More on the Income Effect in Nationalized Health Care

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

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

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

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

[...]

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

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

[...]

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

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

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

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

Bastiat on the Source of the Theory of Scarcity

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Source.

How Do I Become A Relevant Grandpa?

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

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

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

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

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

Hoover's Labor Policy & the Great Depression

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

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

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

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

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

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

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

HERE IS WHERE YOU PLACE THE HIDDEN TEXT.

Guest Blogger: Monsieur Bastiat

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

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

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

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

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

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

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

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

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

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

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

The College Placebo

From Tyler Cowen:

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

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

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

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

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

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

Grammer, Schmammer

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Blockquoting X

X = Michael Polanyi, The Republic of Science:

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

Blog rankings

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

Why So Much Trust, So Little Theft?

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

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

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

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

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

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

What do you think?

Political Budget Cycle

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

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

The firing process of public school teachers in New York

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

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

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

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

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

Private and Competitive Regulation of Medicine

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

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

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

Poor Statistics, Even Poorer Economics

From the FP:

Third, end the self-defeating U.S. dependence on the Venezuelan oil that finances Chavez's anti-democratic and anti-American aggression. The United States can find new sources for 8 percent of its imports much more quickly than Venezuela can find an alternate market for 72 percent of its exports.

It seems as if the author is suggesting that since 8% < 72%, it will be easier for the US to make the switcharoo. To the average reader (correct me if I am wrong) the 8/72 comparison makes it appear as if the US has less to change than Venezuela. Obviously, this is not the case. The amount of oil that comes from Venezuela to the US is necessarily the same amount of oil that comes to the US from Venezuela. The difference in percentages merely reflects different base levels of imports and exports, respectively. After clearing this up, it is no longer obvious that the US can find new sources of X amount of oil quicker than Venezuela can find new buyers for X amount of oil. But that's just the statistical problem. The economics of the situation are much more damaging to the argument.

Oil is fungible. Suppose that the US passes a law that bans the purchasing of oil from Venezuela. This effectively reduces the supply of oil available for Americans to purchase. Since demand has not changed (Americans still want to drive their cars and heat their houses as much as before), this puts an upward pressure on price. Of course, the actual supply of oil has not changed. The easiest way for other nations to increase their oil production is to buy oil from Venezuela. Since one barrel of oil looks more ore less like any other barrel, it is difficult to determine whether Venezuelan oil ends up in the US. Whether or not the oil consumed in the US is Venezuelan oil (bought by another country and then sold to the US) or the reserves from another country (now using Venezuelan oil) is irrelevant!

Venezuela is no worse off, but US citizens are paying more for gas. I hope the US ignores FP's recommendation; it is a policy of poverty.

Resource guzzling hybrid cars

TPS friend Pavel Yakovlev sends along this article about the emerging underbelly of the hybrid car market:

The Prius hybrid automobile is popular for its fuel efficiency, but its electric motor and battery guzzle rare earth metals, a little-known class of elements found in a wide range of gadgets and consumer goods.

I guess it's not all roses and clean cars. The consequence of needing to mine more rare earth metals to save oil pushes us further down the path towards the best-case scenario: Environmentalists arguing with other environmentalists over what to do, in this case the anti-oil consumption folk with the anti-mining folk. Here's to hoping that this debate can become everything it could be.

Are Labels Effective Against Child Labor?

New from the Journal of Public Economics:

In this paper, we investigate the impact of introducing a label certifying the absence of child labor in the export production of the South.When most eligible producers in the South can obtain the label, its impact is considerably reduced by a displacement effect whereby adult workers replace children in the export sector while children replace adults in the domestic sector. The label is then unable to create a price differential in the South between goods produced under the label and those produced without it.

When only a small fraction of eligible producers have access to the label, the South exports both labeled and unlabeled goods to the North. In this case, labeled producers generally gain while those without a label generally loose from the introduction of the label. Exante welfare may fall in the South if the probability of getting a label when one qualifies is small. The impact on child labor is in general ambiguous.

Book Review

Claudia provides a book review of James Bennett's Stifling Political Competition: How Government Has Rigged the System to Benefit Demopublicans and Exclude Third Parties, which will appear in Public Choice but is available online.

Daniel Hannan v. Gordon Brown

I never heard of this before Reason.tv's interview with Hannan, so I'm sharing it here:

Britain has a far more entertaining political system.

Assorted thoughts

- Beer prices are going up; market forces pushing prices upwards shouldn't upset you as much as taxes doing the same thing. (Here's looking at you, Alaska.)

- Here is an interesting article on craigslist and it's founder, Craig Newmark. The article focuses too much on the zero-price aspect to explain their success instead of the network effects, but I was surprised to learn that he's given away large portions of the ownership of the company (though it's privately held and thus unverifiable).

- Here's a survey on democracy in Ethiopia; many of the answers seemed double-peaked to me, and the accusations of ethnic bias shouldn't be taken lightly-- though perhaps the former helps disprove the latter. Like the World Values Survey, is anyone else surprised that those giving the survey can find a healthy number of people willing to spend hours filling these out?

