Division of Labour: August 2010 Archives
August 31, 2010
"Oh No, I Have To Miss Class To Travel!"

Travel for academic purposes is now a lot easier. Instead of lining up a substitute, you can simply assign a lecture or two or three from the Mises Institute's YouTube Channel, FEE, or EconTalk (among many others). My Mises U lecture from 2009 covers a comparative advantage example that students and instructors might find useful, and my favorite EconTalk podcast is still Mike Munger's 2007 discussion of recycling. Probably the most useful video I've seen is Roger Garrison's lecture on the Austrian Theory of the Business Cycle, which I've used in my economic history class and which I will probably use in other upper-level courses in the future.

Posted by Art Carden at 09:36 PM in Economics

August 28, 2010
Cigarette Tax Hike Backfires in Balkans
Cash-strapped Bulgaria and Romania hoped taxing cigarettes would be an easy way to raise money but the hikes are driving smokers to a growing black market instead.

Criminal gangs and impoverished Roma communities near borders with countries where prices are lower -- Serbia, Macedonia, Moldova and Ukraine -- have taken to smuggling which has wiped out gains from higher excise duties.

Bulgaria increased taxes by nearly half this year and stepped up customs controls and police checks at shops and markets. Customs office data, however, shows tax revenues from cigarette sales so far in 2010 have fallen by nearly a third.


Posted by E. Frank Stephenson at 09:54 PM in Economics

Tax Avoidance Native American Style
New York's Oneida Indian Nation moved a cigarette-manufacturing plant to their upstate reservation to shield smokers from steep taxes that Governor David Paterson has vowed to impose.

"By moving the plant to the Oneida homelands, the Nation is availing itself of a long-settled law that recognizes the right of Indian tribes to sell products they manufacture on their own reservations without interference from state tax laws," tribe officials said in a statement.

Source. NY has hiked cigarette taxes $1.60 and is trying to crack down on untaxed sales on Indian reservations.

Posted by E. Frank Stephenson at 09:44 PM in Economics

August 27, 2010
The Cash Boat

When I hear Quantitative Easing 2, of course like many people I think "QE2." (Helicopter Ben gave a non-speech this afternoon, from Jackson Hole).

And like many people, QE2 sounds to me like the Queen Elizabeth 2, the Cunard Line cruise ship.

But that makes me think of the "Love Boat." (Only Kevin Grier and I would do this; we like to sing, badly and loudly). So I sang "Cash....Exciting and new..." on the Takeaway radio show this morning.

Posted by Michael Munger at 04:23 PM

Un Gringo En Transantiago

Article (en espanol) on Transantiago. They say "Gringo" is not an insult. They SAY it is not.

Posted by Michael Munger at 02:47 PM in Economics

August 26, 2010
Rating Grade Inflation

Andy Young points to an article about the ratings agencies and it occurs to me that rating inflation is a lot like grade inflation. As governments place more emphasis on grades (e.g., Georgia's HOPE program), we get more grade inflation.

Here's the quote Andy pulled with my changes:

If the importance of the regulation grades is too high, then a rating agency professor will not provide any real information to investors students or employers. [He] will simply inflate ratings grades.

Yup, sounds about right my way too.

Posted by Robert Lawson at 12:51 PM

August 24, 2010
Berrynomics Update

I'm a bit late getting around to blogging this, but we're pleased to have Lauren Heller, a recent graduate of UNC, as the newest member of our department. Yesterday was her first day of classes and she hit the ground running.

In other news, two of our recent graduates have landed nice positions. Shawn Regan is working at PERC and Erin Wendt has joined Berry grad Keri Anderson at IHS.

The most important accomplishment: grads Justin Neal and Andrew Chupp (and their Berry grad wives) welcomed their first children this summer. We look forward to seeing them in the class of 2032.

Posted by E. Frank Stephenson at 08:38 AM

More on Yuppie 911

My former student Shawn Regan had a piece in Regulation; now the NYT has an article on the phenomenon. The increased risk taking associated with using satellite devices, cell phones, etc. brings to mind J.R. Clark and Dwight Lee's paper on rescue Laffer curves (jstor).

Posted by E. Frank Stephenson at 08:30 AM in Economics

August 23, 2010
George Will vs. Robert Reich on Hooverism

George Will, one of my favorite columnists, smacks down Robert Reich's fictional account of Herbert Hoover in this segment of ABC's weekend chat show. The fun begins around 1:20.

