"Government Challenges, Your Solutions"

That is the slogan of the new government website, challenge.gov. The website is a result of the recently passed America Competes Act, with the intention to transition government support of private R&D away from paying for inputs to paying for outcomes. The idea is that they will pay out cash rewards to those who meet certain challenges, similar to the famed X-Prize for commercial space flight. You go to the website, find a government challenge, and then submit your entry. When I read about this new program in Slate ("Can Washington Get Amercia's Economy Moving Again with Cash Rewards?"), it sounded like a positive change to government financing of R&D, so I was optimistic.

However, going to the website (which I highly recommend you do) and picking over the different prizes, it is difficult to come away impressed. Though there are some challenges with arguable social value, but a lot of them are bizarre marketing programs.

For instance, I naturally clicked on the "economic" challenges. The first challenge offered was the "'How Has Social Security Made A Difference In Your Life' Video Contest":
Not a good start, right? This of course, wet my appetite for what other creative challenges they expect to have large positive externalities. The organizations list had a hyperlink to challenges sponsored by the USDA, a group that usually gets a mention in the price control section of many econ textbooks. I learn from it that there are no existing cookbooks for children:

That one pays up to $12,000, an amount which could basically buy out the entire cookbook section of your local Barnes and Nobles.

What about the Department of Defense? Perhaps it carries some challenges for improving radar technology, or more protective body suits for soldiers? Software to better teach languages important to the intelligence community? Click the link and here is your first one, a Press Holiday Scavenger Hunt!
Yikes! Going back to the homepage, I quickly come across two more gems in their scrolling marquee:
You see, Taxpayer, stop asking for your money back and start enjoying an augmented reality photo in the National Archives!!

For this last one, I actually do use a lot of government data and I think it does provide some social value, but somehow I cannot find it in me to write a love sonnet about Census data. At the very least, even if the government data does create value, it is not clear to me how a love sonnet does.

Challenge.gov most definitely gets the TPS Seal of Approval.

Indiana Rep Proposes "Entrepreneur Auction"

Story:

Sue Ellspermann (R-74) says she has filed a bill allowing recent college graduates to pitch their business ideas to local leaders, who would then decide if they want to make an offer to locate the startup in their community.

Under the plan, entrepreneurs could have several offers which would then be reviewed to decide which community would make the best fit.

I can think of several advantages and disadvantages to this proposal, but I think the bottom line is going to have to be "Winner's Curse."

American Pie

Economist Bob Higgs parodies the classic song by Don McLean. Here's a taste:

And in the streets: the children screamed,
The lovers cried, and the poets dreamed.
But not a word was spoken;
The mainstream’s bells were broken.
And the three men needed in this flurry:
Ludwig, Fritz, and my old friend Murray,
Were laughed out of court by the mainstream jury
The day the dollar died.

ATSRTWT.

Financial Panic: The Musical

Courtesy The Browser, this headline from FT.com:

Depicting the financial crisis in music. An orchestral interpretation from Julian Anderson, London Philharmonic Orchestra's composer in residence. "The notes of Keynes’s surname emerge, and with them a sense of hope"

Bowl Showdown 2010: Gus vs. Sagarin

As the college football bowl season is underway, it is fun to track Gus' ability as a predictor of bowl games against other, more complicated schemes. What better one to compare it to than Jeff Sagarin's. Both rankings predict identical outcomes for many of the bowls, but the discrepancies are listed below in chronological order (Gus' prediction given, Sagarin's would be the opposite):

December 23 - Poinsettia Bowl - Navy over San Diego State
December 28 - Champs Sports Bowl - West Virginia over North Carolina State
December 31 - Liberty Bowl - Central Florida over Georgia
January 1 - Capital One Bowl - Michigan State over Alabama
January 3 - Orange Bowl - Virginia Tech over Stanford
January 4 - Sugar Bowl - Ohio State over Arkansas
January 10 - BCS Championship - Auburn over Oregon

As there's an odd number of differences, there has to be a winner! For the record, both rankings picked all three already-played bowl games identically and sit at 2-1. (Correct on BYU and Northern Illinois, incorrect on Ohio University.)

The State as Both Parent and Dealer

The "state as both parent and dealer" meme is familiar to anyone who has expressed annoyance that the government would subsidize tobacco and then tax cigarettes. Same meme with a twist seems likely in Kentucky, a state which presumably subsidizes a science curriculum in public education and is looking now to subsidize a creationist museum that teaches that science is wrong. You can argue the merits of this as being fair to all sides, I suppose, but I think it better illustrates the slippery slope of public subsidies in general:

The theme park will be called Ark Encounter and will be made up of educational attractions that highlight all that is wrong with the scientific method. The park will be run by Christian evangelicals who also run the Creation Museum, which is on the Kentucky-Ohio state line. The museum teaches, and the theme park will teach, a literal reading of the Bible that leaves little room for Charles Darwin. Scientists' estimates that the earth is really 4.5 billion years old are the result of a mathematical error.

[...]

Kentucky Gov. Steve Beshear (D) supports giving tax incentives to the owners of the for-profit park. He says he's doing it because the park will create 900 badly needed jobs and he fears that the creationists might move to Indiana. Supporters of the park say that tax incentives are appropriate because the park is not explicitly religious, but rather an alternate explanation of the origins of the earth.

FWIW, it is $35 million in tax incentives, which works out to a little less than $40,000 per job.

2010 Gus Rankings: Week 15

To make things official, here are the final regular season 2010 Gus Rankings. Last weekend's Army/Navy game rounds out this year's rankings.

BCS Downside?

TPS loyalist Mike Assenzio sends along this bit, which cites this original article. What's the downside of making a BCS bowl game? When your fans don't go. Some excepts:

The Fiesta Bowl distributed 17,500 tickets to UConn, and the school is responsible to sell them all. The cheapest of those tickets cost $111 (in the lower end zone) and can cost as much as $268 for club level.

UConn also has a hotel obligation — a total of 550 rooms at three different hotels ranging in price from $125-225 a night, not including tax, with blocks reserved for either three or seven nights.

Additional expenses include a chartered flight and meals for the team, staff and 300-member band, as well as a $100,000 bonus to coach Randy Edsall, and smaller bonuses for assistants, per their contracts, for getting the team to a BCS bowl.

Cost of any tickets or hotel rooms that go unfilled are absorbed by the university.

[...]

As of Monday night, only 4,000 tickets had been sold, meaning UConn was still holding roughly $2.5 million in unsold tickets.

As the original article notes, UConn's inflow from making the Fiesta Bowl should be over $3 million, but consider this: Since teams that don't make BCS games in BCS conferences still get revenue, it's quite possible that by winning their final game at South Florida, UConn could have set itself back an amount of money that could stretch into the millions of dollars. Granted, going to a lower tier bowl game presents its own financial difficulties along the lines of what was described above-- albeit on a much lower scale-- but I can't help but to think that simply in terms of the bottom line, UConn is worse off making the Fiesta Bowl.

I don't think UConn's going to lose money on the deal, but it's not going to be the financial jackpot so frequently assumed when you get a BCS invitation.

Happy Meal Legal Issues

Looks like McDonald's is getting sued over their Happy Meals or, more specifically, that they include toys with their Happy Meals. Says the plaintiff herself:

Parham, a 41-year old state employee, says her kids repeatedly ask for Happy Meals, mainly for the toys. "We have to say no to our kids so many times and McDonald's makes that so much harder to do. I object to the fact that McDonald's is getting into my kids' heads without my permission and actually changing what my kids want to eat."

Doesn't this invalidate all advertising for kids products-- if it's not the Happy Meal that's the problem but the "into my kids' heads" aspect of it? Further-- are doctors then prohibited from giving out lollipops after shots?

Also, the fantastically-named Center for Science in the Public Interest is along for the ride.