Could Taxing Water Treatment in Bolivia Result in Cleaner Water?

Katja reports (Hat Tip: Robin Hanson):

SODIS is a cheap method of disinfecting water by putting it in the sun. Like many things, it works better in physics than society, where its effects were not significant, according to a study in PLoS medicine recently…. [In] Rural Bolivia, where the study was done … the children studied usually get diarrhoea four times a year, which causes about fifteen percent of deaths of children under five. For the poorest quintile in Bolivia the under five death rate is about one in ten of those born alive. … The leader of the study, Daniel Mausezahl, suspects a big reason for this is that lining up water bottles on your roof shows your neighbors that you aren’t rich enough to have more expensive methods of disinfecting water.

Assume that the story is true, that putting water in the sun to disinfect it signals your poverty because it demonstrates that you cannot afford the more expensive methods. Depending on how the utilitarian calculus works out, one of the solutions may be to heavily tax (perhaps even ban) expensive water treatments so that more people must resort to setting their water out in the sun.

The calculus would depend critically on how many people already have the more expensive systems. If only a few people have the more expensive systems, the calculus is more likely to favor the tax. If a relatively small portion of the population that cannot afford the water treatment, then the calculus probably favors a subsidy.

Markets In Everything: Prisoner Consulting

Reportedly, Plaxico Burress has hired someone to prepare him for life in prison. TIME has the story, but here is a nugget:

How many people have you counseled?
Right now we counsel four to six people a month. These can range from a 100-hour course for $20,000 to $100-an-hour phone consultations or $150-an-hour webinars.

How many prison consultants are there?
New guys pop up all the time. But I'd say there are three to five who do it right and have been in the ballgame for years.

So what's the first thing you do with clients?
First I want to find out what their life is like. I want to know about their personality, whether they have any addictions to gambling, sex, drugs, cigarettes. The goal is to get someone to go in addiction-free, where they don't need anything from anybody. You don't want to put yourself in debt.

The other thing is basic prison etiquette. A lot of people don't know how to be respectful — period. They're cocky and they walk around with a chip on their shoulder. Now they don't even have a name; they have a number. They have to follow rules. And they have to make sure they don't do stupid things.

Juicing The Mitchell: Pluto Edition

From CNN:

Earlier this year, the Illinois Senate adopted a resolution declaring that Pluto was "unfairly downgraded" and restoring "full planetary status" to the celestial body as it "passes overhead through Illinois' night skies."

It also designated March 13, 2009, as "Pluto Day" in honor of the date that its discovery was announced in 1930. (In case you are wondering why the state is so passionate about Pluto: Clyde Tombaugh, who discovered the planet-now-dwarf-planet, was born in Illinois.)

A Lesson in Comparative Advantage from Ochocinco

Someone in the Bengals organization might understand Ricardo. Peter King provides the set-up:

Near the end of the second quarter, the man judged the best kicker in the NFL last year, Stephen Gostkowski, the Patriots All-Pro kicker, kicked the ball off from the Patriots' 30 to the Cincinnati 9, a 61-yard boot. To start the third quarter, Ochocinco, a right-footed, soccer-style kicker, rainbowed one 61 yards to the Pats' nine. Same kick. Same weather conditions. Same result. "He's a terrific player,'' Bill Belichick said a day later. "I love his competitiveness. I love his enthusiasm for the game.''

[...]

Anyway, regarding his 61-yard kickoff, he said he wasn't surprised. "I've kicked field goals at [Paul Brown Stadium], just fooling around, from 53 yards. Imagine if I devoted practice time to it. There is no doubt in my mind I could kick in this league. Really, I want to kick so bad.''

The dream ended Sunday -- not because the Bengals don't think Johnson could be an adequate emergency kicker, but because they don't want him to risk getting hurt kicking. With incumbent Shayne Graham out for the rest of the preseason, Cincinnati signed free agent Sam Swank from Wake Forest on Sunday.

Bold emphasis mine. Ochocinco might be the best wide-receiver AND kicker. However, he ends up playing wide-receiver only.

The question for students: Suppose Ochocinco is the Bengal's best receiver and kicker. Explain why Ochocinco is best employed only at receiver, even though he might also be the team's best kicker. (Be sure to treat the injury claim as a red-herring. After all, the Bengals could just as easily made Ocho the kicker and not let him play receiver, out of fear of injury.)

Reputation vs. Laws in Credit Markets

Here's an interesting paper on the interaction between reputation and legal enforcement in credit markets, emphasis is mine:

"The evidence suggests that relational contracting and legal rules play an important role in credit markets but on the basis of the prevailing field data it is difficult to pin down their causal impact. Here we show experimentally that relational incentives are a powerful causal determinant for the existence and performance of credit markets. In fact, in the absence of legal enforcement and reputation formation opportunities the credit market breaks down almost completely while if reputation formation is possible a stable credit market emerges even in the absence of legal enforcement of debt repayment. Introducing legal enforcement of repayments causes a further significant increase in credit market trading but has only a surprisingly small impact on overall efficiency. The reason is that legal enforcement of debt repayments weakens relational incentives and exacerbates another moral hazard problem in credit markets – the choice of inefficient high-risk projects."

