Headline from the New York Times on May 30, 1907:

From the Harvard Business School Alumni mag:

Joseph Alois Schumpeter (1883–1950), an Austrian who taught at Harvard for twenty years, was “one of the greatest economists who ever lived, and an electrifying personality besides,” writes HBS professor emeritus Thomas K. McCraw in his new book, Prophet of Innovation: Joseph Schumpeter and Creative Destruction. With this graceful, authoritative biography, McCraw, a Pulitzer Prize–winning historian, has all but ensured that a seminal but relatively uncelebrated twentieth-century visionary will finally get his due.

CNN reports, Kidney up for grabs in TV show

AMSTERDAM, Netherlands (AP) -- A Dutch reality show that claims to be trying to draw attention to a shortage of organ donors said Tuesday it would go ahead with a program in which a terminally ill woman will choose a contestant to receive one of her kidneys.

The program, "Big Donor Show," has been attacked as unethical and tasteless. At least one member of the Dutch parliament plans to ask the government to block Friday's broadcast.

"We know that this program is super controversial and some people will think it's tasteless, but we think the reality is even more shocking and tasteless: waiting for an organ is just like playing the lottery," Laurens Drillich, chairman of the BNN network, said in a statement.

The current wait list in the U.S. is fast approaching six figures: United Network for Organ Sharing

HT: my awesome wife.

The Washington Post reports, Campaign Puts New Strain on Secret Service

The U.S. Secret Service expects to borrow more than 2,000 immigration officers and federal airport screeners next year to help guard an ever-expanding field of presidential candidates, while shifting 250 of its own agents from investigations to security details.

Burdened by the White House's wartime security needs, the persistent threat of terrorism and a field of at least 20 presidential contenders, the Secret Service was showing signs of strain even before the Department of Homeland Security ordered protection for Sen. Barack Obama (D-Ill.) as of May 3, the earliest a candidate has ever been assigned protection in an election season.

ts $110 million-plus budget for campaign protection -- two-thirds more than the record $65 million it spent for the 2004 election -- was prepared when the service did not expect to be guarding Obama or anyone else until January. The agency has already been forced to scale back its efforts to battle counterfeiting and cybercrime.

Since the Sept. 11, 2001, terrorist attacks, the Bush administration has doubled the number of officials granted Secret Service protection, from 26 to 54, including top White House aides such as the chief of staff and national and homeland security advisers.

More guns less butter. How's your liberty?

Here is Bob Higgs's new book, Neither Liberty nor Safety: Fear, Ideology and the Growth of Government.

From a news story....your folks in DC are out to protect you from high prices, and sufficient supply.

Responding to high costs at the pump, the House approved legislation Wednesday that would outlaw gasoline price gouging. Many lawmakers said that may be easier to say than to detect or enforce.

The bill's chief sponsor, Democratic Rep. Bart Stupak of Michigan, said he had no doubt the FTC would be able to determine price gouging once the agency had a law to uphold.

The good Bart Stupak (really? Is that really his name? Sounds like a bad guy in one of Ayn Rand's novels. Too perfect) is probably correct. The FTC really COULD determine price gouging. And the judges in Salem really COULD identify witches. They could have used that cheap gas to burn those witches at the stake, I suppose.

Are queues and gas-rationing cards in our future? Please tell us, Bart Stupak! We ourselves are too stupak to make choices.

In yet another example of leftists mis-using Adam Smith, Lee Russ at "watching the watchers" writes,

Adam Smith's famous "invisible hand" purportedly leads all individuals to follow their own self interest in a way that produces the greatest good for all. Just reading that idea leaves me amazed that such a counterintuitive idea has come to be so thoroughly accepted by really smart people, many of whom have really good educations...

1. Smith's Followers Are Among Those Who Misperceive Their Own Self Interest

Many Smith followers are the very people who cannot understand how their own interests are affected by the interests of others. They are the ones that cannot see how a massive increase in poverty in their own country will be bad for them, even though they have millions upon millions of dollars. They are the ones who think that self interest is measured only in the short term, and only in terms of $$ and power.

2. Smith's Followers Frequently Don't Understand Smith

Many Smith lovers simply find his theory a convenient cover for being as selfishly greedy as they feel like being. They are uninterested in what Smith actually thought, only in how they can act as selfishly as possible and still claim to be doing good for the rest of us.

The first point above is clearly nonsense. The second point is often true, but alas Mr. Russ also goes on to demonstrate his own ignorance of Smith's writings.

I was about to send the estimable Gavin Kennedy over at Adam Smith's Lost Legacy a note about this latest outrage, but discovered that he has already commented on his blog here and here.

From the May 28, 1907 NYT:

Next Thursday is Memorial Day, and if you will permit me, I would like to express a little sentiment regarding the day and its observance through your columns...in an attempt to rouse a little more thought and patriotic zeal in the reverence and honor which all true Americans should feel for the American soldier, and especially for those gray-headed veterans who are yet with us of the Grand Army of the Republic.

Last Memorial Day I was struck with the absence of cheering and of enthusiasm when the veterans of one of the greatest wars in history marched past, bearing their tattered battle flags, torn by shot and shell, and stained with the blood of some of the finest, bravest, manliest men whom God has seen fit to place upon our earth.

When next Thursday comes and the street is echoing with the step of marching feet, the beat of the drum and call of the bugle, let all of us rend the air with cheers to make those blue-clad veterans realize that, although forty-two years have dawned since their leader said "Let us have peace," that we have not forgotten them who at the call of the Nation left the desk, the forge, the plow in the furrow, left mothers, sisters, sweethearts, and went willingly forward to the Nation's altar to offer their own bodies as a living sacrifice that this Nation should live, and that we are not ungrateful or unmindful of their unselfishness and sacrifice.

Yet a little while, a score of years at most, and they will no longer be with us; therefore unto the fathers of our Nation render what is of a right theirs, the appreciation of another generation who as yet have not tried, but if the time comes, pray God, as they were not, we shall not be found wanting.

CADET SERGEANT MAJOR.

You may have seen the headlines, based on a recent report: “US Men earn less than their fathers” (Columbus Dispatch); “Men in their 30s making less than dads did” (Houston Chronicle); “Wages Through the Ages: Men Earn Less than Fathers at Same Age” (ABC News); “Making less than dad did” (CNNMoney.com); “Dad was better off than we were” (St. Petersburg Times); “Men in their 30s lag behind their fathers in pay” (St. Louis Post-Dispatch).

The report, "Economic Mobility: Is the American Dream Alive and Well?," was principally authored by John Morton and Isabel Sawhill, and issued by the Economic Mobility Project, a joint project of the Pew Charitable Trusts, the Brookings Institution, the Heritage Foundation, the American Enterprise Institute and the Urban Institute.

