Out of Control

If there was any silver lining to the global food price crisis, it was that countries around the world started tearing down long-standing trade barriers such as tariffs and quotas against food imports. But that silver lining proved short-lived as another threat to free trade emerged: export bans and export taxes on domestic food.

To return soaring food prices to earth and placate irate consumers (read: voters): India announced a temporary ban on some varieties of rice; China slapped export taxes on rice; Pakistan imposed a 35 percent duty on wheat; and Russia quadrupled wheat-export taxes to 40 percent.

But the problem with such measures is that the relief they provide will be temporary – and the pain they cause more enduring. Why? Farmers who can’t command the market price for their produce will have little incentive to invest in yield-enhancing technologies, making it much harder for food production to catch up with demand. Farmers will certainly lose out -- but so will consumers.

The only country that seems to understand this is South Africa which has refused to jump on the export-ban bandwagon. “We don’t believe banning exports will help us in the long run,” noted Lulu Xingwana, the South African agricultural minister.

Bonus:
Check out Noble laureate and Chicago econ prof Gary Becker's brilliant analysis of the Malthusian fallacies underlying the discussion of this issue here.

Reason Foundation's Sam Staley has an op-ed in today's Ohio's Times-Gazette on the state's proposed stimulus package. Sam writes, "Restoring Ohio's economic vitality will be difficult under the best of circumstances. But the solution is not in having state government pick winners and losers by rewarding favored, politically correct businesses over others not on their political radar screen. On the contrary, the key will be in creating a policy environment where broad-based entrepreneurship and business investment is welcomed and nurtured."

Despite the well documented and large benefits of free trade, Clinton and Obama each answered a questionaire from the Wisconsin Fair Trade Association making pretty explicit their intent to put an end to free trade. (See Clinton's responses here, Obama's here)

Both candidates committed to unwind NAFTA and CAFTA and to pppose free trade agreements with South Korea and Panama.

Both waffle on DOHA and Fast Track.

Tellingly, the comments provided by Clinton's campaign focus more on broad economic and inustrial policy issues. Obama is much more populist in his arguments and more centrally focused on labor protections.

I can already envision the wealth melting away if they deliver on these promises. . . . .

You could knock me down with a feather: New York's Democratic Governor Eliot Spitzer – a big government liberal best known for using dirty tactics to terrorize political opponents and company CEO’s – proposed a bold new plan to cap property taxes in his recent state-of-state address. The plan, which seeks to impose a "fair and effective cap" on school taxes in New York, is remarkable for two reasons: One, it has been proposed by a big government liberal. Two, it will drive teachers unions, a key Democratic constituency, totally bonkers. But the governor seems unfazed. He insists that though the cap is a “blunt instrument,” it is necessary to force “hard choices and discipline when nothing else works” to rein in wasteful spending by schools.

Ronald Reagan couldn't have said it better!

Read New York Post columnist, E.J. Mcmahon’s, take here: http://www.nypost.com/seven/01102008/postopinion/opedcolumnists/eliots_excellent_idea_804389.htm?page=2

If there is any doubt that global warming alarmism is turning into self-parody, the study reported below courtesy JunkScience.com should put it to rest. If it had been released on April 1, most would have dismissed it as an April Fools joke. But, no, these guys, both Michigan State University profs are dead serious. But the methodological flaw in this study is this: It did not take into account the environmental damage of staying in a hellacious relationship. Surely, the heart-ache, indigestion and consequent increase in flatulence could not be good for global climate!

Divorce, Global Warming-Style

JunkScience.com, December 3, 3007

Will lawyers soon be working out green divorces? They may need to since divorce causes global warming, according to a new study published Dec. 3 in the Proceedings of the National Academy of Sciences.

Michigan State University researchers Eunice Yu and Jianguo Liu report that divorce results in more households that use more water, energy and land resources and that generate more solid and liquid waste, including more greenhouse gases. The study was edited by Paul "Population Bomb" Ehrlich who, in 1967, predicted that the world was running out of food and that hundreds of millions would die of starvation as a result in the 1970s and 1980s.

Remarriage helps reduce environmental damage. "The results suggest that mitigating the impacts of resource-inefficient lifestyles such as divorce helps to achieve global environmental sustainability," the study concludes.

"The personal life is over," is what a Bolshevik apparatchik told Boris Pasternak's Dr. Zhivago. Soon we'll all be living for the Left's twisted idea of what's good for Comrade Earth -- that is, until someone comes up with a no-carbon divorce.

A radio ad aired by Rudy Giuliani in New Hampshire has unleashed a firestorm of protest by the media. In it, Giuliani, a prostate cancer survivor, thanks God that he was treated in the United State’s (semi-socialized) medical system where survival rates for this type of cancer are 82 percent – as opposed to the (fully) socialized medical system in Britain where survival rates are allegedly only 44 percent.

But a number of reporters and pundits have pounced on the stat like a jackal on a bunny (actually, make that an ant). Rick Klein of ABC News accuses Rudy of “fuzzy healthcare math.” Ezra Klein of CBS denounces the stat as a “straight lie resulting from a basic mathematical error.” Washington Post’s Eugene Robinson intones that this is precisely the kind of “cherry-picking” of data that has caused 160,000 US soldiers to be bogged down in Iraq.

My, my! So what exactly is the truth, according to these oracles?

Well, WaPo’s Michael Dobbs claims that mortality rates for prostate cancer in the United States and UK are the same: About 25 men out of 100,000 die of prostate cancer each year in the two countries. But that comparison hides more than it reveals.

Rudy’s claim was taken from an article in a 2007 issue of the City Journal by Dr. David Gratzer of the Manhattan Institute – and a contributor to Reason Roundtable – that were based on 2000 OECD data. Gratzer admits the figures are now outdated -- although it is curious as to why he used 2000 figures in a 2007 article (he does provide an answer of sorts in a New York Post article linked below.) But Gratzer points out that Dobb’s comparison is based on overall mortality rates. That is, the percentage of all Americans who die of prostate cancer is similar to the percentage of all Britons.

However, Gratzer, who is also Rudy's health care policy adviser, notes, that this comparison misses the point given that a much higher percentage of Americans are diagnosed with prostate cancer than Britons. And the latest figures from Lancet Oncology, a respected journal, show that the five-year survival rate of people diagnosed with prostate cancer is much higher in the U.S. (99 percent) than in Europe (78 percent) and Scotland and Wales (71 percent). Britain’s latest figures are not yet available.

Gratzer’s detractors such as Eugene Robinson of WaPo, however, counter that the higher prostate cancer diagnosis in the U.S. is not the result of higher incidence of cancer -- but of early screening and detection. And that discredits Rudy and Gratzer how? Because very often this type of cancer is non-lethal and its detection bumps up U.S. survival rates among patients diagnosed with prostate cancer even when they are not treated or treated inadequately. Get it?

But even if these pundits were right that the higher diagnosis of non-lethal prostate cancer does artificially boost the survival rate of U.S. patients, can it account for the entire 22-27 percent differential between U.S. and European survival rate that the Lancet study found? Highly unlikely.

The bottom-line is that Rudy’s accusers have no fool-proof evidence of willful mendacity on his part. Rudy might have over-stated his case (Isn’t that shocking: a politician overstating!). But they have certainly engaged in over-kill.

All of which raises this interesting question: Where were these pundits when Al Gore was going around making movies claiming that global warming would cause sea levels to rise by 20 feet, when, in reality, the UN’s Intergovernmental Panel on Climate Change put the figure at no more than two feet: a ten-fold exaggeration?

How do you spell d-o-u-b-l-e s-t-a-n-d-a-r-d?

David Gratzer's column in the New York Post taking on his critics here:
http://www.nypost.com/seven/11052007/postopinion/opedcolumnists/uks_bad_medicine_901295.htm?CMP=EMC-email_edition&DATE=11052007

WaPo's Eugene Robinson's commentary here:
http://www.azstarnet.com/opinion/209570

The Nobel went this year to the guys that build the mechanism design house. Deserved, I think, because their work has advanced economic analysis in many ways. But like a lot of modern economic theory, it is a two edged sword. Mechanism design can improve policies, as with a lot of European privatization of state-owned enterprises, or it can lead to hubris, where designers forget that the models are still abstracted from reality, as in the disastrous structure of electricity restructuring in California in the 90's.

Mechanism design is a tool, you have to use it right for it to work, and you have to recognize its limitations.

That said, Pete Boettke from George Mason has a nice column in the WSJ on the Hayekian roots of mechanism design and the Nobel winners.

