Wednesday, December 21, 2011

Chevy Volt

"Each Chevy Volt sold thus far may have as much as $250,000 in state and federal dollars in incentives behind it – a total of $3 billion altogether, according to an analysis by James Hohman, assistant director of fiscal policy at the Mackinac Center for Public Policy.
[. . . .]

GM has estimated they’ve sold 6,000 Volts so far. That would mean each of the 6,000 Volts sold would be subsidized between $50,000 and $250,000, depending on how many government subsidy milestones are realized.
[. . . .]

“It just goes to show there are certain folks that will spend anything to get their vision of what people should do,” said State Representative Tom McMillin, R-Rochester Hills. “It’s a glaring example of the failure of central planning trying to force citizens to purchase something they may not want. … They should let the free market make those decisions.”"

I hope you remember Magnum P.I., because the only thought that comes to mind is Higgins saying: "OH MY GOD!!!"

UPDATE January 5, 2012

Saturday, November 05, 2011

Government Organizing Injustice

I'm just now reading Bastiat's "The Law" for the first time. Of course Bastiat puts ideas so well. Just meditate for a while on the following:
Try to imagine a form of labor imposed by force, that is not a violation of liberty; a transmission of wealth imposed by force, that is not a violation of property. If you cannot succeed in reconciling this, you are bound to conclude that the law cannot organize labor and industry without organizing injustice.

Thursday, November 03, 2011

Sowell On Greed

Thomas Sowell:
"Among the favorite sloppy words used by the shrill mobs in the streets is "Wall Street greed." But even if you think people in Wall Street, or anywhere else, are making more money than they deserve, "greed" is no explanation whatever.
"Greed" says how much you want. But you can become the greediest person on earth and that will not increase your pay in the slightest. It is what other people pay you that increases your income.
If the government has been sending too much of the taxpayers' money to people in Wall Street — or anywhere else — then the irresponsibility or corruption of politicians is the problem. "Occupy Wall Street" hooligans should be occupying Pennsylvania Avenue in Washington."

Unoccupy Econ

An Open Letter to Greg Mankiw:
"Today, we are walking out of your class, Economics 10, in order to express our discontent with the bias inherent in this introductory economics course. We are deeply concerned about the way that this bias affects students, the University, and our greater society.

As Harvard undergraduates, we enrolled in Economics 10 hoping to gain a broad and introductory foundation of economic theory that would assist us in our various intellectual pursuits and diverse disciplines, which range from Economics, to Government, to Environmental Sciences and Public Policy, and beyond. Instead, we found a course that espouses a specific—and limited—view of economics that we believe perpetuates problematic and inefficient systems of economic inequality in our society today."
If you read the letter you'll see Mankiw is being criticized for not including Keynes in this course. However, this semester of the course is apparently covering microeconomics, and Keynes will be discussed, where he should be, next semester in macroeconomics. Seems sad, don't you think, that these students are several weeks into the semester and they don't yet understand the difference between micro and macro?

Saturday, October 29, 2011

Quote of the Day

I am, I confess, one of those who think that choice and impulse ought to come from below and not from above, from the citizen and not from the legislator; and the opposite doctrine appears to me to tend to the destruction of liberty and human dignity. (p. 12)
I confess the same!

Friday, October 28, 2011

Joke of the Day?


Oh wait, I forgot. Article 1 Section 8 of the Constitution says that "Congress shall have the power to give diapers to families."

I don’t understand aggregate demand

RUSS ROBERTS doesn't understand aggregate demand:
Does an increase in aggregate demand increase employment?

Yes, if by an increase in aggregate demand you mean people buying and selling more from each other where buying and selling includes consumers and manufacturers.

The above statement has virtually no informational content. It is equivalent to saying that when the economy is healthy, there is lots of exchange going on. When an economy is not healthy, there is less exchange. There is less buying and selling of goods and services and labor. To describe that unhealthiness as less aggregate demand is just to put the problem into different words.
You should read the rest of his post.

