At an Economics Club meeting near the end of the semester we discussed things the club can do in the future, ate pizza, and discussed the economics of gun control.
There is an extensive literature in economics on the effects of various gun control regulations and violent crime. Economists have looked at variations in international laws, and variation in state laws within the U.S. They've looked at ownership rates and concealed carry laws. There are some economists, such as John Lott, who are convinced that greater access to legal use of guns reduces crime. Others have found that, at least in some cases, like concealed carry laws, this is not true (Ayres and Donohue). There are also reasons to be suspicious of the quality of data. Police departments have incentives to make crime rates appear to go down, and improvements in medical technology cause some shootings to be classified as attempted homicides, rather than the actual homicides they would have been twenty years ago.
I'm going to discuss this literature very briefly, and then explain why this literature--indeed, all arguments about gun control--probably won't matter in a few years. (After the jump.)
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Tuesday, May 21, 2013
Wednesday, May 15, 2013
North Carolina: The Make-Work State
In October I discussed the economic sophistry behind car dealerships trying to stop Tesla Motors from selling its cars directly to consumers, instead of through independent dealerships. It looks like North Carolina has been captured by the dealership special interest group. There is no gentle way to put it: This is, economically speaking, stupid. There is no more reason to prohibit sales of cars online or direct from the manufacturer than there is to prohibit direct sales of, say, computers, or fruits and vegetables. Somehow, I don't think North Carolina will prohibit residents from buying directly from Dell's website or their local farmer at the farmer's market.
North Carolina's consumers will be poorer as a result of this policy than they would otherwise be.
North Carolina's consumers will be poorer as a result of this policy than they would otherwise be.
Thursday, May 9, 2013
James Buchanan's Legacy at MTSU
MTSU held an event today celebrating the life of James M. Buchanan, an MTSU alumnus and Nobel Prize-winning economist. Several important announcements were made by MTSU president Sidney McPhee, Dean John Vile of the MTSU Honors College, and James Buchanan's nephew Jeff Whorley.
James Buchanan's Nobel medallion has been perpetually loaned to the university by Jeff Whorley. Mr. Whorley also announced that James Buchanan left a $2.5 million bequest to MTSU. President McPhee explained that the money would be used for several purposes:
James Buchanan's Nobel medallion has been perpetually loaned to the university by Jeff Whorley. Mr. Whorley also announced that James Buchanan left a $2.5 million bequest to MTSU. President McPhee explained that the money would be used for several purposes:
- Buchanan scholars will receive a bronze medallion depicting James Buchanan upon graduation. These students are the most academically gifted at MTSU, and receive a full academic scholarships. Having taught them myself, I can attest that they're excellent students, and can stand with the best I've taught at other schools.
- George Mason University (where James Buchanan worked from 1983 until his death) and MTSU will be cooperating on The Buchanan Papers Project, an effort to collect, organize, display, and make available James Buchanan's work. I'm guessing that will mean some kind of digital format, but this wasn't clear.
- Most excitingly for me (and hopefully other economists at MTSU), there will be a new James M. Buchanan Lecture Series. Economists, political scientists, policy makers, and others will talk about the relevance and application of James Buchanan's ideas. The Department of Economics and Finance has had its own speaker series for a while now; this semester we had Dennis Coates, Matthew Yglesias, and Don Boudreaux (the latter of whom discussed James Buchanan and Public Choice). I look forward to having even more economics to consume!
- Most of the funds will be used to support the Buchanan Scholarship program. It was suggested that this might mean giving out more scholarships, although no details were given.
Don Boudreaux at MTSU on the Life and Contributions of James Buchanan: "Politics Without Romance"
Donald Boudreaux of George Mason University spoke at MTSU on April 22nd, 2013. The title of the talk was "Public Choice: Politics Without Romance". The talk was also in memory of MTSU alumnus and Nobel Prize recipient James M. Buchanan, who passed away in January of 2013. Special thanks to the MTSU Honors College for helping to organize the event.
