Friday, September 29, 2006

The Causes of Poverty?

DON BOUDREAUX POINTS OUT that asking what causes poverty puts things backwards:
". . . . But writing after the fruits of the wealth explosion began raining down widely, even as astute a mind as Marshall missed the fact that poverty has no causes. Poverty is humankind’s default mode. It’s what exists if we do nothing. “Creating” poverty -- causing poverty -- is no challenge whatsoever.

Escaping poverty has causes – that is, wealth has causes.

This point bears repeating. Poverty has no causes. Wealth has causes.

But capitalism has been so enormously successful at producing widespread material abundance that we today -- like Alfred Marshall in 1890 -- regard wealth as innate to our existence, as our default mode. It is not. The set of institutions that will promote the creation of widespread prosperity is minuscule in number compared to those that prevent people from creating material prosperity. "
I had not thought in terms of the "default" position before. This seems tremendously important to take note off. A world characterized by "poverty" as we think of this term today really is the default position, or it really can be thought of as the starting point. It is the creation of wealth that means people can escape from poverty. People will make the choices that create wealth if government acts to enforce private property rights and contracts, and further if government avoids supporting predatory activities, people will prosper all that much more.

Wednesday, September 27, 2006

Oh Boy . . . . Wal Mart

RUSSELL ROBERTS POINTS to news that Wal Mart has opened in Chicago. He quotes several comments by Julie Edwards, one of the first shoppers at the new store:
"'I love this store,' Edwards said. 'It's about time we get nice stores in this neighborhood.'"
And also:
"I want to see them make $10 an hour, but if they can't, at least they can make something," Edwards said. "They're creating jobs for our community."
I agree with Roberts:
"FIFTEEN THOUSAND people applied for the 400 jobs. Only an econometrician unconstrained by economics could conclude that somehow the increase in demand for workers by Wal-Mart can somehow lower wages in the Chicago area. I'll stick with Julie Edwards's assessment."

Tuesday, September 26, 2006

When Terrorists Talk

John Schmidt:
"In a Sept. 13 vote along party lines, the Senate Judiciary Committee moved Chairman Arlen Specter’s wiretap bill to the Senate floor. The bill would provide for a court review of the National Security Agency’s terrorist surveillance program. Yet many critics are still fighting the legislation.

They are vigorously protesting the bill’s elimination of the “exclusivity” provisions of the Foreign Intelligence Surveillance Act of 1978, which make it a crime for the president (or anyone acting under his direction) to carry out electronic surveillance on a foreign terrorist group or other foreign power in this country except in accordance with FISA’s statutory procedures. They claim the bill introduced by Sen. Specter (R-Pa.) is an “abandonment” of the principle that even presidents are subject to the rule of law.

In fact, the history of FISA’s exclusivity provisions demonstrates that they were a mistake from the beginning. Far from protecting the rule of law, they ignore the law of the Constitution. Eliminating them now would help end confusion about the president’s authority in this critical area of national security. "

Earmark Corruption & the President

JOHN FUND has a very interesting insight on earmarks:
"President Bush could also do more. Republican Sen. Jim DeMint notes that the Congressional Research Service has found that 95% of recent earmarks were slipped into committee reports and not written into law. 'These non-legislated earmarks are not legally binding,' he says. 'President Bush could ignore them. He doesn't need a line-item veto.'"
If there is true, then the President should do just that.

Tuesday, September 19, 2006

Gore On Taxes & Pollution

"Former U.S. Vice President Al Gore on Monday suggested taxing carbon dioxide emissions instead of employees' pay in a bid to stem global warming.

'Penalizing pollution instead of penalizing employment will work to reduce that pollution,' Gore said in a speech at New York University School of Law.

The pollution tax would replace all payroll taxes, including those for Social Security and unemployment compensation, Gore said. He said the overall level of taxation, would remain the same.

'Instead of discouraging businesses from hiring more employees it would discourage business from producing more pollution,' Gore said."

Wow, sounds like one of my classes.

[Hat Tip: Tim Haab]

Suicidal Hand-Wringing

Tom Sowell:
"If this was just a case of a handful of headstrong senators, who want us to play by the Marquis of Queensbury rules while we are being kicked in the groin and slashed with knives, that would be bad enough. But the issue of applying the Geneva convention to people who were never covered by the Geneva convention originated in the Supreme Court of the United States.

Article III, Section II of the Constitution gives Congress the power to limit the jurisdiction of federal courts, and Congress has specifically taken away the jurisdiction of the courts in cases involving the detention of illegal combatants, such as terrorists, who are not -- repeat, not -- prisoners of war covered by the Geneva convention.