Quantitative Easing Explained

I disagree with both of the following videos. But the question I pose to TPS readers (and co-bloggers) is: which of the two videos more accurately describes your position on quantitative easing. Alternatively, feel free to post what you hate about each video.

What would we do without the State?!

Forever lose property, evidently. Beneath the jovial nature of this article-- concerning the fact that Steve Jobs hasn't claimed $37.91 worth of property from Apple-- is nature of the regulatory beast:

California law requires claims be posted for property "abandoned or lost" for more than three years. If the person doesn't claim it after six months, the property is transferred to the state, which then attempts to contact the owner, the spokesman said.

Anyone care to venture the social cost of filing claims for property, transferring it to the state, and then having the state undertake a search for the owner of its own?

Childrens' Books For Economists: The Grinch

Art Carden delivers what I think is an instant masterpiece in a retelling of "How The Grinch Stole Christmas." My favorite paragraph:

The Whos, with one voice crying out in the night

Screamed “bring back our stuff! You haven’t the right!

“We know that we’re noisy all through Christmas Day,

But if you don’t like it, it’s you who should pay!

“For we were here first, and homesteaded the rights

To sing, to make noise, and to hang Christmas lights

“The costs of our Christmas joy helped you to save!

They were fully reflected in the price of your cave!”

2010 Gus Rankings: Week 14

Army/Navy notwithstanding, here are the final regular season Gus Rankings.

Now that the season is done, had the Gus Rankings been used as the sole measure of determining the BCS Bowls (and bowls choose the highest ranked team possible when their turn comes up), we'd have the following lineup:

National Championship Game: Auburn vs. Oklahoma
Rose Bowl: Oregon vs. Ohio State
Sugar Bowl: TCU vs. Michigan State
Fiesta Bowl: Boise State vs. Connecticut
Orange Bowl: Virginia Tech vs. Arkansas/Missouri

Arkansas and Missouri are tied, so one of them would claim the Orange Bowl slot.

The Morality of the Market

TPS stalwart Rob Holub lets us know that The University of Wisconsin takes a strong stance on the issue.

I think I'm changing my understanding of these situations; I don't think it's a dislike of the secondary market, per se, as much as it's a dislike of there's-a-deal-to-be-had-and-I'm-not-in-on-it. I feel this because if the University of Wisconsin were to auction off the tickets from the get go-- thereby effectively eliminating the secondary market-- the same vitriol would be directed at the University. (Though the perception of a deal to be had would change.)

There are few stronger sentiments than the sense of entitlement.

Elected Property Assessors: A Denver Case Study

From the Denver Post (Hat Tip to Zach):

The Adams County assessor has slashed millions of dollars from the taxable value of properties owned by the largest contributors to his election campaigns, a Denver Post investigation found.

[...]

The review of assessments on properties owned by top contributors to Reyes' campaigns found that his leading donor, a California-based warehouse company, has won reductions in taxable value totaling $23 million on 11 buildings. Those reductions saved the company more than $800,000 in property taxes this year alone.

I share this, in part, for self-promotional purposes. Here is my paper on elected versus appointed property assessors.

Printing Press for the $100 Bill is Broken

Insert your own government spending joke, then proceed to this link:

As a metaphor for our troubled economic and financial era -- and the government's stumbling response -- this one's hard to beat. You can't stimulate the economy via the money supply, after all, if you can't print the money correctly.

Because of a problem with the presses, the federal government has shut down production of its flashy new $100 bills, and has quarantined more than 1 billion of them -- more than 10 percent of all existing U.S. cash -- in a vault in Fort Worth, Texas, reports CNBC.

I await an Austrian response on whether or not a interrupted printing process is good or bad in ABCT. My guess is that, unless its permanently broken (and only then in ABCT), this is a bad turn of events under any theory of the business cycle.

Working Paper: The Great Recession and its Aftermath from a Monetary Equilibrium Theory Perspective

Steve Horwitz links to our working paper, so I guess I should do the same. Here's the abstract:

Modern macroeconomists in the Austrian tradition can be divided into two groups: Rothbardians and monetary equilibrium (ME) theorists. It is from this latter perspective that we consider the events of the last few years. We argue that the primary source of business fluctuation is monetary disequilibrium. Additionally, we claim that unnecessary intervention in the banking sector distorted incentives, nearly resulting in the collapse of the financial system, and that policies enacted to remedy the recession and financial instability have likely made things worse. Finally, we offer our own prescription to reduce the likelihood that such a scenario occurs again by better ensuring monetary equilibrium and eliminating moral hazard.

The paper is slotted to appear in the second volume of Macroeconomic Theory and Its Failings: Alternative Perspectives on the Global Financial Crisis, edited by Steve Kates. My contribution to that volume (co-authored with Pete Boettke) can be found here.

Why Do We Have a Central Bank?

O'Driscoll poses this very important question in a recent WSJ article. Here's the take away:

The Federal Reserve System was created by an act of Congress only in 1913. It then presided over a great wartime inflation followed by a major depression in 1920-21. The 1920s were an era of prosperity, due as much to Treasury Secretary Andrew Mellon's wise fiscal policies as anything the Fed did. The Fed's performance in the Great Depression was disastrous, a judgment shared by its current chairman, Ben Bernanke.

The Canadian banking system weathered the Great Depression without a central bank. Instead of the thousands of small, undiversified banks that the United States had, Canada had a small number of banks (with many branches across the country) that were able withstand localized downturns. Even in the Great Depression, banking failures in the U.S. were concentrated in specific regions. Canada's central bank, the Bank of Canada, was created in 1935 in part because of pressure from the rest of the world. Canada had survived without it quite well.

In short, central banking has been neither necessary nor sufficient for the development of a modern economy and financial system. A number of reform proposals for the Fed are being crafted, but there is no agreement on why the institution exists.

ATSRTWT.

2010 Gus Rankings: Week 13

Here are this week's Gus Rankings. Auburn has a choke hold on the top spot; even a loss in this weekend's SEC title game shouldn't take them from the top spot. TCU, Ohio State, Oklahoma and Michigan State round out the top five.

Just as last week, if the standings remain as listed, the BCS would shake out as follows (higher ranked teams assumed to win appropriate conference championships):

National Championship Game: Auburn vs. TCU
Rose Bowl: Ohio State vs. Oregon
Fiesta Bowl: Oklahoma vs. West Virginia
Sugar Bowl: Michigan State vs. Arkansas
Orange Bowl: Virginia Tech vs. Boise State

In addition, at Art Carden's request, here is a breakdown of the average rating by conference:

ACC: 2.3 (Atlantic 7.0, Coastal -2.3)
Big 10: 13.9
Big 12: 19.1 (North 11.8, South 26.3)
Big East: -2.1
Pac-10: 5.6
SEC: 17.2 (East -0.7, West 35)

And while we're here, the following is my prediction of how it will actually shake out:

National Championship Game: Auburn vs. Oregon
Rose Bowl: Wisconsin vs. TCU
Fiesta Bowl: Oklahoma vs. Stanford
Sugar Bowl: Arkansas vs. Ohio State
Orange Bowl: Virginia Tech vs. West Virginia

(...with the caveat that: if Connecticut makes it from the Big East, put them in the Fiesta and put Stanford in the Orange Bowl, and the Virginia Tech spot is for the winner of Virginia Tech/Florida State and the Oklahoma spot is for the winner of Oklahoma/Nebraska.)

Assorted Links

1. Friend of TPS Mike Assenzio sends along word that Nevada's victory over Boise State cost them about $1M; take that Coase!

2. Longtime TPS reader Rob Holub sends along Jack White and his understanding of the secondary market. I've long believed that if artists really want to collapse the secondary market for memorabilia or concert tickets, simply incorporate an auction mechanism for distribution-- the market will either go away or be vastly reduced in scope. It's nice to see Jack White take a step in that direction.

Why It Is Important to Have a Good Thesis Advisor

General Patraeus suggests you have a good advisor (Hat Tip: Chris Coyne):

A rabbit sits near a cave scribbling in his notebook.

