Is Walmart a Giffen Good?

A Giffen Good is the Holy Grail of consumer theory--it theoretically exists, but it has never really been identified in practice. A Giffen Good is defined by an upward sloping demand curve. That is, as price increases, demand increases. The requisite criteria for a Giffen Good is that it be inferior and comprise a large portion of total consumption (not to be confused with a Veblen or snob good). So, if the price of the average bundle of goods purchased at Walmart increased, would the average Walmart shopper start having to shop there more?

Tax Policy 101

After I suggested inconsistencies in how people apply the ethics of progressivity, a friend asked what it really means for a tax policy to be progressive. Depending on how you define and measure progressivity, you can come to vastly different conclusions using identical numbers. Below is an illustration that, while contrived, is on the same order of magnitude as the Bush tax cuts.

Suppose there is an individual who has $10,000 of income and is representative of the bottom income decile—the “poor”. Suppose this person pays 10% of his income ($1,000) in taxes, leaving him with $9,000 of after-tax income. Now, suppose there is an individual who earns $1,000,000 of income and is representative of the top decile—the “rich”. Suppose this person pays 50% of his income ($500,000) in taxes, leaving him with $500,000 of after-tax income. (Note that I use “poor” and “rich” here only for convenience and contrast. In practice, “rich” is certainly not a misleading title for the top tax bracket, but the bottom tax bracket is better characterized as “middle class”.)

In the next election, suppose there is a supply-sider candidate who wants to cut taxes to “stimulate” the economy. The proposed tax cuts would reduce the tax rate for the lowest earners by five percentage points (to 5%) and by four percentage points (to 46%) for the highest earners. After-tax income becomes $9,500 and $540,000.

Is this tax policy progressive?

Well, it depends how you analyze it.

1. If we look at tax rates we see that the rate for the poor was reduced by five percentage points, from 10% to 5%. The rate for the rich was reduced by four percentage points, from 50% to 46%. So, this tax cut widened the tax rate gap between the rich and the poor. The result is a more progressive tax code. This is the only definition of progressivity that does not require manipulating or interpreting the data in a favorable way.
2. Another way to view the difference in (1) is by noticing that before tax cut the rich paid a tax rate that was five times as large (0.50 divided by 0.10), now the ratio is almost 10 to 1 (0.46 divided by 0.05). Clearly, the tax code is more progressive.
3. The tax cut lowers government revenue by $40,500. The rich receive 99% of the tax cut—a monstrous $40,000. Meanwhile, the poor get a measly $500 back, representing only 1% of the total amount of the tax cut. This is what the media and many public officials who opposed the tax cut in the first place would deem “tax cuts for the rich.” But, this is just demagoguery. The fact is, the rich were already supplying 99.8% of government revenue. Any way you slice it, unless you start redistributing wealth, the rich are going to receive a larger piece of the pie from an across-the-board tax cut.
4. Looking at tax rates again, notice that the poor’s tax rate was reduced by 50% (5% divided by 10%) while the rich’s tax rate was reduced by only 8% (4% divided by 50%). In other words, the poor got 50% of what he was paying in taxes back ($500 of $1,000) and rich got only 8% back ($40,000 of $500,000). Here, the tax cut looks extremely progressive. This is how Conservatives might demagogue the issue (although the Right seems especially inept at articulating tax policy) and is only slightly less misleading than the previous example. In this case, however, the fact that a small difference in the percentage point change in tax rates looks big as a percent of tax rates is a result of an already progressive tax code.
5. Now look at after-tax income. The poor’s after-tax income increased by about 5.6% ($500 divided by $9,000) while the rich’s after-tax income increased by 8% ($40,000 divided by $500,000). So, despite the fact that the tax code became more progressive, it appears that the tax cut was actually regressive, slightly favoring the rich. This is the view favored by Brookings Institute’s Tax Policy Center. But this interpretation is unnecessarily intricate and misleading because it is entirely an artifact of existing inequality and an already highly progressive tax code. In fact, the only way to remove this effect would be to make the tax code much, much more progressive—essentially by only cutting taxes for the poor. In Brookings’ defense, they are emphasizing the “distributional impact” of a tax cut, but that is a measure of inequality, not progressivity.
6. Another alternative distributional measure is the percentage of tax liability. Before, the rich were paying 99.8% of taxes ($500,000 divided by $501,000). Now they are paying a higher percentage, 99.9% ($460,000 divided by $460,500). This is slightly misleading because it’s mostly a function of inequality and the rich’s high tax burden.

In summary, the only reasonable and consistent measure of progressivity is the tax rate gap—the difference between the percentage of income paid by high and low earners [illustrated in (1)]. Any other definition is intended—intentionally or otherwise—to advance a particular point of view or it’s an idiosyncratic result from a specialized example and should be taken with a HUGE grain of salt.

