Friday, November 03, 2006

School's out for...Election Day?

Schools are closed on Election Day here in West Virginia. No complaints here--it misses the days of the week in which I teach, but I do get a day off from Econometrics. When I first heard this, I chalked it up as yet another "only in West Virginia" phenomenon.

Not so. Nine other states (and D.C.) close all schools on Election Day, and another nine on top of that have laws that close some school to some degree.

What is the point of this? My officemates say it's because a lot of voting places happen to be at schools; I voted in the California recall election in 2003 in the midst of many vocal elementary school students. Municipalities in every state use schools as voting grounds since they are publicly owned and necessarily local to the majority of the population.

I suspected that these ten states probably have a lower economic freedom than the rest-- not that these laws create any sort of imposing regulatory environment, but instead show a willingness to pass foolish laws (or not to purge old ones from the books). Sure enough, the school-closure states come in around 6.4 on average (though Delaware is in this group), and the rest come in at about 6.7.

I wonder if this is related to school spending? Do schools get a lump sum from the state to host an election, from which they can siphon off excess funds for other purposes?

I wonder if this is related to voting rates? I wouldn't be surprised if this lowered voter turn out rates at all-- working parents probably wouldn't be too affected, but stay-at-home parents now have kids to deal with.

Monday, October 30, 2006

The Economics of Oprah

Oprah's back trying to save the world.

I've got nothing against charity, but I would love to see one of the audience members spend the entire $1,000 on something frivolous, say that the current expenditure creates a lot of good things for a lot of people, and then turn in a John Stossel video back to Oprah. But that's just me.

Sunday, October 22, 2006


If you're not a fan of Survivor, you can probably just skip this one.

We here in the Economics Department at West Virginia University are fans of Survivor. Big fans. Building voting coalitions is a crucial aspect to the game-- you certainly see the Groseclose supermajority come into play more often than not. Over the seasons, end-game strategies have migrated themselves to the beginning of the game.

In the last two seasons, CBS introduced the idea of an exile island-- at certain junctions in the game, players can be sent to this island for a couple of days. On the downside, there is no shelter on the island, you have to fend for yourself with regards to nourishment, and you are removed from the social doings of your tribe. There does exist, however, a hidden immunity idol on the island-- if you find it, you (or anyone you choose to give it to) basically have a get-out-of-being-voted-off-the-island free card. If you receive enough votes to be voted off the island, you present the idol, your votes become null, and the remaining votes then eliminate the next highest vote-getter from the game.

Here's the question: Do you reveal to anyone, or everyone, that you ever have the hidden immunity idol, and at what point do you do so?

I'm of the opinion that there does not exist any situation by which it would be strictly beneficial to withhold the information from the rest of the players that you have the coveted immunity idol. The only time that the immunity idol would become a factor is when your tribe wants to vote you out. (Let's assume for the time being that you are not considering giving it to someone else.) Should you choose not to tell your tribemates and they want you gone, they will vote accordingly, you will present the idol, and a surprised member of the tribe will be sent home. At this point, they know that the idol can't be played at any point in the game henceforth, and can move forward with confidence in pursuing your exit from the game.

Now let's consider that the tribe wants you out and you do choose to tell them that you have the idol. Knowing the voting rules, the majority faction looking to eliminate you from the game now knows that it is going to have to take one for the team this round in order to remove the immunity idol from the game, and then vote you out during the next meeting. Now, with payment redistribution from the winners to the "sacrificial lamb," an agreement could be reached to value the sacrifice. Survivor, however, expressly prohibits this-- so who would volunteer to be placed in the situation of being picked off for the good of those remaining in the game?

Of course, here's the kicker-- once the "sacrificial lamb" effect is strong enough to deter the voting, it only gets stronger in the next round, in the sense that each person would have a higher probability of becoming that "sacrificial lamb." It's not like the idol is good for only one round-- it is good every round as long as you don't have to use it. It would seem to me that once you could incorporate this effect, you could stroll well into the depths of the game without having to worry a large amount over coalition building. Any coalition looking to vote you off would necessarily have to lose one of its members before doing so.

Alternatively, the majority faction (and necessarily a supermajority greater than 2/3) could arrange a voting strategy such that two members of a minority faction receive enough votes to be voted off. In my example, it is known who has the immunity idol, and thus the other member could simply be targeted. However, if the immunity idol were suspected to be held by a minority faction, a spread voting strategy against the minority grouping could achieve the desired effects. And this is actually what happened in last week's episode-- or was attempted , anyway. Combined with the fact that the organizer of this voting theory was not in the entire tribe's best graces, the opportunities for shirking with this strategy are just too great. With trust being anything but a certainty on the island, I don't think it's a stretch to say that a two-pronged voting strategy, as such, will never likely be achieved in the game.

Anyway-- the lesson is: Let everyone know you have the hidden immunity idol, and ride the "sacrificial lamb" wave to the Final 3!

Tuesday, October 17, 2006

File this under: Seafood, government knowledge of

It turns out that seafood is fine to eat. This is a change from the stance that seafood shouldn't be consumed since it might contain unsafe levels of mercury, which was itself a change to the fact that fish is low in fat and so we should eat a lot of it, which, in turn, was a change in the fact that we shouldn't consume fish because...

Anyhow, you get the gist. A couple of choice lines:

"Even so, the government needs to help consumers figure out which seafood is safer, an Institute report said."

"Environmental and conservation groups said it should have listed 'good fish' and 'bad fish,' which the researchers said would be too difficult."

"They seem to be unaware that children are smaller than adults..."

And the coup de grace...

"In all seafood, levels of dioxin, PCBs and other contaminants do not pose health risks when eaten in government-recommended amounts."

Do you believe there exist people that actually adjust their food consumption according to government recommendations? Would these be the same people that check the Homeland Security terrorism level before they leave the house in the morning? The major impact of government food guidelines in my life is that until the FDA says raw spinach won't unleash hordes of predatory E. coli into society, our local Subway won't carry any. I'd imagine public schools have to follow some sort of health pointers as well-- just so long as there's no peanut butter.

Tuesday, September 26, 2006

The Marshallian System of Economics

In a letter to Pigou, Alfred Marshall laid out the following six rules of expressing economics:

(1) Use mathematics as shorthand language, rather than as an engine of inquiry.
(2) Keep to them till you have done.
(3) Translate into English.
(4) Then illustrate by examples that are important in real life.
(5) Burn the mathematics.
(6) If you can’t succeed in 4, burn 3.

Monday, September 25, 2006

Fondler's remorse

It doesn't need too much of an introduction, so I'll just give the title of this story from Finland: "Court says $32,000 is too much to fondle bosom."

The kicker is the direct quote from Judge Hasse Hakki-- "Based on general life experience alone, it is indisputably clear that a 25,500 euro charge is disproportionate to the compensation in question." Is this the judge's way of saying that the woman isn't worth that amount? I read it as: "On behalf of the state, we have determined that you are cheaper than $32,000." Naturally, value is subjective, so the judge's preferences imposed on the situation will lead to a different level of proposed compensation than the "victim's." Evidently the man willingly paid the amount at the time, yet filed the charges anyway-- sounds like a case of "fondler's remorse."

More importantly: How does the punishment do anything to rectify the situation? In the eyes of the court, the man was overcharged for the service. Jail time does nothing to rectify that fact. Further, throwing her in jail prevents her from generating any more wealth from similar activities, though she may now have access to a different segment of the market. Not that any case should be brought against the girl in this matter, but restitution would be the only verdict that would make any sense.

