Hmmm.....maybe the Austrians are onto something.

I'm organizing a symposium on Peter Leeson's The Invisible Hook at the Southerns in November. More details are sure to follow, but this is about what I'm expecting.

For now, here's Eric Cartman and the Somalian Pirates (NB: salty language).

... the term "best practices."

Repeat after Hayek:

Today it is almost heresy to suggest that scientific knowledge is not the sum of all knowledge. But a little reflection will show that there is beyond question a body of very important but unorganized knowledge which cannot possibly be called scientific in the sense of knowledge of general rules: the knowledge of the particular circumstances of time and place. It is with respect to this that practically every individual has some advantage over all others because he possesses unique information of which beneficial use might be made, but of which use can be made only if the decisions depending on it are left to him or are made with his active coöperation. (empahasis added)

Sound and Fury: Rhetoric and Rebound after Katrina.

Abstract:

"Free markets in capital and labor are essential to rapid recovery from natural disaster. Political and rhetorical responses to Hurricane Katrina included denunciation of “price gougers” in the market for gasoline; the arbitrariness associated with anti-price gouging legislation may create uncertainty that reduces the attractiveness of the investment climate."

And FYI, BE Press is doing some innovative stuff. I was able to post this paper to my Facebook page directly from the BE Press site.

“Scarcely anyone interests himself in social problems without being led to do so by the desire to see reforms enacted. In almost all cases, before anyone begins to study the science, he has already decided on definite reforms that e wants to put through. Only a few have the strength to accept the knowledge that these reforms are impracticable and to draw all the inferences from it. Most men endure the sacrifice of the intellect more easily than the sacrifice of their daydreams. They cannot bear that their utopias should run aground on the unalterable necessities of human existence. What they yearn for is another reality different from the one given in this world. They long for the ‘leap of humanity out of the realm of necessity and into the realm of freedom.’ They wish to be free of a universe of whose order they do not approve.”

Mises, Socialism, p. 214

The May 4, 1909 NYT reports on a change in the fixed costs of operating a saloon in Baltimore, MD:

Five hundred saloons in Baltimore have been put out of business by the increase in the license fees from $500 to $750 per year [from $12,205 to $18,308 in 2008 dollars]. Many of the proprietors who were unable to pay the increased tax are Germans, who owned beer saloons in the poorer districts. One of these, Paul Mang, for twenty years had kept a saloon.

It is estimated that the new license should increase the city's revenue $1,000,000, but if many more saloon keepers fail to take out licenses the expected large increase in revenue will not materialize.

______________

"Public use and just compensation are the most commonly discussed protections of individual rights against the takings power, but another potentially important check is federalism."

That is the issue taken up in my new paper wiih Todd Jewell and Noel Campbell, just published in the Review of Law and Economics.

ABSTRACT: In Kelo v. City of New London , the U.S. Supreme Court left it to the states to protect property against takings for economic development. Since Kelo, thirty-seven states have enacted legislation to update their eminent domain laws. This paper is the first to theoretically and empirically analyze the factors that influence whether, in what manner, and how quickly states change their laws through new legislation. Fourteen of the thirty-seven new laws offer only weak protections against development takings. The legislative response to Kelo was responsive to measures of the backlash but only in the binary decision whether to pass any new law. The decision to enact a meaningful restriction was more a function of relevant political economy measures. States with more economic freedom, greater value of new housing construction, and less racial and income inequality are more likely to have enacted stronger restrictions, and sooner. Of the thirteen states that have not updated, Arkansas, Oklahoma and Mississippi are highly likely to do so in the future. Hawaii, Massachusetts and New York are unlikely to update ever if at all.

Berkeley Electronic Press has the paper here (gated, but no charge). Also see my earlier, non-technical paper with Sasha Totah in The Independent Review. And here is my opinion about takings for economic development.

As the newspaper industry seems to be headed for restructuring there are many who bemoan the loss. Perhaps there is good reason to be concerned about fewer people digging around the halls of governments at all levels for scandal and shenanigans, but if the newspaper industry goes away it had a pretty good run.

The May 2, 1909 NYT reports:

Newspapers date back rather further than most people would likely to believe. It is nearly twelve centuries now since the first one was put in its appearance, although it was vastly different from the news sheet of modern times.

The Chinese deserve the credit for having first conceived the idea of giving the news to the public. In 713 a Chinaman with a literary bent began distributing what was called The Tching-Pao - The Peking Gazette - "News of the Capital," and he continued to issue the crude news sheet until 741 in the T'ang dynasty of the Chinese capital. for centuries this news disseminator has appeared daily.

However, this cannot be said to be a direct relative of the modern newspaper by example of direct descent. The newspaper of today is in fact of composite origin. In the sixteenth century it was represented by news sheets - single folio sheets, each dealing with a single news subject. The first dated examples of these appeared in 1498, and there are extant to-day some 800 examples that appeared prior to 1510.

I was at a strategic planning retreat all day yesterday so I am catching up on my normal reading. An editorial concerning new taxes in England, published in the May 1, 1909 NYT, rings familiar:

The new taxation provided for to meet an estimated deficit for 1909 of nearly $80,000,000 is startling enough, especially in the proposed supertax of 6 pence in the pound on all incomes, earned or unearned, exceeding $25,000 yearly, which would subject people of moderate wealth to an income tax of 8 per cent. in addition to all their other heavy taxation. To offset this there is a proposed abatement to all whose incomes are less than $2,500 of $50 for each child under 16 years of age.

Who knew that the child tax credit was alive and well under British Labour one hundred years ago?

However, if you have any familiarity with this "series" you know that there's more:

Mr. Asquith's plan of old-age pensions, which was adopted by a vote of 315 to 10, seemed extreme. It provides for the payment of from one to five shillings weekly to all persons over 70 years of age, who have dwelt in the United Kingdom twenty years, and possess less than $150. The cost of this Socialistic scheme was estimated at $30,000,000. It has turned out to be very much more. But Mr. Lloyd-George's Socialistic plans go much further.

Thus, when the United States implements its old-age pension plan and other "entitlement" programs there is at least some evidence that such programs always come in over budget.

But wait, I say in my best Billy Mays impression, there's more:

The new stamp tax on stock transactions, the enormously increased taxes on spirits and tobacco, the heavily augmented death taxes, which were already enormous; the increased rates on motor cars, all excite great indignation.

Hope and change? Perhaps less change than was originally advertised.

The last line of the editorial:

Truly Merry England is merry no more.

As part of my research on the economic history of the South, I've been reading a lot of work by cultural, intellectual, and social historians. It's absolutely fascinating, and every so often I come across passages that illustrate important economic principles. Here's a passage suggesting that people prefer modernity to pastoral life:

"...despite their cultural objections to the New South program, the Agrarians offered no practical alternatives other than a romanticized historical vision of the country life that Depression-era southerners were then fleeing by the thousands." p. 121 of James C. Cobb, Away Down South: A History of Southern Identity.

From the JOE:

"My contribution...substantial."

At Freddie Mac, you'll play a key role in our nation's economy as you make home possible. A vital component in the secondary mortgage market, Freddie Mac has made home ownership and rental housing more accessible and affordable for over 50 million families across America.

As a Senior Risk Modeling Manager, you will provide essential support for credit risk model analysis and loan loss forecasting reviews. Specific functions will include, but are not limited to, performing detailed model reviews and validation procedures and conducting quantitative analysis to support the risk oversight, management and modeling functions. Your particular focus will be on models related to the retained portfolio, including repayment, term structure, derivatives valuation and capital models.

Can't even think up a joke about this one.

Liquidating malinvested capital by destroying houses in Southern California. It's almost like it's taken directly from Roger Garrison's "Ivan and the Brickyard" example.

I'm fascinated by the perpetual push-and-pull among interest groups trying to use the state to further their causes, and I'm especially interested in claims about causal relationships with dubious empirical support (see this post about the alleged effects of premarital cohabitation, for example). Debates about "Choose Life" license plates are a case in point. Some opponents of abortion argue that it is a question of religious freedom. Opponents of the license plate suggest that they represent government endorsement of specific policies. Reason has more, and anyone who has ever seen a PSA sponsored by the Ad Council won't be shocked that the government chooses sides all the time.

That leads us to a testable empirical hypothesis: exploit cross-state variation in adoption of "Choose Life" license plates to see whether they have had a measurable impact on the number of abortions. Data on abortions should be obtainable from the Guttmacher Institute; a minute or two of playing with Google wouldn't give up the years in which the states adopted the license plates, but that shouldn't be too hard to find out.

The Fraser Institute is launching a new contest to identify economic and public policy issues which still require proper measurement in order to facilitate meaningful analysis and public discourse.

The Essay Contest for Excellence in the Pursuit of Measurement is an opportunity for the public to comment on an economic or public policy issue that they feel is important and deserves to be properly measured. Sponsored by the R.J. Addington Center for the Study of Measurement.

A top prize of $1,000 and other cash prizes can be won by identifying a vital issue that is either not being measured, or is being measured inappropriately. Acceptable entry formats include a short 500-600 word essay, or a short one-minute video essay.

Complete details and a promotional flyer are available at: http://www.fraserinstitute.org/programsandinitiatives/measurement_center.htm.

Entry deadline is Friday, May 15th, 2009.

Enquiries may be directed to:

Courtenay Vermeulen
Education Programs Assistant
The Fraser Institute
Direct: 604.714.4533
courtenay.vermeulen@fraserinstitute.org

Larry Kotlikoff and Ed Leamer, writing at Forbes.com on Friday, propose to make the financial system safer by outlawing all intermediation funded by debt, i.e. outlaw ordinary banks, thrifts, finance companies, and insurance companies. The only intermediaries allowed would be mutual funds, where all customers are shareholders. If you think I'm exaggerating, read it yourself. And yes, to all apperarances this is a completely serious rather than a Swiftian proposal.

I'm happy to see that the financial crisis has widened the scope of debate over monetary and banking reform. But this particular proposal would throw the baby out with the bathwater.

They defend the proposal thusly:

If such mutual funds sound revolutionary, they're not. Funds of this kind have been around for centuries.

In truth, no one doubts the viability of mutual funds. The real issue is the desirability of a financial system consisting only of mutual funds because it bans debt-based intermediation. Is debt-based intermediation never mutually beneficial? Are there never any good reasons for people to want to hold debt claims on intermediaries? For example, is it never prudent from someone approaching retirement to shift some of their pension funds into TIAA traditional or certificates of deposit with a pre-determined nominal return? Is it never convenient to have a checking account where this morning's account balance is knowable without going online? More generally, shouldn't we presume that there are efficiency reasons why debt-based intermediation has evolved and survived over the centuries even where government guarantees have been absent?

One can readily agree with Kotlikoff and Leamer's suggestion that deposit insurance has over-amplified the share of debt-based intermediation, without concluding that the best remedy is to reduce its share to zero by outlawing it. First let's try taking away the subsidies: no taxpayer-backed guarantees, no intervention to shift losses from holders of debt claims to taxpayers.

As part of my work on the slavery and the roots of anti-slavery, I came across this very encouraging quote:

"With the growing popularity of Scottish and Manchesterian political economy, notably Adam Smith's The Wealth of Nations (1776), an increasing segment of public opinion saw slavery as a fetter on economic and social progress." p. 71

Fox-Genovese, Elizabeth and Eugene D. Genovese. 2005. The Mind of the Master Class: History and Faith in the Southern Slaveholders' Worldview. new York: Cambridge University Press.

Have you ever wondered why economics is called "the dismal science?" David Levy and Sandra Peart explain why. A future Econ 323 research paper assignment might be "pick an 18th or 19th century economist and analyze everything he ever said about slavery."

An excellent interview with George Selgin by Steven Slivinski appears in the current Federal Reserve Bank of Richmond's Region Focus magazine. (So much for the view that the Fed has a status quo bias?) It covers free banking, the gold standard, the fractional reserve question, and George's recent book on private token coinage. The print version, with a photo, is here. The unabridged version is here.

The epigram to chapter 17 of Hayek's The Constitution of Liberty comes from Justice Brandeis:

"Experience should teach us to be most on our guard to protect liberty when teh Government's purposes are beneficent. men born to freedom are naturally alert to repel invasion of their liberty by evil-minded rulers. The greatest dangers to liberty lurk in insidious encroachment by men of zeal, well meaning but without understanding."

From one of our profession's greatest voices of reason and sanity:

"As an American Economist, I Resent Imports of Economic Advice from Abroad."

Why is it that mainstream macroeconomists find Austrian business cycle theory so difficult to comprehend? Roger Garrision explains, analyzing a Brad DeLong lecture as a case in point. In a nutshell:

In mainstream macro, where business cycles were discussed, capital is assumed to be fixed. In mainstream growth theory, where cyclical movements are assumed away, capital is allowed to grow or to shrink, but it enters the theory as a holistically conceived capital stock.

... [In the Austrian cycle theory] interest rates that are distorted by central-bank policy misguide capital creation and give rise to unsustainable growth. The inevitable bust (in the recent and earlier episodes) is a dramatic manifestation of the growth rate’s unsustainability. To mainstream macroeconomists, the mix of cycles, growth, and the temporal allocation of resources makes Austrian theory appear as a disorienting mishmash.

Here's Alex Tabarrok making a solid case for optimism at TED.

And bureacratic expedience is the basis for the takings power...

The city of Eugene [Oregon] is ready to flex its eminent domain muscles to start work this summer on a $6.2 million bicycle and pedestrian bridge over Delta Highway.

The city has acquired all the easements for land it needs to construct the 1,500-foot bridge and approach paths, except for easements on property next to Delta Ponds on Goodpasture Island Road owned by Romania Land Co.

The bridge project will be one of the first recipients of federal economic stimulus funds in Lane County, drawing $2.25 million from the legislation Congress approved in February.

City officials hope to strike a deal to buy easements from Eugene-based Romania without going through condemnation proceedings in court, the city’s senior real property officer, Russ Royer, said Friday.

But to start construction this summer as planned, city officials must show state and federal highway officials that they can obtain possession of all the property needed for the project by the time construction bids are opened in June, Royer said.

Full story.

I found this in the church library today: "The Value of Law Observance: A Factual Monograph." It's a 1930 publication of the Bureau of Prohibition, and though the data don't show what it purports to show, it closes with this brilliant exercise in statecraft:

"In last analysis, critics of prohibition laws and their enforcement are criticizing and indicting the communities, officials, and citizens to whom they refer. It is no just criticism of the laws against homicide to point out that America produces more homicides than any civilized country. It is equally unfair to lay at the doors of the prohibition laws the lawlessness and unbridled selfishness of a too large portion of our citizens who should show strength of character enough not to commit themselves to the theory that they are above the law and will choose only such laws to observe as suit their own convenience and taste."

Translation: when our laws have demonstrable negative unintended consequences, it is the fault of the unworthies who won't play along. Here are two relevant quotes from Steven Landsburg's excellent "Fair Play:"

On Authority and Drug Use:
"Hillary Clinton believes that it takes a village--and by extension, a great federal bureaucracy--to raise a child. Republicans scoff, emphasizing that it takes not a village but a traditional family--while at the same time criticizing the Clinton administration for doing too little to keep kids off drugs; apparently those Republicans believe that it takes not a village but a police state. In the traditional family as I remember it, drug education was supplied by parents, not the government. At any rate, I wish they'd all lay off my daughter. Education about risks is one thing; telling kids that there's a single 'right' response to those risks is something different and more sinister." (p. 30)

(pause to finish off this cup of coffee, my drug of choice)

On the State and the Law
"Beware of those who pontificate about 'the majesty of the law.'
"We live in New York State, where they've outlawed those little clicky things on the gas pumps--the ones you use to keep the gas flowing while you walk around to check your oil. At some moment in the past, some New York State legislator must have gathered some colleagues around him and said 'We've got to do something about those little clicky things,' and they all nodded sagely. That's the majesty of the law." (p. 213)

I'm working on a paper while keeping one eye on the ESPN.com Gamecast of the Cardinals-Cubs game. It has an interesting feature in that it gives a predicted winner and estimates the probability of victory in real time. For example, it's the top of the 6th with two out, no one on, and the Cardinals winning 3-1 in St. Louis. The probabilty of a Cardinals victory is 84%. But Reed Johnson just singled, knocking the probability down to 83%. My first thought when I saw that was that someone somewhere is losing the opportunity to make gobs of money taking real-time bets on these games. Regulation prohibits it, and whether nationwide real-time wagering on sporting events would increase or decrease corruption in the sports world. On one hand, the influx of money involved might increase opportunities for corruption, but on the other hand the increased transparency might also reduce corruption. Some might argue that the recent controversies over steroids suggest that self-regulation monitoring broke down as players refused to monitor one another, but I'm not sure if it should be counted as a success or a failure. How does the rate of baseball players busted for steroids compare to the rate of government officials busted for corruption? I would guess that they compare favorably.

