Pay Your Enemy

James Miller at Overcoming Bias recently asked why people support imprisonment but not torture. One commenter suggested that because some people enjoy torturing others, it hampers their incentives to restrain its use. James replied: "This is a valid argument against torture but it is even a stronger argument against the use of fines as a form of punishment."

An excellent point: why should someone pay the state when they break the law? Not only does it give the government a powerful incentive to abuse its power (see recent Virgina speeding laws), it also assuages the deterrent effect to those with a great deal of faith in government. "Sure I have to pay $100 but at least that money will go to help people." It seems more reasonable to make people pay someone they don't like. Most, I suspect, would rather see $100 go to the state than $50 go to their enemy.I can think of three ways to pull this off, but none are ideal by any means.

1. Pay to a customized "bad guy." In theory, everyone has some person, organization, or idea they don't like. Greens hate oil companies. Free traders look down on protection-seeking unions. Catholics detest abortion clinics. When one group breaks the law, make them pay the other group. The problem is knowing who's who. Sure, there's a lot of information out there but firms may not be so willing to hand it over (and the government might actually prefer that information to money so we'll be right back where we started). And still, some information is hard to get: ex-lovers rarely get along but it'll be costly for the government to figure out who dated who.

2. Make the punishment fit the crime. The logistics of this are a lot easier: tailor each law to an organization that would probably be at odds with the accused. Hunt without a license? Donate to PETA. Drunk driver? Send money to AA. Of course the problem becomes how will these organizations respond when they find out they are being paid when other's break the law? How much will it take before Disabled American Veterans starts encouraging people to park in a handicap space?

3. Send to everyone's hate group. Virtually everyone in this country hates neo-Nazis and the KKK. Why not assemble a list of such groups and the accused must send money to one at random? This would certainly mitigate the problems in 2. But the issue becomes how many organizations like these are there? 100? Maybe 200? Even accounting for deterrence, that's hundreds of millions of dollars (maybe billions of dollars) sent to just a handful of organizations each year. What happens when the KKK has a billion dollar endowment? Forget possible terrorist attacks; think how many people would suddenly like to join, or even start their own hate group!

Clearly there are some tweaks to work out.

All Things Just Keep Getting Better

Today on NPR, labor economist Eric Hurst was on to debunk the common myth that Americans are working harder and harder. In truth, leisure time over the past fifty years have risen. Men are spending more time not working than their counterparts from half a century ago. Women are spending more time in the office, but they are working less in the home--housewives are no longer the standard. Indeed, Americans work little compared to other countries with 18% working more than 48 hours a week. Compare this with other countries, especially developing countries. In Peru, half of all surveyed work more than 48 hours a week.

Hurst chalked up this increase in productivity to modern inventions--dishwashers, microwaves, and so forth. All true. But one cannot ignore the role of a rising population and the division of labor. Housekeepers are no longer for the rich. Not only are people earning more, not only are they--on average--working less, there are now far more people earning more and working less. It astonishes me how people can be so pessimistic about the future.

Economics from a Billionaire

Via Gregg Easterbrook, billionaire Sam Zell makes economics videos. The main video now is on Sarbanes-Oxley. It describes its destructiveness, despite its good intentions, in song form. His 2003 Wired Exports also teaches a good lesson.

Business, Not Market, Failure

With the return of Real Time with Bill Maher this past Friday, Maher's tackled Chinese imports with a well-worn fallacy: bad business means a failed market. The two are rarely one in the same. When a business make a bad decision and they are punished for it (as Chinese manufacturers are experiencing) that's a success of market activity.

The costs of such sloppiness is exactly why we can trust markets to handle so many complicated problems. It is not perfect, but compare mistakes made by CEOs to those of politicians. In government, blame is more likely to be passed than shouldered; failure is more likely to persist than be purged.

