Saturday, June 28, 2008

The Iron Law

Over at The Austrian Economists, Pete Boettke offers a provocative post on the state of political discourse in the U.S. in 2008. He concludes this way:

Pivotal times require pivotal people. Think of the
economists in the 1970s that could articulate the case for limited government:
Friedman and Hayek lead the list, but also Buchanan and Stigler, Becker and
Coase, Alchian and Demsetz, Meltzer and Brunner, etc. Who would be
on your list today that has achieved the same scientific status as these men,
but also are articulate spokesmen for their position on limited
government? If only Paul Krugman, Jeffrey Sachs and Joe Stiglitz can claim
to be both scientifically respected, and capable of being public intellectuals
on policy relevant subjects, then the policy making game is over before it has
started isn't it?

I just finished Thomas Sowell's Economic Facts and Fallacies and found it thoroughly enjoyable. Sowell has written quite a lot on this theme and he has been consistently clear and persuasive. He and several others excel at making the case that Friedman, et al. made in the 1970s. In fact, it was probably a harder sell then than now.

So what's the problem? In this morning's WSJ, Stephen Moore interviews Phil Gramm, who reminds us that, "They didn't live up to what they promised to do. Power corrupted them. They spent lots of money and tried to buy votes. Republicans concluded that they could make voters love them by governing the way Democrats did."

All of the hard work of the thinkers that Boettke cites did nudge the center of American politics in the direction of liberty (and prosperity). But it was all lost because of the Iron Law that power does corrupt. Two-term presidencies ought to go the way of four-term presidencies. It would be a small step in light of the Iron Law.

Tuesday, June 24, 2008

They walk among us

Price adjustments are essential and the key to market magic. That's what we teach. We probably do not spend enough time teaching that all hell breaks loose when prices adjust and that politicians (and many others) say (and often do) the dumbest things.

Both presidential candidates have figured out that "the speculators" are to blame -- and that its high time to do something about them. This is what the crackpots (Chavez, Mugabe, etc.) have been saying all along.

All humans with a pulse plan beyond today and are, therefore, speculators. Those who do more of this than others are specialists who will be shown to have guessed wrong (in which case they suffer the consequences) or they end up being right and benefit the bystanders with their prescience. Information sharing improves every else's planning.

This stuff is apparently not taught in most law or journalism (or countless other) schools.

Friday, June 20, 2008


A press corps that seldom acknowledges the awful performance of transit in America (falling for a hundred years with a brief recovery during WWII gasoline rationing) gives the recent ridership uptick a lot of coverage.

But some perspective helps and Wendell Cox tracks these data best. Having drifted down to 1.8% of all person travel miles by 2000, it has bounced around that level ever since. It had gone down to 1.5% and is now back up to 1.8%.

Wednesday, June 18, 2008

Cities, suburbs, exurbs and the price of gas

There are more and more speculations on what the higher price of gasoline means for the shape of cities and suburbs. My new colleague Richard Green posted a discussion on the topic at his blog a couple of days ago. The WSJ ran a piece on the same question yesterday ("Suburbs a Mile Too Far for Some ... Demographic Changes, High Gasoline Prices May Hasten Demand for Urban Living"; WSJ's #1 emailed as of this moment).

One of the places to find the history of inflation-adjusted petroleum prices is in my favorite new Encyclopedia (page 374, by Sue Anne Batey Blackman and William Baumol).

Harry Richardson and Soojung Kim and I presented a conference paper earlier this year where we looked at the cycles of suburbanization-exurbanization since 1969. Our Figures 2a-2g and Tables 3-4 and 3-5 show the "rural renaissance" of the early 70s and how that reversed as the price of gasoline spiked in the early 1980s. But the following cycles of reversal of reversal and so forth did not track gasoline prices. The largest metros came back again in the late 1990s when gas prices were very low. The suburbanization-exurbanization-ruralization cycles that we found tracked the ebb and flow of crime rates better than gasoline prices.

The caveat is that our data were from the BEAs REIS file which is county-level and miss any changes below that level.

Tuesday, June 17, 2008

How do they sleep at night?

I did not know this about public schools in Sweden (from The Economist, June 14, "The Swedish model ... A Swedish firm has worked out how to make money from free schools"):

BIG-STATE, social-democratic Sweden seems an odd place to look
for a free-market revolution. Yet that is what is under way in the country's
schools. Reforms that came into force in 1994 allow pretty much anyone who
satisfies basic standards to open a new school and take in children at the
state's expense. The local municipality must pay the school what it would have
spent educating each child itself—a sum of SKr48,000-70,000 ($8,000-12,000) a
year, depending on the child's age and the school's location. Children must be
admitted on a first-come, first-served basis—there must be no religious
requirements or entrance exams. Nothing extra can be charged for, but making a
profit is fine.

But I did know this about U.S. schools -- and politics (from today's WSJ, "School Choice Is Change You Can Believe In"):
Barack and Michelle Obama send their children to an upscale
private school. When asked about it during last year's YouTube debate, Sen.
Obama responded that it was "the best option" for his children.

