voluntaryXchange

What If Superman Was a Union Member?

Via BV:

Technorati Tags: superman,union

Economics: Just the Basics Please

Stephen Karlson (of Cold Spring Shops) nails it:

… If you get opportunity cost, specialization, substitution, and arbitrage you will get economics.

I don’t want to steal any thunder from Steve, but I’m sitting here thinking about inane policies, and 4 bullet points for each one about how they’ve gotten it wrong on these points.

Technorati Tags: quote,economics,opportunity,cost,specialization,substitution,arbitrage

Income Inequality Doesn’t Make the Poor Absolutely Poorer

Assessing income inequality is a hornet’s nest for those who are weak at statistics.

First off, most of the data we have is averages, which can’t tell us anything about inequality.

Secondly, many people slip mindlessly between the concepts of absolute and relative poverty. The latter is having less than others, while the former is not having enough.

Relative poverty exists everywhere, and is what is important if you think that income inequality is a problem.

Essentially, absolute poverty no longer exists in developed countries. Yet when we worry about others “not having enough” this is the only kind of poverty measure that’s important.

Tim Worstall, writing for the Adam Smith Instituted, reprinted this chart that can clarify matters:

The bars show different countries. The data is on net income after taxes have been removed and benefits added back in, adjusted for international prices using PPP.

The endpoints of each bar show the income of the 10th percentile and 90th percentile in each country. So, it’s not the poorest (who are probably close to zero everywhere) or the richest (who are off the chart to the right). Having said that, the most expansive view of the “middle class” usually runs from the 20th to the 80th percentile, so this is getting us that plus the richest half of the poor on the low end and the poorer half of the rich on the top end. What’s key is that this isn’t showing averages.

And what does it show?

• America has the most unequal distribution of income of the countries shown.
• America’s poor are no poorer than the poor in other countries.
• America’s rich are richer than the rich in other countries.

If you put these together it means that our inequality is not a result of our poor being worse off, but of our rich being better off.

And yet the world is fill of people who think America is somehow a bad place because of our inequality.

This is pretty dumb. An example may help:

• The poor in countries A and B both eat only turnips.
• The rich in country A eat a variety of fresh vegetables.
• The rich in country B eat a variety of canned vegetables.

Would any rational person claim that people in country B are better than those in country A? To do so, you’d need to believe that people shouldn’t eat what’s best, but rather what’s closest to what their neighbors eat.

But that’s just silly … because it would mean you judge the wellness of your community by trying to match the contents of your grocery cart to that of the other people in the checkout line.

No one does that in real life. And yet the chart tells us that this is what people who are concerned about inequality in America think we should do.

Cross-posted from SUU Macroblog, which is required reading for my macroeconomics classes.

Technorati Tags: income,inequality,ppp,across,compare,countries,america,u.s.

No Peer Review?

Kevin Grier, writing at Cherokee Gothic brings up a huge point: none of the the three Rogoff/Reinhart papers that have been in the news the last month were peer-reviewed.

By now, the whole sad Rogoff & Reinhart story is well-known and well-hashed. But there’s one important point that I don’t see many people making.

There are three RR papers on debt and growth. Their NBER working paper, their American Economic Review Papers & Proceedings paper of the same name, and their Journal of Economic Perspectives paper that adds Vince Reinhart as a third author.

What do all these have in common that has been neglected?

NONE OF THEM ARE PEER-REVIEWED!

I am not making this up.

While the American Economic Review is the flagship journal of our profession, the annual papers and proceedings issue, is made up of very short pieces that do not undergo peer review. Rogoff has this piece listed on his webpage simply as AER, which is very un-needed bit of resume padding.

Similarly, the Journal of Economic Perspectives, is a publication designed to provide popular presentations of research questions. On its webpage it states, “Articles appearing in the journal are normally solicited by the editors and associate editors.”

And, NBER working papers are not peer reviewed at all.

Everyone inside the economics profession knows this. Either R&R did not seek to publish their results in a peer reviewed journal, or no peer reviewed journal would accept them.

I think there’s one poorly written sentence here: “Everyone inside the economics profession knows this.” When I read that, I think Kevin is referring to everyone know Rogoff and Reinhart pulled a fast one. I think what he means is that everyone knows those 3 outlets are not peer-reviewed. But, for my part, I never put it together that they went 3 for 3.

Meanwhile, out here in the hinterlands, I don’t count anything I do as serious unless it’s peer-reviewed.

