Results for “department why not”
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My favorite things Texan

Music: How about Blind Willie Johnson, a pinnacle of the blues tradition?  Buy it here.  Can I overlook Scott Joplin and his "Euphonic Sounds"?  Lightnin’ Hopkins?  Woody Guthrie (if only he had read Economics in One Lesson…)?  Leadbelly?  Janis Joplin?  Roy Orbison?  Jimmie Rodgers?  Charlie Christian?  Ornette Coleman?  Buddy Holly?  Here is a longer list.

Painting: Robert Rauschenberg?  Look at this one with the goat, I believe it is in Stockholm.  I bet you, like I, say naaaah, but the field is thin.  I’ll opt for his "Bed" as an important work, however.

Literature: Cormac McCarthy’s Blood Meridian is the obvious choice, or try Katherine Anne Porter.

Food: Texas barbecue has a strong influence (sausage!) from German migrants.  That is also why Tejano music has so much accordion, with a hat tip to Poland as well.

Comedian: Steve Martin.  All of Me and Planes, Trains and Automobiles both make me laugh.

The bottom line: I love Texas, but I am surprised that the weight of achievement is so unbalanced toward music and food.  By the way, I’m in El Paso, doing research for my next book.

Addendum: Several readers write to tell me Guthrie is not a Texan…

Yes Virginia, I do believe in the Commerce Clause

Fafnir does constitutional law.

"Insolent pot!" says Giblets. "Be more vendible!"
"Giblets why are you yellin at that pot plant?" says me.
is trying to turn it into commerce," says Giblets. "But buying and
selling it is too much work. He wants it to be commerce NOOOOOWWW!"

Giblets, everything is commerce!" says me. "Let’s step into this
maaaagical schoolbus and we will learn all about Our World Of Commerce!"…

This snowman is not commerce. But we can make him commerce with this ol top hat we found… and if we just believe!
Now all the children of the world clap your hands an say together now:
"I do believe in an expanded Commerce Clause, I do believe in an
expanded Commerce Clause!"

Hooray, now our snowman is
commercial an alive an singin an dancin around! "Happy birthday!" says
the snowman. He is quickly arrested and detained. Commercial snowmen
are strictly controlled by the Department of Snowman Security.

Real (Estate) Rent Seeking

The Justice Department may file suit against the National Association of Realtors (NAR) to prevent them from excluding discount brokers from access to the regional MLS systems.  I’m hardly a fan of antitrust but the market for realtors is a racket.  Six percent to sell a house?  Outrageous!

Putting aside the outrage the market for realtors is terribly wasteful.  Consider, house prices are much higher in California than in Idaho but commissions are stable at around six percent.  Thus, even though the realtor’s job, brokering a deal, is the same in California as in Idaho, a realtor in California will make much more per-house.  As a result, there are far too many realtors in California and many of them will spend an entire year selling only a handful of houses.  Indeed, many realtor’s spend most of their time prospecting for clients rather than actually selling houses – this is a huge waste of resources. 

The same relationship holds over time as over space.  That is, when house prices go up we don’t see a fall in commission rates.  Instead, we see more entry.  Since the same number of houses are being bought and sold, the extra realtors don’t make the buyer or seller better off and sadly the realtors aren’t better off either – instead the excess return is siphoned off in wasteful prospecting for clients.

Unfortunately, no one really understands why commissions are stable.  The answer is not monopoly.  It’s very easy to enter the market for realtors.  So why don’t commissions fall?  One can certainly point to some restrictive practices by the NAR but I don’t think that is the whole or even the major part of the story.

A clue to the puzzle is that we also see stable commission rates in law (contingency fees) and in services (tipping).  Why is the appropriate tip 15% at an expensive restaurant and at a cheap restaurant?  Does the tuxedoed waiter really have a harder job than the diner waitress?  Maybe (indeed, I have argued along these lines elsewhere) but the commonality across these very different markets tells me something else is going on.