Several hundred low-income parents in our nation's capital
have also sent their children to private and parochial schools, with the help of
a federal program that provides Opportunity Scholarships. Like Mr. and Mrs.
Obama, most of these parents are African-American. And like Mr. and Mrs. Obama,
they too believe the schools they've chosen represent the "best option" for
their children.

Now these parents have a question for Mr. Obama. Is Mr.
Change-You-Can-Believe-In going to let his fellow Democrats take away the one
change that is working for them?

Just a few days ago, Democrat Eleanor Holmes Norton (D.C.'s
congressional delegate) told the Washington Post that "the Democratic Congress
is not about to extend this program." Today that program will come under the
congressional spotlight, when a House subcommittee takes up the annual
appropriations bill for the District of Columbia that includes funding for
Opportunity Scholarships for the 2009-10 school year. If Mrs. Norton and her
allies in the teachers unions have their way, hundreds of African-American
children with these scholarships will be forced back into one of the most
miserable public school systems in the United States.

Just how rotten are the D.C. public schools? In a recent
survey by Education Week, the D.C. public schools ranked fourth from the bottom
in terms of graduation rates. Test scores for basics like math and reading are
also near the bottom. It's not for lack of money: A recent U.S. Census Bureau
report says the district school spending clocks in at more than $13,400 per
child -- third highest in the nation. It takes a lot of money to run a school
system as lousy as D.C.'s.

This dismal performance helps explain why so many have been
willing to cross the usual political and ideological lines to try to give the
district's kids a better shot at a decent education. Opportunity Scholarships
have been endorsed by both the Washington Post and Washington Times. They have
the support of the Republican president as well as the current and past
Democratic mayors -- Adrian Fenty and Anthony Williams.

Even some of Mr. Obama's Democratic colleagues -- e.g.,
California's Dianne Feinstein -- have said that D.C. should be allowed to give
the program a chance. In contrast, Mr. Obama's silence is thundering across the

This silence is all the more striking, given that the Ivy
League-educated Democrat puts education reform at the top of his agenda. He has
decried the "achievement gap" that is leaving African-American children behind.
He has also noted -- rightly -- that America's system of public education is
producing hundreds of thousands of children who will be condemned to the margins
of American prosperity because they do not have the tools they need to

Why do so many politicians condemn the poorest to the worst schools? There is good reason to believe that it is for political support from the education establishment -- to whom they promise ever more money, turning a blind eye to evidence that it is of no help.

How do these people sleep at night?

Monday, June 16, 2008

Industrial policy is the best they can come up with

Steve H. Hanke writes about "Commodity Snatchers ... Rice prices have soared because of speculation and hoarding by governments, not private businesses" in the June 30 Forbes. Here are two interesting passages:

Scary rice and oil prices have sent politicians to their bag
of tricks. Not surprisingly, they have pulled out one that has been a staple
since the Middle Ages: blame the speculators and hoarders. But the politicos
should be pointing fingers at themselves. Governments around the world buy and
store commodities, especially rice and oil, with justifications stressing the
value of everything and the cost of nothing. A notable proponent of commodity
buffer stocks was John Maynard Keynes. As Keynes put it in 1942: "One of the
greatest evils in international trade before the war was the wide and rapid
fluctuations in the world prices of primary products." He recommended that
governments use buffer stocks to smooth out price fluctuations by purchasing
commodities when prices were thought to be low and selling them when prices were
thought to be high.

Not surprisingly, this buffer-stock variant of "Father knows
best" has not worked. For one thing, it assumes that government bureaucrats
possess the same knowledge of market fundamentals and face the same incentives
as well-financed, farsighted private traders. It also assumes that politics will
not raise its ugly head. Both of these heroic assumptions are not met in the
real world. Government buffer-stock schemes are rife with politics, and instead
of generating profits from buying low and selling high, they tend to generate

Incredibly, the great Keynes was unimpressed with central planners' lack of local knowledge, nor did he acknowledge the inevitability of policiticization. To this late date, many smart people still choose to overlook both of central planning Achilles' heels.

Hanke also suggests a market-based way to get rid of the stockpiles.
How would an oil (or rice) bank work? The government would
sell out-of-the-money call options on its stockpiles. It might, say, sell
December 2008 oil options with a strike price of $200 a barrel. If the price
surged above that level, the option buyer would exercise and take delivery of
crude oil from the government's stockpile. If the price never reached $200, the
option would expire worthless, and no crude oil would be released.

Both of the presidential candidates dabble in industrial policy. But with Obama it is the unabashed centerpiece.

Saturday, June 14, 2008

There's always next year

The Economist (June 14) mentions MasterCard's ranking of the world's leading centers of commerce. The MC report (Worldwide Centers of Commerce Index) is available online and makes interesting reading. Seventy-two sub-indicators define 43 indicators that make up seven dimensions (legal and political framework, economic stability, ease of doing business, etc.) with various weights. An international panel of experts is cited as the rankers and authors.

I like the Fraser Institute's Freedom of the World project and have used its data. It has been around for a while and there has been some vetting. It would be wonderful to have a useful cities index too.

