Poor Statistics, Even Poorer Economics

From the FP:

Third, end the self-defeating U.S. dependence on the Venezuelan oil that finances Chavez's anti-democratic and anti-American aggression. The United States can find new sources for 8 percent of its imports much more quickly than Venezuela can find an alternate market for 72 percent of its exports.

It seems as if the author is suggesting that since 8% < 72%, it will be easier for the US to make the switcharoo. To the average reader (correct me if I am wrong) the 8/72 comparison makes it appear as if the US has less to change than Venezuela. Obviously, this is not the case. The amount of oil that comes from Venezuela to the US is necessarily the same amount of oil that comes to the US from Venezuela. The difference in percentages merely reflects different base levels of imports and exports, respectively. After clearing this up, it is no longer obvious that the US can find new sources of X amount of oil quicker than Venezuela can find new buyers for X amount of oil. But that's just the statistical problem. The economics of the situation are much more damaging to the argument.

Oil is fungible. Suppose that the US passes a law that bans the purchasing of oil from Venezuela. This effectively reduces the supply of oil available for Americans to purchase. Since demand has not changed (Americans still want to drive their cars and heat their houses as much as before), this puts an upward pressure on price. Of course, the actual supply of oil has not changed. The easiest way for other nations to increase their oil production is to buy oil from Venezuela. Since one barrel of oil looks more ore less like any other barrel, it is difficult to determine whether Venezuelan oil ends up in the US. Whether or not the oil consumed in the US is Venezuelan oil (bought by another country and then sold to the US) or the reserves from another country (now using Venezuelan oil) is irrelevant!

Venezuela is no worse off, but US citizens are paying more for gas. I hope the US ignores FP's recommendation; it is a policy of poverty.

Resource guzzling hybrid cars

TPS friend Pavel Yakovlev sends along this article about the emerging underbelly of the hybrid car market:

The Prius hybrid automobile is popular for its fuel efficiency, but its electric motor and battery guzzle rare earth metals, a little-known class of elements found in a wide range of gadgets and consumer goods.

I guess it's not all roses and clean cars. The consequence of needing to mine more rare earth metals to save oil pushes us further down the path towards the best-case scenario: Environmentalists arguing with other environmentalists over what to do, in this case the anti-oil consumption folk with the anti-mining folk. Here's to hoping that this debate can become everything it could be.

Are Labels Effective Against Child Labor?

New from the Journal of Public Economics:

In this paper, we investigate the impact of introducing a label certifying the absence of child labor in the export production of the South.When most eligible producers in the South can obtain the label, its impact is considerably reduced by a displacement effect whereby adult workers replace children in the export sector while children replace adults in the domestic sector. The label is then unable to create a price differential in the South between goods produced under the label and those produced without it.

When only a small fraction of eligible producers have access to the label, the South exports both labeled and unlabeled goods to the North. In this case, labeled producers generally gain while those without a label generally loose from the introduction of the label. Exante welfare may fall in the South if the probability of getting a label when one qualifies is small. The impact on child labor is in general ambiguous.

Book Review

Claudia provides a book review of James Bennett's Stifling Political Competition: How Government Has Rigged the System to Benefit Demopublicans and Exclude Third Parties, which will appear in Public Choice but is available online.

Daniel Hannan v. Gordon Brown

I never heard of this before Reason.tv's interview with Hannan, so I'm sharing it here:

Britain has a far more entertaining political system.

Assorted thoughts

- Beer prices are going up; market forces pushing prices upwards shouldn't upset you as much as taxes doing the same thing. (Here's looking at you, Alaska.)

- Here is an interesting article on craigslist and it's founder, Craig Newmark. The article focuses too much on the zero-price aspect to explain their success instead of the network effects, but I was surprised to learn that he's given away large portions of the ownership of the company (though it's privately held and thus unverifiable).

- Here's a survey on democracy in Ethiopia; many of the answers seemed double-peaked to me, and the accusations of ethnic bias shouldn't be taken lightly-- though perhaps the former helps disprove the latter. Like the World Values Survey, is anyone else surprised that those giving the survey can find a healthy number of people willing to spend hours filling these out?

Could Taxing Water Treatment in Bolivia Result in Cleaner Water?