Trouble is, all of these headlines seriously misrepresent the report. The report found that, adjusting for inflation, the median male US wage-earner in his 30s today earns less pay (benefits were excluded) than the median male wage-earner in his thirties did a generation ago. But it didn’t track fathers and sons. The US labor force has new entrants – immigrants -- whose fathers were not in the US labor force. Low-earning immigrants may all be earning more than their fathers did back in the old country, and native born workers may also all be earning more then their fathers did in the US, and yet the US median may still be lower than a generation ago.

The last paragraph of one version of the story, by Wall St. Journal reporter Greg Ip, offered just such an attempt to explain the findings by reference to immigration:

Bill Beach of the Heritage Foundation said increased immigration also could have pulled down median wages, as most immigrants at first earn less than native-born workers.

I don’t know how much of decline in median pay is actually explained by immigration. But I do know that unless immigrants are excluded, findings on median US male earners thirty years apart are not really about earners from the same families. Too bad the eager headline writers didn’t read to the end of the story and realize that the report doesn’t really make any claims about father-son pairs.

ADDENDUM: Comments are open.

In a new article in The Nation, journalist Christopher Hayes describes the outcast status of “heterodox” economists. It’s an interesting account, but he blunders in several ways. For example, he cites as evidence that there is a “mafia”-like mindset within the economics profession the fact that David Card and Alan Blinder faced criticism for their empirical work and their non-free-market policy views:

As Card's and Blinder's experiences show, the "mafia" still flexes its muscles …

Hayes fails to note that free-market economists -- even "mainstream" Chicagoites -- face equally harsh criticism for their policy views and for their empirical work.

Hayes characterizes the difference between mainstream and heterodox both in terms of policy views and in terms of methodology:

While the discipline remains dominated by a "neoclassical" consensus that is generally pro-market and suspicious of government intervention, an explosion of new research programs and methods have provided strong evidence that many of the pillars of that consensus rest on a foundation of sand. … In the case of heterodox economists, what they don't believe is the neoclassical model that anchors the economics profession.

It follows from his characterization that Austrian economists are “heterodox” in both senses, being more consistently pro-market and suspicious of government than the mainstream, and in dissenting from key assumptions of the neoclassical model. Austrians have published in the Review of Political Economy and other heterodox journals. And yet, Austrian economists are never mentioned. Hayes's heterodox hipster heros are all lefties.

In light of which, Hayes might have taken notice of the evidence compiled by Dan Klein showing that members of the economics profession are mostly to the left of center. (ADDENDUM: To be clearer, that should be "the median academic economist is to the left of the political center".)

ADDENDUM: Many economists, mostly heterodox, comment on Hayes' article at TPM Cafe. Hat tip: Tyler Cowen at Marginal Revolution.

From the May 26, 1907 NYT:

Even wisdom may be only skin deep.

All men are equal - till they are found out.

Many a fellow sows his wild oats and reaps a grass widow.

A wise woman never quarrels with her husband till after pay day.

The worst thing about common sense is that is it so unfashionable.

No search warrant is necessary in looking for trouble or finding fault.

Tyler v. Alex: A Guide to the Perplexed

Baseball fans seem to be of two minds when it comes to Barry Bonds nearing (and ultimately breaking) the homerun record of Hank Aaron. What should not be lost, however, is that one of these days there will be newspaper headlines around the country mentioning Barry Bonds and the record. In the distant future people might be somewhat jealous that we were living at the time.

Consider this example from the May 25, 1907 NYT:

Cy Young Blanks the Browns

ST. LOUIS, May 24 - Boston defeated St. Louis today 4 to 0. Powell was hit freely, while the locals were unable to hit Young. Powell fielded poorly, and two errors by him materially assisted the visitors in scoring.

Strike outs: Powell 5, Young 1.

Time of Game: One hour and twenty-six minutes.

Those reading the headline 100 years ago likely had no idea that today we would be jealous of seeing Cy Young. Regardless of one's opinion about Barry Bonds, we should remember that others will be jealous of us one day.

File this in the "things never change" drawer.

In the May 25, 1907 NYT is this nugget:

There is no prejudice in this country against honestly acquired wealth, however large - Judge William J. Gaynor, speaking in Kansas City.

That has been said thousands of times. It may have been true once. It is not true now, and the phrase might just as well be dropped from the formulas of declamation and agitation.

The May 25, 1907 NYT has an excellent editorial concerning technological change and the economic impacts that arise afterward. Specifically, the editorial quotes one Walter S. Power, Instructor at the University of Pennsylvania and author of the book "History of the American Whale Fishery":

The struggle for supremacy was fierce but short, and ended in the only way it could - in favor of the better, more easily obtained, and then seemingly inexhaustible kerosene. Sperm candles were dedicated to ornamental uses, and whale oil lamps were discarded to become interesting relics for succeeding generations...Kerosene came rapidly into general use. Then lubricating oils began to be made from the residuum, and finally the utilization of the wax or paraffine in making candles and in other arts robbed the whale products of their last strongholds in the markets of the world.

The golden era of whaling had lasted half a century, representing near its close investments of over $100,000,000, with fifty different ports in Southern New England and New York, and giving employment to tens of thousands of men. On Jan. 1, 1906, there were but three whaling ports - New Bedford, Provincetown, and San Francisco - and the industry is kept alive chiefly for its by-product of bone, which a century ago was regarded as hardly worth saving. The expansion of the country and of Standard Oil pipe lines has seen the revolution, inversion, and practical collapse of the whale fishery.

The NYT of 100 years ago sounds a little like Ayn Rand's Howard Roarke in The Fountainhead when considering the dominance of Standard Oil:

"He who first shortened the labor of copyists by device of movable types was disbanding hired armies, and cashiering most Kings and Senates, and creating a whole new democratic world," said Carlyle. He who shall first market a cheaper substitute for petroleum will accomplish more than Presidents, Congresses, Commissioners of Corporations, Attorneys General, political capitalists, referendums, and mass meetings can do toward humbling the pride of Standard Oil.

I like the term "political capitalist." Perhaps we need to see more people on both sides of the aisle called such.

The May 24, 1907 NYT has the following short story:

CHICAGO - There will be no horse show in Chicago this Fall, and probably not for years to come, owing to the popularity of the automobile. The following statement was made to-day at the office of Sidney C. Love, Secretary of the Horse Show Association: "The Horse Show Association has divided profits and wound up its affairs. The show last year was not a success. The Directors decided therefore to withdraw for a few years until another wave of enthusiasm over horses makes it profitable to resume the shows."