This illustrates how corruption in private enterprise is not a prima facie case for state power. I came across a great quote from C.S. Lewis yesterday that summarizes my views on the modern state: "Aristotle said that some people were only fit to be slaves. I do not contradict him. But I reject slavery because I see no men fit to be masters." I would rephrase this as follows: "Many people say that some people are so irresponsible or evil that they require the state's regulation, oversight, and direction, but I reject statism because I see no men (or women) fit to be their masters."

My rejection of statism is based on what we know about incentives and information. First, coercion distorts incentives, and when we give people the power to do things we like we also give them the power to do things we don't like. Hence, for example, we have people wringing their hands about the Obama administration using powers granted to the Bush administration in ways they don't like. Second, any proposal for intervention has to overcome the knowledge problem. Hayek showed that even under the best of circumstances, the absence of profits, losses, and prices means that no government official can know whether they are creating value or wasting resources. Therefore, to borrow from James Buchanan, our emphasis in designing policy should be on "the institutions of exchange, broadly considered" because it is only under these circumstances that the information needed for socially rational decision-making will emerge.

"Obama asks for ideas on curbing federal spending."

I didn't have to look far. A couple of headlines down, I saw this: "Vicksburg military park to get $2 million in stimulus money." That would be a good place to start. Also, you could cut everything here. And if someone could press ctrl+A DEL on all of this, it would be another step in the right direction.

Here's George Reisman. Of course, I'm not sure whether there are Coasean bargains that ensure optimal breathing. Now that carbon dioxide is a pollutant, perhaps more efficient ways to tax breathing would include taxes and restrictions on exercise and exercise equipment?

At what point do people say "this is silly?"

OCEANSIDE, Calif. -- The fragrance of sage-scented candles and sounds of jazz fill the air of a 2,600-square-foot house a block from the beach. Tiger-striped chairs flank tables crafted from exotic woods. Photos of a chubby baby hang on the walls. Whoever occupies 211 Windward Way, they seem to live the good life.

Too good to be true, in fact. The house is owned by a builder, who hasn't been able to sell it for more than a year. And while someone really does live here, it's as part of an elaborate bit of stagecraft aimed at moving Southern California's echoing inventory of luxury vacant homes.

This $1.2 million seaside pied-a-terre is occupied by Johnna Clavin, a 45-year-old Los Angeles event planner and decorator who has seen business slow. In exchange for giving the townhouse a stylishly lived-in look, she gets to stay there at a steep discount and stands to earn a bonus if the house sells fast.

Source. HT to MR for the markets in everything concept.

Probably not, but I would like to think they have. The McDonald's part of this StatShot illustrates the point I make in this paper and this article. My apologies for the gutter language.

Here are George Mason University economists Bryan Caplan and Robin Hanson debating one another on normative criteria. Caplan argues for liberty, Hanson argues for efficiency.

Caplan vs. Hanson Debate from Mark Twain on Vimeo.

Mike Hammock posts a column by our student and regular lunch companion Brent Butgereit on increasing the efficiency of the on-campus housing allocation at Rhodes. Give it a read--it's an excellent article.

The April 23, 1909 NYT reports:

As a joke, Frederick Adams, a youth of this town [Burlington], bid 40 cents for an old trunk put up at auction at a public sale...Adams examined his purchase, and found in the false bottom of the trunk a secret drawer stuffed with banknotes and gold coins, amounting to $165.

The trunk is said to have belonged to old Christopher Rigg, once a rich resident of this city, who had little faith in banks. The result of Adams's find has set every purchaser of goods at the sale at work examining their purchases.

If you hide your money in weird places, please leave a note to your heirs so that they don't have to rely upon the "goodness" of others.

I know, the title is a bit misleading because I didn't calculate the risk-adjusted return.

This story out of South Bend, Indiana, describes a relatively rare situation: faculty members tripping over themselves to attend commencement. The reason? President Obama is giving the commencement speech and demand among the faculty has exceeded the seating capacity allotted to the faculty.

The answer?

An economist might suggest that the efficient solution is to auction off the tickets. This would put the tickets in the hands of those faculty who value the President's words the most. At the same time, the funds raised could be used to shore up scholarship funds or to purchase a renewal to a few journal subscriptions at the library.

Rather, the plan is to use a lottery to allocate the tickets. This, in turn, will create a healthy secondary market for the tickets where faculty make transactions behind the closed doors of their offices or late at night in the parking garage.

Thus, some faculty stand to receive a "windfall" profit generated by the President. Will there be calls by the White House to discourage such reallocation of tickets, much as the Congress called to discourage the secondary market for inaugural tickets?

While the total potential market for faculty commencement tickets seems fairly small, upward to 400 tickets, I wonder if that is enough for the tickets to show up on eBay or StubHub. Will keep tabs on it when I find the time, but if a reader discovers any tickets for sale I would appreciate the information.

Douglass C. North is speaking at Rhodes this evening at 5:30 in the Orgill Room. Here's a lecture he gave at the National University of Singapore about a year ago.

Should We Be Doing More To Reduce The Graphic Violence In Our Dreams?

My rating: PG-13.

SafeLink Wireless is a government supported program that provides a free cell phone and airtime each month for income-eligible customers.

HT: Todd.

The following letter was published in the April 21, 1909 NYT:

In your edition of Sunday you say that the London bakers have been compelled to raise the price of bread to 6 1/2 d. (13 cents) for a four-pound loaf. The price here for a loaf of bread weighing thirteen ounces is 6 cents. Would some one explain why we should pay more than double the price here, when the wheat has to be bought here and shipped to England?

The price in England was 0.2 cents/oz whereas in New York the price of bread was .46 cents/oz. If we grant the letter writer a greater cost of wheat in England than in the U.S. and assume that the other labor and capital costs of producing bread were essentially the same, there are two other explanations for the distortion in price. First is the exchange rate. The second is if the demand for bread was that much greater in New York than in London.

This particular letter writer likely doesn't care about our answers but are there any other explanations I am missing?

Forbes.com ran this article today. It's based on the paper I linked to yesterday on Economic Calculation in the Environmentalist Commonwealth. Due to space constraints, I wasn't able to include the reading list, but here are some links to additional reading and podcasts:

Daniel Benjamin, “Eight Myths of Recycling”

Julian Simon, The Ultimate Resource 2

Ludwig von Mises, “Economic Calculation in the Socialist Commonwealth”

Steven Landsburg, “Why I am Not an Environmentalist: The Science of Economics Versus the Religion of Ecology”

Michael Munger and Russell Roberts, “Munger on Recycling”

Michael Munger, “Orange Blossom Special: Externalities and the Coase Theorem”

Michael Munger, “Think Globally, Act Irrationally: Recycling”

Bruce Yandle and Russell Roberts, “Yandle on The Tragedy of the Commons and the Implications for Environmental Regulation”

Garrett Hardin, “Tragedy of the Commons”

Bryan Caplan, “Externalities”

TED talks by Al Gore and Bjorn Lomborg.

My notes for today's discussion in Classical & Marxian Political Economy are below the fold. We're discussing chapters three and four of Douglass C. North's Structure and Change in Economic History in anticipation of his visit on Thursday evening. On Thursday, we're discussing the working paper on which his new book with John Wallis and Barry Weingast is based.

On Thursday I'll be giving a talk on "Fundamentals of Liberal Monetary Reform: A Case for International Free Banking" at the Friedrich-Naumann-Stiftung für die Freiheit / Institut Liberale colloquium on "Free Currency - The Future of Money" in Potsdam, Germany. Here are the opening paragraphs.

Let me begin by quoting a recent statement, made less than one month ago, that emphasizes the need for international monetary reform and proposes a set of principles for reform. See if you can guess the author:

The outbreak of the current crisis and its spillover in the world have confronted us with a long-existing but still unanswered question, i.e., what kind of international reserve currency do we need to secure global financial stability and facilitate world economic growth …? The above question, … as the ongoing financial crisis demonstrates, is far from being solved, and has become even more severe due to the inherent weaknesses of the current international monetary system.

Theoretically, an international reserve currency should first be anchored to a stable benchmark and issued according to a clear set of rules, therefore to ensure orderly supply; second, its supply should be flexible enough to allow timely adjustment according to the changing demand; third, such adjustments should be disconnected from economic conditions and sovereign interests of any single country. … The desirable goal of reforming the international monetary system, therefore, is to create an international reserve currency that is disconnected from individual nations and is able to remain stable in the long run, thus removing the inherent deficiencies caused by using credit-based national currencies.

The author is not any well-known classical liberal economist, but Zhou Xiaochuan, head of China’s central bank, in a statement entitled “Reform the International Monetary System”. Evidently support for fundamental reform of the international monetary regime is growing. Of course, a key question is: reform in what direction?

Classical liberals can applaud Zhou’s three stated desiderata for a global reserve money: (1) its value should be anchored, (2) its quantity should automatically respond to market demand, and (3) its quantity should not be subject to variation by any national government. Without intending to, Zhou has described three main virtues of the classical gold standard.

In the rest of his statement Zhou unfortunately proposes concrete measures that will never achieve the stated ends. He proposes that a more powerful International Monetary Fund could issue a desirable reserve currency denominated in a revised version of its SDR unit. Such a proposal overlooks some simple basic facts.

Unlike gold, the SDR is not anchored to anything but a basket of unanchored national fiat monies (what Zhou calls “credit-based national currencies,” oddly given that their issue is based on fiat and not on credit in any standard sense). If the SDR were its own fiat unit it would remain unanchored.

Unlike monetary gold, the SDR in either form is governed by no market forces making its quantity automatically respond to demand.

Unlike competitive firms in gold mining, minting, and gold-based banking, whatever the IMF does is inherently determined by politics. The quantity of IMF-issued SDRs will be decided in the political realm, where long-run stability has never been more than an empty promise.

Forthcoming in New Perspectives on Political Economy, here's "A Note on Profit, Loss, and Social Responsibility." The abstract:

This short note discusses the role of profits and losses in organizing information. I explore the ethical status of a firm earning losses and argue that to earn a loss reveals important information about the production plans that are likely to be successful. I further argue that the information revealed in a profit-and-loss economy is socially beneficial.

Just in time for Earth Day, here's "Economic Calculation in the Environmentalist Commonwealth," under review at the Quarterly Journal of Austrian Economics. The abstract:

Do environmental initiatives like carbon accounting provide a viable alternative to monetary calculation based on profit and loss? Economic insights about calculation and imputation suggest that they do not provide a reliable, rational guide to action. Non-monetary calculation of the environmental effects of action runs into the same problems of in natura calculation and commonly-owned means of production. The information needed for rational economizing does not exist when we forsake the price mechanism. A legal regime based on strict private property rights solves environmental problems. Relaxed restrictions on property rights can generate environmental benefits and reduce our contribution to environmental degradation. Examples include the elimination of restrictions on housing markets and privatization of municipal recycling and garbage collection.

Cross-posted at the Mises Blog and The Beacon.

The April 20, 1909 NYT publishes a letter to the editor that contains rhetoric of which we are all to familiar today. In this case, the appeal is to license chauffeurs who are gripped by "speed mania" and who are thought of as "thieves" and "grafters":

The only solution of the speed mania lies in the license. There are at present some thirty thousand chauffeurs licensed in new York State. Of this number how many would be left if they had to pass a thorough examination? There are plenty of so-called chauffeurs who only know how to start and stop their cars, but absolutely nothing about the car in general.

How to ensure a good chauffeur?:

By all means have the license hard to procure, so that only men of good character, habits, eyesight, hearing, knowledge, and judgment who are able to pass such an examination be allowed to operate automobiles on our crowded highways.

Those familiar with rent-seeking activities should feel good, as the last paragraph comes to the point of the licensing efforts:

The better class of chauffeurs, among whom I count myself, hope for some reform in the way of granting a license. We are tired of being called thieves, grafters, and a great many other degrading names.

The April 20, 1909 NYT reports on plans by Major League Baseball to engage in "war" on an "outlaw league" which threatened to undermine the monopoly status of MLB:

War on the California State League, which is classes as an outlaw league, was declared by the National Baseball Commission in session here [Cincinnati] late this afternoon. An assessment on the sixteen clubs of the two major leagues will be made to provide a substantial sum to be expended in the fight to be made on the California League.

The April 20, 1909 NYT reports on how the market forced the steel trust to adjust prices downward in the face of competition:

The American Steel and Wire Company, which is a subsidiary of the United States Steel Corporation, announced yesterday a reduction in all classes of steel wire products of 10 cents per 100 pounds, which is equivalent of $2 a ton.

Cuts in steel wire products were made by independents several weeks ago, and were met unofficially by the Steel Corporation.

A debate over the merits of the minimum wage rages in the "letters to the editor" section of the local newspaper. Since Movable Type hates Mac, I can't give links. Here's a letter I sent today:

"Regarding the letter on wages of April 19 ("Raise Wages, and Prosper"), if we can in fact do well and do good with a minimum wage free lunch, are we not ignoring our moral duties by stopping at the "prevailing wage?" Would we not do well and better still by imposing a Shelby County minimum wage of $1,000,000 per hour?

The idea that workers exposed to a minimum wage benefit from gains from trade that are transferred from their employers has some merit but it is ultimately crushed under theory--people respond to incentives, and they make decisions in response to marginal costs and marginal benefits--and evidence. Interested readers can enter the following Google search string (Neumark Wascher minimum wage) to find a free version of a study by economists David Neumark and William Wascher in which they survey the empirical research on the employment effects of minimum wages. The causal effects of a minimum wage are clear: lower employment, higher poverty, less experience, and lower educational attainment.

As a pro-poor, anti-poverty policy, the minimum wage has been tried, measured, and found wanting. I stand by my earlier claim that a prevailing wage ordinance in Shelby County will be a raw deal for the poor."

William Easterly invites a response to his earlier post on a prayer for the end of poverty that reads "(t)he world now has the means to end extreme poverty, we pray we will have the will." As I read it, the prayer means "the political will to transfer resources from rich people to poor people, using force if necessary." The response closes with the following question: "What is the theology of not vigilantly supporting and/or advocating the most effective poverty solutions available?"

It's an excellent question (more on my suggestion in a minute) but my knee-jerk response is to answer a question with a question: "what is the theology of vigilantly supporting and/or advocating anti-poverty programs that are demonstrable failures?" To paraphrase Murray Rothbard, what is the theology (and ecclesiology) of having outspoken opinions about economic issues while not knowing any economics? In his excellent book The Vision of the Anointed: Self-Congratulation as a Basis for Social Policy, Thomas Sowell speaks of an imperviousness to evidence that, I'm afraid, characterizes a lot of advocates of anti-poverty programs. Note that I did not say "people who wish to eradicate poverty" because people who wish to eradicate poverty and supporters of anti-poverty programs aren't necessarily the same people. While we're speaking in Biblical terms, a lot of aid programs in the last five decades have given us a lost half century of terrible stewardship.

So what are the alternatives to failed aid programs? I offer, once again, Lant Pritchett's Let Their People Come: Breaking the Gridlock on Global Labor Mobility, available for free download from the Center for Global Development. Pritchett estimates the global gains from an international free market in labor, shows that they dwarf any and all gains from even the most successful aid programs, and casts the international immigration in explicitly moral terms. I would therefore rephrase the question asked at the end of Jonathan Denn's response to William Easterly: what is the theology of vigilantly supporting and/or advocating the use of force to prevent mutually beneficial voluntary exchanges, particularly when those voluntary exchanges have the potential to carry us a long way toward the elimination of extreme poverty?

Along those lines, here's a picture I drew on my office whiteboard after reading Pritchett's book (meme HT: www.thisisindexed.com). While she was visiting Rhodes, Deirdre McCloskey kindly asked to be added to the intersection. This perhaps suggests a new personal mission statement: make both sets bigger, and increase the degree to which they overlap.

Courtesy of Reason.tv, here's Pete Leeson on The Invisible Hook:

The DMV will now service your GM or Chrysler Vehicle:

NB: if we let GM & Chrysler go under and liquidate their inventories at low prices, there will be an entrepreneurial opportunity for people who know how to fix them. People like, say, laid-off GM and Chrysler employees.

And here's Robert Higgs:

That's the title of my op-ed (with students Ben VanMetre and Nick Abraham) on Forbes.com today. You can find the whole op-ed here. My favorite part:

This may be--and likely is--true. But we don't know if Saturday delivery is a good idea or not because the post office is a public monopoly.

As Nobel Laureate F.A. Hayek pointed out, the market is a discovery process. While they try to meet consumer demands and earn enough to cover the cost of production, entrepreneurs figure out the right combination of expensive inputs--including operating hours.

