Is the "high price" of everything from coffee in restaurants to popcorn in movie theaters due to monopoly power?

A new paper by Richard Gil and Wesley Hartmann provides an explanation for the "high price" of popcorn in movie theaters:

Prices for goods such as blades for razors, ink for printers and concessions at movies are often set well above cost. This paper empirically analyzes concession sales data from a chain of Spanish theaters to demonstrate that high prices on concessions reflect a profitable price discrimination strategy often referred to as metering price discrimination. Concessions are found to be purchased in greater amounts by customers that place greater value on attending the theater. In other words, the intensity of demand for admission is metered by concession sales. This implies that while some consumers' surplus may be reduced by the high concession prices, surplus of other consumers on the margin of attending may increase from theaters' decisions to shift their margins away from movies and toward concessions.

First as a side note, most theaters, at least in the US, do not prevent people from bringing in concessions with them to the theater (I don't know about Spain), and that is at least inconsistent with the monopoly type story. It is also interesting to note that these claims about above marginal cost pricing are made for many similar product such as wine in restaurants or coffee or the differences between lunch and dinner prices, and it is hard to believe that monopoly power actually explains the "high prices" in all these cases. Russell Roberts and I provided a cost based explanation for all the phenomenon back in 1991 here. I guess that my biggest question is what else would one expect relating the log(concession revenue) with log(attendance) and Box Office revenue per attendee. Concession revenue goes up with attendance (though at a lower rate than attendance revenue -- congestion) and it goes up with box office revenue per attendee (presumably picking up the fact that higher revenue per attendee means fewer old people and very young people). What is the problem here and why is price discrimination the only answer here? By the way, when they run a regression that includes information on the number of screens and seats per screen (Table 2, specification 2), those two variables really explain all the variation in popcorn prices (something akin to the hypothesis that Russell and I advanced). I am also not clear why logs are used for concession revenue and attendance, but not box office revenue per attendee.

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There is some cost for governments nationalizing the assets of foreign firms

There is some cost to Venezuelan President Hugo Chavez taking the assets of firms:

NEW YORK (Reuters) - Exxon Mobil Corp has moved to freeze up to $12 billion in Venezuelan assets around the world as the U.S. company fights for payment in return for the state's takeover of a huge oil project last year.

The company said it has received court orders in Britain, the Netherlands and the Netherlands Antilles each freezing up to $12 billion in assets of Venezuela state oil firm PDVSA. An Exxon spokeswoman said the total that could be frozen worldwide was $12 billion.

Exxon also won a court order from the U.S. District Court for the Southern District of New York in December freezing more than $300 million belonging to PDVSA, as Exxon argued it would have little chance to recoup its investment from PDVSA should it win its arbitration. . . .



New Op-ed: 'Stimulus' Package Won't Jolt Economy

I have a new op-ed up at Fox News:

There is a lot of hysteria about the economy. Politicians worried about a voter backlash want to show voters that they are willing to do something.

Yet, the White House and Congressional proposal last week to send $100 billion in checks to Americans will not stimulate the economy, only waste taxpayers’ money. Instead of growing the economy as claimed, the expanded unemployment benefits being pushed by Senate Democrats will only shrink it. . . .

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The Changing cost of making decisions

There are lots of costs in decision making. Most focus on the costs of information, but another important factor is the amount of time that we have to make decisions. Today's WSJ references an example of this last point and the obvious consequence of making it more costly to make decisions:

I have referred several times before in this space to Tony Blair's observation, after resigning last year, that the pressure of 24/7 electronic media has drastically cut the time available to make judgments, and so the quality of decisions has declined. The missed call in New Hampshire is the first sharp demonstration of this truth for journalism itself. Odds are that nothing will be learned from this because no one has time to think about it.

Of course, there are other costs of making decisions that have been declining. For example, it is easier to quickly get a hold of the people who you need to talk to (cell phones) and quickly search files and databases (computers).



China still doesn't understand the Free Market

Price controls on food simply mean that the resulting shortage will have to be solved in other ways. For example, people who get to the store first will get the food. Also if they can't raise prices, they can lower the quality of food sold (e.g., not throwing out spoiled food as quickly). The article below makes the weird claim that these controls show that Beijing is "serious" about dealing with inflation. If they were serious, a simpler solution would be to control the growth of the money supply.

SAN FRANCISCO (MarketWatch) -- In the latest sign that officials in Beijing are serious about reining in rampant inflation, China tightened controls on food prices Wednesday, requiring producers to seek government approval to implement any price increases.
According to an official Xinhua news report posted on the government's English-language Web site, China's top economic planner announced price controls on a package of products, including grain, edible oil, meat, milk, eggs and liquefied petroleum gas. See Chinese government Web site.
"Major enterprises are required to submit the price-raising scheme to the government for official approval 10 working days before they intend to raise the prices," said the National Development and Reform Commission, or NDRC, in a circular on interim price intervention.
"This NDRC directive is stricter than expected, pointing to escalating inflation pressures in China," wrote Ting Lu, Merrill Lynch's Hong Kong-based economist.
China's inflation rate hit an 11-year high of 6.9% in November. The consumer price index climbed 4.6% in the January-to-November period, exceeding the central bank's official target, which pegs CPI growth in a range up to 3%.
"We think price control will not be very effective as it's hard for the government to guarantee quality and quantity and to avoid shortage. We thus expect the government to increasingly use monetary tightening tools such as rate and [reserve requirement ratio] hikes to tame inflation," Lu said. . . .


Both Romney and McCain have it wrong

Who is right? Should government provide $100 billion to the auto industry as Romney proposes? Should they spend money retraining people to work in "green" industries as McCain proposes? Romney justifies his because of government mandates placed on the industry. What about opposing the government MPG regulations to begin with? Howard Kurtz discusses the quibbling between the Romney and McCain camps here:

Steve Schmidt, a top McCain strategist, attributed yesterday's loss to "Mitt Romney's pandering up in Michigan" by promising what Schmidt called a "$100-billion bailout of the auto industry...Mitt Romney should explain to the rest of the country how he's going to pay for it."

While Romney has proposed a five-year, $20-billion-a-year effort to revitalize the ailing auto industry, the Arizona senator has emphasized worker retraining and research into green technologies. Schmidt would not put a price tag on that but minimized the retraining plan as a consolidation of existing programs.

Here is a suggestion: why have the government pick which industries should be subsidized?

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Obama Stimulus Package

Here are the components of Obama's proposal:

1.Cut $250 checks for some 150 million low and middle income workers and send them out. If needed, send out an additional $250 per worker, totaling $500 for these workers

2.Likewise, send $250 to seniors earning under $50,000 as a Social Security supplement, and and prepared to send out a second $250 payment

3.Establish a $10 billion fund to help “responsible” families avoid foreclosure. The money would be given to homeowners who did not lie about their incomes and were “mindful of personal responsibility.”

4.Provides money to state and local governments hardest hit by housing crisis to prevent them from slashing infrastructure and other important state spending

5. Expand unemployment insurance

Can you say Keynesian economics? The problem with this is that the money has to come from someplace else. Obama doesn't want to pay for this with taxes, but then you have to borrow the money. Borrowing takes it away from other uses as much as taxes.

The subprime problem was due to government regulation and point 3 will encourage home buyers to take more risks because they will believe that the government will bail them out.

Point 5 is political and will be pushed to increase the unemployment rate before the election. Never have the Democrats before asked for an extension in benefits with an unemployment rate as low as 5 percent.

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The "Unintended consequences" of Animal Rights Legislation

Animal rights groups got bans adopted that to stop the slaughter of horses. So guess what? People started shipping the horses to Canada and Mexico "where, animal advocates say, they sometimes face more gruesome deaths [than the would have in the US]." The elimination of American slaughter houses have also:

The slaughterhouse closings themselves may have added to the population of the unwanted. In some parts of the country, auctioneers say, the closings have contributed to a drop in the price of horses at the low end of the market, and the added distance in the shipping of horses bound for slaughter, combined with higher fuel costs, means that some small or thin horses are no longer worth the fuel it takes to transport them.

The results are not too surprising to an economist.

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Do People vote their self-interest?

George Mason's Bryan Caplan has a provocative piece in this last Sunday's Washington Post. His first point is:

1. People vote their self-interest.

In fact, there is only the tiniest correlation between income and party. The country is not divided into two camps: the poor, who vote Democrat, and the rich, who vote Republican. If you consider your own experiences, this is hardly surprising: Are your rich friends really Republicans and your poor friends Democrats?

Self-interest is also a bad predictor of views about specific issues. Yes, the elderly heavily support Social Security and Medicare, but so does almost everyone else. The old bumper sticker says, "If men could get pregnant, abortion would be a sacrament," but men are actually slightly more pro-choice than women. And so on. Pollsters have found a few exceptions where self-interest really matters, such as smoking restrictions, which smokers obviously tend to oppose. But overall, where voters stand has little to do with where they sit.

I guess that I have a simple explanation for this claim regarding abortion based upon my own research. Single men support abortion because it makes it more likely that women are willing to engage in pre-marital sex. This op-ed is based upon Bryan's book "The Myth of the Rational Voter: Why Democracies Choose Bad Policies." His point on "Voters' errors balance out" is very similar even to some research that I have done in the past.

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Another example that incentives matter


Supreme Court Takes on Another Death Penalty Case

WASHINGTON (Reuters) - The Supreme Court said on Friday it would decide whether the death penalty can be imposed for the crime of raping a child, expanding its review of how capital punishment is carried out in the United States.