The old adage of "don't tax you, don't tax me, tax the guy behind the tree" might apply in this case, from the May 24, 1907 NYT:

M. Dupuy arrived in Paris two or three weeks ago, well in advance of the party to whom he is to act as guide, mentor, and friend, and ten days ago he started in a motor car over the route which he had selected for the American automobile caravan to follow, so as to obtain all desirable information and make the best arrangements for the convenience of the transatlantic tourists.

M. Dupuy is now travelling over a part of the route by train. He left Paris in an automobile and arrived without a mishap at Perpignan, near the frontier of Spain and France. The Spanish customs officials called upon him to pay a deposit of 1,500 pesetas ($225 [$4,823.55 in CPI adjusted 2005 dollars]) before they would allow his foreign automobile to cross the border, this being a regular formality with which all automobilists have to comply. The money is, or course, refundable when the travelers take their cars out of Spain...

Undoubtedly those Americans who are going to join M. Dupuy's caravan will be in a position to profit by their cicerone's experience.

The May 24, 1907 NYT has the following prediction by the Surgeon General of Illinois:

"The methods for the prevention of diseases, which have developed wonderfully in the last few years, lead me to believe that the outlook for the elimination of the white plague [tuberculosis] is very hopeful. Those affected will be isolated, and if this is done, preventives may be used until consumption will be a thing of the past.

The great work to be done is in medicine, for surgery long ago has reached almost its limit of perfection. Simplification in surgery will develop, but I think no great discovery in that branch of the profession remains to be made. In fact, I think that the greatest triumphs of surgery have been attained, and to make them more accessible will be the work of the future.

As the medical profession in late years has discovered the causes of the worst diseases, it will only be a question of time when preventatives will be generally used. The outlook, then, is that the human race will be better physically than it has ever been."

A news item:

A $3 million plan to blanket Lompoc, Calif., with a wireless Internet system promised a quantum leap for economic development: The remote community hit hard by cutbacks at nearby Vandenberg Air Force Base would join the 21st century with cheap and plentiful high-speed access. Instead, nearly a year after its launch, Lompoc Net is limping along. The central California city of 42,000, surrounded by rolling hills, wineries and flower fields more than 17 miles from the nearest major highway, has only a few hundred subscribers.

And Lompoc isn't alone. Across the United States, many cities are finding their Wi-Fi projects costing more and drawing less interest than expected, leading to worries that a number will fail, resulting in millions of dollars in wasted tax dollars or grants when there had been roads to build and crime to fight.

The LA Times brings back culinary memories for those of us who spent four years in the Westwood area on a grad student's income.

Hat tip: Craig Newmark.

I am back from a trip to South Carolina/North Carolina during which I was unplugged from news/politics/blogging. Blogging on my part will recommence with the usual quality.

The May 23, 1907 NYT has a letter to the editor which asks an interesting question:

It is amusing to note the very many unsatisfactory attempts made by the Socialists to explain the use of the red flag in their parades and as a symbol of their beliefs. As the cross is a sign of Christendom throughout the world so is the red banner symbolic of international Socialism, is one of the explanations. In answer to the fore going may I ask...why the color of red of all colors known to mankind was chosen as best expressing the doctrines of Socialism?

Where the black flag stands for piracy so does the red flag stand for anarchy; where the white flag signifies peace, so does the red flag signify war; and a red banner flauntingly displayed in a peaceful land does not signify the good intentions of those bearing it.

From the Tax Foundation:

Washington, D.C., May 15, 2007 - Congress should not repeal or radically change the Alternative Minimum Tax (AMT) but instead reform the regular tax code so that it allows less income to go untaxed, according to a new Tax Foundation study to be released Thursday, May 17.

• The key to fixing the AMT lies in the regular tax code. By curtailing its myriad exclusions, deductions, exemptions, and credits we could raise the same revenue with lower tax rates, reduce the number of filers affected by the AMT, improve the overall quality of the tax system, boost the nation's economic well-being, and improve tax fairness.

The Tax Foundation's report is here.

Previous posts here and here on folks who say keep the AMT and junk the primary income tax.

Some present-day advocates of the "real-bills doctrine", particularly followers of Professor Antal Fekete, occasionally depict themselves as defenders of free banking. The new RBD advocates make it necessary to (re-)emphasize that the case for free banking does not rest on the real-bills doctrine. I spell out problems with the RBD in a two-part column for the Free Market News Network (free registration required).

ADDENDUM: links are fixed. Thanks!

Mark Helprin, a novelist and senior fellow at The Claremont Institute, has this NYT op-ed arguing that Congress should continue to extend the term of copyright.

At Volokh Conspiracy, Ilya Somin critiques on the important distinctions between real and intellectual property and unconstitutionality of the proposal.

At PrawfsBlawg, James Grimmelmann critiques on wealth redistribution.

The idea is similar to Landes & Posner proposal for indefinitely renewable copyright.

In the Landes & Posner proposal, depreciation of creative works over time softens the incentive effect that copyright supposedly has on innovation. In fact, unlike Landes&Posner, Helprin pays no attention to the supply elasticity of innovation. His argument is geared toward maximizing the wealth that accrues to descendants of the innovator/artist. Interpretation? Simple. The debate over copyright ain't about innovation; it's all about rent re-distribution. See also:

a) Lawyers for big time chefs are angling to protect recipes and cooking techniques. See this Food and Wine article on Hector Cantu, chef at Chicago's famous Moto. With a normative case here:

after all, chefs are certainly as creative as any other artists, but they receive no royalties, there are few ways of making serious money from cooking, and only a handful are good enough at both art and business to create a restaurant empire. And is creating an empire the solution?

b) The Design Piracy Protection Act would extend copyright protection to fashion designers for a period of three years. The fashion industry is historically well organized, cohesive almost. See Fashion Originators Guild of America v. Federal Trade Commission (1941), case here. (HT: Tanya Birman, my student)

Here's a good overview of the normative arguments by Wendy McElroy.

For all of you Facebook members out there, check out this "Building Social Capital" group that is inspired by Ed Stringham's work on the economics of alcohol consumption.

A few months ago, there was a flurry of posting on private property rights and animal conservation. I posted on bisons, elephants, and property rights. A few days later Wilson posted on chicken hawks and corn chips.

Here's another example (pdf; scroll down to p. 3): Barun Mitra explains that India has prohibited tiger hunting and trading but China has allowed tiger farms. Just as our previous examples would lead us to predict--tigers are scarce in India but abundant in China.

Last night I happened to be skimming the Summer 2006 issue of the Journal of Economic Perspectives. The issue has several interesting articles including the Hakes/Sauer Moneyball paper.

However, the article that caught my eye was Juhn and Potter's piece on labor force participation. For prime age (25-54) males, there has been a decrease in labor force participation.

