EclectEcon

Legalizing Marijuana: The Supply Curve Shifted Farther to the Right than the Demand Curve

After Colorado legalized possession, sale, etc. of marijuana, it was clear that both the supply curve and the demand curve would shift to the right.

But which would shift farther? Would the influx of visitors, coupled with increased purchases by domestic buyers lead to such a massive increase in demand that prices would rise? Or would the relatively easy production lead to a large increase in supply, causing the price to drop?

It turns out supply increased more than demand, despite "marijuana tourism" (see this).

[P]rices are declining faster than some had expected, while the number of people visiting the stores has increased. ...

Since last June, the average price of an 1/8th ounce of recreational cannabis has dropped from $50-$70 to $30-$45 currently; an ounce now sells for between $250 and $300 on average compared to $300-$400 last year. [emphasis in the original] More competition and expansion of grow facilities contributed to this price decline ...

According to the note, sales increased by 98 percent year-over-year in April....

Meanwhile, the popularity of legal weed has sparked a fast-growing industry that ... compares to Silicon Valley.

This Is What Freedom of Religion Should Mean

I love this statement, quoted in part by Steve Horwitz on Facebook with his introductory sentence:

Hey other traditionalist religious groups, this is how you do it in a pluralist liberal democracy (it's also why I'd never be an Orthodox Jew, but...):

"“In response to the decisions announced today by the United States Supreme Court with reference to the issue of legal recognition of same sex marriage, we reiterate the historical position of the Jewish faith, enunciated unequivocally in our Bible, Talmud and Codes, which forbids homosexual relationships and condemns the institutionalization of such relationships as marriages. Our religion is emphatic in defining marriage as a relationship between a man and a woman. Our beliefs in this regard are unalterable. At the same time, we note that Judaism teaches respect for others and we condemn discrimination against individuals.

We are grateful that we live in a democratic society, in which all religions are free to express their opinions about social issues and to advocate vigorously for those opinions. The reason we opt to express our viewpoint in a public forum is because we believe that our Divine system of law not only dictates our beliefs and behaviors, but also represents a system of universal morality, and therefore can stake a claim in the national discourse. That morality, expressed in what has broadly been labeled Judeo-Christian ethics, has long had a place in American law and jurisprudence.

We also recognize that no religion has the right to dictate its beliefs to the entire body politic and we do not expect that secular law will always align with our viewpoint. Ultimately, decisions on social policy remain with the democratic process, and today the process has spoken and we accord the process and its result the utmost respect." [EE: emphasis added]

Now let's hope the processes they have given so much respect to give that respect back and allow them to have, in their words "appropriate accommodations and exemptions for institutions and individuals who abide by religious teachings that limit their ability to support same-sex relationships."

I do have some difficulties with the last paragraph, however. If a religious organization had discrimination against blacks or Jews as one of its tenets, on the one hand I would argue the state should dominate; on the other I would favour freedom of association. And that leaves me in a state of limbo. I expect the same might well be true in the case of religions that discriminate against LGBTs, or religious orders that admit only one sex into membership, etc.

Hostage Negotiation? Don't Bother If I'm the Hostage

Apparently the US will no longer prosecute families who negotiate with hostage takers to retrieve a hostage. [see this]

I have given my family instructions that they should keep their money and not negotiate with any hostage-taker-kidnappers. I'm old; I've had a good life; and I'd rather they have the money to enjoy the rest of their lives. In fact, if I were a hostage, I'd be obnoxious, maybe try to escape, and even seriously consider suicide to keep my family from paying a ransom.

I detest the practice of rewarding hostage-taker-kidnappers. After all, people respond to incentives. Paying a ransom creates an incentive for people to kidnap.

I understand why families pay ransoms. If it were a family member of mine, I would do whatever I could to retrieve them. And since kidnapper/terrorists know families will feel this way, they don't hesitate to kidnap people.

I had a friend who worked in Afghanistan a decade ago for an aid agency. The entire time he was there, he was accompanied by armed guards. When I asked him about it, he emphasized that the major threat to him and to his co-workers was not that the Taliban would kill them; rather, it was that terrorists would kidnap them and hold them for ransom.

For more on the US efforts to retrieve hostages, see this heart-breaking story.

If kidnapper/terrorists believe families will not pay off (either because they are poor or because they fear gubmnt prosecution if they do), they will be less likely to kidnap someone. This announcement of a change in US policy makes it slightly (?) more likely, in some probabilistic sense, that the relatives of hostages will pay off the kidnappers, which is why this de facto policy was not made public for so long.

So here's a strategy: If hostage-taker-kidnappers are less likely to kidnap (take hostages) for whom ransoms are less likely to be paid [go ahead behead me. I'll laugh at you!], then if I announce that my family have all agreed that we're not paying ransoms for each other, we'll be less likely to be kidnapped.

If you were a hostage-taker-kidnapper, would you think "I won't pay" is a credible threat? Probably not. But there's a chance it is a credible, and so you might go after someone else.

And I expect this is what underlay the former US policy.

Coase and Raisins

My restatement of the Coase Theorem:

• If legal entitlements are well-defined, clear, and fairly easy to enforce, and
• If transaction costs are comparatively low, then
• Scarce resources will move to their most highly valued use.

It's something of a definition of sufficient conditions for economic efficiency.

If I have something, whether it is a painting, a car, my labour services, the right to make noise, or whatever,  and if you want it, then:

if these two basic conditions of the Coase Theorem are satisfied, then whichever of us values that thing or service the most will end up with it, where value is determined by willingness and ability to pay.

But we need to have well-defined and easily enforced legal entitlements (or property rights) for this to work. Much of economic policy comes about because one or both of these conditions is not satisfied. Examples might include pollution control, traffic laws, and national defence. Raisins probably are not a good example (nor is milk, or chicken or pork or other agricultural commodity).

Horne involves a challenge to the forcible appropriation of large quantities of raisins by the federal government. The forced transfer is part of a 1937 program that requires raisin producers, in some years, to turn over a large portion of their raisin crop to the government so as to artificially reduce the amount of raisins on the market, and thereby increase the price. Essentially, the scheme is a government-enforced cartel under which producers restrict output for the market so as to inflate prices. The Hornes claim that the appropriation of their raisins amounts to a taking that requires “just compensation” under the Fifth Amendment.

This case, like so many, is a fight over legal entitlements. Once the legal entitlements are made clear, then people can make decisions that are more likely to be efficient (with the understanding that a gubmnt-enforced cartel is, in and of itself, extremely unlikely to be efficiency-promoting).

