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.

Taxes for Blogs? In Exchange for What?

The Tax Foundation reports:

After dutifully reporting even the smallest profits on their tax filings this year, a number - though no one knows exactly what that number is - of Philadelphia bloggers were dispatched letters informing them that they owe $300 for a [lifetime] privilege license [or $50 per year for an annual license], plus taxes on any profits they made.

Even if, as with Sean Barry, that profit is $11 over two years.[...]

Even though small-time bloggers aren't exactly raking in the dough, the city requires privilege licenses for any business engaged in any "activity for profit," says tax attorney Michael Mandale of Center City law firm Mandale Kaufmann. This applies "whether or not they earned a profit during the preceding year," he adds.

So even if your blog collects a handful of hits a day, as long as there's the potential for it to be lucrative - and, as Mandale points out, most hosting sites set aside space for bloggers to sell advertising - the city thinks you should cut it a check. According to Andrea Mannino of the Philadelphia Department of Revenue, in fact, simply choosing the option to make money from ads - regardless of how much or little money is actually generated - qualifies a blog as a business.

Two thoughts:

1) Usually, there is some kind of service-based justification for a business license fee (they require police protection, infrastructure, etc).* I see no argument for a quid pro quo here, this is just a stick-up. Am I missing something?

2) I would love to have access to the internal dialogue that went into deciding on blogging fees of $300/lifetime or $50/year. My guess is that it would follow the pure sellers problem (aka revenue maximization).

*You can argue that bloggers should report their blogging income, without getting into the quid pro quo issue, as that is the norm. The issue is making them pay for the license in addition to taxing blogger income.

Stewart Gets It!

The end of this clip is incredible. John Stewart (through Charlton Heston) makes it clear that neither the right nor left are principled defenders of the Constitution. Both sides use the Constitution like a drunk uses a lamp post: more for support than illumination.

The Daily Show With Jon Stewart	Mon - Thurs 11p / 10c
Extremist Makeover - Homeland Edition
www.thedailyshow.com
Daily Show Full Episodes Political Humor Tea Party

[HT: Dan Smith]

Ben Powell on Farm Subsidies

What I'm Reading

Blockquoting X

X = Russ Roberts:

When your teenager drives drunk and wrecks the car, and you give him a do-over—repairing the car and handing him back the keys—he’s going to keep driving drunk. Washington keeps giving bad banks and Wall Street firms a do-over. Here are the keys. Keep driving. The story always ends with a crash.

Cheap Talk: The PA Tax Amnesty

My current research involves state tax amnesties, and part of it is going to involve credible threats. Remember this creepy commercial that circulated the web last spring?



Well, the amnesty is over. Time for the crack downs to begin, right? Rebekah Lu reports:

In the wake of the Pennsylvania Sales Tax Amnesty program, which Governor Rendell calls 'an overwhelming success' Pennsylvania has announced that it is still willing to take money from any tax delinquents out there who didn't pay up when they had the chance to avoid paying penalties. (The Amnesty program waived all penalties plus half the interest owed.)During the amnesty program the state had suspended the voluntary disclosure program which is the usual avenue for delinquent taxpayers to come forward and pay their debts. As of August 1st that program is again available. In return for coming forward voluntarily taxpayers now taxpayers will be responsible for any taxes owed plus all the interest. A 5 percent non-participation penalty is also assessed.

So by "amnesty", the state was really just undertaking a heavy marketing promotion of a special they were running on an already existing and permanent tax amnesty program. Half-off everybody, this time only!!

The Panther's "Name Your Own Price" Ticket: My Two Theories of Rent Extraction

From Wired:

To counteract that wave, the Panthers are trying out a bold, new season ticket-selection process called Perfect Plan. The system is ridiculously simple: Fans need only pick out an area within BankAtlantic Center and propose a per-game price for a specific seat. Then, within 24 hours, someone from the team will notify them to either accept their “bid,” reject it, or offer them a seat elsewhere in the arena for a price similar to what they offered.