I don't understand either.

Wednesday, August 24, 2011

An Idea Intolerable To Modern Man

But when developments take an undesirable turn, the suggestion that this is not the effect of circumstances beyond our control, but the necessary consequence of our earlier decisions, is rejected with scorn. The idea that we are not fully free to pick and choose whatever combination of features we wish our society to possess, or to fit them together into a viable whole, that is, that we cannot build a desirable social order like a mosaic by selecting whatever particular parts we like best, and that many well-intentioned measures may have a long train of unforeseeable and undesirable consequences seems to be intolerable to modern man." [Law, Legislation and Liberty, vol 1, Rules and Order]
Hmm, seems to me this idea that is intolerable to modern man is one of the basic insights of economics. No wonder so few people seem interested in economics, and no wonder so few who study some economics come away with much understanding about the consequences of public policy for the world around them.

Wednesday, August 17, 2011

Hayek on American Constitutionalism

When Montesquieu and the framers of the American Constitution articulated the conception of a limiting constitution that had grown up in England, they set a pattern which liberal constitutionalism has followed ever since. Their chief aim was to provide institutional safeguards of individual freedom; and the device in which they placed their faith was the separation of powers. In the form in which we know this division of power between the legislature, the judiciary, and the administration, it has not achieved what it was meant to achieve. Governments everywhere have obtained by constitutional means powers which those men had meant to deny them. The first attempt to secure individual liberty by constitutions has evidently failed. [Law, Legislation and Liberty, Volume 1: Rules and Order, p. 1]
Does this seem correct? If so, are there any means by which limited government might be achieved?

Wednesday, July 13, 2011

Budget Reflections

With all the political drama in Washington these days over raising the US Government debt ceiling I thought perhaps I should see if it was possible to add a wee bit of perspective. I've taken the information portrayed in the following charts from the President's web page for his 2012 budget proposal.

This chart tells the basic story of the US Government Budget from 1950 - 2010. I realize the image here is pretty small, but if you click on the image you can see a larger more readable version. The blue line reflects millions of dollars spent annually by the US Congress, while the green line reflects millions of dollars annually taken in by the US Congress. The red line reflects the budget deficit and therefore the millions of dollars that have been borrowed annually by the US Congress since 1950.

So what basic story do I think this chart tells? From 1950 until about 1975 or 1980 there seemed to be almost no trend up or down in terms of the amount of money Congress decided to borrow each year. This period was followed by an increase in the annual amount of money Congress borrowed but this new period also showed a fairly horizontal line and thus not much of a tendency to further increase the amount of annual borrowing. Congress balanced the budget and even seems to have spent less than it took in for about three years around the year 2000. The trend shown by the red line depicts a significant increase in the amount of money Congress has chosen to borrow annually since around the year 2000.

Notice also that during the entire period from 1950 until 2010 the annual amounts taken in and spent by Congress increased. The green line which represents annual receipts shows almost a linear trend upward since around 1980, while in contrast, the blue line representing the amount Congress has spent annually kicks into a "new gear" with a much steeper line. Take note also that over this period from 1950-2010 there have been both recessions and expansions, and there have been both increases and decreases in the income tax rates imposed by Congress. Nonetheless, the story of Congress and the budget it has chosen annually reflects more revenues year to year and more spending year to year. The story also seems to be that Congress's habit of borrowing also kicked in to another gear since the last two or three budgets that were in surplus.

I suspect someone might say that this is not the proper way to evaluate the US Budget, so here is a picture of this same story but told in a chart the depicts receipts, outlays, and deficit/surplus as a percent of GDP.

Perhaps the story to notice from this chart is that both revenues and outlays as a percent of GDP have relatively flat trend lines starting around 1970. Also these trends are such that annual outlays have been around 20% of GDP while annual receipts have been around 18%. Of course periods of recession have reduced annual receipts. Once again I will point out that these trends include periods of recession and expansion as well as increases and decreases in income tax rates, and still a pretty flat trend. Also note that with the year 2008 there was a substantial increase in outlays as a percent of GDP, and an increase that has no precedent over this 60 years period.

