A Jan 26-27 Gallup poll asked people about economic concepts, including how much we all like socialism:

More than one-third of Americans (36%) have a positive image of "socialism," while 58% have a negative image. Views differ by party and ideology, with a majority of Democrats and liberals saying they have a positive view of socialism, compared to a minority of Republicans and conservatives.

and yet

Americans are almost uniformly positive in their reactions to three terms: small business, free enterprise, and entrepreneurs.

A third of us have a positive view of the philosophy that spawned the bloodbath that was the 20th century's flirtation with socialism?

Was the current recession over as of July-August-September of 2009? Will it be a caterpillar recovery? What in the recovery is real, and what is stimulus? How do states measure on economic freedom and knowledge-intensity?

Learn more and bask in the reassuring cadence of Bruce Yandle speaking in his new podcast from Inside State and Local Policy. About 20 minutes.

Mike Munger ladles mockery upon Ezra Klein for his shock and dismay about politicians acting like politicians. This always brings me back to one of my favorite quotes, from Murray Rothbard:

"It is no crime to be ignorant of economics, which is, after all, a specialized discipline and one that most people consider to be a 'dismal science.' But it is totally irresponsible to have a loud and vociferous opinion on economic subjects while remaining in this state of ignorance."

I spend time in econ 101 talking about how understanding and applying the economic way of thinking is an important part of developing a good ethos. It raises a question about intellectual responsibility: if you're going to pontificate, what do you have a duty to know? Comments are open.

In honor of Super Bowl Sunday and the Simpsons Coke commercial earlier, I offer the words of C. Montgomery Burns on "the American Dream: a billionaire using public funds to build a construct a private playground for the rich and powerful." From the archives, here are a few links on The House that Jerry Jones Built With Money He Took From Other People. Here's Evan Weiner on The Subsidized Bowl: both participating teams have gotten loads of money from various governments.

Friedman makes a couple of important points: a special interest is a special interest, whether it's a business or not, and just because a police is good for--i.e., creates rents for--a specific industry or a specific business doesn't mean it's consistent with free enterprise. Also, it's easy to see the trouble and suffering of the steel worker who loses his or her job. It's much more difficult to consider the innovations and increases in standards of living we sacrifice in order to protect jobs in specific industries.

HT: Don Boudreaux.

Robert Wright thinks so (here's Derek Thompson). I've been wondering more and more what the reference point is for those who lament the alleged moral bankruptcy or cultural famines of modernity because it seems like Wright's "original idea of America" is, at best, a pleasant fiction. Yes, it is true that perhaps today's world of pick-and-choose media allows people to insulate themselves from reality, but that was also true 150 years ago. In Memphis, for example, there were (I think) seven different newspapers that allowed readers to wallow in confirmation bias to their hearts' content. Indeed, during the Memphis riot of early May, 1866, members of the mob hoisted the editor of the Avalanche on their shoulders and threatened to burn the offices of the Post, which was a pro-union newspaper in town (to his credit, the editor of the Avalanche discouraged them).

Perhaps, though, people yearn for the days when our national news options were more or less limited to Dan Rather, Tom Brokaw, and Peter Jennings. This concerns me because it translates to a yearning for the days when We (whoever "we" are) controlled the conversation and didn't have to worry about competition from dissenters like Fox News. On Fox News, here are David Henderson and James Otteson.

Finally, Nick Gillespie makes an important point on how left-wing condescension short-circuits meaningful discussion (HT: Steve Horwitz). It reinforces my belief that American conservatives and liberals are like Coke and Pepsi: they taste different, but at the end of the day, they're basically the same thing. Conservatives believe we can turn our guns outward and plan the lives of foreigners; liberals believe we can turn our guns inward and plan the lives of Americans. To borrow from Bryan Caplan, this is to-may-to, to-mah-to for libertarians whose relevant political spectrum extends from the totalitarian Joseph Stalin to the anarchist Murray Rothbard. Along these lines, here's F.A. Hayek explaining why he is not a conservative. And here's George Orwell's classic essay "Politics and the English Language."

I gave a couple of talks on Walmart at Buena Vista University yesterday and promised to post some links relevant to some of the questions people asked. On the importance of private property rights, play the bunny game from the IHS. Here's my Mises Media Archive, with audio of my "Environmental and Resource Economics" lecture. Here's my list of links from a panel at Rhodes; it includes links to Lant Pritchett's excellent book Let Their People Come. I also recommend William Easterly's wonderful The White Man's Burden and C.K. Prahalad's The Fortune at the Bottom of the Pyramid.

Addendum: Here's my paper with Charles Courtemanche and Jeremy Meiners on Walmart and values, available for ungated download from BEPress.

From today's WSJ:

Want to ensure a bigger draw for your lackluster candidate? In Ukraine, just contact Vladimir Boyko and he'll rent you a crowd.

Mr. Boyko says his company, Easy Work, has assembled a database of several thousand students and can mobilize them on a day's notice to turn up at demonstrations anywhere in Kiev, stand for hours at a time, and cheer or jeer on cue.

I have been having a good time in Hong Kong - hence no activity from me lately.

I did have this come across my email box and figured to share with the others.

Open voting for the three economists who most contributed to the financial meltdown is the topic for this year's IgNobel prize in economics.

Vote early and vote often

Yesterday I blogged about I, Pencil. Today as I begin class I will have the following on the projector.

I, Beer

In tribute to Leonard E.Reed

I, beer, simple though I appear to be, merit your wonder and awe. Millions take me for granted, yet not a single person on the face of the earth knows every process required to make me. Think of the complex web of people and the numberless skills that went into my creation. I, beer, am a complex collection of miracles: hops, barley, yeast, water, glass bottles, metal caps, printed labels, and so on. Contemplate all the tractors and sprinklers and fertilizers and other implements used in growing and harvesting the hops and barley. Think of all the persons and the countless skills that went into their production: the mining of ore, the making of steel and its refinement into blades and machine parts, the many miles of irrigation pipes and canals that bring water to the fields, and so on. But to these miracles an even more extraordinary miracle has been added: the configuration of creative human energies -- milions of know-hows spontaneously responding to human necessity and desire in the absence of any governmental or any other coercive masterminding. Indeed, the seemingly simple task of producing one beer such as I is so vastly complex that no one could plan it. If you can become aware of the miraculousness which I symbolize, you can help save the freedom humanity is so unhappily losing.

As far as I know, this was written by a group of Koch Summer Fellows in the summer 2001, when I was visiting at GMU. They made t-shirts, which were quite cool. I got the text from Rob Frommer.

I found this interesting (HT: Doctor J) because it illustrates the myopia of politics. This played right into what I' thinking about this morning as I prep for a couple of trips this month and as I think about how the history of twentieth-century economic thought will be written. My question, in response:

"Hey you. You there in the 'Hope and Change' t-shirt (or with the "W-The President" sticker on your car--it doesn't really matter). If I pawn my car title, am I richer because I have more cash in my wallet?"

In reviewing a handful of books on Walmart by self-styled progressives and in prepping for taking a revised Walmart lecture on tour, I'm struck by the implicit view that the Big Business/Big Government/Big Labor iron triangle represented by the new industrial state of the 1950s and 1960s was a stable, long-run equilibrium. As we've learned in recent years, you can only consume so much capital before you run out. Here's Bryan Caplan quoting Amar Bhide on big corporations losing money. Here's George Reisman on where GM might be without the UAW. My prediction: if retail is unionized and all else remains equal, the government will someday end up taking over or bailing out Walmart, Costco, and Target the same way they did with the car companies.

It's that time of the semester. This week I am teaching from "I, Pencil" about incentives and institutions, with the punch line going something like this:

What is the market? Consider the statements of three famous economists from the previous three centuries…

Every individual necessarily labours to render the annual revenue of the society as great as he can. He generally, indeed, neither intends to promote the publick interest, nor knows how much he is promoting it. By…directing that [labour] in such a manner as its produce may be of the greatest value, he intends only his own gain, and he is in this, as in many other cases, led by an invisible hand to promote an end which was no part of his intention. Adam Smith (1723-1790) An Inquiry Into the Nature and Causes of the Wealth of Nations (1776)

The market economy is the social system of the division of labor under private ownership of the means of production. Everybody acts on his own behalf; but everybody’s actions aim at the satisfaction of other people’s needs as well as at the satisfaction of his own. Everybody in acting serves his fellow citizens. Everybody, on the other hand, is served by his fellow citizens. Everybody is both a means and an end in himself, an ultimate end for himself and a means to other people in their endeavors to attain their own ends.
Ludwig von Mises (1881-1973)
Human Action: A Treatise on Economics (1949)

When goods are produced and exchanged in competitive free markets in which people trade at market prices, economic activity leads to efficient outcomes… [That is], individual rationality, coupled with competition and prices, leads to efficient outcomes…in which there remain no unexploited opportunities to improve everybody’s welfare. This is so even though individual rationality and competition without prices rarely leads to such desirable outcomes.
Steven Landsburg (1952- )
The Armchair Economist: Economics and Everyday Life (1993)

I think these passages complement each other nicely and give students a couple of different entry points for seeing the ideas and their constancey. Now onto Chapter 1 of the textbook.

Last week I stopped by the office of my GMU colleague Russ Roberts to chat about Hayek's theory of the business cycle and his proposals for monetary reform. Lo and behold, the conversation is now available for everyone to hear at the Econ Talk podcast site that Russ hosts. So that's what those microphones were for ...

Richard Ebeling of Northwood University punctures the myth that central bankers know best and lays out a six-point plan for banking reform with no punches pulled.

Here (HT: Russ Roberts).

Study shows married people living together gain more weight than singles do. Shallow t.v. news story here.

A little neo-Hooverite nonsense from the AP:

Wages and benefits paid to U.S. workers posted a modest gain in the fourth quarter, ending a year in which recession-battered workers saw their compensation rise by the smallest amount on records going back more than a quarter-century.

The anemic gains have raised concerns about the durability of the economic recovery. The fear is that consumer spending, which accounts for 70 percent of economic activity, could falter if households don't have the income growth to support their spending.

The Labor Department said Friday that wages and benefits rose by 0.5 percent in the three months ending in December. For the entire year, wages and benefits were up 1.5 percent, the weakest showing on records that go back to 1982.

With 10% unemployment, you'd think it just might dawn on them that wages might fall or remain relatively flat as part of the great recalculation.

BTW, speaking of neo-Hooverite nonsense, didn't Obama's SOTU call for some sort of subsidy to encourage firms to raise wages?

Treasury Boss Tim Geithner offers this impassioned conclusion to his testimony before Congress on the AIG bailout.

In 1930, many people thought that the financial system was going through a necessary adjustment, that the healthy process was to let the fire burn itself out, and that the best thing the government could do was to do nothing.

Today, few believe that. Today, we know that when confronting a severe economic crisis the government must respond with overwhelming force. That is the basic lesson of the Great Depression. That is the basic insight that informed every judgment we made. And that is the reason we are now emerging from a recession and not still in the midst of a second Great Depression. In confronting this crisis, we learned from the past. Now we must learn from more recent failures, especially those that required AIG's rescue.

If we had stronger supervision and regulation in place, the government could have acted sooner to avert the crisis. If we had better crisis management tools in place, the government would have had better options. If we could have done it any differently, we would have done it differently.

Instead, we had no other choice. That is the basic lesson of this great recession.

In the future, when another generation of Americans confronts a new crisis born of new risks, the question will be whether we provided them the tools we did not have, whether we turned our collective outrage into concrete action, whether we passed comprehensive financial reform.
I hope we will.

All of this from a man one respected economist described as “very smart and… conceptually stronger than one might have expected.”

I could, of course, devote considerable blog space to dissecting and rebutting nearly every sentence Secretary Geithner wrote. In the end, though, that would be tedious and depressing. I will limit myself to a few simple observations.

The Secretary seems to have little time for the hypotheses that (a) there is always choice, (b) for every choice there is opportunity cost, (c) aggressively activist fiscal and monetary policy before and during his tenure largely created the economic crisis, and (d) the frenetic, unpredictably lurching policy initiatives on his watch have significantly increased uncertainty in market, making a bad situation worse.

Why, o why--apart from the answers found in the voluminous public choice literature about the incentives and constraints facing government officials—would he say such foolish things?

If only I could believe as the Secretary does, that "we are now emerging from a recession and not still in the midst of a second Great Depression."

People, don't forget that the Great Depression was composed of at least three separate recessions, separated by brief periods of rapid economic growth.

One of my stellar students asks:

Isn't Toyota's recall of 2.3 million vehicles going to be terrific for the economy? Think of all the jobs that will be created replacing those vehicles! What a perfect way to stimulate the economy!

Seriously, shouldn't defenders of programs like Cash for Clunkers be making arguments like this?

Yep. (BTW, the point holds even though Toyota is apparently replacing the accelerators rather than the entire vehicles.)

NB, Honda gets into the stimulus recall gig.

During last night's SOTU, Jeremy Horpedahl and Wafa Hakim Orman drew my attention to this bit of brilliance from XKCD.

I commend Allan Meltzer's op-ed in yesterday's Wall St. Journal. I plan to show it to my students in money and banking later this semester when teaching the "money multiplier" to persuade them that it can matter a great deal! Meltzer writes:

The exit strategy is incomplete. Proponents are guilty of practicing economics without prices. They never say what the interest rate on reserves must be to get banks to hold the approximately $1 trillion of reserves above the minimum they're legally required to hold. That's the critical question.

[...] No economist doubts that the Fed can induce banks to hold some more reserves by paying interest. But how much?

I do have to say that Meltzer's critique, like Bernanke's strategy, is also somewhat incomplete. What might stop the Fed from raising the interest rate on reserves as high as necessary? He doesn't spell that out. Meltzer shows that the Fed has sometimes found it unpopular to raise the Fed Funds rate and abandoned the effort too soon, fueling inflation. But raising the rate on bank reserves realtive to the Fed Funds rate is not the same as raising the Fed Funds rate.

US slaps duties on electric blankets from China

The article of course begs for a Mark Perry rewrite.

UPDATE: The admin may slap tariffs on blankets or tires or ... but it's American consumers who feel the smackdown; case in point:

As an accountant, Terri Bricker of Omaha works with numbers every day.

But the digits on a recent tire purchase stumped her.

When she replaced two car tires in December, each cost $100. The same exact tire at the same store had cost her only $90 three months earlier when she had a blowout.

“I couldn't quite figure out why they went up 10 dollars in three months,” said Bricker, 48. “Obviously, I wasn't happy.”

Tire dealers and wholesalers say a tariff on Chinese-manufactured tires imposed in September is contributing to price increases on many tires. Some tire manufacturers say the resulting shift in demand and the rising cost of raw materials also are behind the price increases.

The three-year, tiered tariff — 35 percent the first year, 30 the second year and 25 the third year — was one of the first major trade policy decisions by President Barack Obama back in September.

HT: Andy Roth

Rhodes philosopher and blogger Doctor J offers a complete transcript and video of President Obama's SOTU address. I link to her transcript rather than another because if you don't read her blog, you should. Here's her SOTU wishlist; I look forward to reading her evaluation of the speech itself. Eleven statements on the content are below the fold, which raises a question: if thirteen is a baker's dozen, is eleven an economist's dozen?

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Users of Google's web browser, Chrome, may have noticed a new "extension" feature that they are calling InvisibleHand. Here is a description from Google:

InvisibleHand discreetly notifies you if the product you’re browsing is available more cheaply from another retailer. The notification provides a convenient link straight to the relevant product page on the competing retailer’s website.

InvisibleHand supports over 100 retailers in US, UK and Germany. Support for Canadian retailers is coming soon.

This money saving extension gets its name from the 18th century economist Adam Smith's concept of the invisible hand of the market. Smith didn't have Google Chrome to help prove his point, but we hope he would approve.

Details.

FTC-mandated disclosure: Google sent a team of engineers over to my condo to vacuum the carpets and clean the windows in exchange for my little blurb above. In other words, what Bob said.

Gambling interests gave money to the head of Alabama's anti-gambling task force when he was running for Attorney General. Public choice exam: explain. What are the implications for the "public interest" view of the state?

Courtesy of the Mises Institute, here's a podcast on libertarian themes in J.R.R. Tolkien's Lord of the Rings is embedded below. This is especially appropriate in light of two events that are happening today. The first is Apple's announcement of some kind of new iProduct, which will improve people's lives in ways we cannot foresee. The second is the State of the Union Address, which is the President's carefully choreographed exercise in truthiness followed by another carefully choreographed exercise in truthiness from the President's political opposition (here's Lew Rockwell on the contrast). Here's the video of Steve Jobs introducing the first iPod in 2001. Here's Tyler Cowen's "simple theory of political jobs," which go to "(p)eople who truly, deeply love the power." Here's a passage from Chapter 28 of Douglas Adams's The Restaurant at the End of the Universe that deserves some reflection on a day like today:

"The major problem — one of the major problems, for there are several — one of the many major problems with governing people is that of whom you get to do it; or rather of who manages to get people to let them do it to them.

To summarize: it is a well known fact, that those people who most want to rule people are, ipso facto, those least suited to do it. To summarize the summary: anyone who is capable of getting themselves made President should on no account be allowed to do the job. To summarize the summary of the summary: people are a problem.

And so this is the situation we find: a succession of Galactic Presidents who so much enjoy the fun and palaver of being in power that they very rarely notice that they're not.

And somewhere in the shadows behind them — who?

Who can possibly rule if no one who wants to do it can be allowed to?"

Historian Jeffrey H. Jackson--one of my colleagues at Rhodes--recently published a book called Paris Under Water: How the City of Light Survived the Great Flood of 1910 (find out more here). I picked up a copy a few days ago and look forward to reading it in light of my ongoing projects about the 1866 Memphis riot, the couple of papers I've written on Katrina, and the growing body of scholarship being produced by the Mercatus Center's Hurricane Katrina-Gulf Coast Recovery project. My prior is that I'm going to find the book interesting and useful.

A few things--other than the cool Keynes/Hayek rap--that have caught my eye over the past few days:

William Shughart on Haiti and the broken window fallacy.

Robert Higgs on disappearing private sector jobs.

Peter Schiff on the minimum wage hike in American Samoa.

Federal Subsidy Programs Top 2,000

Two NBER WP on labor supply elasticities (here and here): The second one has an important finding vis-a-vis supply side economics:

[W]e find that standard microeconometric methods underestimate structural labor supply elasticities by an order of magnitude.

UPDATE: Some interesting papers in the current REStat: Ugly Criminals, war is bad, trade is good, and institutions matter.

"Marketplace" has a piece on corruption in China.

"Marketplace's" Scott Jagow isn't impressed with the Obama spending freeze (a question for Obama and Jared Bernstein: If it's possible to cut $250B of wasteful spending from the budget then why did you sign the bill(s) that included said wasteful spending?).

UPDATE2: Casey Mulligan on the minimum wage.

The regressivity of carbon taxes.

Co-bloggers Larry White and Mike Munger discuss the video below; I liked it, and (SPOILER ALERT) I thought the placement of a copy of The General Theory in Hayek's hotel room where a Gideon Bible would normally be was a stroke of genius. The YouTube video now has about 74,000 views, and I look forward to more from the team behind it.

While we're on the subject of great music videos, Nickelback's "Rockstar" is below the fold. From what I can tell, the YouTube upload is licensed, legal, and official.

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The much-awaited video from Russ Roberts and John Papola, linked to by Mike Munger below, is a hoot. My only complaint: in real life Hayek was younger than Keynes.

A larger-screen version, plus lyrics, credits, and background info on Hayek and Keynes are at http://econstories.tv/home.html. The site also promises to soon have "clips from interviews with leading economists on macroeconomic concepts and the current state of macroeconomics". I was one interviewed, and I'll pass the word when my interview goes up.

The video. I humbly present the video: Fear the Boom & Bust.....

I am the Limo Driver to the Stars. Where to now, Lord Keynes?

Steve Hanke in the National Post:

Chairman Bernanke’s denial of the Fed’s culpability raises an interesting question: How can the Fed make fantastic claims without being brought to account?

In search of an answer Steve cites Milton Friedman, Gordon Tullock, and kindly my work on the Fed's influence on research in monetary economics, which is available here.

My copy of Literature and the Economics of Liberty: Spontaneous Order in Culture just arrived (buy for $20 here, or download for $0 here; I've done both). I'm really looking forward to it; as I've come under the influence of Deirdre McCloskey in the last seven or eight years I've come to realize that there are a lot of unrealized gains from trade to be enjoyed through multi-disciplinary conversation.

FTC-Mandated disclosure: I have received valuable consideration from the Mises Institute in the past in exchange for writing and lectures. I have not received any valuable consideration in exchange for endorsing this book.

by the Onion:

"It's fine, it's fine," thought Maine native Sheila Hodge, echoing the exact sentiments of Chicago-area resident Phillip Ragowski, recent Florida transplant Margaret Lowery, and Kansas City business owner Brian McMillan, as they tossed the polyethylene terephthalate object into an awaiting trash can. "It's just one bottle. And I'm usually pretty good about this sort of thing."

Philosopher Danny Shapiro says "probably not" in this 8-minute C-SPAN interview. He gives straightforward consequentialist economic reasons why not, namely, he explains how the welfare state hinders rather than promotes the fairness, etc., that its proponents cite as justifications.

The abstract of a paper by Geoffrey Turnbull and Rob Salvino:

The 2005 U.S. Supreme Court decision Kelo v New London allows using eminent domain to transfer property from one private party to another when it serves a broadly defined public purpose such as economic development. This paper examines the effect of this doctrine on the size of state and local governments. In the leviathan model, constitutional constraints are needed to control government expansion. The Kelo decision removes one such constitutional constraint on how state and local governments gain command over privately owned resources. The empirical results show that the breadth of eminent domain power affects the size of the public sector; states that explicitly empower their local governments to use eminent domain for private economic development have larger state and local public sectors than those that do not.

I've argued several times that open immigration is an idea whose time has come (below, for example). Austin the Undergrad disagrees and raises a number of good points, but a) I think that the empirical literature still suggests a net gain and b) his criticisms aren't criticisms of immigration per se but of the welfare state (I discuss discrimination and forced association here). The problem is that for open immigration to work to its fullest potential, a lot of things would have to change at once.

Ilya Somin links to an interesting piece by Paul Romer and offers intriguing commentary (HT: Will Wilkinson). I share their concern that a massive humanitarian/military/colonial/whatever exercise in state-building is a recipe for disaster.

Here's an article from today's Memphis Commercial Appeal that contains an entire econ 101 exam or two worth of possible questions. What's missing from the article?

Wow. “'All the cars and trucks and plants that have been in existence since the Industrial Revolution, spewing out carbon day-in and day-out, you’ll never convince me that’s a good thing for your children and the future of the planet,' [Graham] told a crowd in South Carolina,... ."

Graham thinks it would be a good thing if we had no cars and trucks, no electricity in amounts that could serve any purpose (and no serious means to construct hydroelectric plants in any case)? He thinks it would be better for us and our children if we lived as in 1800, when the average life expectancy was about 40 - if you survived childhood?

Wow.

The world is still reacting to the horrific death and destruction in Haiti, and a lot of people are asking "what can I do to help the world's poor?" Here's Michael Clemens with an answer on "The biggest idea in development that no one really tried." In short, open the borders. I've written on this at DOL before (1, 2, 3, 4), but the recent disaster in Haiti illustrates the human tragedy caused by poverty--poverty that can be substantially reduced by adopting markets without borders.

Here's Glenn Greenwald on Cass Sunstein's recommendations for how the government can deal with conspiracy theories (HT: Will Wilkinson). Along the same lines, here's the latest installment of "New Paternalism on the Slippery Slopes" from Glen Whitman at ThinkMarkets.

Vernon Smith at Big Think, answering the posed question, "How has the government response to the crisis impacted household incomes, housing policies, and tax changes?"

And of course what the Administration is doing is the same thing any Administration would do in this, probably, in this crisis, and that is to try to prevent the price of homes from falling. So they're shoring up the demand for homes by more subsidies. Now if you think about that you realize that the proposed solution now is exactly what the problem was. So the solution is the problem, more of the same. And the question is how do you get out of this sort of vicious circle. What's important is, you try not to get there in the first place. Because once you're in this kind of a downturn all of the political pressures are to further artificially expand the demand for homes and to shore up those prices. Even though what we really need is for those prices to come down relative to the prices of other things in the economy.

In an attempt to gin up some followers, I announce my latest (third) blog: Money I Found Today. It is an experiment in documenting how much money I find laying on the ground over the next year or two.

I know, there is a solid argument that such an endeavor is a fool's errand as my time is worth more doing other things. Yet, doesn't that characterize almost all blogs?

I'm slogging my way through the records of the US government investigation of the 1866 Memphis Riot for a couple of papers Chris Coyne and I are working on. It's one of the more difficult reads I've ever encountered: it's 371 pages of very tiny print with something important and relevant on almost every line. The more I read the more I'm convinced that turning over the provision of law and order to a monopolist that is only accountable through political channels creates more problems than it solves. Chris and I will explore this in greater detail when we finish the paper, but I had to stop and blog this, from page 214. It's from lines 3330, 3331, and 3332 of the testimony of B.F.C. Brooks, editor of the Republican.

I have heard the remark again and again, "By God, we'll clean you all out. Just get the troops away, and we'll show you, when we get things into our own hands."

