Remember WMDs in Iraq

In the Oil Econ 101 post at Econlog, the issue of foreign oil revenues sponsoring terrorism arises as it often does (though it is not the subject of the post). National security, be it sugar or oil, is the always the last resort for protectionists. Unlike sugar, oil seems to hold more traction because people know where the 9/11 terrorists came from and where the oil comes from. I have two questions for those energy protectionists:

1. Is there any evidence oil revenues are a major source of funding? What is the terrorist funding elasticity of oil revenues at the current margins?
   A fellow economist who has expertise on this issue tells me no, but I can't get ahold of him to obtain permission to cite him here. Before you dismiss or laugh off absence of evidence, as is usually the response I get when I bring this up, refer to the title of this blog post.
   
   
2. Even if #1 is true, does it make sense that we would be better off in terms of national secuirty if we were energy independent?
   Dependence works both ways, we depend on them for supply, they depend on us for demand. It seems to me that the political elite in much of the Middle East have a very strong incentive to see our continued survival.
   

Then Again, Maybe Celebrities Wouldn't Be So Bad

From the Kansas Star:

A professor at a Kansas university who dropped his pants and mooned a room full of students and teachers is under investigation after video of the incident was posted on YouTube, school officials said.

Bill Shanahan, a professor at Fort Hays State University, was at a debate with the Fort Hays State debate team last March when the incident occurred.School officials said they believe things got out of control when the team got low scores from two of the judges.

Shanahan is seen on the video jumping up and down, ranting and then mooning the crowd in the room.

Here is the YouTube link. If you are like me, you want to know more about Bill Shanahan in hopes of providing more context to the story by understanding its main character. This is cut and pasted from his webpage (includes picture):

B.S. - Speech Communication: Suffolk University (Boston, MA) 1984
M.A. - Communication (Rhetoric); Wake Forest University 1989
Ph.D. - Speech Communication (Rhetoric); University of Texas at Austin 1996

Persuasion and semantics are two classes "Bill" Shanahan loves to teach. These student-directed discussion classes are among the many classes Bill has taught over the last two years at FHSU. He has also served the role of debate coach at several other universities.

Publications:
Contributed two chapters to a book on Orwell's Animal Farm, and a quantitative communication piece which got published in a mainstream communication periodical. He has also published a dissertation on Nietzche's rhetorical nihilism and is currently writing a book on Nietzsche's reception in Communist Germany.

I wonder what enrollment will be like for his next class on persuasion.

Celebrity Professors

No, not Greg Mankiw/Mick Jaggar.

The Chronicle of Higher Ed has an article discussing the various benefits and costs of having actual celebrities teach university classes. The example used is Kal Penn (of "Harold and Kumar Go To White Castle") teaching a class on the image of Asian Americans in the media for the University of Pennsylvania.

My first thought...if a university wants to experiment to find something that works, let them. They bare the consequences of their decisions.

My second thought...Shit! Everybody in the world thinks they know economics and offer up loud vociferous opinions, especially celebrities. Economic ignoramus extraordinaire Michael Moore and protectionist Lou Dobbs could wind up teaching micro principles under this trend!

I'm on the fence, but leaning towards putting more weight on the first thought.

Prescribe us a solution!

I like rankings. Maybe it's because I'm a college sports fan and it always leads to good natured bitching, but even non-sports fans like rankings. I love those top-50 lists at the end of every year. I don't like the shows much, but anytime I run across those VH1 lists I always find it intriguing. Rankings are fun. So I'm making a category called Rankings, and now I've got a reason to share just about any ranking I come across.

TPS officemate extraordinaire Joab Corey sends along this list showing the top ten states in terms of retail prescriptions filled per capita. (Click the left arrow to go back and see #2, #3, etc.) And who's #1? Country roads, take me home. West Virginia is the "most medicated state." I have to admit, sight unseen, I thought Florida would take it, being the popular retirement locale and all, but the denominator (population) is pretty large...I think that hurt them. (They didn't make the top 10.) A brief glance at the list reveals, for the most part, the low end of the income per capita rankings populating the top 10 retail prescription per capita list. Explanations?

1) Lower income leads to worse health outcomes. This is a result usually used to compare first and third world countries, but perhaps discrepancies even in high income countries have tangible effects.

2) States with more prescriptions have more generous public health care provision, and larger public sectors make for poorer states.

3) Most of these states are low population as well; a lot of prescriptions OR a low population will get you to the top of the list. Of course, population could well be a function of income as well; the Laffer study I linked to last week speaks of states being winners and losers in the migration battle.

Causality gets tangled pretty quickly; I'd say #2 is probably closest. I'm not convinced that #1 can be drawn out within the U.S., or at least not that simple and definite of a link between the two.

Olympic Update

- Turns out that the Olympic organizers added in some computer animation to enhance the opening ceremony.

Media gets their panties in a bunch because: It lessens the originality of the experience.
I don't care because: It was still awesome to watch in HD. I was exhausted from a 10 hour flight and watched the whole recording without getting tired, it was riveting in my opinion and one of the finest performances I've ever seen.

(Over two years, consistently, I keep forgetting how badly I need to make it into one of these opening ceremonies. Then another one happens and they rarely are less than amazing. I'd read somewhere that someone was able to get a ticket the morning of the ceremony for $400. That is an absolute steal in my book; I'd easily pay that to go.)

- Turns out that little girl that sang in the ceremony wasn't singing; she was lip-synching the words sung by a less-cute girl.

Media gets their panties in a bunch because: Thou shalt never call any child cuter, less cute, more cute, or anything other than "everyone is just perfect in their own way."
I don't care because: It still sounded awesome. Singers sing songs written by less cute people all the time. As far as I'm concerned, it's a great example of division of labor. One sings it, one performs it. China could use all of the market improvements they can get.

A Comment on Revenue to GDP: Size Doesn't Matter

Katy G makes a very common mistake in her attacks on Wal-Mart:

Why Wal-Mart? For one thing, Wal-Mart is huge. It is America's, and the world's, biggest company (in terms of revenues), and also America's, and the world's, largest private sector employer. Using the figure listed here on Walmart's 2007 revenues, and the figures for the U.S. GDP in 2007 listed here and here (which all give slightly different estimates for the GDP), I calculate that Wal-Mart's revenues are equal to approximately 2.7% of the gross domestic product of the United States.

Yeah, I suppose large successful employers deserve to be attacked for hiring so many people. The only reason I bring this post up is because it makes a very common mistake by comparing revenue to GDP. You most often see this with comments like "Wal-Mart is larger than the economy of (insert 3rd world country here)."

Arguments based on comparing GDP to revenue is about as useful as gauging the nutritional value of a fruit based on its relative size. You cannot say the pineapple is more nutritious than the potato simply because it is bigger, you have to compare potatoes-to-potatoes and pineapples-to-pineapples if you want to talk about size and nutritional content.

The principle reason is that GDP is a measure of value-added, whereas revenue is not. The sale-price of a good includes not just the input of Wal-Mart, but the input of all those in the supply-chain, for which Wal-Mart is almost certainly a very small portion of (See I, Pencil by Leonard Read). It would be more (but not entirely) accurate to compare firm profits to GDP, but this is not done by Wal-Mart detractors because it would reduce their estimates to the point where it would not even be considered a rounding error.

Hat Tip: Marginal Revolution

Why Russia is Attacking Georgia (The Country)

I asked our good friend Pavel Yakovlev, Assistant Professor of Economics at Duquesne University, why the Russians have launched what is apparently an attack on Democracy, according to CNN and President Bush. The Siberian native, gives his take (printed with his permission):

Stalin (a Georgian) in his awfully twisted wisdom redrew the map of the Soviet Union when he was in charge, and gave the Georgians some of Ossetian and Abhasian land (called South Ossetia and Abhasia). After the break-up of the Soviet Union, Ossetians and Abhasians who technically lived in Georgia because of Stalin's map wanted to break away from Georgia just like the Georgians broke away from Russia. For some reason, Georgians felt like attacking the Osetians and Abhasians for it in 1991, but these break away regions put up such a resistance that Georgia began actually losing its land to these different ethnic groups. The Russians stepped in as the peace keepers and maintained more or less a peaceful truce untill now. On August 7th Georgia, emboldened by U.S. military and political support and training (did you know your tax money was paying for it?) launched a surprise all out attack (Blitzkrieg style) on South Ossetia, completely obliterating its capital and killing by some estimates about 1600 civilian Ossetians. Russians are now simply retaliating against the Georgians, and since Saakashvilli is losing militarily, he is portrayed by the American media as champian of democracy being crushed by Russia's invasion. Somehow i am not surprised about this propaganda. I lost all faith in the U.S. media and government after Bush came to power and invaded Iraq on false pretenses.

