Division of Labour: Economics Archives
September 02, 2013
Podcast: Milk and Competition

Russ Roberts and I talk about milk, and other things. And WH Hutt, a very fine man. At EconTalk...

Posted by Michael Munger at 11:21 AM in Economics

August 26, 2013
Just an observation...

In test banks for principles economics textbooks, there are always questions about opportunity cost that ask students to determine the largest cost of attending college. The choices are usually things like:

a) tuition
b) the cost of room and board
c) the cost of textbooks, notepads, etc.
d) the opportunity cost of forgoing full-time earnings while attending college full-time

The usual correct answer is D but it seems like, if current trends continue, the correct answer may change sometime soon. Given 1) the skyrocketing costs of tuition, and 2) the terrible job (and wage) prospects of less-than-college (or even college-degree-holding) students, the correct answer may become A; e.g., my private-school tuition is $40,000 per year but I could only make $30,000 at a job.

Just something for textbook authors and test bank makers to keep in mind. The "foregone income" answer soon may not be so obvious.

Posted by Tim Shaughnessy at 12:55 PM in Economics

August 19, 2013
One reason college costs may be rising

"Maryland university buying bulletproof whiteboards"

[A] Maryland company that makes bulletproof whiteboards has contracted with a university seeking to offer its professors greater protection in the event of a school shooting.

At first, I thought this was stupid because I immediately think of a whiteboard as a chalkboard replacement, something a few feet high and ten feet long that is mounted on the wall. Not sure why studs need to be protected from bullets (I mean the vertical beams in the wall, not we professors).

But no, the whiteboards are only 18x20 inches, and the video shows a dummy (I mean a mannequin, not we professors) holding one at its chest and taking a bullet unscathed. Pretty cool!

In the name of protecting professors from possible school shootings, though, few things seem more ridiculous. An 18x20 board still leaves open this possibility:

Worse, it's not a vest so you'd have to either hold it up or do some sort of sandwich board thing with a strap around your neck.

When it's not being a bulletproof vest, it's other function is as a whiteboard so that you can, you know, teach class and stuff. How big of a class will an 18x20 inch whiteboard still be considered useful? I wonder if the university grant used to purchase these also included funding for binoculars which everyone beyond the third row would need.

Oh yeah, the grant. The University of Maryland-Eastern Shore is buying 200 of these for $60,000. The guy selling $300 tiny whiteboards is probably doing even better than the guy selling blank-inside cards:

Posted by Tim Shaughnessy at 10:54 AM in Economics

August 01, 2013
Money for nothing, and Big Macs for just 68 cents more!

I'll huff, and I'll puff, and I'll make up some stuff! This would be embarrassing for HuffPo, if the "economics writers" there were capable of embarrassment.

On Monday, The Huffington Post published a story entitled "Doubling McDonald's Salaries Would Cause Your Big Mac To Cost Just 68¢ More." HuffPost has since learned that the research used as the basis of the story contains significant errors that cast doubts on its claims. This story has replaced the one originally published in this space.

The story drew on data presented by Arnobio Morelix, an undergraduate student from The University Of Kansas who identified himself as a researcher for the school. In an interview, Morelix told the HuffPost that only 17.1 percent of McDonald's revenue goes toward salaries and benefits, meaning that for every dollar McDonald's earns, a little more than 17 cents goes toward the income and benefits of its employees.

Posted by Michael Munger at 03:55 PM in Economics

July 10, 2013
Demand Curves Slope Downward: Politically Incorrect Edition

Rich guy suggests lowering the cost of being homeless might increase the number of homeless people. Gets predictable reaction.

Posted by Robert Lawson at 05:05 PM in Economics

April 23, 2013
Dancing for dollars

No, not that kind of dancing. Real dancing, done in corporate offices:

Most dance companies make money by selling tickets to their performances. Boise-based troupe Trey McIntyre Project [TMP] has a more expansive business model: "We've decided that we have a real asset, which is the creative process itself. We're selling that," says John Michael Schert, the company's co-founder and executive director.

HP is doing it: "working with the dancers 'pulls our staff out of the same way we do things so that we can better design solutions and solve problems.'"

I guess this story jumped out at me from the empirical perspective:

From there, a senior HP executive kicks off a broader discussion about a new product or problem facing the company. Together, TMP and the HP employees discuss how HP can hone its creative skills to solve the task at hand. Hansen says it's hard to point to any one specific breakthrough the TMP sessions have inspired, but he believes the creative vibe pays off. "They really create positive energy, and that translates into our engineers and scientists," he says. "It helps people open their minds."

They do this quarterly, yet can't "point to any one specific breakthrough." Well, I guess it's no worse than providing donuts in the break room.

Tracking the ROI on such ventures is tricky, researchers admit. There's very little hard data out there, says Barry Jaruzelski, a senior partner at Booz & Co. who conducts the firm's annual Global Innovation study. Still, he thinks the anecdotal evidence is strong: "Unconventional interactions can lower the barrier for people to posit novel things," he says.

Where would we be without anecdotal evidence? "I have lots of conjecture and hearsay; those are kinds of evidence."

Posted by Tim Shaughnessy at 10:45 AM in Economics

April 04, 2013
Guns up for Free Markets!

Ben Powell has got the new Free Market Institute up and running at Texas Tech in Lubbock.

[Like the FMI on Facebook.]

I was pleased to help Ben kick off the Institute last month. He's also just hosted Pete Leesson and has Tom Woods coming in next. The great Walter Williams is coming this fall!

Aside from bringing in great speakers, Ben is looking for students to apply to Tech's Ph.D. program where he hopes to build up an Austrian economics field.

Good luck, Ben, and welcome to Texas! Like me, he wasn't born here but he got here as quick as he could. As Lyle Lovett says: You're not from Texas, but Texas wants you anyway.

Posted by Robert Lawson at 11:51 AM in Economics

January 29, 2013
An easy fact to find, less easy to understand

If you're like me, you've gnashed more than a few teeth trying to get data from the Census Bureau's redesigned American Fact Finder. The old version was such a piece of cake to use; now I want to find the % African-American and the % Hispanic in each state for the past few decades, and I think it would be quicker to turn lead into gold.

A data-savvy friend pointed me to a story describing the cost of redoing the AFF:

How much did the government spend -- and to whom did the money go -- building the American FactFinder tool on the U.S. Census Bureau's website? ... The answer? $33.3 million, which went to IBM.

I guess since I get 3,000 different tables when I ask for race by state, on a per-table basis that's not a bad deal.

Posted by Tim Shaughnessy at 03:32 PM in Economics

January 23, 2013
Blame Technology

Yet another story that blames technological advancement for the loss of jobs and general economic crappiness:

Most of the jobs never will return, and millions more are likely to vanish, say experts who study the labor market. What's more, these jobs aren't just being lost to China and other developing countries.

And they aren't just factory work. Increasingly, jobs are disappearing in the service sector, home to two-thirds of all workers. They're being obliterated by technology.

Year after year, the software that runs computers and an array of other machines and devices becomes more sophisticated and powerful and capable of doing more efficiently tasks humans always have done.

Just imagine if China and other developing countries starts to use technology! Talk about a double-whammy.

You'd think an editor would have caught the logical inconsistency of describing machines that are "more sophisticated and powerful and ... efficient" as a bad thing. So the solution is to use weak, inefficient, and less sophisticated things? (Actually, that's a pretty good description of me...)

Posted by Tim Shaughnessy at 04:43 PM in Economics

January 16, 2013
Liberty's Library

Interested in learning more about liberty. Check out Liberty's Library. It guides you to a book that you might be interested in based on your responses to a series of questions.

Posted by Joshua Hall at 10:01 PM in Economics

December 23, 2012
Worst Business Projection Ever

Here's something I found while looking for something else. Is this the worst business projection ever?

From the Associated Press, Jan. 3, 1951:

Four of the nation's biggest athletic conferences will lead a fight against live television of football games at the NCAA convention in Dallas next week.
They are the Big 10, Eastern College Athletic Conference, Southwest, and Southeastern. ...
Ralph Furey of Columbia, chairman of a committee set up to study the effect of television on sports attendance, reported to the ECAC general meeting:
'Live television of sports events presents a threat to the institution of
intercollegiate athletics.'
A special television committee or the powerful Big Ten reported:
'Live television has an adverse effect on athletic attendance, particularly
The Big Ten banned live telecasts of conference games last year. ... The Southeastern Conference voted unanimously to bar direct telecasting of its football games. ... "

Apparently, somewhere along the line people with a bit more vision and sense of the possibilities got involved.

Posted by Brad Smith at 12:35 PM in Economics ~ in Misc. ~ in Sports

November 29, 2012
Law of Demand: College Tuition Edition

Nice to know that at least one college understands the law of demand, and how it can be used to increase enrollment:

Belmont Abbey College dramatically cuts tuition rate:

Belmont Abbey College announced on Nov. 28 that it is reducing its annual tuition cost to $18,500 beginning in Fall 2013. This represents an almost $10,000 per year reduction in the College’s published tuition price for incoming freshmen and transfer students...

Similar-sized colleges have announced tuition resets over the past two years, largely due to declining enrollment numbers. However, Belmont Abbey’s reduction in tuition “sticker price” comes at a time of growth for the school, which had its highest traditional undergraduate enrollment ever in 2012. This fall also saw considerable capital improvements such as a new dining hall, fitness facility and renovated student center. Two new residence halls will open in Fall 2013 to accommodate the increasing number of resident students.

Posted by Tim Shaughnessy at 03:53 PM in Economics

October 23, 2012
Outline for my Economic Outlook Talks

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

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

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

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

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

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

Inspired by an Ed Lopez status update on Facebook.

Posted by Art Carden at 09:09 PM in Economics

October 22, 2012
Incentives Matter: Schooling Edition

From The Economist:

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

Posted by Wilson Mixon at 08:21 PM in Economics

October 02, 2012
Industry X's Union supports the Union, not necessarily Industry X

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

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

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

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

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

Posted by Tim Shaughnessy at 11:34 AM in Economics

October 01, 2012
Economic Freedom: A Study Through Video

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

Here's a good time in North Korea:

And here's a good time in South Korea:

Posted by Art Carden at 02:19 PM in Economics

July 30, 2012
The Public Choice Society at Fifty Years: 2013 Call for Conference Papers

The Public Choice Society at Fifty Years
March 7-10, 2013
Hotel Monteleone
New Orleans, La.

Dear Friends and Members of The Public Choice Society:

I am pleased to invite you to the 50th Anniversary Conference of The Public Choice Society, to be held March 7-10, 2013, at the historic Hotel Monteleone in New Orleans. This traditional setting provides the ideal backdrop for commemorating the deep intellectual traditions of The Public Choice Society. The conference program will devote a plenary session to each of four main pillars in public choice scholarship, including Virginia Political Economy, Social Choice, the Bloomington School, and Experimental Economics. Each of these plenary sessions will feature four papers celebrating the intellectual heritage of these schools while drawing attention to state-of-the art research in those lines. In addition, the program will feature a special session dedicated to the 20th Anniversary of Geoffrey Brennan and Loren Lomasky’s Democracy and Decision: The Pure Theory of Electoral Preference. We encourage you to submit your best work for inclusion on the program. While the plenary sessions are an important anchor to the history of public choice ideas, the heart of the conference will be its 64 concurrent sessions where cutting edge papers are presented and discussed. Therefore, the 2013 conference will be both a commemoration of the Society’s first fifty years and also a platform toward the next fifty and beyond.

The conference will be held at the Hotel Monteleone, 214 Royal Street, in the heart of the French Quarter. The conference room rate is $189, which is good until February 3, 2013, or until the room block is reached. Conference registration will start on the afternoon of Thursday, March 7, and sessions will run from 8:00 a.m. Friday, March 8, to noon Sunday, March 10, 2013. Registration fees will be approximately $210 for members staying at the Monteleone at least two nights. We will have a number of publishers attending as book exhibitors, including Springer, Emerald, Cambridge University Press, Edward Elgar, and Liberty Fund. In addition, we will also be discussing with members a new and expanded organizational structure for the Society. An open-bar reception will anchor and facilitate socializing on Friday night. And two common luncheons will give the opportunity for informal discussions.

So come have a good time, catch up with old friends, and discover new lines of research at the 50th Anniversary Conference of The Public Choice Society. We especially encourage you to share this with your graduate students, who will benefit from an invigorating atmosphere and good discussion of their papers at the 2013 conference.

Coming this fall, we will open the Society’s new, user-friendly website for paper submissions. Look for complete details in a second call for papers to follow soon before then. In the meantime, we encourage you to consider organizing complete sessions and submitting your proposals to the President via email.

On behalf of the Executive Committee, I look forward to seeing you in New Orleans next March, and I thank you for participating in The Public Choice Society.

Sincerely yours,

Edward J. Lopez
President, 2012-2014

Posted by Edward J. Lopez at 10:27 AM in Economics

July 22, 2012
GW and OH Bailout

Gretchen Morgenson reviews "Bailout," written by Neil Barofsky. "Bailout" details his travails as an inspector general appointed to police TARP. Barofsky was apparently surprised, it appears, to encounter regulatory capture: "Government officials, he says, eagerly served Wall Street interests at the public’s expense, and regulators were captured by the very industry they were supposed to be regulating. He says he was warned about being too aggressive in his work, lest he jeopardize his future career."

So what lesson does he learn?

“We need to re-educate our regulators that it’s O.K. to be adversarial, that it’s not going to hurt your career advancement to be more skeptical and more challenging,” he said. “It’s implicit in so much of the regulatory structure that if you don’t make too many waves there will be a job for you elsewhere. So we have to limit those job opportunities and develop a more professional path for regulators as a career. That way, they won’t always have that siren call of Wall Street.”

Yeah, right. And when that fails, then what? Get angry:

Meaningful changes to our broken system may finally come about, he writes, if enough people get angry. His conclusion is this: “Only with this appropriate and justified rage can we sow the seeds for the types of reform that will one day break our system free from the corrupting grasp of the megabanks.”

Mortenson's take on all of this is at least half right. She concludes,"That’s not much of a silver lining. But I guess it’s better than none." The first half is right.

Posted by Wilson Mixon at 03:26 PM in Economics

July 20, 2012
Prof. Krugman's neighborhood

Virginia Postrel on land-use restrictions and inequality:

[T]here are two competing models of successful American cities. One encourages a growing population, fosters a middle-class, family-centered lifestyle, and liberally permits new housing. It used to be the norm nationally, and it still predominates in the South and Southwest. The other favors long-term residents, attracts highly productive, work-driven people, focuses on aesthetic amenities, and makes it difficult to build. It prevails on the West Coast, in the Northeast and in picturesque cities such as Boulder, Colorado and Santa Fe, New Mexico. The first model spurs income convergence, the second spurs economic segregation. Both create cities that people find desirable to live in, but they attract different sorts of residents.

Postrel cites and summarizes the research of Shoag and Ganong, including their thoughts on what motivates the changes. She adds one more suggestion:

Finally, there’s the never-mentioned possibility: that the best-educated, most-affluent, most politically influential Americans like this result. They may wring their hands over inequality, but in everyday life they see segregation as a feature, not a bug. It keeps out fat people with bad taste. Paul Krugman may wax nostalgic about a childhood spent in the suburbs where plumbers and middle managers lived side by side. But I doubt that many of his fervent fans would really want to live there. If so, they might try Texas.
Posted by Wilson Mixon at 10:34 AM in Economics

July 12, 2012
Outsourcing's bad rap

Question posed by Michael Kinsley: Who said this — "I don't want the next generation of manufacturing jobs taking root in countries like China or Germany" —Romney or Obama?

Unfortunately, the answer could be either.

Posted by Wilson Mixon at 10:32 AM in Economics

July 11, 2012
Markets in Everything: Cuddling

With a nine-month-old (and three-year-old) at home, with his one or two times per night wakeups, I don't have a heck of a lot of trouble sleeping these days. But, in case you do, why not hire a cuddler?

$60 per hour for a snuggling session, but the pricing list only goes up to a 90-minute session so all-nighters may be out of the question.

I would imagine a more extensive price list would arise eventually, with a sliding scale based on the cuddlees attractiveness (body odor, snoring, etc.) or time of day (after-hours snuggles are more expensive).

If you fancy yourself a good cuddler too, the best part is that the industry is apparently unlicensed, so you can entrepreneurially cuddle yourself into big bucks!

P.S. I'm not sure how to interpret this, but she's apparently a college graduate. Not sure if they offer cuddling as a major.

Posted by Tim Shaughnessy at 02:11 PM in Economics

April 24, 2012
On marginal product of labor c. 1912

From the April 23, 1912 NYT:

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

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

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

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

Posted by Craig Depken at 12:05 PM in Economics

March 30, 2012
The Revealed Preferences of the Super-Rich

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

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

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

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

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

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

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

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

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

Posted by Art Carden at 06:16 PM in Economics

March 21, 2012
On faith c. 1912

From the March 21, 1912 NYT:

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

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

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

Posted by Craig Depken at 01:50 PM in Economics

On Efficiency c. 1912

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

The March 21, 1912 NYT:

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

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

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

Posted by Craig Depken at 01:34 PM in Economics

March 01, 2012
We speak for property rights

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

Posted by Wilson Mixon at 09:03 AM in Economics

February 27, 2012
"Free up your economy or bust..."

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


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

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

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

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

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

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

Posted by Tim Shaughnessy at 11:13 AM in Economics

February 21, 2012
Markets in everything -- cremation with implants

From Gizmodo:

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

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

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

Posted by Edward J. Lopez at 12:55 PM in Economics

February 15, 2012
What Milton Means To Me Video Contest

From the inbox:

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

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

More information here.

Posted by Joshua Hall at 09:35 AM in Economics

February 08, 2012
Labor Force Shrinkage

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

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

Posted by Wilson Mixon at 05:27 PM in Economics

January 30, 2012
A Lawsuit Related to My Favorite Chinese Copier Salesman

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

Posted by E. Frank Stephenson at 08:19 AM in Economics

January 18, 2012
Private Equity and Employment

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

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

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

Posted by E. Frank Stephenson at 08:28 AM in Economics

January 08, 2012
The Curious Task of Economics ...: Norwegian Corporate Boards Edition

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

In 2003, a new law required that 40% of Norwegian firms' directors be women—at the time only 9% of directors were women. We use the prequota cross-sectional variation in female board representation to instrument for exogenous changes to corporate boards following the quota. We find that the constraint imposed by the quota caused a significant drop in the stock price at the announcement of the law and a large decline in Tobin's Q over the following years, consistent with the idea that firms choose boards to maximize value. The quota led to younger and less experienced boards, increases in leverage and acquisitions, and deterioration in operating performance.
Posted by E. Frank Stephenson at 01:38 PM in Economics

January 04, 2012
Occupy Congress

From Investor's Business Daily:

The Real Economic Power Is In The Hands Of Congress


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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Posted by Robert Lawson at 04:52 PM in Economics

December 26, 2011
Break up the banks

On Huntsman's position on banks:

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

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

Posted by Wilson Mixon at 10:15 AM in Economics

December 24, 2011
WalMart Defense

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

Posted by Wilson Mixon at 12:38 PM in Economics

December 20, 2011
Another very nice final exam response

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

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

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

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

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

Posted by Edward J. Lopez at 01:07 PM in Economics

A very nice final exam response

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

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

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

Posted by Edward J. Lopez at 11:14 AM in Economics

November 16, 2011
Williams on Poverty

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

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

Posted by Wilson Mixon at 01:00 PM in Economics

Incentives Matter: Piece Rate for Professors Edition

The abstract of a new paper in Economics Letters:

Using panel data, we demonstrate a 50% increase in research productivity following a dramatic increase in the piece rate paid for articles by a major Chinese University. The increased productivity comes exclusively from those who were already research active.
Posted by E. Frank Stephenson at 08:43 AM in Economics

November 12, 2011
Operation Rathole

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

Posted by Wilson Mixon at 02:02 PM in Economics

November 05, 2011

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

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

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

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

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

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

Posted by E. Frank Stephenson at 01:27 PM in Economics

November 03, 2011
"It's a walkout!"

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

From CNN's take on it:

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

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

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

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

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

Posted by Tim Shaughnessy at 11:58 AM in Economics

October 17, 2011
Euvoluntary Exchange in NRO

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

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

Posted by Michael Munger at 04:42 PM in Economics

October 05, 2011
High School Football

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

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

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

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

Posted by Tim Shaughnessy at 08:58 PM in Economics

September 27, 2011
Minimum thought to the minimum wage

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

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

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

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

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

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

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

Later in the CNN story,

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

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

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

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

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

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

Posted by Tim Shaughnessy at 11:32 AM in Economics

September 21, 2011
Association is not causation, but...

From CNN.com:

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

And from the new EFW report:

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

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

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

Posted by Tim Shaughnessy at 12:59 PM in Economics

September 20, 2011
Equating MU/$

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

Posted by Tim Shaughnessy at 12:25 PM in Economics

September 02, 2011
Gary Becker on market vs. government failure

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

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

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

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

Posted by Edward J. Lopez at 11:58 AM in Economics

September 01, 2011
QOTD: grocery store crisis

From McKenzie and Lee, Microeconomics for MBAs:

Without question, if the grocery industry were operated over the past decades the way the healthcare industry has operated, then the nation would likely have a "crisis" in the grocery business. The reason is simple: People would pay a fixed sum each month (their grocery premium) through their employer that would entitle them to virtually unlimited access to the grocery store shelves (after they have covered the $200 annual deductible) at a small fraction of the actual cost. Under such an arrangement, we should not be surprised if people consumed significantly more and better food, some of which would have limited value. We should also not be surprised if the shoppers' grocery price premiums went through the roof as few consumers would have much incentive to moderate their purchases by considering the full cost of the food they are buying.
Posted by Tim Shaughnessy at 04:12 PM in Economics

August 31, 2011
More Evidence on the Relationship Between Council Size and Government Spending

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

Posted by E. Frank Stephenson at 10:18 PM in Economics

August 29, 2011
"Price Gouging" at NJ Best Buy

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

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

Posted by E. Frank Stephenson at 08:16 AM in Economics

August 25, 2011
What - or Who - Started the Great Depression?