3331. Mention any one from whom you have heard such sentiments. Colonel Saffrons.

3332. Has he not recently been elected to office here? Yes sir; judge of the county court. He added something to the effect, "we shall some time get things into our own hands. True, we cannot vote now, but we have friends who can, and we will soon get you fellows out of here, and then we will take things into our own hands."

"Economic Progress and Entrepreneurial Innovation: Case Studies from Memphis," available at SSRN. The abstract:

"Entrepreneurial innovation encourages economic progress, and an institutional climate that encourages risk taking, rewards success, and weeds out failure is essential to a well-functioning economic system. This essay explores a cluster of path-breaking entrepreneurial innovations with common roots in Memphis, Tennessee: Piggly Wiggly’s popularization of self-serve grocery shopping, Holiday Inn’s innovations in standards and quality, Autozone’s adaption of insights from other industries, and FedEx’s creation of a distribution network that has made overnight shipping a reality."

Georgia's HOPE Scholarship program requires students to maintain a B average to maintain funding; I think some other state scholarship programs contain similar incentives. Now comes a different idea--failure insurance:

Imagine a first-generation college student whose high-school preparation was less than ideal. She has just finished her first semester, and she realizes now that college is going to be tougher than she had hoped. She failed one course and struggled to earn C's in her other subjects. She worries that she'll eventually flunk out, and she wonders whether she should walk away now before she accumulates any more student debt.

But what if she could hedge her risks by buying a "failure insurance" policy that would reimburse her for a portion of her student-loan debts if she did flunk out? Would that make her more willing to stay for another semester?

Failure insurance might sound outlandish—but a well-designed insurance system could actually improve students' effort and their attainment rates, according to a working paper that was presented in Atlanta last week at the annual meeting of the American Economic Association.

Seems like there's some potential for moral hazard here--garner an F and get ones college debts forgiven. Here's the paper.

UPDATE: A co-blogger points me to this company that already offers grade insurance of sorts.

Here's a very nice post from Brian Pitt at The Sociological Imagination. In light of MLK Day this coming Monday, here's a one-sentence summary of my viewpoint on just about everything:

Our moral failings, character flaws, and biases are rewarded and magnified through the political process but punished and reduced through the market process.

The news coming out of Haiti is breath-taking. The local news this morning questioned why there are no construction codes in Haiti pertaining to earthquakes, bringing in comparisons with China, Turkey, Iran, Afghanistan, and other countries where earthquakes are not completely uncommon and yet there seems to be few precautions taken in construction.

Two potential reasons for the absence of earthquake construction codes came to mind immediately. First would be corruption (explicit or implicit) of the political process in which the "general welfare" is ignored for personal gain on the part of those in the positions of influence. The second, and less knee-jerk, reason is that earthquake codes (along with airbags, clean-coal, etc.) are luxury goods which the countries I enumerated above might not have the means to purchase. Our tsk-tsking does not solve that problem.

In April 1906 an earthquake devastated San Francisco in a pre-post-industrial world. The destruction was wide-spread and in many cases complete. I had plenty of "circa" postings concerning this event in the past (list here) Given that experience, and other more recent earthquakes, there is an expectation that another "big one" will hit in California. The unpredictable nature of earthquakes, coupled with our affluence (and, some might say, intrusive government regulation), California and other states have introduced construction codes aimed at mitigating the damage inflicted by earthquakes.

It seems less obvious to me whether the codes instituted in this country are sufficient to allow buildings to survive the "big-big one," something that seems to be taken for granted by those who comment on the lack of codes elsewhere. That is an empirical question I hope we don't have a natural experiment to test.

However, those of us in the Southland (and in the Midwest and in the Northeast) should not rest too easy. I am in the middle of reading "A Crack in the Edge of the World," which is about the 1906 SF earthquake but also, in the long run up to the actual event, about the whole reason there are earthquakes in California to begin with.

In a nutshell, and from a layman's perspective, the North American tectonic plate butts up against the Pacific tectonic plate somewhat west of California and butts up against the European tectonic plate somewhere east of Greenland. Unexpectedly and without current explanation, the North American plate has experienced seismic activity in a rather wide diagonal through its middle basically from New England through the Appalachians and out into Missouri, over the past 200-plus years (in recorded history but obviously much longer than that).

For example there have been tremendous earthquakes in the past in New Madrid, Missouri (1811), York (1884), Memphis TN (1845), and Charleston SC (1886), to name just a few places that would not seem to be obvious candidates for earthquakes.

My point is not to suggest perpetual vigilance and fear of an earthquake in the South but rather to avoid the "It can't happen here" syndrome.

That's a new Journal of Law and Econ paper by Daniel T. Kaffine; the abstract (ungated version here):

In open‐access settings, high‐quality resources are lucrative, yet fencing out potential entrants may be very costly. I examine the endogenous creation of property rights, focusing on the incentives that resource quality provides to close the commons. Analytical examples explore the incentives of locals to increase or decrease the strength of property rights conditional on how locals and nonlocals value the quality of the resource. The empirical analysis looks at a unique resource—surf breaks—and estimates the relationship between the exogenous quality of the resource (waves at the surf break) and local attempts to seize the common surf break. Using cross‐sectional data on 86 surf breaks along the southern California coast, this paper finds that a 10 percent increase in quality leads to a 7–17 percent increase in the strength of property rights.

This looks pretty interesting, but I wonder if their plans also involve dying of treatable diseases or foodborne illnesses by age 35. HT: Jeremy Horpedahl.

I did not realize that Michael Jensen is writing with Werner Ehrhard. For a related interview of Jensen, click here.

In today's column (thanks to Mankiw for the pointer), Paul Krugman pulls out one of his favorite nuggets:

And Europeans are quite productive, too: they work fewer hours, but output per hour in France and Germany is close to U.S. levels.

A more accurate statement would be that output per hour is roughly equal because French and Germans work fewer hours. I took up this issue in a 2005 post which I repost below (lightly edited):

Consider a thought experiment: Suppose countries A and B each have 10 people employed and that output per worker in the two countries is equal. Workers within each country are not equally productive but the distribution of productivity is the same in both countries. (If it is easier to grasp--assume 10 sets of identical twins have been separated at birth with one child from each set of twins going to each country.)

Now suppose that country B decides to enact some sort of tax or labor market regulation. As a result of this policy the least productive worker in country B is no longer employed. (For concreteness, the policy might be a minimum wage law that makes it unprofitable for a firm to hire the worker at the minimum wage.)

What effect does this policy have on the productivity of workers in the two countries? Country B's productivity now appears to be higher than country A's because the least productive worker in country B is no longer employed and no longer counts in the productivity calculations. (This is akin to having one's course average increase when the lowest grade is dropped.) Stated differently, if one averaged over all 10 people in each country, A's productivity would be greater than B's because B has one worker producing nothing.

[snip]

The key part here is per hour worked. The difference in employment between the two countries is quite large--France's 2003 employment to population ratio was 51.9% while it was 62.3% in the U.S. I bet that French output per working age adult--that is adjusted in some manner for people who are out of work--is lower than in the U.S. Stated differently, I bet the most productive 51.9% of the U.S. population is more productive than the 51.9% of the French who are employed.

Is it too much to ask that a Nobel Prize winner know about thinking at the margin?

A federal spending surge of more than $20 billion for roads and bridges in President Barack Obama's first stimulus has had no effect on local unemployment rates, raising questions about his argument for billions more to address an "urgent need to accelerate job growth."

An Associated Press analysis of stimulus spending found that it didn't matter if a lot of money was spent on highways or none at all: Local unemployment rates rose and fell regardless. And the stimulus spending only barely helped the beleaguered construction industry, the analysis showed.

Source.

Starting here on YouTube (HT: Steve Horwitz). The first guest is John Allison from BB&T.

Update: Yaron Brook's discussion of selfishness near the end of segment three is not to be missed. Selfishness, for Rand, is a much more subtle, nuanced, and rational concept than selfishness as it is described by a lot of other people.

Reich may be a Rhodes Scholar, but his knowledge of economic history is pint-sized. Here's a snip of him from yesterday's "This Week" program on ABC:

The most important thing government can do is stimulate the economy. And right now, you have Republicans who are sounding like Herbert Hoover, who are saying, "Don't do anything. Just allow the economy to do what it's going to do on its own."

Bob, Bob, Bob--Hoover was an activist. Here's Amity Shlaes (The Forgotten Man, p. 91):

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

Government spending didn't exactly follow a "don't do anything" path under Hoover: It went from $3.127B in 1929, $3.32B in 1930, $3.377B in 1931, and $4.659B in 1932.

I'm currently reading Jonathan Levine's Zoned Out as preparation for one of my spring courses. The book makes an important point: Although it is often portrayed as a market outcome, suburban sprawl is at least partly the result of government zoning regulation. Indeed, zoning laws typically prohibit denser development alternatives such as so-called New Urbanism.

I do have one quibble--the author can't quite make up his mind what we economists think of zoning:

p. 80: "[T]he very meaning of zoning as a collective property right--a view now broadly adopted by the economics profession ..."

p. 87: "Economists and other social scientists have split on the nature of zoning--with some viewing it as governmental regulation and others viewing it as more akin to a 'collective property right.'"

I have about one-third of the book remaining so maybe the author will make up his mind in the remaining chapters.

...can we trust doctors, climate scientists, college professors, activists, and lobbyists to redesign the global economy? I've linked to this before--it's a video of Rush trying to play "Tom Sawyer" on Rock Band before their appearance on The Colbert Report--but after my most recent viewing it suggests a lot about the role of knowledge in a spontaneous order. Two quotes bear almost infinite repetition:

Friedrich Hayek: "The curious task of economics is to demonstrate to men how little they know about what they imagine they can design."

Adam Smith:

"The man of system...is apt to be very wise in his own conceit; and is often so enamoured with the supposed beauty of his own ideal plan of government, that he cannot suffer the smallest deviation from any part of it. He goes on to establish it completely and in all its parts, without any regard either to the great interests, or to the strong prejudices which may oppose it. He seems to imagine that he can arrange the different members of a great society with as much ease as the hand arranges the different pieces upon a chess-board. He does not consider that the pieces upon the chess-board have no other principle of motion besides that which the hand impresses upon them; but that, in the great chess board of human society, every single piece has a principle of motion of its own, altogether different from that which the legislature might chuse to impress upon it. If those two principles coincide and act in the same direction, the game of human society will go on easily and harmoniously, and is very likely to be happy and successful. If they are opposite or different, the game will go on miserably and the society must be at all times in the highest degree of disorder."

HT: Tom Woods.

In prepping for my appearance on Radio Free Market this afternoon I've done some thinking about society's search for Great Leaders and Great Men. This made me think about a recent post on Aid Watch by William Easterly that everyone should read and a few passages in Democracy in Deficit, which I'm ashamed to say I'm only now reading. I have come to believe more and more in the explanatory power of ideas, and I think the presumption that They need Us to govern them--or more specifically, that You need Me to govern You--is especially pernicious. It also got me thinking about Lord Acton's insight about how very Great Men are almost always very bad men. Here are some quotes from Lord Acton that are especially relevant (I'm going to assume Wikiquote is accurate here):

"The danger is not that a particular class is unfit to govern. Every class is unfit to govern. The law of liberty tends to abolish the reign of race over race, of faith over faith, of class over class."

"I cannot accept your canon that we are to judge Pope and King unlike other men, with a favorable presumption that they did not wrong. If there is any presumption it is the other way against holders of power, increasing as the power increases. Historic responsibility has to make up for the want of legal responsibility. All power tends to corrupt and absolute power corrupts absolutely. Great men are almost always bad men, even when they exercise influence and not authority: still more when you superadd the tendency or the certainty of corruption by authority."

"There is no worse heresy than that the office sanctifies the holder of it."

"Advice to Persons About to Write History--Don't."

"Liberty is not a means to a higher political end. It is itself the highest political end."

"Truth is the only merit that gives dignity and worth to history."

Cross-posted at the Mises Blog and The Beacon.

According to this story. HT: Matt Ryan.

That's the title of a paper by Franklin Mixon and Kamal Upadhyaya that reports rankings of bloggers based on their academic research. The rankings look about right--heavyweights such as Becker, Mankiw, and Posner top the list, peons like me are well down the list--but there is a problem with the rankings. Table 1 reports that I have 120 citations for a rate of 2.67 per year. Dividing those numbers implies I've been getting cited for more than 40 years. Similarly co-blogger Bob has over 1,800 cites and roughly 51 per year thereby implying that he's been getting cited for about 38 years. Since we're both just north of 40, there's no way we've been cited for 40 years. Luckily the error seems to be harmless because the rankings seem, at least to this low ranked scribbler, sensible.

My review of Nelson Lichtenstein's The Retail Revolution: How Wal-Mart Created a Brave New World of Business is online here.

There has been a bit of chatter in the econ blogosphere about Thomas H. Benton's article in the Chronicle of Higher Education (see Bryan Caplan and Tyler Cowen, for example; I agree with Bryan's claim that people interested in the humanities should get PhDs in economics). Pete Boettke nails the conditions under which one should go into academia and explains some of the reasons why being a professor is such a great job. it has its aggravations, to be sure, but it also offers an incredible amount of freedom.

Ross Kaminsky on Bastiat, as applied to Pelosi:

Nancy Pelosi ... said that she wants whatever compromise health care bill emerges from their closed-door negotiations to "lower costs at every stage" of our health care system.

... I found her statement troubling not only because I know she's lying about what she wants. It took me a few minutes, but then it hit me. The Bastiat fallacy lies in the word "costs."

What Pelosi really means is that she wants to lower prices paid by end-user consumers of health care.

She wants it to appear that costs have gone down, but in fact the bill will exacerbate the single greatest existing flaw in our health care system: the insulation of consumers of health care from the costs of what they consume. The majority of Americans, when they go to the doctor, feel as if they're spending someone else's money -- a situation which both Milton Friedman and common sense tell us cannot lead to disciplined spending.

In response to a discussion about comparative advantage and economists being cheap, a commenter asked whether economists take in the exercise value of cutting the lawn. “Economist do exercise, don’t you?” the commenter asked.

To which commenter "Davis X. Machina" replied "Unless it’s really hard, the exercise is usually left to the reader."

Here's "The Truthiness Hurts," with Mike Hammock, now in a leaner, meaner version that has been re-submitted to Economic Affairs.

Here's an excellent piece from James Otteson on the "Great Mind Fallacy" that just appeared on Forbes.com. He applies what Adam Smith had to say about the knowledge problem to modern pushes for paternalistic regulation. I'll make a prediction about regulatory mission creep. Regulations that are supposed to nudge me toward behaviors consistent with my interests will eventually metastasize into regulations that nudge me toward a redefinition of my interests.

Wait a second. That's why governments operate schools.

I have a sabbatical this semester and have spent the last couple of weeks tying up loose ends, finishing papers that were a day or two of revisions away from being finished, and knocking out other commitments (referee reports, book reviews, etc) so that I have a relatively clear desk and clear mind before I take on my sabbatical projects (mostly Southern economic history) head-on. Today, I'm revising a paper about entrepreneurial innovation in Memphis that I drafted a couple of summers ago and never took the time to polish and finish. In the process, I'm going through old notes, stubs, ideas, scribbles, and other things that litter my office and various storage media. Between now and the end of the week I'll be posting some of the odds and ends that I find.

Here's an outtake from a review of Benjamin Powell (ed.), Making Poor Nations Rich:

"Economic history is in part a story of changing incentives to use entrepreneurial proclivities. In his introduction, Powell notes that in imperial China (and many countries), the best and brightest have historically joined the civil service. Today, these same best and brightest are becoming engineers and entrepreneurs. Five hundred years ago, a Chinese or Indian genius would be working in administration and bureaucracy, likely inventing new ways to thwart trade. Today, those geniuses are moving to Silicon Valley and writing software for Google."

The latest issue of The Freeman is available; it includes my article summarizing some of the scholarly work on Walmart. The new issue is chock full of articles that look interesting; I'm especially looking forward to Steve Horwitz's piece on deflation and Bruce Yandle's piece on Baptist/bootlegger coalitions and climate change legislation (HT: Sheldon Richman and Steve Horwitz).

I'll also be on Radio Free Market on Saturday at 1:00 CT to discuss the (un)popularity of capitalism; this continues a discussion that started on September 25 and that continued through December 5. I think I'm also going to be a guest commentator on Saturday, 1/16 when RFM interviews Deirdre McCloskey. Listen. Call. Tell your friends!

USA Today: Fee waivers boost cat adoptions

One sometimes hears about various races to the bottom that might occur in the absence of environmental regulations, workplace safety regulations, or the like. Arik Levinson's article in the December AER sheds some light on this issue; the abstract (NBER WP version here):

Total pollution emitted by U.S. manufacturers declined over the past 30 years by about 60 percent, even though real manufacturing output increased 70 percent. This improvement must result from a combination of two trends: (1) changes in production or abatement processes (technology); or (2) changes in the mix of goods manufactured in the United States, which itself may result from increased net imports of pollution-intensive goods (international trade). I first show that most of the decline in pollution from U.S. manufacturing has been the result of changing technology, rather than changes in the mix of goods produced, although the pace of that technology change has slowed over time. Second, I present evidence that increases in net imports of pollution-intensive goods are too small to explain more than about half of the pollution reductions from the changing mix of goods produced in the United States. Together, these two findings demonstrate that shifting polluting industries overseas has played at most a minor role in the cleanup of U.S. manufacturing.

My former students Andrew Chupp (now asst prof at Illinois State U), Katie Myles, and I had our paper on the incidence of hybrid automobile tax preferences accepted by Public Finance Review. The abstract:

We use national and California price data from January, 2002 to June, 2009 for three hybrid and five non-hybrid car models to estimate the share of federal tax preferences for purchasing hybrid cars that accrues to car sellers. Our preferred estimates suggest that almost one-half of the subsidy is capitalized into car prices, but some specifications lead to larger estimated benefits for car suppliers. Our results also show (1) that a California program providing HOV stickers to owners of hybrid fuel automobiles led to large increases in the price of those vehicles, and (2) that failing to control for rising gas prices which increase the demand for fuel efficient vehicles leads to upwardly biased estimates of the amount of the hybrid car tax subsidy captured by automakers.

In which American city is three the same as a million? Ask Gertrude Stein (writing in 1936, HT Michael Watts).

Everybody now just has to make up their mind. Is money money or isn't money money. Everybody who earns it and spends it every day in order to live knows that money is money, anybody who votes it to be gathered in as taxes knows money is not money. That is what makes everybody go crazy.

Once upon a time there was a king and he was called Louis the fifteenth. He spent money as they are spending it now. He just spent it and spent it and one day somebody dared say something to the king about it. Oh, he said, after me the deluge, it would last out his time, and so what was the difference. When this king had begun his reign he was known as Louis the Well-beloved, when he died, nobody even stayed around to close his eyes.

But all the trouble really comes from this question is money money. Everybody who lives on it every day knows that money is money but the people who vote money, presidents and congress, do not think about money that way when they vote it. I remember when my nephew was a little boy he was out walking somewhere and he saw a lot of horses; he came home and he said, oh papa, I have just seen a million horses. A million, said his father, well anyway, said my nephew, I saw three. That came to be what we all used to say when anybody used numbers that they could not count well anyway a million or three. That is the whole point. When you earn money and spend money everyday anybody can know the difference between a million and three. But when you vote money away there really is not any difference between a million and three. And so everybody has to make up their mind is money money for everybody or is it not.

So there. The essay goes on, and says the same thing over again in a couple of different and interesting ways. The economics in doing so is not entirely obvious. But perhaps it's because Gertrude Stein was born into wealth and was very familiar with making investment decisions. Thus, for example, what may seem redundant is really a reference to hyperinflation.

Under the guise of repetition or, rather, repetitiveness, hyper-inflation appears in Stein's writings as both a theme and a compositional method.

Starting tonight and for the next three weeks, I'm teaching an undergrad class called Economics in Culture. The idea is to analyze cultural artifacts using economic theory. To get things moving, tonight we will survey a few salient economic concepts (e.g. opportunity cost, comparative advantage, incentives, institutions, unintended consequences, creative destruction, rent seeking, equity, etc.). Then starting tomorrow night, each class will then be devoted to a genre from pop culture, such as film, television, sports, fashion, fiction, music, politics, and communications. Enrollment is modest, so I can take advantage of different formats. The first half of each class will be traditional lecture, then a twenty minute break, and then the second half of class will be a Socratic discussion a la Liberty Fund. Each student will do a project in which they pick a creative work, present it to the class, and analyze the economics in it. I think it will be a lot of fun, and I don't recall ever having been this intrigued at the start of a class by how it would turn out. I'll be sure to post interesting examples throughout the month (like Gertrude Stein on money, above). If you have favorite examples, I'd love to have you send them my way. Thanks.

A good summary statement regarding climate change's implications:

There is thus an economic case for greenhouse gas emission reduction. You do not need to be a bleeding heart ecologist to favour climate policy. Cold economic calculus calls for action too.

At the same time, estimates of the impacts of climate change do not support the often-dramatic language of the media. Estimates suggest that the overall impact of a century of climate change is equivalent to losing up to 2% of income. The impact of a century of climate change is of the same size as a year of economic growth. In the worst case, impacts may be ten times as large. Still, a deep recession wreaks as much havoc in a year as climate change would do in a century. Climate change is therefore not the biggest problem of humankind.

Jeff Tucker's articles at Mises.org are always entertaining and informative. This one is no exception. For someone in health econ or epidemiology looking for a clever identification strategy, I would suspect that the mandated 1.6 gallon toilet had at least a tiny effect on the disease environment.

1. Review of Jennifer Burns, Goddess of the Market: Ayn Rand and the American Right, forthcoming in Economic Affairs. I thought it was a great book, I enjoyed it immensely, and Anne Heller's bio of Rand should arrive via the USPS within the next few days.

2. Here's a complete re-write of Charles Courtemanche's and my paper on Walmart and obesity, re-titled "Supersizing Supercenters? The Impact of Wal-Mart Supercenters on Body Mass Index and Obesity." Using distance from Bentonville as an instrument for Walmart Supercenter location, our "results imply that the proliferation of Walmart Supercenters explains 11% of the rise in obesity since the late 1980s, but the resulting increase in medical expenditures offsets only a small portion of consumers' savings from shopping at Supercenters." It's basically a different paper from the earlier one; further work evaluating discount stores, Supercenters, and Sam's Club is in the offing.

3. Here's a new Forbes.com piece on the naughties, which brought us a lot of incremental advances in human wellbeing.

A question from a quasi-Hansonian moment: what percentage of people who don't believe in God because "there's no evidence" also believe that the minimum wage is good for the poor in spite of overwhelming evidence to the contrary?

Inspired by today's installment of Abstruse Goose.

1. Arnold Kling and Nick Schulz, From Poverty to Prosperity. This is a book that should be on everyone's bookshelf. The introductory chapter evaluating trends in poverty and prosperity is extremely useful, and the interviews with Joel Mokyr, William Easterly, Douglass North, Paul Romer, Robert Fogel, William Lewis, and others are fascinating. The structure of the book means that it would be a very good supplementary text for a course in development economics. I might use it the next time I teach Classical & Marxian Political Economy.

2. Nelson Lichtenstein, The Retail Revolution: How Wal-Mart Created a Brave New World of Business. The first back-cover blurb is a hearty endorsement from Barbara Ehrenreich; that fact gives the reader a pretty accurate picture of what to expect. I couldn't put it down, but for all the wrong reasons. The book's most fundamental weakness is that it completely ignores the economics literature on Walmart. Lichtenstein doesn't even dismiss it. With the exception of a single reference to Kenneth Stone's work on Walmart and employment in Iowa in the mid-1990s, he just ignores it. This wouldn't be such a bad thing if some of the contributions made by Emek Basker, David Neumark, Stephan Goetz, Jerry Hausman and Ephraim Leibtag, and Russell Sobel and Andrea Dean weren't directly relevant to some of his key arguments. My review will be available on EH.Net soon.

3. Jennifer Burns, Goddess of the Market: Ayn Rand and the American Right. This was a Christmas present from my sister; I couldn't put this book down for all the right reasons. My review (available on SSRN) is forthcoming in Economic Affairs.

4. Robert Mayhew, Essays on Ayn Rand's Atlas Shrugged. I read a few of these essays and found them interesting and useful. If I ever teach a seminar class in which I can assign Atlas alongside something like The Grapes of Wrath (a la Pete Boettke), a lot of my notes on Atlas will draw on the insights in this volume.

My Father-in-Law and I just put together Jacob's Christmas "Black & Decker Junior Play Workbench." Here's more evidence that our standard of living has increased: the little screwdriver that comes with it is battery-powered.

Drip: an homage to Don Boudreaux's "Prosperity Pool" meme.

"From each according to his abilities, to each according to his political influence."

NB: inspired by a link from Rhodes student Brent Butgereit.

If this is the first you've heard of it, before you click on this link, try to guess how much Woods' misconduct has depressed the values of the companies that associated with him.

Does more joint housework lead to more sex? (HT: Charles McKinney) Causality issues aside, I'm sure a lot of people will read this article and start testing for whether the model makes good out-of-sample predictions.

If you support nationalized health care, remember that it will not be run by perfect people or even "wise and disinterested statesmen," whatever those are. It will be run by people like (a possibly drunk) Max Baucus (HT: Steve Horwitz). A quick Google doesn't yield confirmation that Baucus was drunk--there's some innuendo from partisans, but not much else in the first few results--but the case against his position is stronger if he gave a performance like that while sober.

