Division of Labour: May 2010 Archives
May 31, 2010
Charles Spurgeon on War
Update: Here's John Cecil Cadoux's The Early Christian Attitude to War, courtesy of the Online Library of Liberty, which I just added to my reading list.
May 30, 2010
Steve Wynn, Regime Uncertainty, and Entrepreneurship
Steve Wynn says Americans are afraid. He’s just angry.
May 29, 2010
Kathleen Sebelius, comedienne
I'm not making this up. The following is verbatim. This glossy flyer came in today's mail:
Medicare and the New Health Care Law- What it Means for You A Message from Kathleen Sebelius
Oh, man.... it goes on for four pages like that. I know that laughter is the best medicine, but that was nearly a fatal dose!
Posted by Noel Campbell at 10:21 PM
May 28, 2010
Cavalcade of Miscellany (Updated)
1. Sven Wilson on lying politicians (redundant?). Choice sentence: "Put a typical Congressman in front of a TV camera, and you are assured of one thing: total B.S."
2. Serendipity re: 1 with Justin Ross.
3. Lenore Skenazy on why "I wouldn't leave my kid somewhere I wouldn't also leave $1 million" isn't a very good argument.
4. Bradley Thompson sends me a link to his book (with Yaron Brook) entitled Neoconservatism: An Obituary for an Idea. Having just finished Thomas Sowell's Intellectuals and Society, it looks especially interesting.
Let’s discuss the elephants in the living room…
This is all re-hash, but it’s my two cents worth of re-hash in the “illegal immigration” debate.
A reasonable interpretation of Arizona’s political action is that it was designed to shame the Federal government into action: either enforce Federal (which probably wouldn’t look all too different than Arizona’s law), or change the Federal law.
Arizona doesn’t have an illegal immigration problem; Arizona has an organized crime violence problem. What created the incentives for organized crime (and its penchant for violence) to develop? Well, the War on Drugs, of course.
The United States doesn’t have an illegal immigration problem; it has a government entitlements problem. What’s the only anti-immigration argument that carries some water? “They and their children don’t pay taxes, but the use all of the services.” Before addressing the substantive part of the argument, note that (a) illegal immigrants pay sales, excise, and property taxes the same as everyone else; (b) fifty percent of “normal American citizens” effectively pay no income taxes, and, even if they were legal, most illegal immigrants would still fall into this category!
Now, supposing the argument about not paying, yet receiving services is true. Why does that problem exist? Well, because all levels of government tax the bejabbers out of us to provide products that the private market can provide. If governments weren’t so intrusive into economic life, no one would care about immigration.
Imagine a small government that funds itself through sales taxes and provides no private products to its citizens. Education would still exist—at a high level and quality—as a private product. Out of the extra income we would have, charity medical & income support services would still exist. (Recall (a) the strongly positive income elasticity of charitable giving in the U.S., and (b) accounting for dead-weight loss, the Federal government imposes more than $2 in total burden on the U.S. economy in order to collect one “spendable” dollar of revenue).
Outside of blatant racism, in this environment, would anyone really care about immigration? I don’t think so.
Posted by Noel Campbell at 10:29 AM
May 27, 2010
Marginal Cost in Action
COVINGTON, La. – An untested procedure to plug the blown-out oil well in the Gulf of Mexico seemed to be working, officials said Thursday, but new estimates from scientists showed the spill has already surpassed the Exxon Valdez as the worst in U.S. history.
May 26, 2010
Make Work Bias
I wonder how long it will be before someone claims the gulf oil spill is good because it is creating jobs. Maybe the broken window fallacy will become the spilled oil fallacy. (UPDATE: Steve Horwitz's "Parable of the Sooty Window" makes the same point in the context of the Icelandic volcano.)
UPDATE2 (6/3): Here is an example (HT to a commenter at Cafe Hayek):
Oil spill means mini job boom in Gulf
Cigarette Taxes and Laffer Curves
District sales tax receipts suggest D.C. residents (and visitors) are smoking much less and drinking much more. Or they’re drinking more in D.C. and buying their cigarettes elsewhere.
Previous post here.
Related: Anti-smoking advocates in NC apparently are more interested in treating cigarette smokers as ATMs than in getting them to stop smoking.
Universty of Donja Gorica
From my former professor Steve Pejovich, here is a pointer to Richard Rahn op-edding about the free-market economics university in Motenegro:
Professor Vukotic has created a new private university in Montenegro, University of Donja Gorica (UDG), that already has 1,500 students and a large, new building. He has been able to attract world-class scholars from a number of countries, including the United States, to teach or lecture. UDG also already has established cooperative agreements with universities in Europe and North America.
Fans of Universidad Francisco Marroquin will enjoy the entire article. Thanks, Steve!
In a a new TED talk on fashion copyright, Johanna Blakely poses an interesting question: what is the ownership model that will promote innovation in an age where everything is digitized? Anticipating ongoing work on fashion, mostly by legal scholars rather than economists, she suggests that fashion is a good place to start looking for answers. In my view the association is a powerful one for two sets of reasons. First, fashion designs are not protected by copyright yet the industry is highly innovative and possibly even more so as the medium has become increasingly digitized (in terms of design and communication tools, not wearing of course). Second, fashion is a market process of entrepreneurship in two stages -- there are design originators mostly at the high end, and then there are design imitators who not only copy but also adapt designs to be more palatable for wide audiences on the one hand, while innovating cost-reducing production methods on the other hand. It is the market process of fashion, these two forms of entrepreneurship that feed off one another, which makes fashion innovative without intellectual monopoly. More research is needed to discern what ways these features generalize to other "digitized" media.
This summer I will be working on a related book, currently titled Fashion Econ: How Fashion Cycles and Knock-Off Designs Help Make the World a Better Place, while I'm a visiting scholar at Bowling Green's Social Philosophy and Policy Center.
On Government Inefficiency: NYC Bus Driver Recuperation Edition
Of all the assaults that prompted a bus operator to take paid leave in 2009, a third of them, 51 in total, “involved a spat upon,” according to statistics the Metropolitan Transportation Authority released on Monday.
A nice illustration of government unions milking the fisc--is there a private employer who would let someone take 191 days off to recuperate from being spat upon?
Posted by E. Frank Stephenson at 09:54 AM
Sowell on the Economics and Politics of Crises
From his most recent book Intellectuals and Society:
Hurricanes in Florida and wildfires in southern California are likewise recurrent phenomena over the years but each individual natural catastrophe is treated as an immediate and discrete crisis, bringing not only government rescue efforts but also vast amounts of the taxpayers' money to enable people who live in these places to rebuild in the known path of these dangers.* Any administration which might refuse to saddle taxpayers with the huge costs of subsidizing the rebuilding would no doubt be roundly condemned, not only by its political opponents but also by much of the media and the intelligentsia, looking at each particular hurricane or wildfire in a one-day-at-a-time perspective, rather than as part of an on-going sequence with a long history and a predictable future.
May 25, 2010
Money is fungible
There's language in the current spending bill that would quadruple Federal taxes on oil to 32 cents per barrel. The revenue would go into "a fund managed by the Coast Guard to help pay to clean up spills in waterways, such as the Gulf of Mexico."
OK- I don't know the relevant elasticities to be able to say how great a deleterious impact such a tax increase would have on the U.S. economy. I suspect that it would operate similarly to a teeny value-added tax; most of the burden would fall on final consumers, and there would be a large amount of dead weight loss compared to the revenue the tax collects.
That's not my point. My point is that money in fungible. It is impossible for the U.S. government to put money into a locked box and use the money only as the program intended. That tax money will be spent as soon as it is collected, and the Federal government will put T-bills into the fund instead. Then, when the next oil spill occurs, there will still be no emergency money available.
Think I'm wrong? Just look at the Social Security Trust Fund.
I could make a larger point about government funding of clean up efforts and such, as opposed to strict liability standards in tort cases which would motivate BP and ilk to self-insure against such disasters.... but that would take too much effort on this hot summer noon.
Public Choice, Policing, and Soccer Hooliganism
An excerpt (pp. 215-216) from Hoolifan by Martin King and Martin Knight:
Think about it. Who was paying for that mass policing at matches? The clubs paid in part, but the rest must have come from the court coffers one way or another. Most games are at weekends, so a lot of the police will be on overtime. Time and a half. Maybe double. Plus it's not hard work. Not really dangerous. There are a couple of hundred coppers on duty and there are no arrests. Where is the money going to come from? Who is going to carry on forking out? They had to nick [arrest] people just to keep the policing in the first place. We've all spoken to coppers over the years who admitted they wanted trouble to continue because they got the chance to watch their favourite team and get paid overtime rates for doing it.
Paging Bill Niskanen.
Posted by E. Frank Stephenson at 10:37 AM
An Inadvertent Admission
One of my former students (HT: DA) points me to a WaPo article on legalizing pot in DC. A snip:
D.C. police seized about 840 pounds of pot last year, [D.C. Assistant Police Chief Peter] Newsham said. "People don't feel marijuana is dangerous, but it is, because of the way it is sold," he said. "We frequently recover weapons when serving search warrants associated with the sale of marijuana."
