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

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

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

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

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

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

From Investor's Business Daily:

The Real Economic Power Is In The Hands Of Congress

By ROBERT LAWSON AND RICHARD ALM

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

On Huntsman's position on banks:

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

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

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

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

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

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

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

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

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

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

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

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

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

The abstract of a new paper in Economics Letters:

Using panel data, we demonstrate a 50% increase in research productivity following a dramatic increase in the piece rate paid for articles by a major Chinese University. The increased productivity comes exclusively from those who were already research active.

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

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

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

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

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

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

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

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

From CNN's take on it:

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Later in the CNN story,

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

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

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

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

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

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

From CNN.com:

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

And from the new EFW report:

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

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

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

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

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

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

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

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

From McKenzie and Lee, Microeconomics for MBAs:

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

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

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

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

Herbert Hoover.

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

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

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

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

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

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

Frank Stephenson
Rome, Ga.

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

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

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

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

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

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

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

ATSRTWT

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

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

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

This whole scene happened within about a half second:

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

From the WSJ:

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

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

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

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

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

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

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

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

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

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

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

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

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

Well, okay then.

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

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

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

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

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

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

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

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

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

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

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

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

What's Chinese for chutzpah?

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

Which name goes with which photos:

Brian Wilson or Vilfredo Pareto?

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

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

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

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

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

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

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

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

6. Wanna talk about our private goods?

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

8. Now those are some tangible assets!

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

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

10. Bottom up or top down?

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

In today's mailbox:

Studies in Emergent Order
Paper Call

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

“Coping With Tensions”

at its

FOURTH CONFERENCE ON EMERGENT ORDER AND SOCIETY

October 29 – November 1, 2011

Sise Inn, Portsmouth, NH.

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

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

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

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

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

Conference Director
gdizerega@gmail.com

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

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

For the Fund for the Study of Spontaneous Orders

Gus diZerega

William C. Dennis

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

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

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

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

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

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

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

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

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

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

From the March 31, 1911 NYT:

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

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

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

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

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

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

Louisiana
Massachusetts
New York
Rhode Island
Virginia
Arkansas
New Hampshire
Utah
Vermont
West Virginia
New Jersey

Those states uncommitted (at the time)

Connecticut
Delaware
Florida
Minnesota
Nevada
North Carolina (!)
North Dakota
Pennsylvania
Tennessee
Washington
Wisconsin
Wyoming

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

(Credit: The Economist)
Nod to Kevin Lewis

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

That is David D. Friedman writing in Law's Order (2000), p.274.

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

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

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

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

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

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

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

I would like to know what the law is regarding the washing of dishes in restaurants. I noticed to-day, in a little, popular-priced restaurant where I am accustomed to eat occasionally, that drinking glasses were brought from the tables, placed on a shelf, and, when needed, used again, sometimes without the formality of emptying what the last diner had left in them, sometimes with the formality of wiping them with a napkin.

It would seem no law would be needed in this case as all diners have full information about what is and what is not happening with the used dishes. The popular-priced restaurant might survive nicely with this arrangement if the quality and price of the food offset the additional costs (both physical and aesthetic) of eating there.

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

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

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

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

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

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

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

Here is Warren Nutter's wikipedia page.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

I love reading the paper from 100 years ago.

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

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

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

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

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

From the March 8, 1911 NYT:

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

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

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

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

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

Read More »

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

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

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

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

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

From IV.2.43 of The Wealth of Nations:

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

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

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

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

[...]

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

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

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

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

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

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

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

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

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

From the Jan 31, 1911 NYT:

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

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

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

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

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

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

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

Source.

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

From the January 26, 1911 NYT:

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

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

A considerable sum of money has already been taken in.

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

'Communist Monopoly' Teaches Downside of Socialist Life

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

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

P.S. Post title reference

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

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

From the Jan. 24, 1911 NYT:

ALBANY - Senator Stephen J. Stilwell, Chairman of the Senate Codes Committee, introduced to-day a bill strengthening the provisions of the Penal Code in relation to stock transactions. It prohibits "short" sales and sales of stocks upon credit or margin, wherein both parties intend that such contract be of a speculative nature and not purchase for investment.

File in the "things never change" drawer.

From the Jan. 20, 1911 NYT:

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

The organ was used later both by Wagner and Schumann.

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

From the Jan. 20, 1911 NYT:

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

{snip}

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

From the Jan 20, 1911 NYT:

OHIO FOR INCOME TAX

Amendment Now Ratified by Legislatures of Ten States

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

From the Jan. 20, 1911 NYT:

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

Oh boy.

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

I was pleased to see the article in your columns the other day in reference to the proposed law regulating the length of hatpins. There is no question in my mind as to the need for such a law, for thousands are daily in danger of serious damage to their eyesight, face, or hands by protruding hatpins. Women should be considerate enough to either protect the points or wear shorter pins.

I might add they could wear higher heels to promote the hat and accompanying hat pins above the heads of their fellow citizens. The letter goes on:

Many are, but for those who are not, a law is necessary, and it should be enacted without delay.

{sarcasm}The letter writer does not suggest at what point in the distribution of hat-pins the regulation should be enforced. One would suspect that hat-pin manufacturers would be required to limit the length of the hat pin, but would this not then require hat manufacturers to change hats to accommodate the reduced length, and would this forced change in hat design impart potentially catastrophic damage to the social welfare of hat wearers and admirers alike?

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

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

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

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

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

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

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

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

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

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

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

...

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

[/snark]

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

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

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

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

Ben Powell writes on Facebook:

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

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

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

Terry's conclusion:

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

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

From yesterday's WSJ:

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

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

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

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

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

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

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

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

[snip]

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

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

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

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

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

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

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

You can download a freshly revised copy at SSRN.

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

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

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

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

From this blog

Some interesting and some terrifying comments over at Reddit

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

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

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

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

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

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

MEMBERS OF BATHTUB TRUST ARE INDICTED

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

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

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

A year or more ago there developed in this "Greatest City of a Great Country" a violent agitation looking to the prohibition by law of speculation in theatre tickets, but our city fathers were evidently unable to find a way out of the difficulty. I am informed that the City of Chicago has recently passed an ordinance compelling all theatre tickets to have the price printed on them, and making it a punishable offense to sell any tickets above this figure. This would seem to be an effectual remedy for the evil.

Wow - either the writer was extremely naive or us economists missed the boat on this one. I am fairly confident that printing the price of admission on tickets has done nothing to slow down the speculation on tickets.

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

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

No more general collections fines! Beginning in the Spring semester students will no longer be charged late fees for general collections items checked out from Atkins Library. We will still enforce/collect fines for lost items, late Inter-Library Loan books, Course Reserves materials, recalled books and laptops.

I wonder if that means that there are very few books turned in late, or there are fewer books checked out of the library? I wonder how incentives will change and the implications. This sounds like a quasi-natural experiment of some sort, but I haven't the time at the moment to figure out how to take advantage of it - I'm thinking along the lines of moral hazard in the absence or reduction in penalties.

Anyone else experience something like this on their campus?

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

From the NYT:

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

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

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

[snip]

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

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

UPDATE: Apparently Russia and Qatar are the winners.

From the AJC:

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Frank Stephenson
Professor of Economics
Berry College

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

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

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

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

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

Choice tidbits from Alan Blinder in the WSJ today:

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Abstract:

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

PDF copy of paper here.

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

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

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

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

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

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

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

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

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

Well, this is interesting.

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

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

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

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

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

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

"Divided We Vote"

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

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

JEL Classifications: D72; E62; H71

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

Not much according to John Cogan and John Taylor:

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

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

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

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.

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).

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.

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.

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.

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.

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.

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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.

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

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

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

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

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

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

Source.

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

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

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

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

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

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

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

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

The opening salvo:

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

A representative sample:

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

DoL should start a new category called "WTF?"

Please do NOT read the whole thing.

One third of national income?

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

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

HT: Boortz

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

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

Blockbuster Files for Chapter 11 Protection

From NPR:

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

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

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

As taste:

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

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

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

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

Table of contents below the fold.

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

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

Press release and full report available here.

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

Full announcement here.

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

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

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

Cuba to cut 500,000 from state payroll

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

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

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

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

Related post here.

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

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

From Lawrence Reed:

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

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

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

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

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

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

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

Happy Capital Day, America!

Related post here.

A short and impressionistic post over at LTW...

You always hear talking heads saying business hates uncertainty. But why don't we hear that politicians love it?

My favorit account: Amity Shlaes' book FORGOTTEN MAN. That Roosevelt, he knew from uncertainty.

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

One of the many supposed evils of the health care marketplace is the ambulatory surgery center (ASC), a facility which supposedly drains patients from traditional hospitals and constrains cross-subsidization of medical services. However, a new paper by Charles Courtemanche and Michael Plotzke in the Journal of Health Economics finds only very modest overlap between ASCs and surgery performed at traditional hospitals. The paper's abstract:

This paper estimates the effect of ambulatory surgical centers (ASCs) on hospital surgical volume using hospital and year fixed effects models with several robustness checks. We show that ASC entry only appears to influence a hospital's outpatient surgical volume if the facilities are within a few miles of each other. Even then, the average reduction in hospital volume is only 2–4%, which is not nearly large enough to offset the new procedures performed by an entering ASC. The effect is, however, stronger for large ASCs and the first ASCs to enter a market. Additionally, we find no evidence that entering ASCs reduce a hospital's inpatient surgical volume.

This finding is something to keep in mind when folks who restrain ASCs bleat about how their reforms expand access to health care.

Travel for academic purposes is now a lot easier. Instead of lining up a substitute, you can simply assign a lecture or two or three from the Mises Institute's YouTube Channel, FEE, or EconTalk (among many others). My Mises U lecture from 2009 covers a comparative advantage example that students and instructors might find useful, and my favorite EconTalk podcast is still Mike Munger's 2007 discussion of recycling. Probably the most useful video I've seen is Roger Garrison's lecture on the Austrian Theory of the Business Cycle, which I've used in my economic history class and which I will probably use in other upper-level courses in the future.

Cash-strapped Bulgaria and Romania hoped taxing cigarettes would be an easy way to raise money but the hikes are driving smokers to a growing black market instead.

Criminal gangs and impoverished Roma communities near borders with countries where prices are lower -- Serbia, Macedonia, Moldova and Ukraine -- have taken to smuggling which has wiped out gains from higher excise duties.

Bulgaria increased taxes by nearly half this year and stepped up customs controls and police checks at shops and markets. Customs office data, however, shows tax revenues from cigarette sales so far in 2010 have fallen by nearly a third.

Source.

New York's Oneida Indian Nation moved a cigarette-manufacturing plant to their upstate reservation to shield smokers from steep taxes that Governor David Paterson has vowed to impose.

"By moving the plant to the Oneida homelands, the Nation is availing itself of a long-settled law that recognizes the right of Indian tribes to sell products they manufacture on their own reservations without interference from state tax laws," tribe officials said in a statement.

Source. NY has hiked cigarette taxes $1.60 and is trying to crack down on untaxed sales on Indian reservations.

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

My former student Shawn Regan had a piece in Regulation; now the NYT has an article on the phenomenon. The increased risk taking associated with using satellite devices, cell phones, etc. brings to mind J.R. Clark and Dwight Lee's paper on rescue Laffer curves (jstor).

George Will, one of my favorite columnists, smacks down Robert Reich's fictional account of Herbert Hoover in this segment of ABC's weekend chat show. The fun begins around 1:20.

We have a big opportunity here to educate perverts about economic development.

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

for one of these products with respect to the other?

…will it still be taxed?
New Zealand’ government plans an enlarging set of carbon taxes expected to cover livestock belching and flatulence. Money quote:

The nation’s carbon-trading project was expanded in July to require energy producers to pay for their emissions. By 2015, the system will include agriculture, forcing farmers to pay for emissions their cows and sheep make through belching.

That, says Don Nicolson, president of Federated Farmers of New Zealand Inc., is too big a burden on its 25,000 members. The Wellington-based group opposed the program, particularly after it became clear the nation would adopt the policy largely alone.

The NZ gov is paying sheep farmers to plant forests as carbon sinks, instead. Mo’ money quote:

Even the government says the program will have little impact on global greenhouse gas emissions. …. Rather, the government introduced carbon trading to enhance the country’s green image, boost exports, attract tourists and increase influence in global climate talks, Prime Minister John Key said on Television New Zealand in June.

‘Cuz, of course, the reason I haven’t scratched that itch to fly from Arkansas to Auckland is that the Kiwis aren’t green enough. It has nothing to do with the wallet-crushing price of airfare.

There’s just so much more goodness in this article, but I’ll leave the pleasures of further discovery to the reader. It’s worth it.

The Economist has a very nice story about the continuing progress being made in Georgia, the country not the state. As many know, I am a big fan of the country having visited my good friends at the New Economic Schoolseveral times for lectures and events. The progress since my first trip in 2005 til my most recent trip this past summer is visible to the naked eye.

FOUNTAINS dance, children play and families stroll along Batumi’s five-mile seafront boulevard, lined with palm trees, hammocks and playgrounds. Less than a decade ago, Ajaria, a verdant south-western corner of Georgia of which Batumi is the regional capital, was the personal fief of Aslan Abashidze, a strongman who seemed to own the place more than run it. He never appeared without an army of goons, and closed the streets when his son felt like racing his Lamborghini. Cut off from the rest of Georgia by checkpoints, the economy was stagnant.