I think this system of pricing will turn out perform two functions for the Panthers:

1. It will serve as a mechanism for extracting an anchoring rent. People will propose a price, which will be anchored in their mind when they are offered an alternative seat with lower value.
   
2. It will put ticket scalpers into a position for falling victim to the winner's curse. I suspect this somehow is aided by the recent ban on scalpers from using software bots to purchase tickets online, but I'm not sure on the mechanism.

Labor Demand Slopes Down: #3,672

Forthcoming in the Journal of Urban Economics (ungated, but I haven't compared to see if they are the same). Abstract:

This study examines the effect of state minimum wage changes on new and existing business establishments. It employs a refined border approach in conjunction with other differencing methods to control for unobserved heterogeneous area characteristics. The findings suggest that state minimum wage increases deter new establishments from locating in an area, particularly in industries that rely on low-education workforces, such as the retail and manufacturing industries. However, existing establishments, regardless of industry type, are not found to be adversely affected by minimum wage policy.

Clearly on the wrong side of the Laffer

The inflection point of the Laffer curve is under discussion at Ezra Klein's blog. It unintentionally reminds me that FDR once seriously proposed a 99.5 percent marginal income tax rate, proving once in for all that such exercises are important:

As pointed out earlier in this essay, Herbert Hoover's own version of a "New Deal" had hiked the top marginal income tax rate from 24 to 63 percent in 1932. But he was a piker compared to his tax-happy successor. Under Roosevelt, the top rate was raised at first to 79 percent and then later to 90 percent. Economic historian Burton Folsom notes that in 1941 Roosevelt even proposed a whopping 99.5-percent marginal rate on all incomes over $100,000. "Why not?" he said when an advisor questioned the idea.

Moral Portfolio Theory

From Psychology Today:

"Save a Plastic Bag, Help Save the World." The idea, of course, is that if we throw away fewer plastic bags, nature will benefit. Many such small virtuous actions can, in congregate, impart an enormous benefit. Also underlying the slogan is another idea, which is generally unexpressed explicitly yet a part of our collective folk psychology, that good behavior leads to a virtuous circle: doing one good deed puts us in a beneficial mindset that leads us to do more good deeds....Unfortunately, as psychological research has shown, human behavior doesn't work like that at all. On the contrary: single, small acts of virtuous behavior actually predispose us to behave worse.

Last Names for Economists

In the middle ages, there was a tendency for people to take their occupation as their last name. For example: Smith, Miller, Taylor, Baker, Cooper, etc.

If that practice was to reoccur, I wonder what last name would work well for us economists. I have heard far worse last names than Economist, but I bet some more creative last names could be used to represent the occupation. Dismalist? Oikonomia? Maxyew (derived from "Max U")? Samuelsonite?

Is the Welfare State Larger in America than in Europe?

Apparently, and by a considerable amount, according to a new article in International Tax and Public Finance (I couldn't find an ungated copy). I haven't read it, but here is the abstract:

Fighting poverty is an important concern in most societies. This usually involves transferring resources to the poor. There exists a widespread view that European countries are much more generous to the poor than the United States. We study whether this is really the case. First, we argue that using data on aggregate spending does not allow us to conclude who the final recipients of social expenditure are. We then analyze microeconomic evidence from the Current Population Survey and the European Community Household Panel and find mixed results. In particular, when the concept of relative poverty is used, we find that every individual below the poverty line receives an average transfer in the United States that is 45% higher than in the European Union. When the old are excluded from the sample, this difference is reduced to 14%.

Quote of the year: There are two sides to the coin edition

I just put up a CNN article concerning the 100 worst stimulus projects. The article goes on to say that some people believe the report is a bit one sided. (It is; the point is you can never have enough examples for class of the government funding, say, international ant research.) But check out this nugget, from the lead researcher for a group receiving money to develop choreography that didn't like the cut of the report's jib:

"I think it's sad that this research money that is really allowing innovation and funding students doing great research is being used as a political tool," Latulipe said.

You just can't make this stuff up.

