Division of Labour: June 2010 Archives
June 30, 2010
Podcast on market failure vs. market process and the decline of newspapers
Posted by Edward J. Lopez at 06:13 PM
"Trial lawyer for Big Oil"
The Alabama Education Association is the 800-pound guerilla of Alabama politics. Long a (perhaps "the") dominant player in the state Democratic Party, the AEA is branching into this year's GOP gubernatorial race in a major way. Its objective is to try to ensure that Bradley Byrne is not the GOP nominee. Byrne's claim to fame is a fairly short tenure as head of the state's community college system, whose employees are members of AEA. Byrne was effective enough as a reformer of the community colleges that he earned the AEA's undying enmity. Now that we're in the runoff campaign, the AEA is supporting Byrne's opponent, Robert Bentley. At least, that's what appears to be happening. A series of slickly produced anti-Byrne radio ads are currently running sponsored by an outfit that calls itself the "Christian Coalition for Alabama." Their overall message is that Byrne is not conservative enough for Alabama -- which is rich, coming from the de facto teachers union. This morning I heard one that pointed out that Alabama will need to squeeze BP for big bucks, but Byrne would not be up to the job since he has been "a trial lawyer for Big Oil."
What a phrase.
Hearing the ad brought to mind one of my favorite H.L. Mencken quotes: "[T]he true charm of democracy is not for the democrat but for the spectator. That spectator, it seems to me, is favoured with a show of the first cut and calibre. Try to imagine anything more heroically absurd! What grotesque false pretenses! What a parade of obvious imbecilities! What a welter of fraud! But is fraud unamusing?"
Cavalcade of Miscellany
1. Claudia Williamson, "Let Fake States Fail: Anarchy as a Viable Solution to Artificial States"
2. Congratulations to Scott Beaulier, new father and now economics professor at Troy University. It's a big loss for Mercer, but a big gain for Troy.
3. Re: Ed's recent Freeman column, here's my take on whether we should subsidize media.
4. Ouch. The Onion, America's finest satire.
5. Robust civil society, from Michael J. Hicks's The Local Economic Impact of Wal-Mart, p. 1: "Individuals from nine of 10 Americans households have shopped at a Wal-Mart in the past few months, far more than have voted in any U.S. election."
Frederic Bastiat, Born 6/30/1801
The econ blogosphere is alight with news of Frederic Bastiat's birthday today (here, for example, is Mark Perry on the Candlemaker's Petition). Here are some of his best works. A few seconds with the Google will turn up downloadable versions of The Law and other works.
A Great Question from George Will
For Elena Kagan:
Can you name a human endeavor that Congress cannot regulate on the pretense that the endeavor affects interstate commerce? If courts reflexively defer to that congressional pretense, in what sense do we have limited government?
Mike Lester on the Supreme Court's McDonald Ruling
Posted by E. Frank Stephenson at 09:29 AM
June 29, 2010
Tom Woods on "Interview with a Zombie"
Here's Tom Woods on "Interview with a Zombie" to promote his new book Nullification.
Another voter faces up to the unforgiving reality of "politics without romance"
The Portland, Oregon, masseuse who attended to Al Gore in 2006 and now claims he sexually assaulted her spoke to police about the incident in January 2009. The Smoking Gun has published excerpts from the 87-page transcript. This statement struck me as especially poignant, and applicable to many, many American voters in a somewhat more elevated way:
Senator Byrd departs
If you ever use Google search - and who doesn't? - you might have noticed that most news links include the headline, and then the source. Thus a search for info on Supreme Court nominee Elena Kagan will get you a link to "Elena Kagan - Wikipedia, the Free Encyclopedia."
And thus, a search yesterday for "Robert Byrd" turned up near the top of the page this link to coverage of the Senator's passing from one of America's most popular on-line news sources: "U.S. Senator Robert Byrd Dead at 92 - Yahoo!"
OK, ok, I'm a bad person. I still thought it was funny.
Is the reinvention of journalism too important to be left to the market?
Careful readers may recall my recent rant here on DOL about the Federal Trade Commission's discussion paper on the reinventing journalism.
Today at The Freeman I have a guest column taking a somewhat calmer approach. Enjoy.
June 28, 2010
Building Brand Equity: Pictures of the Socialistic Future
My discussion is here.
In other news, there is hope for civilization: a member of my Facebook network tells us that Lady Gaga has more Facebook fans than Barack Obama.
Politicians, Compromise, and Public Office
Don Boudreaux clears the bases with this letter to the editor on Robert Byrd's association with the KKK. Just because something is politically expedient doesn't excuse it.
I'm trying to understand the following empirical regularity: voters accept that politicians will lie, cheat, steal, and do other horrible things to get elected. Then voters are shocked--shocked!!--when politicians continue to lie, cheat, steal, and do other horrible things once in office. Why?
Is Neoconservatism Dead?
Bradley Thompson and Yaron Brook discuss their new book on PJTV. I look forward to watching. HT: Bradley Thompson.