Posted by E. Frank Stephenson at 05:02 PM in Economics

Russ Lays It Down

A new podcast, available on Econtalk or iTunes U.

Appallingly, I mispronounced the name of Chile's president at least twice. "PiñerO": Now I'll talk about President "Abamo" and act like it's all on purpose.

Posted by Michael Munger at 09:10 AM

August 22, 2010
Easterly Quote of the Evening
We have a big opportunity here to educate perverts about economic development.

For my second Easterly link of the day, see this.

Posted by Art Carden at 08:41 PM in Economics

Easterly on Reversing Conditional Probabilities

Here's a great post from William Easterly in which he points out a fundamental statistical mistake that a lot of opponents of Park51--aka "Ground Zero Mosque"--and similar projects are making.

In short, we're getting our conditional probabilities wrong. A lot of terrorists are Muslims. This does not mean that a lot of Muslims are terrorists. Consider a similar example. Rhodes is now in possession of an interesting collection of papers from a former KKK leader in Tennessee. The papers are mostly from the late 1960s and early 1970s. If I remember correctly, the gentleman in charge was also a prominent member of his church (director of the Sunday School program, I believe). Their local chapter paperwork included a line item for the number of ministers enrolled. If you took a census of KKK members at virtually any time in the organization's history, it's a fair guess that very high percentage would identify themselves as Christians. The probability that one identifies as a Christian given that he or she is a member of the KKK is very high. It would absurd to infer from this that the probability that one is a member of the KKK given that he or she identifies as a Christian is also very high.

I've been following the mosque controversy and participating in the discussion because I view it as a teachable moment (I have a Forbes piece or two or three in the pipeline). Not only does it teach us about institutions, history, theology, and economics, it's a very useful lesson in statistics. I suspect that p(terrorist|Muslim), just like p(Klansman|Christian), is pretty low.

Posted by Art Carden at 01:10 PM in Misc.

August 21, 2010
Good stuff from CollegeHumor.com

The Second World War and social media. Enjoy it here.

Posted by Noel Campbell at 05:18 PM in Funny Stuff

August 20, 2010
What is the cross-price elasticity of demand...

for one of these products with respect to the other?

Posted by Art Carden at 09:49 PM in Economics

If a sheep belches and no one’s around to hear it…

…will it still be taxed?
New Zealand’ government plans an enlarging set of carbon taxes expected to cover livestock belching and flatulence. Money quote:

The nation’s carbon-trading project was expanded in July to require energy producers to pay for their emissions. By 2015, the system will include agriculture, forcing farmers to pay for emissions their cows and sheep make through belching.

That, says Don Nicolson, president of Federated Farmers of New Zealand Inc., is too big a burden on its 25,000 members. The Wellington-based group opposed the program, particularly after it became clear the nation would adopt the policy largely alone.

The NZ gov is paying sheep farmers to plant forests as carbon sinks, instead. Mo’ money quote:

Even the government says the program will have little impact on global greenhouse gas emissions. …. Rather, the government introduced carbon trading to enhance the country’s green image, boost exports, attract tourists and increase influence in global climate talks, Prime Minister John Key said on Television New Zealand in June.

‘Cuz, of course, the reason I haven’t scratched that itch to fly from Arkansas to Auckland is that the Kiwis aren’t green enough. It has nothing to do with the wallet-crushing price of airfare.

There’s just so much more goodness in this article, but I’ll leave the pleasures of further discovery to the reader. It’s worth it.

Posted by Noel Campbell at 05:08 PM in Economics

The Economist on Georgia

The Economist has a very nice story about the continuing progress being made in Georgia, the country not the state. As many know, I am a big fan of the country having visited my good friends at the New Economic Schoolseveral times for lectures and events. The progress since my first trip in 2005 til my most recent trip this past summer is visible to the naked eye.

FOUNTAINS dance, children play and families stroll along Batumi’s five-mile seafront boulevard, lined with palm trees, hammocks and playgrounds. Less than a decade ago, Ajaria, a verdant south-western corner of Georgia of which Batumi is the regional capital, was the personal fief of Aslan Abashidze, a strongman who seemed to own the place more than run it. He never appeared without an army of goons, and closed the streets when his son felt like racing his Lamborghini. Cut off from the rest of Georgia by checkpoints, the economy was stagnant.

Today this gently beguiling holiday resort is an exhibition of Georgia’s capitalist achievements, a showcase of its transition and an advertisement for what Abkhazia, a separatist region to the north, could have become had it not been, in effect, annexed by Russia following the short Russia-Georgia war two years ago.