Katja reports (Hat Tip: Robin Hanson):

SODIS is a cheap method of disinfecting water by putting it in the sun. Like many things, it works better in physics than society, where its effects were not significant, according to a study in PLoS medicine recently…. [In] Rural Bolivia, where the study was done … the children studied usually get diarrhoea four times a year, which causes about fifteen percent of deaths of children under five. For the poorest quintile in Bolivia the under five death rate is about one in ten of those born alive. … The leader of the study, Daniel Mausezahl, suspects a big reason for this is that lining up water bottles on your roof shows your neighbors that you aren’t rich enough to have more expensive methods of disinfecting water.

Assume that the story is true, that putting water in the sun to disinfect it signals your poverty because it demonstrates that you cannot afford the more expensive methods. Depending on how the utilitarian calculus works out, one of the solutions may be to heavily tax (perhaps even ban) expensive water treatments so that more people must resort to setting their water out in the sun.

The calculus would depend critically on how many people already have the more expensive systems. If only a few people have the more expensive systems, the calculus is more likely to favor the tax. If a relatively small portion of the population that cannot afford the water treatment, then the calculus probably favors a subsidy.

Markets In Everything: Prisoner Consulting

Reportedly, Plaxico Burress has hired someone to prepare him for life in prison. TIME has the story, but here is a nugget:

How many people have you counseled?
Right now we counsel four to six people a month. These can range from a 100-hour course for $20,000 to $100-an-hour phone consultations or $150-an-hour webinars.

How many prison consultants are there?
New guys pop up all the time. But I'd say there are three to five who do it right and have been in the ballgame for years.

So what's the first thing you do with clients?
First I want to find out what their life is like. I want to know about their personality, whether they have any addictions to gambling, sex, drugs, cigarettes. The goal is to get someone to go in addiction-free, where they don't need anything from anybody. You don't want to put yourself in debt.

The other thing is basic prison etiquette. A lot of people don't know how to be respectful — period. They're cocky and they walk around with a chip on their shoulder. Now they don't even have a name; they have a number. They have to follow rules. And they have to make sure they don't do stupid things.

Juicing The Mitchell: Pluto Edition

From CNN:

Earlier this year, the Illinois Senate adopted a resolution declaring that Pluto was "unfairly downgraded" and restoring "full planetary status" to the celestial body as it "passes overhead through Illinois' night skies."

It also designated March 13, 2009, as "Pluto Day" in honor of the date that its discovery was announced in 1930. (In case you are wondering why the state is so passionate about Pluto: Clyde Tombaugh, who discovered the planet-now-dwarf-planet, was born in Illinois.)

A Lesson in Comparative Advantage from Ochocinco

Someone in the Bengals organization might understand Ricardo. Peter King provides the set-up:

Near the end of the second quarter, the man judged the best kicker in the NFL last year, Stephen Gostkowski, the Patriots All-Pro kicker, kicked the ball off from the Patriots' 30 to the Cincinnati 9, a 61-yard boot. To start the third quarter, Ochocinco, a right-footed, soccer-style kicker, rainbowed one 61 yards to the Pats' nine. Same kick. Same weather conditions. Same result. "He's a terrific player,'' Bill Belichick said a day later. "I love his competitiveness. I love his enthusiasm for the game.''

[...]

Anyway, regarding his 61-yard kickoff, he said he wasn't surprised. "I've kicked field goals at [Paul Brown Stadium], just fooling around, from 53 yards. Imagine if I devoted practice time to it. There is no doubt in my mind I could kick in this league. Really, I want to kick so bad.''

The dream ended Sunday -- not because the Bengals don't think Johnson could be an adequate emergency kicker, but because they don't want him to risk getting hurt kicking. With incumbent Shayne Graham out for the rest of the preseason, Cincinnati signed free agent Sam Swank from Wake Forest on Sunday.

Bold emphasis mine. Ochocinco might be the best wide-receiver AND kicker. However, he ends up playing wide-receiver only.

The question for students: Suppose Ochocinco is the Bengal's best receiver and kicker. Explain why Ochocinco is best employed only at receiver, even though he might also be the team's best kicker. (Be sure to treat the injury claim as a red-herring. After all, the Bengals could just as easily made Ocho the kicker and not let him play receiver, out of fear of injury.)