At face value, this is an important factor to keep in mind when implementing microfinance activity in underdeveloped areas.

Mixing Words

Libertarians frequently say that governments have a monopoly on coercive force. Is this such a bad thing? Monopolies restrict supply. Does this imply that competitive markets would result in a greater amount of force (at a lower price, of course, if that is of any consolation)?

I cannot wait to hear the comments.

Boondoggles

Here's a bit in the New York Times that outlines two fun points:

- As a fun side note, it gives the etymology of "boondoggle":

Before it became a bad word, “boondoggle” was an innocent, humble craft. It was the Boy Scouts of America who claimed credit for coining the word, to refer to the plaited leather lanyards that they made and wore around their necks.

That all changed on April 3, 1935, at a hearing in New York City on how New Deal relief money was being spent. A Brooklyn crafts teacher reluctantly testified that he was paid to show the jobless how to make “boon doggles.” The outcry was swift. “$3,187,000 Relief is Spent to Teach Jobless to Play,” trumpeted a front-page headline the next day in The New York Times. “ ‘Boon Doggles’ Made.”

A new, more sinister meaning was born, and the word came to signify government make-work, later referring to wasteful government projects in general. Critics used it to criticize scores of projects, but President Franklin D. Roosevelt took a longer view. “If we can boondoggle ourselves out of this Depression,” Roosevelt said, “that word is going to be enshrined in the hearts of the American people for years to come.”

(That is a fantastic FDR quote, by the way.)

- On a more important line, it shows that every public project does have people that benefit. It might be obvious to state it as such, and it's easy to get lost in the "look at the turtle crossing, that's a ridiculous public project, that's just spending for spending's sake." But even the most foolish programs have someone, somewhere, that benefits. In no means does that justify the spending-- but a lot of times that's points you down the path of explaining the inexcusable.

Prediction Markets in Demand For Hospital Services

Interesting new study in the Journal of Prediction Markets:

Prediction Markets as a Medical Forecasting Tool: Demand for Hospital Services
By Rajakovich, David; Vladimirov, Vladimir
Volume 3, Number 2, August 2009 , pp. 78-106(29)

Background
This paper presents the outcome of a study conducted at the Royal Devon and Exeter Hospital in which a prediction market was established in order to forecast demand for services. To the researcher's knowledge, it does not appear that prediction markets have been previously utilized in a healthcare environment.

Purposes
The purpose of this study is to provide evidence for the effective use of prediction markets in a healthcare environment.

Methodology and Approach
The study was conducted over a period of one week, and involved sixty-five participants. Each was asked to provide an estimate for demand for services at the Royal Devon and Exeter Hospital. Characteristics gathered for each participant included level of education, occupation, directorate, number of years worked for the hospital, and number of years worked for the National Health Service.

Findings
The study confirms the effectiveness of prediction markets to forecast future events as overall hospital demand was forecasted with an error of only 0.3%. The prediction market was less successful in predicting demand for services for each department, which the researcher attributes to the small sample size and lack of diversity of participants. Additionally, only a very small percentage of the characteristics captured registered a statistically significant correlation with the accuracy of the estimate. Further studies should focus on different characteristics and/or use a larger sample size to either confirm or refute the existence of such characteristics.

Practical Implications
The findings of this work could potentially be used as an innovative way to augment the forecasting function for a wide range of healthcare facilities. With the preliminary success of this study to forecast demand, further research in the field is warranted.

Census Politics

How can the political process possibly get entangled with the decennial head count?

"Officials [in Utah] are in a dither because the bureau won’t count all those Mormon missionaries sent overseas.

...

In the most recent Census, taken in 2000, Utah fell just 857 people short of receiving the last available U.S. House seat and this discrepancy in how Americans are counted overseas made all the difference."

Whether more representatives in the House mean more funding is not clearly established. More representatives mean more people, and that directly means more federal money, but the applicable question is whether more representatives means more money per capita. There's actually a line of research that says that smaller states get more funding, known as the small state bias, since these states are, in population terms, over-represented in the U.S. Senate.

Nonetheless, the perception is that more representatives get more money, and that's got Utah none too pleased.

Got Communism?

North Korea does. And here's what it's like.

Counter-cyclical fast food

I always get a kick out of articles that describe companies that perform well when the overall economy doesn't-- if only for the reason that it provides a quick rebuttal to the layperson. This article from Slate sums up the fast food success over the last year that was McDonald's. Some nice bits for your arsenal:

"McDonald's sales growth in 2008 was greater than in 2006 and 2007."

"While many restaurants scaled back, it opened nearly 600 stores in 2008."

"...the chain has notched same-store-sales growth in each of 2009's first seven months."

"Over the last three years, its stock has handily outperformed the S&P 500..."

"In Europe, where stressed consumers are still pulling back, McDonald's notched 6.9 percent same-store-sales growth in 2009's second quarter."