For whites:

High school dropout: 1969 LFPR = 94.6%; 2004 LFPR = 82.8%
High school (no college): 1969 LFPR = 98.1%; 2004 LFPR = 89.4%
College graduates: 1969 LFPR = 97.7%; 2004 LFPR = 95.2%

For blacks:

High school dropout: 1969 LFPR = 90.8%; 2004 LFPR = 59.1%
High school (no college): 1969 LFPR = 94.9%; 2004 LFPR = 77.8%
College graduates: 1969 LFPR = 93.7%; 2004 LFPR = 91.6%

The large decrease in labor force participation among people with lower levels of education has important implications for studies of inequality and college wage premiums (e.g., here and here). It's possible, for example, that studies showing increasing returns from college education are picking up (at least partly) the decreasing attachment of people with lower educational attainment to the labor force. Even studies that control for work status might be subject to this bias if people with higher levels of education are working more hours relative to people with lower levels of education.

BBC News reports that India’s United Breweries, producers of Kingfisher beer, have paid $1.2 billion for the Scottish whisky distiller Whyte & Mackay in an all-cash deal. Whyte (no relation) & Mackay produce blended Scotch under their own label and single malts under the Dalmore and Jura labels.

Explaining the acquisition, UB head Vijay Mallya noted that Scotch had been “the only missing link in our portfolio” and “due to the shortage and rapidly increasing prices of Scotch whisky, we needed a reliable supply source” for Scotch to be sold in the growing Asian market. The second statement sounds like the Klein-Crawford-Alchian story of vertical integration to avoid post-contractual hold-up problems, doesn’t it?

So why did the billionaire Mallaya choose to buy Whyte & Mackay rather than some other Scottish distillery?

He also said he had an emotional attachment to the firm, with its Jura whisky being his late father's favourite single malt.

A friend emails:

The University of Wisconsin commonly grants more phds in History than are granted among all accounting doctoral institutions.

There's no doubt that there are not many new PHD's in accounting and that there are lots in history. (There's also no doubt that these supply differences result in starting salaries for historians that are roughly half the salary for starting accountants.) I, however, am somewhat skeptical that the statement is correct. I've opened comments for a day or so if readers want to support or refute the statement.

UPDATE: Co-blogger Josh sends me this list of UW history Ph.D. placements--there are about 20 per year. Surely there are more than 20 accounting Ph.D.'s awarded each year in the U.S.--I remain skeptical about the statement.

Update on racial bias in NBA foul calling. You might recall Penn economist Justin Wolfers and co-author making NYT's front page for their preliminary work concluding that referees were more likely to call fouls on players of different race. The NBA counter-argued that the Wolfers study didn't have data on individual referees' race. After some back and forth, the league has now shared its referee race data with Wolfers, who has re-run some regressions. And ESPN hired a third party economist, Thomas Miles at Chicago law, to weigh in. Miles likes the Wolfers story better.

Seldom do preliminary results get so much attention, right? And seldom do arcane econometrics get such detailed discussion in the news.

New ESPN write up here.

1. Finally, a no-go for the massive number of takings to make way for the notorious Riviera Beach, Florida, redevelopment, which by some estimates would have resulted in more relocations than Southwest DC half a century ago.

2. Susette Kelo's house may have a new home, as IJ sets plans on a site in New London, CT.

3. A New Jersey mom-n-pop business, under threat of a blight taking, makes for a "dramatic" video plea to stop eminent domain abuse (love the score!).

4. A head scratcher video of an unwanted, sherriff-escorted public health inspection on private property. Bastiat said, "the law perverted!"

ADDENDUM: A reader notes: "Its even worse than you report. I believe I heard a report that Daimler is retaining over $10 Billion in pension liability. If so, with this, Chrysler had a negative market value."

The link below is to a dynamic story. By this hour there is much detail and speculation about the deal.

New Coke. USFL. The pre-Iaccoca Chrysler. Today ends another giant, largely failed corporate experiment. At least this time it's not taxpayers footing the bail out.

FRANKFURT (Reuters) - Private equity firm Cerberus will buy a majority of DaimlerChrysler's (DCXGn.DE) struggling Chrysler Group for $7.4 billion, a fraction of the $36 billion deal that created the transatlantic car union nine years ago.

Story here.

Looking for an interest-free credit card? Consider the Saadiq Visa Gold Credit Card from Standard Chartered Bank, operated on Islamic banking principles. (“Currently available only for UAE customers, the Saadiq Gold Credit Card offering will be rolled-out across the Group’s network over the coming months.”) The bank promotes the card as “Internationally-recognised, Shariah–compliant”.

Need I mention that, in lieu of interest, there is a fixed monthly maintenance fee? Gee, it sounds like a traditional American Express card.

Competition for Shariah-compliant credit card customers is offered by the Makkah Credit Card from First Gulf Bank. Not only is it interest-free, but it "rewards cardholders with the opportunity to earn ‘Steps’ to travel to the Holy City of Makkah [Mecca]. For every AED 1.00 spent on the card, customers earn one step."

The May 2007 issue of Econ Journal Watch is now available online. Topics: the scarcity of non-mathematical research in top economics journals; why most articles in the Journal of Economic Theory do not really provide a theory; how the websites of Harvard and George Mason economists differ; the role of economists in liberalizing Swedish agriculture; the new political economy of Persson and Tabellini, pro and con; Institutional quality and the Economic Freedom of the World index; Peter Bauer's pioneering contributions to development economics.

The latest issue of Small Business Economics has an article by Robin Douhan, , Gunnar Eliasson, and Magnus Henrekson on Israel Kirzner's contributions to the economics of entrepreneurship. It is titled "Israel M. Kirzner: An Outstanding Austrian Contributor to the Economics of Entrepreneurship," and can be found here (gated).

The abstract:

Abstract Israel M. Kirzner is the 2006 winner of The International Award for Entrepreneurship and Small Business Research. In this essay, we present and evaluate his main contributions to the economics of entrepreneurship.
The focus is on how Kirzner defines the entrepreneurial function. In order to better understand his theory, we posit Kirzner’s notion of an entrepreneur in the Austrian tradition. In so doing we emphasize that this concept opens up different perspectives as compared to the neoclassical theoretical framework. The three areas of economic policy, justice and freedom, and economic growth are discussed. We also show why the Kirznerian entrepreneur makes these issues relevant.

Perhaps most importantly, Kirzner has made the Austrian School intelligible for non-Austrians. By bridging the chasm between Austrian and mainstream thinking, the crucial role of entrepreneurship and the individual entrepreneur has become visible to a much broader audience.

I am curious what Pete Boettke and Frederic Sautet think about the article, given their role as editors of Kirzner's Collected Works.

