Division of Labour: March 2012 Archives
March 30, 2012
The Revealed Preferences of the Super-Rich

Donald Boudreaux quotes Brad DeLong on taxing the super-rich and offers critical commentary. Here's DeLong's quote. I don't buy his argument; my comments are below.

Saez and Diamond argue that the right marginal tax rate for North Atlantic societies to impose on their richest citizens is 70%.

It is an arresting assertion, given the tax-cut mania that has prevailed in these societies for the past 30 years, but Diamond and Saez’s logic is clear. The superrich command and control so many resources that they are effectively satiated: increasing or decreasing how much wealth they have has no effect on their happiness. So, no matter how large a weight we place on their happiness relative to the happiness of others – whether we regard them as praiseworthy captains of industry who merit their high positions, or as parasitic thieves – we simply cannot do anything to affect it by raising or lowering their tax rates.

The unavoidable implication of this argument is that when we calculate what the tax rate for the superrich will be, we should not consider the effect of changing their tax rate on their happiness, for we know that it is zero. Rather, the key question must be the effect of changing their tax rate on the well-being of the rest of us.

From this simple chain of logic follows the conclusion that we have a moral obligation to tax our superrich at the peak of the Laffer Curve: to tax them so heavily that we raise the most possible money from them – to the point beyond which their diversion of energy and enterprise into tax avoidance and sheltering would mean that any extra taxes would not raise but reduce revenue.

If "increasing or decreasing how much wealth [the super-rich] have has no effect on their happiness," why do the super-rich spend so much money fighting tax increases? If someone is indifferent between an extra dollar and an extra thirty cents, it doesn't make any sense to spend to many cents lobbying to lower the top marginal tax rate or keep it low.

The claim that additional wealth doesn't matter for happiness at the very top of the income distribution is also inconsistent with what DeLong says about taxing the super-rich "to the point beyond which their diversion of energy and enterprise into tax avoidance and sheltering would mean that any extra taxes would not raise but reduce revenue." If the rich aren't made any happier by that extra income, why would they devote so much time and energy to tax avoidance?

Do the actions of the super-rich reveal that, contra DeLong, increasing or decreasing their does affect on their actions?

NB: APEE starts Sunday. Hope to see you there.

Posted by Art Carden at 06:16 PM in Economics

On Romneycare and Bankruptcy

My colleague Melissa Yeoh, our student Kayla Badding, and I have a new paper out in Applied Economics Letters; here's the abstract:

Previous research claims that medical expenses are a leading cause of bankruptcy in the United States. Using data from the 50 states and the District of Columbia from 2001 to 2010, this article examines the relationship between Massachusetts' 2006 health-care reform and bankruptcy filings. After including state- and year-fixed effects and other covariates, the results indicate that, contrary to expectations, bankruptcy filings increased following Massachusetts' move towards universal medical insurance coverage.

Long time DOL readers may recall that I've long been skeptical that medical expenses were a large contributor to personal bankruptcy. So it came as no surprise that my co-authors and I found that bankruptcy was not reduced by major health care reform in Massachusetts.

Posted by E. Frank Stephenson at 08:52 AM

Shouldn't They Call It the Divider Not the Multiplier?

Blogging has been sparse lately because I'm serving as acting dean this semester, but here's a paper abstract that caught my attention:

This article proposes a novel approach to empirically identifying government spending multipliers that relies on two features unique to many low-income countries: (1) borrowing from the World Bank finances a substantial fraction of government spending, and (2) spending on World Bank–financed projects is typically spread out over several years following the original approval of the project. The first fact means that fluctuations in spending on World Bank–financed projects are a significant source of fluctuations in overall government spending in these countries. The second fact means that fluctuations in World Bank–financed spending in a given year are largely determined by fluctuations in project approval decisions made in previous years, and so are unlikely to be correlated with shocks to output in the current year. I use World Bank project-level disbursement data to isolate the component of World Bank–financed government spending in a given year that is associated with past project approval decisions. I use this as an instrument for total government spending to estimate multipliers in a sample of 29 primarily low-income countries where variation in government spending from this source is large relative to the size of the economy. The resulting spending multipliers are small and reasonably precisely estimated to be in the vicinity of 0.5.

If overall output goes up only half as much as government spending, divider seems like a more appropriate term to use.

Posted by E. Frank Stephenson at 08:16 AM

March 21, 2012
On faith c. 1912

From the March 21, 1912 NYT:

Theater ticket "scalping" soon probably will be a thing of the past in Chicago....Heretofore, it is said, the custom of "scalpers" has been to take up the most desirable seats and, if they failed to sell them, return them just before the curtains went up.

Without permission to return the tickets, it is thought the purchases of "scalpers" will be greatly reduced, if not wholly stamped out."

Such a policy would possibly reduce the number of tickets purchased by scalping but it would seem to be expecting too much that such a regulation would "stamp out" the market.