Today this gently beguiling holiday resort is an exhibition of Georgia’s capitalist achievements, a showcase of its transition and an advertisement for what Abkhazia, a separatist region to the north, could have become had it not been, in effect, annexed by Russia following the short Russia-Georgia war two years ago.

Denmark better brace itself for a blast from Kruggybaby, DeLong, and company:

But now Denmark, which allows employers to hire and fire at will while relying on an elaborate system of training, subsidies for those between jobs and aggressive measures to press the unemployed into available openings, is facing its own strains. As a result, it is beginning to tighten up.

Struggling to keep its budget under control after the financial crisis, the government in June cut into its benefits system, the world’s most generous, by limiting unemployment payments to two years instead of four. Having found that recipients either get work right away or take any job as their checks run out, officials are also redoubling longstanding efforts to move Danes more quickly out of the safety net.

Incisive analysis from O'Driscoll on today's WSJ op-ed page :

Key passages:

[O]ur lingering crisis and economic weakness was brought on not by a Keynesian failure of effective demand, but by a Hayekian asset boom and bust.

The financial panic and ensuing great recession was a classic balance-sheet recession. ... The declines in home values, investor portfolios and 401(k) plans, and the uncertainties surrounding retirement plans, have all had a big impact. The solution lies in restoring balance sheets. For financial firms, that means raising capital. For consumers and businesses alike, that means saving more of their reduced incomes.

What is in short supply is not liquidity, but savings. The Fed can supply the former but not the latter. ...

[H]istorically low interest rates—about which the Bank of International Settlements, the bank for central banks, sounded a warning in its 2009/2010 annual report—will inevitably distort economic activity, as they did during the housing boom. Low interest rates slow the process of restoring balance sheets by keeping asset prices artificially inflated. They also penalize saving, thus prolonging the process of rebuilding balance sheets.

I was on "The Takeaway" this morning. Here is the archive version....

Two more things:

1. One by Bruce Bartlett. I don't always agree with Bruce, but he makes some good points here. Bruce is always worth reading... (Lagniappe: Bruce B also wonders about my pal Tino Sanandaji, an interesting Iranian-Swedish grad student at UC's Harris School)

2. Another by Lawrence Reed. It was written in 1998, but it's truly prophetic, unfortunately.

Another working paper rolls off the mill, this one concerning the evolution of the residential real-estate market in Las Vegas. As always, comments and suggestions are appreciated:

"Flips, Flops and Foreclosures: Anatomy of a Real Estate Bubble"

with Harris Hollans and Steve Swidler

This paper examines the anatomy of a real estate bubble. In the process, we identify three phases of the market’s evolution: in the first phase, a large percentage of transactions are speculative or "flips" causing prices to rapidly increase; in phase two, flipping loses its profitability; and in phase three, there is an increasing number of foreclosures leading to falling prices. An illustration of this anatomy is provided by the evolution of the Las Vegas metropolitan housing market from 1994 through 2009. The descriptive analysis of the Las Vegas market is augmented with causality tests which show that prices were the driving force behind all three phases in the market’s evolution.

SSRN download

New York state's cigarette tax revenue from convenience stores fell in the first six weeks after a steep tax increase, as consumers turned to Native American reservation stores, a convenience store group said on Wednesday.

New York state boosted the cigarette tax to $4.35 a pack from $2.75 on July 1 as one of a series of measures designed to help close a $9.2 billion deficit for fiscal 2011, giving it the highest cigarette tax rate in the country.

With the per-pack price rising to a range of $9 to $12, "aghast" smokers flocked to tribal stores, which are tax-free, the black market, and border states with lower cigarette taxes, said the New York Association of Convenience Stores.

Erik Kriss, a spokesman for New York state's budget office, said by e-mail that the drop in tax collections was caused by smokers buying ahead of the tax increase, which is supposed to discourage smoking.

Convenience stores that are located close to reservation competitors sold 45 percent fewer cigarettes; more distant stores experienced drops of 25 percent to 35 percent, the lobbying group said.

Source.

My "Freedom Watch" appearance on Monday 8/9/10, answering Judge N's questions about monetary and fiscal issues in two-sentence bites, is available here . If you want, you can skip forward to my segment by running your mouse over the initial screen, clicking on the link to Part 2, then sliding forward to 11:30 of Part 2.

Listen closely for the moment when the Judge calls me "Black" rather than "White". Also listen for the moment when I mutter "that's a straw man" in response to Nancy Skinner's misrepresentation of Adam Smith. Note that I could not see any of the other participants. I was alone in a DC studio, seeing only at a black screen that read "LOOK HERE".

From a piece by Jason Clemens in the WSJ (it's gated but reproduced here):

But change really began to take off in 1993. A socialist-leaning government in Saskatchewan started by reducing spending and moving towards a balanced budget. This was followed by historic reforms by the Conservatives in Alberta, who relied on spending reductions to balance their budget quickly.

In 1995, the federal government, led by the Liberal Party, passed the most important budget in three generations. Federal spending was reduced almost 10% over two years and federal employment was slashed 14%. By 1998, the federal government was in surplus and reducing the nearly $650 billion national debt. Provincial governments similarly focused on eliminating deficits by paring spending and reducing debt, and then they started to offer tax relief.

All government spending peaked at 53% of Canadian GDP in 1992 and fell steadily to just under 40% by 2008. (Government spending in the U.S. was 38.8% of GDP that year.)

Canada doesn't seem to have experienced the negative consequences that Keynesians would have us expect. In fact, the cuts started when Canada was in a mild recession (GDP peaked in 1991) yet the results were far from some sort of Krugmanesque replay of the Great Depression.

"Hooverism" is in quotes, of course, because Hoover did not cut spending and did not adhere to balanced budgets.

From the abstract of a new NBER WP by Chris M. Herbst and Erdal Tekin:

Using data from the Kindergarten cohort of the Early Childhood Longitudinal Study, our instrumental variables estimates suggest that children receiving subsidized care in the year before kindergarten score lower on tests of cognitive ability and reveal more behavior problems throughout kindergarten. However, these negative effects largely disappear by the time children reach the end of third grade.

Something to keep in mind next time some pol bleats about caring for children. Thankfully the damage doesn't appear to be lasting.

In a preview for the reality-TV show’s second season, Nicole “Snooki” Polizzi criticized President Barack Obama’s policies as anti-tanning.

“I don’t go tanning anymore because Obama put a 10% tax on tanning,” she said.

Source.

From the Washington Post:

President Obama and congressional Democrats -- out of options for another quick shot of stimulus spending to revive the sluggish economy -- are shifting toward a longer-term strategy that promises to tackle persistently high unemployment by engineering a renaissance in American manufacturing.

That approach, heralded by Obama last week in Detroit and sketched out in a memo to House Democrats as they headed home for the August break, is still evolving and so far focuses primarily on raising taxes on multinational corporations that Democrats accuse of shipping jobs overseas.

So, let's raise the costs of corporations that have factories in the US but also abroad. Students: Can you spell out a route by which this approach might have the unintended consequence of reducing US hiring by multinationals?

HT: Don Boudreaux

(1) The great champion of liberty Manuel Ayau has died. Vaya con dios, Muso.

(2) "Malts in the Cafeteria" in The Freeman written by my lovely wife.

(3) "Human Rights and Economic Liberalization" in Business and Politics with Art Carden.

(4) "Objectivism v. Subjectivism: A Market Test" in the Journal of Economic Behavior and Organization with Josh Hall and Pete Calgagno.

DOL co-blogger Robert A. Lawson and I have a paper in the new issue of Business & Politics entitled "Human Rights and Economic Liberalization." The paper is available here. Here's the abstract:

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

From today's Associated Press:

Spirit Airlines: no hitch with carry-on fees By ANDREW VANACORE August 2, 1010 7:06 am EDT

NEW YORK — Spirit Airlines' controversial carry-on fees took effect Sunday, catching some customers unhappily by surprise. But the low-fare carrier contends that the move will cut down on flight delays, potentially allowing Spirit to add new flights.

Spirit spokeswoman Misty Pinson said the new approach already appears to be working. "The check-in process is going well so far," Pinson said Sunday afternoon. "It looks like this is going to speed things up."

I first proposed this little idea in the February, 2000, issue of The Freeman.

As is, overhead bin space is allocated on a first come first served basis. A better system would allocate first to those with the highest value on time, risk-abatement, and comfort, and then to others who can claim left-over space or place them underfoot or simply check them in advance at the ticket counter.

[...]

Okay, this sounds good in theory, but what about the practical side? We can’t exactly expect people to run up and down the aisles shouting out their supply and demand prices for overhead bins. Talk about wasting time! But there is no reason to resort to this kind of barter solution. Instead, let’s capitalize on the airlines’ existing computerized information system to settle this for us. Airlines would sell overhead bin space as an add-on to a passenger ticket. “Would you like overhead space with that?” If you’re in a hurry, or you’re carrying something really valuable or breakable, you’re answer would very likely be “yes.” And you would pay a little extra for your ticket in order to ensure some overhead bin space. On the other hand, if you don’t want to pay the extra, just say “no” and go on your merry way to the baggage carousel. Soon enough, the airlines will balance out all the yes’s and no’s and reach an equilibrium overhead bin price, just like all other markets work when they are not overly regulated. Those who really value the space highly will get it, and those who do not will not. An efficient outcome.

Full article here: Mad Scramble at 30,000 Feet. Cross-posted on The Beacon here.

Something else for President Sarkozy to factor into his happiness flavored measure of GDP:

Grenoble - A group of police officers have been forced to take time off after receiving death threats and coming under fire in the French city of Grenoble, officials said on Tuesday.

Authorities reported another arson attack overnight, following a string of arrests and raids as tensions rumbled on after a week of fierce street battles sparked by the killing of a robber by police.

Previous post here.

From Iowa:

Filtered cigars that resemble cigarettes in appearance, if not taste, are fast gaining appeal with smokers struggling under budgets strained by tobacco tax hikes.

The filtered cigars come in a 20-pack about the size of a cigarette package, and are similar in appearance. But they cost $2.48-per-pack less than one of the more popular budget cigarette brands, Hy-Val. They’re priced a stunning $4.30-per-pack less than Marlboro, one of the mainstay cigarette brands after tax.

“These (filtered cigars) have blown up in the last six or seven months,” said Andrew Beaupre, manager of the Cigarette Oulet on First Avenue. ”I mean, they’re $1.27! “Who’s not willing to try something new for $1.27 with what they’re paying for cigarettes?”

The price difference between the filtered cigars and cigarettes wasn’t always so wide. It began recently as the tobacco industry responded to tax hikes that took place to fund the State Children’s Health Insurance Program (SCHIP) that was signed into law in February 2009.

Realizing that sales would be hurt by the higher taxes, some manufacturers increased the weight of their small cigars by adding more tobacco, according to Darryl Jayson, vice president of the Tobacco Merchants Association.

By getting the weight above the 3-pounds-of-tobacco-per 1,000 cigars level, manufacturers could get their cigars reclassified from the higher-taxed small cigar category to the lower-taxed regular cigar category, Jayson said.

It’s a big difference. Cigars that contain three pounds of tobacco per thousand are taxed the “little cigar” rate of $1 per pack by the federal government and $1.36 per pack by the State of Iowa.

The federal tax on big cigars is only 50 percent of the product price and the Iowa tax is 50 percent of the product price. That was a considerable drop for a product that costs less than $1 per pack.

Shawn Regan's letter to the Bozeman paper about the fallacy of thinking a hail storm will stimulate the economy prompted the following response from a Ronald N. Fick:

Great newspaper, and I would like to comment on a letter by Shawn Regan in Saturday's paper. Shawn, it is not 1848, and Frederic Bastiat's observations of that time do not apply today. We have electricity, phones, radio, TV, running water, paved roads, vehicles and resources available to draw upon in time of emergency beyond Mr. Bastiat's ability to even conceive of. In 1848 when a local disaster struck, the local community had to deal with it without outside help. Today, with modern insurance companies drawing from nationwide assets, the drain upon the local community is not only reduced, the inflow of outside aid funds actually stimulates the local economy.

You are correct, Mr. Regan, that in 1848 such a hailstorm truly would have been devastating upon a local Bozeman economy for years to come. But this is 2010 and you are wrong to seek to apply such antiquated thinking now. We Americans have the means to reach out and help each other now from distances beyond that which can be readily seen. The Chronicle was quite correct in pointing out that the local economies - even in Livingston - will benefit from the windfall of insurance money injected into the Bozeman economy.

The broken window fallacy has nothing to do with TVs, paved roads, or running water. Instead it has to do with opportunity cost and applies just as much today as it did in 1848. Insurance companies don't send payments out of kindness; they charge premiums in exchange for those services. The premiums reflect the risk of hail storms and other damages so towns like Bozeman do not reap a "windfall of insurance money" after a storm. Insurance therefore changes nothing about the broken window fallacy; it merely separates the timing of the damage and the payments to repair it. Alas, Mr. Fick seems to think insurance payments arrive like manna.