Is it signaling?  Would you distrust a realtor offering lower commissions?  Again, maybe, but it’s hard to believe that with so much money at stake there aren’t enough people willing to take a risk on a discount realtor for long enough for reputations to be established.  I think part of the problem in the realtor market is that other realtors can easily discriminate against discount brokers by pushing their clients one way or the other – that says the antitrust actions will probably not be very effective.  But this doesn’t explain stable commissions in law or waiting.

It’s a puzzle and one worth solving.  Comments are open.

Underappreciated economists, a continuing series

Julio Rotemberg.  OK, so being tenured at Harvard Business School is not the same as lost in the woods.  But you don’t hear enough about him in the economics profession, when in fact he is one of our most creative thinkers.

My favorite Rotemberg paper is "A Theory of Inefficient Intrafirm Transactions," American Economic Review, 1991.  It is poorly written and the model is clumsy but I love the idea.  Firms do not exist to lower transactions costs, rather they usually raise transactions costs (price aside, wouldn’t you rather go buy a new computer from a retail outlet than try to order one through your purchasing department?).  An asset is brought into a firm when an entrepreneur sees that the asset is currently underpriced.  The firm buys the asset to capture future rents, but don’t expect ex post transactional efficiency to result.  That being said, it makes sense to allow this process to continue, given the absence of serious alternatives to market bidding, however imperfect it may be.

Rotemberg’s paper on altruism explores the idea that you often feel altruism for your co-workers, but you rarely feel altruism for your boss.  This will limit the degree of hierarchy; furthermore some firms may fear inter-employee altruism, knowing that it will be used against them.  His paper on fairness constraints on market pricing is a brilliant, sprawling mess on a vitally important topic.  Why do firms hold poorly publicized temporary sales?  They want one group of customers to think the firm cares about their welfare, while those who buy after the sale ends feel no regret at paying the higher prices.

Here is a previous installment in this series on Brian Loasby.

Those Pesky Charter School Reports

  1. What exactly are charter schools? A charter school is a public school that has more lax legal requirements about funding, staffing and curriculum. For example, many states allow charter schools to hire non-certified teachers. Somebody who wants to operate a charter school must usually obtain permission from a local or state government. The ease of starting and operating a charter school varies from state to state. Arizonais a charter school hothouse, while other states have none. Depending on state law, the charter school must file reports and be inspected by state officials. Charter schools often receive funding from state or local governments.

  1. Why would someone start a charter school? The reasons vary, but parents are often frustrated with existing schools and school reformers want a shot at operating a school along innovative teaching principles. School reformers see charter schools as offering more options and, sometimes, a step towards competition in education.

  1. Why do people hate charter schools? Critics see charter schools as taking away resources from standard public schools and as havens for poorly qualified teachers. A few see charter schools as opportunities for people to concentrate on serving privileged students, and are a betrayal of the ideal of public education. Some charter school proponents say that charters threaten the power of teacher’s unions because the law permits schools to have non-certified teachers. Click here to read a thoroughly anti-charter school essay by Amy Stuart in the Washington Post.

  1. Who goes to charter schools? This is tough because the data on charter schools is often not available to the public (MR readers should email me if they can find quality raw data). In the 1990s, the student body at charter schools seemed to resemble other schools in the area. (Click here.) A more recent Department of Education report suggests that slightly more white students attend charter schools than at other schools in the same area. The big point, which a lot of people have missed, is that charter schools have not turned out to be sanctuaries for wealthy, highly privileged students. The major migration that many feared never happened. My guess is that wealthier students already live in neighborhoods with high quality schools, either public or private, and have no reason to take a risk on a controversial new type of school. Those who work at charter schools should email me to tell me if my hunch is true.

