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

... for being named the meanest airline in the U.S. based on customer satisfaction, baggage fees, and other factors. (HT: Marxist Place)

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

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

With political class foaming at the mouth about the evil Chinese yuan and other foreign menaces, these columns by Gary Wolfram and Daniel Griswold are welcome relief.

So, as we know, chattering classes, Washington nabobs, and mandarins at the Fed have been a-twitter about deflation. However, yesterday's Treasury auction of five-year TIPS resulted in a negative yield to maturity, indicating that markets are expecting inflation over the next five years.

In the barest statement of facts (subtly devoid of commentary, to my mind),

“It signals people’s expectation of the Fed being able to create some inflation with the QE program,” said Alex Li, an interest-rate strategist in New York at Deutsche Bank AG, which as a primary dealer is required to bid at Treasury auctions.

The questions are, of course, how much inflation, how quickly, and for how long? Many very smart people whom I respect have advocated the Fed shoot for 5%-7% inflation for 12-24 months, or some such. I just don't know that I can get on board that train. We are in uncharted territory with the money multiplier. How much QE-ing will be enough to generate inflation, and when will we know? I can't help but thinking about those long and unpredictable lags.

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

Many thanks to co-blogger Ed for visiting us at Berry yesterday. My law and econ students heard an interesting lecture based on Ed's work on fashion and copyright and later a large audience attended Ed's talk on Kelo and takings.

Glenn Reynolds's comment "that to the credentialed-instead-of-educated, the Constitution is a wish-fulfillment device rather than, you know, an authoritative text" reminded me of this recent Mike Lester cartoon in the RNT (though I think it would be more accurate to say that the left and right view different parts of the Constitution as rocks and lava lamps).

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

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

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

Article is here.

Hey, folks! Don't forget that trade and labor flows are slow to react, but capital flows can turn on a dime. Should the dollar depreciate enough--ordinarily, a logical consequence of dramatically increasing the number of dollars--sovereign nations will begin to unload their holdings of U.S. Treasury bonds. This will cause Treasury yieds to soar, putting serious upward pressure on other interest rates in the economy. Think that'll be good for unemployment?

Unless, of course, the Fed THEN steps in to prop up Treasury prices with MORE new money (QE3?)... which should lead to further depreciation.... oh, snap!

I'll be speaking about Walmart at the Metropolitan State College of Denver on Tuesday at 11:30. The lecture will take place at the Tivoli Student Union Turnhalle, 1111 W. Colfax Avenue in Denver. Contact Alexandre Padilla at padilale@mscd.edu for more information.

I’m Loving It: Hong Kong McDonald’s Is Now Offering Wedding Packages

In recent months there have been reports of large corporations sitting on piles of cash but not expanding their hring (e.g., see this WaPo piece). Of course, regime uncertainty arising from Obamacare, possible tax hikes, and cap and tax is probably responsible for some of the corporate behavior.

In any case, a new paper by Franz R. Hahn in Economics Letters seems to undercut the notion that corporations holding reserves damages economic growth; the abstract:

In this note we provide empirical evidence supporting the view that enhanced corporate risk and liquidity management promoted by financial development provides better insurance against liquidity shocks caused by capital market imperfections and thus tends to support economic growth.

Article is here.

Money quote:

"If the global financial crisis was about nationalizing private debt, then in the post-crisis period the urgent need of the United States is to internationalize its national debt."

Hey, folks- the call for papers from my new journal, the Journal of Entrepreneurship & Public Policy, is live!

Thanks to co-bloggers Art, Ed, & Josh for joining me in this venture.

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

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

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

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

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

I wasn't sure before, but I'm pretty confident, now. For the short to medium term, "bubble" will be spelled "bond."

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

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

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

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

CA Senator Barbara Boxer in a recent debate:

"You know, like, I don’t want to go back to the days when thousands of people died every day because they had no insurance."

The actual number is no doubt much less than the 700,000 plus (at least 2,000 per day for 365 days) deaths that would occur each year if thousands were dying every day because they lack health insurance. A study by some folks at Harvard Medical School puts the figure at 45,000 per year; another study put the figure at 18,000 per year.

IJ is pushing back against an IRS scheme to require that tax preparers be licensed. My former student Dan Alban has recently joined IJ and one of the attorneys working on this case. Dan has an op-ed on the issue in the Daily Caller (can you say bootleggers and baptists boys and girls?) and he's testifying at a hearing on the matter.