New entry on Pursuit of Justice
Just a quick pointer to The Beacon where I'm blogging a series of posts on my new book, The Pursuit of Justice: Law and Economics of Legal Systems.
In this post I will discuss how the law evolves instrumentally — that is, to serve private interests rather than the public interest.
Munger in Fine Form
People on the left only believe in democracy as long as the majority agrees with them. As soon as the majority shows a mind of its own, it's time to bring out the guns.
Posted by E. Frank Stephenson at 09:30 AM
June 27, 2010
A Thought for a Sunday Afternoon
We've subsidized the decision to live, work, and play along the Gulf Coast. Tariffs have kept people and capital employed in Gulf Coast seafood production rather than other occupations. We've subsidized Gulf Coast oil drilling and capped drillers' liability for certain damages at $75 million. What could possibly go wrong?
June 26, 2010
World Cup Knockout Round: EFW Bracket
A few weeks ago I ranked World Cup participants by EFW score.. Here's how things will shake out in the knockout round if the high-EFW team wins every match:
June 25, 2010
On Advertising c. 1910
An interesting (if slightly off-base) letter in the June 25, 1910 NYT:
It would be interesting to learn what reasons led the Senate committee to put advertising down as a help in raising the cost of living.
To Protect and Serve
UPDATE: Granny apparently had a knife. I guess you just never know about grandmothers these days. (Thanks to Todd for the pointer.)
Posted by E. Frank Stephenson at 02:06 PM
June 24, 2010
In today's WSJ: BP Relied on Faulty U.S. Data. Surprise, surprise, surprise.
ADDENDUM: Today's WSJ also has a letter from T. Norman Van Cott on the public choice aspects of Custer's debacle.
And for a few giggles see Al Gore and David Blood arguing that the swelling government debt (along with a host of other supposed ills) is the result of "free and unfettered markets." Relax fellas--maybe go for a massage.
Posted by E. Frank Stephenson at 07:29 PM
Ideas and Civilization
Someday, I want to write a book about the importance of ideas called "The Possibility of Civilization," based on this quote from John Maynard Keynes:
"To the economists--who are the trustees, not of civilization, but of the possibility of civilization."
A couple of days ago, Howard Baetjer and I were talking about the closing passages in Ludwig von Mises's Socialism and Human Action. Both can be downloaded from Mises.org. Here's the end of Socialism, and here's the penultimate paragraph:
The great social discussion cannot proceed otherwise than by means of the thought, will, and action of individuals. Society lives and acts only in individuals; it is nothing more than a certain attitude on their part. Everyone carries a part of society on his shoulders; no one is relieved of his share of responsibility by others. And no one can find a safe way out for himself if society is sweeping towards destruction. Therefore everyone, in his own interests, must thrust himself vigorously into the intellectual battle. None can stand aside with unconcern; the interests of everyone hang on the result. Whether he chooses or not, every man is drawn into the great historical struggle, the decisive battle into which our epoch has plunged us.
And here's the end of Human Action:
Man's freedom to choose and to act is restricted in a threefold way. There are first the physical laws to whose unfeeling absoluteness man must adjust his conduct if he wants to live. There are second the individual's innate constitutional characteristics and dispositions and the operation of environmental factors; we know that they influence both the choice of the ends and that of the means, although our cognizance of the mode of their operation is rather vague. There is finally the regularity of phenomena with regard to the interconnectedness of means and ends, viz., the praxeological law as distinct from the physical and from the physiological law.
June 23, 2010
Aristocracy of Pull
Public choice in action, yet again.
Posted by E. Frank Stephenson at 08:00 PM
Well, They Are In The Big House
Nearly 1,300 prison inmates wrongly received more than $9 million in tax credits for homebuyers despite being locked up when they claimed they bought a home, a government investigator reported Wednesday.
Posted by E. Frank Stephenson at 01:52 PM
Reading during exams
"Bootleggers, Baptists, and Global Warming" in Retrospect by Bruce Yandle
"Recycling Redux" by Daniel Benjamin
and a book review "The Case Against the Hockey Stick" by Matt Ridley
It was refreshing reading those after being nauseated by the amount of talk on "sustainability" (i.e. save the environment, ignore the costs) while over in Germany a few weeks ago.
Public Choice in Action
Many of you probably saw this story.
The U.S. is going to lend billions of dollars to Brazil's state-owned oil company, Petrobras, to finance exploration of the huge offshore discovery in Brazil's Tupi oil field in the Santos Basin near Rio de Janeiro. Brazil's planning minister confirmed that White House National Security Adviser James Jones met this month with Brazilian officials to talk about the loan.
This is why it matters so little who wins an election. The institutions and the organized interests stay the same, no matter who wins. McCain, Romney, & Clinton would have done the same thing, plus or minus one iota.
Also remember, just as Pogo sez, "We have met the enemy, and he is us," we have met organized interests, and they is us... not some unknown, faceless malign force.