Geez, I wonder why many pot dealers carry weapons while many, say, dry cleaners apparent do not. You think that maybe, just maybe, it has a little something to do with prohibition?
Posted by E. Frank Stephenson at 10:23 AM
A Question of (Business) Ethics
Do you agree or disagree with a legal ban on discrimination on the basis of race or gender in matters of private employment such as hiring, firing, promotions, and pay? Explain. In light of your answer to the above, would you agree or disagree with a legal ban on discrimination on the basis of race or gender in matters of dating, marriage and sex? Explain. If you answered "agree" to the first question but "disagree" to the second question, please explain.
I am sure most people will agree with the first and disagree with the second statement reflecting status quo bias. But really, if racist whites should be forced to hire and trade with blacks, why shouldn't homophobic males be made to go on dates with gay guys?
Comforts of Modernity
I'm cleaning up a few things and came across this, which I wrote on a plane to Copenhagen last month:
Blog post: glanced up at the screen on a plane. Off the coast of Maine, en route to Copenhagen. We're about 35,000 feet up, the outside temperature is -77 degrees fahrenheit, and we're moving at a ground speed of 562 MPH.
I'm sipping a cup of decaf coffee while working on a Forbes article on my laptop and listening to music on my iPod.
Corner Solution Parenting and Choking Hazards
Being a parent means a steady diet of frightening stories like this one: people want choking warnings on some foods. But how much risk is there? Stories like this usually involve vivid, sad anecdotes, but they're usually very, very short on meaningful information and analysis. Continued below the fold. HT: to Steve Horwitz for the "Corner Solution Parenting" meme.
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The article reports that
There are no recent nationwide figures on food choking. In 2001, about 17,500 children 14 and younger were treated in emergency departments for choking, and 60 perent of the episodes were caused by food. In 2000, 160 children died form an obstruction of the respiratory tract.
These numbers alone don't really tell us whether this is cause for concern. Injuries and deaths are tragic, to be sure, but are these injuries and deaths really frequent? Is 17,500 a lot? Is it a little? We need something to compare it to. Fortunately, WolframAlpha was able to give me an estimate of 62.84 million children between the ages of 0 and 15 in 2008 (note that the choking data above are for children 14 and under). I couldn't get population data for 2000 or 2001, but we'll do what we can with what we have.
Each of those 62.84 million kids lives 365 days a year. If we assume three meals a day, that's 68,809,800,000 meals served every year to kids between the ages of 0 and 15. If we add two snacks, our number of food encounters grows to 114,683,000,000. The 2000-2001 data tell us there were 17,500 kids treated in emergency rooms for choking, of whom 60% (10,500) were treated for food-related choking. 160 kids died.
Using these data, we get the following:
0.0000002543 emergency room worthy chokings per kid meal.
No matter how you slice it, these are very, very, very small numbers. Assume all of the numbers are ten times today what they were in 2000 and 2001. Then you move everything to the left by one decimal point and you still have very, very small numbers.
Maybe the calculations should be per kid and not per kid meal. That doesn't change the result that much. Calculate the number of ER-worthy chokings per kid, and you get 0.000278485 chokings per kid. Again assume that chokings are ten times higher today than they were in 2000 and 2001. You're still at 0.00278485 chokings per kid.
I'm sensitive to child safety issues because our son Jacob turns two at the end of July and our daughter Taylor Grace is due on July 2. I also know from firsthand experience the raw, unadulterated terror that accompanies taking your infant to the emergency room. Before we do something rash, we should be very careful to consider exactly what we're doing. People are proposing new labeling requirements to reduce what already appear to be trivial risks (incidentally, if these risks are unacceptable then parents should never, ever allow their kids to get in cars or swimming pools). The proposed labeling requirements will make food more expensive. I would guess that the additional health risks associated with this even incidental impoverishment far outweigh the benefits from reduced risk of choking on labeled foods.
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May 24, 2010
The Road To Serfdom, Condensed
Here's the Reader's Digest condensation of The Road to Serfdom (HT: Xavier Mera).
Posted by Art Carden at 04:30 PM
New Home for JEFE
Check out the new Internet digs of the Journal of Economics and Finance Education. You can browse the contents here. Interested authors will find the submission guidelines here. A new Summer 2010 issue is now available (PDF file here) that includes five newe articles on the economics profession, inside the classroom and out. Enjoy.
Sentences to Ponder*
On ideal bureaucratic worlds:
Conrad said in an ideal world he would let a strategic assessment committee appointed by Wharton do an in-depth analysis of the city's golf system.
*--Yep. The meme originates, as do most good things in the economics blogosphere, with Marginal Revolution.
May 23, 2010
None of us are Keynesians now
In the Hayek - Keynes rap battle with the extremely handsome limo driver, Hayek concludes by saying that "In the long run, my friend, it's your THEORY that's dead."
Angus gives the eulogy, for the funeral.
GOP Picks up Hawaii Seat
Republicans finally picked up a U.S. House seat Saturday in the special election in Hawaii's 1st Congressional District. Ed Djou defeats Colleen Hanabusa 40% to 31%. Djou benefitted from a split Democratic Party (Democrat Ed Case received 27%), and will have a very difficult time holding the seat in November, when presumably only one Democrat will be on the ballot.
Still, Republicans have to be happy - despite the apparent wave building for Republicans in November, Democrats had won all 6 special elections for the House since Obama took office, so this win stops that streak. Moreover, there is a bit of symbolism in that this is the seat where the President was born. Substantively, both President Obama and former Congressman Neil Abercrombie carried the district with over 70% of the vote in 2008, so the combined Hanabusa/Case vote was still down about 13 points from the Democratic percentage in 2008.
The last Republican to win this seat was Pat Saiki, in 1988. Until yesterday, Saiki, who served two terms, was the only Republican ever to win a House election in Hawaii.
May 22, 2010
We Have Work To Do
YouTube: Interviews with Julian Simon
Here. These will be an excellent supplement to econ 100 in the Fall.
May 21, 2010
Markets in everything: Corruption capital markets
DoL blogger Bob Lawson allowed me to ride his coat tails all the way to Georgia and Azerbaijan. It was the experience of a lifetime... at least until I do it again.
While in Azerbaijan, I had an interesting conversation. Azerbaijan is fundamentally economically un-free and suffers from ferocious corruption. The corruption is "monolithic," rather than "pyramidal" or "inverse pyramidal." That means that everyone, at every level, of any government function takes/demands bribes. In fact, the main value of governmental employment is the opportunity to collect bribes. Of course, the only way to gain lucrative government employment is to bribe your way into the job.
Consequently, there is a active capital market, where you can borrow the money to bribe your way into a government job. It's of course off the books, funded by individuals and groups of individuals, who would never be co crass as to label the activity a "loan." Nonetheless, the market exists, according to my friend. If I want a job, but don't have the 100K USD going price, I can cast around my broader social network to see who'll front me the cash. Although it's not called a loan, repayment is definitely expected.
The downside for society, of course, is that now I must be even more aggressive in seeking bribes, as I have a loan to repay, as well as making my nut.
Building Brand Equity: On Nuclear Energy Subsidies in The Freeman
Posted by Art Carden at 08:45 AM
May 20, 2010
Building Brand Equity: Immigration, Against Fire Socialism
Also, as I'm revising a paper on the Memphis riot of 1866, here's a good case to be made against fire department socialism:
“The proof also establishes the fact that many of the firemen of the city, whose especial duty it was to suppress the devouring flames and to preserve and protect the property of all the citizens of the city, instead of employing themselves in this honorable and useful pursuit, for which they are generously paid out of the revenue of the city arising from a tax on the property of the citizens, were criminally engaged with the mob in the destruction of life and property.” (from Memphis Riots and Massacres, p. 41)
Here's Fred McChesney on the origins of municipal fire departments.
May 19, 2010
Handy SWEDOW Flowchart
Interested in helping alleviate global poverty? Here's a handy guide to making sure you don't mess it up (HT: Aid Watch).
On taxation and representation c. 1910
Great opening and closing paragraphs from an op-ed piece in the May 19, 1910 NYT:
It is hopeless to expect unanimity regarding the merits of the income tax amendment, but there should be no disagreement upon the proposition that the action taken regarding it ought to be in accord with the opinions of those who will pay it. Taxation without representation is bad enough, but taxation contrary to representation is an indictment of representative institutions, and an issue superior to the income tax itself, whatever views are taken of its importance.The op-ed goes on to decry the passage of a Democratic income-tax proposal in a Republican controlled state house. The piece ends with a brilliant indictment of the system (as it stood then, and perhaps even now):
Thus our voters are being taught that it is of little consequence what are the issues of the election, or what the decision upon them may be. After election the party managers decide what political strategy requires, and that is what is done. It is of no consequence what was the mandate of the electorate. Platforms are intended for campaigns, not for administrations. The representatives of the people are chosen not to execute a declared policy, but to take a line which shall keep the party in power. Who knows what were the issues of the last campaign? Who cares what may be the issues of the next campaign, since they may be dodged after election like the issues of past campaigns?
