I have not seen op-eds saying that the real-world bill is better than no bill. Even Professor DeLong’s article doesn’t come out and say that. He and many other economists did sign a January 27, 2009 letter favoring the bill. Are there other writings in favor of the bill by research economists that I have missed?
Tuesday, March 31, 2009
First and foremost, the quote concerning foregone opportunities due to the spending is refreshingly spot-on.
But as is often the case with government spending, we're left choosing between worst and not as bad. Given that we've got this albatross of stimulus money, is it going to places where it will, in the long run, do the least harm? There are things to like about this project in light of others. As opposed to a bridge built to nowhere, Microsoft did value this bridge at a minimum of $17.5M, and put its money behind it in the first place-- rising costs tipped it beyond its value to the firm, however. Instead of funding projects in which we must blindly guess the value to society, is it that horrible by comparison to help finish this project? In the global sense, is it an efficient use of funds? No-- but again, we're not going to have efficient spending when it comes to public spending, so what we need to task is to find the least harmful outputs.
Of course, making a broad-based policy of requiring a private matching sum would end up in a lot of projects that simply aren't efficient. So this isn't good policy that could be instituted on a wide scale.
There's a lot of angles to take on this one.
Monday, March 30, 2009
And here is a ranking for the best places for business and careers. I'm going to aggregate these rankings here in the near future and make sense of it all...
President Obama announced Monday that struggling automotive giants General Motors and Chrysler will be given a "limited" period of time to "restructure in a way that would justify an investment of additional taxpayer dollars."What a phenomenal idea! In fact, if GM and Chrysler restructure in a way that justifies additional investment, taxpayers will give them money directly instead of via government bureaucrats!
Saturday, March 28, 2009
Nevertheless, looking over it, I'm not sure this is the crowd's bracket. I think it would need to be worked out with Bayes Theorem to be reflective of the group's choice. It would be a fun project to go ahead and work this out, hopefully there are some takers.
Friday, March 27, 2009
Perhaps next Spring Break I should actually take some vacation time.
Thursday, March 26, 2009
Well, I think we should name it.
So put properly: What would you name the situation of Congress focusing on trivial issues, thereby preventing them from harming the American economy?
I'm going to offer the Unintentionally Beneficial Congressional Sidestep, but I'm open to suggestions. Wordy, yes, but UBCS is quick to write. Maybe a better acronym could be had.
Sarcasm On: Congratulations to the Senators for realizing the real anticompetitive problem with NCAA sports!
Hat Tip: Jason Oberle
Wednesday, March 25, 2009
Exactly what was stopping them from being non-profit before? The internet has already provided a vast array of non-profit media outlets. I'm not sure what to make of this news.
WASHINGTON (Reuters) - With many U.S. newspapers struggling to survive, a Democratic senator on Tuesday introduced a bill to help them by allowing newspaper companies to restructure as nonprofits with a variety of tax breaks.
"This may not be the optimal choice for some major newspapers or corporate media chains but it should be an option for many newspapers that are struggling to stay afloat," said Senator Benjamin Cardin.
Tuesday, March 24, 2009
My thinking on the subject is that it is not a linear relationship, where small groups add up into big collectives, but a circular one. "We" want to protect the local Mom-n-Pop's because of how cute and localish they are, and thus "we" don't want to see them fail. They're just so tiny and cute, how can you just let them fail?
The further you move in either extreme of size, the more likely you are to have populist and elitist support for circumventing their evolution.
Men are also more likely to have shelves full of books that have never been opened.Ah ha, so men use their book shelves for signaling purposes. My first thought then was that men would be slower to adopt the Kindle than women. My second thought was that men would be faster to adopt the Kindle than women because now they can carry their signal around with them.
As an aside, it turns out that Easterly was actually born in Morgantown.
Protectionism has been intellectually bankrupt for more than 230 years, so ignorance is no excuse. No public servant can honestly promote peace and prosperity without a policy of international free trade, and anyone who tries is guilty of self-interested populism.
Monday, March 23, 2009
- Freakonomics passes along this article from CHE concerning the essay writing business. There are some fascinating parts to it-- I didn't know there was such a foreign aspect to it. And if there's a language barrier to these papers, yet they get turned in anyway, what's that say about the state of students as a whole?
I don't have a large problem with this. In the gains-from-trade sense, it's welfare enhancing, of course, but is everyone's degree summarily worth less? If you subscribe to the skill accumulation theory of education, then you are (presumably) not learning the requisite skills, and you'll be punished accordingly in labor market in the long run. If you subscribe to the signaling theory of education, then what you do once you get into the school doesn't matter at all-- it's just the name on the degree. Perhaps earning a degree signals you can do the work-- in that sense, it would harm the signal and the rest of the college-degreed population. Personally, I think the largest cost imposed on me would be having to deal with this issue should it ever come up in one of my classes. I don't imagine schools would smile upon this activity, and I think that is the stance they should be taking.
The dissertation part is intriguing-- is there even a remote possibility of that working? I'm very suspect.
