What I've Been Writing

Been slow on the blogging with the start of the new semester. Here is some of what I've been doing in my real job:

"Is There Crowd Wisdom in the Judgment of Experts? Evidence from College Football Rankings"
My work on college football poll bias with Sarah Larson and Chad Wall. I blogged the abstract before, but the paper is now online for the first time.

"Robustness and Vulnerability of Community Irrigation Systems: The Case of the Taos Valley Acequias."
A paper grounded in the Bloomington School of Public Choice tradition by Michael E. Cox and I, as we study the complicated issue of property rights to water.

Comments are welcome, and contact information is on the title page if you have any you'd like to share.

If you look only at costs...things look pretty costly!

CNN reports on a new study put out by Economics of Climate Adaptation Working Group which states that climate related disasters have killed over 800,000 people and caused over $1 trillion in economic losses. You know where this is going-- humans are causing global warming, global warming kills people, so every day that you drive a car you're relegating your future self to that much more purgatory. We've talked about this before.

The main issue I have with this study-- and with global warming alarmism in general-- is that it's looking only at the cost side of the situation. Look at the case studies the report provides-- hurricanes in Florida, droughts in Africa, rising sea levels in Samoa. (Talk about bad timing on that last one.) I'm not denying that these events and costs could have occurred as a result of an increase in global temperature-- it's not exactly a ceteris paribus analysis, but for the sake of argument, let's say that's the case. The problem is that the analysis (from my perusing of the report) completely ignores the benefits of temperatures rising. What if the case studies were as follows: Crop proliferation in Canada, arable land impact in Ukraine, days of sun for youth baseball players in America. Wouldn't the end result look different? It may still be negative on net-- if that's the result you need, there is so much leeway in doing a global cost/benefit analysis of climate change that you can generate just about any result you like-- but in any case, it would have to be less than the stated result simply because you're adding benefits to the costs-only calculation.

The actual report itself is here and the executive summary is here.

Juicing the Mitchell: Olympics Edition

In the post that started it all, I see that it was our own Will Luther that came up with the moniker "juicing the Mitchell." It should also be noted that was before he was a TPS member. So that seems to be the carrot: Come up with a good phrase, and you're part of the team.

Anyhow, here's the latest installment with more here.

A clip:

"I think it's baffling that the president has time to travel to Copenhagen," said Sen. Kit Bond, R-Missouri. "[Obama's] got a lot of responsibilities. His number one responsibility is to keep our country safe."

I couldn't imagine another move that would keep our country safer.

Books That Make You Dumb

To clarify, 'you' refers to your school and 'make you dumb' implies that the average ACT/SAT score is lower. Fortunately, 'books' is not a proxy; we are actually talking about books.

Nonetheless, you should check out this quick and dirty regression. The result: school's who prefer Atlas Shrugged to Fahrenheit 451 also report higher test scores.



[HT: Libby]

Region Focus: On Credit Regulation

The latest issue of Region Focus is available, and mostly covers credit and financial regulation. It is well worth the time for those of us who would like a short primer on the subject. Here is an excerpt from Jeffrey Lacker on "On The (Limited) Role of Credit Ratings in the Financial Crisis":

One plausible reason investors bought these securities involves the incentives built into the capital requirements that financial institutions must observe. Credit ratings issued by the agencies were used to assign “risk weights” to the securities banks held. If the grade was high, banks could hold less capital as a buffer against losses. That gave banks an incentive to hold the highest-yielding (that is, riskiest) securities with any given rating — in short, potentially overrated securities.

There is much more worth reading in the issue: a summary of Milton Friedman's contribution to global economic growth, the economics of speeding tickets, whether or not the line-item veto reduces state spending, what prolonged the Great Depression, and CEO (over?) compensation.

Presidential Lobbying

Do those on the receiving end of lobbying efforts become good lobbyists themselves? Has anyone looked at this? I'd love to see someone try to tackle that one. Maybe political returns to businesses with former Congressmen on their board of directors?

Anyway, here's Obama heading to Denmark in an attempt to get the Olympics in Chicago in 2016. (Which, I just realized, would be at the end of his second term, if he makes it that far, and would conceivably be a boon for the Democratic party in that fall's presidential election.)

Arbitrary Ranking of the Day...

...because who likes those wily CEOs and all that money they make? Here's a listing of the 5 most overpaid, which, as best as I can tell, is determined by some arbitrary metric of salary and bonuses in light of stock performance.

The irony being, of course, that CEOs are generally compensated with stock options, meaning these folks got paid less due to the performance of their respective corporations. Maybe it's an argument for a higher variance pay structure-- less when companies perform poorer, more when companies do better. Something tells me that's probably not the case.

Pilots, Flying and US Airways

I had the good fortune of sitting next to an operations manager on a recent flight; here's what I learned about US Air:

- US Air currently employs 3,000 pilots; this number seemed shockingly high to me, though the more I think about it the more I can get my head around it. And this number is down from 5,000 just a few years ago.

- Many pilots have other occupations; attorneys and doctors were the most common alternative jobs. Also surprising. Pilots schedules are pliable, same with attorneys (and I suppose with certain types of doctors as well), so I guess there was no reason to believe this couldn't occur. Pilots: More like NFL referees than you thought.

- It takes roughly a month to train the pilot of one aircraft to fly a different aircraft; think 737 moving to A320. I'd have thought this would be longer.

(The lesson, evidently, is that I knew far less about pilots than I had previously thought.)

- I entertained the possibility that, since the military can fly drones, airlines could be moving down the same path-- planes flown from remote locations. She doubted the possibility, but I think this could gain some traction in the future.

Since the technology exists, I don't believe incorporating it would be inordinately expensive. The larger issue would be who would be left to fly the plane from the remote location. Would we just shift pilots into these roles? If that's the case, the cost savings wouldn't be much, but if there's a more fully automated way to fly the planes then the bottom line impact could potentially be significant. She felt that someone would be needed on the plane in case of emergency; I can't think of a situation where having a pilot physically in the cockpit would be the difference between avoiding a disaster. (In the sense that if, say, the rudder fails, there is nothing that the pilot could do in the cockpit that a properly connected pilot in a remote location couldn't do.)

Which does bring up the issue of connectability. Losing remote connection could be catastrophic; I'm confident that advances in technology could mitigate this to a near zero probability.

In my mind, the largest hurdle would be the separation of the well-being of the pilot from the well-being of the passengers. If the pilot is on the plane with you, the incentives are nicely aligned-- there is much less need to worry about inordinately risky flying. Personally, I don't think this would be a large issue--but the mental security of it could be enough to make some passengers not want to fly.

Any thoughts?

Why I Don't Worry About Information Cocoons

During Tyler Cowen's EconTalk on the personal narrative meme from his new book, I began to wonder how those concerned with information cocoons will respond to TC's view. Tyler sees us taking bits and pieces of information from a variety of sources, where we weave them together to create a story that is highly specific to what interests us.

