In honor of the Census postcard, following the Census letter, notifying me of the forthcoming Census form

Do enjoy the first 50 seconds of this video!

Futurama	Weeknights, 9p/8c
Bureaucrat's Joy
www.comedycentral.com
Joke of the Day Stand-Up Comedy Free Online Games

My Fiscal Debt Prediction

Here is Mankiw's:

My own guess is that the United States will raise taxes substantially, and taxes will reach levels as a percentage of GDP never seen in U.S. history (although common in Europe). The politics of that will be fascinating to watch. If the political process is stymied as our leaders debate the relative merits of tax hikes versus spending cuts, bond investors may get nervous, and we could get witness either the Krugman inflation scenario or the much less likely default scenario.

I actually see the default scenario as the most likely out, perhaps because my guess of what future tax rates will have to look like are higher. Not only do I expect them to be higher than in Europe, but more importantly I expect Americans to be far more disdainful of higher tax rates to pay off the previous generation's debt. I could see a lot of Americans accepting high taxes for European-level services, but that's not what they would be getting.

Note that I am certainly not making an economic argument, but a political forecast, which is well outside the domain of my expertise.

Blockquoting X

X = Steven Landsburg, from his new book The Big Questions:

It takes a profound ignorance of science to believe that God created the world six thousand years ago. It takes an equally profound ignorance of economics to believe that protectionism--the use of quotas and tariffs to discourage the importation of foreign goods--can make us more prosperous.

It's true that a small number of working scientists manage to embrace some form of creationism, and a small number of working economists manage to embrace some form of protectionism--but in each case we're talking about tiny (though sometimes vocal) minorities. The vast majority of the time, scientific knowledge precludes creationism and economic knowledge precludes protectionism.

There's a difference, though: The case against creationism relies largely on facts about the fossil record and geologic strata, while the case against protectionism relies primarily on logic. The facts that refute creationism are discovered and reported by scientists; the rest of us have to take it on faith that those scientists are being truthful. By contrast, the logic that refutes protectionism is available for anyone to evaluate from scratch.

Therefore it seems to me that the protectionist's position is even less respectable than the creationist's. If you're convinced that most scientists are liars--that everything they say about fossils, for example, is false--then you can be a logically consistent creationist. But you can't be a logically consistent protectionist (p. 51).

Markets in Everything: Purse Theft Insurance

In Latin America, $2/month premium, very interesting throughout:

Blockquoting X

X = Richard Timberlake.

A central bank and a gold standard are incompatible, if the central bank is actually doing anything. [...] By and large it's the case, as Thomas Hobbes put it, if two men ride on a horse, one has to ride in front.

Best Morning Sentence

This comes from Will Wilkinson during his "most influential book" list, specifically with regard to Charles Murray's book on education:

And it helped me understand the difference between trying hard to honestly think through tough social problems because you care and mouthing comfortable pieties in an effort to get credit for caring.

Blockquoting X

X = F. A. Hayek from Law, Legislation, and Liberty (volume 3) p. 99:

It is at least conceivable, though unlikely, that an autocratic government will exercise self-restraint; but an omnipotent democratic government simply cannot do so.

Central Bank Reform

I just got back from the annual Public Choice meeting (held in beautiful Monterey, CA). While there, I had the pleasure of discussing Sven-Olov Daunfeldt's paper on central bank reform. Here's the abstract:

This paper is a first empirical attempt to investigate why politicians around the world have chosen to give up power to independent central banks, thereby reducing their ability to fine-tune the economy. A new data-set covering 132 countries, of which 89 countries had implemented such reforms, was collected. Politicians in non-OECD countries were more likely to delegate power to independent central banks if their country has been characterized by a high variability in historical inflation and if they faced a high probability of being replaced. No such effects were found for OECD-countries.

You can find the full version here.

Questions: On Food Taxes to Fight Obesity?

One of the popular proposed mechanisms for fighting obesity has been various proposed food taxes. At the least, states looking to raise taxes seem to be using this as a justification for moving on the food taxes. Consider this recent article:

According to a new study published in the Archives of Internal Medicine, increasing the price of soda by 18 percent would result in a decrease in overall sales, leading to fewer calories a day for regular soda-drinkers.

For years, nutrition experts have recommended a federal tax on soda and other sugary drinks to cut consumption of high-calorie, unhealthy drinks and to help obese Americans lose weight.

Just for the sake of argument, let's accept the following propositions as being true: An obese individual confers a negative externality upon others. Taking this as a given, here are my questions:

1. Why is it to be believed that the obese (or potentially obese) are unaware of the social consequences of their weight? This explanation is necessary to justify an obesity motivated tax on Pigouvian grounds.
   
2. How would you reconcile this argument with the near universal view that society places too much emphasis on body image?
   

We Told You So

"We" being economists. The Oregonian (HT: Art Carden) has the story of Chinese "sweatshops" so derided in the past by critics being a excellent source of prosperity.

Here is Paul Krugman in praise of cheap labor.

Tourney Predictions

We here at TPS have a healthy appreciation for college football rankings, but it's college basketball time, so let's turn our attention that direction. In my life, the number of people that have filled out a bracket far outweigh the number that have not, but what interests me are the folks that attempt to predict what the bracket itself is going to look like. The most popular iteration of this process is probably Joe Lunardi, whose Bracketology has shown a remarkable gain in popularity in recent years.

Naturally, I wondered how accurate these predictions end up being. There are four smaller brackets of sixteen teams each and, all put together, there are 65 teams invited to the tournament (there is a play-in game for one of the 16-seed lines). That means four 1-seeds, four 2-seeds, etc., all the way though the 16-seeds. So the question was: How accurate is Joe Lunardi?

Naturally, whenever I have sports questions, I fire an email to TPS Sports Correspondent Rob Holub, and he sent along the following (excellent) assessment of bracket guesses.

It turns out there's a lot more people besides Joe Lunardi guessing! But there's something I found interesting in that rundown. Note that every guess is scored and then compared to the others within that year. Some years may be harder than others to figure, so the variance calculation controls for that. But note the variance of the variance-- the dispersion of within year performance by guesser. Ultimately, people don't consistently perform better (or worse) than average. To be certain, when you average these variances, you can generate an order of who has done best-- you can argue about how appropriate a simple mean is for determining the most successful guesser from the underlying ratings, as well as the scoring matrix in the first place, but it's a legitimate first stab at the issue-- but outside of a few individuals, most people have comparatively successful years followed immediately by comparatively unsuccessful years. The range within each guesser is generally over 10, and (just glancing) more often than not over 20.

How to account for that?

- The NCAA Selection process is notoriously secretive, though strides have been made in recent years to try and provide a bit more clarity to the process. (Individuals have been invited to mock selection meetings, though I don't have any links at the moment.) Could it be that there's a degree of information concerning the selection process that can never be incorporated? If the selection process remained the same from year to year-- namely, standards for selection into the tournament and the individuals making the decisions-- then this information should be accessible. Yes, teams and the distribution and nature of performance changes year to year, but so long as the standards stay the same, this shouldn't matter in the long run. The problem, as I see it, is that standards may stay de jure similar, but the individuals making the decision change, and the former is necessarily a function de facto of the latter. So as long as new people as continually cycled into the selection process, there may be reason to believe that there's a degree of uncertainty that can't be overcome (and if we believe the previous calculations, it could be a significant amount).