The bottomline is that everyone should favor simplifying the tax code—if you don’t, then you are likely a bad person, a member of Congress, or both. Whether or not a person favors tax cuts at all or prefers a more or less progressive tax code probably depends on their ideological bent or where they fall on the income distribution....and perhaps a little bit ignorance, but that is by no means limited to one side of the issue.

Obama on Regulation

Yesterday KLR wrote about Richard Posner and Gary Becker's discussion regarding regulation and deregulation. This week on Fox News Sunday Chris Wallace asked Obama where he felt the traditional Democratic platform falls short of Republican ideas. Here is an interesting bit of his answer:

OBAMA: Well, I think there are a whole host of areas where Republicans in some cases may have a better idea.

WALLACE: Such as?

OBAMA: Well, on issues of regulation. I think that back in the '60s and '70s a lot of the way we regulated industry was top-down command and control, we're going to tell businesses exactly how to do things.

And you know, I think that the Republican Party and people who thought about the markets came up with the notion that, "You know what? If you simply set some guidelines, some rules and incentives, for businesses—let them figure out how they're going to, for example, reduce pollution," and a cap and trade system, for example is a smarter way of doing it, controlling pollution, than dictating every single rule that a company has to abide by, which creates a lot of bureaucracy and red tape and oftentimes is less efficient.

That's encouraging forthrightness. And a good sign for policy.

Transcript of the conversation here. HT: Michael Moynihan

The Best Intentions

Arnold Kling contrasts some consequences.

Here are some more comparisons to consider:

1. The total death and illness caused by all of the chemical pollution ever created vs. the death and illness caused by the ban on DDT.

2. The GDP lost due to consumption of illegal drugs vs. the GDP lost due to the drug war.

3. The deprivation and suffering caused by predatory lending and other subprime mortgage shenanigans vs. that caused by biofuel mandates.

I think that as the world gets more complex and interdependent, we will see government activism cause ever-greater harm, because the unintended consequences become harder to predict, or even to trace when they do occur.

I came to DC to learn about good public policy, but my views increasingly favor the government sitting on its hands. Admittedly, my philosphical tendencies are strongly individualistic and rationalistic. But under any ethical paradigm there is no denying that people in power can produce pretty nasty outcomes. Even (especially) if that power appears benign. Despite what people might think Chevron, Microsoft, and Walmart are essentially powerless.

Update: Exhibit B

Random Thought

Most instructors organize their syllabus so that the class is worth XXX points and students submit work to earn points. Suppose instructors instead gave you an initial allocation of XXX points and then deducted points based on student (lack of) performance. Would this induce a different attitude toward course work and a different behavioral response from students? In other words, is the carrot or the stick a better student motivator?

(Absence) of Markets Failure

Richard Posner:

Perhaps what the savings and loan and now the broader financial-industry crises reveal is the danger of partial deregulation. Full deregulation would entail eliminating both government deposit insurance (especially insurance that is not experience-rated or otherwise proportioned to risk) and bailouts. Partial deregulation can create the worst of all possible worlds, as the western energy crisis may also illustrate, by encouraging firms to take risks secure in the knowledge that the downside risk is truncated.

This is an important observation that a lot of policy debates miss. What is often percieved as market failure is really government induced market failure. Big pharma, for instance, is often accused of abusing market power. The truth is the drug industry is far from perfectly competitive and this has a lot to do with the way government intervenes in health care.

Who is REALLY progressive?

I have always lived with roommates. As many as 80 at one point. Then six or seven for a couple of years. Now two. In every case, there has been substantial financial inequality. Some people had parents that were loaded. Some had better paying jobs. Others had vastly higher potential earnings. Yet, in every situation we all paid equal rent.

So my question is this: How many Americans, if they shared a house with equal ammenities, would propose paying rent based on wealth? How many think rent in an apartment building should be indexed to income?

My guess is very few. The unfairness of progressive rent seems obvious. Once we can afford a reasonable standard of living, we pay based on what we get, not based on what we have. Duh. When I go out to dinner with my roommate who is in law school, I don't suggest that he pay for more of the bill because he will make more money when he graduates. He would laugh his ass off at me.

So why do so many people, who would reject the concept applied to their personal life, approve of progressive taxation.

The whole idea of progressivity relies on the ability to exploit an anonymous minority. I would suggest my rich roommate pay for dinner if a third person agreed with me and was willing to help enforce the rule...and if my roommate weren't my friend.

Well, duh!

Man says he grew marijuana because of debts

Drug detectives have arrested a Poulsbo-area man who told them he resorted to growing marijuana because of mounting debt.

John M. Pritzos, 44, is charged with manufacturing marijuana in his home.

According to court documents, he told Kitsap County detectives he had monthly expenses of $8,500 to $9,500 each month. He said he's losing money on a rental home in Berkeley, Calif., that fetches less than the cost of its three mortgages. He also said he has $1,200 child support payments.