Quote of the Day

From Radley Balko at Reason:

Imagine how this sounds to the average Iraqi. "America is fighting this war for your freedom and safety. Also, we're drawing all the world's worst terrorists into your backyard so they blow up your markets and police stations, and steer clear of ours."

Big Teacher

Panic creates a desire for protection, but that doesn't mean it has to be compulsory. Tonight on Kudlow and Company (I'm having a lot of Kudlow articles lately), former Labor Secretary Robert Reich debated Steve Moore from The Wall Street Journal editorial board on the topic of financial literacy.

Illinois recently passed a law that anyone taking out a loan must take a mandatory counseling. Reich smartly argued against the mandatory counseling but strangely argued in favor of banning "predatory loans." If Big Brother has no place in forcing adults to learn about options (and I don't think they do), then what a conclusion it is to claim the government does have a role in denying people options altogether.

Alienation of Economics

The sloppiness that appears in time of a change in the market continues to astound me. Tonight on Kudlow and Company Senior Market Strategist at Delta Global Advisors, Michael Pento, argued our economy is weakening because more and more foreigners are staking a claim to federal debt. Twin deficits (the budget deficit and the so-called trade deficit) are the poison of the economy.

I agree that the high level of government spending is a bad sign, but what difference does it make who's lending Congress the money? The best way to counteract this sloppy spending is to grow the economy with trade and technology, not by retreating to isolation at the expense of American people. That would be a double hit to the economy.

Weller On Incentives

Tonight on Kudlow and Company, Christian Weller, senior economist at the Center for American Progess, argued there would be no moral hazard problem if the government bailed out people's mortgages.

I'm not sure what's going through Weller's mind but when you pay for people's bad decisions, you don't create much of a reason for them to avoid mistakes in the future. And you certainly can't expect other borrowers (or lenders for that matter) to be cautious in the future after you proved there's a safety net just aching to spring up.

Making Plans Centralized

Today on NPR's Kojo Nnamdi Show, guest Lee Gutkind discussed his new book Almost Human: Making Robots Think. Partway through the interview, Gutkind proclaimed that society needs to figure out what we want robots to do in our economy. Arguing for a massive convention of various disciplines such as (doctors, roboticists, industrialists and so forth), he said this meeting could plan "once and for all" what robots will do.

Gutkind's desire for planning sounds nice but is strangely placed. There was no such meeting when the Internet first appeared and after an admittedly hectic discovery process, we have learned what works as an online business and what does not. Gutkind's flaw lies in believing there is no planning going on in the realm of applied robotics but in truth there is a great deal of design. But unlike the centralized organization of a few that Gutkind imagines, the planning that is going on now is echoed across millions of minds in thousands of companies the world over. Through the activity of the market, we will learn where robots work well and where they don't. It'll be messy, but it will work far better than a handful of people meeting at a Holiday Inn.

Welfare for Millionaires

Gregg Easterbrook at ESPN rants on handouts for our millionaire ex-presidents. I can't put it any better than he did (including his conclusion), so here it is.

Wealthy ex-presidents reach into your pockets: Recently, the Congressional Research Service announced the federal subsidies requested for the coming fiscal year by ex-presidents Jimmy Carter, George Herbert Walker Bush and Bill Clinton. Globe-trotting Carter asked for only $2,000 for travel; Bush and Clinton, both millionaires, wanted $50,000 from taxpayers for travel. Bush said he needed $69,000 for "equipment" and $13,000 for postage. Is Bush planning to mail 32,000 thank-you notes next year?

What's really offensive is that all three filed for the maximum presidential retirement payment of $191,000 annually. All these guys are wealthy, the elder George Bush having significant inherited wealth, yet all want taxpayers to hand them pensions seven times higher than the typical Social Security sum. This is extra galling because Carter and Clinton aren't even retired! Carter continues to write books that sell well; Clinton is active on the corporate speaking circuit, having earned an estimated $10 million speechifying in 2006. Clinton prattles on and on about the horrors of inequality, yet demands $191,000 in bonuses from taxpayers whose median household income is about 1/20th of his estimated $10 million. Why didn't the three ex-presidents request no pension at all? That would have been the dignified thing to do.