Pavel also sends this link from the Guardian and this blog post.

Addendum: Bob Lawson, Economist at Auburn University, offers what he thinks is probably something akin to the Georgian point of view in response to Pavel's comments.

Airport thoughts

Alright, I'm back in Morgantown for a decent stretch now.

Two things that got me with this round of traveling:

1) Luggage stores in airports: Good business idea or bad business idea? I'd like to hear TPS business guru Thomas Johnson's take on this. On the one hand, you're probably most likely to be thinking about baggage when you're traveling...but that could also be the time that you're least likely to buy. I suppose if you arrive at the airport with broken baggage that this could be convenient...but how often does that happen? And why would you show up with broken luggage? Further, if it's a bag you have to check, you'd have to bring your broken bag in through security, buy the new one, repack it in the airport, go back outside of security to check it, then go back through security once more to catch your flight. And receiving a broken checked bag doesn't work either-- you can't get back in past security without a boarding pass, and you just used it to get to where you're at.

I'm thinking these stores might have been more feasible prior to the security increases-- back when you could wait at the gate for an arriving passenger. I might do luggage shopping if I were waiting in the airport for a delayed friend...not these days, though.

Nonetheless, these stores still exist.

2) Boarding order on planes. This has been discussed plenty of times elsewhere, though I don't think we've touched on it here at TPS. I'm not purely interested in how to get everyone on the plane the quickest-- some combination of back to front, outside seats to inside seats-- but rather why it is that those that need the most time to get on the plane get to board first. If you board these people first, then you spread this additional time cost on to everyone waiting to get on the plane. If they get on last, it's like internalizing the externality, which is definitely in the direction of better functioning markets.

It could be that they can board the plane a lot better if there isn't anyone on the plane, too. I don't think this is the case. Suppose they have an aisle seat and two people have to get up-- that could conceivably take longer. But this tends to increase boarding time because of the line that forms behind this maneuver-- and remember, if slow boarders are boarding last, then there is either no line or not much of one.

Incentives, too. If you have to travel a lot and don't like waiting, then you want to get yourself into the fast group-- and this is not only better for you, but better for everyone.

I suppose you need to wait for everyone to get on the plane before you leave anyway, but if you value sitting in your seat as opposed to waiting to get on the plane-- irrational, perhaps, but I'd say this is generally true-- then I think it's welfare increasing to have the slow boarders get on last, yes?

And, of course, the disclaimer for everyone who thinks I want to send people who board planes slowly to internment camps: No, I don't hate them. No, I don't want them to die slow deaths. The question here is simply that we've got two types of plane users and how to get them onto the plane the quickest. (Though I get the "Matt-is-a-child-hater" when I put forth my idea for a kids-free airline-- which, by the way, would absolutely clean up.)

Biggest Loser Families

Yes, Russia is out to topple the Georgian government, gas prices have fallen for 24 straight days, but I'm going to discuss a TV show.

The premise of the show "Biggest Loser" and its special edition version focusing on an entire family, is to follow a group of overweight individuals as they struggle to lose weight. The individual/family that loses the most weight wins. I don't watch these shows, but when the commercial shows I find myself wondering how much time is in the period where the contestants discover they will be on the show and the beginning of the competition.

Assuming weight loss is a concave function of diet and exercise, a rational strategy for a contestant who wanted to win the competition would be to gain as much weight as possible in that period before the competition starts. The result would be that the true net weight loss of the show would be less than the weight lost in competition. For contestants who may have pursued this strategy and were eliminated early, the net effect may actually be a weight gain.

Thoughts?

I'm Rooting For Shut-Down

"Are [Democrats] really prepared to close the government in order to stop drilling?" Gingrich asked. "Because I think the country will find that to be a suicidal strategy."

That's from CNN. Let's see, it appears we'll either get lower gas prices or government shut down for the fall. As nice as lower gas prices would be...

Addendum: The Intrade probability of the lift on the oil drilling ban rose significantly with this, and as of 1:07 p.m. on 8/8/2008 is trading at 49 cents on the dollar. It stands to reason there is roughly a 50/50 shot of a government shut down.

The Fastest Way To Multiple Degrees

The student has literally become the teacher. From CHE:

An instructor who was fired for enrolling in his own classes at Bishop State Community College, in Mobile, Ala., should be reinstated and given back pay, an arbitrator has ruled, according to a report in the Press Register, a local newspaper.

Henry Douglas, an instructor in Bishop State’s culinary department, was terminated by the college when a state audit revealed that he had enrolled in 10 courses that he himself was teaching, and was listed as taking six other courses at times when he was scheduled to teach. The Press Register reported in 2007 that he received six A grades and one B in seven courses.

I have joked to my students on the review days before an exam that "the test is so hard I only got a B when I took it, and I wrote the thing!" However, it seems this may actually be the case for some teachers.

File This Under....Capitalism Always Wins

The Che Store: For All Your Revolutionary Needs!

They are currently offering a $5 blowout sale, 50% off clearance items, and you can get shirts with The 'eco' label (I'm not sure why they put the 'eco' in parentheses).

They also accept Paypal, Visa, and Mastercard.

My favorite part though is in the welcoming text on the homepage:

theCHEstore.com welcomes you to the largest collection of Ernesto Che Guevara merchandise found anywhere in the world. theCHEstore.com works closely with more than 15 companies worldwide to put this collection together for you and to keep it current with the latest styles, trends and fashions while maintaining an appreciation for classic and retro designs.

Just a beautiful demonstration of entrepreneurship and why markets work!

Obama's Hit List

I would love to be able to sort this list of industries ranked by profit margin against a list of regulated/protected industries. Anyone know where I can find something like that?

Hat Tip: Carpe Diem

Don't Plagiari Thy Syllabi

Since I am preparing a syllabus for a course I never taught before this article from the Chronicle of Higher Education caught my attention. Apparently there is gray area as to whether or not a syllabus can be plagiarized. I personally do not feel my syllabuses are intellectual or literary contributions to society, and thus do not personally care if someone copied my syllabus, but I think the topic is an interesting nugget of copyright law and would not begrudge someone who would find it distasteful. However, the author of the article (an English professor), does take syllabus plagiarism very seriously and considers the possibility that such a lax view of the the absent intellectual protection as a symptom of something bigger:

To decide that a syllabus is not a made thing, not worthy of protection without regard to market value or aesthetic value, erodes the terrain of the classroom, a terrain with a history of siege. I remember in graduate school being mocked by other doctoral students for caring about the classroom. Most tried to "get out" of teaching through grants and fellowships. The real work, I was meant to understand, lay in scholarship. In a culture where teaching is feminized, I see direct connections between the lack of protection surrounding the materials produced for the classroom and the fact that female faculty members tend to have higher teaching loads than their male counterparts, devote more hours to teaching, spend less time on research and therefore publish less, and dominate the adjunct ranks while lagging behind in the numbers of full professors. My syllabus participates in larger questions in academe about what, and who, is valued.

Help Me Pick a New Name for "Income Distribution"

I've been trying to think of a way to accurately refer to the income distribution without using the word "distribution." When economists think of income distribution, they are thinking about statistics and pdfs. I believe when others hear of it, the statistical noun "distribution" is transformed in their mind to the verb "distribute" (as in "we shall distribute the income accordingly") or perhaps the adjective "distributed" (as in "the income was distributed in this fashion"). Since income and wealth are created, not distributed, how can I rephrase income distribution into something that is accurate and remains accurate in the mind of the listener? My own ideas are too long, bulky, and academicy, like "...the proportionality of income creation...".

Any suggestions would be a public good.

The Inspiring Tale of Joab

Here is a very nice article about my former office mate and current WVU econ PhD student, Joab Corey, and how he uses his cancer treatment to teach economic principles. Surprisingly, it is not a set of depressing or grim lessons, but instead he puts them in a way that come across as very funny. My favorite story is when he, in order to receive financial assistance from the hospital, needed a rejection letter for financial support from the state. When he went to the state office to apply for the aid, the office worker simply asked if he just needed the rejection letter, which they then just pulled out and handed to him without bothering him with filling out the forms.

