Month: July 2006

Random voting

In an effort to improve voter turnout the Arizona Voter Reward Act (if approved) would give every voter a chance to win a prize of $1 million.  Great.  Why not hand out a bottle of vino with every vote or some crack?   Where is Richard Titmuss when you need him?   What sort of people won’t vote if there is no lottery but will vote if they get a lottery ticket and why do we want these people to vote?

Frankly, too many people vote already.  I know, that’s heresy against the great religion of democracy – i.e. worship of the mob – but other people voting is an externality on me and in this case I will side with Pigou.


Thanks to Curtis Melvin for the pointer.

What caused the Agricultural Revolution?

I have long assumed (without much evidence) that mankind invented agriculture about 10,000 years ago because we suddenly, for some reason, became smarter.  Now I see an alternative explanation:

It is no accident that no matter where agriculture sprouted on the
globe, it always happened near rivers. You might assume, as many have,
that this is because the plants needed the water or nutrients. Mostly
this is not true. They needed the power of flooding, which scoured
landscapes and stripped out competitors. Nor is it an accident, I
think, that agriculture arose independently and simultaneously around
the globe just as the last ice age ended, a time of enormous upheaval
when glacial melt let loose sea-size lakes to create tidal waves of
erosion. It was a time of catastrophe.

Here is the source.  Should I take the author seriously?  Most of the article is terrible. 

His main kind of argument — thinking about food in terms of energy costs — is popping up more and more.  No, I don’t think a quick perusal of Debreu’s Theory of Value refutes the resource pessimists, but a) the author rarely talks about the role of prices, and b) technological efficiency and economic efficiency are confused frequently.

Perhaps most disturbingly, a healthy, wealthy, and happy human life is considered a burden upon the earth.  For instance we are told that if the entire world lived like the United States, fossil fuels would run out within seven year’s time, or maybe ten.  What a horror such a world would be.  There is no talk of how much higher the rate of invention would be, or how much we would save by having better institutions.

By the way, here is my highly relevant post on the economics of mulch.

The French wealth tax

Via Don Boudreaux, excerpt:

On average, at least one millionaire leaves France every day to take up
residence in more wealth-friendly nations, according to a government

[France’s] wealth tax — officially called the solidarity tax — is
collected on top of income, capital gains, inheritance and social
security taxes. It’s part of the reason France consistently ranks at
the top of Forbes magazine’s annual Tax Misery Index — a global
listing of the most heavily taxed nations.

Wealthy citizens’ tax
bills can be higher than their incomes, according to tax analysts.
President Jacques Chirac’s government attempted to rectify that
disparity last year with changes intended to guarantee that no one
would pay more than 60 percent of income in taxes. But many
businesspeople say actual maximum tax rates still hover at around 72

Addendum: Here is a new French council, via Chris Coyne.

A Premium Puzzle

Dave Undis writes to me:

For as long as I can remember, the cost difference between different grades of gasoline has been 10 cents a gallon.  For example, when Regular was selling for $2.39, Plus was selling for $2.49 and Premium was selling for $2.59.

Earlier this year when gas prices rose significantly, I noticed this pattern changed.  The cost differences were often 8 cents or 9 cents a gallon.

…Can you explain this?

I quickly came up with several explanations for why we might expect an increase in the price differences with a increase in the price of regular but a decrease?  That was more puzzling.  Being an economist, I question the facts before I question the theory, however, so I graphed the difference in price between premium and regular gasoline against the price of regular gasoline using weekly data from the Energy Information Administration (Nov 28, 1994-July 17, 2006).   Click to enlarge.

Dave appears to be incorrect there is a slight tendency for the difference to increase with the price of regular, although the date is noisy.  Theory ahead of evidence once again.Gaspremreg

Ok, so what’s my explanation?

    When the demand for oil rises refineries are pushed to  operate at full capacity.  Producing premium requires greater effort than regular and this has a higher opportunity cost when refineries are operating at full capacity.  (In other words, it’s cheaper to produce premium when you have spare capacity on your hands.)  The increase in costs is reflected in the price increase. 

There is a countervailing factor, the demand for premium declines (i.e. the relative demand for regular increases) as the price of gas rises.  Effects like this can be neat as, for example, when a tax on cigarettes increases the demand for "discount" cigarettes thereby appearing to violate the law of demand.  It’s conceivable that the decline in demand (a shift along the supply curve) could counteract the increase in the cost of supply enough to lower the differential but in practice this appears not to occur on average.

Comments are open.

Education makes you healthier

There is a large and persistent association between education and
health. In this paper, we review what is known about this link. We
first document the facts about the relationship between education and
health. The education ‘gradient’ is found for both health behaviors and
health status, though the former does not fully explain the latter. The
effect of education increases with increasing years of education, with
no evidence of a sheepskin effect. Nor are there differences between
blacks and whites, or men and women. Gradients in behavior are biggest
at young ages, and decline after age 50 or 60. We then consider
differing reasons why education might be related to health. The obvious
economic explanations – education is related to income or occupational
choice – explain only a part of the education effect. We suggest that
increasing levels of education lead to different thinking and
decision-making patterns. The monetary value of the return to education
in terms of health is perhaps half of the return to education on
[emphasis added], so policies that impact educational attainment could [sic] have a
large effect on population health.

Here is the paper.  Here is my previous post on the value of education.

