Saturday, November 18, 2006

Milton Friedman from the WSJ Archives

In today's WSJ, there is a sample of Milton Friedman's editorial writings in the WSJ over the years.

On school choice: "We have been repeatedly frustrated by the gulf between the clear and present need, the burning desire of parents to have more control over the schooling of their children, on the one hand, and the adamant and effective opposition of trade union leaders and educational administrators to any change that would in any way reduce their control of the educational system."

On the free market:
"What most people really object to when they object to a free market is that it is so hard for them to shape it to their own will. The market gives people what the people want instead of what other people think they ought to want. At the bottom of many criticisms of the market economy is really lack of belief in freedom itself.

The person who buys bread doesn't know whether the wheat from which it was made was grown by a pleader of the Fifth Amendment or a McCarthyite, by person whose skin is black or whose skin is white. The market is an impersonal mechanism that separates economic activities of individual from their personal characteristics. It enables people to cooperate in the economic realm regardless of any differences of opinion or views or attitudes they may have in other areas."

Friday, November 17, 2006

Death of the Master

Friedman's most influential publication was the slender volume, Capitalism and Freedom, based on lectures given in 1956 but not published until 1962. In that book, he put forward one of the most powerful cases for the free market ever written. Its greatest virtues were the clarity and vigor of Friedman's exposition. It had enormous impact in making free market economics respectable once again, after being falsely blamed for the Great Depression. In his Monetary History of the United States, Friedman put principal blame for that disaster on the Federal Reserve, which allowed the money stock to shrink by one third, bringing on a massive deflation.

In 1976, Friedman was awarded the Nobel Prize in economics. The Royal Swedish Academy of Sciences cited his achievements in the fields of consumption analysis, monetary history and theory, and stabilization policy. The following year, Friedman retired from active teaching and took up residence at Stanford's Hoover Institution.

Although retired, he continued working until the very end. In 1980, Friedman probably achieved his greatest renown with the best-selling book and PBS television series, "Free To Choose," which explained to average people why free markets work best.

Read more here.

Milton Friedman on YouTube

Milton Friedman on YouTube: How to Cure Inflation, from the PBS series "Free to Choose" in 1980.

More here, see Milton Friedman in action.

The Tyranny of Controls.

Created equal.

Fed Chairman Bernanke on Milton Friedman

"Among economic scholars, Milton Friedman had no peer," Federal Reserve Chairman Ben Bernanke said yesterday. "The direct and indirect influences of his thinking on contemporary monetary economics would be difficult to overstate. Just as important, in his humane and engaging way, Milton conveyed to millions an understanding of the economic benefits of free, competitive markets, as well as the close connection that economic freedoms bear to other types of liberty."

Milton Friedman, 1912-2006

From today's WSJ editorial page:

For all of his academic accomplishments, Professor Friedman's role as a popularizer of free-market principles was arguably more important. He wrote a column in Newsweek for 18 years starting in 1966, preaching the importance of economic freedom to a generation that had never heard such things in school. His 1980 book, "Free to Choose," was a best seller, and the videos that accompanied it were smuggled behind the Iron Curtain like seeds of revolution.

Few people in human history have contributed more to the achievement of human freedom than Milton Friedman.


Why Wal-Mart Matters

From "Why Wal-Mart Matters" from the Mises Institute:

"Wal-Mart matters for anyone interested in human welfare and the alleviation of poverty. Economists have identified a large "Wal-Mart effect" on food prices. Recently, economists Jerry Hausman and Ephraim Leibtag have argued that consumer benefits from Wal-Mart entry are "substantial, both in terms of food expenditure and in terms of overall consumer expenditure."

Their study finds that "low income households benefit the most." In another study, they argue that the Bureau of Labor Statistics overstates inflation by failing to account for Wal-Mart's substantial impact on grocery prices. A study by the McKinsey Global Institute found that Wal-Mart accounted for a disproportionate share of US productivity growth in the 1990s.

In the United States, Wal-Mart's impact on food prices has been orders of magnitude greater than what the federal government spends on food stamps. Production for the markets opened by Wal-Mart has led a great many people to the road out of poverty in countries like China.