For example, Beloit, Wis., where we live, has several diners. Some are open only for breakfast and lunch; others are open all day. It makes no sense to ask which diners are open for the "right" hours. Over a period of years, each of the establishments tried out different combinations of hours until they discovered operating hours that worked best for them given their product mix, customer base, cost structure and competition. It is the market process, and only the market process, that can tell us if a business' current operating hours make sense.

Congratulations Ben and Nick!

Ian Ayres offers an interesting post on conformity: people tend to conform to what they think others are doing, and he stresses the implications for public service announcements about teen sex and drug use. In a similar vein, here's Jeffrey Miron and Elina Tetelbaum on the ineffectiveness of the drinking age.

Various flyers about drugs and alcohol I've seen around campus are putting Ayres's point into practice. They don't encourage people to "be different." They point out that according to surveys the College has done, binge drinking at Rhodes is relatively rare. I'll be interested in seeing how effective the campaign is in a few years.

(I'm feeling cranky this morning, so I need to vent. The URLs herein are intended for the newcomers to this forum.)

With the increased public regulation of the financial, insurance, and even manufacturing industries in our economy, as well as an expanded role of the Federal Reserve Bank in directly subsidizing specific businesses within our faltering financial industry, our Economic Freedom Index will surely be falling significantly next year. Our Civil Liberties Index may well follow suit (though in truth, they are not that far apart conceptually).

I sense a palpable change in personal philosophy among the rank and file U.S. citizenry, fueled by the main stream media. Our uniquely American economic and political freedoms are now simply looked at by many citizens as some grand but somehow failed social experiment that has apparently run its course.

Our lack of vigilance as a free society has slowly allowed freedom preserving institutions to be eroded, with their decreasing potency allowing a much more volatile and less predictable process for creating prosperity. The eyes of our complacent citizenry see a decreasingly meritocratic determination of income generation in society, resulting in a less egalitarian distribution of economic status--life just doesn't seem fair under capitalism anymore.

Yet, our people fail to connect their unfulfilled utopian vision for the American experience to the demise of individual freedoms in American society. Prosperity, apparently, should be automatic, consistent and costless. Change was demanded; democracy was exercised; the people's voice was heard. The role of government in American economic lives has now substantially expanded.

Without preserving the constitutional protections against the encroachment of government upon individual freedoms, the noble institution of democracy simply becomes an energy efficient vehicle for transporting us down the short highway to the land of unfettered socialism.

Comparing societies throughout history has shown that capitalism is the superior institution for channeling individual self-interest towards producing prosperity. Further, capitalism is more effective than democracy at promoting individual well-being in society, especially for women.

But the institution of capitalism does not deliver perfection. Its preservation and maintenance is not free--it requires eternal vigilance. Capitalism is simply the institutional arrangement with the lowest social opportunity cost.

Perhaps the American people will soon awaken from their intellectual stupor, ignore the media, and demand from their elected representatives that all their freedoms be returned. Maybe...

F.A. Hayek Interviewed By John O'Sullivan from FEE on Vimeo.

Posted by FEE, HT: Jeff Tucker. We're talking about Hayek's article "The Use of Knowledge in Society" in Classical & Marxian Political Economy tomorrow.

A couple of quirky things I've learned this year about taxes in these United States.

(1) The social security payroll tax taxes your first $102,000 (in 2008) of wages at a rate of 12.4% -- 6.2% which you see on your paystub and 6.2% paid by your employer without you seeing it. Any dollar earned over $102,000 is not taxed by social security. Ok. That's easy enough.

But what if you have two jobs during the year earning less than $102,000 but that sum to more than $102,000? Both employers will remit the 12.4% tax to social security and you will have overpaid because you're not supposed to be taxed an any earning over $102,000. This is not a problem for you the individual taxpayer as your overpayment (anything greater than 6.2% of $102,000) is treated as a credit on your 1040 (line 65) and can be used for other income taxes or be refunded. But what about the two employers who paid 6.2% of your behalf? Shouldn't the employers be allowed some kind of credit for overpaying for their part? Answer: No. The employers are screwed here.

(2) If you move residences from one state with an income tax to another with an income tax it is all but impossible to avoid some double taxation. Wage and salary income is easily divided between State A and State B so that you pay income taxes only on the earnings made while resident in the respective states. But business income (i.e., Schedule C type income) and some interest/dividend/pension income payments can not be allocated to one state or the other. In fact, both states you resided in may tax these same sources of income.

Btw, I had five, count 'em 5, did you hear that? FIVE!, income tax returns to file this year.

We start talking about monopoly in econ 101 today.

We're discussing Mises's "Economic Calculation in the Socialist Commonwealth" in Classical & Marxian Political Economy today, and I'm planning to distribute Steve Horwitz's excellent (and short) essay "Ought Presupposes Can." Mises's demonstration of the impossibility of economic calculation without private ownership of the means of production is an incredibly important contribution to social theory, and its implications for the feasibility of government intervention are considerable. Any social policy must be economically possible before it can be considered morally desirable; borrowing Steve's title it has to be shown that there is a "can" before there can be an "ought." The implication of Mises's thesis is that many assumed interventionist "cans" are in fact "cannots." Therefore, a number of interventionist "oughts" have to be eliminated from ethical debate. John Lennon was free to imagine all he wanted and people were free to join him, but in light of the Austrian analysis of a world with "no possessions" he and his cadre of dreamers were wasting their time.

Cross-posted at the Mises Blog.

What are the differences between trade in drugs, wine, chocolate, and cars?

Here are a couple of recent pieces:

1. Does Wal-Mart Reduce Social Capital?, based on our paper of the same name. Charles Courtemanche's name should appear as a co-author on this op-ed post-haste.

2. Patriotic Shopping Sprees. Incidentally, there was an interesting article in this morning's WSJ about slowdowns in container traffic at the Port of Los Angeles. Much of the slowdown is attributable to global macroeconomic trends, but there's an important point here about trade: all of those protected auto manufacturing jobs in the midwest are coming at the cost of employment opportunities for longshoremen in Southern California.

3. Stimulating Anachronism, Stifling Innovation. Bailouts aren't a free lunch, and this is just one tiny example. What is seen: more output from government-supported dinosaurs like GM. What is not seen: less output and innovation from new firms like Tesla Motors. Update: Mike sends this. Rent-seeking gives the rent-seekers competitive advantage, which encourages their competitors to rent seek.

4. Time to end war on drugs. The original title was "The Drug War is Reefer Madness."

From his postscript to Mises's "Economic Calculation in the Socialist Commonwealth":

With the impossibility of building up and maintaining a capital structure in the absence of monetary calculation, human economy under socialism comes to consist of super-short and repetitive household processes utilizing minimal capital and with little scope for adjustment to new wants. The result is that time itself--in the praxeological sense of a distinction between present and future--ceases to play a role in human affairs. Men and women, in their capitalless, hand-to-mouth existence, begin to passively experience time as the brute beasts do--not actively as a tool of planning and action but passively as mere duration. Humanity as a teleological force in the universe is therefore necessarily a creation of the inextricably related phenomena of calculation and capital. In a meaningful sense, then, socialism not only exterminates economy and society but the human intellect and spirit as well.

From "Economic Calculation in the Socialist Commonwealth," which we're discussing in Econ 323 tomorrow:

To Otto Bauer the nationalization of the banks appears the final and decisive step in the carrying through of the socialist nationalization program. If all banks are nationalized and amalgamated into a single central bank, then its administrative board becomes "the supreme economic authority, the chief administrative organ of the whole economy. Only by nationalization of the banks does society obtain the power to regulate its labor according to a plan, and to distribute its resources rationally among the various branches of production, so as to adapt them to the nation's needs." [18] Bauer is not discussing the monetary arrangements which will prevail in the socialist commonwealth after the completion of the nationalization of the banks. Like other Marxists he is trying to show how simply and obviously the future socialist order of society will evolve from the conditions prevailing in a developed capitalist economy. "It suffices to transfer to the nation's representatives the power now exercised by bank shareholders through the Administrative Boards they elect," [19] in order to socialize the banks and thus to lay the last brick on the edifice of socialism. Bauer leaves his readers completely ignorant of the fact that the nature of the banks is entirely changed in the process of nationalization and amalgamation into one central bank. Once the banks merge into a single bank, their essence is wholly transformed; they are then in a position to issue credit without any limitation. [20] In this fashion the monetary system as we know it today disappears of itself. When in addition the single central bank is nationalized in a society, which is otherwise already completely socialized, market dealings disappear and all exchange transactions are abolished. At the same time the Bank ceases to be a bank, its specific functions are extinguished, for there is no longer any place for it in such a society. It may be that the name "Bank" is retained, that the Supreme Economic Council of the socialist community is called the Board of Directors of the Bank, and that they hold their meetings in a building formerly occupied by a bank. But it is no longer a bank, it fulfils none of those functions which a bank fulfils in an economic system resting on the private ownership of the means of production and the use of a general medium of exchange--money. It no longer distributes any credit, for a socialist society makes credit of necessity impossible. Bauer himself does not tell us what a bank is, but he begins his chapter on the nationalization of the banks with the sentence: "All disposable capital flows into a common pool in the banks." [21] As a Marxist must he not raise the question of what the banks' activities will be after the abolition of capitalism?

Here's some wonderful Misesian satire on "Nationalized Citibank." Warning: lots of f-bombs, so proceed with caution.

This podcast between Dan Klein and Russ Robert on The Theory of Moral Sentiments is just fantastic. I cannot wait to hear the rest in the series, especially since my Koch Colloquium is reading TMS this term. By the way, the discussion between variou s commenters and Klein here is excellent and shouldn't be missed either.

Seen on a t-shirt at breakfast this morning, apparently worn without irony:

"Welcome to America. Now SPEAK ENGLISH!"

My first thoughts, of course, were about Bryan Caplan's work on anti-foreign bias in The Myth of the Rational Voter. The fact that at least some people are willing to pay a price to advertise their anti-foreign bias suggests to me that anti-foreign bias rather than material self-interest drives immigration policy.

There's a silver lining in this dark cloud, though. People who are divided by culture are united by commerce. I'm virtually certain that there are people all up and down the supply chain who don't speak particularly good English who contributed to our bias-advertising shirt-wearer's meal this morning. And I would also bet that the shirt was made somewhere outside the US. As economists like Milton Friedman, Deirdre McCloskey, and others have pointed out, the social miracle of the marketplace is that it helps people care for one another even when they don't care about one another. In fact, people with positive antipathy toward one another can still find ways to cooperate to mutual advantage through the market process.

I know I've linked to this before but here again is Lant Pritchett's brilliant Let Their People Come: Breaking the Gridlock on Global Labor Mobility, which is required reading for anyone interested in immigration. I hope that in a few generations people look back with revulsion at coercive restrictions on labor mobility the same way we look back with revulsion at chattel slavery.

A recent issue of Business Week had an article on the tax cuts (really just welfare sent through the IRS); an excerpt:

As federal stimulus dollars begin to flow, one unlikely beneficiary is the $30 billion tax-preparation industry. Prep specialists from top dog H&R Block on down are celebrating as the Apr. 15 deadline approaches. The fresh treat: billions of dollars in new and expanded tax credits for individuals and small companies.

The good news for tax preparers could turn into bad news for the IRS, however, as well as an early illustration of what might be many unintended consequences stemming from the stimulus.

Tax-prep pioneer John Hewitt calls the huge federal spending package "the H&R Block and Liberty Tax Stimulus Plan." Twenty-seven years ago, Hewitt founded Jackson Hewitt Tax Service, the second-largest chain in the business. He now runs No. 3 Liberty Tax Service.

Hewitt has instructed his staff to explore leasing additional stores being vacated by Starbucks and other victims of the recession. "I love it whenever [lawmakers] pass tax changes," he says. "This one helps us because there are more tax changes that affect more people than any bill I've ever seen."

The mood is less cheerful at the IRS. Officials there are girding for a wave of questionable credit claims and outright fraud. A major problem, explains Nina E. Olson, the IRS taxpayer advocate (or ombudsman), is that most tax preparers are unregulated. The vast majority aren't licensed accountants or lawyers. Only three states—California, Maryland, and Oregon—certify tax preparers. In an industry of more than 1 million service providers, the IRS imposes fewer than 300 penalties a year, most quite modest.

"There are too many areas of this country where you have to go through more work to be licensed as a beautician than to do someone's taxes," says Representative Xavier Becerra of California. A senior Democrat on the House Ways & Means Committee, he plans to introduce legislation this year to require that all preparers register with the IRS.

Olson fears that preparers will exploit the stimulus initiative's multibillion-dollar expansion of the Earned Income Tax Credit, which last year transferred $47 billion to low-income families. The inspector general of the Treasury Dept. estimates that, even before the stimulus, the EITC was resulting in $10 billion to $13 billion a year in improper claims, many of which the agency contends are encouraged by unscrupulous preparers. While prep companies aren't supposed to charge fees based on how much money they obtain from the IRS, in practice many set higher prices for customers seeking refunds.

The stimulus package also includes new or enlarged tax benefits for small businesses, first-time home buyers, certain parents and retirees, and people who improve the energy efficiency of their dwellings—all of which are susceptible to abuse in the hands of dishonest or incompetent tax preparers, says Olson. "Some of the provisions in the economic stimulus legislation will dwarf the EITC in terms of rate of fraud," she predicts.

The issue also had an interesting article on "loopholes galore" in Geithner's toxic asset plan.

A few years back, Yale's Jacob Hacker wrote The Great Risk Shift in which he argued,

The currently favored response to rising insecurity is to throw more tax breaks and individual accounts at Americans to encourage them to save and invest on their own. This may help the privileged, but it won’t provide strong guarantees of economic security to ordinary Americans, who are just barely staying afloat. Nor will it stop the huge shift of risk onto these hardworking families as jobs, health care, and retirement all become less secure.

The book was blurbed by John "Breck Girl" Edwards and the CBO (then headed by Obama budget director Peter Orszag) found that income volatility had been little changed since the early 1980s so there's reason to doubt Hacker's thesis.

But Hacker's book came to mind because a recent NBER Working Paper finds, "The income [and consumption] of ... rich households [are] now more vulnerable to aggregate fluctuations than [those] of poorer households ...." Hmmm ... maybe Hacker will now bemoan income volatility among high income earners. Or maybe his book had more to do with old fashioned redistribution than with the mitigation of risk.

The local paper editorializes in favor of burdening county contractors with a "prevailing wage" ordinance. I respond:

In response to your April 10 editorial on a "prevailing wage" ordinance for city contractors, my econ 101 students should be able to see at least four things wrong with your reasoning.

A prevailing wage ordinance is a raw deal, particularly for the poor. If we are really interested in alleviating poverty, then we should be liberalizing the local labor market instead of burdening it with additional restrictions.

Following Don Boudreaux's example, I sent this letter about stadium subsidies to the Birmingham News today:

When I moved to Alabama for college in 1997, Birmingham residents were talking about a domed stadium. When I left Alabama in 2001, Birmingham was still debating a domed stadium. Now, in 2009, as the Super 6 football championship prepares to move to Tuscaloosa and Auburn, people are asking whether a domed stadium would have made a difference. It's time for Birmingham residents to give up on government financing for a domed stadium, and there are very good reasons to do so.

Government money for stadiums is money very poorly spent, and Birmingham residents should hope that a government-financed downtown stadium never becomes a reality. They will remain richer for it.

For more information, here's a great article by Dennis Coates.

Douglass C. North, 1993 Nobel Laureate and one of my dissertation committee members, will speak at Rhodes on April 23. The lecture is free and open to the public, and it will take place at 5:30 PM in the Orgill Room. His lecture will be based on his book Violence and Social Orders: A Conceptual Framework for Interpreting Recorded Human History.

On a somewhat unrelated note, Don Boudreaux takes some of his critics to task and argues that his status as a tenured professor of economics is irrelevant to his support for free trade. To add a data point to Don's argument, I'm an untenured professor, and I'm a fervent supporter of unrestricted trade and immigration. I don't remember if Bryan Caplan addresses this or not, but I would be surprised if the marginal effect of tenure on support for free trade is very large.

Lots of interesting interviews here.

Some highlights include:

1. J.R. Clark

2. Dwight Lee

3. Ed Stringham

Following Larry and Frank, here are my observations:

1. I'm more optimistic about the future of the social sciences after APEE. The ratio of good papers to bad papers was higher than at a lot of conferences I've been to.