“What are you doing?” asks a fox.

‘I’m writing my thesis, which contends that rabbits are fierce fighters and can easily kill a fox.’

“Do you have hard data to prove this?” asks the fox.

‘Step into my cave,’ says the rabbit.

Minutes later, the rabbit emerges with a fox fur hat.

The process is repeated with a wolf and a grizzly bear until a wise owl flies into the mystery cave and discovers the rabbit seated between a ferocious tiger’s paws.

Here’s the moral: “It doesn’t matter how stupid your thesis is as long as you have the right advisor,” Petraeus ends the anecdote to raucous audience laughter.

For more hilarity, see the ridiculous powerpoint presentation at the link.

From all of us at TPS...

Happy Thanksgiving!

Press for Austrian Business Cycle Theory

John Carney at CNBC's NetNet suggests the Fed's plan is failing because we are all Austrians now.

It’s no accident that Austrian economics is newly popular. It provides the best explanation for the business cycle we just lived through. But the resurgent popularity of Austrian economics may actually be hampering the ability of the Federal Reserve to reflate the economy with low interest rate policies. Businesses, now aware of the dangers of a low inflation- sparked economic bubble, may simply be refusing to fall for the age-old boom-bust trap.

Why have Austrians become so popular? Perhaps J. D. Hamel at the FrumForum is on to something:

People tell me scary stories about the laissez-faire free market of the George W. Bush years, despite the fact that government grew rapidly during Bush’s tenure. And it seems odd to call the pre-2008 housing market heavily deregulated when government sponsored companies owned trillions of dollars of housing debt. [...] The Austrian school rejected this narrative. Its economists were accessible and spoke to the unease that many conservatives felt. Their criticisms echoed those of mainstream economists. They blamed the Fed’s monetary policy. So did liberal economist Joe Stiglitz. They blamed Fannie Mae and Freddie Mac. So did Keynesian economist Ragu Rajan and Nobel laureate Gary Becker. On this front, the Austrian school was as sensible as it was unremarkable. But the Austrians’ passion and consistency made them excellent spokespersons for the market economy.

2010 Gus Rankings: Week 12

Here are this week's Gus Rankings.

At this point, it's fun to take a look and see how Gus would situate the teams for the BCS bowls. Following as best as I can from the selection procedures, here's how Gus would place the teams (highest ranked conference team assumed conference champion, and highest ranked team picked for each bowl in order of choice):

National Championship Game: Auburn vs. TCU
Rose Bowl: Ohio State vs. Oregon
Fiesta Bowl: Oklahoma State vs. West Virginia
Sugar Bowl: LSU vs. Boise State
Orange Bowl: Virginia Tech vs. Michigan State

As a side note, check the following: "For the games of January 2011 through 2014, the first year the Rose Bowl loses a team to the National Championship Game and a team from the non-AQ group is an automatic qualifier, that non-AQ team will play in the Rose Bowl."

If Oregon were to play TCU (or Boise State) in the National Championship game, does this require that the Rose Bowl pick Boise State (or TCU) for the Rose Bowl? The way I'm reading this is I don't think they are required to do so, but I'm curious what else has been said of the issue. It's not terribly clear on the situation when the non-AQ team ends up in the National Championship Game.

Addendum: I had forgotten the Big East champion-- projections are modified.

TPS at the 2010 SEAs

Here are TPS bloggers in action at the SEAs:

Sunday, 8AM: Applied Political Economy
"Property Tax Assessment and Progressivity"
Justin M. Ross, Indiana University
*************************************************************************
Sunday, 4:15PM: State and Local Political Economy
"Hate Groups and Hate Crime"
Matt E. Ryan, Duquesne University
Peter T. Leeson, George Mason University
*************************************************************************
Monday, 8AM: Money and Finance
"Positively Valued Fiat Money After the Sovereign Disappears"
William J. Luther, George Mason University
Lawrence H. White, George Mason University
*************************************************************************
Monday, 3PM: Formal and Informal Sectors of Developing Nations
"The Feud Between Formal Versus Informal Institutions: A Case Study of Medieval Iceland"
Carrie B. Kerekes, Florida Gulf Coast University
Claudia R. Williamson, New York University
*************************************************************************

Also, Emily Skarbek masquerades as Emily Schaeffer on the schedule as a discussant in the Carl Menger Essay Session.

2010 Gus Rankings: Week 11

Here are this week's Gus Rankings.

Of interest is the relationship between the two popular non-BCS teams, TCU and Boise State. TCU holds a healthy 13-point lead over Boise State at the moment yet plays only one more game this season, against 1-win New Mexico. Boise State has three remaining games, against Fresno State (5 wins), Nevada (8 wins) and Utah State (3 wins). While both teams still earn points from teams they have defeated earlier in the season, it's looking like Boise State should outpace TCU at season's end. (Assuming both teams win out, of course; the argument is otherwise moot if one (or both) of them should lose.) Boise State should pass Michigan State and stay ahead of Oregon, too, and have a fair chance to pass both LSU and Oklahoma State-- I'm very curious to see where Boise State ends the season. It's not inconceivable for them to finish the season on top of the Gus Rankings, though they will need some chips to fall their way.

The more things change...

Longtime TPS reader Rob Holub sends along this story:

We’ve noted how the Ricketts Family is all about getting the government to help them out with the Cubs, be it financing their new spring training complex in Arizona or paying for renovations to their ballpark in Illinois.

[...]

But I wasn’t aware until this morning — thanks to a post over at Windy City Watch — that Joe Ricketts, the patriarch of the Ricketts family, is the founder and primary funding source for a political outfit with the sole purpose of limiting wasteful government spending.

Rand Paul had a similar message recently.

A quick note on the now infamous 6-day Chinese hotel

Most of us have, by now, seen this story. Matthew Kahn comments here. For me, there are three unaddressed points:

1. Did it have electricity, plumbing, etc online and working?
2. How important is it that the materials were constructed off-site, as opposed to being built on-site? That seems important in determining how accurate the 6 day estimate is.
   
3. Finally, most critically imo, how does the bureaucratic approval process compare to most municipalities in the United States? How does this process account for local stakeholder interest in the project?

#3 is the point of greatest interest to me. Maybe it is excellent in China. But if this project required 15 years of bureaucratic approval and disregarded local concerns of the residents, then I will find this to be a less impressive process overall. In the U.S., a good portion of local bureaucracy revolves around satisfying local stakeholders (for good or for bad). No trivial portion of this is local interest lies in a customized look, which I suspect undermines the potential for pre-fab products. My preference would be to compare how quickly a property owner can go from starting the paperwork to cutting the ribbon on completion at a ceremony everyone will voluntarily smile at throughout.

The Faculty Flutie Factor

As we're in the midst of college football season, I thought I'd send along this paper, The Faculty Flutie Factor: Does Football Performance Affect a University’s US News and World Report Peer Assessment Score? Here's the abstract:

Analyzing the peer assessment portion of the US News and World Report’s college rankings, we find that administrators and faculty rate more highly universities whose football team receives a greater number of votes in either the final Associated Press or Coaches Poll. Controlling for unobserved heterogeneity, our estimates suggest that a one standard deviation increase in the number of votes received in either the Associated Press or USA Today Coaches’ Football Poll is viewed as positively as a forty point increase in a school’s SAT score at the 75th percentile.

I think there are all sorts of educational side effects that can be teased out by a school's athletic performance-- data can generally be had by the boatload...definitely some low hanging fruit.

A Modestly Priced Proposal

Here is a bit of satire from Jennifer Dirmeyer:

Wal-Mart is not the only organization that is contributing to this problem. Forget low prices, there are people out there who are actually giving stuff away for free.

The most insidious of these “charities” is the soup kitchen. Lurking, unobtrusively, in strip malls and the basements of churches all over the country, soup kitchens are providing food for free to people who have a hard time affording it.

