"We saw a lot of road kill and thought of you." —my sister
For more information on oil prices, click here. Podcasts of My Intro Economics lectures (in .wma format) For my 2005 Radio Economics MP3 podcasts, go to the bottom of the page that lists the lecture podcasts.
Reflecting on Eric Snowden's revelations about NSA snooping, Don Boudreaux at Cafe Hayek writes,
Government is power. Government is not to be trusted. Ever. Even if you believe that some government is and will always be necessary, that ‘necessary’ piece of government should always be regarded as a prudent lion tamer regards the big carnivorous cats that are ‘necessary’ for him to make a living. To imagine that seemingly subdued purring lions can be trusted to be dealt with in any ways that do not include the use of strong cages, leashes, ceaseless and deep suspicion, and escape hatches is the height of romantic absurdity – wishful thinking of the most extreme and inexcusable sort. Government is by its very nature a dangerous, untrustworthy, dishonest, arrogant, slippery entity – characteristics that are by no means reduced anywhere near to insignificance by a wide franchise, regular elections, and sturdy ink-on-parchment documents called “constitutions.”
Unless you are a high-ranking government official, government - no government – is ever “Us.” It is always “Them.” And They are not to be trusted. Ever.
... which is why I have drifted toward being a quasi-libertarian.
George Will has a terrific column in today's Washington Post in which he takes on the US sugar industry, its protection from competition, and the gubmnt subsidies it receives, both directly and indirectly. I would add that because the price of sugar is high, that leads to increased demand for high-fructose corn syrup, which has affected many things (including the taste of Coke?)*.
In the last four years, the U.S. sugar price has averaged between 64 percent to 92 percent higherthan the world price. The costs are dispersed to hundreds of millions. The benefits accrue primarily to 4,700 sugar beet and sugar cane farms....
The government guarantees up to 85 percent of the U.S. sugar market for U.S.-produced sugar. ... Surplus sugar — meaning that which U.S. producers cannot profitably sell — is bought by the government and sold at a loss to producers of ethanol, another program whose irrationalities are ubiquitous.
President Lincoln’s biggest blunder was .... creating the Agriculture Department. Since 1995, 75 percent of all agriculture subsidies have gone to the largest and wealthiest 10 percent of farms. Largely because of steadily loosened eligibility criteria — loosened at the collaborative behest of agriculture interests and the “caring class” (i.e., welfare workers) — food stamps are now used by 48 million Americans. The stamps buy less than they would were sugar quotas not raising the price of every edible thing, from ketchup to bread to yogurt, that contains sugar. But, then, big government always is most caring about the strong, the articulate and the organized.
*I called Coca-Cola about 25 years ago to ask why the taste of Coke was less rough/metallic, a taste I had come to enjoy, and asked if they had changed the formula. They said they hadn't changed the formula; all they had changed was the sweetener they use.
Another speaker at the July 12th Rocky Mountain Economic Summit in Jackson Hole will be William Dunkelberg, of the Global Interdependence Center. He has recently written
“We are to heal the damage done by a credit binge by making even more loans and encouraging ‘risk taking.’ The Fed has done all it can to encourage more borrowing, forcing interest rates as low as possible, flooding the banking system with liquidity, and accumulating a balance sheet of terrifying size. This cloud hangs over the economy, a wet blanket of uncertainty that prevents private sector participants from making bets on the future.
Compared to the 1983 recovery when GDP grew 8 percent, this has been a very weak recovery, not even reaching trend growth. The Fed is committed to purchase $1 trillion in government back[ed] assets while the CBO projects the deficit to be only $650 billion. Just how this will help is becoming less and less clear.”
Putting this together with the previous post, one possibility is that because of the "wet blanket of uncertainty", investors are loathe to invest in real capital, likely because of the regime risk. As a result they keep putting their lendable funds into financial assets even though they expect negative real returns.
My attendance at the summit is supported by several sponsors, including the Department of Economics at The University of Regina.
One of the speakers at the Rocky Mountain Economic Summit on July 12th will be David Kotok, chief investment officer of Cumberland Advisors and vice chair of the central banking series at the Global Interdependence Center. He recently commented on negative interest rates:
There seems to be a debate at the European Central Bank (ECB). The issue is whether or not the ECB should impose a negative interest rate. Negative interest rates are the ultimate in market distortions. They employ only a stick and no carrot. Their use tends to progress from disincentive through penalty to punishment.
Of course, depending on inflationary expectations, we probably have negative real interest rates in North America now and have had them for some time [if people expect the rate of inflation to be greater than the rate of interest, that means they actually expect to lose purchasing power with their investments; but losing a little is still better than losing a lot, which is what they'd do if they just held cash.].
What puzzles me is why so many people lend at negative real interest rates. Are there so few good investment opportunities offering better expected rates of return?
The glib explanation is that the marginal product of capital is expected to be very, very low (i.e. people don't think there are [m]any good investment opportunities out there).
But why is that? Is it uncertainty about the political future? Uncertainty about global stability? Or are there other explanations?
My attendance at the summit is supported by several sponsors, including the Department of Economics at The University of Regina.
