Monday, December 31, 2012

Why I am pro gun and always will be

I recently read the David McCullough book 1776. I enjoyed it and I wholeheartedly recommend it. As you probably guessed the book tells the story of the continental army's campaigns and battles during 1776, from the siege of Boston up through Washington's midnight crossing of the Delaware.

I don't really remember how the revolutionary war was taught when I was in high school but reading this book was definitely a learning experience. Like most Americans I think that George Washington was a great patriot and outstanding general. He beat the most powerful army of the time after all. But Mr. McCullough also shows his blunders and mistakes. He makes Washington human, full of worries about his own ability and the ability of his soldiers and officers. Even some of Washington's closest friends and confidants doubted his ability to lead the Americans to victory at times.

And they did this for good reason. The continental army was made up of young boys, old men, and every age in between. They were for the most part untrained and highly undisciplined. Many deserted, some back to their homes others to the British. They were short on supplies and many were left shoeless in the cold northeastern winters. While I was reading the book all I kept thinking was "How did this ragtag bunch of guys ever win this war?". It seemed impossible.

But the revolutionary war could have been a lot more difficult than it was. King George and Parliament could have outlawed guns. After all, there was no continental army before the continental congress decided to create one in defiance of their king. The colonies had no standing army to call on to fight the British for them. They had to form one, an army made up of everyday people fighting for the freedom that they felt was being denied to them. These men took their rifles, muskets, and pistols from their houses to the battlefield. How would they have fought the British if they had not been allowed to own guns?

Some people will say that this is a ridiculous example. We don't have to worry about rebellion and revolution and fighting our government in this country. It is OK for us to give up some of our individual rights to own weapons and just allow the police and army to protect us. They will never turn on us, we will never need to protect ourselves from them.

Maybe that is true now. But will it always be that way? Will we always be able to rely on our government to protect us, even from themselves? Will there never be any minorities, like the Japanese Americans in the 1940's, who have to worry about their government throwing them in prison camps? That was only 70 years ago. Or what about African Americans during the Jim Crow era, who often relied on personal firearms to protect themselves from racists when the police were looking the other way. I doubt that they would have felt comfortable being told that they were not allowed to own a gun.

I find it hard to believe that we have reached such a level of peace in the last 50 years that I no longer have to worry about protecting myself and can instead rely on the police to do it for me. And not only that, but I also no longer have to worry about my government turning against me, even though every government I can think of has at some point turned on its citizens or at the very least a minority of them.

The point is that yes, maybe today we don't need semi-automatic rifles, machine guns, grenades, or even tanks in the hands of private citizens. Maybe. But even if that is true that is just today. What about 100 years from now, or 200 years? Will our posterity also be alleviated of this threat? History tells us no. But once we give up guns, once we let the government take them away a little at a time, I promise that they will not give these rights back when they become oppressive. If we lose the right to carry these kind of weapons now we lose it forever. And when the day comes that we do need these weapons they will not be around except in the hands of the very people we are trying to defend ourselves against.

In closing I have two quotes from the great patriot and American, John Adams.

 "Remember, democracy never lasts long. It soon wastes, exhausts, and murders itself. There never was a democracy yet that did not commit suicide. It is in vain to say that democracy is less vain, less proud, less selfish, less ambitious, or less avaricious than aristocracy or monarchy. It is not true, in fact, and nowhere appears in history. Those passions are the same in all men, under all forms of simple government, and when unchecked, produce the same effects of fraud, violence, and cruelty."
- John Adams

"Posterity! You will never know how much it cost the present Generation to preserve your Freedom! I hope you will make good use of it. If you do not, I shall repent in Heaven, that I ever took half the Pains to preserve it."
- John Adams

Wednesday, December 26, 2012

On the topic of firearms

I am working on a post explaining my personal position on gun control. In the meantime I would like to share some quotes on the topic. These quotes have a common theme and are in line with my personal feelings. Enjoy.

"The constitutions of most of our States assert, that all power is inherent in the people; that they may exercise it by themselves, ... or they may act by representatives, freely and equally chosen; that it is their right and duty to be at all times armed; that they are entitled to freedom of person, freedom of religion, freedom of property, and freedom of the press."
- Thomas Jefferson

"To disarm the people is the most effectual way to enslave them."
- George Mason  

"Besides the advantage of being armed, which the Americans possess over the people of almost every other nation, the existence of subordinate Governments, to which the people are attached, and by which the militia officers are appointed, forms a barrier against the enterprises of ambition, more insurmountable than any which a simple Government of any form can admit of. Notwithstanding the military establishments in the several kingdoms of Europe, which are carried as far as the public resources will bear, the Governments are afraid to trust the people with arms."