Has no one considered what this must be doing to the local diner? To the man pushing a hot dog cart? This practice of giving away free food deprives the local diner of some of its most regular customers, those on a fixed income and the homeless.

ATSRTWT.

2010 Gus Rankings: Week 10

My apologies for a very late Week 10 Gus Rankings; you can find them here.

Is Obamacare Constitutional?

Here (sorry, I think it is gated) is the latest angle from Steve Willis and Nakku Chung in the debate taking place in Tax Notes Today. Not being a legal scholar, I have trouble understanding how Obamacare differs from any other tax or subsidy in any substantively meaningful way. As such, I find it interesting how the legal scholars are drawing the distinction, and you will find discussion of these points at the above link. Unfortunately, this debate itself seems to just boil down to philosophical difference of opinion on the constitution. As Willis and Chung write in the beginning:

Congress has limited enumerated powers. We view the limitations seriously. We understand that much academic literature disagrees. Kleinbard recognizes few, if any, important limitations on congressional power -- either to tax or to regulate commerce. He joins the academic majority in supporting Congress's role in solving problems, including those it created. While he would limit congressional power to choose our television shows, he provides no reasoning for his limitations other than that they are his. Fundamentally, that is the issue. Do we follow the limitations on congressional power found in the Constitution or do we largely ignore them, opting for a living-document approach that bends (some might say breaks) over time? Neither viewpoint is provable. Both are honest approaches to American law; yet they differ fundamentally, which colors this debate.

Assuming Willis and Chung are correct, and since they are the legal scholars I will assume they are, then I have to wonder if any constitutional challenge of Obamacare will constitute a Supreme Court showdown of the "correct way" to interpret the constitution.

2010 Gus Rankings: Week 9

Here are this week's Gus Rankings. Auburn has a healthy lead at the top, followed by TCU, Missouri and Michigan State.

Competitive Government Watch: Washington Income Taxes

The state of Washington put on the ballot a potential increase in income taxes for its high income citizens (5% for those over $200K, 9% for those over $900K). Then this happened:

Texas Gov. Rick Perry has sent letters to around 90 top employers and a few business associations in Washington urging companies worried about taxes to head on over to his state.

"As the State of Washington considers a multibillion-dollar tax increase for citizens and businesses ... I invite you to consider your future in America's new land of opportunity: the State of Texas," Perry wrote.

"If Washington doesn't want your business, Texas does. Texas has no personal income tax and no interest in getting one."

This was after the governor of Idaho had done the same thing.

Outcome: Voters rejected the income tax proposal in Washington. Some accounts put a lot of weight on the appeals from other states in swinging the tide.

Celebrating Tullock

It's always nice to hear from Gordon Tullock, especially on election day.



And here is my favorite clip of George Carlin (NSFW--Obviously!) dishing on democracy and explaining why, if you vote, you have no right to complain.

Delicious

From Pajamas Media (Hat Tip: TaxProf):

According to District of Columbia government records, since 2004 the Democrats’ main political committee and its National Democratic Club — an exclusive restaurant and hideaway on Capitol Hill where prominent Democrats and their guests dine — have been hit with fines and interest penalties in excess of $115,000 for failure to pay their property taxes on time.

Officials at the D.C. Office of Tax and Revenue reviewed tax records with Pajamas Media. Government records here and here paint a picture of two highly visible political establishments that have been tax deadbeats for most of the last seven years. This year, the club fell so far into tax arrears that it was listed as part of a D.C. government “tax sale” in August. The DNC and the club finally paid the property taxes in September to dodge a government seizure and a public auction sale. ...

2010 Gus Rankings: Week 8

Here are the Gus Rankings after last week's games; yesterday's Boise State/Louisiana Tech game will be included in next week's rankings.

Pittsburgh's devil is in the details

I just got back from a lunch meeting outlining, among other things, the financial problems facing the city of Pittsburgh due to their pension program. Some details:

- There are a number of reasons that this problem has surfaced; one of them is that the population of the city of Pittsburgh has seen a remarkable decline over the last half-century. Pittsburgh proper's population was about 600,000 in 1960; Census projections put the figure at about 300,000 for the current Census.

That people are leaving city center's is not a Pittsburgh-specific problem. However, many other cities annex nearby locales and grow their land area-- some of them to a pretty remarkable extent. Houston went from about 150 square miles in 1950 to nearly 600 square miles today; you could say much the same about Phoenix as well.

Why can't Pittsburgh pull the same tricks? The way that the Pennsylvania state code is written to deal with this issue is that both the annexing and the annexed city would need to pass a referendum vote on the issue. That's not easy to do. The last time Pittsburgh annexed a nearby city was around 1930.

I'm not saying that annexation is a good thing...but that's been the outcome.

- Another reason for the shortcoming in Pittsburgh comes from the city's inability to control a tax revenue stream that comes from companies doing business in Pennsylvania using out-of-state casualty insurance. The revenue was designed for cities with financial troubles that were having issues funding their pension system. For the first five years of the tax, it served the Pittsburgh pension system quite well-- but then the law was reinterpreted to allow for cities with decent finances but poorly performing pension systems to secure revenue from this source as well. What's this create the incentive to do? Cities with fine finances can structure their pension system so as to qualify for need-based assistance. Some cities stopped contributing to their pension system altogether to claim their share of the funds. So Pittsburgh's share of tax revenue dropped by about 50%-- they're currently at about $20M-$30M per year less than where they'd be without the reinterpretation of the statute.

Again, not saying any of this is desirable...but that's the been the outcome.

- Pension systems use some sort of metric to determine the level of pay once retirement hits. The Pittsburgh system-- like many others-- use some sort of average of income earned over the final years of employment. The intention is to get a feel for the traditional income of an employee, and then the pension provides the appropriate level of replacement income. Well, this also creates the incentive for individuals to take on as much overtime as possible over the last few years of employment to maximize the pension payment. It's a process known as pension spiking. Once more, it's a process of the letter of the law not accurately reflecting the spirit.

Again, not arguing for publicly-funded pensions...but that's been the outcome.

- One of the solutions proposed for the pension shortfall has been to sell the parking assets of the city of Pittsburgh to the Pittsburgh Parking Authority (PPA). The PPA would then issue a bond to cover the sale, then using the increased parking revenues to pay the bond off over the coming decades.

Alright...but guess who owns the PPA? It's mostly a city of Pittsburgh enterprise. (There was a question concerning this at the meeting; somehow it's not entirely a public enterprise, but the mayor appoints the board of directors and they can float public bonds. I'm still a bit confused by this.) And guess what else? Issuing bonds to cover pension shortfalls are subject to taxes that bonds to cover asset purchases aren't. So while it's no small secret that this proposal is, in effect, a bond issuance to cover pension debts, the IRS won't see it as such.

Again, not arguing for any further debt for the city of Pittsburgh, bond or otherwise...but that's been the outcome.

Basically, you could make the argument that the pension troubles that exist today (as well as one of the potential solutions) are at least partially a function of laws written in a way so at to be open for interpretation or re-interpretation by groups looking to grab what they can.

Bargaining or "Expecting Too Much"?

Tyler Cowen reports:

Some Americans: "I expect my government to solve Problem X (fill in the blank, the list is a long one) without raising my taxes, and in the meantime I will refuse to countenance a tax increase. To support this attitude I am willing to sound fiscally unreasonable, if necessary."

Do read his post to get the proper context.

I frequently hear others deride the fact that voters want more public services but will not support the appropriate tax increase that is necessary to finance them. They tend to view people like this as irrational or ignorant.

By contrast, I think this is the default way of thinking in a market-based society. You go to the bargaining table as a buyer, and you want everything for nothing. The seller plays the role of a counterbalancing force wants to give you nothing in exchange for every penny you have. These competing tensions are reconciled to a mutually beneficial exchange of money and services. Consumers are not ignorant hypocrites for going to the bargaining table with this set of initial demands.

