Division of Labour: August 2012 Archives
August 31, 2012
Do Charter Schools Crowd Out Private Schools?

Apparently so. The result could be more government spending on education as well as fewer private school options, particularly Catholic schools.

Posted by E. Frank Stephenson at 01:35 PM

August 28, 2012
No Such Thing as Free Health Care

From the Rome News-Tribune (emphasis added):

HAVANA (AP) — Cuba's system of free medical care, long considered a birthright by its citizens and trumpeted as one of the communist government's great successes, is not immune to cutbacks under Raul Castro's drive for efficiency.

The health sector has already endured millions of dollars in budget cuts and tens of thousands of layoffs, and it became clear this month that Castro is looking for more ways to save when the newspaper voice of the Communist Party, Granma, published daily details for two weeks on how much the government spends on everything from anesthetics and acupuncture to orthodontics and organ transplants.

It's part of a wider media campaign that seems geared to discourage frivolous use of medical services, to explain or blunt fears of a drop-off in care and to remind Cubans to be grateful that health care is still free despite persistent economic woes. But it's also raising the eyebrows of outside analysts, who predict further cuts or significant changes to what has been a pillar of the socialist system implanted after the 1959 revolution.

The theme of the Granma pieces, posters in clinics and ads on state TV is the same: "Your health care is free, but how much does it cost?"

Posted by E. Frank Stephenson at 02:10 PM

Carden Award Speech

As the 2012 winner of Berry's Carden Award, I had the *opportunity* to give a speech at the College's opening convocation. My short talk, The Noble Origin of Dismal Science, is pasted below the fold. It is based, in part, on the Levy & Peart work on how the dismal science got its name.

Special thanks to my colleagues and/or students who nominated me.

Read More »

Posted by E. Frank Stephenson at 02:05 PM

August 27, 2012
Deadweight Loss Ahoy!

From The Economist:

The summer’s blitz has brought a sharp fall in business in Italian marinas. According to Roberto Fusco, chairman of Marina di Punta Ala, 20% of the boats have not been used this year and sales of fuel have fallen by 40%. The economic crisis has played a part but frequent checks, in port and at sea, have also deterred owners from manning their yachts. Some carry annual tax returns to show nosy policemen that their declared income is enough to justify ownership of a boat. Others at Punta Ala park their SUVs away from the marina and arrive on battered scooters.

Unsurprisingly, boat owners have fled to more welcoming havens. Reports talk of Italian fugitives in Corsica and Croatia. And what is true of Italians applies equally to foreigners who charter boats. Rosi Della Bruna, who runs Shaula, a yacht-services company in Rome’s marina at Ostia, says Russian visitors are not amused by Italian inquisitors. “Business is 50% down on last year, and what affects us also affects bars, restaurants, car hire, air travel and so on,” she explains.

Posted by E. Frank Stephenson at 10:12 AM

August 25, 2012
More of Those Chicago Values ...

19 people shot in overnight shootings across Chicago

I'll probably let this be the last of the Chicago values posts unless I see something particularly good (e.g., something involving the mayor himself).

Posted by E. Frank Stephenson at 10:11 AM

Cartoon of the Day

A friend sent this along--it's a few years old but unfortunately it remains just as relevant today.

Govt Meddling Cartoon.JPG

Posted by E. Frank Stephenson at 10:08 AM

August 22, 2012
No Such Thing As a Free Lunch--Health Insurance Mandates Edition

Part of the abstract of a recent NBER Working Paper:

We model the labor market impact of the three key provisions of the recent Massachusetts and national “mandate-based" health reforms: individual and employer mandates and expansions in publicly-subsidized coverage. Using our model, we characterize the compensating differential for employer-sponsored health insurance (ESHI) -- the causal change in wages associated with gaining ESHI. Relying on the reform implemented in Massachusetts in 2006, we estimate the empirical analog of our model. We find that jobs with ESHI pay wages that are lower by an average of $6,058 annually, indicating that the compensating differential for ESHI is only slightly smaller in magnitude than the average cost of ESHI to employers.

Wages decreasing in response to health insurance mandates might explain why bankruptcy increased in Massachusetts following the passage of Romneycare.

Posted by E. Frank Stephenson at 02:23 PM

August 21, 2012
Incarceration Nation

Posted by E. Frank Stephenson at 01:07 PM

Up Next, Bra Control?

Russian woman kills elderly neighbor with her bra

Maybe Victoria's Secret will play the role of the NRA.

UPDATE: August 26 Is National Go Topless Day--I wonder if there will be a spike in the murder rate ...