Most people think if a band or song gets played more on the radio, they sell more albums. That always made sense to me. But the provocative economist Stan Liebowitz has a different take in "Don't Play it Again Sam: Radio Play, Record Sales, and Property Rights."

This interesting article by Rex Roy starts with the baseline look below at what lies beneath gas prices. He goes on to discuss many theories and myths about what drives gas prices. Worth a read.

Many factors contribute to the price of a gallon of gas. The good news is that, in general terms, the equation is simple. These are the four main components that determine the price you and I pay:

Crude Oil + Refining Process + Retail Sales/Distribution + Taxes = Price

These components, however, don't contribute equally to the price at the pump. Here's a look at each component and its role in the retail pump price:

*Crude oil -- 57%
--Finding the crude oil
--Getting the crude oil out of the ground
--Transporting the crude oil to the refinery
--Maintaining a reserve capacity of crude oil
--Profit

*Refining the crude oil into gasoline -- 18%
--Producing special blends of gasoline to meet local clean air government regulations
--Transporting the gasoline to the gas station
--Profit

*Selling the gasoline at a station -- 11%
--Operational costs
--Marketing costs
--Profit

*Taxes, federal and state -- 20

This interesting article by Rex Roy starts with the baseline look below at what lies beneath gas prices. He goes on to discuss many theories and myths about what drives gas prices. Worth a read.

Many factors contribute to the price of a gallon of gas. The good news is that, in general terms, the equation is simple. These are the four main components that determine the price you and I pay:

Crude Oil + Refining Process + Retail Sales/Distribution + Taxes = Price

These components, however, don't contribute equally to the price at the pump. Here's a look at each component and its role in the retail pump price:

*Crude oil -- 57%
--Finding the crude oil
--Getting the crude oil out of the ground
--Transporting the crude oil to the refinery
--Maintaining a reserve capacity of crude oil
--Profit

*Refining the crude oil into gasoline -- 18%
--Producing special blends of gasoline to meet local clean air government regulations
--Transporting the gasoline to the gas station
--Profit

*Selling the gasoline at a station -- 11%
--Operational costs
--Marketing costs
--Profit

*Taxes, federal and state -- 20

Few policies make less sense than current immigation policy. It simply doesn't make sense to throw out people who are productive members of US society.

Despite promising to address the terrible state of US immigation laws, the Bush Administration has made things even worse. Our own Shikha Dalmia, writing in the LA Business Journal, observes:

It is not like it [the Bush Administration] does not understand that the "problem" of illegal immigration is purely a function of existing immigration laws, not "evil doers." These laws don't exactly roll out the welcome mat for high-skilled immigrants that California's Silicon Valley badly needs. But they are downright hostile toward "unskilled" workers who form the backbone of the agricultural, landscaping and hotel industry in the Golden State and elsewhere.

Everyone knows our economy is desperately short of workers in these occupations, yet official poilcy is to throw them out and not even give them an opportunity to become legal US citizens.

What explains this strange and twisted policy of throwing productive workers out? Unfortunately, Shikha's conclusion is hard to dismiss:

The only plausible reason is that the administration has not just abandoned rational immigration reform, which would be understandable under the circumstances. It has actually made a conscious decision to embrace its opposite to win back its lost base before next year's elections. In short, its immigration policy now is driven neither by conviction, nor the needs of the economy - but naked political calculation, even if that involves targeting "willing employers" and "willing foreign workers," the very victims of that policy.

Shikha's article deserves to be widely read.

In a recent post Alex references some bullet points from a recent Financial Services Forum report. The first points out that globalization has boosted living standards quite a bit; the second highlights America's trade deficit.

But the first point should render the second just about meaningless. If living standards are rising, why fret so much about trade deficits?

During the 1930s, the US "enjoyed" a trade surplus every year besides 1936. But those old days weren't exactly good.

From a 2001 paper by Cato's Daniel Griswold:

A survey of the U.S. economy since 1973 confirms that, by almost any measure—economic growth, employment, industrial production, poverty reduction—the economy has performed better in years in which the trade deficit rose than in years in which it shrank.

Related: If things are so great, why do I feel so lousy? Part 5

Two articles in today's Wall Street Journal will be of interest to those watching China and India's race to be the next Global economic superpower. The first reports on the number of Silicon Valley companies that are divesting in India in the face of excalating labor costs. Companies are closing down software offices in Bangalore as they find India's economic competitiveness doesn't compensate for all the other costs, including lack of access and poor regulatory climate.

The second article discusses Chrysler's outsourcing of some of its manufacturing to China's Chery Corp. Chery focused primarily on making small cars for the domestic market, but has been focusing on developing a more competitive, high quality car. Now, Chrysler sees opportunity in Chery's global ambition to become a major world player in automobile manufacturing. Chery "has been moving to produce more sophisticated products," the WSJ reports, relying heavily on the expertise of Italian design firms, an Austrian engineering company and many of the world's leading auto-parts manufacturers."

In short, China is thinking globally. This attitude was palpable during my visit to China in May during a research trip looking into China's investment in transportatoin infrastructure.

India doesn't have the same outward orientation. The tech industry has created a nice wealth bubble for the nation, but policymakers have not extended the same type of opportunity, or encouraged the same level of global ambition, among its own major industries. The nation is still focused on protecting domestic industries from global competition. China, in contrast, has embraced it.

Socialism is inherently boring, which is why its main enthusiasts are bores themselves people with high boredom thresholds, like professors and politicians.

-- Glenn Reynolds (aka Instapundit), in an interesting post on the rising power of the middle class in China

At Cato Unbound, Dan Klein explores the distinction that is often at the core of classical liberal's world view, the distinction between voluntary and coercive action.

Liam Murphy, Edward Glaeser, and Richard Epstein respond, and then there's more from Klein.

The interesting confab can be found here, and begins with this:

In 2006 there appeared a “raise the minimum wage” statement signed by 659 economists. I wanted to know why they favored the minimum wage, so I wrote up a questionnaire and sent it to them. But I also used the occasion to get their views on a very important matter: Did they view the minimum wage law as coercive?

Ninety-five graciously completed the survey. Very few of them simply accepted that the minimum wage law is coercive. More than half said the law is not coercive in any significant sense.

But the minimum wage law (and concomitant enforcement) threatens the initiation of physical aggression against employers who pay less than the minimum wage. It threatens physical aggression against people for engaging in certain kinds of voluntary exchange. To me, that is coercion. Just imagine if your neighbor decided that he would impose a minimum wage law on us. Wouldn’t we all agree that he was coercing us? If it is coercion when he does it, why isn’t it coercion when the government does it?

The LA Times has an interesting piece on school drop outs. Nope, it's not about students dropping out:

In California, teachers are departing the profession in alarming numbers — 22% in four years or fewer...

Just throw some more greenbacks at them and they'll stay, right? Maybe not:

[S]imply offering them more money won't solve the problem, according to a report released Thursday.

The real issue is working conditions, which are the flip side of a student's learning conditions, said Ken Futernick, who directs K-12 studies at the Center for Teacher Quality at Cal State Sacramento.

His study, which was based on a survey of nearly 2,000 California teachers, maps a growing crisis that fundamentally affects student learning.

The study also casts doubt on commonly pursued remedies both for the teacher shortage and student achievement in general.

The study lists the top reasons why California teachers quit teaching:

Percent saying each reason affected decision

Bureaucratic interference 57%
Poor support from district 52%
Low staff morale 45%
Lack of resources 42%
Unsupportive principal 42%

"Poor compensation" comes in at number 6, cited by 41 percent of respondents. Focus just on LA teachers and the story is quite similar: "L.A. Unified's data lists salary as the No. 9 reason why new hires leave."

In the TierneyLab, John Tierney touches on a similar theme. He cites a new study that finds that smart people aren't necessarily rich people:

“Your IQ has really no relationship to your wealth,” says Jay Zagorsky of Ohio State University, the author of the paper.

Why not? Zagorksy suggests smart people aren't saving enough. Tierney offers other thoughts, including:

I also wonder if smart people are likelier than average to sacrifice income for intellectually stimulating jobs. It’s easy to point to anecdotal evidence — like the career of Dr. William Hurwitz, whose finances I discuss in the previous post. His former wife, Nilse Quercia, told me that his family used to joke about the statewide award he’d won during high school for his mathematical ability. “We’d say, ‘Billy, all your math skills sure didn’t help when it came to making money.’ ”

In the past, I've pointed to other signs that more people are placing less importance on dollars and cents:

Salary was one of the least important requirements of a dream job, cited by just 12 percent of respondents in [a new] survey by CareerBuilder.com.

