Month: June 2004

The Wall Street Journal and the American Spectator have sunk to an embarassing low with the publication of an Levine, Trainor and Zimmerman (1996), find just this. LTZ estimate that restrictions on Medicaid funding of abortions reduced the number of abortions but the number of pregnancies fell even further so the number of births actually went down not up.

Putting things the other way, compensating behavior means that abortion liberalization will reduce the number of births by less than the number of abortions. Five states legalized abortion in 1970, prior to Roe v. Wade (Alaska, California, Hawaii, New York, and Washington). Levine, Staiger, Kane and Zimmerman (1999) estimate that births in these states fell by 5% more than in states that had not legalized abortion. Applying this number to today’s rates they estimate “a complete recriminalization of abortion would result in 320,000 additional births per year.” Since there are about 1.3 million abortions a year, only about a quarter of all abortions represent a net reduction in births.

The reduction in births, even though considerably smaller than than the number of abortions, is not distributed randomly across the population so abortion policy can have an impact on things like crime and teenage pregnancy but the number of Democrats and Republicans has got to be one of the least interesting consequences.

Hat tip to MemeFirst for alerting me to the article.

I just had the pleasure of spending two days in the company of Milton and Rose Friedman. Milton remains jovial and sharp at the age of 91; Rose spoke less but beamed throughout.

I asked Milton the following two questions, he gave me permission to quote him:

1. TC: Is inflation coming back? MF: “Eventually, but not anytime soon.”

2. TC: Have low interest rates been a bubble? MF: “No.”

Milton’s best anecdote concerned opposition to the idea of a free society. He sees businessmen and academics as the two biggest problems, albeit for opposing reasons. Businessmen want freedom for all other people, only not for themselves. Then they want various subsidies, tariffs, privileges, etc. Academics want freedom for themselves, but not for other people.

While Germany struggles with inflexible labour laws and high taxation, Austria has pushed through tax reforms that will bring rates down close to east European levels, to run alongside already business-friendly employment measures.

The results have been dramatic. Since January this year, when the first phase of Austria’s two-step reforms kicked in with big income tax cuts and some relief for small and medium-size companies, the country has enjoyed a rash of high-profile investment.

Businesses have been enticed not just by the current reforms but by the prospect of corporate rates falling from 34 to 25 per cent, or less than 22 per cent including allowances, from January next year as part of the second stage.

However, Austria’s success has been at Germany’s expense, as companies relocate from the German border region of Bavaria.

Here is the full story.

Iceland also has been defecting from the high-tax cartel:

After years of economic stagnation, unemployment and fiscal disarray, an Icelandic government led by Prime Minister David Oddsson implemented a series of Reaganesque reforms that have turned the economy around. In the 1990s, he reformed the income tax moving it towards a simpler and flatter structure. He also lowered the corporate marginal tax rate from 48 percent to 30 percent. And he also managed to contain spending, got rid of inflation, privatized large public companies and got the government out of the banking industry.

The results were astonishing. Unemployment dropped, the deficit disappeared, as did inflation, and Iceland is now one of the fastest growing countries in Europe–5 percent a year on average for the last 10 years. According to Mr. Oddsson, “This success has been achieved not in spite of extensive tax cuts but, to a great degree, because of them.”

In 2002, the corporate rate was cut again, from 30 percent to 18 percent. Today, Iceland has the third lowest corporate income tax rates of all the OECD countries behind Ireland 12.5 percent and Hungary 16 percent. And according to the Prime Minister, personal income tax will be reduced again this year by four percentage points, the income tax surcharge on the highest incomes will be removed and plans are formed to cut the corporate income tax rate further down to 15 percent.

Here is a previous MR post on the EU as a tax cartel.

Peter Gordon looks at a 1902 Sears Roebuck catalog and asks whether money was worth more back then.

Of course it depends how much you are given. $5.00 back then goes a longer way, but I would rather earn $100,000 a year today, and yes that is not adjusting for inflation. For Peter modern pharmaceuticals are the clincher:

Would you want their best 1902 camera for $7.90? Probably not. High-end cutlery for 6 for $1.79? Why not? A great western saddle for $8.95? Sure.

It’s the Sears “Drug Department” that is the real eye opener. “Fat Folks, Take Rose’s Obesity Powders and Watch the Result … $4.20 per dozen boxes.” Herb laxative teas for 16 cents a box may be OK. Dr. Rose’s Arsenic Complexion Wafers 35 cents a box may have few takers today. Vin Vitae for 69 cents (“Not a Medicine … Not Merely a Tonic”). The “White Ribbon Secret Liquor Cure” went for $2.50 a box. The list goes on and does focus the mind.

