Monday, April 30, 2007

Wealth and Money (Part 2 of 2)

About an hour ago I wrote a short post about how wealth and money are not the same things, a fallacy Lou Dobbs falls to when he complains about the trade deficit. This is such a critical distinction I thought it was worth two posts. (I almost wrote one long article but I think it's more likely people will read two short ones. Besides, the posts are distinct enough to stand on their own.)

To cement our understanding of the distinction, let's play a game. Suppose I give you $100,000 to be spent on any consumer goods (no investments) you might like. It could be a car, a laptop, clothes, jewelry--you name it. But here's the interesting part: you have to spend it all in either 2007 or 1957 (the year Dobbs seems to cherish so much).

Keep in mind that you'll be spending it in 1957, with all the stuff that goes with it. Also keep in mind that your $100,000 is now worth $727,276.30 (after we adjust for inflation). What would you do?

I can imagine some people will buy in '57. They might love a car of the era or be a fan of the style. But most people--including myself--will take the higher prices and shop now. If you disagree, think of all the things you would buy now and then ask if you could get those half a century earlier.

But Dobbs tells us money is the ultimate source of wealth, that is people should want to buy in 1957. To him laptops, iPods, and cable television is no different than typewriters, jukeboxes, and three channels. But most people know better: more quality and volume is often worth spending a bit more.

That's what trade does: it gives us more. We send our dollars "elsewhere" but who cares? It's not about the money, it's about what you buy. If trading with foreigners makes us wealthier, then let's close the time portal and open the ports.

Wealth and Money (Part 1 of 2)

Earlier today Donald Luskin at the National Review tackled Lou Dobbs' Congressional testimony, held last month. While he explains why Dobbs is wrong, they are not always make quite the same points I'd make (though they are accurate). One, in particular, deserves special commentary.
Second, and more important, the argument that the trade deficit is a "drag on growth" at all makes no concrete economic sense. Yes, if we imagine that every penny spent on imports were instead spent on similar goods made in the U.S., then our gross domestic product would be higher, by definition. But what if there were a law saying U.S. consumers could no longer buy, for instance, German beer? Does that mean U.S. consumers would actually switch to American beer? The answer is not clear. And even if they did, given that today some consumers must prefer German beer to American beer when there is choice, it’s not evident that our growth would be any higher, as Dobbs predicted.
The crucial point, the idea everyone always seems to skip over, the idea that Luskin notes but doesn't embrace, is that money is not the same thing as wealth.

Economists often treat money and wealth as the same simply because true wealth--computers, haircuts, trips to the Grand Canyon, and all the other things that increase the standard of living--is hard to judge. We know that $1,000 is more than $100 but is one car better more than 100 DVDs? Depends on the car, the DVDs, and who you are.

Money is a convenient shorthand because money can be turned into anything. Generally this simplification isn't a problem until people start claiming dollars are more important than wealth. This is Dobb's mistake. Trade means everything is cheaper; we can use the same amount of money to buy more wealth. Less trade means less wealth. When Lou Dobbs says the country should sacrifice production to keep more pieces of paper in the country, he is actually telling us currency is better than the things we buy it with. He thinks that a nation which merely sits upon a throne of gold is wealthier than one of jazz, Spider-man, stuffed animals, and CNN. If people wished to they could hoard dollar bills in their mattress and claim affluence. But they know better: money is a means, not an ends.

Happy Belated Earth Day

Here’s the Daily Show on Earth Day.

Saturday, April 28, 2007


Here's a noodle-scratcher. You're a maker of video game consoles and you've recently released your new machine that's taking the world by storm and outperforming all expectations. But over at a major computer gaming magazine, someone's suggesting your success is bad for the industry.

PCWorld's Matt Peckham wrote yesterday contemplating if Nintendo's Wii astonishing popularity is bad for the gaming industry. While acknowledging that the economic pie grows "slightly" more, it ultimately results in "smaller slices for everyone."

If Peckham's talking about Nintendo's competitors then of course he's right. If Nintendo's attracting Microsoft's and Sony's customers, then the Wii isn't too great for them. A bigger slice for Nintendo, smaller for a handful of other firms.