The nation's highest court agreed to hear an appeal by a Louisiana man who is the only person in the United States on death row for a crime other than murder. He is arguing the death penalty for child rape violates the constitutional ban on cruel and unusual punishment. . . .

There is an interesting economics point here that I wrote about in Freedomnomics. I think that the evidence strongly shows a deterrence effect from the death penalty, but the argument could be quite different for other crimes. If you already face the death penalty for rape, you might want to kill the victim to avoid witnesses. After all, what more can they do to you if you already face the death penalty? The reason that isn't clear is because committing what is considered an even worse crime will increase the probability of arrest and also increase the probability of being given the death penalty. The fact that this child rapist is the only person on death row thus makes it more likely that the possibility of the death penalty for raping a child did not appreciably increase the likelihood that he would have killed his victim.

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If you make something more costly, . . . .

Here is a simple example of economics. If you increase the cost of concentrating on driving, people will drive more slowly, be less likely to change lanes, etc.. In this case, the advent of cell phones have raised the cost of people concentrating on driving.

Compared with undistracted motorists, drivers on cell phones drove an average of 2 mph slower and took 15 to 19 seconds longer to complete the 9.2 miles. That may not seem like much, but is likely to be compounded if 10 percent of all drivers are talking on wireless phones at the same time, Cooper says. . . .

In medium and high density traffic, drivers talking on cell phones were 21 percent and 19 percent, respectively, less likely to change lanes (roughly six lane changes per 9.2-mile drive versus seven or eight lane changes by drivers not on cell phones). . . .



In Defense of Waterboarding

Here is some excellent cost-benefit analysis of waterboarding by Mark Bowden, the author of Blackhawk Down.

No one should be prosecuted for waterboarding Abu Zubaydah.

Several investigations are under way to find out who ordered the destruction of CIA interrogation videotapes, apparently an effort to cover up evidence of torture. Leaving aside for a moment the wisdom of destroying the tapes, I'd like to take a look at what was allegedly done to Zubaydah, and why.

When captured in Pakistan in 2002, Zubaydah was one of the world's most notorious terrorists. The 31-year-old Saudi had compiled in his young life 37 different aliases and was under a sentence of death in Jordan for a failed plot to blow up two hotels jammed with American and Israeli tourists. The evidence was not hearsay: Zubaydah was overheard on the phone planning the attacks, which were then thwarted. He was a key planner of the Sept. 11, 2001, attacks on the United States, was thought to be field commander of the attack that killed 17 U.S. sailors on the USS Cole, and was involved in planning a score of other terror attacks, successful and unsuccessful. He was considered to be a primary recruiter and manager of al-Qaeda training camps.

He was, in short, a highly successful, fully engaged, career mass murderer. Think back to those pictures of workers crouched in windows high up in the burning World Trade Center towers, choosing whether to jump to their death or be burned alive. This was in part Abu Zubaydah's handiwork. . . .

Bowden's piece was greatly criticized and he wrote this response:

Many readers found this outrageous. I received the usual cascade of comment from the Sandbox School of Argument, the name-callers and those whose idea of persuasion is to state their own opinion loudly - lots of capital letters, bold type and underlinings. Several responders belong to the Ostrich School; they won't be reading this because they have forsworn reading anything I ever again write, presumably on the assumption that if you ignore opinions you don't like, they go away. . . .

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Czechs upset at having to pay less than $2 for a doctor's visit

The Czech healthcare system undergoes a minor revolution on 1 January as patients are asked to pay a small fee each time they visit their doctor.

The move is part of a widespread reform of the health sector unveiled by the centre-right government.

It is far from popular - a number of leading figures are calling on Czechs not to pay up.

Czechs enjoyed free healthcare during four decades of communist rule and in the past 17 years of capitalism.

But from 1 January, Czech patients will be asked to pay 30 crowns (£0.83; 1.1 euros) for each visit to the doctor, and 60 crowns for each day spent in hospital. . . . .

If $1.50 dissuades someone from going to the doctor, you have to wonder how badly they had to go to the doctor. It is pretty obvious that they shouldn't be wasting the doctor's time if they don't value the service at $1.50 or so. Clearly, this $1.50 is much too low.

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New Op-ed: The High Cost of Higher MPG restrictions


Lower the cost, people do more of it

The cost of doing something can take many forms. One cost of doing things involves the cost of figuring out how to do it and physically executing that decision. For those that haven't used it, the iPhone does a remarkable job of making tasks such as surfing the web or sending emails remarkably simple. Perhaps then these facts in the Financial Times aren't too surprising:

About 60 per cent of iPhone customers are sending or receiving more than 25 megabytes of data per month, which is the equivalent of sending 7,500 e-mails.

By comparison, only 1.8 per cent of O 2 's other mobile customers on monthly contracts are consuming more than 25MB per month.

The O 2 research suggests that, after years of dashed hopes for the operators, customers are on the verge of surfing the web on their mobiles in significant numbers. This could in the future make mobile advertising a significant revenue stream for the operators. . . . .



The changing sex ratio in South Korea

In South Korea, once one of Asia’s most rigidly patriarchal societies, a centuries-old preference for baby boys is fast receding. And that has led to what seems to be a decrease in the number of abortions performed after ultrasounds that reveal the sex of a fetus.

According to a study released by the World Bank in October, South Korea is the first of several Asian countries with large sex imbalances at birth to reverse the trend, moving toward greater parity between the sexes. Last year, the ratio was 107.4 boys born for every 100 girls, still above what is considered normal, but down from a peak of 116.5 boys born for every 100 girls in 1990. The most important factor in changing attitudes toward girls was the radical shift in the country’s economy that opened the doors to women in the work force as never before and dismantled long-held traditions, which so devalued daughters that mothers would often apologize for giving birth to a girl.

The NY Times attributes this sea change to things like an advertising campaign by the government. An explanation that I had given in Freedomnomics was that as the ratio of men to women rose, women would become more valuable. In competition to marry women, men would be forced to offer them more and it would open opportunities for women. Nothing more than simple supply and demand is needed to explain the societal changes.



GDP increased at an annual rate of 4.9 percent in the third quarter of 2007


Some leaks in one case for justifying higher tax rates

David Henderson has a good analysis of some recent justifications for higher marginally tax rates by Economist Robert Frank:

A summary of Frank's argument is in order. He claims that many of the goods we buy are "positional." In other words, their value to those who own them depends strongly on relative position rather than anything absolute. Frank gives the example of a Ferrari Scaglietti, a car that sells in the United States for about $250,000. According to Frank, purchases of such cars and of 60,000-square-foot houses "subtly change the social frame of reference that defines what kinds of houses and cars seem necessary or appropriate." The people who buy such things up the ante on their purchases, and then the people "below" them do likewise, and so on down the income scale. Frank calls this alleged phenomenon an "expenditure cascade." In buying positional goods, the highest-income people, writes Frank, impose a negative externality on the people below them, who then, through their purchases, impose a negative externality on those below them, and so on. Frank advocates the standard economist's solution to a negative externality, which is a tax on the activity that generates the externality. Frank's favored tax is a tax on consumption, with a higher rate for those who consume more.

As a bonus, argues Frank, a government can tax high-income people even more than it currently does without making them worse off. How so? For simplicity, imagine a society in which there are a million people making more than $500,000 a year. Most of us would agree, I think, that those people have high incomes. Imagine that they now pay 30 percent of their income in federal income taxes. Now imagine that the government, following Frank's suggestion, imposes a tax on consumption above some amount per year and, thus, raises tax rates on high-income people so that those million people now pay 40 percent of their income in federal income taxes. Because their relative position with respect to each other would be unchanged, and because they spend so much money on positional goods anyway, they would not care--or so the argument goes. As Frank testified, "Thus, if a consumption tax led wealthy families to buy 5,000-square-foot houses instead [of] 8,000, and Porsche Boxsters instead of Ferraris, no one would really be worse off, and several hundred thousand dollars of resources per family would be freed up for more pressing purposes." . . . .

I won't speak for Frank, but while I would like a Porsche, a Ferrari would be even neater. Would I also like a bigger, newer house? Would I like these things even if everyone else wasn't jealous? I got an iPhone this summer, and I am very happy that I did. Did others like looking at it? Yes. But am I extremely happy that I have a smart phone that I can really effectively use all its features.

Well, David Henderson, doesn't always get things right, but, apparently, there were some problems with the original evidence that Frank used to make his point. One piece of supposed evidence: Employee salaries at the University of Michigan don't show the variation that they should if salaries vary with productivity. However, there are two very obvious problems with this as Henderson points out: 1) public institutions, just as with unions, compress wages. Anytime you let wages be determined by votes you tend to get that outcome. 2) University professors get paid in lots of ways other than salaries. Henderson points to other data problems here.

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Students sure demand a lot for their right to vote

According to the report, a survey of 3,000 students conducted by an NYU undergraduate journalism class found that an overwhelming majority of those polled said their right to vote could be for sale; in addition to the 66 percent who said they'd trade their vote for a free year of college, 20 percent said they'd exchange their vote for an Ipod Touch. Half of the students polled said they'd forfeit their right to vote forever for $1 million.

The probability that a person's vote will effect the outcome of an election is so tiny that the value of a vote (that probability times the value of the difference in outcomes) is probably measured in fractions of a penny. So why do people demand so much in exchange for losing their right to vote? Altruism. They want to show that they are good people. Since I just published an op-ed on this yesterday, I will simply point to it here.

