Olson's Logic In Neverland

BY LISA WERMUTH
for Econ 453 Power & Prosperity

Peter and Wendy is a children’s novel. However, the benefits of this delightful book extend far beyond merely entertaining young people. The inhabitants of Neverland take part in the most extraordinary adventures while behaving as rational human beings who are each a member of a group. For this reason, J.M. Barrie’s work is an excellent case study for students of Mancure Olson’s book The Logic of Collective Action. Neverland is home to two distinct groups. First I will discuss the classic small group represented by the Lost Boys. Then, I will analyze the large group behavior of the Pirates.

Peter and Wendy by J.M. Barrie is the story of a boy who never grows up. One night, Peter Pan flies in to the nursery in search of his shadow. There he meets Wendy, John, and Michael. Peter Pan teaches the children to fly and takes them to Neverland. Neverland is an island that the children have all imagined. They are shocked and delighted when they find the island is real. The island is inhabited by wild beasts, mermaids, redskins, pirates, and a band of motherless boys. Our hero, Peter Pan, is the leader of the orphans who call themselves the Lost Boys. In Pan’s absence, the people on the island have carried on in its usual routine. The Lost Boys go hunting for Peter Pan. The Pirates hunt the Lost Boys. The Redskins hunt the Pirates and the wild animals hunt the Redskins. When Peter Pan returns to Neverland, John and Michael fit right in with the Lost Boys and Wendy agrees to become their “mother.” Life in Neverland would continue without disturbance if it were not for the dreaded Captain James Hook. Captain Hook is the ruthless leader of the Pirates. Hook also has a deep seated hatred of Peter Pan and is determined to destroy the cocky boy. One night, Hook orders his band of swashbuckling pirates to capture the Lost Boys. Hook believes he has poisoned Peter Pan. However, Pan has a narrow escape and is able to rescue Wendy and the Lost Boys. Once they are free, the Lost Boys destroy the Pirates and Peter Pan himself drives Hook to his death. At the conclusion of the grand adventures, Pan returns Wendy, John, and Michael back their nursery.

The Lost Boys are a small group in which all its members share common goals. Each one of the seven boys shares a common need for food, shelter, and protection. In addition, each has a desire for care and attention. As is the nature of small groups, Peter Pan does not need to use force to keep his group together. The many collective and non-collective goods that the boys gain from group membership are more than enough to hold the group together. Their collective goods include the benefit of safety and the comfort of the underground home (Barrie 120). According to Olson, “social status and social acceptance are individual, noncollective goods (61).” Therefore, the affection each member receives in a noncollective good, along with the food he eats.

Social pressure is another factor that adds coherence to the group. According to Olson, “social pressure and social incentives operate only in groups of smaller size, in the groups so small that the members can have face-to-face contact with one another (62).” There are multiple instances where the Lost Boys use this kind of social pressure to influence group members. In one example, Tootles mistakes Wendy for a bird and shoots her out of the sky. Once he realizes what he has done, Tootles turns to leave the group. The other boys beg him not to go. When they ask him why he can’t stay he simple responds, “I can’t, I’m so afraid of Peter (124).” There is no evidence that leads us to believe that Peter would actually punish Tootles in any way for his mistake. Merely the thought of displeasing his hero and beloved leader was enough to drive Tootles to despair.

The Lost Boys are an effective, action-taking group. Olson presents the findings of his colleague that help us to better understand the logic behind the Lost Boys proficiency as a group. Olson explains, “Professor James found that in a variety of institutions, public and private, national and local, “action taking” groups and subgroups tended to be much smaller than “non-action taking” groups and subgroups. In one sample he studied, the average size of “action taking” subgroups was 6.5 members, whereas the average size of the “non-action taking subgroups was 14 members (54).” With a membership of seven boys, Peter Pan’s troop fits this description perfectly. Hunting wild beasts, playing make believe, or fighting off Pirates, the Lost Boys efficiently utilize their resources. For example, when Wendy first comes to the Neverland, Peter suggests they build her a house.

“’Quick,’ he ordered them, ‘bring me each of you the best of what you have. Gut our house. Be sharp.’ In an instant they were busy as tailors the night before a wedding. They scurried this way and that, down for bedding, up for firewood, and while they were at it who should appear but John and Michael….’Curly,’ said Peter in his most captiany voice, ‘see that these boys help in the building of the house.’…The astonished brothers were dragged away to hack and hew and carry (128).”

When this small group takes on a project, they are quick to act and maximize the utility of every available asset. Nothing stands between Peter and the boys when they are on a mission. This illustrates the point that Olson is making when he says that “small, centripetally organized groups usually call on and use all their energies, while in large groups, forces remain much oftener potential (54).”

Another example of the efficiency of our small group is when the Lost Boys embark on a lobbying campaign for a desired collective good. The boys want Wendy to become their mother. When they are finished building Wendy’s house they approach her with their request. Each boy contributes to the plea adding his own personal inputs. There is not a free-rider among them. Wendy is unsure at first until “all went on their knees, and holding out their arms cried, ‘O Wendy lady, be our mother.’ (131)” At this, the dear girl is won over. The lobby was a success. From that moment on, Wendy mothers the boys to the best of her abilities. She willingly cooks their meals, mends their clothes, nurses their wounds, tells them stories, and tucks them into bed at night. It may seem irrational for Wendy to work so hard. However, even though Wendy contributes to the group more than any of the boys, she is given selective incentives for her dedicated efforts. She lives in her own house, enjoys a pet wolf, and has a button that was given to her as a special gift from Peter. She also has the love and admiration of “her” boys.

On the other side of the island, there is another group that is altogether different from the jolly Lost Boys. The Pirates are the second group we will analyze. Captain Hook has seventeen men under his brutal command. Hook controls the size and actions of his large group by force and coersion. There are no apparent collective goods offered to followers of the infamous James Hook. Furthermore, the Captain would never consider offering selective incentives. In short, the Pirates are The Neverland edition of a union. Mancur Olson states that “by far the most important single factor enabling large, national unions to survive was that membership in those unions… was to a great degree compulsory (68).” Signing with Hook is compulsory for anyone in the Pirate profession who wishes to practice in Neverland. The very nature of the Pirate business is all about coercion. Hook has a monopoly on pirate ships and runs a strict union-ship policy among his crew. Moreover, the barriers of entry for piracy are insurmountable. If an individual wanted to be an independent pirate he would have to build a ship by himself from the limited resources of the island while warding off the Lost Boys, the Redskins, and the dreaded Hook. The Lost Boys discover for themselves what Hook will do to anyone who will not join his crew. One night, the Pirates raid the underground home of the Lost Boys and carry them off to their pirate ship. Hook addresses the boys as they are tied to the mast and informs them that he needs two cabin boys. All those who do not volunteer will be forced to walk the plank. When every boy refused to sign on “the infuriated pirates buffeted them in the mouth and Hook roared out, ‘That seals your doom. Bring up their mother. Get the plank ready’ (192).”

In response to Hook’s brutality, the Pirates waste no time in explicitly following his orders. Even though there is no perceived benefit for the individual members of the group, they still strive to carry out Hook’s ultimate goal. Early on, Hook shares his goal with his first mate Smee when he says, “’Most of all,…I want their captain Peter Pan. ‘Twas he cut off my arm.’ He brandishes his hook threateningly. ‘I’ve waited long to shake his hand with this. Oh, I’ll tear him’ (119).” Even though the crew labors to capture Peter Pan, none try harder than Captain Hook himself. Olson explains this behavior when he says:

“One point is immediately evident. If there is some quantity of a collective good that can be obtained at a cost sufficiently low in relation to its benefit that some one person in the relevant group would gain from providing that good all by himself, then there is some presumption that the collective good will be provided. The total gain would be so large in relation to the total cost that some one individual’s share would exceed the total cost (22).”

Hook believes that the personal benefit he would derive from Peter Pan’s death is so great, he is willing to carry the cost for the entire group of Pirates.

Neverland may not be the first place economic students would look for a case study. However, economists who go the Neverland will find two groups of people who behave rationally in group situations. The Lost Boys demonstrate the effective, action taking, small group while the Pirates exemplify a powerful and coercive union. Mancure Olson’s study of group theory is as true as the fact that Peter Pan will never grow up. The Logic of Collective Action is logical today and will be tomorrow. Olson’s theory is true in Professor Eubanks political economics class… and yes, even in Neverland.

Works Cited:
Peter and Wendy
The Logic of Collective Action

Something Higher? President Obama

LEONARD PITTS, JR.:

The chief executive's power does not derive solely from the authority vested in him by the Constitution. To the contrary, it derives also - and in some ways, more so - from his ability to rally the people, to inspire them in some great challenge or crusade.

We do not live - yet - in a dictatorship. Americans do not move because they are told to move. They move because they are inspired to. It is no accident that history's most successful presidents are the ones who were able to frame, with concision and grace, America's challenges and hopes, the ones who had greatest command over what Theodore Roosevelt famously called "the bully pulpit."