I think the answer to Larry's question regarding Smith's failure to learn from the example of Scotch whisky relates to timing. Apparently, at least according to A Brief History of Scotch Whisky, the market for Scotch whisky was relatively late in coming.

In 1823 the Excise Act was passed, which sanctioned the distilling of whisky in return for a license fee of £10, and a set payment per gallon of proof spirit. Smuggling died out almost completely over the next ten years and, in fact, a great many of the present day distilleries stand on sites used by smugglers of old.

The Excise Act laid the foundations for the Scotch Whisky industry, as we know it today. However, two further developments put Scotch Whisky on firmly on the world map.

Glass of whisky. Until now, we have been talking about what we now know as Malt Whisky. But, in 1831 Aeneas Coffey invented the Coffey or Patent Still, which enabled a continuous process of distillation to take place. This led to the production of Grain Whisky, a different, less intense spirit than the Malt Whisky produced in the distinctive copper pot stills. The lighter flavored Grain Whisky, when blended with the more fiery malts, extended the appeal of Scotch Whisky to a considerably wider market.

The second major helping hand came unwittingly from France. By the 1880s, the phylloxera beetle had devastated the vineyards of France, and within a few years, wine and brandy had virtually disappeared from cellars everywhere. The Scots were quick to take advantage of the calamity, and by the time the French industry recovered, Scotch Whisky had replaced brandy as the preferred spirit of choice.

Since then Scotch Whisky has gone from strength to strength. It has survived Prohibition, wars and revolutions, economic depressions and recessions, to maintain its position today as the international spirit of choice, extending to more than 200 countries throughout the world.

I taught a course in the History of Economic Thought this spring and gave the final exam yesterday.

Question 20 (short answer): “How is the labor theory of value inconsistent with rate-of-return arbitrage?”

Best answer I got: “It doesn’t factor in value added by time, such as aging Scotch.”

I think I’ll work that example into my lecture notes for next year. To be concrete, assuming that the same number of labor manhours are required in preparation, distilling, and barreling, so that the only difference is how long the scotch is left in the barrel, the labor theory of value is inconsistent with a 750ml bottle of Glenlivet single malt 12 years old selling for $30 while the same size and proof of Glenlivet single malt 15 years old sells for $45, and Glenlivet 18 years old sells for $62. Such price differences are not just consistent with rate-of-return arbitrage, but are required by it. Putting the point another way: all costs cannot be reduced to labor. With a positive discount rate, waiting is also a cost.

The price differences between young and old Scotch are so systematic and so obvious, it’s a wonder that the Scotsman Adam Smith did not notice and repudiate the labor theory of value.

I just ran across this nugget from a December 1999 interview with Milton Friedman by National Public Radio correspondent Susan Stamberg.

STAMBERG: I don't know how many Russian cabbies in New York have told me -- in the course of a really bumpy, pothole-filled ride -- how dreadfully tough their lives are here, having made that transition from a government which took care -- yes, in very brutal, cruel ways -- but took care of most of their human needs, and try to fight it out on the streets of the major city of capitalism.

FRIEDMAN: And why did they come there?

STAMBERG: Gold in the streets, was it?

FRIEDMAN: Yeah. Why didn't they stay in the Soviet Union?

STAMBERG: Of course, they saw more opportunities. That's true, Professor, but in terms of...

FRIEDMAN: Do they regret having come?

STAMBERG: Well, I think they did. I'm not saying...

FRIEDMAN: Don't you think that the most meaningful vote is a vote with your feet?

STAMBERG: So you're saying pack up and go back if it's so tough for you here?

FRIEDMAN: Well, how many have done so?... Don't misunderstand me. I'm saying if you really want to know what they really believe about the relative merits of the two systems, see what they do, not what they say. And what they do is to stay here. They don't go back. I think of my own family. My parents came here from Europe at the age of 14 and 16. And they had a hard time, a very difficult time, but it opened up a world of opportunity for them. And the same thing with these cab drivers whom you're talking about who are bitching about it. Look at what they do, not what they say.

Because he teaches at the University of Chicago, Steve Levitt of Freakonomics fame is often mistaken for a free-market economist. Levitt himself tells us on his blog: "In general I am not much of a libertarian ..."

As is well known, Levitt has clashed with John R. Lott, Jr., on the effects of laws permitting concealed carry of guns, with Lott unfortunately bringing a defamation action against Levitt for bad-mouthing Lott’s research. In his new book, Freedomnomics: Why the Free Market Works and Other Half-Baked Theories Don't, Lott challenges Levitt in the court of public opinion.

Lott’s book is now available from Amazon and other booksellers. It’s even being offered as a free bonus with a new membership in the Conservative Book Club.

The title and even the cover art are takeoffs on the best-selling Freakonomics, although less obviously than in an earlier version. The subtitle’s reference to “Other Half-baked Theories” has been revised from “Freaky Theories” in an earlier version.

Where Levitt and Dubner in Freakonomics suggested that businesses like real-estate brokers regularly fleece their customers, Lott in Freedomnomics explains how competitive market mechanisms prevent such an outcome. I haven’t read the book yet, but Lott is always worth reading. I hope Lott’s intellectual challenge to Levitt attracts as much attention among economists as his legal challenge has.

Yesterday's WSJ had an article (p. D1) about summer employment for teens. An excerpt:

This summer's teen employment rate will match a 57-year low set in 2004 and 2005, predicts Andrew Sum .... Just 36.5% of 16- to 19-year olds will be working, down from 37.1% in 2006 and 45% in 2000, he says, citing increased competition for part-time and temp jobs from older workers and immigrants.

I have a different explanation--leisure is a normal good. The rising affluence of families means their kids are less likely to seek summer employment.

Mark Perry of Carpe Diem points to an Economist article on a study of property rights and forest cover in Madagascar. An excerpt:

One hypothesis is that population growth is the underlying problem. Another theory is that forest loss is an example of “the tragedy of the commons”—the idea that resources that do not clearly belong to an individual or a group are likely to be overexploited, since conserving them is in no individual user’s interest.

The difference between the two sparsely populated regions was that in the west, where forest cover has dwindled, neither formal nor customary tenure was enforced. In the north—only about 20km away—land rights were well defined and forest cover increased.

BTW, Carpe Diem has become one of my favorite blogs so I've added it to the blogroll.

In the continuing saga of my failed kidneys, my leading prospective live transplant donor was disqualified last month. So, as I continue on dialysis, I’ve been re-examining my options. (Any friends/acquaintances/kind strangers who’d like to consider donating a kidney, please contact me!) Wired News provides an interesting report on the legal market for organ transplants in Pakistan, the Phillipines, and elsewhere.