Tuesday, September 19, 2006

Back to the moon

Why do we have to return to the moon? First, the obvious negative before the debatable positives: the fiscal drain is enormous. The article notes that President Bush called for a $12 billion commitment from NASA for the start of the program, with more to follow. That's $40 per American; what could every American do with that money back in their pocket? Further, is it worth it to you to get back to the moon for $40?

(And if $12 billion had to be committed to this program, why not situate some sort of Ansari X setup and let the best team win?)

It seems like all of the positives attributed to this project are speculative, at best. The "deep geological record" of the moon is of importance; if we know what's there, we don't need to return to confirm it, and if we aren't sure what's there, there is a chance that what is found won't be of any importance at all. It's an information search problem. The moon could also be a great opportunity to support robotic and human exploration of space-- while that is probably true, that just shifts the "Why look here?" problem from the moon to outer space. Do companies engage in such massive research outlays with such spotty prospects for anything good coming from it? Drug companies spend a ton on Phase III testing, but those are on drugs they know are pretty effective-- that's just to appease the FDA.

One plus that would likely come about would be a technology spillover...but at $40 a head for the entire country? Seems a bit...astronomical. (HA!)

Thursday, September 14, 2006

File this under: Markets can work

The worst eminent domain cases tend to hit the headlines, especially since Kelo v. New London, but it's nice to see cases of the market working it out. Read about Evelyn Wray's settlement with the Dallas Cowboys. (Though it is a bit troublesome to see a court-appointed panel setting private land values.) It sounds like the case was heading to a bitter conclusion in the court system...but it's nice to see property rights respected, isn't it? Even if it's just a little bit?

Wednesday, September 13, 2006

Dead Leaves and the Dirty Ground

The seed collectors of the world get their day in the spotlight today. My two favorites:

"...the 8,000 unique species of fijnbos [in South Africa] are a real worry."

"Tony Kirkham, tree specialist at the world famous Royal Botanical Gardens at Kew in southwest London, noted that the Macedonian Leaf Miner moth had invaded in recent years and was attacking -- and eventually killing -- Horse Chestnut Trees."

Basically, some plants species are dying in response to the climate change, and some are doing a bit better. The feeling is, generally, that plants dying is a bad thing.

In markets, it's commonly assumed that a business dying is also a bad thing. It has been shown, however, that business failure is an indicator of economic progress. If businesses are failing, capital is being directed from less valued uses to more valued uses; entrepreneurial spirit is therefore strong. Preventing "bad" businesses from failing hinders the ability of capital to find its best use.

Can the same be said for plant species? Is an effort to keep all plant species alive making the overall plant regime...weaker? Inefficient?

In other science news: the unintended consequences of wearing a bicycle helmet.

Monday, September 11, 2006

Socializing the mines

Death fades with time. It's a fact of life that a lot of people don't like to admit to, but it's nonetheless true. September 11 is no less horrific now than it was five years ago, but the general public is less resolved. It's the same for any tragedy-- Flight 800, the Loma Prieta earthquake, Pearl Harbor. Even Katrina isn't what it was a year ago. It's just a fact of life.

What doesn't fade from these tragedies is the knee-jerk regulation that comes from it. The Patriot Act is a glaring example. More specific to West Virginia is the M.I.N.E.R. Act (that's a .pdf), an across the board increase in safety regulations after the Sago and Massey Energy Mine accidents early in the year. I remember thinking that the only good that can come from this act is the one-time psychic boost the public would get. The safety improvements were marginal, at best, while the costs of such measures had certain and deleterious effect on mine operators. (One common example is that two hours of oxygen is now required, above the previous level of one hour-- then recall that the Sago miners were trapped for nearly two days.) The increased safety regulations really don't make anyone any safer-- but it does keep the tragedy fresh in the minds of those who would probably be best being able to heal and move forward.

Of course, this is all assuming that the safety regulations are actually being enforced.

Many miners still choose to work for mines despite conditions, but this is an informed choice that they make--no one is being taken advantage of. Many of the families of the Sago miners were quoted as saying that they didn't like the fact that their relatives were working in the mines, but the money was just too good to consider other (safer) jobs. Who has the right to make a cost/benefit decision on behalf of any family?

Furthermore, is requiring costly safety improvements any different than requiring a remittance from miners who received a wage premium even though they never got hurt?

It's not the place of legislators to eliminate risk from the workplace (though they often feel exactly the opposite), much less do so with an uneven hand.

Friday, September 08, 2006

It's peanut butter jelly time!

Respect us and our peanut-restricted schools. In short, peanuts and peanut-related products are banned. Well, not banned, but merely strongly suggested against. Though a note from your parents will suffice if that's all that your child will eat. Another well-defined law here in West Virginia! I'll try to provide as many of these as I can, as I run across them.

Does this remind anyone else of the learning disability policy? Note from parents? Forced acquiescence to the policy?

Wednesday, September 06, 2006


Vladimir vodka is the drink of choice in West Virginia. Only the highest quality here in the Mountain State. Maybe a lot of people here in Morgantown are conducting scientific experiments. Maybe not.

Regardless, people here in West Virginia still can't buy liquor on Sundays. There's an op-ed here and a general rundown of blue laws here. This has to be one of more comical laws in West, right up there with the business and occupation tax and the franchise tax ("for the right to do business in West Virginia"). What is the intention of preventing people from buying liquor on Sundays, anyway? Is it to prevent people from drinking on Sundays? Why doesn't the law say that instead? It's one thing to have an idiotic law; this is an idiotic, passive-aggressive law. There is a push to repeal this law, but since most of the legislative effort in West Virginia is focused towards November's Special Session, it's probably not likely that anything will happen until the Spring.

Then again, one of the reasons legislators are targeting this law is to increase tax revenue-- estimated at over $1 million a year. Less liberty, but lower taxes? Dish out more in taxes, but have a shot of freedom? Such are the choices here in No. 50 West Virginia.

Wednesday, August 30, 2006

The thicker the waistband...

Yes, West Virginia is near the top of the obesity list, too.

Though the more interesting comparison comes when income is thrown into the mix. The five most obese states-- Mississippi, West Virginia, Alabama, Louisiana, and Kentucky-- all have higher poverty rates than the norm. The five least obese states-- Colorado, Hawaii, Massachusetts, Rhode Island and Vermont-- exhibit just the opposite.

It seems to imply that exercise-- if that plays a distinct role in obesity-- is a luxury good. What's more interesting is that as incomes rise, the cost of exercise becomes higher as well (in the sense that the opportunity cost of an hour of exercise is an hour away from working at your higher wage). Does this make exercise an uber-luxury good? My first inclination was that you could describe leisure in the same light, but leisure doesn't necessarily increase as we move up the income scale-- not until we get pretty far up the ladder, anyway. I'm trying to think of another good that would cost more for higher income individuals, yet would show an increase in consumption as well.

Business lunches? But couldn't those be construed to help business and increase income?

Monday, August 28, 2006

Gladwell on collectivized pensions

There is a great piece by Malcolm Gladwell on the history of collectivized pension funds in today's paper version of The New Yorker. Interestingly, the word "diversification" does not appear once in the entire piece.

There are a couple of problems with company-operated pension funds:

- The more successful your company is over long-term, the more of a burden you are saddled with as employees get older and retire.

- The incentive to innovate (in terms of labor-reducing technology) is depressed, due to the need of having a large workforce to keep the pension fund afloat.

- Employees of a company-run pension fund face an obvious diversification issue, especially if said pension is the sole source of retirement income.