- I mentioned briefly last week that any system hyped on its ability to predict last year's tourney outcomes should be taken with a grain of salt, as things went a little too according-to-plan. Well, after the first weekend, we have the twelve top seeds (all #1, #2, and #3 seeds) still playing. Perhaps just picking the chalk is the way to go? But what fun is that? A big loss to the casual bettor, too.
Notice the three X's: they mark the location of three erotica outlets. High Street is where all the main downtown retailers locate, and it has the heaviest traffic flow of anywhere in town. Notice that the X's seem to be concentrated in the same area. The questions I would pose to my students then is:
Why do we observe this spatial concentration of erotica shops in Morgantown? Why is erotica most valuable at those locations? What role does the environment or neighbors play, if any?My students and I over time hashed together the following list of potential answers to these questions:
- Hotelling's model of spatial competition. Like the ice cream vendors on the beach or the shoe stores at the mall, the competitors wind up locating next to each other.
- The stores want to be on High Street, but the business association doesn't allow them in, and so they end up as close as they can get to High Street.
- The stores want to be close to High Street, but not on High Street because the stores balance wanting to be seen by their potential customers while their customers don't want to be seen going in/out of these stores.
- Lawyers, judges, police, and city officials are large consumers of erotica, and the stores are locating close to their customers.
- They want to locate close to the Family Court, as men exit the court in emotional ruin the erotica shops want to be there for them.
- (As a counter to #5) The Family Court is actually locating close to the porn shops in a rare demonstration of responsiveness to consumer demand...women who catch their men at the erotica stores want to know where they can file for divorce.
- Perhaps erotica stores are more likely to be robbed, so they locate as close as they can to the courts and police as a deterrent to thieves.
Saturday, March 21, 2009
In predictive theory, cost is the objectively identifiable measurement of the alternative product that might be produced by reallocating resources. Textbook treatment of cost curves. This market value is reflected in market prices for alternative resources. The movement from predictive theory to a more general theory of choice however, requires making the connection between the costs, who is incurring them, and when.
"The essential element in this concept is the direct relationship between cost and the act of choice, a relationship that does not exist in the neoclassical predictive theory. In the London-Austrian conception, by contrast, cost becomes the negative side of any decision, the obstacle that must be got over before one alternative is selected" (Buchanan, 1999  pg. 44).
- Most importantly, cost must be borne exclusively by the decision-maker; it is not possible for costs to be shifted to or imposed on others.
- Cost is subjective; it exists in the mind of the decision-maker and nowhere else.
- Cost is based on anticipations; it is necessarily a forward-looking or ex ante concept.
- Cost can never be realized because of the fact of choice itself: that which is given up cannot be enjoyed.
- Cost cannot be measured by someone other than the decision-maker because there is no way that subjective experience can be directly observed.
- Finally, cost can be dated at the moment of decision or choice
This discussion of costs reflects one of several subtle but important theoretical distinctions that set Austrians apart from others. For instance, measurement is not calculation. Measurable data or information does not allow for what Mises terms calculation. For Mises, measurement implies a fixed unit of measurement (like an inch, a quart, degree or kilometer). Calculation requires market generated prices, which by nature change. I think one way to think about it is that measurement is used in solving 'technological' problems; one end with many different means. Calculation is used in solving 'economic' problems; many ends to be solved with many different means.
Taking on the task of addressing the poor understanding of Austrian ideas reflected in John Quiggin's "critiques", might however be too much for one blogger to take on (at least in this post).
Friday, March 20, 2009
As such, I will let Austrians defend their field on the rest of the points, but I want to take aim at Quiggin's critique to Boettke's 4th proposition of Austrian economics that "Utility and Costs are subjective," which he states flatly is "clearly wrong."
This seems to be the extent of Quiggin's criticism, that we can see a price tag and therefore objectively identify the producer's costs, and if it is then he has missed the subtlety of their argument. Their argument is that the supply curve is actually other demand curves, where we all agree utility derived demand is subjective.
For example, I type here on a laptop, whose price tag was once $800. I'm sure that there were objectively verifiable price tags on all the inputs of my laptop for the labor, land, and parts, but where did those prices come from? Those inputs were all certainly in demand elsewhere, so why the Compaq assembly line? You think about this, and ultimately it must be realized that Compaq isn't putting the laptop together because costs are $x, but because I'm in their online que ordering the laptop instead of somewhere else.
Addendum: Schaeffer expands on the Austrian perspective of subjective costs.
For every 100 votes cast, WEAI will donate a dairy goat through Heifer International, an organization that helps families around the world become self-reliant. The gift of a dairy goat can supply a family with several quarts of milk a day. All it will take from you is a few minutes of your time.
I wonder why they are so interested in getting out the vote, Condorcet jury theorem?
I like the initial part of this 2.5 minute segment because, in my mind, Singer seems to confuse intentions with outcomes in a very obvious way. He wants people to walk around asking "how can I help others" when, as Adam Smith pointed out, we often get the consequences that would follow from this question as a response precisely when people instead ask "how may I best help myself?" The inability to figure out how to answer the first question is a big part of the reason why the latter tends to be more functionally useful.