Posted by Noel Campbell at 11:46 AM
June 22, 2010
A Tale of Two Disasters
Bush was blamed for local failures after Katrina. Obama got a free ride for weeks as federal failures mounted during the Gulf spill.
Too bad there's not a seasteaded Walmart to come to the rescue.
See also Mike Lester's cartoon in today's RNT.
Posted by E. Frank Stephenson at 12:31 PM
Links for my IHS "Exploring Liberty" Lectures
I'm lecturing at an Institute for Humane Studies "Exploring Liberty" seminar this week. Here's a trailhead for a bunch of links related to the issues we're discussing.
There are a lot of resources available for my "Economics in One Lesson" talk. Some links to a few things I've written on these issues are available here. An older version of Henry Hazlitt's book Economics in One Lesson can be downloaded here, an abridged audiobook version of it can be found here, and here's a series of interviews with economists (and a historian) on the book's chapters. The Reader's Digest condensation of F.A. Hayek's The Road to Serfdom is available here. An early draft of Deirdre McCloskey's The Bourgeois Virtues is available here. We also discussed the cases for and against drug legalization; my argument and sources are here.
On the limits to growth and environmental economics, Julian Simon is essential. Most of what I know about the economics of scarce resources (like water) I learn from reading David Zetland's blog. Most of what I know about development economics I learn from reading William Easterly's blog.
Here's a handful of links to resources on immigration, and here's my paper "Can't Buy Me Growth: On Foreign Aid and Economic Change." A short version of Bryan Caplan's excellent book The Myth of the Rational Voter was published by the Cato Institute and is available here (he discusses "anti-foreign bias" in particular).
We're pretty enthusiastic about free markets not because we think they will always produce perfect outcomes, but because the alternatives are almost universally worse. In this lecture, I address some of the Common Objections to Capitalism.
June 20, 2010
So How's That Bolivarian Paradise Working Out?
Posted by E. Frank Stephenson at 03:08 PM
Quick Links on Voting, Redux
I'm teaching at the IHS "Exploring Liberty" Summer Seminar at Yale this week. During Mark LeBar's lecture on what we should expect from government, we had an excellent discussion of legitimacy, consent, and participation. Here are some links on voting that I posted last month.
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.
June 19, 2010
Taylor Grace Carden
A picture of our most recent addition to the denominator in per-capita income measures is below the fold.
Read More »
June 17, 2010
For the Second Time in Two Years, We Have Lowered Per Capita GDP
Per Capita GDP fell yesterday at 5:03 PM when Taylor Grace Carden entered the world. She's 20 inches long and 7.25 pounds. If Bryan Caplan is right, I'm more optimistic about the future of liberty.
The Mercatus Center has posted online the current drafts of the first three chapters from my book-in-progress, The Clash of Economic Ideas. I'd appreciate comments and suggestions from anyone who takes the time to read one or more chapters.
Grasping Strawmen with Both Hands
Brad DeLong has joined the crowd of folks displaying their ignorance of Herbert Hoover's actual record. DeLong calls British Prime Minister David Cameron and Swedish Prime Minister Fredrik Reinfeldt "One Medium-Sized and One Small-Sized Herbert Hoover" for proposing to reduce their countries' government spending and budge deficits. DeLong also calls 52 senators who voted against a so-called jobs bill "Fifty-Two Little Herbert Hoovers."
Once again, Hoover's actual (ahem, reality-based) record is one of increasing spending and shifting the federal budget from a large surplus to a large deficit. Government spending was $3.127B in 1929, $3.32B in 1930, $3.377B in 1931, and $4.659B in 1932--a 50% increase. The increase in real terms was probably larger because of deflation. As for the surplus/deficit, the surplus of $0.7B in 1929 had become of a deficit of $2.7B by 1932. (Source--Table 1.1.)
June 16, 2010
Building Brand Equity: Sowell Review
I'll be contributing occasional discussions of books to Forbes.com's "Booked" blog. My first entry, a review of Thomas Sowell's The Housing Boom and Bust, is here.
The Diff: mortgage foreclosure edition
Quick, what is 300 divided by 2? What is 10% of 1000?
Those were two of five questions asked of 340 borrowers who took out subprime loans in 2006 and 2007.
About 16 percent of the respondents answered at least one of the first two questions incorrectly. Mr. Meier said that the results were consistent among all levels of education and income.
Over all, 21 percent of the respondents whose math abilities placed them in the bottom quarter of the survey experienced foreclosure, versus 7 percent of those in the top quarter...
And better-educated borrowers are not exempt, either.
“People say they’re doctors, so they don’t really need it,” she said. “So what? We see doctors who took out loans they didn’t understand, and who are in foreclosure now.”
Reminded me of The Diff.
Recommended Reading: Ben Powell on Immigration
DOL friend Ben Powell on immigration.
Happenings Around Rome
Police stopped Fredrick Eugene Dennis, 47, of 18 W. Forrest St., at the intersection of East 12th Street and Silver Street Monday morning.
