This one's for Tom Johnson

We take requests here at TPS; as such, here are my thoughts on yesterday's WSJ piece against free trade:

The article focuses a lot (entirely?) on one side of the argument-- the costs to Americans. If the goal is to make "Americans" better, then you have to look at the costs and benefits to Americans and make a judgment. Americans losing jobs is a cost, but being able to produce goods and services cheaper is a benefit. It's an example of visible, condensed costs and very dispersed benefits-- and "300 million Americans paying $0.50 less for a t-shirt" isn't quite the newsworthy story that "5,000 Americans to lose their jobs" is.

It's not unlike the argument for the minimum wage. A family member plainly asked me over the weekend: Don't some people benefit from raising the minimum wage? Quite simply, the answer is probably yes. There are people that benefit from the minimum wage being increased. But that's not a reason to do it-- you need to look at both sides of the issue. If it's aimed at helping the working poor, are more of the working poor being hurt by the policy than helped on some margin? If it's aimed at income redistribution, are the working poor as a whole improving at the expense of the upper classes? It's a positive statement--not a normative one--on the means of formulating an actual argument and determining a policy's effect. Just because something has benefits is no reason to do it, and just because something has costs is no reason to refrain from doing it.

But back to the free trade issue-- it is also related to an issue first brought to my attention by Don Boudreaux in relation to international balance sheets and the irrelevance of trade deficits. Namely: Why look at the world in terms of countries? If we looked at the world in terms of a world economy, the idea of outsourcing immediately goes out the window. Instead, what we previously attributed to "outsourcing" is now the world becoming a richer place through a better allocation of productive resources. To adapt one of Boudreaux's analogies: If we divided the world into blondes, brunettes and redheads, would we have reason to fret if the blonde's jobs were being outsourced to the redheads?

"Retooling the American education system" is not the answer. Training Americans for jobs that are "likely" to remain in the United States is guesswork at best as to which jobs those will be-- not to mention the political processes involved in determining what those jobs would be. If "retooling" meant "eliminating the requirement of all American children to complete school through high school," I think that policy might have a bit more prospect for positive impact. After all, the U.S. could be completely eliminating a comparative advantage by requiring everyone to go to school through age 18...and if the goal is to get jobs within the U.S., then that would help achieve those ends.

"Retooling the tax code" involves all of the same guesswork and public choice issues as does the education issue.

"Free trade works" doesn't sell enough newspapers, I suppose.

Unleashing Capitalism

Russ Sobel, Josh Hall and I have recently edited a book concerning the institutional shortcomings of West Virginia, its role in our state's dismal economic performance, and what to do to make things better. It's called Unleashing Capitalism: Why Prosperity Stops at the West Virginia Border and How to Fix It. It is the first large-scale effort by the Public Policy Foundation of West Virginia, a group committed to "free enterprise, individual liberty, limited government and traditional American values." The book is entirely original research, with a number of contributions from current graduate students here at West Virginia University along with scholars outside of the state (William F. Shughart II, Edward J. Lopez, and Daniel S. Sutter, among others. The full list of authors is here.)

At its best, this book could lead not only to significant structural change in the Mountain State, but also provide a rubric by which other states could produce similar publications tailored to their particular circumstances.

To capitalism!

The Morgantown Heat!

I got pulled over yesterday on the way to school. Nothing major-- just a "friendly" 10-minute reminder that my front left headlight is out.

Fortunately, my roommate was with me at the time. While waiting for my license, registration and insurance to check out, I informed him of my theory that, ceteris paribus, drivers stand a much lesser chance of receiving a ticket when they have passengers in their car. The idea is that if it is one driver's word against one officer's word in a court of law, the State is likely to uphold the policeman's original claim. Should there be another passenger to vouch for the driver, the court now has two people claiming innocence. Knowing this, the officer doesn't waste his time writing a ticket and then having to go to court to potentially defend his actions. Again, ceteris paribus-- this isn't to say that no one ever gets tickets with other people in the car, nor that you can't get off with just a warning if you are by yourself. I just think you stand a better chance with some passengers in your car.