I had never heard of this until a few days ago: The Great Emu War of 1932. [h/t Rebekah]. It is a classic example of how private citizens, responding to incentives, outperformed gubmnt employees. From Wikipaedia,
Following World War I, large numbers of ex-soldiers from Australia, along with a number of British veterans, took up farming within Western Australia, often in marginal areas. ...
The difficulties facing farmers were increased by the arrival of as many as 20,000 emus.[3] Emus regularly migrate after their breeding season, heading to the coast from the inland regions. With the cleared land and additional water supplies being made available for livestock by the West Australian farmers, the emus found that the cultivated lands were good habitat, and they began to foray into farm territory...
Farmers relayed their concerns about the birds ravaging their crops, and a deputation of ex-soldiers were sent to meet with the Minister of Defence, Sir George Pearce. Having served in WWI, the soldier-settlers were well aware of the effectiveness of machine guns, and they requested their deployment. ...
Summarizing the [highly unsuccessful] culls, ornithologist Dominic Serventy commented:
“
The machine-gunners' dreams of point blank fire into serried masses of Emus were soon dissipated. The Emu command had evidently ordered guerrilla tactics, and its unwieldy army soon split up into innumerable small units that made use of the military equipment uneconomic. A crestfallen field force therefore withdrew from the combat area after about a month.
[For the second foray]: Taking to the field on 13 November 1932, the military found a degree of success over the first two days, with approximately 40 emus killed. The third day, 15 November, proved to be far less successful, but by 2 December the guns were accounting for approximately 100 emus per week. Meredith was recalled on 10 December, and in his report he claimed 986 kills with 9,860 rounds, at a rate of exactly 10 rounds per confirmed kill. In addition, Meredith claimed 2,500 wounded birds had died as a result of the injuries that they had sustained.[2]...
In spite of the problems encountered with the cull, the farmers of the region once again requested military assistance in 1934, 1943 and 1948, only to be turned down by the Government.[2] Instead, the bounty system that had been instigated in 1923 was continued, and this proved to be effective: 57,034 bounties were claimed over a six-month period in 1934.[6]
Several hundred supporters took part, despite attempts by the government to prevent it going ahead.
Jobbik said the rally was a protest against what it said was a Jewish attempt to buy up Hungary.
The party, which says it aims to protect Hungarian values and interests, is the third largest in parliament.
It regularly issues anti-Semitic statements.
It is maddening and frightening that this party is the third largest in Hungarian Parliament. Also be sure to check out the links along side that story.
The cronyism in the financial sector that led to "too big to fail" must be dealt with. The Dallas Fed recommends (and I agree) that banks must instead be "too small to save".
If commercial banking and investment banking could be kept separate within the same corporate shell, that would probably be okay. But when risk-taking in investment banking is implicitly subsidized by deposit insurance on the commercial banking side of the business, then bankers and investors have strong incentives to take on too much risk, knowling that the taxpayers will eventually bail them out.
The Dallas Fed recommends incorporating more market discipline into investment banking and making sure that deposit insurance does not subsidize risk-taking.
To address this situation, we have proposed confining access to the federal safety net—the Federal Reserve’s discount window and federal deposit insurance protection—to traditional commercial banks. Further, we advocate that customers and creditors of companies affiliated with commercial banks sign a disclaimer acknowledging their understanding that there is no federal guarantee underpinning their relationship with these nonbank units or with the parent of any banking company. We believe these two steps would reduce the perverse incentives stemming from the implicit—but widely recognized—creditor protection offered to TBTF [Too Big To Fail] institutions. These two changes would help realign incentives to better resemble those faced by customers of smaller banks whose unsecured creditors and equity shareholders are exposed to losses. In short, our proposal would revive the inhibited forces of market discipline. [Emphasis added]
The piece cited here is a bit short on details of how to implement the transition, but it is clearly on the right track.
Addendum: My former classmate from Iowa State (and KC Fed Prez for years), Tom Hoenig had this to say about the failure of "too big to fail". His position (too briefly summarized) is that banks should be allowed to fail and that priority rules in bankruptcy must be observed. But be sure to read the last few pages at this link; they spell things out in greater detail. Tom is now a director of the FDIC.
Egypt Running Out of Money for Subsidies - Abigail Hauslohner Mini-tankers of illegal diesel fuel have become ubiquitous in Egypt. Egypt's rapidly expanding black market for fuel, foodstuffs, and other commodities may be the most tangible illustration of just how badly its economy is failing. The prices of basic goods, like fuel and flour, have been fixed for decades, with Egypt pouring roughly a quarter of its GDP into a bloated and deeply inefficient national subsidy system each year. After two years of political turmoil, the government is quickly running out of money to foot the bill, and the supply of subsidized goods is drying up. Cairo drivers say they spend up to four hours waiting in line ! at state-subsidized gas stations that are almost sure to go dry by the afternoon. "Sometimes they will only sell half of what they have, and then they'll take the other half and sell it on the black market," said taxi driver Rafaat Mahmoud. Since waiting in line also means losing money, Mahmoud does what many other Egyptians do: He pays 22% more to buy diesel on the black market. Economists say the government of President Morsi has only enough cash to fund the subsidies for a few months. But it lacks the political support needed to carry out the massive spending cuts that economists say are necessary to keep Egypt afloat and secure a $4.8 billion IMF loan. (Washington Post)
When prices are set below the equilibrium price, the quantity supplied declines and the quantity demanded increases, leading to shortages. This is basic stuff that politicians cannot overrule or legislate out of existence, no matter how much the voters might want them to.