I think this idea already existed, but with a much more critical outlook. For instance, Cass Sunstein brings up his concerns that the internet will create "information cocoons" in the form of a "Daily Me." In this view, part of my personal narrative may be to consume information that only fits my preconceptions of how the world should work, while isolating myself away from information that may undermine that worldview. In principle, Cowen and Sunstein are watching the same phenomenon, and Cowen is remarking on the cultural benefits of this change, whereas Sunstein is concerned about the consequences of our personal narrative on our ability to deliberate effectively.

I think the "information cocoon" concern is a reasonable one to entertain, but in practice its consequences are equally likely to create the opposite outcome. While it is perfectly reasonable for to expect that some people will cocoon themselves off from contrasting point of views, this does not seem to be the dominate model in the blogosphere. The most popular blogs seem to be the ones where the author's view may or may not be one-sided, but they package it in the form of contrasting their views with their opponents. Granted, the opposing opinion is only being brought up so that it may be ridiculed, but the issue at hand is exposing people to contrary points of view. This post by Megan McArdle is a nice example.

At the end of the day, the real question is whether or not people expose themselves to contrary points of view more often as a result of the information age. I think they do, but comments are open if you wish to demolish this cocoon of mine.

Creative Destruction

I am not referring to the Schumpeterian kind, but rather the let's-find-a-way-to-avoid-tariffs kind. From the WSJ:

Several times a month, Transit Connect vans from a Ford Motor Co. factory in Turkey roll off a ship here shiny and new, rear side windows gleaming, back seats firmly bolted to the floor.

Their first stop in America is a low-slung, brick warehouse where those same windows, never squeegeed at a gas station, and seats, never touched by human backsides, are promptly ripped out.

The fabric is shredded, the steel parts are broken down, and everything is sent off along with the glass to be recycled.

Why all the fuss and feathers? Blame the "chicken tax."

The seats and windows are but dressing to help Ford navigate the wreckage of a 46-year-old trade spat.

The bottom line:

Installing and removing unneeded seats and windows costs the company hundreds of dollars per van, but the import tax falls dramatically, to 2.5 percent, saving thousands.

American ingenuity at it's best, no?

2009 Gus Rankings: Week 3

Week 3 of the Gus Rankings are out, you can find them here.

A few things of note:

- Again, points are the wins of your opponents you defeated less the losses of the teams that beat you, concerning only games with two I-A teams.

Washington, which currently sits also at the top, is a good team to look at. They have 4 points because they defeated two teams-- USC and Idaho-- that have themselves each defeated two other teams. Further, the team that Washington lost to (LSU) hasn't lost any games yet, so they lose nothing for that loss.

Consider the possibilities for the rest of the season. If USC and LSU have great seasons, this further helps Washington. If they slip up and have less than phenomenal seasons, this mitigates the value of those wins. Win value now is not the same as win value later; this is different than the traditional polls, and I think it's an advantage.

Which bring us to the Idaho victory that is really helping Washington at the moment--I would gather that many people feel they are not too strong. What does this mean? As the season winds on, they will end up with a lukewarm record-- maybe somewhere around .500, maybe even less. This reduces the value of the Idaho victory for Washington as the season moves on; again, values of wins and losses change from week to week.

- I'm debating a few of the tiebreakers. Namely, if two teams have the same number of points, should a 2-1 team be ranked ahead of a 1-0 team? As it sits now, they would be-- though their winning percentage is less, and that tends to be a default tiebreaker in many cases. I'm noting how the measures do in predicting games (see next bullet point), so it's of importance now...but moving towards the future, as the complexity of the points system emerges, this will subsequently become less important.

- The benchmark for the Gus Rankings are the Sagarin rankings, the go-to power rankings (in my opinon) in college football. Taking last week's rankings and simply seeing if the higher team won (again, only in games in which both teams were I-A), the Gus Rankings were 25-22 and Sagarin went 38-14. Sagarin is able to predict a few more games than us because he has no ties in his rankings. We had quite a few ties last week but, again, that will diminish as the season goes on (13 different ranking levels last week, 32 this week).

- Southern Methodist went from #8 last week to #81 this week. Yikes!

Markets In Everything: Renting Chief Financial Officers by the Hour

From the WSJ (Hat Tip Jason Oberle):

Some small-business owners in need of accounting help to balance their books and guide them out of a financial black hole are renting CFOs rather than hiring them. The strategy comes at a time when the deep recession has forced small companies to look for money-saving alternatives that can yield good returns yet avoid substantial overhead costs.

[...]

The average annual salary for a full-time CFO in a small- to medium-size businesses ranges from $94,250 to $175,750, according to a 2009 Salary Guide by Robert Half International Inc., a Menlo Park, Calif., staffing services firm that serves the accounting and finance fields. Renting one can be significantly cheaper.

B2B CFO Partners LLC, a Phoenix, Ariz., firm that has over 100 CFOs-for-rent, charges at least $300 to $400 per month for the service. The company has doubled the number of small- to mid-size business clients to 650 since 2007, says Jerry L. Mills, founder and chief executive.

Questions from the drive to work this morning

1) Bumper stickers are popular around election times and, of course, these linger well beyond the polling date. One of my neighbors' cars has a number of no-W stickers on his car; I presume he was content with the last election. Maybe he just doesn't like the letter W.

Anyway, if we were to track who gets in car accidents and what bumper stickers were on their cars, how do you think that would play out? I think there's more pro-Obama stickers out there to be had, so that needs controlling for, but I'd be curious to see the results.

And what do you think the bumper sticker distribution on redeemed cars in the cash-for-clunkers program was?

2) Why is it that when people write reviews online, the negative ones are so much more so in magnitude than the supportive ones? Do people really get that upset over something that didn't go their way? I know from writing op-eds that you're not going to ever get lukewarm responses to your work; cost-benefit wise, it's just not worth it to voice your opinion when you're not feeling strongly one way or the other.

I think it's based in surplus. If you buy something and you like it, you've got some surplus from the matter, but if you buy something and don't like it, you're put yourself in a worse-off state (at least in relation to where you thought you'd be). Maybe people react proportionately more strongly being worse off than better off, but I'd be willing to wager that if you were to measure the surplus of the situation, you'd be losing more than you'd be gaining. Granted, measuring surplus is going to be extremely difficult if not impossible, but let's put that aside for the moment. Maybe it's your perception of matter-- if you order a $200 suit, you feel enjoyment from it, but remember the $200 outlay. If you order a $200 suit and it somehow doesn't satisfy you, you feel like you're out $200-- perhaps perceiving value below cost is a difficult concept for the mind to grasp. I don't know...but there's got to be more to the matter of vicious negative reviews than "people respond more strongly to bad things than good things."

3) Per the post on Michael Moore's new movie, is he currently the most successful anti-capitalist around in a capitalist society? I suppose it's all in the definition; I view "anti-capitalist" in this sense as someone willing to plainly denounce the market process, and "successful" as gaining momentum in people accepting his views.

Small State Bias

Here's a new paper concerning the small state bias, from the abstract:

Most of the estimated impact is not a scale but a change effect. Rather than evidence of ”small state advantage", we find that states with fast growing population are penalized in the allocation of the federal budget independently of whether they are large or small.