In this overview of telecommuting trends (pdf), I point to other surveys where workers say they prefer perks like flexible schedules to more pay.

I think this is a fairly common pattern in America: An immigrant trades a desperately poor nation for America and takes whatever job's available, probably something like factory work since he doesn't have much formal education.

The immigrant's son gets a high school degree, maybe a college degree, and, still fueled by the immigrant experience, takes the highest-paying job available.

The grandson gets a college degree, maybe even an advanced degree. The grandson grows up in the land of plenty, not terribly worried about being destitute. Since he has the luxury of doing so, when he thinks about his career path he considers additional factors besides money (intellectual stimulation, personal fulfillment, work environment, schedule flexibility). He may even choose a less lucrative career than his father, because it makes him happier.

So simply crunching salary numbers will understate the progress made (the first generation to do worse than the one before it?!), because such calculations don't account for trade offs job seekers make. Lou Dobbs, White House wannabes, and others will get plenty of attention telling viewers with callus-free hands watching on flat-screen TVs that they're getting screwed.

Let's hope Granddad is still around to tell them how good they have it.

Related: If things are so great, why do I feel so lousy? Part V

Related: Why I'll take today's LA

From Washington state, a story guaranteed to make freedom-loving parents squirm:

Some Seattle school children are being told to be skeptical of private property rights. This lesson is being taught by banning Legos.

A ban was initiated at the Hilltop Children's Center in Seattle. According to an article in the winter 2006-07 issue of "Rethinking Schools" magazine, the teachers at the private school wanted their students to learn that private property ownership is evil.

According to the article, the students had been building an elaborate "Legotown," but it was accidentally demolished. The teachers decided its destruction was an opportunity to explore "the inequities of private ownership." According to the teachers, "Our intention was to promote a contrasting set of values: collectivity, collaboration, resource-sharing, and full democratic participation."

The children were allegedly incorporating into Legotown "their assumptions about ownership and the social power it conveys." These assumptions "mirrored those of a class-based, capitalist society -- a society that we teachers believe to be unjust and oppressive."

Enjoy a tall glass of Pepto before you read the full story here. What's truly unjust and oppressive is that these kids' parents are forking over thousands of dollars per year to have their children indoctrinated with this collectivist blather. Luckily for them, they have the ability to vote with their pocketbook and place their kids in another school.

Makes you wonder though...if private ownership and capitalism are so evil, then isn't just a tad hypocritical that these teachers are working for a private school? Way to walk the talk, guys...

One commenter to the piece summed this up pretty accurately: "This is nothing more than barcolounger communism and brainwashing."

In my last post on Greg Mankiw's campaign to raise the gas tax, I only got started.

Mankiw buys into Pigou's idea of an optimal tax to solve some policy problems, hence raisign gas taxes will do many wonderful things. I respond that the government has a demonstrated inability to make optimal decisions.

Let me expand on that. Ted's earlier post pointed to a nice interview with Mankiw by Russell Roberts that gets at some of these questions. Indeed, as Roberts paraphrases:

Greg [says] that yes, there are going to be political complications, but if we let political complications stand in the way of good economic policy, we may as well fold up our tent and go home. There are always going to be political complications. So if economists want good policies, they should advocate good policies even if in practice, they may not always turn out ideally.

Wrong! Economic policy needs to take into account the real world. Economics biggest problem is creating theory in a world of perfect markets or optimal governments with no relevance to non-economists whatsoever. That is why public choice theory emerged--to take into account the realities of "political complications" in economic policy. I talked about that in my previous post.

But there is another aspect to Mankiw's wrongness. We also have a nice theory of non-market failure that parallels the theory of market failure that underpins Pigouvian thinking, and thus Mankiw's gas tax proposal. Charles Wolf at RAND developed the theory best and it tells that just as sometimes there may be market failures and institutions need to emerge to deal with them, the same is true of government. There are structural forces driving government decisions away from theoretical optimality.

So, back to the gas tax idea and dealing with "political complications." Good economic policy must take into account those complications and recommend approaches that best deal with complications of both the market and government action. And an increase in the gas tax for general revenue is not good economic policy.

Thanks to Ted's post the other day, I caught up on some of the latest on economist's Greg Mankiw's campaign for increasing the gas tax. Another oppnent Ted did not flag is the NoPigou Club.

That site makes some excellent points on the particulars of how Mankiw's proposal runs aground on the facts. But Mankiw extends fallacious partial selection of the evidence to the level of theory. Pigou has a theory that one can create optimal taxes to resolve externalities. Public choice theory demonstrates that the government's reach for optimality will always exceed its grasp. Mankiw simply ignores the latter, for no reason he has cared to defend as far as I have seen.

Just look at how the government fails to act optimally on some of the specific areas Mankiw hinges the joy of higher gas taxes upon.

The environment. Vehicles emit a trivial percentage of total human emissions of carbon dioxide, a vanishingly small percentage of global carbon dioxide emissions. Even the mythical "optimal" carbon tax would be less cost effective than modest investments in sequestering carbon dioxide by planting trees and similar measures to lock up carbon dioxide and offset vehicle emissions.

Road congestion. A gas tax set to reduce demand ignores the supply side of congestion, which is caused by the demand for roads exceeding the supply. Right now the government very un-optimally uses transportation funds in ways the create undersupply of roads and cause congestion. For example, nationwide, transit carries abut 2 percent of trips, but recieves more than 20% of transportation funding. In many of our large metro areas transit receives more than 50% of all transportation funding while carrying between 2% and 8% of trips. Hardly an optimal allocation of resources. Raising the gas tax would simply pump more revenue into this congestion-inducing spending plan. Or worse--see the budget below.

Regulatory relief. Mankiw argues that Pigouvian gas taxes would be less distortionary than CAFE regulations. But the typical government official thinks, "Hey, if we can design optimal taxes, why stop at that? Surely we can also design optimal technologies and designs as well." As practices by a real world bureaucracy, an attempt at optimal taxation is simply a monetary form of picking winners.

The budget. Mankiw likes raising the gas tax to raise revenue for our federal government because it is on an "unsustainable path." He has close personal knowledge that the unsustainability of the federal budget is caused by spending growth that far outstrips economic growth, not by any lack of revenue growth. If we have non-optimal government budgeting--and what could be more true--how can it help to pump more money down that drain? Worse, a concept near to Pigouvian taxation is that a user fee is more efficient than a tax. We use gas taxes rather than sales taxes, for example, to fund transportation, because gas taxes are a second best to a direct user fee. Imposing a gas tax for general revenue removes even that slender second-best advantage.

Tax incidence. Higher taxes would reduce gasoline use and thus drive down gasoline prices, Mankiw argues. Hmm, ever glanced at the gas price elasticities in this country, Greg? Indeed, government policy makers have a long and storied track record of missing the optimality mark thanks to utter ignorance of relevant elasticities.

I could go on, but I think my point in made. Government policy makers and optimality have never occupied the same real estate. As Nobel laureate economist Frederich Hayek pointed out, they never really have adequate information to calculate the "optimal answer", and as Nobel laureate economist James Buchanan pointed out, they wouldn't have the incentive too anyway.

Over at TCS Daily David Henderson is writing a three-part series on Alan Reynolds’ new book, Income and Wealth, which apparently takes a sledge hammer of empirical evidence to the widespread belief that middle and low income folks are getting screwed. Henderson says the book “will prove to be the most important book on the U.S. economy in 2006 and possibly one of the five most important in the decade.”

Here’s a bit from the first installment:

Reynolds continues by telling of a 2004 story in the Washington Post titled, "The VanishingMiddle-Class Job." The Post article pointed out that in 1967, nearly a quarter (22.3 percent) of households made between $35,000 and $49,999 in inflation-adjusted terms, but that that share was down to 15 percent by 2003. Reynolds notes that the same article showed that the percentage of U.S. households with a real income higher than $50,000 rose from 24.9 percent in 1967 to 44.1 percent in 2003. Moreover, the percentage with income lower than $35,000 fell from 52.8 percent to 40.9 percent. In other words, the "middle class" was shrinking because people were moving out of the Post's statically defined middle class into a higher income class. Comments Reynolds: "The article could have been more aptly titled, 'The Vanishing Lower-Class Job.'" But because Reynolds shows elsewhere that higher-income households tend to have more than one worker, one can't simply equate households and jobs. Therefore, the article would have been even more aptly titled, "America's Families are Getting Wealthier." But that's not exactly the message or the tone the Post was shooting for.

More here.

