The Economic Way of Thinking

Would The Legalization Of Marijuana Stimulate The Economy?

There's a long list of economists, including Nobel Laureates George Akerlof, Milton Friedman, and Vernon Smith, who have signed a petition against the prohibition of marijuana.  An excerpt:

marijuana legalization -- replacing prohibition with a system of taxation and regulation -- would save $7.7 billion per year in state and federal expenditures on prohibition enforcement and produce tax revenues of at least $2.4 billion annually if marijuana were taxed like most consumer goods. If, however, marijuana were taxed similarly to alcohol or tobacco, it might generate as much as $6.2 billion annually. 

This comes at a time when popular opinion (see Bill Maher's interview with Ron Paul, for example) is starting to favor legalization to provide a source of tax revenues for the government's stimulus package. 

Whether you are for repeal or not, my question is:  would it stimulate the economy and help us get out of the crisis? 

Increased Minimum Wages Will Keep Illegal Mexican Workers Out of America

Do you remember this from the Michael Dukakis, former Democratic Governor of Massachussets?

There is a simpler alternative. If we are really serious about turning back the tide of illegal immigration, we should start by raising the minimum wage from $5.15 per hour to something closer to $8. The Massachusetts legislature recently voted to raise the state minimum to $8 and California may soon set its minimum even higher. Once the minimum wage has been significantly increased, we can begin vigorously enforcing the wage law and other basic labor standards.

Millions of illegal immigrants work for minimum and even sub-minimum wages in workplaces that don’t come close to meeting health and safety standards. It is nonsense to say, as President Bush did recently, that these jobs are filled by illegal immigrants because Americans won’t do them. Before we had mass illegal immigration in this country, hotel beds were made, office floors were cleaned, restaurant dishes were washed and crops were picked — by Americans.

Read the whole enchilada here. 

The Market Is An Ecological System

I often hear somebody complain "Why are there so many different cereals in the grocery isle?  We don't need all that!"

My response:

True.  In fact, we don't need any cereal.  And do we really need all the different birds above our heads, too?  Who needs that variety of trees we see in parks and woods?  Who needs all the different grasses, flowers, weeds?  And so on.

No Exit Plan For Our Other War

The National Drug Control Strategy for fiscal year 2008 requested a total budget of $12.96 billion.  $450.2 million to be allocated to salaries and other direct expenses, and around $145 million for "demand reduction" (i.e. education/prevention programs).  Take a look at its success:

Year of Last Review: 2004 Reviewed as part of Office of Investigations Programs Selected Measures of Performance FY 2006 Target FY 2006 Achieved

» Thousands of pounds of cocaine seized  176

» Number of cocaine seizures 1,726

» Thousands of pounds of marijuana seized 875.6

» Number of marijuana seizures  4,510

» Thousands of pounds of heroin seized  0.074

» Number of heroin seizures  547

 

More here.

This here is the proposed funding for FY 2009. 

Some Thoughts on No-Fraud Banking in the Underground Economy

Off the top of my head:  given the low denomination Federal Reserve Notes (perhaps even reduced to $50 someday), isn't there an incentive for thieves, especially well organized associations of crooks, to reverse and reduce transaction costs?  And how?  By developing some kind of parallel medium of exchange.  Perhaps some kind of conversion of Federal Reserve Notes into an alternative medium of payment among crime organizations. Allow inter-hood branch banking. 

Furthermore... maybe 100% reserve banks, accepting Federal Reserve Note deposits, and issuing IOUs.  Why 100%?  Rothbard's banking-as-legalized-fraud charge could be avoided, if one is so motivated. 

A 100% illegal banking system founded upon 100% honesty.

Could there be some kind of dual currency -- both dollars and IOU's being deposited and withdrawn? Or perhaps the emergence of competitive note issue?

Has something like this evolved here or elsewhere?    Do any of these ideas seem somewhat sound and applicable?  Is there a potential consulting opportunity that stares us in the face?

Send Fredo Off to Do This, Send Fredo Off to Do That

I recently gave my EC 101 lecture on money and denominations of money. As always, I point this out to my students:

Within the past 25 years the government has reduced the largest bill denomination from $1,000 to $500 and then down to its current size, $100.  Why?  In large part to fight the war on drugs.  The lower bills raise the transaction costs among criminals. 

I recall the Godfather II scene where Fredo delivers a case full of cash to Hyman Roth's location in Cuba.  Say it was filled with $1 million.  Then a single delivery deal would take one thousand $1,000 bills.  But what if Fredo had to deliver the million using $100 bills, as he would today?  Then it would require, of course, ten thousand $100 bills to complete the transaction.  No check or credit card transactions, so that means more suitcases, more deliveries, and so on.  Not only harder for Fredo to pretend to fulfill a family responsibility.  It's also tougher for him to betray the family by getting something for himself.   He'd have a higher risk of getting caught. And so, too, for all the criminals out there, including any of those other "I'm smart, not dumb like everybody says" Fredos.