Posted by Robert Lawson at 10:44 AM in Economics

Stimulus in Action

Government jobs grow despite cuts

Posted by E. Frank Stephenson at 05:00 AM

August 19, 2010
10 Commandments for Drinking

from a good friend who has started a new blog. A taste:

6. Thou shalt not covet thy roommate’s girlfriend. Breaking this one can only leave you unsatisfied with your own life and possibly cause you to miss the subtle invitations you are receiving from all the beautiful girls around you who are NOT in a relationship—but might want one with YOU. Additionally, breaking this one will guarantee failure should you get locked out of your dorm and need to appeal to your roommate for help.


Posted by Robert Lawson at 11:13 AM in Funny Stuff

August 18, 2010
Give Me Liberty, or Give Me Zoning!

Multiple ironies, sad threats.

Now, I have been to the LSS before, myself. It is way out in the country. It is held on the grounds of a very large (40 acre) plot of land. The main structures on the plot are some outbuildings, and a legally zoned bed-and-breakfast.

No one parks on the street, and nothing is visible from the street.

Now, it is true that they have amplified speeches, and amplified music on Saturday night.

But the local gubmint thugs are after them for:

1. Health concerns. So they had the food professionally catered, instead of cooking it on bbq grills as in the past.

2. Sanitation concerns. So they had port-o-potties brought in, in the proper ratio for such an activity, with that many people.

3. Ex post giant d*ckhead concerns about this being a permanent commercial activity. Hard to predict the ex post part, to the tune of a $50k fine. This is already a commercially zoned property, by the way, because of the b-n-b. And the Institute for Liberal Studies is a registered non-profit. The LSS breaks even, every year. What makes it commercial? If five of us split the cost of some chicken, and cook it, would that be commercial? This was less than 75 people, one event per year, for two nights. Sure, if it was every weekend, that might be commercial.

But this is just thuggery. The local government is doing this because they can.

Posted by Michael Munger at 10:10 AM in Politics

Bobby Thomson's Passing and Sign Stealing by the 1951 NY Giants

Much of the news coverage of Bobby Thomson's passing earlier this week has mentioned that the 1951 NY Giants were stealing signs during the second half of the season. For example (emphasis added):

More than a half-century later, it was revealed the Giants during the season had used a buzzer-and-telescope system to steal signals from opposing catchers. Helped by the inside information, the Giants overcame a 13½-game deficit to the Dodgers, won 37 of their final 44 games and forced a playoff.

Just one problem--there is no evidence that the sign stealing actually helped the Giants win. In fact, my recent paper in the Atlantic Economic Journal found that the Giants' runs per game decreased after they started stealing signs. An excerpt from that paper is below the fold (the third paragraph is lightly edited).

Read More »

Posted by E. Frank Stephenson at 08:19 AM in Sports

August 17, 2010
"Hooverism" in Denmark

Denmark better brace itself for a blast from Kruggybaby, DeLong, and company:

But now Denmark, which allows employers to hire and fire at will while relying on an elaborate system of training, subsidies for those between jobs and aggressive measures to press the unemployed into available openings, is facing its own strains. As a result, it is beginning to tighten up.

Struggling to keep its budget under control after the financial crisis, the government in June cut into its benefits system, the world’s most generous, by limiting unemployment payments to two years instead of four. Having found that recipients either get work right away or take any job as their checks run out, officials are also redoubling longstanding efforts to move Danes more quickly out of the safety net.

Posted by E. Frank Stephenson at 02:22 PM in Economics

August 16, 2010
Jerry O'Driscoll: artificially low interest rates are not helping

Incisive analysis from O'Driscoll on today's WSJ op-ed page :

Key passages:

[O]ur lingering crisis and economic weakness was brought on not by a Keynesian failure of effective demand, but by a Hayekian asset boom and bust.

The financial panic and ensuing great recession was a classic balance-sheet recession. ... The declines in home values, investor portfolios and 401(k) plans, and the uncertainties surrounding retirement plans, have all had a big impact. The solution lies in restoring balance sheets. For financial firms, that means raising capital. For consumers and businesses alike, that means saving more of their reduced incomes.

What is in short supply is not liquidity, but savings. The Fed can supply the former but not the latter. ...