Is this not the worst defense ever? Granted, growing some plants should not be illegal. But doesn't this amount to saying, "I killed him because I wanted him dead" or "I robbed the bank because I needed more money." If only it were that easy.

I'll Go Do My Laundry Now

Having a husband creates an extra seven hours a week of housework for women, according to a University of Michigan study of a nationally representative sample of U.S. families.

For men, the picture is very different: A wife saves men from about an hour of housework a week.

So, are men lazy and are women unfairly burdened with household chores? I doubt it. It’s a simple case of division of labor and divergent preferences. When two people are married there are gains from trade that free up labor. Individuals will allocate their excess labor toward the activity which provides them with the most utility. For women, that might mean spending more time cooking a good meal or keeping the house clean. For men, it probably means more Sports Center. What's wrong with that?

Suppose my neighbor and I both spend two hours a week keeping our yards tidy. Then, suppose we move in together and the advantages of cohabitating provides each of us with five additional hours that were previously used for necessary tasks. I could plausibly allocate all five of my *leisure* hours to yard work if I took a lot of pride in a nice lawn or if I really enjoyed gardening. The most my new roommate could reduce his time working in the yard is two hours. Is this new arrangement unfair? Would we really say that my neighbor/roommate was shirking his yard duties?If I cut back on my hours working outside my roommate would not necessarily pick up the slack...because there is no slack.

In fact, the only way an equal distribution of tasks would be ideal is if a couple had identical abilities and identical tastes. What fun would that be?

If sharing the burden of household chores is important, you would be wiser to look at your future partner’s preferences, not their work ethic. If dividing chores equally is not important, then go ahead and make your life easier by engaging in a little Coasian bargaining.

This Advice Stinks

Gadling has some tips on hostel etiquette today. My favorite:

Spontaneous farting is only funny under very precise circumstances. It requires exquisite comic timing that most of you don't have, so better to just save yourself the embarrassment and do the slow release or, better yet, leave the room.

I disagree. Although socially unacceptable in certain situations, farts are ALWAYS funny.

Movable Feast

Excessive boredom and procrastination caused me to send the following letter to the NYTimes this afternoon:

To the Editor:

“Movable Feast...” (April 26) introduces the idea of addressing pollution by including environmental costs in the price of food via fuel taxes. This principle, called a Pigouvian tax, makes for effective environmental and economic policy but, sadly, often finds its way to the legislative waste basket.

The article presents an alternative where food labels include a product’s carbon content. In fact, this ingenious labeling system already exists. It’s called the price tag. There are countless scarce resources included as inputs in any production process and the cost of those resources are easily aggregated through the always-honest price mechanism. Implicit in the argument for carbon labeling is the popular notion that buying local is the highest consumer virtue. Once prices account for environmental costs, however, there is nothing especially noble about voluntarily wasting additional resources. True, some consumers care about minimizing environmental impact. But everyone cares about managing their budget and some even care about helping farmers in impoverished regions earn a decent living. Maybe that cheap Chilean apple isn’t so bad after all.

Fantastically Nerdy Quote

"Statistics are like bikinis; they are interesting for what they show, but even more interesting for what they cover up." --Dr. Abe Rotstein

Why Isn't Meat More Expensive?

The BBC has some facts and figures on the cost of food. Obviously, the price of food soared during 2007. But take a look at the change in prices by food type. Meat and sugar haven't changed at all? Sugar doesn't change because it is highly subsidized and doesn't remotely approximate a competitive market. But how can we explain the steady cost of meat while inputs are rising so dramatically--the food crisis has to have produced a supply shock. Is demand for meat perfectly elastic? I'm baffled?

What Wealthy Nations Do When They Have Time on Their Hands

The Animal Liberation Front claimed responsibility for releasing mink and destroying breeding records at the Jefferson Fur Farm this week.

"Consider this your first warning," it read. "Tear down this death camp and let the mink live free. If you don't, we will be back to finish the job."

That is quite a threat! Animal rights is not an illegitimate cause, but ALF is legitimately insane.

Gun Musings from a Leftish Economist

Mark Thoma comes across as decidedly apolitical, thoughtful and pro-tradition.

This closely reflects my own experience with, perhaps, slightly less beer drinking. I probably also have a few more exciting--but relatively harmless--stories.

Bottom line: for many of those who did not grow up around guns there is an entire culture out there that they are unaware of. Can anyone think of a comparable tradition that would be equally foreign to most gun owners?

Life Expectancy Gaps

Research from Harvard School of Public Health shows that life expectancy has declined or stagnated in some U.S. counties over the last 25 years. As a result, the life expectancy gap between the worst and best counties has grown by about two years for men and one year for women. The Deep South and Appalacia saw the largest divergence.

