Wednesday, February 28, 2007

The Smallsonian Institute

The Smithsonian Institute's Secretary Lawrence M. Small is being called to be put under investigation for $90,000 of unauthorized expenses. Covering six years, Small's violations are actually quite small in the political scheme of things--"only" $15,000 a year.

I doubt Small will get into too much trouble for this. The Smithsonian is one of the few government agencies that people think are above politics. Yet this instance shows that no bureaucrats are angels. And if that's not enough, it appears that "After some of Small's expenditures were questioned, the [Board of] Regents rewrote some of the rules governing him to make sure there were no violations." They rewrote the rules just for him? No one is above politics.

Tuesday, February 27, 2007

Panic at the Exchange

A few hours ago, ABC Money posted this article which casts worry over the latest drop in the Dow Jones Industrial Average. This 200 point fall, the story goes, suggests we are in a slow-growth economy and the market is due for a correction.

First, the DJIA isn't nearly as important as people think it is. The number is the average stock price of 30 companies--just thirty--adjusted for stock splits. Granted, these are important companies whose performance has wide ranging implications. But they are not everything.

Second, the world is a messy place. This drop may be a correction for past over-optimism or next week may be the correction for today's panic. The latest tick of the market is not automatically indicative of its overall quality.

Each move of the DJIA isn't news worthy. Even big moves. They aren't nothing, but there are more important items to report. What is news worthy is the economy's next big thing, but because we don't know it we have to admit any measures of the quality of out economy--any economy--is subject to tremendous error.

Sunday, February 25, 2007

Billy Bob in Space

In about a month, I'll be travelling to Amsterdam to present my paper, One Giant Leap for Bureaucracy. The piece is about how NASA is more concerned with maintain its authorative position in space travel than allowing private citizens to enter space. NASA's just like any other bureaucracy, more concerned with its public image than bringing humanity into space.

Enter The Astronaut Farmer, a movie about Charlie Farmer (Billy Bob Thorton) building a rocket on his Texas ranch. When he tries to buy rocket fuel for his launch, FBI and a smattering of other government agencies find out and try to shut him down, notably NASA and the FAA. The overarching sentiment on why they don't want him to launch: they don't want to be embarassed.

It was a pretty good movie, though sometimes overdone and scientifically shaky. But the theme is disturbingly accurate.

Thursday, February 22, 2007

The War on Tobacco

People who support the criminalization of drug usage often note that drugs and crime are correlated. They claim the causation is that drugs cause crime. People who support the decriminalization of drugs say the general causality is the illegality of drugs cause crime, not the drugs themselves.

California has recently banned tobacco usage in prisons. This allows for testing on whether tobacco causes crime or the illegality of it does.

There's no if, and or butt about it: California's ban on tobacco in prisons has produced a burgeoning black market behind bars, where a pack of smokes can fetch up to $125.

Prison officials who already have their hands full keeping drugs and weapons away from inmates now are spending time tracking down tobacco smugglers, some of them guards and other prison employees. Fights over tobacco have broken out -- at one Northern California prison guards had to use pepper spray to break up a brawl among 30 inmates.....

At California Correctional Center in Lassen County, officials reported more than 60 tobacco offenses among inmate crews at the institution's work camps in December, Associate Warden Matt Mullin said. The same month, cigarettes triggered a brawl between 30 Hispanic and white inmates on a high-security yard. Follow-up interviews with inmates revealed the dispute was over control of tobacco sales....

At Folsom State Prison, a cook quit last year after he was caught walking onto prison grounds with several plastic bags filled with rolling tobacco in his jacket. He told authorities he was earning more smuggling tobacco -- upwards of $1,000 a week -- than he did in his day job....

Chuck Alexander, executive vice president of the California Correctional Peace Officers Association, said lawmakers should either roll back the prohibition or add stronger penalties.

"It didn't do anything but make (tobacco) a lucrative business," he said.
HT: Steven Levitt

The H-Bomb and You

Here’s a pamphlet from 1954 on how to survive a hydrogen bomb attack, and what you can do to help prevent attacks.

Just remember, Civil Defense is Your Job.

Peace, Prosperity and Pants

Free-market economists hear a lot of reasons for why protectionism is a good idea. One of the stranger ones I've come across lately is national security. We need a lot of factories in case we get in a war. That way we can start making war machines right away. It's all about mobilization.