*As all my former students know, the Coase Theorem is named for the famous economist, Professor Theorem.

Feedback on Gun Control and John Lott

After I posted this piece late last night, there were numerous comments and discussion points raised here on the blog, in email, and on Facebook. As I wrote on Facebook after the Charleston SC shootings, I wonder if churches, synagogues, schools, etc. should post signs like these:

Note to all crackers: more than a few members of our congregation have conceal-carry licenses. How do you rate your chances?

Here are some further thoughts:

Addendum: Even if John Lott receives no direct support from pro-gun lobbyists, I would be very surprised if he does not receive at least indirect support from them via those who do provide financial support for his work. But that wasn't the point I was trying to make with my previous post. The important point is that most of his work has stood up to near-rabid criticism.

Nearly 10 years ago, I lobbied long and hard for UWO to hire John Lott, but was unable to persuade my colleagues that he would be a valuable, interesting, stimulating colleague. He is a challenging person. I told him at the time, I knew that if he were hired by UWO, I would have to work harder than I had worked in a long time.

When I was President of the Canadian Law and Economics Association, I tried to persuade others that John Lott would be an interesting keynote speaker for one of our annual sessions. Again, I was unsuccessful. My vague recollection is that the general feeling was that he would be too controversial. My reaction was that if he's wrong, show it. Let's encourage more research in the area.

Keep in mind that I had been pro-gun-control most of my life. John Lott's work made me re-think my views on guns and gun control. And at the very least his work challenges the pollyanna-isms and nirvana fallacies of "Gee, wouldn't it be nice if the bad guys had no guns."

If You Favour Gun Control....

Please, if you favour gun control, read some of the work by John Lott.

I favoured gun control until I began reading his studies. Recently I posted something about this on Facebook, making the point that now, given the extent of gun ownership in the US, Lott's points and his evidence make good sense. States with conceal-carry permits have less gun violence and fewer gun deaths than states that do not allow conceal-carry permits.

After I posted this, a Facebook friend posted a series of accusations and ad hominems about John Lott. Let's get a few things straight:

• Yes, John Lott was dishonest in using sock puppets to praise his work.
• Yes, John Lott receives support from the pro-gun lobbyists, but most of that support came as a result of his academic research, after his initial results were published.

But most importantly, his research had stood up (I use the past-perfect tense because I have not followed recent developments).

Here is what I wrote about Lott (and the false accusations against him by Steve Levitt and that are unfairly repeated by too many people) many years ago:

Lott v. Levitt

August 17, 2006 — eclectecon

When I first heard about the defamation suit John Lott launched against Steve Levitt, I wondered if maybe Lott was acting a bit crazy. Now that I’ve read this (courtesy of Tyler Cowen) I wonder if Levitt was perhaps a bit more than injudicious (my take on the article is apparently different from that of the first commenter at Marginal Revolution). I realize there is a sizable gap between “more than injudicious” and “defamation”, but where does this fall? And the debates continue — be sure to see all the comments at Marginal Revolution. It sure looks as if there is considerable animosity between the two economists and between their supporters/champions.

Lott’s lawsuit hangs on two seemingly simple but academically fraught statements: the research was not replicated and the special issue of the journal was not peer refereed. …

In May 2005, an economist in Texas challenged Levitt’s characterization of Lott’s research and pointed out that Lott had guest-edited the October 2001 special issue of The Journal of Law and Economics, published by the University of Chicago Press. As a whole, the ten articles in the journal backed Lott’s conclusions. According to the lawsuit, Levitt e-mailed back: “It was not a peer refereed edition of the Journal. For $15,000 he was able to buy an issue and put in only work that supported him. My best friend was the editor and was outraged the press let Lott do this.” …

Lott contends that “‘replicate’ has an objective and factual meaning in scholarship”—it means that other researchers using the same data in the same way will get the same results. Thus, he says, Levitt’s use of the term amounts to “alleging that Lott falsified his results.” Levitt’s lawyers reply that Freakonomics is written in “everyday language” and is aimed at the general reader.

“Peer refereed” (or “peer reviewed”) refers to the standard practice at scholarly journals of sending a potential article to several other scholars to vet and approve before the work is published. To uphold academic impartiality, the writer does not know the peers’ names. In an e-mail to me, Lott said, “If you were to look at a physical copy of the journal you would see that all of the papers thank anonymous referees for refereeing their papers.” (As for whether he was able to “buy an issue,” Lott says in the suit that he “raised funds for” publishing the special issue.)

The “best friend” editor whom Levitt mentioned in his e-mail was Austan Goolsbee. “I was the lead editor at the time that special issue was printed, but not when it was prepared,” Goolsbee says. The journal collected papers delivered at a conference sponsored by the American Enterprise Institute and the Center for Law, Economics and Public Policy at Yale Law School.

“In one sense,” Goolsbee says, symposium papers are peer reviewed “in that the articles sometimes go out” for critiquing. “But Steve Levitt is quite right that the standards are infinitely lower on a conference volume. The acceptance rate for papers at The Journal of Law and Economics is something like 8 to 10 percent. This issue had something like ten papers and like most conference articles, none [I believe] were rejected. That’s a one-in-a-billion event that you would get all of those papers in.”

At least two contributors, however, told me that their papers were indeed reviewed. Bruce Benson of Florida State University says he made “significant revisions” in the article he coauthored to address criticism from two referees. “I was surprised when I heard that Levitt made this claim because I actually had guessed that he was one of the anonymous reviewers of my paper. . . . Apparently this was not the case.”

T. Nicolaus Tideman of Virginia Tech, coauthor of another article in the journal, saw his paper at first rejected by a referee, but he rewrote it and then it was accepted. Tideman said the article analyzed Lott’s More Guns, Less Crime data in two different ways and the data held up both times.

Also see this.

I knew John Lott back then. He is very smart and back then was very careful with his research. Further, I am not aware of any good research that has refuted his initial findings. And the replications also have not been refuted so far as I know.

As I said at the outset, given that there are guns in the US, I'd be more comfortable being in places where someone from the NRA has a gun than being in a so-called "gun-free" zone.

Note: I have fired a gun twice in my life (when I was a boy scout in my early teens). I am not a gun owner. I probably should not post this, but I disclose it possibly to influence my creds.

I have friends who have guns and who have concealed-carry permits. I am confident they continue to train and practice. But more importantly I am confident I would stand a better chance in a potential terrorist attempted mass shooting if they are around than if there are no gun owners present.