Reputation vs. Laws in Credit Markets

Here's an interesting paper on the interaction between reputation and legal enforcement in credit markets, emphasis is mine:

"The evidence suggests that relational contracting and legal rules play an important role in credit markets but on the basis of the prevailing field data it is difficult to pin down their causal impact. Here we show experimentally that relational incentives are a powerful causal determinant for the existence and performance of credit markets. In fact, in the absence of legal enforcement and reputation formation opportunities the credit market breaks down almost completely while if reputation formation is possible a stable credit market emerges even in the absence of legal enforcement of debt repayment. Introducing legal enforcement of repayments causes a further significant increase in credit market trading but has only a surprisingly small impact on overall efficiency. The reason is that legal enforcement of debt repayments weakens relational incentives and exacerbates another moral hazard problem in credit markets – the choice of inefficient high-risk projects."

At face value, this is an important factor to keep in mind when implementing microfinance activity in underdeveloped areas.

Mixing Words

Libertarians frequently say that governments have a monopoly on coercive force. Is this such a bad thing? Monopolies restrict supply. Does this imply that competitive markets would result in a greater amount of force (at a lower price, of course, if that is of any consolation)?

I cannot wait to hear the comments.

Boondoggles

Here's a bit in the New York Times that outlines two fun points:

- As a fun side note, it gives the etymology of "boondoggle":

Before it became a bad word, “boondoggle” was an innocent, humble craft. It was the Boy Scouts of America who claimed credit for coining the word, to refer to the plaited leather lanyards that they made and wore around their necks.

That all changed on April 3, 1935, at a hearing in New York City on how New Deal relief money was being spent. A Brooklyn crafts teacher reluctantly testified that he was paid to show the jobless how to make “boon doggles.” The outcry was swift. “$3,187,000 Relief is Spent to Teach Jobless to Play,” trumpeted a front-page headline the next day in The New York Times. “ ‘Boon Doggles’ Made.”

A new, more sinister meaning was born, and the word came to signify government make-work, later referring to wasteful government projects in general. Critics used it to criticize scores of projects, but President Franklin D. Roosevelt took a longer view. “If we can boondoggle ourselves out of this Depression,” Roosevelt said, “that word is going to be enshrined in the hearts of the American people for years to come.”

(That is a fantastic FDR quote, by the way.)

- On a more important line, it shows that every public project does have people that benefit. It might be obvious to state it as such, and it's easy to get lost in the "look at the turtle crossing, that's a ridiculous public project, that's just spending for spending's sake." But even the most foolish programs have someone, somewhere, that benefits. In no means does that justify the spending-- but a lot of times that's points you down the path of explaining the inexcusable.

Prediction Markets in Demand For Hospital Services

Interesting new study in the Journal of Prediction Markets:

Prediction Markets as a Medical Forecasting Tool: Demand for Hospital Services
By Rajakovich, David; Vladimirov, Vladimir
Volume 3, Number 2, August 2009 , pp. 78-106(29)

Background
This paper presents the outcome of a study conducted at the Royal Devon and Exeter Hospital in which a prediction market was established in order to forecast demand for services. To the researcher's knowledge, it does not appear that prediction markets have been previously utilized in a healthcare environment.

Purposes
The purpose of this study is to provide evidence for the effective use of prediction markets in a healthcare environment.

Methodology and Approach
The study was conducted over a period of one week, and involved sixty-five participants. Each was asked to provide an estimate for demand for services at the Royal Devon and Exeter Hospital. Characteristics gathered for each participant included level of education, occupation, directorate, number of years worked for the hospital, and number of years worked for the National Health Service.

Findings
The study confirms the effectiveness of prediction markets to forecast future events as overall hospital demand was forecasted with an error of only 0.3%. The prediction market was less successful in predicting demand for services for each department, which the researcher attributes to the small sample size and lack of diversity of participants. Additionally, only a very small percentage of the characteristics captured registered a statistically significant correlation with the accuracy of the estimate. Further studies should focus on different characteristics and/or use a larger sample size to either confirm or refute the existence of such characteristics.

Practical Implications
The findings of this work could potentially be used as an innovative way to augment the forecasting function for a wide range of healthcare facilities. With the preliminary success of this study to forecast demand, further research in the field is warranted.

Census Politics

How can the political process possibly get entangled with the decennial head count?

"Officials [in Utah] are in a dither because the bureau won’t count all those Mormon missionaries sent overseas.

...

