A Belated Review of "Firefly"

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

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

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

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

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

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

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

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

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

Mopping Up Excess Reserves

As you probably know, the Fed has expanded base money by roughly 140% over the last couple years. Under normal circumstances, we would expect a rapid increase in the money supply to follow (recall that M = B m, where M is the money supply, B is base money, and m is the money multiplier). However, banks are holding higher reserves (that's in the denominator of m, hence the multiplier is decreasing). So the unprecedented increase in B is being largely offset by the decrease in m. As a result, M1 and M2 have grown slowly.

Bob McTeer asks whether the Fed should "mop up" the excess reserves held by banks:

The idea that the excess reserves held on banks’ balance sheets should be “mopped up” to prevent them being used in inflationary ways later is a very dangerous idea. They are there voluntarily because bankers feel they are needed. To remove them would cause further bank retrenchment, as it did in the 1930s when the Fed decided to “mop up” the excess reserves of that time.

As the economy and confidence improves, banks will begin using their excess reserves more aggressively. At that point, the Fed will have to be very careful not to stifle that desirable activity on the one hand or let it get out of hand and become inflationary on the other hand. Since they have lots of good, two-handed economists, I think they can pull it off.

Should the rapid increase in B over the past few years be mopped up? Absolutely. But when? Ahhh. That is the tricky part. Ideally, we would want B to fall as m returns to normal levels--that is, when banks start lending out their reserves. If the Fed reduces B too quickly or too soon, the money supply will shrink (deflation). If it reduces B too slowly or too late, the money supply will grow (inflation). This, unfortunately, is the knife's edge that central bankers must traverse if they are to maintain monetary equilibrium.

HT: Harry David

Incentives and Cairo housing

On a recent trip to Cairo, I was struck by two things.

First, there were a lot of run-down apartment buildings. Emphasis on "run down" and "a lot," and interspersed throughout the city. Yes, Egypt isn't the richest country in the world, but it's still a large (read: more than 20 million) city and prevalence of poor buildings was surprising in all areas of the city.

Second, there seemed to be a preponderance of unfinished buildings. This isn't entirely uncommon in Muslim areas but, again, Cairo is a large city and, once more, there was surprising amount of (seemingly non-progressing) construction.

Things like this don't happen without reason; where there's bizarre outcomes, government nonsense isn't usually too far behind. See if you can guess for yourself the government policies that exaggerate these outcomes-- I'll put the answers below the fold.

+/-

1. Apartment owners are not allowed to raise the rent on a family living in a unit. Thus, once families secure an apartment, they keep it as long as possible at the same level of rent. Think generations. Incentive to improve the building to satisfy tenants? Little. In fact, insofar that the only way you can get more revenue from your building is by getting new customers, the incentive is to (perhaps actively) make the experience as bad as possible. Rent control, anyone?

2. Building owners don't pay taxes on building until the construction is complete. Thus, buildings in perpetual states of construction don't pay taxes. Not hard to see the incentive there-- keep it unfinished and avoid the State.

One Line to Sum Up Somalia

From the NYT:

Somalia’s sheer ungovernability is both its curse and its blessing.

HT: Pete B.

Austrian Capital Theory

From Steve Horwitz @ FEE:

Capital is not like a bucket of water from which we scoop identical cups. Instead, capital goods, including human capital, have a limited number of specific uses to which they can be put. As Peter Boettke puts it, capital is not like Play-Doh, which can be formed into any shape, but like Legos, the versatility of which is limited by the sizes, shapes, and interconnections of the pieces.

Austrians speak of the need for capital to be “complementary” to other capital in order for it to help create an integrated production plan. A producer must have the “right” capital, that is, capital that “fits together.” An important implication here is that “more” capital isn’t always better. What firms need are pieces that fit, not just duplicates of what they already have.

Shared Beliefs, Focal Points, and Phone Finding

I lost my phone last Thursday.

Fortunately, I knew exactly where I'd left it. I constantly check the clock on my phone during class to adjust my lecture speed so that I don't spend too much or too little time on any subtopic. Given that I had driven straight home from class, and that I realized I'd left my phone almost immediately upon getting home, I knew it had to be sitting on the podium. But when I returned, it wasn't there.

I figured there were two possibilities:
1. Someone found the phone and decided to keep or sell it.
2. Someone found the phone and attempted to get it back to me.

Obviously, P(1) > 0. There are criminals in the world. However, I reasonably assumed the conditional probability that the person finding my phone was a criminal was quite low. Most likely the person finding my phone would be a college professor, as it was on the podium. There was also a relatively high probability that a student taking summer classes found my phone. Regardless, I'd guess few individuals in these groups are criminals or have access to criminal networks such that reselling the phone would be worth the risk of being caught. There was also a possibility that someone on the cleaning staff located my phone. Now, I'd imagine the probability that cleaners--typically from low-income households--have access to criminal networks would be significantly higher than college professors and students taking summer classes. But the odds that a cleaner found my phone would be low. I teach a morning class and cleaners typically work at night. So scores of people would have to overlook my phone for it to be on the podium when the cleaners arrived in the evening. Hence, I believed P(1) < P(2).

But how would they attempt to get it to me? They did not try to call me. Nor, to my knowledge, did they try to call anyone in my recent calls. Instead, they would likely do what people in our society normally do when the find something that has been lost: drop it off at a lost and found. This is where focal points become important.

Where is the lost and found? As it turns out, there are several options. Here are the most likely:
1. Secretary
2. Campus police
3. Johnson Center Information Desk
4. Student Union Information Desk

A lazy person might just walk over to the secretary in the building where the phone was lost and let her deal with it. But this assumes two things. First, it assumes that the phone finder knows where the secretary is. I am an instructor in that building and (until I actively began looking) I didn't know where her desk was located. Second, it assumes that either (1) I will know to go to the secretary to retrieve my phone or (2) the secretary will know where I'm likely to go and be willing to take the phone there. Note the importance of shared beliefs. The only way this works out is if the phone finder and I or the secretary and I have shared beliefs about what should happen to lost and found phones.

If the secretary option is not particularly salient, perhaps the next option would be the campus police. However, the GMU police station has recently moved from a building relatively close to the class where I lost my phone to the other side of campus. This decreases the likelihood of my phone ending up there for two reasons. First, it requires more effort to get it there than any of the other potentially salient options. Second, given that the change took place recently, it increases the likelihood that either I or the phone finder is not aware of the change and hence decreases the likelihood of a match. Knowing this, even a phone finder aware of the station change might be reluctant to take the phone to the police. Again, note the importance of shared beliefs and knowledge about shared beliefs.

The third option, JC Info desk, has an advantage in that it is right in the center of campus. All the food vendors are located in the JC. Going to any other class or office on campus would likely cause you to walk past the JC. However, the JC is in the opposite direction of the nearest parking lot. So instructors or students showing up for one summer class might have to go out of their way to go to the JC.