Those who vilify Wal-Mart do so not for Wal-Mart's political failings but for Wal-Mart's economic successes. The company's critics are making inroads, but the anti-Wal-Mart campaign is a campaign to strangle a goose that has laid a disproportionate share of golden eggs."

My Favorite Milton Friedman Quotes

1. There is nothing as permanent as a temporary government program.

2. Inflation is always and everywhere a monetary phenomenon.

3. Inflation is caused by too much money chasing after too few goods.

4. Sloppy writing reflects sloppy thinking.

5. All learning is ultimately self-learning.

6. I'm in favor of legalizing drugs. According to my values system, if people want to kill themselves, they have every right to do so. Most of the harm that comes from drugs is because they are illegal.

7. Nobody spends somebody else's money as carefully as he spends his own. Nobody uses somebody else's resources as carefully as he uses his own. So if you want efficiency and effectiveness, if you want knowledge to be properly utilized, you have to do it through the means of private property.

8. The government solution to a problem is usually as bad as the problem.

9. The Great Depression, like most other periods of severe unemployment, was produced by government mismanagement rather than by any inherent instability of the private economy.

10. The high rate of unemployment among teenagers, and especially black teenagers, is both a scandal and a serious source of social unrest. Yet it is largely a result of minimum wage laws. We regard the minimum wage law as one of the most, if not the most, antiblack laws on the statute books.

11. Industrial progress, mechanical improvement, all of the great wonders of the modern era have meant relatively little to the wealthy. The rich in Ancient Greece would have benefited hardly at all from modern plumbing : running servants replaced running water. Television and radio? The Patricians of Rome could enjoy the leading musicians and actors in their home, could have the leading actors as domestic retainers. Ready-to-wear clothing, supermarkets - all these and many other modern developments would have added little to their life. The great achievements of Western Capitalism have redounded primarily to the benefit of the ordinary person. These achievements have made available to the masses conveniences and amenities that were previously the exclusive prerogative of the rich and powerful.

12. President Kennedy said, "Ask not what your country can do for you - ask what you can do for your country."... Neither half of that statement expresses a relation between the citizen and his government that is worthy of the ideals of free men in a free society. "What your country can do for you" implies that the government is the patron, the citizen the ward. "What you can do for your country" assumes that the government is the master, the citizen the servant.

13. On the difference between public vs. private education: "Try talking French with someone who studied it in public school. Then with a Berlitz graduate."

Thursday, November 16, 2006

Milton Friedman, R.I.P.

Nobel Prize winner Milton Friedman, one of the most influential economists of the last century and a free-market champion, died today of heart failure in San Francisco at age 94.

Mr. Friedman was awarded the Nobel Prize in 1976. He long championed the cause of political and economic freedom and the links between the two. He originated, or was associated with, many breakthroughs in economics since the 1950s. He is best known for explaining the role of the money supply in economic and inflation fluctuations. He also developed, with this year's Nobel Prize winner in economics, Edmund Phelps, the theory in the 1960s that policy makers couldn't achieve a permanent tradeoff between lower unemployment and higher inflation, and that efforts to do so would simply result in the same unemployment rate and higher inflation, a view that holds sway at major central banks today, including the Fed.

Read the
WSJ article here.

Americans Voted for Gridlock: A Do-Nothing Seinfeld Congress

From NY Times columnist John Tierney: "I’m afraid the election results still haven’t registered in Washington. Democrats and Republicans keep making noises about working together to accomplish great things. But that’s not what Americans voted for. They voted for gridlock.

They gave Congress a Seinfeld mandate to do nothing. The Democrats offered no bold new ideas, and they were rewarded with victory. Voters would like them to mop up the messes made by Republicans, but that’s it. Find a way out of Iraq, and then avoid any more excellent adventures dreamed up by neoconservatives."

Read more here.

