Friday, August 29, 2008

The Stakes are Too High!

We have no reason to expect government to get any smaller, argue Ernest Christian and Bill Frenzel in the Wall Street Journal.
The stakes are so high in this presidential election for a fundamental reason that doesn't get discussed nearly enough: The federal government is so large and powerful. In particular, any aggressive president and Congress acting together have it in their legal authority -- under our presently elasticized Constitution -- to exercise near complete control over the economy. A long line of judge-made law since the Supreme Court's New Deal era decision in Wickard v. Filburn (1942) says there is almost no limit, under the commerce clause of the Constitution, to the regulatory reach of the federal government.

Politics as Usual

At Cafe Hayek, two great posts on the failures of politics. This one by Russ Roberts,
I'm sure Joe Biden's acceptance speech was worded carefully:

Barack Obama knows that any country that out teaches us today will out-compete us tomorrow. He'll invest in the next generation of teachers.

Yes, if he has the chance, Obama will invest in the next generation of teachers. I'd rather invest in students. Novel idea, isn't it?

And this one by Don Boudreaux,

Political types say the darndest things. Earlier today I heard, on NPR, Democratic pollster Celinda Lake interviewed about John McCain's choice of Sarah Palin as his vice-presidential running mate. Ms. Lake said something like "Gov. Palin will have to convince voters that she and Mr. McCain are in touch with women's issues. For example, how will she deal with the fact that, as Senator, Mr. McCain voted many times against raising the minimum wage? The minimum-wage is absolutely a women's issue."

What?? Let's assume -- contrary to economic logic -- that the minimum-wage achieves the very goals that it's advocates publicly assert that it will achieve with no downsides. Why would the minimum-wage be a "woman's issue"? What is it about higher wages that is of unique concern to women? Are low-skilled men indifferent to what they earn? Are men indifferent to what their low-skilled wives, mothers, sisters, and daughters earn? To what their low-skilled fathers, sons, and brothers earn? Do men care less about these things than women do? (If so, does that mean that men are less materialistic or less greedy than women?)

I don't mean to pick on Ms. Lake (whom I never heard of until a few hours ago); she's simply one among a horde of political activists. I cite here her ridiculous statement about the minimum-wage being a "woman's issue" only to give further evidence that the vast majority of political talk is childish -- ridiculous -- fueled more by thoughtless presumptions than by considered thought.

Politics is absurd. Looking to it as a source of earthly salvation, or even as a good means of getting potholes filled, is mystifying.

(The above quotation from Celinda Lake is from my memory. I can't now find any on-line version of this statement by Ms. Lake. If you can find one, please do send it to me.)




More Realism

Don Boudreaux's posts at Cafe Hayek are always worth reading:

Dr. Boudreaux,

Why are you so bitter about politics? Why so cynical? Why don't you give candidates and office holders the benefit of the doubt when they say they want to help others?

Sara

This e-mail just appeared in my e-mailbox. I have no idea who Sara is, but rather than answer her privately, I'll answer her here.

Dear Sara:

Thanks for writing. I often say, quite sincerely, that I'm not cynical about politics; I'm realistic about politics.

If a stranger knocks on your door and tells you that he or she is here for the express purpose of helping you, of serving you, of making your life better -- not because of anything that he or she will gain by doing so, but because he or she believes in your goodness and knows that you deserve more than you have -- what would you think? Would you give this person the benefit of the doubt, and trust that he or she really and truly is motivated chiefly and overwhelmingly by a desire to serve you?

Would you continue to give this person the benefit of the doubt on this score when he or she informs you that, to help you, he or she must have the power to tax you and to take away some of your liberties? When he or she assures you that, by some mysterious process, he or she "feels your pain"? When he or she modestly exclaims that those other persons standing on your porch ready to make pretty much the same offer cannot possibly care about you as much as he or she cares about you -- cannot possibly have sufficient skill, determination, and wisdom to improve your life; that only he or she possesses these qualities?

Would that benefit of the doubt continue to be given when you learn that, should you decide to trust this stranger with some of your wealth and your liberties, he or she will get lots of prestige and acclaim and applause simply because he or she holds power over you?