But if he's referring to the industry as a whole--which must include its customers--then one has to wonder what's going through his mind. Of course the Wii's success is good for the industry. It's raising standards in a way no one has seen in recent memory. It's drawing new people to the gaming world, securing the industry's survival. It's enriching the lives of consumers all over the world. Nintendo may be picking up it's competitor's profits but it's doing so only because so many people want to join the Wii revolution. It may be bad for competitors but it's good for everyone else.

Friday, April 27, 2007

Coase and the Curfew

Cleveland kids may be fighting the law a bit more this summer. The city is enacting a new, earlier, curfew for young teens. Apparently, with so much time on their hands, they are running around making noise and driving some citizens crazy.

Time for a lesson from Ronald Coase. As he noted, it is not, say, sparks from a railroad that are the problem but those sparks in the presence of a wheat field (which cause nasty fires). Similarly, it is not kids who are out are night, or even loud kids out at night, but loud kids in the presence of people trying to sleep. The problems that occur when both are present should not be solved by denying kids the right to be out at night (or banning railroads).

A better solution would be a fine (even better would be that fine then paid to the harmed parties). Noise complaints would followed up by an officer not just breaking up the offenders but issuing a ticket. I guarantee there will be fewer noise problems without punishing those who just want to stargaze.

Thursday, April 26, 2007

Boris Yeltsin & Three Stooges Syndrome

Did Boris Yeltsin suffer from Three Stooges Syndrome (video)? Former general and Secretary of the Security Council Alexander Lebed who served under Yeltsin had this to say about the recently deceased Russian leader:

He's been on the verge of death so many times...His doctors themselves are in shock that he's still alive. Half the blood vessels in his brain are about to burst after his strokes, his intestines are spotted all over with holes, he has giant ulcers in his stomach, his heart is in absolutely disgusting condition, he is literally rotting...He could die from any one of dozens of physical problems that he has, but contrary to all laws of nature -- he lives.

Wednesday, April 25, 2007

Is Modern Society More or Less Violent?

Before the tragedy at Virginia Tech I was discussing with friends on whether society is more violent now or in the past. I am inclined to think that despite the violence we hear about and the violent movies and video games, we are a much more benign people today.

While our entertainment in movies and games can be violent, it is better than older forms. From the cultured French:

In 16th century Paris, a popular form of entertainment was cat-burning, in which a cat was hoisted on a stage and was slowly lowered into a fire. According to the historian Norman Davies, "the spectators, including kings and queens, shrieked with laughter as the animals, howling with pain, were singed, roasted, and finally carbonized."

Not to be out done, the British engaged in bear baiting. Bears were chained in a pit, and hunting dogs would be set on it until it was killed. A variation on this was whipping a blinded bear. A Spanish nobleman was taken to a show where an ape was tied to the back of a pony. He commented "to see the animal kicking amongst the dogs, with the screaming of the ape, beholding the curs hanging from the ears and neck of the pony, is very laughable."

More primitive societies today seem to be more violent. If you think football, boxing and cock fighting are violent, you should avoid kok-boru. This game is popular in Central Asia. A goat is decapitated and the legs are cut off at the knee. Eight players ride on horses and try to grab the goat and toss it through a stone ring. Whipping and punching other players are part of the game, and the only protective gear are World War II Soviet tank helmets. China, Kazakhstan, Russia, Tajikistan and Uzbekistan all have national teams.

Edward Miguel of Berkeley did a fascinating study on modern witches in Tanzania. Families take care of the older relatives. When extreme rainfall is experienced (drought or flood) it becomes more expensive to feed the family. When these extreme events occur, older women are accused of being witches and killed by family members. In other words, when it gets to expensive to take care of the elderly they are branded as witches so as to justify their murder.

The Economist recently ran an article on honour killings in Turkey. The opening story was of a man who killed his sister because she eloped. He resisted killing her for three months because he loved her, "but then neighbours stopped talking to him, the grocer refused to sell him bread, the local imam said he was disobeying Allah, and his mother threatened to curse the milk she had breast-fed him." And so he put 7 bullets in her. A report that came out last August found that almost 1,100 honor killings happened in the previous five years, over four a week. Fifty-one of the killers were interviewed, and only three expressed regret.

While modern society is far from perfect, I feel that things are getting better. Though some of our entertainment is violent, it is fake. We don’t have social norms to kill family members if they do something disgraceful. If it becomes expensive to take care of someone, we don’t murder them in the name of witchery. While incidents such as Virginia Tech are tragic, the fact that it is so tragic shows how far our society has progressed.