The report begins by naming the apparently respectable Aadil Hospital in Lahore, Pakistan as a leading provider of live kidney transplants to foreigners. The hospital’s own website provides helpful information on its kidney transplant package. The website doesn’t advertise the price, but Wired quotes a current rate of only $14,000, kidney included. The price is reportedly about double that through a Canadian broker, but the additional quality assurance of having a repeat player on your side may be worth it. I doubt my insurance would pay, but maybe I could use my medical savings account? Just thinking out loud here.

Here’s Wired's worldwide price list for various organs.

MERRILL, Wis. — A service station that offered discounted gas to senior citizens and people supporting youth sports has been ordered by the state to raise its prices.

ATSRTWT

HT: Paul

Economist Claims Book Has Prescription For W. Va.'s Ailing Economy Gov. Manchin Requests Meeting With Book's Author West Virginia ranks dead last in economic freedom according to a new book that's generating a lot of buzz around the Mountain State.

Russ Sobel's work in West Virginia is getting lots of attention. Go Russ!! Story and video here. I especially like the nifty satellite images of the WV border showing all the activity on the other side of the border.

Info about Russ's book is here. UPDATE: Co-blogger Josh is the associate editor of the book.

1. While Bob has Sherrod Brown's ear, Russ Sobel has WV Governor Joe Manchin's. See this TV story about the reaction to Unleashing Capitalism. If you watch the news clip, they actually use the Google map photos showing growth on the other side of the WV border. A picture sometimes does say it all.

2. My Cato Journal article (with Russ Sobel) on judicial selection processes and judicial quality has just been published.

3. My music web site (with Bob Lawson and Dirk Mateer), From ABBA to Zeppelin, Led: Using Music to Teach Economics, has just been accepted at the Journal of Economic Education. Thanks to all of you who sent us great suggestions for additions. They will be slowly going up over the summer.

Today's WSJ article on picking Google friendly baby names reminded me of the Freakonomics chapter on baby names. An excerpt:

Before Abigail Garvey got married in 2000, anyone could easily Google her. Then she swapped her maiden name for her husband's last name, Wilson, and dropped out of sight.

So when Ms. Wilson, now 32, was pregnant with her first child, she ran every baby name she and her husband, Justin, considered through Google to make sure her baby wouldn't be born unsearchable. Her top choice: Kohler, an old family name that had the key, rare distinction of being uncommon on the Web when paired with Wilson. "Justin and I wanted our son's name to be as special as he is," she explains.

You know the lyrics: “Hey! Mr. Tambourine Man, play a song for me …”. But did you ever stop to wonder: how can anyone be expected to play a song melody on a tambourine?

The recent flap with Sen. Brown reminded me of this rebuke of Brown's views on Adam Smith by Gavin Kennedy (who runs a very nice blog focusing on Adam Smith). Here's a taste:

Sherrod Brown writes, under his sub-heading: “The merits of tariffs”:

“[Adam Smith] believed that tariffs serve a useful purpose. He expressed caution when a nation contemplates lowering tariffs, for an immediate and precipitous reduction could throw large numbers of people out of work.

And he expressed little caution about temporary retaliatory tariffs when one nation had erected major barriers against another to harm that nation.”

A finer misstatement of Smith on tariffs could hardly be made, giving an misleading impression of Smith’s views on tariffs.

ATSRTWT

The May 5th issue of The Economist (link here; sub req) contains this paragraph:

In Sweden, for example, academics are squabbling over calls to match their marking schemes with standardised Euro-grades, from A (excellent) to F for Fail. Students risk psychological harm, they fret, if visibly labelled successes or failures. Much better to stick with the two-level system of pass and fail .... Jacob Christensen, a political scientist at a Swedish university, Umea, suggested recently that Swedes "are expected to descend into deep psychological disorder as soon as they encounter disappointments in everyday life".

Huh? Both systems have a failure category; presumably a student who would be a failure under one system would be a failure in the other Indeed, the two-tier scheme creates the starker contrast between successes and failures. Yet somehow a system with various levels of success (A through D) will scar the psyches of fragile Swedes.

ADDENDUM: A reader offers the following explanation:

The point makes perfect sense to me (even though I am in favor of "conventional" A-F grading).

In the pass/fail scheme, only 10% of people can "encounter disappointments" (specifically, the disappointment of being outclassed), while in the ranked scheme, 90% of people encounter that disappointment.

ADDENDUM2: Here is a previous post on a related topic--the incentive effects of secret grades.

Should Europe have EUR1 and EUR2 banknotes, as some are now proposing, rather than only coins in those denominations? Should the US no longer have a $1 bill, and instead only a coin in that denomination? Should we still have pennies?

I offer a general framework for resolving these questions in my latest op-ed at FMNN.com. Hint: I favor moving decisions about any product from the political sphere to the market sphere whenever possible. And here it's possible.

It's finally been said, by a "family planning" professor (whatever that is):

"Children 'bad for planet'"

The scarily-named Optimum Population Trust says that families should have two rather than three kids for the sake of the planet. Prof. Guillebaud says that "when couples are planning a family they should be encouraged to think about the environmental consequences."

There is this curious bit: after the story describes how virtually all world population growth will come from poor, not wealthy, nations, Prof. Guillebaud says "rich countries should be the most concerned about family size as their children have higher per capita carbon dioxide emissions." So it seems that poor countries have too many kids and rich countries have too many wasteful kids. Of course, with fewer brains rich countries probably won't stay rich; they'll become poor and start spitting out rugrats again.

Well, let's reason this out. People of such mind usually perceive humans as a virus on the planet (thank you, Agent Smith), so why stop at two kids? The Optimum Population is obviously zero, when humans will no longer foul up the planet. It seems the Optimum Population Trust could be doing more effective things to reach this goal than releasing reports. Just ask Stalin, Mao, or Pol Pot, all unknowingly devoted to erasing carbon footprints from the world.

And why does it have to be fewer kids? Why can't we get rid of other people instead? Kids are too cute. Let's wait to see if Prof. Guillebaud becomes a martyr for his own cause. But I'm sure he'd tell us he's not the problem, it's "other people" who are the problem.

And don't trees like carbon dioxide? I wish these population-control types weren't so anti-arboreal.

Fox News has a sidebar displaying current polling results via Real Clear Politics. As a favor to the innumerate, Fox conviently reports the difference between the top two candidates. For background on "The Diff" click here.

HT: Jeff Hoffman.

I just received a phone call from Sen. Sherrod Brown. No kidding.