 - James Madison

"The Constitution shall never be construed to prevent the people of the United States who are peaceable citizens from keeping their own arms."
- Samuel Adams

"The most foolish mistake we could possibly make would be to allow the subject races to possess arms. History shows that all conquerors who have allowed their subject races to carry arms have prepared their own downfall by so doing."
- Adolph Hitler

"No Free man shall ever be debarred the use of arms."
- Thomas Jefferson

"The militia is the natural defense of a free country against sudden foreign invasions, domestic insurrections, and domestic usurpation of power by rulers. The right of the citizens to keep and bear arms has justly been considered, as the palladium of the liberties of the republic; since it offers a strong moral check against the usurpation and arbitrary power of rulers; and will generally ... enable the people to resist and triumph over them."
- Joseph Story (Supreme Court Justice)

"Before a standing army can rule, the people must be disarmed; as they are in almost every kingdom of Europe. The supreme power in America cannot enforce unjust laws by the sword; because the whole body of the people are armed, and constitute a force superior to any bands of regular troops that can be, on any pretense, raised in the United States"

- Noah Webster

"Are we at last brought to such humiliating and debasing degradation, that we cannot be trusted with arms for our defense? Where is the difference between having our arms in possession and under our direction, and having them under the management of Congress? If our defense be the real object of having those arms, in whose hands can they be trusted with more propriety, or equal safety to us, as in our own hands?"
- Patrick Henry

"Guard with jealous attention the public liberty. Suspect everyone who approaches that jewel. Unfortunately, nothing will preserve it but downright force. Whenever you give up that force, you are inevitably ruined"
- Patrick Henry

"And what country can preserve its liberties, if its rulers are not warned from time to time that this people preserve the spirit of resistance? Let them take arms....The tree of liberty must be refreshed from time to time, with the blood of patriots and tyrants"

- Thomas Jefferson

Friday, December 21, 2012

Are monopolies back? Part 3

Part 3: What is the role of a business?
In their article, Mr. Lynn and Mr. Longman lament the "consolidation" of America's businesses and blame said consolidation as a cause of the current jobless recovery. In my previous posts I provided some evidence and reasoning that shows that "monopolies" are not as bad for consumers as people think. But what about for workers?

It could be reasonably argued that more consolidation means less employers which means less competition for workers. This is one of the arguments put forth by Messieurs Lynn and Longman. But have we really reached that extreme point? I think it is quite a stretch to say that there are not enough potential employers for most occupations. Off the top of my head football players, basketball players, baseball players and other athletes might have a few complaints (Note that the NFL, MLB, and the NBA have some antitrust exemptions granted to them by Congress. There is that government monopoly thing again...). But computer programmers? Lawyers? Investment Bankers? Cooks? Dentists? Teachers? Mechanics? Analysts? Do any of these occupations really suffer from a lack of employers? I personally do not think so.

Regardless of how one feels about the current amount of employers, a more fundamental question is whether it is the responsibility of firms to create jobs. I do not think that it is. The purpose of a business is to make the owners money. They do that by creating a product or service that people value. Jobs usually accompany the production of a new job or service, but that is not and should not be the reason someone starts a business. If jobs are truly our goal as a society, then we should give our construction workers spoons instead of bulldozers. Similar substitutions could be made in other professions.

When economists talk about the labor/leisure decision, labor is a bad. Leisure is everything people do that does not involve working. Working i.e. labor is what people do so that they can consume. People only work to consume. You might be thinking "hey wait, I like my job". And maybe you do. But I doubt you would continue to do every aspect of your job if you had a billion dollars. The parts of your job that you like you could certainly continue to do as a hobby and it would fall under leisure. But the paperwork, the emails, the nagging boss, the deadlines, etc., that could all go away. I think that even the people that love their work would give up the annoying parts if they could.

In my opinion the ultimate goal of society should be to have machines making all of our consumer goods. Machines can work 24 hrs a day with no breaks or vacations. Goods would be cheaper and much more prevalent. People could focus their time and energy on more service oriented jobs or on inventing new products to help people live better lives. Time, energy, and human capital are scarce resources. There is no need to waste them on doing things that machines can do.

We do not need nor should we desire a world where people do monotonous factory work for 40 hours a week. Yet our politicians and media tell us that the loss of factory jobs is a terrible thing. I understand that the factory jobs of yesterday paid more than the jobs of today, but much of that wage premium was a union fantasy and the result of a temporary period of American dominance in a post WWII world.

As a society we should be happy to see China, India, Indonesia, and other developing countries increase their standard of living and join the modern world. Instead we yearn for the days of old when Americans were doing the same boring, tedious, factory work now being done in those countries.

Progress will always create winners and losers, with the winners far outnumbering the losers. Hopefully we will reach the point where we desire the return of the auto assembly line worker as much as we desire the return of the blacksmith.

Wednesday, December 12, 2012

Are monopolies back? Part 2

Part 2: How likely are monopolies? 
In my last post I showed that Standard Oil and Alcoa were not quite the terrifying monopolies that they have been made out to be. But how can this be? Standard Oil controlled 88% of the refined oil market by 1890 and Alcoa controlled 91% of the primary aluminum market by the 1930's. Those sure sound like market dominating numbers.

The real problem with trying to define a monopoly is coming up with the definition of the potential monopoly's market. How a market is defined will directly impact the number of available substitutes. The number and quality of substitute goods are both very important when determining how much competition a firm faces.

Let's think about Standard Oil. Was Standard Oil really only competing with other oil refining companies? One of Standard Oil's most important products was kerosene for lamps. If you think of Standard Oil as being in the light producing business instead of the oil refining business, you can begin to see that Standard Oil had a large number of competitors. In addition to other oil refining companies, Standard Oil had to compete with candle makers, trees, and the sun to name a few. All 3 of those goods are substitutes, but they are hardly the only ones. Whale oil can light lamps. People can alter their behavior by sleeping more and working less when it is dark. While none of these may be perfect substitutes for kerosene, if the price of kerosene increases people on the margin will switch to some combination of these goods or something else that I have failed to mention.

