Division of Labour: October 2012 Archives
October 29, 2012
Hurricane Sandy as Stimulus?

Panos Mourdoukoutas at Forbes.com:

Is this rush of consumers to spend a very-much needed stimulus of the US economy?

Definitely not, as Sandy is one time event, and as the boost in demand for certain items this week will turn into bust for the same items in the weeks to follow. A boost in the demand for water bottles this week, for instance, will turn into bust next week, as consumers over-stack the product. But, what about the impact of cleaning and reconstruction that is expected to follow the hurricane? Wouldn’t it give a boost to the economy?

It depends on the extent of the damages and magnitude of the reconstruction to be done. Some experts talk of damages in the order of $10, $20, even $100 billion—seeing a “Sandy stimulus package.” But even if we go with the highest estimate, $100 billion, it is a too small number given the size of the US economy. Besides, whatever stimulus comes from cleaning and reconstruction will be mitigated by other factors like declines in the tourist sector, and losses in economic activity, due to disruptions in transportation and communication. And don’t expect any significant boost from policy makers.

The bottom line: We do hope and pray that the damages from Sandy will be minimal. A stimulus from a storm is something we don’t need.

If this were the answer to an exam question, it'd be worth maybe a C for having the right answer but the wrong reasoning. Repeat after Bastiat: Breaking windows (or flooding homes) does not increase economic well being even if there is a temporary blip in GDP while rebuilding destroyed buildings. That the writer doesn't get this point is evident from his saying that $100B of damage is too small relative to the size of the U.S. economy--I suppose he'd prefer a storm that does $1 trillion in damages. Or maybe, since the author laments Sandy's being a one-time event, a Hurricane Sandy every month--nah, every week!--would be stimulus.

UPDATE: For an explanation worthy of an A, see this piece from Tim Worstall.

UPDATE2: And coming in with an F is Bo Peng's muddled mess ("destruction is constructive") over at The Street.com.

UPDATE (10/30): More bits of economic ignorance on public display--here's one that features a reference to our favorite Chinese copier salesman and here's another extolling the benefits of clean up costs (dude, there's a reason we call them clean up costs not clean up benefits).

UPDATE (10/31): Today brings Richard Eskow proclaiming "God must be a Keynesian" and describing Sandy as "God's Stimulus." Ugh.

Posted by E. Frank Stephenson at 08:25 AM

October 28, 2012
Why this libertarian is voting Romney, with enthusiasm

Earlier this week, the flagship libertarian think mag, Reason, published its individuals staff members’ choices for president. Not surprisingly, Libertarian Party candidate Gary Johnson was the overwhelming choice. As a libertarian, I think they are wrong.

Libertarian voters are variously estimated to make up ten to twenty percent of the electorate. It would be not only presumptuous but foolish to try to tell libertarians how to vote. We are, by definition, far too prickly and independent for that.

But for those that are interested, let me say why this libertarian plans to vote, with enthusiasm, for Mitt Romney.

Read More »

Posted by Brad Smith at 04:20 PM in Politics  ·  Comments (31)

October 26, 2012
Steve Horwitz on Herbert Hoover

Cato podcast here.

Cato briefing paper here.

These should be required reading/listening for Paul Krugman.

Posted by E. Frank Stephenson at 07:47 PM

October 24, 2012
Incentives Matter: Bureaucrats and Other People's Money Edition

From the Rome News-Tribune:

Rome’s Community Development office is looking for ways to spend $60,778 on previously approved Community Development Block Grant-funded projects to avoid a future slow down in entitlement funding.

Posted by E. Frank Stephenson at 06:07 PM

The School Staffing Surge: Decades of Employment Growth in America’s Public Schools

That's the title of a new report authored by Ben Scafidi and published by the Friedman Foundation. It includes an interactive state-by-state map that makes it easy for readers see what changes have occurred in their states.