Herbert Hoover.

Posted by Robert Lawson at 12:03 PM in Economics

Mises Academy course on Economic Freedom

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

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

Posted by Robert Lawson at 11:59 AM in Economics

August 20, 2011
More Hooverite Nonsense

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

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

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

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

Frank Stephenson
Rome, Ga.

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

Posted by E. Frank Stephenson at 05:12 PM in Economics

Reverse Rent Extraction: How Refreshing

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

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

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

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

Posted by Edward J. Lopez at 02:00 AM in Economics

August 18, 2011
Demand curves slope downward. (A continuing series.)

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

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


Posted by Robert Lawson at 09:28 AM in Economics

August 16, 2011
Beam Me Up, Kruggy!

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

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

Posted by E. Frank Stephenson at 08:13 AM in Economics

August 06, 2011
It's the Spending, Stupid.


Posted by Robert Lawson at 07:37 PM in Economics

July 19, 2011
Public Choice at the Box Office

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

Posted by E. Frank Stephenson at 09:39 AM in Economics

July 13, 2011
Consumers under monopolistic competition

This whole scene happened within about a half second:

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

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

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

Posted by Tim Shaughnessy at 02:29 PM in Economics

Letter on Right-to-Work Laws

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

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

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

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

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

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

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

Posted by E. Frank Stephenson at 10:27 AM in Economics

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

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

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

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

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

Posted by E. Frank Stephenson at 08:42 AM in Economics

On Netflix's Price Increase

From the WSJ:

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

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

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

Posted by E. Frank Stephenson at 08:19 AM in Economics

July 12, 2011
An illuminating post

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

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

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

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

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

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

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

Posted by Tim Shaughnessy at 12:16 PM in Economics

July 02, 2011
Greenspan 2011 on Greenspan 2008

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

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

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

Well, okay then.

Posted by Craig Depken at 12:54 PM in Economics

Correlation or Causation: Episode #78787

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

Posted by Craig Depken at 12:51 PM in Economics

Interesting history of thought items

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

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

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

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

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

[Samuelson] dismisses translations into words as ‘mental gymnastics of a peculiarly depraved type.’ I disagree. There is no depravity, nor is there virtue, in telling other competent economists things in a language they all can understand—there is simply responsibility to the canons of scholarship.
Posted by Edward J. Lopez at 12:47 AM in Economics

June 01, 2011
Ben Powell on Immigration

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

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

Posted by Robert Lawson at 10:34 AM in Economics

May 28, 2011
Jonathan Chait Peddles Hooverite Nonsense

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

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

Posted by E. Frank Stephenson at 01:19 PM in Economics

May 26, 2011
Holy Manipulated Currency Batman! Protectionist Economist Pitches Foreign Made Copiers

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

What's Chinese for chutzpah?

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

Posted by E. Frank Stephenson at 01:28 PM in Economics

May 20, 2011
Brian Wilson or Vilfredo Pareto?

Which name goes with which photos:

Brian Wilson or Vilfredo Pareto?



Posted by Edward J. Lopez at 08:07 PM in Economics

May 18, 2011
Institutions Matter: The Effect of Land Tenure on Investment

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

This article develops a theoretical framework to examine the relationship between land tenure arrangements and households' investment in soil-improving and conservation measures. It then analyzes this relationship with a multivariate probit model based on detailed plot-level data from villages in the Brong Ahafo region of Ghana. A major hypothesis tested is that investment in productivity-enhancing and conservation techniques are influenced by land tenure arrangements. The theoretical analysis and empirical results generally reveal that land tenure differences significantly influence farmers' decisions to invest in land-improving and conservation measures. The findings also show that tenure security does affect farm productivity.
Posted by E. Frank Stephenson at 08:44 AM in Economics

May 13, 2011
You Are So Money, Honey

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

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

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

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

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

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

6. Wanna talk about our private goods?

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

8. Now those are some tangible assets!

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

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

10. Bottom up or top down?

Posted by E. Frank Stephenson at 08:50 AM in Economics

May 04, 2011
Incentives Matter: Bin Laden Compound Edition

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

When children playing in the fields let a ball fly into the compound by mistake, the owners never let them retrieve it but gave them 50 rupees to buy a new one, said one of the neighbors, a woman with a small boy on her hip who gave her name only as Bibi. When the children began to throw balls into the compound on purpose to get more money, the owners kept paying, she said, laughing.
Posted by E. Frank Stephenson at 08:09 AM in Economics

April 26, 2011
Four Podcasts

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

Posted by Michael Munger at 12:27 PM in Economics

April 25, 2011
"For a limited time..."

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

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

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

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

Posted by Tim Shaughnessy at 05:00 PM in Economics

What does being an Austrian economist mean for teaching?

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

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

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

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

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

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

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

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

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

Posted by Edward J. Lopez at 01:07 PM in Economics

April 24, 2011
Tax Trends

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

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

Posted by Wilson Mixon at 10:49 AM in Economics

April 18, 2011
Call for Papers - 4th Conference on Emergent Order and Society

In today's mailbox:

Studies in Emergent Order
Paper Call

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

“Coping With Tensions”

at its


October 29 – November 1, 2011

Sise Inn, Portsmouth, NH.

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

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

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

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

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

Conference Director

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

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

For the Fund for the Study of Spontaneous Orders

Gus diZerega

William C. Dennis

Posted by Joshua Hall at 11:05 AM in Economics

April 16, 2011
No Child Left Unmedicated

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

Over the past decade, several states introduced varying degrees of accountability systems for schools, which became federal law with the passage of the No Child Left Behind Act of 2001. The intent of these accountability laws was to improve academic performance and to make school quality more observable. Nonetheless, schools have reacted to these pressures in several different ways, some of which were not intended. We make use of the variation across states and over time in specific provisions of these accountability laws and find that accountability pressures effect medical diagnoses and subsequent treatment options of school aged children. Specifically, children in states with more stringent accountability laws are more likely to be diagnosed with Attention Deficit/Hyperactivity Disorder (ADHD) and consequently prescribed psychostimulant drugs for controlling the symptoms. However, conditional on diagnosis, accountability laws do not further change the probability of receiving medication therapy.
Posted by E. Frank Stephenson at 03:41 PM in Economics

April 15, 2011
Tragedy of the Commons Dance

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

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

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

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

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

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

Posted by E. Frank Stephenson at 08:29 AM in Economics

April 07, 2011
APEE 2011 is nigh!

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

Welcome to The Bahamas and the 36th annual meeting of the Association of Private Enterprise Education. Our conference program, organized by Vice President Benjamin Powell, offers a rich inquiry into the origins and causes of sound institutions. We are fortunate to have yet another capacity program, highlighted by three path-breaking plenary speakers in Elinor Ostrom, Dierdre McCloskey, and George Ayittey. As regular attendees know, a key element of APEE’s program each year is to recognize great scholars and entrepreneurs whose work expands understanding of private enterprise or advances a more open society. This year we are honored that the Adam Smith Award—the highest honor bestowed by the Association—will be received by Professor Elinor Ostrom, whose pioneering work has revolutionized scholarship into the origins of institutions. In celebration of the entrepreneurial spirit, this year’s Herman W. Lay Memorial Award will honor the legacy of Harry Boyd Earhart, who in 1929 used his fortune to start the Earhart Foundation. To receive the Lay Award on behalf of his grandfather, we are delighted to have with us Mr. David B. Kennedy, past President of Earhart Foundation. Moving to member awards, APEE’s Distinguished Scholar Award is presented to Professor Peter T. Leeson for his prolific and seemingly ever-accelerating body of work on entrepreneurship, emergent law, public choice and more. And the Kent-Aronoff Service Award will be presented to Professor E. Frank Stephenson for his many years of service in administering the Young Scholars Program. As for the program, you are sure to find more interesting and important items than you can handle. Also, don’t miss our newest program feature, the undergraduate research poster session. Overall, as in past years, APEE 2011 is again the perfect platform for discussing and advancing freedom and prosperity...
Posted by Edward J. Lopez at 01:06 PM in Economics

March 31, 2011
Hey Maine! Thanks for nothing c. 1911

From the March 31, 1911 NYT:

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

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

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

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

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

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

New York
Rhode Island
New Hampshire
West Virginia
New Jersey

Those states uncommitted (at the time)

North Carolina (!)
North Dakota

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

Posted by Craig Depken at 11:32 AM in Economics

March 30, 2011
The Thirteen Million Dollar Band

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

Posted by Art Carden at 09:52 AM in Economics

March 28, 2011
Trade is made of Charlie Sheen Win, Part 2

Posted by Art Carden at 02:19 PM in Economics

March 22, 2011
The Profit Motive: ¡¡Arriba!!

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

Abstract We examine patterns of acquiring non-native languages in a model with two linguistic communities with heterogeneous learning skills, where every individual faces the choice of self-learning the foreign language or acquiring it at a profit-maximizing linguistic school. We consider a one-school model with divisions in both communities and various two-school settings with a school in each community. We compare the number of learners and welfare implications under self-learning with those obtained under various schooling contexts. In particular, we show that for communities with similar size, introducing language schools always increases the number of learners with respect to the exclusive self-learning option.
Posted by Edward J. Lopez at 06:07 PM in Economics

March 21, 2011
On Sausage Making c. 1911

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

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

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

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

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

Posted by Craig Depken at 02:23 PM in Economics

March 18, 2011
Perverse Incentives in "Canadian Bacon"

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

Posted by E. Frank Stephenson at 10:53 AM in Economics

Krugman & Hoover, Once Again

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

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

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

Posted by E. Frank Stephenson at 10:38 AM in Economics

North America Dominance Threatened in Econ?

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

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

(Credit: The Economist)
Nod to Kevin Lewis

Posted by Michael Munger at 09:25 AM in Economics

March 15, 2011
Incentives and Market Design in Forensic Science
[There is] an important point too often forgotten in the economic analysis of the law: The rationality assumption applies to enforcers as well as enforcees. In constructing legal institutions we cannot simply assume that legislators, judges, and police will go out and do good—in the economist’s version, promote efficiency. We have to think about their incentives too.
That is David D. Friedman writing in Law's Order (2000), p.274.

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

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

Posted by Edward J. Lopez at 02:00 PM in Economics

Sowell quote

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

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

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

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

Posted by Tim Shaughnessy at 11:16 AM in Economics

March 14, 2011
On Full Information c. 1911

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

I would like to know what the law is regarding the washing of dishes in restaurants. I noticed to-day, in a little, popular-priced restaurant where I am accustomed to eat occasionally, that drinking glasses were brought from the tables, placed on a shelf, and, when needed, used again, sometimes without the formality of emptying what the last diner had left in them, sometimes with the formality of wiping them with a napkin.
It would seem no law would be needed in this case as all diners have full information about what is and what is not happening with the used dishes. The popular-priced restaurant might survive nicely with this arrangement if the quality and price of the food offset the additional costs (both physical and aesthetic) of eating there.

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

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

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

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

Posted by Craig Depken at 01:42 PM in Economics

Warren Nutter on Arthur Okun on political speech

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

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

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

Here is Warren Nutter's wikipedia page.

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

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

Posted by Edward J. Lopez at 11:07 AM in Economics

March 12, 2011
The broken window on an equity standard rather than efficiency standard

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

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

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

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

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

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

Posted by Edward J. Lopez at 03:51 PM in Economics

March 10, 2011
Teaching Corner: Firm behavior

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

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

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

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

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

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

Posted by Edward J. Lopez at 03:12 PM in Economics

On Environmentalism and Sportsmen c. 1911

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

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

I love reading the paper from 100 years ago.

Posted by Craig Depken at 11:31 AM in Economics

On Opportunity Cost c. 1911

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

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

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

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

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

Posted by Craig Depken at 11:21 AM in Economics

March 08, 2011
On the price of prayer c. 1911

From the March 8, 1911 NYT:

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

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

Posted by Craig Depken at 12:57 PM in Economics

March 05, 2011
Madmen, Intellectuals, and Academic Scribblers: The Economics of Political Change

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

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

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

Read More »

Posted by Edward J. Lopez at 02:36 PM in Economics

March 04, 2011
Now it's clear

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

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

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

Posted by Wilson Mixon at 03:59 PM in Economics

Trade is made of Charlie Sheen Win, Part 1

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

Posted by Art Carden at 08:15 AM in Economics

February 28, 2011
Building Brand Equity: Courtemanche and Carden on Warehouse Clubs and Grocery Prices

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

Posted by Art Carden at 02:23 PM in Economics

February 24, 2011
Adam Smith on Wisconsin

From IV.2.43 of The Wealth of Nations:

The member of parliament who supports every proposal for strengthening this monopoly, is sure to acquire not only the reputation of understanding trade, but great popularity and influence with an order of men whose numbers and wealth render them of great importance. If he opposes them, on the contrary, and still more if he has authority enough to thwart them, neither the most acknowledge probity, nor the highest rank, nor the greatest publick services can protect him form the most infamous abuse and detraction, from personal insults, nor sometimes from real danger, arising from the insolent outrage of furious and disappointed monopolists.
Posted by Art Carden at 09:00 AM in Economics

February 17, 2011
Environmental Economics Post-Doc at Rhodes

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

Posted by Art Carden at 09:43 AM in Economics

February 16, 2011
Glaeser and Bastiat, Intellectual Neighbors

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

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


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

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

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

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

Posted by Edward J. Lopez at 03:56 PM in Economics

February 07, 2011
Cartersville's Negative Railroad Bypass

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

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

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

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

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

Posted by E. Frank Stephenson at 08:24 AM in Economics

January 31, 2011
On public angst about corporations c. 1911

From the Jan 31, 1911 NYT:

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

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

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

Posted by Craig Depken at 04:17 PM in Economics

January 28, 2011
Hope and Change--Credit Card Interest Rate Edition

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

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

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

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


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

Posted by E. Frank Stephenson at 05:00 PM in Economics

January 26, 2011
On voluntary taxation c. 1911

From the January 26, 1911 NYT:

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

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

A considerable sum of money has already been taken in.

Posted by Craig Depken at 11:36 AM in Economics

January 24, 2011
In Soviet Russia, board walks on you!

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

'Communist Monopoly' Teaches Downside of Socialist Life

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

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

P.S. Post title reference

Posted by Tim Shaughnessy at 03:37 PM in Economics

Incentives Matter: Jimmy John's Edition

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

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

Posted by Tim Shaughnessy at 03:22 PM in Economics

On Financial Regulation c. 1911

From the Jan. 24, 1911 NYT:

ALBANY - Senator Stephen J. Stilwell, Chairman of the Senate Codes Committee, introduced to-day a bill strengthening the provisions of the Penal Code in relation to stock transactions. It prohibits "short" sales and sales of stocks upon credit or margin, wherein both parties intend that such contract be of a speculative nature and not purchase for investment.
File in the "things never change" drawer.

Posted by Craig Depken at 02:00 PM in Economics

January 20, 2011
Organ markets c. 1911

From the Jan. 20, 1911 NYT:

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

The organ was used later both by Wagner and Schumann.

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

Posted by Craig Depken at 11:03 AM in Economics

The good old days - textile edition - c. 1911

From the Jan. 20, 1911 NYT:

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


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

Posted by Craig Depken at 11:01 AM in Economics

Hey Ohio - thanks for nothing c. 1911

From the Jan 20, 1911 NYT:


Amendment Now Ratified by Legislatures of Ten States

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

Posted by Craig Depken at 10:54 AM in Economics

More on negative externalities c. 1911

From the Jan. 20, 1911 NYT:

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

Posted by Craig Depken at 10:52 AM in Economics

January 18, 2011
On negative externalities c. 1911

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

I was pleased to see the article in your columns the other day in reference to the proposed law regulating the length of hatpins. There is no question in my mind as to the need for such a law, for thousands are daily in danger of serious damage to their eyesight, face, or hands by protruding hatpins. Women should be considerate enough to either protect the points or wear shorter pins.
I might add they could wear higher heels to promote the hat and accompanying hat pins above the heads of their fellow citizens. The letter goes on:
Many are, but for those who are not, a law is necessary, and it should be enacted without delay.
{sarcasm}The letter writer does not suggest at what point in the distribution of hat-pins the regulation should be enforced. One would suspect that hat-pin manufacturers would be required to limit the length of the hat pin, but would this not then require hat manufacturers to change hats to accommodate the reduced length, and would this forced change in hat design impart potentially catastrophic damage to the social welfare of hat wearers and admirers alike?

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

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

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

Posted by Craig Depken at 03:36 PM in Economics

January 15, 2011
Death by Market Power: Reform, Competition and Patient Outcomes in the National Health Service

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

The effect of competition on the quality of health care remains a contested issue. Most empirical estimates rely on inference from non experimental data. In contrast, this paper exploits a pro-competitive policy reform to provide estimates of the impact of competition on hospital outcomes. The English government introduced a policy in 2006 to promote competition between hospitals. Patients were given choice of location for hospital care and provided information on the quality and timeliness of care. Prices, previously negotiated between buyer and seller, were set centrally under a DRG type system. Using this policy to implement a difference-in-differences research design we estimate the impact of the introduction of competition on not only clinical outcomes but also productivity and expenditure. Our data set is large, containing information on approximately 68,000 discharges per year per hospital from 162 hospitals. We find that the effect of competition is to save lives without raising costs. Patients discharged from hospitals located in markets where competition was more feasible were less likely to die, had shorter length of stay and were treated at the same cost.
Posted by E. Frank Stephenson at 04:21 PM in Economics

January 14, 2011
Fashion as timeless

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

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

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

Posted by Edward J. Lopez at 05:36 PM in Economics

Truth in Economics: Do Economists Need a Code of Conduct?

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

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

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


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

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

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

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

Posted by Edward J. Lopez at 12:14 PM in Economics

January 13, 2011
On Rare Earths and Predatory Pricing

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

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

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

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

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

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

Posted by E. Frank Stephenson at 11:18 AM in Economics

Did the Clean Air Act Affect Pollution?

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

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

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


Posted by E. Frank Stephenson at 10:21 AM in Economics

January 11, 2011
Is the U.S. justice system broken? Transcript now available

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

Posted by Edward J. Lopez at 11:19 AM in Economics

Econ 102 assignment

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

Posted by Lawrence H. White at 12:23 AM in Economics

January 10, 2011
Very high transaction costs

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


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

Posted by Edward J. Lopez at 03:56 PM in Economics

January 06, 2011
I'm So Confused

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

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


Posted by E. Frank Stephenson at 09:42 AM in Economics

January 05, 2011
The Locavore's Dilemma: Why Pineapples Shouldn't Be Grown in North Dakota

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

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

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

Posted by E. Frank Stephenson at 09:13 AM in Economics

January 04, 2011
All The Devils Are Here Review

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

Posted by Joshua Hall at 04:52 PM in Economics

An Interesting Observation by Ben Powell

Ben Powell writes on Facebook:

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


Posted by E. Frank Stephenson at 12:23 PM in Economics

December 29, 2010
On Coase's Centennial

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

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

Terry's conclusion:

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

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

Posted by Wilson Mixon at 12:02 PM in Economics

December 24, 2010
Dept. of Unintended Consequences

From yesterday's WSJ:

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

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

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

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

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

Posted by E. Frank Stephenson at 09:30 AM in Economics

December 16, 2010
Not Exactly Made in China

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

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

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


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

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

Posted by E. Frank Stephenson at 10:55 AM in Economics

December 14, 2010
Property Rights Matter: Elizabethan Edition

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

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

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

Posted by E. Frank Stephenson at 11:25 AM in Economics

December 11, 2010
"Divided We Vote," forthcoming Public Choice

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

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

You can download a freshly revised copy at SSRN.

Posted by Edward J. Lopez at 04:53 PM in Economics

December 10, 2010
DAFT Policy

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

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

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

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

Posted by Michael Munger at 08:57 AM in Economics

December 09, 2010
The Broken Window Fallacy

From this blog

Some interesting and some terrifying comments over at Reddit

Posted by Craig Depken at 03:18 PM in Economics

How Economics Saved Christmas

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

Posted by Art Carden at 11:23 AM in Economics

December 08, 2010
How the Fed Has Failed

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

Posted by Lawrence H. White at 03:14 PM in Economics

On banning smoking c. 1910

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

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

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

Posted by Craig Depken at 03:02 PM in Economics

December 07, 2010
Funny headline of the day c. 1910

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


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

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

Posted by Craig Depken at 02:52 PM in Economics

Naivety c. 1910

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

A year or more ago there developed in this "Greatest City of a Great Country" a violent agitation looking to the prohibition by law of speculation in theatre tickets, but our city fathers were evidently unable to find a way out of the difficulty. I am informed that the City of Chicago has recently passed an ordinance compelling all theatre tickets to have the price printed on them, and making it a punishable offense to sell any tickets above this figure. This would seem to be an effectual remedy for the evil.
Wow - either the writer was extremely naive or us economists missed the boat on this one. I am fairly confident that printing the price of admission on tickets has done nothing to slow down the speculation on tickets.

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

Posted by Craig Depken at 02:48 PM in Economics

How is this going to work out?

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

No more general collections fines! Beginning in the Spring semester students will no longer be charged late fees for general collections items checked out from Atkins Library. We will still enforce/collect fines for lost items, late Inter-Library Loan books, Course Reserves materials, recalled books and laptops.
I wonder if that means that there are very few books turned in late, or there are fewer books checked out of the library? I wonder how incentives will change and the implications. This sounds like a quasi-natural experiment of some sort, but I haven't the time at the moment to figure out how to take advantage of it - I'm thinking along the lines of moral hazard in the absence or reduction in penalties.

Anyone else experience something like this on their campus?

Posted by Craig Depken at 01:07 PM in Economics  ·  Comments (2)

December 06, 2010
Selgin on the Fed

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

Posted by Lawrence H. White at 09:12 PM in Economics

December 02, 2010
Logrolling 101

From the NYT:

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

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

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


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

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

UPDATE: Apparently Russia and Qatar are the winners.