Posted by Craig Depken at 01:50 PM in Economics

On Efficiency c. 1912

(I know it has been a long time since I have contributed to this series of posts.)

The March 21, 1912 NYT:

One of the questions frequently asked of efficiency engineers, particularly by employes (sic) and those interested in industrial or social problems, is "What becomes of the men who are rendered superfluous by increased productive efficiency?" This question was raised during the meetings of the newly organized Efficiency Society on Monday.

Increased efficiency should not stop with production. It should include sales as well, and that means increased volume of sales. Increased productive efficiency means decreased costs of production, possibly decreased selling price, and still more volume of sales, for every salesman knows that the lower his selling price the more goods he can sell, particularly if he is competing with others. The usual cry of a salesman is, "I could sell more if I could offer a lower price."

The broad answer to the question, then, is that the employes "rendered superfluous" by increased productive efficiency are required by the increased volume of production to meet the increase in sales, due to greater selling efficiency and lower prices. Sometimes this increase in volume of business is felt before the productive force has been decreased correspondingly, resulting in an actual increase of the productive force, while the cost per unit of production is less.


Posted by Craig Depken at 01:34 PM in Economics

March 19, 2012

From an interesting essay in USA Today:

Similarly, the seductive allure of libertarianism relies on its simple assumptions: People should be as free as possible. Our laws should reflect reality. Government policies should be analyzed using logic, not ideology. There are no grand appeals to shaping the world in America's image, no quixotic promotion of economic equality and no obsession over the moral character of the nation.

In a nutshell, scientists and libertarians deal with the world the way it is, rather than the way they want it to be. Or, as Reason's science writer, Ronald Bailey, eloquently stated, "Both embody the freedom to explore and experiment, enabling people to more systematically seek truths about the physical and social worlds."

I think it goes deeper than this. Some (completely unsupported) conjecture follows. Apologies to Hayek and McCloskey for any bastardization or misrepresentation.

I think we enjoy the benefits of three self-organizing (i. e., libertarian) systems: language, cities, and markets. Maybe a fourth: laws (but not the state). Science is a subset of language, one that has implicitly accepted rules not imposed generally: don't misrepresent or hide the data, apply logic, don't appeal to any authority other than the data and logic, and don't appeal to emotions. Rhetoric, another subset of language, does not appear to be bound by any of these ancillary rules -- especially if it's political rhetoric.

Posted by Wilson Mixon at 01:18 PM

March 15, 2012
Charles Murray, Cato, and Property Rights

At NRO, Charles Murray writes:

In the Lockean formulation, a property right is inextricably mixed with labor: Something becomes yours because it was previously unowned by anyone else and you mix your labor with it — or, in broader terms, you may mix your money with it. It may be legally true that the Kochs and Ed Crane still “own” Cato because of the founding document, but for the Kochs to use preservation of donor intent as the basis for their action requires them to ignore the sense of Locke’s argument.

Donor intent normally applies to endowments that are used to finance a foundation’s operations forever after. The Kochs didn’t create such an endowment. Instead, all of the founders mixed their labor and money, and expended both, from year to year in an ongoing project. Through 1991, the Kochs’ money was indispensable. Forget about their shares; they had an indisputable moral right to be at least equal partners with Crane and Niskanen in deciding how Cato was run.

Then Charles dropped out altogether, and David became just one of many large donors. To me, it seems obvious that Charles’s Lockean property right to Cato ended when he stopped mixing his money with that ongoing, expanding project, just as Ed Craneis would have ended if he had resigned as president in 1991. David’s Lockean property right didn’t end, but over the years it diminished as his contribution became a small fraction of the total monetary effort that was going into Cato.

I do not know enough about the underlying dispute to have an opinion on the Koch/Cato matter, but Murray's argument strikes me as odd. His "labor theory of property" would seem to imply that any employee of a firm would somehow acquire ownership rights to the firm, especially if the owners are "absentee." Via a mutual fund, I own shares in the firms in the S&P 500 but I do not mix my labor with the firm. Does this mean that an employee of, say, Coke should be able to appropriate my shares since s/he works for the firm while I am a passive shareholder? And if I do not buy any additional shares or buy any of the firm's product, do I forfeit my rights to the shares I've previously acquired. I think not so I think Murray is off the mark.

I think Murray goes wrong in one of two ways--1)his reference to mixing labor with something that is previously unowned would not seem to apply in this case because Cato was apparently owned by the Kochs, Crane, and Niskanen and 2)he seems to be led astray by the fact that Crane and Niskanen were both shareholders and employees and presumably they were paid for the labor they provided as employees.

Perhaps I'm missing something here; if so maybe someone will let me know. In criticizing Murray, I certainly feel like a poodle nipping at the heels of a great dane.