I'm surprised they didn't also charge him with littering or with violating the Clean Water Act. Source.
Posted by E. Frank Stephenson at 09:47 AM
A Book I Look Forward to Reading
Jeffrey A. Tucker, Bourbon for Breakfast: Living Outside the Statist Quo.
June 15, 2010
Brain Candy Links: Homer Economicus
I'm leading a "Brain Candy" discussion for the Rhodes Summer Writing Campt this evening. Once again, we're discussing the economics lessons in "King-Size Homer." Here's a rough draft of my chapter in Josh Hall's book on economics in The Simpsons. Here too is every episode of South Park, including the "Medicinal Fried Chicken" episode that makes the same points brilliantly but that isn't at all appropriate for a family environment. Here's an abridged audiobook version of Economics in One Lesson, and here's an older edition of the book (with a link to a PDF).
Blogging The Pursuit of Justice
Here is Adam Summers at the Reason blog discussing his contribution to the volume.
Here is the book's store page at The Independent Institute.
June 14, 2010
The Myth of the Rational Voter
UPDATE: Thanks to a longtime reader who points me to Jon Stewart's riff on Alvin Greene's candidacy.
Free* Municipal Wifi Networks are Unnecessary
Some cities have talked about building municipal wifi networks. It's unnecessary for at least two reasons:
Hypothesis: almost anyone who would benefit from municipal wifi lives or works within a five-minute drive of McDonald's or a Starbucks. If you live or work in a busy part of a major city, it's probably little more than a five-minute walk.
Environmental Economics in One Sentence
I can throw away biodegradable coffee grounds and a non-biodegradable, poisonous chemical-laden, broken, and useless cell phone and battery for the same price: $0.
Now We See the Violence Inherent in the System!*
*--This was Mike Hammock's apt characterization. Was it rude to stick a camera in the Congressman's face? Yes, it was. Did it justify assault and battery (and yes, this was assault and battery)? I'm going to guess "no."
JFK, Opportunity Costs, and the Moon
Without denying the value of scientific endeavor, there is a striking absurdity in committing billions to reach the moon where no people live, while only a fraction of that amount is appropriated to service the densely populated slums.
Of course, we can't know whether a moonshot or urban services would be a better use of resources without the information provided by prices, profits, and losses. But that's another discussion for another day.
Of Course It's Not About Patient Outcomes
The abstract of a new NBER WP (emphasis added):
Hospitals are currently under pressure to control the cost of medical care, while at the same time improving patient health outcomes. These twin concerns are at play in an important and contentious decision facing hospitals—choosing appropriate nurse staffing levels. Intuitively, one would expect nurse staffing ratios to be positively associated with patient outcomes. If so, this should be a key consideration in determining nurse staffing levels. A number of recent studies have examined this issue, however, there is concern about whether a causal relationship has been established. In this paper we exploit an arguably exogenous shock to nurse staffing levels. We look at the impact of California Assembly Bill 394, which mandated minimum levels of patients per nurse in the hospital setting. When the law was passed, some hospitals already had acceptable staffing levels, while others had nurse staffing ratios that did not meet mandated standards. Thus changes in hospital-level staffing ratios from the pre- to post-mandate periods are driven in part by the legislation. We find persuasive evidence that AB394 did have the intended effect of decreasing patient/nurse ratios in hospitals that previously did not meet mandated standards. However, our analysis suggests that patient outcomes did not disproportionately improve in these same hospitals. That is, we find no evidence of a causal impact of the law on patient safety.
It's all about rent seeking by the powerful California nurses union; any benefits to patients would be incidental.
June 12, 2010
World Cup Participants Ranked by EFW Score
Looking for a way to decide who you're rooting for in the World Cup? Or do you need a tie-breaker for games in which your home country isn't involved? Here are World Cup participants ranked by their scores in the Economic Freedom of the World Index. Index rankings in parentheses.
1. New Zealand (#3 in index, Hong Kong & Singapore are 1 & 2)
June 11, 2010
For the win! Book blurb...
On the back cover of my 1969 edition of Hayek's "Road to Serfdom:"
"In my opinion it is a grand book.... Morally and philosophically I find myself in agreement with virtually the whole of it; and not only in agreement with it, but deeply moved agreement." --John Maynard Keynes
Posted by Noel Campbell at 08:21 PM
The Spirit of Radio
Here's audio of Dan Klein discussing his recent Wall Street Journal article on WLS.
On a related note, the Rush documentary is awesome.
Posted by Art Carden at 01:40 PM
June 10, 2010
Yandle on the Crisis
Posted by Art Carden at 10:50 AM
Hayek on the Road to Meta-Number One?