It's my personal experience that lead me to this idea-- I've got pulled over a handful of times over the years, and while the times that I've been pulled over are pretty evenly distributed between driving alone and driving with passengers, only once did I get a ticket while driving with a passenger (well-deserved, it should be noted), and only once did I not receive a ticket while driving by myself. A quick perusal of the Department of Economics here at WVU finds a roughly similar track record.

I'd love to see some data on this-- does anyone know what type of statistics police departments keep with regards to whom they pull over and the occupancy of the cars? Is any of this available?

Millionaires in your state

In need of a quick Econometrics paper? There's plenty to be done with this.

I think only Mississippi undercuts the Mountain State, but I only clicked on the light colored ones I could discern from the white background. (And why the avant-garde arrangement?) Also-- I wonder how much of an impact Wal-Mart has on Arkansas? Rate-wise, I think Hawaii is on top-- California, of course, dominates by sheer volume.

Edited: A classmate of mine from South Africa has informed me that The Perfect Substitute in Afrikaans is Die Perfekte Plaasvervanger. So, you know, TPS or DPP. Either way.

My Skarbek-esque post: Federalist 11

So I did last night what so many other Americans do every Friday night-- read the Federalist Papers. #11 caught my eye-- as did Hamilton's description of tariffs, trade and politics. He starts with the following hypothetical: "Suppose...we had a government in America capable of excluding Great Britain...from all of our ports; what would be the probable operation of this step upon her politics?" After stating that the arguments of the day posited little to no effect on Britain's policies, Hamilton lets fly this nugget:

"A mature consideration of the objects suggested by these questions will justify a belief that the real disadvantages to Great Britain from such a state of things, conspiring with the prepossessions of a great part of the nation in favor of the American trade and with the importunities of the West India islands, would produce a relaxation in her present system and would let us into the enjoyment of privileges in the markets of those islands and elsewhere, from which our trade would derive the most substantial benefits. Such a point gained from the British government, and which could not be expected without an equivalent in exemptions and immunities in our markets, would be likely to have a correspondent effect on the conduct of other nations, who would not be inclined to see themselves altogether supplanted in our trade."

Now, I'm not an expert on this period of history, but after reading over this I would presume that Britain had some sort of existing trade policy against the United States at the time; nonetheless, it's intriguing that the path to remedying the situation (in Hamilton's eyes) is to hammer Britain with our own trade-impeding policies. I'm reading this as saying that if we can hurt Britain bad enough, then we can convince them to reduce their trade policies and everything will end up peachy in the end.

It begs the question: Is Hamilton the first hippy? Is there any reason to believe, especially given the recent history at the time between Britain and the U.S., that an aggressive trade policy is going to lead to a greater degree of openness in the long run between the two nations? It's not to say that this situation couldn't happen-- but how could this be put forth as the deductive outcome?

Some other choice lines from Federalist 11...

Hamilton on his hopes for America in the world's economy:

"By a steady adherence to the Union, we may hope, erelong, to become the arbiter of Europe in America, and to be able to incline the balance of European competitions in this part of the world as our interest may dictate."

Hamilton on neutrality:

"The rights of neutrality will only be respected when they are defended by an adequate power. A nation, despicable by its weakness, forfeits even the privilege of being neutral."

(Wasn't Switzerland respected as neutral in World War II?)

Hamilton on the importance of military security:

"It would be in the power of the maritime nations, availing themselves of our universal impotence, to prescribe the conditions of our political existence; and as they have a common interest in being our carriers, and still more in preventing our being theirs, they would in all probability combine to embarrass our navigation in such a manner as would in effect destroy it and confine us to passive commerce."

Hamilton on the composition of foreign trade:

"The variety, not less than the value, of products for exportation contributes to the activity of foreign commerce. It can be conducted upon much better terms with a large number of materials of a given value than with a small number of materials of the same value, arising from the competitions of trade and from the fluctuations of markets."

An intriguing read.

Duel!