The time frame they look at is from 1978-2002. Bill Shughart has done work in this area as well, this comes immediately to mind. I particularly like that Shughart, et al., paper because it looks at different time frames and isolates when we may be seeing a small state bias and when we can likely eliminate the existence of such a bias. Namely, there may be evidence in the 1970s, but not afterwards. In light of this result, the above paper seems to be driving home a similar point.

Pre-Smith Arguments for Capitalism

Interesting blog post in the form of a book review at Sociological Imagination. A nugget:

Social thinkers in the 16th and 17th century were anxious to come up ways to tame the “passions” of kings and aristocrats that had wrecked havoc over Europe during the middle ages. Writers such as Bacon (1561-1626) and Spinoza (1632-1677) speculated that that the expansion of commerce might just do the trick. Commerce, they observed, tends to pit people’s greed (or “interests”) against their “passions” (such as lust, jeaously, pride, religiosity, bravado). A social order that gave maximum scope for people to pursue their interests would also subdue their destructive passions. Doux-Commerce (”Commerce Sweetens”) as the French writer Montesquieu (1689-1755) put it. The hope was held out for a more peaceful world.
[...]
It is ironical, Hirschman notes, that the current social critics denigrate capitalism for promoting people’s money-making proclivities at the cost of other impulses such as loyalty, religiosity, love, or in other words–their “passions.” It was exactly this aspect of capitalism that held attraction for the social thinkers three centuries ago.

Income Inequality Exageration?

Misperceptions About the Magnitude and Timing of Changes in American Income Inequality by Robert J. Gordon - #15351 (EFG LS PR)

Abstract:

The rise in American inequality has been exaggerated both in magnitude and timing. Commentators lament the large gap between the growth rates of real median household income and of private sector productivity. This paper shows that a conceptually consistent measure of this growth gap over 1979 to 2007 is only one-tenth of the conventional measure. Further, the timing of the rise of inequality is often misunderstood. By some measures inequality stopped growing after 2000 and by others inequality has not grown since 1993. This cessation of inequality's secular rise in 2000 is evident from the growth of Census mean vs. median income, and in the income share of the top one percent of the income distribution. The income share of the 91st to 95th percentile has not increased since 1983, and the income ratio of the 90th to 10th percentile has barely increased since 1986. Further, despite a transient decline in labor's income share in 2000-06, by mid-2009 labor's share had returned virtually to the same value as in 1983, 1991, and 2001.

Recent contributions in the inequality literature have raised questions about previous research on skill-biased technical change and the managerial power of CEOs. Directly supporting our theme of prior exaggeration of the rise of inequality is new research showing that price indexes for the poor rise more slowly than for the rich, causing most empirical measures of inequality to overstate the growth of real income of the rich vs. the poor. Further, as much as two-thirds of the post-1980 increase in the college wage premium disappears when allowance is made for the faster rise in the cost of living in cities where the college educated congregate and for the lower quality of housing in those cities. A continuing tendency for life expectancy to increase faster among the rich than among the poor reflects the joint impact of education on both economic and health outcomes, some of which are driven by the behavioral choices of the less educated.

Blockquoting X

X = David Romer:

If you find yourself thinking 'But that's how the game is played,' slap yourself. If that doesn't work, take up sheep farming.

Gender, Corruption and Development

I'm not sure that I like the policy suggestions that could come from this study, but it's interesting nonetheless:

Numerous studies have found negative connection between corruption level and economic development. At the same time few of them demonstrate correlation between women representation in politics and corruption level. This paper analyzes correlation between gender and corruption for a specific sample of countries, sharing common cultural and historical legacy – transition countries. Relationship between higher number of women in parliament and decreasing level of corruption is supported by data. Relations with other forms of women social activity were found to be insignificant. Contribution of this paper to the research literature on this topic is twofold. First analysis on gender and corruption in transition economies has previously not been done. Second, this study could also be used for the practical policies on fighting corruption by application of gender quotas.

My Top 10 Non-Munger EconTalk's

This is based on a request from a student. The list is geared towards students or others without an econ background, that I would use to try and get them interested in the subject. It is "non-Munger" because it is easy enough to just say "all the ones with Munger are excellent." If I get a chance soon, I will rank my favorite Munger episodes, just for the fun of it.

1. Roberts on the Least Pleasant Jobs
2. Michael Lewis on the Hidden Economics of Baseball and Football
3. Bruce Yandle on Bootleggers and Baptists
4. The Economics of Religion
5. The Economics of Organ Donations
6. Boettke on Katrina and the Economics of Disaster
7. Caplan on Discrimination and Labor Markets
8. McKenzie on Prices
9. Sowell on Economic Facts and Fallacies
10. Caplan on the Myth of the Rational Voter

I was really splitting hairs to make this list. I found it very difficult to keep the list at 10, and there are several I like more but thought they'd be less interesting to someone new to the subject.

2009 Gus Rankings: Week 2

As promised, we here at TPS will be following the college football season with our own version of ranking teams-- the Gus Rankings. The outline of the methodology is here.

Here are the rankings for Week 2 (after the second week of games).

Some points of interest:

- The rankings incorporate information only from this season and only from games played. Thus, since there's only been two weeks of games, there isn't much information to incorporate. That is why you see a lot of ties. That being said, there is a decent amount of variation amongst the teams-- there are 13 different levels after just 2 weeks. Variation will increase dramatically with each week, as more teams play more games and, more importantly, teams' opponents will have played more games. Note also that after only two weeks, the rankings discern a single worst team-- Washington State. Recall that the BCS rankings-- those rankings used to determine who plays for the National Championship-- are released only after 6 or 7 weeks, largely (I presume) for the information shortcomings I just described.

- The rankings are as follows: Most points, then sorted by most wins, then sorted by least losses. Ties that are still tied after that are simply listed alphabetically at the same ranking. There are a lot of ties, so there are a lot of tiebreakers sorted in the above manner. Again, expect the ties to diminish rapidly over the upcoming weeks.

- For this season, games against FCS opponents (previously I-AA) won't be counted. The above methodology for adding wins and subtracting losses doesn't hold when considering teams from other divisions. That means wins and losses against teams in I-AA simply mean the team had a bye that week. I think this is the best way to handle the situation. Rankings matter most at the upper end of the distribution, and most FBS teams (previously I-A) will win their games against FCS opponents; those that lose are likely to be nearer the bottom of the rankings, and will not be the focus of rankings in general.

It will be interesting to see how the rankings develop over the course of the season. Given its simplicity and plain objectivity, there are a lot of reasons to like it.

The Market Failure Misnomer

In the latest issue of Georgetown Public Policy Review, a journal where public policy makers are the intended audience, I argue that externalities and public goods should be discussed as institutional failures rather than market failures. I believe "market failure" language directs thinking towards nudging the market or abandoning it completely, when the root of the problem is an underlying failure of legal, political, or cultural institutions. Here is the abstract:

Two of the most recognized and discussed “market” failures in public policy exist when spillover effects on third parties exist to market transactions, and when individuals can enjoy the benefit of a good or service without paying for its provision. In this essay I illustrate these forms of market failures are actually institutional failures to adequately assign property rights. Recognizing this and framing them as a problem of property rights has helped economists and policy makers discover various innovative solutions that were previously overlooked. Policy makers who similarly frame these difficult problems as such, may themselves contribute to the ever expanding domain of new solutions.