Not only is The Road to Serfdom #1 on Amazon, but the news of this is climbing the charts on many economics blogs, including:
Greg Mankiw: http://gregmankiw.blogspot.com/2010/06/amazon-number-one.html
Peter Boettke at Coordination Problem: http://www.coordinationproblem.org/2010/06/somewhere-bruce-caldwell-has-to-be-smiling-i-think.html
And naturally, our own Art Carden: http://divisionoflabour.com/archives/007190.php
So far no hint at Brad DeLong, Paul Krugman, or Freakonomics.
(Please excuse the lack of links I am mobile...)
June 09, 2010
Gross National Happiness
The article is a bit dated, but one of my students pointed it out to me today:
GDP "doesn’t measure a nation’s quality of life or overall well-being. That’s why Wheatley, Wood and a handful of Vermont activists are promoting 'gross national happiness,' or GNH, as an alternative to the consume-and-spend formula that fuels GDP."
They recognize the broken-window aspect of GDP: "You could tear up that road outside, repave it, tear it up again and repave it again, and that would contribute to GDP...[b]ut it wouldn’t do anything for measuring ‘progress.’”
But it also "sound[s] a little touchy-feely" and is "sort of like an optimistic flaky idea that could come from hippies." To wit: "Our excessive focus on wealth, measured by GDP, is leading all of us and indeed our planet straight over a cliff."
An interesting article that could spawn some good Principles Macro discussions.
The Road To Serfdom, Condensed
Here (again) is a PDF of the condensed version of The Road to Serfdom. Why is this relevant? Here are Tom Woods and Yuri Maltsev discussing Hayek on Glenn Beck. Here's Beck's The Revolutionary Holocaust, a documentary on communism, sliced up on YouTube. Road to Serfdom is now the #1 book on Amazon.com.
June 08, 2010
First Speed Traps, Then
... now a new scheme for the greedy hand to reach into motorists' wallets. The Rome News-Tribune's Pierre-Rene Noth explains (rather longwindedly).
Posted by E. Frank Stephenson at 05:16 PM
Auctions for Overbooked Flights: Been There, Done That
From an editorial in today's WSJ:
The Department of Transportation, in its infinite wisdom, has announced new rules for airlines to compensate passengers who are involuntarily bumped from an oversold flight. We have a better idea—or, more precisely, the late economist Julian Simon had one 30 years ago.
On my last trip, Delta's flight from Atlanta to Vegas was overbooked. Guess what happened? Delta started offering vouchers and upped the offers by $100 until getting enough takers so that the plane was no longer overbooked. Seems like Delta may have behaved exactly as Friedman predicted. Maybe Delta is unique or maybe it still engages in involuntary bumping, but, based on my last flight, the WSJ's piece strikes me as odd.
This is not your father's market failure
Addendum: Please see my more serious columns on this issue:
Original post begins here:
I have been thinking of Jackie Gleason lately. The elder Jackie Gleason. The one who's lived and learned, who's seen fads come and go, who is solid as a rock in his convictions, and who has little tolerance for a brave new world. In his second most endearing role, as the old-timey Sherrif Buford T. Justice of the Smokey and the Bandit franchise, Jackie's character once lamented: "Give me the old days when a pair of boobs was a couple of dumb guys." Be thankful, good Sherriff, that you are not an economist in today's world.
Or a carmaker. Or a banker. Or a homebuilder. A health care worker, an oil fracker. A fisher, a learner, a cigarette burner. A teacher, a trucker, an oyster shucker.
Or, as of today, a journalist.
In a federal government report whose title has been aptly described as the nine scariest words in the English language today, the Federal Trade Commission has issued, "Potential Policy Recommendations to Support the Reinvention of Journalism." Potential, indeed. According to Andrew Malcom at the Los Angeles Times, here's a sample what your hard working foks in Washington have in mind:
Would you believe: major changes to the copyright law, including government licensing provisions; government pilot programs to investigate potential new media business models, antitrust changes to allow media companies to unite on imposing online pay walls, establish a journalism division of AmeriCorps with government underwriting the training of young journalists, tax incentives per news employee, increased funding of public broadcasting, a 5% tax on consumer electronics and/or assessments on users of public airwaves.
For the moment, let's leave to one side the very deep First Amendment implications. Let's instead ask, "Wow! On what grounds would Washington enact such ideas?" If you're an old-timey economist like me, brace yourself. Paragraphs 14-15 of the paper invoke market failure theory.
14. There are reasons for concern that experimentation may not produce a robust and sustainable business model for commercial journalism. History in the United States shows that readers of the news have never paid anywhere close to the full cost of providing the news. Rather, journalism always has been subsidized to a large extent by, for example, the federal government, political parties, or advertising.
These days everything's a failure. Market failure this, government failure that. Science failure, top kill failure, bubble failure, climate failure, soccer failure if the USA doesn't bring home the World Cup. And now? Journalism failure.
Of course! Why didn't I think of that? When something goes wrong in the world, that must mean that something went wrong in the world! What do we do with all this failure? We fix it of course. Let the best and the brightest figure it out, and make sure it never ever happens again. Just give them the tools they need. They're smart enough and they mean well. Trust them.