It seems to me that Congress has acted less constrained concerning spending choices over time, and most recently Congress has shifted into another gear with spending and borrowing. I suppose we could fuss over whether Congress has a spending problem or a revenue problem, and thus we could pick the Republican side or the Democrat side with respect to the current debate over the debt limit. Yet, we know that revenues decline in recession, and without increasing any income tax rates, revenues will again increase (as reflected in the first chart) with expansion. But Congress has seen a significant recent decrease in revenue because of recession, and instead of reducing outlays or even holding outlays constant Congress has chosen to significantly increase annual spending. Where is Congress getting the money to increase it's annual spending so much? The amount borrowed has been increased to about 10% of annual GDP, which also is a number without precedent over this six decade period.

So, this last chart gives us some perspective on the choices Congress has made over the last 60 years with respect to the amount it borrows annually. The bars depict the amount number of cents borrowed by Congress for every dollar it spend. Years without bars mean that the budget

was in surplus and no money was borrowed that year. For the first 25 years over the period portrayed in the chart, Congress mostly borrowed less than 10 cents annually for every dollar it spent. Only 6 times between 1950 and 2008 did Congress annually borrow as much as around 20 cents of every dollar it spent. But, Congressional behavior changed significantly for the last two years of this period because in these last two years Congress has borrowed about 40 cents of every dollar it spent.

I suppose some may say we should understand the dire economic situation that characterized these last two years, and therefore Congress had to take action or else. But note that over the 60 years of Congressional behavior depicted in these charts there were, as I wrote earlier, plenty of recessions and expansions, and there were also times when Congress both increased and decreased income tax rates. I'm thinking it is very difficult to justify borrowing 40 cents of every dollar spent, even given the recent recession.

I'm thinking the annual budgetary behavior of Congress has been showing a trend from 1950 until now of more annual revenue, more annual spending, and more annual borrowing. This is the way I put recent budgetary politics into perspective.

Congress, along with the President, are debating whether to increase the ceiling on the aggregate amount of borrowing and debt that our national government can incur. I know some of these leaders think it is necessary to increase this ceiling or else bad things will happen. Borrowing 40 cents of every dollar spent seems like a bad thing has already happened. The trends since 1950 depicted in these three diagrams perhaps suggest it is unwise to allow our representatives in Washington to think they can continue to borrow and borrow and borrow. When our representatives are borrowing 40 cents of every dollar they spend perhaps it is already too late to think these folks can learn some fiscal responsibility.

I've described this budgetary perspective in terms of the actions of Congress instead of the President. Of course, much of the attention in public discussions is tuned in to the President. But, keep in mind that the President does not have the power to tax, and his authority to spend is granted by Congress. In addition, the President does not have the constitutional power to borrow money. That is a Congressional power. I think it is unwise to put all of the attention on the President, and it is much better for us to blame members of Congress when they vote for borrowing, taxing, and spending policies. But, of course, since the President can veto budgets presented to him by Congressional budget bills, the President also should be seen as responsible when the fiscal actions of the national government are irresponsible.

Monday, June 27, 2011

Quote Of The Day

A society that does not recognize that each individual has values of his own which he is entitled to follow can have no respect for the dignity of the individual and cannot really know freedom.

Saturday, June 18, 2011

Equality & Inequality

In The Constitution of Liberty Hayek writes:
From the fact that people are very different it follows that, if we treat them equally, the result must be inequality in their actual position, and that the only way to place them in an equal position would be to treat them differently. Equality before the law and material equality are therefore not only different but are in conflict with each other; and we can achieve either the one or the other, but not both at the same time. (p. 150)

Wednesday, June 15, 2011

Open Letter to Barack Obama

Check out Professor Boudreaux's Open Letter to Barack Obama. Here is the punchline:
With respect, sir, you’re complaining about the source of our prosperity.
I hate it when this happens. Don't you wish more leaders in Washington understood how the world works and why we are able to live such prosperous lives?

