Monday, October 31, 2005


"Allocation and Dictatorship: Research in Stalin's Archives" by Paul Gregory and Mark Harrison (in the Sep, 2005 Journal of Economic Literature) is fascinating. Many conjectures put forth over the years by Mises, Hayek, Schelling, and many others, are corroborated.

Yes, planned economies perform so badly that tyranny and terror are required. Yes, tyrants are not only ruthless but also fearful -- and the impulses feed each other. Yes, the whole mess is brought on from attempts do the impossible, plan an economy (and its growth) top-down. Yes, massive corruption is a side-product of this enterprise. Yes, an underground ecomomy is inevitable in these circumstances. Yes, steady infighting and scapegoating and worse occur regularly among the insiders. Yes, there were not (could not have been?) even serious economic plans (lament the authors). And much more.

We are left once again to wonder how in the world so many Western intellecuals took the Soviet model seriously -- many even becoming its apologists.

And prominent Western economists are still investigating "market failure" -- to be corrected by whom?

Sunday, October 30, 2005

Smart bloopers

There are opinions held and opinions upheld. The zero-sum view of the world is an opinion held with uncanny consistency by those whom Tom Sowell so aptly calls "the anointed".

In the "smart growth" view, cities suffer because their suburbs thrive. Yet, Jordan Rappaport finds that strong trading partners are a good thing. His "The Shared Fortunes of Cities and Suburbs" lays out evidence.

Today's NY Times Magazine includes reader Letters in response to a recent story about Toll Brothers developers. The writer notes that,
"[t]hey gobble up land, they gobble up energy, and, oh yeah, they gobble up money, and it has made them very rich ... but what about offering consumers real choices?"

Count the Econ 101 bloopers. For concise writers, an index such as bloopers per word may have to be applied.

Friday, October 28, 2005

Dictionary for Western elites

"Fair competiton" and "social justice" are staples of the rhetoric that passes for normal discourse among elite Americans. Today's WSJ alludes to the Dictionary of Economics, published in Lithuania, and designed to unhinge discussions of economic matters from the vocabulary that people carry with them from the era of Marxist double-talk and double-think.

Yet, the discussion cited below applies here as well. In a better world, the Dictionary would also become best-seller in the West.

Defining Capitalism Up (WSJ, Oct. 28)

"In his 1946 essay 'Politics and the English Language,' George Orwell famously lamented that our language 'becomes ugly and inaccurate because our thoughts are foolish, but the slovenliness of our language makes it easier for us to have foolish thoughts.' He was writing about his native tongue, but today a group of young free-marketeers in Central and Eastern Europe have discovered the same thing -- discussions of economics in their countries are being poisoned by a vocabulary inherited from their communist past.

"Ruta Vainiene, a young former central banker in Lithuania, has decided to do something about it. Last month, she published her plainly titled 'Dictionary of Economics.' The response, both in Lithuania and elsewhere in Europe, has been striking. Since its release, the Dictionary has been the No. 2 nonfiction best seller in her native country. And plans are now afoot to translate the book into local-language editions in a number of other countries. Think tanks around Europe are supporting the effort, having seen the necessity of cleaning up economic language and thought that, a decade and a half after the collapse of the Soviet empire, remains infected by history.

"'The dictionary was my response to the market need to educate journalists and students about economic jargon that seemed very frightening to them,' Ms. Vainiene said in a phone interview. 'It explains the concepts in simple words. But also' -- and this is crucial -- 'explains them correctly.'

"The book notes, for example, that 'social 'justice'' is always related to the unjust redistribution of wealth, and 'fair competition' is almost always related to unfair government intervention in the economy.' In other words, Ms. Vainiene is trying to educate but also to eradicate the misleading and contradictory doublespeak that infects much economic language, especially as it is used in Europe."

Monday, October 24, 2005

Sprawl scholar

One of our most perceptive writers on modern American cities is Robert Bruegmann, whose Sprawl: A Compact History is now in print.

Bob had sent me some of the chapters as he was writing them and I was happy to see his op-ed ("L.A., the king of sprawl? Not at all") in yesterday's LA Times. I particulary liked the following punch-line:

"Although anti-sprawl crusaders contend that low-density sprawl has led to longer commutes and more congestion, it is fairly obvious that the growing congestion in the Los Angeles region is a direct consequence not of low-density sprawl but of high and fast-increasing densities and the fact that the region has so few miles of freeway per capita compared to most other American urban areas.Of course, none of these objections to standard wisdom are likely to sway many highbrow critics of sprawl. Their desire to see L.A. as sprawl and therefore as not truly urban is based less on rational analysis than on subjective aesthetic judgments and class resentment.

