 AM in Economics

The Bear

In honor of that team from Tuscaloosa's victory last night, I thought I'd relay a story I heard on the radio about Bear Bryant this week. Maybe this is common knowledge but it was news to me, and made me appreciate him a lot more.

As everyone knows, most southern schools refused to recruit blacks for sports even long after the schools were integrated. According to Wikipedia,

For years, Bryant defended charges of racism by saying the social climate didn't allow him to go after black players. He finally was able to convince the administration to allow him to do it after scheduling the Tide's 1970 season opener against a strong University of Southern California team led by African-American fullback Sam Cunningham. Cunningham rushed for 150 yards and three touchdowns in a 42–21 victory against the overmatched Tide. After that season, Bryant was able to recruit Wilbur Jackson as Alabama's first African-American scholarship player, and junior-college transfer John Mitchell became the first black man to play for Alabama. By 1973, one-third of the team's starters were African-American.

Ok, that's public knowledge. What I didn't know is that the Bear was close friends with the USC coach and intentionally scheduled USC knowing they were the better team (in no small part because of black players like Cunningham). He figured the probable loss would jolt the fans into accepting black recruits.

Were his motives pure? Probably not. Maybe he wanted only to win, but this is just another example of how competition (in this case of sports variety) helps break down racism.

Posted by Robert Lawson at 09:03 AM

January 07, 2010
What I've Been Revising Lately

Here's "The Truthiness Hurts," with Mike Hammock, now in a leaner, meaner version that has been re-submitted to Economic Affairs.

Posted by Art Carden at 03:36 PM in Economics

Hey man, that's nacho cheese!

From the San Antonio Express-News:

Updated with photos: Man cut in fight over nachos.

A police report states a witness brought Henke nachos at the apartment in the 100 block of Lorita Street, but Henke said he didn't want them, so the witness gave them to Esckilsen. Soon afterwards, Henke changed his mind and asked for the nachos, according to the report. An argument ensued, and Esckilsen allegedly pulled out a knife, police said.

Rubber neckers click here.

Posted by Edward J. Lopez at 02:15 PM in Funny Stuff  ·  Comments (0)

If true, it reminds me of a Matt Johnson song
if they send in the special police To deliver us from liberty and keep us from peace Then won’t the words sit ill upon their tongues When they tell us justice is being done And freedom lives in the barrel of a warm gun

Maybe this is old news, or maybe it isn’t even true; I haven’t had a chance to verify the story. There is reporting that the Supremes refused to hear an appeal of a lower court ruling wherein enemy combatants are declared to be nonpersons. The search page that links to the referenced story is here. Currently, the story of interest is the fourth item down. I don’t plan to subscribe to get one news story.

If true and accurate, this is beyond worrisome. Without discussing the wisdom of our current wars, given that we are capturing non-state enemy combatants, I admit I have no idea what to do with them. However, this cannot be the best solution.

If any of you know something about this, hit me up.

Posted by Noel Campbell at 10:57 AM

January 06, 2010
Bootlegger Alert: Tax Preparation Edition

A WSJ editorial points to another salami slice expansion of the rent seeking society:

Under the plan, which would begin with the 2011 tax season, anyone who takes money to help people with their taxes will have to register with the IRS, and eventually pass competency tests and sign up for continuing education. So having made tax filing so complicated that most Americans need help with their forms, Washington now wants to raise the price of such counsel by regulating advisers in a way that may reduce their supply.

Cheering the new regulations are big tax preparers like H&R Block, who are only too happy to see the feds swoop in to put their mom-and-pop seasonal competitors out of business. Kathryn Fulton, senior vice president for government relations, told the Washington Post the company was glad to support rules that meant H&R Block "won't be competing against people who aren't regulated and don't have the same standards as we do." With fewer tax preparers in the market, H&R Block will find it easier to raise prices.

And this line is a beauty:

In March, Treasury Secretary Timothy Geithner told a Ways and Means Committee hearing that he'd also like the IRS to begin sending taxpayers pre-completed returns.

We can certainly understand why Mr. Geithner wants government to do his returns, ...