The fourth option, the Student Union Info desk, is anything but centrally located and is also off path from the nearest parking lot. While this option might be particularly salient to students, it is not likely to be as salient to instructors. And recall that the phone finder is likely to believe the phone was lost by an instructor since it was on the poduim. Hence, even if it were salient for a student phone finder, the student would have to consider whether it would be salient for me.

So where did the phone finder conclude that I would most likely look for my phone? Well, since I was fortunate enough to retrieve it today, I can tell you. And we can all learn a little something about shared beliefs. Take a guess. The answer is below the fold.

+/-

JC Info Desk

Ecuminical (and Financial) Incentives

From Slate:

Working with David Yermack of New York University, the two preachers' sons set out to test the Corinthian hypothesis by investigating the economic incentives affecting the United Methodist clergy of Oklahoma, where Hartzell's stepfather had spent his career. In "Is Higher Calling Enough?" a study forthcoming in the Journal of Labor Economics, the researchers show that Oklahoma's ministers are driven not just by spiritual motivations but also by high-powered financial incentives. Working with more than 40 years of church records covering more than 2,000 clergy, the authors find that ministers received about a 3 percent share of revenues generated from boosting membership, comparable to the pay-for-profit sensitivity of Fortune 500 CEOs. They also uncover some unfortunate side-effects of financial incentives for ministers who, motivated by material concerns, may have been encouraged to poach congregants from one another's flocks rather than to bring new believers into the fold.

Nerd Alert: Econ T-Shirts

I've designed and ordered a couple shirts at Cafe Press. Understanding that the marginal cost [of the design] falls to zero, I have made these designs available in a "shop" so that--if you are as nerdy as I am--you can order them. Here are a few of the Ts.

The first two shirts are related to Pete Boettke's claim that Austrian economists can decide to emphasize the Austrian or the Economics.





The third shirt allows you to channel your inner Scott Sumner and advocate a nominal income target.



Shirt number four is a little less cryptic, allowing your nerdy econ friends to see you support a constant PQ.



And finally, though I imagine few of our readers are interested, there's a shirt w/ the JEL code for "Monetary Systems; Standards; Regimes; Government and the Monetary System; Payment Systems."



Interested in having your own? It's a little more complicated to order than I would have thought. But details are below the fold. I'm sure there will be more to come, as I really like custom shirts.+/-

Instructions for ordering from the shop:
1. choose the design [MV=PQ, Nominal Income Target, etc.]
2. choose the shirt type [Mens T, Women's T, etc]
3. choose the color
4. choose the size [there is a sizing chart ]

For the Teaching Vault: Deadweight Loss

The deadweight loss of Ohio's income tax is LeBron James.*

The deadweight loss of the British Income Tax code is Usain Bolt.

*Incidentally, my first publication was on the state income tax incidence on All Star MLB free agents. Players paid non of the tax.

New Member of the "Juicing the Mitchell" Club

It is Jason Kuznicki at the League of Ordinary Gentleman (Hat Tip: Zach Wendling). Jason summarizes support for Alvin Irvine's (the improbable SC gubernatorial candidate) proposal to have action figures made of himself to give to children at Christmas:

Compared to endless war, stripping us of our civil liberties, running up giant budget deficits, and all the rest… I have to say I’m all in favor Greene’s proposal. Politicians have limited time. Let’s use it wisely. Or at least use it up.

Indeed, welcome to the club Jason!

InTrade on LeBron James

As a longtime Cleveland Cavs fan, I have been keeping an eye on the LeBron James resigning saga. Right now, the InTrade odds seem to favor the Bulls, but note that the low volume reveals an internal inconsistency (the probabilities don't add up correctly). For Cavs fans, the disappointing bottom line is that the most liquid market puts only a 29% chance at him returning.

Artificial States and Anarchy

As part of secession week 2010, I have a guest post at Let A Thousand Nations Bloom on artificial states and anarchy related to African development.

HERE IS WHERE YOU PLACE THE HIDDEN TEXT.

World Cup and Economic Freedom

Art Carden has a entertaining post at DOL on how the World Cup would play out if the outcome were based on the country's economic freedom score (Chile wins over England in the finale).

For what it's worth, if I knew nothing about the quality of the teams in the tournament, but was trying to win a bracket pool, my prior would be to rank teams inversely to their economic freedom score. My reasoning? Soccer requires virtually no accumulation of capital. All you need is a field, a ball, and something that can serve as the goal. Contrast that with (American) football, basketball, track (at least the sprints, any sprinter will tell you the importance of surface practice and block work), swimming, etc.

I would add the spreading worldwide popularity of basketball (which is more capital intensive than soccer, but not incredibly so) as evidence to this phenomenon, while admitting it is largely ex-post story telling.

Soccer Thoughts

I was not a soccer fan growing up, but have over the last three World Cup come to appreciate the competition. This World Cup has been very enjoyable thus far. My thoughts:

1. A first-rate (read: English Premier League, La Liga, Serie A or Bundesliga) soccer league would excel in the United States. Don't let anyone tell you otherwise. Americans embrace the highest-quality version of just about anything. Relegation is something they would buy into whole-heartedly.

2. Epstein offers his changes for the soccer here; this isn't the first time, nor the tenth, nor the last time you'll see articles in this vain. You won't see changes in soccer until you see these sentiments in the places where soccer matters, just like you won't see a growing feeling of salary inequity from Argentinians affect large-scale labor change in Major League Baseball. As best as I can tell, the calls for modifying soccer are uniquely American. (Though please comment about other cultures that want to change the game, I'd love to read it.)

3. Given the success of Twenty20, I wonder if the best way of moving forward with modifying soccer isn't to create a new sub-sport in and of itself. There have been other instances of such attempts-- what comes to my mind is Arena football and the XFL, though I'm sure there are others-- but to me, those seemed to be modifications that tried to keep the part of a sport that people liked (fast/big plays) while adding in gimmicks to attempt to differentiate it (indoors, cameras everywhere, no fair catches, no punting, etc.). Twenty20 kept the sport the same but got rid of what people didn't like (the length of a cricket match). Maybe that's splitting hairs, but to me it's an important difference.

4. Given #3, perhaps a modified game that compliments soccer would be successful-- or rather, if action had to be taken, this would have the best chance of succeeding. Like above, keep the game and get rid of what people here don't seem to enjoy. Per Epstein, find a way for more scoring, less importance for referees but keep the games commercial-free by half.

Ultimately, I think compliment instead of substitute is the way to go.

Television Future

The Economist recently had a special report on television; I thought the best pieces were these two, though you can find more of them easily at the Economist's page. They raise an interesting question: Television is looking like it's coming upon some tough times, how will it make it through? But, as the Economist notes, we've heard this story before with television and TV's as strong as ever. I had never really considered the vitality and mutability of television but it's important to note.