It goes without saying, of course, that if the tax code is so complex that completing tax forms requires special training and licensing that it is way beyond the point at which the @#$! tax code should be simplified.

Nearly a million workers won't get a consumer protection in the U.S. health reform law meant to cap insurance costs because the government exempted their employers.

Thirty companies and organizations, including McDonald's (MCD) and Jack in the Box (JACK), won't be required to raise the minimum annual benefit included in low-cost health plans, which are often used to cover part-time or low-wage employees.

/snark

Source

Panel: Gov't thwarted worst-case scenario on spill

Jonathan Cohn's column in today's New Republic leads off with an assertion that I hear frequently these days, and one that I think provides a good bit of insight into the soul of modern, mainstream liberalism. Cohn writes that a Republican controlled Congress would "obviously not good news for liberals or for liberalism. The Republicans will try to slash taxes for the wealthy, shrink the federal government, and repeal major legislation starting with health care reform."

Now, I can understand why one might think that "shrink[ing] the federal government" is an obviously bad thing, though I wouldn't agree. One might feel that we need a strong, active, federal government. One might openly favor a move toward a more social-democratic state. And so on. Similarly, if one favored Obamacare, one would see its repeal as inherently bad. But why is there such a widespread view on the left that "slash[ing] taxes for the wealthy" is self-evidently bad? The idea is that high taxes on "the wealthy" (whoever they are) is an inherently good thing. I would think have thought that everybody would have agreed that in the dream world, low taxes on everybody would be a good thing.

Of course, the reality is that the world is full of tradeoffs. But the assertion that higher taxes on "the wealthy" is rarely tied to any tradeoff. Perhaps liberals view it as self-evident, and therefore implicit in the statement, that higher taxes on "the wealthy" bring in more government revenue and that revenue can be spent on valuable things. But that's not really what they say. Do they view it as self evident that higher taxes on "the wealthy" will always bring in more revenue? The evidence doesn't support that as a universal proposition, although certainly it often can lead to greater government revenue. Do they see it as a given that higher taxes on "the wealthy" will lead to a healthier economy? Sometimes that might be true, but there's certainly no evidence of that as a general proposition - if anything, the evidence seems to suggest that in most cases lower taxes on "the wealthy" will lead to greater economic growth. And it strikes me, again, that the default position for normal people of good will would be that it is always better, all other things equal, to leave people in possession of the fruits of their labor. This is not a "no taxes" position. I am merely suggesting that higher taxes, among people of good will, must always be justified.

The only way that one can really see higher taxes on "the wealthy" as an acheivement in and of itself, independent of its actual effects, is by an appeal to envy. "The wealthy" have more, and we want to take it from them. Leaving them with less is ipso facto a good thing.

It strikes me as strange - and as a very bad thing - that this view can be stated so openly and cavalierly, and with so little push back.

Emory's Paul Rubin in today's WSJ:

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

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

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

Read More »

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

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

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

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

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

Hi Professor Lopez,

Here's an article that reminded me of Law and Econ:
http://www.wpsdlocal6.com/news/local/Firefighters-watch-as-home-burns-to-the-ground-104052668.html

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

When sheriff's deputies allegedly discovered a bags of marijuana and cocaine between a man's buttocks, they said he gave a quick explanation. Manatee County deputies said Raymond Stanley Roberts told them "The white stuff is not mine, but the weed is."

Deputies stopped the 25-year-old Wednesday in Bradenton for speeding. Officers said they smelled marijuana and searched him. That's when they allegedly found a bag of marijuana between Roberts' buttocks.

Officers then discovered another bag in there; the report said it contained 27 pieces of rock cocaine.

Source.

After reading this I was almost too astonished to breathe.

From the Oct. 1, 1910 NYT in an article describing changes to American Football rules in Connecticut:

The most radical innovation is in the system of scoring. Four teams will be in the league and, in order to prevent tie games a new system was adopted. If a team carries the ball to its opponent's 15 yard line and loses it there, or if time is called the offense will score one point. If the pigskin goes to the 10 yard line two points will be chalked up and, if the ball is carried within the five yard line, the offense will score three points. If the ball is carried over the line for a touchdown only the regulation number of points will be scored. This rule will make it possible for a team to score a touchdown and keep its opponents from the goal line and yet lose the game.