Posted by E. Frank Stephenson at 11:55 PM

Otteson on the Great Mind

Here's an excellent piece from James Otteson on the "Great Mind Fallacy" that just appeared on Forbes.com. He applies what Adam Smith had to say about the knowledge problem to modern pushes for paternalistic regulation. I'll make a prediction about regulatory mission creep. Regulations that are supposed to nudge me toward behaviors consistent with my interests will eventually metastasize into regulations that nudge me toward a redefinition of my interests.

Wait a second. That's why governments operate schools.

Posted by Art Carden at 02:27 PM in Economics

Dispatches from Sabbatical Prep, Part II: Kemmons Wilson Quotes

Here are a few inspiring and entertaining quotes from Holiday Inn founder Kemmons Wilson, culled from my notes on his autobiography Half Luck and Half Brains: The Kemmons Wilson, Holiday Inn Story (Nashville: Hambleton-Hill Publishing, 1996):

“A consultant is a man who knows a hundred ways to make love but doesn’t know any women.” (p. 169)

"An opportunist is a man who meets the wolf at the door and the next day appears in a fur coat." (p. 15)

"A 40-hour week has no charm for me. I'm looking for a 40-hour day." (p. 214)

"There are hundreds of languages in the world, but a smile speaks all of them." (p. 105).

Posted by Art Carden at 12:31 PM in Misc.

Dispatches from Sabbatical Prep

I have a sabbatical this semester and have spent the last couple of weeks tying up loose ends, finishing papers that were a day or two of revisions away from being finished, and knocking out other commitments (referee reports, book reviews, etc) so that I have a relatively clear desk and clear mind before I take on my sabbatical projects (mostly Southern economic history) head-on. Today, I'm revising a paper about entrepreneurial innovation in Memphis that I drafted a couple of summers ago and never took the time to polish and finish. In the process, I'm going through old notes, stubs, ideas, scribbles, and other things that litter my office and various storage media. Between now and the end of the week I'll be posting some of the odds and ends that I find.

Here's an outtake from a review of Benjamin Powell (ed.), Making Poor Nations Rich:

"Economic history is in part a story of changing incentives to use entrepreneurial proclivities. In his introduction, Powell notes that in imperial China (and many countries), the best and brightest have historically joined the civil service. Today, these same best and brightest are becoming engineers and entrepreneurs. Five hundred years ago, a Chinese or Indian genius would be working in administration and bureaucracy, likely inventing new ways to thwart trade. Today, those geniuses are moving to Silicon Valley and writing software for Google."

Posted by Art Carden at 12:07 PM in Economics

Normative vs. Positive c. 2010

Sports talk radio/television is generally a bit more entertaining for me because, ultimately, the hypotheses that are rendered by pundits or the guy who changes your oil are equally testable (most of the time). I actually harvest many paper ideas from listening to sports talk radio (as I also do by listening to C-SPAN and politicians make heroic claims).

However, there are times when even the greats in sports talk fall on hard times. Perhaps this morning was a slow news day, or perhaps I woke up on the wrong side of the bed and was just a bit sensitive, but as I was watching Mike and Mike in the Morning they seriously debated the following question:

"Should fans be superstitious before games?"

Here's a scratchy screen shot taken with my iPhone

Now, the positive question of "Do fans become superstitious before games?" is rather easy to answer. The answer is yes and for no good reason other than the fans gain some utility in thinking (seriously or not) that their superstitious behavior somehow influences the outcome of their favored team's game. Is that a bad thing? Only if animals are being harmed (ala Bull Durham) or other laws are being broken. Is it worth debating? Is it worth debating gravity?

Unfortunately, the question was posed in a normative tone, "Should fans be superstitious?" which is not testable. When asked in this framing, the question invites solutions that require paternalism ("you shouldn't do that") or invites people to make inter-personal utility comparisons ("people who do that are silly").

I will admit that this is not much different than the traditional talk radio/show format - host makes unsupported claims and audience either agrees or disagrees (ideologically) - but I like my sports talk straight-up.