Think Ronald Reagan saying government is not the solution to the problem, government is the problem. Think Franklin Roosevelt declaring that the only thing we had to fear was fear itself. Think Abraham Lincoln at Gettysburg vowing a new birth of freedom.

Now, try to remember anything Millard Fillmore ever uttered. A hundred years from now, will anyone still be saying, "I'm the decider?"

What some of us don't understand is that Mr. Obama is not running a campaign. He is rallying a movement. After seven years of what may go down as the worst presidency ever, after the grime of the Clinton-Lewinsky scandal, after dreary years of internecine sniping where ideological purity has routinely trumped national interest, Americans want something else. Something higher.

DON BOUDREAUX'S THOUGHTS on this idea of something higher:

If you, Dear Reader, want to be part of a collective movement, that's fine with me. Really, it is. I wish you luck and happiness. But please don't force me to join you in your crusade (whatever it might be). And please don't presume that if I choose not to join in any collective effort, or only in a collective effort involving fewer persons than the efforts you favor, that my life is somehow empty, my soul shriveled, my mind small, my heart uncaring, my habits contemptible. I myself might well wish to be part of a cause larger than myself -- I reserve that right -- but I promise never to force you to join with me; I promise never to presume that you are less of a person if you refuse to join my cause or even if you refuse to join any collectively pursued cause.

I tend more to Mr. Boudreaux's thoughts than to Mr. Pitts' thoughts on something higher. On the other hand if the something higher was a passion for individual liberty then I might well jump on board the train. But, the something higher in Senator Obama's campaign strikes me as more likely the opposite of a passion for liberty.

Hayek on Coercion

What does "coercion" mean? Let's look to Hayek in The Constitution of Liberty:

By ‘coercion’ we mean such control of the environment or circumstances of a person by another that, in order to avoid greater evil, he is forced to act not according to a coherent plan of his own but to serve the ends of another. . . . he is unable either to use his own intelligence or knowledge or to follow his own aims and beliefs. Coercion is evil precisely because it thus eliminates an individual as a thinking and valuing person and makes him a bare tool in the achievement of the ends of another. (20-21)

Certainly this idea of coercion can be related to what happens between people. Theft and assault clearly fit the idea of coercion. In addition, this meaning of coercion suggests to me, almost immediately, the relationships between government and the individual. It seems to me much public policy, and much of the efforts of individuals to influence government to choose this or that public policy, match this idea of coercion very well. Just consider policies like banning the incandescent light bulb, or policies that require automobiles to have passive restraint systems. Both sorts of policies seem to me to be very well described by the idea of being forced to act according to the plans and ends chosen by another, by being unable to use a person’s own knowledge and beliefs and intelligence to act in ways he chooses to in pursuit of his own aims and beliefs.

Hayek’s discussion of coercion and government suggests an interesting difference from my own discussions of government and coercion. I often emphasize that there is one word to characterize government’s inherent nature and it is “coercion.” I also suggest that I want government to be coercive because I want government to be the “protective state” which acts to protect me from harm to person and property caused by the deliberate actions of others. But, discussing things in this way may encourage us to miss something of importance that we can see from Hayek’s discussion of coercion and government.

Coercion, however, cannot be altogether avoided because the only way to prevent it is by the threat of coercion. Free society has met this problem by conferring the monopoly of coercion on the state and by attempting to limit this power of the state to instances where it is required to prevent coercion by private persons. This is possible only by the state’s protecting known private spheres of the individuals against interference by others and delimiting these private spheres, not by specific assignation, but by creating conditions under which the individual can determine his own sphere by relying on rules which tell him what the government will do in different types of situations.

The coercion which a government must still use for this end is reduced to a minimum and made as innocuous as possible by restraining it through known general rules, so that in most instances the individual need never be coerced unless he has placed himself in a position where he knows he will be coerced. . . .Being made impersonal and dependent upon general, abstract rules, whose effect on particular individuals cannot be foreseen at the time they are laid down, even the coercive acts of government become data on which the individual can base his own plans. Coercion according to known rules, which is generally the result of circumstances in which the person to be coerced has placed himself, then becomes an instrument assisting the individuals in the pursuit of their own ends and not a means to be used for the ends of others. (21)

For Hayek the idea of coercion is about being made to do certain things by others. By way of contrast, a person may be prevented from doing certain things. Hayek is discussing a government for freedom or liberty as a government that may make rules and use power and coercion to enforce those rules in order to protect individuals from harm to person or property by others. This seems to be my idea of the protective state, and my idea of wanting government to be coercive for these purposes. But, what my discussion probably misses, and Hayek’s emphasizes, is the idea of the rule of law. Hayek is really talking about what we would want “rule of law” to mean, i.e., known general rules that restrain rather than laws that force certain actions. The known rules will be supported by government’s use of coercion and force, but since they are known general rules about actions and conduct, Hayek sees the individual as being able to act to avoid the coercion or to place himself in position to have to suffer the coercion of government. Government is indeed coercive, even when it’s actions are structured within the rule of law, but as Hayek points out, the coercion is “minimized.” The rule of law is coercion, but it is coercion according to known rules, and as such Hayek suggests that the coercion embodied in following the rule of law becomes an instrument that assists individuals in pursuing their own ends. Coercion in general rules that do not pick out favored treatment for some means coercion that is not used for the ends of others.

Hayek: Liberty Is

Here is the way Hayek opens THE CONSTITUTION OF LIBERTY:

We are concerned in this book with that condition of men in which coercion of some by others is reduced as much as is possible in society. This state we shall describe throughout as a state of liberty or freedom. (11)

This definition of liberty or freedom makes it clear that freedom is a relation between men. Freedom is not about having greater possibilities or more things to choose from. I’ve heard or read some who do seem to equate freedom or liberty with a larger range of choices. Hayek also notes that restrictions on or infringements of freedom result from the coercion of some by another or by others. A person’s freedom is not reduced by weather or some physical event in nature, or by an accident that leads to a person being confined to a wheelchair.

This idea of freedom implies a person has a private sphere that means some realm for which the individual can act without the direct interference of others:

Whether he is free or not does not depend on the range of choice but on whether he can expect to shape his course of action in accordance with this present intentions, or whether somebody else has power so to manipulate the conditions as to make him act according to that person’s will rather than his own. Freedom thus presupposes that the individual has some assured private sphere, that there is some set of circumstances in his environment with which others cannot interfere. (13)

The words liberty and freedom are often used in different ways, which of course means the possibility of confusion and misunderstandings. Hayek discusses a dangerous and troubling use of the word liberty, which follows from the point of noting above that freedom is not about more choices and it is not about having the physical ability to do something a person wants to do.

. . .until comparatively recent times few people seriously confused this ‘freedom from’ obstacles, this freedom that means omnipotence, with the individual freedom that any kind of social order can secure. Only since this confusion was deliberately fostered as part of the socialist argument has it become dangerous. Once this identification of freedom with power is admitted, there is no limit to the sophisms by which the attractions of the word ‘liberty’ can be used to support measures which destroy individual liberty, no end to the tricks by which people can be exhorted in the name of liberty to give up their liberty. It has been with the help of this equivocation that the notion of collective power over circumstances has been substituted for that of individual liberty and that in totalitarian states liberty has been suppressed in the name of liberty. (16)

Hayek observes that this use of the word freedom has become accepted in the United States by those on the political left, and he specifically associates this view with J.R. Commons and John Dewey. While these figures are from an earlier generation of intellectuals, their work influenced much of the philosophy of the political left today.

This confusion of liberty with power is especially troubling because it can be used to associate that natural appeal of the word with the call to redistribute wealth:

This confusion of liberty as power with liberty in its original meaning inevitably leads to the identification of liberty with wealth; and this makes it possible to exploit all the appeal which the word ‘liberty’ carries in the support for a demand for the redistribution of wealth. Yet, though freedom and wealth are both good things which most of us desire and though we often need both to obtain what we wish, they still remain different. (17)

Another way of thinking about the meaning of liberty puts things more directly, I think, in terms that relate to government and the individual.

. . . it describes the absence of a particular obstacle – coercion by other men. . . .It does not assure us of any particular opportunities, but leaves it to us to decide what use we shall make of the circumstances in which we find ourselves. . . .it does not exist if one needs permission for most of what one can do. The difference between liberty and liberties is that which exists between a condition in which all is permitted that is not prohibited by general rules and one in which all is prohibited that is not explicitly permitted. (19)

It seems to me this last suggestion relates to a perspective often heard at least in political discussions, and probably also in many academic circles. Some discuss the rights of individuals as though those rights are granted to the individuals by the government. I think this is a view often used to discuss property rights for example, and it seems to me a view which is often used by law professors and legal scholars. It would seem that if government grants rights to individuals, then individuals do not have a right to do something or to take some action unless they have been explicitly granted the right to take that action by government. In contrast is the view that an individual has a right to act as he wants unless that action has been prohibited by general rules. This view seems much more the view Jefferson relied on in writing the Declaration of Independence, and it is much more the view of Locke and many others.

