From the April 23, 1912 NYT:

Your issue of yesterday contained the startling news that the wireless operator on the Carpathia by accident received the call for help sent out by the Titanic as he was about to retire for the night.

The Marconi operator at the present time is just as important a member of the crew as its Captain. While at sea it is just as necessary to have a man ready to receive messages at any hour of the day as it is to have an officer on the bridge in the absence of the Captain.

Why should every boat having a wireless system aboard not be required to have both a day and a night operator on duty? It is horrible to think of what might have happened to the survivors had the Carpathia operator retired, a storm arisen, and the Olympic twelve hours away.

Does it require another calamity to teach the steamship lines the necessity of having at least two operators aboard, even though the requisite accommodations in lifeboats are provided for all passengers!

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.

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.

(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.

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."

...is the message that the World Bank gave to ______ (the US? Greece? the entire world?)

China.

The report is compiled by the World Bank and the Development Research Center, a research group that reports directly to China's State Council. It encourages China to promote innovation, competition and entrepreneurship as means of economic growth, rather than allowing growth to be primarily government engineered.

If doctors have unlimited job security because people will always get old and sick, then economists have unlimited job security because people always forget what we've tried to teach them.

The world's second-largest economy has been rising rapidly, averaging around 10% growth a year for the last three decades. Much of that momentum has come as China's rural population moves into the cities and as the government has funded massive infrastructure projects and retained a powerful influence over the country's biggest companies.

They don't answer the chicken-or-egg question of whether the 10% growth was the cause or effect of the growth of China's government.

Their latest report to the commission puts it bluntly: The Chinese government has not "expressed an interest in becoming a bastion of free market capitalism."

Some people (Occupiers?) would consider that glowing praise.

From Gizmodo:

"What Happens to Medical Implants When Their Owners Are Cremated"

Medical advances mean that many us aren't just made up of bone and flesh these days: artificial knees, titanium plates and pacemakers make their way into human bodies across the world every day. But what happens to them when their owners are cremated?

A report by the BBC offers some reassuring news. Fortunately, all the metal doesn't go to waste. In fact, there's a booming business in recycling the implants that get left behind when corpses make their way into the incinerator.

From the inbox:

As part of Milton Friedman’s Century, Free To Choose Network has kicked off the “What Milton Means to Me” video contest! The contest is open to all ages and offers a chance for you to tell the world what, exactly, Milton Friedman means in your life. Whether it’s a personal encounter you had with him or a change in perspective caused by reading or viewing his works, Friedman has impacted the lives of so many around the world and we’d like you to tell your story. Write poem, compose a rap, create a Milton Friedman flashmob or come up with something we’re not even smart enough to think of – just be creative and have fun! Prizes total $2,500.

We also reward those teachers/professors who spread the word by offering a $250 bonus if their student wins!

More information here.

This remarkable discovery from the Boston subsidiary of the New York Times:

The Center for Labor Market Studies at Northeastern University found that there were 5.4 million fewer people in the workforce last year than projected by the Labor Department in 2008 - many the “hidden unemployed’’ who, no longer searching for work, are not counted in the official jobless rate. In Massachusetts, their numbers have more than doubled over the past decade to about 120,000.

Ben Stein, alleging breach of contract, has sued Kyocera over backing out of hiring him to be the pitchman for its copiers. After passing on Stein, the company turned to a mercantilist to be the mouthpiece for its foreign made copiers. Details here.

Instead of the political kerfuffle about Bain in SC, how about some real analysis? Well, here's the abstract of a recent NBER WP by Steven Davis et al.:

Private equity critics claim that leveraged buyouts bring huge job losses. To investigate this claim, we construct and analyze a new dataset that covers U.S. private equity transactions from 1980 to 2005. We track 3,200 target firms and their 150,000 establishments before and after acquisition, comparing outcomes to controls similar in terms of industry, size, age, and prior growth. Relative to controls, employment at target establishments declines 3 percent over two years post buyout and 6 percent over five years. The job losses are concentrated among public-to-private buyouts, and transactions involving firms in the service and retail sectors. But target firms also create more new jobs at new establishments, and they acquire and divest establishments more rapidly. When we consider these additional adjustment margins, net relative job losses at target firms are less than 1 percent of initial employment. In contrast, the sum of gross job creation and destruction at target firms exceeds that of controls by 13 percent of employment over two years. In short, private equity buyouts catalyze the creative destruction process in the labor market, with only a modest net impact on employment. The creative destruction response mainly involves a more rapid reallocation of jobs across establishments within target firms.

So private equity enhances efficiency with minimal effect on employment. Yet another reason Professor Cornpone Gingrich is a just another slimy politician.

The abstract of a paper by Kenneth R. Ahern and Amy K. Dittmar
forthcoming in the QJE:

In 2003, a new law required that 40% of Norwegian firms' directors be women—at the time only 9% of directors were women. We use the prequota cross-sectional variation in female board representation to instrument for exogenous changes to corporate boards following the quota. We find that the constraint imposed by the quota caused a significant drop in the stock price at the announcement of the law and a large decline in Tobin's Q over the following years, consistent with the idea that firms choose boards to maximize value. The quota led to younger and less experienced boards, increases in leverage and acquisitions, and deterioration in operating performance.

From Investor's Business Daily:

The Real Economic Power Is In The Hands Of Congress

By ROBERT LAWSON AND RICHARD ALM

The consistent theme of the Occupy Wall Street movement has been outrage over the concentration of income in the hands of America's rich.

In cities all over the country, protesters are drawing the battle line between the top 1% and the rest of us in the bottom 99%. Too much economic power is in too few hands.

It's unfortunate indeed that the Occupiers have so far ignored the country's most egregious concentration of economic power.

In 2010, a tiny cabal of 535 individuals — just 0.00017% of the population — spent $3.5 trillion, or about 23% of the $14.5 trillion U.S. economy. That leaves 77% for the other 99.99983% of us.

The group is the U.S. Congress — whose members have enormous powers to tax and spend. And they've used them to grab economic power well beyond anything found in the private sector.

If we look at the richest 535 private citizens, measured by the Forbes 400 list combined with estimates for the nation's next 135 wealthiest people, we estimate these rich people probably have about $166 billion in spendable income each year.

Internal Revenue Service data from the 535 highest tax returns give a somewhat lower figure of $135 billion.

Thus, the members of Congress wield 20 to 25 times more economic power than the same number of richest private citizens in the country.

The lawmakers even put the richest 1% to shame. The Occupiers' bogeymen earn a combined $1.3 trillion a year in income, or less than 40% of what Congress spends each year.

Most private individuals become wealthy by providing valuable goods and services to consumers who have a choice of whether or not to buy. Bill Gates, for example, reached the top of the Forbes 400 by providing computer software to millions of people around the world.

If rich people invest in producing products no one wants, they lose money and find themselves replaced in the economic pecking order by people who made wiser choices.

In the past year alone, 18 new members climbed into the Forbes 400, nearly all of them self-made entrepreneurs.

In contrast, Congress takes its money from taxpayers by force and meets regularly to conspire on how to spend these immense sums of money.

Yet there is little guarantee that they will create value with their spending. If their politically motivated "investments" fail, as with Solyndra or the various "bridges to nowhere," taxpayers lose but politicians suffer no consequences. Members of Congress keep their jobs and move on to spend trillions more.

But it gets even worse. In addition to commanding vast sums of money, members of Congress also claim the power to regulate everything — our light bulbs, our showerheads, the price we pay for sugar, our health care choices, and on and on and on.

Rich people can't force anybody to stop buying 100-watt incandescent light bulbs but Congress sure can.

If concentrated income in the hands of a few elites is really a problem, we should direct our ire toward the U.S. Capitol, not Wall Street.

• Lawson holds the Jerome M. Fullinwider Chair in Economic Freedom. Alm is writer in residence in the O'Neil Center for Global Markets and Freedom in the SMU Cox School of Business.

On Huntsman's position on banks:

Jon Huntsman, a candidate for the Republican presidential nomination, is addressing this directly—insisting that we should force the largest banks to break up and to become safer. No other candidate is seriously confronting this issue head-on: Just saying “we’ll let them fail” is no kind of answer when the failure of megabanks would cause so much damage.

We should learn from both Washington Mutual and the Occupy movement. In both cases, the lesson is the same: Concentrated financial power is a gift that keeps on giving—but not to you.

Apparently someone has abducted Michael Kinsley, if this article in the L. A. Times is any indicator. Whoever is claiming to be Mr. Kinsley is to be applauded, though I wish he had mentioned the proposition that WalMart has decreased inequality by providing especially low prices for items that lower-income people buy.

This one more tongue-in-cheek, but nonetheless pretty insightful.

Question: Suppose you were empowered with a magic wand of reform over the legal system. What single reform would you make and why? Bring your understanding of law & economics, as developed over the course of this semester, to bear on your response. For example, explain how your reform would address the main ideas that we have discussed in class this semester (institutions, incentives, efficiency and other values such as equity and justice). (400 words max)

Answer (from an undergraduate student, let's call him "Humming Along")

I would make whatever reform the highest bidder wanted. That’s right, I would sell my wish. If there’s one thing that I’ve learned about the law, it’s that the true, original intent is never fully implemented, and that loop holes will be fiercely sought-after (damn you rent-seekers!), and if my reform choice (or the highest bidders in this case) is controversial, then the government will simply reform my reform, making my magic wand useless, since it only has one use, while the Senate and House have unlimited potential to ruin all the fun. The other reason I would sell off my wish is that reform is a very expensive game. Whole committees and groups with millions of dollars are dedicated to single issues, and it seems that on the most controversial ones (which are the most likely ones to win out for highest bidder as they are seen in the public eye as the most important) have the most money on both sides. Since I have little interest in trying to solve the problems of everybody else, I’ll pull an Adam Smith and let the market decide which is the best issue to reform. With all the money I will make from selling my magic wish I will be able to be one of the privileged few that have become so rich that minding the law is low-priority. The selling of the wish doesn’t even have to be a bad thing, because as the seller I can just decide not to give it to anyone that wants me to wish for something against my own interests (such as a reform on the sale of magic). Does this reasoning make me jaded? Likely. Is the reasoning outside the realm of reality? Much less likely. While all the other students will be playing white-knight to America, beating their brow and sweating in their seats, I will be chilling on a white-sand Caribbean beach, and the only sweating will happen in the sauna. Suck it, the game of law. I’m gonna go buy a wife and some gin.

Context for question: Justice Sandra Day O'Connor on November 7, 2007, told a conference of lawyers: "If I could wave a magic wand ... I would wave it to secure some kind of merit selection of judges across the country."

Question: 1. Explain why state ownership and private property is a false dichotomy for certain types of resources, and what type of rights can emerge, and by what type of process, to manage more efficiently those types of resources. Obviously your answer should detail the characteristics of those “certain types” of resources and offer examples. (400 words or less)

Answer: (from my undergraduate student, let's call her "Ann," who concisely channels and nicely colorizes Elinor Ostrom's thesis in Governing the Commons):

State ownership is the optimal institution for public goods and “free market” is the optimal institutions for private goods. However, none of them is the optimal institution for common pool resources (CPRs). The reason is because CPRs are really rivalrous, but they are non-excludable. CPRs such as water or fish in a river are hard to draw the line and assigned who owns which parts. Moreover, since they are non-excludable, people will always have the incentive to overuse them. A fish in a river means nothing to the fisher man if he does not catch it today since it may not be there tomorrow. This gives him the incentive to catch the fish whenever he has a chance (low marginal cost) creating inefficiency since the fisherman who values it more will not get it. This is a kind of “prisoners’ dilemma” with the dominant strategy is non-cooperate (catching as many fish as possible). What happens if the state comes into the game and forces the fishermen to cooperate? If it has the perfect information and is able to punish the right “prisoner,” it will be able to change the outcome of the game. However, it is impossible to obtain perfect information; hence the result will be the same, non-cooperative players. Since state ownership and private property is a false dichotomy, communal rights can emerge to manage more efficiently those types of resources. There are several reasons for this. The first reason is that people who have tasted the “pie” have better and more correct information about it. They will know which part of it is good, which part has coated sugar, how big it is, etc. Therefore, they will know best how to manage it and divide it fairly among the community. The second reason is that because they have daily and close interactions with the resource, they can police and prevent each other from gaming with the system and overusing the resource.

This Walter Williams column summarizes some interesting research about income and wealth. Regarding comparisons with the past, this paragraph is striking:

What about the concentration of wealth? In 1918, John D. Rockefeller's fortune accounted for more than half of 1 percent of total private wealth. To compile the same half of 1 percent of the total private wealth in the United States today, you'd have to combine the fortunes of Microsoft's Bill Gates ($59 billion) and New York Mayor Michael Bloomberg ($19 billion), but with 10 other multibillionaires in between.

The abstract of a new paper in Economics Letters:

Using panel data, we demonstrate a 50% increase in research productivity following a dramatic increase in the piece rate paid for articles by a major Chinese University. The increased productivity comes exclusively from those who were already research active.

Today's WaPo looks at the history of failed government energy projects from Nixon forward. As a bonus, it treats the "success" of the government's investment in the transcontinental railroads. It's too much to wish that it could have gone even farther back and examined the checkered history of the canals.

Our favorite tv copier salesman is peddling more nonsense. To wit:

Oil and trade with China account for nearly the entire $550 billion trade deficit. This deficit is a tax on domestic demand that erases the benefits of tax cuts and stimulus spending.

This is a common fallacy--and one that Don Boudreaux has been especially vigorous in challenging. Trade deficits--be they for oil or stuff made in China--are merely the accounting flip side of net captal inflows, something that may increase domestic demand.

But suppose Americans didn't buy several hundred billions of dollars worth of oil from abroad (and ignore the resulting decreasing net capital inflow). We'd have to do without a key input for many goods and a commodity that is important for both commercial and personal transportation.

Prof. Morici might well reply that Americans could use the several hundred billion dollars that Americans spend on imported oil to purchase domestically produced energy. True perhaps, but the fact that Americans import the oil suggests that we cannot get a comparable quantity of domestically produced energy for similar prices. So we might well have eliminated Prof. Morici's dreaded "tax on domestic demand" by effectively levying a tax on actual consumption, namely by reducing the amount of energy that Americans actually consume.

It's worth noting, too, that one doesn't just increase domestic energy production by several hundred billion dollars simply by waving a magic wand. The workers and capital necessary for such an increase might well be redirected from other industries thereby reducing their output.

No, not from H&H Bagel, from Greg Mankiw's intro econ class.

From CNN's take on it:

An Occupy Wall Street group at Harvard University staged a walk-out Wednesday afternoon of the introductory economics class of Greg Mankiw... Mankiw is the main professor in the Economics 10 class that has about 750 students... [A]bout 60 students participated in the walk-out.

"When I enter a classroom, I try to leave my politics at a door," Mankiw said. "The class is very conventional economics. Adam Smith is pretty non-controversial among economists. But it can seem pretty conservative the first time you hear it."

An open letter to Mankiw posted online by protest leaders explained that the walk-out was being done "to express our discontent with the bias inherent in this introductory economics course."

It objected to the attention given to the teachings of Adam Smith, the father of free market capitalism, at the expense of other economic theorists.

I wonder if Occupy folks think that introductory political science classes are too political. I've been in undergrad English classes where the political bias was more intense and less concealed than any of my econ classes. For Occupy sympathizers: economists usually dislike the minimum wage not because it is favored by Democrats, but because it is a distortionary price control. Economists also have no influence over whether the platforms of particular political parties are more or less in line with basic economic principles. In brief, it's not that free market economists agree with Republicans, it's that they agree with us (when it suits them).

Interesting NRO piece by Reihan Salam on Euvoluntary Exchange. Nice examples. And the question at the end is the right one. I just don't know the answer.

What are the sources of the disparities we care, or rather that we should care, about?

More people get angry when you criticize football than if you criticize their religion or politics, and even though I've already posted on why I think football is deficient, I'll use it as a topic here.

It's fall, so the local news is full of high school football stories and scores. Uptown High School is playing Downtown High School in the biggest game of the year. The competition among these two teams is fierce, with winner getting bragging rights.

I find it odd that the benefits of competition among these two public high school football teams is widely known and supported by the administration, and yet the benefits of competition among these two public high school systems is disparaged. The coaches of the two schools should compete against each other for points on the scoreboard, but the teachers of the two schools should NOT compete against each other to attract students. We dislike this latter competition so much that we enact geographic monopolies.

If competition is good for school football teams, why is it not good for schools seeking students? It seems hypocritical for someone to cheer loudly at their local public school football game while attacking the idea of school choice.

Okay, we're used to people pushing for increases in the minimum wage, using arguments such as those below. See if you can guess the occupation of the expert quoted:

Raising the minimum wage to get more cash to the working poor is just as crucial [to getting the economy going]...

[G]radually raising the federal minimum wage to something close to that level over the next few years would be an important first step to helping the working poor climb out of poverty, while injecting more money into the economy.

"If you give someone making $15,000 a year a $3,000 increase, that's going to make a tremendous difference in their life," he said.

With a greater percentage of the nation's income going to corporate profits than ever before...businesses can afford a higher minimum wage.

"There needs to be standards in the job market," he said. "If the object is simply to minimize costs, we can use slaves again."

Who said it? Paul Osterman, whom the CNN story identifies as "economics professor at MIT," but whose vita shows that he is actually "Professor of Human Resources and Management," though he was assistant and associate professor of econ at Boston University previously. There is also a greater percentage of the nation's income going to college tuitions than ever before, so Dr. Osterman can afford a higher give-Tim-Shaughnessy-a-bunch-of-money contribution. If he gave me a one-fifth increase in my salary, or even just $3000, that would make a tremendous difference in my life too.

Later in the CNN story,

Many economists and small business owners fear that increasing the minimum wage would end up hurting the working poor rather than helping them, because employers who couldn't afford to pay more would be forced to cut staff.

But there's little empirical evidence to suggest that raising the minimum wage causes companies to cut back on hiring, according to Heidi Shierholz, labor economist for the Economic Policy Institute, a liberal think tank.

In fact, one study conducted by Alan Krueger, President Obama's pick for his next chief economic adviser, found little difference in employment levels of fast food industries in Pennsylvania and New Jersey, which have different minimum wages.

One whole study? No wonder he is going to be the next CEA. Here's a review of more studies by Neumark.

None of the raising-the-minimum advocates ever do the reductio ad absurdem when discussing the minimum wage: why not raise it to $20 an hour? To $100 an hour? That would give even more money to the working poor.

Even when I played college soccer, we still had to practice the fundamentals, the drills we did when we were seven years old. Working at MIT doesn't absolve you from knowing correct principles of economics, like the effects of price floors set above market prices.

From CNN.com:

While the earnings of middle-income Americans have barely budged since the mid 1970s, the new data showed that from 2000 to 2010, they actually regressed.

And from the new EFW report:

The world’s largest economy, the United States, has suffered one of the largest declines in economic freedom over the last 10 years, pushing it into tenth place. Much of this decline is a result of higher government spending and borrowing and lower scores for the legal structure and property rights components.

Haven't we known that economic freedom leads to growth for at least a couple of centuries? We don't put leeches on people to heal them anymore, but we still think we can put a leech on the economy to heal it.

As a bonus, one of the CNN subheads is "Why it sucks to be middle class." I imagine it sucked worse to be a king two hundred years ago than it is to be middle class, or even in poverty, today in the US. I'd also rather be in poverty in the US than be an average income earner in countless countries around the world. There is something to be said for absolute vs. relative standards of living.

Only a few semesters of Principles Micro under my belt, but I love this clip as a way to demonstrate the relevance of marginal utility per dollar (first 40 seconds):

In my read of Gary Becker, he gets it 90% right 95% of the time. In today's Wall Street Journal, he ups his average, and he does it by forgetting he ever argued that interest group pressures cancel each other out to achieve democratic efficiency. Nicely representing the comparative institutional approach:

The traditional case for private competitive markets goes back to Adam Smith (and even earlier writers). It is mainly based on abundant evidence that most of the time competitive markets work quite well, usually much better than government alternatives. The main reason is not that individuals in the private sector are intrinsically better than government bureaucrats and politicians, but rather that competitive pressures discipline market behavior much more effectively than government actions.

The lesson is that it is crucial to consider whether government regulations and laws are likely to improve rather than worsen the performance of private markets. In an article "Competition and Democracy" published more than 50 years ago, I said "monopoly and other imperfections are at least as important, and perhaps substantially more so, in the political sector as in the marketplace. . . . Does the existence of market imperfections justify government intervention? The answer would be no, if the imperfections in government behavior were greater than those in the market."

On market vs. government failure in detail, I recommend Clifford Winston's concise book. And here is his Econ Talk interview with Russ Roberts.

From McKenzie and Lee, Microeconomics for MBAs:

Without question, if the grocery industry were operated over the past decades the way the healthcare industry has operated, then the nation would likely have a "crisis" in the grocery business. The reason is simple: People would pay a fixed sum each month (their grocery premium) through their employer that would entitle them to virtually unlimited access to the grocery store shelves (after they have covered the $200 annual deductible) at a small fraction of the actual cost. Under such an arrangement, we should not be surprised if people consumed significantly more and better food, some of which would have limited value. We should also not be surprised if the shoppers' grocery price premiums went through the roof as few consumers would have much incentive to moderate their purchases by considering the full cost of the food they are buying.

As noted in a previous post, there is some evidence on both sides of this issue (known as the law of 1/n in the literature) including a couple of papers supporting the proposition co-authored by me and JC Bradbury. The latest edition of the American Economic Journal: Economic Policy has an article by Stephen Coate and Brian Knight that finds support for the law of 1/n (see their table 4).

Apparently a NJ Best Buy did a bit of dynamic pricing "price gouging" over the weekend by offering to sell cases of water for $40. (A case would sell for more than that at most ballparks--24 bottles at $3 per bottle.) I'm surprised to see it because the small gain in profit probably pales next to all of the bad publicity (e.g., here).

This seems like a good time to give another well-deserved plug to The Price of Everything by Russ Roberts.

Herbert Hoover.

Economic Freedom Around the World
Economic History EH690 — with Robert Lawson
Cost: $95 Length: 5 Weeks
Dates: October 18, 2011 - November 21, 2011

This course will consist of five lectures about the concept, measurement and consequences of economic freedom. The Economic Freedom of the World index, published by the Fraser Institute and co-authored by James Gwartney, Robert Lawson, and Joshua Hall, will be the focus of the course. Topics will include (1) the Concept and Measurement of Economic Freedom, (2) Economic Freedom and Growth, (3) Economic Freedom and Human Right Violations, (4) The Hayek-Friedman Hypothesis on Economic Freedom and Political Freedom, (5) The Freedom to Travel.

Just as Munger has a running "grand game" on KPC, I'm thinking of starting a "spot the idiot" meme. Today's winner--for spouting the usual nonsense about Hoover being a budget cutter--would be one David Osterberg who wrote that "Hoover’s mistake was to cut budgets in the face of terrible unemployment and poverty in America."

So here's the letter that I sent to the Des Moines Register:

In his column “Congress needs a Herbert Hoover reminder” (Aug. 16), David Osterberg states that Hoover “cut budgets in the face of terrible unemployment and poverty in America.” This claim is just plain wrong. A quick glance at Hoover’s actual record indicates that spending rose some 50%, from $3.1 billion in 1929 to $4.6 billion in 1932, during Hoover's term. (See Table 1.1 of this government document: (http://www.whitehouse.gov/sites/default/files/omb/budget/fy2008/pdf/hist.pdf.)

Hoover did do lots of things that were economically harmful—among them signing the Smoot-Hawley tariff and hiking taxes in 1932. However, in wrongly claiming that Pres. Hoover cut spending, it is Mr. Osterberg who reveals a need to become better acquainted with Pres. Hoover’s record.

Frank Stephenson
Rome, Ga.

While I'm riding my Hoover horse, Steve Horwitz's recent post on "Annie" and the origins of the Hoover myth is a must read.

Rent extraction is the idea that policymakers (regulators, legislators, etc.) can threaten the people they regulate into certain actions that benefit the policymakers. For example, "milker bills" get proposed routinely for the sole purpose of signalling to certain business or other interests that unless they provide certain favors like campaign contributions life will become more difficult. Fred McChesney is largely responsible for the idea, which is extended from Gordon Tullock's rent-seeking concept as developed in George Stigler's classic 1971 paper, "A Theory of Economic Regulation." There are good introductions to rent extraction here and Chapter 10 here. Lucian Bebchuck applies rent extraction to how CEOs bargain with Directorates.

So along comes the other day this funny little article that, at first, looks a little bit like rent-extraction. It has that same feel of extortion mixed with some vague implausibility. But on closer look, it's actually reverse rent-extraction. "Starbucks Claims Widespread Support for CEO's Call to Boycott Campaign Donations."

Starbucks claimed Wednesday that it has rallied “hundreds” of people in support of a call by CEO Howard Schultz to suspend campaign contributions to Congress and the president until Washington produces a long-term deficit reduction plan.

Never mind that the free rider problem of getting interest groups to stop contributing is worse than the free rider problem of getting interest groups to contribute. Still a neat idea.

Minimum Wages and Teen Employment: A Spatial Panel Approach
Charlene M. Kalenkoski and Donald J. Lacombe
Research Paper 2011-08
view paper (pp. 19, 514 KB)

Abstract: The authors employ spatial econometric techniques and Annual Averages data from the U.S. Bureau of Labor Statistics for 1990-2004 to examine how changes in the minimum wage affect teen employment. Spatial econometric techniques account for the fact that employment is correlated across states. Such correlation may exist if a change in the minimum wage in a state affects employment not only in its own state but also in other, neighboring states. The authors show that state minimum wages negatively affect teen employment to a larger degree than is found in studies that do not account for this correlation. Their results show a combined direct and indirect effect of minimum wages on teen employment to be -2.1% for a 10% increase in the real effective minimum wage. Ignoring spatial correlation underestimates the magnitude of the effect of minimum wages on teen employment.

ATSRTWT

So Paul Krugman apparently thinks we need a bunch of free spending space aliens to jump start the economy (the only difference between said aliens is some Tang, a spacesuit for the president, and a nanoo-nanoo or two, but I digress).

For some sounder thinking try this response by Mary Theroux or the recent Reason post asking several prominent economists and writers what they would do to jump start growth.

Dirk Mateer of Penn State and I have a new paper on using film clips to teach public choice in the current issue of the Journal of Economics and Finance Education.

This whole scene happened within about a half second:

I'm grading assignments when my iPhone beeps from a new email. It's Netflix asking me when I mailed the DVD back to them. Normally I don't mind spending the three seconds to reply, but in the past day I've been reading the news stories about Netflix raising its prices.

I enjoy Netflix enough that I don't mind paying the higher price for the DVD-and-streaming combination (in fact, earlier in the hour I streamed the Brian Regan clip about husbands always being protrayed as idiots on commercials). So in that sense I view Netflix as a monopolistically competitive company where I'm willing to pay a somewhat higher price for their product vs. switching to Redbox or whatever.

But, out of spite for their slightly higher rates I'm not willing to reply to their email. Consumers do have ways of registering their (petty) displeasure besides outright refusing to buy, even against firms with market power. Which makes you wonder how all-encompassing that power is (since most people think that "market power" means a company can do whatever the heck it wants).

Here's a recent submission to the WSJ--since it was responding to a letter published in May, I suspect I sent it in too late for it to be published.

In his May 25 letter (“Right to Work Doesn’t Drive Growth”), Gordon Lafer argues that confounding factors such as climate make it difficult to isolate the effect that right-to-work laws have on economic activity.

Fortunately a paper by economist Thomas J. Holmes published in the prestigious Journal of Political Economy examines the effect of right-to-work laws on economic activity by comparing counties lying on the boundary between states with compulsory unionization (e.g., Kentucky) and those with right-to-work laws (e.g., Tennessee). Climate and other geographically determined factors should not cause abrupt changes in economic activity at state borders; thus, observed changes in would point toward right-to-work laws or other policies as the crucial differences in economic activity.

In his paper Prof. Holmes finds large differences in manufacturing employment on opposite sides of state borders. Manufacturing’s share of employment falls by 5.8 percentage points when going from a right-to-work state to a compulsory unionization state. Moreover, manufacturing employment growth over the 1947-1992 period was 27 percentage points higher in right-to-work states than in compulsory unionization states. So, contra Mr. Lafers’s assertion, right-to-work laws are associated with large differences in economic activity.

E. Frank Stephenson
Professor of Economics
Berry College
Mount Berry, Ga.

An ungated version of the Holmes paper is here; a shorter version was also published in Regulation.

Randy Holcombe and Don Lacombe use a similar technique to find that state income taxes are harmful to economic growth (gated paper here).

San Jose budget cuts aren’t hurting all businesses, and in fact, one group in particular seems to be cashing in on the city’s economic woes: prostitutes.

Prostitution has made a rapid comeback to San Jose street corners in the past few weeks, according to NBC Bay Area sources.

After police budgets were slashed July 1, San Jose PD’s Vice Unit was disbanded, said San Jose Police Department spokesman Jose Garcia.

Two police sources told NBC Bay Area that prostitutes have even been traveling from as far as Oakland and Fresno to take advantage of San Jose’s less scrutinized street corners.

Source. Perhaps we can get some field reports from DOL's SJ correspondent.

From the WSJ:

Netflix Inc. boosted by 60% the price of its cheapest movie-rental plan that includes streaming and DVD rentals, triggering an outcry among customers who still use the disc format despite the growing popularity of online movies.

The Los Gatos, Calif., company said it will no longer offer a $9.99-a-month plan that allows members to stream an unlimited number of movies over the Internet and to rent one DVD at a time. In its place, Netflix subscribers will have to pay $15.98 a month for a plan that combines an existing $7.99-a-month streaming-only movie service with a new $7.99-a-month DVD-only rental ....

This isn't much of a suprise when one thinks about MR and MC. Under the existing pricing scheme the MR Netflix obtains from a customer who adds the DVD by mail component is $2. For many families, mine included, it's doubtful that the $2 in additional revenue covered the MC of mailing 6 or more discs to us each month.

Shouldn't we all save energy? Energy is scarce so conserving it is good. Therefore, it makes perfect sense that Congress pass a law mandating the use of compact flourescent bulbs and/or making traditional bulbs illegal.

Well, it makes perfect sense if you a) don't know economics or b) don't really care enough about the environment to see if your policies have their desired effect.

I'm not "green" or "anti-green," and I imagine most DoLers would say the same about themselves. We would be perfectly happy to recycle if the total energy and resource usage of recycling was less than that required to produce new products (which it often isn't).

Likewise, I'm perfectly willing to use CF bulbs if they have a lower cost than traditional bulbs. In some cases, they do: in my home office where I work for an hour or more at a time, I've had CF bulbs last several years, much longer than traditional ones and still worth their higher relative price. In other cases, they don't: in our bathroom which we enter and exit frequently during a given day and only need the light on for a few minutes, I've had CF bulbs die within months, much shorter than traditional bulbs lasted.

So even though a law forcing CF bulbs might give us all the green goosebumps, it would seem to result in more waste as bathroom CF bulbs are thrown away (along with their toxic innards) at a faster rate than traditional bulbs would be.

Luckily, there is a House vote to overturn this traditional bulb ban. We'll see what happens.

Incidentally, this topic seemed to have been addressed in an objective fashion (i.e. on Mythbusters), but they didn't account for the wear associated with frequent turning of lights on and off.

From this Bloomberg report of an interview of Alan Greenspan by Charlie Rose:

Q. Do you think any of the decisions you made as Chairman of the Federal Reserve contributed to the financial crisis?

A. The '08 crisis? The answer is no. And I wrote a long part of a paper for the Brookings Institution [on this]. If anybody wants to take the paper and tell me where I am wrong, I will listen.

Well, okay then.

From this past week's Bloomberg is this graphic depicting the correlation between corn prices and the amount of corn going into ethanol (vs. feed).

While poking around in some old debates, I started to get curious about George Stigler's early work. His first publication (1937 J.P.E.) was a 21-page review of Carl Menger's economic theory. Stigler read Menger in German, and the article shows detailed familiarity with, and approval of, the early Austrian school.

I thought it was pretty interesting that Stigler, *the* face of the Chicago school for so long alongside Friedman, would have such roots to the Austrians. As best i can tell, he was reading a version of Menger that Hayek edited as a part of a series that the L.S.E. published in the 1930s. Lionel Robbins joined LSE in 1929, and was strongly influenced by Menger and the early Austrians. It doesn't surprise me that LSE would be the ones publishing Menger's collected works. I guess Menger wasn't translated into English until much later. Most proper Austrians out there probably know this story inside out. Again, I thought these were interesting connections to make.

I originally posted a version of the first paragraph above on my Facebook page. I got some interesting comments that I thought were bloggable (anybody still out here?). A few highlights:

Many ph.d. programs in economics and other disciplines required foreign language proficiency until relatively recently. For example:
- Craig Depken's father took German as an Engineering PHD at Ga Tech in the late 1960s;
- NYU's ph.d. program had a foreign-language requirement in the late 80s, and two languages just a few years before;
- Chicago had a foreign language requirement in the late 80s but allowed math proficiency to substitute;
- Carolina Chapel Hill still has a language requirement that math can sub for.

On a related note, when reviewing Samuelson's Foundations in the 1949 Journal of American Statistical Association, Stigler holds the line:

[Samuelson] dismisses translations into words as ‘mental gymnastics of a peculiarly depraved type.’ I disagree. There is no depravity, nor is there virtue, in telling other competent economists things in a language they all can understand—there is simply responsibility to the canons of scholarship.

Note: He is making the "value neutral" economic arguments here. He is not making the moral case that all people are God's creatures and deserve the right to peacefully move anywhere they want.

If you disagree, send your hate mail to him though!

It's been awhile since I called out someone for being ignorant of Herbert Hoover's record in office. Jonathan Chait has piece about Republicans (supposed) opposition to government spending called "Herbert Hoover Called. He Wants His Fiscal Policy Back."

As anyone with an iota of knowledge about Hoover knows, Hoover didn't cut spending he increased it. Big time. Roughly 50% between 1929 and 1932 (and that's nominal terms--real would be even larger because that was a deflationary period). See Table 1.1 here.

This is too rich: Peter Morici, Lou Dobbs's favorite China bashing economist and an advocate of taxing China to "bring back US jobs," has become a pitchman for Kyocera copiers. And guess where Kyocera copiers are made? The company has one plant in China and two in Japan.

What's Chinese for chutzpah?

UPDATE (5/27): One reader wrote to suggest that I should have considered Morici's apparent embrace of foreign made goods as an installment of my "incentives matter" posts. Indeed. Maybe Chinese money isn't so undervalued after all.

Which name goes with which photos:

Brian Wilson or Vilfredo Pareto?

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

This article develops a theoretical framework to examine the relationship between land tenure arrangements and households' investment in soil-improving and conservation measures. It then analyzes this relationship with a multivariate probit model based on detailed plot-level data from villages in the Brong Ahafo region of Ghana. A major hypothesis tested is that investment in productivity-enhancing and conservation techniques are influenced by land tenure arrangements. The theoretical analysis and empirical results generally reveal that land tenure differences significantly influence farmers' decisions to invest in land-improving and conservation measures. The findings also show that tenure security does affect farm productivity.

DOL friend Sarah Skwire offers the top 10 lines for hitting on an economist:

1. You’ve got the curves to supply my demand!

2. Let’s go to bed and try to disprove the law of diminishing marginal utility.

3. You’re my very favorite kind of moral hazard.

4. I have a feeling you really understand the “nature of the firm.”

5. Baby, I love you so much I’m willing to forgo my exit option.

6. Wanna talk about our private goods?

7. You’re an economist. I’m an economist. How about a little horizontal integration?

8. Now those are some tangible assets!

9. I’ll reveal my preferences if you will.

And the very best pick up line to catch your own economist, as well as the filthiest thing ever said in public by an economist (and I include various jokes I’ve heard at cocktail parties) is brought to us by the dynamic duo of Roberts and Papola, and comes straight from their new Hayek/Keynes rap video.

10. Bottom up or top down?

From a NYT story on the compound where Osama bin Laden had been hiding:

When children playing in the fields let a ball fly into the compound by mistake, the owners never let them retrieve it but gave them 50 rupees to buy a new one, said one of the neighbors, a woman with a small boy on her hip who gave her name only as Bibi. When the children began to throw balls into the compound on purpose to get more money, the owners kept paying, she said, laughing.

I have outside speakers in for my "Econ for Non-majors" class at Duke. So this semester I did four of them up as podcasts. Turned out great! Check them out: Lewis, Kuran, Dougan, Grier.

No, I'm not talking about how long I was relevent to the economics profession, because even that would be an overstatement. APEE and DoL friend Pete Calcagno's recent FB status says

[Peter Calcagno] loves the responsiveness of markets to changes in tastes and preferences. The day after Easter consumers' demand for Easter candy decreases, and I can buy my candy for a serious sugar rush, at 50% of yesterday's prices.

which reminded me of a similar microeconomics Easter-related issue. I love Cadbury Creme Eggs but can only buy them before Easter. I would wager that I buy more Creme Eggs per year under this system of limited Creme Egg availability than I would if Creme Eggs were available all the time. Ditto with Whataburger's Honey BBQ Chicken Strip Sandwich (since I mentioned FB, there is even a page dedicated to bringing it back).

Anyone familiar with research on the demand effects on products available for a limited time vs. all the time? Comments are open.

This is the central question of a forthcoming special issue of the Journal of Economics and Finance Education (JEFE). More info forthcoming about the time of publication, which should be soon. For now, here are some essential details.

Symposium on Teaching Austrian Economics
Guest Co-Editor, Joshua C. Hall and Co-Editor, Edward J. Lopez
Table of Contents:
1. Edward J. Lopez and Joshua C. Hall, "Symposium on Teaching Austrian Economics: Introduction"

2. Joshua C. Hall and Adam Martin, "Austrian Economics: Methodology, Concepts, and Implications for Economic Education"

3. Peter J. Boettke, "Teaching Austrian Economics to Graduate Students"

4. Steve Horwitz, "Austrian Economists and Liberal Arts Colleges as a Complementary Capital Combination"

5. Emily Chamlee-Wright, "Cultivating the Economic Imagination with Atlas Shrugged"

6. Chris Coyne and Pete Leeson, "An Austrian Inquiry Into the Wealth of Nations: Incorporating Austrian Economics into Economic Development"

7. Greg Dempster, "Austrian Foundations for the Theory and Practice of Finance"

8. Bryan McCannon, "Teaching Austrian Economics in Austria as a non-Austrian: A Note"

Don Boudreaux links to this item at Carpe Diem, which shows the share of income taxes paid by the top 1% of earners increasing even as marginal tax rates for that group fall.

Of course, this could result from the income share of that 1% going up even faster, so that the share of their income that goes to Uncle Sam is falling. Not so, as the graph below shows. For the top 1% (top line) the ratio of tax share to income share is just a bit lower than in 1979 (i. e. year 2 BR--Before Reagan), but not by much. The ratio for the top quintile has risen slightly. The ratios for all others have fallen, with that for the lowest quintile vanishing with the Bush Tax Cut For The Rich.

In today's mailbox:

Studies in Emergent Order
Paper Call

The Fund for the Study of Spontaneous Orders at the Atlas Economic Research Foundation is seeking papers exploring the theme

“Coping With Tensions”

at its

FOURTH CONFERENCE ON EMERGENT ORDER AND SOCIETY

October 29 – November 1, 2011

Sise Inn, Portsmouth, NH.

We are particularly seeking original work in two areas, (although we will consider any papers on emergent order and society. For example, papers discussing the impacts of new technologies such as computers and the web on emergent social processes):

1. Exploring the relations between emergent orders and the instrumental organizations within them with particular reference to where the interests of the order as a system adapting impersonally is at odds with the interests of organizations pursuing their ends within them. For example, the role of political parties within democracy that seek to make their environment predictable and perhaps controllable.

2. Exploring organizations that straddle the borders of different emergent orders, such as the market and democracy, democracy and the environment, the market and science, and so on. Different emergent processes are coordinated by different rules biased towards different values. Is it possible for organizations to act in ways in harmony with the principles underlying all the emergent orders within which they exist, and if not, what are the consequences? For example, a forestry corporation must make a profit in the market and maintain a viable forest ecosystem if it is to operate sustainably. Yet the time horizon for market decisions is quite different from the time horizon for natural sustainability. Is this a problem and if so, what can be done about it?

Acceptable papers may be either case studies or more general theoretical explorations. Conference participants are required to submit their papers for possible publication to Studies in Emergent Order (http://studiesinemergentorder.org/).

To be guaranteed consideration, proposals must be in by May 15. Ideally the proposal should describe the anticipated argument and how it relates to at least one of the conference themes. Proposals should be no more than two pages double-spaced, not including an optional bibliography of works the author anticipates discussing. Submit your proposal or inquiries to

Conference Director
gdizerega@gmail.com

The Fund will select a maximum of 12 papers for inclusion in its conference, and will notify authors by May 30, 2011. Final papers must be submitted to the Fund by September 1, 2011.

The Fund will reimburse authors of accepted papers for their conference expenses (round trip coach class airfare or tolls and mileage for drivers, and lodging and group meals), to be held in at the historic Sise Inn in Portsmouth New Hampshire. Authors will also receive $1,500 for accepted papers and full participation in the conference events. In return, the Fund will have the right to first publish any accepted papers in Studies in Emergent Order.

For the Fund for the Study of Spontaneous Orders

Gus diZerega

William C. Dennis

The abstract of a new article in the Journal of Health Economics:

Over the past decade, several states introduced varying degrees of accountability systems for schools, which became federal law with the passage of the No Child Left Behind Act of 2001. The intent of these accountability laws was to improve academic performance and to make school quality more observable. Nonetheless, schools have reacted to these pressures in several different ways, some of which were not intended. We make use of the variation across states and over time in specific provisions of these accountability laws and find that accountability pressures effect medical diagnoses and subsequent treatment options of school aged children. Specifically, children in states with more stringent accountability laws are more likely to be diagnosed with Attention Deficit/Hyperactivity Disorder (ADHD) and consequently prescribed psychostimulant drugs for controlling the symptoms. However, conditional on diagnosis, accountability laws do not further change the probability of receiving medication therapy.

From the Chronicle of Higher Ed (thanks to Lynn for the pointer):

If Milton Friedman and Martha Graham had a love child, it might look something like the "Tragedy of the Commons."

Antony Davies, an associate professor of economics at Duquesne University, and his sister, Jenefer Davies, an assistant professor of dance at Washington and Lee University, staged the experimental production this month at Washington and Lee to demonstrate a key principle of economics. The tragedy of the commons, enunciated in an essay of the same name in 1968 by the ecologist Garrett Hardin, states that when a resource is held jointly, its owners will deplete it more quickly than when individuals own equal and private portions of the same resource.

"We were talking one day and realized I do a lot in experimental economics," Mr. Davies says. "It occurred to me that she could choreograph a dance that exhibited some economic principles." The tragedy of the commons, he says, seemed like one of the easiest to depict.

In the performance, five volunteers from the audience individually controlled spotlights that illuminated each of five dancers onstage. Volunteers were told that they should try to keep their dancers illuminated as long as possible but that the light was a limited resource: The first performance began with 30 seconds of light in the communal "light bank," and audience members drained that bank when they illuminated their dancers. Turning the light off, however, would slowly replenish the time in the bank.

Immediately after the first performance with the communal bank, the dancers began a second performance. But this time the five volunteers drew light from—and restored it to—private banks, up to six seconds per volunteer.

APEE's international conference will be held Sunday through Tuesday in Nassau, Bahamas. It's a great program, and a very exciting group of people attending, including most of your merry band of DOLers. For the highlights, I'll simply past an excerpt of my "president's welcome letter."

Welcome to The Bahamas and the 36th annual meeting of the Association of Private Enterprise Education. Our conference program, organized by Vice President Benjamin Powell, offers a rich inquiry into the origins and causes of sound institutions. We are fortunate to have yet another capacity program, highlighted by three path-breaking plenary speakers in Elinor Ostrom, Dierdre McCloskey, and George Ayittey. As regular attendees know, a key element of APEE’s program each year is to recognize great scholars and entrepreneurs whose work expands understanding of private enterprise or advances a more open society. This year we are honored that the Adam Smith Award—the highest honor bestowed by the Association—will be received by Professor Elinor Ostrom, whose pioneering work has revolutionized scholarship into the origins of institutions. In celebration of the entrepreneurial spirit, this year’s Herman W. Lay Memorial Award will honor the legacy of Harry Boyd Earhart, who in 1929 used his fortune to start the Earhart Foundation. To receive the Lay Award on behalf of his grandfather, we are delighted to have with us Mr. David B. Kennedy, past President of Earhart Foundation. Moving to member awards, APEE’s Distinguished Scholar Award is presented to Professor Peter T. Leeson for his prolific and seemingly ever-accelerating body of work on entrepreneurship, emergent law, public choice and more. And the Kent-Aronoff Service Award will be presented to Professor E. Frank Stephenson for his many years of service in administering the Young Scholars Program. As for the program, you are sure to find more interesting and important items than you can handle. Also, don’t miss our newest program feature, the undergraduate research poster session. Overall, as in past years, APEE 2011 is again the perfect platform for discussing and advancing freedom and prosperity...

From the March 31, 1911 NYT:

The Maine Legislature ratified the proposed constitutional amendment authorizing a Federal income tax late this afternoon, after having turned down the measure at the morning session and passing a State income tax bill instead.

The action was reversed in each instance owing to the action of Gov. Plaisted in demanding an amendment to the State bill increasing the minimum income on which tax should be levied from $2,000 to $5,000. The Democratic leaders would not consent to this and as the Governor declared his intention of vetoing the State bill unless the amendment was adopted, the vote was reconsidered and the Federal income tax plan indorsed (sp) in its stead.

Senator Staples, the Democratic leader in the upper branch, fought the Governor's proposition, but could muster only five votes. Both party platforms declared for an income tax. Party lines were broken on the measure in both House and Senate.

The adoption of the proposed income tax amendment in the Maine Legislature brings the total number of States that have adopted the amendment up to twenty-three. Twelve are still uncommitted. The attitude of the different State Legislatures toward the amendment is shown in the following table.

So that's what we get with bi-partisanship?

The table points out the following states against the amendment (at the time):

Louisiana
Massachusetts
New York
Rhode Island
Virginia
Arkansas
New Hampshire
Utah
Vermont
West Virginia
New Jersey

Those states uncommitted (at the time)

Connecticut
Delaware
Florida
Minnesota
Nevada
North Carolina (!)
North Dakota
Pennsylvania
Tennessee
Washington
Wisconsin
Wyoming

Unfortunately my home state of Georgia had already thrown in with the amendment, along with the rest of the South and most of the Midwest. Hmmm...I am shocked that poorer, agrarian states would try to use the power of the state to redistribute tax burden (and ultimately governmental largess).

In college, I played trombone in the University of Alabama Million Dollar Band. Incidentally, the Wikpedia page on the MDB is more informative than the official website. The band earned the title "Million Dollar Band" in 1922. Adjusting for inflation with the CPI, the Million Dollar Band should today be the Thirteen Million Dollar Band.

Foreign Languages Acquisition: Self-Learning and Language Schools
Jean J. Gabszewicz, Victor A. Ginsburgh, Didier Laussel, and Shlomo Weber
Review of Network Economics: Vol. 10: Iss. 1, Article 1.

Abstract We examine patterns of acquiring non-native languages in a model with two linguistic communities with heterogeneous learning skills, where every individual faces the choice of self-learning the foreign language or acquiring it at a profit-maximizing linguistic school. We consider a one-school model with divisions in both communities and various two-school settings with a school in each community. We compare the number of learners and welfare implications under self-learning with those obtained under various schooling contexts. In particular, we show that for communities with similar size, introducing language schools always increases the number of learners with respect to the exclusive self-learning option.

We like to think that public policy is advanced in the spirit of public service, trying to address market failures and moral dilemmas in a way that is both inspiring and appropriate. Well, that was me when I was growing up - then I discovered cynicism, economics, and the paper from 100 years ago (not necessarily in that order). This article from the March 21, 1911 NYT bakes the cake - or rather, shows us exactly what the heck is in the sausage:

It cost Senator John Godfrey Saxe of New York $12 for two seats in the fifth row when he attended a theatrical performance in his district last Friday night. That fact led him to introduce a bill to-night to put ticket speculators out of business.

The bill provides that any person who in a city street or public thoroughfare sells or offers for sale any ticket of admission to any theatre or other place of amusement shall be deemed thereby to commit a public nuisance and guilty of a misdemeanor.

"Nearly all the principal theatres are in my district," said Senator Saxe to-day, "and the best seats are in the hands of scalpers who charge from $3 to $4 for each seat. The Aldermen have tried to meet the situation by passing an ordinance, but this is to be fought. This is a nuisance that affects my district and I hope the bill will be passed."

So, one politician is put off by something and that leads to potential public policy, regardless of the efficiency concerns? Perhaps there is a more standard rent-seeking story in the background - perhaps theater owners wanted the scalpers to go or perhaps only scalpers with places of business wanted to legally be able to sell tickets (notice how specific the law is towards those scalpers on the streets). As bad as anti-scalping laws are, at some level I will throw the nod of respect toward the rent-seekers for their moxie. Perhaps the rent-seekers are preferred to a process where legislation leaps from the brows of individual law-makers like so many disfigured Athenas.

This clip has a great illustration of perverse incentives. See roughly 1:00-1:45.

It's been awhile since I've beaten the dead horse of Herbert Hoover being some sort of fiscal conservative. It's also been awhile since I've taken a swipe at Paul Krugman so here's the Krugster making the mistake (yet again):

In early 2009, John Boehner, now the speaker of the House, was widely and rightly mocked for declaring that since families were suffering, the government should tighten its own belt. That’s Herbert Hoover economics, and it’s as wrong now as it was in the 1930s. But, in the 2010 State of the Union address, President Obama adopted exactly the same metaphor and began using it incessantly.

Dude--Hoover increased spending by 50% in his term. Some belt tightening, eh?

Is the hegemony of American economists in "top" journals being threatened by our European colleagues?

Internationalisation has meant a growing voice for Europe within the economics literature...Some Americans pooh-pooh Europe’s rise. Many new journals have started up in recent years, and European papers are far more common in their pages. But this cannot fully explain the fall in North America’s market share. Controlling for new journals, the share of European papers still rose markedly...Americans need not panic. Economists affiliated to North American institutions contribute 76% of articles in the top journals. They receive a disproportionate number of citations." [The Economist]

(Credit: The Economist)
Nod to Kevin Lewis

[There is] an important point too often forgotten in the economic analysis of the law: The rationality assumption applies to enforcers as well as enforcees. In constructing legal institutions we cannot simply assume that legislators, judges, and police will go out and do good—in the economist’s version, promote efficiency. We have to think about their incentives too.

That is David D. Friedman writing in Law's Order (2000), p.274.

We might say the same of forensics experts who support primarily the criminal justice part of the legal system. If they have bad incentives, they'll generate bad outcomes like convicting innocent people. As I've written on DOL in recent years (links below), Roger Koppl's research program on forensic science moves us very far down this road of analysis, and pushes the issue further with detailed reform measures to improve incentives and efficiency in forensics (move from government monopolies with little test-redundancy to market competition with much test-redundancy, broadly speaking). Yesterday Radley Balko posted a new Reason article that covers much of this interesting ground. The final paragraphs of Radley's post allow that these reforms can be costly to implement. Interestingly, Roger's chapter on fingerprinting in The Pursuit of Justice (2010) calculates conservative estimates that "rivalrous redundancy" would be a money maker due to recovered incarceration costs of wrongfully convicted.

Earlier posts:
"Koppl in Forbes on Forensics"
"Bad Incentives in the Legal System"

I've been reading Thomas Sowell's Basic Economics during the ten minutes it takes my office computer to boot up and be usable. Good quote from today's reading (2004 revised expanded ed., p 363-4):

Greed for power is no less dangerous than greed for money, and has shed far more blood in the process. Political authorities have often had "non-economic values" that were devastating to the general population.

Does a free market, as a mechanism for mutual accomodation, facilitate greed as it facilitates the fulfillment of people's other desires? It certainly does not prevent greed, though it does exact a quid pro quo--providing others with something that they want, in order to get them to part with their money. A more relevant question, however, is whether other economic systems, including those founded on altruistic and egalitarian principles, actually end up with less greed than an economic system that depends on prices to allocate scarce resources...

Greed can flourish under very different economic systems. The only real question is: What are its actual consequences under these systems? Where the desire for a fortune can be satisfied by finding ways to lower prices and thereby expand the market for one's output, that is very different from a system where that same desire is more readily fulfilled by imposing political power. In other words, greed is not the product of one particular economic system, but something that all economic, political, and social systems have to cope with in one way or another.

From a letter to the editor in the March 14, 1911 NYT:

I would like to know what the law is regarding the washing of dishes in restaurants. I noticed to-day, in a little, popular-priced restaurant where I am accustomed to eat occasionally, that drinking glasses were brought from the tables, placed on a shelf, and, when needed, used again, sometimes without the formality of emptying what the last diner had left in them, sometimes with the formality of wiping them with a napkin.

It would seem no law would be needed in this case as all diners have full information about what is and what is not happening with the used dishes. The popular-priced restaurant might survive nicely with this arrangement if the quality and price of the food offset the additional costs (both physical and aesthetic) of eating there.

However, there would seem to be a problem as soon as the dishes are taken behind closed doors, e.g., to the kitchen for washing or non-washing. It is then that the consumer no longer has full information ex ante, which suggests a potential inefficiency in the market. However, wouldn't those restaurants with dirty dishes eventually be pushed out of the market - albeit perhaps with some customers receiving food poisoning or worse?

The transient consumer might not know which restaurants have clean dishes and which ones don't - but that is where the Internet (oops, okay, the 1911 equivalent of the internet) could help out. Granted, the publication of a "diner's guide" might not be practical or efficient, but a private health inspection system that would inspect and report on restaurants would seem feasible. This third-party could be supported by the firms, in which case the possibility of corruption would seem high, or supported by the customers, in which case there would perhaps be greater costs to a restaurant not being rated (which would encourage restaurants to participate) but would suffer free-rider problems.

I could envision an argument that the privately provided health-inspection scores would be under-provided due to free-riding on customers and this is where the state has a role in internalizing the free-riding (one "market failure") to deal with the information asymmetry problem with clean dishes (another "market failure").

Yet, anecdotal evidence suggests that state or locally-run health laws and inspection systems also suffer corruption from time to time and it is not clear that the information they provide is even all that useful.

Whenever Josh Hall visits me I always find myself revising my reading agenda. Last week over coffee in my living room, Josh mentioned in passing that Warren Nutter probably warrants more play these days. Wouldn't know, I said. Haven't read him directly, just indirectly through Pete Boettke, Jim Buchanan, and intellectual histories of the Viginia School. Thankfully a few years ago I was gifted the Liberty Fund catalog up to 2008, so the next day I found on my shelf a lonely copy of Political Economy and Freedom: A Collection of Essays, published in 1983, four years after Nutter's death. I was drawn immediately to the essay, "A Comment on Okun," because I'd read Okun's Equality and Efficiency: The Big Tradeoff(1975) closely as an undergrad. Most of Nutter's comment is, in fact, directed at Okun's main argument in support of income redistribution because we as a society evidently prefer equality.

But the tail end of the essay responds to Okun's endorsement of campaign finance restrictions on political speech. Here is Nutter with the QOTD:

In passing, Okun cannot resist praising recent legislation on campaign spending as a welcome curb to the "counterfeiting" of votes and hence a boost to a more "democratic" political process. Here is another example of miscomprehension of the complex issues underlying the First Amendment, with which this legislation is wholly inconsistent, to say the least. Let me merely observe that, as far as the democratic process is concerned, there is likely to be more to fear from a silver tongue than from a gold finger.

Here is Warren Nutter's wikipedia page.

HT: Eric Schansberg and Edgar Browning, my two most influential undergrad professors.

Here for posterity is my little argument that we spend far too little on campaign finance.

At The Volokh Conspiracy, Sasha Volokh offers a fresh test of the broken window fallacy, helping pinpoint it by challenging whether certain scenarios validate the argument that disasters can have net economic benefits. It's a very even-handed and worthwhile read. A few comments on Sasha's main arguments.

1. The resulting distibutional effects may be desirable. Disasters slice through poitical barriers to spending on certain groups over others, for example directly on the people and areas most affected by the disaster. If we assign sufficiently greater weight to these groups, then this ignited spending is net beneficial. This seems to me the best of the arguments, but still not entirely right. If all the disaster does is slice through political barriers, then we'd have to have assigned the greatere weights to these groups & areas prior to the diaster in order for the argument to hold up. I think the reason people might want to assign any extra greater weight is only after they've been made the vicitms of the disaster.

2. Rebuilding spending is a direct injection into GDP and averts the paradox of thrift. But this only allows for disasters that happen to occur during recessions, not all disasters.

3. Disaster spending could be a mechanism to replace aging infrastructure that needed replacement anyway. If the new spending is budget neutral, and if the displaced spending comes from projects that would have been wasteful or pure pork, then disaster spending would be net beneficial. But this is an empirical matter, and I think the record since 2001 shows repeated, systematic increases in spending rather than budget-neutral responses.

There's another listed argument that's a reformulation of 3, but again it's falling back on the political barriers point.

My bottom line for now is, if we assess the broken window from an equity standard rather than an efficiency standard then it's conceivable to have assign weights so that the broken window leads to net economic benefits. But this is an uncomfortable bottom line because it suggests we ought to go around breaking some windows now and again based on people's beliefs of what our relative weights ought to be. And it could be used as a justification for destruction by groups who think the political process assigns too little weight to their interests. "Hey, let's blow up the street in our neighborhood so they'll come put in decent sidewalks and new blacktop." A moral hazard problem that is also a moral problem for those who would.

TechDirt discusses some of the economics of e-books, pointing to The Technium suggesting that "all digital books, on average" could be priced at 99 cents within 5 years. Both TechDirt and Technium point to e-book author Joe Konrath, whose pricing experiment generated some market data. Now it's DOL's turn to point to it with an intermediate micro question. First, here is the data:

Eighteen days ago, I dropped the price of my ebook, The List, from $2.99 to 99 cents on Amazon. I was selling 40 copies a day prior to that.

Currently, The List is #37 in the Top 100 Bestsellers on the Kindle. It's selling 620 copies a day on Amazon.

1. Assume linear demand.
a) Solve for the demand function using the price-quantity pairs above.
b) At what price does the quantity demanded for e-books reach zero?
c) How many e-books would be sold at a price of zero?

2. Assume fixed cost is zero and marginal cost is 10 cents per e-book.
a) What price should the author set in order to maximize profits and how many books will he sell? Hint: you have to use #1 to solve for the linear marginal cost function first.
b) and how much will profits be?

3. Send your responses and hourly consulting rate to Joe Konrath at A Newbie's Guide to Publishing. See if he can estimate his marginal cost (it may be zero, in which case ask his fixed costs and use it to calculate a curvilinear marginal cost function). Then offer to redo #1 and #2 for him.

You mean the environmental movement didn't begin with Earth Day and the Cuyahoga River catching fire? According to Wikipedia the latter is what "motivated the environmental movement in the 1960s." That claim might be true, for the 1960s, but this tidbit from the March 10, 1911 NYT belies the universality of that claim:

Asserting that the State loses fish to the value of $1,000,000 [23.3m in 2010 dollars] annually as a result of the pollution of its rivers by sewage [households] and mill wastes [corporations], many sportsmen, in conference at the Capitol to-day, urged the legislators to enact a law for the purification of public streams. It was declared that the shad and herring fishing business on the Hudson has been practically wiped out on account of the large amount of sewage which pours into the river. It was said also that the Au Sable and Beaver Rivers were also polluted by mill wastes, which drive out the fish.

I love reading the paper from 100 years ago.

From the March 10, 1911 NYT comes an interesting thought experiment:

The authorities at Harvard are trying to invent a plan to compel students to attend classroom lectures and recitations. Figures just made public by Dean Hurlbut show that during the past year 2,308 Harvard students were absent from their classroom work 75,220 times. This represents an average of thirty days of the college year in which each student was absent from work.

Compulsory attendance is the rule at Harvard, but most students...regard this rule as a well-intentioned fiction.

Isn't it possible that the Harvard students looked at the topics being discussed in their classes and figured that sitting under a tree reading Shakespeare would be a better use of their time (unless it was a Shakespeare class, I suppose). In other words that students then, much like now, look at a particular class session and perceive (rightly or wrongly) that the opportunity cost of attending is just too high? Perhaps some students had taken jobs in order to pay for their Harvard education, and 8/9 of a Harvard education (assuming 270 education days) might be better than 100% of an alternative education.

Wow, professors in 1911 were carping about lazy students? File in the "things never change" drawer.

From the March 8, 1911 NYT:

Charges of $313 for prayers are the principal items scheduled in a suit filed in the Hampden County Superior Court to-day by Joseph Estoff of Buffalo, N.Y. against Edwin C. Gardner, executor of the estate of the late Harris Goodman of Springfield, who died a year ago. Estoff is a brother of Goodman, the latter having changed his name when he began business in this city.

The bill for prayers is divided into two sections. In one place Estoff claims $13 for prayers for the dying offered by him when Goodman was upon his deathbed. In addition, Estoff asks the court to award him $300 for repeating daily in a synagogue the "Kaddish" or prayers for the repose of Goodman's soul. This item specifies daily prayers for fifty weeks at $6 per week.

That's the working title of my book in progress with Wayne Leighton, now under contract with Stanford University Press (scheduled for September 2012).

Madmen connects public choice theory with the history of political ideas and applies it to current affairs in a readable, non-technical way. So Madmen sort of triangulates Heilbroner's The Worldly Philosophers with Harford's The Undercover Economist with Simmons' Beyond Politics (a new and revised edition is soon to come out).

A brief synopsis of the book is beneath the fold. And, naturally, a Madmen blog is in the works as well. Comments welcome (email)!

Read More »

A letter to the Economist regarding the question of why Austrians have been largely ignored as regards recent economic conditions:

SIR – Buttonwood might find the answer to his question in the quote he cited from Friedrich Hayek: “The curious task of economics is to demonstrate to men how little they really know about what they imagine they can design.”

I can’t imagine economists admitting how little they actually know. If they admit it to themselves it will hurt their ego; if they admit it to others it will hurt their job prospects.

My first video for the IHS's LearnLiberty.org project:

Downloadable here, under review at the RAND Journal of Economics.

From IV.2.43 of The Wealth of Nations:

The member of parliament who supports every proposal for strengthening this monopoly, is sure to acquire not only the reputation of understanding trade, but great popularity and influence with an order of men whose numbers and wealth render them of great importance. If he opposes them, on the contrary, and still more if he has authority enough to thwart them, neither the most acknowledge probity, nor the highest rank, nor the greatest publick services can protect him form the most infamous abuse and detraction, from personal insults, nor sometimes from real danger, arising from the insolent outrage of furious and disappointed monopolists.

If you're looking for a job and if you do anything related to environmental economics, please apply for this post-doc at Rhodes.

Ed Glaeser was good, and very excited, on The Daily Show the other night, fronting his new book Triumph of the City. I look forward to getting a chance to read it. Perhaps our fine resident urban economist can blog a quick review. Meantime, I'm reminded of another great advocate of cities, Frederic Bastiat. In his Economic Harmonies, Bastiat leads the reader to recognize the great wonders of the division of labor and the concentrations of it that cities nourish. From Ch.4 of Liberty Fund's edition:

When one leaves Paris for a short stay in a little town in the provinces, one is astonished at the number of occasions when certain little services can be secured only at excessive cost of time and money and with great difficulty.

[...]

But men exchange. Implicit in exchange, as we have seen, is the division of labor. It gives rise to the professions and trades. Each one applies himself to conquering one set of obstacles for the benefit of the community. Each one devotes himself to rendering one kind of service. Now, a complete analysis of value demonstrates that the worth of every service is dependent first on its intrinsic utility, and then on the fact that it is offered for sale in a richer locality, that is, in a community more inclined to demand it, more able to pay for it. Actual experience—which shows us the artisan, the doctor, the lawyer, the businessman, the coach-maker, the teacher, the scholar, receiving a better return for their services in Paris, London, or New York, than in the moors of Gascony, the mountains of Wales, or the prairies of the Far West—confirms us in this truth:

The more prosperous the place in which he is situated, the better the chances a man has to prosper.

Of all the harmonies about which I have written, this one is certainly the most important, the finest, the most decisive, the most productive. It implies and sums up all the others

The curator of Liberty Fund's online liberary of liberty, David Hart, will be visiting San Jose State in early April, giving a talk on Bastiat's many interesting and important works.

Rome currently lacks a direct connection to I-75; one takes a four lane road from Rome to Cartersville then must wind through Cartersville to get to the interstate. Romans and the GA DOT have been trying for at least two decades to create a direct link between US 411 (the four lane highway) and I-75 but have been stalled for various reasons.

Today's RN-T carries a letter from someone in Cartersville that sounds an awful lot like a certain nineteenth century Frenchman:

I am concerned about the potential negative impact the U.S. 411 Connector will have on dozens of businesses along the busy travel corridors of Ga. 20 and U.S. 41 in Bartow County. this “road for Rome” will serve as a bypass around the two bustling highways and Cartersville, and is projected to carry more than 14,800 cars per day (source: Georgia Department of Transportation, November 2004 Concept Report). The end result will be 5.4 million fewer motorists per year that could purchase goods and services from our local businesses.

The decreased traffic volume could force businesses to shut their doors, thus leading to building vacancies along Ga. 20 and U.S. 41. It could also force appraisal values down and wipe out millions in annual sales tax revenue from motorists who travel through Bartow County and Cartersville.

The only difference is that this writer is serious whereas M. Bastiat was not.

From the Jan 31, 1911 NYT:

BOSTON - Speaking before the Chamber of Commerce here to-night, William G. McAdoo, President of the Hudson-Manhattan Railroad Company of New York, dwelt particularly on the manner in which the public should be treated by large corporations....

Mr. McAdoo said that the deep-rooted prejudice against corporations had arisen from dishonest management, which resulted in grave losses to investors, abuse of power and of opportunity, corrupt practices in politics, and arrogant and arbitrary methods in dealing with the public. He was not hostile to corporations, he declared, but desired to see justice done both sides.

And the mixed economy is 100 years down the road. How bad would Mr. McAdoo think it is today?

Interest rates are now hovering near record highs, at an average rate of 14.72%. And if your credit is bad enough, you could even end up with a rate as high as 59.9% APR.

That's because while the CARD Act helped crack down on certain fees and requires more disclosures, it didn't cap every credit card holder's worst enemy: interest rates.

Sure, the new rules prevent banks from raising most interest rates retroactively, but there's no limit on the rates they can charge new customers.

"Rates are going up because card issuers know that once you get a card they can't raise the rates, so they're raising rates on the front end to ensure they get the revenue from that interest," said Beverly Harzog, credit card expert at Credit.com.

Source.

See also Todd Zywicki's WSJ piece: Dodd-Frank and the Return of the Loan Shark

From the January 26, 1911 NYT:

WELLESLEY, Mass - To collect funds toward the $100,000 building fund at Wellesley College the students have adopted the plan of holding "silence" parties.

At these gatherings a girl, who is seen to smile is fined 1 cent. If she laughs the penalty is 5 cents. If she so far forgets herself as to talk, each sentence she utters costs her 10 cents.

A considerable sum of money has already been taken in.

For your friends who aren't enamored with laissez-faire and know that, even though it's failed miserably everywhere it's been tried and is only successful at killing gobs of people, communism WILL work, there is an ideologically-friendly version of Monopoly:

'Communist Monopoly' Teaches Downside of Socialist Life

A Polish research institute has developed a board game to teach young people about life under Communism. In the game, which is inspired by Monopoly, players must wait in endless lines at stores for scarce goods. For added realism, they have to put up with people cutting in line and products running out -- unless they have a "colleague in the government" card.

The only problem is that it's all in Polish and presumably they remember how crappy things were back then.

P.S. Post title reference

I got introduced to Jimmy John's while in college. It's a good alternative to the other typical sub shops out there. The founder is thinking of relocating the headquarters from Illinois (which just raised its income and corporate tax rates) to Florida (no income tax).

Bonus teachable moment for principles students: Jimmy John's advertises that, along with its subs, it's "smells are free." I'm not sure why they would want that slogan on a pair of boxer shorts though. Is there truly a zero cost to obtaining nice smells at Jimmy John's?

From the Jan. 24, 1911 NYT:

ALBANY - Senator Stephen J. Stilwell, Chairman of the Senate Codes Committee, introduced to-day a bill strengthening the provisions of the Penal Code in relation to stock transactions. It prohibits "short" sales and sales of stocks upon credit or margin, wherein both parties intend that such contract be of a speculative nature and not purchase for investment.

File in the "things never change" drawer.

From the Jan. 20, 1911 NYT:

LONDON - The Daily News says that an American millionaire has purchased for $50,000 Liszt's organ, which was built in the United States in the course of one of his tours.

The organ was used later both by Wagner and Schumann.

Okay - the story wasn't about these organ markets - sorry.

From the Jan. 20, 1911 NYT:

The supply of cotton in the United States for the year ending Aug. 31 last was 12,188,021 bales, or 20 per cent. less than that of the previous year, according to the Census Bureau's annual review of the cotton supply. Of that amount 52 per cent. was exported, or 6,339,028 running bales, values at $460,868,020. Of this cotton 38 per cent. went to the United Kingdom, 30 per cent. to Germany, 15 per cent. to France; these three countries taking about five-sixths of the total quantity exported.

{snip}

The total value of exported cotton goods for domestic manufacture for the year ended June 30, 1910, amounted to $33,398,672, whereas the imports of cotton manufacturers into the United States during the same year amounted to $66,473,143 in value.

From the Jan 20, 1911 NYT:

OHIO FOR INCOME TAX

Amendment Now Ratified by Legislatures of Ten States

COLUMBUS, Ohio, Jan. 19 - By a vote of 100 to 3 the House to-day concurred in the action of the Senate in adopting the resolution providing for the approval of the income tax amendment to the United States Constitution.

From the Jan. 20, 1911 NYT:

The Aldermen's law Committee will hold a public hearing in City Hall next Thursday afternoon on the ordinance introduced by Alderman Alexander S. Drescher of Brownsville to limit the length of hatpins. The measure fixes a penalty of $50 [$1,180 in 2010 CPI adjusted dollars] for the wearing of a pin which protrudes more than half an inch from the crown of a hat.

Oh boy.

From a letter to the editor of the Jan. 18, 1911 NYT:

I was pleased to see the article in your columns the other day in reference to the proposed law regulating the length of hatpins. There is no question in my mind as to the need for such a law, for thousands are daily in danger of serious damage to their eyesight, face, or hands by protruding hatpins. Women should be considerate enough to either protect the points or wear shorter pins.

I might add they could wear higher heels to promote the hat and accompanying hat pins above the heads of their fellow citizens. The letter goes on:

Many are, but for those who are not, a law is necessary, and it should be enacted without delay.

{sarcasm}The letter writer does not suggest at what point in the distribution of hat-pins the regulation should be enforced. One would suspect that hat-pin manufacturers would be required to limit the length of the hat pin, but would this not then require hat manufacturers to change hats to accommodate the reduced length, and would this forced change in hat design impart potentially catastrophic damage to the social welfare of hat wearers and admirers alike?

While requiring new hat-pins to meet new safety standards might address the letter-writer's concerns for future hat-pin encounters, the letter writer does not address what society should do with what might have been millions of hat-pins that were already distributed around the city, state and country. Whether the government should seize the hatpins, a la gold in the 1930s, or offer hat-pin buy-back programs, a la guns-off-the-streets programs of today, is not clear. It would seem rather inefficient to police the length of hat-pins at the individual hat-wearer level, but then a bureau of hat-pin enforcement would likely provide a nice set of patronage jobs. {\sarcasm}

On the one hand such regulation seems to address a negative externality, but in my mind might add a negative externality - that is, the government and the citizenry start to expect and accept such regulations which ultimate erode personal liberty to the quick. The modern day equivalents of limiting light-bulb wattage, limiting access to Vitamin C supplements, and questioning whether lawn darts are a good gift for six year olds, seem to be a continuance of the demand expressed by the letter writer.

Except for the liberty-restricting nature of such regulations, one wonders if it it is perhaps better for the legislature to spend their limited time on regulations such as this rather than bigger ideas that often seem to be accompanied by even bigger attacks on personal liberty.

Surprise, surprise, surprise--competition leads to better outcomes for hospital patients. The abstract of a new NBER WP:

The effect of competition on the quality of health care remains a contested issue. Most empirical estimates rely on inference from non experimental data. In contrast, this paper exploits a pro-competitive policy reform to provide estimates of the impact of competition on hospital outcomes. The English government introduced a policy in 2006 to promote competition between hospitals. Patients were given choice of location for hospital care and provided information on the quality and timeliness of care. Prices, previously negotiated between buyer and seller, were set centrally under a DRG type system. Using this policy to implement a difference-in-differences research design we estimate the impact of the introduction of competition on not only clinical outcomes but also productivity and expenditure. Our data set is large, containing information on approximately 68,000 discharges per year per hospital from 162 hospitals. We find that the effect of competition is to save lives without raising costs. Patients discharged from hospitals located in markets where competition was more feasible were less likely to die, had shorter length of stay and were treated at the same cost.

It's been a long time since I've posted here about fashion. That isn't a coincidence, as I've been preoccupied with other things and basically just really lazy of late. But here is a gem of a passage I've just come across again today. I am always interested by when it was written.

Fashion is one of the greatest forces in present-day life. It pervades every field and reaches every class. Fashion leads business and determines its direction. It has always been a factor in human life but never more forceful, never more influential and never wider in scope than in the last decade and it gives every indication of growing still more important.

That is the first paragraph of the Preface to Paul H. Nystrom's fascinating Economics of Fashion, published by Roland Press in 1928.

Another interesting question and discussion from The Economist blog. I found the responses by Paul Seabright, Lane Pritchett, and Tyler Cowen the most compelling. All three suggest that the problem is at least two-fold, with an economists' code addressing only one of the folds. Like Alfred Marshall's scissors analogy, it takes two blades to cut a piece of paper. Absent some way to correct deep and various biases among the "consumers" of economics research, a "code of conduct" on the producers of economics research will be futile and its only value will be a symbolic one.

The larger issue of truth in economics is treated nicely by the edited volume, Economic Policy Under Uncertainty: The Role of Truth and Accountability in Policy Advice (edited by Peter Mooslechner, Helene Schuberth, and Martin Schurz), Edward Elgar 2004. I reviewed this book for the 2006 Journal of Markets & Morality.

The thrust of the volume is in addressing the meaning of truth and its role in economic policy advice. Truth as the word is used in this collection, is a concept that economics has ignored for decades. Smoothing its edges quite a bit, truth amounts to a concern about whether policymakers are receiving information and analysis that is the closest to the economic problem in reality and that is most likely to predict the actual effects of alternative policy options. Thus, we are concerned with whether policy advice is realistic or biased or uncertain, and so on.

...

This is an intriguing exercise. If economists as a society were to draft a constitution with, among others, one objective being the formation of true policy advice, what would the constitution look like? By this chapter’s lights, the profession would have to instill greater openness of discourse, transparency, and accountability. Some specific recommendations include making data from empirical studies publicly available, allowing or requiring empirical results to be reestimated by disinterested economists, and divorcing the generation of economic policy advice from organizations dedicated to advancing narrow or political interests. The expectation is that economics would evolve into a social science in which individual scientists advance their theories as forcefully as possible under the expectation that others in the discipline will have the incentives to reject others’ theories in favor of their own.

An equally intriguing counterpoint ... might be to ask why such order within the discipline would not emerge without constitutional design. Several economists have acquired first-rate reputations deconstructing others’ arguments and results, or at least serving as umpires within their fields (Deirdre McCloskey, Bennett McCallum, David Laband, and Dan Klein, to name a few). Prominent economists routinely duke it out on weblogs devoted to current events and policy commentary. Increasingly, more formal outlets, such as Econ Journal Watch, also serve as checks and balances on policy prescriptions of economists everywhere. Such casual observations suggest that a level of mutual accountability continues to evolve among the competing producers of economic policy ideas, a point that seems to be given short shrift in the volume.

...and also given short shrift in The Economist forum.

The economic philosophers Guido Pincione and Fernando Teson also analyze economic "truth" in their 2006 book, Rational Choice and Democratic Deliberation (Caplan's Myth before Caplan's Myth). My review of this book turns the question of "truth" onto politicians and can be found here on the DoL archives.

One sometimes hears fears that large firms might engage in so-called predatory pricing. The nefarious behavior goes something like this: the big firm slashes prices to levels that result in it and its competitors incurring losses. Smaller competitors are supposedly less capable of withstanding losses and leave the industry before the large firm. The large firm then has a monopoly and raises its prices to earn large profits.

There are many ways to poke at this notion and I don't know of any instances of it actually occurring. (Large airlines are sometimes accused of acting this way toward startups.) An obvious question, however, is why don't the small firms re-open when the big meany raises its prices. A recent article in the WSJ reminded me of exactly this point; a snip:

Responding to China's recent squeeze on the global supply of rare earths, a U.S. company plans to reopen its mine that produces the unusual metals, which are critical to making high-tech products ranging from iPhones to electric cars.

The Mountain Pass mine was at one time the world's dominant rare-earth supplier. But mining was suspended in 2002 amid environmental complaints, including that its wastewater had damaged the desert's delicate ecosystem. In the years that followed, China achieved world dominance in the production of rare-earth metals, in part by shunning costly environmental controls.

It's true that the mine closed because of environmental concerns not because of so-called predatory pricing, but notice how the mine is being reopened because of difficulty obtaining rare earths from China. There's no reason the same could not occur in response to predatory pricing.

This article also nicely illustrates Thomas Sowell's wisdom that there are not solutions only tradeoffs.

While home enjoying the snowpocalypse over the past couple of days, I got around to reading the Bill Gates/Matt Ridley exchange in the WSJ. This part of Gates's piece caught my eye:

I asked Ken Caldeira, a scientist who studies global ecology at the Carnegie Institution for Science, to look over this part of the book. He pointed out that Mr. Ridley celebrates declining air-pollution emissions in the U.S. but does not acknowledge that this has come about because of government regulations based on publicly funded science, which Mr. Ridley opposes.

Well, it just happens that my former student Shawn Regan recently posted on SO2 trends before and after enactment of the Clean Air Act. The punch line, depicted in the diagram below, is that there was already a downward trend before the CAA was implemented and it is difficult to discern any benefit from the legislation. (A similar point can be made about OSHA regs.)

Last month I had the opportunity to talk about my book, The Pursuit of Justice: Law and Economics of Legal Institutions, with an audience of 75 people and two distinguished panelists, David Friedman and Alex Kozinski. And now, The Independent Institute, who hosted the book forum, has generously made the transcript available (text or audio). Here is the transcript. Here's a page describing the event. And here's a page with the book contents, description, and link for purchase. Enjoy.
Ed

Please explain whether (1) this proposal makes sense within the framework of Keynesian macroeconomics, and (2) makes sense within the framework of microeconomics.

Developers demolish all the stairways of a building in bid to evict family on the seventh storey

HT: a former student from my law & econ class.

This morning's installment of Marxist Place discussed the economic effects of flooding in Australia. The story focused on the disruption to interational steel production caused by disruption of coking coal from Australia. While this disruption is unfortunate, I don't see how the story could overlook the obvious stiimulative benefits of having to clean up and rebuild after the flooding (a second dose of which is apparently on the way from more forthcoming rain). After all, hurricanes stimulate and Nobel laureate Paul Krugman tells us that flying airplanes into buildings "could even do some economic good." So it seems only natural to expect that flooding will lead our Aussie friends to increased prosperity.

P.S. New York is expecting another 6-9 inches of stimulative snow to add to the great bounty that it reaped just days ago.

[/snark]

That's the title of Jayson L. Lusk and F. Bailey Norwood's Econlib article. An excerpt:

Local foods travel fewer miles, but an environmentalist must be concerned with more than the tailpipe emissions from farm to market. Consumers must also travel to buy their food, and the variety of foods offered in supermarkets minimizes the need to make multiple trips. An extra trip by a consumer to the farmers' market is likely to expend more energy than was saved by reducing the distance the food travels. Moreover, fresh local foods often require more at-home preparation, where energy use is less efficient relative to that of large-scale processing facilities.

The truth is that the energy expended transporting food is relatively unimportant. According to USDA-ERS data, consumers spent $880.7 billion on food in 2006. Only four percent of these expenditures can be attributed to post-farm transportation costs. One recent study indicated that over 80 percent of the global-warming impacts of food consumption occur at the farm, and only ten percent are due to transportation.

I just finished reading Bethany McLean and Joe Nocera's book All The Devils Are Here: The Hidden History of the Financial Crisis. (Thanks to the Penguin Group for the review copy). Basically the book is a must have for the nuts and bolts of the mortgage market leading up to the financial crisis. McLean and Nocera weave and detailed and interesting story about the individuals involved in creating and growing subprime lending and CDOs. It is not really a book to read for analysis of how to prevent future financial problems as much as it is a good story of the run-up to the financial crisis. It would make a great book to assign for a regulation or public policy course, as I think students would walk away from a reading of the book with very different impressions of what should be done moving forward.

Ben Powell writes on Facebook:

Sweat Free Communities Publishes a "Shop with a Conscience" guide where they certify factories that are "sweat free" by paying certain wages and having good working conditions. Here's a map of all of these companies source locations (minus 1 in Asia that didn't fit the screen shot). Apparently you help 3rd world workers by just buying from U.S. and Canadian workers!

This important reminder from Shawn Regan, via Frank's phone: "Today is Coase's 100th b-day."

Shawn provides this link to Terry Anderson's blog post in honor of the occasion.

Terry's conclusion:

A Coasean view of the environment focuses on who owns the environment. When property rights are well defined and enforced, markets can work their magic. When property rights are not so clear, environmental entrepreneurs who clarify them do good for the environment while doing well for themselves.'

In honor of Coase’s 100th birthday, let’s replace externalities with entrepreneurship. The more we do so, the more we will see conflict replaced with cooperation and environmental rhetoric replaced with environmental improvement.

From yesterday's WSJ:

Members of the Screen Actors Guild recently read in their health plan's newsletter that, beginning in January, almost 12,000 of its participants will lose access to treatment for mental-health and substance-abuse issues.

The guild's health plan represents one of a small number of unions, employers and insurers that are scrapping such benefits for their enrollees because of a 2008 law that requires that mental-health and substance-abuse benefits, if offered, be as robust as medical or surgical benefits. By dropping such coverage, providers can circumvent the requirements.

Others that have made the same move include the Plumbers Welfare Fund, representing about 3,500 members in the Chicago area, and Woodman's Food Market, a chain in Wisconsin with 13 stores and about 2,200 employees.

According to the Kaiser Family Foundation's 2010 Employer Health Benefits survey, about one-third of firms with more than 50 workers said they made changes in the benefits they offer in response to the law, and 5% of those said they dropped mental-health coverage.

Something that is often overlooked is that the optimal mix of products in the marketplace might include some lower quality options. Parity laws such as this one and occupational licensing laws that get rid of low quality providers limit consumer choices to high quality (or parity) or parity options or no coverage whatsoever.

I tell my students that I think the single most misleading economic statistic is the bilateral trade balance between any two countries. An article in yesterday's WSJ makes (at least part of) my point:

Trade statistics in both countries consider the iPhone a Chinese export to the U.S., even though it is entirely designed and owned by a U.S. company, and is made largely of parts produced in several Asian and European countries. China's contribution is the last step—assembling and shipping the phones.

So the entire $178.96 estimated wholesale cost of the shipped phone is credited to China, even though the value of the work performed by the Chinese workers at Hon Hai Precision Industry Co. accounts for just 3.6%, or $6.50, of the total, the researchers calculated in a report published this month.

[snip]

"What we call 'Made in China' is indeed assembled in China, but what makes up the commercial value of the product comes from the numerous countries," Pascal Lamy, the director-general of the World Trade Organization, said in a speech in October. "The concept of country of origin for manufactured goods has gradually become obsolete."

Mr. Lamy said if trade statistics were adjusted to reflect the actual value contributed to a product by different countries, the size of the U.S. trade deficit with China—$226.88 billion, according to U.S. figures—would be cut in half.

From Bill Bryson's Shakespeare (p. 48):

The [London] authorities repeatedly issued edicts that new housing was not to be erected within three miles of City walls, under pain of demolition, but the fact that the edicts had so often to be renewed shows how little they were regarded. The one effect the laws did have was to discourage the erecting of buildings of quality outside City walls, since they might at any moment be condemned. Instead London became increasingly ringed with slums.

Sounds a bit like a certain Argentine property rights study, no?

Pete Calcagno's and my paper, "Divided We Vote," is now forthcoming at Public Choice.

Abstract: Divided government is known to correlate with limited government, but less is understood about the empirical conditions that lead to divided government. This paper estimates the determinants of continuous and categorical measures of divided government in an empirical macro political economy model using 30 years of data from the American states. Voters support more divided government after increased government spending per dollar of tax revenues, but more unified government after worsening incomes and unemployment rates. Only conditional support is found for the strategic-moderating theory (Alesina and Rosenthal 1996) that focuses purely on midterm cycles and split-ticket voting absent economic conditions.

You can download a freshly revised copy at SSRN.

Two articles... Op-ed about "end the DAFT!" in the south Florida Sun-Sentinel today.

Second, my friend Bill Lumaye acted all hinky when I called him a "Keynesian" on air on WPTF Monday for supporting temporary extensions of the Bush tax cuts. Bill, if you won't believe me, maybe you'll believe that lefty Charles Krauthammer. Short-term, uncertain duration "tax cuts" are not tax cuts at all, but deficit-financed spending.

It's just a crackpot Keynesian stimulus policy! Don't be fooled that it's the "Republican Way." To have an effect on economic activity, tax cuts have to be credibly permanent.

As I say in the Sun-Sentinel article: If you hate taxes, cut spending.

From this blog

Some interesting and some terrifying comments over at Reddit

My latest Forbes piece offers a Rothbardian take on a holiday classic.

I gave a ten-minute talk on Capitol Hill yesterday, at an event sponsored by FreedomWorks and the Atlas Economic Research Foundation, on "How the Fed Has Failed". Co-panelists included Judy Shelton, Rep. Mike Pence (R-IN), and Rep. Paul Ryan (R-WI). Nobody warned me in advance, but C-SPAN was there to cover it. Their video is here. I go on around the 46:00 mark. I was mostly summarizing, without nuance, my current working paper "Has the Fed Been a Failure?" with George Selgin and William Lastrapes. The paper is available here in the Cato Working Papers series .

An article in the Dec. 8, 1910 NYT reports that the Atchison, Topeka and Santa Fe Railroad was planning on ending the employment of smokers - and without any pressure from the government or insurance programs:

The managers of the great railway systems have long insisted that their employes abstain from the use of intoxicating liquors. Now it is announced that the Atchison, Topeka & Santa Fe Railroad is discharging those of its men whose "yellow fingers" betray their addiction to the habit of smoking cigarettes. Beginning with this month, no more cigarette smokers will be employed.

The report, just published by the Commissioner of Internal Revenue shows that tobacco use in all forms is largely increasing in this country, and that 7,000,000,000 cigarettes were smoked in the year ended last June, a billion more than in 1909. The Sante Fe Railroad does not prohibit the use of cigars or of pipes by its men. The company believes these are not so injurious as cigarettes. But we doubt whether it has any scientific confirmation of this belief...

From an article in the Dec. 7, 1910 NYT:

MEMBERS OF BATHTUB TRUST ARE INDICTED

The trust was essentially 16 firms that controlled 85% of the market for bathtubs, sinks, and the sort. The cartel controlled about $10,000,000 in output per year. So, as far as anti-trust cases go, this one doesn't sound nearly as sexy as AT&T, IBM, or Microsoft.

Moreover, these are just indictments so it is not clear that anything will come of them anyway. However, it is interesting that there is a much more regular mention of anti-trust activity in the paper of old when compared to today. I wonder if that is a supply-side or demand-side issue.

From a letter to the editor in the Dec. 7, 1910 NYT:

A year or more ago there developed in this "Greatest City of a Great Country" a violent agitation looking to the prohibition by law of speculation in theatre tickets, but our city fathers were evidently unable to find a way out of the difficulty. I am informed that the City of Chicago has recently passed an ordinance compelling all theatre tickets to have the price printed on them, and making it a punishable offense to sell any tickets above this figure. This would seem to be an effectual remedy for the evil.

Wow - either the writer was extremely naive or us economists missed the boat on this one. I am fairly confident that printing the price of admission on tickets has done nothing to slow down the speculation on tickets.

I like the jab at the end - buying low and selling high is "evil"?

From an e-mail sent by the library on campus:

No more general collections fines! Beginning in the Spring semester students will no longer be charged late fees for general collections items checked out from Atkins Library. We will still enforce/collect fines for lost items, late Inter-Library Loan books, Course Reserves materials, recalled books and laptops.

I wonder if that means that there are very few books turned in late, or there are fewer books checked out of the library? I wonder how incentives will change and the implications. This sounds like a quasi-natural experiment of some sort, but I haven't the time at the moment to figure out how to take advantage of it - I'm thinking along the lines of moral hazard in the absence or reduction in penalties.

Anyone else experience something like this on their campus?

My co-author George Selgin talks to Russ Roberts about the Federal Reserve's historical record, based our paper "Has the Fed Been a Failure?"

From the NYT:

For the first time in 44 years, FIFA has created the bonanza of awarding two World Cups to eager countries in one day, with today’s announcement of the 2018 and 2022 hosts not only holding the hopes of nine nations in thrall today in Zurich, but also further complicating a process already snarled by tales of corruption.

Ladies and gents this means the FIFA honchos now have the opportunity for a bit of good old fashioned logrolling. Continues the NYT:

The United States is competing against bids from Qatar, Australia, Japan and South Korea. The 2018 event will go to England, Russia or joint bids by Portugal and Spain and the Netherlands and Belgium. The voters will be members of the 24-member FIFA executive committee, because two of those members have been barred from voting because of the latest corruption scandal.

[snip]

The Sunday Times of London also reported that it secretly filmed a former general secretary of FIFA, Michel Zen-Ruffinen, giving the names of officials who could be bribed. The paper reported that he also said the Portugal-Spain bid for 2018 and the Qatar bid for 2022 were colluding on a vote-exchange scheme to enhance their chances.

Just another illustration of the fact that the R-square value of public choice is high.

UPDATE: Apparently Russia and Qatar are the winners.

From the AJC:

Fewer than half of Americans have had an AIDS test since guidelines were expanded to include routine screening, according to a government report released Tuesday.

Last year, an estimated 45 percent of Americans ages 18 to 64 reported they've had an HIV test at least once in their lives, up from 40 percent in 2006. That's an increase of 11 million people to 83 million people who have ever been screened, the Centers for Disease Control and Prevention reported in Atlanta.

CDC director Dr. Thomas Frieden said the increase was significant and encouraging, while one outside expert called it disappointing.

"The numbers show that progress is possible. They also show how much more progress is needed," Frieden said during a teleconference.

In 2006, the CDC urged routine testing for everyone ages 13 to 64, even if they're not in high-risk groups. For those at high risk, including gay men and intravenous drug users, annual testing is recommended.

Routine testing incurs costs. For, say, a 44 year old who has been in a monogamous releationship for nearly two decades and has never had any relevant symptoms, there is simply no reason to use scarce resources on HIV tests.

Part of the abstract of a new NBER WP from Morris M. Kleiner and Kyoung Won Park:

In this study, we examine dentists and dental hygienists, who are both universally licensed and provide complementary services to patients, but may also be substitutes as service providers. We focus on the labor market implications of governmental requirements on permissible tasks and the supervision of hygienists’ activities by dentists. Since there are elements of monopsony in the market we examine, we use the model as a guide for our analysis. We find that states that allow hygienists to be self-employed have about 10 percent higher earnings, and that dentists in those states have lower earnings and slower employment growth. Several sensitivity and falsification tests using other regulated and partially regulated occupations show that our licensing measures are generally robust to alternative specifications. Our estimates are consistent with the view that winning the policy and legal battle in the legislature and courts on the independence of work rules matters in the labor market for these occupations.

Another example of the importance of institutions comes in the new NBER WP (ungated version here) by Dongwoo Yoo and Richard H. Steckel; the abstract:

Several studies link modern economic performance to institutions transplanted by European colonizers and here we extend this line of research to Asia. Japan imposed its system of well-defined property rights in land on some of its Asian colonies, including Korea, Taiwan and Palau. In 1939 Japan began to survey and register private land in its island colonies, an effort that was completed in Palau but interrupted elsewhere by World War II. Within Micronesia robust economic development followed only in Palau where individual property rights were well defined. Second, we show that well-defined property rights in Korea and Taiwan secured land taxation and enabled farmers to obtain bank loans for capital improvements, principally irrigation systems. Our analytical model predicts that high costs of creating an ownership updating system and a citizen identity system discourage a short-sighted government from implementing these crucial components, the absence of which gradually makes land registration obsolete. Third, considering all of Japan’s colonies, we use the presence or absence of a land survey as an instrument to identify the causal impact of new institutions. Our estimates show that property-defining institutions were important for economic development, results that are confirmed when using a similar approach with British Colonies in Asia.

Yoo has a couple of other interesting looking papers on property rights here.

I'm prepping some macro notes right now, and I'm listening to this interview with Friedrich Hayek on "Meet the Press" in the 1970s. Some of the questions are just silly, honestly, and it is interesting to hear how Hayek answers them.

I've been meaning to give JC Bradbury's book a plug. I bought it in early October and read it over fall break. It's terrific and timely as baseball's hot stove league is warming up with the trade of Dan Uggla and the signing of Victor Martinez. I particularly like JC's finding that there is a range of wins (roughly 60-80--diagram here) over which improvement yields little extra revenue and, consequently, gives teams little incentive to hire additional talent. My only major quibble is the copyediting--I found about a dozen typos etc. that should have been caught by a decent proofreader. A great holiday gift choice for the baseball-loving econ geek in your life!

This column (which ran in the deadtree version of the local fishwrap) prompted me to go Boudreaux:

If recent columnist John Steel (“We need ‘Made in America’ label,” Nov. 19) truly wants to “stop the nonsense” he should take a few moments for research before making baseless claims. To wit, he states that “we don’t make much in this country anymore” resulting in a “near total reliance on, and addiction to, foreign manufacturing.”

Those pesky things known as facts indicate otherwise. Federal Reserve data (available at http://tinyurl.com/37ulpgt) indicate that U.S. manufacturing’s value added was some $2.28 trillion, roughly 15% of GDP, in 2008. Beyond statistics, we Romans need only think of local plants such as Southeastern Mills and Pirelli to know that claims that the U.S. does not manufacture anything are balderdash.

There are enough genuine economic problems—spendthrift fiscal policy, feckless monetary policy, and regulatory regime uncertainty, to name just a few—that there is no need to manufacture others.

Frank Stephenson
Professor of Economics
Berry College

My third (and final?) Forbes piece on the TSA went live last night. It should be good reading for while you're passing time in the security line today.

Don Boudreaux calls attention to this passage in the Selgin, Lastrapes, and White paper on the Fed:

"[F]ar from achieving long-run price stability, it [the Fed] has allowed the purchasing power of the U.S. dollar, which was hardly different on the eve of the Fed‘s creation from what it had been at the time of the dollar‘s establishment as the official U.S. monetary unit, to fall dramatically. A consumer basket selling for $100 in 1790 cost only slightly more, at $108, than its (admittedly very rough) equivalent in 1913. But thereafter the price soared, reaching $2422 in 2008."

A letter I sent to the WSJ earlier today in response to this article:

Today’s front page story (“Bond Market Defies Fed” Nov. 16) is subtitled “Interest Rates Rise Despite Launch of Treasury Buying ….” Since an important part of nominal interest rates is inflationary expectations (the so-called Fisher effect), it’s much more likely that interest rates are rising because of the Fed’s bond purchases rather than despite the expansion of the money supply.

Choice tidbits from Alan Blinder in the WSJ today:

For months, we have witnessed the spectacle of people arguing that Keynes was wrong.

Spectacle indeed! Don't they know how gauche that is?

Somehow, additional government spending actually reduces employment—even when the economy has huge amounts of spare capacity and unused labor desperate for work; even when the central bank will prevent interest rates from rising to "crowd out" private spending. Really?

Imagine! They must somehow think that piling up debt to finance current government spending, with future tax hikes or inflation implied but not spelled out, can discourage investment!

The anti-Keynesian revival has been disheartening enough. But now the economic equivalent of the Flat Earth Society is turning its fury on Ben Bernanke and the Federal Reserve. Critics ranging from German Finance Minister Wolfgang Schauble to tea party favorite Sarah Palin—which is quite a range—have spoken as if Bernanke & Co. have lost their marbles and are embarking on a wild policy misadventure. All in all, it looks like the nation and the world need an Economics 101 refresher.

When the Finance Minister of Germany rejects Keynesian economics this is equivalent to his rejecting the spherical shape of the Earth! Criticisms of Ben Bernanke for mistaken policies, even from a Finance Minister, cannot rest on economically literate arguments but only on fury! What is the world coming to?

To create the fearsome inflation rates envisioned by the more extreme critics, the Fed would have to be incredibly incompetent, which it is not.

After all, we have never had double-digit inflation under the Fed's watch. 1979-1981 never happened.

But calling QE2 "currency manipulation" is a grotesque abuse of language. ... the Fed will not intervene to push the dollar down.

When the Fed announces its intention to expand its liabilities (the monetary base) by 25%, and in so doing predictably drives up the expected dollar price level, and that in turn predictably pushes down the dollar on foreign exchange markets, that is a far cry from intervening to push down the dollar!

An independent central bank doesn't even consult with its own government.

Have you ever seen Ben Bernanke in a joint press conference with the Treasury Secretary? I didn't think so.

Critics tell us that QE2 won't give the U.S. economy much of a boost but will lead to rampant inflation. Both? How does that work?

It is inconceivable that nominal income Py could rise without real income y rising, but only P rising. Inconceivable!

The paper on David Beckham's attendance effect that co-blogger Bob, his former student Kate Sheehan, and I published in the IJSF (available here) is blurbed in today's WSJ. Our paper is also cited in this book on celebrities.

New paper by two scholars I don't know, but I probably should.

"The Emergence of Institutions," by Santiago Sanchez-Pages and Stéphane Straub. (gated)

Abstract: This paper analyses how institutions aimed at coordinating economic interactions may emerge. Starting from a hypothetical state of nature, agents can delegate the task of enforcing cooperation to one of them in exchange for a proper compensation. Both individual and collective commitment problems stand in the way of institution formation. These problems imply first that a potentially efficient institution may fail to emerge and also that if it emerges, it may do so inefficiently. We show that big and untrustworthy societies are more likely to support institutions whereas their emergence is more difficult in small and trusting societies, but if institutions do emerge, they tend to be more inefficient in the former type of societies. Finally, we show that the threat of secession by a subset of agents may alleviate the latter problem.

On November 9-11, the question for discussion on the online New York Times' "Room for Debate" feature was "Back to a Gold Standard?". Prompted by World Bank chief Robert Zoellick's remarks (previously noted here) suggesting that the price of gold be used "as a reference point for inflation and currency values", The Times invited six economists to comment on the following questions:

"Would moving to a modified gold standard make sense in this global economic climate? Or would it make recovery more difficult? How might this work?"

All six invitees rejected any type of gold standard. (My colleague Russ Roberts did at least defend the idea of constraining monetary policy in some other way.) Several invoked the common but mistaken notion that "the gold standard" was responsible for the Great Depression. None distinguished between the robust classical gold standard and the fragile jerry-rigged central-bank-mismanaged gold-exchange system that failed in the interwar period.

Sigh. That's not exactly my idea of finding "room for debate". Academic defenders of the gold standard are not that difficult to find (cough, cough).

"How did Kelo Affect Business Formation?"
by Ramon P. DeGennaro and Tianning Li

Abstract:

On June 23, 2005, the U.S. Supreme Court ruled in Kelo v. City of New London, 505 U.S. 469 (2005) that the Public Use Clause allows overnments to take private property for transfer to new private owners for the purpose of promoting “economic development.” We show theoretically that this reduces the value of businesses. We argue that this in turn reduces the incentives to start new businesses, particularly in states that did not enact legislation to restore property rights at the state level. Our preliminary empirical work supports this. The point estimate implies that passing a state-level law restricting eminent domain taking is associated with an increase in the rate of business formation of about 10 percent. Our results show that policy makers may enact state-level eminent domain restrictions to protect property rights without fear of retarding business formation. Business formation may even benefit.

PDF copy of paper here.

Paul Krugman notes that the deficit commission is "talking about raising the retirement age, because people live longer — except that the people who really depend on Social Security, those in the bottom half of the distribution, aren’t living much longer. So you’re going to tell janitors to work until they’re 70 because lawyers are living longer than ever."

That's an excellent point. Social Security has always been a bad deal for people with shorter-than-retirement-age life expectancies. It would be much better for janitors and others in that position to have personally owned retirement accounts instead. Right, Paul?

It seems that there is no number of boneheaded moves you can make that will win the affection of TROTW (the rest of the world). During W's tenure, TROTW hated us (rightfully, IMO) for military expansion. Now, apparently, during Obama's (and Bernanke's and Paulson's and Geithner's) tenure, TROTW hates us (again, rightfully, IMO) for monetary expansion:

The move, known as "QE2," will push down the value of the dollar as it pressures emerging economy currencies to rise, and has been criticized around the world..."This time the U.S. has achieved something great; that is, basically turning the whole world against it. QE2 has sort of become the U.S.'s de facto foreign policy, because it's essentially affecting every country, every economy, in the world."

German Finance Minister Wolfgang Schäuble said at a conference last week that, "With all due respect, U.S. policy is clueless."

Was ist das?! Clueless? Whyever would you think that?

1. Benjamin Rogge, A Maverick's Defense of Freedom.
2. James LeSage and R. Kelly Pace, Introduction to Spatial Econometrics.
3. Bethany McLean and Joe Nocera, All the Devils Are Here: The Hidden History of the Financial Crisis. (Thanks to Penguin Group for the copy).

From his essay on the relevance of Human Action to Industrial Organization, p. 241:

"Mises cogently explains in Human Action that markets do not equilibrate and then stop."

Well, this is interesting.

World Bank chief Robert Zoellick called yesterday for a more "co-operative" international monetary system that "should also consider employing gold as an international reference point of market expectations about inflation, deflation and future currency values." He adds: "Although textbooks may view gold as the old money, markets are using gold as an alternative monetary asset today."

Not exactly a call for restoring the classical gold standard. But more respect than gold usually receives from the World Bank or IMF.

From north Alabama. Wonder if this is the only such example in the entire country?

From the abstract of a new paper in the Journal of Public Economics:

Our results, based on state soft drink sales and excise tax information between 1989 and 2006 and the National Health Examination and Nutrition Survey, suggest that soft drink taxation, as currently practiced in the United States, leads to a moderate reduction in soft drink consumption by children and adolescents. However, we show that this reduction in soda consumption is completely offset by increases in consumption of other high-calorie drinks.

New paper by Pete Calcagno and yours truly, available for download at SSRN.

"Divided We Vote"

Abstract: Previous research has shown that divided government correlates with more constrained government, but less is understood about the empirical conditions that lead to divided government. This paper treats divided government as the dependent variable in an empirical macro political economy model estimated on 30 years (1976-2005) of panel data for the American states. Using both continuous and categorical measures of divided government, results indicate that voters support more divided government after periods of increased government spending per dollar of tax revenues, which suggests that voters attempt to utilize divided government for its constraining effects. On the other hand, voters generate more unified government after incomes have decreased and (to a lesser extent) after unemployment rates have increased, which suggests that voters seek to empower government in response to periods of economic distress. Only conditional support is found for the strategic-moderating theory (Alesina and Rosenthal 1996) that focuses purely on midterm cycles and split-ticket voting absent economic conditions.

Keywords: divided government, limited government, midterm cycles, split ticket voting, American states

JEL Classifications: D72; E62; H71

Live rhyming on stage, followed by panel with Russ Roberts and John Papola. As discussed, they manage to preserve great accuracy with the innovative delivery.

Not much according to John Cogan and John Taylor:

Much of the recent economic debate about the impact of stimulus packages has focused on the size of the crucial government purchases multiplier. But equally crucial is the size of the government purchases multiplicand—the change in government purchases of goods and services that the multiplier actually multiplies. Using new data from the Bureau of Economic Analysis and considering developments at both the federal and the state and local level, we find that the government purchases multiplicand through the 2nd quarter of 2010 has been only 2 percent of the $862 billion American Recovery and Reinvestment Act (ARRA) of 2009. This increase in government purchases has occurred mainly at the federal level. While states and localities received substantial grants under ARRA, state and local governments have not increased their purchases of goods and services. Instead they reduced borrowing and increased transfer payments. These findings explain why, regardless of the size of a government purchases multiplier, changes in government purchases have had no material effect on the growth of GDP since the time ARRA was enacted. The implication is not that ARRA has been too small, but rather that it failed to increase government consumption expenditures and infrastructure spending as many had predicted from such a large package.

Now we know the answer to the burning question--how does one spend over $800B and have little to show for it?

Wyoming Rep. Lummis: Estate tax rise has some planning death

My DOL blogging has been light to nonexistent thanks to my now-weekly gig with Forbes.com and my twice-weekly gig with the Mises Institute. Here's my latest Forbes piece, which deals with the housing market. If you have any suggestions for topics, I would be happy to read them.

NPR has a story on the peace and relative prosperity of Somaliland. It brings to mind the 2007 NYT piece on Somaliland and Pete Leeson's paper on anarchy in Somalia.

UPDATE: Richard Rahn also has a good piece on Somaliland. (HT: Greg Rehmke).

That's the question posed by P.J. Hill and my former student Shawn Regan in the current issue of PERC Reports. Dan Benjamin also has a nice piece on property rights to surf breaks.

Apropos of an earlier post on regulations, and personally relevant since my wife complained a few days ago that her tiny checking account is now charging her a $5 monthly fee, is this story: "Say goodbye to traditional free checking."

It's happening because a raft of new laws enacted in the past year, including the financial overhaul package, have led to an acute shrinking of revenue for the banks. So they are scraping together money however they can..."I've seen more regulation in last 30 months than in last 30 years," said Robert Hammer, CEO of RK Hammer, a bank advisory firm. "The bottom line for banks is shifting enormously, swiftly and deeply, and they're not going to sit by twiddling their thumbs.

Bonus irony: As I looked up the Dire Straits lyrics, the page I visited included an ad from Regions, my and my wife's bank.

The evidence on the law of 1/n has come down on both sides of the question; the latest offering is a paper by Peter Egger and Marko Koethenbuerger in the latest issue if AEJ: Applied Economics. The abstract (ungated version here):

This paper presents empirical evidence of a positive effect of council size on government spending using a dataset of 2,056 municipalities in the German state of Bavaria over a period of 21 years. We apply a regression discontinuity design to avoid an endogeneity bias. In particular, we exploit discontinuities in the legal rule that relate population size of a municipality in order to council size to identify a causal relationship between council size and public spending, and find a robust positive impact of council size on spending. Moreover, we show that municipalities primarily adjust current expenditure in response to a rise in council size.

A note to the authors--your lit review overlooks this paper and this paper.

The abstract of a paper by David Card, Martin D. Dooley and A. Abigail Payne the latest AEJ: Applied Economics:

We study competition between two publicly funded school systems in Ontario, Canada: one that is open to all students, and one that is restricted to children of Catholic backgrounds. A simple model of competition between the competing systems predicts greater effort by school managers in areas with more Catholic families who are willing to switch systems. Consistent with this insight, we find significant effects of competitive pressure on test score gains between third and sixth grade. Our estimates imply that extending competition to all students would raise average test scores in sixth grade by 6 percent to 8 percent of a standard deviation.

That's the title of a new NBER WP by Gianmarco I.P. Ottaviano, Giovanni Peri, Greg C. Wright. Immigrant bashers and Dems who scapegoat companies that "send jobs overseas" might find it worth a read; here's part of the abstract:

How many "American jobs" are taken away from US-born workers due to immigration and offshoring? Or is it possible, instead, that immigration and offshoring, by promoting cost-savings and enhanced efficiency in firms, spur the creation of native jobs? .... We use this model to jointly analyze the impact of a reduction in the costs of offshoring and of the costs of immigrating to the U.S. The model predicts that while cheaper offshoring reduces the share of natives among less skilled workers, cheaper immigration does not, but rather reduces the share of offshored jobs instead. Moreover, since both phenomena have a positive "cost-savings" effect they may leave unaffected, or even increase, total native employment of less skilled workers. Our model also predicts that offshoring will push natives toward jobs that are more intensive in communication-interactive skills and away from those that are manual and routine intensive. We test the predictions of the model on data for 58 US manuafacturing industries over the period 2000-2007 and find evidence in favor of a positive productivity effect such that immigration has a positive net effect on native employment while offshoring has no effect on it.

Many thanks to my grad school colleague Linda Ghent for her talk at Berry on Thursday. An auditorum full of students was treated to some Seinfeldonomics. From "can you spare a square" to black market shower heads to can deposit arbitrage, a good time was had by all. Linda and Alan Grant maintain the site yadayadayadaecon.com with references to dozens of clips of economics in "Seinfeld."

Nearby readers might want to join us for talks by co-blogger Ed Lopez on Oct. 25 and Lynne Kiesling on Nov. 22.

Emory's Paul Rubin in today's WSJ:

One of the great triumphs of modern economics is the reduction in tariffs and other barriers to the free international flow of goods. Enough voters have been convinced of the benefits of free trade that it has generally been a winning political position, and those running on protectionist platforms do not do well in contemporary America. It would be a disaster if the current economic malaise reversed this situation.

Of course, the Dems are trying desperately to appeal to people's protectionist instincts. The AFL-CIO is creating some sort of outsourcing database, and a couple of Dem Congressmen are holding an anti-outsourcing event. Here in GA, the Dem candidate for governor has an ad up attacking firms that ship jobs overseas (here--the one labeled "Jobs Factory").

UPDATE: A reader points me to another Dem touting protectionism in his campaign ads. I've embedded the video below the fold.

Read More »

Josh and I (and Jim Gwartney) have an article in today's Washington Times.

In the early 1980s, under the leadership of Ronald Reagan and Margaret Thatcher, the United States and the United Kingdom reduced marginal tax rates, brought inflation under control and relaxed both regulations and trade barriers. Many other countries soon followed, and the result was a quarter-century of expansion in both economic freedom and the growth of income. From 1980 to 2007, there was a gradual but steady movement toward economic freedom.

These movements can be observed in the data of the just-released Economic Freedom of the World: 2010 Annual Report.

However, as this year's report shows, the world's economic freedom rating in 2008 fell for the first time in several decades. Of the 123 countries with ratings in 2007 and 2008, 88 (71.5 percent) exhibited rating decreases and just 35 (28.5 percent) recorded rating increases.

In one sense, the opposite of moral hazard is called overcoming time-inconsistency (which The Kling nicely describes). A Tennessee fire department gives us a particularly vivid example, which came to me by email from one of my former San Jose students.

Hi Professor Lopez,

Here's an article that reminded me of Law and Econ:
http://www.wpsdlocal6.com/news/local/Firefighters-watch-as-home-burns-to-the-ground-104052668.html

Essentially, the county let a guy's house burn down to set an example (and/or out of spite). The home owner would have willingly paid more than $75 to have his house saved, but the county understood that if they accepted his late payment, it would have caused other residents not to pay their annual Fire Protection. Well, not pay until their own house was on fire.

What makes a good university teacher? I don't necessarily agree with all of what Stigler has to say in this brief passage, but I do find it provocative.

The good teacher is a mysterious person, and yet we must know his character before we can prescribe his training. In my view, the good teacher is not distinguished by the breadth of his knowledge, by the lucidity of his exposition, or by the immediate reactions of his students. His fundamental task is not to dispense information, for in this role he is incomparably inferior to the written word. His task is to fan the spark of genuine intellectual curiosity and to instill the conscience of a scholar--to communicate the enormous adventure and the knightly conduct in the quest for knowledge... To this end, the fundamental requirements of the good teacher are competence (How can the incompetent be other than slovenly?) and intellectual vitality (How can the sedentary excite us to bold adventure?). These traits may be acquired by wide reading and deep reflection, without engaging in research and becoming a specialist. But it is an improbable event. It is improbable psychologically: it asks a man to have the energy to read widely and the intellectual power to think freshly, and yet to do no research. He is to acquire knowledge and construct ideas--and keep them a secret. It is improbable scientifically: it asks a man to be competent in his understanding of work that he has had no part in constructing. At lease in economics, this is almost impossible. There is no book that states the consensus of the profession on the ideas that are changing--and these are naturally the most interesting ideas. Only the man who has tried to improve the ideas will know their strengths and weaknesses. Scholarship is not a spectator sport.

The quotation is from Stigler's collection of essays on academia and society, The Intellectual and the Marketplace. Originally published in 1963, it was reprinted by Harvard U. Press in 1984, presumably due to heightened interest after he won the 1982 Nobel. As various product descriptions note, these largely normative and tongue-in-cheek essays are relatively rare in Stigler's body of work, which makes them more interesting to me. I wonder if the collection was reviewed by other luminaries when it originally came out? If you know of one, please let me know.

The sheriff arrived at the factory here to shut it down, part of a national enforcement drive against clothing manufacturers who violate the minimum wage. But women working on the factory floor — the supposed beneficiaries of the crackdown — clambered atop cutting tables and ironing boards to raise anguished cries against it.

“Why? Why?” shouted Nokuthula Masango, 25, after the authorities carted away bolts of gaily colored fabric.

She made just $36 a week, $21 less than the minimum wage, but needed the meager pay to help support a large extended family that includes her five unemployed siblings and their children.

Source.

So says a Massachusetts convenience store owner about New York's cigarette tax.

Related--A five-part series on Canada's black market cigarette economy.

Tip o' the cap to Angus over at Kids Prefer Cheese.

One way to pump up your GDP is to glaze a window, then break the windowpane in order to install another windowpane. Go, go, output! However, as Hazlitt and Bastiat told us long ago, breaking a window is destruction and not economic growth.

Keeping Hazlitt & Bastiat in mind, check out this link and follow the links in the story. It explains so much about China.

An AJC columnist favorably points to a CBO study claiming that making the Bush tax cuts permanent would harm GDP growth because large deficits would crowd out investment. CBO apparently acknowledges that maintaining the tax cuts would have some favorable supply side effects, but thinks that the crowding out problem would be larger.

Suppose, for the moment, that CBO is correct. It seems then that permanent spending increases would be even worse. They would have the crowding out effect, but they would not have the favorable supply side effects. Indeed, spending such as unemployment benefits has adverse supply side effects. However, Doug Elmendorf's blog post makes no mention of any adverse crowding out effects arsing from unemployment benefits or other so-called stimulus. I might need to dig deeper--I've only read the post not the linked documents--but I wonder if we have a bit of a double standard here. It reads as if CBO worries about deficits caused by tax cuts but not deficits caused by spending increases.

According to one John Duffield, and he has published his proof in the Real-World Economics Review here.

The opening salvo:

The doctrine of “comparative advantage” attributed to David Ricardo remains a staple in the apologetics of corporate globalization: If international trade only benefits rich and poor countries alike, its opponents are summarily indicted for plain misanthropy. In the nearly two centuries since its appearance, the Ricardian doctrine has been criticized by both Right and Left of the politico-economic spectrum, but critical consensus still awaits a definitive refutation of Comparative Advantage on its own terms. This essay presents just such a refutation.

A representative sample:

The unconvinced partisan of the modern textbook presentation of Comparative Advantage may protest that the elenchus above offered cannot be cogent since it posits an infinity of derived measures of intrasystemic productivity/skill differentials, each a function of the productivity/skill differential of the other system given as template or reference frame. Surely there must be but one true productivity/skill differential, accessible to direct observation, for any given economic system! --The naiveté of Cartesian univocity is historically compelling, but demanding a direct and univocal reading of a system’s productivity/skill/real income is as futile as demanding a universal “now” in protest against Einstein’s theory of the relativity of simultaneity, which declares that the question, Are these two events simultaneous or not? has no univocal answer.

DoL should start a new category called "WTF?"

Please do NOT read the whole thing.

One third of national income?

The annual cost of federal regulations in the United States increased to more than $1.75 trillion in 2008, a 3% real increase over five years, to about 14% of U.S. national income. This cost is in addition to the federal tax burden of 21%, for a combined cost of 35% of national income. One out of every three dollars earned in the U.S. goes to pay for or comply with federal laws and regulations, and new policies enacted in 2010 for health care and financial services will increase this burden.

For any of my Principles Micro students reading this for their blog assignment, consider the effect on the different cost curves of this increased regulation/compliance costs; how it would affect budget constraints/consumption decisions.

HT: Boortz

Nudists and swingers at war in France's 'Naked City'

Previous post on Sarkozy's desire for a happiness adjusted GDP.

Blockbuster Files for Chapter 11 Protection

From NPR:

Black-market cigarettes are costing many states hundreds of millions of dollars a year in lost tax revenue. And the lucrative, illicit trade is attracting violent criminal gangs that can be lethally ruthless.

The black market and the accompanying violence is caused entirely by the greedy hand of taxation.

Frank and I have a short "Primer on the Gross Receipts Tax" out with the Georgia Public Policy Foundation which was printed in the Gwinnett Gazette.

As taste:

So should Georgia’s tax study commission urge the state to adopt a gross receipts tax? At first, a gross receipts tax seems appealing from a base-broadening perspective. But it comes with a lack of transparency and with much arbitrariness in the tax burden across industries because of the tax pyramiding caused by business-to-business transactions. Hence, focusing on broadening the base of the traditional retail sales tax would be a superior option.

"How has the crisis changed the teaching of economics?"

The Economist asks and many working economics educators give short answers. It is difficult to find much to quibble with here because most of the answers are too broadly stated (must have been a word cap for answers). But I like the comments about economic history and Alesina's comment about "how" versus "what." Personally I think the last three years have made economics more intersting to teach, especially macro principles. Also, I think it's worth asking what the crisis has taught working economists about economics. I have learned a lot about bubbles. On the other hand, I think I know less about macro than before, perhaps only because I know what more of the tough questions are.

I have a new edited book out on higher education called Doing More With Less: Making Colleges Work Better. It is available from the publisher and Amazon. Note that it is priced for the academic library market.

Table of contents below the fold.

Read More »

By James Gwartney, Joshua Hall, and Robert Lawson and contributions from Christopher J. Coyne, John W. Dawson, Horst Feldmann, John Levendis, Russell L. Stobel, and Edward Peter Stringham.

This year’s report shows that economic freedom experienced its first global downturn in a quarter century, with the average score falling to 6.67 in 2008 (the most recent year for which data is available) from 6.74 in 2007. Of the 123 countries with economic freedom rankings dating back to 1980, 88 (71.5 per cent) saw theirrankings decrease while only 35 (28.5 per cent) recorded increases.

Press release and full report available here.

It is with sadness that I belatedly report the passing of Peter Kennedy. While I did not know him personally, I will forever be in his debt as a consumer of his excellent A Guide to Econometrics. In addition, I found him to be an excellent and fair editor at the Journal of Economic Education.

Full announcement here.

The journal is published by Berry's business school and edited by one of my top students. The call for papers and other information is here.

Chick-fil-a is usually our fast food restaurant of choice because we've never run into this problem. Or this one. I went to a Chick-fil-a on Saturday, and they forgot to give us straws and napkins, but the food was very fresh, it's one of the few times we've ever had trouble there, and it could be that I drove off before they could give us straws & napkins. To pick up on Levitt's question about the lousy service at KFC, why is it that Chick-fil-a does so well what so many other restaurants do so poorly?

Expect DeLong, Krugman, Reich, et al. to rail against this one:

Cuba to cut 500,000 from state payroll

ADDENDUM: George Will's latest column takes on Hoover and cash for clunkers.

From the abstract of a new NBER WP by Atif Mian and Amir Sufi:

We examine the ability of the government to increase consumption by evaluating the impact of the 2009 “Cash for Clunkers” program on short and medium run auto purchases. Our empirical strategy exploits variation across U.S. cities in ex-ante exposure to the program as measured by the number of “clunkers” in the city as of the summer of 2008. We find that the program induced the purchase of an additional 360,000 cars in July and August of 2009. However, almost all of the additional purchases under the program were pulled forward from the very near future; the effect of the program on auto purchases is almost completely reversed by as early as March 2010 – only seven months after the program ended. The effect of the program on auto purchases was significantly more short-lived than previously suggested. We also find no evidence of an effect on employment, house prices, or household default rates in cities with higher exposure to the program.

French survey reports sex misery for most couples (HT: Instapundit)

Related post here.

That's the finding of a study by Angus Deaton and Daniel Kahneman. I'm still skeptical of the entire enterprise of studying happiness--it reeks of interpersonal utility comparisons.

But, hey, maybe I should be more open minded. One bloke who makes $400,000 per year is bellyaching that people talk about him like a dog and another well paid chap writes that he wants to cry.

From Lawrence Reed:

Any good economist will tell you that as complementary factors of production, labor and capital are not only indispensable but hugely dependent upon each other as well.

Capital without labor means machines with no operators, or financial resources without the manpower to invest in. Labor without capital looks like Haiti or North Korea: plenty of people working but doing it with sticks instead of bulldozers, or starting a small enterprise with pocket change instead of a bank loan.

There may be no place in the world where there’s a shortage of labor but every inch of the planet is short of capital. There is no worker who couldn’t become more productive and better himself and society in the process if he had a more powerful labor-saving machine or a little more venture capital behind him. Capital can refer to either the tools of production or the funds that finance them. It ought to be abundantly clear that the vast improvement in standards of living over the past century is not explained by physical labor (we actually do less of that), but rather to the application of capital.

This is not class warfare. I’m not “taking sides” between labor and capital. I don’t see them as natural antagonists in spite of some people’s attempts to make them so. Don’t think of capital as something possessed and deployed only by bankers, the college-educated, the rich, or the elite. We workers of all income levels are “capital-ists” too—every time we save and invest, buy a share of stock, fix a machine, or start a business.

And yet, we have a “Labor Day” in America but not a “Capital Day.”

Like most Americans, I’ve traditionally celebrated labor on Labor Day weekend—not organized labor or compulsory labor unions, mind you, but the noble act of physical labor to produce the things we want and need. Nothing at all wrong about that! But I’m starting a new tradition this year that may never catch on and it doesn’t matter to me if it doesn’t. I’m doing it anyway: In odd-numbered years, I will celebrate Labor Day on the first Monday of September. In even-numbered years, I will celebrate what I’ll call Capital Day. This makes Monday, September 6, 2010 my first official Capital Day.

This weekend, I’ll be thinking about the remarkable achievements of inventors of labor-saving devices, the risk-taking venture capitalists who put their own money (not your tax money) on the line and the fact that nobody in America has to dig a ditch with a spoon or cut his lawn with a knife.

Happy Capital Day, America!

Related post here.

A short and impressionistic post over at LTW...

You always hear talking heads saying business hates uncertainty. But why don't we hear that politicians love it?

My favorit account: Amity Shlaes' book FORGOTTEN MAN. That Roosevelt, he knew from uncertainty.

My good friend Bruce Caldwell has some interesting comments on the place of "history of thought" in Econ.

One of the many supposed evils of the health care marketplace is the ambulatory surgery center (ASC), a facility which supposedly drains patients from traditional hospitals and constrains cross-subsidization of medical services. However, a new paper by Charles Courtemanche and Michael Plotzke in the Journal of Health Economics finds only very modest overlap between ASCs and surgery performed at traditional hospitals. The paper's abstract:

This paper estimates the effect of ambulatory surgical centers (ASCs) on hospital surgical volume using hospital and year fixed effects models with several robustness checks. We show that ASC entry only appears to influence a hospital's outpatient surgical volume if the facilities are within a few miles of each other. Even then, the average reduction in hospital volume is only 2–4%, which is not nearly large enough to offset the new procedures performed by an entering ASC. The effect is, however, stronger for large ASCs and the first ASCs to enter a market. Additionally, we find no evidence that entering ASCs reduce a hospital's inpatient surgical volume.

This finding is something to keep in mind when folks who restrain ASCs bleat about how their reforms expand access to health care.

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.

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.

Source.

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.

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

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).

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.

We have a big opportunity here to educate perverts about economic development.

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

for one of these products with respect to the other?

…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.

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.

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.