On the other end of the spectrum, here's CNN preaching the end of television.

Friday's Radio Spot

Here is my interview with Pittsburgh Business Radio on Friday, by myself this time. I was there for about an hour and we talked about Zappos, the BP oil spill and the highest altitude by which someone survived a free fall to the ground.

Econ 101: John Glenn Edition

John Glenn, veritable American space hero, gives a nice example of the fallacy of considering sunk costs in marginal decision making:

"The cost of continuing [the space] shuttle is really very tiny compared to the $100 billion investment we've made in the station..."

Bank Runs and Deposit Insurance

Why do bank runs take place? Demand deposits are bank liabilities. When a bank suffers a loss, it becomes less able to meet all its obligations. To ensure that they are among the obligations that are met, individuals queue up at the bank demanding deposits be paid out. No one wants to be at the back of the line, as it is possible you get less than the full value of your debt claim. In fact, you might end up with nothing.

There are a handful of ways of preventing bank runs.
1. Suspension of Payments
If banks can suspend payments when a run becomes evident, they will have more time to figure out whether they can successfully meet all obligations. If they are solvent (i.e. can meet its obligations), there is no benefit to being the first in line when the bank opens back up so no run takes place. If it is insolvent, they will have to liquidate assets and pay each customer a fraction of debt claims. There is no need to run in this situation as there is no fear of ending up in the "back of the line."

2. Unlimited Liability Shareholders
If some shareholders have unlimited liability, there is no need to run. Those at the "back of the line" would be compensated by unlimited liability shareholders. So there is no reason to form a line.

3. Federal Deposit Insurance
The reasoning here is the same as #2 above. The difference is that it encourages shareholders to engage in riskier behavior, as they will not have to foot the bill if the bank fails.

4. Make debt claims equity claims.
The reasoning here is similar to that of suspension of payments by an insolvent bank. Rather than holding debt claims, customers have equity claims. And the price of an equity share fluctuates on the open market. So if the value of the claim falls, it does so across all shares simultaneously. Again, there is no "back of the line" so no one runs.

Money market mutual funds--where individuals hold equity claims--should be run-proof. Why then did the US Treasury Department guarantee MMMFs in September 2008?

The temporary guarantee program provides coverage to shareholders for amounts that they held in participating money market funds as of the close of business on September 19, 2008. The guarantee will be triggered if a participating fund's net asset value falls below $0.995, commonly referred to as breaking the buck.

The program is designed to address temporary dislocations in credit markets.

In other words, the government provided deposit insurance--which is typically justified as preventing runs--on run-proof deposits. Does anyone know another reason to insure equity claims?

Why You Should Study Economics Before Mountain Climbing

Props to the Slate interviewer (bold) of prominent climbing expert Ed Viesturs (italics), on the biggest mistake of his climbing career:

What kept you from acting on your knowledge that it was a mistake?

You know, I was so torn. Part of me was thinking, "Is this really as bad as I think it is?" Here you've spent two and a half months of your life trying to achieve a goal, and you're within 1,000 feet of getting to the top, and it's one of the worst times to have to make these choices. You think, "Arrrrghhhhh, you know, if I turn around right now, we'll have to go home, we've spent all this time and energy, and we won't have made it to the summit." So that's pulling me in one way, and then the other way is going, "Jeez, Ed, it's going to be terrible, just turn around, just go down."

But you didn't.

No. I kept saying, "Well, let me go on for another 15 minutes and then I'll decide." And then after 15 minutes I'd say, "Let me go on another 15 minutes and then I'll decide." And I just couldn't make a decision, and I put it off so long that I got to the top.

Economists call that sunk costs—when you've poured so much money or effort into something that it's hard to extricate yourself, even when you should.

Right! I can see that. In fact, I've seen it many times. And I'd always thought, it doesn't matter how long you've been there, how much money you've spent, how much energy you've expended. If the situation isn't good, go down. The mountain's always going to be there. You can always go back.

Blockquoting X

X = Laurence J. Kotlikoff, from his new book Jimmy Stewart is Dead:

Is the U.S. Bankrupt? Bankruptcy is always in the eyes of the creditor. And there are clearly people and countries continuing to voluntarily lend the U.S. government money at what appear to be absurdly low rates. But I'm not one of them because my answer to this question is a firm yes. Given the magnitude of our fiscal gap, our country is absolutely and desperately broke. We were broke before the financial crisis hit, and we are now in much worse shape given the vast sums we've spent trying to save Main Street from Wall Street (p. 78).

Notice of Roster Change

Notice at the right of the screen, Emily Schaeffer is now Emily Skarbek.

Congratulations, you two!!!

Property Rights for the Poor: Effects of Land Titling

By Sebastian Galiani and Ernesto Schargrodsky, forthcoming in JPE (ungated):

Secure property rights are considered a key determinant of economic development. The evaluation of the causal effects of property rights, however, is a difficult task as their allocation is typically endogenous. To overcome this identification problem, we exploit a natural experiment in the allocation of land titles. In 1981, squatters occupied a piece of land in a poor suburban area of Buenos Aires. In 1984, a law was passed expropriating the former owners’ land to entitle the occupants. Some original owners accepted the government compensation, while others disputed the compensation payment in the slow Argentine courts. These different decisions by the former owners generated an exogenous allocation of property rights across squatters. Using data from two surveys performed in 2003 and 2007, we find that entitled families substantially increased housing investment, reduced household size, and enhanced the education of their children relative to the control group. These effects, however, did not take place through improvements in access to credit. Our results suggest that land titling can be an important tool for poverty reduction, albeit not through the shortcut of credit access, but through the slow channel of increased physical and human capital investment, which should help to reduce poverty in the future generations.

Assorted thoughts

1. I noticed this yesterday on ESPN: "NBA gets an 'A' for diversity"

Sounds kinda like Justin's favorite practice-- measuring income inequality! And how do we measure diversity? The underlying idea behind grading diversity comes from The Institute for Diversity and Ethics in Sport's grading scale for all sports (see page 15):

"Grades for race are determined in relation to overall American demographics. Federal affirmative action policies state that a workplace should reflect the percentages of people in different racial groups, as found in the general population. Approximately 24 percent of the U.S. population are people of color; therefore, if 24 percent of an organization’s employees are people of color, the group received an employment grade of “A” for race, and so on..."

If you feel measuring diversity is important, that seems like a decent way of doing so. I suppose perfect diversity would be equal percentages of all groups, but normalizing it the underlying demographics seems reasonable. But here's their comment on the NBA's player pool (see page 4):

"In the NBA, 82 percent of the players were people of color, the same as last year, tied for the highest percentage of players of color since the 1994‐95 season. The percentage of African‐American players remained at 77 percent since last year’s Racial and Gender Report Card. This was the highest percentage of African‐American players since the 2001‐02 season.