The obvious explanation is that health care is getting more expensive and some groups, primarily minority and low income populations, have seen their access to quality health care diminished. Here are a few alternative explanations:

1. Nonrandom immigration adds groups with different endowments of health and genetics to some communities.
2. Migration trends have sorted communities based on socioeconomic factors correlated with health and life expectancy.
3. A stronger assortative mating trend means more people are getting married within socioeconomic boundaries and is contributing to rising inequality in health.
4. Health care is not an easy good to consume and an increasing educational achievement gap contributes to disparity in health outcomes.
5. Life expectancy is not the only dimension on which individuals maximize (surprise!), there are regional differences in preferences, and some goods (which don't contribute to health) have gotten relatively less expensive.

Any others?

I’m not deny that the life expectancy gap is a symptom of a broken health care system. It very well may be. But that certainly isn’t the only candidate explanation. And, contrary to what your SAT prep book may have told you, the most obvious answer is not always the correct one.

Benedict XVI

That Pope Benedict XVI was in town was driven home for me more by the inconveniences of his visit than by my own rapture. My apartment building lies along one of the parade routes; last week there were people waiting with birthday signs for his motorcade hours before he was scheduled to appear. It was perhaps not the best weekend to ride up to New York (Benedict's next destination) on the Chinatown bus. My bus up (and train back down) were packed to the gills with people traveling to see him.

I understand that the Pope is an important world figure. As the leader of the Catholic Church he is in a position to exert enormous political and cultural influence. That influence has begun to scare me, though-- a lot. Images from the last week at two baseball stadiums where the Pope was to perform the mass seemed surreal to me. There were enormous tents at both, with myriad priests on hand to hear confessions before the mass began. It's hard for me to see so many people in a religious frenzy here in the United States and not compare that to images of huge gatherings in the Middle East, pictures of which are often used to convey fear of conservative Islam.

The thing is, the Roman Catholic church is taking what I see as a dangerous turn toward conservatism. Eduardo Porter has a fascinating editorial observer column in the New York Times last week, that articulates one reason this is the case. In the article, he points out that some of the most successful religions have exceptionally fervent congregations and the strictest requirements. "Religions relax their rules at their own peril."

Many traditionalists attribute the church’s decline to the weakening of its strictures. They believe it was damaged by the Second Vatican Council in the 1960s, which tried to bring the church closer to the people, proclaimed religious freedom, embraced people of other Christian faiths and acknowledged truth in other religions.
So it is perhaps unsurprising that the church has been pushing the other way. Pope Benedict XVI has brought back rites abandoned after Vatican II and reasserted the church’s hold on truth.

I absolutely understand and respect strict adherence to religious orthodoxy. But sometimes that orthodoxy needs to be reevaluated by the community to be sure that it comports with the present age. That is Porter's point in the Times, and I agree.

As my father pointed out to me this weekend, it's worth remembering that the Pope is the same person he was before he was elected by the College of Cardinals. As Joseph Ratzinger, he was Prefect of the Congregation for the Doctrine of the Faith-- the current form of what was the driving force of the Inquisition. His job-- and he performed it relentlessly-- was to root out and punish all deviations from strict orthodoxy. It's frightening to think that he has become one of the most powerful people in the world.

Trade & Inequality

The Economist reports on Paul Krugman. Krugman is quoted:

“It's no longer safe to assert that trade's impact on the income distribution in wealthy countries is fairly minor. There's a good case that it is big and getting bigger.”

The article provides a balanced explanation of the debate on trade and inequality. An interesting read. Here are couple of additional points worth pondering.

First, trade improves incomes in poor countries. Even if income inequality is growing in the U.S., global inequality is surely shrinking. Why should we put more value on a family in Ohio not being able to purchase their third TV than a family in China being able to pull themselves out of subsistence living? What is the ethical reason for weighting a human life more if he or she happens to hold a U.S. passport?

Second, what about the benefits of trade for consumers? Trade drives down the prices of goods so that families at all points of the income distribution are able to consume a much larger bundle. The evidence I have seen shows that consumption inequality is small and decreasing. Consumption disparity is a much more meaningful measure of the differences in the standard of living.

Finally, in the words of Dick Cheney...so what. It's whether or not incomes are stagnating that should matter, not income inequality. I find the argument for relative wealth over absolute wealth competely absurd. Sure, there is a sense of competition and keeping up with the Jones. But you find me one person who would be willing to burn a $100 bill provided Ted Turner also burns two $100 bills and I will show you someone who REALLY believes in relative wealth. The bottomline is that trade creates wealth for everyone involved. This is practically the only thing that all (good) economist agree on.

Trigger Happy

Arthur Brooks:

Who are all these gun owners? Are they the uneducated poor, left behind? It turns out they have the same level of formal education as nongun owners, on average. Furthermore, they earn 32% more per year than nonowners. Americans with guns are neither a small nor downtrodden group.

Nor are they "bitter." In 2006, 36% of gun owners said they were "very happy," while 9% were "not too happy." Meanwhile, only 30% of people without guns were very happy, and 16% were not too happy.