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New Op-ed: Why do we care if people tip a waitress?


Relatives running for office a consequence of campaign finance laws?

The United States, however, considers itself to be a more mature democracy. Grover Norquist, one of America’s most influential Republican activists, aims to turn the question of dynasty into a campaign issue.

“It will be ridiculous to have Mr President and Madam President in the White House,” he said. “We’re the United States of America. How can we say to President Mubarak [of Egypt], ‘You can’t hand off the presidency to your son, it’s got to be your wife’ or, ‘Hey Syria and North Korea, you’ve got to knock this stuff off and be like us’.”

Norquist has commissioned lawyers to draw up a constitutional amendment that would ban family members from succeeding one another to elected and appointed office. If passed, it would not apply to the Clintons as a Bush was elected in between them. But Norquist believes that it will alert voters to the perils of dynasty. “Americans don’t like to go back,” he said. . . . .

The notion of relatives holding the same office doesn't bother me by itself, but I think that the problem is related to campaign finance regulations. Just as campaign finance regulations benefit incumbents, they also benefit someone such as Hillary Clinton or George W. Bush because of the publicity that they get from their spouse or father are in office (though this particularly applies to Hillary) as well as the benefits that they have from having the well known name. In my book, Freedomnomics, I discuss how it is that the children of politicians are so likely to follow their parents into politics compared to children in other professions. Here is just a brief part of that discussion:

Because a politician’s reputation can’t be transferred outside his family, a politician’s child who doesn’t go into politics simply loses the benefits of this reputation. It’s not like inheriting a family business, where a son or daughter could sell it off and use the proceeds toward some other line of business. Since going into politics is the only way a politician’s child can exploit his parent’s political reputation, it should come as no surprise that politicians’ children follow their parent’s careers at higher rates than most other professions: about 30 percent of politician’s children follow their parent’s profession, second only to the children of farmers. By contrast, about 15 percent of sons of fathers from all self-employed licensed occupations follow that path themselves.

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The Mafia's Ten Commandments

The Mafia's Ten Commandments makes a lot of sense to economist. See a brief Fox News segment on it here. I would guess that my friends who do the economics of religion who be able to explain some of these reasons. Here are some of them:

No one can present himself directly to another of our friends. There must be a third person to do it. (Essentially always having someone vouch for the person being introduced.)
Never look at the wives of friend
Never be seen with cops.
Don't go to pubs or clubs.
Wives must be treated with respect. (I suspect is that they know a lot and you don't want them going to the police.)
You must be available at all times to the Mafia.

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This Supreme Court Case Could Really Cost the Economy A Lot

This could really create a lot of jobs for lawyers.

A seemingly divided Supreme Court on Wednesday debated whether the judiciary should play a role in arbitration cases, the process used by businesses to sort out tens of thousands of disputes as an alternative to going to court. . . .

Chief Justice John Roberts suggested expanded judicial review is appropriate in this instance, pointing to the fact that the two sides negotiated a contract with court review as one of its provisions. Justices David Souter, Ruth Bader Ginsburg and Antonin Scalia suggested Mattel might be seeking more latitude than the law allows for parties to negotiate expanded judicial review in arbitration cases. The American Arbitration Association says a cornerstone principle of federal law is that arbitrators' awards are final and binding. If parties to a dispute are allowed to engage in expanded judicial review, arbitration will become a prelude to lawsuits instead of a substitute, the association said in court papers. . . . .

But this takes the cake:

The wireless industry says that in the absence of court review, parties may decide they are unwilling to "bet the company" on arbitration. The result would be a decline in the number of disputes sent to arbitration and an added workload for already-overburdened courts. . . .

As Roberts points out, if the companies wanted the option to go to court, they can put that in the arbitrarion agreement. You would need to have some explanation for why companies can't figure out what is in there interest (supposedly though this wouldn't then apply to the wireless industry). Even opening up this question up will raise the risks of using arbitration agreements.



Market Failure: Supposedly not enough diversity

This brings us back to Nike's new shoe. Foot Locker is full of options that fit me and most other Americans. But American Indians make up just 1.5 percent of the U.S. population, and with feet on average three sizes wider, they need different-sized shoes. If we had all voted in a national election on whether the Ministry of Shoes should make wide or typical-width shoes, we surely would have chosen the latter. That's why Friedman condemned government allocation. And yet the market made the same choice. If Nike's announcement looks like a solution to this problem of ignored minority preference, it really isn't. The company took too many years to bring the shoe on line, and according to the Associated Press, the new sneaker "represents less of a financial opportunity than a goodwill and branding effort." . . . .

1) Just because Nike wasn't producing these shoes, I would have liked some evidence that shoes weren't already being produced for this segment of the market. I looked up some shoes on the internet and it seemed that this market niche was well covered see here, here, and here. You get sizes from EEEEEE to XW, and I haven't even heard of some of these sizes since they are so wide. I see no evidence that the basic claim in this article is correct.

2) "That's why Friedman condemned government allocation. And yet the market made the same choice." If the size of the particular group is so small or if those in the group aren't willing to pay that much for the shoes, you might not get a product specifically designed for each small group, but it is a long way to implying that the market doesn't produce a lot more diversity of products than the government.

3) "The company took too many years to bring the shoe on line . . . ." There is a cost and benefit from producing this diversity of products. I would guess that the benefits now exceed the costs. Possibly the cost of making products for such small niches has gone down. The article mentions that these wider feet might be a result of "diabetes and related conditions" and possibly more people generally are suffering from this problem. (It isn't clear from the piece what percentage of the 1.5 percent of the population who are Indians have these wide feet, but presumably it is less than 1.5 percent.) Bottom line: what evidence is provided here that it took "too many years" to provide these shoes. That is, "too many years" in the sense that the costs of doing this were less than the benefits (total costs including the costs of figuring out that such a market existed) and yet it was not provided.

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Democrat Economic Proposals

1) Hillary Clinton proposes giving every newborn $5,000.

-- Shades of George McGovern's 1972 campaign? This would cost about $20 billion per year. We give everyone $5,000 at birth but they have to pay higher taxes later to pay for that. I assume that the point of all this is to increase progressivity, but the notion that you are taxing people to give all newborns more money. If you means test the money to the poor, you dramatically lower how much you have to pay out. Presumably one reason for this could be to encourage people to have more kids, but the Even assuming that someone thought that it was necessary for yet another government program to transfer money, why would you want to give every newborn more money?

Note: I am not a big fan of the.

2) Congressional Democrats want a $35 billion increase in government health care financed by a $1 tax increase on cigarettes.

-- Also sorts of states are starting government programs with the promise that cigarette taxes will pay for them. Not only were states unlikely to get the money that they wanted to begin with, but this Federal tax increase would make that all the less likely.



A wrong explanation for the drop in the value of the dollar

SAN FRANCISCO (MarketWatch) -- The dollar dropped across the board Friday, marking the seventh straight trading session in which it's sunk to a record low against the euro, after tame core inflation data suggested that the Federal Reserve has room to further cut interest rates. . . .

People make investments based upon the real (after inflation) return that they expect on an investment. If the interest rate simply fell by the drop in inflation, the real return for holding dollars would be unchanged. There is however something known as the "Darby effect" that could explain what is happening. Our government taxes the nominal interest that we get, not the real interest rate. As the inflation rate rises, interest rates have to rise by more than the increase in inflation to compensate lenders for the higher taxes that they will have to face. So a drop in inflation results in an even bigger drop in interest rates. Even so, the real after tax return from holding dollars should be remaining the same. In any case, I am pretty dubious that the small amount of money that the FED loans to banks is really driving interest rates very much. I haven't spent a lot of time figuring what is happening right now with respect to changes in the value of the dollar, but I know that this explanation is wrong.

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Economics and American Government Classes at Riverdale High School

The teacher is holding a copy of Freedomnomics.

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Older Men-Younger Women Romances Good for Longevity of Human Race

Younger women being attracted to older men is biologically based:

Older men who shack up with much younger women keep the Grim Reaper at bay for the human population and extend our species' lifespan, new research claims. . . .

As relationships seem to be less motivated to produce children over time, there might be a correlation with a reduction in the average age between men and women. I wonder whether there is empirical evidence that men search for other mates when the women that they are with are no longer able to have children.

What is not noted if that the same would hold for females. Older females should reproduce and marry (whatever) male age group. This might actually have a larger effect on longevity because, say, by 40, a lot of women cannot have babies because of either bad eggs and/or because of health problems. So the women capable of having babies post-40 are the ones with healthier genes (and genes for longeivity).

Does it occur that the reason that women marry older men is because EVEN THOUGH the women are more attracted to younger men, the older men might have more wealth/higher income and are more likely to be stable emotionally? So the 24-year old woman in the U.S. who marries a 28-year-old man rather than a 20-year-old is likely to be able to start have babies earlier. It is not particularly impressive that he made it all the way to age 28 even though it makes some slight difference in weeding out the ones who committed suicide or died in a car crash at 21.

Also, demographics force many women to marry older men. There is just a tremendous surplus of women to men in the very highest age-groups, and those men like to pick the relatively younger (old) women, who also will take care of them when they age and die.