One thing that can't be missed is how good of a teacher Joab is, on the days he hands out teaching evaluations the students give him standing ovations (seriously). These kind of rave reviews has led the WVU econ department to allow him to develop an undergraduate behavioral economics course. He's working on his dissertation under Russ Sobel on the topic of economic freedom and the resource curse. Additionally, he and I have been crunching data to determine the effect of cost-of-living adjustments on measures of income inequality.

One day in the near future, I will post a blog outlining his arguments for why economists are too dismissive of sunk costs and why it is irrational to fear ghosts (assuming they exist).

Starbuck's Clever New Price Discrimmination Deal

CNN Story Here:

Looking to bring more value-seeking consumers through its doors for a late afternoon caffeine fix, Starbucks Corp. said it will now offer its morning customers any iced grande beverage for $2 after 2 p.m.

The price is a big cut from the normal price of most grande-sized iced drinks. A grande iced latte, for example, costs about $4. To get the discount, customers must present a receipt from their morning Starbucks visit.

In economics, we call this 2nd degree price discrimination, where you pay a lower per unit price as your consumption increases. For example, your local electric company knows those first 100 kilowatt hours are very important to you (keeps your fridge cool, alarm clock powered, etc), but after that you become more flexible in your energy consumption. So your willingness to pay for those first 100 kwh is very high, but diminishes rapidly after that.

Starbucks is looking to do the same thing. They know that those who typically get their caffeine fix in the morning have a lower willingness to pay in the evening (like me). Recreational or social coffee drinkers are more prevalent in the evening (like my wife) and have a higher willingness to pay. Setting one price for both groups mean you miss some customers from the morning, and you give up charging a higher price to the evening customers. By offering evening discounts to morning drinkers, they have a means of effectively separating the two groups, and with any luck they might eventually be able to set higher prices for the recreational drinkers than they otherwise would.

Now comes the part where I start selling my morning Starbucks receipts to my evening coffee drinking friends ;)

P.S. My customized Starbucks card states "I Heart Capitalism."

Thanks Nancy!

For admitting the social benefits of Starbucks while simultaneously demonstrating extreme elitist paternalism:

“These people can’t just walk out of Starbucks and get a job at a grocery store or a factory,” said House Majority Leader Nancy Pelosi, D-CA. “They would need ESL classes and cultural training to learn how to relate to ordinary Americans and function in society.”...

HT: Greg Mankiw

Re: Wal-Mart and minimum wages

Been away the past few days, so forgive me for I am catching up to this post from Matt inspired by this post from the good sir Thomas Johnson of Inefficient Market. Why does Wal-Mart support the minimum wage? Here's TJ's apt summary of the argument made in the Mises article:

The theory is that Walmart competes on the fact that it has a better supply chain and better negotiating power than smaller competitors. Since wages make up a smaller part of Walmart's costs, higher employee salaries would hurt smaller shops more. So, Walmart lobbies for higher minimum wages in areas where it faces competition from smaller retailers.

Yes, a rise in the minimum wage probably will be less damaging for Wal-Mart than its competitors, so pursuing it as a public policy makes sense IF Wal-Mart cares that much about their relative position to other competitors (which it does to some extent). However, what is more important to Wal-Mart (by extension of their shareholders) is their absolute position. Diminishing their absolute position for a relative gain is a poor business move, and surely Wal-Mart knows it. Yes, Wal-Mart pays above minimum wage already, but a rise in the minimum wage will likely put upward pressure on the wages of their own labor force.

At best the relative gain argument is a tough sell, so lets go with a simpler theory, which I suggest is based on the likelihood that Wal-Mart's position on the minimum wage doesn't influence the outcome of any potential legislation. If what you say doesn't matter, then say whatever you want! In this case, you might as well as get some good PR and take the opportunity to point out to your much higher wages. If CEO H. Lee Scott, Jr.'s opinion was able to swing the outcome, then he'd be much more likely to push the button the other way.

P.S. Wal-Mart deserves a Nobel Prize.

File this under...extent of the market

The division of labor is determined by the extent of the market.

Scary sentence of the day

The consulting firm, Tillingham, a unit of Towers, Perrin, calculates that the cost of excessive litigation in America is about two cents for every dollar of production...

That's from "Rich States, Poor States," a new economic freedom-like ranking by Arthur Laffer (yes, that Laffer) which will be the topic of next week's column. It's not perfect, but neither is the Fraser Index (their new state rankings just came out about a month ago, by the way), and the value comes in an alternative way in looking at a tough problem-- namely, how to quantify the policy environment of a state. There's a lot to like about it.

Rolling in the surplus

Total surplus in every transaction in constant; your value of what you are acquiring is above that of what you are giving up, as in your partner's, and that's why you engage in the transaction. These values don't change with price; the price simply determines how the surplus is divvied up. Nonetheless, you still want a greater share of the surplus for yourself.

Today at Starbucks, I bartered my grande hot chocolate (no whip cream) down from $2.84 to $2.70. I therefore have deemed August 2 "Surplus Day" as I'm rolling in the additional surplus.

Viva!

Wal-Mart and minimum wages

TPS's resident poker theorist, Thomas Johnson, sends along this bit about Wal-Mart and minimum wages from his new blog, Inefficient Market. (I think we should change our motto to "Thoughts directed by Tom...since 2005.")

First off, I strongly believe that Tom so named his blog just so that I'd have to write the phrase "inefficient market" on TPS.

It turns out that Wal-Mart is in favor of raising the minimum wage in certain areas. But...they're evil, and only good people are in favor of raising the minimum wage! What's next, upwards gravity?

Here's what he had to say:

I think this is an example of how even an otherwise well-functioning market can incentivize participants to break it. Can we really expect rational politicians to resist passing a law that both appeases the interest of large corporate donors and makes them look good to populist voters? How do you fix a situation in a capitalist democracy where everyone thinks it's a good idea to break the system, even though the average citizen will be worse off afterward?

1) The incentive for rent-seeking was not created by the marketplace; that is a function of having a government that will intervene in the marketplace. Minor, but crucial, difference.

2) The typical self-interested politician model shows them directing policy to maximize their time in office. Raising the minimum wage is popular with the general public, and if it gets their hands into Wal-Mart's coffers...all the better for them.

3) We get arguments like this a lot concerning West Virginia-- how can capitalism work so well when... (insert statement here, such as "Enron can swindle everyone" or "I'm forced to pay for poor public schools). The rub here is that this isn't capitalism. Using the government to put your competitors out of business is not capitalism. It's about as anti-capitalist as it gets.

So how do you fix the situation here? Get rid of the minimum wage. How do you fix the overall issue of rent seeking? Get rid of the government in the economy. Both tough mountains to climb.

(The underlying article from the Mises Institute has a few great facts to throw out the next time someone goes anti-Wal-Mart on you. Instead of arguing for net social benefit-- always a tough sell over a minute or so, plus the invariable "I'm losing but big rich people are winning so that's a net social gain" comeback-- I'm going to come back with "Wal-Mart is in favor of raising the minimum wage!" and "Wal-Mart's average salary is at least 50%, and sometimes over 100%, of the federal minimum wage." For better or worse, these are the margins that the Wal-Mart is good/Wal-Mart is bad debates are won.)

Favorite Campaign Slogan

Not really a slogan, but should be:

Jesus on a stick. Gimme a break.

That is Mungowitz. If you are in North Carolina, be sure to vote for his alter ego Mike Munger in November. I would not, however, just out of the fear that it would slow down his production of EconTalk podcasts.

Neuroeconomics

TPS's resident foreign exchange guru, Thomas Johnson, recently wrote to request a post on neuroeconomics, vis-a-vis this recent piece in the Economist. And here at TPS, we aim to please, so here we go. Hopefully a nice discussion will follow.

Neuroeconomics, it could be argued, is the next step in not only the happiness research path, but also the scientification of the discipline. It was the goal of many 1970s macroeconomists to try and calculate the exact specifications of any functioning economy; if you're not growing, we can calculate exactly what you need to do to get you back on the right track. Needless to say, this caused a lot of harm. Trying to make economics more like science is not what economics should be doing; Hayek did a great job of explaining this in his Nobel Prize lecture.

Computation realities aside, there's still an ethereal concept of happiness that can not be measured; measuring dopamine is not measuring happiness. It's measure a physical process in the brain that seems to be related to people claiming to be happy; it is not happiness itself. I wouldn't even say that it's "closer" to measuring happiness than just asking someone how happy they are-- and we have written numerous times about the problems of doing that.

So, I'm not a super-huge fan of neuroeconomics, based not so much in the interesting results that it may yield in the near future, but the danger of using these results as support for policy prescription.