Tuesday, April 24, 2007

The Opportunity Cost of Going Flat

This week on EconTalk Russ Roberts interviewed Alvin Rabushka. author of The Flat Tax. I haven't heard the whole podcast (having misplaced my earphones) but one virtue is worth emphasizing: the elimination of jobs.

Even if the bureaucratic process allows all those thousands to keep their job at the IRS despite many of them being useless, the economy will still see legions of tax preparers, software makers and lawyers go out of business, or at least that section of the company. And entire industry would be rendered obsolete overnight! The savings to the taxpayer would be immense, even if everyone ends up paying the same amount.

"But David," you might say, "aren't jobs good?" It depends on what they add to the economy. Digging wholes only to fill them up is a job but it adds nothing. Making buggy whips in a world of cars doesn't do much either--nothing eliminates jobs like technology. If we can get the same thing (an adequately funded government) for less, then why wouldn't we want it? The saved resources (time and money) would allow us to do so many things, making society even richer.

Supporters of our current tax system will note that we don't get the exact same thing with the flat tax and that's true. (We don't get the exact same thing swapping buggies for cars either, but very few stick to traditional horsepower; just because it's not strictly better doesn't mean we shouldn't move.) Some people will pay more and some will pay less. But the point here is that everyone will save a lot on preparation.

Monday, April 23, 2007

Kidding or Not?

Dave Barry commented on his blog “sometimes this blog cannot tell when people are saving the earth, and when they are kidding.” He said that in response to this Sheryl Crow quote:

One of my favorites is in the area of forest conservation which we heavily rely on for oxygen. I propose a limitation be put on how many squares of toilet paper can be used in any one sitting. Now, I don't want to rob any law-abiding American of his or her God-given rights, but I think we are an industrious enough people that we can make it work with only one square per restroom visit, except, of course, on those pesky occasions where 2 to 3 could be required.

I hope she is kidding, but given the crazy things environmentalists say I’m not sure she is. The green wisdom continues from the singer:

This next idea I have been saving but I will share it with you if you promise not to steal it. It is my latest, very exciting idea for creating incentive for us all to minimize our own personal carbon footprints. It's a reality show. (I feel pretty certain NO ONE has thought of this yet!) Here is the premise: the contest consists of 10 people who are competing for the top spot as the person who lives the "greenest" life. This will be reflected in the contestant's home, his business, and his own personal living style. The winner of this challenging, prestigious, contest would receive what??. . . . a recording contract!!!!!

Sunday, April 22, 2007

The Scientific Process of Scientific Progress

To celebrate Earth Day I finally took the opportunity to watch Warren's recommended movie, The Great Global Warming Swindle. It was quite good. So good, I went over to Wikipedia to see why they said about it.

One of the stranger complaints involved the drama concerning Carl Wunsch. Wunsch appeared on the film describing his work on the feedback mechanism of oceans, CO2 and heat. Warmer oceans release CO2, warming the atmosphere, and thus the oceans. Cooling the oceans absorbs CO2, cooling the atmosphere, and thus the oceans. The movie uses his work to describe how the jump in CO2 in recent years isn't something that is obviously man-made. An outside element (such as additional solar activity) could have initiated a feedback loop.

Wunsch, as it turns out, believes that humans are the original source of the problem, not the sun, and accuses the producers of "misrepresenting" him. It's true that from the movie, one would think he's a member of the skeptics camp and in that way I can see why he is upset. But some people have taken this incident to mean there's something wrong with them using his science, or something wrong with the producers in general, or that they didn't portray the science accurately. But they did portray his work accurately--they just used it in a way he didn't like.

If someone used my work (accurately) to support government funding of research, I would say "that's an interesting take--let's talk about it." I would claim I'm being misrepresented if I was painted as being in that person's school of thought. Wunsch's anger is understandable, but alludes to a disturbing problem with climatology: perceptions are becoming far more important than good science. The truth may not be in a direction you agree with which is why you have to allow your work to be used in a way you might not like. We want scientists to be willing to let such ideas be explored freely. Climatology, in its current state, is not in that position. This is what happens when science becomes media-saturated and politically entrenched: perceptions, not science, take the center stage.

Saturday, April 21, 2007

The Nature of Liberty

A think tank in England--Civitas--is handing out a pamphlet expressing concern about immigration. The "seemingly reckless pace" is causing the UK to reach a point where it is no longer a single nation--whatever that means.