Posted by E. Frank Stephenson at 10:48 AM in Economics

Yet Another Reason the Guvmint Shouldn't Make Medical Decisions

From the AJC:

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

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

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

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

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

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

Posted by E. Frank Stephenson at 09:15 AM in Economics

November 30, 2010
Battles Among Licensed Occupations

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

In this study, we examine dentists and dental hygienists, who are both universally licensed and provide complementary services to patients, but may also be substitutes as service providers. We focus on the labor market implications of governmental requirements on permissible tasks and the supervision of hygienists’ activities by dentists. Since there are elements of monopsony in the market we examine, we use the model as a guide for our analysis. We find that states that allow hygienists to be self-employed have about 10 percent higher earnings, and that dentists in those states have lower earnings and slower employment growth. Several sensitivity and falsification tests using other regulated and partially regulated occupations show that our licensing measures are generally robust to alternative specifications. Our estimates are consistent with the view that winning the policy and legal battle in the legislature and courts on the independence of work rules matters in the labor market for these occupations.
Posted by E. Frank Stephenson at 09:16 AM in Economics

Property Rights and Financial Development: The Legacy of Japanese Colonial Institutions

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

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

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

Posted by E. Frank Stephenson at 08:49 AM in Economics

November 29, 2010
Hayek on Inflation

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

Posted by Art Carden at 03:42 PM in Economics

November 24, 2010
Hot Stove Economics

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

Posted by E. Frank Stephenson at 01:57 PM in Economics

Manufacturing a Problem

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

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

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

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

Frank Stephenson
Professor of Economics
Berry College

Posted by E. Frank Stephenson at 01:03 PM in Economics

The TSA Trilogy, With More at Mises.org

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

Posted by Art Carden at 09:39 AM in Economics

November 18, 2010
Inflation 'R Us!

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

"[F]ar from achieving long-run price stability, it [the Fed] has allowed the purchasing power of the U.S. dollar, which was hardly different on the eve of the Fed‘s creation from what it had been at the time of the dollar‘s establishment as the official U.S. monetary unit, to fall dramatically. A consumer basket selling for $100 in 1790 cost only slightly more, at $108, than its (admittedly very rough) equivalent in 1913. But thereafter the price soared, reaching $2422 in 2008."
Posted by E. Frank Stephenson at 09:38 AM in Economics

November 16, 2010
Because, Not Despite

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

Today’s front page story (“Bond Market Defies Fed” Nov. 16) is subtitled “Interest Rates Rise Despite Launch of Treasury Buying ….” Since an important part of nominal interest rates is inflationary expectations (the so-called Fisher effect), it’s much more likely that interest rates are rising because of the Fed’s bond purchases rather than despite the expansion of the money supply.
Posted by E. Frank Stephenson at 01:13 PM in Economics

November 15, 2010
Alan Blinder is outraged. Outraged!

Choice tidbits from Alan Blinder in the WSJ today:

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Posted by Lawrence H. White at 03:31 PM in Economics

November 13, 2010
PR Department: Vend It Like Beckham Edition

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

Posted by E. Frank Stephenson at 05:40 PM in Economics ~ in Sports

November 12, 2010
The Emergence of Institutions

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

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

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

Posted by Edward J. Lopez at 03:14 PM in Economics

What passes for "debate" on the gold standard at The New York Times

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

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

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

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

Posted by Lawrence H. White at 12:11 PM in Economics

November 11, 2010
New paper on effects of post-Kelo state laws

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


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

PDF copy of paper here.

Posted by Edward J. Lopez at 04:52 PM in Economics

November 10, 2010
Krugman on Social Security

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

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

Posted by Lawrence H. White at 04:42 PM in Economics

Making Enemies with Monetary Policy

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

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

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

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

Posted by Tim Shaughnessy at 11:34 AM in Economics

November 08, 2010
In The Reading Pile

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

Posted by Joshua Hall at 02:48 PM in Economics

QOTD: Kenneth Elzinga on the Market Process

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

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

Posted by Art Carden at 01:55 PM in Economics

World Bank Chief suggests a monetary role for gold

Well, this is interesting.

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

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

Posted by Lawrence H. White at 11:21 AM in Economics

November 06, 2010
One vote making a difference, 2010 edition

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

Posted by Mike DeBow at 02:54 PM in Economics

November 04, 2010
A Coke for You, Prof. Peltzman?

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

Our results, based on state soft drink sales and excise tax information between 1989 and 2006 and the National Health Examination and Nutrition Survey, suggest that soft drink taxation, as currently practiced in the United States, leads to a moderate reduction in soft drink consumption by children and adolescents. However, we show that this reduction in soda consumption is completely offset by increases in consumption of other high-calorie drinks.
Posted by E. Frank Stephenson at 09:13 AM in Economics

November 02, 2010
Divided We Vote

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

"Divided We Vote"

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

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

JEL Classifications: D72; E62; H71

Posted by Edward J. Lopez at 05:13 PM in Economics

November 01, 2010
Rapping Keynes v. Hayek v2.0

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

Posted by Edward J. Lopez at 06:03 PM in Economics

What the Government Purchases Multiplier Actually Multiplied in the 2009 Stimulus Package

Not much according to John Cogan and John Taylor:

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

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

Posted by E. Frank Stephenson at 08:10 AM in Economics

Incentives Matter: Death Tax Edition

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

Posted by E. Frank Stephenson at 08:06 AM in Economics

October 29, 2010
Building Brand Equity: The Housing Market on a Sandy Foundation

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

Posted by Art Carden at 03:47 PM in Economics

October 28, 2010

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

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

Posted by E. Frank Stephenson at 01:42 PM in Economics

October 26, 2010
The Great Plains: Tragedy or Triumph?

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

Posted by E. Frank Stephenson at 11:02 AM in Economics

October 20, 2010
Money ain't worth nothin' and your checks aren't free

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

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

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

Posted by Tim Shaughnessy at 11:26 AM in Economics

October 13, 2010
The Law of 1/n: Evidence from Bavarian Municipalities

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

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

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

Posted by E. Frank Stephenson at 03:16 PM in Economics

More Evidence on the Benefits of School Competition

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

We study competition between two publicly funded school systems in Ontario, Canada: one that is open to all students, and one that is restricted to children of Catholic backgrounds. A simple model of competition between the competing systems predicts greater effort by school managers in areas with more Catholic families who are willing to switch systems. Consistent with this insight, we find significant effects of competitive pressure on test score gains between third and sixth grade. Our estimates imply that extending competition to all students would raise average test scores in sixth grade by 6 percent to 8 percent of a standard deviation.
Posted by E. Frank Stephenson at 02:54 PM in Economics

October 11, 2010
Immigration, Offshoring and American Jobs

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

How many "American jobs" are taken away from US-born workers due to immigration and offshoring? Or is it possible, instead, that immigration and offshoring, by promoting cost-savings and enhanced efficiency in firms, spur the creation of native jobs? .... We use this model to jointly analyze the impact of a reduction in the costs of offshoring and of the costs of immigrating to the U.S. The model predicts that while cheaper offshoring reduces the share of natives among less skilled workers, cheaper immigration does not, but rather reduces the share of offshored jobs instead. Moreover, since both phenomena have a positive "cost-savings" effect they may leave unaffected, or even increase, total native employment of less skilled workers. Our model also predicts that offshoring will push natives toward jobs that are more intensive in communication-interactive skills and away from those that are manual and routine intensive. We test the predictions of the model on data for 58 US manuafacturing industries over the period 2000-2007 and find evidence in favor of a positive productivity effect such that immigration has a positive net effect on native employment while offshoring has no effect on it.
Posted by E. Frank Stephenson at 12:29 PM in Economics

October 09, 2010
Yada Yada Yada

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

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

Posted by E. Frank Stephenson at 05:04 PM in Economics

October 07, 2010
The Protectionist Instinct

Emory's Paul Rubin in today's WSJ:

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

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

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

Read More »

Posted by E. Frank Stephenson at 10:43 AM in Economics

EFW in the news

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

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

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

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

Posted by Robert Lawson at 08:59 AM in Economics

October 05, 2010
What's the opposite of moral hazard?

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

Hi Professor Lopez,

Here's an article that reminded me of Law and Econ:

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

Posted by Edward J. Lopez at 06:06 PM in Economics

September 29, 2010
Teaching Corner: George Stigler on what makes a teacher

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

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

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

Posted by Edward J. Lopez at 06:14 PM in Economics

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

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

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


Posted by E. Frank Stephenson at 04:13 PM in Economics

"We love New York's taxes"

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

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

Posted by E. Frank Stephenson at 04:09 PM in Economics

China's GDP and the broken window fallacy

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

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

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

Posted by Noel Campbell at 01:17 PM in Economics

A CBO Double Standard?

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

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

Posted by E. Frank Stephenson at 11:57 AM in Economics

Ricardian “comparative advantage” is illusory

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

The opening salvo:

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

A representative sample:

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

DoL should start a new category called "WTF?"

Please do NOT read the whole thing.

Posted by Robert Lawson at 11:56 AM in Economics

September 28, 2010
Cost of Regulatory Compliance

One third of national income?

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

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

HT: Boortz

Posted by Tim Shaughnessy at 12:59 PM in Economics

September 24, 2010
Mon Dieu! More French Happiness Pour M. Sarkozy

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

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

Posted by E. Frank Stephenson at 02:34 PM in Economics

September 23, 2010
Perennial Gales ...

Blockbuster Files for Chapter 11 Protection

Posted by E. Frank Stephenson at 08:55 AM in Economics

September 21, 2010
Trade In Black-Market Cigarettes: Hot, Dangerous

From NPR:

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

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

Posted by E. Frank Stephenson at 12:45 PM in Economics

Primer on the Gross Receipts Tax

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

As taste:

So should Georgia’s tax study commission urge the state to adopt a gross receipts tax? At first, a gross receipts tax seems appealing from a base-broadening perspective. But it comes with a lack of transparency and with much arbitrariness in the tax burden across industries because of the tax pyramiding caused by business-to-business transactions. Hence, focusing on broadening the base of the traditional retail sales tax would be a superior option.
Posted by Robert Lawson at 12:38 PM in Economics

Teaching Corner: Changes in Teaching Economics

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

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

September 20, 2010
Building Brand Equity: Doing More With Less

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

Table of contents below the fold.

Read More »

Posted by Joshua Hall at 04:43 PM in Economics

Economic Freedom of the World: 2010 Annual Report

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

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

Press release and full report available here.

Posted by Joshua Hall at 04:30 PM in Economics

Peter Kennedy, R.I.P.

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

Full announcement here.

Posted by Joshua Hall at 03:40 PM in Economics

September 14, 2010
Undergraduate Business and Economics Research Journal Call for Papers

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

Posted by E. Frank Stephenson at 02:41 PM in Economics

Levitt on Root Beer and Chicken

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

Posted by Art Carden at 11:19 AM in Economics

Castro Practices "Hooverism"

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

Cuba to cut 500,000 from state payroll

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

Posted by E. Frank Stephenson at 08:16 AM in Economics

September 13, 2010

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

We examine the ability of the government to increase consumption by evaluating the impact of the 2009 “Cash for Clunkers” program on short and medium run auto purchases. Our empirical strategy exploits variation across U.S. cities in ex-ante exposure to the program as measured by the number of “clunkers” in the city as of the summer of 2008. We find that the program induced the purchase of an additional 360,000 cars in July and August of 2009. However, almost all of the additional purchases under the program were pulled forward from the very near future; the effect of the program on auto purchases is almost completely reversed by as early as March 2010 – only seven months after the program ended. The effect of the program on auto purchases was significantly more short-lived than previously suggested. We also find no evidence of an effect on employment, house prices, or household default rates in cities with higher exposure to the program.
Posted by E. Frank Stephenson at 03:56 PM in Economics

This Can't Be Any Good for Sarkozy's Happiness Adjusted GDP

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

Related post here.

Posted by E. Frank Stephenson at 02:47 PM in Economics

September 07, 2010
Money Can Buy Happiness but Only Up to $75K

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

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

Posted by E. Frank Stephenson at 02:27 PM in Economics

September 03, 2010
Happy Capital Day

From Lawrence Reed:

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

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

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

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

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

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

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

Happy Capital Day, America!

Related post here.

Posted by E. Frank Stephenson at 09:59 PM in Economics

1936 Again in America

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.

Posted by Michael Munger at 09:03 AM in Economics

September 01, 2010
Adam Smith? Who's THAT?

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

Posted by Michael Munger at 01:50 PM in Economics

On Competition Between Ambulatory Surgery Centers and Hospitals

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.

Posted by E. Frank Stephenson at 08:44 AM in Economics

August 31, 2010
"Oh No, I Have To Miss Class To Travel!"

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.

Posted by Art Carden at 09:36 PM in Economics

August 28, 2010
Cigarette Tax Hike Backfires in Balkans
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.


Posted by E. Frank Stephenson at 09:54 PM in Economics

Tax Avoidance Native American Style
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.

Posted by E. Frank Stephenson at 09:44 PM in Economics

August 27, 2010
Un Gringo En Transantiago

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

Posted by Michael Munger at 02:47 PM in Economics

August 24, 2010
More on Yuppie 911

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).

Posted by E. Frank Stephenson at 08:30 AM in Economics

August 23, 2010
George Will vs. Robert Reich on Hooverism

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.

Posted by E. Frank Stephenson at 05:02 PM in Economics

August 22, 2010
Easterly Quote of the Evening
We have a big opportunity here to educate perverts about economic development.

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

Posted by Art Carden at 08:41 PM in Economics

August 20, 2010
What is the cross-price elasticity of demand...

for one of these products with respect to the other?

Posted by Art Carden at 09:49 PM in Economics

If a sheep belches and no one’s around to hear it…

…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.

Posted by Noel Campbell at 05:08 PM in Economics

The Economist on Georgia

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.

Posted by Robert Lawson at 10:44 AM in Economics

August 17, 2010
"Hooverism" in Denmark

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.

Posted by E. Frank Stephenson at 02:22 PM in Economics

August 16, 2010
Jerry O'Driscoll: artificially low interest rates are not helping

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.

Posted by Lawrence H. White at 07:58 PM in Economics

August 13, 2010
Anything that will happen already has

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.

Posted by Michael Munger at 07:47 AM in Economics

August 12, 2010
New working paper

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

Posted by Craig Depken at 01:26 PM in Economics

Paging Mr. Laffer
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.


Posted by E. Frank Stephenson at 10:23 AM in Economics

August 11, 2010
My appearance on Freedom Watch

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".

Posted by Lawrence H. White at 05:03 PM in Economics

August 10, 2010
"Hooverism" in Canada

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.

Posted by E. Frank Stephenson at 11:27 AM in Economics

August 09, 2010
We're from the Government and We're Here to Help

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.

Posted by E. Frank Stephenson at 08:59 AM in Economics

Deadweight Loss--Snooki's Tan Edition
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.


Posted by E. Frank Stephenson at 08:43 AM in Economics

August 05, 2010
What could possibly go wrong?

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

Posted by Lawrence H. White at 02:01 PM in Economics

August 04, 2010

(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.

Posted by Robert Lawson at 12:22 PM in Economics

August 02, 2010
Building Brand Equity: Carden & Lawson, "Human Rights and Economic Liberalization"

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.
Posted by Art Carden at 12:18 PM in Economics

Carry on baggage fees: An idea whose time has come?

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.

Posted by Edward J. Lopez at 11:57 AM in Economics

August 01, 2010
Another Example of French Happiness

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.

Posted by E. Frank Stephenson at 04:24 PM in Economics

Incentives Matter: Filtered Cigar Sales Edition

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.

Posted by E. Frank Stephenson at 03:57 PM in Economics

Insurance Payments as Manna

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.

Posted by E. Frank Stephenson at 03:12 PM in Economics

July 28, 2010
David Friedman on Anarcho-Capitalism

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.

Posted by Art Carden at 10:49 AM in Economics

July 27, 2010
Rent-Seeking Exercises

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."

Posted by Art Carden at 09:22 AM in Economics

July 26, 2010
Selgin's Theory of Free Banking

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.

Posted by Lawrence H. White at 05:32 PM in Economics

Teaching Corner: What is "fungible"?

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.

Posted by Edward J. Lopez at 04:23 PM in Economics

July 25, 2010
Wreck the Currency or Default on the Debt?

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.

Posted by Lawrence H. White at 11:40 AM in Economics

Historical Financial Statistics

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

Posted by Lawrence H. White at 11:25 AM in Economics

July 22, 2010
Immigration and the American Economy

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.

Posted by Art Carden at 01:22 PM in Economics

July 20, 2010
Love It Or Leave It!

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.

Posted by Art Carden at 09:53 PM in Economics

July 19, 2010
Dead Letter Office Cognitive Dissonance in the White House Economic Team?

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?
Posted by E. Frank Stephenson at 01:47 PM in Economics

History of Economic Thought Fail?

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?

Posted by Art Carden at 11:05 AM in Economics

July 15, 2010
Cavalcade of Miscellany

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.

Posted by Art Carden at 03:58 PM in Economics

It's About Intentions, Not Effects (Updated)

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.

Posted by Art Carden at 03:14 PM in Economics

Horwitz on Payday Lenders

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."

Posted by Art Carden at 10:46 AM in Economics

July 14, 2010
Third Degree Price Discrimination: Apology Not Necessary

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.

Posted by Edward J. Lopez at 04:49 PM in Economics

Sam's Club Versus the Fatal Conceit

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?

Posted by Art Carden at 04:20 PM in Economics

Interviews with Hayek

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.

Posted by Art Carden at 11:13 AM in Economics

Well Said

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

Posted by Art Carden at 10:40 AM in Economics

July 13, 2010
Interview with Bryan Caplan

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

Posted by Art Carden at 06:36 PM in Economics

July 10, 2010
168 Hours: Because Opportunity Cost Matters

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.

Posted by Art Carden at 09:01 PM in Economics

July 09, 2010
Decline of Newspapers as Market Success

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.


Posted by Edward J. Lopez at 01:28 PM in Economics

July 08, 2010
Incentives Matter: Where's LeBron Going Edition

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.

Posted by E. Frank Stephenson at 02:00 PM in Economics

Great Papers I've Read and Re-Read in the Last 36 Hours

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.

Posted by Art Carden at 12:37 PM in Economics

Broken Windows in Bozeman

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.

Posted by E. Frank Stephenson at 12:15 PM in Economics

July 07, 2010
Vintage Capital and Creditor Protection

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.
Posted by E. Frank Stephenson at 10:05 AM in Economics


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.

Posted by Michael Munger at 09:34 AM in Economics

July 06, 2010
I Still Love Monopoly...

...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.

Posted by Art Carden at 09:41 PM in Economics

Depressing Stat of the Day

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).

Posted by E. Frank Stephenson at 08:48 PM in Economics

Don Boudreaux, Man of Letters

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

Posted by Art Carden at 11:04 AM in Economics

A Cash Free Restaurant: Geez, Credit Cards Have Benefits Too

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.

Posted by E. Frank Stephenson at 10:51 AM in Economics

July 02, 2010
Economists Have Work To Do

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.

Posted by Art Carden at 02:19 PM in Economics

July 01, 2010
Tax Shifting in Action

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


Posted by E. Frank Stephenson at 11:37 AM in Economics

June 30, 2010
Frederic Bastiat, Born 6/30/1801

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.

Posted by Art Carden at 10:33 AM in Economics

June 29, 2010
Is the reinvention of journalism too important to be left to the market?

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.

Posted by Edward J. Lopez at 08:05 AM in Economics

June 28, 2010
New entry on Pursuit of Justice

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.


Posted by Edward J. Lopez at 10:43 AM in Economics

June 25, 2010
On Advertising c. 1910

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.

Posted by Craig Depken at 03:50 PM in Economics

June 23, 2010
Reading during exams

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.

Posted by Tim Shaughnessy at 11:54 AM in Economics

June 17, 2010
Working chapters

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.

Posted by Lawrence H. White at 02:16 PM in Economics

Grasping Strawmen with Both Hands

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.)

Posted by E. Frank Stephenson at 10:31 AM in Economics

June 16, 2010
Building Brand Equity: Sowell Review

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.

Posted by Art Carden at 09:33 PM in Economics

The Diff: mortgage foreclosure edition

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

Posted by Tim Shaughnessy at 06:56 PM in Economics

Recommended Reading: Ben Powell on Immigration

DOL friend Ben Powell on immigration.

Posted by E. Frank Stephenson at 09:57 AM in Economics

June 15, 2010
Brain Candy Links: Homer Economicus

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).

Posted by Art Carden at 02:52 PM in Economics

Blogging The Pursuit of Justice


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.

Posted by Edward J. Lopez at 08:00 AM in Economics

June 14, 2010
The Myth of the Rational Voter

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 StewartMon - Thurs 11p / 10c
Alvin Greene Wins South Carolina Primary
Daily Show Full EpisodesPolitical HumorTea Party
Posted by E. Frank Stephenson at 11:50 PM in Economics

Free* Municipal Wifi Networks are Unnecessary

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.

Posted by Art Carden at 01:50 PM in Economics

Environmental Economics in One Sentence

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.

Posted by Art Carden at 11:58 AM in Economics

JFK, Opportunity Costs, and the Moon

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.

Posted by Art Carden at 09:38 AM in Economics

Of Course It's Not About Patient Outcomes

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.

Posted by E. Frank Stephenson at 09:29 AM in Economics

June 10, 2010
Hayek on the Road to Meta-Number One?

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...)

Posted by Edward J. Lopez at 07:58 AM in Economics

June 09, 2010
Gross National Happiness

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.

Posted by Tim Shaughnessy at 11:53 AM in Economics

June 08, 2010
Auctions for Overbooked Flights: Been There, Done That

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.

Posted by E. Frank Stephenson at 03:31 PM in Economics

This is not your father's market failure

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.

Posted by Edward J. Lopez at 10:16 AM in Economics

On Medical Expenses and Bankruptcy

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."

Posted by E. Frank Stephenson at 10:15 AM in Economics

Incentives Matter: Unemployment Insurance and Job Search Edition II

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.

Posted by E. Frank Stephenson at 09:50 AM in Economics

June 07, 2010
The Economic Illiteracy of the Left

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.