Remember those massive antitrust cases against Microsoft? Think of all the scarce resources devoted to prosecuting Microsoft and used by Microsoft to defend itself. I opposed those cases for two reasons:
Microsoft dominated only when their products were better than others. I switched to Word because WordPerfect for Windows was horrible. I switched to Internet Explorer (and then FireFox, Chrome, and Safari) as they got better than Netscape and Mosaic (?).
Competition is very powerful. Apple is making huge inroads into the PC market. Google is dominating Microsoft in many areas. And operating systems for tablets and smartphones are leaving Microsoft in an unenviable position of trying to catch up.
According to Motley Fool (though not in these words), these two points are important for understanding the future for Microsoft, its strengths and its weaknesses.
The rise of tablets and smartphones has shaken up the once dominant “Wintel” PC paradigm. In an attempt to re-establish its supremacy, Microsoft (NASDAQ: MSFT) designed Windows 8 to be a hybrid operating system, useful on a variety of platforms.
But Windows 8 adoption has been poor -- consumers seem baffled by the changes. Meanwhile, Windows tablets are selling poorly, and Windows Phone remains in fourth place. Can Microsoft turn things around, or should the company cut and run?
Windows 8 has failed
Microsoft released Windows 8 last October. The new version of Windows was the biggest redesign of the operating system since Windows 95. Unfortunately, consumers seem baffled by the changes, and Microsoft’s hardware partners have been public in their disappointment.
There are two ways to keep industries competitive in the long run without resort to antitrust laws that are often ineffective (and frequently downright anti-competitive themselves!):
Promote free trade. Don't let fat-cat monopolists use trade barriers to enhance their monopoly power.
Promote easy entry into industries. Don't let the fat cat incumbents bribe politicians into making rules/laws that inhibit competition from new entrants.
And always remember the sad truth that most antitrust policy can be summarized this way:
Don Boudreaux at Cafe Hayek nails it. I was young, a borderline socialist, certainly a wannabe elitist interventionist. And then I realized that giving more power to politicians and their appointees not only could but would lead to implementation of policies I abhor. I began to back off my more interventionist views. But Boudreaux says it all so well:
If you are a modern “Progressive” and cannot abide the notion of conservatives, Christian or otherwise, having a say in who you sleep with and who you may marry, when and why you may get an abortion, what sorts of scientific research and artistic projects should be funded, what school curricula should and shouldn’t include, or when and why Uncle Sam goes on world-policing ventures, then why do you wish to expand the scope of government authority? Doing so in a society with a wide franchise, such as the U.S., inevitably invites those rubes to intrude their antediluvian superstitions and dogmas onto you and onto all that you hold dear and sacred.
Indeed, much of politics seems like a battle between opponents vying for the right to control other people. But there is more there; the above is just an excerpt. Here is his conclusion:
The more expansive is the scope of government authority, the more my life is subject to commands issued in part under the influence of people who read Us magazine.
Scary.
One of the first things we do in introductory economics courses is try to make the point that because humans seem generally to have unlimited wants but because there are limited productive inputs, we are condemned to live with scarcity. Like it or not, we cannot have all we want of everything. We must make choices somehow.
This fact of human existence is crucial for understanding the problems we will increasingly face in the realm of medical care. As we move toward increased use of gubmnt programmes to provide the care, not everyone will be able to receive all the care they might want. This problem of scarcity will most often be stated as a problem of not being able to afford the medical care, but it really stems from a problem of scarcity: when customers don't have to pay directly, they want more than they would otherwise, and getting all the productive inputs to provide all that care (i.e. attracting them from alternative uses) is extremely costly, involving painful trade-offs.
So we have to have a mechanism for deciding who gets the medical care. We must have some sort of rationing scheme. Some people might urge the use of the market to make this decision. Others might urge the use of co-pays and limits on some types of insurance to decide. Others openly recommend letting doctors, committees, and bureaucrats decide (aka death panels?). But we have to acknowledge that not everyone will ever get all they want. Choices must be made somehow.
You may not like that reality. You might think people should behave differently. But the sad fact is that scarcity necessitates our making such choices. There is no way around it.
We see this problem now with cancer patients in the US. From the Washington Post,
Cancer clinics are turning away thousands of Medicare patients. Blame the sequester.
... Oncologists say the reduced funding, which took effect for Medicare on April 1, makes it impossible to administer expensive chemotherapy drugs while staying afloat financially.
Patients at these clinics would need to seek treatment elsewhere, such as at hospitals that might not have the capacity to accommodate them.
It may seem that the sequester and a cut in funding for medicaid/medicare have caused this problem, and I suppose in the short-run that's right. But in reality, the problem is a much greater quantity demanded at current prices (zero!) than is supplied.
The problem is an old one that economists have presented endlessly: whenever the gubmnt sets a price of zero and tries to guarantee that everyone who wants something at that price can have it, then shortages emerge. And then, to try to fix the problem, the gubmnt must decide how to ration the product.
In this case the rationing is left to medical facilities. And they, quite understandably, are choosing to decline to treat those patients for whom the costs of treatment are extremely high.
Whether we want to acknowledge it or not, these are death panels. These are groups of people deciding who should or should not receive treatments.
