Friday, August 10, 2007

Mandatory High School Econ Test for Congress?

From today's WSJ's editorial "The Kids Are All Right"

NAEP reported this week that 79% of twelfth graders passed the first-ever national economics test. Holy Hayek.

The test included technical questions on price floors, opportunity cost, and the supply curve. One question asked what would happen if government mandated a high price floor for chocolate. A plurality deftly analyzed a graph to choose the correct answer: There would be a surplus of chocolate. Presumably the test could have asked about a minimum wage, too, and students would have arrived at a similar conclusion. Maybe Congress should make this test, or one like it, mandatory for all Members.

All of this welcome economic literacy comes despite the fact that only one-third of states require a course in economics for a high school degree. Yet when economics is offered, it is a popular choice: In 2005, 66% of graduates had received formal instruction, compared with 49% in 1982. The depth of knowledge shown by ordinary seniors suggests that they have been able to absorb basic economic truths from their daily experiences. Now, if this wisdom can only survive four years of instruction by your average college faculty.

Thursday, August 09, 2007

Outsourcing Works Both Ways

Lou Dobbs, listen up:

Hindustan Times: Indian software giant Wipro (NASDAQ: WIT) plans to open several software development and IT facilities in the United States.

In addition to a software development center to be opened in Atlanta within the next three months, India's third-biggest software maker is considering opening three new U.S. facilities: Raleigh, NC, Austin, TX and Richmond, VA, which could open as early as next year.

However, the company first wants to see "how it goes" when its Atlanta center opens by the year's end. Wipro expects within three years to have about 1,000 American workers in Atlanta.

Bottom Line: Outsourcing and trade work both ways. American companies hire workers in India, and Indian companies hire workers in the U.S.

Economics Education

1. From today's Washington Post "12th-Graders Show Strength in Economics":

"Forty-two percent of 12th-graders nationwide scored at the proficient level or better on the economics test, meaning they could handle challenging subject matter. In contrast, just 23% of 12th-graders hit the proficient mark in math, according to results published earlier this year. In reading, 35% were proficient or better."

2. From today's NY Times "12th Graders Show Better Grasp of Market Forces Than Expected on U.S. Economics Test":

"The nation’s high school seniors performed significantly better on the first nationwide economics test than they did on other recent national exams in history and science, and demonstrated higher than expected understanding of basic market forces like supply and demand than officials expected."

3. Question: Where is the best place to learn about economics?
Answer: Blogs, according to Tyler Cowen.

Fair But Unbalanced Reporting on the Economy

According to futures trading on, there is only a 8.5% chance that the U.S. economy will experience a recession in 2007.

According to Brian Wesbury writing in today's WSJ, "the July WSJ economic forecasting survey shows that 49 out of 60 forecasters expect real GDP to grow at an average annual rate of 2%, or faster, in 2007. Of the remaining 11 forecasters, only two expect growth of less than 1%, and only one expects a recession. For 2008, the forecasters are even more optimistic, with none expecting recession."

"Despite this, an NBC News/WSJ poll in July found that 68% of Americans thought that the economy was either in recession already, or would experience a recession sometime during the next 12 months. Interestingly, this is not much of a change from the past. This same survey question has been polled at least five times since September 2002. Each time a robust majority of between 65% and 85% of respondents thought a recession was either underway or would occur within the year. Americans have been bearish on the economy for quite some time."

Why the disconnect between economic reality and the general public's misguided and distorted perception of the economy?

Brian explains it this way: "A randomly selected pairing of economists from the WSJ forecasting panel would pit two rather optimistic forecasters against each other in debate. But having two economists debate about whether GDP will grow 2.1% this year or 2.4% is downright boring. As a result, the producers of business news spice things up. They arrange for debates between a bullish economist and a bearish economist." (MP: Like my debate on Kudlow & Company.)

"While this is entertaining, and may bring in eyeballs, which sell commercials, this idea of "fair and balanced" debates leaves an impression that the experts are split 50/50, when in reality it's more like 80/20, or 90/10. But if all the public sees is an endless stream of 50/50 debates, then it is really not that much of a surprise that people think the future is basically a coin toss. And a coin toss, especially in a time of war and terrorism, is not very good odds."