Irrational Voters

Bryan Caplan's THE MYTH OF THE RATIONAL VOTER looks very interesting:

I see neither well-functioning democracies nor democracies highjacked by special interests. Instead, I see democracies that fall short because voters get the foolish policies they ask for. (p 22)

I'm not far into the book yet. It seems a key foundation for his analysis is the idea that voters have preferences about beliefs concerning how the world works. Voters mostly seem to take their personal preferences about these beliefs as given and they generally devote little attention to checking those beliefs against reality. In particular, voters beliefs about economic issues are taken by Caplan to be systematically wrong.

The implication?

Biased beliefs about economics make democaracy worse at what it does most. (p 21)

Presidential Candidates On Earmarks

THE WASHINGTON POST REPORTS:

Sen. Hillary Rodham Clinton helped secure more than $340 million worth of home-state projects in last year's spending bills, placing her among the top 10 Senate recipients of what are commonly known as earmarks, according to a new study by a nonpartisan budget watchdog group.

Working with her New York colleagues in nearly every case, Clinton supported almost four times as much spending on earmarked projects as her rival for the Democratic presidential nomination, Sen. Barack Obama (Ill.), whose $91 million total placed him in the bottom quarter of senators who seek earmarks, the study showed.

Sen. John McCain (Ariz.), the likely GOP presidential nominee, was one of five senators to reject earmarks entirely, part of his long-standing view that such measures prompt needless spending.

As a campaign issue, earmarks highlight significant differences in the spending philosophies of the top three candidates. Clinton has repeatedly supported earmarks as a way to bring home money for projects, while Obama adheres to a policy of using them only to support public entities.

McCain is using his blanket opposition to earmarked spending as a regular line of attack against Clinton, even running an Internet ad mocking her $1 million request for a museum devoted to the Woodstock music festival. Obama has been criticized for using a 2006 earmark to secure money for the University of Chicago hospital where his wife worked until last year.

This is pretty interesting. Nice to know at least one of the presidential candidates is against the corruption of earmarks.

You can see the numbers for yourself at Taxpayers For Common Sense.

Ethanol Warming?

WSJ COMMENTARY:

"So, incredibly, when the hidden costs of conversion are included, greenhouse-gas emissions from corn ethanol over the next 30 years will be twice as high as from regular gasoline. In the long term, it will take 167 years before the reduction in carbon emissions from using ethanol 'pays back' the carbon released by land-use change. As they say, it's not easy being green.

The second study comes out of the University of Minnesota and the Nature Conservancy and explores what the authors call the 'carbon debt' when native ecosystems are converted to biofuel stock. Until the debt is repaid, biofuels from those fields will be greater net emitters than the fossil fuels they replace. The authors find that the debt for corn ethanol in the U.S. is between 48 and 93 years. In Indonesia and Malaysia, which have a 1.5% annual rate of deforestation to produce palm oil for Western European biodiesel, the debt is as high as 423 years. Yep, that's four centuries. Even Fidel Castro won't last that long."

What is the typical citizen supposed to think, eh?

From Poverty To Prosperity

Russell Roberts INTERVIEWS WILLIAM EASTERLY who is the author of two interesting books on economic development: The White Man's Burden and The Elusive Quest for Growth. The interview is about 1 hour long. Much of the interview discusses the ways in which the western economies have not helped developing economies along the path to prosperity, and a good deal of this story reflects poorly on neoclassical economics. I think one very interesting suggestion Easterly makes about doing better in our efforts to help poor economies is that the conceptual framework needs to be changed from the mindset of planner to the mindset of the searcher.

I also have to mention something Roberts said: "The romance of utopia is timeless and enduring." This seems to be true. Too bad.

There is an interesting approach to offering aid to poor countries that was mentioned in the interview. Check out Global Giving.

Laissez-fairist Presidents

FREDERIC SAUTET offers a list of the presidents who have been most supportive of laissez-faire (in order of most supportive): Grover Cleveland, Martin Van Buren, Andrew Jackson, Thomas Jefferson, Calvin Coolidge, and Ronald Reagan. Only one president makes the cut since 1929.

Taking Leonard Liggio’s list as a benchmark, out of 42 presidents in U.S. history, only six of them can be regarded as true supporters of laissez-faire in one way or another. 1/7 is a pretty small ratio (but it’s probably better than in most other countries in the world). Also, only two of the six were presidents during the 20th century, and they are the least laissez-fairist of the bunch. If the “tendency” were to continue, there shouldn't be any laissez-faire-minded president in the 21st century. Clearly, it appears impossible that any of the current candidates to the U.S. presidency would make it on the list someday . . .

The Top & The Bottom

MICHAEL COX AND RICHARD ALM:

"Thus there is a certain perversity to suggestions that the proper reaction to a potential recession is to enact protectionist measures. While foreign competition may have eroded some American workers’ incomes, looking at consumption broadens our perspective. Simply put, the poor are less poor. Globalization extends and deepens a capitalist system that has for generations been lifting American living standards — for high-income households, of course, but for low-income ones as well."

This is an op-ed piece that points out, for me, how aggregation can make it difficult to have an accurate understanding of the rich and the poor in our country. Of course our system of political economy has been lifting American living standards for generations. But, this seems to often be missed when there are data reported about how much more the top income quintile has versus how little the bottom income quintile has. Cox and Alm explain some reasons why this data can mistakenly portray a picture which is inaccurate. And, their explanation doesn't even utilize the dynamic nature of our economy by which there is significant mobility between income groupings in the data, much less the observation that many in the lowest income quintile are those who are young and very early on in their working years.

History of Freedom

BRITS AT THEIR BEST is a very interesting web site with a Liberty Timeline.

Reward For Merit

Friedrich Hayek:

Reward for merit is reward for obeying the wishes of others in what we do, not compensation for the benefits we have conferred upon them by doing what we thought best.
(The Constitution of Liberty)

Freedom’s Friend

I heard on the radio this morning that today was President Reagan's birthday. I've been taking a few minutes this afternoon to read a few of President Reagan's speeches, and I ran across a short essay by Milton Friedman in which he explains the following observation:

Few people in human history have contributed more to the achievement of human freedom than Ronald Wilson Reagan.

I think it is well worth it to read Friedman's short essay.

One of the things I noted in looking at just a few of President Reagan's speeches is that he often talked about freedom and liberty. It seems to me these days that very few of our political leaders speak of freedom and liberty, and except for a brief reference by Mitt Romney in his speech last night, the people with much of a chance to be the next President have pretty much neglected individual liberty in their campaigns and in their views of government.

Eminent Domain After Kelo

WSJ commentary:

Does restricting "eminent domain" -- the power of government to seize private property -- harm economic growth? A new report from the Institute for Justice looks at the evidence and concludes the answer is no.

[. . . .]

This result isn't surprising. Developers love eminent domain because it's easier to snap up land when government forces owners to sell -- no unpleasant dickering over price, etc. Local politicians likewise believe they are best positioned to pick winners and losers and to shape the future of their cities.

But private development went along very nicely for two centuries before politicians began seizing one person's property for the benefit of another private citizen. Sometimes the marketplace adapted in amusing ways, as when major building projects were forced to go up around, or even on top of, older buildings. But in the absence of the coercive state, buildings still got built.

The most grandly conceived plans are also often those most likely to fail. If a project cannot proceed without government interference, it is reasonable to ask whether it is worth putting the hamfist of government on the scales at all. As the Institute for Justice's report notes, Baltimore's much-touted Inner Harbor redevelopment remains dependent on government handouts. At the same time, private redevelopments without eminent domain, such as in Anaheim's A-Town, are thriving.

From the standard economic perspective of efficiency and market failure, the important question is whether there are reasons to believe that parcels of land (especially those that would be taken by the power of eminent domain) will otherwise come to be devoted to something other than their most highly valued uses. In general, I can see no reason to conclude that they will. But, if you do conclude that parcels of land will not come to be devoted to their most highly valued uses, then the important question in all of this is whether there are reasons to believe that the government officials who wield the power to take land from some to give it to others are sufficiently knowing to successfully take land that is not being efficiently utilized and then give it to the person who will put the parcel to the most highly valued use. I'm sure this is very unlikely, and if it happens it would only happen by accident. I conclude that allowing government the power of eminent domain for so-called "economic development" results in significant government failure with respect to an efficient allocation of resources. Therefore, I'm not surprised that restricting government's power of eminent domain with respect to so-called "economic development policy" wasn't found by the research to diminish economic growth.