In Cabaret, Herr Schultz, a Jewish owner of a fruit shop has his window smashed when a brick is thrown through it. He tries to minimize what others see as a determined Nazi attack on all Jews by saying,
They're just children. Mischievous children on their way to school.
But he was clearly wrong. The Nazis gained power and slowly began their programmes to exerminate Jews, gays, gypsies, etc.
Sadly, these "mischievous children" have many counterparts today. From the NYTimes Sunday Review,
Far-right ultranationalist groups are exploiting old enmities and new fears across the Continent. Although this is not the Europe of the 1930s, the disillusioned citizens of countries like Greece and Hungary have turned increasingly to simple answers, electing parties that blame familiar scapegoats — Jews, Gypsies, gays and foreigners — for their ills.
What’s at stake is the health of European democracy, and the values and institutions on which it rests. But while the euro crisis touched off a scramble to halt a financial meltdown, European leaders have done virtually nothing to reverse the union’s dangerous political trends.
These are not just mischievous children. These are racists, bigots, vandals, and killers. This time they must be stopped.
Addendum: I also intended to include a link to this article, which describes the rise of anti-semitism and neo-nazism in Hungary. Two items that stand out in Hungary are
attempts to identify and label Jewish students at university.
placing stickers on the doors of Jewish professors telling them "the university belongs to us, not the Jews."
March 23, 2013
John Cochrane (aka The Grumpy Economist) has a really good blog post about projections of the US deficit over the next several decades. No matter what the scenario, things don't look so good.
His real point in the above graph and the others in his post is that
[T]he real budget news that could matter has little to do with tax rates or spending. What matters most of all is whether we break out of this sclerotic growth trap.
And let me add to his post that the best way to promote economic growth is to promote mobility: capital mobility and labour mobility. Encourage people, both workers and employers, to be flexible. Don't legislate rigidities into workplace rules. Don't legislate rigidities into the social safety net. Those rigidities have been shown everywhere to impede economic growth.
As Tyler Cowen once said, "Economic growth is the only effective long-term anti-poverty programme." Or something like that.
Under an emergency deal reached early Saturday in Brussels, a one-time tax of 9.9 percent is to be levied on Cypriot bank deposits of more than 100,000 euros effective Tuesday, hitting wealthy depositors — mostly Russians who have put vast sums into Cyprus’s banks in recent years. But even deposits under that amount are to be taxed at 6.75 percent, meaning that Cyprus’s creditors will be confiscating money directly from pensioners, workers and regular depositors to pay off the bailout tab.
I was first told about this situation yesterday by MA who sent me some early information.
It looks to me as if the Cypriot banks lost buckets and buckets of money by "investing" (actually speculating) in what they thought were low-risk mortgage-backed securities up until 2008. Then, in an effort to "stablilize" (i.e. bailout the owners of) the banks, the Cypriot gubmnt bailed them out, all in the name of protecting the depositors.
This sounds much like what happened in Ireland and threw their economy into such a spin. In order to reassure international investors, the gubmnt guaranteed deposits in the banks and in the process also guaranteed the bondholders of the banks. In Ireland, the gubmnt was able to fund the operation through increased taxes, spending cutbacks, and additional gubmnt bond issues.
Cyprus doesn't have these options. The size of their bailout was about the equivalent of a full year's GDP for the country, and they simply could not raise taxes or cut spending enough to cover the bailout.
So they called on the IMF for help. And, no surprise, the IMF looked at the situation and saw no feasible way for the gubmnt to cover any loans the IMF might make to help them out.
One option, for the Cypriot gubmnt to repudiate their debt, surely was considered. But debt repudiation would hurt the banks in the rest of the EU, and those banks and gubmnts likely lobbied the IMF to seek some other alternative.
And that is when they settled on taxing deposits. This policy is horrendous. It is designed to steal wealth from large-depositor Russians who have tried to hide their money in Cyprus, but it will also hurt Cypriot businesses and people who have used the banks to save for (and plan for) their retirements, educations, etc.
My first reaction is "Since when did bondholders ever have a guarantee that their bonds would be repaid in full?" Ask the bondholders of pre-nationalized General Motors; ask bondholders of the Greek gubmnt. Why should bondholders of Cypriot gubmnt bonds or of Cypriot banks be protected from their inability or unwillingness to perform a fairly simple due diligence examination? A bond is not a guaranteed safe investment. Nor should it be.
My second reaction is that not only are Cypriots trying to drain their limits at ATMs, where total withdrawals until Tuesday are limited, but to the extent possible they will be using the internet and other options to prepay their credit card debts. I know that if I had $10K in the bank there, I'd try to put it on my paid up credit card balance and forego the interest income I might have earned in the bank to avoid the tax. But I don't know to what extent this is possible.
In the end, I wonder if this will really happen. The parliamentary vote that was to have been taken today has been delayed until tomorrow.
It was all started in the name of "protecting depositors" in banks that lost a lot of money several years ago. That sure seems ironic.
The residents of London were told early on that hosting the World Figure Skating Championships would draw 50,000 visitors to London, Ontario, this week and have a tremendous impact on the economy, injecting millions of dollars of spending.