We don't often read about the attempts at mass killings that are thwarted because the shooters are deterred or shot by legal gun owners. The MSM [main-stream media] doesn't report these events, but the gun-lobby-fringe does, of course.

Mostly I urge you to read the work with an open mind. Some of it does seem to push too hard (so far as I am concerned). But it is compelling.

Update: I had and have no specific evidence that John Lott received funding from pro-gun lobbyists. In fact I have no idea about his financial backers. I thought I remembered that he did, but he denies it, writing to me,

If you have evidence that I receive support from pro-gun lobbyists, please provide some evidence of that.  Have I lost jobs because of my research?  Yes (one example, http://www.foxnews.com/opinion/2011/02/01/scary-encounter-chicagos-mayor-richard-daley.html).  Have I been offered chances to do consulting on gun cases?  Yes, but I have always turned them down.  If you have some evidence for your claim, provide it.

 

Deflatinator: What's the Appropriate Standard of Proof?

I think there's a good chance someone or several someones from the Patriots, possibly including Tom Brady, knew and/or had something to do with the low pressure in some of the footballs used by the Patriots during the 2014-15 NFL season and playoffs.

But a good chance is not a very high standard.

Given the Patriots' response, I am quite certain (with some probability, of course) that nobody could be found guilty beyond a reasonable doubt (the standard of proof required for criminal cases).

Further, I'm not sure that the standard of proof for civil litigation (preponderance of the evidence? balancing of the probabilities? it depends on who you talk to) would find against the Patriots. It might, though.

That doesn't mean that by some standard, such as "more likely than not" the NFL erred in their finding. It's just a question of what standard should be used.

As I wrote over a decade ago, the appropriate standard of proof for different institutions and different legal environments requires an understanding of confidence intervals, Type I errors, and Type II errors.

With the weakest standard of proof, call it the "more likely than not" standard, we are willing to tolerate a higher probability of "convictions" (that's not really what they always are) of innocent people in order to make sure that there is a higher probability of punishing those who actually do commit an offense. We don't tolerate such a low standard of proof in criminal cases, not wanting to punish someone who is probably innocent. (see my piece on cruel and unusual punishment)

But in internal disputes (like the NFL and the Patriots) presumably the standard of proof for offenses and punishments is set out in franchise agreements and player contracts. Given the Patriots' response, and given the analysis by Russ Roberts, I really doubt if anyone involved with the Patriots is guilty beyond a reasonable doubt. At the same time, I think there's a chance someone involved with the Patriots did something.

And if all it takes for the NFL to levy fines and punishments is a low standard of proof to the tune of "Palmer thinks there's a good chance someone did something wrong," then while the fines and punishments may be reduced, they will not necessarily be rescinded completely.

Note: I have only a two-week law degree and so I'm quite open to refinements to the above from my lawyer friends.

Related articles

NFL Changed "More Probable Than Not" Requirement Because of the Patriots

The only thing worse than our system of public justice is ...

Cruel and Unusual Punishment

After reading news items involving perpetrators who commit vicious, nasty crimes, I have to admit that I would get some pleasure from knowing they suffered from some form of punishment. Call it revenge, call it retributive justice, call it unChristian, call it what you will, I would receive some sense of satisfaction from knowing such criminals suffered fates worse than death.

I wrote about this topic a number of years ago. Here is a link to the paper I wrote. And here is the abstract:

It has sometimes been argued that one way to reduce the costs of law enforcement would be to reduce the probability of detection and conviction (hence saving those costs), while at the same time increasing the size of the punishment. Following this strategy would keep the expected costs (to a risk neutral criminal) of committing a crime constant and hence keep the deterrence level constant; it would have the benefit, though, of reducing costs to the rest of society.

There are some well-known objections to such a policy. One such objection deals with marginal deterrence: A convicted murderer serving a life sentence with no chance of parole in a jurisdiction which bans capital punishment has nothing to lose from killing a prison guard -- there is no marginal deterrence to the commission of a more serious crime or any additional crime for that matter. In fact, so long as there remains any upper limit to the amount of punishment that can be inflicted upon a convicted criminal, the only ways to create some type of marginal deterrence are to reduce the punishments for less serious crimes, which will either reduce the deterrence of those less serious crimes, or alternatively to require the use of more of society's scarce resources to increase the probabilities of apprehension and conviction.

It is possible to reduce this marginal deterrence problem, however, by practicing cruel and unusual punishment on perpetrators of serious crimes, i.e. by raising the limits of allowable punishment. Anecdotal evidence suggests this practice is followed unofficially with child molesters and killers of prison guards and hence provides some additional deterrence against these crimes.

Despite the theoretical validity of this argument, our society has chosen to impose a constitutional ban on cruel and unusual punishment. Furthermore, over time we seem to have lowered the threshold of what is considered cruel and unusual. Following Dr. Pangloss, the concluding section of the paper examines why rational maximizers would choose to give up this additional potential deterrence. The explanations depend upon an assumed positive income elasticity of demand for humanitarianism or for insurance against the costs of punishing the innocent. While there are some reasons to accept the humanitarianism argument, the insurance argument seems more persuasive.

 For some of my earlier postings on the topic, see the following:

• http://www.eclectecon.net/2006/01/does-cruel-and.html
• http://the-econoclast.blogspot.ca/2005/03/what-would-be-deterrent-value-of-cruel.html
• https://eclectecon.wordpress.com/2006/03/16/capital-punishment-there-are-many-fates-worse-than-death/

Myron Scholes to Visit UWO Next Week

I will definitely be making an effort to see/hear this. I expect it will be jam-packed.

Microsoft Explorer -- the Subject of Misapplication of US Anti-trust Laws

Remember the massive US gubmnt lawsuit against Microsoft over a decade ago? One of the major issues in that case was that Microsoft's web browser, Internet Explorer, was included with Windows and that inclusion foreclosed the browser market to others, especially Netscape.

What a travesty that suit was. The policy makers/enforcers didn't foresee the specific potential entrants and so they myopically assumed there would be none. Hah!

Netscape is dead (much of it morphing into early versions of Firefox). And now Microsoft Internet Explorer is dying [see this]:

A commonly held belief among heavy web users is that it's only acceptable to use Internet Explorer for the purpose of downloading Firefox or Chrome.

Snarky as this sentiment may seem, for many who have purchased a computer running Windows in recent years it’s also painfully rooted in the fact that Internet Explorer can no longer keep up with its competitors.

Once a market leader with a whopping 95 per cent usage share when it peaked in 2002, Microsoft’s flagship browser has experienced a steady decline in its user base since Mozilla Firefox and Google Chrome hit the scene in 2004 and 2008, respectively.