And would you persist in giving this person the benefit of the doubt when, should you ask probing questions about his or her motives or about inconsistencies you believe to have spotted in the plans he or she laid out for helping you, he or she suddenly begins dissembling or speaking in platitudes or vague generalities, or launches into stories of his or her past glory in some endeavor or other that has little to do with the power that he or she now seeks from you?

I suspect, Sara, that should such a person arrive at your door and deliver such a spiel to you that you'd quickly slam the door in his or her face, convinced (and correctly so) that that person is either an utter goofball or a supremely arrogant busybody. You'd want nothing at all to do with him or her, and if he or she persisted in knocking on your door you'd call the police or your bouncer-friend Bubba to escort this obnoxious person as far away from your home as possible.

So, if you'd not give such a person the benefit of the doubt, why in the world are you surprised that I don't give Barack Obama, John McCain, or any other successful politician you care to name the benefit of the doubt?

Sincerely,
Don Boudreaux

Well stated.

Kling's Campaign Season Pledge

Economist Arnold Kling writes at EconLog:
Readers have noticed that my tone has been relatively bitter the last several months. One possible reason is that the election campaign is heating up.

To me, political campaigns are not sacred events, to be eagerly anticipated and avidly followed. They are brutal assaults on reason. I look forward to election season about as much as a gulf coast resident looks forward to hurricane season. Meanwhile, I pledge the following:

1. That no politician will end America's consumption of foreign oil. Ever.

2. That no politician will figure out a way to bring the bottom half of America's children up to the level where they can benefit from a college education.

3. That no politician will figure out a way to make American health care--meaning virtually unlimited access to specialists and technology--affordable for everyone.

4. That no politician will alter the trends in technology and family structure that are driving the distribution of income and wealth.

5. That no politician will produce a sustainable fiscal outlook without trimming future Social Security and Medicare benefits. (I might have ended the previous sentence simply by putting a period after "outlook")

6. That no politician needs to create jobs. There is always too much work to be done. The problem is never to create jobs. The problem is for individuals to adapt their abilities to ever-changing job opportunities.

7. That no politician will be able to articulate an economic difference between moving labor or goods from country X to country Y and moving labor or goods from Maryland to Virginia.

Etc.

Thursday, August 28, 2008

I like her name

Marginal Revolution on Texas Senator Kay Bailey Hutchinson:

Here are some of her votes. Her ACU voting lifetime record is 91 percent. She is strong on free trade and seems to be a relatively conservative and corporatist Republican on economic issues. She's way up in the betting markets for the Republican VP spot, about 30 percent last I looked. Note that she is not pro-life according to conservatives. She has been very pro-drilling and very active on energy issues. Since picking Mitt Romney would violate all known economic models of rational choice, and picking a woman would pop the Democrats' post-convention bounce, I suppose this is a rumor to be taken seriously. Here is her Wikipedia page.

This is about all I know about her, but so far she sounds good! Better than Romney at least.

Taxes Suck!

Robert Carroll, via Greg Mankiw's blog:
Recent research on President Bush's tax relief in 2001 and 2003 has found that the lower tax rates induced taxpayers to report more taxable income. In particular, the reduction in the top two tax rates induced taxpayers to report more taxable income—an increase in the size of the tax base—to such an extent that this positive behavioral response likely offset roughly 25 percent to 40 percent of the static revenue loss of lowering the top two tax rates.
Of course, tax cuts are worthless when they aren't accompanied by spending cuts. But it would be nice if someone would seriously consider doing both.

Wednesday, August 27, 2008

More Personal Grumblings

I feel the same. After watching this excellent South Park episode (summary here), I had my own bout of anger at the Democrats. The episode is about the hypocrisy of the anti-smoking movement.