- The bracket itself is very sensitive to errors. In theory, you could have seeded every single team correctly yet have none of the match-ups correct. Also, you could have correctly identified every team selected for the tourney but actually earn zero points according to this ranking system. This could be a factor for the large dispersion in variance-- very minor errors can lead to big point differences.

- As a side note, I am curious if there is a betting market for bubble teams-- teams on the cusp of making or not making the tourney-- and I'm curious how well they incorporate information as the time gets closer. (Though that's not exactly what the above rankings measure.)

Any further thoughts?

Who Issued that Toyota Recall?

From MercuryNews.com:

The fact that the November 2009 recall of 3.8 million vehicles was initiated by Toyota — while the National Highway Traffic Safety Administration declined to reopen a closed investigation into potential Toyota defects — highlights the private sector's incentive to compensate for perceived problems. Worldwide voluntary recalls on the part of Toyota confirm this.

That of course, is TPS blogger Emily Schaeffer.

One unintended consequence of Congress parading Toyota executives around for political gain is that they are probably more likely to discourage the future discovery of problems rather than incentivize their up-front correction (on the margin, of course).

Friday's Radio Spot

The good folks at Pittsburgh Business Radio had me back last Friday, you can find the audio here. I'm with a colleague of mine, Bill Carlson, so this one's a bit longer than the last one-- about 90 minutes. We talked about banks and CEO compensation, among other topics.

Professor fired over facebook status

From ABC News (HT: Jason Oberle):

Gloria Gadsden, a sociology professor at East Stroudsburg University in Pennsylvania, says she was suspended last week after updating her Facebook status with complaints about work that alluded to violence.

In January, she wrote: "Does anyone know where I can find a very discrete hitman? Yes, it's been that kind of day…" Then in February: "had a good day today. DIDN'T want to kill even one student. :-). Now Friday was a different story."

Gadsden says she posted the comments in jest, on a profile she thought could only be seen by friends and family. She says officials were notified of the posts by a student -- even though she says she had no students in her "friend" list.

My Favorite Negative Book Review

For those who haven't heard, Professor Joseph Weiler is facing criminal charges for publishing a negative book review, and has asked others dig up far more negative reviews so that he may prove this one is nothing out of the ordinary. Steven Landsburg published his nominee here. Here is mine, written by Edward Snyder (University of Chicago) and published in the prestigious Journal of Economic Literature on "Confessions of an Economic Hit Man." Here is the opening paragraph:

This awful autobiography is mostly about conspiracies orchestrated by the U.S. corporatocracy and the troubled global economy. John Perkins writes in an absurdly comical way, offering at the outset that this "is a true story" that "must be told" (p. x). Whether it is worse on the conspiracy or economy dimension is not obvious. A more worthy question that I'll address later is how Confessions became a New York Times best seller.

The whole review is worth reading. Confessions is not.

Blockquoting X

X = Hayek from Law, Legislation and Liberty volume 1 (p. 51).

While it is sensible to supplement the commands determining an organization by subsidiary rules, and to use organizations as elements of a spontaneous order, it can never be advantageous to supplement the rules governing a spontaneous order by isolated and subsidiary commands concerning those activities where the actions are guided by the general rules of conduct. This is the gist of the argument against 'interference' or 'intervention' in the market order. The reason why such isolated commands requiring specific actions by members of the spontaneous order can never improve but must disrupt that order is that they will refer to a part of a system of interdependent actions determined by information and guided by purposes known only to the several acting persons but not to the directing authority. The spontaneous order arises from each element balancing all the various factors operating on it and by adjusting all its various actions to each other, a balance which will be destroyed if some of the actions are determined by another agency on the basis of different knowledge and in the service of different ends.

Commenter Accountability

Following a more recent MR post to an older one of TC's analysis of the Pinochet regime's economic consequences, I noticed this in the comments from "neil" (bold emphasis added):

Also, Santiago (with over a third of Chile's population) has an odd, privately-owned public transportation system, where drivers own their own buses and keep their fares. This has been nothing short of disaster -- inefficient, as every bus route goes through the crowded center, more profitable than operating more efficient feeder routes, leading to hundreds more buses clogging the streets than are needed; dangerous, since bus drivers race each other in competition for passengers (I have personally been on a bus that hit a pedestrian and didn't stop, as well as in a car that was hit by a bus which didn't stop); polluting, since drivers have plenty of incentive to keep old, broken buses on the road rather than buying new ones; and not even really privatized since all of the dozens of bus companies raise fares simultaneously (and also band together for strikes against attempted governmental interference). If there was ever a place for central planning, it's here.

Posted by: neil at Dec 20, 2006 12:22:39 PM

"neil" got his wish, and how did that turn out?

Snow and Parking in Pittsburgh

Here in Pittsburgh, if there is snow on the road and you clear the snow from and around your car in its on-road parking space, you have established de facto property rights over the space. Evidently, Pittsburghers are quite Lockean. (Freakonomics writes about the phenomenon briefly here.)

What's fun about it? It's totally unplanned. Most people respect the fact that if you dig out a parking space, you should enjoy the fruits of your labor. So, people leave a chair or a laundry hamper to show intent to return and use the space. By in large, this system seems to work pretty well here. I get a kick out of seeing assorted wares near the side of the road, but I haven't heard anyone complain about it. (Unlike my neighbors.) Incentives fall to dig out the space if the space can be occupied when you return (though I think the effect is smaller than at first glance). All in all, it's nice to see what people can work out for themselves-- and remember, if the city government were effective at removing snow, this practice would not have evolved in the first place.

Why talk about it now? One municipality here, Dormont, has decided it's gone far enough. Starting today, anyone that leaves an item in the road will have that item removed.

It's government against social norms here in Pittsburgh! Situations like these generally don't have clean outcomes.

Do Econ Majors in Congress Vote Against the Minimum Wage?

Forthcoming in Public Choice by O'Roark and Wood:

Much has been made about the lack of economic education among the public at large, yet little has been said about the limited education of Members of Congress. This paper examines the economic education levels of Members of Congress voting on the 2007 increase in the minimum wage. Controlling for a variety of characteristics of members and constituents, this study finds that members who majored in economics as undergraduates were less likely to vote for the minimum wage increase than their colleagues. No other major had a consistent influence. A large number of statistical specifications confirm the robustness of the finding.

"Economists are Rude"

That is in the opening 2 minutes of the video below, and being in an interdisciplinary school, I can appreciate that observation.

The subject of the talk, however, is the always interesting Bill Fischel on the history of school district formation. The underlying theme is contrasting the various views on why school district consolidations took place, one being that it was driven by the enlightened elite compared to the view that it was driven by competition in local public goods:

You can find Fischel's most recent book on schools and local government here.

Global Warming Update

You've heard plenty about Climategate, and there's more to shake out, but here's a decent story from the London Telegraph that wraps together quite a bit of it. The author has a bone to pick, but this part was interesting:

Put the errors together and it can be seen that one after another they tick off all the central, iconic issues of the entire global warming saga. Apart from those non-vanishing polar bears, no fears of climate change have been played on more insistently than these: the destruction of Himalayan glaciers and Amazonian rainforest; famine in Africa; fast-rising sea levels; the threat of hurricanes, droughts, floods and heatwaves all becoming more frequent.

All these alarms were given special prominence in the IPCC's 2007 report and each of them has now been shown to be based, not on hard evidence, but on scare stories, derived not from proper scientists but from environmental activists. Those glaciers are not vanishing; the damage to the rainforest is not from climate change but logging and agriculture; African crop yields are more likely to increase than diminish; the modest rise in sea levels is slowing not accelerating; hurricane activity is lower than it was 60 years ago; droughts were more frequent in the past; there has been no increase in floods or heatwaves.

