The Economic Way of Thinking

The Campus Parking Problem

It's been one of those weeks where, after nearly being T-boned in our campus parking lot and watching people wait in their cars like vultures for a parking spot to open up, I've had to digress in each of my classes to discuss the campus parking "problem." 

As many of our readers probably know, the problem is due entirely to the marginal cost of parking being equal to zero on most campuses.  Raising costs of parking per parking experience through metered parking programs or some other mechanism that imposes user fees would greatly reduce the parking problems most of us encounter on a daily basis. 

As I presented the example, my students were with me...so with me...more than they're ever with me.  For a moment, it even felt like they were ready to lead a free market revolt for metered lots on our campus right away. 

Their enthusiasm got me wondering: Do we have any examples of non-urban colleges or universities (i.e., let's rule out NYU or George Washington University) actually using market prices to allocate parking spaces on campuses? 

Intervention Begets Intervention: Corporate Salary Caps After TARP

Here's one of the main insights of the economic way of thinking:  a particular intervention into the market creates unintended consequences, and those consequences often lead to further interventions.  That's one of our clearest conjectures about a complex world.

You are already aware that the corporate bailout package (i.e., taxpayer supported corporate welfare) has created new calls for executive salary caps.  And this will create even more unintended consequences.  From today's Wall Street Journal:

The most profound mistake in these rules is the terrible precedent they set for wage controls across the economy. The Obama Administration will say that banks are a special case, and that is true. But once politicians feel free to regulate executive pay for one industry, it is no great leap to do it for everyone. Our guess is that these pay rules will prove to be both ineffectual and destructive—a perfect Washington combination.

And They Thought They Were So Smart: Barofsky On The Failure Of TARP

The government expenditures on TARP, the Troubled Asset Relief Program and brainchild of the former Treasury Secretary Paulson, was promoted as part of the bailout that would return money to the government.  The American public was assured that it won't burden the taxpayer because those expenditures would soon be returned. 

I never believed it. 

And now the overseer of the program admitted in a television interview on Wednesday October 21 that it clearly will not happen:

Neil Barofsky, who oversees the federal Troubled Asset Relief Program, said that while TARP funds helped pull the economy back from the brink of collapse, there is "no expectation at all that that money will come back."

According to Barofsky's report issued the same day, The Treasury spent over $450 billion and so far forty seven firms have paid back only $73 billion.  

Exactly one year ago, on October 21, 2008, I commented on Paulson's optimism over the Capital Asset Purchase Program.  He claimed

This is an investment, not an expenditure, and there is no reason to expect this program will cost taxpayers anything. They will not only own shares that should be paid back with a reasonable return, but also will receive warrants for common shares in participating institutions.

My response:  how could he be so certain?  Show me.  Show me the money.  Back then I said I'd like to see Paulson's personal Schedule D capital gains returns over the past 5 to 10 years. If we knew how well he invests his own money, we could ever more clearly judge his potential success at investing other people's money -- the taxpayers'. 

Well, the results now flow in.  The government can't even lend money without massive losses.

Look, this was all garbage and nonsense a year ago.  I knew it, and you our dear readers knew it. Barofsky's statement shows we were right and they were wrong.

The Single Most Important Class

Most of our EWOT readers probably think a semester of Econ would be the single most important class a student should take in college.  Assuming away Econ classes, what would be the next most important class you'd say a student should have if they could only take one college course?

A colleague of mine made a strong case for Intro to Logic the other day.  Calculus would be up near the top of any list for me.  So, too, would the History of Western Civ--it would have to be a complete history and not just the before/after 1600 stuff most courses are chopped into today.

ADDENDUM: I polled my Intermediate Macro students today, and their answers are below the fold:

Miscellany

* My two favorite podcasts:  Colin Marshall's Marketplace of Ideas and Russ Roberts' EconTalk.

* Grandpa's stimulant.

* I still insist I'm a true "patriot":  The corruption of language has real consequences.

* Yet another reason why the '70s sucked.

We Made Another Top 10 List!

Earlier this week, a local reporter tried to catch up with me for an interview regarding Macon being in the Top 10 for "Most Impoverished Cities in America" according to Forbes.com.  Most of the cities on the list are Southern cities and/or manufacturing cities in decline. 

I turned down the interview for three main reasons: (1) I was given 20 minutes notice from the time I was made aware of the Forbes story (!); (2) there are issues related to Macon's poverty that I don't know enough about to comment on off the cuff; and (3) race invariably comes up in these discussions, and I'm one for avoiding that topic altogether when being recorded.

Now that I've had a few days to think about the issue and look at the study, here are a few points I would have made:

(1) I'd much rather be poor in America than anywhere else;

(2) I'd much rather be poor and in a metropolitan area in America than be poor in rural America;

(3) The poverty line is a misleading benchmark to be using when talking about poverty.  In addition, the per capita income levels used in the study look low to me, and it'd be nice to see household income alongside the per capita figures;

(4) Demand curves slope downward and supply curves slope upward!  Clearly, this has something to do with 25% of people in Macon, under the age of 65, being on public health care.  Same story for our high food stamp dependence. 

(5) Our poverty problem cannot be separated from bad city-level policies.  The never-ending solution to every revenue challenge of raising taxes has left the downtown dilapidated and has resulted in further cuts in city services. 

As I look at the above points, what I'm saying about Macon's poverty problem can probably be said for most of the cities on the list. 

(For earlier posts on poverty, here are some answers I gave to our student newspaper about poverty many months ago.  Here's one of my earliest EWOT posts, which offers up my silver bullet recommendation for poverty alleviation in the US: privatize public housing).   

Let's Drink To The Salt Of The Earth

Or, if the salt of the earth isn't being reflected in this poll, let's drink to the large majority of folks in the poll who think Obama's economic stimulus efforts are on the wrong track. 