Georgia on my mind
I just returned from another wonderful trip to the country of Georgia where I (along with DoL co-blogger Noel Campbell) gave a series of lectures for the the New Economic School - Georgia with the support of the Friedrich Naumann Foundation.
One lecture at the Free University in Tbilisi is here.
And (for you Georgian speakers) an interview on local television is here.
Thanks to my Georgian friends Paata Sheshelidze and Gia Jandieri for being such wonderful and gracious hosts.
Wonder How Long This Will Last
Perhaps awhile--the article reports that a similar venture in Salt Lake City has been operating since 2003.
Posted by E. Frank Stephenson at 08:35 AM
May 18, 2010
Sunshine Isn't Silence
Should "Third Parties" Be Included in Debates?
Climate Change + Protectionism = ...
... the Union of Concerned Scientists fretting about states spending more than $1 billion per year on imported
The Union of Concerned Scientists found that 11 states each spend more than a billion dollars a year importing coal from other states or abroad. Georgia, North Carolina and Texas are the biggest spenders. Some Midwestern states import too.
*Out with calling the program "Stateplace" and in with calling it "Marxistplace." I think MH for the term.
Posted by E. Frank Stephenson at 12:08 PM
Candy Defined in the Process of Its Emergence
Governments want to tax candy. So what counts as "candy" and what counts as "food?" More here. HT: James Choi.
What about these beverages (HT: Scott Cunningham, note the excellent use of visuals)? Will they be taxed like soft drinks, or not? Why? Why not?
Pot Growers Troubled by Falling Prices
The story's subtitle: Decriminalization has led to pot crop deflation
Longtime Humboldt resident Charley Custer tells National Public Radio that back in the early days of President Ronald Reagan's "War on Drugs," locally grown marijuana was selling for as much as $5,000 a pound.
"Common Objections to Capitalism" in Copenhagen
On Cigarette Tax Avoidance
From a write up about a new paper by David Merriman studying cigarette tax avoidance:
A random sample of littered cigarette packs reveals that 75 percent of the cigarettes used in Chicago bring no tax revenue to the city, according to researchers at the University of Illinois at Chicago.
A version of Merriman's paper is here.
UPDATE: See also this article on cigarette tax evasion in Canada.
May 17, 2010
I just skimmed the Arizona immigration bill that has everyone in a tizzy; it's helpfully embedded by the LA Times here. It reaffirms my belief that laws aren't made to be followed. They're made to be broken. When everyone is a criminal (or a potential criminal), the state's threats are more credible.
I've heard lots and lots and lots of people claim that they don't oppose immigration, they just oppose "illegal immigration." This is usually followed by a claim that one's ancestors were immigrants, and it is given legal oomph by the further claim that illegal immigration undermines the rule of law. I wonder: is there any chance that your ancestors would have been allowed into the country under today's immigration laws? I sincerely doubt it. See these links I posted a few days ago for more.
A Response to Salerno on Mises and Fiduciary Media
Joseph T. Salerno challenges my reading of Ludwig von Mises’ views on free banking and bank-issued money in a piece entitled “White contra Mises on Fiduciary Media” posted on the Mises Institute site on Friday. (“Fiduciary media” is Mises’ term for banknotes and checking balances in excess of bank reserves.) Salerno’s contribution represents progress, a useful departure from an otherwise stale debate among Misesians concerning the legitimacy of fractional-reserve banking. Salerno is to be applauded for declining to rehearse any of the now-familiar arguments to the effect that fractional-reserve banking is inherently fraudulent or otherwise jurisprudentially illicit. He acknowledges that Mises had favorable things to say about free banking, and that Mises on this topic differs from Murray Rothbard in important respects. Salerno offers up an important topic for renewed discussion, the question of whether any issue of fiduciary media creates a monetary disturbance or instead it is only excessive issue that disturbs.
My rather lengthy response to his challenge is below the fold.
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In his attempt to drive a wedge between my position and that of Mises, Salerno refers to the traditional interpretation of the 19th century British monetary debates as a two-sided contest between the Currency School and the Banking School. Salerno calls me and George Selgin the founders of a “neo-Banking School”. I would be flattered, except -- something Salerno unfortunately fails to mention -- I have always taken pains to distinguish the Free Banking School from the Banking School of the mid-19th century, and have always criticized the fallacious arguments offered by Thomas Tooke and John Fullarton of the Banking School. No reader of my Free Banking in Britain can miss that: I devote two chapters to contrasting three schools of thought, pitting the Free Banking School against the Banking School as well as against the Currency School.
You may call me a modern Free Banking School member if you like, but please don’t put me in any neo-Banking School. I am baffled by Salerno’s statement that Selgin and I are “[h]arking back to the older Banking School's 'law of reflux,'" when he must know that have always explicitly rejected that theory in favor of Mises’ adverse-clearing explanation of the process that limits a competitive bank’s note-circulation. And we have explicitly rejected the most infamous fallacy of the Banking School, the Real Bills Doctrine.
For the other side in his two-school framework, Salerno declares that “the main proponents of the neo–Currency School were Ludwig von Mises and Murray Rothbard.” I think he downplays the differences between Mises and Rothbard on monetary policy more than is warranted. He writes: “Their differences concerned only their evaluations of the alternative techniques available for achieving their shared goal of abolishing the ability of banks to issue new fiduciary media.” This blurs an important distinction. As Salerno knows, Rothbard was not concerned only with preventing new fiduciary media. He wanted to abolish all fiduciary media, including those introduced years ago, whether or not the market was already adjusted to them. Rothbard wanted a simple 100% reserve requirement against all checking account dollars, not merely a marginal 100% reserve requirement against new account dollars.
Not recognizing a distinct Free Banking School, Mises did claim kinship with the Currency School. The Currency School, like the Free Banking School, recognized that a central bank (the Bank of England) could and did instigate booms by over-expanding its liabilities, and that the expansion proved unsustainable under a gold standard due to losses of gold reserves to the rest of the world. Mises effectively sided with the Free Banking School against the Currency School, however, in rejecting the standard Currency School view that an unprivileged competitive banking system systematically tends to overissue to such an extent that legal restrictions are needed to suppress it. The Currency School favored not only the imposition of a 100% marginal gold reserve requirement on the Bank of England’s note issue but also the suppression of note-issue by other English banks, because they considered the competing banks outside London an additional source of overissue. They shared none of Mises’ insights about the benefits of free banking in preventing overissue through adverse clearings among competing banks that cannot collusively coordinate their behavior.
Salerno acknowledges that “Mises initially believed that unregulated or ‘free banking’ based on a gold standard was superior to the legal imposition of a 100-percent gold reserve requirement as a means for suppressing the issue of additional fiduciary media.” My view is that Mises continued to hold this position at the end of his career, as evidenced by the third edition of Human Action (1966), despite it being true that Mises in 1952, as Salerno points out, “did propose a plan for legally requiring a 100-percent reserve requirement for new currency and checking deposits”.
Mises’ plan for a 100-percent reserve requirement on new currency and checking deposits appears in his 1952 epilogue on “Monetary Reconstruction” added to The Theory of Money and Credit. My reading of that piece is that it is Mises’ second-best proposal for restricting credit expansion under central banking, assuming that we are stuck with central banking and that free banking reforms are out of the question. I discussed the 1952 epilogue in my contribution to the 1992 Sennholz festschrift that Salerno repeatedly cites. I need not repeat the argument here, but because Salerno for some reason does not address my discussion, I want to correct any misimpression that I overlooked the epilogue.
I wonder what Salerno makes of the extended discussion in the 1966 edition of Human Action that spells out the effectiveness of free banking at regulating the quantity of fiduciary media appropriately (pp. 438-48). For some reason Salerno avoids discussing them. I find these passages consistent with The Theory of Money and Credit, indicating continuity rather than change in Mises’ views.
Let me quote three important passages from Human Action (1966) in support of my view. On pp. 440-41 Mises declares:
It must be emphasized that the problem of legal restrictions upon the issuance of fiduciary media could emerge only because governments had granted special privileges to one or several banks and had thus prevented the free evolution of banking. If the government had never interfered for the benefit of special banks, if they had never released some banks from the obligation, incumbent upon all individuals and firms in the market economy, to settle their liabilities in full compliance with the terms of the contract, no bank problem would have come into being. The limits which are drawn to credit expansion would have worked effectively.
I don’t see how anyone could possibly read this as expressing a reversal of Mises’ initial preference for free banking over “the legal imposition of a 100-percent gold reserve requirement” as a means for avoiding the excess issue of fiduciary media.