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.

Posted by E. Frank Stephenson at 11:43 PM in Economics

Why Wal-Mart Crushed Downtown Competitors, N=1

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.

Posted by Art Carden at 04:52 PM in Economics

Sam Walton and Subsidies (Updated)

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.

Posted by Art Carden at 10:24 AM in Economics

June 03, 2010
Bootleggers and Potheads
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.


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.


Posted by E. Frank Stephenson at 05:18 PM in Economics

I Know What You're Not Going to do This Summer

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.

Posted by Art Carden at 09:14 AM in Economics

June 01, 2010
Don Boudreaux: Man of Letters

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.

Posted by Art Carden at 07:05 PM in Economics

Alan Blinder and Hoovernomics

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.

Posted by E. Frank Stephenson at 03:19 PM in Economics

Open Access Bikes Are MIA
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.

Posted by E. Frank Stephenson at 02:53 PM in Economics

May 30, 2010
Steve Wynn, Regime Uncertainty, and Entrepreneurship
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.


Posted by E. Frank Stephenson at 07:33 PM in Economics

May 27, 2010
Marginal Cost in Action

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.
Posted by Edward J. Lopez at 01:11 PM in Economics

May 26, 2010
Make Work Bias

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


Posted by E. Frank Stephenson at 08:30 PM in Economics

Cigarette Taxes and Laffer Curves

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.

Posted by E. Frank Stephenson at 05:42 PM in Economics

Universty of Donja Gorica

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!

Posted by Edward J. Lopez at 02:23 PM in Economics

Sowell on the Economics and Politics of Crises

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.

Posted by Art Carden at 09:46 AM in Economics

May 25, 2010
Money is fungible

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.

Posted by Noel Campbell at 12:50 PM in Economics

A Question of (Business) Ethics
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?

Posted by Robert Lawson at 09:59 AM in Economics

Corner Solution Parenting and Choking Hazards

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

Read More »

Posted by Art Carden at 02:30 AM in Economics

May 24, 2010
New Home for JEFE

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.

Posted by Edward J. Lopez at 03:56 PM in Economics

Sentences to Ponder*

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.

Posted by Art Carden at 01:38 PM in Economics

May 23, 2010
None of us are Keynesians now

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.

Posted by Michael Munger at 11:08 AM in Economics

May 22, 2010
We Have Work To Do


Posted by Art Carden at 04:02 PM in Economics

YouTube: Interviews with Julian Simon

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

Posted by Art Carden at 02:48 PM in Economics

May 21, 2010
Markets in everything: Corruption capital markets

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.

Posted by Noel Campbell at 01:54 PM in Economics

May 20, 2010
Building Brand Equity: Immigration, Against Fire Socialism

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.

Posted by Art Carden at 05:04 PM in Economics

May 19, 2010
Handy SWEDOW Flowchart

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

Posted by Art Carden at 11:27 AM in Economics

Georgia on my mind

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.

Posted by Robert Lawson at 10:41 AM in Economics

May 18, 2010
Candy Defined in the Process of Its Emergence

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?

Posted by Art Carden at 12:04 PM in Economics

Pot Growers Troubled by Falling Prices

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"

Posted by E. Frank Stephenson at 10:53 AM in Economics

"Common Objections to Capitalism" in Copenhagen

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

Posted by Art Carden at 09:13 AM in Economics

On Cigarette Tax Avoidance

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.

Posted by E. Frank Stephenson at 08:28 AM in Economics

May 17, 2010

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.

Posted by Art Carden at 05:25 PM in Economics

A Response to Salerno on Mises and Fiduciary Media

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

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

Read More »

Posted by Lawrence H. White at 04:22 PM in Economics

Links for Northeast Shelby Republican Club Meeting

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.

Posted by Art Carden at 09:15 AM in Economics

May 16, 2010
Don Boudreaux: Man of Letters

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.

Posted by Art Carden at 03:06 PM in Economics

Regime Uncertainty Sighting
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.


Posted by E. Frank Stephenson at 01:52 PM in Economics

May 14, 2010
Morning Reading

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.

Posted by Art Carden at 09:29 AM in Economics

Central Planning Kills

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.
Posted by E. Frank Stephenson at 09:19 AM in Economics

May 13, 2010
Peter Klein's The Capitalist and the Entrepreneur

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

Posted by Art Carden at 08:28 PM in Economics

May 12, 2010
Switzer on Badgering BP

Here's fellow Wash U Econ PhD (and key to all our IM sports championships, I might add) Dave Switzer on the BP investigations.

Posted by Art Carden at 10:43 AM in Economics

An open question

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.

Posted by Craig Depken at 09:32 AM in Economics  ·  Comments (4)

May 11, 2010
More on the euro

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.

Posted by Lawrence H. White at 07:34 PM in Economics

Would This Be Price Gouging?

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:


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.

Posted by Art Carden at 07:12 PM in Economics

On drawing turtles and pirates c. 1910

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.


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):

Posted by Craig Depken at 11:19 AM in Economics

More Immigration Links

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).

Posted by Art Carden at 10:57 AM in Economics

On census jobs c. 1910

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.

Posted by Craig Depken at 10:54 AM in Economics

Desperately Seeking Cuffy Meigs, or, That's Just Theory!

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.

Posted by Art Carden at 08:51 AM in Economics

May 10, 2010
Building Brand Equity: Contributions to Medical Progress Today

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.

Posted by Art Carden at 09:56 PM in Economics

Building Brand Equity: Carden & Verdon, 2010.

Carden, Art and Lisa Verdon. 2010. When is Corruption a Substitute for Economic Freedom? Law and Development Review 3(1): Article 2.

Available here.

Posted by Art Carden at 08:03 PM in Economics

The value of European government debt is not the value of the Euro

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.

Posted by Lawrence H. White at 01:30 PM in Economics

So Much for Cultural Hegemony

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.

Posted by E. Frank Stephenson at 12:10 PM in Economics

Unintended Consequences?

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.

Posted by E. Frank Stephenson at 12:03 PM in Economics

The social function of price gouging

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.
Posted by Edward J. Lopez at 10:46 AM in Economics

May 08, 2010
F. A. Hayek, born May 8, 1899

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.

Posted by Edward J. Lopez at 03:05 PM in Economics

Chavez & Morales on a stroll down the road to serfdom

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.

Posted by Edward J. Lopez at 01:02 PM in Economics

Immigration, or, Why This is a Battle Worth Fighting

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.

Posted by Art Carden at 08:40 AM in Economics

May 07, 2010
Walmart and "Economic Enlightenment" (Updated)

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?"

Posted by Art Carden at 12:35 PM in Economics

Unintended Consequences and Voting

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.

Posted by Art Carden at 09:43 AM in Economics

Tucker on Voting, Swag Bleg

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.

Posted by Art Carden at 09:18 AM in Economics

May 06, 2010

1. Steve Horwitz on The Three Hats of the Economist.

2. Sheldon Richman on Immigration, Civil Liberties and the Drug War.

Posted by Art Carden at 09:31 AM in Economics

May 05, 2010
Why I Love Teaching Intro

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).

Posted by Art Carden at 10:58 PM in Economics

Greece, default, and deflation

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.

Posted by Lawrence H. White at 01:58 PM in Economics

Public Choice Outreach Seminar

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.

Posted by Art Carden at 12:12 PM in Economics

Counting Costs as Benefits

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.

Posted by E. Frank Stephenson at 09:02 AM in Economics

Early QOTD Candidate: Zetland on the Stimulus

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!"

Posted by Art Carden at 07:50 AM in Economics

May 04, 2010
Congrats to our co-blogger Brad Smith!

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

Posted by Lawrence H. White at 03:06 PM in Economics

Steve Hanke on the Fed as "bubble makers"

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.
Posted by Lawrence H. White at 11:44 AM in Economics

On compensation and efficiency c. 1910

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.]

Posted by Craig Depken at 10:20 AM in Economics

May 03, 2010

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.

Posted by Art Carden at 09:43 AM in Economics

Hey Students! Intellectual History Project Idea

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.

Posted by Art Carden at 09:29 AM in Economics

May 01, 2010
Latest in Bolivia Nationalizations

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.

Posted by Edward J. Lopez at 01:44 PM in Economics

Forays Into Commercial Society

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.

Posted by Art Carden at 12:38 PM in Economics

We still live in interesting times

In honor of the recent release of 2010q1 data, I calculated my “back of the envelope” equation of exchange (MV=PQ). For “M” I use the St. Louis Fed’s seasonally adjusted monetary base. For GDP and Real GDP I use the Bureau of Economic Analysis seasonally-adjusted figures. Dollar amounts are in billions. Using the equation of exchange, I calculate velocity and the implicit monetary base GDP deflator. (N.B.: Yes, I’m a monetarist/neoclassical sort of dude. You don’t need to email me to tell me about how Rothbard disproved the concept of velocity, etc.) Pictures tell thousands of words, so…

Download file here.

The first table is a condensed view. The left hand side shows levels of variables and the right shows growth rates. The growth rates are approximated by the differences in natural logs, and they are quarter-to-quarter growth rates.

The second table shows more traditional year-to-year growth rates, based on the first quarter.

I’ll be honest. The monetary base and velocity figures blow my mind.

Read More »

Posted by Noel Campbell at 11:37 AM in Economics

April 30, 2010

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.

Posted by Art Carden at 10:27 AM in Economics

April 29, 2010
Sports and Politics Paper Idea

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.

Posted by Art Carden at 02:49 PM in Economics

Sound Money, Free Banking, Rule of Law

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!

Posted by Lawrence H. White at 02:46 PM in Economics

April 28, 2010
Economic Calculation in the Militarist Commonwealth

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.

Posted by Art Carden at 09:56 PM in Economics

The Greedy Hand: Michigan Speedtrap Edition
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.

Posted by E. Frank Stephenson at 03:24 PM in Economics

Another Helping of Hooverite Nonsense

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.

Posted by E. Frank Stephenson at 02:47 PM in Economics

April 26, 2010
Not All Employment Declines Are Bad

Yours truly in today's WSJ:

William P. Suliburk (Letters, April 21) calls the decline in manufacturing employment "disconcerting" and considers the growth in teachers and health-care workers to be indicative of "misallocation in the employment of our labor force."

Bloated government spending has indeed led to misallocations, such as that outlined in your editorial "Fewer Students, More Teachers" (April 12). However, the decline in manufacturing employment, much like the dramatic decrease in agricultural employment in the 20th century, reflects a long-term trend driven primarily by rapid productivity growth. Surely, Mr. Suliburk does not pine for the days in which one-third or more of the U.S. labor force toiled at subsistence farming; nor should he fret about productivity-driven declines in manufacturing employment.

The letter generated several kind emails (thanks folks) and one that called me "unbelievably naive and ignorant."

One from the dead letter office is below the fold.

Read More »

Posted by E. Frank Stephenson at 10:19 PM in Economics

Lessons from The Lorax

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.

Posted by E. Frank Stephenson at 10:09 PM in Economics

Euvoluntary Exchange is Always Just

Is exchange just? Does it matter if exchange is "euvoluntary"? I try to answer these and other questions, here.

Read More »

Posted by Michael Munger at 06:34 PM in Economics

Sustaining poverty

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.

Posted by Wilson Mixon at 02:19 PM in Economics

April 25, 2010
Which is it?

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.

Posted by Craig Depken at 05:28 PM in Economics  ·  Comments (3)

Revitalizing Memphis!

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.

Posted by Art Carden at 08:47 AM in Economics

Denmark Dispatch: Education is Too Important Not to Be Left to the Market

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.

Posted by Art Carden at 07:05 AM in Economics

In Defense of Capitalism

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.

Posted by Art Carden at 01:45 AM in Economics

April 21, 2010
We should make up a new game called "Spot the Broken Window!"

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."

Posted by Robert Lawson at 04:50 PM in Economics

Writing in Books

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.

Posted by Art Carden at 03:43 PM in Economics

On the Pervasiveness of Rent Seeking

Even salt producers have a trade association, the Salt Institute.

Posted by E. Frank Stephenson at 12:50 PM in Economics

Gaia's Wrath and Frederic Bastiat

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.

Posted by Art Carden at 12:22 PM in Economics

Economics and Ethics (Updated)

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."

Posted by Art Carden at 09:44 AM in Economics

April 20, 2010
Evening Links

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.

Posted by Art Carden at 07:41 PM in Economics

Interview with George Selgin

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.

Posted by Lawrence H. White at 05:40 PM in Economics

April 19, 2010
Podcast: For Love or Money?

Podcast, in which Russ and I more or less reverse roles and I ask him questions, about love, money, and non-profits.

Posted by Michael Munger at 06:19 PM in Economics

Environmental Colonialism

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.
Posted by Art Carden at 03:49 PM in Economics

File Under Markets I Don't "Get"

De gustibus non est disputandum, however, ....


Posted by Joshua Hall at 02:15 PM in Economics

Playing Into the Hands of the Money Sharks

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?
Posted by Lawrence H. White at 12:38 PM in Economics

Capitalist Power and Consumer Sovereignty
Dear Sellers,

All your gains from trade are belong to us.



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.

Posted by Art Carden at 12:04 PM in Economics

McCloskey on the Economics of Advertising

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.

Posted by Art Carden at 10:45 AM in Economics

Against Prohibition

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.

Posted by Art Carden at 09:51 AM in Economics

April 17, 2010
On Barbed Wire and Property Rights

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.
Posted by E. Frank Stephenson at 02:27 PM in Economics

April 16, 2010
The Anti-Economics of Socialism with Heterogeneous Preferences

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!"

Posted by Art Carden at 03:06 PM in Economics

Taxes and Spending

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.

Posted by Art Carden at 10:17 AM in Economics

Protests and Counter-Protests on Tax Day

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.

Posted by Art Carden at 10:00 AM in Economics

April 15, 2010
Melissa Yeoh Owes Me $20

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.

Posted by Art Carden at 09:25 PM in Economics

Ross on Otteson and Brook on Smith and Rand

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?"

Posted by Art Carden at 12:41 PM in Economics

Public Choice Panel on The Myth of the Rational Voter

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.

Posted by Art Carden at 10:45 AM in Economics

April 13, 2010
Final call for papers

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.

Posted by Craig Depken at 01:18 PM in Economics

April 09, 2010
APEE 2010: What Happens in Vegas...

...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).

Posted by Art Carden at 10:15 AM in Economics

April 08, 2010
Yuppie 911/Berry Economics Awards

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.

Posted by E. Frank Stephenson at 11:50 PM in Economics

Bootleggers and Food Inspections

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."

Posted by E. Frank Stephenson at 11:23 PM in Economics

April 07, 2010
State-level taxation data in search of hypotheses

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.
Posted by Edward J. Lopez at 11:27 AM in Economics

April 06, 2010
Books on the Review Pile

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?

Posted by Art Carden at 10:24 AM in Economics

April 05, 2010
A tax by any other name c. 1910

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.


Posted by Craig Depken at 10:35 AM in Economics

April 03, 2010
Against Looters, At the Margin

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.

Posted by Wilson Mixon at 01:06 PM in Economics

April 02, 2010
Incentives Matter: Kidney Donation Edition

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:


Posted by E. Frank Stephenson at 03:01 PM in Economics

Most interesting thing I read this week

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.

Posted by Noel Campbell at 02:34 PM in Economics

"Profit and Production" available for Download

The published version of my paper "Profit and Production" is available here.

Posted by Art Carden at 02:30 PM in Economics

April 01, 2010
Tantrums as credible commitments

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.

Posted by Edward J. Lopez at 08:09 PM in Economics

What I've Been Re-Writing Lately: Decisions and Revisions Which a Minute Will Reverse

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.

Posted by Art Carden at 12:19 PM in Economics

Phonecall for Mr. Orwell. Is there a Mr. Orwell in the house?

In India the "Right of Children to Free and Compulsory Education Act" comes into force today.

Gor that? Free and Compulsory.

Posted by Robert Lawson at 09:52 AM in Economics

March 31, 2010
Palmer on the Broken Window Fallacy

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.

Posted by Art Carden at 12:05 PM in Economics

March 30, 2010
Does anyone remember the recipe?

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.

Posted by Craig Depken at 02:14 PM in Economics  ·  Comments (1)

March Madness: I need a Bracket Bailout!

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.

Posted by Art Carden at 12:51 PM in Economics

Price elasticity of beans c. 1910

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?

Posted by Craig Depken at 10:39 AM in Economics

March 29, 2010
Incentives matter c. 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.

Posted by Craig Depken at 03:34 PM in Economics

A Time for Reflection: Thomas Sowell on Experts

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.

Posted by Art Carden at 11:17 AM in Economics

Maybe They Should Call It the Waxman Effect

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.
Posted by E. Frank Stephenson at 08:43 AM in Economics

March 28, 2010
Farmers leave strawberries rotting in the fields after price drops

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.

Posted by E. Frank Stephenson at 11:00 PM in Economics

Baseball Card Bubble

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.

Posted by Art Carden at 08:20 PM in Economics

March 27, 2010
On Obamacare and High Deductible Health Insurance Policies

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.

Posted by E. Frank Stephenson at 08:51 PM in Economics

Pot Growers and Baptists

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.

Posted by E. Frank Stephenson at 08:31 PM in Economics

ER Visits by the Uninsured

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.
Posted by E. Frank Stephenson at 10:58 AM in Economics

March 26, 2010
Libertarianism v. (American) Liberalism: Has the Market Spoken?

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?

Posted by Art Carden at 09:57 AM in Economics

March 25, 2010
Real HHS Spending

From Cato:

More over at Heavy Lifting

Posted by Craig Depken at 03:13 PM in Economics

Piracy business model

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?

Posted by Craig Depken at 10:18 AM in Economics

What I've Been Writing Lately: How Shall We Live?

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:

Posted by Art Carden at 09:09 AM in Economics

March 24, 2010
Baptists, Bootleggers & Vidalia Onions

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.

Posted by Wilson Mixon at 08:28 PM in Economics

How much spending is too much spending?

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.

Posted by Edward J. Lopez at 06:21 PM in Economics

Unicorn parking in the back

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.

Posted by Craig Depken at 12:57 PM in Economics

Will Europeans Pay our Medical Bills?

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?

Posted by Art Carden at 10:13 AM in Economics

March 23, 2010
New Book: The Cultural and Political Economy of Recovery

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 »

Posted by Joshua Hall at 09:32 PM in Economics

Add Your Name to History

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.

Posted by Art Carden at 10:19 AM in Economics

March 22, 2010
What kind of monetary institutions would be best for the Bahamas?

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.

Posted by Lawrence H. White at 01:41 PM in Economics

Building Brand Equity: EFW Index lecture

An edited version of a recent talk I gave on the EFW index in Wichita, Kansas:

Posted by Robert Lawson at 08:47 AM in Economics

March 21, 2010
On Feminism and the Forbes Richest People List

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.

Posted by E. Frank Stephenson at 02:52 PM in Economics

March 20, 2010
Process Costs of Health Care

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).

Posted by Art Carden at 01:05 PM in Economics

March 18, 2010
Timberlake on the gold standard

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.

Posted by Lawrence H. White at 01:59 PM in Economics

March 16, 2010
The Process Demonstrates Hayek's Importance

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.

Posted by Art Carden at 02:53 PM in Economics

We've got a map for that

... 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.

Posted by Wilson Mixon at 01:55 PM in Economics

March 15, 2010
Free Banking for $0

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.

Posted by Art Carden at 02:44 PM in Economics

Reposted: Boudreaux on Voting

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 »

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 »

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

Photo 153.jpg

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 »

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

klein amazon FAIL.JPG

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 »

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.


FTC-mandated disclosure: Google sent a team of engineers over to my condo to vacuum the carpets and clean the windows in exchange for my little blurb above. In other words, what Bob said.

Posted by Edward J. Lopez at 05:54 PM in Economics

Baptists, Bootleggers, and Bingo

Gambling interests gave money to the head of Alabama's anti-gambling task force when he was running for Attorney General. Public choice exam: explain. What are the implications for the "public interest" view of the state?

Posted by Art Carden at 12:13 PM in Economics

Jobs, Power, Politics, Tolkien

Courtesy of the Mises Institute, here's a podcast on libertarian themes in J.R.R. Tolkien's Lord of the Rings is embedded below. This is especially appropriate in light of two events that are happening today. The first is Apple's announcement of some kind of new iProduct, which will improve people's lives in ways we cannot foresee. The second is the State of the Union Address, which is the President's carefully choreographed exercise in truthiness followed by another carefully choreographed exercise in truthiness from the President's political opposition (here's Lew Rockwell on the contrast). Here's the video of Steve Jobs introducing the first iPod in 2001. Here's Tyler Cowen's "simple theory of political jobs," which go to "(p)eople who truly, deeply love the power." Here's a passage from Chapter 28 of Douglas Adams's The Restaurant at the End of the Universe that deserves some reflection on a day like today:

"The major problem — one of the major problems, for there are several — one of the many major problems with governing people is that of whom you get to do it; or rather of who manages to get people to let them do it to them.

To summarize: it is a well known fact, that those people who most want to rule people are, ipso facto, those least suited to do it. To summarize the summary: anyone who is capable of getting themselves made President should on no account be allowed to do the job. To summarize the summary of the summary: people are a problem.

And so this is the situation we find: a succession of Galactic Presidents who so much enjoy the fun and palaver of being in power that they very rarely notice that they're not.

And somewhere in the shadows behind them — who?

Who can possibly rule if no one who wants to do it can be allowed to?"

Posted by Art Carden at 11:22 AM in Economics

On the Bookshelf: Paris Under Water

Historian Jeffrey H. Jackson--one of my colleagues at Rhodes--recently published a book called Paris Under Water: How the City of Light Survived the Great Flood of 1910 (find out more here). I picked up a copy a few days ago and look forward to reading it in light of my ongoing projects about the 1866 Memphis riot, the couple of papers I've written on Katrina, and the growing body of scholarship being produced by the Mercatus Center's Hurricane Katrina-Gulf Coast Recovery project. My prior is that I'm going to find the book interesting and useful.