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The Unintended Consequences of the Organ Donation Regulations

If people could buy organs from donors, there would be more organs available and the value of each organ would go down. With more organs available, there would be a lot less pressure to harvest any possible organs that were available, and I assume fewer cases such as this:

After a long fight with a degenerative disease, Ruben Navarro appeared close to death. So the hospital caring for him alerted the local transplant network, which rushed a team to the medical center to try to salvage the 25-year-old's organs.

But as Navarro hung on, tension mounted in the operating room of Sierra Vista Regional Medical Center in San Luis Obispo, Calif. With time slipping away, one of the transplant surgeons ordered repeated doses of the narcotic morphine and the sedative Ativan, jokingly calling the drugs "candy," according to police reports. Navarro eventually died, but too late for his organs to be useful.

Horrified nurses complained, prompting multiple investigations. In July, prosecutors charged Hootan Roozrokh with trying to hasten Navarro's death, marking the first time a surgeon has faced criminal charges in a transplant case.

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So does this count as a political donation by the NY Times?

If Tapper's numbers are correct, MoveOn.org paid just 38.89% of a full-cost, nationwide ad, or a 61.11% discount off of a full-rate ad. While I'm fairly certain that nobody pays "sticker" prices, 61% off seems a rather sweet deal.

If this was to a political campaign, would this count towards donation limits? I assume that campaigns take out ads, but does the NY Times charge everyone the same amount for ads.

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Reputations for safety matter

Mattel Inc. CEO Robert Eckert pledged Wednesday to work to improve toy safety, and insisted that the company acted responsibly in recalling millions of Chinese-made toys because they contained lead paint or small magnets.

Seeking to tamp down public outrage over a rash of recalls, Eckert acknowledged his El Segundo, Calif.-based company made mistakes by not closely overseeing subcontractors in China whose toys didn't meet U.S. safety standards. But he steadfastly disputed reports that Mattel was feuding with federal regulators over warning requirements and as a result didn't disclose quickly enough dangers of excessive lead paint and small magnets in toys that prompted an Aug. 14 recall of 19 million products worldwide.

"We are by no means perfect," Eckert said in prepared testimony to a Senate Appropriations subcommittee. "But we have tackled difficult issues before and demonstrated an ability to make change for the better, not only within our own company but for the broader industry." . . . .

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Why a free-market wage is a "fair wage"


An example of how restrictions on campaigning help better known candidates

HILLARY Rodham Clin ton's presidential cam paign hints that agree ing to refrain from campaigning in outlaw Florida and Michigan primaries is a noble sacrifice bowing to party rules. Some of the news media bought into that, with The New York Times reporting: "The decision seemed to dash any hopes of Mrs. Clinton relying on a strong showing in Florida as a springboard to the nomination." Rather, her forbearance looks like a windfall for the Democratic front-runner.

Democratic consultant Bob Shrum, who does not have a candidate this time around, correctly interpreted the decision by Clinton and her two principal competitors, Barack Obama and John Edwards, to follow the Democratic National Committee (DNC) rules. On NBC's "Meet the Press" last Sunday, Shrum said: "That actually, in a perverse way" could "help Sen. Clinton. If no one campaigns and she wins . . . the primary in Florida, wins the primary in Michigan, that could have a knockout effect." . . .

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Even with gun ownership, you make something more costly people do less of it


Realtors Discuss Freakonomics and Freedomnomics

Many of you no doubt read the book Freakonomics by Steven Levitt and Stephen Dubner. I read it the other year. It was a bestseller and caused quite a buzz and a stir when it was first published. The book is an interesting and entertaining read that discusses some controversial idea, among them that legalized abortion helped reduce violent crime in the 1990s . . .

This weekend I read the book Freedomnomics, subtitled "A Rebuttal to Freakonomics and More"

Author and Economist John Lott, Jr. provides some convincing arguments against the evidence and conclusions of the book Freakonomics.

Regarding the topic of real estate agents, Lott surmises that Levitt & Dubner habitually fail to realize "that market forces exist that punish dishonest behavior."

Lott doubts that real estate agents are really ripping off their own clients and states that a listing agent has very little to gain from encouraging buyers to deliberately depress bids on homes. . . . .

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Incentives matter even in a socialist workers paradise


Percentage of Americans who are Hunters Plummets

New figures from the U.S. Fish and Wildlife Service show that the number of hunters 16 and older declined by 10 percent between 1996 and 2006 - from 14 million to about 12.5 million. The drop was most acute in New England, the Rocky Mountains, and the Pacific states, which lost 400,000 hunters in that span.

The primary reasons, experts say, are the loss of hunting land to urbanization plus a perception by many families that they can't afford the time or costs that hunting entails.

"To recruit new hunters, it takes hunting families," said Gregg Patterson of Ducks Unlimited. "I was introduced to it by my father, he was introduced to it by his father. When you have boys and girls without a hunter in the household, it's tough to give them the experience."

Some animal-welfare activists welcome the trend, noting that it coincides with a 13 percent increase in wildlife watching since 1996. But hunters and state wildlife agencies, as they prepare for the fall hunting season, say the drop is worrisome. . . .

There are a lot of economics reasons for this. Fewer people have grown up in rural areas raising the costs of them learning how to hunt, possibly more alternative activities raising their opportunity costs, increased licensing requirements raising the costs of getting started, and having to travel farther to go hunting.

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Freedomnomics on C-SPAN Again on Monday at 5 PM EDT

From David Friedman's Blog

David often has interesting discussions on his blog. Here are a few recent questions that he has raised.

Why don't we see automated systems in old houses that open windows at night when the outside temperature is lower than inside the house and close windows when the reverse is true?

My presumption is that the reason we don't see this is because it isn't efficient. It is costly to set up a mechanism that would raise and lower enough windows in a house to really effect the temperature. Even if we eventually see something like this in new houses, that wouldn't mean that it was efficient to put the system in older ones.

Is there a moral problem in giving students points for simply participating in class discussions? David worries about this because it may be done simply to reduce the effort that the professor makes in teaching.

I personally give credit for just students who get the answers right. But I do think that students learn from thinking on their feet so it doesn't bother me to call on students in the class who haven't raised their hands.

Finally, David asks about why low cost hotels include internet access in their price for the room, but more expensive hotels have it as an extra fee.

I could be wrong, but I guess that I am dubious that this has much to do with price discrimination. It would be interesting to get some numbers on the share of customers in the two types of hotels that use the internet.



Evolution explains why women like shopping

WOMEN really are better than men at shopping. And they really do prefer pink. And, surprisingly, it is possible that these facts are connected. The first conclusion was drawn by Joshua New of Yale University and his colleagues. The second was drawn by Anya Hurlbert and Yazhu Ling of Newcastle University in England. The connecting theme is that in the division of labour that forms the primordial bargain of human hunter-gatherer societies, it is the men who do the hunting and the women who do the gathering.

Blackberry-picking aside, urban humanity does little gathering from the wild these days, so Dr New decided to look at what seemed to him to be the nearest equivalent—shopping at a farmers' market. There is a fair amount of evidence that men are better than women at solving certain sorts of spatial problems, such as remembering the locations of topographical landmarks. Many researchers suggest such skills may have been important in the past for man-the-hunter, who needed to be able to find his way round the landscape. If that is the case, then woman-the-gatherer might have been expected to develop complementary skills not shown by males. And that, as he writes in this week's Proceedings of the Royal Society, is what Dr New found. . . . .



Is it a crime (or at least wrong) to sell lock-picks?: iPhone unlocked

No one ever doubted that the iPhone would be unlocked. It was only a matter of time before someone figured out how to crack the armor that heretofore has kept iPhone users from popping in a SIM card other than the iPhone-specific one that AT&T Wireless supplies with every new iPhone.

It seems that the team of someones at iPhoneSimFree.com are the first to successfully pull off this feat. The group says it has unlocked the phone, and will be releasing its software for sale starting next week.

Unlocking the iPhone dramatically widens the phone's appeal. . . . .

Unlocking the iPhone is on net bad for consumers. Those who already have an iPhone or who are going to get one are possibly better off. The question though is whether this theft will alter AT&T's investments in future capabilities for its network and service. If it does, the consumers will not have quality of service that they would have had and that will work to reduce the iPhone's appeal. One presumes that since Apple wants to maximize iPhone's attractiveness relative to its costs, this cheating will move them away from the right mix of quality. The bigger problem is that this type of cheating reduces the incentives to invent and invest in devices such as iPhone to begin with.

UPDATE: This is about what I expected. This seems like pretty strong evidence that Apple for one doesn't think that it is better off by the unlocking of the iPhone.

The man informed McLaughlin that if he posted the unlock code, he could be sued for copyright infringement and for dissemination of Apple’s intellectual property. . . . .

UPDATE2: AT&T is now in the act.

Until an assessment is made of the potential of legal action, Uniquephones is unable to release the unlocking software for sale. The company spokesperson also said that the company would also be evaluating what to eventually do with the software should they be legally denied the right to sell it. A substantial delay caused by any legal action would render the unlocking software a less valuable commodity as well as creating unforeseen security issues for the company.

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Rational Monkeys

It appears that even monkeys understand the notion of deterrence. At the very least, they at least respond in the way economics predicts: the more costly something is the less they do of something.

They say the monkeys are more afraid of young men than women and children, and the bolder ones throw stones and chase the women from their farms.

Nachu's women have tried wearing their husbands' clothes in an attempt to trick the monkeys into thinking they are men - but this has failed, they say.