100 Worst Stimulus Projects

As CNN reports here, Senators Coburn and McCain have assembled a report that lists the 100 worst stimulus projects. The title of it is "Summertime Blues," the official summary page is here and the report itself is here.

In related news, here's the 2010 Congressional Pig Book.

A Belated Review of "Firefly"

Yes, the show that was canceled in 2002, but which I only just now watched on Netflix.

I had never really heard of it and almost stopped watching midway through the first episode because I had to recoil from the unexpected blending of Sci-Fi and Western. The economist in me struggled with the notion that an intergalactic race of humans would travel from planet-to-planet in order to go on horseback cattle-drives. I managed to stay with it, however, and enjoyed it more as the (only) season progressed. I had a hard time discerning why I liked it, and really it wasn't until the end of the series and the follow-up movie that I was really able to articulate what I enjoyed about the show. In fact, I would say that the show took this entire span to develop its theme, and in the end I felt it was a decidedly libertarian theme. Since I know a fair number of libertarians follow the blog, I decided I would briefly explain why, since libertarian entertainment is in rather short supply.

(FWIW: I'm not the only one to make the connection, but I didn't agree with the few reviews I read. Here is Tyler Cowen, who sees it as "Burkean Conservative," but mentions that he had only seen it through 8 episodes. I read on a message board that the show's creator, Jos Whedon, is a socialist but said at a sci-fi convention that he intended to make the lead character libertarian).

The main setting of the show is on a space ship called Serenity, and takes place in the years following a failed war of succession during the 26th century. Most planets are ruled as part of an empire known as "The Alliance," but planets on the outer rim of the galaxy remain independent in a nobody bothers sort of way. The crew of the ship take miscellaneous jobs, most of which involve some form of smuggling or bootlegging, and the crew does its best to remain an honorable bunch.

More to the point of my review, however, is that the setting of the show really demonstrates a crew trying to navigate between two conflicting totalitarian regimes. The Alliance is a decidedly leftist regime with a strict utilitarian welfare function. In this regime, individualism is viewed with suspicion because it seems unnecessary, given the Alliance's pure and great objectives ("why wouldn't they want to conform" is a reoccurring Alliance retort). The individual human is flawed, but perfectable, and the perfection of humanity is the end in itself. They pursue this perfection with a utilitarian theme, which at its lowest point sacrificed an entire planet to an experimental drug that created a barbaric race called Reavers.

The outer planets are not ruled as a collective, but the constant threat of Alliance coercion causes them to operate in a state of either lawlessness and/or reclusiveness. In the series, each planet seems to be ruled by some type of right-wing regime that makes them about as totalitarian as the Alliance itself. This, to me, was a most logical outcome. The Alliance's pursuit of perfection created a galaxy-wide black market (an organ shortage, no less!). At the same time, the constant fear of annihilation (even among those who were not part of the black market) cultivated rather conservative societies, ruled by dogma and norms that apparently had proven useful for survival, and often with a very religious bend to them.

The crew of the Serenity demonstrate little interest in living under either regime, and frequently find themselves at odds with both camps. Indeed, their desire for independence makes them natural enemies of both forms of totalitarianism. Though it is the sort of independence that characterized much of the early American pioneers: rugged individualists who were also fiercely defensive of their community. In this way, they portray libertarians better than libertarians usually portray themselves.

By the series end, and especially in the movie, you get to see just how similar the leftist Alliance is to their conservative counterparts from the outer planets in their religiosity. Both preach adherence to blind faith and cultivate a self-serving status hierarchy. In no place are their similarities more apparent in the treatment of the character River, who it is implied has some psychic abilities. On one occasion in the outer planets, she is nearly burned following accusations of witchcraft. The Alliance, on the other hand, wants to dissect her brain "for the greater good," by which it turns out to mean the greater good for the ruling elites.

The way the two conflicting ideologies managed to merge in their practices, and watching a crew of independent (yet, not isolationist) bunch trying to navigate between them made for a decidedly enjoyable experience. My two cents. If you watched the show, I'd be curious to know how my interpretation squares with yours.