A smattering of our posts on climate change here, here and here.

African Poverty

Still not the best place in the world, but things have been improving. Here's the abstract from a new paper by Sala-i-Martin and Pinkovskiy:

The conventional wisdom that Africa is not reducing poverty is wrong. Using the methodology of Pinkovskiy and Sala-i-Martin (2009), we estimate income distributions, poverty rates, and inequality and welfare indices for African countries for the period 1970-2006. We show that: (1) African poverty is falling and is falling rapidly; (2) if present trends continue, the poverty Millennium Development Goal of halving the proportion of people with incomes less than one dollar a day will be achieved on time; (3) the growth spurt that began in 1995 decreased African income inequality instead of increasing it; (4) African poverty reduction is remarkably general: it cannot be explained by a large country, or even by a single set of countries possessing some beneficial geographical or historical characteristic. All classes of countries, including those with disadvantageous geography and history, experience reductions in poverty. In particular, poverty fell for both landlocked as well as coastal countries; for mineral-rich as well as mineral-poor countries; for countries with favorable or with unfavorable agriculture; for countries regardless of colonial origin; and for countries with below- or above-median slave exports per capita during the African slave trade.

Note #3 from the abstract-- a popular (ill-guided) concern over African growth is that income inequality will result, and that's bound to cause problems. The latter is debatable, but the former isn't the case.

Unions vs. School Districts: Rhode Island edition

Not sure that the teachers themselves are the problem, but it's a bold move to fire every single teacher at a high school. In a world of marginal movement, change rarely comes in large doses so it'll be interesting to see where all this settles. I'd like to think that it would lead to some market based efforts to improve the failing school district, but I can't help but to think that this situation, in the end, will be a net gain for the teacher's union.

The Art of Not Being Governed

"In one sense, the difficulty of moving grain long distances, compared with the relative ease of human pedestrian travel, captures the essential dilemma of Southeast Asian statecraft before the late nineteenth century.

...

Imagine a map constructed along these lines, designed to represent relative degrees of potential sovereignty and cultural influence. One way of visualizing how the friction of distance might work is to imagine yourself holding a rigid map on which altitudes were represented by the physical relief of the may itself. Further, let's imagine that the location of each rice-growing core is marked by a reservoir of red paint filled to the very brim. The size of the reservoir of paint would be proportional to the size of the wet-rice core and hence the population it might accommodate. Now visualize tilting this map...

The angle at which you had to tilt the map to reach particular areas would represent, very roughly, the degree of difficulty the state would face in trying to extend its control that far."

That's from the terrific The Art of Not Being Governed by James C. Scott, I'm working my way through it.

Expiration Dates as Self-Regulation

Expiration Dates are "meaningless," from Slate:

Such disparities are a consequence of the fact that, with the exception of infant formula and some baby foods, package dates are unregulated by the federal government. And while some states do exercise oversight, there's no standardization. A handful of states, including Massachusetts and West Virginia, and Washington, D.C., require dating of some form for perishable foods. Twenty states insist on dating for milk products, but each has distinct regulations. Milk heading for consumers in Connecticut must bear a "Sell by" date not more than 12 days from the day of pasteurization. Dairies serving Pennsylvania must conform to 14 days.

That dates feature so prolifically is almost entirely due to industry practices voluntarily adopted by manufacturers and grocery stores. As America urbanized in the early 20^th century, town and city dwellers resorted more and more to processed food. In the 1930s, the magazine Consumer Reports argued that Americans increasingly looked to expiration dates as an indication of freshness and quality. Supermarkets responded and in the 1970s some chains implemented their own dating systems.

So in actuality, the meaning of the date is a very complex phenomenon that is specific to the individual traits of the food and the intended quality level, and yet it is one that we seem to work with very well.

The Slate writer sees this all as a problem that needs to be fixed, while acknowledging that people seem pretty good at deciding when their food is good to eat. She also raises concerns about the next E. coli outbreak, but last I checked those (as seldom as they are) are probably even less likely to originate from you not throwing your milk away sooner.

Shifting Coalitions?

Political parties are interesting as they often bring together diverse individuals who agree on a core set of issues but disagree over what appear to be less important issues. Since the importance of this or that issue depends on what political cards are currently being played and what cards are anticipated in the future, the core set of issues might change from time to time. If there is wide spread disagreement about those issues outside the core, coalitions are likely to shift through time. Perhaps we are on the verge of such a shift.

To simplify, we can think of the GOP at present as being comprised of three groups: neocons, traditional conservatives, and neoliberals. Neocons are in favor of interventionism, both home and abroad. Traditional conservatives support free markets, but also support "traditional conservative values" and don't mind using the state to enforce said values. Neoliberals are in favor of free markets and, even though some may share the conservative values of their traditional conservative allies, they do not advocate using government power to legislate those values. I do not see the neoliberals and neocons finding common ground. So the question is: will traditional conservatives downplay their state-supported values in order to side with neoliberals or reject their free market stance in order to side with neocons?

The sides have been drawn but it isn't clear how things will end. Consider these two videos from CPAC.




It should be interesting.

Why Didn't Springfield Get Richer?

Because the dome was just like a policy that rhymes with "Shromectionism."

Inspired by Art Carden's excellent Simpson's image heavy presentation for the students of SPEA.

Closing State Deficits

The Center on Budget and Policy Priorities offers A Balanced Approach to Closing State Deficits. Since we here at TPS embrace shameless self-promotion, I will note that they favorably cite my TF paper on Movie Production incentives (pp. 4-5).

A Plea for Economic Freedom: Gilmore Girls Edition

Destiny decided that my wife would start watching Gilmore Girls just so that I would get to see this scene (no video as far as I can tell):

LUKE: I look at a thousand apartments, I choose yours. How is that possible?

TAYLOR: Well, count yourself lucky, you. With me as the owner, there is a level of quality control that is sorely lacking in this town. For example, at all my properties, we measure the grass before, during, and after mowing to attain a perfect inch and a half height, which is both pleasing to the eye and good for the grass.

LUKE: All of your properties?

TAYLOR: Ten in all.

LUKE: Ten properties? What are you, buying up the town?

TAYLOR: Not yet, but someday – who knows?

LUKE: But why isn’t anyone stopping you?

TAYLOR: Because, my friend, people are lazy. They don’t wanna think about the proper fabric for an awning or the correct historical color for a building. They just slap any old thing up on a wall and sleep like babies. But soon, hopefully, the city council will put an end to that.

LUKE: Taylor, you cannot tell people what color to paint their buildings!

TAYLOR: Well, someone has to.

LUKE: No, they don’t. We don’t live in a fascist country.

TAYLOR: Oh, this isn’t about the fascists – who, by the way, had their faults but their parks were spotless.

LUKE: I have to get out of here.

It goes on, but you get the idea.

Blockquoting X

X = Mises, Liberalism (27-28).

Nowhere is the difference between the reasoning of the older liberalism and that of neoliberalism clearer and easier to demonstrate than in their treatment of the problem of equality. The liberals of the eighteenth century, guided by the ideas of natural law and of the Enlightenment, demanded for everyone equality of political and civil rights because they assumed that all men are equal. God created all men equal, endowing them with fundamentally the same capabilities and talents, breathing into all of them the breath of His spirit. All distinctions between men are only artificial, the product of social, human—that is to say, transitory—institutions. What is imperishable in man—his spirit—is undoubtedly the same in rich and poor, noble and commoner, white and colored.

