Ear Rational Thoughts

Save me from myself

Greg Mankiw discusses taxes on things such as soda meant to protect ourselves from... ourselves:

There is, however, an altogether different argument for these taxes: that when someone consumes such goods, he does impose a negative externality — on the future version of himself. In other words, the person today enjoys the consumption, but the person tomorrow and every day after pays the price of increased risk of illness.

This raises an intriguing question: To what extent should we view the future versions of ourselves as different people from ourselves today?

There is always an adolescent lurking inside us, feeling the pull of instant gratification and too easily ignoring the long-run effects of our decisions. Taxes on items with short-run benefits and long-run costs tell our current selves to take into account the welfare of our future selves.

If this is indeed the best argument for “sin” taxes, as I believe it is, we are led to vexing questions of political philosophy: To what extent should we use the power of the state to protect us from ourselves? If we go down that route, where do we stop?

Mankiw comes down mostly against such an argument, concluding:

Even as adults, we sometimes wish for parents to be looking over our shoulders and guiding us to the right decisions. The question is, do you trust the government enough to appoint it your guardian?

No, Mr. Mankiw. No I do not.

However one question I have is how this fits with the right to an abortion? It seems that your future self is in some sense "inside" you, the same way a fetus is inside its mother. And in both cases, without intervention, both would emerge as people. And yet we've concluded that women have a right to control their body at the expense of the fetus, but with these fat-taxes, I don't have the right to do the same? Is it really worse in our society to make future You fat than it is to kill a totally separate life? That's f'd up.

As the saying goes, "Keep your laws off my body".

Don Boudreaux's Protectionist Poison

Don Boudreaux has a way with this kind of stuff:

Clyde Prestowitz asserts that “A decline in U.S. imports from China would lead to an increase in U.S. domestic output and thus an increase in employment and wage gains both as a result of unemployed workers starting to work again and as a result of upward pressure on wages generated by increasing labor scarcity” (Letters, June 7).

If Mr. Prestowitz were unemployed, would he practice the protectionism that he preaches? Specifically, would he impose restrictions on imports from outside of the Prestowitz household? By no longer buying food from Safeway and clothing from The Gap, Mr. Prestowitz would have to produce these things himself. So the formerly unemploymed Mr. Prestowitz would find himself occupied with all sorts of jobs, each of which (according to his theory) would compensate him lavishly.

In reality, of course, protectionism is poison. The Prestowitz household would suffer immeasurably were it to practice the faulty economics peddled by Mr. Prestowitz. The fact that this poison is diluted when ingested on a national scale – thus making its ill-consequences less readily seen than in the case of a single household – doesn’t transform this poison into a magical economic elixir.

The Economist does populism

The Economist succumbs to a bit of "populism":

But let's be honest for a moment. According to this Bloomberg story, Mr Lampert is worth $3 billion. If he earns just 1% per year on that fortune—and he certainly earns much more—then he takes home $30 million in income. Per year. That's 600 times the median household income in America. It's more money than a person can reasonably spend. With that much money you can binge every day, and yet the money will just keep accumulating.

And yet Mr Lampert feels he needs to take special steps to avoid paying the regular income tax rate for individuals in the highest tax bracket, which begins at around $373,000 (the 15% bracket, by the way, begins at $8,375 for an individual).

The Economist - in case you couldn't guess - does not look favorably on this.

The Economist seems to be saying that if he could spend the money, then it wouldn't be so bad because at least he'd be spending it. It's only because he can't spend it that there's a problem.

That's just stupid. If he can't spend it, then it doesn't matter that he earned it. When he dies, he's not going to be buried with it (or even if he was, who cares?). At that time, the money will be transferred to someone else. Perhaps his family, at which time they will pay some sort of tax on it, if not the death tax - which is a higher rate than the income tax - then at least some other tax.

But there's another issue. This guy is not putting his money under his mattress. Every dollar he gets is going back into some business somewhere. And that helps those businesses grow. The more the government takes, the less he can put back. Of course the government doesn't get as much money, but the economy as a whole grows much faster and more than makes up for the lost government revenue. It's pretty short sighted to argue that the only thing we should be worrying about is the government's balance sheet.