Related: If things are so great, why do I feel so lousy? Parts I and II

Related: The Middle Class is Shrinking—Hooray!

Related: What a great time to be poor

When gas prices rise, we get wails from the public and endless investigations into whether “Big Oil” might be screwing consumers.

But what happens when Big Milk flexes its political muscle to keep prices artificially high?

Speaking of economic biases held by the general public, there also seems to be a bias in favor of tangible things. If a nation builds cars and refrigerators that’s “good,” but if it shifts to providing services that’s “bad.”

In his takedown of Sen. Byron Dorgan, Daniel Griswold also takes on those who long to return to an economy based on making tangible stuff:

As a nation grows wealthier, the share of the workforce in agriculture invariably falls and the share in the service sector rises. The share in manufacturing typically rises and then falls. According to the World Bank, countries with the lowest share of the work force in the service sector include Uganda, Vietnam, Romania, Sri Lanka, Indonesia, and Mongolia. Countries with the highest share in the service sector include, along with the United States, Sweden, Switzerland, Canada, Hong Kong, Japan, and Luxembourg. The first group is among the poorest nations, the second among the richest. Apparently one goal of Dorganomics would be to shift America from the rich group to the poor group.

Griswold piece here.

And, of course, it’s just not true that we don’t make anything anymore.

Robert Whaples surveyed members of the American Economic Association. He covered lots of ground and found quite a lot of agreement, nearly all in the less-government direction.

Survey write-up here.

Greg Mankiw summarizes some findings here, including:

• 87.5 percent agree that "the U.S. should eliminate remaining tariffs and other barriers to trade."
• 85.2 percent agree that "the U.S. should eliminate agricultural subsidies."
• 67.1 percent agree that "parents should be given educational vouchers which can be used at government-run or privately-run schools."
• 65.0 percent agree that "the U.S. should increase energy taxes."
• 90.1 percent disagree with the position that "the U.S. should restrict employers from outsourcing work to foreign countries."

In many cases, what the experts have to say has a big effect on public opinion. Think about global warming. Most people think it’s real because climate scientists say it’s real.

But, as Bryan Caplan has pointed out, the public is less willing to defer to the experts in economic matters. He discovers four big econ error biases: anti-foreign bias, anti-market bias, make-work bias, and pessimistic bias.

In each case, what economists think is much different than what everyone else thinks. Take the last of the four biases. Economists generally think that things are getting better, while the man-on-the-street is far more likely to think things are getting worse.

Robin Hanson expands on the theme:

Consider how differently the public treats physics and economics. Physicists can say that this week they think the universe has eleven dimensions, three of which are purple, and two of which are twisted clockwise, and reporters will quote them unskeptically, saying "Isn't that cool!" But if economists say, as they have for centuries, that a minimum wage raises unemployment, reporters treat them skeptically and feel they need to find a contrary quote to "balance" their story.

Part of this has to do with the inherent differences between the physical and social sciences. Part has to do with the fact that most people will freely admit that they don’t know a damn thing about physics. Yet everyone lives in the midst of economic activity, so folks are more likely to think they know a thing or two about economics.

Related: Economists don’t like rail transit, but city council members do

Consider this lit review conducted by David Neumark, William Wascher:

Clearly, no consensus now exists about the overall effects on low-skilled employment of an increase in the minimum wage. However, the oft-stated assertion that this recent research fails to support the traditional view that the minimum wage reduces the employment of low-skilled workers is clearly incorrect. The overwhelming majority of the studies surveyed in this paper give a relatively consistent (although not always statistically significant) indication of negative employment effects of minimum wages. In addition, among the papers we view as providing the most credible evidence, almost all point to negative employment effects. Moreover, the evidence tends to point to disemployment effects of minimum wages in the United States as well as many other countries. Two potentially more important conclusions emerge from our review. First, we see very few - if any - cases where a study provides convincing evidence of positive employment effects of minimum wages, especially from studies that focus on broader groups (rather than a narrow industry) for which the competitive model predicts disemployment effects. Second, when researchers focus on the least-skilled groups most likely to be adversely affected by minimum wages, we regard the evidence as relatively overwhelming that there are stronger disemployment effects for these groups.

More on NBER Working Paper No. 12663 here.

Related: When Unions do the “exploiting”

Jared M. Diamond became the darling of PBS with his book Guns, Germs, and Steel, and his thesis that the secret to economic development could be found in factors like geography and the availability of domesticated animals.

Tyler Cowen reviews a book with a different take:

In “A Farewell to Alms: A Brief Economic History of the World” (forthcoming, Princeton University Press,) Gregory Clark, an economics professor at the University of California, Davis, identifies the quality of labor as the fundamental factor behind economic growth. Poor labor quality discourages capital from flowing into a country, which means that poverty persists. Good institutions never have a chance to develop.

…
A simple example from Professor Clark shows the importance of labor in economic development. As early as the 19th century, textile factories in the West and in India had essentially the same machinery, and it was not hard to transport the final product. Yet the difference in cultures could be seen on the factory floor. Although Indian labor costs were many times lower, Indian labor was far less efficient at many basic tasks.

For instance, when it came to “doffing” (periodically removing spindles of yarn from machines), American workers were often six or more times as productive as their Indian counterparts, according to measures from the early to mid-20th century. Importing Western managers did not in general narrow these gaps. As a result, India failed to attract comparable capital investment.

Professor Clark’s argument implies that the current outsourcing trend is a small blip in a larger historical pattern of diverging productivity and living standards across nations. Wealthy countries face the most serious competitive challenges from other wealthy regions, or from nations on the cusp of development, and not from places with the lowest wages. Shortages of quality labor, for instance, are already holding back India in international competition.

More here.

Related: Ron Bailey on Diamond

A while back I pointed to this NYT piece that suggested that, except for the likes of dopey W, almost everybody is on board with hiking the gas tax. Now WaPo uses the same narrative:

raising taxes on gasoline or crude oil. Economists and policy experts across the political spectrum think it's a good idea. And with gasoline prices falling, now might be the perfect time to do it without eliciting cries of pain from U.S. drivers who have become somewhat accustomed to high fuel prices.

But on the long road to a new energy policy, the idea of a higher gasoline or crude-oil tax is just another bit of roadkill.

And if the NYT’s parade of smarties wasn’t enough for you, here’s another one for the list:

Kenneth S. Rogoff, a Harvard economics professor and former chief economist of the International Monetary Fund. "A sharp hike in energy taxes on gasoline and other fossil fuels would not only help improve the government's balance sheet, but it would also be a way to start addressing global warming."

Even the Wall Street Journal gets in on the act by publishing a piece by former Bush economist Greg Mankiw:

With the midterm election around the corner, here's a wacky idea you won't often hear from our elected leaders: We should raise the tax on gasoline.

Piece reprinted here.

Some of my arguments against the hike here.

In this NYT piece Daniel Gross makes the often-made point that our gas taxes are really low when compared to other industrialized nations.

The International Energy Agency provides this breakdown of Average Gas Taxes Per Gallon (as of Aug 2006):

Britain $4.24
Germany $3.99
France $3.80
Italy $3.75
Japan $2.07
Canada $1.03
U.S. $0.40 (includes state and federal taxes)

Gross makes another often-made point: the last time we increased the federal gas tax was waaaay back in 1993.

And then comes a rather new point: many Republican economists (or economists associated with the Rs) are coming out in favor of hiking the gas tax. Alan Greenspan, Greg Mankiw, Andrew Samwick, and others say it’s a good idea and many leftish economists have been saying this for a long time. Makes it seem like there’s a new consensus emerging.

But the piece leaves out some pretty significant points.

Many people want to hike gas taxes to reduce driving and—while it’s true that Europeans drive less than we do—the gap is closing. In fact, even with ultra-high gas taxes, driving is increasing in Europe. It’s been increasing faster there than in the states.

Also, if you want to talk consensus, the real consensus among economists is for road pricing. No pricing results in more congestion, which results in 2.3 billion gallons of wasted gas each year.

And Sam’s last post suggests that higher gas taxes might make pricing a tougher sell politically. Seems like the higher gas taxes get the more likely motorists are to complain about “double taxation.” Expect more of this: “We already pay so much at the pump, and now you want us to pay a toll!”

[But if the “look what Europe does” argument helps raise gas taxes, can we use it to lower corporate tax rates? See this, this, and this]

Harvard economist Greg Mankiw has a pretty tranquil life these days, at least compared to what he went through a couple of years ago.

