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.

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.

Wiivolution

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.

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.

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.

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.

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.

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!!!!!

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.

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.

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.

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.

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.

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)

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.

“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.”

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

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.

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)

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)

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.

Joining the Pigou Club

This morning I attended an AEI event on if we taxed energy enough. Greg Mankiw of the Pigou Club fame was there (and was really the reason why I went). He gave convincing arguments for joining the club, even if CO2’s impact on the weather is minor or negligible. He argued that the $1/gallon tax should correspond to a drop in the income tax by 2%, or something along those lines. That eliminates some distortion in the tax code and taxes negative externalities such as congestion, accidents, pollution. I formally was reluctant to endorse any sort of tax increase, even Pigouvian (the government doesn’t exactly have a great track record on intelligent taxation) but he persuaded me only so long as the gas tax corresponds to a decrease in other taxes.

I talked to him after words and asked him if congestion based pricing for driving on roads similar to London would be more efficient. He said that it would once the technology becomes better. It looks like that is possibly where the next major change in roads will be.

Eyeing Rudy

Larry Kudlow of Kudlow and Company aired his interview of Rudy Guiliani this evening. Guiliani looks like an excellent free market president; Kudlow compared his policies to ones that Hayek, von Mises and Friedman would support.

Here's a few:
-Against government health care.
-Against erecting trade barriers of any kind.
-Against any new taxes, including a carbon tax.

He did, however, speak of "energy independence" but if it happens spontaneously thanks to a deregulated power plant industry (he mentioned the virtues of nuclear power by name), then I don't really care. Besides, no politician is anywhere near close to perfect.

He was probably talking solely to Kudlow's audience and this was all just a lot of fluff. But in this new political climate-where democrats and, by extension their ideas, are very popular-it says a lot for him to disagree with them so consistently.

Note: I will be traveling a lot in the next two or so weeks and as such my blogging will be very erratic, if it appears at all.

As April 15 Approaches

Keep in mind why you must pay taxes, Donald Duck style.

“Every dollar you spend for something you don’t need, is a dollar spent to help the Axis.”

Interesting Graphs

For all the talk we hear about global warming and how CO2 is going to melt the ice and kill the polar bears, there usually isn’t much said about changes temperature due to solar activity. You don’t have to be an econometrician or run regressions to know which variable better fits changes in Arctic temperatures.

The Absurdity of It All

Economists often convey a problem with conveying their ideas to a general audience. In a very real sense, all economists are teachers running a class of students who don't want to be there, but are still paradoxically interested in understanding economics. (Or, more likely, want to talk so that they sound like they understand economics.)

Enter Yoram Bauman who translates Mankiw's ten principles of economics in a way everyone can enjoy. Well, I know economists will enjoy it, but I wonder what non-economists will say. (In the YouTube comments section, one person who was apparently studying for their econ final is "now confused.")

Flight of the Falcon

Yesterday afternoon on Omelek Island, private company SpaceX launched Falcon 1. The rocket traveled 200 miles into and above our atmosphere before spinning out of control. Video feed then terminated.

Falcon 1 was a success and a failure. The vast majority of the new technology worked and only that last bit-5%-wasn't quite get up to snuff. Still, this is another notable step into making space travel more available to the common people.

SpaceX was created by Elon Musk, the co-founder of PayPal, with the expressed intent on making rocket launches cheaper. One of Musk's strategies to accomplish this is the scaling down of the firm's bureaucracy. Using only about 200 employees, Musk is taking quite a different approach than the bureaucracy heavy organizations of Lockheed Martin, Boeing and NASA. I doubt they'll learn anything when SpaceX is finally successful but hopefully other entreprenuers will and the space industry will transform as much as the computer industry has over the past fifty years.

Grounds For Dismissal

This afternoon the US Senate, by an overwhelming majority, approved a rollback of a provision of the PATRIOT Act. This provision was a blantant disregard for the seperation of powers that sits at the heart of the Constitution: it allowed the attorney general appoint U.S. attorneys without Senate confirmation.

Why did the Senate pass such a law in the first place? Because they didn't read it. They didn't read the bill before voting on it. And this wasn't some random farm bill, this politically charged proposal was-and still is-at the center of the public discourse concerning the war on terror. What other laws are they passing that they did not read? (That they did not read the bills they vote on is, sadly, not uncommon.)