Today Internet Explorer holds just eight per cent of global internet traffic — and a reputation for being the “most-hated web browser” in existence.

Competition and entry limited Microsoft's market power and continues to do so. I stopped using Netscape when it didn't keep up with computer changes and the other browsers offered better options and control. And I rarely used Internet Explorer ever.

For one of my earlier posts about Microsoft and the antitrust suit, see this.

As I wrote early on when I started blogging, US anti-trust policy is so short-sighted it behaves as if it has these two rules:

1. You must compete.
2. You must not win

Policy makers have little to no idea where the next innovation or competition might come from. As a result, when the more market-oriented economists ramble on about competition and entry but have no specific answers to the question, "But who will even consider entering against such a behemoth?", policy makers tend to overlook the extreme power of longer-run market forces, especially if the gubmnt doesn't get in the way of them.

The result? The entrants have displaced Internet Explorer and the antitrust suit against Microsoft was a monumental waste of resources for both the US taxpayers and Microsoft's stockholders.

Measuring Market Power: the importance of barriers to entry, especially those created by gubmnt

Don Boudreaux has a very good posting at Cafe Hayek, pointing out that just because a firm can (and does) raise its prices, and just because a firm gains market share, those data are not necessarily indications that the firm has market power. His argument is that generally it is the firms that offer better quality, better service, and more of what consumers want that are able to grow and still charge more for their products.

The upshot is that observing that a firm has the ability to profitably raise the prices of its outputs is not necessarily an observation of that firm’s “power” in the output market.  Likewise, observing that an employer has the ability to lower the monetary pay of its workers without having all of those workers quit is not necessarily an observation of that firm’s “power” in the labor market.  Such observations are perhaps – and in a market economy are almost certainly – only evidence of complex and mutually advantageous bargains struck between firms, consumers, and workers.

If firms are able to elevate prices and still retain their customers, other firms will copy them, and even try to out-compete them. Hence, a better indication of market power is how high the barriers to entry into the market are. Industry concentration, firm size, and price-cost margins (no matter how they are measured) are much less reliable as measures of market power.

If there are high barriers to entry, a firm might well have market power and be able to raise prices and keep them high, earning a "monopoly" return. But if firms are in industries with low barriers to entry (e.g. fast food!!), it is next to impossible for them to earn persistently high profits that are not attributable to their offering something better to their customers, something the customers want and are willing to pay for.

And what is the greatest source of high barriers to entry? Gubmnt regulations. I wrote about this over 40 years ago here:

“Barriers to Entry as a Measure of a Firm's Monopoly Power,” The American Economist 18 (Spring 1974):  33-35.

 

Related articles

Market Power, Multiple Margins, and Competition

Your Raisins or Your Life: An Unconstitutional "Taking" by the USDA

The US Department of Agriculture [USDA] constantly promotes cartels, higher prices for food, and restrictions on entry into the production of many crops. Their policies tend to hurt the poor more and help rich agri-businesses.

Raisins appear to be a good example. [via RalphK]

Last week the Supreme Court announced it would revisit the important case of Horne v. USDA. The case... centers on a USDA program that forces those who traffic in raisins (“handlers,” in USDA raisin parlance) to turn over cash or a significant part of their crop—sometimes almost fifty percent—to the USDA without compensation.

In Horne, the eponymous family, which markets raisins, sued the USDA to force the agency to compensate them if the USDA forced them (along with raisin handlers around the country) to turn over cash or almost half their raisin crop to the agency in return for the purported privilege of handling raisins. ...

As the Ninth Circuit puts it, the Hornes argue the USDA “works a constitutional taking by depriving raisin producers of their personal property, the diverted raisins, without just compensation."

That’s exactly what the USDA’s raisin marketing program does.

I'm sure there's more to it. But this surface appraisal of the case should be enough to raise eyebrows about what the USDA is doing, under guise of protecting consumers and entrenched interests, to maintain barriers to entry into raisin production and to keep prices high for nutritious snacks.

The Ongoing World of Cyber Attacks

I set this website going a couple of days ago and have let the programme run since then. It shows the number of attempted cyber attacks (of sorts) by source of the attack, by target of the attack, etc. [via Jack]

Here is a screen shot of what I had seen after a couple of days (the data are cumulative).

The primary source of the attacks is China. North Korea doesn't even make the top ten. The primary target is the US.

Some thoughts:

• One of the big points made by those of us who study the economics of crime is that the major economic inefficiency resulting from crime is that there are so many scarce resources devoted to perpetrating and protecting from criminal activity. How many scarce resources devoted to cyber attacks could be used for something more productive? How many scarce resources devoted to protecting individuals and organizations from cyber attacks could be used for something more productive?
• But that first point must be soaked in reality: so long as individuals and organizations perceive that there might be gains from redistributing wealth from others to themselves via cyber  crime, then those inefficiencies will persist.
• It makes sense that sites in the US are the major targets. That's where much of the top economic activity is carried out electronically and where the biggest gains can be sought by cyber criminals.
• What the heck is going on St. Louis and Kirksville, Missouri to draw so many cyber attacks to those areas?

More Fallout from Detroit's Inefficiency and Corruption: Thousands of Unprocessed Rape Kits

When a business is failing, it often skimps on customer service and quality, and focuses mainly on short-term revenue goals. There is good reason to believe the same thing happens in failing bureaucracies, e.g. the police force of Detroit.

As the funding for pensions, salaries, health care, and other perquisites was drying up, the police force appears to have forsaken some very important criminal and safety issues and redeployed its forces on revenue-generating activities, such as traffic fines, etc.

Here is evidence consistent with this interpretation of what happened there:

Over 11,000 sexual assault kits, some dating back to the 1980's, were found abandoned in a Detroit Police storage facility back in 2009. Not long after the rape kits were discovered, Worthy pushed to start the processing with Michigan State Police.

So far, 1,600 rape kits have been processed, resulting in the identification of about 100 serial rapists and ten convicted rapists, according to Worthy. 
Worthy told reporters that perpetrators have moved on from Michigan to commit similar crimes in 23 other states.

Appalling. But it is consistent with the fundamental premise of economics: People respond to incentives.

Yes, bureaucrats are people; and yes, they too respond to incentives.

Does Anyone Still Support Rent Controls? Really?

The evidence that rent controls are harmful is overwhelming. They:

• lead to deteriorating quality of rental units
• cause black markets to develop, with landlords requiring side payments
• create increased opportunities for discrimination (especially against  immigrants, single parents, and students)
• reduce the supply of rental units, making affordable housing even more difficult to find.