Here's David Friedman on anarcho-capitalism, embedded at Let A Thousand Nations Bloom. You can get, among other things, the first edition of his classic The Machinery of Freedom at his website. This would, of course, make an excellent companion for a reading group studying For a New Liberty.

Addendum: Here's Friedman arguing that we should get rid of criminal law. It's great background for data entry on the history of legal systems.

From AL.com. How many other cities have spent $850,000 on lobbyists since 2008 fighting for the same contracts and funding? Here's co-blogger Mike Munger's great article "Rent-Seek and You Will Find."

Great news: George Selgin's important work The Theory of Free Banking is now freely available online at the Liberty Fund's Online Library of Liberty site. This is essential reading for anyone wondering whether there is a viable alternative to our failed central banking regime.

P. S. Anyone includes Thomas Sargent, whose interesting recent working paper on the question of laissez faire versus legal restrictions in money and banking would benefit from some reference to the free banking literature beyond the work of Neil Wallace.

Here is an example that complements the usual money examples.

Google Invests in Wind Farm
Barbara Hernandez, PC World
Jul 20, 2010 7:28 pm

Google plans to become carbon neutral at the same time promote green energy by entering into a 20-year agreement to buy power from an Iowa wind farm. The farm, part of NextEra Energy Resources in Story and Hardin counties, will sell Google 114 megawatts of renewable power. Google says that the energy it will buy is enough to power several of its data centers.

[...]

In reality, Google will not directly power its server farms with NextEra Energy. ... The wind energy Google buys, it explains, will be sold back to the regional grid. That in turn reduces -- by 114 megawatts -- the amount of non-renewable energy created to maintain the regional power grid.

The government's fondness for spending without taxing implies, through the government budget constraint G = T + ΔD + ΔM, some combination of the compulsions to borrow and to print money.

In the latest installment of the Econ Journal Watch podcast series , I talk to Jeff Hummel about the intersection of debt finance and seigniorage. Will Greece, Spain, et al., default? Or will the ECB try to inflate away its fiscal problems? What about the US? I'm worried about inflation, but Hummel argues that default is a political equilibrium: it stiffs foreign creditors without angering domestic money-holders.

Kurt Schuler's applause-worthy new project is an ongoing effort to build a freely accessible comprehensive database of historical financial statistics for as many countries and as many years as possible. The initial framework is now online here, hosted by the Center for Financial Stability. Researchers are invited to use the database and to contribute to filing in the gaps. Data series include:
•Exchange rates: low-frequency data.
•Monetary authorities: assets and liabilities; income and expenditures.
•Deposit money banks: assets and liabilities; income and expenditures.
•Other banking institutions: assets and liabilities; income and expenditures.
•Other financial institutions: assets and liabilities; income and expenditures.
•Monetary aggregates.
•Interest rates: low-frequency data.
•Prices, production, labor.
•International transactions
•Government finance.
•National accounts and population.
•Summary data on the history of financial institutions

Here's Stossel.

Economics question:

Some commentators are calling for what might be called a strategic immigration policy whereby we allow in immigrants with good educations and good English skills. That way, they will augment our high-tech industries.

True or False? Uneducated, low-skill Mexican immigrants who speak no English do not augment the American high-tech economy. Explain your answer. Hint: Bryan Caplan has discussed something similar at Econlog, but I encourage you to try to work it out yourself before consulting The Google.

If the Iroquois lacrosse team doesn't want to conform to our American (or Canadian) way of life and travel on American (or Canadian) passports, they need to get out of our country and go back where they came from. HT: Savage Minds.

Addendum: this is one of the best image memes ever.

UPDATE (7/21): The letter wasn't dead, just on life support. It appears in today's WSJ.

This WSJ editorial prompted the letter below which at this point seems unlikely to see print:

I was surprised to read that “White House economists believe taxes have little effect on growth” (“The Obama Tax Trap,” July 2). Just a few days ago I received the June 2010 issue of the American Economic Review, the flagship journal of academic economics. The current issue contains an article by CEA Chair Christina Romer and her husband David Romer on the macroeconomic effects of tax changes. Their paper examines “all major postwar tax policy actions” and concludes that “tax increases are highly contractionary.” For emphasis, the authors add that this finding is both “strongly significant” and “highly robust.” Could it be that the White House economic team is suffering a bit of cognitive dissonance?

From something I'm reading:

"By the early 1800s, however, with the publication of David Ricardo's landmark work on free trade and the adoption of his ideas by Adam Smith, the British state had embraced global liberalism, and the British-dominated world economy that emerged after the Congress of Vienna of 1815 was defined almost entirely by these values."

What's the problem?

1. Do the producers of these eco-friendly cups account for the fact that you have to use two cups to keep from burning your hands in their calculations of how many gallons of fuel, kW hours of electricity, and tons of carbon are being saved by their products? Or are they assuming a 1-to-1 substitution between their cups and styrofoam or plastic cups? I was about to say "maybe they're not for hot liquids," but there's a warning saying "Caution: Contents Hot" on the side.

2. In cleaning out my office I (re-)noticed an old WSJ op-ed by Bradley Schiller on my bulletin board titled "Min Wage, Max Politics." I don't have the date handy, but here's are some highlights:

The debate was always more about political posturing than economic reality.

Debates like this almost always are. The minimum-wage workforce is very, very tiny relative to the total workforce, and a lot of people--"tipped employees, seasonal recreation workers, charitable organizations, mom-and-pop businesses, farm workers, and Samoan laborers"--are exempt. Schiller points out what this means for the measured effects of the minimum wage:

This huge "uncovered" (exempt) segment of the labor force not only restrains the wage impacts that Democrats promise but also obscures the disemployment effects that Republicans project. A worker displaced by a legislated wage hike at McDonald's can take a waiter or busboy job in a sit-down restaurant. In the process, uncovered employment becomes a substitute for increased unemployment. The "beneficiary" of the legislated wage hike may actually experience a wage decline in the process.

As a result, the true displacement effects of an effective minimum wage hike are not easily observed, much less measured.

3. Having The Hayek Interviews online is totally awesome. Interestingly, I was reading something talking about "conservative" free-market economists while watching a discussion between "Why I Am Not a Conservative" author F.A. Hayek and "Why I, Too, Am Not a Conservative" author James Buchanan.

What's wrong with this headline?

House bill would make school lunches healthier

The answer is intimately related to why I don't lose much sleep over newspapers' struggles in the information age. I'd go on, but co-blogger Ed Lopez beat me to it a few weeks ago.

4:38 Update: speaking of intentions, here's Justin Ross on new crib regulations.

Here's Steve's latest Freeman column, in which he takes up the cause of payday lenders and their customers. Here's Walter Block's Defending the Undefendable, available for $0. The moral, and I paraphrase Justin Ross: "Economics is the art of not killing people with your good intentions."

That's the title of my paper with David Molina that is now forthcoming in the Atlantic Economic Journal. The paper revisits an old issue in micro theory, one that was apparently settled. It goes something like this.

Ask any economist, "what are the Marshallian surplus effects of changing from a uniform price monopolist to a multi-market (i.e., third-degree) price-discriminating monopolist?" The right response used to be: "Well, that depends on whether output increases." Hal Varian's very nice 1985 AER paper shows that 3DPD is a means by which the firm can increase output, which in turn increases Marshallian surplus. The dominant wisdom in economic theory maintains that a necessary condition for 3DPD to increase welfare is that it increase output.

Now the right response is: "Well, that depends on how you add the demand curves of the different segments." Here is the abstract of the paper:

Applied work in price discrimination often treats demand curves among multiple market segments as algebraically additive. Yet the welfare effects of multi-market (third degree) price discrimination depend on the method by which demand segments are added. Treating demands as geometrically additive yields the well known result that discrimination absent an increase in production diminishes Marshallian surplus. But if demands are treated as algebraically additive then discrimination increases welfare relative to uniform pricing. Quantity is identical in the three cases, so the effect is not due to market opening. Nor is the effect due to scale economies since marginal cost is assumed constant. Profit is always greater under discrimination, so the effect is due to distributional changes in consumer surplus. The model is restricted to linear demands and constant marginal cost but can be generalized for future work and policy analysis.

All the fun details are in the paper, available here on SSRN. Sorry for the messy equations, due to a glitch in converting from LaTex to .docx and back to .doc again. Feedback welcome! Enjoy!

P.S. The title is inspired by Robert D. Willig’s famous article, “Consumer’s Surplus Without Apology” (AER 1976), which defends the use of Marshallian surplus as a measure of market welfare.

For one of our Big Box retail projects, I'm reading the section of Walmart's 2009 annual report on Sam's Club. This passage was striking:

Sam's also remains focused on changing packaging to make certain products more relevant to Advantage members' needs. For example, repackaging three bottles of ketchup together in a size that is easier to pick up, has longer shelf life, and fits in refrigerator doors better than one large bottle, resulted in a significant increase in ketchup sales.

Even if central planners could have figured this out, how would they know that it's a wise use of resources?

Here. I'm especially looking forward to his discussions with James Buchanan, Axel Leijonhufvud (author of Keynesian Economics and the Economics of Keynes, which I still, to my shame, haven't read), and Armen Alchian.

Justin Ross: "The deadweight loss of Ohio's income tax is LeBron James."

Jeffrey Tucker interviews Bryan Caplan about Pictures of the Socialistic Future here.

Readers of DOL, Econlog, and Coordination Problem probably know that we're crazy about Lenore Skenazy's Free-Range Kids, which is probably the only parenting book likely to develop a cult following among economists. A few weeks ago, Portfolio sent me a copy of Laura Vanderkam's 168 Hours: You Have More Time Than You Think (here's the accompanying blog). It's an excellent book, and it even invokes comparative advantage (!). In a recent blog post, she discusses coupon-clipping and asks whether it is worth the effort. For a lot of us, the answer is "no." As an occasional producer of Productivity Pr0n, I really enjoyed it. Look for a short write-up either for Lifehack or Booked...uh, soon.

Last week I wrote a column for The Freeman where I argue that the decline of newspapers is not a market failure. Here is a related podcast for The Heartland Institute.

This week I wrote a follow up piece, also for Heartland, which argues that the decline of newspapers is a market success.

Enjoy.

NBA superstar free agent would pay over $12 million in New York income taxes, none in Miami

He'd also face a steep bill in OH, IL, and NJ.

UPDATE: A reader email points me to this analysis about the tax difference between playing in Miami and elsewhere. It concludes that the difference between Miami and Chicago would be negligible but that the difference between Miami and New York would be substantial.

I've also spent a few minutes looking for sports econ research on the topic. I found two papers (one co-authored by DOL friend Justin Ross and the other co-authored by noted public finance economist Jim Alm) finding that baseball free agents signing with teams in high tax jurisdictions sign for larger salaries. These studies suggest, but offer no direct evidence, that in a salary capped sport such as the NBA players' location decisions might be affected by state income taxes.

I'm revising my paper "Economic Calculation in the Environmentalist Commonwealth in response to excellent referee reports from the Quarterly Journal of Austrian Economics. In the process, I've read and re-read some absolutely fantastic papers:

1. Hasnas, John. 2009. Two Theories of Environmental Regulation. Social Philosophy and Policy 26:95-129. John and I were on staff together at an IHS "Liberty & Society" seminar in 2008. His lectures changed the way I think about tort. The link is gated; I was able to find a PDF by searching Google Scholar.

2. Norman, Wayne and Chris MacDonald. 2004. Getting to the Bottom of “Triple Bottom Line.” Business Ethics Quarterly 14(2):243-262. Gated JSTOR link. If you're interested in business ethics, the environment, or pretty much anything, you should read this paper very carefully. The authors conclude that 3BL consists of "vague and literally meaningless principles" that "are best only for facilitating hypocrisy." Here's an ungated version.

3. Hülsmann, Jörg-Guido. 1997. Knowledge, Judgment, and the Use of Property. Review of Austrian Economics 10(1):23-48. The discussion of the differences between action in coercive and non-coercive environments alone is worth the $0 download. I don't know if I agree with his assessments of Hayek and Kirzner.

4. Rothbard, Murray N. 1982. Law, Property Rights, and Air Pollution. Cato Journal 2(1):55-99. Reprinted in Murray N. Rothbard, 1997. The Logic of Action Two: Applications and Criticisms from the Austrian School. Cheltenham, UK: Edward Elgar Publishing, pp. 121-170. This should be essential reading in law & econ and environmental econ. I've toyed with the idea of assigning it in econ 100, but it's pretty long and a little outside the scope of what I cover when I go over externalities.

5. Reisman, George. 1996. Capitalism: A Treatise on Economics. Ottawa, Illinois: Jameson Books. OK, it's a book, not a paper, and a massive one at that (1100 large pages, two columns/page). I've never read this massive tome all the way through, but before I started grad school I read about the first 200 pages. The section on externalities beginning on p. 96 is really provocative. The $0 PDF is a handy reference.

Bozeman MT recently had a hail storm that damaged many buildings. Naturally it was treated as good news; the local paper reported "Storm boosts Bozeman economy."

Luckily, my excellent former student Shawn Regan now lives in Bozeman and sent this response to the paper:

Writing in 1848, Frédéric Bastiat explained the difference between a good and a bad economist. “The bad economist,” he wrote, “confines himself only to the visible effect.” By contrast, the good economist takes into account both “what is seen and what is not seen” when evaluating the results of an event.