Posted by E. Frank Stephenson at 05:55 PM

October 23, 2012
Outline for my Economic Outlook Talks

I get asked to give occasional "economic outlook" talks to different groups. If you're an aspiring economist, you will, too. Here's my basic outline; feel free to adopt it & modify it as you see fit:

I. Where we've been, where we are, where we're going
A. Basically no per capita growth, 1,000,000 BC-1750, give or take a few decades.
B. Things could be better, but today is the best day to be alive, ever
C. Our kids will be much richer

II. How we got here
A. Economic Freedom!
B. Bourgeois Dignity!
C. It's not automatic!
D. People in your profession already "give back" by stewarding depositors'/shareholders' funds & by serving customers

III. How we are messing it up
A. EFW Report: we're #...18?!?!
B. Regime Uncertainty

IV. Takeaways
A. The end is not near
B. our kids will be richer than us...
C. ...but poorer than they would be if we weren't making policy mistakes

Notes and variations:
1. Sometimes, I talk about the Ehrlich/Simon bet and whether we will someday run out of resources.
2. I defuse requests for crystal ball projections by basically saying that if I knew what interest rates/stock prices/etc would do, I would be on my own private island.

Inspired by an Ed Lopez status update on Facebook.

Posted by Art Carden at 09:09 PM in Economics

October 22, 2012
Incentives Matter: Schooling Edition

From The Economist:

Conditional cash transfers (CCTs) ... cost relatively little (typically 0.2-0.8% of GDP) but influence the priorities of many. About a quarter of Brazil’s population now gets some money from Bolsa Família, the country’s CCT scheme. State and local governments piggyback on top. In Rio, for instance, the city supplements Bolsa Família payments for 700,000 of its poorer families. If children do exceptionally well in exams, a bonus is paid. If they miss school, the payment stops. Ms Martins realised her 14-year-old was skipping school only when her monthly stipend was docked. Several academic studies in Mexico show that kids in CCT schemes stay at school longer.

Posted by Wilson Mixon at 08:21 PM in Economics

October 20, 2012
Ken Burns supports Obama: but has he seen It's a Wonderful Life?

Documentary filmmaker Ken Burns has a piece in the Manchester Union Leader this week entitled, "Why I am voting for Barack Obama." Burns is a wonderful director, but the column makes one wonder if he really understands the stories he sees on the screen.

Read More »

Posted by Brad Smith at 09:54 AM in Politics

October 13, 2012
This is my life

Billy Joel's classic "My Life" was released 24 years ago this month, peaking at #3 on Billboard in January of 1979.

This is one of my favorite rock songs, because, although I doubt that Joel intended it as such, the lyrics are a great summary of the libertarian philosophy. This includes the importance of voluntary social institutions. Indeed, my favorite line is when the singer notes "I still belong, don't get me wrong" - getting it wrong is what the statist left routinely does, assuming anyone who wants control of his own life or who opposes state coercion is somehow anti-social.

Got a call from an old friend
We used to be real close
Said he couldn't go on the American way
Closed the shop, sold the house
Bought a ticket to the West Coast
Now he gives them a stand-up routine in L.A.

I don't need you to worry for me cause I'm alright
I don't want you to tell me it's time to come home
I don't care what you say anymore, this is my life
Go ahead with your own life, leave me alone

I never said you had to offer me a second chance
I never said I was a victim of circumstance
I still belong, don't get me wrong
You can speak your mind
But not on my time

They will tell you, you can't sleep alone in a strange place
Then they'll tell you, you can't sleep with somebody else
Ah, but sooner or later you sleep in your own space
Either way it's okay to wake up with yourself.

Posted by Brad Smith at 11:00 AM in Culture

Quick check on the presidential race

A quick check-in on the Presidential race. These are the last publicly released national polls:

Rasmussen Tracking, Oct. 10-12: Romney 49, Obama 48.
IBD/Tipp Tracking, Oct. 6-11: Romney 46, Obama 46
Gallup Tracking, Oct. 5-11: Romney 49, Obama 47.
Survey USA, Oct. 8-10: Romney 47, Obama 46.
Fox News, Oct. 7-9: Romney 46, Obama 45.
Washington Times, Oct. 5-7: Romney 45, Obama 45.
Pew Research, Oct. 4-7: Romney 49-45.

It would seem pretty clear that Romney holds a narrow lead nationally. This is very bad news for Obama, as late undecided voters almost always break for the challenger, often by very large margins.

Obama is stronger on the electoral college front, where he still has more votes that are certain or likely to fall his way, and thus more paths through the remaining competitive states to a winning 270 votes than does Romney.