As chairman of Bush’s Council of Economic Advisors he uttered the completely mainstream comment (mainstream among economists, that is) that international trade is a good thing that tends to benefit all nations involved. He said that offshore outsourcing is merely a new kind of trade in which exports come to our shores via the internet or our phones, instead of by ships and planes.

Many reporters simply yawned at what was then regarded as an uneventful press conference. Then the LA Times ran a story titled “Bush Supports Shift of Jobs Overseas.”

What followed was a (cliché alert) political firestorm. Our nation worried that the teachings of Adam Smith and David Ricardo no longer applied to our new economy. Speaker Hastert called for Mankiw’s head and Candidate Kerry had himself a great issue. He railed against “Benedict Arnold CEOs” and outrageous tax policies that supposedly encouraged this kind of traitorous activity. Politicians penned more than 200 anti-outsourcing bills, mostly at the state level (although few were passed).

Today the panic has largely subsided, at least for now.

In this paper Mankiw looks back at that loopy time. Pretty interesting stuff.

Related: A study Adrian Moore and I wrote on the topic

Related: My pre-election take on Kerry-Edwards’ rhetorical strategy

BTW, later on Kerry backed away somewhat from his infamous line:

Asked about outsourcing and his use of the "Benedict Arnold" epithet, Mr. Kerry replied: "The Benedict Arnold line applied, you know, I called a couple of times to overzealous speechwriters and said, 'Look, that's not what I'm saying.' Benedict Arnold does not refer to somebody who in the normal course of business is going to go overseas and take jobs overseas. That happens. I support that. I understand that. I was referring to the people who take advantage of non-economic transactions purely for tax purposes — sham transactions — and give up American citizenship. That's a Benedict Arnold. You give up your American citizenship but you want to continue to do business and deduct and do everything else. That's what I'm referring to."

Actually, it seems this explanation isn’t entirely accurate.

But more importantly--does Ben Affleck still think outsourcing is "criminal"?

Cecilia Kim and I explore this question in the latest issue of Econ Journal Watch.

Here’s the abstract:

In the United States, the public debate over urban rail projects is complicated by the lack of agreement on goals. Supporters offer a wide variety of justifications to build and expand rail transit. If one focuses on the judgments of economists, the list of justifications shrinks considerably, but we are still left with a bundle of goals. Compared to other justifications, economists appear to be somewhat optimistic about rail transit’s impact on local economic development, but less optimistic about rail’s ability to achieve environmental improvement and serve the transit-dependent poor. Economists seem quite pessimistic about rail’s ability to achieve key transportation goals like reducing congestion. Economists often attribute rail’s political success to rent-seeking and romantic political factors. Of those economists who offer a big-picture view, there appears to be wide, though not unanimous, agreement that rail’s costs exceed its benefits. And it seems that almost all economists who write about rail agree that various demographic features, such as suburbanization, the declining influence of central business districts, and increasing wealth will make it increasingly difficult to design successful rail systems.

Article here.

Whole issue here.

Complete table of contents below the fold.

With election season looming, brace yourself for more tales of woe. Like their somber predecessors the tellers of these new tales will probably miss the bigger point:

It's true that the middle class is shrinking -- but that's because more families are better off. The share of prime-age adults in households with real incomes above $100,000 rose by 13.1 percentage points from 1979 to 2004. The share of households making less than $75,000 dropped by 14 percent. Fully 41 percent of prime-age American adults are in households with incomes above $75,000.

Among married-couple households the picture is even brighter. In 2004, the median income for these households was $70,000, and $78,000 for couples with two earners.

Just as interesting as the message is the messenger--Stephen Rose writing in the lefty American Prospect. He highlights another reason why the old "middle class is getting hosed" saw doesn't cut it:

I focus on prime-age households (age 25-59), which are 68 percent of the population, because including the very young and the very old distorts the picture of what's really happening with the middle class. Many young workers get paid very little, but few will keep their low salaries as they move up in their careers. Older Americans distort the wage and income picture because they're no longer working. Their incomes may shrink, but their standard of living may not diminish. Indeed, Americans age 55-64 have greater net wealth than any other group.

Rose argues that progressives should cool it with all the hand-wringing:

Rather than documenting how the middle class is falling behind (it isn't), progressives might do better finding ways to help more middle-class families succeed. In its recent report, Politics of Opportunity, the group Third Way counsels progressives to adopt a message and policy agenda that looks to middle-class aspirations and seeks to create middle-class opportunity. One way to do this, for example, is to look at the characteristics of the top income quintile and use public policy to replicate that success.

Two things set the top quintile apart: people in the top quintile are much more likely to have finished college, and they are much more likely to be in married, two-earner families. We can move more people up the ladder by doing two things: one, by helping more students graduate from college, and two, by supporting two-earner families in balancing work and family. This means such things as broad-based tuition tax relief, paid family leave, and more tax breaks for child care costs.

Do read the whole article (via Greg Mankiw); it’s packed with lots more conventional wisdom-puncturing figures. For example, guess what the median credit card debt for all American households is. Hint: it's roughly equal to the likelihood of the Dems listening to Rose.

Actually, neither party wants to acknowledge that things gradually get better regardless of who is in office because it robs them of their favorite campaign hammer: “Things have gotten worse since the other guys have been in charge!”

Related: If things are so great, why do I feel so lousy, parts I and II

Related: What a great time to be poor

Bad news spreads quickly. It doesn’t even really matter if the news is true or not.

Last week I noted the NYT’s flurry of economic pessimism, and, in this TCS Daily piece (thanks to co-blogger Steve for the tip), David Henderson shows how the bad “news” has spread to the Washington Post in the form of this Harold Meyerson piece.

Henderson makes many interesting points about why the NYT’s coverage and its echoes are misleading. Note, for instance, the role higher taxes play in the story of wages:

as marginal tax rates have increased for most people except the highest-income people, due mainly to rising Medicare and Social Security tax rates over the last 40 years, employers have paid a higher and higher percent of compensation in the form of untaxed benefits.

Over at Café Hayek digs into that BLS study I mentioned and finds more surprising/interesting nuggets.

Maybe it’s too much grayness from the Gray Lady.

In news stories, columns, and editorials (like this one titled “Downward Mobility”) the NY Times harps on the same general point: things are getting worse—wages are stagnating or falling—and average workers are really getting hosed.

Generally speaking, there are a bunch of problems with such accounts. For example:

They ignore the fact that wages are only part of what determines living standards. The price of goods is very important too. And the price of just about everything that's exposed to competition has been falling (see Exhibit 6).

They highlight wages, but ignore other forms of compensation. (Since Dec. 2000 total compensation is up 40 percent.)Poverty stats often overlook the earned income tax credit and other forms of welfare.

They ignore the influence of immigration: millions of poor people pour into America each year and that pulls average wages down.

They examine a narrow time frame. Periodic downturns are inevitable, but take a wider view and things generally look much better. (Check out this recent BLS report: for example, in 1901 the average American family devoted 80 percent of its budget to the basics (food, clothing, housing), but by 2002-2003 that figure shrunk to 50 percent.)

Here’s a recent LA-focused attempt by me to prove that things are getting better and here the Investor’s Business Daily takes on a page one NYT story titled: "Real Wages Fail to Match A Rise In Productivity,"

it notes that the median hourly wage, adjusted for inflation, has slipped 2% since 2003, and that wages and salaries, as a share of GDP, are the lowest they've been since 1947.

There are all kinds of problems, however, with such a narrow analysis. Most of us aren't paid just in "wages" but in wages and benefits. And when the two are put together, total compensation is up 8.7% since 2003, for an average annual gain of 3.5%.

Why is this? Wages may not be soaring (up just 0.7% since 2000), but benefits are (13.1%). In other words, we're making more but getting it in the form of tax-free benefits.

If you’re still feeling lousy, see Café Hayek here, here, and here. And don’t forget your dose of Postrel.

Related: Even the NYT Occasionally Highlights Good News

As we mark the first anniversary of Hurricane Katrina's devastating landfall today, it is fitting that we look at the progress that has been made in rebuilding the region--and the lack of progress. As Harry Mount explains in a recent article for the UK's Daily Telegraph, there have been stark differences in the rebuilding effort between the public and private sectors:

[W]hile private business has flourished, public works have failed miserably. Schools are only just opening. University departments have been closed for good. Courtrooms don't have enough judges to deal with the renaissance of America's murder capital.

Mount continues:

This mismatch between private and public has nothing to do with shortage of public money; after Katrina, President Bush promised £58 billion ($110 billion) in federal aid for the victims. New Orleans and its crooked ways are partly to blame. Only this weekend, a pair of Bobcat excavators worth £50,000 ($95,000) were stolen from the Lower Ninth Ward, one of the hardest-hit areas of the city, where they were being used to build a memorial to the victims of Katrina.