The second part illustrates the fun ways in which one can critique the utilitarian philosophy with hypothetical scenarios.
"Chief Executive's fifth annual survey asked 543 CEOs to evaluate their states on a broad range of issues, including proximity to resources, regulation, tax policies, education, quality of living and infrastructure. Providing additional insight to the evaluations, CEOs were also asked to grade each state based on the following criteria: 1) Taxation & Regulation, 2) Workforce Quality, and 3) Living Environment."
They've been doing this survey for five years now, and Texas has taken the top spot every year. I wonder if there's some sort of selection bias on surveying CEOs? Do they have a good grasp of all 50 states? Are they more likely to select the states that they do business in? Perhaps that's the point-- they're going to be doing business in the best states.
West Virginia comes in at #37.
Thursday, March 19, 2009
- This argument is in no way consistent with the evidence. The authors point out that charities actually behave as if there are positive network externalities, where the donations of one individual encourage donations from others. Indeed, it is often the case that you see programs where a third party has agreed to match every $1 of private donations with $x of their own. Why would such a strategy work if there is perfect crowding?
- The donations of others reflect a change in the "price" of welfare programs, and as such they are pecuniary externalities, not technological externalities generating a market failure.
Life is rather too short to spend it getting angry at remote strangers.Bryan Caplan:
To which I'd add: It's also too short to spend it getting angry at petty slights, not-so-remote strangers, friends, family...
You might say, "Unfortunately, it's impossible not to waste time getting angry." To which I respond: You may be unable to avoid being angry, but getting angry is much more under your control.
Alas, I find it considerably easier and quicker to accept anger and move on. Read it, hate it, and forget it.
Mr. Obama can also strengthen the rule of law in Indian country. Some reservations were placed under state jurisdiction in 1953: They have a stronger legal system than those with tribal jurisdiction, and they benefit economically. My own research, published in the Journal of Law and Economics, shows that for tribes with state jurisdiction, per capita income grew 20% faster between 1969 and 1999 than for their counterparts under tribal court jurisdiction. All Indians are less likely than whites to get home loans, but the likelihood of a loan rejection falls by 50% on reservations under state jurisdiction.However, Jason Oberle of the American Indian Policy Blog generally disagrees with this implementation of property rights, he writes (in an e-mail exchange printed with his permission):
Mr. Anderson proposes that Tribes have their sovereignty sacrificed in order to gain economic development via the rule of law. Although, I agree with much of his discussion on the essential need of the "Rule of Law" I disagree with any notion of relegating or delegating or moving any authority from Tribes to place them in the hands of States. This will be counter productive for Tribes long-term. States have worked to slowly remove power from Tribes by slowly lobbying congress for additional legislation that allows them to regulate Tribal activities.Interesting thoughts from both Oberle and Anderson. It is clearly a complex issue, and it seems that development economists might have a lot to learn about the nature of property rights by studying Indian Country.
An excellent example of this is the Indian Gaming Regulatory Act, which requires Tribes to negotiate Gaming compacts with states. Primarily this is an economic issue, States wanted revenues from Tribes Casino operations, and collectively they lobbied Congress to make provisions for such revenue streams and it was placed into the Language of this Act. The act is available here if you are interested in reading the law.
Many of the leaders of Indian Country today are old enough to remember the end of the last attempt of the Federal Government to terminate the Indian people. This was a Federal policy which began in the 1940's and ended about 1962. It was 20 years of very bad times for Indians. During this period, the Federal Government discontinued most or all of its support for Indians, including legal, health and human services, and most importantly refused to honor its contractual obligations (Treaty Rights) with Tribes and Indians.
Considering the aforementioned issues, only briefly, it is difficult for many people full understand Indian people and Indian Country. I argue that it is essential to include Indian Country and Indian Country scholars in federal studies of Indian country because of these and similar cultural issues.
What I would propose as a solution to the "Rule of Law" issues is increased Tribal Sovereignty. Increased sovereignty provides with some critical opportunities to improve issues of "Rule of Law." For example, Midwest and Eastern Tribes which have increased Tribal Revenues by way of casino operations have actually increased their sovereignty on a practical level because many members of Congress, as well as many firms, do not attempt to circumvent or short circuit Tribal Sovereignty out of credible legal concerns.
Some tribes have also identified the rule of law issue and in some case negotiate contracts with a waiver of sovereign immunity and directly identify in the contract the legal jurisdiction which shall be used to settle legal or lawful disputes. Often in contracts I am aware of the state or federal courts are selected to handle these disputes.
In regards to Anderson's comments about "property rights" he indeed is correct about the 'tragedy of the commons' which occurs on some reservations. I have observed where some tribes have addressed this issue by long-term contracts with members. For example, as a member of the Sault Ste. Marie Tribe of Chippewa Indians, I have the ability to negotiate a long-term (99 year) contract with my tribe for the exlusive use of land held in trust by the US government. In many cases this opportunity has given the lease holder adequate incentive to protect the property value or likewise eliminate the risks associated with the 'tragedy of the commons.' Obviously, this is not perfect, but realistically there is not a real difference other than a simple fee land because it establishes ownership for a term which exceeds the households physical lifetime.