Many people like to demonize McDonald's for its indifference towards the health of its foods--which is increasingly difficult to do-- but can you argue with nearly 70 years of creating popular eating spots and over 31,000 locations? The training program for its franchisees is legendary, and Burger King even reportedly amended their expansion strategy to locating near existing McDonald's restaurants. The historical stock information is here; putting your money in McDonalds 30 years ago would make you a very rich TPS reader, to the tune of 50x growth...and even only 6 1/2 years ago would yield over 5x on your investment.

In article-related news, here is an piece on Peru's growth-- reportedly 9.2% in 2008.

Advice to Economic Educators

Dave at TAE has an interesting perspective on being an economic educator:

Job market applicants are often asked to write up something about their teaching philosophy. If I were to ever do so, I'd sum up mine in one sentence: I have no teaching philosophy, or at least none that I'm aware of. (I also have no clear method, no bag of tricks, nothing special to offer.) I do, however, have a single purpose -- to encourage my students to think like an economist.

Tax or Fee?

The Tax Foundation has a short but interesting post on the murky distinction between taxes and fees:

The Tax Foundation holds that any assessment that raises money in excess of what is needed to defray costs is a tax, not a fee.

The issue arises here because the U.S. Embassy in London is exempt from taxes, but not fees. The city claims congestion pricing is a fee, but the embassy sees it as a tax.

The TF general definition above is not a bad rule of thumb, but is easily criticized. Which costs? Over what period? Costs for whom? The intention in the City-Embassy case is to relieve congestion (and its associated externalities), so prices are presumptively to temper (subjective) quantity demanded rather than cover accounting costs. The lottery raises revenue above cost, but it is hard to think of it as a tax.

My crude definition of "fees" is to use them as a synonym for benefit taxes, where the concept of deadweight loss becomes a bit murky. Benefit taxes most typically arise when the "tax" is tied to a particular service. Garbage collection, particularly if it is marginal cost pricing, is a simple example. For instance, the benefit-view of property taxation ultimately views the property tax serving this role when combined with zoning (the consequence of which is the absence of deadweight loss). This crude definition is also easily criticized. What constitutes a "service?" The services must also be "voluntary," and what does that mean? If gas taxes are solely for the purpose of road maintenance (and perhaps mitigating air pollution costs) then they are fees, not taxes. That would be a bitter pill to swallow.

Update: The Tax Foundation has another great post on this, this time in San Diego. In it, they describe fees as being tied to a particular service.

Jeopardy! Archives

Since I've talked about Jeopardy! before, I thought I'd send along this site, which houses the complete Jeopardy! archives. (Every time you load that page you get a new random Final Jeopardy question.) The list of all seasons is here. And if that's not enough, the real fun of the site is the wagering calculator.

Enjoy!

More Cash For Clunkers Unintended Consequences: Indian Country

Cash for Clunkers seems destined to own an unfavorable paragraph or two in future economic principles textbooks. This aspect is brought to my attention by frequent TPS commentator Jason Oberle. Here is his writing on the subject and here is an article he points us to from the Navajo Times.

Jason emphasizes the important role of salvage parts in "Indian Cars." Apparently, reservation life is particularly harsh on cars, so these vehicles are supplemented continuously with major parts from salvaged vehicles. C4C requires that the clunker being traded in is required to be destroyed. Jason suspects that, on the margin, this will increase transportation costs in Indian Country.

Tax Credits and Convicts

There was an interesting line in an otherwise embarrassing bit about the Philadelphia Eagles' signing of Michael Vick:

"If [the Eagles will] pay $1 mil+ to give Michael Vick a 2nd chance, how about leading the charge to help ex-offenders citywide? Philly is home to 200,000 people with criminal records. Those with drug convictions are legally barred from ... jobs at airports, nursing homes or in security, but they can do most other tasks. And yet, few if any companies took the city up on $10,000 tax credits to hire ex-cons."

(Emphasis is mine, and the quote above is from a Facebook entry by Philadelphia Inquirer columnist Monica Yant, not the author of the above link.)

But...Philadelphia offers tax credits for hiring ex-cons? Really?

Sure enough, Michael Nutter, mayor of Philadelphia headed up the program:

"So on his 100th day in office last month, Mayor Michael Nutter announced a program, being headed by an ex-offender, that gives $10,000 a year in municipal tax credits to companies that hire former prisoners and provide them tuition support or vocational training."

Not sure how I feel about this. On the one hand, the uneven tax code creates a clear distortion into the labor market. On the other, considering the recent policy proposals at the national level, at least Philadelphia isn't further taxing companies that aren't hiring ex-cons.

People often complain that convicts have a difficult time incorporating themselves back into society (whatever that phrase is supposed to mean, I view it as having a hard time finding a job). Well, convicts put forth the signal that they are riskier employees, and insofar that those going to prison are riskier employees (probably true as a whole, though I'm sure there are plenty of exceptions), the signaling process here likely isn't too far off.