In the most recent Census, taken in 2000, Utah fell just 857 people short of receiving the last available U.S. House seat and this discrepancy in how Americans are counted overseas made all the difference."

Whether more representatives in the House mean more funding is not clearly established. More representatives mean more people, and that directly means more federal money, but the applicable question is whether more representatives means more money per capita. There's actually a line of research that says that smaller states get more funding, known as the small state bias, since these states are, in population terms, over-represented in the U.S. Senate.

Nonetheless, the perception is that more representatives get more money, and that's got Utah none too pleased.

Got Communism?

North Korea does. And here's what it's like.

Counter-cyclical fast food

I always get a kick out of articles that describe companies that perform well when the overall economy doesn't-- if only for the reason that it provides a quick rebuttal to the layperson. This article from Slate sums up the fast food success over the last year that was McDonald's. Some nice bits for your arsenal:

"McDonald's sales growth in 2008 was greater than in 2006 and 2007."

"While many restaurants scaled back, it opened nearly 600 stores in 2008."

"...the chain has notched same-store-sales growth in each of 2009's first seven months."

"Over the last three years, its stock has handily outperformed the S&P 500..."

"In Europe, where stressed consumers are still pulling back, McDonald's notched 6.9 percent same-store-sales growth in 2009's second quarter."

Many people like to demonize McDonald's for its indifference towards the health of its foods--which is increasingly difficult to do-- but can you argue with nearly 70 years of creating popular eating spots and over 31,000 locations? The training program for its franchisees is legendary, and Burger King even reportedly amended their expansion strategy to locating near existing McDonald's restaurants. The historical stock information is here; putting your money in McDonalds 30 years ago would make you a very rich TPS reader, to the tune of 50x growth...and even only 6 1/2 years ago would yield over 5x on your investment.

In article-related news, here is an piece on Peru's growth-- reportedly 9.2% in 2008.

Advice to Economic Educators

Dave at TAE has an interesting perspective on being an economic educator:

Job market applicants are often asked to write up something about their teaching philosophy. If I were to ever do so, I'd sum up mine in one sentence: I have no teaching philosophy, or at least none that I'm aware of. (I also have no clear method, no bag of tricks, nothing special to offer.) I do, however, have a single purpose -- to encourage my students to think like an economist.

Tax or Fee?

The Tax Foundation has a short but interesting post on the murky distinction between taxes and fees:

The Tax Foundation holds that any assessment that raises money in excess of what is needed to defray costs is a tax, not a fee.

The issue arises here because the U.S. Embassy in London is exempt from taxes, but not fees. The city claims congestion pricing is a fee, but the embassy sees it as a tax.

The TF general definition above is not a bad rule of thumb, but is easily criticized. Which costs? Over what period? Costs for whom? The intention in the City-Embassy case is to relieve congestion (and its associated externalities), so prices are presumptively to temper (subjective) quantity demanded rather than cover accounting costs. The lottery raises revenue above cost, but it is hard to think of it as a tax.

My crude definition of "fees" is to use them as a synonym for benefit taxes, where the concept of deadweight loss becomes a bit murky. Benefit taxes most typically arise when the "tax" is tied to a particular service. Garbage collection, particularly if it is marginal cost pricing, is a simple example. For instance, the benefit-view of property taxation ultimately views the property tax serving this role when combined with zoning (the consequence of which is the absence of deadweight loss). This crude definition is also easily criticized. What constitutes a "service?" The services must also be "voluntary," and what does that mean? If gas taxes are solely for the purpose of road maintenance (and perhaps mitigating air pollution costs) then they are fees, not taxes. That would be a bitter pill to swallow.

Update: The Tax Foundation has another great post on this, this time in San Diego. In it, they describe fees as being tied to a particular service.

Jeopardy! Archives

Since I've talked about Jeopardy! before, I thought I'd send along this site, which houses the complete Jeopardy! archives. (Every time you load that page you get a new random Final Jeopardy question.) The list of all seasons is here. And if that's not enough, the real fun of the site is the wagering calculator.

Enjoy!

More Cash For Clunkers Unintended Consequences: Indian Country

Cash for Clunkers seems destined to own an unfavorable paragraph or two in future economic principles textbooks. This aspect is brought to my attention by frequent TPS commentator Jason Oberle. Here is his writing on the subject and here is an article he points us to from the Navajo Times.