"When we come to chase the monkeys away, we are dressed in trousers and hats, so that we look like men," resident Lucy Njeri told the BBC News website

"But the monkeys can tell the difference and they don't run away from us and point at our breasts. They just ignore us and continue to steal the crops."

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Update on if weather forecasting should be run by the government

A critical discussion on my op-ed on weather forecasting services can be found here.

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Another Review of Freedomnomics

“Why the Free Market Works and Other Half-Baked Theories Don’t,” reads the subtitle on the dust jacket.
So what? And what does that have to do with gun rights?

Like the saying goes, it’s not about guns, it’s about freedom. And Freedomnomics, by economist and author John Lott, Jr., does much to illustrate the relationship between free markets and liberty.

Sure, he builds on the groundbreaking work that established his name as a world-renowned commentator in More Guns, Less Crime and The Bias Against Guns. But some of his conclusions go against what is intuitively accepted as common knowledge.

For instance, many believe legalized abortion has reduced violent crime by removing the most unwanted and therefore potentially crime-prone from the population. Lott has the numbers to show an increase in “the murder rate, on average, by about 7 percent.”

Likewise, affirmative action programs for police forces have the effect of lowering their effectiveness by lowering standards. “Ironically,” Lott writes, the people this hurts the most are those who live in “places already plagued by terrible crime.”

This is controversial stuff to some, hardly politically correct. But Lott proceeds unfazed, taking on capital punishment and demonstrating “the death penalty helps deter violent crime and save lives,” and when “there were no executions … between 1968 and 1976 … murder rates
skyrocketed.” . . .

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New Op-ed: Does Government Weather Forecasting Endanger Lives?

. . . . With all the blame still going around about Hurricane Katrina’s devastation, one fact has missed getting much attention: private weather forecasting companies predicted the threat to New Orleans well before the National Weather Service. In fact, AccuWeather issued a forecast that the hurricane would hit New Orleans 12 hours earlier than the government service.

This is hardly something new. Private companies with a lot at stake would often rather pay for private forecasts than rely on the “free” forecasts from the government. Hugh Connett, the president of Bridgeline, a gas pipeline company in Louisiana, claims that the government’s hurricane forecasts are too imprecise. He says that private companies such as AccuWeather do it better, because they give more accurate predictions and provide hour-by-hour forecasts of a storm’s path. . . .

UPDATE: For those interested, links for the sources have been imbedded in the article. Simply click on the link above.

UPDATE 2: Please note that a correction was made in the piece. The portion of a sentence in the second paragraph stating that there were 5 hurricanes predicted to hit the US has been cut.

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CSPAN 2 Showing Talk on Freedomnomics

CSPAN 2 Booknotes TV will show a presentation on my book on Saturday, August 18th at 7 PM EDT.

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Extensive interview with Bill Steigerwald at the Pittsburgh Tribune-Review


Regulating Prescription Drug Prices Will Cost Lives

Census Bureau Asks that ICE stops rounding up Illegal Aliens

Some simple economics here. If the Census Bureau is correct that the current round ups of illegal aliens is causing illegals to be fearful, eliminating these round ups would presumably increase the number of illegal aliens.

WASHINGTON — The Census Bureau wants immigration agents to suspend enforcement raids during the 2010 census so the government can better count illegal immigrants.

Raids during the population count would make an already distrustful group even less likely to cooperate with government workers who are supposed to include them, the Census Bureau's second-ranking official said in an Associated Press interview.

Deputy Director Preston Jay Waite said immigration enforcement officials did not conduct raids for several months before and after the 2000 census. But today's political climate is even more volatile on the issue of illegal immigration.

Enforcement agents "have a job to do," Waite said. "They may not be able to give us as much of a break" in 2010.

An Immigration and Customs Enforcement spokeswoman declined to say whether immigration officials would halt raids. "If we were, we wouldn't talk about it," Pat Reilly said.

"For us to suspend that enforcement would probably take a lot more than one meeting," Reilly said. "We would have to discuss this at the highest levels of both agencies." . . . .

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Reputations matter, even for China

In my talk at the Cato Institute today the claim that reputations don't seem to be important in disciplining China was very briefly raised. Anyway, talk about timing, here was a story that I just happened upon:

Whittle Shortline Railroad , a company in Louisiana, Mo., that makes wooden trains and trucks, posted a banner on its Web site several weeks ago: “100 percent kid-safe,” it read, “with lead-free paints.” Mike Whitworth, the company’s owner, said the recent recalls of Chinese-made toys found to contain lead in their paint has been good for his business. Very good. . . . .

Some evidence that it matters to consumers:

OTTAWA - Fears of shoddy and dangerous toys pouring into Canada from China are prompting parents across the country to seek safer alternatives following a large-scale recall announced by Mattel this week. But many are finding it's a nearly impossible task because the majority of the world's toys come from China.

"It's really difficult to find anything," said Keely Dennis, mother of a one-year-old boy in Vancouver. "It's really hard to find toys that aren't made in China that are age-appropriate, and are just cool, that your kid will play with."

For the second time in two weeks, the toy giant began recalling millions of Chinese-made toys over concerns that small parts could pose choking hazards and that excessive amounts of lead may be present. This is the latest in a string of problems that are raising doubts over the safety and quality of Chinese products, including toothpaste and pet food. . . . .

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Video from C-SPAN performance can be seen here

This weekend C-SPAN's BookTV aired a presentation at the Heritage Foundation on my new book Freedomnomics. You can view the film here (real media required).

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New Op-ed: On Giving Terrorists the Best Advice

Here is a new piece that I have at Fox News:

Should a website post the best ideas for successful terrorist plots? Should we even discuss publicly how to stop terrorist attacks? This week, New York Times blogger Steven Levitt publicly posted terrorist plot suggestions. He claims that “by getting these ideas out in the open, it gives terror fighters a chance to consider and plan for these scenarios before they occur.”

Levitt clearly assumes that terrorists have already figured out the best ideas, but that our side has not. If anything, the reverse is probably true. There are vastly more Americans than terrorists possessing detailed information on American infrastructure, traffic flows, policing practices, etc. So terrorists could easily learn something. To make matters worse, there are also many home-grown mental basket cases who could get ideas on how to obtain worldwide attention. . . . .

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Draft nonsense

WASHINGTON — Frequent tours for U.S. forces in Iraq and Afghanistan have stressed the all-volunteer force and made it worth considering a return to a military draft, President Bush's new war adviser said Friday.

"I think it makes sense to certainly consider it," Army Lt. Gen. Douglas Lute said in an interview with National Public Radio's "All Things Considered."

"And I can tell you, this has always been an option on the table. But ultimately, this is a policy matter between meeting the demands for the nation's security by one means or another," Lute added . . . .

If you are having troubles getting enough people in the military, there is a simple solution: increase pay. The notion that you can save money by reinstituting the draft is simply an illusion. True the government doesn't have to spend more, but it is a big tax on many of those who would have been able to earn a lot of money outside of the military. When you include the value of that foregone output, the cost of the draft is much higher than simply paying people more to join. It is pretty obvious that this guy hasn't had even basic economics.



Another Review of Freedomnomics

This cliché of government intervention might not be the effective long-term solution for the economy that many trust it to be. John R. Lott, Jr., PhD, author of the newly-published book Freedomnomics: Why the Free Market Works and Other Half-Baked Theories Don’t, believes that government intervention into a free market can adversely affect the economy. Lott further maintains that many so-called “market failures” actually become profit opportunities for those people who work to solve the problems.

Dr. Lott was at the Heritage Foundation last Wednesday to discuss his book and explain his thesis supporting a free economy despite its shortcomings. Lott drew upon multiple examples from his book to prove that the free market works most effectively with as little government intervention as possible, and is actually able to solve its own market failures over time, contrary to popular opinion. Also, Lott expounded upon the long-term domino effects that touch society when the government exercises sufficient power. . . . .

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Predictions on surveillance cameras

I wonder whether there will be a difference in the change in crime rates between the summer and winter with these cameras. Surely there are fewer crimes that take place in the winter, but my guess is that the drop will be smaller then because in Chicago (one of the cities mentioned in the story) most people where some hood or face mask, thus negating the benefit of the camera.

Most people in the United States have no reservations regarding the use of video cameras in public places as a way to improve safety, according to a poll by TNS released by the Washington Post and ABC News. 71 per cent of respondents support having public surveillance cameras, while 25 per cent do not. . . . .

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The penalties faced by white collar criminals

This article only mentions the prison term faced by Fingerhut. But of course he will have to provide full restitution and fines. He is retired so he doesn't have to look for a job again because if he did (as I have pointed out in Freedomnomics), he would have an almost impossible task. There is also a high probability that his wife will divorce him and take most of his assets.

In his day, Bert Fingerhut was a Wall Street player. A top-ranked securities analyst for eight straight years, making calls that moved markets, Mr. Fingerhut rose to director of research at Oppenheimer & Co. in 1980. Three years later, he retired to Aspen, Colo. He was 40 years old.

In the Rockies, Mr. Fingerhut became as passionate about conservation as he once was about stocks. He joined the boards of a string of environmental organizations. So devoted was he to the wilderness that he got married in Wyoming's Grand Teton National Park.

But he couldn't get Wall Street out of his system. In the 1990s he picked up a copy of Peter Lynch's "Beating the Street," in which the former star manager of the Fidelity Magellan Fund wrote of a "can't-lose proposition (almost)" called bank-conversion investing.