Curiously, I am wondering why Mr. Anderson would propose the limiting of sovereignty for Indian tribes and further suggest that simple fee land is the optimal outcome for Tribal lands. His same article points out the fact that Tribes have excelled at control of Tribal lands and exceed the useful production of the U.S. federal government i.e. Anderson's forestry example. It seems to me that this is an argument for less government interference with tribes. Allow tribes to manage Indian land, allow tribes to expand sovereignty, allow tribes to control mineral rights, and allow tribes to negotiate its own contracts with firms and individuals. Not simply to remove legal authority and pass it to the states.
I'm reminded of Russ Sobel's work on FEMA disbursements.
How should I decline requests for charity without going straight to hell? I'm a good person, but sometimes I don't have it to spare. Sometimes I do have it to spare but don't want to spare it for that cause. Sometimes I just want a coffee or new shoes. What's the most respectful, yet firm, way to say no?The authors respond by explaining how they can stay in the signaling game by using a "hug and release" approach. I love the framing of this question ("Sometimes I just want a coffee or new shoes."), because it fits my mental model of why people give charity, as opposed to a signaling model that I think is the more popular and accepted model among economists. If you are the easily offended type, you should probably stop reading now.
I think of giving to charity as just being another argument in the utility function. Mr. Max U's happiness depends on a consumption bundle and leisure. One of the goods in his consumption bundle is charitable giving. The maximization process suggests that you make recognizable trade-offs between things like coffee, shoes, and charity. Furthermore, I think the desire to give to charity is drawn from some evolutionary programming to help others, and the desire to appear charitable in the eyes of others tends to be a weaker effect. You see charities make statements like "you can feed and school a child here for $1/day" because demand for this good is downward sloping.
Now for the recipient side of the coin, and the area where I think many practicing objectivists get the logic wrong. (I say "practicing" objectivists because I'm not sure this view is even consistent with objectivist philosophy, but I'm not entirely sure one way or the other.) A common concern is that charity will induce dependence, or at the least encourage more resources to be devoted by the individual to the seeking of a transfer, rather than doing something "productive." If I am always going to hand out $20 in to the homeless outside SPEA on Fridays, then surely over time the number of homeless looking for me at that time and place will increase.
The problem with this view is that it is not objective. Look at another member of society who we generally consider productive, the jeweler. The jeweler is productive because they take this shiny rock out of the ground, polish it up, and sell it to consumers for an amount that covers their time and resources. They are productive because they satisfy a consumer demand, and as any economist will tell you, we do not pass judgment on consumer preferences. When you think of it this way, someone devoting resources to increase their appearance of desperation in order to be given a handout, is no less "productive" than the jeweler. They are simply trying to satisfy the consumer's demand to reduce neediness. You can think, if you must, of beggars as suppliers of satiable neediness, and charity-givers as consumers of satiating neediness. In which case, every dollar you choose to hand out is not wasteful or even unproductive outcome of some signaling game with unintended consequences, but another example of gains from trade that maximizes the well being of society.
Wednesday, March 18, 2009
"Microsoft has learned that this oversight is not going away very quickly, and that they have to deal with it proactively," said Michael Gartenberg, an analyst at JupiterResearch. "Their challenge for Windows 7 will be how can they continue to add features that consumers will want that also don't run afoul of regulators?"You'll notice throughout the article that it is Microsoft's competition that is doing the complaining. Antitrust law is supposed to protect the consumers. In practice it protects firms from direct competition. What sense does it make anymore in the computer industry? How could anyone conceivably argue that Microsoft is a monopoly, or that computer technology is not competitive? I can't help but wonder how much better Window's operating systems would be if it were not for these limitations.
"Is Microsoft at a disadvantage here? Absolutely," he said. "No one else has this degree of oversight. No one's telling Apple, for example, that it can't include iTunes with Mac OS X."
Can someone clarify for me why it is that an opportunity for increased profits due to a transfer of property rights is a failure of the Coase Theorem? Of the fundamental lessons from Micro principles is that value is subjective; it's easiest to describe examples of the Coase Theorem using simple dollar figures, but that's not the whole story. It can't be conceivable that the owner of the liquor company would value sticking it to the property owner over accepting a check from him? I don't get it.
The irony that the main economist on the site, Steve Levitt, is at the University of Chicago isn't lost on me either.
Feels like a Louisville year.
Funny site where they remove Garfield from the stip, leaving John to look insane.
Hat Tip: Alex Ross
When you think about it, the author's productivity is based on destroying Jim Davis' production. Garfield's marginal product to the Davis strip was enormous, yet someone else removing him adds a little bit more value-added.
Today Senator Frank R. Lautenberg (D-NJ) and Congresswoman Barbara Lee (D-CA) re-introduced the Responsible Education about Life (REAL) Act, legislation to authorize federal funding for comprehensive and medically accurate sex education.I fully expect the proposed federal sex education programs to enjoy the same success as the DARE program.