Jason emphasizes the important role of salvage parts in "Indian Cars." Apparently, reservation life is particularly harsh on cars, so these vehicles are supplemented continuously with major parts from salvaged vehicles. C4C requires that the clunker being traded in is required to be destroyed. Jason suspects that, on the margin, this will increase transportation costs in Indian Country.

Tax Credits and Convicts

There was an interesting line in an otherwise embarrassing bit about the Philadelphia Eagles' signing of Michael Vick:

"If [the Eagles will] pay $1 mil+ to give Michael Vick a 2nd chance, how about leading the charge to help ex-offenders citywide? Philly is home to 200,000 people with criminal records. Those with drug convictions are legally barred from ... jobs at airports, nursing homes or in security, but they can do most other tasks. And yet, few if any companies took the city up on $10,000 tax credits to hire ex-cons."

(Emphasis is mine, and the quote above is from a Facebook entry by Philadelphia Inquirer columnist Monica Yant, not the author of the above link.)

But...Philadelphia offers tax credits for hiring ex-cons? Really?

Sure enough, Michael Nutter, mayor of Philadelphia headed up the program:

"So on his 100th day in office last month, Mayor Michael Nutter announced a program, being headed by an ex-offender, that gives $10,000 a year in municipal tax credits to companies that hire former prisoners and provide them tuition support or vocational training."

Not sure how I feel about this. On the one hand, the uneven tax code creates a clear distortion into the labor market. On the other, considering the recent policy proposals at the national level, at least Philadelphia isn't further taxing companies that aren't hiring ex-cons.

People often complain that convicts have a difficult time incorporating themselves back into society (whatever that phrase is supposed to mean, I view it as having a hard time finding a job). Well, convicts put forth the signal that they are riskier employees, and insofar that those going to prison are riskier employees (probably true as a whole, though I'm sure there are plenty of exceptions), the signaling process here likely isn't too far off.

The idea that this program could prevent future recidivism is an interesting one; that's something the data will have to bear. From the initial quote above, it doesn't sound like many companies are taking the mayor's offer.

What else could possibly help deter crime? I've always thought that dropping the minimum wage would allow the labor market to price riskier employees accordingly, allow them entry into employment, then build up a reputation as a reliable employee and move down the path of higher wages. It's non-distortionary and liberty enhancing. Seems like it's worth a shot to me.

Blockquoting X

X = Mayor Frank Melton, Jackson, Mississippi:

I certainly respect the Constitution, but we have some issues that are much bigger than the Constitution.

Melton is defending an executive order banning saggy pants.

Growth Theory and Taxation

As I'm always a fan of consolidating ideas/facts/available data into one place (maybe that's why I like rankings so much?), here's a new paper by Gareth Myles that does just that with economic growth theory and taxation. From the abstract:

"Economic growth is the basis of increased prosperity. This makes the attainment of growth a key objective for governments across the world. The rate of growth can be affected by policy choices through the effect that taxation has upon economic decisions and through productive public expenditures. This paper provides a self-contained introduction to the economic modelling of growth and reviews the theoretical evidence on the extent of the link between taxation and growth."

If the name sounds familiar, it's because Gareth Myles is the author of popular public economics textbook.

What Policy Implications Can Be Learned From Speed Dating?

In speed dating, it turns out that the party that sits is more selective while the party that rotates is more aggressive. From the Scientific Fundamentalist:

What they discovered was truly astonishing. In the traditional “men rotate, women sit” arrangement, men were significantly less selective in their mate choice; they checked “yes” for a larger number of women than women did for men, and they experienced greater sexual attraction and romantic chemistry with the women than women did with men. This is not at all surprising, as it is what evolutionary psychology would predict and it is what we normally observe in real life (less selective, more aggressive men, and choosier and more coy women). In sharp contrast, in the novel “women rotate, men sit” arrangement, women were just as aggressive and, as a result, less selective, as men were in their mate choice; they checked as many “yeses” for men as men did for women, and they experienced as much sexual attraction and romantic chemistry for the men as men did for women.