If you think of voters as buyers and the public sector as sellers for government services, then I see no reason for buyers to deviate from what they are accustomed to...start by demanding everything for nothing. Who truly knows what the cost of public provision is any how? Might as well push them as hard as you can for a lower price. All subsequent problems that follow from that mentality are really problems that are already identified in a broader public choice analysis.

Data Alert! IRS Historical Data

Lots of cool stuff, summarized by TaxProf.

Click here for the 1863 Report of the Commissioner of Internal Revenue!

You Were Warned

Free checking accounts are disappearing, thanks to new laws and regulation. I recall Don Boudreaux, among others, warning this would happen when these laws/regs were first passed.

What I've Been Writing

"Will You Stop That Infernal Racket!?!' Externalities and The Simpsons." This is a working paper version of a chapter forthcoming in a book edited by Joshua Hall, titled Homer Economicus: The Simpsons and Economics. I place a great deal of emphasis on the distinction between pecuniary and technological externalities, as well as externalities as a failure of institutions to create property rights.

"Assessor Incentives and Property Assessment." This is forthcoming in the January 2011 Southern Economic Journal. The punchline is that political incentives matter.

"Robustness and Volatility of Community Irrigation Systems: The Case of Taos Valley Acequias." This is forthcoming in the Journal of Environmental Economics and Management, and is a co-authored piece with Michael Cox, who defended his dissertation under Elinor Ostrom. Michael is on the job market this year, and his dissertation is a superb contribution to the Bloomington School of Political Economy.

Here is my portion of a Point-Counterpoint debate in the IndyStar over putting property tax caps into the state constitution. This will likely pass the November elections and serve as one of Governor Daniels (R) biggest political victories. I argue against it, as I foresee this as the first step in a takeover of local government functions by state government. In my book, that increases the size of government, contrary to the opinion held by Indiana Republicans.

"Does State Spending on Mental Health Lower Suicide Rates?" This is forthcoming in the Journal of Socio-Economics with Pavel Yakovlev and Fatima Carson. We find that it does after correcting for endogeneity bias, but the effect is very small and is not statistically significant. In fact, spending on welfare has a comparable effect in magnitude terms.

Finally, Josh Hall and I have a paper now published at Public Finance Review on Yardstick Competition and the adoption of local school district income taxes in Ohio. I am adding the emergence of school district income taxes as a piece of a much grander puzzle I have in mind for the economics of local public finance, which will be my first post-tenure project.

2010 Gus Rankings: Week 7

Ahead of today's initial BCS Rankings, here are this week's Gus Rankings.

A few notes:

- The top two teams this week-- Auburn and LSU-- square off next Saturday. Gus likes Auburn.

- Oregon, anticipated to be the #1 team in the human polls any minute now, is the lowest ranked undefeated team in the Gus Rankings, at #30 with 6 points. Many remember the win over Stanford (good for 4 points), but wins over Arizona State (1), Tennessee (1), New Mexico (0) and Washington State (0) don't help too much.

- On the other end of the spectrum, San Jose State sits at 0-5 but with -3 points, easily the highest rated team without a win at #78. Of course, those five losses-- to Wisconsin (lose 1 point), Utah (0), Nevada (1), Boise State (0) and Alabama (1) -- don't hurt too much.

Starbucks Slowdown

Starbucks is making news by telling its employees to slow down and not make coffee so quickly. Isn't it a drag on the bottom line when employees are too productive?

I'd expect Stabucks to continue to do a good job running their business, and simultaneously that this rule to be difficult to enforce within their company. Will employees tolerate already edgy-before-their-caffeine customers watching them make one drink at a time, and hence the wait time for their beverage to increase? I don't see it happening. I'm predicting a spurious correlation-type statement in 6 months from Starbucks saying that 1) business has improved, 2) we've incorporated this take-more-care policy, thus 3) people care a large deal about the craftsmanship of their morning mocha-- after all, our bottom line proves it.

I'm curious to see how it all shakes out, both in the aggregate and at my neighborhood location.

Are Zombies an Economic Indicator?

Source and story: Wired

2010 Gus Rankings: Week 6

Here's the Gus Rankings for Week 6. LSU tops the list, followed by Auburn, Michigan State and Oklahoma at #3, and Boise State and TCU at #5.

The lowest ranked undefeated team? Utah, coming in at #29. And that's just five spots ahead of the highest ranked team with a losing record, Iowa State, the team they just defeated last weekend.

Bringing up the rear? Again, the Mean Green of North Texas prove to be tough to dislodge from the bottom of the list.

Happy Birthday to Charles Tiebout!

Here is his Wikipedia page, and here is his internet museum at the University of Washington. Here is Fischel's "Footloose at Fifty" essay in honor of his 1956 classic A Pure Theory of Local Expenditures. Note that the title is a parody of Paul Samuelson's theory of public expenditures, which was published in 1954. In political science, he is just as well known for his 1961 piece with Vincent Ostrom and Robert Warren on polycentricity in metropolitan areas, where they argue against the metropolitan form of public administration favored at the time ("Gargantua" as they refer to it).

His 1956 piece has about 8,000 citations according to Google Scholar, and it is from this piece that "Tiebout Competition" emerges as a basic theory of local government. The idea of Tiebout Competition is so well known that his original paper is probably not read by a large fraction of the authors who cite it, which accounts for the significant number of papers which somewhat inappropriately cite Tiebout (1956) as actually claiming that local governments will compete on the basis of public good provision and taxes.

Local Control and the Indiana Property Tax

Here is my recent op-ed in the IndyStar, which is part of a point-counterpoint debate in the Sunday Edition over putting property tax caps into the state constitution.

My argument against this is that it will lead to a bigger government, though its proponents (mostly Republicans) think the opposite is true. They could be right, but I think it is much more likely that the state will increasingly take over local government functions due to the volatility of non-property tax revenue sources of income. The operating budget of local schools have already been overtaken by the state as part of the quid pro quo for this policy, and there is discussion that the state might start pushing for a consolidation of smaller school districts to lower costs.

My preference is for locals to retain these functions where they make decisions on the basis of property taxes, rather than less salient sales or income taxes.

Private Sector Corrections of Externalities

That is a poster from Scotty's Brewhouse in Bloomington. Note that, if people who take shots are less likely to get a flu shot than those who do not, then this could be a more efficient correction of externalities than, say, a small percentage discount of their next meal. Essentially, it could be a form of tagging in lieu of a Pigouvian subsidy.

The Perils of Time Inconsistency: Kitty Edition

When my girlfriend’s parents visited this summer and started feeding two stray cats on my back porch, I knew I was in trouble. Soon we were buying mouse-shaped toys and a laser pointer to spend our time outside in the evenings playing with our new furry friends. Most people would have probably had only warm and fuzzy thoughts while dangling the mouse-on-a-string. But, as you already know, we here at TPS are not most people. Surveying the scene, I couldn’t help but think of the two-word phrase that scares me more than any other: time inconsistency.




We both preferred the cats stay outside. They are a lot of fun—we like playing with them. But neither Astrid nor I were interested in trading the fur-free couch and scratch-free dining table for cat-filled accommodations—especially since it was so nice outside and most of the playing-with-them benefits were already accruing. (Yeah, yeah. We are heartless utility maximizers. Blah, blah, blah.) However, I was pretty confident that Astrid would change her tune as the weather became less pleasant. There is absolutely no way she would be able to look into those soft but-I’m-so-cold eyes day after day without eventually giving in. (I know: this means I am more heartless than she is. No surprise there.) And since dU(Will)/dU(Astrid) > 0, I would naturally want to reduce her discomfort by agreeing to take them in.

I didn’t know exactly how long it would take. But I was confident that, if not sooner, snowy paws would put those cats indoors. We could not credibly commit to keep them outside forever. So what should we do?