An interesting point is that the polls are not including two third party challengers who could affect the race. The Libertarian Party nominee, former New Mexico Governor Gary Johnson, is a likely candidate to peel off five percent or more of the vote in his home state and could do well in other states, especially the competitive western states of Arizona and Colorado. Johnson argues that the second choice of his voters - i.e., whom they would likely vote for if Johnson were not in the race - is split almost evenly between the two major party candidates. But historically, libertarians have broken heavily Republican (typically 60-70%), and LP voters appear to have favored Republican candidates as their second choice by similar margins.

The Constitution Party, a conservative outfit, has nominated former Virginia Congressman Virgil Goode. Goode doesn't appear to be much of a factor outside of his home state, but in that battleground he could gain a couple percentage points. His old district basically consists of much of the conservative, rural south-central Virginia, and presumably almost all his votes would come from Romney.

But we ought to consider that this race may not be close at all, at least in the electoral college. A shift of just a couple points nationwide to either candidate would likely result in almost all of the battleground states falling in the same direction, producing a solid, if not landslide victory for the winner.

There are two presidential debates and one crappy job report left before the election; the burgeoning flap over Libya bodes ill for Obama. Overall, it seems unlikely that Obama will get any good news before the election, unless the November jobs report, due out less than 96 hours before election day, produces another tumble in the top line unemployment figures. On the other hand, if the numbers are bad - if the top line ticks back up (especially to an official rate over 8%), it will be devastating to the President's core argument that he at least has things moving in the right direction.

That puts enormous pressure on the President to perform well in the next two debates. But it's hard to see how he can reverse things in the debates barring a major Romney mistake. All Romney has to do is fight to a draw, or something close to it, to solidify his new status as an acceptable alternative.

At this point, the Romney people should feel pretty good.

Posted by Brad Smith at 10:52 AM in Politics

October 02, 2012
Incentives Matter: Marginal Tax Rates and Hours Worked Edition

The graphic below is from Casey Mulligan (details here) who concludes:

This paper calculates monthly time series for the overall safety net’s statutory marginal labor income tax rate as a function of skill and marital status. Marginal tax rates increased significantly for all groups between 2007 and 2009, and dramatically so for unmarried household heads. The relationship between incentive changes and skill varies by marital status. Unemployment insurance and related expansions contribute to the patterns by skill while food stamp expansions contribute to the patterns by marital status. Remarkably, group changes in hours worked per capita line up with the statutory measures of incentive changes.


Posted by E. Frank Stephenson at 01:13 PM

Industry X's Union supports the Union, not necessarily Industry X

It probably doesn't shock many DoL readers to learn that unions in particular industries care more about the viability of the union than the viability of the industry. We are familiar with last month's Chicago teachers' strike, where some of the highest-paid teachers in the country initially wanted a 30% raise but settled for 16%. I suppose they need the money, though, since only 15% of Chicago fourth graders are proficient in reading, and only 56% graduate from high school. But what is the union's main concern? Heritage gives us an answer in the union's own words.

Closer to (my) home, the growing buzz over the Louisiana film "Beasts of the Southern Wild," helped by critical success at Sundance, is hitting a roadblock. It will not be eligible for a Screen Actor's Guild award because "it was not made under provisions of the union’s contracts, guild officials said Monday."

“We’re baffled at the fact that the producers of ‘Beasts of the Southern Wild’ failed to sign a SAG agreement as every other important film released this year did,” said guild spokeswoman Pamela Greenwalt in a statement. “We would love for the performers in this film to compete for a SAG Award. Celebrating such performances is what we’re all about.”

It would appear, rather, that the SAG is "all about" getting filmmakers to toe the union contract line, and not primarily to celebrate great performances in film.

Anyone surprised that the union membership rate has fallen from 20.1% in 1983 to 11.8% in 2011?

Posted by Tim Shaughnessy at 11:34 AM in Economics

October 01, 2012
Economic Freedom: A Study Through Video

You've probably seen one of the many "N. Korea/S. Korea" comparative memes that have floated about, but let's go to the video.

Here's a good time in North Korea:

And here's a good time in South Korea:

Posted by Art Carden at 02:19 PM in Economics

SNL on Obama and the Sluggish Economy

Posted by E. Frank Stephenson at 11:16 AM

On Undecided Voters

Voter ignorance, rational or otherwise, on display ...

Posted by E. Frank Stephenson at 11:12 AM

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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