- Collectivizing pension funds would reduce the risks that employees see, but like the existence of the government's Pension Benefit Guaranty Corporation, it provides a lower incentive for companies to be responsible for their own funds if someone else is there to bail them out if they get into trouble. On the plus side (for the employees), it would take a whole collectivized group to fail instead of just one firm (which would then default to the PBGC). On the downside (for the company), any one employer could be in the situation of carrying more than its own weight in the group. I think that this is the exact fear any one company would have in joining a collectivized pension fund. And with the existence of the PBGC, the benefits seem almost nil.

Though only tangentially related to pension funds, Gladwell also gets into dependency ratios and their role in economic development. Saying that dependency ratios have an impact on economic growth implicitly assumes a welfare state in any country...which, sadly, probably isn't too far from the truth (if not spot on).

Wednesday, August 23, 2006

Do you have a beef with accents?

This blog hasn't devoted enough time to writing about cows.

I'm not sure I can believe that cows are emulating the accents of their owners; that would mean that cows are trying to communicate in a human manner, and I just don't think there's any way to confirm that intention. What I do think it happening is a simple picture of path dependency in nature-- presumably, calves learn vocal habits from the elder cows in the pasture, and as they age, they pass along the same "speech" pattern. Without mixing cow groups, any alteration in speech, genetic or otherwise, can lead to two different groups of cows talking in two different manners over time. (Are there any...zoologists that can comment?)

Could the same thing be said for people raised in socialist regimes as opposed to capitalist regimes? Could the incentive to make yourself better off be weaned out of a human after the passing of a few generations? And if that's the case, how much effort would be needed to re-incorporate a capitalist mentality in, say, any of the former Soviet republics?

Monday, August 21, 2006

File this under: West Virginia is #50 in...

To break the record of "Most e-mails I've received pointing to something in the news about West Virginia," this article was brought to my attention. It turns out West Virginia has an immigration problem to go along with its economic, mining, government and dental problems. Of the fifty states, only West Virginia and Hawaii saw their percentage of whites rise over the last five years-- and Hawaii's white population is still an overall minority. The argument could then be made that West Virginia is the only state becoming less diverse.

Diversity for diversity's sake is fruitless, but as the article alludes to, increased immigration leads to increased economic prosperity. Immigrant labor is typically cheaper and leads to a lower cost of production.

Paper idea? Immigrant streams and economic freedom? Spatial model?

Wednesday, August 16, 2006

The Cost of Comprehensive Exams

Studying for comprehensive exams is something just about every aspiring Ph.D. student in economics has to deal with. The more time I devote to learning the theoretical ins and outs of my profession, the more I realize that this whole comprehensive exam process is a big, real-life cost minimization problem. (Quick, write up the Lagrangian for it.)

In a sense, studying for exams is a tax. You are required to devote your resource (time) into studying (as opposed to a "productive" activity, such as researching). An argument could be made that the process of studying for the exams is something that will yield productivity benefits in the future, but that effect is likely minimal, especially considering the sheer amount of hours you put into it. Naturally, you aren't allowed to continue if you can't (eventually) pass these exams, but that is a self-imposed restriction-- that's like saying a company's efforts towards preparing tax returns is worthwhile, because if they didn't, the IRS would come and get them.

As with any tax, there is some deadweight loss. The way I see it, there are two types of deadweight loss associated with studying for comprehensive exams. There exists an amount of time that each person must study in order to pass the exam, unobservable to the person themself. This is the imposed fixed cost of having to study for a comprehensive exam. Since this amount of time is unobservable, however, students are forced to estimate how much time they think they will need to study to receive a passing mark. The descrepancy between the actual time put in and the unobserved required time is the variable cost. Risk aversion will certainly play a role in the decision of how much actual time to spend. The more risk averse the student, the more time they will spend studying in order to secure a more probable positive outcome. If the goal is simply to pass the exam, the problem becomes one of cost minimization-- reducing the amount of time spent studying on the exam per your risk preferences. Errors will always tend towards the higher cost side of the fixed cost since the threat of failing the exam and re-incurring the fixed cost the next time around is very real. After all, incurring an additional 4 hours now and increasing your chances of passing could be rational given your risk preferences when compared to potentially having to incur another 50 hour fixed cost of taking the exam again.

My sage officemate offers the following: "I've found economics at the graduate level to be very inefficient."

Here's to passing by a hair!

Tuesday, August 08, 2006

Choice in Marriage

Colin P.A. Jones wrote a terrific piece on the privatization of marriage for the San Francisco Chronicle earlier this year; it is linked here through The Independent Institute. If you like what you read, the extended version is here, linked from The Independent Review.

In short, government has forced marriage into a one-size-fits-all agreement, over which it has monopoly control. Why not privatize it and let people choose a marriage agreement that fits them best?

I'm not sure that the divorce rate would change a whole lot-- marriage corporations could emerge that exhibit relatively low-cost dissolution services as compared to the current situation, which could cause more divorces as well as cause more people to get married that wouldn't have gotten married in the first place. There would be, however, a host of public choice issues with regards to which marriage corporations got which federal benefits.

Thursday, August 03, 2006

When information is scarce...

...let markets get the job done. There's nothing like a little profit motive to get information to the surface.

(Dave, that picture is just for you.)

There was quite a hubbub a while back on betting markets for terrorism. has a moneyline set up for the month in which Fidel Castro will pass. As of 9:30AM on Thursday morning, the board shows the following:

August 2006................+350
September 2006.........+400
October 2006..............+500
November 2006..........+600
December 2006...........+600

(Moneyline bets yield the positive amount for each $100 increment bet. Thus, a $100 bet on October would win $500. M0neylines can also bet negative; if September were to read -180, then it would take a $180 bet to win $100. Bets don't need to be in $100 amounts; the ratios hold to all levels.)

I would have guessed that Castro would have been in a lot worse shape than the figures seem to indicate. Then again, betting markets are about flushing out and profiting off of new information-- are those with better information (read: Cubans) in a position to be able to profit from that advanced knowledge?

Monday, July 31, 2006

I grant you one wish

A recent debate over drinks...

If you had the power to eliminate one and only one umbrella economic policy, which one would it be?

The first topic that came up was tariffs. With gains from trade pushing billions out of poverty, anything working against such progress causes incalculable damage.

A friend of mine settled on the minimum wage. The existence of the minimum wage distorts prices in the labor market, and this effect multiplies the inefficiency across the economy. Tariffs may prevent comparative advantage wealth generation across economies, but minimum wages prevent that singular economy from operating where it should.

I settled on eminent domain. While both of the above would certainly be beneficial to any economy, even tariff- and minimum wage-free economies wouldn't be terrifically prosperous without secure property rights.


Wednesday, July 26, 2006

Smith and the Isolationist Tradition

Adam Smith is widely-known as an advocate of free trade. In his masterpiece An Inquiry into the Nature and Causes of the Wealth of Nations Smith writes that "no regulation of commerce can increase the quantity of industry in any society beyond what its capital can maintain". It is, according to Smith, best left to the self-interest of businessmen to direct their capital into profitable venues. He argues they have the best information due to their close proximity and the best incentive to invest resources widely.

Smith writes convincingly:

The statesman, who should attempt to direct private people in what manner they ought to employ their capitals, assumes an authority which could safely be trusted, not only to no single person, but to no council or senate whatever, and which would nowhere be so dangerous as in the hands of a man who had folly and presumption enough to fancy himself fit to exercise it.
Smith argues that this logic applies directly to restrictions in international trade; they are the same in nature and result.