By the way, this is libertarian John Tierney's last NY Times column for now: "I hate to abandon my libertarian comrades here fighting in the belly of the beast, but this is the right moment to leave. After six years of libertarians reluctantly electing Republicans as the lesser of two evils, we’ve finally had enough. We’ve voted out big-government conservatism, and the result is the happy state of gridlock. For now, our work is done. See you in January in a new column on a new page."

Despite Big 3, US Auto Industry is Healthy

An editorial from today's WSJ:

"The U.S. auto industry as a whole is healthy and the troubles of GM, Ford and Chrysler are by and large unique to those Detroit players. This is an important distinction, because the auto executives who met with Mr. Bush are keen to present their current woes as industry-wide. And the Big Three are counting on Michigan's Democrats in Congress, who now find themselves in the majority, to help make the case.

GM posted a $10.6 billion loss last year and has closed plants and offered union-worker buyouts. Ford is downsizing its workforce in the wake of weak sales. Both companies are responding to self-inflicted wounds that result from weak product lines, plus labor deals with the United Auto Workers that include generous benefits and pensions, as well as GM's notorious Jobs Bank that pays thousands of workers for not working. GM is paying for the health care of more retired workers (and their dependents) than of active employees.

GM, Ford, Chrysler and their enablers in the new Congress would have you believe otherwise, but outside of Michigan the U.S. remains a great place to produce vehicles. Consumers have more choices in what to drive and better quality than ever. And prices are competitive. Government intervention in a market this healthy can only increase the chances that it won't stay that way."

Automobile Safety: Seatbelts Cause Accidents

Do automobile safety features like seat belts and air bags really save lives? Maybe not.

Economist Sam Peltzman argues that manadatory safety features like seat belts and air bags reduce the probability of death or serious injury to the driver in an accident, but the increased feeling of safety from seat belts or airbags would actually cause drivers to drive slightly more recklessly, which would increase the number of accidents.

Think about it: Who gets stuck in the mud or snow more often - drivers in 4-wheel drive vehicles or standard 2-wheel drive vehicles? Probably drivers in 4-wheel drive vehicles - feeling "empowered" by the 4-wheel drive feature, they take more risks, and get stuck more often.

Likewise, seatbelts and airbags make drivers feel slightly more "empowered" with the increased safety and protection, and would drive slighlty more recklessly. Drivers would be more likely to survive a serious accident with seatbelts and airbags, but the number of accidents would go up, so the net effect on overall deaths from car accidents could go up, down or stay the same. What does the empirical evidence show? According to Peltzman (
from Russell Roberts on Cafe Hayek):

"Holding other factors constant that might change the number of accidents (and this is never easy but he did the best he could with the data at hand), Sam Peltzman found that mandatory seat belts did indeed cause more accidents. But this effect was roughly the same as the effect in the opposite direction, that accidents were less harmful. So the net number of fatalities of drivers was unaffected by the law. Sam found some evidence that the effect of the law might be to reduce driver fatalities. Unfortunately, because drivers were more reckless, there were more accidents involving pedestrians and cyclists. So their death rate due to cars increased. Total deaths were unchanged."

Conclusions: 1) Incentive matters. 2) Mandatory safety requirements don't necessarily increase overall saftey, because of conclusion #1.

RPS World Championship, Who Knew?

The world championship rock, paper, scissors (RPS) tournament will take place this weekend in Toronto. There will be 500 top competitors from all over the world in Toronto to compete in the RPS tournament.

The winner will receive $10,000 Canadian currency, which is equivalent to $8,835 US dollars, along with the RPS world championship title.

Wonder how their determine who plays who? "Enie minie minie moe...?"

Wednesday, November 15, 2006

More on Rainforest "Math"

Meet the New Math, Much Worse than the Old Math

"It took parents 17 years to overturn the tragic 1989 curriculum mistake made by the so-called education experts who demanded that schools abandon traditional mathematics in favor of unproven approaches. The National Council of Teachers of Mathematics finally reversed course on September 12, 2006, and admitted that elementary schools really should teach arithmetic, after all.