Posted by E. Frank Stephenson at 09:14 AM

August 20, 2012
The Health Effects of Plastic Grocery Bags

Posted by E. Frank Stephenson at 01:34 PM

The Curious Task of Economics ... : Class Size Reduction Edition

Florida spent some $20 billion on a mandate to reduce class sizes in its schools. The payoff? Not much--here's the abstract of a new paper in Economics of Education Review:

Class-size reduction (CSR) mandates presuppose that resources provided to reduce class size will have a larger impact on student outcomes than resources that districts can spend as they see fit. I estimate the impact of Florida's statewide CSR policy by comparing the deviations from prior achievement trends in districts that were required to reduce class size to deviations from prior trends in districts that received equivalent resources but were not required to reduce class size. I use the same comparative interrupted time series design to compare schools that were differentially affected by the policy (in terms of whether they had to reduce class size) but that did not receive equal additional resources. The results from both the district- and school-level analyses indicate that mandated CSR in Florida had little, if any, effect on student achievement.
Posted by E. Frank Stephenson at 12:13 PM

August 17, 2012
More "Chicago Values" Mr. Mayor?

'Your skin is your sin': Chicago cops sue over demotion from Emanuel detail

Posted by E. Frank Stephenson at 03:27 PM

What to Make of This Factoid

Apparently the U.S. has more professional tax preparers than police and firefighters combined.

Maybe it indicates an advanced state of division of labor and specialization--we have some folks who specialize in preparing taxes just as we have farmers specialize in growing food.

Maybe--regarding police not firefighters--it means that there is at least some restraint on the number of people we pay to throw other people in jail.

Or maybe it's yet another sign that the tax code is a disgrace. I think I'll go with this one.

Posted by E. Frank Stephenson at 08:52 AM

Mercantilists of the World Unite!

What do you get when you combine our favorite Chinese copier pitchman with a peddler of beggar thyself fallacies about trade with China?

A movie! Variety reports that Peter Navarro has produced and directed a film called "Death by China" and that Peter Morici makes an appearance in the film. Wonder if Morici is angling for a star on the Hollywood Walk of Fame.

Posted by E. Frank Stephenson at 08:38 AM

"Public Servant" Update

City Worker Accused Of Swiping Copper Wire From Midway Airport


Taxpayers pay parking ticket, dry cleaning bill, booze for Beltline


Georgia Senate rules chairman Don Balfour to pay fine in ethics complaint(Sub header: Balfour won't face hearing on accusations of accepting pay for in-state work on days he was not in Georgia)


UPDATE: Two more--

Dem chair of House Oversight covered up ties to Countrywide for himself, colleagues, and staff


ICE chief of staff on leave after new allegations of lewd conduct surface

Posted by E. Frank Stephenson at 08:19 AM

August 16, 2012
Something to keep in mind during your faculty retreat/meeting, etc.

Yes, it's that time of year once again. Today's inspirational text is from James Buchanan, Better than Plowing 3-4 (1992):

". . . I worked throughout the war at Pearl Harbor and at Guam, at fleet headquarters control deep in the bowels of the earth. I enjoyed the military, the colleagues, the work, and the setting; and I was good at the job. For the first and only time in my life, I worked closely with men who were important in shaping the lives and destinies of many others. I saw these military leaders as ordinary mortals, trying to do their job within the constraints they faced, and burdened with their own prejudices like everyone else. This experience has helped me throughout my academic career; I have been able to relegate to the third order of smalls the sometime petty quarrels that seem to motivate professors everywhere, in their roles both as instructors and as research scholars."

Posted by Mike DeBow at 04:20 PM in Misc.

August 15, 2012
Stocking Up for Climate Change Deniers and Ponzi Schemers?

National Weather Service Follows DHS In Huge Ammo Purchase

Social Security Administration To Purchase 174 Thousand Rounds Of Hollow Point Bullets

Posted by E. Frank Stephenson at 02:43 PM

The Greedy Hand: Pet Edition

A news item: Pet cemetery up for sale after owner can't afford taxes

As for living pets, Italy considered, but has abandoned (at least for now) a tax on pets. I guess it's better to tax the critters than to eat them or drive them around on top of the car.

Posted by E. Frank Stephenson at 11:50 AM

Regulation Roundup

Regulations have unintended consequences as people try to figure ways around them or figure out how to game them for their benefit. A great example is this NYT article on how payments to reduce greenhouse gases have actually spurred production in these gases (HT--Alex at MR).

So the next step is to ramp up regs to try to reduce the unintended consequences. And right on cue we have an example--new regs require stations selling E15 gas (gas diluted with 15% ethanol) and E10 gas must require customers to purchase a minimum of four gallons because the E15 is harmful for lawn mowers and the like. Maybe it'd be simpler not to mandate ethanol in gas in the first place.

