Wednesday, December 23, 2009

Blockquote X

X = Ron Coase:

It is a striking – and for that matter depressing – feature of economics that it has such a static character. It is still the subject that Adam Smith created. It has the same shape, the same set of problems. Now of course we’ve made improvements, we’ve corrected some errors, we’ve tightened the argument, but one could still give a course based on Adam Smith. In some respects it would be better; in some respects it would be worse. But we could base what we say on Adam Smith.

Tuesday, December 22, 2009

Stealing as Charity: The Distributional Analysis is Interesting but Incorrect

From CNN:
Tim Jones, parish priest of St Lawrence and St Hilda, told his congregation in York, northern England: "My advice, as a Christian priest, is to shoplift."

He continued: "I do not offer such advice because I think that stealing is a good thing, or because I think it is harmless, for it is neither.

"I would ask that they do not steal from small family businesses, but from large national businesses, knowing that the costs are ultimately passed on to the rest of us in the form of higher prices."

If you read the entire argument in context, the shoplifting aspect is not very interesting or even relevant. People who have exhausted all other means might have to resort to stealing if it means survival, and they don't need a priest to tell them that. What is interesting is his distinction between large and small businesses and how "we" pay the social costs.

In essence, his argument is that an individual in a democratic society which has not elected for "enough" benefits should, when at the point of deciding to steal, impose those costs in dispersed form back onto that society rather than concentrating them on any particular individual. That is a really creative argument, but it leaves something to be desired. (It's also an "eye-for-an-eye" argument, which is a bit strange coming from a priest.)

That which is to be desired is the misplaced view that it is a free lunch for society when a small family business fails due to shoplifting. Competition is competition, no matter how large. There is no reason, ex-ante, to think that smaller businesses failing due to shoplifting would have a smaller impact on market prices than large businesses incurring higher costs that are passed on to consumers. Both cases disperse costs far and wide, and perhaps a few individuals will incur a disproportionate share.

Congrats to Michael Cox!!

For successfully defending his dissertation, titled "Exploring the Dynamics of Social-Ecological Systems: The Case of the Taos Valley Acequias." My favorite paragraph was the one that, in my view, was very representative of the Bloomington School's influence:
An additional source of disturbance has been the implementation of state-level policies mandating that the New Mexico Office of the State Engineer (OSE) quantify all water rights and regulate them in accordance with the principle of prior appropriation; a principle which, while underlying the acequias’ claims to their historically used water, may also undermine their common property institutional arrangements. This mandate has been implemented in Taos through a formal water rights adjudication suite referred to commonly as the Abeyta case (State of New Mexico ex rel. State Engineer v. Abeyta and State of New Mexico ex rel. State Engineer v. Arellano), the purpose of which is to quantify and prioritize all of the individual-level water rights in the valley.

Michael is one of our Public Affairs PhD students out of the Workshop on Political Theory and Policy Analysis.

Here is a sample of his work that has a R&R at JEEM. Another chapter of his dissertation has an R&R elsewhere.

Here you can read Elinor Ostrom discuss Michael's scholarly contributions in the context of the Bloomington School in a piece for the Lincoln Land Institute.

He is on the job market this year, so if you are hunting for a candidate please take a look at him. His dissertation committee consisted of Elinor Ostrom (chair), JC Randolph, William Bloomquist, Tom Evans, and myself.

Monday, December 21, 2009

Centralized Planning is a Plan for Failure

Chris Coyne passes along this gem which colorfully illustrates "the plan" for Afghanistan.

Does Corporate Tax Incidence Increase Progressivity?

Yes, according to a new working paper out of the Tax Policy Center by Benjamin Harris:
This paper reaches three related conclusions. First, because wage and capital income are highly correlated, higher-income taxpayers will pay a relatively larger share of the tax, regardless of whether the corporate income tax falls on labor or capital. Second, even if capital income is broadly defined to include income accrued to tax-preferred retirement accounts, this conclusion is little-changed. Third, the incidence of the corporate tax has only a modest effect on overall progressivity simply because the tax collects only a small fraction of federal revenues.

The paper uses the Tax Policy Center microsimulation model to estimate the progressivity of the corporate tax—and the tax code in general—under the alternative assumptions that capital bears 20 percent, 50 percent, or 80 percent of the corporate tax burden. Under all three assumptions, average corporate tax rates generally rise with income, indicating progressivity.