It is a short essay, about 5 pages double spaced.

Reconsidering NASA's Budget

I love this title: The $150 Space Camera: MIT Students Beat NASA On Beer-Money Budget.

The two students (from MIT, of course) put together a low-budget rig to fly a camera high enough to photograph the curvature of the Earth. Instead of rockets, boosters and expensive control systems, they filled a weather balloon with helium and hung a styrofoam beer cooler underneath to carry a cheap Canon A470 compact camera. Instant hand warmers kept things from freezing up and made sure the batteries stayed warm enough to work.

Of course, all this would be pointless if the guys couldn’t find the rig when it landed, so they dropped a prepaid GPS-equipped cellphone inside the box for tracking. Total cost, including duct tape? $148.

And the photos look really cool.

The MIT kids have a web page. Check it out.

Juicing The Mitchell: Congressional Name Calling Guidelines

House Rules Committee chairwoman Louise Slaughter reminds everyone what names the President can be called:

Under clause 1(a)(1) of Rule XI, the rules of the House are the rules of its committees as far as applicable. Consequently, Members should comport themselves with the rules of decorum and debate in the House and in Committees specifically with regard to references to the President of the United States as stated in Section 370 of the House Rules and Manual.

As stated in Cannon’s Precedents, on January 27, 1909, the House adopted a report in response to improper references in debate to the President. That report read in part as follows:

“It is... the duty of the House to require its Members in speech or debate to preserve that proper restraint which will permit the House to conduct its business in an orderly manner and without unnecessarily and unduly exciting animosity among its Members or antagonism from those other branches of the Government with which the House is correlated.”

As a guide for debate, it is permissible in debate to challenge the President on matters of policy. The difference is one between political criticism and personally offensive criticism. For example, a Member may assert in debate that an incumbent President is not worthy of re-election, but in doing so should not allude to personal misconduct. By extension, a Member may assert in debate that the House should conduct an inquiry, or that a President should not remain in office.

Under section 370 of the House Rules and Manual it has been held that a Member could:

• refer to the government as “something hated, something oppressive.”
• refer to the President as “using legislative or judicial pork.”
• refer to a Presidential message as a “disgrace to the country.”
• refer to unnamed officials as “our half-baked nitwits handling foreign affairs.”

Likewise, it has been held that a member could not:

• call the President a “liar.”
• call the President a “hypocrite.”
• describe the President’s veto of a bill as “cowardly.”
• charge that the President has been “intellectually dishonest.”
• refer to the President as “giving aid and comfort to the enemy.”
• refer to alleged “sexual misconduct on the President’s part.”

However, the Senate rules on decorum and debate do not prohibit personal references to the President. Senate Rule XIX governing decorum and debate is applied only to fellow Senators and “does not extend to the President, the Vice President, or Administration officials and a Senator cannot be called to order under rule XIX for comments or remarks about them...” (Senate Procedure, p. 741). The Senate rules also provide that Jefferson’s Manual is not part of the Senate rules (Ibid, p.754).

By contrast, the rules of the House specifically provide that Jefferson’s Manual does govern the proceedings of the House where applicable (Clause 1 of Rule XXVIII). Section 370 of Jefferson’s Manual states that the rule in Parliament prohibiting Members from “speak{ing} irreverently or seditiously against the King” has been interpreted to prohibit personal references against the President. In addition, Speakers of the House have consistently reiterated, and the House has voted, to support the proposition that it is not in order in debate to engage in personalities toward the President. The Chair enforces this rule of decorum on his own initiative.

Hat Tip to Jason Oberle, who immediately recognized the Juicing the Mitchell potential, as well as this blogger.

Note that in 1909, Congress passed the 16th Amendment and sent it to the states for ratification. Summarized by Wikipedia:

The Sixteenth Amendment (Amendment XVI) to the United States Constitution allows the Congress to levy an income tax without apportioning it among the states or basing it on Census results. This amendment overruled Pollock v. Farmers' Loan & Trust Co. (1895), which limited the Congress's authority to levy an income tax.

Coincidence?

New York's "Amazon Tax"

The Tax Foundation has joined Amazon in the fight against New York compelling Amazon.com to collect sales taxes on its business done within the state even though it does not maintain a physical presence there. The brief itself is here and a summary of it is here. To the law folk out there-- since this involves a company in one state being ordered to collect in other, wouldn't this seem to default to the Supreme Court? Or is it not interstate commerce, per se, since it deals with sales only in New York and the fact that Amazon is in another location is beside the point? Perhaps I'm confusing issues. In any case, this figures to have quite a precedent for online commerce.

Rent-Seeking: No Such Thing as Free Eye-Candy

From the Journal of Urban Economics, "Marriage and the City: Search Frictions and Sorting Singles." Abstract:

This paper develops and tests a model where cities play an important role as marriage markets. The idea is simple. Cities are dense areas where singles can meet more potential partners than in rural areas. To enjoy those benefits, they are willing to pay a premium in terms of higher housing prices. Once married, the benefits from meeting more potential partners vanish and married couples move out of the city. Attractive singles benefit most from a dense market and are therefore more likely to move to the city. Those predictions are tested and confirmed with a unique Danish dataset.

So existing property owners would benefit from increased density in the form of having more attractive buyers bidding up their price. Another way to think about this is that as you move further away from the dense city center, you are exposed to less attractive people, but are compensated for it with lower rents.

Bhutan's Constitution

At first glance, this article looks like an easy cheap shot at happiness research-- maybe something to the effect of "Hey, this makes as much sense as any happiness research out there!" or "Note to self: include "trees" variable in all future happiness regressions." But then along comes this beauty of a line, emphasis added:

Bhutan's constitution, which emphasises the importance of Gross National Happiness over Gross Domestic Product, stipulates the country must have at least 60 percent forest cover.

Really?!

Here's the home page for the Constitution of Bhutan. Note that their Constitution has a comments section; this one of the five best things I've heard this year. My happiness increased.

Their Constitution was passed in 2008. "Happiness" comes up once in the Preamble and twice in the Articles of the Bhutan Constitution, and then once more when the Bhutan National Anthem is written out; the word does not appear in the U.S. Constitution, and comes up only 40 times in the entirety of the Federalist Papers.

From the Bhutan Constitution:

Article 9 - Principles of State Policy: "The State shall strive to promote those conditions that will enable the pursuit of Gross National Happiness."

Article 20 - The Executive: "The Government shall protect and strengthen the sovereignty of the Kingdom, provide good governance, and ensure peace, security, well-being and happiness of the people."

Bhutan is not currently rated in the Economic Freedom of the World rankings; generally that is not a good sign. (The 2009 rankings just came out today, by the way.) Their GDP per capita is about $5000. India finances almost 60% of their public sector activity. Their population is roughly that of Alaska's and, in terms of land area, are slightly larger than Maryland. Archery is the national sport and the only Olympic sport in which the country has participated, and darts and cricket are popular as well.

File this under: Property rights problem, things that sound like

Upon climbing into my car this morning, I found the following note under my windshield wiper, verbatim:

Please park on your side of the street. No one from this side (block) parks on your side! Seriously, this has become a problem, park on your own side and be courteous to us as we are to you.