But the chief culprit is a federal government clogged with bureaucracy and indecision, incapable of spending money even when it's got tons of the stuff.

The American government can just about arrange an orgy in a brothel -- fraudulent applications for Katrina aid were spent on champagne and prostitutes -- but it is hopeless when it comes to large-scale federal construction projects.

This paralyzing bureaucracy is not limited to Katrina recovery efforts, either. As Mount notes, the same maladies have impaired rebuilding efforts at the World Trade Center site as well.

In the five years since September 11, one building, 7 World Trade Centre, the third and least-known skyscraper to collapse that day, is the only one to have been rebuilt.

At 7 WTC, the site's leaseholder, Larry Silverstein, worked unencumbered by the attentions of government. As a result, the £350 million ($665 million), 52-storey tower went up this May without a hitch.

A couple of hundred yards from 7 WTC, Ground Zero is still a great big empty concrete tub.

Mr Silverstein owns the lease to the Ground Zero pit and the rights to rebuild all the space lost within it. But, while 7 World Trade Centre is outside the pit and entirely under his control, construction inside the pit is run by government, principally George Pataki, the outgoing governor of New York State.

We should take these lessons to heart when we consider options for rebuilding of the Gulf Coast, the World Trade Center site, and future disaster areas. It is not government planning, but market forces, that allow for the quickest, most appropriate, and most economical recovery of disaster areas. People and businesses will seek opportunities to invest their resources and offer their services where they are most needed--if only government will get out of the way and let them do it.

An Ohio carpenters union targets contractors and property-management companies, which it says don’t pay carpenters a standard wage of $22.50 an hour, pick up health-insurance premiums or offer pension packages. So they picket these establishments and engage in all the usual activities: they holler, hold signs, and pass out fliers.

But union members don’t actually do the rabble-rousing themselves. They’re too busy working, so they outsource the jobs to low-wage workers:

The Ohio and Vicinity Regional Council of Carpenters has hired more than 160 central Ohioans who are down on their luck, homeless or between jobs.

Somehow the traditional union scorn for part-time, low-wage, zero-benefits jobs (not to mention outsourcing) disappears. The union hires these workers for 10 hours per week, at 8 bucks an hour, and apparently no benefits.

This isn’t the first time this has happened. In Henderson, Nevada the UFCW recently targeted Wal-Mart and outsourced the picketing duties. The temporary workers protested in 104 degree heat, earned 6 bucks an hour and received no benefits. The “exploited” workers inside Wal-Mart enjoyed higher pay, benefits, and air conditioning.

This kind of union outsourcing happens fairly often, says Jim Graham, a Whitehall councilman who oversees the carpenters council’s organizers.

"This really isn’t unusual. It’s been done in Baltimore, Denver, San Diego, Miami, Atlanta, Louisville and Indianapolis." [See Russell Roberts for more of the same.]

As the practice spreads, some people question whether the union’s tactics are any better than the companies it criticizes […]

"How can they justify paying just above minimum wage when they’re demanding more than $20 an hour for their members?" asked Dewey Phares, a 37-year-old carpenter from Hilliard who works at one of the picketed buildings on Capitol Square.

"Shame on them. They should look in the mirror."

To be fair the union is paying well over minimum wage, but to borrow a common union refrain: “You can’t support a family on 80 bucks a week!”

"We’re not taking advantage of anyone," Graham said.

"They’re giving people who are underemployed, unemployed or simply unemployable because of an addiction, disability, mental illness or other problem, a leg up," said Kent Beittel, executive director of the Open Shelter. "At the very least, our clients are making enough money for basic needs such as food. At the most, they’re saving enough money to move into apartments or getting enough experience to move to better jobs."

In a 1995 court case a group called ACORN gave a very good summary of why mandated wages are a bad idea:

According to ACORN, this adverse impact will be manifested in two ways: first, ACORN will be forced to hire fewer workers; second, its workers, if paid the minimum wage, will be less empathetic with ACORN's low and moderate income constituency and will therefore be less effective advocates.

BTW, as you may know, ACORN is one of the nation’s most outspoken proponents of living wage legislation.

More on that here; via Russell Roberts.

Ohio article here; thanks to my colleague Geoff for the tip.

This article in the the St. Louis Federal Reserve Review explores the question. It is an interesting, nay depressing, analysis. Sure, you can change some assumptions and get some different conlcusions. The one thing you can't really assume away is that we are on an inevitable collision course with either dramatic spending cuts (yay!) or dramatic tax increases (boo!).

Stop blocking Wal-Mart.

An effort to boost the minimum wage faded in Congress, but the earth’s most evil entity moved ahead with its own pay hike:

Wal-Mart Stores is raising starting pay at about a third of its nearly 4,000 U.S. stores by an average 6 percent and introducing wage caps for the first time on each type of job in all stores, the company said Monday.

That’s what happens when you have to compete for labor:

The nation's largest private employer said the changes at its U.S. stores would help it remain competitive with other retailers and meet a need for workers and managers as it continues to expand.

WM spokesman John Simley says the changes help in two ways:

Higher starting pay makes Wal-Mart more attractive to new workers, and the wage caps give employees an incentive to work for promotions if they want to make more money.

WM’s current average full-time hourly wage is $10.11, well above the federal minimum wage of $5.15 and higher than any of the states' minimum wages. Yes by comparing average wages to minimum wages, we’re not making a direct apples-to-apples comparison.

But let’s also remember that, no matter the impression that Oprah gives, after a year on the job, the vast majority of minimum wage earners have gained enough skills and experience to command more than the minimum wage.

It’s a process that posturing politicians breeze over, but many low-skilled workers understand it.

Melvin Brown applied for work at a Wal-Mart in Oakland. He says: "You start low and aim high. First you gotta get your foot in the door."

BTW, some explanation for why figures for WM’s starting wages are harder to come by:

The retailer did not specify the new starting rates or give examples for the new pay caps. Simley said the numbers vary too much in local markets across the country to provide an accurate average figure.

Article here.

Related: Thomas Sowell sees a glimmer of hope.

Economic models fall into two broad genres. Macroeconomic models, the distant descendants of Phillips's machine, belong mostly in central banks. They capture the economy's ups and downs, providing a compass for the folks with their hands on the monetary tiller. The second species, known as computable general equilibrium (CGE) models, largely ignore the vagaries of the business cycle. They concentrate instead on the underlying structure of production, shedding light on the long-term repercussions of such things as the Doha trade round, a big tax reform or climate change.

That’s one point Russell Roberts makes in his dissection of a Krugman piece that argues that fat cats are just getting fatter, sucking up most of the economic gains and leaving the rest of us to fight over crumbs.

Roberts’ point is that it’s very misleading to talk about the top 1% gaining so much year-to-year. After all, there isn’t some “1% Club” where the membership never changes and the same people just get richer and richer. While there always will be a top 1%, the faces in that group are constantly changing.

You can cut the inequality issue many ways, but the question that is perhaps most important is: “If they do the right things (stay in school, out of jail, work hard, etc.) do those starting out near the bottom have a reasonably good shot of moving up the economic ladder?

In a move some small businesses say will force them to raise prices or lay off employees, Massachusetts lawmakers on Thursday voted to boost the state's minimum wage from $6.75 to $8 an hour over a two-year period.

The bill, a compromise passed by the state Senate and expected to pass the House next week, would make the Bay State's minimum wage the highest in the nation in 2008, once the full increase takes effect.

Article here.

Don Boudreaux discusses minimum wage law here and here.

Investing is tricky enough without politicians throwing in another X factor.

Robert Higgs explains how regime uncertainty exacerbated the Great Depression and, in a recent SF Chronicle piece, Bob Poole points out how it’s now having the same impact on traffic congestion:

Instead of following Utah and other states that enacted legislation to attract private investors, the California measure allows only four pilot projects and requires legislative approval for each project.

Florida tried that approach. It passed a public-private partnership law in 1991, but for 13 years, not a single project got done. Why? The risk was too great. Would you have team of engineers and finance people spend months and tens of millions of dollars preparing a highway design and working out the finances, only to risk having the state legislature reject the plan on a whim? Of course not. Florida saw the light and removed the legislative approval step, requiring only normal state Department of Transportation approval.

Read the whole piece here.

Some interesting musings on privatization from Gary Becker.

Thanks to Max for the tip.

A neat post over on the Knowledg Problem about how incentives helped Ghana to victory.