Imagine my shock when I read this piece at the Washington Post blog. The piece begins harmlessly enough, explaining how the "pencil" highrises (tall, narrow buildings) that are popping up all over Manhattan and Washington, DC, are emerging as a solution to increased demand for housing in major urban centres. But suddenly it concluded,

The pencil tower isn't a pretty solution to the problem of exorbitant housing costs, or an elegant one -- rent controls or a more redistributive tax code would help urban residents more directly -- but it is a straightforward way of addressing the housing shortage that is causing financial hardship for so many Americans.

Huh? Rent controls? Really?

The evidence is overwhelming that rent controls, over the long haul, lead to reduced supply of housing, in part because developers hesitate to build rentals units if they think rent controls will be slapped on them. Also, in the face of rent control, many landlords convert their units to condos.

Rent controls might be good for those who pass through the filters and screens and get a nice unit at a low rent. But they also make many people who are disadvantaged worse off by leading to a reduction in the supply of affordable housing.

I'm Proud to Say "I Know Ted Frank"

Ted Frank runs the Centre for Class Action Fairness. His general target is the attorneys who make massive fees while winning pitifully trivial awards for the members of the class. And then he took on the settlements that allowed the defendants to make big donations to charity in lieu of providing awards for members of the class (while attorneys for boths sides rake in the fees and the defendants just shift their charitable giving).

Here is a recent quote about Ted from this site:

"We'll admit it: After describing him as a scourge of the class action plaintiffs bar, a class action gadfly, a crusader, and a serial settlement objector, we're running out of nifty shorthands for Theodore Frank of the Center for Class Action Fairness. Let's just say he gets really fired up by class action settlements he thinks are unfair. And he's got a knack for blowing them apart in the courts."

And at this site, Ted explains the reasoning behind his latest victory:

For years, parties have used cy pres—the practice of giving settlement money to charity instead of the class—in abusive ways. When proposed by defendants, cy pres can be used to create the illusion of relief to justify greater attorneys' fees at the expense of the class when in fact all that is happening is that the defendant is changing accounting entries on charitable donations it would have made anyway. When cy pres is used to justify attorneys' fees, it takes away the incentive of class counsel to prioritize direct recovery to the class: after all, it's much more satisfying to hold a ceremony giving away an oversized $3 million check to a local charity run by a friend than to issue a million $3 checks to ungrateful class members.

The Coase Theorem and Airline Seats a clear exposition and example

The "problem" of people reclining their seats on airplanes has given rise to this wonderful piece by Virginia Postrel.

In it, she explains the Coase Theorem, the importance of the assumptions underlying the theorem, and how to deal with situations when the assumptions are not satisfied (which is what makes both the Coase Theorem and her article so good).

A lengthy excerpt:

Airline seats offer a perfect illustration of Ronald Coase’s famous analysis in his 1960 article, “The Problem of Social Cost.” Coase’s crucial insight was that the way we tend to think about unwanted spillovers misses half the story. “The question is commonly thought of as one in which A inflicts harm on B and what has to be decided is: how should we restrain A? But this is wrong,” he wrote. “We are dealing with a problem of a reciprocal nature. To avoid the harm to B would inflict harm on A. The real question that has to be decided is: should A be allowed to harm B or should B be allowed to harm A?”

The traditional sort of thinking leads people on both sides of the airline-seat debate to get self-righteous, arguing that legroom and the ability to work is more important than comfortably reclining, or vice versa. Each camp finds the other rude. Each camp wants to improve its situation by inflicting harm on the other. It’s a “problem of a reciprocal nature.”

Essentially, the recliner says, "there wouldn't be a problem if you weren't behind me or if you didn't care about my reclining." And the tray user says, "there wouldn't be a problem if you didn't recline."

Postrel continues,

But, as Josh Barro has observed, the airlines have clearly defined the property rights. Passenger A (the recliner) has the right to harm Passenger B (the unfortunate soul behind him). Citing a common simplification of Coase’s work, Barro claimed that “it doesn’t matter very much who is initially given a property right; so long as you clearly define it and transaction costs are low, people will trade the right so that it ends up in the hands of whoever values it most.” So, he argued, “If my reclining bothers you, you can pay me to stop.”

This solution, however, is highly unrealistic. It waves away the central theme running throughout Coase’s work: the problem of transaction costs. Making and enforcing contracts, Coase emphasized, isn’t free. And when it comes to airline seats, it’s a lot more costly than Barro admits.

In theory, I could have offered the guy in front of me money to sit up, but even assuming that my fractured Italian had been up to conducting the negotiations and that he wouldn’t have gotten nasty in response to my overtures, how would I have enforced the deal? It’s not a simple problem, and certainly not a cost-free one. Suggesting that as long as property rights are well-defined, you can simply make a deal misunderstands what Coase was all about. He was obsessed with transaction costs. They explain why we have institutions (including firms), not just individual bargains.

Let's face it: many, if not most, of us would find it extremely uncomfortable/bothersome/annoying/unpleasant to be bargaining with a stranger about the exchange of the right to lower or not to lower a seat on the plane. These psychological costs mean that otherwise value-maximizing transactions rarely occur. I cannot imagine offering $20 to the person in front of me if they won't recline. Nor can I imagine offering notto recline if they compensate me by $20. [or fifty dollars or whatever deal we might strike]. Negotiation and transaction costs are important, and hence the initial assignment of property rights (or legal entitlements in general) is also important.

Postrel notes that the airlines have the property rights and assigns them with the sale of tickets. She offers one solution that airlines might try, but commentors have offered others as well. Likely there is some scheme that could lead to more value for passengers (and hence for the airlines).

It is as if she read Coase, Demsetz, and Calabresi and folded them all into one nice exposition.

My own version of the Coase Theorem:

• If property rights (or more generally legal entitlements) are clearly defined and easily enforced, and
• If transaction and negotiation costs are low,
• Then resources will move to their most highly valued use regardless of the initial assignment of the legal entitlements.

The theorem itself is trivial and not much different from Adam Smith's "invisible hand". It becomes rich, however, in the consideration of its assumptions. And that is where Postrel's piece shines. It doesn't just look at Coase; it looks at the assumptions.

 

An Options Market for Human Organs

I'll be giving a seminar at the University of Regina on "An Options Market for Human Organs" on October 3rd. Here is the abstract:

            There is a chronic shortage of human organs for transplant. This shortage is largely the result of the failure to use market pricing in the face of a phenomenal increase in demand resulting in part from an aging population but more from the dramatic medical technology improvements during the past 50 years.