[H]istorically low interest rates—about which the Bank of International Settlements, the bank for central banks, sounded a warning in its 2009/2010 annual report—will inevitably distort economic activity, as they did during the housing boom. Low interest rates slow the process of restoring balance sheets by keeping asset prices artificially inflated. They also penalize saving, thus prolonging the process of rebuilding balance sheets.

Posted by Lawrence H. White at 07:58 PM in Economics

To paraphrase Mark Twain

The rumors of the Cincinnati Reds death have been greatly exaggerated.

Posted by Robert Lawson at 09:54 AM in Sports

NPR understands the reason for campaign finance laws

The headline: Report: Too Much Money Going To State Court Races

The punchline: Former Wisconsin Supreme Court Justice Louis Butler was the first incumbent in the state in more than 40 years to lose his court seat.

Repeat after me: Campaign finance restrictions are all about, and only about, incumbent protection.


Posted by Robert Lawson at 09:06 AM in Politics

August 13, 2010
Paris in the Terror

I am always working my way through several books simultaneously - I trust I am not alone in this. One of my current reads is "Paris in the Terror" by Stanley Loomis.

I read this passage earlier tonight:

The Law of Suspects was passed during the first week of September [1793]. This bit of legislation defined in vague and allusive terms those who were to be considered suspect and therefore liable to arrest - "persons who, by their conduct or language either written or spoken, have shown themselves to be partisans of tyranny or Federalism [a knife thrust at the Girondins] and enemies of Liberty." The number of fish that might be scooped up in this net left nothing to be desired by the Revolutionary Tribunal or its energetic prosecutor, Fouquier-Tinville. Also suspect were those citizens "who could not give a satisfactory account of their means of support or their discharge of civic obligations since the preceding March 21."

The Girondins had been in "charge" for about a year before they started to lose power - eventually 21 of them would be sent to the guillotine in one day (I note that the bracketed term referring to the Girondins is Loomis, not me). The Law of Suspects was crafted by one Robespierre and seems very similar to the laws of other authoritarian systems. The "means of support" clause seems to be aimed at Danton (Robespierre's main rival for control) who, it was suspected, had been taking a little extra from the government till.

However bad the preceding "law" seems to be, it gets worse:

The third article in this list was particularly odious. It stated that persons who had not received "good citizenship certificates" from their local Section leader were also to be considered suspect.
Now, students of public choice should be able to fill in what comes next. The remainder is below the fold:

Read More »

Posted by Craig Depken at 09:08 PM in Politics

Nick Saban Understands the Economics of Prohibition
“Where you have prohibition, you have bootleggers,” Saban said. “It’s always been that way.”

More here.

HT: Trey Noland.

Posted by Art Carden at 09:37 AM

Government Spending: Real or Fake

A fun vid from Michelle Muccio. While watching keep in mind Brad DeLong's admonishment that "anything that boosts the government's deficit over the next two years passes the benefit-cost test--anything at all."

Another vid of Michelle in action is here.

Posted by E. Frank Stephenson at 08:18 AM

Anything that will happen already has

I was on "The Takeaway" this morning. Here is the archive version....

Two more things:

1. One by Bruce Bartlett. I don't always agree with Bruce, but he makes some good points here. Bruce is always worth reading... (Lagniappe: Bruce B also wonders about my pal Tino Sanandaji, an interesting Iranian-Swedish grad student at UC's Harris School)

2. Another by Lawrence Reed. It was written in 1998, but it's truly prophetic, unfortunately.

Posted by Michael Munger at 07:47 AM in Economics

August 12, 2010
New working paper

Another working paper rolls off the mill, this one concerning the evolution of the residential real-estate market in Las Vegas. As always, comments and suggestions are appreciated:

"Flips, Flops and Foreclosures: Anatomy of a Real Estate Bubble"

with Harris Hollans and Steve Swidler

This paper examines the anatomy of a real estate bubble. In the process, we identify three phases of the market’s evolution: in the first phase, a large percentage of transactions are speculative or "flips" causing prices to rapidly increase; in phase two, flipping loses its profitability; and in phase three, there is an increasing number of foreclosures leading to falling prices. An illustration of this anatomy is provided by the evolution of the Las Vegas metropolitan housing market from 1994 through 2009. The descriptive analysis of the Las Vegas market is augmented with causality tests which show that prices were the driving force behind all three phases in the market’s evolution.

SSRN download

Posted by Craig Depken at 01:26 PM in Economics

Paging Mr. Laffer
New York state's cigarette tax revenue from convenience stores fell in the first six weeks after a steep tax increase, as consumers turned to Native American reservation stores, a convenience store group said on Wednesday.