Since such sloppiness is clearly not being punished by firing the offending parties, then more drastic measures should be taken. Every person who has the capacity to vote for a bill must read it, in full, aloud and in front of a camera and their peers before they are allowed to vote in favor of it.

Three Reasons to Burn the Flag

As David Frum at AEI notes, the pursuit of political correctness can have some perverse side-effects. At San Francisco State University (SFSU), for example, the College Republicans organization is met with hostility (and possible forced disbandment) by the administration because they trampled mini flags of Hamas and Hezbollah. Frum paints a different picture for Muslim groups:

In April, 2002, Muslim students organized a pro-Palestinian rally on the SFSU campus. To advertise their event, they distributed a flyer with a picture of a dead baby alongside the words: "Canned Palestinian children meat--slaughtered according to Jewish rites under American license."

They received a virtual slap on the hand.

It seems appropriate now to reiterate why a society wants free speech, beyond that it just sounds nice. As John Stewart Mill notes, there are three reasons.
1. Sometimes, you're wrong and they are right. You tell someone to shut up and you might loose a good idea.
2. Sometimes, something can be learned even if the minority opinion really is wrong. This new information can be completely unrelated to the original argument.
3. Sometimes, you need a bad idea because even if there is nothing to gain from a flawed notion, it can aid you in clarifying the truth. And the best way to expose an idea as wrong is to bring it into the light of popular discourse.

I find the last point to be the most subtle, but also the most insightful. When you tell people to shut up and not express an idea, they just become more convinced they are on to something and bitter people buy into the "conspiracy." But when you are willing to debate them and, in doing so, demonstrate why they are wrong, then you change people's minds. You might even convince your opponent.

Tullock Insult

Recently I attended a ceremony in honor of Gordon Tullock. Don Boudreaux spoke on Tullock’s insults that he has directed towards pretty much everybody. After the ceremony was over, I took a picture of Fred Singer and Tullock together. I then asked Gordon if I could take my picture with him too and he said “It’s bad enough I had to take a picture with him [Singer], and now I have to take a picture with you too?”

Boudreaux On Elephants, Boudreaux On Statistics

Don Boudreaux and his wife Karol Boudreaux both published excellent articles in the past week that are worth taking a look at.

Don wrote for the Christian Science Monitor, succinctly describing a common mistake made in interpreting data concerning averages.

Karol wrote for the The Nation, showing how lifting the ban on hunting elephants can actually increase the elephant population. (I've made a similar point last week if you are in search for more free market environmentalism.)

How Green Is MY Valley

Happy St. Patrick's Day everyone. Since I'm not much of a drinker, I don't really celebrate it but I'm glad other people do. They certainly seem to enjoy it and there's no harm from celebrating it.

Lou Dobbs disagrees. Almost a year ago he said,

I don't think there should be a St. Patrick's Day. I don't care who you are. I think we ought to be celebrating what is common about this country, what we enjoy as similarities as people.

Dobbs wants everyone to be the same and purge society of its strangeness and surprise. We shouldn't be happy that we are different, we should be ashamed and try to drown out any differences with celebrations of solidarity. I suppose that makes that easier to direct people to whatever you think we should all be.

While I find Dobbs social theories narrow-minded, I don't have any problem with him expressing it. Only by bringing such ideas to light can we witness how truly selfish they are.

Remaking A City

Mike Mills sent me an email containing this link about Google establishing a server farm in Lenoir, NC. Lenior used to be a city of furniture makers but the rise of China has out competed them and the town entered a decline. Because of this decline, unemployment rose, land values fell and the free market kicked in.

Because of these low land values and lake of people looking to become employed again, Google decided it would place a new server farm there. A server farm is basically a building full of computers that run Google programs (their search engine and so forth) all over the world.

Mike correctly stated that there's "A lot of blogrich material" in the article and that's no exaggeration. But beyond the very cool overarching theme of spontaneous order, I noted one other item I really wanted to point out:

The city offered Google some pretty sweet tax breaks to encourage them to come in. Like the only Libertarian on the city council (who was also the only one to vote against Google's entrance), I'm not too fond of special treatment. However, I also recall the words of Milton Friedman: "I am favor of cutting taxes under any circumstances and for any excuse, for any reason, whenever it's possible."