I was skeptical from the start:
As I have outlined in previous work, much of the extra spending is often diverted from other local spending and it leaks right back out of the economy (see this)
The Bud (Budweiser Gardens, formerly the John Labatt Centre, the venue for the event) holds only 8 - 10K. Actually, according the LFPress, the actual capacity for figure skating is slightly under 7K, and even that number has not been reached for any events to date. From the London Free Press article titled "Thousands of tickets remain unsold for World Figure Skating Championships; Fans disguised as empty seats":
There hasn't been a sellout yet in the first three days of competition at the world championships, though Patrick Chan [EE: Chan is Canadian and a local fan favourite] and the men's skate came closest so far with 6,593 tickets sold.
Capacity at the arena has been set at 6,991 and the event is expected to come in at 85 percent over the week (including Monday and Tuesday practices at the Gardens).
There are 11 sessions, which means there were 73,601 total tickets available, and 62,197 [sic. had been sold(?)] as of Friday. Organizers believe the Saturday evening free dance showdown between hometown Olympic champions Tessa Virtue and Scott Moir and Meryl Davis and Charlie White of the United States will be sold out.
Many of those seats are being filled by people within walking or driving distance; they come in for an event, watch it, and leave, not spending much while they are here. Many other seats are being filled by people who shelled out $1300 for a full event pass. Even adding in all the media and support staff, there is no way this event will have drawn 50K visitors to the city. Indeed, later projections were lowered to 30-35K, which I suspect is still a sizable overestimate.
As is often the case, there is considerable anecdotal evidence emerging on FaceBook that many downtown merchants are having less business this week because of the concerns from locals about parking and traffic congestion. Many traffic lanes are blocked around the venue, and parking at the venue itself has been taken over by media and other equipment trucks.
The major positive impact on the local economy is, as usual, for the local hotel, taxi, and restaurant trade. But the impact on the restaurants in the area was odd: because of anticipated parking problems and because of the congested streets in the downtown area, locals avoided eating in the downtown restaurants. When the events were on, the restaurants were nearly empty; only when there was a break between events, did many of the fans wandered out to one of the nearby restaurants. But those who were attending two events in succession didn't really have time to patronize some of the finer local places, and so they rushed over to the food stands in the local market to grab something fast. Or they ate at the food stands inside The Bud. From MetroNews,
Several local restaurateurs told Metro Thursday about unfulfilled expectations — that the 2013 World Figure Skating Championships had made little to no impact on business.
“I’ll be happy if we break even,” said Seve Sanfilippo, manager of The Rocks on King, a restaurant/bar located across the street from the Budweiser Gardens’ busiest entrance.
... Figure skating competitions of this magnitude demand frequent stoppages in order to resurface the ice. As well, in between events fans only have enough time to stretch their legs and quickly grab a bite to eat.
Rushing outside to get a food fix has been an uncommon occurrence. “People are saying, ‘This is great, we don’t have to leave,’” Moore [manager of Ovations, which runs the food concessions at The Bud] added.
[For more on the problems the event posed for downtown restaurants, see this; and for a slightly contrary assessment, see this.]
The overall net effect of hosting the World Figure Skating Championships in London will surely be small or negative and short-run. Further, the city spent millions of dollars on security and to spruce things up, adding street decorations, reconstructing a pedestrian area, moving the panhandlers out of the downtown core, rerouting buses, blocking traffic lanes, adding purple-coloured lights everywhere, and sponsoring a massive light show.
It still amazes me that taxpayers are willing to praise politicians who bring things like this to their cities. I truly doubt that the net impact was positive overall.
News like this is so depressing. Why won't people learn from experience (if not from economists)?
A group representing two-thirds of Argentina's supermarkets agreed to keep prices steady until the first of April.
The move comes days after the International Monetary Fund (IMF) censured Argentina for issuing inaccurate economic data.
The government says inflation is below 11% but economists say it is double.
Analysts have accused Argentina specifically of understating
the rate of inflation since 2007 in order to keep interest rate payments
on its debt low, and to flatter the political regime.
Some economists think the annual inflation rate could rise as high as 30% this year.
The supermarket agreement covers every item in all of the nation's largest chains.
They include Walmart, Carrefour, Coto, Jumbo and Disco.
Argentina's commerce ministry has asked consumers to monitor prices in the chains.
Next up: watch for cries about dirty speculators, calls to shoot hoarders, and extensive allegations about black markets and cronyism. There's a perfect model in Venezuela.
And seriously, the only way to deal with rampant inflation is to reduce the rate of growth of the money supply. If the gubmnt is printing money to fund its deficits, then deficit reduction will be necessary too.
One reason so many people oppose big gubmnt is that politicians, like everyone else, respond to incentives. This means that many politicians, or at least enough that it's a problem, are susceptible to some sort of influence.
Electric cars might well be one of many examples*. From the Washington Post:
An electric car start-up and its sister company sued the Energy
Department on Thursday, claiming Secretary Steven Chu and his agency
awarded money to politically favored firms and strung along their firms
and others in a “fixed” race for federal funds.
In addition to complaints of cronyism, XP Vehicles and Limnia
said they have evidence suggesting the Energy Department improperly
shared their patented technology with competing companies that won
federal funding.
*Other examples might include bailing out the banks and sacrificing bondholders to bolster labour union support in the auto industry.