To top it off, Clinton requested $79,000 for telephone service. It is impossible, physically impossible, to spend $79,000 on telephones! If Clinton had a 10-cents-a-minute long-distance plan, he could talk long-distance 24 hours a day, 365 days per year -- and you can imagine Clinton doing this -- yet fail to burn through $79,000. The most expensive package offered by Verizon Wireless is an international super-phone with unlimited texting and four hours of talk time daily; this sells for about $3,000 per year. Clinton could purchase two dozen of the most expensive cell accounts available in the United States for the tax-subsidized telephone budget he requested. Is Clinton's $79,000 phone request fraud, or is Clinton planning to use the money to buy phones for staffers working on his private speaking business? An ex-president who had financial problems might legitimately turn to the taxpayer. For all three living ex-presidents to be quite wealthy yet demanding public subsidies is shameful -- to say nothing of a failure of leadership.

Lou Dobbs Thinks I’m Dumb

Last year the Independent Institute issued a letter on immigration. The letter argued that immigration is not all bad for the country and in fact makes us better off as a whole. I signed the letter, agreeing with its premise. It was a short and simple, and now over a year later Lou Dobbs picked up on it. Economist Alex Tabarrok from George Mason University appeared on his show recently, and can be seen here. Dobbs took the arguments given by simply responding that the signers are "idiotic," "dumb," "jackasses," and "completely out of their minds." I can’t say I agree with Powell’s extreme open border position, but I still think more immigration will make America better, even if that makes me dumb.

Trade With Your Friends

James R. Lilley, et al. are urging Congress to pass a trade agreement with South Korea which would reduce various trade barriers between the two countries. Congress, if they dare to be consistent, should follow Lilley's advice.

Trade sanctions are readily imposed on the country's northern neighbor. If the legislature recognizes that less trade is detrimental to a country, then clearly they should understand more trade is beneficial to it. Congress must lower trade barriers to South Korea, unless they believe that this democratic country of 50 million is actually part of the axis of evil.

A New Record Looms

The English Wikipedia is looming on its two millionth article. Based on this information, I estimate that the new landmark will appear on approximately September 14 at 9:34 pm. (However, given that as one approaches the two millionth article, article creation is likely to increase, the time of creation might be much earlier, possibly in the early afternoon or late morning.

Capitalism 101

Tonight on The Daily Show John Oliver and Jon Stewart jokingly argued that China's use of lead paint in toys is an example of how "they do capitalism better than we do." Not bothering with oversight or quality control, the Chinese factories (and the American consumer) can save a great deal of money.

If only they knew how much they were joking. Contrary popular belief, capitalism is not merely about reducing costs but reducing costs while still providing people with something they want. And this is why capitalism works. It's not that bad decisions won't happen, it's that they won't be rewarded. And already we see capitalism working as Chinese factories become less popular and are put under pressure to raise their standards. It's a loss for the manufacturer, but yet another victory for markets.

Edwards Plans to Punish the Weak

John Edwards has been running all over Iowa lately promising a higher minimum wage, stricter work safety laws, and a crackdown on "predatory" lenders. These, strangely, are supposed to "reward hard work."

The minimum wage does not reward hard work. It does, however, reward people who deserve a raise but don't argue for one. It also punishes those who have the hardest time getting a job.

Safety laws do not allow hard work to be rewarded but make it more difficult for companies to pay their workers what they deserve. Looks like more people will have to take a larger chunk of their compensation in the form of additional handicap ramps.

Making a loan harder to get isn't going to help those who need a loan. Sub prime rates (loan deals offered to those with a poor credit rating and require a lot of collateral, usually a house) are options that people don't have to take. Here we see the free market offering a chance to those who need it most and Edwards wants to see that option ripped away.