But if it is truly worth making society less wealthy to gain a tactical advantage, why not take it to the next level? Why not start producing an army of tanks now? We could have even more mobilization. We could travel a less and pay Boeing to start churning out stealth bombers instead of planes. American Eagle can sew legions of uniforms. I bet Starbucks could come up with some delicious instant coffee. Even if we don't end up using this stuff before it rusts, it will at least act as a detterent. That's actually a lot better because now people aren't dying in a war. Isn't that worth a new pair of pants?

What's nice about trade is it lets us have both the detterent and the pants, even if we don't have the tanks. Buying Japanese cars makes their auto-industry happy. Giving investors a profitable place to invest their money makes them happy too. What their people will do to them, not us, helps the government from being a war monger. But the effect is the same: peace, prosperity and pants.

Tuesday, February 20, 2007

A War Against Toasters

Last night, Lou Dobbs was very upset because we are losing the war against drugs. He wrote a commentary last week about how drugs are destroying our society. One has to wonder, then, why the online poll on his website is (currently) running 80% in favor of legalizing marijuana.

It's actually not that hard to see because any "war" against an inanimate object will either be won very easily or become something entirely different (and much harder to succeed). Suppose the US declared a war against toasters. Two things might happen. The first is that the American people will rise up against their bread-grilling overlords and smash them to bits. War fought and won. But the second is much more likely: it will stop being a war against toasters and start being a war between toast-lovers and toast-haters.

Some people like doing drugs. A few of them would be better off if they don't, but others are happier despite its costs. We all, in fact, do things that aren't great for us and we wouldn't want people to micromanage our lives. If you are willing to say that certain drugs are unhealthy and should be banned, you must do the same of smoking, drinking and fast food. There's surviving life and there's living life. Let them eat toast.

Saturday, February 17, 2007

How Windfall Profits Blow in New Technology (All By Themselves)

I've been in a lengthy discussion with a blog by William and Mary's American Constitution Society concerning the vices and virtues of a windfall tax for oil companies. Firms could assuage this tax, their post goes, as they shift money to developing sources of alternative fuel.

The author--Darren--notes that oil companies have a tremendous incentive to create the Next Energy Source but paradoxically concludes we should use the government to force them to do just that. I completely agree with Darren on his first point, thus I see little reason for the conclusion. As Julian Simon pointed out, increasing prices attract entrepreneurs and investors to employ or invent substitutes and stretch current technology.

No one knows how long it will take the new technology to surface, let alone become feasible. Our dynamic economy needs to be able to use a vast array of options to satisfy humanity's long and short term goals. One unintended consequence this tax could encourage too much development in an unrealized technology, forgoing an expanse in oil production now. At best Darren's idea does nothing. At worse, it sabotages the present and, in doing so, delays the future.

Friday, February 16, 2007

Gore's Increasing Carbon Footprint

In his quest to against global warming, Al Gore is hosting “Live Earth” concerts on all the continents, “including the first ever rock gig in Antarctica.”

Apparently Gore feels that burning who knows how much fossil fuel and increasing his carbon footprint is a good way to lower emissions. My question is how many people will watch the concert and say “Hey, now I’ll stop burning so much gas since Mr. Environmentalist burned through untold barrels of oil to go to one of the most desolate and undeveloped places on earth. Now I’m convinced that wasting energy is a bad idea.”

Thursday, February 15, 2007

Save Lives and Win Fabulous Prizes

Mason's Broadside ran an article this week about Abul Hussam, a Mason chemistry professor who won a $1 million prize for creating a filtration system for South East Asia. The goal of the Grainger Challenge Prize for Sustainability was no small task. The system not only had to reliably filter arsenic, it also had to be easy to maintain, affordable, socially acceptable and environmentally sound.

This is an apt example why technological development is best pursued in a de-centralized way. Instead of creating a single committee, bureaucracy or "task force," the Prize signaled to countless people that this problem exists and is worth solving.

I doubt a government bureaucrat could replicate the job Hussam did. Not only is he a professor of chemistry (perfect for filtration), he's from Bangladesh and is intimately familar with daily life and the resources locals have access to. His system is built around the people and their world, allowing them to make their own filtration system from easily found resources. Useful technology doesn't just come from knowledge discovered in the lab. It also draws upon the vast stock of information some of us had since we were children.

Wednesday, February 14, 2007

Benefits of Private Property

I’ve been reading a history book called “History of the United States” printed 1880 by John Clark Ridpath. After discussing the disastrous situation at the early Jamestown colony, he noted the following.