He was not pleased with my post about his commencement talk. To be fair to the Senator, I should note that he did not claim that Medicare and Medicaid were the only explanatory factors leading to increased life expectancy. He also mentioned public health, unions, workers compensation, etc., etc. Of course I'm sure we could debate the relative importance of these government initiatives versus the efforts of the private sector over the last century. I think the latter has done more to improve life expectancy and has typically done so in spite of the former; he thinks othewise. Ok. Fine. I had to listen to his (thankfully short) talk, and he had to endure my snarky blog post.

But my real objection (as in previous years) is the inappropriateness of a highly charged political talk at a commencement. The people in attendance on Saturday were there to see their graduates not to attend a political speech about the wonders of the progressive movement.

I would similarly object to a politicized talk given by a speaker who agreed with me. Of course, I won't hold my breath waiting for that to happen!

1. Arnold Kling has a lengthy post in response to Kevin Lang's book on poverty. Kling outlines three scenarios but he misses a fourth possibility which I discussed here (and Cowen hints at in his MR post on Lang's book).

2. Gary Becker apparently started thinking about the economics of crime when pondering whether to park illegally. I was reminded of the Beckerian notion of rational crime by a news item reporting that "China faces a looming baby boom as newly-rich couples find they can afford to pay fines incurred from having more than one child."

3. A proposal to allocate $950,000 to a green bean museum has caused a kerfuffle in SC. Gov Mark Sanford--perhaps the best in the country--calls the proposal wasteful pork. Museum proponents (story here; scroll down to the last paragraph) claim the museum will be a tourist attraction. It's almost enough to make one wish for a good old fashioned stadium boondoggle or bridge to nowhere.

4. I recently posted on a couple of drug war outrages in Atlanta. Readers wanting more on this topic should check out this post by Mark Perry of Carpe Diem; he has a link to a Cato article on botched drug raids and a map of places where such raids have happened.

I have long been an interested observer of private alternatives to the fiat dollar like the silver-backed Liberty Dollar and the online bullion-transfer system e-gold.com. Due to the network property of a medium of exchange, I have been skeptical about either one spontaneously becoming commonly accepted, absent a meltdown of the fiat dollar (which historically used non-spontaneous legal muscle to displace gold and silver). But I haven’t been a complete cynic. A complete cynic would say: if alternative currencies were really a threat to the fiat dollar, they would be illegal.

Now it looks like complete cynicism is called for.

In September the US Mint and Department of Justice began hassling the Liberty Dollar operation. Now comes news that the Department of Justice has brought indictments against e-gold, Ltd., for alleged money laundering and operating a money transmitting service without a federal license.

Over at Financial Cryptography, Ian Grigg reports on the indictments. Here is InfoWorld’s account. The Department of Justice's press release is here. The actual text of the federal grand jury indictment is here.

Douglas Jackson, founder of e-gold.com, has responded to the charges in a letter.

Just got back from the university's commencement. Sigh.

The speaker was Sen. Sherrod Brown (D-OH) who among many other irritating things said something to the effect that the increases in our life expectancy since 1900 are owed to government programs like "Medicaid and Medicare". To which, I reply:

Other DoL commencement related posts.

More outrages from the war on drugs:

Two months and a day before Kathryn Johnston, there was Frances Thompson.

The two incidents share striking similarities: Two elderly women living alone with guns; police battering in a door; faulty reports from street-level dealers helping narcotics officers; and police parsing the truth, if not outright lying.

This year marks the 75th anniversary of the invention of the parking meter. As any economist might guess, the parking meter was developed to ration scarce on-street parking, specifically to keep commuters from parking all day in curbside spots that downtown storeowners wanted to leave available for shoppers. As you might not guess, the meter was first introduced in Oklahoma City, Oklahoma.

The invention is credited to Carl C. Magee, an attorney and newspaper editor who had been asked by the Oklahoma City Chamber of Commerce to address the problem of oil company workers taking up all of the downtown parking spaces. According to Dianna Everett in the Oklahoma Historical Society’s Encyclopedia of Oklahoma:

Magee decided that the situation required the invention of a small, windable, inexpensively made, mechanical device to "time" the use of each parking space. In 1932 he designed and built a crude model and on December 21, 1932, filed for a patent. In order to refine the concept and build a real working prototype, he joined forces with the Oklahoma State University Engineering Department. … Professor H. G. Thuesen joined the project soon afterward and enlisted the help of Gerald A. Hale, former engineering student and 1927 OSU graduate. For the new model, dubbed the "Black Maria," they created the interior parts; a local plumber made the exterior shell. By late 1933 McGee, Thuesen, and Hale began looking for a manufacturer.

Magee filed for a patent on the improved device in May 1935 and received it in 1938. The Magee-Hale Park-O-Meter Company manufactured meters in Oklahoma City and Tulsa. The first parking meters were installed in July 1935 in Oklahoma City. Photos of Magee and of the first meters are available here. One of the first meters is currently on display in the Oklahoma History Center in OKC.

Were parking meters an immediate success? They were, of course, unpopular with the commuters who could no longer park all day in prime spots at a zero price. According to Scott Cooper in the current issue of the Oklahoma Gazette, the mayor of Oklahoma City denied responsibility for the meters; the city manager refused to pose for photos with them. But, according to the website of POM, Inc., the successor to the firm Magee founded, the meters were popular with storeowners, because they freed space for shoppers exactly as intended:

Their first production run of parking meters was installed on one side of the street in downtown Oklahoma City on July 16, 1935. Business was so affected by the parking meters after only three days, the merchants on the other side of the street demanded that parking meters be installed in front of their businesses as well.

See also The Parking Meter Page.

Answer: We CAN. Letting some people lose their jobs is the key.

And Russ Roberts says how.

Officials at a high school have suspended a 19-year-old seen punching another student in the jaw in a video posted on MySpace.com.

Douglas Lawhorn agreed to pay the other student $70 before delivering the blow, which knocked the student out, said Superintendent David Williamson.

[Story here.]

Buy a U.S. Embassy!

Apologies to MR.

In yesterday's WSJ (sub req), David Henderson argues for keeping the AMT and transforming it into a flat tax. Maybe there's some hope for the AMT Club.

Oct. 1 has been set as the trial date, and Lott has a book coming out (click the link to see its cover).

The May 2, 1907 NYT reports from Albany, NY:

A decision of interest to baseball magnates and players was handed down yesterday by the Court of Appeals against the New York Baseball Club of the National League and in favor of Fred Pfeffer. Pfeffer was under contract by which he claimed he was to receive $2,400 a year and $600 additional for playing to the best of his ability. He claimed to have been suspended unjustly, it being charged he was not in playing condition. He sued for $800 and interest. His claim was afterward assigned to Frank Russell, who has finally won after a long litigation.

