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Time for Show Trials

I wish I could come up with something insightful to say about this, but I'm drawing a blank. I had thought the issue of show trials for heresy had been settled, but once again I've been proven wrong. From the Guardian, here are the latest ramblings from Chief Defender of the Faith James Hansen:

James Hansen, one of the world's leading climate scientists, will today call for the chief executives of large fossil fuel companies to be put on trial for high crimes against humanity and nature, accusing them of actively spreading doubt about global warming in the same way that tobacco companies blurred the links between smoking and cancer.

Hansen will use the symbolically charged 20th anniversary of his groundbreaking speech (pdf) to the US Congress - in which he was among the first to sound the alarm over the reality of global warming - to argue that radical steps need to be taken immediately if the "perfect storm" of irreversible climate change is not to become inevitable.

Speaking before Congress again, he will accuse the chief executive officers of companies such as ExxonMobil and Peabody Energy of being fully aware of the disinformation about climate change they are spreading.

In an interview with the Guardian he said: "When you are in that kind of position, as the CEO of one the primary players who have been putting out misinformation even via organisations that affect what gets into school textbooks, then I think that's a crime."

Demand for Petroleum is Not Perfectly Elastic

Apparently 50% of liberal voters think the demand curve for petroleum is perfectly elastic. Here are the depressing results of a Rasmussen poll:

Sixty-four percent (64%) of voters believe it is at least somewhat likely that gas prices will go down if offshore oil drilling is allowed, although 27% don’t believe it. Seventy-eight percent (78%) of conservatives say offshore drilling is at least somewhat likely to drive prices down. That view is shared by 57% of moderates and 50% of liberal voters.

This makes no sense. The demand for gasoline is quite inelastic, so that relatively small changes in supply can lead to large price changes. Drilling offshore and in ANWR is no panacea, but it wouldn't take much of an increase in supply to have a noticable impact on prices. This shouldn't be a left-right issue. Now, you might plausibly say "Yes, prices would be lower, but CO2 emissions would be higher, so we shouldn't drill." But believing that prices aren't impacted by supply in a market with inelastic demand?

And what do voters think will lower gas prices? Ah yes, seizing the profits from developing alternative fuels:

Voters also believe 61% to 22% that oil companies should be required to reinvest at least a portion of their profits into alternative energy research. On this question, liberal and moderate voters are strongly supportive of the proposal while conservatives are more evenly divided (47% of conservatives in favor, 35% opposed)

Data released yesterday showed that Americans believe developing new energy sources is the best long-term solution to the nation’s energy problem. Forty-seven percent (47%) said private companies were more likely to solve the nation’s energy problem than government research programs. But, at the same time, only 52% said companies should be allowed to keep the profits from the discovery of any alternative fuel sources.

Yep, that's the ticket.

America's Trade Surplus in Bad Alcohol Policy

Via Chris Dillow, here's a proposed Scottish policy to combat "binge drinking":

The age for buying alcohol from supermarkets and off-licences in Scotland could rise from 18 to 21.

Scottish ministers said it was time for radical action in the fight against Scotland's binge-drinking culture.

But retailers and student leaders said the plan, which would see 18-year-olds still being served in pubs, was "confusing" and a "blunt instrument".

So Scots would be allowed to drink in pubs at 18, but not allowed to buy booze in stores until 21. How this is supposed to combat binge drinking is a total mystery to me. To the extent that the binging takes place in bars[1], this change clearly won't lower it.

And for the drinking that takes place in private homes, I don't see how this will decrease binging either. Alcohol is of course easy to acquire when underage, and if it's more cumbersome to do so (having to go through friends), people are more likely to just go with liquor rather than beer (easier to transport $50 of bootlegged whiskey than beer) and binge even more.

For the most part, I'm skeptical of claims made by some libertarians that drug legalization will lower usage (though I still support it). I see no reason to think that drugs aren't a normal good whose usage increases with lower prices, which would seem to be an inevitable consequence of legalization. But the substitution of hard liquor for beer is easy (virtually everyone I know did it as an underage student). If anything, I suspect this policy change will increase binge drinking.

Of course, if the Aussies have their way, three glasses of wine will now be defined as a binge, so the next step is probably a return of America's most successful alcohol policy: Prohibition.

[1] A problem in the UK that was for years exacerbated by, you guessed it, stupid laws.

Poor Arguments for Immigration

Via econlog's blogroll, I've been reading the new and excellent Growthology. Tim Kane, one of the proprietors, had this to say about immigration:

America needs more unskilled immigrants, too. Let's face it, without unskilled immigration to North America, I wouldn't exist. Neither would you, in all probability (if you're an American). And that whole existence thing hasn't turned out so bad, has it?