Thus far the property of the settlers at Jamestown had been held in common. The colonists had worked together, and in time of harvest deposited their products in public storehouses. Now the right of holding private property was recognized. Governor Gates had the lands divided so that each settler should have three acres of his own; every family might cultivate a garden and plant an orchard, the fruits of which no one but the owner was allowed to gather. The benefits of this system of labor were at once apparent, and the laborers became cheerful and industrious.

To My 2002 Toyota Corolla- Happy Valentine’s Day!

This past week – for the first time ever – I patronized Amtrak, the socialized train system. Amtrak is one of those publicly-operated “firms” that past many people’s radar because they think it’s privately owned and operated. (In fact, someone once argued with me that it had to be a private corporation because it was such a lousy system and the federal government could surely do better!) Riding it was a good experience for me because it not only secured my own views against it but it also let me experience the ride with those who rely on it everyday.

Where I’m from, fewer people take public transit than those on the east coast, who seem to treat it like a form of life support. That’s understandable considering the close proximity of locations, the older cities that can’t accommodate multilane highways and parking lots, and the cultural expectations of the public. Out here in the west coast, where land was once cheap and (still is) plentiful, traffic and parking lots accompanied development. Where I live, this tends to produce two types of people: those who see public transit as a completely worthless enterprise and those who bemoan the fact that an efficient public system is impossible given the current suburban lifestyle.

As I mentioned, riding Amtrak and the Metro while in DC this past week helped me realize that merely unplugging the government funds from public transportation systems and letting them collapse – a position that I’d held for years – was completely unrealistic. These people can’t just switch to cars. Until a workable plan for private mass transportation appears, public trains and subway systems will have strong support, regardless what any of us who avoid urban life try to do about it.

Tuesday, February 13, 2007

Trading with the Sea

Trading with the Sea

Frederic Bastiat sums up my feelings towards the trade deficit. He tells a story about himself and the protectionist Mauguin:

I was at Bordeaux. I had a cask of wine which was worth 50 francs; I sent it to Liverpool, and the customhouse noted on its records an export of 50 francs.

At Liverpool the wine was sold for 70 francs. My representative converted the 70 francs into coal, which was found to be worth 90 francs on the market at Bordeaux. The customhouse hastened to record an import of 90 francs.

Balance of trade, or the excess of imports over exports: 40 francs.

These 40 francs, I have always believed, putting my trust in my books, I had gained. But M. Mauguin tells me that I have lost them, and that France has lost them in my person.
Bastiat earned 40 francs in profit, but according to the government bookkeepers France was in deficit, which was bad. Bastiat follows with a second story:

I had had some truffles shipped from PĂ©rigord which cost me 100 francs; they were destined for two distinguished English cabinet ministers for a very high price, which I proposed to turn into pounds sterling. Alas, I would have done better to eat them myself (I mean the truffles, not the English pounds or the Tories). All would not have been lost, as they were, for the ship that carried them off sank on its departure. The customs officer, who had noted on this occasion an export of 100 francs, never had any re-import to enter in this case.

Hence, M. Mauguin would say, France gained 100 francs; for it was, in fact, by this sum that the export, thanks to the shipwreck, exceeded the import. If the affair had turned out otherwise, if I had received 200 or 300 francs' worth of English pounds, then the balance of trade would have been unfavorable, and France would have been the loser.
And thus in terms of the trade deficit, there are some who would feel it better to trade with the sea than to trade with others and get something in return.

And the Money Keeps Flowing

It very easy to find data about the US trade deficit. For example, today a major headline on Google News blared "US trade deficit surges to record $763 billion." Most people find this to be a bad thing, which I suppose is why this data--historical and otherwise--are so easy to find.

It's much harder to find data on the US capital account, or the difference between foreign investment in the US and American investment abroad. The money being invested elsewhere is called an outflow and the money commoning in is called an inflow. Most economists realize a trade deficit is the mirror image of the capital account; the numbers are essentially the same, which might be why they are hard to find. If you don't agree, I found a nice pair of graphs.

This is a little rougher than I'd like but bare with me. First, note the second graph (found here) covers about twice as much time as the first one, so pay attention only to the 1990s. Second, ignore the grey bars. They are not important for our purposes. Third and most importantly, pay attention to the difference between the inflow and the outflow--remember that's the capital account.