Saturday, December 19, 2009

2009 Gus Rankings: Bowl Edition

As there was only one game last weekend between FBS schools, here are the final Gus Rankings for the regular season. I neglected to put the numbers next to the schools noting their actual rank, but here are the previous week's rankings that should be reflective of this week's rankings.

One big advantage of the Gus Rankings would seem to be its ability to compare teams across conferences. If there only were a natural experiment to test this...oh wait, the NCAA offers 35 games that match teams from different conferences. Let's see how Gus does!

(Justin talked about college bowl games here , and here is a similar experiment I did two years ago.)

The typical format for picking bowl games seems to be to assign a point value to each game and see how many points you can accumulate. You are to give every game a point value between 1 and 35, and you can only use each value once. Naturally, the games you feel most strongly about you will give the most points. The key, of course, is to define "feel most strongly about."

We'll do it as follows. Each team has a point total for the season; the team with the most points in the bowl matchup will be predicted as the winner, and the difference in points will determine the confidence in the game.

So, for which bowl game is Gus most confident? That would be the Chick-fil-A Bowl, with Virginia Tech (42 points) lining up against Tennessee (12). Gus also feel pretty confident about the Gator Bowl, with West Virginia (32) facing Florida State (4).

Least confident? Gus is opinion-free concerning the Holiday Bowl, that has Arizona (28) squaring off against Nebraska (28), and isn't terribly confident about the BCS Championship Game, Alabama (75) and Texas (74), the Texas Bowl, Missouri (18) and Navy (17), and the Champs Sports Bowl, Miami (FL) (33) and Wisconsin (32). We'll use the wisdom of the crowd to break any ties-- 76% of the CBS Sportsline crowd likes Nebraska, so we'll go with them, and we'll follow the same methodology to assign confidence levels for bowls that have the same difference in points.

The first game is this afternoon so you'll need to act quickly, but feel free to pit your strategy against the all-knowing, simple-calculating power that is the Gus Rankings.

Friday, December 18, 2009

Will New Regulations Hurt Non-Profits?

From Reason:
Charged with regulating "financial advice" of all kinds, the massive mandate of the CFPA includes "educational courses," such as the financial literacy program offered by the Girl Scouts, where girls earn badges for learning how money works.

Assuming you think 1,279 pages [PDF] of new regulations on financial institutions are a good idea, Rep. Barney Frank (D-Mass), chairman of the House Financial Services Committee, and his coauthors had no choice but to include nonprofits in the mix. A loophole for all nonprofits begs today's for-profit financial advisers to become tomorrow's nonprofit financial advisers—who just happen to have close ties to a bank. Money has a way of flowing around rules (remember campaign finance reform?) so the bill's authors couldn't let nonprofits off the hook.

But there's another dynamic at work as well. In addition to going soft on drugs, crime, and their wives, congressmen now have to worry about appearing to go soft on nonprofits, thanks to the political and financial mess created by the nonprofit ACORN earlier this year.

I would like to add that my belief has increased since this post that the tax treatment of non-profit status is excessively burdensome for non-profits. For a non-profit group to maintain their tax exempt status, there are a variety of fund raising activities they cannot engage in. For example, a museum must be very careful in their management of any gift shops or cafeterias that they might use for a source of funding. It is quite easy for such an operation to wind up violating their tax exempt status, and many avoid doing so for that reason.

Exempting non-profits from taxation is just another part of the charade that corporations and businesses pay taxes they are levied. They suffer the burden of taxation, yes, but that is quite independent of the manner in which they deal with the IRS. Drop the charade and with it the taxation of business income. Then we can get a better look at what non-profits can accomplish.

A Curious Take on College Education

I can't match Will's economics rap songs (or his developing the phrase "Juicing the Mitchell"-- Will's had a solid first year here at TPS), but I do send along this bit on Pell Grants. Note that the author would certainly fall into the skill accumulation camp, not the signaling camp, for a college education. It's an interesting, if ill-reasoned, take on college education as a whole. My thoughts:

1. The author is skeptical about the ability to determine which colleges are doing well While I agree that it's not exact, I think the situation is nowhere near as dire as the author makes it out to be. Even if it's broad, US News & World Report gives a one-stop picture of colleges and provides a rudimentary metric by which to compare them to each other.