            The shortage can easily be seen as an excess quantity demand over the quantity supplied at zero price. The naïve, simplistic solution is to allow markets in human organs to emerge with positive prices for the organs (and the transplant procedure).

            But the market solution is fraught with difficulties, including the problem of killing a donor or, more commonly, who bears the risk when the probability of death of a live donor is increased. Also the transaction, negotiation, and legal costs associated with identifying a legal heir and working out a deal with them after a potential donor is killed can be ghoulish and daunting.

            This paper presents an alternative: an options market for organs. Potential donors sign an irrevocable contract, receiving an upfront payment in exchange for their organs (should someone want them for transplant). Essentially, the purchaser buys an option of first refusal when the person dies.

            It is expected that many of the buyers of these options would be life insurance companies who would most likely play a leading role in organizing the market.

The seminar is scheduled for 2:30 -  4pm in CL435.

I'm looking forward to seeing my friends in the economics department while I'm there (and, of course, playing with the Roughrider Pepband for the game that evening).

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Important Data About Minimum Wages

Via Jason Clemens on Facebook:

Some folks have asked for references regarding my comments earlier today about the fact that hiking the minimum wage will not by and large benefit low-income households. This is the first of several FB posts with references. This first post is to an academic article that appeared in the journal Canadian Public Policy. The researchers used Stat Can data to profile households with members earning the minimum wage. The results were in line with previous reports that show the majority of minimum wage earners are young people living at home. Here's a key finding from the abstract:

"First, over 80 percent of low wage earners are not members of poor households and, second, over 75 percent of poor households do not have a member who is a low wage earner. We also present simulation results which suggest that, even without any negative employment effects, planned increases in Ontario's minimum wage will lead to virtually no reduction in the level of poverty."

Minimum Wage Increases as an Anti-Poverty Policy in Ontario | Synergies

 

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People Respond to Incentives: Carbon Taxes, Minimum Wages, Unemployment

From Coyote Blog, a spectacularly accurate and funny Venn diagram:

The first lesson of economics is (or ought to be), "People respond to incentives." And I would add, ".... whether we like it or not."

Scott Sumner has more along the same line at EconLog:

A few weeks ago I did a post pointing out that pundits on both the left and the right have moved further to the extremes, and away from sensible policy views. I just noticed another example today, an article claiming that if you pay people not to work, it won't significantly increase the number of people not working.

Extending benefits to unemployed workers beyond the 26 weeks provided by most states has little effect on the unemployment rate and essentially no impact on labor force participation, a recent working paper released by the Federal Reserve Board found.

I guess they didn't notice that the natural rate of unemployment in Europe is at least 8%. [EE: and typically the natural unemployment rate in Canada has been higher than that in the US, in part because of our more liberal/generous unemployment compensation programmes]

Question: When was the last time you saw a liberal pundit point out that extended unemployment benefits increased the unemployment rate? Maybe when Bush was implementing the policy? Here's Brad DeLong in 2008:

The rule of thumb, IIRC, is that the average duration of an unemployment spell increases by 1/4 of the increase in the duration of unemployment benefits. Thus a 13-week increase in unemployment insurance duration should increase the average unemployment spell by 3 weeks. With current mean unemployment spell duration at 17 weeks, and with roughly 2/3 of the unemployed eligible for UI, this would produce a 3/17 * 2/3 * 5.5% = 0.6% increase in the measured unemployment rate. ...

That was only a 13-week increase, not a 73-week increase, as Obama implemented. And BTW, DeLong's prediction was precisely correct.

As I said, "People respond to incentives, whether we like it or not."

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Yossarian: "They Have the Right to Do Whatever They Cannot Be Prevented from Doing"

One of my very favourite lines from Catch-22 is Yossarian's statement (paraphrased),

They have the right to do whatever they cannot be prevented from doing.

I was reminded of that line by this story from the CBC [via Ms Eclectic] which outlines how law-enforcement officials in the US take cash from people's cars.

Across America, law enforcement officers — from federal agents to state troopers right down to sheriffs in one-street backwaters — are operating a vast, co-ordinated scheme to grab as much of the public’s cash as they can; “hand over fist,” to use the words of one police trainer.

Roadside seizure

It usually starts on the road somewhere. An officer pulls you over for some minor infraction — changing lanes without proper signalling, following the car ahead too closely, straddling lanes. The offence is irrelevant.

Then the police officer wants to chat, asking questions about where you’re going, or where you came from, and why. He’ll peer into your car, then perhaps ask permission to search it, citing the need for vigilance against terrorist weaponry or drugs.

What he’s really looking for, though, is money.

And if you were foolish (or intimidated) enough to have consented to the search, and you’re carrying any significant amount of cash, you are now likely to lose it.

One bit of advice in the article is not to carry much cash with you, which makes sense to me.

- * - * -

Digression: about ten years ago when I was taking a minibus from London, Ontario, to the Detroit airport, a US immigration official asked "How much money are you bringing with you?"

I replied "Fourteen dollars."

He reacted with faked shock that I thought I could get by on so little cash, insinuating I might become a homeless vagrant.

I somewhat sarcastically replied that I was going to the airport, but I knew they had ATMs all over the US, and I had no wish to carry much cash with me, especially through Detroit.

I have no idea why they didn't pull me aside for being sarcastic. Whew.

Update: Raffi drew this article to my attention:

A Nebraska judge ordered cops to return $1 million to a California stripper after the cash was confiscated during a traffic stop.

Update #2: The actual quote from Catch-22 is from Chapter 39:

“Catch-22 says they have a right to do anything we can’t stop them from doing.”

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Richard Posner for the Win

Judge Richard A Posner, who is also a prolific writer/economist/philosopher/lawyer/professor, defended libertarian views and freedom in a recent 7th Circuit Court of Appeals hearing on gay marriage. From the NYTimes,

CHICAGO — Federal appeals judges bristled on Tuesday at arguments defending bans on same-sex marriage in Indiana and Wisconsin, with one Republican appointee comparing them to laws, now defunct, that once outlawed weddings between blacks and whites.

Often-blistering questions by a three-judge panel of the United States Court of Appeals for the Seventh Circuit, in Chicago, for defenders of the bans on same-sex marriage could be a signal that the laws may be in trouble — at least at this step in the legal process.