Since the Steelers game was last night, I needed a nice pick-me-up this morning, and this note did the trick nicely.

My thoughts:

1) Clearly, there are no property rights on a public street, but could pseudo-property rights to areas of a city block emerge in a common law fashion? And how strong could they become? Demsetz explained beautifully that property rights emerge when it is profitable for them to do so; is there enough value in not crossing the street for a rudimentary system to evolve? I'm intrigued. And under what circumstances would these rights emerge to become strongest? Exceedingly busy streets with numerous parkers and a low average availability time for an open spot would seem unlikely because you would rarely get a spot in a similar locale day after day (think New York), and I think the perceived ability to get a spot in the same area regularly plays, rightly or wrongly, a strong role in the emergence of the pseudo-right. But desolate streets wouldn't see the emergence either, since there wouldn't be a profitable reason for the right to develop (think one fisherman for the entire Pacific Ocean).

2) Along the same lines, the concept of "your side" is lost in the fact that, again, there aren't any property rights to the street.

3) The argument of courteous behavior compelling reciprocal behavior is also interesting. I presume it's an attempt to forge a Folk Theorem-like cooperation in the long run. Especially of interest to me is the use of "courteous" as a carrot for spreading automotive well-being. Given the wording of "your side," I presume that a) the note-leaver would prefer to park on "his side" of the street because b) it's closer to where he lives, and therefore a shorter walk. Note that self-interest aligns with the "courteous" behavior. All considered, as an economist, I think I'd have appreciated something to the effect of "could you park in another spot so as to minimize my costs?" I'm not sure it would have changed my behavior in any case, but at least it would be more to the point and would have avoided the troubling dichotomy that people seem perpetuate that acting in one's interest is necessarily at odds with beneficial outcomes to others.

Your thoughts on the matter? I'm gauging my response; for me, this development is far more interesting than the upcoming G20 meetings which figure to cause disorder in a few weeks.

Rent-Seeking: No Such Thing As A Free Census Count

From the AP:

FALCON HEIGHTS, Minn. (AP) -- State governments and civic groups are sinking scarce dollars into the phone banks, TV ads and door-knocking commonly seen in political campaigns to pump up numbers in the upcoming census.

They've got a vested interest in going beyond the U.S. Census Bureau's planned $300 million blitz to try to persuade households to fill out the 10-question form they will receive early next year. Clout in Congress and billions of future federal dollars ride on the once-a-decade head count.

When it is all said and done, it would be fun to estimate the dollar value of the consequences of this by state, and then compare to its expenditures here. Examining which states over or under dissipated the gains with their rent-seeking would be an interesting paper.

Intrade on on the Probability of Health Care Reform

Intrade on the probability that "A federal government run health insurance plan to be approved before midnight ET 31 Dec 2009"
Trade volume is about 12 thousand, and Intrade closed the day at just under 25%.

The narrative I am inclined to draw from it is that the expectations of his speech acted to improve the likelihood slightly, but after a day of analysis, the likelihood has returned to the pre-speech announcement levels.

Markets In Everything: Fantasy Sports Insurance and Conflict Resolution

From CNN:

"That Monday, [Olszewski] came in the office, and he was bummed out," said Anthony Giaccone, president of Intermarket Insurance. "He asked, 'Why can't we buy insurance for fantasy team players?' "

Thus spawned the brainchild for Fantasy Sports Insurance, which guarantees that NFL players won't miss a certain number of games. FSI will reimburse a fantasy player's entry fee if they do.

It's one of a blitz of bizarre businesses cropping up in the $800 million industry of turning quarterback stats to greenbacks, said Paul Charchian, president of the Fantasy Sports Trade Association.

[...]

Web sites like fantasydispute.com and sportsjudge.com offer to mitigate fretful fantasy feuds. Think there was collusion in a trade or your league commissioner is playing favorites? Write up your dispute and send it to one of the sites. For $15, a lawyer will settle your quibble.

Monopolize the (Google) Earth

We at TPS have been hard on the Parker Brother's Monopoly game in the past (A increase in housing supply increases the price? Really?), but nevertheless the news of Monopoly City Streets sounds like a pretty cool new product. Apparently, you can play with others from around the world, and it uses a Google Earth interface that allows you to purchase any street in the world. Here is a story about the release. Excerpt:

It’s an ambitious venture that we’ll confess to being fairly excited about: players will literally be able to buy any street in the world, and compete with every other player on the “board”. You start with 3 million Monopoly dollars, and can build not only hotels and houses but also football stadiums, castles and skyscrapers, reports the UK’s Guardian. Downing Street in the UK will cost $231,000, while Pennsylvania Avenue will cost $2 million.

Thanks to Ryan Graf for the pointer.

Scapegoat Speculators

From The Economist (Hat Tip: D-to-the-B):

But analysts at Barclays Capital note that long swaps accounted for just 6.4% of total futures and options contracts, not enough to drive prices up on their own. Physical traders held more of the outstanding long positions (10.3%) and held even more short positions. This one set of numbers, in other words, does little to prove that speculators are overriding market fundamentals to drive prices. New quarterly data also released by the CFTC show that money flows to exchange-traded funds (ETFs) in commodities failed to correlate strongly with last year’s price surge.

Of course, even if it had been "speculation" that caused the surge I would be defending it. Regardless, the anti-speculation legislation that has been enacted will most likely just add to the volatility of prices or will ultimately just change the financial vehicles in which speculation occurs.

Blockquoting X

X = H.L. Mencken:

Always they resolve themselves into huge bureaucracies, and a bureaucracy is a public menace in direct ration to its power. In normal times it annoys us devilishly without doing us much serious damage, but when it has Authority with a big A behind it it invariably puts on a circus in the grand manner. The bureaucrat begins, perhaps, by doing only what he conceives to be his sworn duty, but unless there are very efficient four-wheel brakes upon him he soon adds a multitude of inventions of his own, all of them born of his professional virtuosity and designed to lather and caress his sense of power. Here my figures of speech may be mixed, but my meaning should be clear. The only good bureaucrat is one with a pistol at his head. Put it in his hand and it's good-by to the Bill of Rights.

More on the Income Effect in Nationalized Health Care

I tell anyone who listens that income continues to play some statistically significant role in health care access and health quality in countries with socialized medicine. In fact, the income effect appears to be more important in Canada than in the U.S. Now, this from Great Britain (Hat Tip: KipEsquire):

Thousands of women are having to give birth outside maternity wards because of a lack of midwives and hospital beds.

The lives of mothers and babies are being put at risk as births in locations ranging from lifts to toilets - even a caravan - went up 15 per cent last year to almost 4,000.

Health chiefs admit a lack of maternity beds is partly to blame for the crisis, with hundreds of women in labour being turned away from hospitals because they are full.

[...]

Others said women had to give birth on the wards - rather than in their own maternity room - because the delivery suites were full.

Tory health spokesman Andrew Lansley, who obtained the figures, said Labour had cut maternity beds by 2,340, or 22 per cent, since 1997. At the same time birth rates have been rising sharply - up 20 per cent in some areas.