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.

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.

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

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.

Source.

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".

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.

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.

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.

Source.

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

(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.

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.

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.

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.

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.

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.

Here's David Friedman on anarcho-capitalism, embedded at Let A Thousand Nations Bloom. You can get, among other things, the first edition of his classic The Machinery of Freedom at his website. This would, of course, make an excellent companion for a reading group studying For a New Liberty.

Addendum: Here's Friedman arguing that we should get rid of criminal law. It's great background for data entry on the history of legal systems.

From AL.com. How many other cities have spent $850,000 on lobbyists since 2008 fighting for the same contracts and funding? Here's co-blogger Mike Munger's great article "Rent-Seek and You Will Find."

Great news: George Selgin's important work The Theory of Free Banking is now freely available online at the Liberty Fund's Online Library of Liberty site. This is essential reading for anyone wondering whether there is a viable alternative to our failed central banking regime.

P. S. Anyone includes Thomas Sargent, whose interesting recent working paper on the question of laissez faire versus legal restrictions in money and banking would benefit from some reference to the free banking literature beyond the work of Neil Wallace.

Here is an example that complements the usual money examples.

Google Invests in Wind Farm
Barbara Hernandez, PC World
Jul 20, 2010 7:28 pm

Google plans to become carbon neutral at the same time promote green energy by entering into a 20-year agreement to buy power from an Iowa wind farm. The farm, part of NextEra Energy Resources in Story and Hardin counties, will sell Google 114 megawatts of renewable power. Google says that the energy it will buy is enough to power several of its data centers.

[...]

In reality, Google will not directly power its server farms with NextEra Energy. ... The wind energy Google buys, it explains, will be sold back to the regional grid. That in turn reduces -- by 114 megawatts -- the amount of non-renewable energy created to maintain the regional power grid.

The government's fondness for spending without taxing implies, through the government budget constraint G = T + ΔD + ΔM, some combination of the compulsions to borrow and to print money.

In the latest installment of the Econ Journal Watch podcast series , I talk to Jeff Hummel about the intersection of debt finance and seigniorage. Will Greece, Spain, et al., default? Or will the ECB try to inflate away its fiscal problems? What about the US? I'm worried about inflation, but Hummel argues that default is a political equilibrium: it stiffs foreign creditors without angering domestic money-holders.

Kurt Schuler's applause-worthy new project is an ongoing effort to build a freely accessible comprehensive database of historical financial statistics for as many countries and as many years as possible. The initial framework is now online here, hosted by the Center for Financial Stability. Researchers are invited to use the database and to contribute to filing in the gaps. Data series include:
•Exchange rates: low-frequency data.
•Monetary authorities: assets and liabilities; income and expenditures.
•Deposit money banks: assets and liabilities; income and expenditures.
•Other banking institutions: assets and liabilities; income and expenditures.
•Other financial institutions: assets and liabilities; income and expenditures.
•Monetary aggregates.
•Interest rates: low-frequency data.
•Prices, production, labor.
•International transactions
•Government finance.
•National accounts and population.
•Summary data on the history of financial institutions

Here's Stossel.

Economics question:

Some commentators are calling for what might be called a strategic immigration policy whereby we allow in immigrants with good educations and good English skills. That way, they will augment our high-tech industries.

True or False? Uneducated, low-skill Mexican immigrants who speak no English do not augment the American high-tech economy. Explain your answer. Hint: Bryan Caplan has discussed something similar at Econlog, but I encourage you to try to work it out yourself before consulting The Google.

If the Iroquois lacrosse team doesn't want to conform to our American (or Canadian) way of life and travel on American (or Canadian) passports, they need to get out of our country and go back where they came from. HT: Savage Minds.

Addendum: this is one of the best image memes ever.

UPDATE (7/21): The letter wasn't dead, just on life support. It appears in today's WSJ.

This WSJ editorial prompted the letter below which at this point seems unlikely to see print:

I was surprised to read that “White House economists believe taxes have little effect on growth” (“The Obama Tax Trap,” July 2). Just a few days ago I received the June 2010 issue of the American Economic Review, the flagship journal of academic economics. The current issue contains an article by CEA Chair Christina Romer and her husband David Romer on the macroeconomic effects of tax changes. Their paper examines “all major postwar tax policy actions” and concludes that “tax increases are highly contractionary.” For emphasis, the authors add that this finding is both “strongly significant” and “highly robust.” Could it be that the White House economic team is suffering a bit of cognitive dissonance?

From something I'm reading:

"By the early 1800s, however, with the publication of David Ricardo's landmark work on free trade and the adoption of his ideas by Adam Smith, the British state had embraced global liberalism, and the British-dominated world economy that emerged after the Congress of Vienna of 1815 was defined almost entirely by these values."

What's the problem?

1. Do the producers of these eco-friendly cups account for the fact that you have to use two cups to keep from burning your hands in their calculations of how many gallons of fuel, kW hours of electricity, and tons of carbon are being saved by their products? Or are they assuming a 1-to-1 substitution between their cups and styrofoam or plastic cups? I was about to say "maybe they're not for hot liquids," but there's a warning saying "Caution: Contents Hot" on the side.

2. In cleaning out my office I (re-)noticed an old WSJ op-ed by Bradley Schiller on my bulletin board titled "Min Wage, Max Politics." I don't have the date handy, but here's are some highlights:

The debate was always more about political posturing than economic reality.

Debates like this almost always are. The minimum-wage workforce is very, very tiny relative to the total workforce, and a lot of people--"tipped employees, seasonal recreation workers, charitable organizations, mom-and-pop businesses, farm workers, and Samoan laborers"--are exempt. Schiller points out what this means for the measured effects of the minimum wage:

This huge "uncovered" (exempt) segment of the labor force not only restrains the wage impacts that Democrats promise but also obscures the disemployment effects that Republicans project. A worker displaced by a legislated wage hike at McDonald's can take a waiter or busboy job in a sit-down restaurant. In the process, uncovered employment becomes a substitute for increased unemployment. The "beneficiary" of the legislated wage hike may actually experience a wage decline in the process.

As a result, the true displacement effects of an effective minimum wage hike are not easily observed, much less measured.

3. Having The Hayek Interviews online is totally awesome. Interestingly, I was reading something talking about "conservative" free-market economists while watching a discussion between "Why I Am Not a Conservative" author F.A. Hayek and "Why I, Too, Am Not a Conservative" author James Buchanan.

What's wrong with this headline?

House bill would make school lunches healthier

The answer is intimately related to why I don't lose much sleep over newspapers' struggles in the information age. I'd go on, but co-blogger Ed Lopez beat me to it a few weeks ago.

4:38 Update: speaking of intentions, here's Justin Ross on new crib regulations.

Here's Steve's latest Freeman column, in which he takes up the cause of payday lenders and their customers. Here's Walter Block's Defending the Undefendable, available for $0. The moral, and I paraphrase Justin Ross: "Economics is the art of not killing people with your good intentions."

That's the title of my paper with David Molina that is now forthcoming in the Atlantic Economic Journal. The paper revisits an old issue in micro theory, one that was apparently settled. It goes something like this.

Ask any economist, "what are the Marshallian surplus effects of changing from a uniform price monopolist to a multi-market (i.e., third-degree) price-discriminating monopolist?" The right response used to be: "Well, that depends on whether output increases." Hal Varian's very nice 1985 AER paper shows that 3DPD is a means by which the firm can increase output, which in turn increases Marshallian surplus. The dominant wisdom in economic theory maintains that a necessary condition for 3DPD to increase welfare is that it increase output.

Now the right response is: "Well, that depends on how you add the demand curves of the different segments." Here is the abstract of the paper:

Applied work in price discrimination often treats demand curves among multiple market segments as algebraically additive. Yet the welfare effects of multi-market (third degree) price discrimination depend on the method by which demand segments are added. Treating demands as geometrically additive yields the well known result that discrimination absent an increase in production diminishes Marshallian surplus. But if demands are treated as algebraically additive then discrimination increases welfare relative to uniform pricing. Quantity is identical in the three cases, so the effect is not due to market opening. Nor is the effect due to scale economies since marginal cost is assumed constant. Profit is always greater under discrimination, so the effect is due to distributional changes in consumer surplus. The model is restricted to linear demands and constant marginal cost but can be generalized for future work and policy analysis.

All the fun details are in the paper, available here on SSRN. Sorry for the messy equations, due to a glitch in converting from LaTex to .docx and back to .doc again. Feedback welcome! Enjoy!

P.S. The title is inspired by Robert D. Willig’s famous article, “Consumer’s Surplus Without Apology” (AER 1976), which defends the use of Marshallian surplus as a measure of market welfare.

For one of our Big Box retail projects, I'm reading the section of Walmart's 2009 annual report on Sam's Club. This passage was striking:

Sam's also remains focused on changing packaging to make certain products more relevant to Advantage members' needs. For example, repackaging three bottles of ketchup together in a size that is easier to pick up, has longer shelf life, and fits in refrigerator doors better than one large bottle, resulted in a significant increase in ketchup sales.

Even if central planners could have figured this out, how would they know that it's a wise use of resources?

Here. I'm especially looking forward to his discussions with James Buchanan, Axel Leijonhufvud (author of Keynesian Economics and the Economics of Keynes, which I still, to my shame, haven't read), and Armen Alchian.

Justin Ross: "The deadweight loss of Ohio's income tax is LeBron James."

Jeffrey Tucker interviews Bryan Caplan about Pictures of the Socialistic Future here.

Readers of DOL, Econlog, and Coordination Problem probably know that we're crazy about Lenore Skenazy's Free-Range Kids, which is probably the only parenting book likely to develop a cult following among economists. A few weeks ago, Portfolio sent me a copy of Laura Vanderkam's 168 Hours: You Have More Time Than You Think (here's the accompanying blog). It's an excellent book, and it even invokes comparative advantage (!). In a recent blog post, she discusses coupon-clipping and asks whether it is worth the effort. For a lot of us, the answer is "no." As an occasional producer of Productivity Pr0n, I really enjoyed it. Look for a short write-up either for Lifehack or Booked...uh, soon.

Last week I wrote a column for The Freeman where I argue that the decline of newspapers is not a market failure. Here is a related podcast for The Heartland Institute.

This week I wrote a follow up piece, also for Heartland, which argues that the decline of newspapers is a market success.

Enjoy.

NBA superstar free agent would pay over $12 million in New York income taxes, none in Miami

He'd also face a steep bill in OH, IL, and NJ.

UPDATE: A reader email points me to this analysis about the tax difference between playing in Miami and elsewhere. It concludes that the difference between Miami and Chicago would be negligible but that the difference between Miami and New York would be substantial.

I've also spent a few minutes looking for sports econ research on the topic. I found two papers (one co-authored by DOL friend Justin Ross and the other co-authored by noted public finance economist Jim Alm) finding that baseball free agents signing with teams in high tax jurisdictions sign for larger salaries. These studies suggest, but offer no direct evidence, that in a salary capped sport such as the NBA players' location decisions might be affected by state income taxes.

I'm revising my paper "Economic Calculation in the Environmentalist Commonwealth in response to excellent referee reports from the Quarterly Journal of Austrian Economics. In the process, I've read and re-read some absolutely fantastic papers:

1. Hasnas, John. 2009. Two Theories of Environmental Regulation. Social Philosophy and Policy 26:95-129. John and I were on staff together at an IHS "Liberty & Society" seminar in 2008. His lectures changed the way I think about tort. The link is gated; I was able to find a PDF by searching Google Scholar.

2. Norman, Wayne and Chris MacDonald. 2004. Getting to the Bottom of “Triple Bottom Line.” Business Ethics Quarterly 14(2):243-262. Gated JSTOR link. If you're interested in business ethics, the environment, or pretty much anything, you should read this paper very carefully. The authors conclude that 3BL consists of "vague and literally meaningless principles" that "are best only for facilitating hypocrisy." Here's an ungated version.

3. Hülsmann, Jörg-Guido. 1997. Knowledge, Judgment, and the Use of Property. Review of Austrian Economics 10(1):23-48. The discussion of the differences between action in coercive and non-coercive environments alone is worth the $0 download. I don't know if I agree with his assessments of Hayek and Kirzner.

4. Rothbard, Murray N. 1982. Law, Property Rights, and Air Pollution. Cato Journal 2(1):55-99. Reprinted in Murray N. Rothbard, 1997. The Logic of Action Two: Applications and Criticisms from the Austrian School. Cheltenham, UK: Edward Elgar Publishing, pp. 121-170. This should be essential reading in law & econ and environmental econ. I've toyed with the idea of assigning it in econ 100, but it's pretty long and a little outside the scope of what I cover when I go over externalities.

5. Reisman, George. 1996. Capitalism: A Treatise on Economics. Ottawa, Illinois: Jameson Books. OK, it's a book, not a paper, and a massive one at that (1100 large pages, two columns/page). I've never read this massive tome all the way through, but before I started grad school I read about the first 200 pages. The section on externalities beginning on p. 96 is really provocative. The $0 PDF is a handy reference.

Bozeman MT recently had a hail storm that damaged many buildings. Naturally it was treated as good news; the local paper reported "Storm boosts Bozeman economy."

Luckily, my excellent former student Shawn Regan now lives in Bozeman and sent this response to the paper:

Writing in 1848, Frédéric Bastiat explained the difference between a good and a bad economist. “The bad economist,” he wrote, “confines himself only to the visible effect.” By contrast, the good economist takes into account both “what is seen and what is not seen” when evaluating the results of an event.

To illustrate his point, he described the scene of a broken window, which onlookers claimed would actually benefit the town. The glazier would get extra business and the economy would be stimulated.

But as Bastiat pointed out, this line of reasoning is fundamentally flawed. It evaluates only what is seen, a new window, and neglects what is not seen, the countless ways the money would have been spent if the window had not broken. This often-repeated claim has become known as “the broken window fallacy.”

In the wake of last week’s hail storm, which left most Bozeman residents with literal broken windows, the Bozeman Daily Chronicle committed Bastiat’s enduring fallacy (“Storm boosts Bozeman economy,” July 7). The paper reported that the hundreds of thousands of dollars being spent repairing broken windows, dented cars, and fractured roofs will boost Bozeman’s economy.

But by reporting only on the increased activity in the repair industry the paper is focusing solely on what is seen. What is not seen are the foregone investments and purchases of clothing, appliances, and other goods and services that would have been made had the “windows” not been broken.

Economies do not prosper by repairing broken infrastructure. Otherwise, it would follow that the best remedy for the economic downturn would be nationwide hail storms – a ludicrous assertion. The unfortunate reality is that Bozeman is poorer, not richer, as a result of the storm.

The abstract of a clever new NBER WP by Efraim Benmelech and Nittai K. Bergman:

We provide novel evidence linking the level of creditor protection provided by law to the degree of usage of technologically older, vintage capital in the airline industry. Using a panel of aircraft-level data around the world, we find that better creditor rights are associated with both aircraft of a younger vintage and newer technology as well as firms with larger aircraft fleets. We propose that by mitigating financial shortfalls, enhanced legal protection of creditors facilitates the ability of firms to make large capital investments, adapt advanced technologies and foster productivity.

Was guest on "The Takeaway" this morning, live at 6 am. (You think it's all glory? Set YOUR alarm for 5:15 am, and see how perky you are!). National NPR program. You can listen by clicking "listen" here.

They asked me to do a little blog post, so I did. Call me Scrooge-mael.

...always and forever. Given that stamp prices have risen faster than gas prices, which have risen faster than the CPI (how do they compare to college tuition?), I have to wonder why people are always so angry about oil companies but perfectly willing to give the USPS a free ride.

New single family home building permits in Rome Ga.

2007: 281
2008: 309
2009: 72
2010 Q1: 11 (roughly half of the 21 in 2009 Q1)

Source: www.builderonline.com (there are data for many other MSAs).

Don hammers another one out of the park: "make it so" is insufficient for results.

The credit card companies are in the crosshairs of the financial regulation bill because of supposedly exhorbitant fees charged to merchants who accept credit cards. Even with the fees, at least one business, a New York restaurant, will no longer accept cash. A snip from a WSJ piece:

Mr. Zazula didn't back down. While other new and buzzworthy restaurants nationwide still buck the credit-card trend by refusing to accept anything other than cash -- bypassing the surcharges levied on every purchase -- he said the convenience and security afforded by going cashless are well worth the added cost. Gone is the age-old restaurateur's fear of getting robbed, either by outsiders or his own employees. "No more armored trucks," he says.

And going cashless allows restaurants to please the Internal Revenue Service, because cash-based transactions are easier to hide.

If you subscribe to Arts & Letters Daily, you've probably seen Naomi Wolf's piece on sweatshops and the like. Here's Ben Powell's defense of sweatshops.

Even if voluntary sweatshops violate human rights and oppress women, the answer isn't necessarily boycotts or consciousness-raising candlelight vigils. The answer is open immigration. Here's Ben Powell defending that, too. For a multitude of immigration resources, just type "immigration" in the search box on the right.

South Carolina's cigarette tax increases 50 cents per pack effective today. I saw this sign in SC a few weeks ago.

The econ blogosphere is alight with news of Frederic Bastiat's birthday today (here, for example, is Mark Perry on the Candlemaker's Petition). Here are some of his best works. A few seconds with the Google will turn up downloadable versions of The Law and other works.

Careful readers may recall my recent rant here on DOL about the Federal Trade Commission's discussion paper on the reinventing journalism.

Today at The Freeman I have a guest column taking a somewhat calmer approach. Enjoy.

Just a quick pointer to The Beacon where I'm blogging a series of posts on my new book, The Pursuit of Justice: Law and Economics of Legal Systems.

In this post I will discuss how the law evolves instrumentally — that is, to serve private interests rather than the public interest.

Law is often assumed to be a public good that can only be (or is best) provided by governments. Yet despite traditional beliefs and wishes, government-produced law is frequently driven to serve particular narrow interests. Three of the chapters in The Pursuit of Justice analyze legal history to exemplify this point.

Enjoy.

An interesting (if slightly off-base) letter in the June 25, 1910 NYT:

It would be interesting to learn what reasons led the Senate committee to put advertising down as a help in raising the cost of living.

It is generally conceded that if more of a certain article can be produced and sold it can be made more cheaply, that is the turning out of the article in question, not lowering the standard of the article. Advertising which tends to create a demand and thus cause more to be sold eventually brings down the price of the article.

Furthermore, it is an undisputed fact that if an advertisement is put in a publication having a million circulation it is a more effective and expedient way of selling it than by writing individual letters or having salesman call on each individual.

Advertising brings before the public's attention new devices, comforts for the home, and new food products, which are bought because of their worth. If, because advertising causes people to want more, to want to live better, to heighten civilization, and therefore spend more to obtain the same, it is difficult to see just wherein its weakness lies.

While Principles Micro had their test last night, I perused the Summer 2010 issue of PERC Reports. Some great articles, including

"Bootleggers, Baptists, and Global Warming" in Retrospect by Bruce Yandle

"Recycling Redux" by Daniel Benjamin

and a book review "The Case Against the Hockey Stick" by Matt Ridley

It was refreshing reading those after being nauseated by the amount of talk on "sustainability" (i.e. save the environment, ignore the costs) while over in Germany a few weeks ago.

The Mercatus Center has posted online the current drafts of the first three chapters from my book-in-progress, The Clash of Economic Ideas. I'd appreciate comments and suggestions from anyone who takes the time to read one or more chapters.

Brad DeLong has joined the crowd of folks displaying their ignorance of Herbert Hoover's actual record. DeLong calls British Prime Minister David Cameron and Swedish Prime Minister Fredrik Reinfeldt "One Medium-Sized and One Small-Sized Herbert Hoover" for proposing to reduce their countries' government spending and budge deficits. DeLong also calls 52 senators who voted against a so-called jobs bill "Fifty-Two Little Herbert Hoovers."

Once again, Hoover's actual (ahem, reality-based) record is one of increasing spending and shifting the federal budget from a large surplus to a large deficit. Government spending was $3.127B in 1929, $3.32B in 1930, $3.377B in 1931, and $4.659B in 1932--a 50% increase. The increase in real terms was probably larger because of deflation. As for the surplus/deficit, the surplus of $0.7B in 1929 had become of a deficit of $2.7B by 1932. (Source--Table 1.1.)

I'll be contributing occasional discussions of books to Forbes.com's "Booked" blog. My first entry, a review of Thomas Sowell's The Housing Boom and Bust, is here.

Quick, what is 300 divided by 2? What is 10% of 1000?

Those were two of five questions asked of 340 borrowers who took out subprime loans in 2006 and 2007.

About 16 percent of the respondents answered at least one of the first two questions incorrectly. Mr. Meier said that the results were consistent among all levels of education and income.

Over all, 21 percent of the respondents whose math abilities placed them in the bottom quarter of the survey experienced foreclosure, versus 7 percent of those in the top quarter...

And better-educated borrowers are not exempt, either.

“People say they’re doctors, so they don’t really need it,” she said. “So what? We see doctors who took out loans they didn’t understand, and who are in foreclosure now.”

Reminded me of The Diff.

HT: Boortz

DOL friend Ben Powell on immigration.

I'm leading a "Brain Candy" discussion for the Rhodes Summer Writing Campt this evening. Once again, we're discussing the economics lessons in "King-Size Homer." Here's a rough draft of my chapter in Josh Hall's book on economics in The Simpsons. Here too is every episode of South Park, including the "Medicinal Fried Chicken" episode that makes the same points brilliantly but that isn't at all appropriate for a family environment. Here's an abridged audiobook version of Economics in One Lesson, and here's an older edition of the book (with a link to a PDF).

Over on The Beacon I am blogging a mini-series of posts to summarize much of the contents of The Pursuit of Justice.

Here is Adam Summers at the Reason blog discussing his contribution to the volume.

Here is the book's store page at The Independent Institute.

South Carolina voter: I voted for Alvin Greene because … his name reminded me of Al Green

HT: Instapundit

UPDATE: Thanks to a longtime reader who points me to Jon Stewart's riff on Alvin Greene's candidacy.

The Daily Show With Jon Stewart	Mon - Thurs 11p / 10c
Alvin Greene Wins South Carolina Primary
www.thedailyshow.com
Daily Show Full Episodes Political Humor Tea Party

Some cities have talked about building municipal wifi networks. It's unnecessary for at least two reasons:

Reason #1.

Reason #2.

Hypothesis: almost anyone who would benefit from municipal wifi lives or works within a five-minute drive of McDonald's or a Starbucks. If you live or work in a busy part of a major city, it's probably little more than a five-minute walk.

I can throw away biodegradable coffee grounds and a non-biodegradable, poisonous chemical-laden, broken, and useless cell phone and battery for the same price: $0.

Here's today's absolutely brilliant XKCD. The best part is the mouse-over, which criticizes Kennedy's argument for going to the moon. It has "future economics assignment" written all over it.

Here's MLK on the wisdom of sending someone to the moon:

Without denying the value of scientific endeavor, there is a striking absurdity in committing billions to reach the moon where no people live, while only a fraction of that amount is appropriated to service the densely populated slums.

Where Do We Go from Here: Chaos or Community?, 1967

Of course, we can't know whether a moonshot or urban services would be a better use of resources without the information provided by prices, profits, and losses. But that's another discussion for another day.

The abstract of a new NBER WP (emphasis added):

Hospitals are currently under pressure to control the cost of medical care, while at the same time improving patient health outcomes. These twin concerns are at play in an important and contentious decision facing hospitals—choosing appropriate nurse staffing levels. Intuitively, one would expect nurse staffing ratios to be positively associated with patient outcomes. If so, this should be a key consideration in determining nurse staffing levels. A number of recent studies have examined this issue, however, there is concern about whether a causal relationship has been established. In this paper we exploit an arguably exogenous shock to nurse staffing levels. We look at the impact of California Assembly Bill 394, which mandated minimum levels of patients per nurse in the hospital setting. When the law was passed, some hospitals already had acceptable staffing levels, while others had nurse staffing ratios that did not meet mandated standards. Thus changes in hospital-level staffing ratios from the pre- to post-mandate periods are driven in part by the legislation. We find persuasive evidence that AB394 did have the intended effect of decreasing patient/nurse ratios in hospitals that previously did not meet mandated standards. However, our analysis suggests that patient outcomes did not disproportionately improve in these same hospitals. That is, we find no evidence of a causal impact of the law on patient safety.

It's all about rent seeking by the powerful California nurses union; any benefits to patients would be incidental.

Not only is The Road to Serfdom #1 on Amazon, but the news of this is climbing the charts on many economics blogs, including:

Greg Mankiw: http://gregmankiw.blogspot.com/2010/06/amazon-number-one.html

Peter Boettke at Coordination Problem: http://www.coordinationproblem.org/2010/06/somewhere-bruce-caldwell-has-to-be-smiling-i-think.html

And naturally, our own Art Carden: http://divisionoflabour.com/archives/007190.php

So far no hint at Brad DeLong, Paul Krugman, or Freakonomics.

(Please excuse the lack of links I am mobile...)

The article is a bit dated, but one of my students pointed it out to me today:

GDP "doesn’t measure a nation’s quality of life or overall well-being. That’s why Wheatley, Wood and a handful of Vermont activists are promoting 'gross national happiness,' or GNH, as an alternative to the consume-and-spend formula that fuels GDP."

They recognize the broken-window aspect of GDP: "You could tear up that road outside, repave it, tear it up again and repave it again, and that would contribute to GDP...[b]ut it wouldn’t do anything for measuring ‘progress.’”

But it also "sound[s] a little touchy-feely" and is "sort of like an optimistic flaky idea that could come from hippies." To wit: "Our excessive focus on wealth, measured by GDP, is leading all of us and indeed our planet straight over a cliff."

An interesting article that could spawn some good Principles Macro discussions.

From an editorial in today's WSJ:

The Department of Transportation, in its infinite wisdom, has announced new rules for airlines to compensate passengers who are involuntarily bumped from an oversold flight. We have a better idea—or, more precisely, the late economist Julian Simon had one 30 years ago.

Which brings us to Simon, who in 1977 on these pages proposed an auction system in which airlines would offer passengers on overbooked flights a gradually rising reward for giving up their seat. For example, if 115 passengers showed up for a flight with 100 seats, the airline would start to offer, say, a $300 voucher to passengers who agreed to take a later flight. If there weren't enough takers at $300, the airline would increase the offer to $400, then $500, a free round trip ticket, etc., until 15 passengers volunteered. Auctions like this are highly efficient ways of allocating a scarce resource.

So why are there still so many involuntary bumpings? Because many airlines offer one take-it-or-leave-it deal—say, a $500 voucher—and if there are not enough takers, the random bumping begins. A real auction would prevent this and optimize the welfare of all parties. Those who take the payment for a later flight are better off because they have freely chosen this option. Passengers who cannot afford at nearly any price to miss the scheduled flight are guaranteed a seat.

When economist Milton Friedman heard of Simon's auction solution, he wrote that he was "utterly baffled" that "opportunities for large increments of profits are being rejected [by the airlines] for wholly irrational reasons." It is doubly baffling that 34 years later many airlines are still acting irrationally to the detriment of passengers and shareholders. Auctions make more sense than fines.

On my last trip, Delta's flight from Atlanta to Vegas was overbooked. Guess what happened? Delta started offering vouchers and upped the offers by $100 until getting enough takers so that the plane was no longer overbooked. Seems like Delta may have behaved exactly as Friedman predicted. Maybe Delta is unique or maybe it still engages in involuntary bumping, but, based on my last flight, the WSJ's piece strikes me as odd.

Addendum: Please see my more serious columns on this issue:
"Is the Decline of Newspapers a Market Failure?" published by The Foundation for Economic Education, and
"Decline of Newspapers is a Sign of Market Success," published by The Heartland Institute.

Original post begins here:

I have been thinking of Jackie Gleason lately. The elder Jackie Gleason. The one who's lived and learned, who's seen fads come and go, who is solid as a rock in his convictions, and who has little tolerance for a brave new world. In his second most endearing role, as the old-timey Sherrif Buford T. Justice of the Smokey and the Bandit franchise, Jackie's character once lamented: "Give me the old days when a pair of boobs was a couple of dumb guys." Be thankful, good Sherriff, that you are not an economist in today's world.

Or a carmaker. Or a banker. Or a homebuilder. A health care worker, an oil fracker. A fisher, a learner, a cigarette burner. A teacher, a trucker, an oyster shucker.

Or, as of today, a journalist.

In a federal government report whose title has been aptly described as the nine scariest words in the English language today, the Federal Trade Commission has issued, "Potential Policy Recommendations to Support the Reinvention of Journalism." Potential, indeed. According to Andrew Malcom at the Los Angeles Times, here's a sample what your hard working foks in Washington have in mind:

Would you believe: major changes to the copyright law, including government licensing provisions; government pilot programs to investigate potential new media business models, antitrust changes to allow media companies to unite on imposing online pay walls, establish a journalism division of AmeriCorps with government underwriting the training of young journalists, tax incentives per news employee, increased funding of public broadcasting, a 5% tax on consumer electronics and/or assessments on users of public airwaves.

Another idea would be to allow taxpayers to direct a portion of their taxes — perhaps up to $200 — to a specific media institution as payment for media services rendered. (Now, if taxpayers could direct such sums to individual bloggers…. )

For the moment, let's leave to one side the very deep First Amendment implications. Let's instead ask, "Wow! On what grounds would Washington enact such ideas?" If you're an old-timey economist like me, brace yourself. Paragraphs 14-15 of the paper invoke market failure theory.

14. There are reasons for concern that experimentation may not produce a robust and sustainable business model for commercial journalism. History in the United States shows that readers of the news have never paid anywhere close to the full cost of providing the news. Rather, journalism always has been subsidized to a large extent by, for example, the federal government, political parties, or advertising.

15. Economics provides insight into why this has been the case. The news is a “public good” in economic terms. That is, it is non-rivalrous (one person’s consumption of the news does not preclude another person’s consumption of the same news) and non-excludable (once the news producer supplies anyone, it cannot exclude anyone). Because free riding is usually easy in these circumstances, it is often difficult to ensure that producers of public goods are appropriately compensated.

These days everything's a failure. Market failure this, government failure that. Science failure, top kill failure, bubble failure, climate failure, soccer failure if the USA doesn't bring home the World Cup. And now? Journalism failure.

Of course! Why didn't I think of that? When something goes wrong in the world, that must mean that something went wrong in the world! What do we do with all this failure? We fix it of course. Let the best and the brightest figure it out, and make sure it never ever happens again. Just give them the tools they need. They're smart enough and they mean well. Trust them.

Failure, it seems, is the new success in America. Horatio Alger doesn't need to work hard and dream big. He just needs to trust Washington. Bill Gates doesn't need to quit school and found a startup. Just take these fabricated incentives: stay in school (we'll pay for it), and fill out this form to get some juicy funding for your new business idea (if we like it, that is). You see, only Washington has the power to undo all this failure in the world. Now generalize from there to the rest of your life. No need to worry. Just don't allow your household to bring in more than $250,000 in a year and you're okay in our book. Washington will work hard for you and dream for you -- just sign your name here, please. This new American dream is a nightmare. Give me the old days when a pair of boobs was a couple of dumb guys.

Okay, so what notion of market failure does an old-timey ecoomist endorse? As Sherriff Justice might say, "Junior, let me explain." A market failure is the experience of real net losses in society as a direct concequence of purely self-regulated voluntary exchange. Market failure theory outlines the very specific conditions under which market failure exists. There are approximately four catergories of market failure: externality, public good, monopoly, and imperfect information. I say approximately because: a) these four categories are not mutually exclusive on a conceptual level; and b) there are sub categories such as the holdout problem that have characteristics of them all.

To their credit, the authors of Reinventing Journalism at least purport to advance a legitimate market failure argument. But it's wrong. Here is why: the supplier of a good can find indirect ways to charge the users of a good, thus converting it from non-exclusive to exclusive (in which case, it does not matter that the good is non-rivalrous). The classic example is a lighthouse. Whoever sinks the money into building and running a lighthouse cannot prevent anyone from seeing its light. But the nearby port can easily prevent any non-paying vessel from coming in where the waters are safe. And so, in experience, we see lighthouse makers contracting with nearby ports, and nearby ports charge a little extra for vessels that come in. Of course, ships don't rely on lighthouses any longer. GPS has rendered the lighthouse business model obsolete. That doesn't make a lighthouse a public good, it makes it no longer a good.

These same patterns exist in the production of journalism. It is stating the obvious that producers of journalism charge users of journalism indirectly through advertising. It is also stating the obvious that the old business model of journalism is dying, just like lighthouses died. To an old-timey economist, it is anything but obvious why the best and the brightest in Washington cannot or will not grasp the obvious. Give me the old days when a pair of boobs was a couple of dumb guys.

Mandatory FTC disclamer: the only thing I got in exchange for this post is a frickin headache.

I've long been skeptical of the widely reported claim that 50% of bankruptcies are caused by medical expenses. My skepticism is supported by the findings of a recent paper (gated copy here) in the Atlantic Economic Journal. The authors, Donald D. Hackney, Matthew Q. McPherson, Daniel L. Friesner, examine 400 bankruptcy filings from the Eastern District of Washington and conclude that "medical expenses are only a small portion of total unsecured debt, and thus should not be a major contributor to bankruptcy decisions."

Many folks have suggested that part of the reason the unemployment rate remains high is the repeated extensions of unemployment benefits. An article in the current edition of Labour Economics addresses the relationship between finding a job and the generosity of unemployment benefits; the abstact:

In January 2003, the unemployment benefits in Finland were increased for workers with long employment histories. The average benefit increase was 15% for the first 150 days of the unemployment spell. At the same time severance pay system was abolished. In this paper we evaluate the effect of the change in the benefit structure on the duration of unemployment by comparing the changes in the re-employment hazard profiles among the unemployed who were affected by the reform to the changes in a comparison group whose benefit structure remained unchanged. We find that the change in the benefit structure reduced the re-employment hazards by on average 17%. The effect is largest at the beginning of the unemployment spell and disappears after the eligibility period for the increased benefits expires.

That the libs controlling Congress don't get this isn't surprising in light of Dan Klein's findings about economic literacy.

A previous post on this topic is here.

Dan Klein in the WSJ:

Who is better informed about the policy choices facing the country—liberals, conservatives or libertarians? According to a Zogby International survey that I write about in the May issue of Econ Journal Watch, the answer is unequivocal: The left flunks Econ 101.

Zogby researcher Zeljka Buturovic and I considered the 4,835 respondents' (all American adults) answers to eight survey questions about basic economics. We also asked the respondents about their political leanings: progressive/very liberal; liberal; moderate; conservative; very conservative; and libertarian.

[snip]

Yet on every question the left did much worse. On the monopoly question, the portion of progressive/very liberals answering incorrectly (31%) was more than twice that of conservatives (13%) and more than four times that of libertarians (7%). On the question about living standards, the portion of progressive/very liberals answering incorrectly (61%) was more than four times that of conservatives (13%) and almost three times that of libertarians (21%).

The survey also asked about party affiliation. Those responding Democratic averaged 4.59 incorrect answers. Republicans averaged 1.61 incorrect, and Libertarians 1.26 incorrect.

From Bethany Moreton's To Serve God and Wal-Mart, p. 79, following a section in which someone is quoted praising "Mrs. Winnie Bell Young, who takes care of the clothing department...[and] has seen to it that the stout women can be fitted as well as the smaller ladies"*:

Shoppers were not shy about explicitly contrasting Wal-Mart to the old central shopping districts. A letter printed on a Fort Scott newspaper by an irate customer of downtown stores complained about their rudeness, their credit-only returns policies, and their attempts to sell whatever was on the shelves when the items she wanted were out of stock. 'No wonder the people of Fort Scott go out of town to shop and to the local Wal-Mart store...Why don't you downtown merchants shape up????"

*Incidentally, I was told by one friend that this was an explicit point of contention in a public hearing over whether to allow a Wal-Mart to open. In addition to teenagers who wanted jobs, there were people who said they wanted Wal-Mart because they wanted access to affordable, decent-looking plus-sized clothing.

I'm reading and reviewing Bethany Moreton's To Serve God and Wal-Mart: The Making of Christian Free Enterprise for Economic Affairs and a handful of other projects. About 40-50 pages in, the author discusses the ways that the Waltons and others across the Sun Belt, the Ozarks, and surrounding areas benefited from government largess. She ably dissects some of the mythology surrounding Mr. Sam.

Naturally, this raises a couple of questions. What are the obligations of those who inherit ill-gotten wealth and privilege? Have the Waltons fulfilled those obligations by building Walmart into one of the greatest anti-poverty organizations the world has ever seen? And for what it's worth, Mom & Pop weren't there for me when I've had minor travel emergencies over the last year (needing to buy dress shoes at 7:00 AM in Winston-Salem, North Carolina and DayQuil at 4:00 AM in Storm Lake, Iowa). Target and Walmart were.

This also suggests a hypothesis to test: how did government programs result in a net redistribution of population and resources from North to South, and did this cause post-WWII Southern convergence? In short, to what degree is Southern convergence driven by a transfer of resources from the Snow belt and the Rust Belt to the Sun Belt? This very, VERY crude, profanity-soaked rant against the South and southerners explores some of these themes a little more...explicitly. It reads like a manifesto for a 21st century Hartford Convention.

Update: Here's a piece from today's WSJ on Walmart's role as victims in the rent-seeking society (HT: Mark McMahon). Apparently, a lot of Walmart's local battles involve astroturf groups secretly funded by the store's competitors.

Oaksterdam University, where stoners go to get schooled on the art of growing ganja, isn’t exactly a bastion of blue-collar idealism. Or it wasn’t until this week, when the staff and faculty at Oaksterdam’s Oakland campus joined the Oakland United Food and Commercial Workers Local 5. What would have seemed like a strange union in the halcyon days of organized labor now seems to make a modicum of sense, and not just to potheads: If anyone can muscle California politicians into supporting marijuana legalization, it’s the UFCW.

[snip]

Oakland’s UFCW Local 5 will ”educate its members” about the advantages of controlling and taxing marijuana, and encourage them to spread the gospel of letting adults do what they will in private. Not because the union endorses marijuana use, says Local 5 organizer Dan Rush, but because weed and hemp, like cigarettes and alcohol in UFCW supermarkets, mean jobs. Union jobs.

Source

What's the obvious explanation missing from this story (hint: scroll down the page a little bit)? Extra credit: why would heavy restrictions on the labor market cause employers to increase their preference for long-term rather than short-term employees? Show me your published letter to the Commercial Appeal and win a copy of Frederic Bastiat's The Law.

Extra credit #2: what does this imply about why newspapers are struggling financially?

Update: first published letter wins.

Letter-writing power-hitter Don Boudreaux cranks another one out of the park with this letter to the New York Times in which he responds to this article explaining the bleak job outlook for teenagers, which is apparently a totally predictable consequence of a 41% increase in the minimum wage since 2007, which anyone who paid attention in econ 101 can explain using theory, a mountain of empirical evidence, and appropriate diagrams completely inexplicable.

Yours truly in today's WSJ (in response to this op-ed from Alan Blinder):

Mr. Blinder refers to Herbert Hoover as the "oracle" of "large fiscal contractions." Prof. Blinder has a rather unorthodox definition of contractionary fiscal policy. Hoover's actual record, rather that the laissez-faire legacy mistakenly assigned to him, indicates that federal government spending increased to $4.66 billion in 1932 from $3.13 billion in 1929 (an increase of roughly 50%). Similarly, the federal budget swung to a deficit of $2.7 billion in 1932 from a surplus of $0.7 billion in 1929—hardly an example of fiscal rectitude according to normal usage.

E. Frank Stephenson
Rome, Ga.

Five brightly colored bikes set aside for community use in downtown Hutchinson [Kansas] are missing.

The Hutchinson News reported that organizers of the Public Bike Project expected that some of the bikes might be stolen. But when all of them disappeared last week, that came as a surprise.

The Public Bike Project was introduced at the community’s Third Thursday event in May. Organizers envisioned people riding the bikes from business to business and leaving them in bike racks for the next person to use.

The group plans to replace the bikes. But members plan to stop at 20.

Good bikes after bad. Source.

Steve Wynn says Americans are afraid. He’s just angry.

“Washington is unpredictable these days,” declares the CEO of Wynn Resorts. “No one has any idea what’s next…the uncertainty of the business climate in America is frightening, frightening to everybody, and it’s delaying the recovery.”

Wynn spoke to CNBC in Las Vegas from the new Encore Beach Club opening for the Memorial Day weekend. He created the $69 million pool club and bar area after tearing down a brand new $13 million entrance to the Encore which looked out on Las Vegas Boulevard.

Turns out the view wasn’t good. Across the street are a slew of half finished developments which stalled in the downturn. Wynn didn’t want his guests to see that. “There were going to be 10,000 rooms across the street and they all went bust.” So he changed the whole front of the resort to close it off and create a sensual adults-only escape.

Pool clubs like the one he’s built are the hottest new trend in Vegas.

Source.

From AP: Gulf Oil Spill Now Bigger Than Exxon Valdez

COVINGTON, La. – An untested procedure to plug the blown-out oil well in the Gulf of Mexico seemed to be working, officials said Thursday, but new estimates from scientists showed the spill has already surpassed the Exxon Valdez as the worst in U.S. history.

I wonder how long it will be before someone claims the gulf oil spill is good because it is creating jobs. Maybe the broken window fallacy will become the spilled oil fallacy. (UPDATE: Steve Horwitz's "Parable of the Sooty Window" makes the same point in the context of the Icelandic volcano.)

UPDATE2 (6/3): Here is an example (HT to a commenter at Cafe Hayek):

Oil spill means mini job boom in Gulf

A news item:

District sales tax receipts suggest D.C. residents (and visitors) are smoking much less and drinking much more. Or they’re drinking more in D.C. and buying their cigarettes elsewhere.

Cigarette tax collections continue their stunning collapse in FY 2010, down 23.6 percent between October and April compared to the same period a year earlier. The $15.9 million in tobacco tax collections through April are off $4.9 million despite a region highest $2.50 per pack tobacco tax. The tax rate, 50 cents higher than it was in 2009, took effect Oct. 1.

On the tobacco side, Chief Financial Officer Natwar Gandhi opined in his February revenue estimate that the tax rate drove smokers “across the river.” Maryland’s tax is $2 a pack while Virginia’s rate is a piddling 30 cents.

Gandhi’s best guess, when the council agreed to hike the cigarette tax last summer, was a $9.7 million bump in tobacco revenues. His prediction was so far off, it created a $15 million-plus hole in the budget.

Previous post here.

Related: Anti-smoking advocates in NC apparently are more interested in treating cigarette smokers as ATMs than in getting them to stop smoking.

From my former professor Steve Pejovich, here is a pointer to Richard Rahn op-edding about the free-market economics university in Motenegro:

Professor Vukotic has created a new private university in Montenegro, University of Donja Gorica (UDG), that already has 1,500 students and a large, new building. He has been able to attract world-class scholars from a number of countries, including the United States, to teach or lecture. UDG also already has established cooperative agreements with universities in Europe and North America.

Decades ago, another young Yugoslav, having already been trained as a lawyer, was able to escape from the communist oppression. He came to the United States, studied economics and became a well-known and highly regarded scholar and professor of economics. His name is Svetozar "Steve" Pejovich, professor emeritus at Texas A&M University.

Fans of Universidad Francisco Marroquin will enjoy the entire article. Thanks, Steve!

From his most recent book Intellectuals and Society:

Hurricanes in Florida and wildfires in southern California are likewise recurrent phenomena over the years but each individual natural catastrophe is treated as an immediate and discrete crisis, bringing not only government rescue efforts but also vast amounts of the taxpayers' money to enable people who live in these places to rebuild in the known path of these dangers.* Any administration which might refuse to saddle taxpayers with the huge costs of subsidizing the rebuilding would no doubt be roundly condemned, not only by its political opponents but also by much of the media and the intelligentsia, looking at each particular hurricane or wildfire in a one-day-at-a-time perspective, rather than as part of an on-going sequence with a long history and a predictable future.

*An economist has estimated that the cost of rebuilding New Orleans was enough to instead give every New Orleans family of four $800,000, which they would be free to use to relocate to some safer place. But the idea of not rebuilding New Orleans has been seen as part of "the apparently heartless reaction of many urban economists to the devastation of New Orleans." Tim Harford, The Logic of Life (New York: Random House, 2008), p. 170.

There's language in the current spending bill that would quadruple Federal taxes on oil to 32 cents per barrel. The revenue would go into "a fund managed by the Coast Guard to help pay to clean up spills in waterways, such as the Gulf of Mexico."

OK- I don't know the relevant elasticities to be able to say how great a deleterious impact such a tax increase would have on the U.S. economy. I suspect that it would operate similarly to a teeny value-added tax; most of the burden would fall on final consumers, and there would be a large amount of dead weight loss compared to the revenue the tax collects.

That's not my point. My point is that money in fungible. It is impossible for the U.S. government to put money into a locked box and use the money only as the program intended. That tax money will be spent as soon as it is collected, and the Federal government will put T-bills into the fund instead. Then, when the next oil spill occurs, there will still be no emergency money available.

Think I'm wrong? Just look at the Social Security Trust Fund.

I could make a larger point about government funding of clean up efforts and such, as opposed to strict liability standards in tort cases which would motivate BP and ilk to self-insure against such disasters.... but that would take too much effort on this hot summer noon.

Do you agree or disagree with a legal ban on discrimination on the basis of race or gender in matters of private employment such as hiring, firing, promotions, and pay? Explain. In light of your answer to the above, would you agree or disagree with a legal ban on discrimination on the basis of race or gender in matters of dating, marriage and sex? Explain. If you answered "agree" to the first question but "disagree" to the second question, please explain.

I am sure most people will agree with the first and disagree with the second statement reflecting status quo bias. But really, if racist whites should be forced to hire and trade with blacks, why shouldn't homophobic males be made to go on dates with gay guys?

Being a parent means a steady diet of frightening stories like this one: people want choking warnings on some foods. But how much risk is there? Stories like this usually involve vivid, sad anecdotes, but they're usually very, very short on meaningful information and analysis. Continued below the fold. HT: to Steve Horwitz for the "Corner Solution Parenting" meme.

Read More »

Check out the new Internet digs of the Journal of Economics and Finance Education. You can browse the contents here. Interested authors will find the submission guidelines here. A new Summer 2010 issue is now available (PDF file here) that includes five newe articles on the economics profession, inside the classroom and out. Enjoy.

On ideal bureaucratic worlds:

Conrad said in an ideal world he would let a strategic assessment committee appointed by Wharton do an in-depth analysis of the city's golf system.

More here. It reminds me of this old Dilbert. The crucial difference is in the feedback mechanisms. Perhaps we could learn something from Nick Gillespie, who tells us how to save Cleveland.

*--Yep. The meme originates, as do most good things in the economics blogosphere, with Marginal Revolution.

In the Hayek - Keynes rap battle with the extremely handsome limo driver, Hayek concludes by saying that "In the long run, my friend, it's your THEORY that's dead."

Angus gives the eulogy, for the funeral.

Sigh.

Here. These will be an excellent supplement to econ 100 in the Fall.

DoL blogger Bob Lawson allowed me to ride his coat tails all the way to Georgia and Azerbaijan. It was the experience of a lifetime... at least until I do it again.

While in Azerbaijan, I had an interesting conversation. Azerbaijan is fundamentally economically un-free and suffers from ferocious corruption. The corruption is "monolithic," rather than "pyramidal" or "inverse pyramidal." That means that everyone, at every level, of any government function takes/demands bribes. In fact, the main value of governmental employment is the opportunity to collect bribes. Of course, the only way to gain lucrative government employment is to bribe your way into the job.

Consequently, there is a active capital market, where you can borrow the money to bribe your way into a government job. It's of course off the books, funded by individuals and groups of individuals, who would never be co crass as to label the activity a "loan." Nonetheless, the market exists, according to my friend. If I want a job, but don't have the 100K USD going price, I can cast around my broader social network to see who'll front me the cash. Although it's not called a loan, repayment is definitely expected.

The downside for society, of course, is that now I must be even more aggressive in seeking bribes, as I have a loan to repay, as well as making my nut.

Forbes.com offers this Special Report on Immigration, including my most recent contribution.

Also, as I'm revising a paper on the Memphis riot of 1866, here's a good case to be made against fire department socialism:

“The proof also establishes the fact that many of the firemen of the city, whose especial duty it was to suppress the devouring flames and to preserve and protect the property of all the citizens of the city, instead of employing themselves in this honorable and useful pursuit, for which they are generously paid out of the revenue of the city arising from a tax on the property of the citizens, were criminally engaged with the mob in the destruction of life and property.” (from Memphis Riots and Massacres, p. 41)

Here's Fred McChesney on the origins of municipal fire departments.

Interested in helping alleviate global poverty? Here's a handy guide to making sure you don't mess it up (HT: Aid Watch).

I just returned from another wonderful trip to the country of Georgia where I (along with DoL co-blogger Noel Campbell) gave a series of lectures for the the New Economic School - Georgia with the support of the Friedrich Naumann Foundation.

One lecture at the Free University in Tbilisi is here.

And (for you Georgian speakers) an interview on local television is here.

Thanks to my Georgian friends Paata Sheshelidze and Gia Jandieri for being such wonderful and gracious hosts.

Governments want to tax candy. So what counts as "candy" and what counts as "food?" More here. HT: James Choi.

What about these beverages (HT: Scott Cunningham, note the excellent use of visuals)? Will they be taxed like soft drinks, or not? Why? Why not?

The story's subtitle: Decriminalization has led to pot crop deflation

A snip:

Longtime Humboldt resident Charley Custer tells National Public Radio that back in the early days of President Ronald Reagan's "War on Drugs," locally grown marijuana was selling for as much as $5,000 a pound.

See also NPR's "Marijuana Economics: Wholesale Prices Plummet In California"

Art Carden speaking @ In Defense of Capitalism conference from Nicki Brøchner on Vimeo.

From a write up about a new paper by David Merriman studying cigarette tax avoidance:

A random sample of littered cigarette packs reveals that 75 percent of the cigarettes used in Chicago bring no tax revenue to the city, according to researchers at the University of Illinois at Chicago.

The lost potential revenue totals about $10 million per month, said David Merriman, professor of public administration and head of UIC's economics department. He has studied cigarette tax avoidance worldwide for 15 years.

Merriman organized teams of researchers to collect littered cigarette packs in 100 Chicago neighborhoods and nearby jurisdictions to examine their tax stamps. He reported on the study in the May issue of the American Economic Journal: Economic Policy.

Chicago's state and local taxes totaled $4.05 per pack, compared to $1.37 outside Cook County, in July 2007, when the teams collected the packs. The $2.68 difference reduced the likelihood that a pack was purchased in Chicago by almost 60 percent.

Distance reduces tax avoidance, Merriman said. Every mile between Chicago and the lower-tax source increased the likelihood of a Chicago stamp by about one percent.

A version of Merriman's paper is here.

UPDATE: See also this article on cigarette tax evasion in Canada.

I just skimmed the Arizona immigration bill that has everyone in a tizzy; it's helpfully embedded by the LA Times here. It reaffirms my belief that laws aren't made to be followed. They're made to be broken. When everyone is a criminal (or a potential criminal), the state's threats are more credible.

I've heard lots and lots and lots of people claim that they don't oppose immigration, they just oppose "illegal immigration." This is usually followed by a claim that one's ancestors were immigrants, and it is given legal oomph by the further claim that illegal immigration undermines the rule of law. I wonder: is there any chance that your ancestors would have been allowed into the country under today's immigration laws? I sincerely doubt it. See these links I posted a few days ago for more.

Joseph T. Salerno challenges my reading of Ludwig von Mises’ views on free banking and bank-issued money in a piece entitled “White contra Mises on Fiduciary Media” posted on the Mises Institute site on Friday. (“Fiduciary media” is Mises’ term for banknotes and checking balances in excess of bank reserves.) Salerno’s contribution represents progress, a useful departure from an otherwise stale debate among Misesians concerning the legitimacy of fractional-reserve banking. Salerno is to be applauded for declining to rehearse any of the now-familiar arguments to the effect that fractional-reserve banking is inherently fraudulent or otherwise jurisprudentially illicit. He acknowledges that Mises had favorable things to say about free banking, and that Mises on this topic differs from Murray Rothbard in important respects. Salerno offers up an important topic for renewed discussion, the question of whether any issue of fiduciary media creates a monetary disturbance or instead it is only excessive issue that disturbs.

My rather lengthy response to his challenge is below the fold.

Read More »

I'm speaking to the Northeast Shelby Republican Club this evening and have assembled the following list of links that attendees might find interesting. They deal with voting, political engagement, and some local, private alternatives to government-provided goods:

1. "Debate: Does My Vote Matter?" at Opposingviews.com. I was really disappointed in this because the other side of the debate (Rock the Vote and the League of Women Voters) didn't offer anything meaningful or substantive. Nor did they respond to any of my claims or criticisms of their positions.

2. Politics 2.0: Hack the Vote at Lifehack.org.

3. The (Il)logic of Collective Action: Lessons from the 2008 Election at The Beacon.

4. Forget Polls: Look at Prediction Markets on the Election, also at The Beacon.

5. Don Boudreaux explains his refusal to vote for The Freeman. Voting isn't the only way to be politically engaged. Especially given the ways in which access to the ballot is limited and political voices are silenced, I'm less and less inclined to think that it's a system that deserves our sanction.

6. Jeff Tucker explains why "Democracy Takes Too Many Lunch Hours" for the Mises Blog.

7. My student Brent Butgereit's winning essay answering my question "Should I vote in the Memphis Mayoral Election?" He compares voting to cheering at a football game.

8. The Cato Institute's Policy Paper version of Bryan Caplan's excellent The Myth of the Rational Voter.

9. Private Alternatives in Memphis: My friend Bryan Caplan once counseled that part of the strategy for liberty should include supporting private-sector alternatives to things that governments do very poorly. Here are a few in Memphis: Life Choices Memphis, The Neighborhood School, the Children's Museum of Memphis, the National Christian Forensics and Communications Association, Rhodes College.

10. National and International Institutions and Organizations: some of my favorites are listed on my Opportunities for Students Page. They offer publications, resources, and educational opportunities for students of all ages, not just for those who are enrolled in HS, college, grad school, etc. I'm also a big fan of the private Universidad Francisco Marroquin in Guatemala.

11. Here's a giant list of links I compiled for a "What's Wrong with the World?" panel at Rhodes last Fall. It includes links to yet another list of links I compiled for last summer's IHS "Liberty and Society" summer seminar.

12. Here's one of several downloadable PDF versions of Frederic Bastiat's The Law.

13. Governments presumably bind themselves with constitutions because hard cases lead to bad law, dangerous precedents, and slippery slopes. Here's ours.

If someone ever writes Don Boudreaux's biography, or if he ever writes his own autobiography, it should be sub-titled "Man of Letters." One of the highlights of the blogosphere is getting to read his excellent and pithy letters to the editor at Cafe Hayek. Here's a great letter to the NYT Book Review on whether we actually need an "ecologically minded Lenin." He also posts an excellent letter from Andrew Morriss to the WSJ on the Class of 2010's job prospects.

Accountant Jiao Yurong carefully organised her family's finances to put her son through university in the United States. Now that he has the coveted degree, she has been saving to buy him a flat. But soaring property prices in China -- and a series of moves by the government to rein them in -- are throwing a spanner in the 50-year-old mother's plans, and she admits she does not know how to proceed.

"Just when we had saved enough for a down payment, prices surged," Jiao, a Beijing resident, told AFP.

"The policy is so unstable... I'm so confused."

Jiao is not alone. Prospective home buyers are reeling from a series of measures put in place by the Chinese government to curb rocketing prices amid persistent fears about a ballooning bubble in the real estate sector.

Source.

I just agreed to speak to the Northeast Shelby Republican Club on Monday evening. I'll be giving an abbreviated version of my lecture "Common Objections to Capitalism." Here are some additional interesting reads:

1. Bryan Caplan on the populist roots of universal health coverage.

2. Bryan Caplan (again) on the populist roots of universal health coverage.

That's the conclusion of Carol Propper and John Van Reenen's article in the current issue of the JPE. The abstract:

In many sectors, pay is regulated to be equal across heterogeneous geographical labor markets. When the competitive outside wage is higher than the regulated wage, there are likely to be falls in quality. We exploit panel data from the population of English hospitals in which regulated pay for nurses is essentially flat across the country. Higher outside wages significantly worsen hospital quality as measured by hospital deaths for emergency heart attacks. A 10 percent increase in the outside wage is associated with a 7 percent increase in death rates. Furthermore, the regulation increases aggregate death rates in the public health care system.

I've downloaded it to my Dropbox, it's on the reading list. Here's Peter Klein's new book:

The Capitalist and and the Entrepreneur: Essays on Organizations and Markets

Here's fellow Wash U Econ PhD (and key to all our IM sports championships, I might add) Dave Switzer on the BP investigations.

Okay, three questions.

My brother and I are heading to Austria and Northeast Italy for our annual wine tour later this month. We are attending VieVenum in Vienna for two days and then I have at least one, maybe two, more days in Vienna before we head off into the countryside to walk the vineyards, taste wines, and visit with producers.

I have three questions:

1. Does anyone have any non-obvious suggestions about Vienna and the surrounding area? We will stay in Vienna proper (probably towards the southeast of center city) where, hopefully, parking is a bit cheaper - we will likely stay somewhere on the U or S-Bahn and not plan to take our car into the city. Dining, drinking, off-the-tourist-path places to visit are most valuable.

2. Where should I go to find Hayekian landmarks, etc. in Vienna? I have done a cursory search on der Googles but haven't found much (I am likely looking in the wrong places). Any help in this area is greatly appreciated. [BTW, last year we visited Trier and I took a picture in front of Marx's birthplace - with me showing my "appreciation" for his contributions. I would love to do the same (that is, show my true appreciation) for Hayek if it is possible.]

3. We fly in and out of Munich - we will be back in Munich on Friday, June 11 for the opening day of the World Cup. Anyone have suggestions on where to stay in Munich - probably closer to the city center - and, more importantly, where two American football fans should go hang out to watch the Germans watch the South Africans play the opening match of the 2010 World Cup?

Any help appreciated - comments open for the rest of today.

Why can't the press grasp the simple distinction between the value of Eurozone government bonds and the value of the euro currency? In the first sentence of its front-page coverage this morning, the Washington Post refers to a "massive emergency fund assembled to defend the value of the euro". The fund is for defending the bonds, not for defending the euro.

In an email message about my post yesterday on the inflationary consequences threatened by the ECB's pledge to buy up bonds to support their price, a reader rightly points out that in its press release, the ECB promises to sterilize the bond purchases so that "the monetary policy stance will not be affected". That is, it will sell other assets to offset its government bond purchases.

When I look at the current ECB balance sheet, however, I don't see a lot of salable assets. Clearly there's no point in selling the Eurozone government bonds it currently holds. Other euro-denominated "securities held for monetary policy purposes" are a mere €52 billion. The biggest asset category is "Lending to euro area credit institutions". This is a portfolio of loans to Eurozone banks that I'm guessing the ECB doesn't want to shrink just now.

ECB head Jean-Claude Trichet today spoke a bit ambiguously as to whether the plan is simultaneously sterilizing or later reversing the base money injections made in purchasing government bonds:

He dismissed the suggestion that the bond purchases might be inflationary. "The liquidity which we're adding to the market will be withdrawn by us again so the money supply in circulation will not be increased," he said.

Either way, until I read an explanation of how the added money will be withdrawn, count me as finding these statements lacking in credibility. Forecast: higher euro inflation, lower value of the euro.

2000 watt camping generators are advertised at Aldi for about $150. That got me thinking about ways to evade price gouging laws in Gulf Coast states. Rather than speculate, I sent the following email to Florida Attorney General Bill McCollum via his website:

Greetings,

This is not a complaint. I hope you can assist me with an example I want to do in the Economics 100 class I teach at Rhodes College. Recently, 2000-watt camping generators have been advertised at a Memphis Aldi for $150. Suppose I purchased their stock of generators at the retail price and then advertised them in Florida newspapers for $1000 each for the next several months. If Florida is hit by a hurricane, I would then mark down the generators to $750 each--a 25% discount compared to my original $1000 per generator asking price. Would I run afoul of Florida's price gouging laws by offering the generators at a 25% discount relative to my original asking price? Thank you for your time and consideration.

Kindest regards,

Art Carden
Assistant Professor of Economics and Business
Rhodes College
Memphis TN

Cross-posted at The Beacon. I'll blog his office's response if they will give me permission.

Another letter from the May 11, 1910 NYT, this one complaining about the freedom of entry into the "illustrator market":

What is to become of the illustrator? I see advertisements in the magazines, "Learn to be an illustrator," "Be an artist," "Artists receive from $25 to $100 a week," &c.

Now what is to become of all the students turned out by these schools? This occupation or profession is crowded and boiling over; every month sees two or three or more new names signed to the illustrations that are published in the magazines. What becomes of the illustrators who had a story to "picture" in a magazine last year? Of courses, if the illustrator is a personal friend of the publisher or of the art editor, he stands a good chance of being given work right along by his friend in power. I know of one illustrator who is supported by one publication - he does not bother about seeking other work - because his friend is the art editor, or rather the art editor is his friend.

Another thing is the vicious lies published regarding the incomes of the illustrators whose works are in demand, the leading illustrators, one might say - for instance, Harrison Fisher's $70,000 a year, or Flagg, and his $85,000 a year. Now, these men might get these incomes (although I doubt it) but there are 5,000 or more other individuals who receive little or nothing, considering the talent they possess and the time and money spent upon talent to perfect it.

AN ILLUSTRATOR

The signature of the letter is telling. If the letter was truly written by an existing illustrator, then the complaints of entry into his/her market are natural. However, the letter-writer does not suggest government action - at least not explicitly. I wonder what policy the letter-writer would have suggested: a guild that would limit entry via certification, er, kind of like going to "school" to be an illustrator? Perhaps the existing illustrators should gauge the quality of the upcoming illustrators and only allow those of sufficient quality to enter the market, perhaps like the medical profession. However, while the ideal of only high-quality illustrators is nice to imagine, the reality is that incumbent illustrators would find it in their best interest to limit the entry of exceptional new illustrators for fear of losing business to them.

Of course, in a few years the illustrator will have much more pressing issues to deal with, namely, the camera and the ability to print camera-taken pictures in higher quality and at lower cost.

The opening paragraph reminded me of the Art Instruction Schools - which has been advertising such programs since 1914 (so before this letter was written):

I remember the campy television commercials (which you don't see much anymore) about "becoming an artist." The hook was that you would draw a turtle (or some other still likeness) and send it off for the "experts" to evaluate. They would then let you know how much promise you have and then nurture your artistic talent for a (somewhat substantial) fee. All cynicism aside, some famous artists did graduate from the "institute."

Here's one I remember from the early 1980s:

And another one from 2000 (just replace the "president" and roll tape):

1. Peter Bagge, "Beware the Brown Peril!"

2. A useful site prepared by Gregory Rehmke.

3. If you're not convinced that immigration will destroy our culture, a visit to Sesamestreet.org with Jacob this morning gave me all the evidence I need. Not only is there a Spanish-speaking Muppet, but she's teaming up with Gloria Estefan to lead the other Muppets in a song about saying "Hola instead of Hello" (that's a quote straight from the lyrics). The game that follows the Gloria Estefan video is even worse: not only does Cookie Monster order (obviously foreign) baba ghanoush and pita toast, Rosita is filling in at Alan's restaurant and has declared it "order in Spanish Day."

4. Via Reason, "What Part of Legal Immigration Don't You Understand?" (HT: David Veksler).

From a letter published in the May 11, 1910 NYT:

As I was one of the ladies who helped to take the census I would like to say, judging from my district, in which there were 1,100 people, if we did our work thoroughly and conscientiously throughout, counting the time expended in trying to appease the wrath of many of the upper middle and lower upper class, who resented some of the questions as impertinent and refused to answer until we had exhausted our persuasive powers, then I say if we are paid at the rate of 2 1/2 cents per name, we would not be remunerated for more than half of the time spent for hard and actual service. If they did it as I did it, for social science, then they are well paid, but if for money, they will not think Uncle Sam the generous-hearted fellow they hoped to find.

2.5 cents per name in 1910 would be roughly 58 cents in 2009 dollars. Nowadays, the pay ranges from $11-$18/hr in North Carolina (interactive map here).

It is interesting that Census pay remains low and suspicions remain high.

Bryan Caplan discusses successively-larger bailouts. Fans of Atlas Shrugged will recall the importance of "practical politics." Too much of this is based on the assumption that there will always be a big pocket to pick, and that the failure of the Grand Design is not the failure of the men and women of system who try to implement it, but of the owner of that big pocket who no longer wishes to see it picked.

I'm on the Medical Progress Today "Innovative Ideas" podcast discussing Charles Courtemanche's and my work on Walmart, Super Walmart, Warehouse Clubs, and obesity here.

I was also asked to contribute a few words to their "Second Opinion" discussion on Obesity and Public Health here.

Carden, Art and Lisa Verdon. 2010. When is Corruption a Substitute for Economic Freedom? Law and Development Review 3(1): Article 2.

Available here.

The European Central Bank has flunked the first major test of its independence and its commitment to the single goal of low inflation. It announced yesterday, in so many words, that it will print as much money as it takes to keep prices up and yields low on government bonds issued by Eurozone governments. As of 1:30 pm EST today, the euro is down only very slightly today against the US dollar. I'm puzzled as to why speculators haven't raised their expectation of euro inflation and correspondingly punished the euro more than they have. (I'm personally hoping they wake up soon, because I'm planning a trip to Greece at the end of the month and I want a cheap euro to compensate me for the risk of being caught in an Athens riot!)

This morning’s Washington Post:

European finance ministers threw a trillion-dollar protective wall around the euro on Sunday and the European Central Bank said it would begin buying government bonds if necessary as officials on the continent struggled to contain the spread of a government debt crisis that began in Greece. The ECB … would, if necessary, begin buying public and private debt on the secondary market "to ensure depth and liquidity in those market segments which are dysfunctional."

Translation: The European Central Bank said it would begin buying government bonds of Greece, Spain, etc. as necessary to keep their prices from falling and yields from rising. This is a "protective wall" around nominal Eurozone government bond prices. It is the opposite for the value of the euro currency. Calling it a protective wall around the euro is like saying that "artist Roy Lichtenstein threw a protective wall around the value of his limited-edition prints yesterday by announcing that he stands ready to mass-produce them for the benefit of his friends."

This is a solvency crisis, not a liquidity crisis. Eurozone government bond yields have risen not in a scramble for liquidity (base money), but with an upward revision in estimates of default risk. Monetary expansion treats the debt problem only by inflating away the value of the euro.

For a central bank to “ensure liquidity” in the market normally means that it provides enough base money to avoid an excess demand for money at the current constellation of prices and interest rates. When the yield (interest rate) on government bonds rises relative to other interest rates because the bonds’ estimated default risk rises, that is not a signal of an excess demand for money. If the central bank purchases government bonds to keep their yields from rising with default risk, it disturbs monetary equilibrium by creating an excess supply of money at the current price level. It disturbs intertemporal equilibrium by temporarily reducing interest rates below equilibrium through excess liquidity.

"We are going to defend the euro," [Spanish Finance Minister Elena] Salgado told reporters. "We have to give more stability to our currency. . . . We will do whatever is necessary."

Defending the euro is in fact the opposite of what the ECB has announced it will do. Salgado is not telling the truth. Either she know she is lying, or Europe's fiscal authorities really don't understand. If the ECB is now following the lead of the fiscal authorities, neither of the two possibilities bodes well for the euro.

The abstract of a new NBER WP by Fernando Ferreira, Joel Waldfogel:

Advances in communication technologies over the past half century have made the cultural goods of one country more readily available to consumers in another, raising concerns that cultural products from large economies – in particular the US – will displace the indigenous cultural products of smaller economies. In this paper we provide stylized facts about the global music consumption and trade since 1960, using a unique data on popular music charts from 22 countries, corresponding to over 98% of the global music market. We find that trade volumes are higher between countries that are geographically closer and between those that share a language. Contrary to growing fears about large- country dominance, trade shares are roughly proportional to country GDP shares; and relative to GDP, the US music share is substantially below the shares of other smaller countries. We find a substantial bias toward domestic music which has, perhaps surprisingly, increased sharply in the past decade. We find no evidence that new communications channels – such as the growth of country-specific MTV channels and Internet penetration – reduce the consumption of domestic music. National policies aimed at preventing the death of local culture, such as radio airplay quotas, may explain part of the increasing consumption of local music.

Or maybe it just means that people in other countries have better taste than listening to Miley Cyrus and Britney Spears.

The abstract of a new NBER WP by Wenli Li, Michelle J. White, Ning Zhu:

This paper argues that the U.S. bankruptcy reform of 2005 played an important role in the mortgage crisis and the current recession. When debtors file for bankruptcy, credit card debt and other types of debt are discharged—thus loosening debtors’ budget constraints. Homeowners in financial distress can therefore use bankruptcy to avoid losing their homes, since filing allows them to shift funds from paying other debts to paying their mortgages. But a major reform of U.S. bankruptcy law in 2005 raised the cost of filing and reduced the amount of debt that is discharged. We argue that an unintended consequence of the reform was to cause mortgage default rates to rise.

We estimate a hazard model to test whether the 2005 bankruptcy reform caused mortgage defaults to rise, using a large dataset of individual mortgages. Our major result is that prime and subprime mortgage default rates rose by 14% and 16%, respectively, after bankruptcy reform. We also use difference-in-difference to examine the effects of three provisions of bankruptcy reform that particularly harmed homeowners with high incomes and/or high assets and find that the default rates of affected homeowners rose even more. We find that bankruptcy reform caused the number of mortgage defaults to increase by around 200,000 per year even before the start of the financial crisis, suggesting that the reform increased the severity of the crisis when it came.

Just to state the obvious: This finding doesn't necessarily mean that bankruptcy reform was a bad thing.

HT Greg Mankiw, here is Boston Globe columnist Jeff Jacoby on the virtues of price gouging after a disaster.

When the demand for bottled water goes through the roof — which is another way of saying that bottled water has become (relatively) scarce — the price of water quickly rises in response. That price spike may be annoying, but it’s not nearly as annoying as being unable to find water for sale at any price. Rising prices help keep limited quantities from vanishing today, while increasing the odds of fresh supplies arriving tomorrow.

While working on a paper this morning, I looked away from my screen and my eyes landed on my pinned-up copy of the AEA calendar of economists, which reminded me that today is Hayek's birthday. (The featured economist of the month, whose biography occupies the top fold of the calendar, is Karl Marx.) Go and celebrate with a couple of vid's.

Following upon my Bolivia post from earlier this week, a few reports about nationalization and its consequences in Venezuela.

Eight Venezuelan butchers arrested for price gouging

The butchers' arrests is the latest in a string of moves by the Chavez government to rein in the free market and create a heavily regulated, state- controlled economy.

Elsewhere, Mary Anastasia O'Grady writes about the newly nationalized coffee sector:

The collapse of the coffee industry is emblematic of the wider economic catastrophe brewing in the country. For more than a decade Mr. Chávez has employed price controls, capital controls and hyper-regulation in an attempt to meet his socialist goals. When the predictable shortages have arisen, the government has responded by using the salami approach to nationalization, slicing off a bit of the private sector at a time and taking it for the state.

Now the economy is sinking: The International Monetary Fund forecasts that while GDP growth will pick up in most of Latin America this year, it will contract by 2.6% in Venezuela. Core inflation has been running above 30% for two years.

At high inflation rates, the pattern of failure-then-nationalize will soon turn toward the financial system. According to VenEconomy: Going after the messenger again,

Time and again, the communist blindness of the Hugo Chávez administration has led it to eliminate the messenger instead of facing up to what the message is about.

Right from the early days of his administration, in order to hide his incapacity for putting state-owned lands into production, Hugo Chávez issued the “Zamoran” laws and started to confiscate farms, estates, ranches, and as many productive hectares he found in his path.

Now, when his incapacity to control the price of the swap dollar is more than evident, he is training his batteries, once again, on the stockbrokerage houses.

Interestingly, the more binding constraint could be fiscal pressures rather than economic catastrophe. A Venezuelan think tank points out:

A case study prepared by think-tank Ecoanalítica took into account the State procurement ending 2009, except for additional amounts for purchase of small assets and expropriated farms. It found that the amount payable for the companies, most of which were in multinational hands, totals USD 22 billion.

This sum amounting to 84 percent of Venezuela's international reserves includes the purchase in 2010 of the French-Colombian retail chain Hipermercados Éxito and Industrial Estate I of Barquisimeto, the capital city of Lara state.

The comments on this article are almost uniformly anti-immigrant and uniformly uninformed. Reading articles (and the ensuing comments) like this steel my resolve to proceed ever more boldly in the name of the economic way of thinking. I'm sympathetic to a lot that the Tea Party has to say, but this is an issue on which most tea partiers are flat wrong. Indeed, "illegal" immigrants who pay into the social safety net and don't collect may be footing the bill for the Medicare you're so anxious for the government to leave alone. Here's my argument for open immigration. The "it's the law and they broke it" argument holds no water; indeed, it wasn't all that long ago that there were strong restrictions on African-Americans who wanted to move to Indiana, Illinois, Ohio, and other Northern territories and the Fugitive Slave Law was the "law of the land." Just because the government says something doesn't make it right.

But don't take my word for it. Here's some recommended reading:

1. Here's an old Freeman article entitled "Immigration: An Abolitionist Cause" that I really enjoyed (link is to PDF).

2. Economics: for the umpteenth time, Lant Pritchett's Let Their People Come.

3. Moral philosophy: Michael Huemer's excellent paper "Is There a Right to Immigrate?" (link to PDF)

4. Here's the Chinese Exclusion Act, passed on May 6, 1882.

Dan Klein pointed me to this result in his recent paper with Zeljka Buturovic entitled "Economic Enlightenment in Relation to College-going, Ideology, and Other Variables: A Zogby Survey of Americans" and suggested I highlight this: among survey respondents--and they acknowledge reasons to think they may have a biased sample--those who never shop at Walmart answered an average of 4.24 out of 8 questions on a short economics quiz incorrectly. Weekly Walmart shoppers answered an average of 2.24 questions incorrectly, those who shop at Walmart "A few times a month" answered an average of 2.45 questions incorrectly, those who shop at Walmart "A couple of times a year" answered an average of 2.93 questions incorrectly. My papers on Walmart are here; my recent Freeman article and the audio of my Walmart lecture at St. Lawrence University are here.

It's a pretty interesting paper. Buturovic and Klein offer a number of cautions, caveats, and qualifications about their methods; caveat 4 (p. 182) is especially relevant because response bias could be driving their result on the alleged lack of a connection between having a college degree and economic enlightenment. This shouldn't have much of an effect on the Walmart-and-economic literacy finding, though. The authors have also generously made their data available online, so there's room for a fruitful conversation on this.

11:52 PM update: Todd Zywicki weighs in on the paper, noting that the questions are basic supply and demand questions on which there is probably as strong a consensus among economists as one could get (HT: Will Wilkinson). They're variations on "do supply curves generally slope upward while demand curves generally slope downward?" I wonder: what percentage of the people who got most of these questions wrong also think that we have to act now on global warming climate change because there is "an overwhelming scientific consensus?"

1. Louisiana Shrimpers threatened by oil spill. First, if it weren't for shrimp protectionism, these resources wouldn't be in harm's way. Second, BP would have behaved differently were it not for oil subsidies and liability caps.

2. With reference to my link to Jeff Tucker's piece below, Wendi C. Thomas is upset about low voter turnout in the local primaries on Tuesday (there was a primary on Tuesday?). Over the summer at the Jack Miller Center Summer Institute, co-blogger and election fraudulator Mike Munger made an interesting point: low voter turnout should probably be seen as a sign of a healthy civil society because government is not at the heart of our concerns. I watched some of Tuesday's returns after "Lost" and "V." I saw one election in a nearby county where the candidates were separated by (I think) four votes. I didn't see a single race in which I could have voted in which my vote would have been decisive. My non-voting produced the exact same outcome that would have obtained had I voted, and I was able to spend the time instead learning more about the Memphis race riot of 1866.

Jeffrey Tucker writes about political signs and the opportunity cost of voting. That said, I might proudly display "Dwayne Camacho for President" and "Frito Vendejo for Attorney General" signs in my yard for the 2012 election.

1. Steve Horwitz on The Three Hats of the Economist.

2. Sheldon Richman on Immigration, Civil Liberties and the Drug War.

I love teaching introductory economics for a lot of reasons. One of those reasons is that almost every issue of every newspaper has something in it that can be better understood by applying the economic way of thinking. Here's an example from today's Commercial Appeal: under what conditions will the proposed tax "not be passed on to the patients"? I was going to have a contest to see who can give the best answer, but let's do it this way: if the Commercial Appeal publishes your letter to the editor in which you give the answer, send me the URL and I'll send you a book to be named when I see what I have in my office (probably a copy of Frederic Bastiat's The Law).

Emulating the letter-to-the-editor-writing dynamo that is my colleague Don Boudreaux, I have sent the following letter to the Washington Post:

Columnist Steven Pearlstein ("Greece and the myth of the easy economic fix", 5 May 2010, p. A16) is mostly right in his analysis of why default by the improvident Greek government would be less bad for the European Union than papering over the problem with IMF and ECB bailouts. But he must have had a brain freeze when he wrote: "If Athens manages to make good on its promises to cut spending and turn a nation of tax cheats into taxpayers, there’s a good chance it will trigger a vicious deflationary spiral – falling prices, falling employment and falling government revenue – that will make it impossible to repay debts.” This statement makes no sense: a Greek budget surplus could not cause a deflationary spiral. To paraphrase a famous monetary economist, deflation is always and everywhere a monetary phenomenon. Because Greece is on the euro, Greek prices are constrained to be close to prices in the rest of the Eurozone, just as prices in Florida must remain close to prices in the rest of the United States. Prices throughout the Eurozone will not fall into a vicious deflationary spiral unless the European Central Bank commits the unlikely mistake of shrinking, or allowing to shrink, the Europe-wide stock of euros.

Pearlstein's column is here (registration required). If the Greek government could cut spending enough to eliminate deficits, that would not be dangerous but terrific. It's unlikely they'll try very hard, and especially unlikely when the IMF and EU and ECB stand ready to cushion the Greek government from the consequences of its own improvidence.

Information here. I went to this in 2000; it's where I met Bryan Caplan, Robert Higgs, Don Boudreaux, and James Buchanan for the first time.

Berry's student activities office posts a calendar of events in campus restrooms. (It's called the Stall Wall Weekly and has the motto "Everyone knows because everyone goes.") Days with few activities list a fact or a joke, and one in the current edition caught my eye. It claims that for every job collecting recyclable materials there are 26 jobs used to process the materials and manufacture them into new products. Seems like a case of counting costs as benefits and a nice illustration of Bryan Caplan's make work bias.

Here's David Zetland:

"Bottom Line: You can't make jobs where there's no demand, but you can sure waste money pretending that you know what you're doing!"

Press release from the Bradley Foundation:

The Lynde and Harry Bradley Foundation in Milwaukee has announced the 2010 recipients of the Bradley Prizes for outstanding achievement awarded annually to prominent scholars and engaged citizens. The recipients will be honored at an awards ceremony on Wednesday, June 16, at The John F. Kennedy Center for the Performing Arts in Washington, D.C. Each award carries a stipend of $250,000.

The recipients are: Michael Barone, senior political analyst for The Washington Examiner and resident fellow at the American Enterprise Institute for Public Policy Research; Paul A. Gigot, editorial-page editor of The Wall Street Journal and winner of the 2000 Pulitzer Prize in Commentary; Bradley A. Smith, Josiah H. Blackmore II/Shirley M. Nault Designated Professor of Law at Capital University and a former member of the Federal Election Commission; and John B. Taylor, Mary and Robert Raymond Professor of Economics at Stanford University and the George P. Shultz Senior Fellow in Economics at the Hoover Institution.

"These accomplished and respected individuals are being recognized for achievements that are consistent with the mission statement of the Foundation, including the promotion of liberal democracy, democratic capitalism, and a vigorous defense of American institutions," said Michael W. Grebe, president and chief executive officer of the Bradley Foundation.

The awardees were selected based on nominations solicited from more than 100 prominent individuals and chosen by a Selection Committee that included Terry Considine, Martin Feldstein, Robert P. George, Grebe (the committee chairman), Charles Krauthammer, Dennis Kuester, Dianne J. Sehler, Abigail Thernstrom, and George F. Will.

HT: Todd Zywicki

Words of wisdom from Steve Hanke:

Contrary to claims by Messrs. Greenspan and Bernanke, the Fed played a central role in blowing asset bubbles, shifting relative prices and creating massive distortions in the economy.

Why don't more economists acknowledge this publicly?

Military history is written by the victors. Economic history is written by central bankers.

From the May 4, 1910 NYT:

WASHINGTON - Employers of brewery workers in this city have granted an eight-hour workday, and in return the employes have agreed to take not more than two drinks of beer in the eight hours.

No wave of temperance reform on the part of the brewery management, however, is responsible, but a wish to get a full measure of work out the employes.

Before and after working hours it is agreed that the employes can drink all the beer they want.

Before working hours? How soon before? On the surface this would seem to offset any efficiency gains the breweries hoped to achieve. On the other hand, employees who wanted to keep their jobs would likely internalize the costs of getting drunk before going to work. An interesting exchange between the workers and the employers - would those drinks be a taxable fringe benefit in today's world?

[Update: Reader Steven J. points me to a recent Wall Street Journal article dealing with a similar issue at the brewer Carlsberg, which has more detail about the fading right to drink on the (bewery) job. This would make an interesting master's thesis topic.]

Two cool abstracts from NBER Working Papers:

"Who Pays Cigarette Taxes? The Impact of Consumer Price Search"
Phillip DeCicca, Donald S. Kenkel, Feng Liu

We conduct an empirical study of the impact of consumer price-search on the shifting of cigarette excise taxes to consumer prices. We use novel data on the prices smokers report actually paying for cigarettes. We document substantial price dispersion. We find that cigarette taxes are shifted at lower rates to the prices paid by consumers who undertake more price search – carton buyers, and especially, smokers who buy cartons of cigarettes in a state other than their state of residence. We also find suggestive evidence that taxes are shifted at slightly higher rates to the prices paid by non-daily smokers, less addicted smokers, and smokers of light cigarettes.

"Excise Tax Avoidance: The Case of State Cigarette Taxes"
Phillip DeCicca, Donald S. Kenkel, Feng Liu

In this paper we contribute new empirical results about consumers’ decisions to avoid cigarette excise taxes, and a new applied welfare economic analysis of optimal excise taxation with tax avoidance. We examine direct measures of consumer excise tax avoidance in novel individual-level data from the 2003 and 2006 - 2007 Tobacco Use Supplements to the U.S. Current Population Survey. We estimate reduced-form models and a structural endogenous switching regression model. In the structural border-crossing equation, the decision to cross the border depends on the difference between the endogenous home- and border-state prices. The reduced-form and structural results show that the probability of cross-border cigarette purchases responds in predictable ways to the economic incentives created by the distance to the border and state tax differentials. To our knowledge, we are also the first study to extend the formula for optimal Pigouvian corrective taxation to incorporate excise tax avoidance. Taking into account tax avoidance implies the optimal tax is substantially below the simple Pigouvian tax that internalizes external costs. In illustrative calculations for 2003, we find that in 20 states the optimal tax that accounts for tax avoidance is at least 20 percent smaller than the simple Pigouvian tax.

A few years ago, Tennessee cranked up its cigarette tax with exactly the consequences you would expect in a very long, very narrow state that borders eight other states (Georgia, North Carolina, Virginia, Kentucky, Missouri, Arkansas, Mississippi, Alabama): actual revenues were much lower than projected revenues as merchants rushed to get the older tax stamps and as buyers hoarded cigarettes in anticipation of the higher prices, and a lot of people started buying their cigarettes in other states. Naturally, this led to further intervention as Tennessee started patrolling locations just across the border for people buying more than the legal quantity of out-of-state cigarettes.

If you're looking for an end-of-semester project, I have an idea for you. Look for discussions over the last 25 years or so in which Greece is cited among examples of what the US should be doing (thriving, prosperous, generous welfare state). Analyze. I'd be interested in seeing what you find.

If you're an undergraduate and you want to do this for a grade, be sure to clear it with your professor first. Needless to say, I can't provide feedback on work you're submitting for a grade.

Perhaps taking the lead of governments in the United States, Bolivia's President Evo Morales has decided to nationalize another industry. Today he announced the confiscation of equity held by British and French companies in Bolivia's electricity industry. Evo's government says it made offers but met with no cooperation, so it had no alternative but to take the property. Some companies are sueing for undercompensation, and foreign investors have brought Evo's previous nationalizations to the World Bank for arbitration. And so goes a tradition. From the Reuters news story on this:

Morales likes to celebrate May 1, known as May Day or International Workers' Day, by nationalizing companies controlled by foreign investors. On May Day last year, he nationalized Air BP, a division of British oil major BP Group and the same day in 2008 he took over Entel, the country's largest telecommunications company, until then controlled by Euro Telecom International, a unit of Telecom Italia.

A tradition of theft.

To pay Division of Labour and a few other ventures, I've established a couple of online stores. It seemed fitting to mention these on May Day:

1. Mrs. Carden's and my online books/coffee/toy store Ye Olde Booke Shoppe.

2. God is my Co-Author. Gear for the academic in your life.

3. Arachno-Capitalism. Because spiders love markets and hate coercion.

4. The Capitalist Pigsty. Capitalist pigs have feelings, too.

In honor of the recent release of 2010q1 data, I calculated my “back of the envelope” equation of exchange (MV=PQ). For “M” I use the St. Louis Fed’s seasonally adjusted monetary base. For GDP and Real GDP I use the Bureau of Economic Analysis seasonally-adjusted figures. Dollar amounts are in billions. Using the equation of exchange, I calculate velocity and the implicit monetary base GDP deflator. (N.B.: Yes, I’m a monetarist/neoclassical sort of dude. You don’t need to email me to tell me about how Rothbard disproved the concept of velocity, etc.) Pictures tell thousands of words, so…

Download file here.

The first table is a condensed view. The left hand side shows levels of variables and the right shows growth rates. The growth rates are approximated by the differences in natural logs, and they are quarter-to-quarter growth rates.

The second table shows more traditional year-to-year growth rates, based on the first quarter.

I’ll be honest. The monetary base and velocity figures blow my mind.

Read More »

Here's an interesting look by Jim Manzi at the famous jam experiment that has given a lot of momentum to the "paradox of choice" literature (HT: Will Wilkinson). Here's a summary of the economics sniff test:

Before getting into the detailed analysis, stop to notice that if this result were valid and applicable with the kind of generality required to be relevant as the basis for social policy, it would imply that lots of retailers could simultaneously eliminate 75 percent of their inventory and increase sales by 900 percent. I don’t believe in purely efficient markets, but that doesn’t seem very plausible to me.

This illustrates one of the most important things the economic way of thinking brings to the table: it provides a ready test of almost any proposition about social policy. If this claim about the paradox of choice is true, then there is an opportunity for someone to earn massive profits by correcting it. The same logic holds for claims attributing pay gaps to discrimination. People generally don't step over piles of money, and this means that markets have built-in mechanisms that punish entrepreneurial errors.

People have said before that politics and sports are different flavors of the same phenomenon (tribalism). I largely agree, and I think this is clear in the role-reversals that occurred after Barack Obama was elected. Here's an idea for a paper inspired by a comment Steve Horwitz made a few weeks ago: compare the tone and style of comments on internet stories about politics to the tone and style of comments on internet stories about sports. I've seen some work before in which people code passages of text based on different themes, and I'm sure there are methods of pattern recognition within text that would highlights the similarities and differences. The patterns would probably also apply to stories about music, the arts, and what have you.

In the future, everyone will have 15 YouTube videos. Here are two of mine. The first is a talk on "Sound Money and Free Banking" that I gave at George Mason U last week, under the sponsorship of the Atlas Economic Research Foundation's sound money project. Thanks to the GMU Econ Society for hosting.

Lawrence H. White on Sound Money from Atlas Network on Vimeo.

The second is a keynote address on "Avoiding and Resolving Financial Crises:
The Rule of Law or the Rule of Central Bankers?" that I gave in October 2009 at the annual conference of the Economic Freedom Network - Asia, held in Siem Reap, Cambodia. It's a rather low-rez video -- might have been shot on a cell phone. Cambodia's finance minister takes the stage after me.

Finally, here's a link to audio of my chat with talk radio host Jeffrey Lloyd on Star FM 106.5, Nassau, The Bahamas. I stopped by Jeffrey's studio when I was down there last month to give a talk for the Nassau Institute. Thanks to Damien Forsythe for arranging it all. Btw, Lloyd was well prepared. This is the only time an interviewer has wanted to talk about methodological individualism!

The military's clever homage to Jackson Pollock Afghanistan Stability/COIN Dynamics diagram has been making the rounds again, this time in discussions of Powerpoint. A lot of conservatives realize, to their credit, that socialism is either impossible* or at least a very bad idea. And yet a lot of those same conservatives can look at the Powerpoint slide below and maintain a steadfast belief that with sufficient willpower, we can reshape an entire society in Afghanistan (HT: Cafe Hayek, Kids Prefer Cheese, and a bunch of other places that have blogged about this picture). Couldn't we have saved taxpayers a lot of money with a spirograph and a random word generator?

*--"Impossible" in the Mises/Hayek sense: socialism is doomed to failure because rational economic calculation is impossible without secure private property rights.

Metro Detroit motorists who exceed posted speed limits may not be breaking the law, because in many cases the limits themselves are unlawful, according to one of the state's top traffic cops.

Four years after the passage of Public Act 85, which requires municipalities in Michigan to conduct studies to set proper speed limits, most cities, villages and townships have not complied, according to Lt. Gary Megge, head of the Michigan State Police Traffic Services Section.

One likely reason, said Megge, whose section advises communities on how to set proper speed limits, is that communities want speeding ticket revenue, and failing to conduct the required speed studies allows them to keep enforcing their speed limits that Megge calls "artificially low."

This comes as absolutely no surprise to anyone who's seen Garrett and Wagner's paper on the countercylical nature of speeding tickets. Source; pointer from Instapundit.

Time to whack another mole--we have another generous helping of nonsense about Herbert Hoover being a practioner of laissez-faire. Today's offering comes from someone posting as "madamab" at the Widdershins blog:

You know who else focused on the deficit and cutting spending during a time of deep recession/depression? Herbert Hoover.

Once again, let's take a look at old Herbie's record. Table 1.1 of this handy document on federal budget history reveals the following numbers for government spending and budget surpluses (figures in billions; negatives mean deficits of course):

1928 spending 2.961; surplus 0.939
1929 3.127; 0.734
1930 3.32; 0.738
1931 3.577; -0.462
1932 4.659; -2.735
1933 4,598; -2.602

Some fiscal austerity going on there--a 50% increase in spending and a shift from surpluses approaching $1B to deficits of 2.5B.

BTW, The Whiddershins post linked above is promoting some sort of fiscal sustainability counter conference because the White House's deficit commission is too restrained for madamab's taste.

Yours truly in today's WSJ:

William P. Suliburk (Letters, April 21) calls the decline in manufacturing employment "disconcerting" and considers the growth in teachers and health-care workers to be indicative of "misallocation in the employment of our labor force."

Bloated government spending has indeed led to misallocations, such as that outlined in your editorial "Fewer Students, More Teachers" (April 12). However, the decline in manufacturing employment, much like the dramatic decrease in agricultural employment in the 20th century, reflects a long-term trend driven primarily by rapid productivity growth. Surely, Mr. Suliburk does not pine for the days in which one-third or more of the U.S. labor force toiled at subsistence farming; nor should he fret about productivity-driven declines in manufacturing employment.

The letter generated several kind emails (thanks folks) and one that called me "unbelievably naive and ignorant."

One from the dead letter office is below the fold.

Read More »

That's the title of the 2000 Journal of Private Enterprise article written by Berry grad Mike Hammock and my former Berry colleagues Wilson Mixon and Mike Patrono. The recent Earth Day brought the article to mind.

ADDENDUM: Also see DOL friend Paul Rubin's (gated) WSJ piece on environmentalism as religion.

Is exchange just? Does it matter if exchange is "euvoluntary"? I try to answer these and other questions, here.

Read More »

Robert Paarlberg on sustainable agriculture:

Influential food writers, advocates, and celebrity restaurant owners are repeating the mantra that "sustainable food" in the future must be organic, local, and slow. But guess what: Rural Africa already has such a system, and it doesn't work. Few smallholder farmers in Africa use any synthetic chemicals, so their food is de facto organic. High transportation costs force them to purchase and sell almost all of their food locally. And food preparation is painfully slow. The result is nothing to celebrate: average income levels of only $1 a day and a one-in-three chance of being malnourished.

If we are going to get serious about solving global hunger, we need to de-romanticize our view of preindustrial food and farming. And that means learning to appreciate the modern, science-intensive, and highly capitalized agricultural system we've developed in the West. Without it, our food would be more expensive and less safe. In other words, a lot like the hunger-plagued rest of the world.

Is the Goldman-Sacs case/action by the SEC closer in spirit/reality to

a) Howard Roark's trial in The Fountainhead?

b) Hank Rearden's trial in Atlas Shrugged?

Comments open.

The Pyramid in Memphis (our other state-of-the-art basketball arena) has been sitting empty for years. Now, apparently, Bass Pro Shops is (finally) slated to open a store in the arena. This will re-vitalize the surrounding area, which wasn't successfully revitalized when the Pyramid was originally built.

Ultimate lesson: let's drop the "revitalization" plans for these areas and instead drop the policies that de-vitalized them in the first place.

Here are a couple of links based on the discussions we're having at the "In Defense of Capitalism" Conference:

1.E.G. West explains how markets have provided education historically.

2. James Otteson explains the Great Mind Fallacy: to borrow from Hayek, you know very little about what you imagine you can design.

I'm in Copenhagen, Denmark for a two-day conference entitled "In Defense of Capitalism" (here's the official website). The coordinators are to be congratulated for putting on an amazing event that blends comments from economists, political scientists, and business people. Turnout has been great even though the conference of the Danish Liberal Alliance is also taking place this weekend.

Today features talks by Peter Klein, Thorsten Polleit, and Patri Friedman. Video from both days will be on the web at some point.

Now here's a challenge for students. The organizers of this conference basically decided one day that, in light of ongoing conversations about the financial crisis, they wanted to put together an international conference about capitalism. Then they went out and did it. Go thou and do likewise.

Fun facts:

1. Fellow speaker Indra de Soysa is an Alabama poli sci PhD. Roll Tide.

2. Fellow speaker Phillip Bagus and I were roommates at the Mises Institute's Mises University Summer Seminar in 2002.

On last night PBS show NOVA about California's energy policies, U.S. Secretary of Energy Stephen Chu:

Q: So you don't think that higher energy costs will cripple businesses?

Chu: I think the cost of energy will not cripple business. I think the cost of energy, slight increase in the cost of energy, will actually stimulate a lot of innovation. Quite frankly, the Bay area sees this as an incredible worldwide business opportunity. Just as it led in the computer industry, in the biotech industry, now we believe we can lead in the green-tech industries that could help save the world.

The United States should realize this as a credible business opportunity. We have incredible intellectual capital in the United States. Why should we drag our feet and say, "We don't wanna do this." Why don't we say, with some regulations that will prompt us to say, "We can go find the solutions. And not only that, we can export it to the rest of the world."

Tyler Cowen doesn't. I do. Here's why:

1. I'm a compulsive note-taker, and margin notes are one way of wrestling with ideas in real time. This is especially true when I'm reviewing a book or when I don't have a notepad or computer handy.

2. It adds value when I give books to libraries or lend them to people. Used and marked-up copies of older books brings me into conversation (albeit faintly) not only with the author, but with a previous reader. Reading th rough Murray Rothbard's personal copy of Douglass North's Structure and Change in Economic History, for example, made an impression on me when I was at the Mises Institute in 2002 and 2003.

3. Assuming the books aren't destroyed, my marginal notes will bring me into conversation with future readers. Just as when I read marked-up copies of old books I can see what someone, somewhere thought was important, I can be that someone, somewhere to future readers.

Even salt producers have a trade association, the Salt Institute.

1. Brendan O'Neill offers us "Sinners in the Hands of an Angry Gaia." While reading and reviewing Robert Nelson's The New Holy Wars, I downloaded "Sinners in the Hands of an Angry God" and did a find-and-replace where "God" was replaced with "Earth" to see how it reads (not well enough for illustrative purposes).

2. Steve Horwitz tells us how the Iceland Volcano will create economic progress. After all, hiring window washers will create jobs.

My latest Mises.org piece is here. I argue that the economic way of thinking is an input into good ethics. I also discuss this in my review of Paul Heyne's "Are Economists Basically Immoral?", which is forthcoming in the QJAE.

I was going to write a standalone post on this, but David Henderson's post about competing visions fits perfectly: there's a yawning gap between visions. One says "I have a problem; how can I solve it?" The other says "The world is broken; give me power and I will fix it."

1. We just had milkshakes from Sweden Kream on National. Believe the hype (HT: I Love Memphis).

2. Mike Hammock looks at Economic Freedom and Google Information Requests. He's right: there's a paper there. Someday, when the US government decides it's time to round up dissidents, they're going to go to Facebook and Google.

3. This weekend's In Defense of Capitalism conference in Copenhagen is threatened by the Iceland volcano, but Danish airports are supposed to open at 2:00 AM local time tomorrow. We find out in the morning. I'm praying.

He talks about how he became an economist, his approach to economics (you can call him an Austrian, but he doesn't label himself), and his work on free banking.

Podcast, in which Russ and I more or less reverse roles and I ask him questions, about love, money, and non-profits.

I'm reviewing Robert H. Nelson's The New Holy Wars for The Freeman. Chapter 11, entitled "Environmental Colonialism: 'Saving' Africa from Africans" is gripping, informative, and depressing. Consider the following passage from p. 266, which occurs shortly after a brief history of European settlement and "conservation" efforts:

The creation of national parks in eastern and southern Africa thus typically served to prevent ordinary Africans from reoccupying areas from with (sic) they had been expelled by European military force and disease within the previous half century. The "true Africa" seen by tourists visiting the parks--popularly imagined to be unchanged since the creation--was in fact the product of the decimation of traditional African life as experienced in the aftermath of European settlement.

De gustibus non est disputandum, however, ....

Words of wisdom from William Graham Sumner, in an 1896 essay by the above title, worth keeping in mind when reading about Sentator Dodd's bill for new financial restrictions or the charges against Goldman Sachs:

We hear fierce denunciations of what is called the “money power.” It is spoken of as mighty, demoniacal, dangerous, and schemes are proposed for mastering it which are futile and ridiculous, if it is what it is said to be. Every one of these schemes only opens chances for money-jobbers and financial wreckers to operate upon brokerages and differences while making legitimate finance hazardous and expensive, thereby adding to the cost of commercial operations. The parasites on the industrial system flourish whenever the system is complicated. Confusion, disorder, irregularity, uncertainty are the conditions of their growth. The surest means to kill them is to make the currency absolutely simple and absolutely sound. Is it not childish for simple, honest people to set up a currency system which is full of subtleties and mysteries, and then to suppose that they, and not the men of craft and guile, will get the profits of it?

Dear Sellers,

All your gains from trade are belong to us.

Love,

Buyers

I've had conversations this morning with two customer service representatives. One was from Travelocity, the other was from my Sam's Club Discover Card. The first case concerned a refund, and it was the second different refund I've had to get from Travelocity in the last couple of months. It was quick, it was easy, it was painless. The second concerned fraud detection: they needed to verify some recent transactions. If they're so powerful and if the legal system is in their pocket, why would they bother providing me with such exemplary service?

Are they constrained by the fact that they're nice people who genuinely wish me well? I doubt it, because the people to whom I spoke were apparently calling from India, and my guess is that all else equal, they have more important things to worry about than processing refunds and verifying credit transactions for some guy in Memphis that they've never met.

Are they constrained by wise and benevolent rulers who are looking out for my interests? It's plausible, but I doubt it because the literature on rent-seeking suggests that government services are generally going to be auctioned off to the highest bidder. I'm not going to go to the trouble and expense of suing Travelocity or Discover over small sums of money, and even if I did they probably have an army of lawyers who can make quick work of my claims.

Or are they constrained by competition? if Travelocity wrongs me, I can take my business elsewhere. If I'm ill-used by Sam's Club and Discover, I have a lot of different options for how I can pay for things.

It isn't perfect. I have some horror stories from when I was in grad school, but these involve companies with which I no longer do business. If only I had that option with the DMV and Social Security.

I love economics. It's a set of tools that helps us discover truth. With a couple of simple and non-controversial assumptions--people try to make themselves as well off as possible however they choose to define it, they respond to incentives, and every action has a cost--we can trace out and understand the implications of different claims. A lot of the criticisms of capitalism, if they were true, would result in opportunities for the critics to earn unlimited profits by taking advantage of these imperfections. Discrimination is one example, and I'll have more to say about that later. Here's Deirdre McCloskey on advertising, from The Bourgeois Virtues, p. 452:

The peculiarly American attribution of gigantic power to thirty-second television spots is puzzling to an economist. If advertising has the powers attributed to it by the clerisy, then unlimited fortunes could be had for the writing.

...

The American clerisy's hostility to advertising is puzzling to a rhetoritician. Why would a country adoring free speech in its higehr intellectual circles have such a distaste for commercial free speech? Perhaps the distaste is merely a branch of that great river of antirhetoric rhetoric in the West since Bacon. But anyway if hoi polloi were as rhetorically stupid as most of the clerisy seems to believe, then as I say any reasonably clever ad writer could "manipulate" them with ease. But it ain't so. The TV generation can see through advertising directed at children by age eight, and by age eighteen it bases its humor--see Saturday Night Live--on parodies of attempted manipulation.

I put this challenge to a student at an IHS "Exploring Liberty" Summer Seminar during summer 2008: let's suppose that people are very easily manipulated by advertising and can be duped into buying anything by slick marketing. If this is true, then he should be able to hire a few marketers and bankrupt me by addicting me to whatever he has to sell. I don't think he has taken up the challenge.

There's a debate tomorrow evening at Rhodes between the former editor of High Times and a retired DEA agent on whether marijuana should be legalized. I won't be able to make it, unfortunately, but it looks interesting. In my stead, here's a summary of my argument for legalizing all drugs, which I delivered to a very receptive audience at Idlewild Presbyterian Church a few months ago. Here's the latest offering from Reason.tv, which argues for the legalization of marijuana.

The abstract of a paper by Richard Hornbeck in the current QJE:

This paper examines the impact on agricultural development from the introduction of barbed wire fencing to the American Plains in the late 19th century. Without a fence, farmers risked uncompensated damage by others’ livestock. From 1880 to 1900, the introduction and near universal adoption of barbed wire greatly reduced the cost of fences, relative to predominant wooden fences, most in counties with the least woodland. Over that period, counties with the least woodland experienced substantial relative increases in settlement, land improvement, land values, and the productivity and production share of crops most in need of protection. This increase in agricultural development appears partly to reflect farmers’ increased ability to protect their land from encroachment. States’ inability to protect this full bundle of property rights on the frontier, beyond providing formal land titles, might have otherwise restricted agricultural development.

I'm reading the essays in a 1988 issue of Critical Review on Marx. It leaves me wondering how disagreements will be resolved when the means of production are owned by the state and when production is planned. I'm reminded of a joke about socialism and communism.

A communist revolutionary is giving a speech.

Communist Revolutionary: "After the revolution, the land will flow with milk and honey!"

Audience Member: "But I don't like milk and honey."

Communist Revolutionary: (pause) "Comrade, after the revolution, you will like milk and honey!"

Russ Roberts embeds an "unintentionally entertaining video" from the Democratic Policy Committee. After you watch it, read this essay by fellow Wash U PhD Morgan Rose on tax v. debt financing.

I think the complete role reversal that took place when Obama took office is one of the most interesting stories in the short history of the 21st century. This was especially evident in some of the coverage of yesterday's Tax Day Tea Parties. The Right has adopted the "dissent is the highest form of patriotism" stance while The Left has adopted the "love it or leave it stance." See, for example, protest signs advising tea partiers to move to Somalia if they hate government so much. Speaking of Somalia, here's an article and a lecture by Benjamin Powell making the case that establishing a state in Somalia would probably make matters worse.

But why does public discourse have to be so vitriolic? Can't we go back to the days of more temperate discourse, when it was left-wing protesters comparing Bush to Hitler rather than right-wing protesters comparing Obama to Hitler? Anthony Gregory offers us a fascinating trip down memory lane, complete with video.

As long as we're discussing ideas, here's an interesting commentary on "Dirt-Cheap Ideas" from Doctor J. Here's Anthony Gregory (again) on "How the Left Learned to Stop Worrying and Love the FBI." Emily Schaeffer from San Jose State and the Independent Institute was at a San Jose Tea Party to fight the good fight for free trade and open borders.

It appears that I have won the modern-day version of the Ehrlich-Simon Bet.

At the APEE opening dinner, I got into an animated conversation with Frank's colleague Melissa Yeoh about the physical composition of peanut butter (we were discussing a project in which Charles Courtemanche and I are looking at the effects of warehouse club entry on grocery prices). I maintained that the physical composition of store-brand peanut butter differs from the physical composition of name-brand peanut butter. Melissa maintained that they are the same. Given that we were in Vegas and that I was pretty sure I was right, I offered to bet her $100 that the ingredient lists would differ. We ultimately settled on a $20 bet that the ingredient list on store-brand peanut butter would differ from the ingredient list on name-brand peanut butter. After careful investigation, it turns out that the Kroger brand uses a different combination of fully and partially hydrogenated oils. The calorie counts and protein counts differ, as well, and I would also suspect that the Kroger brand uses lower quality peanuts. It appears, then, that choosy moms choose Jif not because they have been duped by slick advertising, but because it is a better product.

I've asked Melissa to donate my winnings to the APEE Young Scholars Program. If you're a graduate student or junior faculty member and you like good scholarship, good company, and wagers about the physical composition of foodstuffs that emerge from discussions about the margins on which firms compete with one another, you should apply for a Young Scholars Grant and join us for APEE in the Bahamas next year.

Justin Ross offers his take on the Otteson-Brook debate at APEE. That reminded me of the question I was going to ask but didn't because time ran out:

"Jim says that we should proceed by going for a stroll with those who share our goals. Yaron proposes a shock-and-awe approach in which we extol the virtue of selfishness and question others' moral assumptions. Can't both approaches work in different settings? In trying to decide which approach is objectively better in all circumstances, might we be making a mistake by trying to centrally plan the rhetorical strategy for liberty?"

Zac Gochenour has posted videos of the 2008 panel at the Public Choice Society meetings in which Mike Munger, Geoffrey Brennan, and I commented on Bryan Caplan's The Myth of the Rational Voter. My comments were based on Mike Hammock's and my paper "The Truthiness Hurts," which is forthcoming in Economic Affairs. Mike has embedded the videos on his blog, and you can download the working paper version of our paper here. Unfortunately, I didn't have time to give Mike's wife Liz credit for naming what we call "stick-it-to-the-man bias," but she graciously provided us with the term.

I am organizing the sports economics sessions sponsored by the North American Association of Sports Economics at the November 2010 Southern Economic Association meetings.

It is not a requirement to be a member of NAASE to be included in our sessions, however you do need to register for the conference to present.

I invite anyone who wishes to present during the conference to send me a title/abstract and contact information at cdepken-at-uncc-dot-edu in the next couple of days.

...will be blogged and tweeted.

Division of Labour will be well-represented at the APEE meetings. So will Rhodes: student Elizabeth Feaster is presenting her paper "A Mixed Blessing: The Roman Catholic Church as a Monopoly and Its Effects on European Economic Growth" in the "Economic Growth and Well-being" session on Monday at 4:25. On Tuesday morning at 7:40, Marshall Gramm, Nick McKinney, and students Ryne Marksteiner and Allyson Pellissier will present papers in the "Studies in Risk and Outcomes" session. Ryne's paper is "Power and Influence in the United Nations General Assembly" and Allyson's paper is "The Effectiveness of the Ballot Box."

Addendum: as you make your slides, dwell on this for a little bit (HT: Peter Klein).

That's the title of my student Shawn Regan's article in the current issue of Regulation. (Co-blogger Craig also has a paper in the issue.)

Shawn is also the inaugural winner of my department's Sockwell Prize, created in honor of my retiring colleague Bo Sockwell and awarded to the student who has written the best economics paper in the past year.

This year's Wilson Mixon Outstanding Senior in Economics Award is shared by Marcy Peterson and Erin Wendt.

Congratulations to Shawn, Marcy, and Erin, and thanks to all of this year's seniors for being such a great class.

From the WSJ:

The Senate version of a food-safety bill has attracted broad bipartisan support and is expected to pass easily soon after Congress returns from recess next week. Iowa Democratic Sen. Tom Harkin, a co-sponsor, predicted it would be "on the president's desk by May." But small farmers worry the measure's fees and inspection requirements would be ruinously expensive and are pushing for exemptions.

"I know people who have been small farmers for 25 to 30 years who are looking to get out of the business because food safety is becoming so alarmist," said Mary Alionis, whose eight-acre Whistling Duck Farm in Grants Pass, Ore., sells produce to farmers markets and restaurants.

Big food companies generally support the bill, judging the added expenses it would bring to be small compared with the potential financial damage of a vast product recall. But smaller producers say the bill's stepped-up inspection requirements and provisions allowing the FDA to issue preventive recalls would put too big a financial burden on them.

"Small farm groups seriously have problems with this bill," said Deborah Stockton, executive director of the National Independent Consumers and Farmers Association, a coalition of small farmers. "We are not afraid to stand up to it."

From the Show-Me Institute and Art Laffer, a new open-access repository of state-level tax data.

...an online tool that helps people explore and compare tax rates across all states over time... ...a large comprehensive dataset that includes roughly 50 variables per state, over a span of decades. The data are divided into three main categories: economic aggregates, fiscal policy measures, and demographics. This database includes an archive of additional information that includes specific selective tax rates, public employee information, and overall tax burdens.

1. Emily Chamlee-Wright, The Cultural and Political Economy of Recovery: Social learning in a post-disaster environment.

2. George A. Akerlof and Rachel E. Kranton, Identity Economics: How Our Identities Shape our Work, Wages, and Well-Being.

3. Bethany Moreton, To Serve God and Wal-Mart: The Making of Christian Free Enterprise.

4. Thomas Sowell, Intellectuals and Society.

I'm a chapter or so into Chamlee-Wright's book. It raises an interesting question: who are the relevant stakeholders in well-defined post-disaster reconstruction efforts, where are the veto points, and how do people invest resources in blocking reconstruction efforts they don't like? What would an analysis of (say) the World Trade Center Reconstruction effort in the light of Emily's work, Chris Coyne's After War, and the Mercatus project on the Katrina recovery look like?

An interesting letter to the editor suggests that (individual) demand curves are downward sloping:

I have subscribed to the same seats [of the Metropolitan Opera House] as far back as the M. Grau management; without my consent I was some years ago instructed by the management to renew my subscription through agents, the circular stating that no change in price would obtain, &c.

Although not understanding the object of turning seats already sold to an agent, I followed instructions on the same terms until this year, when I am notified by the agents that to meet their commission an advance of 20 per cent. would be charged. Why a commission?

The opera management will certainly lose many subscribers if it insists on its present scheme.

For my part, I have decided to give up my subscription rather than submit to a patent injustice, and I hope this will be read by many old subscribers and be the means of suggesting a way of remedying that abuse.

A VERY OLD SUBSCRIBER

This note in The New Republic sites research suggesting that the supply curve of pediatricians slopes upward (big surprise there) and that Medicaid payments are now low enough to increase the amount of leisure for which some (mostly female) pediatricians will opt. (Many work part-time.) The note also cites an AER piece linking low Medicaid rates to higher infant mortality.

From USA Today:

Paying people for living kidney donations would increase the supply of the organs and would not result in a disproportionate number of poor donors, a study by researchers from the University of Pennsylvania and the Philadelphia Veterans Affairs Medical Center concludes. The study, published this month in the Annals of Internal Medicine, asked 342 participants whether they would donate a kidney with varying payments of $0, $10,000 and $100,000. The study called for a real-world test of a regulated payment system.

The possibility of payments nearly doubled the number of participants in the study who said they would donate a kidney to a stranger, but it did not influence those with lower income levels more than those with higher incomes, according to Scott Halpern, one of the study's authors and senior fellow at the University of Pennsylvania's Center for Bioethics.

Just a reminder (with a HT to Mark Perry) as to why such incentives are important:

Is by Michael Woodford, and can be found here.

Convergence in Macroeconomics: Elements of the New Synthesis

The central division among macroeconomists ceased to be about whether one should try to precisely model short-run dynamics, and came instead to be about whether it was more important to insist upon theoretical coherence in one’s models, even if this meant doing without econometric validation (the position of the New Classical economists and real business cycle theorists), or to insist upon econometric testing, even if this meant using specifications little constrained by theory (the position of the Keynesian macroeconometric modelers).

While the problems of the field have hardly all been resolved, there are no longer such fundamental disagreements among leading macroeconomists about what kind of questions one might reasonably seek to answer or what kinds of theoretical analyses or empirical studies should even be admitted as contributions to knowledge.

The cessation of methodological struggle within macroeconomics is largely due to the development of a new synthesis --- called by Marvin Goodfriend and Robert G. King (1997) “the New Neoclassical Synthesis” --- that incorporates important elements of each of the apparently irreconcilable traditions of macroeconomic thought.

The published version of my paper "Profit and Production" is available here.

As Lorenzo turns 20 months old, and as we are having company for Sunday's Easter feast, I am reminded of a passage from David Friedman's Law's Order.

Every parent is familiar with [an] example of the [bilateral monopoly] game. A small child wants to get her way and will throw a tantrum if she doesn't. The tantrum itself does her no good, since if she throws it you will refuse to do what she wants and send her to bed without dessert. But since the tantrum imposes substantial costs on you as well as on her, especially if it happens in the middle of your dinner party, it may be a sufficiently effective threat to get her at least part of what she wants.

Prosepective parents resolve never to give in to such threats and think they will succeed. They are wrong. You may have thought out the logic of bilateral monopoly better than your child, but she has hundreds of millions of years of evolution on her side, during which offspring who succeeded in making parents do what they want, and thus getting a larger share of parental resources devoted to them, were more likely to survive to pass on their genes to the next generation of offspring. Her commitment strategy is hardwired into her; if you call her bluff, you will frequently find that it is not a bluff. If you win more than half the games and only rarely end up with a bargaining breakdown and a tantrum, consider yourself lucky.

I said "reminded," not "comforted."

Still, when it is a bluff and Lorenzo manages to sneak a hopeful eye in my direction ("Is Papi looking?"), while seeming to writhe in anguish on the living room floor, oh what a delight! Happy Easter all.

1. When is Corruption a Substitute for Economic Freedom? (with Lisa Verdon). Forthcoming, Law and Development Review. Old title: "Corruption Creates Growth When People Aren't Free."

2. Human Rights and Economic Liberalization (with Robert A. Lawson). Resubmitted to Business and Politics.

3. The Southern Economy. Prepared for The Oxford Handbook of Southern Politics. Enormous thanks to Price Fishback and co-blogger Mike DeBow for comments and suggestions that made me re-think a number of issues in Southern history.

4. A Pile of Krusty Burgers Embiggens the Fattest Man: Obesity, Incentives and Unintended Consequences in "King Size Homer." This is a very rough draft of a chapter for a book on economics in The Simpsons that co-blogger Josh Hall is editing. Comments welcome.

5. Cartoon Economic Policy (with Steven Horwitz). This is the latest installment of Steve's column "The Calling," a regular feature at The Freeman Online.

In India the "Right of Children to Free and Compulsory Education Act" comes into force today.

Gor that? Free and Compulsory.

Here's an excellent (and short) video of Tom Palmer discussing the Broken Window Fallacy (HT: Steve Horwitz). It's a venerable fallacy, but it's one from which I hope we might be recovering. A couple of quick Google searches couldn't turn up anyone saying that the recent earthquake in Haiti will be good for Haitian economic growth.

I had a Mises Daily a few years ago on the fallacy. Bastiat inspired Henry Hazlitt's Economics in One Lesson, which I discuss here. Here's a series of interviews with economists on different parts of Economics in One Lesson.

Cross-Posted at the Mises Blog and the Beacon.

For bathtub gin, that is. One wonders what the behavioral response if this ballot initiative in California were to pass:

A measure that would raise the excise tax on a 750 ml bottle of wine from 4 cents to $5.11 has been cleared for circulation by the Secretary of State. Proponents can begin collecting the 433,971 signatures needed to put the initiative on the November ballot.

The measure would push the tax on a six-pack of beer from 11¢ to $6.08, and raise the total tax on a 750 ml bottle of distilled spirits from 65 cents to $17.57.

The additional excise taxes would boost state revenues of between $7 billion and $9 billion annually, with the proceeds going to support alcohol-related programs and services. The Secretary of State predicts that state and local revenues from existing excise and sales taxes on alcoholic will actually fall several hundred million dollars annually, due to a likely decline in consumption.

The official proponents for the measure are listed as Josie Whitney and Kent M. Whitney. They must collect signatures of 433,971 registered voters – the number equal to five percent of the total votes cast for governor in the 2006 gubernatorial election – in order to qualify it for the ballot. The proponents have 150 days to circulate petitions for this measure, meaning the signatures must be collected by August 23, 2010.

I love the (under)-statement "due to a likely decline in consumption." You think!?!? I would argue that the statement should read "due to a likely decline in taxable consumption."

I suppose the two proponents are part of a temperance movement, which is about the only rationale that can explain such massive tax hikes. If you live in California or work in the California wine industry or service industry you have to hope that such an initiative a) can't get the required signatures or b) can't get the necessary votes.

Story here

HT: Christian D.

March Madness means, among other things, bracket picks, office pools, etc. Both of my brackets--the "real" bracket and my "which school has the highest-ranked econ department?" bracket--are completely underwater. It isn't my fault: the upsets at various stages sank my real bracket, and my hypothesized correlation between econ department ranking and probability of victory just didn't quite pan out. No one could have predicted that. Besides, I'm no expert--I don't really follow college basketball.

In the spirit of the times, I'm asking for a bailout. Please click on the button below to contribute $1 to Art Carden's Bracket Bailout. Alternatively, you can send me an email explaining not only why you aren't contributing, but why you shouldn't. I'll send my spare copy of Eugen von Boehm-Bawerk's Karl Marx and the Close of His System to whoever submits the best 500-word-ish answer by (say) midnight on Friday.

From the March 30, 1910 NYT:

The price of Boston baked beans has increased over 33 1-3 per cent. during the past two years, and caused a decrease in the consumption of approximately 9 per cent. Two years ago beans retailed at 7 and 8 cents per quart, while they now cost 10 and 11 cents.

Boston's bean bill in 1909 was nearly $5,000,000, an increase of about $1,700,000 over the cost of beans in the previous year, notwithstanding the decrease in the amount used. In 1908 there were consumd (sic) in this city 589,919 bushels of beans. Last year this amount fell off to 536,863 bushels.

Salt pork, used in cooking beans, has also taken a decided jump in price since 1907. Three years ago pork sold for 11 cents a pound. To-day the same quality costs 18 cents a pound, an increase of about 63 per cent.

The arc-elasticity of demand for beans = -9%/33.3% = -0.27. To put this in some perspective, a 1996 meta-analysis of the price elasticity of demand for gasoline found that the short-run price elasticity of demand for gasoline is -0.26.

Perhaps people really, really, really liked their Boston baked beans in 1910?

From the March 28, 1910 NYT (there wasn't anything interesting in the March 29, 1910 NYT):

The street car strike in Philadelphia has made begging an unproductive calling there, according to Charles Becowitz, a blind Russian beggar, who was picked up by the Capital [Washington] police while plying his vocation among the Easter day crowds attending St. Patrick's Church here today. Becowitz has been ordered to leave Washington. He told the police he had been able to make as much as $30 a week selling shoe laces and lead pencils in Philadelphia.

George Robin, a seventeen year old boy was arrested with Becowitz. He has been receiving $4 per week for assisting the blind man. He declares he will return to Philadelphia.

As part of my haul from the Goodwill Book Store in Panama City last week, I picked up a copy of Paul Johnson's Intellectuals (here's a recent updated version; Johnson's portrait of Karl Marx is illuminating and disturbing, but I'll have more on that later). Here's Thomas Sowell discussing his new book Intellectuals and Society, which I plan to read soon. I've read that it's a sequel of sorts to Johnson.

The abstract of a new NBER WP by Lauren Cohen, Joshua D. Coval, Christopher Malloy:

This paper employs a new empirical approach for identifying the impact of government spending on the private sector. Our key innovation is to use changes in congressional committee chairmanship as a source of exogenous variation in state-level federal expenditures. In doing so, we show that fiscal spending shocks appear to significantly dampen corporate sector investment and employment activity. These corporate reactions follow both Senate and House committee chair changes, are present among large and small firms and within large and small states, are partially reversed when the congressman resigns, and are most pronounced among geographically-concentrated firms. The effects are economically meaningful and the mechanism - entirely distinct from the more traditional interest rate and tax channels - suggests new considerations in assessing the impact of government spending on private sector economic activity.

Some supply and demand from Florida:

Strawberry farmers in Florida are facing such a sharp collapse in prices for their berries that many are deciding to simply leave huge tracts of the berries to rot in the fields.

This only adds to a cold-induced disaster in Florida agriculture this year and spurs some bitter irony for homeowners who suffered sinkholes and water shortages as nearby farmers drained groundwater in hopes of staving off frost damage.

Matt Parke, for instance, looks out at his farm fields, full of strawberries, and just sighs.

"Our biggest block of 65 acres, we just had to drop and leave there," said Parke, a grower for Parkesdale Farms in Plant City. The market is already flooded with an abnormally huge wave of berries, pushing prices well below the break-even point for farmers.

All around Plant City, farmers are making the same decision.

"We still owe a lot of money on this year's crop, and we needed to pick fresh fruit at a profit, and that's not occurring right now," said Carl Grooms of Fancy Farms.

Every March, some small fraction of berries will stay in the field, Grooms said. This year, his volume is down 50 percent. Huge areas of his land will go dormant with berries on the plants. Blame the abnormally cold weather in Florida this spring.

Farmers try hard to prevent this kind of disaster. Normally, they plant berries at different times so berries ripen in phases through springtime.

However, the cold weather delayed growth of those early plantings, so all the berries turned ripe at the same time, flooding the market. Plus, berries from California are now coming on the market too, competing with Florida's crop.

Wholesale prices that were $17 to $19 for a flat of eight containers have now fallen to $5 to $6 a flat, Grooms and Parke said. Parke said some farmers have tried shipping berries to stands to sell on consignment, but if they only return $3 a flat on each shipment, they lose money on each deal.

Here's a Freakonomics entry on a new book about baseball cards. The mention the late 1980s/early 1990s baseball card bubble was especially interesting because that's when I was collecting. When I discovered Ebay in the early 2000s, I bought a bunch of unopened boxes of late 1980s/early 1990s cards. They're there for nostalgia and also to be used for in-class demonstrations.

I also committed an entrepreneurial error in 1997. I used about $150 to augment my already-enormous collection of cards featuring my favorite player: Mark McGwire. Had I sold out after he broke the home run record, I would have turned a tidy profit. I'm not sure what the cards are worth now.

A former student's comments on his FB page:

My current health insurance is illegal under the Health Care Reform legislation just signed into law. My deductible is higher than the maximum $2000/individual deductible allowed under Section 1302(c)(2)(A)(i). Paying the first several thousand dollars of my health care each year encourages me to shop around and be price conscious in my health care spending. Why is the gov't discouraging this?

My health plan is neither bad nor irresponsible, and I am very happy with it. I pay very low premiums and self-insure with my own savings and by depositing a portion of my paycheck into a Health Savings Account which rolls over every year (and is quickly approaching the size of my annual deductible). I've found that I often get quoted a wide range of prices when I shop around, and am usually quoted a much lower rate when I tell them I am paying out of pocket.

This gets at the heart of why, unless it resorts to death panel style rationing, Obamacare won't "bend the cost curve." Instead of reducing the role of third party payments, the new law leads to even more third party payment.

ADDENDUM: Closing the "donut hole" in Medicare Part D is a similar mechanism that will raise rather than lower medical costs.

From the Washington Examiner:

The smell of pot hung heavy in the air as men with dreadlocks and gray beards contemplated a nightmarish possibility in this legendary region of outlaw marijuana growers: legal weed.