David Brooks on Stimulus

David Brooks has really been kicking ass lately. This time, he writes about the stimulus and whether it was necessary (or whether another one will be):

Sixteen months ago, Congress passed a stimulus package that will end up costing each average taxpayer $7,798. Economists were divided then about whether this spending was worth it, and they are just as divided now.

... In times like these, deficit spending to pump up the economy doesn’t make consumers feel more confident; it makes them feel more insecure because they see a political system out of control. Deficit spending doesn’t induce small businesspeople to hire and expand. It scares them because they conclude the growth isn’t real and they know big tax increases are on the horizon. It doesn’t make political leaders feel better either. Lacking faith that they can wisely cut the debt in some magically virtuous future, they see their nations careening to fiscal ruin.

... Some theorists will tell you that if governments shift their emphasis to deficit cutting, they risk sending the world back into recession. There are some reasons to think this is so, but events tell a more complicated story.

Alberto Alesina of Harvard has surveyed the history of debt reduction. He’s found that, in many cases, large and decisive deficit reduction policies were followed by increases in growth, not recessions. Countries that reduced debt viewed the future with more confidence. The political leaders who ordered the painful cuts were often returned to office. As Alesina put it in a recent paper, “in several episodes, spending cuts adopted to reduce deficits have been associated with economic expansions rather than recessions.”

This was true in Europe and the U.S. in the 1990s, and in many other cases before. In a separate study, Italian economists Francesco Giavazzi and Marco Pagano looked at the way Ireland and Denmark sharply cut debt in the 1980s. Once again, lower deficits led to higher growth.

The Left Flunks Econ 101

Dave Leigh links to a survey published in the WSJ that shows pretty clearly that "the Left Flunks Econ 101". Some points:

• Obama voters got 4.61 wrong. Only Nader and McKinney voters scored worse. ...

• Democrats got 4.59 wrong. Only the Green party scored worse. Libertarians and Republicans scored best, with 1.29 and 1.61 questions wrong, respectively. ...

• African Americans scored worse than any other ethnic group, with 4.26 questions wrong on the average. I didn't find this surprising, not because of their race, but because Blacks overwhelmingly tend to be Democrats. ...

• Athiests and Protestants scored best of the various religions identified, with 1.91 and 2.4 questions wrong, respectively. "Other/No Affiliation" (i.e. people who are spiritual but non-denominational) scored the worst by far, with 4.09 questions wrong. I don't find this surprising at all... I think it's self-evident that the amorphous "touchy-feelies" aren't very well connected to reality to start with. ...

• People who identified themselves as residents of "America" scored best (2.25 questions wrong), while those who identified themselves as residents of "The Planet Earth" scored worst by a large margin (4.59 questions wrong). ...

• People who frequently shop at Wal-Mart scored much better than those who never do (2.24 to 4.24 questions wrong, respectively). This isn't much of a surprise to me... the snoots who won't shop there aren't likely to know a thing about saving a buck. It's pretty clear that the people who shop there aren't stupid about economics... but their detractors may be. ...

• Households with union members score worse. ...

• In direct proportion, the results are correlated to income. The less you make, the less you're likely to know about economics. Again, not surprising. ...

H/T Arnold Kling, who has additional thoughts. He points out:

I think what makes the study obnoxious to many people is Klein's use of the terms "right" and "wrong" to describe what many people would prefer to think of as matters of opinion about propositions in economics. I think that the study has merit, regardless.

I agree. Here are the 8 questions:

1. Restrictions on housing development make housing less affordable.
2. Mandatory licensing of professional services increases the prices of those services.
3. Overall, the standard of living is higher today than it was 30 years ago.
4. Rent control leads to housing shortages.
5. A company with the largest market share is a monopoly.
6. Third-world workers working for American companies overseas are being exploited.
7. Free trade leads to unemployment.
8. Minimum wage laws raise unemployment.

These are obviously loaded to piss off people on the left (anyone I know who is left of center would get almost all of these wrong). But as Ronald Reagan famously said: "The trouble with our liberal friends is not that they are ignorant, but that they know so much that isn't so." These questions do have answers, even if you think the answers are different than what reality says they are.