Posted by Craig Depken at 10:34 AM in Sports

Building Brand Equity: The Freeman and Radio Free Market

The latest issue of The Freeman is available; it includes my article summarizing some of the scholarly work on Walmart. The new issue is chock full of articles that look interesting; I'm especially looking forward to Steve Horwitz's piece on deflation and Bruce Yandle's piece on Baptist/bootlegger coalitions and climate change legislation (HT: Sheldon Richman and Steve Horwitz).

I'll also be on Radio Free Market on Saturday at 1:00 CT to discuss the (un)popularity of capitalism; this continues a discussion that started on September 25 and that continued through December 5. I think I'm also going to be a guest commentator on Saturday, 1/16 when RFM interviews Deirdre McCloskey. Listen. Call. Tell your friends!

Posted by Art Carden at 10:14 AM in Economics

On stadium construction c. 1910

From the January 6, 1910 NYT:

President Hermann said yesterday that if the Cincinnati Baseball Company could buy the ground upon which League Park is now located, and a portion of the property back of the grand stand, the club would build a new grand stand, a set of bleachers, and enlarge the field next year. He is now conducting negotiations with the owners, and says he thinks arrangements for the purchase can be perfected. The grand stand will be built to accommodate 8,000 more people, and the bleachers 5,000 more than now. The club will then own its own home, and can afford to go to this expense.
Let's see what was missing from the stadium proposal in 1910 versus a prototypical stadium proposal in 2010:

  • Demand for public subsidies or the team owner threatens to relocate;
  • Politicians, fearful that they will forever be known as the mayor/city council that lost the team, propose sales tax, hotel tax, rental car tax hikes to help pay for the stadium;
  • Local citizens are asked to vote in a referendum on the matter, proponents outspend opponents in marketing efforts by orders of magnitude;
  • Economic impact study is commissioned by city/team/league to show the public benefits of hosting the team;
  • League officials suggest that if a new stadium is built the host city will be able to host at least one big event, e.g., Super Bowl or All Star Game;
  • Environmental impact study;
  • Threats of eminent domain if private property owners don't go along with the stadium plan;
  • Stadium is built with hundreds of "luxury suites" in which the vast majority of those who pay for the stadium will never sit;
  • Team agrees to rent the new stadium which provides the team owner more flexibility in future relocation negotiations.

    That's my list in three minutes.

    Posted by Craig Depken at 10:12 AM in Sports

    Case of insanity? c. 1910

    A headline from the January 6, 1910 NYT:

    CRANK ARRESTED AT CAPITOL.

    Tried to see Sherman - Sanity to be inquired into.

    Trying to visit the vice-president leads the PTB to question a citizen's sanity?

    Actually, the person in question had been "about Washington" for more than a year lobbying various politicians for "imagined rights."

    Posted by Craig Depken at 10:04 AM in Funny Stuff

    Incentives Matter: Kitty Adoption Edition

    USA Today: Fee waivers boost cat adoptions

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

    Marginal Revenue Product

    Some snips from a USA Today story on Alabama football coach Nick Saban:

    Hired three years ago for a then-unheard-of $4 million a year peeving rivals and higher education watchdogs who complained of misplaced priorities Nick Saban has coached the Crimson Tide football team to an undefeated record, No. 1 ranking and shot at the school's first national championship in 17 years. Alabama meets No. 2 Texas in Thursday's Bowl Championship Series title game in Pasadena, Calif. (8 p.m. ET, ABC)

    Saban took over a storied program that had fallen on hard times, delivered a first-year record of 7-6 and since has led Alabama to 25 victories in 27 games. But it's not just the Crimson Tide's winning percentage that has soared.

    The demand for tickets to Alabama's home games is so great that Bryant-Denny Stadium is adding about 9,000 seats, which will make it the sixth college facility with a capacity of more than 100,000. Donations to the athletic program are up. So is marketing revenue. And overall athletic profits have more than doubled at a time when barely a fifth of all major-college programs are generating enough overall revenue to turn a profit.

    [snip]

    The waiting list for priority-seating tickets requiring a donation atop the price of the seat has jumped from about 1,200 four summers ago to 15,000.

    The school launched its first capital campaign for athletics in 2002, with a goal of $50 million in five years. By the 2007 spring game, it had raised $70 million. The drive ended, but the flow of money has continued, and donations total $102 million.