If what I've heard on Christian talk radio and what I've read in a few places is any indication, the GOP's response in the debate has been a disappointing hash of Euro-phobia (They're going to make us more like the French!) and special interest politics (and they're going to cut Medicare to do it!). From both sides, it has been less about ideas and more about beating the Bad Guys.

In reviewing 2009, I think one of the most interesting stories was the way partisans changed their rhetorical strategies. When W. Bush was in office, it was the left claiming that dissent is patriotic while the right was screaming "America! Love it or leave it!" Now that Obama is in office, the right is screaming "dissent is patriotic!" while the left is screaming "America! Love it or leave it!" This cements my conviction that partisan politics is a spectator sport rather than an intellectual, social, or spiritual exercise.

From Bryan Caplan:

"Translation: Regulation forbids an adult and a child to consensually form a permanent family. What for? To protect the "rights" of abandoned minors' abusive and neglectful blood relatives - plus random bigots."

Courtesy of William Easterly (original HT: Chris Coyne). My inner Hayekian/Smithian finds this hilarious because it's an exercise in indulging the (fatal) conceit of the men and women of system who think themselves qualified to direct other men and women in the use and employment of their capitals. My inner humanitarian is weeping because a lot of people are going to die.

Update: Bill Easterly posts a response from someone in the military. Feedback/transparency/accountability WIN.

I just wrote a check to pay an $11 parking ticket for having my car parked in front of my house facing the wrong direction on the morning after Thanksgiving. We live in a neighborhood with no through streets or center lines. Possible exam question: Are tickets like this a wise use of police resources (hints: opportunity cost, equal-marginal principle)? How does your answer change if it's a busy street?

Extra credit: discuss the similarities between this and the incident that led Gary Becker to develop his economic theory of crime and punishment.

Paper idea: Discuss how the spontaneous evolution of parking norms in residential neighborhoods would obviate the need for police involvement (hint: the name of the scholar you should be referencing here begins with "Elinor" and ends with "Ostrom").

Those who receive the Mercatus Center's weekly email update may have already clicked to get a preview of the Keynes v. Hayek rap video by Russ Roberts. In a related NYT interview on Economix blog, Russ Roberts defends the Hayekian position against Lord Robert Skidelsky who defends Keynesian countercyclial stimulus spending. Around the 6:00 mark, when asked whether stimulus spending is necessary to reach full employment after a negative shock, Roberts invokes political inefficiency.

Roberts: Well unfortunately, what Keynes has done is he has given solace to politicians who want to spend money wastefully on special interests rather than on things that would help us.

Interviewer: Is that completely unfair?

Skidelsky: No, not completely unfair. There's a lot of waste. But the waste doesn't matter. There's more waste if you have heavier unemployment. See you're balancing a smaller waste against a larger waste. There's no ideal way out of the hole.

In a new Mercatus Center working paper called "Stimulus Facts," Veronique de Rugy and David Brito analyze the Economic Recovery Act's FY 09 Q4 allocations by congressional district.

On average, Democratic districts received 1.6 times more awards than Republican ones.... Democratic districts also received 1.89 times more stimulus dollars than Republican districts. The average dollars awarded per Republican district is $232,047,857, while the average dollars awarded per Democratic district is $439,200,100. In total, Democratic districts received 73.47 percent of the total stimulus funds awarded.

And as for comparative waste?

A total of 56,399 contracts and grants totaling $157,028,362,536 were awarded in this first quarter for which Recovery.gov reports are available. The number of jobs claimed as created or saved is 638,826.54—an average of $245,807.51 per job.

On Sunday, supporters bolted a chain to the establishment's bar, and some patrons hundcuffed themselves to it for about an hour while sipping on pints of beer. They say they'll do it again when authorities try to seize the property.

The bar in question is Freddy's Bar and Back Room, one of properties that the Empire State Development Corporation has condemend to make way for the Atlantic Yards development. Story here. For an analysis of the Atlantic Yards case, here is Ilya Somin

In this Bloomberg story Senator (but seemingly not Statesman) Reid lets us know exactly why the past two elections were so important for those who prefer more rather than less liberty and less rather than more statism - and also why the rest of the country will be paying for the entire increase in medicare/medicaid costs for Nebraska (and probably Louisiana as well):

"A number of states are treated differently than other states," Reid told reporters. "That's what legislation is all about. Compromise."

I guess I missed that lecture during my political science class in college.

I am sure I don't know what legislation is "all about" but I am not so happy that it entails, in the eyes of the current (and past?) leadership, treating the states differently. In Ayn Rand's Atlas Shrugged legislation and regulation morphed into the codified whims and pragmatism of the "Aristocracy of Pull." However, her point, in my reading, was that legislation that specifically aimed at carving out special exemptions for one state or region are a symptom of a deeper problem in the body politic.

It is fine for Ben Nelson to "secure" federal funding for Nebraska - but that federal funding doesn't materialize out of thin air (unless the good folks in Washington turn on the money press) but rather comes from us in Charlotte and Auburn and Spokane. Now, I am ticked at my Senator for not being #60 and getting the good folks of Lincoln (Neb) to finance the expansion of I-485 or helping Concord with the subsidies we "promised" to a local Speedway owner. After all, if money is on the table then I should be participating in the receiving not the giving. This reminds me of libertarian reporter John Stossel admitting to taking federal money to rebuild his hurricane damaged/destroyed house twice(!)*.

Of course that is exactly the problem - everyone wants everyone else to pay for their stuff and, in the end, the politicians are only too happy to facilitate - with a little help from the muzzle of a gun (taxes) and the mint's printing press (inflation).

I am fairly certain this is not what the (Federalist) founders had in mind.

Four predictions of what will happen (or not happen) after "reconciliation" (which this time around has too much irony for comfort):

1. small businesses do not expand because of uncertainty in exactly how much the reformed health insurance will cost, thereby prolonging the recovery or perhaps driving us into the "double dip" (this is already in the air among small business owners I know);

2. some tanning salons will go out of business (what is the price elasticity of demand for tanning machines?) and some of their customers will a) turn to good ol' Sol for their tanning needs thereby leading to more skin cancer than before (that one might be hard to test) or b) go the chemical route for their tanning needs with unknown unintended(?) consequences;

2b. After many rural tanning/hair/nail salons go out of business there arises a black market for tanning beds, permanents, and pedicures. This black market, what with those providing the tannings/perms/pedicures not licensed and trained by the state will lead to claims of even more health problems. This, in turn, will lead to the need for a new bureaucracy to crack down on this illicit black market and allowed to make a few "examples" out of the new criminal class;

3. medical tourism will almost expand in Barbados, Bermuda, Belize and other pleasant environs south. When it becomes apparent that (gasp, rich) folks are going out-of-the system to gain access to medical procedures without the wait/red tape/bureacracy, the Federal government will impose nearly prohibitive taxes on foreign-applied medical procedures purchased by U.S. citizens. This will also require a new bureacracy and attempts to gain access to U.S. citizen medical records that reside in another country, similar to what was recently wrested from Switzerland.

I'm sure there are more (funny and/or scary) predictions. If anyone thinks of clever side-effects of the probable reforms, I "tag out."

* As he wrote in a 2004 Reason magazine article titled "Confessions of a Welfare Queen."

Comes from Berry alum Mike Hammock: You Know Medical Marijuana is Here to Stay When the Sellers Begin Rent-Seeking

The Dec. 15, 1909 NYT prints a letter to the editor with an interesting question to which I think Gary Becker might have an answer:

Will a mere man who has been a student of economic problems answer this question: Is there any factor which can affect wages other than supply and demand? My feeble intellect is absolutely staggered by this cry of votes for women on the plea that it will increase wages. I understand perfectly that by popular vote the city employes, school teachers, etc., can be put on an equal schedule with men, but the few covered by this special enactment has absolutely nothing to do with the mass of women workers, hence when the suffrage leaders try to influence women to clamor for the ballot on this plea they are sailing under false colors.

I like Becker's theory on labor market discrimination (for it's elegance and it's universality) but if supply is the relationship between price and willingness to sell and demand is the relationship between price and the willingness to buy, then everything ultimately can be cast in "supply and demand." As I tell students in an introductory class (only half in jest) - there are really only three or four different "graphs" in economics, what changes are the labels.

I have also suggested that the standard "supply and demand" model, and more specifically the comparative statics of supply and demand, might help one reach the "correct" answer/prediction about 80% of the time. I have no evidence for such a claim, but I stand by it until proven wrong (ha ha).

I have had students in the past suggest that the supply-demand model is almost a cop-out on the part of economists, because, after all, it's all about supply and demand and that leaves little room for the non-monetary and intangible. Yet, that is exactly one of Becker's points about labor market discrimiation (in my reading), that the intangible and non-monetary "tastes" of the individual demander or supplier can manifest in actual, tangible, differences such as pay gaps. Of course, labor market discrimination is not the only source of a pay gap, which is why it is important to be careful to accurately measure the sources of such gaps.

I think the letter-writer is correct in the sense that the vote can be used to alter the wages of public employees, and it seems that is definitely what is happening today (one of the reasons I have always been a bit uncomfortable with public employee unions). I also think the letter-writer might be correct in that it is difficult to see how granting women the vote would directly impact female wages.

Perhaps granting women the franchise increases the desire to obtain human capital, which over time would be expected to alter female wages. Perhaps the franchise would ensure a broader, stronger, and deeper social safety net, which in turn might relieve women of some of the traditional (as of 1909) responsibilities with which they were charged and which, in turn, might have improved their productivity and hence their wages.

On the other hand, the claim from 1909 suffragists could have just be a lot of hot air rhetoric - not much different than the hot air rhetoric surrounding many of the social issues of today.

The Dec. 14, 1909 NYT reports the following:

BERLIN - The Committee on Appropriations unanimously voiced today to report to the Reichstag a resolution appropriating $500,000 for the relief of tobacco workers who have been thrown out of work as a consequence of the reduced consumption of cigars and cigarettes under the operation of the new tax measures.

Glad to see public policy has come so far in one hundred years.

ANNOUNCING THE 2010 YOUNG SCHOLARS PROGRAM

APEE has received a grant to help young faculty and graduate students attend our annual meeting April 11-13, 2010 in Las Vegas, Nevada. These funds are designed to encourage younger scholars to consider the advantages of APEE membership.

Successful applicants will have their registration fees reduced to $75 (normally $390) and be eligible for a stipend of up to $595 toward travel expenses. To apply applicants must supply us with the following: (1) a short essay (250-300 words) explaining why the applicant wishes to attend the meeting; (2) a short letter of reference, preferably from an APEE member or someone known to APEE, indicating why support should be provided to the nominee, and (3) a brief letter from the applicant's department chair or graduate director indicating the level of departmental support that the applicant can expect for this trip. Some of the applicants may be on the program and preference will be given to these applications. The deadline for applying is January 30, 2010. Those selected will be notified within two weeks of that date. Successful applicants will be required to register for the conference (at the reduced rate of $75) by February 28, 2010.

Please send applications to Dr. E.F. Stephenson at efstephenson[at]berry[dot]edu. If you have questions, you may e-mail Dr. Stephenson or call him at (706) 238-7878.

The Nobel Prize Chronicles includes a link to a video of Ostrom's Nobel lecture.

This Berkeley webpage includes a link to a video of Williamson's "Nobel Prize Day Highlights."

1. Mises: His Importance and Relevance. This was inspired in part by the recent Freeman symposium on Human Action and based explicitly on my notes from Jorg-Guido Hulsmann's opening lecture at Mises University. I read Hulsmann's biography of Mises in May (link is to PDF); if you haven't read it and are interested in intellectual history, you should.

2. Gordon S. Wood, Empire of Liberty. One of the takeaway points is that "Great Man" and "Golden Age" historical narratives are lacking. I'm about 350 pages in, and I would recommend it to anyone who wants to understand a crucial era in American history.

3. Hayek on Hayek. It's a collection of interviews and autobiographical notes from Hayek. In it, he points out that two mistakes he made were that he never reviewed Keynes's General Theory or Friedman's Essays on Positive Economics.

The new issue of New Perspectives on Political Economy is available here; it includes my paper "A Note on Profit, Loss, and Social Responsibility."

The University of Alabama has canceled three days of classes for the BCS National Championship Game. HT: Richard Vedder.

An article in REASON. On health care, and why subsidizing insurance is a remarkably dumb idea.

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Is there an entire book's worth of negative fallout from Tigergate? My guess is yes. From today's Sporting News Today:

The band had been raising money since February, with the effort culminating last weekend with a concert and silent auction. The auction's high-dollar item, requested well in advance: an autographed photo of Woods...

It was expected to go for $1,500 at auction. But after a series of unflattering revelations about the golfer's personal life, Bagstad said few people wanted to bid on the item. In the end, it only went for $300.

The band, from Clintonville, Wisconsin, was raising money to go to Disney World for spring break.

There is an implicit assumption that people are not willing to pay so much for a Tiger photo because they don't want to be associated with Tiger or don't want to hang a Tiger photo on their wall. This might be the case for some. However, an under-appreciated aspect of the sports memorabilia market is how much of it is based ("rationally" or not) on speculation.

If Tiger's chances for setting the career record for Major victories, tour victories, or any other statistic (in golf) have been permanently reduced, then a gap-down in the value of Tiger's memorabilia today would be expected as the future value of the same falls.

Some may think it a shame that the band will have a harder time getting south for Spring Break, but I won't be surprised when a private benefactor steps forward to help the kids get to Mouseland. However, there is a "teachable moment" that seems ignored: perhaps it is best to not put one's hopes and future on the actions and reputation of a person one does not really know (heads up to fans of George Bush, Barack Obama, John Edwards, Mark Sanford, and just about anyone other celebrity and politician).

I think someone wrote a book that was somewhat about that.

These short modules are excellent for discussions of basic micro.

Today the President "accepted" his Nobel Peace Prize. The purse is reported to be approximately $1.4 million, a number which might be a little inflated given teh the weaker dollar relative to previous years.

The Dec. 10, 1909 NYT reports the 1909 Nobel Prizes and reports that each is worth approximately $40,000. Granted there is a mix of prizes that carry the name of Nobel, but this is not my point.

The folks at eh.net claim that $40,000 in 1909 is $976,430.84 in 2008 dollars. Give the dollar a slide of 40% and the real value of the Nobel prize hasn't changed that much in 100 years.

How cool is that?

[Update (12-11-09): From this story from PhysicsWorld:

The Foundation announced at the weekend that it might cut the $1.5m it hands out for each of the six prizes awarded each year. The reason, it says, is the credit crunch and the impending recession, which has led to losses in the foundation’s assets.

]

A few thoughts and links:

1. William Easterly discusses growth econometrics and the relationship between development economics and climate science. I just printed the paper he references.

2. Climategate is going to make a lot of scholars across disciplines think very, very hard about what they're doing. The reaction to the Card & Krueger minimum wage paper is a feather in the cap of the economics profession. C&K appeared in the American Economic Review and was subjected to thorough examination and criticism before the bulk of the evidence came down on the side of competitive models of the labor market (cf. Neumark and Wascher).

3. Here's Bob Murphy on geo-engineering (HT: David Henderson). I'm skeptical of a lot of geo-engineering proposals because of the probable unintended consequences: "carbon-eating trees" sound scary, but they could just be like strains of GM corn or cotton. Note that there is an inconsistency in some of the arguments about geo-engineering: people claim that the physical environment is so complex that we cannot possibly hope to be able to engineer it appropriately. Many of these same people, I would suspect, are using this to support their claim that they should be given the power to engineer the global economy.

Ask Lynne Kiesling's and Andrew Kleit's new book, Electricity Restructuring: The Texas Story. From the AEI online store description:

In the early 1990s, the U.S. electricity industry was plagued by cost overruns and stagnant productivity. Many states turned to deregulation to promote innovation and cut costs, a strategy that had worked for the telecommunications, trucking, natural gas, and airline industries. Yet, after the California energy market's infamous meltdown in 2000-2001 triggered the recall election of Governor Gray Davis, deregulation lost popular and political support. Plans to introduce competition and retail choice in electricity markets were stalled or abandoned nationwide--in every state but Texas.

This volume explores how Texas's groundbreaking program of electricity restructuring has become a model for truly competitive energy markets in the United States. The authors contend that restructuring in Texas has been successful because the industry is free from federal oversight within the state; because new investments in electricity supply have been encouraged to insure that increased demand for power is met; because restructuring has spurred the growth of more efficient electricity technologies and business models; because the markets integrate wholesale and retail competition; and because the operation of the transmission grid has been changed to maximize its efficiency.

Here is the link. Congrats, Lynne!

So says Richard Rahn:

The underground or "black" economy is rapidly rising, and the fault is mainly due to government policies.

Here is the evidence. The Federal Deposit Insurance Corp. (FDIC) released a report last week concluding that 7.7 percent of U.S. households, containing at least 17 million adults, are unbanked (i.e. those who do not have bank accounts), and an "estimated 17.9 percent of U.S. households, roughly 21 million, are underbanked" (i.e., those who rely heavily on nonbank institutions, such as check cashing and money transmitting services). As an economy becomes richer and incomes rise, the normal expectation is that the proportion of the unbanked population falls and does not rise as is now happening in the United States.

See also Mark Perry's excellent post: The Imaginary Hobgoblin of "The Unbanked"

One of my corporate paymasters friends at the Institute for Humane Studies asked me to pass along information on the Humane Studies Fellowship. If you're a graduate student or if you plan to be one someday, these are great. The deadline is December 31, 2009.

When will the SEC (or National Weather Service) feel it's necessary to look into whether there are weather forecasters manipulating the market for temperature-based futures?

This paper forthcoming in the Journal of Banking and Finance, "The Pricing of Temperature Futures at the Chicago Mercantile Exchange," suggests that futures prices respond to forecasts up to 11 days in advance. Oh what fun the weather forecasters could have with this one.

Here's the abstract:

This paper analyzes observed prices of U.S. temperature futures at the Chicago Mercantile Exchange (CME). Results show that an index modeling approach without detrending captures the prices exceptionally well. Moreover, weather forecasts significantly influence prices up to 11 days ahead. It is shown that valuations of temperature futures relying on a model without detrending yield biased valuations by overpricing winter contracts and underpricing summer contracts. Several trading strategies are devised to exploit the mispricing observed at the CME and to demonstrate that speculating on temperature futures can not only generate high overall returns, but also perform well on a risk-adjusted basis.

Read more here

For three semesters now, I have had the pleasure of teaching from David Friedman's Law's Order. At certain times during this semester, I've considered a change. It is passages like the one below that give me great pause.

To set up context, David is discussing the 18th Century English system, in particular how it lacked public police and prosecutors and therefore relied solely on private prosecution to bring criminals to justice. The system contrasted with the French, which had paid police, public prosecutors and imprisonment. Why were the Brits so slow to "modernize" their criminal law system? Perhaps, Friedman speculates, the English were worried that if the Crown were solely responsible for prosecuting crimes then friends of the crown could do as they please -- could get away with murder. "That problem is still with us," Friedman says, and he points to various episodes of government overreach and democide.

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

For three semesters now, I have had the pleasure of teaching from David Friedman's Law's Order. At certain times during this semester, I've considered a change. It is passages like the one below that give me great pause.

To set up context, David is discussing the 18th Century English system, in particular how it lacked public police and prosecutors and therefore relied solely on private prosecution to bring criminals to justice. The system contrasted with the French, which had paid police, public prosecutors and imprisonment. Why were the Brits so slow to "modernize" their criminal law system? Perhaps, Friedman speculates, the English were worried that if the Crown were solely responsible for prosecuting crimes then friends of the crown could do as they please -- could get away with murder. "That problem is still with us," Friedman says, and he points to various episodes of government overreach and democide.

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

An interesting working paper popped up on SSRN this past week with the intriguing title The Wages of Failure: Executive Compensation at Bear Stearns and Lehman 2000-2008 . Here's the abstract:

The standard narrative of the meltdown of Bear Stearns and Lehman Brothers assumes that the wealth of the top executives of these firms was largely wiped out along with their firms. In the ongoing debate about regulatory responses to the financial crisis, commentators have used this assumed fact as a basis for dismissing both the role of compensation structures in inducing risk-taking and the potential value of reforming such structures. This paper provides a case study of compensation at Bear Stearns and Lehman during 2000-2008 and concludes that this assumed fact is incorrect.

We find that the top-five executive teams of these firms cashed out large amounts of performance-based compensation during the 2000-2008 period. During this period, they were able to cash out large amounts of bonus compensation that was not clawed back when the firms collapsed, as well as to pocket large amounts from selling shares. Overall, we estimate that the top executive teams of Bear Stearns and Lehman Brothers derived cash flows of about $1.4 billion and $1 billion respectively from cash bonuses and equity sales during 2000-2008. These cash flows substantially exceeded the value of the executives’ initial holdings in the beginning of the period, and the executives’ net payoffs for the period were thus decidedly positive. The divergence between how the top executives and their shareholders fared implies that it is not possible to rule out, as standard narratives suggest, that the executives’ pay arrangements provided them with excessive risk-taking incentives. We discuss the implications of our analysis for understanding the possible role that pay arrangements have played in the run-up to the financial crisis and how they should be reformed going forward.

Alex Padilla has a new op-ed in Forbes.com. At issue, whether the state of California ought to require condom use in the adult film industry to protect public health. Alex concludes:

Good intentions do not guarantee good results. The costs and consequences of adopting a condom-only regulation far outweigh any benefits. The adult industry has done an excellent job policing and testing itself. The government is likely to do more harm than good to the health of both porn performers and the general public if it meddles in adult entertainment.

ATSRTWFT

I'm prepping for the last meeting of Econ 339 this semester and, in light of some student questions, I'm re-reading Hayek's Nobel Address. This stands out:

“…the economists are at this moment called upon to say how to extricate the free world from the serious threat of accelerating inflation which, it must be admitted, has been brought about by policies which the majority of economists recommended and even urged governments to pursue. We have indeed at the moment little cause for pride: as a profession we have made a mess of things.”

Addendum: this is worth remembering, too. Hayek closes with this gem:

“The recognition of the insuperable limits to his knowledge ought indeed to teach the student of society a lesson of humility which should guard him against becoming an accomplice to man’s fatal striving to control society- a striving which makes him not only a tyrant over his fellows, but which may well make him the destroyer of a civilization which no brain has designed but which has grown from the free efforts of millions of individuals.”

Apropos Bob's and my paper on human rights and economic liberalization, here's a great post by Alex Tabarrok on Salvador Allende's attempts to solve the problem of economic calculation in the socialist commonwealth with some technological wizardry. Pay no attention to the man behind the curtain.

It's too soon, but within the next few decades I look forward to a complete and comprehensive intellectual history of the twentieth century. I expect that the two most important contributions will be Mises's "Economic Calculation in the Socialist Commonwealth" and Hayek's "The Use of Knowledge in Society."

F.A. Hayek once said that you can take any concept and make it meaningless by modifying it with "social." "Justice," for example, is meaningful. "Social justice" is not.

Along the same lines, you can take something innocuous and turn it into something scary and bad by modifying it with "foreign." "Oil" is okay. "Foreign oil" is bad. "Workers" are okay. "Foreign workers" will stop at nothing to take our jobs. "Trade" creates wealth. "Foreign trade" destroys American jobs. A lot of people thought "ER" was a great show. "Foreigner"...yeah.

Here's DOLer Mike Munger discussing the anti-economics of peak oil, which motivated enormous giveaways to ethanol producers (econ 101 students: use a supply and demand diagram to show how ethanol subsidies lead to the production of gallons of ethanol for which marginal cost exceeds marginal benefit). Now, as Mike points out, we might not be able to use all the ethanol produced to meet the mandates. According to the ethanol lobbyist quoted in the NYT article, though, ethanol will wean us off of foreign oil. Clearly, we need appropriations to build a strategic ethanol reserve. Of course, we could have an entire Ethanol Wing in the Boondoggle Museum.

see more Epic Fails

Source: Failblog.org.

Here's a guest post by my friend Mike Hammock on the Climategate scandal. I asked Mike to weigh in because he always has something thoughtful to say about things like this and because I've learned most of my environmental economics by talking to him over three years of lunches at Rhodes. Here's Mike:

Art Carden asked me to write up a blog post summarizing my thoughts on 'Climategate'. For those of you not following along, someone managed to hack into the University of East Anglia’s email server and extract emails sent by climate scientists, some of which show questionable behavior. Climatologists there may have tried to keep skeptical papers from being published, may have evaded requests under the U.K.’s Freedom of Information Act, and may have altered data to get the results they wanted. It won’t be clear until the investigation is finished.

My thoughts are pretty much the same as Tyler Cowen's. This is embarassing for East Anglia, and it weakens the consensus view, but it doesn't come close to destroying it. The pundits shouting the loudest about the leak—the Sean Hannitys of the world—are the least qualified to judge the science. I’m certainly not qualified, and ideologues won’t resolve the issue. I expect this to play out in the literature as it would in any other science. I will still defer to the collected expertise of climatologists, which, for the moment, still supports the AGW hypothesis.