Apple Monopoly

Don Boudreaux has a good post on the FTC's investigation into Apple for trying to monopolize the cell phone:

That case rests on the theory of “network effects” – effects which ... antitrust enforcers believe “grant outsize advantages to first movers and make it particularly difficult for competitors to break in.” But as the WSJ also reports (quoting Gary Shapiro, president of the Consumer Electronics Association), the first significant mover in the market for smart phones – and still the dominant supplier there – is Blackberry.

So if the FTC’s theory of network effects is correct, Apple has little hope of gaining monopoly power because it is unlikely to displace Blackberry as the dominant firm in that market. If, on the other hand, Apple does pose a genuine competitive threat to Blackberry’s dominance, then this very fact casts serious doubts on the validity of the theory used by the FTC to justify its investigation of Apple.

I think you have to look no further than Microsoft to see that these OS monopoly lawsuits are a bunch of bunk. Microsoft is now just a shell of their former self (sure, they make just as much money, and they have just as much market share in the PC OS game, but they just have absolutely no relevance anymore). And it had nothing to do with the antitrust settlement 10 years ago given that at the time most people felt the settlement itself was a load of bunk and would do nothing to curb MS's dominance. The fact is that high-tech moves too quickly - and has far too low a startup cost - for a "first mover advantage" to be much of a factor.

What's next, suing Linux because they give their stuff away for free? How's a for-profit company supposed to compete with that? They must be stopped...

Halfalogues

I just learned what should've been the word of the 2000's: Halfalogue. It's when you only hear half a conversation ("half dialogue"), like when you're in a restaurant and the asshole behind you is talking on his cell phone. You can only hear his part, not the other side.

And in yet another case of science confirming what everyone already knows, they found that listening to a halfalogue is more annoying than listening to a dialogue because you have to spend way more energy processing the missing information. Duh.

Patents

Megan McArdle's post on drug patents reminds me of the stupidity of patent law.

In my mind, the theory behind patents is this: Let's say I take the time to build a chair. Common perception is that I then own that chair and someone can't just take the fruits of my labor - i.e. the chair – without compensating me for them. It's good that this is how society works, not the least reason of which is because it gives me incentive to make chairs (see Zimbabwe).

But what society does not do is say that no one else can build chairs. It protects my investment in chair building, but it does not protect me from competition. Anyone else with the skills to build chairs is free to do so, even if I've already spent time building one.

Now let's say instead of putting my time into building a chair, I put my time into building an idea. I spend actual hours of my day forumlating the idea and bringing it to coherence. In the same way that the law protects the fruits of my labor building physical objects, it should protect the fruits of my labor building intellectual objects from theft.

But as with physical property, society should not protect me from competition. If someone has the skills to build the same intellectual property as me, they should be allowed to do so.

I think it's this latter point that is lost in modern day patent law. To be sure, it's a difficult problem. With physical objects, who did the building is more obvious. With ideas, there's a much finer line between creating an idea from scratch and simply copying. But I think patent law should be viewed in this context.

For example, if two inventors independently arrive at a very similar idea very close in time, we should reasonably conclude that one was not stolen from the other. See the story of Elisha Gray and Alexander Graham Bell arriving at the patent office hours apart. If patents were based on my moral justification, both Gray and Bell would have held patents for the telephone. Or if people arrive at the same idea from two totally different angles (which is often the case in drugs and computers), then they almost surely are not copying from each other and both should be awarded patents.

And similarly, this is the justification for the obviousness clause of patents. That is, if an idea is obvious, then the mental work required is actually quite small and so there is no property to protect.

I think creating formal rules for what I claim as the justification for patents would be an impossible task. But I think the cases where the intellectual work was done independently is quite obvious after the fact and so could be quite easily handled by the courts. To paraphrase the quote about pornography, I know patent infringement when I see it.

Unfair competition

Another letter to the editor from Don Boudreaux, this time about "matching funds" for politicians:

Like candidates for public office, at my blog Café Hayek I often express political opinions that I believe would make America a better place. Unfortunately for me and my ideas – and, I dare say, for the country – I must compete against free-spending wealthy opponents such as you and other giants in the mainstream media. My ideas and I are at a terrible disadvantage.

Why does logic always appear sounder when it's about spending other people's money on things that you want than it does when you're either spending your money, or spending money on things you don't want? Weird how that is.

Some very good news

From Greg Mankiw, Hayek's The Road to Serfdom is the number one book at Amazon. If that doesn't brighten your day, I don't know what will...