Technorati Tags: rogoff,reinhart,peer,review,debt,growth

Exceptionally Provocative

Discussing the manhunt in Boston, David Henderson points out a bunch of things you may not have thought of:

• Centralized decision-making placed residents of Boston under something tantamount to martial law,
• Centralized action by the government did not find the second bomber,
• After centralized control was relaxed it took only minutes for routine decentralized behavior to find the second bomber, and
• Dunkin’ Doughnuts was specifically exempted from the lock-down order to support the centralizers.

Do note that the last item could be construed as a violation of the 13th Amendment.

I’m not sure I agree with the tenor of the argument, but these implications are … not unusual to libertarians.

Technorati Tags: boston,marathon,search,tsarnaev,boat

You Can’t Make this Up: Obamacare Edition

Under Obamacare, smokers will not be surcharged in D.C., Rhode Island, Vermont and Massachusetts.

The purpose of the surcharge was to cover the costs of medical treatment for smoking-related diseases amid concerns that without it premiums for the general population will rise.

The surcharge is actually part of the funding model for Obamacare:

The Affordable Care Act allows states to impose up to a 50 percent surcharge for people who have used tobacco at least four times a week over the last six months.

The reasoning is that poor smokers won’t be able to afford Obamacare if the surcharge is included:

… If subjected to the maximum surcharge, a couple older than 60 years old who both smoke would face a premium equaling 48 percent of their total income …

“That’s basically unaffordable,” Dr. Akhter said.

…

Dr. Akhter said the goal of the [health] exchange is to serve as many people as possible, so he did not want to discourage people from buying insurance

The problem with this is the one-size-fits-all mentality that goes along with government programs in representative democracies.

I get that there’s a medical issue here. If smokers are addicted, getting them into treatment in the medical system is a good thing. The thing is, that’s not a public health issue: smokers aren’t infecting others with some smoking bug.

If it’s not a public health issue, then this is a funding issue. But notice that third quoted block, and how the director of this program conflates the two.

There’s a folk theorem in economics that all costs (or benefits) eventually accrue to the holders of fixed liabilities (assets). To the extent that a smoking addiction is a fixed liability, then the smokers are going to pay the costs one way or another.

Conflating smoking as a public health issue with smoking cessation as a desirable goal to be funded isn’t addressing this at all.

I think Dr. Akhter and his ilk would benefit from the services of a “Chief Economics Officer” that might dissuade them from this sort of muddy thinking. Indeed, they might point out how the endgame is going to work:

• Total costs to smokers include non-monetary costs of illness and monetary costs of treatment.
• Monetary costs will be lifted off of smokers.
• Monetary costs will be transferred onto non-smokers.
• Non-smokers, who are in the majority, will demand low ball coverage through the political system for a problem that isn’t their own.
• Sub-optimal monetary purchases will lead to poorer treatment and an increase in non-monetary costs on smokers.

This line of reasoning isn’t that hard. What is hard is getting bureaucrats to state the obvious: we’re going to charge you less and you’re going to feel worse.

BTW: I am not claiming there are good solutions to this problem. Having said that, weren’t we sold a bill of goods that sin taxes on cigarettes were going to pay for all this?

Technorati Tags: smoking,obamacare,surcharge

Paid vs. Payed

Which is correct, paid or payed? Most people will say paid; some would say that payed is archaic, or never correct. Microsoft agrees: as I write this, every occurrence of payed is getting flagged for misspelling.

I disagree.

Payed absolutely has 2 correct uses, as in (see here, here, or here):

• I payed out a length of rope.
• I payed out a bead of caulk.

And there seems to be some disagreement on this, but some sources agree that this is OK too :

• I payed a visit.

The meaning in all 3 of those is that you released something that you had (rope, caulk or time), voluntarily but somewhat deliberately.

But, I teach economics and finance, and I think there’s a fourth meaning.

Suppose you buy (partial) ownership when you invest. As in buying stock instead of making a loan. When you do this, you may earn returns, but you give over the right to distribute the returns made from your investment to the manager of the investment. They do not have to release those returns back to you in full or on a regular basis.

So, since this is their discretion, I think "dividends are payed out" not "dividends are paid out".

Technorati Tags: payed,paid,dividend,returns

“First Sale” Comes to Books

The DVR … and Tivo … YouTube … and independent films … are legal and popular, in part, because of a 1984 Supreme Court decision that established the precedent of “first sale”.

The legal terrain at that time included the argument that videotape itself should be made illegal because it might be used to make illegal copies.

That sounds silly, and it was shot down.

On the other hand, there is a practical point: if there was no videotape, it would be a lot easier to enforce and defend copyright. So you should be able to see the interest, if not the merit, in that side of the argument.