Raising the Barr

Last Friday on Real Time with Bill Maher Roseanne Barr argued that, thanks to Ronald Reagan and other Republicans, the working poor can't afford a house or send their kids to college anymore. It's complete nonsense. Real average wages of the poorest 10% and 20% have remained flat for decades-Reagan didn't sabotage them in any way as Barr implies.

Even more importantly, income mobility during the Reagan era was extraordinarily high. Between 85-95% (depending on who you ask and the time frame) of the lowest income quintile moved to a higher one. More than half moved to the middle quintile or higher. (I've been looking for more recent data, but the information from Steven Horwitz's webpage is still quite impressive.)

Both data sets also ignore that the quality of virtually everything we buy continues to increase. Every year standards rise, the economy grows and, even in light of inflation, everyone gets a bit richer.

Reeding Between the Lines

I've finally gotten around to watching last Friday's episode of Real Time with Bill Maher and not surprising they started with the scandal at Walter Reed Hospital. Don Boudreaux at George Mason University summarizes the importance of the scandal succinctly:

This "flagship" institution is at the heart of Uncle Sam's system of socialized medical care for military personnel. So, why are many politicians and pundits clamoring for socialized medical care for all Americans?

Bill Maher disagreed:

This Walter Reed thing is bad because they privatized it. Because they outsourced it to corporations which have no soul. Which only care about the bottom line. Which only care about greed. At least government workers might have a conscience. Corporations never do.

So who's right? The answer came in the very next comment (though no one noticed it) which was made by Dana Milbank of the Washington Post. He noted the contracted company actually charged than what it would have required of the government. In other words, there was no privatized hospital here, even though a company did the work. If it was truly a free market-if there was entry and exit and competition-the government (as the customer) would have fired them in favor of someone else. Walter Reed was pure politics.

Just because a firm is doing something, doesn't mean they are doing it in the context of a free market. When an industry gets into politics, that industry is no longer privatized in any relevant way. They are in bed with the government just like any bureaucracy. Don't be fooled by a free market facade.

Amazing Grace

The movie Amazing Grace describes the abolitionist movement in England. Part of the story on the support of eliminating slavery is not well known.

Economics is known as “the dismal science.” People incorrectly assume this stems from Malthus (I used to think this).

The reason why Thomas Carlyle dubbed economics as dismal was because early economists like JS Mill used economics to state that all men were equal. From a GMU professor who studied this in depth:

Carlyle attacked Mill, not for supporting Malthus's predictions about the dire consequences of population growth, but for supporting the emancipation of slaves. It was this fact—that economics assumed that people were basically all the same, and thus all entitled to liberty—that led Carlyle to label economics "the dismal science."

Carlyle was not alone in denouncing economics for making its radical claims about the equality of all men. Others who joined him included Charles Dickens and John Ruskin. The connection was so well known throughout the 19th century, that even cartoonists could refer to it, knowing that their audience would get the reference.

Farming Elephants

Every year millions of cows, sheep, pigs and chickens are slaughtered every year. (I don't have exact figures but The Straight Dope estimates that McDonald's alone sends ten million cows to the grinder, annually.) Millions. How can this be? With so much death, why aren't these animals on the endangered species list? How can they not be extinct?

It's because we raise the animals, too. Famers all over the world are watching their herds and making sure the population-and their livlihood-don't run out. They breed them, raise them, care for them, make sure they have lots of offspring. And then they kill them. Say what you want about the ethics of it, but that's a pretty good way to make sure they never go extinct.

Some African countries may be taking this lesson to heart as they ponder lifting the ban on the ivory trade. Some environmentalists insist this will cause poaching to skyrocket. But just like Prohibition, the drug trade and any other banned sector, prices increase. In places where the property rights are sound and secure, people will raise the elephants like ranchers raise cattle. Populations will expand, prices will fall and poachers will be put out of business.

Remembering the Saccharin Scare

Dr. Elizabeth M. Whelan at TechCentral Station notes that this week marks the 30th anniversary of the FDA's ban on saccharin (better known as Sweet'N Low) on the basis that it causes cancer in lab animals. Dr. Whelan writes that the "administered dose of saccharin has been compared to the equivalent of human consumption of 800 diet sodas a day for a lifetime." In other words, they pump the animal with more of it than any human could consume and watch its biology go haywire.