But perhaps most importantly, new goods that are even better substitutes can be invented. In 1879 Thomas Edison patented an incandescent light bulb that used a carbon filament. By 1914 88.5 million lamps were being used in the U.S. Three years earlier, in 1911, Standard Oil's market share had fallen to 60%.

If Standard Oil had kept the price of their refined oil and thus kerosene artificially high, they would not only have had to worry about other oil refining companies undercutting them. They also would have had to worry about people switching to wood, candles, whale oil, or even forgoing artificial light altogether. To make matters worse, they constantly had to worry about someone inventing something even better than what they were selling! This unseen competition always exists for every company in every industry. The higher Standard Oil's prices, the stronger the incentive for entrepreneurs to come up with something new, better, and of greater value.

This same analysis just as easily applies to Alcoa. Only government sanctioned monopolies are truly shielded from the threat of competition. The thought of natural monopolies arising on their own with no state assistance, either direct or indirect, is very hard to believe.

The next time you hear about a company monopolizing a market, think hard about what their market really is. Chances are it is much larger than you first thought. When the company is correctly viewed as a competitor in this larger market I bet that they are not as dominant as they first seemed.

Monday, December 10, 2012

Are monopolies back? Part 1

This is the first of a 3 part series on monopolies. I am dividing the post into 3 parts just to keep it the posts shorter and more blog friendly.
In a recent NY Times article by the always enlightening Paul Krugman, Mr. Krugman makes the case that a return of the Gilded Are robber barons is partially to blame for the slow recovery in America. To be fair, Mr. Krugman does not do his own research but instead cites an article from The Washington Monthly written by two fellows of the New America Foundation. In this article, the authors Mr. Lynn and Mr. Longman use historical and present day anecdotal evidence to argue that increased corporate consolidation is holding back the emergence of new small businesses, which they claim are the primary drivers of job growth.

But is the U.S. really going back to the days of Rockefeller, Carnegie, and Morgan? And even if we are, is that really so terrible?

Part 1: Debunking the robber baron myth

First, just to set the historical record straight, a little data on the two classic historical "monopolies" Mr. Lynn and Mr. Longman refer to in their article, Standard Oil and Alcoa.

Standard oil was incorporated in 1870 in Ohio by John D. Rockefeller, his brother, and a few other investors. By 1890 they controlled 88% of the refined oil flows in the U.S. That sure sounds monopolistic huh? But what actually happened to the price of refined oil? In the graph below (source) you can see that the price went from $0.26 in 1870 to about $.06 cents in 1898. That hardly seems like the pricing trend of a monopolist. (Click graph to expand)

The ideas of knowledge specialization, trade secrets, and increasing returns to scale, criticized by Mr. Lynn and Mr. Longman in their article as "corporatism", are the reasons Standard Oil was able to lower the price of refined oil so dramatically. Since when is creating a product that people want for less money harmful to consumers or the public in general? Yet many people today still believe that John D. Rockefeller was an unscrupulous businessman driven by greed and the love of money, his only goal in life being to screw over the oil consuming public.

In reality Mr. Rockefeller was exceptionally hard working and thrifty. His donations to medical research were instrumental in the eradication of yellow fever and hookworm. He founded the University of Chicago and Rockefeller University and as a devout Northern Baptist supported many church based institutions. Though I am certain he had his faults, he was hardly the snake that many people know him as.

If you want to learn more about Standard Oil I suggest this unbiased article by Lawrence Reed in the The Freeman.

Like Standard Oil, Alcoa has become synonymous with the evil monopoly. In 1938 the Justice Department under FDR sued Alcoa, demanding that the company be broken up. Four years later the case was tossed out and two years after that, in 1944, the U.S. Supreme Court referred the case back to the U.S. Court of Appeals for the Second Circuit. Ultimately the case was referred back to District Court which rule against divestiture in 1950, though they did place Alcoa under watch for 5 years.

What was Alcoa's crime? Well in the words of judge Learned Hand, the Second Circuit Court of Appeals judge who presided over the case, they were just too good. From his case opinion:

“It was not inevitable that it should always anticipate increases in the demand for ingot and be prepared to supply them. Nothing compelled it to keep doubling and redoubling its capacity before others entered the field. It insists that it never excluded competitors; but we can think of no more effective exclusion than progressively to embrace each new opportunity as it opened, and to face every new-comer with new capacity already geared into a great organization, having the advantage of experience, trade connections and the elite of personnel.”

So Alcoa just reacted before everyone else, had more experience, better logistics, and better workers. That was their crime. Meanwhile, what was happening to the price of aluminum ingot during Alcoa's reign of terror? As you can see in the graph below, not much (source).

Alcoa became the only legal supplier of aluminum ingot in 1903 and remained the only one while there patents were in force. The price was $0.33/pound that year, down from $0.60/pound in 1895. As seen in the graph, there was a large spike due to the increased demand of WW1 but other than that the price stays relatively constant between $0.15 and $0.30 cents through 1970. The Alcoa "monopoly" was ended in 1955.

So even if Alcoa was a monopoly, it does not appear that they charged consumers classic monopoly prices.