Finkel and Eastwick explain the reversal of the pattern with their embodied cognition hypothesis. Research on embodied cognition has uncovered some pretty interesting (if wholly mysterious) findings. For example, seated experimental subjects who place their palms on the bottom of a table and press up (a gesture associated with approach) rate neutral Chinese ideographs as more appealing than those who place their palms on the top of the table and press down (a gesture associated with avoidance). In other words, because they view the ideographs while they are engaged in the approaching gesture, they come to view them more positively.

In lobbying, I think it would be most appropriate to think of politicians as being those who remain seated in a speed dating game. At least part of a congressman's face time is spent with lobbyists that actively seek them out. If this speed dating study carries external validity, then politicians are more selective with extra-aggressive special interest groups than they would be otherwise.

For Fun: Suppose we could reverse the setting, and congressmen were required to attend something resembling a job fair, with prospective lobbyists instead of prospective employers. As a result politicians become more aggressive and special interests become more selective.

What are the consequences of this kind of institutional change? How do politicians manifest this "aggressiveness"? Better policy? More exploitative policy? Do the matches between politicians and lobbyists become more efficient (think Chicago School of Public Choice)? Is it just a transfer of surplus from politicians to lobbyists?

Quote of the Day

From Matt Kahn:

I was talking to a smart reporter today and he was telling me that he supports the Cash for Clunkers program saying that it not only benefits Detroit but also helps a variety of new car dealers who are more broadly scattered across the country. He got a pinch upset with me when I told him that if our sole goal is to stimulate new car sales then a more cost effective policy would be to release auto thieves from prison and let them get back to work.

Daily Show Interview with Austan Goolsbee

The Daily Show With Jon Stewart	Mon - Thurs 11p / 10c
Austan Goolsbee
www.thedailyshow.com
Daily Show Full Episodes Political Humor Spinal Tap Performance

Public good provision and crowding out of market provision

Here's a new paper from Andrew Reeson and John Tisdell, I am unfamiliar with them but I like the idea, emphasis is mine:

"There are many factors which can motivate people to contribute to public goods. These range from intrinsic motivations such as altruism, through social motivations such as concerns for fairness and approval, to extrinsic incentives which include sanctions and payments. Institutions help determine how these motivations are applied and expressed. Psychological studies indicate that extrinsic incentives can crowd out the intrinsic motivations which prompt voluntary contributions to public goods. We applied experimental economics techniques to examine how people in a public good dilemma respond to changing institutions. Our results showed that the introduction of formal institutions (a regulation and competitive tender) crowded out voluntary contributions, with the supply of public good increasing less than anticipated, and in some circumstances actually decreasing. In particular, the introduction of the competitive tender triggered a ‘market instinct’, with participants who previously had been expressing social preferences now seeking to maximise profits. The effects of crowding out persisted even after an institution was removed, suggesting that it may be difficult to reverse. We conclude that policy makers should tread carefully when considering formal institutions to promote public good provision, particularly where desired actions are already occurring voluntarily to some extent."

The story goes that markets fail to provide public goods, so governments step in and provide it. Public choice seems concerned with how that level is determined, why it's likely wrong, why it's likely to persist and why it's popular at the polls. But there should be more attention paid to the market-destroying aspect of public activity-- in this case, of providing public goods.

Probably the worst example to illustrate a point that I could find

Just a reminder that inequitable ends do not necessitate inequitable processes. Not to justify human trafficking-- it is a truly horrible act-- but consider this article on CNN this morning.

"Males come with a premium price tag in China. During a videotaped confession, a woman caught trafficking children two years ago told police that boys can sell for up to $1,200, girls for just more than $200."

Presumably, there's no additional hurdle or advantage to targeting males instead of females. Families protect their children equally, and due to cultural norms, males are more highly sought after. As mentioned above, the price for male children is six times that of female children. This does not mandate inequity in the market for male children as relative to female children. (Again, not justifying human trafficking, but comparing one act of human trafficking to another does get past a significant moral hurdle when analyzing with such appalling behavior.) Neither do differences in male and female salaries, nor male and female athletic participation rates. Inequitable processes produce inequitable ends; the reverse does not necessarily hold.

This comes to mind after talking with TPS friend and colleague Pavel Yakovlev over the last few days about Title IX; he has a fantastic paper in the works that I look forward to sharing here in the (hopefully) near future.

Clunk It!

ReasonTV weighs in on the Cash for Clunkers program.

We've moved!