If California legalizes marijuana, they say, it will drive down the price of their crop and damage not just their livelihoods but the entire economy along the state's rugged northern coast.

One of the frequently cited effects of having many uninsured folks is that they drive up medical costs by using the ER instead of going to a family doctor or other provider. A new NBER Working Paper by Michael Anderson, Carlos Dobkin, and Tal Gross suggests that this claim is (surprise, surprise) untrue. Here's part of the abstract:

[W]e exploit a sharp change in insurance coverage rates that results from young adults “aging out” of their parents’ insurance plans to estimate the effect of insurance coverage on the utilization of emergency department (ED) and inpatient services. Using the National Health Interview Survey (NHIS) and a census of emergency department records and hospital discharge records from seven states, we find that aging out results in an abrupt 5 to 8 percentage point reduction in the probability of having health insurance. We find that not having insurance leads to a 40 percent reduction in ED visits and a 61 percent reduction in inpatient hospital admissions.

Last night, we went to the Goodwill bookstore in Panama City. It's a real gem of a place, and we bought a pretty good pile of stuff. Among our treasures were signed copies of two books by Jimmy Carter and a signed copy of Harry Browne's Why Government Doesn't Work. Interesting fact:

p(two signed books by Jimmy Carter) = 0.75*p(one signed book by Harry Browne)

Granted, Browne is deceased, but it's odd that the signature of the guy who ran for President on the Libertarian ticket in 1996 and 2000 is worth more than two signatures by someone who was actually President. Does this tell us something about liberty? Or does it just tell us something about Jimmy Carter?

From Cato:

More over at Heavy Lifting

From page 99 of a UN report on Somalia via UN Dispatch:

A basic piracy operation requires a minimum eight to twelve militia prepared to stay at sea for extended periods of time, in the hopes of hijacking a passing vessel. Each team requires a minimum of two attack skiffs, weapons, equipment, provisions, fuel and preferably a supply boat. The costs of the operation are usually borne by investors, some of whom may also be pirates.

To be eligible for employment as a pirate, a volunteer should already possess a firearm for use in the operation. For this ‘contribution’, he receives a ‘class A’ share of any profit. Pirates who provide a skiff or a heavier firearm, like an RPG or a general purpose machine gun, may be entitled to an additional A-share. The first pirate to board a vessel may also be entitled to an extra A-share.

At least 12 other volunteers are recruited as militiamen to provide protection on land of a ship is hijacked, In addition, each member of the pirate team may bring a partner or relative to be part of this land-based force. Militiamen must possess their own weapon, and receive a ‘class B’ share — usually a fixed amount equivalent to approximately US$15,000.

If a ship is successfully hijacked and brought to anchor, the pirates and the militiamen require food, drink, qaad, fresh clothes, cell phones, air time, etc. The captured crew must also be cared for. In most cases, these services are provided by one or more suppliers, who advance the costs in anticipation of reimbursement, with a significant margin of profit, when ransom is eventually paid.

When ransom is received, fixed costs are the first to be paid out. These are typically:

• Reimbursement of supplier(s)

• Financier(s) and/or investor(s): 30% of the ransom

• Local elders: 5 to 10 %of the ransom (anchoring rights)

• Class B shares (approx. $15,000 each): militiamen, interpreters etc.

The remaining sum — the profit — is divided between class-A shareholders.

Interesting discussion fodder for a principles class?

With Paul Cleveland (and based on one of his lectures), in the new issue of The Freeman. Paul's book Unmasking the Sacred Lies is very interesting; I bought copies for family and friends for Christmas. Here's Paul discussing his book at the Austrian Scholars' Conference in 2009:

From the Associated Press:

The smell of pot hung heavy in the air as men with dreadlocks and gray beards contemplated a nightmarish possibility in this legendary region of outlaw marijuana growers: legal weed.

If California legalizes marijuana, they say, it will drive down the price of their crop and damage not just their livelihoods but the entire economy along the state's rugged northern coast.
[. . .]
[P]ot farmers came together with officials in Humboldt County for a standing-room-only meeting Tuesday night where civic leaders, activists and growers brainstormed ideas for dealing with the threat. Among the ideas: turning the vast pot gardens of Humboldt County into a destination for marijuana aficionados, with tours and tastings - a sort of Napa Valley of pot.

Many were also enthusiastic about promoting the Humboldt brand of pot. Some discussed forming a cooperative that would enforce high standards for marijuana and stamp the county's finest weed with an official Humboldt seal of approval.

Referencing news of Berkeshire Hathaway outdoing Uncle Sam in the two-year bond market (which I first learned about on Monday from my colleague Warren Gibson), Greg Mankiw tells it like it is.

My own guess is that the United States will likely raise taxes substantially, and taxes as a percent of GDP will reach levels never seen in U.S. history (although common in Europe). The politics of that will be fascinating to watch. If the political process is stymied as our leaders debate the relative merits of tax hikes versus spending cuts, bond investors may get nervous, and we could witness either the Krugman inflation scenario or the much less likely default scenario.

Bravo Bush II, Obama and Congress.

A paragraph from this NY Times article:

"We think it's [the health care bill] a big step forward," said Bill Vaughan, a policy analyst at Consumers Union. "It's going to provide a peace of mind that many Americans who really want or need health insurance will always be able to get a quality product at a reasonable price regardless of their health or financial situation."

For their next trick, Congress will pass legislation that will make water run uphill.

How about this for partial-equilibrium analysis:

But there is no question that the legislation should benefit consumers in various ways. Beginning in 2014, for example, many employers — those with 50 or more workers — could face federal fines for not providing insurance coverage. Several of the other changes would take effect much sooner.

to what kind of "consumers" does the story refer? Is it the consumers of health care? Maybe prices of health services come down when more people have health insurance but we also know that prices might (probably) increase. Do the consumers of the products of the firms impacted by the referred to regulation benefit? My a priori bias suggests that,on net, probably not. However, it is possible that I am wrong.

Firms with 55 workers might fire six of them to get below the mandated threshold, thereby reducing service/quality on the margin while remaining at profit maximization (which unfortunately might be in negative-profit land). The increased costs might push some firms out of business, reducing the supply of the "widget" and potentially raising price. On the other hand, depending on the "widget" in focus we might see an increase in concentration in the "widget" industry which might reduce quality/quantity and increase price (the standard monopoly outcome) or might increase quantity and reduce price (the economies of scale/natural monopoly outcome).

More partial-equilibrium analysis, I know, but I don't specialize in the general equilibrium stuff.

I am not the only one skeptical that Congress, much less economists, lobbyists, and the average Joe, having a firm grasp on the general equilibrium repercussions of the various portions of the bill, much less for its entirety.

Arnold Kling points to a paper about European fiscal imbalances. Social Security in the US is a time bomb, but the situation is worse in Europe. It turns out that there are limits to the amount of capital that can be consumed.

What does this have to do with the recently-passed health care legislation? When European taxes start rising to pay for their social obligations, the US will look better and better for potential migrants. Further, European countries will probably start raising corporate taxes, as well, which will push capital out of Europe and into the US. Perhaps President Obama and others are counting on large infusions of capital (physical, human, and financial) from overseas as European welfare states self-destruct.

Update: Here's a post by Greg Mankiw on these issues. Is Berkshire Hathaway now the standard for the risk-free rate?

Congratulations to my colleague Emily Chamlee-Wright on the publication of her new book The Cultural and Political Economy of Recovery. Full information below the fold. Suggest your library order a copy today!

Read More »

You can "co-sign" the health care bill (HT: Doctor J). Organizing for America will help you take credit for "this great achievement:"

Organizing for America will establish a permanent archive with all the signatures, so that generations to come will have a record of those who stood together in this moment and won this fight for our future.

If you're considering signing this, I urge you to consider what you're doing very, very carefully: if you want to take ownership of "this great achievement," you're also taking ownership of its unintended consequences. For just one example, Bryan Caplan identifies the enormous adverse selection problem the legislation creates. He's also trying to think of Ehrlich/Simon style bets based on the legislation. I am, too: I'm certain that this is going to cost a lot more and deliver a lot less than the bill's proponents seem to think.

Addendum: Mario Rizzo's discussion is worth reading. Chapters 38 and 39 of Mises's Human Action are, I think, essential for such a time as this. You can get the audiobook version here.

Addendum 2: I was looking for this earlier but couldn't find it and didn't want to say "I read somewhere that...". Here's Douglas Holtz-Eakin on the CBO's projections of the costs of health care (HT: Mike Sykuta). Holtz-Eakin calls it "fantasy in, fantasy out." Unfortunately, the "independent, nonpartisan" CBO apparently has its hands tied in terms of what it can and cannot question in the legislation it is supposed to analyze. Greg Mankiw points us to the CBO's caveats.

You can't tell from the banquet hall wall behind me, but here I am in the Bahamas ten days ago, thanks to the kind folks at the Nassau Institute. I'm talking about why having the Central Bank of The Bahamas weakly pegging the Bahamian dollar to the US dollar is dominated by having a currency board, which in turn is dominated by free banking on a US dollar standard. This is part 1 of 11.

Here I am at the College of The Bahamas, talking about the market theory of money and banking. Same day, same suit. This is part 1 of 6.

An edited version of a recent talk I gave on the EFW index in Wichita, Kansas:

Traditionally, one might expect feminists to tut-tut about women comprising less than 10% of the Forbes Richest People list.

Not Sarah Gilbert of AOL Daily Finance. She considers it a badge of honor. Instead, she considers membership on the list to be an "indictment" because “It is proof that, instead of working to better the lives of employees and consumers who are 'stakeholders' of your business enterprises, you have instead extracted vast wealth.” Can you say zero sum fallacy?

Thanks to Dan for the pointer.

In his excellent A Conflict of Visions, Thomas Sowell points out that people with the constrained vision tend to emphasize social processes while people with the unconstrained vision tend to emphasize social outcomes. Here, Steve Horwitz asks a good set of questions on process costs. In this video, Reason.tv discusses the process by which the government might increase its intervention in health care (HT: Cafe Hayek).

The latest Econ Journal Watch podcast, hosted by yours truly, is now available for listening. In it I talk with Richard H. Timberlake, my former colleague at the University of Georgia, about the historical record of the gold standard and central banks. In particular, Timberlake argues (contrary to Barry Eichengreen, Ben Bernanke, and Peter Temin) that the failures of the monetary system between the wars were due to central bank intervention and mismanagement, not to the gold standard. After all, the classical gold standard worked well before WWI. At that time central banks either didn't exist (as in the US) or let the gold standard do its thing to equilibrate money supply and demand. Toward the end we talk about Bernanke's views and current monetary policy.

You might have read some of the discussion of the (apparently controversial) decision to include Hayek among the people studied in Texas schools (here's Russ Roberts with comments and links). I think Hayek's importance is demonstrated in debate: it's perhaps ironic that he is being inserted into a curriculum through a very un-Hayekian process of central coordination.

Is Hayek important? Yes, and I would suggest that anyone in any department who has The Communist Manifesto on his or her syllabus should add Hayek's "The Use of Knowledge in Society," Mises's "Economic Calculation in the Socialist Commonwealth," and possibly Hayek's The Road to Serfdom (hey, there's an idea for Econ 100...). For the state to assume it knows all and impose Hayek by fiat, though, is pretty un-Hayekian.

A quick word on standards: I would suppose that being a public school teacher in the face of such controversies is demoralizing because control of your classroom is in the hands of some far-off board or bureaucrat indulging the pretense of knowledge. Theirs is a fatal conceit for everyone involved: teachers' hands are tied, students' options are limited, and everybody loses. I know I would be demoralized if my syllabi were handed down from a College Board in Nashville or Washington, and I'm pretty sure our students would be demoralized if they couldn't take their business elsewhere.

... and it runs through Washington. This analysis from Harvard's Nieman Watchdog:

[G]iant telecoms and cable companies -- and the lobbyists, think tanks and astroturf groups they fund -- have so corrupted the debate over broadband that what may look like progress actually amounts to small steps toward antiquated standards that taxpayers have already paid for many times over.
[. . .]
The new national broadband policy is tailored to reward telcom behemoths AT&T and Verizon, the very same corporate interests that got us into this mess in the first place. Meanwhile, the hard questions that need to be asked are being ignored.

How badly off are we right now? Well, while you sit on the web reading this, the current average US broadband speed, according to speedmatters.org, is 5mbps down and 1mbps upload. That’s 1/20th the download speed you can get in, say, Hong Kong, or Japan or France, and 1/100th the upload speed. Today in Hong Kong 100mbps in both directions costs about $20 -- cheaper than US broadband by leaps and bounds.

I have an extra copy of Larry Sechrest's Free Banking: Theory, History, and a Laissez-Faire Model that I'll mail to the first person who claims it. Here's a $0 PDF.

Update: The book has been claimed and my estimate of the probability that markets are generally efficient has been revised upward.

In light of today's EconTalk discussion with Don Boudreaux on Public Choice and voting, I decided to repost this entry from November:

Here's Don Boudreaux on why he refuses to vote (HT Don Boudreaux). Perhaps non-voting can be an exercise in civic virtue: by abstaining, non-voters reduce congestion at the polls and make life easier for those who derive great satisfaction from voting. I've written on voting several times. Don's essay is well worth reading.

I find the emotionalism that surrounds voting truly perplexing. During the 2008 election, I had a number of discussions in which I claimed that even if we assume that you should vote, it doesn't follow that you should vote for one of the major-party candidates (see the links above for the arguments). I thought my claims were obvious and non-controversial: the probability that your vote will determine the election is practically zero, so if you're going to vote, you should find the candidate whose preferences and views most closely reflect yours. People still reacted negatively (and sometimes, somewhat harshly).

Posted by Art Carden at 11:25 AM in Economics

March 14, 2010

On Behavioral Economics, Ancient Refrigerators, and Landlord Incentives

In a WSJ article (gated) discussing the influence of behavioral economics on the Obama Adminstration's policies, Johnathan Weisman writes that "Landlords have no incentive to replace a 40-year-old refrigerator if the tenants are paying the utility bills." Well, how about the incentive of being able to rent the apartment? While it's true that landlords may not recoup the cost of energy saving appliances if their tenants pay the utility bills, the need to attract prospective tenants still gives landlords a strong incentive to furnish their apartments with relatively modern appliances. Circa-1970 refrigerators, which lacked features such ice makers and specialized compartments, would likely turnoff many would-be renters.

Posted by E. Frank Stephenson at 02:40 PM in Economics

March 13, 2010

Southern Civilization Bleg

I'm revising my Oxford Handbook of Southern Politics paper on Southern economic history, and this has led me into a sideline inquiry. As I understand it, a major part of the Southern cultural heritage is the idea that there was a distinct and different "Southern Civilization" that developed apart from the industrial civilization of the North. I'm finishing I'll Take My Stand now and have read Clement Eaton's The Civilization of the Old South. If you have any additional reading suggestions, please let me know.

Posted by Art Carden at 02:15 PM in Economics

March 12, 2010

Who is helping whom?

A forthcoming article with Darren Grant is posted at the early-view section of Economic Inquiry (gated, unfortunately). However, in the list of articles, ours comes immediately behind a tounge-in-cheek article by Nobel winner Paul Krugman.

I wonder how many more people will take a look at our article after finding his (and vice-versa).

Posted by Craig Depken at 09:31 AM in Economics

March 11, 2010

The Slippery Slope is Greased with Trans Fats

Quoth a Facebook friend, in linking this piece about a proposed ban on salt in New York restaurants:

"Just when I thought people protesting the trans fat ban using a slippery slope argument were being ridiculous, some jackass goes & proves them right.

Art Carden, enjoy the sweet salty taste of vindication."

I assume this was in reference to my last Forbes piece, which considered bans on trans fats. I think the people who are really vindicated here are Mario Rizzo and Glen Whitman, who have pointed out that the new paternalism leads us down a slippery slope. Here's the last of Glen Whitman's blog posts summarizing the points in the paper.

Posted by Art Carden at 01:35 PM in Economics

March 10, 2010

Casey Mulligan on the Minimum Wage and Job Losses

His latest post is here; an earlier one is here.

Posted by E. Frank Stephenson at 10:36 PM in Economics

Otteson on Smith and Marx

James Otteson speaks to the FEE 2010 Homeschool Debate Tournament. You can get his Powerpoint here (HT: James Otteson).

The Classical Liberal Tradition: Marx v. Smith from FEE on Vimeo.

Posted by Art Carden at 02:39 PM in Economics

Socialism is inefficient? Is the Pope Catholic?

Most Catholic social thought seems to disappointingly bend communitarian, so I always enjoy reading from my former boss Fr. Sirico: "The Great Lie: Pope Benedict XVI On Socialism."

History is strewn with intellectuals who imagined that they could save the world -- and created hell on earth as a result. The pope counts the socialists among them, and Karl Marx in particular. Here was an intellectual who imagined that salvation could occur without God, and that something approximating the Kingdom of God on earth could be created by adjusting the material conditions of man.

Of course, free-market types (like myself) are often guilty of imagining the same thing: "if you protect private property, keep gov't spending and taxes low, etc., you'll achieve material heaven on earth." I think there is a fundamental difference: socialists claim their vision of proper institutions will guarantee a utopia; classical liberals claim their vision of proper institutions will maximize our potential to get as close to utopia as possible, while it will always be unattainable. "The poor you will always have with you." For socialists, abolition of private property is sufficient; for liberals, protection of private property is necessary but not sufficient.

Quoting Sirico quoting Benedict:

[Marx] thought that once the economy had been put right, everything would automatically be put right. His real error is materialism: man, in fact, is not merely the product of economic conditions, and it is not possible to redeem him purely from the outside by creating a favourable economic environment.

My favorite line: the moral problem with socialism is more profound: It exalts theft as an ethic and overlooks the human right of freedom.

Of course, the comments are always good for a laugh.

Posted by Tim Shaughnessy at 11:12 AM in Economics

Quote of the Morning

"Many mistakes really are hard to see until you actually make them. But socialism wasn't one of them." That's Bryan Caplan on the "New Socialist Man" argument.

Posted by Art Carden at 09:25 AM in Economics

March 09, 2010

Three cheers for Adam Smith!

The first edition of An Inquiry into the Nature and Causes of the Wealth of Nations was published on this date in 1776.

Posted by Mike DeBow at 06:37 PM in Economics

The Good Morning Burger is a Reality

Scott Beaulier eplains. San Francisco is one of the culinary capitals of the world; I'm now really intrigued by SF McDonald's restaurants offering the Mc10:35. Here's Jeff Tucker on competition between McDonald's and Burger King. Art Diamond has been blogging about creative destruction based on Ray Kroc's Grinding It Out: The Making of McDonald's and emphasizing the role of franchisees in innovation.

Posted by Art Carden at 05:18 PM in Economics

Sweatshops and Development in China

The Oregonian offers an interesting and informative look at increasing prosperity among workers in Chinese "sweatshops." HT: Steve Horwitz. Politicians and self-styled humanitarians have been trying to repeal the law of comparative advantage forever. They have been unsuccessful.

Here's the very important chapter 14 of Gregory Clark's excellent A Farewell to Alms. The entire chapter isn't part of the Google Books preview, but some of the key information is there. This passage sums it up:

"Marx and Engels, trumpeting their gloomy prognostications in The Communist Manifesto in 1848, could not have been more wrong about the fate of unskilled workers." (Gregory Clark, A Farewell to Alms, p. 272).

Posted by Art Carden at 11:53 AM in Economics

March 08, 2010

New paper on exclusivity in wireless telecomm

By Everett Erlich, Jefferey Eisenach, and Wayne Leighton. Paper here. Abstract below.

Proposals to increase regulation of mobile wireless services, for example, by applying “net neutrality" regulation, are often based on claims that such regulation would enhance innovation and increase consumer choice. In fact, they would have the opposite effect. The business practices that would be banned by such regulation are efficient mechanisms for spreading and reducing risk, lowering transactions costs, and enhancing marketing activities, all of which contribute to innovation and choice. Moreover, product differentiation increases competition and thus contributes both directly and indirectly to consumer choice. While some types of exclusive agreements and other “discriminatory" practices can theoretically harm competition, the precondition for such harm to occur – i.e., market power in one or more of the affected markets – generally is not present in wireless markets. Hence, the proposed regulations cannot be justified on grounds of market failure. Rather than increasing innovation and consumer choice, as promised, they would severely disrupt the wireless sector's highly successful business model and significantly reduce innovation and consumer choice.

Posted by Edward J. Lopez at 08:53 PM in Economics

Capitalism and Socialism Bleg

I'm giving a lecture at the end of April on "Common Objections to Capitalism" and wanted to collect answers to a few questions. Your contributions will be acknowledged; please email me your answers to the following questions:

How do you define "capitalism?" Do you find it objectionable? If so, why? How do you define "socialism?" Do you find it objectionable? If so, why?

Posted by Art Carden at 02:20 PM in Economics

March 05, 2010

Minimum Wages and the Economic Way of Thinking

Steve Horwitz offers a short discussion of the changing employment situation. There are some interesting comments. I've written a lot about the minimum wage, and I have a draft of an article I'm going to finish at some point making the case for why economists care so much about it even though the employment and efficiency effects might be relatively small. In short, the debate over the minimum wage is probably the most vivid example of the conflict between the economic and the anti-economic way of thinking--or between truth and truthiness.

A few months ago, Price Fishback made extensive comments on my survey of Southern economic history (which I'm now revising) and kindly directed me to his 1998 Journal of Economic Literature survey paper on the operation of American labor markets at the beginning of the twentieth century. It's definitely going on my syllabus the next time I teach economic history, and it might even go on my intro syllabus. There are a couple of key takeaway points: markets usually worked the way we would expect them to, company towns/sharecropping/company unions were rational responses to transaction costs rather than purely exploitative arrangements, safety regulations often codified existing practices, and people could (and did) use the state to satisfy their tastes for discrimination (cf. Jennifer Roback's papers on Jim Crow labor law and segregated streetcars).

Posted by Art Carden at 09:42 AM in Economics

March 04, 2010

This for that

Not a bad introduction to how money can naturally emerge from the barter economy:

I wonder what Prof. White has to say about this video?

Posted by Craig Depken at 09:35 PM in Economics

Caplan on Crony Capitalism

In a series of posts, Bryan Caplan has been discussing why free markets are unpopular (1, 2, 3). Bryan has probably thought more about this issue than anyone I know, so when he speaks (writes), I listen (read).

I think he's basically right. The objections to free markets are objections to free markets per se, not objections to cronyism that is mistakenly conflated with free markets. My casual observation is that people generally see government corrupted by money rather than money corrupted by government. To better understand this and to prep for my Spring class on Classical & Marxian Political Economy, I'm going to be reading a lot of Karl Marx over the rest of the year. I'm beginning with David Harvey's online course on volume I of Capital. Here's Doctor J on unscrambling The Bearded One.

There's an entire suite of Caplania out there at a variety of prices. You can buy his book in hardcover, paperback, or for Kindle, read a condensed version from the Cato Institute, or listen to podcasts in which he talks about voter preferences and labor market discrimination.

Posted by Art Carden at 09:45 AM in Economics

March 03, 2010

Mises Wins!

Josh Hall, Pete Calcagno and I have a new paper. The abstract:

The terms objective and subjective are considered antonyms, and yet “objectivists”, associated with the ideas of Ayn Rand, and “subjectivists”, associated with the ideas of Ludwig von Mises, are both associated with the same political philosophy: classical liberalism. There are however important apparent differences between the “objectivist” approach of Rand and the “subjectivist” approach of Mises. Who is right? And which intellectual has the greater place in the classical liberal tradition? We propose to test these questions using data from a unique housing development in Charleston, South Carolina. We find objective evidence in favor of Mises’s subjectivism.

Before you Randroids start sending us e-mails, please take note of where we submitted the paper.

Posted by Robert Lawson at 03:00 PM in Economics ~ in Funny Stuff

Building Brand Equity: Trans Fats and The Substance of Style

1. At Forbes.com, why should we stop at trans fats? Here are Chidem Kurdas's thoughts. Along similar lines, Glen Whitman and Mario Rizzo are doing the Lord's work by taking apart arguments for the New Paternalism.

2. At Lifehack.org, thoughts on Virginia Postrel's excellent The Substance of Style. I'm waist-deep in a revisions on a paper featuring lots of growth regressions, and I'm less and less convinced that correlates-to-growth exercises like this are a good guide to policy. Postrel highlights some of the reasons why.

Posted by Art Carden at 02:49 PM in Economics

The American Dream

"I give you the American Dream: a billionaire using public funds to build a private playground for the rich and powerful."--C. Montgomery Burns

Here's Reason.TV on the Atlantic Yards Project in Brooklyn (HT: Nick Gillespie):

Posted by Art Carden at 10:39 AM in Economics

March 02, 2010

Building Brand Equity: Foreign Aid & Growth, Entrepreneurs in Memphis

I just found out that my paper "Economic Progress and Entrepreneurial Innovation: Case Studies from Memphis" was accepted by the Southern Journal of Entrepreneurship. The revised version is here.

Also, the editors were kind enough to allow me to post the published version (as it appeared in the journal) of my paper "Can't Buy Me Growth: On Foreign Aid and Economic Change," which appeared in the Journal of Private Enterprise at the end of 2009. The published version is here.

Cross-posted at the Beacon and the Mises Blog.

Posted by Art Carden at 10:13 PM in Economics

Food Production and Delivery As a Rent-Seeking Society

Here's Jamie Oliver's TED Talk on food (HT: Teresa Beckham Gramm). I certainly agree with his identification of the problems, but I'm skeptical of his proposed solutions (see my post below on rent-seeking and public choice).

Posted by Art Carden at 04:20 PM in Economics

On Larry Summers and Unemployment

Summers: Winter storms to distort US jobless figures

Unemployment data are normally seasonally adjusted, but maybe this February was worse than usual.

In any case, this cartoon poking fun at Summers's warning about the weather increcreaing unemployment is definitely worth a click.

Posted by E. Frank Stephenson at 01:05 PM in Economics

Foreign Aid as a Rent-Seeking Society

Distilled by William Easterly.

How important are public choice issues and rent-seeking? Policy advocacy based on the assumption that there is a group of moral and intellectual elites that can rise above their own interests AND solve the intractable knowledge problems that come with central planning reminds me of a cartoon you've probably seen: two scientists are standing at a chalkboard filled with math. "AND THEN A MIRACLE OCCURS" is written in the middle of the board. I think that's roughly what we're doing when we're talking about policy without taking rent-seeking and public choice issues seriously.

Along these lines, here's James Otteson at Forbes.com on Adam Smith and the great mind fallacy. Here's his paper "Adam Smith and the Great Mind Fallacy" in Social Philosophy and Policy.

Posted by Art Carden at 09:29 AM in Economics

Building Brand Equity: Carden and Hall 2010

Carden, Art and Josh Hall. 2010. Why Are Some Places Rich While Others are Poor? The Institutional Necessity of Economic Freedom. Economic Affairs 30(1):48-54.

Posted by Art Carden at 09:16 AM in Economics

March 01, 2010

Creative Destruction in Action: Legal Opinions on Google Scholar

The business of publishing legal opinions is an old one. The technology of publishing them has taken a recent turn, with to Google's foray into case law last fall. I have not done my homework on how Lexis and Westlaw have responded. But I found an interesting statement by the founders of AltLaw, a startup of sorts that seems to have acquiesced entirely to Google's comparative advantage:

Everything we have done or planned to do with AltLaw, Google has does [sic] better. What else would you expect? Search is their core business; they have hundreds of brilliant engineers, a vast computing infrastructure, and billions of dollars invested in it.

While we could see this as the 800-pound gorilla stomping on our pet project, the truth is that we -- a small academic group within Columbia Law School -- were never really equipped to handle the challenges of building and maintaining a state-of-the-art search engine. When we started out, three years ago, our goal was to make primary legal research freely available to the public. In that, we have succeeded: primary legal research is freely available to the public, not only from Google, but from several start-ups and non-profits.

Therefore, we are happy to announce that Project AltLaw (Phase One) is complete. We will continue to maintain the web site and search service for a few months, but we will not be adding new features or new content. AltLaw.org, in its current form, will shut down in early 2010.

You can almost feel the sense of relief in these words. As if this "small academic group" says, finally now we can go and just be academics and focus on what we do best. There is an underappreciated economic lesson here: while the downside of innovation is usually thought of as "destruction" of the old ways of doing things, it is also simply freeing up resources to be used in better ways. Some instances of creative destruction illustrate this better than others. I thought this was one of them.

Posted by Edward J. Lopez at 06:11 PM in Economics

Stimulus package simile of the week

Kevin A. Hassett on Bloomberg.com:

The truth is, economic stimulus is like a very expensive box of chocolates. You get a sugar high, and a caffeine rush, but when the chocolates are gone, you have nothing but fat to show for it. You are worse off than you were before and still need to find real nutrition.

Posted by Lawrence H. White at 04:08 PM in Economics

What Executives Should Say When They're Hauled in Front of Congress

I caught parts of the Toyota hearings at the airport a few days ago. To learn the implications for our economic future, Google "regime uncertainty" and read Robert Higgs's 1997 article very carefully. At Reason.com, Steve Chapman discusses how small the risks associated with Toyota's troubles are relative to (say) drunk driving and other driver errors. That said, here's an exchange I would like to see during a Congressional hearing:

Q (from Politician or Regulator): "Why are you putting profits before people by making unsafe cars?"

A (from Executive): "If you think our cars are so unsafe and if you think we're willing to sacrifice our reputation and our company's future in order to save a few dollars in the short run, then why are you here asking me questions instead of using your superior knowledge to earn enormous profits by producing better, safer cars at the same price?"

Posted by Art Carden at 10:54 AM in Economics

February 27, 2010

Mr. Gandhi Meet Mr. Laffer

A news item out of DC:

In his letter to the mayor and D.C. Council, Chief Financial Officer Natwar M. Gandhi informed them that a $.50 per-pack cigarette tax hike implemented last October has not gone as planned.

Because the increase, to $2.50, catapulted the District's rate over Maryland's $2-per-pack rate, Gandhi explains, many Maryland smokers who'd bought their tobacco in the District switched back to buying in Maryland. Add that to all the D.C. smokers who started buying cheap-as-dirt Virginia smokes, and you get the picture---instead of $45.4 million in revenue, Gandhi says the District will only bank $30 million.

But the legislative screw-up is more profound than that: The projections are now that this year's estimated cigarette tax revenues will fall below the pre-hike FY2009 levels ($37.6 million)---in other words, the tax hike got the city less revenue, not more.

Posted by E. Frank Stephenson at 08:16 PM in Economics

Incentives Matter: Unemployment Insurance and Job Search Edition

The abstract of a new paper from Alan Krueger and Andreas Muelller:

This paper provides new evidence on job search intensity of the unemployed in the U.S., modeling job search intensity as time allocated to job search activities. The major findings are: 1) the average U.S. unemployed worker devotes about 41 min to job search on weekdays, which is substantially more than their European counterparts; 2) workers who expect to be recalled by their previous employer search substantially less than the average unemployed worker; 3) across the 50 states and D.C., job search is inversely related to the generosity of unemployment benefits, with an elasticity between −1.6 and −2.2; 4) job search intensity for those eligible for Unemployment Insurance (UI) increases prior to benefit exhaustion; and 5) time devoted to job search is fairly constant regardless of unemployment duration for those who are ineligible for UI.

Posted by E. Frank Stephenson at 04:17 PM in Economics

The Wages of Labour (Updated)

The Rhodes field hockey team (2009 SCAC champions) has been doing a series of fundraisers for a trip to Ireland. Field hockey player and aspiring economics graduate student Rachel Webb told me about some of the fundraisers, and I asked her a couple of econ questions: what's the implicit wage? Is it efficient? What might be more important than implicit wages from a project like this?

Her response was spot-on. She calculated implicit wages for three of their fundraisers ($3.75 per player-hour for one, $5.00 per p-h for another, and $8 per p-h for a third, overall implicit wage = $5.38 per player-hour).

Her explanation: it's (naively) "inefficient" because they could earn more from part-time jobs at minimum wage. However, flexibility matters (check), it saves on search costs relative to job hunts (check), it helps advertise the team (check), and it "facilitat(es) team bonding outside of the season that could lead to better cohesion on the field in the fall" (check check).

Excellent answers. There's a broader institutional lesson about the market process: labour is defined in the process of its employment (if that sounds familiar, see James Buchanan's short essay "Order defined in the process of its emergence").

To learn more about Lynx Field Hockey, go here.

Update: a reader kindly points out that we should have mentioned taxes. Wage income is taxed, while the proceeds for the fundraiser are untaxed.

Posted by Art Carden at 02:18 PM in Economics

I'm Almost Sympathetic to Herbert Hoover

Hoover was a rotten president but people could at least blame him for his actual legacy. Case in point, this piece by Richard Riehl in the North County Times :

Our confused congressman [Issa] appears to be neglecting his homework.

Issa mentions job creation twice on his Web site, questioning the Obama administration's method of tracking the success of the recovery act and offering his solution to unemployment: "stop the threat of policies like a national energy tax and a government health care take over that scare private sector employers away from expanding their businesses and hiring new employees." In Issa's America, the job market will bloom again if the government adopts Herbert Hoover's strategy of benign neglect.

Naturally, such nonsense prompted a letter from yours truly:

Richard Riehl (“Photo op illustrates confusion” February 26) claims that “confused congressman [Issa] appears to be neglecting his homework” and asserts “In Issa's America, the job market will bloom again if the government adopts Herbert Hoover's strategy of benign neglect.”

Rep. Issa may or may not be confused and may or may not need to do more homework. However, the characterization of Hoover’s policies as “benign neglect” makes it quite clear that Mr. Riehl himself is both confused and neglectful of his homework.

During Hoover’s term, federal government spending increased from $3.127 billion in 1929 to $4.659 billion in 1932—a 50% increase in three years. Indeed, Hoover readily acknowledged his activist approach in his remarks upon being re-nominated by the Republicans in 1932:

We might have done nothing. That would have been utter ruin. Instead we met the situation with proposals to private business and to Congress of the most gigantic program of economic defense and counterattack ever evolved in the history of the Republic. We put that program in action…

These are hardly the words or actions of someone practicing or dedicated to “benign neglect.”

Some background here. The Hoover quote is taken from Steve Horwitz's EJW piece.

UPDATE: Another example is below the fold.

Read More »

Writing on politicalflirt.com, Wayne Nolen says:

During the roaring 20s, Republicans Warren Harding, Calvin Coolidge and finally Herbert Hoover occupied the White House. These presidents practiced the usual Republican governance of laissez-faire business regulation and small government conservatism.

And here's my posted response:

Dear Mr. Nolen,

You write, “During the roaring 20s, Republicans Warren Harding, Calvin Coolidge and finally Herbert Hoover occupied the White House. These presidents practiced the usual Republican governance of laissez-faire business regulation and small government conservatism.”

Your characterization of Hoover as a practitioner of laissez-faire is incorrect.
During Hoover’s term, federal government spending increased from $3.127 billion in 1929 to $4.659 billion in 1932—a 50% increase in three years. Indeed, Hoover readily acknowledged his activist approach in his remarks upon being re-nominated by the Republicans in 1932:

We might have done nothing. That would have been utter ruin. Instead we met the situation with proposals to private business and to Congress of the most gigantic program of economic defense and counterattack ever evolved in the history of the Republic. We put that program in action…

These are hardly the words or actions of someone practicing or dedicated to laissez-faire. For references and links to additional information you might visit: http://divisionoflabour.com/archives/005726.php.

Sincerely,
E. Frank Stephenson
Professor of Economics
Rome, Ga.

« Close It

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

Distance, Trade, and Income – The 1967 to 1975 Closing of the Suez Canal as a Natural Experiment

That's the title of a recent NBER WP from James Feyrer. The abstract:

The negative effect of distance on bilateral trade is one of the most robust findings in international trade. However, the underlying causes of this negative relationship are less well understood. This paper exploits a temporary shock to distance, the closing of the Suez canal in 1967 and its reopening in 1975, to examine the effect of distance on trade and the effect of trade on income. Time series variation in sea distance allows for the inclusion of pair effects which account for static differences in tastes and culture between countries. The distance effects estimated in this paper are therefore more clearly about transportation costs in the trade of goods than typical gravity model estimates. Distance is found to have a significant impact on trade with an elasticity that is about half as large as estimates from typical cross sectional estimates. Since the shock to trade is exogenous for most countries, predicted trade volume from the shock can be used to identify the effect of trade on income. Trade is found to have a significant impact on income. The time series dimension allows for country fixed effects which control for all long run income differences. Because identification is through changes in sea distance, the effect is coming entirely through trade in goods and not through alternative channels such as technology transfer, tourism, or foreign direct investment.

Posted by E. Frank Stephenson at 01:39 AM in Economics

February 26, 2010

Pattern? What Pattern?

From an email that fell in my box today:

I think I might have to read the book.

Posted by Craig Depken at 01:07 PM in Economics

February 25, 2010

Cavalcade of Miscellany: Quotes and Links (updated)

0. For St. Lawrence readers, here is my recent Freeman article on Walmart that summarized some of the points I made in our discussion this evening. For non-St. Lawrence readers, the talk was recorded and will be podcast. Or is it "podcasted?"

1. I gave a guest lecture in Jeremy Horpedahl's Economic History class at St. Lawrence University today. Here's the quote I promised to blog, along with another:

Jeffrey Rogers Hummel, from his essay in Government and the American Economy: "(t)he Civil War...represents a simultaneous culmination and repudiation of the radical principles of the American Revolution."

2. I was going to post the Sowell quote with which I introduced the discussion, but Google turned up this page of Sowell quotes.

3. Arnold Kling grades the Health Care Summit.

4. A thought: should I be willing to overlook the disastrous and unintended but predictable consequences of the policies you advocate just because you claim to mean well?

5. The new issue of The Freeman is excellent. I especially enjoyed Gene Callahan's article on how fantasy is not an adult policy option, Steve Horwitz's article about unintended consequences, and Sheldon Richman's article about how the market doesn't "ration" anything.

6. This won't be replacing "Jesus Loves Me" as part of Jacob's bedtime routine anytime soon, but we're expecting a daughter in July (Taylor Grace Carden) and this could be her first Halloween costume.

7. "But if we eliminate government involvement in education, what will happen to the poor?" Here's Reason on Aid Watch on James Tooley (HT: Will Wilkinson).

Posted by Art Carden at 05:06 PM in Economics

February 24, 2010

Walmart, Obesity, and Produce

This story on the produce selection at Walmart and Whole Foods has been making the rounds. I posted what follows as a comment at the Coordination Problem, but I thought it would be useful to revise it and summarize where Charles Courtemanche's and my Walmart-and-obesity research stands.

We reoriented our WM/obesity paper and focused on Super Walmart after, at the suggestion of a referee, we adopted an IV strategy and found that about 10% of the increase in obesity over the last two decades or so can be explained by Super Walmart. We don't estimate a full structural model and can't identify the transmission mechanism precisely, but it probably is lower food prices.

We also estimate consumers' savings and the obesity-related health costs associated with Super Walmart, and we find that the obesity-related health costs are very small relative to WM-related savings. Our point estimates on the Walmart Discount Store and Warehouse Club coefficients are very similar to those that appeared in the older version of the paper. This still suggests a trivial reduction in obesity from discount stores and warehouse clubs and might imply that there are strong income or behavioral effects from discount stores and warehouse clubs, but the Super Walmart effect really jumped out. We're waiting for another response from the referees, and we're collecting more data now in the hopes that we might be able to develop an IV strategy that will allow us to identify the discount store and warehouse club effects more precisely.

It's also important to note that man does not live on BMI alone; reduced micronutrient deficiencies are probably associated with greater food intake, but that remains an untested speculation.

Comments welcome, as always. And, as an added bonus, here's my review of Tom DiLorenzo's Hamilton's Curse. HT: Steve Horwitz.

Posted by Art Carden at 12:33 PM in Economics

February 22, 2010

Thought Experiment in the Economic Way of Thinking (UPDATED)

Shouldn't everything in this house be mandatory, and aren't the writers of building codes failing in their moral and political duty by not mandating all of these safety features? After all, if it saves one life, it's worth it.

Updated, 11:59 AM: How do we explain this? Is it pure profit-extracting caprice on the part of the studios? Is greed the one ring that rules them all? HT: Scott Cunningham.

Posted by Art Carden at 11:41 AM in Economics

February 20, 2010

Markets in Everything

Cell phone recharging in Haiti: "[Y]ou can find enterprising hustlers who have hooked up power strips to car batteries. For about 40 cents, they'll sell you a recharge for your mobile."

HT: Common Sense

Posted by Wilson Mixon at 05:21 PM in Economics

Call for Papers: Seventh Mises Seminar

In today's inbox...

I have attended in the past as a "Young Scholar" and Carlo and Instituto Bruno Leoni are great hosts and put together a fantastic event. If you qualify, I highly recommend submitting an abstract.

Read More »

Dear friends,


in the Fall of each year, Istituto Bruno Leoni organizes a Mises Seminar in Sestri Levante, hosting young scholars from several European countries and the U.S., carefully selected among the many applications submitted.

The Seminar is titled after Ludwig von Mises, the great Austrian economist that tutored Murray Rothbard and several important thinkers and is emerging as a significant event in the cultural life of contemporary classical liberalism, offering a distinguished audience to a few brilliant young libertarian scholars.

IBL will host eight young (under-35) researchers. Each scholar or team of scholars will present a paper to be posted on this website a few weeks before the date of the Seminar.

During the Seminar itself, the paper will be briefly presented by their respective authors and commented by a scholar from an academic or a research establishment and, immediately thereafter, will be discussed by the audience.

The Seminar will be held in English and attendance is open to all.

The Seventh Mises Seminar will be held in Sestri Levante (Italy), October 8-10

The theme discussed will be:
Big Government Strikes Back. The Struggle between the Market and the State in a Time of Crisis

The keynote speaker of this year's edition will be
Matt Ridley
author of The Origins of Virtue and The Rational Optimist

Call for Papers

Big Government Strikes Back. The Struggle between the Market and the State in a Time of Crisis


We call for young scholars to submit to our attention an essay for the Seminar
The topic can be investigated from the perspective of economics, philosophy, law, sociology, history, economic history.

Authors are invited to submit a proposal of about 500 words, in English to Dr Carlo Lottieri (carlo.lottieri@brunoleoni.it) not later than February 28th, 2010.

IBL will then select the best submissions and inform the candidates accordingly by March 30.
Conference paper (max. lenght 40.000 characters, in English) are to be submitted to IBL by July 1st 2010.

All travel and boarding expenses of the selected authors will be paid for by Istituto Bruno Leoni.

Informations concerning the presentation of papers, registration fees, accomodation and other logistic aspects will be provided later, through IBL’s web-site: www.brunoleoni.it

« Close It

Posted by Joshua Hall at 09:09 AM in Economics

February 19, 2010

Indiana Retrospective

L: Me. R: 2009 Nobel Laureate Elinor Ostrom.

At the invitation of The Perfect Substitute's Justin Ross, I had the honor of visiting Indiana University earlier this week. I had the pleasure of presenting a paper at the Workshop in Political Theory and Policy Analysis before giving a speech on Walmart at the School of Public and Environmental Affairs.

The trip was amazing, and I was especially thrilled to visit the Workshop. The Tocqueville Room at the Workshop is one of the best seminar spaces I've ever been in. It had a very comfortable, lived-in feel, there was a lot of cool Ostrom memorabilia on the walls, the technology worked flawlessly, it was well-lit, and they had an urn of hot coffee ready to go for the seminar. The seminar participants were enthusiastic and energetic, and they asked a lot of fantastic questions that will improve our paper considerably.

The SPEA/Walmart audience was also enthusiastic, and the Tavis Smiley Atrium (where I gave the talk) was also a very good presentation space. Again, the projection technology worked flawlessly. Students asked a lot of very good questions, and I got to meet DOL reader Chris Ashbaugh, who made a special trip to IU just for the talk.

I'm headed to St. Lawrence University in Canton, NY next week to reprise my Walmart talk and speak to an economic history class about the Civil War and Reconstruction, and then I'll be off the road until APEE in April. Blogging will probably be ultra-light as I try to finish some of the projects I'm working on. Anyway, thanks again to Justin for putting together a great visit to IU.

Posted by Art Carden at 04:44 PM in Economics

How about this logic?

From the press release concerning this recent Center for Economic and Policy Research report that the national deficit (and then by extension the debt?) is nothing to worry about:

"There would be no short-term or long-term benefit from reducing the current deficit," said Dean Baker, co-director of CEPR and the author of the report. "If the budget deficit were smaller we would see higher levels of unemployment."

It is perhaps true that unemployment TODAY would be higher without the "Big G" spending money. However, what of the possibility that adjustments in the labor force are not occurring as they otherwise would because of the "Big G"? How can the deficit not eventually crowd out private investment, whether here in the United States or elsewhere? Is every government project the best use of capital? Is it impossible to conceive of mal-investment in the public sector as well in the private?

These are just questions that pop in my mind. I am not a macroeconomist and have never claimed any different.

Posted by Craig Depken at 04:12 PM in Economics

Lecture and Exchange on the Gold Standard

A talk of mine on the gold standard, given last summer at the Young Scholars Conference put on by the Foundation for Economic Education, is now available online. Here is the mp3 audio file and below is the video format.

In the couse of my talk I defended fractional-reserve banking on economic and jurisprudential grounds. A leading critic of fractional-reserve banking, Walter Block, was in the audience for my talk. (Walter also a lecturer at the conference.) The last five minutes of the Q&A is an exchange between me and Walter that followers of the long-running debate over fractional reserves might find interesting. It's hard to hear Walter's questions on the video, but not so hard if you turn up the volume on the audio version of the talk.

P.S. If you click on the video's "MENU" button, you'll have the option to see other lectures from the conference, including mine on public goods theory.

Posted by Lawrence H. White at 03:08 PM in Economics

February 17, 2010

Greetings from Indiana

At Indiana with Justin Ross from The Perfect Substitute. I presented a paper on the Memphis Riot in the Workshop in Political Theory and Policy Analysis and a public lecture on Walmart at the School of Public and Environmental Affairs. The penultimate preliminary version of the Memphis riot paper is available on the Workshop's website; comments are always welcome.

Posted by Art Carden at 04:52 PM in Economics

Adam Smith Live in Prime Time

My colleague Russ Roberts did a great job last night on C-SPAN's live Book Notes call-in show devoted to Adam Smith and The Wealth of Nations. Watch the video here. It's 1:09 in total. Listen carefully around the 59:00 mark to hear the part I liked the most. Russ was paired with Sam Fleischacker, a political philosopher who is also an excellent Smith scholar.

Posted by Lawrence H. White at 04:21 PM in Economics

Measurement error and temperature records

For what it's worth, the Times UK runs this story, "World may not be warming, say scientists," which piles a further and even more interesting layer of doubt atop the Intergovernmental Panel on Climate Change.

The IPCC faces similar criticisms from Ross McKitrick, professor of economics at the University of Guelph, Canada, who was invited by the panel to review its last report.

The experience turned him into a strong critic and he has since published a research paper questioning its methods.

“We concluded, with overwhelming statistical significance, that the IPCC’s climate data are contaminated with surface effects from industrialisation and data quality problems. These add up to a large warming bias,” he said.

Such warnings are supported by a study of US weather stations co-written by Anthony Watts, an American meteorologist and climate change sceptic.

His study, which has not been peer reviewed, is illustrated with photographs of weather stations in locations where their readings are distorted by heat-generating equipment.

Some are next to air- conditioning units or are on waste treatment plants. One of the most infamous shows a weather station next to a waste incinerator.

Watts has also found examples overseas, such as the weather station at Rome airport, which catches the hot exhaust fumes emitted by taxiing jets.

Posted by Edward J. Lopez at 01:48 PM in Economics

On the CEA and Economic Performance

Greg Mankiw recently posted on the quality of the CEA under different administrations. In the current issue of Public Choice, Brian Goff examines CEA composition and macroeconomic performance. The abstract:

Using data on members on the Council of Economic Advisors as well as US Treasury secretaries and OMB directors from 1952 through 2005, I investigate the effect of economic advisors’ educational and employment backgrounds on the time series performance of several policy variables. Ivy League advisors appear to raise non-defense government spending, although the size of the impact differs by president. While voter preferences appear to matter for a wider variety of policy variables (changes in federal regulation and marginal tax rates), the share of Ivy League advisors is at least as important as voter preferences in explaining non-defense spending.

Posted by E. Frank Stephenson at 01:29 PM in Economics

February 16, 2010

On perfect foresight c. 1910

From the February 16, 1910 NYT:

The stockholders of the Delaware Railroad Company in special session at Dover today decided to lease the road for a ninety-nine-year period to the Philadelphia, Baltimore & Washington Railroad Company, for many years its lessee. The Philadelphia, Baltimore & Washington is controlled by the Pennsylvania Railroad. The project now goes to the shareholders of the Philadelphia, Baltimore & Washington Railroad for action at a special meeting to be held in Wilmington next Monday.

Posted by Craig Depken at 10:49 AM in Economics

February 15, 2010

Malinvestment Anyone?

From the WSJ:

Given the state of housing, it seems like builders wouldn’t start a home without a signed buyer. But that is exactly what they’re doing: They’re ramping up speculative construction to attract last-minute home buyers who want to tap the soon-to-expire tax credit.

Posted by E. Frank Stephenson at 08:36 PM in Economics

February 13, 2010

Trust Pete Boettke. I do!

Trust Pete Boettke to always have a good response. Despite his high productivity, he apparently still has time to read a lot of junk (i.e., my blog post here ). If you’ve never had a chance to hang out with Pete, I strongly recommend it. Not only is he an accomplished raconteur, but the breadth of his knowledge is astounding. A typical conversation might go like this:

Person A: “You know, there was this 6th century Buddhist monk who wrote a thousand-word essay on uncertainty in human life on a grain of rice.

Pete: “Yeah, it strongly prefigures the work by (five economists, two philosophers, and one hard scientist, none of whom you know of). Ten years ago last Tuesday, I wrote a manuscript re-constructing, deconstructed, and turning sideways that very concept.”

You: “Huh? Whut?” (Open another beer)

More below the fold.

Read More »

Pete writes:
You really should direct that question to Roger Koppl and to Barkley Rosser --- both of whom have done what you ask for -- especially Koppl. Others of us have pursued alternative research paths. Bottom-line, there are multiple alternative research programs in economics and the social sciences. Hypothesis testing using econometric techniques is but one strategy. Computer simulation models is another (see Robert Axtel), field work, lab work, analytic narratives, etc. are but others.

Kudos to Profs. Koppl and Rosser, both very impressive guys. As to a multitude of empirical approaches, I agree completely. An unanticipated benefit of spending my career in small econ departments inside business schools has been my exposure to a wide variety of empirical approaches that no one taught me in econ classes. My point, though, is that using non-parametric statistics could allow Austrians to be Austrians, but bridge the communication divide between Austrians and the orthodoxy. More communication between the camps might lead to the orthodoxy learning some of the Austrians’ lessons.

Pete continues:
And by the way, the very best within the Austrian tradition do not have any more problems publishing than any other economist. Take the very best in Austrian economics and look at their journal placement --- Kirzner, O'Driscoll, White, Selgin, Rizzo, Garrison, Caldwell, Wagner, Holcombe, Benson, etc.”

Also true and valid. I guess this is some evidence that in the end—to some extent—good economics is recognized as good economics, and is published for a wider audience.

Pete finishes strong:
Now does the mediocre Austrian publish in good journals? Of course not. But neither does the mediocre neoclassical economist. Why judge a school of thought by its mediocre practitioners, and not its best?

I see the point, and I accept it. However, I was thinking of junior faculty trying to establish themselves. Some young Austrians have trouble breaking in to orthodox journals, partly because they’re not speaking the same jargon as the orthodoxy. This could limit their number of pubs, and help wall them into a particular niche in the ecology of research journals. In turn, this could stifle careers. Unfortunately, I have observed this unjust effect first hand. The orthodoxy never comes to the heterodoxy. However, if the heterodox can speak the orthodox language, they may convert the orthodox.

« Close It

Posted by Noel Campbell at 01:21 PM in Economics

February 12, 2010

How to Privatize Currency

Bill Woolsey explains why it wouldn't be difficult.

Posted by Lawrence H. White at 02:59 PM in Economics

Knowing is Half the Battle, Revisited

There were some great comments on my post the other day about what you need to know if you're going to pontificate. Robert Murphy calls Mike Munger and me to the mat. I agree with Bob that it's nice to see people adopting the economic way of thinking with respect to politics and I agree that perhaps Klein deserves a Scooby Snack for his insight; I thought it would be interesting to see what people think about the obligation to know (or at least, to demonstrate the willingness to know and the humility to accept that you might not) if you're going to pontificate about things. Klein identifies a larger problem that I've been thinking about in a variety of contexts in recent weeks and months: should we really be that surprised when politicians behave in ways that can be predicted or explained by public choice theory? Further, which policy disasters could have been prevented had people taken public choice seriously over the last few decades? Along these lines, here's Theodore Dalrymple on John Kenneth Galbraith.

Posted by Art Carden at 01:43 AM in Economics

February 11, 2010

Cavalcade of (Semi-)Miscellany: Bloomington School Resources

I'm headed to Indiana University on Tuesday; I'm presenting a paper in the Workshop in Political Theory and Policy Analysis at noon on Wednesday (info here, old version of the paper here, a new-but-still-very-preliminary-version of the paper will be available online tomorrow, comments very welcome), and then giving a public lecture on Walmart at the School of Public and Environmental Affairs in the Tavis Smiley Atrium at 2:30 (info here). Here are a few resources on the Bloomington School:

1. Video of Elinor Ostrom's Nobel Lecture.

2. Social Capital: A Multifaceted Approach. Ostrom's chapter should be available in its entirety in Google Books.

3. Aligica and Boettke, Challenging Institutional Analysis and Development: The Bloomington School, available in paperback.

Posted by Art Carden at 09:33 PM in Economics

February 09, 2010

Amazon.com FAIL

Posted by Robert Lawson at 10:58 AM in Economics

The Principal-Teacher Problem

The abstract of a new NBER WP from Brian Jacob:

This paper studies the effect of employment protection on worker productivity and firm output in the context of a public school system. In 2004, the Chicago Public Schools (CPS) and Chicago Teachers Union (CTU) signed a new collective bargaining agreement that gave principals the flexibility to dismiss probationary teachers (defined as those with less than five years of experience) for any reason, and without the elaborate documentation and hearing process typical in many large, urban school districts. Results suggest that the policy reduced annual teacher absences by roughly 10 percent and reduced the prevalence of teachers with 15 or more annual absences by 20 percent. The effects were strongest among teachers in elementary schools and in low-achieving, predominantly African-American high schools, and among teachers with highpredicted absences. There is also evidence that the impact of the policy increased substantially after its first year.

Incentives matter.

Posted by E. Frank Stephenson at 09:57 AM in Economics

February 08, 2010

This is why economists will always be employed

A Jan 26-27 Gallup poll asked people about economic concepts, including how much we all like socialism:

More than one-third of Americans (36%) have a positive image of "socialism," while 58% have a negative image. Views differ by party and ideology, with a majority of Democrats and liberals saying they have a positive view of socialism, compared to a minority of Republicans and conservatives.

and yet

Americans are almost uniformly positive in their reactions to three terms: small business, free enterprise, and entrepreneurs.

A third of us have a positive view of the philosophy that spawned the bloodbath that was the 20th century's flirtation with socialism?

Posted by Tim Shaughnessy at 03:09 PM in Economics

Yandle on the current economy

Was the current recession over as of July-August-September of 2009? Will it be a caterpillar recovery? What in the recovery is real, and what is stimulus? How do states measure on economic freedom and knowledge-intensity?

Learn more and bask in the reassuring cadence of Bruce Yandle speaking in his new podcast from Inside State and Local Policy. About 20 minutes.

Posted by Edward J. Lopez at 01:24 PM in Economics

February 07, 2010

Knowing is Half the Battle

Mike Munger ladles mockery upon Ezra Klein for his shock and dismay about politicians acting like politicians. This always brings me back to one of my favorite quotes, from Murray Rothbard:

"It is no crime to be ignorant of economics, which is, after all, a specialized discipline and one that most people consider to be a 'dismal science.' But it is totally irresponsible to have a loud and vociferous opinion on economic subjects while remaining in this state of ignorance."

I spend time in econ 101 talking about how understanding and applying the economic way of thinking is an important part of developing a good ethos. It raises a question about intellectual responsibility: if you're going to pontificate, what do you have a duty to know? Comments are open.

Posted by Art Carden at 09:14 PM in Economics  ·  Comments (17)

Super Bowl Subsidy Shuffle

In honor of Super Bowl Sunday and the Simpsons Coke commercial earlier, I offer the words of C. Montgomery Burns on "the American Dream: a billionaire using public funds to build a construct a private playground for the rich and powerful." From the archives, here are a few links on The House that Jerry Jones Built With Money He Took From Other People. Here's Evan Weiner on The Subsidized Bowl: both participating teams have gotten loads of money from various governments.

Posted by Art Carden at 07:46 PM in Economics

February 05, 2010

Milton Friedman on Steel Protectionism

Friedman makes a couple of important points: a special interest is a special interest, whether it's a business or not, and just because a police is good for--i.e., creates rents for--a specific industry or a specific business doesn't mean it's consistent with free enterprise. Also, it's easy to see the trouble and suffering of the steel worker who loses his or her job. It's much more difficult to consider the innovations and increases in standards of living we sacrifice in order to protect jobs in specific industries.

HT: Don Boudreaux.

Posted by Art Carden at 03:44 PM in Economics

Has "Technology...Subverted the Original Idea of America?"

Robert Wright thinks so (here's Derek Thompson). I've been wondering more and more what the reference point is for those who lament the alleged moral bankruptcy or cultural famines of modernity because it seems like Wright's "original idea of America" is, at best, a pleasant fiction. Yes, it is true that perhaps today's world of pick-and-choose media allows people to insulate themselves from reality, but that was also true 150 years ago. In Memphis, for example, there were (I think) seven different newspapers that allowed readers to wallow in confirmation bias to their hearts' content. Indeed, during the Memphis riot of early May, 1866, members of the mob hoisted the editor of the Avalanche on their shoulders and threatened to burn the offices of the Post, which was a pro-union newspaper in town (to his credit, the editor of the Avalanche discouraged them).

Perhaps, though, people yearn for the days when our national news options were more or less limited to Dan Rather, Tom Brokaw, and Peter Jennings. This concerns me because it translates to a yearning for the days when We (whoever "we" are) controlled the conversation and didn't have to worry about competition from dissenters like Fox News. On Fox News, here are David Henderson and James Otteson.

Finally, Nick Gillespie makes an important point on how left-wing condescension short-circuits meaningful discussion (HT: Steve Horwitz). It reinforces my belief that American conservatives and liberals are like Coke and Pepsi: they taste different, but at the end of the day, they're basically the same thing. Conservatives believe we can turn our guns outward and plan the lives of foreigners; liberals believe we can turn our guns inward and plan the lives of Americans. To borrow from Bryan Caplan, this is to-may-to, to-mah-to for libertarians whose relevant political spectrum extends from the totalitarian Joseph Stalin to the anarchist Murray Rothbard. Along these lines, here's F.A. Hayek explaining why he is not a conservative. And here's George Orwell's classic essay "Politics and the English Language."

Posted by Art Carden at 12:04 PM in Economics

Buena Vista Links and Suggestions

I gave a couple of talks on Walmart at Buena Vista University yesterday and promised to post some links relevant to some of the questions people asked. On the importance of private property rights, play the bunny game from the IHS. Here's my Mises Media Archive, with audio of my "Environmental and Resource Economics" lecture. Here's my list of links from a panel at Rhodes; it includes links to Lant Pritchett's excellent book Let Their People Come. I also recommend William Easterly's wonderful The White Man's Burden and C.K. Prahalad's The Fortune at the Bottom of the Pyramid.

Addendum: Here's my paper with Charles Courtemanche and Jeremy Meiners on Walmart and values, available for ungated download from BEPress.

Posted by Art Carden at 10:51 AM in Economics

Markets in Everything: Rent-a-Crowd Edition

From today's WSJ:

Want to ensure a bigger draw for your lackluster candidate? In Ukraine, just contact Vladimir Boyko and he'll rent you a crowd.

Mr. Boyko says his company, Easy Work, has assembled a database of several thousand students and can mobilize them on a day's notice to turn up at demonstrations anywhere in Kiev, stand for hours at a time, and cheer or jeer on cue.

Posted by E. Frank Stephenson at 08:46 AM in Economics

Vote early and vote often

I have been having a good time in Hong Kong - hence no activity from me lately.

I did have this come across my email box and figured to share with the others.

Open voting for the three economists who most contributed to the financial meltdown is the topic for this year's IgNobel prize in economics.

Vote early and vote often

Posted by Craig Depken at 04:37 AM in Economics

February 02, 2010

I, Beer

Yesterday I blogged about I, Pencil. Today as I begin class I will have the following on the projector.

I, Beer

In tribute to Leonard E.Reed

I, beer, simple though I appear to be, merit your wonder and awe. Millions take me for granted, yet not a single person on the face of the earth knows every process required to make me. Think of the complex web of people and the numberless skills that went into my creation. I, beer, am a complex collection of miracles: hops, barley, yeast, water, glass bottles, metal caps, printed labels, and so on. Contemplate all the tractors and sprinklers and fertilizers and other implements used in growing and harvesting the hops and barley. Think of all the persons and the countless skills that went into their production: the mining of ore, the making of steel and its refinement into blades and machine parts, the many miles of irrigation pipes and canals that bring water to the fields, and so on. But to these miracles an even more extraordinary miracle has been added: the configuration of creative human energies -- milions of know-hows spontaneously responding to human necessity and desire in the absence of any governmental or any other coercive masterminding. Indeed, the seemingly simple task of producing one beer such as I is so vastly complex that no one could plan it. If you can become aware of the miraculousness which I symbolize, you can help save the freedom humanity is so unhappily losing.

As far as I know, this was written by a group of Koch Summer Fellows in the summer 2001, when I was visiting at GMU. They made t-shirts, which were quite cool. I got the text from Rob Frommer.

Posted by Edward J. Lopez at 12:27 PM in Economics

The Myopia of Politics

I found this interesting (HT: Doctor J) because it illustrates the myopia of politics. This played right into what I' thinking about this morning as I prep for a couple of trips this month and as I think about how the history of twentieth-century economic thought will be written. My question, in response:

"Hey you. You there in the 'Hope and Change' t-shirt (or with the "W-The President" sticker on your car--it doesn't really matter). If I pawn my car title, am I richer because I have more cash in my wallet?"

In reviewing a handful of books on Walmart by self-styled progressives and in prepping for taking a revised Walmart lecture on tour, I'm struck by the implicit view that the Big Business/Big Government/Big Labor iron triangle represented by the new industrial state of the 1950s and 1960s was a stable, long-run equilibrium. As we've learned in recent years, you can only consume so much capital before you run out. Here's Bryan Caplan quoting Amar Bhide on big corporations losing money. Here's George Reisman on where GM might be without the UAW. My prediction: if retail is unionized and all else remains equal, the government will someday end up taking over or bailing out Walmart, Costco, and Target the same way they did with the car companies.

Posted by Art Carden at 10:00 AM in Economics

February 01, 2010

What is the market?

It's that time of the semester. This week I am teaching from "I, Pencil" about incentives and institutions, with the punch line going something like this:

What is the market? Consider the statements of three famous economists from the previous three centuries…

Every individual necessarily labours to render the annual revenue of the society as great as he can. He generally, indeed, neither intends to promote the publick interest, nor knows how much he is promoting it. By…directing that [labour] in such a manner as its produce may be of the greatest value, he intends only his own gain, and he is in this, as in many other cases, led by an invisible hand to promote an end which was no part of his intention. Adam Smith (1723-1790) An Inquiry Into the Nature and Causes of the Wealth of Nations (1776)

The market economy is the social system of the division of labor under private ownership of the means of production. Everybody acts on his own behalf; but everybody’s actions aim at the satisfaction of other people’s needs as well as at the satisfaction of his own. Everybody in acting serves his fellow citizens. Everybody, on the other hand, is served by his fellow citizens. Everybody is both a means and an end in himself, an ultimate end for himself and a means to other people in their endeavors to attain their own ends.
Ludwig von Mises (1881-1973)
Human Action: A Treatise on Economics (1949)

When goods are produced and exchanged in competitive free markets in which people trade at market prices, economic activity leads to efficient outcomes… [That is], individual rationality, coupled with competition and prices, leads to efficient outcomes…in which there remain no unexploited opportunities to improve everybody’s welfare. This is so even though individual rationality and competition without prices rarely leads to such desirable outcomes.
Steven Landsburg (1952- )
The Armchair Economist: Economics and Everyday Life (1993)

I think these passages complement each other nicely and give students a couple of different entry points for seeing the ideas and their constancey. Now onto Chapter 1 of the textbook.

Posted by Edward J. Lopez at 05:39 PM in Economics

Econ Talk podcast on Hayek and Money

Last week I stopped by the office of my GMU colleague Russ Roberts to chat about Hayek's theory of the business cycle and his proposals for monetary reform. Lo and behold, the conversation is now available for everyone to hear at the Econ Talk podcast site that Russ hosts. So that's what those microphones were for ...

Posted by Lawrence H. White at 12:08 PM in Economics

An agenda for real banking reform

Richard Ebeling of Northwood University punctures the myth that central bankers know best and lays out a six-point plan for banking reform with no punches pulled.

Posted by Lawrence H. White at 11:43 AM in Economics

January 30, 2010

Keynes/Hayek Rap with Chinese Subtitles

Here (HT: Russ Roberts).

Posted by Art Carden at 09:35 PM in Economics

January 29, 2010

Bilateral Monopoly in Action

Study shows married people living together gain more weight than singles do. Shallow t.v. news story here.

Posted by Edward J. Lopez at 06:08 PM in Economics

Nattering Nabobs of Economic Ignorance

A little neo-Hooverite nonsense from the AP:

Wages and benefits paid to U.S. workers posted a modest gain in the fourth quarter, ending a year in which recession-battered workers saw their compensation rise by the smallest amount on records going back more than a quarter-century.

The anemic gains have raised concerns about the durability of the economic recovery. The fear is that consumer spending, which accounts for 70 percent of economic activity, could falter if households don't have the income growth to support their spending.

The Labor Department said Friday that wages and benefits rose by 0.5 percent in the three months ending in December. For the entire year, wages and benefits were up 1.5 percent, the weakest showing on records that go back to 1982.

With 10% unemployment, you'd think it just might dawn on them that wages might fall or remain relatively flat as part of the great recalculation.

BTW, speaking of neo-Hooverite nonsense, didn't Obama's SOTU call for some sort of subsidy to encourage firms to raise wages?

Posted by E. Frank Stephenson at 01:31 PM in Economics

Geithner on fixing recessions

Treasury Boss Tim Geithner offers this impassioned conclusion to his testimony before Congress on the AIG bailout.

In 1930, many people thought that the financial system was going through a necessary adjustment, that the healthy process was to let the fire burn itself out, and that the best thing the government could do was to do nothing.

Today, few believe that. Today, we know that when confronting a severe economic crisis the government must respond with overwhelming force. That is the basic lesson of the Great Depression. That is the basic insight that informed every judgment we made. And that is the reason we are now emerging from a recession and not still in the midst of a second Great Depression. In confronting this crisis, we learned from the past. Now we must learn from more recent failures, especially those that required AIG's rescue.

If we had stronger supervision and regulation in place, the government could have acted sooner to avert the crisis. If we had better crisis management tools in place, the government would have had better options. If we could have done it any differently, we would have done it differently.

Instead, we had no other choice. That is the basic lesson of this great recession.

In the future, when another generation of Americans confronts a new crisis born of new risks, the question will be whether we provided them the tools we did not have, whether we turned our collective outrage into concrete action, whether we passed comprehensive financial reform.
I hope we will.

All of this from a man one respected economist described as “very smart and… conceptually stronger than one might have expected.”

I could, of course, devote considerable blog space to dissecting and rebutting nearly every sentence Secretary Geithner wrote. In the end, though, that would be tedious and depressing. I will limit myself to a few simple observations.

The Secretary seems to have little time for the hypotheses that (a) there is always choice, (b) for every choice there is opportunity cost, (c) aggressively activist fiscal and monetary policy before and during his tenure largely created the economic crisis, and (d) the frenetic, unpredictably lurching policy initiatives on his watch have significantly increased uncertainty in market, making a bad situation worse.

Why, o why--apart from the answers found in the voluminous public choice literature about the incentives and constraints facing government officials—would he say such foolish things?

If only I could believe as the Secretary does, that "we are now emerging from a recession and not still in the midst of a second Great Depression."

People, don't forget that the Great Depression was composed of at least three separate recessions, separated by brief periods of rapid economic growth.

Posted by Noel Campbell at 12:13 PM in Economics

Toyota Enacts Stimulus Package

One of my stellar students asks:

Isn't Toyota's recall of 2.3 million vehicles going to be terrific for the economy? Think of all the jobs that will be created replacing those vehicles! What a perfect way to stimulate the economy!

Seriously, shouldn't defenders of programs like Cash for Clunkers be making arguments like this?

Yep. (BTW, the point holds even though Toyota is apparently replacing the accelerators rather than the entire vehicles.)

NB, Honda gets into the stimulus recall gig.

Posted by E. Frank Stephenson at 09:10 AM in Economics

January 28, 2010

Brilliant Protest

During last night's SOTU, Jeremy Horpedahl and Wafa Hakim Orman drew my attention to this bit of brilliance from XKCD.

Posted by Art Carden at 11:20 PM in Economics

Meltzer on the Fed's Incomplete Exit Strategy

I commend Allan Meltzer's op-ed in yesterday's Wall St. Journal. I plan to show it to my students in money and banking later this semester when teaching the "money multiplier" to persuade them that it can matter a great deal! Meltzer writes:

The exit strategy is incomplete. Proponents are guilty of practicing economics without prices. They never say what the interest rate on reserves must be to get banks to hold the approximately $1 trillion of reserves above the minimum they're legally required to hold. That's the critical question.

[...] No economist doubts that the Fed can induce banks to hold some more reserves by paying interest. But how much?

I do have to say that Meltzer's critique, like Bernanke's strategy, is also somewhat incomplete. What might stop the Fed from raising the interest rate on reserves as high as necessary? He doesn't spell that out. Meltzer shows that the Fed has sometimes found it unpopular to raise the Fed Funds rate and abandoned the effort too soon, fueling inflation. But raising the rate on bank reserves realtive to the Fed Funds rate is not the same as raising the Fed Funds rate.

Posted by Lawrence H. White at 05:26 PM in Economics

Menacing Electric Blankets

US slaps duties on electric blankets from China

The article of course begs for a Mark Perry rewrite.

UPDATE: The admin may slap tariffs on blankets or tires or ... but it's American consumers who feel the smackdown; case in point:

As an accountant, Terri Bricker of Omaha works with numbers every day.

But the digits on a recent tire purchase stumped her.

When she replaced two car tires in December, each cost $100. The same exact tire at the same store had cost her only $90 three months earlier when she had a blowout.

“I couldn't quite figure out why they went up 10 dollars in three months,” said Bricker, 48. “Obviously, I wasn't happy.”

Tire dealers and wholesalers say a tariff on Chinese-manufactured tires imposed in September is contributing to price increases on many tires. Some tire manufacturers say the resulting shift in demand and the rising cost of raw materials also are behind the price increases.

The three-year, tiered tariff — 35 percent the first year, 30 the second year and 25 the third year — was one of the first major trade policy decisions by President Barack Obama back in September.

HT: Andy Roth

Posted by E. Frank Stephenson at 08:32 AM in Economics

SOTU Takeaway Points

Rhodes philosopher and blogger Doctor J offers a complete transcript and video of President Obama's SOTU address. I link to her transcript rather than another because if you don't read her blog, you should. Here's her SOTU wishlist; I look forward to reading her evaluation of the speech itself. Eleven statements on the content are below the fold, which raises a question: if thirteen is a baker's dozen, is eleven an economist's dozen?

Read More »

1. "One in ten Americans still can't find work." To this, I would respond that the President needs to watch the Hayek v. Keynes "Fear the Boom and Bust" video, Google "regime uncertainty" and read what Robert Higgs has written about the Great Depression, and then introduce legislation to repeal the minimum wage. Seriously.

2. America's families are "working harder and longer for less." Honestly, that blew me away. If you're going to stretch the truth, at least say something that's technically true, but misleading: my favorites include discussions of stagnant wages that ignore benefits as a part of total compensation and discussions of inequality that (a) treat income and wealth like they're the same thing (they're not) and that (b) pretend that every soul who was in the bottom quintile of the income distribution in 1979 was also in the bottom quintile of the income distribution in 2009 (they weren't). Start here for more from Steve Horwitz, who has a handful of very good posts and links to data on trends in income and wealth.

3. Accidents of birth shouldn't determine whether you have access to the opportunities afforded by the American economy. I wholeheartedly agree, and I think that extends to accidents of birth that occur outside our borders. By construction, though, "foreign" = scary and bad. I didn't expect him to say "you know what? We should open the borders," but it would have been nice. Here are some of my thoughts on poverty alleviation from Blog Action Day in 2008.

4. Giving money to large banks is the worst idea ever, but giving money to small banks is the best idea ever (I paraphrase Reason.com's Katherine Mangu-Ward, who was part of the group at Reason who live-blogged the speech).

5. You know what makes a country rich? Exports, and policies designed to encourage them. I think at least one economist wrote something about that a long time ago. Adam something. It'll come to me eventually.

6. You know what else makes a country rich, or at least cures recessions? Stimulus spending. Here's a direct quote that Frederic Bastiat would have loved for reasons Bastiat fans will recognize immediately: "(t)alk to the window manufacturer in Philadelphia who said he used to be skeptical about the Recovery Act, until he had to add two more work shifts just because of the business it created" (HT: Jeff Papazian for the point about the glazier). Here's how Frederic Bastiat might respond. Study this picture of the unemployment rate with and without the recovery plan, and ponder what Greg Mankiw says about how "the act of releasing quarterly reports on how many jobs have been 'created or saved' gives the illusion of accountability without the reality." Here's more on jobs "saved or created" from David Switzer.

7. If we're evaluating a policy, should we focus only on the intended beneficiaries? Or should we look at the unseen and unintended consequences? Here (again, in case you missed it the first time) is how Frederic Bastiat might respond. Addendum: if we're worried about inefficient businesses and complacent CEOS--and if you want to dabble in populism--it's a good idea to take Robin Hanson's advice and unleash corporate raiders.

8. Banks lent money irresponsibly to people who couldn't pay it back. Donald Boudreaux asks the right question, though: would a decrease in lending to low-income borrowers have been politically possible? This piece by Jeff Jacoby causes me to think "probably not."

9. Brawndo The Thirst Mutilator can help us win at yelling, jumping, waving, and exercise. If Americans drink Brawndo, we might win at trade.

10. We need to be clearer about the language. If it covers pre-existing conditions, it's prepaid care. It's not "insurance." "Coverage," maybe. "Insurance," no.

11. Someone, somewhere is going to bed stone sober because he drew a card in a SOTU drinking game that told him to drink a beer every time the President reaffirmed his commitment to closing Guantanamo.

« Close It

Posted by Art Carden at 02:00 AM in Economics

January 27, 2010

Google Chrome's Invisible Hand

Users of Google's web browser, Chrome, may have noticed a new "extension" feature that they are calling InvisibleHand. Here is a description from Google:

InvisibleHand discreetly notifies you if the product you’re browsing is available more cheaply from another retailer. The notification provides a convenient link straight to the relevant product page on the competing retailer’s website.

InvisibleHand supports over 100 retailers in US, UK and Germany. Support for Canadian retailers is coming soon.

This money saving extension gets its name from the 18th century economist Adam Smith's concept of the invisible hand of the market. Smith didn't have Google Chrome to help prove his point, but we hope he would approve.

Details.

FTC-mandated disclosure: Google sent a team of engineers over to my condo to vacuum the carpets and clean the windows in exchange for my little blurb above. In other words, what Bob said.

Posted by Edward J. Lopez at 05:54 PM in Economics

Baptists, Bootleggers, and Bingo

Gambling interests gave money to the head of Alabama's anti-gambling task force when he was running for Attorney General. Public choice exam: explain. What are the implications for the "public interest" view of the state?

Posted by Art Carden at 12:13 PM in Economics

Jobs, Power, Politics, Tolkien

Courtesy of the Mises Institute, here's a podcast on libertarian themes in J.R.R. Tolkien's Lord of the Rings is embedded below. This is especially appropriate in light of two events that are happening today. The first is Apple's announcement of some kind of new iProduct, which will improve people's lives in ways we cannot foresee. The second is the State of the Union Address, which is the President's carefully choreographed exercise in truthiness followed by another carefully choreographed exercise in truthiness from the President's political opposition (here's Lew Rockwell on the contrast). Here's the video of Steve Jobs introducing the first iPod in 2001. Here's Tyler Cowen's "simple theory of political jobs," which go to "(p)eople who truly, deeply love the power." Here's a passage from Chapter 28 of Douglas Adams's The Restaurant at the End of the Universe that deserves some reflection on a day like today:

"The major problem — one of the major problems, for there are several — one of the many major problems with governing people is that of whom you get to do it; or rather of who manages to get people to let them do it to them.

To summarize: it is a well known fact, that those people who most want to rule people are, ipso facto, those least suited to do it. To summarize the summary: anyone who is capable of getting themselves made President should on no account be allowed to do the job. To summarize the summary of the summary: people are a problem.

And so this is the situation we find: a succession of Galactic Presidents who so much enjoy the fun and palaver of being in power that they very rarely notice that they're not.

And somewhere in the shadows behind them — who?

Who can possibly rule if no one who wants to do it can be allowed to?"

Posted by Art Carden at 11:22 AM in Economics

On the Bookshelf: Paris Under Water

Historian Jeffrey H. Jackson--one of my colleagues at Rhodes--recently published a book called Paris Under Water: How the City of Light Survived the Great Flood of 1910 (find out more here). I picked up a copy a few days ago and look forward to reading it in light of my ongoing projects about the 1866 Memphis riot, the couple of papers I've written on Katrina, and the growing body of scholarship being produced by the Mercatus Center's Hurricane Katrina-Gulf Coast Recovery project. My prior is that I'm going to find the book interesting and useful.

Posted by Art Carden at 09:52 AM in Economics

January 26, 2010

Hit and Run

A few things--other than the cool Keynes/Hayek rap--that have caught my eye over the past few days:

William Shughart on Haiti and the broken window fallacy.

Robert Higgs on disappearing private sector jobs.

Peter Schiff on the minimum wage hike in American Samoa.

Federal Subsidy Programs Top 2,000

Two NBER WP on labor supply elasticities (here and here): The second one has an important finding vis-a-vis supply side economics:

[W]e find that standard microeconometric methods underestimate structural labor supply elasticities by an order of magnitude.

UPDATE: Some interesting papers in the current REStat: Ugly Criminals, war is bad, trade is good, and institutions matter.

"Marketplace" has a piece on corruption in China.

"Marketplace's" Scott Jagow isn't impressed with the Obama spending freeze (a question for Obama and Jared Bernstein: If it's possible to cut $250B of wasteful spending from the budget then why did you sign the bill(s) that included said wasteful spending?).

UPDATE2: Casey Mulligan on the minimum wage.

The regressivity of carbon taxes.

Posted by E. Frank Stephenson at 06:24 PM in Economics

On the Hayek/Keynes Video (Updated)

Co-bloggers Larry White and Mike Munger discuss the video below; I liked it, and (SPOILER ALERT) I thought the placement of a copy of The General Theory in Hayek's hotel room where a Gideon Bible would normally be was a stroke of genius. The YouTube video now has about 74,000 views, and I look forward to more from the team behind it.

While we're on the subject of great music videos, Nickelback's "Rockstar" is below the fold. From what I can tell, the YouTube upload is licensed, legal, and official.

Read More »

« Close It

Posted by Art Carden at 01:25 PM in Economics

January 25, 2010

Hayek vs. Keynes, in rap

The much-awaited video from Russ Roberts and John Papola, linked to by Mike Munger below, is a hoot. My only complaint: in real life Hayek was younger than Keynes.

A larger-screen version, plus lyrics, credits, and background info on Hayek and Keynes are at http://econstories.tv/home.html. The site also promises to soon have "clips from interviews with leading economists on macroeconomic concepts and the current state of macroeconomics". I was one interviewed, and I'll pass the word when my interview goes up.

Posted by Lawrence H. White at 05:06 PM in Economics

The VIDEO!

The video. I humbly present the video: Fear the Boom & Bust.....

I am the Limo Driver to the Stars. Where to now, Lord Keynes?

Posted by Michael Munger at 04:20 PM in Economics

Why do economists criticize the Fed so little?

Steve Hanke in the National Post:

Chairman Bernanke’s denial of the Fed’s culpability raises an interesting question: How can the Fed make fantastic claims without being brought to account?

In search of an answer Steve cites Milton Friedman, Gordon Tullock, and kindly my work on the Fed's influence on research in monetary economics, which is available here.

Posted by Lawrence H. White at 11:14 AM in Economics

A New Addition to the Bookshelf

My copy of Literature and the Economics of Liberty: Spontaneous Order in Culture just arrived (buy for $20 here, or download for $0 here; I've done both). I'm really looking forward to it; as I've come under the influence of Deirdre McCloskey in the last seven or eight years I've come to realize that there are a lot of unrealized gains from trade to be enjoyed through multi-disciplinary conversation.

FTC-Mandated disclosure: I have received valuable consideration from the Mises Institute in the past in exchange for writing and lectures. I have not received any valuable consideration in exchange for endorsing this book.

Posted by Art Carden at 11:04 AM in Economics

January 21, 2010

Externalities explained...

by the Onion:

"It's fine, it's fine," thought Maine native Sheila Hodge, echoing the exact sentiments of Chicago-area resident Phillip Ragowski, recent Florida transplant Margaret Lowery, and Kansas City business owner Brian McMillan, as they tossed the polyethylene terephthalate object into an awaiting trash can. "It's just one bottle. And I'm usually pretty good about this sort of thing."

Posted by Robert Lawson at 01:45 PM in Economics

January 20, 2010

Is the Welfare State Justified?

Philosopher Danny Shapiro says "probably not" in this 8-minute C-SPAN interview. He gives straightforward consequentialist economic reasons why not, namely, he explains how the welfare state hinders rather than promotes the fairness, etc., that its proponents cite as justifications.

Posted by Lawrence H. White at 10:38 AM in Economics

January 19, 2010

Kelo and Government Size

The abstract of a paper by Geoffrey Turnbull and Rob Salvino:

The 2005 U.S. Supreme Court decision Kelo v New London allows using eminent domain to transfer property from one private party to another when it serves a broadly defined public purpose such as economic development. This paper examines the effect of this doctrine on the size of state and local governments. In the leviathan model, constitutional constraints are needed to control government expansion. The Kelo decision removes one such constitutional constraint on how state and local governments gain command over privately owned resources. The empirical results show that the breadth of eminent domain power affects the size of the public sector; states that explicitly empower their local governments to use eminent domain for private economic development have larger state and local public sectors than those that do not.

Posted by E. Frank Stephenson at 04:00 PM in Economics

Haiti, Immigration, and Development

I've argued several times that open immigration is an idea whose time has come (below, for example). Austin the Undergrad disagrees and raises a number of good points, but a) I think that the empirical literature still suggests a net gain and b) his criticisms aren't criticisms of immigration per se but of the welfare state (I discuss discrimination and forced association here). The problem is that for open immigration to work to its fullest potential, a lot of things would have to change at once.

Ilya Somin links to an interesting piece by Paul Romer and offers intriguing commentary (HT: Will Wilkinson). I share their concern that a massive humanitarian/military/colonial/whatever exercise in state-building is a recipe for disaster.

Posted by Art Carden at 09:12 AM in Economics

January 18, 2010

MLK and Poverty

Here's an article from today's Memphis Commercial Appeal that contains an entire econ 101 exam or two worth of possible questions. What's missing from the article?

Posted by Art Carden at 03:41 PM in Economics

Lindsey Graham opposes the industrial revolution

Wow. “'All the cars and trucks and plants that have been in existence since the Industrial Revolution, spewing out carbon day-in and day-out, you’ll never convince me that’s a good thing for your children and the future of the planet,' [Graham] told a crowd in South Carolina,... ."

Graham thinks it would be a good thing if we had no cars and trucks, no electricity in amounts that could serve any purpose (and no serious means to construct hydroelectric plants in any case)? He thinks it would be better for us and our children if we lived as in 1800, when the average life expectancy was about 40 - if you survived childhood?

Wow.

Posted by Brad Smith at 11:42 AM in Economics ~ in Funny Stuff ~ in Politics ~ in Science

January 16, 2010

Haiti and the Development Idea that Hasn't Been Tried

The world is still reacting to the horrific death and destruction in Haiti, and a lot of people are asking "what can I do to help the world's poor?" Here's Michael Clemens with an answer on "The biggest idea in development that no one really tried." In short, open the borders. I've written on this at DOL before (1, 2, 3, 4), but the recent disaster in Haiti illustrates the human tragedy caused by poverty--poverty that can be substantially reduced by adopting markets without borders.

Posted by Art Carden at 01:58 PM in Economics

January 15, 2010

The New Paternalism Crashes Down the Slippery Slope

Here's Glenn Greenwald on Cass Sunstein's recommendations for how the government can deal with conspiracy theories (HT: Will Wilkinson). Along the same lines, here's the latest installment of "New Paternalism on the Slippery Slopes" from Glen Whitman at ThinkMarkets.

Posted by Art Carden at 07:11 PM in Economics

Once politicians began taking credit for homeownership rates it was all over

Vernon Smith at Big Think, answering the posed question, "How has the government response to the crisis impacted household incomes, housing policies, and tax changes?"

And of course what the Administration is doing is the same thing any Administration would do in this, probably, in this crisis, and that is to try to prevent the price of homes from falling. So they're shoring up the demand for homes by more subsidies. Now if you think about that you realize that the proposed solution now is exactly what the problem was. So the solution is the problem, more of the same. And the question is how do you get out of this sort of vicious circle. What's important is, you try not to get there in the first place. Because once you're in this kind of a downturn all of the political pressures are to further artificially expand the demand for homes and to shore up those prices. Even though what we really need is for those prices to come down relative to the prices of other things in the economy.

Posted by Edward J. Lopez at 06:22 PM in Economics

Money I Found Today

In an attempt to gin up some followers, I announce my latest (third) blog: Money I Found Today. It is an experiment in documenting how much money I find laying on the ground over the next year or two.

I know, there is a solid argument that such an endeavor is a fool's errand as my time is worth more doing other things. Yet, doesn't that characterize almost all blogs?

Posted by Craig Depken at 01:52 PM in Economics

January 13, 2010

Political FAIL, c. 1866

I'm slogging my way through the records of the US government investigation of the 1866 Memphis Riot for a couple of papers Chris Coyne and I are working on. It's one of the more difficult reads I've ever encountered: it's 371 pages of very tiny print with something important and relevant on almost every line. The more I read the more I'm convinced that turning over the provision of law and order to a monopolist that is only accountable through political channels creates more problems than it solves. Chris and I will explore this in greater detail when we finish the paper, but I had to stop and blog this, from page 214. It's from lines 3330, 3331, and 3332 of the testimony of B.F.C. Brooks, editor of the Republican.

I have heard the remark again and again, "By God, we'll clean you all out. Just get the troops away, and we'll show you, when we get things into our own hands."

3331. Mention any one from whom you have heard such sentiments. Colonel Saffrons.

3332. Has he not recently been elected to office here? Yes sir; judge of the county court. He added something to the effect, "we shall some time get things into our own hands. True, we cannot vote now, but we have friends who can, and we will soon get you fellows out of here, and then we will take things into our own hands."

Posted by Art Carden at 03:49 PM in Economics

New Paper: Economic Progress and Entrepreneurial Innovation

"Economic Progress and Entrepreneurial Innovation: Case Studies from Memphis," available at SSRN. The abstract:

"Entrepreneurial innovation encourages economic progress, and an institutional climate that encourages risk taking, rewards success, and weeds out failure is essential to a well-functioning economic system. This essay explores a cluster of path-breaking entrepreneurial innovations with common roots in Memphis, Tennessee: Piggly Wiggly’s popularization of self-serve grocery shopping, Holiday Inn’s innovations in standards and quality, Autozone’s adaption of insights from other industries, and FedEx’s creation of a distribution network that has made overnight shipping a reality."

Posted by Art Carden at 02:30 PM in Economics

Failure Insurance: An Incentive to Fail?

Georgia's HOPE Scholarship program requires students to maintain a B average to maintain funding; I think some other state scholarship programs contain similar incentives. Now comes a different idea--failure insurance:

Imagine a first-generation college student whose high-school preparation was less than ideal. She has just finished her first semester, and she realizes now that college is going to be tougher than she had hoped. She failed one course and struggled to earn C's in her other subjects. She worries that she'll eventually flunk out, and she wonders whether she should walk away now before she accumulates any more student debt.

But what if she could hedge her risks by buying a "failure insurance" policy that would reimburse her for a portion of her student-loan debts if she did flunk out? Would that make her more willing to stay for another semester?

Failure insurance might sound outlandish—but a well-designed insurance system could actually improve students' effort and their attainment rates, according to a working paper that was presented in Atlanta last week at the annual meeting of the American Economic Association.

Seems like there's some potential for moral hazard here--garner an F and get ones college debts forgiven. Here's the paper.

UPDATE: A co-blogger points me to this company that already offers grade insurance of sorts.

Posted by E. Frank Stephenson at 12:58 PM in Economics

Segregation and Public Choice

Here's a very nice post from Brian Pitt at The Sociological Imagination. In light of MLK Day this coming Monday, here's a one-sentence summary of my viewpoint on just about everything:

Our moral failings, character flaws, and biases are rewarded and magnified through the political process but punished and reduced through the market process.

Posted by Art Carden at 10:47 AM in Economics

Don't think it can't happen here

The news coming out of Haiti is breath-taking. The local news this morning questioned why there are no construction codes in Haiti pertaining to earthquakes, bringing in comparisons with China, Turkey, Iran, Afghanistan, and other countries where earthquakes are not completely uncommon and yet there seems to be few precautions taken in construction.

Two potential reasons for the absence of earthquake construction codes came to mind immediately. First would be corruption (explicit or implicit) of the political process in which the "general welfare" is ignored for personal gain on the part of those in the positions of influence. The second, and less knee-jerk, reason is that earthquake codes (along with airbags, clean-coal, etc.) are luxury goods which the countries I enumerated above might not have the means to purchase. Our tsk-tsking does not solve that problem.

In April 1906 an earthquake devastated San Francisco in a pre-post-industrial world. The destruction was wide-spread and in many cases complete. I had plenty of "circa" postings concerning this event in the past (list here) Given that experience, and other more recent earthquakes, there is an expectation that another "big one" will hit in California. The unpredictable nature of earthquakes, coupled with our affluence (and, some might say, intrusive government regulation), California and other states have introduced construction codes aimed at mitigating the damage inflicted by earthquakes.

It seems less obvious to me whether the codes instituted in this country are sufficient to allow buildings to survive the "big-big one," something that seems to be taken for granted by those who comment on the lack of codes elsewhere. That is an empirical question I hope we don't have a natural experiment to test.

However, those of us in the Southland (and in the Midwest and in the Northeast) should not rest too easy. I am in the middle of reading "A Crack in the Edge of the World," which is about the 1906 SF earthquake but also, in the long run up to the actual event, about the whole reason there are earthquakes in California to begin with.

In a nutshell, and from a layman's perspective, the North American tectonic plate butts up against the Pacific tectonic plate somewhat west of California and butts up against the European tectonic plate somewhere east of Greenland. Unexpectedly and without current explanation, the North American plate has experienced seismic activity in a rather wide diagonal through its middle basically from New England through the Appalachians and out into Missouri, over the past 200-plus years (in recorded history but obviously much longer than that).

For example there have been tremendous earthquakes in the past in New Madrid, Missouri (1811), York (1884), Memphis TN (1845), and Charleston SC (1886), to name just a few places that would not seem to be obvious candidates for earthquakes.

My point is not to suggest perpetual vigilance and fear of an earthquake in the South but rather to avoid the "It can't happen here" syndrome.

Posted by Craig Depken at 10:13 AM in Economics

Quality and the Commons: The Surf Gangs of California

That's a new Journal of Law and Econ paper by Daniel T. Kaffine; the abstract (ungated version here):

In open‐access settings, high‐quality resources are lucrative, yet fencing out potential entrants may be very costly. I examine the endogenous creation of property rights, focusing on the incentives that resource quality provides to close the commons. Analytical examples explore the incentives of locals to increase or decrease the strength of property rights conditional on how locals and nonlocals value the quality of the resource. The empirical analysis looks at a unique resource—surf breaks—and estimates the relationship between the exogenous quality of the resource (waves at the surf break) and local attempts to seize the common surf break. Using cross‐sectional data on 86 surf breaks along the southern California coast, this paper finds that a 10 percent increase in quality leads to a 7–17 percent increase in the strength of property rights.

Posted by E. Frank Stephenson at 09:33 AM in Economics

January 12, 2010

The Caveman Diet

This looks pretty interesting, but I wonder if their plans also involve dying of treatable diseases or foodborne illnesses by age 35. HT: Jeremy Horpedahl.

Posted by Art Carden at 02:15 PM in Economics

Integrity distinguished from morality and ethics

I did not realize that Michael Jensen is writing with Werner Ehrhard. For a related interview of Jensen, click here.

Posted by Mike DeBow at 12:38 PM in Economics

January 11, 2010

Krugman Being Krugman

In today's column (thanks to Mankiw for the pointer), Paul Krugman pulls out one of his favorite nuggets:

And Europeans are quite productive, too: they work fewer hours, but output per hour in France and Germany is close to U.S. levels.

A more accurate statement would be that output per hour is roughly equal because French and Germans work fewer hours. I took up this issue in a 2005 post which I repost below (lightly edited):

Consider a thought experiment: Suppose countries A and B each have 10 people employed and that output per worker in the two countries is equal. Workers within each country are not equally productive but the distribution of productivity is the same in both countries. (If it is easier to grasp--assume 10 sets of identical twins have been separated at birth with one child from each set of twins going to each country.)

Now suppose that country B decides to enact some sort of tax or labor market regulation. As a result of this policy the least productive worker in country B is no longer employed. (For concreteness, the policy might be a minimum wage law that makes it unprofitable for a firm to hire the worker at the minimum wage.)

What effect does this policy have on the productivity of workers in the two countries? Country B's productivity now appears to be higher than country A's because the least productive worker in country B is no longer employed and no longer counts in the productivity calculations. (This is akin to having one's course average increase when the lowest grade is dropped.) Stated differently, if one averaged over all 10 people in each country, A's productivity would be greater than B's because B has one worker producing nothing.

[snip]

The key part here is per hour worked. The difference in employment between the two countries is quite large--France's 2003 employment to population ratio was 51.9% while it was 62.3% in the U.S. I bet that French output per working age adult--that is adjusted in some manner for people who are out of work--is lower than in the U.S. Stated differently, I bet the most productive 51.9% of the U.S. population is more productive than the 51.9% of the French who are employed.

Is it too much to ask that a Nobel Prize winner know about thinking at the margin?

Posted by E. Frank Stephenson at 11:12 PM in Economics

Stimulus: The Real Voodoo Economics

A federal spending surge of more than $20 billion for roads and bridges in President Barack Obama's first stimulus has had no effect on local unemployment rates, raising questions about his argument for billions more to address an "urgent need to accelerate job growth."

An Associated Press analysis of stimulus spending found that it didn't matter if a lot of money was spent on highways or none at all: Local unemployment rates rose and fell regardless. And the stimulus spending only barely helped the beleaguered construction industry, the analysis showed.

Source.

Posted by E. Frank Stephenson at 10:30 PM in Economics

Stossel on Atlas Shrugged

Starting here on YouTube (HT: Steve Horwitz). The first guest is John Allison from BB&T.

Update: Yaron Brook's discussion of selfishness near the end of segment three is not to be missed. Selfishness, for Rand, is a much more subtle, nuanced, and rational concept than selfishness as it is described by a lot of other people.

Posted by Art Carden at 10:46 AM in Economics

Coming Up Short on History: Robert Reich Edition

Reich may be a Rhodes Scholar, but his knowledge of economic history is pint-sized. Here's a snip of him from yesterday's "This Week" program on ABC:

The most important thing government can do is stimulate the economy. And right now, you have Republicans who are sounding like Herbert Hoover, who are saying, "Don't do anything. Just allow the economy to do what it's going to do on its own."

Bob, Bob, Bob--Hoover was an activist. Here's Amity Shlaes (The Forgotten Man, p. 91):

Right away [following the stock market crash]--in November 1929--Hoover pushed to expand an existing public buildings program by the healthy sum of $423 million on the theory that the spending would boost the economy. In Washington, builders put up great structures--a new agriculture department, for example.

Government spending didn't exactly follow a "don't do anything" path under Hoover: It went from $3.127B in 1929, $3.32B in 1930, $3.377B in 1931, and $4.659B in 1932.

Posted by E. Frank Stephenson at 08:44 AM in Economics

January 09, 2010

So Which Is It?

I'm currently reading Jonathan Levine's Zoned Out as preparation for one of my spring courses. The book makes an important point: Although it is often portrayed as a market outcome, suburban sprawl is at least partly the result of government zoning regulation. Indeed, zoning laws typically prohibit denser development alternatives such as so-called New Urbanism.

I do have one quibble--the author can't quite make up his mind what we economists think of zoning:

p. 80: "[T]he very meaning of zoning as a collective property right--a view now broadly adopted by the economics profession ..."

p. 87: "Economists and other social scientists have split on the nature of zoning--with some viewing it as governmental regulation and others viewing it as more akin to a 'collective property right.'"

I have about one-third of the book remaining so maybe the author will make up his mind in the remaining chapters.

Posted by E. Frank Stephenson at 10:44 PM in Economics

If Rush Can't Play "Tom Sawyer" on Rock Band...

...can we trust doctors, climate scientists, college professors, activists, and lobbyists to redesign the global economy? I've linked to this before--it's a video of Rush trying to play "Tom Sawyer" on Rock Band before their appearance on The Colbert Report--but after my most recent viewing it suggests a lot about the role of knowledge in a spontaneous order. Two quotes bear almost infinite repetition:

Friedrich Hayek: "The curious task of economics is to demonstrate to men how little they know about what they imagine they can design."

Adam Smith:

"The man of system...is apt to be very wise in his own conceit; and is often so enamoured with the supposed beauty of his own ideal plan of government, that he cannot suffer the smallest deviation from any part of it. He goes on to establish it completely and in all its parts, without any regard either to the great interests, or to the strong prejudices which may oppose it. He seems to imagine that he can arrange the different members of a great society with as much ease as the hand arranges the different pieces upon a chess-board. He does not consider that the pieces upon the chess-board have no other principle of motion besides that which the hand impresses upon them; but that, in the great chess board of human society, every single piece has a principle of motion of its own, altogether different from that which the legislature might chuse to impress upon it. If those two principles coincide and act in the same direction, the game of human society will go on easily and harmoniously, and is very likely to be happy and successful. If they are opposite or different, the game will go on miserably and the society must be at all times in the highest degree of disorder."

HT: Tom Woods.

Posted by Art Carden at 11:28 AM in Economics

Easterly, Acton, and Visionary Leadership

In prepping for my appearance on Radio Free Market this afternoon I've done some thinking about society's search for Great Leaders and Great Men. This made me think about a recent post on Aid Watch by William Easterly that everyone should read and a few passages in Democracy in Deficit, which I'm ashamed to say I'm only now reading. I have come to believe more and more in the explanatory power of ideas, and I think the presumption that They need Us to govern them--or more specifically, that You need Me to govern You--is especially pernicious. It also got me thinking about Lord Acton's insight about how very Great Men are almost always very bad men. Here are some quotes from Lord Acton that are especially relevant (I'm going to assume Wikiquote is accurate here):

"The danger is not that a particular class is unfit to govern. Every class is unfit to govern. The law of liberty tends to abolish the reign of race over race, of faith over faith, of class over class."

"I cannot accept your canon that we are to judge Pope and King unlike other men, with a favorable presumption that they did not wrong. If there is any presumption it is the other way against holders of power, increasing as the power increases. Historic responsibility has to make up for the want of legal responsibility. All power tends to corrupt and absolute power corrupts absolutely. Great men are almost always bad men, even when they exercise influence and not authority: still more when you superadd the tendency or the certainty of corruption by authority."

"There is no worse heresy than that the office sanctifies the holder of it."

"Advice to Persons About to Write History--Don't."

"Liberty is not a means to a higher political end. It is itself the highest political end."

"Truth is the only merit that gives dignity and worth to history."

Cross-posted at the Mises Blog and The Beacon.

Posted by Art Carden at 09:42 AM in Economics

January 08, 2010

The BCS Trophy Goes to Walmart

According to this story. HT: Matt Ryan.

Posted by Art Carden at 04:29 PM in Economics

Blogometrics

That's the title of a paper by Franklin Mixon and Kamal Upadhyaya that reports rankings of bloggers based on their academic research. The rankings look about right--heavyweights such as Becker, Mankiw, and Posner top the list, peons like me are well down the list--but there is a problem with the rankings. Table 1 reports that I have 120 citations for a rate of 2.67 per year. Dividing those numbers implies I've been getting cited for more than 40 years. Similarly co-blogger Bob has over 1,800 cites and roughly 51 per year thereby implying that he's been getting cited for about 38 years. Since we're both just north of 40, there's no way we've been cited for 40 years. Luckily the error seems to be harmless because the rankings seem, at least to this low ranked scribbler, sensible.

Posted by E. Frank Stephenson at 01:23 PM in Economics

Review of The Retail Revolution

My review of Nelson Lichtenstein's The Retail Revolution: How Wal-Mart Created a Brave New World of Business is online here.

Posted by Art Carden at 12:09 PM in Economics

Boettke on Academia

There has been a bit of chatter in the econ blogosphere about Thomas H. Benton's article in the Chronicle of Higher Education (see Bryan Caplan and Tyler Cowen, for example; I agree with Bryan's claim that people interested in the humanities should get PhDs in economics). Pete Boettke nails the conditions under which one should go into academia and explains some of the reasons why being a professor is such a great job. it has its aggravations, to be sure, but it also offers an incredible amount of freedom.

Posted by Art Carden at 12:08 PM in Economics

Broken Window Panes

Ross Kaminsky on Bastiat, as applied to Pelosi:

Nancy Pelosi ... said that she wants whatever compromise health care bill emerges from their closed-door negotiations to "lower costs at every stage" of our health care system.

... I found her statement troubling not only because I know she's lying about what she wants. It took me a few minutes, but then it hit me. The Bastiat fallacy lies in the word "costs."

What Pelosi really means is that she wants to lower prices paid by end-user consumers of health care.

She wants it to appear that costs have gone down, but in fact the bill will exacerbate the single greatest existing flaw in our health care system: the insulation of consumers of health care from the costs of what they consume. The majority of Americans, when they go to the doctor, feel as if they're spending someone else's money -- a situation which both Milton Friedman and common sense tell us cannot lead to disciplined spending.

Posted by Wilson Mixon at 10:13 AM in Economics

Humorous Blog Comment of the Day

In response to a discussion about comparative advantage and economists being cheap, a commenter asked whether economists take in the exercise value of cutting the lawn. “Economist do exercise, don’t you?” the commenter asked.

To which commenter "Davis X. Machina" replied "Unless it’s really hard, the exercise is usually left to the reader."

Posted by Joshua Hall at 09:41 AM in Economics

January 07, 2010

What I've Been Revising Lately

Here's "The Truthiness Hurts," with Mike Hammock, now in a leaner, meaner version that has been re-submitted to Economic Affairs.

Posted by Art Carden at 03:36 PM in Economics

January 06, 2010

Otteson on the Great Mind

Here's an excellent piece from James Otteson on the "Great Mind Fallacy" that just appeared on Forbes.com. He applies what Adam Smith had to say about the knowledge problem to modern pushes for paternalistic regulation. I'll make a prediction about regulatory mission creep. Regulations that are supposed to nudge me toward behaviors consistent with my interests will eventually metastasize into regulations that nudge me toward a redefinition of my interests.

Wait a second. That's why governments operate schools.

Posted by Art Carden at 02:27 PM in Economics

Dispatches from Sabbatical Prep

I have a sabbatical this semester and have spent the last couple of weeks tying up loose ends, finishing papers that were a day or two of revisions away from being finished, and knocking out other commitments (referee reports, book reviews, etc) so that I have a relatively clear desk and clear mind before I take on my sabbatical projects (mostly Southern economic history) head-on. Today, I'm revising a paper about entrepreneurial innovation in Memphis that I drafted a couple of summers ago and never took the time to polish and finish. In the process, I'm going through old notes, stubs, ideas, scribbles, and other things that litter my office and various storage media. Between now and the end of the week I'll be posting some of the odds and ends that I find.

Here's an outtake from a review of Benjamin Powell (ed.), Making Poor Nations Rich:

"Economic history is in part a story of changing incentives to use entrepreneurial proclivities. In his introduction, Powell notes that in imperial China (and many countries), the best and brightest have historically joined the civil service. Today, these same best and brightest are becoming engineers and entrepreneurs. Five hundred years ago, a Chinese or Indian genius would be working in administration and bureaucracy, likely inventing new ways to thwart trade. Today, those geniuses are moving to Silicon Valley and writing software for Google."

Posted by Art Carden at 12:07 PM in Economics

Building Brand Equity: The Freeman and Radio Free Market

The latest issue of The Freeman is available; it includes my article summarizing some of the scholarly work on Walmart. The new issue is chock full of articles that look interesting; I'm especially looking forward to Steve Horwitz's piece on deflation and Bruce Yandle's piece on Baptist/bootlegger coalitions and climate change legislation (HT: Sheldon Richman and Steve Horwitz).

I'll also be on Radio Free Market on Saturday at 1:00 CT to discuss the (un)popularity of capitalism; this continues a discussion that started on September 25 and that continued through December 5. I think I'm also going to be a guest commentator on Saturday, 1/16 when RFM interviews Deirdre McCloskey. Listen. Call. Tell your friends!

Posted by Art Carden at 10:14 AM in Economics

Incentives Matter: Kitty Adoption Edition

USA Today: Fee waivers boost cat adoptions

Posted by E. Frank Stephenson at 09:55 AM in Economics

Not Much of a Race

One sometimes hears about various races to the bottom that might occur in the absence of environmental regulations, workplace safety regulations, or the like. Arik Levinson's article in the December AER sheds some light on this issue; the abstract (NBER WP version here):

Total pollution emitted by U.S. manufacturers declined over the past 30 years by about 60 percent, even though real manufacturing output increased 70 percent. This improvement must result from a combination of two trends: (1) changes in production or abatement processes (technology); or (2) changes in the mix of goods manufactured in the United States, which itself may result from increased net imports of pollution-intensive goods (international trade). I first show that most of the decline in pollution from U.S. manufacturing has been the result of changing technology, rather than changes in the mix of goods produced, although the pace of that technology change has slowed over time. Second, I present evidence that increases in net imports of pollution-intensive goods are too small to explain more than about half of the pollution reductions from the changing mix of goods produced in the United States. Together, these two findings demonstrate that shifting polluting industries overseas has played at most a minor role in the cleanup of U.S. manufacturing.

Posted by E. Frank Stephenson at 09:27 AM in Economics

Building Brand Equity: Hybrid Auto Tax Preferences Edition

My former students Andrew Chupp (now asst prof at Illinois State U), Katie Myles, and I had our paper on the incidence of hybrid automobile tax preferences accepted by Public Finance Review. The abstract:

We use national and California price data from January, 2002 to June, 2009 for three hybrid and five non-hybrid car models to estimate the share of federal tax preferences for purchasing hybrid cars that accrues to car sellers. Our preferred estimates suggest that almost one-half of the subsidy is capitalized into car prices, but some specifications lead to larger estimated benefits for car suppliers. Our results also show (1) that a California program providing HOV stickers to owners of hybrid fuel automobiles led to large increases in the price of those vehicles, and (2) that failing to control for rising gas prices which increase the demand for fuel efficient vehicles leads to upwardly biased estimates of the amount of the hybrid car tax subsidy captured by automakers.

Posted by E. Frank Stephenson at 09:10 AM in Economics

January 05, 2010

Today's relevance of Gertrude Stein on Money

In which American city is three the same as a million? Ask Gertrude Stein (writing in 1936, HT Michael Watts).

Everybody now just has to make up their mind. Is money money or isn't money money. Everybody who earns it and spends it every day in order to live knows that money is money, anybody who votes it to be gathered in as taxes knows money is not money. That is what makes everybody go crazy.

Once upon a time there was a king and he was called Louis the fifteenth. He spent money as they are spending it now. He just spent it and spent it and one day somebody dared say something to the king about it. Oh, he said, after me the deluge, it would last out his time, and so what was the difference. When this king had begun his reign he was known as Louis the Well-beloved, when he died, nobody even stayed around to close his eyes.

But all the trouble really comes from this question is money money. Everybody who lives on it every day knows that money is money but the people who vote money, presidents and congress, do not think about money that way when they vote it. I remember when my nephew was a little boy he was out walking somewhere and he saw a lot of horses; he came home and he said, oh papa, I have just seen a million horses. A million, said his father, well anyway, said my nephew, I saw three. That came to be what we all used to say when anybody used numbers that they could not count well anyway a million or three. That is the whole point. When you earn money and spend money everyday anybody can know the difference between a million and three. But when you vote money away there really is not any difference between a million and three. And so everybody has to make up their mind is money money for everybody or is it not.

So there. The essay goes on, and says the same thing over again in a couple of different and interesting ways. The economics in doing so is not entirely obvious. But perhaps it's because Gertrude Stein was born into wealth and was very familiar with making investment decisions. Thus, for example, what may seem redundant is really a reference to hyperinflation.

Under the guise of repetition or, rather, repetitiveness, hyper-inflation appears in Stein's writings as both a theme and a compositional method.

Posted by Edward J. Lopez at 02:27 PM in Economics

Economics in Culture class for winter session

Starting tonight and for the next three weeks, I'm teaching an undergrad class called Economics in Culture. The idea is to analyze cultural artifacts using economic theory. To get things moving, tonight we will survey a few salient economic concepts (e.g. opportunity cost, comparative advantage, incentives, institutions, unintended consequences, creative destruction, rent seeking, equity, etc.). Then starting tomorrow night, each class will then be devoted to a genre from pop culture, such as film, television, sports, fashion, fiction, music, politics, and communications. Enrollment is modest, so I can take advantage of different formats. The first half of each class will be traditional lecture, then a twenty minute break, and then the second half of class will be a Socratic discussion a la Liberty Fund. Each student will do a project in which they pick a creative work, present it to the class, and analyze the economics in it. I think it will be a lot of fun, and I don't recall ever having been this intrigued at the start of a class by how it would turn out. I'll be sure to post interesting examples throughout the month (like Gertrude Stein on money, above). If you have favorite examples, I'd love to have you send them my way. Thanks.

Posted by Edward J. Lopez at 02:22 PM in Economics

Some context

A good summary statement regarding climate change's implications:

There is thus an economic case for greenhouse gas emission reduction. You do not need to be a bleeding heart ecologist to favour climate policy. Cold economic calculus calls for action too.

At the same time, estimates of the impacts of climate change do not support the often-dramatic language of the media. Estimates suggest that the overall impact of a century of climate change is equivalent to losing up to 2% of income. The impact of a century of climate change is of the same size as a year of economic growth. In the worst case, impacts may be ten times as large. Still, a deep recession wreaks as much havoc in a year as climate change would do in a century. Climate change is therefore not the biggest problem of humankind.

Posted by Wilson Mixon at 10:19 AM in Economics

Jeff Tucker on the 1.6 Gallon Toilet

Jeff Tucker's articles at Mises.org are always entertaining and informative. This one is no exception. For someone in health econ or epidemiology looking for a clever identification strategy, I would suspect that the mandated 1.6 gallon toilet had at least a tiny effect on the disease environment.

Posted by Art Carden at 09:11 AM in Economics

January 04, 2010

What I've Been Writing Lately

1. Review of Jennifer Burns, Goddess of the Market: Ayn Rand and the American Right, forthcoming in Economic Affairs. I thought it was a great book, I enjoyed it immensely, and Anne Heller's bio of Rand should arrive via the USPS within the next few days.

2. Here's a complete re-write of Charles Courtemanche's and my paper on Walmart and obesity, re-titled "Supersizing Supercenters? The Impact of Wal-Mart Supercenters on Body Mass Index and Obesity." Using distance from Bentonville as an instrument for Walmart Supercenter location, our "results imply that the proliferation of Walmart Supercenters explains 11% of the rise in obesity since the late 1980s, but the resulting increase in medical expenditures offsets only a small portion of consumers' savings from shopping at Supercenters." It's basically a different paper from the earlier one; further work evaluating discount stores, Supercenters, and Sam's Club is in the offing.

3. Here's a new Forbes.com piece on the naughties, which brought us a lot of incremental advances in human wellbeing.

Posted by Art Carden at 07:41 PM in Economics

On Economics, Theology, and Evidence

A question from a quasi-Hansonian moment: what percentage of people who don't believe in God because "there's no evidence" also believe that the minimum wage is good for the poor in spite of overwhelming evidence to the contrary?

Inspired by today's installment of Abstruse Goose.

Posted by Art Carden at 11:28 AM in Economics

What I've Been Reading Lately: Holiday Break Edition

1. Arnold Kling and Nick Schulz, From Poverty to Prosperity. This is a book that should be on everyone's bookshelf. The introductory chapter evaluating trends in poverty and prosperity is extremely useful, and the interviews with Joel Mokyr, William Easterly, Douglass North, Paul Romer, Robert Fogel, William Lewis, and others are fascinating. The structure of the book means that it would be a very good supplementary text for a course in development economics. I might use it the next time I teach Classical & Marxian Political Economy.

2. Nelson Lichtenstein, The Retail Revolution: How Wal-Mart Created a Brave New World of Business. The first back-cover blurb is a hearty endorsement from Barbara Ehrenreich; that fact gives the reader a pretty accurate picture of what to expect. I couldn't put it down, but for all the wrong reasons. The book's most fundamental weakness is that it completely ignores the economics literature on Walmart. Lichtenstein doesn't even dismiss it. With the exception of a single reference to Kenneth Stone's work on Walmart and employment in Iowa in the mid-1990s, he just ignores it. This wouldn't be such a bad thing if some of the contributions made by Emek Basker, David Neumark, Stephan Goetz, Jerry Hausman and Ephraim Leibtag, and Russell Sobel and Andrea Dean weren't directly relevant to some of his key arguments. My review will be available on EH.Net soon.

3. Jennifer Burns, Goddess of the Market: Ayn Rand and the American Right. This was a Christmas present from my sister; I couldn't put this book down for all the right reasons. My review (available on SSRN) is forthcoming in Economic Affairs.

4. Robert Mayhew, Essays on Ayn Rand's Atlas Shrugged. I read a few of these essays and found them interesting and useful. If I ever teach a seminar class in which I can assign Atlas alongside something like The Grapes of Wrath (a la Pete Boettke), a lot of my notes on Atlas will draw on the insights in this volume.

Posted by Art Carden at 10:56 AM in Economics

December 30, 2009

Drip: Black & Decker Junior Play Workbench

My Father-in-Law and I just put together Jacob's Christmas "Black & Decker Junior Play Workbench." Here's more evidence that our standard of living has increased: the little screwdriver that comes with it is battery-powered.

Drip: an homage to Don Boudreaux's "Prosperity Pool" meme.

Posted by Art Carden at 06:34 PM in Economics

December 29, 2009

An Idea for a New Constitution

"From each according to his abilities, to each according to his political influence."

NB: inspired by a link from Rhodes student Brent Butgereit.

Posted by Art Carden at 05:54 PM in Economics

The Tiger Woods stock market event study

If this is the first you've heard of it, before you click on this link, try to guess how much Woods' misconduct has depressed the values of the companies that associated with him.

Posted by Mike DeBow at 05:32 PM in Economics

December 28, 2009

Sex and Housework

Does more joint housework lead to more sex? (HT: Charles McKinney) Causality issues aside, I'm sure a lot of people will read this article and start testing for whether the model makes good out-of-sample predictions.

Posted by Art Carden at 04:02 PM in Economics

Political Romance Versus Political Reality

If you support nationalized health care, remember that it will not be run by perfect people or even "wise and disinterested statesmen," whatever those are. It will be run by people like (a possibly drunk) Max Baucus (HT: Steve Horwitz). A quick Google doesn't yield confirmation that Baucus was drunk--there's some innuendo from partisans, but not much else in the first few results--but the case against his position is stronger if he gave a performance like that while sober.

If what I've heard on Christian talk radio and what I've read in a few places is any indication, the GOP's response in the debate has been a disappointing hash of Euro-phobia (They're going to make us more like the French!) and special interest politics (and they're going to cut Medicare to do it!). From both sides, it has been less about ideas and more about beating the Bad Guys.

In reviewing 2009, I think one of the most interesting stories was the way partisans changed their rhetorical strategies. When W. Bush was in office, it was the left claiming that dissent is patriotic while the right was screaming "America! Love it or leave it!" Now that Obama is in office, the right is screaming "dissent is patriotic!" while the left is screaming "America! Love it or leave it!" This cements my conviction that partisan politics is a spectator sport rather than an intellectual, social, or spiritual exercise.

Posted by Art Carden at 11:11 AM in Economics

Sentences of the Day, So Far

From Bryan Caplan:

"Translation: Regulation forbids an adult and a child to consensually form a permanent family. What for? To protect the "rights" of abandoned minors' abusive and neglectful blood relatives - plus random bigots."

Posted by Art Carden at 08:32 AM in Economics

December 23, 2009

The Afghanistan Plan in a Couple of Screens

Courtesy of William Easterly (original HT: Chris Coyne). My inner Hayekian/Smithian finds this hilarious because it's an exercise in indulging the (fatal) conceit of the men and women of system who think themselves qualified to direct other men and women in the use and employment of their capitals. My inner humanitarian is weeping because a lot of people are going to die.

Update: Bill Easterly posts a response from someone in the military. Feedback/transparency/accountability WIN.

Posted by Art Carden at 01:36 PM in Economics

December 22, 2009

Gary Becker, Call Your Office

I just wrote a check to pay an $11 parking ticket for having my car parked in front of my house facing the wrong direction on the morning after Thanksgiving. We live in a neighborhood with no through streets or center lines. Possible exam question: Are tickets like this a wise use of police resources (hints: opportunity cost, equal-marginal principle)? How does your answer change if it's a busy street?

Extra credit: discuss the similarities between this and the incident that led Gary Becker to develop his economic theory of crime and punishment.

Paper idea: Discuss how the spontaneous evolution of parking norms in residential neighborhoods would obviate the need for police involvement (hint: the name of the scholar you should be referencing here begins with "Elinor" and ends with "Ostrom").

Posted by Art Carden at 10:13 AM in Economics

December 21, 2009

Connecting two Mercatus Center stimulus dots

Those who receive the Mercatus Center's weekly email update may have already clicked to get a preview of the Keynes v. Hayek rap video by Russ Roberts. In a related NYT interview on Economix blog, Russ Roberts defends the Hayekian position against Lord Robert Skidelsky who defends Keynesian countercyclial stimulus spending. Around the 6:00 mark, when asked whether stimulus spending is necessary to reach full employment after a negative shock, Roberts invokes political inefficiency.

Roberts: Well unfortunately, what Keynes has done is he has given solace to politicians who want to spend money wastefully on special interests rather than on things that would help us.

Interviewer: Is that completely unfair?

Skidelsky: No, not completely unfair. There's a lot of waste. But the waste doesn't matter. There's more waste if you have heavier unemployment. See you're balancing a smaller waste against a larger waste. There's no ideal way out of the hole.

In a new Mercatus Center working paper called "Stimulus Facts," Veronique de Rugy and David Brito analyze the Economic Recovery Act's FY 09 Q4 allocations by congressional district.

On average, Democratic districts received 1.6 times more awards than Republican ones.... Democratic districts also received 1.89 times more stimulus dollars than Republican districts. The average dollars awarded per Republican district is $232,047,857, while the average dollars awarded per Democratic district is $439,200,100. In total, Democratic districts received 73.47 percent of the total stimulus funds awarded.

And as for comparative waste?

A total of 56,399 contracts and grants totaling $157,028,362,536 were awarded in this first quarter for which Recovery.gov reports are available. The number of jobs claimed as created or saved is 638,826.54—an average of $245,807.51 per job.

Posted by Edward J. Lopez at 06:22 PM in Economics

Eminent Domain Abuse: What Would Homer Simpson Do?

On Sunday, supporters bolted a chain to the establishment's bar, and some patrons hundcuffed themselves to it for about an hour while sipping on pints of beer. They say they'll do it again when authorities try to seize the property.

The bar in question is Freddy's Bar and Back Room, one of properties that the Empire State Development Corporation has condemend to make way for the Atlantic Yards development. Story here. For an analysis of the Atlantic Yards case, here is Ilya Somin

Posted by Edward J. Lopez at 01:41 PM in Economics

December 19, 2009

Not quite what the founders had in mind?

In this Bloomberg story Senator (but seemingly not Statesman) Reid lets us know exactly why the past two elections were so important for those who prefer more rather than less liberty and less rather than more statism - and also why the rest of the country will be paying for the entire increase in medicare/medicaid costs for Nebraska (and probably Louisiana as well):

"A number of states are treated differently than other states," Reid told reporters. "That's what legislation is all about. Compromise."

I guess I missed that lecture during my political science class in college.

I am sure I don't know what legislation is "all about" but I am not so happy that it entails, in the eyes of the current (and past?) leadership, treating the states differently. In Ayn Rand's Atlas Shrugged legislation and regulation morphed into the codified whims and pragmatism of the "Aristocracy of Pull." However, her point, in my reading, was that legislation that specifically aimed at carving out special exemptions for one state or region are a symptom of a deeper problem in the body politic.

It is fine for Ben Nelson to "secure" federal funding for Nebraska - but that federal funding doesn't materialize out of thin air (unless the good folks in Washington turn on the money press) but rather comes from us in Charlotte and Auburn and Spokane. Now, I am ticked at my Senator for not being #60 and getting the good folks of Lincoln (Neb) to finance the expansion of I-485 or helping Concord with the subsidies we "promised" to a local Speedway owner. After all, if money is on the table then I should be participating in the receiving not the giving. This reminds me of libertarian reporter John Stossel admitting to taking federal money to rebuild his hurricane damaged/destroyed house twice(!)*.

Of course that is exactly the problem - everyone wants everyone else to pay for their stuff and, in the end, the politicians are only too happy to facilitate - with a little help from the muzzle of a gun (taxes) and the mint's printing press (inflation).

I am fairly certain this is not what the (Federalist) founders had in mind.

Four predictions of what will happen (or not happen) after "reconciliation" (which this time around has too much irony for comfort):

1. small businesses do not expand because of uncertainty in exactly how much the reformed health insurance will cost, thereby prolonging the recovery or perhaps driving us into the "double dip" (this is already in the air among small business owners I know);

2. some tanning salons will go out of business (what is the price elasticity of demand for tanning machines?) and some of their customers will a) turn to good ol' Sol for their tanning needs thereby leading to more skin cancer than before (that one might be hard to test) or b) go the chemical route for their tanning needs with unknown unintended(?) consequences;

2b. After many rural tanning/hair/nail salons go out of business there arises a black market for tanning beds, permanents, and pedicures. This black market, what with those providing the tannings/perms/pedicures not licensed and trained by the state will lead to claims of even more health problems. This, in turn, will lead to the need for a new bureaucracy to crack down on this illicit black market and allowed to make a few "examples" out of the new criminal class;

3. medical tourism will almost expand in Barbados, Bermuda, Belize and other pleasant environs south. When it becomes apparent that (gasp, rich) folks are going out-of-the system to gain access to medical procedures without the wait/red tape/bureacracy, the Federal government will impose nearly prohibitive taxes on foreign-applied medical procedures purchased by U.S. citizens. This will also require a new bureacracy and attempts to gain access to U.S. citizen medical records that reside in another country, similar to what was recently wrested from Switzerland.

I'm sure there are more (funny and/or scary) predictions. If anyone thinks of clever side-effects of the probable reforms, I "tag out."