A few pages later (pp. 447-8) Mises writes:
There was no reason whatever to abandon the principle of free enterprise in the field of banking. …
These passages are plainly inconsistent with Salerno’s claim that “Mises looked with great disfavor upon the creation of fiduciary media by banks, whether ‘free’ or not, and strongly urged its elimination.” When Mises refers with disfavor to the creation of fiduciary media under “the modern organization of exchange,” as in a 1952 passage that Salerno quotes, he clearly referred to a central banking system, in which commercial banks are merely cogs that transmit any monetary expansion that the central bank initiates by expanding the quantity of bank reserves.
Salerno suggests that by the time of writing Human Action Mises had “overcome his earlier fears of the expansion of political interference with banking, which he had foreseen as a possible consequence of the ultra-hard NCS proposal to legally prohibit all further additions to the outstanding circulation of fiduciary media, including demand deposits as well as notes.” I find it impossible to reconcile this claim that Mises overcame those fears with the following statement in Human Action (1966, p. 443):
But even if the 100 percent reserve plan were to be adopted on the basis of the unadulterated gold standard, it would not entirely remove the drawbacks inherent in every kind of government interference with banking. What is needed to prevent any further credit expansion is to place the banking business under the general rules of commercial and civil laws compelling every individual and firm to fulfill all obligations in full compliance with the terms of the contract. If banks are preserved as privileged establishments subject to special legislative provisions, the tool remains that governments can use for fiscal purposes. … Free banking is the only method available for the prevention of the dangers inherent in credit expansion.
Salerno writes that Selgin and I “contend that the creation of fiduciary media by banks is not only benign, but a necessary prerequisite to prevent the market economy from plunging into depression in circumstances where households and businesses increase their demand to hold cash, effectively reducing total spending in the economy.” That’s almost right. I would amend the sentence by putting a comma after “depression,” and by changing “cash” to “fiduciary media”. That is, not all creation of fiduciary media is benign. It is not benign when a bank (or banks) makes the error of over-estimating the demand to hold bank liabilities. It is not benign (though the blame lies with the central bank and not with the commercial banks) when the creation is driven by a central-bank expansion in the volume of base money and thus is a part of a process that creates an excess supply of money. It is benign when it meets an existing demand to hold it. When the demand to hold fiduciary media has risen, the alternative to a nominal expansion of fiduciary media is an excess demand for real inside money balances that will be satisfied through a slower and more painful process of general price decline.
Salerno correctly notes that “Mises supported a free banking regime precisely because it would eventually result in ‘extreme restraint in the issue of fiduciary media.’" So do I. Not contrast between Mises and me there. Salerno is right to see a contrast only insofar as I have criticized Mises’ ahistorical suggestions (where he cites the French economist Cernuschi, Human Action p. 447) that under free banking the acceptance of fiduciary media would be narrow and reserve ratios would be high.
The important question that Salerno raises, and that remains, is what to make of Mises’ statements that seem to condemn any and all expansion of fiduciary media as unwarranted, in contrast to other statements that seem to recognize a category of warranted expansion.
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Links for Northeast Shelby Republican Club Meeting
I'm speaking to the Northeast Shelby Republican Club this evening and have assembled the following list of links that attendees might find interesting. They deal with voting, political engagement, and some local, private alternatives to government-provided goods:
1. "Debate: Does My Vote Matter?" at Opposingviews.com. I was really disappointed in this because the other side of the debate (Rock the Vote and the League of Women Voters) didn't offer anything meaningful or substantive. Nor did they respond to any of my claims or criticisms of their positions.
2. Politics 2.0: Hack the Vote at Lifehack.org.
3. The (Il)logic of Collective Action: Lessons from the 2008 Election at The Beacon.
4. Forget Polls: Look at Prediction Markets on the Election, also at The Beacon.
5. Don Boudreaux explains his refusal to vote for The Freeman. Voting isn't the only way to be politically engaged. Especially given the ways in which access to the ballot is limited and political voices are silenced, I'm less and less inclined to think that it's a system that deserves our sanction.
6. Jeff Tucker explains why "Democracy Takes Too Many Lunch Hours" for the Mises Blog.
7. My student Brent Butgereit's winning essay answering my question "Should I vote in the Memphis Mayoral Election?" He compares voting to cheering at a football game.
9. Private Alternatives in Memphis: My friend Bryan Caplan once counseled that part of the strategy for liberty should include supporting private-sector alternatives to things that governments do very poorly. Here are a few in Memphis: Life Choices Memphis, The Neighborhood School, the Children's Museum of Memphis, the National Christian Forensics and Communications Association, Rhodes College.
10. National and International Institutions and Organizations: some of my favorites are listed on my Opportunities for Students Page. They offer publications, resources, and educational opportunities for students of all ages, not just for those who are enrolled in HS, college, grad school, etc. I'm also a big fan of the private Universidad Francisco Marroquin in Guatemala.
11. Here's a giant list of links I compiled for a "What's Wrong with the World?" panel at Rhodes last Fall. It includes links to yet another list of links I compiled for last summer's IHS "Liberty and Society" summer seminar.
12. Here's one of several downloadable PDF versions of Frederic Bastiat's The Law.
13. Governments presumably bind themselves with constitutions because hard cases lead to bad law, dangerous precedents, and slippery slopes. Here's ours.
May 16, 2010
Don Boudreaux: Man of Letters
If someone ever writes Don Boudreaux's biography, or if he ever writes his own autobiography, it should be sub-titled "Man of Letters." One of the highlights of the blogosphere is getting to read his excellent and pithy letters to the editor at Cafe Hayek. Here's a great letter to the NYT Book Review on whether we actually need an "ecologically minded Lenin." He also posts an excellent letter from Andrew Morriss to the WSJ on the Class of 2010's job prospects.
Hot Air About Altitude
Today's NYT has an article on upcoming World Cup matches that will be played at high altitudes. Two snips:
The 32 teams participating in the World Cup from June 11 to July 11 will be faced with tactical decisions about altitude as well as soccer. Matches at 7 of the 10 stadiums in South Africa will be played at elevations ranging from 2,165 feet in the agricultural hub of Nelspruit to higher than a mile in Johannesburg.
Now here's the abstract of recent Journal of Sports Economics paper by Rómulo A. Chumacero:
This article uses several econometric models to evaluate the determinants of the outcomes of the World Cup Qualifying matches played in South America. It documents the relative importance of home-field advantage and other factors. Contrary to popular belief, altitude appears not to be an important factor behind the outcome or score of a match.
While altitude affects athletes, the NYT's worry about team strategy for dealing with altitude and the quote about about La Paz (which, if I remember correctly, was part of the motivation for Chumacero's article) are not supported by evidence.
How's That Bolvarian Paradise Working Out?
Posted by E. Frank Stephenson at 01:56 PM
Regime Uncertainty Sighting
Accountant Jiao Yurong carefully organised her family's finances to put her son through university in the United States. Now that he has the coveted degree, she has been saving to buy him a flat. But soaring property prices in China -- and a series of moves by the government to rein them in -- are throwing a spanner in the 50-year-old mother's plans, and she admits she does not know how to proceed.
May 15, 2010
Quote of the Day
"Probably the only way I could be lower status is to be known as the guy who tried and failed to beat up Tyler Cowen."
Here. HT: Tyler Cowen.
May 14, 2010
I just agreed to speak to the Northeast Shelby Republican Club on Monday evening. I'll be giving an abbreviated version of my lecture "Common Objections to Capitalism." Here are some additional interesting reads:
1. Bryan Caplan on the populist roots of universal health coverage.
2. Bryan Caplan (again) on the populist roots of universal health coverage.
Central Planning Kills
That's the conclusion of Carol Propper and John Van Reenen's article in the current issue of the JPE. The abstract:
In many sectors, pay is regulated to be equal across heterogeneous geographical labor markets. When the competitive outside wage is higher than the regulated wage, there are likely to be falls in quality. We exploit panel data from the population of English hospitals in which regulated pay for nurses is essentially flat across the country. Higher outside wages significantly worsen hospital quality as measured by hospital deaths for emergency heart attacks. A 10 percent increase in the outside wage is associated with a 7 percent increase in death rates. Furthermore, the regulation increases aggregate death rates in the public health care system.
May 13, 2010
Grand Accomplishments Under the Gold Dome
The highlight of this year's legislative session in GA:
According to the National Highway Traffic Safety Administration, Georgia is one of the top 10 states in the country in deer-related auto accidents. Now, drivers can get some just desserts – or dinner.
I'm not sure if it passed the other house and was signed by the governor. I don't think it matters much--my guess is that most folks who are willing to eat roadkill would do so whether it's legal or not.
Posted by E. Frank Stephenson at 10:52 PM
Peter Klein's The Capitalist and the Entrepreneur
I've downloaded it to my Dropbox, it's on the reading list. Here's Peter Klein's new book:
The compound interest of "compound interest" c. 1910
From the May 13, 1910 NYT:
CHICAGO - The old familiar dates of history and the old problems in compound interest and compound fractions in arithmetic are to disappear from the curriculum of the Chicago public schools.Maybe, maybe not. An interesting parallel to today's curriculum debates.