It seems as if both scholars and journalists spend an immense amount of time worrying about natural monopolies even though history shows they never really exist (this is in contrast to government sanctioned monopolies which do exist and are the ones that we should be worried about). In my next post I will discuss why natural monopolies are not as common as we think they are and why they are unlikely to become so regardless of any antitrust laws on the books.

Wednesday, December 5, 2012

Entry exams are not going to improve teacher quality

The American Federation of Teachers, an affiliate of the AFL-CIO (shocker), has proposed an entry 'bar' exam for teachers. Despite what the AFT says, this exam will not improve teacher quality.

Many public choice economists associate certifications, licenses, and other attempts at excluding people from various professions with rent seeking. Often the people who are already in the profession, and thus voting on the new licensing standards, are grandfathered out of the new requirements. This implies that the requirements are more about limiting their future competition than increasing their expertise. In many cases it also leads to the profession charging a premium for their services since they are now "licensed" or "certified", despite the fact that as a group they are no more knowledgeable than they were before and no more qualified than the uncertified practitioners.

Certifications rarely lead to improvements in product quality despite the new higher prices. Has the bar exam eliminated bad lawyers? Has the AMA eliminated bad doctors? Does the fact that your plumber or electrician is certified make them good? What about your hairdresser or manicurist? I am sure that everyone reading this has had nothing but wonderful experiences with all of the occupations I just named. And lets not forget that teachers are already certified by their respective states.

When it comes to certifications/licenses I am reminded of a scene in the movie Tommy Boy. In the movie Tommy Callahan, played by Chris Farley, is attempting to sell brake pads to an automotive supply store owner, Ted Nelson: Video Here

 Tommy: ...Let's think about this for a sec, Ted, why would somebody put a guarantee on a box? Hmmm, very interesting. 
Ted Nelson: Go on, I'm listening. 
Tommy: Here's the way I see it, Ted. Guy puts a fancy guarantee on a box 'cause he wants you to fell all warm and toasty inside. 
Ted Nelson: Yeah, makes a man feel good. 
Tommy: 'Course it does. Why shouldn't it? Ya figure you put that little box under your pillow at night, the Guarantee Fairy might come by and leave a quarter, am I right, Ted? 
Ted Nelson: What's your point? 
Tommy: The point is, how do you know the fairy isn't a crazy glue sniffer? "Buildin' model airplanes!" says the little fairy, well, we're not buying it. He sneaks into your house once, that's all it takes. The next thing you know, there's money missing off your dresser and your daughter's knocked up, I've seen it a hundred times. 
Ted Nelson: But why do they put a guarantee on the box? 
Tommy: Because they know all they sold ya was a guaranteed piece of shit. That's all it is, isn't it? Hey, if you want me to take a dump in a box and mark it guaranteed, I will. I've got spare time.

I view certifications/licenses the same way Tommy views guarantees. Professions put a certification on themselves to make consumers feel all warm and toasty inside, but they know that all they did was certify a piece of shit.

Free markets and competition are the only mechanisms that can eliminate poor performers. Licenses and 'bar' exams will not do the trick. Competition gets rid of bad lawyers, bad doctors, bad plumbers etc. But teachers want to shield themselves from this competition. They would rather hide behind exams and training requirements and act like they are doing something.

This is too bad, especially for the youth of America. Increased competition is the only hope for improving K - 12 education in this country.

Thursday, November 29, 2012

The government spends how much?!?!

In this video Dr. Antony Davies breaks down federal government spending. Using 2011 budget numbers he shows that the federal government could do nothing but pay interest on the debt and run medicare, medicaid, and social security and still they would not have balanced their 2011 budget.

Seeing how much the government would need to have cut just to balance the budget in 2011 shows that we have a serious problem in this country. Our spending cannot continue at current rates. Like Dr. Davies says in the video, we need to seriously rethink what we want our government to do. If we want it to continue to do the things it does now we are looking at 100% tax increases across all income brackets. Soaking the rich will not work, there just are not enough of them.

So whenever you hear politicians tell you we can solve our debt problems by raising taxes on the 1% remember this video. That claim is just not mathematically possible.

Sunday, November 25, 2012

Is Price Gouging Wrong?

In the aftermath of Hurricane Sandy there was a lot of talk about price gouging. Governor Christie of New Jersey warned businesses not to engage in price gouging and promised to prosecute any business that did. But is price gouging wrong? Is it immoral? Take a look at this video before jumping to any conclusions.

Price Gouging Video

Also, since gas stations were not allowed to "price gouge" in New Jersey, how was gas allocated? After all, if the price is not allowed to rise to meet demand some other mechanism of allocation must be used. So what happened? Time travel back to the 1970's.

Tuesday, November 13, 2012

Should we quit building on the coasts?

In an article on, Carl Safina argues that it is foolish for people to rebuild in the wake of hurricane Sandy. The article is a good read and brings up a lot good points. The main argument is:

"The government should at this time help victims get their lives back on track. But no federal dollars should magically appear for rebuilding in flood-prone areas. The spots that flood will take repeated hits. Everyone knows this. To help people rebuild in those places is to help put lives and investment in harm's way. It's foolish."