In the NBA’s 2009‐10 season, 18 percent were white and three percent were Latino. This was again the lowest percentage of white players since the 1994‐95 season. Asians comprised one percent of NBA rosters, and an additional one percent of players are people of color categorized as “other.” The percentage of Latino players remained the same as the last three seasons (three percent) while the percentage of white players decreased from 20 percent in the 2007‐08 season.

Eighteen percent of the players were international, which was the same as the 2008‐09 season.

NBA Grade for Players:
Race: A+"

So in sum: The goal is to provide the best grades for those leagues that best match the underlying demographics of the United States. 82 percent of the NBA's players are of color; rough estimates put the underlying U.S. percentage at ten to fifteen percent. Eighteen percent of the NBA's players were white; rough estimates put the underlying U.S. percentage at 65 to 75 percent. Asians are one percent of the NBA and roughly 5% of the U.S. population. Latinos are 3% of the NBA and roughly 15% of the U.S. population.

I wonder which part of that produces an A+ grade.

2. I got through most of Numbers Rule: The Vexing Mathematics of Democracy, from Plato to the Present on a couple of flights recently; it's very accessible and would make a great supplement (pick and choose what you like) for an undergraduate Public Economics class. It gets at the difficulties raised by what I believe to be the overarching issue of public economics: We live in societies and thus need to make some decisions as a group. How should we do that?

There's also a great chapter on the political economy of choosing the appropriate system to distribute seats in the House of Representatives.

Juicing the Mitchell: Almost Perfect Games Edition

If you're a baseball fan, chances are you've heard about yesterday's Detroit/Cleveland game. Here's the game's recap; additional commentary is not lacking if you so desire it. While I personally don't think it's terribly hard to understand why he called him safe (while the batter was out, there were three things for the umpire to look at during a closer-than-commentators-want-to-admit play), and moreover, it would be a horrible idea to reverse the call (no logically sound reason would exist for not changing any future play once the precedent of changing outcomes is set), that's not the point of this post.

Longtime TPS stalwart Rob Holub points us to yet another legislative Pareto-improvement-- making sure things like this don't ever happen again! (Emphasis is mine.)

"Michigan Gov. Jennifer Granholm, a Democrat, issued the proclamation and said on a radio interview that Mr. Galarraga "was robbed." Meanwhile, Michigan Sen. Debbie Stabenow, also a Democrat, urged Mr. Selig to invoke the "Best Interests of the Game" clause to declare Mr. Galarraga's performance perfect, and Democratic Rep. John Dingell says he'd introduce a congressional resolution asking MLB to overturn the call."

Will, when it comes time to enter the academic job market, there better be a mention of you being the father of "Juicing the Mitchell" somewhere in your job application packet.

Winner's Curse or Delaying Recalculation?

When I first, saw this article about the local highway construction, my first thought was "winner's curse":

The Indiana Department of Transportation has awarded Milestone Contractors -- whose bid was $3 million less than the second nearest bidder -- the contract for the 45/46 bypass expansion project in Bloomington. But some area contractors are wondering just how Milestone’s bid could be so low.

However, the article has several interviews that suggest that many contractors are intentionally going below cost in an effort to retain good employees until the recession passes:

“We surveyed our members in late December, early January and 10 percent of them told us that they were actually bidding projects below cost,” Turmail said. “In other words we call that buying work where they’re willing to take a loss on the work simply to keep their teams together and busy.”

[...]

“If you have good construction workers that you can rely on you absolutely want to do everything you can to keep them on staff because ultimately the success of the contractors is based on being able to get the job done right the first time.”

If you stick around to the end of the story, however, the winning company thinks that they believe the state engineer systematically overestimates the true cost of projects by 25-30 percent, so that they expect to turn a profit on their bid-price. A couple of remaining thoughts:

1. For students, when does it make sense to undertake a project despite an expected loss? i.e. What are the relevant costs to this decision?
2. I know there is a literature on the state revenue forecaster rationality/bias, but is there one on state engineer cost estimates? This would be a much more difficult question to address, but one that might make an interesting dissertation for some enterprising doctoral student with interests in public choice and industrial organization.

Juicing the Mitchell in Peru

Members of Congress in Peru dance to Thriller for Keiko Fujimori's birthday (links to spanish, but Google translates). The video is hilarious.



Imagine the time that went into that choreography. And, frankly, I cannot think of a better use of their time.

It's somewhat ironic that they mixed in a few lines from "Jailhouse Rock." Recall that Keiko's father, former President Alberto Fujimori, is currently incarcerated for corruption and human rights abuses.

[HT: Astrid]

NYT Editors Should Read Bob Higgs

As Art Carden points out, this NYT Editorial suggest "we have work to do."

It was government that rescued the economy from the Depression and promoted safety and equality in the workplace.

Perhaps the fine folks at the Independent Institute could send the editorial staff a copy of Higgs' Depression, War, and Cold War.

Theories of Jupiter Cloud Belt Disappearance

On Facebook, Matt blames Earth's global warming for the disappearance of the Jupiter Cloud Belt. The data, however, makes me skeptical:

"The SEB fades at irregular intervals, most recently in 1973-75, 1989-90, 1993, 2007, 2010," said John Rogers, director of the British Astronomical Association's Jupiter Section. "The 2007 fading was terminated rather early, but in the other years, the SEB was almost absent, as at present."

Contra Matt, I would point to the fact that three of the first four SEB fades occurred during the year of a NBER business cycle peak: 1973, 1990, and 2007. Whether the Jupiter cloud belt is a lagging or leading indicator, I cannot be sure. Regardless, I think the writing is on the wall (er, Jupiter atmosphere) that we are about to experience a double-dip recession.

Less-than-Blockquoting X

It's time for me to pull my best Will Luther and provide a quote for guessing!

Given the evolution of macroeconomics over the years-- and especially in light of Hayek's Nobel Prize speech-- I was pleased to read the following:

“Not everything that can be counted counts, and not everything that counts can be counted.”

Author below the fold.

+/-

Albert Einstein.

Economic freedom, culture, and growth

TPS Blogger Claudia Williamson with Rachel Mathers, at Public Choice:

How do economic freedom and culture impact economic growth? This paper argues that culture, as measured by the World Values Surveys, and economic institutions associated with economic freedom are both independently important for economic prosperity, but the strength of their impact can be better understood only when both are included in the growth regression. Our results indicate that economic freedom is more important than culture for growth outcomes, suggesting substitutability between the two. We posit that culture is important for growth when economic freedom is absent, diminishing in significance once economic freedom is established.

The War on Duh

In this article from the AP, former U.S. drug czar John Walters says of the War on Drugs:

Walters insists society would be far worse today if there had been no War on Drugs. Drug abuse peaked nationally in 1979 and, despite fluctuations, remains below those levels, he says.