To illustrate his point, he described the scene of a broken window, which onlookers claimed would actually benefit the town. The glazier would get extra business and the economy would be stimulated.

But as Bastiat pointed out, this line of reasoning is fundamentally flawed. It evaluates only what is seen, a new window, and neglects what is not seen, the countless ways the money would have been spent if the window had not broken. This often-repeated claim has become known as “the broken window fallacy.”

In the wake of last week’s hail storm, which left most Bozeman residents with literal broken windows, the Bozeman Daily Chronicle committed Bastiat’s enduring fallacy (“Storm boosts Bozeman economy,” July 7). The paper reported that the hundreds of thousands of dollars being spent repairing broken windows, dented cars, and fractured roofs will boost Bozeman’s economy.

But by reporting only on the increased activity in the repair industry the paper is focusing solely on what is seen. What is not seen are the foregone investments and purchases of clothing, appliances, and other goods and services that would have been made had the “windows” not been broken.

Economies do not prosper by repairing broken infrastructure. Otherwise, it would follow that the best remedy for the economic downturn would be nationwide hail storms – a ludicrous assertion. The unfortunate reality is that Bozeman is poorer, not richer, as a result of the storm.

The abstract of a clever new NBER WP by Efraim Benmelech and Nittai K. Bergman:

We provide novel evidence linking the level of creditor protection provided by law to the degree of usage of technologically older, vintage capital in the airline industry. Using a panel of aircraft-level data around the world, we find that better creditor rights are associated with both aircraft of a younger vintage and newer technology as well as firms with larger aircraft fleets. We propose that by mitigating financial shortfalls, enhanced legal protection of creditors facilitates the ability of firms to make large capital investments, adapt advanced technologies and foster productivity.

Was guest on "The Takeaway" this morning, live at 6 am. (You think it's all glory? Set YOUR alarm for 5:15 am, and see how perky you are!). National NPR program. You can listen by clicking "listen" here.

They asked me to do a little blog post, so I did. Call me Scrooge-mael.

...always and forever. Given that stamp prices have risen faster than gas prices, which have risen faster than the CPI (how do they compare to college tuition?), I have to wonder why people are always so angry about oil companies but perfectly willing to give the USPS a free ride.

New single family home building permits in Rome Ga.

2007: 281
2008: 309
2009: 72
2010 Q1: 11 (roughly half of the 21 in 2009 Q1)

Source: www.builderonline.com (there are data for many other MSAs).

Don hammers another one out of the park: "make it so" is insufficient for results.

The credit card companies are in the crosshairs of the financial regulation bill because of supposedly exhorbitant fees charged to merchants who accept credit cards. Even with the fees, at least one business, a New York restaurant, will no longer accept cash. A snip from a WSJ piece:

Mr. Zazula didn't back down. While other new and buzzworthy restaurants nationwide still buck the credit-card trend by refusing to accept anything other than cash -- bypassing the surcharges levied on every purchase -- he said the convenience and security afforded by going cashless are well worth the added cost. Gone is the age-old restaurateur's fear of getting robbed, either by outsiders or his own employees. "No more armored trucks," he says.

And going cashless allows restaurants to please the Internal Revenue Service, because cash-based transactions are easier to hide.

If you subscribe to Arts & Letters Daily, you've probably seen Naomi Wolf's piece on sweatshops and the like. Here's Ben Powell's defense of sweatshops.

Even if voluntary sweatshops violate human rights and oppress women, the answer isn't necessarily boycotts or consciousness-raising candlelight vigils. The answer is open immigration. Here's Ben Powell defending that, too. For a multitude of immigration resources, just type "immigration" in the search box on the right.

South Carolina's cigarette tax increases 50 cents per pack effective today. I saw this sign in SC a few weeks ago.

The econ blogosphere is alight with news of Frederic Bastiat's birthday today (here, for example, is Mark Perry on the Candlemaker's Petition). Here are some of his best works. A few seconds with the Google will turn up downloadable versions of The Law and other works.

Careful readers may recall my recent rant here on DOL about the Federal Trade Commission's discussion paper on the reinventing journalism.

Today at The Freeman I have a guest column taking a somewhat calmer approach. Enjoy.

Just a quick pointer to The Beacon where I'm blogging a series of posts on my new book, The Pursuit of Justice: Law and Economics of Legal Systems.

In this post I will discuss how the law evolves instrumentally — that is, to serve private interests rather than the public interest.

Law is often assumed to be a public good that can only be (or is best) provided by governments. Yet despite traditional beliefs and wishes, government-produced law is frequently driven to serve particular narrow interests. Three of the chapters in The Pursuit of Justice analyze legal history to exemplify this point.

Enjoy.

An interesting (if slightly off-base) letter in the June 25, 1910 NYT:

It would be interesting to learn what reasons led the Senate committee to put advertising down as a help in raising the cost of living.

It is generally conceded that if more of a certain article can be produced and sold it can be made more cheaply, that is the turning out of the article in question, not lowering the standard of the article. Advertising which tends to create a demand and thus cause more to be sold eventually brings down the price of the article.

Furthermore, it is an undisputed fact that if an advertisement is put in a publication having a million circulation it is a more effective and expedient way of selling it than by writing individual letters or having salesman call on each individual.

Advertising brings before the public's attention new devices, comforts for the home, and new food products, which are bought because of their worth. If, because advertising causes people to want more, to want to live better, to heighten civilization, and therefore spend more to obtain the same, it is difficult to see just wherein its weakness lies.

While Principles Micro had their test last night, I perused the Summer 2010 issue of PERC Reports. Some great articles, including

"Bootleggers, Baptists, and Global Warming" in Retrospect by Bruce Yandle

"Recycling Redux" by Daniel Benjamin

and a book review "The Case Against the Hockey Stick" by Matt Ridley

It was refreshing reading those after being nauseated by the amount of talk on "sustainability" (i.e. save the environment, ignore the costs) while over in Germany a few weeks ago.

The Mercatus Center has posted online the current drafts of the first three chapters from my book-in-progress, The Clash of Economic Ideas. I'd appreciate comments and suggestions from anyone who takes the time to read one or more chapters.

Brad DeLong has joined the crowd of folks displaying their ignorance of Herbert Hoover's actual record. DeLong calls British Prime Minister David Cameron and Swedish Prime Minister Fredrik Reinfeldt "One Medium-Sized and One Small-Sized Herbert Hoover" for proposing to reduce their countries' government spending and budge deficits. DeLong also calls 52 senators who voted against a so-called jobs bill "Fifty-Two Little Herbert Hoovers."

Once again, Hoover's actual (ahem, reality-based) record is one of increasing spending and shifting the federal budget from a large surplus to a large deficit. Government spending was $3.127B in 1929, $3.32B in 1930, $3.377B in 1931, and $4.659B in 1932--a 50% increase. The increase in real terms was probably larger because of deflation. As for the surplus/deficit, the surplus of $0.7B in 1929 had become of a deficit of $2.7B by 1932. (Source--Table 1.1.)

I'll be contributing occasional discussions of books to Forbes.com's "Booked" blog. My first entry, a review of Thomas Sowell's The Housing Boom and Bust, is here.

Quick, what is 300 divided by 2? What is 10% of 1000?

Those were two of five questions asked of 340 borrowers who took out subprime loans in 2006 and 2007.

About 16 percent of the respondents answered at least one of the first two questions incorrectly. Mr. Meier said that the results were consistent among all levels of education and income.

Over all, 21 percent of the respondents whose math abilities placed them in the bottom quarter of the survey experienced foreclosure, versus 7 percent of those in the top quarter...

And better-educated borrowers are not exempt, either.

“People say they’re doctors, so they don’t really need it,” she said. “So what? We see doctors who took out loans they didn’t understand, and who are in foreclosure now.”

Reminded me of The Diff.

HT: Boortz

DOL friend Ben Powell on immigration.

I'm leading a "Brain Candy" discussion for the Rhodes Summer Writing Campt this evening. Once again, we're discussing the economics lessons in "King-Size Homer." Here's a rough draft of my chapter in Josh Hall's book on economics in The Simpsons. Here too is every episode of South Park, including the "Medicinal Fried Chicken" episode that makes the same points brilliantly but that isn't at all appropriate for a family environment. Here's an abridged audiobook version of Economics in One Lesson, and here's an older edition of the book (with a link to a PDF).

Over on The Beacon I am blogging a mini-series of posts to summarize much of the contents of The Pursuit of Justice.

Here is Adam Summers at the Reason blog discussing his contribution to the volume.

Here is the book's store page at The Independent Institute.

South Carolina voter: I voted for Alvin Greene because … his name reminded me of Al Green

HT: Instapundit

UPDATE: Thanks to a longtime reader who points me to Jon Stewart's riff on Alvin Greene's candidacy.

The Daily Show With Jon Stewart	Mon - Thurs 11p / 10c
Alvin Greene Wins South Carolina Primary
www.thedailyshow.com
Daily Show Full Episodes Political Humor Tea Party

Some cities have talked about building municipal wifi networks. It's unnecessary for at least two reasons:

Reason #1.

Reason #2.

Hypothesis: almost anyone who would benefit from municipal wifi lives or works within a five-minute drive of McDonald's or a Starbucks. If you live or work in a busy part of a major city, it's probably little more than a five-minute walk.

I can throw away biodegradable coffee grounds and a non-biodegradable, poisonous chemical-laden, broken, and useless cell phone and battery for the same price: $0.

Here's today's absolutely brilliant XKCD. The best part is the mouse-over, which criticizes Kennedy's argument for going to the moon. It has "future economics assignment" written all over it.

Here's MLK on the wisdom of sending someone to the moon:

Without denying the value of scientific endeavor, there is a striking absurdity in committing billions to reach the moon where no people live, while only a fraction of that amount is appropriated to service the densely populated slums.

Where Do We Go from Here: Chaos or Community?, 1967

Of course, we can't know whether a moonshot or urban services would be a better use of resources without the information provided by prices, profits, and losses. But that's another discussion for another day.

The abstract of a new NBER WP (emphasis added):

Hospitals are currently under pressure to control the cost of medical care, while at the same time improving patient health outcomes. These twin concerns are at play in an important and contentious decision facing hospitals—choosing appropriate nurse staffing levels. Intuitively, one would expect nurse staffing ratios to be positively associated with patient outcomes. If so, this should be a key consideration in determining nurse staffing levels. A number of recent studies have examined this issue, however, there is concern about whether a causal relationship has been established. In this paper we exploit an arguably exogenous shock to nurse staffing levels. We look at the impact of California Assembly Bill 394, which mandated minimum levels of patients per nurse in the hospital setting. When the law was passed, some hospitals already had acceptable staffing levels, while others had nurse staffing ratios that did not meet mandated standards. Thus changes in hospital-level staffing ratios from the pre- to post-mandate periods are driven in part by the legislation. We find persuasive evidence that AB394 did have the intended effect of decreasing patient/nurse ratios in hospitals that previously did not meet mandated standards. However, our analysis suggests that patient outcomes did not disproportionately improve in these same hospitals. That is, we find no evidence of a causal impact of the law on patient safety.

It's all about rent seeking by the powerful California nurses union; any benefits to patients would be incidental.

Not only is The Road to Serfdom #1 on Amazon, but the news of this is climbing the charts on many economics blogs, including:

Greg Mankiw: http://gregmankiw.blogspot.com/2010/06/amazon-number-one.html

Peter Boettke at Coordination Problem: http://www.coordinationproblem.org/2010/06/somewhere-bruce-caldwell-has-to-be-smiling-i-think.html

And naturally, our own Art Carden: http://divisionoflabour.com/archives/007190.php

So far no hint at Brad DeLong, Paul Krugman, or Freakonomics.

(Please excuse the lack of links I am mobile...)

The article is a bit dated, but one of my students pointed it out to me today:

GDP "doesn’t measure a nation’s quality of life or overall well-being. That’s why Wheatley, Wood and a handful of Vermont activists are promoting 'gross national happiness,' or GNH, as an alternative to the consume-and-spend formula that fuels GDP."

They recognize the broken-window aspect of GDP: "You could tear up that road outside, repave it, tear it up again and repave it again, and that would contribute to GDP...[b]ut it wouldn’t do anything for measuring ‘progress.’”

But it also "sound[s] a little touchy-feely" and is "sort of like an optimistic flaky idea that could come from hippies." To wit: "Our excessive focus on wealth, measured by GDP, is leading all of us and indeed our planet straight over a cliff."

An interesting article that could spawn some good Principles Macro discussions.

From an editorial in today's WSJ:

The Department of Transportation, in its infinite wisdom, has announced new rules for airlines to compensate passengers who are involuntarily bumped from an oversold flight. We have a better idea—or, more precisely, the late economist Julian Simon had one 30 years ago.

Which brings us to Simon, who in 1977 on these pages proposed an auction system in which airlines would offer passengers on overbooked flights a gradually rising reward for giving up their seat. For example, if 115 passengers showed up for a flight with 100 seats, the airline would start to offer, say, a $300 voucher to passengers who agreed to take a later flight. If there weren't enough takers at $300, the airline would increase the offer to $400, then $500, a free round trip ticket, etc., until 15 passengers volunteered. Auctions like this are highly efficient ways of allocating a scarce resource.