I agree with him that rebuilding should not be subsidized with federal dollars. I also agree with him about ending federal flood insurance, insurance that is priced artificially low and distorts the true cost of living on the coasts. Mr. Safina himself has federal flood insurance and asks to be cut off. From the article:

"Insurance for new building in flood-prone areas should be ended. People who really want to take their chances should do just that, or pay real commercial insurance premiums if they can find a willing insurer. Eventually even Lloyd's of London will likely decide it's had enough. Insurers must be realistic about risk in ways politicians don't have to be."

Some people might say that this is unfair, but what is really unfair is coastal living being subsidized by inland taxpayers. Sure we would all like to live on the beach, but with accurately priced insurance premiums it is prohibitively expensive for most of us. It is time that we recognize this and quit rebuilding only to watch all of those resources be destroyed by the next storm.

Monday, November 12, 2012

What mandate?

I keep hearing people like Michael Moore and Peter Colavito of the SEIU refer to Obama's win as a mandate. According to Merriam-Webster the definition of mandate is "an authoritative command". I guess what those guys are saying is that the people of America gave Obama an authoritative command, to do what I have no idea. But did they even do that?

According to Center for the Study of the American Electorate only 57.5% of the eligible voters voted in this election. So 126 million people voted and 93 million people didn't. Obama won 51% of the people who voted, Romney 48%. So out of all of the eligible voters in the U.S., Obama got 62 million out of 219 million people to actively support him. Since when is 28% approval enough to be called a mandate?

Look, I get it, Obama won. And politicians from both sides like to act as if their victories are "mandates". But this is ridiculous. 72% of voters wanted someone other than Obama. And even if some of the voters who didn't vote are happy that Obama is president they are certainly not so overjoyed that we should consider their tacit approval a mandate.

I wish politicians from both sides of the aisle would realize that most voters usually choose the lesser of two evils and that given the choice between Obama, Romney, and a Bert and Ernie ticket, Bert and Ernie would have easily gotten a plurality. Especially if they tapped Big Bird as their campaign manager. Sesame Street vs. K Street. That would have been an interesting 4 years.

Sunday, November 11, 2012

NFL/NCAA wrong to lock high school players out

Here is an op-ed I wrote for Clemson's student newspaper, The Tiger.

On Saturday October 27th, South Carolina running back Marcus Lattimore suffered a dislocated knee in a game against the Tennessee Volunteers. This is the second significant knee injury for Lattimore in as many years. While team officials and doctors are optimistic about Lattimore’s chances to play football again, this injury forces us to reexamine the NFL’s “3 year rule”.
For those not familiar with the rule, the collective bargaining agreement between the NFL and the NFL Players Association (NFLPA) states that athletes who want to enter the NFL draft must be out of high school for at least three years. Supporters claim that this rule is in place to keep college athletes in school longer and to ensure that those drafted are physically ready for the NFL. I say what a bunch of garbage. What it really does is protect current players from competition, save the NFL team owners money, and line the pockets of college athletic departments.
It should come as no surprise that the NFLPA, NFL, and NCAA agreed to the rule. Look at the incentives involved. Current players do not have to worry about younger, cheaper athletes taking their jobs. The owners get a free developmental league which they do not have to pay a dime to support. Major college athletic departments get to field an elite product using extremely cheap labor. In the 2010 – 11 season, the University of Texas football team led the nation with a profit of just over $71 million. Twelve other schools earned over $30 million in profit[1]. I doubt that these large profits would be possible if the best players were allowed to skip college football, leaving colleges with a shallower talent pool.
But all of this misses the moral issue. Why are college football players denied the right to earn a living? The best players, players like Marcus Lattimore, would be millionaires right out of high school. Who are we as a society to say that it is OK for Mark Zuckerberg to drop out of school at 19 to take a risk starting a business but it is not OK for Marcus Lattimore at the same age to take his chances in the NFL? Like Mr. Lattimore, Mark Zuckerberg likely would have benefited from the increased maturity that comes with age before starting his business. But that does not mean that we have the right to deny him the opportunity. It is not obvious that college football players are systematically less mature than aspiring entrepreneurs yet we treat each group as if that were true. And I do not buy the argument that college players are physically unable to handle the NFL. According to the recruiting website, Marcus Lattimore was 6 feet tall, 210 pounds and could bench press 270 pounds coming out of high school, numbers that are well within the range of NFL running backs. The four and five star recruits that would likely choose the NFL over college are physically gifted.
Supporters of the rule often point to the fact that the average NFL career is only 3.5 years long. Well according to a recent study, up to 75% of startups fail[2]. Yet society encourages Mark Zuckerberg to take a risk while discouraging Marcus Lattimore. Perhaps society values intellectual pursuits over physical. Or maybe the Zuckerbergs of the world are better able to gauge risk than the Lattimores. Whether the first statement is true or not, it ignores the injustice done to the individual and I think the second is false.
Allowing the best players the opportunity to skip college for the pros would also help the integrity of college football. We never hear about improper payments to college baseball or hockey players because the great players that the coaches and boosters want to pay go pro. In football, however, society has decided that it is better to force young athletes to go to college, regardless of their circumstances. What if a player is from a poor family and needs money to help a loved one? Too bad. The NFL and NCAA officials sleep better at night knowing that they forced him to go to college, regardless of his needs.
            What the NFL and the NCAA are doing to the young men that play college football is terrible. They are depriving them of their right to earn a living under the guise of “protecting them”, when really they are only protecting themselves financially. I hope that the players begin to understand their situation and that they put pressure on the NFL to change their rules, either by new challenges in court or by choosing to play in other professional leagues such as the Arena League or the CFL, perhaps even in lieu of playing in college.