Now, I'm no cigarette smoker (pipes are much classier; cigars more badass), but I can't fathom how cigarette ads aren't allowed on TV. I don't care what anyone says about the "Fairness Doctrine," or any positive health effects of such a policy. The whole point of free speech and the First Amendment is that people are free to say anything, however unpopular. Where does the government get off saying cigarette ads are an exception to free speech? And why? Because they're unhealthy? Where does it draw the line then...Coke? SUVs? What if your Swiffer WetJet gives off toxic fumes? Good God! We need to protect the children!

Seriously though, I think an episode of Living Lohan is likely to cause more health problems than any cigarette ad.

Back to the South Park episode. My favorite line, spoken my a burger-munching Rob Reiner, was,
Sometimes lying is okay. Like, when you know what's good for people more than they do.
To me, this statement sums up all the problems with Democrats (Social Security, tariffs and labor regulations) and Republicans (gay marriage laws, prayer in schools). Non-libertarians, on some issue or another, hold the arrogant belief that they know whats best for others. This would be fine if they merely gave advice, and following it remained optional...but they think their belief is so right that people should not be allowed to do any different. Their personal beliefs need to be forced on others. Of course, to rich liberals like Reiner, cigarettes are bad! They're dirty and "lower class." But let's see them get behind a 200% tax on wine and tanning salons.

I'll end this rant by including Kyle's statement to Rob Reiner at the end of the episode.
You just hate smoking, so you use all your money and power to force others to think like you. And that's called fascism, you tubby asshole!
And this is America! (f'k yeah)

Edit: Another thing I don't get: Why are liberals, who are convinced that government knows best when it comes to retirement savings, healthcare, etc., so opposed to government having any say in abortions? If people are so unfit to take care of themselves that they don't know how to open a savings account, what makes liberals think they're smart enough to make the best decision about whether or not to have an abortion? Why wouldn't government know best in this case too?

Along similar lines, here is an excellent EconLog post.

Monday, August 25, 2008

Abolish the FDA

While discussing regulation with a friend, I dug up this article posted at the Independent Institute. It is a brief but pretty complete treatment of the subject. The FDA (and regulation in general) causes more problems than it solves.
Many economists have studied the FDA. Their diagnosis is well expressed by Nobel-winning economist Milton Friedman: “The FDA has done enormous harm to the health of the American public by greatly increasing the costs of pharmaceutical research, thereby reducing the supply of new and effective drugs, and by delaying the approval of such drugs as survive the tortuous FDA process.”
...
A drug may be developed, tested, and found to save lives. But the FDA will prevent Eli Lilly, Rite Aid, and Kaiser Permanente from making the drug available until it has gone through the tortuous and expensive approval process. That might take ten years. It might take forever if the drug is for a rare disease (and hence a small market). Because voluntary society would accomplish anything that the FDA accomplishes, the harms of the FDA are unredeemed.

Economists from Adam Smith to Milton Friedman have had the unenviable task of pointing out that popular, well-intentioned cures are often worse than the disease. Economists seem nasty when they report that the FDA is bad medicine. People don’t like to hear that they have bought into quackery. In collective decision-making, quackery often prevails over sense.
I recommend reading the whole thing. It is excellent.

Sunday, August 24, 2008

The Real Deal

Here are Joe Biden's votes on trade issues, via Marginal Revolution. Summary: JOE BIDEN HATES FREEDOM! And puppies, but that part is just a guess.

Very unfortunate. Especially considering the results of a recent study on free trade, also posted on Marginal Revolution.
We find evidence that a specific treatment, liberalizing tariffs on imported capital and intermediate goods, did lead to faster GDP growth, and by a margin consistent with theory (about 1 percentage point per annum).
Oh well. Who cares if we're poor?! At least we won't be buying fruit from Chile!


Friday, August 22, 2008

Economics Amatuer Hour

In a column appearing in today's New York Times, Paul Krugman writes,
Of course, all the evidence in the world won’t stop Republicans from claiming, as they always do, that Democrats are going to impose a crippling tax burden on ordinary hard-working Americans. But it just ain’t so.
Besides taxation, there's only one way to finance government spending (something Obama seems quite fond of): borrowing. And whether it's paying down principal or just keeping up with interest payments, someone is going to need to pay for our debt. In the long run, taxes will need to be raised. A rational person will save money now to pay for expected future tax increases. This requirement for additional savings is no different from a tax.