Human Reason Advances

Human reason can neither predict nor deliberately shape its own future. Its advances consist in finding out where it has been wrong. (p. 94)

Tuesday, June 14, 2011

Why Is Water Scarce?

The following comes from a middle school textbook on civics and economics:
Even a seemingly plentiful resource such as water is considered scarce because it is not free; we pay to use it.
What is wrong with this idea?

Monday, June 06, 2011

Civilization Begins

Hayek in The Constitution of Liberty:
The Socratic maxim that the recognition of our ignorance is the beginning of wisdom has profound significance for our understanding of society. The first requisite for this is that we become aware of men's necessary ignorance of much that helps him to achieve his aims. Most of the advantages of social life, especially in its more advanced forms which we call "civilization," rest on the fact that the individual benefits from more knowledge than he is aware of. It might be said that civilization begins when the individual in the pursuit of his ends can make use of more knowledge than he has himself acquired and when he can transcend the boundaries of his ignorance by profiting from knowledge he does not himself possess.

Saturday, April 16, 2011


LARRY CORREIA rants about government on tax day. I think his rant is excellent. I'm going to have to check out his novels.

Wednesday, April 06, 2011

The Government Budget & Government Borrowing

Congressman Ryan unveiled his proposed U.S. budget yesterday, and of course there has been much recent talk in politics about taxing, spending, budgets, deficits, and debt.

There is even a lot of political theater these days over whether to continue to fund government in the current fiscal year since the last Congress failed to pass a budget. Well, I write "failed," but I suspect the people in charge of the last Congress, for whatever reasons, may simply have chosen not to pass a budget.

It seems Congressman Ryan is trying to lead Congressional budget choices in the direction of balancing the U.S. government budget some time in the future. I suppose that may seem a worthy goal for the government's future, but I'm wondering what sense it makes for government to routinely run a deficit?

When the President and members of Congress choose to run a government deficit it means that the President and members of Congress are choosing to spend more in any year than the government takes in through taxation in that year. This means the President and members of Congress are choosing to borrow at least some of the money they spend "on our behalf."

Well, how often have the President and members of Congress chosen to borrow money? When the President and members of Congress choose to borrow money, how much do they borrow?

To answer these questions I went to the web page for the President's annual budget, and I downloaded the historical tables in spreadsheet form. It turns out that in only 6 years in the last 50 years have the President and members of Congress chosen not to borrow money to spend on government projects and activities. It seems rather routine for the President and members of Congress to borrow money for the things they do "on our behalf."

To get a sense of how much the President and members of Congress choose to borrow when they borrow I used the spreadsheets to calculate how many cents of every dollar spent by the President and members of Congress in any year come from borrowed money. In 1980 for example the President and members of Congress borrowed 20 cents of every dollar they spent, and back in 1970 they borrowed only 1 cent of every dollar they spent.

The two largest years for borrowing by the President and members of Congress over all of the last half century have come in the 2009 and 2010 budget years. In 2009 the President and members of Congress borrowed 40 cents for every dollar they spent that year, and in 2010 they borrowed 42 cents on every dollar they spent. The next largest amount borrowed was in 1983 when the President and members of Congress borrowed 26 cents on every dollar they spent.

In the current budget year the President offered to Congress a budget proposal that apparently proposed borrowing 33 cents for every dollar they would spend in the 2011 budget year. I see from today's editorial in Investor's Business Daily that the President and members of Congress are finding it difficult to agree to cutting $33 billion from the 2011 budget. In other words, the President and members of Congress are arguing over whether they should borrow 33 cents or only 32 cents on every dollar they spend during the 2011 budget year. No, I'm not kidding.