Wednesday, October 24, 2012

What is up with the China bashing?

In last nights presidential debate, both Obama and Romney gave China a tongue lashing reminiscent of the Michael Fay ordeal. Why? Because China sells goods to us too cheaply. Yes, you read that right. Both Romney and Obama want China to jack up their prices. Walt-Mart, you're next.

In the candidates defense, there are some reasons why we may not want China to do this, though I do not find any of them particularly convincing.

1. Trade deficits are bad in the long run. - China is not using the dollars we send them to buy American goods (at least directly). Instead they are buying American Treasury bonds, which is a form of direct investment. America needs to pay the interest and principle on these bonds and China can use their ownership of this debt as leverage when it comes to bargaining with the U.S. over various things. At least that is what people tell me. I am not that convinced. Besides, if we used the direct investment provided by China to invest in things like infrastructure and research that will (hopefully) increase output/economic growth in the future, we should have no problem paying back our debts to China. This is especially true when you remember that the interest rate on T bills is very low compared to other forms of investment due to them being "risk-less" assets. Unfortunately the government is using most of this direct investment to fund current consumption in the form of medicare, social security, medicaid and who knows what else.

2. The dollar might lose its place as the reserve currency. - Currently the dollar is the reserve currency for most if not all of the world. This means that the U.S. can borrow at a lower rate since there are always countries ready and willing to lend to America. It also means that most of the internationally traded commodities like oil and gold are valued in dollars, which gives Americans a slight advantage when purchasing these commodities since we do not incur the transaction costs that are a part of exchanging one currency for another. It is believed that the relative stability of the U.S. dollar, the size of our economy, and the fact that the U.S. pays its debts is largely responsible for the dollars elevated status. But just like a person who borrows too much, as the U.S. deficit rises countries may start to question our ability to pay our lenders and thus may demand higher interest rates or perhaps stop lending to us altogether. That would be very bad, at least in the short term.

I believe that this criticism does have some validity. However, I do not think that our trade deficit with China is that much of a contributing factor. The U.S. certainly has a spending problem, but the deficit with China is a small part of that problem and in my opinion a straw man for the larger issue.

3. It causes job loss in the U.S. - Quick answer: that is not at all obvious. Last night Obama talked about how his tariff on tires from China saved jobs. And while they may have directly saved the jobs of some tire factory workers, it is far from clear that they saved jobs overall. That is because when the price of tires goes up, which was the point of the tariffs, people buy less tires. This means less work for tire salesmen at Sears, Tire Discounters, etc., less work for truck drives who move tires from the ports inland, and less work for the crane operators who remove the shipping containers from the ships to land. I doubt that the Obama administration went around and counted all of the people in those occupations who lost their jobs because of the tariffs, but I am sure the number was far from 0.

So why might the tariff be bad for America? Increasing the price of tires is certainly bad for consumers. There are over 200 million licensed drivers in the U.S. All of them need to buy tires at some point. When you multiply the number of tires bought by 200 million people by even pennies, you are talking about a huge increase in the dollars spent on tires, which means that those dollars cannot be spent on other goods.

Are the jobs of tire factory workers worth the jobs of the tire support workers and this huge loss in the consumer surplus of tire purchasers? In my opinion they are not. But even if you think that they are, it is important to remember that tariffs do not come without costs. Like any other decision, there are trade offs.

The bottom line: Free trade is good. If anyone tells you otherwise the burden of proof is on them. And if it is me I need it to be beyond a reasonable doubt, and then a little bit more.

Friday, October 19, 2012

Minnesota bans learning

In another example of unintended consequences and government stupidity, the Minnesota government has banned free online learning websites from offering classes to the citizens of Minnesota. Yes, that is right. Banned. Why? Because of a state law meant to "protect" people.

"The law's intent is to protect Minnesota students from wasting their money on degrees from substandard institutions."

But as the article points out, no money is being spent and no degrees are being awarded. The classes are free and only individual classes are offered. There are no degree programs.

Here is a quote from George Roedler, manager of institutional registration and licensing at the Minnesota office of Higher Education.

"It's not like we're sending the police out if somebody signs up online," Roedler adds. "It's just that the school is operating contrary to state law."

Well I guess it is reassuring to know that if I did live in Minnesota and signed up for a free education class the police wouldn't kick my door in. Thanks George.

So what is Minnesota's solution to this obvious mix up? They want the institutions affiliated with Coursera to pay a registration fee! Wow. Luckily George thinks this wouldn't be too hard for the schools associated with Coursera. You hear that Stanford and Michigan? You're A OK for the citizens of Minnesota, but they are going to need some money first.

"George says he had hoped to work with Coursera to achieve that, and was surprised when they responded with the terms-of-service change notifying Minnesota residents of the law."

Really George? Surprised? You think Coursera has the manpower to go around to every state and meet some ridiculous licensing guidelines? And even if they did, is that how we want them using their resources? To placate rent seeking politicians?

So here you have a group of people and universities providing a great service at no cost to the consumer and Minnesota wants to jack up their costs of doing business in order to meet some state law that doesn't even really apply in this case. Forehead, meet desk.