Posted by Art Carden at 09:52 AM in Economics

January 26, 2010
Hit and Run

A few things--other than the cool Keynes/Hayek rap--that have caught my eye over the past few days:

William Shughart on Haiti and the broken window fallacy.

Robert Higgs on disappearing private sector jobs.

Peter Schiff on the minimum wage hike in American Samoa.

Federal Subsidy Programs Top 2,000

Two NBER WP on labor supply elasticities (here and here): The second one has an important finding vis-a-vis supply side economics:

[W]e find that standard microeconometric methods underestimate structural labor supply elasticities by an order of magnitude.

UPDATE: Some interesting papers in the current REStat: Ugly Criminals, war is bad, trade is good, and institutions matter.

"Marketplace" has a piece on corruption in China.

"Marketplace's" Scott Jagow isn't impressed with the Obama spending freeze (a question for Obama and Jared Bernstein: If it's possible to cut $250B of wasteful spending from the budget then why did you sign the bill(s) that included said wasteful spending?).

UPDATE2: Casey Mulligan on the minimum wage.

The regressivity of carbon taxes.

Posted by E. Frank Stephenson at 06:24 PM in Economics

On the Hayek/Keynes Video (Updated)

Co-bloggers Larry White and Mike Munger discuss the video below; I liked it, and (SPOILER ALERT) I thought the placement of a copy of The General Theory in Hayek's hotel room where a Gideon Bible would normally be was a stroke of genius. The YouTube video now has about 74,000 views, and I look forward to more from the team behind it.

While we're on the subject of great music videos, Nickelback's "Rockstar" is below the fold. From what I can tell, the YouTube upload is licensed, legal, and official.

Read More »

Posted by Art Carden at 01:25 PM in Economics

January 25, 2010
Hayek vs. Keynes, in rap

The much-awaited video from Russ Roberts and John Papola, linked to by Mike Munger below, is a hoot. My only complaint: in real life Hayek was younger than Keynes.

A larger-screen version, plus lyrics, credits, and background info on Hayek and Keynes are at http://econstories.tv/home.html. The site also promises to soon have "clips from interviews with leading economists on macroeconomic concepts and the current state of macroeconomics". I was one interviewed, and I'll pass the word when my interview goes up.

Posted by Lawrence H. White at 05:06 PM in Economics


The video. I humbly present the video: Fear the Boom & Bust.....

I am the Limo Driver to the Stars. Where to now, Lord Keynes?

Posted by Michael Munger at 04:20 PM in Economics

Why do economists criticize the Fed so little?

Steve Hanke in the National Post:

Chairman Bernanke’s denial of the Fed’s culpability raises an interesting question: How can the Fed make fantastic claims without being brought to account?

In search of an answer Steve cites Milton Friedman, Gordon Tullock, and kindly my work on the Fed's influence on research in monetary economics, which is available here.

Posted by Lawrence H. White at 11:14 AM in Economics

A New Addition to the Bookshelf

My copy of Literature and the Economics of Liberty: Spontaneous Order in Culture just arrived (buy for $20 here, or download for $0 here; I've done both). I'm really looking forward to it; as I've come under the influence of Deirdre McCloskey in the last seven or eight years I've come to realize that there are a lot of unrealized gains from trade to be enjoyed through multi-disciplinary conversation.

FTC-Mandated disclosure: I have received valuable consideration from the Mises Institute in the past in exchange for writing and lectures. I have not received any valuable consideration in exchange for endorsing this book.

Posted by Art Carden at 11:04 AM in Economics

January 21, 2010
Externalities explained...

by the Onion:

"It's fine, it's fine," thought Maine native Sheila Hodge, echoing the exact sentiments of Chicago-area resident Phillip Ragowski, recent Florida transplant Margaret Lowery, and Kansas City business owner Brian McMillan, as they tossed the polyethylene terephthalate object into an awaiting trash can. "It's just one bottle. And I'm usually pretty good about this sort of thing."
Posted by Robert Lawson at 01:45 PM in Economics

January 20, 2010
Is the Welfare State Justified?

Philosopher Danny Shapiro says "probably not" in this 8-minute C-SPAN interview. He gives straightforward consequentialist economic reasons why not, namely, he explains how the welfare state hinders rather than promotes the fairness, etc., that its proponents cite as justifications.

Posted by Lawrence H. White at 10:38 AM in Economics

January 19, 2010
Kelo and Government Size

The abstract of a paper by Geoffrey Turnbull and Rob Salvino:

The 2005 U.S. Supreme Court decision Kelo v New London allows using eminent domain to transfer property from one private party to another when it serves a broadly defined public purpose such as economic development. This paper examines the effect of this doctrine on the size of state and local governments. In the leviathan model, constitutional constraints are needed to control government expansion. The Kelo decision removes one such constitutional constraint on how state and local governments gain command over privately owned resources. The empirical results show that the breadth of eminent domain power affects the size of the public sector; states that explicitly empower their local governments to use eminent domain for private economic development have larger state and local public sectors than those that do not.
Posted by E. Frank Stephenson at 04:00 PM in Economics

Haiti, Immigration, and Development

I've argued several times that open immigration is an idea whose time has come (below, for example). Austin the Undergrad disagrees and raises a number of good points, but a) I think that the empirical literature still suggests a net gain and b) his criticisms aren't criticisms of immigration per se but of the welfare state (I discuss discrimination and forced association here). The problem is that for open immigration to work to its fullest potential, a lot of things would have to change at once.

Ilya Somin links to an interesting piece by Paul Romer and offers intriguing commentary (HT: Will Wilkinson). I share their concern that a massive humanitarian/military/colonial/whatever exercise in state-building is a recipe for disaster.

Posted by Art Carden at 09:12 AM in Economics

January 18, 2010
MLK and Poverty

Here's an article from today's Memphis Commercial Appeal that contains an entire econ 101 exam or two worth of possible questions. What's missing from the article?

Posted by Art Carden at 03:41 PM in Economics

Lindsey Graham opposes the industrial revolution

Wow. “'All the cars and trucks and plants that have been in existence since the Industrial Revolution, spewing out carbon day-in and day-out, you’ll never convince me that’s a good thing for your children and the future of the planet,' [Graham] told a crowd in South Carolina,... ."

Graham thinks it would be a good thing if we had no cars and trucks, no electricity in amounts that could serve any purpose (and no serious means to construct hydroelectric plants in any case)? He thinks it would be better for us and our children if we lived as in 1800, when the average life expectancy was about 40 - if you survived childhood?


Posted by Brad Smith at 11:42 AM in Economics ~ in Funny Stuff ~ in Politics ~ in Science

January 16, 2010
Haiti and the Development Idea that Hasn't Been Tried

The world is still reacting to the horrific death and destruction in Haiti, and a lot of people are asking "what can I do to help the world's poor?" Here's Michael Clemens with an answer on "The biggest idea in development that no one really tried." In short, open the borders. I've written on this at DOL before (1, 2, 3, 4), but the recent disaster in Haiti illustrates the human tragedy caused by poverty--poverty that can be substantially reduced by adopting markets without borders.

Posted by Art Carden at 01:58 PM in Economics

January 15, 2010
The New Paternalism Crashes Down the Slippery Slope

Here's Glenn Greenwald on Cass Sunstein's recommendations for how the government can deal with conspiracy theories (HT: Will Wilkinson). Along the same lines, here's the latest installment of "New Paternalism on the Slippery Slopes" from Glen Whitman at ThinkMarkets.

Posted by Art Carden at 07:11 PM in Economics

Once politicians began taking credit for homeownership rates it was all over

Vernon Smith at Big Think, answering the posed question, "How has the government response to the crisis impacted household incomes, housing policies, and tax changes?"

And of course what the Administration is doing is the same thing any Administration would do in this, probably, in this crisis, and that is to try to prevent the price of homes from falling. So they're shoring up the demand for homes by more subsidies. Now if you think about that you realize that the proposed solution now is exactly what the problem was. So the solution is the problem, more of the same. And the question is how do you get out of this sort of vicious circle. What's important is, you try not to get there in the first place. Because once you're in this kind of a downturn all of the political pressures are to further artificially expand the demand for homes and to shore up those prices. Even though what we really need is for those prices to come down relative to the prices of other things in the economy.
Posted by Edward J. Lopez at 06:22 PM in Economics

Money I Found Today

In an attempt to gin up some followers, I announce my latest (third) blog: Money I Found Today. It is an experiment in documenting how much money I find laying on the ground over the next year or two.

I know, there is a solid argument that such an endeavor is a fool's errand as my time is worth more doing other things. Yet, doesn't that characterize almost all blogs?

Posted by Craig Depken at 01:52 PM in Economics

January 13, 2010
Political FAIL, c. 1866

I'm slogging my way through the records of the US government investigation of the 1866 Memphis Riot for a couple of papers Chris Coyne and I are working on. It's one of the more difficult reads I've ever encountered: it's 371 pages of very tiny print with something important and relevant on almost every line. The more I read the more I'm convinced that turning over the provision of law and order to a monopolist that is only accountable through political channels creates more problems than it solves. Chris and I will explore this in greater detail when we finish the paper, but I had to stop and blog this, from page 214. It's from lines 3330, 3331, and 3332 of the testimony of B.F.C. Brooks, editor of the Republican.

I have heard the remark again and again, "By God, we'll clean you all out. Just get the troops away, and we'll show you, when we get things into our own hands."

3331. Mention any one from whom you have heard such sentiments. Colonel Saffrons.

3332. Has he not recently been elected to office here? Yes sir; judge of the county court. He added something to the effect, "we shall some time get things into our own hands. True, we cannot vote now, but we have friends who can, and we will soon get you fellows out of here, and then we will take things into our own hands."

Posted by Art Carden at 03:49 PM in Economics

New Paper: Economic Progress and Entrepreneurial Innovation

"Economic Progress and Entrepreneurial Innovation: Case Studies from Memphis," available at SSRN. The abstract:

"Entrepreneurial innovation encourages economic progress, and an institutional climate that encourages risk taking, rewards success, and weeds out failure is essential to a well-functioning economic system. This essay explores a cluster of path-breaking entrepreneurial innovations with common roots in Memphis, Tennessee: Piggly Wiggly’s popularization of self-serve grocery shopping, Holiday Inn’s innovations in standards and quality, Autozone’s adaption of insights from other industries, and FedEx’s creation of a distribution network that has made overnight shipping a reality."

Posted by Art Carden at 02:30 PM in Economics

Failure Insurance: An Incentive to Fail?

Georgia's HOPE Scholarship program requires students to maintain a B average to maintain funding; I think some other state scholarship programs contain similar incentives. Now comes a different idea--failure insurance:

Imagine a first-generation college student whose high-school preparation was less than ideal. She has just finished her first semester, and she realizes now that college is going to be tougher than she had hoped. She failed one course and struggled to earn C's in her other subjects. She worries that she'll eventually flunk out, and she wonders whether she should walk away now before she accumulates any more student debt.

But what if she could hedge her risks by buying a "failure insurance" policy that would reimburse her for a portion of her student-loan debts if she did flunk out? Would that make her more willing to stay for another semester?

Failure insurance might sound outlandish—but a well-designed insurance system could actually improve students' effort and their attainment rates, according to a working paper that was presented in Atlanta last week at the annual meeting of the American Economic Association.

Seems like there's some potential for moral hazard here--garner an F and get ones college debts forgiven. Here's the paper.

UPDATE: A co-blogger points me to this company that already offers grade insurance of sorts.

Posted by E. Frank Stephenson at 12:58 PM in Economics

Segregation and Public Choice

Here's a very nice post from Brian Pitt at The Sociological Imagination. In light of MLK Day this coming Monday, here's a one-sentence summary of my viewpoint on just about everything:

Our moral failings, character flaws, and biases are rewarded and magnified through the political process but punished and reduced through the market process.

Posted by Art Carden at 10:47 AM in Economics

Don't think it can't happen here

The news coming out of Haiti is breath-taking. The local news this morning questioned why there are no construction codes in Haiti pertaining to earthquakes, bringing in comparisons with China, Turkey, Iran, Afghanistan, and other countries where earthquakes are not completely uncommon and yet there seems to be few precautions taken in construction.

Two potential reasons for the absence of earthquake construction codes came to mind immediately. First would be corruption (explicit or implicit) of the political process in which the "general welfare" is ignored for personal gain on the part of those in the positions of influence. The second, and less knee-jerk, reason is that earthquake codes (along with airbags, clean-coal, etc.) are luxury goods which the countries I enumerated above might not have the means to purchase. Our tsk-tsking does not solve that problem.

In April 1906 an earthquake devastated San Francisco in a pre-post-industrial world. The destruction was wide-spread and in many cases complete. I had plenty of "circa" postings concerning this event in the past (list here) Given that experience, and other more recent earthquakes, there is an expectation that another "big one" will hit in California. The unpredictable nature of earthquakes, coupled with our affluence (and, some might say, intrusive government regulation), California and other states have introduced construction codes aimed at mitigating the damage inflicted by earthquakes.

It seems less obvious to me whether the codes instituted in this country are sufficient to allow buildings to survive the "big-big one," something that seems to be taken for granted by those who comment on the lack of codes elsewhere. That is an empirical question I hope we don't have a natural experiment to test.

However, those of us in the Southland (and in the Midwest and in the Northeast) should not rest too easy. I am in the middle of reading "A Crack in the Edge of the World," which is about the 1906 SF earthquake but also, in the long run up to the actual event, about the whole reason there are earthquakes in California to begin with.

In a nutshell, and from a layman's perspective, the North American tectonic plate butts up against the Pacific tectonic plate somewhat west of California and butts up against the European tectonic plate somewhere east of Greenland. Unexpectedly and without current explanation, the North American plate has experienced seismic activity in a rather wide diagonal through its middle basically from New England through the Appalachians and out into Missouri, over the past 200-plus years (in recorded history but obviously much longer than that).

For example there have been tremendous earthquakes in the past in New Madrid, Missouri (1811), York (1884), Memphis TN (1845), and Charleston SC (1886), to name just a few places that would not seem to be obvious candidates for earthquakes.

My point is not to suggest perpetual vigilance and fear of an earthquake in the South but rather to avoid the "It can't happen here" syndrome.

Posted by Craig Depken at 10:13 AM in Economics

Quality and the Commons: The Surf Gangs of California

That's a new Journal of Law and Econ paper by Daniel T. Kaffine; the abstract (ungated version here):

In open‐access settings, high‐quality resources are lucrative, yet fencing out potential entrants may be very costly. I examine the endogenous creation of property rights, focusing on the incentives that resource quality provides to close the commons. Analytical examples explore the incentives of locals to increase or decrease the strength of property rights conditional on how locals and nonlocals value the quality of the resource. The empirical analysis looks at a unique resource—surf breaks—and estimates the relationship between the exogenous quality of the resource (waves at the surf break) and local attempts to seize the common surf break. Using cross‐sectional data on 86 surf breaks along the southern California coast, this paper finds that a 10 percent increase in quality leads to a 7–17 percent increase in the strength of property rights.
Posted by E. Frank Stephenson at 09:33 AM in Economics

January 12, 2010
The Caveman Diet

This looks pretty interesting, but I wonder if their plans also involve dying of treatable diseases or foodborne illnesses by age 35. HT: Jeremy Horpedahl.

Posted by Art Carden at 02:15 PM in Economics

Integrity distinguished from morality and ethics

I did not realize that Michael Jensen is writing with Werner Ehrhard. For a related interview of Jensen, click here.

Posted by Mike DeBow at 12:38 PM in Economics

January 11, 2010
Krugman Being Krugman

In today's column (thanks to Mankiw for the pointer), Paul Krugman pulls out one of his favorite nuggets:

And Europeans are quite productive, too: they work fewer hours, but output per hour in France and Germany is close to U.S. levels.

A more accurate statement would be that output per hour is roughly equal because French and Germans work fewer hours. I took up this issue in a 2005 post which I repost below (lightly edited):

Consider a thought experiment: Suppose countries A and B each have 10 people employed and that output per worker in the two countries is equal. Workers within each country are not equally productive but the distribution of productivity is the same in both countries. (If it is easier to grasp--assume 10 sets of identical twins have been separated at birth with one child from each set of twins going to each country.)

Now suppose that country B decides to enact some sort of tax or labor market regulation. As a result of this policy the least productive worker in country B is no longer employed. (For concreteness, the policy might be a minimum wage law that makes it unprofitable for a firm to hire the worker at the minimum wage.)

What effect does this policy have on the productivity of workers in the two countries? Country B's productivity now appears to be higher than country A's because the least productive worker in country B is no longer employed and no longer counts in the productivity calculations. (This is akin to having one's course average increase when the lowest grade is dropped.) Stated differently, if one averaged over all 10 people in each country, A's productivity would be greater than B's because B has one worker producing nothing.


The key part here is per hour worked. The difference in employment between the two countries is quite large--France's 2003 employment to population ratio was 51.9% while it was 62.3% in the U.S. I bet that French output per working age adult--that is adjusted in some manner for people who are out of work--is lower than in the U.S. Stated differently, I bet the most productive 51.9% of the U.S. population is more productive than the 51.9% of the French who are employed.

Is it too much to ask that a Nobel Prize winner know about thinking at the margin?

Posted by E. Frank Stephenson at 11:12 PM in Economics

Stimulus: The Real Voodoo Economics
A federal spending surge of more than $20 billion for roads and bridges in President Barack Obama's first stimulus has had no effect on local unemployment rates, raising questions about his argument for billions more to address an "urgent need to accelerate job growth."

An Associated Press analysis of stimulus spending found that it didn't matter if a lot of money was spent on highways or none at all: Local unemployment rates rose and fell regardless. And the stimulus spending only barely helped the beleaguered construction industry, the analysis showed.


Posted by E. Frank Stephenson at 10:30 PM in Economics

Stossel on Atlas Shrugged

Starting here on YouTube (HT: Steve Horwitz). The first guest is John Allison from BB&T.

Update: Yaron Brook's discussion of selfishness near the end of segment three is not to be missed. Selfishness, for Rand, is a much more subtle, nuanced, and rational concept than selfishness as it is described by a lot of other people.

Posted by Art Carden at 10:46 AM in Economics

Coming Up Short on History: Robert Reich Edition

Reich may be a Rhodes Scholar, but his knowledge of economic history is pint-sized. Here's a snip of him from yesterday's "This Week" program on ABC:

The most important thing government can do is stimulate the economy. And right now, you have Republicans who are sounding like Herbert Hoover, who are saying, "Don't do anything. Just allow the economy to do what it's going to do on its own."

Bob, Bob, Bob--Hoover was an activist. Here's Amity Shlaes (The Forgotten Man, p. 91):

Right away [following the stock market crash]--in November 1929--Hoover pushed to expand an existing public buildings program by the healthy sum of $423 million on the theory that the spending would boost the economy. In Washington, builders put up great structures--a new agriculture department, for example.

Government spending didn't exactly follow a "don't do anything" path under Hoover: It went from $3.127B in 1929, $3.32B in 1930, $3.377B in 1931, and $4.659B in 1932.

Posted by E. Frank Stephenson at 08:44 AM in Economics

January 09, 2010
So Which Is It?

I'm currently reading Jonathan Levine's Zoned Out as preparation for one of my spring courses. The book makes an important point: Although it is often portrayed as a market outcome, suburban sprawl is at least partly the result of government zoning regulation. Indeed, zoning laws typically prohibit denser development alternatives such as so-called New Urbanism.

I do have one quibble--the author can't quite make up his mind what we economists think of zoning:

p. 80: "[T]he very meaning of zoning as a collective property right--a view now broadly adopted by the economics profession ..."

p. 87: "Economists and other social scientists have split on the nature of zoning--with some viewing it as governmental regulation and others viewing it as more akin to a 'collective property right.'"

I have about one-third of the book remaining so maybe the author will make up his mind in the remaining chapters.

Posted by E. Frank Stephenson at 10:44 PM in Economics

If Rush Can't Play "Tom Sawyer" on Rock Band...

...can we trust doctors, climate scientists, college professors, activists, and lobbyists to redesign the global economy? I've linked to this before--it's a video of Rush trying to play "Tom Sawyer" on Rock Band before their appearance on The Colbert Report--but after my most recent viewing it suggests a lot about the role of knowledge in a spontaneous order. Two quotes bear almost infinite repetition:

Friedrich Hayek: "The curious task of economics is to demonstrate to men how little they know about what they imagine they can design."

Adam Smith:

"The man of system...is apt to be very wise in his own conceit; and is often so enamoured with the supposed beauty of his own ideal plan of government, that he cannot suffer the smallest deviation from any part of it. He goes on to establish it completely and in all its parts, without any regard either to the great interests, or to the strong prejudices which may oppose it. He seems to imagine that he can arrange the different members of a great society with as much ease as the hand arranges the different pieces upon a chess-board. He does not consider that the pieces upon the chess-board have no other principle of motion besides that which the hand impresses upon them; but that, in the great chess board of human society, every single piece has a principle of motion of its own, altogether different from that which the legislature might chuse to impress upon it. If those two principles coincide and act in the same direction, the game of human society will go on easily and harmoniously, and is very likely to be happy and successful. If they are opposite or different, the game will go on miserably and the society must be at all times in the highest degree of disorder."

HT: Tom Woods.

Posted by Art Carden at 11:28 AM in Economics

Easterly, Acton, and Visionary Leadership

In prepping for my appearance on Radio Free Market this afternoon I've done some thinking about society's search for Great Leaders and Great Men. This made me think about a recent post on Aid Watch by William Easterly that everyone should read and a few passages in Democracy in Deficit, which I'm ashamed to say I'm only now reading. I have come to believe more and more in the explanatory power of ideas, and I think the presumption that They need Us to govern them--or more specifically, that You need Me to govern You--is especially pernicious. It also got me thinking about Lord Acton's insight about how very Great Men are almost always very bad men. Here are some quotes from Lord Acton that are especially relevant (I'm going to assume Wikiquote is accurate here):

"The danger is not that a particular class is unfit to govern. Every class is unfit to govern. The law of liberty tends to abolish the reign of race over race, of faith over faith, of class over class."