And for everything you want to know about regulation (maybe more), here's a primer on regulation from Susan Dudley and Jerry Brito.

Posted by E. Frank Stephenson at 11:17 AM

George Leef on For-Profit Colleges

I think George has it right--the problem is government student aid more than for-profit/non-profit status. Plenty of non-profit colleges are also essentially nothing more than student aid vacuums even if their daily practices are not as overtly akin to sleazy salesmen as some of the activities of the for-profits.

Posted by E. Frank Stephenson at 11:04 AM

August 14, 2012
Hey Sarkozy--How's That Happiness Adjusted GDP Working Out?

M. Sarkozy has departed but it seems the French are still trying to boost their happiness adjusted GDP. Here's a headline from the BBC:

French riots: Amiens buildings torched in clashes

Backstory on the snark about Sarkozy and happiness adjusted GDP is here.

Posted by E. Frank Stephenson at 09:43 AM

Good News on the Home Front

I was happy to see the story in yesterday's WSJ about a paper mill re-opening in Franklin VA. I grew up near there; my dad worked at the mill for a year or two in the 1950s before going to college. The mill's closure hurt an already fairly poor area. Of course, I'm glad to see the mill re-open because market conditions justify its operation (it will make fluff pulp which is used in diapers) rather than a bailout a la GM.

Posted by E. Frank Stephenson at 09:14 AM

The Greedy Hand--Inflation Tax Edition

Yesterday's WSJ had an article on several African countries that now require use of the local currency rather than the U.S. dollar. A snip:

African countries are trying to shoo the U.S. dollar away, even if it means threatening to throw people who use greenbacks in jail.

A 50,000 Zambia kwacha note. Zambia has banned dollar-denominated transactions and has threatened offenders with prison time.

Starting next year, Angola will require oil and gas companies to pay tax revenue and local contracts in kwanza, its currency, rather than dollars. Mozambique wants companies to exchange half of their export earnings for meticais, hoping to pull more of the wealth in vast coal and natural-gas deposits into the domestic economy. And Ghana is seeking similar ways to reinforce "the primacy of the domestic currency," after the cedi plummeted more than 17% against the dollar in the first six months of this year.

The sternest steps come from Zambia, a copper-rich country in southern Africa where the central bank has banned dollar-denominated transactions. Offenders who are "quoting, paying or demanding to be paid or receiving foreign currency" can face a maximum 10 years in prison, the central bank said in a two-page directive in May.

That puts an uncomfortable squeeze on foreign mining companies and tour operators that shepherd thousands of travelers a year to Zambia's side of Victoria Falls. "No one has been prosecuted or jailed for contravening the law yet, but the monitoring process is in progress," Kanguya Mayondi, the Bank of Zambia's spokesman, said. The penalty for not using the kwacha is well within the bank's mandate, he added.

The moves aim to strengthen thinly traded currencies and steer more capital into isolated financial markets. But the new rules are an abrupt change for foreign and local companies used to doing business in U.S. dollars.

Thinly traded currencies, blah, blah, blah. My guess is this move is about seignorage, though the article overlooks this point except for a brief bit toward the end about "Ghana's nearly double-digit inflation."

Posted by E. Frank Stephenson at 09:05 AM

August 13, 2012
Another Victory for Economic Liberty

The folks at IJ have nailed another scalp to their wall--this time it is Utah's application of cosmetology licensing rules to hair braiders. From the IJ press release on the decision:

The Honorable David Sam of U.S District Court for the District of Utah held, consistent with decades of U.S. Supreme Court precedent, that “The right to work for a living in the common occupations of the community is of the very essence of the personal freedom and opportunity that the Constitution was designed to protect.”

Judge Sam further ruled that “Utah’s cosmetology/barbering licensing scheme is so disconnected from the practice of African hairbraiding, much less from whatever minimal threats to public health and safety are connected to braiding, that to premise Jestina’s right to earn a living by braiding hair on that scheme is wholly irrational and a violation of her constitutionally protected rights.”

Finally, the ruling stated that, “Utah’s regulations do not advance public health and safety when applied to Jestina because Utah has irrationally squeezed ‘two professions into a single, identical mold,’ by treating hair braiders–who perform a very distinct set of services–as if they were cosmetologists. The scope of Jestina’s activities are distinct and limited when compared to cosmetologists. She does not use chemicals, shampoo, cut or color hair, or do facials, shaves, esthetics, or nails. Even if she were defined as a cosmetologist, the licensing regimen would be irrational as applied to her because of her limited range of activities. Most of the cosmetology curriculum is irrelevant to hairbraiding. Even the relevant parts are at best, minimally relevant.”