New York state boosted the cigarette tax to $4.35 a pack from $2.75 on July 1 as one of a series of measures designed to help close a $9.2 billion deficit for fiscal 2011, giving it the highest cigarette tax rate in the country.

With the per-pack price rising to a range of $9 to $12, "aghast" smokers flocked to tribal stores, which are tax-free, the black market, and border states with lower cigarette taxes, said the New York Association of Convenience Stores.

Erik Kriss, a spokesman for New York state's budget office, said by e-mail that the drop in tax collections was caused by smokers buying ahead of the tax increase, which is supposed to discourage smoking.

Convenience stores that are located close to reservation competitors sold 45 percent fewer cigarettes; more distant stores experienced drops of 25 percent to 35 percent, the lobbying group said.


Posted by E. Frank Stephenson at 10:23 AM in Economics

August 11, 2010
My appearance on Freedom Watch

My "Freedom Watch" appearance on Monday 8/9/10, answering Judge N's questions about monetary and fiscal issues in two-sentence bites, is available here . If you want, you can skip forward to my segment by running your mouse over the initial screen, clicking on the link to Part 2, then sliding forward to 11:30 of Part 2.

Listen closely for the moment when the Judge calls me "Black" rather than "White". Also listen for the moment when I mutter "that's a straw man" in response to Nancy Skinner's misrepresentation of Adam Smith. Note that I could not see any of the other participants. I was alone in a DC studio, seeing only at a black screen that read "LOOK HERE".

Posted by Lawrence H. White at 05:03 PM in Economics

Bully Hosts Anti-Bullying Summit

Yep ladies and gents, your overbearing federal government is holding an anti-bullying summit today and tomorrow in DC. Maybe next week arsonists can conduct a fire prevention workshop.

Posted by E. Frank Stephenson at 01:34 PM

Rent (Subsidy) Dissipation

From the AJC:

A crowd of people hoping to get federal housing assistance became unruly Wednesday morning with reports of fights breaking out in the crowd.

Thousands of people were lined up at the Tri-Cities shopping center, hoping to apply for a voucher from the East Point Housing Authority that will give them a discount on their rent.

People began lining up at the shopping center two days ago, and by Wednesday morning the crowd had grown to over several thousand people. East Point police, some wearing riot helmets, were patrolling the area. Firefighters and EMTs were attending to people who were overheating in the sun. Police from College Park, Hapeville, Fulton County and MARTA assisted in crowd control.

Felecia McGhee told the AJC she arrived around 6:30 a.m. Wednesday. She said the major problem began when people started breaking into the line and officials started moving the areas where they were handing out applications. She said she saw at least two small children trampled when the crowd rushed the building where the applications were to be handed out.

Posted by E. Frank Stephenson at 01:27 PM

August 10, 2010
Hooray for government! ...hey, wait a minute...

The State of Arkansas (my home) made its budget for 2010 with $24 million left over. Democratic Gov. Beebe and the Democratically-controlled legislature cut existing spending, resisted new spending, and turned in a "flat" budget for next year, all without news taxes (I think) or layoffs, or any sutrm-und-drang we see in other states.

In all sincerity, way to go, Gov. Beebe & the Ledge! Arkansas is a small, poor state with a history of policy stupidity, but at this moment and in this instance, this is good governance. I'm shocked that I ever typed that sentence.

For all of their hard work (and an excellent example that Democrats CAN be fiscally responsible), what do they and the Arkansas taxpayers get? The right to be taxed by the Federal government to bail out profligate states whose governments don't have the will or the skill of the Arkansas state government.

Hellooooo, moral hazard. Why, if Beebe ever does something so fiscally responsible again, I'll light a bag of dog poop on fire on his doorstep.

Posted by Noel Campbell at 11:38 AM

"Hooverism" in Canada

From a piece by Jason Clemens in the WSJ (it's gated but reproduced here):

But change really began to take off in 1993. A socialist-leaning government in Saskatchewan started by reducing spending and moving towards a balanced budget. This was followed by historic reforms by the Conservatives in Alberta, who relied on spending reductions to balance their budget quickly.

In 1995, the federal government, led by the Liberal Party, passed the most important budget in three generations. Federal spending was reduced almost 10% over two years and federal employment was slashed 14%. By 1998, the federal government was in surplus and reducing the nearly $650 billion national debt. Provincial governments similarly focused on eliminating deficits by paring spending and reducing debt, and then they started to offer tax relief.