When mutual, depositor-owned banks convert to public companies, Mr. Lynch noted, they must let depositors buy stock at the initial-public-offering price. The new shares are often priced at a discount. So "the next time you pass a mutual savings bank or an S&L that's still cooperatively owned," Mr. Lynch suggested, "think about stopping in and establishing an account."

Mr. Fingerhut took the advice to heart, and then some. Starting in 1995, he opened accounts at more than 400 banks across the country, from Wellsburg, W.Va., to Covina, Calif. He eventually got in on public offerings at many of them, and flipped their shares for quick profits. Over a decade, he made $11 million from the strategy.

There was one problem: The way he did it, he was breaking the law.

In May, Mr. Fingerhut pleaded guilty to conspiring to defraud banks and their depositors by secretly using other people as fronts to open accounts for him, thus increasing the number of IPO shares he could buy. He forfeited all the money he earned from the strategy. On Friday, a federal judge in Newark, N.J., sentenced the onetime star stock analyst to two years in prison.
. . . .

Thanks to Jack Langer for sending this article to me.

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Congressional Energy Bill Farce

The Energy Bill adopted by the Congress has many problems and provisions that will make the US poorer. For example, requiring that we use more expensive, less efficient sources of energy. This discussion in the NY Times caught my attention:

The utilities provision, or the so-called renewable electricity standard amendment, was among the most contested measures in the energy bill. Sponsored by Representative Tom Udall, Democrat of New Mexico, and several others, it will force utilities to make a significant share of their electricity from solar, wind, geothermal, water and other nonfossil fuel sources, although they can meet part of the requirement through conservation measures.

The standard applies only to investor-owned utilities and exempts rural electric cooperatives, municipal utilities, the Tennessee Valley Authority and the state of Hawaii from the mandate. . . . .

If cutting back on carbon dioxide is so important, why do these rules only apply to "investor-owned utilities"? Surely municipal utilities should also count? What about Hawaii? Carbon dioxide is being added to the atmosphere every place. Why does the administration only threaten to veto based upon the lack of oil production in the bill?

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Another Review of Freedomnomics

Another review of Freedomnomics can be found here. Thanks to John Palmer at the University of Western Ontario for reading the book.

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New Piece in National Review

Abortion and Crime — by John R. Lott Jr.
One has an effect on the other, but it may not be the effect you think.

Violent crime in the United States shot up like a rocket after 1960. From 1960 to 1991, reported violent crime increased by an incredible 372 percent. This disturbing trend was seen across the country, with robbery peaking in 1991 and rape and aggravated assault following in 1992. But then something unexpected happened: Between 1991 and 2000, rates of violent crime and property crime fell sharply, dropping by 33 percent and 30 percent, respectively. Murder rates were stable up to 1991, but then plunged by a steep 44 percent.

Several plausible explanations have been advanced for the drop during the 1990s. Some stress law-enforcement measures, such as higher arrest and conviction rates, longer prison sentences, “broken windows” police strategies, and the death penalty. Others emphasize right-to-carry laws for concealed handguns, a strong economy, or the waning of the crack-cocaine epidemic.

Of all the explanations, perhaps the most controversial is the one that attributes lower crime rates in the ’90s to Roe v. Wade, the Supreme Court’s 1973 decision to mandate legalized abortion. . . . .

This piece requires a subscription, though it is largely based on the discussion that I have on this issue in my book, Freedomnomics.

By the way, in the same issue Ramesh Ponnuru has a useful discussion on the gun control debate, though I believe that he is a little too optimistic.

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One of the many penalties some criminals face: Lost inheritance

PARTY princess Paris Hilton is $60 million out of pocket after her billionaire grandfather - appalled by her jail term for drink-driving offences - axed her inheritance.

Family patriarch Barron Hilton was already embarrassed by his granddaughter's wild behaviour - notably when her home sex video was leaked on the internet.

But the 79-year-old considered her 23-day sentence last month the last straw. . . . .

People who are disinherited because of criminal activity face an essentially almost impossible road in challenging that decision in court. If you thought that Paris' prison term was already harsh for the type of crime that she had committed, add $60 million to that penalty.

Thanks to Alex Robson for sending this story to me.

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Cost-Benefit Analysis: What is the implicit value that Animal Rights Activists Place on a Mouse's happiness?

Scientists have created the world’s first schizophrenic mice in an attempt to gain a better understanding of the illness. . . . .

Animal rights campaigners have condemned the research, saying that it is morally repugnant to create an animal doomed to mental suffering.

The mice were created by modifying their DNA to mimic a mutant gene first found in a Scottish family with a high incidence of schizophrenia, which affects about one in every 100 people. The mice’s brains were found to have features similar to those of humans with schizophrenia, such as depression and hyperactivity.

“These mutant mice may provide an important new tool for further study of the combinations of factors that underlie mental illnesses like schizophrenia and mood disorders,” said Takatoshi Hikida, of Johns Hopkins University in Baltimore, a leading researcher. . . . .

One the one hand you have a disease that reportedly affects one in a hundred people. Even say that it is just people in Europe and the US who are affected, so we may be talking about say 8 million out of 800 or so million. On the other hand, possibly say 8,000 mice will be breed with this mutant gene (admittedly it may be fewer, but I am just picking an easy number here). Let us also assume that this research will only lead to a cure with a one percent chance. That means that animal rights activists would have to place a ten fold greater weight on the happiness of these mice than they do on people. My guess is that my numbers here are greatly weighted in favor of making the animal rights activists look reasonable (especially regarding the number of people affected by the disease), though on the other hand I may be too optimistic on this approach solving the problem (I really don't know). If you believe that the probability of this approach curing people is only one-tenth of one percent, the animal rights activists would be placing an equal weight on the happiness of both mice and people. Is this really serious thought? I don't even know that the term happiness applies to mice since it requires that they be self aware and I guess that I have a hard time believing that is the case.



Even Canadians Think that Extra Taxes on "Unhealthy" Foods are a Bad Idea

It is not even clear to me that there is either an externality or mistakes being made. If people are properly anticipating the risk, imposing the tax actually means that they will be eating "too little" of these "bad" foods. The problem is undoubtedly caused because the insurance premium doesn't vary with the risks that people take, but the most direct solution is to make them pay for their health care. I have two problems with the tax. 1) Not all individuals are likely to be equally affected by these unhealthy foods. 2) Even if everyone was about equally affected, how likely is it that the government would pick the right tax and not one that were "too high." On the other hand, it is much easier to know what the cost of the medical services are. Having a tax that is "too high" is just as bad as not having the right level of a tax.

Many adults in Canada oppose implementing extra taxes on specific foods in order to reduce both consumer demand and health problems, according to a poll by Angus Reid Strategies. 50 per cent of respondents think the proposal is a bad idea, while 43 per cent consider it a good idea. . . . .

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More on Freedomnomics from a talk I gave at the Phoenix Chamber of Commerce

John Lott, professor of economics at the University of Maryland and author of Freedomnomics: Why the Free Market Works and Other Half-Baked Theories Don’t, says he believes the 19th Amendment in 1920 that gave women the right to vote led directly to the growth in the size of the U.S. government.

At an Arizona Chamber presentation Tuesday, Lott said the rate of increase in government (as measured by percent of GDP) in the decades following 1920 tracks perfectly with the increasing voter turnout among women during the same time period. He said women tend to favor more government programs than do men, and the change in attitudes toward the proper role of government correlates exactly with the increased involvement of women in the political process. Other of his conclusions/observations included:

• The legalization of abortion in 1973 resulted in an increase in the crime rate, especially in the murder rate. Lott’s reasoning here is that whereas before Roe v Wade, women would adopt out their children born out-of-wedlock, after 1973, the numbers of women carrying their babies to term increased. Among those who chose not to abort, many instead chose to raise their child alone in a single-parent household, which, he says, studies have shown are less nurturing than two-parent households. He said the lack of quality parenting leads directly to lower grades, higher dropout rates, more delinquency and ultimately increased crime and murder rates. . . . .

Here is a discussion of my research in German.

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John Palmer at the University of Western Ontario Begins Reviewing Freedomnomics


Now this is cruel and inhuman criminal punishment

I can't wait until the courts review the prison policies discussed here.

The article deals with the clothing worn by women visiting male prisoners. There obvious concern involves the behavior of the prisoners around these visitors. On the other hand, one thing that isn't mentioned is that the more that male prisoners anticipate visiting from outsiders, the more of a penalty it is for them to have that perk taken away from them. There might be more problems during visitation, but there might be fewer problems at other times.

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Another Review of Freedomnomics

A critical review of my book by Max Sawicky can be found here. I have put up a couple of responses on his blog. As I write in my comment on his blog, I didn't expect us to agree on everything, but I really do appreciate him taking the time to write the review.

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New Op-ed: Driving the Lemon Myth Off the Lot

Here is a new piece that I have up at Fox News:

If you have ever thought of buying a new car, you are undoubtedly familiar with the claim that as soon as you drive the new car off the showroom floor its price falls dramatically. Recent popular books have asserted that simply driving a new car off the lot reduces the price by 25 percent.

Many economists explain this drop as occurring because the people who are trying to resell their cars quickly are typically doing so to get rid of “lemons.” Even if your virtually new car isn’t a lemon, people who want to buy your car can’t be sure, so they aren’t willing to pay as much as your virtually new non-lemon car is really worth. It is the classic story of “market failure.”