2. The author attributes the inability to track good outcomes with the staggering rise in the price of a college education. I don't see the link. Though I've seen research that attributes over half the rise in the price of a college education to forcing colleges to follow a multitude of regulations.

3. Reputation effects are huge for colleges with regards to which graduates do well and where employers will look in the future based on those previous graduates.

4. Assume colleges were strictly skill accumulation academies. If that's the case, there's a massive information opportunity to provide that information in a condensed, easy to access form. Last I checked, there were a lot of people buying a lot of rankings just like these. See #1.

5. It's puzzling to me why choosing a college based on reputation is bad. I suppose it's because I realize that there's a large signaling process in earning a college degree from a reputable school. Though the author even says "reputations are based on...admissions selectivity..." I mean, sweet crispy Christ, he's right there and still can't see it.

6. In the eyes of the author, the value of college is a function of its ability to teach students. Research is excluded, and even the possibility of teaching being a function of research is ignored.

7. In the broad sense, the intimate that students (and parents) are making information-blind decisions concerning one of the most important choices in their life is a bit juvenile.

This article reaffirms the proposition that anything with "Democracy" in the title-- organization, publication, etc.-- is likely to be heading in the wrong direction.

Keynes vs. Hayek (Word to your mother.)

In what is arguably the most even representation of two viewpoints in the entire history of news reporting, Russ Roberts debates Lord Skidelsky on the merit of adopting Keynesian policy at present. The video also features the Keynes vs. Hayek rap song Roberts wrote (I'll go ahead and apologies for my ridiculous title).

If anyone spots the full version of the rap video, I'd greatly appreciate an email. It does not appear to be available at present.

Thursday, December 17, 2009

Growth is Good for the Holidays

Christmas will no doubt be a little tough for some families this year. ReasonTV reminds us that it will on large part be better than Christmas in the 1970s, thanks to the wonders of economic growth.

Wednesday, December 16, 2009

The Chinese Government vs the E-Bike

According to this Yahoo! video news report (Hat Tip: Jason Oberle), the Chinese government has resurrected regulations that are 10 years out of date to push consumers away from e-bikes. The e-bikes are produced by the private sector, and critics say this is a move to protect their state-owned competitors.

The story also makes an interesting point that many of the e-bike consumers were looking to switch away from cars, so there may be an environmental consequence as well.

Tuesday, December 15, 2009

Blockquoting X

X = Paul Samuelson:
[...] there is no sight in the world more awful than that of an old-time economist, foam-flecked at the mouth and hell-bent to cure inflation by monetary discipline. God willing, we shan't soon see his like again.
And, in honor of Samuelson, today's edition of Blockquoting X will be a double feature. This one comes from the 1970 edition of his textbook:
"What good does it do a black youth to know that an employer must pay him $2.00 an hour if the fact that he must be paid that amount is what keeps him from getting a job?"

[HT: David Henderson @ Econlog]

Monday, December 14, 2009

Structural vs Atheoretical Econometrics

Forthcoming in the Journal of Econometrics, by Michael Keane:
In this paper I attempt to lay out the sources of conflict between the so-called “structural” and “experimentalist” camps in econometrics. Critics of the structural approach often assert that it produces results that rely on too many assumptions to be credible, and that the experimentalist approach provides an alternative that relies on fewer assumptions. Here, I argue that this is a false dichotomy. All econometric work relies heavily on a priori assumptions. The main difference between structural and experimental (or “atheoretic”) approaches is not in the number of assumptions but the extent to which they are made explicit.
If I can return to this after finals week, I will try and add some comments regarding the content. For now, I just suggest that it is worth a read and some thought.

Wednesday, December 09, 2009

Congrats to the Duquesne Econ Majors!

A hearty congratulations to the economics majors at Duquesne who recently finished up their senior theses. All of the topics were great, here's a slice of the ideas:

Forecasting's Final Destination: How Well Can Individuals Predict Their Own Death?

Fix or Float: Why Do Countries Choose Different Exchange Rate Regimes?

How Do Psychological Clues Alter Our Discount Functions?

Does State Monopoly Control on Alcohol Deter Alcohol-Related Traffic Fatalities?