* As he wrote in a 2004 Reason magazine article titled "Confessions of a Welfare Queen."

Posted by Craig Depken at 04:50 PM in Economics  ·  Comments (2)

December 16, 2009

Best Title for a Blog Post That I've Seen Today

Comes from Berry alum Mike Hammock: You Know Medical Marijuana is Here to Stay When the Sellers Begin Rent-Seeking

Posted by E. Frank Stephenson at 12:09 PM in Economics

December 15, 2009

On supply and demand c. 1909

The Dec. 15, 1909 NYT prints a letter to the editor with an interesting question to which I think Gary Becker might have an answer:

Will a mere man who has been a student of economic problems answer this question: Is there any factor which can affect wages other than supply and demand? My feeble intellect is absolutely staggered by this cry of votes for women on the plea that it will increase wages. I understand perfectly that by popular vote the city employes, school teachers, etc., can be put on an equal schedule with men, but the few covered by this special enactment has absolutely nothing to do with the mass of women workers, hence when the suffrage leaders try to influence women to clamor for the ballot on this plea they are sailing under false colors.

I like Becker's theory on labor market discrimination (for it's elegance and it's universality) but if supply is the relationship between price and willingness to sell and demand is the relationship between price and the willingness to buy, then everything ultimately can be cast in "supply and demand." As I tell students in an introductory class (only half in jest) - there are really only three or four different "graphs" in economics, what changes are the labels.

I have also suggested that the standard "supply and demand" model, and more specifically the comparative statics of supply and demand, might help one reach the "correct" answer/prediction about 80% of the time. I have no evidence for such a claim, but I stand by it until proven wrong (ha ha).

I have had students in the past suggest that the supply-demand model is almost a cop-out on the part of economists, because, after all, it's all about supply and demand and that leaves little room for the non-monetary and intangible. Yet, that is exactly one of Becker's points about labor market discrimiation (in my reading), that the intangible and non-monetary "tastes" of the individual demander or supplier can manifest in actual, tangible, differences such as pay gaps. Of course, labor market discrimination is not the only source of a pay gap, which is why it is important to be careful to accurately measure the sources of such gaps.

I think the letter-writer is correct in the sense that the vote can be used to alter the wages of public employees, and it seems that is definitely what is happening today (one of the reasons I have always been a bit uncomfortable with public employee unions). I also think the letter-writer might be correct in that it is difficult to see how granting women the vote would directly impact female wages.

Perhaps granting women the franchise increases the desire to obtain human capital, which over time would be expected to alter female wages. Perhaps the franchise would ensure a broader, stronger, and deeper social safety net, which in turn might relieve women of some of the traditional (as of 1909) responsibilities with which they were charged and which, in turn, might have improved their productivity and hence their wages.

On the other hand, the claim from 1909 suffragists could have just be a lot of hot air rhetoric - not much different than the hot air rhetoric surrounding many of the social issues of today.

Posted by Craig Depken at 01:18 PM in Economics

December 14, 2009

On taxes and smoking c. 1909

The Dec. 14, 1909 NYT reports the following:

BERLIN - The Committee on Appropriations unanimously voiced today to report to the Reichstag a resolution appropriating $500,000 for the relief of tobacco workers who have been thrown out of work as a consequence of the reduced consumption of cigars and cigarettes under the operation of the new tax measures.

Glad to see public policy has come so far in one hundred years.

Posted by Craig Depken at 11:32 AM in Economics

APEE 2010 YOUNG SCHOLARS PROGRAM

ANNOUNCING THE 2010 YOUNG SCHOLARS PROGRAM

APEE has received a grant to help young faculty and graduate students attend our annual meeting April 11-13, 2010 in Las Vegas, Nevada. These funds are designed to encourage younger scholars to consider the advantages of APEE membership.

Successful applicants will have their registration fees reduced to $75 (normally $390) and be eligible for a stipend of up to $595 toward travel expenses. To apply applicants must supply us with the following: (1) a short essay (250-300 words) explaining why the applicant wishes to attend the meeting; (2) a short letter of reference, preferably from an APEE member or someone known to APEE, indicating why support should be provided to the nominee, and (3) a brief letter from the applicant's department chair or graduate director indicating the level of departmental support that the applicant can expect for this trip. Some of the applicants may be on the program and preference will be given to these applications. The deadline for applying is January 30, 2010. Those selected will be notified within two weeks of that date. Successful applicants will be required to register for the conference (at the reduced rate of $75) by February 28, 2010.

Please send applications to Dr. E.F. Stephenson at efstephenson[at]berry[dot]edu. If you have questions, you may e-mail Dr. Stephenson or call him at (706) 238-7878.

Posted by Robert Lawson at 08:27 AM in Economics

December 13, 2009

Nobel blogs

The Nobel Prize Chronicles includes a link to a video of Ostrom's Nobel lecture.

This Berkeley webpage includes a link to a video of Williamson's "Nobel Prize Day Highlights."

Posted by Mike DeBow at 12:53 AM in Economics

December 12, 2009

What I've Been Reading and Writing Lately

1. Mises: His Importance and Relevance. This was inspired in part by the recent Freeman symposium on Human Action and based explicitly on my notes from Jorg-Guido Hulsmann's opening lecture at Mises University. I read Hulsmann's biography of Mises in May (link is to PDF); if you haven't read it and are interested in intellectual history, you should.

2. Gordon S. Wood, Empire of Liberty. One of the takeaway points is that "Great Man" and "Golden Age" historical narratives are lacking. I'm about 350 pages in, and I would recommend it to anyone who wants to understand a crucial era in American history.

3. Hayek on Hayek. It's a collection of interviews and autobiographical notes from Hayek. In it, he points out that two mistakes he made were that he never reviewed Keynes's General Theory or Friedman's Essays on Positive Economics.

Posted by Art Carden at 03:33 PM in Economics

December 11, 2009

Building Brand Equity: New Issue of NPPE

The new issue of New Perspectives on Political Economy is available here; it includes my paper "A Note on Profit, Loss, and Social Responsibility."

Posted by Art Carden at 08:47 PM in Economics

I Am Not Proud of My Alma Mater

The University of Alabama has canceled three days of classes for the BCS National Championship Game. HT: Richard Vedder.

Posted by Art Carden at 04:54 PM in Economics

Health Care Article

An article in REASON. On health care, and why subsidizing insurance is a remarkably dumb idea.

Read More »

The French economist, Frederic Bastiat, diagnosed the problem long ago when he said, “The public option is the conceit that each of us should have free health care at the expense of all of us.” Okay, he didn’t say that, exactly, but it was the same idea.

ATSRTWT

« Close It

Posted by Michael Munger at 04:07 PM in Economics

Tiger externalities

Is there an entire book's worth of negative fallout from Tigergate? My guess is yes. From today's Sporting News Today:

The band had been raising money since February, with the effort culminating last weekend with a concert and silent auction. The auction's high-dollar item, requested well in advance: an autographed photo of Woods...

It was expected to go for $1,500 at auction. But after a series of unflattering revelations about the golfer's personal life, Bagstad said few people wanted to bid on the item. In the end, it only went for $300.

The band, from Clintonville, Wisconsin, was raising money to go to Disney World for spring break.

There is an implicit assumption that people are not willing to pay so much for a Tiger photo because they don't want to be associated with Tiger or don't want to hang a Tiger photo on their wall. This might be the case for some. However, an under-appreciated aspect of the sports memorabilia market is how much of it is based ("rationally" or not) on speculation.

If Tiger's chances for setting the career record for Major victories, tour victories, or any other statistic (in golf) have been permanently reduced, then a gap-down in the value of Tiger's memorabilia today would be expected as the future value of the same falls.

Some may think it a shame that the band will have a harder time getting south for Spring Break, but I won't be surprised when a private benefactor steps forward to help the kids get to Mouseland. However, there is a "teachable moment" that seems ignored: perhaps it is best to not put one's hopes and future on the actions and reputation of a person one does not really know (heads up to fans of George Bush, Barack Obama, John Edwards, Mark Sanford, and just about anyone other celebrity and politician).

I think someone wrote a book that was somewhat about that.

Posted by Craig Depken at 09:05 AM in Economics

December 10, 2009

Richard McKenzie, "Microeconomics for MBAs"

These short modules are excellent for discussions of basic micro.

Posted by Art Carden at 05:15 PM in Economics

On the Nobel Prize c. 1909

Today the President "accepted" his Nobel Peace Prize. The purse is reported to be approximately $1.4 million, a number which might be a little inflated given teh the weaker dollar relative to previous years.

The Dec. 10, 1909 NYT reports the 1909 Nobel Prizes and reports that each is worth approximately $40,000. Granted there is a mix of prizes that carry the name of Nobel, but this is not my point.

The folks at eh.net claim that $40,000 in 1909 is $976,430.84 in 2008 dollars. Give the dollar a slide of 40% and the real value of the Nobel prize hasn't changed that much in 100 years.

How cool is that?

[Update (12-11-09): From this story from PhysicsWorld:

The Foundation announced at the weekend that it might cut the $1.5m it hands out for each of the six prizes awarded each year. The reason, it says, is the credit crunch and the impending recession, which has led to losses in the foundation’s assets.

]

Posted by Craig Depken at 10:52 AM in Economics

Climategate, Growthgate, and the Pretence of Knowledge

A few thoughts and links:

1. William Easterly discusses growth econometrics and the relationship between development economics and climate science. I just printed the paper he references.

2. Climategate is going to make a lot of scholars across disciplines think very, very hard about what they're doing. The reaction to the Card & Krueger minimum wage paper is a feather in the cap of the economics profession. C&K appeared in the American Economic Review and was subjected to thorough examination and criticism before the bulk of the evidence came down on the side of competitive models of the labor market (cf. Neumark and Wascher).

3. Here's Bob Murphy on geo-engineering (HT: David Henderson). I'm skeptical of a lot of geo-engineering proposals because of the probable unintended consequences: "carbon-eating trees" sound scary, but they could just be like strains of GM corn or cotton. Note that there is an inconsistency in some of the arguments about geo-engineering: people claim that the physical environment is so complex that we cannot possibly hope to be able to engineer it appropriately. Many of these same people, I would suspect, are using this to support their claim that they should be given the power to engineer the global economy.

Posted by Art Carden at 10:20 AM in Economics

December 09, 2009

How did liberating electricity markets in Texas work out?

Ask Lynne Kiesling's and Andrew Kleit's new book, Electricity Restructuring: The Texas Story. From the AEI online store description:

In the early 1990s, the U.S. electricity industry was plagued by cost overruns and stagnant productivity. Many states turned to deregulation to promote innovation and cut costs, a strategy that had worked for the telecommunications, trucking, natural gas, and airline industries. Yet, after the California energy market's infamous meltdown in 2000-2001 triggered the recall election of Governor Gray Davis, deregulation lost popular and political support. Plans to introduce competition and retail choice in electricity markets were stalled or abandoned nationwide--in every state but Texas.

This volume explores how Texas's groundbreaking program of electricity restructuring has become a model for truly competitive energy markets in the United States. The authors contend that restructuring in Texas has been successful because the industry is free from federal oversight within the state; because new investments in electricity supply have been encouraged to insure that increased demand for power is met; because restructuring has spurred the growth of more efficient electricity technologies and business models; because the markets integrate wholesale and retail competition; and because the operation of the transmission grid has been changed to maximize its efficiency.

Here is the link. Congrats, Lynne!

Posted by Edward J. Lopez at 06:45 PM in Economics

The Underground Economy is Alive and Well

So says Richard Rahn:

The underground or "black" economy is rapidly rising, and the fault is mainly due to government policies.

Here is the evidence. The Federal Deposit Insurance Corp. (FDIC) released a report last week concluding that 7.7 percent of U.S. households, containing at least 17 million adults, are unbanked (i.e. those who do not have bank accounts), and an "estimated 17.9 percent of U.S. households, roughly 21 million, are underbanked" (i.e., those who rely heavily on nonbank institutions, such as check cashing and money transmitting services). As an economy becomes richer and incomes rise, the normal expectation is that the proportion of the unbanked population falls and does not rise as is now happening in the United States.

See also Mark Perry's excellent post: The Imaginary Hobgoblin of "The Unbanked"

Posted by E. Frank Stephenson at 03:13 PM in Economics

Apply for a Humane Studies Fellowship

One of my corporate paymasters friends at the Institute for Humane Studies asked me to pass along information on the Humane Studies Fellowship. If you're a graduate student or if you plan to be one someday, these are great. The deadline is December 31, 2009.

Posted by Art Carden at 02:13 PM in Economics

SEC and the Weatherman

When will the SEC (or National Weather Service) feel it's necessary to look into whether there are weather forecasters manipulating the market for temperature-based futures?

This paper forthcoming in the Journal of Banking and Finance, "The Pricing of Temperature Futures at the Chicago Mercantile Exchange," suggests that futures prices respond to forecasts up to 11 days in advance. Oh what fun the weather forecasters could have with this one.

Here's the abstract:

This paper analyzes observed prices of U.S. temperature futures at the Chicago Mercantile Exchange (CME). Results show that an index modeling approach without detrending captures the prices exceptionally well. Moreover, weather forecasts significantly influence prices up to 11 days ahead. It is shown that valuations of temperature futures relying on a model without detrending yield biased valuations by overpricing winter contracts and underpricing summer contracts. Several trading strategies are devised to exploit the mispricing observed at the CME and to demonstrate that speculating on temperature futures can not only generate high overall returns, but also perform well on a risk-adjusted basis.

Read more here

Posted by Craig Depken at 01:48 PM in Economics

December 08, 2009

Public Choice and Legal Systems

For three semesters now, I have had the pleasure of teaching from David Friedman's Law's Order. At certain times during this semester, I've considered a change. It is passages like the one below that give me great pause.

To set up context, David is discussing the 18th Century English system, in particular how it lacked public police and prosecutors and therefore relied solely on private prosecution to bring criminals to justice. The system contrasted with the French, which had paid police, public prosecutors and imprisonment. Why were the Brits so slow to "modernize" their criminal law system? Perhaps, Friedman speculates, the English were worried that if the Crown were solely responsible for prosecuting crimes then friends of the crown could do as they please -- could get away with murder. "That problem is still with us," Friedman says, and he points to various episodes of government overreach and democide.

These examples suggest an important point too often forgotten in the economic analysis of the law: The rationality assumption applies to enforcers as well as enforcees. In constructing legal institutions we cannot simply assume that legislators, judges, and police will go out and do good—in the economist’s version, promote efficiency. We have to think about their incentives too.

Posted by Edward J. Lopez at 06:39 PM in Economics

Public Choice and Legal Systems

For three semesters now, I have had the pleasure of teaching from David Friedman's Law's Order. At certain times during this semester, I've considered a change. It is passages like the one below that give me great pause.

To set up context, David is discussing the 18th Century English system, in particular how it lacked public police and prosecutors and therefore relied solely on private prosecution to bring criminals to justice. The system contrasted with the French, which had paid police, public prosecutors and imprisonment. Why were the Brits so slow to "modernize" their criminal law system? Perhaps, Friedman speculates, the English were worried that if the Crown were solely responsible for prosecuting crimes then friends of the crown could do as they please -- could get away with murder. "That problem is still with us," Friedman says, and he points to various episodes of government overreach and democide.

These examples suggest an important point too often forgotten in the economic analysis of the law: The rationality assumption applies to enforcers as well as enforcees. In constructing legal institutions we cannot simply assume that legislators, judges, and police will go out and do good—in the economist’s version, promote efficiency. We have to think about their incentives too.

Posted by Edward J. Lopez at 06:27 PM in Economics

What about conventional wisdom?

An interesting working paper popped up on SSRN this past week with the intriguing title The Wages of Failure: Executive Compensation at Bear Stearns and Lehman 2000-2008 . Here's the abstract:

The standard narrative of the meltdown of Bear Stearns and Lehman Brothers assumes that the wealth of the top executives of these firms was largely wiped out along with their firms. In the ongoing debate about regulatory responses to the financial crisis, commentators have used this assumed fact as a basis for dismissing both the role of compensation structures in inducing risk-taking and the potential value of reforming such structures. This paper provides a case study of compensation at Bear Stearns and Lehman during 2000-2008 and concludes that this assumed fact is incorrect.

We find that the top-five executive teams of these firms cashed out large amounts of performance-based compensation during the 2000-2008 period. During this period, they were able to cash out large amounts of bonus compensation that was not clawed back when the firms collapsed, as well as to pocket large amounts from selling shares. Overall, we estimate that the top executive teams of Bear Stearns and Lehman Brothers derived cash flows of about $1.4 billion and $1 billion respectively from cash bonuses and equity sales during 2000-2008. These cash flows substantially exceeded the value of the executives’ initial holdings in the beginning of the period, and the executives’ net payoffs for the period were thus decidedly positive. The divergence between how the top executives and their shareholders fared implies that it is not possible to rule out, as standard narratives suggest, that the executives’ pay arrangements provided them with excessive risk-taking incentives. We discuss the implications of our analysis for understanding the possible role that pay arrangements have played in the run-up to the financial crisis and how they should be reformed going forward.

Posted by Craig Depken at 12:20 PM in Economics

Let the invisible hand get that

Alex Padilla has a new op-ed in Forbes.com. At issue, whether the state of California ought to require condom use in the adult film industry to protect public health. Alex concludes:

Good intentions do not guarantee good results. The costs and consequences of adopting a condom-only regulation far outweigh any benefits. The adult industry has done an excellent job policing and testing itself. The government is likely to do more harm than good to the health of both porn performers and the general public if it meddles in adult entertainment.

ATSRTWFT

Posted by Edward J. Lopez at 10:29 AM in Economics

Tuesday Wisdom from Hayek

I'm prepping for the last meeting of Econ 339 this semester and, in light of some student questions, I'm re-reading Hayek's Nobel Address. This stands out:

“…the economists are at this moment called upon to say how to extricate the free world from the serious threat of accelerating inflation which, it must be admitted, has been brought about by policies which the majority of economists recommended and even urged governments to pursue. We have indeed at the moment little cause for pride: as a profession we have made a mess of things.”

Addendum: this is worth remembering, too. Hayek closes with this gem:

“The recognition of the insuperable limits to his knowledge ought indeed to teach the student of society a lesson of humility which should guard him against becoming an accomplice to man’s fatal striving to control society- a striving which makes him not only a tyrant over his fellows, but which may well make him the destroyer of a civilization which no brain has designed but which has grown from the free efforts of millions of individuals.”

Posted by Art Carden at 09:59 AM in Economics

December 07, 2009

Salvador Allende's Potemkin Interwebs

Apropos Bob's and my paper on human rights and economic liberalization, here's a great post by Alex Tabarrok on Salvador Allende's attempts to solve the problem of economic calculation in the socialist commonwealth with some technological wizardry. Pay no attention to the man behind the curtain.

It's too soon, but within the next few decades I look forward to a complete and comprehensive intellectual history of the twentieth century. I expect that the two most important contributions will be Mises's "Economic Calculation in the Socialist Commonwealth" and Hayek's "The Use of Knowledge in Society."

Posted by Art Carden at 09:19 AM in Economics

December 05, 2009

Modifiers for Good and Bad

F.A. Hayek once said that you can take any concept and make it meaningless by modifying it with "social." "Justice," for example, is meaningful. "Social justice" is not.

Along the same lines, you can take something innocuous and turn it into something scary and bad by modifying it with "foreign." "Oil" is okay. "Foreign oil" is bad. "Workers" are okay. "Foreign workers" will stop at nothing to take our jobs. "Trade" creates wealth. "Foreign trade" destroys American jobs. A lot of people thought "ER" was a great show. "Foreigner"...yeah.

Here's DOLer Mike Munger discussing the anti-economics of peak oil, which motivated enormous giveaways to ethanol producers (econ 101 students: use a supply and demand diagram to show how ethanol subsidies lead to the production of gallons of ethanol for which marginal cost exceeds marginal benefit). Now, as Mike points out, we might not be able to use all the ethanol produced to meet the mandates. According to the ethanol lobbyist quoted in the NYT article, though, ethanol will wean us off of foreign oil. Clearly, we need appropriations to build a strategic ethanol reserve. Of course, we could have an entire Ethanol Wing in the Boondoggle Museum.

Posted by Art Carden at 09:43 PM in Economics

First Degree Price Discrimination FAIL

see more Epic Fails

Source: Failblog.org.

Posted by Art Carden at 11:38 AM in Economics

Guest Post: Mike Hammock on Climategate

Here's a guest post by my friend Mike Hammock on the Climategate scandal. I asked Mike to weigh in because he always has something thoughtful to say about things like this and because I've learned most of my environmental economics by talking to him over three years of lunches at Rhodes. Here's Mike:

Art Carden asked me to write up a blog post summarizing my thoughts on 'Climategate'. For those of you not following along, someone managed to hack into the University of East Anglia’s email server and extract emails sent by climate scientists, some of which show questionable behavior. Climatologists there may have tried to keep skeptical papers from being published, may have evaded requests under the U.K.’s Freedom of Information Act, and may have altered data to get the results they wanted. It won’t be clear until the investigation is finished.

My thoughts are pretty much the same as Tyler Cowen's. This is embarassing for East Anglia, and it weakens the consensus view, but it doesn't come close to destroying it. The pundits shouting the loudest about the leak—the Sean Hannitys of the world—are the least qualified to judge the science. I’m certainly not qualified, and ideologues won’t resolve the issue. I expect this to play out in the literature as it would in any other science. I will still defer to the collected expertise of climatologists, which, for the moment, still supports the AGW hypothesis.

I also expect climatologists to defer to economists when it comes to the question of "what to do about it". I still think a well-designed carbon tax or cap-and-trade system (the former being preferred to the latter) could result in significant welfare gains if paired with a cut in distortionary taxes (particularly payroll taxes), but I also think the odds of getting a well-designed regulation out of the political system are low. The question of whether a real-world regulation would create benefits greater than costs isn't yet clear to me. I'm not an advocate of the "we must do something, this is something, therefore we must do this" position on global warming. It is also worth keeping in mind that regulation doesn’t have to work badly; the U.S. market in SO2 permits is generally considered a success, reducing SO2 emissions at a lower cost than was expected. If I were a betting man, however, I would not bet on CO2 regulation working out very well.

I also don't think that Levitt's geoengineering stuff is a good substitute for CO2 reduction. It doesn't do anything about, ocean acidification, for example, and could have its own unintended consequences.

I don't, however, have much sympathy for Cowen's "In order for scientists to behave so badly, things must be really serious, so we should be worried!" argument. I see where he's going with it, but I don't think it's a good reason to overlook unethical behavior. Paying attention to someone’s argument because of their unethical behavior seems to me to create perverse incentives. I suppose he would say that we shouldn't overlook it, but we should place a lower weight on unethical behavior in a good cause.

Posted by Art Carden at 09:15 AM in Economics

December 04, 2009

Building Brand Equity: Links for Radio Free Market Tomorrow at 1:00

I'll be live on Radio Free Market tomorrow at 1:00 CST to talk about why capitalism is so unpopular. Here are a few links that might be interesting to readers and listeners. Forgive the conspicuous product placements and self-citations, but most of what I'll say during the interview will be based on the following:

1. Deirdre McCloskey's The Bourgeois Virtues. Her opening "Apology"--the entirety of which should be on Google Books--is a tour de force. If you're going to read one thing before the end of the year, this should be it.

2. A few months ago, Josh Hall and I wrote a paper on "The Institutional Necessity of Economic Freedom" that discusses some of the themes McCloskey and others develop.

3. Speaking of Josh, here's an Economic Affairs "Economic Viewpoints" piece in which he and I discuss international labor standards. This is based on Josh's lectures at IHS "Liberty and Society" Summer Seminars where we've both been on the faculty.

4. Speaking of Economic Affairs, Mike Hammock and I discuss whether economists are "market fundamentalists."

Posted by Art Carden at 05:05 PM in Economics

What (Bob Lawson and) I Have Been Writing Lately: Human Rights and Economic Liberalization

Carden, Art and Robert A. Lawson. 2009. Human Rights and Economic Liberalization, under review at Business and Politics.

This paper has made the rounds at a handful of conferences and is finally available. Thanks to everyone who has offered comments and suggestions.

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.

Back story and additional links below the fold. Cross-Posted at The Beacon and the Mises Blog.

Read More »

The paper started as a specific comment on Naomi Klein's The Shock Doctrine, which I discuss here in a review essay for the Journal of Lutheran Ethics (HT: Bob Lawson for recommending me for that assignment). A side question: is a "review essay" a journal article? A book review? A floor wax? A dessert topping? After seeing this listed in "book reviews" I've decided to move it from "journal articles" to "book reviews" on my CV.

In any event, when I was reading The Shock Doctrine last summer I came across a bunch of claims that could be tested using the CIRI human rights data and the EFW Index. Not surprisingly, the data suggest that torture is not a "silent partner in the global free-market crusade" but an impediment to economic liberalization. Our data only go back to 1980, but I would suspect that the out-of-sample properties of the estimates are pretty good. At the margin, Pinochet's tyranny likely reduced economic freedom. If not, then I'm inclined to agree with Milton Friedman that Pinochet's Chile was an outlier.

This is worth considering in light of the development of "disaster statism" during the crises of 2008 and 2009. Here are a few more links. Tyler Cowen reviews The Shock Doctrine for the New York Sun and calls it "a true economics disaster." Steve Horwitz asks two questions. Johan Norberg dismantles Klein. Klein responds. Norberg responds in kind. The Economist offers a "Naomi Klein smackdown roundup" (HT: Peter Klein). Jonathan Chait's review in The New Republic pulled no punches. Chait's review also explains why we think this is worth our time and energy: ideas matter, and if influential people are going to treat The Shock Doctrine as the Left's twenty-first century answer to The Road To Serfdom, it warrants our attention.

« Close It

Posted by Art Carden at 12:17 PM in Economics

No Free Lunch: Education

In the spirit of some of Bob's posts (below), Neal McCluskey offers the following on student protests about increased college tuition:

There’s a word for this kind of activism, and it’s not “idealism” or anything else so complimentary. It’s “rent seeking.” Or, if you want to put it more bluntly, “freeloading.”

Posted by Art Carden at 09:55 AM in Economics

December 03, 2009

Geithner Discovers Regime Uncertainty ... (Updated)

... and uses it as a rationale for passing the monstrous health care bill. Here's a snip of his interview today with Fox Business Network's Liz Claman:

CLAMAN: Businesses investing again, they need to, they want to.

But I have to tell you, I talk to a lot of CEOs. So do you. And in advance, I told them I was going to be talking to you. And they said, look, we don't have a lot of this ability. We don't have clarity on where interest rates are going to be, what energy costs are going to be, what the health care situation is going to be. They would love some of that visibility clarified.

GEITHNER: They want -- businesses want certainty. They need certainty so they can make long-term plans today. And that's why it's so important that Congress gets health care behind us, that we bring financial reform in place so people know what the rules of the game are. And that's a very important thing to do. And that's why we're working so hard to make sure we bring clarity quickly.

UPDATE: Newsweek's Robert Samuelson also weighs in on regime uncertainty: "More important, the decision to press controversial proposals (health care, climate change, taxes) was bound to increase uncertainty and undermine confidence."

So does NPR--listen to the last 15 seconds of this story.

Posted by E. Frank Stephenson at 10:59 PM in Economics

Three on Occupational Licensing

Tyler Cowen points to this post on the licensing of hypnotists (no kidding) in Indiana.

Instapundit points to this video from IJ (one of my favorite organizations) on licensing yoga teacher training programs in Virginia.

Here's a reason.tv video on licensing requirements for interior designers.

Posted by E. Frank Stephenson at 10:48 PM in Economics

Complements

This cartoon by the Rome News-Tribune's Mike Lester reminded me of a barber shop I walked by while in San Antonio for the SEAs. The barber shop had a sign in the window promising a free beer to people purchasing haircuts.

Posted by E. Frank Stephenson at 10:29 PM in Economics

An X-prize c. 1909

The Dec. 3, 1909 NYT reports on an X-prize of the day:

Official announcement was to-night made of the offer of $100,000 by a Yale alumnus, who declined to allow his name to be known, to the person who discovers an adequate remedy for tuberculosis. The money has been turned over to Yale University as custodian, and the faculty of the medical school has been chosen its Trustees.

The story ends with the qualifications for winning the prize:

The donor of the prize stipulates that the cure for which the award is given shall have been in use five years and its permanent efficiency tested for that time.

Posted by Craig Depken at 02:03 PM in Economics

Disneyland University

A friend and I have had an interesting email exchange about my higher education bubble post. Part of the discussion centered on the differences between what we might call non-traditional higher ed (community colleges, for-profits and onlines like Phoneix, tech schools) versus traditional higher ed (e.g., Auburn).

Maybe I'm being naive but I think the traditional schools are better positioned when/if there's a higher ed bubble burst.

In my opinion non-traditional schools exist only because of massive implicit subsidies to students in the form mostly of guaranteed student loans. This is especially so for for-profits and tech schools. So the kids get stuck with debt (or taxpayers in case of default) for what I suspect is very little market return. The question is what happens if those subsidies slow. And seriously, the coming budget problems caused by social security and medicare (and now Obamacare) are going to force some cuts elsewhere. They simply can't use taxes or debt/inflation to cover it all.

My reading of places like Auburn (and most other traditional 4 year schools) is that were selling a consumption good, call it "the college experience", more than an actual education or any kind of job training. We're in the entertainment business! That doesn't mean we're not overbuilt ourselves because of subsidies as well, but I think the consumption aspect of our business model make our demand less elastic in the face of subsidy cuts/price increases than that facing the non-traditionals.

We're the modern day equivalent of the old practice where British elites sent teenage kids to continental Europe for a few years before coming back to England. As with college today, the theory was that it was to "enlighten" them, but the reality was it was a huge party for them.

Adam Smith had some very unkind things to say about the practice:

In England it becomes every day more and more the custom to send young people to travel in foreign countries immediately upon their leaving school, and without sending them to any university. Our young people, it is said, generally return home much improved by their travels. A young man who goes abroad at seventeen or eighteen, and returns home at one and twenty, returns three or four years older than he was when he went abroad; and at that age it is very difficult not to improve a good deal in three or four years. In the course of his travels he generally acquires some knowledge of one or two foreign languages; a knowledge, however, which is seldom sufficient to enable him either to speak or write them with propriety. In other respects he commonly returns home more conceited, more unprincipled, more dissipated, and more incapable of any serious application either to study or to business than he could well have become in so short a time had he lived at home. By travelling so very young, by spending in the most frivolous dissipation the most precious years of his life, at a distance from the inspection and control of his parents and relations, every useful habit which the earlier parts of his education might have had some tendency to form in him, instead of being riveted and confirmed, is almost necessarily either weakened or effaced. Nothing but the discredit into which the universities are allowing themselves to fall could ever have brought into repute so very absurd a practice as that of travelling at this early period of life. By sending his son abroad, a father delivers himself at least for some time, from so disagreeable an object as that of a son unemployed, neglected, and going to ruin before his eyes.

Posted by Robert Lawson at 09:12 AM in Economics

December 02, 2009

EFW Call for Papers

Posted by Robert Lawson at 12:29 PM in Economics

Someone had to say it c. 1909

The Dec. 2, 1909 NYT has an editorial addressing the relationship between Wall Street and Elm Street and how the politicians fail (intentionally?) to explain each to the other:

It might be as well and as profitable for the country to understand Wall Street, as for Wall Street to understand the country. The country is being told that capitalists invest hundreds of millions in restraint of trade. Is it reasonable? Many persons seem to believe that railways charge extortionate rates because they enrich themselves by demands which prevent shippers from making a profit by the movement of their goods. Is that reasonable? Investors who sink millions of dollars, in enterprises thereby absolutely subject to the most oppressive laws without any possible escape, do not customarily and willfully break the laws and invite destructive penalties.

There are reasons why these things, or some of them, are done, and it interests the country to understand them. They are not obscure. They are written large in commercial history for those who have understanding to read them. Why is it that [William Jennings] BRYAN and the rest of the people's friends can have fresh issues for each campaign, time without end, while the railways, and the trusts, and every interest subject to the laws, persist in alleged sin and obduracy? There's a reason. The country's greatest need is a leader for the truth as influential as those leaders for the false in finance, who have cost the country so dear, and apparently must yet cost it so much more.

My interpretation of the op-ed piece is as follows. It is true that there are excesses and abuses in capitalism. However, competitive pressures from below and reasonable (or unreasonable) regulation from above generally keeps the majority of firms in check - the firms provide quality service and products to their customers or they would otherwise die. It is true that some firms enjoy government monopoly protection, get rich off of government contracts, and lobby government for special exemptions and rules that either lower their costs, ensure their revenue, or increase their rivals' costs. However, the common denominator in these examples of excess is government intervention in the form of picking winners rather than agnostic regulation.

The op-ed uses the railways as the "big nasty" to worry about but it is true that the railways could not price transportation, of people or goods, to the extent that it would put their customers (especially business customers) in a negative profit situation. Although there might not have been a large number of substitutes to trains, at least for moving product long distances over the mass of the continent, it is true that a firm didn't have to ship those long distances. Railways, of course, recognized this and priced for a profit but not for extortion and definitely not for the death of their clients.

In today's lingo it is possible, perhaps, to substitute "health insurance providers" for "railways" and any statist Democrat for the name "BRYAN" and we have not evolved much in the general political debate in one hundred years.

I like the op-ed's appeal for a leader who could talk sensibly about the benefits of capitalism (especially today given the 20th century's examples of Soviet Russia and Communist China and the unfathomable human suffering that attended those non-capitalist systems). It is clear that the "friends of the people" haven't moved off their talking points for over 100 years and the "friends of capitalism" have not generated a charismatic leader (unless, perhaps, Reagan? I am not sure about that generalization, I admit).

Posted by Craig Depken at 09:22 AM in Economics

December 01, 2009

A Terrifying Message from Al Gore

We start talking about externalities in econ 101 today.

Posted by Art Carden at 02:28 PM in Economics

The Higher Education Bubble?

Here was the pattern in the real estate market:

(1) Government subsidizes home ownership (mortgage interest tax deduction, FHA, Freddie/Fannie, low interest rates set by Fed, CRI, et cetera).

(2) Resources flock to subsidized markets and asset prices and wages in market increase at unsustainable rates.

(3) Bubble bursts. Asset prices and wages in the market plummet. Financial Institutions hit hard. Credit crunch. Recession.

Could this cycle by happening in higher education? We subsidize the crap out of higher ed (student loans, grants, direct subsidies to schools, educational IRAs, 529s, et cetera). Higher ed continues to expand rapidly its capacity building more and more and more buildings, dorms, student centers, jock palaces, etc, and faculty/staff wages by all accounts have grown more rapidly than most over time. If this is a bubble how does it burst?

Take note of this headline: "For-Profit Colleges: Scooping Up the Stimulus." Is the University of Phoenix the next Countrywide?

Posted by Robert Lawson at 10:44 AM in Economics

November 30, 2009

Podcast: The the Rule of Law and the Fed

While at the Cato Institute for their annual monetary conference, I chatted with Caleb Brown about the contrast between the "rule of law" principle and the recent actions of our central banking authorities. Our 12-minute conversation is now available as today's Cato daily podcast.

Posted by Lawrence H. White at 11:11 AM in Economics

Cavalcade of Miscellany: A Deep Breath on Monday Morning

1. I'm finishing a paper co-authored with Bob Lawson. If I don't send it to him by the end of the day, I will mail a check for $50 to the Auburn University Athletics Department.

2. An oxymoron: "trade war."

3. As this semester winds down, I'm reflecting on what I've learned in 2009. I've taught econ 101, writing-intensive econ 101, Classical and Marxian Political Economy, and a rebuilt Economic History course. Over the summer, I taught at an IHS "Liberty and Society" seminar and at Mises University. In the process, I've developed a firm conviction that Mises and Hayek are the most important thinkers you've never read; in particular, Mises's "Economic Calculation in the Socialist Commonwealth" and Hayek's "The Use of Knowledge in Society" might be the most important contributions to our understanding of societies that I've ever read. I made this point (to some extent) a few months ago, and in these articles Mises and Hayek confront the fundamental human problem head-on: in a world of infinite possibilities and in which we are confronted with almost infinite ways to use our time and energy, how do we decide what to do? Further, how do we evaluate our actions? Most public discourse advocating interventionism assumes that these problems are either trivial or secondary, and this has come to the forefront in public debates about health care.

4. Along these lines, here's Peter Boettke on EconTalk discussing the work of Elinor and Vincent Ostrom.

5. Back to work.

6. 10/10 AM Update: I forget who recommended it, but Alexander Gray's The Socialist Tradition: Moses to Lenin just arrived in the mail. I look forward to reading it for the next incarnation of Classical & Marxian Political Economy (probably Fall 2010 or Spring 2011).

Posted by Art Carden at 10:38 AM in Economics

He said what when?

Guess when this quote was spoken:

"While our country has natural advantages greater than those of any other, its normal growth and development have been greatly retarded by this periodical destruction of credit and confidence.

I believe that no one can carefully study the experience of the other great commercial nations without being profoundly impressed with the belief that disastrous results of recurring financial crises have been successfully prevented by a proper organization of capital and the adoption of wise methods of banking and of currency.

Of course, until human nature is changed, it will not be possible to prevent, by legislation or otherwise, periods of over-speculation, with undue inflation of values and over-extension of credit. When we consider the characteristics of the American people, whose unrivaled energy and enterprise are not always confined by the limits of prudence, it is certain that we in the United States shall always have periods of speculative inflation, with the evil results which are sure to follow."

Those are a few paragraphs from a speech given by Senator Nelson W. Adlrich, chair of the National Monetary Commission, to the Economic Club of New York, as reported in the November 30, 1909 New York Times.

In the same speech he refers to the buildup to the crisis of 1907:

"The crisis of 1907 was one of a series I remember very well - although probably very few of you do - the financial crash of 1873. I am sure you all remember that of 1893, from the effects of which the country did not recover for many years.

Between 1900 and 1907 we had recurring periods of depression, of dangerous perturbations in the money market, when the Secretary of the Treasury was frantically called upon for assistance, and felt obliged to adopt the very questionable policy of making large deposits of public money in banks to relieve threatening situations.

Evidently the basic policy prescription hasn't changed very much in 100 years?

Posted by Craig Depken at 10:04 AM in Economics

November 29, 2009

Cavalcade of Miscellany: Sunday Morning!

1. Wireless internet + incredibly sleepy/grumpy kid = attending church via teh interwebs.

2. Here's Ian Ayres on why tuition hikes at California's state colleges and universities are a good thing. Cheap state colleges and universities redistribute wealth upward. In the opening section The Bourgeois Virtues, Deirdre McCloskey notes that the average family income for a California college student is higher than the average family income for a California taxpayer. Ayres makes the important point that the problem is not that tuition is too high but that financial aid is too low and too poorly targeted.

3. When Bryan Caplan and Robin Hanson's discussions end up spilling into the blogosphere, you can be virtually certain that you're going to learn something interesting. Here's Bryan's most recent post on cryonics. I don't think Bryan has commented on this yet, but here's Robin Hanson expressing gratitiude for The Unknown Explorer. Here he argues that people should look to maximize more than their GPAs. Here's the takeaway: "Most of the interesting academics I know spent lots of time when young structuring their own 'unstructured' activities; GPA fanatics usually have few interesting thoughts of their own."

Posted by Art Carden at 12:39 PM in Economics

November 28, 2009

The Funniest Thing I've Heard Over Thanksgiving Break

At breakfast this morning, I mentioned to my Dad that George W. Bush is going to start a free-market think tank. His response: "what are they going to call it? The Richard M. Nixon Economic Freedom Initiative?"

Posted by Art Carden at 11:32 AM in Economics

November 27, 2009

Black Friday Price Discrimination

Is it separating consumers by marginal value/willingness to pay or by risk preference? Here's an article from this morning's Memphis Commercial Appeal. A choice quote:

"My face was on fire the half hour I had to wait in line for the electronics counter, and there were several other customers who had been in line that had been pepper sprayed."

Posted by Art Carden at 01:08 PM in Economics

November 25, 2009

The Minimum Wage: An Open Plea to My Friends on the Left

A few weeks ago, a friend posted a link to a story about how the NAACP is pressuring President Obama about African-American unemployment. Sadly and tragically, "repeal the minimum wage" is not one of their proposals even though the evidence suggests that it reduces employment and increases poverty. Here's an excellent post by Steve Horwitz on how "the science president" is ignoring the economics of the minimum wage. Here's my case for repeal. Here's a piece in which Steve and I join forces to rebut criticism of free-market economists. Here's my review of Donald Stabile's book on the living wage. Here's a piece on how the minimum wage affects the disadvantaged. Here's a piece on the hidden costs of the minimum wage. Here's Neumark and Wascher's comprehensive survey of the empirical research on the minimum wage; if you're at Rhodes, you have access to this paper because we have a subscription to NBER Working Papers.

At the SEA meetings, Jagdish Bhagwati dismantled the rhetoric of "fair trade" and said something that will stick with me for a long time. I paraphrase here: movements advocating what is grossly and misleadingly called "fair trade" and movements advocating higher minimum wages are filled with people who imagine themselves fine human beings but who are actually busy (unwittingly) doing horrible things to the people they claim to love so much.

With unemployment in double digits and with a lot of people struggling to make ends meet, I offer an appeal to my friends on the left who think that higher minimum wages do not reduce employment or who think that higher minimum wages are good for the poor: I beseech you, in the bowels of Christ, to consider the possibility that you may be wrong. Please. For the sake of the poor.

Addendum: I neglected to add Steve's "An Open Letter to My Friends on the Left", which is also well worth reading.

Posted by Art Carden at 08:34 PM in Economics

Questions on The Price of Everything

My econ 101 students have to write a review of Russ Roberts's The Price of Everything this semester. Some questions corresponding to each chapter are below the fold. Comments are open for a few days if you have any suggestions; if you like any of these questions, please feel free to use them.

Read More »

Chapter 1
1. Home Depot promises not to raise prices after natural disasters. Why might this be a wise business decision?

2. After the earthquake, Big Box doubled its prices. Use a supply and demand diagram to explain why the prices of diapers, flashlights, plywood, and other goods would increase after a disaster.

Chapter 2
1. Ruth Lieber claims that “no one can make a pencil.” Is this true or false? Explain your answer using some of the Key Elements of Economics.

2. At the end of the chapter, Ruth Lieber asks her students to find something that exhibits order without design. Provide and explain an example of your own.

Chapters 3 and 4
1. What happened to Celia Fernandez after Jose died? Why? How did Castro respond when she left Cuba?

2. Ruth Lieber argues that “prices are key” to coherent changes in the graphite industry. How are prices “key?”

3. On an average day, most people who go to the grocery store do not worry about whether the store will be out of milk, bread, or coffee. Why not?

Chapters 5 and 6
1. Suppose you have three children and two cookies. How do you divide them? What information do you need in order to make a decision?

2. Suppose you own a store and there are a hundred people lined up to buy fifty flashlights. Who should get them, and why?

3. Suppose you live in an earthquake-prone region like the San Francisco Bay area. Would you be more or less willing to hold a large inventory of flashlights if you knew that you could charge high prices for them in the event of a disaster?

4. What are the key differences between the scenarios in 1 and 2? How do these differences change your answer?

5. Ramon Fernandez wants “a world where flashlights are both cheap and available! Why can’t we have both?” How would you answer him?

Chapter 7
1. What wasn’t Cuba able to develop a massive and successful coffee industry? What problems did they confront in trying to centrally plan their productive activities?

2. How much wealthier are we today than in 1900? Why?

Chapters 8 and 9
1. What did Ruth’s husband do for a living? What motivated his clients?

2. Ruth Lieber tells Ramon Fernandez never to “confuse a person’s identity or value with her job title. They have nothing to do with each other.” Does this contradict what we have learned this semester? Explain.

3. This is a quote from Ruth Lieber on page 123: “I’m not pro-business. I’m not even pro-profits. There is nothing inherently good about high profits.” Explain.

Chapters 10 through 13
1. Which is a wiser use of resources: saving a million barrels of oil, or saving a single pound of aluminum? How do you know?

2. Ruth Lieber claims that the market “deserves some romance.” Do you agree or disagree? Why or why not?

3. Ruth Lieber and Ramon Fernandez discuss the ways in which the labor market is and is not like a game of musical chairs. How is musical chairs an inappropriate description of the labor market?

4. According to Ruth Lieber, why can’t companies like Walmart choose to pay their employees more or less? Explain your answer using the tools we have developed in class.

5. How wouldn’t Ruth help the poor? Explain how some of the “solutions” she discusses might actually make them worse off.

6. Who is “the weaver of dreams?”

7. Consider the expression “people before profit.” Evaluate it in light of the lessons of The Price of Everything and the Key Elements of Economics.

« Close It

Posted by Art Carden at 04:48 PM in Economics  ·  Comments (3)

On Geithner's Tenure

Per Noel's post on whether there could be a market in which he could short Geithner's tenure as Secretary of the Treasury, lucky for him (Noel) the good folks at Intrade have already set up such a market.

See the trend here - it looks like the worst for him (Geithner), odds wise, was back in April. That could change however.

One wonders if Geithner would buy/sell in this market and, if he did, would that be considered insider trading?

Posted by Craig Depken at 02:12 PM in Economics

On the price of Thanksgiving c. 1909

The Nov. 25, 1909 NYT reports on the cost of a generic Thanksgiving day dinner and points out that the price of said meal had increased from a price of $1.95 in 1899 to the price of $4.25 in 1909 ($103 in 2008 dollars), an annualized rate of inflation of 7.8%.

{sarcasm} This was clearly an unsustainable rate of inflation in the Thanksgiving Dinner sector because annualized overall inflation during this decade was 0.93% (according to the good folks at eh.net). One wonders why there was no legislative emergency declared that required a 2,000+ page bill from Congress to remedy - oh wait, I know why. {\sarcasm}

I digress, on to the Thanksgiving dinner of 1909:

The price of Thanksgiving turkey in Chicago has again advanced. In 1907 it could be bought for 25 cents a pound, in 1908 it climbed a little higher, selling at 26 and 27 cents. This year it will cost from 28 to 30 cents a pound.

Ten years ago a Chicago department store advertised the following bill of fare for $1.95:

Nine-pound turkey.
Enough plum pudding for four.
Mincemeat enough for three pies.
Bunch of celery.
Turkey seasoning.
Pound of parsley.
Quart of cranberries.
Pound mixed nuts.
Three pounds of sweet potatoes

The same bill of fare this year will cost $4.25.

Vegetables, however, are much cheaper than they have been in past years. This year cranberries can be had for $7 a barrel. Last year people who wanted a barrel of them paid $12.

I went to my local Harris-Teeter's online shopping site and put together the following cart:

3 14 oz cans of Ocean Spray Cranberry Sauce - Full Berry

1 McCormick Poultry Seasoning

9 lb Harris Teeter Turkey Breast (fresh)

4 12 oz North Carolina grown Sweet Potato Yams

2 bunches of fresh Italian Parsley

2 bunches of fresh celery

2 9.75 oz cans of Planters Mixed Nuts

The bill was $54.68 before tax.

Granted, I didn't add the plum pudding or the mincemeat (ugh) for three pies, but surely those wouldn't cost $50?

Posted by Craig Depken at 12:50 PM in Economics

November 24, 2009

This Time It Is the University of Richmond ...

... that is creating "organ donor bikes":

The Green Bikes have survived their first semester, but not without repairs that have caused sponsors to question whether the program will be continued in the future.

Karen DeBonis, a member of GreenUR, said the success of the program depended on the students.

“Obviously we hope that students will respect the bikes as if they were their own,” DeBonis wrote in an e-mail. “I think that based on the number of damages we are seeing, students are not currently doing that to their best effort.”

Daniel Kinka, a University of Richmond graduate student and Weinstein Center for Recreation and Wellness employee, is responsible for repairing the Green Bikes.

“There was a little intentional abuse at first,” Kinka said. “It makes my life harder, but it’s almost to be expected. But the good news is we see less and less of that. Now the repairs are regular wear and tear.”

Doug Goad, the manager of equipment and facilities at the Weinstein Center, said he was trying to be optimistic about the program, but approximately 18 out of the original 35 bikes had been severly damaged.

“I wouldn’t say any of the bikes are ‘damaged beyond repair,’” Kinka said. “There are a couple off the road because we removed them. We use them as organ donor bikes, and rather than repair them we use them for parts.”

Kinka fixes four or five bikes a week on average. Out of the original 35 bikes, about nine are waiting for replacements of certain parts.

Source. HT Shawn Regan who has been watching the UR program expecting just this sort of news report.

UPDATE: The post on the UR program reminded me that a few months ago I received an email about a program in Annapolis, MD that apparently works reasonably well. Note that it operates like a library book checkout and requires both a photo ID and a credit card. (Thanks to the reader for the tip and sorry for the delay in posting it.)

Posted by E. Frank Stephenson at 09:02 PM in Economics

Selgin's "Less Than Zero" in pdf

The most interesting session I attended at the Southern Economic Assn. meetings over the (weekend + Monday) was on nominal income targeting as the least-bad monetary policy rule for a fiat money regime.

Now comes word that a short monograph on the topic, one I've been recommending to people for years, is available for download at a zero price from the Institute of Economic Affairs. (Insert economist joke here about how a price less than zero isn't feasible.) It is of course George Selgin's Less Than Zero: The Case for Falling Prices in a Growing Economy, first published 1997. Here's the page from which you can download the pdf. Selgin updates Hayek's argument for the central bank to stabilize nominal income, such that when productivity gains reduce the prices of particular goods, the central bank doesn't inject money to try to offset the resulting decline in average prices. Less stress on the price system, no disturbance of the loanable funds market.

Posted by Lawrence H. White at 06:31 PM in Economics

November 19, 2009

APEE: Your upgrade is confirmed

Bye-bye Bally's, Ciao Ceasar's. By email from Jeff Clark:

TO: Members and Friends of APEE

FROM: J.R. Clark, Secretary/Treasurer

DATE: November 19, 2009

RE: 2010 Conference Location Change; Room rate remains $149

The 2010 Conference has been MOVED from Bally’s Las Vegas to Caesars Palace, Las Vegas, NV. The conference room rate will remain $149.00 (Single/Double). The conference will still be held on April 11-13, 2010.

Complete conference details here.

Posted by Edward J. Lopez at 11:24 AM in Economics

November 18, 2009

Smoking the Kanesian Regulatory Dialectic

Arnold Kling writes briefly about Edward Kane's theory of dynamic regulation, which is a useful framework for understanding all sorts of regulatory institutional arrangements. Arnold quotes a great passage from Kane:

Regulation is best understood as a dynamic game of action and response, in which either regulators or regulatees may make a move at any time. In this game, regulatees tend to make more moves than regulators do. Moreover, regulatee moves tend to be faster and less predictable, and to have less-transparent consequences than those that regulators make.

Tobacco companies exemplify this well. Today, an AP story about tobacco companies mining loopholes in extremely high excise taxes.

WASHINGTON – When President Barack Obama signed a law expanding children's health insurance this spring, he slapped tobacco companies with huge tax increases to pay for it.

It didn't take long for the companies to find a multimillion-dollar loophole.

As soon as the new law took effect, raising taxes on roll-your-own cigarettes from $1.10 to $24.78 a pound, companies adapted. They all but shut down their roll-your-own brands and reinvented them under a less-restricted, less-taxed category: pipe tobacco. It's still destined to be rolled and smoked, but it's taxed at barely a tenth the rate, $2.83 per pound.

Posted by Edward J. Lopez at 06:11 PM in Economics

Building Brand Equity: On Profit in Health Care

For the new issue of The Freeman.

Posted by Art Carden at 01:59 PM in Economics

Jeffrey Flier on Health Care

In effect, while the legislation would enhance access to insurance, the trade-off would be an accelerated crisis of health-care costs and perpetuation of the current dysfunctional system—now with many more participants. This will make an eventual solution even more difficult. Ultimately, our capacity to innovate and develop new therapies would suffer most of all.

Part of his informed, thoughtful analysis in WSJ from Jeffrey Flier, dean of Harvard medical school and former undergraduate minor in economics and philosophy.

As I opined two months ago, there is good economics coming out of HMS these days.

Posted by Edward J. Lopez at 12:50 PM in Economics

November 17, 2009

The Silverdome as an "investment"

PV(1975) = $55.7million. FV(2009) = $583k. Yield = -12.55%

Posted by Robert Lawson at 04:10 PM in Economics

November 16, 2009

Add Georgia to the List ...

... of states with bogus stimulus jobs claims. From the AJC:

Recipients of federal stimulus dollars have overstated the number of jobs created or saved in Georgia by more than 1,500, according to an Atlanta Journal-Constitution analysis of public records.

The AJC found:
● An Augusta agency reported creating 68 jobs even though the work has not started yet.
● A private contractor counted the same 10 jobs six times, erroneously reporting 60.
● A Head Start organization in LaGrange reported 77 jobs based on raises it gave its employees with the money.

Meanwhile, jobs have supposedly been created in Arizona congressional districts that don't even exist.

The Washington Examiner has a nifty interactive map plotting bogus claims of jobs created or saved.

Repeat after me--Stimulus: The Real Voodoo Economics

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

APEE 2010: Final Call for Papers

Two weeks till submission deadline!

Come work hard & play hard at the 2010 annual meetings of the Association of Private Enterprise Education. With yours truly as program chair, this year's conference promises to continue the trend of APEE becoming the conference of record among classical liberal scholars.

Highlights for the 2010 program include:
- Plenary speakers Tyler Cowen on the current state of economics, and Loren Lomasky on liberty after Lehman, plus a Rand versus Smith debate featureing Jim Otesson, Yaron Brook, and Peter Boettke.
- The Association will give its Thomas Jefferson Award to Penn & Teller, who will be giving remaks at a plenary meal.
- The Association's Adam Smith Award will be given to Peter Boettke.
- Other highlights: the best papers ever in The Indepenent Review; a panel on the future of money and markets with Jerry Jordan, Amity Shlaes, and Lee Hoskins; a new twist on the economics communicators contest; much more.

What is so special about the APEEs? Most of all, people at APEE know how to have fun while doing good economics, but the way the conference is oragnized helps. With no formal discussants assigned, sessions are geared toward presentation and floor discussion. The plenary sessions always provide great fodder for later discussions known to go well into the night. And there are three common meals, including an open bar reception on the first night. So it is very easy to meet new people as well as renew old friendships year after year.

At just under $400, the conference registration fee might seem a bit pricey. But for that, you get 3 full meals (Sunday dinner, Monday & Tuesday lunch) plus 2 mornings of continental breakfast, and an annual subscription to the Journal of Private Enterprise. Young scholars can also apply for partial funding of their trip (details on www.apee.org soon). In addition, journal submission fees are waived for all papers presented at the annual meeting. Combined with the relatively low cost of hotel rooms and flights to Las Vegas from most parts of the country, it is a relatively inexpensive conference to attend.

Essentials: (visit conference website here)
Las Vegas, April 11-14 (Sunday evening through Tuesday)
Bally's Hotel and Casino
Submit paper or entire session at www.apee.org
Submission deadline: Dec. 1, 2009 (email me if you a bit more time)

Posted by Edward J. Lopez at 03:30 PM in Economics

November 13, 2009

Studies in Government FAIL

Bailout FAIL: Chrysler ends Electronic Vehicle Program (HT: David Zetland).

Epic FAIL: Pfizer is leaving New London, CT. Susette Kelo's old neighborhood, which was expropriated for the benefit of Pfizer in order to bring in jobs and create tax revenue, is an empty lot (HT: David Zetland and Alex Tabarrok). But here's a question: if we're allowed to take private property for the common good, and if tax revenue and jobs are "the common good," then shouldn't the city of New London be allowed to force Pfizer to stay?

Also HT to David Zetland for the "Government Fail" meme.

Posted by Art Carden at 02:15 PM in Economics

Interesting Papers in the QJE

Titles linked to abstracts:

The Consequences of Mortgage Credit Expansion: Evidence from the U.S. Mortgage Default Crisis

Are Durable Goods Consumers Forward-Looking? Evidence from College Textbooks

Posted by E. Frank Stephenson at 08:24 AM in Economics

November 11, 2009

Markets in Everything: Vaccine Line Walkers

An unemployed Gatineau man has been doing a modest but steady business in the past week by standing in line at flu clinics for people who can’t line up themselves.

And he says the city’s security measures haven’t slowed him down.

For $15 an hour, the man who calls himself Johnny Z lines up for hours to get the ticket, or more recently the wristband, that entitles the wearer to a flu shot.

The person who hires him takes his wristband and comes to the clinic for a shot later in the day.

Source. Thanks to Linda Ghent for the pointer.

Posted by E. Frank Stephenson at 10:46 PM in Economics

Minimum Wage: Testify!

An interesting article from a prospective economist. This young woman, now a senior in college, had a summer job at a bakery.

And, she recently listened to the podcast Russ Roberts and I did on vaccines, minimum wages, and shortages. And here's what she had to say. Amazing stuff.

Read More »

Today I was listening to the Econtalk episode on prices from October 19th I was surprised at your discussion of the minimum wage. Recently(this past year), I was employed at a local bakery and experienced this coercive power first hand. In my particular position, the employer I was working under seemed fairly reasonable until spring 2009 when unemployment numbers dramatically increased and sales decreased. At that point, my employer was unable to lower wages and instead, demanded more of his employees which dramatically decreased working conditions.
Before the spring, we (the employees) were only responsible for making delicious coffee drinks, and serving customers with as much care as possible. But gradually we were required to preform additional tasks that included: scrubbing the bathrooms, cleaning the kitchens, and other chores that were not originally part of our position. In addition to the added unpleasant tasks, our employer worsened the entire environment by failing to wash our uniforms, shortening our break time, limiting our hours and daily threaten us with the many applications he had received for our jobs. Eventually the company began to fire individuals for trivial reasons. The colleagues that I had worked with for a year began to disappear. Eventually, after three rounds of firing I lost my job as well. Since then, I have been contemplating the minimum wage and the coecive power it gives to employers. I found this problem so interesting that I even used it in my graduate admissions essay, (which I included if you are interested).
I was so delighted when I heard your discussion on econtalk because I am interested in economic research on the subject, but most economists fail to recognize the coercive side of minimum wage.

Yes. Yes, they do. What a terrific young woman. I wish her the best.

« Close It

Posted by Michael Munger at 09:10 PM in Economics

Science Funding

Here's an oldie-but-goodie from The Onion. I think a good first question for legislators to ask before they pass an appropriations bill would be "how many projects in this bill have all the wisdom of a monkey collider?"

Posted by Art Carden at 09:00 PM in Economics

Considering Socialism

Robert Higgs was on campus yesterday to discuss his book Depression, War, and Cold War; it was particularly poignant in light of the 20th anniversary of the fall of the Berlin Wall. Bryan Caplan's recent post on the Wall inspires me to consider (briefly) two myths about socialism: it works great in theory (it doesn't) and it was motivated by high-minded idealism that was, unfortunately, corrupted by bad people who couldn't handle power (it wasn't). To my shame, I am not familiar with Eugen Richter or his book Pictures of the Socialistic Future, but I look forward to reading it.

In Francisco d'Anconia's money speech in Atlas Shrugged, the character refers to the denunciation of money as "the leper's bell of an approaching looter." As we remember the day the Wall came down, it's worth a careful re-reading.

Posted by Art Carden at 11:34 AM in Economics

November 09, 2009

Remember, Remember, the Ninth of November: Democide in Perspective

R.J. Rummel estimates that approximately 262,000,000 people died at the hands of 20th century governments and notes that if the average height of a victim was five feet, the bodies laid end to end would circle the Earth ten times. Here's another calculation to put it in perspective. If the average democide victim was five feet tall and if you laid the bodies end to end, you would create a chain of dead bodies over 248,106 miles long. The average distance from the Earth to the Moon is 238,857 miles, and the circumference of the moon is 6,790 miles. Laid end to end, the chain of dead bodies would stretch from the surface of the Earth to the surface of the moon and around the moon completely with another 2459 miles worth of bodies left over--which is almost the distance between New York and Los Angeles.

Imagine you had a rope that was as long as the line of 20th century democide victims laid end to end. With this rope, you could lasso the moon and cut off enough excess rope to stretch from New York to LA.

Update: Here's Pete Boettke on the Wall coming down. Here's Don Boudreaux's link to Pete's post, which offers the best Beatles-related blog post title ever.

11/9/09 Addendum: I read earlier that the average adult male body contains 6 quarts of blood. Round that down to five quarts to account for women and children and recall that there are four quarts in a gallon, and you've got approximately 327,500,000 gallons of blood spilled by democidal mortacracies in the twentieth century. By comparison, wikipedia reports that the capacity of the Exxon Valdez was roughly 53 million gallons. The Valdez spilled some 10.8 million gallons of crude oil into Prince William Sound in the one of the biggest environmental disasters on record. Thus, a crude estimate suggests that the blood spilled by democide in the 20th century would fill over six tankers with the capacity of the Exxon Valdez.

Posted by Art Carden at 12:20 PM in Economics

November 08, 2009

Never Again

Tomorrow marks the twentieth anniversary of the fall of the Berlin Wall. It should be a day of celebration and a day of somber reflection. Here are some YouTube videos. Here's Bryan Caplan's Museum of Communism. Here's R.J. Rummel's website on democide.

11/9/09 Addendum: Here's Tyler Cowen.

11/9/09 Addendum 2: If you've never seen it, watch "The Lives of Others."

Posted by Art Carden at 03:52 PM in Economics

November 07, 2009

Cavalcade of Miscellany: Capitalism, Food, and Health

1. Shannon is visiting my sister in Houston and Jacob is sick, so the papers I'm within epsilon of finishing will remain between epsilon and delta of being finished until later this week. Fortunately, there are things (like blog posts) I can work on in fits and starts.

2. Via Arts & Letters Daily, here's a review of David Kessler's The End of Overeating by Jacob Sullum. I share leftist and foodie concerns about American dietary infrastructure, but I don't share their apparent conviction that serving people food they want to eat at prices they are willing to pay is part of an evil conspiracy to manipulate us. Instead of fuming about McDonald's and Oreos, a much more constructive endeavor for health advocates would be to try to identify the subsidies and regulations that have produced the mountains of junk food that masquerade as our daily bread.

3. That said, I'm going to indulge my inner teenager for lunch (Shannon is on to me). Jacob and I are going to take a walk in a bit, and I plan to swing by Taco Bell. It will be one part culinary experiment (is the Black Jack Taco any good?) and one part economics experiment (will they let me pay with a ripped-up dollar bill?).

4. I want to thank the kind people at Inter-American Products for making Everyday Living Disinfecting Clean Up Wipes, the people at the store where Shannon bought them (Walmart? Target? Kroger?), and everyone else throughout the production process for their willingness to help us in an hour of need. They don't know who we are. They might not even care. And yet they were willing to provide us with something I've found indispensable in the last few hours. All they wanted in return was a few dollars with which to accomplish their own goals.

5. While I'm thanking people, I also want to thank everyone involved in the production and distribution of the fancy "memory foam" pillow Shannon bought for me a few days ago. I've been waking up with back and neck pain for a while, and the memory foam pillow has helped a lot. It leads me to question criticisms of capitalism and consumerism. Sure, people buy a lot of junk (see 3, above), but it has also produced a world in which I can buy a pillow that helps me get out of bed without feeling like I've been kicked in the neck. From my perspective, that's hardly trivial.

6. On the subject of anti-capitalism, here's a back-of-the-envelope modification of the Drake Equation:

P*S*C*L*[G+T]*[1-(HA+MES)] = B

P = population, S = fraction of the population living within walking distance of a Starbucks (or any place that sells lattes), C = global supply of Che Guevara t-shirts, L = fraction of the population owning a Laptop, G = fraction of the population with Google Blogger accounts, T = fraction of the population with Twitter accounts, HA = fraction of the population that has read Human Action, MES = fraction of the population that has read Man, Economy, and State, B = non-ironic blog posts or Tweets denouncing capitalism on a given day.

7. Speaking of capitalism, here's Don Boudreaux's latest letter to the editor, a response to this WSJ piece arguing that we ignore Mises at our peril. Boudreaux points out that Keynes dismissed Mises's Theory of Money and Credit but then later all but admitted that his German wasn't good enough for him to really understand the ideas in the 1912 German edition.

8. FTC-mandated disclosure: I've received no valuable consideration in exchange for talking about these things.

Posted by Art Carden at 12:21 PM in Economics

November 05, 2009

One reason why I am a fan of the Berkeley Electronic Press

Each month something like this lands in my inbox:

Dear Author,

As a service to our authors, we are pleased to provide you with a monthly
report tracking readership for any articles you publish with The Berkeley
Electronic Press:

"Pass a Law, Any Law, Fast! State Legislative Responses to the Kelo
Backlash"
8 full-text downloads between 2009-10-05 and 2009-11-05
129 full-text downloads since date of posting (2009-04-01)

To encourage readership, simply refer people to the following web address:
http://www.bepress.com/rle/vol5/iss1/art5

You are now encouraged. :-)

Posted by Edward J. Lopez at 02:33 PM in Economics

November 04, 2009

Roger Garrison at Rhodes Tomorrow Night

Roger Garrison is speaking at Rhodes tomorrow night on "Business Cycles and the Great Depression." His website contains some amazing resources on the Austrian theory of the trade cycle. He's also visiting my economic history class; for this I assigned his chapter on Austrian/capital-based macroeconomics and his Mises University lecture on the same. If you're teaching a macro course (or any course that discusses business cycles), these are great resources.

Posted by Art Carden at 09:31 PM in Economics

Party Like It's 1989: Anniversaries

Here's Richard Ebeling on what The Berlin Wall represented (HT: Richard Ebeling). Here's Ronald Reagan's 1987 speech at the Brandenburg Gate. Regardless of what you think of Reagan, this is an amazing speech.

Not all is well, of course. Here's one of the most important (and moving) pictures ever taken. We have a long way to go. At the risk of being maudlin, here's what motivates me.

Posted by Art Carden at 01:27 PM in Economics

On the value of conservation easements

A plug for a new working paper of mine with John Chamblee (UGA), Peter Colwell (Illinois) and Carolyn Dehring (UGA) ""The Value of Land Conservation: Evidence from North Carolina " available at SSRN. We appreciate any comments on the paper. Here's the abstract:

We examine conservation activity in western North Carolina, where state income tax credits from land conservation have been available since 1983. Six land trusts, including the Nature Conservancy, undertake conservations in both fee simple and in conservation easement over a twelve year period. We find that value of conserved land differs by conservation mechanism, with fee conservations occurring in localized value craters. The price effect to adjacent land from conservation also varies by conservation mechanism, with greater benefits resulting from conservation easements. The mountainous landscape allows us to measure a variety of pricing effects from land conservation, including view.

The innovations in this paper are two-fold. First, we are the first study to investigate the impact of land conservation, which limits the use of the donated land in perpetuity, on proximate property values. That should be of interest to policy makers.

Second, unlike in a "flat" (sub)urban environment, the focus area is the mountains of Western North Carolina where premiums are placed on views. We show the amenity effects of conservation are not only proximate (as would be expected given the received literature) but also distant. Conservation efforts that protect the "viewshed" of a property contribute to an increase in that property's value. This suggests that land conservation efforts have a potentially larger public benefit than previously understood.

Posted by Craig Depken at 10:00 AM in Economics

November 03, 2009

A kewl interview with Steve Horwitz

Steve answers questions on the current crisis, the Great Depression, and reforming the monetary regime, here at the Free Market Mojo blog.

Posted by Lawrence H. White at 08:36 PM in Economics

Making more with less c. 2009

Another interesting story from Nielsen looks into household spending over the past year. The pattern shows a remarkable increase in spending on perishables which is reflective of people eating out less. The story has this graph of trends in online activities:

The interesting trend is on-line use of recipe and meal preparation sites.

More here

Posted by Craig Depken at 03:24 PM in Economics

On mandates c. 2009

Here is an interesting graph from Nielsen which shows how U.S. households have adjusted to the conversion from analog to digital television.

As the story reports:

SUMMARY: On June 12, 2009, the Federal Communications Commission (FCC) mandated that all U.S. based television signals must be transmitted digitally. The great majority of U.S. households (97.5%) were prepared for the digital transition in the week prior to the power turn-off. Nielsen data shows unprepared homes were more likely to be minorities, younger, lower income, and were less likely to have Internet access. Most homes acquired a digital converter box to make their television ready for the change.

The power of (mulligan) mandates?

More here

Posted by Craig Depken at 03:19 PM in Economics

Making Poor People Not So Poor: Capital Market Integration and Wages

A new NBER WP by Peter Blair Henry and Diego Sasson points to another way in which economic freedom increases prosperity:

For three years after the typical developing country opens its stock market to inflows of foreign capital, the average annual growth rate of the real wage in the manufacturing sector increases by a factor of seven. No such increase occurs in a control group of developing countries. The temporary increase in the growth rate of the real wage drives up the level of average annual compensation for each worker in the sample by 609 US dollars—an increase equal to 25 percent of their annual pre-liberalization salary. The increase in the growth rate of labor productivity in the aftermath of liberalization exceeds the increase in the growth rate of the real wage so that the increase in workers’ incomes actually coincides with a rise in manufacturing sector profitability. Overall, the results suggest that trade in capital may have a larger impact on wages than trade in goods.

Posted by E. Frank Stephenson at 11:58 AM in Economics

Incentives Matter: Learnfare Edition

Part of the abstract of a new NBER WP from Thomas Dee:

Wisconsin’s influential Learnfare initiative is a conditional cash penalty program that sanctions a family’s welfare grant when covered teens fail to meet school attendance targets. In the presence of reference-dependent preferences, Learnfare provides uniquely powerful financial incentives for student performance. However, a 10-county random-assignment evaluation suggested that Learnfare had no sustained effects on school enrollment and attendance. This study evaluates the data from this randomized field experiment. In Milwaukee County, the Learnfare procedures were poorly implemented and the random-assignment process failed to produce balanced baseline traits. However, in the nine remaining counties, Learnfare increased school enrollment by 3.7 percent (effect size = 0.08) and attendance by 4.5 percent (effect size = 0.10).

Posted by E. Frank Stephenson at 11:55 AM in Economics

November 02, 2009

Wouldn't This Be Good News in Zandiland?

In the news:

If you're looking for good news on unemployment, Moodys.com chief economist Mark Zandi doesn't have it.

Zandi told CBS' "The Early Show" Monday that the nation's near 10 percent unemployment rate will "stay there through this time next year."

However, the economist said, "we're heading in the right direction."

I can't help but wonder if Zandi considers unemployment approaching 10% to be the "heading in the right direction" since he said of unemployment benefits, "The bang for the buck is very high." By that logic, if we hit 15% unemployment we'll be rich, filthy rich.

Okay, enough fun. The right direction bit probably refers to news such as this.

Posted by E. Frank Stephenson at 11:50 PM in Economics

Regime Uncertainty?

Jittery Companies Stash Cash

Posted by E. Frank Stephenson at 05:35 PM in Economics

November 01, 2009

Drugs: Should They Be Legal or Illegal?

Last week, I spoke to a class at Idlewild Presbyterian Church on the economics of drug prohibition. My notes are below the fold.

Read More »

Drugs: Should They Be Legal or Illegal?

One of the most important principles in economics is the law of unintended consequences, and one of the most important implications of careful economic reasoning is that many policies have effects that are exactly the opposite of what their proponents want. To cite just a few examples, rent controls reduce the stock of affordable housing, minimum wages reduce opportunities for the poor, and laws against “price gouging” slow the pace of recovery from natural disasters. What you intend to do by enacting policy and what you actually do by enacting policy are often two very different things. The war on drugs is another example. Here, I’m going to discuss four key propositions. Drug laws are counterproductive, drug laws are costly, the drug war is a source of numerous violations of human rights, and there are far more effective alternatives to prohibition if we really want to reduce drug addiction.

I. Drug laws are Counterproductive.

1. As of 2004, there were approximately 1.2 million arrests for possession of an estimated 28 million drug users; further, many “possession” arrests occurred because people were arrested for other crimes.

2. Drugs are stronger and more dangerous precisely because they are illegal. This is explained by the fact that low-potency drugs become relatively more expensive to supply when enforcement increases. The demand for narcotic effects is extremely inelastic; as we ramp up enforcement, people come up with newer and better ways to serve the demand. One way they do this is by increasing the potency of the product. The drug war is an arms race in which “mutually assured destruction” is not a threat that prevents conflict, but a part of the process itself.

3. Innovation has outpaced enforcement. Drugs--particularly strong drugs—have gotten cheaper, all else equal: the real price of cocaine fell from $450 per pure gram in 1981 to $100 in 1996, according to Miron and Zweibel. In his 1991 book The Economics of Prohibition, Mark Thornton reports that between 1974 and 1984, for example, the relative price of cocaine fell.

4. The problems we associate with drugs are a result of prohibition, not the drugs as such. The drug war is a classic case of confusing correlation with causation. We see crime. We see drugs. We assume that drugs are causing the crime. However, the fact is that it is the prohibition that causes the crime, not the drugs themselves. For example, medical problems with heroin are usually a result of the fact that the drugs are adulterated, not from the drugs as such.

II. The War on Drugs is Costly and Destructive.

1. Drug laws create crime. It has been argued that people who are on drugs will be predisposed to commit crimes. The data suggest, though, that there is a net increase in crime as people seek to feed their habits.

2. The ability to evade drug detection is a complementary skill to being able to evade punishment for other crimes. Therefore, the illegality of drugs increases the rate at which other crimes are committed.

3. Places with strong enforcement will tend to have greater homicide rates. Miron (2004) estimates that eliminating drug prohibition would reduce the US homicide rate by about 25-75%.

4. The drug war is in part responsible for accelerated HIV transmission in the 1980s. One way HIV was transmitted was through the use of dirty needles. Injectable drugs like heroin deliver more narcotic punch per gram than smokable drugs like marijuana or snortable drugs like cocaine.

5. Parts of the US-Mexico border are war zones because of the drug war.

6. The enormous profits that can be had in the illegal drug trade can be (and are) used to fund terrorism. The profits are not because of the drugs per se. They are because of the fact that drug peddling is extremely profitable precisely because it is illegal.

7. Drug laws have reduced the industrial use of hemp and hemp derivatives and have substituted synthetic fibers, etc. for hemp derivatives in various production processes. Hemp could have also been a paper substitute; Mark Thornton points out that the Dupont Corporation had a patent on a wood pulp paper process that could earn higher incomes if hemp were outlawed.

III. The Drug War is a source of fundamental human rights violations.

1. Prohibitions infringe on the right to life, liberty, and the pursuit of happiness. Implicit in prohibition is the idea that it is legitimate for one person to act as another's moral surrogate. Refusing others the right to make bad decisions degrades their essential humanity and makes them not a valuable entity for their own sake but a means to our end. Because I care about you and see that your humanity gives you intrinsic value and potential as someone created in the image of God, I will try to help you. When I try to force you to act against your will, I am treating you not as a human being with value to God but as a means to my ends. In short, I am treating you as my slave. Even in the language of economics, the "externalities" generated by drug use are pecuniary rather than technological.

2. To be created in the image of God means the right to be moral. I will quote my friend, former neighbor, and former Rhodes professor Tim Watkins: “Part of what [being created ‘in the image of God’] entails is the ability to make morally meaningful choices. The story of the Fall in Genesis is in great part about God allowing humans to make choices that are bad for them because without such freedom morality is a meaningless concept. Prohibition is the denial of moral agency.”

3. Many drug laws have racist origins and racially disproportionate effects. The war on cocaine was waged because people feared that blacks would substitute toward cocaine after alcohol was prohibited. Marijuana laws were, in part, discrimination against Mexicans. Opium and heroin laws were aimed at Chinese immigrants.

IV. Reducing Drug Use

I cannot stress enough that to claim “drug use should be legal” does not mean that drug use should be encouraged, excused, or overlooked. My argument is that the material, moral, and institutional costs exceed the material, moral, and institutional benefits. Our current strategy will not work. In the words of a former student of mine, perhaps we should stop fighting wars against abstract nouns. I would propose a three-pronged strategy that will require some difficult and probably politically unpopular decisions:

1. While the economic analysis might say "legalize everything," the economics also say "make people responsible for their own actions." Increase (substantially) the penalties for crimes committed while intoxicated. As Richard Posner has argued, the penalties for drunk driving are too low. While this won't eliminate completely crimes committed by completely intoxicated people, it will affect incentives at the margin and reduce the rate at which those crimes are committed. I once heard Adrian Rogers say that people who wish not to fall should avoid slippery places. Stronger penalties for crimes-while-intoxicated will raise the cost of putting oneself in those slippery places. Will crimes-while-intoxicated be eliminated? No. They will not. They will, however, be reduced by stronger penalties.

2. Remove barriers to economic growth. As people get richer, they are likely to demand fewer intoxicants. Second, as they have more opportunities, those who wish to fund their habits can do so in the legitimate labor market rather than by committing property crimes. Here’s a proposal based on good economics but that is difficult for a lot of people to swallow: repeal the minimum wage. It’s the main reason why unemployment among African-American youths is so much higher than unemployment for everyone else. Further, it has been estimated (by Steven Levitt and Sudhir Venkatesh) that “foot soldiers” in the drug war earn maybe three or four dollars an hour with a near-certainty of winding up in jail or shot.

3. Education. A more effective strategy than supply-restricting prohibition is to try to reduce demand. The church’s role here is to be a beacon of hope, instruction, and support.

4. If the recent experience in Portugal—which decriminalized drugs in 2001—is any indicator, the nightmare scenario of widespread drug tourism and drug use won’t materialize.

References

Greenwald, Glenn. 2009. Drug Decriminalization in Portugal: Lessons for Creating Fair and Successful Drug Policies. Cato Institute White Paper, April 2, 2009.

Miron, Jeffrey A. and Jeffrey Zweibel. 1996. The Economic Case Against Drug Prohibition. Journal of Economic Perspectives Paper 9(4):175-192.

Miron, Jeffrey A. 2004. Drug War Crimes: The Consequences of Prohibition. Oakland, CA: Independent Institute. Notes from summary here.

Miron, Jeffrey A. 2009. Legalize drugs to stop violence. CNN.com, March 24, 2009.

Thornton, Mark. 1991. The Economics of Prohibition. Salt Lake City: University of Utah Press.

Meadowcroft, John (ed). 2008. Prohibitions. London: Institute of Economic Affairs.

Block, Walter. Defending the Undefendable. PDF Online.

Chapter-by-chapter audio of "Defending the Undefendable."

« Close It

Posted by Art Carden at 04:04 PM in Economics

October 31, 2009

Mises versus Minsky

John Authers of the Financial Times on the ideological core of the debate over financial regulation.

HT: John Cochran

Posted by Lawrence H. White at 02:08 PM in Economics

Soros in Budapest, Roger Garrison at Rhodes

Blogging: it's the perfect distraction when a stack of ungraded papers is staring at you.

Commentary has been circulating about the founding of the Institute for New Economic Thinking, which is being funded in part by George Soros. Here, for example, is Michael Giberson, and here is Michael Hirsh's Newsweek story on which Giberson is commenting. Hirsh argues that the "market-skeptic school" was "marginalized during the era of 'free-market fundamentalism.'" Laying aside for a second the fact that "free-market fundamentalism" is hardly an apt description of the policies most economists endorse--to say nothing of the policies that actually get implemented--a quick scan of the INET Advisory Board puts me with Giberson. At the risk of being cheeky, I wasn't aware that Berkeley, Cambridge, Stanford, Columbia, Princeton, the LSE, NYU, Oxford, UCLA, Harvard, the Central Bank of India, and the Bank of International Settlements constituted the neglected and shunned outer darkness of the economics profession--nor was I aware that the Times of London and the Financial Times were publications bereft of influence because they are neglected by the mainstream.

To the Institute's credit, two members of the Advisory Board are at institutions with clear non-mainstream bona fides (the New School and UMass-Boston), but that's only two out of 22 Advisory Board members. It's a little like a radio station calling itself an "Indie Rock Alternative" and then playing at least one U2 song every fifteen minutes. It would be a much more credible challenge to the mainstream, I think, if Soros had stocked the Advisory Board with economists from (say) the University of Missouri-Kansas City (here's their blog) or endowed a research center named after Hyman Minsky.

In their defense, they have a very good point: mainstream economics is at a loss to explain why, exactly, the crisis happened, and we need to broaden the economic conversation a little bit (actually, a lot bit). Enter Austrian business cycle theory, which did predict and can explain the crisis in terms of central bank policy errors. One of the leading thinkers in the Austrian tradition is visiting Rhodes this week. On Thursday evening at 7:00 in Barret Library, Roger Garrison will give a lecture on business cycle theory and the Great Depression. To tide you over until then, here's Garrison's Mises University lecture on the Austrian Theory of the Trade Cycle.

Posted by Art Carden at 02:05 PM in Economics

Funny or Serious? Quotes from the Morning Paper

From this morning's Commercial Appeal, here's an editorial entitled "Voters deserve more than this." Here's a key passage:

Whether Herenton is guilty of a federal offense or not, a comparison of his performance as the city's chief executive for 17½ years, compared to Cohen's performance as a state and federal legislator for 27 years, should be the primary issue.

If the editorial writer is trying to be funny, this is hilarious. If the editorial writer is trying to be serious, this is terrifying.

Posted by Art Carden at 08:48 AM in Economics

October 30, 2009

La Tragédie de la Bicyclette

I spent this afternoon giving a tragedy of the schwinn talk to some homeschoolers in Chattanooga and--deja vu--I see this in the NYT:

But this latest French utopia has met a prosaic reality: Many of the specially designed bikes, which cost $3,500 each, are showing up on black markets in Eastern Europe and northern Africa. Many others are being spirited away for urban joy rides, then ditched by roadsides, their wheels bent and tires stripped.

With 80 percent of the initial 20,600 bicycles stolen or damaged, the program’s organizers have had to hire several hundred people just to fix them. And along with the dent in the city-subsidized budget has been a blow to the Parisian psyche.

Thanks to JC for the pointer.

Posted by E. Frank Stephenson at 11:41 PM in Economics

Paragraph of the Day, So Far

Here's co-blogger Mike Munger on the most recent GDP report:

"But all the increase is in G, financed by the increased deficit. It's fake. It's not real growth. It's just shifting money from taxpayers tomorrow into Obama's approval rating today."

Posted by Art Carden at 01:26 PM in Economics

October 29, 2009

We all find our equilibrium price one leg at a time

The Gray Lady's Fashion & Style section reminisces about the bygone days of ultra spendy jeans.

But the denim bubble has burst, and only a handful of such extravagantly priced jeans remain at the jeans bar — labels like PRPS and 45rpm, which, in tacit acknowledgment of the decline of the premium business, are now more often referred to as “artisanal” jeans. Meanwhile, the sweet spot for designer jeans has relocated to a neighborhood just below $200, even though the styles do not look substantially different from the $300 jeans that were on the sales floors of Barneys New York and Bloomingdale’s only two years ago.

“The key price is under $200 now,” said Eric Jennings, the men’s fashion director at Saks Fifth Avenue. “The superexpensive stuff is not performing as well.”

The story suggests it's not just the business cycle decreasing demand for status goods. Competitors are figuring out ways to deliver similar materials and designs for less.

Now designers are facing pressure from stores and from their competitors to rethink prices, in many cases resulting in less expensive jeans or more styles at the lower end of each designer’s range. It has not gone unnoticed by executives behind the great denim rush of 2005 that even mainstream retailers like Gap and J. Crew have caught on to the appeal of Japanese denim, whisker treatments and fading details, and that they are now produce comparable premium-look jeans that cost around $60. Banana Republic has a new denim line coming in January.

There are more interesting tid bits of applied micro in the article. I find the apparel industry is interesting on many levels.

Posted by Edward J. Lopez at 10:24 AM in Economics

October 27, 2009

Rule of Law versus Rule of Central Bankers

I gave the keynote address at the Economic Freedom Network Asia annual conference in Cambodia earlier this month, on the topic "Avoiding and Resolving Financial Crises: The Rule of Law or the Rule of Central Bankers?". The text of the talk is now available in pdf on the EFN-Asia website here. Comments are welcome (email me privately) as I think about turning it into a publishable paper.

Here are some excerpts:

At the core of the “rule of law” concept, as I understand it, is the liberal principle of non-discretionary governance that stands in contrast to the arbitrary or discretionary rule of men in authority. In shorthand, a political community faces a choice: either “the rule of law” or “the rule of men”. ...

Central bankers today are discretionary rulers over the economy’s monetary and financial institutions. Defenders of the rule of law, who in general decry the arbitrary rule of men, should specifically decry the rule of central bankers. Central bankers today are not “slaves of the law” but exercise wide discretion in monetary policy and regulatory rulemaking under the legislation that created and empowered the central bank. ...

In their policies for addressing the current crisis, central bankers ... and
Treasury ministers have been unorthodox and undeniably arbitrary, bestowing favors on some firms and burdens on others.

Posted by Lawrence H. White at 11:19 PM in Economics

October 26, 2009

Large Changes in Fiscal Policy: Taxes Versus Spending

A new NBER WP by Alesina and Ardagna:

We examine the evidence on episodes of large stances in fiscal policy, both in cases of fiscal stimuli and in that of fiscal adjustments in OECD countries from 1970 to 2007. Fiscal stimuli based upon tax cuts are more likely to increase growth than those based upon spending increases. As for fiscal adjustments, those based upon spending cuts and no tax increases are more likely to reduce deficits and debt over GDP ratios than those based upon tax increases. In addition, adjustments on the spending side rather than on the tax side are less likely to create recessions. We confirm these results with simple regression analysis.

Posted by E. Frank Stephenson at 08:35 AM in Economics

October 25, 2009

The People's Romance and The Census

Here's an excellent post from Jim Fedako on the Census's programming for schools. Here's Daniel Klein on The People's Romance.

Speaking of which, some surprising responses to my recent Mises.org article on tire tariffs have gotten me interested in the narrative of "national greatness" in the last few weeks. Some of the comments on the Mises Blog and some of the emails people have sent suggest that somehow our "national greatness" is diminished by free trade. I must confess that I'm at a loss for how overpaying for tires is an exercise in historically meaningful national virtue.

So what's to be done about it? Here's Robert Frank on economics education.

Posted by Art Carden at 08:29 AM in Economics

October 24, 2009

Moral Hazard in National Parks

My stellar student Shawn Regan alerts me to this tidbit:

On the evening of September 23rd, rangers began a search for hikers who repeatedly activated their rented SPOT satellite tracking device. The GEOS Emergency Response Center in Houston reported that someone in the group of four hikers – two men and their two teenaged sons – had pressed the “help” button on their SPOT unit. The coordinates for the signal placed the group in a remote section of the park, most likely on the challenging Royal Arch loop. Due to darkness and the remoteness of the location, rangers were unable to reach them via helicopter until the following morning. When found, they’d moved about a mile and a half to a water source. They declined rescue, as they’d activated the device due to their lack of water. Later that same evening, the same SPOT device was again activated, this time using the “911” button. Coordinates placed them less than a quarter mile from the spot where searchers had found them that morning. Once again, nightfall prevented a response by park helicopter, so an Arizona DPS helicopter whose crew utilized night vision goggles was brought in. They found that the members of the group were concerned about possible dehydration because the water they’d found tasted salty, but no actual emergency existed. The helicopter crew declined their request for a night evacuation, but provided them with water before departing. On the following morning, another SPOT “help” activation came in from the group. This time they were flown out by park helicopter. All four refused medical assessment or treatment. The group’s leader had reportedly hiked once at the Grand Canyon; the other adult had no Grand Canyon and very little backpacking experience. When asked what they would have done without the SPOT device, the leader stated, “We would have never attempted this hike.” The group leader was issued a citation for creating a hazardous condition (36 CFR 2.34(a)(4)).

This is a great example of J.R. Clark and Dwight Lee's rescue laffer curves.

Posted by E. Frank Stephenson at 10:01 PM in Economics

October 23, 2009

File Under "Econ 101 Notes: Price Controls"

Here are questions 1c and 1d from Econ 101 Midterm #1, administered on October 8:

c. People have debated whether the federal government should control executive pay. Use a supply and demand diagram to explain how binding controls would affect the market for executives.

d. Does the price control increase or decrease the efficiency of the market? How do you know? How might market participants circumvent the controls?

Here's a headline from yesterday's Wall Street Journal: "Pay Czar to Slash Compensation at Seven Firms."

I realize that these are firms that have gotten enormous sums from the Banking Sector Unification Plan, but it isn't clear to me how one can get strong economic performance by further distorting the market for executive talent. Wasn't the goal all along to make sure that these firms stay afloat? How do the feds plan to do this after all the talent jumps ship? Or maybe--just maybe--they should have been allowed to go bankrupt to begin with.

Posted by Art Carden at 03:24 PM in Economics

October 21, 2009

Inflation, Institutional Decay, and the Evolution of a Cliche

1969: "Good intentions and a quarter will get you a cup of coffee."

1989: "Good intentions and a dollar will get you a cup of coffee."

2009: "Good intentions and two dollars will get you a cup of coffee."

2029: "Good intentions, twenty dollars, the appropriate ration stamps, two copies of form Z-49a, two forms of photo ID, and an afternoon in line at the Bureau will get you a cup of coffee."

Posted by Art Carden at 01:22 PM in Economics

Can You Hook Me Up? Drug Legalization Bleg

On Sunday, I'm speaking to a church group on the economics of drug legalization. Most of my arguments will rely on Mark Thornton's The Economics of Prohibition, the recent IEA book on prohibition edited by John Meadowcroft, and the 1996 Miron & Zweibel paper on the economics of prohibition. If you have any other reading suggestions, please let me know. Comprehensive links are forthcoming.

Posted by Art Carden at 09:47 AM in Economics

October 20, 2009

Mrs. Carden's Food Blog

My wife is chronicling her experiments in the kitchen on an interesting new food blog.

Posted by Art Carden at 09:48 PM in Economics

The Onion on Aid Policy

Someday, I plan to write a book called Onionomics, which will look at basic economic principles through the eyes of Onion articles and videos. This video will be featured prominently in the chapter on foreign aid and signaling.

How Can We Raise Awareness In Darfur Of How Much We're Doing For Them?

Posted by Art Carden at 11:34 AM in Economics

Vaccines and Transplants

A podcast....on EconTalk.

...in which I make the (to my mind, ENTIRELY self-evident) claim that the optimal rate of infant mortality is positive, possibly substantially so.

Posted by Michael Munger at 10:38 AM in Economics

October 19, 2009

Rhodes Barbeque Seminar Blog

Here's the official blog of the Rhodes College Barbeque Seminar, organized by mathematician and voting theorist Eric Gottlieb. Our first outing (to Payne's) was successful. I still owe Eric money, so this is my credible commitment to pay him plus interest ASAP.

Posted by Art Carden at 12:15 PM in Economics

Blaming Fee for Service

Yesterday I sent this letter to The Economist in response to this leader:

SIR -- In your leader on American health care ("What a waste", October 17th) you opine that the "worst flaw in the Finance Committee's bill is its failure to address the ["fee-for-service"] way that providers of health care are paid."

You misdiagnose the problem. Every day, millions of "fee-for-service" transactions occur for hair cuts, auto repairs, and other services, and all of these markets function reasonbly well. Health care is different, however, because the "fee-for-service" is paid by a third party such as Medicare or a health insurance company. Hence, both buyers and sellers are, as you say, "unconstrained either by medical necessity or value for money." With neither side of the health care market directly bearing the cost of the services provided, both are willing to exchange the medical equivalent of filet mignon when they'd exchange only a sirloin in the absence of a third party payer.

E. Frank Stephenson
Professor of Economics
Berry College
Rome, Ga.

Don Boudreaux makes the same point in this column; see also Vernon Smith's piece in the WSJ. The steak metaphor comes from Russ Roberts.

Posted by E. Frank Stephenson at 11:45 AM in Economics

Stimulating Go Fish Georgia?

Stimulus is the real voodoo economics so on Friday I sent this letter to the AJC:

You report (Oct. 15) that “Georgia says stimulus funds created or saved more than 23,000 jobs” and that 12,923 of the jobs were retained. The difference, a bit more than 10,000 jobs, would then have been created. Some 9,000 of those folks must have taken Gov. Perdue’s advice to “Go Fish Georgia” and been unable to be counted by the federal government because the national recovery.gov website reports that only 1,046 jobs have been created in Georgia. Even that estimate is likely to be on the high side because federal government officials have an incentive to make the stimulus look as effective as possible and because recovery.gov ignores any offsetting job losses arising from the increased deficit and the concomitant higher future taxes.

E. Frank Stephenson
Professor of Economics
Berry College
Rome Ga.

I was responding to this article; here's the recovery.gov website.

Posted by E. Frank Stephenson at 11:26 AM in Economics

Marginal Analysis Misses a Foothold at the TSA

This is a reasonably accurate depiction of my internal monologue every time I go through airport security, though I didn't know that about laptop batteries:

Posted by Art Carden at 10:12 AM in Economics

October 18, 2009

Michael Moore never met a strawman he didn't like

Sheldon Richman on Michael Moore's "Capitalism"

To the extent that intervention hampers competition by erecting barriers to entry — which is the usual effect, intended or not — protected firms are free to charge higher prices and reap more profits than would have been the case in an open market. Corporate power and privilege derive from political power and can’t exist without it. In contrast to existing capitalism, the truly free market would have no legal barriers to competitive entry, assuring that prices and returns are economically justified and not the fruits of privilege.

What would Moore think about a system in which no one could collude with politicians to legally plunder the rest of us for their own benefit and everyone was free to enter into any cooperative arrangements to produce and offer goods to others in voluntary exchange? Michael, that’s the free market!

Posted by Edward J. Lopez at 11:59 PM in Economics

October 16, 2009

Nothing Succeeds Like Political Failure

Check out Dwight Lee's column in today's Investors Business Daily, for a double shot of public choice and wry humor.

Posted by Mike DeBow at 11:55 PM in Economics ~ in Politics

I Buy Stuff: The Mises Silver Coin

I bought ten of these last week. I'm keeping some of them and will probably give a few away as gifts (nothing says "Merry Christmas" like honest money bearing the visage of Ludwig von Mises). One is currently in my office, propped up against a chunk of the Berlin Wall. Tu Ne Cede Malis, indeed.

FTC-Mandated Disclaimer: I have in the past received valuable consideration from the Mises Institute in exchange for writing and speaking, but they did not pay me to endorse this product.

Cross-Posted at the Mises Blog.

Posted by Art Carden at 05:24 PM in Economics

What I've Been Writing Lately: Opportunity Cost of Voting Edition

At Forbes.com, I argue that we should repeal the minimum wage.

Posted by Art Carden at 02:55 PM in Economics

Nye on Williamson & Ostrom

I'm a slow blogger these days, sorry. But I want to highlight John Nye's short piece for Forbes.com on the recent Nobel. First, money quote on Oliver Williamson

When firms and suppliers have to make large-scale, highly contract-specific investments, naive notions of market competition and competitive exchange get thrown out the window.... [This] helps us understand how we went from a world 50 years ago in which General Motors was the paradigmatic large firm for its ability to manage multiple subunits and hold large inventories to the modern world where Wal-Mart ( WMT - news - people ) is lauded not for producing in-house but for managing a complex network of competing suppliers worldwide under restrictive contracts.

And Elinor Ostrom:

But as Elinor has demonstrated, ham-fisted reforms that attempt to bring the illusion of modernity to the developing world by a naive adoption of Western best-practice laws without the structures that support and enforce those rules often leads to a destruction of indigenous practice that works reasonably well without substituting a functioning and reliable market of impersonal exchange. Much of the disaster that is foreign aid can be tied to the blunt importation of best-practice rules without understanding how their implementation interacts with existing practice.

Posted by Edward J. Lopez at 01:49 PM in Economics

Conservative Magazines and Liberty

Dan Klein and Jason Briggeman have a fantastic piece in the latest issue of The Independent Review. Here's the abstract:

More often than not, National Review, The Weekly Standard, The American Spectator, and the now-defunct American Enterprise have failed to oppose government intrusion into America’s bedrooms, gambling places, and drug activities. Whatever political principles these leading conservative magazines have espoused, the presumption of liberty is not among them.

Since the mags (esp. The Weekly Standard) aren't always consistent defenders of small government and economic freedom, the Klein/Briggeman piece reminded me of a letter I sent to the WSJ about 10 days ago:

Irwin Stelzer ("Notable & Quotable" Oct. 5) contends that workers "relieved ... of credit card terms that are excessively onerous, and helped to retain ... their homes" is an indication that market capitalism has not collapsed in the current recession.

One of the fundamental underpinnings of market capitalism is contract law; the expectation that contracts will be honored or altered according to the established doctrines of contract law is what makes credit card and mortgage lenders willing to make credit available to borrowers. If the current crisis has led borrowers and lenders to mutually agreeable contract alterations, then Mr. Stelzer is correct to conclude that market capitalism, or at least its foundation of contract law, has survived the current economic crisis. If, as is more likely correct, credit card or mortgage loan terms have been changed via government legislation or regulation, then Mr. Stelzer is mistaken in concluding that these changes in contracts herald the survival of market capitalism.

NB--Stelzer is frequent contributor to The Weekly Standard. I was responding to this piece in the WSJ.

Posted by E. Frank Stephenson at 12:32 PM in Economics

And the Winner Is...

...in the Division of Labour "Should I vote in the Memphis Mayoral Election? Essay Contest": Brent Butgereit, a Rhodes student (and the peer tutor for my econ 101 classes) whose entry comparing voting to cheering at a football game is below the fold. The takeaway point: "so should you vote? If you like to show that you can make noise for its own sake, then you should." Brent wins a book. I don't know which one yet, but he wins a book.

It should be pointed out that I am a college professor. I have opportunities to "make noise for its own sake" every week in class.

Thanks to everyone who submitted entries. I was looking for a blend of cost/benefit calculus and reasoning about engaged citizenship. For the record, I didn't vote. Was I forsaking my civic duty? I think not. First, the election was a complete blowout. Second, I was teaching and hosting David Zetland, who gave a handful of excellent talks and spent a lot of time with students at Rhodes. Third, there are a lot of other, very productive and civically-engaged ways to spend my time. Fourth, I received an automated phone call from one of the candidates urging me to get out and vote (the candidate lost). If voting is going to encourage political telemarketing, this is a disincentive to vote. Yes, I could have voted early, but that would have involved jumping through hoops to find out where, when, and how I could do so. Given everything else I had going on and the near-certainty that it was going to be a blowout, early voting runs into basically the same cost/benefit calculus.

One entrant, a Rhodes 2008 graduate, offered the following reason to vote that applies an insight from one of our on-campus lectures: "Bryan Caplan has thrown down the gauntlet and outright challenges smart people, such as yourself, to vote. Don't be noise; rather, be one of Caplan's informed elite who actually counts in the tallies."

Read More »

For This Week’s Episode of “Trade-Off Theatre” it’s: “Should I Vote?”
Brent Butgereit, Rhodes College Class of 2011

I cannot tell you whether or not you should vote, but I can contextualize a scenario for which you can decide that it’s worth your time. The Memphis Flyer recently printed an article discussing AC Wharton’s absence from the major debates and simultaneous lead in the polls (Wharton’s polls, his opponent’s, and third-party sources all consistently show he is in the lead by at least 25 points and as much as 40). But we’re economists. We rarely trust polls. For the sake of argument, let’s suppose a “best-case” voting scenario (i.e., one in which it would be worth your time to actually vote). If there were only one hundred people voting it would almost certainly be worth the opportunity cost of doing so (at the very least you would be able to say “I was one of the 100 who voted even though might personal vote might not have mattered”). This scenario is, of course, unlikely. According to the Commercial Appeal, expected voter turnout estimates are not high. The Election Commission administrator, Richard Holden, suggested that turnout could be as much as 40 percent - the 2007 citywide election drew about 38 percent (164,898 voters). However, Holden doesn’t suspect that turnout would be as large as the 2007 election because that year, fifteen races stood in contention: mayor, city court clerk and thirteen council seats.

So let’s try to make going to the booths more worth your while. Suppose there is only a 20 percent voter turnout. Should you vote? If you think your cheering and applause would be heard over everyone else’s in the University of Alabama’s Bryant-Denny Stadium when it’s packed, you should. A full Bryant-Denny is roughly equivalent to 20 percent of voters in Memphis (≈101,000 people). If everyone was shouting at the same volume, would you be heard?

Of course, we may be expecting a large turnout still. Suppose only two percent showed up. Now we are applauding in the Orpheum (except we would have to be one-fourth as loud as everyone else)*. Even supposing a neck-and-neck race between the top three candidates, it’s not clear it will be your voice that puts the decibel level of your candidate’s audience above either of the other’s. If we trust the Appeal’s data, then Wharton has the lead with 45 percent, Carol Chumney is second with 11 percent, and Myron Lowery is third with 10 percent (this is from a telephone poll by Mason-Dixon Polling & Research – they give a margin of error of plus-minus five percent). So should you vote? If you like to show that you can make noise for its own sake, then you should.

*By this I mean that everyone is at normal volume and you are one-fourth of your normal volume. Another way to think about it would be to consider being in one of four Orpheums cheering at the same time. There are approximately 2,500 seats in the Orpheum and a two percent voter turnout is approximately 10,000 people.)

« Close It

Posted by Art Carden at 12:21 PM in Economics

Economic Illiteracy: Declining Wages Edition

I just send the letter below to USA Today in response to this article:

Your article reporting on the "biggest annual decline in real wages since 1991" carries the misleading headline "Wages tumble toward 18-year low." Even with this year's decline, real wages will remain above their 1991 level. Indeed, wages will remain above their 2007 level because the chart accompanying your article reports that real wages increased 2.4% in 2008.

E. Frank Stephenson
Chairman, Department of Economics
Berry College
Rome GA

I'd say that with economic illiteracy of this sort it's no big surprise that USA Today has had a massive decrease in circulation. Unfortunately, I doubt bet the correlation betwen economic literacy and circulation is more likely negative than positive.

BTW, I found this piece via an Instapundit link that was accompanied by the comment "uh oh." Actually, with 9.8% unemployment falling wages are not surprising are probably a good sign that necessary labor market adjustments are taking place.

UPDATE: I just received a response to my letter--the headline has been changed to "Wages could hit steepest plunge in 18 years."

Posted by E. Frank Stephenson at 12:13 PM in Economics

October 14, 2009

There's an Election Tomorrow?!

Here's Geoff Calkins from the Memphis Commercial Appeal on the extremely low turnout for early voting in tomorrow's mayoral election. You have until 6:00 AM tomorrow to submit via email a 250-500 word essay explaining why I should or shouldn't vote in tomorrow's mayoral election. There is a valuable prize for the winner, who will be announced on Friday.

Posted by Art Carden at 10:03 AM in Economics

October 13, 2009

Elinor Ostrom on the Commons

Here's recently-crowned Nobel Laureate Elinor Ostrom on voluntary management of the commons. Ostrom's win can be considered a win for the Hayekian worldview as opposed to the Samuelsonian worldview. HT: Brian Hollar.

Posted by Art Carden at 10:57 AM in Economics

Ummmm...I think I'll let Tyler read this one and blog on it

Capitalism and the Dialectic: The Uno-Sekine Approach to Marxian Political Economy

Description:
From the 1960s to the 1990s the ground-breaking Japanese economists Kozo Uno and Thomas Sekine developed a masterful reconfiguration of Marxist economics. The most well-known aspect of which is the levels of analysis approach to the study of capitalism. Written in Japanese, the Uno-Sekine approach to Marx's work is little understood in West. John Bell seeks to correct this, explaining how problematic elements of Marxian Political Economy such as the law of value and the law of relative surplus population can be solved by using a more rigourous dialectical analysis. Bell's clear and accessible synthesis provides economists with the tools to interrogate capitalism in a more powerful way than ever before.

Posted by Robert Lawson at 08:49 AM in Economics

Best sentence I read today or probably will read this week.

From Munger:

As I always tell my students, an economist is someone who believes, sincerely believes as a matter of moral justice, that the infant mortality rate should be positive.

Posted by Robert Lawson at 08:46 AM in Economics

October 12, 2009

Ostrom and Williamson

Start with a Pigovian question: what to do about externality? Entertain a Coasean solution: bargain it away. Get stuck on transaction costs due to a Buchanan problem: collective action. Arrive at this year's Nobel: voluntary collective action can and often does work toward the emergence of good institutions. It's not private property rights per se, but well-defined and enforced rules of exclusion, which support beneficial social organization. As Alex Tabarrok aptly puts it, for Ostrom it's not the tragedy of the commons but the opportunity of the commons.

For Williamson, I suppose you could replace "get stuck on transaction costs" in the above with "managerial" or "monitoring" costs. In short, one solution that Coase poses to externality is merger, the problems with which are worked out in Williamson's contract theory of firms.

Both laureates underscore non-coercive governance. I applaud deeply. For a good introduction, here is the scientific background provided by the Nobel committee.

Posted by Edward J. Lopez at 10:24 AM in Economics

What I've Been Writing Lately: Tires, Trade, and Comparative Advantage

Here. In the comments on the Mises Blog, I'm advised to "take [my] globalist cr@p" elsewhere. I confess I'm at a loss for the appropriate outlet for my globalist cr@p--if not the website of an institution bearing the name of an economist who thought Ricardo's law of comparative advantage is the wellspring of all social behavior, then where?

Posted by Art Carden at 10:04 AM in Economics

On the Ostrom and Williamson Nobel

I've been rooting for Gordon Tullock to win the Nobel for as long as I can remember, but I can't say I'm surprised or disappointed that this year's prize went to Elinor Ostrom and Oliver Williamson. In fact, I'm thrilled. Arnold Kling offers an excellent summary of the Ostrom and Williamson win here.

Posted by Art Carden at 09:15 AM in Economics

October 10, 2009

On the Economics Nobel

Here are Bob Subrick's predictions (HT: Scott Beaulier). Bob suggests a possible prize for Gordon Tullock, Anne Krueger, and Jagdish Bhagwati for their work on rent-seeking. I've been rooting for Tullock for a long time, and I think that now more than ever he deserves the prize. By and large, government policy is made by ignoring Tullock's entire research program, with disastrous consequences. First, it is widely assumed that people will behave irrationally and opportunistically--except for a small caste of enlightened worthies who can be trusted to transcend their individual interests, behave perfectly rationally, and nudge the rest of us as hard as we need to be nudged in order to lead us to utopia.

Second, policy is made by ignoring what Tullock had to say about rent-seeking. Consider, for example, policies that are justified on distributional grounds. Even among some of those who acknowledge its disemployment effects, minimum wages remain popular because the increased income transferred to unskilled workers is supposedly worth incurring a little bit of deadweight loss. According to Tullock, however, the prospect of a transfer from employers to employees encourages rent-seeking on the part of employers (who seek to protect themselves from the transfer) and on the part of employees (who seek to acquire the transfer). The full value of the transfer will be frittered away through the political process.

Arguments for supposedly more efficient (or less inefficient) programs like the EITC or other tax-and-transfer schemes are undermined by the theory of rent-seeking. Even if we could implement a perfect tax-and-transfer scheme, the full value of the transfer will disappear down the political drain. From what I can tell about policy debates, however, this is only considered when people express surprise at the unintended consequences of the policies they endorse. Even only then, it is usually treated as a moral failing rather than a predictable consequence of the incentives in place.

Tullock has made a series of contributions that should have, by now, changed the way everyone looks at human action. If we had taken him seriously, we probably wouldn't have made the host of policy mistakes that caused the current crisis. If that doesn't deserve a Nobel Prize, what does?

Posted by Art Carden at 10:51 AM in Economics

October 09, 2009

Guest Blogger: Ludwig von Mises on Reason and Error

We are honored to celebrate both the 250th anniversary of The Theory of Moral Sentiments and the 60th anniversary of Human Action with a guest post from Ludwig von Mises, below the fold. The post is excerpted from Human Action and published here. This is going to go into my introductory readings for Econ 101.

Read More »

The Fight Against Error
Ludwig von Mises

A critical examination of the philosophical systems constructed by mankind's great thinkers has very often revealed fissures and flaws in the impressive structure of those seemingly consistent and coherent bodies of comprehensive thought. Even the genius in drafting a world view sometimes fails to avoid contradictions and fallacious syllogisms.

The ideologies accepted by public opinion are still more infected by the shortcomings of the human mind. They are mostly an eclectic juxtaposition of ideas utterly incompatible with one another. They cannot stand a logical examination of their content. Their inconsistencies are irreparable and defy any attempt to combine their various parts into a system of ideas compatible with one another.

Some authors try to justify the contradictions of generally accepted ideologies by pointing out the alleged advantages of a compromise, however unsatisfactory from the logical point of view, for the smooth functioning of interhuman relations. They refer to the popular fallacy [p. 185] that life and reality are "not logical"; they contend that a contradictory system may prove its expediency or even its truth by working satisfactorily while a logically consistent system would result in disaster. There is no need to refute anew such popular errors. Logical thinking and real life are not two separate orbits. Logic is for man the only means to master the problems of reality. What is contradictory in theory, is no less contradictory in reality. No ideological inconsistency can provide a satisfactory, i.e., working, solution for the problems offered by the facts of the world. The only effect of contradictory ideologies is to conceal the real problems and thus to prevent people from finding in time an appropriate policy for solving them. Inconsistent ideologies may sometimes postpone the emergence of a manifest conflict. But they certainly aggravate the evils which they mask and render a final solution more difficult. They multiply the agonies, they intensify the hatreds, and make peaceful settlement impossible. It is a serious blunder to consider ideological contradictions harmless or even beneficial.

The main objective of praxeology and economics is to substitute consistent correct ideologies for the contradictory tenets of popular eclecticism. There is no other means of preventing social disintegration and of safeguarding the steady improvement of human conditions than those provided by reason. Men must try to think through all the problems involved up to the point beyond which a human mind cannot proceed farther. They must never acquiesce in any solutions conveyed by older generations, they must always question anew every theory and every theorem, they must never relax in their endeavors to brush away fallacies and to find the best possible cognition. They must fight error by unmasking spurious doctrines and by expounding truth.

The problems involved are purely intellectual and must be dealt with as such. It is disastrous to shift them to the moral sphere and to dispose of supporters of opposite ideologies by calling them villains. It is vain to insist that what we are aiming at is good and what our adversaries want is bad. The question to be solved is precisely what is to be considered as good and what as bad. The rigid dogmatism peculiar to religious groups and to Marxism results only in irreconcilable conflict. It condemns beforehand all dissenters as evildoers, it calls into question their good faith, it asks them to surrender unconditionally. No social cooperation is possible where such an attitude prevails.

No better is the propensity, very popular nowadays, to brand supporters of other ideologies as lunatics. Psychiatrists are vague in drawing a line between sanity and insanity. It would be preposterous for laymen to interfere with this fundamental issue of psychiatry. However, it is clear that if the mere fact that a man shares erroneous views and acts according to his errors qualifies him as mentally disabled, it would be very hard to discover an individual to which the epithet [p. 186] sane or normal could be attributed. Then we are bound to call the past generations lunatic because their ideas about the problems of the natural sciences and concomitantly their techniques differed from ours. Coming generations will call us lunatics for the same reason. Man is liable to error. If to err were the characteristic feature of mental disability, then everybody should be called mentally disabled.

Neither can the fact that a man is at variance with the opinions held by the majority of his contemporaries qualify him as a lunatic. Were Copernicus, Galileo and Lavoisier insane? It is the regular course of history that a man conceives new ideas, contrary to those of other people. Some of these ideas are later embodied in the system of knowledge accepted by public opinion as true. Is it permissible to apply the epithet "sane" only to boors who never had ideas of their own and to deny it to all innovators?

The procedure of some contemporary psychiatrists is really outrageous. They are utterly ignorant of the theories of praxeology and economics. Their familiarity with present-day ideologies is superficial and uncritical. Yet they blithely call the supporters of some ideologies paranoid persons.

There are men who are commonly stigmatized as monetary cranks. The monetary crank suggests a method for making everybody prosperous by monetary measures. His plans are illusory. However, they are the consistent application of a monetary ideology entirely approved by contemporary public opinion and espoused by the policies of almost all governments, political parties, and the press.

It is generally believed by those unfamiliar with economic theory that credit expansion and an increase in the quantity of money in circulation are efficacious means for lowering the rate of interest permanently below the height it would attain on a nonmanipulated capital and loan market. This theory is utterly illusory. But it guides the monetary and credit policy of almost every contemporary government. Now, on the basis of this vicious ideology, no valid objection can be raised against the plans advanced by Pierre Joseph Proudhon, Ernest Solvay, Clifford Hugh Douglas and a host of other would-be reformers. They are only more consistent than other people are. They want to reduce the rate of interest to zero and thus to abolish altogether the scarcity of "capital." He who wants to refute them must attack the theories underlying the monetary and credit policies of the great nations.

The psychiatrist may object that what characterizes a man as a lunatic is precisely the fact that he lacks moderation and goes to extremes. While normal man is judicious enough to restrain himself, the paranoid person goes beyond all bounds. This is quite an unsatisfactory [p. 187] rejoinder. All the arguments advanced in favor of the thesis that the rate of interest can be reduced by credit expansion from 5 or 4 per cent to 3 or 2 per cent are equally valid for a reduction to zero. The "monetary cranks" are certainly right from the point of view of the monetary fallacies approved by popular opinion.

There are psychiatrists who call the Germans who espoused the principles of Nazism lunatics and want to cure them by therapeutic procedures. Here again we are faced with the same problem. The doctrines of Nazism are vicious, but they do not essentially disagree with the ideologies of socialism and nationalism as approved by other peoples' public opinion. What characterized the Nazis was only the consistent application of these ideologies to the special conditions of Germany. Like all other contemporary nations the Nazis desired government control of business and economic self-sufficiency, i.e., autarky, for their own nation. The distinctive mark of their policy was that they refused to acquiesce in the disadvantages which the acceptance of the same system by other nations would impose upon them. They were not prepared to be forever "imprisoned," as they said, within a comparatively overpopulated area in which physical conditions render the productivity of human effort lower than in other countries. They believed that their nation's great population figures, the strategically propitious geographic situation of their country, and the inborn vigor and gallantry of their armed forces provided them with a good chance to remedy by aggression the evils they deplored.

Now, whoever accepts the ideology of nationalism and socialism as true and as the standard of his own nation's policy, is not in a position to refute the conclusions drawn from them by the Nazis. The only way for a refutation of Nazism left for foreign nations which have espoused these two principles was to defeat the Nazis in war. And as long as the ideology of socialism and nationalism is supreme in the world's public opinion, the Germans or other peoples will try again to succeed by aggression and conquest, should the opportunity ever be offered to them. There is no hope of eradication the aggression mentality if one does not explode entirely the ideological fallacies from which it stems. This is not a task for psychiatrists, but for economists.

Man has only one tool to fight error: reason.

« Close It

Posted by Art Carden at 01:39 PM in Economics

Nobel Anecdote (Updated)

Here's an entry from Greg Mankiw that reminds me of an exchange from Grad School. I was Douglass C. North's TA and RA from 2002-2005. Around the beginning of 2003, he knocked on my door and said that he had to nominate someone for the economics Nobel. Before he could continue, I interrupted and told him how amazingly flattered I was since I didn't even have a dissertation topic yet. Suffice it to say he wasn't nominating me.

This could, however, signal a shift in Nobel logic. If potential is what matters, I think the committee should reconsider and award the Prize to Chris Coyne. Like Obama, he isn't George W. Bush, so he meets at least one of the selection criteria. The tiebreaker would be Coyne's excellent After War, which, I hope, will be an input into Obama's foreign policy.

Update: Here's Kevin Grier wondering whether an Obama prize will make it harder for Obama to pursue an aggressive foreign policy. Maybe we aren't giving the prize committee enough credit: maybe they aren't giving him a medal to wear, but an albatross. Are they hoping that this will render politically unsaleable a lot of possible foreign policy options that would be unbecoming of a Nobel Peace Prize winner?

Posted by Art Carden at 10:17 AM in Economics

The Revolution Will be Facebooked: Reactions to the Obama Nobel

I must admit I was surprised by Obama's Nobel Peace Prize. It increased the probability with which I believe the timing of Krugman's economics prize was in part politically motivated. Here are some FB status updates from people on my "friends" list reacting to the prize, in no particular order (names redacted, obviously). The hits just keep on coming:

1. ...knows what next week's episode of South Park will be about.

2. ...wishes she could extend the Patriot Act and occupy a sovereign state, killing not only her own citizens but those of the occupied country, 'cause then she could get the Nobel Peace Prize!

3. War is peace.

4. Tonight we're gonna party like it's 1984!

5. If they're giving out Nobel prizes for not being George W. Bush, I want one too.

6. Art Carden likes some of President Obama's cosmopolitan rhetoric but wonders how tire tariffs and other restrictions on international trade are "extraordinary efforts to strengthen international diplomacy and cooperation between peoples."

7. ...wonders how long before someone makes a Kanye West mashup of him on stage with Obama saying that while the President has done a good job, Beyonce should've won the Nobel Peace Prize.

8. One that's in a language I don't speak, but it talks about Gore and Carter, and the last line is "El el 2010 sera para Paris Hilton."

9. ...is hoping that Kanye attends the Nobel awards ceremony.

10. ...started reading his Facebook feed and had to make sure that the links to Obama winning the Peace Prize weren't all from The Onion.

Posted by Art Carden at 10:04 AM in Economics

Best Blog Title I've Read Today

"Too Big To Bail," from this testimonial about the Mises Institute and Austrian Economics.

Posted by Art Carden at 09:19 AM in Economics

October 08, 2009

Pyramid Schemes in Memphis

Here's the letter I mentioned a few days ago on what we might do about the Memphis Pyramid, published in this morning's Memphis Commercial Appeal:

"How about a boondoggle museum

I read your Oct. 5 article about debates over what to do with The Pyramid with some interest (“Plans for Pyramid differing widely / Candidates’ ideas often outside the box”). I propose a different solution: Privatize it by distributing ownership shares to all Memphis and Shelby County taxpayers. I would then encourage the new owners to convert it into an International Museum of Resource-Wasting Boondoggles.

Visitors could be greeted with a clip of Montgomery Burns from one of last season’s episodes of “The Simpsons” in which he describes “the American Dream: a billionaire using public funds to build a private playground for the rich and powerful.”

The museum could include an exhibit explaining the broken-window fallacy and another exhibit on badly done and arguably dishonest “economic impact” studies that tell stadium proponents what they want to hear, and it could offer numerous exhibits on how stadium projects fail to live up to their promises. They could start with an entire exhibit about how long it is taking to fill the giant mud puddle in downtown St. Louis where the old Busch Stadium used to be.

Art Carden

Memphis"

Posted by Art Carden at 09:23 AM in Economics

October 07, 2009

Thoughts from a Dull Moment: Frank Steindl on Endogenous Propagation

Office entropy is out of control, so I'm spending part of the--I was going to say morning, but it's now afternoon--cleaning up. Here's a paper that we'll read in econ 339 later in the semester: Frank Steindl's "What Ended the Great Depression? It Was Not World War II," which has taken on a new relevance since it was first published in 2007.

Posted by Art Carden at 01:24 PM in Economics

Update on Payday Lending in Ohio

Some snips from a Heartland Institute piece on Ohio's payday lending ban:

Last November, 64 percent of the state’s voters favored approving an Ohio House bill capping payday lenders’ annualized rates at 28 percent. Legislators had passed the bill in June 2008.

The impact on the payday lending industry was swift. Already 700 of the 1,600 payday loan offices in the state have closed, said Kursman. Check ‘n Go has just 28 locations left in the state, down from 72 before the law changed, he said.

Payday lenders in Ohio argue banks have filled the void since the law changed. They don’t fall under the same regulations, so a few have started offering direct deposit advances. They typically charge $10 for an advance of $100 for up to 30 days. Banks market them as loans at 120 percent annual rates.

It wouldn't come as a surprise to learn that banks backed the payday loan ban, but I didn't find anything in an cursory Google search.

Previous DoL posts on Ohio's payday loan ban are here and here.

Posted by E. Frank Stephenson at 11:56 AM in Economics

On Sarkozy's Happiness Adjusted GDP

French President Sarkozy recently called for adjusting tradional GDP calculations for happiness (which I tend to think is a bunch of bunk, but that's another post). Maybe the French are happier than Americans (or, more generally, countries that have higher GDPs than France)--after all, they have good wine, fine cheese, the scenic countryside that's displayed so vividly in the Tour de France coverage each summer. However, Sarkozy might want to rethink his call for a happiness-adjusted GDP.

Consider suicide rates. French suicide rates for men are roughly 50% higher than American male suicide rates. For women, the French rate is double the American rate. (Source--pay attention to the graph on the lefthand side of the article.)

Then there's the matter of car burning--a rather unusual way to indicate happiness but de gustibus non est disputandum. Here are some snips from a Time article:

For much of the world, they became iconic of France's worst social ills: the burned-out carcasses of thousands of cars set ablaze during nearly three weeks of nationwide rioting in 2005. But as yet another orgy of automobile arson on Wednesday demonstrated, the torching of cars in France has not only become an everyday event; it's also now a regular form of expression for disenfranchised suburban youths wanting to make sure the rest of the country doesn't forget they exist. And their fiery presence is never felt so strongly as it is each New Year's Eve — the day of France's unofficial festival of car-burning.

According to figures from the French Interior Ministry, 1,147 cars went up in smoke on New Year's Eve — a 30% rise on the 879 autos torched the same night in 2007.

Nearly 43,000 cars were torched in France over the whole of 2007 — an average of almost 118 per day.

As for 2005, this Wikipedia page reports that 8,900 cars were burned over 20 days of rioting.

UPDATE: The Economist asks, "Why are the French so prone to suicide?"

Posted by E. Frank Stephenson at 11:31 AM in Economics

Interview on Radio Free Market

Here's an interview I did with Radio Free Market during Mises U at the beginning of August and broadcast on September 25.

Posted by Art Carden at 10:20 AM in Economics

October 06, 2009

U.S. Energy Policy and the Presumption of Market Failure

This article will argue that government energy policy has been based on faulty premises not only about the existence of market failure but also about the nature and process of innovation. Moreover, as this article will show, there is evidence that the private sector can develop energy alternatives more efficiently than the government.

That's a paragraph from what looks to be a good article by Peter Z. Grossman in the new issue of the Cato Journal.

Posted by E. Frank Stephenson at 01:15 PM in Economics

Boettke and Caplan on Austrian Economics (Brought to you by Carl's Jr.)

Here are two of my favorite economists, Peter Boettke and Bryan Caplan, debating Austrian economics. It's a 13-part video, which raises a question: I have a video of Deirdre McCloskey's lecture at Rhodes, but YouTube won't take it. How can I cut it up, or where can I put the entire uncut video online? If you have a suggestion, please let me know.

Obligatory FTC Disclosure: I wasn't paid to write this.

Posted by Art Carden at 09:03 AM in Economics

The FTC is here to protect you, dear reader.

Tyler Cowen reports that the FTC wants us pajama-wearing bloggers to disclose all the goodies we receive.

For the record I: I am open to payment if any of you want to pay me to write something on this blog. Let's make a deal baby!

For the record II: I have received exactly one book (unsolicited) hoping for a review on this blog, which I did not review, though it was a good book.

For the record III: The FTC can kiss my ass.

Posted by Robert Lawson at 08:56 AM in Economics

October 05, 2009

Coase on a Plane

I'm cleaning out some old notes and I came across the following, which might someday be a question I would ask on an exam or in a job interview:

Crying babies and loud children are among the common complaints of frequent flyers; indeed, I can say from personal experience that a screaming infant can make for a long flight. Describe the reciprocal nature of the externality. How does the private market internalize the externality? To what extent does the possibility of an upgrade to first class help mitigate the externality? What is the role of reasonable expectations in deciding on a policy? What is the parent's responsibility? What is the responsibility of the other flyers?

Posted by Art Carden at 01:44 PM in Economics

The Memphis Pyramid

This morning's Memphis Commercial Appeal had an article about what to do with the Pyramid, the empty basketball arena in Memphis that will reflect sunlight directly into your eyes if you're approaching downtown on North Parkway at the right time of day. They've been talking about this at least since we moved here in 2006; where's Hernando de Soto when you need him?

I sent them a letter (which I copied, and then copied over, so I can't post it) proposing that it be privatized and turned into a museum of resource-wasting boondoggles.

Posted by Art Carden at 09:49 AM in Economics

Brevity

Paper title: When is the government spending multiplier large?

Paper abstract: When the nominal interest rate is constant.

The paper is by Christiano, Eichenbaum, and Rebelo.