  1. The Big Question: Do charter schools help students learn more than traditional schools? Reading a few reports, I’d say that charter schools have a mixed record so far. They definitely aren’t disasters (but some individuals schools are bad) but they haven’t shown themselves to be vastly superior to either public or private schools (even though some excellent schools are charter schools). The key in reading these reports is to look for comparisons of similar students. If you simply look at average test scores of charter schools, you miss the point because education researchers know that learning is tied to factors that schools can’t control – academic aptitude/IQ, family, peer effects, etc. Eduwonk and the Constrained Vision Blog have recent posts pointing out that charter schools do OK on some measures, comparable to public schools. Their conclusions are based on findings from recent reports that were said to be devastating critiques of charter schools.

In my opinion, fans and critics miss the best thing about charter schools – bad schools close. Since people are under no obligation to attend these schools, they will actually close if they are poorly managed and do a disservice to their students. Critics see a closed charter school as a victory. Yes, it is a victory, but not for charter school opponents. It is a victory for education in general – a poorly run institution has stopped operating, something you rarely see in other schools.

Update: A reader reminds that I have omitted discussion of Hoxby’s analysis showing that charter schools do well when you control for the types of students who attend the school, which lists data sources. Click here to read the Hoxby paper. When I wrote above about scarcity of data, I was thinking of a single data set available from a data bank such as the ICPSR, not about studies that assemble data from multiple print and electronic sources. Thanks, Yesim!

How many people can you warn how quickly?

Why didn’t warnings race around the Web ahead of the tsunami? We live at a time when news of Scott Peterson’s guilty verdict can spread in minutes from cell phone text messages sent from inside the courtroom to millions of people across the planet. Yet no one took advantage of the Web as the tsunami dashed toward shorelines.

"An effective viral campaign could’ve been launched in minutes," says Toronto-based tech author Don Tapscott.

Why didn’t thousands of tourists’ cell phones chirp with a call or text message saying, "Run away!"? Why didn’t BlackBerrys buzz with e-mail? Why didn’t TV sets at resorts show CNN reporting where the waves might hit next?

"These questions are going to haunt us," says Yrjo Lansipuro at the Ministry of Foreign Affairs of Finland, a nation that lost about 200 citizens who were in the regions hit by the tsunamis.

"Could a warning have reached people in time?"

Let’s say that I, and I alone, knew that a major disaster would strike the Indian coast in three hours’ time.  What would I do?  I admire the State Department in many regards, but calling them would not be my first instinct (it takes long enough to get an ordinary reimbursement processed there).  I would try the following:

1. Post a warning on MR and, with suitably serious language, and a plea to spread the word.

2. Call or email the few people I know in India.

3. Google to the phone numbers of tourist hotels on the coast, call them up, and sound serious, lying if necessary.

How many people, if any, would such efforts save?  Probably not very many, unless I got lucky at the hotel level.  How would I phrase the warnings to sound credible, elicit cooperation, and minimize free-rider problems?  Keep in mind that cranks predict earthquakes all the time, what is to distinguish me from them?  Furthermore no local wants to scare away potential tourists or customers.

Our best bet may be coordinated cell phone warnings sent to customers in the affected regions:

…we now have a system in place that enables us to issue a warning to customers of Finnish mobile operators in any region of the world with 30 minutes’ notice…

Read more hereThis article discusses how much scientists knew in the first place.

Does academia discriminate against right-wingers?

Jonathan Klick — a smart economist, not unsympathetic to markets, writes me the following:

I’ve been thinking a bit about all the stuff regarding the small number of folks on the right in academics in the mainstream press and on blogs, and I think people have missed an important point regarding cross sectional variation — I think the fact that you also see relatively few people on the right in the arts supports the supply side view of the empirical regularity more than the discrimination view.  That is, there’s not really any differential barrier to entry into music, visual arts, writing, etc. for right wingers and yet those fields look at lot like academics in terms of personnel make-up.  To my mind, this supports the view that, by and large, relatively fewer of the right’s brightest want to go into academics than is the case with the left.

I agree, but with one caveat.  Many academic entrants are initially undecided in their political outlook, but social pressures sway them to the left.  That being said, so many academic leftists have held their views from an early age.  Academic life and discourse have, if anything, moderated their stances toward the center. 