In preparation for the World Figure Skating Championships, to be held in London in March, the City of London has spent hundreds of thousands of dollars to dress up and clean up the city, including yet another logo. Meanwhile, the buildings directly across the street from the venue are dilapidated, in danger of collapsing, empty, run-down, etc. I can't see how spending so much to re-beautify a walkway near Market Lane or to design a new logo can have much of a positive impact on the city's image when this is the sight that will greet people from out of town every day:
From the far left:
a corner storefront that has been vacant, with the appearance of some work-in-progress inside having been abandoned over a year ago.
a supper club that went out of business (and for which we had little use)
a store front that has been empty for, I think, at least a year and a half.
a boarded up building with a wall on top that looks unsafe even if it isn't.
an okay pub
and the building on the far right of the photo is a "club" that is open only from 10pm - 2am on Saturdays. Huh? One time when I was walking past it during those hours, I asked one of the security personnel if he thought I'd fit in with their patrons. He smiled.
I don't know what the city can or should do about this situation. My small-gubmnt preference is that the city do nothing (and cancel the order for the new logo). But even ignoring that preference, given the local bureaucrats' goal of promoting the city, here are two bits they must consider:
Promoting the city will not work very well with these buildings and store fronts that have been abandoned and/or are in disrepair. At the very least, if it is even possible (and I have no idea), it might be nice to clean up the insides of those buildings and display the works of local artists in the storefronts. But who knows what relationships are like between the property owners and the city. Maybe the property owners are at odds with City Council. Or maybe the property owners have plans to rent the storefronts to food vendors or souvenir merchants temporarily during the World Figure-Skating Championship.
Visitors are not going to be thrilled about running the gauntlet at and around Dundas and Richmond: smokers and pan-handlers make it unpleasant enough, not to mention reports of drug deals, violent attacks, etc.
The point I'm trying to make is that putting a dress or a tux on a pig doesn't change the fact that people will recognize it as a pig the minute they look at it.
I live downtown, about a block and a half from the scene in the above photo. I know parts of downtown can be unpleasant in places and at times. But increasingly there is a regentrification taking place as new, high-end condos are being built. I'm hoping this trend continues.
At the same time, I am sure there are many things I don't understand about why that half block of buildings looks so blighted, so I don't want to go too far out on a limb here. But with those obvious conditions, it's hard to see how beautifying a walkway will help the city's image very much.
More people with good (and better) incomes want to live in the nation's capital, increasing the demand for housing and driving up house prices. When the size of gubmnt increases, not only are there more civil servants, but there are more political appointees and especially more well-paid lobbyists whose job it is to influence gubmnt. From WaPo:
While much of the nation is still struggling to emerge from a historic
housing-market meltdown, the District is reliving its boom days. High
rents, low interest rates, low inventory, and a flood of new residents
in their 20s and 30s are making parts of the city feel like it’s 2005
again.
The increased size of gubmnt is make at least some people better off... namely the people who owned property before the gubmnt-induced property boom/bubble. If I lived in DC now, I'd sell and either move out of DC or rent.
"Ironman" at the blog Political Calculations links to a number of comparisons and concludes that yes, Canada is more violent than the US (observing along the way, "At least Canadians are polite, eh? Just don't cross them...."). You may want to look into how and why he corrects for demographic differences, but here are some of his conclusions:
We break down the number of homicides per 100,000 by method for
Canada and the most demographically-similar-to-Canada portion of the
U.S. population, finding that Canada's much more strict laws regulating
firearms "saves" about one life for every 100,000 people, although
Canadian homicide offenders have adapted to the lack of firearms
available to them by making murder more brutal. ...
We find that there's an additional price to be paid for saving
that one life for every 100,000 people with strict gun control laws. It
turns out that after adjusting for the major demographic differences
between the two nations, Canada is a much more violent place than is the
U.S.
Does the US really have fewer violent crimes per capita than the UK, Austria, Belgium, Holland, and even Sweden? Data reported in the Telegraph say it does (h/t Tom Hanna):
[V]iolent crime in the UK ... increased from
652,974 offences in 1998 to more than 1.15 million crimes in 2007.
It means there are over 2,000 crimes recorded per 100,000 population in the
UK, making it the most violent place in Europe.
Austria is second, with a rate of 1,677 per 100,000 people, followed by
Sweden, Belgium, Finland and Holland.
By comparison, America has an estimated rate of 466 violent crimes per 100,000
population.
I don't know if it is sloppy reporting or sly cooking of the data, but I see just "crime" in one place and "violent crime" in another. The article does caution about there being different measures in different countries, so be careful about the results here (and in every other cross-national study!).
But if the data correctly represent the situations, perhaps the rush to judgement about the US, violence, and guns is mistaken.
I used to be in favour of gun control. My belief was that gun control legislation would cut down on violent crime. Then I started reading various articles that actually studied the evidence. I slowly and reluctantly changed my mind. Here is one of many good articles that summarize the literature (h/t Ted Frank). Some relevant quotes:
Mass shootings are no more common than they have been in past decades, despite the impression given by the media.
In fact, the high point for mass killings in the U.S. was 1929,
according to criminologist Grant Duwe of the Minnesota Department of
Corrections.
Incidents of mass murder in the U.S. declined from 42 in the 1990s to 26 in the first decade of this century.