(Additional DARE studies here, here and here. The google scholar search here.)
Here is a link to IRS data on filers by bracket in 2006, and here are the bracket values in 2006. That seems to be the latest year available.
Addendum: Kipesquire points out that the IRS does index the brackets to some inflation adjustment factor (Thanks Kip!). I remain concerned because my understanding of Meltzer's point is that the inflation will be sudden and rapid once some aspect of the financial system is restored and that massive amount of money sitting in reserves starts to flow again. Given the time lag for data collection, I wonder if the brackets will adjust appropriately in a timely enough fashion.
* Economists are quick to point out, and correct in doing so, that the burden of these taxes will still fall partly on the lower income groups. For instance, various studies have shown the corporate income tax to be a regressive tax.
Tuesday, March 17, 2009
I’m struck by the following: “The house that best fits my preferences is also the one that I will pay the most to get.” Initially, I thought that this was slightly misspecified, but after thinking about it for a little bit I think it’s delightfully accurate and efficiently worded. It underscores a secondary advantage to the “percentage vs. fee” argument you bring up. Many times, when we think of the principal/agent issues created in the home buying process, we think of the deal closing finalities—everyone wants the deal done, both sides’ principals and agents, but you personally (or the home seller) bear the cost of blinking first in negotiations. But that’s placing the process beyond another problem—finding the best house amongst many that best fits your preferences, within reasonable structural constraints. It may seem a bit awkward to assume that someone would engage in a large scale financial transaction for something that would best fit your preferences, but there are a few of realities in the home buying process to realize:
1) We get good at figuring our preferences through repeat dealings. We have an ingrained sense of our preferences for food and clothes in light of their price not because we think about it any more than our preferences for a house, but because we get a large number of trial-and-error processes to fine-tune it. Houses, for most of us, don’t fit in here. And if you don’t believe that, consider your comfort level in finding an apartment that fits what you believe you want versus a house.
2) House-hunting is a time-intensive process; given this and the above point, it’s all the more important to incentivize the agent to find a house that matches well with the principal because it’s quite possible that the principal could end up purchasing a house that isn’t the best available. If it is a flat fee, like you mentioned, it doesn’t matter that the agent tries to find the best house, but one the agent will simply will engage in a transaction for, blind of the fact that a better match would yield the agent a larger sum under the percentage structure since the principal will pay more for a better match.
As an aside, time really plays a large role in buying a house—and in most of the instances, realtors can “out-wait” the principal, whether it’s moving to a new locale for employment reasons (clear time horizon) or the discovery of a better matching home in the same area (self-imposed time horizon, “we’ll-never-find-another-home-like-this”).
It’s an interesting principal/agent scenario to look at since P/A situations usually have conflicting objectives, but that’s not the case here. In the case of the shirking employee, the employee wants to less productive for the same wage. The employer wants the employee to be more productive. That’s a direct conflict. Here, it’s more a matter of degree. You want to buy a house. The realtor wants you to buy a house. You want as low a price as possible; with a flat fee, the realtor’s main goal is to close the deal. Not the same goal—that’s why we have a principal/agent problem in the first place—but not exactly conflicting, either.
If you are in the market for buying a house with the help of a realtor, one of the more peculiar aspects of this prospect is how the realtor representing the buyer is compensated. The buyer’s realtor, like the seller’s, is compensated by receiving a commission that is a percentage of the final sale price. This is peculiar because it would seem, at least at first blush, that the incentives of the agent are better-aligned with the opposing party during negotiations. What incentive does the realtor have to help the buyer negotiate a lower price? Why is this compensation scheme the dominant model of realty transactions?Justin's Thoughts:
Let’s ask why this scheme has emerged as something demanded by the prospective buyers. Imagine we are in an environment where you have multiple real estate agents standing on the street and holding up a signs with different contract terms: some ask for a fixed fee; others ask for a % of the sale price. Why over time would the fixed fee realtors be selected against?
I think the answer is that the fixed fee approach places too much emphasis to complete a transaction, and actually would align the buyer’s agent with the seller more than the percentage price approach. To get a sale, the fixed fee realtor simply needs to find a house that provides positive amounts of consumer surplus. This also gives the realtor an incentive to represent any house as a structure that will give me positive amounts of surplus.
However, such a serious investment of money and time means that I want to get the house that best fits my preferences. The house that best fits my preferences is also the one that I will pay the most to get. By paying the realtor the percentage of sale price, I am incentivizing him to both complete a deal and find the house that I will demand the most. The final bargaining stage, which is typically over a few thousand dollars, is simply too small of a perverse incentive to outweigh the positive incentives created in the search process.
Furthermore, on the supply side, real estate agents ultimately will have more success when they let the buyer make the decision. Advising and getting it wrong, or appearing to get it wrong, will wind up with the agent receiving the buyer’s blame much more than the cases where the agent gets the advice right. There is little upside to the agent in a system when they take more responsibility in the negotiating process, and a significant potential downside. Buyers might also choose against the infringement on their sovereignty.