    Alabama's take from its media and marketing rights contract with Learfield Sports and ISP Sports will jump $1.3 million this year, to $8.5 million, according to senior AD Finus Gaston, the school's chief financial officer for athletics.

    Football revenue jumped 16% in Saban's first two years from nearly $56 million before he arrived to almost $65 million in 2008 and the sport turned a $38.2 million profit in 2008. Gaston conservatively projects a $39 million profit for 2009 and, with the expanded stadium and ticket demand, says he expects the climb to continue.

    Posted by E. Frank Stephenson at 09:52 AM in Sports

    Not Much of a Race

    One sometimes hears about various races to the bottom that might occur in the absence of environmental regulations, workplace safety regulations, or the like. Arik Levinson's article in the December AER sheds some light on this issue; the abstract (NBER WP version here):

    Total pollution emitted by U.S. manufacturers declined over the past 30 years by about 60 percent, even though real manufacturing output increased 70 percent. This improvement must result from a combination of two trends: (1) changes in production or abatement processes (technology); or (2) changes in the mix of goods manufactured in the United States, which itself may result from increased net imports of pollution-intensive goods (international trade). I first show that most of the decline in pollution from U.S. manufacturing has been the result of changing technology, rather than changes in the mix of goods produced, although the pace of that technology change has slowed over time. Second, I present evidence that increases in net imports of pollution-intensive goods are too small to explain more than about half of the pollution reductions from the changing mix of goods produced in the United States. Together, these two findings demonstrate that shifting polluting industries overseas has played at most a minor role in the cleanup of U.S. manufacturing.
    Posted by E. Frank Stephenson at 09:27 AM in Economics

    Building Brand Equity: Hybrid Auto Tax Preferences Edition

    My former students Andrew Chupp (now asst prof at Illinois State U), Katie Myles, and I had our paper on the incidence of hybrid automobile tax preferences accepted by Public Finance Review. The abstract:

    We use national and California price data from January, 2002 to June, 2009 for three hybrid and five non-hybrid car models to estimate the share of federal tax preferences for purchasing hybrid cars that accrues to car sellers. Our preferred estimates suggest that almost one-half of the subsidy is capitalized into car prices, but some specifications lead to larger estimated benefits for car suppliers. Our results also show (1) that a California program providing HOV stickers to owners of hybrid fuel automobiles led to large increases in the price of those vehicles, and (2) that failing to control for rising gas prices which increase the demand for fuel efficient vehicles leads to upwardly biased estimates of the amount of the hybrid car tax subsidy captured by automakers.
    Posted by E. Frank Stephenson at 09:10 AM in Economics

    January 05, 2010
    Today's relevance of Gertrude Stein on Money

    In which American city is three the same as a million? Ask Gertrude Stein (writing in 1936, HT Michael Watts).

    Everybody now just has to make up their mind. Is money money or isn't money money. Everybody who earns it and spends it every day in order to live knows that money is money, anybody who votes it to be gathered in as taxes knows money is not money. That is what makes everybody go crazy.

    Once upon a time there was a king and he was called Louis the fifteenth. He spent money as they are spending it now. He just spent it and spent it and one day somebody dared say something to the king about it. Oh, he said, after me the deluge, it would last out his time, and so what was the difference. When this king had begun his reign he was known as Louis the Well-beloved, when he died, nobody even stayed around to close his eyes.

    But all the trouble really comes from this question is money money. Everybody who lives on it every day knows that money is money but the people who vote money, presidents and congress, do not think about money that way when they vote it. I remember when my nephew was a little boy he was out walking somewhere and he saw a lot of horses; he came home and he said, oh papa, I have just seen a million horses. A million, said his father, well anyway, said my nephew, I saw three. That came to be what we all used to say when anybody used numbers that they could not count well anyway a million or three. That is the whole point. When you earn money and spend money everyday anybody can know the difference between a million and three. But when you vote money away there really is not any difference between a million and three. And so everybody has to make up their mind is money money for everybody or is it not.