I also expect climatologists to defer to economists when it comes to the question of "what to do about it". I still think a well-designed carbon tax or cap-and-trade system (the former being preferred to the latter) could result in significant welfare gains if paired with a cut in distortionary taxes (particularly payroll taxes), but I also think the odds of getting a well-designed regulation out of the political system are low. The question of whether a real-world regulation would create benefits greater than costs isn't yet clear to me. I'm not an advocate of the "we must do something, this is something, therefore we must do this" position on global warming. It is also worth keeping in mind that regulation doesn’t have to work badly; the U.S. market in SO2 permits is generally considered a success, reducing SO2 emissions at a lower cost than was expected. If I were a betting man, however, I would not bet on CO2 regulation working out very well.

I also don't think that Levitt's geoengineering stuff is a good substitute for CO2 reduction. It doesn't do anything about, ocean acidification, for example, and could have its own unintended consequences.

I don't, however, have much sympathy for Cowen's "In order for scientists to behave so badly, things must be really serious, so we should be worried!" argument. I see where he's going with it, but I don't think it's a good reason to overlook unethical behavior. Paying attention to someone’s argument because of their unethical behavior seems to me to create perverse incentives. I suppose he would say that we shouldn't overlook it, but we should place a lower weight on unethical behavior in a good cause.

I'll be live on Radio Free Market tomorrow at 1:00 CST to talk about why capitalism is so unpopular. Here are a few links that might be interesting to readers and listeners. Forgive the conspicuous product placements and self-citations, but most of what I'll say during the interview will be based on the following:

1. Deirdre McCloskey's The Bourgeois Virtues. Her opening "Apology"--the entirety of which should be on Google Books--is a tour de force. If you're going to read one thing before the end of the year, this should be it.

2. A few months ago, Josh Hall and I wrote a paper on "The Institutional Necessity of Economic Freedom" that discusses some of the themes McCloskey and others develop.

3. Speaking of Josh, here's an Economic Affairs "Economic Viewpoints" piece in which he and I discuss international labor standards. This is based on Josh's lectures at IHS "Liberty and Society" Summer Seminars where we've both been on the faculty.

4. Speaking of Economic Affairs, Mike Hammock and I discuss whether economists are "market fundamentalists."

Carden, Art and Robert A. Lawson. 2009. Human Rights and Economic Liberalization, under review at Business and Politics.

This paper has made the rounds at a handful of conferences and is finally available. Thanks to everyone who has offered comments and suggestions.

The abstract:

Using several case studies and data from the Economic Freedom of the World annual report and from the CIRI Human Rights Data Project, we estimate the effect of human rights abuses on economic liberalization. The data suggest that human rights abuses reduce rather than accelerate the pace of economic liberalization.

Back story and additional links below the fold. Cross-Posted at The Beacon and the Mises Blog.

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In the spirit of some of Bob's posts (below), Neal McCluskey offers the following on student protests about increased college tuition:

There’s a word for this kind of activism, and it’s not “idealism” or anything else so complimentary. It’s “rent seeking.” Or, if you want to put it more bluntly, “freeloading.”

... and uses it as a rationale for passing the monstrous health care bill. Here's a snip of his interview today with Fox Business Network's Liz Claman:

CLAMAN: Businesses investing again, they need to, they want to.

But I have to tell you, I talk to a lot of CEOs. So do you. And in advance, I told them I was going to be talking to you. And they said, look, we don't have a lot of this ability. We don't have clarity on where interest rates are going to be, what energy costs are going to be, what the health care situation is going to be. They would love some of that visibility clarified.

GEITHNER: They want -- businesses want certainty. They need certainty so they can make long-term plans today. And that's why it's so important that Congress gets health care behind us, that we bring financial reform in place so people know what the rules of the game are. And that's a very important thing to do. And that's why we're working so hard to make sure we bring clarity quickly.

UPDATE: Newsweek's Robert Samuelson also weighs in on regime uncertainty: "More important, the decision to press controversial proposals (health care, climate change, taxes) was bound to increase uncertainty and undermine confidence."

So does NPR--listen to the last 15 seconds of this story.

Tyler Cowen points to this post on the licensing of hypnotists (no kidding) in Indiana.

Instapundit points to this video from IJ (one of my favorite organizations) on licensing yoga teacher training programs in Virginia.

Here's a reason.tv video on licensing requirements for interior designers.

This cartoon by the Rome News-Tribune's Mike Lester reminded me of a barber shop I walked by while in San Antonio for the SEAs. The barber shop had a sign in the window promising a free beer to people purchasing haircuts.

The Dec. 3, 1909 NYT reports on an X-prize of the day:

Official announcement was to-night made of the offer of $100,000 by a Yale alumnus, who declined to allow his name to be known, to the person who discovers an adequate remedy for tuberculosis. The money has been turned over to Yale University as custodian, and the faculty of the medical school has been chosen its Trustees.

The story ends with the qualifications for winning the prize:

The donor of the prize stipulates that the cure for which the award is given shall have been in use five years and its permanent efficiency tested for that time.

A friend and I have had an interesting email exchange about my higher education bubble post. Part of the discussion centered on the differences between what we might call non-traditional higher ed (community colleges, for-profits and onlines like Phoneix, tech schools) versus traditional higher ed (e.g., Auburn).

Maybe I'm being naive but I think the traditional schools are better positioned when/if there's a higher ed bubble burst.

In my opinion non-traditional schools exist only because of massive implicit subsidies to students in the form mostly of guaranteed student loans. This is especially so for for-profits and tech schools. So the kids get stuck with debt (or taxpayers in case of default) for what I suspect is very little market return. The question is what happens if those subsidies slow. And seriously, the coming budget problems caused by social security and medicare (and now Obamacare) are going to force some cuts elsewhere. They simply can't use taxes or debt/inflation to cover it all.

My reading of places like Auburn (and most other traditional 4 year schools) is that were selling a consumption good, call it "the college experience", more than an actual education or any kind of job training. We're in the entertainment business! That doesn't mean we're not overbuilt ourselves because of subsidies as well, but I think the consumption aspect of our business model make our demand less elastic in the face of subsidy cuts/price increases than that facing the non-traditionals.

We're the modern day equivalent of the old practice where British elites sent teenage kids to continental Europe for a few years before coming back to England. As with college today, the theory was that it was to "enlighten" them, but the reality was it was a huge party for them.

Adam Smith had some very unkind things to say about the practice:

In England it becomes every day more and more the custom to send young people to travel in foreign countries immediately upon their leaving school, and without sending them to any university. Our young people, it is said, generally return home much improved by their travels. A young man who goes abroad at seventeen or eighteen, and returns home at one and twenty, returns three or four years older than he was when he went abroad; and at that age it is very difficult not to improve a good deal in three or four years. In the course of his travels he generally acquires some knowledge of one or two foreign languages; a knowledge, however, which is seldom sufficient to enable him either to speak or write them with propriety. In other respects he commonly returns home more conceited, more unprincipled, more dissipated, and more incapable of any serious application either to study or to business than he could well have become in so short a time had he lived at home. By travelling so very young, by spending in the most frivolous dissipation the most precious years of his life, at a distance from the inspection and control of his parents and relations, every useful habit which the earlier parts of his education might have had some tendency to form in him, instead of being riveted and confirmed, is almost necessarily either weakened or effaced. Nothing but the discredit into which the universities are allowing themselves to fall could ever have brought into repute so very absurd a practice as that of travelling at this early period of life. By sending his son abroad, a father delivers himself at least for some time, from so disagreeable an object as that of a son unemployed, neglected, and going to ruin before his eyes.

The Dec. 2, 1909 NYT has an editorial addressing the relationship between Wall Street and Elm Street and how the politicians fail (intentionally?) to explain each to the other:

It might be as well and as profitable for the country to understand Wall Street, as for Wall Street to understand the country. The country is being told that capitalists invest hundreds of millions in restraint of trade. Is it reasonable? Many persons seem to believe that railways charge extortionate rates because they enrich themselves by demands which prevent shippers from making a profit by the movement of their goods. Is that reasonable? Investors who sink millions of dollars, in enterprises thereby absolutely subject to the most oppressive laws without any possible escape, do not customarily and willfully break the laws and invite destructive penalties.

There are reasons why these things, or some of them, are done, and it interests the country to understand them. They are not obscure. They are written large in commercial history for those who have understanding to read them. Why is it that [William Jennings] BRYAN and the rest of the people's friends can have fresh issues for each campaign, time without end, while the railways, and the trusts, and every interest subject to the laws, persist in alleged sin and obduracy? There's a reason. The country's greatest need is a leader for the truth as influential as those leaders for the false in finance, who have cost the country so dear, and apparently must yet cost it so much more.

My interpretation of the op-ed piece is as follows. It is true that there are excesses and abuses in capitalism. However, competitive pressures from below and reasonable (or unreasonable) regulation from above generally keeps the majority of firms in check - the firms provide quality service and products to their customers or they would otherwise die. It is true that some firms enjoy government monopoly protection, get rich off of government contracts, and lobby government for special exemptions and rules that either lower their costs, ensure their revenue, or increase their rivals' costs. However, the common denominator in these examples of excess is government intervention in the form of picking winners rather than agnostic regulation.

The op-ed uses the railways as the "big nasty" to worry about but it is true that the railways could not price transportation, of people or goods, to the extent that it would put their customers (especially business customers) in a negative profit situation. Although there might not have been a large number of substitutes to trains, at least for moving product long distances over the mass of the continent, it is true that a firm didn't have to ship those long distances. Railways, of course, recognized this and priced for a profit but not for extortion and definitely not for the death of their clients.

In today's lingo it is possible, perhaps, to substitute "health insurance providers" for "railways" and any statist Democrat for the name "BRYAN" and we have not evolved much in the general political debate in one hundred years.

I like the op-ed's appeal for a leader who could talk sensibly about the benefits of capitalism (especially today given the 20th century's examples of Soviet Russia and Communist China and the unfathomable human suffering that attended those non-capitalist systems). It is clear that the "friends of the people" haven't moved off their talking points for over 100 years and the "friends of capitalism" have not generated a charismatic leader (unless, perhaps, Reagan? I am not sure about that generalization, I admit).

We start talking about externalities in econ 101 today.

Here was the pattern in the real estate market:

(1) Government subsidizes home ownership (mortgage interest tax deduction, FHA, Freddie/Fannie, low interest rates set by Fed, CRI, et cetera).

(2) Resources flock to subsidized markets and asset prices and wages in market increase at unsustainable rates.

(3) Bubble bursts. Asset prices and wages in the market plummet. Financial Institutions hit hard. Credit crunch. Recession.

Could this cycle by happening in higher education? We subsidize the crap out of higher ed (student loans, grants, direct subsidies to schools, educational IRAs, 529s, et cetera). Higher ed continues to expand rapidly its capacity building more and more and more buildings, dorms, student centers, jock palaces, etc, and faculty/staff wages by all accounts have grown more rapidly than most over time. If this is a bubble how does it burst?

Take note of this headline: "For-Profit Colleges: Scooping Up the Stimulus." Is the University of Phoenix the next Countrywide?

While at the Cato Institute for their annual monetary conference, I chatted with Caleb Brown about the contrast between the "rule of law" principle and the recent actions of our central banking authorities. Our 12-minute conversation is now available as today's Cato daily podcast.

1. I'm finishing a paper co-authored with Bob Lawson. If I don't send it to him by the end of the day, I will mail a check for $50 to the Auburn University Athletics Department.

2. An oxymoron: "trade war."

3. As this semester winds down, I'm reflecting on what I've learned in 2009. I've taught econ 101, writing-intensive econ 101, Classical and Marxian Political Economy, and a rebuilt Economic History course. Over the summer, I taught at an IHS "Liberty and Society" seminar and at Mises University. In the process, I've developed a firm conviction that Mises and Hayek are the most important thinkers you've never read; in particular, Mises's "Economic Calculation in the Socialist Commonwealth" and Hayek's "The Use of Knowledge in Society" might be the most important contributions to our understanding of societies that I've ever read. I made this point (to some extent) a few months ago, and in these articles Mises and Hayek confront the fundamental human problem head-on: in a world of infinite possibilities and in which we are confronted with almost infinite ways to use our time and energy, how do we decide what to do? Further, how do we evaluate our actions? Most public discourse advocating interventionism assumes that these problems are either trivial or secondary, and this has come to the forefront in public debates about health care.

4. Along these lines, here's Peter Boettke on EconTalk discussing the work of Elinor and Vincent Ostrom.

5. Back to work.

6. 10/10 AM Update: I forget who recommended it, but Alexander Gray's The Socialist Tradition: Moses to Lenin just arrived in the mail. I look forward to reading it for the next incarnation of Classical & Marxian Political Economy (probably Fall 2010 or Spring 2011).

Guess when this quote was spoken:

"While our country has natural advantages greater than those of any other, its normal growth and development have been greatly retarded by this periodical destruction of credit and confidence.

I believe that no one can carefully study the experience of the other great commercial nations without being profoundly impressed with the belief that disastrous results of recurring financial crises have been successfully prevented by a proper organization of capital and the adoption of wise methods of banking and of currency.

Of course, until human nature is changed, it will not be possible to prevent, by legislation or otherwise, periods of over-speculation, with undue inflation of values and over-extension of credit. When we consider the characteristics of the American people, whose unrivaled energy and enterprise are not always confined by the limits of prudence, it is certain that we in the United States shall always have periods of speculative inflation, with the evil results which are sure to follow."

Those are a few paragraphs from a speech given by Senator Nelson W. Adlrich, chair of the National Monetary Commission, to the Economic Club of New York, as reported in the November 30, 1909 New York Times.

In the same speech he refers to the buildup to the crisis of 1907:

"The crisis of 1907 was one of a series I remember very well - although probably very few of you do - the financial crash of 1873. I am sure you all remember that of 1893, from the effects of which the country did not recover for many years.

Between 1900 and 1907 we had recurring periods of depression, of dangerous perturbations in the money market, when the Secretary of the Treasury was frantically called upon for assistance, and felt obliged to adopt the very questionable policy of making large deposits of public money in banks to relieve threatening situations.

Evidently the basic policy prescription hasn't changed very much in 100 years?

1. Wireless internet + incredibly sleepy/grumpy kid = attending church via teh interwebs.

2. Here's Ian Ayres on why tuition hikes at California's state colleges and universities are a good thing. Cheap state colleges and universities redistribute wealth upward. In the opening section The Bourgeois Virtues, Deirdre McCloskey notes that the average family income for a California college student is higher than the average family income for a California taxpayer. Ayres makes the important point that the problem is not that tuition is too high but that financial aid is too low and too poorly targeted.

3. When Bryan Caplan and Robin Hanson's discussions end up spilling into the blogosphere, you can be virtually certain that you're going to learn something interesting. Here's Bryan's most recent post on cryonics. I don't think Bryan has commented on this yet, but here's Robin Hanson expressing gratitiude for The Unknown Explorer. Here he argues that people should look to maximize more than their GPAs. Here's the takeaway: "Most of the interesting academics I know spent lots of time when young structuring their own 'unstructured' activities; GPA fanatics usually have few interesting thoughts of their own."

At breakfast this morning, I mentioned to my Dad that George W. Bush is going to start a free-market think tank. His response: "what are they going to call it? The Richard M. Nixon Economic Freedom Initiative?"

Is it separating consumers by marginal value/willingness to pay or by risk preference? Here's an article from this morning's Memphis Commercial Appeal. A choice quote:

"My face was on fire the half hour I had to wait in line for the electronics counter, and there were several other customers who had been in line that had been pepper sprayed."

A few weeks ago, a friend posted a link to a story about how the NAACP is pressuring President Obama about African-American unemployment. Sadly and tragically, "repeal the minimum wage" is not one of their proposals even though the evidence suggests that it reduces employment and increases poverty. Here's an excellent post by Steve Horwitz on how "the science president" is ignoring the economics of the minimum wage. Here's my case for repeal. Here's a piece in which Steve and I join forces to rebut criticism of free-market economists. Here's my review of Donald Stabile's book on the living wage. Here's a piece on how the minimum wage affects the disadvantaged. Here's a piece on the hidden costs of the minimum wage. Here's Neumark and Wascher's comprehensive survey of the empirical research on the minimum wage; if you're at Rhodes, you have access to this paper because we have a subscription to NBER Working Papers.

At the SEA meetings, Jagdish Bhagwati dismantled the rhetoric of "fair trade" and said something that will stick with me for a long time. I paraphrase here: movements advocating what is grossly and misleadingly called "fair trade" and movements advocating higher minimum wages are filled with people who imagine themselves fine human beings but who are actually busy (unwittingly) doing horrible things to the people they claim to love so much.

With unemployment in double digits and with a lot of people struggling to make ends meet, I offer an appeal to my friends on the left who think that higher minimum wages do not reduce employment or who think that higher minimum wages are good for the poor: I beseech you, in the bowels of Christ, to consider the possibility that you may be wrong. Please. For the sake of the poor.

Addendum: I neglected to add Steve's "An Open Letter to My Friends on the Left", which is also well worth reading.

My econ 101 students have to write a review of Russ Roberts's The Price of Everything this semester. Some questions corresponding to each chapter are below the fold. Comments are open for a few days if you have any suggestions; if you like any of these questions, please feel free to use them.

Read More »

Per Noel's post on whether there could be a market in which he could short Geithner's tenure as Secretary of the Treasury, lucky for him (Noel) the good folks at Intrade have already set up such a market.

See the trend here - it looks like the worst for him (Geithner), odds wise, was back in April. That could change however.

One wonders if Geithner would buy/sell in this market and, if he did, would that be considered insider trading?

The Nov. 25, 1909 NYT reports on the cost of a generic Thanksgiving day dinner and points out that the price of said meal had increased from a price of $1.95 in 1899 to the price of $4.25 in 1909 ($103 in 2008 dollars), an annualized rate of inflation of 7.8%.

{sarcasm} This was clearly an unsustainable rate of inflation in the Thanksgiving Dinner sector because annualized overall inflation during this decade was 0.93% (according to the good folks at eh.net). One wonders why there was no legislative emergency declared that required a 2,000+ page bill from Congress to remedy - oh wait, I know why. {\sarcasm}

I digress, on to the Thanksgiving dinner of 1909:

The price of Thanksgiving turkey in Chicago has again advanced. In 1907 it could be bought for 25 cents a pound, in 1908 it climbed a little higher, selling at 26 and 27 cents. This year it will cost from 28 to 30 cents a pound.

Ten years ago a Chicago department store advertised the following bill of fare for $1.95:

Nine-pound turkey.
Enough plum pudding for four.
Mincemeat enough for three pies.
Bunch of celery.
Turkey seasoning.
Pound of parsley.
Quart of cranberries.
Pound mixed nuts.
Three pounds of sweet potatoes

The same bill of fare this year will cost $4.25.

Vegetables, however, are much cheaper than they have been in past years. This year cranberries can be had for $7 a barrel. Last year people who wanted a barrel of them paid $12.

I went to my local Harris-Teeter's online shopping site and put together the following cart:

3 14 oz cans of Ocean Spray Cranberry Sauce - Full Berry

1 McCormick Poultry Seasoning

9 lb Harris Teeter Turkey Breast (fresh)

4 12 oz North Carolina grown Sweet Potato Yams

2 bunches of fresh Italian Parsley

2 bunches of fresh celery

2 9.75 oz cans of Planters Mixed Nuts

The bill was $54.68 before tax.

Granted, I didn't add the plum pudding or the mincemeat (ugh) for three pies, but surely those wouldn't cost $50?

... that is creating "organ donor bikes":

The Green Bikes have survived their first semester, but not without repairs that have caused sponsors to question whether the program will be continued in the future.

Karen DeBonis, a member of GreenUR, said the success of the program depended on the students.

“Obviously we hope that students will respect the bikes as if they were their own,” DeBonis wrote in an e-mail. “I think that based on the number of damages we are seeing, students are not currently doing that to their best effort.”

Daniel Kinka, a University of Richmond graduate student and Weinstein Center for Recreation and Wellness employee, is responsible for repairing the Green Bikes.

“There was a little intentional abuse at first,” Kinka said. “It makes my life harder, but it’s almost to be expected. But the good news is we see less and less of that. Now the repairs are regular wear and tear.”

Doug Goad, the manager of equipment and facilities at the Weinstein Center, said he was trying to be optimistic about the program, but approximately 18 out of the original 35 bikes had been severly damaged.

“I wouldn’t say any of the bikes are ‘damaged beyond repair,’” Kinka said. “There are a couple off the road because we removed them. We use them as organ donor bikes, and rather than repair them we use them for parts.”

Kinka fixes four or five bikes a week on average. Out of the original 35 bikes, about nine are waiting for replacements of certain parts.

Source. HT Shawn Regan who has been watching the UR program expecting just this sort of news report.

UPDATE: The post on the UR program reminded me that a few months ago I received an email about a program in Annapolis, MD that apparently works reasonably well. Note that it operates like a library book checkout and requires both a photo ID and a credit card. (Thanks to the reader for the tip and sorry for the delay in posting it.)

The most interesting session I attended at the Southern Economic Assn. meetings over the (weekend + Monday) was on nominal income targeting as the least-bad monetary policy rule for a fiat money regime.

Now comes word that a short monograph on the topic, one I've been recommending to people for years, is available for download at a zero price from the Institute of Economic Affairs. (Insert economist joke here about how a price less than zero isn't feasible.) It is of course George Selgin's Less Than Zero: The Case for Falling Prices in a Growing Economy, first published 1997. Here's the page from which you can download the pdf. Selgin updates Hayek's argument for the central bank to stabilize nominal income, such that when productivity gains reduce the prices of particular goods, the central bank doesn't inject money to try to offset the resulting decline in average prices. Less stress on the price system, no disturbance of the loanable funds market.

Bye-bye Bally's, Ciao Ceasar's. By email from Jeff Clark:

TO: Members and Friends of APEE

FROM: J.R. Clark, Secretary/Treasurer

DATE: November 19, 2009

RE: 2010 Conference Location Change; Room rate remains $149

The 2010 Conference has been MOVED from Bally’s Las Vegas to Caesars Palace, Las Vegas, NV. The conference room rate will remain $149.00 (Single/Double). The conference will still be held on April 11-13, 2010.

Complete conference details here.

Arnold Kling writes briefly about Edward Kane's theory of dynamic regulation, which is a useful framework for understanding all sorts of regulatory institutional arrangements. Arnold quotes a great passage from Kane:

Regulation is best understood as a dynamic game of action and response, in which either regulators or regulatees may make a move at any time. In this game, regulatees tend to make more moves than regulators do. Moreover, regulatee moves tend to be faster and less predictable, and to have less-transparent consequences than those that regulators make.

Tobacco companies exemplify this well. Today, an AP story about tobacco companies mining loopholes in extremely high excise taxes.

WASHINGTON – When President Barack Obama signed a law expanding children's health insurance this spring, he slapped tobacco companies with huge tax increases to pay for it.

It didn't take long for the companies to find a multimillion-dollar loophole.

As soon as the new law took effect, raising taxes on roll-your-own cigarettes from $1.10 to $24.78 a pound, companies adapted. They all but shut down their roll-your-own brands and reinvented them under a less-restricted, less-taxed category: pipe tobacco. It's still destined to be rolled and smoked, but it's taxed at barely a tenth the rate, $2.83 per pound.

For the new issue of The Freeman.

In effect, while the legislation would enhance access to insurance, the trade-off would be an accelerated crisis of health-care costs and perpetuation of the current dysfunctional system—now with many more participants. This will make an eventual solution even more difficult. Ultimately, our capacity to innovate and develop new therapies would suffer most of all.

Part of his informed, thoughtful analysis in WSJ from Jeffrey Flier, dean of Harvard medical school and former undergraduate minor in economics and philosophy.

As I opined two months ago, there is good economics coming out of HMS these days.

PV(1975) = $55.7million. FV(2009) = $583k. Yield = -12.55%

... of states with bogus stimulus jobs claims. From the AJC:

Recipients of federal stimulus dollars have overstated the number of jobs created or saved in Georgia by more than 1,500, according to an Atlanta Journal-Constitution analysis of public records.

The AJC found:
● An Augusta agency reported creating 68 jobs even though the work has not started yet.
● A private contractor counted the same 10 jobs six times, erroneously reporting 60.
● A Head Start organization in LaGrange reported 77 jobs based on raises it gave its employees with the money.

Meanwhile, jobs have supposedly been created in Arizona congressional districts that don't even exist.

The Washington Examiner has a nifty interactive map plotting bogus claims of jobs created or saved.

Repeat after me--Stimulus: The Real Voodoo Economics

Two weeks till submission deadline!

Come work hard & play hard at the 2010 annual meetings of the Association of Private Enterprise Education. With yours truly as program chair, this year's conference promises to continue the trend of APEE becoming the conference of record among classical liberal scholars.

Highlights for the 2010 program include:
- Plenary speakers Tyler Cowen on the current state of economics, and Loren Lomasky on liberty after Lehman, plus a Rand versus Smith debate featureing Jim Otesson, Yaron Brook, and Peter Boettke.
- The Association will give its Thomas Jefferson Award to Penn & Teller, who will be giving remaks at a plenary meal.
- The Association's Adam Smith Award will be given to Peter Boettke.
- Other highlights: the best papers ever in The Indepenent Review; a panel on the future of money and markets with Jerry Jordan, Amity Shlaes, and Lee Hoskins; a new twist on the economics communicators contest; much more.

What is so special about the APEEs? Most of all, people at APEE know how to have fun while doing good economics, but the way the conference is oragnized helps. With no formal discussants assigned, sessions are geared toward presentation and floor discussion. The plenary sessions always provide great fodder for later discussions known to go well into the night. And there are three common meals, including an open bar reception on the first night. So it is very easy to meet new people as well as renew old friendships year after year.