Don Boudreaux comments on the first chapter of a new book by Robert Higgs, Depression, War, and Cold War:

Higgs's thesis in this chapter, which is backed by data (including interesting data on bond yields from the mid-1920s through the mid-1950s), is that the Great Depression was prolonged and deepened by the "regime uncertainty" created by FDR and the New Deal. As it turns out, Uncle Sam never engaged in wholesale nationalizations and other whacky central-planning schemes -- but no one in the 1930s knew what the future held. For investors back then to believe that any investments they made in the U.S. might be confiscated or regulated to smithereens was not unreasonable, given the rhetoric of the time and the shift in policy brought by FDR and his "brain trust."

This "regime uncertainty" stifled investment, keeping the economy stagnant.

An earlier version of this chapter is available here.

The U.S. economy is chugging along pretty well. Unemployment is low. So is inflation.

James Glassman asks: So why aren’t Americans happier about it?

Since January 2001 Gallup has conducted monthly polls that ask Americans to rate the nation’s economic condition: What is mind-boggling is that more respondents fall into the negative camp now than during the 2001 recession. Today, respondents who are negative on the economy outweigh those who are positive by more than two-to-one. Gallup concludes that "Americans' views of economic conditions in this country have essentially never recovered from the precipitous drop they took in 2001 after the dot-com boom ended."

Pollsters and politicians have noticed that there are lags in the public's perception of how the economy is doing, but the length of the delay this time is a little ridiculous. The recession ended four and a half years ago; unemployment peaked in mid-2003.

There may be better explanations. For example, a 2004 paper by Princeton economists Alan Blinder and Alan Krueger explores the fascinating question of how the public forms its opinions -- not on the economy but on economic policy -- and finds that "ideology is the most important determinant...while measures of self-interest are least important."

Gallup hints at a similar conclusion: data show consistently that Americans who identify with the party in power "are more positive about the way things are going in the country." In other words, it's not reality but partisanship or ideology that determines one's view of the economic situation.

Sadly, I think there’s something to this theory that ideology-trumps-reality: “If ‘my guy’ isn’t in the White House, then the economy must be a mess!”

But what if who's in power is less clear? Our government spends less when one party is in the White House and the other controls Congress. Is this another reason to root for divided government?

If this analysis is correct, then Republicans will have a difficult time this November. Since President Bush took office, the period when Americans felt best about the economy was the third quarter of 2004, just before his re-election, when 32 percent were positive and 42 percent negative, compared with a 25-55 split today.

In other words, supporters are abandoning the president -- most likely for reasons other than the economy, such as the war in Iraq -- and an improvement in the economy won't help.

If this is true, it’s too bad that we can’t separate the economy from how we feel about other issues. Then again, maybe there’s some good news in here.

At least the change in opinion occurred while the same guy was in office. In other words, while our political affiliations might shape how we see the economic conditions, for a good chunk of us there comes a point when we no longer stand by our man simply because we identify with the party in power.

Whole thing here.

Somewhat related to this post, is this Forbes piece by Frederic Sautet:

[T]targeted tax incentives don't spur real growth. Quite the contrary. While across-the-board tax cuts expand economic activity, targeted tax incentives are inevitably financed at the expense of established businesses. Today's winner of a targeted tax break is tomorrow's victim of a broad increase in business taxes. Assuming, that is, that this employer sticks around.

Memphis, Tenn.'s Payment-in-Lieu-of-Tax (Pilot) program is a case in point. For 18 years Pilot has created property tax holidays (of up to 15 years) for businesses adding jobs in the city. The cost, as measured by local and state authorities in the last thorough study (for 2002), was 7.4% of property tax revenue, or $23 million a year.

What does Memphis get for its $23 million? According to a study paid for by the city, Pilot created 65,000 jobs between 1988 and 2000. But that claim is tough to reconcile with the city's unemployment rate. In 1990 the rate equaled the national average. Now, at 7%, it's two points above the national level. Memphis' poverty rate is 21.5%, twice the national average.

Here are a few more damning numbers: Between 1993 and 2002, 21 companies in Memphis received Pilots but then had the Pilot terminated, usually because the company didn't live up to the promises it had made in order to win the tax breaks. In that same time period another 19 companies that got Pilots and kept their promises by staying a certain number of years eventually left the city for greener pastures.

One specific example: SubmitOrder.com, a now defunct order-fulfillment company for Internet retailers. In 2000 the company promised to invest $79 million and generate 971 jobs with a median wage of $27,600. In exchange, the city granted SubmitOrder a 15-year property tax freeze. SubmitOrder stayed in Memphis for just one year and generated only 50 jobs during that time.

Aricle here (free reg req); via Peter Gordon.

If there were fewer low-skilled workers would the wages of low-skilled American works go up or would employers just “hire” more machines?

Interesting post by Alex Tabarrok here.

My 2004 piece, War Against the Machines, is here.

An estimated 35 states offer special incentives to lure filmmakers. Wisconsin is the most recent to jump on the bandwagon, offering tax credits and more:

But the key provision appears to be a section that goes beyond tax forgiveness. Essentially, it pays film companies for up to 25% of their non-wage production expenses - such things as hotel rooms, car rentals, meals, set construction, film processing and sound mixing - incurred within Wisconsin.

States like Louisiana, New Mexico, South Carolina and Illinois, have particularly aggressive programs:

"Everybody's jacking everything up before you can turn around," Bill Arnold, director of the North Carolina Film Office, said of states rushing to sweeten the pot.

North Carolina's film industry - among the country's leaders outside of California - developed more than 20 years ago without state-sponsored incentives, but today tax breaks and other financial carrots are considered crucial in competing for movie-makers' attentions.

Some states look almost like car dealers in the way they promote their offers.

On the Illinois Film Office Web site, users find their way to details on the state's new incentives by clicking on a two-inch-high dollar sign superimposed on pile of money.

On the South Carolina Film Commission site, an explanation of the generous rebates available carries a blunt headline: "South Carolina Pays Cash."

Article here.

Add this to the always-growing list of fads that political types fall for.

Related: Fad lovers II

Maybe some day it'll be cool to do the important things right.

To the father of modern economics, Adam Smith.

Check out this great blog by Andrew Chamberlin of the Tax Foundation comparing government tax revenues from gasoline taxes to oil industry profits, with a nice graph. Only a couple of times in the last 25 years have the oil companies made more profit than the gas taxes have made for governments.

Gas taxes as a means of reasonably funding roads makes sense. But this bit of data should give rational people pause before they lambaste oil profiteers. 'Cause the real moneymakers are the government.

Another reason people should question their impulse to ask the feds to "do something" about high gasoline prices. Do you really want to give them power over that, too?

Russell Roberts mulls over the factors that determine wages:

[Douglas] Baird points out that one of the obsessions of Henry Ford was to improve the precision of the parts of a car sufficiently so that unskilled people could assemble a car. When the parts were not machined precisely, there was a highly skilled highly paid worker called a fitter who was able to get the imperfect pieces to mesh.

So was better precision a good thing or a bad thing? In the box view of the world, it was bad. America lost the high-paying jobs, the jobs for fitters. But in the forehead view of the world, the world where wages depend on human capital (skill, knowledge and knowhow), Ford's improvement was good for the world. By finding a more efficient way to make cars, wealth was created. The people who were once fitters went on to do new things, new things that were possible partly because people now had more resources available that were once spent on assembling cars.

To find out what all this forehead and box talk is about, read the whole post.

Well, yeah:

Economists do agree that highway congestion should be solved by pricing.

Things get more complicated after that:

Beyond that primary insight, however, there is much disagreement. Economists disagree over how to set tolls, how to cover common costs, what to do with any excess revenues, whether and how “losers” from tolling previously free roads should be compensated, and whether to privatize highways.

Robin Lindsey’s Econ Journal Watch article here.

When activists tell us that 40 million Americans lack health insurance we often assume that they simply can’t afford coverage. Cost is often the reason people don’t have coverage, but not always.

Some portion of the uninsured are between jobs and a good portion could afford coverage, but they choose to spend there money on other things instead. Young people are often slow to get medical coverage (they’re not planning on getting sick), but they’re quick to spend money on other things—vacations, dining out, music, clothes. Even those of modest means make similar tradeoffs (See The Myths of Rich and Poor).

No it’s not as simple as prioritizing your way into coverage, but whether it’s with money, time, or something else—people prioritize differently. That fact will always leave others puzzled.

Take an extreme example: Carl Cook.