Nothing, however, is as ill-founded as the assertion of the alleged equality of all members of the human race. Men are altogether unequal. Even between brothers there exist the most marked differences in physical and mental attributes. Nature
never repeats itself in its creations; it produces nothing by the dozen, nor are its products standardized. Each man who leaves her workshop bears the imprint of the individual, the unique, the never-to-recur. Men are not equal, and the demand for equality under the law can by no means be grounded in the contention that equal treatment is due to equals.

Still Hope for Indiana Polycentricity

Indiana is still trying to figure out what to do with township governments in the state. To simplify massively: the dominant push is towards centralizing government to the county level, and the conventional view for the existence of pushback is that township-elected politicians/bureaucrats are undermining rationality. I agree that there is a problem when revenues are collected at the township and services are provided by the county, but I would go towards the route of decentralizing services from the county back to the townships, rather than centralizing the revenues to the county. A matter of taste, I guess. In the meantime, the absurdly idealistic goals for this process are the primary hurdle:

Still, a lack of direction hasn’t stopped chatter about nixing township government. Legislators have narrowed the number of possible solutions to about three: abolishing township government completely, getting rid of township boards but keeping elected trustees in each township or letting a voter referendum decide on the changes. But perhaps the most intractable problem for state leaders seems to be finding a solution that fits the needs of all 1,008 townships in the state.

Yes, a Pareto-improving state policy for >1K entities probably will be a challenge.

The Market for Fake Job References

CNN has the story here, of CareerExcuse.com, which will provide "the highest quality employment verification services and helping job seekers acquire 'great' references for their resume." In other words, if you don't have good job references and you're looking for a job, you can buy them. From the bit:

Schmidt is the founder of CareerExcuse.com, a Web site that says it will fill any gap on your résumé by acting as your past employer. It will go as far as creating a new company with an accompanying phone number, logo, Web site and LinkedIn profile. He says the site is designed to "help our subscribers meet the needs of the modern day job market."

It's an interesting service-- since signal extraction is increasingly difficult with letters of recommendation, my suspicion is that while it won't tip the scales in anyone's favor it may get someone in the door. Further, the downside risk is virtually nil; if your choice is a bad (or less than stellar) recommendation or purchasing a fake one, the consequences of the latter if found out is likely the same as the former-- you just don't get the job. Hiring is already a costly process and I don't see employers shouldering the effort of generating a network to blacklist fakes.

These would seem to work best for entry to mid-range jobs; high end positions are likely to be had through networking and networking (as far as I know) can't be purchased.

CareerExcuse is balancing an interesting line; vast success may overwhelm their ability to stay away from the public eye.

Blockquoting X

From Adam Smith in WoN( V.1.164 ):

In England it becomes every day more and more the custom to send young people to travel in foreign countries immediately upon their leaving school, and without sending them to any university. Our young people, it is said, generally return home much improved by their travels. A young man who goes abroad at seventeen or eighteen, and returns home at one and twenty, returns three or four years older than he was when he went abroad; and at that age it is very difficult not to improve a good deal in three or four years. In the course of his travels he generally acquires some knowledge of one or two foreign languages; a knowledge, however, which is seldom sufficient to enable him either to speak or write them with propriety. In other respects he commonly returns home more conceited, more unprincipled, more dissipated, and more incapable of any serious application either to study or to business than he could well have become in so short a time had he lived at home. By travelling so very young, by spending in the most frivolous dissipation the most precious years of his life, at a distance from the inspection and control of his parents and relations, every useful habit which the earlier parts of his education might have had some tendency to form in him, instead of being riveted and confirmed, is almost necessarily either weakened or effaced. Nothing but the discredit into which the universities are allowing themselves to fall could ever have brought into repute so very absurd a practice as that of travelling at this early period of life. By sending his son abroad, a father delivers himself at least for some time, from so disagreeable an object as that of a son unemployed, neglected, and going to ruin before his eyes.

Robin Hood Tax

A friend of mine wanted my thoughts on the Robin Hood Tax, so I thought I'd pass them along to you:

1. Though the page is vague about the issue, the tax would likely not be instituted by all countries evenly. Therefore, if this campaign has any success, you'll have some countries that incorporate it and some that don't. Financial transactions are *very* mobile-- as mobile as it gets-- and it would be very easy for those who would be taxed to simply move to a locale where the transaction would not be taxed. People want to avoid taxes and this one would be easy to avoid.

2. The tax seems to target "speculative" activity. Depending how you slice it, just about any financial transaction could be classified as speculative-- so there's an issue of exactly what you tax. Further, due to different financial instruments, you can generally replicate one financial transaction through a combination of others. So that could be another way to avoid the tax.

3. As always, there are deadweight loss issues concerning taxation, though some of the effects are described above. Though if you really want to split hairs, those effects described above are technically excess burden, not deadweight loss.

4. As always, the ability of governments to effectively use tax money to generate positive outcomes is dubious at best.

5. As always, there are political problems inherent in taxation in general.

Anything else? 2 would seem to be the short run outcome, 1 would be the long run.

My Interview on Pittsburgh Business Radio

Last Friday, as the storm was moving in, I had a nice talk with the good folks at Pittsburgh Business Radio. The intended topic was the living wage, though we only touched on that topic for about ten minutes. We talked about Senator Byrd, the stimulus package and a number of other topics. The link is here, it's about forty minutes long.

North Korea Documentary

From CNN, choice excerpts:

But this guy with our group who was from the L.A. Times told us, "Everyone in here besides us is secret police. If you don't act excited then you're not going to get your visa." So we got drunk and sang songs with the girls. The next day we got our visas. A lot of people we had gone with didn't get theirs.

[...]

Perhaps the weirdest thing about North Koreans is that they genuinely don't seem to know that the rest of the planet hates and fears them. They believe (or maybe they really convincingly lie about believing) that the whole world admires and envies them and that they're the true light of socialism and Juche, which is their leader's philosophy of Communist self-reliance.

By the way, my new favorite oxymoron is "communist self-reliance."

The Mileage Tax and the Efficient Allocation of Outrage

AT at MR has a pointed post on the "illogic" of a mileage tax, comparing it to a tax on breathing to punish smoking.

I agree that if your target is the reduction of environmental externalities (pollution and congestion), the fuel tax is sensible and the mileage tax is generally not. However, the history of the fuel tax (Hoover, Revenue Act of 1932; see this rather bizarre report from the US DOT) was a means of raising revenue to finance the expansion of public infrastructure.

To this day, it is a common example in public finance as a program that imperfectly follows the benefit principle of taxation. Those who drove on highways also tended to use gasoline, and hence those who benefited from the infrastructure were the ones financing it. The externality argument, as far as I can tell, came long after the 1932 act establishing the gas tax.

Conditional on the government both producing infrastructure and raising taxes to finance it, shouldn't the preference be for benefit principle taxation? So my basic suggestion is that, on the margin, libertarian outrage is better directed at other subjects, or at least at different angles of the mileage tax (privacy concerns, e.g.).

Return to Barter?

A fellow Northern VA snowpocalypse survivor came across this interesting ad while searching for a snow shovel online.

I have hundreds of PHISH cassette tapes and a boombox. They are ALL yours if you shovel my car out of the snow. It`s not a driveway. Just a small parking area. All you have to do is shovel out the left side of the car and the back of the car. If you`re interested please get in touch with me. Thanks.

