Thursday, May 31, 2007

Criminal Survival

Alvaro Vargas Llosa has a wonderful piece at Tech Central Station concerning the obsession with calling undocumented workers "criminals." So what if they broke laws? That does not make them immoral (no more than it made Prohibition-era alcoholics immoral). Why is it wrong for someone to enter the country so they can have a better life for themselves? Why is it immoral for one person to hire another?

Even if we assume that immigrants really do "take our jobs" (and Llosa reasonably argues they do not), why are not anti-immigration activists destroying factory robots and other high-tech machines? When Alberto replaces Paul, the job still goes to someone. But when an assembly line replaces Paul, people call it progress (as they should).

The immigration debate isn't really about the economy. It's about statism. It's about xenophobia. It's about crimminalizing survival.

A Fistful of Laws

The UK will be instituting a series of new laws bent on cracking down on "cowboy traders." From the best I can tell, a cowboy trader is someone who engages in "unfair" trading practices, ranging from "bogus closing down sales" to what Americans would call con-artists (those folks that promise you one thing but deliver another).

Like all developed economies, the UK has laws against fraud. But these laws aren't really about fraud. They are about people who's job other people don't like. Granted some of it seems reasonable (refusing to leave a customer's home when asked to do so; making persistent and unwanted telephone calls) but really those can be addressed under existing laws (trespassing and harassment).

But others are perfectly absurd. The UK wants to stop people from selling the elderly burglar alarms. Forget how to enforce the law, why is it bad if some of someone buys something that mitigates a well justified fear?

The law against faux closing sale ads is an interesting one as well. Technically, when a firm says it's shutting down but doesn't, that's fraud. But who cares? The only reason companies say they are going out of business is to signal that these prices are particularly low. Why does it matter if they actually go out of business? While we could imagine some people feeling cheated (though I have no idea why; it is not as if the company is asking for more money), this is hardly worthy justification to bother policing.

Con-artists are bad--I'll give you that. But thse anti-cowboy trader laws are more about kicking up a lot of dust than helping real folks.

Are People Stupid?

Yesterday I had lunch with Jon, an old friend from high school. Like myself, Jon majored in economics at a small liberal arts college (his was Grinnell). Unlike myself, Jon's first rule of economics is "people are stupid." This of course generates a great deal of debate between us.

I asked Jon what his evidence is and he went on to cite common actions that do not match with incentives. People smoke. People don't excercise. People acrue debt. People are lazy. I pointed out that he's making normative statements--just because he thinks the costs of smoking outweigh the benefits doesn't mean it does for the smoker. I also reminded him that mistakes are not the same as stupidity. If so, we are all morons.

Strange as it sounds, I'd venture to say people think everyone else is dumb because everyone is actually smart. Because people are clever, we rarely think twice of it when they act as such. We don't bat an eye when people hunt down good prices or flock to sales. We are more angry than amazed when people play office politics to get a promotion. We say nothing when fast food employees optimize their productivity in a way we never before considered. We are not suprised when crimminals outsmart detectives. We shrugged our shoulders when people all over the world took advantage of Napster. And we're not astounded when those same people stopped using it the moment you had to pay for it.

People are smart in the same way lawns are green. Every so often there's a patch, nay a leaf, of brown grass. It's obvious even to the causal passerby. But it would be a mistake to focus on that one instance and then conclude the whole lawn is dead.

Tuesday, May 29, 2007

Sony Slides and Wii Don't Care

The Bank of America announced today that Sony's $100 price cut in the PS3 won't do enough to help their bottom line. Nintendo's Wii is doing so well, Sony would have to have a $200 price cut to make a dent. The Bank doesn't see that happening.

At first, it seems strange that Sony won't respond more to demand pressures (though it is a wonderful example on how cheating people in a free market is quite difficult). But then it becomes quite clear.

For decades, graphics sold games. The common public just couldn't get enough. But as graphics improved, each additional improvement became less important. And thus by comparison, other things became more important--such as innovative game play. Sony is having a hard time accepting that the marginal utility of good graphics is so much lower than the marginal utility of doing something other than siting on the couch and mashing buttons.

Monday, May 28, 2007


My brother recently directed me to an article about McDonald's (and others) looking to change the defintion of McJob as it appears in the Oxford English Dictionary.