It's true. If you look at the past 40 years of drug abuse data, identify the year in which the maximum observation occurs, it turns out every other year will be less than that. Well done, sir, well done.

Want to Trade Your Water? Here's How It's Done In California!

Just follow the water decision tree!!
Can be found as Figure 1 here. Click to enlarge.

The Private Provision of Public Goods: The Bones of Santa Claus

From Time:

In 1087, the Italian town of Bari hired men — some accounts call them pirates while others refer to them as "privileged mariners" — to steal St. Nicholas from Myra, a town in present-day Turkey. The theft of Santa's bones is still celebrated in Bari with an annual parade and fireworks.

According to this website, this project was launched as a joint venture organized by private merchants and a Bari church. It also says that the church double crossed the pirates and never paid them. They overcame the free-rider problem nonetheless.

Weather Forecasts

A colleague of mine, Antony Davies, sends along this information about Pittsburgh's upcoming weather:

Weatherbug says the prob of rain from 9:00 to midnight is 96%.
Weather.com says the prob of rain from 9:00 to midnight is 10%.

I've always thought that weather forecasts were biased towards poorer weather-- if there's to be error, you'd rather it in that direction-- but that is a remarkable spread.

Does anyone know of any systematic studies on weather forecasts and bias?

Visa Concierge Service

Have you heard about this? This post by Sir John Hargrave is not only descriptive of the program, but also incredibly funny.

How many times have you been at a restaurant, arguing with your friends about which President was the fattest, or whether Kevin Bacon has ever done a nude scene? Now you don’t need to pull out your smartphone and Google it, you can just call Visa and have them look it up for you.

Having a Visa worker do your bidding: much classier than an iPhone.

Have any of you tried this service? I would love to hear more.

[HT: Astrid]

Very Good Sentences

From Megan McArdle, on the new Arizona Immigration Law:

I'd be a lot more sympathetic to this law, in fact, if it required the police to check the immigration status of every single person they pulled over, without any gauzy "reason to believe" fig leaf to cover up what's really going on.

Raise your hand if you think that law could have passed in Arizona.

My hand is down, by the way.

Blockquoting X

X = Lawrence H. White (@ 36:17).

So, one way to sum this up is to say that, in theory, there is no difference between monetary theory and practice. But in practice, there is. I guess that is true of most theories.

Funniest Thing I've Read All Day

From the comments section at Kids Prefer Cheese.

Has anyone EVER seen a cat skeleton in a tree?

The post is good too.

Blockquoting Who?

Following Will's game, guess who said this:

Every tax, however, is to the person who pays it a badge, not of slavery, but of liberty.

This one demonstrates the power of pulling quotes out of context. Answer in the comments.

The Bender Brewer Project

If you are looking to waste a little time, this website details how a Bender capable of brewing beer was built. A fun read, even if a waste of time.

Revenue Maximizing Parking Tickets

The economics of parking tickets have been on the mind recently as I received one a couple of weeks ago. Let's assume cities want to maximize the revenue gained from parking. This comes in two forms-- 1) metered/garage parking, where individuals pay up-front for the parking, and 2) issuing tickets for violations.

Of the garages that I've frequented, there's not too much of a story here. You either pay for a pass which allows you access or pay by the trip, which happens before or immediately after the parking is done. I don't see much non-compliance here-- it's not terribly difficult to enforce the arrangement. Revenue comes in from drivers, expenditures go out to workers, ticket machines, upkeep on the garage, etc. End of story.

Things get interesting with the meters, however. Revenue at the meters is a function of a number of things-- garage availability and price, price to park at the meter, price of the ticket for not paying the meter, and the probability of receiving a ticket for not paying the meter. In turn, the probability of receiving a ticket is a function of the number of people working to catch violators. Costs of such an arrangement are upkeep on meters, hiring people to collect the money, a court system to enforce the tickets and hear appeals, and, again, hiring individuals to enforce the arrangement and catch violators. The number of people hired to catch violators comes in on both revenue and costs-- this leads me to believe that there's an optimal number of people to hire.

Appeals are costly and are a function of the price of the ticket. I got uncountable $5 parking tickets in Morgantown; why appeal? If those were $5000 parking tickets, every single ticket would likely be appealed. Naturally, the city make more money by increasing ticket prices, but only to a point.

I'm curious about the optimal mix of parking meters and garages. It should also be noted that most (all?) private parking arrangements are done without meters; I think this is important to consider and makes me think that a best case scenario does not involve meters. Then again, cities don't have the full spectrum of options at their disposal-- they can't have unlimited garages due to space constraints, and along similar lines, there isn't infinite space for parking meters.

So the questions, then: What is the optimal ticket price? What is the optimal meter price? What is the optimal garage price? What is the optimal mix of garages and meters? What is the optimal number of people searching for meter violators? Is there an optimal number of appeals?

All are a function of local conditions and all matter in determining the others.

Blockquoting Who?

As suggested by co-blogger Matt, I offer a quote today as a challenge. Guess who said this:

It is not sufficient to contrast the imperfect adjustments of unfettered private enterprise with the best adjustments that economists in their studies can imagine. For we cannot expect that any State authority will attain, or even whole-heartedly seek, that ideal.

The answer is below the fold.+/-

Pigou, A.C. 1912. Wealth and Welfare. London: Macmillan, p. 248.

If this surprises you, check out Roger Backhouse and Steven Medema's working paper on Cambridge antecedents to Virginia and Chicago Political Economy. The authors provide a slew of quotes from Sidgwick, Marshall, and Pigou.

Juicing the Mitchell: Facebook Regulation

Sure are a lot of these lately. From Yahoo News:

Four U.S. senators want Facebook to make it easier for its more than 400 million users to protect their privacy as the website develops new outlets to share personal information.

[...]

Schumer sent a letter Sunday to the Federal Trade Commission calling for regulators to draw up clearer privacy guidelines for Facebook and other Internet social networks to follow.

Hat Tip: Todd Nesbit

Do As I Say, Not as I Text

Source:

Fiddling with your iPhone behind the wheel can get you fined across much of the nation. But many states are more than happy to tweet you with up-to-the-minute directions on how to steer clear of a traffic jam.

[...]

At least 22 states that ban texting while driving offer some type of service that allows motorists to get information about traffic tie-ups, road conditions or emergencies via Twitter.

Is Starbucks the Next Bailout??

Exhibit A:

Regulatory Capture in The Science of Success

I've been enjoying playoff hockey, the Smuttynose Brewing Company and The Science of Success this afternoon. Charles Koch presents his managerial ideas in a straight-forward manner, and it's a relaxing read. Though I was particularly intrigued by this (unintentional?) reference to the capture theory of regulation:

But, even when faced with laws we think are counter-productive, we must first comply. Only then, from a credible position, can we enter into a dialogue with regulatory agencies to demonstrate alternatives that are more beneficial.