I think this clearly illustrates the coincidence of wants problem. I cannot imagine this transaction was successful.

[HT: Astrid]

I'm guessing CNN...

...didn't see the plain answer to their question.

It's too bad CNN doesn't do headlines on t-shirts anymore; then again, I think I made out pretty well before it was all said and done (mine's in red).

A Degree In Growing Pot

From CNN:


The CNN reporter is pretty absurd in the coverage, at one point asking the Pot Grower about the development of clean energy for economic growth instead of legalizing pot. Nevertheless the story includes some of the interesting contradictions in Michigan law. You just kind of have to see it for yourself.

Air Marshalls

CNN has a report this morning on the air marshall program; not surprisingly, there are bureaucratic issues that distort the intentions of the program. To look more productive, marshalls oftentimes ride on shorter regional routes instead of long haul international flights, like this one. One estimate put the price tag at over $200 million per arrest.

Though the FAMS program is secretive of assignments by design, I'd love to get my hands on the air marshalls data and see what comes of it.

Free (Baseball) Data

I stumbled across my old data from my first publication, and have posted it online. It contains the signing salaries of MLB Free Agents between 1991 and 2002. It has player stats, signing team characteristics, signing team's city characteristics, and simulated tax burden with an accompanying instrument.

Of course I will be happy if someone extends the work, but it might also be a convenient dataset for students interested in baseball who are also looking to run a regression and write up the results for their econometrics class.

Enjoy!

The Effect of Prayer on God's Attitude Toward Mankind

That's the title of a paper by James Heckman in the new release of Economic Inquiry. Here's an ungated copy.

From the abstract:

This paper uses data available from the National Opinion Research Center's (NORC) survey on religious attitudes and powerful statistical methods to evaluate the effect of prayer on the attitude of God toward human beings.

From the results:

A little prayer does no good and may make things worse. Much prayer helps a lot.

The appendix includes an interesting response from Father Andrew Greeley, a well known Catholic priest and sociologist.

CBA and Bulletproof Clothing

Here is a CNN story on a Colombian tailor who makes his clothing bulletproof, even at point blank range. It opens up an interesting cost-benefit question for a social welfare analyst:

Let's assume that point-blank assassins aim at their targets in a manner that maximizes the probability of death:

p(Death) = p(Hit)*p(Death|Hit).

Where p(Hit) is a function of size of the area on the target (torso is a higher probability shot than the head, for instance), but p(Death|Hit) shrinks with the size of the area on the target (torso shots are less likely to kill than head shots).

Suppose, pre-bulletproof clothing, the dominant strategy for point-blank assassins is a single shot to the torso. It is observed by the population at risk that there is a stochastic random distribution around the area of the heart and torso. This creates the sufficient demand for bulletproof clothing.

If enough of the target population adopt bulletproof clothing, it seems to me the dominant equilibrium strategy shifts to head-shots, which remain unprotected but are harder to hit. On the net, I think we could expect the number of successful assassinations to decrease, but will it be enough collectively to justify the new more expensive tailoring? Could this be an individually rational but collectively irrational product? Things can get really interesting if you assume different levels of risk aversion among assassins.

Super Bowl Props: Year 3

It's time for this year's Super Bowl prop-a-thon! TPS stalwart Rob Holub sends along this year's props. Here's last year's post and here's the year before. Rob issued me a sound beating last year, so I need a better performance. Feel free to add in your choices and see how you do!

For the uninitiated, props are bets on certain outcomes within the game. Extremely popular games-- like national championships in college sports and title games/series in professional sport-- tend to have some listing of prop bets, though in the vast majority of games you can usually wager only on the winner and an over/under for total points scored. As always, bets are for recreational purposes only.

One final thing-- to avoid the four-corners effect, it makes a little more sense to pick props that are priced at roughly 50% (or below, if you so choose). You don't quite get the same effect from taking the "no" on the two point conversation (paying a meager -600) as you do from taking the over/under jersey number bet (generally priced at the even -115/-115 spread, and an annual Holub lead-pipe lock).

Onwards! Here are my picks:

- Will the game be tied after 0-0? Yes. (+100)

- Total Number of Different Players to Have a Pass Attempt: 2.5 (2-pt conversions do not count). Over. (+240)

- Saints: Will they convert a 4th down attempt? Yes. (+125)

- Robert Meachem, Total Receiving Yards on 1st reception: 10.5. Over. (-115)

- Peyton Manning, Will Have More Passing Yards in Which Half? Second. (-105)

You got nothing on those, Holub! I also like how four of my five prop bets could conceivably be satisfied on one play.

Again, feel free to play along in the comments.

Celebrity Look-alike

Has anyone else noticed how similar Bryan Caplan and William Stanley Jevons look?

State of the Union: More of the Same

Tad DeHaven at Cato offers a side by side comparison of Obama and Bush II by observing SOTU quotes from each. On balancing the budget, for example:

“Starting in 2011, we are prepared to freeze government spending for three years. Spending related to our national security, Medicare, Medicaid, and Social Security will not be affected. But all other discretionary government programs will. Like any cash-strapped family, we will work within a budget to invest in what we need and sacrifice what we don’t. And if I have to enforce this discipline by veto, I will.
We will continue to go through the budget line by line to eliminate programs that we can’t afford and don’t work.”
–Barack Obama, 2010 SOTU

“Just as we trust Americans with their own money, we need to earn their trust by spending their tax dollars wisely. Next week, I’ll send you a budget that terminates or substantially reduces 151 wasteful or bloated programs, totaling more than $18 billion. The budget that I will submit will keep America on track for a surplus in 2012.”
–George W. Bush, 2008 SOTU

“In 2 weeks, I will send you a budget that funds the war, protects the homeland, and meets important domestic needs while limiting the growth in discretionary spending to less than 4 percent. This will require that Congress focus on priorities, cut wasteful spending, and be wise with the people’s money. By doing so, we can cut the deficit in half over the next 5 years.”

–George W. Bush, 2004 SOTU

“My budget substantially reduces or eliminates more than 150 government programs that are not getting results, or duplicate current efforts, or do not fulfill essential priorities. The principle here is clear: a taxpayer dollar must be spent wisely, or not at all.”

–George W. Bush, 2005 SOTU

And energy...

“But to create more of these clean energy jobs, we need more production, more efficiency, more incentives. That means building a new generation of safe, clean nuclear power plants in this country. It means making tough decisions about opening new offshore areas for oil and gas development. It means continued investment in advanced biofuels and clean coal technologies. And yes, it means passing a comprehensive energy and climate bill with incentives that will finally make clean energy the profitable kind of energy in America.”
–Barack Obama, 2010 SOTU

“Good jobs also depend on reliable and affordable energy. This Congress must act to encourage conservation, promote technology, build infrastructure, and it must act to increase energy production at home so America is less dependent on foreign oil.”
–George W. Bush, 2002 SOTU

“I have sent you a comprehensive energy plan to promote energy efficiency and conservation, to develop cleaner technology, and to produce more energy at home. I have sent you Clear Skies legislation that mandates a 70-percent cut in air pollution from powerplants over the next 15 years.”

–George W. Bush, 2003 SOTU

Jobalism...