Posted by E. Frank Stephenson at 08:15 AM in Economics

October 04, 2009

TARP one year later: $700 billion down the drain

Was it necessary? No. Did it accomplish anything? Only partial nationalizations, which are a negative. In an op-ed in the SF Examiner, Randy Holcombe lays out the details.

Posted by Lawrence H. White at 12:38 PM in Economics

On Human Action, Continued

I was hoping others would jump into the discussion. Emily Schaeffer does. In the process of an excellent discussion, she points out (correctly, in my view) that what Mises is doing is laying out everything that is prior to observation.

Per co-blogger Ed Lopez's suggestion, comments are open.

Posted by Art Carden at 08:51 AM in Economics  ·  Comments (8)

October 03, 2009

Responding to Noel's Challenge

Co-blogger Noel has taken issue with Human Action. I propose that we settle this in the manner that Austrian economists and Austrian sympathizers settle such things: pistols at ten paces at the Southern Economic Association meetings. I'll email Tony Carilli from the Society for the Development of Austrian Economics to see if they can squeeze us into one of their sessions, or perhaps we could do it after the SDAE dinner. Further discussion is below the fold.

Read More »

I share some of Noel's concerns, but mine are related to the sociology of academia rather than the body of Mises's work per se. The more time I spend in conversation with people outside my very narrow sub-regions of the intellectual universe, the more I'm convinced that we're often talking past one another. Our disagreements are rhetorical rather than theoretical, empirical, or epistemological, and these are the product of what Thomas Sowell called "a conflict of visions." To take one example, some psychologists criticize economists for assuming that people are "rational," but the psychological conception of rationality and the praxeological conception of rationality differ in a couple of important respects.

As I understand psychology, "rationality" means that people know their own interests and can correctly identify the means to obtain their goals. Rationality in economics, as I interpret it, is simply a restatement of the law of demand: people are self-interested, and they will tend to do more of things that get cheaper but less of things that get more expensive. Here is Carden's corollary to Godwin's Law: any multidisciplinary discussion involving economists will, given a sufficient amount of time, devolve into a debate about the merits of the rationality assumption.

Back to Mises. Mises argues that correct theory is a prerequisite for correct history, and he puts all of human knowledge into these two categories. Theory is purely logical and purely axiomatic-deductive while history is empirical investigation informed, interpreted, and explained by theory. What he lays out in Human Action is a complete analytical system in the broadest and truest sense. It is more than economics, but I think that due to path dependence in the rhetoric of the social sciences economists use "economics" to describe what Mises calls "praxeology," or the more general science of human action.

I think about economics in praxeological terms. I see economics as the science of human action. It is the logic of choice, with the implication being that any action necessarily has a cost of some kind. When speaking with non-economists, particularly my colleagues in other departments, I realize that the average person thinks economics is all about money. According to conventional wisdom, the choices economists care about are those that involve money or that can be expressed purely in terms of money. This may be true for some of us, but the economic way of thinking encompasses all human action. It doesn't just encompass those that involve strictly monetary calculation.

Can one be a good economist without reading Human Action several times? Yes, and I offer Noel himself as my evidence. In thinking about the social sciences more generally, I agree with a number of people who commented on Mises's birthday Tuesday that if we lived in a just world (or if we were closer to an equilibrium in which intellectual errors had been ferreted out), people across the social sciences and humanities would be reading Mises (and Hayek) rather than Marx.

« Close It

Posted by Art Carden at 08:26 AM in Economics

October 02, 2009

Choices and Tradeoffs

This is the punch line from a good article on the healthcare and the choices people make:

If individuals prefer to buy luxury items rather than pay for their healthcare needs, that preference should not be rewarded while taxpayers struggle to foot their own bills.

HT Gary R.

Posted by E. Frank Stephenson at 05:32 PM in Economics

October 01, 2009

An Interesting Abstract: Do Markets Make Us More or Less Trusting and Trustworthy?

Here's the abstract from this paper (gated). I find this interesting and compelling in light of the anti-capitalist critique of markets as dehumanizing, atomizing institutions. I look forward to reading the paper.

This paper documents a strong positive relationship between individual reported trust levels (obtained from the US General Social Survey) and the competitiveness of the sector in which an individual works (obtained from the US census of firms). This correlation is robust to the inclusion of all of the previously studied determinants of individual trust, e.g., income, education, age, sex, marital status, city size, religion, and is large; a one standard deviation increase in sectoral competitiveness makes respondents approximately five percent more likely to answer the canonical trust question with a "usually trust" as opposed to a "usually don’t trust" response. The addition of a rich set of workplace controls shows that this correlation is not likely to be driven by the size of the workplace, the amount of supervision, or related to a congenial work culture. It also appears that it is not due to selection (i.e., trustworthy or trusting individuals selecting into competitive sectors) or risk aversion, but instead seems to be due to individuals becoming more trusting the longer their experience in competitive sectors. We conjecture that trust levels are high when workplaces are characterized by high contributions of discretionary effort, i.e., when co-workers are more likely to be trustworthy. We develop a model which shows that such discretionary efforts are more likely to arise when competition within a sector is high. Competition mitigates incentives for free-riding by imposing costly shut-down on poor performing firms, makes employees more trustworthy, and thus increases trust. The model generates a positive correlation between trust and sectoral competitiveness, displays a threshold effect, suggests a non-monotonic relationship between competition and job security, and predicts patterns for a number of other variables. The data displays a high degree of consistency with these predictions.

Posted by Art Carden at 02:52 PM in Economics

On Foreclosures and Contagion

One of the rationales offered for government bailouts support for underwater homeowners is the supposed effect that foreclosures have on nearby properties. The new issue of the Journal of Urban Economics has an article (ungated version here) addressing just this issue by John P. Harding, Eric Rosenblatt, and Vincent W. Yao. The do find evidence of a foreclosure contagion effect, but it's size is very small and is therefore difficult to use as justification for any sort of large aid to folks who may be facing foreclosure. The abstract of their paper:

Although previous research shows that prices of homes in neighborhoods with foreclosures are lower than those in neighborhoods without foreclosures, it remains unclear whether the lower prices are the result of a general decline in neighborhood values or whether foreclosures reduce the prices of nearby non-distressed sales through a contagion effect. We provide robust evidence of a contagion discount by simultaneously estimating the local price trend and the incremental price impact of nearby foreclosures. At its peak, the discount is roughly 1% per nearby foreclosed property. The discount diminishes rapidly as the distance to the distressed property increases. The contagion discount grows from the onset of distress through the foreclosure sale and then stabilizes. This pattern is consistent with the contagion effect being the visual externality associated with deferred maintenance and neglect.

I have a question about another paper in the same issue of the JUE; I'll put it under the fold.

Read More »

Here's the abstract of paper by Nils Braakmann in the same issue of JUE:

This paper investigates whether high regional crime levels lead to a compensating wage differential paid by firms in the respective region. Using data from German social-security records, official police statistics and official statistics for 2003–2006, I consider both violent and non-violent crimes and use three-way error-components estimators to control for individual and regional heterogeneity. The findings suggest that wages are practically unrelated to changes in crime rates. This result is robust over a wide range of subgroups. There is, however, some evidence that crime rates influence land prices.

My question is the following: Are the results of this paper biased toward zero because of Germany's labor market institutions? That is, doesn't Germany have at least some centralized wage setting that would reduce the ability of wages to adjust to crime?

« Close It

Posted by E. Frank Stephenson at 01:52 PM in Economics

September 30, 2009

Forgot One...

I just saw a note to myself to add Steven Pinker's discussion of violence to my list-o-links from the "Think Global, Act Local" panel. Here's his TED Talk, and here's an article based on that talk. The list has been updated, too.

Posted by Art Carden at 07:07 PM in Economics

Think Globally, Act Locally: References and Readings (Revised)

I spoke as part of a faculty panel last night on thinking globally and acting locally. I've updated the list-o-links I assembled a a couple of weeks ago in light of our discussion; an updated list is below the fold.

Read More »

Here are some links and readings on which I'm basing my remarks at the "Think Globally, Act Locally" faculty panel at Rhodes on September 29:

-1. Update 2: Here's Steven Pinker on violence, with a link to his TED talk on the history of violence.

0. Update: Doug MacKenzie points out that I omitted this. Markets allow us to think locally and act globally.

1. Here's my take on calculation, action, and cost-benefit analysis. Calculation is a part of action; it is the nature of choice to compare costs and benefits, even though these aren't always expressed in narrow monetary terms.

2. Here's my Forbes.com article on how we can use economics to think about the environment. Here's the paper on which the article is based.

3. One of my favorite essays is Steve Horwitz's "Ought Implies Can," which discusses the intersection between economics and ethics. Here's a quote that summarizes his point:

"It might be more accurate to say that ethicists ignore economics than that economists ignore ethics. To the extent that good economics shows what we can and cannot do with social policy, it is engaged with ethics. After all, if the point of saying we ought to do X is that we think it will achieve some set of morally desirable goals, then knowing whether or not doing X will actually achieve those goals is, or at least should be, a key part of moral inquiry."

4. Here's the Cingranelli-Richards Human Rights Dataset. Bob Lawson and I are using these data to examine the relationship between economic liberalization and human rights abuses. Contrary to popular belief and consistent with Deirdre McCloskey's claims about Bourgeois Virtue, we find that increasing economic freedom reduces the frequency of human rights abuses as measured a variety of different ways. This is also consistent with a mountain of experimental evidence suggesting that people who are exposed to markets are more likely to act in ways consistent with our conventional understandings of fairness and justice and less likely to be opportunistic.

5. Here's what I wrote a few months ago about what we can learn about current economic conditions by reading Marx. In two words, not much. If you're looking for wide-ranging systematic thinkers from whose writings we can glean genuine insight about economic change, I recommend Ludwig von Mises and F.A. Hayek. Unlike Marx, they got the economics right.

6. Speaking of Mises, here's his magnum opus, Human Action (available for zero-price download). Here's Jorg-Guido Huelsmann's magisterial biography of Mises, also available for zero-price download (link is to PDF). I'm re-reading Human Action for the first time since my first year of graduate school, and it takes on a whole new meaning after reading Huelsmann's biography.

7. The Liberty Fund's Library of Economics and Liberty is a one-stop shop for online editions of works by Mises, Hayek, Adam Smith, James Buchanan (see especially his excellent Cost and Choice), and tons of others.

8. On her blog, Doctor J mentioned that the "real and significant ideological differences between the panelists" was one of the virtues of the discussion. I whole-heartedly agree, and that's one of the reasons I found it so challenging and enlightening. It was the essence of what Thomas Sowell calls A Conflict of Visions, which is the title of a book I assign on the first few days of econ 101. After scanning the bookshelves in my office and at home, here's a partial list of books that have contributed to my worldview and that form the basis of some of my remarks last night: Sowell's The Quest for Cosmic Justice and The Vision of the Anointed: Self-Congratulation as a Basis for Social Policy, F.A. Hayek's The Constitution of Liberty and Law, Legislation, and Liberty, Paul Heyne's "Are Economists Basically Immoral?" and Other Essays on Economics, Ethics, and Religion, Ray Kurzweil's The Singularity is Near, Jim Powell's FDR's Folly (which goes well with Atlas Shrugged), Virginia Postrel's The Future and Its Enemies, Bryan Caplan's The Myth of the Rational Voter, Murray Rothbard's Man, Economy, and State with Power and Market (zero-price PDF here), William Easterly's The Elusive Quest for Growth and The White Man's Burden, and Hernando de Soto's The Mystery of Capital.

Rhodes students and faculty: I've reviewed a handful of these for scholarly journals; when I get to the office, I will put the reviews in my public folder on the academic fileserver in a folder labeled "Book Reviews."

And now, here's the original list of recommendations I posted on 9/18:

1. Ayn Rand, Atlas Shrugged. Rand demonstrates a clear understanding of the unintended consequences of policies and actions, and she shows in detail how intentions do not translate into outcomes.

2. Friedrich Hayek, The Road to Serfdom. Hayek argues that interventionism kills liberalism and leads to totalitarianism.

3. Milton Friedman, Capitalism and Freedom. Friedman shows how economic freedom is consistent with and indeed essential to human flourishing. Before you reach for your copy of Naomi Klein's The Shock Doctrine to support your claim that Friedman is "The Proud Father of Global Misery," read my essay on The Shock Doctrine and Tyler Cowen's review.

4. Lant Pritchett, Let Their People Come. The entire book can be downloaded here. This book convinced me that removing restrictions on free immigration is not just a good idea but a moral imperative.

5. Frederic Bastiat, "What is Seen and What is Not Seen" and The Law (online, PDF, audio). Bastiat is an economist, journalist, and polemicist who is the originator of the "broken window fallacy."

6. Henry Hazlitt, Economics in One Lesson. Hazlitt's book is a series of lessons drawn from Bastiat's central insight.

7. Ludwig von Mises, Socialism (online, PDF). This is a greatly-expanded exploration of Mises's argument that rational economic calculation under socialism is impossible.

8. Deirdre McCloskey, The Bourgeois Virtues: Ethics for an Age of Commerce (Google Books, PDF of rough draft). The first sixty pages are essential; McCloskey surveys how bourgeois capitalism has not just made us richer, but better and more ethical.

8. Art Carden and Josh Hall, "Why Are Some Places Rich While Others are Poor? The Institutional Necessity of Economic Freedom." We discuss the definition of economic institutions and the role of economic freedom in creating prosperity. I discuss the relationship between foreign aid and economic growth in this paper.

9. My Mises.org audio archive. I gave five lectures at Mises U: Production and the Firm, Environmental and Resource Economics, Common Objections to Capitalism, Consumer Product Regulation, and Short Selling: Explanation and Defense.

10. Links from my lectures at IHS and Mises University this past summer. The Mises U links in particular deal with environmental issues.

11. My "Blog Action Day: Poverty" entry from last year.

12. Lynne Kiesling's excellent discussion of the "man of system" passage in Adam Smith's Theory of Moral Sentiments.

« Close It

Posted by Art Carden at 11:42 AM in Economics

Calculation and Action: Descriptive of Prescriptive?

As part of last night's "Think Global, Act Local" panel at Rhodes, we had a discussion of the motives for action. Here's an assessment by one of my co-panelists, who nails it. The panel illustrated nicely some of the points Thomas Sowell makes in A Conflict of Visions. The students who organized the panel are to be commended for putting together an absolutely fantastic discussion that featured real and meaningful disagreement between people of good will who are earnestly and intently interested in discovering truth.

I argued that by our nature we engage in calculation--we compare costs (what we give up) with benefits (what we get) and act accordingly. One of the most unfortunate and enduring myths about economics is that it is about money and material ends to the exclusion of other values. It isn't. Monetary and material considerations are a subset of properly "economic" problems. Economics is an exercise in the logic of choice, which is necessitated by the fact that our values and wants are infinite but the resources (knowledge, matter, time, etc) available at any point in time are finite. Further, people have conflicting values and conflicting plans that have to be reconciled somehow. Economics is not in a position to evaluate people's ends or values. Economics as such cannot tell me whether it is good or bad in any moral sense to consume more today or save more for tomorrow. Economics can trace out the implications and consequences of these choices.

Any choice means that we will incur a cost and receive a benefit, by the very nature of choice. This is a fact of action rather than a prescription or worldview. Anamaria Berea, Jeremy Horpedahl, and I explore this in a paper on James Buchanan's Cost and Choice and F.A. Hayek's The Sensory Order.

Perhaps serendipitously, I started re-reading Ludwig von Mises's Human Action yesterday (which was also his birthday). It's the first time I've read it since my first year of grad school; after about sixty pages I'm blown away with just how much of an intellectual tour de force it is. Mises places economics within a broader category of the sciences of human action (praxeology) and in turn places the sciences of human action within the broader framework of human knowledge. A few choice passages that speak to action and calculation (and that clarify my point from last night) are below the fold.

Read More »

Page numbers refer to the Scholar's Edition, published in 1998 and reprinted in 2008 by the Ludwig von Mises Institute in Auburn, Alabama.

"The general theory of choice and preference goes far beyond the horizon which encompassed the scope of economic problems as circumscribed by the economists from Cantillon, Hume, and Adam Smith down to John Stuart Mill. It is much more than merely a theory of the 'economic side' of human endeavors and of man's striving for commodities and an improvement in his material well-being. It is the science of every kind of human action. Choosing determines all human decisions. In making his choice man chooses not only between various material things and services. All human values are offered for option. All ends and all means, both material and ideal issues, the sublime and the base, the noble and the ignoble, are ranged in a single row and subjected to a decision which picks out one thing and sets aside another. Nothing that men aim at or want to avoid remains outside of this arrangement into a unique scale of gradation and preference. The modern theory of value widens the scientific horizon and enlarges the field of economic studies. Out of the political economy of the classical school emerges the general theory of human action, praxeology. The economic or catallactic problems are embedded in a more general science, and can no longer be severed form this connection. No treatment of economic problems proper can avoid starting from acts of choice; economics becomes a part, although the hitherto best elaborated part, of a more universal science, praxeology." P. 3

--//--

"Praxeology asks: What happens in acting? What does it mean to say that an individual then and there, today and here, at any time and any place, acts? What results if he chooses one thing and rejects another?

"The act of choosing is always a decision among various opportunities open to the choosing individual. Man never chooses between virtue and vice, but only between two modes of action which we call from an adopted point of view virtuous or vicious. A man never chooses between 'gold' and 'iron' in general, but always only between a definite quantity of gold and a definite quantity of iron. Every single action is strictly limited in its immediate consequences. If we want to reach correct conclusions, we must first of all look at these limitations." p. 45

On low-hanging fruit and the "think globally, act locally" concept:

"The road to the performance of great things must always lead through the performance of partial tasks." p. 45

« Close It

Posted by Art Carden at 11:08 AM in Economics

September 29, 2009

Pennies for Astroturf?

I might as well pick up on Art's and Craig's stadium economics posts. In Wednesday's Rome News-Tribune I take a swipe at an upcoming tax referendum to raise $3 million to astroturf the local football stadium in order to retain the NAIA Football Championship. Last year's game, featuring Carroll College of Montana and the U of Sioux Falls, was played in a rainy quagmire and the NAIA apparently wants future games (beyond 2009 which is already committed to Rome) to be played on artificial turf.

The timing of my piece probably won't win me any friends among local astroturf supporters--the RNT reports that a big announcement on the future of the NAIA championship game will be made on Thursday.

Posted by E. Frank Stephenson at 11:10 PM in Economics

September 28, 2009

On Football's Taj Mahal

Here's a letter I sent to the Saint Louis Post-Dispatch a few days ago re: Cowboys Stadium:

"I read Bernie Miklasz's recent column on the new Cowboys stadium with some interest. I too am appalled, but not because of the video board or the plush amenities. I'm appalled because taxpayers were forced to help pick up the tab. Montgomery Burns said it best when he described his taxpayer-funded arena on The Simpsons as "a billionaire using public funds to build a private playground for the rich and powerful." Further, Arlington taxpayers who voted for the stadium because of "economic development" benefits have been sold snake oil: according to the best available estimates, the economic benefits from stadiums are trivial if not negative."

Posted by Art Carden at 09:45 PM in Economics

Star Wars Technology and Childbirth

In the technologically advanced Star Wars universe, how did they not know that Padme was carrying twins? Yoda said that the dark side clouds everything--are we to assume that means the sonogram machine, as well?

Posted by Art Carden at 06:28 PM in Economics

What's the Point of Capitalism, or, Has Hayek Missed a Foothold?

Michael Maiello makes the mistake of conflating free-market capitalism with state corporatism; my fear is that many with leftish sympathies are going to see Moore's movie and throw the capitalist baby out with the statist bathwater. Actually, strike that. I'm afraid they're going to throw the capitalist baby out and keep the statist bathwater.

A lot of people have trouble dealing with the fact that capitalism doesn't have a "point," and a lot of others are scared by the fact that no one is in charge in a free market. This is one of the essential points Hayek raises and discusses throughout his work, and it is not a point for which free markets should be condemned. If anything, our experience with the state suggests that our ability to improve on undirected, voluntary processes is limited. Here's my review of Paul Heyne's 'Are Economists Basically Immoral?' and Other Essays on Economics, Ethics, and Religion in which I discuss some of these points.

Posted by Art Carden at 04:54 PM in Economics

XKCD Learn-a-Long

1. Say it with me: transaction costs! One more time!

2. I'm speaking on a faculty panel on "What's Wrong With the World?" tomorrow night as part of "Think Global, Act Local" week. I hope this doesn't happen, but I probably wouldn't be able to keep a straight face if it does.

3. This has "econ 339 research paper" written all over it.

Posted by Art Carden at 03:56 PM in Economics

Incentives Matter: Doctor Edition

The abstract of a new Journal of Health Economics paper (gated) by Lori Melichar:

The empirical literature that explores whether physicians respond to financial incentives has not definitively answered the question of whether physicians alter their treatment behavior at the margin. Previous research has not been able to distinguish that part of a physician response that uniformly alters treatment of all patients under a physician's care from that which affects some, but not all of a physician's patients. To explore physicians’ marginal responses to financial incentives while accounting for the selection of physicians into different financial arrangements where others could not, I use data from a survey of physician visits to isolate the effect that capitation, a form of reimbursement wherein physicians receive zero marginal revenue for a range of physician provided services, has on the care provided by a physician. Fixed effects regression results reveal that physicians spend less time with their capitated patients than with their non-capitated patients.

Posted by E. Frank Stephenson at 01:29 PM in Economics

September 27, 2009

Barney Frank heard my name

... at Congressional hearings on Paul's "Audit the Fed" bill, thanks to Tom Woods' kindly recommending my 2005 Econ Journal Watch article on the Fed's influence on monetary policy research. The mention comes 2'40" into CSPAN's coverage of the hearings here.

Posted by Lawrence H. White at 07:10 PM in Economics

September 24, 2009

Hernando de Soto on the Power of the Poor

HT: Josh McCabe at The Sociological Imagination.

Posted by Art Carden at 11:35 AM in Economics

Leeson on The Invisible Hook

Here's a Fox Business interview with Peter Leeson on The Invisible Hook. If you're attending the Southern Economic Association meetings in San Antonio, Session 01J is a symposium on Pete's book featuring comments from me, Charles North, Per Bylund, and Virgil Storr along with Pete's response. The symposium is on Monday morning, November 23 from 8:00 AM until 9:45 AM.

Immediately after this session will be an economic history session in which I will present a paper co-authored with Chris Coyne on the Memphis Riot of 1866, Nevins Prize winner Melinda Miller will present a paper entitled "The Effect of Slavery on Family Formation," and Nevins Prize finalist Linda Carter will provide commentary and discussion.

Posted by Art Carden at 09:26 AM in Economics

September 23, 2009

Great Moments in Economics Homework Typos

For a sheet of problems on supply and demand and comparative advantage, I usually include "Consult the sheet I passed on [DATE] for the definitions of a 'surplus' and a 'shortage.'" This semester, I eliminated the date and meant to write "Consult the sheet I passed out during our discussion..."

After removing 56 copies out of the copier, I saw that the text was "Consult the sheet I passed out on during our discussion..."

I have been feeling a tad narcoleptic recently...

Posted by Art Carden at 04:34 PM in Economics

Does the history of banknotes show us that government must regulate banks?

Writing on the VoxEU blog, economists Oren Levintal and Joseph Zeira draw lessons for the current crisis from their working paper on "The Evolution of Paper Money". (The paper is gated, but Prof. Levintal has kindly sent me a copy.)

An introductory three-sentence summary of their blog piece refers to the "18th century emergence of the inconvertible banknote, a 'toxic asset' ended by government regulation". I don't know whether the authors are reponsible for this blurb. Whoever is should consider that banknotes are among a bank's liabilities, not among its assets, so it doesn't make sense to liken them to present day "toxic assets" held by banks.

L&Z describe the development of banknotes redeemable for silver, then write: "Competition imposes discipline on the issuing banks, because agents can always move to other forms of money." So far so good. Then they add: "However, if some bank becomes the dominant issuer of notes (as was the case many times) and if silver is scarce, these notes face little competition. Thus, the issuing bank has incentive to over-issue notes, which might lead to inflation. This happened in several episodes of free banking and ultimately led to government intervention."

This is a puzzling passage. According to standard sources like Vera Smith, The Rationale of Central Banking, in the leading historical cases where a bank became the dominant issuer of notes it was because the government gave it a legal grant of monopoly. The Bank of England is a case in point. It did not happen in episodes of free banking. Kurt Schuler, "The World History of Free Banking" in Kevin Dowd, ed., The Experience of Free Banking, reports that of the sixty free banking cases he found, not one gave rise to a single dominant issuer through market forces (natural monopoly). Even on the tiny island of Malta, two issuers competed.

A legally protected monopoly issuer, e.g. the Bank of England, could and did over-issue notes. The problem of over-issue did not plague free banking episodes. Over-issue was the result and not the cause of intervention (the grant of monopoly) abridging freedom of note-issue. As L&Z wrote, competition imposes discipline on issuing banks. Competition in note-issue is not self-extinguishing.

L&Z mention a historical episode described by Adam Smith, in which Scottish banks around 1763 invoked their contractual option to defer redemption, with the result that their notes fell to a discount. I don't think we fully understand what happened in that episode. But it clearly isn't explained by L&Z's dominant-issuer scenario, because there was no dominant issuer in the Scottish system at that time. There were three large banks, not one, and dozens of smaller banks. L&Z's working paper cites Checkland's Scottish Banking: A History and my Free Banking in Britain, so they must know that there was no dominant issuer.

Posted by Lawrence H. White at 02:33 PM in Economics

Harvard Econ demonstrates case for Tullock Nobel

Over at Greg Mankiw's Blog, the Harvard econ folks are running a numbers game over who wins the Nobel on Oct 12.

HOW TO ENTER: Nominate who you think will win the 2009 Memorial Prize in Economics. Each name that you enter costs $1. You can also guess that no entrant will correctly guess the recipient(s). You can enter as many times for as many names you’d like.

[...]

All money collected will be divided between the winners of the pool. If there is one recipient of the prize, the payout will be divided among all those entrants who guessed correctly, with each of those correct guessers receiving a share in proportion to her/his share of the total number of bets placed on the prize recipient. If no one guesses correctly, the votes will be divided in the same fashion among those who entered "No Correct Guess." If there are n>1 recipients, exactly 1/n of the payout will be allocated to each and distributed as per the rules for one recipient.

This sure sounds a lot like Tullock's second big rent seeking paper ("Efficient Rent Seeking," 1980). This one paper set off a firestorm of academic work into game theory, political economy, and welfare economics, one which lasted a generation and then some. Nowadays, whenever we think of people sinking time and resources into unproductive activities, the phrase "rent seeking" comes to mind and Gordon Tullock is somewhere nearby, probably wagging his finger at you or low-talking into his recorder. The man had it figured out before anyone else -- not every detail and not every sub-game perfect equilibrium solution, but the idea intact and ready for delivery. Seriously. If we're talking pure merit, can anyone legitimately deny that there is a strong case for Tullock (and Tullock alone)?

Posted by Edward J. Lopez at 03:09 AM in Economics

September 22, 2009

Did I pick a great time to go to Europe or what

From x-rate.com, here is USD / Euro last 120 days.

Posted by Edward J. Lopez at 11:44 AM in Economics

September 21, 2009

The Stimulus in Cash for Clunkers: Giving Economists Something to Do

Burton Abrams and George Parsons chime in on the silly cash for clunkers program, and find that the costs outweigh the benefits by approximately $2000 per vehicle.

No surprise here. Move along.

Posted by Brad Smith at 06:05 PM in Economics

Health Care Costs

New baby + new prep (History of Economic Thought) = not much time blogging

Let's leave comments open and see what everyone thinks: Health care costs are supposed to be spiraling out of control. Then why are the Lasik prices for my wife, who is going under the laser this Friday, exactly the same as they were a year ago when I had it done?

P.S. She couldn't get through the exam without laughing thinking of this.

Posted by Tim Shaughnessy at 02:50 PM in Economics  ·  Comments (3)

Seen and Unseen: Demo Derby Edition

Yep--more blowback from the cash for clunkers scheme:

With 690,000 vehicles sentenced to one final gargle of sodium silicate, thanks to the now-defunct Cash for Clunkers program, demolition-derby drivers seem to have been left holding the short end of the driveshaft. What the government seems to have forgotten is that many cars, hobbling and sputtering as they near death, prefer to make one final trip to the local county fair (assuming they escape a 24 Hours of LeMons team). There, stripped of glass and with fuel tanks moved safely inward, the clunkers die an honorable death smashed gloriously to pieces in front of large (and often well-hydrated), cheering crowds.

HT: Mark Steckbeck

Posted by E. Frank Stephenson at 02:14 PM in Economics

Global Debt Clock

Here is a global debt clock that enables handy comparisons across countries. I was struck by the differences in public debt per capita and public debt as a percentage of GDP in the US, Canada, and France. I had thought the Canadian debt picture was better than the American debt picture, but apparently not.

Posted by Art Carden at 12:15 PM in Economics

September 20, 2009

Money and Evil in the Bible and Atlas Shrugged

I re-read Francisco d'Anconia's money speak from Atlas Shrugged last night. I've been thinking about it a lot in light of Christian denunciations of "the love of money," which is either "the root of all evil" or "a root of all kinds of evil" depending on your particular translation. I think that, unfortunately, a lot of Christian views of money are held over from societies in which expropriation and redistribution rather than production and exchange were the routes to wealth. Indeed, here's 1 Timothy 6:9-10 (KJV), which suggests that the desire to get money leads people to commit all sorts of evil deeds:

"But they that will be rich fall into temptation and a snare, and into many foolish and hurtful lusts, which drown men in destruction and perdition. For the love of money is the root of all evil: which some coveted after, they have erred from the faith, and pierced themselves through with many sorrows."

If you who are familiar with Atlas Shrugged, that sounds a lot more like a condemnation of Orren Boyle, Jim Taggart, and their ilk than Hank Rearden or Francisco d'Anconia. I think the out-of-context "money=evil" meme is a holdover from a world of illiteracy, venality, and corruption in which the kings and priests could exploit the credulity of the unwashed masses for personal gain (anyone wanna buy an indulgence?). What I say here is tentative rather than authoritative, to say the least; if you have any comments or suggestions for further reading, I would be grateful. Comments are open or you can email me. Choice passages from d'Anconia's money speech are below the fold; at first they seem to run counter to Christian teachings about money, but I think they can be reconciled.

Read More »

Here's d'Anconia:

"Money is the barometer of a society's virtue. When you see that trading is done, not by consent, but by compulsion--when you see that in order to produce, you need to obtain permission from men who produce nothing--when you see that money is flowing to those who deal, not in goods, but in favors--when you see that men get richer by graft and by pull than by work, and your laws don't protect you against them, but protect them against you--when you see corruption being rewarded and honesty becoming a self-sacrifice--you may know that your society is dommed. Money is so noble a medium that it does not compete with guns and it does not maek terms with brutality. It will not permit a country to survive as half-property, half-loot."
...
"When you have made evil the means of survival, do not expect men to remain good. Do not expect them to stay moral and lose their lives for the purpose of becoming the fodder of the immoral. Do not expect them to produce, when produciton is punished and looting rewarded. Do not ask, 'Who is destroying the world?' You are."
...
"That phrase about the evil of money, which you mouth with such recklessness, comes form a time when wealth was produced by the labor of slaves--slaves who repeated the motions once discovered by someone's mind and left unimproved for centuries. So long as production was ruled by force, and wealth was obtained by conquest, there was little to conquer. Yet through all the centuries of stagnation and starvation, men exalted the looters, as aristocrats of the sword, as aristocrats of birth, as aristocrats of the bureau, and despised the producers, as slaves, as traders, as shopkeepers--as industrialists."
...
"When money ceases to be the tool by which men deal with one another, then men become the tools of men. Blood, whips and guns--or dollars. Take your choice--there is no other--and your time is running out."

« Close It

Posted by Art Carden at 09:44 AM in Economics  ·  Comments (11)

September 19, 2009

We have socialized fire protection. Why not socialized medicine?

Some have invoked government provision of fire protection services as an apologetic for government provision of health services; indeed, there is at least one Facebook group devoted to it. I don't think it works. Here's Fred McChesney on how we got socialized fire protection, and here's his Journal of Legal Studies paper on the development of socialized fire protection. HT: Jeremy Horpedahl.

Update: a few people tell me the links don't work, and I can't figure out why (I've checked the HTML tags, and I think the syntax is OK). Here are the URLs:

http://www.econlib.org/library/Columns/Mcchesneyfire.html

http://www.jstor.org/pss/724362 (gated)

Posted by Art Carden at 09:59 AM in Economics

September 18, 2009

Another Reply to Krugman: David Levine

David K. Levine is writing a series of pieces for the Huffington Post. Particularly worth reading is his Open Letter to Paul Krugman.

Posted by Art Carden at 10:17 PM in Economics

Economic History Resources: "Drunk History"

To be added to yesterday's list of history resources on YouTube, Drunk History. George Michael from "Arrested Development" gives a pretty good performance as Alexander Hamilton.

Posted by Art Carden at 05:34 PM in Economics

References and Readings for "Think Globally, Act Locally"

Here are some links and readings on which I'm basing my remarks at the "Think Globally, Act Locally" faculty panel at Rhodes on September 29:

1. Ayn Rand, Atlas Shrugged. Rand demonstrates a clear understanding of the unintended consequences of policies and actions, and she shows in detail how intentions do not translate into outcomes.

2. Friedrich Hayek, The Road to Serfdom. Hayek argues that interventionism kills liberalism and leads to totalitarianism.

3. Milton Friedman, Capitalism and Freedom. Friedman shows how economic freedom is consistent with and indeed essential to human flourishing. Before you reach for your copy of Naomi Klein's The Shock Doctrine to support your claim that Friedman is "The Proud Father of Global Misery," read my essay on The Shock Doctrine and Tyler Cowen's review.

4. Lant Pritchett, Let Their People Come. The entire book can be downloaded here. This book convinced me that removing restrictions on free immigration is not just a good idea but a moral imperative.

5. Frederic Bastiat, "What is Seen and What is Not Seen" and The Law (online, PDF, audio). Bastiat is an economist, journalist, and polemicist who is the originator of the "broken window fallacy."

6. Henry Hazlitt, Economics in One Lesson. Hazlitt's book is a series of lessons drawn from Bastiat's central insight.

7. Ludwig von Mises, Socialism (online, PDF). This is a greatly-expanded exploration of Mises's argument that rational economic calculation under socialism is impossible.

8. Deirdre McCloskey, The Bourgeois Virtues: Ethics for an Age of Commerce (Google Books, PDF of rough draft). The first sixty pages are essential; McCloskey surveys how bourgeois capitalism has not just made us richer, but better and more ethical.

8. Art Carden and Josh Hall, "Why Are Some Places Rich While Others are Poor? The Institutional Necessity of Economic Freedom." We discuss the definition of economic institutions and the role of economic freedom in creating prosperity. I discuss the relationship between foreign aid and economic growth in this paper.

9. My Mises.org audio archive. I gave five lectures: Production and the Firm, Environmental and Resource Economics, Common Objections to Capitalism, Consumer Product Regulation, and Short Selling: Explanation and Defense.

10. Links from my lectures at IHS and Mises University this past summer. The Mises U links in particular deal with environmental issues.

11. My "Blog Action Day: Poverty" entry from last year.

12. Lynne Kiesling's excellent discussion of the "man of system" passage in Adam Smith's Theory of Moral Sentiments.

Posted by Art Carden at 04:27 PM in Economics

Health Care and the Baucus Plan

Tyler Cowen and Uwe Reinhardt discuss health care plans.

Posted by Art Carden at 10:18 AM in Economics

September 17, 2009

Cowboys Stadium and Economic Development

ESPN oohs and aahs, calling it "Jerry Jones' creation" and "a tribute to excess." Instead of ruminating on the economics of stadiums--they're classic broken glass--I thought I would yield the floor to C. Montgomery Burns:

Private playground sound bite

Posted by Art Carden at 09:38 PM in Economics

Gus Rankings: Alabama is Tied for #1!

Matt Ryan posts the first edition of The Gus Rankings, with my Alabama Crimson Tide tied for #1 with something like half a dozen other teams. I like the basic idea of the Gus Rankings: you get a point for every game won by a team you beat, and you lose a point for every game lost by a team that beat you. Matt explains it in greater detail; one thing I like is that he is eliminating games against I-AA/FCS teams, so massive mismatches like Florida/Charleston Southern or the Michigan-App State game from a few years ago (oh, wait...) are eliminated. I doubt they matter much in the polls and the computers, but giving Florida any kind of credit for beating Charleston Southern is like counting the St. Louis Cardinals' win in a preseason game against the Memphis Redbirds (their AAA affiliate). My gut reaction is that the Gus Rankings would eliminate the incentive to schedule games like that. I climb the soapbox below the fold.

Read More »

I really look forward to seeing how these rankings track against the polls and the BCS because I have a pretty strong prior that the polls discriminate against teams like Utah, Boise State, and BYU. As much as I'm an SEC partisan, I have to admit that Utah did two things Florida didn't: they won every game they played, and they throttled Alabama on what might as well have been their home field in the Sugar Bowl. Florida has the trophy, but Utah was last year's uncrowned national champion.

If BYU runs the table, I hope they don't get the Utah treatment this year. In addition to winning their conference and all of that, they will have won a signature game against Oklahoma and another game against BCS conference foe Florida State. I don't think the "look at their schedule" argument holds, either. The Mountain West Conference was 6-1 against the Pac-10 last year during the regular season--and yes, BYU did lose to Arizona in the Las Vegas Bowl--but if USC and BYU are both undefeated and the MWC has a similar performance against the Pac-10 this year, I think justice demands that BYU get the nod.

« Close It

Posted by Art Carden at 08:00 PM in Economics

Milton Friedman on Health Care

Here's Milton Friedman, that flunky apologist for the rich and powerful...telling rich and powerful people that they should be less rich and less powerful (HT: Will Wilkinson). From the vault, here's my essay on Naomi Klein's The Shock Doctrine, which takes on new relevance given that Friedman is still getting bad press.

Posted by Art Carden at 07:21 PM in Economics

Ok, maybe I am a sore loser but...

Having been the plaintiffs' sole expert witness I confess that did check to see if the Ohio Supreme Court mentioned me or my testimony in their decision. And sure enough they did but only once.

The state (and both courts that ruled against us) relied heavily on differences in the statutory incidence between sales taxes (levied on buyers) and gross receipts taxes (levied on sellers).

To economists this is pretty damned stupid and I tried to make this point in my testimony by saying that the burden of taxes will be distibuted to buyers, sellers, and factors of production independently of the statutory incidence regardless of the type of tax.

The court wrote,

And even with greater CAT liability, the cost of the tax might never cause grocers to increase the price of food. As recognized by the Grocers’ own expert, the seller might respond to the cost of the CAT by cutting wages or taking lower profits.

Yes, $#@%^$ %$&$#@!, I said this also the case with SALES TAXES. The whole point was that this doesn't matter in determining what kind of tax it is. A sales tax doesn't seize to be a sales tax if some (or all of it) can be passed on to owners or workers.

Posted by Robert Lawson at 05:05 PM in Economics

Final word on the Ohio CAT

As expected , by a vote of 6-1, the Ohio Supreme Court today ruled that the Ohio Commercial Activities Tax (CAT), a tax levied on a firm's gross receipts, is not a sales tax, and thus not in violation of the state constitutional prohibition against sales taxes on food.

Writing for the Court in today’s decision, Justice O’Connor noted that laws duly enacted by the General Assembly are entitled to a strong presumption of constitutionality, and also observed that when a party sues the state seeking a tax exemption, courts are required to strictly construe the laws cited by the plaintiff. She wrote: “These precepts require us to uphold the CAT if it may plausibly be interpreted as permissible under Sections 3(C) and 13 (of the Ohio Constitution).

"The actual wording of Sections 3(C) and 13 does not prohibit the state from using gross receipts to compute the amount of a privilege-of-doing-business tax, even if those gross receipts include proceeds from the sale of food. And ... interpreting Sections 3(C) and 13 to allow such a tax is not only faithful to the text, it is (1) consonant with long-settled legal principles governing the taxation of the privilege of doing business, (2) implied by the structure of Sections 3(C) and 13, and (3) confirmed by the history both preceding and succeeding the enactment of those provisions. And when the CAT’s practical operation is considered, it becomes evident that it is what it purports to be: a permissible tax on the privilege of doing business, not a proscribed tax upon the sale or purchase of food. For these reasons, we reverse the judgment of the court of appeals.

Got that? "consonant with..." "implied by..." "confirmed by..." Gotta love lawyers.

Justice Paul E. Pfeifer entered a dissent stating that in his view collection of the CAT from grocers and other businesses based on their gross receipts from the sale of food is “an excise tax upon the sale or purchase of food” and is therefore prohibited by Sections 3(C) and 13 of the state constitution.

He wrote: “It is an incontrovertible fact that if a retailer has sales over $1 million and he sells an additional 40 gallons of milk at $2.50 per gallon, for a total of $100, a tax of 26 cents is levied upon him and the state collects 26 cents. Is this not a tax ‘levied or collected upon the sale or purchase of food?’ That 26 cents per $100 is a small sum does not mean that this tax is de minumus, as the majority suggests as to the $150 flat fee. Though there are more than 11 million Ohio residents, assume that only ten million people actually live in Ohio. Further assume that they each consume exactly one gallon of milk per month, that milk costs $2.50 per gallon, and that all of the milk is purchased from a retailer with sales in excess of $1 million – that is, any milk purchased from Kroger, UDF, Giant Eagle, Meijer, Target, Whole Foods, Sam’s Club, Costco, and the like. The excise tax levied and collected by the state based on the sale of ten million gallons of milk would be $65,000. Would this not be a tax ‘levied or collected upon the sale or purchase of food?’”

Justice Pfeifer, that would be EXACTLY the same as a 0.26% sales tax on milk. You get an A in my class, sir.

Posted by Robert Lawson at 04:49 PM in Economics

Are Economics Departments the most dsyfunctional?

Exhibits A, B, C, D.

Posted by Robert Lawson at 01:57 PM in Economics

Health Care Redux: What central planning of health care looks like

Yesterday I said it's amazing how little has changed in health care debates over the past century. Today I illustrate by asking: What would more central planning in health care look like?

The economics staff of the Joint Economic Committee picture this:

I worked as a staff economist on the Joint Economic Committee for about seven months in 1993-94. During my short time there, I worked on two projects that influenced the debate over the Clinton health care proposal. The first was a flow chart that diagrammed the Clinton plan, in particular how it would allocate resources through command and control (global budgets, patient queuing, lots of new federal agencies, a patient ombudsman in Washington, and so on). Counter-critics said the diagram was a caricature, but no one said it wasn't accurate. Everything in it came right out of the Clinton plan that Ira Magaziner wrote and leaked to Congress in the fall of 1993. The chart was published in the Wall Street Journal on October 13, 1993, and later dubbed by an admittedly self-serving Dick Armey as "the chart that killed the Clinton health plan." A couple of months later, then-Senator Bob Dole displayed another chart to anchor his response to President Clinton's State of the Union Address. Fancier than mine, with lots of colors and slick lines, Dole's chart was likened New York Subway map.

In those days there were lots of charts flying around. Call it an age of charts -- thanks in part to Ross Perot's 1992 campaign for president. Hello again, age of charts. Here's a scan of my chart.

Posted by Edward J. Lopez at 12:19 PM in Economics

Economic History: The Constitution

Over the summer, I had the privilege of meeting historian Gordon S. Wood at the Jack Miller Center's Summer Institute. There are a lot of videos of Professor Wood on teh interwebs in which he discusses the Revolution, the Constitution, and other matters. I wasn't familiar with the Gilder Lehrman Institute of American History before this morning, but they seem to offer a lot of excellent resources via their YouTube Channel. This is an interesting exercise in Tyler Cowen's discussion of assembling and ordering "small bits" in Create Your Own Economy (review forthcoming). A couple of clips I'll be assigning are below the fold.

Read More »

Here is Gordon Wood on the American Revolution:

Here is Andrew Robertson on the fundamental changes that take place during the Revolution:

Here is Wood on the Constitution, courtesy of Brown University (embedding disabled).

And here is Carol Berkin on the role of women in the American Revolution:

« Close It

Posted by Art Carden at 09:28 AM in Economics

September 16, 2009

Economics and Health: Response to Forbes Piece

A reader sends an email to Steve Horwitz and me in response to our article commenting on Jane Smiley and gives us permission to post:

Hello Gentlemen, I read your article. I found it very interesting and informative. I wanted to comment on one particular part of the article, but by applying it to another subject. A subject we are all watching and in front of our faces at this time. The following copy and paste below from your article, which is a quote from Murray Rothbard as described in your piece, will be the subject of my email to you. "Murray Rothbard once said that "it is no crime to be ignorant of economics," but that it is "totally irresponsible to have a loud and vociferous opinion on economic subjects while remaining in this state of ignorance."" I can't say that I haven't said something similar to this quite a few times the past few months on our current Healthcare Debate. I live in Texas, a well known and documented Conservative Red State. To make matters worse, I live in the Dallas area, where G Bush now resides, and I am in a profession loaded with the opposition Party. I'm a Texas Democrat. I am in the minority in this state, even though I believe the numbers to be shifting just a little bit. BUT, this is Texas, and I digress. The reason for me wasting your time is this: Applying, or interchanging, "Healthcare" for "Economics", in this quote seems to describe, in my opinion, exactly what is going in Town Hall meetings across out nation regarding the Healthcare debate. I have personally witnessed a Town Hall meeting here in Texas, and watch, or listen to, the news, a large part of the day everyday, so I've seen a ton of signs with very derogatory remarks and criticisms. To back up a bit, I am in no way stating that Americans shouldn't protest, or show up in large numbers to question a Government practice. To make this short, we all know that is Our American Right. However, most of the people at these events seem to be the older generation, on Medicare, and protesting an ideal that they are already using themselves. There are so many holes in the argument against the naysayers in the Healthcare debate in my opinion, but the most evident in my mind is the fact that the biggest bulk of the audience appears to be using government funded, government subsidized, Healthcare already. How can one scream and yell "Socialism" and "Government Takeover of Healthcare" when they themselves are on a very similar or same program? I'm not an economist, or involved in politics as a career or for gain, but I do consider myself a very intellectual person, and my view on this doesn't take much intelligence to recognize the hypocrisy spilling out of these Town Hall Meetings. So to my point: in changing the words to "it is no crime to be ignorant of Healthcare Reform," but that it is "totally irresponsible to have a loud and vociferous opinion on Healthcare Reform subjects while remaining in this state of ignorance", pretty much sums up the Healthcare Reform debate, as it relates to these Town Hall Meetings, in my opinion. Not only has the debate gone hypocritical, but most of the questions, fears, concerns, and shouting, has been about false statements, false propaganda, and without common sense, fed to them by media sources or by the opposition Party. But it goes without saying, they are loud, they are vociferous, they are uneducated on the issues, thus ignorant on the subject. Notwithstanding your own political views, or even engaging in an exchange of opinions, I really wanted to comment on that quote you used with this little bit of spin, since I believe it to be the perfect way to describe this debate. Again, sorry to take up your time, I'm just pretty warn out with the extremism and attention this debate has gotten in all it's hypocrisy.........Thanks for listening and for a very informative article. Have a great day!!!

Posted by Art Carden at 06:10 PM in Economics

Bumper Sticker Hilarity

Funny bumper stickers and t-shirts I've seen recently:

1. Driving to Rhodes today: "Midwives help people out!"

2. Rhodes parking lot, Monday: "Honk if I'm Paying Your Mortgage"

3. At DragonCon, this t-shirt.

Posted by Art Carden at 04:56 PM in Economics

Media and Discourse

I'm working on a review of Tyler Cowen's Create Your Own Economy, and I thought this passage was pretty interesting even though it doesn't really fit into the review:

"Media coverage brings similar problems of oversimplification. The tendency is to fit all facts into the format of a story, usually with a memorable protagonist, even when the reality is more complex. Haven't you noticed how many movies and TV shows offer an underdog struggling against the system and receiving ultimate vindication? It makes for a good tale. Yet this isn't always the most appropriate or the most accurate way of organizing information. The media is good at portraying heroes and villains and conspiracies, while it is bad at giving people an understanding of abstract or unseen social and economic forces." (p. 115)

This is a pretty good discussion of bad cognitive habits that reinforce other bad cogntive habits. I offer the health care debate as a case in point. Unfortunately, the discussion of Tea Party and Town Hall protests has been crafted into a narrative of morally unambiguous solutions thwarted by a combination of evil and ignorance. The assumption that anyone who opposes the President's health plan is a racist, an AstroTurf flunky, or both does not do anything to advance the debate in a useful direction. Of course, some of the President's more outspoken critics aren't helping their causes with inflammatory rhetoric. Referring to the President as an "Indonesian Muslim turned welfare thug" certainly doesn't invite sympathy and will almost certainly alienate reasonable people who support the President (HT: Chuck McKinney for the link).

Posted by Art Carden at 04:53 PM in Economics

Production and the Firm

Here's my very first Mises U lecture and my first video on YouTube. Topics include capital, productivity, trade, comparative advantage, and the firm.

Posted by Art Carden at 04:01 PM in Economics

Learning Economics at Harvard Medical School

When you peel back a few rhetorical layers of the current health care debate, it is amazing how little has changed since 1993 (Clinton care), or 1965 (Medicare & Medicaid), or 1954 (ESIs tax exempt), or even 1912 when Teddy Roosevelt campaigned for national health insurance. (More on TR here.) In an imperfect world, empathy and good intentions naturally move us to seek solutions, and rational ignorance naturally moves us to favor vivid solutions with quick-fix promises backed by technocratic awe. On deeper consideration, or when later confronted with unintended consequences, we might appreciate the limitations of resting the outcomes for millions in the hands of the few, however smart and well-intentioned the latter may be. In turn, we might even consider subtler, more opaque, less obvious solutions, which might not even look like solutions at all but instead -- well, processes. Like the processes of innovation, or of developing best practices, or of discovering productive efficiencies, or of human competition in general. The division of labor, while an ancient concept (HT: Xenophon), isn't the first stop along the mind's route to choice (HT: Vernon Smith). Yet it underlies each and all of the processes that subtly and dynamically improve the human condition -- not to perfection, but certainly to betterment.

We live in an imperfect world -- a simple and obvious point that the current political climate simply and obviously ignores. So it is noteworthy when prominent voices urge our policies in the direction of processes that, while imperfect, will make us better off.

Last week Jeffrey S. Flier, who is the Dean of Harvard Medical School, published "Health Care Reform: Without a Correct Diagnosis, There is no Cure" Journal of Clinical Investigation, Sep 10, 2009. (HT: Jeffrey Flier). Dr. Flier argues that we ought to give policymakers some pause, and we should resist the temptation of falling for a major systemic overhaul that impossibly purports to fix all problems in one fell swoop. Rather, based on a sound (rather than political) understanding of the problems, we should: 1) neutralize the tax privilege of employer sponsored insurance; 2) eliminate barriers to entry in medical services and especially innovation; and 3) look seriously at Medicare and Medicaid (although he doesn't elaborate, he is noteworthy for even going near these third rails). Dr. Flier's paper is also discussed in today's WSJ editorial. Elsewhere, and earlier, Dr. Flier co-authored with Terry Flier a lengthier essay on the principles of freedom and beneficial consequences of exchange in health care markets. Greg Mankiw blogged about it favorably here.

Dr. Flier's colleagues at Harvard Medical School, Gerome Groopman and Pamela Hartzband, peel back the rhetoric offered in President Obama's summer health care stumps. Underneath, they shed light on the intersection of economics and medicine. The best section in Drs. Groopman and Hartzband's article shows us how best practices in medical treatment are discovered. Best treatments change quickly with new evidence, new drugs, new devices, and good judgment at the individual doctor-patient level. It cannot be centrally planned, even by good, smart people.

Even when experts examine the same data, they can come to different conclusions. For example, millions of Americans have elevated cholesterol levels and no heart disease. Guidelines developed in the U.S. about whom to treat with cholesterol-lowering drugs are much more aggressive than guidelines in the European Union or the United Kingdom, even though experts here and abroad are extrapolating from the same scientific studies. An illuminating publication from researchers in Munich, Germany, published in March 2003 in the Journal of General Internal Medicine showed that of 100 consecutive patients seen in their clinic with high cholesterol, 52% would be treated with a statin drug in the U.S. based on our guidelines while only 26% would be prescribed statins in Germany and 35% in the U.K. So, different experts define "best practice" differently. Many prominent American cardiologists and specialists in preventive medicine believe the U.S. guidelines lead to overtreatment and the Europeans are more sensible. After hearing of this controversy, some patients will still want to take the drug and some will not.

This is how doctors and patients make shared decisions—by considering expert guidelines, weighing why other experts may disagree with the guidelines, and then customizing the therapy to the individual. With respect to "best practices," prudent doctors think, not just follow, and informed patients consider and then choose, not just comply.

What would be a man of systems' preference for developing best practices? Quoting Groopman and Hartzband, "The president also said there should be financial incentives 'to allow doctors to do the right thing'."

I've never been, but I suspect you can learn more than good medicine at Harvard Medical School. These are refreshing and informative reads, well worth being absorbed in their entirety, both for understanding health reform and for learning good economics.

Posted by Edward J. Lopez at 02:30 PM in Economics

Race and Development

The always-excellent William Easterly has a great post entitled "How the British Invented 'Development' to Keep the Empire and Substitute for Racism." After doing a lot of reading on the development of ideological justifications for slavery in the US and after searching through the papers of the Association of Southern Women for the Prevention of Lynching, I think classical liberals and libertarians don't pay enough attention to what our friends on the left have to say about race, racism, and how these affect institutions. In my Mises U lecture on "Common Objections to Capitalism," I pointed out that history is smeared with racism, bigotry, and the unfortunate effects of tribalism. If you take two racist societies that are alike in every respect and give one society capitalist institutions while giving the other society statist institutions, I would expect the capitalist society to be less racist as time goes on.

What does this have to do with Easterly? Easterly discusses the late twentieth century fetish for "development" and argues that it has its roots in the racist assumptions of European imperialism (am I starting to sound like a Marxist?!). I would argue that its appeal is that it flatters the paternalist conceit of the man of system. I think this was particularly true in the technocratic intellectual environment of the 1940s and 1950s. Here is his punchline, lest Easterly be misunderstood:

Why does this history matter today? After all, the Empire fell apart much sooner than expected, and racism did diminish a lot over time. And I do NOT mean to imply guilt by association for development as imperialist and racist; there are many theories of development and many who work on development (including many from developing countries themselves) that have nothing to do with imperialism and racism.

But I think the origin of development as cover for imperialism and racism did have toxic legacies for some. First, it meant that the concept of development was determined to fit a propaganda imperative; it was NOT a breakthrough in thought by economists. Second, it followed that development from the beginning would stress the central role of Western aid to help the helpless natives (which shows up in the early development theories like the “poverty trap” and the “Big Push,” and the lack of interest in local entrepreneurs and market incentives). Third, the paternalism was so extreme at the beginning that it would last for a long time – I still think it is widespread today, especially after today’s comeback of the early development ideas in some parts of the aid system. And this history also seems strangely relevant with today’s “humanitarian” nouveau-imperialism to invade and fix “failed states” like Iraq and Afghanistan.

Membership in the development elites is far more diverse than in Lord Hailey’s time, but I fear that, to use Wolton’s words, “in the end, the elites still believe in their fundamental superiority.”

Cross-posted at The Beacon.

Posted by Art Carden at 12:49 PM in Economics

More on Norma Rae

Norma Rae was certainly brave, committed, and all that. But you know what they say about good intentions. What about the results? I'm sure all those unionize textile workers in North Carolina are living fine socially just lives these days, right?

Oh wait...

Posted by Robert Lawson at 08:31 AM in Economics

September 14, 2009

The Rocky Harbor Picture Show

I was thinking last night that the biggest oxymoron in all of public policy is the term "trade war." Trade is cooperation for mutual benefit while war is a negative-sum game in which a lot of stuff gets destroyed. In light of the recent tire tariff, it looks like things are going to get gruesome as China retaliates. Here's Greg Mankiw with a few links and here, like clockwork, is a letter from Don Boudreaux pointing out that the tariffs punish Americans. Here's a bit of wisdom attributed to Joan Robinson:

"If your trading partner throws rocks into his harbor, that is no reason to throw rocks into your own."

And here's the Google Books link for Don's Globalization, which was one of the first things that came up when I googled (Joan Robinson rocks harbors).

Posted by Art Carden at 01:30 PM in Economics

Review Of International Organizations

The editor of the Review of International Organizations, Axel Dreher, sent me a link to the the most recent issue of the journal. While I had not heard of it before, it seems quite interesting. In particular, the forthcoming article by Peter Bernholz titled "Are international organizations like the Bank for International Settlements unable to die?" seems quite nice. From its abstract:

International Organizations seem to be immortal or at least long-lived. In this paper several factors which may be responsible for this fact are put forward and then analyzed by studying the empirical case of the Bank for International Settlements (BIS), which has now survived for seventy-eight years all threats to its existence. This is the more surprising since it was heavily attacked by the government of the most powerful country of the world, the USA for some years. This country demanded the dissolution of the BIS at the Bretton Woods Conference in 1944 as a precondition for allowing nations to join the planned International Monetary Fund. Before this the Bank was also able to master the crisis resulting from the demise of the gold (exchange) standard and the end of the German reparation payments agreed on in the Dawes and Young Plans, both consequences of the Great Depression.

It seems to me that most public choice scholars would find this paper of interest.
An underexplored area of economics for public choicers is the political economy of international organizations (although The Political Economy of International Organizations: A Public Choice Approach by Vaubel and Willett is great and Dreher himself does nice work as well).

Posted by Joshua Hall at 11:44 AM in Economics

EFW 2009 is out!

The new Economic Freedom of the World: 2009 Annual Report was released today.

A short summary:

Economic Freedom of the World, 2007

Chapter 1 provides an overview of the economic freedom of the world project and the results of this report. It also reviews some causes of the current economic crisis and looks back at the Great Depression, examining briefly some of the policy responses—monetary contraction, trade restrictions, and increased government spending and taxation—that, perversely, prolonged that economic downturn. It warns against repeating similar mistakes.

The Impact of Financial and Economic Crises on Economic Freedom

Chapter 3 reviews the impact of banking crises, and their negative economic impact, on economic freedom. While the study finds that economic freedom may decline in the short term in response to crises, the results also indicate that, over a longer time, economic freedom had a tendency to increase after a banking crisis. As this case study shows, in Norway and Sweden the banking crisis did not distract these countries from continuing with their market-based reform policies.

The econometric results for changes in the level of economic freedom based on observations at 5-year intervals from 1970 to 2005 suggest that countries that had a banking crisis in the previous period increased their level of economic freedom. This result stands in sharp contrast to the chapter’s findings for the sample of annual observations over the period from 2001 to 2006 that suggest that in the short term a banking crisis lowers economic freedom. However, the authors warn that, due to the global nature of the current crisis, their results may underestimate the impact of the crisis on economic freedom. In other words, evidence based on previous crises may not capture the impact of the current crisis fully. As most countries in the world are in a serious economic downturn at the same time, the authors caution that it will be much harder to get out of this recession.

The Effects of American Recession-Fighting Policies on Economic Freedom

The third chapter examines the recession-fighting policies of the US government and concludes that many policy responses will reduce the country’s overall level of economic freedom in, at least, the short-term, through the following mechanisms.

• Monetary policy will likely cause inflation.
• The fiscal-stimulus package will likely result in unprecedented levels of deficits and interest payments that reduce the amount of credit going to the private sector.
• Federal spending on infrastructure, social programs, and transfers to the states will increase government consumption and transfers, lead to more regulation and, in some cases, encroach on state responsibilities, damaging the integrity of the legal system.
• Bailout policies involve changes in existing rules, damaging property rights, the integrity of the legal system, and the legal enforcement of contracts.
• Other measures, or proposed measures, that will reduce economic freedom include higher marginal incometax rates, increased regulation of the financial and manufacturing industries, and increased regulation related to the cap-and-trade system.

The policy implications of these findings are simple, the author argues. Since reductions in economic freedom lower economic growth and the overall well-being of Americans, the policies should be evaluated in the light of these costs
when they are undergoing detailed desgn, are implemented, and when they are reviewed in the future.

You can read the whole thing here.

Posted by Robert Lawson at 08:58 AM in Economics

September 13, 2009

DeLong on a Principle for Policy Evaluation

I sent Forbes.com a piece on tire tariffs earlier today; I wish I'd waited long enough to be able to include this:

"That's the point: when the policy you are adopting is worse for everybody than a policy you agree is stupid, the policy you are adopting is best characterized as really stupid."

That's Brad DeLong's criticism of Tire Tariffs, along with a couple of back-of-the-envelope calculations.

HT: Will Wilkinson.

Posted by Art Carden at 09:15 PM in Economics

September 12, 2009

Carden and Horwitz on Smiley on Krugman on Economists

Steve Horwitz and I address Jane Smiley's HuffPo piece about economists. Here's relevant wisdom from Murray Rothbard:

"It is no crime to be ignorant of economics, which is, after all, a specialized discipline and one that most people consider to be a 'dismal science.' But it is totally irresponsible to have a loud and vociferous opinion on economic subjects while remaining in this state of ignorance."

Posted by Art Carden at 05:27 PM in Economics

September 11, 2009

Best two paragraphs in a while: Bruce Yandle

Writing long before the discovery of Public Choice, Pigou saw government as an exogenous force, unconnected to unbridled market forces. Pigou implicitly saw government as being neutral and efficiency-bound at worst and benevolent at best. There is clearly no recognition that government enterprises could become the worst polluters and the least likely to respond to the spur of competition. To cap it all off, Pigou seems to assume that information can be obtained at no cost. Pigou armed the state with an appealing, informed, and logical analysis, and dignified market intervention and regulation, and armed future generations of political favor seekers with a kind of Old Testament interpreation of how to make the world a better place. If enough rules are written and enforced, better things will emerge, especially for well organized interest groups. (p.127)

[...]

In thinking about Coase versus Pigou, we should also recall the purpose of Coase's investigation; he wanted to understand a world in which transaction costs are positive. When we investigate that world, a rich array of quality assurance devices are observed. Rules of liability and common law rules form a minor part of that world. Brand name capital, capital market monitoring, concern for community, and third-party monitoring form a major part. These are evidence of positive transaction costs that limit direct Coasean bargaining. Among the world players are governments and other organizations that are immune to the spur of competition and have no need for quality assurance. It is this part of the world that Pigou was really addressing: It is government itself that must be controlled with government regulation.
At first blush, suggesting that government should focus on itself, imposing command-and-control regulation on government enterprises and leaving the unfettered forces of the market to deal with private firms and individuals, seems itself to be a Pigovian prescription. The recommendation implicity assumes that a centralized authority managed by wise welfare-maximizing economists will rule the day. Yet if Public Choice theory has taught us anything, it is that government is endogenous to the political economy. Barring benevolent dictatorships, there is no ruling authority. Process alone determines outcomes, and it is in analyzing process that Coase has the advantage over Pigou. (pp.148-9)

Bruce Yandle, "Coase, Pigou, and Environmental Rights," in Hill and Meiners (eds.) Who Owns the Environment? (1998). The chapter draws on Bruce's book, Common Sense and Common Law for the Environment (1997). HT: Liberty Fund conference later this month.

Posted by Edward J. Lopez at 10:00 AM in Economics

September 10, 2009

"Fantasy is Not a Serious Policy Option."

That's Gene Callahan on health care. Here's Steven Horwitz's excellent "Ought Implies Can" (the version published in The Freeman) and a few of my comments from last semester.

Posted by Art Carden at 11:31 PM in Economics

"How the Federal Reserve Bought the Economics Profession"

A "HuffPost Reporting" piece on the Huffington Post blog on Monday, as its title above suggests, raises the possibility that the Federal Reserve's funding of so many monetary economists imparts a pro-Fed bias to the economics profession. The author, Ryan Grim, insightfully offers this an explanation for why economists haven't been more critical of the Fed's policies leading to and since the financial crisis. The article points to some of the same evidence suggestive of the danger of a corrupting Fed influence that I discussed in my 2005 EJW piece, "The Federal Reserve System's Influence on Research in Monetary Economics", for example the prevalence of Fed-affiliated economists as "gatekeepers" at the leading field journals in monetary economics.

Jeff Tucker of the Mises Institute, independently of my noticing the article, emailed the author to ask why he hadn't mentioned my piece. He replied that he hadn't known about it. The article relies mostly on two Fed critics on the left, James Galbraith and Robert Auerbach, both at the University of Texas. Of course, their preferred alternative institutions could be even farther from mine than the status quo. But if the Fed is ever to be dis-entrenched from power, the more Fed skeptics from across the spectrum the better.

Posted by Lawrence H. White at 10:59 PM in Economics

This One Time, at Band Camp...

Baptists and bootleggers meet up to regulate marching bands: there's a bill being pushed by the one company that does professional band instrument sterilization to require Massachusetts schools to have instruments professionally sterilized (HT: Radley Balko). I know from experience that band instruments can get pretty gross, but they can be cleaned easily and most of the possible public health problems can be fixed by using your own mouthpiece. Further, I doubt that the marginal benefit of professional sterilization is worth the marginal cost. What are the specific threats that require professional sterilization rather than soap and water? And how do internal monitoring institutions fail?

Posted by Art Carden at 02:24 PM in Economics

Giberson on Smiley on Krugman on Economists

Here. Steve Horwitz and I are going into the breach with two articles responding to Smiley. The first will appear on Forbes.com after it has been edited and such, and the second will appear as an "It Just Ain't So!" column for The Freeman. More soon; Giberson's post is well worth reading.

Posted by Art Carden at 11:06 AM in Economics

Two Hernando de Soto Items

1. There will be a Hernando de Soto PBS special this fall called "The Power of the Poor." The one-hour special will air on October 8th. (Note the blog contest, for those interested).

2. de Soto is the focus of the 2nd Annual Upton Forum at Beloit College. The Miller Upton Forum at Beloit College honors the work of intellectuals who have made important contributions to our understanding of the wealth and well-being of nations. In addition to a public lecture by de Soto in Beloit in late October, we have several speakers throughout the year whose work has influenced by de Soto, such as Claudia Williamson, Tyler Cowen, and DOLs own Ed Lopez and Bob Lawson. If you are in the area and interested in attending any of the public events, a registration form can be found here.

Posted by Joshua Hall at 10:06 AM in Economics

September 09, 2009

Boo, two

An ungated draft version dated April 2009 is available here.

Posted by Wilson Mixon at 09:44 PM in Economics

Boo journal rankings?

Wall, Howard J. (2009) "Don't Get Skewed Over by Journal Rankings," The B.E. Journal of Economic Analysis & Policy: Vol. 9 : Iss. 1 (Topics), Article 34.

Abstract: Nearly all journal rankings in economics use some weighted average of citations to calculate a journal's impact. These rankings are often used, formally or informally, to help assess the publication success of individual economists or institutions. Although ranking methods and opinions are legion, scant attention has been paid to the usefulness of any ranking as representative of the many articles published in a journal. First, because the distributions of citations across articles within a journal are seriously skewed, and the skewness differs across journals, the appropriate measure of central tendency is the median rather than the mean. Second, large shares of articles in the highest-ranked journals are cited less frequently than typical articles in much-lower-ranked journals.

Gated version here.

Posted by Edward J. Lopez at 08:22 PM in Economics

Fall 2009 Economics Speakers at Rhodes

David Zetland, Thursday, October 15, 7:00 PM, Orgill Room. Tentative Title: “Sustainable Resource Use.” David Zetland is an S.V. Ciriacy-Wantrup Postdoctoral Fellow in Natural Resource Economics and Political Economy in the Department of Agricultural and Resource Economics at the University of California, Berkeley, where he teaches a course entitled “Environmental Economics and Policy.” He is the author of Conflict and Cooperation within an Organization: A Case Study of the Metropolitan Water District of Southern California (2009, VDM Verlag) and a regular contributor to the popular economics blog www.aguanomics.com.

Roger Garrison, TBA. Tentative Title: “The Austrian Theory of the Trade Cycle.”
Roger Garrison is Professor of Economics at Auburn University, where he teaches courses in macroeconomics and the history of economic thought. He is the author of Time and Money: The Macroeconomics of Capital Structure (Routledge, 2000).

Robert Higgs, Tuesday, 11/10, 7:00 PM, Blount Auditorium. Tentative Title: “The Great Depression and World War II.”
Robert Higgs is Senior Fellow in Political Economy at the Independent Institute and editor of The Independent Review. He is a distinguished economic historian and regular contributor to scholarly journals and other publications, and he has taught previously at the University of Washington, Lafayette College, Seattle University, and the University of Economics, Prague. He is the author of Competition and Coercion: Blacks in the American Economy, 1865-1914, Crisis and Leviathan: Critical Episodes in the Growth of American Government, Depression, War, and Cold War, and numerous other books.

Posted by Art Carden at 02:57 PM in Economics

Health Data Bleg

The British NHS refuses treatment to a premature baby because he was born a couple of days before the cutoff. I hesitate to draw inferences from anecdotes and want to adjust my sensationalism filters accordingly. I'm also sure things like this have happened in the US, too.

The story suggests a thought experiment. Let's suppose we have a baby born at 21 weeks under a regime of socialized medicine with NHS-ish guidelines about not treating babies born at (say) less than 22 weeks. Would it be illegal for me to pay for treatment? Who has the moral authority to use force to prohibit me from using every resource at my disposal to save my child?

And, finally, a bleg: one of the comments on the article mentions that the baby in question would have been counted as a miscarriage under British statistics but as a live birth under US statistics. Therefore, cross-national comparisons are misleading. Does anyone know of a source of data that has been adjusted to allow international comparisons? Comments are open; I'm also happy to receive email.

HT: Anthony Gregory.

Posted by Art Carden at 11:43 AM in Economics  ·  Comments (1)

September 08, 2009

Interesting (and a little weird) initial result

I’ve been messing around with the Economic Freedom Index of North America and banks’ annual average return on equity by state. (That variable, by itself, is pretty odd, I know)

I’m unable to test for the effect of monetary or Federal banking regulation policy, but…

a). Using the sub-national EFNA index, bank average ROE is higher in states with more freedom, and lower in states with less freedom. This result is pretty much in line with the literature, but I expected to find nothing at all, due to the nature of the state average ROE variable.

b). However, using the “all government” EFNA index, the relationship becomes insignificant. This may be due to purely mechanical issue within the data. But taken at face value, the results imply Federal fiscal policy is canceling out state fiscal policy as regards bank returns/bank performance. Federal action is dampening/mitigating state action, regardless of what the state is doing, for better or worse.

I think that’s pretty weird.

However, given so much of the recent government efforts have been explicitly shilled as preserving banks and preserving liquidity, expanding the Federal fiscal footprint will have no impact on bank performance, but will negatively impact other variables dependent on economic freedom.

I still have some work to do before I hang my hat on these results. However, it’s held up so far, so who knows?

Posted by Noel Campbell at 04:07 PM in Economics

Post-Atlanta Thoughts on Economics, Culture, and Academia

My friend Daniel, a Virginia Tech alum who was kind enough to handle the trip logistics, has suffered humiliation because the sports team form my area defeated the sports team from his area. I also saw a lot of DragonCon attendees dressed as superheroes. After spending Friday and Saturday reading about racist violence, I think sports and sci-fi are much healthier outlets for humankind's inherent tribalism.

The preponderance of costumes at DragonCon suggest the hip thing to do if you go to a conference in Atlanta is to wear a costume. The American Economic Association is meeting in Atlanta in January; I'll be going dressed as Greg Mankiw.

Posted by Art Carden at 02:48 PM in Economics

Markets in Everything: Fake Presidents

From Slate:

Butler is a professional actor with a full-time job playing Oscar on "True Jackson, VP" on Nickelodeon. Now he is trying to break into a more specialized field. Top-tier presidential impersonators make appearances at conventions, corporate meetings, and the like. And the battle to become First Impersonator is real.

HT: Al Maag

Posted by Robert Lawson at 12:25 PM in Economics

File Under "Econ 101 Notes: Subsidies"

Bryan Caplan points to an excellent review essay by Daniel Klein on parking. Having spent a lot of time driving in the last few months and having spent the weekend in Atlanta, I think this will be a pretty good topic for amended versions of my lectures on subsidies and the environment.

Posted by Art Carden at 11:47 AM in Economics

Assorted Links

1. A great question for candidates from Jim Fedako. I would like to see questions like this raised during debates. Any question that requires comparison or calculation cannot, by its very nature, be answered rationally without profits and losses.

2. This morning's EconTalk with Tyler Cowen on Create Your Own Economy. If I had to make a list of people I don't know personally who have contributed the most to the development of my worldview and, therefore, my personal happiness, Tyler would be near the top. And it's not because of his recent "markets in everything" link to an article about lingerie football.

3. A nice front-page article about Rhodes President William Troutt.

4. A nice video for Pink Floyd's "Pigs." Is it art? Will it be taken down because of copyright infringement? Does it increase the probability that I buy more Pink Floyd music? My answers: yes, maybe, and yes.

Posted by Art Carden at 09:49 AM in Economics

September 07, 2009

File under "there are no free lunches in politics either!"

U.S. climate change bill to compete with health care

...as the debate over healthcare legislation rages and with President Barack Obama due to address a joint session of Congress on Wednesday to try to rescue the faltering plan, it was unclear whether rattled lawmakers will have the time -- or the inclination -- to take on climate change.

Obviously, my indifference curves over these two policies increase in utility toward the origin.

Posted by Edward J. Lopez at 05:01 PM in Economics

Emerging Economic Development Takings Cases

1. Minnesota's state supreme court will hear a case that was ruled by the lower court in the property owners' favor. According to the Star-Tribune:

In question is whether the city's Economic Development Authority had the power to take land owned by businesses as part of a 70-acre redevelopment along Hwy. 13, just off Cedar Avenue. Also at issue is exactly how a city may modify those powers.

The issues revolve around whether the city must first transfer this power to the EDA on a case-by-case basis or whether the EDA has that power under state statute. The heart of the case is how much power cities' economic development authorities have.

In 2006 Minnesota updated its eminent domain statute to impose additional procedural requirements on condemning authorities. The new law also defined "public use" more narrowly and gave property owners right of first refusal if the city did not eventually use the property for redevelopment. However, the new law did include a blight exemption. Sure enough, the city blighted the area in question as a precursor to centrally planning its redevelopment. The Minnesota Free Market Institute sums it up:

City government has invested seven years in an effort to redo the area. It used its power of eminent domain to forcibly acquire properties in the area. Together with a commercial developer and community activists, it developed grand plans. In other words, it substituted the political process for the free market.

During these seven years, the city has incurred carrying costs for the project, which it had hoped would someday pay off....

It’s certainly not an easy situation for Eagan officals or taxpayers. But the seven wasted years, and the costs incurred during that time, could have been saved had the city stayed out of the business of land speculation. After all, that’s what the free market is for.

For more on recent changes to state eminent domain legislation, you can see my 2008 Review of Law and Economics paper, "Pass a Law, Any Law, Fast!". On why using eminent domain to centrally plan economic development fails, see my 2007 article in The Independent Review.

2. New York is one of the worst abusers of the takings power. Up next, The New York Daily News reports a case in Williamsburg, NY:

While the loudest battles over the plan to build 1,895 low-rise apartments on the 31-acre Triangle site have been over the allegations of political corruption, little attention has been focused on the fate of the existing small businesses in the area.

The city plans to use eminent domain to force five property owners to sell. Another 14 businesses could be displaced by zoning rules that will limit their activities

3. Down the road from me in Sausalito, CA, the city's lust for waterfront development exemplifies how itchy trigger fingers can make the takings power a tool of first resort. The Contra Costa Times reports:

The city of Sausalito is still hoping to acquire a 16-acre waterfront parcel near Dunphy Park at the foot of Locust Street that it lost to a higher bidder earlier this year. City officials are negotiating with the new owner, but said they will consider eminent domain - a process in which government can acquire private land for the public good - if talks are not successful. The new owner, Marin builder Dan Morgan, said he was caught off-guard by the eminent domain discussion, noting that he has met with city officials, had the land appraised and offered a purchase price. "I never heard back from them, and now I'm hearing eminent domain," Morgan said. "I'm willing to sell it."

Posted by Edward J. Lopez at 04:26 PM in Economics

Cleaned by Capitalism

Riviera Beach, Lake Geneva, Wisconsin. Highly recommended. Hooray closed access and non-zero prices!

HT: Don Boudreaux, for the C by C concept.

Posted by Joshua Hall at 02:49 PM in Economics

What I've Been Writing Lately

A couple of outlets published articles that are appropriate in light of today's institutionalized celebration of anti-economics:

1. A piece summarizing some of our work on Walmart, for Forbes.com.

2. A piece on the unpopularity of capitalism, for Mises.org.

Posted by Art Carden at 01:35 PM in Economics

September 04, 2009

On the Intergenerational Correlation of IQ

Greg Mankiw had a series of posts (last one here)--including an exchange with Krugman--on SAT scores, income, and the intergenerational transmission of IQ. As if on cue the new issue of Economics Letters contains an article (gated) by Sandra E. Black, Paul J. Devereux, and Kjell G. Salvanes addressing this question; the abstract:

Using a large population-based dataset, we estimate a substantial intergenerational transmission of IQ scores; a 10% increase in father's score at age 18 is associated with a 3.2% increase in son's score. This relationship also holds true for various subpopulations.

I doubt this finding surprises many people other than, alas, Krugman.

Posted by E. Frank Stephenson at 10:17 PM in Economics

My health care rant

An old high school friend, who has had many health problems, and who favors socialized medicine (of some kind) asks me what I would do about health care. Just off the top of my head and without much deep thought here's what I wrote:

Of course I would love to see no government involvement in health care or insurance at all, but government completely dominates almost everything about health care (as in finance). The system we have is based on the rules and incentives created by government. I honestly don't know what health care would look like without the government being involved. And given this starting place, it is all but impossible to disentangle the government's tentacles from the system.

But as far as logical first steps for policy: (1) end the tax advantage for obtaining health insurance from your employer. We HAVE to decouple health insurance from employment. Either allow individuals to deduct health costs or end the employer tax deduction. (2) End insurance policy mandates (e.g., mental health parity and the like) so people can buy insurance plans to fit their needs (3) Dramatically loosen (I would eliminate) medical licensing rules so that nurses and other health care pros can compete with doctors. (4) Drop prescription requirements for all drugs so we can get drugs without doctor approval.

It would be vastly better to handle most health care expenses out of pocket like we do everything else in life with insurance only used for catastrophic events. Medical savings accounts would help here perhaps. Insurance markets work well for fire, life, serious car accidents, etc. and can work for health care too but we can't insure day to day costs (well we can, but it is dumb to do so).

Alas, I expect we will always have some uninsured and some who have trouble paying for health care no matter what we do. Some people will die and suffer for lack of care or money. I know this bothers you. I don't like this myself but I accept that we live in a world of scarcity and that we will not have everything in life we want no matter how rich "we" become. I see health care as no more of a "right" than I do food or anything else. We can socialize medicine as you wish, but it will not end hardship or injustice. At best, socialized medicine will shift the margins of suffering to other areas (such as reducing medical innovation and economic growth in general).

Also I expect health care will continue to be very very expensive no matter what. If we want to drop a lot of money on wasteful and ineffective end-of-life procedures, which is the big problem, and we're spending our own money, then that's what we're going to do.

Posted by Robert Lawson at 04:15 PM in Economics

More Gold from China.Org.cn

See the story here

China's top economic planner said Thursday the country would avoid large, widespread and long-term price rises as overall supply would match demand in the foreseeable future.

The National Development and Reform Commission (NDRC) said in a statement that a "surge in credit and continuous price rises of certain products and property resulted in rising inflation expectations in the country."

"Sufficient material supply," such as ample reserves of grain and competitive pressures would help stabilize prices, the NDRC said, without providing details.

The NDRC asked local authorities to step up strict price monitoring and to stabilize prices of important products, including food, gas and transport.

Efforts should be made to avoid concentrated price rises and large price rises, said the statement.

My initial reactions:
1). This is a post-socialist economy? Even though it (apparently) retains local governmental authorities that attempt to set local retail prices?
2). Changing market outcomes via government fiat, hmmm…. Well it hasn’t worked in the past, but this time it will be different! This time, prices will change because a government wants them to change.

However, the [price] rises [of pork, eggs, gasoline, etc.] were a natural result of previous prices being too low, said Lin Songli, a microeconomic analyst with Guosen Securities Thursday.

Really? As opposed to a price rising for other reasons, I suppose….

"Pork and egg prices often acted as major driving force for inflation in the past, so though the price hikes pose no immediate threat to inflation, the government should be cautious," Lin said.

Surely this says something about China’s domestic economy. Can you imagine the U.S. CPI-U increasing because the price of eggs and pork chops go up?

Posted by Noel Campbell at 01:05 PM in Economics

In Today's Mail

Housing America: Building Out of a Crisis, edited by Randy Holcombe and Ben Powell.

Lots of interesting chapters by great folks, including DOLers such as Larry White and myself. Table of comments below the fold. (Update: Sorry Larry, wrong Larry White).

Read More »

Table of Contents

1. Introduction: Is there a Housing Crisis?
Randall G. Holcombe and Benjamin Powell

2. Urban Planning, Housing Affordability, and Land Use
Samuel R. Staley

3. The Benefits of Nonzoning
Bernard H. Siegan

4. Building Codes, Housing Prices, and the Poor
William Tucker

5. Smart Growth and Housing
Randal O’Toole

6. Inclusionary Zoning
Benjamin Powell and Edward Stringham

7. A Brief Survey of Rent Control in America: Past Mistakes and Future Directions
Matthew Brown

8. The Economics of Government Housing Assistance for the Poor
Joshua C. Hall and Matt Ryan

9. Eminent Domain
Randall G. Holcombe

10. Arresting Development: Impact Fees in Theory and Practice
Jack Estill, Benjamin Powell, and Edward Stringham

11. The Economics of Housing Bubbles
Mark Thornton

12. Fannie Mae, Freddie Mac, and Housing: Good Intentions Gone Awry
Lawrence J. White

13. Anatomy of a Train Wreck: Causes of the Mortgage Meltdown
Stan J. Liebowitz

14. Urban Planning: The Government or the Market
Fred E. Foldvary

15. Private Neighborhood Governance: Trends and New Options in Collective Housing Ownership
Robert H. Nelson

« Close It

Posted by Joshua Hall at 11:23 AM in Economics

September 02, 2009

Cavalcade of Miscellany: Office-Cleaning Edition

Deirdre McCloskey suggests that the active scholar should "clean up in a dull moment." Here are a few tidbits from a dull moment cleaning up files and catching up on reading:

1. "Economics is about constructing a coherent, consistent worldview. It's about asking (and knowing how to answer) the right questions." Scribbled on a post-it note, to be used to motivate the study of economics.

2. Robin Hanson discusses the charitable activities of a recently-deceased entrepreneur and illustrates nicely how economists are the wet blankets of the world. I agree with him 100%, of course, but unfortunately this argument tends to meet with a lot of resistance.

3. Here's another paper I look forward to reading. Neal McCluskey examines "How Public Schools Cause Social Conflict."

4. I still owe someone something for the best efficiency-based argument for why they shouldn't subsidize my car payment. I got a few contest submissions, but no donations.

5. I think this is from Tim Harford's The Undercover Economist; it was in some old econ 101 notes on sustainability, recycling, and opportunity cost: "there is a good deal more to life...than British Thermal Units."

Posted by Art Carden at 05:07 PM in Economics

Check the Numbers, Dude

Earlier today I sent this letter to the WSJ:

AARP’s John Rother (Letters, Sept. 2) claims it is “troublesome” that Social Security recipients will receive no cost of living increase this year because prescription drugs and other items “far surpass inflation.”

This assertion is incorrect, at least for the two most recent years. In 2007, overall inflation was 2.85% while prescription drug inflation was 1.44%, and in 2008 overall inflation was 3.84% while prescription drug inflation was 2.47%.

It’s also worth noting that Wal-Mart, a “public option” offering “always low prices” via its $4 prescription program, and competitors such as Kroger copying the low price prescription program are likely responsible for the lower than overall average inflation rate for prescription drugs.

E. Frank Stephenson
Chairman, Department of Economics
Berry College
Rome, Ga.

Rother's letter is here. See also this post on Carpe Diem.

Posted by E. Frank Stephenson at 03:38 PM in Economics

Myth of the Rational Voter

Here's the abstract of an interesting looking paper:

Do voters effectively hold elected officials accountable for policy decisions? Using data on natural disasters, government spending, and election returns, we show that voters reward the incumbent presidential party for delivering disaster relief spending, but not for investing in disaster preparedness spending. These inconsistencies distort the incentives of public officials, leading the government to underinvest in disaster preparedness, thereby causing substantial public welfare losses. We estimate that $1 spent on preparedness is worth about $15 in terms of the future damage it mitigates. By estimating both the determinants of policy decisions and the consequences of those policies, we provide more complete evidence about citizen competence and government accountability.

Posted by E. Frank Stephenson at 03:34 PM in Economics

More on the Ohio CAT

The Ohio Supreme Court heard arguments yesterday on dispute between the Ohio Grocer's Association (OGA) and the state regarding the state's Commerical Activities Tax (CAT). The CAT is a tax on a firm's gross receipts.

The state says this is a "tax on the privilege of doing business in the state" and I (as the expert witness for the OGA) say it's effectively identical to a sales tax. The state's constitution expressly forbids any sales taxation on food so if we're correct, the CAT is unconstitutional as it applies to food.

The state won at the trial court level, but the grocers won on appeal, so here we are.

I am pretty sure we're going to lose in the end for two reasons. (1) Lawyers live is a strange world and they will probably contort themselves in to seeing the minor administrative differences between the CAT and sales taxes as being important enough to declare the CAT not to be a sales tax. I have been simply amazed at the ridiculous "yea buts" they have raised as they try to differentiate a gross receipts tax from a sales tax. (2) Several hundred million tax dollars are on the line and I can't imagine the elected Ohio Supreme Court putting the legislature in a budgetary bind on this scale especially during this recession.

I have a paper on this case with DoL buddy Frank submitted to a journal, but here's the question for you academic economists out there. What do you think?

Economically speaking, is a tax on a firm's gross receipts functionally the same as a sales tax? If not, why not?

Email me at rlawson at auburn dot edu.

Posted by Robert Lawson at 03:26 PM in Economics

What are my Google Reader Feeds?

A conversation with a friend sparked me to go ahead and list everything that's in my Google Reader feed (83 unread items as of right now). I keep up with the following:

Academic & Policy Blogs: Marginal Revolution, Division of Labour, Cafe Hayek, Greg Mankiw, Dani Rodrik, EconLog, The Austrian Economists, Mike Hammock, the Becker-Posner Blog, Arts & Letters Daily, Freakonomics, Organizations & Markets, Will Wilkinson, LewRockwell.com, Cato Unbound, EconTalk, Grant McCracken, Mises Daily, ThinkMarkets, SSRN feeds from Lant Pritchett, Daron Acemoglu, and Dani Rodrik, FEE Podcasts, The Beacon (Independent Institute), ReadMoreWriteMoreThinkMoreBeMore (a colleague in the philosophy department), Mises Institute Media, Aguanomics, Aid Watch, Cato Weekly Video, IHS Ceteris Paribus (students from "Liberty & Society" over the summer), Economic Perspectives from Kansas City, Education & Liberty, NBER Working Papers, Economix (NY Times Economics blog), Overcoming Bias, The Agitator (Radley Balko), The Perfect Substitute, the Sociological Imagination, Free Association (Sheldon Richman), Kids Prefer Cheese, The Knowledge Problem, the Market Process Blog (Peter Calcagno), The Atlantic Business Channel, The Economic Way of Thinking. I also subscribe to a lot of working papers series and journal table of contents updates via email.

Rhodes: Rhodes News, The Dean's Blog

Religion: Marc Driscoll, but I haven't listened in a long time.

Productivity: Lifehacker.com, Lifehack.org, David Allen Company, Jason Womack, Tim Ferriss.

Humor & the Arts: Piled Higher and Deeper (PhDComics.com), XKCD.com, Dracula.

Am I missing anything? Have any suggestions?

Posted by Art Carden at 10:07 AM in Economics

September 01, 2009

Stuff We Can Stop Subsidizing

For all of our disagreements, I would like to think that pretty much everyone would agree that redistributing resources from poor people to rich people is a bad idea. With this in mind, I suggest that we stop subsidizing most food- and travel-related public television shows. While it could be argued that this provides "vicarious travel" for the poor, I'm guessing that the median income of people who are helped by tips on which out-of-the-way Italian villages have the best prosciutto and which high-end restaurants in Mexico City offer the best Mexican/Asian fusion is higher than the median income of people who are paying for those tips.

Posted by Art Carden at 08:15 PM in Economics

On downward sloping demand curves c. 1909

The Sept. 1, 1909 NYT publishes the following letter to the editor which would make a good discussion piece in a microeconomics principles class:

The reason of poor business at Coney Island is that the hotel keepers have boosted their prices so high that eating down there is prohibitive. The crowds have been larger there this Summer than ever, but they have spent less money, and the hotel restaurant keepers are to blame. The public cannot pay 50 cents for roast beef and 50 cents for bathing suits. Hotel keepers have killed the goose with the golden egg, and they alone are to blame if the public bring their lunches. Coney Island is fast becoming a resort for the wealthy only.

In how many ways is the letter writer potentially correct and in how many ways is the letter writer potentially incorrect?

Read More »

My immediate take:

Correct: The hotel owners might have misconstrued the cross-price elasticity of demand between food and bathing suits. If it is true that the price of roast beef has increased and this has reduced the quantity demanded (and thus potentially revenues) more than anticipated, well, we teach that the firm must reduce price or improve quality so to recover the lost quantity demanded. Grousing about the fickle consumer not spending enough money on MY product is not, I hope, generally part of the microeconomics canon.

Incorrect: The posted restaurant prices might be profit maximizing, given the increase in demand, even if they seem to offer less service to those who are priced out of the market. Thus, there might be a demand-side complaint which the letter writer seems to endorse. However, I read the letter as also being a response to some previous complaint on the part of restaurant owners that their revenues are down, ostensibly because the price of bathing suit rentals has increased. However, if there has been significant entry in the food market on Coney Island even in the face of, or perhaps because of, an increase in food demand on the island, then it is possible that that prices are higher and individual firms profit are lower - thereby encouraging incumbent restaurant owners to complain about their lot.

I like the letter writer pinning blame on the restaurants (if that is the appropriate place to pin blame) and not calling for regulation in the price of roast beef or, more likely the hope of the restaurant owners, regulation in the price of bathing suit rentals (which is a somewhat bizarre concept in today's world).

[update: While driving home from teaching last night I realized that I had assumed the causation of the restaurant owners' consternation was that the restaurants had raised the price of food when the letter writer does not indicate that this was the case. It is possible that it was the bathing suit rentals that went up in price, in which case the restaurant owners might see a reduction in their business as bathing suits go up in price.]

I am sure there are more options I haven't thought of but I am off to teach graduate econometrics.

« Close It

Posted by Craig Depken at 03:57 PM in Economics  ·  Comments (0)

"So I Guess Social Norms Didn't Protect Your Lunch Today."

That's what our student worker (an economic history student) said when I returned from lunch. In economic history, we had discussed the role of social norms in constraining opportunistic behavior, and I discovered after class that someone from our department mistakenly took my lunch today. I was made whole: social norms provided me with my co-worker's lunch, which was similar in quality and composition.

Advantage: students.

Posted by Art Carden at 01:59 PM in Economics

Afternoon Industrial Organization: Monopoly

Bryan Caplan asks where monopoly power comes from. I would follow this with another question: is the standard textbook account a result of intellectual path dependence--the hangover of 1950s-ish theories of market power combined with the fact that it's easy to teach and test? Here are a couple of links of interest:

1. A claim that MySpace is a natural monopoly.

2. A claim that Facebook is a natural monopoly.

3. A claim that Twitter is a natural monopoly.

4. Google search results for The Boy Who Cried Wolf.

5. Discussion of whether the DOJ will go after Google; after all, they're a natural monopoly.

Posted by Art Carden at 11:52 AM in Economics

August 31, 2009

Summer 2010 Opportunity

The Levy Economics Institute of Bard College is sponsoring a summer seminar based on the work of Keynesian economist Hyman Minsky. More information is available here. I've always thought that Minsky and Mises have more in common than at first appears, at least in terms of their business cycle theories.

HT: Economic Perspectives from Kansas City.

Posted by Art Carden at 04:22 PM in Economics

Speaking of the South...

I think Tim Hawkins speaks for all of us. I, for one, am moved:

And here he is on government in a video that seems to be making the viral rounds:

Posted by Art Carden at 03:41 PM in Economics

The Southern Economy

My paper "The Southern Economy" is finally available. Here's the abstract:

"This essay surveys some of the key themes in Southern economic history and traces the development of the region through the colonial and revolutionary eras, the antebellum period, the Civil War and Reconstruction, the post-bellum period, and the modern period. In particular, I highlight the findings of economic historians on the economics of slavery and focus on the development of Southern institutions in light of the antebellum slave society. The resurgence of the Southern economy is examined in light of recent hypotheses about technological change, policy, and productivity growth."

A lot of topics that deserve very detailed analysis are treated only briefly, but I see this paper as a loose outline of the eventual book that I hope to write on Southern economic history. I don't know what kind of revisions the editors will request, but comments are always appreciated.

Posted by Art Carden at 03:11 PM in Economics

File under "what crisis?"

WASHINGTON (Reuters) – Fewer Americans are afraid that they will be unable to pay for healthcare services and fewer expect to postpone medical treatments due to costs, according to a Thomson Reuters survey published on Monday.

Researchers found a steady increase in people's confidence about their ability to pay for healthcare services -- it rose 12 percent between March and July this year.

Full story.

Posted by Edward J. Lopez at 10:20 AM in Economics

A Paper I Look Forward to Reading

Lee E. Ohanian, "What-Or Who-Started the Great Depression?" The Abstract:

Herbert Hoover. I develop a theory of labor market failure for the Great Depression based on Hoover's industrial labor program that provided industry with protection from unions in return for keeping nominal wages fixed. I find that the theory accounts for much of the depth of the Depression and for the asymmetry of the depression across sectors. The theory also can reconcile why deflation and low levels of nominal spending apparently had such large real effects during the 1930s, but not during other periods of significant deflation.

Posted by Art Carden at 09:01 AM in Economics

August 30, 2009

Health Care Outtakes

Here are some outtakes from the Health Care article I'm working on.

You've probably seen Megan McArdle's blog post on health care arguing that the rate of increase for spending on health spending for pets is roughly equal to the rate of increase in spending for people. The usual cases for single-payer care aren't as obvious as they appear at first glance, and this ignores the fact that US health care is currently not provided in a free market. Here are a few thoughts:

1. Bryan Caplan is right; third-party payment is still a problem: it leads to inefficient levels of health care consumption.

2. Savings on administrative costs under a single-payer system are not a free lunch. Administrative costs are the costs, but reductions in fraud and increases in efficiency are the benefits. Here's Greg Mankiw with more.

3. Life is much more than high life expectancy and low infant mortality, as Glenn Reynolds notes in a post that Megan McArdle discusses in the link above. I don't think knee replacements and back surgeries really affect life expectancy that much, and I'd be really surprised if they affected infant mortality. In my experience with people who have had them, their effects on quality-of-life are substantial.

4a. The life expectancy and infant mortality data might be misleading. I suspect that this might be true for two reasons. First, improving quality-of-life and maternal nutrition might shade the life expectancy data upward and the infant mortality data upward. With improving health, marginal infertilities became marginal pregnancies, marginal miscarriages became marginal births, marginal infant mortalities became marginal child mortalities, and so on. People who would have shown up as unsuccessful pregnancies make it to term and end up affecting infant mortality and life expectancy statistics. This is a variation on the "diseases of affluence" argument: heart disease and cancer are rising in prevalence because people are living long enough to get heart disease and cancer. This remains untested, as far as I know.

4b. Abortion probably affects the infant mortality data, though once again I am not aware of any systematic study of this issue apart from one paper I saw that was done in the late 1970s or early 1980s that attributed declines in infant mortality to abortion legalization.

5. The market for health care is pretty large. I don't have data handy, but particularly since anywhere from 75%-90% of the Canadian population lives within 100 miles of the US border, I would be surprised if ultra-rich Canadians don't have most of their elective procedures done in the US. Just like American prohibitions on abortion generated "abortion tourism" for the ultra-rich before Roe v. Wade, the international market for top-flight health care might mean that the US is taking the pressure off other countries' national health care systems. I've seen a couple of papers in Health Affairs suggesting that Canadians aren't using US medical services in great numbers.

6. Alex Tabarrok explains the narrow and specific conditions under which a perfectly-provided government-provided health insurance option makes sense. Notice also that also helps explain why some insurance companies and other firms are on board with Obama's plan. Policies that makes consumers' demand for your product less elastic are going to make you rich(er). Alex rightly points out that even if there is a semi-plausible case for a government option, whether "it actually fulfills its purpose is an open question." In light of our experience with ethanol subsidies and "Cash for Clunkers," just to give two examples, I'm skeptical of the government's ability to intervene wisely in the insurance market.

7.
So what should we do to harness the profit motive so that it makes health care better, more affordable, and more accessible? Hans-Hermann Hoppe offers a radical four-step plan: first, eliminate incoherent licensing requirements. If they are going to be meaningful, then shouldn't they require that everyone--our friends and family, for example--get a license before they advise us on how to raise our son? Second, eliminate the FDA. Daniel Klein and Alex Tabarrok make the case. Third, deregulate the health insurance market to allow insurers to refuse to "insure" uninsurable actions. Finally, eliminate subsidies because "subsidies create more of whatever is being subsidized." To this I would add the following: scale back taxes on incomes so that there is no tax benefit from paying people with benefits rather than wages.

Posted by Art Carden at 09:33 PM in Economics

August 29, 2009

Health Care Bleg

I'm working on a piece about health care for FEE and wondering what in the government's track record suggests that replacing the profit motive with the political motive is a good idea. I'm willing to be convinced: which programs offering twelve- and thirteen-figure pots of free money have been implemented effectively and sustainably (i.e., accomplishing their stated goals while remaining actuarially sound)?

Here's a specific question: should "Cash for Clunkers," ethanol subsidies, the Post Office, and military profligacy increase or decrease the probability with which I think government involvement in health care is a good idea? Why or why not?

I also have a related question for health care Europhiles. Is the European model sustainable? A couple of years ago, I saw that debt per capita in France is about 68% higher than in the US, and an expert on French economic history noted in conversation once that French standards of living are only possible "because they've spent the next two generations' incomes."

Comments?

Posted by Art Carden at 10:49 AM in Economics

August 28, 2009

Stuff Worth Reading

1. Sheldon Richman on "Proposers versus Producers." Here's a choice passage; I'm going to borrow the last sentence for Econ 101 and public lectures:

"The dynamic leader who gives impassioned speeches and sponsors legislation on behalf of social justice is portrayed as heroic in part because few people can find the logical flaws in the program. As a result, all that counts are presumed motives. But motives divorced from understanding are worthless — even dangerous. In a more sensible world, proposing ends while oblivious to means would be a sign of irresponsibility, the intellectual equivalent of drunk driving."

2. Mike Munger compares Krugman to Keynes, writing that Keynes "never let what he knew as an economist get in the way of what he believed as an ideologue."

3. Speaking of Krugman, here's one of my favorite essays by any economist, ever. It's Krugman at his best.

4. Again speaking of Krugman, if he ever wins a second Nobel, it will be for this.

Posted by Art Carden at 11:44 AM in Economics

Econ Learn-a-Long

The estimable David Zetland is teaching an environmental econ course at Berkeley. Here's a choice quote:

"Teaching is difficult because it requires that you present your messy, complicated, evolved knowledge in an orderly and incremental manner that can be learned."

Just speaking, of course, is easy: go on autopilot, ramble for about 50-75 minutes, and then blame the students' moral and intellectual deficiencies when they have a hard time instantly grasping stuff you've been thinking about all day every day for the last decade or two or three or four or five. Actually teaching, on the other hand, is really, really difficult. And, I might add, it is really, really rewarding.

Speaking of which, the first assignment for Econ 101 and the reading & discussion questions for Econ 339 are below the fold.

Read More »

Economics 101
Homework #1
“A Conflict of Visions”
Due Tuesday, September 1, 2009
10 points

Health care reform is one of the most contentious issues in the United States. Finish reading A Conflict of Visions and be prepared to discuss it in class on Tuesday, September 1. In a short essay (1-2 double-spaced pages), use what you learn by reading Sowell and the “Ten Key Elements of Economics” article to craft a proposal for how we should—or should not—reform the health care system. Your essay should do the following:

Consider what Sowell means by the “locus of discretion” and “mode of discretion,” and explain what these imply about the sources of order in the constrained and unconstrained visions (4 points).

Along the same lines, consider “Key Elements” 6, 9, and 10. Explain how these are related to Sowell’s loci and modes of discretion and explain what this implies about health care (4 points).

You will benefit from forming a study group and meeting with them on a regular basis. List the members of your study group and their favorite flavors of ice cream (2 points).

--//--

Economics 339: Reading and Discussion Questions for Tuesday, September 1, 2009
Readings: Douglass C. North, Structure and Change in Economic History, chapters 1-6 and John Nye's recent article on the New Deal in The American Interest (which is now gated, apparently).

1. What, according to North, is “the task of economic history?” How might it be accomplished? What are “the key problems” faced by economic historians? Hint: the first question is answered in chapter 1, the last question is answered in chapter 3.

2. What are the “building blocks” of North’s theory of institutions?

3. What is the “basic tension that has been and remains the center of economic history?” Why is it basic, and why is it tension?

4. What is North’s argument, and why is a theory of the state necessary?

5. What, according to North, is a state, and what does North mean by the following: “The existence of the state is essential for economic growth; the state, however, is the source of man-made economic decline”?

6. What are transaction costs, and why are they important?

7. According to John Nye, what did western civilization accomplish in the last several centuries, and how was this accomplishment undermined by the Great Depression?

8. What are the apparent tensions between ideology and individual interests explored in chapter 5?

9. What are the “three aspects of ideology” North stresses, and how do they affect the development of economic institutions?

10. Why was “(t)he wedding of science and technology in the late nineteenth century” an economic revolution “in the same sense as the development of agriculture”?

11. What is missing from the story?

« Close It

Posted by Art Carden at 09:40 AM in Economics

August 27, 2009

Undergraduate Research Journal

Berry's Campbell School of Business is launching the Undergraduate Business and Economics Journal. The first issue is scheduled for Spring 2010 and submissions are being solicted. The UBER Journal is not intended to be a Berry "house journal." Indeed, I'm told--I've had little to do with it--that the presumption is that issues will normally contain no more than one article contributed by a Berry student.

More information is available here. I'd love to see submissions by co-bloggers students, DOL student readers, or students of DOL faculty readers.

UPDATE: A point of clarification--the UBER Journal website reads as if only Berry students will serve as reviewers. This is not the case; the journal welcomes capable student reviewers from any college.

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

ECO 110: Day 1

Following Art's lead, here's how I handle the first day of my principles course.

I start--even before the blah blah of the syllabus--with a trading exercise. Each student receives a small item such as a tube of toothpaste or a bag of chips. I try to include a few items that might have a giggle factor or a yuck factor--a can of dip (i.e., chewing tobacco), a bottle of nail polish (often given to a male student), or a can of Spam. Students can then exchange items with other students. The exercise lets me cover lots of ground--voluntary exchange, subjective value, trade-offs/opportunity cost--and to do so in a way that serves as a light-hearted ice breaker for the semester. I reinforce some of the concepts with examples such as the opportunity cost of college or movie clips (this semester I used the latrine/helicopter scene early in "Slumdog Millionaire"). I conclude class with 15 minutes or so for the syllabus and with a homework assignment (read Bastiat's "Seen and Unseen" and apply it to the cash for clunkers program) that will be the jumping off point for the second class.

Something that I hope is evident both to my students and to people reading the preceding paragraph is that I really enjoy teaching principles. Unlike some folks, I consider teaching principles to be a high calling rather than something that is beneath me.

Comments are open for a few days until the spammers hit us.

UPDATE: Since both Art's post and Steve's comment gave some indication of the books used in their courses, I'll add a bit about the assigned readings in my principles class.

Ordinary, i.e., non-honors, sections use the Gwartney et al. text and a non-textbook supplement that varies by instructor and semester. My section this semester is an honors section and Berry's honors program prefers that honors courses assign readings that are not textbooks. This semester, I'm going with Russ Roberts "The Price of Everything," Robert Guest's "The Shackled Continent," and Pietra Rivoli's "The Travels of a T-Shirt in the Global Economy." I'm also assigning selections from Landsburg's "Armchair Economist" (the chapter on incentives is a big part of the second class meeting), Shlaes's "The Forgotten Man," Friedman and Schwartz's "The Great Contraction," Robert Frank's "The Economic Naturalist," Timothy Brook's "Vermeer's Hat" (thanks to George Leef for making me aware of this book), and Smith's "The Wealth of Nations." I also list some optional chapters from Gwartney et al. for students who'd like to follow up class discussions with a textbook explanation.

Posted by E. Frank Stephenson at 03:45 PM in Economics  ·  Comments (4)

Economic History and Econ 101: Days 1 & 2

Classes started yesterday; my first classes are today. In Economic History, we're discussing chapters 1-4 of Structure and Change in Economic History and John Nye's recent essay on the New Deal that discusses a lot of the things we're going to talk about in the class. We discuss chapters 1-6 of Structure on Tuesday.

We start Econ 101 with Thomas Sowell's A Conflict of Visions and Gwartney et al., "Ten Key Elements of Economics." Here's Bryan Caplan's critique of Conflict. Here's Arnold Kling on Caplan on Sowell.

Posted by Art Carden at 09:17 AM in Economics

August 26, 2009

Quote of the Day

I'm writing a piece on the profit motive in health care for the Foundation for Economic Education. I just came across this gem from Steve Horwitz:

"Profit is not just a motive; it is also integral to the irreplaceable social learning process of the market. Critics may consider eliminating the profit motive the equivalent of giving the Tin Man from Oz a heart; in fact it’s much more like Oedipus’ gouging out his own eyes."

HT: John Stossel, via Steve Horwitz.

Posted by Art Carden at 11:15 AM in Economics

Clunky Morning Reading and Watching

1. Gregg Easterbrook on Cash for Clunkers, posted at Cafe Hayek.

2. The Obama legacy: YouTube videos of very nice "clunkers" being destroyed.

Posted by Art Carden at 10:20 AM in Economics

August 25, 2009

Cash for Clunkers: Why not a demolition derby?

It occured to me today that if the Obama administration had any real imagination, they would not have simply immobilized and crushed the "clunkers" traded in as part of the "cash for clunkers" program.

No, a creative impressario would have launched "Obama's Cash for Clunkers Demolition Derbymania!" With state and county fairs going on all over the country in August, we could have had some of the best demolition derbies ever using Obama's "clunker cars." And, of course, using the President's theories, that would have meant still more "stimulus" in ticket sales, corndog and fried cheesecake purchases, and who knows what.

Would that have been popular or what? Another missed opportunity.

Posted by Brad Smith at 09:32 PM in Economics

Cash for Clunkers Idiocy on Display

Thanks to the glories of YouTube, we can watch as the government mandates the destruction of perfectly good automobiles to "help the economy." Here is a very nice 1990s Dodge Dakota 4X4 being destroyed. It is a much better vehicle than my pick up truck.

This is a Corvette that looks to be in pretty good condition. Black, pretty sharp car. I'm sure there are a lot of young men crammed into 2001 Malibus who would have liked this car.

In this video, a '98 Cadillac DeVille with less than 80,000 miles meets its end. Just 68,000 miles on this Chevy Caprice wagon.

A nice looking 2001 Mazda light truck with 75,000 miles bites the dust here. Here's a good looking Volvo prematurely destroyed. This SUV would look at home in any tony U.S. suburb.

Really, you ought to look at at least a couple of these videos, and the hundreds more like them on YouTube. Are these "clunkers?" Can it really help the economy to destroy perfectly good assets? Are the people running the government the most economically illiterate bunch since FDR ruled the roost? Or are they dumber?

Posted by Brad Smith at 08:32 AM in Economics

Labour Standards or Liberty?

Josh Hall and I consider international labour standards on the IEA's blog. It's based on our forthcoming "Economic Viewpoints" article in Economic Affairs. That article is based on Josh's IHS "Liberty & Society" lectures on sweatshops and labor standards.

Posted by Art Carden at 07:47 AM in Economics

August 24, 2009

Southern Miss Economics, RIP?

The CHE IHE reports,

Amid the worst economic crisis since the Great Depression, the University of Southern Mississippi is poised to eliminate -- of all things -- its economics department, faculty were informed this week.

Things have been bad at USM in economics for some time, but all I can say is wow.

More here.

Posted by Robert Lawson at 11:06 AM in Economics

August 22, 2009

Cavalcade of Miscellany

1. Arnold Kling examines "Health Reform's Intellectual Failures."

2. My colleague Sarah Estelle and I are leading a Memphis Connection excursion to the Memphis Rock & Soul Museum in about twenty minutes. To this end, here are some resources on intellectual property and intellectual monopoly: video of Stephan Kinsella's lecture at the 2008 Austrian Scholars' Conference and the full text of Michele Boldrin and David K. Levine's Against Intellectual Monopoly. I tend to agree that a lot of intellectual property law exists to create rents for monopolists rather than to incentivize innovation, but it's a difficult issue.

3. We're richer.

Posted by Art Carden at 01:15 PM in Economics

Can you tell us about your first time?

You know, your first time reading Mises' Human Action? Here are my reflections, taped at the Foundation for Economic Education earlier this month. Click on "More from: feeseminars" to see similar 4-5 minute video interviews on the same topic with Bruce Caldwell, Larry Reed, Peter Lewin, Steve Horwitz, and Sheldon Richman.

HT: Pete Boettke.

Posted by Lawrence H. White at 12:17 AM in Economics

August 21, 2009

Mexico decriminalizes....again

After years of opposition from the U.S. government (see my earlier posts here and here), Mexico has decriminalized small-quantity, personal-use drug possession. The Gray Lady reports briefly:

The maximum amount of marijuana considered to be for “personal use” under the new law is 5 grams — the equivalent of about four marijuana cigarettes. Other limits are half a gram of cocaine, 50 milligrams of heroin, 40 milligrams for methamphetamine and 0.015 milligrams of LSD.

President Felipe Calderón waited months before approving the law.

Posted by Edward J. Lopez at 11:14 AM in Economics

August 20, 2009

What I've Been Writing Lately

1. Review of Michael Heller's The Gridlock Economy in the new issue of The Freeman.

2. "Corruption Creates Growth When People Aren't Free," with Lisa Verdon. This is a complete overhaul of an earlier paper, and it's now under review. Update, 8/21: Dean Stansel sent me a note to say that we reported their result incorrectly. I'll post a revision post-haste.

3. Course syllabi for this semester's courses: Economic History plus two sections of Econ 101. Both will be interesting in light of the health care debate, and we'll be focusing a lot of attention on the Great Depression in Economic History in light of the current crisis. Robert Higgs visits Rhodes on 11/10, and students will read his Depression, War, and Cold War in preparation for his visit. Speaking of the Great Depression, John Nye sent me this piece he wrote for The American Interest. It's worth a look, and I'm going to have my Economic History students read it for the first day of class.

Posted by Art Carden at 10:10 PM in Economics

Rest in peace, Rose Friedman

Here is the Friedman Foundation. Here is the New York Times.

Posted by Edward J. Lopez at 01:16 AM in Economics

August 19, 2009

Investment in non-transferable, intangible capital in Mexico and drug decriminalization

Lately I’ve been thinking about Mexico, as I frequently do. It’s a great country with great people, but I’m always asking myself why Mexico can’t be more like the U.S. and Canada, and less like the world’s other middle-income countries. (Mexico’s per capita income is greater than that of China or the Ukraine, and less than Poland’s.)

This often leads me to think about the drug-related violence and public corruption in Mexico, which serves to discourage FDI as well as internal investment in human capital. This leads to the relatively common argument of free-marketers that U.S. decriminalization of some drugs would lead to less violence, less corruption, and more productive private investment in the U.S. and in Mexico. I concur with that argument, but I wonder whether we free-marketers might overstate the likely benefits of de-criminalization, even if only to ourselves.

Mexico’s drug gangs are not drug gangs, per se. They are organizations that have made enormous investment in non-transferable, intangible, yet durable capital. They have invested in the human capital of inflicting violence, evading laws, and corrupting public institutions. They have applied that capital in the market which currently yields the largest returns, smuggling drugs.

If the U.S. de-criminalizes some drugs, the capital will not wither away over night; it will be re-deployed. Furthermore, the capital’s owners will resist allowing something as trivial as a legal reform having too great an effect on their capital’s returns.

For example, consider the Mob after prohibition was repealed. The capital in violence still existed, but after the legislatively created abnormal profits in alcohol were legislated away, the Mob deployed its capital into new industries, such as construction, shipping, trucking, garment making, and worker’s unions. Similarly, Mexico’s drug gangs will move into new industries. Though the violence and corruption may be reduced, they will continue. Furthermore, even if marijuana (for example) is de-criminalized, Wal-Mart and Kroger will not retail marijuana and they will not revolutionize the marijuana supply chain. Though legal, marijuana will be taxed and regulated like alcohol and tobacco are. There will still be profit for violent smuggling organizations. The profit will now arise from evading taxes and controlling distribution networks, rather than from prohibition.

Do I think decriminalization would be preferable to the status quo? Yes, I do, but it will not be a panacea. Perhaps this is another overlooked cost of the war on drugs. It created the incentives and opportunity to produce human capital that destabilizes societies on a global scale, and insured that the destabilizing capital will survive for decades after the war on drugs ends.

Posted by Noel Campbell at 07:27 PM in Economics

Bastiat's Nightmare

A few years ago, I had an idea for a children's book based on Frederic Bastiat's "That Which is Seen, and That Which is Not Seen." People fall for the broken window fallacy and destroy the town they live in, thinking that it will bring them prosperity. Then someone--Freddie, we'll call him--shows up and explains that no, destruction does not bring prosperity. I never took the time to do it, but I now wish I had because the "Cash for Clunkers" program has turned Bastiat's nightmare into a policy reality.

Some are apparently applying the "Cash for Clunkers" idea to other items, like computers. Here's an online version of Henry Hazlitt's classic Economics in One Lesson for anyone who thinks these are good ideas. Chapters 1-3 are probably the most relevant.

If you think that minimizing emissions is a virtue that should be rewarded and subsidized--and I agree that under current institutions, there are some genuine externality problems--you can do your part by helping to underwrite our monthly payments on the "Ultra-Low Emissions Certified" 2006 Honda Pilot that we bought at the end of June. You can donate via PayPal by clicking the button below.

BONUS: There will be a prize of some kind--what, I haven't decided yet--for whoever can send me the best efficiency-based economic argument for why you shouldn't donate.

5:40 PM Update: A friend wants the government to start a "Dollars for Dumps" program through which they will subsidize the destruction of his current house and the purchase of a new one.

Posted by Art Carden at 04:41 PM in Economics

What I (and others) have Been Writing (and Saying) Lately

1. Here's a massive overhaul of Charles Courtemanche's and my paper on Walmart, warehouse clubs, and obesity, currently under review at the Journal of Urban Economics.

2. Should we regulate video games, or are the unintended consequences too great? A reader sent me a link to this paper arguing that in the short- and medium-run, violent movies either decrease violent crime or have no effect. He also sent me a paper showing a similar effect for video games, but I can't find a publicly-available copy anywhere. Here's my year-old take on the porn-and-rape literature, which inicidentally isn't the first thing that comes up if you enter "sex" in the search box on Mises.org.

3. Here are audio and video from Mises University 2009. I promised notes, links, and advice to the students. That will all appear online soon.

4. LvMI is also hosting audio of some other lectures. Here's my lecture "The Global Economy: A Symphony of (Creative) Destruction," given at Rhodes College's Meeman Center for Lifelong Learning on October 13, 2008. Here's my lecture on Walmart, given to the Federalist Society at Samford University's Cumberland School of Law on October 17, 2008. Here's a lecture on Sweden by Per Bylund, one of Peter Klein's PhD students at the University of Missouri, given at Rhodes College on November 19, 2008. Finally, here's Randall Holcombe's lecture "Entrepreneurship and Economic Progress," given at Rhodes College on January 20, 2009.

Posted by Art Carden at 11:52 AM in Economics

August 18, 2009

Cavalcade of Miscellany: Health Care, Recent Writing, and High Honor

I'm back from New Mexico, feverishly preparing for the beginning of the semester, and getting ready to make good on a number of commitments about things I'm going to write about. But not before this.

1. Paul Rothstein, formerly of Wash U and currently of the Federal Trade Commission, is live-blogging the Health Care Bill. I never took a class from Paul, but we had a lot of interesting conversations while I was in grad school. I propose that we refer to an undertaking like this as a "slog-n-blog."

2. Carden, Art, Charles Courtemanche, and Jeremy Meiners. Walmart and Values: Painting the Town Red? Business and Politics 11(2): Article 5.

3. I got to spend part of last week in Santa Fe, New Mexico at the Jack Miller Center Summer Institute with co-blogger Mike Munger. His post-event blog post includes a claim that I'm definitely putting in my tenure file. Thanks to the coaching staff at Rhodes for the basketball shorts.

Posted by Art Carden at 09:57 PM in Economics

Bike Sharing in Montreal

An update on the bike program in Montreal:

Good news: In the almost two months of service, the over 225,000 BIXI trips were taken by almost 47,000 users of which over 6,300 are long term subscribers.

Not so good news: At a recent inspection of 10% of BIXI stations by reporters of La Presse, they found 1 in 5 bikes in disrepair and some docking racks vandalized and unusable. Stationnement de Montréal says that it has technicians out daily.

Source. Like Paris, it appears Montreal's program has high monitoring and repair costs and it is unclear (at best) whether either program generates enough revenue to cover the monitoring costs.

HT: Shawn Regan

Posted by E. Frank Stephenson at 08:11 PM in Economics

A passing question

I am not an education economist, but found the following data concerning our local high school interesting:

Principals

* Robert Garmon (1967-1978)
* Bernie Edwards (1978-1986)
* Glenda Poole (1986-1991)
* Ken Cartrett (1991-1997)
* Walter Hart (1998-2000)
* Phil Hull (2000-2003)
* Dan Meehan (2003-2006)
* Sharon Abercrombie (2006-2007)
* Lynn Rhymer (2007- )

I wonder if there is a negative correlation between the politicization and increasing bureaucratization of secondary public education and the length of time a principal stays in one place? I haven't lived in Concord NC long enough to know if local secondary education is any more politicized or bureaucratized today than it was in 1966 - but my guess is that it is.

Whoever writes a dissertation on this topic, my name is spelled with an "e" not an "i".

Posted by Craig Depken at 04:58 PM in Economics

August 17, 2009

Healthcare vouchers?

My UMSL colleague Dave Rose, in a Christian Science Monitor op-ed, offers a low-cost competition-friendly way of officially providing universal coverage through vouchers. It's a constrained second-best argument: he starts with the fact that we already have de facto universal coverage, takes for granted that won't change. No nationalization and no government rationing are needed.

Posted by Lawrence H. White at 12:27 AM in Economics

August 15, 2009

Money supply, inflation, and envelopes, part 3….

A friend asked, “Wasn't the growth in the money supply offset by a massive contraction of credit? Doesn't the contraction of credit mean we can withstand a large increase in the money supply without risking inflationary pressure?”

Yes, it does, but the contraction of credit is reflected in the decline in velocity. One of the things reducing turnover in the money supply (velocity) is the fact that banks have withdrawn so much credit from the economy.

“The contraction of credit means we can withstand a large increase in the money supply without risking inflationary pressure” is equivalent to “Without the decline in velocity, the massive increase in the monetary base would already be massively inflationary”

Playing with my envelope, let’s suppose that the monetary base and velocity both grow by 4 percent over the next twelve months; both figures well within recent experience. Let’s allow an (optimistic) 1.5 percent growth in real output. That says my “price level” will experience 6.4 percent inflation.

My calculated price level and the CPI-U (everything included) explain 69 percent of the contemporaneous variation in each other. That’s either a pretty good fit, or a pretty bad fit, depending on your point of view. My “inflation rate” is negatively biased by about 1.3 percentage points. Therefore, that could indicate CPI inflation of about 7.7 percent, contingent on the accuracy of my admittedly half-rumped assumptions about M, V, and Q. (note to those unfamiliar with the terminology: a “half-rumped assumption” is the same as a “SWAG”). In short, much higher-than-normal inflation is easily possible, and is likely to be held in check only by continued weakness in real output and continuing low velocity.

Mind you, the level of excess reserves in the banking system is extremely high. The potential remains for explosive growth in the money supply, should credit markets become more fluid.

Posted by Noel Campbell at 01:07 PM in Economics

August 14, 2009

George Selgin on auditing the Fed

George gave an excellent interview early this morning (6am Central!) on Wisconsin Public Radio. I agree with him that traditional respect for the Fed's independence in monetary policy doesn't apply to actions in which the Fed buys impaired assets, makes loans to non-banks, and otherwise goes beyond the traditional bounds of monetary policy. The Fed's mere say-so (merely calling these acts "monetary policy") should not exempt such assets from GAO audits.

Posted by Lawrence H. White at 10:47 PM in Economics

Real and nominal effects of monetary policy

Follow up on an off-line conversation about my post yesterday…

Milton Friedman convinced most of us that changing the money supply has different short run and long run consequences: in the short run, monetary policy may influence real activity, but it will have only nominal effects in the long run. He also convinced most of us that monetary policy affects the economy only after “long and variable lags.”

I’ve spent the year polling my contacts who are more macro-specialized than I, including a former FOMC member and President of the St. Louis Fed. In practice “long and variable” seems to mean twelve months for real effects, with nominal effects beginning to dominate by 24 months. If this belief is roughly accurate, we ought to be seeing the (temporary, but) real effects beginning now. Perhaps we have, as the advance figures of GDP might indicate a slowing of the contraction.

However, I fear the massive increase in uncertainty that the Administration has created (Nationalize health care? Nationalize the auto industry? Regulate access to liquidity? Regulate executive pay? etc., but never delivered with the specifics to allow the economy to form an expectation; this list seems endless.) has short-circuited the “real” bounce.

Unless Bernanke reduces the money supply, or unless velocity stabilizes at a historically low value, then total spending in the economy WILL rise. Given the massive dose of uncertainty in the economy, I don’t expect real output to grow strongly. The extra spending will have nowhere to go except into inflation.

Bernanke has strongly indicated a willingness to pursue “loose money” indefinitely. Thus, economic performance seems to hinge on velocity. I, for one, will watch velocity like a hawk watches a field mouse.

Posted by Noel Campbell at 11:43 AM in Economics

August 13, 2009

Back of the envelope calculations

Hello, all- Thanks for the introduction and welcome. This is my first, ever, blogpost, so I'm only a decade or so behind the times. As this is my first rodeo, the post may be long.

In Principles class we learned an identity, the Equation of Exchange: the product of the money supply and velocity must always equal the product of the price level and real output, or MV=PQ. By the definition of these terms, this relationship must always be true. Using government figures for the monetary base (M), nominal output (PQ), and real output (Q), I calculated solutions for velocity (V) and the “monetary-base” price level (P).

What does the envelope reveal? The Federal Reserve turned the world upside down in Q3 of 2008 and the auguries are not reassuring.

From July 08 to July09, the monetary base grew from $839 billion to $1.68 trillion, slightly more than a 100 percent increase. Velocity plunged, falling from 17.3 to 8.4, a decrease of around 51 percent. On the other side of the equation, real output fell from $13.4 trillion to $12.9 trillion, a decline of 4 percent, although I believe the advance GDP figures for Q2 are rather too large. Finally, despite the public hand-wringing about deflation that one can find in the media, the price level rose by 1.6 percent.

Here’s what’s worrisome: Chairman Bernanke has publicly committed himself to continued increases in the monetary base for quite some time, i.e., M isn’t going to come down. However, velocity seems to have stopped its free-fall and begun to rise again. Starting five quarters ago, velocity has been 17.3, 12.9, 8.1, 8.1, and now 8.4.