In 1996, gun owners spent about 15% less of their time than nonowners feeling "outraged at something somebody had done." It's easy enough in certain precincts to caricature armed Americans as an angry and miserable fringe group. But it just isn't true. The data say that the people in the approximately 40 million American households with guns are generally happier than those people in households that don't have guns.

So, do guns make people happy or are happy people more likely to purchase guns? Some possibilities:

1. Gun ownership provides people with a greater sense of self-reliance, confidence and happiness.
2. Gun ownership increases peoples peace of mind and sense of self-defense.
3. More self-reliant people are more likely to feel comfortable purchasing and owning a gun.
4. The difference is explained by an omitted "rural" variable. People who live in more simple, rural settings are more likely to have a reason to own a gun and rural settings are correlated with happiness.
5. There are two types of gun owners. Those who purchase guns for hunting and recreation and a smaller group who purchase guns for self-defense. Those who have a gun for self-defense may, on average, be angry and bitter, but the happiness of the larger group of hobby gun owners dominates.

Any others? My guess is (4) and (5) explain most of the difference with a small dose of (3). I'm very skeptical that gun ownership would have a causal effect on happiness or even perceived safety. But, regardless of the explanation you prefer, Arthur Brooks' final statement holds:

What we do know, however, is that contrary to the implication of Mr. Obama's comments, for many Americans, happiness often does indeed involve a warm gun.

Tim Robbins: Lessons in Economics

Tim Robbins recently gave a controversial speech at a conference for the National Association of Broadcasters. A must watch. Event organizers reportedly tried to talk him out of giving it and a few attendees walked out. But he closed with a standing ovation.

He leads with this attention-grabber:

"I don't know about you, but show me a starlet without panties getting out of a car, and suddenly the world seems like a better place. Show me 'Knight Rider' drunk on the floor eating a hamburger, and I won't ask why my kid has no health insurance. Let's stop burdening people with facts."

He then goes on to decry the media as driven by a "pornographic obsession with celebrity culture,” car crashes and vacuous politics. It’s a pretty good speech. I love Robbins as an actor, but I don’t much care for his politics. In this case, bravo Tim.

He makes an excellent observation on technology growth and comes across being very Schumpterian (start 0:50). His point, which I'm not sure he knew he was making, is that deregulated (even monopolized) industries breed innovation and creative destruction. His evidence: Now when Stephenopolis and Gibson fail, we can go to the internet, YouTube, satellite radio, and more. This is true, and it's this kind of innovation that drives economic growth and prosperity and, yes, even freedom. Especially for the average person. I just wish smart people like Robbins would be willing to accept the truth in his own statement, reject the failure of populism and advocate for free-markets with as much zeal.

The Great Schumpeter:

“Queen Elizabeth owned silk stockings. The capitalist achievement does not typically consist in providing more silk stockings for queens but in bringing them within the reach of factory girls in return for steadily decreasing amounts of effort.”

Is My Math Right?

Pondering taxes in Massachusetts today. Three things led me to my ponderings:
1. The fact that many people blame the Mass. legislature for not lowering the Massachusetts income tax from 5.3% to 5% a few years ago.
2. The idea of a gas tax to reduce consumption
3. A recent article noting that T ridership was at an all time high last year thanks, in part, to rising gas prices

These things caused me to ask:
How much would you have to raise the gas tax in Massachusetts to make up for the revenue lost by a reduction of the income tax?

Might such a tax increase have a hidden (or maybe not so hidden) additional revenue boost for the state in terms of increased use of public transportation?

Before I go on with how I figured this, some problems that I should address:
1. Dated/sketchy numbers. As you’ll see below I don’t have the most recent/best numbers for my data.
2. (This is the big one) Higher gas prices would lead less people to drive. Less people driving would result in less consumption of gas meaning that a higher tax would be needed to get to the same revenue point. I can’t think of a good way to account for this in my calculations.

How I figured this out:
According to the Massachusetts Budget and Policy Center, Massachusetts raised $10.5B in personal income taxes in for FY06 from the 5.3% rate. Therefore, assuming a proportional reduction, an income tax decrease to 5% would mean:
$10.5B – [($10.5B/5.3) x 5] = $593.5M less in tax revenues

So we would need a gas tax to make up about $600M in revenues. The Energy Information Administration says that in 2005, Massachusetts consumed 68,048,000 barrels of oil for motor vehicles. According to multiple sources, there are 19.5 gallons of gasoline per 42 gallon barrel. This means that Massachusetts’ gasoline consumption is:
68.048 x 19.5 = 1.33B gallons of gasoline.

To figure out how much we’d need to tax each gallon to make up our lost income tax revenue:
$593.5/1330gal = $0.447

So the way I’m figuring this out, each gallon would need a 45 cent/gallon tax to make up for reducing the income tax by 0.3 percentage points.