The idea that this program could prevent future recidivism is an interesting one; that's something the data will have to bear. From the initial quote above, it doesn't sound like many companies are taking the mayor's offer.

What else could possibly help deter crime? I've always thought that dropping the minimum wage would allow the labor market to price riskier employees accordingly, allow them entry into employment, then build up a reputation as a reliable employee and move down the path of higher wages. It's non-distortionary and liberty enhancing. Seems like it's worth a shot to me.

Blockquoting X

X = Mayor Frank Melton, Jackson, Mississippi:

I certainly respect the Constitution, but we have some issues that are much bigger than the Constitution.

Melton is defending an executive order banning saggy pants.

Growth Theory and Taxation

As I'm always a fan of consolidating ideas/facts/available data into one place (maybe that's why I like rankings so much?), here's a new paper by Gareth Myles that does just that with economic growth theory and taxation. From the abstract:

"Economic growth is the basis of increased prosperity. This makes the attainment of growth a key objective for governments across the world. The rate of growth can be affected by policy choices through the effect that taxation has upon economic decisions and through productive public expenditures. This paper provides a self-contained introduction to the economic modelling of growth and reviews the theoretical evidence on the extent of the link between taxation and growth."

If the name sounds familiar, it's because Gareth Myles is the author of popular public economics textbook.

What Policy Implications Can Be Learned From Speed Dating?

In speed dating, it turns out that the party that sits is more selective while the party that rotates is more aggressive. From the Scientific Fundamentalist:

What they discovered was truly astonishing. In the traditional “men rotate, women sit” arrangement, men were significantly less selective in their mate choice; they checked “yes” for a larger number of women than women did for men, and they experienced greater sexual attraction and romantic chemistry with the women than women did with men. This is not at all surprising, as it is what evolutionary psychology would predict and it is what we normally observe in real life (less selective, more aggressive men, and choosier and more coy women). In sharp contrast, in the novel “women rotate, men sit” arrangement, women were just as aggressive and, as a result, less selective, as men were in their mate choice; they checked as many “yeses” for men as men did for women, and they experienced as much sexual attraction and romantic chemistry for the men as men did for women.

Finkel and Eastwick explain the reversal of the pattern with their embodied cognition hypothesis. Research on embodied cognition has uncovered some pretty interesting (if wholly mysterious) findings. For example, seated experimental subjects who place their palms on the bottom of a table and press up (a gesture associated with approach) rate neutral Chinese ideographs as more appealing than those who place their palms on the top of the table and press down (a gesture associated with avoidance). In other words, because they view the ideographs while they are engaged in the approaching gesture, they come to view them more positively.

In lobbying, I think it would be most appropriate to think of politicians as being those who remain seated in a speed dating game. At least part of a congressman's face time is spent with lobbyists that actively seek them out. If this speed dating study carries external validity, then politicians are more selective with extra-aggressive special interest groups than they would be otherwise.

For Fun: Suppose we could reverse the setting, and congressmen were required to attend something resembling a job fair, with prospective lobbyists instead of prospective employers. As a result politicians become more aggressive and special interests become more selective.

What are the consequences of this kind of institutional change? How do politicians manifest this "aggressiveness"? Better policy? More exploitative policy? Do the matches between politicians and lobbyists become more efficient (think Chicago School of Public Choice)? Is it just a transfer of surplus from politicians to lobbyists?

Quote of the Day

From Matt Kahn:

I was talking to a smart reporter today and he was telling me that he supports the Cash for Clunkers program saying that it not only benefits Detroit but also helps a variety of new car dealers who are more broadly scattered across the country. He got a pinch upset with me when I told him that if our sole goal is to stimulate new car sales then a more cost effective policy would be to release auto thieves from prison and let them get back to work.

Daily Show Interview with Austan Goolsbee

The Daily Show With Jon Stewart	Mon - Thurs 11p / 10c
Austan Goolsbee
www.thedailyshow.com
Daily Show Full Episodes Political Humor Spinal Tap Performance

Public good provision and crowding out of market provision

Here's a new paper from Andrew Reeson and John Tisdell, I am unfamiliar with them but I like the idea, emphasis is mine:

"There are many factors which can motivate people to contribute to public goods. These range from intrinsic motivations such as altruism, through social motivations such as concerns for fairness and approval, to extrinsic incentives which include sanctions and payments. Institutions help determine how these motivations are applied and expressed. Psychological studies indicate that extrinsic incentives can crowd out the intrinsic motivations which prompt voluntary contributions to public goods. We applied experimental economics techniques to examine how people in a public good dilemma respond to changing institutions. Our results showed that the introduction of formal institutions (a regulation and competitive tender) crowded out voluntary contributions, with the supply of public good increasing less than anticipated, and in some circumstances actually decreasing. In particular, the introduction of the competitive tender triggered a ‘market instinct’, with participants who previously had been expressing social preferences now seeking to maximise profits. The effects of crowding out persisted even after an institution was removed, suggesting that it may be difficult to reverse. We conclude that policy makers should tread carefully when considering formal institutions to promote public good provision, particularly where desired actions are already occurring voluntarily to some extent."