The Impact of Legislative Term Limits on State Infrastructure Spending

Moral Hazard in Baseball: Does Relief Pitching Increase Hit Batsmen?

Great work! At some point in the (hopefully) near future these should be online for all to read.

Juicing the Mitchell: BCS Edition

Anyone up for a little morning Juice? Today's installment, boldface is mine:

The Subcommittee on Commerce, Trade, and Consumer Protection will consider a bill that would allow the Federal Trade Commission (FTC) to prohibit any bowl game from calling itself a "national championship" unless the game is "the final game of a single elimination post-season playoff system." The subcommittee is expected to vote on the proposal on Wednesday after a line-by-line consideration of the bill.

"With everything going on in the country, I can't believe that Congress is wasting time and spending taxpayers' money on football," Bill Hancock, the BCS executive director, said in a phone interview with The Associated Press. "We feel strongly that managing of college sports is best left to the people in higher education."

All considered, we here at TPS feel strongly that managing sports is best left to those in Congress.

As a side note, I don't like the default response of "we want to fix this and we're going to do it through regulation." Why not do it through the following: Universities are nonprofit entities, which means they get favorable tax status on a wide swath of income-generating activities. If we're going to coerce schools into acting a certain way-- not justifying the action-- why not threaten to remove their favorable tax position? I think the schools would respond as desired, they wouldn't end up any different on their bottom line (as separate from a different bottom line from a playoff vs. a BCS system) since they'd ultimately maintain their current tax position, and we wouldn't have the troublesome side effects inherent in regulation. Note the teeth of the bill:

The bill would give the FTC the authority to regulate the college football postseason with the power to obtain injunctions and to assess huge fines against any organization that promotes a "national championship game."

You don't think someone could find a way around that? What about calling it the "Game to Decide the Best Team in College Football" instead? Maybe that still falls under the expanding jurisdiction of the FTC but you get my drift.

Not that taxation or regulation is ever a desirable outcome, but given the choice, I'd go for a more evenly applied tax code than shoveling on more regulation. Splitting hairs, perhaps, but I don't like the default position.

UPDATE: The relevant subcommittee moved the bill forward this morning.

An Optimistic View of Taliban Pay

"There is no set pay scale, but by our intelligence, they are paying the equivalent of about $300 a month and that is higher than we are paying Afghan army or police," McChrystal told the Senate Armed Services Committee, where he testified on Tuesday.
"In coordination with the Afghan government, we just almost doubled Afghan army and police training [pay]. It is in parity now. It is less than $300 a month but it's much closer," he told the committee.

"Almost doubling" indicates prior pay was in the neighborhood of $150 a month. It's no surprise then that the Afghan Security Forces have suffered from corruption charges and desertion– especially in the face of higher Taliban pay.

Anyone else find the news that the Taliban pay more than the Afghan Security Forces somewhat encouraging?

I do. The reason is because it gives us a clue about the direction of the compensating differentials. Like any organization with scarce resources, the Taliban probably only pays the competitive wage it needs to get the people they want. When the people they want are looking for employment, the Taliban finds itself needing to pay double the ASF to retain and attract. In other words, at the margin people would rather work for ASF than the Taliban (admittedly for reasons that are not necessarily ideological).

Again, I consider this good news because it revises my priors. True, the observed pay of the ASF may not match the actual compensation because of corruption and bribery, and so it could be that pay is roughly equivalent. However, corruption and bribery of ASF employees is not new information, as I think we all had a pretty good handle on the fact that this was occurring.

More Moral Portfolio Theory: Ethical Consumption Edition

From Slate:
But new research by Nina Mazar and Chen-Bo Zhong at the University of Toronto levels an even graver charge: that virtuous shopping can actually lead to immoral behavior. In their study (described in a paper now in press at Psychological Science), subjects who made simulated eco-friendly purchases ended up less likely to exhibit altruism in a laboratory game and more likely to cheat and steal.

In an experiment, participants were randomly assigned to select items they wanted to buy in one of two online stores. One store sold predominantly green products, the other mostly conventional items. Then, in a supposedly unrelated game, all of the participants were allocated $6, to share as they saw fit with an anonymous (and unbeknownst to them, imaginary) recipient. Subjects who had chosen items from the green store coughed up less money, on average, than their counterparts. In a second experiment, participants were again assigned to shop in either a green or conventional store. Then they performed a computer task that involved earning small sums of cash. The setup offered the opportunity to cheat and steal with impunity. The eco-shoppers were more likely to do both.
Also, I would argue that voting is a type of "ethical consumption."