A classmate put forth this conundrum in my Public Choice class this morning:

Let's say you are in a three-way duel, and all three of you have a gun with an unlimited amount of bullets. Your two opponents hit with an accuracy of 90% and 80%, and you shoot with a success rate of 50%. Sequential shooting rules apply, and it's your turn. What do you do? He was convinced of a set course of action that would emerge in the short-run; I'm not entirely sold on the idea. I'm curious what everyone else thinks. I also think the far more interesting scenario is if everyone has to choose at once, instead of sequentially.

I then got to thinking about a more general scenario-- a three-way duel, and everyone in the group has one bullet. Accuracy rates would matter at the limit, but anything away from that and I think risk preference plays a bigger role. Even more so in a four-person duel with one bullet apiece-- accuracy matters at the limit, but now you've got risk preferences mixed in with group sanction effects, though group sanction exists only insofar as there is more than one period to make decisions (all-at-once decision making with the option of inaction).

The War on Drugs

Since every Wednesday is humor day at CNN.com, I figure to add in a thought or two concerning their chief comedian's column today concerning the War on Drugs. (It's capitalized now, because it's not a war unless you capitalize the name like you would for the title of an essay.)

One of my professors, Russell Sobel, has a great comment whenever this topic comes up: Couldn't you categorize a number of the "costs" of the War on Drugs (or any of a number of government social programs) as benefits? Dobbs notes that nearly 8,000 people are trying drugs every day-- that's a cost? Do you think the people trying them view it as a cost? It's like writing a piece on the tragedy of teenage driving deaths and saying that it's a cost that 5,000 new teenagers get a driver's license every day.

Dobbs also reports that illicit drug use costs the U.S. nearly $200 billion dollars per year. No word on the breakdown of that, but I'd bet a healthy share of it is due to the fact that the U.S. chooses to define certain drugs as illegal and needs to enforce that. Fair enough-- not that it's just, but it is a cost to the American taxpayer. But how come we never see estimates of the benefits of drugs? There is surplus in every black market deal, right? Despite the vast inefficiency and outright liberty-crushing War on Drugs, couldn't it be that drug use still generates a net gain to society? I know benefits estimates have been put forth, but I don't have links to any of them at the moment. Feel free to pass them along.

With regards to drugs and crime, yes, reducing drug use reduces crime because the government has defined drug use as a crime. If we defined wearing blue shirts as a crime, we'd have a lot of people committing that crime tomorrow. Once we started enforcing the law, people would substitute away from them. Yay-- we've reduced crime! People then point to crime indirectly related to drugs, such as assault, but there have been studies that have shown that the net impact of declaring drugs illegal has increased crime, not decreased it. After all, without a sound court system to enforce contract disputes in drug transactions, groups must provide their own enforcement.

And to give you a good sense of the excess burden of all of this: the War on Drugs Clock.

Your daily nonsense

From CNN:

"Even with exports growing, the deficit was a drag on the economy, as it meant that every man, woman and child spent an average of about $7,300 on imported goods and services during the year, turning to factories overseas rather than U.S. producers for the products they wanted."

Yeah.

Dictatorship rankings

It's time for Parade's dictatorship rankings again! The top two are the same from last year, though the third, Sayyid Ali Khamenei of Iran, jumped up to #3 from #9 only a year ago. New to the rankings: Choummaly Sayasone of Loas (at #16), Hosni Mubarak of Egypt (#18), Paul Biya of Cameroon (#19) and Vladimir Putin of Russia (at #20). The above link, if you scroll to the bottom of the page, has the previous rankings since they started them in 2003. There's certainly a paper to be had there.

As I pointed out last year, the U.S. has given money to nearly all of these rulers, which is interesting in that the U.S. likes to further the belief that they procure aid only in the support of democracy. Aid clearly doesn't work, but it's here to stay, so the question is how to improve upon the situation. Part of me thinks bribing dictators to incorporate good policies might work, but if the bribes get high enough, it could turn into a one-shot game that wouldn't lead to any sort of long-run well-being.

The Trump Money Drop

Perhaps more WWE fans will watch The Apprentice now.

But did the prices at the concession stands rise? And did those closest to the aisles secure the biggest benefit?

I wonder what percentage of the money was saved. Did local interest rates fall?

Someone should be tracking this.