According to the Civitas website, they are a "classical liberal" think tank, much like this blog is classical liberal. I've never seen such a self-described organization call for more government control. Civitas complains that housing prices are increasing, makes Dobbsian arguments concerning a loss of jobs for natives and expresses concern about changing culture.

I am unsure how a classical liberal organization could be so sloppy in their economics. Immigration may cause housing prices to increase in the short run, but it also makes so many other things cheaper, including, in the long run, housing prices. A more efficient (cheaper to run) society means a richer society because we can spend more resources on other things. Technology, too, eliminates jobs "for natives" but I doubt Civitas are Luddites.

Concerning culture, Civitas writes on their blog: "All free peoples are entitled to protect their institutions by ensuring that newcomers share their ideals." Yet free people also know that true freedom means experimentation, the risks of bad ideas, and the rewards of novelty. They detest the very notion of requiring that others need their approval to be included in something as wonderful as a free society.

Friday, April 20, 2007

Encompassing the Country

One of the more interesting but less reported stories this week is the battle on Capital Hill concerning the voting rights of DC. The 550,000 people who live in the District do not have a Representative in Congress (though they have to pay taxes). The bill would give them a Representative (though they would still not be a state and still not have any Senators).

Because DC proper is more Democratic than a minority donkey at the SAG Awards, Republicans aren't too keen on having more competition. Some opponents call it unconstitutional because only states get representation (which seems more like a reason to make DC a state than to deny them an active part in the process). Rep. Tom Davis of Virginia had a different idea: add another Representitive of your own.

Slapped onto the bill is an at-large Utah Representative, justified on the grounds that Mormon missionaries abroad supposedly made the state fell short of its deserved representation (it was only 857 people shy). Davis claims that this is how "it's done" when new Reps are added: the parties are balanced. This completely misses the point of including DC (though I'm sure many Democrats wouldn't be too keen on including the District if it was the Republican Mecca). The goal is not to achieve party balance, but balanced representation. Throwing in a bonus Representative does not help achieve that. Utah will get their due in three years (when the census is recounted). But DC's already been waiting for over two centuries.

Thursday, April 19, 2007

Only Nixon Could Sue Yahoo

Wang Xiaoning is a Chinese activist currently held by the Chinese government and undergoing torture. So angry with with what has happened, his wife is suing Yahoo.

Wait, what?

Apparently the company gave the government the name which they had because Xiaoning used Yahoo. Yahoo claims they were told it was for a murder investigation--though its impossible to tell they believed the government's claim. Xiaoning's wife clearly doesn't think they did. Of the matter she said:
Yahoo betrayed my husband for their business interests. They literally destroyed my family. All my husband did was express his political views.
Let's get one thing straight. Yahoo didn't destroy your family, the government did. The government's the one that arrested her husband. The government's the one that's holding him. The government's the one that's torturing him. Not Yahoo.

The sad part is that firms working in China are getting a healthy dose of rent extraction: when a government threatens X action (like making it difficult/impossible to do business in their country) preventable only in exchange for Y benefit (in this case, the name of a political activist). China's the one with a gun not just to the husband's head but Yahoo's as well. Don't blame Yahoo because a government forced them to break their promise. Blame China.

Global Warming Videos

After watching An Inconvenient Truth, I wondered when the opposing view would be made into a movie. The Great Global Warming Swindle came out and I thought the market had made its reaction. Then I found out that a similar video had already been made in 1990. Last night I went to the Heritage Foundation and watched the new film An Inconvenient Truth or Convenient Fiction? It was done in a style similar to Gore’s, with obvious shots to mimic him. I didn’t think it was as good as The GGWS (I liked hearing straight from the scientists), but it was still worthwhile to watch.

Wednesday, April 18, 2007

Vonnegut on Equality

In Prof. Wagner's class, he often reminds us of a critical question: How do you slice a pie if the more evenly you divy it up, the smaller it becomes? In other words more equality also makes us poorer, so what's the optimal distribution?

This is a hard question for some (I personally put myself firmly in the large pie camp), but those that don't see how forced equality diminishes everyone's wealthy always demand as much equality as we can get. For them, I reccomend Harrison Bergeron by recently deceased author, Kurt Vonnegut.