(By the way, the article mentions CalTech's Colin Camerer, author of perhaps my favorite academic paper. Favorite/longshot biases have received a lot of attention in gambling literature, and he wanted to see what happened when you put shocks onto the betting pool right before the betting window closer. Big shocks. Like removing-$100,000-bets-one-minute-before-post-time big. I got such a kick out of that.)

P(Recession) on Intrade

CNN has the story of the latest news release on the slower than expected 1.9% annual growth rate. Intrade (pictured above) responded by increasing the probability of recession by 4.5% (up to 23.5%), however this represents a swing of just 2.5% from the price 48 hours ago. These are thin markets, so the previous drive up may have been some analysts at the BEA ahead of the announcement. That is pure 100% speculation, but I would do it if I was them.

Regardless, 1.9% economic growth is still far from the negative numbers needed to be called a recession by the Intrade definition, so over 20% still seems pretty high from my standpoint. However, I am not yet putting my money where my mouth is and trading (until I start getting some paychecks from the new job). For me, the big concern is the areas of growth and decline:

The increase in real GDP in the second quarter primarily
reflected positive contributions from exports, personal
consumption expenditures (PCE), nonresidential structures,
federal government spending, and state and local government
spending that were partly offset by negative contributions
from private inventory investment, residential fixed
investment, and equipment and software.  Imports,which are
a subtraction in the calculation of GDP, decreased.

Nothing there sounds particularly good, as the main story seems to be investments in future productivity are declining. Keep in mind that the statement "Imports, which are a subtraction in the calculation of GDP" is a definition of an accounting relationship, not a behavioral relationship. It is definitely not the case, regardless of what Lou Dobbs tells you, that imports have made us poorer, because imports allow the other components of GDP to increase.

Free Market vs. Sporn

One of the best social benefits created by the internet is the demonstration it gives to the general public the self-regulation created in free markets. Consider the new EA games product Spore, which apparently is like Second Life but with ever evolving creatures instead of people. Sure enough along follows the creation of Sporn, which is pornographic characters in the game, has outraged many. Just watch the free market go:

When EA got word of the "Sporn" creations, it began working with YouTube to pull them down. Players who repeatedly upload "offensive content" are warned, suspended and eventually banned, Bradshaw said.
...
But the policing isn't restricted to EA and YouTube. Users also are able to flag and report content that they find offensive.
...
EA plans to make sure nobody sees the content if they don't want to, Bradshaw told CNN. When playing "Spore," users will be given three choices regarding people's creations: to receive no outside content, to receive content from buddies only, or receive all external content.
...
Miles Moffit, a gamer attending the University of Georgia who has created tons of "clean" characters on his own, is glad to know EA will be regulating what makes it into the game.
...
"My initial reaction to discovering it in my final game would be to ban it so it wouldn't show up again and then blow it to pieces for the sheer satisfaction of it," Moffit said. "Go ahead, create a walking phallus. See how long it lasts in the databases and galaxies of Spore."

Beautiful.

Bad Money

While eating my last meal in Rome, I paid with cash and received, in turn, a 20 Euro bill in change. The following morning, after buying a train ticket to the airport with said 20 Euro bill, I was flagged down by the man from whom I bought the ticket-- on the train no less-- and despite the language difference, I could tell he was none too pleased.

The problem? My 20 Euro bill was a fake.

Fortunately, I was able to scrap together legal money to get myself to the airport. I was intrigued, though-- if this was in fact fake, I wanted to make sure. So I tried to use it at the airport to buy some food and, again, it was refused. I feel pretty certain I've got a counterfeit 20 Euro bill in my possession.

One other possibility-- the reason for refusal, given both times, was that it was missing the wide vertical holographic strip down the right side. A photo of the bill is here. As the bill was printed in 2002, the first year of Euro currency (some could have been printed in 2001 in anticipation of release, I do not know, but the currency came into circulation in 2002), the bill's design could well have been changed from 2002 until now. As such, there may have been a period of acceptance for both bills-- strip and strip-free-- followed by the banning of the old bill.

A colleague of mine notes, though, that the best time to counterfeit is probably right near the release of a new bill, since bill-takers would probably be less familiar with the intricacies of the new paper currency. In response to this fact, however, perhaps they'd have heightened awareness to a higher probability of a fake?

Morally, how do I feel in my transactions I described? I don't feel bad at all about the first; I thought it was real. I had suspected by the second that it might be fake and wanted to test its legitimacy; unfortunately, paying at a food bar is not a certain test of the validity of the money. In my mind, had it been rejected (as it was), then I feel I've got a pretty good case for possessing a fake bill. If it's taken, however, that would seem like proof to me that it wasn't fake, but it could be that it was counterfeit yet accepted anyway. So I can't observe for myself the truth of the bill, and as such, can't tell if I've ex post taken advantage of the merchant with which I was trying to deal.

Dana-- correct me if I'm wrong, but you have to surrender or will have confiscated any counterfeit cash you possess at any time, right? For example, if you try to pay (knowingly or unknowingly) with a fake $20 at McDonalds and they deem it counterfeit, don't they confiscate it and call the cops and you do not get your $20 replaced?

Don't Get Too Excited

CNN has the story on the legalization of Marijuana possession, but as you would expect the actual bill falls far short of having any teeth:

If HR 5843 were passed by the House, marijuana smokers could possess up to 100 grams -- about 3½ ounces -- of cannabis without being arrested. It would also permit the "nonprofit transfer" of up to an ounce of marijuana.

The resolution would not affect laws forbidding growing, importing or exporting marijuana, or selling it for profit. The resolution also would not affect any state laws regarding marijuana use.

As a non-toker, I have no idea how much 3.5 ounces of MJ is, but if you cannot grow it, import it, or buy it for a price above cost....where will it come from? Who is legally responsibe if the price is above cost? The buyer? The seller? Do time and alternative opportunities count as costs?

My best hope is that stores will be able to engage in product tying, in which they can sell a high profit margin product that comes with "free" marijuana. Hopefully that would satisfy the laws on non-profit transfer, but I have no idea where the supply will come from if it cannot be grown or imported.

Still, I take it as a small win for Libertarianism.

EPA By Any Other Name Would Be as Captured

From CNN:

And Sen. Barbara Boxer, a California Democrat who has long battled with the agency's administrator, Stephen Johnson, said the instructions showed that Johnson is "turning the EPA into a secretive, dangerous ally of polluters, instead of a leader in the effort to protect the health and safety of the American people."

Capture Theory anyone? This is the only way things can turn out with the EPA, we would all be a lot better off without it. A second best would be for it to be heavily restricted from the ability to levy actual regulations of processes and limit it to regulations of outcomes instead.

How My Wife Could Be a Behavioral Economist

My wife has two interesting incentive schemes for her workout and dieting scheme:

1. She keeps a King Size 3 Muskateers Bar at home, in plain sight, on the kitchen counter. Not her favorite treat, but is good. Why does she keep it out in plain sight? When she is out someplace where she would be tempted to have a dessert of some kind, she thinks to herself "no, I have that 3 Muskateers Bar at home." By the time she gets home, she is able to refuse the 3 Muskateers Bar, which is now several weeks old.
2. She downloads her favorite books to her iPod nano, which is really only convenient for her to wear when working out. She says she finds herself wanting to go work out so that she can listen to the books, and sometimes stays longer thinking "just one more chapter."
   

CNN iPoll on the Housing Bail Out

Copy and pasted from CNN webpage at 1:45 p.m. on 7227/2008:

How do you view the housing rescue bill?

Needed boost to economy	27%	27558
Bailout of reckless homeowners	73%	75899
Total Votes: 103457

I'm surprised by the one-sidedness of this, though it is not a very scientific poll. Could this bailout bill become an important campaign point this election season?

Man Faces Jail Time for Shooting Lawn Mower

From CNN:

A 56-year-old Milwaukee man is accused of shooting his lawn mower because it wouldn't start.
...
He told police: "I can do that, it's my lawn mower and my yard so I can shoot it if I want."
...
Walendowski could face up to an $11,000 fine and six years and three months in prison if convicted.

Really? Six years in prison and an $11,000 fine? Plus, I find it hard to argue against his logic. I guess it depends on how potentially dangerous he was to the public, but I personally have wanted to execute a few malfunctioning devices as of late. Fortunately I don't own a gun.

Name the Unintended Consequences...Credit Card Reporting

Flying around the blogs is the story that the new housing bail-out bill contains a provision that all credit card transactions must be automatically submitted to the IRS. This begs the following questions:

1. What will be the unintended consequences of this, if passed into law? Fewer e-Bay transactions? Less readable purchase descriptions on your credit statement? More readable?
   