Both academic life and left-wing attitudes are correlated with the same basic status markers.  Whether or not Democrats and academics are in fact more tolerant of others, at the very least they pretend to be.  They also are, or at least pretend to be, more thoughtful, nuanced, intellectual, and internationalist [TC: This doesn’t stop them from being wrong about many things.]  Most importantly, they take pride in identifying with these values.  This will put most academics into the Democratic camp.  Those that cannot become Democrats — such as myself — will often be libertarian or "independent" rather than registered or self-identifying Republicans.  The Republican "pride markers" are, for many academic tastes, too nationalistic, religious, and involve too much "tough talk."

So the market-oriented or "right-wing" anthropologists will, ex post, experience negative bias in academia.  Minority points of view are not always treated fairly.  But that bias is not the initial reason why they are so outnumbered in the first place.

Cutting the fat

Dieting is difficult because it’s so much easier to give in to temptation and consume what you should not. It’s a constant struggle to cut the fat. The same is true in business. Economists may write down a “cost curve” on the blackboard but these curves, which represent the minimum cost of producing a particular quantity, are not given to the firm they are products of the firm. It takes effort and attention and willpower to keep costs low. Letting costs go by raising salaries, increasing benefits and paying little attention to the bottom line is easy and, for a time, pleasant which is why firms need strong incentives, including the carrot of profit and the stick of loss, to get and stay trim.

Government agencies face few such incentives. As a result, fat is rampant. Case in point, California prison guards. To encourage fitness the California Department of Corrections created a fitness bonus some years ago. The bonus was quite substantial, $100 per month but to get it guards had to pass a fitness test involving sit-ups, running and jumping. Five years ago the state paid out about $5 million for the fitness incentive. But who wants to be the bad guy who denies a prison guard a bonus? No one – if they aren’t paying the bills.

As a result, the fitness test started to get easier as the bonus got larger. Last year, California shelled out $33.2 million for fitness bonuses and some 80 percent of prison employees, not just guards but wardens and mangers also, now get the fitness bonus. Of course, a test is no longer required – all the employee need do to get the bonus is visit a doctor once per year.

With the California budget crunch even the politically poweful prison guards are having to cut some fat but in the long run recognize the incentive structure and don’t expect government to go on a diet.

Living on Pennies

Here is a heart-breaking series of stories about living in poverty in the third world. The Congo is so poor there are no jobs just “se debrouiller – French for getting by, or eking a living out of nothing.” Sweatshops in these countries would be a blessing but corruption, war and violence keep foreign investment away.

Even the corruption, however, is sadly understandable. The government has no money and so pays its workers with the opportunity to take bribes. And thus the country is trapped. The corruption tax prevents the people from starting businesses and accumulating capital, corruption can’t be fought without funds to pay workers but there are no funds because corruption prevents the earning of income.

But even a society living on the edge needs civil servants. Men with government seals, such as Pancrace Rwiyereka, a grandfatherly former schoolteacher who runs Goma’s Division of Work, engage in their own version of se debrouiller.

They don’t bring home an actual salary, but the majority still show up for work every day. A government job gives them the opportunity to demand money from businesses and members of the public. Their official jobs are a charade.

“Bribes are the answer,” said a mid-level government employee in the finance department. “Why do you think we would never give up our jobs or strike to get our salaries?”

Authorities require entrepreneurs importing goods to obtain stamps from at least six agencies: the main customs office, an immigration office, a health agency, a separate health office that certifies goods for consumption, the governor’s tax revenue office and a provincial office that collects money from truckers for nonexistent road rehabilitation.

Thanks to Marc Andreessen for the pointer.

Was the 20th century one of inflation?

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.

Is the shopping mall dead?

More and more large department stores are moving out of centralized shopping malls. Consumers prefer big stand-alone boxes.

Why might this be? Consider a few reasons:

1. A stand-alone store has better retail focus. It can target its marketing, direct mail, and advertising more effectively.

2. People like to park right in front of their destination.

3. You go to malls to browse and shop; you go to off-mall stores to actually buy things. Competing entertainment sources have lowered the importance of shopping as a leisure activity.