Thus, the salary in question was from the 1896 season. The story doesn't report on the total amount of interest involved, but assuming an interest rate of 5% (high or low?), the entire award would amount to approximately $1300. If Russell took a thirty percent contingency fee (high or low? I admit I don't know what the norm was back then), this would leave Pfeffer with $871.

If we assume the $800 represents the economic damages incurred for being fired, and the base salary was $2,400, this would imply that Pfeffer's reservation wage (essentially the value of his best alternative to baseball for the NY Giants) was around $1,600. His reservation wage might have been considerably lower than this, which would have implied a larger claim in the law suit, but he might have chosen the amount for which to sue in a strategic fashion. *

Nevertheless, I find this little tidbit of data of interest because we have very little information on particular player salaries from the early days of baseball. I have a working paper with former UTA Masters student Jennifer Ashcraft analyzing unique salary data I discovered from the 1880s (available here) and there are some aggregate numbers (mainly average salaries) that have been revealed during various law suits over the years, but during the early days of professional baseball salaries were not revealed as openly as today.

One more player observation on baseball salaries doesn't help a whole lot, but let's take a crack at "robust inference on one observation" (my forthcoming Nobel-winning magnum opus).

Fred Pfeffer was an average hitter, especially as he primarily played second base and shortstop (positions that historically weren't expected to generate above-average batting numbers). Pfeffer's career statistics were a .255 batting average, a .312 on base percentage, and a .369 slugging percentage; all fair-to-middling' numbers. If the salary for an average player like Pfeffer was $2,400 but Pfeffer's reservation wage was somewhere in the area of $1,600, perhaps Pfeffer (and other players?) had more negotiating power under the reserve clause than is generally believed.**

The negotiated wage between Pfeffer and the Giants fell between Pfeffer's reservation wage and Pfeffer's marginal revenue product. What was his MRP? My work with Ashcraft suggested that the average ratio of MRP to wages amongst the best players in the game during the 1880s averaged 2.5. Thus, the so-called contract zone might have had a lower bound of $1,600 and an upper bound of $6,000. This would suggest that Pfeffer was able to negotiate about 18% of the $4,400 difference between his MRP and reservation wage, with the team keeping the rest of the difference.

This would seem to be back-of-the-envelope-consistent with the numbers in the Ashcraft-Depken piece.

How cool is that.

* HT to colleague Mike Ward for ealier discussion that led to this post.

** [tongue-in-cheek] My magnum opus titled "Robust Inference on One Observation - How to Win Every Argument Every Time" is replete with sentences filled with parentheticals, and hypotheticals. Unfortunately, publishers (okay, one) have taken a dim view of my work from which I can only conclude that all publishers are idiots.

Cross posted at Heavy Lifting

The May 2, 1907 NYT reports from Princeton, N.J.:

George R. Murray, the general athletic Treasurer for Princeton University, to-day gave out the statement of the baseball association for the half year ended Jan. 1, 1907. The report shows a net profit of $11,78.34 for the season. The heaviest expenses being the coaches' salaries, $4,844.92, and training table, $3,159.11.

If the men's baseball team had 1 head coach and three assistant coaches. I don't have access to the actual salaries of these four individuals, but if they are paid the average at Princeton, total coaching salaries would total $246,000.

Are coaches today worth twice (in real terms) as they were 100 years ago, assuming Princeton coaches are paid the average salaries at Princeton? This would imply a growth rate in coaches real salaries of approximately 1.4% per year. I might believe that growth rate, after all has the marginal productivity of a good baseball coach changed all that much over the past 100 years? Moreover, as baseball is rarely a revenue generating sport (and it doesn't seem to be at Princeton), the value of marginal product is likely changing very little.

Granted, if the Princeton coaches are paid more than the average, then the growth rate would be a bit higher. However, the increase in coaches salaries have been greatest in football and basketball (both men's and women's) where the greatest amount of rents are gathering and with the players not being paid those rents are being distributed (to some extent) to the coaches of those particular sports.

Whether there is any largess for the coaches of non-revenue generating sports (where coaches likely have lower opportunity costs, lower productivity gains, and lower amounts of rent-generation) is an interesting empirical question. I am not sure if the data to answer that question are readily available, but it would prove an interesting dissertation topic.

It's hard to tell who the bad guy is from the headline: "Chavez seizes control from Big Oil"

But, luckily we've come to a point in the history of the English language that the nobility of motives can be easily determined by the presence or lack thereof of "Big" before the name of your industry.

Chavez must be thinking the same thing I do whenever I see the US soccer team enter the pitch at the start of every World Cup: "Maybe THIS time it will work!" But, at least he decided to seize control on the day where I lecture on the institutions that promote economic growth.

Now, I have to get back to supporting Big Education (if you can call it that in Louisiana).

The neoclassical law and econ story says increasing fines and reducing monitoring/prosecution costs is an efficient enforcement strategy--same amount of crime, less prosecution and incarceration costs. Lots of research has shown that SARBOX simply shifted and increased compliance costs. Add selection effects to the pool of potential criminals, however, and SARBOX can lead to more white collar crime. From this new SSRN working paper: http://papers.ssrn.com/sol3/papers.cfm?abstract_id=981064.

Although the common law's embrace of a mens rea requirement in the criminal law reflected an advance - on both moral and efficiency grounds - over ancient law, recent legal developments suggest an unfortunate return to what are, in effect, strict liability crimes. Some modern criminal laws have explicitly abandoned any mens rea requirement, creating de jure strict liability; more commonly and insidiously, criminal laws applicable to many regulated industries are so ambiguously drafted, and entail such severe penalties, that the effect of the law is what we call de facto strict liability. In this article, we argue that these two trends - soaring penalties for corporate crimes and dilution of a mens rea requirement - could have the paradoxical consequence of creating more corporate crime and not, as the standard story goes, less.

We conceive of the competition for corporate control as waged by three human �types� - ideal entrepreneurs (who are risk-neutral with respect to business decisions, but risk-averse with respect to compliance with the criminal law), swashbucklers (who are risk-neutral with respect to both business decisions and criminal law compliance) and bean counters (who are risk-averse on both of these margins). From society's perspective, the optimal environment is one that allows the ideal entrepreneur to thrive. Unlike bean counters, she is willing to take entrepreneurial risks that benefit society. Unlike swashbucklers, she is hard-wired to comply with the criminal law even at substantial cost. But as the criminal law becomes increasingly draconian, and its application unpredictable - that is, as it becomes one of de facto strict liability - our model demonstrates that she will flee for other environments. As every increase in criminal penalties more thoroughly drives away the ideal entrepreneurs, adverse selection operates, and swashbucklers more completely dominate the field. The ultimate irony is that the indeterminate widening of the scope of white-collar criminal law, and the penalties that attach for its violation, may drive away the very people most susceptible to being deterred by the criminal law.