No, not from the web address you're used to coming to, but the authors have had a high degree of mobility in the last few months. From the list at right, we are no longer directly connected to West Virginia University (Justin graduated last year, and I did the same this spring) or Appalachian State University (Claudia was an Assistant Professor there last year).

In their place, we've picked up New York University (Claudia begins this fall as a Post-Doctoral Fellow at the Development Research Institute) and Duquesne University (I begin this fall as an Assistant Professor). Also, when the blog started in December 2005, David was an undergrad at San Jose State University-- where I met him and TPS started. He finished at San Jose State in the spring of 2006 and headed east to George Mason. Well, we've now come full circle back to our roots-- Emily begins this fall as an Assistant Professor at...San Jose State!

(The unmoved over the summer are Justin at Indiana University, and both David and Will at George Mason University.)

The appropriate links are at right. I've decided to order the links by accrued tenure here at TPS. David is beginning his fourth year at George Mason, and both Will and Emily have added years to the running tally-- this tops the list. From there, Justin's year at Indiana University places it second. David's one semester at San Jose State puts it third, and Duquesne University and New York University are new to TPS.

Union Intergenerational Preferences

Megan McArdle writes:

In theory, labor organizers shouldn't demand so much that their industries become uncompetitive. In practice, however, as we've seen with Chrysler and GM, they can and do.

I am not very familiar with the details of collective bargaining theory, but I would be surprised if this was really true. McArdle is usually right with her references to theory, so I'm asking what assumptions about industry survival preferences by unions are commonplace?

I would assume that the objective of a labor union would be to maximize the wealth of its current members. The union members of Generation t would probably want their firm during Generation t+1 to remain competitive enough to pay its pensions and liabilities, but why would they care about Generation t+2 and forward?

Book Review: Evil Genes

If you watch Dexter and enjoy his inner monologue, then you would probably enjoy Evil Genes: Why Rome Fell, Hitler Rose, Enron Failed, and My Sister Stole My Mother's Boyfriend by Dr. Barbara Oakley. If Amazon rating terms, I would give it 4/5 stars.

The focus of EG is a very particular type of sociopath that Oakley terms "Machiavellian," after the famous author of The Prince. Despite representing a fantastically small portion of the population, these high functioning psychopaths are supremely successful at making their way to the most prestigious positions of society: Stalin, Mao, Milosevic, and Hitler. Machiavellians simply seem to derive pleasure from the success of manipulating others, and while they do not feel compassion or empathy for the emotions of others, they are supremely gifted at recognizing emotional ques. There is no ideological guide for them, the purpose is only to manipulate.

Oakley's book covers the genetic and environmental mechanisms that seem to be necessary for both the development and success of Machiavellians. For instance, neurologically the area of the brain that allows us to recognize the emotional ques of others is considerably larger than in a normal person. This allows them to recognize and quickly decipher ways to appeal to and manipulate our emotional responses. This allows them to move successfully through society, and likely is a contributing factor to just how successful they appear to be in politics.

The most brilliant aspect of this book from a story-telling standpoint is the way Oakley wraps the narrative in with her late sister, whom she identifies as being one of these individuals. At the beginning, she introduces her sister with a heart-wrenching story of how her sister stole her mother's (much older) boyfriend so that she could take her mother's place on a trip to France. Throughout the book, Oakley tries to unravel her sister's identity and make sense of her outlandish behavior, and it makes for an extremely interesting narrative.

Some other reviews I have read found the story of Oakley's sister to be the most troubling, since she is dead she can't defend herself, and I can see where that comes from after trolling through her diaries. However, I actually became more sympathetic to her sister as the book progressed, to see how truly miserable these people are, and while people have differing predispositions to Machiavellianism, the story of her sister seems to have a strong environmental component in her polio treatment as a child. By the end, I felt sorry for her sister, as most of us might once we learn the personal histories of individuals with psychopathy.

What Progressives will like about this book: Machiavellians have been particularly adept in communist systems. Classical liberals frequently argue that socialism fails not because they didn't get good leaders, but because socialist institutions have poor incentives and constraints. The historical popularity of communist Machiavellians provide a rejoinder, in part it was that there were really bad people running the system.

What Conservatives will like about this book: You get a sense of hopelessness about the possibility of reforming these people. Tough on crime conservatives that prefer the death penalty would probably find supporting material to justify their punishments in this book.

