“There Ain’t No Such Thing as a Free Lunch.” I used to think that originated with Robert Heinlein’s The Moon is a Harsh Mistress. Many others credit Milton Friedman. But read the real story. A San Francisco newspaper is the earliest known source. And Professor Alvin Hansen, preceding Friedman, wrote of TINSTAAFL, which is simply TANSTAAFL with better grammar.

New York City just auctioned off some more medallions. What did they go for? About $300,000. What should one cost? Ask Andrew Chamberlain:

…let’s do the math. Given a medallion cost of $300,000, how much does a cabbie have to make to justify buying one? Assuming he’ll use it for 20 years, and assuming a 5 percent discount rate–the forgone return he could’ve earned on a similar investment–he’d need to earn about … $28,300 a year.

That’s not much. So how much do taxi drivers actually earn? According to the New York Times here and here, most drivers pull in about … $30,000 a year.

Chamberlain also questions whether the medallion system makes sense in the first place. My knee-jerk free market reaction is to say no. That being said, it is easy to imagine that a congestion tax on Manhattan taxis is optimal. How close do current quantity restrictions come to such a tax? Hard to say, but at the very least non-Manhattan driving probably does not require medallions. Should we also allow taxis to raise their prices when it is raining? I have heard that Tokyo residents hailing a taxi will hold up two fingers to pay twice the state fare, three fingers to triple it, and so on.

Addendum: Daniel Akst notes that this calculation assumes a very low shadow price for labor. I’ll predict that the immigrant drivers have discount rates higher than five percent a year, as well. That only intensifies the puzzle. On the other side of the equation, you can sell the medallion after twenty years.

The Trotskyist mayor of Sao Paulo is embracing an idea long advocated by free market economists, creating a market in which zoning rights can be bought and sold. Sao Paulo will sell as much as $300 million in legal rights to build above existing height and bulk limits in certain areas. Penn State University professor of real estate, Abdullah Yavas, notes:

This is a first. The city is doing rezoning for payment and by having a secondary market, the city creates a way for the rezoning to be used by the highest bidders – the people who value the space the most.

Eliminating zoning altogether and relying on covenants and other private solutions, as does Houston, is probably best. But in the meantime, William Fischel, Robert Nelson and others have long-argued that its more efficient to price than to forbid. In a pricing system, land would be better allocated to its highest valued use and both the city and builder would be better off. In addition, open, competitive sale of zoning rights is preferable to widespread corruption and bribery which zoning naturally invites. The mayor of Sao Paulo, a rich communist (really), is more interested in revenues than efficiency but that’s often the way reform occurs.

Aside: The information on Sao Paulo comes from an article by Terry Wade in the WSJ, Wed. April 28, A14B, unfortunately the WSJ provides no way to provide a link if one is not a subscriber. For more on these issues see The Voluntary City (I am one of the editors). Here is Tyler on things Brazil is not doing so well.

Galina Vladimirova is a believer in what she calls “the Russian cult of makeup.” Tucked neatly inside her purse one recent day were her latest acquisitions of lipstick and eye shadow, her first Armani purchases. They were more than twice as expensive as any makeup she had ever bought, even for a woman who spends up to $150 a month on cosmetics…

In the beauty boomtown that is Moscow today, she is no exception. Just a generation removed from the time when their mothers and grandmothers resorted to the peasant trick of reddening their cheeks with beets, Russian women today spend twice as much of their income on cosmetics as Western Europeans do — 12 percent of their entire paychecks on average, according to research firm Comcon-Pharma.

Perhaps no other cosmetics market in the world is as hot as Russia’s, which has quintupled in size over the past four years and is forecast by industry analysts to triple again, to $18 billion, by 2010…Never mind the mystifying economics of it, how a $20 tube of lipstick wouldn’t seem to make sense as a mass-market proposition in a country where average salaries have only just now hit $200 a month.

Here is the full story.

Women will compete for male attention most intensely when it matters what is to be won. So the naive Darwinian economist would expect make-up to be most popular in countries with high income inequality and few social barriers. Russia fits both descriptions. Since many poor Russian women receive an excellent education, they can at least hope to marry well if they catch male attention.

Western Europe has lower rates of income inequality and women there wear less make-up. In Brazil, and Latin America more generally, women take special care with their appearances. This is not a general theory, just some scattered observations on a small number of variables.

Perhaps you think that dollar stores were a quaint anachronism, surviving only through sales to immigrants. In reality dollar stores are the fastest growing retailers in America. Here are a few facts:

1. More than 4000 new dollar stores have opened in the last three years, an increase of thirty-four percent.

2. The dollar store sector accounts for $16 billion a year, larger than the recorded music industry.

3. Dollar General, a very large chain, will add 625 stores this year.

4. Dollar stores compete on price and convenience, most of all parking and easy access to the goods. The “big box” superstore is proving vulnerable to dollar stores, just as centralized shopping malls are proving vulnerable to the big boxes.

5. Dollar stores offer no frills and spend nothing on marketing.

6. Families earning $70,000 and above are the fastest-growing group of customers for dollar stores. Dollar stores are beginning to lose their dowdy image.

7. Dollar stores are starting to attract name brands on the shelves.

8. Wal-Mart, feeling the competitive heat, is experimenting with “dollar store” sub-sections in some of their superstores.

My take: For me it is all about easy parking. I am starting to get the hang of dollar stores, it is the easiest way to replenish a dwindling supply of toothpaste.

The above facts are from the 10 May issue of Business Week, “Out-Discounting the Discounter.”

1. No new net jobs have been produced in the Swedish private sector since 1950.

2. “None of top 50 companies on the Stockholm stock exchange has been started since 1970.”

3. “…well over 1 million people out of a work force of around four million did not work in 2003 but lived on various kinds of public welfare programs, such as, pre-pension schemes, unemployment benefits, sick-leave programs, etc.”

4. “Sweden has dropped from fourth to 14th place in 2002 among the OECD countries (i.e., affluent industrialized countries) in terms of GDP per capita since 1970.”

Here is a more complete summary. Here is the paper itself. Here is Nils Karlson, the author of the relevant essay. Here is some debate on whether Sweden is richer than Mississippi and Alabama. Admittedly Sweden has a higher quality of public goods and offers more leisure time.

My take: I’m willing to take the Swedish model seriously. I’ve been to Stockholm several times and loved it. That being said, how attractive will this model remain when it offers only half of the per capita income of the United States?

This is a real question, not a rhetorical one. On one hand, freer societies will reap especially high benefits in an era of rapid technological change. On the other hand, the innovations of the United States, and other countries, indirectly subsidize Swedish government spending.

Germany yesterday threw cold water on the festive mood ahead of this week’s European Union enlargement by telling its eastern neighbours that low corporate tax rates used to attract foreign investment were unacceptable.

Speaking only days before 10 new member states join the EU on May 1, most of them from eastern Europe, Chancellor Gerhard Schröder said tax rates, often less than half those in Germany, were “not the way forward” in a united Europe.

Here is the full story. Here is a good article on the European tax cartel.

Germany does have a valid complaint that it sends subsidies to these lower-tax nations. Would any of you care to guess my vision of “the way forward”?