2. Apparently some Guatemalan tobacco shops are set up to disguise your Cuban cigars as Dominican cigars (no, I didn't smuggle any contraband stogies into the US). I was about to say that this illustrates the folly of law, but it doesn't. It illustrates the folly of legislation. Trying to prevent people from enjoying gains from trade will almost always be ineffective, counterproductive, or both. Since Cuba trades freely with the rest of the world, the US embargo has been both ineffective and counterproductive. It has been ineffective in that it has had little impact on the Cuban economy and on the Cuban government. Recently, Deirdre McCloskey pointed out to me that during an experiment in which people were allowed to spend dollars in Havana, Havana prices were almost the same as Miami prices. It has been counterproductive in that it has given Castro a golden opportunity to blame the evil capitalist United States for the failures of communism.

3. Speaking of Castro, I wonder how he, Che Guevara, and Salvador Allende have gotten a free pass from twentieth century history. Jose Pineiro, one of the architects of the Chilean reforms of the 1970s, gave a plenary lecture contrasting the Cuban Revolution with the Chilean Revolution. In doing some work on human rights violations, economic liberalization, and the Chilean experience, it is hardly clear that Allende's human rights record would have been superior to Pinochet's. The association of Milton Friedman and libertarianism with the human rights abuses of the Pinochet regime is a grave intellectual error, and one that deserves to be corrected. More on this later.

4. Universidad Francisco Marroquin is inspiring and uplifting. Their slogan, "Veritas, Libertas, Justitia" embodies the foundational principles of a society of free and responsible people, and their educational philosophy of teaching principles rather than practice will, I expect, pay large dividends in the 21st century.

5. I wonder how an "end the drug war" petition from economists would be received. Groups like the Cato Institute and the Independent Institute have been circulating petitions about free immigration, free trade, and the stimulus package. I wonder how a similar petition from economists to end the war on drugs would do.

6. Via Facebook, I was able to meet up with Colleen Haight of San Jose State and Debi Ghate of the Ayn Rand Institute for an early dinner at DFW. The cheese and spinach dip at Reata in Terminal D was pretty good.

7. The search for the Great American Novel is over. As far as I'm concerned, "Atlas Shrugged" is the Great American Novel until something better comes along.

8. Congratulations are in order for Rhodes seniors Jill Carr and Dustin Sump, who did excellent jobs presenting their honors research at the conference.

9. I prefer Coke to Pepsi, but sugar-sweetened Pepsi tastes better than HFCS-sweetened Pepsi. If consumer advocates are looking for a cause that isn't counterproductive, ending sugar protectionism would be a good one.

among the top 50 economic blogs by Bankling.com. Thanks!

Revised and updated papers from the Cato Institute's excellent November conference on "Lessons from the Financial Crisis" are now available online. The lineup includes Anna J. Schwartz, Roger W. Garrison, Gerald P. O'Driscoll, Jr., Kevin Dowd, Jeff Miron, Allan H. Meltzer, Charles W. Calomiris, and my own paper on "Federal Reserve Policy and the Housing Bubble". (Btw I don't remember picking that paper title; in the literature "bubble" often means a self-generating event, and my argument is that the housing boom was Fed-generated.)

The Risky Business Blog has an update on financing, producing, directing, and possible players.

Editorial: I'm down with Jolie as Dagney. But anyone who starred in a movie called Bride Wars should be off the list.

I greatly enjoyed participating in the 2009 Digital Money Forum in London earlier this week, and I learned a lot about the cutting edge in payments technology. Now you can too. Links to the presentations given at the Forum, including the slides accompanying my own historical talk on "Currency 2.0," are now available here. Unfortunately the text of my remarks, which I saved as notes under the slides in Power Point, did not survive the transition to pdf. I'll have to see whether I can get that corrected. In the meantime you can look at the pretty pictures and infer what I might have said!

The Forum was organized by the amiable payments guru Dave Birch. To stay abreast of developments in the field of digital money, read Dave's Digital Money Forum blog.

(1) Practicing Interior Design without a license

(2) Home brewing

(3) Selling beer > 6% alcohol

(4) Sale of sex toys*

*Available with a medical Rx. No lie.

Yesterday's cigarette tax hike prompted a number of stories that claimed cigarette sellers increased cigarette prices before the tax increase in order to gain some extra profits before the new tax took effect. Example:

The cigarette excise tax that tobacco companies must pay the federal government rose Wednesday by 61.6 cents per pack, or $6.16 per carton. The tax now comes to about $10.10 per carton, or $1.01 per pack.

But major tobacco companies began incorporating that increase into their prices to wholesalers in March.

Now, if the cigarette sellers could increase prices willy nilly to increase profits then why did they wait until the impending tax hike to do so? Were they just being nice before March?

The real explanation is surely that cigarette buyers increased their demand for cigarettes in anticipation of higher future prices, and given that the short run supply of cigarettes is inelastic, this forced the price upward.

But the idea that poor downtrodden buyers would ever be the cause of price increases instead of evil greedy sellers just doesn't fit the typical journalist's world view.

From an NPR story on the CEO of a small bank that is returning TARP funds:

DePaolo says Signature returned the money for three reasons: Legislation passed Feb. 17 would limit the compensation for salespeople, make it difficult to recruit bankers and cause uncertainty.

"With the new legislation, they changed the rules in the middle of the game," he says. "We didn't know how many more rule changes or legislation would come down, maybe telling banks, 'This is what you can do with your lending. This is what you can do with your clients.'"

Now a snip from a WSJ story "Ford Fears Rivals' Revamps":

Even without a bankruptcy, some Ford officials fear that the uncertainty surrounding the car makers over the next few months could keep shoppers from considering a vehicle from a domestic maker.

"I think the Obama announcement is a near-term depressant on auto sales and the economy," said one Ford official Tuesday. "It introduces uncertainty and confusion among most consumers. And it's the uncertainty that's driving consumers into the cave."

Here's a Tyler Cowen commentary on uncertainty.

Tauntaun sleeping bags (HT: Mike Hammock, Marginal Revolution for the "Markets in Everything" concept). Mike is right: my son will have one of these someday.

I keep expecting Mr. Thomps--er, President Obama to announce the Automobile Unification Plan or to see that someone named Cuffy Miegs is now CEO of Chrysler any day now, but the very existence of a Tauntaun sleeping bag renews my optimism for the future.

So sayeth a protestor's sign at the London G-20 meeting. Evidence? I'm sure that the spray paint, signs, and assorted protestor paraphernalia were not products of capitalism. One wonders what possible system of social organization and exchange would make possible the ability of thousands of people to take an entire day off of work in order to protest G-20, and still be able to afford the necessities of life.

Meanwhile, a 17-year-old student, taking part in a protest, wore a balaclava to hide his identity. He described himself as an environmental protester and said things were "going into meltdown." He added: "The whole thing is collapsing. If we can't change things by democratic means then this is the way to go."

Of course, before capitalism this guy would be considered middle-aged. I counter his statement with that of Kent Brockman: "I've said it before and I'll say it again: Democracy simply doesn't work."

And how does a Middle Eastern dessert hide your identity?

P.S. I've been light on the blogging lately since my wife and I contributed to overpopulation on March 16. If I knew enough about the DoL editor, I'd post pics of Michael Patrick Shaughnessy, but for now use your imagination.

The April 1, 1909 reports (I think honestly Perhaps this is an April fools joke):

The noted French bulldog Mareschel Ney II, owned by Lincoln Bartlett of Chicago and valued at $10,000, has died. The dog swallowed some corks thrown to it by children while playing.

Tyler Cowen points to this passage from Matt Yglesias (emphasis added):

Suppose Geithner had asked Congress to appropriate $1 trillion to implement a program of bank nationalization, asset writedowns, and loan guarantees—what would that have accomplished? It certainly wouldn’t have gotten Congress to appropriate $1 trillion to implement a program of bank nationalization, asset writedowns, and loan guarantees. It might have derailed the budget and thrown the political momentum on the Hill to proponents of a neo-Hooverite spending freeze program.

Whatever the merits of trying to spend our way out of the current mess, Yglesias is wrong to invoke Hoover. Hoover did not freeze spending; he was an activitist. Here's Amity Shlaes (The Forgotten Man, p. 91):

Right away [following the stock market crash]--in November 1929--Hoover pushed to expand an existing public buildings program by the healthy sum of $423 million on the theory that the spending would boost the economy. In Washington, builders put up great structures--a new agriculture department, for example.

More Hooverite activism is documented in Steve Horwitz's lecture on the high school history version of the Great Depression; I live blogged it here.

UPDATE: Steve Horwitz lists more Hooverite activism in this post. In the comments to the post, Mario Rizzo points to this document which reports (Table 1.1) that government spending was $3.127B in 1929, $3.32B in 1930, $3.377B in 1931, and $4.659B in 1932. The increase in real terms was probably larger because of deflation.

Here's an excellent take from Mike Hammock. I look forward to discussing it over lunch. "Earth Hour" reminds me of a movement during the California Energy Crisis of 2000/2001: voluntary rolling blackouts, wherein activists across the country were supposed to shut everything off at roughly the same time so that they could reduce the spot price of electricity. Needless to say, it didn't work.

Of course, if enough people had participated in Earth Hour, it would have lowered the spot price of electricity and then given people an incentive to do all of their energy-intensive activity during Earth Hour (note to self: plug in and charge cell phone, laptop, and anything else that's rechargeable during Earth Hour next year). There would be a small dip in consumption, perhaps, but it isn't likely to be that big.

I describe myself as a small-e environmentalist: I like nature, I don't like pollution, and I oppose policies with perverse outcomes (recycling in many manifestations, for example), but a lot of big-E Environmentalism is either silly or counterproductive (or both). The contrarian and Randian in me thinks that a useful protest against Earth Hour might be to have "Mind Hour." Participants in Mind Hour would switch all of their lights on when the world goes dark to symbolize how the mind is the ultimate resource. The mind is the faculty that allows us to fill the Earth and subdue it.

There's a Randian parallel, and here is another setting in which Ayn Rand is (perhaps) prophetic. I won't spoil Atlas Shrugged for those of you who haven't read it, but lights going out is an important part of the book. Further, Rand has numerous discussions of cigarettes as a symbol of man's mind. Particularly for non-smokers, electric lightbulbs are a similar metaphor--and over time, they're likely to bring similar opprobrium.

NPR interviews Liberty Fund Resident Scholar Quentin Taylor on the monetary-political allegory of The Wizard of Oz. Story and audio here, including links to the 1964 essay by Henry Littlefield that lays out the monetary parable.

DOLers know this story well, but at about 4:00 Quentin brilliantly casts today's pols like Pelosi and Palin into roles from the novel. HT: Jason Drubert, a.k.a. "The Reverend Ed," who wonders why no mention of WJB's cross of gold speech.

From Salon, this column by Glenn Greenwald:

There are few things rarer than a major politician doing something that is genuinely courageous and principled, but Jim Webb's impassioned commitment to fundamental prison reform is exactly that. Webb's interest in the issue was prompted by his work as a journalist in 1984, when he wrote about an American citizen who was locked away in a Japanese prison for two years under extremely harsh conditions for nothing more than marijuana possession. After decades of mindless "tough-on-crime" hysteria, an increasingly irrational "drug war," and a sprawling, privatized prison state as brutal as it is counter-productive, America has easily surpassed Japan -- and virtually every other country in the world -- to become what Brown University Professor Glenn Loury recently described as a "a nation of jailers" whose "prison system has grown into a leviathan unmatched in human history." [...] And, most important of all, Webb is addressing head-on one of the principal causes of our insane imprisonment fixation: our aberrational insistence on criminalizing and imprisoning non-violent drug offenders (when we're not doing worse to them). That is an issue most politicians are petrified to get anywhere near, as evidenced just this week by Barack Obama's adolescent, condescending snickering when asked about marijuana legalization, in response to which Obama gave a dismissive answer that Andrew Sullivan accurately deemed "pathetic."

Greenwald quotes at length from Webb's Senate speech (link provided). Here's the first quote:

Let's start with a premise that I don't think a lot of Americans are aware of. We have 5% of the world's population; we have 25% of the world's known prison population. We have an incarceration rate in the United States, the world's greatest democracy, that is five times as high as the average incarceration rate of the rest of the world. There are only two possibilities here: either we have the most evil people on earth living in the United States; or we are doing something dramatically wrong in terms of how we approach the issue of criminal justice.

Then, this on the Public Choice aspects:

It's hard to overstate how politically thankless, and risky, is Webb's pursuit of this issue -- both in general and particularly for Webb. Though there has been some evolution of public opinion on some drug policy issues, there is virtually no meaningful organized constituency for prison reform. ... Moreover, the privatized Prison State is a booming and highly profitable industry, with an army of lobbyists, donations, and other well-funded weapons for targeting candidates who threaten its interests.

The NYU Press (1985) edition of Carl Menger's classic Investigations into the Method of the Social Sciences with Special Reference to Economics (1883), with an introduction by your truly, is now available as a free pdf download, courtesy of the Mises Institute.

From the introduction:

In criticizing the view that such social institutions as law, language, money, and markets were deliberately designed or rationally constructed, Hayek comments that the Investigations "contains still the best earlier treatment of these problems."

HT: Jeff Tucker

From the AJC:

The quest for squeaky-clean dishes has turned some law-abiding people in Spokane into dishwater-detergent smugglers. They are bringing Cascade or Electrasol in from out of state because the eco-friendly varieties required under Washington state law don't work as well. Spokane County became the launch pad last July for the nation's strictest ban on dishwasher detergent made with phosphates, a measure aimed at reducing water pollution. The ban will be expanded statewide in July 2010, the same time similar laws take effect in several other states.

But it's not easy to get sparkling dishes when you go green.

Many people were shocked to find that products like Seventh Generation, Ecover and Trader Joe's left their dishes encrusted with food, smeared with grease and too gross to use without rewashing them by hand. The culprit was hard water, which is mineral-rich and resistant to soap.

As a result, there has been a quiet rush of Spokane-area shoppers heading east on Interstate 90 into Idaho in search of old-school suds.

Real estate agent Patti Marcotte of Spokane stocks up on detergent at a Costco in Coeur d'Alene, Idaho, and doesn't care who knows it.

"Yes, I am a smuggler," she said. "I'm taking my chances because dirty dishes I cannot live with."

(In truth, the ban applies to the sale of phosphate detergent — not its use or possession — so Marcotte is not in any legal trouble.)

Marcotte said she tried every green brand in her dishwasher and found none would remove grease and pieces of food. Everybody she knows buys dishwasher detergent in Idaho, she said.

Steve Marcy, manager of the Costco in Coeur d'Alene, about 10 miles east of the Washington state line, estimated that sales of dishwasher detergent in his store have increased 10 percent. He knows where the customers are coming from.

"I'll joke with them and ask if they are from Spokane," Marcy said. "They say, `Oh yeah.'"

Shoppers can still buy phosphate detergents in Washington state by venturing outside Spokane County, but Idaho is more convenient to many Spokane residents.

[snip]

For his part, Beck has taken to washing his dishes on his machine's pots-and-pans cycle, which takes longer and uses five gallons more water. Beck wonders if that isn't as tough on the environment as phosphates.

"How much is this really costing us?" Beck said. "Aren't we transferring the environmental consequences to something else?"

The last two paragraphs are a great example of Sowell's maxim that there are not solutions, just trade-offs. Not only do people use more water in their dishwashers but the extra trips to Idaho burn gas, increase road congestion, etc.

Today's Wall St. Journal has an interesting symposium on whether the Greenspan Fed caused the housing bubble, following John Taylor's op-ed indictment and Greenspan's self-defense.

Here's my and my colleague David Rose's take on Greenspan versus Taylor, in an unpublished letter we emailed to the WSJ on 11 March:

Alan Greenspan’s non mea culpa (“The Fed Didn’t Cause the Housing Bubble, March 11) is unpersuasive. Greenspan tries to blame the housing bubble entirely on a global savings glut causing a decline in long-term interest rates. He deems irrelevant his pushing down and holding short-term rates to historic lows during 2001-2006, on the grounds that a house’s price should be based on discounting its future housing services at 30-year rates only. Not so. House buyers can borrow at one-year rates through an Adjustable Rate Mortgage. Greenspan himself has elsewhere acknowledged that because he pushed one-year rates farther below 30-year rates, the share of adjustable-rate mortgages rose (indeed it doubled from one-fifth to two-fifths of new mortgages). The demand from new ARM borrowers was critical to fueling the housing boom.

The demand for housing was also augmented by monetary policy through an important second channel that Greenspan neglects to mention: the wealth effect of the economic boom set off by cheap money.

Greenspan’s global-savings-glut theory of the housing boom leaves unexplained why the boom ended when the Fed finally restored short-term rates to sanity. China and other savings suppliers to the US did not, after all, repatriate their savings.

John Taylor’s critique of Fed policy is basically right and Greenspan is basically wrong.

