Month: June 2004

Are casinos good for the economy?

People who live near casinos are going broke faster than people who don’t, a new study found.

The growth rate of personal bankruptcies in counties with casinos was more than double that of similar counties without them during the 1990s, according to the study by Creighton University.

On the other hand, the rate of business bankruptcies was significantly lower in counties with casinos, the study showed.

Here are the exact numbers:

The study compared roughly 250 counties across the country with commercial or tribal casinos with non-casino counties with similar demographics. It found the cumulative growth rate on personal bankruptcies in casino counties to be more than 100 percent higher than the non-casino counties between 1990 and 1999.

It also found business bankruptcy rates in casino counties to be 35.4 percent lower than non-casino counties.

Here is one brief summary. Here is the original research.

The more surprising and puzzling result is that business bankruptcy rates are lower when gambling is present, even after adjusting for the quality of the county’s economy. Note that tribal casinos are most frequent in poorer regions. These regions may have fewer local businesses altogether, and thus perhaps those casinos induce personal rather than business bankruptcy. The businesses are owned by outsiders in any case. And if they are chains, perhaps they go bankrupt at lower rates.

I’m all for legalizing (zoned) gambling. The real question is whether we should tax gambling at higher rates than other economic activities.

Addendum: Jeff Smith points my attention to the following NBER paper, of direct interest.

How Colombia solves its traffic problems

Drive as fast as possible. Be aggressive too:

Traffic experts had previously been puzzled as to how Bogotá, with 7 million inhabitants and more than a million private cars, is so jam-free. The answer now seems that Bogotáns are simply more aggressive than their counterparts in London, New York and other huge metropolises.

But why the dare-devil style? Olmos and Muñoz point out that, before improvements to Bogotá’s public-transport and cycling infrastructure, and restrictions on the use of private cars, the city was routinely gridlocked. Perhaps formerly frustrated motorists are now revelling in the open road.

Still, freedom comes at a price, say the researchers: one in six Colombians who die a violent death meet their end in a traffic accident.

I’ve long suspected that something like this would prove true. If you can’t afford to synchronize your lights, just let drivers run them at will. The results also may explain why traffic in Mexico City flows at all.

Here is the original research. Here is an earlier MR post on Colombia.

Robert Lucas on Distribution versus Production

Here’s the conclusion to, The Industrial Revolution – Past and Future, a recent paper by Nobel Prize winner Robert Lucas.

Of the tendencies that are harmful to sound economics, the most seductive, and in my opinion the most poisonous, is to focus on questions of distribution. In this very minute, a child is being born to an American family and another child, equally valued by God, is being born to a family in India. The resources of all kinds that will be at the disposal of this new American will be on the order of 15 times the resources available to his Indian brother. This seems to us a terrible wrong, justifying direct corrective action, and perhaps some actions of this kind can and should be taken. But of the vast increase in the well-being of hundreds of millions of people that has occurred in the 200-year course of the industrial revolution to date, virtually none of it can be attributed to the direct redistribution of resources from rich to poor. The potential for improving the lives of poor people by finding different ways of distributing current production is nothing compared to the apparently limitless potential of increasing production.

Hat tip to Mahalanobis, now a great group blog.

Abolish the FCC

Declan McCullogh is correct.

It’s time to abolish the Federal Communications Commission.

The reason is simple. The venerable FCC, created in 1934, is no longer necessary.

Its justification for existence was weak 70 years ago, but advances in technology since then have eliminated whatever arguments remained. Central planning didn’t work for the Soviet Union, and it’s not working for us. The FCC is now an agency that does more harm than good.

Consider some examples of bureaucratic malfeasance that the FCC, with the complicity of the U.S. Congress, has committed. The FCC rejected long-distance telephone service competition in 1968, banned Americans from buying their own non-Bell telephones in 1956, dragged its feet in the 1970s when considering whether video telephones would be allowed and did not grant modern cellular telephone licenses until 1981–about four decades after Bell Labs invented the technology. Along the way, the FCC has preserved monopolistic practices that would have otherwise been illegal under antitrust law.

These technologically backward decisions have cost Americans tens of billions of dollars….

Read it all here.

The next killer app, or who needs books?

