Cafe Hayek — where orders emerge

Don Boudreaux is fun to read.  Here is a strong criticism of increases in the minimum wage.

Cafe Hayek — where orders emerge

Why US Cities Are Declaring Bankruptcy

Fareed Zakaria provides a concise explanation here.

Wealth Distribution (Redistribution) In the US

Perhaps the most illuminating quote from this post is this: "The negative 301 percent means that a typical family in the bottom quintile receives about $3 in transfer payments for every dollar earned."

But, the competition is tough from this quote: "the middle class, having long been a net contributor to the funding of government, is now a net recipient of government largess."

Perhaps Doctors, Lawyers, and PhD's Should Look Into Fighting Fires (bravely and nobly)

I respect firefighters and police officers.  But paying them the salary of a CEO is backfiring in California.  See this article, this article, and this article.

More.   More.  More.  More.  More.  And, by far the most important HERE!!!!!!!!!!

Here's an excerpt from the last by Steven Greenhut in the Wall Street Journal:

The study also found that lavish pay and benefit packages were a root cause of the city's problems. In Vallejo compensation packages for police captains top $300,000 a year and average $171,000 a year for firefighters. Regular public employees in the city can retire at age 55 with 81% of their final year's pay guaranteed. Police and fire officials can retire at age 50 with a pension that pays them 90% of their final year's salary every year for life and the lives of their spouses.

We could argue that firefighters and police officers are worth every penny they pay, or every raise they give themselves.  But, when a given city is paying up to 75% of its income on public servants, then very quickly that city finds itself near bankruptcy.

What is the answer?  Pay them according to their level of productivity.  Would this work?  What exactly do they produce?  Public safety is somewhat intangible (however it becomes real when your house is on fire or you're getting regulated upon).

Paying police officers and firefighters less is unpalatable to members of either political party.  I imagine there will be many more bankruptcies before a politician works up the courage to make the suggestion.

Mankiw, Pigou, and You!! A Love Story (not really).

Greg Mankiw, the author of your text, posts fairly often on his blog about the Pigou Club (a group of economists and others that favor using tax policy to curb economic activity with negative externalities).  See this link here. 

The article gives some good food for thought.  Bauman and Ling Hsu do more than just argue that polluting industries should be taxed heavily, pointing out that the higher carbon taxes can finance lower corporate tax rates which is better for growth.

Beating the Dead Horse on Free Trade

More on free trade from Boudreaux.

I Beat a Regrettably Immortal Horse

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No One Should Ever Argue that Free Trade Does More Harm than Good

...still argue that humans should not interact with each other...to trade.  See Don Boudreaux's post What’s Central to the Case for Trade?

Trade comes naturally to children the first time they play together.  One child recognizes that the other child's toys could be enjoyable if only they were to gain access to the toys.  At first, the child follows a primitive notion and snatches the toy, until the parent (negating the need for years of game theoretic interaction) says "No, we share."  The children benefit from each others' toys without having to purchase the toys themselves.  They trade.  They gain.

How to Discredit Yourself

This article by John Aziz illustrates why I do not trust economists like Paul Krugman, Brad DeLong, and a few others.

If you read their op-eds or non-academic articles you notice one theme (now, in your most solemn, mechanical yet snobbish voice (with nasal sounds, throat clearings, and heavy exhalations through the nose)), increase government spending on...insert any project you or your ill-informed drinking partner, next door neighbor, etc can think of. 

These economists will say anything to get the government to spend more money.  There is never a reason to spend less, never a reason to limit the power of labor over consumers.  Perhaps my least favorite attribute these individuals possess is their sense that no one on earth is smart...at anything...ever, except for them.  I used to think that about myself...when I was three. 

Preliminary Thoughts on Supreme Court Decisions

Put simply, I'm not sure what I feel about it.  I haven't had much time to analyze the details.  My initial reaction was "But the government didn't say it was a tax, they argued they have the right to mandate that the public purchase insurance under the commerce law."  So, I was pretty surprised by the decision, as were most people notwithstanding whether they lean left or right.

As a primer to learn more about the decision and the law, here is a link to Tyler Cowen.  He also links to several other comments.

More to come.

Education and Option Value from Bryan Caplan

Education and Option Value: A Conversation With Virgil Storr

This conversation cheered my soul. I have a lot of issues/objections/whatever with/to education in the US.  Primarily, every day, it seems, I learn about a new field that I didn't even know existed.  And I say, "Wow, if I had any idea that a person could do this for a living I would have started from day one."

This isn't 100% the fault of our educational institutions.  But, who would have thought that a field like evolutionary psychology (link) existed?  I sure didn't.  I didn't hear about it until a few years ago.  Honestly, before the internet, people may have gone their whole lives without hearing about the field.