Matthew Yglesias at MTSU on Why "The Rent is Too Damn High"
Matthew Yglesias of Slate spoke at MTSU on March 20, 2012. The lecture was based
on his book "The Rent is Too Damn High. Thanks to the Distinguished
Lecture Fund, the MTSU School of Journalism, and the Economics Club for
funding and for helping with organizing the talk.
Dennis Coates on Public Funding for Sports Stadiums at MTSU
Dennis Coates of the University of Maryland, Baltimore County spoke at MTSU on March 5, 2012. The title of the talk was
"Do Taxpayers Benefit from Subsidies for Sports Facilities and Events?". The short answer is "No".
Monday, April 29, 2013
The Economics of Twinkies
It is generally unpopular to say that bankruptcy is a "good" thing - the conventional wisdom, it seems, is to bail firms out, particularly those that are large employers (c.f., GM) or who might be strongly interdependent with other firms (c.f., investment banks). After all, won't widespread bankruptcy lead to a massive recession?
This seems like the wrong question to ask. From a market perspective, allowing firms to go bankrupt is a crucial element to well functioning economy - it is the process where unprofitable firms gain legal protection over their insolvency - essentially putting businesses that can't make goods that people want in a cost-effective manner "out of business." What happens next? Bankruptcy allows the assets of unprofitable firms to be bought up by entrepreneurs (perhaps prior competitors) at low prices, free of the restrictions of expensive labor contracts, debt obligations, and other encumbrances. Through this process, entrepreneurs can reorganize production - i.e., reallocate land, labor and capital - in a way so that the firm can be profitable. This can be a painful process - indeed, recessions are bound to happen. But this is good for the economy. It is only through this process will the economy become more efficient, producing goods that people want at lower prices, increasing employment and generating profits.
Consider the recent struggles of Hostess Brands Inc., makers of Twinkies, Ho Ho's, Sno Balls and Ding Dongs. Hostess was forced to file for bankruptcy in the fall of 2012 after their labor union - the Bakery, Confectionery, Tobacco Workers and Grain Millers' International Union - rejected a new labor contract that entailed an eight percent reduction in wages, among other significant cuts. After bankruptcy proceedings were concluded, Apollo Global Management LLC and Metropoulos & Co. agreed to buy up the Hostess brand. This past week Hostess has re-emerged under the banner Hostess Brands LLC and in the coming months are expected to reintroduce their menu of sugary treats to the marketplace. The current business plan is to hire 1,500 new workers. None of these will be unionized.
Is this a good thing? Yes. While it is true that Hostess workers will earn less money than they did before, at least Twinkies can now be made profitably. And in the long run there will likely be even more people employed in Hostess food production than there was under union rule. A market driven by profits will direct the allocation of resources far more efficiently - i.e., greater social wealth and employment - than by politicians seeking votes.
This seems like the wrong question to ask. From a market perspective, allowing firms to go bankrupt is a crucial element to well functioning economy - it is the process where unprofitable firms gain legal protection over their insolvency - essentially putting businesses that can't make goods that people want in a cost-effective manner "out of business." What happens next? Bankruptcy allows the assets of unprofitable firms to be bought up by entrepreneurs (perhaps prior competitors) at low prices, free of the restrictions of expensive labor contracts, debt obligations, and other encumbrances. Through this process, entrepreneurs can reorganize production - i.e., reallocate land, labor and capital - in a way so that the firm can be profitable. This can be a painful process - indeed, recessions are bound to happen. But this is good for the economy. It is only through this process will the economy become more efficient, producing goods that people want at lower prices, increasing employment and generating profits.
Consider the recent struggles of Hostess Brands Inc., makers of Twinkies, Ho Ho's, Sno Balls and Ding Dongs. Hostess was forced to file for bankruptcy in the fall of 2012 after their labor union - the Bakery, Confectionery, Tobacco Workers and Grain Millers' International Union - rejected a new labor contract that entailed an eight percent reduction in wages, among other significant cuts. After bankruptcy proceedings were concluded, Apollo Global Management LLC and Metropoulos & Co. agreed to buy up the Hostess brand. This past week Hostess has re-emerged under the banner Hostess Brands LLC and in the coming months are expected to reintroduce their menu of sugary treats to the marketplace. The current business plan is to hire 1,500 new workers. None of these will be unionized.