The picture definition on Japanese camera-phones is now so high that people can stand in a shop, surreptitiously photograph the pages of a magazine and then later read their ill-gotten literature from the screens of their mobile phones.
Japan’s booksellers have risen as one to demand that the Government criminalises this practice…
…the thefts have become more ambitious. Students, for example, are finding that entire textbooks can be photographed and read later at palm-sized convenience.
The publishing industry is suffering badly from the advance of mobile phones in Japan. Where once the train carriages were full of people reading comics or newspapers, passengers now concentrate solely on the screens of their phones. Mobile phone operators say that text-message volumes correspond almost exactly with the commuter rush-hour peaks and troughs.
The latest phones come equipped with a tuner that can — fuzzily — pick up television broadcasts, and several operators have introduced phones with navigation software that shows the user as a moving red blip on an ultra-detailed street atlas of Japan.

That’s from The Times, June 5, 2004, p.2W, no link available. Here is some background information. Here is a related article. Here is a more general article on the illegal downloading of books.

To be continued…

Polish memories

1. Hearing Poles say they love America, but America does not love them.

2. Hearing a Krakow taxi driver praise Ronald Reagan.

3. Staying in a “Jewish hotel” that can’t get kosher food right and hires Poles to stage Klezmer music for German tourists.

4. Seeing the Basilica in Krakow, arguably the most beautiful church in Europe. Which is saying something. Here are some images, but they don’t come close to the real thing.

5. Visiting Auschwitz and Birkenau. Words fail, but everyone should make this trip if they can.

Why are people conservatives or liberals?

I’ve long suspected that many political debates boil down to a relatively small number dimensions or core value judgments. And I believe these values often are rooted in basic personality.

George Lakoff tries to put some meat on these bones. In a nutshell, he sees conservatives as siding with a “Strict Father” model, and liberals as siding with a “Nurturant Mother” model.

Lakoff writes:

My findings indicate that the family and morality are central to both worldviews…What we have here are two different forms of family-based morality. What links them to politics is a common understanding of the nation as a family, with the government as parent. Thus, it is natural for liberals to see it as the function of the government to help people in need and hence to support social programs, while it is equally natural for conservatives to see the function of the government as requiring citizens to be self-disciplined and self-reliant and, therefore, to help themselves.

The linked essay presents the hypothesis in more detail. For more detail, buy Lakoff’s fascinating book, Moral Politics. Note, however, that he definitely sides with the liberal point of view. I would argue, in contrast, that liberals misapply what is good family policy to larger polities, where a stricter and more impersonal approach is appropriate.

My take: I’ve never met an intelligent person who couldn’t come up at least five good objections to Lakoff’s thesis. But Lakoff’s writings make more progress on a difficult topic than anything else I have read to date. They also explain, in my view, why libertarianism, in practice usually ends up closer to the right wing than to the left. “Individual responsibility” is a core moral intuition for most libertarians, and this puts them closer to conservatives, despite the considerable differences.

That all being said, let’s say you realized that your political views followed from your core personality. Let’s say also that personality is something that, in large part, you do not choose. Either you are born with it, or your upbringing shapes you from an early age. Shouldn’t that make you less rather than more confident of your political views? After all, it would be a mere genetic accident that conservative or liberal politics should feel as right to you as they do.

Bagel Theft

Twenty years ago an economist got tired of his regular job and started selling bagels. In the morning, he would leave his bagels at offices alongside an honor-box. In the afternoon, he would pick up the leftovers and the payments. Being an economist he kept volumes of data on bagels eaten and payments made allowing him to deduce when and where people were the most dishonest.

Steve Levitt and journalist Steve Dubner write about “Paul F.’s” findings in the New York Times Magazine. Some of the results:

Theft declined 15 percent after 9/11.

People are more honest when the weather is especially good and more dishonest when the weather especially bad.

Smaller offices have lower crime rates, just like smaller cities.

Theft is high near Christmas.

Here’s the byline to the article:

Stephen J. Dubner, an author and journalist in New York City, and Steven D. Levitt, an economist at the University of Chicago, are writing a book about the economics of baby names, cheating, crack dealing and real estate.

Which leads me to wonder, what do these things have in common!

Two perspectives on the American dollar

Shortly I am headed back from Poland to France, for one more day in Europe. I cannot help but wince at the especially high prices in France, compared to the United States. You may recall my mention of the five dollar chocolate bar; at home I could get the same for less than three dollars.