At just under $400, the conference registration fee might seem a bit pricey. But for that, you get 3 full meals (Sunday dinner, Monday & Tuesday lunch) plus 2 mornings of continental breakfast, and an annual subscription to the Journal of Private Enterprise. Young scholars can also apply for partial funding of their trip (details on www.apee.org soon). In addition, journal submission fees are waived for all papers presented at the annual meeting. Combined with the relatively low cost of hotel rooms and flights to Las Vegas from most parts of the country, it is a relatively inexpensive conference to attend.

Essentials: (visit conference website here)
Las Vegas, April 11-14 (Sunday evening through Tuesday)
Bally's Hotel and Casino
Submit paper or entire session at www.apee.org
Submission deadline: Dec. 1, 2009 (email me if you a bit more time)

Bailout FAIL: Chrysler ends Electronic Vehicle Program (HT: David Zetland).

Epic FAIL: Pfizer is leaving New London, CT. Susette Kelo's old neighborhood, which was expropriated for the benefit of Pfizer in order to bring in jobs and create tax revenue, is an empty lot (HT: David Zetland and Alex Tabarrok). But here's a question: if we're allowed to take private property for the common good, and if tax revenue and jobs are "the common good," then shouldn't the city of New London be allowed to force Pfizer to stay?

Also HT to David Zetland for the "Government Fail" meme.

Titles linked to abstracts:

The Consequences of Mortgage Credit Expansion: Evidence from the U.S. Mortgage Default Crisis

Are Durable Goods Consumers Forward-Looking? Evidence from College Textbooks

An unemployed Gatineau man has been doing a modest but steady business in the past week by standing in line at flu clinics for people who can’t line up themselves.

And he says the city’s security measures haven’t slowed him down.

For $15 an hour, the man who calls himself Johnny Z lines up for hours to get the ticket, or more recently the wristband, that entitles the wearer to a flu shot.

The person who hires him takes his wristband and comes to the clinic for a shot later in the day.

Source. Thanks to Linda Ghent for the pointer.

An interesting article from a prospective economist. This young woman, now a senior in college, had a summer job at a bakery.

And, she recently listened to the podcast Russ Roberts and I did on vaccines, minimum wages, and shortages. And here's what she had to say. Amazing stuff.

Read More »

Here's an oldie-but-goodie from The Onion. I think a good first question for legislators to ask before they pass an appropriations bill would be "how many projects in this bill have all the wisdom of a monkey collider?"

Robert Higgs was on campus yesterday to discuss his book Depression, War, and Cold War; it was particularly poignant in light of the 20th anniversary of the fall of the Berlin Wall. Bryan Caplan's recent post on the Wall inspires me to consider (briefly) two myths about socialism: it works great in theory (it doesn't) and it was motivated by high-minded idealism that was, unfortunately, corrupted by bad people who couldn't handle power (it wasn't). To my shame, I am not familiar with Eugen Richter or his book Pictures of the Socialistic Future, but I look forward to reading it.

In Francisco d'Anconia's money speech in Atlas Shrugged, the character refers to the denunciation of money as "the leper's bell of an approaching looter." As we remember the day the Wall came down, it's worth a careful re-reading.

R.J. Rummel estimates that approximately 262,000,000 people died at the hands of 20th century governments and notes that if the average height of a victim was five feet, the bodies laid end to end would circle the Earth ten times. Here's another calculation to put it in perspective. If the average democide victim was five feet tall and if you laid the bodies end to end, you would create a chain of dead bodies over 248,106 miles long. The average distance from the Earth to the Moon is 238,857 miles, and the circumference of the moon is 6,790 miles. Laid end to end, the chain of dead bodies would stretch from the surface of the Earth to the surface of the moon and around the moon completely with another 2459 miles worth of bodies left over--which is almost the distance between New York and Los Angeles.

Imagine you had a rope that was as long as the line of 20th century democide victims laid end to end. With this rope, you could lasso the moon and cut off enough excess rope to stretch from New York to LA.

Update: Here's Pete Boettke on the Wall coming down. Here's Don Boudreaux's link to Pete's post, which offers the best Beatles-related blog post title ever.

11/9/09 Addendum: I read earlier that the average adult male body contains 6 quarts of blood. Round that down to five quarts to account for women and children and recall that there are four quarts in a gallon, and you've got approximately 327,500,000 gallons of blood spilled by democidal mortacracies in the twentieth century. By comparison, wikipedia reports that the capacity of the Exxon Valdez was roughly 53 million gallons. The Valdez spilled some 10.8 million gallons of crude oil into Prince William Sound in the one of the biggest environmental disasters on record. Thus, a crude estimate suggests that the blood spilled by democide in the 20th century would fill over six tankers with the capacity of the Exxon Valdez.

Tomorrow marks the twentieth anniversary of the fall of the Berlin Wall. It should be a day of celebration and a day of somber reflection. Here are some YouTube videos. Here's Bryan Caplan's Museum of Communism. Here's R.J. Rummel's website on democide.

11/9/09 Addendum: Here's Tyler Cowen.

11/9/09 Addendum 2: If you've never seen it, watch "The Lives of Others."

1. Shannon is visiting my sister in Houston and Jacob is sick, so the papers I'm within epsilon of finishing will remain between epsilon and delta of being finished until later this week. Fortunately, there are things (like blog posts) I can work on in fits and starts.

2. Via Arts & Letters Daily, here's a review of David Kessler's The End of Overeating by Jacob Sullum. I share leftist and foodie concerns about American dietary infrastructure, but I don't share their apparent conviction that serving people food they want to eat at prices they are willing to pay is part of an evil conspiracy to manipulate us. Instead of fuming about McDonald's and Oreos, a much more constructive endeavor for health advocates would be to try to identify the subsidies and regulations that have produced the mountains of junk food that masquerade as our daily bread.

3. That said, I'm going to indulge my inner teenager for lunch (Shannon is on to me). Jacob and I are going to take a walk in a bit, and I plan to swing by Taco Bell. It will be one part culinary experiment (is the Black Jack Taco any good?) and one part economics experiment (will they let me pay with a ripped-up dollar bill?).

4. I want to thank the kind people at Inter-American Products for making Everyday Living Disinfecting Clean Up Wipes, the people at the store where Shannon bought them (Walmart? Target? Kroger?), and everyone else throughout the production process for their willingness to help us in an hour of need. They don't know who we are. They might not even care. And yet they were willing to provide us with something I've found indispensable in the last few hours. All they wanted in return was a few dollars with which to accomplish their own goals.

5. While I'm thanking people, I also want to thank everyone involved in the production and distribution of the fancy "memory foam" pillow Shannon bought for me a few days ago. I've been waking up with back and neck pain for a while, and the memory foam pillow has helped a lot. It leads me to question criticisms of capitalism and consumerism. Sure, people buy a lot of junk (see 3, above), but it has also produced a world in which I can buy a pillow that helps me get out of bed without feeling like I've been kicked in the neck. From my perspective, that's hardly trivial.

6. On the subject of anti-capitalism, here's a back-of-the-envelope modification of the Drake Equation:

P*S*C*L*[G+T]*[1-(HA+MES)] = B

P = population, S = fraction of the population living within walking distance of a Starbucks (or any place that sells lattes), C = global supply of Che Guevara t-shirts, L = fraction of the population owning a Laptop, G = fraction of the population with Google Blogger accounts, T = fraction of the population with Twitter accounts, HA = fraction of the population that has read Human Action, MES = fraction of the population that has read Man, Economy, and State, B = non-ironic blog posts or Tweets denouncing capitalism on a given day.

7. Speaking of capitalism, here's Don Boudreaux's latest letter to the editor, a response to this WSJ piece arguing that we ignore Mises at our peril. Boudreaux points out that Keynes dismissed Mises's Theory of Money and Credit but then later all but admitted that his German wasn't good enough for him to really understand the ideas in the 1912 German edition.

8. FTC-mandated disclosure: I've received no valuable consideration in exchange for talking about these things.

Each month something like this lands in my inbox:

Dear Author,

As a service to our authors, we are pleased to provide you with a monthly
report tracking readership for any articles you publish with The Berkeley
Electronic Press:

"Pass a Law, Any Law, Fast! State Legislative Responses to the Kelo
Backlash"
8 full-text downloads between 2009-10-05 and 2009-11-05
129 full-text downloads since date of posting (2009-04-01)

To encourage readership, simply refer people to the following web address:
http://www.bepress.com/rle/vol5/iss1/art5

You are now encouraged. :-)

Roger Garrison is speaking at Rhodes tomorrow night on "Business Cycles and the Great Depression." His website contains some amazing resources on the Austrian theory of the trade cycle. He's also visiting my economic history class; for this I assigned his chapter on Austrian/capital-based macroeconomics and his Mises University lecture on the same. If you're teaching a macro course (or any course that discusses business cycles), these are great resources.

Here's Richard Ebeling on what The Berlin Wall represented (HT: Richard Ebeling). Here's Ronald Reagan's 1987 speech at the Brandenburg Gate. Regardless of what you think of Reagan, this is an amazing speech.

Not all is well, of course. Here's one of the most important (and moving) pictures ever taken. We have a long way to go. At the risk of being maudlin, here's what motivates me.

A plug for a new working paper of mine with John Chamblee (UGA), Peter Colwell (Illinois) and Carolyn Dehring (UGA) ""The Value of Land Conservation: Evidence from North Carolina " available at SSRN. We appreciate any comments on the paper. Here's the abstract:

We examine conservation activity in western North Carolina, where state income tax credits from land conservation have been available since 1983. Six land trusts, including the Nature Conservancy, undertake conservations in both fee simple and in conservation easement over a twelve year period. We find that value of conserved land differs by conservation mechanism, with fee conservations occurring in localized value craters. The price effect to adjacent land from conservation also varies by conservation mechanism, with greater benefits resulting from conservation easements. The mountainous landscape allows us to measure a variety of pricing effects from land conservation, including view.

The innovations in this paper are two-fold. First, we are the first study to investigate the impact of land conservation, which limits the use of the donated land in perpetuity, on proximate property values. That should be of interest to policy makers.

Second, unlike in a "flat" (sub)urban environment, the focus area is the mountains of Western North Carolina where premiums are placed on views. We show the amenity effects of conservation are not only proximate (as would be expected given the received literature) but also distant. Conservation efforts that protect the "viewshed" of a property contribute to an increase in that property's value. This suggests that land conservation efforts have a potentially larger public benefit than previously understood.

Steve answers questions on the current crisis, the Great Depression, and reforming the monetary regime, here at the Free Market Mojo blog.

Another interesting story from Nielsen looks into household spending over the past year. The pattern shows a remarkable increase in spending on perishables which is reflective of people eating out less. The story has this graph of trends in online activities:

The interesting trend is on-line use of recipe and meal preparation sites.

More here

Here is an interesting graph from Nielsen which shows how U.S. households have adjusted to the conversion from analog to digital television.

As the story reports:

SUMMARY: On June 12, 2009, the Federal Communications Commission (FCC) mandated that all U.S. based television signals must be transmitted digitally. The great majority of U.S. households (97.5%) were prepared for the digital transition in the week prior to the power turn-off. Nielsen data shows unprepared homes were more likely to be minorities, younger, lower income, and were less likely to have Internet access. Most homes acquired a digital converter box to make their television ready for the change.

The power of (mulligan) mandates?

More here

A new NBER WP by Peter Blair Henry and Diego Sasson points to another way in which economic freedom increases prosperity:

For three years after the typical developing country opens its stock market to inflows of foreign capital, the average annual growth rate of the real wage in the manufacturing sector increases by a factor of seven. No such increase occurs in a control group of developing countries. The temporary increase in the growth rate of the real wage drives up the level of average annual compensation for each worker in the sample by 609 US dollars—an increase equal to 25 percent of their annual pre-liberalization salary. The increase in the growth rate of labor productivity in the aftermath of liberalization exceeds the increase in the growth rate of the real wage so that the increase in workers’ incomes actually coincides with a rise in manufacturing sector profitability. Overall, the results suggest that trade in capital may have a larger impact on wages than trade in goods.

Part of the abstract of a new NBER WP from Thomas Dee:

Wisconsin’s influential Learnfare initiative is a conditional cash penalty program that sanctions a family’s welfare grant when covered teens fail to meet school attendance targets. In the presence of reference-dependent preferences, Learnfare provides uniquely powerful financial incentives for student performance. However, a 10-county random-assignment evaluation suggested that Learnfare had no sustained effects on school enrollment and attendance. This study evaluates the data from this randomized field experiment. In Milwaukee County, the Learnfare procedures were poorly implemented and the random-assignment process failed to produce balanced baseline traits. However, in the nine remaining counties, Learnfare increased school enrollment by 3.7 percent (effect size = 0.08) and attendance by 4.5 percent (effect size = 0.10).

In the news:

If you're looking for good news on unemployment, Moodys.com chief economist Mark Zandi doesn't have it.

Zandi told CBS' "The Early Show" Monday that the nation's near 10 percent unemployment rate will "stay there through this time next year."

However, the economist said, "we're heading in the right direction."

I can't help but wonder if Zandi considers unemployment approaching 10% to be the "heading in the right direction" since he said of unemployment benefits, "The bang for the buck is very high." By that logic, if we hit 15% unemployment we'll be rich, filthy rich.

Okay, enough fun. The right direction bit probably refers to news such as this.

Jittery Companies Stash Cash

Last week, I spoke to a class at Idlewild Presbyterian Church on the economics of drug prohibition. My notes are below the fold.

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John Authers of the Financial Times on the ideological core of the debate over financial regulation.

HT: John Cochran

Blogging: it's the perfect distraction when a stack of ungraded papers is staring at you.

Commentary has been circulating about the founding of the Institute for New Economic Thinking, which is being funded in part by George Soros. Here, for example, is Michael Giberson, and here is Michael Hirsh's Newsweek story on which Giberson is commenting. Hirsh argues that the "market-skeptic school" was "marginalized during the era of 'free-market fundamentalism.'" Laying aside for a second the fact that "free-market fundamentalism" is hardly an apt description of the policies most economists endorse--to say nothing of the policies that actually get implemented--a quick scan of the INET Advisory Board puts me with Giberson. At the risk of being cheeky, I wasn't aware that Berkeley, Cambridge, Stanford, Columbia, Princeton, the LSE, NYU, Oxford, UCLA, Harvard, the Central Bank of India, and the Bank of International Settlements constituted the neglected and shunned outer darkness of the economics profession--nor was I aware that the Times of London and the Financial Times were publications bereft of influence because they are neglected by the mainstream.

To the Institute's credit, two members of the Advisory Board are at institutions with clear non-mainstream bona fides (the New School and UMass-Boston), but that's only two out of 22 Advisory Board members. It's a little like a radio station calling itself an "Indie Rock Alternative" and then playing at least one U2 song every fifteen minutes. It would be a much more credible challenge to the mainstream, I think, if Soros had stocked the Advisory Board with economists from (say) the University of Missouri-Kansas City (here's their blog) or endowed a research center named after Hyman Minsky.

In their defense, they have a very good point: mainstream economics is at a loss to explain why, exactly, the crisis happened, and we need to broaden the economic conversation a little bit (actually, a lot bit). Enter Austrian business cycle theory, which did predict and can explain the crisis in terms of central bank policy errors. One of the leading thinkers in the Austrian tradition is visiting Rhodes this week. On Thursday evening at 7:00 in Barret Library, Roger Garrison will give a lecture on business cycle theory and the Great Depression. To tide you over until then, here's Garrison's Mises University lecture on the Austrian Theory of the Trade Cycle.

From this morning's Commercial Appeal, here's an editorial entitled "Voters deserve more than this." Here's a key passage:

Whether Herenton is guilty of a federal offense or not, a comparison of his performance as the city's chief executive for 17½ years, compared to Cohen's performance as a state and federal legislator for 27 years, should be the primary issue.

If the editorial writer is trying to be funny, this is hilarious. If the editorial writer is trying to be serious, this is terrifying.

I spent this afternoon giving a tragedy of the schwinn talk to some homeschoolers in Chattanooga and--deja vu--I see this in the NYT:

But this latest French utopia has met a prosaic reality: Many of the specially designed bikes, which cost $3,500 each, are showing up on black markets in Eastern Europe and northern Africa. Many others are being spirited away for urban joy rides, then ditched by roadsides, their wheels bent and tires stripped.

With 80 percent of the initial 20,600 bicycles stolen or damaged, the program’s organizers have had to hire several hundred people just to fix them. And along with the dent in the city-subsidized budget has been a blow to the Parisian psyche.

Thanks to JC for the pointer.

Here's co-blogger Mike Munger on the most recent GDP report:

"But all the increase is in G, financed by the increased deficit. It's fake. It's not real growth. It's just shifting money from taxpayers tomorrow into Obama's approval rating today."

The Gray Lady's Fashion & Style section reminisces about the bygone days of ultra spendy jeans.

But the denim bubble has burst, and only a handful of such extravagantly priced jeans remain at the jeans bar — labels like PRPS and 45rpm, which, in tacit acknowledgment of the decline of the premium business, are now more often referred to as “artisanal” jeans. Meanwhile, the sweet spot for designer jeans has relocated to a neighborhood just below $200, even though the styles do not look substantially different from the $300 jeans that were on the sales floors of Barneys New York and Bloomingdale’s only two years ago.

“The key price is under $200 now,” said Eric Jennings, the men’s fashion director at Saks Fifth Avenue. “The superexpensive stuff is not performing as well.”

The story suggests it's not just the business cycle decreasing demand for status goods. Competitors are figuring out ways to deliver similar materials and designs for less.

Now designers are facing pressure from stores and from their competitors to rethink prices, in many cases resulting in less expensive jeans or more styles at the lower end of each designer’s range. It has not gone unnoticed by executives behind the great denim rush of 2005 that even mainstream retailers like Gap and J. Crew have caught on to the appeal of Japanese denim, whisker treatments and fading details, and that they are now produce comparable premium-look jeans that cost around $60. Banana Republic has a new denim line coming in January.

There are more interesting tid bits of applied micro in the article. I find the apparel industry is interesting on many levels.

I gave the keynote address at the Economic Freedom Network Asia annual conference in Cambodia earlier this month, on the topic "Avoiding and Resolving Financial Crises: The Rule of Law or the Rule of Central Bankers?". The text of the talk is now available in pdf on the EFN-Asia website here. Comments are welcome (email me privately) as I think about turning it into a publishable paper.

Here are some excerpts:

At the core of the “rule of law” concept, as I understand it, is the liberal principle of non-discretionary governance that stands in contrast to the arbitrary or discretionary rule of men in authority. In shorthand, a political community faces a choice: either “the rule of law” or “the rule of men”. ...

Central bankers today are discretionary rulers over the economy’s monetary and financial institutions. Defenders of the rule of law, who in general decry the arbitrary rule of men, should specifically decry the rule of central bankers. Central bankers today are not “slaves of the law” but exercise wide discretion in monetary policy and regulatory rulemaking under the legislation that created and empowered the central bank. ...

In their policies for addressing the current crisis, central bankers ... and
Treasury ministers have been unorthodox and undeniably arbitrary, bestowing favors on some firms and burdens on others.

A new NBER WP by Alesina and Ardagna:

We examine the evidence on episodes of large stances in fiscal policy, both in cases of fiscal stimuli and in that of fiscal adjustments in OECD countries from 1970 to 2007. Fiscal stimuli based upon tax cuts are more likely to increase growth than those based upon spending increases. As for fiscal adjustments, those based upon spending cuts and no tax increases are more likely to reduce deficits and debt over GDP ratios than those based upon tax increases. In addition, adjustments on the spending side rather than on the tax side are less likely to create recessions. We confirm these results with simple regression analysis.

Here's an excellent post from Jim Fedako on the Census's programming for schools. Here's Daniel Klein on The People's Romance.

Speaking of which, some surprising responses to my recent Mises.org article on tire tariffs have gotten me interested in the narrative of "national greatness" in the last few weeks. Some of the comments on the Mises Blog and some of the emails people have sent suggest that somehow our "national greatness" is diminished by free trade. I must confess that I'm at a loss for how overpaying for tires is an exercise in historically meaningful national virtue.

So what's to be done about it? Here's Robert Frank on economics education.

My stellar student Shawn Regan alerts me to this tidbit:

On the evening of September 23rd, rangers began a search for hikers who repeatedly activated their rented SPOT satellite tracking device. The GEOS Emergency Response Center in Houston reported that someone in the group of four hikers – two men and their two teenaged sons – had pressed the “help” button on their SPOT unit. The coordinates for the signal placed the group in a remote section of the park, most likely on the challenging Royal Arch loop. Due to darkness and the remoteness of the location, rangers were unable to reach them via helicopter until the following morning. When found, they’d moved about a mile and a half to a water source. They declined rescue, as they’d activated the device due to their lack of water. Later that same evening, the same SPOT device was again activated, this time using the “911” button. Coordinates placed them less than a quarter mile from the spot where searchers had found them that morning. Once again, nightfall prevented a response by park helicopter, so an Arizona DPS helicopter whose crew utilized night vision goggles was brought in. They found that the members of the group were concerned about possible dehydration because the water they’d found tasted salty, but no actual emergency existed. The helicopter crew declined their request for a night evacuation, but provided them with water before departing. On the following morning, another SPOT “help” activation came in from the group. This time they were flown out by park helicopter. All four refused medical assessment or treatment. The group’s leader had reportedly hiked once at the Grand Canyon; the other adult had no Grand Canyon and very little backpacking experience. When asked what they would have done without the SPOT device, the leader stated, “We would have never attempted this hike.” The group leader was issued a citation for creating a hazardous condition (36 CFR 2.34(a)(4)).

This is a great example of J.R. Clark and Dwight Lee's rescue laffer curves.

Here are questions 1c and 1d from Econ 101 Midterm #1, administered on October 8:

c. People have debated whether the federal government should control executive pay. Use a supply and demand diagram to explain how binding controls would affect the market for executives.

d. Does the price control increase or decrease the efficiency of the market? How do you know? How might market participants circumvent the controls?

Here's a headline from yesterday's Wall Street Journal: "Pay Czar to Slash Compensation at Seven Firms."

I realize that these are firms that have gotten enormous sums from the Banking Sector Unification Plan, but it isn't clear to me how one can get strong economic performance by further distorting the market for executive talent. Wasn't the goal all along to make sure that these firms stay afloat? How do the feds plan to do this after all the talent jumps ship? Or maybe--just maybe--they should have been allowed to go bankrupt to begin with.

1969: "Good intentions and a quarter will get you a cup of coffee."

1989: "Good intentions and a dollar will get you a cup of coffee."

2009: "Good intentions and two dollars will get you a cup of coffee."

2029: "Good intentions, twenty dollars, the appropriate ration stamps, two copies of form Z-49a, two forms of photo ID, and an afternoon in line at the Bureau will get you a cup of coffee."

On Sunday, I'm speaking to a church group on the economics of drug legalization. Most of my arguments will rely on Mark Thornton's The Economics of Prohibition, the recent IEA book on prohibition edited by John Meadowcroft, and the 1996 Miron & Zweibel paper on the economics of prohibition. If you have any other reading suggestions, please let me know. Comprehensive links are forthcoming.

My wife is chronicling her experiments in the kitchen on an interesting new food blog.

Someday, I plan to write a book called Onionomics, which will look at basic economic principles through the eyes of Onion articles and videos. This video will be featured prominently in the chapter on foreign aid and signaling.

How Can We Raise Awareness In Darfur Of How Much We're Doing For Them?

A podcast....on EconTalk.

...in which I make the (to my mind, ENTIRELY self-evident) claim that the optimal rate of infant mortality is positive, possibly substantially so.

Here's the official blog of the Rhodes College Barbeque Seminar, organized by mathematician and voting theorist Eric Gottlieb. Our first outing (to Payne's) was successful. I still owe Eric money, so this is my credible commitment to pay him plus interest ASAP.

Yesterday I sent this letter to The Economist in response to this leader:

SIR -- In your leader on American health care ("What a waste", October 17th) you opine that the "worst flaw in the Finance Committee's bill is its failure to address the ["fee-for-service"] way that providers of health care are paid."

You misdiagnose the problem. Every day, millions of "fee-for-service" transactions occur for hair cuts, auto repairs, and other services, and all of these markets function reasonbly well. Health care is different, however, because the "fee-for-service" is paid by a third party such as Medicare or a health insurance company. Hence, both buyers and sellers are, as you say, "unconstrained either by medical necessity or value for money." With neither side of the health care market directly bearing the cost of the services provided, both are willing to exchange the medical equivalent of filet mignon when they'd exchange only a sirloin in the absence of a third party payer.

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

Don Boudreaux makes the same point in this column; see also Vernon Smith's piece in the WSJ. The steak metaphor comes from Russ Roberts.

Stimulus is the real voodoo economics so on Friday I sent this letter to the AJC:

You report (Oct. 15) that “Georgia says stimulus funds created or saved more than 23,000 jobs” and that 12,923 of the jobs were retained. The difference, a bit more than 10,000 jobs, would then have been created. Some 9,000 of those folks must have taken Gov. Perdue’s advice to “Go Fish Georgia” and been unable to be counted by the federal government because the national recovery.gov website reports that only 1,046 jobs have been created in Georgia. Even that estimate is likely to be on the high side because federal government officials have an incentive to make the stimulus look as effective as possible and because recovery.gov ignores any offsetting job losses arising from the increased deficit and the concomitant higher future taxes.