Life vs. Death Struggle in Africa

Watch this amazing video of Lions vs. Buffaloes vs. Crocodiles.

Isn't LASIK Eye Surgery Cheating?

Tiger's thrilled with his new 20/15 vision through LASIK surgery asks an interesting question "If steroids are cheating, why isn't LASIK?"

A month ago, Mark McGwire was hauled before a congressional hearing and lambasted as a cheater for using a legal, performance-enhancing steroid precursor when he broke baseball's single-season home run record.

A week ago, Tiger Woods was celebrated for winning golf's biggest tournament, the Masters, with the help of superior vision he acquired through laser surgery, which upgraded his vision to 20/15. Golfers Scott Hoch, Hale Irwin, Tom Kite, and Mike Weir have hit the 20/15 mark. So have baseball players Jeff Bagwell, Jeff Cirillo, Jeff Conine, Jose Cruz Jr., Wally Joyner, Greg Maddux, Mark Redman, and Larry Walker. Amare Stoudemire and Rip Hamilton of the NBA have done it, along with NFL players Troy Aikman, Ray Buchanan, Tiki Barber, Wayne Chrebet, and Danny Kanell.

What's the difference?

And what about high-powered contact lenses? McGwire's custom-designed lenses improved his vision to 20/10, which means he could see at a distance of 20 feet what a person with normal, healthy vision could see at 10 feet. Think what a difference that makes in hitting a fastball. Imagine how many games those lenses altered.

Business Don't Pay Taxes, They Collect Them

From today's Washington Post:

President Bush said yesterday that he is considering a fresh plan to cut tax rates for U.S. corporations to make them more competitive around the world, an initiative that could further inflame a battle with the Democratic Congress over spending and taxes and help define the remainder of his tenure.

The administration said the U.S. corporate tax rate, once modest compared with international competitors, is now second only to Japan's among 30 member states in the Organization for Economic Cooperation and Development (see chart above, click to enlarge, note that Germany's rate is now slightly lower at 38%). Moreover, officials said, Germany, France, Japan, Britain and China have signaled that they will or may cut their rates.

"Our tax structure makes us less competitive, and if we want to be a competitive nation, we've got to analyze a lot of things, including taxes, dependence on oil or good education policy," Bush said. "And so we will work through possible suggestions for Congress."

As the Foundation for Economic Education reminds us, "Businesses don't pay taxes; they collect them." Consumers pay corporate taxes through higher prices, workers pay corporate taxes through lower wages, and shareholders pay for corporate taxes through lower dividends.

Don't Steroids Help the Pitchers Who Face Bonds?

From today's NYTimes (one of hundreds of similar articles):

"There will always be fans who feel that Aaron and Ruth are the pure home run kings. Bonds has been connected to investigations into steroid use, muddying how he accumulated 756 homers, which improved to 757 on Wednesday, and creating suspicion about how he conquered Aaron and 755."

Bonds’s critics will note how his body and statistics inflated in his late 30s, an age when they are supposed to decline. They will repeat how Bonds has been central to steroid investigations and has been featured in a best-selling book about the subject. They will argue that Bonds has avoided failing tests only because some steroids are undetectable."

Q: If MLB players have been using steroids, wouldn't the pitchers who face Bonds also be using them, and wouldn't steroid use enhance their performance as pitchers, balancing out the enhanced performance of hitters like Bonds? Or is the agrument that steroids improve the performance of batters disproportionately more than steroids help pitchers?

Comments welcome.

Wednesday, August 08, 2007

More on Scraping the Scalping Laws

Why is someone who sells tickets to a Red Sox fan outside Fenway Park for a heavily inflated price called a "scalper," while someone who charges the same fan $4 for a bottle of water inside the stadium is called a "concessionaire"?

Why does anyone thinks the government should be involved in deciding how much a willing buyer can pay a willing seller for tickets to a lawful entertainment event?