Once again I wonder why the President and members of Congress want to borrow money at all, much less 40 cents or even 30 cents for every dollar they spend on our behalf. I understand Congressman Ryan, as well as many other republican members of the House, are proposing that the U.S. budget return to 2008 spending levels, and this is like proposing to return to a year in which the President and members of Congress chose to only borrow 15 cents on every dollar they spent that year. Why not propose a return to 1970 when the President and members of Congress chose to only borrow one penny for every dollar they spent?

I don't think it is easy to pick out the specific things the President and members of Congress borrow money for. So, I think it is acceptable to conceptually frame their choices as borrowing money for every government policy, action, and activity. Recently Senate Majority Leader Reid appeared on YouTube lamenting the idea that some members of Congress had proposed no longer funding a government program that subsidized the annual Cowboy Poetry Festival in Elko Nevada.

No, I'm not kidding. The President and members of Congress borrowed about 40 cents in 2009 and 2010 for every dollar they spent on this Cowboy Poetry Festival. Imagine that. I recently borrowed money to purchase a home, and the President and members of Congress are borrowing 40% of the money they spend to fund this Cowboy Poetry Festival.

Honestly, I can't imagine how anyone could justify using Congress's constitutional power to tax to gain the money to fund a Cowboy poetry festival, much less borrow 40% of the money from our future incomes and from the future incomes of our kids to fund such an activity. Of course, I even suspect that such programs as these should be declared unconstitutional because I simply can't find "Congress shall have the power to subsidize Cowboy Poetry Festivals" in the list of enumerated powers in Article 1, Section 8 of our Constitution.

But, then again, I might change my tune if I thought, as Senator Reid seems to think, that ending the government program in question would mean that the tens of thousands of people who attend the Cowboy Poetry Festival each year "would not exist." Maybe the President and members of Congress should borrow money so that these people can continue to live, eh?

Wednesday, February 16, 2011

The Daily Show, Economics Edition

Check out economist Ed Glaeser on THE DAILY SHOW. I might have to use Glaeser's new book in my Econ 425 Urban Economics course next semester.

Sunday, February 06, 2011

Cotton Subsidies

Check out THIS VIDEO about cotton subsidies. So, how do you like the idea that some of your tax dollars (well, perhaps some of the dollars borrowed by Congress) are being spent to subsidize cotton farmers in Brazil?

Our government enjoys supplying rent seeking so much that it supplies rent seeking farmers from other countries. Very interesting, eh?

Oh, I've got an idea. If the people in Congress really are interested in cutting down the size of their budget deficit, then the least they could do is end cotton subsidies both for farmers in the United States as well as for farmers in other countries.

Monday, January 24, 2011

Reflections on Graduate Economics Education

GREG MANKIW discusses graduate economics education:
The question we face as designers of educational programs is how to structure them in light of the longer times that PhDs take and the fact that some students who start these programs may rationally choose not to complete them. The answer may be to divide current PhD programs into two chunks. The first chunk would be a two-year master’s degree focused on taking advanced courses. The second chunk—appropriate for only a subset of master’s students—would be a research degree culminating in the PhD.
For quite some time my advice to most of my undergraduate students about pursuing a Ph.D. in economics has been consistent with Mankiw's suggestions. I think it is worth reading his entire post.

PETER BOETTKE also notes Mankiw's suggestions and offers:
Back to Mankiw's reflections --- at GMU we have a strong MA program, and within that a track that the Mercatus Center supports that has done an excellent job of placing students in highly leveraged positions in public sector, public policy think-tanks, and the private sector, and our full-time population of PhD students on funding graduates students in 4 to 5 years, and has a high percentage of graduation. In many ways, we are already doing what Mankiw recommends in terms of structural changes to graduate programs in economics to maximize their educational value to their customers.
I think that for almost a decade now I have been telling my students interested in economics graduate study that if I started all over today, given all that I've learned since about 1975, I would probably put George Mason at the top of my list.