As a policy matter, I hold a firm conviction, based in empirical data, that the American experiment since 1789 has been an economic success. And one of the core principles of Americanism is openness to immigration.

The first claim, that we wouldn't exist without immigration, is true but irrelevant. We wouldn't exist if virtually anything in history had been different. If a brewery in North Carolina hadn't been built, my parents never would have met there. This is hardly an argument for, say, government subsidizing the brewing industry.

The second, more subtle argument is that open immigration has worked in the past, so there's no reason for it not to work out fine today. Well, what's changed in America since open immigration ended? For starters the population has increased from 125 million or so to in excess of 300 million. Government spending was under 10% of GDP in 1920. The percent of the workforce with college degrees in skilled professions was a fraction of what it is today. The transportation costs of reaching the United States has fallen drastically. Etc.

None of which, by the way, says that open immigration couldn't work. What it does say is mechanistically saying it worked alright in the past, therefore it must be fine today, isn't very persuasive.

Our own Micha says here :

If we take your claim on its own terms, and assume that immigrants make conditions in the U.S. less attractive and not more, then it is preposterous to assume that 25% or more (i.e. “billions”) of the world’s population would immigrate here, unless we first ignore the dynamic effects of immigration itself. The more people arrive - assuming as you do that immigration is a net harm - the less attractive immigration becomes to potential immigrants, and thus immigration tapers off at an equilibrium.

Now, I realize what he's trying to do, point out a glaring inconsistency in TLB's argument (not exactly a task worthy of someone as smart as Micha). But this isn't exactly a reassuring case to make to skeptics of immigration. If anything, that would strengthen to restrictionist case, that you don't need as many immigrants as feared to cause damage. (I'm aware Micha was granting the premise that immigration damages living standards, a proposition with which he does not agree. But I simply don't see how this is a case for open borders.)

Obligatory Hansononian disclaimer : Just because I believe A is a poor argument for B does not mean I oppose B.

The Massachusetts Resource Curse?

In the field of the economics of development, one of the most fundamental questions is about the so-called resource curse . Basically, the idea is that countries with high endowments of natural resources tend to have worse governance and lower rates of economic growth (this thesis is not uncontroversial empirically, I should point out). The list of reasons why this might be true is long, but one of the primary problems with natural resources is countries endowed with them are spared the hard work of developing a prosperous market economy and can simply fund their activities with the sale of oil or diamonds.

We tend to think of this as a phenomenon that afflicts developing countries, but there's no reason that it couldn't apply to the United States just as well. To wit, Massachusetts lawmakers are now proposing a tax on college endowments:

Massachusetts lawmakers desperate for additional revenue are eyeing the endowments of deep-pocketed private colleges to bolster the state's coffers by more than $1 billion a year, asserting that the schools' rising fortunes undercut their nonprofit status.
more stories like this

Legislators have asked state finance officials to study a plan that would impose a 2.5 percent annual assessment on colleges with endowments over $1 billion, an amount now exceeded by nine Massachusetts institutions.

Now, I should start by pointing out that Massachusetts is one of the richest states in the United States, a fact much beloved of left-leaning economics commentators trumpeting the superiority of their system. The fact that they are in this kind of fiscal crisis is a disgrace.

But if you're a Massachusetts lawmaker, this is perfect. Universities have huge fixed and relatively unmovable assets (buildings, stadia, etc.). Greg Mankiw (jokingly?) suggests that Harvard move to sunnier fiscal climes:

1. Instead of expanding the university into Alston, Harvard could create a second campus in another state. Call it Harvard South. (Put it in a better climate than Boston, and I would be one of the first faculty to volunteer for the move.)

2. Transfer much of the endowment to Harvard South. Support Harvard North by slowly selling off land in Massachusetts.

3. Eventually, make Harvard South the main campus, and Harvard North the satellite. If Massachusetts state lawmakers remain hostile, close Harvard North down entirely.

Now, this isn't terribly likely to happen, though frankly I'd love to see it. When resources are fixed geographically, it's very difficult for governments to commit not to plunder. (Maybe Patri should try to get Harvard to move to a seastead.)

You see this elsewhere in America. New York can get away with crummy government service for decades because the financial industry is stuck there (one of the dark sides of economies of aggregation). I had high hopes a few years ago that the internet would help to break this trend, but I turned out to be mostly wrong, at least so far.