So where is the "Isolationist Tradition" the title of this post speaks to? Admittedly, Smith does not really belong in that tradition. His academic dedication (not withstanding his later behavior as a customs collector) is to favor free trade as a means of extending the division of labor and taking advantage of specialization -- all to the benefit of the countries. However, Smith does put forth several arguments, in Book IV Chapter II, favoring restraint of foreign trade that are commonly heard today.

There are two main caveats to free trade and two minor issues which, under "proper deliberation", may lead a prudent statesman to restrict foreign trade.

Smith's first case in which "it will generally be advantageous to lay some burden upon foreign, for the encouragement of domestic industry" is that of when the industry is "necessary for the defence of the country". Smith makes the common argument that it is foolish to depend on foreign producers to provide the martial materials for a country. He then uses Great Britain's restraints on navigation as an example of advisable actions; he notes that "as defence, however, is of much more importance than opulence, the act of navigation is, perhaps, the wisest of all the commercial regulation of England.

The second case warranting a burden "upon foreign for the encouragement of domestic industry, is, when some tax is imposed at home upon the produce of the latter". This is a "level playing field" argument. Instead of taxing foreign industry because of dumping or cheap labor, Smith is arguing that we ought to tax foreign industry because of the domestic burdens placed on industry. Without such restraint, foreign industry will have an unfair advantage over domestic.

Smith then offers two other situations where free importation of foreign goods should be curtailed. The first case is when "some foreign nation restrains by high duties or prohibitions the importation of some of our manufactures into their country". The sole purpose of which would be to retaliate in order that the foreign country may remove the restrictions. He notes that "when there is no probability that any such repeal can be procured, it seems a bad method of compensating the injury done to certain classes of our people, to do another injury ourselves, not only to those classes, but to almost all the other classes of them".

The final possible exception to free trade listed here relates to the effect of foreign competition on employment. Where "those high duties and prohibitions taken away all at once, cheaper foreign goods of the same kind might be poured so fast into the home market, as to deprive all at once many thousands of people of their ordinary employment and means of subsistence". Smith notes that this is rarely adequate, for very few industries are so completely sensitive to foreign competition and further that it is far from clear that losing a job in one industry would lead to no employment or no subsistence.

Was the great Adam Smith in favor of free trade? The answer is clearly that he was, but he also believed that there were legitimate exceptions to it. The exceptions he has made are common today, much like those made by List.

Monday, July 24, 2006

Congressional Ratings

Citizens Against Government Waste have released their annual Congressional ratings. Their goal "is to applaud the members who want to protect our tax dollars and cut spending. At the same time, CAGW wants to alert the taxpaying public to those who prefer big government and using public funds for pet programs and pork-barrel spending."

Here is the Senate scorecard and the House scorecard.

Price Discrimination

Price Discrimination occurs when different prices are charged for the same product when there is no cost difference to the producer in supplying the product. This allows a firm to increase profits by taking advantage of exchange opportunities that would, at a single price, be foregone.

There are several types of price discrimination: charging a different price for each individual user, a different price depending on the quantity purchased, or a different price depending on who is purchasing the product. This last type is referred to as Third-Degree Price Discrimination (also known as Market Segmentation). It is a situation in which "each consumer faces a single price and can purchase as much as desired at that price, but the price differs among categories of consumers."

This concept explains why...

Microsoft Office at Best Buy: $399.99.

Microsoft Office at the SJSU bookstore: $80.

Thursday, July 20, 2006

Donor Relations

The first rule of economics is that Incentives Matter. These incentives can be both monetary and non-monetary; economics recognizes that people are utility-maximizers, not dollar-maximizers. It seems intuitively obvious that both types of incentives affect how real people act.

One argument in favor of allowing a "market for organs" is that this will create greater incentives for people to donate. The donors face a very real non-monetary cost -- the fear of surgery, pain of recovery, sickness, complications in surgery, etc. Science Blog reports that the monetary cost of donating a kidney can be substantial as well. They discuss a doctor's literature survey on the cost of donating a kidney.

Some of the results are as follows:

1. One US study finds that the average cost to a donor is $837, with values as low as zero and as high as $28,900.

2. Time lost from work is substantial -- average loss of $3,386 in the United Kingdom and $682 in the Netherlands.

3. Physical Limitations led to 3% of donors in one study either losing or resigning their job.

A common fear about a market for organs is that, at a positive price, the rich will live and the poor die. Regardless of the merits of this argument, one must recognize that price also plays a role in increasing the supply of a good. Incentives matter. Relying solely on the altruism of others who face a significant monetary cost (not to mention non-monetary cost) seems to require the faith that people are Angels.

Wednesday, July 19, 2006

List and the Isolationist Tradition

On nearly any day of the week, one can open a newspaper and find some pundit arguing that free-trade should be restricted. The reasons given in support of their position vary, but they inevitably arrive at a conclusion that says "free trade in general is a good thing, but in this particular situation society would be better off without it". While this may seem a bit ignorant and annoying to many of us who have studied economics, don't believe for a moment that this isolationist view has anything less than a prestigious tradition. In fact, many of the arguments put forth by D0bbsian/Buchananite Isolationists can be found in the work of the nineteenth century economist Fredrich List.

List's four volume work The National System of Political Economy (1841) is a critique of the classical economists (who he refers to as the Popular School). List begins his theory of economics by drawing a distinction between Political Economy and Cosmo-political Economy. The former, in his view, deals strictly with the affairs and well-being of people within a particular country, while the latter science is concerned with all of Earth's inhabitants. He accuses the Popular School of practicing the latter approach and deliberately using the nomenclature Political Economy to eschew the issue.

The fundamental distinction which List draws is that the Popular School, especially the 1776 work of Adam Smith, ignores the role played by governments in international trading relations. He argues that without a nation state, peace and therefore trade cannot take place. The Popular School erred in assuming that there could be beneficial free trade without a unified world state. Once this oversight is taken account of, it is easily seen that free trade is a road to economic ruin.

List's arguments run the spectrum of the isolationist perspective. He argues that:

1. Specialization will increase a country's risk of economic ruin. If the demand for a country's main export takes a deep fall, the country will be ruined.

2. Nascent industries will be smothered by international competition; as such, a prudent country will protect that industry until it can compete on the world market. The end result will be a more robust national economy.

3. List believes that trade policy of foreign countries is tantamount to regulation of a country's domestic life and is thus a broach of sovereignty. To List, the obvious response to this alleged infringement is removal of participation.

List's adamant isolationist position is couched in the same rhetoric as so many pundits on PBS today.

For fear of giving List short shrift, I will say that I found some merit amongst the rubble. For example, in line with his emphasis on the Nation, he recognizes that many cultural, social, and political institutions will have an effect on the domestic and international economic environment. I disagree with some of the institutions he upholds, but the focus is clear and similar in spirit to that of the neo-institutionalist work of Douglass North. List also lack an animus to business per se. He actually believes that the manufacturing sector encourages moral, mental, and social growth. Culture and good living are born in the industriousness needed to succeed in the manufacturing life.

List's place as an economist falls plainly amongst those who are against free trade. While many modern commentaries carry his arguments as refreshing and progressive, it is clear that these ideas are nothing new. It is toward ending the effectiveness of these arguments that I believe economic education is still greatly required. If people still won't believe in the benefits of free trade, what chance do economists have of convincing the public of the myriad of other economic insights that we believe can improve the world?

Addendum: Here is List's page on Wikipedia. The brief biography there is quite interesting.

Tuesday, July 18, 2006

Beware of Printer Pushers...

The San Francisco Chronicle recently had a piece about our "hidden-fee economy." You know-- you get a hotel room for $75 a night, but find that there are a number of surcharges that push the price past that amount. Further, if you wish to use any of the facilities provided by the hotel-- phone calls, parking, sodas, etc.-- then you'll pay a premium above the market rate for them.