"But there are major problems with their position. First, there is considerable room for doubt that sprawl is necessarily the major problem that many anti-sprawl crusaders believe it to be. But, in any case, Los Angeles is not a good model of sprawl. The urban area of New York or Boston, for example, each surrounded by a huge low-density penumbra, would make a better poster child for sprawl than the dispersed but relatively dense and compact Los Angeles."

Saturday, October 22, 2005

In the eyes of the beholder

L.A. politicians (and many others) award exclusive cable franchises to areas throughout the city. Yet they and their fellows at the L.A. Times now fret that a merger of cable providers might introduce a "near monopoly".

Is it the echo chamber? Is it ignorance? Is it a mind set that is blind to politically inspired monopolies but reserves that label for private suppliers? Is it econ 101 courses and textbooks with stale discussions of the topic? In any event, monopoly remains in the eyes of the beholder. "Cable Deal a 'Mixed Blessing' ... Time Warner has a reputation for good service. But some worry about a near monopoly."

Wednesday, October 19, 2005

The social responsibility of CEOs to choose their cars sensitively and without signaling corporate arrogance

The October 2005 Reason featured a wonderful discussion on "The Social Responsibility of Business". Milton Friedman, John Mackey and T.J. Rodgers each made very good points.

That was the fun stuff. Back to reality. Today's LA Times includes a piece that lists the cars recommended for CEOs.

"'People watch CEOs and are critical if they are arrogant and insensitive to others around them,' said Bill Holstein, editor in chief of Chief Executive, in explaining the choices of the October issue.

"Holstein teamed with folks from, an automotive website, to determine vehicles that are neither signs of arrogance or insensitivity."

Corporations are a great social innovation when it comes to accumulating and guiding capital. But pace Friedman and Rodgers, corporate image matters in ever more complex ways.

Monday, October 17, 2005

False consensus

For those who require proof, evidence for predominantly left-leaning university faculties keeps accumulating. The interesting part is the denial.

John Tierney's "Why Righties Can't Teach" sheds some light. He notes that, "[s]ocial scientists call it the false consensus effect: a group's conviction that its opinions are the norm. Liberals on campus have become so used to hearing their opinions reinforced that they have a hard time imagining there are intelligent people with different views, either on campus or in politics."
These, of course, are the diversity champions.

Some of us are fortunate because we somehow got in under the radar. My students grasp my various biases and most also accept the idea that there are few pure and unvarnished sources. Rather it is each individual's responsibility to compare arguments and process them.

This is the opportunity that we deny students when professors parrot party lines -- and when they succumb to the false consensus effect.

Thursday, October 13, 2005

Guns, germs and law

To those economists who greatly enjoyed Jared Diamond's Guns, Germs and Steel but were made a tad uneasy by the geographical determinism, Ross Levine's fine survey article, "Law, Endowments and Property Rights" (Journal of Economic Perspectives, Summer, 2005), hits the spot.

Levine reminds readers that there is accumulating evidence for a "law view" as well as an "endowments view" for robust property rights (and prosperity). He concludes that, "[t]he law and endowment views offer compelling theories of how legal heritage and natural resource endowments shape property rights today and how each view provides empirical support. I see no reason to reject either explanation." (p. 83)

Monday, October 10, 2005

Laissez faire?

Writing about "Remedies for New Orleans" in today's WSJ, Edmund Phelps reiterates his enthusiasm for labor subsidies.

"One kind of remedy would be to universalize the earned income tax credit so it addresses all low-wage men and women equally. The other kind of remedy, one I and others have proposed, is an employment subsidy to employers, giving them an incentive to hire more low-wage people and thus bid up their pay in the process. I need to stress that a subsidy here is a sort of matching grant, paid out for doing something -- it is not a hand-out, not is it like the so-called subsidy to farmers for not planting. (Mr. Bush's enterprise zones are effectively schemes to subsidize capital, which is the wrong lever, yet no one shrinks in horror at those subsidies.)

"Federal subsidies of these two kinds may be justified on the same ground as federal infrastructure. The consequences when the working poor are consigned to a laissez-faire labor market -- impaired schools, drug use, crime -- impose external costs on the rest of society. A rights-based case for such a subsidy exists too. (There is no good case, though, for a handout, which undermines work and integration.)"