2. I would guess there are somewhere around a billion transactions per day. Can they really do anything practically useful with that information?
3. What does this have to do with housing? I know, riders need not matter.
4. Can they make the data available to economists? Pretty please?
   

The People You'll Meet

At a barbeque today, I listened to two mothers stress over whether or not they were going to get their children vaccinated. Why? They didn't trust the government on the safety and benefit of vaccines. Okay, fair enough, but since they each drove a van that each had a "Hillary for President" sticker, I had to ask them if they were in favor of Universal Health Insurance from the government. Indeed, both of them were.

I'm curious as to how one lives with the internal contradiction of not trusting the government on the safety of vaccination but do trust the government on all things health care? Also, I wonder how many of these people are out there?

My thoughts from Rome

I'll be home soon, but a few observations:

- This whole Obama trip is getting a lot of coverage here in Europe. I'm on the fence as to whether it will help or hurt him in the American polls; prior to today, I felt that it would hurt him , but I'm thinking a mild positive bump for him at home as a result as of this afternoon. I don't know. McCain could be countering better (at least from what I see here). He seems weak for an election battle; if Obama can continue to upstage him without attacking him directly, it could be a landslide by November.

- Right before I was in Istanbul, there was a shooting there at the American embassy (or at least near it). At the time, and I haven't seen anything since, they attributed it to Al Qaeda. This felt wrong right from the get go. I haven't seen anything since, but I'm curious how it plays out. It is not like them to have a car full of shooters who do their deed and then flee the scene.

- Ice is a big deal here; if you want it with your soda, you have to ask for it. Which got me to thinking: If you want to preserve the ice as long as possible, do you a) pour the glass full, drink a small amount and then keep filling the glass to the top level, or b) fill the glass to the top, drink it to the bottom, then fill it once it is empty back to the top? Each soda fills roughly two glasses, if used by the latter description. I'm thinking that the former approach leads to better preservation, but the assumptions abound. Fieldwork seems to confirm my suspicions.

- I have discovered the best pizza in the world; Pizza di Leoncino surpasses anything pizza I've taken in, by a fair margin. I've been twice already, and plan on at least another trip before I make the trek back on Wednesday.

- One quick note: My column on Friday dealt with the privatization of the West Virginia worker's compensation system. I received an email from a member of BrickStreet who noted that they actually have no shareholders; as a mutual company, they are owned by their policyholders. That makes for some interesting incentive situations-- those pursuing surplus on the demand side are the same people pursuing surplus on the supply side-- but problems likely arise only in small number scenarios. Anyhow, my apologies for the oversight. I may well write about this aspect in the near future-- it's an interesting scenario.

Can I Get Some Help Here?

Yesterday I ordered a new item off the menu of Taco Bell, and I didn't like it. This morning I tried a route to work that I never tried before, and it took me longer than usual by about six minutes.

I am currently writing my congressman, asking for financial relief at the taxpayer expense for a refund of the taco, and compensation for the additional gas I used in error.

I hope they support my bailout.

Fake Economists at the EPI

From a CNN story:

"This reflects a stark reality in America: in the face of the rising cost of living for low-wage workers, the federal government is not guaranteeing a fair wage," said Mary Gable, an EPI economist, in a statement.

I also noticed that our government refuses to guarantee the existence of unicorns and leprechauns, how very disappointed I am in them. However, my interest is in them claiming Mary Gable to be an economist. She is not, she has a bachelors in political science and a masters in social services. I wonder if CNN assumed she was an economist, or if EPI presented her as one (i.e. sloppy journalism or a dishonest EPI). It should be noted that EPI does have several PhD economists on staff, so its not a supply problem on their end, probably just a product problem.

Paternalism to Solve Financial Illiteracy

From Steven Dubner on the Freakonomics blog on a financial literacy survey:

...Lusardi writes that among respondents age 50 and older, only half of them got the first two answers right and only one-third of them got all three answers right.
...
With most U.S. companies doing away with big employee pensions (see Roger Lowenstein’s new book While America Aged), more and more people have to plan their own retirements...
...
A lot of behavioral economics, including the good ideas in Nudge, is about cleverly correcting harmful human tendencies — but many of these tendencies need correction only because so many people are so undereducated in such matters.

Dubner comes across to me as being against paternalism in this particular instance, but I can see these new financial literacy surveys being used as evidence for more government paternalism when it comes to our investing. Soon the argument for social security will be that we can't manage our own investments, thus need the government to do it for us.

Yet from the first two statements quoted above, it is clear to me that the inability of people to answer these questions correctly is because historically their employer has managed their pension. I highly suspect that need for paternalism is endogeneously determined by paternalism itself. If I never learn how to drive I need someone to drive me to work. If I never need to learn how my money should be invested, I never will learn it, and I will need someone else to do it when a situation does arise.

The Artbitrary Nature of Profit Accounting

I found myself yesterday spelling this argument out for a worshiper of the "oil profits are too high" temple, and decided to share it here. When quoted the profits of a firm, in whatever industry, it should be recognized that the accounting of profits occurs on a very arbitrary defined dimension...time. The more accurate way to think about the profitability of a firm is by the task they are undertaking, and view it from start to finish.

Typically, publicly traded firms have their profits measured annually (and quarterly), but this is an accident of the number of days it takes for the Earth to circle the Sun, and is arbitrary to the task undertaken. For those that have deemed themselves worthy of judging the proper magnitude of profits, this seems to be quite lost on them.

For an analogy to see why this is the case, suppose we were looking at a baker, and we took a review of their profitability measured in intervals of hours. For simplicity lets say the baker is the owner and only employee, so that we can ignore labor costs. In the early hours of the day, before the store opens to customers, profit judges would declare this to be a most disappointing firm. Here it is with all these costs (ingredients) and no revenue, making profit negative. Yet, over the course of the day they would stop baking and focus on sales. At the end of the day, the baker is selling his morning product but not baking anything new, so that by the hour he is earning revenue but incurring very low costs. The profit judge, based on the most recent hourly reports would probably view this as the baker earning "obscene" profits.

Of course shareholders and entrepreneurs typically do not think with this same short-sightedness that the profit judge holds. This is most fortunate, because it is hard to imagine what the world would be like if they held a near infinite discount rate.

Why Did This Take So Long To Happen?

Gas Stations charging higher prices for credit card purchases. The cost of delivering a gallon of gas to the consumer increases when that consumer pays with credit, so why has it not always been the case? The likely reason is that the higher wholesale price of gas has risen enough to make the separation of prices economically sensible. The cost of posting separate prices, proper accounting costs, and greater labor costs (credit cards reduce the number of cashiers needed at peak points of the day/week) have only recently been surpassed by the cost of paying out a percentage of credit transactions to those firms.

Superstar CEOs

Abstract from NBER Working Paper by Malmendier and Tate:

Compensation, status, and press coverage of managers in the U.S. follow a highly skewed distribution: a small number of 'superstars' enjoy the bulk of the rewards. We evaluate the impact of CEOs achieving superstar status on the performance of their firms, using prestigious business awards to measure shocks to CEO status. We find that award-winning CEOs subsequently underperform, both relative to their prior performance and relative to a matched sample of non-winning CEOs. At the same time, they extract more compensation following the award, both in absolute amounts and relative to other top executives in their firms. They also spend more time on public and private activities outside their companies, such as assuming board seats or writing books. The incidence of earnings management increases after winning awards. The effects are strongest in firms with weak governance, even though the frequency of obtaining superstar status is independent of corporate governance. Our results suggest that the ex-post consequences of media-induced superstar status for shareholders are negative.

So, if Rocky loses at the end of Rocky II, he would have worked harder in Rocky III and beat Mr. T in their first meeting. Ah, but he never would have fought Mr. T had he lost to Apollo in Rocky II.

More seriously, we would expect this to some extent due to mean reversion (in sports, it is known as the Sports Illustrated or the John Madden Football curse). The relevant question for shareholders is whether or not the superstar performance induced by the incentives outweigh the diminished performance in the following year.

Actually, Batman still Lags Spiderman at the Box Office

From CNN:

"The Dark Knight" took in a record $155.34 million in its first weekend, topping the previous best of $151.1 million for "Spider-Man 3" in May 2007 and pacing Hollywood to its biggest weekend ever, according to studio estimates Sunday.