For the record, here's how it stands:
an unstimulating, low-paid job with few prospects, esp. one created by the expansion of the service sector
And here's what McDonald's would like it to be:
to reflect a job that is stimulating, rewarding and offers genuine opportunities for career progression
The exact opposite defintion.

Frankly the OED seems much more related to how people would use it, but that's not a reason for McDonald's to not try to influence the definition. The OED is not god and do not have a monopoly of what a word is. Words, remember, are not products of governments or companies or even societies. They emerge from the interaction of all these entities (along with many others).

"McJob" is a very new word, but socially established enough that people have pretty good idea what it means. That's why McDonald's efforts don't really bother me: no one's going to buy it. They'd have much better luck arguing that McJobs tend to be entry-level. That at least works with everyone else's established conceptions.

Saturday, May 26, 2007

Intelligent Ignorants

Tom Deering of my home paper (the Quad City Times) wrote earlier this month concerning the low percent of people who explain the origin of life solely through evolution. He said
The results of this survey, if accurate, convey a clear lack of education. I venture to suggest that a future study would find that the more education an individual has received, the more likely he or she would be to support evolution.
Let's suppose he's right: more education translates into a better understanding of evolution. It wouldn't completely surprise me. Evolution is a complicated theory and very counter-intuitive. But Deering sees this lack of faith (is that the right word?) in Darwin's work as a sign of a stupid country.

I see this all the time. People note some fact most people don't believe or know about and then conclude that people are stupid. It's really quite silly. Who cares if my roofer thinks God created the universe? Does it mean he won't know how to lay shingle? Only fools would think so.

People are rationally ignorant. There's a lot of information out there and most of it has zero impact on your life if you take the time to learn it. It makes sense that so many people haven't gone through the trouble of learning evolution. I actually prefer it. What would you rather have: a roofer who's read the Origin of the Species or a roofer who knows how to waterproof your ceiling?

Friday, May 25, 2007

The Future Is Slippery

Last night on The Daily Show, Jon Stewart mentioned the rise of the price of oil during the Memorial Day weekend. To paraphrase, he asked why, on this most predictable of demand increases, don't oil companies increase production to compensate? Implying, of course, that they are colluding to restrict supply on purpose.

First, oil prices are actually slipping as the Memorial Day weekend approaches. But this could just be a strange fluctuation. It could also be overcome in the US by American demand. What else is going on?

The second point is much more subtle. It takes months for any oil company to respond to a change in demand. That means to prepare for this weekend's surge in gas use, companies have to estimate today's increase in gas consumption back in winter. Not only could a lot happen in the mean time (as it always does), it's very easy to get the initial estimate wrong. So to play it safe and compensate for the cost they must bare by trying to predict the future, they sometimes get it wrong. It's not that they aren't adjusting to the prices, they just aren't doing it perfectly. But that hardly means they are colluding. It just means they are human.

Micro Monopolies

People love telling me that Microsoft (specifically with regards to the Windows operating system) is a monopoly. Their evidence usually amounts to something along the lines of "everyone I know has a PC" and "Microsoft has such-and-such share of the market."

People don't say that nearly as much as they used it.

Part of the reason is the rise of the Mac. With countless commercials detailing why Macs are better than a PC, more people are making the switch each year. Now a new contender is becoming the standard: Dell's starting to use Linux-based Ubuntu 7.04 for the operating system of some computers.

Most economists agree monopolies are inefficient: they can charge a high price (or sell as a low standard) and make what we call "monopoly profits." But what the past years are teaching us is that even if Microsoft was some sort of monopoly, it doesn't really matter. As long as people are able to enter the market, new firms will rise up to grab a bit of those monopoly profits for themselves.

If the attraction of such profits is a major motivator of innovation (and I think it is), then maybe a monopoly isn't so bad. As long as people are able to get those extra profits and others are allowed to try to bid them away with their own inventiveness, we get a constant stream of better products. Things keep getting better.

Thursday, May 24, 2007

Texas Holdup

Since I am back in Iowa visiting the folks, my blogging has been very sparse lately. However, when I saw this new Texas law going through the legislature, I had to comment.