"I cannot accept your canon that we are to judge Pope and King unlike other men, with a favorable presumption that they did not wrong. If there is any presumption it is the other way against holders of power, increasing as the power increases. Historic responsibility has to make up for the want of legal responsibility. All power tends to corrupt and absolute power corrupts absolutely. Great men are almost always bad men, even when they exercise influence and not authority: still more when you superadd the tendency or the certainty of corruption by authority."

"There is no worse heresy than that the office sanctifies the holder of it."

"Advice to Persons About to Write History--Don't."

"Liberty is not a means to a higher political end. It is itself the highest political end."

"Truth is the only merit that gives dignity and worth to history."

Cross-posted at the Mises Blog and The Beacon.

Posted by Art Carden at 09:42 AM in Economics

January 08, 2010
The BCS Trophy Goes to Walmart

According to this story. HT: Matt Ryan.

Posted by Art Carden at 04:29 PM in Economics


That's the title of a paper by Franklin Mixon and Kamal Upadhyaya that reports rankings of bloggers based on their academic research. The rankings look about right--heavyweights such as Becker, Mankiw, and Posner top the list, peons like me are well down the list--but there is a problem with the rankings. Table 1 reports that I have 120 citations for a rate of 2.67 per year. Dividing those numbers implies I've been getting cited for more than 40 years. Similarly co-blogger Bob has over 1,800 cites and roughly 51 per year thereby implying that he's been getting cited for about 38 years. Since we're both just north of 40, there's no way we've been cited for 40 years. Luckily the error seems to be harmless because the rankings seem, at least to this low ranked scribbler, sensible.

Posted by E. Frank Stephenson at 01:23 PM in Economics

Review of The Retail Revolution

My review of Nelson Lichtenstein's The Retail Revolution: How Wal-Mart Created a Brave New World of Business is online here.

Posted by Art Carden at 12:09 PM in Economics

Boettke on Academia

There has been a bit of chatter in the econ blogosphere about Thomas H. Benton's article in the Chronicle of Higher Education (see Bryan Caplan and Tyler Cowen, for example; I agree with Bryan's claim that people interested in the humanities should get PhDs in economics). Pete Boettke nails the conditions under which one should go into academia and explains some of the reasons why being a professor is such a great job. it has its aggravations, to be sure, but it also offers an incredible amount of freedom.

Posted by Art Carden at 12:08 PM in Economics

Broken Window Panes

Ross Kaminsky on Bastiat, as applied to Pelosi:

Nancy Pelosi ... said that she wants whatever compromise health care bill emerges from their closed-door negotiations to "lower costs at every stage" of our health care system.

... I found her statement troubling not only because I know she's lying about what she wants. It took me a few minutes, but then it hit me. The Bastiat fallacy lies in the word "costs."

What Pelosi really means is that she wants to lower prices paid by end-user consumers of health care.

She wants it to appear that costs have gone down, but in fact the bill will exacerbate the single greatest existing flaw in our health care system: the insulation of consumers of health care from the costs of what they consume. The majority of Americans, when they go to the doctor, feel as if they're spending someone else's money -- a situation which both Milton Friedman and common sense tell us cannot lead to disciplined spending.

Posted by Wilson Mixon at 10:13 AM in Economics

Humorous Blog Comment of the Day

In response to a discussion about comparative advantage and economists being cheap, a commenter asked whether economists take in the exercise value of cutting the lawn. “Economist do exercise, don’t you?” the commenter asked.

To which commenter "Davis X. Machina" replied "Unless it’s really hard, the exercise is usually left to the reader."

Posted by Joshua Hall at 09:41 AM in Economics

January 07, 2010
What I've Been Revising Lately

Here's "The Truthiness Hurts," with Mike Hammock, now in a leaner, meaner version that has been re-submitted to Economic Affairs.

Posted by Art Carden at 03:36 PM in Economics

January 06, 2010
Otteson on the Great Mind

Here's an excellent piece from James Otteson on the "Great Mind Fallacy" that just appeared on Forbes.com. He applies what Adam Smith had to say about the knowledge problem to modern pushes for paternalistic regulation. I'll make a prediction about regulatory mission creep. Regulations that are supposed to nudge me toward behaviors consistent with my interests will eventually metastasize into regulations that nudge me toward a redefinition of my interests.

Wait a second. That's why governments operate schools.

Posted by Art Carden at 02:27 PM in Economics

Dispatches from Sabbatical Prep

I have a sabbatical this semester and have spent the last couple of weeks tying up loose ends, finishing papers that were a day or two of revisions away from being finished, and knocking out other commitments (referee reports, book reviews, etc) so that I have a relatively clear desk and clear mind before I take on my sabbatical projects (mostly Southern economic history) head-on. Today, I'm revising a paper about entrepreneurial innovation in Memphis that I drafted a couple of summers ago and never took the time to polish and finish. In the process, I'm going through old notes, stubs, ideas, scribbles, and other things that litter my office and various storage media. Between now and the end of the week I'll be posting some of the odds and ends that I find.

Here's an outtake from a review of Benjamin Powell (ed.), Making Poor Nations Rich:

"Economic history is in part a story of changing incentives to use entrepreneurial proclivities. In his introduction, Powell notes that in imperial China (and many countries), the best and brightest have historically joined the civil service. Today, these same best and brightest are becoming engineers and entrepreneurs. Five hundred years ago, a Chinese or Indian genius would be working in administration and bureaucracy, likely inventing new ways to thwart trade. Today, those geniuses are moving to Silicon Valley and writing software for Google."

Posted by Art Carden at 12:07 PM in Economics

Building Brand Equity: The Freeman and Radio Free Market

The latest issue of The Freeman is available; it includes my article summarizing some of the scholarly work on Walmart. The new issue is chock full of articles that look interesting; I'm especially looking forward to Steve Horwitz's piece on deflation and Bruce Yandle's piece on Baptist/bootlegger coalitions and climate change legislation (HT: Sheldon Richman and Steve Horwitz).

I'll also be on Radio Free Market on Saturday at 1:00 CT to discuss the (un)popularity of capitalism; this continues a discussion that started on September 25 and that continued through December 5. I think I'm also going to be a guest commentator on Saturday, 1/16 when RFM interviews Deirdre McCloskey. Listen. Call. Tell your friends!

Posted by Art Carden at 10:14 AM in Economics

Incentives Matter: Kitty Adoption Edition

USA Today: Fee waivers boost cat adoptions

Posted by E. Frank Stephenson at 09:55 AM in Economics

Not Much of a Race

One sometimes hears about various races to the bottom that might occur in the absence of environmental regulations, workplace safety regulations, or the like. Arik Levinson's article in the December AER sheds some light on this issue; the abstract (NBER WP version here):

Total pollution emitted by U.S. manufacturers declined over the past 30 years by about 60 percent, even though real manufacturing output increased 70 percent. This improvement must result from a combination of two trends: (1) changes in production or abatement processes (technology); or (2) changes in the mix of goods manufactured in the United States, which itself may result from increased net imports of pollution-intensive goods (international trade). I first show that most of the decline in pollution from U.S. manufacturing has been the result of changing technology, rather than changes in the mix of goods produced, although the pace of that technology change has slowed over time. Second, I present evidence that increases in net imports of pollution-intensive goods are too small to explain more than about half of the pollution reductions from the changing mix of goods produced in the United States. Together, these two findings demonstrate that shifting polluting industries overseas has played at most a minor role in the cleanup of U.S. manufacturing.
Posted by E. Frank Stephenson at 09:27 AM in Economics

Building Brand Equity: Hybrid Auto Tax Preferences Edition

My former students Andrew Chupp (now asst prof at Illinois State U), Katie Myles, and I had our paper on the incidence of hybrid automobile tax preferences accepted by Public Finance Review. The abstract:

We use national and California price data from January, 2002 to June, 2009 for three hybrid and five non-hybrid car models to estimate the share of federal tax preferences for purchasing hybrid cars that accrues to car sellers. Our preferred estimates suggest that almost one-half of the subsidy is capitalized into car prices, but some specifications lead to larger estimated benefits for car suppliers. Our results also show (1) that a California program providing HOV stickers to owners of hybrid fuel automobiles led to large increases in the price of those vehicles, and (2) that failing to control for rising gas prices which increase the demand for fuel efficient vehicles leads to upwardly biased estimates of the amount of the hybrid car tax subsidy captured by automakers.
Posted by E. Frank Stephenson at 09:10 AM in Economics

January 05, 2010
Today's relevance of Gertrude Stein on Money

In which American city is three the same as a million? Ask Gertrude Stein (writing in 1936, HT Michael Watts).

Everybody now just has to make up their mind. Is money money or isn't money money. Everybody who earns it and spends it every day in order to live knows that money is money, anybody who votes it to be gathered in as taxes knows money is not money. That is what makes everybody go crazy.

Once upon a time there was a king and he was called Louis the fifteenth. He spent money as they are spending it now. He just spent it and spent it and one day somebody dared say something to the king about it. Oh, he said, after me the deluge, it would last out his time, and so what was the difference. When this king had begun his reign he was known as Louis the Well-beloved, when he died, nobody even stayed around to close his eyes.

But all the trouble really comes from this question is money money. Everybody who lives on it every day knows that money is money but the people who vote money, presidents and congress, do not think about money that way when they vote it. I remember when my nephew was a little boy he was out walking somewhere and he saw a lot of horses; he came home and he said, oh papa, I have just seen a million horses. A million, said his father, well anyway, said my nephew, I saw three. That came to be what we all used to say when anybody used numbers that they could not count well anyway a million or three. That is the whole point. When you earn money and spend money everyday anybody can know the difference between a million and three. But when you vote money away there really is not any difference between a million and three. And so everybody has to make up their mind is money money for everybody or is it not.

So there. The essay goes on, and says the same thing over again in a couple of different and interesting ways. The economics in doing so is not entirely obvious. But perhaps it's because Gertrude Stein was born into wealth and was very familiar with making investment decisions. Thus, for example, what may seem redundant is really a reference to hyperinflation.

Under the guise of repetition or, rather, repetitiveness, hyper-inflation appears in Stein's writings as both a theme and a compositional method.
Posted by Edward J. Lopez at 02:27 PM in Economics

Economics in Culture class for winter session

Starting tonight and for the next three weeks, I'm teaching an undergrad class called Economics in Culture. The idea is to analyze cultural artifacts using economic theory. To get things moving, tonight we will survey a few salient economic concepts (e.g. opportunity cost, comparative advantage, incentives, institutions, unintended consequences, creative destruction, rent seeking, equity, etc.). Then starting tomorrow night, each class will then be devoted to a genre from pop culture, such as film, television, sports, fashion, fiction, music, politics, and communications. Enrollment is modest, so I can take advantage of different formats. The first half of each class will be traditional lecture, then a twenty minute break, and then the second half of class will be a Socratic discussion a la Liberty Fund. Each student will do a project in which they pick a creative work, present it to the class, and analyze the economics in it. I think it will be a lot of fun, and I don't recall ever having been this intrigued at the start of a class by how it would turn out. I'll be sure to post interesting examples throughout the month (like Gertrude Stein on money, above). If you have favorite examples, I'd love to have you send them my way. Thanks.

Posted by Edward J. Lopez at 02:22 PM in Economics

Some context

A good summary statement regarding climate change's implications:

There is thus an economic case for greenhouse gas emission reduction. You do not need to be a bleeding heart ecologist to favour climate policy. Cold economic calculus calls for action too.

At the same time, estimates of the impacts of climate change do not support the often-dramatic language of the media. Estimates suggest that the overall impact of a century of climate change is equivalent to losing up to 2% of income. The impact of a century of climate change is of the same size as a year of economic growth. In the worst case, impacts may be ten times as large. Still, a deep recession wreaks as much havoc in a year as climate change would do in a century. Climate change is therefore not the biggest problem of humankind.

Posted by Wilson Mixon at 10:19 AM in Economics

Jeff Tucker on the 1.6 Gallon Toilet

Jeff Tucker's articles at Mises.org are always entertaining and informative. This one is no exception. For someone in health econ or epidemiology looking for a clever identification strategy, I would suspect that the mandated 1.6 gallon toilet had at least a tiny effect on the disease environment.

Posted by Art Carden at 09:11 AM in Economics

January 04, 2010
What I've Been Writing Lately

1. Review of Jennifer Burns, Goddess of the Market: Ayn Rand and the American Right, forthcoming in Economic Affairs. I thought it was a great book, I enjoyed it immensely, and Anne Heller's bio of Rand should arrive via the USPS within the next few days.

2. Here's a complete re-write of Charles Courtemanche's and my paper on Walmart and obesity, re-titled "Supersizing Supercenters? The Impact of Wal-Mart Supercenters on Body Mass Index and Obesity." Using distance from Bentonville as an instrument for Walmart Supercenter location, our "results imply that the proliferation of Walmart Supercenters explains 11% of the rise in obesity since the late 1980s, but the resulting increase in medical expenditures offsets only a small portion of consumers' savings from shopping at Supercenters." It's basically a different paper from the earlier one; further work evaluating discount stores, Supercenters, and Sam's Club is in the offing.

3. Here's a new Forbes.com piece on the naughties, which brought us a lot of incremental advances in human wellbeing.

Posted by Art Carden at 07:41 PM in Economics

On Economics, Theology, and Evidence

A question from a quasi-Hansonian moment: what percentage of people who don't believe in God because "there's no evidence" also believe that the minimum wage is good for the poor in spite of overwhelming evidence to the contrary?

Inspired by today's installment of Abstruse Goose.

Posted by Art Carden at 11:28 AM in Economics

What I've Been Reading Lately: Holiday Break Edition

1. Arnold Kling and Nick Schulz, From Poverty to Prosperity. This is a book that should be on everyone's bookshelf. The introductory chapter evaluating trends in poverty and prosperity is extremely useful, and the interviews with Joel Mokyr, William Easterly, Douglass North, Paul Romer, Robert Fogel, William Lewis, and others are fascinating. The structure of the book means that it would be a very good supplementary text for a course in development economics. I might use it the next time I teach Classical & Marxian Political Economy.

2. Nelson Lichtenstein, The Retail Revolution: How Wal-Mart Created a Brave New World of Business. The first back-cover blurb is a hearty endorsement from Barbara Ehrenreich; that fact gives the reader a pretty accurate picture of what to expect. I couldn't put it down, but for all the wrong reasons. The book's most fundamental weakness is that it completely ignores the economics literature on Walmart. Lichtenstein doesn't even dismiss it. With the exception of a single reference to Kenneth Stone's work on Walmart and employment in Iowa in the mid-1990s, he just ignores it. This wouldn't be such a bad thing if some of the contributions made by Emek Basker, David Neumark, Stephan Goetz, Jerry Hausman and Ephraim Leibtag, and Russell Sobel and Andrea Dean weren't directly relevant to some of his key arguments. My review will be available on EH.Net soon.

3. Jennifer Burns, Goddess of the Market: Ayn Rand and the American Right. This was a Christmas present from my sister; I couldn't put this book down for all the right reasons. My review (available on SSRN) is forthcoming in Economic Affairs.

4. Robert Mayhew, Essays on Ayn Rand's Atlas Shrugged. I read a few of these essays and found them interesting and useful. If I ever teach a seminar class in which I can assign Atlas alongside something like The Grapes of Wrath (a la Pete Boettke), a lot of my notes on Atlas will draw on the insights in this volume.

Posted by Art Carden at 10:56 AM in Economics

December 30, 2009
Drip: Black & Decker Junior Play Workbench

My Father-in-Law and I just put together Jacob's Christmas "Black & Decker Junior Play Workbench." Here's more evidence that our standard of living has increased: the little screwdriver that comes with it is battery-powered.

Drip: an homage to Don Boudreaux's "Prosperity Pool" meme.

Posted by Art Carden at 06:34 PM in Economics

December 29, 2009
An Idea for a New Constitution

"From each according to his abilities, to each according to his political influence."

NB: inspired by a link from Rhodes student Brent Butgereit.

Posted by Art Carden at 05:54 PM in Economics

The Tiger Woods stock market event study

If this is the first you've heard of it, before you click on this link, try to guess how much Woods' misconduct has depressed the values of the companies that associated with him.

Posted by Mike DeBow at 05:32 PM in Economics

December 28, 2009
Sex and Housework

Does more joint housework lead to more sex? (HT: Charles McKinney) Causality issues aside, I'm sure a lot of people will read this article and start testing for whether the model makes good out-of-sample predictions.

Posted by Art Carden at 04:02 PM in Economics

Political Romance Versus Political Reality

If you support nationalized health care, remember that it will not be run by perfect people or even "wise and disinterested statesmen," whatever those are. It will be run by people like (a possibly drunk) Max Baucus (HT: Steve Horwitz). A quick Google doesn't yield confirmation that Baucus was drunk--there's some innuendo from partisans, but not much else in the first few results--but the case against his position is stronger if he gave a performance like that while sober.

If what I've heard on Christian talk radio and what I've read in a few places is any indication, the GOP's response in the debate has been a disappointing hash of Euro-phobia (They're going to make us more like the French!) and special interest politics (and they're going to cut Medicare to do it!). From both sides, it has been less about ideas and more about beating the Bad Guys.

In reviewing 2009, I think one of the most interesting stories was the way partisans changed their rhetorical strategies. When W. Bush was in office, it was the left claiming that dissent is patriotic while the right was screaming "America! Love it or leave it!" Now that Obama is in office, the right is screaming "dissent is patriotic!" while the left is screaming "America! Love it or leave it!" This cements my conviction that partisan politics is a spectator sport rather than an intellectual, social, or spiritual exercise.

Posted by Art Carden at 11:11 AM in Economics

Sentences of the Day, So Far

From Bryan Caplan:

"Translation: Regulation forbids an adult and a child to consensually form a permanent family. What for? To protect the "rights" of abandoned minors' abusive and neglectful blood relatives - plus random bigots."

Posted by Art Carden at 08:32 AM in Economics

December 23, 2009
The Afghanistan Plan in a Couple of Screens

Courtesy of William Easterly (original HT: Chris Coyne). My inner Hayekian/Smithian finds this hilarious because it's an exercise in indulging the (fatal) conceit of the men and women of system who think themselves qualified to direct other men and women in the use and employment of their capitals. My inner humanitarian is weeping because a lot of people are going to die.

Update: Bill Easterly posts a response from someone in the military. Feedback/transparency/accountability WIN.

Posted by Art Carden at 01:36 PM in Economics

December 22, 2009
Gary Becker, Call Your Office

I just wrote a check to pay an $11 parking ticket for having my car parked in front of my house facing the wrong direction on the morning after Thanksgiving. We live in a neighborhood with no through streets or center lines. Possible exam question: Are tickets like this a wise use of police resources (hints: opportunity cost, equal-marginal principle)? How does your answer change if it's a busy street?

Extra credit: discuss the similarities between this and the incident that led Gary Becker to develop his economic theory of crime and punishment.

Paper idea: Discuss how the spontaneous evolution of parking norms in residential neighborhoods would obviate the need for police involvement (hint: the name of the scholar you should be referencing here begins with "Elinor" and ends with "Ostrom").

Posted by Art Carden at 10:13 AM in Economics

December 21, 2009
Connecting two Mercatus Center stimulus dots

Those who receive the Mercatus Center's weekly email update may have already clicked to get a preview of the Keynes v. Hayek rap video by Russ Roberts. In a related NYT interview on Economix blog, Russ Roberts defends the Hayekian position against Lord Robert Skidelsky who defends Keynesian countercyclial stimulus spending. Around the 6:00 mark, when asked whether stimulus spending is necessary to reach full employment after a negative shock, Roberts invokes political inefficiency.

Roberts: Well unfortunately, what Keynes has done is he has given solace to politicians who want to spend money wastefully on special interests rather than on things that would help us.

Interviewer: Is that completely unfair?

Skidelsky: No, not completely unfair. There's a lot of waste. But the waste doesn't matter. There's more waste if you have heavier unemployment. See you're balancing a smaller waste against a larger waste. There's no ideal way out of the hole.

In a new Mercatus Center working paper called "Stimulus Facts," Veronique de Rugy and David Brito analyze the Economic Recovery Act's FY 09 Q4 allocations by congressional district.

On average, Democratic districts received 1.6 times more awards than Republican ones.... Democratic districts also received 1.89 times more stimulus dollars than Republican districts. The average dollars awarded per Republican district is $232,047,857, while the average dollars awarded per Democratic district is $439,200,100. In total, Democratic districts received 73.47 percent of the total stimulus funds awarded.

And as for comparative waste?

A total of 56,399 contracts and grants totaling $157,028,362,536 were awarded in this first quarter for which Recovery.gov reports are available. The number of jobs claimed as created or saved is 638,826.54—an average of $245,807.51 per job.
Posted by Edward J. Lopez at 06:22 PM in Economics

Eminent Domain Abuse: What Would Homer Simpson Do?
On Sunday, supporters bolted a chain to the establishment's bar, and some patrons hundcuffed themselves to it for about an hour while sipping on pints of beer. They say they'll do it again when authorities try to seize the property.

The bar in question is Freddy's Bar and Back Room, one of properties that the Empire State Development Corporation has condemend to make way for the Atlantic Yards development. Story here. For an analysis of the Atlantic Yards case, here is Ilya Somin

Posted by Edward J. Lopez at 01:41 PM in Economics

December 19, 2009
Not quite what the founders had in mind?

In this Bloomberg story Senator (but seemingly not Statesman) Reid lets us know exactly why the past two elections were so important for those who prefer more rather than less liberty and less rather than more statism - and also why the rest of the country will be paying for the entire increase in medicare/medicaid costs for Nebraska (and probably Louisiana as well):

"A number of states are treated differently than other states," Reid told reporters. "That's what legislation is all about. Compromise."
I guess I missed that lecture during my political science class in college.

I am sure I don't know what legislation is "all about" but I am not so happy that it entails, in the eyes of the current (and past?) leadership, treating the states differently. In Ayn Rand's Atlas Shrugged legislation and regulation morphed into the codified whims and pragmatism of the "Aristocracy of Pull." However, her point, in my reading, was that legislation that specifically aimed at carving out special exemptions for one state or region are a symptom of a deeper problem in the body politic.