This difference follows a pattern that mimics the trade deficit. In the 1990s, the trade deficit was small, as was the difference between the capital flows. In about 1997, the deficit took off just as inflow rapidly outpaced outflow. 2001 showed a little bump in the trade deficit when the inflow fell a little sharper than the outflow. Take a close look at the end of the second graph. The difference looks to be about $600 billion, matching the trade deficit in the same time period.

Trade is a cozy relationship. When a country does well, wages go up and it imports a lot, increasing the trade deficit. But wealthy country are also great places to invest and that money is sent back in another form: capital inflow. Some sectors are helped and others are hurt, but in the big picture a trade deficit isn't something to be feared.

Monday, February 12, 2007

What Businesses Want

Conventional wisdom hold that corporations love free markets, which is why they don't want to be nationalized. However, some economists note that corporations hate free markets, which is why they lobby the government to get special laws that make their job easier (subsidies, tariffs and so forth). Both have a good point. How do we reconcile this?

The fact of the matter is, corporations love the free market to the extent they love competition. They want a lot of flexibility to sell their product and a lot of flexibility to buy inputs (workers, materials, energy, etc). When selling, they hate competition, thus they want little free market activity. They desire special favors and exclusive contracts. It makes selling easier. When buying, they love the free market. They want the cheapest stuff possible and the ability to change their minds. This is what the free market allows.

So what do they like more? Generally, inputs exceed outputs so companies have more to gain by restricting trade on a particular product than to liberate trade on a different product. But the relationship is far from pure.

Friday, February 09, 2007

Price Controls and the Great Depression

Arnold Kling and Brad DeLong have been debating the merits of the New Deal. One of the aspects that I dislike the most was the price fixing, some of which still remains today in agriculture. In the book How Capitalism Saved America, Thomas DiLorenzo quoted John Flynn on the price fixing behaviors. There were code enforcement police in the New York garment industry who

roamed through the garment district like storm troopers. They could enter a man’s factory, send him out, line up his employees, subject them to minute interrogation, take over his books on the instant. Night work was forbidden. Flying squadrons of these private coat-and-suit police went through the district at night, battering down doors with axe looking for men who were committing the crime of sewing together a pair of pants at night.

A tailor from New Jersey was arrested, convicted, fined, and imprisoned for pressing a suit of clothes for 35 cents when the legally mandated price was 40 cents.

I’m not the sort of neo-Keynesian who believes that sticky prices cause recessions, but when prices are this sticky and with such a brutal enforcement mechanism (especially when going through massive deflation) I would argue that sticky prices, or price controls in this case, did contribute to the depth of the depression. (Not that they caused it, but were another factor.)

Safety In Numbers

The vast majority of humanity is not stupid. We certainly make mistakes and are sometimes careless, but we are not stupid. Certainly not when it comes to our personal safety. If you bought that you are, apparently, wrong.

New York senator Carl Kruger knows better. "We have a major public safety crisis," he said. What is this crisis? Drunk driving? Terrorism? Nothing so obvious. The new culprit of our time is far more user-friendly. It's the iPod, that dreaded device so alluring that people become brainwashed and stumble into on-coming traffic.

Kruger wants to save us from ourselves (or rather our catchy tunes) by proposing a bill making it illegal to use any electronic device while crossing a street. Violators will be punished with a $100 fine. I personally don't care enough about my life recall childhood lessons about looking both ways, but $100? That's 100 frosties!

Over the past five months, Kruger has personally heard of as many as three iPod-related deaths. Maybe that fine should be $110 just to be sure.

Saturday, February 03, 2007

February's Most Random Wikipedia Page Is...

List of objects dropped on New Year's Eve. It's about time we had this article!

This month's installment marks the 12th random Wikipedia article I've tracked down--I've officially been doing this for a full year. While I'd like to maintain this tradition, a couple of events make me hesitent. The first is Mike's discovery of this page, a Wikipedia article that does continuously what I do only monthly.

While merging my monthly "column" with the list, I stumbled on a second reason: some of my Wikipedia articles have been deleted, notably the one that started this whole mess: List of sets of unrelated songs with identical titles. (Other items nominated for deletion that day: List of fictional characters that regularly wear shorts, Veil Fetishism, Tuba (mythology), and perhaps the one I disagree with the most, Bureaucrash.)

PS: Runner up this month was Pipe Smoker of the Year, a discontinued award which honors famous pipe smokers. However, my research for the above paragraph led me to this month's winner; I couldn't resist.