The Chronicle's bit is based on an article from a recent issue of the QJE by Xavier Gabaix and David Laibson. Their journal article is here. By the way, I'm absolutely shocked that the QJE would publish something from someone at Harvard and/or MIT.

Anyhow, Laibson contends the following: "We think there are robust market forces that serve to suppress that information, and keep it surpressed.

I have to admit-- I don't know many people who haven't been fooled by a hidden charge at some point in their life. But I also don't know many people who haven't improved their ability to not continually get tricked into situations like this. If there are robust market forces that serve to suppress information (i.e., the fact that the advertised price my not reflect the true cost), then I think you also have to admit that there are robust learning processes in which people are discovering what they are getting and what it is actually costing them. I could believe an argument that these pricing schemes would persist in order to take advantage of all first-timers (the never-been-tricked group), but I'm not sure that that's a big problem. Learning curves exist in just about every aspect of life.

Anyone else get the feeling that these people just got hosed buying ink for their free printer for the first time?

Saturday, July 15, 2006

867-5309 = 911?

This story got me thinking.

In short, a lady called 911 in order to meet up again with an attractive police officer who had just been to her house. The deputy was sent back to her residence, and after confirming that there was no emergency, he arrested her for "misuse of the emergency dispatch system." Sergeant Thompson highlights the underlying motive behind the law: "That's taking up valuable time from dispatchers who could be taking true emergency calls." I don't see her getting anything more than a slap on the wrist, but the law reads that she could get up to a year in jail.

It reminded me of a case I had to deal with when I was in undergrad. When I was in student government, we rented a bus for the graduating senior class to take to a booze cruise in Santa Monica. Over the course of the night, the bus incurred a significant amount of damage, such that it had to be sent somewhere for repairs, and therefore, taken out of commission for the time needed to fix it. When we were sent the bill for the whole ordeal, it included not only the amount for the repairs, but the cost of renting out the bus for the time that it spent in the shop. Their thoughts were that they couldn't rent out the bus while it was in the shop; ours were that it should be demonstrated that the bus would otherwise actually have been rented out if it were not in the shop. Having no spare buses at times would be a good amount of proof; would-be clients that had to be turned away would have been even better. The bus company provided neither, and ultimately, we didn't have to pay that portion of the bill.

Along the same lines, shouldn't the authorities be required to prove that her phone call did, in fact, tie up important lines that citizens in distress were trying to use? She's being prosecuted for "misuse of the emergency dispatch system," but shouldn't the law come into effect when someone is actually being harmed? Shouldn't that be the threshold for prosecution? What has a larger negative impact-- this situation, or a nervous citizen calling 911 for reassurance on September 11th?

If I punch the air in frustration after getting a low grade on an exam, should I be prosecuted for potentially hitting someone had they been in the way of my fist?

In the private sector, individuals or companies need to prove that actions taken had deleterious effects-- not that said actions could have had consequences. Having a monopoly on coercion certainly comes in handy in prosecution, eh?

Tuesday, July 11, 2006

What's a little fundraiser among friends?

Authorities in Kansas recently shut down a Libertarian fundraising event at a local nudist camp. Feel free to count the ironies.

The nudist colony is privately owned. Sheriff's deputies blocked people from entering. The heat was enforcing "a court order banning 'commercial or recreational activities' on the property, as the property is zoned agricultural. Owners of the property can have such activities if they obtain a permit. The county refuses to issue one.

Topics of discussion at the event, by the way, were to include property rights and freedom of assembly.

Tuesday, July 04, 2006

Down the Memory Hole

State censorship is a scary thing. Compare the results of the first picture to come up when "tiananmen square" is searched on Google Images in the US and then in China:

Google U.S. :

Google China:

The other photos to show up are just as biased - glorious pictures of the Forbidden City versus horrific scenes of communist strife.

I hope that those of us who believe in the rightness of a free society can use the Fourth of July as a time to remember that many people in this world lack basic freedoms.

Wednesday, June 28, 2006

The Right Kind of Conservation

The San Jose Mercury News reports that in an effort to reduce damage to sea life by commercial fishers, two environmental groups have "purchased six federal bottom trawling permits and four commercial trawling boats from fishermen based in Monterey and Morro Bay..." This is the first time that a private conservation group has purchased permits in Pacific waters.

Rod Fujita, a marine ecologist with Environmental Defense in Oakland, puts it plainly: There are too many boats chasing too few fish. People respond to economic incentives. The solution is not to blame or punish them but to provide incentives for stewardship, not exploitation.'' It's a delightful surprise to hear this from an environmental activist.

As Coase has written in the past, when property rights are defined and transaction costs are permissibly low, the efficient outcome will prevail. In this case, the environmentalists now have a healthier ocean and the fishing company is free of a low-profit area.

Dobbsian commentary: Nasty, brutish, and wrong

Admittedly, I don't know a whole lot about Lou Dobbs, except that he seems to draw the ire of quite a few viewers. Maybe it's his interviewing tactics that upset people, because his columns are terrifically comical. I believe they come out every Wednesday.

Here are his thoughts on raising the federal minimum wage. Here's my favorite line:

"The myth that raising the minimum wage will lead to job cuts is just that: a myth. In fact, research suggests just the opposite."

Raising the minimum wage leads to more jobs? Isn't the obvious answer to then keep raising the minimum wage? If we create a minimum wage of $20 per hour, imagine the job growth! Just think of $30 per hour! Or $40!

He cites a study that shows areas with higher minimum wages have shown stronger job growth since 1998. It's a problem of direction; it's not the higher minimum wages cause more job growth, it's that higher job growth allows for minimum wage legislation to be passed with minimal negative effects on the economy. It doesn't prove that demand curves don't slope downwards; it shows well-timed decision making by political players.

There are plenty of situations that can show how an increase in the minimum wage will have little or no effect on the economy. I would like, however, to peruse the reams of research that show increases in minimum wage cause increases in job growth.

Dobbs' most recent column is on public schooling. It's no more correct in its reasoning than the minimum wage piece ("And we're not talking only about money...That's why it's so difficult to solve this systemic problem [with our public schools]."), though he does at least recognize that performace-based pay for teachers can yield better results. For an accurate piece on the state of our public schools, see John Stossel's "Stupid in America."

Wednesday, June 14, 2006

File this under: It was only a matter of time...

Who'd have guessed that FEMA's funds would have been spent in a shady manner after Hurricanes Katrina and Rita? Oh, that's right...anyone with a mindset towards political economy and incentives. Russell Sobel looked at the issue well before the Katrina disaster, and I think everyone has been forced to admit to some degree that FEMA simply can not work as an emergency relief organization.

My favorite items? A sex change operation, Girls Gone Wild videos and Dom Perignon.

An article is here. Here's another.

Tuesday, June 13, 2006

Roethlisberger and the law

I'm having trouble getting a sense for how big of a national deal that the Ben Roethlisberger crash is, because here in Morgantown there are radio updates every time that they do the news (if not more frequently). What's more, my satellite is linked up to receive all of the Pittsburgh local channels, so you can imagine what that's like. Nonetheless, there seems to be a couple of interesting law issues that have arisen-- I know there are law school types that read this, so I'm curious to hear your take on it.

Every NFL player, in the least, has a clause in his contract that prohibits risky behavior; the article above has it quoted as "significant risk of personal injury." Some players known for risky behavior have more specific provisions; Kellen Winslow is well-known for getting in a motorcycle wreck himself (though while performing stunts in a closed parking lot, as opposed to Roethlisberger getting hit by an alleged red-light runner) despite an explicit clause in his contract that forbade him from riding his bike. Due to this aspect of his contract, the Browns (Winslow's club) were able to reclaim a portion of the signing bonus they awarded Winslow when he inked on with the team.