Tuesday, December 08, 2009

Markets in Everything: Prison Gifts

If you're feeling the Holiday Spirit for those naughty kids who don't anticipate Santa coming by on December 25th, you can order a prison gift package for a special someone incarcerated at the Men's Central Jail in Los Angeles (the largest jail in the world). "LA Gift Pack #6" is guaranteed to make an inmate feel loved this Christmas season!

Monday, December 07, 2009

Hayek Caricature

Tonight I googled "Hayek Caricature" in hopes of finding more pictures like the one above (from Cafe Hayek). Instead, I got this. Imagine my embarrassment.

I'll take this as a sign that I have officially lost touch with the outside world.

Too Poor to Not Be Audited by the IRS

Seattle Times:
It all started a year ago, when Porcaro, a 32-year-old mom with two boys, was summoned to the Seattle office of the Internal Revenue Service (IRS). She had been flagged for an audit.

She couldn't believe it. She made $18,992 the previous year cutting hair at Supercuts. A few hundred of that she spent to have her taxes prepared by H&R Block.

"I asked the IRS lady straight upfront — 'I don't have anything, why are you auditing me?' " Porcaro recalled. "I said, 'Why me, when I don't own a home, a business, a car?' "

The answer stunned both Porcaro and the private tax specialist her dad had gotten to help her.

"They showed us a spreadsheet of incomes in the Seattle area," says Dante Driver, an accountant at Seattle's G.A. Michael and Co. "The auditor said, 'You made eighteen thousand, and our data show a family of three needs at least thirty-six thousand to get by in Seattle."

And "Getting by" means what?

Hat Tip: Kipesquire

The Benefits of Identity Theft

Here's a bit from CNN on the "hidden costs of identity theft." It got me to thinking-- if we do a cost-benefit calculation, are we overstating or understating the costs? I think it's the latter.

Let's go through the costs. The individuals in the story had a particularly rough go of it-- credit cards, cars and even houses all against their once good name. Any direct fiduciary responsibility that trickled back to the couple and any losses due to compromising credit scores are certainly costs born the victims. The point of the story is that there's an emotional side to the matter as well-- indeed, that's a also a cost.

I'd imagine the couple is probably taking some proactive action to prevent any further harm. This, also, is a cost of identity theft-- think about a business that has to spend money on doors and locks at the warehouse. Those are resources that can't move into the productive process-- ergo, more costs. A wide range of people incur this cost due to the possibility of identity theft-- you don't need to be a victim to feel this one.

Online companies know that potential customers are concerning with the security of their websites; they go to great length to emphasize the safety of the shopping experience. My question is this: Could it be possible that the preemptive security measures taken by online companies get more people to shop online than if the entire identity theft issue had ever come up?

It seems a bit foolish to write that just now, but let's consider the following: There exists Option A, something you've never heard of, or even if you have, you haven't considered it seriously but would nonetheless enjoy. There exists a similar Option B, something you also haven't heard of or hadn't seriously considered but would still enjoy, but suddenly you hear that not only has Option B once had problems, there have been significant strides to mitigate the problem. Wouldn't that seem-- rightly or wrongly-- to take some of the risk out of Option B? I think you could make the argument that Option B might, all said and done, see a bit more activity due to the problem and its solution. And that effect, whatever its size, has to be viewed as a benefit of identity theft.

So it's my thought that we're overstating the impact here. I'm curious if anyone else has a take on the issue.

Sunday, December 06, 2009

2009 Gus Rankings: Week 14

Ahead of tonight's BCS Selection show, here are the Gus Rankings for Week 14. Boise made a strong move to the #4 spot, and Florida fell only two spots to #3. At this point, assuming Alabama and Texas make the title game, the winner would take the Gus Rankings Championship Trophy.

Gus still favors Iowa over Penn State; I think the Paterno effect is overrated, and that aside, it's tough to take Penn State over Iowa when they lost at home to that very team.