So suppose there’s no growth in the monetary base (patently wishful thinking), but velocity continues to grow at its current 8 percent annual pace (or the product, MV, grows at a combined 8 percent—easily do-able), then—of course—to achieve price level stability over the next year, real output must grow at an annual rate of 8 percent over the next twelve months! That would not only be a recovery, but would be the highest level that real output has ever been... all in twelve months. Bear in mind that the long run growth rate of real output is in the neighborhood of two percent.

Perhaps we should keep the back of the envelope in mind the next time a policy maker announces that we can achieve “x” in the near term without causing inflation….

Posted by Noel Campbell at 09:06 PM in Economics

Once More on Cash for Clunkers

From the Financial Times:

The popular US cash-for-clunkers programme may be drawing money from other consumer purchases and could also undermine future car sales, US economists have warned.

Motor vehicle and parts sales, down 8 per cent on the year, jumped 2.4 per cent from June, according to data from the US commerce department on Thursday, but other retail sales fell 0.6 per cent in July.

“With income flows very constrained and household balance sheets over- leveraged, any incremental increase is likely to weigh on non-automotive sales,” said Joshua Shapiro, chief US Economist at MFR, a consultancy, noting that fading interest suggests current car sales are borrowed from the future.

As for the "green" benefits from the clunkers program, this article reports that folks trading in cars are buying lots of low mpg vehicles.

ADDENDUM--welcome Noel to our merry band of bloggers.

Posted by E. Frank Stephenson at 08:12 PM in Economics

Incentives Matter: Canadian Sperm Donor Edition

Mark Steyn posts on an article about Canadian sperm donors--here's a snip from the article:

At one time Canada had two dozen sperm banks but when the Assisted Human Reproduction Act made it illegal to pay for sperm or egg donors they dried up in 2004.

Today there are very few men willing to give up their sperm for nothing.

Thanks for GR for the pointer.

Posted by E. Frank Stephenson at 09:05 AM in Economics

Politics Corrupts Money, or, The Obama Administration Needs Bootleggers*

Robert Reich offers an interesting story about a deal between drug companies and the administration that (almost certainly unintentionally) makes a case against government involvement in health care. Even if we assumed that a perfect government perfectly staffed with perfect people could implement and administer a well-functioning health care system, the coalition-building process that would get us from here to there is virtually certain to create distortions.

*--Here's an EconTalk podcast with Bruce Yandle in which he discusses the "Baptists and Bootleggers" phenomenon.

Update: Here's an article on the coalitions.

HT: Arnold Kling.

Posted by Art Carden at 01:34 AM in Economics

August 12, 2009

Now, They Have Second Thoughts

From the WSJ:

In the 1960s, a University of Wisconsin graduate student named Thomas Crocker came up with a novel solution for environmental problems: cap emissions of pollutants and then let firms trade permits that allow them to pollute within those limits.

Now legislation using cap-and-trade to limit greenhouse gases is working its way through Congress and could become the law of the land. But Mr. Crocker and other pioneers of the concept are doubtful about its chances of success. They aren't abandoning efforts to curb emissions. But they are tiptoeing away from an idea they devised decades ago, doubting it can work on the grand scale now envisioned.

Posted by E. Frank Stephenson at 11:22 PM in Economics

August 11, 2009

Government Announces "Rebates for Recipes" Program

One element of the economy hit particularly hard by the recession has been the restaurant industry. Superchef Gordon Ramsey's restaurants are in a "free fall." The industry as a whole is facing especially lean times as people eat more at home.

Following up on the popular "cash for clunkers," the government has created a plan to save the restaurant industry while attacking America's growing obesity problem. It's called "Rebates for Recipes." Under the program, individuals can take a meal to a restaurant. If they order a new meal at the restaurant that has at least 20 percdent fewer calories, the government will provide a rebate of between $3.50 and $4.50 (depending on the savings in calories) for any entre priced at $45 or less. The restaurant is required to destroy the trade in meal (which must be edible at the time you enter the restaurant) by putting it down the disposal. Presidential spokesman Robert Gibbs said, "there is no end to cross subsidies with catchy slogans that we can create. And destroying perfectly good assets seems to be a proven way to improve the economic health of the nation."

Senate sources say they expect the projected cost of the program to treble within a week.

Posted by Brad Smith at 09:04 PM in Economics

Reform Health at the Margins

So says DOL friend Dwight Lee in IBD.

Posted by E. Frank Stephenson at 10:01 AM in Economics

August 10, 2009

Cash for Clunkers Hurts Some Charities

More of the seen and the unseen from the clunker program:

Vehicles already were lined up for one of the weekly auto auctions benefiting Texans Can, a charity that helps at-risk teenagers and their families, when prospective donors started to call, saying they had changed their minds.

"They said they went ahead and traded it in for the 'cash for clunkers' program," said Cheryl Rios, vice president of the Dallas charity that serves as many as 6,000 students. She estimates Texas Can already has lost $75,000 to the federal program.

While "cash for clunkers" has been a huge hit with car buyers looking to snap up rebates of up to $4,500 for trading in gas-guzzlers for new fuel-efficient cars, some charities that rely on vehicle donations for funding say they're receiving fewer cars and trucks.

Previous post here.

Posted by E. Frank Stephenson at 08:48 AM in Economics

A Bike Program That Might Work

From the Columbus Dispatch (emphasis added):

Ten bicycles are up for grabs at businesses in the Short North. And they're free, as long as riders bring them back within two hours.

"We hope that you'll grab a bike and explore the district," said Josh Quinn, owner of Tigertree, a clothing store at 771 N. High St., and organizer of Everyone Bikes, the bike-sharing program.

To get a bike, riders leave their credit card and driver's license numbers at one of the rental spots ...

Riders have two hours with the bike, which must be returned to the same rental location.

The bold part is the key to success--establishing a link between riders and bikes in a way that mistreatment of bikes can be billed to the person responsible. However, the need to return bikes to the place where they were checked out reduces the attractiveness of the program to riders. Thanks to Dave Reed for the pointer.

Posted by E. Frank Stephenson at 08:25 AM in Economics

The Health Care "System" and U.S. Life Expectancy

The abstract of a new NBER WP by Samuel Preston and Jessica Ho:

Life expectancy in the United States fares poorly in international comparisons, primarily because of high mortality rates above age 50. Its low ranking is often blamed on a poor performance by the health care system rather than on behavioral or social factors. This paper presents evidence on the relative performance of the US health care system using death avoidance as the sole criterion. We find that, by standards of OECD countries, the US does well in terms of screening for cancer, survival rates from cancer, survival rates after heart attacks and strokes, and medication of individuals with high levels of blood pressure or cholesterol. We consider in greater depth mortality from prostate cancer and breast cancer, diseases for which effective methods of identification and treatment have been developed and where behavioral factors do not play a dominant role. We show that the US has had significantly faster declines in mortality from these two diseases than comparison countries. We conclude that the low longevity ranking of the United States is not likely to be a result of a poorly functioning health care system.

Why the quote marks around the word system in the title of this post? Explanation here.

Posted by E. Frank Stephenson at 08:16 AM in Economics

August 09, 2009

Boudreaux on Vegas

Don Boudreaux summarizes why we should all love Las Vegas. This caught my eye because I'm headed to another desert tomorrow (Santa Fe, New Mexico).* These are basically my views, too--every time I've been to Sin City I've been struck with how alive it is and with how much human ingenuity has gone into making it not only livable, but pleasant. As Don points out, Vegas is a (very) bright counterexample to stories about underdevelopment that rely on geography.

*--I've never been to New Mexico, so I'm pretty excited about it. A friend in college who was from New Mexico claimed to have once had this email address: realcowboysarefromnewmexico@dontmesswithtexas.com.

Posted by Art Carden at 07:33 PM in Economics

August 08, 2009

The Seen and The Unseen: Cash for Clunkers Edition

From Thursday's WSJ:

Who doesn't like the government's "cash for clunkers" program? Your mechanic, for one.

Owners of automotive repair shops say the program to help invigorate sales of new cars is succeeding at their expense.

Bill Wiygul, whose family owns four repair shops in Virginia, said he has already had five or six customers decide against repairs. A man who sits on the board of Mr. Wiygul's bank traded in his car rather than repair it. "He'd been a customer at our Reston store since it opened," Mr. Wiygul said.

For Mr. Wiygul and other mechanics, until now the recession has brought them more customers as people fixed cars rather than go into debt for new ones. He has hired five people and is expanding one of the shops.

Auto dealers who offer the rebates on new cars in exchange for clunkers must agree to "kill" the old models by disabling the engines and shipping the dead vehicle to a junkyard.

The loss of such potential work -- as many as 250,000 vehicles will be destroyed in the program's first round -- prompted Mr. Wiygul to question the federal program's focus on dealers and big business at the expense of the little guy.

"How do we get on the special interests, special treatment bandwagon? How much is it going to cost me and to whom shall I send the check?" he said. "Who picks the winners in this game 'cause obviously the game is fixed."

The auto-repair segment of the car industry, with about 164,000 independent shops, is a small portion of the automotive aftermarket that includes maintenance shops, parts suppliers and companies that remanufacture engine parts, among others.

The automotive aftermarket, a $250 billion industry that employs about 4.6 million people, could be among the biggest losers in the clunkers program, said Kathleen Schmatz, head of the Automotive Aftermarket Industry Association*: "It's everybody from the Fortune 500 parts manufacturer all the way through the supply chain to the independent repair shop."

The group that lobbies for independent mechanics in Washington agreed.

"This package will hurt mechanical repairs without question. You are taking older vehicles that are still fine to use and removing them," said Robert Redding Jr., the Automotive Service Association's* Washington representative. "If you're taking hundreds of thousands of vehicles that you normally service off the road with no consideration, it hurts people."

Mr. Redding said the organization originally suggested a repair option be included in the plan that would have allowed some customers to opt for repairs to reduce emissions and extend mileage.

The association's May letter to members of Congress said "a fleet modernization program without a repair option could be devastating to independent repairers. Arbitrarily removing older vehicles from America's highways would take vehicles out of independent repair bays costing jobs and potentially closing small businesses."

*Two more members of the rent-seeking society.

UPDATE: Germany also had a cash for clunkers program and saw some similar seen/unseen effects. From the Financial Times:

But there are also problems in Germany. Retailers, for instance, say the bonus is shifting spending patterns rather than creating demand. Higher February car sales coincided with falling turnover at consumer electronics stores. Stefan Genth, managing director of the HDE retailers’ federation, slammed the bonus last week, saying it was “sucking out spending” from the retail sector.

Such transfers have been visible even within the car market, with demand for used cars falling almost as steeply as new car sales were rocketing. “The classic used car market, with cars older than one year, is pretty much dead,” says Mr Prochnow.

Posted by E. Frank Stephenson at 10:25 PM in Economics

How About "Underwater" Taxpayers?

Harvard's Martin Feldstein has an op-ed "How to Save an ‘Underwater’ Mortgage" in today's WSJ. Here's the letter I sent in response:

Calling his program "fair to taxpayers," Martin Feldstein ("How to Save an 'Underwater' Mortgage" Aug. 8-9) proposes $200 billion of government spending to write down mortgage principal for people with loan-to-value ratios exceeding 120%. On behalf of my young son and the rest of the future generation of "underwater" taxpayers already facing trillions of dollars of government debt and tens of trillions more of unfunded liabilities, I'll pass on yet another dose of fiscal child abuse.

Posted by E. Frank Stephenson at 10:14 PM in Economics

August 06, 2009

In Praise of Justin Ross: Kiwi Fruit vs. Going Postal

A few weeks ago the WSJ had a piece on econ blogs. There were several good blogs--MR, Mankiw--listed in the piece but I spent a couple of minutes thinking about my favorite econ blogs and decided that if forced to name a favorite blogger it would probably be Justin Ross of The Perfect Substitute. His post today comparing the USPS to kiwi fruit grown in New Zealand is a good example of the creativity that makes Justin's posts such a good read. Read the whole thing--including a couple of reasonble quibbles raised in the comments.

Posted by E. Frank Stephenson at 07:16 PM in Economics

Money and banking lectures in Guatemala

In late June I gave a series of three lectures at Universidad Francisco Marroquin in Guatemala City. The topics were the evolution of monetary institutions, the operation of a free banking system, and the financial crisis. Here is a UFM press release (translated via Google Translate -- for the Spanish original go here) with links to videos of the three lectures. The woman in the first row who asks a question during the Q&A following the second lecture, by the way, is the head of Guatemala's central bank. There are also links to photos of me and my wife touring the campus.

Posted by Lawrence H. White at 11:50 AM in Economics

On the death tax c. 1909

The Aug. 6, 1909 NYT prints a letter to the editor from "UNDERTAKER":

The Payne tariff not only increases the cost of living, but it also increases the cost of dying. Undertakers' gloves, which were formally bought at 75 cents a dozen wholesale, and which paid a duty of about 20 cents a dozen, have had this duty raised from 20 cents to 70 cents a dozen. If people, therefore, figure that under the new bill it will be cheaper to die than to live they will find themselves mistaken in this also.

I am not sure that the duty makes it more expensive to die rather than to live, but it does make it potentially more expensive for those the deceased leaves behind once the deceased has become deceased.

{sarcasm}
Whether live and death decisions are made on the margin of the undertakers' gloves is, of course, an empirical question.{\sarcasm}

Posted by Craig Depken at 10:59 AM in Economics

Alternative energy c. 1909

The Aug. 6, 1909 NYT reports (in seven lines) on a technological improvement (for the time) which would lead to dramatically reduced emissions and improved efficiency - all, it seems, based on private decision making:

The trial of an oil-burning locomotive on the Southern Pacific Division between Sparks and Carlin, Nev., has proved so satisfactory that the company has decided to retire all the coal-burning engines on that division. The change will be made at once.

Perhaps there were government subsidies aimed at creating an alternative to the black-smoke belching coal-burning locomotives. Perhaps the subsidies offered the rail-roads in the form of right-of-way and easements, among any number of other policies, indirectly encouraged the development of the new technology. Perhaps the pressure from local citizenries around the country to cut down on the smoke and fire-risk generated by coal-burning locomotives increased the incentive to move to a new technology.

Maybe.

On the other hand, perhaps the Southern Pacific realized that the technology of oil-burning locomotives had improved sufficiently that it was economically viable to utilize the new machines and, in the process, reduce negative externalities.

Does this provide any lesson for today?

I do wish I had more time to dig deeper into the backgrounds of these short stories. There has to be a lot more going on than seven lines worth of text.

Posted by Craig Depken at 10:54 AM in Economics  ·  Comments (31)

August 04, 2009

Rent Dissipation

From the WSJ:

Strapped local and state governments are still spending on at least one activity: seeking stimulus money.

Towns, cities, counties and states across the country spent a total of $21.4 million on lobbyists between April and June, up 2.7% from the first quarter of the year and in line with spending levels through 2008, according to data provided by the nonpartisan Center for Responsive Politics. Almost 1,000 different governments reported paying representatives to pursue their agenda. About a quarter reported lobbying specifically about the stimulus package.

Posted by E. Frank Stephenson at 10:40 AM in Economics

Paging Dr. Bradbury (and Dr. Drinen)

From today's WSJ:

Slugger Albert Pujols was supposed to start seeing better pitches after his St. Louis Cardinals traded for Matt Holliday to bat after him. Lest pitchers walk Mr. Pujols too often, Mr. Holliday, a sound hitter in his own right, would have more at-bats with players on base. But since the move, Mr. Pujols is batting .200 with zero homers, his longest drought of the year. Mr. Holliday, though, is batting .541, with three home runs.

Here's the abstract of Bradbury and Drinen in the J of Sports Econ:

Past studies estimating the marginal revenue products of baseball players have assumed individual players' hitting performances to be independent of teammate spillovers. However, the baseball community's widely held belief in "protection"—that a good (bad) player can improve (diminish) the hit probability of the batter who precedes him in the batting order—violates the assumption of the independence of batting outcomes. In this paper, the authors identify two possible hitting externalities in baseball. Using play-by-play data the authors find evidence contrary to the protection hypothesis—the quality of the on-deck hitter negatively impacts the preceding hitter—though the magnitude of the effect is very small.

Posted by E. Frank Stephenson at 08:39 AM in Economics ~ in Sports

August 03, 2009

Reason.tv on Buying American

Very well done--my favorite of the Reason.tv pieces I've seen--and it features DOL friend Don Boudreaux.

Posted by E. Frank Stephenson at 11:40 PM in Economics

Rental Bikes In Paris Prove Popular With Vandals

My former student and Berry Bike paper co-author Dan Alban points me to an NPR story recounting some difficulties with Paris's bike share program (it's old news--previous post here). A snip:

But what has surprised everyone is vandalism: 16,000 bikes have been replaced because of damage or theft. Tires have been slashed, frames smashed, chains cut. And 8,000 bikes have been stolen.

Police have retrieved about 100 Velibs from the Seine River. But the fate of most of the missing bicycles is unknown.

Posted by E. Frank Stephenson at 10:50 PM in Economics

On substitute goods c. 1909

The August 3, 1909 NYT reports on the impacts of prohibition on federal revenues:

The wave of prohibition that has been sweeping over the United States in the last few years cost the Government $7,641,978.42 in revenue the fiscal year ended with June 30...

I love the accuracy down to the penny.

The story ends with an interesting comment about how the good folks of 1909 still find ways to engage in vice notwithstanding the best intentions of the temperance movement:

A peculiarity of the report [by Secretary of the Treasury MacVeagh] is that the people of the United States, while throttling thirst, have let their craving for narcotics apparently go unchecked. The increased revenue from tobacco exceeded $2,000,000, and the army of cigarette smokers contributed a good proportion of this, the increased amount paid in as a result of the growth of the habit over last year being $722,245.30. That the cigarette is supplanting the cigar is shown by the fact that the loss of revenue on cigars over the previous fiscal year was nearly a half million dollars.

Thus far in the story the revenue figures suggest a substitution between alcohol and tobacco on one level, and perhaps substitution into cigarettes and away from cigars. However, it is not possible to truly infer this without some price and quantity data. The NYT reported on one half of what is needed, quantities:

In summing up his report Acting Commissioner Williams declares that the losses are attributable to the falling of in consumption of certain commodities. The decrease in distilled spirits consumed exceeds 5,000,000 gallons, and in ale and beer nearly 2,500,000 barrels. There were 152,183,830 fewer cigars smoked. On the other hand the cigarette smokers of the country burned up 703,105,065 more cigarettes than in the previous year.

Unfortunately there are no prices reported so we can't calculate a cross-price elasticity.Yet, in theory prohibition alone would alter the shadow relative prices of the products encouraging substitution into the non-restricted products.

As a side note, the tax per cigarette in 1909 was $0.001027 cents or $0.025 in 2008 dollars (according to the folks at EH.net). The federal tax on cigarettes is now $1.101 per pack or $0.0505 per cigarette.

Posted by Craig Depken at 11:25 AM in Economics

August 01, 2009

Dispatches from Mises U: Network Effects and Standards of Living

I just got back from Peter Klein's lecture on network effects and information economics. I'm interested in arguments about path dependence because it's a classic example of a halfway plausible theory with no empirical support that informs a lot of policy decisions. In this spirit, here's a 2006 blog post from Parks Associates arguing that MySpace is a natural monopoly. I also found an unopened Betamax cassette of the original "Rocky" movie with a list price of $19.95. Assume the tape was released in 1979. Adjusting for inflation with the CPI, it would cost $59.19 in 2008 dollars (the most recent year on measuringworth.com). By comparison, Rocky: The Complete Saga--all six movies on DVD--can be purchased brand new from Amazon.com for $33.99.

10:42 AM Bonus Update: Google is attracting antitrust scrutiny. Here's a May article on whether Google is a natural monopoly. The irony: if you click on "share" at the top of the page, you get Twitter, Yahoo! Buzz, Digg, Facebook, Del.icio.us, Reddit, Stumble Upon, Myspace, and Mixx It. Clicking on RSS allows you to add to Google, My AOL, My MSN, My Yahoo, and Netvibes. There appears to be a pretty competitive market for information aggregation and search platforms from which you can read about Google's monopoly power.

Here's The Incredible Bread Machine on film. And here's R.W. Grant's poem "Tom Smith and His Incredible Bread Machine," which speaks to these issues.

Posted by Art Carden at 11:39 AM in Economics

The social cost of rent seeking in Europe

The abstract of a paper in the European Journal of Political Economy (sub req; I thiink an earlier version is here):

Direct measurement of the social cost of rent seeking is impeded by non-observable and non-reported activities. We use a dynamic stochastic general equilibrium model to compute the social cost of rent seeking in Europe. Our estimate is based on competition among interest groups for privileges provided by governments, including income transfers, subsidies, and preferential tax treatment. The model, which is calibrated to the euro area as a whole and also to individual euro member countries for 1980–2003, performs well vis-à-vis the data. We find that significant proportions of GDP are extracted as rents available to be sought by rent seekers.

Posted by E. Frank Stephenson at 11:15 AM in Economics

Mises Audio Archive

So I now have an audio archive at Mises.org. "Common Objections to Capitalism," "Environmental and Resource Economics," and "Production and the Firm" are all available now. If they're recorded, I assume yesterday's talk on consumer product regulation and today's talk on financial markets will be available soon.

Posted by Art Carden at 09:33 AM in Economics

July 31, 2009

"Common Sense" Health Care

Here's Uwe E. Reinhardt with an excellent post on the impossibility of "common sense" health care reform.

Posted by Art Carden at 12:17 PM in Economics

July 29, 2009

Dispatches from Mises U: Links for "Environmental and Resource Economics"

Here are some links based on my “Environmental and Resource Economics” lecture. The audio will be available at Mises.org soon. After the IHS Liberty & Society seminar I taught at in June, we collected links relevant to the discussions we had there. The links are here. For links on resource economics more specifically, here is an excellent EconTalk discussion with Mike Munger on the economics of recycling. This page includes a lot of great links on the economic way of thinking applied to environmental issues. Here is my paper “Economic Calculation in the Environmentalist Commonwealth” and a Forbes.com article based on it. I mentioned the work of the Property and Environment Research Center; here’s the article on DDT to which I referred. My advisor John Nye has a good article on Pigovian taxation and externalities in this issue of Regulation. I didn’t really get a chance to talk about this in my lecture, but while I’m enthusiastic about clean air it is important to note that hybrid cars are the world’s leading cause of smug. George Reisman has given several lectures on environmental economics at Mises University; some of these are available in his Mises.org media archive. Update: I was floored when I found out that one of the attendees at Mises U is a climatologist whose area of expertise is the Asian Brown Cloud, and another is a paleoclimatologist. I look forward to learning from them.

Also, my SSRN page contains links to draft versions of the Walmart papers I mentioned last night.

Posted by Art Carden at 03:16 PM in Economics

What (Josh and) I Have Been Writing Lately: The Institutional Necessity of Economic Freedom

Carden, Art and Joshua Hall. 2009. Why are Some Places Rich While Others are Poor? The Institutional Necessity of Economic Freedom. Working Paper, Rhodes College and Beloit College. Under review at Economic Affairs.

The Abstract:

We survey perspectives on the economic differences between countries and argue that economic freedom is the key to prosperity. We close by outlining the policy implications. Specifically, removing obstacles to the exercise of economic freedom is an important step toward prosperity.

Posted by Art Carden at 11:59 AM in Economics

July 28, 2009

Links on "Production and the Firm" (Updated)

My lecture on Production and the Firm was a complement to rather than a substitute for similar lectures by those who have gone before. Here are audio links to Peter Klein's "Economics of the Firm" lectures: 2007, 2005, and 2003 ("Theory of the Firm"). Here are all of Peter's lectures hosted on Mises.org. These include lectures from the Rothbard Graduate Seminar and his seminar with Joseph Salerno on "Fundamentals of Economic Analysis: A Causal-Realist Approach." In sum, they comprise a pretty complete treatment of the Austrian approach to the firm.

Cross-Posted at Mises.org. Here's the video of my lecture:

Posted by Art Carden at 06:51 PM in Economics

On a nationalized labor market c. 1909

Bad policy ideas are not new to our time. The July 28, 1909 NYT reports on a suggestion that we have a government run employment service:

[T]he National Bureau of Information at Washington can right now furnish to every one of the thousands of unemployed the names of more than one firm where his work is needed. Were the unemployed to go to such localities, the [National Liberal Immigration] League points out, it would be a benefit both to them and to their employers, but they cannot go. They lack the means to pay the traveling expenses, and generally are suspicious of offers from employers to advance expense money on their wages.

The NBI knows more than the individual? Perhaps. After all, I am confident that Monster.com or Google "knows" more than I do. However, the NBI or any organization doesn't know as much about me as I know about me (at least I still contend that this is true). Therefore, while the NBI might have served as an information clearing house - perhaps a low-tech Monster.com - it is difficult to imagine that the government would find the constraint to simply provide "information."

I have find the lack of funds to move down the road to take a new job to be an interesting argument. As a graduate student in the early 1990s I knew some people who joined the military, post Dessert Storm, to have a job. These people were willing to relocate to anywhere and to face potentially life-threatening danger to take a job. I knew others who, quite literally, would not relocate fifty miles down the road to take a job but decided to stay in their unemployed situation.

My experiences are not a broad sample. However, while it may be the case that the nominal costs of relocation stop some from doing so, my acquaintances chose not to relocate because the shadow costs of doing so were considered too high.

If the story had discussed the voluntary relocation of individuals, I wouldn't have much of a problem with the NBI providing information that might help matching jobs and the jobless. Unfortunately, such was not the case. One gets the feeling that voluntary relocation was not at the top of the League's list. The story ends with the conclusion:

The League urges that the Bureau of Information be authorized to pay for the transportation of laborers when it is necessary to do so to bring the work and the workmen together...

"Necessary" according to who's criteria? The implicit assumption of homogeneous preferences and homogeneous human capital is misguided and seems to be exactly the opposite of what modern Monster.com's seem to recognize.

Finally, the name "National Bureau of Information" is a bit Orwellian. Granted, the technology to gather and collate information in the early 20th century was much less developed than the technology available today. The NBI today would be a much scarier proposition than one hundred years ago, but the name sounds like something that the politicians would have hatched in the immediate post-9/11 world. On second thought, perhaps we did have such a proposal in the "TIA" or Total Information Awareness?

Posted by Craig Depken at 10:52 AM in Economics

Lyle Lanley? Barack Obama on Line One

Ed Glaeser discusses plans for high-speed rail and makes an explicit reference to a Simpsons episode that is a classic among economists. Consider: we laughed at "Marge versus the Monorail" for its sheer absurdity. Now we have a straight-faced, serious public policy through which we're spending billions on basically the same thing.

Posted by Art Carden at 10:07 AM in Economics

July 27, 2009

Consequences: Unintended, but Predictable?

Here is a very interesting article by Gary Galles on whether "unintended consequences" are excusable when they are predictable. The recent minimum wage increase is one salient example. We can be reasonably certain that the minimum wage will lead to a 2% reduction in teenage employment (thanks to the reader who caught the error in my letter to the editor yesterday). As I tell my students, you have a responsibility to know what you're advocating if you're going to advocate policy. Galles's article is worth the read.

Posted by Art Carden at 05:09 PM in Economics  ·  Comments (11)

Dispatches from Mises U: Phrases

Best t-shirt I've seen so far that I hadn't seen already: "I Shot the Tariff, but I did not Shoot the Subsidy."

Best cab company advertisement ever: "A Cab Fare is Cheaper than a DUI" (Twin City Taxi). Econ 101 question: what does this slogan suggest about appealing to our needs versus appealing to another's self-love as a way of motivating him or her to action? Advanced micro question: A cab fare is certainly cheaper than a DUI, but is a cab fare cheaper than the expected cost of drunk driving?

Posted by Art Carden at 11:22 AM in Economics

Dispatches from Mises U: Markets in Everything*

Joe Salerno mentioned a Ben Bernanke voodoo doll during his lecture on the marginalist revolution, and I thought (like any good capitalist) "market opportunity." Alas, it has already been exploited. See Pinhead Voodoo Dolls for your all of your non-partisan effigy needs.

*HT: Marginal Revolution for the "Markets in Everything" concept.

Posted by Art Carden at 10:45 AM in Economics  ·  Comments (10)

July 26, 2009

Letter RE: Minimum Wages

Don Boudreaux discusses an op-ed on the minimum wage in the Baltimore Sun. Here's my letter:

In a July 24, 2009 op-ed, minister Ken Brooker-Langston applauds the recent increase in the minimum wage as a “step up the ladder of economic opportunity” for some workers. Unfortunately, some workers will get kicked off the ladder as a result of the increase: the best estimates suggest that a ten percent increase in the minimum wage will reduce teenage employment by about two percent. In a recent op-ed in the Wall Street Journal, minimum wage expert David Neumark argues that the minimum wage increase is likely to cost about three hundred thousand jobs. Mr. Brooker-Langston cites research by UC-Berkeley economists and the Economic Policy Instiute to argue that the argument that minimum wages cause disemploymetn “falls apart under scrutiny,” but it is in fact the arguments in these studies that fall apart under scrutiny. After a decade and a half or so of rigorous debate about the employment effects of the minimum wage, the broad consensus is that minimum wages destroy jobs.

And who bears the brunt of these job losses? Tragically, it is the poor—the people for whom Mr. Brooker-Langston and the signatories on the “Let Justice Roll” petition claim to speak. Teenage unemployment is well above the national average, and African American teenage unemployment is much higher still. This is due in no small part to the minimum wage.

As an economist and as a person of faith myself, I stress the need to really understand the unintended consequences of the policies we advocate or adopt. When we support a higher minimum wage in the name of justice for the poor, we’re really giving them a raw deal.

Posted by Art Carden at 12:07 PM in Economics

July 25, 2009

You Have to Admit, It's Getting Better

Steve Horwitz has an excellent post on how improvements in travel inform his optimism. While I’ve always enjoyed spending time with my family and visiting relatives, there is more of nightmare than of nostalgia in my memories of seemingly endless hours in the cramped backseat of Dad's Dodge Aries. We just took a road trip from Memphis to Great Barrington, MA and then to New York City in a spacious Honda Pilot that is “ultra-low emissions” certified with our GPS leading the way, a selection of CDs, and iPods in case we needed (or wanted) to listen to something without distracting everyone else. Our soon-to-be-one-year-old son enjoyed the Sesame Street and Baby Einstein DVDs he was able to watch on the portable DVD player his grandparents got him for his birthday (in their wisdom, they gave it to him before we took our enormous trip). 21st Century Technology made it a far more pleasant trip than it otherwise would have been. Perhaps the best evidence I can offer for how much better travel is than it was 20 years ago, though, is the fact that I wrote part of this post in New York and part of it in Atlanta. If I’d bought the in-flight wifi connection, I could have posted it from cruising altitude. It’s hard to be pessimistic when you can blog from 35,000 feet.

Changes in standards of living are notoriously hard to measure, but someday, I think we’ll be able to develop crude proxies by watching The Simpsons. Someday, I want to write a paper trying to measure trends on late twentieth and early twenty-first century American standards of living by tracking “The Simpsons” over its entire run and seeing how their assumptions about average standards of living have changed. I’ve shown the episode “”King-Size Homer” in a presentation I’ve given to high school writing camp students, and the last time I watched it I was surprised at its assumptions about Everyman’s access to technology.*

*-“Homer Economicus Responds to Incentives,” and yes, the title is an homage to the brilliance of my co-author and co-blogger Josh Hall.

Posted by Art Carden at 02:31 PM in Economics  ·  Comments (0)

July 24, 2009

Policy and Housing Woes

In Commentary, John H. Makin chronicles points at which bad policy led to bad results in the housing market. Appropriately, he begins with Herbert Hoover ("As a people we need, at all times, the enouragement of home ownership.")

Posted by Wilson Mixon at 04:26 PM in Economics

Alex Tabarrok Beats Me to the Punch

Yesterday, Economix's Catherine Rampell solicited explanations for why firms support an increase in the minimum wage and then claimed that their reasons undermine econ 101. I commented on yesterday's first post and was going to comment on this one; here's

And now for something completely different. Richard Stroup gave an excellent talk on the economics of climate change yesterday. I'll be working some of his insights into my Mises U talk on the environment next week. Apparently, before DDT was outlawed, it was compulsory (and subsidized). Here's a nice PERC article on it.

Posted by Art Carden at 09:49 AM in Economics

July 23, 2009

Fraser Institute Contest

The Fraser Institute is giving away $10,000 in cash and electronics prizes in its 2009 Student Video Contest. The topic is: What is the appropriate role of government in the economy?

Contest enquires should be directed to:

Courtenay Vermeulen
Education Programs Assistant
The Fraser Institute
Direct: (604) 714.4533
Toll free: 1.800.665.3558 x 533
courtenay.vermeulen@fraserinstitute.org

Posted by Robert Lawson at 06:52 PM in Economics

July 22, 2009

Walter Williams on Good Intentions

With the minimum wage set to increase tomorrow, these videos of Walter Williams are worth considering (HT: Don Boudreaux).

Public Schools:

Minimum Wages and Occupational Licensing:

Welfare:

Cross-Posted at the Mises Blog and the Beacon.

Posted by Art Carden at 04:40 PM in Economics  ·  Comments (11)

Federal Reserve Independence

An “Open Letter” regarding Federal Reserve Independence went to Congress on Monday, signed by 386 economists, many of them faculty in top doctoral-granting economics departments. My name was not among the signatories.

The opening sentence warns that “the independence of U.S. monetary policy is at risk.” At risk from what? Not specified. Possibly the authors had Ron Paul’s bill to audit the Fed in mind. The letter continues:

We urge Congress and the Executive Branch to reaffirm their support for and defend the independence of the Federal Reserve System as a foundation of U.S. economic stability.

If “independence” means discretion, then independent Fed policy in 2001-07 did not deliver stability, but fueled an unsustainable path in mortgage volumes and housing prices. The key to stability is not the independence but the restraint of the Fed, self-adopted or externally imposed. Failing self-adoption, external imposition is surely reasonable.

First, central bank independence has been shown to be essential for controlling inflation.

Actually, the correlation between measured independence and low inflation has been shown to disappear with a widening of the sample of countries.

Sooner or later, the Fed will have to scale back its current unprecedented monetary accommodation. When the Federal Reserve judges it time to begin tightening monetary conditions, it must be allowed to do so without interference.

No argument.

Second, lender of last resort decisions should not be politicized.

Consider cases where the Fed has intervened to stave off the resolution of an insolvent firm or to sweeten the deal for its acquisition, e.g. the cases of AIG and Bear Stearns. The Fed or its defenders may call those “lender of last resort” operations, but they weren’t. They had nothing to do with the standard historical (Bagehot) understanding of the LOLR role, which is to lend liquid reserves to solvent commercial banks facing temporary liquidity problems. The LOLR role does NOT include lending to insolvent firms, or lending to non-banks. The Fed’s actions in those cases had even less to do with the modern understanding of the LOLR, which is to prevent the money stock from shrinking. Likewise the Fed’s decisions to create new “loan facilities” for broker-dealers and money-market mutual funds had nothing to do with acting as a LOLR.

The Fed’s decisions in those cases were actually the sort of decisions that were traditionally left to Congressional appropriations (as in the Chrysler bailout of the 1970s). Congress should not be blocked from questioning (“politicizing”) the Fed’s fiscal-policy decisions simply because the Fed mislabels them or self-finances them.

Finally, calls to alter the structure or personnel selection of the Federal Reserve System easily could backfire by raising inflation expectations and borrowing costs and dimming prospects for recovery. The democratic legitimacy of the Federal Reserve System is well established by its legal mandate and by the existing appointments process. Frequent communication with the public and testimony before Congress ensure Fed accountability.

If the Fed’s legitimacy is established by mandates that the Congress gave it, how is it improper for Congress to revisit that mandate, for example to improve Fed accountability? We don’t want changes that raise inflation expectations, agreed. For that very reason we should welcome a new mandate that better restrains the Fed from inflating.

If the Federal Reserve is given new responsibilities every effort must be made to avoid compromising its ability to manage monetary policy as it sees fit.

Congressional backseat-driving of discretionary monetary policy is not an attractive prospect, granted. But this sentence reads like a blanket rejection of any and all rules that would usefully constrain the Fed’s conduct of monetary policy. Have 386 economists forgotten the lesson of Kydland and Prescott, that discretion means an inability to precommit to not inflating, which raises inflation expectations and thereby makes it more painful to achieve low inflation?

Posted by Lawrence H. White at 01:35 PM in Economics

If You're So Certain...

Julian Simon is one of my intellectual heroes for a lot of reasons, but one is because he was willing to put his money where his mouth was. This illustrates a vital characteristic of the market process: if you are blessed with superior insight, you should be able to make money by exploiting that insight. Here's an interesting challenge to climate change skeptics: if you truly, honestly don't believe in global warming, you should be willing to take a bet of this type.

Posted by Art Carden at 01:22 PM in Economics

Technology in the Classroom

My friend and colleague Leigh Johnson (aka "Doctor J") offers an interesting post on the use of technology in the classroom. I've been meaning to write an article for Lifehack on the use of Powerpoint for a while now, but I haven't gotten around to it. Here's my comment on Leigh's post:

"Nice set of points, powerfully presented. I rarely/ever use ppt, but I like having a projector so I can show clips that underscore my point (The Onion's "Flying Cars" video illustrates what a lot of conversations about economics are like). Google (Tufte Powerpoint) for Edward Tufte's view, and one of the best examples of how ppt can be used poorly is the Gettysburg Address powerpoint (easy to find via Google).

My rules for using ppt in lectures and conference presentations are pretty simple: max pictures, min text, min slides, never use ppt as a teleprompter/outline, never, ever, ever read directly from the slide unless you're giving a block quote from a Certified Great Thinker (and even that is debatable). In short, don't use your audience's ability to read as a substitute for your ability to present. For many more hints, tips, and tricks, see my paper "How to Be a Great Conference Participant," available here."

And here's the Gettysburg Address Powerpoint.

Posted by Art Carden at 08:52 AM in Economics

July 21, 2009

Help me please?

I have been staring at the computer screen for the past two days working on two projects with deadlines at the end of the month. Occassionally I take a break to see what's happening on the Internets and I came across this link to state-by-state breakdowns on the stimulus spending (via Resource Shelf).

I tried to sort the data by the amount "made available" and obtained the following:

Perhaps my brain is muddled but it seems to me that I have requested that the data be sorted from greatest to least (as witnessed by the little downward pointing arrow in the upper right corner of the second column of data) and yet the result seems all messed up. A similar problem occurs if you try to sort from least to greatest or if you change the sorting in any of the other two columns of data.

I am sure there is a simple coding error that can be attributed to some sleep deprived government contractor, but one wonders if this reflects a more systemic problem with government's ability to handle numbers - at least numbers with less than nine figures.

Posted by Craig Depken at 03:05 PM in Economics  ·  Comments (26)

A Good Word for BE Press

I just submitted the final version of our forthcoming paper "Wal-Mart and Values: Painting the Town Red?" to Business and Politics (WP version here). I have to put in a good word for the BE Press journals. This is the second paper I've published in a BE Press journal, and I have to give them props for for quick turnaround time and a relatively painless publication process.

Update: while I'm dishing out kind words, here's a piece on a feat by one of my HS classmates that's a pretty good candidate for feel-good story of the year.

Posted by Art Carden at 02:50 PM in Economics

The Importance of Property Rights

Here's a great tool that illustrates both the importance of property rights and the effect of violating those rights (HT: Craig Richardson). The scorched earth on the left is the communal land; the lush, reservoir-dotted land on the right is privately owned. If you click the "after" button, you get to see what happens to the privately-owned land when it is expropriated and redistributed to Robert Mugabe's friends and cronies.

Incidentally, the pictures illustrate important lessons about property rights but also important lessons about identifying causality.

Posted by Art Carden at 12:30 PM in Economics

Tullock on Pareto Criteria

Nonetheless, a slogan was invented that purported to solve the problem [of compensating those injured from changes from the status quo]. It was pointed out that if everyone agreed, then the move would injure no one. This, of course, assumes that the subjects of the change would make correct calculations. From our previous discussion, it can be seen that this was dubious.

Nonetheless, many economists began at least bowing in the direction called unanimous consent. I regret to say that I, particularly in joint work with Buchanan, did this myself. I apologize. In practice, this involved mere lip service. Reforms and changes were suggested, and references to obtaining unanimous consent were merely ceremonial. For example, no one suggested that we should await unanimous consent to reduce tariffs.

I have to admit that my work with Buchanan made this error. We suggested constitutional changes and said that they needed unanimous consent. I do not think, however, that any of our readers were fooled. We actually advocated some radical changes. The reference to unanimous consent was not very vigorous and probably merely ceremonial.

In this, we followed the mainstream. If you read any economic journal, you will find statements that various things are Pareto optimal. In most cases, this is merely a slogan.

Gordon Tullock, "Smith vs. Pareto," Atlantic Economic Journal 27, no. 3 (1999): 254-259.

Posted by Joshua Hall at 12:12 PM in Economics

Why An Understanding of History Is More Important Than Ever

From an academic counselor at Miramar College in California:

“There’s a lot of despair out there,” Cassar said. “You have no money. You can’t get into classes to graduate. And even if you could get into classes to graduate, you might not be able to find a job. I don’t know what the Great Depression in ’29 was like, but from what I hear from my grandparents, it sounds a lot like what’s going on now. It’s my job to be a cheerleader and keep people upbeat and tell them we’ll get them into classes on time.”

Excuse me while I channel my inner Angus, but holy crap, people! Not being able to get into the classes you need to graduate is comparable to the Great Depression? You mean the one with three years of over 20 percent unemployment? The one where, according to economic historian Gene Smiley, "Some people starved; many others lost their farms and homes. Homeless vagabonds sneaked aboard the freight trains that crossed the nation. Dispossessed cotton farmers, the “Okies,” stuffed their possessions into dilapidated Model Ts and migrated to California in the false hope that the posters about plentiful jobs were true." That Great Depression?

Posted by Joshua Hall at 10:44 AM in Economics

God Bless America

Buy a Truck, get an AK-47. I'll be interested in seeing how well this works.

Posted by Art Carden at 10:14 AM in Economics

July 20, 2009

The Lie Factor and the Budget

I finally read Edward Tufte's fantastic The Visual Display of Quantitative Information during my last year of graduate school; Frank's post below brings to mind one of Tufte's most important concepts: the Lie Factor. Tufte argues that the relationship indicated by the data should be the same as the relationship suggested by the data. The Lie Factor measures the degree to which the graphic misrepresents the relationship; several websites define it as the ratio of the relationship implied by the graphic to the relationship implied by the data. More generally, I would say that it is the ratio of the larger relationship to the smaller relationship to account for graphics that understate the magnitudes of different relationships. The graphic in Frank's post has a very high lie factor: the difference between the $2.6 trillion spent in 2005 and the $3.99 trillion spent in 2009 is much larger than that suggested by the graphic. Eyeballing it suggests that there is a difference of (say) 12 percent in the magnitudes of the 2005 and 2009 bars when we measure from the right. The difference between $3.99 trillion and $2.6 trillion is about 35 percent, The Lie Factor for this part of this graph is approximately 3, which is the factor by which the graphic understates the relationship.

Posted by Art Carden at 09:49 PM in Economics

Planning for the End of the World

Thanks to everyone who commented on my earlier post about the end of the world. On Sunday morning, I heard a radio broadcast arguing that the Rapture will occur on May 21, 2011. A quick Google search turned up this website, which makes this claim and arguing further that the world will be destroyed by fire on October 21, 2011. I just sent them the note below. I will blog their response when I get it.

Greetings. I am intrigued by your claim that the rapture will occur on May 21, 2011 and that the world will be destroyed by fire on October 21, 2011. I would be willing to pay $1000 for all of your worldly belongings (real property, real estate, automobiles, etc), to be transferred to me on the morning of May 22, 2011. You would get the $1000 now, and I would get your property after the rapture. If you are interested, please let me know and I will have my attorney draw up a contract.

Posted by Art Carden at 08:49 PM in Economics  ·  Comments (14)

New (and different) business models

The downturn has severely hit our local mega-mall Concord Mills. The company that owns the mall (name redacted), also owns malls of similar names in Grapevine, Texas, and other cities around the country.

While some long-time retailers have disappeared from the mall, especially a big anchor store Circuit City, some new retailers have popped up and are promising to come to the mall, including a Lego store, which sounds neat.

Two of the most interesting new businesses:

1. Free Market Warrior - which I haven't yet taken pictures of but I will next time I am at the mall (assuming the FMW has survived): the FMW is a kiosk located outside the Bass Pro Shop which sells anti-Obama t-shirts and bumper stickers as well as posters of Ronald Reagan, Barry Goldwater, and other libertarian/republican names. I wonder if we should try to sell some DoL gear there?

2. The Train: This is a small electric train with about five cars which drives around about 1/4 of the "circular" mall (actually it goes through the area of the movie theaters, which is of least pedestrian traffic during regular hours). It is a pretty neat thing for three bucks and the kids love it.

The head scratchers:

1. The Beef Jerky Outlet. We haven't been to the BJO yet, I just saw the sign yesterday (see picture below). The only thing I see on the surface the BJO has in its favor is that it is located next to the Harley Davidson store. Much like the Free Market Warrior and the train, perhaps location can make this business work, but I wonder. I put the over-under of the BJO at less than two months (perhaps lower if they only have one inventory delivery), but others have suggested a bit longer.

2. The Not-Everything's-A-Dollar Dollar store: This is a dollar store where not everything is a dollar. Some items are $1.25 and others are $0.75. Perhaps the average price is $1 - so why not just go with $1 for everything? The oddest price I saw was $1.16, for window cleaner or some such chemical. I don't understand what the owners hope to accomplish with such a pricing scheme. I thought the supply-side argument for the dollar store pricing was (at least) two-fold: reduced "menu costs" in that the store didn't have to change prices on all sorts of different products and reduced fraud on the part of the staff - inventory can easily be counted against receipts and any differential is easily determined.

On the demand side, a $1 price makes it easy for consumers to keep up with their total expenditure on the trip and and comparison between different products is ostensibly easier because all items are the same nominal price.

Not for these guys. These guys are paying someone (perhaps a family member) to label every item in the joint. For every product they price over a dollar they dramatically reduce the odds that I (personally) would buy a product and for every item they price under a dollar they do not increase the odds that I will purchase the product. Thus, in the dollar store I have an oddly shaped "kinked" demand curve. Maybe I am unique, but I wonder.

My over-under for this experiment is three months.

Cross posted at Heavy Lifting

Posted by Craig Depken at 07:15 PM in Economics  ·  Comments (28)

Hanson on the EMH

I'm working on my lectures for Mises University, which starts this weekend at the Mises Institute. I found this post by Robin Hanson especially useful for my lecture on financial markets. It's worth taking a few minutes to read.

Posted by Art Carden at 02:57 PM in Economics

Economics Quiz

This caught my eye; it is from a comment on an article Mike Hammock and I published in the Memphis Commercial Appeal last week:

"I find it very interesting that the same people who argue so vehemently against public-sector competition in the private-sector health care insurance industry are those who argue so passionately for private-sector competition in the public-sector education industry."

Here's the quiz: Is there an inconsistency between advocating increased private-sector involvement in education while opposing increased public-sector involvement in health care? Why or why not?

Comments are open, and they will be on a more regular basis since Pete Boettke's post shamed me into deciding to open the comments more often--my reason for closing comments was due to floods of porn/gambling/mortgage refinancing spam rather than trolls.

Posted by Art Carden at 11:56 AM in Economics  ·  Comments (22)

Bryan Caplan Asks Very Tough Questions About Health Care

This post and the links contained therein are worth pondering. In a series of posts, Bryan Caplan points out the weaknesses in standard arguments for government provision of health care. Here is a particularly damning indictment of economists' support for government involvement in health care:

"All this suggests that economists' arguments in favor of socialized medicine are largely rationalizations of a policy that they favored long before they studied economics."

In discussions I've been involved in with economists and others, I've always been puzzled by the frequency with which people jump from the existence of a plausible reason why a policy might not be crazy--the existence of arguments for a minimum wage based on monopsonistic labor markets, for example--to the firm belief that the policy is a good idea. To adapt a phrase that I first heard from Bryan Caplan, people mistakenly infer probability from possibility.

I wonder: how many of the arguments for what we believe would be persuasive if our beliefs were determined randomly, and many are rationalizations for things we want to believe? In other words, to what degree does the causal arrow run from evidence to beliefs? To what degree does the causal arrow run from beliefs to evidence?

Posted by Art Carden at 11:47 AM in Economics  ·  Comments (2)

Obviously Not Drawn to Scale

This chart appears in yesterday's NY Post (HT: Instapundit). The last two years (2005 and 2009) indicate a 50% increase in spending but the bar for 2009 is barely taller than the bar for 2005.

Posted by E. Frank Stephenson at 10:29 AM in Economics

Inequality: Another Symptom of "The Albany-Trenton-Sacramento Disease"

A recent Wall Street Journal editorial, "The Albany-Trenton-Sacramento Disease," discusses three states that are getting hit the hardest by the recession: California, New York, and New Jersey. These are the states, according to the editorial, whose policies are the most progressive and, by the way, of most resemblance to the Obama-Reid-Pelosi government (and a lot of W. before them). The state policies singled out in the editorial are spending, taxes, unions, and government health care. For a comprehensive comparison, look at The Fraser Institute's Economic Freedom of North America index, which is a broad based index of government policies. Between 1981 and 2005, this index ranks New York, California and New Jersey as the 4th, 5th and 16th most interventionist state governments (take the mean of 1981-2005 Area 2 scores, subnational). As a result, returning to the editorial's theme, these states suffer higher unemployment, declining tax revenues, health sector problems and other ailments that tip of emigration. Folks, there are a lot of moving vans headed out of California these days. (Mine happens to be driving against that flow, but that is another story...)

In fairness, these three states have among the largest economies, so they might be expected to bear a greater burden during downturns. They're also coastal, which some commentators believe creates unique problems. Yet other large-economy states are doing better. Texas, for example, has the second largest economy of all the states but didn't have much of a housing bubble, and is in great fiscal shape compared to the disasters in Albany, Trenton and Sacramento. As for the coastal argument, perhaps the Gulf Coast just doesn't count?

Progressives are quick to the chime that there is an equity-efficiency trade off. High taxes and spending, plus heavy regulation of the market, are necessary to level the playing field against all the inequalities that capitalism creates. Some forfeiture of economic growth is simply part of the deal to achieve a more just distribution of income. It's a just sacrifice upon the altar of equal outcomes.

Curiously for this argument, California, New York and New Jersey have some of the most unequal distributions of income in the country. Take the Census Bureau's American Community Survey data, which breaks down the distribution of family income by income level and state. Now simply calculate ln[(percent of households earning $100,000 or more)*(percent of households earning $25,000 or less)] to arrive at a measure of "fatness" in the tails of the income distribution. Using 2004 data (a year I happen to have already), here are four most and least unequal states.

Most unequal states	Least unequal states
California 6.095	South Dakota 5.168
New York 6.087	Montana 5.311
Massachusetts 6.031	Nebraska 5.352
New Jersey 6.025	North Dakota 5.366
Texas 5.960	Maine 5.386

And this is post-transfer income, folks! Quoting the notes attached to the ACS data:

"Total income" is the sum of the amounts reported separately for wages, salary, commissions, bonuses, or tips; self-employment income from own nonfarm or farm businesses, including proprietorships and partnerships; interest, dividends, net rental income, royalty income, or income from estates and trusts; Social Security or Railroad Retirement income; Supplemental Security Income (SSI); any public assistance or welfare payments from the state or local welfare office; retirement, survivor, or disability pensions; and any other sources of income received regularly such as Veterans' (VA) payments, unemployment compensation, child support, or alimony.

Notice Texas in the number 5 spot for most unequal. Yet on Economic Freedom Texas is very different from the other three states. Texas is 44th on the Fraser index for government intervention; that is, it has the seventh most free economy among the 50 states. For all their redistribution, California, New York, and New Jersey (ahem, not to mention Mass.) achieve only marginally better income inequality compared to a state with little redistribution, namely Texas.

If you want a more conventional measure of income inequality, the progressive Economic Policy Institute calcualtes the ratio of top-quintile to bottom-quintile income means (I believe they use pre-tax and -transfer income). As of the most recent data in the 2008 version of the study, CA, NY and NJ rank 1st, 8th, and 14th in inequality. Texas is right behind California again.

Period	CA ratio (rank)	NY ratio (rank)	NJ ratio (rank)	TX ratio (rank)
Mid 2000's	7.9 (8)	8.7 (1)	7.5 (14)	7.9 (9)
Late 1990's	7.1	7.9	6.9	7.1
Late 1980's	6.5	6.7	5.7	7.0

Source: Pulling Apart: A State-by-state analysis of income trends Employment Policy Institute (2008)

The picture would change somewhat if tax burden were included in the data because Texas sales taxes are high and the other three have progressive income taxes. Still, Texas's inequality just doesn't seem that much worse, even though it has far less redistributionist spending and regulation.

Like other phantom trade-offs (e.g. liberty for security, employment for inflation), maybe the equity-efficiency trade-off only sounds good until policymakers actually try it.

Posted by Edward J. Lopez at 08:40 AM in Economics

July 19, 2009

From my recent readings

I have been catching up on some reading for reading's sake - rather than for specific research projects. The current issue of the Journal of Economic Literature has three good book reviews:

1. "The Economics of Intercollegiate Sports" by Randy Grant, John Leadly and Zenon Zygmont;
2. "The Cult of Significance: How the Standard Error Costs Us Jobs, Justice, and Lives" by Stephen Ziliak and Deirdre McCloskey (the review to be required reading in my graduate econometrics class)
3. "Plight of the Fortune Tellers: Why We Need to Manage Financial Risk Differently," by Riccardo Rebonato (the review to be required reading in my graduate financial econometrics class and there is a great EconTalk interview of the author here)

Some great statements from two articles:

From the article "Is Economics Necessary?" by Kenneth E. Boulding in the April 1949 Scientific Monthly:

"Just as a pond develops an equilibrium population of frogs, fishes, bacteria, algae, and the like, all in subtle competitive and cooperative relationships with one another, so society is a great pond, developing equilibrium populations of Baptist churches, post offices, gas stations, families, counties, states, wheat farmers, chickens, and so on, which also exhibit complex cooperative and competitive relations one with another."

and

In a world of technicians, it is the economist who raises the cry that the technically most efficient is not necessarily, or even usually, the socially most efficient; that the best cow is not the one that gives the most milk; the best business is not the one that makes the most profits; the best army is not the one that creates the most havoc; and, above all, that the best training is not the best education. In a day when self-interest, nationalism, totalitarianism, militarism, and a dreadful pride threaten our very existence, economics points always toward the general interest, looks toward a free-trading world society, claims that the business of living even in a complex society can be accomplished with a small minimum of police coercion, urges that plenty is the source of power and war the greatest enemy of plenty, and by its very failures induces that humility for lack of which we perish.

"War as the greatest enemy of plenty" should be impressed on all those who claim that the Second World War somehow ended the Great Depression.

From the article "Mr. Keynes and the `Day of Judgement'" by David McCord Wright in the November 21, 1958 Science:

But the expanding society (any expanding society) is always advancing into what I have called a "fog of futurity." There are bound to be mistakes. Such advantages as socialism possesses in the matter of stability lie largely in the ability for the socialist bureaucracy to refuse to gratify the known wants of consumers and to slow down the whole process of growth-change to a slow enough pace (frequently very slow) for them [the bureaucracy] to handle.

A statement that should be impressed on all those who lobby for national health care.

and

While Keynes himself knew better (and often remember to say so), the general trend of his argument, and the normal reaction of most of his disciples is: In the face of a drop in output and employment, just stimulate demand. Put in more money, it will be said, by increasing the national debt through bank credit, or discourage saving by "soaking the rich."

Which just about sums up the entire "bailout/sellout" mentality of the last two presidential administrations and the complicit members of Congress.

How many politicians, much less economists, have tried to wade their way through Keynes's General Theory to realize that, for the most part, it is a bunch of clap-trap and, perhaps, might have been written as one big hoax?

Posted by Craig Depken at 03:00 PM in Economics

The Socialist Calculation Debate

In this newly available video, recorded in the library at the Foundation for Economic Education earlier this summer, I discuss the socialist calculation debate. Of course, nobody advocates nationalization or government ownership of industries these days, so this is only of interest to historians of ideas ...

Posted by Lawrence H. White at 11:24 AM in Economics

July 18, 2009

A News Flash

According to The Telegraph, the U. S. has a free market in health care:

A lobby group that supports the current free market in US health care is spending $20 million trying to derail Mr Obama's reforms - the centrepiece of his domestic programme - by broadcasting "horror stories" on television.

Some free market: Medical practitioners must be licensed by the state after being approved by organizations whose interests lie in restricting supply, hospitals are regulated by the state, ditto insurance companies. Not to mention Medicare and Medicaid, and policies that favor third-party payments to the extent that "insurance" is really pre-paid medical care.

Posted by Wilson Mixon at 03:33 PM in Economics

July 17, 2009

A Hero of Capitalism

With apologies to our friends at the HOC blog, it was 107 years ago today that Willis Carrier invented air conditioning. The pointer is from Instapundit.

Posted by E. Frank Stephenson at 07:34 PM in Economics

July 16, 2009

Innovation and Path Dependence in New York

New York City spends a million dollars on typewriters for the NYPD. (HT: Matt Babb). I assume that these typewriters are equipped with QWERTY rather than Dvorak keyboards.

Posted by Art Carden at 01:23 PM in Economics

Recent Reading and Writing

1. Here's Tyler Cowen on the autistic spectrum and academia. I've thought for some time that the rhetoric of "disability" is damaging. I'll be reviewing Cowen's new book for Lifehack.org.

2. With Mike Hammock, here's an op-ed in today's Memphis Commercial Appeal on charter schools. Are they perfect? No. Are they "still an unproven entity" as the chairman of the Shelby County School board claims? If we're comparing state-funded school competition to state-funded monopoly, it's the state-funded monopoly that is the unproven entity. Here's Kerry King's website; she has written a couple of very interesting papers on competition in education.

3. Thoughts on Mises's Interventionism: An Economic Analysis.

4. A review of Donald Stabile's interesting The Living Wage: Lessons from the History of Economic Thought for EH.net.

Posted by Art Carden at 10:36 AM in Economics

July 15, 2009

Coolest. Fan Costume. Ever?

I wonder if "Cardinal Carl" gets a discount on his season tickets? Should he? Should teams offer discounts to SuperFans because they are "part of the show" or should they charge extra because dressing up like this might signal a high willingness-to-pay for tickets? How could they do it?

The combination of empty seats and long concession lines at sporting events has always puzzled me, especially in light of the innovative ways teams try to price discriminate. For example, the Cardinals might offer a four-game ticket package that includes tickets to games against the Cubs and Dodgers packaged with tickets to games against the Pirates and the Nationals (I bought a ticket package like that once). Comments are open if you have a good explanation.

UPDATE: The guy next to Cardinal Carl in the Jack Clark jersey is pretty awesome, too.

Posted by Art Carden at 01:58 PM in Economics  ·  Comments (2)

Environmental Consciousness or Price Discrimination?

Freakonomics links to a report that a brothel in Berlin is offering "discounts to customers who arrive by bike or public transportation." Is this really an expression of environmental consciousness, or is it price discrimination? My money would be on the latter: bike riders and public transit users are likely to have more elastic demand curves for the brothel's (ahem) "services" than car-driving customers.

Posted by Art Carden at 11:07 AM in Economics

July 14, 2009

The Size of Big 2.0

Some of my favorite Deirdre McCloskey questions are "how big is big?" and "compared to what?," and I'm trying harder and harder to incorporate them into my scholarship and teaching. Richard Ebeling just gave a fascinating lecture at AIER on 19th century liberalism, nationalism, socialism, and statism that set the stage for his later lecture on twentieth-century Keynesianism. In the lecture, he mentioned the wholesale slaughters of civilian populations by totalitarian governments. To the best of my knowledge, no one has tried to construct a rigorous estimate the cost of the slaughters, but I played around with Wolfram Alpha a little bit to try construct a crude estimate of the annual cost of war-related deaths. Taking median per-capita income of $3596 over a sample of years stretching back to 1993 as the value of a disability-adjusted life year and using the estimate of 6.29 million disability-adjusted life years lost to war deaths, we get a very crude estimate of the annual cost of war from deaths alone of $22.6 billion. By comparison, the market value of Target, #28 on the Fortune 500, was $25.7 billion as of March 27, 2009. According to Wikipedia, the IMF's estimate of the nominal GDP of El Salvador was about $22.1 billion. If this estimate is too low by a factor of ten, the cost of war deaths would be comparable to the market value of Wal-Mart or the GDP of Malaysia. If this estimate is too high by a factor of ten, the cost of war deaths would be comparable to the market value of Saks or the GDP of Suriname (give or take a few hundred million).

Of course, a little knowledge can be a dangerous thing: on one hand, the ready availability of cheap data improves our ability to make informed decisions. On the other hand, however, since the the cost of one input (computation) is rapidly approaching zero while the cost of the complementary input (analytical ability) isn't falling as fast, is staying constant, or is increasing, the opportunity cost of high-quality analysis is increasing and the opportunity cost of low-quality analysis is falling. Hence, I expect the signal-to-noise ratio in scholarship and public discourse to fall.

This has me curious now because these are definitely very-crude-but-possibly-maybe-plausible estimates. I'll put on my "assistant editor of the Journal of Economics" hat and suggest a paper idea: estimate the annual global cost of war and/or estimate the cost of 20th-century democides. R.J. Rummel's book Death By Government is the authoritative source for data on democide, and another good place to start for is Claudia D. Goldin and Frank D. Lewis, "The Economic Cost of the American Civil War: Estimates and Implications," which appears in 35(2) of the Journal of Economic History (June 1975), and a minute or two with Google Scholar turns up some interesting hits.

Posted by Art Carden at 05:31 PM in Economics  ·  Comments (6)

There's a Market for That: On Discrimination

A few weeks ago I wrote a piece for the Mises Institute on discrimination and argued that an ordinance in Shelby County against some kinds of discrimination is a bad idea for several reasons. Basically, government intervention is the wrong way to fight discrimination. Here's the right way: FedEx, a private firm, has strengthened its anti-discrimination policy.

Posted by Art Carden at 03:05 PM in Economics

It's the End of the World As We Know It

A student asks:

"When people are preparing for the apocalypse, what do they buy? I need to get in that futures market. Wait, the market has already adjusted for that, hasn't it?"

I respond:

"It probably has, unless you have unique information. If your eschatology is systematically better than everyone else's, you can profit accordingly. Since the Bible says that no one knows when Jesus Christ will return, it should probably enter into all of our economic calculations as a purely random event--an act of God, if you will. However, the Bible is considerably more opaque on the events that will follow. If the dispensationalist view is correct--the view expressed in the "Left Behind" books--then you'll probably want to short pretty much all currencies and government securities, go long on precious metals, and stockpile Bibles. I can't find betting markets on the end of the world at www.intrade.com and similar sites, which suggests a market opportunity."

Comments are open if you have any other suggestions.

Addendum: I'm going to use the answers to compile an Economist's Guide to the End of the World. If you were stocking a survival kit, what would you put in it?

Posted by Art Carden at 09:03 AM in Economics  ·  Comments (20)

July 13, 2009

Universal Car Care

HT: Mason Drake

Posted by E. Frank Stephenson at 10:13 PM in Economics

Knocking off the knock-offs

Adaptive entrepreneurship from the ever clever Counterfeit Chic, who frames a trend in counterfeiting hand bags. From "counterfeit bags overtly labeled as such," to someone sticking FAKE on the broadside of a genuine bag, the cool pics also include a paper sack drizzled up to look like Chanel (never mind the scary feet in the photo).

Posted by Edward J. Lopez at 10:04 PM in Economics

Consumerism--Quelle Horreur!

In order to help viewers determine if movies have objectionable content, Netflix provides content info on some films. (Netflix says, "This information for parents is provided by Common Sense Media, a non-profit organization dedicated to improving kids' media lives.")

"Marley and Me" is the next item in the Stephenson queue and I wondered if it might be suitable for Pee Wee (my impression, apparently correct, is that the film is relatively clean) so I clicked through to see the content info. Most of the categories on which the film is evaluated are unsurprising--sex, language, violence, drug use, etc. But there is also a category for "consumerism" and here's the consumerism evaluation of "Marley and Me":

Jenny and John pursue the American dream: a nice house in a good neighborhood, a nice car, a big trip, etc. But the pursuit is also a struggle, and viewers see how John and Jenny sacrifice to gain the material pleasure that they eventually achieve. Specific products/brands shown/mentioned include Volvo, the Philadelphia Enquirer and the New York Times.

For this consumerism content, the film earns a red dot indicating "Not appropriate for kids of the age most likely to want to see it." How awful--two people want a nice house and they sacrifice and struggle to obtain it. Then again, maybe Paul Krugman, Frank Rich, and the rest of the NYT warrant a red dot.

Just for kicks here is "Jerry Maguire" which also gets a red dot for consumerism:

Athletes are shown endorsing various products and companies; brands such as Chevrolet and Reebok are mentioned. A woman is shown drinking a Coke.

Maybe the raters are Pepsi drinkers. Since the raters object to "Marley & Me's" depiction of sacrificing for material goods I decided to check "Million Dollar Baby" to see if the raters object to government handouts (the movie contains a scene in which a mother turns down a house from her daughter because it would affect her welfare eligibility. Not surprisingly, no mention of handouts in the ratings.

I'll leave comments open for a few days if readers come across other examples.

Posted by E. Frank Stephenson at 09:53 PM in Economics  ·  Comments (0)

Markets in Everything: Sunshine Insurance Edition

Sun-seekers whose holidays are spoiled by bad weather could be reimbursed after French travel agencies launched insurance cover for unwanted interruptions to the sunshine.

The insurance policy, launched by holiday groups Pierre et Vacances and FranceLoc, will allow holiday-makers to claim back part of the cost of their trip if they suffer at least four days of rain in any one week.

Source. Thanks to Dan Alban for the pointer and to MR for the MIE concept.

Posted by E. Frank Stephenson at 09:10 PM in Economics

July 11, 2009

"The man of system, on the contrary, is apt to be very wise in his own conceit ..."

From The Economist:

[Energy Secretary Steven] Chu’s job is harder: he is charged with spotting, nurturing and promoting promising energy technologies, thereby helping America to create the tools that the world needs to wean itself off fossil fuels.

He certainly has the qualifications to do so.

Nope, no person--not even one as smart as Mr. Chu--has the necessary knowledge to accomplish such a task. Methinks Mr. Chu needs to cozy up to some Hayek and a bit of humility.

Posted by E. Frank Stephenson at 11:35 PM in Economics

What's Wrong With This Picture?

Answer (and an update) below the fold.

Read More »

The picture comes from this article in The Economist. Here's my response:

Sir--Your article on state budget difficulties is accompanied by a chart showing decreased state spending. Your label for the chart, Mini Herbert Hoovers, gives President Hoover too much credit for fiscal discipline. Hoover may well have been our first Keynesian president; immediately following the stock market crash he pushed for an increase of $423 million in a governement building program on the grounds that it would stimulate the economy. This program was not an isolated policy action as indicated by the increase in U.S. government spending from $2.961 billion in 1928 to $4.659 billion in 1932.

E. Frank Stephenson
Professor of Ecoonomics
Berry College
Rome, Georgia

Previous post--including link to spending data cited in the letter--here.

UPDATE: I'm not at all sympathetic to the teeth gnashing that coming year "revenues will still be meagre." Take a peek at the chart again--the decrease in spending over the last year or two is "meagre" compared to the growth over the previous years. For the better part of the past two decades--excepting the 2001 recession--state spending has grown faster than population growth plus inflation. Spending growth of 8%+ in 2005-2007 was probably double population growth plus inflation. Cry me a river about "meagre" revenue.

« Close It

Posted by E. Frank Stephenson at 11:21 PM in Economics

On Obama, Africa, and Institutions

Like Tim, I also had a mixed reaction to Obama's comments today in Ghana. While it's great that Obama said, "Africa doesn't need strongmen,it needs strong institutions," it's hard to take such comments seriously from a president who's undermining institutions such as bankruptcy and contract law by strong-arming GM bondholders and AIG employees due to receive bonuses.

Posted by E. Frank Stephenson at 09:58 PM in Economics

On Medical Expenses, Wage Garnishment, and Bankruptcy

I've long been skeptical of the claim that half of bankruptcies are attributable to medical expenses so I was pleased to see a study from Fraser comparing US and Canadian bankruptcy rates. Bankruptcy rates are higher in Canada even though folks there don't have to worry about medical expenses.

Also re bankruptcy, I saw this article a few days ago:

States that allow debt collectors to seize consumers' wages have sharply higher bankruptcy rates than neighboring states that prohibit or strictly limit the practice, an Associated Press analysis has found.

While bankruptcy rates vary for many reasons, the five states that prohibit or strongly limit wage seizures — North Carolina, Pennsylvania, South Carolina, Florida and Texas — all have drastically lower rates than their neighbors, with particularly striking differences along borders, where economic conditions are similar but bankruptcy rates are not.

South Carolina's bankruptcy rate is almost one-quarter that of Georgia's; Pennsylvania has half the rate of Ohio; North Carolina has about one-third the rate of Tennessee; Texas has a smaller rate than all its neighbors; and Florida has just about half the rates of Georgia and Alabama.

Posted by E. Frank Stephenson at 09:47 PM in Economics

Obama going North in Africa

From an AP story on Yahoo, the President seems to agree with Douglass North:

"No person wants to live in a society where the rule of law gives way to the rule of brutality and bribery...Africa doesn't need strongmen, it needs strong institutions."

And later, "he said the West is not to blame 'for the destruction of the Zimbabwean economy over the last decade, or wars in which children are enlisted as combatants.' Nor for the corruption that is a daily fact of life for many, he said."

Which reminds me of the saying about a broken clock being right twice a day. Of course, there are several other times of the day when it's way off:

"No business wants to invest in a place where the government skims 20 percent off the top."

Hopefully Ghana and the rest of Africa won't pay attention to whether businesses will continue to invest in a place where the government owns a major auto manufacturer, or the prospects of tax rates likely much higher than 20% once Medicare and Social Security go belly up.

Posted by Tim Shaughnessy at 01:37 PM in Economics

July 05, 2009

Apples Meet Oranges

From today's AJC:

Georgia ranks 39th among the states in spending per resident on public health, despite having the nation’s ninth-largest economic output.

So we have a comparison of spending per capita to aggregate output (presumably gross state product) instead of output per capita. As it happens, Georgia ranks 41st in gross state product per capita. Source (scroll down to the gsp per capita section and click on link to table 1).

Posted by E. Frank Stephenson at 02:52 PM in Economics

July 03, 2009

Can the Monetary System Regulate Itself?

Our current system, no, but a free banking system on a gold standard, yes. So I argue in this 51-minute talk, taped at Rhodes College in March. Not just a talking head video, this one features some actual walking around! Thanks to co-blogger Art Carden for organizing the event and posting the video.

Posted by Lawrence H. White at 08:19 PM in Economics

July 02, 2009

N=small

Scott Beaulier's post yesterday reminded me of how fragile city-level unemployment data are especially for small cities.

According to the Department of Labor, Bismarck, North Dakota has the lowest unemployment rate for a metropolitan area (3.5%). El Centro, California has the highest rate (26.8%).

Detroit, MI continues to have the highest rate for cities with 1 million or more people (14.9%).

I have a pretty good sense of why Detroit's rate is high, but do any of our readers know much about Bismarck or El Centro?

The Current Population Survey (CPS) upon which (if I am not mistaken) all unemployment figures are based represents a survey of approximately 110,000 individuals. according to BLS. El Centro has a population of about 40,000 people. Assuming El Centro has a representative number of respondents in the CPS, there are probably only about 15 respondents in El Centro. Of which, let's say only 10 are in the labor force. Thus the unemployment rate for El Centro is probably 2ish out of 10. But man alive if one of them got a job, the unemployment rate would fall by half!

UPDATE: A reader sends in the following correction (Thanks!):

The CPS data is used to calculate the national unemployment rate. Each state also has access to the CPS data (not published). However, because the sample size is small in most cases for the states, the state CPS is very volatile. And so the state unemployment rates are not determined by the CPS (due to volatility) but by the LAUS program. The state unemployment rates are modeled with an econometric regression. The county and city rates are determined separately using different methods from the state model. The bottom line is that the city rates are not determined by the CPS, but are determined by the LAUS model. More information about the LAUS program can be found on the BLS website. Tom Dougherty

Posted by Robert Lawson at 11:30 AM in Economics

Foul developments

Here is a satellite shot of the Fort Trumbull neighborhood in New London, CT. Google Maps says the red marker is the former site of Susette Kelo's house. The several blocks of brown to the east and north is the defunct redevelopment area. After spending something like $18 million to acquire the tract and clear it of the homes that were previously on it, the area has sat completely undeveloped.

Now according a story in the local fishwrapper, the area smells bad---literally stinks (thanks to Reason blog for the pointer).

Maybe this is because of bad publicity. That's what attorney Wes Horton, who argued the city's case before the Kelo Court, said to me when I debated him at Trinity College last fall. Perhaps, though bad publicity couldn't have been the sole factor. And that does not exonerate all the other failures of centrally planned development by way of eminent domain.

Here is Ilya Somin on the failure of Poletown:

Although GM and the City of Detroit promised that the new plant would create over 6000 jobs for the community, in reality the new plant employed less than half that many workers. By destroying hundreds of homes and numerous businesses, churches, and other institutions, the Poletown condemnations very likely inflicted more economic harm than they created benefits.

Here is Carl Close on how eminent domain destroyed the Fillmore neighborhood in San Francisco.

Here is Time on the failure of urban renewal in New Haven, CT, where it was used more aggressively than anywhere else.

Here is me on successful economic development projects without using eminent domain.

And here is the introduction chapter to my forthcoming Law Without Romance, which contains two chapters on development takings.

Posted by Edward J. Lopez at 11:01 AM in Economics

Markets in Everything: Free Hugs and Deluxe Hugs

HT: Phil Heidenreich and Brent Butgereit, Marginal Revolution for the "Markets in Everything" concept.

Posted by Art Carden at 09:45 AM in Economics

Walmart's Progressive Turn?

Here is Megan McArdle's succinct take on Walmart's endorsement of government-andated health coverage (HT: Sheldon Richman). The story was front-page news in yesterday's Wall Street Journal, and today the Journal editorializes--correctly, I think--on the hidden politics of the move. I'm skeptical of the company's ominous claim about wanting a "level playing field;" the public choice literature suggests that "leveling the playing field" via government action usually means "kneecapping potential competitors with legislation."

Posted by Art Carden at 09:38 AM in Economics

July 01, 2009

The Toaster Project and The Great Conversation

You might have by now read about The Toaster Project, a project in which a student at the Royal College of Art in London tries to make a toaster completely from scratch. Here's Radley Balko's article on his piece, and here is a reply by the artist, Thomas Thwaites, that takes exception to Balko's interpretation.

From what I can gather, his project accomplished its purpose: to get people talking. I'm looking forward to finding ways to incorporate his project into the parts of econ 101 where I cover "I, Pencil."

Posted by Art Carden at 02:49 PM in Economics

Unpublished Letter

Here's a letter that I sent to the Memphis Commercial Appeal a few weeks ago that was never published:

"The "prevailing wage" ordinance passed by the County Commission on June 15 was a mistake that will end up hurting Shelby County workers. Opponents argued that it would "hurt businesses and raise costs," but it will also hurt workers. Specifically, it will hurt the workers who are unable to find construction work because their skills are not worth the "prevailing wage."

Ordinance supporters said that "it will help raise living standards and lead to safer work sites since better-trained workers will be on the job." This is half true. First, to add insult to injury, the windfall workers are expecting from the ordinance will evaporate as workers compete for employment on margins other than wages and productivity (waiting for work, specifically). Second, the reason "better-trained workers will be on the job" is because lower-skilled workers have now been legally barred from competing with them.

Price floors are always bad ideas, but they are especially bad ideas during recessions. In a period of rising unemployment, we should be looking to create opportunities rather than destroy them."

Posted by Art Carden at 10:28 AM in Economics

June 30, 2009

Sobel on "The Rule of Law"

A five minute video of Russ Sobel discussing his new edited volume (on which I was an assistant editor) can be found here.

Posted by Joshua Hall at 02:10 PM in Economics

June 28, 2009

To Heck With Stimulus--Just Get a Facial

From an AP article that appears in today's RN-T:

Diners will order big pancake breakfasts again. Business suits will sell briskly. So will name-brand luggage, gym memberships and pricey jeans. Spas will sell more facials and massages.

Taken together, these seemingly minor transactions will likely help lift the country out of its longest recession since World War II.

Maybe next recession we can skip the $787B blob of pork and just send eveyone out for pancakes and facials.

Posted by E. Frank Stephenson at 01:40 PM in Economics

June 27, 2009

Almost live from Guatemala

On Tuesday at Universidad Francisco Marroquin in Guatemala City I gave a lunchtime talk on "The Roaring Twenties and Austrian Business Cycle Theory," which is the subject of chapter 3 of my book-in-progress The Clash of Economic Ideas. Here is a 47-minute talking-head video. After lunch I gave a 10-minute interview on free banking and the financial crisis to Luis Figueroa of UFM, video available here.

Posted by Lawrence H. White at 01:13 PM in Economics

June 25, 2009

Here We Go Again--Another Failed Bike Program

Florida Atlantic University's bike-sharing program was a simple, even utopian, plan.

Instead of chugging to a building on the other side of campus in a four-wheel global warmer, hop on a free community bicycle and pedal to class.

Unfortunately, some people kept right on pedaling.

With no locks - the Green Bike system operated on an honor code - it wasn't long before there were also no bikes.

"They were done, it worked, and they got stolen," said Alexander Van Mecl, a 19-year-old student on FAU's sustainability committee. "You can think of hundreds of different scenarios as to why we don't have the bikes anymore. Kind of a depressing story."

The program, which was student initiated, began in the fall with six bicycles painted a fluorescent green to signify their use as community bikes. The bikes were either donated to the program, or had been abandoned.

It's unclear how long they remained in mass circulation on the Boca Raton campus, but the sustainability committee isn't giving up on the idea.

Van Mecl, who started the Mission Green Student Association at FAU, said they're discussing now how to make the program successful, and hope to start publicizing a renewed effort in community bike-sharing at the beginning of the spring semester.

There's nothing "sustainable" about open access bicycle programs. Source.

Posted by E. Frank Stephenson at 02:27 PM in Economics

Recent Reading: In Pursuit of Happiness and Good Government

I finished reading Charles Murray's In Pursuit of Happiness and Good Government last night. I found it alternately fascinating and depressing--fascinating because he highlights the mechanisms by which policies fail to achieve their goals and depressing because he highlights the mechanisms by which policies fail to achieve their goals. There are parallels between his discussion of happiness, Ayn Rand's discussion of self-esteem, and King Solomon's detailed exploration of vanity in Ecclesiastes. "Human flourishing," or true joy, is more than just a series of feelings. It's what happens when we are free to engage the world as rational beings, to set goals and achieve them, and to create. It's a worthy complement to Thomas Sowell's A Conflict of Visions, which was originally published around the same time, and it's treatment of the knowledge problem applied to policy (education policy in particular) is thoroughly Hayekian. The competitive process orders and reveals information that cannot be known in its absence; therefore, attempts to forsake the market process and plan an educational system invariably runs into all the problems Mises pointed out in his demonstration that socialist calculation is impossible. Next up: Murray's Real Education.

From the archives, here are Lant Pritchett and Martina Viarengo on why governments supply schooling. Here are my thoughts on their paper.

Posted by Art Carden at 09:24 AM in Economics

June 24, 2009

A Book I Look Forward to Reading

Henry Mayer's All on Fire: William Lloyd Garrison and the Abolition of Slavery arrived in the mail today (thank you, Amazon.com, for making the world my library!).

Posted by Art Carden at 12:20 PM in Economics

Should Steve Jobs Have Been Allowed to Buy a Liver?

Michelle Caruso-Cabrera says yes (HT: Paul Novarese). Here's an article in the local paper about the fact that Jobs had the liver transplant in Memphis.

Posted by Art Carden at 11:10 AM in Economics

Robert Margo on North, Wallis, & Weingast

Here's Robert Margo's excellent and interesting critical review of North, Wallis, & Weingast, Violence and Social Orders: A Conceptual Framework for Interpreting Recorded Human History. For anyone contributing to the broader NWW research agenda, Margo's review is essential. It highlights the strengths and weaknesses of NWW, particularly in contrast to Acemoglu & Robinson.

After I read it I thought that "Violence" was the book North ultimately had in mind when he was working on Understanding the Process of Economic Change. It's an appropriate follow-up to the last forty years of North's work.

In particular, it sets the stage for empirical research exploring their implicit and explicit theoretical linkages. I'm working on a project with Chris Coyne in which we're going to explore NWW's "doorstep conditions" for transition into an open-access order in the context of Reconstruction-era violence in Memphis. In particular, the 1866 Memphis riot shows how the transition from limited-access to open-access can be anything but smooth.

Posted by Art Carden at 11:01 AM in Economics

Government Functions: Golf Courses, Swimming Pools, and Privatization

The Memphis Business Journal published this a few days ago. I originally submitted it as an op-ed, but they asked if they could edit it and publish it as a letter to the editor.

"If representatives of the City of Memphis are really looking to save money, they should start by privatizing those municipal luxury services that lack any compelling government function.

Two obvious candidates are swimming pools and golf courses. Subsidizing such recreation can hardly be argued a necessary function of government.

Furthermore, the City of Memphis has hardly proved it has a comparative advantage in the provision of such services. And really, golf courses and swimming pools are private goods—rival and excludable—so there is no “market failure” to justify government provision. Finally, if these pools and golf courses cannot survive without government subsidies or ownership, they are a waste of valuable resources.

Since these are municipal operations and therefore are not sensitive to profits and losses, we cannot know if they are creating any value.

Without profits and losses to guide decision-making, such determinations over resource allocation boil down to competing value judgments and the use of political power.

The net result is an enormous waste of resources expended in a political battle that often trigger subsequent resource waste. Given our state of affairs, Memphis cannot afford this extravagance.

Next steps? The City of Memphis should privatize golf courses and swimming pools. But don’t simply sell them to the highest bidder. Instead, issue shares of stock to Memphis taxpayers. We’ve paid for these facilities, so we own them. Ownership shares would make this explicit, and privatization ensures that the resources will be allocated to the use that produces the most value.

My case is straightforward. But a disagreement over these indisputably decadent services indicates a problem with much deeper roots than politics. Instead it is one concerning fundamental philosophies about the appropriate operation of society. As we stand, Peter has the “right” to rob Paul so that he can swim or play golf more cheaply than he would be able to in a free market. Unfortunately, this view supposes that Memphis can be sustained as a community of thieves in which we live as parasites on the productive labors of others.

Make no mistakes. I’m certainly not against golf. Nor am I against swimming. And I’m definitely not against children. While privatizing golf courses and swimming pools means that some of them might close, they will be replaced with more valuable services that can earn income for their owners--in this case, Memphis residents.

Governments might have a number of legitimate functions, but subsidizing recreation is not one of them. When I was a kid, I learned not take things that didn’t belong to me. Have our representatives forgotten that lesson?

Art Carden
Adjunct Fellow, Independent Institute
Professor of economics and business
Rhodes College"

On the city's website, there's an option to book a tee time at a city golf course. As politically feasible privatizations go, I would hope that this is relatively low-hanging fruit. I don't have data on hand, but it's reasonable to believe that the average income of city golf course patrons is higher than the average income of city taxpayers. The first person to email me with data comparing golfers' incomes to others' incomes will get a copy of The Age of Economists: From Adam Smith to Milton Friedman, which is volume 26 in the Hillsdale College Ludwig von Mises Lecture Series. Note that when I say "golfers' incomes" I'm referring to people who play golf recreationally, not professionally.

Posted by Art Carden at 10:11 AM in Economics

June 23, 2009

Aid and Growth Thought of the Day

"World Bank researchers Deon Filmer and Lant Pritchett estimate that the return on spending on instructional materials in education is up to fourteen times higher than the return on spending on physical facilities, but donors continue to favor more observable buildings over less observable textbooks."

William Easterly, The White Man's Burden: Why the West's Efforts to Aid the Rest Have Done So Much Ill and So Little Good, p. 190.

Even if this is over-estimated by a factor of ten, a 40% difference in ROI is enormous.

Posted by Art Carden at 05:03 PM in Economics

Peter Saunders on Capitalism

While going through some notes for a project Josh Hall and I are working on, I came across my notes on this excellent essay by Peter Saunders entitled "Why Capitalism is Good for the Soul." Here are some notes, quotes, and highlights:

Paraphrasing Peter Saunders (2007-08:3), capitalism delivers but fails to inspire. Socialism inspires but fails to deliver.

“Rockstars fly around the world in private jets to perform at sellout stadium concerts demanding action on global warming, and indignant youths coordinate anti-globalization protests using global communication networks.” p. 4

“Where is a moral crusade in buying and selling, borrowing and lending, producing and consuming?” p. 4

“…it is probably a mistake to trawl through the scriptures searching for nuggets that might support this or that system of political economy, for the word of God was never intended to be used as a blueprint for designing socioeconomic systems.” p. 5

According to Hayek (in Saunders’ words, p. 9), “Hayek understood that capitalism offends intellectual pride, while socialism flatters it.”

Cite: Saunders, Peter. 2007-08. Why Capitalism is Good for the Soul. Policy 23(4):3-9.

And as a bonus, here's a great quote from Ayn Rand on the differences between economic and poltiical power:

“…economic power is exercised by means of a positive, by offering men a reward, an incentive, a payment, a value; political power is exercised by means of a negative, by the threat of punishment, injury, imprisonment, destruction. The businessman’s tool is values; the bureaucrat’s tool is fear.”

Cite: Rand, Ayn. 1966. Capitalism: The Unknown Ideal. New York: The New American Library, p. 41.

Posted by Art Carden at 04:18 PM in Economics

F.A. Hayek Quote of the Day

From The Road to Serfdom, 50th Anniversary Edition:

"It may sound noble to say, 'Damn economics, let us build up a decent world'--but it is, in fact, merely irresponsible." p. 230

Posted by Art Carden at 02:50 PM in Economics

On the impact of Manny

The Sporting News Today reports that the Albaquerque Isotopes hope to take advantage of a few AAA starts by one Manny Ramirez:

The Albuquerque Isotopes of the Class AAA Pacific Coast League, expect to generate an additional $200,000 to $300,000 in ticket revenue this week during Dodgers left fielder Manny Ramirez's four-game stint with the club, owner Ken Young told SportsBusiness Journal's Don Muret. Ramirez, suspended 50 games for testing positive for performance-enhancing drugs, is eligible to return July 3 to the Dodgers and is using this week to get back in game shape.

Will the Isotopes increase price for the Ramirez games or only experience an increase in quantity demanded? One key element is whether the games are sold out.

Posted by Craig Depken at 10:15 AM in Economics

June 22, 2009

Letter in WSJ: Immigration, Housing, and the Drug War

This letter appeared in today's WSJ. I wouldn't describe restrictions on immigration as "well-intentioned," but I didn't write the headline:

"Well-Intentioned Policies Enable Immigrant Smuggling

The problems identified in the article about organized gangs smuggling undocumented immigrants across the U.S. border and then holding them for ransom ("Immigrants Become Hostages as Gangs Prey on Mexicans," page one, June 10) were created by a perfect storm of government intervention. The drug war has encouraged the development of international criminal syndicates and turned parts of the U.S.-Mexico border into actual war zones.

The war on undocumented immigrants has created opportunities for those syndicates to enter into the human-trafficking business. Cheap money and government policies aimed at increasing access to "affordable housing" created the housing bubble, and further intervention in the last year prevented housing prices from falling far enough to clear the market. This effectively created the "drop houses" in which criminal gangs abuse immigrants who have no legal recourse against them.

I expect that politicians will demand ramped-up enforcement, but this will be a mistake. The best way to proceed would be to end the war on drugs, end the war on immigrants, and scale back intervention in the housing market.

Art Carden
Memphis, Tenn."

Posted by Art Carden at 01:22 PM in Economics

The Berry Bike Problem Goes Global

Re: Frank's post below, I wrote a letter to the "Globe and Mail" about the Parisian bike-sharing program. The letter appeared today:

"In her article on the unintended destructive consequences of Paris's bicycle-sharing program (Paris's Pedal Power Puts Thieves And Vandals In Motion - June 18), Susan Sachs quotes Le Monde saying the project "has increased uncivilized behaviour. No one expected that." Actually, a lot of people expected that.

Bicycle-sharing programs are often disasters because common ownership means no one has an incentive to care for the bikes. These programs can work, but they require that the authorities recognize the role of private property and prices in creating the right incentives. At the very least, those using the bikes should have to identify themselves to ensure they take responsibility for what they are using."

Posted by Art Carden at 09:57 AM in Economics

June 20, 2009

Odd Definitions of "Disruptive" and "Remedies"

From the WSJ:

The sale of certain Chinese-made tires is disruptive to the U.S. market, the U.S. International Trade Commission ruled Thursday.

By a 4-2 vote, the panel sided with a U.S. labor union, finding that low-cost Chinese-made tires, used on cars, light trucks and sport-utility vehicles, are being imported at a rate that threatens U.S. tire makers.

The commission is expected to vote June 29 on proposed remedies, which could include stricter quotas or tariffs on the Chinese-made tires, a commission spokeswoman said.

It is the so-called remedies--the tariffs and quotas--that are disruptive here because it is those measures that will interfere with voluntary exchanges between Chinese tire makers and U.S. tire consumers. The WSJ article notes that Chinese producers specialize in lower priced tires so it's likely that the import barriers will fall most heavily on poorer Americans.

Posted by E. Frank Stephenson at 08:57 PM in Economics

Paris's pedal power sets free uncivilized behaviour

Since the city's Vélib' bicycle-sharing program began nearly two years ago, Alexandre Wente has made a point of cycling from his apartment to his office at least once a week.

The trip costs him nothing, other than the aggravation of seeing how others treat the free bicycles.

“I've seen bikes with just the frame left, but docked at a Vélib' station,” said Mr. Wente, a 32-year-old real-estate salesman.

“I've seen the baskets twisted partly off. I've seen kids ride them down stairs to the river,” he said, as he unlocked a bicycle from a station near the Place Léon Blum in southeast Paris. “It's like people can't help themselves.”

As it approaches its second anniversary, the Paris Vélib' bicycle-sharing program is proving as popular with thieves and vandals as it is with commuters.

With some 20,000 bicycles available free for short trips in the city, and another 3,000 being stationed in the suburbs, the Paris program is one of the most ambitious of its kind.

The chunky bicycles have become part of the city landscape, with nearly 1,000 bicycle stations servicing most neighbourhoods and an average of 78,000 trips taken each day. Nearly a quarter of a million people have subscribed to the program, meaning they can unlock a bike using their public transit pass, rather using a credit card for a deposit.

Parisians have clearly taken to Vélib'. They are also taking the bicycles, and wrecking them, at an unanticipated rate.

Since the program started in July, 2007, 8,000 of the bicycles have been stolen, and nearly 1,400 people were arrested for Vélib' theft just last year.

Police have retrieved about 100 of the purloined bicycles from the depths of Paris canals and the Seine River. Some have been spotted on balconies. There have been reports that a few turned up, mysteriously, on the streets of other European cities. But the fate of most of the missing bicycles is unknown.

At the same time, 16,000 bicycles have been vandalized.

Some of the damage is benign. Pictures of Vélib' bicycles painted bright pink can be found on the Internet.

But, as can be seen on a stroll through any neighbourhood, other bicycles have been left on the sidewalk or at rental stations crippled by broken chains, missing their tires or baskets and defaced with graffiti.

The advertising company JCDecaux, which operates the program in exchange for a 10-year contract for city billboards, said that the damage from vandalism is so extensive that half of the vandalized bicycles have had to be replaced.

Vélib' was also not supposed to cost taxpayers anything, at least for the duration of the JCDecaux contract. Now, under pressure from the advertising company, city council has decided to cover €400 of the cost of replacing each damaged bike – an estimated expenditure of €1.6-million a year.

“Vélib' was supposed to make urban travel more civilized,” lamented the newspaper Le Monde in an editorial last week. “It has increased uncivilized behaviour. No one expected that.”

And this program is considered a successful one. Source.

Posted by E. Frank Stephenson at 10:07 AM in Economics

Open Access Bike Programs--Won't They Ever Learn?

GREEN BAY - For the second year in a row, a bicycle sharing program in downtown Green Bay is seeing some problems. The bikes, meant for public use, are disappearing.

The city began its green bike program two weeks ago. 25 bikes were put on the streets and almost all of them are gone. The same thing happened last year.

Source. Maybe someone there should have googled "Berry Bikes."

Here is a snip from a story two weeks ago announcing the start of the program:

GREEN BAY - After a few bumps in the road last year, Green Bay's free, bike-sharing program is back....

"Sure it's a free ride but it's more of a message on that we're a city that cares about the environment," Green Bay Mayor Jim Schmitt said.

Schmitt said people have to respect the program for it to work. In its inaugural year, most of the free bikes were either lost or stolen.

"I'm not sure the return policy was as tight as we'd like it," Schmitt said. That's why the city has put some new rules in place this year that are designed to make sure the bikes will stay out and about.

The bikes will be locked up overnight, something that was not done last year. Schmitt said doing so will help prevent them from being stolen or vandalized.

HT: Shawn Regan

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

June 19, 2009

The Increasing Relevance of Julian Simon: Singularity Edition

I'm reading Ray Kurzweil's The Singularity is Near as part of a handful of projects, and he offers the following (pp. 133-134):

"[MIT Professor Seth] Lloyd shows how the potential computing capacity of a kilogram of matter equals pi times energy divided by Planck's constant. Since the energy s such a large number and Planck's constant is so small, this equation generates an extremely large number: about 5X10^50 operations per second.

"If we relate that figure to the most conservative estimate of human brain capacity (10^19 cps and 10^10 humans), it represents the equivalent of about five billion trillion human civilizations. If we use the figure of 10^16 cps that I believe will be sufficient for functional emulation of human intelligence, the ultimate laptop would function at the equivalent brain power of five trillion trillion human civilizations. Such a laptop could perform the equivalent of all human thought over the last ten thousand years (that is, ten billion human brains operating for ten thousand years) in one ten-thousandth of a nanosecond."

Posted by Art Carden at 12:42 PM in Economics

On Reparations

This article about an apology and reparations for slavery caught my eye in light of the research I'm doing for a few projects on the economic history of the South. Here's Wlater Block's argument that convinced me of the appropriateness of reparations for slavery and Jim Crow.

1:10 PM Addendum: Check out this letter from former slave Jourdon Anderson to his former master. A quick calculation assuming a 10.47% average annual return--this is the long-run average annual return on the S&P 500--between 1865 and 2009 suggests that the $11680 in forgone wages Anderson claims to have been cheated out of by his former master would have grown to about $19.7 billion today. There are all sorts of other things that would need to be considered before we could find out exactly how much the master's heirs owe Anderson's heirs (the implicit value of food, clothing, & shelter provided by the master), but this is a starting point.

Posted by Art Carden at 09:52 AM in Economics

June 18, 2009

U.K. Minimum Wage Kills Apprenticeships

Moves to investigate offering the minimum wage to apprentices have prompted a mixed reaction from the sector, as organisations delivering apprenticeship programmes claim they would no longer be able to afford to do so.

Source.

Posted by E. Frank Stephenson at 09:50 PM in Economics

Economics of Emissions Testing & Corruption, Plus Response

This letter of mine appeared in this morning's Memphis Commercial Appeal:

"I've found the controversy over emissions waivers (June 16 article, "'Waiver' revs up in auto dispute / Inspection ordinance would OK illegal deal") especially interesting in light of my experience. After barely failing with an older car, we spent a few hundred dollars on repairs and at least an hour in line only to fail again, just barely. I asked if it was possible to get a waiver since I was barely over the hydrocarbon limit and could prove that I had made an expensive, good-faith effort to meet the requirements. I was told no such waivers existed. Hundreds of dollars and many hours later, we finally passed.

There are several lessons here that I plan to incorporate into my Econ 101 lectures on marginal analysis, externalities and public choice theory this fall. First, we have to ask whether the additional benefit of an almost imperceptible increase in air quality is worth the additional cost. I seriously doubt that the social benefit of a tiny reduction in hydrocarbons-per-million was worth the time and money we spent meeting emissions requirements.

Second, regulations like this increase the cost of owning older cars, which puts a special burden on the poor. We are fortunate because our experience with local emissions testing was just an expensive annoyance. For the poor, being saddled with the prospect of hundreds of dollars in repairs to meet emissions standards can be catastrophic.

Finally, this illustrates the law of unintended consequences. Emissions testing has encouraged some people to move outside the city limits. The consequences can be perverse: Regulations intended to improve air quality can actually worsen it. I don't know if this is true in metropolitan Memphis, but it is a possibility that deserves to be studied."

An anonymous commenter ("BogeyMan") posted the following response, which I found interesting:

"Professor Carden: congratulations on yet another successful attempt to justify your affiliation with those right-wing think tanks. I'm sure they'd be proud.

Since you probably don't believe in global warming, I'm not surprised you don't believe in doing everything we can to minimize humans' exacerbation of that problem.

Memphis has a history of just squeaking by the EPA's "non-attainment" (oops, I forgot---you probably don't believe there should be an EPA either), and every summer, we suffer from pollution alerts that create serious problems for outside workers and people with any kind of respiratory problems.

While your non-compliant car was only a tiny part of the pollution problem, in the aggregate, thousands of cars like yours (or worse) create a significant environmental problem.

And please, don't BS us with your feigned concern for the poor. You teach in a place where the parking lot is full of high-end, daddy-bought cars, and the ideology you hew to faithfully has never been much concerned with the plight of the poor.

Finally, no one moves out of Memphis because of car inspections alone. And if they do, their threshold for the requirements of urban life is so low, they've got many more problems with city life than car inspections."

Posted by Art Carden at 08:34 AM in Economics

June 17, 2009

Where Today's "Health Insurance" Comes From

There are a few points in the health coverage debate that bear repeating. First, what people call "health insurance" is not actually insurance. It is care paid for by third parties or at best, pre-paid care. Second, the fact that many of us get health benefits in addition to money income is an artifact of World War II-era price controls. Donald R. Stabile says this very well in his book The Living Wage: Lessons from the History of Economic Thought (which I'm reviewing for EH.Net), "the provision of health insurance by employers in the US was a historical accident of wage controls during World War II; the War Labor Board led employers attract workers with medical coverage without calling it a wage increase" (p. 127).

Posted by Art Carden at 05:55 PM in Economics

The Incredible Bread Machine

Courtesy of the Mises Institute, here's "The Incredible Bread Machine."

One tragic highlight: at 45:06, Benjamin Rogge says "When General Motors makes a mistake no one is required to buy a General Motors car" (HT: one of the commentors on YouTube).

Posted by Art Carden at 04:02 PM in Economics

FEMAconomics

There have been some pretty outrageous storms in Memphis over the last few days, and our Congressman has asked the Governor to ask FEMA for money. I found this interesting since I recently wrote a report for AIER on the economics of natural disasters. Particularly interesting in this regard are Russell Sobel and Peter Leeson's papers on FEMA and corruption; they're all available on Pete's website. This one is especially interesting; if their results are correct, we can expect a rash of corruption prosecutions over the next few months.

Posted by Art Carden at 02:20 PM in Economics

June 16, 2009

On taxation c. 1909

The June 16, 1909 NYT prints an editorial that is 180-degrees out of phase of the current version:

THE CRAZE FOR TAXES

The Treasury deficit for the eleven months and fifteen days of the fiscal year thus far elapsed amounts to $96,542,614 [2,356,679,639 in 2008 dollars]. It is conceded that the Tariff bill now under consideration will not meet the necessities of the Government. The protectionist majority headed by Mr. Aldrich would be entirely unwilling to reduce the customs duties to a point where they would yield the maximum of revenue. They aim at exclusion, and exclusion means no revenue.

The Laffer Curve 70 years early!

The editorial then admits that the opponents of the income tax are starting to buckle and we have them to thank, in part, for our current taxation schemes:

Accordingly the Tariff bill must be pieced out by some measure of taxation that will restore the balance between income and outgo. The income tax has powerful support in Congress, so powerful that its opponents seem willing to compromise on an agreement that a Constitutional amendment shall be submitted to the States, the decision of the Supreme Court declaring unconstitutional our last income tax making a change in the organic law necessary. Early in the session inheritance taxes were talked of a good deal. That seemed to be a good way to put in force the Rooseveltian policy of abridging the fortunes of the excessively rich. Not much is said of that tax now. In its place appears the tax upon the net earnings of corporations, and there is a considerable probability that such a tax may be enacted.

Attempts by government to abridge the wealth of individuals can only be successful when seizure is absolute with no appeal and no ability to avoid the seizure. As this country has not experienced a government that has undertaken such an approach, attempts to abridge the wealth of individuals have essentially failed, to the dismay of our most recent Nobel Prize winning economist. On the other hand, the market can and will abridge the wealth of individuals if the individual makes a mistake. The market does not offer reprieve nor is it swayed by fancy dinners and tickets to a show. Too bad Teddy Roosevelt and his fellow travelers didn't see it that way.

There is a curious report that President Taft favors this tax, not alone because it would produce needed revenue, but "as a decided step forward in carrying out the policy of corporation control." When the taxing power is used for other purposes than raising revenue a wide range of possibilities is opened. The Supreme Court has said that the power to tax is the power to destroy. The note issues of State banks were destroyed by a 10 per cent. tax. The great example of the use of the power of taxation for an indirect purpose is our protective tariff. The protective duties not only produce revenue, they enable the interests they favor to levy for their own enrichment much greater taxes upon the people. That is State Socialism, not for the advantage of all, but for the benefit of a small class. Now we are told that we must levy a new tax upon the corporations as a means of getting them under control.

I am not sure if the theory of State Socialism is grounded in helping the few at the expense of the many, but it seems to work out that way in practice. Nevertheless, the argument that taxation can be and is used to enrich the few at the expense of the many seems germane today.

The editorial delves a little deeper into the philosophical basis for the tax craze:

When the night dogs of Populism break loose all sorts of queer game are chased. It would be futile to import considerations of economic principle and of scientific justice into the discussion of a tax bill framed for the purpose of throttling the corporations. It is because of the deep-rooted, and, in many parts of the country universal, conviction that the corporations are fair game and may be, nay, must be, hunted in and out of season, that while we have at Washington earnest advocacy of an income tax, an inheritance tax, and of a corporation tax, imposts the supporters of which fondly believe would fall upon the fortunes of the rich and leave the poor untouched, not a word is said about a convenient and most productive form of taxation of which we had not long ago an enlightening experience - we mean the stamp tax.

It seems that the conviction that the corporation is the root of all evil, that if it were not for corporations somehow we would ALL have iPhones and BluRay players, and if it were not for corporations we would all have a "living wage" still persists. That the corporation needs to be "under control" is a dangerously open-ended goal. There are "good" controls, perhaps limiting the imposition of negative externalities. There are, it would seem, many more "bad" controls, which force firm owners to do what they would otherwise not do under the threat of the gun.

The editorial goes on to describe how the stamp tax was used to finance, in part, the Spanish-American War and that it's imposition was a minor inconvenience. I am not familiar with the literature investigating this particular policy, so I will take the paper's word for it. The editorial winds up by asking why the stamp tax, which would raise revenue, is being shunned for the bigger prize of income taxes:

In the present state of public and Congressional opinion the defect of the stamp tax is that its burdens would be distributed throughout the community. It would diminish no great fortune, it would not increase the power of the Federal Government over any corporation. But as a means of accomplishing the direct purpose in view, of doing away with the deficit and providing revenue for the expenditures of the Government, the stamp tax has obvious merits. It is easily and quickly put into operation, the cost of administration is trifling, it is patiently borne, and does not provoke protests. At any other time, in a season when men's minds are not so desperately bent upon seeking out new ways for chaining down the corporations, the stamp tax would have many advocates in Congress.

Posted by Craig Depken at 12:21 PM in Economics

June 15, 2009

Demand Curves Are Downward Sloping--Camp Counselor Edition

This story by an NC tv station nicely illustrates the win/lose nature of minimum wage hikes. A counselor indicates that she'll get a pay raise but that the camp is hiring fewer counselors than in previous years.

Posted by E. Frank Stephenson at 09:11 PM in Economics

An Interesting and Important Paper

The Market: Catalyst for Rationality and Filter of Irrationality by John A. List and Daniel L. Millimet

Abstract:

Assumptions of individual rationality and preference stability provide the foundation for a convenient and tractable modeling approach. While both of these assumptions have come under scrutiny in distinct literatures, the two lines of research remain disjointed. This study begins by explicitly linking the two literatures while providing insights into whether market experience mitigates one specific form of individual rationality—consistent preferences. Using field experimental data gathered from more than 800 experimental subjects, we find evidence that the market is a catalyst for this type of rationality. The study then focuses on aggregate market outcomes by examining empirically whether individual rationality of this sort is a prerequisite for market efficiency. Using a complementary field experiment, we gathered data from more than 380 subjects of age 6-18 in multi-lateral bargaining markets at a shopping mall. We find that our chosen market institution is a filter of irrationality: even when markets are populated solely by irrational buyers, aggregate market outcomes converge to the intersection of the supply and demand functions.

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

Milk in the Desert & Institutions in India

While taking some family members to the airport yesterday, I caught two interesting stories on NPR's "Weekend Edition."

Here's a snip from a story on the Saudis raising cattle in the desert:

One day, the son of a king came to America to learn how to make milk in the desert.

"He went to California. He saw some dairy farms there, and he said, 'OK, I want one, same as that. But I want two of them,' " says Russel Wards. Wards manages tens of thousands of cows at the Al-Safi dairy in Saudi Arabia, founded in the 1970s by Prince Abdullah bin Faisal.

Wards says the prince took the plans of a sizable dairy farm in California, brought them back to Saudi Arabia and built a dairy twice the size.

"While the rest of the world was dependent upon oil, Saudi Arabia was dependent upon food from the rest of the world," Wards says. "So they could actually be vulnerable to a food boycott."

As America looked for ways to become more fuel-independent, Saudis worked to become food-independent — building massive grain and dairy operations like this one.

Specialization and gains from trade--never mind. BTW, the story goes on to explain how the the wells used to sustain the cows are depleting an aquifer deep below the desert. So much for the "local food is better" bit.

The other story was a reporter's observations from India and had some nifty examples of institutions. A snip:

Singh grew up on a farm that has been in his family for generations. "I used to grow maize, barley, wheat," Singh says. "And it was real hard work."

The story of how he became a chapati man reflects the huge changes transforming India.

Every time a farm family in India has sons, the parents have to carve up their land, so every son gets his own piece. With every new generation, each son's share of the farm gets smaller and smaller. Singh's farm was tiny, and he struggled to support his family. So 20 years ago, he walked away from his farm and moved to the city — just as tens of millions of other rural Indians have done. Singh is luckier than many, because at least he found a job. He saw this patch of dirt and became a chapati man.

But Singh's son says they're not sure if their business can last. City officials "trouble us a lot," Parveen says. "We're not sure when they'll order us to leave." He's reluctant to give more details, but Nabdeep Arora, an acquaintance who sells milk and eggs at a nearby stall, says the dilemma is that Singh is doing business on somebody else's property.

In other words, Singh is a squatter. Both Arora and Parveen confirm that Singh has been doing business on this patch of dirt, under the spreading branches of the tree, without paying rent to anybody or getting any permits.

And as India's population keeps booming, corners like this are getting as valuable as gold. Developers are hungry for every square inch, to build housing developments or shopping malls.

Arora says Singh has been bribing city officials to turn the other way while he keeps churning out chapatis. "He's paying under the table — the health department and the environment people," Arora says. "Some policemen also come here to eat, but they don't pay for the food. Free service for the policemen."

Posted by E. Frank Stephenson at 02:53 PM in Economics

Interesting Abstract

The Journal of Private Enterprise arrived this morning. In addition to the articles by my DOL co-bloggers, I found this abstract interesting:

"Half of business ethics is determined by the definition of business. In stockholder theory the purpose of business is to maximize profit, while stakeholder theory maintains that the purpose of business is to serve all stakeholders. Both define business as an amoral activity requiring a separate moral theory to guide and constrain practitioners. This paper challenges the assumption that business is an amoral activity. Certain moral rules are a constitutive part of business and yield a definition of business that is also an ethical standard: Producing a good or service for trade."

Kline, William. 2009. Business as an Ethical Standard. Journal of Private Enterprise 24(2):35-48.

Posted by Art Carden at 11:53 AM in Economics

On protectionism c. 1909

The June 15, 1909 NYT prints an editorial focusing on how protectionism, specifically the tariff, harms the "little guy":

It does not seem right that we should make the wage earner bear the expense of the Government by paying him larger wages and then taking it away from him in the shape of taxation on what he wears. Surely clothing is a necessity.

This quotation is from a statement in the current number of The Clothier and Furnisher of Mr. Max Silberberg, a manufacturer of clothing in Cincinnati...

It is not merely in the high prices of clothing, the fruit of the high tariff, that the workingman suffers. It is still more in the wretched quality of the stuff that is palmed off upon him. On this point the same authority says:

As a manufacturer of clothing for a period of almost fifty years, I can truthfully state that I have never handled cloth of so inferior a quality for the prices as I do now. The masses, consisting of laborers, mechanics, and farmers, the real users of ready-made clothing, are receiving practically no value for their money. The qualities and colorings are so poor that in many instances the colorings fade and cockle, and in the manufacture of garments give positively no satisfaction to the wearer.

It will be said that the clothing manufacturers have no foreign competition and cannot have the same interest as the makers of cloths in a protective tax on such competition. But they are a very important element in American industry, employ a very great number of workers, and deal very largely in a prime necessary of life for all workers. They are a good authority as to the way the tariff affects wage earners, and such testimony as above shows that the effect is shamefully oppressive.

The argument that the tariff reduces quality is generally under-appreciated. For example, while the U.S. automobile industry has any number of problems, it is undeniable that the quality of the automobiles for sale in the United States has dramatically improved after the U.S. auto market opened to foreign competition. This improvement in quality has occurred despite a number of attempts to limit imports (through quotas, tariffs, local content requirements, etc).

The editorial focuses on the downside of protectionism in the final sentences:

The whole tariff structure is built up on the pretext that it is for the good of the wage earners, and when it robs and cheats these it surely ought to be reformed. If President Taft makes a simple calculation as to the number of American citizens hurt by Mr. Aldrich's tariff scheme, it ought to aid him greatly in dealing with it when it reaches him.

The word "scheme" is a great word for economic policy, the tariff being only one of thousands of schemes hatched by governments around the world on a regular basis. I like the word "scheme" because generally the policies are concocted by a very few individuals working in concert with politicians who enact policy with little concern for the unintended consequences.

Read More »

My perception is that the word is today reserved for those private citizens who fleece their fellows, e.g. Bernard Madoff. Yet, a Google Search of the word "scheme" in the news section yields the following headlines, which makes me feel a little better. Here is a sampling:

South Africa Probes Alleged $1.2 Billion Ponzi Scheme - Wall Street Journal

UK Govt: 60000 Orders So Far Under Car Scrappage Scheme - Wall Street Journal

China's subsidised rural appliances scheme booms - Forbes

On Ponzi Schemes and Stimulus Fraud - Seeking Alpha

2 men indicted in foreclosure scheme in Vegas - San Jose Mercury News

Ex-officers convicted in drug theft scheme - Chicago Tribune

Report over low pension schemes - The Press Association

EU Approves Slovenia's Financial Guarantee Scheme - Wall Street Journal

EU approves Finnish scheme to boost economy -EastDay.com

Emissions scheme set for defeat, say Greens - The Age

Only forty percent of the stories on the first page of Google search use "scheme" in the context of private individuals. The remainder are used in describing government programs.

Perception is not necessarily reality.

« Close It

Posted by Craig Depken at 11:40 AM in Economics

Why I am Optimistic About the Long Run

Iranians are using Twitter to defy state-controlled media and report on the Iranian election (HT: Brock Tyra). For tyrants to thrive, they need to control the flow of ideas. This means that they need to control the media and they need to control the schools. Technology is changing the degree to which this is possible. Memo to the Chinese Communist Party: you will win a few battles, but you will lose the war.

Posted by Art Carden at 11:21 AM in Economics

Building Brand Equity: The Economics of Education...

...in this morning's issue of The Tennessean. Note that the headline is inconsistent with what we say. Our original headline was "Trading one monopoly for another." It was originally going to be a condensation and paraphrase of Mike's blog post on the question, but it changed directions in light of some of the things Josh mentioned in his lecture at IHS a couple of weeks ago.

Posted by Art Carden at 09:59 AM in Economics

June 13, 2009

Looking Out the Window: Warehouse Clubs and Weight

Charles Courtemanche and I have been working on a series of papers about Big-Box Retail (Walmart, specifically), and the new version of our Big Boxes-and-Obesity paper should be available and back under review soon. Forbes asked me to write an article about this paper; it's in the June 8 issue and on their website (no link because my Mac hates Movable Type).

One thing that is emerging in the new version of the paper is that warehouse clubs matter a lot. We think this is true for two reasons. The first is the income effect: lower prices equal higher real incomes, so we can buy better stuff. The second is warehouse clubs represent a different shopping technology: you get mostly brand names, largely in bulk. This allows people to constrain their future choices by stocking up on healthy foods now. My present self might anticipate loss aversion by my future self. Knowing this, my present self buys a load of healthy stuff that my future self won't want to see go to waste.

I got to experience both this afternoon. First, we bought a bunch of fresh vegetables at the Memphis Farmers' Market--presumably, we were able to afford this because on our last visit to Sam's Club, we were advised that we've saved $214 this year by shopping there (mostly on diapers and formula). Second, while I was at Sam's Club this afternoon, my wife called to see if I could find something for dinner. I thought "maybe we should just go out," but then I realized that I would probably order a burger & fries or something else I shouldn't be eating. I decided instead to find something healthier to prepare at home. Then it dawned on me that this is exactly one of the mechanisms by which we think warehouse clubs are reducing weight.

It's only a single data point and proof-by-introspection probably isn't going to fly at most journals, but at the very least it suggests to me that our story about the mechanism is plausible. I spent last Friday with Charles at UNC-Greensboro--a nice campus and a nice town, incidentally--working on this paper and another that will estimate the impact of Costco, Sam's Club, and BJ's Wholesale Club on grocery prices. We're adding more data, and both will be available by the end of the summer at the latest.

Posted by Art Carden at 05:32 PM in Economics

June 12, 2009

Today is a Great Day to Repeal the Minimum Wage

Here's David Neumark in this morning's Wall Street Journal arguing that next month's minimum wage increase will be particularly ill-timed. His book with William Wascher on minimum wages is on my summer reading list, I'll be reviewing a book on "living wages" in the history of economic thought for EH.net this month.

Last summer, Charles Courtemanche and I have played with the data to see if minimum wage increases increase or decrease social capital in a followup to our earlier paper on Walmart and social capital. Identification issues meant that our result wasn't meaningful. If you're curious, we found a positive relationship, but this could just as easily mean that places with strong social capital tend to be support high minimum wages. Further, a lot of our measures of social capital (playing cards with friends, for example) could increase because the opportunity cost of card-playing is a lot lower when you're unemployed or under-employed. That paper is in the freezer for the time being while we finish some of our other projects. Here are David Henderson's thoughts on high-wage policies and economic downturns.

If you're looking for a good morning read to complement Neumark's WSj piece, here is an excellent and accessible summary of the economics of the minimum wage and the state of the art in the empirical literature that Professor Neumark prepared for the Show-Me Institute in 2006. It's a staple of my econ 101 reading list.

Update: Shelby County is primed to pass a "prevailing wage law."

Posted by Art Carden at 09:44 AM in Economics

June 11, 2009

The Cartel Strikes

Alabama gets choke-slammed by the NCAA again. This kind of "cheating" is exactly what we should expect to see when we try to hold prices below their market-clearing levels. Anyone who has been to a big-time college football game knows full well that the marginal revenue product of a superstar college football player is a lot more than the cost of tuition, room, and board at a state university. Even when you add on all of the perks (facilities, for example), you're probably still a long way from the market-clearing wage of a top-tier player.

Here's a question I would like to ask on an exam: Assume that I have a distaste for exploitation. Can I in good conscience be a college football fan? Explain your answer using what you know about monopsony, transaction costs, the Coase Theorem, and public choice theory.

Extra Credit: If college sports exploit athletes, why doesn't competition arise?

Ideas?

Posted by Art Carden at 03:30 PM in Economics

Bailouts illlustrated

One man's take in pictures as to why why bailouts are bad. It summarizes about a thousand pages of journal articles in five easy pics.

Posted by Craig Depken at 03:08 PM in Economics

Perspective

I recently commented (on Facebook) about the fact that both my daughter and I turned 14 in the middle of a "bad recession" - me in 1981 and her in 2009.

A close and very wise friend who lives in India chimed in:

What recession? I'm in Texas, and the big cars, packed restaurants and mammoth servings speak of amazing prosperity, especially if you're visitng from India

Posted by Robert Lawson at 12:23 PM in Economics

Markets in Everything: Austro-Libertarian Dystopian Fiction at Zero Price

The newest addition to my nightstand is Dominion, by J.L. Bryan, available here for a download price of $0.00 and here for a "bound book" price of $8.99. Here's an article on the author's muse.

HT to Marginal Revolution for the "Markets in Everything" Concept.

Posted by Art Carden at 10:55 AM in Economics

Advancing the Economic Way of Thinking, One Letter at a Time

To The Tennessean:

"On June 11, the Tennessean editorialized that comprehensive state energy standards and building codes won't affect housing for the poor because it will only affect new construction. This isn't true. Old houses and new houses compete in the same market, and making it more expensive to supply new housing means less housing overall. As new housing become costlier, older housing becomes more attractive. This means higher housing prices for everyone, not just people purchasing new construction.

Beware of anything that looks like a free lunch. You usually end up paying through the nose."

Posted by Art Carden at 10:18 AM in Economics

June 10, 2009

New Editor of the AJES

Via a press release from UMKC.

An excerpt:

KANSAS CITY, MO. -- Frederic S. Lee, Professor of Economics in the University of Missouri-Kansas City (UMKC) College of Arts and Sciences, has been appointed as editor for the New York-based American Journal of Economics and Sociology (AJES). With support from the Robert Schalkenbach Foundation, AJES was founded in 1941 to provide a forum for continuing discussion of issues emphasized by the American political economist, social philosopher and activist Henry George (1839-1897).

Posted by Joshua Hall at 04:34 PM in Economics

How Big is Big?

If I ever teach Public Finance, this will be an integral part of the course (HT: Stewart Dompe).

Posted by Art Carden at 03:04 PM in Economics

Rhodes Political Economy?

One of the really great things about this job is getting to see your students succeed. I just got an email from 2007 graduate Jerrod F. Anderson, who was awarded a Mercatus Fellowship to get a master's degree in economics at George Mason. I think Courtney Collins will be on the market out of Texas A&M next year (I was told when I arrived at Rhodes that I had been hired to "keep Courtney's office warm" while she finished graduate school). Three of our 2009 graduates are entering the PhD program at Texas A&M this Fall and another will spend a year in the Koch Associates Program before starting graduate school. A handful of students have presented papers at professional meetings (MVEA, Public Choice, and APEE). I'll be revising a few student papers for future contributions to The Freeman, the Mises Daily, and a few other outlets. Some of the students who attended last week's IHS Liberty & Society Seminar at Wake Forest are now blogging. Here's a contribution from one of the bloggers that applies what we discussed in Econ 323 last semester.

Posted by Art Carden at 01:15 PM in Economics

Slavery, Immigration, and the State

One of my main projects this summer is an essay on the economic history of the South for the Oxford Handbook of Southern Politics. In my reading on antebellum slavery apologetics, I'm struck by the similarities between the apologetic rhetoric of slavery, the apologetic rhetoric of socialism, and the apologetic rhetoric of anti-immigration. Like apologists for socialism, apologists for slavery ignored the fact that traffic moved in one direction. Slavery's apologists spent a lot of time and energy pontificating on the morally ennobling virtues of slavery. They also spent a lot of time and energy wringing their hands about the prospect of violent slave insurrections and advocating government policies to keep slavery secure. Just as literal boatloads of people are trying to leave Cuba for the United States while hardly anyone wants to go in the other direction, lots of people were trying to escape slavery while few (if any) were trying to become slaves.

Consider also a common objection to free immigration. As the story goes, immigrants don't have the cultural capital necessary for participation in a free society; therefore, allowing more immigrants will inevitably lead to the destruction of American society. Apologists for slavery made the same argument about the alleged undesirability of emancipation: the slaves were not fit to participate in civil society; therefore, they should remain enslaved.

This is really fascinating stuff, and it shows how those who ignore history are doomed to repeat it. I'll have (much) more on this later.

Posted by Art Carden at 11:29 AM in Economics

On government efficiency c. 1909

The June 10, 1909 NYT reports on a misguided "change" in the Postal system that sounds very similar to our experience with the Susan B. Anthony dollar:

As a matter of imperative necessity, Postmaster General Hitchcock has decided to discontinue the new green special delivery stamp and return to the familiar blue stamp showing a specially delivery messenger boy mounted on a bicycle. In the great rush with which the mails must be handled many letters bearing the new stamp have escaped treatment as special delivery material because of the new stamp's similarity in size and color to the one-cent stamp. In some instances delays in delivery of such letters have caused serious loss to the public and embarrassment to the post office department.

The issue of the blue stamp will begin at once.

I find such stories interesting. It would seem the time horizon of the government would be longer than that of the private sector. Thus, the government, what with its hands deep in our pockets, should have plenty of time and money to undertake feasibility studies of decisions such as the special delivery stamp or the Susan B. Anthony dollar. Why not perform some sort of experiment to determine whether the individuals who are processing the mail can do so in a timely manner with the new stamp? Why not be open to public comment (whether the public at large or a subset, say, postal employees) on such ideas?

I understand that bureaucrats likely view their job as precisely making these types of decisions without input from others. That is the potential source of any number of bad ideas, some of them obvious - such as the stamp or the SBA dollar - and many more of them less obvious. After all, when a private concern screws up then real money and real jobs are at stake; when a public concern screws up, it merits twelve lines in the New York times.

One wonders what "serious loss to the public" entailed.

Posted by Craig Depken at 10:37 AM in Economics

On health insurance c. 1909

"Fixing" the U.S. health care system is all the rage this Congressional session. My prior is that the unintended consequences of increased government intervention in this market outweigh the benefits, but that's just my opinion. The June 10, 1909 NYT reports on proposals to integrate the private life and accident insurance industry into the personal health care industry:

Mr. Henry B. Hyde originated in large part the aggressive methods that built up the great insurance companies. He recognized the tendency in human nature to procrastinate in making necessary provision for death, which is inevitable, and for accidents and sickness, which are probable or possible. It was easy to make responsible heads of families admit these truths; the admission once made, they were vulnerable to the insistence and importunities of the insurance agent. A field for attack was opened up, and Mr. Hyde and his successors occupied it to the benefit of the Nation.

Another Henry B. Hyde may now extend the principle of health and life insurance. The plan broached by Dr. Benedict and others before the American Academy of Medicine, that physicians contract with their patients for attendance during health upon a yearly basis, with a view to preventing disease by their periodic examinations and advice, is essentially a plan of insurance. The insurance companies are already considering the suggestions made by Prof. Fisher, the Yale economist, and Dr. Burnside Foster, an official of the New England Mutual Life Insurance Company and editor of the St. Paul Medical Journal, which would bring the insurance business directly into the field which the doctors think of exploiting individually.

The insurance companies may prove powerful competitors of the doctors in this work. With their immense clientele they can calculate the chances of health and disease more closely than can the individual practitioners. they can provide lower rates and more expert and specialized services. Who knows that the insurance business may not organize the new practice of preventive medicine?

Posted by Craig Depken at 10:29 AM in Economics

Immigrants, Drugs, and the Housing Market

Here's a letter I sent to the Wall Street Journal this morning:

"The problems identified in June 10th's article about organized gangs smuggling undocumented immigrants across the US border and then holding them for ransom were created by a perfect storm of government intervention. The drug war has encouraged the development of international criminal syndicates and turned parts of the US-Mexico border into actual war zones. The war on undocumented immigrants has created opportunities for those syndicates to enter into the human-trafficking business. Cheap money and government policies aimed at increasing access to "affordable housing" created the housing bubble, and further intervention in the last year prevented housing prices from falling far enough to clear the market. This effectively created the "drop houses" in which criminal gangs abuse immigrants who have no legal recourse against them. I expect that politicians will demand ramped-up enforcement, but this will be a mistake. The best way to proceed would be to end the war on drugs, end the war on immigrants, and scale back intervention in the housing market."