The story goes that markets fail to provide public goods, so governments step in and provide it. Public choice seems concerned with how that level is determined, why it's likely wrong, why it's likely to persist and why it's popular at the polls. But there should be more attention paid to the market-destroying aspect of public activity-- in this case, of providing public goods.

Probably the worst example to illustrate a point that I could find

Just a reminder that inequitable ends do not necessitate inequitable processes. Not to justify human trafficking-- it is a truly horrible act-- but consider this article on CNN this morning.

"Males come with a premium price tag in China. During a videotaped confession, a woman caught trafficking children two years ago told police that boys can sell for up to $1,200, girls for just more than $200."

Presumably, there's no additional hurdle or advantage to targeting males instead of females. Families protect their children equally, and due to cultural norms, males are more highly sought after. As mentioned above, the price for male children is six times that of female children. This does not mandate inequity in the market for male children as relative to female children. (Again, not justifying human trafficking, but comparing one act of human trafficking to another does get past a significant moral hurdle when analyzing with such appalling behavior.) Neither do differences in male and female salaries, nor male and female athletic participation rates. Inequitable processes produce inequitable ends; the reverse does not necessarily hold.

This comes to mind after talking with TPS friend and colleague Pavel Yakovlev over the last few days about Title IX; he has a fantastic paper in the works that I look forward to sharing here in the (hopefully) near future.

Clunk It!

ReasonTV weighs in on the Cash for Clunkers program.

We've moved!

No, not from the web address you're used to coming to, but the authors have had a high degree of mobility in the last few months. From the list at right, we are no longer directly connected to West Virginia University (Justin graduated last year, and I did the same this spring) or Appalachian State University (Claudia was an Assistant Professor there last year).

In their place, we've picked up New York University (Claudia begins this fall as a Post-Doctoral Fellow at the Development Research Institute) and Duquesne University (I begin this fall as an Assistant Professor). Also, when the blog started in December 2005, David was an undergrad at San Jose State University-- where I met him and TPS started. He finished at San Jose State in the spring of 2006 and headed east to George Mason. Well, we've now come full circle back to our roots-- Emily begins this fall as an Assistant Professor at...San Jose State!

(The unmoved over the summer are Justin at Indiana University, and both David and Will at George Mason University.)

The appropriate links are at right. I've decided to order the links by accrued tenure here at TPS. David is beginning his fourth year at George Mason, and both Will and Emily have added years to the running tally-- this tops the list. From there, Justin's year at Indiana University places it second. David's one semester at San Jose State puts it third, and Duquesne University and New York University are new to TPS.

Union Intergenerational Preferences

Megan McArdle writes:

In theory, labor organizers shouldn't demand so much that their industries become uncompetitive. In practice, however, as we've seen with Chrysler and GM, they can and do.

I am not very familiar with the details of collective bargaining theory, but I would be surprised if this was really true. McArdle is usually right with her references to theory, so I'm asking what assumptions about industry survival preferences by unions are commonplace?

I would assume that the objective of a labor union would be to maximize the wealth of its current members. The union members of Generation t would probably want their firm during Generation t+1 to remain competitive enough to pay its pensions and liabilities, but why would they care about Generation t+2 and forward?

Book Review: Evil Genes

If you watch Dexter and enjoy his inner monologue, then you would probably enjoy Evil Genes: Why Rome Fell, Hitler Rose, Enron Failed, and My Sister Stole My Mother's Boyfriend by Dr. Barbara Oakley. If Amazon rating terms, I would give it 4/5 stars.

The focus of EG is a very particular type of sociopath that Oakley terms "Machiavellian," after the famous author of The Prince. Despite representing a fantastically small portion of the population, these high functioning psychopaths are supremely successful at making their way to the most prestigious positions of society: Stalin, Mao, Milosevic, and Hitler. Machiavellians simply seem to derive pleasure from the success of manipulating others, and while they do not feel compassion or empathy for the emotions of others, they are supremely gifted at recognizing emotional ques. There is no ideological guide for them, the purpose is only to manipulate.

Oakley's book covers the genetic and environmental mechanisms that seem to be necessary for both the development and success of Machiavellians. For instance, neurologically the area of the brain that allows us to recognize the emotional ques of others is considerably larger than in a normal person. This allows them to recognize and quickly decipher ways to appeal to and manipulate our emotional responses. This allows them to move successfully through society, and likely is a contributing factor to just how successful they appear to be in politics.

The most brilliant aspect of this book from a story-telling standpoint is the way Oakley wraps the narrative in with her late sister, whom she identifies as being one of these individuals. At the beginning, she introduces her sister with a heart-wrenching story of how her sister stole her mother's (much older) boyfriend so that she could take her mother's place on a trip to France. Throughout the book, Oakley tries to unravel her sister's identity and make sense of her outlandish behavior, and it makes for an extremely interesting narrative.