Our intention is to have multiple bloggers post their thoughts on the same subject, or prompt, to stimulate some interesting discussion. Hopefully, the readers will enjoy it as much we will.
Monday, March 16, 2009
Take me out of the ball game,
to roam freely, I’m not allowed.
Not to get peanuts or cracker jack,
fidel will be angry if I don’t go back.
Let me walk, walk, walk in the city,
if I defect it’s no shame.
For it’s one, two, three steps, I’m gone,
from the old ball game.
Sunday, March 15, 2009
What is so special about how we define spending in GDP to the real economy? Consider the common Keynesian example of a project where unemployed people are paid to dig and then refill holes.
Suppose instead of spending on a dig and refill program, we pay them to open an envelope. Fairly simple program to administer, we'll just put a check inside the envelope, so they get the money when they do the work.
Nevertheless, I believe Keynesians would still call my envelope-opening program a "rebate" (especially if we mail the envelopes from the IRS) and their dig and refill program a "increase in spending." As such, my envelope program gets a low multiplier (.99 I think) and dig-n-fill program gets a larger multiplier (1.27 if I recall).
Yet the only real difference I can discern from these two programs is how we count these activities in GDP. In this respect, Keynesians to me are looking a lot like the executives of Enron, who relied on accounting tricks at the expense of real performance.
Saturday, March 14, 2009
To see every health mandate for every state in 2008, as well as their cost, see here.
In the opening of the short report, the group channels Milton Friedman:
Mandating benefits is like saying to someone in the market for a new car, if you can’t afford a Cadillac loaded with options, you have to walk. Having that Cadillac would be nice, as would having a health insurance policy that covers everything one might want. But drivers with less money can find many other affordable car options; whereas when the price of health insurance soars, few other options exist.Hat Tip to Suzie Witmer, for the pointer.
Now is the most important time to express dissent over the prevailing path of government intervention. Ideas matter. Politicians may simply be myopic slaves to the concentrated interests. In that view, their support of these billion dollar bailouts are understandable, if still inexcusable. But the Keynesian demand management ideas that many economists support (and those who fail to speak up are getting pegged to) are wrong, dangerous, and down right bad economics.
In light of this year's annual Public Choice Society Meetings, I find this a particularly important topic. The last plenary session of the conference was entitled "Financial Crisis Bailout: Stimulus or Porkulous?" From where I was sitting, I would suggest that the majority of attendees came down on the "Porkulous" side of the debate. Mike Munger eloquently outlined the foul effects that arise when government removes all risk from the market. He reminded the audience that a fall in real asset values does not equal "market failure". The market process requires failure.
But sadly, a reminder was necessary. And despite a relatively free market crowd, I was surprised to hear justifications of the congressional spending package as stimulus by way of a political Coase Theorm arguments. In other words, the spending package taxpayers will be paying for years to come may simply be 'just another cost of doing business'. These types of arguments suggest (IMHO) that a renewed intellectual investment in radical laissez-faire capitalist ideas is desperately warranted.
Stossel's show serves an important role illustrating for the public of the tyrannical power of a state. The case of Charles Lynch is a tragic case in point (which I hope to blog more about in future posts). Because I do think ideas matter, it excites me to see free market arguments get a slice of national coverage -- even if its only a few minutes among a relentless tide of poor economic logic and political polemics. Given the group chosen for 20/20, some of this renewed intellectual investment in the ideas of a free and prosperous society may be found at the upcoming Association for Private Enterprise Education conference.
Friday, March 13, 2009
We hear a lot of talk in some quarters about how any one of us could be in the same financial trouble that many homeowners are in if we lost our job or had some other misfortune. The pat phrase is that we are all just a few paydays away from being in the same predicament.He then answers just the right question(s):
Another way of saying the same thing is that some people live high enough on the hog that any of the common misfortunes of life can ruin them.
What if the foreclosures are not stopped?Will millions of homes just sit empty? Or will new people move into those homes, now selling for lower prices-- prices perhaps more within the means of the new occupants?
The same politicians who have been talking about a need for "affordable housing" for years are now suddenly alarmed that home prices are falling. How can housing become more affordable unless prices fall?
The political meaning of "affordable housing" is housing that is made more affordable by politicians intervening to create government subsidies, rent control or other gimmicks for which politicians can take credit.
Affordable housing produced by market forces provides no benefit to politicians and has no attraction for them.
Study after study, not only here but in other countries, show that the most affordable housing is where there has been the least government interference with the market-- contrary to rhetoric.
Thursday, March 12, 2009
Medical science has established that one or two glasses of wine per day are good for your long-term health, but no doctor would recommend a recovering alcoholic to follow this prescription. Unfortunately, Keynesian economists do exactly this. They tell politicians, who are addicted to spending our money, that government expenditures are good. And they tell consumers, who are affected by severe spending problems, that consuming is good, while saving is bad. In medicine, such behaviour would get you expelled from the medical profession; in economics, it gives you a job in Washington.Note that in Brad DeLong's part, he acknowledges the numerous giants of the field (most of whom actually study business cycles) who disagree with Keynesian policies as effective stimulators of the economy, and he does so without calling them "ethics free republican hacks." Has he just now realized that, as Zingales points out "...it is hard to find academic papers supporting the idea of a fiscal stimulus." Or does he just think these specific people are not these three things?