Lawrence H. White
David C. Rose

The authors are professors of economics at the University of Missouri – St. Louis.

Here's George Selgin giving an entertaining account of private token coinage during the Industrial Revolution in England and Wales, the topic of his new book Good Money.

HT: George Selgin

The March 25, 1909 NYT has yet another letter to the editor concerning the laundry industry, this time rising to the defense using the "seen and unseen" argument normally associated with Frederic Bastiat (More from The Law):

The public forgets that laundries perform a service on goods which are not their property, and in case of accident or carelessness the goods must be returned or accounted for, so that the patrons are fully aware of all cases of the kind. In manufacturing plants, on the other hand, if goods are poorly made they are scrapped and no outsider is the wiser. This is the main reason for laundries, as a whole, being looked upon as inefficient and destructive.

The same proportion of mistakes is made by collar and cuff, shirt, ladies waist, vest makers, &c, and as the purchaser seldom examines new goods carefully the laundries are blamed for some things that are plainly the fault of manufactures.

The bleaching of cotton and linen by the goods maker, and again by the garment maker, is not as carefully done as it should be. Most of the life of the fibre is destroyed before the purchase of the article, but the laundry is blamed just the same. Compare a piece of unbleached muslin with a piece of bleached stuff and you will note the difference in strength.

Demand curves slope downward: A queue for "free" ice cream in Macon, GA.

Supply and demand for sperm--surpluses make prices fall.

Dry cleaning services are a normal good. (A similar story from May 2008 is here.)

For your musical enjoyment, a music video calling for Paul Krugman to be Treasury Secretary (needless to say, I don't share the singer's enthusiasm):

The latest issue of the Independent Review has an interesting article by Paul R. Gregory on how the Soviets purged dissident intellectuals. Here's a summary; the full thing will be online for free in six months.

The idea that fixing legacy banks is prerequisite to fixing the broad economy is a lie perpetrated by legacy bankers.

The rest of his post is an interesting mixed bag, and of course we would disagree about the best alternative to Geithner's plan, but Steve Randy Waldman nails it in that line.

The March 24, 1909 NYT prints a letter to the editor supporting the recent push for regulation in....laundries:

The laundry business is one which needs regulating, and the introduction of a bill by Assemblyman Bauman of New York into the Legislature is gratifying, and is supported by the best laundries of Manhattan.

This is the age of sanitation, and every or any measure which benefits public health ought to be supported. Such discussions as you are printing are good for all.

LAUNDRYMAN

The March 24, 1909 NYT has a letter to the editor that starts out in a manner that would make Hayek proud:

The regulation of rates on local [rail] lines should be left to the local lines themselves, as a commission appointed by the Congress at Washington, or the Legislature at Albany, many of whom live at widely separated parts of the country, cannot be supposed to know the local conditions applying to any small community, and all rates for carrying the commodities of that special territory should be regulated according to conditions prevailing therein, and which these men from widely separated parts of the country cannot be expected to know much about.

The letter continues:

Even in the matter of the Public Service commission of the State of New York, we doubt very much if any one member is thoroughly conversant with the situation in his own district, let alone being able to decide questions arising concerning some other part of the State remote from his own home territory.

Unfortunately, after building up a good head of steam, the letter-writer flubs the ending:

What we want on these commissions is to have the men appointed to be experienced and competent transportation men, who know what they are talking about when they take any matter in consideration upon the transportation of freight and passengers within the borders of the State.

I haven't read it yet, but this paper looks important. The abstract:

A group of studies, rapidly gaining popularity, promise that a massive program of government mandates, subsidies, and forced technological interventions will reward the nation with an economy brimming with green jobs. Not only will these jobs allegedly improve the environment, but they will pay well, be very interesting, and foster unionization. These claims are built on 7 myths about economics, forecasting, and technology. Our team of researchers from universities across the nation surveyed this green jobs literature, analyzed its assumptions, and found that the special interest groups promoting the idea of green jobs have embedded dubious assumptions and techniques within their analyses. We found that the prescribed undertaking would lead to restructuring and possibly impoverishing our society. Therefore, our citizens deserve careful analysis and informed public debate about these assumptions and resulting recommendations before our nation can move forward towards a more eco-friendly nation. To do so, we need to expose these myths so that we can see the facts more clearly.

I don't know if the paper raises this point, but much of the green jobs chatter strikes me as the old wine of import substitution (e.g., clear coal or solar for imported petroleum) in new bottles.

In a related note, yesterday's WSJ had an article States Vie for Share of Clean Coal Cash--nothing like a little rent dissipation. A snip:

The Texas political establishment launched a campaign this month to press Energy Secretary Steven Chu to consider funding a project proposed by Summit Power Group for a site near Odessa, in western Texas.

Another clean-coal project by Tenaska Inc. at a site east of Sweetwater, Texas, also is a contender. A power-plant proposal in Mattoon, Ill., which was a showcase project under a failed Bush administration clean-coal program called FutureGen, also is trying to secure financing and is backed by the Illinois congressional delegation.

These plants would be among the most costly power projects ever constructed, more expensive even than nuclear-power plants, per unit of productive capacity. Without massive federal funding, it is unlikely that any of them would move forward. The Department of Energy has yet to detail how it would dole out the money.

HT: Robert Donaldson. I finally got the new disc yesterday and haven't listened to it yet. I look forward to it.

And here they are delivering Letterman's Top 10 List:

I also confess to not really understanding the hullabaloo about these AIG (et al.) bonuses at least not in the context of the times.

I spent the past weekend at Liberty Fund discussing Randy Barnett's important book, Restoring the Lost Constitution: The Presumption of Liberty. Barnett's is a daring project on several levels (get rid of consent as a basis for legitimacy, replace original intent methods with original public meaning, rehabilitate the necessary and proper clause, and resurrect the 9th Amendment en route to a constitutional order with strong judgicial review that presumes liberty first when delineating the government's sphere). But I am left scratching my head on many levels. For example, Barnett emphasizes writtenness of formal rules as the essential characteristic that maintains constitutional integrity over time. While writtenness may be crucial to establishing a reference point for individual liberty vs. state power, it's an empirical truth that written passages do get interpreted differently over time, and that's a general description of where we are today versus where the framers meant to put us. As the book's opening line states, "If judges had done their job this book would not be necessary." Interpretation creep, if you will, is largely determined by the unwritten traits of a constitutional order, the informal institutions that supplement and substitute for formal rules, and the movement of public opinion and our instruments used to gauge it. Writtenness can help (or not) judges to get it right on specific cases, but the overall constitutional order, and the places of liberty and power within it, are informed by the forces of human action in addition to explicit human design. How, then, are we to presume liberty without falling vulnerable to the charge that we simply do according to the imperfect wisdom of the framers who aren't exactly representative---white, male slave holders long since in the grave?

Mario Rizzo's recent post at Think Markets, "In Defense of Reasonable Ideology", gets us somewhere. Answering Keynes, who "believed that one of the most important functions of economics is to determine what belongs to the State’s agenda and what does not," Mario continues:

Keynes is rejecting any presumption that the “results of human action but not of human design” (F. A. Hayek citing Adam Ferguson) are beneficial. He seems to be saying that we can operate without any presumptions at all; we can simply look at each “problem” on its own merits and make an individualized decision in each case. But a presumption is not an arbitrary belief; it is not “metaphysical” in the sense that it is completely impervious to new evidence. A presumption is a belief we accept until sufficient evidence to the contrary is forthcoming.

Mario goes on to defend a scientifically informed ideology, one that first uses our best abilities to understand the world empirically and that second defends the institutional arrangements that the emiprical work shows to benefit society the most. It's not an unyielding position either, because measuring a complex, extended social order is---like government or liberty or popular beliefs---imperfect.

Most people are not scientists, economists or intellectuals. They are not testing hypotheses. They have other things to do. They are often rationally ignorant. How can they make up their minds about public policy? Many, though not all, are ideological. They choose a set or complex of beliefs that comports best with their observations and experience. For them too it is not rational to give up the world view because some (few) observations seem to conflict. Forgive some of them who are not willing to throw away long-held beliefs on the say-so of a president who is someone most never heard of eighteen months ago.

In short, the argument for marekts is neither an unfounded nor an unyielding belief. It is firstly informed by economic science. And to the best of economic knowledge, society benefits the most when government is limited and markets are allowed to flourish. How do we know? Don't ask macroeconomics, there are only macroeconomists left.

Instead, ask a man who for 50 years has sought emprical truth through the lens of microeconomists, "a solid empiricist genuinely in search of answers." The Wall Street Journal's weekend interview is Mary Anastasia O'Grady interviewing Gary Becker at the Mont Pelerin Society meetings last weekend in New York.

As a young academic in 1956, Mr. Becker wrote an important paper against conscription. He was discouraged from publishing it because, at the time, the popular view was that the military draft could never be abolished. Of course it was, and looking back, he says, "that taught me a lesson." Today as Washington appears unstoppable in its quest for more power and lovers of liberty are accused of tilting at windmills, he says it is no time to concede.

What Mr. Becker has seen over a career spanning more than five decades is that free markets are good for human progress. And at a time when increasing government intervention in the economy is all the rage, he insists that economic liberals must not withdraw from the debate simply because their cause, for now, appears quixotic.

The presumption of liberty is best for society. Call that ideology if you like. But dig deeper and you'll see it's actually more scientific conviction. The current tide of public opinion and government action, rushing away from the shores of our constitutional framers, is all the more reason to do economics and---as Hayek said---to save the ideas.

Here is video of Kevin's talk, delivered on Tuesday as the Chris Tame Memorial Lecture for the UK's Libertarian Alliance. I highly recommend it for content if not cinematography. The skippable introduction of the speaker lasts 7:05. The entire video including Q&A lasts 1:16:37

UPDATE: If you'd rather read a summary of Dowd's lecture rather than listen to it, Johnathan Pearce of Samizdata provides one.

ADDENDUM: Reason.tv briefly interviews John B. Taylor on the crisis here.

At the kind invitation of Dave Birch, I will be giving the leadoff talk (“Currency 2.0”) at the Digital Money Forum in London on 31 March. In connection with that event, I inquired at the Institute of Economic Affairs, publishers of the 2nd edition of my Free Banking in Britain, whether they might not like to unload some of their unsold book stock at the Forum. Turns out they didn’t have any. Now they’ve heroically made the title available again, not only as hard copy for £10 through print-on-demand, but also as a free PDF download (13.55MB). Details and download access here.

ADDENDUM: Adam Myers, Director of Marketing at the IEA, informs me that the print version is available in bulk for classroom use at £4 per copy. Bargain!

I've spent the week teaching at an IHS seminar in Atlanta (a fun week--great students, faculty, and IHS staffers). Tonight we have a guest lecture from Steve Horwitz (prof at St. Lawrence U and blogger at The Austrian Economists). I can't type nearly as fast as Steve talks, but I'm going to have a go at live blogging it.

Steve's talk is an analysis of the high school history version of the Great Depression and argues that the following 4 points are incorrect:
--Laissez faire caused the stock mkt crash and the Great Depression
--Hoover was committed to laissez-faire and did nothing while things collapsed
--FDR and the New Deal saved us from disaster
--WWII finished the job and got us out completely

Note that the Fed is nowhere present in the h.s. history version of the Great Depression.

A quick review of money, inflation, and prices: Inflation is "too much" money and results in rising prices and artificially low interest rates that lead to a false boom (a la Austrian bus cycle theory). Deflation is "too little" money leading to reduced consumption and falling prices (sticky prices result in temporary surpluses, inventory accumulation, etc.). Of course, wages and prices also reflect changes in productivity.

Understanding the 1920s helps understand the stock market crash: Austrians argue the 20s were an inflationary boom. Rising productivity offset rising prices, concealing them in a mostly stable price level. The boom is unsustainable and the stock market crash is a symptom of the bust that started the previous summer.

Contra pop history, Herbert Hoover did not sit idly by in 1929-1933. Unemployment was as high as 25% in 1933 and was above 9% for the entire decade of the 30s. Another big feature was bank failures; over 8,000 of 25,000 banks failed in 1930-33 (6 banks per day). Most were small, "unit" banks as a result of anti-branching regulation. Contrast to only 1 bank failing in Canada where branching was allowed. Massive deflation of the money supply--30% drop was allowed by the Fed--a massive screw up.

Hoover makes matters worse. His history is as an intervener. [EFS--Amity Shlaes The Forgotten Man speaks to this pt.] He signed the Smoot-Hawley tariff in 1930 and followed a "high wage" or purchasing power policy. Hoover believed high wages caused prosperity, not vice versa. [EFS--"living wage" advocates are you listening?] Collaboration with industrial leaders causes massive unemployment. Productivity real wages rose in the early 30s instead of falling to clear the unemployment in the labor market.

Hoover's new deal:
--reconstruction finance corp.
--home loan bank
--public works admin
--weakens competition in natural resource use
--loans to states
--ease bankruptcy laws
--revenue act of 1932 hikes taxes

[EFS--Use Kevin Grier voice here: Holy crap people! No laissez-faire going on with Hoover.]

New Deal under Roosevelt--the first 100 days:
--banking act of 33
--fdic/fslic
--fed farm mortgage corp
--sec
--tva
--fed emergency relief act (becomes WPA)
--CCC
--AAA
--NIRA

Regime uncetainty from Roosevelt rhethoric and frequently changing policy impeded recovery and led to decreasing investment. Discusses evidence from Higgs; destruction of hogs and cotton crops; and cartel pricing with NIRA.

So what did bring the end? Drafting millions of people reduces unemployment. Wars are destruction, not growth so GDP growth is misleading. Wartime controls make wartime data questionable. [EFS--There's an Econtalk podcast with Higgs that discusses these points.] Consumption and investment decline during the war; consumption does not recover until 1946.

Students clap. Thanks Steve. More info here.

TCS daily has announced the video equivalent of an essay contest. It will split $4000 among the three best videos, uploaded to its YouTube group before 11:59 PM on May 14, 2009, illustrating the theme "free market capitalism is the best path to prosperity." (For unknown reasons they identify this idea with Larry Kudlow.)

Here's today's offering from Mike Lester of the Rome News-Tribune.

Americans have cut back on buying vehicles of all types as the economy continues its slide. But the slowdown has been particularly brutal for hybrids, which use electricity and gasoline as power sources. They were the industry's darling just last summer, but sales have collapsed as consumers refuse to pay a premium for a fuel-efficient vehicle now that the average price of a gallon of gasoline nationally has slipped below $2.

"When gas prices came down, the priority of buying a hybrid fell off quite quickly," said Wes Brown, a partner at Los Angeles-based market research firm Iceology. "Yet even as consumer interest declined, the manufacturers have continued to pump them out."

Last month, only 15,144 hybrids sold nationwide, down almost two-thirds from April, when the segment's sales peaked and gas averaged $3.57 a gallon. That's far larger than the drop in industry sales for the period and scarcely a better showing than January, when hybrid sales were at their lowest since early 2005.

Source.

I have a classic Nerf basketball set in my office. It's only fun when playing from my chair. But rebounding is a chore when the ball goes in--sometimes I even have to get up. What is my problem? And what is your proposed solution? Comments are open or email me.

Stephen Moore says that it's the 70s and not the 30s that we should be worried about repeating:

What are the lessons of the 1970s? That price controls, profits taxes, high inflation, high tax rates, reregulation, a reckless monetary policy, and out-of-control spending can ruin the U.S. economy. The '70s produced the worst performance for incomes and wealth than at any other time since the Great Depression. Policy matters and policy mistakes can lead to grievous misery for American families and businesses. There is someone in the Obama White House or in the Democractic Congress who has proposed the return of every dimwitted and destructive policy of the 1970s. Be warned: if we repeat those mistakes, we will repeat the misery.

In his latest, Brad DeLong forgoes the opportunity to rebut my criticism of his caricatures of Herbert Hoover and Andrew Mellon, but in response to my last paragraph continues to insist on caricaturing the views of Hayek on monetary policy in the Great Depression. He correctly notes that Milton Friedman advanced the same caricature, namely that Hayek and Robbins favored central bank inaction in the face of a huge money stock collapse. The intent of my article“Did Hayek and Robbins Deepen the Great Depression?” (JMCB June 2008; pre-pub version here) was to provide evidence that Hayek’s actual view (which Robbins echoed) was more complex and does not match the do-nothing-to-stabilize-M view that Friedman and DeLong understandably reject. Friedman’s and DeLong’s target should not be Hayek and Robbins, but the Real Bills Doctrine adherents on the Federal Reserve Board at the time.

To reiterate for those joining us late, Hayek’s monetary policy norm for a central bank, clearly stated in his writings, was to stabilize nominal income (MV or PQ in the equation of exchange MV=PQ). A collapse of the money stock M or its velocity V calls for the central bank counteraction to increase M and thereby restore MV. (Steve Horwitz spells this out in his comment on DeLong’s blog entry.)