Posted by E. Frank Stephenson at 08:41 AM

More on the London Olympics
With the London Olympics set to wrap up Sunday, analysts said Britain's recession-hit economy was unlikely to have won a major boost from the Games that have been a triumph for the nation's athletes.

While Britain's construction sector benefited hugely before the Olympics, experts have said the 17-day sporting spectacle had not delivered significant financial rewards and neither was it expected to in the months and years ahead.

Mary Rance, chief executive of tourism body UKinbound, said the Olympics which have cost British taxpayers £9.3 billion ($14.5 billion, 11.8 billion euros) to stage have failed to lift her sector.

"From a positive perspective, the Olympics have been a catalyst for huge investment in infrastructure in London," Rance told AFP.

But she added: "All the signs are that the Olympics have not delivered additional visitors to London and the UK. In fact, it is expected that numbers may well end up having fallen by well over 30 percent."

Following claims in the first few days of the Games that they had turned London into a ghost town, British Prime Minister David Cameron urged people to "come back into the capital."

And his words seem to have made an impact, with retailers across London's main shopping district in and around Oxford Street reporting an increase in sales and a higher footfall in the days after Cameron's remarks.

In the run-up to the Olympics, which began on July 27, commuters and tourists were warned to stay away amid fears that London's transport system could not cope with millions of extra people descending on the capital.

The Games had long been heralded as a key boost to the British economy but industry body the European Tour Operators Association said tourist numbers had fallen "dramatically" in the first few days of the Games.

"Hotels have been cutting their prices and many shopping areas, restaurants, theatres, attractions and entertainment venues have seen a significant reduction in business," added Rance.

Source. Sports economists can feel free to mutter "I told you so." (Thanks to LH for bringing the article to my attention.

Posted by E. Frank Stephenson at 08:28 AM

August 11, 2012
Olympic Crowd Out

From yesterday's WSJ:

London's sports venues, with a few exceptions, have been packed during the 2012 Olympic Games.

That's not the case with the city's luxury-retail sector, which has been deserted. The locals have decamped to their country houses. The jet-setters are either at Olympic Park or somewhere like Ibiza. Which means a regular person can get some decent service in shops and a table at places that usually are jammed.

This illustrates one of the pitfalls of the economic impact analyses that boosters throw around in support of sporting events or venues. The analyses often do not account for the crowding out of locals, that is for economic activity that would take place even if an event such as the Olympics does not come to the host city.

Posted by E. Frank Stephenson at 01:51 PM in Sports

August 10, 2012
Freeloader Nation?

The chart below is from a new Senate Budget Committee Report. A couple of notes: (1) Social Security, Medicare, and various tax credits (most notably the EITC) are not included thereby understating the people receiving government checks. (2) The report apparently counts everyone in a household as a recipient; depending on the circumstances of the household this may lead the chart to overstate the number of folks receiving government checks.

With so many folks on some sort of dole, it is easy to see why Elizabeth Warren (actually, her daughter) is apparently trying to turnout welfare voters. There are an awful lot of folks who can vote themselves a raise.

Welfare Recipients.png

Posted by E. Frank Stephenson at 03:02 PM

Crony Communism

The abstract of a new paper in the Journal of Development of Economics:

We estimate the wage premium associated with having a cadre parent in China using a recent survey of college graduates carried out by the authors. The wage premium of having a cadre parent is 15%, and this premium cannot be explained by other observables such as college entrance exam scores, quality of colleges and majors, a full set of college human capital attributes, and job characteristics. These results suggest that the remaining premium could be the true wage premium of having a cadre parent.
Posted by E. Frank Stephenson at 10:10 AM

August 09, 2012
Is Harry Reid a Liar?

Is Harry Reid a liar? Well, I'm not saying so, but as Senator Reid might say, "it's out there."

Senate Majority Leader Harry Reid (D. Nev.) is catching a lot of well-deserved flack these days for his shameless, unsupported (that seems like too kind a word - perhaps "apparently made up out of thin air" would be more realistic) accusations about Mitt Romney's taxes, but in some ways, that is the least of Harry's offenses. After all, there are lots of shills out there who can flack nasty, unsupported (that seems like too kind a word - perhaps "apparently made up out of thin air" would be more realistic) accusations at Mitt Romney. But there is only one Senate Majority Leader, who has now refused, for over three years, to even allow the Senate to consider a budget, let alone pass one as required by law.