However, if you correct for inflation (calculator here), $151.1 million in 2007 is equivalent to $159.46 in 2008. Thus in real terms, Spider-Man 3 is still ahead of The Dark Knight. I wonder what the top grossing movie of all time really is, adjusted for inflation, or perhaps as a % of GDP.

Follow Up: Interpreting Raul's Socialist Redefinition

Following this post, I asked Professor William Trumbull if I can take Raul Castro's redefinition of socialism as a good sign for Cuba's future. His response via e-mail (printed with his permission):

Does sound good. But no, unless it is in a perestroika kind of sense where they lose control and all hell breaks loose leading to system collapse. The whole point of this (as in perestroika) is to save the socialist system by introducing limited individual incentives. Notice that not a whole lot of political prisoners have been released. In any case, the idea is certainly not to replace the socialist system with capitalism or even, I think, the go down the China road of economic freedom combined with one-party political repression.
(note: "perestroika" link added by Justin)

Professor Trumbull's links on the Economics of Cuba can be found here.

Spiritual Desert or Creative Destruction

CNN reports on the Pope's concern that materialism is replacing spirituality. There is some support for his claim, consider Gruber and Hungerman's "Church vs. the Mall" paper in which they find the removal of blue laws (like bans on early hours of operation on Sundays for Malls) have had an adverse effect on religious participation. However, Larry Iannoccone's research has suggested overall religious participation and fervor has increased over time, though it has been through competition that has picked away at the traditional religious powers like the Catholic Church.

Regardless of whether or not growing wealth (which they use interchangeably with "materialism") is good for religions in general, I do believe that we are witnessing a creative destruction in spirituality, particularly in the wealthiest countries like the United States. People worried about day-to-day survival probably spend less time hammering out the specifics of the nature of the spiritual world. Consider the rise of Scientology or Eckhart Tolle's new best seller, which represent new ways of thinking about these "higher plane" issues. Part of the tone of the environmental movement seems to have a spiritual flavor to it.

I think this is what the Catholic Church and other traditional religious movements are actually concerned with, in part because it is bad for their individual movements and in part because they tend to view spiritual movements outside their own halls devoid of any truth.

Socialism According To Raul Castro

Very interesting statement, source is the Verbatim section of the July 28, 2008 TIME:

"Socialism means social justice and equality, but equality of rights, of opportunities, not of income."
Raul Castro, Cuban President, warning citizens to prepare for a reduction in
government subsidies.

I have a hard time knowing what to say about this. Obviously this is not what socialism is, or at least it is by no means unique to socialism. Despite reservations on the ambiguity of the statement, by and large I take it as a positive sign about Cuba's future (Note: I am not an expert on Cuban Political Economy).

Foreign Oil Blockade

Looking into next month, I realized I have a lot of careful work to do (see here and here) in terms of economics education over the coming years.

I'm always taken with the special claim on "Foreign Oil" as being particularly evil (it is always foreign oil to me). Oftentimes, the concern is that by buying foreign oil we are directly funding terrorism. There is of course no evidence for that, and before you snark at that remember all the "evidence" we had for weapons of mass destruction in Iraq. Logically speaking, given the ruling monarchies of the Middle East seem to to be interested in wealth maximization, how would it be in their interest to kill off their best customer? What kind of business model is that? (A: Tobacco, but they would make a cancer free stick if they could!)

Secondly, what would happen to the flow of foreign oil into the U.S. if we imposed a full embargo on foreign oil? Even if the black market for foreign oil could be exterminated, we would still import foreign oil, but in the form of an input to foreign made oil-based products. We would clearly find ourselves buying "Made In China" plastic much more often, as any comparative advantage in things requiring oil would disappear. The service sector of the economy would become quite large indeed.

"Mustard 10 for $10"

That was the sale at Wal-Mart today on French Spicy Brown Mustard, which actually means they were $1/piece. We bought 2, but it is interesting how the decision on this must have played out in scripting the sale. My guess is that if they say X for $Y, some people assume you have to buy X in order to get the deal instead of just buying the number you want at $X/Y. However, that means they also lose a few customers who don't want to buy X units as well. So they need to jointly determine the price ($X/Y) and X for profit maximization.

Is this veiled 2nd degree price discrimination, where they give the impression of higher per unit costs with small purchases without it actually being the case?

In addition, they also need to determine which products to advertise this way, as it would lose its effect if they did it on all goods (though it is probably just the goods they currently have too much inventory of).

Regulating Cranes

A news article about the crane that collapsed in Houston notes:

Texas is one of 35 states that does not require crane operators to be licensed. The Occupational Safety and Health Administration requires cranes to undergo annual inspections, but it is up to crane owners in the state to police themselves.

It seems to me that there are plenty of other ways in which crane owners are regulated. 1. Employees will demand more wages if they have to work in cranes that will collapse. 2. Employees at firms that hire cranes will demand more to work around collapsing cranes, so other firms have an incentive to regulate their safety. 3. Legal remedies provide another source of regulation of crane companies. 4. And yes....the profits of a crane owners company do discipline them to not let cranes collapse.

It's not a question of whether or not the industry will be regulated, but who will do the regulating.

A Good Friday Night for this Economist

Took the children to Barnes and Nobles, where I enjoyed a Starbucks Mocha Frappachino while watching them play with Thomas the Train toys. A fellow father struck up a stimulating conversation with me about the social consequences of Walmart (initiated by him, upon my revealing that I was an economist during conversation).

What did bystanders probably see? Me, arguing (civilly, but unsympathetically) with the local disability equipment store owner, who also had a prosthetic leg.

His chief point of contention was the "unfairness" of Walmart (and other big box stores) selling walkers and wheelchairs profitably at a price lower than he could even obtain at wholesale, to which I argued was beneficial to the many senior citizens living on fixed incomes.

This was a good way to spend a Friday night.

Sold Out an EmptyTheater

I saw the movie Dark Knight today. (In addition to being a great action movie, it has lessons about Buchanan's constitutional political economy, Tullock on the Social Dilemma, Schelling's Strategy of Conflict, non-cooperative game theory, and even hints of Vernon Smith's reciprocity theories.)

I had purchased tickets last night for the 11:30am showing today. We were meeting some friends there who hadn't purchased tickets yet. Unfortunately for my friends, the showing was sold out. Yet, the theater was not even half-way full during the entire movie. What's the deal?

My guess is that theaters have a deal to sell tickets to online ticketing companies (or they just buy them) and people didn't happen to buy those tickets from the online websites. Does anyone know if something like this goes on?

Why Prostitutes Cost What They Do by Country

The following was written by a friend of mine (a Russian, who I will from this point on tell him that I believe he came here looking for cheaper female company) as a comment in response to the above photo and blog post:

As professor of economics, I can say the following regarding this price difference. Scarcity is not determined merely by numbers or absolute supply, but rather by the relative supply and demand. As for supply of girls, with relatively low income or opportunities for low skill workers in domestic countries will bring a higher number of prostitutes in to the market for a given transportation/entry cost. Letʼs look at the average incomes in the above mentioned countries. In 2003, Chinaʼs GDP per capita was $5,321, Hong Kongʼs $29,550 Malaysiaʼs $13,317, Philippinesʼ $3,900, and Russiaʼs $12,217. These incomes per capita probably have not changed much relative to each other, so year 2003 will suffice. There is a dramatic difference in average incomes between Hong Kong and China yet no difference in price. Moreover, Malaysia and Russia have about same incomes per capita in 2003, but their girls are at the opposite ends of the price range. It appears that these income differences alone do not explain the price difference. Why? Because we lack another important determinant of value (scarcity) - demand. Compared to Malaysia, Russia is farther away from the Asian market and has more exotic women for local tastes, which unsurprisingly manifests in substantially higher prices. What puzzles me is why services by Chinaʼs women and Hong Kongʼs women have identical prices while their incomes are substantially different, while Malaysian girls are priced lower than Philippines girls despite higher incomes. My guess is that to buyers the difference between Chinese and Hong Kong girls is miniscule and therefore, price is the same. Perhaps, there is not much difference between Malaysian and Chinese girls either, but Malaysiansʼ could be priced lower if it was a local commodity (i.e. the brothel is located in Malaysia). Thus, it would be very important to know where this picture was taken in order to explain this price difference with economic forces rather than history (because history was determined by the same economic forces)!

Giants With Clay Feet

Starbucks is closing 600 stores due to slow sales.