So why are there still so many involuntary bumpings? Because many airlines offer one take-it-or-leave-it deal—say, a $500 voucher—and if there are not enough takers, the random bumping begins. A real auction would prevent this and optimize the welfare of all parties. Those who take the payment for a later flight are better off because they have freely chosen this option. Passengers who cannot afford at nearly any price to miss the scheduled flight are guaranteed a seat.

When economist Milton Friedman heard of Simon's auction solution, he wrote that he was "utterly baffled" that "opportunities for large increments of profits are being rejected [by the airlines] for wholly irrational reasons." It is doubly baffling that 34 years later many airlines are still acting irrationally to the detriment of passengers and shareholders. Auctions make more sense than fines.

On my last trip, Delta's flight from Atlanta to Vegas was overbooked. Guess what happened? Delta started offering vouchers and upped the offers by $100 until getting enough takers so that the plane was no longer overbooked. Seems like Delta may have behaved exactly as Friedman predicted. Maybe Delta is unique or maybe it still engages in involuntary bumping, but, based on my last flight, the WSJ's piece strikes me as odd.

Addendum: Please see my more serious columns on this issue:
"Is the Decline of Newspapers a Market Failure?" published by The Foundation for Economic Education, and
"Decline of Newspapers is a Sign of Market Success," published by The Heartland Institute.

Original post begins here:

I have been thinking of Jackie Gleason lately. The elder Jackie Gleason. The one who's lived and learned, who's seen fads come and go, who is solid as a rock in his convictions, and who has little tolerance for a brave new world. In his second most endearing role, as the old-timey Sherrif Buford T. Justice of the Smokey and the Bandit franchise, Jackie's character once lamented: "Give me the old days when a pair of boobs was a couple of dumb guys." Be thankful, good Sherriff, that you are not an economist in today's world.

Or a carmaker. Or a banker. Or a homebuilder. A health care worker, an oil fracker. A fisher, a learner, a cigarette burner. A teacher, a trucker, an oyster shucker.

Or, as of today, a journalist.

In a federal government report whose title has been aptly described as the nine scariest words in the English language today, the Federal Trade Commission has issued, "Potential Policy Recommendations to Support the Reinvention of Journalism." Potential, indeed. According to Andrew Malcom at the Los Angeles Times, here's a sample what your hard working foks in Washington have in mind:

Would you believe: major changes to the copyright law, including government licensing provisions; government pilot programs to investigate potential new media business models, antitrust changes to allow media companies to unite on imposing online pay walls, establish a journalism division of AmeriCorps with government underwriting the training of young journalists, tax incentives per news employee, increased funding of public broadcasting, a 5% tax on consumer electronics and/or assessments on users of public airwaves.

Another idea would be to allow taxpayers to direct a portion of their taxes — perhaps up to $200 — to a specific media institution as payment for media services rendered. (Now, if taxpayers could direct such sums to individual bloggers…. )

For the moment, let's leave to one side the very deep First Amendment implications. Let's instead ask, "Wow! On what grounds would Washington enact such ideas?" If you're an old-timey economist like me, brace yourself. Paragraphs 14-15 of the paper invoke market failure theory.

14. There are reasons for concern that experimentation may not produce a robust and sustainable business model for commercial journalism. History in the United States shows that readers of the news have never paid anywhere close to the full cost of providing the news. Rather, journalism always has been subsidized to a large extent by, for example, the federal government, political parties, or advertising.

15. Economics provides insight into why this has been the case. The news is a “public good” in economic terms. That is, it is non-rivalrous (one person’s consumption of the news does not preclude another person’s consumption of the same news) and non-excludable (once the news producer supplies anyone, it cannot exclude anyone). Because free riding is usually easy in these circumstances, it is often difficult to ensure that producers of public goods are appropriately compensated.

These days everything's a failure. Market failure this, government failure that. Science failure, top kill failure, bubble failure, climate failure, soccer failure if the USA doesn't bring home the World Cup. And now? Journalism failure.

Of course! Why didn't I think of that? When something goes wrong in the world, that must mean that something went wrong in the world! What do we do with all this failure? We fix it of course. Let the best and the brightest figure it out, and make sure it never ever happens again. Just give them the tools they need. They're smart enough and they mean well. Trust them.

Failure, it seems, is the new success in America. Horatio Alger doesn't need to work hard and dream big. He just needs to trust Washington. Bill Gates doesn't need to quit school and found a startup. Just take these fabricated incentives: stay in school (we'll pay for it), and fill out this form to get some juicy funding for your new business idea (if we like it, that is). You see, only Washington has the power to undo all this failure in the world. Now generalize from there to the rest of your life. No need to worry. Just don't allow your household to bring in more than $250,000 in a year and you're okay in our book. Washington will work hard for you and dream for you -- just sign your name here, please. This new American dream is a nightmare. Give me the old days when a pair of boobs was a couple of dumb guys.

Okay, so what notion of market failure does an old-timey ecoomist endorse? As Sherriff Justice might say, "Junior, let me explain." A market failure is the experience of real net losses in society as a direct concequence of purely self-regulated voluntary exchange. Market failure theory outlines the very specific conditions under which market failure exists. There are approximately four catergories of market failure: externality, public good, monopoly, and imperfect information. I say approximately because: a) these four categories are not mutually exclusive on a conceptual level; and b) there are sub categories such as the holdout problem that have characteristics of them all.

To their credit, the authors of Reinventing Journalism at least purport to advance a legitimate market failure argument. But it's wrong. Here is why: the supplier of a good can find indirect ways to charge the users of a good, thus converting it from non-exclusive to exclusive (in which case, it does not matter that the good is non-rivalrous). The classic example is a lighthouse. Whoever sinks the money into building and running a lighthouse cannot prevent anyone from seeing its light. But the nearby port can easily prevent any non-paying vessel from coming in where the waters are safe. And so, in experience, we see lighthouse makers contracting with nearby ports, and nearby ports charge a little extra for vessels that come in. Of course, ships don't rely on lighthouses any longer. GPS has rendered the lighthouse business model obsolete. That doesn't make a lighthouse a public good, it makes it no longer a good.

These same patterns exist in the production of journalism. It is stating the obvious that producers of journalism charge users of journalism indirectly through advertising. It is also stating the obvious that the old business model of journalism is dying, just like lighthouses died. To an old-timey economist, it is anything but obvious why the best and the brightest in Washington cannot or will not grasp the obvious. Give me the old days when a pair of boobs was a couple of dumb guys.

Mandatory FTC disclamer: the only thing I got in exchange for this post is a frickin headache.

I've long been skeptical of the widely reported claim that 50% of bankruptcies are caused by medical expenses. My skepticism is supported by the findings of a recent paper (gated copy here) in the Atlantic Economic Journal. The authors, Donald D. Hackney, Matthew Q. McPherson, Daniel L. Friesner, examine 400 bankruptcy filings from the Eastern District of Washington and conclude that "medical expenses are only a small portion of total unsecured debt, and thus should not be a major contributor to bankruptcy decisions."

Many folks have suggested that part of the reason the unemployment rate remains high is the repeated extensions of unemployment benefits. An article in the current edition of Labour Economics addresses the relationship between finding a job and the generosity of unemployment benefits; the abstact:

In January 2003, the unemployment benefits in Finland were increased for workers with long employment histories. The average benefit increase was 15% for the first 150 days of the unemployment spell. At the same time severance pay system was abolished. In this paper we evaluate the effect of the change in the benefit structure on the duration of unemployment by comparing the changes in the re-employment hazard profiles among the unemployed who were affected by the reform to the changes in a comparison group whose benefit structure remained unchanged. We find that the change in the benefit structure reduced the re-employment hazards by on average 17%. The effect is largest at the beginning of the unemployment spell and disappears after the eligibility period for the increased benefits expires.

That the libs controlling Congress don't get this isn't surprising in light of Dan Klein's findings about economic literacy.

A previous post on this topic is here.

Dan Klein in the WSJ:

Who is better informed about the policy choices facing the country—liberals, conservatives or libertarians? According to a Zogby International survey that I write about in the May issue of Econ Journal Watch, the answer is unequivocal: The left flunks Econ 101.

Zogby researcher Zeljka Buturovic and I considered the 4,835 respondents' (all American adults) answers to eight survey questions about basic economics. We also asked the respondents about their political leanings: progressive/very liberal; liberal; moderate; conservative; very conservative; and libertarian.

[snip]

Yet on every question the left did much worse. On the monopoly question, the portion of progressive/very liberals answering incorrectly (31%) was more than twice that of conservatives (13%) and more than four times that of libertarians (7%). On the question about living standards, the portion of progressive/very liberals answering incorrectly (61%) was more than four times that of conservatives (13%) and almost three times that of libertarians (21%).

The survey also asked about party affiliation. Those responding Democratic averaged 4.59 incorrect answers. Republicans averaged 1.61 incorrect, and Libertarians 1.26 incorrect.

From Bethany Moreton's To Serve God and Wal-Mart, p. 79, following a section in which someone is quoted praising "Mrs. Winnie Bell Young, who takes care of the clothing department...[and] has seen to it that the stout women can be fitted as well as the smaller ladies"*:

Shoppers were not shy about explicitly contrasting Wal-Mart to the old central shopping districts. A letter printed on a Fort Scott newspaper by an irate customer of downtown stores complained about their rudeness, their credit-only returns policies, and their attempts to sell whatever was on the shelves when the items she wanted were out of stock. 'No wonder the people of Fort Scott go out of town to shop and to the local Wal-Mart store...Why don't you downtown merchants shape up????"

*Incidentally, I was told by one friend that this was an explicit point of contention in a public hearing over whether to allow a Wal-Mart to open. In addition to teenagers who wanted jobs, there were people who said they wanted Wal-Mart because they wanted access to affordable, decent-looking plus-sized clothing.

I'm reading and reviewing Bethany Moreton's To Serve God and Wal-Mart: The Making of Christian Free Enterprise for Economic Affairs and a handful of other projects. About 40-50 pages in, the author discusses the ways that the Waltons and others across the Sun Belt, the Ozarks, and surrounding areas benefited from government largess. She ably dissects some of the mythology surrounding Mr. Sam.

Naturally, this raises a couple of questions. What are the obligations of those who inherit ill-gotten wealth and privilege? Have the Waltons fulfilled those obligations by building Walmart into one of the greatest anti-poverty organizations the world has ever seen? And for what it's worth, Mom & Pop weren't there for me when I've had minor travel emergencies over the last year (needing to buy dress shoes at 7:00 AM in Winston-Salem, North Carolina and DayQuil at 4:00 AM in Storm Lake, Iowa). Target and Walmart were.

This also suggests a hypothesis to test: how did government programs result in a net redistribution of population and resources from North to South, and did this cause post-WWII Southern convergence? In short, to what degree is Southern convergence driven by a transfer of resources from the Snow belt and the Rust Belt to the Sun Belt? This very, VERY crude, profanity-soaked rant against the South and southerners explores some of these themes a little more...explicitly. It reads like a manifesto for a 21st century Hartford Convention.

Update: Here's a piece from today's WSJ on Walmart's role as victims in the rent-seeking society (HT: Mark McMahon). Apparently, a lot of Walmart's local battles involve astroturf groups secretly funded by the store's competitors.

Oaksterdam University, where stoners go to get schooled on the art of growing ganja, isn’t exactly a bastion of blue-collar idealism. Or it wasn’t until this week, when the staff and faculty at Oaksterdam’s Oakland campus joined the Oakland United Food and Commercial Workers Local 5. What would have seemed like a strange union in the halcyon days of organized labor now seems to make a modicum of sense, and not just to potheads: If anyone can muscle California politicians into supporting marijuana legalization, it’s the UFCW.

[snip]

Oakland’s UFCW Local 5 will ”educate its members” about the advantages of controlling and taxing marijuana, and encourage them to spread the gospel of letting adults do what they will in private. Not because the union endorses marijuana use, says Local 5 organizer Dan Rush, but because weed and hemp, like cigarettes and alcohol in UFCW supermarkets, mean jobs. Union jobs.

Source

What's the obvious explanation missing from this story (hint: scroll down the page a little bit)? Extra credit: why would heavy restrictions on the labor market cause employers to increase their preference for long-term rather than short-term employees? Show me your published letter to the Commercial Appeal and win a copy of Frederic Bastiat's The Law.

Extra credit #2: what does this imply about why newspapers are struggling financially?

Update: first published letter wins.

Letter-writing power-hitter Don Boudreaux cranks another one out of the park with this letter to the New York Times in which he responds to this article explaining the bleak job outlook for teenagers, which is apparently a totally predictable consequence of a 41% increase in the minimum wage since 2007, which anyone who paid attention in econ 101 can explain using theory, a mountain of empirical evidence, and appropriate diagrams completely inexplicable.

Yours truly in today's WSJ (in response to this op-ed from Alan Blinder):

Mr. Blinder refers to Herbert Hoover as the "oracle" of "large fiscal contractions." Prof. Blinder has a rather unorthodox definition of contractionary fiscal policy. Hoover's actual record, rather that the laissez-faire legacy mistakenly assigned to him, indicates that federal government spending increased to $4.66 billion in 1932 from $3.13 billion in 1929 (an increase of roughly 50%). Similarly, the federal budget swung to a deficit of $2.7 billion in 1932 from a surplus of $0.7 billion in 1929—hardly an example of fiscal rectitude according to normal usage.