From The Old Farmer's Almanac

Courtesy my colleague's door:

If Patrick Henry thought taxation without representation was bad, he should see how bad it is with representation.

China Begins Forced Sterilization of Citizens

Story from the Telegraph. Like KipEsquire, I wonder what Tom Friedman's reaction is and if he would continue viewing them as being run by enlightened elites. Excerpts from the story:

Family planning authorities in Puning, a city in the southern province of Guangdong, have detained more than 1,300 people in the drive, the Nanfang Countryside Daily said in an investigative report.

Those detained included parents who refused to undergo the surgical procedure and their "relatives", the report said.

[...]

Huang Ruifeng, a 64-year-old father of three, said he was contacted by a local official ordering him or his wife to have the surgical procedure, the Nanfang newspaper said.

Mr Huang refused, claiming he was too busy. Later his father was taken away.

Authorities said they were using "extraordinary measures" to encourage couples to undergo sterilisation, such as refusing to provide the children proper registration documents.

The move effectively denies the children access to public services such as health insurance and free schooling.

Circumventing International Recognition

In 1991 Somaliland declared independence from Somalia. Unlike the rest of Somalia, Somaliland has managed to establish a degree of peace in the time since. It prints it's own currency, the Somaliland shilling, and issues passports. The problem: Somaliland is not recognized by the international community. The solution:

At various roadside junctions in central Hargeisa currency vendors sit at battered metal containers piled high with brick-size wedges of Somaliland shillings, US dollars and Euros. Wedged into these stacks of cash are Somali passports.

“We sell these passports because our government is not recognised, so if we want to do business outside Somaliland we have to use this document”, 26 year old Hussein told me flicking through the front pages of a pristine Somali passport. Adding ones details is no sweat – simply glue a photo over the box that says ‘picture’ and fill in your details by hand. A minister’s signature is required from Mogadishu – if indeed there is a Minister of Immigration -but that is easily circumvented.

“We just forge the signature”, Hussein said nonchalantly.

“And the Somaliland officials turn a blind eye?” I asked. “Of course they do”, smiled Hussein, “They have to travel on these passports too”.

Anyone interested in traveling to the horn of Africa?

Selgin on Free Banking

The Daily Bell interviews George Selgin.

The fundamental reason why central banks, which are essentially mercantilist institutions, survive today is because they have managed to secure economists' blessing. This blessing in turn reflects economists' tendency to treat monetary instability as a problem inherent to free markets, which only central banking can address, instead of seeing central banks themselves as a principle source of monetary instability, as they might were they to study monetary history more carefully than most do. Consequently economists have come to apologize for government currency monopolies, despite having long condemned such monopolies in other realms, and for good reasons.

Juicing the Mitchell: Birther Conspiracy Edition

From CNN:

White House aides are scoffing at a move in the Arizona legislature to force President Obama to show his birth certificate to get on the state's ballot in 2012 for his likely re-election battle.

"This is a question that has been answered exhaustively," White House spokesman Bill Burton told CNN. "I can't imagine Arizona voters think their tax dollars are well served by a legislature that is less focused on their lives than in fringe right-wing radio conspiracy theories."

Actually, I do believe I will be better served by a legislature that is less focused on my life. If that means focusing on any number of trivial pursuits, then so be it.

What is Inflation?

Christopher Pang asks (and answers) that question. This line stuck out:

The latest country to fall to hyperinflation was Zimbabwe, where inflation rate reported to be at 89.7 sextillion (10^21) percent in 2008, about 14% increase in prices daily.

Ouch. I didn't even know 'sextillion' was a unit.

[HT: Astrid]

Tax Day Tea Party Talk

I was invited to speak at San Jose’s Tax Day Tea Party event last week, and since Justin linked to the short news clip about it, I thought I’d post my remarks. The take away of my argument is that economic freedom is the key to growth. Of course, a speech at a political rally is necessarily less precise than a scholarly article, but I draw heavily on evidence found in Andre Shleifer’s paper “The Age of Milton Friedman”, arguments in Peter Leeson’s piece “Two Cheers for Capitalism?”, and various other sources. It was an enjoyable experience talking to a larger group than I’m accustomed to (700-900 people according to one news source), and I hope that I was able to persuade some of them of the merits of economic liberty. The full speech is below the fold. Enjoy.

+/-

Recent events and the words of our politicians have popularized the idea that while markets can be important to economic growth and prosperity, they can also undermine it. It is fashionable to give a nod to the forces of entrepreneurship but in the same breath assert that the power of markets must be tamed by regulation. It is complacently accepted that somehow, these regulators – the men and women in Washington -- know what’s best for American consumers.

When the current administration talks of entrepreneurship, they speak of politically favored businesses and privileged recipients of the taxpayers’ dollars. To be clear, that is not entrepreneurship. It has become conventional to say that those who openly embrace capitalism, free markets and free trade are dogmatic, ideologues, idealistic, or market fundamentalists. And if you look to the media and our leaders, you get the impression that being in favor of free markets it somehow an unreasonable position.

Unless one is ashamed of unprecedented increases in income, rising life expectancy, greater education, and more political freedom, there is no reason to be a fair-weather fan of capitalism. Sprawling free markets in countries that became more capitalist over the last 25 years have meant many more people enjoy improvements in well being and opportunities to advance human capabilities.

There is no evidence that countries that eschewed freer markets and embraced substantially greater state control performed better on any of these major indicators. On the contrary, those countries that adopt increased taxation, increased regulation, fiscal mismanagement and enormous public debt have performed demonstrably worse.

From a global perspective, we have witnessed remarkable progress of mankind through the increased acceptance of free market policies in both rich and poor countries. Before the industrial revolution, 80% of the world’s population lived in abject poverty. By 1980, that number has fallen to 34.8% and by 2000, less than 20% of the population lives on less than $1 a day. In five years, the number is expected to fall to 10% if free trade is allowed to flourish.

In just the past 25 years increased private ownership, increased free trade, and lower taxes all came at the hands of politicians like Deng Xiao Ping in China, Margaret Thatcher in England, and Ronald Regan in United States. In the years following the adoption of these policies by these global leaders, per capita income nearly doubled from 1980 to 2005; Tariffs fell and trade increased; Schooling and life expectancy grew rapidly, while infant mortality and poverty fell just as fast.

In the average country that became more capitalist over the last 25 years, the average citizen gained a 43% increase in income, nearly half a decade in life expectancy, and a 2 year increase in the average years of schooling. In my lifetime alone, freer markets have improved the lives of billions of people from all walks of life.