Today saccharin is freely available-the public outcry against the ban was too great-and it is clear it doesn't cause cancer. Remember this history lesson the next time you see something contains "cancer-causing agents;" it's more likely that the science isn't too sweet.

Not Dying While Waiting in Line: Priceless

I've taken to editing Wikipedia's article on the Canadian health care system. Seeing that Clinton's campaign will most likely sound a call to emulate Canada's system, this seems like a good place to clean up a little.

We shouldn't be too surprised that one of the consequences of our northern neighbor's system are lengthy wait times for even the most routine of procedures. Donald Loritz (who appears to lean in favor of the system) pointed to this information concerning Canadian wait times. Now the data (which Donald describes as "the best recent information on Canadian wait times") are poorly presented and not very flattering. Lengths of time include fuzzy language like "within 30 days," wide ranges such as "34-177 days" and strangely presented numbers including "57-100%" (a reference to the percent of wait times for cardiovascular/cardiac surgeries that did not exceed various benchmark goals). There's not even any aggregate data (the closest they get are vague estimates broken down by province, ranging from one month to twelve).

Here's an inkling of the Canadian wait times for health care.

Cardiovascular/Cardiac Surgery: 3-182 days (Nova Scotia)
Bypass Surgery: 17 days, 27 days, 62 days (Ontario, three were listed)
Bypass Surgery: 24 days (British Columbia)
CT and MRI Scan: 80 days (Alberta)
CT and MRI Scan: 7 days, 105 days (Prince Edward Island; "urgent" and "routine," respectively)
Joint Replacement: 95 days, 127 days, 281 days (Ontario, three were listed)
Sight Restoration: 56 days (British Columbia)
Chemotherapy: 2.1-8.4 weeks (Ontario)

This is why I'm not surprised when I hear people die waiting for care under the Canadian system. Some things are worth paying for.

Consensus on “Carbon Neutrality”

Recently I commented on Gore’s increasing carbon footprint. In the comments I was told:

God, if you're gonna make fun of something, at least know what you're talking about:

Live Earth says it will implement a new 'Green Event Standard' that will become the model for carbon neutral concerts and other live events in the future. This will include:-

All electricity that powers the shows will be from renewable sources, either through utility supplied renewable energy, biodiesel generators, or renewable energy credits

Recently there have been some initial analyses on using “carbon neutral” energy.

More fun than chess

A tale of two markets

The Political Economy of Alternative Energy

Another stab at carbon offsets

After reading these the consensus seems to be that credits and carbon neutrality doesn’t work as it claims to. And anyone who denies this is a fringe skeptic in the pocket of the environmental lobby.

Measuring Temperature

Recently I’ve been reading up on global warming. I came across something that I hadn’t heard before on the measuring of temperatures. After the collapse of the Soviet Union, thousands of measuring stations closed in the former USSR. The closing of these stations in cold areas correspond to the rise in temperature measured in the late nineties. Now whenever I see the claims that 1998 was the hottest year on record, I can’t get excited about it. It should be expected that eliminating thousands of Siberian and other cold weather stations will lead to an increase in measured temperature.

Passionately Neutral

Peter Johnson of USA TODAY wrote a wonderful piece about how news anchors tend to adopt a handful of pet issues and focus on those during their broadcasts. Bob Woodruff on army medical services. Lou Dobbs on immigration. Chris Hansen on child predators. Douglas Kennedy's on the dangers of attention-deficit-disorder drugs prescribed to children. The list goes on and on.

From an economics point of view, this is yet another example of the nature of competition. Each anchor is vying for the attention of an audience so it should not be surprising we see specialization in the media market place. And even though I disagree with what some of these advocates have to say (notably Lou Dobbs), one must appreciate this combination of free speech and free markets.

The only problem is the lie they tell us every day. Each anchor (with surely some exceptions) claims to be a neutral voice. In one moment they are passionately discussing their chosen issue. In the next moment they remind us they speak only the Truth; bias is not in their vocabulary. According to Kennedy, this is perfectly consistent: "You can be objective and still take on an issue that is important to society and to you personally." Let me take this moment and remind the media that they are not gods. Things that are personally important to anyone are things they can't be trusted to be neutral about.