That's right, another untouchable, unstoppable corporation that so many thought was bound to overrun the world with its stores has been found to be subject to market forces after all. A ever lengthening list they get to join

Ford
GM
Microsoft
K-Mart
Wal-Mart
McDonalds
Starbucks

Nothing personal against Starbucks. Love their product, I even have a personalized card that says "I heart Capitalism." My favorite Starbucks location I have never visited is the one in the Forbidden City of China. Which firm will serve as the next supposed Goliath for the Chicken Littles to cry for fear of the coming corporate enslavement? My guess is Google.

Get the Che Outta Here

I don't particularly like Glenn Beck's tirades, or Glenn Beck, but his latest commentary railing against Che Guevera t-shirts is outstanding, please do read it. Best line from it:

The communist revolutionary who dedicated his life to fight capitalism has now become nothing more than a piece of merchandise. Lesson learned: In the end, capitalism always wins.

The commentary has great tidbits about the mass murderer himself, including shooting himself in the face and explaining the rationality for his racism against blacks (something a few Obama supporters should think about).

Starring an Economist

Russ Roberts gives a brief review of The Visitor, in which the main character is an economist. I have been trying to think of any major characters from movies, books, tv, etc that has a major character who is an economist.

The best I can recall is in Robert Ludlum's Jason Bourne series. In the books, Jason Bourne's wife is a famous economist. For the movies, they changed the character from an economist to a gypsy.

Any better ones out there?

Mass Transit That Really Could Help The Economy

Commenters at the NYT's seem to believe that a mass transit system would help stimulate the economy. The commenters at Marginal Revolution have a lot of fun at their expense. However, this could actually help stimulate the economy...if it was built over the top of the forthcoming Mexican Border wall.

Why My Wife Could Be A Candidate For President

From this morning, as my wife was getting ready to take the kids to the pool:

Lisa: Justin, do you have any cash?
Me: In my wallet in the bedroom.
Lisa (upon returning): Found it, I took it all.
Me: Wasn't there $26 in there?
Lisa: Yes, but it will cost us $3 to get in the pool and I might need more later.

I found it amusing, and later I thought of how it was just about like every government program I ever studied.

What To Do When Tortured?

In reading about the new video of a teenager's interrogation at Gitmo, I can't help but wonder what I would do if being tortured or heavily interrogated. I've thought a lot about this ever since I read Tyler Cowen's discussion of it in Discover Your Inner Economist. His point, is that you get stuck in a pooled equilibrium with other real secret agents who have been trained to copy the behavior of non-agents who would be in the same situation.

I would just accept that I was in a pooled equilibrium after a few days and pursue a strategy of just doing my best to act asleep during interviews, and try my best not to respond to the physical harm being inflicted. My guess is that the best interrogators through the process of selection are ones who enjoy the torment, and I would therefore try and do my best to not give them the gratification of great agony. Hopefully, on the margin, they would reduce the amount of torture and substitute to other inmates that would be more expressive. It could backfire of course, as they might see me more of a challenge and therefore a more worthy prize, in which case I would change and pursue the opposite strategy by immediately bursting into tears from any pain.

How Are Scapegoat's Determined?

The most prominent scapegoats for gas prices are oil executives and speculators. Why? What makes them the equilibrium whipping boys?

Why does the Iraq War seem to receive no prominent blame in the media for the rising oil prices? Unlike executives and speculators, there is a lot of truth to it here. Diminished production, increased consumption, and more tension in the middle east certainly must be applying upward pressure on oil prices. Why don't Democrats feel the political opportunity here to blame oil prices on a war championed by Republicans? Why not use it to garner more support to withdraw from Iraq?

Odd Quote of the Day

From Rational Choice by Andrew Hindmoor:

Along with Leon Walras and Stanley Jevons, Ludwig von Mises (1881-1973) is one of the economists usually credited with having launched the 'marginal' revolution in economics paving the way for the transition from classical to neo-classical economics.

I've never heard anyone attribute the marginal revolution to Mises, who was born a decade after the marginal revolution occurred in 1871. Can Hindmoor have meant Carl Menger, the Austrian who is most commonly cited?

Why Does the DMV Exist?

Where did this institution even come from? Surely there were cars and drivers before DMV's?

If we retained the need to have liability insurance, which protects property rights, I see no reason why insurance companies would not ask for you to prove some competent level of driving. It would be in their interest to know the level of competency they were insuring, and they would probably give breaks to those who do well on written and driving evaluations. Insurance carriers would likely either perform those evaluations themselves or independent agencies they approved of would emerge to specialize in this. These insurance agencies would surely tie a network together with police stations to verify coverage claims, and this still would allow for the court system to suspend driving rights when applicable.

Anyway, off to the DMV.

Why Libertarians Should Not Change States

Local Protected Monopolies and the State DMV.

Can't hook up my phone land line in the next 8 days? Fine, I'll just take my business somewhere else. Oh, wait....

Nothing compared though to the DMV, who will not let me have an Indiana drivers license until I get clearance letters from both the Kansas DMV and the Massachusetts DMV, neither state have I ever even been to (which is not an accident). The Massachusetts DMV will not send the clearance until I get the New York DMV to fax them proof that I have never been issued a drivers license in
New York, thereby proving I never received a speeding ticket in Mass. The Kansas DMV will simply send the letter once I send them a check for $6.

I also have been keeping track of my average weight times to speak to a real person for customer service with a real person for the various monopolies:
DMV's (IN, MA, KS, NY): nine calls averaging 45 minutes (no outliers here, they are all pretty close to the mean)

AT&T (phone): 2 calls averaging 6 minutes
AT&T (internet): 4 calls averaging 2 minutes
Comcast (internet): 2 calls averaging 1 minute
Duke Energy: 3 calls averaging 18 minutes
DirectTV: 3 calls average 3 minutes

Free, Pay, or + Cash?

In signing up for DirecTV, the following offer for "free Sirius" radio was made to my wife and I:

• Free radio unit (with rebate)
  
• No monthly fee for 2 months (after using a Sirius gift card)
  
• Must pay shipping for the radio for $6.99
• Comes with a $25 VISA giftcard, good for ATM cash or sore purchases
  
• $80 charge if we do not activate the radio in the first 30 days.

A fairly confusing structure. I guess we come out ahead, we went ahead and did it.

Teen Arrested for Selling Vote on E-Bay

A 19-year old in Minneapolis has been arrested and charged with the felony of trying to sell his vote (CNN video story here). The story has the usual phony melodrama ("It's an attack on Democracy itself!"). I assume e-Bay has removed the auction, as is usual with illegal items and a brief search for it on my end has failed.

This has happened before, and what is astounding is the price a vote will fetch. In 2000, a Maryland vote-seller was up to $10,000 after 20 bids before being shut down. Imagine what an Ohio, Florida, or Michigan voter could have made!

I am not at all convinced that our democracy would be worse off if you could sell your vote. I'm not in favor of it, but you wouldn't see me marching in the streets to demonstrate against it and I would surely sell my vote. It would be fascinating though, because it would cause an interesting turn in campaigning as the dominant strategy for candidates would be to try to motivate their base to purchase votes from the median voter and other non-voters rather than make direct contributions.

Enjoy your July!

I will be heading off to Europe for the reminder of the month of July, so I will likely not be posting at all. (And anything that does get posted will probably be pretty brief.) So here is my charge to you:

- Justin, keep us up to date on the rednecks in Bloomington.
- Dave, keep on posting once a month.
- Bryce, have fun driving across the country during the cool time of the year. I hear cats do well in cars.
- Rob, root for the A's and Joe Borowski in my stead.
- Dana, sue someone and get exceedingly familiar with the Zerg race again.
- Tom, manipulate the market for millions, then give me some to play poker with.

Adios!

Pope Doesn't Wear Prada

But Jesus does wear Versace.

Story here. Anybody who knows a Jesuit Priest could find it probable that the pope wears prada or other high end fashion lines. The real question is, can you declare "accumulation of wealth" and poverty a societal sin and then wear this stuff?

Yet more interesting stuff from one of the richest organizations on the planet that regards poverty as a path to spiritual enlightenment. I wish they had Q&A sessions at church, it would make the weekly visit a lot more fun.

Free gas, courtesy of Allstate

Allstate has rewarded what they have deemed as the safest city for driving-- Sioux Falls, South Dakota-- with free tanks of gas. It doesn't seem like you have to be a policy holder of Allstate to get in on the good stuff. Michigan is getting in on the action too, as they have the most improved cities in the report, though living in Metro Detroit may be a requirement.

I can say that I've driven through Sioux Falls and I did not get into a car accident.

What if Federal Income Taxes were like Old School Property Taxes?