Is this a good thing? Yes. While it is true that Hostess workers will earn less money than they did before, at least Twinkies can now be made profitably. And in the long run there will likely be even more people employed in Hostess food production than there was under union rule. A market driven by profits will direct the allocation of resources far more efficiently - i.e., greater social wealth and employment - than by politicians seeking votes.
Tuesday, April 9, 2013
The Legacy of Margaret Thatcher
Yesterday, former British Prime Minister, Margaret Thatcher, passed away at age 87. Along with Ronald Reagan, Thatcher was the driving force in making the intellectual argument for free markets and helped transform the economies of the Western world. Her quip, "the problem with socialism is that eventually you run out of other people's money," was exemplary of her general skepticism towards the ability of government to regulate and improve market outcomes. She, like Reagan, was skilled at ridiculing the awkwardness of state control in a way that changed people's sensibilities, and likely for generations to come. This article provides a great overview of Thatcher's many accomplishments and legacy.
Friday, March 22, 2013
How to Beat the Chicken Tax
Autoblog recently reposted one of their older stories on their Facebook feed, and its one of my favorites.
In the early 1960s, France and Germany put tariffs on imports of chickens. The U.S. under Lyndon Johnson retaliated by placing a 25% tariff on imported starch, dextrin, brandy, and light trucks. This became known as the "Chicken Tax".
Eventually all but the light truck tariff were eliminated. There still remains a 25% tariff on imported light trucks, and it's one of the highest tariffs remaining in the U.S. Car companies have circumvented the tariff in at least a couple ways, one obvious, one not so obvious.
The obvious way to get around is to build here. The Japanese car companies do this. They might actually do it in the absence of the tariff, too (several Japanese cars are produced in the U.S. anyway, despite a lack of tariffs).
The less obvious way is the approach Ford takes. It imports the Transit Connect (which is really a light truck platform) into the U.S. in a configuration that allows it to be classified as a "wagon", which avoids the tariff. Once they are in the U.S., Ford transforms them into vans (which would be subject to the tariff) by replacing the rear windows with sheet metal and removing the rear seats.
I find it particularly funny that Ford is forced to jump through these ridiculous hoops, as Ford was one of the companies that was originally supposed to benefit from the tariffs. Globalization has blurred the lines between foreign and domestic automakers.
In the early 1960s, France and Germany put tariffs on imports of chickens. The U.S. under Lyndon Johnson retaliated by placing a 25% tariff on imported starch, dextrin, brandy, and light trucks. This became known as the "Chicken Tax".
Eventually all but the light truck tariff were eliminated. There still remains a 25% tariff on imported light trucks, and it's one of the highest tariffs remaining in the U.S. Car companies have circumvented the tariff in at least a couple ways, one obvious, one not so obvious.
The obvious way to get around is to build here. The Japanese car companies do this. They might actually do it in the absence of the tariff, too (several Japanese cars are produced in the U.S. anyway, despite a lack of tariffs).
The less obvious way is the approach Ford takes. It imports the Transit Connect (which is really a light truck platform) into the U.S. in a configuration that allows it to be classified as a "wagon", which avoids the tariff. Once they are in the U.S., Ford transforms them into vans (which would be subject to the tariff) by replacing the rear windows with sheet metal and removing the rear seats.
I find it particularly funny that Ford is forced to jump through these ridiculous hoops, as Ford was one of the companies that was originally supposed to benefit from the tariffs. Globalization has blurred the lines between foreign and domestic automakers.
Monday, March 18, 2013
Shouldn't a Plague Be a Universally Bad Thing?
I am running around getting things ready for Matthew Yglesias to speak at MTSU. This semester has been so busy that I'm having trouble getting non-teaching work done, let alone blogging. Nonetheless, a question occurred to me while listening to a podcast about immigration, and I'm hoping someone can help me with it.