I suppose I should end with one of those full disclosure statements: In one way or another, I have received some benefits from Charles Koch (perhaps David too, though I am not aware of any benefits from him). I have never met Ed Crane; I did meet and admire Bill Niskanen.

Posted by E. Frank Stephenson at 09:32 PM

March 14, 2012
Koch v. Cato

I have a long-standing relationship with the Cato Institute. They have been partners on the publication of the EFW index since 1996. I have published a couple articles in the Cato Journal, and students of mine have interned there. On a personal level, I am pleased to call many current and former Cato staffers my friends.

I have also developed a relationship with the Charles Koch Foundation in the last few years, which helped fund my research at Auburn and now SMU. I have lectured for the Koch Associates program. Students of mine have worked for the Foundation. I recently shot two short videos with their assistance. On a personal level, I am pleased to call many current and former Koch staffers my friends.

So I am saddened by this whole thing on many levels. Like a lot of people, I wish this wasn't happening. But it is. I don't understand the animosity between the Kochs and Ed Crane, though I certainly understand the loyalty of the Cato folks to Ed Crane, who has championed liberty for so many decades. Personally, I don't care who "wins" this battle though.

I am however worried about the damage being done to the libertarian movement, especially by the rhetoric on the part of the Cato supporters. They claim the "independence" of the Cato Institute is threatened by the Kochs. Do they not realize that each time they make this claim, they (a) INSULT friends at GMU, Mercatus, IHS, and hundreds of scholars elsewhere (like me) who have benefited from Koch Foundation assistance but who do not feel any loss of independence in their own research agendas?, and (b) provide fodder for the Left's tired (and untrue) claim that we are all just corporate stooges?

Go ahead and defend your boss and your jobs if you must, but in doing so, don't call into question my independence.

Posted by Robert Lawson at 03:04 PM in Politics

March 13, 2012
The really big story

Population Implosion: "If the 20th century was the century of the population explosion, the 21st century, as Eberstadt notes, is looking like the century of the fertility implosion."

Posted by Wilson Mixon at 02:47 PM

IJ Sues the IRS: Op-ed and Video

Here's an op-ed by Dan Alban, lead attorney on the case.

Posted by E. Frank Stephenson at 08:46 AM

March 12, 2012
IJ Sues IRS

Story here; Dan Alban, the IJ attorney quoted in the story, is a former student of mine.

Posted by E. Frank Stephenson at 05:28 PM

Can You Say Rent Extraction Boys and Girls?

Apple's market clout may draw antitrust lawsuit

Posted by E. Frank Stephenson at 02:23 PM

How About a Cough Drop Mandate?

Posted by E. Frank Stephenson at 02:21 PM

March 10, 2012
Bootleggers, Baptists, and Gas Exports

From yesterday's WSJ:

Energy companies have found so much natural gas in U.S. shale rocks they want to begin exporting it. But the push is creating a political clash with an unusual set of opponents who think American gas should stay in America.

Gas producers are eager to find new markets after seeing the glut of U.S. gas depress prices to a 10-year low. Big gas importers, such as Japan, are lobbying through diplomatic channels to persuade the U.S. to open the export spigot.

The American Chemistry Council, a trade group of chemical makers, says a long-term supply of cheap natural gas would drive enormous investment and job creation in the U.S. petrochemical industry. It has warned the government against "undermining the availability of domestic natural gas," but has not taken a position either for or against natural-gas exports.

The Sierra Club, a major environmental group, frets that giving natural-gas producers new customers overseas will lead to more hydraulic fracturing to break up the shale and release the gas, a technique dubbed fracking that has raised environmental concerns.

"We don't often have joint Christmas parties with these folks, but on this issue we have a common interest," said Michael Brune, the executive director of the Sierra Club.

Posted by E. Frank Stephenson at 10:25 AM

Casting Stones in Glass Houses

That's my take on Rick Santorum's WSJ op-ed accusation that Mitt Romney is a recent convert to economic freedom. So here's my letter to the editor (it ran in Tuesday's WSJ):

It's rather ironic that Sen. Rick Santorum ("My Economic Freedom Agenda," Feb. 27) chastises Mitt Romney for having "had a last-minute conversion" to supporting economic freedom. While Mr. Santorum pledges to "negotiate and submit free trade agreements," he voted against Nafta, supported tariffs on steel and honey, and voted in favor of a 27.5% tariff on imports from China. Likewise, Mr. Santorum pledges to "rein in spending," but his record reveals support for spending both big (No Child Left Behind and Medicare Part D) and small (earmarks and dairy farm subsidies).

Such a record gives Mr. Santorum little room to complain about another candidate's Johnny-come-lately commitment to economic freedom.

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

No one should infer from this letter than I'm a fan of any other candidate. I have several posts critical of Professor Cornpone/Speaker Moonbeam Gingrich and I have a forthcoming paper finding that bankruptcy in Massachusetts increased after the passage of Romneycare.