Hustle and Woe

While driving home tonight DJs on a local radio station sparked a massive discussion on various "hustles," or ripoffs, people encounter in our daily lives. Listeners called in with example after example: cell phones, bottled water, condos, computers, cable/internet, parking, college tuition, stadium tickets, casinos. The great paradox is that even as people say these are ripoffs, they buy them. The DJs bemoaned the price of cable and internet, claiming cable in their age could be paid with a paper route. What they ignored is that such service included far fewer channels, no internet, and no On Demand service (the last of which one of the DJs praised).

These things are not really ripoffs, as evidence that people keep buying them. What sort of person buys somethings he knows he doesn't want? Most of these examples are really opportunities for people to wish stuff was cheaper, but that's nothing special.

Granted, some products are truly ripoffs--some things are not worth the price you pay for it. But such products don't hang around for long. Nobody called in claiming New Coke was a ripoff. The only true hustle out there are taxes, money that generally goes to those you don't know and probably don't care about it. The very fact that most of these groups can't make money through donations demonstrate that. And there's no way to opt out (short of leaving the country). If you don't buy a cell phone, your life is a little less easy. But if you don't pay your taxes, you go to jail. Woe is me.

Iowa Matters for Another 21 Weeks

There's been a lot of coverage lately on the Iowa Straw Poll, as meaningless as it is. For example, Mitt Romney just won it on the Republican side even though two major contenders (McCain and Giuliani) didn't attend the event. No matter--the caucus is still another five months away.

Here's the thing about Iowa. Many (especially candidates and news media) justify Iowa's early selection becayse Iowa is a wonderful cross section of the country. A lot of people know better. Sure, Iowa's typically a swing state but it's filled with farmers and very few cities (and zero metropolises). It has few immigrants and minorities. Educational scores are way above average. Incomes are way below average ($28,340 versus the national average of $40,000--though different costs of living distort this comparison somewhat).

Some say the reason we still have Iowa caucuses so early is so farmers can get candidates to support massive farm subsidies. That is certainly part of the reason. But most Iowans aren't farmers. Having grown up in Iowa, let me tell you the real reason we love being first: we like the attention.

Usually when Iowa makes the national news it's about the Mississippi flooding or another tornado showing up. There's little attention paid to the people of the state; all news has somber undertones. But once every four years, we matter. It has nothing to do with farming or our "amazing" representation of the country. It's all about seeing Wolf Blitzer reporting from Davenport or candidates debating at the University of Iowa. We like it when the state is mentioned in the same sentence not containing a reference to a disaster or corn. It's all about feeling special. This is why some of us get so angry when important states like California complain, even if it is justified. But at least we'll always have James Kirk.

The New Oedipal Complex

Bryan Caplan's new book has an interesting analogy:

Oedipus wanted to marry Jocasta. Jocasta was Oedipus' mother. But Oedipus did not want to marry his mother: He put out his own eyes when he found he had. Similarly: The median voter wants protection. Protection makes the median voter worse off. But the median voter does not want to be worse off. The efforts of both Oedipus and the median voter backfire due to their false beliefs. For Oedipus, the false believe is the Jocasta is not his mother; for the median voter, the false belief is that protectionism is good for the economy.

Tariff Changes

I hope my micro students can answer the following:

In 1828, the US Congress passed the “Tariff of Abominations.” The law established various very high tariffs on imported manufactured products to protect northern factories. However it pained southern states who bought much of their manufactured goods from either the north or abroad. Five southern states—lead by South Carolina—refused to collect the tariff and forced a compromise with the US government. The average tariff dropped from 50% to 15%. Illustrate the effect of this drop in the tariff on the market for boots. (Use the average tariff rates for the tariff rates on boots if you wish or need to.) Be sure to indicate changes in deadweight loss, tax revenue, producer surplus, and consumer surplus.