Currently, Massachusetts has a 41.9 cent per gallon gas tax. Therefore, I would be proposing a 107% increase in the gas tax to support a 5.6% reduction in the income tax. Not sure that’s going to work politically.

Again, this ignores the fact that such an increase would likely result in reduced consumption AND the fact that such a tax would almost undoubtedly have to be accompanied by some kind of credit/rebate for low income drivers (especially in rural areas).

Earlier this morning I thought I had hit upon a great way for Massachusetts to cut taxes and save the environment. I fear I may have more work to do on that front.

Exhibit A, B & C

Allow me to push the metaphor a bit more. The three candidates' policies toward high oil prices amounts to sending flowers to her at work and buying her cheap jewelery. Ahhh. These politicians are soooo romantic.

In the realm of energy policy, there are a great many bad ideas and a very few good ones. The usual practice of presidential candidates is to 1) sift through all these proposals, 2) separate the wheat from the chaff, and 3) keep the chaff.

This year, the two parties are competing to show who is most eager to discard sound economics and long-term prudence in favor of appeasing aggrieved motorists. Barack Obama and Hillary Clinton are pandering with a proposal to punish oil companies with a windfall profits tax. John McCain has targeted the same group by urging a federal gas tax holiday from Memorial Day to Labor Day.

He Only Does It Because He Loves Me

Fuels vs. Foods from the New York Post:

President Bush's call yesterday for a dramatic slowdown of green-house-gas emissions reflects growing concern for the consequences of climate change. But what about the consequences of the world's response?

The fact is, food riots resulting partly from the United States' alternative energy policies have arrived at our front door. Crowds of hungry demonstrators swarmed the presidential palace in Haiti last week to protest skyrocketing food prices.

In recent years, we've heard that climate change could be catastrophic for nature and humanity. But it's becoming increasingly evident that over the next few decades, climate-change policies could prove even more catastrophic.

…

Thus, even if biofuels produce an energy surplus, they would not necessarily be environmentally sound. Worse, they harm the US economy. Higher energy and food prices reduce consumers' disposable income more or less equally, meaning they disproportionately affect poorer people. Higher food prices, alternative energy subsidies and greenhouse-gas-emissions controls only make it harder for these people to earn a living or afford better education and health care.

Climate-change remedies can lead to greater poverty, starvation and disease, as well as widespread ecological destruction - some of the very misfortunes that they're supposed to prevent. In our haste to address global warming, we have yet to think seriously about our policies' unintended effects.

The results have been disastrous, and they're only getting more so.

Of course, the response is that, while biofuels are the wrong policy, we just need to get the right people in office so they can choose the right policies. Hmmm. It’s a bit like an abused wife who can’t find the courage to leave her husband and put herself back on the market. But, in this case, the wife is the American public and the market is…well, the market.

HT: Cafe Hayek

Trade truths

Robert Samuelson's column in today's Washington Post is well worth the read.

Beware protectionist political rhetoric from both Dem contenders!

HT: Don Boudreaux

Tax Fact of the Day

In 1980 the top 1% of income tax filers paid 19% of all federal income tax. In 2005 the top 1% of filers paid 40%. More here.

This is not the story you hear in the media or from campaigns. In fact, you hear the EXACT opposite...that the rich are getting richer on the backs of the poor...that the rich aren't contributing their fair share. It is hard to image political and media elites being any more divorced from reality.

And people believe it.

Interesting Gun Fact of the Day

Approximately 0.1% of all guns in the United States are used in a crime each year. That's one tenth of one percent. And that includes ALL crimes committed with a firearm. If you only consider violent crimes, that number plumments. Restrict crimes to those involving fatalities and the number falls farther.

For a bit of perspective, consider the proportion of cars in the U.S. involved in vehicular accidents: about 2.5%. Compared to a gun, a car is roughly 25 times more likely to be involved in an unfortunate incident.

Now, admittedly, these numbers were imperfectly calculated using DOT and Wikipedia statistics, but they are of the correct magnitude. You might argue that cars and guns are apples and oranges because the two are used for drastically different purposes. But cars are never used intentionally as a weapon, so you would expect the ratio to be reversed, making the statistic even more shocking. In any case, the comparison does provide a bit of perspective. I'm not opposed to *some* prudent gun control, but I think the debate is largely an interaction between sensational media and "do-something" politics. Never a good a combo.

Check out Tyler Cowen for a discussion of gun control in the context of monetary phenomena: liquidity, velocity and tax incidence.

FYI: This was inspired by Obama's recent faux pas on gun ownership and his subsequent backpeddling. Check out this article for a round-up of Obama on guns.

Balance of Power

Can you name the members of the County Council in Montgomery County, Maryland? I can't name very many of them, and I live there. Still, getting elected to the County Council in Montogmery County, which is pretty far down the ladder in terms of political power in the United States, enables you to control more annual spending than the wealth of Donald Trump or Steven Jobs.