    So there. The essay goes on, and says the same thing over again in a couple of different and interesting ways. The economics in doing so is not entirely obvious. But perhaps it's because Gertrude Stein was born into wealth and was very familiar with making investment decisions. Thus, for example, what may seem redundant is really a reference to hyperinflation.

    Under the guise of repetition or, rather, repetitiveness, hyper-inflation appears in Stein's writings as both a theme and a compositional method.
    Posted by Edward J. Lopez at 02:27 PM in Economics

    Economics in Culture class for winter session

    Starting tonight and for the next three weeks, I'm teaching an undergrad class called Economics in Culture. The idea is to analyze cultural artifacts using economic theory. To get things moving, tonight we will survey a few salient economic concepts (e.g. opportunity cost, comparative advantage, incentives, institutions, unintended consequences, creative destruction, rent seeking, equity, etc.). Then starting tomorrow night, each class will then be devoted to a genre from pop culture, such as film, television, sports, fashion, fiction, music, politics, and communications. Enrollment is modest, so I can take advantage of different formats. The first half of each class will be traditional lecture, then a twenty minute break, and then the second half of class will be a Socratic discussion a la Liberty Fund. Each student will do a project in which they pick a creative work, present it to the class, and analyze the economics in it. I think it will be a lot of fun, and I don't recall ever having been this intrigued at the start of a class by how it would turn out. I'll be sure to post interesting examples throughout the month (like Gertrude Stein on money, above). If you have favorite examples, I'd love to have you send them my way. Thanks.

    Posted by Edward J. Lopez at 02:22 PM in Economics

    Some context

    A good summary statement regarding climate change's implications:

    There is thus an economic case for greenhouse gas emission reduction. You do not need to be a bleeding heart ecologist to favour climate policy. Cold economic calculus calls for action too.

    At the same time, estimates of the impacts of climate change do not support the often-dramatic language of the media. Estimates suggest that the overall impact of a century of climate change is equivalent to losing up to 2% of income. The impact of a century of climate change is of the same size as a year of economic growth. In the worst case, impacts may be ten times as large. Still, a deep recession wreaks as much havoc in a year as climate change would do in a century. Climate change is therefore not the biggest problem of humankind.

    Posted by Wilson Mixon at 10:19 AM in Economics

    Jeff Tucker on the 1.6 Gallon Toilet

    Jeff Tucker's articles at Mises.org are always entertaining and informative. This one is no exception. For someone in health econ or epidemiology looking for a clever identification strategy, I would suspect that the mandated 1.6 gallon toilet had at least a tiny effect on the disease environment.

    Posted by Art Carden at 09:11 AM in Economics

    Morning Snark

    A 3rd uninvited guest got into White House dinner: If the govt can't keep party crashers out of the White House, why should anyone feel safe about govt bureaucrats having access to his or her electronic medical records?

    The Rome News-Tribune's Mike Lester on the aftermath of the BVD bomber*:

    LesterTSA.jpg

    *BTW, since the increased airport inconvenience will probably deter some folks from flying and producing carbon, can one get carbon credits for sponsoring incompetent underwear bombers or otherwise gumming up the airport security process? By that standard, this clown would also be a green hero. (I am feeling snarky this morning aren't I?)

    Posted by E. Frank Stephenson at 08:56 AM

    January 04, 2010
    What I've Been Writing Lately

    1. Review of Jennifer Burns, Goddess of the Market: Ayn Rand and the American Right, forthcoming in Economic Affairs. I thought it was a great book, I enjoyed it immensely, and Anne Heller's bio of Rand should arrive via the USPS within the next few days.

    2. Here's a complete re-write of Charles Courtemanche's and my paper on Walmart and obesity, re-titled "Supersizing Supercenters? The Impact of Wal-Mart Supercenters on Body Mass Index and Obesity." Using distance from Bentonville as an instrument for Walmart Supercenter location, our "results imply that the proliferation of Walmart Supercenters explains 11% of the rise in obesity since the late 1980s, but the resulting increase in medical expenditures offsets only a small portion of consumers' savings from shopping at Supercenters." It's basically a different paper from the earlier one; further work evaluating discount stores, Supercenters, and Sam's Club is in the offing.