The precedent established, first sale, holds that if you purchase a legal, original copy, of copyrighted material … that it is yours to do whatever you want with. You can’t sell it for profit, but you can make as many copies as you like — whether or not they are later used illegally.

Flash forward, and the Supreme Court ruled this month that the principle of “first sale” applies to books as well. The case involved a Thai student in America, and the publisher Wiley.

Wiley practiced third degree price discrimination:* it sold the same book at different prices in different markets. In particular, it sold textbooks more cheaply in Thailand. No surprise there: lower incomes in Thailand are likely to make demand more elastic, and thus optimal markup lower.

But, the student saw an arbitrage opportunity: buy the books new in Thailand, ship them to America, and then resell them as mint condition used books. He made $900K doing this. Wiley sued and won. The student appealed, and the Supreme Court sided with the student.

How will this change the managerial economics landscape? Well, price discrimination will still be the first move on the part of managers. But, it may end up being less common in practice.

One thing to note is that this decision applies only to copyrighted goods, not to patented goods. So, pharmaceutical reimportation is still illegal.

* Some authors call this direct segment price discrimination.

Technorati Tags: first,sale,kirtsaeng,copyright,price,discrimination,managerial

Inside the Music Biz

Recommending a not-too-long-read entitled “Sony Music CEO Doug Morris Is Streaming Big” in Bloomberg Businessweek.*

Interesting throughout, with a good mix of the long-term history of the music industry, and how it continues to be successful. Fairly clear-headed too, without too much crap about how it’s art, and a lot about how the point is to generate revenue.

* This appeared in print in the February 11-17 issue under the title “Streaming Big”, listed as “The Music Man” in the table of contents.

Technorati Tags: doug,morris,sony,music,streaming

Is the Past Too Evenly Distributed

Here’s some big thinking from Paul Kedrosky:

How many calls to a typical U.S. fire department are actually about fires? Less than 20%. …

Why, then, are they called fire departments? Because of history. …

Everywhere you look you see fire departments. Not, literally, fire departments, but organizations, technologies, institutions and countries that, like fire departments, are long beyond their "past due" date, or weirdly vestigial, and yet remain widespread and worryingly important.

The next point is one of my pets:

One of my favorite examples comes from the siting of cities. Many U.S. river cities are where they are because of portages, the carrying of boats and cargo around impassable rapids. This meant, many times, overnight stays, which led to hotels, entertainment, and, eventually, local industry, at first devoted to shipping, but then broader. Now, however, those portage cities are prisoners of history, sitting along rivers that no longer matter for their economy, meanwhile struggling with seasonal floods and complex geographies antithetical to development—all because a few early travelers using transportation technologies that no longer matter today had to portage around a few rapids. To put it plainly, if we rebooted right now most of these cities would be located almost anywhere else first.

I grew up in the Buffalo suburbs, and lived most of the 90s in New Orleans: two cities whose raison d’etre is long past.

But this is not a list-making game. This is not some Up With Technology exercise where we congratulate ourselves at how fast things are changing. This is the reverse. History increasingly traps us, creating paths—and endowments and costs, both in time and money—that must be traveled before we can change directions, however desirable those new directions might seem. History—the path by which we got here, and the endowments and effluvia it has left us—is an increasingly large weight on our progress. Our built environment is an installed base, like an ancient computer operating systems that holds back progress because compatibility gives such an immense advantage.

I loved the last point. Savor it for a minute … it’s subtle:

Writer William Gibson once famously said that the "The future is already here—it's just not very evenly distributed". I worry more that the past is here—it's just so evenly distributed that we can't get to the future.

Every time I hear Obama I hear “More past … with better windowdressing”. Of course, the Republicans seem to have the most trouble with the windowdressing part. They like the past too.

It seems to me that this is a fundamental problem with the way contemporary governments work. Just about everything they do is about protecting the past.

Think about it.

Social security and Medicare about protecting the past “because we worked for it”.

Our defense systems are perpetually fighting the last war.

Our social safety nets for the young ossify the bad habits and outcomes of the past.

Our urban planning is largely targeted at fixing the decaying cities, not making the newer ones more functional.

Telecommuting becomes easier every day, millions prefer it, and yet we fund money-losing public transportation.

And don’t even get me started about the post office … where Tuesday now seems devoted to bulk mail only.

Lastly, what about the national debt and the debt ceiling – the issue of the season? Is it fair to say that we’re allowing this to cripple us? Having said that, most of what’s going on is the desire for relatively small amounts of new spending that are precluded because of all the old purchases we haven’t paid for yet.

Technorati Tags: past,future,distributed,evenly