We all take it for granted that if you're willing to pay for the privilege, you can stay at the best hotel, live in the best neighborhood, eat at the best restaurant, or hire the best lawyer. So what accounts for the heavy breathing when some fans pay a premium in order to see Daisuke Matsuzaka take the mound or watch David Beckham bend it with the L.A. Galaxy? Or -- this isn't only about sports -- to hear Beyoncé sing "Irreplaceable" or catch a sold-out "Wicked" on Broadway?

All told, 42 states have decided that the heavens won't collapse if people who own tickets to games and shows are free to sell them for whatever the market will bear -- as free as people who own real estate, shares of stock, Beanie Babies, or just about anything else.

~Jeff Jacoby, writing in today's Boston Globe

Skyrocketing Farmland Prices, Fueled by Ethanol

Ethanol Facts:

1. Corn is the most subsidized crop in America, raking in a total of $51 billion in federal handouts between 1995 and 2005 -- twice as much as wheat subsidies and four times as much as soybeans.

2. Ethanol is propped up by hefty subsidies, including a 51 cent-per-gallon tax allowance for refiners. A study by the International Institute for Sustainable Development found that ethanol subsidies amount to as much as $1.38 per gallon -- about 50% of ethanol's wholesale price. Ethanol is propped up by more than 200 tax breaks and subsidies worth at least $5.5 billion a year.

3. A Senate energy bill is coming up for final approval next month that would require a 7X increase in ethanol from 5 billion gallons this year to 36 billion gallons by 2022, and a separate Senate bill would raise the ethanol mandate to 60 billion gallons by 2030.

4. The ethanol legislation currently being considered by Congress will cost taxpayers an estimated $131 to $205 billion over the next 15 years in ethanol subsidies.

As would be expected, when Congress transfers $250 billion of taxpayers' money to a single industry over a 25-year period, there will be significant pressure on prices for the inputs of that industry, in this case farmland.

From today's NYTimes, "
Ethanol Is Feeding Hot Market for Farmland:"

While much of the nation worries about a slumping real estate market, people in Midwestern farm country are experiencing exactly the opposite.

Skyrocketing farmland prices, particularly in states like Illinois, Iowa and Nebraska,
giddy with the promise of corn-based ethanol, are stirring new optimism among established farmers.

In central Illinois, prime farmland is selling for about $5,000 an acre on average, up from just over $3,000 an acre five years ago. In Nebraska, meanwhile, land values rose 17% in the first quarter of this year over the same time last year, the swiftest such gain in more than a quarter century. A federal-government analysis of farm real estate values released Friday showed record average-per-acre values across the country - property prices averaged $2,160 an acre at the start of 2007, up 14% from a year earlier.

Bottom Line: "Subsidizing ethanol from corn as a gasoline oxygenate is one of the most misguided public policy decisions made in recent history." Professor Tad Patzek, UC-Berkeley

Tuesday, August 07, 2007

Greater Diversity = Lower Social Capital?

A Harvard political scientist finds that diversity hurts civic life. What happens when a liberal scholar unearths an inconvenient truth? From "The Downside of Diversity" in Sunday's Boston Globe:

In his findings, Putnam writes that those in more diverse communities tend to "distrust their neighbors, regardless of the color of their skin, to withdraw even from close friends, to expect the worst from their community and its leaders, to volunteer less, give less to charity and work on community projects less often, to register to vote less, to agitate for social reform more but have less faith that they can actually make a difference, and to huddle unhappily in front of the television."

"People living in ethnically diverse settings appear to 'hunker down' -- that is, to pull in like a turtle," Putnam writes.

Higher diversity means lower social capital.

Via Tom McMahon

Never Underestimate the Power of the Market

Last year, Wal-Mart started offering hundreds of prescription drugs of all different kinds for only $4, saving customers about $300 million. Available nationwide since November 2006, the $4 prescriptions now account for more than 35% of all prescriptions filled at Wal-Mart and nearly 30% of the $4 prescriptions are filled without insurance.

Last month, Kmart began offering a 90-day supply of generic drugs for $15, and that program now includes more than 300 drugs.

Publix supermarket chain announced it will make seven common prescription antibiotics (amoxicillin, cephalexin, penicillin VK, erythromycin, sulfamethoxazole/trimethoprim, ampicillin and ciprofoxacin) available for free, joining other major retailers in trying to lure customers to their stores with cheap medications.