Some other reviews I have read found the story of Oakley's sister to be the most troubling, since she is dead she can't defend herself, and I can see where that comes from after trolling through her diaries. However, I actually became more sympathetic to her sister as the book progressed, to see how truly miserable these people are, and while people have differing predispositions to Machiavellianism, the story of her sister seems to have a strong environmental component in her polio treatment as a child. By the end, I felt sorry for her sister, as most of us might once we learn the personal histories of individuals with psychopathy.

What Progressives will like about this book: Machiavellians have been particularly adept in communist systems. Classical liberals frequently argue that socialism fails not because they didn't get good leaders, but because socialist institutions have poor incentives and constraints. The historical popularity of communist Machiavellians provide a rejoinder, in part it was that there were really bad people running the system.

What Conservatives will like about this book: You get a sense of hopelessness about the possibility of reforming these people. Tough on crime conservatives that prefer the death penalty would probably find supporting material to justify their punishments in this book.

What Libertarians will like about this book: The fascinating inspection of the way Machiavellians move through politics, particularly in communist societies. It is all ready recognized that politics has a tendency to self select people with Machiavellian traits, but the review of the damage these people are capable of doing in a centrally planned system is incredible.

What can be skipped: Chapters 3 & 4, while interesting, are mostly a primer in neuroscience and reading brain scans. While the book discusses neurotransmitters and examines brain scans in every chapter, I suspect that the underlying motivation for these chapters is to nail home the point that this book does not serve as an argument for genetic screening or eugenics.

Random Fact I Learned: The language(s) you learn reorganizes your neurphsiology. Native speakers of Chinese literally see the world differently from native English speakers. Visually, an English speaker initially focuses on individual objects and the background fills in to support it. Chinese speakers see the big picture first, and eventually grasp sight of the individual objects.

Somewhat Related: Search the archives of the DOL blog for Ed Lopez's series of posts discussing The Prince. They were very interesting dives into select passages of Machiavelli's work.

Seeing the Corporate Tax Tree from the Forest of Taxes

A couple of days ago I linked to a study by the Tax Foundation about corporate taxes and their downward effect on wages. Today, they offer an international comparison of corporate tax rates.

I've always heard that, bitch as we may, the United States still does pretty well with regards to the whole picture of taxes as compared to other countries. Capital account surpluses certainly speak to this idea. But the Tax Foundation gives a different story. Then again, it could be the case that the U.S. could have a comparatively poor corporate tax system but a very favorable everything-else system. This would hold true if, for example, the U.S. imposed only corporate taxes. I know that isn't the case, but that would be an explanation that would fit both sides.

Time to consult the Economic Freedom of the World Index!

How does the U.S. do in Area 1? (Area 1 is the Size of Government: Expenditures, Taxes and Enterprises.) Out of the 130 countries that get a score, the U.S. ranks 40th. However, the crux of the Tax Foundation report is that the U.S. has the second worst corporate tax rate in the OECD, trailing only Japan. How does the U.S. do in the freedom rankings concerning government expenditure and taxation compared to these countries? Considerably better; only three of the OECD countries mentioned in the Tax Foundation report-- Mexico, Switzerland, and Turkey-- score better than the United States. The other twenty-six have more onerous governments to deal with.

Granted, we're comparing 2009 tax rates with the most recent Freedom of the World Report, which outlines 2006-- but could things have changed that drastically in three years? I'd say probably not. I think this is a case of picking one tree from the forest. Those in West Virginia that like to say things aren't so bad do the same thing-- find one tax rate (personal income tax is a good example, if I remember correctly) that's comparable to the rest of the country, then say, "See? Taxes can't be the problem."

Don't get me wrong-- lower corporate taxes would be better. Absolutely. Cut them. Keep cutting them-- because they do matter. And I love the story the Tax Foundation provides that shows just that:

"Great Britain has found out [that companies will relocate in the face of high taxes] the hard way. Last year, Google moved its European operation from London to Switzerland to lower its tax bill and McDonald's recently announced that it was doing the same. Great Britain's relatively high corporate tax rate combined with its world-wide tax system has caused an exodus of domestic firms to lower-taxed countries such as Ireland and Switzerland."

But sometimes-- and especially when it comes to tax systems-- it's useful to see the entire forest from the trees.

Measuring Growth from Outer Space

There are some very cool images in a recent NBER working paper measuring economic growth with satellite images of brightness at night by Henderson, Storvegard, and Weil. I'll put a teaser here and the rest below the fold (click to enlarge).



+/-

Compare the change in Romania and Hungary with that of Modolva:

Scatter Plots:

Corporate Taxes and Wages

The Tax Foundation has a new report out today looking at corporate income tax rates and their impact on wages. The pdf of the study is here. Here's the gist:

"Specifically, a one percent drop in the average tax rate leads to a 0.014 percent rise in real wages five years later. In dollar terms, that means wages rise $2.50 for every one dollar reduction in state-local corporate income taxes.

[...]

Altogether, this body of work draws into question the conventional wisdom that corporate taxes add to the progressivity of the tax system. If instead of burdening capital, the corporate tax primarily burdens labor, as this study finds, then the corporate income tax does not add to the progressivity of the tax system."