[...]

The key now is to make sure this money is spent by the people controlling the purse strings at a local level.'

Care services minister Phil Hope said: 'The number of maternity beds in the NHS reflects the number of women wanting to give birth in hospital. Giving birth can be unpredictable and it is difficult to plan for the exact time and place of every birth.

Now, chances are if we start comparing income in the areas where these services are deficient, they are not the highest income areas. I would make a moderate bet that they would be most deficient in the lowest quartile of income areas, and a sizable bet that it is below the median.

Finally, this is not a technology problem. As long as people care about quality health care, and there are differences in quality among health care facilities, we will continue to see an income effect.

Bastiat on the Source of the Theory of Scarcity

Bastiat will continue his guest blogging for TPS today, following up on his previous post on mankind's apparent preference for scarcity:

If man were a solitary animal, if he worked solely for himself, if he consumed directly the fruits of his labor—in short, if he did not engage in exchange—the theory of scarcity could never have been introduced into the world. It would be all too evident, in that case, that abundance would be advantageous for him, whatever its source, whether he owed it to his industriousness, to the ingenious tools and powerful machines that he had invented, to the fertility of the soil, to the liberality of Nature, ox even to a mysterious invasion of goods that the tide had carried from abroad and left on the shore. No solitary man would ever conclude that, in order to make sure that his own labor had something to occupy it, he should break the tools that save him labor, neutralize the fertility of the soil, or return to the sea the goods it may have brought him. He would easily understand that labor is not an end in itself, but a means, and that it would be absurd to reject the end for fear of doing injury to the means. He would understand, too, that if he devotes two hours of the day to providing for his needs, any circumstance (machinery, the fertility of the soil, a gratuitous gift, no matter what) that saves him an hour of this labor, so long as the product is as great, puts that hour at his disposal, and that he can devote it to improving his well-being, He would understand, in short, that a saving in labor is nothing else than progress.

But exchange hampers our view of so simple a truth. In society, with the division of labor that it entails, the production and the consumption of an object are not performed by the same individual. Each person comes to regard his labor no longer as a means, but as an end. Exchange creates, in relation to each object, two interests, that of its producer and that of its consumer; and these two interests are always directly opposed to each other.

It is essential to analyze them and to study their nature.

Take the case of any producer. In what does his immediate self-interest consist? It consists in two things: (1) that the smallest possible number of persons engage in the same kind of labor as he; and (2) that the greatest possible number of persons be in quest of the product of his labor. Political economy expresses this more succinctly in these terms: that the supply be very limited, and the demand very extensive; in still other terms: limited competition, and unlimited market.

In what does the immediate self-interest of the consumer consist? That the supply of the product he wants be extensive, and the demand limited.

Since these two interests are mutually incompatible, one of them must necessarily coincide with the social or general interest, and the other must be hostile to it.

But which one should legislation favor, as being the expression of the public weal—if, indeed, it should favor either one of them?

To know this, it suffices to discover what would happen if the secret desires of men were fulfilled.

In so far as we are producers, it must be admitted, each of us has hopes that are antisocial. Are we vineyardists? We should be little displeased if all the vines in the world save ours were blighted by frost: this is the theory of scarcity. Are we the owners of ironworks? We want no other iron to be on the market but our own, whatever may be the public need for it, precisely because this need, keenly felt and incompletely satisfied, brings us a high price: this too is the theory of scarcity. Are we farmers? We say, with M. Bugeaud: Let bread be costly, that is to say, scarce, and the farmers will prosper: this is still the theory of scarcity.

Are we physicians? We cannot blind ourselves to the fact that certain physical improvements, such as better public sanitation, the development of such moral virtues as moderation and temperance, the progress of knowledge to the point at which everyone can take care of his own health, and the discovery of certain simple, easily applied remedies, would be just so many deadly blows struck at our profession. In so far as we are physicians, our secret wishes are antisocial. I do not mean to say that physicians actually give expression to such wishes. I like to believe that they would welcome with joy the discovery of a universal cure; but it would not be as physicians, but as men and as Christians that they would yield to such an impulse: by a laudable art of self-abnegation, they would take the point of view of the consumer. But in so far as the physician practices a profession, in so far as he owes to that profession his well-being, his prestige, and even the means of supporting his family, it is impossible for his desires—or, if you will, his interests—not to be antisocial.

Do we make cotton textiles? We wish to sell them at the price that is most advantageous for us. We should heartily approve the proscription of all rival manufacturers; and though we do not dare to express this wish publicly or to seek its full realization with any likelihood of success, we nevertheless attain it to a certain extent by roundabout menus: for example, by excluding foreign textiles, so as to diminish the supply, and thereby to produce, by the use of force and to our profit, a scarcity of clothing.

In the same way, we could make a survey of all industries, and we should always find that producers, as such, have antisocial attitudes. "The merchant," says Montaigne,12* "prospers only by the extravagance of youth; the farmer, by the high cost of grain; the architect, by the decay of houses; officers of justice, by men's lawsuits and quarrels, Even the ministers of religion owe the honor and practice of their high calling to our death and our vices. No physician takes pleasure in the good health of even his friends; no soldier, in the peace of his country; and so it goes for the rest."

It follows that, if the secret wishes of each producer were realized, the world would speedily retrogress toward barbarism. The sail would take the place of steam, the oar would replace the sail, and it in turn would have to yield to the wagon, the latter to the mule, and the mule to the packman. Wool would ban cotton, cotton would ban wool, and so on, until the scarcity of all things made man himself disappear from the face of the earth.

Source.

How Do I Become A Relevant Grandpa?

Bryan Caplan reminds us of Becker's great work on the family, and in particular why some societies respect the advice of their elders more than others. In short, more developed and market-oriented economies are more dynamic, which by consequence reduces the value of previous life experience. If a friend slights you on Facebook, do you ask your Grandma how to handle it? Probably not, because she does not hold knowledge relevant to dealing with the complex culture of online social networking cites.

Let us now employ rational expectations. Knowing that today's life experiences will hold little in common with future generations, what type of knowledge should I cultivate today to remain relevant in my waning years? My thoughts (Hat Tip: Suzie Witmer and Ryan Graf for discussion):

• Cultivate culinary knowledge: A lifetime of experiencing different tastes and flavors should become more valuable as cross-culture exposure increases.
• Travel: Experience places and cultures. Even though the traits of these places will change, your ability to contrast it with other places or to speak on its history in a first-person sense will remain interesting. Wouldn't you like to talk to someone who visited Taiwan in the early 1950's?
• Spend a lot of time with your children, aka the future parents of your grandchildren. The better you understand the caveats of your grandchildrens' future parent, the more valuable a resource you will be for them.
  

Feel free to add other you may think of, and no, I don't think our romance or love advice will be very useful in two generations, other than perhaps helping them dodge some buyer's remorse.

*Side question: How is Caplan managing to get any reading done these days?

Hoover's Labor Policy & the Great Depression

NBER working paper by Lee E. Ohanian "What - or Who - Started the Great Depression" indicates that the Hoover administration's labor policies of fixing wages and spreading work resulted in significant labor market distortions. These government interventions prevented real wages from falling during a period of deflation.