But nevertheless, even with fixed endowments, there's only so far the government can go. Felix Salmon claims that "Right-wingers always say that if you tax people or institutions with money they won't pay more tax, they'll just move; they're rarely proved right."

Well, maybe. I haven't seen any academic economic work on internal migration in the United States, but something sure as hell is driving people away from high tax states. Housing is probably the major driving force, but at least anecdotally, taxes are a contributing factor :

The San Francisco Business Times noted recently that Bay Area millionaires are starting to take their gold out of the Golden State. The paper writes: "The Bay Area's wealth boom is producing an explosion of millionaires--in Nevada, Wyoming and perhaps Canada. Advisers to the well-heeled say 'wealth migration'--taking the money and running--is behind a surprising drop in the number of Bay Area millionaires."

The annual loss of millionaires from the Bay Area--home to Silicon Valley--knocks this extremely rich and fertile place down near the bottom of the new millionaire list, putting it in the company of Detroit, Pittsburgh and Cleveland. Of course, the middle class has been fleeing California for years. High house prices have been the main culprit. Long commutes and deteriorating public services play a part. But the flight of millionaires is very 21st century. The cause? You guessed it. Taxes.

Continues the San Francisco Business Times: "'I'm hearing from more California baby boomers, I need to get out,' said Diane Kennedy, a Phoenix accountant and financial adviser to the wealthy. 'You can still make a lot of money in California. The problem is, then you have to pay taxes on that money,' said Kennedy, who recently helped a California client with annual income of about $1 million save $96,000 annually by making his home in Jackson Hole, Wyo. his primary residence.

Felix Salmon may think "people respond to incentives" is a right wing concept, but I don't. And even Harvard may find that when pushed far enough, it might have to go slumming down in Charlotte or Houston, like the rest of America has been doing at a high rate for years now.

Italy Publishes Every Citizen's Income

Here's a shocking new low for personal privacy in a developed country:

There has been outrage in Italy after the outgoing government published every Italian's declared earnings and tax contributions on the internet.

The tax authority's website was inundated by people curious to know how much their neighbours, celebrities or sports stars were making.

The Italian treasury suspended the website after a formal complaint from the country's privacy watchdog.

I think my favorite part of the article was this:

Deputy Economic Minister Vincenzo Visco said he could not understand what all the fuss was about.

"I can't understand what the problem is," he is quoted as telling Italy's Corriere della Sera newspaper.

I'm in a hurry to hand over my medical files to the government, let me assure you.

The Tension Between Rules and Discretion

I have to confess, I'm a bit confused by the juxtaposition of two arguments I've been hearing from the libertarian blogs lately. David Friedman has been criticiszing the failure of the Texas authorities to follow proper procedure in the FLDS case. Meanwhile, there's been criticism of these fools who took a kid away from his parents after he was accidentally served hard lemonade:

Almost everyone Chris Ratte met the night they took Leo away conceded the state was probably overreacting.

The sympathetic cop who interviewed Ratte and his son at the hospital said she was convinced what happened had been an accident, but that her supervisor was insisting the matter be referred to Child Protective Services.

And Ratte thought the two child protection workers who came to take Leo away seemed more annoyed with the police than with him. "This is so unnecessary," one told Ratte before driving away with his son.

But there was really nothing any of them could do, they all said. They were just adhering to protocol, following orders.

There's an obvious tension here, and it's not clear there's a "libertarian" answer to the problem. The rule of law (as exemplified by Friedman's writings) is great, but if you're going to bang away about the importance of procedure, you can't be outraged when "just following orders" leads to zero tolerance stupidity.

For the record, I tend to agree with Will Wilkinson about the somewhat odd libertarian positions I've been reading regarding the FLDS raid. Children are not the chattel of their parents, and a legitimate state role is protecting them from abuse. For me, one facet of freedom from abuse is "the legitimate ability to choose the life one will lead as an adult." It's not an ironclad rule and would take discretion to enforce, but life is messy like that.

Housing Becomes More Affordable

I'm not a macro person, but I tend to regard this as quite good news, and not just because Dean Baker disagrees.

Home prices have posted another record decline, as most of the nation's largest markets suffered double-digit drops over last year, a survey released Tuesday shows.

The S&P Case/Shiller Home Price Index, which tracks 20 of the largest housing markets, showed prices plummeting by 12.7% in the 12 months ending February. That's the biggest fall since the index began tracking prices in 2000.

I tend to think a quick adjustment, wringing out the bubble and bringing housing back to its natural level would be the best thing that can happen. Thoughts?

