State of the Union: More of the Same

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

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

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

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

–George W. Bush, 2004 SOTU

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

–George W. Bush, 2005 SOTU

And energy...

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

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

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

–George W. Bush, 2003 SOTU

Jobalism...

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

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

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

[HT: Steve @ CP]

Stimulus Signs

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

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

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

Swine Flu Update

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

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

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

...

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

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

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

Hayek v. Keynes Rap

Without further ado...

Public v. Private

From the Washington Post:

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

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

[HT: Astrid Arca]

2010 SEA Sessions

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

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

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

My contact info here, if interested.

On Lobbying: Remember the Symmetry!

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

Now, from Yahoo News (HT: KipEsquire):

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

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

Political Sunk Costs

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

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

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

A Tad Too Strong

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

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

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

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

MPIs: Seen v. Unseen

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

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

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

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

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

Movie Production Incentives in the News

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

The Passions and the Interests

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

The Lincoln Quote Quandary

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

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

The quote at question is the following:

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

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

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

Haiti thoughts

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

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

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

Capturing Poor Driving

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

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

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

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

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

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

What else is there?

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

No Solutions, Only Trade-Offs

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

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

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

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

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

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

The Crisis of Credit Visualized

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

HT: Duarte Blog

Working Paper: Monetary Anarchy

Here's the abstract from my latest working paper:

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

An updated draft will be posted soon.

Movie Production Incentives

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

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

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

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

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

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

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

On Time Arrivals to Class

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

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

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

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

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

Swinger Economics II

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

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

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

Zoning: Regulation, Community Property Right, or Both?

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

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

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

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

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

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

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

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

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

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

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

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

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

Government Failure

[HT: Astrid]

Mackey in the New Yorker

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

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

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

Worst. Decade. Ever.

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



[HT: Art @ DOL]

New Year, New Laws

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

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

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

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

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