It is less clear whether a shopping mall is likely further from where you live. On one hand, a mall is probably centrally located. On the other hand, a mall is harder to place because of its size. You can splatter a bunch of Best Buy stores around a suburban area, but you could not do the same for the Mall of America in Minneapolis.

What about good ol’ introspection?: I prefer the big boxes. My reasons are simple. I am a man and I prefer buying to shopping. And I hate parking garages, which are common in malls. I am also willing to let these foibles determine where I shop. By the way, here is a previous MR post on the socialist origins of the shopping mall concept.

The sorry state of economic literacy

…there is a great deal of confusion about basic facts relevant to policy. Almost half the public, and a quarter of those over age 55, thought Medicare already provided drug benefits for outpatients before legislation providing such coverage was enacted. More than half could not hazard a guess about the size of the budget deficit. The average person thinks 37 percent of Americans lack health insurance, more than twice the actual percentage.

From where do Americans learn about the economy? By far the most common source is television. Those who rely on television the most, however, tend to be among the least informed.

The second most common source is local newspapers, which were cited much more frequently than national or big-city papers.

Friends and relatives came in third, followed by political leaders, radio and economists. The Internet was next, although a sizable contingent listed it as their most important source.

Those who consulted more sources, and consulted them more often, were a bit better informed – but not much. That’s a sobering fact for the media.

People who said they voted in the last presidential election were better informed than nonvoters.

Liberals, moderates and conservatives all did about equally well on the test of economic facts. But those who said they hadn’t thought much about their ideological leanings – one in three people – were appreciably less knowledgeable.

That’s all from Alan Krueger, writing in The New York Times. His bottom line is that ideology, not self-interest, predicts public opinions about economics.

On the same topic, here is one of my favorite essays by Bryan Caplan. Here is one good bit:

In stark contrast to income, education exerts a powerful influence over a wide range of economic beliefs… The typical cab driver with a Ph.D. in philosophy shares the economic outlook of other Ph.D.’s, not other cab drivers. Given the strong correlation between income and education, though, widespread misconceptions about the “beliefs of the rich” are quite understandable.

Further below Craig Newmark offers remarks on related topics.

Kristof on child labor

Here is Nicholas Kristof on the terrible consequences of so-called international labor standards.

It’s appalling that Abakr, like tens of millions of other children abroad, is working instead of attending school. But prohibiting child labor wouldn’t do him any good, for there’s no school in the area for him to attend. If child labor hawks manage to keep Abakr from working, without giving him a school to attend, he and his family will simply be poorer than ever.

And that’s the problem when Americans get on their high horses about child labor, without understanding the cruel third world economics that cause it. The push by Democrats like John Kerry for international labor standards is well intentioned, but it is also oblivious to third world realities.

Look, I feel like Scrooge when I speak out against bans on sweatshops or on child labor. In the West, it’s hard to find anyone outside a university economics department who agrees with me. But the basic Western attitude – particularly among Democrats and warm-and-fuzzy humanitarians – sometimes ends up making things worse.

Kristof goes beyond attacking soft-headed thinking, he also suggests a soft-hearted alternative.

It’s bribery. The U.N. World Food Program runs a model foreign aid effort called the school feeding program. It offers free meals to children in poor schools…. “If there were meals here, parents would send their kids,” said Muhammad Adam, a teacher in Toukoultoukouli.

School feeding costs just 19 cents per day per child.

So here’s my challenge to university students: Instead of spending your energy boycotting Nike or pressing for barriers against child labor, why not sponsor school meals in places like Toukoultoukouli?

I spoke with officials at the World Food Program [you can donate at this link, Alex], and they’d be thrilled to have private groups or individuals help sponsor school feedings. Children in Africa will be much better off with a hot meal and an education than with your self-righteous indignation.

Aside: The only thing Kristof misses is that the soft-hearted demand for international labor standards often masks labor union protectionism. Another case of bootleggers and Baptists. And here is Tyler with more on the economics of child labor.