Trouble is that this one places Philadelphia ahead of Boston (#18 vs #21). And Philadelphia came out of nowhere (unranked in 2007) to its top-twenty-in-the-world spot in 2008. Boston fell from #13.

We'll have to wait and see what they come up with next year.

Thursday, June 12, 2008

Eye popping research

The Freakonomics post that cites research on the link between fertility and TV soaps in Brazil should not be missed. It appears that the idealized families depicted on TV have fewer children than the population at-large, and this caused large parts of the audience to follow suit.

We expect that TV content follows the culture. But evidence that it can also shape the culture in profound ways worth thinking about.

Wednesday, June 11, 2008

Two gems

I was lucky to encounter two gems just days apart.

First I rented and watched Brothers (directed by Susanne Bier; pointed out to me by Bob Hessen), which is stunning and moving. Just when you begin to despair and think that movies have to be stupid, get this one to see what the possibilities are when talented people get everything right.

Second, I bought The Concise Encyclopedia of Economics (edited by David Henderson). I have not yet read all the essays but my sampling has been great fun. The essays are readable and worthy. I typically avoid these sorts of volumes and find them to be dry. This one is the first exception that I have found.

Sunday, June 08, 2008

"Highly educated"

Tyler Cowen writes about globalization in today's NY Times ("This Global Show Must Go On ... The push toward freer trade has reaped many benefits worldwide"). Of course. But we live in a Lou Dobbs world where, both, Barak Obama and Hillary Clinton, embraced protectionism. With all of the talk over history being made because one was a "minority" and the other a woman, much less was made of the fact that neither of them would do more than pander on the most important economic issue. And how many times has it been noted that Obama's base includes the "highly educated"?

The other piece that caught my eye in the same newspaper was the dicussion of the food fairs at modern major league baseball fields ("Buy Me Some Sushi and Baby Back Ribs ... Hot dogs and peanuts are still in the middle of the culinary lineup at major league ballparks, but the rising stars include crab cakes and endamame. You want champagne with that?"). The piece includes a list of quick hits and misses at the various parks' food outlets.

Some of the "highly educated" may be prompted to ponder the connections between these two pieces.

Thursday, June 05, 2008


I just came across Linda Chavez's version. Better (and longer) than mine.

One-drop rule

Many western European Jews of the late 19th century believed that emancipation was possible. They could be citizens, practice their religion, and even change religions if they liked. Conversion was chosen by many who saw it as an escape from the remaining anti-semitism. All of this ended, of course, when the Nazis made anti-semitism a matter of "blood" and "race".

I had always thought that the American "one-drop rule" was insidious. Unbeknownst to most of us, we carry genes from many "races". We do make formal and informal choices with respect to cultural identification.

What to make of Barak Obama and the hoopla surrounding his candidacy? He is a standard-issue liberal, circa 1965 (with some JFK-type charisma). Not much "change" there.

The celebration has to do with the fact that many identify him as "black" or "African-American". But his post-racial appeal (and his chance at victory) rest on just the opposite, that he is a mixed-race-mixed-background man free to define himself in ways that rise above the tired stereotypes.

There are two things that get in the way. One is the First-Trinity of Chicago crowd and the other is all the hoopla over the first "black" candidate. He and his supporters have to distance themselves from one-drop rule thinking and all the one-drop rule people -- many of whom are among his supporters.

Wednesday, June 04, 2008

Terrific discussion starter

The best discussion on global warming policy options that I have yet seen is in the July 2008 Reason (not yet on line but soon to be, and worth buying and reading in the print version if you cannot wait). Lynne Kiesling argues for cap-and-trade; Ronald Bailey prefers carbon taxes; Fred L. Smith likes neither and is optimistic that future technologies will cause use to look back and laugh at our current fears -- and at the Kyoto-protocols approach.

This three-sided discussion by three smart people is a useful conversation starter for any classroom discussion. I mean grade school through PhD seminars.

Monday, June 02, 2008

More on happiness

Serious discussions of happiness were once the business of philosphers. But social scientists and neural scientists are now in the game because they have each developed powerful new tools.

The Spring 2008 Journal of Economic Perspectives includes Angus Deaton's "Income, Health and Well-Being around the World: Evidence from the Gallup World Poll". It turns out (surprise) that the links are not simple.

Nevertheless, as more and more people are living lives beyond the Malthusian trap, there good grounds for the positive view. If recognizable humans have been around for 50,000 years and if the escape from Malthus is only in the last 250 years, we are talking about the only last one-half of one percent of our existence.

Sunday, June 01, 2008

Not your grandfather's suburbs

Reading The Economist's "An age of transformation ... America's suburbs are coming to resemble its city centres. That is both good news and bad" (May 31), you get the feeling that they could have made their point much more sharply. It is no longer accurate to think of simply "the suburbs".

David Brooks caught some of this in his On Paradise Drive. Suburbs become exurbs which become settled rural outposts of various flavors. We tried to describe some of this variety in a recent paper.

It's not getting any easier being green

Speaking of urban footprints, Wendell Cox points to his work on Australian cities and (all things considered) "sprawl" is good.