There is no real difference between government spending and government taxation; in the long run, the two have to equal. As politicians have long known, however, maintaining government spending while doling out generous "tax cuts" wins elections. So much for hope and change.

Edit: Here is an article by John Stossel and a paper by Columbia economist Edmund Phelps on the subject of tax cuts without spending cuts. I think Phelps's title says it all: "Income tax cuts without spending cuts: Hazards to efficiency, equity, employment and growth."

Thursday, August 21, 2008

WSJ Op-Ed by Columbia Prof

R. Glenn Hubbard weighs in on Social Security, Medicare, and Obama's tax plan.

The spending shortfalls in Social Security and Medicare are large. According to the Congressional Budget Office, Social Security and Medicare spending left unchecked would, after a generation, consume about 10 percentage points more of GDP than it does today.

Simple arithmetic suggests that with this much more of GDP eaten up by the two programs, all federal taxes on average would have to be raised by more than 50% to make up the shortfall. Research by economists Eric Engen of the Federal Reserve Board and Jonathan Skinner of Dartmouth suggests that such a tax increase would reduce long-term GDP growth by about a full percentage point. This is no small matter: Think of it as reversing all of the gains in our long-term growth rate from the productivity boom of the past 15 years.

...

The problem with Mr. Obama's fiscal plans is not that that they lack vision. On the contrary, the vision is plain enough: a larger welfare state paid for by higher taxes. The problem is not even that they imply change. The problem is that his plans are statist.

Tuesday, August 19, 2008

Anyone Else Scared?

WSJ columns on inflation
It is this combination of denial of actual inflation, bad economic models and the political expediency of keeping interest rates low that makes a repeat of past policy mistakes likely. In the end, inflation can be controlled -- the Volcker-Reagan strategy of tight monetary policy and tax cuts still holds the key -- but only if policy makers find the courage.
and Obama's tax plan

In fact, the idea of fairness is at the heart of his whole economic argument. And he goes back to it in almost every public appearance.

He talks about it as a general theme: "It is time for folks like me who make more than $250,000 to pay our fair share."

He invokes it as a solution for Social Security: "[W]e will save Social Security for future generations by asking the wealthiest Americans to pay their fair share."

He points to how it guides his energy policy: "The first part of my plan is to tax the windfall profits of oil companies and use some of that money to help you pay the rising price of gas."

And he stuck to it on capital gains, even after ABC's Charlie Gibson noted that the record shows increased taxes on capital gains -- which would affect 100 million Americans -- would likely lead to a decrease in government revenues: "Well, Charlie, what I've said is that I would look at raising the capital gains tax for purposes of fairness."

Translated into ordinary English, what that means is that it doesn't really matter whether a tax increase actually brings in more revenue. It's not about robbing from the rich to give to the poor. Robbing from the rich will do, especially if it's done in the name of fairness.

Barr Profiled in the Washington Post

Here's the link. He may not be perfect (wants to leave certain powers to the states which should not be left to anyone!), but he's getting my vote.

I especially like Wayne Root's explanation of why taking votes away from McCain might not be such a bad thing:
"Let's say that Barack Obama is elected president of the United States and let's just say it's because of Bob Barr and Wayne Root," says Root, a sports betting prognosticator, motivational speaker, infomercial star and 100-pill-a-day vitamin enthusiast who has written a book called "The Zen of Gambling" and has never held elective office. In that case, Root says, "four years of Karl Marx" could "so screw up the American economy" that it would lead to an "uprising," bringing the nation back to its small-government senses. Problem solved!

Monday, August 18, 2008

Who needs the WTO?

Something both pro- and anti-WTO libertarians can agree upon: unilateral free trade is good.

Also, inflation is bad!

Big Surprise

From the Wall Street Journal: "Denver Teachers Object to Changes In Pay-for-Performance Plan"

Friday, August 15, 2008

And I thought the trans-fat ban was bad...