When we look back at our own history, the tremendous economic growth that Americans experienced from the time of the original Tea Party up to 1914 was the result of economic freedom from government regulation, open boarders for free immigration, and very few trade restrictions on the global flow of goods, services, and capital. Anyone could get on a boat, land on Ellis Island and become an immigrant and this benefited both domestic Americans and the immigrant alike. Business and labor were free to be entrepreneurial – and entrepreneurship created wealth. But we don’t want wealth for wealth’s sake. Wealth allows for the improvement of the human condition.

For example, in 1905, our average life expectancy in the U.S. was 47. Today it is 78. A hundred years ago only 14% of homes had a bathtub; 8% had a phone; 95% of all births took place at home; most women washed their hair once a month; and the average worker made about $300 per year.

As recent as 1984, it took the average American wage earner 456 hours of labor to earn enough to purchase a cellphone. Today, it takes the average American 4 hours. A computer has fallen from costing 435 hours of labor to less than 20. None of this accounts for the tremendous improvements in technological capacity. There are several reasons that the costs of goods have dropped so drastically, but perhaps the biggest is increased international trade.

Simply put, the free market means the poor are less poor. Globalization extends and deepens a capitalist system that has for generations been lifting American living standards — for high-income households, of course, but for low-income ones as well. When the world embraces free market reforms, the world economy expanded greatly, the quality of life improves sharply for billions of people, and dire poverty was substantially scaled back. This is not a coincidence.
It is a well-established fact that when people are free to buy from, sell to, and invest with one another as they choose, they can achieve far more than when governments attempt to control economic decisions. Widening the circle of people with whom we transact—including across political borders—brings benefits to consumers in the form of lower prices, greater variety, and better quality, and it allows companies to reap the benefits of innovation, specialization, and economies of scale that larger markets bring. Free markets are essential to prosperity, and expanding free markets as much as possible enhances that prosperity.

Voluntary economic exchange is inherently fair and does not justify government intervention. When two free people come together on terms they have agreed upon to exchange peacefully, both benefit. Government intervention in voluntary economic exchange on behalf of some citizens at the expense of others is inherently unfair. One person is coerced in order to privilege another. It really is that simple.

When goods, services, labor and capital flow freely across U.S. borders, Americans can take full advantage of the opportunities of the international marketplace. They can buy the best or least expensive goods and services the world has to offer; they can sell to the most promising markets; they can choose among the best investment opportunities; and they can tap into the worldwide pool of capital. Study after study has shown that countries that are more open to the global economy grow faster and achieve higher incomes than those that are relatively closed. This is capitalism.

Growth is not guaranteed. It seems obvious that the central challenges facing America have to do with the with predatory regulatory and tax policies conducted by governments domestic and abroad. From an economic perspective, then, the case for unilateral trade liberalization—that is reducing our own trade barriers and subsidies without preconditions or reciprocal commitments from other countries—is the best policy to promote peace and prosperity globally.

Politically, however, the concentrated and organized beneficiaries of protectionism are powerful relative to the much larger, disorganized, beneficiaries of free trade. Politicians tend to be most responsive to the loudest interest groups and are therefore inclined to view free trade unfavorably. But we as Americans must be clear – capitalism is not evil. It has done more good for more people than any acts of state, any stimulus spending, any health program or welfare initiative. Americans can no longer afford to fear freedom.

Finally, acknowledging the relationship between free markets and economic prosperity does not make someone “dogmatic”. It is unreasonable to continue to ignore these facts. Capitalism’s superiority for economic growth and development deserves the unqualified support of everyone who believe that wealth is better than poverty, life is better than death, and liberty is better than oppression.

Residents Refuse FEMA Buy Out

From the AP here. It seems that residents in flood-prone areas prefer the status quo of other people paying for their costs of living in a flood zone, as opposed to accepting a payment to live somewhere else.

I'm fine with people who knowingly wish to remain in flood prone areas, but this highlights the dynamic problems of getting the government in the business of this particular type of bail out.

The Historical Complexity of Federal Public Finance

For whatever reason, this morning I found myself looking at this old handout from Russ Sobel's public choice course that compares government receipts and expenditures in the late 18th century with that of the mid-1870's. I thought I'd share it here, not so much to make any broader point, but rather as some eye candy.

Looking at it in piecemeal, starting with the 1790's:

What is interesting is just how simple it all is. Expenditures are primarily devoted towards expenditures on military/national defense, as well as interest on debt. There are 3 categories for revenue (customs, excise, and direct). Now, looking at 1866-1879 expenditures:
The expenditure categories are still very basic and focus on military and interest on debt. The category "Indians" now appears, and my guess is that this is basically a military expense as well. The "Miscellaneous" category is further broken down, and it appears to mostly consist of administrative expenses in taxation, "postal deficiency" (?? Too good to be true, there must be a different meaning here), the provision of lighthouses, printing money, and public buildings (to some extent, another administrative expense).

Now, the revenue side:
So, revenue sources appear to have grown in categories, but my guess is that this reflects changes in the economy over the ensuing century and improved administrative infrastructure more than anything else. It does appear, however, that revenue collection became more complex at a faster rate than expenditure patterns over the inaugural century. Is there a reason we should expect this? My guess is that this reversed after the Great Depression, but I wonder what it would have looked like in the 1920's.

Here is the webpage devoted to modern government revenue and expenditure categorization.

Emily Schaeffer on Greater Freedom

Fellow TPS blogger asks (starting about 1:07) Tea Party attendees to support more open border (trade and immigration) policies:

Blockquoting X

X = Brennan and Buchanan, The Reason of Rules (p. 45):

The jury, as an institution, is an instrument designed to fascilitate the discovery process. If it is efficient, as an institution, it may be the best available means of ascertaining judgements of guilt or innocence in situations in which one or the other of these verdicts is socially required.

Today's Juicing the Mitchell

I wholeheartedly encourage Congress to investigate fully the pandemic of smokeless tobacco use in Major League Baseball.

Public Safety through Private Action

From the NBER:

Given the central role of private individuals and firms in determining the effectiveness of the criminal justice system, and the quality and availability of criminal opportunities, private actions arguably deserve a central role in the analysis of crime and crime prevention policy. But the leading scholarly commentaries on the crime drop during the 1990s have largely ignored the role of the private sector, as have policymakers. Among the potentially relevant trends: growing reporting rates (documented in this paper); the growing sophistication and use of alarms, monitoring equipment and locks; the considerable increase in the employment of private security guards; and the decline in the use of cash. Private actions of this sort have the potential to both reduce crime rates and reduce arrests and imprisonment. Well-designed regulations and programs can encourage effective private action.

One creative method to harness private action to cost-effective crime control is the creation of business improvement districts (BIDs). Our quasi-experimental analysis of Los Angeles BIDs demonstrates that the social benefits of BID expenditures on security are a large multiple (about 20) of the private expenditures. Creation and operation of effective BIDs requires a legal infrastructure that helps neighborhoods solve the collective action problem.