I have seen economists and historians argue that the Black Death was a boon to the surviving workers in England, due to increased competition for the remaining workers, resulting in higher wages. Yet it is also generally believed that the Antonine Plague, which struck in the 2nd century A.D., was a disaster for the Roman Empire. The depopulated Roman Empire had trouble manning its farms, manufacturing facilities, and armies. Why is mass depopulation seen as a boon for England and a bane for Rome? Shouldn't the result in both cases be a loss of division of labor, resulting in lower real income? Nominal wages should rise, but prices should rise further due to reduced efficiency of production.Yet the Wikipedia page claims that real wages rose, citing this paper. I don't find the paper very persuasive in explaining the different real wage patterns across countries, but then again, I don't have time read it through from beginning to end. The Black Death only warrants one mention, on page 430.
One possible answer is that the two situations differ in the external pressures faced. Rome faced a constant threat from Germanic tribes. One could argue that the weakened legions couldn't hold off the Germans, and the uncertainty and instability caused by marauding Germans reduced production further. Yet we know that the plague also afflicted the Germans and, after defeats by the Romans, they left the Romans in peace for decades. Also, it's not as if England had little need of soldiers during the 14th century.
Another possible answer is that the plague caused the structure of labor markets to change toward more labor mobility in England, as landowners struggled to get enough workers to work their land, and peasants moved around seeking higher wages. This raises of the question of why there wasn't a similar structural shift in the Roman Empire--perhaps labor markets there were already characterized by mobility, although I doubt it.
Can someone clear this up for me?
What does this have to do with immigration? One of the most common arguments against immigration is that immigrants take jobs from Americans, leaving Americans poorer. Yet this is almost certainly false--there is no fixed stock of jobs. Adding workers means more work can get done; the number of jobs available expands as workers are added. Furthermore, adding more workers means more specialization and division of labor, which makes workers more productive.
If this weren't true, we could make ourselves wealthier by deporting people, or we could hope for a plague. If more workers means fewer jobs, then getting rid of workers should make the remaining workers better off. Yet no one really thinks this would work, do they? The remaining workers would all be less productive, as they'd be less specialized. It would be like Adam Smith's pin factory working in reverse.
I have seen economists and historians argue that the Black Death was a boon to the surviving workers in England, due to increased competition for the remaining workers, resulting in higher wages. Yet it is also generally believed that the Antonine Plague, which struck in the 2nd century A.D., was a disaster for the Roman Empire. The depopulated Roman Empire had trouble manning its farms, manufacturing facilities, and armies. Why is mass depopulation seen as a boon for England and a bane for Rome? Shouldn't the result in both cases be a loss of division of labor, resulting in lower real income? Nominal wages should rise, but prices should rise further due to reduced efficiency of production.Yet the Wikipedia page claims that real wages rose, citing this paper. I don't find the paper very persuasive in explaining the different real wage patterns across countries, but then again, I don't have time read it through from beginning to end. The Black Death only warrants one mention, on page 430.
One possible answer is that the two situations differ in the external pressures faced. Rome faced a constant threat from Germanic tribes. One could argue that the weakened legions couldn't hold off the Germans, and the uncertainty and instability caused by marauding Germans reduced production further. Yet we know that the plague also afflicted the Germans and, after defeats by the Romans, they left the Romans in peace for decades. Also, it's not as if England had little need of soldiers during the 14th century.
Another possible answer is that the plague caused the structure of labor markets to change toward more labor mobility in England, as landowners struggled to get enough workers to work their land, and peasants moved around seeking higher wages. This raises of the question of why there wasn't a similar structural shift in the Roman Empire--perhaps labor markets there were already characterized by mobility, although I doubt it.
Can someone clear this up for me?
What does this have to do with immigration? One of the most common arguments against immigration is that immigrants take jobs from Americans, leaving Americans poorer. Yet this is almost certainly false--there is no fixed stock of jobs. Adding workers means more work can get done; the number of jobs available expands as workers are added. Furthermore, adding more workers means more specialization and division of labor, which makes workers more productive.
If this weren't true, we could make ourselves wealthier by deporting people, or we could hope for a plague. If more workers means fewer jobs, then getting rid of workers should make the remaining workers better off. Yet no one really thinks this would work, do they? The remaining workers would all be less productive, as they'd be less specialized. It would be like Adam Smith's pin factory working in reverse.
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