E. Frank Stephenson
Professor of Economics
Berry College
Rome Ga.

I was responding to this article; here's the recovery.gov website.

This is a reasonably accurate depiction of my internal monologue every time I go through airport security, though I didn't know that about laptop batteries:

Sheldon Richman on Michael Moore's "Capitalism"

To the extent that intervention hampers competition by erecting barriers to entry — which is the usual effect, intended or not — protected firms are free to charge higher prices and reap more profits than would have been the case in an open market. Corporate power and privilege derive from political power and can’t exist without it. In contrast to existing capitalism, the truly free market would have no legal barriers to competitive entry, assuring that prices and returns are economically justified and not the fruits of privilege.

What would Moore think about a system in which no one could collude with politicians to legally plunder the rest of us for their own benefit and everyone was free to enter into any cooperative arrangements to produce and offer goods to others in voluntary exchange? Michael, that’s the free market!

Check out Dwight Lee's column in today's Investors Business Daily, for a double shot of public choice and wry humor.

I bought ten of these last week. I'm keeping some of them and will probably give a few away as gifts (nothing says "Merry Christmas" like honest money bearing the visage of Ludwig von Mises). One is currently in my office, propped up against a chunk of the Berlin Wall. Tu Ne Cede Malis, indeed.

FTC-Mandated Disclaimer: I have in the past received valuable consideration from the Mises Institute in exchange for writing and speaking, but they did not pay me to endorse this product.

Cross-Posted at the Mises Blog.

At Forbes.com, I argue that we should repeal the minimum wage.

I'm a slow blogger these days, sorry. But I want to highlight John Nye's short piece for Forbes.com on the recent Nobel. First, money quote on Oliver Williamson

When firms and suppliers have to make large-scale, highly contract-specific investments, naive notions of market competition and competitive exchange get thrown out the window.... [This] helps us understand how we went from a world 50 years ago in which General Motors was the paradigmatic large firm for its ability to manage multiple subunits and hold large inventories to the modern world where Wal-Mart ( WMT - news - people ) is lauded not for producing in-house but for managing a complex network of competing suppliers worldwide under restrictive contracts.

And Elinor Ostrom:

But as Elinor has demonstrated, ham-fisted reforms that attempt to bring the illusion of modernity to the developing world by a naive adoption of Western best-practice laws without the structures that support and enforce those rules often leads to a destruction of indigenous practice that works reasonably well without substituting a functioning and reliable market of impersonal exchange. Much of the disaster that is foreign aid can be tied to the blunt importation of best-practice rules without understanding how their implementation interacts with existing practice.

Dan Klein and Jason Briggeman have a fantastic piece in the latest issue of The Independent Review. Here's the abstract:

More often than not, National Review, The Weekly Standard, The American Spectator, and the now-defunct American Enterprise have failed to oppose government intrusion into America’s bedrooms, gambling places, and drug activities. Whatever political principles these leading conservative magazines have espoused, the presumption of liberty is not among them.

Since the mags (esp. The Weekly Standard) aren't always consistent defenders of small government and economic freedom, the Klein/Briggeman piece reminded me of a letter I sent to the WSJ about 10 days ago:

Irwin Stelzer ("Notable & Quotable" Oct. 5) contends that workers "relieved ... of credit card terms that are excessively onerous, and helped to retain ... their homes" is an indication that market capitalism has not collapsed in the current recession.

One of the fundamental underpinnings of market capitalism is contract law; the expectation that contracts will be honored or altered according to the established doctrines of contract law is what makes credit card and mortgage lenders willing to make credit available to borrowers. If the current crisis has led borrowers and lenders to mutually agreeable contract alterations, then Mr. Stelzer is correct to conclude that market capitalism, or at least its foundation of contract law, has survived the current economic crisis. If, as is more likely correct, credit card or mortgage loan terms have been changed via government legislation or regulation, then Mr. Stelzer is mistaken in concluding that these changes in contracts herald the survival of market capitalism.

NB--Stelzer is frequent contributor to The Weekly Standard. I was responding to this piece in the WSJ.

...in the Division of Labour "Should I vote in the Memphis Mayoral Election? Essay Contest": Brent Butgereit, a Rhodes student (and the peer tutor for my econ 101 classes) whose entry comparing voting to cheering at a football game is below the fold. The takeaway point: "so should you vote? If you like to show that you can make noise for its own sake, then you should." Brent wins a book. I don't know which one yet, but he wins a book.

It should be pointed out that I am a college professor. I have opportunities to "make noise for its own sake" every week in class.

Thanks to everyone who submitted entries. I was looking for a blend of cost/benefit calculus and reasoning about engaged citizenship. For the record, I didn't vote. Was I forsaking my civic duty? I think not. First, the election was a complete blowout. Second, I was teaching and hosting David Zetland, who gave a handful of excellent talks and spent a lot of time with students at Rhodes. Third, there are a lot of other, very productive and civically-engaged ways to spend my time. Fourth, I received an automated phone call from one of the candidates urging me to get out and vote (the candidate lost). If voting is going to encourage political telemarketing, this is a disincentive to vote. Yes, I could have voted early, but that would have involved jumping through hoops to find out where, when, and how I could do so. Given everything else I had going on and the near-certainty that it was going to be a blowout, early voting runs into basically the same cost/benefit calculus.

One entrant, a Rhodes 2008 graduate, offered the following reason to vote that applies an insight from one of our on-campus lectures: "Bryan Caplan has thrown down the gauntlet and outright challenges smart people, such as yourself, to vote. Don't be noise; rather, be one of Caplan's informed elite who actually counts in the tallies."

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I just send the letter below to USA Today in response to this article:

Your article reporting on the "biggest annual decline in real wages since 1991" carries the misleading headline "Wages tumble toward 18-year low." Even with this year's decline, real wages will remain above their 1991 level. Indeed, wages will remain above their 2007 level because the chart accompanying your article reports that real wages increased 2.4% in 2008.

E. Frank Stephenson
Chairman, Department of Economics
Berry College
Rome GA

I'd say that with economic illiteracy of this sort it's no big surprise that USA Today has had a massive decrease in circulation. Unfortunately, I doubt bet the correlation betwen economic literacy and circulation is more likely negative than positive.

BTW, I found this piece via an Instapundit link that was accompanied by the comment "uh oh." Actually, with 9.8% unemployment falling wages are not surprising are probably a good sign that necessary labor market adjustments are taking place.

UPDATE: I just received a response to my letter--the headline has been changed to "Wages could hit steepest plunge in 18 years."

Here's Geoff Calkins from the Memphis Commercial Appeal on the extremely low turnout for early voting in tomorrow's mayoral election. You have until 6:00 AM tomorrow to submit via email a 250-500 word essay explaining why I should or shouldn't vote in tomorrow's mayoral election. There is a valuable prize for the winner, who will be announced on Friday.

Here's recently-crowned Nobel Laureate Elinor Ostrom on voluntary management of the commons. Ostrom's win can be considered a win for the Hayekian worldview as opposed to the Samuelsonian worldview. HT: Brian Hollar.

Capitalism and the Dialectic: The Uno-Sekine Approach to Marxian Political Economy

Description:
From the 1960s to the 1990s the ground-breaking Japanese economists Kozo Uno and Thomas Sekine developed a masterful reconfiguration of Marxist economics. The most well-known aspect of which is the levels of analysis approach to the study of capitalism. Written in Japanese, the Uno-Sekine approach to Marx's work is little understood in West. John Bell seeks to correct this, explaining how problematic elements of Marxian Political Economy such as the law of value and the law of relative surplus population can be solved by using a more rigourous dialectical analysis. Bell's clear and accessible synthesis provides economists with the tools to interrogate capitalism in a more powerful way than ever before.

From Munger:

As I always tell my students, an economist is someone who believes, sincerely believes as a matter of moral justice, that the infant mortality rate should be positive.

Start with a Pigovian question: what to do about externality? Entertain a Coasean solution: bargain it away. Get stuck on transaction costs due to a Buchanan problem: collective action. Arrive at this year's Nobel: voluntary collective action can and often does work toward the emergence of good institutions. It's not private property rights per se, but well-defined and enforced rules of exclusion, which support beneficial social organization. As Alex Tabarrok aptly puts it, for Ostrom it's not the tragedy of the commons but the opportunity of the commons.

For Williamson, I suppose you could replace "get stuck on transaction costs" in the above with "managerial" or "monitoring" costs. In short, one solution that Coase poses to externality is merger, the problems with which are worked out in Williamson's contract theory of firms.

Both laureates underscore non-coercive governance. I applaud deeply. For a good introduction, here is the scientific background provided by the Nobel committee.

Here. In the comments on the Mises Blog, I'm advised to "take [my] globalist cr@p" elsewhere. I confess I'm at a loss for the appropriate outlet for my globalist cr@p--if not the website of an institution bearing the name of an economist who thought Ricardo's law of comparative advantage is the wellspring of all social behavior, then where?

I've been rooting for Gordon Tullock to win the Nobel for as long as I can remember, but I can't say I'm surprised or disappointed that this year's prize went to Elinor Ostrom and Oliver Williamson. In fact, I'm thrilled. Arnold Kling offers an excellent summary of the Ostrom and Williamson win here.

Here are Bob Subrick's predictions (HT: Scott Beaulier). Bob suggests a possible prize for Gordon Tullock, Anne Krueger, and Jagdish Bhagwati for their work on rent-seeking. I've been rooting for Tullock for a long time, and I think that now more than ever he deserves the prize. By and large, government policy is made by ignoring Tullock's entire research program, with disastrous consequences. First, it is widely assumed that people will behave irrationally and opportunistically--except for a small caste of enlightened worthies who can be trusted to transcend their individual interests, behave perfectly rationally, and nudge the rest of us as hard as we need to be nudged in order to lead us to utopia.

Second, policy is made by ignoring what Tullock had to say about rent-seeking. Consider, for example, policies that are justified on distributional grounds. Even among some of those who acknowledge its disemployment effects, minimum wages remain popular because the increased income transferred to unskilled workers is supposedly worth incurring a little bit of deadweight loss. According to Tullock, however, the prospect of a transfer from employers to employees encourages rent-seeking on the part of employers (who seek to protect themselves from the transfer) and on the part of employees (who seek to acquire the transfer). The full value of the transfer will be frittered away through the political process.

Arguments for supposedly more efficient (or less inefficient) programs like the EITC or other tax-and-transfer schemes are undermined by the theory of rent-seeking. Even if we could implement a perfect tax-and-transfer scheme, the full value of the transfer will disappear down the political drain. From what I can tell about policy debates, however, this is only considered when people express surprise at the unintended consequences of the policies they endorse. Even only then, it is usually treated as a moral failing rather than a predictable consequence of the incentives in place.

Tullock has made a series of contributions that should have, by now, changed the way everyone looks at human action. If we had taken him seriously, we probably wouldn't have made the host of policy mistakes that caused the current crisis. If that doesn't deserve a Nobel Prize, what does?

We are honored to celebrate both the 250th anniversary of The Theory of Moral Sentiments and the 60th anniversary of Human Action with a guest post from Ludwig von Mises, below the fold. The post is excerpted from Human Action and published here. This is going to go into my introductory readings for Econ 101.

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Here's an entry from Greg Mankiw that reminds me of an exchange from Grad School. I was Douglass C. North's TA and RA from 2002-2005. Around the beginning of 2003, he knocked on my door and said that he had to nominate someone for the economics Nobel. Before he could continue, I interrupted and told him how amazingly flattered I was since I didn't even have a dissertation topic yet. Suffice it to say he wasn't nominating me.

This could, however, signal a shift in Nobel logic. If potential is what matters, I think the committee should reconsider and award the Prize to Chris Coyne. Like Obama, he isn't George W. Bush, so he meets at least one of the selection criteria. The tiebreaker would be Coyne's excellent After War, which, I hope, will be an input into Obama's foreign policy.

Update: Here's Kevin Grier wondering whether an Obama prize will make it harder for Obama to pursue an aggressive foreign policy. Maybe we aren't giving the prize committee enough credit: maybe they aren't giving him a medal to wear, but an albatross. Are they hoping that this will render politically unsaleable a lot of possible foreign policy options that would be unbecoming of a Nobel Peace Prize winner?

I must admit I was surprised by Obama's Nobel Peace Prize. It increased the probability with which I believe the timing of Krugman's economics prize was in part politically motivated. Here are some FB status updates from people on my "friends" list reacting to the prize, in no particular order (names redacted, obviously). The hits just keep on coming:

1. ...knows what next week's episode of South Park will be about.

2. ...wishes she could extend the Patriot Act and occupy a sovereign state, killing not only her own citizens but those of the occupied country, 'cause then she could get the Nobel Peace Prize!

3. War is peace.

4. Tonight we're gonna party like it's 1984!

5. If they're giving out Nobel prizes for not being George W. Bush, I want one too.

6. Art Carden likes some of President Obama's cosmopolitan rhetoric but wonders how tire tariffs and other restrictions on international trade are "extraordinary efforts to strengthen international diplomacy and cooperation between peoples."

7. ...wonders how long before someone makes a Kanye West mashup of him on stage with Obama saying that while the President has done a good job, Beyonce should've won the Nobel Peace Prize.

8. One that's in a language I don't speak, but it talks about Gore and Carter, and the last line is "El el 2010 sera para Paris Hilton."

9. ...is hoping that Kanye attends the Nobel awards ceremony.

10. ...started reading his Facebook feed and had to make sure that the links to Obama winning the Peace Prize weren't all from The Onion.

"Too Big To Bail," from this testimonial about the Mises Institute and Austrian Economics.

Here's the letter I mentioned a few days ago on what we might do about the Memphis Pyramid, published in this morning's Memphis Commercial Appeal:

"How about a boondoggle museum

I read your Oct. 5 article about debates over what to do with The Pyramid with some interest (“Plans for Pyramid differing widely / Candidates’ ideas often outside the box”). I propose a different solution: Privatize it by distributing ownership shares to all Memphis and Shelby County taxpayers. I would then encourage the new owners to convert it into an International Museum of Resource-Wasting Boondoggles.

Visitors could be greeted with a clip of Montgomery Burns from one of last season’s episodes of “The Simpsons” in which he describes “the American Dream: a billionaire using public funds to build a private playground for the rich and powerful.”

The museum could include an exhibit explaining the broken-window fallacy and another exhibit on badly done and arguably dishonest “economic impact” studies that tell stadium proponents what they want to hear, and it could offer numerous exhibits on how stadium projects fail to live up to their promises. They could start with an entire exhibit about how long it is taking to fill the giant mud puddle in downtown St. Louis where the old Busch Stadium used to be.

Art Carden

Memphis"

Office entropy is out of control, so I'm spending part of the--I was going to say morning, but it's now afternoon--cleaning up. Here's a paper that we'll read in econ 339 later in the semester: Frank Steindl's "What Ended the Great Depression? It Was Not World War II," which has taken on a new relevance since it was first published in 2007.

Some snips from a Heartland Institute piece on Ohio's payday lending ban:

Last November, 64 percent of the state’s voters favored approving an Ohio House bill capping payday lenders’ annualized rates at 28 percent. Legislators had passed the bill in June 2008.

The impact on the payday lending industry was swift. Already 700 of the 1,600 payday loan offices in the state have closed, said Kursman. Check ‘n Go has just 28 locations left in the state, down from 72 before the law changed, he said.

Payday lenders in Ohio argue banks have filled the void since the law changed. They don’t fall under the same regulations, so a few have started offering direct deposit advances. They typically charge $10 for an advance of $100 for up to 30 days. Banks market them as loans at 120 percent annual rates.

It wouldn't come as a surprise to learn that banks backed the payday loan ban, but I didn't find anything in an cursory Google search.

Previous DoL posts on Ohio's payday loan ban are here and here.

French President Sarkozy recently called for adjusting tradional GDP calculations for happiness (which I tend to think is a bunch of bunk, but that's another post). Maybe the French are happier than Americans (or, more generally, countries that have higher GDPs than France)--after all, they have good wine, fine cheese, the scenic countryside that's displayed so vividly in the Tour de France coverage each summer. However, Sarkozy might want to rethink his call for a happiness-adjusted GDP.

Consider suicide rates. French suicide rates for men are roughly 50% higher than American male suicide rates. For women, the French rate is double the American rate. (Source--pay attention to the graph on the lefthand side of the article.)

Then there's the matter of car burning--a rather unusual way to indicate happiness but de gustibus non est disputandum. Here are some snips from a Time article:

For much of the world, they became iconic of France's worst social ills: the burned-out carcasses of thousands of cars set ablaze during nearly three weeks of nationwide rioting in 2005. But as yet another orgy of automobile arson on Wednesday demonstrated, the torching of cars in France has not only become an everyday event; it's also now a regular form of expression for disenfranchised suburban youths wanting to make sure the rest of the country doesn't forget they exist. And their fiery presence is never felt so strongly as it is each New Year's Eve — the day of France's unofficial festival of car-burning.

According to figures from the French Interior Ministry, 1,147 cars went up in smoke on New Year's Eve — a 30% rise on the 879 autos torched the same night in 2007.

Nearly 43,000 cars were torched in France over the whole of 2007 — an average of almost 118 per day.

As for 2005, this Wikipedia page reports that 8,900 cars were burned over 20 days of rioting.

UPDATE: The Economist asks, "Why are the French so prone to suicide?"

Here's an interview I did with Radio Free Market during Mises U at the beginning of August and broadcast on September 25.

This article will argue that government energy policy has been based on faulty premises not only about the existence of market failure but also about the nature and process of innovation. Moreover, as this article will show, there is evidence that the private sector can develop energy alternatives more efficiently than the government.

That's a paragraph from what looks to be a good article by Peter Z. Grossman in the new issue of the Cato Journal.

Here are two of my favorite economists, Peter Boettke and Bryan Caplan, debating Austrian economics. It's a 13-part video, which raises a question: I have a video of Deirdre McCloskey's lecture at Rhodes, but YouTube won't take it. How can I cut it up, or where can I put the entire uncut video online? If you have a suggestion, please let me know.

Obligatory FTC Disclosure: I wasn't paid to write this.

Tyler Cowen reports that the FTC wants us pajama-wearing bloggers to disclose all the goodies we receive.

For the record I: I am open to payment if any of you want to pay me to write something on this blog. Let's make a deal baby!

For the record II: I have received exactly one book (unsolicited) hoping for a review on this blog, which I did not review, though it was a good book.

For the record III: The FTC can kiss my ass.

I'm cleaning out some old notes and I came across the following, which might someday be a question I would ask on an exam or in a job interview:

Crying babies and loud children are among the common complaints of frequent flyers; indeed, I can say from personal experience that a screaming infant can make for a long flight. Describe the reciprocal nature of the externality. How does the private market internalize the externality? To what extent does the possibility of an upgrade to first class help mitigate the externality? What is the role of reasonable expectations in deciding on a policy? What is the parent's responsibility? What is the responsibility of the other flyers?

This morning's Memphis Commercial Appeal had an article about what to do with the Pyramid, the empty basketball arena in Memphis that will reflect sunlight directly into your eyes if you're approaching downtown on North Parkway at the right time of day. They've been talking about this at least since we moved here in 2006; where's Hernando de Soto when you need him?

I sent them a letter (which I copied, and then copied over, so I can't post it) proposing that it be privatized and turned into a museum of resource-wasting boondoggles.

Paper title: When is the government spending multiplier large?

Paper abstract: When the nominal interest rate is constant.

The paper is by Christiano, Eichenbaum, and Rebelo.

Was it necessary? No. Did it accomplish anything? Only partial nationalizations, which are a negative. In an op-ed in the SF Examiner, Randy Holcombe lays out the details.

I was hoping others would jump into the discussion. Emily Schaeffer does. In the process of an excellent discussion, she points out (correctly, in my view) that what Mises is doing is laying out everything that is prior to observation.

Per co-blogger Ed Lopez's suggestion, comments are open.

Co-blogger Noel has taken issue with Human Action. I propose that we settle this in the manner that Austrian economists and Austrian sympathizers settle such things: pistols at ten paces at the Southern Economic Association meetings. I'll email Tony Carilli from the Society for the Development of Austrian Economics to see if they can squeeze us into one of their sessions, or perhaps we could do it after the SDAE dinner. Further discussion is below the fold.

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This is the punch line from a good article on the healthcare and the choices people make:

If individuals prefer to buy luxury items rather than pay for their healthcare needs, that preference should not be rewarded while taxpayers struggle to foot their own bills.

HT Gary R.

Here's the abstract from this paper (gated). I find this interesting and compelling in light of the anti-capitalist critique of markets as dehumanizing, atomizing institutions. I look forward to reading the paper.

This paper documents a strong positive relationship between individual reported trust levels (obtained from the US General Social Survey) and the competitiveness of the sector in which an individual works (obtained from the US census of firms). This correlation is robust to the inclusion of all of the previously studied determinants of individual trust, e.g., income, education, age, sex, marital status, city size, religion, and is large; a one standard deviation increase in sectoral competitiveness makes respondents approximately five percent more likely to answer the canonical trust question with a "usually trust" as opposed to a "usually don’t trust" response. The addition of a rich set of workplace controls shows that this correlation is not likely to be driven by the size of the workplace, the amount of supervision, or related to a congenial work culture. It also appears that it is not due to selection (i.e., trustworthy or trusting individuals selecting into competitive sectors) or risk aversion, but instead seems to be due to individuals becoming more trusting the longer their experience in competitive sectors. We conjecture that trust levels are high when workplaces are characterized by high contributions of discretionary effort, i.e., when co-workers are more likely to be trustworthy. We develop a model which shows that such discretionary efforts are more likely to arise when competition within a sector is high. Competition mitigates incentives for free-riding by imposing costly shut-down on poor performing firms, makes employees more trustworthy, and thus increases trust. The model generates a positive correlation between trust and sectoral competitiveness, displays a threshold effect, suggests a non-monotonic relationship between competition and job security, and predicts patterns for a number of other variables. The data displays a high degree of consistency with these predictions.

One of the rationales offered for government bailouts support for underwater homeowners is the supposed effect that foreclosures have on nearby properties. The new issue of the Journal of Urban Economics has an article (ungated version here) addressing just this issue by John P. Harding, Eric Rosenblatt, and Vincent W. Yao. The do find evidence of a foreclosure contagion effect, but it's size is very small and is therefore difficult to use as justification for any sort of large aid to folks who may be facing foreclosure. The abstract of their paper:

Although previous research shows that prices of homes in neighborhoods with foreclosures are lower than those in neighborhoods without foreclosures, it remains unclear whether the lower prices are the result of a general decline in neighborhood values or whether foreclosures reduce the prices of nearby non-distressed sales through a contagion effect. We provide robust evidence of a contagion discount by simultaneously estimating the local price trend and the incremental price impact of nearby foreclosures. At its peak, the discount is roughly 1% per nearby foreclosed property. The discount diminishes rapidly as the distance to the distressed property increases. The contagion discount grows from the onset of distress through the foreclosure sale and then stabilizes. This pattern is consistent with the contagion effect being the visual externality associated with deferred maintenance and neglect.

I have a question about another paper in the same issue of the JUE; I'll put it under the fold.

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I just saw a note to myself to add Steven Pinker's discussion of violence to my list-o-links from the "Think Global, Act Local" panel. Here's his TED Talk, and here's an article based on that talk. The list has been updated, too.

I spoke as part of a faculty panel last night on thinking globally and acting locally. I've updated the list-o-links I assembled a a couple of weeks ago in light of our discussion; an updated list is below the fold.

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As part of last night's "Think Global, Act Local" panel at Rhodes, we had a discussion of the motives for action. Here's an assessment by one of my co-panelists, who nails it. The panel illustrated nicely some of the points Thomas Sowell makes in A Conflict of Visions. The students who organized the panel are to be commended for putting together an absolutely fantastic discussion that featured real and meaningful disagreement between people of good will who are earnestly and intently interested in discovering truth.

I argued that by our nature we engage in calculation--we compare costs (what we give up) with benefits (what we get) and act accordingly. One of the most unfortunate and enduring myths about economics is that it is about money and material ends to the exclusion of other values. It isn't. Monetary and material considerations are a subset of properly "economic" problems. Economics is an exercise in the logic of choice, which is necessitated by the fact that our values and wants are infinite but the resources (knowledge, matter, time, etc) available at any point in time are finite. Further, people have conflicting values and conflicting plans that have to be reconciled somehow. Economics is not in a position to evaluate people's ends or values. Economics as such cannot tell me whether it is good or bad in any moral sense to consume more today or save more for tomorrow. Economics can trace out the implications and consequences of these choices.

Any choice means that we will incur a cost and receive a benefit, by the very nature of choice. This is a fact of action rather than a prescription or worldview. Anamaria Berea, Jeremy Horpedahl, and I explore this in a paper on James Buchanan's Cost and Choice and F.A. Hayek's The Sensory Order.

Perhaps serendipitously, I started re-reading Ludwig von Mises's Human Action yesterday (which was also his birthday). It's the first time I've read it since my first year of grad school; after about sixty pages I'm blown away with just how much of an intellectual tour de force it is. Mises places economics within a broader category of the sciences of human action (praxeology) and in turn places the sciences of human action within the broader framework of human knowledge. A few choice passages that speak to action and calculation (and that clarify my point from last night) are below the fold.