The $64,000 question-- or several million dollar question, perhaps-- is whether the Roethlisberger's club, the Pittsburgh Steelers, will be able to reclaim any portion of the bonus money paid to their star quarterback. Personally, I don't think they are going to be able to get any of the money back. It comes down to defining Roethlisberger's behavior as "risky," or subjecting him to a "significant risk of personal injury." I'm not sure that driving a motor vehicle on a public roadway can be construed as risky in and of itself. Granted, a motorcycle is more risky than a car, but motorcycles are still legal vehicles. If it is found that he was speeding or broke a law, and this was the cause of the accident, then that may be some margin that the Steelers can work on. I just don't see simply riding a motorcycle as being defined as inherently risky in court.

Further, current Pennsylvania state law makes wearing a helmet optional. Roethlisberger is on record as saying he doesn't like wearing a helmet when he rides. That does make riding a motorcycle more risky...but driving a car without a helmet is more risky too. Walking without a helmet is more risky than walking with one. People are making a large deal of the fact that he wasn't wearing a helmet-- usually for the issue of safety, not breach of contract-- but I don't see how the fact he wasn't wearing a helmet, especially considering it wasn't illegal, can play any role in court either.

Ultimately, it seems like Roethlisberger should be back with the team by opening day-- evidently the most serious injury was a broken jaw, which takes approximately seven weeks to heal. The NFL season typically starts around the first of September.

UPDATE: KDKA-TV in Pittsburgh is reporting this morning that Roethlisberger does not have a valid motorcycle license, and that his temporary motorcycle license expired in March. This changes the situation completely; while there's no inherent increase in risk by driving a motorcycle with or without a license (considering it has been previously earned), a court definitely sees driving without a license as a risky activity. I'd say that if this turns out to be true, Pittsburgh has a more than fair chance of reclaiming of their QB's signing bonus.

Thursday, June 08, 2006

A legislative balk

A district court judge in Massachusetts ruled yesterday that a disgruntled fan can sue a ticket reseller for charging too much for a Red Sox-Yankees ticket. The fan didn't actually buy the ticket, but if things like this are going to be allowed, why have any logic at any point of the process at all? Couldn't anyone in the general Boston area pursue a lawsuit like this?

Well, the fan that didn't buy the ticket isn't the one actually going to trial-- that's the role of consumer activist Coleman Herman (Socialist - Dorchester). Herman comes across with the typical price gouging argument-- by golly, $500 is just too much for a baseball game! What's worse is the following quote from Herman himself: "It allows me to go to trial and do discovery to find out where Admit One gets its tickets." Nothing like using the system to reach your goals. I think we can file this one under "not a wealth producing activity."

The whole issue stems from a law that has been on the books but is just now starting to be enforced. The letter of the law reads that no one can resell a ticket for more than $2 above face value, plus service charges.

The most frustrating part is the judge's take on the matter:

"The plaintiff had a protected right to purchase a ticket at a price established by law that balances the economic interests of the defendant and the consumer's interests in the event to which the ticket would admit. The plaintiff made an effort to secure a ticket reflective of this balance and was denied the opportunity"
If we are truly balancing the defendant and the plaintiff-- or the buyer and the seller-- then why can't we let them determine a price for the ticket independent of regulation? Wouldn't that balance the economic interests of both parties? The mere fact that the would-be buyer observed the price and decided not to buy the ticket proves that he had exactly the opportunity to secure a balance between his desires to see the game and his opportunity cost for $500.

In theory, a supply and demand curve intersect to create a market clearing price. But there's a whole section of a demand curve below the equilibrium point-- these are people who don't want to trade. Why do we need laws to serve them? It was their choice not to consume. In the same example, there's a whole section of a supply curve that doesn't get to trade either-- the prices they desire are simply too high. Don't they then deserve the right to sue the people that didn't buy their tickets? Something tells me that we're not going to see lawsuits on their behalf since consumers won't buy their goods that are priced too high.

Fortunately, if you find yourself in a state that does things like this, there's an easy way to get around it. Bundling your sought-after ticket with another good for one market-determined price is usually good enough to keep you away from the law. So the next time you want to sell your baseball tickets, bundle them with a baseball, and let everyone become better off with the trade.

Monday, June 05, 2006

Someone stop the price gouging yellow shirt dealers!

Yes, apocalyptic price gouging has now reached Thailand, where now-popular yellow shirts are all the rage.

From the article: "Suppliers say they're running out of shirts, and buyers complain they are being gouged by sellers."

As expected, when people want something but they have to pay too much for it, they cry foul and petition the government for action. Heeding their fellow citizens' pleas for yellow shirts, Thailand's Deputy Commerce Minister Preecha Lohaphongchana lays it on thick: "If we find traders selling shirts for an excessive profit, they will face legal charges with punishment of up to a seven-year jail term or a 140,000 baht ($3,675; euro2,834) fine." Take that, economic freedom ranking!

This, of course, is nothing more than an increase in demand for yellow shirts. Break out the Econ 101-- prices and quantity will go up. It's going to take a bit for the market to respond with more shirts; of course, with the prices forced lower and the profit incentive reduced, it's going to take a little bit longer.

The real question: Aside from the supply vs. demand shock, is this really any different than the gas situation here in the United States?

Tuesday, May 30, 2006

Pork against...pork!

Every month, the Tennessee Center for Policy Research comes out with a Monthly Misuse, a reader-submitted example of legislative inefficiency. They're usually good for a chuckle and a sigh. This month's topic is the Respect Your Health! campaign. (Love the exclamation mark there.)

Some highlights:

- $8,000 for 25,000 green rubber band style bracelets reading "Respect Your Health!"

- $9,326 for 24,500 refrigerator magnets with the Tennessee Department of Health's logo and web address.

- $5,118,000 for marketing and advertising related to the campaign.

- And what's the result of the expenditure? Since the introduction of the program, Tennessee has remained as the country's 38th healthiest state.

Says Drew Johnson, president of the Tennessee Center for Policy Research: "Tennesseans may be getting fatter, but their wallets sure are a lot thinner..."

Thursday, May 25, 2006

What's wrong with a blowout here and there?

When it comes to unintended consequences of a rule, this one has to be at or near the top of the list. Let's count the ways:

1) The idea is to avoid the embarrassment of a large loss. Admittedly, losing by a large margin is not an enjoyable experience. But ask anyone who has played or coached sports, and they will tell you that it is a far greater embarrassment to play another team and have them reach the point where they stop competing out of pity. That's exactly what this rule forces the winning teams to do-- stop playing football. Out of fear of finishing the game by actually playing football and scoring too many points, the other team has to mail it in early or fear punishment.

2) What if the team getting blown out gets upset and, knowing the law, decides to throw the rest of the game so that the score differential ends up greater than 50? How can you punish the winning team in this instance? I suppose the winning team could recognize this and try themselves to throw the game harder, but then we're reduced to a competition of losing. (Not unlike the South Park episode where every Little League team is trying to lose so they don't have to play baseball for the rest of the summer.)

3) A buddy of mine mentioned this one to me-- what about the backup players? The article mentions that there is a fear of cutting into their playing time, but I'm not sure if that would necessarily be true. What it does do is prevent the backup players from playing as hard as they can and running the score beyond 50 points. So imagine the role of the backup football player now: I only get into the game when the score is lopsided, and I want to play more, but I can't fully prove myself on the field because if I play too hard I'll end up suspending the person who decides how much I play in the first place. Tough job, that of the backup high school football player in Connecticut.