The Supreme Court ignored that law. Apparently everyone must obey the law except judges. Congress has the power to impeach judges, including Supreme Court justices, but apparently not the guts. Runaway judges are not going to stop until they get stopped.

In short, the clash between Senator McCain, et al., and the President of the United States is more than just another political clash. It is part of a far more general, and ultimately suicidal, confusion and hand-wringing in the face of mortal dangers.

The argument is made that we must respect the Geneva convention because, otherwise, our own soldiers will be at risk of mistreatment when they become prisoners of war.

Does any sane adult believe that the cutthroats we are dealing with will respect the Geneva convention? Or that our extension of Geneva convention rights to them will be seen as anything other than another sign of weakness and confusion that will encourage them in their terrorism?

No one has suggested that we disregard the Geneva convention for people covered by the Geneva convention. The question is whether a lawless court shall seize the power to commit this nation to rules never agreed to by those whom the Constitution entrusted with the power to make international treaties.

The much larger question -- the question of survival -- is whether we have the clarity and the courage to go all-out in self-defense against those who are going all-out to destroy us, even at the cost of their own lives.

[ . . . ]

Squeamishness about how this is done is not a sign of higher morality but of irresponsibility in the face of mortal dangers."
I think he's right.

Saturday, September 16, 2006

The liberal case for pork

". . . there's a liberal case for supporting pork. It's not because pork projects are defensible on the merits, although they sometimes can be. It's not because they create jobs, although they can do that, too. Rather, it's because, without pork, activist government would wither and die."
I'm thinking the pork projects in question are not defensible in general, because the pork projects in question are the projects that our fearless leaders are choosing to hide from public view, and from the view of their fellow fearless leaders.

I'm also not signing on in support of the justification that these pork projects create jobs. After all, if the money isn't spent on these hidden pork projects, then at least one thing that could have been done with the money was leave it in the pockets of the citizens it was taken from. What would you do with more money? Spend some of it? Sure. Save some of it? Probably. Either way that money is part of the economic activity that has jobs.

And what about the "activist government would wither and die" idea? One illustration he gives involves a tax bill during the Reagan administration:

The problem was that the reform bill faced a daunting uphill battle through the Senate. A multitude of corporations and special interests risked losing their much-cherished tax breaks, and they lobbied hard against several provisions in the bill. The only way to ensure that the bill survived was to grease it up with pork fat. A large number of temporary tax preferences--known as "transition rules"--were added to the bill, at the behest of individual Senators, for over 174 beneficiaries, including a variety of cities and municipal facilities. Senate Majority Leader Bob Dole worked to get his party behind the reform, and for his efforts received a tax preference for the redevelopment in his home state of Kansas. Even Ohioan Howard Metzenbaum, a longstanding opponent of narrowly-tailored corporate tax breaks, secured exemptions for convention centers in his home state.
Now, I'm not sure this story is one we should hold up as an illustration of what is good about our political system, but I think this illustration does not really fit today's issue. Today's issue is not just about pork. Rather today's issue is about hiding personal choices by our fearless leaders to spend government money on others. These choices are hidden from public view, and the illustration involves choices that were written into law for all to see.

He offers a second illustration from the Clinton era, and again the illustration includes items that would appear in public view, even though the vote trading of course took place away from public view. Then he offers:

The point is this: Any big-government program on the progressive wish list will likely prove even more difficult to pass than the 1986 tax reform or 1993 budget. Single-payer health care? Card check for unions? Reductions in carbon emissions? It won't get done without an orgy of earmarks to entice the inevitable skeptics in Congress. That won't be pretty, but if the price of, say, universal insurance is a bit of borderline corruption here and there, it's a tradeoff worth making. And, while it's also true that conservatives can use earmarks to pass their own massive spending programs--the prescription-drug benefit comes to mind--in the long run, institutional mechanisms that are biased toward activist government will favor liberals.
I think these illustrations involve logrolling or vote trading, and clearly such logrolling occurs frequently in our system of political economy. I think government would be better government if the number of instances of logrolling could be reduced. Our entire system of political economy would be better if government participation in rent seeking could be reduced. But, these weaknesses in our system of political economy seem to me much different than the practice of earmarking, whereby an individual Congressman or Senator can say which project is to get government monies. And earmarking is, it seems to me, an abhorent practice by our government when the politician can keep his or her name hidden from the public. Earmarking, as I've written here before, seems to me nothing less than corruption.