So a microeconomist might conclude that the U.S. dollar should rise over time. Arbitrage will cause people to buy more in the United States, helping out the dollar.

Or look at interest rates. You can pick and choose various comparisons, but overall they are not bearish for the dollar. That is investors do not expect the dollar to fall. Nominal interest rates on the dollar are low, but people are still holding dollars. So those investors presumably expect the dollar to appreciate.

Let’s bring the macroeconomist into the picture. He tells us that the United States has unsustainably high trade and budget deficits. The only way to clear these deficits, he says, is for the dollar to fall at least thirty percent. We will sell more exports, our trade balance will be restored, and our consumption binge will be checked. Long-run accounts will balance.

Could the macroeconomist be wrong? After all, someone has to be wrong.

If we are comparing the dollar and the Euro, I wonder whether the U.S. is really in a deficit position, all things considered. Even if our measured fiscal position is poorer (this depends who you compare us to), isn’t the American economic future brighter? We have better demographics, a more entrepreneurial culture, and arguably a more robust ability to reform and regenerate ourselves. The optimism of a population counts, though it doesn’t fully reveal itself on this year’s balance sheets.

So will the dollar rise or fall? Should we believe the microeconomists or the macroeconomists?

The nice thing about economics, of course, is that someday we will know. The problem with economics, of course, is that we don’t know now.

For an overview, here is a simple essay by Hal Varian on exchange rates. Niall Ferguson, a dollar pessimist, offers political commentary.

I am indebted to conversations with John Nye for some of the ideas in this post.

Average vs. marginal tax rates

Not long ago I asked whether the marginal or the average tax rate had more influence on economic behavior. Too often economists take the measured marginal rate as the true trade-offs faced by the individual.

The ever-insightful Randall Parker recently emailed me the following, in support of the point:

1) People in conventional regular jobs do not have total control over how many hours they work or their income. For lots of jobs it is all or nothing. Either you work full time or you don’t work at all. You are on a salary. What you make is what you make. The marginal tax rate for the next dollar doesn’t matter to you since you don’t have much control over whether you get a raise.
You can’t boost or lower your income much in a given year. The alternatives that would give you more control are too risky or lower in income per hour worked or unappealing in some other way.

2) People in entrepreneurial pursuits often have far less predictability of income. It is hard to work harder or less hard in a given year as a reaction to marginal tax rates because you just do not know how many of the deals you are working on will close by the end of the year or when various billables out there will generate a check in your in-box. Believe me on this one if you haven’t been in this position. It is a real situation for lots of people.

3) You can’t predict in advance what your tax burden will be. Hey, only the tax expert can figure it out. How much will you get to keep? You’ll find out when he tells you. Kinda hard to behave during the work year as if you are responding to a known marginal tax rate at any given point.

4) Customers won’t let you respond to a known marginal tax rate. Again, this is a variation on the theme of a lack of control. You make deals early in the tax year and earn income at a low marginal tax rate. Then as the year goes along you keep a smaller fraction of what you earn. What to do about it? Laze off. Take a trip. Oh wait, your customers won’t let you. Still want them to be there in January when the marginal tax rate drops again? Well, you have to work hard to service their needs in the last 6 months of one year to get the lower tax rate income of the first six months of the following year. This means you have to work at a high marginal rate to get the low marginal rate income. Thinking of your tax rate as an average then makes more sense, doesn’t it?

5) On an even longer time scale people choose their careers at the beginning in part based on what they will make. If an economy has a high marginal tax rate then that can be an incentive to choose a less demanding and lower income career path. In that scenario it may make more sense to go for high job security since you could be faced with a tax schedule where you get more after-tax income making say, $50,000 for two years in a row than making $200,000 one year and $0 the next year.
I’d expect a shift toward lower marginal tax rates to most heavily impact career choices. So the impact would gradually increase as more people managed to retrain for higher income careers.

The bottom line: If you want to encourage private economic activity, don’t focus obsessively on measured marginal tax rates. True marginal rates tend to move closely with the size of government more generally. I’ve said it before and I’ll say it again: government spending is a better measure of our fiscal burden than marginal tax rates.

My thanks again to Randall for writing. And while you are at it, read Randall’s post on how trade protectionism makes us fatter and less healthy.

Addendum: Here is a useful recent piece on what the Laffer curve was all about, by Laffer himself.