While it has become much less common, the local property tax rate was determined by:

tax rate = local government spending / total property values

Your individual tax bill would be then your property value times the tax rate. What if federal income tax rates were determined as

tax rate = federal government spending / total personal income

This would be a flat tax whose rate depended positively on the level of spending. For 2006, this calculation is (note that it is difficult to figure out what the government actually spends):

.261 = $2,866.7 /$10,983.4

I can think of several pros and cons to the current system, but my feeling is that this system would be an improvement.

The Ohio minute, brought to you by Rob Holub

TPS's Ohio correspondent Rob Holub sends along this piece of economic idiocy, courtesy of the good state of Ohio's congressional delegation. In short, U.S. Rep. Steve LaTourette has proposed the "Commuter Relief and Fuel Efficiency Act of 2008," which would reimburse commuters at the rate of 4 cents per mile (5 cents if you've got a car that gets 35 mpg) for up to thirty miles per day, round trip, five days a week, and with the maximum of 50 weeks, the most one person could get is $375 per year.

Seems like a good time for a reflexive argument here. If the proponent says that it's going to make a big difference, ask where the money is going to come from. (Take from the left pocket to put into the right pocket's gas fund.) If the proponent says that it's not actually a lot of money, then why do it in the first place?

Of course, this is on the national level, so we'd have some redistribution here. Those that would benefit most would have large car-commuting populations. I suppose a lot of places have that, but New York and Chicago would seem to have a proportionately smaller number of these with regards to the whole population. Seasonal employment wouldn't get as much of a benefit either since they couldn't claim all 50 weeks-- I know that would harm West Virginia.

Question: Would anyone claim less than the max amount here? How is this going to be monitored? Are they going to Google Maps everyone's work and home for the round trip distance? What about people that get their miles covered as part of their job-- could they just pocket the $375?

I don't think this will pass, but stranger things have happened.

Name fun

There are a number of sites around that show statistics on names; Freakonomics recently linked to this one. I always get a kick out of all the different ways they can aggregate the info. I'm sure there's a paper in here somewhere.

What I also found interesting was that on the pages for individual names, they offer well-known people with the same name. For mine-- I went with Matthew, I'll allow it for now-- the "well-known namesakes" are: Matthew (the apostle), Matthew Broderick, Matthew McConaughey, and Matthew Thornton (signed the Declaration of Independence). I'll give an OK on the apostle, and even the signer of the Declaration of Independence (though that name didn't ring a bell when I read it, I'd question it being 'well-known'), but I felt disappointed by the other two. Haven't we, as a collective Matt(hew), done better than that? Personally, if we're going with actors, I'd stick Matt Damon above both of them, but is that the peak of our achievements? Maybe so...I can't think of a better replacement, though I'll keep it in the back of my mind for the afternoon.

Time gives us the low-down on high gas prices!

I think I'm starting to get Justin's zest for Time.

Here they tell us about 10 good things about gas being $4 per gallon.

#1 - Cost of production goes up. How is it good that, due to increased transportation costs, firms are forced to use higher cost suppliers? This is a plus?

#2 - Urban sprawl slows. Why does urban sprawl get everyone so upset? If you don't like it, go live in West Virginia. No good jobs there? Concindence, maybe? Further, why do we need to stop urban sprawl right now, or five years ago, or ten years ago? Why is that level of sprawl the ideal level? You could make the same argument when people talk about the Americanization of foreign countries.

#3 - Four day work weeks. Not sure you can completely attribute this phenomenon to gas prices, but why is four better than five? Is three even better? Two? Zero?

#4 - Less pollution. If higher gas substitutes people into modes of transportation that produce less pollution, then this could be seen as a positive. Externalities are the problem, and increased prices reduces consumption of the good producing the negative externality-- again, so long as they don't substitute into something else equally or more polluting (which doesn't seem to be the case). Don't mistake this as a similar outcome to a carbon tax, though.

#5 - More frugality. Is this some virtue we all need to strive for? It's good that drivers are incurring the costs of checking tires twice a day now as compared to before? "We're all wasting less." Wasting less of what? It's not a waste to check tires twice a day? If it's so waste minimizing, why not check them every 30 minutes?

#6 - Fewer Traffic Deaths. True, assuming people drive less, less people will die while driving. Of course, less people are getting to where they would like to go, too, in a manner they would prefer.

#7 - Cheaper Insurance. True, if you're driving less, ceteris paribus, you should be paying less in insurance. Though if you're just driving less than before due to cost, this is a negative to be counted, and if you're substituting to public transit, go ahead and ratchet up the tax bill.

#8 - Less Traffic. If less people drive, there will be less traffic. Though, as that page notes, there are effects elsewhere in the transportation realm.

#9 - More cops on the beat. They actually mean less cops driving around, not a change in the number of cops-- but then they imply that they'll be walking more and we'd have "slimmer police." Ha! That was my favorite one. Higher gas prices: Less Pollution, Less Traffic Deaths, Less Fat Cops. Keep it up, Time!

#10 - Less Obesity. What if higher gas prices substitute more people into unhealthier food? Would that cut down obesity?

Is Time familiar with the concepts of substitution or secondary effects?

Higher gas prices are neither good nor bad; they are what they are. Relative prices and endowments change frequently. I'll say what I say anytime a student or anyone else asks if gas prices are too high: Everyone wants gas prices to be lower. Everyone wants all prices lower. That's a demand curve. Is there anything in your life that you wouldn't prefer to cost less?

Soul Economics

Here's a fun story about a New Zealand man selling his soul to Hell Pizza.

Souls might just be the textbook example of a pure public good. Whatever consumption comes from it, it's certainly purely non-rivalrous, and equally purely non-excludable. Which means that the welfare maximizing price for his soul is nothing.

The Reality of Politics: North Carolina Gubernatorial Edition

Our good friend Mike Munger-- part of the select group of people-you-must-absolutely-have-a-drink-with-at-some-point-in-your-life, as well as the chair of the Political Science Department at Duke University-- is running for Governor of North Carolina as a Libertarian. Fantastic, right? Well, things have gotten, in his words, "weird." No matter how much political economy we do, it is still shocking to know that things can and do turn out like this. Maybe I'll get desensitized to it at some point; I hope not.

Anyhow, go to Mike's campaign site and give the nominal $25 on July 3 or July 4.

Let's measure things we can't!

Not sure if this is the same survey that I wrote about earlier, but Denmark takes the top spot in this happiness article as well. You have to admit-- Colombia at the #3 spot seems to cut against everything they say about freedom leading to happiness. Though maybe it shouldn't be a surprise-- consider the sweeping claims made on the backs of questions like these:

- Taking all things together, would you say you are very happy, rather happy, not very happy, or not at all happy?

- All things considered, how satisfied are you with your life as a whole these days?

I'm curious to see in the upcoming years if the happiness literature continues to fester, gains more of a following (God forbid), or fades away into a bar joke we can all laugh about in 15 years.

Trade is bad?

For the first time in history, at least as far as CNN is concerned, a majority of Americans feel that foreign trade is a threat to our economy. The results of the poll are here. Note that the question asks about foreign trade to the U.S., not free trade in general. (Not that it mitigates the results.)

Silver Medal Trivia

The ESPY nominations just came out, and that usually doesn't do a whole lot for me, but this year's nominations lead to an excellent trivia question.

Tommy Smith and John Carlos are receiving a honorary award-- they are the well known pair that did the fist salute upon the medal podium at the Olympics. For that event, Smith won the gold and Carlos won the bronze. Who won the silver?

Question of the day: Repeat voting edition

What if people were allowed to vote as many times as possible in an election, instead of the standard one person, one vote setup?

What would be the impact on turnout figures? Would more people vote, figuring that they could have the illusion of "more say in how things turnout"? (Of course, if everyone voted twice, the effect is neutral.) Would less people vote, figuring "I've only got time to vote once and everyone else gets to vote 100 times, forget it"?

Would people always vote the same way? Think of the 2000 presidential election; instead of having to choose between Nader and Gore, as it was believed, would people incur the extra cost to toss a few votes to each?

Could companies pay people to vote all day long as opposed to lobbying legislators? They're both lobbying, but if the company spent less in paying people, ceteris paribus, isn't this efficiency enhancing?

Lunch with Buffett

Here's a fun piece on Warren Buffett, the author had won an auction to have lunch with him for the tidy sum of $650,100. I didn't realize he was the sole owner of Geico. Maybe he can fix their insufferable commercials.

By the way, the last line in the article confuses me immensely. I'm of the opinion that any time someone tries to convince you that they got a bargain, they're only trying to convince themselves.