Until the Newtown horror, the three worst K–12 school shootings ever had taken place in either Britain or Germany.
Gun-free zones have been the most popular response to previous mass
killings. But many law-enforcement officials say they are actually
counterproductive. “Guns are already banned in schools. That is why the
shootings happen in schools. A school is a ‘helpless-victim zone,’” says
Richard Mack, a former Arizona sheriff. “Preventing any adult at a
school from having access to a firearm eliminates any chance the killer
can be stopped in time to prevent a rampage,” Jim Kouri, the
public-information officer of the National Association of Chiefs of
Police, told me earlier this year at the time of the Aurora, Colo.,
Batman-movie shooting. Indeed, there have been many instances — from the
high-school shooting by Luke Woodham in Mississippi, to the New Life
Church shooting in Colorado Springs, Colo. — where a killer has been
stopped after someone got a gun from a parked car or elsewhere and
confronted the shooter.
Economists John Lott and William Landes conducted a
groundbreaking study in 1999, and found that a common theme of mass
shootings is that they occur in places where guns are banned and killers
know everyone will be unarmed, such as shopping malls and schools.
Put away your feelings and beliefs. Just ask yourself (and the various articles you read), what policy is likely to lead to fewer mass killings of children and adults in the future? I'm reluctantly coming to the view that gun control leads to more, not fewer, mass killings.
I've been puzzled for the past few years about why the long-term interest rates on US gubmnt bonds are as low as they are. Given the continuing size of the gubmnt deficit, given the massive entitlement commitments in the form of Social Security and Medicaid, and given the apparent unwillingness of US politicians to do much about these foreseeable budget problems, I see only two possibilities for the future:
the US gubmnt has to borrow a bunch more money. But if/as they increase the demand for lendable funds, that will drive up the interest rate. Why are the markets not anticipating that increase now?
The gubmnt, combined with Fed support, might try to keep interest rates low for awhile, but eventually won't these attempts eventually lead to gigantic increases in the money supply? If so, then eventually the rate of inflation will increase, leading to an increase in the expected rate of inflation. And, following the Fisher equation, an increase in the expected rate of inflation would lead to an increase in the nominal rate of interest.
I suppose there are other solutions, but those two seem most likely. Both lead to large increases in the interest rate over the next few (?) years.
If I'm right, why haven't interest rates begun to rise, especially for the long-term US debt? It turns out I'm not the only one to ponder this (of course). David Henderson has actually, inter alia, recommended that the US start borrowing more at those low long rates and borrow less using short-term debt. David quotes John Cochrane,
Here's the nightmare scenario: Suppose that four years from now,
interest rates rise 5 percent [he means "5 percentage points], i.e. back
to normal, and the US has $20 trillion outstanding. Interest costs
alone will rise $1 trillion (5% of $20 trillion) - doubling already
unsustainable deficits! This is what happened to Italy, Spain, and
Portugal. Don't think it can't happen to us. It's even more likely,
because fear of inflation - which did not hit them, since they are on
the Euro - can hit us.
Of course Cochrane's and Henderson's advice "go long" is directed toward the US gubmnt. Offsetting advice to investors would be to stay short and liquid. I cannot imagine that it would be sensible to lock any money into 30-year US Treasuries which as I type this are paying only 2.76%.
Noting that 8 of the 10 richest counties in the US voted for Obama, Gary North wrote,
There is a deal between the poorest inner cities and the rich, who have
no contact with people who live in the inner cities. The rich vote to
assuage their guilt, and the poor take the trickle-down welfare from
Washington. It’s the politics of co-dependence.
His explanation, which may have a grain of truth judging from my own experiences both as a student and as a prof, is
The reality is this: rich parents buy expensive college educations for their children. Colleges are run by political liberals. The outlook of the professors is adopted by students.
My own take is that many (most?) well-to-do people actually do care about the poor. Sometimes they disagree vehemently about which poor they care about (and too often ignore future generations) or how to go about caring for them.
The Washington Post had a lengthy piece today on measures various people are proposing to prevent such massive flooding as happened in Galveston with Hurricane Ike or as happened along the East Coast with Hurricane Sandy. (link here).
You know what I liked about the article?
It talked about what cities, states, and regions are contemplating. The article does not include any quotes (that I saw) saying the protective measures are so costly that the Federal gubmnt will have to help out.
There is no reason to ask/require people in Kansas to help pay for these barriers or other measures (just as there is no reason to ask/require New Yorkers to pay to help with tornado relief in Kansas).
If people want to live in nice, low-lying areas near the shore [yes, Galveston is very nice most of the time!] they should be willing to pay the high taxes required to cover the costs of protection; failing that, they should be willing to pay the exorbitantly high insurance premiums (assuming they could even buy flood insurance) to cover their losses.
But when others bear the costs of such mega-project protection schemes, the major economic effect is to subsidize the people who own land (and buildings) in the at-risk areas. The result is to induce more people to live in those areas.