What Libertarians will like about this book: The fascinating inspection of the way Machiavellians move through politics, particularly in communist societies. It is all ready recognized that politics has a tendency to self select people with Machiavellian traits, but the review of the damage these people are capable of doing in a centrally planned system is incredible.

What can be skipped: Chapters 3 & 4, while interesting, are mostly a primer in neuroscience and reading brain scans. While the book discusses neurotransmitters and examines brain scans in every chapter, I suspect that the underlying motivation for these chapters is to nail home the point that this book does not serve as an argument for genetic screening or eugenics.

Random Fact I Learned: The language(s) you learn reorganizes your neurphsiology. Native speakers of Chinese literally see the world differently from native English speakers. Visually, an English speaker initially focuses on individual objects and the background fills in to support it. Chinese speakers see the big picture first, and eventually grasp sight of the individual objects.

Somewhat Related: Search the archives of the DOL blog for Ed Lopez's series of posts discussing The Prince. They were very interesting dives into select passages of Machiavelli's work.

Seeing the Corporate Tax Tree from the Forest of Taxes

A couple of days ago I linked to a study by the Tax Foundation about corporate taxes and their downward effect on wages. Today, they offer an international comparison of corporate tax rates.

I've always heard that, bitch as we may, the United States still does pretty well with regards to the whole picture of taxes as compared to other countries. Capital account surpluses certainly speak to this idea. But the Tax Foundation gives a different story. Then again, it could be the case that the U.S. could have a comparatively poor corporate tax system but a very favorable everything-else system. This would hold true if, for example, the U.S. imposed only corporate taxes. I know that isn't the case, but that would be an explanation that would fit both sides.

Time to consult the Economic Freedom of the World Index!

How does the U.S. do in Area 1? (Area 1 is the Size of Government: Expenditures, Taxes and Enterprises.) Out of the 130 countries that get a score, the U.S. ranks 40th. However, the crux of the Tax Foundation report is that the U.S. has the second worst corporate tax rate in the OECD, trailing only Japan. How does the U.S. do in the freedom rankings concerning government expenditure and taxation compared to these countries? Considerably better; only three of the OECD countries mentioned in the Tax Foundation report-- Mexico, Switzerland, and Turkey-- score better than the United States. The other twenty-six have more onerous governments to deal with.

Granted, we're comparing 2009 tax rates with the most recent Freedom of the World Report, which outlines 2006-- but could things have changed that drastically in three years? I'd say probably not. I think this is a case of picking one tree from the forest. Those in West Virginia that like to say things aren't so bad do the same thing-- find one tax rate (personal income tax is a good example, if I remember correctly) that's comparable to the rest of the country, then say, "See? Taxes can't be the problem."

Don't get me wrong-- lower corporate taxes would be better. Absolutely. Cut them. Keep cutting them-- because they do matter. And I love the story the Tax Foundation provides that shows just that:

"Great Britain has found out [that companies will relocate in the face of high taxes] the hard way. Last year, Google moved its European operation from London to Switzerland to lower its tax bill and McDonald's recently announced that it was doing the same. Great Britain's relatively high corporate tax rate combined with its world-wide tax system has caused an exodus of domestic firms to lower-taxed countries such as Ireland and Switzerland."

But sometimes-- and especially when it comes to tax systems-- it's useful to see the entire forest from the trees.

Measuring Growth from Outer Space

There are some very cool images in a recent NBER working paper measuring economic growth with satellite images of brightness at night by Henderson, Storvegard, and Weil. I'll put a teaser here and the rest below the fold (click to enlarge).



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Compare the change in Romania and Hungary with that of Modolva:

Scatter Plots:

Corporate Taxes and Wages

The Tax Foundation has a new report out today looking at corporate income tax rates and their impact on wages. The pdf of the study is here. Here's the gist:

"Specifically, a one percent drop in the average tax rate leads to a 0.014 percent rise in real wages five years later. In dollar terms, that means wages rise $2.50 for every one dollar reduction in state-local corporate income taxes.

[...]

Altogether, this body of work draws into question the conventional wisdom that corporate taxes add to the progressivity of the tax system. If instead of burdening capital, the corporate tax primarily burdens labor, as this study finds, then the corporate income tax does not add to the progressivity of the tax system."

I added the emphasis. The Tax Foundation is a great place to find tax research on the impact of taxes at the state level.