Immigration and regional wage rates

I was reading the interesting-but-not-nearly-as-good-as-it could-have-been Blessed Among Nations: How the World Made America, by Eric Rauchway.  The main argument concerns how modern-day America is rooted in choices from the early twentieth century.  I came across the following passage:

The great push of people west across the oceans and west again across the continent passed the South by.  Its people lived in an eddy of the global flow that entered the country at New York (where almost a quarter of the new immigrants stayed) and sluiced along the rail lines to California.  Indeed, in the wash of this passing current, the South was losing its own labor force, more swiftly each year, as black workers left their homes looking for the better chances they had heard about in the North and West.  Of those who left the South, the largest part (about 40 percent) went to the industrial states of New York, New Jersey, Pennsylvania, and Illinois…

OK, this is not a controlled experiment.  But we have one part of the country — the North — taking in many immigrants.  The South is losing a great deal of its unskilled, low-education labor at the same time, and it is losing that labor to the North.  Think of that as additional immigration into the North and of course away from the South.

I am far away from home and have no access to data.  Does anyone know?  If we look at the wages of native white Americans — in the South and in the North — over this same period of time, where do people fare better?

Please leave your knowledge in the comments.

Should libertarians emigrate to New Zealand?

My former student, research assistant, and book mule Eric Crampton — who currently teaches at the University of Canterbury on the South Island — is guest-blogging for Bryan Caplan over at EconLog.  Here is his post on whether libertarians should consider moving to New Zealand.  The biggest loss of liberty, in my view, comes from geographic isolation and the presence of fixed costs, not from Kiwi government.  It is a scary thought that the quickest route to London, from Auckland, can run through Los Angeles.


My research on bounty hunters shows that they are more effective than the police in recapturing criminals.  I’m often asked (and sometimes told), however, about the potential for abuse and mistaken arrests.  No one ever bothers, however, to ask how bounty hunters compare on the abuse score with the police.  My suspicion is that the bounty hunters would come out better because they know that a mistake can put them out of business while the police may routinely break down the wrong door under cover of law.

Some data on the potential for abuse and mistaken arrest or worse from the police is provided in a new Cato report, Overkill: The Rise of Paramilitary Police Raids in America, by Radley Balko.  The report notes:

Over the
last 25 years, America has seen a disturbing militarization
of its civilian law enforcement, along
with a dramatic and unsettling rise in the use of
paramilitary police units (most commonly called
Special Weapons and Tactics, or SWAT) for routine
police work. The most common use of SWAT
teams today is to serve narcotics warrants, usually
with forced, unannounced entry into the

These increasingly frequent raids, 40,000 per
year by one estimate, are needlessly subjecting
nonviolent drug offenders, bystanders, and
wrongly targeted civilians to the terror of having
their homes invaded while they’re sleeping, usually
by teams of heavily armed paramilitary units
dressed not as police officers but as soldiers.

Along with the paper is an interactive map showing hundreds of mistaken raids over the past several decades, a number of which lead to the deaths of innocents.

Counter-signaling bleg

I am looking for some salient examples of counter-signaling.  The classic case is the rich man who dresses like a bum – he has no one he needs to please.  Casual dress signals the very high level of his status and his absence of a boss.  Of course this equilibrium is not always mimic-proof (e.g., virtually anyone can dress like a bum).  This strategy works for the rich if only they have some other means of causing people to think they are very high-quality.

Top nerd programmers often don’t wear ties.  Truly beautiful women might deliberately dress down.  Can you think of other plausible examples?  Does counter-signaling work best when a person has already built up a mystique?  Thanks in advance for any help you can offer…

Addendum: Here is my previous post on counter-signaling.

How can Mexican corn be left to rot?

Larry White quotes the NYT and asks:

"Every year, nearly three million tons of harvested Mexican corn is left to rot because it is too expensive to sell."

How on earth could this be true? Does it mean that the mere cost of
transporting the corn from farm to market exceeds the market value of
the corn? (Seems impossible, given that Mexico pays prices that cover
the cost of importing corn from the US.) If so, why did anyone bother
to harvest the corn, and before that to grow it in the first place?

I would not vouch for Mexican government statistics.  But I do know that large amounts of corn rot in rural Mexico.  The corn is grown for immediate consumption.  The rainfall is highly uncertain so farmers plant far more than they need to eat in a typical year.  (Where is micro-insurance?  But note the shadow value of family labor is often low, so why not plant more?  Plus it keeps disputed claims to land active.)  In most years there is a great deal of corn "waste," but the precautionary growing has some efficiency properties.  The remaining corn is fed to the pigs or dogs or simply left to rot.  There are relatively high fixed costs to entering more formal corn markets, most of all transporting the product (i.e., the police will demand bribes), plus the extra corn would not yield very much. 

Few of these rural growers import corn from the United States.  And it is not hard to believe that mass-shipped corn from the USA is cheaper in Chihuahua than corn shipped up from rural Guerrero.

Note also that many of the very poorest Mexicans grow corn for their own consumption and thus tariff-free corn importation from the US will expand their opportunity set; it will not "put them out of business."

Talent and Reward

Brad DeLong writes:

…the lucky or talented or workaholic today can, thanks to revolutions
in computer and communications technology, leverage their
symbolic-analyst skills over a much larger base of routine
manufacturing, marketing, and distribution workers than they could have
a generation ago. In this model, we have become much more of a "winner take all" economy than we used to be. Much more income is distributed in the form of winner-take-all tournaments than used to be the case.

My first reaction is that this is possible, but unproven. My second
reaction depends on whether victory in the winner-take-all tournaments
is due to luck, talent, or industriousness.

I would add this, it’s going to be very difficult to tell.  In a winner take all economy where talents are leveraged over a much larger base, small differences in talent are worth much more.  A 1% improvement in a firm with revenues of 1 million is worth a lot less than a 1% improvement in a firm with revenues of 1 billion.  Even more, if 1% greater talent is what separates Amazon from SuperBookDeals then the rewards to the founder of the former will be higher than that of the latter by much more than 1%.