Tuesday, April 17, 2007

Adam Smith on Taxes

Adam Smith gave four signs of bad taxation:

1. If it requires a large bureaucracy for administration.
2. If it “may obstruct the industry of the people, and discouraged them from applying to certain branches of business which might give maintenance and employment to great multitudes. While it obliges the people to pay, it may thus diminish, or perhaps destroy, some of the funds which might enable them more easily to do so.”
3. If it encourages evasion.
4. If it puts people through “odious examination of the tax-gatherers, and expose them to much unnecessary trouble, vexation, and oppression."

In conclusion, “It is in some one or other of these four different ways that taxes are frequently so much more burdensome to the people than they are beneficial to the sovereign.”

(From Charles Adams’ For Good and Evil: The Impact of Taxes on the Course of Civilization)

Monday, April 16, 2007

Protection Prohibition

I'm not a gun person. I don't like shooting them, I don't handling them, I don't even like being in the same room with them. The tragic shooting at Virginia Tech reinforces that sentiment.

And yet I find myself wishing some of those other students carried guns. No, I'm not a member of the NRA. But it's worth noting that if some of those students were armed, fewer people would be dead because we would have more good guys able to do something about it.

Crimminals don't care that much if they break the law--that's why they're crimminals. The shooter broke laws (by bringing a gun on campus) but the good guys, because they are the good guys, didn't. So the laws actually gave the bad guy an advantage. Horrible, but true.

It's no different than anything else, really. The mafia loved Prohibition because they could charge higher prices for alcohol. Drug dealers love the War on Drugs for similar reasons. Crimminals love gun laws. Yeah, it makes things more expensive for them, but it makes it far more expensive for everyone else and they come out ahead.

Sunday, April 15, 2007

“He is the master of us all.”

Today is Leonhard Euler’s 300th birthday. He was the most prolific mathematician ever and touched on almost every area of math, contributed to physics, and was a polyglot. And I mean prolific:
Before his death at 76, he had written more than 800 papers and books on pure and applied mathematics. In 1775, he composed about one paper a week, ranging in length from 10 to 50 pages. (Twenty papers is considered a good lifetime output for modern mathematicians.) His collected works fill 25,000 pages in 79 volumes, including five of correspondence to the leading thinkers of his day.

Euler went blind but still would produce papers by dictating to a scribe. The Mathematical Intelligencer took a poll of the five most beautiful equations in math. Euler had three of the top five. Fellow mathematician Laplace said “Read Euler, read Euler, he is a master for us all.”

Thursday, April 12, 2007

Listening to the People

I'm not sure how widespread this is in the blogosphere yet, but in the May issue of Reason magazine there's an article about LibriVox, a new venue for common-based peer production.

While Wikipedia focuses on articles, LibriVox is about audiobooks. Anyone can record a reading of any source in the public domain and these recordings are distributed for free. I'm currently listening to one Jim Cadwell read the Declaration of Independence of the United States of America. He's quite good and it makes me wonder how I'd do.

Once I get a microphone I might just give it a try. Looks like no one's working on the Wealth of Nations....

Commentator's Dilemma

Tonight Larry Kudlow discussed the firing of Don Imus and the quality of media debates. Paraphrasing, Kudlow asked if civilized, adult debate possible. Can we evade name calling, slurs, and low brow "arguments"? Can debates, especially in the political sector, become conversations and not yelling matches?

The whole thing is classic prisoner's dilemma. If two pundits agree to be civil, then there's a lot to gain for the defector. If one person is trying to keep the conversation high brow while the other calls him a jerk, then, to many people, the former looks soft and the latter looks like she knows what she's talking about. So they both act like jerks.

One way to get out of this dilemma is to force people to respect each other: introduce a moderator. But good luck finding someone who can be trusted to be neutral about such high-profile issues.

Insecure Food

To demonstrate the subsidizing realities of Social Security, a student group on campus set up a social "insecurity" bake sale in the Johnson Center. Charging $1.00 for freshmen, $0.75 for sophomores, $0.50 for juniors, and $0.25 for seniors their goal is to demonstrate how younger generations will have to pay more and more to continue to support older generations.

I noticed the sign and jokingly asked the vendors if graduate students ate for free. To my surprise he said yes and I grabbed a cookie. It was quite good.

So to my fellow graduate students: there is free food in the JC. And if it's anything like the real social security, get it while you can because there won't be enough to go around.