The story is complicated by the fact that Hayek, as I note in the article, failed to call for M expansion in 1932, and so failed to give timely advice consistent with his own norm. With the price level P and real output Q both falling, it should have been obvious at the time that MV was falling. I also note that Hayek later (1975) owned up to and regretted his failure. This is the germ of truth in the Friedman-DeLong indictment.

Brad DeLong writes:

I think that White's painting of Hayek and Robbins as people who wanted to stabilize MV is completely wrong--it is Ben Bernanke and the inflation targeters who want to stabilize MV, not Hayek and Robbins. If you had asked Hayek back at the time, he would have said that increasing the monetary base from 1929-1933 in order to offset the decline in monetary velocity was the very last thing that he wanted to see done. Stabilizing MV at its 1929 level was not on his or Robbins's agenda by any means.

Painting Hayek and Robbins as people who wanted to stabilize MV is not "completely wrong", nor is it the complete picture, for the reasons stated above. DeLong’s painting of Hayek and Robbins as one-note advocates of doing nothing to offset M collapse commits a serious error of omission.

Technical note: adherence to the gold standard implies that MV cannot be kept at just any arbitrary level. Stabilizing MV at its 1929 level would not have been the right objective.

The only basis for knowing what Hayek "would have said" is to read what he actually wrote. It might help us to understand why DeLong insists on his one-note interpretation of Hayek if he would confront the passages (quoted in my article) where Hayek enunciated the stable-MV norm. Why does DeLong ignore, or how does he explain away, what Hayek actually wrote?

Continued below the fold. Comments are open.

Instapundit points to a piece in the Columbus Dispatch on condom sales:

A conversation with Brian Frank of Undercover Condoms in Hilliard is a day-brightener in the gloomy world of layoffs and bankruptcies.

His business - selling condoms - picks up when times are tough.

"We're doing well," said Frank, vice president of business development for the online company. "There's been some effect from the downturn, but overall we're still growing."

Nationwide, sales of male contraceptives in food, drug and mass-merchandise stores increased 6.4 percent in the last 13 weeks of 2008 compared with 2007, according to the Nielsen Co., which tracks products.

Nielsen also counts how many condoms are sold, and that number went up 2.4percent in the same period.

The trend continued in January, with sales up 5.3 percent compared with the previous year and per-unit sales up 1.6 percent, Nielsen found.

Instapundit also points to interesting pieces on the origin of play-doh and enviros objecting to the "science based" decision to remove gray wolves from the endangered species list.

Debating Keynesianism with Luigi Zingales online at Economist.com, Brad DeLong once again begins his account of the financial crisis with an endogenous event, i.e. an event that itself needs to be accounted for:

What is the crisis? The crisis comes in six stages:

1. American mortgage originators lose $2 trillion due to their irrational exuberance investing in mortgages.

Zingales in rebuttal unfortunately does not challenge but seems to accept the endogenous starting point:

First, since the root of the crisis is the housing market, this is the first place where we should intervene ... [to prevent] inefficient foreclosures.

Otherwise, Zingales is doing a good job pointing out that the Keynesian emperor has no clothes.

Jon Stewart is not an economist, even though his name sounds like two-thirds of John Stuart Mill. So we can forgive him for seeming to suggest, in his lecture to Jim Cramer on Thursday night, that some major part of the responsibility for the financial boom and bust can be pinned on Jim Cramer and CNBC. Yes, they failed to expose the hollowness of the boom. Yes, they failed to provide investigative reporting on Wall Street “shenanigans” like the over-leveraging of investment banks. Yes, Cramer is a buffoon and not a serious source of information. But the boom should not be seen as a bubble self-inflated by over-leveraging and other imprudent or even shady practices.

The over-leveraging was itself a creature of the boom. In a market where house prices only went up, lots of imprudent coin-flipping practices repeatedly came up heads, allowing the bets to be redoubled.

The hollow boom was inflated by expansionary monetary policy, and steered into housing by federal policies for artificially boosting housing finance, particularly the unholy leveraging privileges bestowed on Fannie Mae and Freddie Mac by government guarantees. Stewart did not mention any of these underlying policy causes. I would love to see Stewart bring them up while grilling Alan Greenspan, or Freddie Mac’s best friend Rep. Barney Frank, or former Treasury Secretary Hank Paulson.

My student Shawn Regan explains.

Some quick history--the Cleveland Cavaliers have a feature called "The Diff" on their scoreboard to aid fans who are subtractionally (is that a word?) challenged.

The following statement by Bank of America CEO Ken Lewis suggests that he just might need a Diff of his own:

Nevertheless, he said for every dollar the bank spends in sports marketing, it gets $10 in revenue and $3 in profit.

Normally when one spends $1 and receives $10 in revenue one earns $9 in profit instead of $3. As for the $6 of missing profit, I'm guessing that Lewis must filter his sports marketing dollars through mortgage backed securities.

Isn't it comforting to know that a company led by a chap as capable as Lewis has gotten billions of bailout dollars?

HT: Skip Sauer

UPDATE: I've gotten a few emails about this post suggesting that Lewis means something like "when BofA spends $1 on sports marketing and incurs $6 in related expenses, it receives $10 of revenue and $3 in profit." Certainly possible.

1. "Should We Still Make Things?" from Dissent Magazine. (Aside: What makes you think there's a we?)

2. Free edition of "Economia Internazionale/International Economics."

3. Masonomics---Not Really!

4. The Economics of Place Making Policies by Glaeser and Gottlieb. (Warning .pdf).

5. An appropriate Watchmen review for fanboys (and girls!)

6. Congrats to two excellent young economists!

I am pleased to report that my Freeman article is quoted in George Will's excellent new column on the "magnificent intentions," i.e. the fatal conceit, of the bailouts.

Here's an interesting interview with Karol Boudreaux on TVO's The Agenda with Steve Paikin:

Lant Pritchett argues forcefully that increasing labor mobility will reduce global poverty and points out the moral bankruptcy of immigration restrictions. The entire book is available for free download.

To look at immigration as a moral question, I checked out the Southern Baptist Convention's Ethics and Religious Liberty Commission's essay on immigration, written by Richard Land. Read the whole thing, but notice that Land contradicts himself. He defends charity extended toward illegal immigrants, writing that "(o)ur government should not criminalize private citizens who give a cup of cold water, a hot meal, a warm bed, or medical assistance to those who are in our country illegally." In his view, we should only "criminalize private citizens" who voluntarily trade with "those who are in our country illegally" and therefore help them buy "a cup of cold water, a hot meal, a warm bed, or medical assistance" for themselves.

Restrictions on international labor mobility bear an uncomfortable resemblance to restrictions on African-American migration during the nineteenth century and during the Jim Crow era. Here's a passage recounting a tragic incident from Leon Litwack's North of Slavery, pp. 69-70:

"In southern Ohio, an aroused populace forcibly thwarted an attempt to settle the 518 emancipated slaves of Virginia's John Randolph. Defending that action, an Ohio congressman warned that 'if the test must come and they must resort to force to effect their object, the banks of the Ohio...would be lined with men with muskets on their shoulders to keep off the emancipated slaves.'"

Dave Rose and I have a new op-ed piece on Forbes.com sounding an alarm on the Fed's hugely expansionary recent policy.

My colloquium class this semester is reading Ben Powell's edited volume Making Poor Nations Rich. In class this week, we're covering the Boettke, Coyne, and Leeson chapter on Romania. Thus yesterday's NYT piece on Romania is very timely; a snip:

Alina Lungu, 30, said she did everything necessary to ensure a healthy pregnancy in Romania: she ate organic food, swam daily and bribed her gynecologist with an extra $255 in cash, paid in monthly installments handed over discreetly in white envelopes.

She paid a nurse about $32 extra to guarantee an epidural and even gave about $13 to the orderly to make sure he did not drop the stretcher.

But on the day of her delivery, she said, her gynecologist never arrived. Twelve hours into labor, she was left alone in her room for an hour. A doctor finally appeared and found that the umbilical cord was wrapped twice around her baby’s neck and had nearly suffocated him. He was born blind and deaf and is severely brain damaged.

Now, Alina and her husband, Ionut, despair that the bribes they paid were not enough to prevent the negligence that they say harmed their son, Sebastian. “Doctors are so used to getting bribes in Romania that you now have to pay more in order to even get their attention,” she said.

Romania, a poor Balkan country of 22 million that joined the European Union two years ago, is struggling to shed a culture of corruption that was honed during decades of Communism, when Romanians endured long lines just to get basics like eggs and milk and used bribes to acquire scarce products and services.

Alarm is growing in Brussels that Romania and other recent entrants to the European Union are undermining the bloc’s rule of law. The European Commission, the European Union’s executive body, published a damning report last month criticizing Romania for backtracking on judicial changes necessary to fight corruption. And Transparency International, the Berlin-based anticorruption watchdog, ranked Romania as the second most corrupt country in the 27-member European Union last year, behind neighboring Bulgaria.

HT: Shawn Regan

From an excellent piece by Ed Glaeser:

"Living surrounded by concrete is actually pretty green. Living surrounded by trees is not."

"The policy prescription that follows from this is that environmentalists should be championing the growth of more and taller skyscrapers. Every new crane in New York City means less low-density development. The environmental ideal should be an apartment in downtown San Francisco, not a ranch in Marin County.

"Of course, many environmentalists will still prefer to take their cue from Henry David Thoreau, who advocated living alone in the woods. They would do well to remember that Thoreau, in a sloppy chowder-cooking moment, burned down 300 acres of prime Concord woodland. Few Boston merchants did as much environmental harm, which suggests that if you want to take good care of the environment, stay away from it and live in cities."

Bob Murphy and Steve Horwitz have been valiantly challenging Brad DeLong’s attempt to misrepresent Herbert Hoover’s policies as “liquidationist”.

I have a few things to add. (It would be pointless to try to add them as comments on DeLong’s blog, because DeLong notoriously deletes or "edits" posts that challenge his views.)

In response to Murphy and Horwitz, DeLong writes:

In a thumbnail, Herbert Hoover was a Keynesian avant le lettre with his heart but a liquidationist in his head. Hoover wished that he could do something to alleviate the Great Depression, but his head would not. … Hoover was eager to use government's powers to cushion--note not cure--the Great Depression.

This acknowledgement of Hoover as at least having proto-Keynesianism in his heart, and being eager to use government’s powers, represents a welcome major shift from DeLong’s prior position, which was that Hoover was a liquidationist through and through.

De Long continues:

The policies advocated by Mellon were the views that ruled the policies of the Hoover administration. Because Hoover kept Mellon as his Treasury Secretary and followed his led [sic], Hoover did not: • nationalize any banks. • rescue any bank depositor businesses whose accounts are now frozen. • abandon the gold standard to expand the money supply. • do anything else to expand the money supply. • abandon the balanced-budget principle as a constraint on relief spending.

... But as long as he kept Andrew Mellon on as Treasury Secretary, Hoover could do none of the things--nationalizing banks, rescuing depositors whose accounts were frozen, abandoning the gold standard to expand the money supply, other forms of "quantitative easing," deficit-financed relief expenditures, or indeed deficit-financed expenditures of any kind--that might have actually helped enough to matter.

Let’s consider this five-point list and the subsequent add-ons.

• Neither did FDR nationalize banks. Is that evidence that FDR was a liquidationist?

• What is meant by “now frozen” businesses accounts? Does this refer to businesses that lost their deposits in bank failures? Did FDR rescue such businesses? Rescuing them is, in any case, orthogonal to expanding the money supply.

• True, Hoover did not abandon the gold standard. But he didn’t need to – the Fed had plenty of room to expand the monetary base to stabilize M1 or M2 if it had wanted to. Unfortunately it wasn’t tracking such aggregates. Concern with the money supply as such was not even on the table. The Fed’s focus was on credit conditions, which (under the influence of the Real Bills Doctrine) it misread as sufficiently easy because nominal interest rates were low. The principal blame lies with the Fed, not with Hoover. DeLong appears to be innocent of the influence of the Real Bills Doctrine.

• The Fed did do something else to expand the money supply: it cut the discount rate after the market crash in 1929. The cut came at the urging of Andrew Mellon, who as Treasury Secretary was an ex officio member of the Board of Governors. Mellon also voted for subsequent cuts. DeLong simply overlooks these facts, which he should be aware of, as though he is blind to any evidence that conflicts with regarding Mellon as a die-hard liquidationist.

• Hoover did something else: he created the Reconstruction Finance Corporation to bail out troubled banks.

• Hoover did engage in deficit-finance relief expenditures. And Mellon supported the effort. Federal spending rose under Hoover, most of the increase deficit financed.

Regarding Mellon, let me quote my own earlier post, summarizing the evidence in my JMCB paper (published version in the June 2008 issue):

Mellon’s views were not those of a one-formula liquidationist. As an ex-officio member of the Federal Reserve Board, he successfully urged the central bank to cut its discount rate after the stock market crash in October 1929, and supported subsequent rate cuts. In November 1929 he recommended tax cuts to stimulate the economy. He supported Hoover’s proposal to increase federal construction spending. … Mellon – wisely or not – supported the Administration’s initiative to create a National Credit Corporation, and its successor the Reconstruction Finance Corporation, to lend billions to illiquid banks.

As Bob Murphy notes, in recent remarks available online, DeLong cites Milton Friedman's critique of what Friedman took to be the LSE-Austrian view of the early 1930s, that government shouldn't do anything to interfere with the recession running its course. Here DeLong acts as though he is unaware (though elsewhere he has indicating having read my paper) that Hayek's and Robbins' monetary policy norm was not that the central bank should let a deflationary monetary contraction procede. Rather, the central bank should stabilize nominal income MV, meaning expand M to offset a drop in V, and expand the monetary base to offset a drop in the money multiplier.

I have enabled comments in case Brad DeLong wishes to respond. And I promise not to edit his comments.

From today's Rome News-Tribune:

The economic slowdown in recent months has had more people pinching pennies wherever they can. That trend has kept shoe repairmen and pawn shops busy.

Here's a previous entry on Miller beer; here's a similar article on Spam, my favorite example of an inferior good. (A personal Spam story: My first semester teaching I must have belabored the example of Spam as an inferior good b/c at the end of the semester a student gave me a Spam t-shirt. The student, if I remember correctly, was the daughter of (in?)famous professor Stanley Fish who was then at Duke.)

A la Chuck Norris, comes the Top Ten Facts About Kevin Murphy.

Be sure to click on the honorable mentions. My favorite is:

"Kevin Murphy does not need compensated demand. He just demands that you compensate him."

Here's an interesting paper on the big runup in food prices in the last few years. The ultimate impact of the negative institutional/political changes emanating from US/EU biofuel policies remains to be seen. Here's the abstract:

"The rapid rise in food prices has been a burden on the poor in developing countries, who spend roughly half of their household incomes on food. This paper examines the factors behind the rapid increase in internationally traded food prices since 2002 and estimates the contribution of various factors such as the increased production of biofuels from food grains and oilseeds, the weak dollar, and the increase in food production costs due to higher energy prices. It concludes that the most important factor was the large increase in biofuels production in the U.S. and the EU. Without these increases, global wheat and maize stocks would not have declined appreciably, oilseed prices would not have tripled, and price increases due to other factors, such as droughts, would have been more moderate. Recent export bans and speculative activities would probably not have occurred because they were largely responses to rising prices. While it is difficult to compare the results of this study with those of other studies due to differences in methodologies, time periods and prices considered, many other studies have also recognized biofuels production as a major driver of food prices. The contribution of biofuels to the rise in food prices raises an important policy issue, since much of the increase was due to EU and U.S. government policies that provided incentives to biofuels production, and biofuels policies which subsidize production need to be reconsidered in light of their impact on food prices."

Email has piled up recently, so I'm moving toward Inbox Zero this morning. Part of the task includes going through my SSRN Working Paper Series updates. Here are some papers that caught my eye.

"Employment Laws in Developing Countries" (Simeon Djankov and Rita Ramalho); Fee download.

"We survey the research on the effect of employment laws in developing countries, using papers published since 2004. The survey is further supported by cross-country correlation analyses. Both exercises show that developing countries with rigid employment laws tend to have larger informal sectors and higher unemployment, especially among young workers. A number of countries, especially in Eastern Europe and West Africa, have recently undergone significant reforms to make employment laws more flexible. Conversely, several countries in Latin America have made employment laws more rigid. These reforms are larger in magnitude than any reforms in developed countries and their study can produce new insights on the benefits of labor regulation."

"History Without Evidence: Latin American Inequality Since 1491" (Jeffrey G. Williamson, NBER Working Paper No. 14766). Fee download.