If it were merely a matter of putting out food a few times a day and playing catch-the-mouse, it would not have mattered when we brought them in. We were already doing those things anyway. But we needed also to consider the litter box training. I’m no cat expert, but I’d imagine—like most things—training is more easily accomplished early before bad habits set in. So despite our preferences to keep them outside, our inability to credibly commit to this strategy forever and the gains from training early meant that we should just bring them inside while it was still nice and sunny.

But—like so many in time inconsistent situations—we persuaded ourselves that we would be able to commit. “It’s fine. They are wild animals,” I told myself. “They’ve been surviving for thousands of years outside.”

Fortunately for us, it got cold relatively early this year.

Private provision of traditional public sector services

TPS friend Jeremy Segall sends along this story and the ensuing debate. Long story short: Local town charges for fire protection, local man that didn't pay didn't have the fire department show up when his house was on fire, local man thought "they'd come out and put it out, even if you hadn't paid your $75, but I was wrong." How's that for a credible signal to pay your bill?

Naturally, the improved matching of user cost to user benefit makes me happy. As it's set up now, this scenario would work best in a rural setting, where spillovers are minimized (as highlighted in the article). In a more urban setting with houses closer together, I'd imagine groups buying fire protection as a unit, not unlike a condo association.

2010 Gus Rankings: Week 5

Here are this week's Gus Rankings. Oklahoma tops the list, followed by TCU.

There was an interesting development in the Gus Rankings after this weekend's games, involving two of the more important games, that would happen only with great rarity in the traditional human-based polls. Florida lost to Alabama, yet remains ranked higher (3 vs. 4), and Stanford lost to Oregon, yet also remain ranked higher (14 vs. 18). How'd that happen? Florida's (and Stanford's) past opponents had a better weekend than Alabama's (and Oregon's). It's probably not likely to persist-- all four of these teams will probably win a vast majority of their remaining games, and these games will likely contain a large percentage of common opponents (with regards to the pairings above). So no large point advantage there. The advantage gained from last weekend's winners, however, is that they get additional points every time last weekend's loser wins another game. So in the long run, Gus pieces it out-- but the short-run effect is nonetheless interesting.

Art Carden requested a listing of the most overrated teams-- since that's a matter of relativity, I'll simply eyeball the largest differences (10 spots or greater) between the AP poll and the Gus Rankings, contingent on both teams being ranked. Feel free to compare yourself; I'll split it into two categories:

Gus likes, humans dislike:

- Virginia Tech (19 spots)
- Kansas State (15)
- Oklahoma State (13)
- Michigan (12)
- Missouri (12)
- Northwestern (12)
- Florida (11)
- Baylor (10)

Humans like, Gus dislikes:

- Arkansas (34 spots)
- Miami (FL) (25)
- Utah (22)
- Wisconsin (22)
- Oregon State (16)
- Oregon (15)
- USC (15)
- Nebraska (14)
- Ohio State (14)

It's interesting to look at-- there's 4 Big 12 teams on the "Gus likes" list, and 3 Pac-10 teams on the "Humans like" list, and Utah's joining that conference next season. Virginia Tech's difference may well be explained by the fact that Gus does not track games against FCS teams.

Actually, now that I've finished the list, I'd love to keep these groupings of teams in mind and see which group shakes out better over the course of the season.

The intersection of interests in my life

Since I'm a Pirate season ticket holder and a fair amount of my research efforts go to gambling markets, I appreciated this bit from Deadspin; the original post is here. It's about an individual whose gambling strategy for the entirety of last season was betting against the Pirates. Here's the spreadsheet showing the results. It's a mixture of run line and money line bets; nonetheless, at the end of the season, he posted a 9.98% gain. Vegas didn't value the Pirates low enough!

Property Rights in India

My close friend and colleague Shruti Rajagopalan has an article at the WSJ on the Allahabad High Court's recent decision concerning the Babri Mosque. Here's an excerpt:

With such a precedent, state legislatures are too feeble to prevent similar disputes in other religious sites where Hindus and Muslims pray together, such as Mathura and Varanasi. In a land of 820 million Hindus who worship several hundred forms of God, the danger of expropriation in the name of faith is real and imminent.

ATSRTWT.

Cornering the market

The typical example is the Hunt Brothers and their actions in the silver market. Here's a better example-- China and rare earth elements. Note that once China attempts to exploit a monopoly position, they simultaneously eliminate the strength of that position.

Hey-- how about that?! Markets work!

Stand-Up Economist at 2010 AEA Meeting

Assorted thoughts

1. In what's becoming an annual event, Alberto Contador, the current Tour de France champion, has tested positive for a banned substance. Contador blames tainted meat, which has to be the worst possible excuse out there. If he knew ex ante that the meat could trigger a positive test, it just doesn't make sense to eat it. (From a competition/drug testing perspective, not from a why-would-you-ever-eat-something-described-as-tainted-meat perspective.) If he didn't know ex ante that it could cause a false positive, what in the culinary world has changed over the last months to determine this? I'm being facetious-- nothing that I know of, anyway-- but even if it did, who's to say that it couldn't have been something else he ate? If the answer to that is "It's known that meat can have this impact," we're back to square one.

Cycling and drug scandals are a fantastic example of diminishing returns-- at this point, believe the marginal impact to cycling from additional positive rider are as close to zero as possible.

2. I get the sense that the number of people in a dining party is a function of the quality of the restaurant. I think this because every time I run down to the McDonald's near the office, it's generally pretty busy, but the single diners outnumber the groups by a healthy margin (even comparing the total number of people dining in each). When I go to a restaurant, I rarely see people dining alone. If dependent variable is simply the average/expected group size as a function of restaurant quality, I'd expect it to rise to a point then fall-- you generally don't take consistently larger groups to particularly high quality resturants. (Perhaps I'm mistaken.) If the dependent variable is simply the number of groups vs. the number of single diners, maybe that's increasing over the entire range. I'm not perusing the highest quality eateries, I'll spare you my likely incorrect assumptions.

Maybe it's because there aren't many places to sit that would accomidate a larger party? Possibly, but larger parties could still exists within the current framework at most fast food eateries.

I'm not certain if Tyler Cowen's said anything about this, but this seems right in his wheelhouse.

3. I just made it through Exile on Main Street; I'm still a bit baffled as to the critical acclaim this album continually gets. (I do understand part of that may have been drumming up interest for the recent re-release.) I think part of the reason is that the Rolling Stones is a fantastic band that wasn't particularly adept at making good albums, and people can't seem to handle that disconnect. They have to choose something as a flagship effort, and Exile seems to be it.

Los Angeles Crime Database

The L.A. Times, in conjunction with the Los Angeles Police Department and the Los Angeles County Sheriff, has developed a new real-time crime database. Check it out here. The data itself is useful, of course, but I'm curious what (if any) behavioral response will come from this. Could people make day-of decisions based on the weekly crime in potential neighborhoods they were thinking of going to, say, for dinner? If that happens, do criminals adjust and move their criminal activity so as to counter the avoidance?

When one thinks Los Angeles, one thinks (among many things) traffic. I wonder what traffic rates have to do with crime in the Los Angeles area.

Spatial folks, get after it!

Not from the Onion: Judge from Intercourse (PA) Hands out Acorns with Hidden Condoms Inside

Here is the link, no excerpt due to copyright, but I'm betting you'll click on the link.

Doctoral Programs Rankings

The National Research Council has released their rankings on 5,000 doctoral programs over 59 programs for the first time in 15 years. CHE has a useful online tool to help sort through the data here. Happy scouring!

Addendum: Here's the discipline-by-discipline data.

2010 Gus Rankings: Week 4

Here are this week's Gus Rankings. The SEC (4, including the top 3), Pac 10 (3) and Big 12 (3) are well represented in the Top 10. At the low end, Eastern Michigan has wrested control of the bottom spot.