My question for today: Does this mean that we should adjust the gdp deflator series to show ongoing deflation for the 20th century?

Here is a general plug for Peter’s excellent blog. Here is Virginia Postrel on how we underestimate the benefits from new products.

As China and India continue to grow, we must ask whether the earth could support several billion more people at European levels of wealth. Michael Lind says yes:

…there seems to be no insuperable physical or ecological reason why 9bn people should not achieve something like the lifestyle of today’s rich, with technology only slightly more advanced than that which we now possess.

Here is part of the argument:

As machines get ever cheaper, more people will be able to afford more of them. Today the combined mass of all machines, at more than a gigaton (Gt), exceeds the combined mass of human beings, about 1 megaton. The total amount of carbon, 5Gt, required to power and construct machines and electric utilities greatly exceeds the 1.3Gt global consumption of carbon by human beings, mostly in the form of food. As affluence grows, the amount of energy and raw materials “consumed” by machinery will escalate even more rapidly than human consumption. But this need not mean an end to the machine age. If manufacturing processes were to imitate the recycling that takes place in the biosphere, then most machine materials might be recycled to make new machines, rather than thrown away. And long before all fossil fuels were exhausted, their rising prices would compel industrial society not only to become more energy efficient but also to find alternative energy sources sufficient for the demands of an advanced technological civilisation – nuclear fission, nuclear fusion, solar energy, chemical photosynthesis, geothermal, biomass or some yet unknown source of energy.

Here is more:

…agriculture, including logging, accounts for about 21m square miles, or ten times as much land as that occupied by urban areas and reservoirs.

Cutting urban land use by half would free only 1m square miles or 2 per cent of the ice-free land surface, while cutting agricultural land use by half would free ten times as much land – 10.6m square miles, or 21 per cent of the earth’s non-glaciated surface.

In Lind’s view, producing enough meat for nine billion wealthy people is likely to be the biggest problem. In my view, the biggest problems are ones of transition, rather than the end-state. China could get much richer before it moves close to environmental “best practices”; right now per capita income is just approaching that of Guatemala.

A fun tidbit:

Lind quotes Paul Romer: “[if America continues growing] in 50 years we can get extra income per person equal to what in 1984 it had taken us all of human history to achieve.”

Addendum: Here is the working link.

Many thanks for all the good suggestions regarding the return puzzle. Here are just a few of the many ideas that I received. My apologies to those not mentioned by name.

Mark Garbowski stated one thesis very nicely:

Demand forced the Sears catalogue to offer easy returns because people were buying things they could not see or touch. Back in 1895, I suspect this was a pretty unusual experience. If you go to a small local shop and know the owner, you probably have a good opportunity to inspect the merchandise before purchase, but this was not possible with mail order. Generalizing, I would opine that the combination of a significant rural population spread over a vast geographic landmass, together with improved communication and transportation, allowed those rural people the ability to purchase (at least occasionally) high quality, exotic (meaning from far away) goods to a degree that was never before possible, and never duplicated in Europe. Before a consumer would send a check or hard cash in advance of receiving an item he or she had never seen or touched, it became necessary to develop a good return policy as insurance.

I suspect that the economies of scale you discuss allow the insurance to be economical, but did not drive its creation. I believe it is a demand side creation, but based on historical circumstances, and not current class or income circumstances. Once the demand side forced mail order retailers to offer it, consumers discovered how much they liked it and forced other retailers to follow suit, even though it was not as necessary.

Ian MacCleod and others mentioned that retail trade in Europe is organized more often on the boutique model than on mass retailing. Salespeople don’t turnover as often as in the U.S., they spend more time with the customer and they personally represent the product to a greater extent. As a result, returning a product can be seen as an affront.

Adam Shostack writes that the credit card companies often reward firms that offer easy return policies because it is less costly than handling a billing dispute. Credit card usage is much lower in Europe thus supporting the theory.

Tim Worstall points out that there are legal restrictions in much of Europe on things like “as is” sales. Similarly, there is a large wholesale market for “as is” items in the US but not in Europe. Both of these factors make offering easy returns more costly. Of course, these differences may be as much “caused by” as “causes of” differences in the return policy but its useful to remember that there is a whole web of practices involved with easy returns.

‘Bananas must be free from abnormal curvature of the fingers’ says Commission Regulation 2257, Quality Standards for Bananas.”

That’s courtesy of the EU, hat tip to the Adam Smith blog.