He has no home. He has no car. I’m guessing he doesn’t have health insurance, but he does have Clippers season tickets:

Certainly he is among the few who spend about one-third of their incomes on tickets to basketball games. Cook, who bunks down most nights on a friend's sailboat or in a nearby laundromat, said he makes $30 to $40 a job detailing cars near Los Angeles International Airport and $10 an hour as an attendant at a Manhattan Beach carwash.

His annual income, he said, is probably less than $10,000.

And yet he spent about $3,300 on tickets this season, sitting floor level near the tunnel where the Clippers make their entrance.

Why does he spend so much money on the Clippers?

"They bring me happiness."

…

"He just eats, sleeps, lives Clippers," said the middle of his three sisters, Jody Cook of Oceanside. "Every time he comes to visit, he's always in a T-shirt or a sweatshirt, something Clipper-related. And whenever I talk to him, during the season or not, he talks about the Clippers.

"I've never seen anything like him, especially to hang in there with that team, because they've not been a very successful team. …

"It's odd, but it's his life."

Article here.

BTW, I’ve hopped on the Brand Wagon. Clippers in six.

18,710,000 pot smokers

24.6 people with unclassified dry itching skin

Only 140 million drinkers?

How about trends? Migraines are up, acute digestive conditions are down, and cases of ingrown nails are holding steady.

All this and more is revealed in the recently released, 28.5-pound, $825, five-volume Historical Statistics of the United States, Millennial Edition.

Joel Garreau explains.

Some bonus bits:

Barbershops, beauty salons and health clubs went from making $500 million in 1929 to more than 50 times that -- $28.5 billion -- in 1999. But what does that tell us about comely appearance? Sad is the drop in the number of "tailors and tailoresses," going from 172,000 in 1920 to 27,800 in 1990, no matter how cheaply you can get your pants at Wal-Mart.

…

In 1980, IBM predicted that the total market for personal computers in the following 10 years would be something like that year's 246,000. Not 250,000, but a nicely precise, confidence-inspiring 246,000. The actual outcome was almost exactly 100 times greater. If the leaders of IBM had been more optimistic, would they have ever dreamed of letting their operating system be supplied by some snot-nosed kid named Gates?

[I]magine that you have never seen or heard of a roller rink. Nor an ice-skating rink. Long ago people didn't know anything of skating. Imagine yourself one of them. Imagine that a friend walks up to you and tells you with great enthusiasm about his new idea for a business:

"I'll build a huge arena with a smooth hard wooden floor and around the perimeter a naked iron hand-rail. I'll invite people to come down to the arena and strap wheels onto their feet and skate round n' round the arena floor. They won't be equipped with helmets, shoulder-pads, or knee-pads. I won't test their skating competence, nor separate skaters into lanes. Speedsters will intermingle with toddlers and grandparents, all together they will just skate just as they please. They'll have great fun. And they'll pay me richly for it!"

There’s a good chance that your friend wouldn’t be optimistic. Far too dangerous, he might say. Perhaps the only way it could work is if we hired someone really smart and ethical to run it.

Of course, that would be a misunderstanding of spontaneous order, as Dan Klein explains in this interesting essay.

Jane Jacobs also appreciated the concept of unplanned order:

Jacobs believed the most organic and healthy communities are diverse, messy and arise out of spontaneous order, not from a scheme that tries to dictate how people should live and how neighborhoods should look.

More here.

Every three years, researchers from the federal government conduct surveys about the number of appliances in the homes of American families. In 2001, ninety-one per cent of poor families owned color televisions; seventy-four per cent owned microwave ovens; fifty-five per cent owned VCRs; and forty-seven per cent owned dishwashers. Are these families poverty-stricken?

Not according to W. Michael Cox, an economist at the Federal Reserve Bank of Dallas, and Richard Alm, a reporter at the Dallas Morning News. In their book “Myths of Rich and Poor: Why We’re Better Off Than We Think” (1999), Cox and Alm argued that the poverty statistics overlook the extent to which falling prices have enabled poor families to buy consumer goods that a generation ago were considered luxury items. “By the standards of 1971, many of today’s poor families might be considered members of the middle class,” they wrote.

Consider a hypothetical single mother with two teen-age sons living in New Orleans’ Ninth Ward, a neighborhood with poor schools, high rates of crime and unemployment, and few opportunities for social advancement. The mother works four days a week in a local supermarket, where she makes eight dollars an hour. Her sons do odd jobs, earning a few hundred dollars a month, which they have used to buy stereo equipment, a DVD player, and a Nintendo. The family lives in public housing, and it qualifies for food stamps and Medicaid. Under the Earned Income Tax Credit program, the mother would receive roughly four thousand dollars from the federal government each year. Compared with the destitute in Africa and Asia, this family is unimaginably rich. Compared with a poor American family of thirty years ago, it may be slightly better off. Compared with a typical two-income family in the suburbs, it is poor.

Read Relatively Deprived here.

What the Final Four's Cinderella has in common with its economics department.

Right here.

Go Bruins.

An essay by David Schmidtz.

Related: Inequality Smackdown!

The Wall Street Journal Online asked economists Heather Boushey of the Center for Economic and Policy Research and Russell Roberts of George Mason University to debate to what degree inequality exists, and just how much it matters for the economy and society.

Read it all here.

Another idea I’ll throw into the mix is that many people actually choose to earn less than they could. Most of our grandparents probably took whatever job paid the most and today’s jobseekers certainly want big paychecks too. But they also seek other things (flexibility, more free time, less stress, greater personal fulfillment).

Jobseekers are always making tradeoffs that involve these and other factors and since it’s easier than ever before to meet our basic needs, we can probably expect more people to forego some income for other thing that are important to them.

Related: Previous smackdowns on eminent domain, privatizing social security, and outsourcing.

As usual, Lynne Kiesling dials in on the essntials of good and bad thinking on electricity regulation.

In 1997, Donald Trump made headlines and 20/20 when he tried to take private homes and businesses for a limo staging area and parking lot for one of his Atlantic City casinos. The New Jersey Supreme Court told him to park on someone else's property, despite the support of the city. Now, the Institute for Justice reports Trump has just completed negotiations to voluntarily purchase one of the properties. Has The Donald turned over a new leaf?

Vincent and Clare Sabatini, owners of a small Italian restaurant, report they have completed negotiations to sell Trump their property. They are ready to retire. Clare Sabatini, 73, said, “The time is right. It’s right for us, and it’s right for Mr. Trump. We’re happy and they’re happy.”

This is more than just a happy ending scenario. It points to a critical element of economic development that is almost always ignored during eminent domain proceedings--with time, circumstances change. An unwilling seller today may become a willing seller tomorrow.

Too often, cities let themselves be bamboozled by big developers who convince them they need all the land now, as if their project were going to be built overnight, even though their own proposals anticipate a build out of 10, 15, or 20 years. With a little creativity and patience, the so-called "hold outs" can often become satisfied sellers tomorrow. With a little tact, sometimes small property owners can be incorporated into the development plan itself.

Unfortunately, elected officials too often take the easy way out--why negotiate when you can take the land by simply getting they city attorney to file a few papers?

If you want to read more about eminent domain and economic deveopment, check out the Reason Foundation policy study here. Our Amicus Brief filed in support of homeowners in Norwood, Ohio can be found here.

Jim Glassman has a nice take on Bush's "addicted to oil" riff from the State of the Union.

Building on Sam's post about Salary.com's 2005/2006 Job Satisfaction and Retention Survey.

The top 3 reasons people want to stay at their current job caught my eye:

1. Friendly Co-workers
2. Good Managers
3. Desirable Commute

The first two reflect on the workplace. The desirable commute means they have found a way to live reasonably close, or a good job reasonably close to home. I think the survey implies the latter, because if they were willing to move where they live, a desirable commute would be less important. They could always move to a place with a desirable commute to the new job. I'd guess most people have found a place they like to live, and/or lack confidence they can find as desirable a place near a new job.

To me this is all the more reason to fight against the complacency about congestion that afflicts most metro planning organizations. Less congestion means people can reach more jobs from a given home, and thus are more likely to find themselves with those top 3 reasons to stay put.

The pre-State-of-the-Union mill was rife with rumors that President Bush was going to make expanded Medical Savings Account the centerpiece of his domestic reform agenda. Alas, health care reform got barely two grafs in his hour-long address.

In these, Bush lamented the sky-rocketing cost of entitlements – conveniently ignoring that he himself ushered in the biggest increase in entitlement spending in the past four decades by pushing for free prescription drug coverage for Medicare seniors.

Be that as it may, Bush touted the w