Judge Richard A. Posner, who was appointed by President Ronald Reagan in 1981, hit the backers of the ban the hardest. He balked when the Wisconsin assistant attorney general, Timothy C. Samuelson, repeatedly pointed to tradition as the underlying justification for barring gay marriage. Judge Posner said, “It was tradition to not allow blacks and whites to marry — a tradition that got swept away.” Prohibition of same-sex marriage, he said, derives from “a tradition of hate” and “savage discrimination” of gays.

Regular readers of EclectEcon know how much I admire and respect the work of Richard Posner. I was disappointed that he argued for Keynesian-type macroeconomic fiscal stimulus during the 2007-9 financial crisis, but other than that his work has always been first-rate. And because of that I constantly remind people that he deserves a Nobel Prize in economics.

Apparently Justin Trudeau and the Liberals Do Not Know What "Unsubscribe" Means

Some years ago when a friend was seeking the Liberal Party nomination to run for parliament, I joined the Liberal Party so I could work for him. About a year or so ago, given my libertarian tendencies, I unsubscribed from the Liberal Party emails. But two days ago, I received the following email message, which utterly amazes me:

John --

Some time ago, you unsubscribed from the Liberal Party of Canada's email updates.

I wanted to reach out to you, and make sure you weren't missing out on important messages you'd like to get, including:

• Updates about our team and our plan, as we build toward the 2015 election.
• Updates on some of the initiatives taken by the Liberal Party and opportunities to support them.
• Opportunities to share your ideas and your feedback with me.

If you want to receive updates, please click here to resubscribe.

Don't worry John, if you take no action, you will remain unsubscribed.

Thank you.

Justin Trudeau

If some corporate business pulled a stunt like this, Justin Trudeau and the Liberals would be all over them for violation of my own wishes to be unsubscribed from their email list.

Further, how can we teach people that "No" means "No" if the Liberal Party and its leader don't seem to believe this.

I am offended. If there is an attorney who wishes to take Justin Trudeau and the Liberal Party to court over this issue, please get in touch with me. I'm happy to let this instance serve as basis for some sort of legal action.

Regulation and Competition: The Taxi Industry

For decades, I have advocated for reduced entry regulations* in the taxi/limousine industry. Over the past year or so, though, it has begun to look as if competition and innovation using smart-phone apps would do what local regulators refused to do.

But of course the industry incumbents have fought back, challenging Uber, Lyft, et al. (private car services) both legally and politically. From the Washington Post (via Sean),

"The taxi industry has donated $3,500 to state legislators for every dollar that Uber, Lyft and their smaller competitor Sidecar have given . . . This massive discrepancy in political giving may also explain why, since the start of 2014, at least 12 states and the District of Columbia have introduced new regulations aimed to limit these popular ride-sharing applications."

Sean writes:

It's much cheaper and easier to compete for anti-competitive regulations through lobbying than for customers through efficiency and innovation.

Interestingly, 35 years ago Washington DC was considered a low regulation taxi market with few entry restrictions and with zone pricing.

*Please note I'm referring to entry regulations here. See this: Regulation by Municipal Licensing (co-authored with J. Bossons and S. Makuch). Toronto: University of Toronto Press, 1984.

I have less objection to ways of assuring vehicle and driver quality, possibly via huge liability insurance policies advertised by the umbrella firms, which would then have an incentive to vet the drivers and cars.

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The Struggle of and in Quebec: undoing regime uncertainty

The Province of Quebec has high debt, low economic growth, and a gloomy economic outlook. More gubmnt spending will not turn things around, and a permanent change in the economic climate will (a) take time to create and (b) not be believed until it has persisted for some time.

A sad tale of woe. And this summary from Maclean's puts it well:

For decades Quebec businesses have been plagued with repeated bouts of separation anxiety and the constant irritant of the province’s language police. The province punishes businesses with some of the highest taxes in North America, yet it has rung up a $2.4-billion deficit and a debt load equal to half its GDP, the highest in the country. When not arbitrarily overriding the rights of shareholders to protect underperforming Quebec companies, the government has flip-flopped on its attitude toward resource development. In short, it’s an economic environment layered with uncertainty, instability and state interference.

Regime uncertainty is probably one of the worst things that can happen to an economy. If entrepreneurs have little confidence in what they can count on in the way of regulations, gubmnt policies, and economic climate, they will choose safer investments and/or business ventures in other jurisdictions.

The only hope for Quebec is to create an economic climate that will promote economic growth and then stick with that climate for a number of years. Undoing regime uncertainty cannot be done quickly or easily.

People Respond to Incentives: Copper and Air Conditioners

Those four words, people respond to incentives , capture the essence of much of economics.

Here is another example that my son (Adam Smith Palmer) and his friend explained to me over the weekend: Air conditioner theft.

When the price of copper sky-rocketed, it became pecuniarily rewarding for people to find old copper and recycle it.

Not all of the old copper they found was old, though. Enterprising thieves also found that they could steal air conditioners (not the window type, so much, but the big units that sit on a concrete pad outside a house) and sell the valuable copper inside the units. These thefts in Houston and the surrounding area could occur outside any home, but the most vulnerable places were in new developments where the houses weren't quite completed and not many people were living in the houses.

From Wikihow,

Air conditioning units contain a large amount of valuable copper that well-trained thieves can strip from your system within minutes to sell as scrap metal. As a homeowner, an air conditioning theft can be devastating as it leaves you uncomfortable and at a loss of your expensive investment.

And of course, since people respond to incentives, homeowners have worked out ways to deter the thefts:

• Air conditioning cages that are locked onto the concrete pad.
• Locating air conditioners behind a locked fence.
• Installing an air conditioner alarm.

Or home owners have let potential thieves know that there is a high probability they will be caught by:

• Using motion-sensitive lights and cameras.
• Attaching a GPS-trackable device to the air conditioner.

Also, in Houston, the recyclers have been enlisted by law-enforcement agencies not to buy new copper tubing from air conditioners and to make sure they have a documented provenance for the copper.

As many of us in economic analysis of law like to point out, the theft itself is "just" a redistribution of wealth. The inefficiency comes when people use scarce resources to carry out the thefts and when people use scarce resources to deter the thefts.

Absolutely Insane and Draconian US Tax Law Regarding Ex-Pats

I was born in the United States. I emigrated to Canada over 40 years ago. Nearly 15 years ago, I took out Canadian citizenship. When I did that, I was under the mistaken belief that doing so meant I was de facto giving up my US citizenship.

Apparently for tax purposes, I was wrong. The US is one of only a few (two?) countries that tax on the basis of citizenship, not on the basis of residence and not on the basis of where you earn your income. They assert that even if you take out citizenship in another country, if you were ever a US citizen, you are still a US citizen (at least for tax purposes).