Nice story—except it’s wrong. In fact, the widespread perception that a new car loses substantial value as soon as a buyer drives it off the lot is really just a myth, as we shall see.. . .

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How altruism differs by country

Here is an interesting story by Reader's Digest on the rate that lost cell phones are returned in different cities around the world. The results by city can be found here. Someone should try to explain the differences by country.



Even Democrats Respond to Tax Incentives

Robb, the wife of former Virginia governor and U.S. senator Charles Robb, drew appreciative laughs when she spoke of her mother's frugality. "She wanted to hold on until 2010, so we wouldn't have to pay any estate taxes," Robb said. "Oh, durn!"

There are actually some economics studies that find that when a tax change is occurring in inheritance taxes people appear to live a couple weeks longer to take advantage of the lower take rates.



Who gets to decide if you get treatment under national health care

iPods for addicts while others go without treatment. That said, it is an interesting test to see if incentives work.

DRUG addicts are to be offered gift vouchers and prizes on the National Health Service under plans by the government’s medicine watchdog to encourage them to stay clean.

The National Institute for Health and Clinical Excellence (Nice) will recommend the system of inducements, which could enable clinics to offer televisions and iPods as prizes, to tackle the burgeoning drugs problem. But patients denied drugs for blindness, Alzheimer’s and lung cancer under Nice rationing are likely to accuse it of wasting public money.

Katherine Murphy, of the Patients Association, said: “Why should these people with self-inflicted problems be given priority over people who have a genuine illness? Some people with genuine disease are being forced to sell their homes for the medicines they need.” . . . .

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Another Review of Freedomnomics


Review of Freedomnomics by Michael New at National Review Online


Do these guys understand any economics?

WASHINGTON--AT&T's exclusive right to sell the Apple iPhone drew complaints on Wednesday from Democratic politicians, though it was unclear whether they were planning to do anything about it.

"The problem with the iPhone is that the iPhone with AT&T is kind of like a 'Hotel California' service," Massachusetts Rep. Ed Markey said--in a nod to the Eagles hit, of course--during a hearing. "You can check out any time you like, but you can never leave." . . . .

So why did Apple give an exclusive deal to AT&T? That is not a tough question: Apple wanted AT&T to let Apple design how the phone worked. Doing that presumably imposed significant costs on AT&T. What type of phone do you think that Apple would have been able to design if this type of regulatory threat had kept AT&T or any other carrier from making a deal with Apple? Would the market have been better for consumers if the regulatory environment had kept the iPhone from turning out the way that it did?

There is a second problem with the Democrat's reasoning. Let's assume that they are concerned about some type of monopoly power caused by the agreement. In fact, it is hard to see how that creates any more monopoly power than Apple already has. Apple is still the single producer of the iPhone.


Still More Reviews of Freedomnomics

Cao has a nice review of Freedomnomics over at her blog:

Freedomnomics explains a lot of things in an easy-to-understand conversational way. He surprises the reader with fascinating information. I’d never stopped to think, for example, that there is a relationship between the increasing number of out-of-wedlock births and abortion and increasing crime statistics.5 Did you know that? Or that there is a relationship between single parent and cohabitating unmarrieds and children who are not engaged in school, children who cut school, children who don’t perform well in school, etc. . . . .

David Henderson also has a nice review of Freedomnomics:

For the first years of its existence, radio seemed like an economic loser without government subsidy. No one could figure out how to make listeners pay, and, consequently, radio hosts and entertainers usually worked for free. In 1922, Herbert Hoover, then Secretary of Commerce, asserted, "Nor do I believe there is any practical method of payment from the listeners." But that same year, AT&T discovered that it could make money by selling ad time on radio. It sounds obvious now, but it wasn’t then. After that, radio thrived and is still thriving.

John Lott tells that story and many others – and tells them well – in his latest book, Freedomnomics. . . . .

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What do workplaces owe their workers?: Banning Perfume?


Why are milk cartons square or squarish, but soda bottles round?

Have you ever wondered why milk cartons are square but containers for soda bottles are round? I have. I was talking to a former engineer that I know recently and he suggested a simple explanation. First, one would think that there is a benefit to make all the containers square because less space will be wasted in stacking the containers. Rounded containers end up having a lot of air space between them, and the extra air space also would make it harder to keep the milk cold. So why aren't soda containers square? In a single word: pressure. Round containers deal much better with pressure than square ones. Even if you put the soda in a square container, the pressure would push out the sides so that the container would become more rounded in any case.


On the returns to studying at University

1) Eric Rasmusen raises the question of why student grades can't be posted with their names next to them. When students' grades are posted they have to use an ID number that makes it difficult to identify who got the grade.

The question is: wouldn't posting of grades create even more of an incentive for students to work harder? It is not really clear to me what the downside is, though I suppose that it would create even more pressure for grade inflation. In any case, Eric points to England where posting of names with grades has been allowed at least at Cambridge for 300 years. There is a push to end it because:

"It just adds to the stress . . . ."

But that is another way of saying that it adds to the incentive to do well.

2) I was talking to my second oldest son today about studying at universities. He has been taking summer school classes, and he pointed out to me that the range in ability in his university classes seems narrower than was the case in high school. Given the sorting that goes on as you move up through different levels of education, I don't think that claim is too surprising. The question that we discussed is what does that do to your incentive to study and the implication seems pretty clear. In high school, if there is a large gap between yourself and the next student, you could slack off some with out it making much difference. But if all the students are really tightly packed in terms of ability, the returns to studying would be higher.


More Discussions of Freedomnomics

In a discussion about "Why Did Crime Fall in the 90's?" Mikeroeconomics writes that:

John R. Lott offered a rebuttal in his book, Freedomnomics, on why crime fell in the 90'2. Lott's explainations include the death penalty, better law enforcement, the right to bear arms. This book is a fast read and exceptionally well written. . . . .

While he hasn't yet read the book (though he says that he plans to listen to it on tape), Rogue Genius did listen to a radio interview and offers a less flattering review of my discussion on abortion:

I downloaded a podcast of Micheal Medved's program today. It said in the listing that he was interviewing the author of Freakonomics... Actually, it didn't. What it really said was the author of Freedomnomics. A guy well known in gun-nut circles, John Lot (who is now, suddenly, an economist). So, I got suckered. Anyway, I'd already downloaded it, so I listened.


Now, as you know, I'm not much impressed with what passes for intellectualism on the right. But if anyone - and I do mean ANYONE - can't 'out logic' the arguments presented in this podcast (and, presumably, the book) that person must turn in their social security card: they can no longer be considered human.

Rogue Genius and I have a bit of an exchange at the end of his posting.

Lemuel Calhoon and SayUncle promise reviews of my book soon. The Pittsburgh Tribune also ran Ann Coulter's review of my book.

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Interview about book at FrontPageMagazine

Bernard Chapin has a discussion with me about Freedomnomics here.

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Ann Coulter reviews my new book Freedomnomics

Allerca cats, firms capturing the benefits from innovation

My book Freedomnomics has a paragraph on the fact that patens may not always be enough to capture the return to innovations, but that companies have still figured out ways to capture the benefits. One case that I pointed to regarding Allerca cats, which were neutered so that those who bought the cat wouldn't be able to breed them for resale. A picture of one of the first cats can be seen here. By the way, it is a very cute cat.

UPDATE: Science Blogs has pictures of multiple cats up. They also note that Time magazine found that this was one of the best inventions of 2006.

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So why are such a large percentage of British doctors trained abroad?

Question and Answer posed on Dennis Prager's radio show: The simple reason is: Socialized medicine. Medicine pays so poorly in Britain, most doctors come from abroad.



New Op-ed on the Connection between Minimum Wage Laws and Illegal Immigration


At least three reviews on Amazon.com for Freedomnomics are by Economics Professors -- All are very positive (Thank you!)

2 of 2 people found the following review helpful:
More than just three cheers for the free market., June 28, 2007
By Douglas W. Allen - See all my reviews

I'm a professor of economics, and I'm very familiar with the work of John Lott. I bought this book because I enjoy reading arm-chair econ books ... just can't get enough econ! Normally I'm disappointed because the examples and applications are usually stolen and reworked material that's been around for years. Not so with Lott's book.

The great thing about the book is not just the refreshing topics, but Lott's gifted approach to understanding them. Take, for example, the growth of government. Many bright minds have worked to explain why did governments grow so fast after WWI? Dozens of theories have been spun, none very successful. Not only does Lott have an ingenious answer (women's suffrage), but he also has an ingenious test and exploits the fact that some states voluntarily granted the right, while other states had it forced on them. It is Lott's ability to come up with clever and convincing tests and evidence that separates him from others.

I don't like the title of the book, and I don't like the sub-line "a rebuttal to Freakonomics." The book is much more than this, and I'm sure the publisher had more to do with the cover than the author. If the cover turns you off, I'd open the book and read a few pages.

The book is well written and accessible to anyone interested in social behavior. A very good read and highly recommended.

9 of 12 people found the following review helpful:
Toward Understanding How Markets Work, June 16, 2007
By Edgar K. Browning (Texas) - See all my reviews

As a professor of economics, I am aware of how difficult it is to communicate the "simple" principles of economics. The approaoch that seems to work best involves the use of lots of examples, especially ones that engage and challenge students. John Lott's new book is filled with such examples. While it can be recommended to anyone with an interest in how the economy works, it should be especially valuable to teachers and students of economics. (I am going to assign the section "Women's Suffrage and the Growth of Government" in my public finance class in the fall.)