The Texas government plans to start taxing patrons of strip clubs five dollars to fund sexual assault prevention programs. Their logic is that people who frequent such establishments are more likely to go on to attack women. If that's true--and it may or may not be--I'm not sure why the state wants to discourage them from going there. If, for example, murderers liked to hang out in pool halls then we'd expect police officers to also go to pool halls to find crimminals. They certainly wouldn't want to shut them down.

It's not that the government wants to prevent sexual assualts, they just don't like strip clubs. Oh they cloak such selfishness in nice motivations like "helping battered women" but what they really care about is getting rid of the things they, personally, don't like. Sen. Dan Patrick said it all:
I don't want the fact that the government is making money from them to make them harder to close. I would rather see the businesses close down,
Yes, Senator, because it's really all about you.

Saturday, May 19, 2007

Wrongful Abandonment

Ignoring contractual obligations, a person can quit for whatever reason they wish. They can quit because they found a new job, or their commute is too long, or their boss smells funny, or they think the janitor's ugly. To my knowledge, there are no rules conducting conditions of quitting beyond the aforementioned contracts.

But there are those of firing. There's even a name for it: "wrongful termination." If you fire a janitor because they smell funny or are ugly, you can get sued. If you quit because your boss is ugly or smelly, you can't. Why does a boss get less discretion, flexibility, and freedom than their employees? If there's wrongful termination, shouldn't there be wrongful abandonment?

Last night I had a long conversation with a friend's neighbor at a party and this was one of the challenges I presented to him. He argued that an employer has more leverage than employees. I'm not sure how he reached this conclusion. If an employee suddenly quits that creates more work for the other employees, productively suffers, and the the company has to bear the costs of finding and training someone new. If this person was sufficiently specialized or quit at the right time, it could prove disastrous for the firm.

The bottom line is employers are not doing employees a favor by giving them a job. It's a mutually benefiting arrangement. Employers get some sort of productivity and employees get a paycheck. If one party can terminate this relationship for whatever (contractually viable) reason they wish, why can't the other?

Thursday, May 17, 2007

On Their Terms, Not Theirs

When some people approach illegal immigration, they demand that the people coming into this country do so on "our terms, not theirs." So were the words I heard one politician (I can't remember who) speak on my way home from work. Today Sen. Edward Kennedy, et al announced new immigration legislation. The Senate has drafted a bi-partisan bill which would make it not as difficult for illegal immigrants to become citizens. They would "pay a fine, pass a background check, and learn to speak English. Then, after a probationary period that could be as long as eight years, they would be eligible for a green card."

These are not "our" terms. These are the terms of politicians and their handful of supporters. They do not speak for everyone and certainly not for me. The items I listed in the bill are awful requirements. Living in a free society is not a privilege to be earned but a right to be recognized. Forget that immigrants improve our economy. Forget that if we made it easier to enter the country, we could avoid the underground economy. Forget that it would combat worker abuse as well. People who dwell in this country have the right to be here. Everyone has the right to escape tyranny, bloodshed and poverty. Our immigration policy should reflect the reality that most of the world is a horror to live in and everyone is damn lucky to have places to escape to. Those are my terms.

Tuesday, May 15, 2007

Bouncing Against the Mold

Warren and I have a mutual interest in the economics and politics of science. Robert Higgs at the Independent Institute addressed such a topic last week, with a particular emphasis on global warming.

It's a lovely reminder that nothing forged by men is sacred. Every human institution, including peer reviews and scientific journals, are subject to politics over facts. Indeed, the great paradox that Higgs alludes to is that even though most people have a great deal of faith in the scientific process (with good reason), it is far more subject to distortion than other institutions. I hate quoting at length but his writing is just too good:
Science is an odd undertaking: everybody strives to make the next breakthrough, yet when someone does, he is often greeted as if he were carrying the ebola virus. Too many people have too much invested in the reigning ideas; for those people an acknowledgment of their own idea’s bankruptcy is tantamount to an admission that they have wasted their lives...Research worlds, in their upper reaches, are pretty small. Leading researchers know all the major players and what everybody else is doing...The whole setup is tremendously incestuous; the interconnections are numerous, tight, and close.
Higgs wrote also of what the alliance between politicians and scientists (the former hands out grants and the latter raises faux concern to make it easier to get earmarks) as well as emphasizing that scientists should know their place (saying X, Y, and Z will happen is one thing, making normative statements on importance and urgency is another). What he did not emphasize, however, is the role of the media, which is the great megaphone for all these concern. When it's cheap to scare people and those holding the microphones want you to scare people, people get scared a lot and with little justification. And with no one capable of silencing the hysteria getting a fair say, is it any wonder why so much of the population is scared all the time?