Prison Fact of the Day

Most of this NYTimes article on incarceration rates is old news to everyone here I'm sure. But this part was new to me at least:

It is the length of sentences that truly distinguishes American prison policy. Indeed, the mere number of sentences imposed here would not place the United States at the top of the incarceration lists. If lists were compiled based on annual admissions to prison per capita, several European countries would outpace the United States. But American prison stays are much longer, so the total incarceration rate is higher.

I had always assumed that we convicted and sentenced more individuals, but apparently not, it's "just" that our sentences are longer.

The one example they give of an average sentence is this:

Burglars in the United States serve an average of 16 months in prison, according to Mr. Mauer, compared with 5 months in Canada and 7 months in England.

In the last twelve months, I've twice been the victim of property crime (a burglary and an attempted car theft), so I'm pretty unsympathetic to the complaints of thieves. And I'd like to see more sentencing statistics, which are pretty hard to find across states. But I thought I'd throw the question out there: With the obvious, and gigantic, exception of drug offenses, are longer sentences for "ordinary" and indisputable criminals like burglars and arsonists a black mark on the American justice system?

Obama: I'll raise your taxes even if it lowers revenues

Speaking of taxes and incentives
, what's the opposite of a supply-sider? That is, what do you call someone who wants to raise taxes in order to lower revenue?

Well, the good Senator Obama, who I have incredibly heard described as a left-libertarian, came right out and said he's for tax hikes even if they lower government revenue. Here's a transcript of an exchange on the capital gains tax during Wednesday's much-maligned debate:

MR. GIBSON: And in each instance, when the rate dropped, revenues from the tax increased. The government took in more money. And in the 1980s, when the tax was increased to 28 percent, the revenues went down. So why raise it at all, especially given the fact that 100 million people in this country own stock and would be affected?

SENATOR OBAMA: Well, Charlie, what I've said is that I would look at raising the capital gains tax for purposes of fairness. We saw an article today which showed that the top 50 hedge fund managers made $29 billion last year -- $29 billion for 50 individuals. And part of what has happened is that those who are able to work the stock market and amass huge fortunes on capital gains are paying a lower tax rate than their secretaries. That's not fair. [. . . .]

MR. GIBSON: But history shows that when you drop the capital gains tax, the revenues go up.

SENATOR OBAMA: Well, that might happen or it might not. It depends on what's happening on Wall Street and how business is going.

That's Senator Obama, who doesn't know, or apparently even care, whether or not his tax proposals actually raise money. Because they're fair, don't you see.

I'm not actually sure that that supply-side effect is real with the capital gains tax, by the way: Some or all of the measured effect could very well be just timing for tax avoidance. But it's just crazy to suggest that you don't even care about the revenue implications of tax policy.

Mike Bloomberg: Supply-Sider?

Via the New York Sun comes this, regarding a proposal to make hedge funds and private equity firms pay local business income taxes on profits generated by investments in these firms. To quote the mayor, Michael Bloomberg, "We'll see in terms of less taxes that the companies pay and less income taxes from people who work in those companies." New York City gets an unbelivable windfall from the presence of financial firms in the city, and Mayor Bloomberg is not stupid enough to jeopardize it, especially heading into a possible recession, when firms might be more willing to ditch the high rent city for greener financial pastures. Good for him.

Even more interesting to me was this, a defense of tax avoidance:

Mr. Bloomberg said yesterday that people have a right to structure their affairs to minimize their tax bills, so long as they follow the law. "In fact, the law wants you to do that. That's how we use tax law to incentivize people," he said.

Of course, one would expect Nurse Bloomberg to defend using taxes to "incentivize", being so fond of meddling. Still, it's a bit heartening to see someone actually say that you don't have a moral obligation to fork over as much money as you have in your bank account.

I actually don't think that there would be a supply-side boost to cutting income taxes in the United States, at least in the short term. But for a locality, there might very well be. Participation constraints bind much more strongly on smaller government units like cities than they do on the nation.

But what do I know? I'm actually continually amazed at the resiliance of New York City's dominance in the financial sector. If you had asked me ten years ago, I would have said that internet communications would have meant a decrease in the importance of physical location in the service economy by now, but that hasn't been the case so far.

Sports franchise owners are liars

From today's Washington Times:

NFL commissioner Roger Goodell is concerned the economics of the league's collective bargaining agreement with its players association, extended just two years ago, aren't working.

"The thing we are starting to realize is that [the CBA] has swung considerably toward the players," Goodell said yesterday at the opening of the NFL's annual spring meeting. "In the economy we have now, that can really [have] a significant impact on clubs. We have rising costs. The economics of operating a team are extremely thin margins.When you shrink the margins, at some point in time the agreement becomes untenable. We have to be very cautious here, and the players need to recognize those risks and the tremendous costs."