It is fine for Ben Nelson to "secure" federal funding for Nebraska - but that federal funding doesn't materialize out of thin air (unless the good folks in Washington turn on the money press) but rather comes from us in Charlotte and Auburn and Spokane. Now, I am ticked at my Senator for not being #60 and getting the good folks of Lincoln (Neb) to finance the expansion of I-485 or helping Concord with the subsidies we "promised" to a local Speedway owner. After all, if money is on the table then I should be participating in the receiving not the giving. This reminds me of libertarian reporter John Stossel admitting to taking federal money to rebuild his hurricane damaged/destroyed house twice(!)*.

Of course that is exactly the problem - everyone wants everyone else to pay for their stuff and, in the end, the politicians are only too happy to facilitate - with a little help from the muzzle of a gun (taxes) and the mint's printing press (inflation).

I am fairly certain this is not what the (Federalist) founders had in mind.

Four predictions of what will happen (or not happen) after "reconciliation" (which this time around has too much irony for comfort):

1. small businesses do not expand because of uncertainty in exactly how much the reformed health insurance will cost, thereby prolonging the recovery or perhaps driving us into the "double dip" (this is already in the air among small business owners I know);

2. some tanning salons will go out of business (what is the price elasticity of demand for tanning machines?) and some of their customers will a) turn to good ol' Sol for their tanning needs thereby leading to more skin cancer than before (that one might be hard to test) or b) go the chemical route for their tanning needs with unknown unintended(?) consequences;

2b. After many rural tanning/hair/nail salons go out of business there arises a black market for tanning beds, permanents, and pedicures. This black market, what with those providing the tannings/perms/pedicures not licensed and trained by the state will lead to claims of even more health problems. This, in turn, will lead to the need for a new bureaucracy to crack down on this illicit black market and allowed to make a few "examples" out of the new criminal class;

3. medical tourism will almost expand in Barbados, Bermuda, Belize and other pleasant environs south. When it becomes apparent that (gasp, rich) folks are going out-of-the system to gain access to medical procedures without the wait/red tape/bureacracy, the Federal government will impose nearly prohibitive taxes on foreign-applied medical procedures purchased by U.S. citizens. This will also require a new bureacracy and attempts to gain access to U.S. citizen medical records that reside in another country, similar to what was recently wrested from Switzerland.

I'm sure there are more (funny and/or scary) predictions. If anyone thinks of clever side-effects of the probable reforms, I "tag out."

* As he wrote in a 2004 Reason magazine article titled "Confessions of a Welfare Queen."

Posted by Craig Depken at 04:50 PM in Economics  ·  Comments (2)

December 16, 2009
Best Title for a Blog Post That I've Seen Today

Comes from Berry alum Mike Hammock: You Know Medical Marijuana is Here to Stay When the Sellers Begin Rent-Seeking

Posted by E. Frank Stephenson at 12:09 PM in Economics

December 15, 2009
On supply and demand c. 1909

The Dec. 15, 1909 NYT prints a letter to the editor with an interesting question to which I think Gary Becker might have an answer:

Will a mere man who has been a student of economic problems answer this question: Is there any factor which can affect wages other than supply and demand? My feeble intellect is absolutely staggered by this cry of votes for women on the plea that it will increase wages. I understand perfectly that by popular vote the city employes, school teachers, etc., can be put on an equal schedule with men, but the few covered by this special enactment has absolutely nothing to do with the mass of women workers, hence when the suffrage leaders try to influence women to clamor for the ballot on this plea they are sailing under false colors.
I like Becker's theory on labor market discrimination (for it's elegance and it's universality) but if supply is the relationship between price and willingness to sell and demand is the relationship between price and the willingness to buy, then everything ultimately can be cast in "supply and demand." As I tell students in an introductory class (only half in jest) - there are really only three or four different "graphs" in economics, what changes are the labels.

I have also suggested that the standard "supply and demand" model, and more specifically the comparative statics of supply and demand, might help one reach the "correct" answer/prediction about 80% of the time. I have no evidence for such a claim, but I stand by it until proven wrong (ha ha).

I have had students in the past suggest that the supply-demand model is almost a cop-out on the part of economists, because, after all, it's all about supply and demand and that leaves little room for the non-monetary and intangible. Yet, that is exactly one of Becker's points about labor market discrimiation (in my reading), that the intangible and non-monetary "tastes" of the individual demander or supplier can manifest in actual, tangible, differences such as pay gaps. Of course, labor market discrimination is not the only source of a pay gap, which is why it is important to be careful to accurately measure the sources of such gaps.

I think the letter-writer is correct in the sense that the vote can be used to alter the wages of public employees, and it seems that is definitely what is happening today (one of the reasons I have always been a bit uncomfortable with public employee unions). I also think the letter-writer might be correct in that it is difficult to see how granting women the vote would directly impact female wages.

Perhaps granting women the franchise increases the desire to obtain human capital, which over time would be expected to alter female wages. Perhaps the franchise would ensure a broader, stronger, and deeper social safety net, which in turn might relieve women of some of the traditional (as of 1909) responsibilities with which they were charged and which, in turn, might have improved their productivity and hence their wages.

On the other hand, the claim from 1909 suffragists could have just be a lot of hot air rhetoric - not much different than the hot air rhetoric surrounding many of the social issues of today.

Posted by Craig Depken at 01:18 PM in Economics

December 14, 2009
On taxes and smoking c. 1909

The Dec. 14, 1909 NYT reports the following:

BERLIN - The Committee on Appropriations unanimously voiced today to report to the Reichstag a resolution appropriating $500,000 for the relief of tobacco workers who have been thrown out of work as a consequence of the reduced consumption of cigars and cigarettes under the operation of the new tax measures.
Glad to see public policy has come so far in one hundred years.

Posted by Craig Depken at 11:32 AM in Economics



APEE has received a grant to help young faculty and graduate students attend our annual meeting April 11-13, 2010 in Las Vegas, Nevada. These funds are designed to encourage younger scholars to consider the advantages of APEE membership.

Successful applicants will have their registration fees reduced to $75 (normally $390) and be eligible for a stipend of up to $595 toward travel expenses. To apply applicants must supply us with the following: (1) a short essay (250-300 words) explaining why the applicant wishes to attend the meeting; (2) a short letter of reference, preferably from an APEE member or someone known to APEE, indicating why support should be provided to the nominee, and (3) a brief letter from the applicant's department chair or graduate director indicating the level of departmental support that the applicant can expect for this trip. Some of the applicants may be on the program and preference will be given to these applications. The deadline for applying is January 30, 2010. Those selected will be notified within two weeks of that date. Successful applicants will be required to register for the conference (at the reduced rate of $75) by February 28, 2010.

Please send applications to Dr. E.F. Stephenson at efstephenson[at]berry[dot]edu. If you have questions, you may e-mail Dr. Stephenson or call him at (706) 238-7878.

Posted by Robert Lawson at 08:27 AM in Economics

December 13, 2009
Nobel blogs

The Nobel Prize Chronicles includes a link to a video of Ostrom's Nobel lecture.

This Berkeley webpage includes a link to a video of Williamson's "Nobel Prize Day Highlights."

Posted by Mike DeBow at 12:53 AM in Economics

December 12, 2009
What I've Been Reading and Writing Lately

1. Mises: His Importance and Relevance. This was inspired in part by the recent Freeman symposium on Human Action and based explicitly on my notes from Jorg-Guido Hulsmann's opening lecture at Mises University. I read Hulsmann's biography of Mises in May (link is to PDF); if you haven't read it and are interested in intellectual history, you should.

2. Gordon S. Wood, Empire of Liberty. One of the takeaway points is that "Great Man" and "Golden Age" historical narratives are lacking. I'm about 350 pages in, and I would recommend it to anyone who wants to understand a crucial era in American history.

3. Hayek on Hayek. It's a collection of interviews and autobiographical notes from Hayek. In it, he points out that two mistakes he made were that he never reviewed Keynes's General Theory or Friedman's Essays on Positive Economics.

Posted by Art Carden at 03:33 PM in Economics

December 11, 2009
Building Brand Equity: New Issue of NPPE

The new issue of New Perspectives on Political Economy is available here; it includes my paper "A Note on Profit, Loss, and Social Responsibility."

Posted by Art Carden at 08:47 PM in Economics

I Am Not Proud of My Alma Mater

The University of Alabama has canceled three days of classes for the BCS National Championship Game. HT: Richard Vedder.

Posted by Art Carden at 04:54 PM in Economics

Health Care Article

An article in REASON. On health care, and why subsidizing insurance is a remarkably dumb idea.

Read More »

Posted by Michael Munger at 04:07 PM in Economics

Tiger externalities

Is there an entire book's worth of negative fallout from Tigergate? My guess is yes. From today's Sporting News Today:

The band had been raising money since February, with the effort culminating last weekend with a concert and silent auction. The auction's high-dollar item, requested well in advance: an autographed photo of Woods...

It was expected to go for $1,500 at auction. But after a series of unflattering revelations about the golfer's personal life, Bagstad said few people wanted to bid on the item. In the end, it only went for $300.

The band, from Clintonville, Wisconsin, was raising money to go to Disney World for spring break.

There is an implicit assumption that people are not willing to pay so much for a Tiger photo because they don't want to be associated with Tiger or don't want to hang a Tiger photo on their wall. This might be the case for some. However, an under-appreciated aspect of the sports memorabilia market is how much of it is based ("rationally" or not) on speculation.

If Tiger's chances for setting the career record for Major victories, tour victories, or any other statistic (in golf) have been permanently reduced, then a gap-down in the value of Tiger's memorabilia today would be expected as the future value of the same falls.

Some may think it a shame that the band will have a harder time getting south for Spring Break, but I won't be surprised when a private benefactor steps forward to help the kids get to Mouseland. However, there is a "teachable moment" that seems ignored: perhaps it is best to not put one's hopes and future on the actions and reputation of a person one does not really know (heads up to fans of George Bush, Barack Obama, John Edwards, Mark Sanford, and just about anyone other celebrity and politician).

I think someone wrote a book that was somewhat about that.

Posted by Craig Depken at 09:05 AM in Economics

December 10, 2009
Richard McKenzie, "Microeconomics for MBAs"

These short modules are excellent for discussions of basic micro.

Posted by Art Carden at 05:15 PM in Economics

On the Nobel Prize c. 1909

Today the President "accepted" his Nobel Peace Prize. The purse is reported to be approximately $1.4 million, a number which might be a little inflated given teh the weaker dollar relative to previous years.

The Dec. 10, 1909 NYT reports the 1909 Nobel Prizes and reports that each is worth approximately $40,000. Granted there is a mix of prizes that carry the name of Nobel, but this is not my point.

The folks at eh.net claim that $40,000 in 1909 is $976,430.84 in 2008 dollars. Give the dollar a slide of 40% and the real value of the Nobel prize hasn't changed that much in 100 years.

How cool is that?

[Update (12-11-09): From this story from PhysicsWorld:

The Foundation announced at the weekend that it might cut the $1.5m it hands out for each of the six prizes awarded each year. The reason, it says, is the credit crunch and the impending recession, which has led to losses in the foundation’s assets.

Posted by Craig Depken at 10:52 AM in Economics

Climategate, Growthgate, and the Pretence of Knowledge

A few thoughts and links:

1. William Easterly discusses growth econometrics and the relationship between development economics and climate science. I just printed the paper he references.

2. Climategate is going to make a lot of scholars across disciplines think very, very hard about what they're doing. The reaction to the Card & Krueger minimum wage paper is a feather in the cap of the economics profession. C&K appeared in the American Economic Review and was subjected to thorough examination and criticism before the bulk of the evidence came down on the side of competitive models of the labor market (cf. Neumark and Wascher).

3. Here's Bob Murphy on geo-engineering (HT: David Henderson). I'm skeptical of a lot of geo-engineering proposals because of the probable unintended consequences: "carbon-eating trees" sound scary, but they could just be like strains of GM corn or cotton. Note that there is an inconsistency in some of the arguments about geo-engineering: people claim that the physical environment is so complex that we cannot possibly hope to be able to engineer it appropriately. Many of these same people, I would suspect, are using this to support their claim that they should be given the power to engineer the global economy.

Posted by Art Carden at 10:20 AM in Economics

December 09, 2009
How did liberating electricity markets in Texas work out?

Ask Lynne Kiesling's and Andrew Kleit's new book, Electricity Restructuring: The Texas Story. From the AEI online store description:

In the early 1990s, the U.S. electricity industry was plagued by cost overruns and stagnant productivity. Many states turned to deregulation to promote innovation and cut costs, a strategy that had worked for the telecommunications, trucking, natural gas, and airline industries. Yet, after the California energy market's infamous meltdown in 2000-2001 triggered the recall election of Governor Gray Davis, deregulation lost popular and political support. Plans to introduce competition and retail choice in electricity markets were stalled or abandoned nationwide--in every state but Texas.

This volume explores how Texas's groundbreaking program of electricity restructuring has become a model for truly competitive energy markets in the United States. The authors contend that restructuring in Texas has been successful because the industry is free from federal oversight within the state; because new investments in electricity supply have been encouraged to insure that increased demand for power is met; because restructuring has spurred the growth of more efficient electricity technologies and business models; because the markets integrate wholesale and retail competition; and because the operation of the transmission grid has been changed to maximize its efficiency.

Here is the link. Congrats, Lynne!

Posted by Edward J. Lopez at 06:45 PM in Economics

The Underground Economy is Alive and Well

So says Richard Rahn:

The underground or "black" economy is rapidly rising, and the fault is mainly due to government policies.

Here is the evidence. The Federal Deposit Insurance Corp. (FDIC) released a report last week concluding that 7.7 percent of U.S. households, containing at least 17 million adults, are unbanked (i.e. those who do not have bank accounts), and an "estimated 17.9 percent of U.S. households, roughly 21 million, are underbanked" (i.e., those who rely heavily on nonbank institutions, such as check cashing and money transmitting services). As an economy becomes richer and incomes rise, the normal expectation is that the proportion of the unbanked population falls and does not rise as is now happening in the United States.

See also Mark Perry's excellent post: The Imaginary Hobgoblin of "The Unbanked"

Posted by E. Frank Stephenson at 03:13 PM in Economics

Apply for a Humane Studies Fellowship

One of my corporate paymasters friends at the Institute for Humane Studies asked me to pass along information on the Humane Studies Fellowship. If you're a graduate student or if you plan to be one someday, these are great. The deadline is December 31, 2009.

Posted by Art Carden at 02:13 PM in Economics

SEC and the Weatherman

When will the SEC (or National Weather Service) feel it's necessary to look into whether there are weather forecasters manipulating the market for temperature-based futures?

This paper forthcoming in the Journal of Banking and Finance, "The Pricing of Temperature Futures at the Chicago Mercantile Exchange," suggests that futures prices respond to forecasts up to 11 days in advance. Oh what fun the weather forecasters could have with this one.

Here's the abstract:

This paper analyzes observed prices of U.S. temperature futures at the Chicago Mercantile Exchange (CME). Results show that an index modeling approach without detrending captures the prices exceptionally well. Moreover, weather forecasts significantly influence prices up to 11 days ahead. It is shown that valuations of temperature futures relying on a model without detrending yield biased valuations by overpricing winter contracts and underpricing summer contracts. Several trading strategies are devised to exploit the mispricing observed at the CME and to demonstrate that speculating on temperature futures can not only generate high overall returns, but also perform well on a risk-adjusted basis.

Read more here

Posted by Craig Depken at 01:48 PM in Economics

December 08, 2009
Public Choice and Legal Systems

For three semesters now, I have had the pleasure of teaching from David Friedman's Law's Order. At certain times during this semester, I've considered a change. It is passages like the one below that give me great pause.

To set up context, David is discussing the 18th Century English system, in particular how it lacked public police and prosecutors and therefore relied solely on private prosecution to bring criminals to justice. The system contrasted with the French, which had paid police, public prosecutors and imprisonment. Why were the Brits so slow to "modernize" their criminal law system? Perhaps, Friedman speculates, the English were worried that if the Crown were solely responsible for prosecuting crimes then friends of the crown could do as they please -- could get away with murder. "That problem is still with us," Friedman says, and he points to various episodes of government overreach and democide.

These examples suggest an important point too often forgotten in the economic analysis of the law: The rationality assumption applies to enforcers as well as enforcees. In constructing legal institutions we cannot simply assume that legislators, judges, and police will go out and do good—in the economist’s version, promote efficiency. We have to think about their incentives too.
Posted by Edward J. Lopez at 06:39 PM in Economics

Public Choice and Legal Systems

For three semesters now, I have had the pleasure of teaching from David Friedman's Law's Order. At certain times during this semester, I've considered a change. It is passages like the one below that give me great pause.

To set up context, David is discussing the 18th Century English system, in particular how it lacked public police and prosecutors and therefore relied solely on private prosecution to bring criminals to justice. The system contrasted with the French, which had paid police, public prosecutors and imprisonment. Why were the Brits so slow to "modernize" their criminal law system? Perhaps, Friedman speculates, the English were worried that if the Crown were solely responsible for prosecuting crimes then friends of the crown could do as they please -- could get away with murder. "That problem is still with us," Friedman says, and he points to various episodes of government overreach and democide.

These examples suggest an important point too often forgotten in the economic analysis of the law: The rationality assumption applies to enforcers as well as enforcees. In constructing legal institutions we cannot simply assume that legislators, judges, and police will go out and do good—in the economist’s version, promote efficiency. We have to think about their incentives too.
Posted by Edward J. Lopez at 06:27 PM in Economics

What about conventional wisdom?

An interesting working paper popped up on SSRN this past week with the intriguing title The Wages of Failure: Executive Compensation at Bear Stearns and Lehman 2000-2008 . Here's the abstract:

The standard narrative of the meltdown of Bear Stearns and Lehman Brothers assumes that the wealth of the top executives of these firms was largely wiped out along with their firms. In the ongoing debate about regulatory responses to the financial crisis, commentators have used this assumed fact as a basis for dismissing both the role of compensation structures in inducing risk-taking and the potential value of reforming such structures. This paper provides a case study of compensation at Bear Stearns and Lehman during 2000-2008 and concludes that this assumed fact is incorrect.

We find that the top-five executive teams of these firms cashed out large amounts of performance-based compensation during the 2000-2008 period. During this period, they were able to cash out large amounts of bonus compensation that was not clawed back when the firms collapsed, as well as to pocket large amounts from selling shares. Overall, we estimate that the top executive teams of Bear Stearns and Lehman Brothers derived cash flows of about $1.4 billion and $1 billion respectively from cash bonuses and equity sales during 2000-2008. These cash flows substantially exceeded the value of the executives’ initial holdings in the beginning of the period, and the executives’ net payoffs for the period were thus decidedly positive. The divergence between how the top executives and their shareholders fared implies that it is not possible to rule out, as standard narratives suggest, that the executives’ pay arrangements provided them with excessive risk-taking incentives. We discuss the implications of our analysis for understanding the possible role that pay arrangements have played in the run-up to the financial crisis and how they should be reformed going forward.

Posted by Craig Depken at 12:20 PM in Economics

Let the invisible hand get that

Alex Padilla has a new op-ed in Forbes.com. At issue, whether the state of California ought to require condom use in the adult film industry to protect public health. Alex concludes:

Good intentions do not guarantee good results. The costs and consequences of adopting a condom-only regulation far outweigh any benefits. The adult industry has done an excellent job policing and testing itself. The government is likely to do more harm than good to the health of both porn performers and the general public if it meddles in adult entertainment.


Posted by Edward J. Lopez at 10:29 AM in Economics

Tuesday Wisdom from Hayek

I'm prepping for the last meeting of Econ 339 this semester and, in light of some student questions, I'm re-reading Hayek's Nobel Address. This stands out:

“…the economists are at this moment called upon to say how to extricate the free world from the serious threat of accelerating inflation which, it must be admitted, has been brought about by policies which the majority of economists recommended and even urged governments to pursue. We have indeed at the moment little cause for pride: as a profession we have made a mess of things.”

Addendum: this is worth remembering, too. Hayek closes with this gem:

“The recognition of the insuperable limits to his knowledge ought indeed to teach the student of society a lesson of humility which should guard him against becoming an accomplice to man’s fatal striving to control society- a striving which makes him not only a tyrant over his fellows, but which may well make him the destroyer of a civilization which no brain has designed but which has grown from the free efforts of millions of individuals.”

Posted by Art Carden at 09:59 AM in Economics

December 07, 2009
Salvador Allende's Potemkin Interwebs

Apropos Bob's and my paper on human rights and economic liberalization, here's a great post by Alex Tabarrok on Salvador Allende's attempts to solve the problem of economic calculation in the socialist commonwealth with some technological wizardry. Pay no attention to the man behind the curtain.

It's too soon, but within the next few decades I look forward to a complete and comprehensive intellectual history of the twentieth century. I expect that the two most important contributions will be Mises's "Economic Calculation in the Socialist Commonwealth" and Hayek's "The Use of Knowledge in Society."

Posted by Art Carden at 09:19 AM in Economics

December 05, 2009
Modifiers for Good and Bad

F.A. Hayek once said that you can take any concept and make it meaningless by modifying it with "social." "Justice," for example, is meaningful. "Social justice" is not.

Along the same lines, you can take something innocuous and turn it into something scary and bad by modifying it with "foreign." "Oil" is okay. "Foreign oil" is bad. "Workers" are okay. "Foreign workers" will stop at nothing to take our jobs. "Trade" creates wealth. "Foreign trade" destroys American jobs. A lot of people thought "ER" was a great show. "Foreigner"...yeah.

Here's DOLer Mike Munger discussing the anti-economics of peak oil, which motivated enormous giveaways to ethanol producers (econ 101 students: use a supply and demand diagram to show how ethanol subsidies lead to the production of gallons of ethanol for which marginal cost exceeds marginal benefit). Now, as Mike points out, we might not be able to use all the ethanol produced to meet the mandates. According to the ethanol lobbyist quoted in the NYT article, though, ethanol will wean us off of foreign oil. Clearly, we need appropriations to build a strategic ethanol reserve. Of course, we could have an entire Ethanol Wing in the Boondoggle Museum.