Posted by E. Frank Stephenson at 10:22 AM

March 05, 2012
No Surprise Here: Gwinnett Stadium Promises Fall Short

From today's AJC:

Developers have asked Gwinnett County for permission to scale back a large commercial center at Coolray Field and build more apartments instead, altering a concept county officials used to justify spending $64 million on the baseball stadium.

Nearby residents and some county officials are not happy. They say the original development plans were a key selling point when county officials agreed in 2008 to build the stadium for the Gwinnett Braves.

If Gwinnett officials grant the changes in zoning conditions needed to revise development, it wouldn’t be the first time the stadium project failed to live up to its billing.

The Gwinnett Board of Commissioners approved spending $45 million to buy land on Buford Drive for the stadium, borrowing $33 million and pledging various stadium-related revenue sources to repay the debt.

Commissioners assured residents the stadium would pay for itself and spark economic development nearby. But they later approved a new 3 percent car rental tax that is the single biggest source of money to repay the debt, and the cost escalated to $64 million. The county is still struggling to find money to pay the stadium debt. Last September an Atlanta Journal-Constitution investigation found Gwinnett plans to begin using hotel-motel tax revenue to help make debt payments as soon as this year.

Game attendance also hasn't lived up to expectations. A consultant estimated the team would average 6,000 to 6,500 fans a game after an initial "honeymoon" period in which attendance might be higher. The 10,427-seat stadium drew an average of 5,858 fans a game in its first year and 5,095 per game last year.

Back in 2008, JC Bradbury called bull$h!t on the economic sugarplums being sold by the Gwinnett stadium advocates. Take a bow JC.

UPDATE: Gwinnett County economist Alfie Meek did the economic impact report (see JC's link above) and Gwinnett Commission Chair Charles Bannister said, "We’ve taken some hits from critics over our stadium, but that’s OK. I know I speak for my fellow commissioners when I say we’ll gladly take those hits and invite those critics to check back in a few years." I'm guessing we won't hear a peep about the overselling of the Gwinnett stadium from either of those chaps.

Posted by E. Frank Stephenson at 09:55 AM

March 04, 2012
Volt Jolt

So GM's putting Volt production on hold: "General Motors has told 1,300 employees at its Detroit Hamtramck that they will be temporarily laid off for five weeks as the company halts production of the Chevrolet Volt and its European counterpart, the Opel Ampera."

One wag suggested that GM's looking farther into the future, to the AlgaeMobile, the Chevy Mold.

Posted by Wilson Mixon at 12:21 PM

March 02, 2012
Warren Rentseeker

From "Buffett's folksy mask":


You'd never know the avuncular Buffett, lionized by so many commentators for his support of higher taxes on the rich, may actually be the most deft political operator of all — and that he was, in the words of a Sacramento Bee investigation three years ago, "one of the top beneficiaries of the banking bailout" even as he promoted it to Congress and the public as an undeniable necessity.

As the Bee noted in a now neglected report, Berkshire's holdings in companies bailed out by the Troubled Asset Relief Program (TARP) constituted "30 percent of its publicly disclosed stock portfolio, and that proportion reflects at least twice as much dependence on bailed-out banks as any other large investor."


Posted by Wilson Mixon at 05:09 PM

Seattle's Urban Food Forest

I expect a tragedy of the commons story will follow this piece from NPR:

Now, Washington state has jumped on the foraging bandwagon with plans to develop a 7-acre public plot into a food forest. The kicker? The lot sits smack in the middle of Seattle.

The idea is to give members of the working-class neighborhood of Beacon Hill the chance to pick plants scattered throughout the park – dubbed the Beacon Food Forest. It will feature fruit-bearing perennials — apples, pears, plums, grapes, blueberries, raspberries and more.

HT: Dan Alban

Posted by E. Frank Stephenson at 11:57 AM

Looks Like She Might Be Appearing on "20 and Pregnant"

Floyd woman who appeared on “16 and Pregnant” accused of trying to shoplift pregnancy test

Posted by E. Frank Stephenson at 08:11 AM

March 01, 2012
Losing the Blues

Walter Russell Mead on the demise of the "blue model": "It took me a while to see it, but since the 1980s I’ve come to understand that the shift away from blue is not all loss. The blue model was a very comfy couch, but there is much more to do in this world than watch Simpsons reruns while eating chips."

Posted by Wilson Mixon at 02:33 PM in Politics

We speak for property rights

A column by Mike Hammock and me in the Nashville Tennessean: "People act like Once-lers in part because of the incentives they face. Unrestrained greed in the use of private property is not the problem. The opposite is true: Environmental damage occurs when people do not own valuable resources, and therefore do not gain by caring for them."

Posted by Wilson Mixon at 09:03 AM 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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