Posted by Art Carden at 09:26 AM in Economics

June 09, 2009

Arnold Kling on Health Care

Courtesy of the Cato Institute's "Weekly Video," here's Arnold Kling:

FWIW, I get a bit dizzy when I contrast the resources that are available to my students today that weren't available to me when I was an undergraduate just a decade ago. I got my first cell phone during my first year of grad school and my first laptop during my third year of grad school. I don't think I knew what a "blog" was as an undergraduate, and the idea that I could get expert commentary on any issue with the click of a mouse was a dream. I graduated from college a few months before Steve Jobs introduced the iPod to the world. "Doom II" was the height of video game technology when I was a freshman. My first vehicle was a brontosaurus. And so on: the point is that a lot of what my students and I take for granted today was either cutting-edge or hadn't been invented when I was in school. Recession or not, it's hard not to be optimistic about the long run.

Posted by Art Carden at 08:30 PM in Economics

IHS Liberty & Society Links

I'm back from last week's IHS "Liberty and Society" Summer Seminar at Wake Forest. Josh Hall, Steve Davies, James Stacey Taylor, and Bob McNamara led a group of excellent students on a thrilling tour of classical liberal ideas. Over the course of the week, we added links to additional readings and resources to the group Facebook page. Most of these have links to full-text downloads and other zero-price resources. Those links are below the fold. Some of the students have also started a blog.

Read More »

1. Josh's powerpoint slides. Here are Josh's research papers. His website is cooler than mine, and this might finally shame me into putting together a decent website.

2. Michael Munger's article on the success of governments trying to pick winners and losers.

3. Scott Beaulier's homepage, where you can find out everything you want to know about Botswana.

4. My SSRN research page, which has links to a couple of papers on economic freedom and all of my Walmart papers.
4a. Here's the new issue of the Journal of Lutheran Ethics, which contains the published version of my paper on Naomi Klein's The Shock Doctrine.

5. Here is the Fraser Institute's Economic Freedom of the World index (the one Josh works on). Here is the Heritage Foundation's Index of Economic Freedom.

6. Here's a paper by Gary Becker and Julio Jorge Elias estimating what the price of kidneys would be in a free market.

7. Here's the Google Books entry for James's book Stakes and Kidneys. Sally Satel takes on altruism and argues that kidney donors should be compensated. Steven Pinker takes on "The Stupidity of Dignity" in the context of bioethics. Here is Kieran Healy's research website.
Finally, here is the JAMA study on kidney sales in India.

8. We talked a lot about the economics of prohibitions on certain kinds of transactions. Here's a volume on prohibitions edited by John Meadowcroft and published by the Institute of Economic Affairs. Here is Josh's review.

9. Wendy McElroy offers "a site for individualist feminism and individualist anarchism."

10. The ideological foundations of slavery make for tragic history and fascinating historiography. Here's an excellent recent treatment by Elizabeth Fox-Genovese and Eugene D. Genovese. I'll be integrating their insights into a project I'm working on as soon as I'm finished with this post.

11. Lysander Spooner didn't agree to this.

12. John Allison on EconTalk.

13. We spoke briefly on the intellectual climate in Vienna in the late nineteenth and early 20th centuries. Here's a brief biography of F.A. Hayek. Jorg Guido Hulsmann has recently written a massive, authoritative, and fascinating biography of Ludwig von Mises. Here's the preface, and here's a PDF of the entire thing. Mises.org also has a series of video lectures from Hulsmann on the life and work of Mises.

14. Works by Herbert Spencer, Wordsworth Donisthorpe, and William Graham Sumner.

15. Repeat after Josh: education is not a public good. Newcastle University's E.G. West Centre promotes "Choice, Competition, and Entrepreneurship in Education." Here are my comments on a recent working paper by Lant Pritchett and Martina Varengo. They argue that the reason states supply education is to inculcate certain values that would be difficult to observe if they were provided privately. This is one of the reasons why the Alliance for the Separation of School and State exists. The market does not fail to finance higher education in efficient quantities (Cato Policy Analysis by Miguel Palacios). Here is Kerry A. King's paper arguing that all of the relevant externalities from K-12 education are internalized by the market, and here are Eric Hanushek's articles on education. Michele Boldrin and David Levine argue that we do not need patents. You can download their book Against Intellectual Monopoly here. Terence Kealey's The Economic Laws of Scientific Research makes similar points.

16. Here is an excellent EconTalk discussion with Mike Munger on the economics of recycling. This page includes a lot of great links on the economic way of thinking applied to environmental issues. Along the same lines, here is my Earth Day contribution to Forbes.com and the related academic paper. The takeaway point is that without private property, profits, and losses, we can't articulate what responsible environmental stewardship would mean.

17. Frederic Bastiat, Super-Genius. "That Which is Seen, and That Which is Not Seen" explains what came to be known as "the broken-window fallacy." Here is a PDF of his rousing polemic The Law. In addition to the Henry Hazlitt and Eugen von Boehm-Bawerk t-shirts I was sporting last week, the Mises Institute also offers a variety of other shirts featuring Austrian economists and "Champions of Liberty." Or you could just read Economics in One Lesson (online, zero-price).

18. Robert Higgs, Depression, War, and Cold War (required for Econ 339!). Here is an EconTalk podcast with Amity Shlaes on the Great Depression.

19. F.A. Hayek on Spontaneous Order. Hayek offers examples from nature that show what we can know (general laws) and what we can't know (specific, minutely-detailed outcomes).

20. Amy Chua's World on Fire: How Exporting Free Market Democracy Breeds Ethnic Hatred and Global Instability. Since reading Lant Pritchett's Let Their People Come, free immigration has been my hammer that can drive all nails. If western countries were to open their borders instead of trying to export their institutions, would this lead to more peaceful marketization?

21. Angus Maddison has collected all sorts of data on global economic history, all of which can be downloaded here.

22. Google Books has selections from Natalie Stoljar's work on autonomy.

23. Do we need the FDA? Daniel Klein and Alexander Tabarrok say "no."

24. Here is Lant Pritchett's Let Their People Come: Breaking the Gridlock on Global Labor Mobility, downloadable for $0.00. Drop what you're doing and read this.

25. Courtesy of IJ, here is a report on the demographics of eminent domain abuse. Here's the Wikipedia page for Berman v. Parker, and here are articles and videos from the Institute for Liberty and Democracy (Hernando de Soto's organization).

26. Deirdre N. McCloskey is one of my intellectual heroes. You can download drafts of some of her current projects from her website. Here is a short summary of her book The Bourgeois Virtues: Ethics for an Age of Commerce. Here is a draft of the complete manuscript.

27. The Library of Economics and Liberty contains full-text, searchable versions of a lot of classic texts in economics and classical liberal thought. These include, for example, Adam Smith's An Inquiry into the Nature and Causes of the Wealth of Nations, Leonard E. Read's classic "I, Pencil", and Hayek's "The Use of Knowledge in Society." I also recommend Hayek's "Competition as a Discovery Procedure." Ludwig von Mises's "Economic Calculation in the Socialist Commonwealth" is one of the most important pieces of social theory ever written.

28. For your must-read list, here is Murray N. Rothbard's The Ethics of Liberty (click here for PDF). He takes on all of the "but what about..." objections to classical liberalism.

29. And now for something completely different, here are our friends from Monty Python on Philosophy Football. As a bonus, here's Monty Python on argument. As an added bonus, should the government subsidize R&D, like (for example) the development of silly walks?

30. Here is Murray Rothbard's essay "Law, Property Rights, and Air Pollution" in which he argues for strict liability in cases of pollution.

31. Glenn Greenwald offers a study of how drug decriminalization has worked out in Portugal.

32. Bryan Caplan's The Myth of the Rational Voter: Why Democracies Choose Bad Policies explains why democracies choose bad economic policies. The Cato Institute published a short version as a Policy Analysis in 2007. Here's a debate in which I argued that your vote does not matter.

33. I put together pages of links and readings for my lectures a few weeks ago. Here are links on basic economics, unlimited growth, the Great Depression, and Walmart.

« Close It

Posted by Art Carden at 11:30 AM in Economics

Extra! Extra! White moving to GMU

DoL blogger and free banking extraordinaire Larry White is moving to GMU.

I'm sure the Indian food is much better in D.C. than St. Louis, Larry.

Posted by Robert Lawson at 10:26 AM in Economics

Paper Bleg

I need help locating a copy of the following paper.

Tyler Cowen and Sam Papenfuss, "Why are Most Universities Not for Profit?"

A web search yielded nothing, nor did contacting the authors. I've seen it cited several times, so I'm hoping someone out there has a copy. If you do, please email me at halljc-at-beloit-dot-edu. You'll have my gratitude and some nice DOL swag for your efforts.

Posted by Joshua Hall at 08:54 AM in Economics

June 05, 2009

Building Brand Equity: "Shock and Awe"

I'm on my way back from the IHS Liberty & Society Summer Seminar at Wake Forest (via a day at UNC-Greensboro with Walmart co-author Charles Courtemanche), and I'll be posting extensive notes on the seminar soon. Meanwhile, I just received word that my paper "Shock and Awe: Institutional Change, Neoliberalism, and Disaster Capitalism" was published in the June issue of the Journal of Lutheran Ethics. Here's the published version.

Posted by Art Carden at 02:41 PM in Economics

May 29, 2009

On Fed Independence

Without a firm commitment by the Obama administration to maintain central-bank independence at all costs, the Fed may become subordinate to the Treasury as it institutes the president's expansive plans to inject government into the economy. If this is the case (to paraphrase Milton Friedman) fiscal deficits will always and everywhere mean inflation.

To calm investor fears and demonstrate that the Obama administration is committed to respecting certain minimal rules of conduct, the Fed and Treasury need to establish a new accord. The new accord should be signed by Mr. Obama and formally recognize the Fed as an independent entity. It should make clear that the Fed is not responsible for the financing needs of the government.

That's DOL friends Scott Beaulier and Skip Mounts in Saturday's WSJ.

Posted by E. Frank Stephenson at 11:32 PM in Economics

"Liberty and Society" Links, Lecture 4: "Is Walmart Destroying America?"

The lecture will be preempted by a talk from former BB&T CEO John Allison (to whom I am honored to yield the floor), but here are a few readings and a podcast on Walmart:

1. Why Wal-Mart Matters.

2. So you save money. Do you live better?

3. My SSRN page, with drafts of our Walmart papers.

4. In particular, here's a review of a volume of critical Walmart essays.

5. Cato podcast with Russell Sobel on "Wal-Mart vs. Mom and Pop"

6. Andrea Dean and Russell Sobel ask whether Walmart has buried Mom & Pop.

Posted by Art Carden at 11:27 AM in Economics

"Liberty and Society" Links, Lecture 3: "The Great Depression and World War II"

1. "The Great Depression and World War II"

2. My main sources for "The Great Depression and World War II," Robert Higgs's Depression, War, and Cold War and Jim Powell's FDR's Folly.

3. Randall Parker's EH.net article on the Depression

4. Frank Steindl's EH.net article on economic recovery from the Depression

5. Frank Steindl on how WWII did not end the Great Depression.

Posted by Art Carden at 11:16 AM in Economics

"Liberty and Society" Links, Lecture 2: "Are There Limits to Economic Growth?"

Here are some articles, books, and videos that cover some of the things I will discuss in my lecture on Sunday.

1. Julian Simon. A lot of what Professor Simon published is available at this site. If you're serious about environmental issues, you have to take Simon seriously.

2. George Reisman, Capitalism: A Treatise on Economics

3. Matthew Kahn's blog, "Environmental and Urban Economics."

4. David Zetland's blog, "Aguanomics" (NB: I met David at an IHS Social Change Workshop in grad school).

Posted by Art Carden at 11:08 AM in Economics

"Liberty and Society" Links, Lecture 1: "Economics in One Lesson"

Here are some articles, books, and videos that cover some of the things I will discuss in my "Economics in One Lesson" lecture on Saturday. A lot of these are links to articles I wrote, many of which were inspired by my experience teaching at a "Liberty and Society" seminar last year.

1. There's no such thing as free grilled chicken.

2. Trade Creates Wealth, even if you're a Superhero.

3. The Locavore's Dilemma: trade conserves wealth (NB: I think there's an uncorrected typo in this).

4. "The Market, God Bless it, Works."

5. But what about when the market, gosh darn it, fails?

6. Drugs are bad, mmmkay? Does this mean they should be illegal? What about other stuff, like guns, alcohol, and prostitution?

7. Thomas Sowell, A Conflict of Visions. Bryan Caplan's review of Sowell.

8. Ten Key Elements of Economics.

9. Steven Landsburg, The Armchair Economist and Fair Play.

10. Henry Hazlitt, Economics in One Lesson.

Posted by Art Carden at 10:56 AM in Economics

May 27, 2009

Interesting Abstract: Darryl Weathers from the Construction Workers' Union is Wrong

Via an email from the IZA Discussion Paper Series:

"Do Immigrants Take the Jobs of Native Workers?" Free Download

IZA Discussion Paper No. 4111

NIKOLAJ MALCHOW-MOELLER, Copenhagen Business School - Center for Economic and Business Research (CEBR), University of Southern Denmark
Email: nmm.cebr@cbs.dk
JAKOB ROLAND MUNCH, University of Copenhagen - Department of Economics, Center for Economic and Business Research (CEBR)
Email: Jakob.Roland.Munch@econ.ku.dk
JAN ROSE SKAKSEN, Copenhagen Business School - Department of Economics, Institute for the Study of Labor (IZA)
Email: jrs.eco@cbs.dk

In this paper, we focus on the short-run adjustments taking place at the workplace level when immigrants are employed. Specifically, we analyse whether individual native workers are replaced or displaced by the employment of immigrants within the same narrowly defined occupations at the workplace. For this purpose, we estimate a competing risks duration model for job spells of native workers that distinguishes between job-to-job and job-to-unemployment transitions. In general, we do not find any signs of native workers being displaced by immigrants. Furthermore, we find only very limited signs of replacement of native workers by immigrants. Instead, in particular low-skilled native workers are less likely to lose or leave their jobs when the firms hire immigrants.

Posted by Art Carden at 06:14 PM in Economics

Inframarginal Rents and Celebrity Disasters?

"L.A. Progressive" picked up my recent op-ed on intellectual monopoly. I ask whether Britney Spears would produce less output in the absence of intellectual monopoly. My guess is that most stars' income is pure rent, so Britney's output reduction would be trivial while the output increases of her potential competitors would be substantial. One of the commenters asks a very interesting question about Ms. Spears and her well-documented difficulties handling super-stardom: in the absence of intellectual monopoly, would we see the kinds of public meltdowns that have characterized the careers of Spears, Lohan, and others?

here's the URL because my Mac hates Movable Type: http://www.laprogressive.com/2009/05/26/intellectual-monopoly-is-an-unnecessary-evil/#comments).

Posted by Art Carden at 06:11 PM in Economics

May 26, 2009

Zimbabwe Papers

Zimbabwe ranks dead last in the Economic Freedom of the World index, but maybe there is hope on the horizon -- at least is this new report has any impact.

The Zimbabwe Papers, a major report released today by 9 of Africa’s most respected think-tanks, examines the causes of Zimbabwe’s social and economic problems and offers a blueprint for urgent and practical reform that will enable the country to become a thriving, peaceful and prosperous country.

Posted by Robert Lawson at 09:00 PM in Economics

Building Brand Equity: What I've Been Writing Lately

1. "Playing Chicken in Memphis." Is the company that owns KFC restaurants in Memphis making a business mistake by not offering grilled chicken? Inaction by the company's critics suggests not.

2. Review of Josh Waitzkin, The Art of Learning. This would be most properly titled "What I was writing a year ago but finally published." I decided to swing for the fences and sent it to the Harvard Educational Review first. They rejected it.

3. "Intellectual Monopoly is an Unnecessary Evil." Inspired by Boldrin and Levine, Against Intellectual Monopoly and Michael Heller, The Gridlock Economy. Thete's an interesting comment thread on the Mises blog.

And, for the second time today, I'm describing my life with a phrase from Digital Underground's classic "The Humpty Dance." Right now: "I think it's obvious, I also like to write." Earlier this morning: "I like my oatmeal lumpy."

Posted by Art Carden at 10:24 AM in Economics

May 25, 2009

Interesting Abstracts

Robert B. Ekelund, Jr., John D. Jackson, Rand W. Ressler, and Robert D. Tollison. 2006. Marginal Deterrence and Multiple Murders. Southern Economic Journal 72(3):521-541.

This paper examines empirically the state-level impact of capital punishment on multiple murder rates for the period 1995-1999. In baseline tests--tests employing mixed panel data and using an estimation technique combining aspects of both fixed- and random-effects models--we show that executions reduce the single murder rate and that the use of electrocution reduces the murder rate beyond that resulting from lethal injection. These results are not unique. The unique finding of our analysis is that multiple murders are not deterred by execution in any form, quite possibly because the marginal cost of murders after the first is approximately zero. Finally, we offer a brief historical analysis of how the principle of marginal deterrence has been used and suggest how it might be applied in the matter of multiple murders.

Posted by Art Carden at 04:24 PM in Economics

May 22, 2009

"... business negotiations ... leave the parties not necessarily as adversaries"

That's a snip from this NPR story on the Somali pirates. The story leaves a bit to be desired, but it has some interesting economics. There's also a "markets in everything" or division of labor angle in the Somali man's role as a negotiator/spokesman for Somali pirates.

Posted by E. Frank Stephenson at 05:11 PM in Economics

Doing Business caves into ILO!?!

One of the best data projects created in the last decade is the Doing Business project at the World Bank begun under the leadership of Simeon Djankov and inspired by Hernando de Soto's original work in Peru.

The Doing Business report aims aimed to measure the burden, complexity, and consistency of regulations in many dimensions. I use several of the indicators in the economic freedom index myself.

While the Doing Business project sometimes called for more government involvement (for example in creating property registries), the overall thrust of the project was to reduce the regulatory burden facing small and medium businesses. This emphasis on simpler, less costly regulations has not always been popular with others at the World Bank and the so-called development community.

Now, it appears these bureaucrats and rent seekers are seeking to frustrate the original intention of the project.

I was just shocked to learn that the Employing Workers section is being revised so that countries with burdensome International Labour Organization-approved regulations will get better scores! Consider this memo about forthcoming changes to the report (emphasis added):

Doing Business is one of the World Bank Group’s flagship publications, and over the years it has proven to be a powerful tool in the hands of governments determined to improve the climate for business. The business climate is one aspect of development policy, and the WBG emphasizes that other development goals must also be given appropriate weight. These include issues as diverse as political stability, social safety nets to shield vulnerable parts of society from intolerable levels of risk and protection of rights for workers and households as well as for firms. In the current global economic crisis, the WBG is looking at the advice, policy instruments, strategies and other tools at our disposal to ensure that we help governments meet this array of development policy challenges. It is important that government actions focus on the needs of the labor force and lower income households as well as those designed to help businesses to survive and grow. During this period of economic crisis, we are also scaling up our work on social safety nets through lending and analytical work. Issues of access to benefits such as unemployment insurance and social security are a key part of this work.

In light of these challenges, unprecedented in their scale, and building on the changes we signaled in last year’s Report, both immediate and longer-term actions will be taken with regard to the Employing Workers Indicator (EWI) in Doing Business. In the short-term:

· Adjusting the scoring in the Doing Business 2010 report (to be launched in September 2009) regarding provisions for fixed term workers and standards for severance payment, mandatory days of rest and night work and holidays, and minimum wage levels, in order to accord favorable scores to worker protection policies that comply with the letter and spirit of the relevant ILO Conventions, recognizing that well-designed worker protections are of benefit to the society as a whole.

· Removing the Employing Workers Indicator (EWI) as a guidepost in the Country Policy and Institutional Assessments (CPIA). A guidance note will be issued clarifying that the EWI does not represent World Bank policy and should not be used as a basis for policy advice or in any country program documents that outline or evaluate the development strategy or assistance program for a recipient country. The note will emphasize the importance of regulatory approaches that facilitate the creation of more formal sector jobs with adequate safeguards for employees’ rights and that guard against the shifting of risk from firms to workers and low-income families.

Josh Hall and Pete Leeson wrote about development countries and ill-timed labor standards here: "Good for the Goose, Bad for the Gander: International Labor Standards and Comparative Development," with Peter T. Leeson, Journal of Labor Research vol. 28, no. 4 (September 2007): 658-676.

Posted by Robert Lawson at 04:23 PM in Economics

Building Brand Equity: What I've Been Writing Lately (also GDP v. HDI)

The piles of unfinished reading and writing projects littering my office have actually shrunk a little bit. Summer vacation rules.

1. "Wal-Mart's Weight Effect," published online on Wednesday and appearing in the June 8 issue of Forbes.

2. "The Great Depression and World War II," now online and forthcoming in the June issue of The Freeman.

3. "Conscription of Men, Women, and Resources, a Mises Daily on Monday.

4. Review of David M. Primo, Rules and Restraint: Government Spending and the Design of Institutions, forthcoming in Public Choice

5. My entry for Alex & Tyler's epigram contest: "A citizen who casts his ballot without having to the best of his abilities studied as much economics as he can fails in his civic duties."--Ludwig von Mises

Economists are well aware of the problems with Gross Domestic Product as a measure of how wealthy a country is. It doesn't account for "non-economic" values (T. Sowell: are there any values that aren't "non-economic"?), it doesn't count household labor, and so on. Nonetheless, GDP is an anvil that has worn out many hammers.* Here, for example, are two posts on the Human Development Index in which Justin Wolfers and Bryan Caplan argue that HDI is so highly correlated with GDP per capita that it isn't clear that it's useful. Caplan's dismissal of the HDI is particularly cutting: "Scandinavia comes out on top according to the HDI because the HDI is basically a measure of how Scandinavian your country is." In other words, if you're the best by definition, you'll always come out on top.

*--I'll send my now-obsolete copy of the eleventh edition of The Economic Way of Thinking to the first person who emails me with the correct reference to the "anvil that has worn out many hammers" phrase.

Posted by Art Carden at 02:57 PM in Economics

Curtis Melvin's hobby

The Wall St. Journal has a fascinating article on the hobby of my once (UGA undergrad) and possibly future (GMU grad) student Curtis Melvin: he leads a web-linked do-it-ourselves effort to identify obscure features and fill in the details on Google Earth's map of North Korea. I knew Curtis had visited North Korea as a tourist, which is endearingly wacky, but this borders on the profound. What the effort has uncovered is pretty amazing. Don't fail to click through to the WSJ's interactive sidebars.

Posted by Lawrence H. White at 11:06 AM in Economics

Blowback

From Bloomberg:

Hedge fund manager George Schultze says he may avoid lending to any more unionized companies after being burned by President Barack Obama in Chrysler LLC’s bankruptcy.
[. . .]
Pacific Investment Management Co., Barclays Capital and Fridson Investment Advisors have joined Schultze Asset Management LLC in saying lenders may be unwilling to back unionized companies with underfunded pension and medical obligations, such as airlines and auto-industry suppliers, because Chrysler’s creditors failed to block Obama’s move. The reluctance may put additional pressure on borrowers seeking capital in the worst financial crisis since the Great Depression.

Posted by Wilson Mixon at 09:13 AM in Economics

May 20, 2009

Dan Ariely on "Marketplace"

The interview is here; below are some excerpts and comments:

[Interviewer Kai] Ryssdal: So it's been a little bit more than a year since the first version of this book came out. And it's been quite the tumultuous year in the economy, obviously. Do you find that behavioral economics is a little bit more, I don't know, respectable now?

ARIELY: Oh, yeah. Very much so. This has been a great year for me.

Ryssdal: Well, that's good, Dan.

ARIELY: Yeah, if you're looking for a satellite in this whole thing, it's behavioral economists, we're all celebrating. And the real issue is that for a long time we would do these experiments showing all kinds of irrationalities, and people would say, OK, it's very cute, it's very entertaining, it's amusing, but surely when it will come to people making large decisions in a repeated who are experts, all of these irrationalities will go away and people would behave perfectly rational. In 2008, Greenspan's testimony, that basically you can summarize as, oops, I thought the markets were irrational and would take care of themselves but they don't. I think there's a new realization of how important an endemic irrationality is, and that we really need to understand it better if we ever want to get out of not just this crisis, but we want to prevent the next ones who are just waiting around the corner.

I'm not at all convinced that the economic difficulties of the past year were caused by the irrationality of private actors. Instead, I attribute most of the problems to caused by people's predictable responses to perverse government policy.

Here's another snip of the interview:

ARIELY: So if you think about the problem from a behavioral economists' perspective, then what you would say is the following: we might get over the housing problem, we might help people, we might bail out some of the banks, but the real problem, the thing that was causing this whole issue, is actually the conflict of interest that the bankers had. And unless you solve that deeper problem, you haven't solved anything. So in fact what we're doing is we're looking at the causes for these behaviors. And this actually helps you to think very much about regulation. So we can say what are people naturally good at? And in those cases all we need to do is the government to step out of our business and let us do whatever we can because we would optimize. Versus what kind of things do people fail in and fail in them routinely, in predictable and repeatable ways, and those are the places that we would need to actually step in and regulate, and don't let people create damage for themselves and for the economy.

How about some recognition that regulators and politicians--whether rational or irrational--might not be infallible? Ariely seems to want to grant more power to folks who already have a dismal history of causing harm.

I'm not sure if people are rational or not, but it's going to take more than some "very cute" experiments to make me think government regulation would be an improvement.

Posted by E. Frank Stephenson at 01:45 PM in Economics

Simmel in translation

I'm reading George Simmel's The Philosophy of Money for an upcoming Liberty Fund colloquium. The book has some important ideas, but it takes some serious effort to penetrate the turn-of-the-century German sociological prose which too often reads like postmodern French philosophy. I don't think it's the translator's fault. Check out the following single sentence:

Such trivial experiences as that we appreciate the value of our possessions only after we have lost them, that the mere withholding of a desired object often endows it with a value quite disproportionate to any possible enjoyment that it could yield, that the remoteness, either literal or figurative, of the objects of our enjoyment shows them in a transfigured light and with heightened attractions -- all these are derivatives, modifications and hybrids of the basic fact that value does not originate from the unbroken unity of the moment of enjoyment, but from the separation between the subject and the content of the enjoyment of an object that stands opposed to the subject as something desired and only to be attained by the conquest of distance, obstacles, and difficulties.

What I think he just said: Absence makes the heart grow fonder.

Posted by Lawrence H. White at 01:40 AM in Economics

May 19, 2009

We'll Get To Equilibrium. Eventually.

via XKCD.

Posted by Art Carden at 02:41 PM in Economics

Possible unintended consequences?

This May 19, 2009 NYT article (from Drudge) reports that SF may impose a $0.33 per-pack tax on cigarettes to pay for the cleanup of cigarette butts thrown on the ground.

How many ways could this tax be avoided?

Yet, an unintended consequence is that currently courteous smokers who do not litter might begin to do so because they will have paid a tax for the "right" to litter.

Posted by Craig Depken at 02:22 PM in Economics

"Shock and Awe: Institutional Change, Neoliberalism, and Disaster Capitalism" Revised

Here's a revised version of my paper "Shock and Awe: Institutional Change, Neoliberalism, and Disaster Capitalism," forthcoming as part of a symposium on Naomi Klein's The Shock Doctrine in the Journal of Lutheran Ethics.

Posted by Art Carden at 12:13 PM in Economics

Building Brand Equity: Recent Book Reviews, Recent Reading

After a bit of foot-dragging, here are a few book reviews:

Review of Paul Heyne, "Are Economists Basically Immoral?" for the Quarterly Journal of Austrian Economics.

Review of Randall Holcombe, Entrepreneurship and Ecnoomic Progress, for Economic Affairs.

Review of Nelson Lichtenstein (ed.), Wal-Mart: the Face of Twenty-First-Century Capitalism, for Economic Affairs.

I recently devoured Jorg Guido Hulsmann's Mises: The Last Knight of Liberalism and skimmed Michele Boldrin and David Levine's Against intellectual Monopoly. I recommend both very highly. Hulsmann's biography of Mises is particularly inspiring.

Posted by Art Carden at 11:28 AM in Economics

May 18, 2009

Economists of a certain age

... often have similar memories. Ron Bailey's closing line in is essay on the prospects of the latest round of government efforts to pick winners: "Thirty years ago, as a young energy regulator, I had a front-row seat as another president’s ambitious plans to transform America’s energy economy crashed and burned. I suspect that today’s eager young bureaucrats will witness a similar debacle."

Posted by Wilson Mixon at 11:37 AM in Economics

May 16, 2009

Accounting Costs vs Economic Costs

Many minority dealers operate in cramped downtown locations that are less desirable than the spacious suburban auto malls that are now popular, said Mr. Lester and other dealers. Urban franchises typically draw fewer shoppers and carry less inventory for customers to choose among. Both factors tend to limit sales.

Minority dealers often don't own the land beneath their showrooms, so the monthly rent adds to their costs, Mr. Lester said. And since many borrowed money to get into the business, they sometimes have more debt than family run dealerships that have been in business for decades. *

*Alex P. Kellogg, "Minority Dealers Hit Hard by Auto Crisis," Wall Street Journal, 14 May 2009.

Posted by Joshua Hall at 10:01 AM in Economics

May 15, 2009

"'The Yield from Money Held' Reconsidered", Reconsidered

The Mises Institute has recently posted the text of a lecture by Hans-Hermann Hoppe, "'The Yield from Money Held' Reconsidered". The title refers to a classic article by W. H. Hutt. The theme and title of Prof. Hoppe's lecture recall an earlier paper by George Selgin, "The Yield from Money Held Revisited: Lessons for Today," which originally appeared in Market Process and was reprinted in Peter J. Boettke and David L. Prychitko, eds., The Market Process: Essays in Contemporary Austrian Economics (Aldershot, U.K.: Edward Elgar, 1994), pp. 139-65. Selgin's article does not appear to be available online.

Hoppe's discussion unfortunately suggests that Selgin's view (and mine, and Roger Garrison's) is opposed to that of Hutt's classic article. Not so. Selgin and I are both big fans of the article, and I assume Garrison is as well.

Hoppe writes:

The second example [of supposed anti-Hutt thinking] is from closer at home, i.e., from the proponents of "free banking" such as Lawrence White, George Selgin, and Roger Garrison. According to them, an (unanticipated) increase in the demand for money "pushes the economy below its potential," (Garrison) and requires a compensating money-spending injection from the banking system.

Here it is again: an "excess demand for money" (Selgin & White) has no positive yield or is even detrimental; hence, help is needed. For the free bankers help is not supposed to come from the government and its central bank, but from a system of freely competing fractional-reserve banks. However, the idea involved is the same: the holding of (some, "excess") money is unproductive and requires a remedy.

The second sentence of Hoppe's first paragraph quoted above is correct. The second paragraph contradicts the first, and makes no sense.

Let's be clear about terms. An "excess demand" generally means an excess of quantity demanded over quantity supplied, i.e. a shortage at the current price. An "excess demand for money" -- certainly not a phrase original with Selgin and me -- accordingly means a deficiency of money held. It exists when the current quantity of money units falls short of the quantity demanded at the current purchasing power per unit. It can indeed be alleviated by an injection of additional units (or, alternatively, by an increase in the purchasing power per unit of money).

In the second paragraph Hoppe takes "excess demand for money" to mean "the holding of (some, 'excess') money", or in other words a surplus of money units held. This is the reverse of its meaning.

On the correct understanding, being concerned about macroeconomic difficulties arising from an unsatisfied demand to hold money is fully consistent with embracing Hutt's point that money is held because it serves the holder's welfare.

Comments are open.

Posted by Lawrence H. White at 01:20 PM in Economics  ·  Comments (1)

May 14, 2009

On the Economics of Crime

A letter to the Birmingham News:

"Crime policy illustrates the necessity of careful economic reasoning. In his letter of May 14, Bill Cullen argues that "(t)here is absolutely no evidence" that the death penalty deters murder. This is incorrect: there is a large body of literature written by economists who have studied the deterrent effects of the death penalty. Economists have been especially adept at analyzing crime and punishment because it deals explicitly with incentives. Early studies, even among scholars who opposed the death penalty, showed a strong deterrent effect. More recent evidence analyzed by John Donohue and Justin Wolfers supports Cullen's point: it suggests that if anything, the death penalty might actually contribute to increases in murder rates.

Cullen is correct that a lot of murders are crimes of passion that won't be deterred even by very large penalties, but what is true about most murders is not necessarily true about all murders. Changing the costs and benefits of any activity will change the amount of that activity. While the best available evidence suggests that the death penalty is not the most effective way to deter murder, death penalty supporters are at least thinking about the issue the right way. This illustrates a very general and very powerful point: if we want to explain any activity that we don't like, we have to look for the incentives that produce it."

Posted by Art Carden at 04:36 PM in Economics

May 12, 2009

On ending fraud c. 1909

From the May 12, 1909 NYT:

As a result of the sugar frauds in the New York customs service the Government has decided to do away with the customs weighers altogether and substitute electrical machines, which will automatically weigh and register goods, from the smallest package to the heaviest articles. These machines are to be installed just as quickly as they can be manufactured, and as fast as they are put into service the weighers will be let go. Through the use of the machines the Treasury Department feels that it will prevent in the future any repetition of the frauds that have stirred the customs service of late.

The use of the machines will eliminate from the service a small army of weighers, the largest corps of which is in New York.

Who is being defrauded in the scandal? It seems the government. However, while replacing men with machines might limit the number of hands outstretched for graft, it does not reduce the overall incentives to engage in graft. Indeed, graft may turn out to be even worse as it is concentrated in fewer hands and there is less "competition" among the grafters. Furthermore, as we have learned with electronic voting booths, there is always the opportunity for fraud at the scale manufacturer.

If I have time I will track down the original scandal and see what it entailed.

Posted by Craig Depken at 11:37 AM in Economics

New Issue of Public Choice

The latest issue of Public Choice is out and it has several great articles. I highly recommend the following three:

Claudia Williamson, "Informal Institutions Rule: Institutional Arrangements and Economic Performance."

Abstract Institutions are widely believed to be important for economic development. This paper attempts to contribute to our understanding of how institutions matter by examining the effect of formal and informal institutional arrangements on economic progress. Formal institutions represent government defined and enforced constraints while informal institutions capture private constraints. The findings suggest that the presence of informal institutions is a strong determinant of development. In contrast, formal institutions are only successful when embedded in informal constraints, and codifying informal rules can lead to negative unintended consequences. This suggests that institutions cannot be easily transplanted in order to spur economic development.

Peter Leeson, "The Calculus of Piratical Consent: The Myth of the Myth of Social Contract."

Abstract Is a genuine social contract mythical? I argue that pirates created genuine social contracts that established a system of constitutional democracy based on the same decision-making calculus and with the same effects that Buchanan and Tullock’s contractarian theory of government describes in The Calculus of Consent. Pirates’ constitutional democracy is the “holy grail” of social contract theory. It demonstrates that the contractarian basis of constitutional democracy is more than a mere analytic device or hypothetical explanation of how such a government could emerge. In pirates’ case, Buchanan and Tullock’s social contract theory describes how constitutional democracy actually did emerge.

Matthew Higgins, Andrew Young, and Daniel Levy, "Federal, State, and Local Governments: Evaluating Their Separate Roles in U.S. Growth."

Abstract We use US county level data from 1970 to 1998 to explore the relationship between economic growth and government employment at three levels: federal, state and local. Increases in federal, state and local government employments are all negatively related to economic growth. We find no evidence that government is more efficient at lower levels. While we cannot separate out the productive and redistributive services of government, we document that the county-level income distribution became slightly more unequal from 1970 to 1998. We conclude that a release of government-employed labor inputs to the private sector would be growth-enhancing.

Posted by Joshua Hall at 10:14 AM in Economics

May 11, 2009

A Little More Brand Equity--Occupational Licensing Edition

My stellar student Erin Wendt and I have an article on labor textbooks' sparse coverage of occupational licensing in the current issue of Econ Journal Watch. The idea for the article came from my receiving a new edition of a labor econ textbook a few months ago. The book is subtitled something like "theory and public policy" but I noticed that it had no coverage of licensing--a prominent form of public policy.

Erin's headed for graduate school in fall 2010 so I expect this will be the first of many pubs from her. Many thanks to Dan Klein and a couple of referees for their helpful suggestions.

Posted by E. Frank Stephenson at 08:20 PM in Economics

Roger Garrison's rejoinder to Brad DeLong

Brad DeLong and I debated the causes of the financial bust on the Cato Unbound website back in December. In January DeLong gave a lecture, published online, which among other things briefly summarized and dismissed the Austrian account of the boom and bust. Roger Garrison wrote a Freeman article criticizing the account of Austrian business cycle theory found in DeLong's Cato Unbound posts and in the January lecture. DeLong responded on his blog, explaining "one last time," with a sigh, why Garrison and the other Austrians are wrong and their account of the boom and bust won't do.

Roger Garrison has now issued a rejoinder that discusses how DeLong has missed the point and where the differences between DeLong and the Austrians lie. Highly recommended if you actually want to understand what about the bust the Austrian theory can claim to explain, and what it doesn't claim to explain.

Posted by Lawrence H. White at 06:30 PM in Economics

Building Brand Equity: Readings for Econ 323, Fall 2010

On Hayek's edited volume Capitalism and the Historians.

Marx: tried, measured, found wanting. I know it's a repeat link but the articles are complementary.

Posted by Art Carden at 01:46 PM in Economics

Mazzolari & Neumark on Immigration

With Spring semester officially in the books, I'm working through numerous backlogs of email, notes, stuff to read, etc. I came across an interesting paper by Francesca Mazzolari and David Neumark in which they look at how immigration affects the composition of what we consume (gated). I haven't read the full paper, but here's the abstract:

We study potential economic benefits of immigration stemming from two factors: first, that immigrants bring not only their labor supply with them, but also their consumption demands; and second, that immigrants may have a comparative advantage in the production of ethnic goods. Using data on the universe of business establishments located in California between 1992 and 2002 matched with Census of Population data, we find some evidence that immigrant inflows boost employment in the retail sector, which is non-traded and a non-intensive user of immigrant labor. We find that immigration is associated with fewer stand-alone retail stores, and a greater number of large and in particular big-box retailers – evidence that likely contradicts a diversity-enhancing effect of immigration. On the other hand, focusing more sharply on the restaurant sector, for which we can better identify the types of products consumed by customers, the evidence indicates that immigration is associated with increased ethnic diversity of restaurants.

It reminds me of a question I ask in econ 101 to discuss how conventional measures of standards of living understate real improvements: "how many of you like Thai food?" Most hands go up. We then get to talk about how access to good ethnic food is a new phenomenon for a lot of people. I look forward to reading the entire paper and incorporating it into my notes for next semester.

Addendum: here are some related armchair prognostications from Mike Hammock. Mike points out something I didn't think about: cheaper information via the internet, Google, Facebook, iPhones, Blackberries, etc. will reduce the relative strength of chain restaurants and increase the relative strength of independent restaurants.

Addendum 2: in the spirit of our posts, we've decided to go to India Palace for lunch.

Posted by Art Carden at 10:48 AM in Economics

On a proposed income tax c. 1909

A letter to the editor in the May 11, 1909 NYT:

Of all the propositions regarding taxes, not one of them calls for reduced expenditure. All the schemes have for an object the making of the income equal the outgo, none for the reverse. An income tax is proposed, and, as a bid for mass favor, it is proposed to limit the tax to incomes in excess of $3,000. This leaves the vast bulk of people's income entirely free. The masses being in possession of the great majority of the votes, make the laws for the disposition and control of what the helpless few are mulcted of.

It is as outrageous and absurd to exempt incomes below a certain figure as it would be to exempt all real estate below that value from taxation.

Alas, such a letter could be re-written today with almost no changes except, perhaps, the limit at which income taxes are phased out (or in).

After one hundred years we have come no further in our tax debate than these two paragraphs. How discouraging.

Of course, some might claim that taxation might be even more onerous but for the vigilance of various groups and individuals. Undoubtedly that is true, but it seems a small victory.

Posted by Craig Depken at 10:32 AM in Economics

May 08, 2009

Guest Blogger: Friedrich Hayek

On this, his 110th birthday, we here at Division of Labour are honored to publish a guest post by Friedrich A. Hayek, winner of the 1974 Nobel Prize in economics:

Spontaneous Orders in Nature*
F.A. Hayek

It will be instructive to consider briefly the character of some spontaneous orders which we find in nature, since here some of their characteristic properties stand out most clearly. There are in the physical world many instances of complex orders which we could bring about only by availing ourselves of the known forces which tend to lead to their formation, and never by deliberately placing each element in the appropriate position. We can never produce a crystal or a complex organic compound by placing the individual atoms in such a position that they will form the lattice of a crystal or the system based on benzol rings which make up an organic compound. But we can create the conditions in which they will arrange themselves in such a manner.

What does in these instances determine not only the general character of the crystal or compound that will be formed but also the particular position of any one element in them? The important point is that the regularity of the conduct of the elements will determine the general character of the resulting order but not all the detail of its particular manifestation. The particular manner in which the resulting abstract order will manifest itself will depend, in addition to the rules which govern the actions of the elements, or their initial position and on all the particular circumstances of the immediate environment to which each of them will react in the course of the formation of that order. The order, in other words, will always be an adaptation to the large number of particular facts which will not be known in their totality to anyone.

We should note that a regular pattern will thus form itself not only if the elements all obey the same rules and their different actions are determined only by the different politions of the several individuals relatively to each other, but also, as is true in the case of the chemical compound, if there are different kinds of elements which act in part according to different rules. Whichever is the case, we shall be able to predict only the general character of the order that will form itself, and nont the particular position which any particular element will occupy relatively to any other element.

Another example from physics is in some respects even more instructive. In the familiar school experiment in which iron filings on a sheet of paper are made to arrange themselves along some of the lines of force of a magnet places below, we can predict tht e general shape of the chains that will be formed by the filings hooking themselves together; but we cannot predict along which ones of the family of an infinite number of such curves that define the magnetic field these chains will place themselves. This will depend on the position, direction, weight, roughness or smoothness of each of the iron filings and on all the irregularities of the surface of the paper. The forces emanating from the magnet and from each of the iron filings will thus interact with the environment to produce a unique instance of a general pattern, the general character of which will be determined by known laws, but the concrete appearance of which will depend on particular circumstances we cannot fully ascertain (emphasis added).

*-Excerpted from Law, Legislation, and Liberty, vol. I: Rules and Order, pp. 39-40. Chicago, University of Chicago Press, 1973.

Posted by Art Carden at 10:21 AM in Economics

Should we read Marx? Or Mises and Hayek?

My contribution to the Foreign Policy debate is here.

Posted by Art Carden at 09:19 AM in Economics

May 07, 2009

Now available for your listening pleasure

My hourlong discussion on free banking this morning with Mike Beitler is now available here.

Posted by Lawrence H. White at 09:43 PM in Economics

Why We Fight: Classical Education, Liberal Education, and Classical Liberal Education*

A lot of us are probably neck-deep in papers, exams, grading, and all of the stuff we get paid for (as one of my grad school mentors said once, we teach for free but we get paid to grade). I found this story about St. John's College encouraging. Here's a capsule, courtesy of Windsofchange.net:

During WWII the Navy considered seizing the campus of St. John's via eminent domain in order to expand the Naval Academy. The fledgling New Program based on the great books of western tradition had just recently found a home there, on a campus whose oldest building was constructed before the Revolution, and with funding precarious, any move would probably kill this controversial endeavor outright.

A small delegation headed by Jascha Klein was sent to Washington to try to dissuade the government from seizing the campus. They entered the office of the Secretary of the Navy, who brusquely told them, "You have exactly one minute to tell me why I shouldn't use your buildings to help the Academy in war time."

Jascha Klein silently took out his pipe and began filling it with tobacco. He lit the pipe and checked to see if it was drawing well. Then, after 55 seconds had passed, this renowned scholar who had fled Hitler stood up and went to the door.

Turning, he said, "Because without what St. John's stands for, this country is not worth defending against the Nazis."

The Navy built the addition across the Severn River instead.

HT: Jeremy Horpedahl.

*-The title of this post is borrowed from Roderick Long's excellent discussion of cooperation versus coercion. In a nutshell, the effectiveness of cooperative institutions is way understated and the effectiveness of coercive institutions is way over-stated.

Posted by Art Carden at 03:11 PM in Economics

Internet radio

I will be live Thursday morning at 10am Eastern / 9am Central on the internet radio talk show "Free Markets with Dr. Mike Beitler". Tune in for the hour, or wait a week for the podcast version to go up. Topics we'll probably discuss: the financial mess, the Great Depression, free banking.

You can listen here to podcasts of Mike's previous shows with Steve Horwitz, Joe Salerno, and Bruce Yandle.

Posted by Lawrence H. White at 12:30 AM in Economics

May 06, 2009

Speaking or Talking? Writing or Typing?

While trying to find ways to avoid grading the piles of papers awaiting my attention (30 econ 101 papers, 15 econ 323 research papers, for those of you keeping score from home), I read William Easterly's excellent post "The Vortex of Vacuousness." Easterly takes the development community to task for using a lot of words to sound profound while saying nothing substantive. Of course, one can say the same thing about academic writing. Here's my Lifehack.org archive, which has a few articles about writing. I've tried to expunge the meaningless and trite from my own writing (not always successfully), and I try to teach my students to do the same. If only politicians would do the same!

Posted by Art Carden at 12:05 PM in Economics

Guerrilla Economics: Chicken in Memphis

Controversy abounds over a decision by the local KFC franchisee to not offer grilled products because retrofitting existing restaurants would be too expensive. Taking my cue from Don Boudreaux, I sent the following to the local paper:

In its discussion of the local KFC franchisee's decision not to offer grilled products because the special grills would be too expensive, the Commercial Appeal editorialized on May 6 that "it seems reasonable to invest money now for customers who might still be around to buy the product several years later."

Perhaps. If the Commercial Appeal is right, then the local KFC franchisee has missed an opportunity to turn a tidy profit by selling grilled products. This means that there is an opportunity for KFC's critics to earn profits by offering their own grilled chicken. If they don't, we can safely conclude that the KFC franchisee has made the right decision.

Competition means that unexploited profit opportunities do not stay unexploited for very long. If offering grilled products would be a good business decision, then I encourage the KFC franchisee's critics to stop squawking, enter the market, and show us all the error of our ways by earning profits in the market for grilled chicken.

Posted by Art Carden at 10:45 AM in Economics

May 05, 2009

Institutional Innovation: A Private Airport in Branson

Story here. It isn't perfectly anarcho-capitalist--the airport will be getting a small fee from the city for every passenger--but it's a step in the right direction. HT: Betsy Carden.

Posted by Art Carden at 05:33 PM in Economics

Making crime pay c. 1909

The May 5, 1909 NYT reports:

BATON ROUGE - Elmore Williams...was sentenced in De Soto parish yesterday to one hour in prison for involuntary manslaughter and was taken to the State Penitentiary immediately to serve his term.

Williams made more money in serving his sentence than he had ever made in the days of his life. On his discharge he got the customary $5 in cash, a new suit of clothes, and a pair of shoes.

Posted by Craig Depken at 02:13 PM in Economics

History repeats itself c. 1909

The May 5, 1909 NYT reports on the forthcoming monthly Bulletin of the Chamber:

Comparing the records of 1908 with those of 1858, a most remarkable parallelism is revealed. They were both years of partial recovery from devastating panics that had swept the country in the years preceding. The financial crises of 1857 and 1907 not only occurred exactly fifty years apart, but they presented points of striking resemblance, so that of all the panics of the country no other two had more in common. There were the same antecedent years of immense gold production with its attendent speculation and inflation of prices. there was the same multiplication of banks and expansion of banking credits. There was the same enterprise in railroad extension. There was the same waste of capital in unproductive works. Preceding the panic of 1857 occurred the Crimean War; preceding that of 1907 occurred the war between Russia and Japan; both were heavy drains upon the world's resources.

So, let's go forward another 100 years. Although I am not a macroeconomist, here's my list of parallels from 1907 and 1857:

Immense increase in the money supply with its attendent speculation and inflation of (certain) prices

Multiplication of ("shadow") banks and expansion of banking credits

Enterprise in technological gadgets (akin to railroads? I am not sure)

Waste of capital in unproductive commercial and residential building and other marginal projects?

Wars in Iraq and Afghanistan

Hmmm.....maybe the Austrians are onto something.

Posted by Craig Depken at 02:05 PM in Economics

Weeeee Drink and We Pillage and We Do What We Please....

I'm organizing a symposium on Peter Leeson's The Invisible Hook at the Southerns in November. More details are sure to follow, but this is about what I'm expecting.

For now, here's Eric Cartman and the Somalian Pirates (NB: salty language).

Posted by Art Carden at 09:36 AM in Economics

A Pet Peeve of Mine is ...

... the term "best practices."

Repeat after Hayek:

Today it is almost heresy to suggest that scientific knowledge is not the sum of all knowledge. But a little reflection will show that there is beyond question a body of very important but unorganized knowledge which cannot possibly be called scientific in the sense of knowledge of general rules: the knowledge of the particular circumstances of time and place. It is with respect to this that practically every individual has some advantage over all others because he possesses unique information of which beneficial use might be made, but of which use can be made only if the decisions depending on it are left to him or are made with his active coöperation. (empahasis added)

Posted by E. Frank Stephenson at 09:36 AM in Economics

Rhetoric and Rebound After Katrina

Sound and Fury: Rhetoric and Rebound after Katrina.

Abstract:

"Free markets in capital and labor are essential to rapid recovery from natural disaster. Political and rhetorical responses to Hurricane Katrina included denunciation of “price gougers” in the market for gasoline; the arbitrariness associated with anti-price gouging legislation may create uncertainty that reduces the attractiveness of the investment climate."

And FYI, BE Press is doing some innovative stuff. I was able to post this paper to my Facebook page directly from the BE Press site.

Posted by Art Carden at 09:14 AM in Economics

May 04, 2009

Mises Quote of the Day

“Scarcely anyone interests himself in social problems without being led to do so by the desire to see reforms enacted. In almost all cases, before anyone begins to study the science, he has already decided on definite reforms that e wants to put through. Only a few have the strength to accept the knowledge that these reforms are impracticable and to draw all the inferences from it. Most men endure the sacrifice of the intellect more easily than the sacrifice of their daydreams. They cannot bear that their utopias should run aground on the unalterable necessities of human existence. What they yearn for is another reality different from the one given in this world. They long for the ‘leap of humanity out of the realm of necessity and into the realm of freedom.’ They wish to be free of a universe of whose order they do not approve.”

Mises, Socialism, p. 214

Posted by Art Carden at 12:59 PM in Economics

On Fixed Costs c. 1909

The May 4, 1909 NYT reports on a change in the fixed costs of operating a saloon in Baltimore, MD:

Five hundred saloons in Baltimore have been put out of business by the increase in the license fees from $500 to $750 per year [from $12,205 to $18,308 in 2008 dollars]. Many of the proprietors who were unable to pay the increased tax are Germans, who owned beer saloons in the poorer districts. One of these, Paul Mang, for twenty years had kept a saloon.

It is estimated that the new license should increase the city's revenue $1,000,000, but if many more saloon keepers fail to take out licenses the expected large increase in revenue will not materialize.

Do politicians understand that fixed costs matter? Or do they just not care?

Posted by Craig Depken at 11:03 AM in Economics

Cowen & Tabarrok steal APEE logo!

______________

Posted by Robert Lawson at 09:06 AM in Economics

Pass a Law, Any Law, Fast! State Legislative Responses to the Kelo Backlash

"Public use and just compensation are the most commonly discussed protections of individual rights against the takings power, but another potentially important check is federalism."

That is the issue taken up in my new paper wiih Todd Jewell and Noel Campbell, just published in the Review of Law and Economics.

ABSTRACT: In Kelo v. City of New London , the U.S. Supreme Court left it to the states to protect property against takings for economic development. Since Kelo, thirty-seven states have enacted legislation to update their eminent domain laws. This paper is the first to theoretically and empirically analyze the factors that influence whether, in what manner, and how quickly states change their laws through new legislation. Fourteen of the thirty-seven new laws offer only weak protections against development takings. The legislative response to Kelo was responsive to measures of the backlash but only in the binary decision whether to pass any new law. The decision to enact a meaningful restriction was more a function of relevant political economy measures. States with more economic freedom, greater value of new housing construction, and less racial and income inequality are more likely to have enacted stronger restrictions, and sooner. Of the thirteen states that have not updated, Arkansas, Oklahoma and Mississippi are highly likely to do so in the future. Hawaii, Massachusetts and New York are unlikely to update ever if at all.

Berkeley Electronic Press has the paper here (gated, but no charge). Also see my earlier, non-technical paper with Sasha Totah in The Independent Review. And here is my opinion about takings for economic development.

Posted by Edward J. Lopez at 06:58 AM in Economics

May 02, 2009

On Newspapers c. 1909

As the newspaper industry seems to be headed for restructuring there are many who bemoan the loss. Perhaps there is good reason to be concerned about fewer people digging around the halls of governments at all levels for scandal and shenanigans, but if the newspaper industry goes away it had a pretty good run.

The May 2, 1909 NYT reports:

Newspapers date back rather further than most people would likely to believe. It is nearly twelve centuries now since the first one was put in its appearance, although it was vastly different from the news sheet of modern times.

The Chinese deserve the credit for having first conceived the idea of giving the news to the public. In 713 a Chinaman with a literary bent began distributing what was called The Tching-Pao - The Peking Gazette - "News of the Capital," and he continued to issue the crude news sheet until 741 in the T'ang dynasty of the Chinese capital. for centuries this news disseminator has appeared daily.

However, this cannot be said to be a direct relative of the modern newspaper by example of direct descent. The newspaper of today is in fact of composite origin. In the sixteenth century it was represented by news sheets - single folio sheets, each dealing with a single news subject. The first dated examples of these appeared in 1498, and there are extant to-day some 800 examples that appeared prior to 1510.

Posted by Craig Depken at 03:41 PM in Economics

Tax policy c. 1909

I was at a strategic planning retreat all day yesterday so I am catching up on my normal reading. An editorial concerning new taxes in England, published in the May 1, 1909 NYT, rings familiar:

The new taxation provided for to meet an estimated deficit for 1909 of nearly $80,000,000 is startling enough, especially in the proposed supertax of 6 pence in the pound on all incomes, earned or unearned, exceeding $25,000 yearly, which would subject people of moderate wealth to an income tax of 8 per cent. in addition to all their other heavy taxation. To offset this there is a proposed abatement to all whose incomes are less than $2,500 of $50 for each child under 16 years of age.

So, England proposes to increases the taxes on the wealthy and to offset the pain the proposal is to reduce taxes on the poor? I am always scratching my head at this policy prescription - Harm Person A through increased taxation and alleviate Person A's pain by giving a tax break to Person B. How does that square? The politicians who can pull this one off have an impressive set of rhetorical skills.

Who knew that the child tax credit was alive and well under British Labour one hundred years ago?

However, if you have any familiarity with this "series" you know that there's more:

Mr. Asquith's plan of old-age pensions, which was adopted by a vote of 315 to 10, seemed extreme. It provides for the payment of from one to five shillings weekly to all persons over 70 years of age, who have dwelt in the United Kingdom twenty years, and possess less than $150. The cost of this Socialistic scheme was estimated at $30,000,000. It has turned out to be very much more. But Mr. Lloyd-George's Socialistic plans go much further.

In the United States in 1909, life expectancy was fifty years. After having dwindled the number of people who would qualify for old-age pensions in England the plan was still going to cost more than $30m?!? How is that possible?

Thus, when the United States implements its old-age pension plan and other "entitlement" programs there is at least some evidence that such programs always come in over budget.

But wait, I say in my best Billy Mays impression, there's more:

The new stamp tax on stock transactions, the enormously increased taxes on spirits and tobacco, the heavily augmented death taxes, which were already enormous; the increased rates on motor cars, all excite great indignation.

Perhaps folks today think that many of the taxes they implement, say, a tobacco tax to fund children's health care, are clever applications, but it appears that such taxes are just a continuation of a century-long effort to extract consumer and producer surplus from private individuals engaged in voluntary exchange in order to transfer this surplus to favored groups through involuntary means.

Hope and change? Perhaps less change than was originally advertised.

The last line of the editorial:

Truly Merry England is merry no more.

Posted by Craig Depken at 02:45 PM in Economics

May 01, 2009

Revealed Preference

As part of my research on the economic history of the South, I've been reading a lot of work by cultural, intellectual, and social historians. It's absolutely fascinating, and every so often I come across passages that illustrate important economic principles. Here's a passage suggesting that people prefer modernity to pastoral life:

"...despite their cultural objections to the New South program, the Agrarians offered no practical alternatives other than a romanticized historical vision of the country life that Depression-era southerners were then fleeing by the thousands." p. 121 of James C. Cobb, Away Down South: A History of Southern Identity.

Posted by Art Carden at 02:51 PM in Economics

Freddie Mac job opening.

From the JOE:

"My contribution...substantial."

At Freddie Mac, you'll play a key role in our nation's economy as you make home possible. A vital component in the secondary mortgage market, Freddie Mac has made home ownership and rental housing more accessible and affordable for over 50 million families across America.

As a Senior Risk Modeling Manager, you will provide essential support for credit risk model analysis and loan loss forecasting reviews. Specific functions will include, but are not limited to, performing detailed model reviews and validation procedures and conducting quantitative analysis to support the risk oversight, management and modeling functions. Your particular focus will be on models related to the retained portfolio, including repayment, term structure, derivatives valuation and capital models.

Can't even think up a joke about this one.

Posted by Robert Lawson at 02:10 PM in Economics

I Expect to See This in Roger Garrison's "Austrian Business Cycle Theory" Lecture at Mises U

Liquidating malinvested capital by destroying houses in Southern California. It's almost like it's taken directly from Roger Garrison's "Ivan and the Brickyard" example.

Posted by Art Carden at 09:20 AM in Economics

April 30, 2009

Paper Idea: "Choose Life" License Plates and Abortion

I'm fascinated by the perpetual push-and-pull among interest groups trying to use the state to further their causes, and I'm especially interested in claims about causal relationships with dubious empirical support (see this post about the alleged effects of premarital cohabitation, for example). Debates about "Choose Life" license plates are a case in point. Some opponents of abortion argue that it is a question of religious freedom. Opponents of the license plate suggest that they represent government endorsement of specific policies. Reason has more, and anyone who has ever seen a PSA sponsored by the Ad Council won't be shocked that the government chooses sides all the time.

That leads us to a testable empirical hypothesis: exploit cross-state variation in adoption of "Choose Life" license plates to see whether they have had a measurable impact on the number of abortions. Data on abortions should be obtainable from the Guttmacher Institute; a minute or two of playing with Google wouldn't give up the years in which the states adopted the license plates, but that shouldn't be too hard to find out.

Posted by Art Carden at 06:37 PM in Economics

If it matters, measure it!

The Fraser Institute is launching a new contest to identify economic and public policy issues which still require proper measurement in order to facilitate meaningful analysis and public discourse.

The Essay Contest for Excellence in the Pursuit of Measurement is an opportunity for the public to comment on an economic or public policy issue that they feel is important and deserves to be properly measured. Sponsored by the R.J. Addington Center for the Study of Measurement.

A top prize of $1,000 and other cash prizes can be won by identifying a vital issue that is either not being measured, or is being measured inappropriately. Acceptable entry formats include a short 500-600 word essay, or a short one-minute video essay.

Complete details and a promotional flyer are available at: http://www.fraserinstitute.org/programsandinitiatives/measurement_center.htm.

Entry deadline is Friday, May 15th, 2009.

Enquiries may be directed to:

Courtenay Vermeulen
Education Programs Assistant
The Fraser Institute
Direct: 604.714.4533
courtenay.vermeulen@fraserinstitute.org

Posted by Robert Lawson at 08:17 AM in Economics

April 29, 2009

A proposal to outlaw banking as we know it

Larry Kotlikoff and Ed Leamer, writing at Forbes.com on Friday, propose to make the financial system safer by outlawing all intermediation funded by debt, i.e. outlaw ordinary banks, thrifts, finance companies, and insurance companies. The only intermediaries allowed would be mutual funds, where all customers are shareholders. If you think I'm exaggerating, read it yourself. And yes, to all apperarances this is a completely serious rather than a Swiftian proposal.

I'm happy to see that the financial crisis has widened the scope of debate over monetary and banking reform. But this particular proposal would throw the baby out with the bathwater.

They defend the proposal thusly:

If such mutual funds sound revolutionary, they're not. Funds of this kind have been around for centuries.

In truth, no one doubts the viability of mutual funds. The real issue is the desirability of a financial system consisting only of mutual funds because it bans debt-based intermediation. Is debt-based intermediation never mutually beneficial? Are there never any good reasons for people to want to hold debt claims on intermediaries? For example, is it never prudent from someone approaching retirement to shift some of their pension funds into TIAA traditional or certificates of deposit with a pre-determined nominal return? Is it never convenient to have a checking account where this morning's account balance is knowable without going online? More generally, shouldn't we presume that there are efficiency reasons why debt-based intermediation has evolved and survived over the centuries even where government guarantees have been absent?

One can readily agree with Kotlikoff and Leamer's suggestion that deposit insurance has over-amplified the share of debt-based intermediation, without concluding that the best remedy is to reduce its share to zero by outlawing it. First let's try taking away the subsidies: no taxpayer-backed guarantees, no intervention to shift losses from holders of debt claims to taxpayers.

Posted by Lawrence H. White at 04:34 PM in Economics

Quote of the Day, Part II: Economics and Anti-Slavery

As part of my work on the slavery and the roots of anti-slavery, I came across this very encouraging quote:

"With the growing popularity of Scottish and Manchesterian political economy, notably Adam Smith's The Wealth of Nations (1776), an increasing segment of public opinion saw slavery as a fetter on economic and social progress." p. 71

Fox-Genovese, Elizabeth and Eugene D. Genovese. 2005. The Mind of the Master Class: History and Faith in the Southern Slaveholders' Worldview. new York: Cambridge University Press.

Have you ever wondered why economics is called "the dismal science?" David Levy and Sandra Peart explain why. A future Econ 323 research paper assignment might be "pick an 18th or 19th century economist and analyze everything he ever said about slavery."

Posted by Art Carden at 02:35 PM in Economics

Selgin on free banking in the Richmond Fed's magazine

An excellent interview with George Selgin by Steven Slivinski appears in the current Federal Reserve Bank of Richmond's Region Focus magazine. (So much for the view that the Fed has a status quo bias?) It covers free banking, the gold standard, the fractional reserve question, and George's recent book on private token coinage. The print version, with a photo, is here. The unabridged version is here.

Posted by Lawrence H. White at 02:11 PM in Economics

Quote of the Day: Louis Brandeis on Vigilance and Liberty

The epigram to chapter 17 of Hayek's The Constitution of Liberty comes from Justice Brandeis:

"Experience should teach us to be most on our guard to protect liberty when teh Government's purposes are beneficent. men born to freedom are naturally alert to repel invasion of their liberty by evil-minded rulers. The greatest dangers to liberty lurk in insidious encroachment by men of zeal, well meaning but without understanding."

Posted by Art Carden at 09:35 AM in Economics

Econ-pwned by Don Boudreaux

From one of our profession's greatest voices of reason and sanity:

"As an American Economist, I Resent Imports of Economic Advice from Abroad."

Posted by Art Carden at 09:02 AM in Economics

April 28, 2009

In a nutshell

Why is it that mainstream macroeconomists find Austrian business cycle theory so difficult to comprehend? Roger Garrision explains, analyzing a Brad DeLong lecture as a case in point. In a nutshell:

In mainstream macro, where business cycles were discussed, capital is assumed to be fixed. In mainstream growth theory, where cyclical movements are assumed away, capital is allowed to grow or to shrink, but it enters the theory as a holistically conceived capital stock.

... [In the Austrian cycle theory] interest rates that are distorted by central-bank policy misguide capital creation and give rise to unsustainable growth. The inevitable bust (in the recent and earlier episodes) is a dramatic manifestation of the growth rate’s unsustainability. To mainstream macroeconomists, the mix of cycles, growth, and the temporal allocation of resources makes Austrian theory appear as a disorienting mishmash.

Posted by Lawrence H. White at 11:20 PM in Economics

April 27, 2009

Alex Tabarrok on 21st Century Economic Optimism

Here's Alex Tabarrok making a solid case for optimism at TED.

Posted by Art Carden at 10:32 AM in Economics

When Stimulus Meets Eminent Domain

And bureacratic expedience is the basis for the takings power...

The city of Eugene [Oregon] is ready to flex its eminent domain muscles to start work this summer on a $6.2 million bicycle and pedestrian bridge over Delta Highway.

The city has acquired all the easements for land it needs to construct the 1,500-foot bridge and approach paths, except for easements on property next to Delta Ponds on Goodpasture Island Road owned by Romania Land Co.

The bridge project will be one of the first recipients of federal economic stimulus funds in Lane County, drawing $2.25 million from the legislation Congress approved in February.

City officials hope to strike a deal to buy easements from Eugene-based Romania without going through condemnation proceedings in court, the city’s senior real property officer, Russ Royer, said Friday.

But to start construction this summer as planned, city officials must show state and federal highway officials that they can obtain possession of all the property needed for the project by the time construction bids are opened in June, Royer said.

Full story.

Posted by Edward J. Lopez at 09:09 AM in Economics

April 26, 2009

Fascinating Propaganda

I found this in the church library today: "The Value of Law Observance: A Factual Monograph." It's a 1930 publication of the Bureau of Prohibition, and though the data don't show what it purports to show, it closes with this brilliant exercise in statecraft:

"In last analysis, critics of prohibition laws and their enforcement are criticizing and indicting the communities, officials, and citizens to whom they refer. It is no just criticism of the laws against homicide to point out that America produces more homicides than any civilized country. It is equally unfair to lay at the doors of the prohibition laws the lawlessness and unbridled selfishness of a too large portion of our citizens who should show strength of character enough not to commit themselves to the theory that they are above the law and will choose only such laws to observe as suit their own convenience and taste."

Translation: when our laws have demonstrable negative unintended consequences, it is the fault of the unworthies who won't play along. Here are two relevant quotes from Steven Landsburg's excellent "Fair Play:"

On Authority and Drug Use:
"Hillary Clinton believes that it takes a village--and by extension, a great federal bureaucracy--to raise a child. Republicans scoff, emphasizing that it takes not a village but a traditional family--while at the same time criticizing the Clinton administration for doing too little to keep kids off drugs; apparently those Republicans believe that it takes not a village but a police state. In the traditional family as I remember it, drug education was supplied by parents, not the government. At any rate, I wish they'd all lay off my daughter. Education about risks is one thing; telling kids that there's a single 'right' response to those risks is something different and more sinister." (p. 30)

(pause to finish off this cup of coffee, my drug of choice)

On the State and the Law
"Beware of those who pontificate about 'the majesty of the law.'
"We live in New York State, where they've outlawed those little clicky things on the gas pumps--the ones you use to keep the gas flowing while you walk around to check your oil. At some moment in the past, some New York State legislator must have gathered some colleagues around him and said 'We've got to do something about those little clicky things,' and they all nodded sagely. That's the majesty of the law." (p. 213)

Posted by Art Carden at 05:51 PM in Economics

April 25, 2009

Deadweight Loss

I'm working on a paper while keeping one eye on the ESPN.com Gamecast of the Cardinals-Cubs game. It has an interesting feature in that it gives a predicted winner and estimates the probability of victory in real time. For example, it's the top of the 6th with two out, no one on, and the Cardinals winning 3-1 in St. Louis. The probabilty of a Cardinals victory is 84%. But Reed Johnson just singled, knocking the probability down to 83%. My first thought when I saw that was that someone somewhere is losing the opportunity to make gobs of money taking real-time bets on these games. Regulation prohibits it, and whether nationwide real-time wagering on sporting events would increase or decrease corruption in the sports world. On one hand, the influx of money involved might increase opportunities for corruption, but on the other hand the increased transparency might also reduce corruption. Some might argue that the recent controversies over steroids suggest that self-regulation monitoring broke down as players refused to monitor one another, but I'm not sure if it should be counted as a success or a failure. How does the rate of baseball players busted for steroids compare to the rate of government officials busted for corruption? I would guess that they compare favorably.

This illustrates how corruption in private enterprise is not a prima facie case for state power. I came across a great quote from C.S. Lewis yesterday that summarizes my views on the modern state: "Aristotle said that some people were only fit to be slaves. I do not contradict him. But I reject slavery because I see no men fit to be masters." I would rephrase this as follows: "Many people say that some people are so irresponsible or evil that they require the state's regulation, oversight, and direction, but I reject statism because I see no men (or women) fit to be their masters."

My rejection of statism is based on what we know about incentives and information. First, coercion distorts incentives, and when we give people the power to do things we like we also give them the power to do things we don't like. Hence, for example, we have people wringing their hands about the Obama administration using powers granted to the Bush administration in ways they don't like. Second, any proposal for intervention has to overcome the knowledge problem. Hayek showed that even under the best of circumstances, the absence of profits, losses, and prices means that no government official can know whether they are creating value or wasting resources. Therefore, to borrow from James Buchanan, our emphasis in designing policy should be on "the institutions of exchange, broadly considered" because it is only under these circumstances that the information needed for socially rational decision-making will emerge.

Posted by Art Carden at 06:16 PM in Economics

Not From the Onion

"Obama asks for ideas on curbing federal spending."

I didn't have to look far. A couple of headlines down, I saw this: "Vicksburg military park to get $2 million in stimulus money." That would be a good place to start. Also, you could cut everything here. And if someone could press ctrl+A DEL on all of this, it would be another step in the right direction.

Posted by Art Carden at 05:41 PM in Economics

Waiting, or Paying, to Exhale

Here's George Reisman. Of course, I'm not sure whether there are Coasean bargains that ensure optimal breathing. Now that carbon dioxide is a pollutant, perhaps more efficient ways to tax breathing would include taxes and restrictions on exercise and exercise equipment?

At what point do people say "this is silly?"

Posted by Art Carden at 04:58 PM in Economics

April 24, 2009

Markets in Everything: Temporary Resident Edition

OCEANSIDE, Calif. -- The fragrance of sage-scented candles and sounds of jazz fill the air of a 2,600-square-foot house a block from the beach. Tiger-striped chairs flank tables crafted from exotic woods. Photos of a chubby baby hang on the walls. Whoever occupies 211 Windward Way, they seem to live the good life.

Too good to be true, in fact. The house is owned by a builder, who hasn't been able to sell it for more than a year. And while someone really does live here, it's as part of an elaborate bit of stagecraft aimed at moving Southern California's echoing inventory of luxury vacant homes.

This $1.2 million seaside pied-a-terre is occupied by Johnna Clavin, a 45-year-old Los Angeles event planner and decorator who has seen business slow. In exchange for giving the townhouse a stylishly lived-in look, she gets to stay there at a steep discount and stands to earn a bonus if the house sells fast.

Source. HT to MR for the markets in everything concept.

Posted by E. Frank Stephenson at 11:30 PM in Economics

Have the Editors of the Onion Read My Paper?!?!

Probably not, but I would like to think they have. The McDonald's part of this StatShot illustrates the point I make in this paper and this article. My apologies for the gutter language.

Posted by Art Carden at 07:01 PM in Economics

Economists on Ethics: Caplan v. Hanson on Liberty and Efficiency

Here are George Mason University economists Bryan Caplan and Robin Hanson debating one another on normative criteria. Caplan argues for liberty, Hanson argues for efficiency.

Caplan vs. Hanson Debate from Mark Twain on Vimeo.

Posted by Art Carden at 02:39 PM in Economics

Guerrilla Economics: Student Housing at Rhodes

Mike Hammock posts a column by our student and regular lunch companion Brent Butgereit on increasing the efficiency of the on-campus housing allocation at Rhodes. Give it a read--it's an excellent article.

Posted by Art Carden at 09:07 AM in Economics

April 23, 2009

The 41,250% return c. 1909

The April 23, 1909 NYT reports:

As a joke, Frederick Adams, a youth of this town [Burlington], bid 40 cents for an old trunk put up at auction at a public sale...Adams examined his purchase, and found in the false bottom of the trunk a secret drawer stuffed with banknotes and gold coins, amounting to $165.

The trunk is said to have belonged to old Christopher Rigg, once a rich resident of this city, who had little faith in banks. The result of Adams's find has set every purchaser of goods at the sale at work examining their purchases.

Similar stories involve those who lived through the Great Depression as individuals hoarded cash in all sorts of weird places. A personal experience included spools of yarn up for sale at $0.25 each. One person purchased the lot but, in a fit of consciousness, brought them back after discovering $100 notes hidden within them - the total was around $1500.

If you hide your money in weird places, please leave a note to your heirs so that they don't have to rely upon the "goodness" of others.

I know, the title is a bit misleading because I didn't calculate the risk-adjusted return.

Posted by Craig Depken at 11:11 AM in Economics

Auctioning President Obama?

This story out of South Bend, Indiana, describes a relatively rare situation: faculty members tripping over themselves to attend commencement. The reason? President Obama is giving the commencement speech and demand among the faculty has exceeded the seating capacity allotted to the faculty.

The answer?

An economist might suggest that the efficient solution is to auction off the tickets. This would put the tickets in the hands of those faculty who value the President's words the most. At the same time, the funds raised could be used to shore up scholarship funds or to purchase a renewal to a few journal subscriptions at the library.

Rather, the plan is to use a lottery to allocate the tickets. This, in turn, will create a healthy secondary market for the tickets where faculty make transactions behind the closed doors of their offices or late at night in the parking garage.

Thus, some faculty stand to receive a "windfall" profit generated by the President. Will there be calls by the White House to discourage such reallocation of tickets, much as the Congress called to discourage the secondary market for inaugural tickets?

While the total potential market for faculty commencement tickets seems fairly small, upward to 400 tickets, I wonder if that is enough for the tickets to show up on eBay or StubHub. Will keep tabs on it when I find the time, but if a reader discovers any tickets for sale I would appreciate the information.

Posted by Craig Depken at 10:41 AM in Economics

Douglass C. North at Rhodes Tonight

Douglass C. North is speaking at Rhodes this evening at 5:30 in the Orgill Room. Here's a lecture he gave at the National University of Singapore about a year ago.

Posted by Art Carden at 10:04 AM in Economics

Can't We Pass a Law or Something?

Should We Be Doing More To Reduce The Graphic Violence In Our Dreams?

My rating: PG-13.

Posted by Art Carden at 09:50 AM in Economics

April 22, 2009

A Chicken (and cell phone) in every pot!

SafeLink Wireless is a government supported program that provides a free cell phone and airtime each month for income-eligible customers.

HT: Todd.

Posted by Robert Lawson at 11:42 AM in Economics

April 21, 2009

Failure in the law of one price c. 1909

The following letter was published in the April 21, 1909 NYT:

In your edition of Sunday you say that the London bakers have been compelled to raise the price of bread to 6 1/2 d. (13 cents) for a four-pound loaf. The price here for a loaf of bread weighing thirteen ounces is 6 cents. Would some one explain why we should pay more than double the price here, when the wheat has to be bought here and shipped to England?

The price in England was 0.2 cents/oz whereas in New York the price of bread was .46 cents/oz. If we grant the letter writer a greater cost of wheat in England than in the U.S. and assume that the other labor and capital costs of producing bread were essentially the same, there are two other explanations for the distortion in price. First is the exchange rate. The second is if the demand for bread was that much greater in New York than in London.

This particular letter writer likely doesn't care about our answers but are there any other explanations I am missing?

Posted by Craig Depken at 04:52 PM in Economics  ·  Comments (4)

What I've Been Writing Lately: Property, Prices, and the Environment

Forbes.com ran this article today. It's based on the paper I linked to yesterday on Economic Calculation in the Environmentalist Commonwealth. Due to space constraints, I wasn't able to include the reading list, but here are some links to additional reading and podcasts:

Daniel Benjamin, “Eight Myths of Recycling”

Julian Simon, The Ultimate Resource 2

Ludwig von Mises, “Economic Calculation in the Socialist Commonwealth”

Steven Landsburg, “Why I am Not an Environmentalist: The Science of Economics Versus the Religion of Ecology”

Michael Munger and Russell Roberts, “Munger on Recycling”

Michael Munger, “Orange Blossom Special: Externalities and the Coase Theorem”

Michael Munger, “Think Globally, Act Irrationally: Recycling”

Bruce Yandle and Russell Roberts, “Yandle on The Tragedy of the Commons and the Implications for Environmental Regulation”

Garrett Hardin, “Tragedy of the Commons”

Bryan Caplan, “Externalities”

TED talks by Al Gore and Bjorn Lomborg.

Posted by Art Carden at 02:31 PM in Economics

Notes on the State

My notes for today's discussion in Classical & Marxian Political Economy are below the fold. We're discussing chapters three and four of Douglass C. North's Structure and Change in Economic History in anticipation of his visit on Thursday evening. On Thursday, we're discussing the working paper on which his new book with John Wallis and Barry Weingast is based.

Read More »

“…an organization with a comparative advantage in violence, extending over a geographic area whose boundaries are determined by its power to tax constituents. The essence of property rights is the right to exclude, and an organization which has a comparative advantage in violence is in the position to specify and enforce property rights” (p. 21).

A Contrived Example:
Gains from Trade: $10 for the State, $20 for the Citizenry.
Gains from Violence: $20 for the State, $10 for the Citizenry.
State’s opportunity cost of $1 from trade: $2 from violence.
State’s opportunity cost of $1 from violence: $0.50 from trade.
Citizenry’s opportunity cost of $1 from trade: $0.50 from violence.
Citizenry’s opportunity cost of $1 from violence: $2 from trade.

Thus, at any price per unit of violence between $0.50 and $2, the state and the Citizenry will trade. For the state, any price above $0.50 means that they get more by specializing in violence than they get from trade. For the Citizenry, any price below $2 means that they can get more from specializing in trade and then trading for violence. This is a contrived example of how the state and the citizen trade property rights for tax revenue.

What are the leading theories of the state?
Is this productive? It depends on how we think about states.
1. Contractual State: Exchange between citizenry and state. Theory of efficient property rights (p. 22).
2. Predatory State: Expropriation by rulers of the ruled. The state is “the agency of a group or class; its function, to extract income from the rest of the constituents of that group or class” (p. 22); cf. our reading on “Mercantilism as a Rent-Seeking Society.”
a. “The predatory state would specify a set of property rights that maximized the revenue of the group in power, regardless of its impact on the wealth of the society as a whole” (p. 22).

As I see it, the key problem of the state is reconciling the contractual and predatory goals of the state: how do we specify incentives that maximize elite rents while, at the same time, being good for economic growth?

North writes that “(t)he existence of a state is essential for economic growth” (p. 20). How is the existence of a state essential for economic growth?

Obvious: secure private property rights give rise to the price mechanism.

When there are economies of scale in violence, it benefits society to have specialization.

North continues: “the state, however, is the source of man-made economic decline” (p. 20). How do states create economic decline?

Also obvious: arbitrariness alters time preference.

What are the key problems facing economic historians?

“For the economic historian, the key problems are to explain the kinds of property rights that come to be specified and enforced by the state and to explain the effectiveness of enforcement; the most interesting challenge is to account for changes in the structure and enforcement of property rights over time” (p. 21).

The importance of this question grows the more I read Mises and Hayek.

Modeling the State (p. 23)
1. Economies of scale in “protection and justice,” i.e., violence.
2. Price discrimination
3. Competition from other states (external) and from people seeking to co-opt the power of the state (internal).

“…the property rights structure that will maximize rents to the ruler (or ruling class) is in conflict with that that would produce economic growth” (p. 28). Explain.

“In short, the process of growth is inherently destabilizing to a state.” (p. 29). Why? Why is “no growth” also destabilizing?

The Analysis of Organizations in Economic History
North’s (2005) model of social change:
Perceived reality > Beliefs > Institutions > Organizations > Policies > Outcomes > altered perceived reality.

In a limited-access order, the right to form organizations is personal and limited. In an open-access order, the right to form organizations is impersonal and unlimited.
1. Why is it in the best interests of the elites in a limited-access order to restrict the right to form organizations?
2. Why is it in the best interests of the elites in an open-access order to let anyone form an organization?

1968: no essay on the market in the International Encyclopedia of the Social Sciences, or in the "great ideas" volumes of the Great Books of the Western World. Today, there are essays on the market in a variety of scholarly compendia.

Why are transaction costs important, and how does North choose to deal with them?
1. Transaction costs: measurement and enforcement, or “contracts and quality.”
2. Delegation of authority within the bureaucracy (p. 25)
3. Constraint on the state, which implies inefficient rights. Collecting revenue is itself costly.
4. Free rider problems inherent in institutional change account for state stability (p. 31).
5. Thick markets imply that information is embodied in the price.
6. The firm is “that range of exchanges over which the market system was suppressed and resource allocation was accomplished instead by authority and direction” (p. 37, characterizing Coase).
7. How can we infer that firms aren’t purely exploitative? What does this imply about the efficiency or inefficiency of the state?

How do we pick organizational forms?
1. Technology of production
2. Technology of monitoring
3. Prices, profits, and losses reveal which organizational forms are advantageous.
4. Deficiency in the Neoclassical Framework: no theory of ideology.

Further Reading

Hayek, Friedrich A. 1960. The Constitution of Liberty. Chicago: University of Chicago Press.

Hoppe, Hans-Hermann. 1998. The Private Production of Defense. Journal of Libertarian Studies 14(1):27-52. Online.

Mises, Ludwig von. 1957 [1985]. Theory and History: An Interpretation of Social and Economic Evolution. Auburn, AL: Ludwig von Mises Institute. Online.

Mises, Ludwig von. 1990 [2006]. The Idea of Liberty is Western, in Richard Ebeling, ed., Money, Method, and the Market Process: Essays by Ludwig von Mises. Boston: Kluwer Academic Publishers. Mises.org Daily Article, June 23, 2006. Online.

Nye, John VC. 1997. Thinking About the State: Property Rights, Trade, and Changing Contractual Arrangements in a World with Coercion, in John Drobak and John VC Nye, eds. The Frontiers of the New Institutional Economics. San Diego: Academic Press, pp. 121-142.

Weingast, Barry. 1997. The Political Foundations of Limited Government: Parliament and Sovereign Debt in 17th- and 18th-Century England, in John Drobak and John VC Nye, eds. The Frontiers of the New Institutional Economics. San Diego: Academic Press, pp. 213-246.

« Close It

Posted by Art Carden at 11:29 AM in Economics

April 20, 2009

International Free Banking

On Thursday I'll be giving a talk on "Fundamentals of Liberal Monetary Reform: A Case for International Free Banking" at the Friedrich-Naumann-Stiftung für die Freiheit / Institut Liberale colloquium on "Free Currency - The Future of Money" in Potsdam, Germany. Here are the opening paragraphs.

Let me begin by quoting a recent statement, made less than one month ago, that emphasizes the need for international monetary reform and proposes a set of principles for reform. See if you can guess the author:

The outbreak of the current crisis and its spillover in the world have confronted us with a long-existing but still unanswered question, i.e., what kind of international reserve currency do we need to secure global financial stability and facilitate world economic growth …? The above question, … as the ongoing financial crisis demonstrates, is far from being solved, and has become even more severe due to the inherent weaknesses of the current international monetary system.

Theoretically, an international reserve currency should first be anchored to a stable benchmark and issued according to a clear set of rules, therefore to ensure orderly supply; second, its supply should be flexible enough to allow timely adjustment according to the changing demand; third, such adjustments should be disconnected from economic conditions and sovereign interests of any single country. … The desirable goal of reforming the international monetary system, therefore, is to create an international reserve currency that is disconnected from individual nations and is able to remain stable in the long run, thus removing the inherent deficiencies caused by using credit-based national currencies.

The author is not any well-known classical liberal economist, but Zhou Xiaochuan, head of China’s central bank, in a statement entitled “Reform the International Monetary System”. Evidently support for fundamental reform of the international monetary regime is growing. Of course, a key question is: reform in what direction?

Classical liberals can applaud Zhou’s three stated desiderata for a global reserve money: (1) its value should be anchored, (2) its quantity should automatically respond to market demand, and (3) its quantity should not be subject to variation by any national government. Without intending to, Zhou has described three main virtues of the classical gold standard.

In the rest of his statement Zhou unfortunately proposes concrete measures that will never achieve the stated ends. He proposes that a more powerful International Monetary Fund could issue a desirable reserve currency denominated in a revised version of its SDR unit. Such a proposal overlooks some simple basic facts.

Unlike gold, the SDR is not anchored to anything but a basket of unanchored national fiat monies (what Zhou calls “credit-based national currencies,” oddly given that their issue is based on fiat and not on credit in any standard sense). If the SDR were its own fiat unit it would remain unanchored.

Unlike monetary gold, the SDR in either form is governed by no market forces making its quantity automatically respond to demand.

Unlike competitive firms in gold mining, minting, and gold-based banking, whatever the IMF does is inherently determined by politics. The quantity of IMF-issued SDRs will be decided in the political realm, where long-run stability has never been more than an empty promise.

Posted by Lawrence H. White at 04:30 PM in Economics

What I've Been Writing Lately, Part II

Forthcoming in New Perspectives on Political Economy, here's "A Note on Profit, Loss, and Social Responsibility." The abstract:

This short note discusses the role of profits and losses in organizing information. I explore the ethical status of a firm earning losses and argue that to earn a loss reveals important information about the production plans that are likely to be successful. I further argue that the information revealed in a profit-and-loss economy is socially beneficial.

Posted by Art Carden at 04:02 PM in Economics

What I've Been Writing Lately

Just in time for Earth Day, here's "Economic Calculation in the Environmentalist Commonwealth," under review at the Quarterly Journal of Austrian Economics. The abstract:

Do environmental initiatives like carbon accounting provide a viable alternative to monetary calculation based on profit and loss? Economic insights about calculation and imputation suggest that they do not provide a reliable, rational guide to action. Non-monetary calculation of the environmental effects of action runs into the same problems of in natura calculation and commonly-owned means of production. The information needed for rational economizing does not exist when we forsake the price mechanism. A legal regime based on strict private property rights solves environmental problems. Relaxed restrictions on property rights can generate environmental benefits and reduce our contribution to environmental degradation. Examples include the elimination of restrictions on housing markets and privatization of municipal recycling and garbage collection.

Cross-posted at the Mises Blog and The Beacon.

Posted by Art Carden at 03:01 PM in Economics

Rent-seeking c. 1909

The April 20, 1909 NYT publishes a letter to the editor that contains rhetoric of which we are all to familiar today. In this case, the appeal is to license chauffeurs who are gripped by "speed mania" and who are thought of as "thieves" and "grafters":

The only solution of the speed mania lies in the license. There are at present some thirty thousand chauffeurs licensed in new York State. Of this number how many would be left if they had to pass a thorough examination? There are plenty of so-called chauffeurs who only know how to start and stop their cars, but absolutely nothing about the car in general.

I admit that I am not able to tell if the letter writer is talking about private chauffeurs who are hired by individuals on a nearly full-time basis or if the letter-writer is talking about essentially taxi drivers. Perhaps it is a mix? After all were there 30,000 private drivers in New York State in 1909? Regardless, it is not clear why knowledge of the car aids in the performance of a chauffeur. I wager that many chauffeur's today know very little about the cars they drive. If the chauffeur is hired by a single household to drive them about town, then the quality of the chauffeur, or lack thereof, would seem to be monitored by the person paying the bills. If the chauffeurs are generally driving on-off fares, there might be an information asymmetry problem, but it is not clear how exams will necessarily solve that problem.

How to ensure a good chauffeur?:

By all means have the license hard to procure, so that only men of good character, habits, eyesight, hearing, knowledge, and judgment who are able to pass such an examination be allowed to operate automobiles on our crowded highways.

All of this has some aesthetic appeal but such normative criteria such as "good character" and "good habits" would seem to be less important than "driving skills" with which the chauffeur and his fare are a bit more safe.

Those familiar with rent-seeking activities should feel good, as the last paragraph comes to the point of the licensing efforts:

The better class of chauffeurs, among whom I count myself, hope for some reform in the way of granting a license. We are tired of being called thieves, grafters, and a great many other degrading names.

Of course, the letter writer is an excellent driver. The reform of the granting of a license seems more about constraining the supply of chauffeurs and thereby increasing the wages chauffeurs can command than about the safety of the riding public.

Posted by Craig Depken at 10:12 AM in Economics

Anti-competition economics c. 1909

The April 20, 1909 NYT reports on plans by Major League Baseball to engage in "war" on an "outlaw league" which threatened to undermine the monopoly status of MLB:

War on the California State League, which is classes as an outlaw league, was declared by the National Baseball Commission in session here [Cincinnati] late this afternoon. An assessment on the sixteen clubs of the two major leagues will be made to provide a substantial sum to be expended in the fight to be made on the California League.

Baseball has yet to be granted their "antitrust exemption" however the juxtaposition to the steel wire story couldn't be more telling.

Posted by Craig Depken at 09:59 AM in Economics

Anti-trust economics c. 1909

The April 20, 1909 NYT reports on how the market forced the steel trust to adjust prices downward in the face of competition:

The American Steel and Wire Company, which is a subsidiary of the United States Steel Corporation, announced yesterday a reduction in all classes of steel wire products of 10 cents per 100 pounds, which is equivalent of $2 a ton.

Cuts in steel wire products were made by independents several weeks ago, and were met unofficially by the Steel Corporation.

No government bureaucrats dictating that the mega-corp lower their prices. Rather independent producers lowered price and the steel trust, notwithstanding its presupposed market power, responded in kind.

Posted by Craig Depken at 09:56 AM in Economics

April 19, 2009

Minimum Wages Again

A debate over the merits of the minimum wage rages in the "letters to the editor" section of the local newspaper. Since Movable Type hates Mac, I can't give links. Here's a letter I sent today:

"Regarding the letter on wages of April 19 ("Raise Wages, and Prosper"), if we can in fact do well and do good with a minimum wage free lunch, are we not ignoring our moral duties by stopping at the "prevailing wage?" Would we not do well and better still by imposing a Shelby County minimum wage of $1,000,000 per hour?

The idea that workers exposed to a minimum wage benefit from gains from trade that are transferred from their employers has some merit but it is ultimately crushed under theory--people respond to incentives, and they make decisions in response to marginal costs and marginal benefits--and evidence. Interested readers can enter the following Google search string (Neumark Wascher minimum wage) to find a free version of a study by economists David Neumark and William Wascher in which they survey the empirical research on the employment effects of minimum wages. The causal effects of a minimum wage are clear: lower employment, higher poverty, less experience, and lower educational attainment.

As a pro-poor, anti-poverty policy, the minimum wage has been tried, measured, and found wanting. I stand by my earlier claim that a prevailing wage ordinance in Shelby County will be a raw deal for the poor."

Posted by Art Carden at 01:21 PM in Economics

April 18, 2009

The Economics and Theology of Aid

William Easterly invites a response to his earlier post on a prayer for the end of poverty that reads "(t)he world now has the means to end extreme poverty, we pray we will have the will." As I read it, the prayer means "the political will to transfer resources from rich people to poor people, using force if necessary." The response closes with the following question: "What is the theology of not vigilantly supporting and/or advocating the most effective poverty solutions available?"

It's an excellent question (more on my suggestion in a minute) but my knee-jerk response is to answer a question with a question: "what is the theology of vigilantly supporting and/or advocating anti-poverty programs that are demonstrable failures?" To paraphrase Murray Rothbard, what is the theology (and ecclesiology) of having outspoken opinions about economic issues while not knowing any economics? In his excellent book The Vision of the Anointed: Self-Congratulation as a Basis for Social Policy, Thomas Sowell speaks of an imperviousness to evidence that, I'm afraid, characterizes a lot of advocates of anti-poverty programs. Note that I did not say "people who wish to eradicate poverty" because people who wish to eradicate poverty and supporters of anti-poverty programs aren't necessarily the same people. While we're speaking in Biblical terms, a lot of aid programs in the last five decades have given us a lost half century of terrible stewardship.

So what are the alternatives to failed aid programs? I offer, once again, Lant Pritchett's Let Their People Come: Breaking the Gridlock on Global Labor Mobility, available for free download from the Center for Global Development. Pritchett estimates the global gains from an international free market in labor, shows that they dwarf any and all gains from even the most successful aid programs, and casts the international immigration in explicitly moral terms. I would therefore rephrase the question asked at the end of Jonathan Denn's response to William Easterly: what is the theology of vigilantly supporting and/or advocating the use of force to prevent mutually beneficial voluntary exchanges, particularly when those voluntary exchanges have the potential to carry us a long way toward the elimination of extreme poverty?

Along those lines, here's a picture I drew on my office whiteboard after reading Pritchett's book (meme HT: www.thisisindexed.com). While she was visiting Rhodes, Deirdre McCloskey kindly asked to be added to the intersection. This perhaps suggests a new personal mission statement: make both sets bigger, and increase the degree to which they overlap.

Posted by Art Carden at 04:14 PM in Economics

April 17, 2009

Cavalcade of Miscellany

Courtesy of Reason.tv, here's Pete Leeson on The Invisible Hook:

The DMV will now service your GM or Chrysler Vehicle:

NB: if we let GM & Chrysler go under and liquidate their inventories at low prices, there will be an entrepreneurial opportunity for people who know how to fix them. People like, say, laid-off GM and Chrysler employees.

And here's Robert Higgs:

Posted by Art Carden at 02:12 PM in Economics

April 16, 2009

First Class Inefficiency

That's the title of my op-ed (with students Ben VanMetre and Nick Abraham) on Forbes.com today. You can find the whole op-ed here. My favorite part:

This may be--and likely is--true. But we don't know if Saturday delivery is a good idea or not because the post office is a public monopoly.

As Nobel Laureate F.A. Hayek pointed out, the market is a discovery process. While they try to meet consumer demands and earn enough to cover the cost of production, entrepreneurs figure out the right combination of expensive inputs--including operating hours.

For example, Beloit, Wis., where we live, has several diners. Some are open only for breakfast and lunch; others are open all day. It makes no sense to ask which diners are open for the "right" hours. Over a period of years, each of the establishments tried out different combinations of hours until they discovered operating hours that worked best for them given their product mix, customer base, cost structure and competition. It is the market process, and only the market process, that can tell us if a business' current operating hours make sense.

Congratulations Ben and Nick!

Posted by Joshua Hall at 12:55 PM in Economics

Conformity, Virginity, and Booze

Ian Ayres offers an interesting post on conformity: people tend to conform to what they think others are doing, and he stresses the implications for public service announcements about teen sex and drug use. In a similar vein, here's Jeffrey Miron and Elina Tetelbaum on the ineffectiveness of the drinking age.

Various flyers about drugs and alcohol I've seen around campus are putting Ayres's point into practice. They don't encourage people to "be different." They point out that according to surveys the College has done, binge drinking at Rhodes is relatively rare. I'll be interested in seeing how effective the campaign is in a few years.

Posted by Art Carden at 11:39 AM in Economics

April 15, 2009

Slumping Towards Socialism: The Bane of Unfettered Democracy

(I'm feeling cranky this morning, so I need to vent. The URLs herein are intended for the newcomers to this forum.)

With the increased public regulation of the financial, insurance, and even manufacturing industries in our economy, as well as an expanded role of the Federal Reserve Bank in directly subsidizing specific businesses within our faltering financial industry, our Economic Freedom Index will surely be falling significantly next year. Our Civil Liberties Index may well follow suit (though in truth, they are not that far apart conceptually).

I sense a palpable change in personal philosophy among the rank and file U.S. citizenry, fueled by the main stream media. Our uniquely American economic and political freedoms are now simply looked at by many citizens as some grand but somehow failed social experiment that has apparently run its course.

Our lack of vigilance as a free society has slowly allowed freedom preserving institutions to be eroded, with their decreasing potency allowing a much more volatile and less predictable process for creating prosperity. The eyes of our complacent citizenry see a decreasingly meritocratic determination of income generation in society, resulting in a less egalitarian distribution of economic status--life just doesn't seem fair under capitalism anymore.

Yet, our people fail to connect their unfulfilled utopian vision for the American experience to the demise of individual freedoms in American society. Prosperity, apparently, should be automatic, consistent and costless. Change was demanded; democracy was exercised; the people's voice was heard. The role of government in American economic lives has now substantially expanded.

Without preserving the constitutional protections against the encroachment of government upon individual freedoms, the noble institution of democracy simply becomes an energy efficient vehicle for transporting us down the short highway to the land of unfettered socialism.

Comparing societies throughout history has shown that capitalism is the superior institution for channeling individual self-interest towards producing prosperity. Further, capitalism is more effective than democracy at promoting individual well-being in society, especially for women.

But the institution of capitalism does not deliver perfection. Its preservation and maintenance is not free--it requires eternal vigilance. Capitalism is simply the institutional arrangement with the lowest social opportunity cost.

Perhaps the American people will soon awaken from their intellectual stupor, ignore the media, and demand from their elected representatives that all their freedoms be returned. Maybe...

Posted by Mike Stroup at 01:04 PM in Economics

John O'Sullivan's Conversation with F.A. Hayek

F.A. Hayek Interviewed By John O'Sullivan from FEE on Vimeo.

Posted by FEE, HT: Jeff Tucker. We're talking about Hayek's article "The Use of Knowledge in Society" in Classical & Marxian Political Economy tomorrow.

Posted by Art Carden at 09:30 AM in Economics

Tax Day tidbits

A couple of quirky things I've learned this year about taxes in these United States.

(1) The social security payroll tax taxes your first $102,000 (in 2008) of wages at a rate of 12.4% -- 6.2% which you see on your paystub and 6.2% paid by your employer without you seeing it. Any dollar earned over $102,000 is not taxed by social security. Ok. That's easy enough.

But what if you have two jobs during the year earning less than $102,000 but that sum to more than $102,000? Both employers will remit the 12.4% tax to social security and you will have overpaid because you're not supposed to be taxed an any earning over $102,000. This is not a problem for you the individual taxpayer as your overpayment (anything greater than 6.2% of $102,000) is treated as a credit on your 1040 (line 65) and can be used for other income taxes or be refunded. But what about the two employers who paid 6.2% of your behalf? Shouldn't the employers be allowed some kind of credit for overpaying for their part? Answer: No. The employers are screwed here.

(2) If you move residences from one state with an income tax to another with an income tax it is all but impossible to avoid some double taxation. Wage and salary income is easily divided between State A and State B so that you pay income taxes only on the earnings made while resident in the respective states. But business income (i.e., Schedule C type income) and some interest/dividend/pension income payments can not be allocated to one state or the other. In fact, both states you resided in may tax these same sources of income.

Btw, I had five, count 'em 5, did you hear that? FIVE!, income tax returns to file this year.

Posted by Robert Lawson at 09:07 AM in Economics

April 14, 2009

We Don't Care. We Don't Have To. We're the Phone Company."

We start talking about monopoly in econ 101 today.

Posted by Art Carden at 02:28 PM in Economics

Ought, Can, and Calculation

We're discussing Mises's "Economic Calculation in the Socialist Commonwealth" in Classical & Marxian Political Economy today, and I'm planning to distribute Steve Horwitz's excellent (and short) essay "Ought Presupposes Can." Mises's demonstration of the impossibility of economic calculation without private ownership of the means of production is an incredibly important contribution to social theory, and its implications for the feasibility of government intervention are considerable. Any social policy must be economically possible before it can be considered morally desirable; borrowing Steve's title it has to be shown that there is a "can" before there can be an "ought." The implication of Mises's thesis is that many assumed interventionist "cans" are in fact "cannots." Therefore, a number of interventionist "oughts" have to be eliminated from ethical debate. John Lennon was free to imagine all he wanted and people were free to join him, but in light of the Austrian analysis of a world with "no possessions" he and his cadre of dreamers were wasting their time.

Cross-posted at the Mises Blog.

Posted by Art Carden at 10:22 AM in Economics

Excellent and Vivid Example from Don Boudreaux

What are the differences between trade in drugs, wine, chocolate, and cars?

Posted by Art Carden at 09:56 AM in Economics

What I've Been Writing Lately

Here are a couple of recent pieces:

1. Does Wal-Mart Reduce Social Capital?, based on our paper of the same name. Charles Courtemanche's name should appear as a co-author on this op-ed post-haste.

2. Patriotic Shopping Sprees. Incidentally, there was an interesting article in this morning's WSJ about slowdowns in container traffic at the Port of Los Angeles. Much of the slowdown is attributable to global macroeconomic trends, but there's an important point here about trade: all of those protected auto manufacturing jobs in the midwest are coming at the cost of employment opportunities for longshoremen in Southern California.

3. Stimulating Anachronism, Stifling Innovation. Bailouts aren't a free lunch, and this is just one tiny example. What is seen: more output from government-supported dinosaurs like GM. What is not seen: less output and innovation from new firms like Tesla Motors. Update: Mike sends this. Rent-seeking gives the rent-seekers competitive advantage, which encourages their competitors to rent seek.

4. Time to end war on drugs. The original title was "The Drug War is Reefer Madness."

Posted by Art Carden at 09:31 AM in Economics

April 13, 2009

Joseph Salerno Block Quote of the Day

From his postscript to Mises's "Economic Calculation in the Socialist Commonwealth":

With the impossibility of building up and maintaining a capital structure in the absence of monetary calculation, human economy under socialism comes to consist of super-short and repetitive household processes utilizing minimal capital and with little scope for adjustment to new wants. The result is that time itself--in the praxeological sense of a distinction between present and future--ceases to play a role in human affairs. Men and women, in their capitalless, hand-to-mouth existence, begin to passively experience time as the brute beasts do--not actively as a tool of planning and action but passively as mere duration. Humanity as a teleological force in the universe is therefore necessarily a creation of the inextricably related phenomena of calculation and capital. In a meaningful sense, then, socialism not only exterminates economy and society but the human intellect and spirit as well.

Posted by Art Carden at 11:59 AM in Economics

Mises Block Quote of the Day

From "Economic Calculation in the Socialist Commonwealth," which we're discussing in Econ 323 tomorrow:

To Otto Bauer the nationalization of the banks appears the final and decisive step in the carrying through of the socialist nationalization program. If all banks are nationalized and amalgamated into a single central bank, then its administrative board becomes "the supreme economic authority, the chief administrative organ of the whole economy. Only by nationalization of the banks does society obtain the power to regulate its labor according to a plan, and to distribute its resources rationally among the various branches of production, so as to adapt them to the nation's needs." [18] Bauer is not discussing the monetary arrangements which will prevail in the socialist commonwealth after the completion of the nationalization of the banks. Like other Marxists he is trying to show how simply and obviously the future socialist order of society will evolve from the conditions prevailing in a developed capitalist economy. "It suffices to transfer to the nation's representatives the power now exercised by bank shareholders through the Administrative Boards they elect," [19] in order to socialize the banks and thus to lay the last brick on the edifice of socialism. Bauer leaves his readers completely ignorant of the fact that the nature of the banks is entirely changed in the process of nationalization and amalgamation into one central bank. Once the banks merge into a single bank, their essence is wholly transformed; they are then in a position to issue credit without any limitation. [20] In this fashion the monetary system as we know it today disappears of itself. When in addition the single central bank is nationalized in a society, which is otherwise already completely socialized, market dealings disappear and all exchange transactions are abolished. At the same time the Bank ceases to be a bank, its specific functions are extinguished, for there is no longer any place for it in such a society. It may be that the name "Bank" is retained, that the Supreme Economic Council of the socialist community is called the Board of Directors of the Bank, and that they hold their meetings in a building formerly occupied by a bank. But it is no longer a bank, it fulfils none of those functions which a bank fulfils in an economic system resting on the private ownership of the means of production and the use of a general medium of exchange--money. It no longer distributes any credit, for a socialist society makes credit of necessity impossible. Bauer himself does not tell us what a bank is, but he begins his chapter on the nationalization of the banks with the sentence: "All disposable capital flows into a common pool in the banks." [21] As a Marxist must he not raise the question of what the banks' activities will be after the abolition of capitalism?

Here's some wonderful Misesian satire on "Nationalized Citibank." Warning: lots of f-bombs, so proceed with caution.

Posted by Art Carden at 11:18 AM in Economics

April 11, 2009

Klein and Roberts on Theory of Moral Sentiments

This podcast between Dan Klein and Russ Robert on The Theory of Moral Sentiments is just fantastic. I cannot wait to hear the rest in the series, especially since my Koch Colloquium is reading TMS this term. By the way, the discussion between variou s commenters and Klein here is excellent and shouldn't be missed either.

Posted by Joshua Hall at 08:32 PM in Economics

Anti-Foreign Bias

Seen on a t-shirt at breakfast this morning, apparently worn without irony:

"Welcome to America. Now SPEAK ENGLISH!"

My first thoughts, of course, were about Bryan Caplan's work on anti-foreign bias in The Myth of the Rational Voter. The fact that at least some people are willing to pay a price to advertise their anti-foreign bias suggests to me that anti-foreign bias rather than material self-interest drives immigration policy.

There's a silver lining in this dark cloud, though. People who are divided by culture are united by commerce. I'm virtually certain that there are people all up and down the supply chain who don't speak particularly good English who contributed to our bias-advertising shirt-wearer's meal this morning. And I would also bet that the shirt was made somewhere outside the US. As economists like Milton Friedman, Deirdre McCloskey, and others have pointed out, the social miracle of the marketplace is that it helps people care for one another even when they don't care about one another. In fact, people with positive antipathy toward one another can still find ways to cooperate to mutual advantage through the market process.

I know I've linked to this before but here again is Lant Pritchett's brilliant Let Their People Come: Breaking the Gridlock on Global Labor Mobility, which is required reading for anyone interested in immigration. I hope that in a few generations people look back with revulsion at coercive restrictions on labor mobility the same way we look back with revulsion at chattel slavery.

Posted by Art Carden at 11:29 AM in Economics

April 10, 2009

"The H&R Block and Liberty Tax Stimulus Plan"

A recent issue of Business Week had an article on the tax cuts (really just welfare sent through the IRS); an excerpt:

As federal stimulus dollars begin to flow, one unlikely beneficiary is the $30 billion tax-preparation industry. Prep specialists from top dog H&R Block on down are celebrating as the Apr. 15 deadline approaches. The fresh treat: billions of dollars in new and expanded tax credits for individuals and small companies.

The good news for tax preparers could turn into bad news for the IRS, however, as well as an early illustration of what might be many unintended consequences stemming from the stimulus.

Tax-prep pioneer John Hewitt calls the huge federal spending package "the H&R Block and Liberty Tax Stimulus Plan." Twenty-seven years ago, Hewitt founded Jackson Hewitt Tax Service, the second-largest chain in the business. He now runs No. 3 Liberty Tax Service.

Hewitt has instructed his staff to explore leasing additional stores being vacated by Starbucks and other victims of the recession. "I love it whenever [lawmakers] pass tax changes," he says. "This one helps us because there are more tax changes that affect more people than any bill I've ever seen."

The mood is less cheerful at the IRS. Officials there are girding for a wave of questionable credit claims and outright fraud. A major problem, explains Nina E. Olson, the IRS taxpayer advocate (or ombudsman), is that most tax preparers are unregulated. The vast majority aren't licensed accountants or lawyers. Only three states—California, Maryland, and Oregon—certify tax preparers. In an industry of more than 1 million service providers, the IRS imposes fewer than 300 penalties a year, most quite modest.

"There are too many areas of this country where you have to go through more work to be licensed as a beautician than to do someone's taxes," says Representative Xavier Becerra of California. A senior Democrat on the House Ways & Means Committee, he plans to introduce legislation this year to require that all preparers register with the IRS.

Olson fears that preparers will exploit the stimulus initiative's multibillion-dollar expansion of the Earned Income Tax Credit, which last year transferred $47 billion to low-income families. The inspector general of the Treasury Dept. estimates that, even before the stimulus, the EITC was resulting in $10 billion to $13 billion a year in improper claims, many of which the agency contends are encouraged by unscrupulous preparers. While prep companies aren't supposed to charge fees based on how much money they obtain from the IRS, in practice many set higher prices for customers seeking refunds.

The stimulus package also includes new or enlarged tax benefits for small businesses, first-time home buyers, certain parents and retirees, and people who improve the energy efficiency of their dwellings—all of which are susceptible to abuse in the hands of dishonest or incompetent tax preparers, says Olson. "Some of the provisions in the economic stimulus legislation will dwarf the EITC in terms of rate of fraud," she predicts.

The issue also had an interesting article on "loopholes galore" in Geithner's toxic asset plan.

Posted by E. Frank Stephenson at 10:09 PM in Economics

Contra Jacob Hacker ...

A few years back, Yale's Jacob Hacker wrote The Great Risk Shift in which he argued,

The currently favored response to rising insecurity is to throw more tax breaks and individual accounts at Americans to encourage them to save and invest on their own. This may help the privileged, but it won’t provide strong guarantees of economic security to ordinary Americans, who are just barely staying afloat. Nor will it stop the huge shift of risk onto these hardworking families as jobs, health care, and retirement all become less secure.

The book was blurbed by John "Breck Girl" Edwards and the CBO (then headed by Obama budget director Peter Orszag) found that income volatility had been little changed since the early 1980s so there's reason to doubt Hacker's thesis.

But Hacker's book came to mind because a recent NBER Working Paper finds, "The income [and consumption] of ... rich households [are] now more vulnerable to aggregate fluctuations than [those] of poorer households ...." Hmmm ... maybe Hacker will now bemoan income volatility among high income earners. Or maybe his book had more to do with old fashioned redistribution than with the mitigation of risk.

Posted by E. Frank Stephenson at 09:18 PM in Economics

Econ 101 Exam Question?

The local paper editorializes in favor of burdening county contractors with a "prevailing wage" ordinance. I respond:

In response to your April 10 editorial on a "prevailing wage" ordinance for city contractors, my econ 101 students should be able to see at least four things wrong with your reasoning.

First, the editorial pretends that a prevailing wage ordinance is a free lunch. It isn't: the resources needed to pay above-market wages have to come from somewhere. If we want to insist on wages that aren't justified by productivity, we need to recognize that one person's higher wage will be his neighbor's pink slip.

Second, using ordinances to interfere with prices wastes resources. We will sacrifice the opportunity to produce goods for which the benefits exceed the costs in order to produce goods for which the costs exceed the benefits. To adopt a Biblical perspective, this is terrible stewardship.

Third, the benefits that the editorial expects to be transferred from employers to employees will not materialize. These ordinances distort incentives: people have incentives to waste their time and energy on unproductive activities like waiting in line for these higher-wage jobs when they could be working elsewhere.

Finally, the tragedy of ordinances like these is that they do exactly the opposite of what their supporters want. The law of unintended consequences suggests a cruel irony: the burden will fall disproportionately on the people most in need of help.

A prevailing wage ordinance is a raw deal, particularly for the poor. If we are really interested in alleviating poverty, then we should be liberalizing the local labor market instead of burdening it with additional restrictions.

Posted by Art Carden at 10:50 AM in Economics

April 09, 2009

Letter to the Editor on Stadium Subsidies

Following Don Boudreaux's example, I sent this letter about stadium subsidies to the Birmingham News today:

When I moved to Alabama for college in 1997, Birmingham residents were talking about a domed stadium. When I left Alabama in 2001, Birmingham was still debating a domed stadium. Now, in 2009, as the Super 6 football championship prepares to move to Tuscaloosa and Auburn, people are asking whether a domed stadium would have made a difference. It's time for Birmingham residents to give up on government financing for a domed stadium, and there are very good reasons to do so.

The wild claims of poorly-done "economic impact studies" notwithstanding, carefully-done research by economists who study stadium subsidies show that the economic impact of government stadium subsidies are trivially small if not negative. Stadiums redistribute resources within an area instead of creating new wealth and they discourage non-sports-related travel. Further, all of the supposed benefits of government-financed stadiums will be absorbed as people jockey for favor through the political process.

Government money for stadiums is money very poorly spent, and Birmingham residents should hope that a government-financed downtown stadium never becomes a reality. They will remain richer for it.

For more information, here's a great article by Dennis Coates.

Posted by Art Carden at 10:34 PM in Economics

Douglass C. North at Rhodes, April 23

Douglass C. North, 1993 Nobel Laureate and one of my dissertation committee members, will speak at Rhodes on April 23. The lecture is free and open to the public, and it will take place at 5:30 PM in the Orgill Room. His lecture will be based on his book Violence and Social Orders: A Conceptual Framework for Interpreting Recorded Human History.

On a somewhat unrelated note, Don Boudreaux takes some of his critics to task and argues that his status as a tenured professor of economics is irrelevant to his support for free trade. To add a data point to Don's argument, I'm an untenured professor, and I'm a fervent supporter of unrestricted trade and immigration. I don't remember if Bryan Caplan addresses this or not, but I would be surprised if the marginal effect of tenure on support for free trade is very large.

Posted by Art Carden at 06:39 PM in Economics

UFM Interviews with APEE Members

Lots of interesting interviews here.

Some highlights include:

1. J.R. Clark

2. Dwight Lee

3. Ed Stringham

Posted by Joshua Hall at 02:53 PM in Economics

The Association of Private Enterprise Education is Decadent and Depraved: Reflections on the 2009 Conference

Following Larry and Frank, here are my observations:

1. I'm more optimistic about the future of the social sciences after APEE. The ratio of good papers to bad papers was higher than at a lot of conferences I've been to.

2. Apparently some Guatemalan tobacco shops are set up to disguise your Cuban cigars as Dominican cigars (no, I didn't smuggle any contraband stogies into the US). I was about to say that this illustrates the folly of law, but it doesn't. It illustrates the folly of legislation. Trying to prevent people from enjoying gains from trade will almost always be ineffective, counterproductive, or both. Since Cuba trades freely with the rest of the world, the US embargo has been both ineffective and counterproductive. It has been ineffective in that it has had little impact on the Cuban economy and on the Cuban government. Recently, Deirdre McCloskey pointed out to me that during an experiment in which people were allowed to spend dollars in Havana, Havana prices were almost the same as Miami prices. It has been counterproductive in that it has given Castro a golden opportunity to blame the evil capitalist United States for the failures of communism.

3. Speaking of Castro, I wonder how he, Che Guevara, and Salvador Allende have gotten a free pass from twentieth century history. Jose Pineiro, one of the architects of the Chilean reforms of the 1970s, gave a plenary lecture contrasting the Cuban Revolution with the Chilean Revolution. In doing some work on human rights violations, economic liberalization, and the Chilean experience, it is hardly clear that Allende's human rights record would have been superior to Pinochet's. The association of Milton Friedman and libertarianism with the human rights abuses of the Pinochet regime is a grave intellectual error, and one that deserves to be corrected. More on this later.

4. Universidad Francisco Marroquin is inspiring and uplifting. Their slogan, "Veritas, Libertas, Justitia" embodies the foundational principles of a society of free and responsible people, and their educational philosophy of teaching principles rather than practice will, I expect, pay large dividends in the 21st century.

5. I wonder how an "end the drug war" petition from economists would be received. Groups like the Cato Institute and the Independent Institute have been circulating petitions about free immigration, free trade, and the stimulus package. I wonder how a similar petition from economists to end the war on drugs would do.

6. Via Facebook, I was able to meet up with Colleen Haight of San Jose State and Debi Ghate of the Ayn Rand Institute for an early dinner at DFW. The cheese and spinach dip at Reata in Terminal D was pretty good.

7. The search for the Great American Novel is over. As far as I'm concerned, "Atlas Shrugged" is the Great American Novel until something better comes along.

8. Congratulations are in order for Rhodes seniors Jill Carr and Dustin Sump, who did excellent jobs presenting their honors research at the conference.

9. I prefer Coke to Pepsi, but sugar-sweetened Pepsi tastes better than HFCS-sweetened Pepsi. If consumer advocates are looking for a cause that isn't counterproductive, ending sugar protectionism would be a good one.

Posted by Art Carden at 10:07 AM in Economics

ABBA to Zeppelin, Led and DOL Ranked

among the top 50 economic blogs by Bankling.com. Thanks!

Posted by Joshua Hall at 10:04 AM in Economics

April 05, 2009

Cato Journal issue on the financial crisis

Revised and updated papers from the Cato Institute's excellent November conference on "Lessons from the Financial Crisis" are now available online. The lineup includes Anna J. Schwartz, Roger W. Garrison, Gerald P. O'Driscoll, Jr., Kevin Dowd, Jeff Miron, Allan H. Meltzer, Charles W. Calomiris, and my own paper on "Federal Reserve Policy and the Housing Bubble". (Btw I don't remember picking that paper title; in the literature "bubble" often means a self-generating event, and my argument is that the housing boom was Fed-generated.)

Posted by Lawrence H. White at 01:55 AM in Economics

April 03, 2009

Wind in sails of Atlas Shrugged movie...?

The Risky Business Blog has an update on financing, producing, directing, and possible players.

Editorial: I'm down with Jolie as Dagney. But anyone who starred in a movie called Bride Wars should be off the list.

Posted by Edward J. Lopez at 08:14 AM in Economics

2009 Digital Money Forum presentations

I greatly enjoyed participating in the 2009 Digital Money Forum in London earlier this week, and I learned a lot about the cutting edge in payments technology. Now you can too. Links to the presentations given at the Forum, including the slides accompanying my own historical talk on "Currency 2.0," are now available here. Unfortunately the text of my remarks, which I saved as notes under the slides in Power Point, did not survive the transition to pdf. I'll have to see whether I can get that corrected. In the meantime you can look at the pretty pictures and infer what I might have said!

The Forum was organized by the amiable payments guru Dave Birch. To stay abreast of developments in the field of digital money, read Dave's Digital Money Forum blog.

Posted by Lawrence H. White at 03:53 AM in Economics

April 02, 2009

Should I start a new category called "Illegal in Alabama"?

(1) Practicing Interior Design without a license

(2) Home brewing

(3) Selling beer > 6% alcohol

(4) Sale of sex toys*

*Available with a medical Rx. No lie.

Posted by Robert Lawson at 11:17 AM in Economics

Good Journalism = Bad Economics

Yesterday's cigarette tax hike prompted a number of stories that claimed cigarette sellers increased cigarette prices before the tax increase in order to gain some extra profits before the new tax took effect. Example:

The cigarette excise tax that tobacco companies must pay the federal government rose Wednesday by 61.6 cents per pack, or $6.16 per carton. The tax now comes to about $10.10 per carton, or $1.01 per pack.

But major tobacco companies began incorporating that increase into their prices to wholesalers in March.

Now, if the cigarette sellers could increase prices willy nilly to increase profits then why did they wait until the impending tax hike to do so? Were they just being nice before March?

The real explanation is surely that cigarette buyers increased their demand for cigarettes in anticipation of higher future prices, and given that the short run supply of cigarettes is inelastic, this forced the price upward.

But the idea that poor downtrodden buyers would ever be the cause of price increases instead of evil greedy sellers just doesn't fit the typical journalist's world view.

Posted by Robert Lawson at 10:11 AM in Economics

April 01, 2009

Regime Uncertainty Everywhere

From an NPR story on the CEO of a small bank that is returning TARP funds:

DePaolo says Signature returned the money for three reasons: Legislation passed Feb. 17 would limit the compensation for salespeople, make it difficult to recruit bankers and cause uncertainty.

"With the new legislation, they changed the rules in the middle of the game," he says. "We didn't know how many more rule changes or legislation would come down, maybe telling banks, 'This is what you can do with your lending. This is what you can do with your clients.'"

Now a snip from a WSJ story "Ford Fears Rivals' Revamps":

Even without a bankruptcy, some Ford officials fear that the uncertainty surrounding the car makers over the next few months could keep shoppers from considering a vehicle from a domestic maker.

"I think the Obama announcement is a near-term depressant on auto sales and the economy," said one Ford official Tuesday. "It introduces uncertainty and confusion among most consumers. And it's the uncertainty that's driving consumers into the cave."

Here's a Tyler Cowen commentary on uncertainty.

Posted by E. Frank Stephenson at 08:08 PM in Economics

Markets in Everything

Tauntaun sleeping bags (HT: Mike Hammock, Marginal Revolution for the "Markets in Everything" concept). Mike is right: my son will have one of these someday.

I keep expecting Mr. Thomps--er, President Obama to announce the Automobile Unification Plan or to see that someone named Cuffy Miegs is now CEO of Chrysler any day now, but the very existence of a Tauntaun sleeping bag renews my optimism for the future.

Posted by Art Carden at 11:53 AM in Economics

"Capitalism isn't working"

So sayeth a protestor's sign at the London G-20 meeting. Evidence? I'm sure that the spray paint, signs, and assorted protestor paraphernalia were not products of capitalism. One wonders what possible system of social organization and exchange would make possible the ability of thousands of people to take an entire day off of work in order to protest G-20, and still be able to afford the necessities of life.

Meanwhile, a 17-year-old student, taking part in a protest, wore a balaclava to hide his identity. He described himself as an environmental protester and said things were "going into meltdown." He added: "The whole thing is collapsing. If we can't change things by democratic means then this is the way to go."

Of course, before capitalism this guy would be considered middle-aged. I counter his statement with that of Kent Brockman: "I've said it before and I'll say it again: Democracy simply doesn't work."

And how does a Middle Eastern dessert hide your identity?

P.S. I've been light on the blogging lately since my wife and I contributed to overpopulation on March 16. If I knew enough about the DoL editor, I'd post pics of Michael Patrick Shaughnessy, but for now use your imagination.

Posted by Tim Shaughnessy at 11:21 AM in Economics

Actual vs. perceived value c. 1909

The April 1, 1909 reports (I think honestly Perhaps this is an April fools joke):

The noted French bulldog Mareschel Ney II, owned by Lincoln Bartlett of Chicago and valued at $10,000, has died. The dog swallowed some corks thrown to it by children while playing.

Posted by Craig Depken at 10:03 AM in Economics

Don't Know Much About History: Neo-Hooverite Nonsense Edition

Tyler Cowen points to this passage from Matt Yglesias (emphasis added):

Suppose Geithner had asked Congress to appropriate $1 trillion to implement a program of bank nationalization, asset writedowns, and loan guarantees—what would that have accomplished? It certainly wouldn’t have gotten Congress to appropriate $1 trillion to implement a program of bank nationalization, asset writedowns, and loan guarantees. It might have derailed the budget and thrown the political momentum on the Hill to proponents of a neo-Hooverite spending freeze program.

Whatever the merits of trying to spend our way out of the current mess, Yglesias is wrong to invoke Hoover. Hoover did not freeze spending; he was an activitist. Here's Amity Shlaes (The Forgotten Man, p. 91):

Right away [following the stock market crash]--in November 1929--Hoover pushed to expand an existing public buildings program by the healthy sum of $423 million on the theory that the spending would boost the economy. In Washington, builders put up great structures--a new agriculture department, for example.

More Hooverite activism is documented in Steve Horwitz's lecture on the high school history version of the Great Depression; I live blogged it here.

UPDATE: Steve Horwitz lists more Hooverite activism in this post. In the comments to the post, Mario Rizzo points to this document which reports (Table 1.1) that government spending was $3.127B in 1929, $3.32B in 1930, $3.377B in 1931, and $4.659B in 1932. The increase in real terms was probably larger because of deflation.

Posted by E. Frank Stephenson at 08:56 AM in Economics

March 31, 2009

Big Gestures: Earth Hour, Buy Nothing Day, Etc.

Here's an excellent take from Mike Hammock. I look forward to discussing it over lunch. "Earth Hour" reminds me of a movement during the California Energy Crisis of 2000/2001: voluntary rolling blackouts, wherein activists across the country were supposed to shut everything off at roughly the same time so that they could reduce the spot price of electricity. Needless to say, it didn't work.

Of course, if enough people had participated in Earth Hour, it would have lowered the spot price of electricity and then given people an incentive to do all of their energy-intensive activity during Earth Hour (note to self: plug in and charge cell phone, laptop, and anything else that's rechargeable during Earth Hour next year). There would be a small dip in consumption, perhaps, but it isn't likely to be that big.

I describe myself as a small-e environmentalist: I like nature, I don't like pollution, and I oppose policies with perverse outcomes (recycling in many manifestations, for example), but a lot of big-E Environmentalism is either silly or counterproductive (or both). The contrarian and Randian in me thinks that a useful protest against Earth Hour might be to have "Mind Hour." Participants in Mind Hour would switch all of their lights on when the world goes dark to symbolize how the mind is the ultimate resource. The mind is the faculty that allows us to fill the Earth and subdue it.