E. Frank Stephenson
Rome, Ga.

Five brightly colored bikes set aside for community use in downtown Hutchinson [Kansas] are missing.

The Hutchinson News reported that organizers of the Public Bike Project expected that some of the bikes might be stolen. But when all of them disappeared last week, that came as a surprise.

The Public Bike Project was introduced at the community’s Third Thursday event in May. Organizers envisioned people riding the bikes from business to business and leaving them in bike racks for the next person to use.

The group plans to replace the bikes. But members plan to stop at 20.

Good bikes after bad. Source.

Steve Wynn says Americans are afraid. He’s just angry.

“Washington is unpredictable these days,” declares the CEO of Wynn Resorts. “No one has any idea what’s next…the uncertainty of the business climate in America is frightening, frightening to everybody, and it’s delaying the recovery.”

Wynn spoke to CNBC in Las Vegas from the new Encore Beach Club opening for the Memorial Day weekend. He created the $69 million pool club and bar area after tearing down a brand new $13 million entrance to the Encore which looked out on Las Vegas Boulevard.

Turns out the view wasn’t good. Across the street are a slew of half finished developments which stalled in the downturn. Wynn didn’t want his guests to see that. “There were going to be 10,000 rooms across the street and they all went bust.” So he changed the whole front of the resort to close it off and create a sensual adults-only escape.

Pool clubs like the one he’s built are the hottest new trend in Vegas.

Source.

From AP: Gulf Oil Spill Now Bigger Than Exxon Valdez

COVINGTON, La. – An untested procedure to plug the blown-out oil well in the Gulf of Mexico seemed to be working, officials said Thursday, but new estimates from scientists showed the spill has already surpassed the Exxon Valdez as the worst in U.S. history.

I wonder how long it will be before someone claims the gulf oil spill is good because it is creating jobs. Maybe the broken window fallacy will become the spilled oil fallacy. (UPDATE: Steve Horwitz's "Parable of the Sooty Window" makes the same point in the context of the Icelandic volcano.)

UPDATE2 (6/3): Here is an example (HT to a commenter at Cafe Hayek):

Oil spill means mini job boom in Gulf

A news item:

District sales tax receipts suggest D.C. residents (and visitors) are smoking much less and drinking much more. Or they’re drinking more in D.C. and buying their cigarettes elsewhere.

Cigarette tax collections continue their stunning collapse in FY 2010, down 23.6 percent between October and April compared to the same period a year earlier. The $15.9 million in tobacco tax collections through April are off $4.9 million despite a region highest $2.50 per pack tobacco tax. The tax rate, 50 cents higher than it was in 2009, took effect Oct. 1.

On the tobacco side, Chief Financial Officer Natwar Gandhi opined in his February revenue estimate that the tax rate drove smokers “across the river.” Maryland’s tax is $2 a pack while Virginia’s rate is a piddling 30 cents.

Gandhi’s best guess, when the council agreed to hike the cigarette tax last summer, was a $9.7 million bump in tobacco revenues. His prediction was so far off, it created a $15 million-plus hole in the budget.

Previous post here.

Related: Anti-smoking advocates in NC apparently are more interested in treating cigarette smokers as ATMs than in getting them to stop smoking.

From my former professor Steve Pejovich, here is a pointer to Richard Rahn op-edding about the free-market economics university in Motenegro:

Professor Vukotic has created a new private university in Montenegro, University of Donja Gorica (UDG), that already has 1,500 students and a large, new building. He has been able to attract world-class scholars from a number of countries, including the United States, to teach or lecture. UDG also already has established cooperative agreements with universities in Europe and North America.

Decades ago, another young Yugoslav, having already been trained as a lawyer, was able to escape from the communist oppression. He came to the United States, studied economics and became a well-known and highly regarded scholar and professor of economics. His name is Svetozar "Steve" Pejovich, professor emeritus at Texas A&M University.

Fans of Universidad Francisco Marroquin will enjoy the entire article. Thanks, Steve!

From his most recent book Intellectuals and Society:

Hurricanes in Florida and wildfires in southern California are likewise recurrent phenomena over the years but each individual natural catastrophe is treated as an immediate and discrete crisis, bringing not only government rescue efforts but also vast amounts of the taxpayers' money to enable people who live in these places to rebuild in the known path of these dangers.* Any administration which might refuse to saddle taxpayers with the huge costs of subsidizing the rebuilding would no doubt be roundly condemned, not only by its political opponents but also by much of the media and the intelligentsia, looking at each particular hurricane or wildfire in a one-day-at-a-time perspective, rather than as part of an on-going sequence with a long history and a predictable future.

*An economist has estimated that the cost of rebuilding New Orleans was enough to instead give every New Orleans family of four $800,000, which they would be free to use to relocate to some safer place. But the idea of not rebuilding New Orleans has been seen as part of "the apparently heartless reaction of many urban economists to the devastation of New Orleans." Tim Harford, The Logic of Life (New York: Random House, 2008), p. 170.

There's language in the current spending bill that would quadruple Federal taxes on oil to 32 cents per barrel. The revenue would go into "a fund managed by the Coast Guard to help pay to clean up spills in waterways, such as the Gulf of Mexico."

OK- I don't know the relevant elasticities to be able to say how great a deleterious impact such a tax increase would have on the U.S. economy. I suspect that it would operate similarly to a teeny value-added tax; most of the burden would fall on final consumers, and there would be a large amount of dead weight loss compared to the revenue the tax collects.

That's not my point. My point is that money in fungible. It is impossible for the U.S. government to put money into a locked box and use the money only as the program intended. That tax money will be spent as soon as it is collected, and the Federal government will put T-bills into the fund instead. Then, when the next oil spill occurs, there will still be no emergency money available.

Think I'm wrong? Just look at the Social Security Trust Fund.

I could make a larger point about government funding of clean up efforts and such, as opposed to strict liability standards in tort cases which would motivate BP and ilk to self-insure against such disasters.... but that would take too much effort on this hot summer noon.

Do you agree or disagree with a legal ban on discrimination on the basis of race or gender in matters of private employment such as hiring, firing, promotions, and pay? Explain. In light of your answer to the above, would you agree or disagree with a legal ban on discrimination on the basis of race or gender in matters of dating, marriage and sex? Explain. If you answered "agree" to the first question but "disagree" to the second question, please explain.

I am sure most people will agree with the first and disagree with the second statement reflecting status quo bias. But really, if racist whites should be forced to hire and trade with blacks, why shouldn't homophobic males be made to go on dates with gay guys?

Being a parent means a steady diet of frightening stories like this one: people want choking warnings on some foods. But how much risk is there? Stories like this usually involve vivid, sad anecdotes, but they're usually very, very short on meaningful information and analysis. Continued below the fold. HT: to Steve Horwitz for the "Corner Solution Parenting" meme.

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Check out the new Internet digs of the Journal of Economics and Finance Education. You can browse the contents here. Interested authors will find the submission guidelines here. A new Summer 2010 issue is now available (PDF file here) that includes five newe articles on the economics profession, inside the classroom and out. Enjoy.

On ideal bureaucratic worlds:

Conrad said in an ideal world he would let a strategic assessment committee appointed by Wharton do an in-depth analysis of the city's golf system.

More here. It reminds me of this old Dilbert. The crucial difference is in the feedback mechanisms. Perhaps we could learn something from Nick Gillespie, who tells us how to save Cleveland.

*--Yep. The meme originates, as do most good things in the economics blogosphere, with Marginal Revolution.

In the Hayek - Keynes rap battle with the extremely handsome limo driver, Hayek concludes by saying that "In the long run, my friend, it's your THEORY that's dead."

Angus gives the eulogy, for the funeral.

Sigh.

Here. These will be an excellent supplement to econ 100 in the Fall.

DoL blogger Bob Lawson allowed me to ride his coat tails all the way to Georgia and Azerbaijan. It was the experience of a lifetime... at least until I do it again.

While in Azerbaijan, I had an interesting conversation. Azerbaijan is fundamentally economically un-free and suffers from ferocious corruption. The corruption is "monolithic," rather than "pyramidal" or "inverse pyramidal." That means that everyone, at every level, of any government function takes/demands bribes. In fact, the main value of governmental employment is the opportunity to collect bribes. Of course, the only way to gain lucrative government employment is to bribe your way into the job.

Consequently, there is a active capital market, where you can borrow the money to bribe your way into a government job. It's of course off the books, funded by individuals and groups of individuals, who would never be co crass as to label the activity a "loan." Nonetheless, the market exists, according to my friend. If I want a job, but don't have the 100K USD going price, I can cast around my broader social network to see who'll front me the cash. Although it's not called a loan, repayment is definitely expected.

The downside for society, of course, is that now I must be even more aggressive in seeking bribes, as I have a loan to repay, as well as making my nut.

Forbes.com offers this Special Report on Immigration, including my most recent contribution.

Also, as I'm revising a paper on the Memphis riot of 1866, here's a good case to be made against fire department socialism:

“The proof also establishes the fact that many of the firemen of the city, whose especial duty it was to suppress the devouring flames and to preserve and protect the property of all the citizens of the city, instead of employing themselves in this honorable and useful pursuit, for which they are generously paid out of the revenue of the city arising from a tax on the property of the citizens, were criminally engaged with the mob in the destruction of life and property.” (from Memphis Riots and Massacres, p. 41)

Here's Fred McChesney on the origins of municipal fire departments.

Interested in helping alleviate global poverty? Here's a handy guide to making sure you don't mess it up (HT: Aid Watch).

I just returned from another wonderful trip to the country of Georgia where I (along with DoL co-blogger Noel Campbell) gave a series of lectures for the the New Economic School - Georgia with the support of the Friedrich Naumann Foundation.

One lecture at the Free University in Tbilisi is here.

And (for you Georgian speakers) an interview on local television is here.

Thanks to my Georgian friends Paata Sheshelidze and Gia Jandieri for being such wonderful and gracious hosts.

Governments want to tax candy. So what counts as "candy" and what counts as "food?" More here. HT: James Choi.

What about these beverages (HT: Scott Cunningham, note the excellent use of visuals)? Will they be taxed like soft drinks, or not? Why? Why not?

The story's subtitle: Decriminalization has led to pot crop deflation

A snip:

Longtime Humboldt resident Charley Custer tells National Public Radio that back in the early days of President Ronald Reagan's "War on Drugs," locally grown marijuana was selling for as much as $5,000 a pound.

See also NPR's "Marijuana Economics: Wholesale Prices Plummet In California"

Art Carden speaking @ In Defense of Capitalism conference from Nicki Brøchner on Vimeo.

From a write up about a new paper by David Merriman studying cigarette tax avoidance:

A random sample of littered cigarette packs reveals that 75 percent of the cigarettes used in Chicago bring no tax revenue to the city, according to researchers at the University of Illinois at Chicago.

The lost potential revenue totals about $10 million per month, said David Merriman, professor of public administration and head of UIC's economics department. He has studied cigarette tax avoidance worldwide for 15 years.

Merriman organized teams of researchers to collect littered cigarette packs in 100 Chicago neighborhoods and nearby jurisdictions to examine their tax stamps. He reported on the study in the May issue of the American Economic Journal: Economic Policy.

Chicago's state and local taxes totaled $4.05 per pack, compared to $1.37 outside Cook County, in July 2007, when the teams collected the packs. The $2.68 difference reduced the likelihood that a pack was purchased in Chicago by almost 60 percent.

Distance reduces tax avoidance, Merriman said. Every mile between Chicago and the lower-tax source increased the likelihood of a Chicago stamp by about one percent.

A version of Merriman's paper is here.

UPDATE: See also this article on cigarette tax evasion in Canada.

I just skimmed the Arizona immigration bill that has everyone in a tizzy; it's helpfully embedded by the LA Times here. It reaffirms my belief that laws aren't made to be followed. They're made to be broken. When everyone is a criminal (or a potential criminal), the state's threats are more credible.

I've heard lots and lots and lots of people claim that they don't oppose immigration, they just oppose "illegal immigration." This is usually followed by a claim that one's ancestors were immigrants, and it is given legal oomph by the further claim that illegal immigration undermines the rule of law. I wonder: is there any chance that your ancestors would have been allowed into the country under today's immigration laws? I sincerely doubt it. See these links I posted a few days ago for more.

Joseph T. Salerno challenges my reading of Ludwig von Mises’ views on free banking and bank-issued money in a piece entitled “White contra Mises on Fiduciary Media” posted on the Mises Institute site on Friday. (“Fiduciary media” is Mises’ term for banknotes and checking balances in excess of bank reserves.) Salerno’s contribution represents progress, a useful departure from an otherwise stale debate among Misesians concerning the legitimacy of fractional-reserve banking. Salerno is to be applauded for declining to rehearse any of the now-familiar arguments to the effect that fractional-reserve banking is inherently fraudulent or otherwise jurisprudentially illicit. He acknowledges that Mises had favorable things to say about free banking, and that Mises on this topic differs from Murray Rothbard in important respects. Salerno offers up an important topic for renewed discussion, the question of whether any issue of fiduciary media creates a monetary disturbance or instead it is only excessive issue that disturbs.

My rather lengthy response to his challenge is below the fold.