Veronique de Rugy On The Assumptions Behind The Stimulus Package

Policy makers assume a multiplier of four.

So what do the data say? There aren’t many studies of the issue. But two stand out: Robert Barro’s work and research by Valerie Ramey, an economist at the University of California–San Diego, on how military spending influences GDP. Both studies found that government spending crowds out the private sector, at least a little. And both found multipliers close to one: Barro’s estimate is 0.8, while Ramey’s estimate is 1.2. This means that every dollar of government spending produces either less than a dollar of economic growth or just a little over a dollar. That’s quite different from the administration’s favored multiplier of four. What’s more, Ramey also found evidence that consumer and business spending actually decline after an increase in government purchases.

Read it all here.

Reefer Madness

In a recent exchange (see the comments), Dave and Pete discuss the probability of marijuana being legalized.  Dave first said he put the probability at less than 0.5 of marijuana being legalized in the next six years, and he then raised the probability to an even 0.5 after this news broke. 

As I read their exchange, I was tempted to bet Dave a nickel that marijuana won't be legalized in that time frame.  Even though I'm generally an optimist (I'm a Cubs fan after all!), I have little faith in America's puritanical impulse coming around to tolerate weed being legally smoked, and I have a hard time imagining reform overcoming the entrenched police force lobbies, who generally oppose marijuana legalization.

If you believe the Gallup polls, though, perhaps I should give a little more credit to Americans on the issue of marijuana legalization.  According to the most recent Gallup poll, Americans are higher than they've ever been when it comes to supporting marijuana legalization.  Here's a chart that accompanies the above story:

2010 Koch Internship Program

Deadlines are approaching.  Take a look at their flyer and website.

Consumer Choices And Corporate Conspiracies

My son and I attended a packed NMU vs. Hillsdale football game this past weekend.  (Suffice it to say not only is their economics department stronger than ours, so, too, is their football team.)  When many people started to leave a few minutes before the game's end, my son asked why.  I explained that they are trying to beat the traffic.  "That will cause traffic," he replied.

Now, we all know that this is rational.  Some are willing to bear a higher cost now to avoid even higher costs later.  The unintended consequence is clear, and desirable: the flow of traffic slowly builds up in an orderly way in advance.  People act on their expectations.  Nobody in their right mind would argue that somehow the suppliers of parking services engage in a conspiracy to increase the costs of the drivers before and after the end of the game.  The drivers chose to do so themselves. 

Even an eleven year old boy knows this. But, when a similar process occurs in a market -- a rise in price expectations that lead people to buy more now -- and voluntarily pay more now -- suddenly the story becomes one of greed and conspiracy among the suppliers.  My boy is now beginning to see the fallacy in this.  When will millions of able-minded adults?

The Bots-Zim Contrast Sharpens

Botswana held elections--their 10th round of elections since independence--without incident.  The widely popular ruling party, the Botswana Democratic Party (BDP), maintained control of the government; they have been in control of government since Seretse Khama's rein in the independence period.  More here.

Meanwhile, things are continuing to fall apart in Zimbabwe.  (HT: Bob Subrick). 

For those interested, here's an old paper of mine (the final version came out in Constitutional Political Economy) with Subrick that discusses the relationship between politics and development in Botswana.  The story we tell is that the BDP has remained legitimate by respecting traditional institutions, providing essential public goods, and avoiding excessive military spending in the early years of independence.

When Moore Is Less

Sheldon Richman provides an excellent review of Michael Moore's new movie, Capitalism: A Love Story.

Hey! Teachers! Leave Them Kids Alone!

Months ago Dave introduced the uninformed to "Rate My Professors" in this post. 

While looking up some information about my high school the other night, I stumbled upon a comparable site to "Rate My Professors" for teachers called "Rate My Teachers."  Most schools have entries, but volume for the K-12 schools is currently low.

Even though the "Rate My..." sites are probably overloaded with extreme values (i.e., those who love/hate professors and teachers provide a lot of the rating), it's great to see more information about the really bad teachers getting out there and into the hands of parents, students, and (hopefully) Web-savvy administrators. 

Feeding the Beast

Last weekend I attended a great Liberty Fund conference in Santa Fe, NM.  The conference was on the theme of "Deficits, War, and Liberty," and my pals, Chris Coyne (co-director of conference with Gerald O'Driscoll) and Pete Boettke were there.

The first reading assigned for the conference was the final chapter of Smith's Wealth of Nations on public debt.  In the chapter Smith tells us politicians won't raise taxes in the present to finance spending on wars and crises, so they instead push burdens off into the future.  Time and again, however, these burdens turn into large debts, which get debased; Smith tells us he'd prefer debt repudiation, but the State resorts to financial "juggling tricks" instead.  The end result is the "deficits, debts, debasement" problem Pete Boettke frequently brings up in posts about the current financial crisis on The Austrian Economists blog. 

During this session I raised the question of whether expanding R (tax revenue) is really as difficult as Smith and politicians suggest.  Couldn't simple tax reforms, such as the flat or "fair" tax, promise higher revenue for the state?  Couldn't auctioning off of state resources, such as interstate highways and the military, raise tremendous wealth in the here and now?

While Dave is correct that drug legalization probably isn't especially stimulative, legalizing drugs and other victimless crimes could be a small source of tax revenue as well.  And, finally,why not go ahead and raise revenue by allowing seats in government and rights to citizenship to be auctioned off?  In sum, there are creative ways to increase R without inflicting much harm on people in the present.   

To be clear in concluding: I view starving the beast and letting the State die as the first-best solution.  But, if we're in the world of second-best, I'd rather have a State raising revenue by pursuing reforms like the above versus taxing us a lot more later and/or monetizing in the future.