And because Harry Reid is arguably the nation's most important single legislator, his role as a legislator and his statements on legislation are of even greater consequence than his unsupported (that seems like too kind a word - perhaps "apparently made up out of thin air" would be more realistic) attacks on Romney.

So today I want to highlight Reid's misleading (well, "false" is a better word) comments about the "Affordable Care Act," aka "Obamacare." A recent study by the Congressional Budget Office concludes that repealing Obamacare would increase the deficit by a total of approximately $109 billion over the next 10 years. So, says Reid, "This confirms what we've been saying all along: the Affordable Care Act saves lots of money."

In reality, it does nothing of the kind. The CBO is an estimate of the effect of repeal on the deficit, not on "saving money." The CBO figures that Obamacare will cut Medicare spending by roughly $500 billion to help pay for Obamacare, and will increase taxes by another $500 billion or so, and that Obamacare will only cost about $900 billion, so, voila, repeal would increase the deficit. But a quick look at those numbers by any third grader tells us that it doesn't "save money." Rather, assuming all the cuts in Medicare spending actually take place, it still increases net spending by roughly $400 billion dollars, but results in a lower deficit because it raises taxes by roughly $500 billion dollars.

So, raise spending by $400 billion, raise taxes by $500 billion, and Harry Reid calls this the government "saving lots of money." Well, hey, let's "save" even more, by raising spending by $4 trillion and taxes by $5 trillion. (Actually, I guess that is pretty much the Obama plan, on paper).

Of course, note that even this idea of "deficit reduction" through higher spending only makes sense because the CBO was required to assume various optimistic projections of cost savings in the legislation, and because the tax increases kick in before the spending increases. If we would go out beyond 10 years, therefore, we would quickly find an increasing deficit because of Obamacare.

And all of that is assuming that spending on Obamacare stays within target. In 1967, the House Ways and Means Committee estimated that Medicare would cost $12 billion by 1990. In reality, it cost $120 billion by 1990 - the government estimate was off by a factor of 10. Over and over, Congress has underestimated the cost of new health care entitlements by 100% or more.

In short, let's ignore Reid's irresponsible statements about Mitt Romney, and focus on his irresponsible statements about the cost of the Affordable Care Act, and his irresponsible failure to get his Chamber to even consider a federal budget.

Posted by Brad Smith at 10:02 AM in Politics

August 08, 2012
Being Free Market Is Not The Same As Being Pro-Business

Steve Horwitz explains.


Posted by E. Frank Stephenson at 02:56 PM

August 07, 2012
About Those "Chicago Values" Mr. Mayor

Chicago Mayor Rahm Emanuel recently proclaimed “Chick-Fil-A values are not Chicago values." Well, let's take a peek at some of those "Chicago values."

Chicago had more than 250 murders in the first six months of this year. This prominent Chicagoan sits in federal prison for corruption. This prominent Chicagoan is noted for his anti-Semitic rants. This prominent Chicagoan is a terrorist. This prominent Chicago father and son have cheated on their wives.

It's perfectly fine to disagree with Dan Cathy's views on marriage (but not to threaten to withhold business licenses based on those views), but thank goodness he does not share some of these "Chicago values."

Posted by E. Frank Stephenson at 11:14 AM

August 03, 2012
A Zombie Automaker?

Older readers might remember the S&L crisis of the 1980s. One of the features of this episode was regulatory forbearance that allowed many insolvent S&Ls to continue operating. Regulatory forbearance led many insolvent institutions would undertake highly risky projects ("hail marys") in hope that they would pay off and return the S&L to solvency.

The chart below (from IBD) makes me wonder if GM is behaving like a zombie S&L--extending credit to riskier customers in a desperate attempt to prop itself up (at least until after the election).

Subprime GM.png

Posted by E. Frank Stephenson at 02:31 PM

Hair Splitting
The White House is really getting specific when it comes to the unemployment rate.

Rather than 8.3% -- the rounded-up figure -- Obama economic adviser Alan B. Krueger writes on the White House website that the real jobless rate is 8.254%.

"The household survey showed that the unemployment rate ticked up to 8.3% in July (or, more precisely, the rate rose from 8.217% in June to 8.254% in July)," wrote Krueger, chairman of the Council of Economic Advisers.

Source. This just reeks of desperation even though both intrade and the Iowa market have Obama'odds of winning about 15 percentage points greater than Romney's.

As for the real unemployment rate--a broader measure that includes people who are working fewer hours than they would like continues to hover around 15%. With nearly one out of six people in some sense underemployed, Krueger's quibbling over rounding invites political ridicule.

Posted by E. Frank Stephenson at 02:17 PM

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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