Failure, it seems, is the new success in America. Horatio Alger doesn't need to work hard and dream big. He just needs to trust Washington. Bill Gates doesn't need to quit school and found a startup. Just take these fabricated incentives: stay in school (we'll pay for it), and fill out this form to get some juicy funding for your new business idea (if we like it, that is). You see, only Washington has the power to undo all this failure in the world. Now generalize from there to the rest of your life. No need to worry. Just don't allow your household to bring in more than $250,000 in a year and you're okay in our book. Washington will work hard for you and dream for you -- just sign your name here, please. This new American dream is a nightmare. Give me the old days when a pair of boobs was a couple of dumb guys.
Okay, so what notion of market failure does an old-timey ecoomist endorse? As Sherriff Justice might say, "Junior, let me explain." A market failure is the experience of real net losses in society as a direct concequence of purely self-regulated voluntary exchange. Market failure theory outlines the very specific conditions under which market failure exists. There are approximately four catergories of market failure: externality, public good, monopoly, and imperfect information. I say approximately because: a) these four categories are not mutually exclusive on a conceptual level; and b) there are sub categories such as the holdout problem that have characteristics of them all.
To their credit, the authors of Reinventing Journalism at least purport to advance a legitimate market failure argument. But it's wrong. Here is why: the supplier of a good can find indirect ways to charge the users of a good, thus converting it from non-exclusive to exclusive (in which case, it does not matter that the good is non-rivalrous). The classic example is a lighthouse. Whoever sinks the money into building and running a lighthouse cannot prevent anyone from seeing its light. But the nearby port can easily prevent any non-paying vessel from coming in where the waters are safe. And so, in experience, we see lighthouse makers contracting with nearby ports, and nearby ports charge a little extra for vessels that come in. Of course, ships don't rely on lighthouses any longer. GPS has rendered the lighthouse business model obsolete. That doesn't make a lighthouse a public good, it makes it no longer a good.
These same patterns exist in the production of journalism. It is stating the obvious that producers of journalism charge users of journalism indirectly through advertising. It is also stating the obvious that the old business model of journalism is dying, just like lighthouses died. To an old-timey economist, it is anything but obvious why the best and the brightest in Washington cannot or will not grasp the obvious. Give me the old days when a pair of boobs was a couple of dumb guys.
Mandatory FTC disclamer: the only thing I got in exchange for this post is a frickin headache.
On Medical Expenses and Bankruptcy
I've long been skeptical of the widely reported claim that 50% of bankruptcies are caused by medical expenses. My skepticism is supported by the findings of a recent paper (gated copy here) in the Atlantic Economic Journal. The authors, Donald D. Hackney, Matthew Q. McPherson, Daniel L. Friesner, examine 400 bankruptcy filings from the Eastern District of Washington and conclude that "medical expenses are only a small portion of total unsecured debt, and thus should not be a major contributor to bankruptcy decisions."
Incentives Matter: Unemployment Insurance and Job Search Edition II
Many folks have suggested that part of the reason the unemployment rate remains high is the repeated extensions of unemployment benefits. An article in the current edition of Labour Economics addresses the relationship between finding a job and the generosity of unemployment benefits; the abstact:
In January 2003, the unemployment benefits in Finland were increased for workers with long employment histories. The average benefit increase was 15% for the first 150 days of the unemployment spell. At the same time severance pay system was abolished. In this paper we evaluate the effect of the change in the benefit structure on the duration of unemployment by comparing the changes in the re-employment hazard profiles among the unemployed who were affected by the reform to the changes in a comparison group whose benefit structure remained unchanged. We find that the change in the benefit structure reduced the re-employment hazards by on average 17%. The effect is largest at the beginning of the unemployment spell and disappears after the eligibility period for the increased benefits expires.
That the libs controlling Congress don't get this isn't surprising in light of Dan Klein's findings about economic literacy.
A previous post on this topic is here.
June 07, 2010
The Economic Illiteracy of the Left
Who is better informed about the policy choices facing the country—liberals, conservatives or libertarians? According to a Zogby International survey that I write about in the May issue of Econ Journal Watch, the answer is unequivocal: The left flunks Econ 101.
Why Wal-Mart Crushed Downtown Competitors, N=1
From Bethany Moreton's To Serve God and Wal-Mart, p. 79, following a section in which someone is quoted praising "Mrs. Winnie Bell Young, who takes care of the clothing department...[and] has seen to it that the stout women can be fitted as well as the smaller ladies"*:
Shoppers were not shy about explicitly contrasting Wal-Mart to the old central shopping districts. A letter printed on a Fort Scott newspaper by an irate customer of downtown stores complained about their rudeness, their credit-only returns policies, and their attempts to sell whatever was on the shelves when the items she wanted were out of stock. 'No wonder the people of Fort Scott go out of town to shop and to the local Wal-Mart store...Why don't you downtown merchants shape up????"