Now, from the perspective of the words we find written into our Constitution this analysis of eminent domain and efficiency (market failure) would seem to be of little relevance:

. . . nor shall private property be taken for public use without just compensation.

It seems clear to me, but unfortunately not to the Supreme Court, that taking privately owned parcels of land in order that the parcels may be owned by a different private owner is unconstitutional, since after all, the property is not being taken to be put to some public use such as a public highway, or a public park, or a public school. So, if the Supreme Court would stick to the words written in the Constitution (as it was ratified), the issue considered by this research would be of little policy interest. As it is, the research shows that assumptions made by the majority in the Kelo opinion are incorrect, and that the government officials who support such public actions in the name of "economic development" are very likely to fail to accomplish their stated goals. All the while, government's power is being used to take what is supposed to be private property in communities all across our country.

Energy Tyrants

Walter Williams:

The California Energy Commission has recently proposed amendments to its standards for energy efficiency. These standards include a requirement that any new or modified heating or air conditioning system must include a programmable communicating thermostat (PCT) whose settings can be remotely controlled by government authorities. A thermostat czar, sitting in Sacramento, would be empowered to remotely reduce the heating or cooling of your house during what he deems as an "emergency event."

Say you disagree with the czar's temperature setting for your house, the California Energy Commission is one step ahead of you with the provision: "The PCT shall not allow customer changes to thermostat settings during emergency events." In other words, the thermostat must be configured in a way that doesn't allow the customer to override the czar's decision.

Some people might agree with this level of government control over their lives, but if these amendments become law, you can safely bet there are other intrusive energy-saving proposals waiting in the wing. For now California's energy Nazis are simply testing how much intrusiveness Californians will peaceably accept. I can easily imagine California's Energy Commission requiring remotely controlled main circuit breaker boxes that control all of the electricity coming into your house. That would enable the energy czar to better manage your electricity use.

Say you're preparing a big dinner. The energy czar might decide that you don't need so much heat in the rest of the house. Or, preparing a big dinner might mean the energy czar would turn off the energy to your washing machine and dryer while the electric stove is on.

There's no end to what the energy czar could do, particularly if he enlists the aid of California's Department of Health Services. Getting six to eight hours sleep each night is healthy; good health lowers health costs. So why not make it possible for the energy czar to turn the lights off at a certain hour? California's Department of Education knows children should do their homework after school rather than sit playing video games or watching television. The energy czar could improve education outcomes simply by turning off the television, or at least turning off all non-educational programs. Of course, there could be a generous provision whereby if an adult is present, he could use a password to operate the television.

You say, "Williams, you must be mad. All that would never happen." That's the same charge one might have made back in the '60s, when the anti-tobacco movement started, if someone predicted that the day would come when some cities, such as Calabasas, Calif., would outlaw smoking on public streets. Back in the '60s, had someone predicted that there'd be bans on restaurants serving foie gras; citations for driving without a seatbelt, that the government said would be unnecessary if cars had airbags; and school bans on kids having peanut butter sandwiches in their lunchbox, I'm sure people would have said that would never happen.

California's Energy Commission, along with its legislature, has the power to mandate that all existing -- as well as new -- heating and cooling devices have programmable communicating thermostats by 2009. After all, it's never too early to start saving energy or prepare for an "emergency event." The reason they won't is because they would encounter too much political resistance. Their agenda is far more achievable using techniques dear to all tyrants: There's less resistance if liberty is taken away a little bit at a time.

I can't think of anything to add.

Earmark Corruption? Par For The Course

Mark Tapscott:

With the exception of a tiny band of GOP senators led by Tom Coburn, R-OK, and Jim DeMint, R-SC, and House Minority Leader John Boehner, Republican Study Committee chairman Jeb Hensarling and the small caucus of anti-earmark conservatives, the congressional GOP is every bit as addicted to pork-barrel politics as the Democrats, if not even more so.

That's why since before Christmas, the White House has dawdled on what ought to be a no-brainer decision and has thus been hearing from a steady procession of congressional GOPers pleading with Bush not to sign the Executive Order, like drug addicts begging the judge not to force them into rehab.

From that perspective, Blunt's actions, the deafening silence of Senate Minority Leader Mitch McConnell on the Executive Order, and the determined effort of National Republican Congressional Committee chairman Tom Cole of Oklahoma to get a seat on the House Appropriations Committee instead of supporting efforts to put anti-earmarker Rep. Jeff Flake, R-AZ on the panel are all par for the course.

The problem is the congressional wing of the GOP is all but the second caucus of the Government Party in Washington. Bush wimping out on what could be a milestone in the fight to restore limited government and a tremendous boost for Republican prospects in the 2008 campaign simply reflects the general lack of political courage in the GOP at the national level on spending and entitlements. These people love Big Government and won't take serious actions to reduce its size and scope of power.

The idea here is that because of the way earmarks are accomplished by Congress, the President is probably not constitutionally bound to spend the money on the earmarked projects. Apparently the President was thinking about signing an executive order that would tell the executive branch agencies not to spend the earmarked money in that way. It seems to me that would be a good thing, but alas, it appears now that the President will continue to join with the corruption of Congress. Reforming the corrupt practices of our government continues to be unlikely, and I should perhaps seek to refuge of the rationally ignorant.

Cold Weather Kills

Tyler Cowen:

Spells of extreme cold kill over 27,000 Americans each year, or about 700 people each very cold day. Heat waves may receive more publicity, but it turns out that cold periods — days with an average temperature below 30 degrees —have more significant and longer-lasting effects on human mortality. More people die in cold periods than in homicides.

Extreme cold brings cardiovascular stress as human bodies struggle to adjust to the temperature; many of the deaths in these periods come through heart attacks. Heat waves tend to kill people who were already weakened and would have died soon anyway; cold periods bring additional people to the verge of death.

When retired people move to a warmer state, their life expectancy rises dramatically. In fact, 8 to 15 percent of the increase in American life expectancy over the last 30 years comes from people moving to warmer climates, according to research done by two economics professors, Olivier Deschenes at the University of California, Santa Barbara, and Enrico Moretti, at the University of California, Berkeley.

I wonder the economists researching global warming have considered this in their analyses yet?

Fraudulent Borrowing

Tyler Cowen:

There has been plenty of talk about “predatory lending,” but “predatory borrowing” may have been the bigger problem. As much as 70 percent of recent early payment defaults had fraudulent misrepresentations on their original loan applications, according to one recent study. The research was done by BasePoint Analytics, which helps banks and lenders identify fraudulent transactions; the study looked at more than three million loans from 1997 to 2006, with a majority from 2005 to 2006. Applications with misrepresentations were also five times as likely to go into default.

Many of the frauds were simple rather than ingenious. In some cases, borrowers who were asked to state their incomes just lied, sometimes reporting five times actual income; other borrowers falsified income documents by using computers. Too often, mortgage originators and middlemen looked the other way rather than slowing down the process or insisting on adequate documentation of income and assets. As long as housing prices kept rising, it didn’t seem to matter.

In other words, many of the people now losing their homes committed fraud. And when a mortgage goes into default in its first year, the chance is high that there was fraud in the initial application, especially because unemployment in general has been low during the last two years.

This is interesting. If the President and Congress are going to look for policy responses to mortgage defaults, then shouldn't this be a big part of the policy discussion? In cases of borrower fraud, it seems to me that the mortgage contracts themselves probably suggest what government's role in the default should be, which is to enforce the contract's provision with respect to default. There wouldn't seem to me very solid normative grounds to have government "bail out" the borrower who had committed fraud in securing the mortgage.

The Selfishness Of Others

Walter Williams:

"Selfish" is a bit more useful term, and it's the human motivation that gets wonderful things done. For example, I think it's wonderful that Alaskan king crab fishermen take the time and effort, often risking their lives in the cold Bering Sea, to catch king crabs that I enjoy. Do you think they make that sacrifice because they care about me? I'm betting they don't give a hoot about me. They make it possible for me to enjoy king crab legs because they want more money for themselves. How much king crab would I, and millions of others, enjoy if it all depended on human love and kindness?

Politics & Intergenerational Justice

Robert Samuelson has some very important observations about the young and the old in this presidential campgaign:

The big lie of campaign 2008 -- so far -- is that the presidential candidates, Democratic and Republican, will take care of our children. Listening to these politicians, you might think they will. Doing well by children has now passed Motherhood and Apple Pie as an idol that all candidates must worship.

"We will do whatever it takes to make America a better country, to give our kids a better future," says Mike Huckabee, winner of the Republican Iowa caucuses.

"We will deliver for our children, our grandchildren and our great-grandchildren," claims Sen. Barack Obama, the Democratic winner.

"We're going to reclaim the future for our children," says Democratic Sen. Hillary Clinton.

Actually, these are throwaway lines, completely disconnected from reality.