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I might as well pick up on Art's and Craig's stadium economics posts. In Wednesday's Rome News-Tribune I take a swipe at an upcoming tax referendum to raise $3 million to astroturf the local football stadium in order to retain the NAIA Football Championship. Last year's game, featuring Carroll College of Montana and the U of Sioux Falls, was played in a rainy quagmire and the NAIA apparently wants future games (beyond 2009 which is already committed to Rome) to be played on artificial turf.

The timing of my piece probably won't win me any friends among local astroturf supporters--the RNT reports that a big announcement on the future of the NAIA championship game will be made on Thursday.

Here's a letter I sent to the Saint Louis Post-Dispatch a few days ago re: Cowboys Stadium:

"I read Bernie Miklasz's recent column on the new Cowboys stadium with some interest. I too am appalled, but not because of the video board or the plush amenities. I'm appalled because taxpayers were forced to help pick up the tab. Montgomery Burns said it best when he described his taxpayer-funded arena on The Simpsons as "a billionaire using public funds to build a private playground for the rich and powerful." Further, Arlington taxpayers who voted for the stadium because of "economic development" benefits have been sold snake oil: according to the best available estimates, the economic benefits from stadiums are trivial if not negative."

In the technologically advanced Star Wars universe, how did they not know that Padme was carrying twins? Yoda said that the dark side clouds everything--are we to assume that means the sonogram machine, as well?

Michael Maiello makes the mistake of conflating free-market capitalism with state corporatism; my fear is that many with leftish sympathies are going to see Moore's movie and throw the capitalist baby out with the statist bathwater. Actually, strike that. I'm afraid they're going to throw the capitalist baby out and keep the statist bathwater.

A lot of people have trouble dealing with the fact that capitalism doesn't have a "point," and a lot of others are scared by the fact that no one is in charge in a free market. This is one of the essential points Hayek raises and discusses throughout his work, and it is not a point for which free markets should be condemned. If anything, our experience with the state suggests that our ability to improve on undirected, voluntary processes is limited. Here's my review of Paul Heyne's 'Are Economists Basically Immoral?' and Other Essays on Economics, Ethics, and Religion in which I discuss some of these points.

1. Say it with me: transaction costs! One more time!

2. I'm speaking on a faculty panel on "What's Wrong With the World?" tomorrow night as part of "Think Global, Act Local" week. I hope this doesn't happen, but I probably wouldn't be able to keep a straight face if it does.

3. This has "econ 339 research paper" written all over it.

The abstract of a new Journal of Health Economics paper (gated) by Lori Melichar:

The empirical literature that explores whether physicians respond to financial incentives has not definitively answered the question of whether physicians alter their treatment behavior at the margin. Previous research has not been able to distinguish that part of a physician response that uniformly alters treatment of all patients under a physician's care from that which affects some, but not all of a physician's patients. To explore physicians’ marginal responses to financial incentives while accounting for the selection of physicians into different financial arrangements where others could not, I use data from a survey of physician visits to isolate the effect that capitation, a form of reimbursement wherein physicians receive zero marginal revenue for a range of physician provided services, has on the care provided by a physician. Fixed effects regression results reveal that physicians spend less time with their capitated patients than with their non-capitated patients.

... at Congressional hearings on Paul's "Audit the Fed" bill, thanks to Tom Woods' kindly recommending my 2005 Econ Journal Watch article on the Fed's influence on monetary policy research. The mention comes 2'40" into CSPAN's coverage of the hearings here.

HT: Josh McCabe at The Sociological Imagination.

Here's a Fox Business interview with Peter Leeson on The Invisible Hook. If you're attending the Southern Economic Association meetings in San Antonio, Session 01J is a symposium on Pete's book featuring comments from me, Charles North, Per Bylund, and Virgil Storr along with Pete's response. The symposium is on Monday morning, November 23 from 8:00 AM until 9:45 AM.

Immediately after this session will be an economic history session in which I will present a paper co-authored with Chris Coyne on the Memphis Riot of 1866, Nevins Prize winner Melinda Miller will present a paper entitled "The Effect of Slavery on Family Formation," and Nevins Prize finalist Linda Carter will provide commentary and discussion.

For a sheet of problems on supply and demand and comparative advantage, I usually include "Consult the sheet I passed on [DATE] for the definitions of a 'surplus' and a 'shortage.'" This semester, I eliminated the date and meant to write "Consult the sheet I passed out during our discussion..."

After removing 56 copies out of the copier, I saw that the text was "Consult the sheet I passed out on during our discussion..."

I have been feeling a tad narcoleptic recently...

Writing on the VoxEU blog, economists Oren Levintal and Joseph Zeira draw lessons for the current crisis from their working paper on "The Evolution of Paper Money". (The paper is gated, but Prof. Levintal has kindly sent me a copy.)

An introductory three-sentence summary of their blog piece refers to the "18th century emergence of the inconvertible banknote, a 'toxic asset' ended by government regulation". I don't know whether the authors are reponsible for this blurb. Whoever is should consider that banknotes are among a bank's liabilities, not among its assets, so it doesn't make sense to liken them to present day "toxic assets" held by banks.

L&Z describe the development of banknotes redeemable for silver, then write: "Competition imposes discipline on the issuing banks, because agents can always move to other forms of money." So far so good. Then they add: "However, if some bank becomes the dominant issuer of notes (as was the case many times) and if silver is scarce, these notes face little competition. Thus, the issuing bank has incentive to over-issue notes, which might lead to inflation. This happened in several episodes of free banking and ultimately led to government intervention."

This is a puzzling passage. According to standard sources like Vera Smith, The Rationale of Central Banking, in the leading historical cases where a bank became the dominant issuer of notes it was because the government gave it a legal grant of monopoly. The Bank of England is a case in point. It did not happen in episodes of free banking. Kurt Schuler, "The World History of Free Banking" in Kevin Dowd, ed., The Experience of Free Banking, reports that of the sixty free banking cases he found, not one gave rise to a single dominant issuer through market forces (natural monopoly). Even on the tiny island of Malta, two issuers competed.

A legally protected monopoly issuer, e.g. the Bank of England, could and did over-issue notes. The problem of over-issue did not plague free banking episodes. Over-issue was the result and not the cause of intervention (the grant of monopoly) abridging freedom of note-issue. As L&Z wrote, competition imposes discipline on issuing banks. Competition in note-issue is not self-extinguishing.

L&Z mention a historical episode described by Adam Smith, in which Scottish banks around 1763 invoked their contractual option to defer redemption, with the result that their notes fell to a discount. I don't think we fully understand what happened in that episode. But it clearly isn't explained by L&Z's dominant-issuer scenario, because there was no dominant issuer in the Scottish system at that time. There were three large banks, not one, and dozens of smaller banks. L&Z's working paper cites Checkland's Scottish Banking: A History and my Free Banking in Britain, so they must know that there was no dominant issuer.

Over at Greg Mankiw's Blog, the Harvard econ folks are running a numbers game over who wins the Nobel on Oct 12.

HOW TO ENTER: Nominate who you think will win the 2009 Memorial Prize in Economics. Each name that you enter costs $1. You can also guess that no entrant will correctly guess the recipient(s). You can enter as many times for as many names you’d like.

[...]

All money collected will be divided between the winners of the pool. If there is one recipient of the prize, the payout will be divided among all those entrants who guessed correctly, with each of those correct guessers receiving a share in proportion to her/his share of the total number of bets placed on the prize recipient. If no one guesses correctly, the votes will be divided in the same fashion among those who entered "No Correct Guess." If there are n>1 recipients, exactly 1/n of the payout will be allocated to each and distributed as per the rules for one recipient.

This sure sounds a lot like Tullock's second big rent seeking paper ("Efficient Rent Seeking," 1980). This one paper set off a firestorm of academic work into game theory, political economy, and welfare economics, one which lasted a generation and then some. Nowadays, whenever we think of people sinking time and resources into unproductive activities, the phrase "rent seeking" comes to mind and Gordon Tullock is somewhere nearby, probably wagging his finger at you or low-talking into his recorder. The man had it figured out before anyone else -- not every detail and not every sub-game perfect equilibrium solution, but the idea intact and ready for delivery. Seriously. If we're talking pure merit, can anyone legitimately deny that there is a strong case for Tullock (and Tullock alone)?

From x-rate.com, here is USD / Euro last 120 days.

Burton Abrams and George Parsons chime in on the silly cash for clunkers program, and find that the costs outweigh the benefits by approximately $2000 per vehicle.

No surprise here. Move along.

New baby + new prep (History of Economic Thought) = not much time blogging

Let's leave comments open and see what everyone thinks: Health care costs are supposed to be spiraling out of control. Then why are the Lasik prices for my wife, who is going under the laser this Friday, exactly the same as they were a year ago when I had it done?

P.S. She couldn't get through the exam without laughing thinking of this.

Yep--more blowback from the cash for clunkers scheme:

With 690,000 vehicles sentenced to one final gargle of sodium silicate, thanks to the now-defunct Cash for Clunkers program, demolition-derby drivers seem to have been left holding the short end of the driveshaft. What the government seems to have forgotten is that many cars, hobbling and sputtering as they near death, prefer to make one final trip to the local county fair (assuming they escape a 24 Hours of LeMons team). There, stripped of glass and with fuel tanks moved safely inward, the clunkers die an honorable death smashed gloriously to pieces in front of large (and often well-hydrated), cheering crowds.

HT: Mark Steckbeck

Here is a global debt clock that enables handy comparisons across countries. I was struck by the differences in public debt per capita and public debt as a percentage of GDP in the US, Canada, and France. I had thought the Canadian debt picture was better than the American debt picture, but apparently not.

I re-read Francisco d'Anconia's money speak from Atlas Shrugged last night. I've been thinking about it a lot in light of Christian denunciations of "the love of money," which is either "the root of all evil" or "a root of all kinds of evil" depending on your particular translation. I think that, unfortunately, a lot of Christian views of money are held over from societies in which expropriation and redistribution rather than production and exchange were the routes to wealth. Indeed, here's 1 Timothy 6:9-10 (KJV), which suggests that the desire to get money leads people to commit all sorts of evil deeds:

"But they that will be rich fall into temptation and a snare, and into many foolish and hurtful lusts, which drown men in destruction and perdition. For the love of money is the root of all evil: which some coveted after, they have erred from the faith, and pierced themselves through with many sorrows."

If you who are familiar with Atlas Shrugged, that sounds a lot more like a condemnation of Orren Boyle, Jim Taggart, and their ilk than Hank Rearden or Francisco d'Anconia. I think the out-of-context "money=evil" meme is a holdover from a world of illiteracy, venality, and corruption in which the kings and priests could exploit the credulity of the unwashed masses for personal gain (anyone wanna buy an indulgence?). What I say here is tentative rather than authoritative, to say the least; if you have any comments or suggestions for further reading, I would be grateful. Comments are open or you can email me. Choice passages from d'Anconia's money speech are below the fold; at first they seem to run counter to Christian teachings about money, but I think they can be reconciled.

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Some have invoked government provision of fire protection services as an apologetic for government provision of health services; indeed, there is at least one Facebook group devoted to it. I don't think it works. Here's Fred McChesney on how we got socialized fire protection, and here's his Journal of Legal Studies paper on the development of socialized fire protection. HT: Jeremy Horpedahl.

Update: a few people tell me the links don't work, and I can't figure out why (I've checked the HTML tags, and I think the syntax is OK). Here are the URLs:

http://www.econlib.org/library/Columns/Mcchesneyfire.html

http://www.jstor.org/pss/724362 (gated)

David K. Levine is writing a series of pieces for the Huffington Post. Particularly worth reading is his Open Letter to Paul Krugman.

To be added to yesterday's list of history resources on YouTube, Drunk History. George Michael from "Arrested Development" gives a pretty good performance as Alexander Hamilton.

Here are some links and readings on which I'm basing my remarks at the "Think Globally, Act Locally" faculty panel at Rhodes on September 29:

1. Ayn Rand, Atlas Shrugged. Rand demonstrates a clear understanding of the unintended consequences of policies and actions, and she shows in detail how intentions do not translate into outcomes.

2. Friedrich Hayek, The Road to Serfdom. Hayek argues that interventionism kills liberalism and leads to totalitarianism.

3. Milton Friedman, Capitalism and Freedom. Friedman shows how economic freedom is consistent with and indeed essential to human flourishing. Before you reach for your copy of Naomi Klein's The Shock Doctrine to support your claim that Friedman is "The Proud Father of Global Misery," read my essay on The Shock Doctrine and Tyler Cowen's review.

4. Lant Pritchett, Let Their People Come. The entire book can be downloaded here. This book convinced me that removing restrictions on free immigration is not just a good idea but a moral imperative.

5. Frederic Bastiat, "What is Seen and What is Not Seen" and The Law (online, PDF, audio). Bastiat is an economist, journalist, and polemicist who is the originator of the "broken window fallacy."

6. Henry Hazlitt, Economics in One Lesson. Hazlitt's book is a series of lessons drawn from Bastiat's central insight.

7. Ludwig von Mises, Socialism (online, PDF). This is a greatly-expanded exploration of Mises's argument that rational economic calculation under socialism is impossible.

8. Deirdre McCloskey, The Bourgeois Virtues: Ethics for an Age of Commerce (Google Books, PDF of rough draft). The first sixty pages are essential; McCloskey surveys how bourgeois capitalism has not just made us richer, but better and more ethical.

8. Art Carden and Josh Hall, "Why Are Some Places Rich While Others are Poor? The Institutional Necessity of Economic Freedom." We discuss the definition of economic institutions and the role of economic freedom in creating prosperity. I discuss the relationship between foreign aid and economic growth in this paper.

9. My Mises.org audio archive. I gave five lectures: Production and the Firm, Environmental and Resource Economics, Common Objections to Capitalism, Consumer Product Regulation, and Short Selling: Explanation and Defense.

10. Links from my lectures at IHS and Mises University this past summer. The Mises U links in particular deal with environmental issues.

11. My "Blog Action Day: Poverty" entry from last year.

12. Lynne Kiesling's excellent discussion of the "man of system" passage in Adam Smith's Theory of Moral Sentiments.

Tyler Cowen and Uwe Reinhardt discuss health care plans.

ESPN oohs and aahs, calling it "Jerry Jones' creation" and "a tribute to excess." Instead of ruminating on the economics of stadiums--they're classic broken glass--I thought I would yield the floor to C. Montgomery Burns:

Matt Ryan posts the first edition of The Gus Rankings, with my Alabama Crimson Tide tied for #1 with something like half a dozen other teams. I like the basic idea of the Gus Rankings: you get a point for every game won by a team you beat, and you lose a point for every game lost by a team that beat you. Matt explains it in greater detail; one thing I like is that he is eliminating games against I-AA/FCS teams, so massive mismatches like Florida/Charleston Southern or the Michigan-App State game from a few years ago (oh, wait...) are eliminated. I doubt they matter much in the polls and the computers, but giving Florida any kind of credit for beating Charleston Southern is like counting the St. Louis Cardinals' win in a preseason game against the Memphis Redbirds (their AAA affiliate). My gut reaction is that the Gus Rankings would eliminate the incentive to schedule games like that. I climb the soapbox below the fold.

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Here's Milton Friedman, that flunky apologist for the rich and powerful...telling rich and powerful people that they should be less rich and less powerful (HT: Will Wilkinson). From the vault, here's my essay on Naomi Klein's The Shock Doctrine, which takes on new relevance given that Friedman is still getting bad press.

Having been the plaintiffs' sole expert witness I confess that did check to see if the Ohio Supreme Court mentioned me or my testimony in their decision. And sure enough they did but only once.

The state (and both courts that ruled against us) relied heavily on differences in the statutory incidence between sales taxes (levied on buyers) and gross receipts taxes (levied on sellers).

To economists this is pretty damned stupid and I tried to make this point in my testimony by saying that the burden of taxes will be distibuted to buyers, sellers, and factors of production independently of the statutory incidence regardless of the type of tax.

The court wrote,

And even with greater CAT liability, the cost of the tax might never cause grocers to increase the price of food. As recognized by the Grocers’ own expert, the seller might respond to the cost of the CAT by cutting wages or taking lower profits.

Yes, $#@%^$ %$&$#@!, I said this also the case with SALES TAXES. The whole point was that this doesn't matter in determining what kind of tax it is. A sales tax doesn't seize to be a sales tax if some (or all of it) can be passed on to owners or workers.

As expected , by a vote of 6-1, the Ohio Supreme Court today ruled that the Ohio Commercial Activities Tax (CAT), a tax levied on a firm's gross receipts, is not a sales tax, and thus not in violation of the state constitutional prohibition against sales taxes on food.

Writing for the Court in today’s decision, Justice O’Connor noted that laws duly enacted by the General Assembly are entitled to a strong presumption of constitutionality, and also observed that when a party sues the state seeking a tax exemption, courts are required to strictly construe the laws cited by the plaintiff. She wrote: “These precepts require us to uphold the CAT if it may plausibly be interpreted as permissible under Sections 3(C) and 13 (of the Ohio Constitution).

"The actual wording of Sections 3(C) and 13 does not prohibit the state from using gross receipts to compute the amount of a privilege-of-doing-business tax, even if those gross receipts include proceeds from the sale of food. And ... interpreting Sections 3(C) and 13 to allow such a tax is not only faithful to the text, it is (1) consonant with long-settled legal principles governing the taxation of the privilege of doing business, (2) implied by the structure of Sections 3(C) and 13, and (3) confirmed by the history both preceding and succeeding the enactment of those provisions. And when the CAT’s practical operation is considered, it becomes evident that it is what it purports to be: a permissible tax on the privilege of doing business, not a proscribed tax upon the sale or purchase of food. For these reasons, we reverse the judgment of the court of appeals.

Got that? "consonant with..." "implied by..." "confirmed by..." Gotta love lawyers.

Justice Paul E. Pfeifer entered a dissent stating that in his view collection of the CAT from grocers and other businesses based on their gross receipts from the sale of food is “an excise tax upon the sale or purchase of food” and is therefore prohibited by Sections 3(C) and 13 of the state constitution.

He wrote: “It is an incontrovertible fact that if a retailer has sales over $1 million and he sells an additional 40 gallons of milk at $2.50 per gallon, for a total of $100, a tax of 26 cents is levied upon him and the state collects 26 cents. Is this not a tax ‘levied or collected upon the sale or purchase of food?’ That 26 cents per $100 is a small sum does not mean that this tax is de minumus, as the majority suggests as to the $150 flat fee. Though there are more than 11 million Ohio residents, assume that only ten million people actually live in Ohio. Further assume that they each consume exactly one gallon of milk per month, that milk costs $2.50 per gallon, and that all of the milk is purchased from a retailer with sales in excess of $1 million – that is, any milk purchased from Kroger, UDF, Giant Eagle, Meijer, Target, Whole Foods, Sam’s Club, Costco, and the like. The excise tax levied and collected by the state based on the sale of ten million gallons of milk would be $65,000. Would this not be a tax ‘levied or collected upon the sale or purchase of food?’”

Justice Pfeifer, that would be EXACTLY the same as a 0.26% sales tax on milk. You get an A in my class, sir.

Exhibits A, B, C, D.

Yesterday I said it's amazing how little has changed in health care debates over the past century. Today I illustrate by asking: What would more central planning in health care look like?

The economics staff of the Joint Economic Committee picture this:

I worked as a staff economist on the Joint Economic Committee for about seven months in 1993-94. During my short time there, I worked on two projects that influenced the debate over the Clinton health care proposal. The first was a flow chart that diagrammed the Clinton plan, in particular how it would allocate resources through command and control (global budgets, patient queuing, lots of new federal agencies, a patient ombudsman in Washington, and so on). Counter-critics said the diagram was a caricature, but no one said it wasn't accurate. Everything in it came right out of the Clinton plan that Ira Magaziner wrote and leaked to Congress in the fall of 1993. The chart was published in the Wall Street Journal on October 13, 1993, and later dubbed by an admittedly self-serving Dick Armey as "the chart that killed the Clinton health plan." A couple of months later, then-Senator Bob Dole displayed another chart to anchor his response to President Clinton's State of the Union Address. Fancier than mine, with lots of colors and slick lines, Dole's chart was likened New York Subway map.

In those days there were lots of charts flying around. Call it an age of charts -- thanks in part to Ross Perot's 1992 campaign for president. Hello again, age of charts. Here's a scan of my chart.

Over the summer, I had the privilege of meeting historian Gordon S. Wood at the Jack Miller Center's Summer Institute. There are a lot of videos of Professor Wood on teh interwebs in which he discusses the Revolution, the Constitution, and other matters. I wasn't familiar with the Gilder Lehrman Institute of American History before this morning, but they seem to offer a lot of excellent resources via their YouTube Channel. This is an interesting exercise in Tyler Cowen's discussion of assembling and ordering "small bits" in Create Your Own Economy (review forthcoming). A couple of clips I'll be assigning are below the fold.

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A reader sends an email to Steve Horwitz and me in response to our article commenting on Jane Smiley and gives us permission to post:

Hello Gentlemen, I read your article. I found it very interesting and informative. I wanted to comment on one particular part of the article, but by applying it to another subject. A subject we are all watching and in front of our faces at this time. The following copy and paste below from your article, which is a quote from Murray Rothbard as described in your piece, will be the subject of my email to you. "Murray Rothbard once said that "it is no crime to be ignorant of economics," but that it is "totally irresponsible to have a loud and vociferous opinion on economic subjects while remaining in this state of ignorance."" I can't say that I haven't said something similar to this quite a few times the past few months on our current Healthcare Debate. I live in Texas, a well known and documented Conservative Red State. To make matters worse, I live in the Dallas area, where G Bush now resides, and I am in a profession loaded with the opposition Party. I'm a Texas Democrat. I am in the minority in this state, even though I believe the numbers to be shifting just a little bit. BUT, this is Texas, and I digress. The reason for me wasting your time is this: Applying, or interchanging, "Healthcare" for "Economics", in this quote seems to describe, in my opinion, exactly what is going in Town Hall meetings across out nation regarding the Healthcare debate. I have personally witnessed a Town Hall meeting here in Texas, and watch, or listen to, the news, a large part of the day everyday, so I've seen a ton of signs with very derogatory remarks and criticisms. To back up a bit, I am in no way stating that Americans shouldn't protest, or show up in large numbers to question a Government practice. To make this short, we all know that is Our American Right. However, most of the people at these events seem to be the older generation, on Medicare, and protesting an ideal that they are already using themselves. There are so many holes in the argument against the naysayers in the Healthcare debate in my opinion, but the most evident in my mind is the fact that the biggest bulk of the audience appears to be using government funded, government subsidized, Healthcare already. How can one scream and yell "Socialism" and "Government Takeover of Healthcare" when they themselves are on a very similar or same program? I'm not an economist, or involved in politics as a career or for gain, but I do consider myself a very intellectual person, and my view on this doesn't take much intelligence to recognize the hypocrisy spilling out of these Town Hall Meetings. So to my point: in changing the words to "it is no crime to be ignorant of Healthcare Reform," but that it is "totally irresponsible to have a loud and vociferous opinion on Healthcare Reform subjects while remaining in this state of ignorance", pretty much sums up the Healthcare Reform debate, as it relates to these Town Hall Meetings, in my opinion. Not only has the debate gone hypocritical, but most of the questions, fears, concerns, and shouting, has been about false statements, false propaganda, and without common sense, fed to them by media sources or by the opposition Party. But it goes without saying, they are loud, they are vociferous, they are uneducated on the issues, thus ignorant on the subject. Notwithstanding your own political views, or even engaging in an exchange of opinions, I really wanted to comment on that quote you used with this little bit of spin, since I believe it to be the perfect way to describe this debate. Again, sorry to take up your time, I'm just pretty warn out with the extremism and attention this debate has gotten in all it's hypocrisy.........Thanks for listening and for a very informative article. Have a great day!!!

Funny bumper stickers and t-shirts I've seen recently:

1. Driving to Rhodes today: "Midwives help people out!"

2. Rhodes parking lot, Monday: "Honk if I'm Paying Your Mortgage"

3. At DragonCon, this t-shirt.

I'm working on a review of Tyler Cowen's Create Your Own Economy, and I thought this passage was pretty interesting even though it doesn't really fit into the review:

"Media coverage brings similar problems of oversimplification. The tendency is to fit all facts into the format of a story, usually with a memorable protagonist, even when the reality is more complex. Haven't you noticed how many movies and TV shows offer an underdog struggling against the system and receiving ultimate vindication? It makes for a good tale. Yet this isn't always the most appropriate or the most accurate way of organizing information. The media is good at portraying heroes and villains and conspiracies, while it is bad at giving people an understanding of abstract or unseen social and economic forces." (p. 115)

This is a pretty good discussion of bad cognitive habits that reinforce other bad cogntive habits. I offer the health care debate as a case in point. Unfortunately, the discussion of Tea Party and Town Hall protests has been crafted into a narrative of morally unambiguous solutions thwarted by a combination of evil and ignorance. The assumption that anyone who opposes the President's health plan is a racist, an AstroTurf flunky, or both does not do anything to advance the debate in a useful direction. Of course, some of the President's more outspoken critics aren't helping their causes with inflammatory rhetoric. Referring to the President as an "Indonesian Muslim turned welfare thug" certainly doesn't invite sympathy and will almost certainly alienate reasonable people who support the President (HT: Chuck McKinney for the link).