“I realize that for every success story, there are other stories, of men and women who wake up with the anguish of not knowing where their next paycheck will come from; who send out resumes week after week and hear nothing in response. That is why jobs must be our number one focus in 2010, and that is why I am calling for a new jobs bill tonight.”
–Barack Obama, 2010 SOTU

“Americans who have lost their jobs need our help, and I support extending unemployment benefits and direct assistance for health care coverage. Yet, American workers want more than unemployment checks; they want a steady paycheck. When America works, America prospers, so my economic security plan can be summed up in one word: jobs.”
–George W. Bush, 2002 SOTU

Looks like Hope and Change went down the drain. And we are left with more of the same. Surprise, surprise.

[HT: Steve @ CP]

Stimulus Signs

I'm enjoying especially the news stories coming out talking about particularly offbeat uses of stimulus funds, if for no other reason than they give nice ammunition for spontaneous discussion about the shortcoming of stimulus spending. That, and let's assume that the media in general feels there are worthy and unworthy uses for stimulus money-- beneficial and unbeneficial. I could take issue with that, but the end effect for me is still good-- the media sends along thing they find ridiculous, I'm always going to think they're ridiculous, so the mechanism works out. As one of the Bobs said: Problem's solved from my end!

Anyhow, here's one from CNN talking about $1 million in stimulus funding used to create signs telling Ohioans where their stimulus money is going. There's a particularly tidy nature to this specific example.

Seen any others? I'll keep 'em coming as I find them.

Swine Flu Update

TPS friend Pavel Yakovlev sends along this bit concerning the swine flu; my thoughts from April are here, I'm happy to admit that it became a bit more of an issue than I projected if the other side would admit that it became nowhere near the issue they projected it to be. Also, for what it's worth, the elderly didn't end up in the high risk groups due to what the medical folk say was a similar virus a few decades ago that provided enough resistance to the current H1N1 virus.

Note the regulatory control aspects of the story-- government secures contracts with pharmaceutical companies that are activated with the World Health Organization's declaration of "pandemic," and the pharmaceutical companies' role in influencing the determination of which medical scenarios are elevated to "pandemic" status. The appropriate quotes:

"The aim is that none of the pharmaceutical companies under any circumstances must be allowed to make their influence felt on pandemic emergencies,” he says and adds that rules for patenting also will be checked...

...

"The governments have sealed contracts with vaccine producers where they secure orders in advance and take upon themselves almost all the responsibility. In this way the producers of vaccines are sure of enormous gains without having any financial risks. So they just wait, until WHO says "pandemic” and activate the contracts."

For that reason, Wolfgang Wodarg also finds it suspicious that WHO changed it’s definition of a pandemic on it’s homepage at the end of May this year:

"From June 2009 it is no longer necessary, that "an enormous amount of people have contracted the illness or died” - there simply have to be a virus, spreading beyond borders, and one that people have no immunity towards,” he says.

Hayek v. Keynes Rap

Without further ado...

Public v. Private

From the Washington Post:

Aside from the large banner advertising perpetual rental specials to traffic on U.S. Route 50, the most noticeable thing about the property is its neat, uniform landscaping. Privately owned Kingsley Commons' lush grass, wooden fences, shrubs and flowers stand in contrast to the patchy lawns and exposed dumpsters of the adjacent public housing owned and managed by the Fairfax County Redevelopment and Housing Authority. That property, known as Kingsley Park, appears to have once been part of the same construction as Kingsley Commons, though Kingsley Commons has added some external cosmetic details to its units.

As it turns out, I am in the process of moving and have submitted my application for a town house at Kingsley Commons. I had no idea that they specialized in "affordable and subsidized Section 8 housing," as the article indicates. The town houses they offer look great!

[HT: Astrid Arca]

2010 SEA Sessions

Anyone organizing a session on public finance? I'd be interested in contributing an abstract on one of these topics:

• State Tax Amnesties
• Local property tax incentives in policy
• Property tax assessment and progressivity

I'd highly prefer to join someone's session, rather than my usual approach of submitting directly to the conference.

My contact info here, if interested.

On Lobbying: Remember the Symmetry!

When it comes to lobbying, there is Supply and Demand. Everyone is good at remembering and complaining about supply, but demand is often forgotten. If small groups can be targeted, then politicians have a strong incentive to use that as a weapon to solicit rents. Politicians want lobbying.

Now, from Yahoo News (HT: KipEsquire):

WASHINGTON – Dozens of current and former corporate executives have a message for Congress: Quit hitting us up for campaign cash.

Roughly 40 executives from companies including Playboy Enterprises, ice cream maker Ben & Jerry's, the Seagram's liquor company, toymaker Hasbro, Delta Airlines and Men's Wearhouse sent a letter to congressional leaders Friday urging them to approve public financing for House and Senate campaigns. They say they are tired of getting fundraising calls from lawmakers — and fear it will only get worse after Thursday's Supreme Court ruling.

Political Sunk Costs

They're different for different people for different reason, but one of the big light-bulb-above-the-head moments for me in graduate school was the idea that political costs and benefits differ from economic costs and benefits. I don't think I've gone through a paper on an appropriate topic that I haven't taken a good look at the idea from political vs. economic costs and benefits. For me, it's a great tool to get my thinking going in the right direction.

Now, in light of the surprise Republican win in recent Massachusetts election for Kennedy's vacant Senate seat, I'm wondering if the idea of sunk costs differ in the political realm versus the economic realm. I'm paraphrasing, but the gist of what is coming out of Washington is "we've worked this hard on the health care bill, it would be a shame if we didn't do something." Economic rationale would say if the benefits of moving forward outweigh the costs of moving forward, then full steam ahead. If not, then cut the cord-- but either way, it doesn't matter what you've already done.

But it doesn't seem the same in politics. There may or may not be a large political cost of not getting something done-- but now you're factoring in the past into your future decisions. I know of some studies that have shown that people don't tend to act in the homo economicus manner of ignoring sunk costs, but to me, it seems that nothing's sunk when it comes to politics. To that end, cram another wedge between economic and political costs and benefits.

A Tad Too Strong

A JPT article summarizing Mankiw's article on optimal height taxation:

One correlate of ability is easy to measure and impossible to game: your height.

Impossible? I don't know about you, but one of the things I find most exciting about this idea is to find out how people really would respond to this tax. One of friends is currently undergoing therapy because she "hunched" as a child, and therefore should actually be a little taller if her spinal muscles learn to relax. Another friend of mine is dealing with a genetic spinal issue that is causing him to gradually lose height. I doubt either of them would change their final choice to deal with these issues, but would it make it easier to delay treatments?

Extreme examples, yes, but these are just things I can observe now, in the absence of a height tax. How would the world change in its presence? Markets in everything, folks.

MPIs: Seen v. Unseen

Here's another news hit for the TF piece. They managed to pull one of my favorite lines from the article:

“Rather than addressing the underlying problem and encouraging growth and development primarily by reducing tax burdens across the board and removing cumbersome regulations, which is politically challenging, politicians focus on what’s easy: industry specific incentives,” said Tax Foundation Adjunct Scholar William Luther, the author of the study “Movie Production Incentives: Blockbuster Support for Lackluster Policy.”

Unfortunately, the punchline is being overlooked by legislators who cannot seem to get past the seen/unseen problem.

“I would argue that 100 percent of nothing is still nothing if they’re not coming here,” [State Senator] Haridopolos said. “The money they spend here helps our restaurants, hotels, our tourists attractions. I think it’s a good deal and the only way you get paid is after the work is completed.”

What's the problem? I mean... it is good for the glazier!

Movie Production Incentives in the News

It looks like my Tax Foundation report on Movie Production Incentives is getting some press. Here's an article from the Las Vegas Review-Journal. Here's another from the Boston Business Journal.