Wednesday, May 24, 2006

Food for oil? How about markets for oil?

Everyone's read plenty about the oil issues affecting the world. Evidently, everyone is producing as much as current capacity will allow, and prices at the pumps keep marching higher and higher. No one's explanation seems to fit the entire world story.

The Federal Reserve Bank of Dallas provides as interesting an explanation as I've seen. Only three of the thirty countries that supply the world with oil rely on private, market-based means of distributing oil. And, using the Heritage Foundation's Freedom Index, over 44% of the world's oil production occurs in countries that are either "mostly unfree" or "repressed."

It begs the question-- how can oil prices be expected to follow market adjustment mechanisms when markets play such a small role in oil production?

Monday, May 22, 2006

Housing the Big Apple

In honor of a recent trip to New York for a friend's graduation, I thought I'd add some highlights of the New York housing market.

1) New York is avid in providing apartments for all strata in their society, so they incorporate rent controls. Of course, all this does is allocate government mandated affordable living space to the lucky few who win the sweepstakes; the rest are out of luck given the new shortage of housing. Prospective housing builders view rent controls as a damper on future profits, so less units get built. And current housing owners search for ways to circumvent the law so as to derive fair market value from their properties. The only people that win are the chosen few that get awarded cheaper housing by the State, and happen to pair with an owner that can not find his way around the system to pass along costs to the tenant. Of course, I'm sure those awarded those coveted apartments were free from any sort of political manipulations, right?

2) New York also prevents current owners from charging exorbitant prices when subletting; I've come to understand that the ceiling is 10%. Again, this takes emphasis away from the efficient allocation of units and places it instead on being in the right place at the right time. The reality of the situation, though, is that this law doesn't have much of an impact at all; current lesees simply choose to sublet their abodes to those wishing to engage in side deals, such as renting the apartment's furniture for the duration of the sublet.

3) A personal favorite of mine: Every time an apartment is vacated and then filled by a new tenant, it is city law that said apartment must receive a fresh coat of paint on all its walls. Every time, every apartment. Consumer choice be damned-- you're going to have freshly painted walls. I think my officemate said it best: "All that's going to do is make people mess up their walls before they move out."

Thursday, May 18, 2006

Forced Full-Service?

From USA Today:

In New Jersey, motorists who need to fill 'er up haven't pumped their own gas in 57 years. But in the face of soaring gas prices, Gov. Jon Corzine came up with a novel plan last month to try to ease the pain: allow self-service at some stations along the New Jersey Turnpike and see if prices dip. He believed prices could drop 5 to 7 cents a gallon.
This is absurdity on several different levels.

1. Apparently, the government knows the desires of these residents better than anyone. This contrasts F.A. Hayek's argument that says competition is the only discovery process by which people's preferences can be seen.

2. The proposed law change wouldn't make full-service illegal; rather, it would just make it legal to pump your own gas. Profit-seeking gas stations could still offer full service to those who wanted it. Wouldn't it better to offer people both choices and see which one they pick?

3. Justification for full-service is based on the danger and difficulty of individuals pumping their own gas. Bill Dressler, executive director of the New Jersey Gasoline Retailers Association and Allied Trades, fears that "[Gas] could be put in the wrong container...[or] somebody getting out and smoking and they didn't turn the engine off." Funny, this doesn't seem to be a major problem in any of the other 48 states.

Thursday, May 11, 2006

Skin Deep Freedom

In a move that shows that West Virginia does have some company at the bottom of the U.S. (freedom-pursuing company, but company nonetheless), Oklahoma has now become the last state to legalize tattoos. My favorite line: "Regardless of one's personal views about tattoos, the plain fact is that tattooing is prevalent," Gov. Brad Henry said.

Fantastic. Not that tattoos should be outlawed, but should the fact that everyone disobeys the law be reason to repeal it? Maybe this is just an example of a particularly ill-suited law; disobeying this one doesn't impede upon anyone else's rights. If theft became popular, you'd have some private uproar for the upholding of the rules.

(The article doesn't make it clear, but I believe it was illegal to give a tattoo, as opposed to having one. After all, I'd put good money on the odds of one University of Oklahoma athlete having a tattoo on the playing surface in Norman in the last 40 years.)

Wednesday, April 26, 2006

File this under: Well thought out government programs

To what lengths would you go to secure a free gallon of gas? Thanks to (gasp!) an unintended consequence of the public sector, some drivers in California simply strand themselves and wait for a free gallon to be provided by John Q. Taxpayer.

My daily drive to and from campus here in Morgantown requires less than a gallon of gas daily-- I wish we had a program like this. On the margin, it probably wouldn't cost me that much more in taxes, I'd get my gas paid for so long as I didn't venture far from home, and the legislation wouldn't push West Virginia any lower on the economic freedom lists since, well, we're already at the bottom.

We have a lot of foolish laws here in West Virginia. I think it's time that some of them benefit me.

Tuesday, April 25, 2006

That pesky global warming

Good times at the recent American Meteorological Society's 27th Conference on Hurricanes and Tropical Meteorology. As it turns out, global warming is causing more hurricanes. While this isn't entirely different than saying colder weather causes temperatures to fall, the real debate, of course, comes in what is causing the global warming. Is it increased greenhouse gases or just a natural cycle in the Earth's temperature?

I'm not convinced either side has made a convincing argument. I have to admit, though, that it seems like every time someone wants to engage me on this issue, they are of the (usually quite strong) opinion that greenhouse gases are the guilty culprit. I make it a personal goal of mine to steer the debate such that I'll admit greenhouse gases might be playing an important role in global warming if they'll admit that greenhouse gases might not be playing any role at all. (Well, either that or bringing up the fact that a good segment of the world isn't dreading global warming at all.)

Try it yourself-- it's harder than you'd think!

Monday, April 24, 2006

The best bargaining chip?

In a fun study in Nature, researchers in Belgium have found that showing sexy pictures to high-testosterone males reduces their bargaining vitality in the ultimatum game. The interesting line comes at the end-- "Since a few coins is better than no coins at all, men thus become more economically rational after exposure to lingerie or sexy women," he says.

Of course, the alluring aspect of the ultimatum game is that player's don't act rationally. If they followed the blackboard, you'd see nothing but the smallest offers from Player 1-- a single penny-- and have them be immediately accepted by Player 2. Should Player 1, after viewing the latest Victoria's Secret catalogue, decide to accept $2.50 of $10 as opposed to $3, is he acting any more rationally? He's accepted an offer closer to the accepted rational outcome, but he's still acting irrationally according to the definitions of the situation. I'm not sure there are degrees of rationality here-- not when you've solved the problem beforehand and are looking for a specific result.

Nonetheless, the next time I'm playing poker against a particularly aggressive adversary, I'll make sure to bring the latest in pictorial bliss-- I may be able to steal a hand or two.

Saturday, April 22, 2006

Don't Sweat Sweatshops

I was inspired to write another letter to the editor of the San Jose State daily newspaper, The Spartan Daily. The article reported on a lecture given by an ex-sweatshop worker, Carmencita "Chie" Abad, who now promotes campaigns to ban purchase of sweatshop goods on college campuses. (If you like this letter, you may enjoy this paper written by Ben Powell and I).