The new report called "Curriculum Focal Points for Prekindergarten Through Grade 8 Mathematics" is a back-to-basics victory that rejects the type of math curricula that parents had derided as "fuzzy math" or "rainforest math." The experts preferred such hoity-toity titles as "New New Math," "Connected Math," "Chicago Math," "Core-Plus Math," "Whole Math," "Interactive Math," or "Integrated Math."

Whatever the title, these curricula imbedded the notion that estimates are acceptable in lieu of accurate answers to math problems so long as students feel good about what they are doing and can think up a reason for doing it. Fuzzy curricula were big on discussion, coloring, playing games, and early use of calculators. (MP: And group tests, too).

The 1989 report (which gives the word "standards" a bad name) flatly opposed drilling students in basic math facts, taught that memorization of math facts was bad, and failed to systematically build from one math concept to another. Children were encouraged to "discover" math on their own, construct their own math language, and flounder around with their own approaches to solving problems.

This silliness is based on the false notion that children can develop a deeper understanding of mathematics when they invent their own methods for performing basic arithmetic calculations."

Read more here.

Fuzzy Math: Fuzzy Thinking

From the NY Times, an article "As Math Scores Lag, a New Push for the Basics" about rethinking the teaching of "fuzzy math" in American schools.

"The changes are being driven by students’ lagging performance on international tests and mathematicians’ warnings that more than a decade of so-called reform math — critics call it fuzzy math — has crippled students with its de-emphasizing of basic drills and memorization in favor of allowing children to find their own ways to solve problems."

Here is an example of how fuzzy math works:

Fuzzy Math Problem: You have a nest with 5 birds. Three birds fly away. Question: How do the other birds feel? Well maybe that is a little bit of an exaggeration.

But many parents are concerned. From the NY Times article:

“When my oldest child, an A-plus stellar student, was in sixth grade, I realized he had no idea, no idea at all, how to do long division,” Ms. Backman said, “so I went to school and talked to the teacher, who said, ‘We don’t teach long division; it stifles their creativity.’ ”

The biggest advantage of learning and mastering the basics of math or writing at an early age: You have an advantage over your entire lifetime, because once you learn math/writing basics, you NEVER forget them. If you don't learn the basics of math and writing in grade school, it becomes increasingly hard to learn them later in life - the bad habits of poor math and writing skills become ingrained and well-established, and it is difficult to have to re-learn math and writing basics.

Poor math and writing skills are also consistent with poor thinking and poor reasoning skills. As Milton Friedman said: "Sloppy writing reflects sloppy thinking." Perry's corollary would be "Clear and careful writing reflects clear and careful thinking." And I would also say: "Fuzzy math promotes fuzzy thinking."

Tuesday, November 14, 2006

Peak Oil Production is 25 Years Away

Far from being a nearly exhausted resource, the world's oil reserves are three times bigger than what some popular estimates state, and peak global oil production is still about a quarter-century away, according to a new study by Pulitzer Prize-winning oil historian Daniel Yergin. Yergin's views carry weight because he won the Pulitzer for his 1991 book "The Prize," an exhaustive history of oil economics.

The world's total oil supply is estimated to be 4.82 trillion barrels, and 1.08 trillion barrels have already been consumed (see graph above). The remaining oil resource base is about 3.74 trillion barrels, according to a report released by Yergin's Cambridge Energy Research Associates. That's more than three times the 1.2 trillion barrels that "peak-oil" theorists suggest.

There's an estimated 1.07 trillion barrels yet to be discovered, and the incentive to explore and discover that oil will increase significantly when the price of oil eventually rises. As as the price of oil eventually rises, the incentive to conserve oil use by consumers will increase significantly as well. And as oil prices rise, the incentive to discover alternative energy sources will increase significantly as well.

Not to worry.

Tragedy of the Commons, Solution: Property Rights

From today's WSJ, an editiorial "Save the Fish" about the false scare from junk science reports that we will run out of fish by 2048. From the WSJ:

"Extrapolation of any trend far enough into the future can bring surprising results (remember Dow 36,000?). And at least one professor of marine sciences has called this particular extrapolation "mind-bogglingly stupid."