The truth about the "wage gap"

In the most recent Presidential debate between Obama and Romney the equal pay issue was brought up again. As most of you probably know, there are people who believe that there is a systemic bias against women when it comes to wages. Not only does this not make much theoretical sense (why would companies hire men when they could get the same amount of work for 75% of the price?) but the data does not back it up either.

If you want to know the truth about the "wage gap" watch this excellent video by Steven Horwitz and

Wednesday, October 3, 2012

Should we prop up dairy farmers?

 Apparently California dairies are going broke.

People who have been dairy farmers there whole life, like 82 year old Mary Cameron, are losing money. In fact, Cameron is losing 40K/month! From the article:

Today, Cameron owes $7.5 million to her banks and creditors, and has run out of cash for feed. To make ends meet, she has sold cows for beef and fed her herd less grain — but that means milk production is down and so is revenue.

Cameron recently saw a bankruptcy lawyer and may have to sell her entire herd and dairy.

"It just makes me sad," Cameron said. "This is a world I love, this is my life."

How did this happen? Whose fault is it? Too much competition? Poor management? People drinking less milk? Mary Cameron thinks she knows:

For her woes, Cameron blames state officials' decision to keep milk prices lower than those in other states.

Wait. What? The problem according to Cameron is that the California government didn't keep the price high enough? So according to Cameron, the government is responsible for keeping the price of milk high enough for her to make money. And if they don't well that is just not fair.

But what about consumers? Why should everyone pay a higher price for milk so that Cameron can keep her farm? As the article states:

CDFA spokesman Steve Lyle said the reason for lower prices is that milk supply exceeds demand in California.

What Steve Lyle meant to say is that the quantity supplied exceeds the quantity demanded, but that aside, no one wants to buy the milk that Cameron is producing for the price that she wants to sell it at. Yet she, and other farmers, think that us consumers should be forced by the government to pay a price that suits them. It never ceases to amaze me that articles about agricultural price floors never mention the effect of high prices on the consumer. 

Not only are price floors bad for consumers in that they artificially reduce consumer surplus, but they also create a deadweight loss, which is bad for some producers and consumers.

California needs some dairy farmers to go out of business and the state government needs to quit fixing prices so that a market equilibrium can be reached in which the quantity demanded equals the quantity supplied. If not, consumers will bear the burden of keeping inefficient farmers like Mary Cameron in business.

"That's where I belong," she said, "...that's where I've been all my life."

No Ms. Cameron, the market says that is not where you belong. And it is not the responsibility of milk consumers to artificially support your lifestyle.

Sunday, September 30, 2012

A story about the U.S. income tax system

I got this from a friend but apparently it has been circulating around the Internet for a while now. The author is still unidentified, though it has been recently attributed to Dr. David R. Kamerschen from the University of Georgia. He denies writing it. I wish the author would claim it because I think it is pretty good and it highlights two important problems: the way the people of this country think about taxes is flawed and the unintended consequences of taxation. Enjoy.

Suppose that every day, ten men go out for beer and the bill for all ten comes to $100. If they paid their bill the way we pay our taxes, it would go something like this:

The first four men (the poorest) would pay nothing.
The fifth would pay $1.
The sixth would pay $3.
The seventh would pay $7.
The eighth would pay $12.
The ninth would pay $18.
The tenth man (the richest) would pay $59.

So, that's what they decided to do. The ten men drank in the bar every day and seemed quite happy with the arrangement, until one day, the owner threw them a curve.

"Since you are all such good customers," he said, "I'm going to reduce the cost of your daily beer by $20." Drinks for the ten now cost just $80. The group still wanted to pay their bill the way we pay our taxes so the first four men were unaffected. They would still drink for free. But what about the other six men - the paying customers? How could they divide the $20 windfall so that everyone would get his 'fair share?'

They realized that $20 divided by six is $3.33. But if they subtracted that from everybody's share, then the fifth man and the sixth man would each end up being paid to drink his beer. So,the bar owner suggested that it would be fair to reduce each man's bill by roughly the same amount, and he proceeded to work out the amounts each should pay. And so:

The fifth man, like the first four, now paid nothing (100% savings).
The sixth now paid $2 instead of $3 (33%savings).
The seventh now paid $5 instead of $7 (28%savings).
The eighth now paid $9 instead of $12 (25% savings).
The ninth now paid $14 instead of $18 (22% savings).
The tenth now paid $49 instead of $59 (16% savings).

Each of the six was better off than before. And the first four continued to drink for free. But once outside the restaurant, The men began to compare their savings.

"I only got a dollar out of the $20,"declared the sixth man. He pointed to the tenth man," but he got $10!"
"Yeah, that's right," exclaimed the fifth man. "I only saved a dollar, too. It's unfair that he got ten times more than I got."
"That's true!!" shouted the seventh man. "Why should he get $10 back when I got only two? The wealthy get all the breaks!"
"Wait a minute," yelled the first four men in unison. "We didn't get anything at all. The system exploits the poor!"

The nine men surrounded the tenth and beat him up.
The next night the tenth man didn't show up for drinks.

So the nine sat down and had beers without him. But when it came time to pay the bill, they discovered something important. They didn't have enough money between all of them for even half of the bill!
And that, ladies and gentlemen, journalists and college professors, is how our tax system works. The people who pay the highest taxes get the most benefit from a tax reduction. Tax them too much, attack them for being wealthy, and they just may not show up anymore. In fact, they might start drinking overseas where the atmosphere is somewhat friendlier.