R.I.P. Kurt Vonnegut

Kurt Vonnegut passed away last night at the age of 84. I enjoyed reading his books in high school, and kept reading his books and short stories after words for fun. One of my favorite stories by him is Harrison Bergeron.

Here's his web site

Here he is on Comedy Central

Here's wikipedia

Wednesday, April 11, 2007

The Most Interesting Sentence I Read Today

"What we currently call the poverty line is so high that only the top 6 percent or 7 percent of the people who were alive in 1900 would be above it."

From a Robert Fogel interview by the Richmond Fed (PDF).

Gingrich Kerry Debate

Yesterday I attended the debate between Newt Gingrich and John Kerry on Climate Change. Both took the position that man is the driving force behind the warming earth and something needs to be done and quick.

Gingrich stated that economic growth matters, and leadership should start with science, entrepreneurship, innovation. He advocated the use of prizes to spur innovation, citing the X-Prize as an example, among others. He also supported various tax breaks and incentives to promote greenness. He said something to the effect that he doesn’t want a “laissez-faire market, but incentive based market.” This statement left me confused, as I assumed that laissez-faire markets were all incentive based. I assume Gingrich meant he wants a politically incentivized market, fit to his wants and desires.

Kerry stated his support for the prizes, and said we had a “moral obligation” to meet this. He repeated you can’t believe “half the science,” I assume he meant all the catastrophic predictions that some scientists make along with the scientific ones, although I’m not sure. He kept citing the sulfur dioxide reductions as a model for CO2 cap and trade legislation. He said we’ll hit the “tipping point” if we hit 450 part per million (ppm) CO2 concentration. He said that the worst thing that will happen if he’s wrong is that more jobs will be created, more technology will be made, health will be better, and we’ll have energy independence. I’m used to politicians exaggerating or giving ridiculous promises, but having all this seems completely outlandish and nothing but vacuous political rhetoric. He seemed to have no concept whatsoever of tradeoffs (gain jobs in the wind sector, but lose jobs elsewhere) or rent seeking (he mentioned companies who already do something green lobby to coerce other companies to do the same). He felt that “We’re living outrageously as an outlaw.”

At the end of the debate I didn’t really feel good about either of them, but felt better about Gingrich. Kerry seemed pessimistic and that unless we undertook all sorts of big measures now and listened to him we are all but doomed. Gingrich seemed optimistic and had faith in the markets to create solutions, if properly incentivized by tax breaks and prizes. They both want more government, but just applied in different ways.

Tuesday, April 10, 2007

William Tell, Tax Revolter

The story of William Tell is well known, but not the reason for his actions. In 1273, the Austrian Hapsburg family refused to acknowledge the independence of the communities of Schwyz and Uri and attempted to tax them. The Swiss rebelled against paying the Hapsburgs, including one William Tell. For his punishment, he had to shoot an apple from his son’s head with a crossbow, and became famous for his tax evasion. The revolt against oppressive taxation gained traction in 1291 when three communities formed a mutual assistance league against Austrian taxes. Other communities joined, and Switzerland came into existence. In 1315 the Austrian troops entered Switzerland, outnumbering the Swiss about ten to one. The Swiss won the battle and subsequent ones, and currently has one of the best tax systems in the world (and by best I mean least burdensome).

(From Charles Adams’ For Good and Evil: The Impact of Taxes on the Course of Civilization)

Wednesday, April 04, 2007

The Rosetta Stone and Tax Immunity

In ancient Egypt (prior to 200 BCE) Egyptian soldiers returned from war and found they had to pay more in taxes. Greeks ruled the country and were the best at collecting them. The soldiers initiated a civil war that lasted for more than a decade.

To restore peace, the king Ptolemy V issued a “Proclamation of Peace.” It granted amnesty to the rebels, tax debtors were freed from prison, tax debts forgiven, no more conscription for the navy, and confiscated property was returned. Also, tax immunity was granted to the temples and their vineyards and crops, as was the tradition under the Pharaohs. Peace was restored to Egypt.

The priests were great beneficiaries. They had lost their tax immunity beginning in 700 BCE. In order to commemorate this, the priests decided that an honorarium be made in a “stele of hard stone in sacred and Greek letters, and set up in each of the … temples at the image of the everlasting king.”

This stele of hard stone was found by Napoleon’s army and is known as the Rosetta Stone. It is almost four feet high at its tallest point, weighs over 1,500 pounds, and was written in three languages. The reason for its size and multilingual inscription is because it announced immunity from taxes.