What I've Been Reading

So the recent trip to Vegas for APEE and tonight's Penguins playoff game have allowed me to get through most of Hirschman's The Passions and the Interests. I was debating using it as supplementary reading for my Micro Principles class in the fall but I think I'll pass, though it would be a solid book for a history/moral foundations of capitalism class.

The following is the epigraph (translated) and sums it up nicely:

And it is fortunate for men to be in a situation in which, though their passions may prompt them to be wicked, they have nevertheless an interest in not being so.

I'm drawn to the idea of the interplay between economic interests and political interests; oftentimes we think of the latter harming the former, but this book explores the interaction going the other direction. It's a hidden virtue of capitalism that seems to have been lost, as the author argues, around the time of Adam Smith.

iPad Middlemen

CNN has a story today on the value of middlemen to the iPad market in Hong Kong.

On Saturday, Leung and dozens of his friends stood in line at Apple stores around the San Francisco area. "We were limited to buy only two apiece," he said on Wednesday, toting a suitcase filled with iPads fresh off a plane from San Francisco and ready for resale on the streets of Hong Kong.

All told, he and his friends brought back about 200 iPads for sale in Hong Kong, where stores were selling them for as much as 60 percent higher than their $499 retail price.

Note also the individual looking to extend the process to China.

Libertarian Paternalism @ CATO Unbound

Glen Whitman has prompted an interesting exchange at Cato Unbound on Libertarian Paternalism. Richard Thaler replies:

Consider the following common problem. Most firms have an open enrollment period in November when employees can elect their benefit package for the following year. At my employer, the University of Chicago, you have a few weeks to log on to the appropriate web site and make your selections. The question is, what should the employer do for those employees who forget to log on? (Professors’ reputations for absent-mindedness are well deserved.) For each of the choices the employee has, the employer needs to select a default option for those who do not log on, and normally the default is either “same choice as last year” or “back to zero” (meaning, decline this option). At Chicago the default option for the health insurance plan is the same as last year.

Of course it is possible to criticize this choice of the default option, but it is essential to understand that the employer must choose something. Some employers use “back to zero,” which minimizes the costs to the employer; somewhat less drastic would be to default employees into the plan that is cheapest for the employer; one could even choose a default plan at random (don’t laugh — this is the strategy used for some participants in the Medicare Part D prescription drug coverage implemented by the Bush administration); or the employer could somehow force employees to make a choice. The Nudge philosophy here is that the person who designs the plan, whom we call the choice architect, should choose the default that she thinks, all things considered, will make the participants best off. Does Professor Whitman have a better suggestion?

It's hard NOT to support this version of Libertarian Paternalism (of course, I'd prefer the choice architect be a private entity). If a default must be set, one should (in my normative opinion--and apparently Thaler's and others') set the default to what would most likely make the participant best off.

It seems, however, that this is a very narrow subset of the LibPat agenda. Typically, the government (not the employer) is the choice architect. And when the employer IS the choice architect (say in that cafeteria/fruit example) the government intervenes as supreme default-setter. Nudging is transformed from an ethical guideline that individuals should employ to a government mandated policy. Yet Thaler and others continue to present the very narrow subset of LibPat as the whole agenda. Is my perception of the debate correct? Or have I missed something?

Yardstick Competition in School District Income Tax Adoption

Joshua Hall and I now have a paper (ungated here) forthcoming in Public Finance Review, titled "Tiebout Competition, Yardstick Competition, and Tax Instrument Choice: Evidence from Ohio School Districts." Those interested in spatial econometric applications and interpretations in public finance settings might find this to be of particular interest. Here is the abstract:

Previous research has shown that Tiebout-style fiscal competition among local governments reduces the likelihood of adopting income taxes. This literature has not yet considered the impact of yardstick competition on tax instrument choice. This paper employs spatial econometrics to test for yardstick competition in the decision to adopt an income tax. The results, based on Ohio school district data, indicate that school districts are more likely to adopt an income tax if their neighbors have already done so. While a negative correlation of Tiebout competition on district income tax adoption persists, controlling for spatial dependence reduces the statistical significance of the effect.

Onion Nails Levitt-style Thinking

From The Onion:

A University of Chicago freakonomics professor told General Electric investors Monday to keep a close eye on recent fluctuations in the heights of competitive powerlifters from Mexico. "Usually we can count on a stable average of 5 feet 8 inches, but last month's quarter-inch drop in height among Mexican dead-lift competitors in the middle-heavyweight division could spell disaster for GE's aviation and software subsidiaries," freakonomist James Duncan said. "But, like anything else, a shrewd investor must always ask himself one thing: How many hot dogs did I eat last year?" Duncan previously gained recognition for tracking first-time home ownership and teenage mothers' gum purchases against the Times Tom Jones Is Played Per Day Index.

[HT: Omar]

SPEArt

Once a year, SPEA holds a gala where students and faculty donate items to a silent auction. The funds are then used to provide scholarships to students. One of the items on the auction block this year was "SPEArt: An official artistic tribute," by Stefanie Mojonnier. I was very flattered to see that one of the two paintings was "a tribute to Justin Ross economics." Here it is:


Beer, nachos, and pretzels. TPS readers also might recognize the example.

I won the auction with a bid of $50, a bargain at twice the price!

Improvement through art

This is an interesting article concerning serving sizes in artist's representations of the Last Supper. Entrees, plates, bread-- it's all been growing over the last millennium. The implication that the super-sized fare is only of recent times, and all of the purported negativity that comes from that, isn't the case. But what simpler way to show the vast improvement in human life over the last 1000 years? As is noted at the end of the piece:

Instead, they suggest, it's a natural consequence of "dramatic socio-historic increases in the production, availability, safety, abundance and affordability of food" over the millennium that started in the year 1000 A.D.

Indeed.

Warning: Overpopulation Could Cause Tipping

Congressman Hank Johnson, Representing the 4th District of Georgia, is concerned that the island of Guam might "tip over and capsize." I am not making this up. Roll the tape.



It should be noted that Congressman Johnson has been battling Hepatitus C. From the AJC:

The Lithonia Democrat's already-thin frame has shed 30 pounds in the past year. His speech is slower than ever, and he regularly gets lost in thought in the middle of a discussion. He is easily fatigued and often impatient and irritable.
[...]
He was officially declared free of the virus in January, but it has ravaged his liver, resulted in thyroid problems and other health issues, including depression, for which he's also being treated. To keep the disease in remission, Johnson is going through an experimental treatment that he said has been the worst part so far.

It seems to me that Johnson is unfit to serve as Congressman. Rather than ousting him, though, I suggest a full scale investigation. What bills has he authored, supported, and voted for? How is his illness affecting other congressmen? What are his children doing these days? Let's get to the bottom of this!