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I'm speaking to the Northeast Shelby Republican Club this evening and have assembled the following list of links that attendees might find interesting. They deal with voting, political engagement, and some local, private alternatives to government-provided goods:

1. "Debate: Does My Vote Matter?" at Opposingviews.com. I was really disappointed in this because the other side of the debate (Rock the Vote and the League of Women Voters) didn't offer anything meaningful or substantive. Nor did they respond to any of my claims or criticisms of their positions.

2. Politics 2.0: Hack the Vote at Lifehack.org.

3. The (Il)logic of Collective Action: Lessons from the 2008 Election at The Beacon.

4. Forget Polls: Look at Prediction Markets on the Election, also at The Beacon.

5. Don Boudreaux explains his refusal to vote for The Freeman. Voting isn't the only way to be politically engaged. Especially given the ways in which access to the ballot is limited and political voices are silenced, I'm less and less inclined to think that it's a system that deserves our sanction.

6. Jeff Tucker explains why "Democracy Takes Too Many Lunch Hours" for the Mises Blog.

7. My student Brent Butgereit's winning essay answering my question "Should I vote in the Memphis Mayoral Election?" He compares voting to cheering at a football game.

8. The Cato Institute's Policy Paper version of Bryan Caplan's excellent The Myth of the Rational Voter.

9. Private Alternatives in Memphis: My friend Bryan Caplan once counseled that part of the strategy for liberty should include supporting private-sector alternatives to things that governments do very poorly. Here are a few in Memphis: Life Choices Memphis, The Neighborhood School, the Children's Museum of Memphis, the National Christian Forensics and Communications Association, Rhodes College.

10. National and International Institutions and Organizations: some of my favorites are listed on my Opportunities for Students Page. They offer publications, resources, and educational opportunities for students of all ages, not just for those who are enrolled in HS, college, grad school, etc. I'm also a big fan of the private Universidad Francisco Marroquin in Guatemala.

11. Here's a giant list of links I compiled for a "What's Wrong with the World?" panel at Rhodes last Fall. It includes links to yet another list of links I compiled for last summer's IHS "Liberty and Society" summer seminar.

12. Here's one of several downloadable PDF versions of Frederic Bastiat's The Law.

13. Governments presumably bind themselves with constitutions because hard cases lead to bad law, dangerous precedents, and slippery slopes. Here's ours.

If someone ever writes Don Boudreaux's biography, or if he ever writes his own autobiography, it should be sub-titled "Man of Letters." One of the highlights of the blogosphere is getting to read his excellent and pithy letters to the editor at Cafe Hayek. Here's a great letter to the NYT Book Review on whether we actually need an "ecologically minded Lenin." He also posts an excellent letter from Andrew Morriss to the WSJ on the Class of 2010's job prospects.

Accountant Jiao Yurong carefully organised her family's finances to put her son through university in the United States. Now that he has the coveted degree, she has been saving to buy him a flat. But soaring property prices in China -- and a series of moves by the government to rein them in -- are throwing a spanner in the 50-year-old mother's plans, and she admits she does not know how to proceed.

"Just when we had saved enough for a down payment, prices surged," Jiao, a Beijing resident, told AFP.

"The policy is so unstable... I'm so confused."

Jiao is not alone. Prospective home buyers are reeling from a series of measures put in place by the Chinese government to curb rocketing prices amid persistent fears about a ballooning bubble in the real estate sector.

Source.

I just agreed to speak to the Northeast Shelby Republican Club on Monday evening. I'll be giving an abbreviated version of my lecture "Common Objections to Capitalism." Here are some additional interesting reads:

1. Bryan Caplan on the populist roots of universal health coverage.

2. Bryan Caplan (again) on the populist roots of universal health coverage.

That's the conclusion of Carol Propper and John Van Reenen's article in the current issue of the JPE. The abstract:

In many sectors, pay is regulated to be equal across heterogeneous geographical labor markets. When the competitive outside wage is higher than the regulated wage, there are likely to be falls in quality. We exploit panel data from the population of English hospitals in which regulated pay for nurses is essentially flat across the country. Higher outside wages significantly worsen hospital quality as measured by hospital deaths for emergency heart attacks. A 10 percent increase in the outside wage is associated with a 7 percent increase in death rates. Furthermore, the regulation increases aggregate death rates in the public health care system.

I've downloaded it to my Dropbox, it's on the reading list. Here's Peter Klein's new book:

The Capitalist and and the Entrepreneur: Essays on Organizations and Markets

Here's fellow Wash U Econ PhD (and key to all our IM sports championships, I might add) Dave Switzer on the BP investigations.

Okay, three questions.

My brother and I are heading to Austria and Northeast Italy for our annual wine tour later this month. We are attending VieVenum in Vienna for two days and then I have at least one, maybe two, more days in Vienna before we head off into the countryside to walk the vineyards, taste wines, and visit with producers.

I have three questions:

1. Does anyone have any non-obvious suggestions about Vienna and the surrounding area? We will stay in Vienna proper (probably towards the southeast of center city) where, hopefully, parking is a bit cheaper - we will likely stay somewhere on the U or S-Bahn and not plan to take our car into the city. Dining, drinking, off-the-tourist-path places to visit are most valuable.

2. Where should I go to find Hayekian landmarks, etc. in Vienna? I have done a cursory search on der Googles but haven't found much (I am likely looking in the wrong places). Any help in this area is greatly appreciated. [BTW, last year we visited Trier and I took a picture in front of Marx's birthplace - with me showing my "appreciation" for his contributions. I would love to do the same (that is, show my true appreciation) for Hayek if it is possible.]

3. We fly in and out of Munich - we will be back in Munich on Friday, June 11 for the opening day of the World Cup. Anyone have suggestions on where to stay in Munich - probably closer to the city center - and, more importantly, where two American football fans should go hang out to watch the Germans watch the South Africans play the opening match of the 2010 World Cup?

Any help appreciated - comments open for the rest of today.

Why can't the press grasp the simple distinction between the value of Eurozone government bonds and the value of the euro currency? In the first sentence of its front-page coverage this morning, the Washington Post refers to a "massive emergency fund assembled to defend the value of the euro". The fund is for defending the bonds, not for defending the euro.

In an email message about my post yesterday on the inflationary consequences threatened by the ECB's pledge to buy up bonds to support their price, a reader rightly points out that in its press release, the ECB promises to sterilize the bond purchases so that "the monetary policy stance will not be affected". That is, it will sell other assets to offset its government bond purchases.

When I look at the current ECB balance sheet, however, I don't see a lot of salable assets. Clearly there's no point in selling the Eurozone government bonds it currently holds. Other euro-denominated "securities held for monetary policy purposes" are a mere €52 billion. The biggest asset category is "Lending to euro area credit institutions". This is a portfolio of loans to Eurozone banks that I'm guessing the ECB doesn't want to shrink just now.

ECB head Jean-Claude Trichet today spoke a bit ambiguously as to whether the plan is simultaneously sterilizing or later reversing the base money injections made in purchasing government bonds:

He dismissed the suggestion that the bond purchases might be inflationary. "The liquidity which we're adding to the market will be withdrawn by us again so the money supply in circulation will not be increased," he said.

Either way, until I read an explanation of how the added money will be withdrawn, count me as finding these statements lacking in credibility. Forecast: higher euro inflation, lower value of the euro.

2000 watt camping generators are advertised at Aldi for about $150. That got me thinking about ways to evade price gouging laws in Gulf Coast states. Rather than speculate, I sent the following email to Florida Attorney General Bill McCollum via his website:

Greetings,

This is not a complaint. I hope you can assist me with an example I want to do in the Economics 100 class I teach at Rhodes College. Recently, 2000-watt camping generators have been advertised at a Memphis Aldi for $150. Suppose I purchased their stock of generators at the retail price and then advertised them in Florida newspapers for $1000 each for the next several months. If Florida is hit by a hurricane, I would then mark down the generators to $750 each--a 25% discount compared to my original $1000 per generator asking price. Would I run afoul of Florida's price gouging laws by offering the generators at a 25% discount relative to my original asking price? Thank you for your time and consideration.

Kindest regards,

Art Carden
Assistant Professor of Economics and Business
Rhodes College
Memphis TN

Cross-posted at The Beacon. I'll blog his office's response if they will give me permission.

Another letter from the May 11, 1910 NYT, this one complaining about the freedom of entry into the "illustrator market":

What is to become of the illustrator? I see advertisements in the magazines, "Learn to be an illustrator," "Be an artist," "Artists receive from $25 to $100 a week," &c.

Now what is to become of all the students turned out by these schools? This occupation or profession is crowded and boiling over; every month sees two or three or more new names signed to the illustrations that are published in the magazines. What becomes of the illustrators who had a story to "picture" in a magazine last year? Of courses, if the illustrator is a personal friend of the publisher or of the art editor, he stands a good chance of being given work right along by his friend in power. I know of one illustrator who is supported by one publication - he does not bother about seeking other work - because his friend is the art editor, or rather the art editor is his friend.

Another thing is the vicious lies published regarding the incomes of the illustrators whose works are in demand, the leading illustrators, one might say - for instance, Harrison Fisher's $70,000 a year, or Flagg, and his $85,000 a year. Now, these men might get these incomes (although I doubt it) but there are 5,000 or more other individuals who receive little or nothing, considering the talent they possess and the time and money spent upon talent to perfect it.

AN ILLUSTRATOR

The signature of the letter is telling. If the letter was truly written by an existing illustrator, then the complaints of entry into his/her market are natural. However, the letter-writer does not suggest government action - at least not explicitly. I wonder what policy the letter-writer would have suggested: a guild that would limit entry via certification, er, kind of like going to "school" to be an illustrator? Perhaps the existing illustrators should gauge the quality of the upcoming illustrators and only allow those of sufficient quality to enter the market, perhaps like the medical profession. However, while the ideal of only high-quality illustrators is nice to imagine, the reality is that incumbent illustrators would find it in their best interest to limit the entry of exceptional new illustrators for fear of losing business to them.

Of course, in a few years the illustrator will have much more pressing issues to deal with, namely, the camera and the ability to print camera-taken pictures in higher quality and at lower cost.

The opening paragraph reminded me of the Art Instruction Schools - which has been advertising such programs since 1914 (so before this letter was written):

I remember the campy television commercials (which you don't see much anymore) about "becoming an artist." The hook was that you would draw a turtle (or some other still likeness) and send it off for the "experts" to evaluate. They would then let you know how much promise you have and then nurture your artistic talent for a (somewhat substantial) fee. All cynicism aside, some famous artists did graduate from the "institute."

Here's one I remember from the early 1980s:

And another one from 2000 (just replace the "president" and roll tape):

1. Peter Bagge, "Beware the Brown Peril!"

2. A useful site prepared by Gregory Rehmke.

3. If you're not convinced that immigration will destroy our culture, a visit to Sesamestreet.org with Jacob this morning gave me all the evidence I need. Not only is there a Spanish-speaking Muppet, but she's teaming up with Gloria Estefan to lead the other Muppets in a song about saying "Hola instead of Hello" (that's a quote straight from the lyrics). The game that follows the Gloria Estefan video is even worse: not only does Cookie Monster order (obviously foreign) baba ghanoush and pita toast, Rosita is filling in at Alan's restaurant and has declared it "order in Spanish Day."

4. Via Reason, "What Part of Legal Immigration Don't You Understand?" (HT: David Veksler).

From a letter published in the May 11, 1910 NYT:

As I was one of the ladies who helped to take the census I would like to say, judging from my district, in which there were 1,100 people, if we did our work thoroughly and conscientiously throughout, counting the time expended in trying to appease the wrath of many of the upper middle and lower upper class, who resented some of the questions as impertinent and refused to answer until we had exhausted our persuasive powers, then I say if we are paid at the rate of 2 1/2 cents per name, we would not be remunerated for more than half of the time spent for hard and actual service. If they did it as I did it, for social science, then they are well paid, but if for money, they will not think Uncle Sam the generous-hearted fellow they hoped to find.

2.5 cents per name in 1910 would be roughly 58 cents in 2009 dollars. Nowadays, the pay ranges from $11-$18/hr in North Carolina (interactive map here).

It is interesting that Census pay remains low and suspicions remain high.

Bryan Caplan discusses successively-larger bailouts. Fans of Atlas Shrugged will recall the importance of "practical politics." Too much of this is based on the assumption that there will always be a big pocket to pick, and that the failure of the Grand Design is not the failure of the men and women of system who try to implement it, but of the owner of that big pocket who no longer wishes to see it picked.

I'm on the Medical Progress Today "Innovative Ideas" podcast discussing Charles Courtemanche's and my work on Walmart, Super Walmart, Warehouse Clubs, and obesity here.

I was also asked to contribute a few words to their "Second Opinion" discussion on Obesity and Public Health here.

Carden, Art and Lisa Verdon. 2010. When is Corruption a Substitute for Economic Freedom? Law and Development Review 3(1): Article 2.

Available here.

The European Central Bank has flunked the first major test of its independence and its commitment to the single goal of low inflation. It announced yesterday, in so many words, that it will print as much money as it takes to keep prices up and yields low on government bonds issued by Eurozone governments. As of 1:30 pm EST today, the euro is down only very slightly today against the US dollar. I'm puzzled as to why speculators haven't raised their expectation of euro inflation and correspondingly punished the euro more than they have. (I'm personally hoping they wake up soon, because I'm planning a trip to Greece at the end of the month and I want a cheap euro to compensate me for the risk of being caught in an Athens riot!)