Our children face a future of rising taxes, squeezed -- and perhaps falling -- public services, and aging -- perhaps deteriorating -- public infrastructure (roads, sewers, transit systems). Today's young workers and children are about to be engulfed by a massive income transfer from young to old that will perversely make it harder for them to afford their own children.

No major candidate of either party proposes to do much about this, even though the facts are well-known.

I view this forced income transfer from young workers to retired workers as intergenerational injustice, and I've posted on this thought before, here and here for example.

Samuelson concludes his commentary with this:

A moral cloud hangs over our candidates. Just how much today's federal policies, favoring the old over the young and the past over the future, should be altered ought to be a central issue of the campaign. But knowing the unpopular political implications, our candidates have lapsed into calculated quiet.

They pay lip service to children but ignore the actual programs that will shape their future. The hypocrisy is especially striking in Obama. He courts the young, promises "straight talk," and offers himself as the agent of "change." But his conspicuous omissions constitute "crooked talk" and silently endorse the status quo.

The insidious nature of this problem is that because the spending increases for the elderly occur gradually, the pressures on taxes and other government programs will also intensify gradually. A crucial moment to clarify the stakes and compel politicians to make choices probably won't occur until it's too late.

The longer we delay -- and we've done so now for several decades, because the strains created by an aging society have been obvious that long -- the more likely that eventual "solutions" will be unfair to both young and old. To acknowledge that and to come to grips with it would constitute genuine "change."

Social security and the allied government programs seems to have always been discussed by our political leaders in terms of a big lie. It seems unlikely this will change any time soon. Both President Clinton and President Bush made efforts to reform social security in needed directions, and in both cases politics stopped the efforts.

Is it ironic that Senator Obama draws young voters in large numbers when it seems he too has little interest in reforming intergenerationally unjust programs? Or, perhaps the young voters are unconcerned about what government has promised as their very large tax burdens? Or, perhaps young voters are rationally ignorant, as we tend to assume all voters are in public choice analysis? Or perhaps young voters are merely irrational?

Santa Claus Politics

Tom Sowell, as always, gets to the heart of the matter, in this case explaining the nature of politics as being somehow like Santa Claus. Here is the way he concludes his commentary to begin the new year:

After the departure of Senator Phil Gramm and House Majority Leader Dick Armey, Congress has been an economics-free zone. There is not one economist among the 535 members of Congress.

But, in an election year, that is not a political handicap. Santa Claus has won far more elections than any economist.

What does he mean about Santa Claus winning elections?

Senator Hillary Clinton's Christmas commercial, showing various government programs as presents under a Christmas tree, was a classic example of calculated confusion in politics.

Anyone who believes that the government can give the country presents has fallen for the oldest political illusion of all -- the illusion of something for nothing.

Santa Claus may turn out to be the real front-runner in the primaries, judging by the way candidates are vying with one another to give away government goodies to the voters.

Santa Claus is bipartisan. The Bush administration is unveiling its plan to rescue people who gambled and lost in the housing markets when the bubble burst.

We now have a bipartisan tradition of the government stepping in to rescue people who engaged in risky behavior -- whether by locating in the known paths of hurricanes in Florida or in areas repeatedly hit by wildfires over the years in California or by doing things that increase the probability of catching AIDS.

Why not also rescue people who gambled away their life's savings in Las Vegas? That would at least be consistent.

Apparently the only people who are supposed to be responsible are the taxpayers -- and they are increasingly made responsible for other people's irresponsibility.

Military conscription is long gone. But taxpayers are still being conscripted to play Santa Claus.

Go ahead. Read the entire piece and consider just how well Sowell helps us understand politics, politicians, and government

Health Insurance: The Young & The Old

Betsy McCaughey discusses proposals to have government mandate that everyone buy health insurance. This is a policy idea that seems to have a pretty prominent position in the political agendas of several presidential candidates. There is an interesting implication of such a public policy:

The first myth is that it's fair to make everyone pay the same price for health insurance. It is not: For young people who rarely use health services, this is a rip-off. If people in their 20s paid attention to politics and voted, politicians wouldn't dare try this.

According to the latest Census data, 56% of the uninsured are adults aged 18-34. True enough, forcing them to be a part of a same-price-for-everyone insurance pool will likely bring down premiums. These young people generally need minimal health care ($1,500 a year, on average, according to a Commonwealth Fund study).

In most states, (but not New York and Vermont), young adults who buy health insurance are charged premiums that reflect their low medical needs. A 25-year-old man can buy a $1,000 deductible policy for a quarter to a third of what a 55-year-old man has to pay. (In Manchester, N.H., a 25-year-old man pays $156 per month, while a 55-year-old pays $542 for the same policy, according to ehealthinsurance.com).

Both the Clinton proposal and the bipartisan congressional proposal prohibit insurers from giving such price breaks to the young. Their mandates would force the young to subsidize the heath tab for the middle-aged generation. This subsidy would come on top of the payroll tax younger people already pay to support today's Medicare recipients. This is contrary to a fundamental American principle. This nation has always believed in making life better for its children, not exploiting them.

I used to think, when I was young and naive, that there was just such a "fundamental American principle." But, then, sometime in my recent past, I decided to try to understand the social security program. After cutting through all the political rhetoric about social security it is quite clear it is a program which uses government's power to tax to take income from young workers in order to give it to old retired workers. Of course, social security is a program that has been around for some time now. So, I no longer think America holds to such a fundamental principle, and it seems to me the proposed health insurance mandates continue what is now a pretty long tradition of government taking from those who are younger in order to give to those who are older (and often these transfers are also from those who are relatively poor to those who are relatively wealthy).

Alien Concepts, Reluctant Minds

Peter Boettke's comments on a New York Times article:

The problem is that various statements in the piece are so misinformed theoretically, empirically, and policy application wise that it is hard to know where to start to set the matter straight. But the article is extremely useful as a means to remind us as economic educators that our work is cut out for us and that it does take varied reiterations to force alien concepts upon reluctant minds.

I agree there are far too many problems in the piece to know where to begin a critical analysis. The piece does make an interesting read, especially if, as a member of the club of dismal scientists, you like to be discouraged. Here is how the piece ends:

“Untethered market forces lead to bad things,” said Mr. Bernstein of the Economic Policy Institute. “You simply can’t run an economy as complicated as ours on ideology alone.”

I would like to borrow just a bit from Mr. Bernstein's comment here to say: "You simply can't run an economy." The "economy" emerges. It simply is not possible to have sufficient knowledge come to reside in the minds of government bureaucrats to "run an economy" in order to achieve the great good things politicians and bureaucrats have in mind for us.

Less Creative, More Useful

Greg Mankiw:

I wonder how different the economics profession would be if economists were expected to do a year of service outside of academia or, at the very least, if university hiring committees rewarded a year of real-world experience as the equivalent of, say, a couple of academic publications. My conjecture is that the profession would be less creative but more useful.

I'm not sure if I would personally like to be required to do a year of service outside of academia. But it would certainly be a good thing if economics and the professional work of economists as researchers and teachers were more useful.

Earmarks Or Not?

There is an interesting commentary in the Wall Street Journal about Congressional budget earmarks. Congress has just passed a spending bill that is supposed to contain almost 9,000 earmarks. However, most of those earmarks aren't actually written into the bill that passed. Instead, the earmarks are found in the 500 page committee report. The interesting part of this is that:

A December 18 legal analysis by attorney Todd Tatelman for the Congressional Research Service concludes that "because the language of committee reports do not meet the procedural requirements of Article I of the Constitution -- specifically, bicameralism and presentment -- they are not laws and, therefore, are not legally binding on executive agencies." In plainer English, this means committee reports have not been formally passed by both houses and "presented" to the President for signing.

So, the President can sign the spending bill, but since the earmarks aren't actually in the bill he is not constitutionally required to spend on the earmark projects.

In a way, this exposes just how corrupt Congress is these days. Congressional leadership allows individual members of Congress to pick projects that spend dollars taxed from us for the benefit of friends, family, and contributors, and the means of doing this is to hide the projects from public view and probably even the view of other members of Congress. But in doing things this way Congress seems to be acting outside the Constitution. If the President chooses to actually spend on the earmarked projects, then it appears to me that the President will become a participant in the corrupt acts of Congress, and that the President will also be acting outside the bounds of our Constitution. If both the Legislative and Executive branches of government seek to exercise power outside Constitutional bounds, then doesn't this suggest that our government may be unjust as well as corrupt?

Budget Earmark Totals

In the Wall Street Journal today:

Even worse is the President's abdication on earmarks, or Member-requested pork. Mr. Bush had publicly insisted that Congress should cut the number of earmarks by 50% this year, from 13,492 in fiscal 2007. Ah, not quite. The "omnibus" includes 8,983 earmarks, and counting, which brings the total so far to 11,144 including those passed as part of the Defense bill. As a percentage decline that is only 17%.