Another Drug War Outrage
The daughter of a 76-year-old woman says her mother is hospitalized with a heart attack she suffered after drug agents who had the wrong address swarmed around her Polk County home
Previous post on Atlanta cops' war on grannies.
Posted by E. Frank Stephenson at 10:45 AM
May 12, 2010
If It Keeps Them Busy
The House Oversight and Government Reform Committee held hearings Wednesday on the "Potty Parity Act," a bill that seeks to address the unequal number of restroom facilities for women in federal buildings.
This is a much better way for the honorables to spend their time rather than mucking around in health care or passing cap and tax. Source.
Switzer on Badgering BP
Here's fellow Wash U Econ PhD (and key to all our IM sports championships, I might add) Dave Switzer on the BP investigations.
An open question
Okay, three questions.
My brother and I are heading to Austria and Northeast Italy for our annual wine tour later this month. We are attending VieVenum in Vienna for two days and then I have at least one, maybe two, more days in Vienna before we head off into the countryside to walk the vineyards, taste wines, and visit with producers.
I have three questions:
1. Does anyone have any non-obvious suggestions about Vienna and the surrounding area? We will stay in Vienna proper (probably towards the southeast of center city) where, hopefully, parking is a bit cheaper - we will likely stay somewhere on the U or S-Bahn and not plan to take our car into the city. Dining, drinking, off-the-tourist-path places to visit are most valuable.
2. Where should I go to find Hayekian landmarks, etc. in Vienna? I have done a cursory search on der Googles but haven't found much (I am likely looking in the wrong places). Any help in this area is greatly appreciated. [BTW, last year we visited Trier and I took a picture in front of Marx's birthplace - with me showing my "appreciation" for his contributions. I would love to do the same (that is, show my true appreciation) for Hayek if it is possible.]
3. We fly in and out of Munich - we will be back in Munich on Friday, June 11 for the opening day of the World Cup. Anyone have suggestions on where to stay in Munich - probably closer to the city center - and, more importantly, where two American football fans should go hang out to watch the Germans watch the South Africans play the opening match of the 2010 World Cup?
Any help appreciated - comments open for the rest of today.
May 11, 2010
More on the euro
Why can't the press grasp the simple distinction between the value of Eurozone government bonds and the value of the euro currency? In the first sentence of its front-page coverage this morning, the Washington Post refers to a "massive emergency fund assembled to defend the value of the euro". The fund is for defending the bonds, not for defending the euro.
In an email message about my post yesterday on the inflationary consequences threatened by the ECB's pledge to buy up bonds to support their price, a reader rightly points out that in its press release, the ECB promises to sterilize the bond purchases so that "the monetary policy stance will not be affected". That is, it will sell other assets to offset its government bond purchases.
When I look at the current ECB balance sheet, however, I don't see a lot of salable assets. Clearly there's no point in selling the Eurozone government bonds it currently holds. Other euro-denominated "securities held for monetary policy purposes" are a mere €52 billion. The biggest asset category is "Lending to euro area credit institutions". This is a portfolio of loans to Eurozone banks that I'm guessing the ECB doesn't want to shrink just now.
ECB head Jean-Claude Trichet today spoke a bit ambiguously as to whether the plan is simultaneously sterilizing or later reversing the base money injections made in purchasing government bonds:
He dismissed the suggestion that the bond purchases might be inflationary. "The liquidity which we're adding to the market will be withdrawn by us again so the money supply in circulation will not be increased," he said.
Either way, until I read an explanation of how the added money will be withdrawn, count me as finding these statements lacking in credibility. Forecast: higher euro inflation, lower value of the euro.
Would This Be Price Gouging?
2000 watt camping generators are advertised at Aldi for about $150. That got me thinking about ways to evade price gouging laws in Gulf Coast states. Rather than speculate, I sent the following email to Florida Attorney General Bill McCollum via his website:
Cross-posted at The Beacon. I'll blog his office's response if they will give me permission.
On drawing turtles and pirates c. 1910
Another letter from the May 11, 1910 NYT, this one complaining about the freedom of entry into the "illustrator market":
What is to become of the illustrator? I see advertisements in the magazines, "Learn to be an illustrator," "Be an artist," "Artists receive from $25 to $100 a week," &c.
The signature of the letter is telling. If the letter was truly written by an existing illustrator, then the complaints of entry into his/her market are natural. However, the letter-writer does not suggest government action - at least not explicitly. I wonder what policy the letter-writer would have suggested: a guild that would limit entry via certification, er, kind of like going to "school" to be an illustrator? Perhaps the existing illustrators should gauge the quality of the upcoming illustrators and only allow those of sufficient quality to enter the market, perhaps like the medical profession. However, while the ideal of only high-quality illustrators is nice to imagine, the reality is that incumbent illustrators would find it in their best interest to limit the entry of exceptional new illustrators for fear of losing business to them.
Of course, in a few years the illustrator will have much more pressing issues to deal with, namely, the camera and the ability to print camera-taken pictures in higher quality and at lower cost.
The opening paragraph reminded me of the Art Instruction Schools - which has been advertising such programs since 1914 (so before this letter was written):
I remember the campy television commercials (which you don't see much anymore) about "becoming an artist." The hook was that you would draw a turtle (or some other still likeness) and send it off for the "experts" to evaluate. They would then let you know how much promise you have and then nurture your artistic talent for a (somewhat substantial) fee. All cynicism aside, some famous artists did graduate from the "institute."
Here's one I remember from the early 1980s:
And another one from 2000 (just replace the "president" and roll tape):
More Immigration Links
1. Peter Bagge, "Beware the Brown Peril!"
3. If you're not convinced that immigration will destroy our culture, a visit to Sesamestreet.org with Jacob this morning gave me all the evidence I need. Not only is there a Spanish-speaking Muppet, but she's teaming up with Gloria Estefan to lead the other Muppets in a song about saying "Hola instead of Hello" (that's a quote straight from the lyrics). The game that follows the Gloria Estefan video is even worse: not only does Cookie Monster order (obviously foreign) baba ghanoush and pita toast, Rosita is filling in at Alan's restaurant and has declared it "order in Spanish Day."
4. Via Reason, "What Part of Legal Immigration Don't You Understand?" (HT: David Veksler).
On census jobs c. 1910
From a letter published in the May 11, 1910 NYT:
As I was one of the ladies who helped to take the census I would like to say, judging from my district, in which there were 1,100 people, if we did our work thoroughly and conscientiously throughout, counting the time expended in trying to appease the wrath of many of the upper middle and lower upper class, who resented some of the questions as impertinent and refused to answer until we had exhausted our persuasive powers, then I say if we are paid at the rate of 2 1/2 cents per name, we would not be remunerated for more than half of the time spent for hard and actual service. If they did it as I did it, for social science, then they are well paid, but if for money, they will not think Uncle Sam the generous-hearted fellow they hoped to find.2.5 cents per name in 1910 would be roughly 58 cents in 2009 dollars. Nowadays, the pay ranges from $11-$18/hr in North Carolina (interactive map here).
It is interesting that Census pay remains low and suspicions remain high.
Quote of the day
From Niall Ferguson's review of Posner's latest:
Both these measures [Frank's and Dodd's financial regulation bills] recall the old British sitcom “Yes Minister,” in which all crises elicited the following response from the clueless politician Jim Hacker: “Something must be done. This is something. Therefore we must do it.”
Fits the rhetoric regarding Obamacare pretty well, too.
Posted by Wilson Mixon at 10:48 AM
Web gem c. 1910
How great would it be if we had footage of this baseball play, reported in the May 11, 1910 NYT:
PHILLIES MAKE TRIPLE STEAL, BUT LOSEI have seen double steals, but a triple steal? There isn't even a youtube video (that I can find) showing how it might go down.
Those darned kids c. 1910
From a letter published in the May 11, 1910 NYT:
In my many years' experience as a district nurse I have found no children as ill-behaved as the children of to-day, and the reason for this lies, I believe, in the lax discipline of the public schools. But it is not the fault of the teacher. The pupil "sasses teacher back," and rather than keep the child and herself in after school she must overlook it.
Desperately Seeking Cuffy Meigs, or, That's Just Theory!
Bryan Caplan discusses successively-larger bailouts. Fans of Atlas Shrugged will recall the importance of "practical politics." Too much of this is based on the assumption that there will always be a big pocket to pick, and that the failure of the Grand Design is not the failure of the men and women of system who try to implement it, but of the owner of that big pocket who no longer wishes to see it picked.
May 10, 2010
Building Brand Equity: Contributions to Medical Progress Today
I'm on the Medical Progress Today "Innovative Ideas" podcast discussing Charles Courtemanche's and my work on Walmart, Super Walmart, Warehouse Clubs, and obesity here.