What I found exceptionally interesting (and compelling) in Ohanian's paper is the political exchange mechanism by which he introduces the frictions.

"A successful theory of the Depression must explain not only why the labor market failed to clear, but why monetary forces apparently had such large and protracted eects. This paper proposes such a theory, based on President Hoover's program that offered industrial firms protection from unions in return for paying high wages. Firms deeply feared unions at this time, reflecting a growing union wage premium and a sea change in economic policy, including policies advanced and supported by Hoover, that signicantly fostered unionization and enhanced their bargaining power. Consequently, there was an incentive for firms to follow Hoover's program of paying moderately higher real wages to avoid even higher wages and lower profits that would come from unionization" (pg. 51).

Ohanian's model of the Great Depression is a public choice account of how self interested policy impacts microeconomic markets, which in turn have macroeconomic effects.

"I conclude that the Depression is the consequence of government programs and policies, including those of Hoover, that increased labor's ability to raise wages above their competitive levels. The Depression would have been much less severe in the absence of Hoover's program" (pg. 51).

Ohanian's paper is discussed in light of Rothbard's America's Great Depression by Joe Salerno (here) and mentioned in the Robert Higgs' discussion of the similar current phenomena of rising real wages. Higgs roughly estimates that from March 2007 to June 2009, "that real hourly earnings [in private industry] rose by 2.8 percent during this 28-month period of deepening recession". "The obvious question" writes Higgs, is "why, in a situation of falling demand for labor services, has the real wage risen? This outcome is not what we would expect to see in a freely functioning labor market."

Obviously, American labor markets are not freely functioning. Suppose that Ohanian's general mechanism is sound. Suppose further that we are experiencing a similar phenomena of rising real wages under conditions of falling demand for goods and services. Given the trend in labor market institutions of a decreasing percentage of the workforce in unionized industry and the increasing percentage of the workforce in occupationally licensed industry -- in what ways could we expect the political bargaining mechanisms to operate in the current context?

HERE IS WHERE YOU PLACE THE HIDDEN TEXT.

Guest Blogger: Monsieur Bastiat

Economists everywhere are licking the wounds to their collective psyche inflicted by the Cash for Clunkers debacle. Given our time of great need, I have invited M. Frédéric Bastiat to do some guest blogging for TPS. He has graciously agreed to provide us on occasion with an series of posts over the coming days. Please enjoy:

Which is preferable for man and for society, abundance or scarcity?

"What!" people may exclaim. "How can there be any question about it? Has anyone ever suggested, or is it possible to maintain, that scarcity is the basis of man's well-being?"

Yes, this has been suggested; yes, this has been maintained and is maintained every day, and I do not hesitate to say that the theory of scarcity is by far the most popular of all theories. It is the burden of conversations, newspaper articles, books, and political speeches; and, strange as it may seem, it is certain that political economy will not have a completed its task and performed its practical function until it has popularized and established as indisputable this very simple proposition: "Wealth consists in an abundance of commodities."

Do we not hear it said every day: "Foreigners are going to flood us with their products"? Thus, people fear abundance.

Has not M. de Saint-Cricq said: "There is overproduction"? Thus, he was afraid of abundance.

Do not the workers wreck machines? Thus, they are afraid of overproduction, or—in other words—of abundance.

Has not M. Bugeaud uttered these words: "Let bread be dear, and the farmer will be rich"? Now, bread can be dear only because it is scarce. Thus, M. Bugeaud was extolling scarcity.

Has not M. d'Argout based his argument against the sugar industry on its very productivity? Has he not said again and again: "The sugar beet has no future, and its cultivation cannot be extended, because just a few hectares of sugar beets in each department would be enough to supply all the consumers in France"? Thus, as he sees things, good consists in barrenness and scarcity; and evil, in fertility and abundance.

Do not La Presse, Le Commerce, and the majority of the daily newspapers publish one or more articles every morning to prove to the Chambers and to the government that it is sound policy to legislate higher prices for everything through manipulation of the tariff? Do not the Chambers and the government every day comply with this injunction from the press? But tariffs raise the prices of things only because they reduce their supply in the market! Thus, the newspapers, the Chambers, and the government put the theory of scarcity into practice, and I was right to say that this theory is by far the most popular of all theories.

In his next post, M. Bastiat promises to shed light on what he views as the source of this "illusion."

The College Placebo

From Tyler Cowen:

There's lots of evidence that placebos work in medicine; people get well simply because they think they're supposed to.

But we're learning that placebos apply to a lot of other areas and that includes higher education. Schooling works in large part because it makes people feel they've been transformed. Think about it: college graduates earn a lot more than non-graduates, but studying Walt Whitman rarely gets people a job. In reality, the students are jumping through lots of hoops and acquiring a new self-identity.

The educators and the administrators stage a kind of "theater" to convince students that they now belong to an elite group of higher earners. If students believe this story, many of them will then live it.

Colleges therefore are very concerned with prestige, status, and yes, pretense. That means thick syllabi, famous professors, and an impressive graduation ceremony.

Online instruction will never take over from traditional colleges and universities. Just as missionaries make personal visits to bring their message to life, so must professors and students spend face time together to animate the feeling that learning has taken place.

One reason we spend so much on college is to convince ourselves of our own commitment; similarly, in medicine, experiments show that aspirin relieves more of our pain, if we know that we spent more money on the pills.

Grammer, Schmammer

While outlining a paper I intend to write over the next few months, I was faced with a technical scientific problem: should "historical" be preceded by "a" or "an"? Fortunately, as Tina Blue notes, I am not the first to come across this problem:

There is a significant difference between multisyllabic words like hamburger, where the accent is on the first syllable, the one beginning with h, and historical, where the accent is not on the syllyble that begins with h.

The problem is that the h is a bit of a wuss as a consonant. When it occurs in an unaccented syllable and is followed by a vowel, it tends to soften to a vowel-like mushiness.

Say these words out loud: hot, hear, how, hurt, hateful, holiday.

Although the h in each of these words is followed by a vowel, the syllable the h + vowel combination occurs in is fully accented, and the h is aspirated (completely pronounced, in all its consonantal glory). All of these words would, of course, be preceded by a, not an.

But now say these words out loud: historian, historical, hysterical, heredity, habitual.

Do you notice how much less, well, pronounced the h is in these words? Now, put a or an before each one (the adjectives should be paired with nouns so you can get the full effect):

Presumably, we should use "a" before words of the former type and "an" before those of the latter. This creates some interesting cases, though. For example, you would be writing "It was an historical event to be sure. A history professor gets few such opportunities in life." So what is commonly accepted?

At one time, an was the preferred usage before an unaccented syllable beginning with h. [...]

Since the early twentieth century, those unaccented h sounds have been more commonly pronounced than not, especially in American English. [...]

To many Americans, an historical reference probably sounds pretentious and unlikely. But to many of us who are middle-aged or older, that phrase sounds better (and is easier to pronounce) than a historical reference. [...]

If you speak and write British English, you can probably keep using an before historical, hysterical, habitual, etc. I doubt that you will be challenged by your own countrymen, and if Americans challenge you, just point out that British usage and American usage often differ.