"Most analysts of the modern Latin American economy hold to a pessimistic belief in historical persistence - they believe that Latin America has always had very high levels of inequality, suggesting it will be hard for modern social policy to create a more egalitarian society. This paper argues that this conclusion is not supported by what little evidence we have. The persistence view is based on an historical literature which has made little or no effort to be comparative. Modern analysts see a more unequal Latin America compared with Asia and the rich post-industrial nations and then assume that this must always have been true. Indeed, some have argued that high inequality appeared very early in the post-conquest Americas, and that this fact supported rent-seeking and anti-growth institutions which help explain the disappointing growth performance we observe there even today. This paper argues to the contrary. Compared with the rest of the world, inequality was not high in pre-conquest 1491, nor was it high in the postconquest decades following 1492. Indeed, it was not even high in the mid-19th century just prior Latin America's belle époque. It only became high thereafter. Historical persistence in Latin American inequality is a myth."

"In Search of Microjustice: Five Basic Elements of a Dispute System" (Maurits Barendrecht). Free Download.

"This paper integrates findings from legal needs studies, institutional economics, and interdisciplinary conflict research to develop a framework for analyzing dispute systems. Five essential tasks that a dispute system facilitates are identified and the basic technologies for supplying them. Complementarities between these five types of services are discussed, as well as common elements of dispute systems that may be useful add-ons, but do not seem to belong to the essential core.

"Establishing the necessary and sufficient elements of a dispute system leads to useful insights about the place of dispute services such as mediation, lawyers, and courts in the broader institutional setting of a dispute system. The framework is also a contribution to the emerging discipline of dispute system design. The framework can be a tool for evaluating existing dispute systems, and for developing innovative, affordable and sustainable access to justice (microjustice)."

"Lessons from the Laureates" (William Breit and Barry T. Hirsch). Free Download.

"This paper uses as source material twenty-three autobiographical essays by Nobel economists presented since 1984 at Trinity University (San Antonio, Texas) and published in Lives of the Laureates (MIT Press). A goal of the lecture series is to enhance understanding of the link between biography and the development of modern economic thought. We explore this link and identify common themes in the essays, relying heavily on the words of the laureates. Common themes include the importance of real-world events coupled with a desire for rigor and relevance, the critical influence of teachers, the necessity of scholarly interaction, and the role of luck or happenstance. Most of the laureates view their research program not as one planned in advance but one that evolved via the marketplace for ideas."

Love the scrollover: "Association doesn't imply causation, but it does waggle its eyebrows suggestively and gesture furtively while mouthing 'look over there'."

Either UPS or the Memphis Commercial Appeal is being refreshingly frank. Here's a quote from an article on the FAA Reauthorization Act, which would make it easier for unions to organize at FedEx:

"The Teamsters have unsuccessfully attempted to organize FedEx for many years. UPS, whose drivers are largely represented by the Teamsters, supports the language because it would increase FedEx expenses and make it less competitive."

Of course, our local legislator opposes it for predictable reasons:

"'The No. 1 industry in my town has problems with this bill,' Cohen said. 'I believe the law is clear and has been enunciated by courts throughout this land ... that Federal Express belongs under the Railway Labor Act.'"

It's actually a very interesting read. Here's the link: http://www.commercialappeal.com/news/2009/mar/05/house-bill-would-open-fedex-unionization/

The Atlas Economic Research Foundation has announced the launch of its Sound Money Project. Given their excellent list of recommended readings (thanks to Leonard Liggio), I’d have to say that they’re off to a fine start. If you represent a think tank or research project related to sound money, participate in the brief survey to let them know what you’re doing and thinking. Atlas will later issue a Request for Proposals for research that they will consider helping to fund.

That's the title of a Mises.org article by my student Shawn Regan. Kudos Shawn.

Here's a lecture by David Hart on "Class Theories Before Karl Marx." He makes the important point that while the Marxist elements of Marxism are incorrect, Marxism asks the right questions.

William Easterly offers an interesting post (with compelling visuals) on the relationship between respect for individuals and prosperity. High regard for individuals (as distinct from collectives) is highly correlated with democratic institutions and with development. Easterly addresses the causal question, arguing that culture is the product of deep-seated long-run factors (I oversimplify his simplification, but it's close enough for a blog post). We just started studying the Industrial Revolution in Classical & Marxian Political Economy, and students are working on a research paper about why some people are very rich while other people are very poor. I'm very sympathetic to the argument Easterly discusses and summarizes.

On a related note, I read Ludwig von Mises's essay "The Idea of Liberty is Western" yesterday, and I think it contributes to Deirdre McCloskey's broader program about the rhetorical foundations of prosperity. Mises notes that for all the inexcusable crimes of Western civilization, the idea of individual autonomy, which appears in embryonic form in the writing of the ancient Greeks and which flowers fully in the European liberal movement of eighteenth and nineteenth centuries, is what sets the western tradition apart from the others. It is true that European nobles spent centuries "perfecting the fine art of hacking one another to pieces," to borrow a phrase from Joel Mokyr, but for all its imperfections schooling in the classics was part of the elites' upbringing. To (over)simplify, the emergence from the Dark Ages was a long, bloody experiment in social organization. Finally, in the century or so between the Glorious Revolution and the publication of The Wealth of Nations, Europeans started getting things right.

I'm not a philosopher, linguist, or cultural historian, so my perspective is admittedly limited. If anyone can direct me to good sources on the idea of liberty in eastern philosophy, I would be grateful.

After reading Bryan Caplan's post on chapter 7 of Murray Rothbard's For a New Liberty, I decided to go ahead and read this paper by Lant Pritchett and Martina Viarengo (I think I got the tip to this paper from an earlier Econlog post, but I can't find the link). They argue that, in spite of ample evidence that private provision is superior to public provision and no evidence that public provision is superior to private provision, governments generally tend to produce education instead of relying on private suppliers. I found this particularly interesting in light of our discussions of Adam Smith and Karl Marx on education in Classical & Marxian Political Economy and my recent experience judging one of the "dramatic interpretation" competitions at a forensics tournament for homeschoolers. In The Communist Manifesto, state-provided and state-controlled education is part of the articulated logic of Marx's revolutionary program.

Pritchett and Viarengo argue that government schools exist to produce not just values-neutral skills like literacy and mathematical competence, but beliefs and values. In other words, governments have a stake in controlling schools for the same reason they have a stake in controlling media: socialization and inculcation of regime-friendly values.

Their new wrinkle is that they expand conventional models of schooling supply and demand to include provision of beliefs in addition to skills. As evidence, they cite the prevalence of religious schools as the alternative to government schools. Both governments and religious organizations "are willing to subsidize skill acquisition in order to link it with socialization and the inculcation of belief" (p. 8). They argue that while it might be easy to measure the acquisition of skills, it is difficult to accurately measure the degree to which people have acquired beliefs because consumers could contract for "insincere instruction" (pp. 9-10) One can be taught to say prayers, to pledge allegiance to the flag, or to recite the Gettysburg address without actually absorbing the beliefs these activities represent. The ability to recite the Pledge of Allegiance is not a credible signal that one in fact feels a sense of allegiance to the republic for which it stands.

They posit the existence of a "regime" with preferences that can be modeled; I think an interesting next step for the paper would be to introduce a theory of the polity that examines how sensitive the regime's objective function is different decision-making institutions and initial conditions. Casual empricism and my experience with American schools suggests that the key problem is common ownership with multiple parties claiming the legitimate right to be "the regime." The ideological commitments of the polity should then determine the degree to which regime-ownership is contested. For example, the Christian Coalition and Americans United for Separation of Church and State are likely to have irreconcilable differences about the form and function of education, particularly if that education is financed or provided by the state.

I think this is an important contribution to the literature on positive political economy. I look forward to seeing how this project evolves and how it contributes to Dan Klein's project on "The People's Romance."

Kenneth G. Elzinga will give a talk this evening at 7:00 in the McCallum Ballroom at the Rec Center entitled "The Economic Logic of Vertical Price Agreements." Here's the official publicity info.

Lawrence H. White will give a talk on Monday evening at 7:00 in Barret 051 (the library) entitled "Can the Monetary System Regulate Itself?" Here's the official publicity info, and here's his recent article on the financial bailouts.

The Property and Environment Research Center in Bozeman, MT, has a summer-long graduate fellowship program and a week-long colloquium on market environmentalism. Both are paid. Application deadlines are March 15 and 23, respectively. See description and links beneath the fold.

Thoughtful words from William Easterly:

The huge fallibility of human actors makes the case for markets stronger, not weaker. The market itself triggers the corrective actions by both public and private actors when these actors do stupid things, like give too many mortgages to people who were not creditworthy and then try to cover it up with fancy securitization. The collapse of financial markets was a severe wake up call to change this stupid behavior; creative destruction is wiping out firms that made huge mistakes … . Since we recovered from all the previous crises of capitalism, it seems likely we will recover from this one.

HT: Anti-Dismal

My piece in the March Freeman giving a critical account of the US Treasury's and Federal Reserve's bailouts of financial institutions, "See the Needle and the Damage Done," is now online here.

HT: Don Boudreaux

First they came for pot. Then they came for cigarettes. Then they came for fatty foods.

So says David Colander of Middlebury.

UPDATE: Mark Perry points to an NPR story on the growing popularity of the economics major.

Does modern capitalism sap us of all our creative and intellectual energies, leaving us alienated and demoralized? You be the judge. Here's a recent transaction that took place on Facebook:

1. A friend I haven't seen in a few years posts a graph of national debt as percentage of GDP since 1950 and *waits for Art to describe what's wrong with this graph*. He's not an economist, but if I recall correctly he has a Grammy.

2. I look at the graph and remember something I read in one of McCloskey's "Bourgeois Era" books about British debt. Not merely content to say "I think I've read that British debt in the early 19th century was twice British GDP," I'm able to download a .doc version of the book and with the use of the ctrl+f command, I'm able to produce a quote complete with a page reference for context.

3. I then use Moveable Type to write a short blog post about it before returning to my regularly-scheduled work. Google helps me find some of the things I want to link to. I'm able to strengthen a weak tie with a friend and contribute truth to the universe. I'm able to do all of this in the course of a few minutes without leaving my office.

All of this owes much to the entrepreneurial endeavors and ingenuity of Bill Gates, Steve Jobs, Michael Dell, Larry Page, Sergey Brin, and Mark Zuckerberg. The great irony is that all else equal, all four will probably be remembered by history as the great villains of the early 21st century.

Today I travel to New York for the Eastern Economic Association, where the luncheon address is by Paul Krugman and the evening plenary is by Joseph Stiglitz. I hope I make it to the Stiglitz lecture, but I might find myself at the Waldorf Astoria for Fox Business Happy Hour. Cody is hard core.

Here’s the top headline on this morning’s print edition of the St. Louis Post-Dispatch:

Nearly 1 million need food aid in Missouri

The word “need” is normative, not factual. It imparts a definite bias. It prompts the reader to think, “Oh, those poor unfortunate souls.” The facts reported in the story, about the statistics for January 2009, warrant a different headline:

Nearly 1 million received food aid in Missouri

It has a different normative connotation, doesn’t it?

P. S. The newspaper takes a factual approach in the headline it has put on the very same article’s online version:

More Missourians than ever sign up for food stamps

We finish reading Marx in Classical & Marxian Political Economy today, and we move to our discussion of the Industrial Revolution and changes in standards of living on Tuesday. In addition to the links below, I have a few parting thoughts on Marx below the fold (I'm basically live-blogging my class prep this morning).

First, here's a talk in which Steven Pinker argues that this is the most peaceful time in our species' history. He argues against the thesis that modern industrial/commercial society is in some way less harmonious than previous societies.

Here are two legendary talks by Hans Rosling in which he does absolutely incredible things with data using his Gapminder software.

Finally, co-blogger Lawrence H. White will give a lecture on monetary theory at Rhodes on Monday, March 9 at 7:00 PM in Barret 051. Here's a lecture by Professor White on "Gold and Free Market Banking" from the Mises Institute's first conference in 1983. Here (again) is an interview with Professor White's longtime co-author George Selgin on his recent book about private coinage. Comments on Marx are below the fold.

In the spirit of the "Free Beer Tomorrow" sign at your local tavern, the administration promises "No Earmarks Tomorrow" when it comes to the budget.

Here is the Omnibus budget. The "Letters of Certification" identify the pork barrel, er, directed spending, er, earmarks, but, alas, do not reveal the amount of money requested.

The certification letters for Division A (Agriculture) is only 35 megabytes.

Good grief.

An interesting take on economic policy using M.C. Escher's fantastic drawings.

I like this one (Ricardian Equivalence?):

I'm not sure I agree with all of rest, but they provide for interesting thought experiments.

From p. 190 of Are Economists Basically Immoral?, writing on the mid-1980s Pastoral Letter from US Bishops concerned about the direction of the American economy:

"Voluntary actions move the world slowly and, from the global perspective, imperceptibly. Those who want to be sure of changing the cousrse of history must gain command of governments and armies? What are the concrete achievements of even Mother Teresa when laid alongside the differences made to the world by Stalin, Hitler, Mao, or almost any ruler of the most minor state in the United Nations? The contemporary turn to government for the solution of all problems is not some kind of neurosis; it reflects an accurate judgment about where social power is concentrated today."

When you have a hammer (or drafts of future volumes in McCloskey's "Bourgeois Era" series), everything looks like a nail. Here's James Lileks on disturbing statements about childbirth and the environment (HT: Russ Roberts at Cafe Hayek). Here's the obligatory "gotcha" line, which scores rhetorical points while also carrying the narrative to its logical conclusion:

"It is heartening to think that encouraging the government to tell parents to abort #3 for the sake the environment is still too controversial."

This calls to mind a classic thought experiment that I've borrowed when talking about whether there are limits to economic growth. If the world is "overpopulated," i.e., if there are too many people, then who should we get rid of? What qualifies you to make that decision?

More concretely: on Sunday evening, we had friends over for dinner. Their daughter is a couple of weeks older than our son. Would the world be a better place if one of the two hadn't been born? In what ways? How do you know? On what grounds do you assume the right to be consulted regarding who lives, who dies, and whether your neighbors are allowed to reproduce? If the answer is "unpriced externalities," then how large are they? What are the specific transaction costs that prevent efficient Coasean bargains?

Note that these are questions that come up over the course of the discussion rather than bullying and badgering on my part. The economic way of thinking about the environment tells us that these are the questions that we have to answer before we can make so bold a statement as "there are too many people."

I tell my students that my recent foray into fatherhood has made me a better person and a better economist. For more, here are some notes on Julian Simon. Here's Bryan Caplan on having more kids--and congratulations to Bryan, by the way, on the imminent arrival of another baby Caplan.

Radley Balko has gained some notoreity around the blogosphere for documenting rights violations by police departments conducting military-style drug raids under cover of night. Today, he offered one of the best blog post titles ever:

"Tearful Atlanta Cops Express Remorse for Shooting 92-Year-Old Kathryn Johnston, Leaving Her to Bleed to Death in Her Own Home While They Planted Drugs in Her Basement, Then Threatening an Informant So He Would Lie to Cover it All Up"

Radley's snarky title basically summarizes the case. Here's the Atlanta Journal-Constitution summary of the sentencing.

This is an atrocity that we should learn from. My view on provision of police services is fundamentally a constrained vision. We don't get things like this because of bad people per se, and we can't fix it by filling the police force with good people per se. The problem is with the incentives in place. No-knock raids, killings, and coverups are predictable responses to the incentives provided by the drug war. Governments are monopoly providers of police services, and they face political rather than economic incentives. It should not be surprising that they behave accordingly. No one is collecting systematic data on this as far as I know, but the quantity and character of the incidents Radley has chronicles suggests to me that there is something more than chance at play here.

Radley also makes an important point that complements some of Deirdre McCloskey's recent work on the bourgeois era. McCloskey argues that a change in rhetoric whereby bourgeois innovation became respectable explains the massive increases in western standards of living since the industrial revolution. It's a provocative (and so far unproven) thesis, but I think it has a lot of merit. Radley points his finger at the last thirty or so years of the war on drugs and argues that the drug war narrative--indeed, "war" metaphor used to describe the attempt to stamp out a capitalist act between consenting adults that some people don't like--is one of the root causes. Here's the economic case against drug prohibition. Here's a really frightening PSA from the 1980s.

HT: Marie Hyunh, Boing-Boing Blog. Cross-posted at The Beacon.

Jerry O'Driscoll in today's Wall St. Journal explains why nationalizing going-concern banks, even temporarily for the sake of recapitalizing or resolving them, is playing with fire. He notes the ways in which the US is not Sweden when it comes to the prospects for resolution through temporary nationalization.