The Passions and the Interests

If you are teaching an Honors section of Econ 101 at a liberal arts college, let me recommend the following book: The Passions and the Interests by A.O. Hirschman. I am roughly halfway through and find it very interesting. You might think of it as a crash course in the history of ideas from Augustine to Smith. The evolution of basic concepts in economics (self-interest, rationality, spontaneous order, etc) as presented by Hirschman is fascinating.

The Lincoln Quote Quandary

I've always been interested in verifying a shadowy Abraham Lincoln quote concerning the detriments of foreign trade. I mentioned it at the end of this blog post about 18 months ago; my curiosity predates that post by at least another few years.

Well, the mystery has been solved...sort of. I put the issue to my International class this semester and John Pulito found a paper discussing that exact quote-- in the QJE, by F.W. Taussig in 1914.

The quote at question is the following:

"I do not know much about the tariff, but I know this much, when we buy manufactured goods abroad, we get the goods and the foreigner gets the money. When we buy manufactured goods at home, we get both the goods and the money."

Interestingly, the article is actually about how Lincoln likely never actually said it. Parsing through his notes from 1847-1867 there are some intimations that he believed the general premise of the above quote, and mentioned something similar at a speech in Pittsburgh in 1861, but in no recorded place can anyone attribute the exact quote to Lincoln. As best as I can tell, no one has taken up the issue again.

So my conclusion is this: If presented with this quote, Lincoln would have agreed, but he seems to have never spoken those exact words.

Haiti thoughts

Tyler's been doing a good job talking about Haiti over the past week; I think today's efforts are his most intriguing yet. Squatters rights is interesting idea; is it beyond the task of defining property rights in general? Further, if dropping trade restrictions against countries qualifies as humanitarian assistance, do developed countries use trade barriers as banked chips in case they need to act in the future?

I'd love to see what Emily has to say given this situaion is a natural disaster, what Claudia and Dave have to say given the aid being directed towards Haiti (humanitarian now, development likely later), what Pete Leeson has to say given we've got a Somalia-type scenario in Haiti at the moment, and what Chris Coyne has to say given the U.S. government's seemingly inevitable role in rebuilding this country.

There are going to be a lot of government-free outcomes to analyze in the upcoming weeks and months; keep your internet-eyes honed!

Capturing Poor Driving

The following was put to me recently: How would you go about researching which areas/cities have the worst drivers?

Here's my take, note that I'm not really answering the question, and I'm sure Justin can improve upon it in half the words in the comment section:

1. It's tough to capture bad driving because many things that we consider to constitute "bad driving" aren't captured in any sort of statistics. I've yet to see the state-by-state time series of "number of instances of cutting someone off."

2. Surveys wouldn't work; I'd expect a similar result to 70%-of-people-consider-themselves-better-than-average-drivers. People systematically underestimate the quality of drivers around them. I am Exhibit 1A for that one.

3. Bad driving outcomes could very well be a function of mixing different types of drivers. Let's assume we've got two types of drivers, aggressive and passive. A city with nothing but aggressive drivers may well have more reported accidents than a city with nothing but passive drivers, but a city with a mix of the two may have the most of all. To that end, quantifying the quality of driver is only useful insofar that you can define the relationship between a spectrum of drivers operating within a driving environment.

4. With regards to age, I will say that more younger drivers (read: first few years of driving) make for more dangerous driving situations, if only because experience matters. It's unclear to me at this point how the upper end of the age spectrum looks.

What else is there?

Here's a post from the summer on courteous driving.

No Solutions, Only Trade-Offs

"The Intended and Unintended Effects of Youth Bicycle Helmet Laws," from the NBER:

Over 20 states have adopted laws requiring youths to wear a helmet when riding a bicycle. We confirm previous research indicating that these laws reduced fatalities and increased helmet use, but we also show that the laws significantly reduced youth bicycling. We find this result in standard two-way fixed effects models of parental reports of youth bicycling, as well as in triple difference models of self-reported bicycling among high school youths that explicitly account for bicycling by youths just above the helmet law age threshold. Our results highlight important intended and unintended consequences of a well-intentioned public policy.

The estimates indicate that bicycling fatalities among youth (age 0-15) decreased across states by about 19 percent. It also decreased youth bicycling participation by 4 to 5 percent.

These percentages look somewhat lopsided, but you have to consider the magnitudes of the levels of the variables. I can't find the average number of youth fatalities by state in the above paper, but inferring from the NHTSA, there were about 105 total youth fatalities in the entire United States. So in total, we are probably talking about saving lives by the tens or twenties.

On the other hand, the volume of participation is probably quite large. In the paper above, participation was 84 percent of a 115,000 person sample. A 4-5 percent reduction for the population at large is probably in the hundreds of thousands. To some extent, these participation reductions likely account for some of the reduced fatalities being reported.

The question becomes: How many forgone participants equal a life saved, knowing that the only 100% safe bicycling is no bicycling at all?

The Crisis of Credit Visualized

I ran across this neat presentation on the Credit Crisis. As a fan of presentations that communicate a lot of information in a clear manner, I think this is quite good. I'll leave it, however, to the intelligent readers of TPS to explain where the presentation gets it right and goes awry.

HT: Duarte Blog

Working Paper: Monetary Anarchy

Here's the abstract from my latest working paper:

Many economists, from Adam Smith to Nobel Laureate James M. Buchanan, have argued that free-markets only function correctly within an institutional framework that stipulates property rights, enforces contracts, and provides a medium of exchange. Furthermore, it is assumed that markets are incapable of generating this framework without the assistance of government. Specifically, Buchanan (2009) claims markets are incapable of producing a stable paper currency standard. If left to the market, Buchanan and others predict, the monetary regime will be highly inflationary. In contrast, I argue that monetary anarchy is a feasible alternative; decentralized agents acting in their own self-interest are capable of generating a stable paper currency standard. A counterfeit commodity standard—where any individual can print as many paper notes as desired without obligation to redeem these notes for some commodity—has all the self-adjusting properties of traditional commodity standards (e.g gold standard). Additionally, it has the potential to adjust more quickly to short-run fluctuations and use fewer resources than traditional commodity standards. Most importantly, the success of this standard relies only on underlying fundamentals and not the precommitments of men who might later renege. I detail the mechanics of a counterfeit commodity standard and illustrate feasibility by analyzing the quasi-counterfeit commodity standard implemented in Somalia.

An updated draft will be posted soon.

Movie Production Incentives

A couple summers ago I spent some time at the Tax Foundation as a policy intern. It was a great experience and I recommend the Tax Foundation to others seeking policy experience in DC. They are a highly respected organization. Additionally, they were very flexible (and appreciative) with respect to the research I conducted.

Yesterday, they released my Special Report on Movie Production Incentives. Here are the key findings:

• Forty-four states now offer significant movie production incentives (MPIs), up from five states in 2002, and twenty-eight states offer film tax credits.

• In the face of state budget pressures and preposterously generous incentives in Louisiana and Michigan, states may curtail or even terminate their MPI programs. Kansas and Iowa have suspended theirs, Kansas for two years to save revenue and Iowa briefly to investigate corruption.

• MPIs have often escaped routine oversight about benefits, costs and activities.

• Spurious research is common in campaigns for film tax credits, often featuring dramatic job creation claims. A recent study concluded that Pennsylvania's film tax credit produces net benefits of $4.5 million by assuming that any business interacting with the film industry would not exist but for the credit. MPIs create mostly temporary positions with limited options for upward mobility.