The oral antibiotics, representing the most commonly filled at the chain's pharmacies, will be available at no cost to anyone with a prescription as often as they need them. Fourteen-day supplies of the seven drugs will be available at all 684 of the chain's pharmacies in five Southern states.

Thomas Sowell on The Politics of Bridges

The real problem is that the political incentives are to spend the taxpayers' money on things that will enhance politicians' chances of getting re-elected.

There may be enough money available to maintain bridges and other infrastructure but that same money can have a bigger political pay-off if spent building something new instead of maintaining and repairing existing structures.

When money is spent building a new community center, a golf course, or anything that will be newsworthy, there will be ribbon-cutting ceremonies and the politicians who cut the ribbons can expect to see their pictures in the newspapers and on TV.

All that keeps their name before the public in a positive role and therefore enhances their prospects of being re-elected.

But there are no ribbon-cutting ceremonies when bridges are being repaired or pot-holes are being filled in. These latter activities may be more valuable than a community center or a golf course, but they are not nearly as photogenic.

The preference for showy projects that will enhance a politician's career prospects is not peculiar to current politicians. Adam Smith pointed out the same thing about politicians in 18th-century Europe.

We can vote the rascals out but the new rascals who replace them will face the same incentives and in all likelihood will respond in the same way.

A pattern that has persisted for more than two centuries is likely to continue unless something fundamental is changed.

What really needs to be done is to change the incentives.

From economist Thomas Sowell's most recent column "A Bridge Too Far Gone," read more here.

Ticket Scalping Now Legal in NY and Connecticut

In a recent post, I wrote about Minnesota repealing its 1913 ticket scalping ban. Now both New York and Connecticut have signed legislation to legalize ticket scalping.

From today's WSJ editorial "That's The Ticket":

Fans will now be able to buy and sell tickets in efficient and legal secondary markets. For ardent sports or music fans, this should eliminate the drudgery of camping in line for hours, or sometimes days, outside ticket windows to get choice seats.

Having tickets available to those who are willing to pay even a steep price is better than having no tickets available at any price. Secondary markets work efficiently for trading stocks, bonds, housing and art. When an investor resells his share of Google stock for a profit, we don't call him a price gouger. Yet that still happens in many states to ticket scalpers.

Of all people, Mr. Spitzer put it best when he signed the ticket legislation: "Permitting a free market to work its magic is the smart approach." Hold that thought, Governor.

Bottom Line: As I wrote before, re-selling tickets (or coins, cars, houses or bonds), whether the agreed-upon price is above, below or at the stated face value (list price), in a voluntary transaction between a willing buyer and a willing seller, is a "crime" without a victim in those jurisdictions where ticket scalping is illegal.

Ending ticket scalping laws shows that sometimes common economic sense can rise above politics. If every student was required to take a basic economics course in grade school, high school and college, perhaps these ticket scalping laws would have been repealed decades ago?

Wal-Mart Enters $300 Billion Indian Retail Market

From today's WSJ:

NEW DELHI -- Wal-Mart took a stride toward establishing international operations capable of fueling its sales growth as its U.S. operations mature, signing a long-awaited joint-venture pact with Bharti Enterprises to sell goods to small retailers, manufacturers and farmers in India.

Wal-Mart, the world's largest retailer, and many of its largest competitors long have coveted access to India, which boasts a $300 billion retail industry made up almost entirely of mom-and-pop shops. Indian rules don't allow multiple-brand retailers such as Wal-Mart to sell directly to consumers, but they can run wholesale operations and provide back-end support to Indian retailers.

The 50-50 joint venture, Bharti Wal-Mart, will provide wholesale cash-and-carry and back-end supply-chain management operations in the country, the companies said. Bharti Wal-Mart will also supply retailers such as Bharti Retail, a unit of Bharti Enterprises that is setting up a separate, wholly owned retail chain in India that will sell directly to the end consumer.

Bharti Wal-Mart will launch its first store by the end of 2008 and will open up to 15 such facilities over the next seven years, employing about 5,000 people, the companies said. A typical store will stand between 50,000 and 100,000 square feet and sell a wide range of fruits and vegetables, groceries and staples, stationery, footwear, clothing, consumer durables and other general merchandise items, the companies said.