*Incidentally, I was told by one friend that this was an explicit point of contention in a public hearing over whether to allow a Wal-Mart to open. In addition to teenagers who wanted jobs, there were people who said they wanted Wal-Mart because they wanted access to affordable, decent-looking plus-sized clothing.
Sam Walton and Subsidies (Updated)
I'm reading and reviewing Bethany Moreton's To Serve God and Wal-Mart: The Making of Christian Free Enterprise for Economic Affairs and a handful of other projects. About 40-50 pages in, the author discusses the ways that the Waltons and others across the Sun Belt, the Ozarks, and surrounding areas benefited from government largess. She ably dissects some of the mythology surrounding Mr. Sam.
Naturally, this raises a couple of questions. What are the obligations of those who inherit ill-gotten wealth and privilege? Have the Waltons fulfilled those obligations by building Walmart into one of the greatest anti-poverty organizations the world has ever seen? And for what it's worth, Mom & Pop weren't there for me when I've had minor travel emergencies over the last year (needing to buy dress shoes at 7:00 AM in Winston-Salem, North Carolina and DayQuil at 4:00 AM in Storm Lake, Iowa). Target and Walmart were.
This also suggests a hypothesis to test: how did government programs result in a net redistribution of population and resources from North to South, and did this cause post-WWII Southern convergence? In short, to what degree is Southern convergence driven by a transfer of resources from the Snow belt and the Rust Belt to the Sun Belt? This very, VERY crude, profanity-soaked rant against the South and southerners explores some of these themes a little more...explicitly. It reads like a manifesto for a 21st century Hartford Convention.
Update: Here's a piece from today's WSJ on Walmart's role as victims in the rent-seeking society (HT: Mark McMahon). Apparently, a lot of Walmart's local battles involve astroturf groups secretly funded by the store's competitors.
Why is Hollywood Anti-Capitalist?
Alex Tabarrok offers a nice three-fold explanation at the WSJ Online here.
Hollywood's anti-capitalism is not accidental. It stems from three sources: the rage of directors and screenwriters against their own capitalist backers, the difficulty of using a visual medium to depict the invisible hand, and an ethical framework which Hollywood shares with most of our culture that regards self-interest as inherently immoral or, at best, amoral.
On the first point, Alex says filmmakers need investors (i.e. capitalists) for financial support and get resentful when they have to compromise artistic imperative for market gains. I imagine a director shouting, "I hate you Mark Cuban for making me make movies that will actually sell tickets!" Perhaps this is one-directional, though. I certainly buy Alex's constraint argument. But why would capitalists systematically keep returning to directors who portray capitalists negatively? The most obvious answer to me is they don't care how alternative economic systems are portayed. They care about profits.
Yet if profit is the driving force, we also have to ask why viewers keep coming back. (If viewers were really turned off by a filmmakers anti-capitalist ways, that would hurt the bottom line and Mark Cuban would put his money elsewhere.) This is a more nuanced question since viewers' objectives are not as cleanly captured as are producers' with the profit motive. Interestingly, Alex's second and third arguments help point the way.
Behavioral economics has established that we all give in to several forms of cognitive biases. There are anchoring effects and informational cascades. There is confirmation bias. And so on. For moviegoers, who presumably go to movies to be entertained, this gives an advantage to simple narratives as carried by pre-fab characters.
This guy is evil.
This guy is good.
By this reasoning, you don't necessarily have to be an anti-capitalist filmmaker to portray a capitalist negatively. Actually, your producers might want you to if doing so sells more tickets! "Don't make me think too much at the movies, that messes up my being entertained!" If this explanation holds water, one interesting implication is that viewers can see through Hollywood's biases. They just don't care. What's that phrase, "suspension of disbelief" is it?
A related though broader issue is why the intellectual class tends to be anti-capitalist. Robert Nozick offers a brief response in this Cato Policy Report: intellectuals resent that their talents are not rewarded in the marketplace. In "The Intellectuals and Socialism," F. A. Hayek famously attributes the bias of intellectuals to their beliefs that human institutions can be scientifically designed as can physical systems (pdf here). Ludwig von Mises, in The Anti-Capitalist Mentality, says intellectuals become envious of capitalists because they rub elbows in the same social circles but don't have any of the money.
June 06, 2010
Real Politik & its Problems
Defebse Secretary Gates visited Azerbaijan to mollify Aliyev .
The Azerbaijani government believes the U.S. government has supported Armenia in the Nagorno-Karabakh conflict. I don't know if it's true, but I think it probably is for one reason. The Armenian Diaspora has done quite well in the United States. Armenian Americans live in several dense pockets and tend to be relatively wealthy and politically organized. Republicans and Democrats want to keep this domestic constituency happy. There is no corresponding Azeri constituency in the United States.
However, the U.S. government needs Azerbaijan as a trans-shipment point to prosecute its war in Afghanistan. So, we try to keep Alieyev happy.