Here's his closing peroration:

Rather than focusing on ways in which we can further involve the government in the financial system, we need to find ways to extricate banks from government's deadly embrace. Banks, at least the behemoths, were public-private partnerships before the crisis. Deposit insurance, access to the Fed's lending, and the implicit (now explicit) government guarantee for banks "too big to fail" all constituted a system of financial corporatism. It must be ended not extended.

The Sir John M. Templeton Fellowships Essay Contest for junior faculty and students in higher education is held every year. The submission deadline is May 1, 2009 . Winners will be announced in October, 2009 . The 2009 Templeton Fellowships will be awarded for the best essay on the topic:

“Only a virtuous people are capable of freedom. As nations become corrupt and vicious, they have more need of masters.”
—Benjamin Franklin

Which virtues contribute the most toward achieving freedom, and how can the institutions of civil society encourage the exercise of those virtues?

Please visit the Guidelines page for more information about how to write your essay.

Awards:
Students

Junior Faculty Members

First Prize: $2,500
Second Prize: $1,500
Third prize: $1,000

First Prize: $10,000
Second Prize: $5,000
Third Prize: $1,500

Deadline: May 1, 2009

The Sir John M. Templeton Fellowships Essay Contest encourages college students and young college professors around the world to study the meaning and significance of economic and personal liberty.

Co-sponsored by the John Templeton Foundation and the Independent Institute, the essay contest honors Sir John M. Templeton and is held annually with a different topic each year.

Created in 1974 by Olive W. Garvey, the Fellowship contest has drawn essay submissions from more than 75 countries on 5 continents. Garvey winners have since become some of the finest of scholars, business and civic leaders, and journalists, applying and advancing public knowledge and appreciation around the world for the ideas of individual liberty and personal responsibility.

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My econ 101 students have an exam on Thursday, and the Memphis Commercial Appeal editorialized this morning in favor of a regulation that will require "recreational boaters and swimmers who venture outside designated areas to wear life vests." They write that "(l)ives are sure to be saved." A rough draft of a possible exam question:

The Corps of Engineers is requiring recreational boaters and swimmers on certain parts of four lakes in North Mississippi to wear life jackets. The Memphis Commercial appeal claims that "(l)ives are sure to be saved over the next three years." Is this true, false, or uncertain? Explain your answer using the key elements of economics we have developed in class.

Gavin Kennedy offers a clear, succinct, and enlightening discussion of Smith's value theory in response to an earlier post here. In the post he mentions that he is working on a paper about Smith's value theory; it's a paper I look forward to reading. While I claim that Smith has a labor theory of value that lays the foundation for Marx, Kennedy offers a reading of Smith's theory of value that would suggest a correct, subjectivist theory of value whereby value is only realized in exchange.

Prepping for Classical & Marxian Political Economy has been difficult, time-consuming, and rewarding. In addition to the readings I've assigned for my students, I've been reading enormous, unfinished treatises on the history of economic thought. The first is Murray Rothbard's two-volume Austrian Perspective on the History of Economic Thought. This was originally supposed to be a three-volume set, but Rothbard was unable to finish it before he passed away. The second is Joseph Schumpeter's almost 1300 page History of Economic Analysis. Both are breathtakingly detailed (as one might expect from over two thousand pages of historical intellectual analysis), and they offer nuanced, provocative discussions of the history of the discipline. A few notes on Schumpeter's treatment of Marx and ideology are below fold.

Not quite, but the AIER Summer Fellowship Program is a pretty close substitute. I spent several very productive weeks at AIER last summer, and I highly recommend it for students and professors looking for a place to get some serious work done this summer. It's a great deal for students especially because in addition to the classes you will take, you'll spend time enjoying meals, movies, seminars, and more with your colleagues and with visiting faculty.

An interesting visual depiction of how CDOs work. I am not sure I buy the implied predatory lending, I think there were just as many predatory borrowers. After all, are we to imagine that mortgage brokers had a monopoly on "greed"?

I just ordered a few Snuggies. I didn't know the product existed until a few minutes ago. Thanks, Freakonomics!

So does advanced capitalism rob us of our creative, human powers? Check out the fruits of this YouTube search for "Snuggie" and decide for yourself.

... Peter Morici who, in a recent letter to the WSJ, claimed that "the U.S. open trade policy with China has made many Americans victims." Here's my response in today's WSJ:

Peter Morici (Letters, Feb. 11) asserts that "U.S. open trade policy with China has made many Americans victims." Perhaps, but research by the University of Chicago's Christian Broda and John Romalis suggests otherwise. Profs. Broda and Romalis find that imports from China have been tremendously beneficial for American consumers, especially low-income consumers who spend more of their income on goods, such as food and clothing, that are affected by trade.

As a result, Profs. Broda and Romalis estimate that from 1994 to 2005 the poorest 10% of consumers experienced inflation six percentage points below the inflation experienced by the highest-earning 10% of consumers.

Here's more on the Broda and Romalis study.

Last year one of our students helped me compile the underlined and highlighted passages from Socialism: An Economic and Sociological Analysis. A propos yesterday's notes on Julian Simon, I've put a bunch of interesting and potentially useful quotes below the fold.

This afternoon from 4:30 [note change] to 5 (Central) I’ll be talking about the financial mess and the economy live on Crane Durham’s talk show, “Nothing But Truth,” on American Family Radio. Check for your local AFR Talk station here. If you’re reading this after the fact, a podcast of the show should be available here.

ADDENDUM: The podcast is now available at the above link; my segment takes up the second half hour. Don't miss the listener who asks me about a statement Gustav Cassel made in 1928!

Geographer/social theorist David Harvey offers a complete package of lectures on the first volume of Capital here. I mentioned earlier the blogospheric fisticuffs between Harvey and Brad DeLong, and I'm glad that Professor Harvey's lectures are available online. We start discussing Marx in Classical & Marxian Political Economy tomorrow, and while I want to read The Bearded One as sympathetically as possible, I can't escape the conclusion that the marginalist/subjectivist critique originating with Bohm-Bawerk destroys the entire Marxian system. In fairness to Marx, he derived his erroneous value theory from Adam Smith and David Ricardo, but in fairness to the classical economists, they did not try to build an entire theory of history and social change on so sandy a foundation as the proposition that labor alone is the source of value. As I read Adam Smith, his endorsement of the "obvious and simple system of natural liberty" does not derive from his value theory.

One of my undergraduate professors said that Marx's economics was "stillborn," and the more Marx I read the more I am persuaded that one has to say the same about all that his economics implies--which is to say, his entire system. Nonetheless, my intellectual life is richer as a result of having dealt with Marx in some detail as I've prepared for this semester and for the next few weeks of class. Here, though, is Murray Rothbard's assessment, with which I'm inclined to agree (from p. 433 of Classical Economics):

"Thus, Karl Marx created what seems to the superficial observer to be an impressive, integrated system of thought, explaining the economy, world history, and even the workings of the universe. In reality, he created a veritable tissue of fallacies. Every single nodal point of the theory is wrong and fallacious, and its 'integument'--to use a good Marxian term--is a web of fallacy as well. The Marxian system lies in absolute tatters and ruin; the 'integument' of Marxian theory has 'burst asunder' long before its predicted 'bursting' of the capitalsit system. Far from being a structure of 'scientific' laws, furthermore, the jerry-built structure was constructed and shored up in desperate service to the fanatical and crazed messianic goal of destruction of the division of labour, and indeed of man's very individuality, and to the apocalyptic creation of an allegedly inevitable collectivist world order, an atheized variant of a venerable Christian heresy."

Building on yesterday's post, the complete set of DeLong's commentaries on Marx is below. DeLong has gotten into a bit of an argument with CUNY anthropologist David Harvey about the stimulus. Here's Harvey's first offering, DeLong's critique, and Harvey's reply. For now, here's Brad DeLong.

On Marx the Economist:

On Marx the Political Activist:

On Marx the Moralist-Prophet:

After prepping my notes for Econ 323 (the source of the Adam Smith quotes below), I started grinding down the accumulating pile of stuff in my office. Among said stuff was a set of notes on Julian Simon's The Ultimate Resource 2, which I hadn't read until my first semester at Rhodes but which I would like to integrate into the undergraduate curriculum in some way. I'll be using the notes to update my IHS lecture on the limits to growth for this summer. Notes are below the fold.

David Boaz takes the administration to task.

“To expect, indeed, that the freedom of trade should ever be entirely restored in Great Britain, is as absurd as to expect that an Oceana or Utopia should ever be established in it. Not only the prejudices of the publick, but what is more unconquerable, the private interests of many individuals, irresistibly oppose it. Were the officers of the army to oppose with the same zeal and unanimity any reduction in the number of forces, with which master manufacturers set themselves against every law that is likely to increase the number of their rivals in the home market; were the former to animate their soldiers, in the same manner as the latter enflame their workmen, to attack with violence and outrage the proposers of any such regulation; to attempt to reduce the army would be as dangerous as it has now become to attempt to diminish in any respect the monopoly which our manufacturers have obtained against us. This monopoly has so much increased the number of some particular tribes of them, that, like an overgrown standing army, they have become formidable to the government, and upon many occasions intimidate the legislature. The member of parliament who supports every proposal for strengthening this monopoly, is sure to acquire not only the reputation of understanding trade, but great popularity and influence with an order of men whose numbers and wealth render them of great importance. If he opposes them, on the contrary, and still more if he has authority enough to be able to thwart them, neither the most acknowledged probity, nor the highest rank, nor the greatest publick services can protect him from the most infamous abuse and detraction, from personal insults, nor sometimes from real danger, arising from the insolent outrage of furious and disappointed monopolists.”

Wealth of Nations, 4.2.43, emphasis mine.

Here's Dan Mitchell on Growth (HT: Peter J. Boettke):

Here's Brad DeLong on the relevance of Karl Marx:

"No regulation of commerce can increase the quantity of industry in any society beyond what its capital can maintain. It can only divert a part of it into a direction into which it might not otherwise have gone; and it is by no means certain that this artificial direction is likely to be more advantageous to the society than that into which it would have gone of its own accord."

Wealth of Nations, Book 4, chapter 2, paragraph 3

In Oregon,

Outrage brewing over proposed 1,900% beer tax hike

In Australia,

HOUSEHOLDERS would be charged for each flush under a radical new toilet tax designed to help beat the drought.

Just as the true incidence of a tax depends on the underlying elasticities rather than than the statutory intent, I'm guessing these taxes have a similar incidence. People can be taxed when they drink beer or when they pee it out, though I imagine the Aussie tax will be widely evaded by people relieving themselves outdoors etc.

I have three young children so I have yet to experience the public education system. Supposedly the schools in our county of residence are "good," whatever that means. I think most people are comparing to a border-county's schools, thus "good" might not be saying much. With that, my question is real and I wonder if any DoL readers are willing to offer their insight.

This morning during a visit at Books-a-Million at our local mall I noticed the "School Reading List" section and took a gander. Here are some of the books on the shelf:

There were a few other books, such as the Grapes of Wrath and A Farewell to Arms, but most of them were written by lesser-known or minority authors. While I was pleasantly pleased that these books were (still) on the list, I wonder what the students are being taught they should take from them.

I would lead the discussion of these books in the following way. Each of them shows one or more of the following (not an exhaustive list):

a) the folly of government intervention in the market;
b) the ultimate devolution of "democratic" governments into authoritarianism;
c) the morality of personal rights and personal property rights;
d) the outcomes of ignoring the non-coercion axiom.

Here is my fear of what students are actually taught (this is an outcome of a discussion with my financial adviser, er, wife):

a) government intervention in the market is too often foiled by "greedy" individuals and corporations;
b) the devolution of "democratic" governments is fantasy and cannot happen (after all, we are past 1984 and animals can't really talk);
c) personal rights writ large are not as important as personal rights to specific consumption goods (e.g., health, housing, transportation, clean air, reduced global warming, etc);
d) the non-coercion axiom is a tenet of a crank philosophy that has proved untenable in the U.S. political arena and therefore, consistent with our American Idol/Top Chef/Survivor/Apprentice/Top Model mind set, it is no longer of importance or of being able to contribute to the social debate.

My experience with most of these books has been rather personal (especially Ayn Rand's work, which I came across on my own by accident). However, I do remember reading Animal Farm in (admittedly private) high school and our teacher explicitly pointing out the allegory with Stalinist Russia and, perhaps even more shocking, how repressive and murderous Soviet Russia had been. I wonder if such a discussion can or does happen today?

How about this for "economic stimulus" from the Feb. 12, 1909 NYT:

Every railroad company in the State will be required to publish in all newspapers of every city, town, and village within the State through which its lines operate a schedule of the movement of its passenger trains, if a bill introduced today by Assemblyman Cuvillier becomes a law.

Yes, the government has often felt obligated to intervene in what seem to be otherwise healthy markets.

I wanted to share a Principles of Economics class assignment designed to make the students think more carefully about the concepts of entrepreneurship, opportunity cost and the role of government in society. I cannot be credited with this idea, as I learned of it from another economist at an SEA conference many years ago (and, shamefully, whose name I cannot recall). This assignment is comprised of answering various questions regarding Somerset Maugham's short story, "The Verger." I can send anyone interested an abridged version of the story that I use as a homework assignment. You can contact me here.

The story revolves around a verger (sort of a church custodian) pressured to leave his employment due to his illiteracy, and for his unwillingness to correct it. His despondent demeanor causes him to wander the nearby streets to buy a pack of cigarettes to calm him down. Unfortunately, he can't seem to find a tobacconist anywhere nearby. So he then decides to gamble his meager savings on starting a small tobacco shop in the area that ultimately ends up becoming a chain of shops that generate a tidy stream of profits for him.

The closing paragraphs describe an increduluous banker's reaction upon learning of the (continued) illiteracy of this highly successful business man who is satisfying so many consumers in the neighborhood. "Good God, man, what would you be now had you been able to (read and write)?" With a smile the illiterate man states that he'd still be the modest verger toiling away at his church.

I use this story to illustrate the role of unpredictable serendipity, idiosynchratic market insight among individuals, and a willingness to accept signifiant risk as necessary characteristics of entrepreneurship. In this light I ask my students to consider whether any kind of centralized government entity would have a comparative advantage in exploiting these key characteristics relative to the decentralized collection of individuals voluntarily interacting in society. This question is even more applicable during today's pressure for accepting ever more government intervention into allocating our nation's productive resources.

I get the students to consider what aspects of this scenaraio were foreseeable and which were not. I ask them to consider how nothing spurs an individual's willingness to become an entrepreneur more than a sudden, unexpected and significant decline of one's opportunity costs (that is, when there is nowhere to go but "up"). I then ask them to consider whether government policy, as designed by literate and highly learned men, can adequately be designed and implemented to respond to such ever-changing, unpredictable opportunity costs as well as individuals--even illiterate ones.

It all makes for a good class discussion starter and a nice seque from the usual comparative advantage section of the intro chapter(s) into the section on comparing and contrasting economic systems. I think it makes the potentially dry, conceptual discussion of socialism versus capitalism much more tangible and increases the student's empathy for the individual's perspective in each system.

If you move fast and go here, you can see a clip of me and two of the other LSUS economists (new slogan: twice as many faculty as last year!). It's in the Top News Videos section on the right, currently on page 4, "How will the stimulus package help you and I?" (Check out the Baywaytch-style slow-mo at about 0:42.) Of course, creative editing left in Chris' comment about the multiplier, and left out all of us expressing significant doubts about it being that high (let alone above 1). For the record, I was one of the two out of three advising nothing.

One of my favorite reads of last year was Jim Powell's FDR's Folly. Even though it's currently ranked #832 in books, it doesn't appear to have been read by anyone in DC lately (okay, maybe at Cato, but not by anyone with a finger on a real button). With all of this stimulus fever, I'm tempted to buy this Snorg t-shirt: it combines pithy but economically saavy commentary with greater-than-mild nerdiness.

Brad DeLong argues (briefly and convincingly) that Berkeley should hire aggressively in this year's job market. Why don't they? I think there's a lot to be said for the psych econ/sports econ results suggesting a bias toward inaction, and I think there are institutional forces at work, as well. I read this morning that the same schools who were the subjects of government investigations into their accumulation of ginormous endowments are now bound by rules saying they can't draw down their endowments to cover budget shortfalls or proceed with hiring plans.

Recent blegs have led to some pretty interesting emails. First, a Rhodes alum and former Program Director for the Governor's Books From Birth Foundation emailed detailed information about the Tennessee books program I discussed recently. Apparently, Tennessee is keeping copious data on it and apparently there are a few things that are unique about the Tennessee program. Since Tennessee borders more states than any other, the opportunities for clear identification are numerous.