This morning’s Washington Post:

European finance ministers threw a trillion-dollar protective wall around the euro on Sunday and the European Central Bank said it would begin buying government bonds if necessary as officials on the continent struggled to contain the spread of a government debt crisis that began in Greece. The ECB … would, if necessary, begin buying public and private debt on the secondary market "to ensure depth and liquidity in those market segments which are dysfunctional."

Translation: The European Central Bank said it would begin buying government bonds of Greece, Spain, etc. as necessary to keep their prices from falling and yields from rising. This is a "protective wall" around nominal Eurozone government bond prices. It is the opposite for the value of the euro currency. Calling it a protective wall around the euro is like saying that "artist Roy Lichtenstein threw a protective wall around the value of his limited-edition prints yesterday by announcing that he stands ready to mass-produce them for the benefit of his friends."

This is a solvency crisis, not a liquidity crisis. Eurozone government bond yields have risen not in a scramble for liquidity (base money), but with an upward revision in estimates of default risk. Monetary expansion treats the debt problem only by inflating away the value of the euro.

For a central bank to “ensure liquidity” in the market normally means that it provides enough base money to avoid an excess demand for money at the current constellation of prices and interest rates. When the yield (interest rate) on government bonds rises relative to other interest rates because the bonds’ estimated default risk rises, that is not a signal of an excess demand for money. If the central bank purchases government bonds to keep their yields from rising with default risk, it disturbs monetary equilibrium by creating an excess supply of money at the current price level. It disturbs intertemporal equilibrium by temporarily reducing interest rates below equilibrium through excess liquidity.

"We are going to defend the euro," [Spanish Finance Minister Elena] Salgado told reporters. "We have to give more stability to our currency. . . . We will do whatever is necessary."

Defending the euro is in fact the opposite of what the ECB has announced it will do. Salgado is not telling the truth. Either she know she is lying, or Europe's fiscal authorities really don't understand. If the ECB is now following the lead of the fiscal authorities, neither of the two possibilities bodes well for the euro.

The abstract of a new NBER WP by Fernando Ferreira, Joel Waldfogel:

Advances in communication technologies over the past half century have made the cultural goods of one country more readily available to consumers in another, raising concerns that cultural products from large economies – in particular the US – will displace the indigenous cultural products of smaller economies. In this paper we provide stylized facts about the global music consumption and trade since 1960, using a unique data on popular music charts from 22 countries, corresponding to over 98% of the global music market. We find that trade volumes are higher between countries that are geographically closer and between those that share a language. Contrary to growing fears about large- country dominance, trade shares are roughly proportional to country GDP shares; and relative to GDP, the US music share is substantially below the shares of other smaller countries. We find a substantial bias toward domestic music which has, perhaps surprisingly, increased sharply in the past decade. We find no evidence that new communications channels – such as the growth of country-specific MTV channels and Internet penetration – reduce the consumption of domestic music. National policies aimed at preventing the death of local culture, such as radio airplay quotas, may explain part of the increasing consumption of local music.

Or maybe it just means that people in other countries have better taste than listening to Miley Cyrus and Britney Spears.

The abstract of a new NBER WP by Wenli Li, Michelle J. White, Ning Zhu:

This paper argues that the U.S. bankruptcy reform of 2005 played an important role in the mortgage crisis and the current recession. When debtors file for bankruptcy, credit card debt and other types of debt are discharged—thus loosening debtors’ budget constraints. Homeowners in financial distress can therefore use bankruptcy to avoid losing their homes, since filing allows them to shift funds from paying other debts to paying their mortgages. But a major reform of U.S. bankruptcy law in 2005 raised the cost of filing and reduced the amount of debt that is discharged. We argue that an unintended consequence of the reform was to cause mortgage default rates to rise.

We estimate a hazard model to test whether the 2005 bankruptcy reform caused mortgage defaults to rise, using a large dataset of individual mortgages. Our major result is that prime and subprime mortgage default rates rose by 14% and 16%, respectively, after bankruptcy reform. We also use difference-in-difference to examine the effects of three provisions of bankruptcy reform that particularly harmed homeowners with high incomes and/or high assets and find that the default rates of affected homeowners rose even more. We find that bankruptcy reform caused the number of mortgage defaults to increase by around 200,000 per year even before the start of the financial crisis, suggesting that the reform increased the severity of the crisis when it came.

Just to state the obvious: This finding doesn't necessarily mean that bankruptcy reform was a bad thing.

HT Greg Mankiw, here is Boston Globe columnist Jeff Jacoby on the virtues of price gouging after a disaster.

When the demand for bottled water goes through the roof — which is another way of saying that bottled water has become (relatively) scarce — the price of water quickly rises in response. That price spike may be annoying, but it’s not nearly as annoying as being unable to find water for sale at any price. Rising prices help keep limited quantities from vanishing today, while increasing the odds of fresh supplies arriving tomorrow.

While working on a paper this morning, I looked away from my screen and my eyes landed on my pinned-up copy of the AEA calendar of economists, which reminded me that today is Hayek's birthday. (The featured economist of the month, whose biography occupies the top fold of the calendar, is Karl Marx.) Go and celebrate with a couple of vid's.

Following upon my Bolivia post from earlier this week, a few reports about nationalization and its consequences in Venezuela.

Eight Venezuelan butchers arrested for price gouging

The butchers' arrests is the latest in a string of moves by the Chavez government to rein in the free market and create a heavily regulated, state- controlled economy.

Elsewhere, Mary Anastasia O'Grady writes about the newly nationalized coffee sector:

The collapse of the coffee industry is emblematic of the wider economic catastrophe brewing in the country. For more than a decade Mr. Chávez has employed price controls, capital controls and hyper-regulation in an attempt to meet his socialist goals. When the predictable shortages have arisen, the government has responded by using the salami approach to nationalization, slicing off a bit of the private sector at a time and taking it for the state.

Now the economy is sinking: The International Monetary Fund forecasts that while GDP growth will pick up in most of Latin America this year, it will contract by 2.6% in Venezuela. Core inflation has been running above 30% for two years.

At high inflation rates, the pattern of failure-then-nationalize will soon turn toward the financial system. According to VenEconomy: Going after the messenger again,

Time and again, the communist blindness of the Hugo Chávez administration has led it to eliminate the messenger instead of facing up to what the message is about.

Right from the early days of his administration, in order to hide his incapacity for putting state-owned lands into production, Hugo Chávez issued the “Zamoran” laws and started to confiscate farms, estates, ranches, and as many productive hectares he found in his path.

Now, when his incapacity to control the price of the swap dollar is more than evident, he is training his batteries, once again, on the stockbrokerage houses.

Interestingly, the more binding constraint could be fiscal pressures rather than economic catastrophe. A Venezuelan think tank points out:

A case study prepared by think-tank Ecoanalítica took into account the State procurement ending 2009, except for additional amounts for purchase of small assets and expropriated farms. It found that the amount payable for the companies, most of which were in multinational hands, totals USD 22 billion.

This sum amounting to 84 percent of Venezuela's international reserves includes the purchase in 2010 of the French-Colombian retail chain Hipermercados Éxito and Industrial Estate I of Barquisimeto, the capital city of Lara state.

The comments on this article are almost uniformly anti-immigrant and uniformly uninformed. Reading articles (and the ensuing comments) like this steel my resolve to proceed ever more boldly in the name of the economic way of thinking. I'm sympathetic to a lot that the Tea Party has to say, but this is an issue on which most tea partiers are flat wrong. Indeed, "illegal" immigrants who pay into the social safety net and don't collect may be footing the bill for the Medicare you're so anxious for the government to leave alone. Here's my argument for open immigration. The "it's the law and they broke it" argument holds no water; indeed, it wasn't all that long ago that there were strong restrictions on African-Americans who wanted to move to Indiana, Illinois, Ohio, and other Northern territories and the Fugitive Slave Law was the "law of the land." Just because the government says something doesn't make it right.

But don't take my word for it. Here's some recommended reading:

1. Here's an old Freeman article entitled "Immigration: An Abolitionist Cause" that I really enjoyed (link is to PDF).

2. Economics: for the umpteenth time, Lant Pritchett's Let Their People Come.

3. Moral philosophy: Michael Huemer's excellent paper "Is There a Right to Immigrate?" (link to PDF)

4. Here's the Chinese Exclusion Act, passed on May 6, 1882.

Dan Klein pointed me to this result in his recent paper with Zeljka Buturovic entitled "Economic Enlightenment in Relation to College-going, Ideology, and Other Variables: A Zogby Survey of Americans" and suggested I highlight this: among survey respondents--and they acknowledge reasons to think they may have a biased sample--those who never shop at Walmart answered an average of 4.24 out of 8 questions on a short economics quiz incorrectly. Weekly Walmart shoppers answered an average of 2.24 questions incorrectly, those who shop at Walmart "A few times a month" answered an average of 2.45 questions incorrectly, those who shop at Walmart "A couple of times a year" answered an average of 2.93 questions incorrectly. My papers on Walmart are here; my recent Freeman article and the audio of my Walmart lecture at St. Lawrence University are here.

It's a pretty interesting paper. Buturovic and Klein offer a number of cautions, caveats, and qualifications about their methods; caveat 4 (p. 182) is especially relevant because response bias could be driving their result on the alleged lack of a connection between having a college degree and economic enlightenment. This shouldn't have much of an effect on the Walmart-and-economic literacy finding, though. The authors have also generously made their data available online, so there's room for a fruitful conversation on this.

11:52 PM update: Todd Zywicki weighs in on the paper, noting that the questions are basic supply and demand questions on which there is probably as strong a consensus among economists as one could get (HT: Will Wilkinson). They're variations on "do supply curves generally slope upward while demand curves generally slope downward?" I wonder: what percentage of the people who got most of these questions wrong also think that we have to act now on global warming climate change because there is "an overwhelming scientific consensus?"

1. Louisiana Shrimpers threatened by oil spill. First, if it weren't for shrimp protectionism, these resources wouldn't be in harm's way. Second, BP would have behaved differently were it not for oil subsidies and liability caps.

2. With reference to my link to Jeff Tucker's piece below, Wendi C. Thomas is upset about low voter turnout in the local primaries on Tuesday (there was a primary on Tuesday?). Over the summer at the Jack Miller Center Summer Institute, co-blogger and election fraudulator Mike Munger made an interesting point: low voter turnout should probably be seen as a sign of a healthy civil society because government is not at the heart of our concerns. I watched some of Tuesday's returns after "Lost" and "V." I saw one election in a nearby county where the candidates were separated by (I think) four votes. I didn't see a single race in which I could have voted in which my vote would have been decisive. My non-voting produced the exact same outcome that would have obtained had I voted, and I was able to spend the time instead learning more about the Memphis race riot of 1866.

Jeffrey Tucker writes about political signs and the opportunity cost of voting. That said, I might proudly display "Dwayne Camacho for President" and "Frito Vendejo for Attorney General" signs in my yard for the 2012 election.

1. Steve Horwitz on The Three Hats of the Economist.

2. Sheldon Richman on Immigration, Civil Liberties and the Drug War.

I love teaching introductory economics for a lot of reasons. One of those reasons is that almost every issue of every newspaper has something in it that can be better understood by applying the economic way of thinking. Here's an example from today's Commercial Appeal: under what conditions will the proposed tax "not be passed on to the patients"? I was going to have a contest to see who can give the best answer, but let's do it this way: if the Commercial Appeal publishes your letter to the editor in which you give the answer, send me the URL and I'll send you a book to be named when I see what I have in my office (probably a copy of Frederic Bastiat's The Law).

Emulating the letter-to-the-editor-writing dynamo that is my colleague Don Boudreaux, I have sent the following letter to the Washington Post:

Columnist Steven Pearlstein ("Greece and the myth of the easy economic fix", 5 May 2010, p. A16) is mostly right in his analysis of why default by the improvident Greek government would be less bad for the European Union than papering over the problem with IMF and ECB bailouts. But he must have had a brain freeze when he wrote: "If Athens manages to make good on its promises to cut spending and turn a nation of tax cheats into taxpayers, there’s a good chance it will trigger a vicious deflationary spiral – falling prices, falling employment and falling government revenue – that will make it impossible to repay debts.” This statement makes no sense: a Greek budget surplus could not cause a deflationary spiral. To paraphrase a famous monetary economist, deflation is always and everywhere a monetary phenomenon. Because Greece is on the euro, Greek prices are constrained to be close to prices in the rest of the Eurozone, just as prices in Florida must remain close to prices in the rest of the United States. Prices throughout the Eurozone will not fall into a vicious deflationary spiral unless the European Central Bank commits the unlikely mistake of shrinking, or allowing to shrink, the Europe-wide stock of euros.

Pearlstein's column is here (registration required). If the Greek government could cut spending enough to eliminate deficits, that would not be dangerous but terrific. It's unlikely they'll try very hard, and especially unlikely when the IMF and EU and ECB stand ready to cushion the Greek government from the consequences of its own improvidence.

Information here. I went to this in 2000; it's where I met Bryan Caplan, Robert Higgs, Don Boudrea