The pork barrel includes $700 million for a Minnesota bike trail, $113,000 for rodent control in Alaska, and $1 million for an energy project in the district of Lousiana Democrat William Jefferson, who faces trial for bribery next year. Dozens of these earmarks were "air-dropped" into the bill at the last minute, meaning that fiscal conservative Members lacked the time to find and fight them on the House or Senate floor.

Well, 17%, eh? I guess that's something.

Pluralism

Peter Boettke has a very interesting post on pluralism:

One of our loyal and precocious readers has repeatedly asked for debate and contending theoretical perspectives. I agree that an intellectual openness to alternative methods and theoretical perspectives would be healthy for the economics profession. But I have always found the demand for pluralism to be completely inappropriate at the level of the individual.

At the level of the individual scientist, in their work as scientists, they have to commit themselves to an approach and pursue it doggedly even in the face of great doubt and resistence by one's peers. Think of scholars in economics such as Jim Buchanan with public choice and rational choice political philosophy, or Hayek on the epistemic turn required in economics and political economy, or Vernon Smith and experimental economics. One could also think of Paul Samuelson and mathematical economics. All paradigmatic shifts in science are a result of the dogged commitment of individual scholars to a particular perspective methodologically and theoretically. As Michael Polanyi points out in Personal Knowledge, science progresses through commitment by individual scholars and the contentious play between differently committed scholars in the 'republic of science'.

So pluralism is a by-product, not a cause of scientific progress.

Read the whole thing.

The True Liberal Is Cosmopolitan

Peter Boettke:

So when asked what alternative vision of the political future I hold than that offered by the contemporary landscape it is this --- Misesian liberalism. That we don't seem to be on a path to achieving that is a source of frustration for me. I am not whining as one of our readers suggested, I am stating a fact.

Liberalism in the hands of Mises was the "progressive" form of libertarianism that Horwitz talked about. Read Mises's Liberalism, it is a doctrine of freedom and toleration; of free trade and free thought; of free mobility of capital and labor internationally as well as domestically. A world of private property and freedom of association and contract, is a world of toleration of 'experiments in living' and entrepreneurship. The terminology of "left" and "right" is not appropriate for this, but the terms cosmopolitan and parochial may be.

Mises argued that the true liberal is a cosmopolitan. And, it is that sort of vision of the liberal argument that one can find in contemporary works in political economy and political philosophy such as Rothbard's For a New Liberty, Lavoie's National Economic Planning: What is Left?, Lomasky's Persons, Rights and Community, and Kukathus's The Liberal Archipelago.

$3 Gasoline

Mark Perry:

In 1949, the retail price of gas was only 27 cents, but it took 4.2% of per-capita new worth to purchase 1,000 gallons of gas, making gasoline almost three times as expensive then compared to today, when it only takes 1.44% of per-capita net worth to buy 1,000 gallons of gas at $3.

To be as expensive as gas in 1981, measured as the cost per 1,000 gallons as a share of per-capita net worth, gasoline today would have to sell for about $6.50 per gallon.

Bottom Line: Gas today, even at $3, is relatively affordable and is actually cheaper than the decades of the 1940s, 1950s, 1960, 1970s and 1980s, when the price of gas is measured relative to our increasing household wealth.

Land Of The Free

Glenn Fleishman reports

The House overwhelmingly passed a bill that puts a huge onus on individuals and ISPs to report a broad range of images or face $150,000 or $300,000 fines: The bill, if passed, would require anyone offering network access (under a broad definition) to report any images they come across that covers a broad range of potential depictions of abuse of minors or their exploitation. Declan McCullagh notes in his post at Cnet that it’s so broad as to include photographs, drawings, and cartoons that require interpretation as to whether they would meet the test. Sounds like viewing an Abercrombie and Fitch catalog could qualify.

From McCullagh’s report, it’s clear that if you operate, for instance, an open Wi-Fi network from your home, you’re not obliged to monitor other people’s uses of it. However, if you were in any fashion to become aware of behavior circumscribed in this law, you could be fined $150,000 on a first offense and $300,000 on a subsequent one—unless you preemptively report, in which case you’re immune to lawsuits and prosecution. Which means people are going to report a lot more or shut down otherwise free hotspots.

Reporting requires that you provide the images that you saw, which obviously opens people up to charges themselves unless everything is handled extremely carefully as possession of child pornography is a de facto crime that allows for no explanation in much of the U.S.

What incentives will people see if this bill becomes statute? People who provide free wi-fi could see a very strong incentive to turn it off. Even people who provide wi-fi at a price may see strong incentives to shut it down in order to avoid a potential nighmare from big-brother.

Power & Prosperity: Iraq In Perspective

Don Surber:

The change in demands from the left shows that we won militarily. Democracy is more difficult to deliver. It takes time and patience. Let us review:

In 1999, Nato troops and U.S. bombers led a 78-day war in Kosovo to rid the region of a brutal dictator, Slobodan Milosevic. 8 years later, talks continue on a final resolution of its status. Russia has threatened to use it UN veto to nix any deal that does not suit Vladimir Putin, who wants to resurrect the Soviet empire.

In Korea, the 3-year war between North and South ended in a cease-fire in 1953. The corrupt government of Syngman Rhee ended in student riots in 1960. A year later, General Park Chung-hee led a military coup and held power until 1979. This gave way to Choi Gyu Ha’s government, followed by a military coup a year later. Direct elections came about in 1989.

In Italy, a black market flourished but the 1st Republic was installed in 1948, roughly 3 years after its liberation. Its first election was marked by violence and U.S. efforts to keep communists from winning — and by Stalin’s efforts to buy the election. Southern West Virginians and Cook County Democrats run clean elections by comparison.

In France, the 4th Republic was installed after the war. It went through 21 changes in prime ministers in 11 years. The 5th Republic came about in 1958.

In Japan, Gen. MacArthur ruled the nation for 7 years. In 1952, its democracy was established.

Now then, 60 years after the war, troops remain in Italy, Japan and Germany, which took 45 years to re-unite.

54 years later, U.S. troops remain in South Korea.

109 years after the Spanish-American War, U.S. troops are in the Philippines. They left momentarily in World War II, ousted by the Japanese. [Oops. A critic points out our bases closed in the Philippines a decade ago. OK, 100 years instead of 109.]

In none of these nations would anyone suggest that there has been a war. That’s because with the exception of an occasional Baader-Meinhof gang, no one is taking potshots at our soldiers.

Those wars have ended. This one will end soon, when U.S. Army casualties reach zero.

That does not mean there will not be political violence and acts of terrorism.

The Irony of Government Hereos

Tom Sowell:

It is remarkable how many political "solutions" today are dealing with problems created by previous political "solutions." Three examples that come to mind immediately are the housing market crisis, the wildfires in southern California, and the water shortages in the west.

[. . . .]

Why were lenders lending to people whose prospects of repaying the loans were below average -- that is, "subprime"?

Government laws and policies, especially the Community Reinvestment Act, pressured lenders to invest in people and places where they would not invest otherwise. Government also created the temporarily very low interest rates that made the mortgages seem affordable for the moment.

Now that politicians have created this mess, they are ready to play heroes riding to the rescue.

Food for thought.

Family Externality

Ed Glaeser:

I am also unenthusiastic about eliminating tax preferences for larger families. Most people seem to think that giving tax relief to bigger families is a matter of simple fairness. As an economist, I lack standing to make proclamations about fairness, but there is another reason to subsidize larger families. When parents decide to have kids, they are creating a massive benefit for their children. As much as parents may love their children, they are unlikely to reap all the benefits those children will offer during their lives. Economists often think that it makes sense to subsidize behavior that generates big "external" benefits for others: parenting seems like a particularly natural example of such behavior.

Externality abuse.

Health Care Policy 101

Don Boudreaux:

Who cares what modern health care-delivery methods are called? The elemental problem is that more and more people feel entitled to vast quantities of high-quality health care paid for by someone else.

And politicians, ever lusting for office, are only too happy to conjure the ridiculous illusion that A will get top-flight service from B when C is forced by G to pay the bills.

Government & Forced Riders

Tim Haab takes a look at survey results that speak to this question: Would you be willing to support climate change policy if it cost someone else money? And, the survery said. . . .? It said that about 70% of respondents would answer yes.

This reminds of a recent visit by a government official to my class on economics of the public sector. The discussion was about funding public universities and the difficulties of this task these days in Colorado. One of my students asked if we shouldn't just provide higher education privately and without public subsidy or public provision. The answer sounded a lot like: "No, because there are positive externalities." Now, this government official was also unaware that we had discussed this idea in class just the period before he spoke, and he was unaware of my explanation to my students that I thought the idea of positive externalities associated with higher education was likely an illustration of what I call "externality abuse." But, I guess this point is sort of an aside.