I recently had the good fortune (a.k.a. Bob Lawson) to spend some time in Azerbaijan. Aliyev and his government are not nice people. Aliyev is the kingpin of one of the world's most corrupt and least economically free governments. However, the Azerbaijani are wonderful people. The Azerbaijani I met are hungry for liberty and market liberalism. Encouraging institutional change in Azerbaijan is in America's long-term best interest. A democratic and economically vibrant Azerbaijan would be an excellent example to the Muslim world that economic freedom and democracy can exist in a Muslim society. This would put serious pressure on governments from Turkey, to Iran, Turkmenistan, Kazakhstan, and the rest of Central Asia.
However, that's not what the U.S. government is going to do. We will continue to cozy up to Aliyev--giving the Muslim world another example of American hypocrisy by supporting another authoritarian--in order to continue to fight in Afghanistan.
Posted by Noel Campbell at 09:20 PM
June 03, 2010
Bootleggers and Potheads
Oaksterdam University, where stoners go to get schooled on the art of growing ganja, isn’t exactly a bastion of blue-collar idealism. Or it wasn’t until this week, when the staff and faculty at Oaksterdam’s Oakland campus joined the Oakland United Food and Commercial Workers Local 5. What would have seemed like a strange union in the halcyon days of organized labor now seems to make a modicum of sense, and not just to potheads: If anyone can muscle California politicians into supporting marijuana legalization, it’s the UFCW.
If It Keeps Them Busy--535 Umpires Edition
Michigan lawmakers got into the act on Thursday, lobbying Selig to reverse the call and recognize Galarraga as having thrown a perfect game. Gov. Jennifer Granholm issued a proclamation declaring that Galarraga had indeed pitched a perfect game, while U.S. Rep. John D. Dingell said he'd introduce a congressional resolution asking Major League Baseball to overturn the blown call.
Source. This was a bad call at an awful time but it might have a silver lining. Instead of spending their days cooking up schemes to restrict liberty maybe the honorables could spend their days looking over sports replays for blown calls.
Posted by E. Frank Stephenson at 04:36 PM
Cavalcade of Miscellany: Pileus Blog Edition
I was going to post a handful of links, but then i realized that almost all of the hat tips would go to the Pileus Blog. So just click there and scroll. My question: if governments are going to start licensing journalists [??!!], will there be a section of the exam about economics? What about causal inference?
Speaking of causal inference, here's a case in point (HT: Jennifer Sciubba). I was thinking about buying a talisman, casting a few spells, and maybe sacrificing a couple of chickens to try to improve my kids' lots in life, but instead I'm just going to buy a lot more books and keep them in the house. I wonder if PDFs on the computer count.
I Know What You're Not Going to do This Summer
What's the obvious explanation missing from this story (hint: scroll down the page a little bit)? Extra credit: why would heavy restrictions on the labor market cause employers to increase their preference for long-term rather than short-term employees? Show me your published letter to the Commercial Appeal and win a copy of Frederic Bastiat's The Law.
Extra credit #2: what does this imply about why newspapers are struggling financially?
Update: first published letter wins.
June 01, 2010
Don Boudreaux: Man of Letters
Letter-writing power-hitter Don Boudreaux cranks another one out of the park with this letter to the New York Times in which he responds to this article explaining the bleak job outlook for teenagers, which is apparently
Alan Blinder and Hoovernomics
Mr. Blinder refers to Herbert Hoover as the "oracle" of "large fiscal contractions." Prof. Blinder has a rather unorthodox definition of contractionary fiscal policy. Hoover's actual record, rather that the laissez-faire legacy mistakenly assigned to him, indicates that federal government spending increased to $4.66 billion in 1932 from $3.13 billion in 1929 (an increase of roughly 50%). Similarly, the federal budget swung to a deficit of $2.7 billion in 1932 from a surplus of $0.7 billion in 1929—hardly an example of fiscal rectitude according to normal usage.
Open Access Bikes Are MIA
Five brightly colored bikes set aside for community use in downtown Hutchinson [Kansas] are missing.
Good bikes after bad. Source.
Staff in Universities
My article in the CHRONICLE on working with staff. An underappreciated part of academic adminisration. I know it took me much too long to recognize the importance of staff work.
Cavalcade of Miscellany
1. Forget diet and exercise. I'm just going to brush my teeth a lot (HT: Scott Cunningham).
Serendipity Update: Near an article titled "The Memphis Riots" in the May 16, 1866 issue of Brownlow's Knoxville Whig is an article entitled "Take Care of Your Teeth." The article recommends brushing 2-3 times daily, and concludes:
By way of conclusion, if you appreciate good health and good teeth, have them examined once every six months by a competent dentist.
The microfilm cuts off the bottom of the article.
2. Henderson on Hayek on Social Justice. Repeat after Thomas Sowell: Justice is a process characteristic.
3. From The Onion: new high-tar, high-carbon monoxide cigarettes are eco-friendly because they kill people.
4. My 2005 paper "The Market's Benevolent Tendencies," translated into Farsi.
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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