Curse Against the Machine

What do you think of when you think of road rage? I imagine people so angry and frustrated at traffic that they ram into other cars, driving on sidewalks and other pedestrian zones or even taking out a gun and shooting people. That's rage.

But AutoVantage thinks rage is something else: rudeness. It's not just "bad" driving but tailgating and swearing all count as "rage." Really? Tailgating's annoying and no one likes being sworn at but since when has stalking and name calling been anything even remotely close to "rage?"

There's a strange "conventional wisdom" that our world is flying apart at the seams. Already I can hear the calls for government regulation to "control the anger." But it's not on the verge of collapse, it's just a bunch a people think rude people are simply irrational. Has anyone ever stopped to think that some drivers deserved being sworn at?

Saturday, May 12, 2007

Mother's Day Price Hike

This Monday, the day after Mother's Day, the postal service will be hiking the price of a stamp to forty-one cents (from thirty-nine). A lot people probably don't care--e-mail and cell phones are a much cheaper and convenient way to communicate, but some will, especially those that sell bulk mail.

People tell me that even though there's a monopoly on postage, the price isn't too high. I'm constantly confused how anyone could know that. While most communication is a fine substitute for using the post office, bills, greeting cards, and other communiques are don't work that way (for most people). Most importantly, no one is allowed to offer an alternative to something close enough to what people demand. There's a very important part of the market where there's only one producer-how do we know if we're getting a good deal?

Competition works because it allows people to shop and compare, offering a check for those who try to price too high. If you were only legally allowed to buy cards from one store, you'd probably think you were being ripped off. Same goes for here.

Thursday, May 10, 2007

A Gutierrez Gaffe

Carlos Gutierrez was on Kudlow tonight discussing various trade-restricting bills floating around Congress. While he defended the importance of free trade, he also made the mistake in claiming the US has free trade. Not even close.

The point that stuck out the most was when he mentioned the value of anti-dumping laws. According to Gutierrez, this is consistent with free trade. Indeed, the WTO approves anti-dumping law to counter "unfair" prices (whatever that means) and government subsidies. But this is not free trade, no matter what the law says.

Free trade is the absence of government regulation concerning international exchange. Anti-dumping laws don't "cancel" subsidies and it certainly doesn't add to free trade. Their only saving grace is a threat: stop creating barriers or we'll create more. But this might not work and one legal distortion is better for both sides than two.

Wednesday, May 09, 2007

Subsidizing Dropping Out of High School?

Gary Becker and Kevin Murphy have an interesting article on income inequality. They go through various stats, discussing how returns to education is driving the increase in inequality. Then they bring up the political desire to create an increasing progressive tax code to reduce the inequality. They offer this as a rebuttal:

For many, the solution to an increase in inequality is to make the tax structure more progressive-raise taxes on high-income households and reduce taxes on low-income households. While this may sound sensible, it is not. Would these same individuals advocate a tax on going to college and a subsidy for dropping out of high school in response to the increased importance of education? We think not. Yet shifting the tax structure has exactly this effect.

HT Greg Mankiw

Capitalism, By Definition

Over the past couple of days I've been in a debate with "Red Deathy" on Wikipedia. The debate began because I noticed an obvious contradiction in the criticisms section. The entry (correctly) says that capitalism is based on voluntary transactions. (That part of the entry has since been removed by Red Deathy, but as I point out, it's really still there.) However, the criticism section notes that "unfree labor" (ie slaves and serfs) is consistent with capitalism. This doesn't make any sense.

Red Deathy disagrees, arguing sometimes people are faced with a series of bad choices and thus they are forced to take a job or buy a product. I, however, maintain that this is not force. The company that hires the destitute did not make them destitute. They only gave them an opportunity; no force was involved. This is a common confusion.

When the state demands tax dollars, it presents a choice: give me money or I arrest you. If a firm tried to do the same thing (work for me or I'll arrest you), then it would be violating private property and thus it would not be capitalism. Capitalism and coercion are inconsistent.

Tuesday, May 08, 2007

Improving the workplace: Bulgarian train edition

Bulgarian trains have been equipped with rotating chairs so drivers can urinate out the window without having to stop.