Wednesday, March 11, 2009
The company on Monday said same-store sales were up 5.4 percent worldwide in February, adjusted for the extra day in February last year. The gains were more pronounced in the United States than elsewhere—up 6.8 percent—and both McDonald's and the Journal chose to highlight the relative struggles, if you can call them struggles, the company is facing in foreign markets.
Consider firm A has 100 employees and between Sept. 1, 2008 and Jan. 1, 2009 50 employees have been let go. The average cost of 65% of the COBRA benefit being carried by the employer is $650. Now that employee must retro-actively notify and further support the 50 people at $650 on the corporate books until the next tax season before the federal government will reimburse through a tax-credit. Sounds like an additional cost of $32,500 per month on the struggling business.
Game designers face many challenges, and one of the largest of these is balance. Classes must be balanced in both PvP and PvE, races must be comparable with each other, trade skills, weapons, and armor all need some form of equity. Yet curiously, one facet that seems to garner a much smaller degree of balance is the economy. That isn't to say that it doesn't get a great deal of attention. Designers struggle to provide and sustain a manageable amount of profit and loss through all aspects of the gaming experience. It is a massive challenge because the economy is, by its very nature, pervasive. Yet the current solutions that game designers use to keep their economies in balance are peculiar and more reminiscent of a band-aid than any real resolution. It almost feels like they are saying, "The economy isn't exploding so don't tinker with it or it might spin out of control." Whatever the reason, the economic basis of the majority MMOs are built on very similar systems.Hat Tip: Dave Esposito
Tuesday, March 10, 2009
But the unfortunate aspect of the story is that urbanization comes off terribly. The forests are good; the factories are bad. Not only does the story disparage the remarkable benefits that came from the mass production of clothing in 19th-century textile towns, it sends exactly the wrong message on the environment. Contrary to the story’s implied message, living in cities is green, while living surrounded by forests is brown.What surprises me though, is that Glaeser does not have a problem with the book on the grounds that I usually criticize it:
Some of the lessons told by this story are correct. From a purely profit-maximizing point of view, the Once-ler is pretty inept, because he kills his golden goose. Any good management consultant would have told him to manage his growth more wisely. One aspect of the story’s environmentalist message, that bad things happen when we overfish a common pool, is also correct.Not only is the Once-ler inept for not managing his growth responsibly, but at the end of the book he actually gives a child the last remaining Truffula Tree seed and tells him to repopulate the forest!
I realize Glaeser is mostly just trying to stick to an issue and the Lorax is a hoook, but my problem with the book is that it implies that the profit maximizing strategy leads to destruction of the resource, whereas the profit maximizing strategy is maintaining the resource through adequate assignment of property rights. The tragedy of the commons is not on display in the book, the Once-ler appears to be a monopolist with no concern that he will not be able to make legal claim on the property. So I don't cede that part of the story to the environmentalist message, nor do I believe they have special claim on understanding the tragedy of the commons.
This resource conservation aspect of profit maximization is a point I actually make to my v517 students when they study the case of Champion Timber. In the case study, it is revealed that Champion owns a 55 acre forest and only reaped 1-acre per year because the trees had a 55 year maturity cycle. Like the Once-ler, any company who could not figure this out would be eliminated from the market in very short order. Unlike the Once-ler, you do not see firms or farms acting in this manner.
Monday, March 09, 2009
- Nicolaus Tideman's suggestion that we switch from a fiat money system to a commodity system. Not just any commodity, and not gold, but brick. Brick would be the basis of the money supply. He quickly defused many of the knee jerk reactions that one would throw at this idea. It's real challenge will be winning over monetarists when the possibility of a negative shadow value during recessions exists. The other challenge would be convincing the public of what on the surface appears to be a horrendous idea, but may actually be brilliant. I really hope this idea gets more attention. Regardless of how the profession will judge it in the end, it will be interesting to watch.
- The return of the political business cycle model. I missed its return, and only learned about it when the paper that apparently brought it back won the annual award for best in the journal.
- Matt and I's lunchtime conversation in which we pondered whether Prius owners will push for a heavier gas tax to retroactively justify their purchase. On the subject of home ownership, we also chewed on ideas as to why the realtor representing buyers have their compensation determined as a percentage of the final sale price. Will surely be a future blog post.
- TPS bloggers once again didn't manage to get a team photo.
- David Skarbek's explanation of how imprisoned members of the Mexican Mafia are able to extract bribes from roughly 80,000 drug dealers free on the streets. David needs a post with the explanation, if for no other reason than self-promotion.