What was really interesting was the government official's suggestion about the reason for public funding or public subsidy. His story went something like this: "I realize that I'm better off or that I get some benefits myself because you are here taking classes at the university. That's why I'm willing to tax myself to pay for part of your education." It seems the idea was that we should all recognize the external benefit to us and therefore we should all be willing to tax ourselves.

Now, I'm thinking this is not really what supporting the public policy of subsidizing higher education is really about, because I'm thinking that if this official realizes he is personally better off because my student is at the university, then he can simply give my student some money to pay for tuition or books. Or, this government official can choose to give his money to university scholarship funds.

Professor Haab's question and answer suggests the same sort of things I talked with my students about after the public official's visit to my classroom. The argument offered for subsidizing higher education sounded like it was personal (I'm willing to tax myself), but it seems to me this was really about taxing others to pay for something he personally valued. I'm thinking that we are considering an aspect of politics and public policy that is pretty much the opposite of the free rider we economists talk about with respect to public goods. That is, it is an effort to use government's power to tax to force others (many of whom probably don't believe they are benefitted by my students being my students) to pay for things a person values for themselves. It seems very much an effort to make use of forced riders.

Changing The Constitution

Megan McArdle:

Turley is not the only liberal legal scholar who has turned on this interpretation, and it seems to bode a welcome retreat from the notion that the constitution means--whatever we think it ought to have meant. Having realized that a plastic constitution could also, horrors, be manipulated by people they disagreed with, the "living constitution" proponents seem to be retreating to the notion that constitutional interpretations ought to have a least a tenuous relationship to the underlying text. I'm not a constitution-worshipper, but I think society functions better if you change the rules by changing them, not by declaring that they mean whatever those in power say they do. Yes, I'm aware that this happens to some degree in every society, but the less of it the better, thank you very much. We needn't make the perfect the enemy of the reasonable.

I like reading that the idea of the "living constitution" might be in a bit of retreat. I'm not sure I believe this yet. I also like the part about changing the rules by changing them.

UN Sanctions -- Not

Claudia Rosett has been a bulldog staying on the UN Oil for Food story of corruption. I think the story was supposed to be that sanctions against Iraq and Saddam Hussein were creating great hardships for the people of Iraq, and the Oil for Food program was supposed to be the means of providing humanitarian aid to the people of Iraq. It seems the reality was something quite a bit less than humanitarian. The following is from Rosett's commentary in the WSJ ($$) yesterday:

Messrs. Khudair and Yacoub described a system corrupt to the core. Their duties inside Saddam Hussein's bureaucracy consisted largely, and officially, of handling and keeping track of kickbacks. That included who had paid and how much, and via which front companies. When Saddam's regime systematized its Oil for Food kickback demands across the board in 2000, keeping track of the graft flowing into Saddam's secret coffers became a job so extensive that the marketing arm of Iraq's Ministry of Oil, known as SOMO (State Oil Marketing Organization) developed an electronic database to track the flow of the "surcharges," as they were called.

To show how this worked, prosecutors last week produced a silver laptop onto which Saddam's entire oil kickback database had been downloaded by Mr. Yacoub, from backup copies he made just before the 2003 U.S.-led invasion of Iraq. With the laptop display projected onto a big screen before the jury, Mr. Yacoub booted up the system and into a query box typed "Coastal," the name of Wyatt's former oil company. Up came itemized lists of millions of dollars worth of surcharges he testified that Wyatt's company, or affiliated fronts, had paid to the Iraqi regime. These were broken down not only chronologically, but according to which front companies Mr. Yacoub said had channeled the money.

The other Iraqi witness, Mr. Khudair, corroborated parts of this scene. He explained to the jury a series of detailed notes taken at secret Baghdad meetings, which he had recorded by hand in desk calendars provided as gifts by oil contractors in Iraq.

In the end, Wyatt's guilty plea of conspiracy rested on a payment of about $200,000, made in 2001 through front companies into an Iraqi-controlled secret bank account in Jordan. But as witnesses during the trial sketched out the context, what came into view was a gigantic hidden world of dealings with Saddam's Iraq. From a cooperating government witness, Samir Vincent (who in 2005 pleaded guilty to a number of federal charges related to Oil for Food), the jury heard that Wyatt had paid Vincent's fees and expenses to make more than half a dozen trips per year during the early 1990s between the U.S. and Iraq to try to help Saddam out from under U.N. sanctions.

[. . . .]

Should we expect to see that silver laptop in heavy demand by scores of other U.N. member states trying to bring Oil for Food fraudsters to justice?

Nope. As it is, the U.S. stands almost alone in prosecuting the culprits and sending the guilty to prison. In Russia, China, Syria, Cyprus, Yemen, Egypt, Malaysia, the United Arab Emirates, Turkey and Jordan -- to name a few significant players -- there has been no such summons to justice. In Switzerland, home to a cosmopolitan nest of Oil for Food fronts, a number of companies have paid fines to federal and local authorities, but their names and the details have been kept confidential.

Now, in the future when our political discussions turn to suggestions of seeking UN support or approval about this or that, I want to remember the UN's Oil and Corruption program. Of course, this is not the first expose of UN efforts which seem to have been excellent illustrations of corruption. I think I should also make note of Rosett's list of significant players. It might help me understand what is real and what is not with respect to international politics.

Competition

Peter Boettke:

In one of the papers that I read for the conference there is a discussion about how level is the playing field for different types of start-up enterprises, and how competitive the industries are that they enter into.

A lot of business literature often throws terms around from technical economics, but confuses the colloquial use of a term and the scientific meaning of the term. When text-book economics refers to competitive conditions, they do not mean activity of competing, but instead a set of conditions. When we discuss the idea of a level playing field we mean a fair race, not that the race isn't difficult.

When Austrian school economists speak of competition, they mean the activity of competing. It is analogous to sports competition --- there is rivalry, active seeking of competitive advantage, etc.

In my classrooms these days, some of the differences between neoclassical economics (the economics students mostly study in their textbooks) and austrian economics seem to be coming up more frequently. While Professor Boettke's post is mostly about the value of sports, this excerpt above points out one of the fundamental differences between neoclassical economics and austrian economics. Both approaches to economics use the word "competition," but very different ideas are meant when this word is used.

13th Amendment

Richard Miniter writes about stories told over dinner by Justice Thomas:

At a gathering of black lawyers, Thomas, from the podium, could see a man in the front row, with his arms crossed and his face cross. Naturally, he shot his hand up as soon as the question session began. A long speech in lieu of a question followed, essentially asking how he can interpret the law by relying so heavily on the Founding Fathers when they did not recognize the rights of blacks?

“The 13th amendment,” Thomas said, citing the constitutional amendment that freed the slaves and provided for their equal rights under law.

Thomas went on to take other questions.

At the end of session, the man again raised his hand. In the course of an hour, his view on Thomas had changed. “They lied about you. What are we going to do?”

State Government & Global Warming

Brendan Miniter in the WSJ ($$$):

North Carolina's global-warming activists are in hog heaven. Late last month, Gov. Mike Easley, a Democrat in his second term, signed legislation mandating that more electric power in his state come from "green" sources such as wind, solar energy, and hog and chicken waste.

Today, North Carolina gets about 2% of its electricity from "renewable resources." By 2021, under the new mandates, Progress Energy and Duke Energy will have to find 12.5% of the power that they sell to Tar Heel residents from renewables. Hog-waste-generated power -- as required by the new law -- will nearly triple to 0.2% of the electricity used in the state over the next decade as farmers capture and sell the methane gas given off from tons of decomposing manure.

It's gone largely uncovered outside the state, but there is an energy revolution underway in the Tar Heel State that will cost residents more for the energy they use in the name of cutting greenhouse gases. Even while they make little headway in Congress, advocates of heavy-handed regulations to head off global warming are working to enact laws on the state level. They're succeeding in North Carolina.

The immediate cost to consumers will be higher electric bills. For residential customers, an annual fee will eventually reach $34, and for industry the annual fee will grow to as much as $1,000.

The new hog mandate is only the beginning. The state has set up a special commission -- the Climate Action Plan Advisory Group -- to study ways to cut CO2 emissions. It's already adopted a list of 53 recommended new mandates and is drafting a report for the state legislature.

A few ideas the commission will recommend in its report next month include mandates for "higher-density" housing developments, something thought to reduce suburban "sprawl," and, of course, new subsidies for farmers to produce biodiesel.

It will also recommend imposing new costs on the driving public. One thought is to force drivers who put more miles on their odometer to pay higher car-insurance premiums than those who drive less. And it will recommend a CO2 tax or a cap-and-trade system, assuming such a system could be worked out on a state level.

I'm wondering if global warming policies by state governments make any sense in general? It seems to me that concern about global warming involves a problem that is global in geographic scope, not statewide in geographic scope. As such, I suspect state government mandates such as these noted by Mr. Miniter are unlikely to yield much in the way of their stated goal, which is presumably a reduction in global warming. Isn't it likely, therefore, that the economic benefits from mandates such as these are quite small? If so, then it would seem that state government policies such as these will be quite effective at increasing costs to the residents of the state, but in return for the increased costs the residents can probably expect to enjoy virtually no benefits from less global warming.