Incentives Matter

One of my favorite examples of this basic economic concept is that drivers can be made more cautious by placing daggers in their steering wheels. It's a powerful example because everyone can relate. It also has symmetry, which allows one to draw out the implications for increasing safety in cars - namely that seat belts may actually lead to more accidents. (Economists Russ Sobel and Todd Nesbit have a great paper on Nascar that investigates this concept.)

This post is not intended to teach about incentives. I'm actually petitioning all of my loyal readers for their help. I originally heard this example attributed to Gordon Tullock, but I've seen other authors cited for this creative tale as well. I'm collecting a list of people who this example has been attributed to. So, if you know of any citations, please post them in the comments or email me.

Don't tread on me!

This world could use a few more Ed Browns. Here he is in his own words.

In short, Ed Brown doesn't want to pay property taxes, so he went ahead and stopped paying them, and now the government wants his money. He's currently holed up in his evidently self-sufficient property, and what he doesn't have he gets from supporters who come and visit him every day. Both sides insist that this won't turn into another Waco, but I can't see this having any middle ground ending-- either a) the government leaves him be, or b) the government goes in a forcefully takes him. Cordial daily conversations can't be the long term solution. Sadly, I bet the second option will happen-- it sets too much of a precedent to let one person off the hook.

(Though at worst, I don't think it would end up being on the scale of what happened at Waco.)

A few thoughts:

- Though this a federal issue, the New Hampshire state motto is "Live free or die."

- Some people say "stuff your sorries in a sack," others say "social justice"-- this article contributes "Of course, any group of libertarians has a thousand different opinions." Guesses as to what this could be getting at are encouraged.

- Was Gandhi a libertarian? I've heard that he wasn't, but I don't have a solid hold on that one. If he wasn't, then the "Gandhi-admiring protesters" are really missing the boat. Nice of them to make some campfires, though.

Logical Global Warming Initiatives?

As I wallow in the pure, undriven West Virginia snow for the last few days, and likely for the foreseeable future, I wonder: Where have all the global warming alarmists gone?

Here they are! And what's this-- market-based solutions?! The group is USCAP, and their report is called A Call to Action, which focuses on, basically, creating tradeable pollution vouchers and encouraging exchange, "generating a price signal resulting in market incentives that stimulate investment and innovation in the technologies that will be necessary to achieve our environmental goal." No really-- people that care about the environment wrote this! Don't let the logical nature of it throw you off.

From a press release from USCAP: "USCAP consists of market leaders Alcoa, BP America, Caterpillar, Duke Energy, DuPont, FPL Group, General Electric, Lehman Brothers, PG&E, and PNM Resources, along with four leading non-governmental organizations -- Environmental Defense, Natural Resources Defense Council, Pew Center on Global Climate Change, and World Resources Institute."

Of interest in the CNN article from above-- all four companies listed were down about the same percentage in the market today.

Irony

Here’s an ironic line from Thomas Friedman’s 1989 book, From Beirut to Jerusalem:

"In my day, Abdul was the fixer for both Newsweek and UPI Television News, and he was the most delightful and lovable operator I have ever known. His long career as a fixer finally came to an abrupt close in 1985, when Newsweek and UPITN sent to Beirut some bureaucratic-minded reporters who did not understand that in Wild West Beirut one does not hold to the accounting standards of Arthur Andersen."

Anyone have a working definition of "Social Justice?"

When it comes to frustrating things in life, not much tops arguing with someone over economic policies and that "social justice" needs to be considered. Can someone tell me what the hell that means? To me, when I hear that, I think of the conversation between Jerry and George when George continues to use the phrase "You can stuff your sorries in a sack, mister!" and Jerry finally gives up trying to figure out what he's trying to express. I've yet to get the same definition of "social justice" twice, and I've gotten the most satisfying answers from people who don't support any explicit goal of "social justice" in economic policy making. As far as I'm concerned, unless anything changes, whenever anyone writes about "social justice," quotation marks should be mandatory.

Ultimately, I think people are confusing "social justice" as a preferred ends instead of a preferred means. By definition, equality in means will yield equitable results. The definition of "equality" and "equitable" can be as elusive as "social justice," but taking a snapshot of a social outcome and claiming a violation of "social justice" is completely missing the boat.