Thursday, September 14, 2006

Asymmetric Paternalism

RUSSELL ROBERTS DRAWS ATTENTION to a newly found source of "market failure" being asserted by some. I'm not convinced and neither is he:
I guess I'm not part of the political specturm. Asymmetric paternalism has no appeal to me whatsoever.
This asymmetric paternalism is supposed to be the policy answer to the new market failure. Roberts explains the market failure and policy response by quoting from a piece by John Cassidy. Here is the market failure explanation:

Today, most economists agree that, left alone, people will act in their own best interest, and that the market will coördinate their actions to produce outcomes beneficial to all.

Neuroeconomics potentially challenges both parts of this argument. If emotional responses often trump reason,there can be no presumption that people act in their own best interest. And if markets reflect the decisions that people make when their limbic structures are particularly active, there is little reason to suppose that market outcomes can’t be improved upon.

And, here is the policy answer:

Laibson and Brigitte Madrian, an economist at the Wharton School, have studied one such “pre-commitment device” for 401(k) plans, which deduct part of an employee’s earnings each month and invest them in stocks and bonds. Because the plans are often optional, many people fail to join them, even when their employers offer to match a portion of their contributions. Laibson and his colleagues have called for people to be automatically included in the plans unless they choose to opt out. At companies that have adopted such a policy, enrollment rates have increased sharply.

Reforming 401(k) plans is an example of “asymmetric paternalism,” a new political philosophy based on the idea of saving people from the vagaries of their limbic regions. Warning labels on tobacco and potentially harmful foods are similarly intended to keep subcortical structures in check. Neuroeconomists have suggested additional policies, including warning buyers of lottery tickets that their chances of winning are practically nonexistent and imposing mandatory “cooling off ” periods before people make big-ticket purchases, such as cars and boats. “Asymmetric paternalism helps those whose rationality is bounded from making a costly mistake and harms more rational folks very little,” Camerer, Loewenstein, and three colleagues wrote in a 2003 issue of the University of Pennsylvania Law Review. “Such policies should appeal to everyone across the political spectrum.”

I think this is chock full of normative nonsense. The market failure concept is used to describe conditions under which we expect the market to fail to allocate resources efficiently. There seems to me no relevance to asking whether people act in their own best interest or not. The normative foundations of efficiency economics make the value judgment that we economists take the preferences of others as our given data. I think there are few other options for our normative foundations when we evaluate policy alternatives. I do not want economists to be in the business of judging good and bad preferences, and I don't think many economists want to either. Nor do I think a credible normative position for economics involves us trying to figure out whether people can or cannot pursue their own interests and preferences.

It seems to me that this so called market failure, which is then solved by asymmetric paternalism, really comes down to saying that people make mistakes, and therefore their mistakes will lead to an inefficient allocation of resources. Okay so far, eh? So what should we do about these mistakes? Well, we should have government force people to act so they don't make mistakes with respect to their own best interests. Of course, what shall we suggest to government about identifying these mistakes, that people don't know they are going to make until the mistakes have been made? After all, if I figure out my choice is going to turn out to be a mistake, I'm sure not going to make that choice after all.

This seems to me simply a new way to talk about that ages old economic concept of merit goods. This "new" market failure amounts to the old merit goods, just juiced up with a new "neuroeconomics" scaffolding. Paternalism, asymmetric or soft or the old traditional variety, is paternalism, and it is not consistent with efficiency economics. I simply cannot agree that paternalism of any variety should be part of the normative foundations we economists use to evaluate government and public policy.

Get Wal-Mart Out of the Public Trough

WARREN MEYER at Coyote Blog has some interesting ideas about Wal-Mart:
If Wal-Mart wants to seek public funding for its business and impose regulation on its competitors, and thereby make itself a semi-governmental entity, then I am no longer going to have any sympathy for them when governments want to single them out for special regulation, no matter how bone-headed the regulation may be.
I have a couple of thoughts. First, I like his point of view. If Wal-Mart is able to borrow government's powers of eminent domain and if Wal-Mart is attempting to thwart potential competitors with support of public policies, then supporting Wal-Mart in general would appear to be to support more rent seeking in our system of political economy. Second, I suspect the sorts of things Meyer points to with respect to Wal-Mart can be said about many others in our economy. I suspect it is very difficult today to find an illustration of true market activity by which I mean economic activity neither constrained nor aided by some government policy.

Wednesday, September 13, 2006

Virginia Declaration of Rights

I think the Virginia Declaration of Rights has many interesting ideas. Although adopted way back on June 12, 1776, I find it to have many principles of value today. It is worth a look once in a while, especially since this declaration of rights reminds me of our Constitution.