What's the problem with fish? Well, unlike domesticated animals, no one owns them. (MP: When is the last time you heard of a pending shortage of Holstien cattle, chickens or German Shepards?) Government programs to set catch limits and so reduce fishing effort are a constant source of friction with fishermen, who are always pushing for higher limits than regulators feel are advisable. It's not that fishermen want to decimate their cash crop. But the system is set up to encourage them to push for whatever they can get, now.

There's a better way. Private property rights: adopting a system of individual, tradeable quotas."

See a related, recent article by NY Times columnist John Tierney, "
Where the Tuna Roam:"

"If 19th-century researchers had kept tabs on buffalo hunts, they could have drawn a similar graph of doom. And if they wanted their study to make front-page headlines, they could have warned that overhunting doomed future inhabitants of the Great Plains to live in a world without fresh meat.

Today that sounds silly. You can get all the beef -- or buffalo meat -- you want from Western ranchers.

A quiet revolution has occurred in certain American waters, like the halibut fishery of Alaska, and in countries like Canada, Iceland, New Zealand and Australia. Fishermen have discovered the same tool used by settlers on the Great Plains: property rights."

Europe vs. USA

From today's WSJ, an article "Euro-Zone Economic Growth Slows in Third Quarter," here is a quote:

"The latest growth data, combined with strong business surveys, still back up the European Central Bank's view that the 12-nation currency area is heading for growth of around 2.5% this year, the region's fastest pace of growth since 2000."

When Europe has output growth of 2.5% it is the strongest economic performance in 6 years. When the US has output growth of 2.5%, it would be considered below-average performance.

According to a report by the Swedish think tank Timbro called "
EU versus USA:"

"If the European Union were a state in the USA it would belong to the poorest group of states. France, Italy, Great Britain and Germany have lower GDP per capita than all but four of the states in the United States. In fact, GDP per capita is lower in the vast majority of the EU-countries (EU 15) than in most of the individual American states. This puts Europeans at a level of prosperity on par with states such as Arkansas, Mississippi and West Virginia."

The Dangerfield US economy gets no respect.

Monday, November 13, 2006

When It Comes to Taxes, Simple is Better KISS

A recent report from the World Bank Group and PricewaterhouseCoopers, “Paying Taxes – The Global Picture” examines the tax regimes of 175 countries, including measuring the number of pages in a country's income tax code:

India was #1 in the world with 9,000 pages

UK is #2 in the world with 8,300 pages, and it would have been higher but the UK tax laws were recently simplified!

USA has 5,100 pages

Switzerland has just 300 pages

The report also looked at the number of hours it takes to comply with tax requirements and reported an average of 332 hours a year for businesses to comply with tax requirements, ranging from 2,600 hours in Brazil to 325 in the U.S. to 68 in Switzerland.

See today's
Wall Street Journal editorial "Tax Ephiany" on the World Bank report:

"A bright light descended from the sky last week and shone upon the world's economic planners. It came courtesy of the World Bank, of all unlikely places; its toiling economists have discovered that simplified tax systems promote economic growth."

"The overriding goal of any tax system should be to raise the revenue that governments need for public purposes with the least amount of economic distortion and evasion. The lesson of the World Bank report is that the more transparent and simple a tax scheme, the more it will achieve that purpose."

Sunday, November 12, 2006

Cost of Living, NYC vs. Minneapolis

How expensive is it to live in NYC compared to Minneapolis? According to Sperling's Cost of Living Calculator, it is 55.3% more expensive to live in NYC than Minneapolis, see the comparison here. Or to maintain the same standard of living, a salary of $100,000 in Minneapolis should increase to $155,263 in NYC. The biggest difference of course is the cost of housing, which according to Sperling is twice as expensive in NYC vs. Mpls. Food costs are also about 37% more expensive in NYC vs. Mpls. You can compare any two major US cities using the Sperling cost-of-living calculator.

See a related post on
Marginal Revolution here, which mentions this article in New York Magazine that says a dollar in NYC is worth only 76.2 cents, and compares NYC to Minneapolis.