All government spending peaked at 53% of Canadian GDP in 1992 and fell steadily to just under 40% by 2008. (Government spending in the U.S. was 38.8% of GDP that year.)

Canada doesn't seem to have experienced the negative consequences that Keynesians would have us expect. In fact, the cuts started when Canada was in a mild recession (GDP peaked in 1991) yet the results were far from some sort of Krugmanesque replay of the Great Depression.

"Hooverism" is in quotes, of course, because Hoover did not cut spending and did not adhere to balanced budgets.

Posted by E. Frank Stephenson at 11:27 AM in Economics

August 09, 2010
Police: Man had beer in pants

That's the headline on the website of the local fishwrap. I was going to wonder aloud which of my friends/co-bloggers might be the culprit until I saw this paragraph in the article:

Police said Whitehead took a 12-pack of Budweiser Light valued at $9.69 and hid it in his pants leg.

Wow, I'd like to see those pants.

Posted by E. Frank Stephenson at 11:54 AM in Culture

We're from the Government and We're Here to Help

From the abstract of a new NBER WP by Chris M. Herbst and Erdal Tekin:

Using data from the Kindergarten cohort of the Early Childhood Longitudinal Study, our instrumental variables estimates suggest that children receiving subsidized care in the year before kindergarten score lower on tests of cognitive ability and reveal more behavior problems throughout kindergarten. However, these negative effects largely disappear by the time children reach the end of third grade.

Something to keep in mind next time some pol bleats about caring for children. Thankfully the damage doesn't appear to be lasting.

Posted by E. Frank Stephenson at 08:59 AM in Economics

Deadweight Loss--Snooki's Tan Edition
In a preview for the reality-TV show’s second season, Nicole “Snooki” Polizzi criticized President Barack Obama’s policies as anti-tanning.

“I don’t go tanning anymore because Obama put a 10% tax on tanning,” she said.


Posted by E. Frank Stephenson at 08:43 AM in Economics

August 06, 2010
Paper Idea: African-American Seminary in Memphis?

From the 1916-1917 edition of the Negro Year Book, page 21:

Southern Baptists Pledge Fifty Thousand Dollars for Theological School for Negroes

In its annual report for 1915, the Southern Baptist Convention concerning its work among Negroes, says: 'We continue our cooperation with the Home Mission Board of the National Baptist Convention, some lingering New Era work and special institute and teachers' work. In this latter work we are gratified specially with the solid good being accomplished in the teaching of our colored preachers. This we consider the great foundation work that must be done if we would build the superstructure wisely.' During the year the convention in its work among Negroes employed thirty-nine workers who held six hundred and nineteen Bible conferences. The convention at its annual meeting in Houston, Texas, voted to establish a Negro Baptist Theological Seminary at Memphis, Tennessee. For this purpose the convention pledged $50,000.

I think this eventually became American Baptist Theological Seminary in Nashville (now American Baptist College). So here's the paper idea: how did the Seminary end up in Nashville and not Memphis?

Posted by Art Carden at 03:12 PM in Misc.

August 05, 2010
What could possibly go wrong?

From the Washington Post:

President Obama and congressional Democrats -- out of options for another quick shot of stimulus spending to revive the sluggish economy -- are shifting toward a longer-term strategy that promises to tackle persistently high unemployment by engineering a renaissance in American manufacturing.

That approach, heralded by Obama last week in Detroit and sketched out in a memo to House Democrats as they headed home for the August break, is still evolving and so far focuses primarily on raising taxes on multinational corporations that Democrats accuse of shipping jobs overseas.

So, let's raise the costs of corporations that have factories in the US but also abroad. Students: Can you spell out a route by which this approach might have the unintended consequence of reducing US hiring by multinationals?

HT: Don Boudreaux

Posted by Lawrence H. White at 02:01 PM in Economics

August 04, 2010

(1) The great champion of liberty Manuel Ayau has died. Vaya con dios, Muso.

(2) "Malts in the Cafeteria" in The Freeman written by my lovely wife.

(3) "Human Rights and Economic Liberalization" in Business and Politics with Art Carden.

(4) "Objectivism v. Subjectivism: A Market Test" in the Journal of Economic Behavior and Organization with Josh Hall and Pete Calgagno.