37 of 42 people found the following review helpful:
Excellent defense of free markets, May 17, 2007
By James D. Miller (South Deerfield, MA USA) - See all my reviews

Excellent book showing the power of free markets and the harm that manifests when governments interfere in markets. Many economists claim that free markets work great in theory but there are many types of market failures that require government intervention. Lott points out how markets themselves can overcome these so called market failures and how government attempts to correct these failures often makes the situation much worse.

Lott takes on very politically incorrect topics that the mainstream media would never touch such as how affirmative action influences police effectiveness and how giving women the right to vote has influenced the size of the government.

The book is very readable and is clearly intended for a general audience. I would strongly recommend it to people who enjoy the writings of columnists such as Walter Williams and Thomas Sowell.

I have also gotten nice emails from Ralph Winter at UBC and a young professor at Univ of Wisconsin as well as many others.

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More Reviews of Freedomnomics


A new attempt at deterrence

New Op-ed Tech Central Station: On the new Energy Bill Going Through Congress

Here is a link to my new op-ed:

With gas prices around $3 a gallon, the Senate last week passed new energy legislation. It will ultimately go to conference with the House to work out differences between the Senate and House bills. But any bill that gets agreed upon seems certain to increase the swings in gas prices and leave the average American worse off.

Senator Charles Schumer (D-NY) claims that oil companies are colluding to drive up the price, "they wink at each other and do the same thing." Likewise, Senator Hillary Clinton (D-NY) blames the companies for taking advantage of Hurricane Katrina to raise prices: "You have a hurricane, and all of a sudden you see prices going up like that. That has... everything to do with people trying to make money off the backs of this tragedy."

With such reactions, it is not too surprising that a new Bloomberg/Los Angeles Times poll shows that 38 percent of Americans view the U.S. oil industry's "gouging, greed, profits" as the main reason for higher gas prices. The second reason is "the Bush Administration" at 21 percent. . . . .

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The bizarre myth of the bad economy

Some useful numbers in this piece. It has been a real puzzle for many why people think that the economy is doing so much worse than it actually is. With a 4.5 percent unemployment rate, and growth in everything from personal income to the stock market, it is very hard to see how people see things as getting worse. Donald Lambro has a nice discussion in his column:

Seventy percent of Americans now say the economy is getting worse, a belief contradicted by a growing workforce, increased wages and household wealth, and a stock-market rally that has boosted worker-retirement investments. . . . .

Kevin Hassett and I have a discussion on this general issue here.



Some more reviews of Freedomnomics

Margaret at State of Nature:

This morning's radio program King Banaian and I interviewed economist John Lott, author of More Guns Less Crime and the new Freedomnomics . . . . Everything is a market failure, if you leave the market to its own devices, the market will surely screw us all.

Lott shows with many simple examples how that's just not so.

Giltner Review notes that
Perhaps the most startling claim that Lott makes is that women’s suffrage caused a dramatic increase in the size of government, because the “gender gap” reflects a genuine difference in how men and women—-especially single or divorced women—-see the appropriate role of government with respect to income security and education. He points to how state government expenditures changed in states as the percentage of women voting increased—and how the varying years in which different states granted women the vote confirms that this was not a coincidence.

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Reviewing Critical Readers' Responses to My Op-ed at OpinionJournal.com on Abortion

The responses to my op-ed piece at OpinionJournal.com were pretty balanced and can be seen here.

Let me just respond to a few of the critiques:

1) Malarkey
Roger Bleier - Houston
This article makes no argument whatsoever for an interrelationship between the various statistical trends cited. In so many words, it simply implies that there is one. I guess nowadays one can write a whole book similarly premised.

Response: The arguments in the piece are based on one paper that I published in Economic Inquiry (See here for an early version of the paper). The evidence that I find on out-of-wedlock births as a result of abortion is based upon state level statistical study. My book Freedomnomics also provides some additional discussion on this point.

2) The Economics of Subsidies
George Marcom - League City, Texas
Mr. Lott has neglected to address the key factor in the increase of illegitimate births and single-parent families: subsidization. Our vast safety net of social programs enables this problem. If you want more of anything--be it cotton, rice, sugar cane, or ethanol--subsidize it and you will get more.

Sadly, the very social welfare programs we have adopted to ease the misery of the single mother have enabled this explosion if "illegitimacy," and have seriously eroded the nuclear family.

Response: This was the main reason that I wrote: "While not all of this rise can be attributed to liberalized abortion rules, it was nevertheless a key contributing factor." I agree that there are other important factors, such as the one you mention, and I definitely do not think that the evidence supports the claim that abortion is the only factor.

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Only about 7 percent of private sector workers are now unionized

In the 1950s, 35% of private-sector workers belonged to unions; only about 7% do today.

The economics point here is pretty simple. You raise the price of something (labor through unionization) and people demand less of it. Sometimes the adjustment takes a long time, but it still occurs.

I recommend that people read the entire piece because John Fund does a great job of discussing the Employee Free Choice Act, where 30 percent of workers (some possibly because of union intimidation) can sign a statement that determines whether the entire company is unionized.



University Cancels Final Exams Because of Bomb Threats


Oil Company Greed Responsible for higher Gas Prices

In a sense this is right, but I would argue that this is good, not something to be upset about. If more people want gas than gas is available, what is the alternative? Low prices with long gas lines?

Polling Data

As you may know, gas prices have been rising over the last year and the average price of regular gas for your car is about $3.50 a gallon in some areas. Who or what do you think is the main reason for the higher gasoline prices these days: Is it the Bush administration, or the oil exporting countries, or the U.S. oil industry, or supply and demand, or environmental regulations, or is there another reason for the higher gasoline prices?

U.S. oil industry (gouging, greed, profits) 38%

Bush administration 21%

Supply and Demand (market forces) 12%

Oil exporting countries 10%

Environmental regulations 5%

Other 2%

No one / No one thing in particular 1%

All 7%

Don’t know 4%

Source: Bloomberg / Los Angeles Times
Methodology: Telephone interviews with 1,183 American adults, conducted from Jun. 7 to Jun. 10, 2007. Margin of error is 3 per cent.


Bizarre Government Regulation: Dems going after one particular company

Here is one classic example to show that government just can't keep politics out of its regulatory decisions:

WASHINGTON (MarketWatch) -- Private-equity giant Blackstone Partners, which is in the process of going public, found itself in the sights Thursday of the powerful Senate Finance Committee as top tax writers introduced legislation that would block publicly-traded private-equity and hedge funds from continuing to enjoy favorable tax treatment.

The legislation would require publicly-traded partnerships to be treated as corporations for federal tax purposes. Under current law, income distributions for many private-equity funds are taxed at the capital-gains rates of 15% -- well below the top corporate tax rate of 35%. . . .

What is the point of imposing a 20 percentage point higher tax rate on a company just because it is publicly traded? Here you have only one company that this legislation could possibly be aimed at.



Gas price conspiracy? Revisited

Given all the recent claims over the last couple of weeks about a conspiracy in selling gasoline, I thought I would relink to this previous post of mine here.



Guest workers v. Illegals on worker wages

Dorgan said that "the main reason that big corporations want a guest worker program is that it will drive down U.S. wages." . . . .

Here is the puzzle. Democrats say that they are against a guest worker program because it will lower the wages of American workers. OK, fine, that is indeed the effect of letting in more workers. The puzzle is that the Democrats don't have any problem passing other laws that encourage more illegal immigration which would also reduce the wages of those same workers. To put it differently, making it harder for illegals to stay would also increase wages. It is interesting that the arguments regarding wages are only raised for guest workers and not the rest of the issues in the debate.



More Reviews of Freedomnomics

1) But as economist John Lott argues in his new book, Freedomnomics (Regnery, a Human Events sister company), today’s soaring prices are actually a good thing. They mean our free market is working to deliver a product many people want at a price they’re willing to pay. “Temporarily high prices result in increased gas supplies, ultimately leading to a faster reduction in gas prices,” he writes.

The alternative to the free market, Lott notes, would be for the federal government to impose price controls on gasoline. Washington has done this in the past, specifically during the oil crises in the 1970s.

Instead of making things better for consumers, though, these price controls led to gas shortages in 1973 and again in 1978. “Americans waited in lines for hours to fill up their tanks due to chronic shortages” in the 1970s, Lott writes, shortages that “instantly disappeared as soon as the price controls were removed.” When it comes to setting gas prices, Lott writes, “the free market is working, and it’s ultimately working far more efficiently than any government-mandated controls would.” . . . .

2) Riding to the rescue is John Lott, another economist from academia, including the University of Chicago current home of Steven Levitt. Lott takes the position in his book “FREEDOMnomics, that not only is FREAKonomics a pile of rubbish, it is a veiled attack on the free market and business in general. Lott points out that the assertion that the Klan is like a group of Real Estate agents who use “fear” to take advantage of others is beyond the rhetorical boundaries of taste if not accuracy. In fact Lott dissects the example used by Levitt and Dubner and demonstrates that while it might have been an actual example, their analysis of the motivation and result is a simplistic view of the data and a more detailed analysis would show their conclusions to be incorrect. . . . .

3) A critical review post on a web site called Shalom Bayit claims that among other things that free markets don't increase income: see here.

4) Michael Medved was nice enough to put the book first on his web page here

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China takes another move towards Capitalism, moves more towards honoring contracts

Another Review of Freedomnomics