I was also asked to contribute a few words to their "Second Opinion" discussion on Obesity and Public Health here.
Building Brand Equity: Carden & Verdon, 2010.
Carden, Art and Lisa Verdon. 2010. When is Corruption a Substitute for Economic Freedom? Law and Development Review 3(1): Article 2.
The value of European government debt is not the value of the Euro
The European Central Bank has flunked the first major test of its independence and its commitment to the single goal of low inflation. It announced yesterday, in so many words, that it will print as much money as it takes to keep prices up and yields low on government bonds issued by Eurozone governments. As of 1:30 pm EST today, the euro is down only very slightly today against the US dollar. I'm puzzled as to why speculators haven't raised their expectation of euro inflation and correspondingly punished the euro more than they have. (I'm personally hoping they wake up soon, because I'm planning a trip to Greece at the end of the month and I want a cheap euro to compensate me for the risk of being caught in an Athens riot!)
European finance ministers threw a trillion-dollar protective wall around the euro on Sunday and the European Central Bank said it would begin buying government bonds if necessary as officials on the continent struggled to contain the spread of a government debt crisis that began in Greece. The ECB … would, if necessary, begin buying public and private debt on the secondary market "to ensure depth and liquidity in those market segments which are dysfunctional."
Translation: The European Central Bank said it would begin buying government bonds of Greece, Spain, etc. as necessary to keep their prices from falling and yields from rising. This is a "protective wall" around nominal Eurozone government bond prices. It is the opposite for the value of the euro currency. Calling it a protective wall around the euro is like saying that "artist Roy Lichtenstein threw a protective wall around the value of his limited-edition prints yesterday by announcing that he stands ready to mass-produce them for the benefit of his friends."
This is a solvency crisis, not a liquidity crisis. Eurozone government bond yields have risen not in a scramble for liquidity (base money), but with an upward revision in estimates of default risk. Monetary expansion treats the debt problem only by inflating away the value of the euro.
For a central bank to “ensure liquidity” in the market normally means that it provides enough base money to avoid an excess demand for money at the current constellation of prices and interest rates. When the yield (interest rate) on government bonds rises relative to other interest rates because the bonds’ estimated default risk rises, that is not a signal of an excess demand for money. If the central bank purchases government bonds to keep their yields from rising with default risk, it disturbs monetary equilibrium by creating an excess supply of money at the current price level. It disturbs intertemporal equilibrium by temporarily reducing interest rates below equilibrium through excess liquidity.
"We are going to defend the euro," [Spanish Finance Minister Elena] Salgado told reporters. "We have to give more stability to our currency. . . . We will do whatever is necessary."
Defending the euro is in fact the opposite of what the ECB has announced it will do. Salgado is not telling the truth. Either she know she is lying, or Europe's fiscal authorities really don't understand. If the ECB is now following the lead of the fiscal authorities, neither of the two possibilities bodes well for the euro.
So Much for Cultural Hegemony
The abstract of a new NBER WP by Fernando Ferreira, Joel Waldfogel:
Advances in communication technologies over the past half century have made the cultural goods of one country more readily available to consumers in another, raising concerns that cultural products from large economies – in particular the US – will displace the indigenous cultural products of smaller economies. In this paper we provide stylized facts about the global music consumption and trade since 1960, using a unique data on popular music charts from 22 countries, corresponding to over 98% of the global music market. We find that trade volumes are higher between countries that are geographically closer and between those that share a language. Contrary to growing fears about large- country dominance, trade shares are roughly proportional to country GDP shares; and relative to GDP, the US music share is substantially below the shares of other smaller countries. We find a substantial bias toward domestic music which has, perhaps surprisingly, increased sharply in the past decade. We find no evidence that new communications channels – such as the growth of country-specific MTV channels and Internet penetration – reduce the consumption of domestic music. National policies aimed at preventing the death of local culture, such as radio airplay quotas, may explain part of the increasing consumption of local music.
Or maybe it just means that people in other countries have better taste than listening to Miley Cyrus and Britney Spears.
The abstract of a new NBER WP by Wenli Li, Michelle J. White, Ning Zhu:
This paper argues that the U.S. bankruptcy reform of 2005 played an important role in the mortgage crisis and the current recession. When debtors file for bankruptcy, credit card debt and other types of debt are discharged—thus loosening debtors’ budget constraints. Homeowners in financial distress can therefore use bankruptcy to avoid losing their homes, since filing allows them to shift funds from paying other debts to paying their mortgages. But a major reform of U.S. bankruptcy law in 2005 raised the cost of filing and reduced the amount of debt that is discharged. We argue that an unintended consequence of the reform was to cause mortgage default rates to rise.
Just to state the obvious: This finding doesn't necessarily mean that bankruptcy reform was a bad thing.
The social function of price gouging
HT Greg Mankiw, here is Boston Globe columnist Jeff Jacoby on the virtues of price gouging after a disaster.
When the demand for bottled water goes through the roof — which is another way of saying that bottled water has become (relatively) scarce — the price of water quickly rises in response. That price spike may be annoying, but it’s not nearly as annoying as being unable to find water for sale at any price. Rising prices help keep limited quantities from vanishing today, while increasing the odds of fresh supplies arriving tomorrow.
May 08, 2010
F. A. Hayek, born May 8, 1899
While working on a paper this morning, I looked away from my screen and my eyes landed on my pinned-up copy of the AEA calendar of economists, which reminded me that today is Hayek's birthday. (The featured economist of the month, whose biography occupies the top fold of the calendar, is Karl Marx.) Go and celebrate with a couple of vid's.
Chavez & Morales on a stroll down the road to serfdom
Following upon my Bolivia post from earlier this week, a few reports about nationalization and its consequences in Venezuela.
The butchers' arrests is the latest in a string of moves by the Chavez government to rein in the free market and create a heavily regulated, state- controlled economy.
Elsewhere, Mary Anastasia O'Grady writes about the newly nationalized coffee sector:
The collapse of the coffee industry is emblematic of the wider economic catastrophe brewing in the country. For more than a decade Mr. Chávez has employed price controls, capital controls and hyper-regulation in an attempt to meet his socialist goals. When the predictable shortages have arisen, the government has responded by using the salami approach to nationalization, slicing off a bit of the private sector at a time and taking it for the state.
At high inflation rates, the pattern of failure-then-nationalize will soon turn toward the financial system. According to VenEconomy: Going after the messenger again,
Time and again, the communist blindness of the Hugo Chávez administration has led it to eliminate the messenger instead of facing up to what the message is about.
Interestingly, the more binding constraint could be fiscal pressures rather than economic catastrophe. A Venezuelan think tank points out:
A case study prepared by think-tank Ecoanalítica took into account the State procurement ending 2009, except for additional amounts for purchase of small assets and expropriated farms. It found that the amount payable for the companies, most of which were in multinational hands, totals USD 22 billion.
Immigration, or, Why This is a Battle Worth Fighting
The comments on this article are almost uniformly anti-immigrant and uniformly uninformed. Reading articles (and the ensuing comments) like this steel my resolve to proceed ever more boldly in the name of the economic way of thinking. I'm sympathetic to a lot that the Tea Party has to say, but this is an issue on which most tea partiers are flat wrong. Indeed, "illegal" immigrants who pay into the social safety net and don't collect may be footing the bill for the Medicare you're so anxious for the government to leave alone. Here's my argument for open immigration. The "it's the law and they broke it" argument holds no water; indeed, it wasn't all that long ago that there were strong restrictions on African-Americans who wanted to move to Indiana, Illinois, Ohio, and other Northern territories and the Fugitive Slave Law was the "law of the land." Just because the government says something doesn't make it right.
But don't take my word for it. Here's some recommended reading:
1. Here's an old Freeman article entitled "Immigration: An Abolitionist Cause" that I really enjoyed (link is to PDF).
2. Economics: for the umpteenth time, Lant Pritchett's Let Their People Come.
3. Moral philosophy: Michael Huemer's excellent paper "Is There a Right to Immigrate?" (link to PDF)
4. Here's the Chinese Exclusion Act, passed on May 6, 1882.
May 07, 2010
Planning vs. The Coordination of Plans
A letter to National Geographic that apparently will not be published:
Subject: Re: "The Singapore Solution"
The January 2010 article by Mark Jacobson on Lee Kuan Yew and Singapore’s economics success was very illuminating. I would like to clarify one point however. While it is true that Singapore’s solution was “all in the plan,” what was so important about what Yew did was he recognized that my economic plan plus your economic plan does not have to equal our economic plan. In other words, he created an environment that allowed for considerable economic freedom. According to the 2009 Economic Freedom of the World Report published by the Fraser Institute (of which I am affiliated), Singapore has been among the top five most economically free countries since 1980. Singapore’s economic success might be the result of planning, but it is a planning that respected the importance of individual entrepreneurship, freedom, and creativity in economic affairs.