    3. Here's a new Forbes.com piece on the naughties, which brought us a lot of incremental advances in human wellbeing.

    Posted by Art Carden at 07:41 PM in Economics

    On Economics, Theology, and Evidence

    A question from a quasi-Hansonian moment: what percentage of people who don't believe in God because "there's no evidence" also believe that the minimum wage is good for the poor in spite of overwhelming evidence to the contrary?

    Inspired by today's installment of Abstruse Goose.

    Posted by Art Carden at 11:28 AM in Economics

    What I've Been Reading Lately: Holiday Break Edition

    1. Arnold Kling and Nick Schulz, From Poverty to Prosperity. This is a book that should be on everyone's bookshelf. The introductory chapter evaluating trends in poverty and prosperity is extremely useful, and the interviews with Joel Mokyr, William Easterly, Douglass North, Paul Romer, Robert Fogel, William Lewis, and others are fascinating. The structure of the book means that it would be a very good supplementary text for a course in development economics. I might use it the next time I teach Classical & Marxian Political Economy.

    2. Nelson Lichtenstein, The Retail Revolution: How Wal-Mart Created a Brave New World of Business. The first back-cover blurb is a hearty endorsement from Barbara Ehrenreich; that fact gives the reader a pretty accurate picture of what to expect. I couldn't put it down, but for all the wrong reasons. The book's most fundamental weakness is that it completely ignores the economics literature on Walmart. Lichtenstein doesn't even dismiss it. With the exception of a single reference to Kenneth Stone's work on Walmart and employment in Iowa in the mid-1990s, he just ignores it. This wouldn't be such a bad thing if some of the contributions made by Emek Basker, David Neumark, Stephan Goetz, Jerry Hausman and Ephraim Leibtag, and Russell Sobel and Andrea Dean weren't directly relevant to some of his key arguments. My review will be available on EH.Net soon.

    3. Jennifer Burns, Goddess of the Market: Ayn Rand and the American Right. This was a Christmas present from my sister; I couldn't put this book down for all the right reasons. My review (available on SSRN) is forthcoming in Economic Affairs.

    4. Robert Mayhew, Essays on Ayn Rand's Atlas Shrugged. I read a few of these essays and found them interesting and useful. If I ever teach a seminar class in which I can assign Atlas alongside something like The Grapes of Wrath (a la Pete Boettke), a lot of my notes on Atlas will draw on the insights in this volume.

    Posted by Art Carden at 10:56 AM in Economics

    January 01, 2010
    Restaurant Reviews from Birmingham: The Baskits, Saigon Noodle House

    We've been visiting family and friends in Alabama this Christmas season, and we've been eating like it's the holidays. My problem is that I spent most of 2009 eating like it was the holidays. I tried two new restaurants yesterday--I met fellow DOLer Mike DeBow at The Baskits in Homewood for lunch, and Shannon and I went to Saigon Noodle House near 280 and 459 for dinner. The chicken tenders at The Baskits have won awards and the staff is great. I had a fried chocolate pie as a mid-morning snack (it was the only thing I could see there that would go well with coffee, and they'd stopped serving breakfast, and I was there working on a book review for a few hours). This was truly amazing: imagine your standard Southern fried pie, but with a crust made out of a funnel cake.

    We went to Saigon Noodle House for dinner, and it was some of the best Vietnamese food I've ever had. I don't say that lightly: there's a good Vietnamese place in Memphis (Pho Saigon), and there are a lot of them in St. Louis. We shared spring rolls to start, Shannon got a curry chicken noodle soup, and I got M3, which was a seafood-and-beef soup with clear glass noodles and vermicelli. The Spring rolls were especially good for a couple of reasons. First, the wrapper wasn't gummy and chewy like they are on a lot of other Spring rolls. Second, they had a fried wrapper in the middle of each spring roll. This helped the rolls stay together and added an interesting texture and flavor. As for the soups, I'm so woefully ignorant of the fine points of Asian cuisine that I can't say much more than "they were really, really good." We didn't get any bubble tea, but they have that too. We'll be visiting Saigon Noodle House again the next time we're in Birmingham. HT: www.bhamdining.com.

    Posted by Art Carden at 09:41 AM in Misc.

  • 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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