David Henderson, in reviewing John Goodman's book on the economics of healthcare, takes a well-deserved swipe at the current Canadian health care system:
These data, plus the fact that Canadians wait so long to see a doctor
and to get surgery, help to make another point that Goodman discusses:
the supposed "right to health care." When I hear people say that people
have a right to health care, I take on the moral issue with moral
reasoning, questioning whether health care is something that a person
can truly have a moral right to. Goodman does it differently--and
effectively. He points out that Canadians don't have a right to health
care. How can you say it's a right if people aren't guaranteed to
actually receive the health care service they need? The right to get in
line for care, which is really all that Canadians are guaranteed, is not
much of a right.
When I first moved to Canada over 40 years ago, the health care system was much better for several reasons. We rarely had to wait very long for any service. Two important things happened, however:
In an effort to control costs and reduce what people feared would be supply-induced demand, the number of doctors put through the system was actually restricted. It should come as no surprise that we now have shortages of physicians, especially since present-day doctors tend to put in fewer hours, on average, than did physicians back then.
Extra billing was eliminated. When I first moved to Canada, doctors were allowed to charge more than the stated fee schedule if they wanted to. Some did (especially if they thought the patients could pay more -- a classic example of the improved efficiency that follows from price discrimination). The elimination of extra billing drove some physicians to the US and induced others, especially newer ones, into the specialties with more lucrative fee schedules, leaving shortages elsewhere. Surprise, surprise: when the price was pushed to zero by the gubmnt, the quantity demanded increased and the quantity supplied decreased.
One reason I wish the world price of oil would fall is that it might speed the departure of this autocrat. From the NYTimes,
Venezuela’s traditional dependence on oil exports has deepened, with 96 percent of export revenue now coming from the oil industry,
up from 67 percent just before Mr. Chávez took office. Nationalized
steel mills produce a fraction of the steel they’re designed for,
forcing the state to import the difference. And nationalized electric
utilities plunge most of the country into darkness several times a week.
The contrast with Brazil’s high-tech, entrepreneurial, export-oriented
economy couldn’t be more stark....
With oversight institutions neutered, the president now runs the country
as a personal fief: expropriating businesses on a whim and deciding who
goes to jail. Judges who rule against the government’s wishes are
routinely fired, and one has even been jailed. Chávez-style socialism
looks like the worst of both worlds: both more authoritarian and less
effective at reducing poverty than the Brazilian alternative.
Queues for all the products for which Chavez has instituted price controls speak loudly to his failed economic policies. How is it that economists have done such a poor job of educating both voters and politicians about how badly price controls distort the economy and make so many people so much worse off?
I have no idea where Jack got this, and he has no cite for it, but we both agree that it is consistent with what we remember:
JustinT: "I am in love with Canada. I want to spend my life serving it."
Well...
that's nice... he loves Canada and wants to be Liberal leader in his
cushy MP job. Let's look at Justin's C.V. and see what he has done in
his prior life and back up his "love" for Canada.
Justin Trudeau's C.V. :
Plan A:- BA, Literature (McGill - 4 years)
Plan B:- BA, Education (UBC - 2 years)
Plan C:- Supply teacher of drama, French, social studies
Plan D:- School of Engineering (U of Montreal - 1+ year withdrew)
Plan E:- Actor (CBC miniseries)
Plan F:- Master of Arts, Environmental Geography (McGill - 1 year withdrew)
Plan G:- Liberal MP, Papineau riding (4 years)
Plan H:- Liberal leader (2013)?
He
quit teaching in 2002 and went back to school for a career change to
Engineering. In 2008 he quit his Master of Arts program and decided to
enter the world of federal politics in Papineau riding. So for 6 years
he was kicking around as a professional student and actor... WOW, talk
about being productive...!!!!
As I said, it rings true. As much as my liberal friends might be persuaded by the Trudeau mystique, I hope they'll look for more than hope, dreams, name, and mystique.
I love econ-o-geeky questions like this. In Trono, retailers have been required to charge five cents/bag instead of giving them away at the checkout. As a result, usage of the bags fell by 50%.
So let's see. E = (% change in Qd)/(% change in P)
The % change in Qd is given as 50%, but what's the % change in price, given that it started at zero? Infinite? probably not. Arc Elasticity of demand might be a good stop-gap solution: The % change in P = 5 cents/(avg of beginning and ending price) = 5/2.5 = 2.0.
So in this case E = .5/2 = .25 (ignoring the negative sign for the change in Qd).
Why did it occur to me to post something like this after not having posted anything for a "few" days?
What a bunch of doinks (a technical term for econo-idiots).
The 5-cent charge was doing its job. It was discouraging the use of single-use plastic bags, and rather substantially at that. But because the city council was concerned that the proceeds were not going to environmental groups, they got their knickers in a knot, and banned the bags outright. Really.
So even though the charge operated effectively as a Pigou Tax, councilors have scrapped it because some politically favoured groups were not receiving the proceeds? That is so stupid.
The effect of this outright ban will be two-fold:
Those groups will not receive anything as a result of this policy change. It won't make them any better off.
Shops will be forced to switch to paper bags, the manufacture of which creates serious environmental problems and which are far less convenient for consumers.
I wonder if there`s an in-trade bet available for whether they'll reverse themselves.
This kind of nonsense just piles on the problems of "regime uncertainty". How can people make sensible plans or reasonable future business decisions when politicians like these are running amok?
"I really enjoy your site, and I'm planning to assign your blog to my students. I love to find "real world" examples to supplement the text, and your blog is terrific for that. Thanks for writing it!" -- J.A.B.