Wednesday, September 19, 2012

America's economic freedom in free-fall

From the Cato institute. Is this really the kind of America we want? An America that limits economic freedom for all of its citizens? It is certainly not the country that I want to live in.

Tuesday, September 11, 2012

Democrats are pro choice? Hardly. exposes the hypocrisy of the Democratic party with a hilarious video of DNC delegates talking about choices. Democrats are all about choice, as long as people pick the choice that they would pick. If not then they don't like choice. Right delegate from Texas at 1:30?

Pay attention to the lady at 2:11, who is so confused by her party's hypocrisy that she fumbles a key party platform. Hey, don't feel bad green lady. If my political positions contradicted each other I might get confused too. And I think the Flapper at 3:44 basically sums up the Democratic party.

At the DNC, Bill Clinton presented a (false) choice about what kind of country Americans can live in. Either a "you're on your own" country, which he claims Republicans support (I wish they did) or a "we are all in it together" country, which the Democrats promise. Well Slick Willy, if I have to be "in it together" with these winners from the DNC, I will definitely take my chances with the "you're on your own country". Mark me down as a vote for Gary Johnson.

Friday, August 17, 2012

Policies economists love

From NPR via Greg Mankiw's blog, a list of policies that economists on both sides of the aisle would like to see in place.

I was especially happy to see that replacing the income tax with a consumption tax, legalizing marijuana, and eliminating the corporate income tax made the list. I agree with the others as well, though I would need more details about the carbon tax, but those other 3 are my favorite.

Monday, August 13, 2012

There is no free lunch Mr. Reich

I read this post by Mr. Reich last week but I haven't had a chance to comment on it until now. In the post Mr. Reich offers the following to each of the presidential candidates:

"Here’s a modest proposal I offer free of charge to Obama or Romney: Every American should get a mandatory minimum of three weeks paid vacation a year."

Mr. Reich claims that 3 weeks of vacation would be good for everyone, including employers. From the post:

"... a three-week minimum vacation is a win-win-win — good for workers, good for employers, and good for the economy. "

And though Mr. Reich likes to call himself an economist, he seems unable to grasp one of the most fundamental ideas of economics, namely that there are trade offs and costs for every activity.

Mr. Reich claims that workers who take vacations are more productive and that the increase in productivity will be enough to compensate employers who have to hire additional workers to cover for those who are off. But does it really matter if a worker at Taco Bell can make 2 more tacos an hour now that she is rested from her vacay? Taco Bell will still have to pay for two workers. The one sitting at home or at the beach and the one making the tacos that people are ordering that day.

The only way that this would not raise costs for places like Taco Bell would be if people became immensely more productive. If I can run my business with 5 people before mandatory vacations but afterwards I only need 4 (an incredible 20% increase in productivity) I would still be paying wages for 5 every time one of them took a vacation, not to mention all of the other costs that go along with hiring an employee. Even in this completely unrealistic scenario (I don't think that any study about vacations and productivity involves a 20% increase) the cost savings is not there.

A more realistic example in the neighborhood of 5-10% would mean 4.5 to 4.75 workers would still be needed after the productivity gains. Since you can't have .5 or .75 people, 5 workers would still be needed in the kitchen while 1 is being paid to stay home. This would obviously increase costs. (Note that this analysis assumes that  3 weeks vacation is enough to sustain any productivity gains for the entire year, which hardly seems certain or even probable)

This problem would occur at other fast food restaurants and retailers alike, as no increases in cashier speed or grocery bagging can replace a worker actually being there to carry out the task when it is needed.

Workers at places like Taco Bell, Kroger, and Wal-Mart are also precisely the types of workers that often do not have paid vacation and thus these are the employers who would be faced with higher costs.  Does Mr. Reich admit that this would raise costs and thus prices for consumers? No, he does not. Mr. Reich's failure to admit that it would not be a win for the consumers of these establishments, which is practically everyone, is quite an oversight.

Another issue that Mr. Reich does not address is whether this vacation is going to be mandatory i.e. your employer/the government makes you take it whether you want to or not. I assume that it would have to be, otherwise the productivity benefits that Mr. Reich lauds will be much smaller.

But what if you don't want to take vacation? Or only want two weeks? Some people really enjoy their job and may not want to take 3 entire weeks off. Others might not like coming back to a bunch of work and thus choose to take less vacation to avoid the stress that comes from a full email box. Who is Mr. Reich to say that the government knows what is best for those people?

Mr. Reich seems to think that all jobs are plug and play and that one worker is as good as the next. Maybe in the world of academia where you set your own schedule and pick and choose what you want to work on three weeks of vacation is never a problem. But in the business world in order to do someone else' job as well as they would have done it often involves a lot of time consuming training or bringing that person "up to speed". It is rarely as simple as having person A fill in for person B.

And if it is mandatory, who is going to enforce this policy? Will the government have to hire inspectors? Will it be self reporting? Will employees be able to sue employers who do not enforce the required amount of vacation? Will employee A be able to tell the authorities that employee B is not taking the required amount even if it is employee B's choice?

Getting the government involved with vacation time is a terrible idea. It will increase costs for consumers, deprive adults of their choices, and create a more bloated bureaucracy. None of that sounds like a win-win-win to me.