Here's my very first Mises U lecture and my first video on YouTube. Topics include capital, productivity, trade, comparative advantage, and the firm.

When you peel back a few rhetorical layers of the current health care debate, it is amazing how little has changed since 1993 (Clinton care), or 1965 (Medicare & Medicaid), or 1954 (ESIs tax exempt), or even 1912 when Teddy Roosevelt campaigned for national health insurance. (More on TR here.) In an imperfect world, empathy and good intentions naturally move us to seek solutions, and rational ignorance naturally moves us to favor vivid solutions with quick-fix promises backed by technocratic awe. On deeper consideration, or when later confronted with unintended consequences, we might appreciate the limitations of resting the outcomes for millions in the hands of the few, however smart and well-intentioned the latter may be. In turn, we might even consider subtler, more opaque, less obvious solutions, which might not even look like solutions at all but instead -- well, processes. Like the processes of innovation, or of developing best practices, or of discovering productive efficiencies, or of human competition in general. The division of labor, while an ancient concept (HT: Xenophon), isn't the first stop along the mind's route to choice (HT: Vernon Smith). Yet it underlies each and all of the processes that subtly and dynamically improve the human condition -- not to perfection, but certainly to betterment.

We live in an imperfect world -- a simple and obvious point that the current political climate simply and obviously ignores. So it is noteworthy when prominent voices urge our policies in the direction of processes that, while imperfect, will make us better off.

Last week Jeffrey S. Flier, who is the Dean of Harvard Medical School, published "Health Care Reform: Without a Correct Diagnosis, There is no Cure" Journal of Clinical Investigation, Sep 10, 2009. (HT: Jeffrey Flier). Dr. Flier argues that we ought to give policymakers some pause, and we should resist the temptation of falling for a major systemic overhaul that impossibly purports to fix all problems in one fell swoop. Rather, based on a sound (rather than political) understanding of the problems, we should: 1) neutralize the tax privilege of employer sponsored insurance; 2) eliminate barriers to entry in medical services and especially innovation; and 3) look seriously at Medicare and Medicaid (although he doesn't elaborate, he is noteworthy for even going near these third rails). Dr. Flier's paper is also discussed in today's WSJ editorial. Elsewhere, and earlier, Dr. Flier co-authored with Terry Flier a lengthier essay on the principles of freedom and beneficial consequences of exchange in health care markets. Greg Mankiw blogged about it favorably here.

Dr. Flier's colleagues at Harvard Medical School, Gerome Groopman and Pamela Hartzband, peel back the rhetoric offered in President Obama's summer health care stumps. Underneath, they shed light on the intersection of economics and medicine. The best section in Drs. Groopman and Hartzband's article shows us how best practices in medical treatment are discovered. Best treatments change quickly with new evidence, new drugs, new devices, and good judgment at the individual doctor-patient level. It cannot be centrally planned, even by good, smart people.

Even when experts examine the same data, they can come to different conclusions. For example, millions of Americans have elevated cholesterol levels and no heart disease. Guidelines developed in the U.S. about whom to treat with cholesterol-lowering drugs are much more aggressive than guidelines in the European Union or the United Kingdom, even though experts here and abroad are extrapolating from the same scientific studies. An illuminating publication from researchers in Munich, Germany, published in March 2003 in the Journal of General Internal Medicine showed that of 100 consecutive patients seen in their clinic with high cholesterol, 52% would be treated with a statin drug in the U.S. based on our guidelines while only 26% would be prescribed statins in Germany and 35% in the U.K. So, different experts define "best practice" differently. Many prominent American cardiologists and specialists in preventive medicine believe the U.S. guidelines lead to overtreatment and the Europeans are more sensible. After hearing of this controversy, some patients will still want to take the drug and some will not.

This is how doctors and patients make shared decisions—by considering expert guidelines, weighing why other experts may disagree with the guidelines, and then customizing the therapy to the individual. With respect to "best practices," prudent doctors think, not just follow, and informed patients consider and then choose, not just comply.

What would be a man of systems' preference for developing best practices? Quoting Groopman and Hartzband, "The president also said there should be financial incentives 'to allow doctors to do the right thing'."

I've never been, but I suspect you can learn more than good medicine at Harvard Medical School. These are refreshing and informative reads, well worth being absorbed in their entirety, both for understanding health reform and for learning good economics.

The always-excellent William Easterly has a great post entitled "How the British Invented 'Development' to Keep the Empire and Substitute for Racism." After doing a lot of reading on the development of ideological justifications for slavery in the US and after searching through the papers of the Association of Southern Women for the Prevention of Lynching, I think classical liberals and libertarians don't pay enough attention to what our friends on the left have to say about race, racism, and how these affect institutions. In my Mises U lecture on "Common Objections to Capitalism," I pointed out that history is smeared with racism, bigotry, and the unfortunate effects of tribalism. If you take two racist societies that are alike in every respect and give one society capitalist institutions while giving the other society statist institutions, I would expect the capitalist society to be less racist as time goes on.

What does this have to do with Easterly? Easterly discusses the late twentieth century fetish for "development" and argues that it has its roots in the racist assumptions of European imperialism (am I starting to sound like a Marxist?!). I would argue that its appeal is that it flatters the paternalist conceit of the man of system. I think this was particularly true in the technocratic intellectual environment of the 1940s and 1950s. Here is his punchline, lest Easterly be misunderstood:

Why does this history matter today? After all, the Empire fell apart much sooner than expected, and racism did diminish a lot over time. And I do NOT mean to imply guilt by association for development as imperialist and racist; there are many theories of development and many who work on development (including many from developing countries themselves) that have nothing to do with imperialism and racism.

But I think the origin of development as cover for imperialism and racism did have toxic legacies for some. First, it meant that the concept of development was determined to fit a propaganda imperative; it was NOT a breakthrough in thought by economists. Second, it followed that development from the beginning would stress the central role of Western aid to help the helpless natives (which shows up in the early development theories like the “poverty trap” and the “Big Push,” and the lack of interest in local entrepreneurs and market incentives). Third, the paternalism was so extreme at the beginning that it would last for a long time – I still think it is widespread today, especially after today’s comeback of the early development ideas in some parts of the aid system. And this history also seems strangely relevant with today’s “humanitarian” nouveau-imperialism to invade and fix “failed states” like Iraq and Afghanistan.

Membership in the development elites is far more diverse than in Lord Hailey’s time, but I fear that, to use Wolton’s words, “in the end, the elites still believe in their fundamental superiority.”

Cross-posted at The Beacon.

Norma Rae was certainly brave, committed, and all that. But you know what they say about good intentions. What about the results? I'm sure all those unionize textile workers in North Carolina are living fine socially just lives these days, right?

Oh wait...

I was thinking last night that the biggest oxymoron in all of public policy is the term "trade war." Trade is cooperation for mutual benefit while war is a negative-sum game in which a lot of stuff gets destroyed. In light of the recent tire tariff, it looks like things are going to get gruesome as China retaliates. Here's Greg Mankiw with a few links and here, like clockwork, is a letter from Don Boudreaux pointing out that the tariffs punish Americans. Here's a bit of wisdom attributed to Joan Robinson:

"If your trading partner throws rocks into his harbor, that is no reason to throw rocks into your own."

And here's the Google Books link for Don's Globalization, which was one of the first things that came up when I googled (Joan Robinson rocks harbors).

The editor of the Review of International Organizations, Axel Dreher, sent me a link to the the most recent issue of the journal. While I had not heard of it before, it seems quite interesting. In particular, the forthcoming article by Peter Bernholz titled "Are international organizations like the Bank for International Settlements unable to die?" seems quite nice. From its abstract:

International Organizations seem to be immortal or at least long-lived. In this paper several factors which may be responsible for this fact are put forward and then analyzed by studying the empirical case of the Bank for International Settlements (BIS), which has now survived for seventy-eight years all threats to its existence. This is the more surprising since it was heavily attacked by the government of the most powerful country of the world, the USA for some years. This country demanded the dissolution of the BIS at the Bretton Woods Conference in 1944 as a precondition for allowing nations to join the planned International Monetary Fund. Before this the Bank was also able to master the crisis resulting from the demise of the gold (exchange) standard and the end of the German reparation payments agreed on in the Dawes and Young Plans, both consequences of the Great Depression.

It seems to me that most public choice scholars would find this paper of interest.
An underexplored area of economics for public choicers is the political economy of international organizations (although The Political Economy of International Organizations: A Public Choice Approach by Vaubel and Willett is great and Dreher himself does nice work as well).

The new Economic Freedom of the World: 2009 Annual Report was released today.

A short summary:

Economic Freedom of the World, 2007

Chapter 1 provides an overview of the economic freedom of the world project and the results of this report. It also reviews some causes of the current economic crisis and looks back at the Great Depression, examining briefly some of the policy responses—monetary contraction, trade restrictions, and increased government spending and taxation—that, perversely, prolonged that economic downturn. It warns against repeating similar mistakes.

The Impact of Financial and Economic Crises on Economic Freedom

Chapter 3 reviews the impact of banking crises, and their negative economic impact, on economic freedom. While the study finds that economic freedom may decline in the short term in response to crises, the results also indicate that, over a longer time, economic freedom had a tendency to increase after a banking crisis. As this case study shows, in Norway and Sweden the banking crisis did not distract these countries from continuing with their market-based reform policies.

The econometric results for changes in the level of economic freedom based on observations at 5-year intervals from 1970 to 2005 suggest that countries that had a banking crisis in the previous period increased their level of economic freedom. This result stands in sharp contrast to the chapter’s findings for the sample of annual observations over the period from 2001 to 2006 that suggest that in the short term a banking crisis lowers economic freedom. However, the authors warn that, due to the global nature of the current crisis, their results may underestimate the impact of the crisis on economic freedom. In other words, evidence based on previous crises may not capture the impact of the current crisis fully. As most countries in the world are in a serious economic downturn at the same time, the authors caution that it will be much harder to get out of this recession.

The Effects of American Recession-Fighting Policies on Economic Freedom

The third chapter examines the recession-fighting policies of the US government and concludes that many policy responses will reduce the country’s overall level of economic freedom in, at least, the short-term, through the following mechanisms.

• Monetary policy will likely cause inflation.
• The fiscal-stimulus package will likely result in unprecedented levels of deficits and interest payments that reduce the amount of credit going to the private sector.
• Federal spending on infrastructure, social programs, and transfers to the states will increase government consumption and transfers, lead to more regulation and, in some cases, encroach on state responsibilities, damaging the integrity of the legal system.
• Bailout policies involve changes in existing rules, damaging property rights, the integrity of the legal system, and the legal enforcement of contracts.
• Other measures, or proposed measures, that will reduce economic freedom include higher marginal incometax rates, increased regulation of the financial and manufacturing industries, and increased regulation related to the cap-and-trade system.

The policy implications of these findings are simple, the author argues. Since reductions in economic freedom lower economic growth and the overall well-being of Americans, the policies should be evaluated in the light of these costs
when they are undergoing detailed desgn, are implemented, and when they are reviewed in the future.

You can read the whole thing here.

I sent Forbes.com a piece on tire tariffs earlier today; I wish I'd waited long enough to be able to include this:

"That's the point: when the policy you are adopting is worse for everybody than a policy you agree is stupid, the policy you are adopting is best characterized as really stupid."

That's Brad DeLong's criticism of Tire Tariffs, along with a couple of back-of-the-envelope calculations.

HT: Will Wilkinson.

Steve Horwitz and I address Jane Smiley's HuffPo piece about economists. Here's relevant wisdom from Murray Rothbard:

"It is no crime to be ignorant of economics, which is, after all, a specialized discipline and one that most people consider to be a 'dismal science.' But it is totally irresponsible to have a loud and vociferous opinion on economic subjects while remaining in this state of ignorance."

Writing long before the discovery of Public Choice, Pigou saw government as an exogenous force, unconnected to unbridled market forces. Pigou implicitly saw government as being neutral and efficiency-bound at worst and benevolent at best. There is clearly no recognition that government enterprises could become the worst polluters and the least likely to respond to the spur of competition. To cap it all off, Pigou seems to assume that information can be obtained at no cost. Pigou armed the state with an appealing, informed, and logical analysis, and dignified market intervention and regulation, and armed future generations of political favor seekers with a kind of Old Testament interpreation of how to make the world a better place. If enough rules are written and enforced, better things will emerge, especially for well organized interest groups. (p.127)

[...]

In thinking about Coase versus Pigou, we should also recall the purpose of Coase's investigation; he wanted to understand a world in which transaction costs are positive. When we investigate that world, a rich array of quality assurance devices are observed. Rules of liability and common law rules form a minor part of that world. Brand name capital, capital market monitoring, concern for community, and third-party monitoring form a major part. These are evidence of positive transaction costs that limit direct Coasean bargaining. Among the world players are governments and other organizations that are immune to the spur of competition and have no need for quality assurance. It is this part of the world that Pigou was really addressing: It is government itself that must be controlled with government regulation.
At first blush, suggesting that government should focus on itself, imposing command-and-control regulation on government enterprises and leaving the unfettered forces of the market to deal with private firms and individuals, seems itself to be a Pigovian prescription. The recommendation implicity assumes that a centralized authority managed by wise welfare-maximizing economists will rule the day. Yet if Public Choice theory has taught us anything, it is that government is endogenous to the political economy. Barring benevolent dictatorships, there is no ruling authority. Process alone determines outcomes, and it is in analyzing process that Coase has the advantage over Pigou. (pp.148-9)

Bruce Yandle, "Coase, Pigou, and Environmental Rights," in Hill and Meiners (eds.) Who Owns the Environment? (1998). The chapter draws on Bruce's book, Common Sense and Common Law for the Environment (1997). HT: Liberty Fund conference later this month.

That's Gene Callahan on health care. Here's Steven Horwitz's excellent "Ought Implies Can" (the version published in The Freeman) and a few of my comments from last semester.

A "HuffPost Reporting" piece on the Huffington Post blog on Monday, as its title above suggests, raises the possibility that the Federal Reserve's funding of so many monetary economists imparts a pro-Fed bias to the economics profession. The author, Ryan Grim, insightfully offers this an explanation for why economists haven't been more critical of the Fed's policies leading to and since the financial crisis. The article points to some of the same evidence suggestive of the danger of a corrupting Fed influence that I discussed in my 2005 EJW piece, "The Federal Reserve System's Influence on Research in Monetary Economics", for example the prevalence of Fed-affiliated economists as "gatekeepers" at the leading field journals in monetary economics.

Jeff Tucker of the Mises Institute, independently of my noticing the article, emailed the author to ask why he hadn't mentioned my piece. He replied that he hadn't known about it. The article relies mostly on two Fed critics on the left, James Galbraith and Robert Auerbach, both at the University of Texas. Of course, their preferred alternative institutions could be even farther from mine than the status quo. But if the Fed is ever to be dis-entrenched from power, the more Fed skeptics from across the spectrum the better.

Baptists and bootleggers meet up to regulate marching bands: there's a bill being pushed by the one company that does professional band instrument sterilization to require Massachusetts schools to have instruments professionally sterilized (HT: Radley Balko). I know from experience that band instruments can get pretty gross, but they can be cleaned easily and most of the possible public health problems can be fixed by using your own mouthpiece. Further, I doubt that the marginal benefit of professional sterilization is worth the marginal cost. What are the specific threats that require professional sterilization rather than soap and water? And how do internal monitoring institutions fail?

Here. Steve Horwitz and I are going into the breach with two articles responding to Smiley. The first will appear on Forbes.com after it has been edited and such, and the second will appear as an "It Just Ain't So!" column for The Freeman. More soon; Giberson's post is well worth reading.

1. There will be a Hernando de Soto PBS special this fall called "The Power of the Poor." The one-hour special will air on October 8th. (Note the blog contest, for those interested).

2. de Soto is the focus of the 2nd Annual Upton Forum at Beloit College. The Miller Upton Forum at Beloit College honors the work of intellectuals who have made important contributions to our understanding of the wealth and well-being of nations. In addition to a public lecture by de Soto in Beloit in late October, we have several speakers throughout the year whose work has influenced by de Soto, such as Claudia Williamson, Tyler Cowen, and DOLs own Ed Lopez and Bob Lawson. If you are in the area and interested in attending any of the public events, a registration form can be found here.

An ungated draft version dated April 2009 is available here.

Wall, Howard J. (2009) "Don't Get Skewed Over by Journal Rankings," The B.E. Journal of Economic Analysis & Policy: Vol. 9 : Iss. 1 (Topics), Article 34.

Abstract: Nearly all journal rankings in economics use some weighted average of citations to calculate a journal's impact. These rankings are often used, formally or informally, to help assess the publication success of individual economists or institutions. Although ranking methods and opinions are legion, scant attention has been paid to the usefulness of any ranking as representative of the many articles published in a journal. First, because the distributions of citations across articles within a journal are seriously skewed, and the skewness differs across journals, the appropriate measure of central tendency is the median rather than the mean. Second, large shares of articles in the highest-ranked journals are cited less frequently than typical articles in much-lower-ranked journals.

Gated version here.

David Zetland, Thursday, October 15, 7:00 PM, Orgill Room. Tentative Title: “Sustainable Resource Use.” David Zetland is an S.V. Ciriacy-Wantrup Postdoctoral Fellow in Natural Resource Economics and Political Economy in the Department of Agricultural and Resource Economics at the University of California, Berkeley, where he teaches a course entitled “Environmental Economics and Policy.” He is the author of Conflict and Cooperation within an Organization: A Case Study of the Metropolitan Water District of Southern California (2009, VDM Verlag) and a regular contributor to the popular economics blog www.aguanomics.com.

Roger Garrison, TBA. Tentative Title: “The Austrian Theory of the Trade Cycle.”
Roger Garrison is Professor of Economics at Auburn University, where he teaches courses in macroeconomics and the history of economic thought. He is the author of Time and Money: The Macroeconomics of Capital Structure (Routledge, 2000).

Robert Higgs, Tuesday, 11/10, 7:00 PM, Blount Auditorium. Tentative Title: “The Great Depression and World War II.”
Robert Higgs is Senior Fellow in Political Economy at the Independent Institute and editor of The Independent Review. He is a distinguished economic historian and regular contributor to scholarly journals and other publications, and he has taught previously at the University of Washington, Lafayette College, Seattle University, and the University of Economics, Prague. He is the author of Competition and Coercion: Blacks in the American Economy, 1865-1914, Crisis and Leviathan: Critical Episodes in the Growth of American Government, Depression, War, and Cold War, and numerous other books.

The British NHS refuses treatment to a premature baby because he was born a couple of days before the cutoff. I hesitate to draw inferences from anecdotes and want to adjust my sensationalism filters accordingly. I'm also sure things like this have happened in the US, too.

The story suggests a thought experiment. Let's suppose we have a baby born at 21 weeks under a regime of socialized medicine with NHS-ish guidelines about not treating babies born at (say) less than 22 weeks. Would it be illegal for me to pay for treatment? Who has the moral authority to use force to prohibit me from using every resource at my disposal to save my child?

And, finally, a bleg: one of the comments on the article mentions that the baby in question would have been counted as a miscarriage under British statistics but as a live birth under US statistics. Therefore, cross-national comparisons are misleading. Does anyone know of a source of data that has been adjusted to allow international comparisons? Comments are open; I'm also happy to receive email.

HT: Anthony Gregory.

I’ve been messing around with the Economic Freedom Index of North America and banks’ annual average return on equity by state. (That variable, by itself, is pretty odd, I know)

I’m unable to test for the effect of monetary or Federal banking regulation policy, but…

a). Using the sub-national EFNA index, bank average ROE is higher in states with more freedom, and lower in states with less freedom. This result is pretty much in line with the literature, but I expected to find nothing at all, due to the nature of the state average ROE variable.

b). However, using the “all government” EFNA index, the relationship becomes insignificant. This may be due to purely mechanical issue within the data. But taken at face value, the results imply Federal fiscal policy is canceling out state fiscal policy as regards bank returns/bank performance. Federal action is dampening/mitigating state action, regardless of what the state is doing, for better or worse.

I think that’s pretty weird.

However, given so much of the recent government efforts have been explicitly shilled as preserving banks and preserving liquidity, expanding the Federal fiscal footprint will have no impact on bank performance, but will negatively impact other variables dependent on economic freedom.

I still have some work to do before I hang my hat on these results. However, it’s held up so far, so who knows?

My friend Daniel, a Virginia Tech alum who was kind enough to handle the trip logistics, has suffered humiliation because the sports team form my area defeated the sports team from his area. I also saw a lot of DragonCon attendees dressed as superheroes. After spending Friday and Saturday reading about racist violence, I think sports and sci-fi are much healthier outlets for humankind's inherent tribalism.

The preponderance of costumes at DragonCon suggest the hip thing to do if you go to a conference in Atlanta is to wear a costume. The American Economic Association is meeting in Atlanta in January; I'll be going dressed as Greg Mankiw.

From Slate:

Butler is a professional actor with a full-time job playing Oscar on "True Jackson, VP" on Nickelodeon. Now he is trying to break into a more specialized field. Top-tier presidential impersonators make appearances at conventions, corporate meetings, and the like. And the battle to become First Impersonator is real.

HT: Al Maag

Bryan Caplan points to an excellent review essay by Daniel Klein on parking. Having spent a lot of time driving in the last few months and having spent the weekend in Atlanta, I think this will be a pretty good topic for amended versions of my lectures on subsidies and the environment.

1. A great question for candidates from Jim Fedako. I would like to see questions like this raised during debates. Any question that requires comparison or calculation cannot, by its very nature, be answered rationally without profits and losses.

2. This morning's EconTalk with Tyler Cowen on Create Your Own Economy. If I had to make a list of people I don't know personally who have contributed the most to the development of my worldview and, therefore, my personal happiness, Tyler would be near the top. And it's not because of his recent "markets in everything" link to an article about lingerie football.

3. A nice front-page article about Rhodes President William Troutt.

4. A nice video for Pink Floyd's "Pigs." Is it art? Will it be taken down because of copyright infringement? Does it increase the probability that I buy more Pink Floyd music? My answers: yes, maybe, and yes.

U.S. climate change bill to compete with health care

...as the debate over healthcare legislation rages and with President Barack Obama due to address a joint session of Congress on Wednesday to try to rescue the faltering plan, it was unclear whether rattled lawmakers will have the time -- or the inclination -- to take on climate change.

Obviously, my indifference curves over these two policies increase in utility toward the origin.

1. Minnesota's state supreme court will hear a case that was ruled by the lower court in the property owners' favor. According to the Star-Tribune:

In question is whether the city's Economic Development Authority had the power to take land owned by businesses as part of a 70-acre redevelopment along Hwy. 13, just off Cedar Avenue. Also at issue is exactly how a city may modify those powers.

The issues revolve around whether the city must first transfer this power to the EDA on a case-by-case basis or whether the EDA has that power under state statute. The heart of the case is how much power cities' economic development authorities have.

In 2006 Minnesota updated its eminent domain statute to impose additional procedural requirements on condemning authorities. The new law also defined "public use" more narrowly and gave property owners right of first refusal if the city did not eventually use the property for redevelopment. However, the new law did include a blight exemption. Sure enough, the city blighted the area in question as a precursor to centrally planning its redevelopment. The Minnesota Free Market Institute sums it up:

City government has invested seven years in an effort to redo the area. It used its power of eminent domain to forcibly acquire properties in the area. Together with a commercial developer and community activists, it developed grand plans. In other words, it substituted the political process for the free market.

During these seven years, the city has incurred carrying costs for the project, which it had hoped would someday pay off....

It’s certainly not an easy situation for Eagan officals or taxpayers. But the seven wasted years, and the costs incurred during that time, could have been saved had the city stayed out of the business of land speculation. After all, that’s what the free market is for.

For more on recent changes to state eminent domain legislation, you can see my 2008 Review of Law and Economics paper, "Pass a Law, Any Law, Fast!". On why using eminent domain to centrally plan economic development fails, see my 2007 article in The Independent Review.

2. New York is one of the worst abusers of the takings power. Up next, The New York Daily News reports a case in Williamsburg, NY:

While the loudest battles over the plan to build 1,895 low-rise apartments on the 31-acre Triangle site have been over the allegations of political corruption, little attention has been focused on the fate of the existing small businesses in the area.

The city plans to use eminent domain to force five property owners to sell. Another 14 businesses could be displaced by zoning rules that will limit their activities

3. Down the road from me in Sausalito, CA, the city's lust for waterfront development exemplifies how itchy trigger fingers can make the takings power a tool of first resort. The Contra Costa Times reports:

The city of Sausalito is still hoping to acquire a 16-acre waterfront parcel near Dunphy Park at the foot of Locust Street that it lost to a higher bidder earlier this year. City officials are negotiating with the new owner, but said they will consider eminent domain - a process in which government can acquire private land for the public good - if talks are not successful. The new owner, Marin builder Dan Morgan, said he was caught off-guard by the eminent domain discussion, noting that he has met with city officials, had the land appraised and offered a purchase price. "I never heard back from them, and now I'm hearing eminent domain," Morgan said. "I'm willing to sell it."

Riviera Beach, Lake Geneva, Wisconsin. Highly recommended. Hooray closed access and non-zero prices!

HT: Don Boudreaux, for the C by C concept.

A couple of outlets published articles that are appropriate in light of today's institutionalized celebration of anti-economics:

1. A piece summarizing some of our work on Walmart, for Forbes.com.

2. A piece on the unpopularity of capitalism, for Mises.org.