Bootleggers and Baptists

The Arizona Daily Star reports that Nogales, Arizona will be opening a new state-of-the-art truck inspection station:

The governor touted the new Motor Carrier Inspection Station as a state-of-the-art facility that will improve homeland security while not slowing down international traffic between the United States and Mexico.

It gives state and U.S. federal officials a one-stop shop to inspect drivers’ immigration papers, the safety of their semi-trucks, and the quality and safety of cargo crossing into the country.

But a legal challenge hangs over the new facility:

Attorneys about to argue a federal lawsuit against the NAFTA plan allowing Mexican trucks into the United States aren’t satisfied. They will plead their case before the the U.S. Supreme Court on April 21.

The problem with the new station: It isn’t required to check emissions on incoming trucks.

That means they aren’t being held to the same standards as U.S. trucks and will only worsen air quality standards, said John Weissglass, the San Francisco-based attorney representing the International Brotherhood of Teamsters in the lawsuit. In 2002, the Teamsters, watchdog group Public Citizen, and environmental groups sued the U.S. Department of Transportation to stop the NAFTA plan, citing environmental concerns, which eventually forced the government to conduct a $1.8 million study looking at the plan’s environmental impact.

They say politics makes strange bedfellows, but the Teamsters and Public Citizen? Bruce Yandle of Clemson explains it with a theory he calls Bootleggers and Baptists. The bootleggers like prohibition because it gets rid of competitors. But a politican who wants to listen to the bootleggers needs a more high-minded cause to sell to the public. The Baptists give the politicians cover with the argument that drink is from the devil–it leads to social unrest, unemployment, higher social costs and so on. Same with Mexican trucks. Who can justify keeping out lower cost Mexican trucks just to keep the wages of Teamsters high. Enter Public Citizen. This isn’t about greed. It’s about keeping American air clean.

The appeal of self-righteousness partnering with self-interest also explains why companies often support regulation of their industry. They’ll claim a concern for safety or the environment but often such regulations fall more heavily on smaller competitors and will drive them out of business.

There’s nothing wrong with politicians having both high-minded and low-minded motives. The real problem is that the bootleggers always push the form of the regulation to create higher profits.

NAFTA was supposed to allow Mexican truck companies to compete in the US. We’re still waiting. Before the environmental issue, the alleged worry of the Teamsters was safety. My take on that claim is here.

“Curing” Obesity

Researchers claim to have discovered one of the key causes of obese America. The AP reports:

Researchers say they’ve found more evidence of a link between a rapid rise in obesity and a corn product used to sweeten soft drinks and food since the 1970s.

The researchers examined consumption records from the U.S. Department of Agriculture for 1967-2000 and combined it with previous research and their own analyses.

The data showed an increase in the use of high-fructose corn sweeteners in the late 1970s and 1980s “coincidental with the epidemic of obesity,” said one of the researchers, Dr. George A. Bray, a longtime obesity scientist with Louisiana State University System’s Pennington Biomedical Research Center. He noted the research didn’t prove a definitive link.

I like the hedging–the link isn’t “definitive.” No, I guess it wouldn’t be. Obesity is surely also “linked” to the Iran hostage crisis and the stagflation of the late ’70s and early 80s. Maybe I shouldn’t be so skeptical. The study may be a little more scientific than merely looking at correlation rather than causation. But if the research is right, it will be easy to make America thin again. Just ban those high fructose sweeteners. One problem with this will be explaining why the advent of low calories sweeteners didn’t stem the tide of fat that allegedly threatens to overwhelm us.

My theory is that we’re fat because we enjoy it. We like food. It gives us pleasure. We’re wealthy and food’s cheap so we’re taking on a few pounds. Alex points out that the entire increase in weight over the past several decades can be explained by an extra Three Oreo Cookies a day! Here is a paper by Glaeser, Cutler and Shapiro that takes the economists’ approach to weight gain.

Here’s my take on the claim that we should tax fatty foods because of the externalities.