(From Charles Adams’ For Good and Evil: The Impact of Taxes on the Course of Civilization)

Tuesday, April 03, 2007

Public Choice 101

In JFK airport Monday, I had a chance to muse over the past week at the World Public Choice Society Conference with Prof. Richard Wagner while waiting for my connecting flight to Washington. We discussed the vast differences between the European and American societies. Being from one of the central schools for public choice in the US-George Mason-we both naturally thought the average European notion of government was a little strange.

The basic difference that kept popping up was the American school tends to accept a self-interested government as an obvious given. The European school, however, often invoked assumptions of the benevolant dictator and then ran some mathematical models (or econometrics). The American school, meanwhile, tends to shy away from such tools.

What's strange about this is that the great insight of the founder of public choice is that government agents are not benevolant-they are human just like anyone else. To do away with such an insight so casually and consistently seems to miss the point about why public choice is so interesting and vital to our understanding of markets.

Who knows why the societies are so different? Is it the European's more prevalent welfare state? Is it the American's emotional commitment to markets? Is it path dependence, originally spiraled from random events? I'm not sure of the answer, but it seems the European school is really missing out.

What did a Tax Free Zone have to do with Caesar’s Power?

The island of Rhodes of colossus fame was a sort of Switzerland of the ancient world. It was neutral, was located on trading routes and hence became rich. It had low taxes (2 percent) and banking and commerce flourished.

When Rome was fighting against Philip of Macedonia, the Rhodians had anti-Roman politicians in power, but still offered to meditate a peace treaty between the two powers. After the Romans conquered Macedonia, the Romans were bitter towards the Rhodians. To retaliate, the Senate established a free port on the Isle of Delos in compete with Rhodes. With taxes just 2 percent lower goods flowed through Delos instead of Rhodes. Trade dropped by 85 percent (as measured by tax receipts) in one year. As Charles Adams put it “The Switzerland of the ancient world was destroyed when the Romans established history’s first tax haven.”

The Rhodians had used the tax money to defend against pirates. The Romans didn’t plan for this, and after Rhodes fell the pirates took over and destroyed trade. This destruction of wealth lead the Senate to give General Pompey excessive military power to eliminate the pirates. But “In the end, the general and his successor (Caesar) would destroy much more than the pirates – the Republic itself would succumb to their power.”

(From Charles Adams’ For Good and Evil: The Impact of Taxes on the Course of Civilization)

Breaking Windows

Some of the greatest words ever written are by Carl Sagan in his Pale Blue Dot: A Vision of the Human Future in Space:
Look again at that dot. That's here. That's home. That's us. On it everyone you love, everyone you know, everyone you ever heard of, every human being who ever was, lived out their lives. The aggregate of our joy and suffering, thousands of confident religions, ideologies, and economic doctrines, every hunter and forager, every hero and coward, every creator and destroyer of civilization, every king and peasant, every young couple in love, every mother and father, hopeful child, inventor and explorer, every teacher of morals, every corrupt politician, every "superstar", every "supreme leader", every saint and sinner in the history of our species lived there — on a mote of dust suspended in a sunbeam.
The picture that inspired the poetry was taken by Voyager 1 some four billion miles away.

I open this post because I want everyone to know I am not passionless about understanding space or our place in the universe. Indeed, I find exploration to be one of humanity's greatest enduring tasks. On that note, I want to draw attention to a comment I heard during my the Public Choice Society meeting I just got back from. The comment, which was made in response to my paper presentation on NASA, is one I've sadly heard often: "If NASA didn't exist, then the private sector wouldn't have the technology they created."

This is a bit like saying that its a good thing you own the clothes you're wearing otherwise you'll be naked. Just because the world emerges in one way does not mean it can't emerge in a similar way through a different method. If I didn't own these clothes, I'd be wearing something else. If NASA didn't make a technology, it's quite likely some other institution would have.

The other problem is the statement is a broken window fallacy (in that it ignores what is not seen) because it implies that this outcome is the best possible outcome. For if NASA did not exist and we never had the Mercury missions, Apollo, all that technology or the picture of that "pale blue dot," then society would have something else. Would it be better? Hard to say. It could be little more than a few dozen art museums. Or it could have been a cure for a deadly disease. Hard to tell, but they all stir the soul.