Monday, May 07, 2007

Barack Obama, Central Planner

Barack Obama visited Detroit today with a plan to revive the American automotive industry. While foreign firms invested in fuel efficiency, he said, American companies didn't. Rising to this challenge is how the American auto industry will return with force.

Despite their obvious incentive to increase profits, Obama thinks he should force them to engage in his idea. AP reported that his plan "...would require automakers to invest half of their health care savings into technology to produce those vehicles." I suppose Mr. Obama thinks American automotive firms are too stupid to invest in technology that, by his own admission, will save them. They have to be forced to do what is so clearly (in Obama's eyes) is The One Best Way.

If what he said was true--that the people really want fuel efficient cars and digging into health savings is the best way to get them--then the government doesn't need to force them to do anything. But if Obama is wrong--which would explain why the firms aren't doing these things--then his plan will be disasterous for the very industry he claims to cherish.

Friday, May 04, 2007

Wanting to be Fooled

Fred Thompson at AEI wrote this essay concerning Cuban health care. It seems that Michael Moore is escorting ill poor to this socialist island for free health care, criticizing America's lack of a similar system.

Defenders of Moore will probably point to Cuba's medical meccas like those seen in Die Another Day, implying that these are somehow standard for everyone. Students of socialism know better: companies often have staging facilities for media purposes and the bureaucratic elite. (The USSR often manufactured grocery stores filled with food and maintained to the press that these were the Soviet standard.) In Cuba, medicine is no different. Thompson writes "Castro keeps 'show' clinics equipped with the best medicines and technologies available. It was almost certainly one of these that Moore went to, if the stories in the New York Post and the New York Daily News are true."

Only the sickest of us like to see others suffer, which is why free health care is so tempting. But don't be so drawn into the possibility of the perfect that you get lost in the romance of the ruse.

Thursday, May 03, 2007

Governing Trends

Tonight on Kudlow and Company, Larry Kudlow and a legion of commentators discussed the 2008 election. One of them, John Fund from the Wall Street Journal, expressed concern that many voters haven't experienced a true economic downturn (only corrections and short-run recessions). Thus, they are more likely to vote Democratic.

It makes a lot of sense because it's easy to forget that good times won't last forever and more government can undo economic growth in an instant. Democrats, who are more likely to grow the government than Republicans (especially with a Democratic Congress) can hamper the very growth that got them elected.

I've often said that from the mind of the voter, government is a luxury good. All things being equal, a wealthy society is more interested in growing the government than a poor society. While wars and other crises confound this rule, in general people are much more willing to see the government grow when they are making a lot of money themselves. It's a dangerous trend because it's easy to get trapped in: governments are easy to grow and difficult to shrink.

Wednesday, May 02, 2007

My Love for Bags

Last week Jason sent me an article in the Chicago Tribune by Beloit College (my alma mater) professor Ted Rueter. Prof. Rueter, who joined the political science department last year, writes that plastic bags are becoming the great scourge of the environment. Americans discard one hundred billion bags each year. They don't biodegrade (anytime soon anyway) and they are rarely recycled.

Let's set aside that recycling is rarely better for the environment. Let's even set aside the related notion that since people aren't being paid to recycle, it's probably not a good idea to. Instead, I'd like to challenge Prof. Rueter's take on preferences.

Prof. Rueter writes "...plastic bags are four times cheaper than paper bags and are lightweight and water resistant. However, the virtues of plastic are overriden by its vices." In other words, these very real benefits are completely and utterly cancelled out by pollution. I don't know if he actually believes this (perhaps he hasn't yet had to get groceries during one of the Midwest's many nasty storms) but even if it's true he's just one guy. For him plastic bags are not worth the harm they do to the environment (which is actually quite small since they just sit in lined landfills). But everyone else clearly doesn't share his priorities since most of them don't recycle bags.

What it means to be happy or wealthy is always different for anyone you meet. For some it's all about a clean environment. Others care mainly for large paychecks. Still others see fast computers as their Nirvana. These are all nice things, but if we want a happier or wealthier society we have to understand what's good for one person isn't always worth the sacrifice for another. If Prof. Rueter doesn't like plastic bags so much, then he should start collecting them from others instead of telling them to live like him.