Wednesday, January 12, 2011

Simple System of Natural Liberty

"I claim that a true liberalism, what Adam Smith called “the obvious and simple system of natural liberty,” contrary to both the socialist and conservative ideologues, has the historical evidence on its side. Despite the elements of regulation and corporatism defacing it (and the welfare programs improving it), it has worked pretty well for the poor and for the people for two centuries. I reckon we should keep it — though tending better to its ethics."
I think her opening essay is from the introduction to her new book BOURGEOIS DIGNITY. She concludes that the fundamental reason why we prosper is because of certain ideas. Ideas such as "the obvious and simple system of natural liberty." It is well worth the time to check out her essay and the interaction that follows at Cato Unbound. If you have the time and the interest Bourgeois Dignity and her earlier BOURGEOIS VIRTUES are important books if you want to understand why we prosper today.

Tuesday, January 11, 2011

Some of the Predators of Mali

This report in yesterday’s New York Times offers evidence of the extent to which “Progressives” will go to stop progress – evidence of the filth and pollution that flesh-and-blood individuals are obliged to endure when economic growth is forcibly halted – evidence of the utter arrogance and selfishness of rich-world elites, and of their propensity to treat other human beings as objects for amusement.
Kind of gets your attention, eh? The news report Boudreaux points to is interesting and well worth reading, especially if you were in my Power & Prosperity course last semester. The deal is that the city the news report is about is a World Heritage site and that has important implications:
"When a town is put on the heritage list, it means nothing should change,” Mr. Maiga said. “But we want development, more space, new appliances — things that are much more modern. We are angry about all that."
From the news report it seems to me that, as Boudreaux alludes to, there has recently been some development and progress going on in this city. After all, the people reported on seem to have at least some money available to spend on new wants and desires with respect to the way they live. Unfortunately, it also seems that there are predators from without who want to keep these people from using the gains they have made for their own purposes.
“If you want to help someone, you have to help him in a way that he wants; to force him to live in a certain way is not right,” he said, before lying on the mud floor of a windowless room that measured about 6 feet by 3 feet.
Well said. Put the power of government behind what a person wants to do for himself and good things will emerge in the future.

You can learn more about the necessary conditions for Mali prosperity by checking out the information at the INDEX OF ECONOMIC FREEDOM. While Mali officially has a democratic form of government, the protections for private property are weak and corruption is prevalent.

Monday, January 10, 2011

The Economist's Toolbox

"Kirzner in that 1963 work, and then again in his more developed theoretical exposition in Competition and Entrepreneurship (1973), was trying to intellectually square his understanding of mainstream neoclassical price theory, and his understanding of Misesian price theory. In short, he did not reject mainstream price theory, he accepted it but also accepted its own internal critique (provided by Arrow, but also pointed out earlier by individuals such as Joan Robinson) and sought to salvage the theory by way of Mises. Arrow had asked how can price ever change to clear markets when all the actors are themselves price takers; and Robinson years earlier had pointed out that they only to get into equilibrium under standard assumptions was to already be in equilibrium. Kirzner provides an answer with only slight modification of the assumptions to the neoclassical model."
Boettke's summary of the critiques of Arrow and of Robinson may help some of my students, especially those in Intermediate Microeconomics last semester, understand my discussions of the equilibrium nature of demand and supply, why I emphasized the nature of comparative static analysis, and why I ended the semester with a discussion of entrepreneurship as a significant missing link in understanding the real and emergent economy.

Economists Used to Believe This

PETER BOETTKE has a very interesting post about the conceptual context for the work of Israel Kirzner. Students in economics classrooms today may be interested in the history of economic thought that Boettke describes in his post. I think there is a significant delay between where economic analysis is currently and what is presented in undergraduate textbooks and course work. Thus, as you read Boettke's history you may recognize that much undergraduate economics is consistent with a conceptual economic framework that was the foundation of the economic discipline some decades ago. I think this is especially true with respect to the analysis of entrepreneurship, public policy, and prosperity.