From Marginal Revolution:

In Alabama it is illegal to recommend shades of paint without a license. In Nevada it is illegal to move any large piece of furniture for purposes of design without a license. In fact, hundreds of people have been prosecuted in Alabama and Nevada for practicing "interior design" without a license. Getting a license is no easy task, typically requiring at least 4 years of education and 2 years of apprenticeship. Why do we need licenses laws for interior designers? According to the American Society of Interior Designers (ASID) because,

Every decision an interior designer makes in one way or another affects the health, safety, and welfare of the public.

Thursday, August 14, 2008

Taxation without Legislation

Inflation is at 5.6%, its highest level in 17 years.

Where's Volcker when we need him?

Tuesday, August 12, 2008

Corn Ethanol is Destroying America

Texas governor Rick Perry had a decent Op-Ed in today's Wall Street Journal on the damage corn ethanol is doing to food prices. When the Republican governor of Texas and liberal Paul Krugman agree that a policy is bad, you can be sure there's something wrong with our government.

As Fred Smith mentioned at Cato's Milton Friedman Prize reception, biofuels do have the potential to solve our energy problems. Start-ups across the country, in addition to energy giants like Chevron and RoyalDutchShell, are risking their own time and money on research because they believe algae fuel has the potential to be commercially viable--without sending food prices through the roof. Also, note the epic shortcomings of corn ethanol when compared to Brazilian sugarcane ethanol.

Instead of pouring money into failing plans, wouldn't it be better if the government got out of the way and let human ingenuity and the free market solve our problems?

Monday, August 11, 2008

Coercion!

A great letter by GMU economist Don Boudreaux on why the world needs libertarians.
Just as many on the right naively fantasize that foreign problems are best solved by force, "liberals" fantasize that domestic problems - real and imaginary - are best solved by force. Jobs disappearing in Ohio? No problem - force Americans to buy fewer foreign goods. Too many Americans without health insurance? Force taxpayers to give it to them. The "distribution" of income doesn't satisfy some Very Caring Person's criterion? Government should forcibly redistribute. A mine collapses in West Virginia? Uncle Sam should force mine-owners to increase safety. See? All very simple.

Friday, August 08, 2008

I pretend to be a statistician


So, I had time to kill at work, and while reading a Wikipedia article on the minimum wage, came across a chart that was begging for a regression line. I plotted unemployment rates vs. the ratio of the minimum wage to the average hourly wage, for the years 1980-2008. (Sources: IMF for unemployment, BLS for wages.) I had Excel add a best-fit line.

I'm sure there are all sorts of flaws in this very basic analysis (Pete, feel free to point them all out). Still, considering the huge effect business cycles have on unemployment, an R-squared of .36 for the minimum wage seems very significant.

Of course, to anyone who's studied basic economics, the idea that the minimum wage would cause unemployment is nothing less than obvious. Says the ever-reliable Wikipedia, "Price floors set above equilibrium market prices cause surpluses." When the government guarantees a minimum price for farm produce, too much is grown and not enough is demanded, and the excess supply has to be dumped on foreign markets. When the government sets a minimum price for labor, supply exceeds demand, which leads to a whole bunch of people who can't find anything else to do all day but sit at home and watch X-Files reruns. Which reminds me...

Edit: I just realized that business cycle effects could be showing up in the model; lower wages during recessions would make the ratio of the minimum wage to the average wage higher. Oh well.

Saturday, August 02, 2008

Life is Great! (here at least)

Lest Pete makes us fear for our lives...

http://www.american.com/archive/2008/july-august-magazine-contents/how-are-we-doing


The power of economic growth. The next time someone claims the American poor are being left behind, ask them why they don't light their homes with kerosene lamps. Thanks to Cafe Hayek for the tip: http://cafehayek.typepad.com/hayek/2008/07/americans-stand.html. It's a great blog if you haven't yet checked it out.

Also, some interesting debate has started among the Chicago faculty over the proposed Milton Friedman Institute. http://www.marginalrevolution.com/marginalrevolution/2008/07/john-cochrane-o.html. The letter of protest is hilariously awful. The response is spot-on.