Lowest ranked BCS team: Purdue (110)
High ranked non-BCS team: TCU (5)

2010 Gus Rankings: Week 3

Here are this week's Gus Rankings, just in time for tonight's game when Miami visits Pittsburgh. (Gus has no opinion; both teams are at #69 this week.) Bob Lawson's Auburn Tigers top the list with Texas, Arizona is third and seven teams claim the fourth sport. Look for the winner of Auburn/South Carolina to make a big jump next week.

And bringing up the rear...Ed Lopez' North Texas Mean Green.

Kill Whitey?

In Wired is a fascinating set of studies on race, politics, and "The Trolley Problem." In a classic psychology experiment, people are asked if they should flip a switch that detours a trolley away from running over five people to another rail that runs over a single person. The intention is to get at whether people are morally utilitarian or consequentialist. Other variations include pushing someone in front of the train.

The article covers research on introducing race and political leanings of the participants, with many fascinating findings. The conclusion (at least suggested by the article here) is that people adopt their moral reasoning ex-post, rather than employ it ex-ante:

So we’ll tell a child on one day, as Pizarro’s parents told him, that ends should never justify means, then explain the next day that while it was horrible to bomb Hiroshima, it was morally acceptable because it shortened the war. We act — and then cite whichever moral system fits best, the relative or the absolute.

2010 Gus Rankings: Week 2

Here are the first Gus Rankings of the 2010 season.

Of note:

- No team has two points, which is the same as last year. I think this is a fairly strong piece of evidence that teams don't want to maximize the quality of opponents early in the season, independent of what coaches or athletic directors may say. Yes, there is a factor out of your control in getting to 2 points through Week 2, but you'd expect that to wash out over multiple teams sitting at 2-0. You'd think someone would get there if enough teams tried to.

-Three teams-- Arizona State, Ball State and Indiana (Hi Justin!)-- have yet to play a FBS opponent.

- Gus has slated Eastern Michigan and UAB as the worst teams through only two weeks of games.

Blockquoting X

X = Fidel Castro, in response to a question on whether Cuba's economic system is still worth exporting to other countries:

The Cuban model doesn't even work for us anymore.

Wow. I used this video in class recently. The saddest thing: the average Cuban could not utter that same phrase without fear of state action.

Boettke links to other communist admissions.

What I'm Writing

Roger Koppl and I are currently working on a book chapter titled "Animal Spirits and Cognition in Macroeconomics." I'll post the full draft shortly. Here's a snippet on rational expectations which (at least I hope) takes aim at the typical presentation of the assumption (you know: the Phillips curve assumes expectations are unchanged; then Friedman and Phelps said that was stupid; and Lucas, building on Muth, discovered rational expectations as the logical conclusion to the argument of Friedman and Phelps--as if no one had thought of it before):

It is historically inaccurate (and, to the extent one knows otherwise, intellectually dishonest) to claim the rational expectations assumption was discovered in the 1960s with Muth. The theoretical power behind the assumption of full and complete expectations had in fact been known for some time. Among others, Hicks (1936, p. 241) had expressed the basic idea in admitting it “unrealistic to assume that an important change in data—say the introduction or extension of a public works policy—will leave expectations unchanged, even immediately.” Rational expectations was not discovered, but rather rediscovered in the 1960s because earlier theorists had explicitly rejected the assumption. In the case of Hicks, it was assumed that “there is a psychological unknown, affecting the magnitude of the impact effect” and, as such, “[w]e must not expect the most elaborate economic analysis to enable us to see very far ahead” (p. 241). Earlier economists were aware of rational expectations and, as Meacci (2009, p. 1) describes, saw the assumption primarily as “a device […] to conceal the link between the disappointment of expectations and the theory of fluctuations.” It was not a lack of knowledge that had left the assumption largely unemployed, but the feeling that it was wholly inappropriate to use in addressing a topic so intimately linked to the process of time.

The comments are open. I'd love to hear what you think.

New Data: Social Assets and Vulnerability Indicators

My fellow data lovers might be interested in this interesting range of data collected by SAVI. It is a "dynamic community information system" hosted by the Polis Center at IUPUI, and it allows you to map, compare, and store data about Central Indiana communities from a wide range of data sources.

The amount of data available is impressive, with geographic information on subsidized housing, air quality, communicable diseases, birth defects, etc. You can find a complete listing here.

IU We're All For You

That's the title of SPEA graduate and rock comedian Brian Smith. He gives a shout-out to SPEA in the video, but in a way that does not flatter our image on campus among the undergraduates. The video is funny, so even if you've never seen IU, you will probably enjoy it.

When Should the Government Exploit the Salience Bias in Taxation?

This paper is provocative enough for it to automatically appear on my reading list for doctoral public finance. By Deborah Schenk, of NYU, and titled "Exploiting the Salience Bias in Designing Taxes" but the theme is closer to the title of this post. Here is the abstract:

In making decisions, individuals rely on certain heuristics or cognitive biases. One of these is salience, which generally refers to visibility or prominence. Individuals are likely to focus on items or information that are prominent or salient and ignore those that are less visible. This paper develops an argument for exploiting this cognitive bias in designing or changing taxes. Most commentary assumes that the intentional use of low-salience taxes by the government is undesirable and that increased salience is always required; to do otherwise is to take advantage of the cognitive bias that causes individuals to ignore taxes that are not prominent or salient. Although increasing salience is often desirable, there is a political economy argument for intentionally exploiting this bias by incorporating low-salience provisions into tax design. In developing the argument that utilizing this bias may be an appropriate fiscal tool, the paper begins by setting out the differences between transparency, complexity, and salience, which are often confused in the literature. The paper then makes a normative case that it is appropriate for legislators to design a tax by intentionally exploiting the cognitive bias that causes individuals to ignore information that is not prominent. The paper differs in two ways from past literature discussing salience. First it considers salience with respect to federal income taxes. Most commentators have explored salience in connection with consumption or commodity taxes. Second it considers the salience of discrete provisions, rather than merely the salience of the tax itself. It concludes with a case study where the use of low-salience tax provisions are justified and effective, i.e. where Congress finds it necessary to minimize the prominence of the tax because politically it cannot increase marginal tax rates.

Bumper Stickers at SPEA

An intelligent group parks here:


And no, I don't know the owner of the car.

Before there was Enron, there was Orange County

That's the title of this article in Public Budgeting & Finance (couldn't find an ungated copy), by David Matkin. I share it primarily because the title is so good:

Recent financial scandals in some of America's largest corporations have prompted popular speculation that a similar crisis may occur within the public sector and, therefore, that government and nonprofit organizations should be required to adopt financial oversight practices similar to those that are mandated of publicly-traded corporations in the Sarbanes-Oxley Act of 2002. One of those mandated practices—the use of financial-oversight committees—is already a common practice in public organizations, though little is known about its effectiveness. This study uses a national sample of local governments to examine whether financial-oversight committees improve financial control and strengthen stakeholder confidence in financial reporting. The findings provide preliminary support for the use of financial-oversight committees as an effective tool to improve financial accountability in local government.

Get ready for some more Gus!

My apologies for the sparse appearances here at TPS-- worry not, the experts still come here first.

I wanted to drop a quick note and let everyone know that, as the college football season gets underway tonight, the Gus Rankings will be in full force again this year! For the uninitiated, the Gus Rankings are TPS's simple method of ranking college football teams-- nothing more than counting wins and losses. Here's the original post that outlines the methodology, and here's everything Gus related on this blog.

Remember, Gus can't generate a ranking until teams play at least two games, so expect to see the first rankings after the weekend of Saturday, September 11. Don't expect to see a large degree of variation in the rankings until 5 or 6 weeks in--then again, it's always fun to see who rises to the top early in the season. (Like Washington at #1 in Week 3 last year.)