I added the emphasis. The Tax Foundation is a great place to find tax research on the impact of taxes at the state level.

Beautiful Capitalism

By Scott Amron. $7 for a set of two.

Bad bets

TPS Clevelander Rob Holub sends along this link, asking conservative anti-global warming folk to put their money where their mouth is. The way I see it is as follows: Anti-global warming supports like to bring up sporadic examples of unexpectedly cool weather and then put forth the conclusion that all of this global warming nonsense is hogwash. The author of the blog post linked above says that those folks are remembering what they want to remember-- thus the bet. If you look at the whole picture, things may not support your position.

For what it's worth, I don't think the question is as much about whether the Earth's temperature is rising as much as whether it's humans that are causing that rise, or any further warming on top of the nature cycle of the Earth. As such, the bet shouldn't be a comparison of current temperatures to historical levels, but a comparison to a trendline estimate of where the Earth is naturally heading anyway. I guess it's not too surprising that no one has taken the bet.

It brings up the larger question: Should one be willing to put up money to lend credence to their positions? MR dealt with the issue a little while back, though I don't know how long ago and can't find the link. I could be convinced either way, though I suppose a staunch conviction in your theory could be offset by an even more staunch adherence to risk aversion.

Good News, Everybody! Poverty Edition

From the August 2009, NBER Digest: Poverty rates have been declining faster than suggested by income data.

Back in the blogging game!

Alright, I'm back home for a while, so I'll self-impose a more rigorous blogging output upon myself for the foreseeable future. A few thoughts I've had recently:

- I flew a couple of short Southwest flights over the past few days. For the uninitiated, Southwest does not assign specific seats on their flights. Instead, over the years, I've seen their boarding process evolve as follows:

1) My first recollection-- arrive at airport, check in, and receive a plastic, airline re-usable state-shaped card that allows you entrance onto the plane. These states are numbered, but only matter in groups of thirty. The first group of 30 boards the plane, irrespective of the individual numbers within the first group. The next 30 board, then the next 30, and so on, until the plane is full.

2) At some point, boarding passes fall in line with the rest of the airline industry-- disposable paper ones printed prior to the flight and worthless after you are on board. Also, groups expand to 45 and check-in can occur online up to 24 hours before scheduled departure.

Note that last change shifts competition from "who can show up earliest at the airport" to "who is most vigilant in remembering where they are exactly 24 hours before they leave."

3) Southwest now numbers every single boarding pass and you board strictly by your number; whereas before your 30 was equal to their 10, now you are getting on 20 spots later.

(As an aside, I noticed that handicapped/disabled/those that need extra time folks went first, then the first sixty passengers via the boarding pass number system, then those with babies, then the rest of the folks. Still not incentive compatible in my book, but my thoughts priority boarding privileges are here. And as an aside to the families-with-babies-board-in-the-middle realization, is Southwest inching towards becoming the first children-free airline? This bears watching.)

What is driving this change in boarding procedure-- that is, do you think it's more driven to suit customer demands or to reduce airline costs (i.e. board faster, turn the plane faster, etc.)?

While prices on plane flights vary over time, I am slightly surprised that prices for different seats within a plane at the same time do not vary (beyond first class, anyway). I'd pay more to sit in the front and away from the center seat. Has any airline ever done this? I've got to believe this has happened somewhere at some time.

- I had a dream recently where I was taking a class offered by Rachael Ray-- normal classroom offering and subject, only she was the instructor. I evidently attended the class very infrequently, and upon her confronting me, I then asked if she thought it was costly that I was missing class. She replied in extensive fashion that it was, to which I replied that her opportunity cost analysis was misguided. I'm really proud of myself for coming up with that! (I sleep with the TV on; I'm guessing that's where she came from.)

- Here's a bit on ESPN about pitch counts for starting pitchers in major league baseball, and here's a bit about a pair of studies that looked at the impact of youngsters throwing fastballs vs. curveballs. In short, I think certain pitchers can throw a lot and certain pitchers can't. In the past, at lower levels, if pitch counts were never an issue, then the low-volume throwers would get weeded from the game while the high volume pitchers would survive. You then make it to the professional level, and there aren't pitch count issues. However, with a range of theories and practices on the effects of throwing a high number of pitches, the weeding process is disturbed, and the uncertainty in drafting pitchers is a lot higher. Mix that with wanting to maximize the Type II error-- underutilize the pitcher when he could handle a heavier load rather than overusing someone who can't handle it-- and we've got dwindling pitch counts.

I can believe the curveball study in the sense that throwing any pitch is stressful on the elbow, and a curveball is generally thrown with less velocity than a fastball. It is also worth noting that if curveballs are so damaging, why do we never attibute arm injuries in professional pitchers to throwing curveballs? If the answer is that pros know how to throw them properly, then presumably amateurs are throwing pitches incorrectly, which leads up back to the first sentence-- throwing a fastball incorrectly will stress the arm more due to increased extertion.

I also vow to utilize the +/- feature-- I've timidly avoided it thus far.