Payola Day

In what everyone's calling a landmark settlement, four major radio broadcasters will be paying the FCC a tune of $12.5 million. The settlement gets the agency off the broadcasters' backs on their practice of payola-accepting payment in exchange for playing certain songs.

I see nothing wrong with this; it's just a form of advertisement. If you think the station's playing too much of the same song, do something else. But some radio listeners and-not surprisingly-small time artists are applauding the move because all these stations also promised air time for independent musicians.

This leads to more variety, they say, and I'm sure it does. But most successful independent musicians serve a niche audience. Their songs aren't as suited to the radio. Maybe there's a good reason why we hear only a small band of artists.

What everyone seems to be tip-toeing around is that now these broadcasters no longer have the payola's source of income, how many more conventional commericals will we have?

The Bootleggers and the Baptists Stop for a Smoke

One of my favorite theories of regulation comes from Bruce Yandle concerning his story of bootleggers and Baptists. The latter offers a good public face for some new regulation, say no selling alcohol on Sundays because it is a vile drink and Sunday is a holy day. The former offers politicians the money to pull off the face, in this case breaking the law and selling alcohol on Sundays for an inflated price.

In the standard story, these are two distinct groups but what's common is when they are the same group with two different faces. Consider smoking.

The Baptist. Phillip Morris wants to make it virtually impossible to advertise cigarettes. Young people watch these ads and might be tempted to smoke!

The Bootlegger. Phillip Morris's Marlboro brand captures a good 40% of the market. By making it nearly impossible for consumers to learn about new brands, PM restricts any competition and maintains, or maybe even grow, its healthy market share.

Note that this bill is supported by Ted Kennedy, not exactly a favorite of tobacco companies.

Score Another Point for Technology

Remember the summer of 2006, when an E. coli outbreak made eating spinach dangerous? It turns out the source was a likely culprit: an organic farm.

Organic farms use natural fertilzers, better known as manure, which are breeding grounds for micro-organisms. Some farms even refuse to irradiate their crops, which would have killed any E. coli that called our food their home. I can't be sure if conventional farming is healthier but I bet my life that "inorganic" crops are. If you want food to be safer technology is your friend, not your enemy.

HT: Mike Mills

The Economy Reorganizes

Airbus plans to slice 10,000 jobs from its payroll. Rudiger Lutien, chairman of the Worker's Council, insists the company's troubles are management in nature, not too many workers on the payroll. The truth is usually somewhere in between in cases like these but I'll bet Airbus made the right decision. If Lutien was right, firing a bunch of management looks a lot better from a public relations standpoint than firing five digits of workers.

Some of you may still be upset that these workers are being let go, as if Airbus is going to shoot them behind a chemical shed. These people won't disappear, only move onto new things. It won't be easy, but they will ultimately add more to the economy. If you don't believe me, would you shout down farmers that moved to the cities in the Industrial Revolution or buggy manufacturers when Ford perfected the assembly line? For your own sake, I hope not.

Hidden Exchange

In one of my classes, we read about how various stateless societies functioned economically without money or prices as we are familiar with. There were various methods of exchanged discussed, but this one I found to be the most interesting.

Herodotus discussed the trade relations between the Carthaginians and African tribes several hundred BCE. It went as follows:

The visiting traders (or perhaps better, would-be traders) appeared at some point in the vicinity of the area occupied by their hoped-for trading “partners,” with the goods they wished to exchange, and signaled their presence. The visitors placed their goods on the ground and went into hiding. In due time those with whom they wished to trade brought their goods, which in turn were placed on the ground, after which they disappeared. The visitors then returned to the place where the goods were displayed and if they were satisfied with the offerings of the “host” group, took them and returned home, leaving their own in exchange. If not satisfied, they left the host’s offering and their own goods untouched and disappeared again, thus indicating rejection of the initial offer. The hosts were then expected to adjust their offerings, or withdraw them and depart. In this technique the visitors would normally not be adjusting the amounts that they offered; they merely accepted or rejected the host’s offerings. Further, the visitors, in refusing the host’s first offering, were courting failure of their expedition and even impairment of continued relations with those who had goods that they needed.

F. A. Hayek called the pricing system a “marvel.” After reading about societies without an explicit pricing system, I agree with him that much more.

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.

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.

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.

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.

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.

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.

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.”

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.

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.

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 Périgord 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.

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.

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.

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.