Consider the statement in this declaration concerning religious freedom:
That religion, or the duty which we owe to our Creator and the manner of discharging it, can be directed by reason and conviction, not by force or violence; and therefore, all men are equally entitled to the free exercise of religion, according to the dictates of conscience; and that it is the mutual duty of all to practice Christian forbearance, love, and charity towards each other.
I think we can see in this statement a declaration concerning religious freedom that is closely related to the declaration written into the First Amendment to our Constitution. There is a bit more detail in the statement here than we find in the Constitution, but perhaps the greater detail or depth of expression can be interpreted as one way to inform our understanding of the First Amendment?

Now, one of the ideas expressed here worth some contemplation is the last idea about the "mutual duty of all." A mutual duty is certainly not an argument for the use of government's coercive power to see that the duty is carried out. It is apparently a duty that many in our country in 1776 thought to be a personal responsibility. There was indeed a significant Christian (and protestant) influence on the views about the purpose of government at our nation's founding. Unlike what some seem to assert about Christian views of government these days, back at the founding the Christian views about government expressed in this declaration of rights specifically rejected force and violence in support of such religious views. Further, it seems to me likely that the specific view of government written into our Constitution, and our specific understanding of individual liberty vis a vis government, has much to do with the influence of Christian religious views on the people who fought for and founded our system of political economy.

I don't think that in a free system of political economy one need be terribly concerned about whether a person's views on government and policy are motivated by religious belief or belief in mother nature or belief in Newtonian physics or belief in quantum physics. In a system of government founded on liberty the key issue is really what we think is and is not a legitimate use of force and violence in our daily lives. As George Mason wrote in the Virginia Declaration of Rights it is not legitimate to use force and violence in the service of religious belief. Nor, does it seem to me legitimate to use force and violence in the service of belief in science, or belief in an environmental ethic, or belief in a witch's brew. But, in our system of political economy, there is seldom any real threat that force and violence will be used by government for any such personal beliefs. We each have our personal beliefs and motives for supporting this policy or that policy, and in the end the policy that is chosen is seldom, if ever, the policy that is supported by merely one type of belief. Liberty requires that government leave us free to believe what we will, and this principle even applies to the reasons we have for supporting our personal views of good and bad public policy.

What Are the 'Dynamics of Economic Well-Being'?

"Recently, the Census Bureau reported its findings on 2005 household income for the United States. The August 30 Wall Street Journal's headline for its story on these findings was, 'Median Household Income Rises 1.1%.' The line underneath (what journalists called 'the deck line,' which many people read without reading the whole story) stated, 'Gap Between the Richest and the Poorest Widens; Middle Class Feels Squeezed.'

The article reads as if the reporter, Robert Guy Matthews, had simply read the press releases of the Census Bureau and then called liberal and conservative commentators to get their take. It didn't read as if he had actually downloaded the Census Report and looked at the tables. The New York Times article the same day was headlined 'Census Reports Slight Increase in '05 Incomes' and then went on to cite the findings of the sociology department of Queens College that median income was still not as high as its level in 2000. The Times' reporter, Rick Lyman, seems not to have studied the report's findings either.

That's too bad. Because hidden in plain sight in the report are some data that help one understand the household-income picture in the United States. These data show what it takes to be middle class or above. And they show that staying out of, or getting out of, the lowest quintile is not rocket science.
This ought to be interesting. What does it take to have an income that puts a person above the lowest 20% in the income distribution?
The message is clear: if you want to have an extremely high probability of avoiding the lowest quintile, get a job, ideally a full-time job, and live with someone who has a job.
Wow. Amazing.

Political discussions of poverty tend to assume that many households with the lowest incomes are always households with the lowest incomes. It may even be imagined that the poorest households have both mother and father working, and perhaps it is imagined that father is working two jobs instead of just one. The Census data seems inconsistent with such imaginings for most of the households in the lowest quintile when the data seem to suggest that one full time job is mostly likely going to take the household above the lowest quintile, not to mention the two or three jobs the might be imagined for "the working poor."

Notice that Mr. Henderson suspects the reporters aren't reading the reports they report on. I often tell my students and others that they can't trust what they read and hear from the news industry, and they can't count on those in politics to know or to act on what is really going on. I think these cautions are especially important to heed when the news industry tells us about either the law or the economy. Mr. Henderson offers the same advice:
So next time you see a report on Census data on household incomes, if you want to know what really happened, download the report and actually peruse the tables.
So, if you are interested in seeing for yourself, then here is the link to the Census report Mr. Henderson is discussing.

Monday, September 11, 2006

Alice In Wonderland?

This note from GLENN REYNOLDS makes me think we are living in an Alice in Wonderland world:
MESSAGE: EVERYTHING SUCKS! The teaser for my local news was 'Concern over falling oil prices -- what this could mean for you!'

Uh, cheaper gas? Yeah, I'm really concerned.