If you are American, you probably should use a rather than an, even in a historic occasion or a historical reference. Most of us are comfortable with a historic occasion, because the word historic has fewer syllables than historical, so the h is more fully pronounced. But if, like me, you are old enough to find a historical reference a tad uncomfortable, then go ahead and say an historical reference.

The rule is: there is no clear rule. I hope you appreciate the spontaneity of the order as much as I do.

For no reason other than the shear joy it brought me, I am including this line:

Widespread but half-baked literacy is probably responsible for the fact that the formerly unaspirated h in such phrases is now commonly pronounced, as is also the case with the word herb. When people see such words spelled out, they tend to pronounce the silent or near-silent letters.

Blockquoting X

X = Michael Polanyi, The Republic of Science:

For scientific opinion may, of course, sometimes be mistaken, and as a result unorthodox work of high originality and merit may be discouraged or altogether suppressed for a time. But these risks have to be taken. Only the discipline imposed by an effective scientific opinion can prevent the adulteration of science by cranks and dabblers. In parts of the world where no sound and authoritative scientific opinion is established, research stagnates for lack of stimulus, while unsound reputations grow up based on commonplace achievements or mere empty boasts. Politics and business play havoc with appointments and the granting of subsidies for research; journals are made unreadable by including much trash.

Blog rankings

An upcoming paper in the Eastern Economic Journal provides a methodology for ranking blogs. I don't think the site here allows for uploads of files, just links, so feel free to shoot me an email and I'll send the paper out. For those interested, David Skarbek is the 63rd rated blogger, Emily Schaeffer is the 71st, Claudia Williamson is the 73rd, and a Matthew E. Ryan from George Mason University as 76th. (Hey, the name and affiliation are wrong, but I'll take it where I can get it.) The blog as a whole comes in at 38th.

Why So Much Trust, So Little Theft?

I just left my macbook unattended in the highly trafficked Johnson Center at George Mason University. As I walked away from my pricey machine, I noticed several others had also left unattended laptops (and cell phones, keys, jackets, etc). I couldn't help but ask myself: Why so much trust, so little theft?

In the 10 minutes I spent at the photocopier, I came up with the following possibilities:

While the probability of being caught stealing an unattended laptop is low, the punishment should one be caught is extremely high.
This might explain why I would be more likely to leave my computer unattended on a college campus than, say, on the DC Metro. I imagine the person most likely to steal traveling in this section of the building (third floor, library) has a higher expected lifetime income than the person most likely to steal on the Metro. As a result, incarceration for some period of time would be a harsher punishment for the former.

The probability of being caught isn't actually all that low.
As I mentioned, there are quite a few people walking in this area. Since potential crooks have no idea how long I will be away from my belongings, they are reluctant to sit down and pretend to be me for a few minutes before packing up and making off with my belongings.

My things are just not that valuable.
How easy is it to sell stolen goods? I have no idea. A new sim card would probably make a stolen cell phone as good as new. A new hard drive would do the same for a computer, I imagine. Both of these expenses seem low relative to the price of the respective item new. But I am not sure this is the relevant comparison. I'd expect black market goods for which there are legal substitutes readily available to be sold at a substantial discount in price. Otherwise, consumers would just buy the legitimate products. And what are the transaction costs associated with selling on the black market? I imagine the number of GMU students, staff, and faculty in this part of the building with fast access to a fence is quite low. And if they are not already plugged into a criminal network, conducting black market transaction could be expensive.

Individuals are not narrowly selfish.
Maybe individuals gain utility from not stealing things. Rather than snatching up my property, they look at my unattended belongings and say "It feels so good to live in a safe place." In this case, U(not stealing)>U(stealing). Of course, if this explanation is correct in and of itself, it would have to be true of everyone that passes (or else one of them would steal my things!).

What do you think?

Political Budget Cycle

Here's an interesting paper on the political budget cycle. Page 22 of the paper (page 24 of the pdf) tells most of the story-- that the political budget cycle exists, and that while only Latin America hit statistical significance with their estimates, the budgetary pattern around elections still holds in the OECD countries as well. It would be interesting to see how the democracy variable plays in but I don't see it in any of the regression tables; the abstract is below:

While existing cross-country studies on political budget cycles rely on annual data, we build a panel with quarterly and monthly data from Latin American and OECD countries over the 1980-2005 period. Disaggregated data allow to center the electoral year more precisely, and show the effects are concentrated in a three-quarter window around elections. Cycles are statistically significant only in Latin America, but the pattern is similar to OECD countries: the budget surplus/GDP ratio falls in the election period and rises in the post-election period. In line with the logic of rational opportunistic manipulation, these effects cancel out.

The firing process of public school teachers in New York

I'd heard of this situation before, but I can't find any record of it here on TPS, so I'll send the information along (hopefully not for a second or third time...).

In a windowless room in a shabby office building at Seventh Avenue and Twenty-eighth Street, in Manhattan, a poster is taped to a wall, whose message could easily be the mission statement for a day-care center: “Children are fragile. Handle with care.” It’s a June morning, and there are fifteen people in the room, four of them fast asleep, their heads lying on a card table. Three are playing a board game. Most of the others stand around chatting. Two are arguing over one of the folding chairs. But there are no children here. The inhabitants are all New York City schoolteachers who have been sent to what is officially called a Temporary Reassignment Center but which everyone calls the Rubber Room.

These fifteen teachers, along with about six hundred others, in six larger Rubber Rooms in the city’s five boroughs, have been accused of misconduct, such as hitting or molesting a student, or, in some cases, of incompetence, in a system that rarely calls anyone incompetent.

The teachers have been in the Rubber Room for an average of about three years, doing the same thing every day—which is pretty much nothing at all. Watched over by two private security guards and two city Department of Education supervisors, they punch a time clock for the same hours that they would have kept at school—typically, eight-fifteen to three-fifteen. Like all teachers, they have the summer off. The city’s contract with their union, the United Federation of Teachers, requires that charges against them be heard by an arbitrator, and until the charges are resolved—the process is often endless—they will continue to draw their salaries and accrue pensions and other benefits.

It's a long piece, so read what you like, and there's a lot with regards to the public education system, the union's power with teachers, and the like. The sheer volume of the situations-- teachers spending years in these Rubber Rooms, hearing transcripts running over five thousand pages-- is remarkable.

Private and Competitive Regulation of Medicine

The idea is laid out by Ronen Avraham in The Economists' Voice

A market of guidelines produced by private firms could create a gold standard for patient care. The firms would compete to sell their guidelines to doctors and hospitals and in turn offer their clients a safe harbor from medical malpractice lawsuits, provided that the guidelines are followed. The private firms, unlike current organizations that create guidelines, would be held liable for promulgating sub-optimal guidelines. They would strive not only to reduce costs in order to sell their guidelines, but also to maximize patient safety to avoid liability. The private firms would have a strong interest in continually funding objective scientific research to create evidence-based medicine in order to achieve their twin goals of cost savings and patient safety. Granting immunity to doctors who follow such guidelines would go a long way toward meeting the nation’s goals of minimizing healthcare costs while maximizing patient safety.

It is a meaty 5 pages, so have your coffee before reading.