Wednesday, December 02, 2009

Nerding Out

I really enjoyed this Arnold Kling comment on a recent MR post:
Suppose that the credibility of a scientist is a function of two variables: (1) the evidence he offers; and (2) the strength of his beliefs. I am willing to allow the partial derivative of (2) to be positive and to stipulate Tyler's argument that faking data is a signal of strength of beliefs. But the partial derivative of (1) is much stronger, and fake data enters with a negative sign.
In other words, C=f(E,B), with the first partial derivatives being positive. But, I think the real interest being expressed here is in the nature of the second derivatives, especially the cross partials:

Fundamentally, what are the signs of the off-diagonal elements? As a general rule the Hessian Matrix is symmetric, but would that makes sense in this particular case? The signs on the diagonal elements are interesting too...are there increasing, diminishing, or constant returns to credibility in either evidence or beliefs?

Piratical stock exchanges

They're not The Invisible Hook's pirates, but they're just as interesting. Check out this excellent piece on the present-day pirates from the Financial Post. Some good bits:

In Somalia's main pirate lair of Haradheere, the sea gangs have set up a cooperative to fund their hijackings offshore, a sort of stock exchange meets criminal syndicate.
"Four months ago, during the monsoon rains, we decided to set up this stock exchange. We started with 15 'maritime companies' and now we are hosting 72. Ten of them have so far been successful at hijacking," Mohammed said.

"The shares are open to all and everybody can take part, whether personally at sea or on land by providing cash, weapons or useful materials ... we've made piracy a community activity."


"The district gets a percentage of every ransom from ships that have been released, and that goes on public infrastructure, including our hospital and our public schools."

Tuesday, December 01, 2009

2009 Gus Rankings: Week 13

Here are this week's Gus Rankings. Texas keeps the top spot, but should relent the position next week to the winner of Florida and Alabama regardless of their performance. The winner of the SEC title game adds 11, compared to Texas' potential 9 point gain, and both Florida and Alabama stand to gain an additional point if Florida International wins their game against Florida Atlantic.

Random fun fact: There are no one-loss teams in the Gus Rankings, nor in I-A college football.

At this point, the four BCS at-large teams, according to Gus, are the Florida/Alabama loser, TCU, Boise State and Iowa (with Texas, Oregon and Cincinnati winning their respective games). If those teams win, I do think those are the four that will be selected. Of course, that's a big if when dealing with 20-year olds and a lot of pressure. Check back next week to see how it all shakes out. But at this point, Gus predicts the following:

Championship: Alabama/Florida winner vs. Texas
Rose: Oregon (Oregon State) vs. Ohio State
Fiesta: TCU vs. Iowa
Sugar: Alabama/Florida loser vs. Boise State
Orange: Cincinnati (Pittsburgh) vs. Georgia Tech

Gus would likely suggest Cincinnati for an at-large position if they lose--taking Iowa's spot--though I (surprisingly) haven't heard much on this margin from those in the know.

Should be interesting to see how it all falls!

File this under: Regulation of the day, pointless

Does the idea of contracting a debilitating skin condition from allowing un-sterilized Chinese fish eating away at the dead skin on your feet keep you awake at night? Don't worry, the government is here to protect you.

As a side note, I wonder what the correlation between the labels "Regulations" and "Bad Economics" is?

How to Increase Social Welfare by Not Voting

Suppose you and your spouse are both voters with opposite political views. As a result, on election day you both show up to the ballot box and simply cancel each other out. Regardless of how you both valued the alternative outcomes, if one always cancels out the other while each incurring the cost of voting, this is a net social loss. If you and your spouse could simply agree to not vote, you would not incur said cost and improve social welfare.

If you vote, or plan to vote in the next election, you could similarly improve social welfare by finding another voter who would otherwise cancel your vote out and find a way to similarly ensure that you both abstain from voting in the next election. Perhaps you could both unregister to vote at the same time or maybe write a contract that requires your political opposite to compensate you if they register to vote.

If these transaction costs are lower than the costs of voting, you have yourself a net increase in social welfare. The less likely you are to be the median voter, the greater the social savings will be. In other words, the further in advance you know who you're voting for, the more benefit you'll confer to the world by just staying home with your new friend.

Perhaps a entrepreneur can arrange a website to lower the transaction costs and help political yangs find their yins.