There's a Randian parallel, and here is another setting in which Ayn Rand is (perhaps) prophetic. I won't spoil Atlas Shrugged for those of you who haven't read it, but lights going out is an important part of the book. Further, Rand has numerous discussions of cigarettes as a symbol of man's mind. Particularly for non-smokers, electric lightbulbs are a similar metaphor--and over time, they're likely to bring similar opprobrium.

Posted by Art Carden at 11:14 AM in Economics

March 30, 2009

Palin as Dorothy; Pelosi as Queen of the Field Mice

NPR interviews Liberty Fund Resident Scholar Quentin Taylor on the monetary-political allegory of The Wizard of Oz. Story and audio here, including links to the 1964 essay by Henry Littlefield that lays out the monetary parable.

DOLers know this story well, but at about 4:00 Quentin brilliantly casts today's pols like Pelosi and Palin into roles from the novel. HT: Jason Drubert, a.k.a. "The Reverend Ed," who wonders why no mention of WJB's cross of gold speech.

Posted by Edward J. Lopez at 09:52 AM in Economics

March 29, 2009

"A National of Jailers"

From Salon, this column by Glenn Greenwald:

There are few things rarer than a major politician doing something that is genuinely courageous and principled, but Jim Webb's impassioned commitment to fundamental prison reform is exactly that. Webb's interest in the issue was prompted by his work as a journalist in 1984, when he wrote about an American citizen who was locked away in a Japanese prison for two years under extremely harsh conditions for nothing more than marijuana possession. After decades of mindless "tough-on-crime" hysteria, an increasingly irrational "drug war," and a sprawling, privatized prison state as brutal as it is counter-productive, America has easily surpassed Japan -- and virtually every other country in the world -- to become what Brown University Professor Glenn Loury recently described as a "a nation of jailers" whose "prison system has grown into a leviathan unmatched in human history." [...] And, most important of all, Webb is addressing head-on one of the principal causes of our insane imprisonment fixation: our aberrational insistence on criminalizing and imprisoning non-violent drug offenders (when we're not doing worse to them). That is an issue most politicians are petrified to get anywhere near, as evidenced just this week by Barack Obama's adolescent, condescending snickering when asked about marijuana legalization, in response to which Obama gave a dismissive answer that Andrew Sullivan accurately deemed "pathetic."

Greenwald quotes at length from Webb's Senate speech (link provided). Here's the first quote:

Let's start with a premise that I don't think a lot of Americans are aware of. We have 5% of the world's population; we have 25% of the world's known prison population. We have an incarceration rate in the United States, the world's greatest democracy, that is five times as high as the average incarceration rate of the rest of the world. There are only two possibilities here: either we have the most evil people on earth living in the United States; or we are doing something dramatically wrong in terms of how we approach the issue of criminal justice.

Then, this on the Public Choice aspects:

It's hard to overstate how politically thankless, and risky, is Webb's pursuit of this issue -- both in general and particularly for Webb. Though there has been some evolution of public opinion on some drug policy issues, there is virtually no meaningful organized constituency for prison reform. ... Moreover, the privatized Prison State is a booming and highly profitable industry, with an army of lobbyists, donations, and other well-funded weapons for targeting candidates who threaten its interests.

Posted by Wilson Mixon at 07:30 PM in Economics

March 28, 2009

Downloadable Menger's Investigations

The NYU Press (1985) edition of Carl Menger's classic Investigations into the Method of the Social Sciences with Special Reference to Economics (1883), with an introduction by your truly, is now available as a free pdf download, courtesy of the Mises Institute.

From the introduction:

In criticizing the view that such social institutions as law, language, money, and markets were deliberately designed or rationally constructed, Hayek comments that the Investigations "contains still the best earlier treatment of these problems."

HT: Jeff Tucker

Posted by Lawrence H. White at 10:00 AM in Economics

Dish Soap Smuggling

From the AJC:

The quest for squeaky-clean dishes has turned some law-abiding people in Spokane into dishwater-detergent smugglers. They are bringing Cascade or Electrasol in from out of state because the eco-friendly varieties required under Washington state law don't work as well. Spokane County became the launch pad last July for the nation's strictest ban on dishwasher detergent made with phosphates, a measure aimed at reducing water pollution. The ban will be expanded statewide in July 2010, the same time similar laws take effect in several other states.

But it's not easy to get sparkling dishes when you go green.

Many people were shocked to find that products like Seventh Generation, Ecover and Trader Joe's left their dishes encrusted with food, smeared with grease and too gross to use without rewashing them by hand. The culprit was hard water, which is mineral-rich and resistant to soap.

As a result, there has been a quiet rush of Spokane-area shoppers heading east on Interstate 90 into Idaho in search of old-school suds.

Real estate agent Patti Marcotte of Spokane stocks up on detergent at a Costco in Coeur d'Alene, Idaho, and doesn't care who knows it.

"Yes, I am a smuggler," she said. "I'm taking my chances because dirty dishes I cannot live with."

(In truth, the ban applies to the sale of phosphate detergent — not its use or possession — so Marcotte is not in any legal trouble.)

Marcotte said she tried every green brand in her dishwasher and found none would remove grease and pieces of food. Everybody she knows buys dishwasher detergent in Idaho, she said.

Steve Marcy, manager of the Costco in Coeur d'Alene, about 10 miles east of the Washington state line, estimated that sales of dishwasher detergent in his store have increased 10 percent. He knows where the customers are coming from.

"I'll joke with them and ask if they are from Spokane," Marcy said. "They say, `Oh yeah.'"

Shoppers can still buy phosphate detergents in Washington state by venturing outside Spokane County, but Idaho is more convenient to many Spokane residents.

[snip]

For his part, Beck has taken to washing his dishes on his machine's pots-and-pans cycle, which takes longer and uses five gallons more water. Beck wonders if that isn't as tough on the environment as phosphates.

"How much is this really costing us?" Beck said. "Aren't we transferring the environmental consequences to something else?"

The last two paragraphs are a great example of Sowell's maxim that there are not solutions, just trade-offs. Not only do people use more water in their dishwashers but the extra trips to Idaho burn gas, increase road congestion, etc.

Posted by E. Frank Stephenson at 12:40 AM in Economics

March 27, 2009

The Referees score it: 1 for Alan Greenspan, 5 for John Taylor

Today's Wall St. Journal has an interesting symposium on whether the Greenspan Fed caused the housing bubble, following John Taylor's op-ed indictment and Greenspan's self-defense.

Here's my and my colleague David Rose's take on Greenspan versus Taylor, in an unpublished letter we emailed to the WSJ on 11 March:

Alan Greenspan’s non mea culpa (“The Fed Didn’t Cause the Housing Bubble, March 11) is unpersuasive. Greenspan tries to blame the housing bubble entirely on a global savings glut causing a decline in long-term interest rates. He deems irrelevant his pushing down and holding short-term rates to historic lows during 2001-2006, on the grounds that a house’s price should be based on discounting its future housing services at 30-year rates only. Not so. House buyers can borrow at one-year rates through an Adjustable Rate Mortgage. Greenspan himself has elsewhere acknowledged that because he pushed one-year rates farther below 30-year rates, the share of adjustable-rate mortgages rose (indeed it doubled from one-fifth to two-fifths of new mortgages). The demand from new ARM borrowers was critical to fueling the housing boom.

The demand for housing was also augmented by monetary policy through an important second channel that Greenspan neglects to mention: the wealth effect of the economic boom set off by cheap money.

Greenspan’s global-savings-glut theory of the housing boom leaves unexplained why the boom ended when the Fed finally restored short-term rates to sanity. China and other savings suppliers to the US did not, after all, repatriate their savings.

John Taylor’s critique of Fed policy is basically right and Greenspan is basically wrong.

Lawrence H. White
David C. Rose

The authors are professors of economics at the University of Missouri – St. Louis.

Posted by Lawrence H. White at 11:25 AM in Economics

March 25, 2009

Selgin on Good Money

Here's George Selgin giving an entertaining account of private token coinage during the Industrial Revolution in England and Wales, the topic of his new book Good Money.

HT: George Selgin

Posted by Lawrence H. White at 11:58 PM in Economics

The seen and the unseen c. 1909

The March 25, 1909 NYT has yet another letter to the editor concerning the laundry industry, this time rising to the defense using the "seen and unseen" argument normally associated with Frederic Bastiat (More from The Law):

The public forgets that laundries perform a service on goods which are not their property, and in case of accident or carelessness the goods must be returned or accounted for, so that the patrons are fully aware of all cases of the kind. In manufacturing plants, on the other hand, if goods are poorly made they are scrapped and no outsider is the wiser. This is the main reason for laundries, as a whole, being looked upon as inefficient and destructive.

A nice insight by the letter writer. However, the writer goes on to point out that many of the problems being pinned on the laundry industry might have a different source:

The same proportion of mistakes is made by collar and cuff, shirt, ladies waist, vest makers, &c, and as the purchaser seldom examines new goods carefully the laundries are blamed for some things that are plainly the fault of manufactures.

The bleaching of cotton and linen by the goods maker, and again by the garment maker, is not as carefully done as it should be. Most of the life of the fibre is destroyed before the purchase of the article, but the laundry is blamed just the same. Compare a piece of unbleached muslin with a piece of bleached stuff and you will note the difference in strength.

Posted by Craig Depken at 03:15 PM in Economics

March 24, 2009

Potpourri

Demand curves slope downward: A queue for "free" ice cream in Macon, GA.

Supply and demand for sperm--surpluses make prices fall.

Dry cleaning services are a normal good. (A similar story from May 2008 is here.)

For your musical enjoyment, a music video calling for Paul Krugman to be Treasury Secretary (needless to say, I don't share the singer's enthusiasm):

Posted by E. Frank Stephenson at 10:08 PM in Economics

Mapping the Road to Serfdom: Communism Can't Handle Dissent

The latest issue of the Independent Review has an interesting article by Paul R. Gregory on how the Soviets purged dissident intellectuals. Here's a summary; the full thing will be online for free in six months.

Posted by Art Carden at 06:30 PM in Economics

Welcome cynicism on the Geithner plan from the left

The idea that fixing legacy banks is prerequisite to fixing the broad economy is a lie perpetrated by legacy bankers.

The rest of his post is an interesting mixed bag, and of course we would disagree about the best alternative to Geithner's plan, but Steve Randy Waldman nails it in that line.

Posted by Lawrence H. White at 04:22 PM in Economics

On raising rivals costs? c. 1909

The March 24, 1909 NYT prints a letter to the editor supporting the recent push for regulation in....laundries:

The laundry business is one which needs regulating, and the introduction of a bill by Assemblyman Bauman of New York into the Legislature is gratifying, and is supported by the best laundries of Manhattan.

This is the age of sanitation, and every or any measure which benefits public health ought to be supported. Such discussions as you are printing are good for all.

LAUNDRYMAN

Every and any measure? No concern for the costs of "every and any" measure? The appeal to public health is evidently not a new tactic for the regulator or, evidently, those who beg to be regulated. This smacks of aiming to raise rivals' costs, as the letter-writer admits that it is the best (that is the most expensive) laundries in Manhattan that seek to be regulated.

Posted by Craig Depken at 01:10 PM in Economics

On regulating prices c. 1909

The March 24, 1909 NYT has a letter to the editor that starts out in a manner that would make Hayek proud:

The regulation of rates on local [rail] lines should be left to the local lines themselves, as a commission appointed by the Congress at Washington, or the Legislature at Albany, many of whom live at widely separated parts of the country, cannot be supposed to know the local conditions applying to any small community, and all rates for carrying the commodities of that special territory should be regulated according to conditions prevailing therein, and which these men from widely separated parts of the country cannot be expected to know much about.

How many times in the past 100 years has the government ignored this advice, despite its soundness? The lure of "control" for the benefit of the many or the few results in the same outcome - distorted prices sending the wrong signals to market participants thereby leading to mistaken action.

The letter continues:

Even in the matter of the Public Service commission of the State of New York, we doubt very much if any one member is thoroughly conversant with the situation in his own district, let alone being able to decide questions arising concerning some other part of the State remote from his own home territory.

This point is rammed home every time Congress holds yet another committee meeting to discuss the financial "crisis" and the responses by public and private entities.

Unfortunately, after building up a good head of steam, the letter-writer flubs the ending:

What we want on these commissions is to have the men appointed to be experienced and competent transportation men, who know what they are talking about when they take any matter in consideration upon the transportation of freight and passengers within the borders of the State.

Posted by Craig Depken at 12:59 PM in Economics

Green Jobs

I haven't read it yet, but this paper looks important. The abstract:

A group of studies, rapidly gaining popularity, promise that a massive program of government mandates, subsidies, and forced technological interventions will reward the nation with an economy brimming with green jobs. Not only will these jobs allegedly improve the environment, but they will pay well, be very interesting, and foster unionization. These claims are built on 7 myths about economics, forecasting, and technology. Our team of researchers from universities across the nation surveyed this green jobs literature, analyzed its assumptions, and found that the special interest groups promoting the idea of green jobs have embedded dubious assumptions and techniques within their analyses. We found that the prescribed undertaking would lead to restructuring and possibly impoverishing our society. Therefore, our citizens deserve careful analysis and informed public debate about these assumptions and resulting recommendations before our nation can move forward towards a more eco-friendly nation. To do so, we need to expose these myths so that we can see the facts more clearly.

I don't know if the paper raises this point, but much of the green jobs chatter strikes me as the old wine of import substitution (e.g., clear coal or solar for imported petroleum) in new bottles.

In a related note, yesterday's WSJ had an article States Vie for Share of Clean Coal Cash--nothing like a little rent dissipation. A snip:

The Texas political establishment launched a campaign this month to press Energy Secretary Steven Chu to consider funding a project proposed by Summit Power Group for a site near Odessa, in western Texas.

Another clean-coal project by Tenaska Inc. at a site east of Sweetwater, Texas, also is a contender. A power-plant proposal in Mattoon, Ill., which was a showcase project under a failed Bush administration clean-coal program called FutureGen, also is trying to secure financing and is backed by the Illinois congressional delegation.

These plants would be among the most costly power projects ever constructed, more expensive even than nuclear-power plants, per unit of productive capacity. Without massive federal funding, it is unlikely that any of them would move forward. The Department of Energy has yet to detail how it would dole out the money.

Posted by E. Frank Stephenson at 09:29 AM in Economics

March 23, 2009

Renaissance Men: "Ask U2"

HT: Robert Donaldson. I finally got the new disc yesterday and haven't listened to it yet. I look forward to it.

And here they are delivering Letterman's Top 10 List:

Posted by Art Carden at 09:28 PM in Economics

Some simple math from xkcd

I also confess to not really understanding the hullabaloo about these AIG (et al.) bonuses at least not in the context of the times.

Posted by Robert Lawson at 09:52 AM in Economics

Randy Barnett: The presumption of liberty; Mario Rizzo: Of Human Design; and Gary Becker: Save the Ideas

I spent the past weekend at Liberty Fund discussing Randy Barnett's important book, Restoring the Lost Constitution: The Presumption of Liberty. Barnett's is a daring project on several levels (get rid of consent as a basis for legitimacy, replace original intent methods with original public meaning, rehabilitate the necessary and proper clause, and resurrect the 9th Amendment en route to a constitutional order with strong judgicial review that presumes liberty first when delineating the government's sphere). But I am left scratching my head on many levels. For example, Barnett emphasizes writtenness of formal rules as the essential characteristic that maintains constitutional integrity over time. While writtenness may be crucial to establishing a reference point for individual liberty vs. state power, it's an empirical truth that written passages do get interpreted differently over time, and that's a general description of where we are today versus where the framers meant to put us. As the book's opening line states, "If judges had done their job this book would not be necessary." Interpretation creep, if you will, is largely determined by the unwritten traits of a constitutional order, the informal institutions that supplement and substitute for formal rules, and the movement of public opinion and our instruments used to gauge it. Writtenness can help (or not) judges to get it right on specific cases, but the overall constitutional order, and the places of liberty and power within it, are informed by the forces of human action in addition to explicit human design. How, then, are we to presume liberty without falling vulnerable to the charge that we simply do according to the imperfect wisdom of the framers who aren't exactly representative---white, male slave holders long since in the grave?

Mario Rizzo's recent post at Think Markets, "In Defense of Reasonable Ideology", gets us somewhere. Answering Keynes, who "believed that one of the most important functions of economics is to determine what belongs to the State’s agenda and what does not," Mario continues:

Keynes is rejecting any presumption that the “results of human action but not of human design” (F. A. Hayek citing Adam Ferguson) are beneficial. He seems to be saying that we can operate without any presumptions at all; we can simply look at each “problem” on its own merits and make an individualized decision in each case. But a presumption is not an arbitrary belief; it is not “metaphysical” in the sense that it is completely impervious to new evidence. A presumption is a belief we accept until sufficient evidence to the contrary is forthcoming.

Mario goes on to defend a scientifically informed ideology, one that first uses our best abilities to understand the world empirically and that second defends the institutional arrangements that the emiprical work shows to benefit society the most. It's not an unyielding position either, because measuring a complex, extended social order is---like government or liberty or popular beliefs---imperfect.

Most people are not scientists, economists or intellectuals. They are not testing hypotheses. They have other things to do. They are often rationally ignorant. How can they make up their minds about public policy? Many, though not all, are ideological. They choose a set or complex of beliefs that comports best with their observations and experience. For them too it is not rational to give up the world view because some (few) observations seem to conflict. Forgive some of them who are not willing to throw away long-held beliefs on the say-so of a president who is someone most never heard of eighteen months ago.

In short, the argument for marekts is neither an unfounded nor an unyielding belief. It is firstly informed by economic science. And to the best of economic knowledge, society benefits the most when government is limited and markets are allowed to flourish. How do we know? Don't ask macroeconomics, there are only macroeconomists left.

Instead, ask a man who for 50 years has sought emprical truth through the lens of microeconomists, "a solid empiricist genuinely in search of answers." The Wall Street Journal's weekend interview is Mary Anastasia O'Grady interviewing Gary Becker at the Mont Pelerin Society meetings last weekend in New York.

As a young academic in 1956, Mr. Becker wrote an important paper against conscription. He was discouraged from publishing it because, at the time, the popular view was that the military draft could never be abolished. Of course it was, and looking back, he says, "that taught me a lesson." Today as Washington appears unstoppable in its quest for more power and lovers of liberty are accused of tilting at windmills, he says it is no time to concede.

What Mr. Becker has seen over a career spanning more than five decades is that free markets are good for human progress. And at a time when increasing government intervention in the economy is all the rage, he insists that economic liberals must not withdraw from the debate simply because their cause, for now, appears quixotic.

The presumption of liberty is best for society. Call that ideology if you like. But dig deeper and you'll see it's actually more scientific conviction. The current tide of public opinion and government action, rushing away from the shores of our constitutional framers, is all the more reason to do economics and---as Hayek said---to save the ideas.

Posted by Edward J. Lopez at 09:04 AM in Economics

March 21, 2009

Kevin Dowd on the financial crisis

Here is video of Kevin's talk, delivered on Tuesday as the Chris Tame Memorial Lecture for the UK's Libertarian Alliance. I highly recommend it for content if not cinematography. The skippable introduction of the speaker lasts 7:05. The entire video including Q&A lasts 1:16:37

UPDATE: If you'd rather read a summary of Dowd's lecture rather than listen to it, Johnathan Pearce of Samizdata provides one.

ADDENDUM: Reason.tv briefly interviews John B. Taylor on the crisis here.

Posted by Lawrence H. White at 04:30 PM in Economics

Downloadable Free Banking in Britain

At the kind invitation of Dave Birch, I will be giving the leadoff talk (“Currency 2.0”) at the Digital Money Forum in London on 31 March. In connection with that event, I inquired at the Institute of Economic Affairs, publishers of the 2nd edition of my Free Banking in Britain, whether they might not like to unload some of their unsold book stock at the Forum. Turns out they didn’t have any. Now they’ve heroically made the title available again, not only as hard copy for £10 through print-on-demand, but also as a free PDF download (13.55MB). Details and download access here.

ADDENDUM: Adam Myers, Director of Marketing at the IEA, informs me that the print version is available in bulk for classroom use at £4 per copy. Bargain!

Posted by Lawrence H. White at 01:34 PM in Economics

March 18, 2009

Live Blogging Steve Horwitz

I've spent the week teaching at an IHS seminar in Atlanta (a fun week--great students, faculty, and IHS staffers). Tonight we have a guest lecture from Steve Horwitz (prof at St. Lawrence U and blogger at The Austrian Economists). I can't type nearly as fast as Steve talks, but I'm going to have a go at live blogging it.

Steve's talk is an analysis of the high school history version of the Great Depression and argues that the following 4 points are incorrect:
--Laissez faire caused the stock mkt crash and the Great Depression
--Hoover was committed to laissez-faire and did nothing while things collapsed
--FDR and the New Deal saved us from disaster
--WWII finished the job and got us out completely

Note that the Fed is nowhere present in the h.s. history version of the Great Depression.

A quick review of money, inflation, and prices: Inflation is "too much" money and results in rising prices and artificially low interest rates that lead to a false boom (a la Austrian bus cycle theory). Deflation is "too little" money leading to reduced consumption and falling prices (sticky prices result in temporary surpluses, inventory accumulation, etc.). Of course, wages and prices also reflect changes in productivity.

Understanding the 1920s helps understand the stock market crash: Austrians argue the 20s were an inflationary boom. Rising productivity offset rising prices, concealing them in a mostly stable price level. The boom is unsustainable and the stock market crash is a symptom of the bust that started the previous summer.

Contra pop history, Herbert Hoover did not sit idly by in 1929-1933. Unemployment was as high as 25% in 1933 and was above 9% for the entire decade of the 30s. Another big feature was bank failures; over 8,000 of 25,000 banks failed in 1930-33 (6 banks per day). Most were small, "unit" banks as a result of anti-branching regulation. Contrast to only 1 bank failing in Canada where branching was allowed. Massive deflation of the money supply--30% drop was allowed by the Fed--a massive screw up.

Hoover makes matters worse. His history is as an intervener. [EFS--Amity Shlaes The Forgotten Man speaks to this pt.] He signed the Smoot-Hawley tariff in 1930 and followed a "high wage" or purchasing power policy. Hoover believed high wages caused prosperity, not vice versa. [EFS--"living wage" advocates are you listening?] Collaboration with industrial leaders causes massive unemployment. Productivity real wages rose in the early 30s instead of falling to clear the unemployment in the labor market.

Hoover's new deal:
--reconstruction finance corp.
--home loan bank
--public works admin
--weakens competition in natural resource use
--loans to states
--ease bankruptcy laws
--revenue act of 1932 hikes taxes

[EFS--Use Kevin Grier voice here: Holy crap people! No laissez-faire going on with Hoover.]

New Deal under Roosevelt--the first 100 days:
--banking act of 33
--fdic/fslic
--fed farm mortgage corp
--sec
--tva
--fed emergency relief act (becomes WPA)
--CCC
--AAA
--NIRA

Regime uncetainty from Roosevelt rhethoric and frequently changing policy impeded recovery and led to decreasing investment. Discusses evidence from Higgs; destruction of hogs and cotton crops; and cartel pricing with NIRA.

So what did bring the end? Drafting millions of people reduces unemployment. Wars are destruction, not growth so GDP growth is misleading. Wartime controls make wartime data questionable. [EFS--There's an Econtalk podcast with Higgs that discusses these points.] Consumption and investment decline during the war; consumption does not recover until 1946.

Students clap. Thanks Steve. More info here.

Posted by E. Frank Stephenson at 07:25 PM in Economics

March 17, 2009

Video contest: "Free market capitalism is the best path to prosperity"

TCS daily has announced the video equivalent of an essay contest. It will split $4000 among the three best videos, uploaded to its YouTube group before 11:59 PM on May 14, 2009, illustrating the theme "free market capitalism is the best path to prosperity." (For unknown reasons they identify this idea with Larry Kudlow.)

Posted by Lawrence H. White at 02:16 PM in Economics

Lester on Tax Hikes

Here's today's offering from Mike Lester of the Rome News-Tribune.

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

Cross-Price Elasticity of Demand: Hybrid Car Edition

Americans have cut back on buying vehicles of all types as the economy continues its slide. But the slowdown has been particularly brutal for hybrids, which use electricity and gasoline as power sources. They were the industry's darling just last summer, but sales have collapsed as consumers refuse to pay a premium for a fuel-efficient vehicle now that the average price of a gallon of gasoline nationally has slipped below $2.

"When gas prices came down, the priority of buying a hybrid fell off quite quickly," said Wes Brown, a partner at Los Angeles-based market research firm Iceology. "Yet even as consumer interest declined, the manufacturers have continued to pump them out."

Last month, only 15,144 hybrids sold nationwide, down almost two-thirds from April, when the segment's sales peaked and gas averaged $3.57 a gallon. That's far larger than the drop in industry sales for the period and scarcely a better showing than January, when hybrid sales were at their lowest since early 2005.

Source.

Posted by E. Frank Stephenson at 11:50 AM in Economics

March 16, 2009

What's my problem?

I have a classic Nerf basketball set in my office. It's only fun when playing from my chair. But rebounding is a chore when the ball goes in--sometimes I even have to get up. What is my problem? And what is your proposed solution? Comments are open or email me.

Posted by Edward J. Lopez at 01:15 PM in Economics  ·  Comments (5)

That 70's Show?

Stephen Moore says that it's the 70s and not the 30s that we should be worried about repeating:

What are the lessons of the 1970s? That price controls, profits taxes, high inflation, high tax rates, reregulation, a reckless monetary policy, and out-of-control spending can ruin the U.S. economy. The '70s produced the worst performance for incomes and wealth than at any other time since the Great Depression. Policy matters and policy mistakes can lead to grievous misery for American families and businesses. There is someone in the Obama White House or in the Democractic Congress who has proposed the return of every dimwitted and destructive policy of the 1970s. Be warned: if we repeat those mistakes, we will repeat the misery.

Posted by Wilson Mixon at 10:11 AM in Economics

March 15, 2009

Hayek and Robbins, Friedman and DeLong

In his latest, Brad DeLong forgoes the opportunity to rebut my criticism of his caricatures of Herbert Hoover and Andrew Mellon, but in response to my last paragraph continues to insist on caricaturing the views of Hayek on monetary policy in the Great Depression. He correctly notes that Milton Friedman advanced the same caricature, namely that Hayek and Robbins favored central bank inaction in the face of a huge money stock collapse. The intent of my article“Did Hayek and Robbins Deepen the Great Depression?” (JMCB June 2008; pre-pub version here) was to provide evidence that Hayek’s actual view (which Robbins echoed) was more complex and does not match the do-nothing-to-stabilize-M view that Friedman and DeLong understandably reject. Friedman’s and DeLong’s target should not be Hayek and Robbins, but the Real Bills Doctrine adherents on the Federal Reserve Board at the time.

To reiterate for those joining us late, Hayek’s monetary policy norm for a central bank, clearly stated in his writings, was to stabilize nominal income (MV or PQ in the equation of exchange MV=PQ). A collapse of the money stock M or its velocity V calls for the central bank counteraction to increase M and thereby restore MV. (Steve Horwitz spells this out in his comment on DeLong’s blog entry.)

The story is complicated by the fact that Hayek, as I note in the article, failed to call for M expansion in 1932, and so failed to give timely advice consistent with his own norm. With the price level P and real output Q both falling, it should have been obvious at the time that MV was falling. I also note that Hayek later (1975) owned up to and regretted his failure. This is the germ of truth in the Friedman-DeLong indictment.

Brad DeLong writes:

I think that White's painting of Hayek and Robbins as people who wanted to stabilize MV is completely wrong--it is Ben Bernanke and the inflation targeters who want to stabilize MV, not Hayek and Robbins. If you had asked Hayek back at the time, he would have said that increasing the monetary base from 1929-1933 in order to offset the decline in monetary velocity was the very last thing that he wanted to see done. Stabilizing MV at its 1929 level was not on his or Robbins's agenda by any means.

Painting Hayek and Robbins as people who wanted to stabilize MV is not "completely wrong", nor is it the complete picture, for the reasons stated above. DeLong’s painting of Hayek and Robbins as one-note advocates of doing nothing to offset M collapse commits a serious error of omission.

Technical note: adherence to the gold standard implies that MV cannot be kept at just any arbitrary level. Stabilizing MV at its 1929 level would not have been the right objective.

The only basis for knowing what Hayek "would have said" is to read what he actually wrote. It might help us to understand why DeLong insists on his one-note interpretation of Hayek if he would confront the passages (quoted in my article) where Hayek enunciated the stable-MV norm. Why does DeLong ignore, or how does he explain away, what Hayek actually wrote?

Continued below the fold. Comments are open.

Read More »

DeLong to Horwitz:

You seem to be saying that the real Hayek was agreeing with Friedman and Viner on what the right policy was in 1932--but kept it a deep, dark secret, and only you today 77 years later have figured out what he really meant...

“The real Hayek,” i.e. Hayek’s theoretical norm for the right monetary policy, was not a secret in 1932. It is clear in Prices and Production (1931) and later writings.

DeLong offers evidence that Hayek denounced policies to stabilize the price level. And Hayek indeed did denounce them because, as Horwitz points out, stabilizing MV or PQ implies letting P fall as Q grows, not stabilizing P by injecting M as Q grows. Hayek feared that needlessly injecting M to offset Q growth means distorting the market interest rate and thereby disrupting intertemporal equilibrium. With the market interest rate below the equilibrium ("natural") rate, the time-profile of output planned by producer-investors will change so that it no longer matches the time-profile of consumption intended by household savers.

De Long responds in the midst of Horwitz’s comment:

But one wants to stop fluctuations in Q. The point of the exercise is to stop fluctuations in Q. The fluctuation in Q is called the "Great Depression." It is not a good thing...

In Hayek’s view, one does indeed want to stop fluctuations due to an excess demand for money. Hayek and others called this the “secondary” depression, where M collapses and economy overshoots beyond correcting any excesses of a previous boom. It is indeed not a good thing. And Hayek recognized that it was not a good thing.

DeLong:

What does "allow[ing] changes in [the price level] P to emerge from changes in [aggregate output] Q possibly mean? Does it mean that when Q goes down P should then go up--but if Q falls, V falls to, and so M has to go up enormously?

It’s simple. When Q goes up for non-monetary-stimulus reasons, say due to productivity growth, MV should remain stable and thus P should be allowed to fall. And yes, when Q goes down for non-monetary reasons, say a negative supply shock, P should then go up. If V falls too, then offset the drop in V by increasing M in the same proportion. M has to go up enormously if and only if V falls enormously.

« Close It

Posted by Lawrence H. White at 02:41 PM in Economics  ·  Comments (4)

Inferior Goods--Condom Edition

Instapundit points to a piece in the Columbus Dispatch on condom sales:

A conversation with Brian Frank of Undercover Condoms in Hilliard is a day-brightener in the gloomy world of layoffs and bankruptcies.

His business - selling condoms - picks up when times are tough.

"We're doing well," said Frank, vice president of business development for the online company. "There's been some effect from the downturn, but overall we're still growing."

Nationwide, sales of male contraceptives in food, drug and mass-merchandise stores increased 6.4 percent in the last 13 weeks of 2008 compared with 2007, according to the Nielsen Co., which tracks products.

Nielsen also counts how many condoms are sold, and that number went up 2.4percent in the same period.

The trend continued in January, with sales up 5.3 percent compared with the previous year and per-unit sales up 1.6 percent, Nielsen found.

Instapundit also points to interesting pieces on the origin of play-doh and enviros objecting to the "science based" decision to remove gray wolves from the endangered species list.

Posted by E. Frank Stephenson at 12:05 PM in Economics

March 14, 2009

DeLong versus Zingales

Debating Keynesianism with Luigi Zingales online at Economist.com, Brad DeLong once again begins his account of the financial crisis with an endogenous event, i.e. an event that itself needs to be accounted for:

What is the crisis? The crisis comes in six stages:

1. American mortgage originators lose $2 trillion due to their irrational exuberance investing in mortgages.

Zingales in rebuttal unfortunately does not challenge but seems to accept the endogenous starting point:

First, since the root of the crisis is the housing market, this is the first place where we should intervene ... [to prevent] inefficient foreclosures.

Otherwise, Zingales is doing a good job pointing out that the Keynesian emperor has no clothes.

Posted by Lawrence H. White at 02:31 PM in Economics

What Jon Stewart failed to mention while dressing down Jim Cramer

Jon Stewart is not an economist, even though his name sounds like two-thirds of John Stuart Mill. So we can forgive him for seeming to suggest, in his lecture to Jim Cramer on Thursday night, that some major part of the responsibility for the financial boom and bust can be pinned on Jim Cramer and CNBC. Yes, they failed to expose the hollowness of the boom. Yes, they failed to provide investigative reporting on Wall Street “shenanigans” like the over-leveraging of investment banks. Yes, Cramer is a buffoon and not a serious source of information. But the boom should not be seen as a bubble self-inflated by over-leveraging and other imprudent or even shady practices.

The over-leveraging was itself a creature of the boom. In a market where house prices only went up, lots of imprudent coin-flipping practices repeatedly came up heads, allowing the bets to be redoubled.

The hollow boom was inflated by expansionary monetary policy, and steered into housing by federal policies for artificially boosting housing finance, particularly the unholy leveraging privileges bestowed on Fannie Mae and Freddie Mac by government guarantees. Stewart did not mention any of these underlying policy causes. I would love to see Stewart bring them up while grilling Alan Greenspan, or Freddie Mac’s best friend Rep. Barney Frank, or former Treasury Secretary Hank Paulson.

Posted by Lawrence H. White at 01:27 PM in Economics

March 13, 2009

No Such Thing as Free Laundry

My student Shawn Regan explains.

Posted by E. Frank Stephenson at 03:45 PM in Economics

A CEO in Need of "The Diff"

Some quick history--the Cleveland Cavaliers have a feature called "The Diff" on their scoreboard to aid fans who are subtractionally (is that a word?) challenged.

The following statement by Bank of America CEO Ken Lewis suggests that he just might need a Diff of his own:

Nevertheless, he said for every dollar the bank spends in sports marketing, it gets $10 in revenue and $3 in profit.

Normally when one spends $1 and receives $10 in revenue one earns $9 in profit instead of $3. As for the $6 of missing profit, I'm guessing that Lewis must filter his sports marketing dollars through mortgage backed securities.

Isn't it comforting to know that a company led by a chap as capable as Lewis has gotten billions of bailout dollars?

HT: Skip Sauer

UPDATE: I've gotten a few emails about this post suggesting that Lewis means something like "when BofA spends $1 on sports marketing and incurs $6 in related expenses, it receives $10 of revenue and $3 in profit." Certainly possible.

Posted by E. Frank Stephenson at 03:27 PM in Economics

Today's Links

1. "Should We Still Make Things?" from Dissent Magazine. (Aside: What makes you think there's a we?)

2. Free edition of "Economia Internazionale/International Economics."

3. Masonomics---Not Really!

4. The Economics of Place Making Policies by Glaeser and Gottlieb. (Warning .pdf).

5. An appropriate Watchmen review for fanboys (and girls!)

6. Congrats to two excellent young economists!

Posted by Joshua Hall at 03:08 PM in Economics

March 12, 2009

Media glow

I am pleased to report that my Freeman article is quoted in George Will's excellent new column on the "magnificent intentions," i.e. the fatal conceit, of the bailouts.

Posted by Lawrence H. White at 02:52 AM in Economics

March 11, 2009

Property Rights Matter: Karol Boudreaux on Community-Based Natural Resource Management

Here's an interesting interview with Karol Boudreaux on TVO's The Agenda with Steve Paikin:

Posted by Art Carden at 09:08 PM in Economics

Glenn Beck notices: the monetary base has skyrocketed

Posted by Lawrence H. White at 06:33 PM in Economics

Lant Pritchett on Immigration

Lant Pritchett argues forcefully that increasing labor mobility will reduce global poverty and points out the moral bankruptcy of immigration restrictions. The entire book is available for free download.

To look at immigration as a moral question, I checked out the Southern Baptist Convention's Ethics and Religious Liberty Commission's essay on immigration, written by Richard Land. Read the whole thing, but notice that Land contradicts himself. He defends charity extended toward illegal immigrants, writing that "(o)ur government should not criminalize private citizens who give a cup of cold water, a hot meal, a warm bed, or medical assistance to those who are in our country illegally." In his view, we should only "criminalize private citizens" who voluntarily trade with "those who are in our country illegally" and therefore help them buy "a cup of cold water, a hot meal, a warm bed, or medical assistance" for themselves.

Restrictions on international labor mobility bear an uncomfortable resemblance to restrictions on African-American migration during the nineteenth century and during the Jim Crow era. Here's a passage recounting a tragic incident from Leon Litwack's North of Slavery, pp. 69-70:

"In southern Ohio, an aroused populace forcibly thwarted an attempt to settle the 518 emancipated slaves of Virginia's John Randolph. Defending that action, an Ohio congressman warned that 'if the test must come and they must resort to force to effect their object, the banks of the Ohio...would be lined with men with muskets on their shoulders to keep off the emancipated slaves.'"

Posted by Art Carden at 05:33 PM in Economics

March 10, 2009

Ease Up on the Gas Pedal, Chairman Bernanke

Dave Rose and I have a new op-ed piece on Forbes.com sounding an alarm on the Fed's hugely expansionary recent policy.

Posted by Lawrence H. White at 02:19 PM in Economics

Corruption in Romania

My colloquium class this semester is reading Ben Powell's edited volume Making Poor Nations Rich. In class this week, we're covering the Boettke, Coyne, and Leeson chapter on Romania. Thus yesterday's NYT piece on Romania is very timely; a snip:

Alina Lungu, 30, said she did everything necessary to ensure a healthy pregnancy in Romania: she ate organic food, swam daily and bribed her gynecologist with an extra $255 in cash, paid in monthly installments handed over discreetly in white envelopes.

She paid a nurse about $32 extra to guarantee an epidural and even gave about $13 to the orderly to make sure he did not drop the stretcher.

But on the day of her delivery, she said, her gynecologist never arrived. Twelve hours into labor, she was left alone in her room for an hour. A doctor finally appeared and found that the umbilical cord was wrapped twice around her baby’s neck and had nearly suffocated him. He was born blind and deaf and is severely brain damaged.

Now, Alina and her husband, Ionut, despair that the bribes they paid were not enough to prevent the negligence that they say harmed their son, Sebastian. “Doctors are so used to getting bribes in Romania that you now have to pay more in order to even get their attention,” she said.

Romania, a poor Balkan country of 22 million that joined the European Union two years ago, is struggling to shed a culture of corruption that was honed during decades of Communism, when Romanians endured long lines just to get basics like eggs and milk and used bribes to acquire scarce products and services.

Alarm is growing in Brussels that Romania and other recent entrants to the European Union are undermining the bloc’s rule of law. The European Commission, the European Union’s executive body, published a damning report last month criticizing Romania for backtracking on judicial changes necessary to fight corruption. And Transparency International, the Berlin-based anticorruption watchdog, ranked Romania as the second most corrupt country in the 27-member European Union last year, behind neighboring Bulgaria.

HT: Shawn Regan

Posted by E. Frank Stephenson at 12:07 PM in Economics

Doing Good, Feeling Good, and Looking Out the Window: Best Sentences of the Morning

From an excellent piece by Ed Glaeser:

"Living surrounded by concrete is actually pretty green. Living surrounded by trees is not."

"The policy prescription that follows from this is that environmentalists should be championing the growth of more and taller skyscrapers. Every new crane in New York City means less low-density development. The environmental ideal should be an apartment in downtown San Francisco, not a ranch in Marin County.

"Of course, many environmentalists will still prefer to take their cue from Henry David Thoreau, who advocated living alone in the woods. They would do well to remember that Thoreau, in a sloppy chowder-cooking moment, burned down 300 acres of prime Concord woodland. Few Boston merchants did as much environmental harm, which suggests that if you want to take good care of the environment, stay away from it and live in cities."

Posted by Art Carden at 11:06 AM in Economics

Contra Brad DeLong on Herbert Hoover and Andrew Mellon

Bob Murphy and Steve Horwitz have been valiantly challenging Brad DeLong’s attempt to misrepresent Herbert Hoover’s policies as “liquidationist”.

I have a few things to add. (It would be pointless to try to add them as comments on DeLong’s blog, because DeLong notoriously deletes or "edits" posts that challenge his views.)

In response to Murphy and Horwitz, DeLong writes:

In a thumbnail, Herbert Hoover was a Keynesian avant le lettre with his heart but a liquidationist in his head. Hoover wished that he could do something to alleviate the Great Depression, but his head would not. … Hoover was eager to use government's powers to cushion--note not cure--the Great Depression.

This acknowledgement of Hoover as at least having proto-Keynesianism in his heart, and being eager to use government’s powers, represents a welcome major shift from DeLong’s prior position, which was that Hoover was a liquidationist through and through.

De Long continues:

The policies advocated by Mellon were the views that ruled the policies of the Hoover administration. Because Hoover kept Mellon as his Treasury Secretary and followed his led [sic], Hoover did not: • nationalize any banks. • rescue any bank depositor businesses whose accounts are now frozen. • abandon the gold standard to expand the money supply. • do anything else to expand the money supply. • abandon the balanced-budget principle as a constraint on relief spending.

... But as long as he kept Andrew Mellon on as Treasury Secretary, Hoover could do none of the things--nationalizing banks, rescuing depositors whose accounts were frozen, abandoning the gold standard to expand the money supply, other forms of "quantitative easing," deficit-financed relief expenditures, or indeed deficit-financed expenditures of any kind--that might have actually helped enough to matter.

Let’s consider this five-point list and the subsequent add-ons.

• Neither did FDR nationalize banks. Is that evidence that FDR was a liquidationist?

• What is meant by “now frozen” businesses accounts? Does this refer to businesses that lost their deposits in bank failures? Did FDR rescue such businesses? Rescuing them is, in any case, orthogonal to expanding the money supply.

• True, Hoover did not abandon the gold standard. But he didn’t need to – the Fed had plenty of room to expand the monetary base to stabilize M1 or M2 if it had wanted to. Unfortunately it wasn’t tracking such aggregates. Concern with the money supply as such was not even on the table. The Fed’s focus was on credit conditions, which (under the influence of the Real Bills Doctrine) it misread as sufficiently easy because nominal interest rates were low. The principal blame lies with the Fed, not with Hoover. DeLong appears to be innocent of the influence of the Real Bills Doctrine.

• The Fed did do something else to expand the money supply: it cut the discount rate after the market crash in 1929. The cut came at the urging of Andrew Mellon, who as Treasury Secretary was an ex officio member of the Board of Governors. Mellon also voted for subsequent cuts. DeLong simply overlooks these facts, which he should be aware of, as though he is blind to any evidence that conflicts with regarding Mellon as a die-hard liquidationist.

• Hoover did something else: he created the Reconstruction Finance Corporation to bail out troubled banks.

• Hoover did engage in deficit-finance relief expenditures. And Mellon supported the effort. Federal spending rose under Hoover, most of the increase deficit financed.

Regarding Mellon, let me quote my own earlier post, summarizing the evidence in my JMCB paper (published version in the June 2008 issue):

Mellon’s views were not those of a one-formula liquidationist. As an ex-officio member of the Federal Reserve Board, he successfully urged the central bank to cut its discount rate after the stock market crash in October 1929, and supported subsequent rate cuts. In November 1929 he recommended tax cuts to stimulate the economy. He supported Hoover’s proposal to increase federal construction spending. … Mellon – wisely or not – supported the Administration’s initiative to create a National Credit Corporation, and its successor the Reconstruction Finance Corporation, to lend billions to illiquid banks.

As Bob Murphy notes, in recent remarks available online, DeLong cites Milton Friedman's critique of what Friedman took to be the LSE-Austrian view of the early 1930s, that government shouldn't do anything to interfere with the recession running its course. Here DeLong acts as though he is unaware (though elsewhere he has indicating having read my paper) that Hayek's and Robbins' monetary policy norm was not that the central bank should let a deflationary monetary contraction procede. Rather, the central bank should stabilize nominal income MV, meaning expand M to offset a drop in V, and expand the monetary base to offset a drop in the money multiplier.

I have enabled comments in case Brad DeLong wishes to respond. And I promise not to edit his comments.

Posted by Lawrence H. White at 01:49 AM in Economics  ·  Comments (6)

March 08, 2009

Income Elasticity of Demand: Shoe Repair and Pawn Shop Edition

From today's Rome News-Tribune:

The economic slowdown in recent months has had more people pinching pennies wherever they can. That trend has kept shoe repairmen and pawn shops busy.

Here's a previous entry on Miller beer; here's a similar article on Spam, my favorite example of an inferior good. (A personal Spam story: My first semester teaching I must have belabored the example of Spam as an inferior good b/c at the end of the semester a student gave me a Spam t-shirt. The student, if I remember correctly, was the daughter of (in?)famous professor Stanley Fish who was then at Duke.)

Posted by E. Frank Stephenson at 03:24 PM in Economics

March 06, 2009

Best Economics Jokes Ever

A la Chuck Norris, comes the Top Ten Facts About Kevin Murphy.

Be sure to click on the honorable mentions. My favorite is:

"Kevin Murphy does not need compensated demand. He just demands that you compensate him."

Posted by Joshua Hall at 02:33 PM in Economics

Unintended Consequences: Biofuel and Food Prices

Here's an interesting paper on the big runup in food prices in the last few years. The ultimate impact of the negative institutional/political changes emanating from US/EU biofuel policies remains to be seen. Here's the abstract:

"The rapid rise in food prices has been a burden on the poor in developing countries, who spend roughly half of their household incomes on food. This paper examines the factors behind the rapid increase in internationally traded food prices since 2002 and estimates the contribution of various factors such as the increased production of biofuels from food grains and oilseeds, the weak dollar, and the increase in food production costs due to higher energy prices. It concludes that the most important factor was the large increase in biofuels production in the U.S. and the EU. Without these increases, global wheat and maize stocks would not have declined appreciably, oilseed prices would not have tripled, and price increases due to other factors, such as droughts, would have been more moderate. Recent export bans and speculative activities would probably not have occurred because they were largely responses to rising prices. While it is difficult to compare the results of this study with those of other studies due to differences in methodologies, time periods and prices considered, many other studies have also recognized biofuels production as a major driver of food prices. The contribution of biofuels to the rise in food prices raises an important policy issue, since much of the increase was due to EU and U.S. government policies that provided incentives to biofuels production, and biofuels policies which subsidize production need to be reconsidered in light of their impact on food prices."

Posted by Art Carden at 11:53 AM in Economics

Interesting Working Papers

Email has piled up recently, so I'm moving toward Inbox Zero this morning. Part of the task includes going through my SSRN Working Paper Series updates. Here are some papers that caught my eye.

"Employment Laws in Developing Countries" (Simeon Djankov and Rita Ramalho); Fee download.

"We survey the research on the effect of employment laws in developing countries, using papers published since 2004. The survey is further supported by cross-country correlation analyses. Both exercises show that developing countries with rigid employment laws tend to have larger informal sectors and higher unemployment, especially among young workers. A number of countries, especially in Eastern Europe and West Africa, have recently undergone significant reforms to make employment laws more flexible. Conversely, several countries in Latin America have made employment laws more rigid. These reforms are larger in magnitude than any reforms in developed countries and their study can produce new insights on the benefits of labor regulation."

"History Without Evidence: Latin American Inequality Since 1491" (Jeffrey G. Williamson, NBER Working Paper No. 14766). Fee download.

"Most analysts of the modern Latin American economy hold to a pessimistic belief in historical persistence - they believe that Latin America has always had very high levels of inequality, suggesting it will be hard for modern social policy to create a more egalitarian society. This paper argues that this conclusion is not supported by what little evidence we have. The persistence view is based on an historical literature which has made little or no effort to be comparative. Modern analysts see a more unequal Latin America compared with Asia and the rich post-industrial nations and then assume that this must always have been true. Indeed, some have argued that high inequality appeared very early in the post-conquest Americas, and that this fact supported rent-seeking and anti-growth institutions which help explain the disappointing growth performance we observe there even today. This paper argues to the contrary. Compared with the rest of the world, inequality was not high in pre-conquest 1491, nor was it high in the postconquest decades following 1492. Indeed, it was not even high in the mid-19th century just prior Latin America's belle époque. It only became high thereafter. Historical persistence in Latin American inequality is a myth."

"In Search of Microjustice: Five Basic Elements of a Dispute System" (Maurits Barendrecht). Free Download.

"This paper integrates findings from legal needs studies, institutional economics, and interdisciplinary conflict research to develop a framework for analyzing dispute systems. Five essential tasks that a dispute system facilitates are identified and the basic technologies for supplying them. Complementarities between these five types of services are discussed, as well as common elements of dispute systems that may be useful add-ons, but do not seem to belong to the essential core.

"Establishing the necessary and sufficient elements of a dispute system leads to useful insights about the place of dispute services such as mediation, lawyers, and courts in the broader institutional setting of a dispute system. The framework is also a contribution to the emerging discipline of dispute system design. The framework can be a tool for evaluating existing dispute systems, and for developing innovative, affordable and sustainable access to justice (microjustice)."

"Lessons from the Laureates" (William Breit and Barry T. Hirsch). Free Download.

"This paper uses as source material twenty-three autobiographical essays by Nobel economists presented since 1984 at Trinity University (San Antonio, Texas) and published in Lives of the Laureates (MIT Press). A goal of the lecture series is to enhance understanding of the link between biography and the development of modern economic thought. We explore this link and identify common themes in the essays, relying heavily on the words of the laureates. Common themes include the importance of real-world events coupled with a desire for rigor and relevance, the critical influence of teachers, the necessity of scholarly interaction, and the role of luck or happenstance. Most of the laureates view their research program not as one planned in advance but one that evolved via the marketplace for ideas."

Posted by Art Carden at 10:43 AM in Economics

xkcd: Association equals 'look over there'

Love the scrollover: "Association doesn't imply causation, but it does waggle its eyebrows suggestively and gesture furtively while mouthing 'look over there'."

Posted by Robert Lawson at 08:47 AM in Economics

Score One for Perceptive Reporting

Either UPS or the Memphis Commercial Appeal is being refreshingly frank. Here's a quote from an article on the FAA Reauthorization Act, which would make it easier for unions to organize at FedEx:

"The Teamsters have unsuccessfully attempted to organize FedEx for many years. UPS, whose drivers are largely represented by the Teamsters, supports the language because it would increase FedEx expenses and make it less competitive."

Of course, our local legislator opposes it for predictable reasons:

"'The No. 1 industry in my town has problems with this bill,' Cohen said. 'I believe the law is clear and has been enunciated by courts throughout this land ... that Federal Express belongs under the Railway Labor Act.'"

It's actually a very interesting read. Here's the link: http://www.commercialappeal.com/news/2009/mar/05/house-bill-would-open-fedex-unionization/

Posted by Art Carden at 08:06 AM in Economics

March 05, 2009

Atlas Sound Money Project

The Atlas Economic Research Foundation has announced the launch of its Sound Money Project. Given their excellent list of recommended readings (thanks to Leonard Liggio), I’d have to say that they’re off to a fine start. If you represent a think tank or research project related to sound money, participate in the brief survey to let them know what you’re doing and thinking. Atlas will later issue a Request for Proposals for research that they will consider helping to fund.

Posted by Lawrence H. White at 02:53 PM in Economics

Inauguration Tickets and the Failure of Central Planning

That's the title of a Mises.org article by my student Shawn Regan. Kudos Shawn.

Posted by E. Frank Stephenson at 11:01 AM in Economics

David Hart on Karl Marx

Here's a lecture by David Hart on "Class Theories Before Karl Marx." He makes the important point that while the Marxist elements of Marxism are incorrect, Marxism asks the right questions.

Posted by Art Carden at 10:43 AM in Economics

March 04, 2009

Bourgeois Rhetoric: Respect for Individuals

William Easterly offers an interesting post (with compelling visuals) on the relationship between respect for individuals and prosperity. High regard for individuals (as distinct from collectives) is highly correlated with democratic institutions and with development. Easterly addresses the causal question, arguing that culture is the product of deep-seated long-run factors (I oversimplify his simplification, but it's close enough for a blog post). We just started studying the Industrial Revolution in Classical & Marxian Political Economy, and students are working on a research paper about why some people are very rich while other people are very poor. I'm very sympathetic to the argument Easterly discusses and summarizes.

On a related note, I read Ludwig von Mises's essay "The Idea of Liberty is Western" yesterday, and I think it contributes to Deirdre McCloskey's broader program about the rhetorical foundations of prosperity. Mises notes that for all the inexcusable crimes of Western civilization, the idea of individual autonomy, which appears in embryonic form in the writing of the ancient Greeks and which flowers fully in the European liberal movement of eighteenth and nineteenth centuries, is what sets the western tradition apart from the others. It is true that European nobles spent centuries "perfecting the fine art of hacking one another to pieces," to borrow a phrase from Joel Mokyr, but for all its imperfections schooling in the classics was part of the elites' upbringing. To (over)simplify, the emergence from the Dark Ages was a long, bloody experiment in social organization. Finally, in the century or so between the Glorious Revolution and the publication of The Wealth of Nations, Europeans started getting things right.

I'm not a philosopher, linguist, or cultural historian, so my perspective is admittedly limited. If anyone can direct me to good sources on the idea of liberty in eastern philosophy, I would be grateful.

Posted by Art Carden at 05:51 PM in Economics

Best Working Paper I Just Finished Reading

After reading Bryan Caplan's post on chapter 7 of Murray Rothbard's For a New Liberty, I decided to go ahead and read this paper by Lant Pritchett and Martina Viarengo (I think I got the tip to this paper from an earlier Econlog post, but I can't find the link). They argue that, in spite of ample evidence that private provision is superior to public provision and no evidence that public provision is superior to private provision, governments generally tend to produce education instead of relying on private suppliers. I found this particularly interesting in light of our discussions of Adam Smith and Karl Marx on education in Classical & Marxian Political Economy and my recent experience judging one of the "dramatic interpretation" competitions at a forensics tournament for homeschoolers. In The Communist Manifesto, state-provided and state-controlled education is part of the articulated logic of Marx's revolutionary program.

Pritchett and Viarengo argue that government schools exist to produce not just values-neutral skills like literacy and mathematical competence, but beliefs and values. In other words, governments have a stake in controlling schools for the same reason they have a stake in controlling media: socialization and inculcation of regime-friendly values.

Their new wrinkle is that they expand conventional models of schooling supply and demand to include provision of beliefs in addition to skills. As evidence, they cite the prevalence of religious schools as the alternative to government schools. Both governments and religious organizations "are willing to subsidize skill acquisition in order to link it with socialization and the inculcation of belief" (p. 8). They argue that while it might be easy to measure the acquisition of skills, it is difficult to accurately measure the degree to which people have acquired beliefs because consumers could contract for "insincere instruction" (pp. 9-10) One can be taught to say prayers, to pledge allegiance to the flag, or to recite the Gettysburg address without actually absorbing the beliefs these activities represent. The ability to recite the Pledge of Allegiance is not a credible signal that one in fact feels a sense of allegiance to the republic for which it stands.

They posit the existence of a "regime" with preferences that can be modeled; I think an interesting next step for the paper would be to introduce a theory of the polity that examines how sensitive the regime's objective function is different decision-making institutions and initial conditions. Casual empricism and my experience with American schools suggests that the key problem is common ownership with multiple parties claiming the legitimate right to be "the regime." The ideological commitments of the polity should then determine the degree to which regime-ownership is contested. For example, the Christian Coalition and Americans United for Separation of Church and State are likely to have irreconcilable differences about the form and function of education, particularly if that education is financed or provided by the state.

I think this is an important contribution to the literature on positive political economy. I look forward to seeing how this project evolves and how it contributes to Dan Klein's project on "The People's Romance."

Posted by Art Carden at 05:28 PM in Economics

Coming Events: Lectures at Rhodes

Kenneth G. Elzinga will give a talk this evening at 7:00 in the McCallum Ballroom at the Rec Center entitled "The Economic Logic of Vertical Price Agreements." Here's the official publicity info.

Lawrence H. White will give a talk on Monday evening at 7:00 in Barret 051 (the library) entitled "Can the Monetary System Regulate Itself?" Here's the official publicity info, and here's his recent article on the financial bailouts.

Posted by Art Carden at 01:27 PM in Economics

PERC environmental summer programs

The Property and Environment Research Center in Bozeman, MT, has a summer-long graduate fellowship program and a week-long colloquium on market environmentalism. Both are paid. Application deadlines are March 15 and 23, respectively. See description and links beneath the fold.

Read More »

By email from faculty directors Holly Fretwell and Daniel Benjamin:

The colloquium "Free Market Environmentalism and the Institutions of Liberty" is co-sponsored with Liberty Fund, Inc., and will be held June 15-20, 2009, at the Wingate Inn in Bozeman, Montana. As you may know, the colloquium is designed to introduce undergraduate students to a property rights and market approach to environmental issues. The colloquium is a combination of lectures and Socratic style discussions of assigned readings that address specific themes. Successful applicants will receive a scholarship for tuition, meals, lodging, and a travel stipend of $500. While it is helpful if the students are familiar with basic economic principles, we encourage non-economics majors to also apply. Students can apply online at perc.org. The deadline for submitting applications is March 23, 2009, but we encourage students to apply as soon as possible.

PERC's Graduate Fellowship Program brings students to Bozeman for three months during which each fellow writes a paper of publishable quality. Fellows are paid a monthly stipend of $1,600 as well as reasonable roundtrip transportation costs. Each student is assigned a mentor and is required to present two seminars during their stay. Typically, successful applicants are graduate and law students with an interest in natural resources, property rights, and environmental issues. Our past graduate fellows have come from a wide range of disciplines, including economics, law, history, international development, political science, philosophy, and natural resources. Successful applicants show potential for research and writing on a natural resource or environmental topic and are already working on a research paper, thesis, or dissertation. Whenever possible, our preference is to support research already underway that furthers the student's degree objectives. Program details, deadlines, and online application are available at: perc.org.

« Close It

Posted by Edward J. Lopez at 08:44 AM in Economics

March 03, 2009

People err, so let's use markets

Thoughtful words from William Easterly:

The huge fallibility of human actors makes the case for markets stronger, not weaker. The market itself triggers the corrective actions by both public and private actors when these actors do stupid things, like give too many mortgages to people who were not creditworthy and then try to cover it up with fancy securitization. The collapse of financial markets was a severe wake up call to change this stupid behavior; creative destruction is wiping out firms that made huge mistakes … . Since we recovered from all the previous crises of capitalism, it seems likely we will recover from this one.

HT: Anti-Dismal

Posted by Lawrence H. White at 09:39 PM in Economics

March 02, 2009

Financial bailouts

My piece in the March Freeman giving a critical account of the US Treasury's and Federal Reserve's bailouts of financial institutions, "See the Needle and the Damage Done," is now online here.

HT: Don Boudreaux

Posted by Lawrence H. White at 11:16 PM in Economics

The Economics and Politics of Prohibition

First they came for pot. Then they came for cigarettes. Then they came for fatty foods.

Posted by Art Carden at 12:48 PM in Economics

Economics Is the 'Just Right' Liberal-Arts Major

So says David Colander of Middlebury.

UPDATE: Mark Perry points to an NPR story on the growing popularity of the economics major.

Posted by E. Frank Stephenson at 08:17 AM in Economics

February 27, 2009

Entrepreneurs and the Great Conversation

Does modern capitalism sap us of all our creative and intellectual energies, leaving us alienated and demoralized? You be the judge. Here's a recent transaction that took place on Facebook:

1. A friend I haven't seen in a few years posts a graph of national debt as percentage of GDP since 1950 and *waits for Art to describe what's wrong with this graph*. He's not an economist, but if I recall correctly he has a Grammy.

2. I look at the graph and remember something I read in one of McCloskey's "Bourgeois Era" books about British debt. Not merely content to say "I think I've read that British debt in the early 19th century was twice British GDP," I'm able to download a .doc version of the book and with the use of the ctrl+f command, I'm able to produce a quote complete with a page reference for context.

3. I then use Moveable Type to write a short blog post about it before returning to my regularly-scheduled work. Google helps me find some of the things I want to link to. I'm able to strengthen a weak tie with a friend and contribute truth to the universe. I'm able to do all of this in the course of a few minutes without leaving my office.

All of this owes much to the entrepreneurial endeavors and ingenuity of Bill Gates, Steve Jobs, Michael Dell, Larry Page, Sergey Brin, and Mark Zuckerberg. The great irony is that all else equal, all four will probably be remembered by history as the great villains of the early 21st century.

Posted by Art Carden at 11:17 AM in Economics

Krugman, Stiglitz and me

Today I travel to New York for the Eastern Economic Association, where the luncheon address is by Paul Krugman and the evening plenary is by Joseph Stiglitz. I hope I make it to the Stiglitz lecture, but I might find myself at the Waldorf Astoria for Fox Business Happy Hour. Cody is hard core.

Posted by Edward J. Lopez at 06:36 AM in Economics

February 26, 2009

Headline spin

Here’s the top headline on this morning’s print edition of the St. Louis Post-Dispatch:

Nearly 1 million need food aid in Missouri

The word “need” is normative, not factual. It imparts a definite bias. It prompts the reader to think, “Oh, those poor unfortunate souls.” The facts reported in the story, about the statistics for January 2009, warrant a different headline:

Nearly 1 million received food aid in Missouri

It has a different normative connotation, doesn’t it?

P. S. The newspaper takes a factual approach in the headline it has put on the very same article’s online version:

More Missourians than ever sign up for food stamps

Posted by Lawrence H. White at 04:57 PM in Economics

Classical and Marxian AV Club

We finish reading Marx in Classical & Marxian Political Economy today, and we move to our discussion of the Industrial Revolution and changes in standards of living on Tuesday. In addition to the links below, I have a few parting thoughts on Marx below the fold (I'm basically live-blogging my class prep this morning).

First, here's a talk in which Steven Pinker argues that this is the most peaceful time in our species' history. He argues against the thesis that modern industrial/commercial society is in some way less harmonious than previous societies.

Here are two legendary talks by Hans Rosling in which he does absolutely incredible things with data using his Gapminder software.

Finally, co-blogger Lawrence H. White will give a lecture on monetary theory at Rhodes on Monday, March 9 at 7:00 PM in Barret 051. Here's a lecture by Professor White on "Gold and Free Market Banking" from the Mises Institute's first conference in 1983. Here (again) is an interview with Professor White's longtime co-author George Selgin on his recent book about private coinage. Comments on Marx are below the fold.

Read More »

What are we to do with Karl Marx the economist and with Karl Marx the social thinker more broadly? I rely here on the Oxford University Press edition of Schumpeter's History of Economic Analysis, pages 383-392; parts of the Routledge edition are on Google Books. Schumpeter argues that the two cannot really be separated--Marx the economist relies on Marx the sociologist and vice versa. Further, he argues that someone can't really understand Marx without a clear understanding of the German intellectual tradition in which he was writing, without reading all three volumes of Capital, and without reading Theories of Surplus Value.

Marx made several contributions that lend support to McCloskey's thesis that he was the most important social scientist of the nineteenth century. In my reading of Marx I have found him to be a positively gripping writer, sure and strong in his convictions and fundamentally revolutionary in his rhetoric. In spite of the fact that his scientific work was virtually inseparable from his political agitation, he was fundamentally an analytical economist in the classical tradition. Discussions of Marx have been marred by unthinking religious devotion on the part Marx's followers and by a refusal on the part of some anti-Marxists to defile themselves with his ideas (Schumpeter 1954 [1994]:385). It is, in Schumpeter's words, "analytical by virtue of its logical nature, for it consists in statements of relations between social facts" (p. 385). At the same time, Schumpeter continues by noting that Marx's science "was distorted not only by the influence of practical purposes, not only by the influence of passionate value judgments, but also by ideological delusion" (p. 385). Hence, Marx never developed a theory of the socialist economy but merely pointed to its alleged historical inevitability. He responded to his critics not with analysis and argument, but with ad hominem attacks that questioned the allegedly venal motives of those who dared to question his system.

A rich and well-explored irony of the Marxian system is the fact that Marx was himself "the product of a thoroughly bourgeois environment that failed to provide economic independence, and of a thoroughly bourgeois education that made him (as it makes so many) an intellectual, a radical, and a scholar--the radicalism being of the bourgeois brand of his time and the scholarship being of the historico-philosophical, as distinguished from the mathematico-physical type" (p. 386n). Marx's revolution was a revolution that began with the intellectuals (beginning with Marx, himself ensconced in the library of the British Museum) rather than the working class. Marx was a member of the bourgeoisie writing for intellectuals, elites, and other members of the bourgeoisie. While I'm borrowing explicitly from Schumpeter and Murray Rothbard, I think this is a charitable interpretation.

So what of Marx's economics, and what of his social theory? As I'm not a trained anthropologist, political theorist, sociologist, etc. I remain skeptically agnostic about Marx's contributions to social theory because I'm still unconvinced that his social theory does not derive from his thoroughly exploded and refuted economic theory. Bohm-Bawerk and Schumpeter argue that Marx the analytical economic thinker was logically consistent in the construction of his system; however, his economics was totally unfounded. Here is Schumpeter: "...Marx's system is seriously at fault. I mean only that he could have presented a comprehensive economic theory without violating logic--he would always have to do violence to facts" (p. 389).

According to Schumpeter, Marx's "Economic Interpretation of History" was original and important (p. 389), as was his attempt to "work out an explicit model of the capitalist process" that "trie(d) to uncover the mechanism that, by its mere working and without the aid of external factors, turns any given state of society into another" (p. 391). According to a very brief hallway conversation with a political science colleague I ran into on my way to and from the coffee pot, Marx's theories of class interest survive his exploded economics.* According to Rothbard, however, Marx slips between his "economic power" theory of class and the libertarian "political power" theory of class throughout the Communist Manifesto.

According to Schumpeter, Marx did make some important original contributions, but as I understand it these consisted largely of his pre-analytic vision rather than his analysis and conclusions. Rothbard is correct in his assessment of Marxism rather than capitalism being a system that has been "burst asunder," and it is unfortunate that Marx's unsophisticated "method" of criticism--don't let ideas stand and fall on their own merits, but attack and denounce your enemies as blinded ideologues and apologists for the bourgeoisie--continues to permeate the Great Conversation.

References

Bohm-Bawerk, Eugen von. 1949. Karl Marx and the Close of His System, in Paul M. Sweezy, ed., Karl Marx and the Close of His System by Eugen von Bohm-Bawerk and Bohm-Bawerk’s Criticism of Marx by Rudolf Hilferding. New York: Augustus M. Kelley.

Rothbard, Murray N. 1995 [2006]. Classical Economics. Auburn, AL: Ludwig von Mises Institute.

Schumpeter, Joseph A. 1954 [1994]. History of Economic Analysis. New York: Oxford University Press.

Comments and suggestions?

*I'm indebted to Arielle Goldberg for being kind enough to answer a couple of off-the-wall questions from an economist ten minutes before she had to teach a class.

« Close It

Posted by Art Carden at 10:43 AM in Economics

February 25, 2009

No earmarks tomorrow?

In the spirit of the "Free Beer Tomorrow" sign at your local tavern, the administration promises "No Earmarks Tomorrow" when it comes to the budget.

Here is the Omnibus budget. The "Letters of Certification" identify the pork barrel, er, directed spending, er, earmarks, but, alas, do not reveal the amount of money requested.

The certification letters for Division A (Agriculture) is only 35 megabytes.

Good grief.

Posted by Craig Depken at 01:44 PM in Economics

Economics via M.C. Escher

An interesting take on economic policy using M.C. Escher's fantastic drawings.

I like this one (Ricardian Equivalence?):

I'm not sure I agree with all of rest, but they provide for interesting thought experiments.

Posted by Craig Depken at 01:28 PM in Economics

Paul Heyne Quote of the Day

From p. 190 of Are Economists Basically Immoral?, writing on the mid-1980s Pastoral Letter from US Bishops concerned about the direction of the American economy:

"Voluntary actions move the world slowly and, from the global perspective, imperceptibly. Those who want to be sure of changing the cousrse of history must gain command of governments and armies? What are the concrete achievements of even Mother Teresa when laid alongside the differences made to the world by Stalin, Hitler, Mao, or almost any ruler of the most minor state in the United Nations? The contemporary turn to government for the solution of all problems is not some kind of neurosis; it reflects an accurate judgment about where social power is concentrated today."

Posted by Art Carden at 11:04 AM in Economics

More Rhetoric and Narrative: Are There Limits to Growth?

When you have a hammer (or drafts of future volumes in McCloskey's "Bourgeois Era" series), everything looks like a nail. Here's James Lileks on disturbing statements about childbirth and the environment (HT: Russ Roberts at Cafe Hayek). Here's the obligatory "gotcha" line, which scores rhetorical points while also carrying the narrative to its logical conclusion:

"It is heartening to think that encouraging the government to tell parents to abort #3 for the sake the environment is still too controversial."

This calls to mind a classic thought experiment that I've borrowed when talking about whether there are limits to economic growth. If the world is "overpopulated," i.e., if there are too many people, then who should we get rid of? What qualifies you to make that decision?

More concretely: on Sunday evening, we had friends over for dinner. Their daughter is a couple of weeks older than our son. Would the world be a better place if one of the two hadn't been born? In what ways? How do you know? On what grounds do you assume the right to be consulted regarding who lives, who dies, and whether your neighbors are allowed to reproduce? If the answer is "unpriced externalities," then how large are they? What are the specific transaction costs that prevent efficient Coasean bargains?

Note that these are questions that come up over the course of the discussion rather than bullying and badgering on my part. The economic way of thinking about the environment tells us that these are the questions that we have to answer before we can make so bold a statement as "there are too many people."

I tell my students that my recent foray into fatherhood has made me a better person and a better economist. For more, here are some notes on Julian Simon. Here's Bryan Caplan on having more kids--and congratulations to Bryan, by the way, on the imminent arrival of another baby Caplan.

Posted by Art Carden at 09:41 AM in Economics

February 24, 2009

People Respond to Incentives: Law Enforcement and No-Knock Raids

Radley Balko has gained some notoreity around the blogosphere for documenting rights violations by police departments conducting military-style drug raids under cover of night. Today, he offered one of the best blog post titles ever:

"Tearful Atlanta Cops Express Remorse for Shooting 92-Year-Old Kathryn Johnston, Leaving Her to Bleed to Death in Her Own Home While They Planted Drugs in Her Basement, Then Threatening an Informant So He Would Lie to Cover it All Up"

Radley's snarky title basically summarizes the case. Here's the Atlanta Journal-Constitution summary of the sentencing.

This is an atrocity that we should learn from. My view on provision of police services is fundamentally a constrained vision. We don't get things like this because of bad people per se, and we can't fix it by filling the police force with good people per se. The problem is with the incentives in place. No-knock raids, killings, and coverups are predictable responses to the incentives provided by the drug war. Governments are monopoly providers of police services, and they face political rather than economic incentives. It should not be surprising that they behave accordingly. No one is collecting systematic data on this as far as I know, but the quantity and character of the incidents Radley has chronicles suggests to me that there is something more than chance at play here.

Radley also makes an important point that complements some of Deirdre McCloskey's recent work on the bourgeois era. McCloskey argues that a change in rhetoric whereby bourgeois innovation became respectable explains the massive increases in western standards of living since the industrial revolution. It's a provocative (and so far unproven) thesis, but I think it has a lot of merit. Radley points his finger at the last thirty or so years of the war on drugs and argues that the drug war narrative--indeed, "war" metaphor used to describe the attempt to stamp out a capitalist act between consenting adults that some people don't like--is one of the root causes. Here's the economic case against drug prohibition. Here's a really frightening PSA from the 1980s.

HT: Marie Hyunh, Boing-Boing Blog. Cross-posted at The Beacon.

Posted by Art Carden at 06:36 PM in Economics

Nationalize the banks?

Jerry O'Driscoll in today's Wall St. Journal explains why nationalizing going-concern banks, even temporarily for the sake of recapitalizing or resolving them, is playing with fire. He notes the ways in which the US is not Sweden when it comes to the prospects for resolution through temporary nationalization.

Here's his closing peroration:

Rather than focusing on ways in which we can further involve the government in the financial system, we need to find ways to extricate banks from government's deadly embrace. Banks, at least the behemoths, were public-private partnerships before the crisis. Deposit insurance, access to the Fed's lending, and the implicit (now explicit) government guarantee for banks "too big to fail" all constituted a system of financial corporatism. It must be ended not extended.

Posted by Lawrence H. White at 05:01 PM in Economics

Templeton Essay Contest Announcement

The Sir John M. Templeton Fellowships Essay Contest for junior faculty and students in higher education is held every year. The submission deadline is May 1, 2009 . Winners will be announced in October, 2009 . The 2009 Templeton Fellowships will be awarded for the best essay on the topic:

“Only a virtuous people are capable of freedom. As nations become corrupt and vicious, they have more need of masters.”
—Benjamin Franklin

Which virtues contribute the most toward achieving freedom, and how can the institutions of civil society encourage the exercise of those virtues?

Please visit the Guidelines page for more information about how to write your essay.

Awards:
Students

Junior Faculty Members

First Prize: $2,500
Second Prize: $1,500
Third prize: $1,000

First Prize: $10,000
Second Prize: $5,000
Third Prize: $1,500

Deadline: May 1, 2009

The Sir John M. Templeton Fellowships Essay Contest encourages college students and young college professors around the world to study the meaning and significance of economic and personal liberty.

Co-sponsored by the John Templeton Foundation and the Independent Institute, the essay contest honors Sir John M. Templeton and is held annually with a different topic each year.

Created in 1974 by Olive W. Garvey, the Fellowship contest has drawn essay submissions from more than 75 countries on 5 continents. Garvey winners have since become some of the finest of scholars, business and civic leaders, and journalists, applying and advancing public knowledge and appreciation around the world for the ideas of individual liberty and personal responsibility.

* Essay Guidelines
* Suggested Essay Reference Bibliography
* Past Winners
* Submit Your Essay

The Independent Institute will publish the winning essays on this website and seek to have them published elsewhere in major magazines and journals. All winning entries become the property of and are copyrighted by The Independent Institute.

More info here.

Posted by Joshua Hall at 01:53 PM in Economics

A Possible Exam Question: Are Lives "sure to be saved"?

My econ 101 students have an exam on Thursday, and the Memphis Commercial Appeal editorialized this morning in favor of a regulation that will require "recreational boaters and swimmers who venture outside designated areas to wear life vests." They write that "(l)ives are sure to be saved." A rough draft of a possible exam question:

The Corps of Engineers is requiring recreational boaters and swimmers on certain parts of four lakes in North Mississippi to wear life jackets. The Memphis Commercial appeal claims that "(l)ives are sure to be saved over the next three years." Is this true, false, or uncertain? Explain your answer using the key elements of economics we have developed in class.

Posted by Art Carden at 09:40 AM in Economics

February 23, 2009

Recent Reading: Unfinished Thousand-Page Tomes

Gavin Kennedy offers a clear, succinct, and enlightening discussion of Smith's value theory in response to an earlier post here. In the post he mentions that he is working on a paper about Smith's value theory; it's a paper I look forward to reading. While I claim that Smith has a labor theory of value that lays the foundation for Marx, Kennedy offers a reading of Smith's theory of value that would suggest a correct, subjectivist theory of value whereby value is only realized in exchange.

Prepping for Classical & Marxian Political Economy has been difficult, time-consuming, and rewarding. In addition to the readings I've assigned for my students, I've been reading enormous, unfinished treatises on the history of economic thought. The first is Murray Rothbard's two-volume Austrian Perspective on the History of Economic Thought. This was originally supposed to be a three-volume set, but Rothbard was unable to finish it before he passed away. The second is Joseph Schumpeter's almost 1300 page History of Economic Analysis. Both are breathtakingly detailed (as one might expect from over two thousand pages of historical intellectual analysis), and they offer nuanced, provocative discussions of the history of the discipline. A few notes on Schumpeter's treatment of Marx and ideology are below fold.

Read More »

I'm now looking at pp. 35-38 of Schumpeter, a passage in the section "Is the History of Economics a History of Ideologies?" in which he discusses the Marxian theory of ideology. Marx argued that late eighteenth and early nineteenth century political economy was the intellectual embodiment of bourgeois class interests. While Marx was correct to note that, in Schumpeter's words, "people's ideas are likely to glorify the interests and actions of the classes that are in a position to assert themselves and therefore are likely to draw or imply pictures of them that may be seriously at variance with the truth" (p. 35), a predisposition toward bias and error does not by itself suggest that the potential for intellectual bias implies the certainty of error (or knavery, as the case may be). Schumpeter offers three criticisms of Marx's "class interest" theory of political economy (p. 36):

"First, while Marx was so much alive to the ideological character of systems of ideas with which he was not in sympathy, he was completely blind to the ideological elements present in his own."

Marx's theory of ideas does not explain how he and Engels, both bourgeois themselves, were somehow able to overcome their class interests and "see the light," so to speak. Further, the method of Marxian kritik consists largely of ad hominem attacks against those whose bourgeois interests must be exposed. Perhaps class interests should give us reason for greater skepticism, but the penchant for denunciation in Marx and his followers short-circuited the conversation.

"Second, the Marxist analysis of ideological systems of thought reduces them to emulsions of class interests which are in turn defined in exclusively economic terms."

Once more, with feeling: Marx's theory of ideas does not explain how he and Engels, both bourgeois themselves, were somehow able to overcome their class interests and "see the light," so to speak.

"Third, Marx and especially the majority of his followers assumed too readily that statements which display ideological influence are ipso facto condemned thereby."

Once more, with feeling: Further, the method of Marxian kritik consists largely of ad hominem attacks against those whose bourgeois interests must be exposed. Perhaps class interests should give us reason for greater skepticism, but the penchant for denunciation in Marx and his followers short-circuited the conversation.

This is where Marx's scientific contribution leaves off and his political inclinations start to do real damage to the Great Conversation. For Marx and his followers, ideas did not stand to be confirmed or refuted on their own merits but on the basis of whether they are promulgated by apologists for the bourgeoisie.

« Close It

Posted by Art Carden at 03:27 PM in Economics

February 20, 2009

Endless Summer

Not quite, but the AIER Summer Fellowship Program is a pretty close substitute. I spent several very productive weeks at AIER last summer, and I highly recommend it for students and professors looking for a place to get some serious work done this summer. It's a great deal for students especially because in addition to the classes you will take, you'll spend time enjoying meals, movies, seminars, and more with your colleagues and with visiting faculty.

Posted by Art Carden at 01:50 PM in Economics

February 19, 2009

Crisis of Credit

An interesting visual depiction of how CDOs work. I am not sure I buy the implied predatory lending, I think there were just as many predatory borrowers. After all, are we to imagine that mortgage brokers had a monopoly on "greed"?

Posted by Craig Depken at 06:41 PM in Economics

My Labour Confronts Me as Something Alien

I just ordered a few Snuggies. I didn't know the product existed until a few minutes ago. Thanks, Freakonomics!

So does advanced capitalism rob us of our creative, human powers? Check out the fruits of this YouTube search for "Snuggie" and decide for yourself.

Posted by Art Carden at 10:31 AM in Economics

February 18, 2009

Lou Dobbs Favorite Economist Must Be ...

... Peter Morici who, in a recent letter to the WSJ, claimed that "the U.S. open trade policy with China has made many Americans victims." Here's my response in today's WSJ:

Peter Morici (Letters, Feb. 11) asserts that "U.S. open trade policy with China has made many Americans victims." Perhaps, but research by the University of Chicago's Christian Broda and John Romalis suggests otherwise. Profs. Broda and Romalis find that imports from China have been tremendously beneficial for American consumers, especially low-income consumers who spend more of their income on goods, such as food and clothing, that are affected by trade.

As a result, Profs. Broda and Romalis estimate that from 1994 to 2005 the poorest 10% of consumers experienced inflation six percentage points below the inflation experienced by the highest-earning 10% of consumers.

Here's more on the Broda and Romalis study.

Posted by E. Frank Stephenson at 09:52 PM in Economics

Mises Quotes of the Day

Last year one of our students helped me compile the underlined and highlighted passages from Socialism: An Economic and Sociological Analysis. A propos yesterday's notes on Julian Simon, I've put a bunch of interesting and potentially useful quotes below the fold.

Read More »

“Spiritual movements are revolts of thoughts against inertia, of the few against the many; of those who because they are strong in spirit are strongest alone against those who can express themselves only in the mass and the mob, and who are significant only because they are numerous. Collectivism is the opposite of all this, the weapon of those who wish to kill mind and thought…collectivism seeks consciously to cut every tie the unites sociological with scientific thought.” p. 53

“In the Liberal Social Philosophy the human mind becomes aware of the overcoming of the principle of violence by the principle of peace. In this philosophy for the fire time humanity gives itself an account of its actions. It tears away the romantic nimbus with which the exercise of power had been surrounded. War, it teaches, is harmful, not only to the conquered but to the conqueror.” p 59

“History is a struggle between two principles, the peaceful principle, which advances the development of trade, and the militarist-imperialist principle, which interprets human society not as a friendly division of labour but as the forcible repression of some of its members by others. The imperialistic principle continually regains the upper hand. The liberal principle cannot maintain itself against it until the inclination for peaceful labour inherent in the masses shall have struggled through to full recognition of its own importance as the principle of social evolution.” p. 268

“The ideas of modern Socialism have not sprung from proletarian brains. They were originated by intellectuals, sons of the bourgeoisie, not of wage-earners." p. 317

“States and government are the social apparatus of violent coercion and repression. Such an apparatus, the police power, is indispensable in order to prevent anti-social individuals and bands from destroying social co-operation. Violent prevention and suppression of anti-social activities benefit the whole of society and each of its members. But violence and oppression are none the less evils and corrupt those in charge of their application. It is necessary to restrict the power of those in office lest they become absolute despots. Society cannot exist without an apparatus of violent coercion. But neither can it exist if the officer holders are irresponsible tyrants free to inflict harm upon those they dislike.” p. 519

“The laws establish norms of legitimate action. They fix the procedures required for the repeal or alteration of existing laws and for the enactment of new laws. They likewise fix the procedures required for the application of the laws in definite cases, the due process of law. They establish courts and tribunals. Thus they are intent upon avoiding a situation in which the individuals are at the mercy of the rulers.” p. 520

Thanks to Mallory Raffensberger for helping me compile these.

« Close It

Posted by Art Carden at 03:58 PM in Economics

On the radio

This afternoon from 4:30 [note change] to 5 (Central) I’ll be talking about the financial mess and the economy live on Crane Durham’s talk show, “Nothing But Truth,” on American Family Radio. Check for your local AFR Talk station here. If you’re reading this after the fact, a podcast of the show should be available here.

ADDENDUM: The podcast is now available at the above link; my segment takes up the second half hour. Don't miss the listener who asks me about a statement Gustav Cassel made in 1928!

Posted by Lawrence H. White at 03:32 PM in Economics

David Harvey on Karl Marx

Geographer/social theorist David Harvey offers a complete package of lectures on the first volume of Capital here. I mentioned earlier the blogospheric fisticuffs between Harvey and Brad DeLong, and I'm glad that Professor Harvey's lectures are available online. We start discussing Marx in Classical & Marxian Political Economy tomorrow, and while I want to read The Bearded One as sympathetically as possible, I can't escape the conclusion that the marginalist/subjectivist critique originating with Bohm-Bawerk destroys the entire Marxian system. In fairness to Marx, he derived his erroneous value theory from Adam Smith and David Ricardo, but in fairness to the classical economists, they did not try to build an entire theory of history and social change on so sandy a foundation as the proposition that labor alone is the source of value. As I read Adam Smith, his endorsement of the "obvious and simple system of natural liberty" does not derive from his value theory.

One of my undergraduate professors said that Marx's economics was "stillborn," and the more Marx I read the more I am persuaded that one has to say the same about all that his economics implies--which is to say, his entire system. Nonetheless, my intellectual life is richer as a result of having dealt with Marx in some detail as I've prepared for this semester and for the next few weeks of class. Here, though, is Murray Rothbard's assessment, with which I'm inclined to agree (from p. 433 of Classical Economics):

"Thus, Karl Marx created what seems to the superficial observer to be an impressive, integrated system of thought, explaining the economy, world history, and even the workings of the universe. In reality, he created a veritable tissue of fallacies. Every single nodal point of the theory is wrong and fallacious, and its 'integument'--to use a good Marxian term--is a web of fallacy as well. The Marxian system lies in absolute tatters and ruin; the 'integument' of Marxian theory has 'burst asunder' long before its predicted 'bursting' of the capitalsit system. Far from being a structure of 'scientific' laws, furthermore, the jerry-built structure was constructed and shored up in desperate service to the fanatical and crazed messianic goal of destruction of the division of labour, and indeed of man's very individuality, and to the apocalyptic creation of an allegedly inevitable collectivist world order, an atheized variant of a venerable Christian heresy."

Posted by Art Carden at 02:45 PM in Economics

Brad DeLong on Karl Marx the Economist, the Activist, and the Moralist-Prophet

Building on yesterday's post, the complete set of DeLong's commentaries on Marx is below. DeLong has gotten into a bit of an argument with CUNY anthropologist David Harvey about the stimulus. Here's Harvey's first offering, DeLong's critique, and Harvey's reply. For now, here's Brad DeLong.

On Marx the Economist:

On Marx the Political Activist:

On Marx the Moralist-Prophet:

Posted by Art Carden at 11:19 AM in Economics

February 17, 2009

Notes on Julian Simon

After prepping my notes for Econ 323 (the source of the Adam Smith quotes below), I started grinding down the accumulating pile of stuff in my office. Among said stuff was a set of notes on Julian Simon's The Ultimate Resource 2, which I hadn't read until my first semester at Rhodes but which I would like to integrate into the undergraduate curriculum in some way. I'll be using the notes to update my IHS lecture on the limits to growth for this summer. Notes are below the fold.

Read More »

Simon lays out his system on page 579: population growth and increases in income lead to higher demand, which raises prices. This leads people to search for new supplies and for ways to use what they have better, which creates new sources of income as well as substitutes.

The mind is the ultimate resource. On p. xxxi, Simon gives his testimony, paraphrasing a Jewish chaplain at Iwo Jima:

“How many who would have been a Mozart or a Michaelangelo or an Einstein have we buried here? And then I thought: ‘Have I gone crazy? What business do I have trying to help arrange it that fewer human beings will be born, each of whom might be a Mozart or a Michaelangelo or an Einstein—or simply a joy to his or her family and community, and a person who will enjoy life?”

He then states the fundamental issue and the “central matters in dispute” on p. xxxiv:
“The real issue is not whether one cares about nature, but whether one cares about people.”
“The central matters in dispute here are truth and liberty, versus the desire to impose one’s aesthetic and moral tastes on others.”

An insertion based on reading Paul Heyne and Thomas Jefferson: do those who wish to impose their values by force have a right to be consulted on others’ decisions that neither pick their pockets nor break their legs?

Simon quotes Franklin Pierce Adams on p. 17: “Nothing is more responsible for the good old days than a bad memory.”

p. 571: “…even talented and energetic people require an incentive to create better techniques and organizations…(t)herefore, the political-economic structure is the crucial determinant of the speed with which economic development occurs.”

On the Popularity of the Malthusian Model (p. 583):
1. Malthusian reasoning is simple and analogous to many situations. Simon’s model is not.
2. Immediate pressure creates immediate negative effects, and these effects have distributional consequences stemming from a change in relative prices.
3. There are groups that have stakes in alarmism.
4. Scare sells.
5. Organizations that arise to “fix” different problems do not always disband when they accomplish their objectives.
6. The profit motive is ugly, not beautiful; superficially, it calls to mind our baser instincts.
7. Environmentalism enjoys a “wide reputation for high-minded concern” (p. 584).

Simon’s contribution is a triumph of good science. He asks: if something were growing ever more scarce, how would we know it? His answer is that we should look at economic rather than physical measures. In other words, instead of looking at proven reserves, we should look at the price (paraphrased, no page number for this). Simon proposes a method that would allow us to distinguish between competing hypotheses and rule out one of them as false.

On page 27, Simon distinguishes between the methods of the technologists/engineers and those of the economists. The technologist/engineering approach estimates proven reserves and extrapolates rates of current use, treating the first as the inventory and the second as depletions of that inventory. Simon asks whether the data suggest whether the future will be substantially different from the past. This is summarized in his statement on page 31: “Current and future price is our best measure of both current and future scarcity.”

Recycling is an example of innovation that creates new resources (p. 43). Further, when resources that biodegrade slowly are put in landfills, they don’t disappear forever. They are waiting for new ways to be processed and reused. Of course, there are possible externalities from chemicals polluting groundwater.

« Close It

Posted by Art Carden at 11:43 AM in Economics

David Boaz on Disaster Socialism

David Boaz takes the administration to task.

Posted by Art Carden at 10:41 AM in Economics

Adam Smith Quote of the Day, Part II

“To expect, indeed, that the freedom of trade should ever be entirely restored in Great Britain, is as absurd as to expect that an Oceana or Utopia should ever be established in it. Not only the prejudices of the publick, but what is more unconquerable, the private interests of many individuals, irresistibly oppose it. Were the officers of the army to oppose with the same zeal and unanimity any reduction in the number of forces, with which master manufacturers set themselves against every law that is likely to increase the number of their rivals in the home market; were the former to animate their soldiers, in the same manner as the latter enflame their workmen, to attack with violence and outrage the proposers of any such regulation; to attempt to reduce the army would be as dangerous as it has now become to attempt to diminish in any respect the monopoly which our manufacturers have obtained against us. This monopoly has so much increased the number of some particular tribes of them, that, like an overgrown standing army, they have become formidable to the government, and upon many occasions intimidate the legislature. The member of parliament who supports every proposal for strengthening this monopoly, is sure to acquire not only the reputation of understanding trade, but great popularity and influence with an order of men whose numbers and wealth render them of great importance. If he opposes them, on the contrary, and still more if he has authority enough to be able to thwart them, neither the most acknowledged probity, nor the highest rank, nor the greatest publick services can protect him from the most infamous abuse and detraction, from personal insults, nor sometimes from real danger, arising from the insolent outrage of furious and disappointed monopolists.”

Wealth of Nations, 4.2.43, emphasis mine.

Posted by Art Carden at 09:47 AM in Economics

Dan Mitchell on Economic Growth, Brad DeLong on Karl Marx

Here's Dan Mitchell on Growth (HT: Peter J. Boettke):

Here's Brad DeLong on the relevance of Karl Marx:

Posted by Art Carden at 09:27 AM in Economics

Adam Smith Quote of the Day

"No regulation of commerce can increase the quantity of industry in any society beyond what its capital can maintain. It can only divert a part of it into a direction into which it might not otherwise have gone; and it is by no means certain that this artificial direction is likely to be more advantageous to the society than that into which it would have gone of its own accord."

Wealth of Nations, Book 4, chapter 2, paragraph 3

Posted by Art Carden at 09:09 AM in Economics

The Greedy Hand

In Oregon,

Outrage brewing over proposed 1,900% beer tax hike

In Australia,

HOUSEHOLDERS would be charged for each flush under a radical new toilet tax designed to help beat the drought.

Just as the true incidence of a tax depends on the underlying elasticities rather than than the statutory intent, I'm guessing these taxes have a similar incidence. People can be taxed when they drink beer or when they pee it out, though I imagine the Aussie tax will be widely evaded by people relieving themselves outdoors etc.

Posted by E. Frank Stephenson at 09:07 AM in Economics

February 12, 2009

School reading c. 2009

I have three young children so I have yet to experience the public education system. Supposedly the schools in our county of residence are "good," whatever that means. I think most people are comparing to a border-county's schools, thus "good" might not be saying much. With that, my question is real and I wonder if any DoL readers are willing to offer their insight.

This morning during a visit at Books-a-Million at our local mall I noticed the "School Reading List" section and took a gander. Here are some of the books on the shelf:

Animal Farm

1984

Anthem

Atlas Shrugged

The Fountainhead

Fahrenheit 451

Slaughter House Five

Killer Angels

There were a few other books, such as the Grapes of Wrath and A Farewell to Arms, but most of them were written by lesser-known or minority authors. While I was pleasantly pleased that these books were (still) on the list, I wonder what the students are being taught they should take from them.

I would lead the discussion of these books in the following way. Each of them shows one or more of the following (not an exhaustive list):

a) the folly of government intervention in the market;
b) the ultimate devolution of "democratic" governments into authoritarianism;
c) the morality of personal rights and personal property rights;
d) the outcomes of ignoring the non-coercion axiom.

Here is my fear of what students are actually taught (this is an outcome of a discussion with my financial adviser, er, wife):

a) government intervention in the market is too often foiled by "greedy" individuals and corporations;
b) the devolution of "democratic" governments is fantasy and cannot happen (after all, we are past 1984 and animals can't really talk);
c) personal rights writ large are not as important as personal rights to specific consumption goods (e.g., health, housing, transportation, clean air, reduced global warming, etc);
d) the non-coercion axiom is a tenet of a crank philosophy that has proved untenable in the U.S. political arena and therefore, consistent with our American Idol/Top Chef/Survivor/Apprentice/Top Model mind set, it is no longer of importance or of being able to contribute to the social debate.

My experience with most of these books has been rather personal (especially Ayn Rand's work, which I came across on my own by accident). However, I do remember reading Animal Farm in (admittedly private) high school and our teacher explicitly pointing out the allegory with Stalinist Russia and, perhaps even more shocking, how repressive and murderous Soviet Russia had been. I wonder if such a discussion can or does happen today?

Posted by Craig Depken at 04:01 PM in Economics  ·  Comments (14)

Newspaper Publishers Full Employment Act c. 1909

How about this for "economic stimulus" from the Feb. 12, 1909 NYT:

Every railroad company in the State will be required to publish in all newspapers of every city, town, and village within the State through which its lines operate a schedule of the movement of its passenger trains, if a bill introduced today by Assemblyman Cuvillier becomes a law.

So, either the newspapers of the state of New York would become obnoxiously large and heavy, what with the large number of railroads in operation at the time, or the schedules would be printed in 3-pitch font rendering them impractical to read.

Yes, the government has often felt obligated to intervene in what seem to be otherwise healthy markets.

Posted by Craig Depken at 03:29 PM in Economics

Nothing spurs one into entrepreneurship like the sudden, unexpected decline in his opportunity costs

I wanted to share a Principles of Economics class assignment designed to make the students think more carefully about the concepts of entrepreneurship, opportunity cost and the role of government in society. I cannot be credited with this idea, as I learned of it from another economist at an SEA conference many years ago (and, shamefully, whose name I cannot recall). This assignment is comprised of answering various questions regarding Somerset Maugham's short story, "The Verger." I can send anyone interested an abridged version of the story that I use as a homework assignment. You can contact me here.

The story revolves around a verger (sort of a church custodian) pressured to leave his employment due to his illiteracy, and for his unwillingness to correct it. His despondent demeanor causes him to wander the nearby streets to buy a pack of cigarettes to calm him down. Unfortunately, he can't seem to find a tobacconist anywhere nearby. So he then decides to gamble his meager savings on starting a small tobacco shop in the area that ultimately ends up becoming a chain of shops that generate a tidy stream of profits for him.

The closing paragraphs describe an increduluous banker's reaction upon learning of the (continued) illiteracy of this highly successful business man who is satisfying so many consumers in the neighborhood. "Good God, man, what would you be now had you been able to (read and write)?" With a smile the illiterate man states that he'd still be the modest verger toiling away at his church.

I use this story to illustrate the role of unpredictable serendipity, idiosynchratic market insight among individuals, and a willingness to accept signifiant risk as necessary characteristics of entrepreneurship. In this light I ask my students to consider whether any kind of centralized government entity would have a comparative advantage in exploiting these key characteristics relative to the decentralized collection of individuals voluntarily interacting in society. This question is even more applicable during today's pressure for accepting ever more government intervention into allocating our nation's productive resources.

I get the students to consider what aspects of this scenaraio were foreseeable and which were not. I ask them to consider how nothing spurs an individual's willingness to become an entrepreneur more than a sudden, unexpected and significant decline of one's opportunity costs (that is, when there is nowhere to go but "up"). I then ask them to consider whether government policy, as designed by literate and highly learned men, can adequately be designed and implemented to respond to such ever-changing, unpredictable opportunity costs as well as individuals--even illiterate ones.

It all makes for a good class discussion starter and a nice seque from the usual comparative advantage section of the intro chapter(s) into the section on comparing and contrasting economic systems. I think it makes the potentially dry, conceptual discussion of socialism versus capitalism much more tangible and increases the student's empathy for the individual's perspective in each system.

Posted by Mike Stroup at 11:55 AM in Economics

February 11, 2009

Utterly stimulating

If you move fast and go here, you can see a clip of me and two of the other LSUS economists (new slogan: twice as many faculty as last year!). It's in the Top News Videos section on the right, currently on page 4, "How will the stimulus package help you and I?" (Check out the Baywaytch-style slow-mo at about 0:42.) Of course, creative editing left in Chris' comment about the multiplier, and left out all of us expressing significant doubts about it being that high (let alone above 1). For the record, I was one of the two out of three advising nothing.

One of my favorite reads of last year was Jim Powell's FDR's Folly. Even though it's currently ranked #832 in books, it doesn't appear to have been read by anyone in DC lately (okay, maybe at Cato, but not by anyone with a finger on a real button). With all of this stimulus fever, I'm tempted to buy this Snorg t-shirt: it combines pithy but economically saavy commentary with greater-than-mild nerdiness.

Posted by Tim Shaughnessy at 03:33 PM in Economics

DeLong on the Academic Job Market

Brad DeLong argues (briefly and convincingly) that Berkeley should hire aggressively in this year's job market. Why don't they? I think there's a lot to be said for the psych econ/sports econ results suggesting a bias toward inaction, and I think there are institutional forces at work, as well. I read this morning that the same schools who were the subjects of government investigations into their accumulation of ginormous endowments are now bound by rules saying they can't draw down their endowments to cover budget shortfalls or proceed with hiring plans.

Posted by Art Carden at 01:38 PM in Economics

February 10, 2009

Bleggar Thy Neighbor

Recent blegs have led to some pretty interesting emails. First, a Rhodes alum and former Program Director for the Governor's Books From Birth Foundation emailed detailed information about the Tennessee books program I discussed recently. Apparently, Tennessee is keeping copious data on it and apparently there are a few things that are unique about the Tennessee program. Since Tennessee borders more states than any other, the opportunities for clear identification are numerous. I revise downward my estimated probability that "Shelby County and the State of Tennessee are wasting their money" to about 0.75.

Second, regarding the popularity of Marx in the Ivory Tower, Todd Kendall sent along the following, which he heard from Allen Sanderson at Chicago: if we eliminate the market, most people would choose merit as the critierion for allocating resources. Therefore, resources would be redistributed toward intellectuals. He notes, though, that this doesn't explain why economists reject Marx.

Finally, a student emailed me about Paul Krugman's post on the possible second-best benefits protectionism. My response:

I've seen this--this is actually a pretty good argument. Krugman is saying that in a world where countries cannot coordinate their fiscal/monetary stimuli, protectionism might be wealth-increasing because it keeps the stimulus money inside the country. At the end of the piece, though, he makes the same criticism that I would make, which is that while the proposal works in an ideal world, political reality makes it almost impossible to implement without it being distorted by special interests. Further, the long-run costs are likely to outweigh the short-run benefits because, as Krugman points out, returning to the status quo would be politically difficult.

Bonus: On my way back from class a few minutes ago, I saw a few posters for an on-campus discussion of whether aid can work. I don't know if I'll be able to make it, but if a couple of posters in the hallway are sufficient indicators, it looks like the organizations sponsoring the event are taking what William Easterly would call a "searcher" approach to aid and development. For more, here's Easterly's new Aid Watch blog. Here's my take on foreign aid and the economics of institutions.

Posted by Art Carden at 06:28 PM in Economics

February 09, 2009

Books in the Home and Child Development

A couple of things have happened recently that have caused me to think about the high correlation between the number of books in a child's home and his or her educational attainment. First, I recently purged a lot of books from my offices at home and at school (beneficiaries include the Barret Library at Rhodes and the library at Bellevue Baptist Church).

Second, we got our most recent free* kids' book from Shelby County, in cooperation with the Dolly Parton Imagination Library and the Tennessee Books from Birth Foundation. If I remember Freakonomics correctly, programs like this are based in part on the "books in the home"=>high achievement correlation, but it isn't the books as such that are causing achievement. It's the fact that "books in the home" is a proxy for the kind of home environment in which education, reading, and achievement are valued.

This kind of environment probably cannot be created from the top down by well-intentioned social reformers mass-mailing copies of The Little Engine That Could to familes with young children. Hence, I believe that the proposition "Shelby County and the state of Tennessee are wasting their money" is true with p = 0.95. If you know of any research that has estimated the effects of these programs, please let me know. The same goes for any instances in which programs like this have been eliminated because it has been found that they are ineffective; my hunch is that any proposal to stop mailing books to infants is a political no-sell.

Of course, the program could be more effective if it devoted its resources toward books that every kid should read.

*-"free" as in "our tax dollars at work."

Posted by Art Carden at 04:31 PM in Economics

Congrats, &tc.

Congrats to Art for his nice time in his first (?) race and winning of the bet! I'll be happy to substitute a fine non-HFCS-laden Coke for the beer I owe him, but would offer up a nice glass of Zacapa Centenario as an option. (Btw, I just got back yesterday from a Liberty Fund symposium in Guatemala and scored a couple liters of Zacapa for the liquor closet.)

On the subject of running, I'll happily brag a little about my marathon time from last weekend. 3:10:53 in the Mardi Gras New Orleans Marathon. It was a near perfect run. I ran a negative split (1:36 for the first half and 1:34 for the second) and felt great all the way. This is a new PR and I'm really thrilled. Alas the Boston Marathon has already closed for 2009, but I'm planning to go back in 2010.

On the work front, I recommend this new article from Djankov, et al. on "Disclosure by Politicians". I think this paper represents the background for a possible forthcoming Doing Business category on corruption/transparency.

We collect data on the rules and practices of financial and conflict disclosure by politicians in 175 countries. Although two thirds of the countries have some disclosure laws, less than a third make disclosures available to the public. Disclosure is more extensive in richer and more democratic countries. Disclosure is correlated with lower perceived corruption when it is public, when it identifies sources of income and conflicts of interest, and when a country is a democracy.

Posted by Robert Lawson at 10:39 AM in Economics

February 07, 2009

Treatment Effect of Cohabitation Bleg

I listen to a local Christian talk radio station when I'm driving, and today I heard another discussion of the alleged perils of premarital cohabitation. I say "alleged" because while I'm sympathetic to the basic argument, I'm not convinced we're measuring the effect accurately. The guests interviewed made a number of comparisons between married couples who never cohabited and married couples who did, and according to a variety of indicators non-cohabiting couples do much better: they're happier, they're more likely to stay married, etc.

Nothing was said about the identification strategies used in the studies mentioned, however. What appear to be simple differences-in-means comparisons omit a lot of relevant information, and the decision not to cohabit before marriage is likely to be related to a lot of other characteristics that might make for a long, happy marriage. The difference in the probability of divorce for cohabiting and non-cohabiting couples reported on the radio is an upper-bound estimate of the real effect of cohabitation on the probability of divorce. A quick Google Scholar search for ["treatment effect" cohabitation] doesn't yield much that I can access. Any cites identifying the treatment effect of prior cohabitation on the probability of divorce would be greatly appreciated. If this hasn't been done, it would be a great paper topic for someone interested in issues related to labor and the family.

I find this interesting for reasons beyond just curiosity or concern for the welfare of society. There is also the matter of wise stewardship. Systematically biased information about social phenomena lead to inappropriate policies, programs, and assorted endeavors. In a world with scarce resources, this means that we might not be maximizing the bang we're getting out of our charitable and educational bucks. Time and money directed toward counsel against premarital cohabitation on the belief that it leads to a substantial deterioration in the quality of the future marriage and an increase in the probability of divorce will be poorly spent if the impact of premarital cohabitation on marriage quality and duration is small. If the effect is small, then the time and money groups are spending fighting premarital cohabitation might yield greater fruit if they are used elsewhere. Here are my priors: I wouldn't be surprised if the treatment effect of cohabitation on the probability of divorce is positive, but I would be very surprised if it's as large as the people I heard on the radio are saying. I don't know, but before we sound alarm bells about the effects of cohabitation on different indicators, we should make every effort to measure those effects accurately. I'll post on this again as soon as I find out.

Posted by Art Carden at 04:04 PM in Economics

How is Mark Zandi Like a Psychic?

The crummy economy is good for psychics:

If this sounds like the advice of a financial planner or an economist, think again. It's a reading from psychic medium Roxanne Usleman.

As the economy tanks, Usleman's business is booming.

And, too, for Mark Zandi:

It's an open question whether the stimulus bill can lift the nation's ailing economy. But this much is certain: It's a bonanza for the career of Mark Zandi.

Hmmm ... I wonder if they have more in common than negative income elasticities of demand for their services.

Previous posts on Zandi's psychic insights are here and here; here's Arnold Kling: "I hereby throw my shoe at Mark Zandi."

Posted by E. Frank Stephenson at 10:13 AM in Economics

February 06, 2009

Mike Lester on the Stimulus

Today's offering from Mike Lester of the Rome News-Tribune:

ADDENDUM: The CBO has opined on the so-called stimulus:

President Obama's economic recovery package will actually hurt the economy more in the long run than if he were to do nothing, the nonpartisan Congressional Budget Office said Wednesday.

CBO, the official scorekeepers for legislation, said the House and Senate bills will help in the short term but result in so much government debt that within a few years they would crowd out private investment, actually leading to a lower Gross Domestic Product over the next 10 years than if the government had done nothing.

CBO estimates that by 2019 the Senate legislation would reduce GDP by 0.1 percent to 0.3 percent on net. [The House bill] would have similar long-run effects, CBO said in a letter to Sen. Judd Gregg, New Hampshire Republican, who was tapped by Mr. Obama on Tuesday to be Commerce Secretary.

Posted by E. Frank Stephenson at 01:39 PM in Economics

Reality TV and Economics

Shannon and I have recently started watching Gordon Ramsay's TV shows Kitchen Nightmares and Hell's Kitchen. A couple of things stick out:

1. In "Kitchen Nightmares," Chef Ramsay visits and rehabilitates restaurants that are unmitigated disasters. In addition to helping me better understand the fine points of fine dining, the importance of fresh ingredients, etc., it's an interesting study in and appilcation of economic concepts like specialization, division of labor, entrepreneurship, competition, and information economics. At no point does Chef Ramsay advise any of these restaurants that they have to take prices as given and compete by adjusting their quantity until marginal revenue is equal to marginal cost. Competition is about innovation.

2. "Hell's Kitchen" has chefs competing for a spot as executive chef at one of Ramsay's restaurants. It illustrates important points about strategy and competition, but I wonder if the participants are behaving wisely when they are talking bad about one another and devising devious strategies behind one another's back but in front of the camera. There's winning and losing on the show to think about, but there's also the broader perspective: these people have careers to consider. Lying to Gordon Ramsay might help you in the very short run, but competition means that these things have a way of catching up to you. Lying to Gordon Ramsay on national TV will only make it catch up faster.

Posted by Art Carden at 09:51 AM in Economics

February 04, 2009

Powell and Stringham on Anarchy

Here's an important and very timely survey article from Ben Powell and Ed Stringham entitled "Public Choice and the Economic Analysis of Anarchy: A Survey," forthcoming in Public Choice. Here's the abstract:

Public choice economists began studying the economics of anarchy in the 1970s. Since then, the amount of research on anarchy has burgeoned. This article surveys the important public choice contributions to the economics of anarchy. Following the lead of the early public choice economists, many current economists are researching and analyzing how individuals interact without government. From their non-public-interested explanations of the creation of government law enforcement to their historical studies of attempts to internalize externalities under anarchy, public choice scholars are arriving at a more realistic perspective on government and how people interact when government law enforcement is lacking. Although the economics of politics often receives more attention, the economics of anarchy is an important area of research in public choice.

Here's some evidence against the "provide public goods and correct market failures" theory of government: the ordinance I mentioned in yesterday's post passed unanimously. I guess that loud noise I heard yesterday was the housing supply curve shifting.

Update: I would be remiss if I mentioned Ed, Ben, Public Choice, and housing in the same post and didn't take a chance to plug the forthcoming book Housing America: Building Out of a Crisis, edited by Randall Holcombe and Ben Powell.

Posted by Art Carden at 02:25 PM in Economics

February 03, 2009

Bailouts for bunglers, indeed

Paul Krugman writes that “the administration’s plans for a banking system rescue … are shaping up as a classic exercise in ‘lemon socialism’”. Really? I would have thought that “lemon socialism” is a form of socialism, i.e. government ownership of business, in which the government nationalizes failing firms rather than allow them to enter bankruptcy. Outright nationalization is not what the Obama administration is talking about -- to Krugman’s clear disappointment, when he sneers at its “prejudice in favor of private control” of financial institutions.

What the administration is talking about is further installments of what the Bush-Paulson administration practiced, namely lemon fascism. At least a veneer of private ownership remains while government takes control of the commanding heights.

I share Krugman’s distaste for taxpayer purchases of troubled bank assets, taxpayer guarantees against losses on bank assets, and taxpayer infusions of bank capital. They are each, as he says, “a big gift to bank stockholders”. They are handouts.

But we disagree about the alternatives. I think that there are very good reasons for favoring private ownership of banks, as of other enterprises. It isn’t a “prejudice”: it’s based on the evidence about how badly nationalized banks chronically perform. See: India. See: France.

The option that remains is to let failed banks go into resolution (sale or liquidation). Let their managers and stockholders, not taxpayers, bear responsibility for their bungling. Make room for better-managed banks to expand their market shares. Why not? Krugman writes: “The chaos after Lehman Brothers failed showed that letting major financial institutions collapse can be very bad for the economy’s health.” By that logic, the chaos after the rescues of other firms (Bear Stearns, AIG, Freddie Mac, Fannie Mae) show that rescues are equally bad for the economy’s health. Post hoc ergo propter hoc.

When an airline goes bankrupt, the planes and pilots don’t disappear. They are reallocated to other airlines with better strategies for using those resources. Likewise when a bank is resolved – and FDIC officials are old hands at doing this – the brick and mortar, the deposits, and the financial talent won’t disappear. They will go to other banks with sounder strategies.

Bottom line: You have to choose one of the following for an insolvent bank: handouts, nationalization, or resolution. I prefer resolution. It has served us well to date, for the good reason that it is consistent with the logic of market economy. The others are failed policies, for the good reasons that they are inconsistent with the logic of a market economy.

Posted by Lawrence H. White at 08:02 PM in Economics

Econ 101 Homework Assignment

Yesterday's Memphis Flyer caught my eye with a cover story about homelessness, and it reminded me of a discussion I had in December with a group of real estate investors and landlords. I then wrote the following econ 101 homework assignment:

This problem will also resemble a problem that might appear on the exam (sans the reading assignment).

Read the article “No Place Like Home,” which is the cover story in the 1/29/09-2/4/09 issue of the Memphis Flyer. If you are still looking for an idea for paper #1, this would be a viable candidate.

1. Use the principles we discussed in class on Thursday, 1/29 and Tuesday, 2/3 to formulate a hypothesis that might explain why the quantity of housing demanded exceeds the quantity of housing supplied (3 points).

2. Is the elasticity of the housing supply curve likely to be greater in the short run or in the long run? Explain your answer using an appropriate diagram (3 points).

3. In a meeting on December 16, 2008, the Memphis City Council considered an “Ordinance to Provide for Minimum Energy Efficiency in Rental Property.”* The ordinance would require landlords to make improvements that would increase the energy efficiency of their properties in Memphis. Using a supply and demand diagram, predict how this ordinance would affect the equilibrium price and quantity of housing in Memphis. Explain your answer using the “Ten Key Elements of Economics” and the principles you learned in our discussion of the laws of supply and demand (3 points).

4. Suppose a classmate argues that the housing supply will not change because landlords can still earn profits. In light of the principle that people make decisions at the margin, is this correct or incorrect (1 point)?

*Audio of the City Council discussion can be found at http://memphis.granicus.com/MediaPlayer.php?view_id=2&clip_id=1097; you can select the option to “Jump To…” the discussion of the ordinance, which is the last item discussed. I had trouble with the “Jump To…” option with Firefox, but it works with Internet Explorer. Disclosure: I first learned of this ordinance when I gave a talk to the Memphis Investors Group, which is comprised of local real estate investors and landlords.

Posted by Art Carden at 11:34 AM in Economics

February 02, 2009

Paragraph and Sentences of the Day: Ed Glaeser on the Housing Crisis

Via Arnold Kling, here's Ed Glaeser writing in The New Republic:

In the midst of today's housing crash, certainly, subsidizing borrowing looks particularly foolish. The government essentially encouraged Americans to leverage themselves to the hilt and bet on housing markets. Now a lot of those erstwhile owners have lost everything. Why exactly does it make sense to subsidize gambling on home prices?

Here's Glaeser on land-use restrictions and their environmental impact:

The problem is that local environmentalism is rarely good environmentalism. When local land-use controls stop development in coastal California, this does not slow the pace of new development. It merely moves new development elsewhere, to places where landowners can still freely build. Unfortunately, places with less restrictive controls, such as Houston, have browner sources of energy and less temperate climates. A new home in Texas uses a lot more energy than a new home in California. But when California environmentalists shut down new construction around the San Francisco Bay, they push development to the suburbs of Houston. The net result is that California's land-use restrictions make housing unnecessarily expensive and increase carbon emissions.

Here's an interesting movie on California land-use fights.

Posted by Art Carden at 02:29 PM in Economics

January 30, 2009

Some folks noticed

I was one of 200 economists to sign the Cato petition, which ran as a full-page ad in the New York Times and Washington Post, opposing the "stimulus" (pork) bill. Many bloggers took notice of the petition. Today the online Wall St. Journal ran a story featuring a photo of three Republican senators holding up a copy of the ad.

Posted by Lawrence H. White at 06:16 PM in Economics

Atlas Shrugs in Florida: Falaschetti and Douglass on Political Risk

Dino Falaschetti was kind enough to send me this op-ed he and Christopher Douglass published in yesterday's Orlando Sentinel. State Farm has decided not to insure Florida property anymore because they can't get the regulators to go along with a proposed increase in rates. In addition to being a tidy summary of how insurance markets work, Falaschetti and Douglass cust straight to the heart of the issue:

Choosing a short-term solution can lead to long-term problems. We often hear that Florida's problems come from insurers not wanting to be in a risky place. But what kind of risks are they worried about? Risk of the next catastrophe or risk that politicians will change the rules after the next catastrophe?

Posted by Art Carden at 05:41 PM in Economics

Double-plus unfunny

Art's post reminds me of a conversation that I had with an Ed major some time ago. We were discussing the rationale for government schooling. As we went through the arguments, I realized that all arguments carried more force if applied to feeding infants. I said as much to the student, and I discovered that she was quite convinced--convinced that government direction of feeding infants was probably a good idea.

The Onion post missed this important point: Parents are not up to the important task of doing what it takes "to completely eliminate their curiosity, crush their spirit of amazement, and eradicate their childlike glee." For that, we need a Ministry of Wonder.

Posted by Wilson Mixon at 05:29 PM in Economics

Convenient Ethics & Market Segmentation

From The Economist

“There is a real hostility in this country to the use of agents,” says Mitch Leventhal, vice-provost for international affairs at the University of Cincinnati. “Some universities think it is illegal—it’s not, what’s illegal is recruiting American students via agents. Some think it’s unethical—but it’s only unethical when done unethically.

Funny that American university officials would worry about the ethics of using agents. Shouldn't the concern be with the ethics of supporting laws that ban their use, thereby depriving students of information?

Posted by Wilson Mixon at 05:04 PM in Economics

January 29, 2009

Spot the Idiot Contradiction

Friday's WSJ contains a letter from Terence M. O'Sullivan, General President of the Laborers' International Union of North America. A snip (emphasis added):

The Beacon Hill Institute study cited in the Journal's Jan. 21 editorial "How to Save $40 Billion" is contradicted by voluminous research based on real-life projects showing that prevailing wage requirements do not raise overall construction costs. Higher wages, when coupled with training and a dedicated work force, are generally offset by greater productivity, cost-savings related to safer job sites and the local economic development resulting from family-supporting wages.

The purpose of any recovery package is to create jobs and get our economy back on track. Creating jobs with poverty-level wages might enrich large construction contractors, but it won't help the economy recover.

If it really is the case that prevailing wages are offset by higher productivity (doubtful given union work rules) then union workers and "poverty wage" workers should have the same total cost and the same effect on construction firms' bottom lines. Of course, if prevailing wage union workers were productive enough to offset their higher wages, then construction firms would gladly hire them and prevailing wage laws would be unnecessary.

Posted by E. Frank Stephenson at 11:36 PM in Economics

Friday Night at the Carden House

Jacob loves a good book. Picture below the Fold.

Read More »

« Close It

Posted by Art Carden at 09:33 AM in Economics

Corruption & the Financial Crisis

Dani Kauffman, who has left the World Bank for Brookings, writes about corruption and the financial crisis:

First, the public sector is reshaping regulation; second, the government is becoming an owner of financial institutions; third, it is bailing out selected private concerns through a quick and massive infusion of funds; fourth, it is to provide almost a huge fiscal stimulus into infrastructure; and fifth, it intends to extend the social (and housing) safety net for millions of vulnerable citizens.

There are governance and corruption risks in each of these areas. Lobbyists are already at the door...

Deep-seated transparency reforms need to be a cornerstone in the government's plan, and should apply to U.S. public agencies as well as domestic and international financial institutions. Regulations supporting effective disclosure, as well as improved audit, accounting and risk-rating standards, should be preferred to restrictive regulatory controls that block innovation and growth.

ATSRTWT

HT: Irene Mia

Posted by Robert Lawson at 08:55 AM in Economics

January 28, 2009

A Thought Experiment

I did a thought experiment with some of my students after class yesterday that, I think, illustrates the importance of the economic way of thinking. Imagine the following three pairs of people:

1. LBJ and FDR
2. Bill Gates and Sam Walton
3. Mother Teresa and Gandhi

Now identify which pair people would classify as heroes, which pair people would classify as saints, and which pair people would classify as villains. As one might expect, LBJ and FDR are perceived as heroes, Gates and Walton are perceived as villains, and Mother Teresa and Gandhi are perceived as saints.

I then asked them to rank the group in order of the degree to which they have alleviated genuine human suffering. The students anticipated where I was going with this: I think Gates and Walton are the runaway winners, followed by Mother Teresa and Gandhi. If Robert Higgs is correct, LBJ and FDR have actually created human suffering instead of alleviating it. On ranking the presidents, here's John Denson's edited volume Reassessing the Presidency, which includes a chapter by Richard Vedder and Lowell Galloway on ranking the presidents.

Posted by Art Carden at 03:06 PM in Economics

Live today on KMOX

My colleague Dave Rose and I will be chatting live in-studio with host Mark Reardon this afternoon from 2:10 to 3:00 pm Central time on KMOX 1120 AM ("the Voice of St. Louis"). We'll be discussing the state of the economy, the financial mess, the "stimulus" bill, and specifically our recent op-ed piece "We Can't Spend Our Way out of This Quagmire". Key point: we should let the recession do its job of correcting the bad investments made during the boom. Public policy should not be aimed at stopping the correction.

KMOX provides live streaming audio here. A podcast should be available subsequently.

UPDATE: I just got home from doing the show, and the podcast is already available, here!

Posted by Lawrence H. White at 10:54 AM in Economics

Starbucks Eschews Marginal Reasoning

Another example for my principles of economics course: Starbucks announced today that they will no longer automatically brew decaf coffee after the noon hour. They say the process takes about four minutes. They claim that demand for decaf slows in the afternoon and this creates much waste in many of their stores. The new policy does not apply to espresso-based drinks, which are customized for each order.

Now, I am a simple guy, a straight black coffee man who has no taste for those complex, fluffed up, specialty coffee drinks. But I am still willing to wait in line watching each person take up to two minutes just to order their fifteen-step, specialty coffee drink (for which they pay almost as much as I pay for my lunch).

Given that Starbucks brews their drip coffee into very high quality thermo-urns that keep it piping hot for hours, I must ask myself: What is the marginal cost in each store making two or three "uneccesary" thermo-urns of decaf coffee each afternoon (assuming almost nobody orders decaf after noontime and they are ulitimately wasted)?

Further: What is the marginal benefit (in saving potentially lost revenues) of NOT ticking off those few good customers (like yours truly) who don't feel like they have any more available time to wait yet an additional five minutes beyond the normal waiting period, just to get a cup 'o decaf joe?

Marginal benefit versus marginal cost--maybe I need to offer my consulting services to Howard Shultz.

Posted by Mike Stroup at 10:31 AM in Economics

January 27, 2009

The Minimum Wage and Busboys

Today's WSJ has an article on restaurants cutting busboy jobs because of difficult economic times:

For two decades as a Bob Evans waitress, Ms. Baker relied on a busboy to clear syrup-plastered dishes and wipe biscuit crumbs from her tabletops. But with restaurants in a sharp downturn amid the recession, Bob Evans is among a growing number of full-service eateries that are eliminating busboys to cut costs. Instead, servers are primarily responsible for clearing their tables.

But check out this paragraph--it appears that recent minimum wage increases bear some of the blame for busboy job cuts:

In many states, it's cheaper to keep servers on the clock than bussers because of a loophole that allows restaurants to pay servers who earn tips less than the minimum wage -- as little as $2.13 an hour. Bussers must be paid at least $6.55 an hour.

Posted by E. Frank Stephenson at 10:34 PM in Economics

Repeat After Munger ...

... "Golly, I wish Public Choice were not such a deadly accurate way of understanding the political world." Case in point, the abstract of Shawn Cole's paper (gated) in the initial issue of the American Economic Journal: Applied Economics:

This paper integrates theories of political budget cycles with theories of tactical electoral redistribution to test for political capture in a novel way. Studying banks in India, I find that government-owned bank lending tracks the electoral cycle, with agricultural credit increasing by 5-10 percentage points in an election year. There is significant cross-sectional targeting, with large increases in districts in which the election is particularly close. This targeting does not occur in nonelection years or in private bank lending. I show capture is costly: elections affect loan repayment, and election-year credit booms do not measurably affect agricultural output.

Posted by E. Frank Stephenson at 10:08 PM in Economics

Building Brand Equity: Journal of Wine Economics Book Review

The latest issue of the Journal of Wine Economics is now out. In the issue I have a book review of Wine and Philosophy: A Symposium on Thinking and Drinking, which can be found here.

The full table of contents of the issue is below the fold. Thanks to Karl Storchmann for the notice.

Read More »

Journal of Wine Economics
Vol. 3, No. 2

An Examination of Judge Reliability at a Major U.S. Wine Competition
Pages 105-113
Robert T. Hodgson

Wine Quality, Wine Prices, and the Weather: Is Napa “Different”?
Pages 114-131
Carlos Ramirez

The Agricultural and Food Trade in the First Globalization:
Spanish Table Wine Exports 1871 to 1935 – A Case Study
Pages 132-148
Vicente Pinilla and Raúl Serrano

Hedging Adverse Bioclimatic Conditions Employing a Short Condor Position
Pages 149-171
Donald Cyr, Martin Kusy and Anthony B. Shaw

Estimating the Demand for Wine Using Instrumental Variable Techniques
Pages 172-184
Steven S. Cuellar and Ryan Huffman

From Bayes to the Just Noticeable Difference to Effect Sizes: A Note to Understanding the Clinical and Statistical Significance of Oenologic Research Findings
Pages 185-193
Domenic V. Cicchetti

The Importance of Australian Corporate Brand and Grape Varietal Wines:
Hedonic Pricing in the British Columbia Wine Market
Pages 194-204
Richard Carew and Wojciech J. Florkowski

Book and Film Reviews

Book Review: Alice Feiring: The Battle for Wine and Love or
How I Saved the World From Parkerization
Pages 205-209
Reviewed by Stephen Chaikind

Book Review: Benjamin Wallace: The Billionaire’s Vinegar:
The Mystery of the World’s Most Expensive Bottle of Wine
Pages 210-211
Reviewed by Orley Ashenfelter

Book Review: Tyler Colman, Wine Politics: How Governments, Environmentalists, Mobsters and Critics Influence the Wines We Drink
Pages 212-213
Reviewed by Michael Veseth

Film Review: Randall Miller (director): Bottle Shock
Pages 214-216
Reviewed by Rob Valletta

Book Review: Tad