Posted by Robert Lawson at 12:22 PM in Economics

August 03, 2010
Monkeys Getting High for Science

Just one of many dubious stimulus projects is a study of how cocaine use affects monkeys. But, hey, Brad DeLong tells us "anything that boosts the government's deficit over the next two years passes the benefit-cost test--anything at all" so it must be ok.

Posted by E. Frank Stephenson at 11:08 AM

Dispatches from the Bolivarian Paradise

From NPR:

In Venezuela, socialist President Hugo Chavez frequently touts his country as a workers' paradise, where workers run nationalized companies and the oligarchs are kept in check.

But Venezuela is among the world's most dangerous countries for union organizers.

Trade union activists are being murdered at an alarming rate — 75 in the past two years — as new unions vie with traditional unions for power and control. Some union chiefs say government meddling in the unions is stirring the violence.


Under Chavez, unions have multiplied exponentially, promoted by the government to counter what officials here call stridently anti-Chavez unions.

The government calls itself solidly pro-labor. It has repeatedly hiked the minimum wage. And it has handed once-private companies to the workers to run.

But some union leaders describe a dark side, saying the new, pro-Chavez unions go head to head with established ones.

The objective is to control work sites. And the pay-off is controlling the jobs at those sites. That's because in Venezuela, workers often pay union leaders kickbacks for their jobs.

Paying kickbacks for jobs ... maybe some greedy, exploitative capitalist should emulate Senor Chavez's paradise.

Posted by E. Frank Stephenson at 09:21 AM

August 02, 2010
Building Brand Equity: Carden & Lawson, "Human Rights and Economic Liberalization"

DOL co-blogger Robert A. Lawson and I have a paper in the new issue of Business & Politics entitled "Human Rights and Economic Liberalization." The paper is available here. Here's the abstract:

Using several case studies and data from the Economic Freedom of the World annual report and from the CIRI Human Rights Data Project, we estimate the effect of human rights abuses on economic liberalization. The data suggest that human rights abuses reduce rather than accelerate the pace of economic liberalization.
Posted by Art Carden at 12:18 PM in Economics

Carry on baggage fees: An idea whose time has come?

From today's Associated Press:

Spirit Airlines: no hitch with carry-on fees By ANDREW VANACORE August 2, 1010 7:06 am EDT

NEW YORK — Spirit Airlines' controversial carry-on fees took effect Sunday, catching some customers unhappily by surprise. But the low-fare carrier contends that the move will cut down on flight delays, potentially allowing Spirit to add new flights.

Spirit spokeswoman Misty Pinson said the new approach already appears to be working. "The check-in process is going well so far," Pinson said Sunday afternoon. "It looks like this is going to speed things up."

I first proposed this little idea in the February, 2000, issue of The Freeman.

As is, overhead bin space is allocated on a first come first served basis. A better system would allocate first to those with the highest value on time, risk-abatement, and comfort, and then to others who can claim left-over space or place them underfoot or simply check them in advance at the ticket counter.


Okay, this sounds good in theory, but what about the practical side? We can’t exactly expect people to run up and down the aisles shouting out their supply and demand prices for overhead bins. Talk about wasting time! But there is no reason to resort to this kind of barter solution. Instead, let’s capitalize on the airlines’ existing computerized information system to settle this for us. Airlines would sell overhead bin space as an add-on to a passenger ticket. “Would you like overhead space with that?” If you’re in a hurry, or you’re carrying something really valuable or breakable, you’re answer would very likely be “yes.” And you would pay a little extra for your ticket in order to ensure some overhead bin space. On the other hand, if you don’t want to pay the extra, just say “no” and go on your merry way to the baggage carousel. Soon enough, the airlines will balance out all the yes’s and no’s and reach an equilibrium overhead bin price, just like all other markets work when they are not overly regulated. Those who really value the space highly will get it, and those who do not will not. An efficient outcome.

Full article here: Mad Scramble at 30,000 Feet. Cross-posted on The Beacon here.

Posted by Edward J. Lopez at 11:57 AM in Economics

More preliminary EFW results

My buddy/boss Mike and I are looking at GDP variability and economic freedom.

Economic freedom builds strong connections among nations' economies. Freedom opens up your economy to instability in other countries (contagion). However, freedom may also encourage the development of diverse, robust, flexible links, allowing open free economies to weather fluctuations better than unfree economies.

So far: Economic freedom does not directly effect GDP variability; however more freedom tends to lead to more "openness" to trade with other nations. The increased openness increases GDP variability. However, the size of the effect is much smaller than freedom's direct effect on economic growth.