Here's what Wikipedia has to say about it. I love the first sentence: "Social justice refers to conceptions of justice applied to an entire society." Beautiful in its explanatory power, that's what that sentence is.

Turns out that there's a Centre for Social Justice, with the beautifully socialist tagline of "Narrowing the gap in income, wealth and power."

Here's a fun piece concerning Hayek and "social justice."

Here's a group of Social Justice Scholars.

And for what it's worth, I've been told that Milton Friedman "didn't do enough for 'social justice.'"

Quote of the day: Thomas Sowell

"The next time somebody says that the government is forced to intervene in the economy to protect the poor, ask why the government is forcing taxpayers to subsidize municipal golf courses, the ballet, opera and - the biggest subsidy of all - surrounding affluent communities with vast amounts of expensive 'open space.'"

Cannon fodder

If you need some ammunition against your state, this is a good place to look, courtesy of Joab Corey.

I can't help but to get the feeling that some of these are fictitious; nonetheless, how is reading about laws against chickens laying eggs ever a bad thing?

Your state legislatures at work

New state laws!

Some of my favorites:

- Alaska moving to prevent bullying in schools. A victory in lunch money property rights!

- Nurses from other countries must pass an English language proficiency requirement to practice in South Carolina. (They also moved to stop harrassment and intimidation in schools.) A victory for American nurses AND lunch money property rights!

- Live music cover acts in Illinois must be clearly not representing themselves as the originals. (The pros and cons...) A victory for the Styx of the world!

And, of course, the typical minimum wage nonsense...

Country for sale!

Just when you think there's no place in this world to hedge out your own existence, there comes this gem of a story.

Here's the official Sealand website; here's the Wikipedia workup.

In a world of vast international waters, could an entrepreneur begin building micronations of all variations, size and institution, and then sell them off? It could be like Tiebout on a country-wide scale. I'm sure existing countries wouldn't prefer it (or at least not the fair traders, anyway...), but which one would take up the collective torch, incur the public relations nightmare to try and stop this from happening?

As a currency collector, I think a Sealand dollar may now top the list. I wonder if there are any plans for PayPal to add that currency to their collection in the near future...

Minority Report and the Hand Formula

Tom Cruise's sci-fi film Minority Report portrays a world where murders can be seen in advance and prevented. Thanks to the "pre-cogs" who make this possible, Washington D.C. of 2052 has not had a murder in six years. The only attempted murders to occur now are those taking place in the heat of passion, for intentional planning to murder is easily identified and stopped. Individuals are arrested by the Department of Pre-Crime and punished with many years in a comatose state.

It seems that the disturbing twist to this film is that individuals are punished for horrible crimes that they had yet to commit. Murder should be punished, but should people be punished who have yet to murder but surely would? The movie attempts to draw forth insights about free-will and punishment of people's thoughts rather than actions. The more I think about it, however, the more disturbing twist to the story is the failure to heed the Hand Formula.

The Hand Formula is a calculus of negligence:

"The Hand Formula finds negligence when the actor's burden (B) is less than the probability (p) of harm, multiplied by the degree of loss (L). B < pL ."

Thus the Hand Formula provides a guide for punishing crimes. To dissuade a particular crime, the legal system can manipulate either the punishment when apprehended or the probability of apprehension to set an appropriate price for committing the crime.

The basis of Minority Report is that that the probability of apprehension for murder is 100%. But if murders of passion are stopped before they occur 100% of the time, then the punishment should approach zero.

Perhaps what is disturbing about Minority Report are not the questions of free-will and cognition that it raises, but the deviation from rules of efficiency that the lengthy punishment respresents.

Imagine a world where "pre-cogs" stop murders 100% of the time and the "pre-criminals" are put in a "kill-tank" (similar to a drunk-tank) for the duration of a day. Is this disturbing? I think not. The rare instances in people's lives when they lose control are stopped before serious damage is done. Repeat offenders may be forced to attend therapy of some sort. Murder does not occur. This sounds like a nice society indeed.