Posted by Joshua Hall at 03:48 PM
Walmart and "Economic Enlightenment" (Updated)
Dan Klein pointed me to this result in his recent paper with Zeljka Buturovic entitled "Economic Enlightenment in Relation to College-going, Ideology, and Other Variables: A Zogby Survey of Americans" and suggested I highlight this: among survey respondents--and they acknowledge reasons to think they may have a biased sample--those who never shop at Walmart answered an average of 4.24 out of 8 questions on a short economics quiz incorrectly. Weekly Walmart shoppers answered an average of 2.24 questions incorrectly, those who shop at Walmart "A few times a month" answered an average of 2.45 questions incorrectly, those who shop at Walmart "A couple of times a year" answered an average of 2.93 questions incorrectly. My papers on Walmart are here; my recent Freeman article and the audio of my Walmart lecture at St. Lawrence University are here.
It's a pretty interesting paper. Buturovic and Klein offer a number of cautions, caveats, and qualifications about their methods; caveat 4 (p. 182) is especially relevant because response bias could be driving their result on the alleged lack of a connection between having a college degree and economic enlightenment. This shouldn't have much of an effect on the Walmart-and-economic literacy finding, though. The authors have also generously made their data available online, so there's room for a fruitful conversation on this.
11:52 PM update: Todd Zywicki weighs in on the paper, noting that the questions are basic supply and demand questions on which there is probably as strong a consensus among economists as one could get (HT: Will Wilkinson). They're variations on "do supply curves generally slope upward while demand curves generally slope downward?" I wonder: what percentage of the people who got most of these questions wrong also think that we have to act now on
Just Say NO c. 1910
From the May 7, 1910 NYT:
Mrs. J. Rechtin, wife of a well-known business man, has set out to do away with the bacteria-spreading kiss through the World's Health Organization, of which she is president. "Kiss not," is the motto of the W.H.O. It is emblazoned in red letters on a white button worn by the members. Hundreds of circulars are being sent through the mails, one part of which reads:
Unintended Consequences and Voting
1. Louisiana Shrimpers threatened by oil spill. First, if it weren't for shrimp protectionism, these resources wouldn't be in harm's way. Second, BP would have behaved differently were it not for oil subsidies and liability caps.
2. With reference to my link to Jeff Tucker's piece below, Wendi C. Thomas is upset about low voter turnout in the local primaries on Tuesday (there was a primary on Tuesday?). Over the summer at the Jack Miller Center Summer Institute, co-blogger and election fraudulator Mike Munger made an interesting point: low voter turnout should probably be seen as a sign of a healthy civil society because government is not at the heart of our concerns. I watched some of Tuesday's returns after "Lost" and "V." I saw one election in a nearby county where the candidates were separated by (I think) four votes. I didn't see a single race in which I could have voted in which my vote would have been decisive. My non-voting produced the exact same outcome that would have obtained had I voted, and I was able to spend the time instead learning more about the Memphis race riot of 1866.
Tucker on Voting, Swag Bleg
Jeffrey Tucker writes about political signs and the opportunity cost of voting. That said, I might proudly display "Dwayne Camacho for President" and "Frito Vendejo for Attorney General" signs in my yard for the 2012 election.
May 06, 2010
What I've Been Reading Lately
1. Emily Chamlee-Wright, The Cultural and Political Economy of Recovery: Social Learning in a Post-Disaster Environment. Review is forthcoming in Public Choice. This is an interesting and important book that shows economists what they can learn by adopting qualitative methods and that shows non-economists what they can learn by using economic theory.
2. Jeffrey H. Jackson, Paris Under Water: How the City of Light Survived the Great Flood of 1910. This is an input into one of my Projects That Won't Die (Chris Coyne's and my paper(s) about the Memphis Riot of 1866). The author is in the history department at Rhodes. Potential contributors to the ongoing Mercatus Center project on the post-Katrina Gulf Coast--which spawned Emily's book, above--should read it.
3. G.A. Cohen, Why Not Socialism?. Review forthcoming in The Freeman. Cohen doesn't meet the hard arguments head-on. On a related note, I'm utterly mystified by people who invoke Pinochet's atrocities in Chile to smear the intellectual legacy of Milton Friedman but then dismiss or excuse the atrocities committed in the name of socialism by Lenin, Stalin, Mao, Fidel, and everyone's favorite killing machine turned pop culture icon. It's true that Marx probably would have been on the first train to the gulag after the Revolution, but this was true of scores of intellectuals who were seen as threats to the new power elite in the early USSR (for more, here's Paul Gregory in the Independent Review). Paul Johnson argues, I think correctly, that it was probably only a lack of opportunity rather than a principled objection to mass murder that prevented Marx from committing Leninesque or Stalinesque atrocities.
3a. Karl Marx, Capital, Volume I. Would I find this more convincing if I hadn't read Mises, Hayek, Rothbard, Sowell, and Boehm-Bawerk? Nonetheless, Marx is an entertaining (if at times almost impenetrably dense) read.
3b. Ludwig von Mises, Marxism Unmasked: From Delusion to Destruction ($0 PDF download here). This is based on a series of Mises's public lectures. Here's a choice passage that speaks to 3 and 3a (no page #s in the PDF):
Nikolai Bukharin [1888–1938], a Communist author who lived in a Communist country, wrote a pamphlet in 1917, in which he said, we asked for freedom of the press, thought, and civil liberties in the past because we were in the opposition and needed these liberties to conquer. Now that we have conquered, there is no longer any need for such civil liberties. [Bukharin was tried and condemned to death in the Moscow Purge Trial of March 1938.] If Mr. Bukharin had been an American Communist, he would probably still be alive and free to write more pamphlets about why freedom is not necessary.
5. Karl Barth, Evangelical Theology: An Introduction. This is not as light as I thought it would be from the subtitle. It's a discussion of the actual practice of theology and the nature of theological reasoning. I'm almost to the end.
6. Fyodor Dostoevsky, The Brothers Karamazov. This is my second try at this, and it's near the top of my list of books I'm ashamed to say I've never read in their entirety. My inner Tyler Cowen is screaming "danger, Art Carden!" at a pronouncement like this, but I will finish it this time.
Posted by Art Carden at 10:38 AM
1. Steve Horwitz on The Three Hats of the Economist.
2. Sheldon Richman on Immigration, Civil Liberties and the Drug War.
May 05, 2010
Why I Love Teaching Intro
I love teaching introductory economics for a lot of reasons. One of those reasons is that almost every issue of every newspaper has something in it that can be better understood by applying the economic way of thinking. Here's an example from today's Commercial Appeal: under what conditions will the proposed tax "not be passed on to the patients"? I was going to have a contest to see who can give the best answer, but let's do it this way: if the Commercial Appeal publishes your letter to the editor in which you give the answer, send me the URL and I'll send you a book to be named when I see what I have in my office (probably a copy of Frederic Bastiat's The Law).
Greece, default, and deflation
Emulating the letter-to-the-editor-writing dynamo that is my colleague Don Boudreaux, I have sent the following letter to the Washington Post:
Columnist Steven Pearlstein ("Greece and the myth of the easy economic fix", 5 May 2010, p. A16) is mostly right in his analysis of why default by the improvident Greek government would be less bad for the European Union than papering over the problem with IMF and ECB bailouts. But he must have had a brain freeze when he wrote: "If Athens manages to make good on its promises to cut spending and turn a nation of tax cheats into taxpayers, there’s a good chance it will trigger a vicious deflationary spiral – falling prices, falling employment and falling government revenue – that will make it impossible to repay debts.” This statement makes no sense: a Greek budget surplus could not cause a deflationary spiral. To paraphrase a famous monetary economist, deflation is always and everywhere a monetary phenomenon. Because Greece is on the euro, Greek prices are constrained to be close to prices in the rest of the Eurozone, just as prices in Florida must remain close to prices in the rest of the United States. Prices throughout the Eurozone will not fall into a vicious deflationary spiral unless the European Central Bank commits the unlikely mistake of shrinking, or allowing to shrink, the Europe-wide stock of euros.
Pearlstein's column is here (registration required). If the Greek government could cut spending enough to eliminate deficits, that would not be dangerous but terrific. It's unlikely they'll try very hard, and especially unlikely when the IMF and EU and ECB stand ready to cushion the Greek government from the consequences of its own improvidence.
Public Choice Outreach Seminar
Information here. I went to this in 2000; it's where I met Bryan Caplan, Robert Higgs, Don Boudreaux, and James Buchanan for the first time.
Counting Costs as Benefits
Berry's student activities office posts a calendar of events in campus restrooms. (It's called the Stall Wall Weekly and has the motto "Everyone knows because everyone goes.") Days with few activities list a fact or a joke, and one in the current edition caught my eye. It claims that for every job collecting recyclable materials there are 26 jobs used to process the materials and manufacture them into new products. Seems like a case of counting costs as benefits and a nice illustration of Bryan Caplan's make work bias.