Our schools need to upgrade and move away from training students in language and arts.  The focus should be on skill development, career awareness, or just a flat out apprenticeship for people that know they want to work in computers.

Plenty would argue against this, saying kids are too young to make decisions.  Fine, then just develop their skills in areas that allow them access to the widest array of careers possible such as math, computer science, economics :), electronics, accounting (boring), law, anything besides literature, painting, speaking a random language, etc.

Ayn Rand vs. Evolutionary Psychology

Rand vs. Evolutionary Psychology: Part 1, Bryan Caplan | EconLog | Library of Economics and Liberty

Is it appropriate to say that you love something like Evolutionary Psychology?   It's probably fine, but it doesn't make much sense.  So, instead I'll say that I find the field informative in the way that makes me want to start school over and dedicate my life to the field...sometimes.  Since that's not an option, I'll just continue to use it to inform my beliefs about economics (broad category).

I also enjoyed reading Ayn Rand's Atlas Shrugged and The Fountainhead.  Some of her non-fiction resonated as well, most of what I've read actually.  So I hate to see Rand and Ev. Psych in conflict.

When the two fight, I'd have to side with Ev. Psych. 

To Frack or not to Frack

From Marginal Revolution's Alex Tabarrok, see here. 

Opponents of hydraulic fracturing often quote the contamination of groundwater as a worthy reason to stop the technique.  But, a simple cost-benefit analysis shows that fracking is worth around $100 billion to US consumers and the contamination of groundwater costs around $250 million.  In other words, fracking makes more than enough money for the US economy to pay for the contamination it causes 400 times over. 

The value to US consumers is certainly greater once you consider that "cleanliness" of natural gas versus other energy sources.

So, frack away.

Numbers Don't Lie...people do.

One of ESPN's Sportscenter episodes from June 23, 2012 extolled the virtues of Title IX.  An anchor points out that some opponents of Title IX argue that it takes funds and participation away from male sports.  She then segued to male reporter who proceeded to cite numbers showing increased participation rates in both male and female sports.  The conclusion from the reporter and the anchor was that Title IX increased participation rates in sports for males AND females because numbers "don't lie."

We could follow the same logic.  Suppose there is a two parent household with one male child on whom they can spend $100/month.  Then, they have a second, female, child but their income remains the same.  Will they spend more than $100/month?  No, they can't afford it.  They must split their spending on each child.  The male gets $50/month as does the female.

The increase in male and female participation reflects the increase in popularity and profitability of collegiate sports.  There is no question that athletics departments with finite resources must take income away from the lowest revenue producing male sports and reallocate income toward the highest producing female sports.  Also, this reallocation reduces the number of scholarships for males but increases those available for females.

Bottom line: yes, diverting money from male sports and toward female sports does reduce the number of male sports and participants.  But, that IS acceptable because it provides opportunity for female athletes that wouldn't exist otherwise, or at least did not exist in the past.

ESPN should be confident that their audience understands this fact rather than presenting numbers, claiming that numbers don't lie, and then lying about what the numbers mean.

Some Thoughts Between Me and a Few NYT's Economix Blog Readers

Here is the original link about Obama and the size of the government work force.

My First Response:
Crediting Obama for presiding over a decrease in the size of the public sector?

1) As mentioned, the majority of the public sector jobs reduction is from state and local governments.
2) This reduction is the result of....
A) Shrinking government revenues due to less economic activity.
B)The necessity of maintaining less than astronomical debt/revenue ratios in order to continue to finance state and local government activity through bond issues.
3) Your tone is adulatory, as if the president intended to reduce the public sector (I'm giving you the benefit of the doubt and assuming you sincerely admire the man for reducing the scope of government). If he did, then he spent over a trillion dollars to help the economy shed public sector jobs. It could have been done for a lot less, the cost of paying their unemployment benefits for example.

My Second Response:
Ross is not right. You fired your cashier bc you invested in a piece of advanced technology. Thus, you created demand for highly advanced technological goods. The person who made your advanced good gets paid much more than the cashier you fired and they spend a lot more. Yes, demand matters, but you were part of the demand for high end goods.

People who want to keep manufacturing, of the lower end type, in the United States miss a key point: low end means low productivity, low productivity means low income, low income cannot afford technologically advanced goods. Let the low productivity jobs leave this economy, let individuals or colleges or technical schools or whatever, find the next level of skills that will allow a person (cashier) to re-enter the workforce in a more productive capacity (point of sales station repair person). Then your cashier might have a chance in partaking of high end goods without assuming too much debt.