Posted by Art Carden at 09:43 PM in Economics

First Degree Price Discrimination FAIL

epic fail pictures
see more Epic Fails

Source: Failblog.org.

Posted by Art Carden at 11:38 AM in Economics

Guest Post: Mike Hammock on Climategate

Here's a guest post by my friend Mike Hammock on the Climategate scandal. I asked Mike to weigh in because he always has something thoughtful to say about things like this and because I've learned most of my environmental economics by talking to him over three years of lunches at Rhodes. Here's Mike:

Art Carden asked me to write up a blog post summarizing my thoughts on 'Climategate'. For those of you not following along, someone managed to hack into the University of East Anglia’s email server and extract emails sent by climate scientists, some of which show questionable behavior. Climatologists there may have tried to keep skeptical papers from being published, may have evaded requests under the U.K.’s Freedom of Information Act, and may have altered data to get the results they wanted. It won’t be clear until the investigation is finished.

My thoughts are pretty much the same as Tyler Cowen's. This is embarassing for East Anglia, and it weakens the consensus view, but it doesn't come close to destroying it. The pundits shouting the loudest about the leak—the Sean Hannitys of the world—are the least qualified to judge the science. I’m certainly not qualified, and ideologues won’t resolve the issue. I expect this to play out in the literature as it would in any other science. I will still defer to the collected expertise of climatologists, which, for the moment, still supports the AGW hypothesis.

I also expect climatologists to defer to economists when it comes to the question of "what to do about it". I still think a well-designed carbon tax or cap-and-trade system (the former being preferred to the latter) could result in significant welfare gains if paired with a cut in distortionary taxes (particularly payroll taxes), but I also think the odds of getting a well-designed regulation out of the political system are low. The question of whether a real-world regulation would create benefits greater than costs isn't yet clear to me. I'm not an advocate of the "we must do something, this is something, therefore we must do this" position on global warming. It is also worth keeping in mind that regulation doesn’t have to work badly; the U.S. market in SO2 permits is generally considered a success, reducing SO2 emissions at a lower cost than was expected. If I were a betting man, however, I would not bet on CO2 regulation working out very well.

I also don't think that Levitt's geoengineering stuff is a good substitute for CO2 reduction. It doesn't do anything about, ocean acidification, for example, and could have its own unintended consequences.

I don't, however, have much sympathy for Cowen's "In order for scientists to behave so badly, things must be really serious, so we should be worried!" argument. I see where he's going with it, but I don't think it's a good reason to overlook unethical behavior. Paying attention to someone’s argument because of their unethical behavior seems to me to create perverse incentives. I suppose he would say that we shouldn't overlook it, but we should place a lower weight on unethical behavior in a good cause.

Posted by Art Carden at 09:15 AM in Economics

December 04, 2009
Building Brand Equity: Links for Radio Free Market Tomorrow at 1:00

I'll be live on Radio Free Market tomorrow at 1:00 CST to talk about why capitalism is so unpopular. Here are a few links that might be interesting to readers and listeners. Forgive the conspicuous product placements and self-citations, but most of what I'll say during the interview will be based on the following:

1. Deirdre McCloskey's The Bourgeois Virtues. Her opening "Apology"--the entirety of which should be on Google Books--is a tour de force. If you're going to read one thing before the end of the year, this should be it.

2. A few months ago, Josh Hall and I wrote a paper on "The Institutional Necessity of Economic Freedom" that discusses some of the themes McCloskey and others develop.

3. Speaking of Josh, here's an Economic Affairs "Economic Viewpoints" piece in which he and I discuss international labor standards. This is based on Josh's lectures at IHS "Liberty and Society" Summer Seminars where we've both been on the faculty.

4. Speaking of Economic Affairs, Mike Hammock and I discuss whether economists are "market fundamentalists."

Posted by Art Carden at 05:05 PM in Economics

What (Bob Lawson and) I Have Been Writing Lately: Human Rights and Economic Liberalization

Carden, Art and Robert A. Lawson. 2009. Human Rights and Economic Liberalization, under review at Business and Politics.

This paper has made the rounds at a handful of conferences and is finally available. Thanks to everyone who has offered comments and suggestions.

The abstract:

Using several case studies and data from the Economic Freedom of the World annual report and from the CIRI Human Rights Data Project, we estimate the effect of human rights abuses on economic liberalization. The data suggest that human rights abuses reduce rather than accelerate the pace of economic liberalization.

Back story and additional links below the fold. Cross-Posted at The Beacon and the Mises Blog.

Read More »

Posted by Art Carden at 12:17 PM in Economics

No Free Lunch: Education

In the spirit of some of Bob's posts (below), Neal McCluskey offers the following on student protests about increased college tuition:

There’s a word for this kind of activism, and it’s not “idealism” or anything else so complimentary. It’s “rent seeking.” Or, if you want to put it more bluntly, “freeloading.”
Posted by Art Carden at 09:55 AM in Economics

December 03, 2009
Geithner Discovers Regime Uncertainty ... (Updated)

... and uses it as a rationale for passing the monstrous health care bill. Here's a snip of his interview today with Fox Business Network's Liz Claman:

CLAMAN: Businesses investing again, they need to, they want to.

But I have to tell you, I talk to a lot of CEOs. So do you. And in advance, I told them I was going to be talking to you. And they said, look, we don't have a lot of this ability. We don't have clarity on where interest rates are going to be, what energy costs are going to be, what the health care situation is going to be. They would love some of that visibility clarified.

GEITHNER: They want -- businesses want certainty. They need certainty so they can make long-term plans today. And that's why it's so important that Congress gets health care behind us, that we bring financial reform in place so people know what the rules of the game are. And that's a very important thing to do. And that's why we're working so hard to make sure we bring clarity quickly.

UPDATE: Newsweek's Robert Samuelson also weighs in on regime uncertainty: "More important, the decision to press controversial proposals (health care, climate change, taxes) was bound to increase uncertainty and undermine confidence."

So does NPR--listen to the last 15 seconds of this story.

Posted by E. Frank Stephenson at 10:59 PM in Economics

Three on Occupational Licensing

Tyler Cowen points to this post on the licensing of hypnotists (no kidding) in Indiana.

Instapundit points to this video from IJ (one of my favorite organizations) on licensing yoga teacher training programs in Virginia.

Here's a reason.tv video on licensing requirements for interior designers.

Posted by E. Frank Stephenson at 10:48 PM in Economics


This cartoon by the Rome News-Tribune's Mike Lester reminded me of a barber shop I walked by while in San Antonio for the SEAs. The barber shop had a sign in the window promising a free beer to people purchasing haircuts.


Posted by E. Frank Stephenson at 10:29 PM in Economics

An X-prize c. 1909

The Dec. 3, 1909 NYT reports on an X-prize of the day:

Official announcement was to-night made of the offer of $100,000 by a Yale alumnus, who declined to allow his name to be known, to the person who discovers an adequate remedy for tuberculosis. The money has been turned over to Yale University as custodian, and the faculty of the medical school has been chosen its Trustees.

The story ends with the qualifications for winning the prize:

The donor of the prize stipulates that the cure for which the award is given shall have been in use five years and its permanent efficiency tested for that time.

Posted by Craig Depken at 02:03 PM in Economics

Disneyland University

A friend and I have had an interesting email exchange about my higher education bubble post. Part of the discussion centered on the differences between what we might call non-traditional higher ed (community colleges, for-profits and onlines like Phoneix, tech schools) versus traditional higher ed (e.g., Auburn).

Maybe I'm being naive but I think the traditional schools are better positioned when/if there's a higher ed bubble burst.

In my opinion non-traditional schools exist only because of massive implicit subsidies to students in the form mostly of guaranteed student loans. This is especially so for for-profits and tech schools. So the kids get stuck with debt (or taxpayers in case of default) for what I suspect is very little market return. The question is what happens if those subsidies slow. And seriously, the coming budget problems caused by social security and medicare (and now Obamacare) are going to force some cuts elsewhere. They simply can't use taxes or debt/inflation to cover it all.

My reading of places like Auburn (and most other traditional 4 year schools) is that were selling a consumption good, call it "the college experience", more than an actual education or any kind of job training. We're in the entertainment business! That doesn't mean we're not overbuilt ourselves because of subsidies as well, but I think the consumption aspect of our business model make our demand less elastic in the face of subsidy cuts/price increases than that facing the non-traditionals.

We're the modern day equivalent of the old practice where British elites sent teenage kids to continental Europe for a few years before coming back to England. As with college today, the theory was that it was to "enlighten" them, but the reality was it was a huge party for them.

Adam Smith had some very unkind things to say about the practice:

In England it becomes every day more and more the custom to send young people to travel in foreign countries immediately upon their leaving school, and without sending them to any university. Our young people, it is said, generally return home much improved by their travels. A young man who goes abroad at seventeen or eighteen, and returns home at one and twenty, returns three or four years older than he was when he went abroad; and at that age it is very difficult not to improve a good deal in three or four years. In the course of his travels he generally acquires some knowledge of one or two foreign languages; a knowledge, however, which is seldom sufficient to enable him either to speak or write them with propriety. In other respects he commonly returns home more conceited, more unprincipled, more dissipated, and more incapable of any serious application either to study or to business than he could well have become in so short a time had he lived at home. By travelling so very young, by spending in the most frivolous dissipation the most precious years of his life, at a distance from the inspection and control of his parents and relations, every useful habit which the earlier parts of his education might have had some tendency to form in him, instead of being riveted and confirmed, is almost necessarily either weakened or effaced. Nothing but the discredit into which the universities are allowing themselves to fall could ever have brought into repute so very absurd a practice as that of travelling at this early period of life. By sending his son abroad, a father delivers himself at least for some time, from so disagreeable an object as that of a son unemployed, neglected, and going to ruin before his eyes.
Posted by Robert Lawson at 09:12 AM in Economics

December 02, 2009
EFW Call for Papers


Posted by Robert Lawson at 12:29 PM in Economics

Someone had to say it c. 1909

The Dec. 2, 1909 NYT has an editorial addressing the relationship between Wall Street and Elm Street and how the politicians fail (intentionally?) to explain each to the other:

It might be as well and as profitable for the country to understand Wall Street, as for Wall Street to understand the country. The country is being told that capitalists invest hundreds of millions in restraint of trade. Is it reasonable? Many persons seem to believe that railways charge extortionate rates because they enrich themselves by demands which prevent shippers from making a profit by the movement of their goods. Is that reasonable? Investors who sink millions of dollars, in enterprises thereby absolutely subject to the most oppressive laws without any possible escape, do not customarily and willfully break the laws and invite destructive penalties.

There are reasons why these things, or some of them, are done, and it interests the country to understand them. They are not obscure. They are written large in commercial history for those who have understanding to read them. Why is it that [William Jennings] BRYAN and the rest of the people's friends can have fresh issues for each campaign, time without end, while the railways, and the trusts, and every interest subject to the laws, persist in alleged sin and obduracy? There's a reason. The country's greatest need is a leader for the truth as influential as those leaders for the false in finance, who have cost the country so dear, and apparently must yet cost it so much more.

My interpretation of the op-ed piece is as follows. It is true that there are excesses and abuses in capitalism. However, competitive pressures from below and reasonable (or unreasonable) regulation from above generally keeps the majority of firms in check - the firms provide quality service and products to their customers or they would otherwise die. It is true that some firms enjoy government monopoly protection, get rich off of government contracts, and lobby government for special exemptions and rules that either lower their costs, ensure their revenue, or increase their rivals' costs. However, the common denominator in these examples of excess is government intervention in the form of picking winners rather than agnostic regulation.

The op-ed uses the railways as the "big nasty" to worry about but it is true that the railways could not price transportation, of people or goods, to the extent that it would put their customers (especially business customers) in a negative profit situation. Although there might not have been a large number of substitutes to trains, at least for moving product long distances over the mass of the continent, it is true that a firm didn't have to ship those long distances. Railways, of course, recognized this and priced for a profit but not for extortion and definitely not for the death of their clients.

In today's lingo it is possible, perhaps, to substitute "health insurance providers" for "railways" and any statist Democrat for the name "BRYAN" and we have not evolved much in the general political debate in one hundred years.

I like the op-ed's appeal for a leader who could talk sensibly about the benefits of capitalism (especially today given the 20th century's examples of Soviet Russia and Communist China and the unfathomable human suffering that attended those non-capitalist systems). It is clear that the "friends of the people" haven't moved off their talking points for over 100 years and the "friends of capitalism" have not generated a charismatic leader (unless, perhaps, Reagan? I am not sure about that generalization, I admit).

Posted by Craig Depken at 09:22 AM in Economics

December 01, 2009
A Terrifying Message from Al Gore

We start talking about externalities in econ 101 today.

Posted by Art Carden at 02:28 PM in Economics

The Higher Education Bubble?

Here was the pattern in the real estate market:

(1) Government subsidizes home ownership (mortgage interest tax deduction, FHA, Freddie/Fannie, low interest rates set by Fed, CRI, et cetera).

(2) Resources flock to subsidized markets and asset prices and wages in market increase at unsustainable rates.

(3) Bubble bursts. Asset prices and wages in the market plummet. Financial Institutions hit hard. Credit crunch. Recession.

Could this cycle by happening in higher education? We subsidize the crap out of higher ed (student loans, grants, direct subsidies to schools, educational IRAs, 529s, et cetera). Higher ed continues to expand rapidly its capacity building more and more and more buildings, dorms, student centers, jock palaces, etc, and faculty/staff wages by all accounts have grown more rapidly than most over time. If this is a bubble how does it burst?

Take note of this headline: "For-Profit Colleges: Scooping Up the Stimulus." Is the University of Phoenix the next Countrywide?

Posted by Robert Lawson at 10:44 AM in Economics

November 30, 2009
Podcast: The the Rule of Law and the Fed

While at the Cato Institute for their annual monetary conference, I chatted with Caleb Brown about the contrast between the "rule of law" principle and the recent actions of our central banking authorities. Our 12-minute conversation is now available as today's Cato daily podcast.

Posted by Lawrence H. White at 11:11 AM in Economics

Cavalcade of Miscellany: A Deep Breath on Monday Morning

1. I'm finishing a paper co-authored with Bob Lawson. If I don't send it to him by the end of the day, I will mail a check for $50 to the Auburn University Athletics Department.

2. An oxymoron: "trade war."

3. As this semester winds down, I'm reflecting on what I've learned in 2009. I've taught econ 101, writing-intensive econ 101, Classical and Marxian Political Economy, and a rebuilt Economic History course. Over the summer, I taught at an IHS "Liberty and Society" seminar and at Mises University. In the process, I've developed a firm conviction that Mises and Hayek are the most important thinkers you've never read; in particular, Mises's "Economic Calculation in the Socialist Commonwealth" and Hayek's "The Use of Knowledge in Society" might be the most important contributions to our understanding of societies that I've ever read. I made this point (to some extent) a few months ago, and in these articles Mises and Hayek confront the fundamental human problem head-on: in a world of infinite possibilities and in which we are confronted with almost infinite ways to use our time and energy, how do we decide what to do? Further, how do we evaluate our actions? Most public discourse advocating interventionism assumes that these problems are either trivial or secondary, and this has come to the forefront in public debates about health care.

4. Along these lines, here's Peter Boettke on EconTalk discussing the work of Elinor and Vincent Ostrom.

5. Back to work.

6. 10/10 AM Update: I forget who recommended it, but Alexander Gray's The Socialist Tradition: Moses to Lenin just arrived in the mail. I look forward to reading it for the next incarnation of Classical & Marxian Political Economy (probably Fall 2010 or Spring 2011).

Posted by Art Carden at 10:38 AM in Economics

He said what when?

Guess when this quote was spoken:

"While our country has natural advantages greater than those of any other, its normal growth and development have been greatly retarded by this periodical destruction of credit and confidence.

I believe that no one can carefully study the experience of the other great commercial nations without being profoundly impressed with the belief that disastrous results of recurring financial crises have been successfully prevented by a proper organization of capital and the adoption of wise methods of banking and of currency.

Of course, until human nature is changed, it will not be possible to prevent, by legislation or otherwise, periods of over-speculation, with undue inflation of values and over-extension of credit. When we consider the characteristics of the American people, whose unrivaled energy and enterprise are not always confined by the limits of prudence, it is certain that we in the United States shall always have periods of speculative inflation, with the evil results which are sure to follow."

Those are a few paragraphs from a speech given by Senator Nelson W. Adlrich, chair of the National Monetary Commission, to the Economic Club of New York, as reported in the November 30, 1909 New York Times.

In the same speech he refers to the buildup to the crisis of 1907:

"The crisis of 1907 was one of a series I remember very well - although probably very few of you do - the financial crash of 1873. I am sure you all remember that of 1893, from the effects of which the country did not recover for many years.

Between 1900 and 1907 we had recurring periods of depression, of dangerous perturbations in the money market, when the Secretary of the Treasury was frantically called upon for assistance, and felt obliged to adopt the very questionable policy of making large deposits of public money in banks to relieve threatening situations.

Evidently the basic policy prescription hasn't changed very much in 100 years?

Posted by Craig Depken at 10:04 AM in Economics

November 29, 2009
Cavalcade of Miscellany: Sunday Morning!

1. Wireless internet + incredibly sleepy/grumpy kid = attending church via teh interwebs.

2. Here's Ian Ayres on why tuition hikes at California's state colleges and universities are a good thing. Cheap state colleges and universities redistribute wealth upward. In the opening section The Bourgeois Virtues, Deirdre McCloskey notes that the average family income for a California college student is higher than the average family income for a California taxpayer. Ayres makes the important point that the problem is not that tuition is too high but that financial aid is too low and too poorly targeted.

3. When Bryan Caplan and Robin Hanson's discussions end up spilling into the blogosphere, you can be virtually certain that you're going to learn something interesting. Here's Bryan's most recent post on cryonics. I don't think Bryan has commented on this yet, but here's Robin Hanson expressing gratitiude for The Unknown Explorer. Here he argues that people should look to maximize more than their GPAs. Here's the takeaway: "Most of the interesting academics I know spent lots of time when young structuring their own 'unstructured' activities; GPA fanatics usually have few interesting thoughts of their own."

Posted by Art Carden at 12:39 PM in Economics

November 28, 2009
The Funniest Thing I've Heard Over Thanksgiving Break

At breakfast this morning, I mentioned to my Dad that George W. Bush is going to start a free-market think tank. His response: "what are they going to call it? The Richard M. Nixon Economic Freedom Initiative?"

Posted by Art Carden at 11:32 AM in Economics

November 27, 2009
Black Friday Price Discrimination

Is it separating consumers by marginal value/willingness to pay or by risk preference? Here's an article from this morning's Memphis Commercial Appeal. A choice quote:

"My face was on fire the half hour I had to wait in line for the electronics counter, and there were several other customers who had been in line that had been pepper sprayed."
Posted by Art Carden at 01:08 PM in Economics

November 25, 2009
The Minimum Wage: An Open Plea to My Friends on the Left

A few weeks ago, a friend posted a link to a story about how the NAACP is pressuring President Obama about African-American unemployment. Sadly and tragically, "repeal the minimum wage" is not one of their proposals even though the evidence suggests that it reduces employment and increases poverty. Here's an excellent post by Steve Horwitz on how "the science president" is ignoring the economics of the minimum wage. Here's my case for repeal. Here's a piece in which Steve and I join forces to rebut criticism of free-market economists. Here's my review of Donald Stabile's book on the living wage. Here's a piece on how the minimum wage affects the disadvantaged. Here's a piece on the hidden costs of the minimum wage. Here's Neumark and Wascher's comprehensive survey of the empirical research on the minimum wage; if you're at Rhodes, you have access to this paper because we have a subscription to NBER Working Papers.

At the SEA meetings, Jagdish Bhagwati dismantled the rhetoric of "fair trade" and said something that will stick with me for a long time. I paraphrase here: movements advocating what is grossly and misleadingly called "fair trade" and movements advocating higher minimum wages are filled with people who imagine themselves fine human beings but who are actually busy (unwittingly) doing horrible things to the people they claim to love so much.

With unemployment in double digits and with a lot of people struggling to make ends meet, I offer an appeal to my friends on the left who think that higher minimum wages do not reduce employment or who think that higher minimum wages are good for the poor: I beseech you, in the bowels of Christ, to consider the possibility that you may be wrong. Please. For the sake of the poor.

Addendum: I neglected to add Steve's "An Open Letter to My Friends on the Left", which is also well worth reading.

Posted by Art Carden at 08:34 PM in Economics

Questions on The Price of Everything

My econ 101 students have to write a review of Russ Roberts's The Price of Everything this semester. Some questions corresponding to each chapter are below the fold. Comments are open for a few days if you have any suggestions; if you like any of these questions, please feel free to use them.

Read More »

Posted by Art Carden at 04:48 PM in Economics  ·  Comments (3)

On Geithner's Tenure

Per Noel's post on whether there could be a market in which he could short Geithner's tenure as Secretary of the Treasury, lucky for him (Noel) the good folks at Intrade have already set up such a market.

See the trend here - it looks like the worst for him (Geithner), odds wise, was back in April. That could change however.

One wonders if Geithner would buy/sell in this market and, if he did, would that be considered insider trading?

Posted by Craig Depken at 02:12 PM in Economics

On the price of Thanksgiving c. 1909

The Nov. 25, 1909 NYT reports on the cost of a generic Thanksgiving day dinner and points out that the price of said meal had increased from a price of $1.95 in 1899 to the price of $4.25 in 1909 ($103 in 2008 dollars), an annualized rate of inflation of 7.8%.

{sarcasm} This was clearly an unsustainable rate of inflation in the Thanksgiving Dinner sector because annualized overall inflation during this decade was 0.93% (according to the good folks at eh.net). One wonders why there was no legislative emergency declared that required a 2,000+ page bill from Congress to remedy - oh wait, I know why. {\sarcasm}

I digress, on to the Thanksgiving dinner of 1909:

The price of Thanksgiving turkey in Chicago has again advanced. In 1907 it could be bought for 25 cents a pound,