Dear Editorial Staff,

Erin Hull’s well-written piece " ‘Made in U.S.A.’ not always sweatshop free, speaker says" lacked only one thing – another perspective on the issue. From Paul Krugman on the left to Walter Williams on the right, economists across the political spectrum agree that there are benefits for poor people from sweatshops in developing countries. One such benefit is that sweatshop wages often provide a higher than average standard of living for that country; the sweatshops mentioned in the Northern Mariana Islands are no exception.

According to estimates in the World Bank Indicators Database, workers in the Northern Mariana Islands earn an average of $3,256 to $10,065 a year. Working only 40 hours a week for $3.75 an hour, the wage Abad reported, leads to an income of $7,800 per year. This income is more than double the lower estimate and nearly as high as the upper estimate. If workers put in as many hours as Abad claims they do, "14 hour days, seven days per week", then they’ll make $19,110 per year. This is nearly double the upper estimate of the average income and nearly six times the lower estimate! Sweatshop jobs are some of the most rewarding in the area.

Sweatshops provide a better standard of living than most people in the Northern Mariana Islands are able to enjoy. If, as Abad hopes, college students stop buying products manufactured in sweatshops, workers will lose good jobs and have a substantially lower standard of living. Plans to improve the lives of the poor in developing countries should not include programs that will lower the worker’s incomes.

David Skarbek

Tuesday, April 11, 2006

I, mint juleps

In the spirit of Leonard E. Read's I, Pencil, consider the thousand-dollar mint juleps that will be sold at the upcoming Kentucky Derby. With mint from Morocco, ice from the Arctic Circle and sugar from the South Pacific, it's a testament to specialization and world trade.

Which got me to thinking: How much does the U.S. interfere in the good natured desire to sell a $1,000 mint juleps at the Kentucky Derby? Enter the Official Harmonized Tariff Schedule of the United States, a 2716 page behemoth by our friends at the United States International Trade Commission, which outlines exactly which markets the U.S. chooses to get its fingers into.

Here's the recipe for mint juleps; water, sugar, mint, bourbon and crushed ice. My water bill goes to a government run agency. Sugar actually has its own chapter in the Tariff Schedule. Bourbon, as alcohol, has been excised taxed for years. Ice could be treated as water, though imported ice has a tariff level of .26 cents per liter (heading 2201.10.00 of the tariff schedule, for those keeping score at home, which seems to imply that ice for consumption is taxed while other ice is not).

Mint is an interesting story. As it turns out, there's a United States-Morocco Free Trade Agreement (UMFTA)-- remember, the mint for the thousand-dollar mint juleps is from Morocco. Now normally, as per 1211.90.40 of the Tariff Schedule, imported mint is taxed at 4.8% of its imported value if manufactured (crude or non-manufactured mint slides by Uncle Sam uncharged). But due to the UMFTA, manufactured mint from Morocco is duty free. So maybe we're observing some substitution effects, from other dutied mint to non-dutied Moroccan mint. Let's hear it for the United States government and their desire to let the Moroccan mint market persist unfettered.

I'm not sure if there's a better example of government inefficiency than the Official Harmonized Tariff Schedule of the United States.

(My favorite line concerning the UMFTA: "Originating goods under the terms of the United States-Morocco Free Trade Agreement are subject to duty as provided for herein.")

Monday, April 10, 2006

Nigeria stamps out another functioning market!

Evidently, the apple in Nigeria doesn't fall far from the tree. In short, Nigerian soccer refs can now accept bribes from clubs so long as it doesn't change how they would otherwise call the game. It seems like an implicit admission that the soccer bribery market was functioning quite well. Considering Nigeria's place in the murky depths of the Economic Freedom Index, the elimination of any functioning market is something that Nigeria seems to have down pat.

My take on this is that rent-seeking breeds rent-seeking. Nigeria finds itself near the bottom of every corruption index I can find; here is one from the Kurtzman Group; here's another one from Transparency International. If you're in a corrupt regime for long enough, you come to learn that the only way to get what you want is via rent-seeking. Granted, the incentive to follow the shaky rules isn't there, but if the MLS were suddenly imposed on Nigeria, would the bribing refs suddenly stop? Not likely.

Real Madrid looks to improve their team with better players; sure enough, the institutions within la Liga are much more sound. The cost of bribing a Spanish ref, considering the punishment, would be far higher than in Africa. The question is this: If Real Madrid were to play one match against a Nigerian club in Lagos, would they partake in bribing the refs?

Friday, April 07, 2006

Get in line for some swine

The Citizens Against Government Waste have recently released their annual and utterly enjoyable Congressional Pig Book, a survey of pork barrel spending by the U.S. government. Taxpayers footed a $29 billion bacon bill in fiscal 2006; some comments:

- In nominal terms, only California and New York get more pork than Hawaii. What's in Hawaii that's costing $482 million in 2006?! And they got even more in 2005!

- Alaska is a force when it comes to pork. There's just no two ways to look at it. They can go toe to toe with anyone even in nominal terms, and when you figure their population is less than 700,000, their per capita figure is through the roof. No one's even been close since 2000. Hurricane Katrina's budget impact finally brought them back to the pack, but it's got to be something in the clean Alaskan water that breeds rent seeking.

- I've finally found a list in which West Virginia isn't last. West Virginia is gettin' in while the gettin's good-- to the tune of $131.58 per person. Just think-- if that money went right to the populus, the per capita income would go up by about half a percent. Draw your own conclusion on any of a number of margins there.

- They have a section on the oinker awards, which are particularly hilarious pork allocations, but I've yet to find a state that you can't pull up a list of pork comedy. Some choice West Virginia ham: $160k for poultry litter composting, $100k for the Mason County Tourism Mural Project, $50k for sidewalk enhancement, $750k for Multiflora rose control (fear the Floribunda), and $160k for feed efficiency.


A step back for West Virginia

Occasionally, good things happen in our little state of West Virginia. For example, eminent domain legislation, though imperfect, was recently signed into law. But it seems for every step in the right direction, the Mountain State takes three or four backwards. Enter the state's recent passage of House Bill 4023, which calls for a two-step increase in the minimum wage to $7.25 an hour by the middle of 2008. I like to think of West Virginia as being the caboose of the freedom train, and bills like this simply put a few more train cars between us and the rest of North America.

Interestingly enough, everyone has a bone to pick with the bill. Those in favor of it feel that the bill's scope is too narrow; only 2,000 of the state's 20,000 minimum wage workers would be affected. After all, if you're going to have legislation, isn't the idea to have an effect with the laws you pass? I might even agree on that margin. As John Wooden used to say, "Don't mistake activity for achievement"-- even suppporters of the Legislature's decision are calling them on it.

On the other side of the issue, those who have taken Econ 101 know that increases in the minimum wage do nothing but handcuff companies' ability to be profitable and reduce aggregate employment. Any bill to 'increase the minimum wage' can and should be modified to instead read 'increase unemployment.' Nobel Laureate James Buchanan said it most effectively: " self-respecting economist would claim that increases in the minimum wage increase employment. Such a claim, if seriously advanced, becomes equivalent to a denial that there is even minimum scientific content in economics, and that, in consequence, economists can do nothing but write as advocates for ideological interests. Fortunately, only a handful of economists are willing to throw over the teaching of two centuries; we have not yet become a bevy of camp-following whores."

Sadly, this isn't over and done with. Larry Matheny, secretary-treasurer of the West Virginia AFL-CIO, the state's largest labor-related interest group, has proclaimed that "[i]t's a shame. It's a shame, but we'll be back." Yes, they will be back. They will be back to keep West Virginia at the bottom of the economic freedom list, the bottom of per capita income, and the bottom of general resident well-being. I guess when you're at the bottom of the list, you can't have any legislation that reduces your relative position, right?