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.

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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.

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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.

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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.

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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.

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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.

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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 Ca