- When you think about it, casino's differentiate themselves in the competitive process by freely providing what is almost a pure public good. Fake volcanoes with very real fire, water shows, the Eiffel Tower, Michael Jackson impersonators, and pirate ships are for anyone to enjoy and yet it is hard to make the case that they are under provided, as a sterile Samuelsonian model would predict. It's hard to make an economic profit gambling as anyone can offer a higher payout rate. You have to get volume to ensure the house wins, and for that you need a draw.
- I can definitely see now that a airline could feasibly exist by offering free seats on a flying casino.
- I consider Fremont Street to be the highlight of the visit.
Wednesday, March 04, 2009
At their peak, fraternal organizations and
friendly societies provided health insurance for
millions of Americans and Britons, mostly lowermiddle-
class tradesmen and skilled artisans. By
1886, the Independent Order of Oddfellows and
the Ancient Order of Foresters each claimed more
than 600,000 members worldwide. In the 1920s,
roughly every third adult male in the United States
belonged to a fraternal organization.
These groups were characterized by independent
lodges, democratic governance, a ritual,
and mutual aid for members (and often their
families). Although camaraderie was a leading
incentive to join, disability insurance was also
an attractive benefit.
Despite their popularity, however, such groups
had all but vanished within two decades after being
pushed aside by the surge of the welfare state.
What accounts for their rise and fall?
The answer, according to Pavel Chalupníček
and Lukáš Dvořák (both from the University of
Economics in Prague), lies in the concept of social
capital, an individual’s ability to use his or her network
of friends and acquaintances for economic
gain. Social capital, they explain, enables many
people to function better in society, but its value
depreciates rapidly in the presence of certain
kinds of government activities.
Paid holidays were available to 77 percent of private-industry workers as of March 2008, and paid vacation leave was available to 78 percent of the workers. Sixty eight percent of State and local government workers received paid holidays, and 60 percent received paid vacation leave. Government workers’ access to paid holidays and vacation leave was lower than that of their private-sector counterparts, primarily because workers in education occupations typically work 9 or 10 months per year and many do not receive paid holidays.I don't know what they mean here by education workers not receiving "paid holidays." My wife never worked during Christmas, Thanksgiving, election day, and a host of other holidays. I can assure you she was still getting paid.
Tuesday, March 03, 2009
When signing a teenage prospect, scouts in the Dominican Republic have always worried about what they might get, but now they must worry about who they might get. Two weeks ago SI.com revealed that Washington Nationals prospect Esmailyn Gonzalez, who had been signed to a team-record $1.4 million bonus in 2006, was really Carlos Alvarez, and that he was four years older than he had been purported to be. In the wake of the scandal Nationals general manager Jim Bowden resigned and Bowden's special assistant, Jose Rijo, was fired.
Monday, March 02, 2009
Ross will present "Assessor Incentives and Property Assessment" on Friday morning at 10:15 am.
Schaeffer will present "The Role of Private Bureaucracy in Natural Disaster Response and Relief" on Friday morning at 1:45 p.m.
Skarbek will present "Controlling Convicts: How and Why Incarcerated Prisoners Control Street Gangs" on Saturday at 3:45 p.m.
Sunday, March 01, 2009
Venezuelan President Hugo Chavez has ordered troops to immediately take over rice-processing plants in his country, accusing some businesses of ignoring prices set by the government.Recall that I have previously stated that I support Chavez in these interventions, while acknowledging that it may mean that I am evil.
"What are some of the sectors of the agricultural industry doing? They buy rice from producers, and they don't want to produce regulated rice," Chavez said in a televised address Saturday.
"Well, I've ordered the intervention, starting right now, of all those sectors of the agricultural industry."
With that in mind...keep it up Hugo!
If you haven't tried to learn spatial econometrics on your own before, you probably can't appreciate how valuable and necessary this text is. The existing fieldwork was largely without a single reference, and as a result I was frequently frustrated by reading contradictory statements or other material I knew was not correct. Unfortunately, I suffered a rejection or two because I followed the missteps of others that were published (often in very good journals). More frustrating still was when a referee would reject a paper because they misunderstood spatial econometrics.
The last textbook on the subject was Anselin's 1988 text, which is a great work itself, but computing power has greatly changed the realm of possibility, and it didn't give a full treatment to interpreting the results (partly because it wasn't yet understood). Access to it is also very limited, as it is long out of print and fetches a high price on Amazon. The preface of the LeSage and Pace text tries to get this warning across:
Luc Anselin in his influential 1988 text on spatial econometrics provides a strong argument for use of models capable of addressing simultaneous spatial dependence that arises in spatial data samples. However, this concept has made the field somewhat mysterious, and we believe the alternative motivations provided here for use of spatial regression models involving spatial lags of the dependent variable will help demistify the concept.I give this textbook my highest recommendation
Another goal of the text was to aid practitioners with interpretation of spatial regression models, especially those that include spatial lags of the dependent variable. The applied literature contains a number of studies that misinterpret regression results from these models. We provide new methods that produce useful summary measures of the direct and indirect or spatial spillover impacts that arise in these models in response to changes in the explanatory variables.