Ronald Reagan the Libertarian

Here’s a wonderful quote from Reagan in 1975 from Reason magazine.

If you analyze it I believe the very heart and soul of conservatism is libertarianism. I think conservatism is really a misnomer just as liberalism is a misnomer for the liberals–if we were back in the days of the Revolution, so-called conservatives today would be the Liberals and the liberals would be the Tories. The basis of conservatism is a desire for less government interference or less centralized authority or more individual freedom and this is a pretty general description also of what libertarianism is.

Now, I can’t say that I will agree with all the things that the present group who call themselves Libertarians in the sense of a party say, because I think that like in any political movement there are shades, and there are libertarians who are almost over at the point of wanting no government at all or anarchy. I believe there are legitimate government functions. There is a legitimate need in an orderly society for some government to maintain freedom or we will have tyranny by individuals. The strongest man on the block will run the neighborhood. We have government to insure that we don’t each one of us have to carry a club to defend ourselves. But again, I stand on my statement that I think that libertarianism and conservatism are travelling the same path.

I found the above quote from a nice roundup on Reagan by Pejmanesque. See also my earlier commentary (below) Mourning in America and Fabio’s Reagan’s Message to the World.

Sand dreams and spontaneous order

One of my dreams is to go to Niger. In the meantime I will have to be satisfied reading the excellent Sahara: A Natural History, by Marq de Villiers and Sheila Hirtle. No student of spontaneous orders can ignore the following passage:

Obviously [sic], dunes are formed because jumping sand bounces more easily off hard surfaces than off soft ones, so that more sand can be moved over a pebbly desert surface than over a smooth or soft one. Even a slight hollow, though, or a rock, will reduce the amount of sand that the wind can carry, and a small sand patch begins. Very quickly, this patch will trap more sand. When the patch is big enough, it begins to change the wind velocity about it. The winds decrease near the surface and deposit more sand on the patch. Quickly, the dune is built up.

If the conditions are right, the dune will grow rapidly: In days it will be taller than a man, and in just a few weeksit can reach sixty-five or one hundred feet, and keep growing. Over time, the windward slope eventually adjusts itself, and the wind velocity close to the sand increases to compensate for the drag imposed by the sandy surface. The smooth leeward slope steepens until the wind can’t be deflected down sharply enough to follow it, leaving a “dead zone” into which the sand falls. When this so-called dispositional slope reaches the natural slope angel of dry sand (about thirty-two degrees), the added sand cascades down the slope, now called the “slip face.” The dune has stopped growing — there is no gain or loss of sand — though it continues to move forward as a whole, slowly, ponderously, relentlessly.

It turns out that driving on sand is an art, and no one can avoid getting stuck in the long run. Fortunately (to my surprise) most of the surface of the Sahara is rock rather than sand.

Here is a lecture on spontaneous order and sand. Here is advice on how to build a better sand castle.

Every now and then someone is inclined to think that this kind of analysis holds the key to either business cycles or stock market crashes. It has yet to come through, but in the meantime I will keep dreaming of Niger.

Markets in everything, for the newspaper fanatic

I usually read six newspapers a day, and enjoy every one of them (can you guess which six?). But what to do on vacation, especially when traveling abroad? I hate reading papers on-line, plus I left all my passwords at home. And Polish newsstands are of varying quality.

Try, which delivers print-on-demand copies of your favorite paper directly to your hotel. Here is Poland I am enjoying the American edition of USA Today, and reading about the NBA Playoffs in depth. But hey, if the Lichtensteiner Volksblatt is your thing, you can get that too.

Reagan’s Message to the World

There will be much debate on Reagan’s legacy in the following weeks. I think friends of limited government and individual liberty can have honest disagreements about Reagan’s accomplishments, but there is one achievement that is undisputable – Reagan sent a clear message to the world that Communism was evil.

It’s hard for Westerners to believe this, but the clarity of Reagan’s message had a profound effect on those behind the Iron Curtain. People will notice when an American president unapologetically calls the Soviet Union what it was – an evil empire. This is a simple moral judgment that was lost on so many intellectuals in the West. To hear this message must have been inspiring to those who experienced the Soviet invasion of Czechoslovakia and Hungary and other Soviet crimes. To this day, many in Eastern Europe are grateful that Reagan was not afraid to say something that was so obvious and so important.