And, then, there are the actual policies that are being mandated. What's up with policies like forcing higher insurance premiums? Why does anyone think auto insurance has anything to do with carbon emissions and global warming?

Clinton, Global Warming & The Broken Window

James Pethokoukis :

"This issue of energy and global warming has the promise of creating millions of new jobs in America. It can be a win-win, if we do it right."—Sen. Hillary Clinton, at last night's Democratic debate in South Carolina

And with that, Clinton seemingly stumbled into the classic economic trap known as the Broken Window Fallacy. As described by the French economist Fredric Bastiat, the fallacy imagines some punk kid chucking a rock through a store window. A bad thing, right? Yet a contrarian onlooker offers that the troublemaker may have actually helped the economy because now the storeowner will have to hire a glazier, who will make money replacing the window. Then the glazier will use that money to buy bread from a baker, who then might buy shoes from a cobbler. And the "multiplier effect" goes on and on, creating a more prosperous economy.

But Bastiat points out that such reasoning ignores the hidden costs to the shopkeeper, who was forced to spend money on windows instead of something else that may have had higher value to him or society, like a new suit or investing in a start-up tech firm. As the great economics writer Henry Hazlitt once put it:

The glazier's gain of business, in short, is merely the tailor's loss of business. No new "employment" has been added. The people in the crowd were thinking only of two parties to the transaction, the baker and the glazier. They had forgotten the potential third party involved, the tailor. They forgot him precisely because he will not now enter the scene. They will see the new window in the next day or two. They will never see the extra suit, precisely because it will never be made. They see only what is immediately visible to the eye.

Ramadi Freedom?

Michael Totten reports from Ramadi in Anbar province:

I was greeted by friendly Iraqis in the streets of Baghdad every day, but the atmosphere in Ramadi was different. I am not exaggerating in the least when I describe their attitude toward Americans as euphoric.

Grown Iraqi men hugged American Soldiers and Marines.

Young men wanted me to take their pictures with their arms around American Soldiers and Marines. The Americans seemed slightly bored with the idea, but the Iraqis were enthusiastic.

Children hugged State Department civilian reconstruction team leader Donna Carter.

Ramadi has changed so drastically from the terrorist-infested pit that it was as recently as April 2007 that I could hardly believe what I saw was real. The sheer joy on the faces of these Iraqis was unmistakable. They weren’t sullen in the least, and it was pretty obvious that they were not just pretending to be friendly or going through the hospitality motions.

“It was nothing we did,” said Marine Lieutenant Colonel Drew Crane who was visiting for the day from Fallujah. “The people here just couldn’t take it anymore.”

What he said next surprised me even more than what I was seeing.

“You know what I like most about this place?” he said.

“What’s that?” I said.

“We don’t need to wear body armor or helmets,” he said.

I was poleaxed. Without even realizing it, I had taken off my body armor and helmet. I took my gear off as casually as I do when I take it off after returning to the safety of the base after patrolling. We were not in the safety of the base and the wire. We were safe because we were in Ramadi.

[. . . .]

The Iraqis of Anbar Province turned against Al Qaeda and sided with the Americans in large part because Al Qaeda proved to be far more vicious than advertised. But it’s also because sustained contact with the American military – even in an explosively violent combat zone –convinced these Iraqis that Americans are very different people from what they had been led to believe. They finally figured out that the Americans truly want to help and are not there to oppress them or steal from them. And the Americans slowly learned how Iraqi culture works and how to blend in rather than barge in.

“We hand out care packages from the U.S. to Iraqis now that the area has been cleared of terrorists,” one Marine told me. “When we tell them that some of these packages aren’t from the military or the government, that they were donated by average American citizens in places like Kansas, people choke up and sometimes even cry. They just can’t comprehend it. It is so different from the lies they were told about us and how we’re supposed to be evil.”

[. . . .]

I photographed a freshly painted cell phone store that looked new.

“That’s when you know life is coming back to normal,” Sergeant Hicks said, “when they open a cell phone shop.”

“It’s amazing for us to see people out on that street buying and selling things,” Captain Phil Messer said to me later. “That never happened for the first months we were out here. Literally zero businesses were open. People were scared shitless of Al Qaeda. If you pissed them off they would show up at your house in the middle of the night, rape your women in front of you, kill your sons, and say you will not help the Americans. Huge numbers of these people just fled to Syria.”

Reminds me of Mancur Olson's Power and Prosperity.

Even if you don't read Totten's entire report, you really should take a look at his photos of the people of Ramadi.

Health Zoning

The LA Times reports:

As America gets fatter, policymakers are seeking creative approaches to legislating health. They may have entered the school cafeteria -- and now they're eyeing your neighborhood.

Amid worries of an obesity epidemic and its related illnesses, including high blood pressure, diabetes and heart disease, Los Angeles officials, among others around the country, are proposing to limit new fast-food restaurants -- a tactic that could be called health zoning.

The City Council will be asked this fall to consider an up to two-year moratorium on new fast-food restaurants in South L.A., a part of the city where fast food is at least as much a practicality as a preference.

After reading this I'm reminded of Patrick Henry:

"Give Me Liberty. . . ."

While this sort of government policy seems nonsense to me, it does seem to make sense to some people:

"While limiting fast-food restaurants isn't a solution in itself, it's an important piece of the puzzle," said Mark Vallianatos, director of the Center for Food and Justice at Occidental College.

This is "bringing health policy and environmental policy together with land-use planning," he said. "I think that's smart, and it's the wave of the future."

Please, no, not the future. My hat-tip to Peter Gordon who writes:

In the goofiness sweepstakes, the professors and the politcians continue to battle it out.

Liberal Brains & Conservative Brains

The Denver Post reports on a study on the brain and politics:

Exploring the neurobiology of politics, scientists have found that liberals tolerate ambiguity and conflict better than conservatives because of how their brains work.

I'm wondering what value judgment underlies the "better than" conclusion.

I do find the following kind of interesting:

Participants' politics ranged from "very liberal" to "very conservative." Scientists instructed them to tap a keyboard when an M appeared on a computer monitor and to refrain from tapping when they saw a W. M appeared four times as frequently as W.

Each participant was wired to an electroencephalograph that recorded activity in the part of the brain that detects conflicts between a habitual tendency (pressing a key) and a more appropriate response (not pressing the key). Liberals had more brain activity and made fewer mistakes than conservatives when they saw a W.

Maybe the participants thought they would be voting for W if they pushed the W key, eh?

Taxes & Recession

Wall Street Journal commentary ($$$) on Congress and the economy:

. . . . New York's Chuck Schumer wasted no time Friday calling the jobs report "a punch to the gut of our economy," but his own party is preparing to deliver more blows. Any hint of a growth agenda has vanished since Democrats took Congress. Trade-expanding deals with Latin America and South Korea are stalled, and every week brings a new proposal to restrict trade with China.

On fiscal policy, Democrats have proposed or discussed raising taxes on cigarettes, oil and gas companies, hedge funds, private equity, capital gains, dividends, the U.S. subsidiaries of foreign companies, and individuals earning more than $500,000 a year (which includes millions of small businesses filing under Subchapter S). Add the promise of every Democratic Presidential candidate to repeal the Bush tax cuts if he or she wins in 2008, and no wonder investors are growing more cautious.

Oh, my, more and more taxes.

Who Needs Government?

There is an interesting discussion of this question at Cato Unbound.

Trade Balanced

Don Boudreaux:

Here's advice for your readers: ignore anyone who complains that trade is "imbalanced." I have never encountered any such complaint that makes even a whiff of economic sense.

Exhibit A is today's letter from United Auto Workers' President Ron Gettelfinger. Mr. Gettelfinger grumbles that "the U.S. and South Korea have a huge imbalance in auto trade." Well, duh - that's an inevitable consequence of specialization. Although we cook in our household, my family still has a huge "imbalance" in the prepared-food trade with McDonald's. But we would make ourselves only poorer if my family and I refused to buy from restaurants that do not buy equal amounts of prepared meals from us. In this case, what is true for each household is true for the collection of households that we call the United States.

If trade (exchange) is voluntary (freely engaged in) each party to the exchange is better off. How can trade ever be "imbalanced" if each and every exchange means each party to the exchange is better off?

Protectionism is . . . .

Don Boudreaux:

"Protectionism" ultimately rests upon the threat to use violence against innocent persons engaged in peaceful commerce. Most of the time the coercive nature of protectionism is concealed -- out of view -- because consumers and producers harmed by it are deterred by the threat of violence from freely trading: the coercive nature of protectionism remains largely hidden. The thieves persuade the state to perform the threats; it all looks so clean and antiseptic and 'policy-ish.'