• The MPI experience demonstrates that a politically connected industry can grow if the state greatly reduces its taxes, but states should have a tax system that operates as a welcome mat to all industries, not just those politicians have picked.

On Time Arrivals to Class

I've noticed something very interesting here at Duquesne since I started: The students are rarely, if ever, late for class. Why is that?

It's fair to note that my frame of reference is my time spent teaching at WVU, but I think it's unfair to categorize Duquesne students as that much more concerned in showing up to class on time. Similarly, I don't think the incidence of off-campus commuters plays a large role in explaining the difference-- I've had plenty of students at both schools drive in to attend class.

I think it has to do with the fact that most students take elevators to get to class. Elevators introduce a degree of uncertainty into the class arrival time function; most people know how long it takes to walk somewhere, but taking the elevator increases the variance in expected arrival time. I would guess that many students aren't terribly averse to arriving a minute or two late to class; however, these same students may be particularly averse-- in relative terms, if nothing else-- to arriving a few minutes later, say, 4-6 minutes. A sufficiently high enough level of uncertainty in the elevators could push students to arrive early enough to ensure that they never hit this 4-6 minute late arrival.

Then again, there's no reason to believe they couldn't update their beliefs on the elevator through experience. But I think that assuming elevators will be continually uncertain is getting kids into my classes on time.

There's a perfect natural experiment for this, of course-- teach (or witness) a class in another building. Until that time comes, I'm sticking with the elevator story.

Swinger Economics II

I blogged about this before, based on conversation with a friend in the know. Now forthcoming at the Journal of Socio-Economics is the "Economics of Swinging" by Fabio D'Orlando. Abstract:

Swinging is a sexual behavior of increasing relevance but substantially ignored in theoretical economic investigation. This paper has two major goals. The first is to describe what swinging is, discuss its economic relevance and single out the main characteristics of swinger behavior. To this end, the Italian situation has been considered as a type of case study. The second goal is to use standard and less-standard tools from economic theory to propose some preliminary assessments of the causes and consequences of swinger couples’ behavior. In this respect, some contributions on two-sided markets, hedonic adaptation approaches and equilibrium matching models have proved particularly useful.

Here is an ungated version. I was so convinced that this was a pen name that I googled the author's name, and came across another paper of his on the pornography market, complete with empirical data.

Zoning: Regulation, Community Property Right, or Both?

Frank Stephenson at D.O.L. remarks on Levine's Zoned Out:

I do have one quibble--the author can't quite make up his mind what we economists think of zoning:

p. 80: "[T]he very meaning of zoning as a collective property right--a view now broadly adopted by the economics profession ..."

p. 87: "Economists and other social scientists have split on the nature of zoning--with some viewing it as governmental regulation and others viewing it as more akin to a 'collective property right.'"

I have not read the book in question, but I actually would agree that the economics profession is of two minds about zoning: one as regulation and one as a collective property right (CPR). I think your modal economist would see it as regulation, but your modal economist researching and publishing on local public finance or governance structures are more likely to view it as a CPR. Richard Epstein would be an obvious candidate for disagreement.

I'm going to provide some explanation of the CPR view.

On paper, zoning is indeed regulation, having very specific prescriptions with ambiguous intentions. In function, what they are trying to do is protect home owners from negative externalities, both pecuniary and technological. Since all technological externalities (noise, traffic, etc) are capitalized into housing prices in the same way as if a bunch of new housing were constructed in the area, home owners and zoning officials have little reason to differentiate between them.

At the same time, it is extremely difficult to get around the fact that externalities are a big deal, and any nuisance is not just annoying, it is costly. Furthermore, in a world without zoning, new housing can be constructed quickly if demand is expected to rise. If demand falls construction will stop, but the housing stock is not likely to change a great deal (in part because of demolition costs). This makes externality-sensitive housing a rather asymmetric risk. If demand rises in your area, housing will only appreciate at the marginal cost of construction, but if demand falls your price falls steeply.

Furthermore, your neighbors have a pretty good incentive to ignore externalities when they sell their homes. If your neighbor sells their home to someone who wants to renovate the property into a noisy bar, he doesn't have much incentive to consider how this might impact his ex-neighbors. Note that, although the noise is a technological externality, it will have a negative pecuniary effect on the neighboring homes.

Enter the role of zoning. The CPR view begins by thinking of a given municipality as a supplier of institutions and property. The institutions are going to consist of a mix of taxes, public goods, and mechanisms for handling externalities (i.e. zoning). Developers or other commercial producers are on the demand side of this market. They are likely to bring benefits (tax revenue, local demand for property, etc) to an area, as well as new pecuniary and non-pecuniary externalities (congestion, pollution, new supply of alternative residences, etc).

Zoning serves as an exclusionary purpose (like a property right) to these entities, but remains open to change pending some negotiation. In fact, zoning is probably the most malleable legal institution in the United States. While the stated objective of zoning commissions is often ambiguous, in practice they serve the purpose of evaluating demanders of institutions/property to verify that their expected benefits outweigh their costs, which will be signaled through their expected consequence on existing property values.

I don't mean to say zoning is all roses and fine wine, the critics of zoning have good points. Zoning commissions make both type I and type II errors, inflate housing prices, can get captured, engage in regulatory taking, etc. Any industry with more than 30,000 firms would likely have more than a few bad apples.

I think the community property rights view is quite correct in the positive analysis of zoning, but the open question is the normative implication. As of now, I lean towards a more Ostromesque view that zoning is a way that local communities have evolved to deal with externalities, and I would be very hesitant to impose some kind of reform that stripped them of this mechanism.

Government Failure

[HT: Astrid]

Mackey in the New Yorker

Here's an interesting bit about Whole Foods CEO John Mackey. It's long, as New Yorker pieces tend to be, but it's an interesting read (also a typical quality of the New Yorker). I have to admit, Mackey's one of the more unique people out there. I think this line hits the scenario perfectly:

The right-wing hippie is a rare bird, and it’s fair to say that most of Whole Foods’ shoppers have trouble conceiving of it.

He also was on Stossel's new show talking about health care.

Worst. Decade. Ever.

The Zero's? The noughties? The pre-teens? I don't know what to call it. But ReasonTV calls it the worst decade ever.



[HT: Art @ DOL]

New Year, New Laws

Welcome to 2010! We're heading into Year 5 of good times here at TPS.

Anyhow, CNN gives an overview of new laws for the new year here, and I've seen a surprising number of TV and print stories concerning this same topic, maybe I wasn't quite in tune to the matter last year at this time. (Hi Dave!)

Perhaps I'm getting more cynical as the months go by, but I'm increasingly frustrated by the passive nature of laws like this. Yes, they're ridiculous, but passive foolishness seems even worse. San Francisco banned plastic shopping bags a little while back-- wouldn't it better just to ban trash? Doesn't that get at the issue a little more directly? One of the new laws in the CNN bit was to ban texting while driving-- why not ban car accidents?

The point being: If we're going to have foolish laws, wouldn't it be better to have clear, direct foolish laws? After all, if you feel that banning texting while driving will actually stop people from texting while driving, then banning car accidents would eliminate those too! You wouldn't even need seat belts! Or car insurance! Or car seats! Oh, the welfare increases!

Is passive lawmaking a way for politicians to dodge the issue of the credibility of the law? I mean, if you're in favor of banning texting while driving, then you are of the opinion that car accidents are bad; wouldn't you necessarily be in favor of banning car accidents as well?