Third Response: Banty, think more clearly about the argument. No one claimed that low-level jobs would disappear, but the definition of low-level, low-skill, and low-investment jobs is dynamic (meaning it changes over time for you non-"phd level engineers" out there). Low-skill, low-investment, low-whatever jobs today are much more productive than their counterparts 25 years ago. In other words, many low-productivity jobs from 25 years ago no longer exist today, and many of the low-level jobs 25 years from now will seem highly technical and complicated compared to their contemporary counterparts.

The spectrum of jobs you describe has always existed, but the spectrum shifts along with technological advancement the same way that the bottom 20% of income earners shifts upward along with a society's overall level of wealth. No one would insist that a healthy distribution of wealth requires some people to make $1 a day, and no one would argue that a healthy labor force requires some people to still sew mittens by hand with sharpened wooden sticks. I've heard the argument before also, as a former barista, personal trainer (model....not really) and as a phd level economist. It makes sense to me.

Fourth Response: Obvious, the person in China makes components. Companies in advanced economies do not find it profitable to export the production of high-end technological goods to peasant economies like China, because the Chinese just can't do it. Any healthy economy engaged in trade outsources low productivity jobs as it creates higher productivity jobs. The less productive in society lose in this scenario, but there are training centers (including government funded ones) designed to upgrade their skills.

GKR, you didn't dispute anything I said. So which 75% is wrong. You just pointed out, I think, that an electrical engineer (or someone similar) has their work divided by 10,000 units. I'm not sure what that means. It sounds like you're saying that a cashier can make $1000, an electrical engineer can make 5*1000 = 5000, but then has to divide the 5000 by 10000. Then, 5000/10000 < 1000, so the electrical engineer makes less than the cashier?

Banty, check the math above before agreeing with GKR. Do not feel sorry for the cashie; by making sure that he or she always has a job as a cashier operating a piece of low-end technology, you essentially make sure that he or she always has a low-income and will never afford some of the neater gadgets a society puts out.

Income Inequality

I saw an interesting tweet the other day, I forget by whom.  The tweet was short and to the point (not surprising).  Since I don't recall the exact words, I'll paraphrase: protesting against income INequality, or lamenting income INequality is somewhat strange since it supposes that there could ever be such a thing as income EQuality.

Could a world actually exist with pure income equality?  In other words, all income must be redistributed to others until their income is equal to yours? 

Is focusing on the concept of income equality even productive?  Would we be better off focusing on providing equal incentives for saving, investment, further income generation, equal across the entire range of income?  I think so.

Occupy Wall Street Rolls Up (or out of) Into Greg Mankiw's Class at Harvard

The author of your textbook (for my current Macro students) is dealing with Occupy Wall Street.  See his reasonable reaction here.  Interestingly, a former student comes to the classes' defense here.

Herman Cain's 9-9-9 Tax

How does the 999 plan affect income?  Here is the Tax Policy Center's score of the plan with respect to the tax change by cash income percentile.

Does it look fair?  Can you even interpret it?

Four Policy Mistakes

Greg Mankiw, here, outlines four countries that we do NOT want to emulate.  More specifically, we want to avoid their policy mistakes.  Some might argue that France is lovely, and the people of Japan are noble, but that does not mean their governments do not make some silly decisions.

Habit Audit

Keith McCullough, retweeting from Ancient Proverbs, said this on his twitter account:  "First, you make your habits.  Then your habits make you."  This quote isnpired me to examine the opportunity cost of my habits, i.e. how much I give up to engage in any particular habit. 

This isn't easy.  I don't have a readily available metric with which to measure opportunity cost.  Example: Option A: Workout for 1 hr.  Option B: Work 1 hr for $10/hr.  Opportunity cost is $10.00.  This dichotomy does not hold for most of us.  That is, your other option besides working out is probably not to go work for $10/hr somewhere.  So how do we measure opportunity cost?  You could try to guage the value of the next best thing you could do with your time.  So, if you wake up and watch an hour of Sportscenter, the opportunity cost of doing that is the most productive use of your time you can find (besides watching Sportscenter which you must feel is productive or valuable in some way).  For me, this probably involves studying or something similar that I'm not always motivated to do.

Now, the primary point here is that most of us engage in quite a few habitual activities without recognizing them as such.  This leads to an immense time and productivity drain if those habits are not productive, or not the best use of your time.

So, the Habit Audit is a way to get some control over where your resources are flowing.  How much time per day do you spend engaging in non-productive activities?  What habits could you replace with new habits, and what might be some measurable outcomes (example: an increase in your GPA)

Who Pays More...?

Who pays more in federal income tax, your grandma the plumber/teacher of the disabled and infirm, or Warren Buffett?  Take a look at this link (from Greg Mankiw's Blog) to the Effective Federal Tax Rates based on income.

The lesson: The wealthiest pay 30.4 of their income to their government.  The middle income distribution pays 14.1.  So...billionaires already pay more than secretaries.