Bottom Line: American companies like AOL, Yahoo, Microsoft, Dell and Google employ thousands of Indians in call centers and research centers in India allowing these American companies to become larger, stronger and more efficient, creating more jobs in the U.S. (and India) for these companies, and these jobs in India are allowing thousands or millions of Indians to enter the middle class. Then American companies like Starbucks, Foot Locker, Domino's Pizza and Wal-Mart sell low-priced products to millions of middle-class Indians, allowing these companies to become larger, stronger and more efficient, creating more jobs in the U.S. (and India), and increasing the standard of living in India.

Seems like thousands, no probably millions, of voluntary win-win deals to me. Trade works. America is better off trading with India, and India is better off trading with the U.S.

Monday, August 06, 2007

Quote of the Day: Lessons from the Bridge

We should all learn this lesson from the bridge collapse: nearly every newsworthy tragedy we see would be less common if those who could have prevented it were subject to the harsh and impartial oversight of the free market. At the same time, nearly every tragedy we see will result in endlessly broadcast exhortations that we eliminate more of that free market and replace it with more of the same government that allowed the tragedy to happen in the first place. The same counterarguments presented above will apply the next time you see a newsworthy tragedy. If enough of us begin using them, perhaps someday we'll start learning these correct lessons.

Imagine if a Wal-Mart fell in on customers, killing them. What would be the reaction? The CEOs of Wal-Mart would be strung up. Certainly there would not be any public moaning about how the roofs of our nation's shopping centers are in disrepair. The blame would be focused and intense, with no excuses tolerated.

The correct solution: get government completely out of the business of building bridges. Private engineers and inspectors, completely independent of the power of government to insulate them from the consequences of shoddy work, will inspect with the zeal of (most) private accounting and law firms, who jealously guard their reputations for excellence. Imagine how safe we'd feel if the people who inspect and approve bridges could actually lose their jobs and their fortunes if they make a fatal mistake!

~Brad Edmonds writing for the Mises Institute

Sociology of Economics

Interesting post today on Greg Mankiw's blog, "The Sociology of Economics."

"The economists are the only social scientists in the room who are willing to argue with the statisticians. This could be that you are a more argumentative lot in the absence of substance, but also that you know something. I'm not qualified to tell who wins these disputes, but the statisticians seem to regard the economists with a high degree of regard. Why do you think that different disciplines view the importance of statistics differently?"

MP: In my economics doctoral program at George Mason I had 4 classes in PhD-level statistics and one course in mathematical economics, and George Mason is relatively "non-mathematical." Therefore, I think most economists today get rigorous training in statistics, compared to sociology and other social sciences.

Exhibit A: In a previous post I wrote about why Larry Summers was fired from Harvard for saying something rather sensible and non-controversial from a statistics standpoint. Perhaps the lack of training in statistics in social sciences and other disciplines contributed to Summers' downfall.

Corn is the State Religion, NOT Soybeans

Cato: "The closest thing we have to a state religion in the United States isn't Christianity. It's corn." Given Washington's love affair with corn ethanol, promoted as a way to end dependence on foreign oil, you would think the politicians and bureaucrats would love other biofuels like soybean oil. But you would be wrong.

"Bob Teixeira of Charlotte, NC, decided it was time to take a stand against U.S. dependence on foreign oil. So last fall the Charlotte musician and guitar instructor spent $1,200 to convert his 1981 diesel Mercedes to run on vegetable oil. He bought soybean oil in 5-gallon jugs at Costco, spending about 30 percent more than diesel would cost.

His reward, from a state that heavily promotes alternative fuels: a $1,000 fine last month for not paying motor fuel taxes. He has been told to expect another $1,000 fine from the federal government.

To legally use veggie oil, state officials told him, he would have to first post a $2,500 bond.

Teixeira is one of a growing number of fuel-it-yourselfers -- backyard brewers who recycle restaurant grease or make moonshine for their car tanks. They do it to save money, reduce pollution or thumb their noses at oil sheiks.

They're also caught in a web of little-known state laws that can stifle energy independence.

Read more here.