And yesterday, from

Stephen Ross was approved as the new 50 percent owner of the Miami Dolphins and Dolphin Stadium for $1.1 billion.

So let me see if I understand. The NFL's position is that its economics are untenably bad, and yet apparently only half of a franchise is worth $1.1 billion. Sure.

The Exodus Continues

Today, the Census Bureau released its estimates of how metropolitan area populations have changed in the last year. Here's a pretty nice summary from MSNBC. Basically, it's exactly what you would expect if you've been following these trends. Of the 50 fastest growing areas, 27 were in the South, 20 in the West. Eight of the 10 fastest growing areas were in the South, which is growing a lot: "Four of these fast-growing Southern metro areas were not only among the top 10 in percent growth from 2006 to 2007 but also among the 20 largest numeric gainers during the same period."

Unfortunately, there isn't a breakdown here of suburban versus urban growth. The Census did release the top 100 fastest growing counties, but those are almost certainly biased towards suburban counties. Nevertheless, I'd bet (and when I have more time, I'll dig into the data sets and check) that despite the much vaunted renewal of urban cores, they account for a small fraction of population growth.

People come up with all number of reasons for these trends, both good and bad. But I think it's pretty undeniable that affordable housing is near the top, if not the most important reason. Urbanists and smart growth advocates like to crow about the liveability of older communities, but until they find a way to allow actual working families to afford them, the future of growth is in the suburban South. Only when we are free to build will the migration to more affordable places cease.


Fundamentals will win out

Ryan Avent seems to think that basic economics went out the window in the housing bubble (link via Megan McArdle). I find his criticism of Fed economist Fiona Sigalla completely baffling. Here's what she said:

In addition, house prices [in Dallas] have been stable compared with other areas, Ms. Sigalla said, adding, “We have lots of available land and fewer regulations, so we have a homebuilding boom sufficient to keep home prices at bay.”

Supply expanding to meet increasing demand? Happens in almost every industry. Texas has more land than other coastal areas? That doesn't seem too controversial. Regulations raise the price of housing? Ed Glaeser doesn't think that's laughable, and he's the indisputable king of urban economics. And it's completely true that housing prices in Dallas were relatively stable (increasing only 26% from 2000 to the peak).

It's true that some areas that meet the criteria of open land and relatively lower regulation have seen a bubble (Phoenix and Las Vegas come to mind). But the fact that markets sometimes make mistakes and overshoot when groping for an equilibrium doesn't mean that fundamental economic forces are irrelevant or, as Avent thinks, completely laughable. I don't know of any economist who would even disagree with what Fiona Sigalla said, let alone find it mockable. 


Credit Where Credit is Due

(Alternative title: How Curunir Continues to Avoid Studying for Tomorrow's Exam)

The Bush Administration gets a whole lot of deserved criticism around here, not just for its non-libertarian social policy but also for a whole mess of anti-market activities. Nevertheless, when it does something good, we should acknowledge it, and here's an example of administration officials really getting it right.

The Washington Post ran a very nice piece today focusing on the Department of Transportation starting to run experiments with tolling and congestion pricing along with a related article focusing on the DC metro area. Basically, the officials there want to actually start to use the price mechanism to allocate space on the roads. They also proposed actually using prices to allocate airport landing rights, rather than having us deal with the ever-worsening, cascading nightmare of delays of the past few years.

It never ceases to amaze me when putatively pro-market conservatives blanche at the thought of tolls. I'm not a pure enough libertarian (maybe I will be one day, but not yet) to say there's no government role in road building. And given we do not, and probably never will, live in a society where all roads are built privately, we have an obligation not to run them in a way that would make the grizzliest Soviet commissar smile in agreement. Yet if you mention "tolls", you'll see a conservative's blood boil.

I'm sure in 10 months when the White House changes hands these experiments will be abandoned and we'll go back to thinking that light rail boondoggles or bike paths or New Urbanism will be the path to transit Nirvana, as we continue to lose more and more of our lives to pointless congestion because of our flagrant anti-market bias in transportation. But I have hope that little by little, the notion that giving something away for free when it costs real resources to use will be abandoned, and these experiments might help drive us there.

Aside: The second-most hilarious part of the article is when the transit advocates say that the money being spent on these experiments would reduce congestion more if it were spend on mass transit. As if this highly indirect mechanism could compare to actually charging people for using a good. The funniest part, of course, being the description of pricing as a "neocon view of transportation".