An Empirical Test of the Division of Labour

Forthcoming in JUE:

This paper provides supportive evidence to the notion that the division of labour is limited by the extent of the (local) market. We first propose a theoretical model. Its main prediction is that scarce specialists occupations are over-represented in large cities. Using census data for French cities, we find strong empirical support for this prediction.

Haven't read it, but it is on the "when I have the time" pile of papers.

Regulating Away Equality

Tax Notes Today (I think it might be gated, sorry) provides readers with 10 Executive Compensation Mistakes for firms. Most of them are details on how to structure contract details to conform with regulatory and accounting requirements. This one is particularly interesting in the second paragraph:

4. Treating everyone the same. It has long been standard operating procedure at many companies to treat all employees the same, for a host of reasons. Foremost among those reasons is that many companies find it hard to make distinctions among rank-and-file employees or senior executives.

However, current trends and regulatory reforms are forcing companies to distinguish some employees from others. Companies are now required to expense stock option awards, meaning that making option awards available to all is simply not financially feasible. Not everyone can be treated the same; not everyone can get big option or restricted stock grants.

Government mandated accounting standards and disclosure requirements are not the only reason to differentiate among employees. There are the important questions of incentives and retention: A company must provide a reward structure to motivate its employees to perform and to stay with the company. Each company must ask and answer why it cares about retaining a given person and how it plans to do so. Inevitably, employees are clearly going to be treated differently. Companies will have to learn how to manage the process of creating and calibrating an incentive structure.

Paging Professor Stigler

From Wired:

“An Act to Ensure That A Local Government That Competes with Private Companies in Providing Communication Services Has The Support Of Its Citizens” was sponsored by a prominent state lawmaker and backed by incumbent ISPs, including the cable lobby. But it’s not like those ISPs actually wrote the now-discarded bill, right?

[...]

When the I-Team asked him if the cable industry drew up the bill, Senator Hoyle responded, “Yes, along with my help.”

Why would anyone have expected different?

Rent-Seeking Fail

A twofer:
Rent-Seeking Fail #1: The New Jersey education commissioner gets caught in a lie over a paperwork error that probably cost the state a $400 million grant from the Federal Government.

Rent-Seeking Fail #2: This prompts a call for his resignation from the governor, and responds by saying out-loud what is only to be implied:

Schundler said he was asked to resign, but he requested to be fired instead so he could collect unemployment insurance.

"I have a mortgage to pay and a daughter about to start college," he said.

Hat Tip to KipEsquire for the find.

Death By PowerPoint

I assume Claudia will ensure that Aidwatch will be all over this. From Wired:

Consider it a new version of death by PowerPoint. The NATO command in Afghanistan has fired a staff officer who publicly criticized its interminable briefings, its over-reliance on Microsoft’s slide-show program, and what he considered its crushing bureaucracy.

Have you centrally planned your war economy today?

Markets in Everything: Dowry in Bangladesh

From the QJE (ungated 2007 version, I haven't checked compatibility):

We explain trends in dowry levels in Bangladesh by drawing attention to an institutional feature of marriage contracts previously ignored in the literature: mehr or traditional Islamic bride-price. We develop a model of marriage contracts in which mehr serves as a barrier to husbands exiting marriage and a component of dowry as an amount that ex ante compensates the groom for the cost of mehr. We investigate how mehr and dowry respond to exogenous changes in the costs of polygamy and divorce, and show that our model gives a different set of predictions than traditional models. We show that major changes in dowry levels took place precisely after the legal changes, corresponding to simultaneous changes in levels of mehr.

A Room With Two Views

Editorial from WSJ (gated), titled "The IRS Targets Incompetent Tax Preparers: That's The Good News. But the Agency is Going Overboard."

The article describes the new regulations to be unnecessarily complicated and burdensome for the more "legitimate" establishment.

I would like this to be a taste of their own medicine. Tax preparers are among the special interest groups that pressure for a complex and evolving tax code so that they keep plenty of business. However, it is more likely that this will devolve into a bootlegger and baptist story.

Finally, I would like to suggest that another way of making tax preparers less incompetent is to make the tax code less complicated, thereby reducing the need for specialists.

The Deadweight Loss of NY Sales Tax: Sliced Bagels

From WSJ (HT: KipEsquire):

In New York, the sale of whole bagels isn't subject to sales tax. But the tax does apply to "sliced or prepared bagels (with cream cheese or other toppings)," according to the state Department of Taxation and Finance....Kenneth Greene, the owner of 33 Bruegger's Bagel franchises throughout New York, says the state demanded that he start charging taxes on all bagels, except for those that remain intact and are consumed off premises, and forced him to pay a "significant" sum in taxes that the state estimated he owed.

Declaration of Independence: "Too late to apologize"

In apparent envy of the Hayek-Keynes rap, political economists and political scientists rally behind equally-cheesy video.



Stick around until the end. It gets even cheesier.

Blockquoting X

X = Lawrence H. White (1977):

Though all [Austrian economists in 1977] presumably share a subjectivist perspective on the nature of economic discourse, we can expect the future development of Austrian views on the proper methods of economics to be marked by disagreements both between generations and within the younger generation on the finer points involved. Such controversy is merely a healthy sign of intellectual progress. It is also, as we have seen with respect to the earlier generations, very much a part of the Austrian tradition.

Are Housing Prices Clearing? Timing and Matching v. Clearing

As someone who studies local housing markets, I have a hard time understanding what this question is supposed to mean when discussing national aggregates. Nevertheless, from the NAR we learn that:

Existing home sales dropped a record 27.2 percent from June to an annual rate of 3.83 million units, the lowest since May 1995.

Felix Simon comments:

The number is so low that it looks like a statistical aberration: let’s hope it is. Because if it isn’t, the news is gruesome. It means that despite record-low mortgage rates, people aren’t able to buy houses: essentially all the benefit from those low rates is going to people who already own their homes and are taking the opportunity to refinance.

The news also means that there’s a big gap between buyers and sellers: the market isn’t clearing. Sellers are convinced that their homes are worth lots of money, or will rise in price if they just hold out a bit longer; buyers are happily renting, waiting for prices to come down. And entrepreneurial types, whom one would expect to arbitrage the two by buying houses with super-cheap mortgages and renting them out at a profit, don’t seem to have found those opportunities yet.

I have a different take: We are observing the consequences of a adjustment in the timing of housing purchases. In fact, the Reuters article even makes the connection:

"This is a worrisome report and while it reflects the volatility caused by the end of the (government home-buyer) tax credits, it also indicates a deterioration in the underlying trend for housing demand," said Michelle Meyer, senior U.S. economist at Bank of America Merrill Lynch in New York.

The bold emphasis is mine, and I focused it on that part of the statement because the phrasing of it seemed to be intended for maximum scariness: "Volatility caused by the end of the home-buyer tax credits." Why did it cause volatility? People probably moved their housing purchases up by several months or even a few years in order to get the temporary tax credit. This inflated previous housing purchases, and deflated them in the post credit period. The volatility was not caused by the "end of the tax credits" so much as the existence of the temporary tax credits!

This also had another consequence, which is that people probably didn't just adjust on the time dimension, but also in terms of what kind of housing attributes are desired. Remember, no two houses are exactly the same, which makes the housing market a matching game. When a tax credit is on the line, you might settle for a house that you wouldn't have if you had more time. This temporal shift has likely caused a temporal mismatch of housing preferences between buyers and sellers. Having buyers change composition like that is likely to cause funny things to happen.

I would add to support for my claim, based on the article:

1. First time home buyers, who were the ones eligible for the credit, declined in their representation as buyers.
2. The addition to the inventory of previously owned homes for sale did not seem to have a similar increase to match the decline in sales (though it did increase).

The housing market might not be setting a market clearing price yet (which rose 0.7%), but since median national house prices mean very little, I am less inclined to view this data as indicating that a significant price decline is on the way. It could be. I think it could also be very reasonable for sellers to let the mismatch period pass before making big conclusions about what their house might be able to sell for.