This situation presented no problem for me until a few years ago. The taxes in Canada are higher than the taxes in the US, and so I never owed them anything. In fact, until two years ago, I stopped even filing a return (again believing that I no longer had to file since I am a Canadian citizen and have had no US income).

ARGGGHHHH!!

Things have changed. Margaret Wente is in the same situation (only more ridiculously so, since she left the US when she was 14):

Welcome to the nightmare of U.S. citizens abroad. There are hundreds of thousands of us in Canada, and millions more worldwide. Most of us are law-abiding people. But the U.S. government is treating us like tax cheats. It also says that any “U.S. person” (meaning anyone born in the United States, or even anyone with American parents) must keep filing U.S. tax returns, forever – or else. ...

It gets worse, because now there will be no place to hide. On July 1, the loathsome FATCA (Foreign Account Tax Compliance Act) kicks in. It requires banks around the world to cough up the financial information of any client suspected of being a U.S. person. This means your RESPs, your mutual funds, your bank accounts. To its shame, Canada did not resist this extraterritorial abuse of power and privacy. The banks can’t resist, either – they’re on the hook for heavy fines if they don’t comply.

When I first heard about this stuff a couple of years ago, I thought it was a paranoid fantasy. But it was for real. When I wrote about my own dilemma about whether to comply, I was inundated with e-mails from terrified little old ladies who were afraid they’d be arrested at the border on their way to Florida. They won’t be. But the truth is bad enough. Even though the IRS has now promised not to treat them like criminals, simply complying with the law can cost thousands of dollars. On top of that, some people have been on the hook for taxes on assets that are tax-free in Canada. Plus, all the assets you hold jointly with your spouse have to be reported as if you owned them all.

The only way out is to formally renounce your U.S. citizenship – a serious and expensive business. “People really need to extricate themselves,” John Richardson, a Toronto lawyer who’s an expert on citizenship and taxation, told me in an interview.

These new US tax laws are an expensive pain. To cope with them, we have put all our  US-taxable financial assets (including savings accounts that are tax-free in Canada as well as registered savings plans for grandchildren) in my wife's name, and I have moved all my Registered tax-free savings plans (including retirement savings) out of mutual funds (which the IRS declares to be "off-shore trusts").

It still costs me nearly $1000 a year for an accountant to prove to the IRS I don't owe them anything. As a result, I am seriously considering spending the money to renounce my US citizenship.

The only reason I bother with all this is that I have a son who lives in the US, and I would hate to be detained at the border on the way to visit him. Otherwise I would ignore the whole thing and just stay out of the US. "People respond to incentives."

And you know what? Before I emigrated, I don't think I contributed enough or long enough to collect Social Security from the Farghin Bastidges.

What Was the Taxi Strike Supposed to Accomplish?

Taxi drivers across the world went on strike last week to protest the growth of Uber, a car-ride-share service based on smartphone apps. The result? Customers, already frustrated with problems in the taxi industry became even more upset with the licensed taxis, and many of them switched to Uber. It strikes me as unusual, to say the least, that  a business providing customer service would shut itself down to protest the inroads into their business by upstart innovators.

It was as if they were saying,

We're angry about the increased competition, so we are going to force you to try using the services of our competitors just to see how much they can improve the product we have been providing under the protection of entry regulation and licensing.

Alberto Mingardi has more at EconLog:

Uber has been a game changer...

[A]t the end of the day, the story is rather simple and similar everywhere. The number of taxiS allowed to operate has been limited over time. Black cars were forbidden to pick up passengers on the street. Now technology makes that available, but also allows for simple citizens to attempt to provide a similar service, if they want to (UberPop). In the world of GoogleMaps and GPS, you don't need to paint your car white (as in Milan) or black (as in London) to signal that you'd be happy to transport people if they're to be charged. ...

Is Uber the taxi of the future?

We don't know, but certainly the company is pretty smart in managing the protest. Instead of building bridges with taxi drivers, Uber used the strike as a marketing device, offering big discounts to clients and attracting new ones. So theWashington Post reports that "Uber's British ridership went up 850 percent yesterday thanks to black cab protests that left Londoners snarled in traffic".

Look for increased sabotage, violence, and many more legal challenges.

Addendum: Interestingly, there is no mention of Uber in the Wikipaedia entry for "Taxicabs of the United Kingdom"; at least there was no mention as of last weekend.

 

Caveat Emptor

From time-to-time, internet correspondent MA points me toward various cartoons. He noted this one, with the subject line in his message, "Caveat Emptor".

 

Okay, I laughed at the situation. But then I thought, "This is exactly the intention of caveat emptor [let the buyer beware]." From now on, unless he suffers from extreme stupidity and myopia, Dagwood will ask the price before committing to buying two hot dogs. I have had many, many Dagwood-type experiences. I hope I learned from them.

But unfortunately in today's nanny-state mentality, what too many people learn from their mistakes is that politicians will listen to their whining, "There oughta be a law..." Rather than assume responsibility for their decisions and actions, people want the gubmnt to step in and not just protect them, but also make decisions for them. But the more that happens, the less we think and the less vigilant we become.

With this mentality, people will press for regulations/legislation requiring Elmo to list his prices up front so people aren't deceived (or punished for being careless!).

We Need More Gubmnt to Reduce Cronyism Say What???

I just finished reading this piece by Don Boudreaux at Cafe Hayek. It is a lengthy piece that takes on Piketty, the economist who argues for more gubmnt action to reduce inequality. What struck me most was this very insightful comment:

Piketty has a peculiarly strange “then a miracle occurs” step in his analysis.  He argues that one justification for powerful efforts to redistribute incomes and wealth more equally is that the rich are disproportionately likely to abuse power for their own greedy and socially destructive ends.  So what to do?  Answer: increase government’s power!  Qu’est-ce que c’est?!  [EE: this is French for WTF?] (Piketty is like too many economists: ignorant of public-choice.)

This attitude that Boudreaux identifies is far too common among the redistributionists. Essentially it says, "The gubmnt has created policies that favour cronies and promote inequality. But I  know what to do about it. Put me (and/or my friends) in charge and we'll do it right." And all the while this argument does nothing to include the real world of voter influences and public-choice economics: the sad, simple fact is that the more power gubmnt and politicians have over resources, the greater the incentive for individuals to try to influence gubmnt policy, politicians, and the behaviour of bureaucrats.

This is yet another example of Kip's Law:

“Every advocate of central planning always —  always — envisions himself as the central planner.”

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