I caught of a few minutes of ABC's "This Week" program last weekend. Here's an exchange between Bill Maher and George Will:
MAHER: So, you know, I could certainly criticize oil companies, and I could criticize America in general for not attacking this problem in the '70s. I mean, Brazil got off oil in the last 30 years. We certainly could have.
Will is correct--the CIA World Factbook reports that Brazil consumes 2.5 million barrels of oil per day, good for 8th place in the word and ranking above Italy, U.K, and France.
Posted by E. Frank Stephenson at 08:21 AM
Early QOTD Candidate: Zetland on the Stimulus
"Bottom Line: You can't make jobs where there's no demand, but you can sure waste money pretending that you know what you're doing!"
May 04, 2010
NC Primary Kerfuffle
Did I commit election fraud? I'm a little worried.
Don't tell anybody, okay?
Posted by Michael Munger at 07:55 PM
Never Forget: 40 Years Ago Today
Today is the 40th anniversary of the infamous shootings at Kent State University.
Congrats to our co-blogger Brad Smith!
Press release from the Bradley Foundation:
The Lynde and Harry Bradley Foundation in Milwaukee has announced the 2010 recipients of the Bradley Prizes for outstanding achievement awarded annually to prominent scholars and engaged citizens. The recipients will be honored at an awards ceremony on Wednesday, June 16, at The John F. Kennedy Center for the Performing Arts in Washington, D.C. Each award carries a stipend of $250,000.
HT: Todd Zywicki
Steve Hanke on the Fed as "bubble makers"
Words of wisdom from Steve Hanke:
Contrary to claims by Messrs. Greenspan and Bernanke, the Fed played a central role in blowing asset bubbles, shifting relative prices and creating massive distortions in the economy.
Why don't more economists acknowledge this publicly?
Military history is written by the victors. Economic history is written by central bankers.
On compensation and efficiency c. 1910
From the May 4, 1910 NYT:
WASHINGTON - Employers of brewery workers in this city have granted an eight-hour workday, and in return the employes have agreed to take not more than two drinks of beer in the eight hours.Before working hours? How soon before? On the surface this would seem to offset any efficiency gains the breweries hoped to achieve. On the other hand, employees who wanted to keep their jobs would likely internalize the costs of getting drunk before going to work. An interesting exchange between the workers and the employers - would those drinks be a taxable fringe benefit in today's world?
[Update: Reader Steven J. points me to a recent Wall Street Journal article dealing with a similar issue at the brewer Carlsberg, which has more detail about the fading right to drink on the (bewery) job. This would make an interesting master's thesis topic.]
May 03, 2010
Two cool abstracts from NBER Working Papers:
"Who Pays Cigarette Taxes? The Impact of Consumer Price Search"
We conduct an empirical study of the impact of consumer price-search on the shifting of cigarette excise taxes to consumer prices. We use novel data on the prices smokers report actually paying for cigarettes. We document substantial price dispersion. We find that cigarette taxes are shifted at lower rates to the prices paid by consumers who undertake more price search – carton buyers, and especially, smokers who buy cartons of cigarettes in a state other than their state of residence. We also find suggestive evidence that taxes are shifted at slightly higher rates to the prices paid by non-daily smokers, less addicted smokers, and smokers of light cigarettes.
"Excise Tax Avoidance: The Case of State Cigarette Taxes"
In this paper we contribute new empirical results about consumers’ decisions to avoid cigarette excise taxes, and a new applied welfare economic analysis of optimal excise taxation with tax avoidance. We examine direct measures of consumer excise tax avoidance in novel individual-level data from the 2003 and 2006 - 2007 Tobacco Use Supplements to the U.S. Current Population Survey. We estimate reduced-form models and a structural endogenous switching regression model. In the structural border-crossing equation, the decision to cross the border depends on the difference between the endogenous home- and border-state prices. The reduced-form and structural results show that the probability of cross-border cigarette purchases responds in predictable ways to the economic incentives created by the distance to the border and state tax differentials. To our knowledge, we are also the first study to extend the formula for optimal Pigouvian corrective taxation to incorporate excise tax avoidance. Taking into account tax avoidance implies the optimal tax is substantially below the simple Pigouvian tax that internalizes external costs. In illustrative calculations for 2003, we find that in 20 states the optimal tax that accounts for tax avoidance is at least 20 percent smaller than the simple Pigouvian tax.
A few years ago, Tennessee cranked up its cigarette tax with exactly the consequences you would expect in a very long, very narrow state that borders eight other states (Georgia, North Carolina, Virginia, Kentucky, Missouri, Arkansas, Mississippi, Alabama): actual revenues were much lower than projected revenues as merchants rushed to get the older tax stamps and as buyers hoarded cigarettes in anticipation of the higher prices, and a lot of people started buying their cigarettes in other states. Naturally, this led to further intervention as Tennessee started patrolling locations just across the border for people buying more than the legal quantity of out-of-state cigarettes.
Hey Students! Intellectual History Project Idea
If you're looking for an end-of-semester project, I have an idea for you. Look for discussions over the last 25 years or so in which Greece is cited among examples of what the US should be doing (thriving, prosperous, generous welfare state). Analyze. I'd be interested in seeing what you find.
If you're an undergraduate and you want to do this for a grade, be sure to clear it with your professor first. Needless to say, I can't provide feedback on work you're submitting for a grade.
May 02, 2010
Ever since reading Michael Lewis's Moneyball, I've been interested in the media's obsession with minimally-informative statistics like wins and RBIs. Here's a case in point. Kyle Lohse is 0-1 in three quality starts.
May 01, 2010
There's No Way This Can Be Real, Right?
Here's a commercial from the Pennsylvania Tax Amnesty (HT: Lew Rockwell). This raises a question for privacy advocates: taxation requires that people basically have no financial privacy. How are government invasions of financial privacy different from other kinds of privacy? Has the ACLU ever sued the IRS or state taxing authorities for inserting themselves into every financial transaction? Comments are open.
Latest in Bolivia Nationalizations
Perhaps taking the lead of governments in the United States, Bolivia's President Evo Morales has decided to nationalize another industry. Today he announced the confiscation of equity held by British and French companies in Bolivia's electricity industry. Evo's government says it made offers but met with no cooperation, so it had no alternative but to take the property. Some companies are sueing for undercompensation, and foreign investors have brought Evo's previous nationalizations to the World Bank for arbitration. And so goes a tradition. From the Reuters news story on this:
Morales likes to celebrate May 1, known as May Day or International Workers' Day, by nationalizing companies controlled by foreign investors. On May Day last year, he nationalized Air BP, a division of British oil major BP Group and the same day in 2008 he took over Entel, the country's largest telecommunications company, until then controlled by Euro Telecom International, a unit of Telecom Italia.
A tradition of theft.
Forays Into Commercial Society
To pay Division of Labour and a few other ventures, I've established a couple of online stores. It seemed fitting to mention these on May Day:
2. God is my Co-Author. Gear for the academic in your life.
3. Arachno-Capitalism. Because spiders love markets and hate coercion.
4. The Capitalist Pigsty. Capitalist pigs have feelings, too.
We still live in interesting times
In honor of the recent release of 2010q1 data, I calculated my “back of the envelope” equation of exchange (MV=PQ). For “M” I use the St. Louis Fed’s seasonally adjusted monetary base. For GDP and Real GDP I use the Bureau of Economic Analysis seasonally-adjusted figures. Dollar amounts are in billions. Using the equation of exchange, I calculate velocity and the implicit monetary base GDP deflator. (N.B.: Yes, I’m a monetarist/neoclassical sort of dude. You don’t need to email me to tell me about how Rothbard disproved the concept of velocity, etc.) Pictures tell thousands of words, so…
Download file here.
The first table is a condensed view. The left hand side shows levels of variables and the right shows growth rates. The growth rates are approximated by the differences in natural logs, and they are quarter-to-quarter growth rates.
The second table shows more traditional year-to-year growth rates, based on the first quarter.
I’ll be honest. The monetary base and velocity figures blow my mind.
Read More »
Never Forget: May Day 2010 (Updated)
Here are a couple of May Day Links as the blogosphere continues adding to the discussion:
1. Bryan Caplan's interesting counterfactual history: what if a stroke had killed Lenin in 1917?
2. Bryan's online Museum of Communism.
3. R.J. Rummel's democide website.
5. At the "What's Wrong With the World?" panel at Rhodes in September, I claimed that arguments for communism would be wrong. Mises explains why in his classic "Economic Calculation in the Socialist Commonwealth."
6. David Gordon reviews G.A. Cohen's Why Not Socialism?. My review will appear in The Freeman; James Otteson's review will appear in The Independent Review.
7. Romance does not excuse evil. It suggests an interesting exercise in comparative ethics. Who is guilty of the greater crime: the apologist for pedophiles in priestly robes, or the apologist for those who inaugurated campaigns of systematic slaughter in the name of "the people?"
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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