What is the great man thinking? First, do we know which "lever" gives us more bang for the buck? Second, what "laissez faire"? These days, governments in the U.S. compel the poorest to attend the worst schools. And drug policies are anything but laissez-faire and create crime-ridden underground industries.

As long as we espouse new policies while characterizing the status quo as anything resembling "laissez-faire", we are flying blind.

Saturday, October 08, 2005

Rent-seeking obscured by seeming progressivity

Consumers benefit when profit-seekers compete. Citizens, likewise, benefit when rent-seekers (and rent-extractors, e.g., their political leaders) compete. As labor and capital become ever more mobile, politicians find reasons to behave and reform.

Friday's WSJ calls attention to the spread of flat-tax reforms in eleven countries, most of them in eastern Europe ("The World Is Flat" -- WSJ subscription required).

In the October 17 Forbes, John C. Goodman contrasts his "Kinder, Gentler Flat Tax" with Steve Forbes' better known version ("Flat Tax Revolution: Using a Postcard to Abolish the IRS"). Goodman suggests a slightly more complex rate schedule which would include incentives for more rational health and retirement insurance choices among individuals.

Some sort of balance between endearing simplicity and social engineering will have to be found. That could be a useful discussion and a desirable outcome.

Anything would be better than the status quo. In the name of a superficial progressivity, bizarre complexity is maintained. Taking the whole tax-and-expenditure presence of the federal government (with or without the addition of the state and local role) into account, no one can argue that the net effect is progressive.

The status quo is suitably ambiguous so that massive rent-seeking can persist under the guise of progressive redistribution.

Thursday, October 06, 2005

The triumph of middlebrow

I know very little about Harriet Miers. There is an emerging consensus that she is not distinguished. What else do we know?

William Buckley supposedly once remarked that he would rather be governed by the people listed on the first few pages of the New York city phone directory than by the Harvard faculty. Who can argue with that?

The triumph of middlebrow probably explains most of the wealth and welfare that we now enjoy. Sure, genius matters substantially but highbrow and middlebrow complement and depend on each other. Each has a unique comparative advantage.

I cannot define charisma but I know it when I see it. We have all seen too many movies, plays, operas and read too many novels where charisma goes with leadership and excellence. That's why we call it theatre. In real life, the overlap between charisma and accomplishment is very slight. There is the added perturbation that many not-so-smart-or accomplished folk try (embarrassingly for all) to cultivate what they think is charisma -- including various Supreme Court appointees and others within their area code.

No self-respecting blogger has not opined on Ms. Miers. I wish her luck.

Wednesday, October 05, 2005

The rich get richer ...

We all know that the rich are getting richer because we read the NY Times and similar outlets.

Yet we also know that the relevant data are complex and that distributions are hard to characterize. We also know that it's hell to make intertemporal comparisons because these involve comparing categories rather than people -- who tend to move in and out of categories. And we also know that stock ownership and home ownership are more widespread than ever. And the Great Depression wiped out a few fortunes and outsized compensation packages are going to CEOs, rock stars and many others. And on and on.

Some help is available from Wojciech Kopczuk and Emmanuel Saez (NBER Working Paper, March 15, 2004) who write about "Top Wealth Shares in the U.S, 1916-2000: Evidence from Estate Returns".

They report: "Our series show that there has been a sharp reduction of wealth concentration over the 20th century: the top 1% wealth share was close to 40% in the early decades of the century but has fluctuated between 20% and 25% over the last three decades."

And, as noted in a recent post, there is substantial mobility in and out of the upper income and wealth strata.

The top 2% and the bottom 5% continue to make all the news. The more mundane remaining 97% will never be good editorial fodder.

Saturday, October 01, 2005

Sunk costs? What sunk costs?

From today's LA Times: "City OKs Subsidies for Downtown Hotel ... Council agrees to a $290-million package for planned project next to Convention Center ... Eight years in the making, the deal was approved unanimously, with backers saying it was critical to attracting enough business to the Convention Center to end a flow of red ink at the city-owned venue."

Oh, yes. That venue was also supposed to revitalize downtown L.A. and, in turn, also redeem dozens of previous bad decisions by City leaders.

Once again, walking away from a bad investment (and a bad idea) is entirely unnecessary when the option of spending other people's money is available -- while at the same time swapping same for electoral support. Silly me.