Put a Flower in Your Hair

Here is an interesting statistic to ponder:

"The black population of San Francisco has been cut in half since 1970."

But, for why? I will refrain from providing a link for fear it will bias your answer.

The Czech Stole My Idea

I hatched this very same idea of a bar with the tap at your table while I was in college. No lines. No warm beer. No waitresses hassling you. A potential business plan was a frequent topic of drunken discussion at Clodfelters. Sadly, most of my alcoholic friends shot the idea down because they thought the liability of people serving themselves was too high. Evidently, that is not a problem for the Czechs.

Also, ask me about my idea for a "Frat-Bar"...it's almost as brilliant and it is less sleezy than it sounds.

Quotable Sowell

Thomas Sowell’s latest column is a smorgasbord of quotes to live by. I’m not a religious man, but if Sowell had a church, I’d pay my pittance.

Here’s a sampling:

What is more scary than any particular candidate or policy is the gullibility of the public and their willingness to be satisfied with talking points, rather than serious arguments.

...

One way to reduce illegal immigration might be to translate some of our far left publications into Spanish and give everyone in Mexico subscriptions. After they read how terrible this country is, many may want to stay away.

...

Most people on the right have no problem understanding people on the left because many, if not most, were on the left themselves when they were younger. But many, if not most, people on the left find it inexplicable how any decent and intelligent person could be on the right.

Punish the Poor to Punish the Rich

If the 2001 tax cuts expire, as they are set to in 2010, then the marginal tax rates for American taxpayers in the lowest income bracket will increase by 50%. “Tax cuts for the rich”…..right. More here.

One of the biggest failings of fiscally conservative politicians is their complete inability to articulate and defend tax policy against populist demagoguery. In an honest, fact-filled debate minority Republicans should be able to destroy Democrats if they attempt to allow the tax cuts to expire. But if Democrats stay in power, I’m not optimistic.

Quote of the Week

From Adam Smith Institute via Mankiw:

"Need" now means wanting someone else's money. "Greed" means wanting to keep your own. "Compassion" is when a politician arranges the transfer.

Stop Making Movies About My Books!

Brother Geisel is pissed.

This must stop! This must end! Don't you see what you're doing?
You're defiling the work I spent ages accruing.
And when it's dried up and you've sucked out your pay
There'll be no going back to a simpler day,

When your mom would give Horton a voice extra deep,
And turn the last page as you drifted to sleep.
Instead you'll have boxed sets, shit movies, and… well,
You'll have plenty to watch while you're burning in hell.

Weird Al

Al Gore is catching flack from scientists who should be his biggest fan:

In the very same week that Gore launched a $300 million public relations campaign to convince Americans that "together we can solve the climate crisis," prominent climate alarmist Tom Wigley essentially endorsed President Bush’s approach to global warming while criticizing that of Gore’s co-Nobelist, the U.N. Intergovernmental Panel on Climate Change, or IPCC.

…

President Bush (so far) has avoided the sort of futile mandatory clampdown on CO2 emissions supported by Gore but that Wigley realizes will be impossible to implement without halting vital economic growth.

You almost have to feel bad for Al Gore — being outsmarted on his own home turf by George Bush.

…

Rather than wasting $300 million on a public relations campaign to promote an unrealistic and impractical approach to the dubious problem of manmade climate change, why not donate that money to the U.N. and help prevent real people from starving today?

More on Smoking

MCC has got me thinking about cigarette taxes. I wouldn't go so far as to say I am pro-smoking. But I do thinking smokers get a bad rap. If smoking is really as bad as we make it out to be, then why haven't we long since made it illegal?

Oregon's "Healthy Kids" initiative (very subtle name) is an attempt to raise cigarette tax by nearly $1 to help pay (as if it mattered where the $$ come from) for children's health insurance. The voters soundly rejected it on the ballot. But our oh-so-very well-meaning and progressive governor isn't giving up. Here is a quote from his State of the State speech:

"Will the tobacco companies -- and their allies -- pour millions more into another slick, deceptive, anti-children campaign? Probably -- it's in their DNA," he said. "And that is why we have to rally around Oregon's uninsured children with no less passion and determination than we rally around our own children when they're sick."

Yes. Tobacco companies, smokers, and the majority of voters who opposed the measure hate children. In fact, I am for denying healthcare to ALL poor children.

If this is such an important piece of legislation, why should it be funded on the backs of smokers, who themselves are disproportionately poor. It seems to me that it is Gov. Kulongoski, and politicians like him, who are being slick and deceptive.

Update: Seems everyone is thinking about this. Here is a rundown of the cost fo cigarettes around the globe from Gadling. Cigarettes cost $0.32 in Kazkhstan.