It would be like saying to India's government, "Look, if you adopt policies that increase your EFW value by one standard deviation, over the next 15 years, your economy will grow by an additional $27.3 billion. But we warn you, it might grow by only an extra $26.5 billion to an extra $28.3 billion."

Posted by Noel Campbell at 11:43 AM

August 01, 2010
Another Example of French Happiness

Something else for President Sarkozy to factor into his happiness flavored measure of GDP:

Grenoble - A group of police officers have been forced to take time off after receiving death threats and coming under fire in the French city of Grenoble, officials said on Tuesday.

Authorities reported another arson attack overnight, following a string of arrests and raids as tensions rumbled on after a week of fierce street battles sparked by the killing of a robber by police.

Previous post here.

Posted by E. Frank Stephenson at 04:24 PM in Economics

Incentives Matter: Filtered Cigar Sales Edition

From Iowa:

Filtered cigars that resemble cigarettes in appearance, if not taste, are fast gaining appeal with smokers struggling under budgets strained by tobacco tax hikes.

The filtered cigars come in a 20-pack about the size of a cigarette package, and are similar in appearance. But they cost $2.48-per-pack less than one of the more popular budget cigarette brands, Hy-Val. They’re priced a stunning $4.30-per-pack less than Marlboro, one of the mainstay cigarette brands after tax.

“These (filtered cigars) have blown up in the last six or seven months,” said Andrew Beaupre, manager of the Cigarette Oulet on First Avenue. ”I mean, they’re $1.27! “Who’s not willing to try something new for $1.27 with what they’re paying for cigarettes?”

The price difference between the filtered cigars and cigarettes wasn’t always so wide. It began recently as the tobacco industry responded to tax hikes that took place to fund the State Children’s Health Insurance Program (SCHIP) that was signed into law in February 2009.

Realizing that sales would be hurt by the higher taxes, some manufacturers increased the weight of their small cigars by adding more tobacco, according to Darryl Jayson, vice president of the Tobacco Merchants Association.

By getting the weight above the 3-pounds-of-tobacco-per 1,000 cigars level, manufacturers could get their cigars reclassified from the higher-taxed small cigar category to the lower-taxed regular cigar category, Jayson said.

It’s a big difference. Cigars that contain three pounds of tobacco per thousand are taxed the “little cigar” rate of $1 per pack by the federal government and $1.36 per pack by the State of Iowa.

The federal tax on big cigars is only 50 percent of the product price and the Iowa tax is 50 percent of the product price. That was a considerable drop for a product that costs less than $1 per pack.

Posted by E. Frank Stephenson at 03:57 PM in Economics

Insurance Payments as Manna

Shawn Regan's letter to the Bozeman paper about the fallacy of thinking a hail storm will stimulate the economy prompted the following response from a Ronald N. Fick:

Great newspaper, and I would like to comment on a letter by Shawn Regan in Saturday's paper. Shawn, it is not 1848, and Frederic Bastiat's observations of that time do not apply today. We have electricity, phones, radio, TV, running water, paved roads, vehicles and resources available to draw upon in time of emergency beyond Mr. Bastiat's ability to even conceive of. In 1848 when a local disaster struck, the local community had to deal with it without outside help. Today, with modern insurance companies drawing from nationwide assets, the drain upon the local community is not only reduced, the inflow of outside aid funds actually stimulates the local economy.

You are correct, Mr. Regan, that in 1848 such a hailstorm truly would have been devastating upon a local Bozeman economy for years to come. But this is 2010 and you are wrong to seek to apply such antiquated thinking now. We Americans have the means to reach out and help each other now from distances beyond that which can be readily seen. The Chronicle was quite correct in pointing out that the local economies - even in Livingston - will benefit from the windfall of insurance money injected into the Bozeman economy.

The broken window fallacy has nothing to do with TVs, paved roads, or running water. Instead it has to do with opportunity cost and applies just as much today as it did in 1848. Insurance companies don't send payments out of kindness; they charge premiums in exchange for those services. The premiums reflect the risk of hail storms and other damages so towns like Bozeman do not reap a "windfall of insurance money" after a storm. Insurance therefore changes nothing about the broken window fallacy; it merely separates the timing of the damage and the payments to repair it. Alas, Mr. Fick seems to think insurance payments arrive like manna.

Posted by E. Frank Stephenson at 03:12 PM in Economics

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

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