Smoking externalities

Over at Reason Magazine, Jacob Sullivan lambasts a proposed hike in New York state's tax on cigarettes. Sullivan says that this policy will adversely affect the poor, who are predominately those that smoke. The point is well taken. But then he suggests that this is not a "progressive" policy. If, by that, he means that those with more means pay less of the burden, I get it. But if he means "progressive" in the sense of progress, I would argue that it is progressive.

I can't speak for what New York plans to do with the tax revenue generated from the increase, but if it is used to offset some portion of the healthcare costs associated with smoking (particularly those costs paid by the state to cover the bills of those unable to pay for their health-related costs) , then this is really just a pigouvian tax. Even if the revenue is not redirected to Medicaid, though, it does address an externality. There is a social cost of second hand smoke that is not incorporated into the price of a pack of smokes. Sure, it's not direct, but this essentially captures at least part of that cost.

I understand that this kind of policy is objectionable in that a paternalistic government is trying to influence the decision-making of individuals. Libertarians typically recoil at such policies. But this tax also internalizes some of the externalities of smoking. And that kind of progress in the tax code is something I would embrace.

I'm skeptical too

Russ Roberts doubts Hilary Clinton's story on Leno the other night. Couldn't agree more.

I have to say, apart from truthfulness, I really don't like the way she tells a story. She always seems desperately sappy. She makes me extremely uncomfortable.

And there's a good (fairly obvious) economics lesson there.

Hope for DSM

Several people I know are finishing up theses designed around energy conservation initiatives. Most of them touch only tangentially on the concept of Demand Side Management (DSM), the decidedly unsexy concept representing the lowest hanging fruit in terms of energy conservation. DSM proponents suggest that we could dramatically reduce the amount of energy and natural resources we consume just by simple measures that leverage the power of the market (with some regulation thrown in). For example, charging a higher price for electricity used during the day, or providing some incentive for factories to run at night instead of during the day has been shown to reduce overall demand.

Today John Tierney has an article in the NYTimes suggesting that subtle social psychology has worked to accomplish the same ends in California. A smiley face on the electronic thermostat in households lets residents know that they are consuming energy below the mean to cool their homes. Frowning faces on the thermostats in high-consuming homes have prompted those residents to actually drive their consumption down. It looks like you can temper demand without having to go through the contentious process of implementing specific daytime demand management tools.

This is good news, because if I remember correctly, one of our classmates has shown statistically that increasing the money spent on demand side management has the opposite of the effect intended on energy consumption.


HT: Free Exchange

Green Collar Jobs

"It's odd how the global-warming crowd styles itself as the fact-based side on environmental arguments. Yet for years, the greenies have argued that they can suppress supply, pass magic-wand regulations to develop imaginative technology -- and their policies will be great for the economy and create jobs."


Colbert Report did an interview the other night about creating "green collar" jobs. This whole concept is a total fallacy. Creating jobs is NOT good. Innovation IS good, but fabricating a demand that doesn't exist makes an economy worse off, not better off. It could be that the demand should be stimulated by internalizing current externalities from emissions. But, I repeat, that is NOT good for the economy

Tracy Morgan on Barrack

A couple of weeks ago Tina Fey went on Weekend Update and proclaimed her support for Hilary Clinton, saying among other things that "bitch is the new black" (you must have heard this by now). It was actually a pretty funny segment. Anyway, Tracy Morgan was a guest on Update recently, and he took the opportunity to respond. It's hysterical; check it out here. Best line I've heard in a long time: "Bitch may be the new black, but black is the new President, bitch."

Bullshit!

Penn and Teller with Norman Borlaug on genetically engineered crops. Penn argues that Dr. Borlaug is the greatest human….ever. Borlaug is an agriculture scientist credited with starting the “Green Revolution” (but not the type of “green” you might be thinking of). When he won the Nobel Peace Prize Borlaug was credited with saving over 1 billion lives through his contribution to agriculture biotechnology. I had the fortune of meeting Dr. Borlaug last summer when the 2007 recipient of the World Food Prize was announced (kind of the "Nobel Prize of Agriculture").

Beware: you will feel infinitely less cheery about your trip to the organic market after watching the video.

Reason 3.45 Not to be Ashamed of Your Thesis

Uhrig, N., "Cinema Is Good For You":

Using data from wave 12 of the British Household Panel Study, I find that cinema attendance has strong positive effects on happiness and stable negative effects on self-reporting of anxiety or depression, even when controlling for various socio-demographic and economic factors.

Or, alternatively, happy people watch more movies. That actually sounds like an equally groundbreaking finding. Maybe I’ll write that paper.

Alternative title for this post: Reason 1,529 Not to Trust a Sociologist.

HT: Bryan Caplan

Quote of the Day

H.L. Mencken:

"The most dangerous man to any government is the man who is able to think things out... without regard to the prevailing superstitions and taboos. Almost inevitably he comes to the conclusion that the government he lives under is dishonest, insane, intolerable."