Monthly Archive for February, 2013

Upcoming Events

Friday March 1 Tuesday, March 5 (note date change!): Our occasional commenter Sierra Black will discuss polyamory on the Katie Couric show; 3PM eastern time in many cities, but check local listings.

Monday, March 4, 5:30PM: I’ll be speaking in the Economic Liberty Lecture Series, sponsored by the Future of Freedom Foundation, at George Mason University in Fairfax, VA. I’m a little unclear on the exact location; this link and this link seem to contradict each other — but they do both give phone numbers to call for further information. Admission is free.

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Deficit Attention Disorder

Imagine you’ve got a drinking problem. And imagine this conversation with your spouse:

Spouse: Dear, you’ve really got to do something about your drinking. You’ve been in three auto accidents this week, you’ve lost your job, and you’ve been trying to beat the children, though you keep passing out before you can get to them. I want to help you figure out how to get this under control.

You: You’ve got a fair point there. But let me point out that it would also be a good idea to redecorate the living room.

Spouse: Well, maybe so, and it’s something we can talk about at some point. But right now, I’d really like to focus on the drinking issue.

You: Doesn’t that strike you as imbalanced? Here we’ve got two issues on the table, and you want to focus 100% on one of them and 0% on the other. Why are you being so one-sided?

Spouse: Well, but I feel like there’s some urgency about the drinking thing, and I’d like to prioritize it.

You: Apparently, you’re fanatical on this issue. I don’t see how I can continue to take you seriously.

Spouse: Well, actually I’m trying to get you to focus on a very serious issue.

You: Yes, but by focusing exclusively on that issue, you’re betraying your fanaticism. Clearly, I’m the one who’s willing to address our problems, and you’re the one who’s just out to score debating points.

Spouse: Huh?

You: Not only that, but I’ve got a Nobel-prize winning economist who agrees with me!

How does that make you feel? I feel that way a lot when I read the news lately. Arguably, our country faces a spending crisis. The Republicans claim they want to deal with that crisis. (There’s some legitimate question about how sincere they are, but they at least say they want to deal with it.) The Democrats say: Okay, but let’s also talk about raising taxes. Maybe they’d also like to talk about redecorating the Rotunda; this seems roughly as pertinent. In other words, the Democrats attempt to deflect attention from the crisis (or the alleged crisis) by insisting that we talk about some other thing at the same time — and then they insist that the Republicans, by insisting that we focus on the issue at hand, are “betraying their fanaticism”. And they’ve managed to find a Nobel-prize winning economist willing to parrot this nonsense almost daily on the pages and webpages of the New York Times.

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But Foolish *In*consistency Can Also Be Problematic…

Paul Krugman is at it again, bemoaning the mendacity of politicians who, for “careerist reasons”, will never admit their mistakes and therefore lock themselves into bad policies. He even quotes Ralph Waldo Emerson:

A foolish consistency is the hobgoblin of little minds,
adored by little statesmen and philosophers and divines.

And Krugman’s solution to this problem? More power for the politicians, of course.

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This blows me away:

Suppose you pay children in the 5th and 6th grades, right when you think of the achievement gap opening up between blacks and whites, to take an IQ test.

Say you have unmotivated black kids living in the middle of the ghetto and white kids from Scarsdale or some other upper-class neighborhood. You give each kid who gets a successful answer one M&M — just give them an M&M — and you say for each point extra on the IQ test, each correct answer, I’ll give you one more M&M. It turns out that the gap between the black and white student in the IQ test scores vanishes — vanishes completely.

If I’d heard this from almost anyone else, I’d be instantly skeptical. But I heard it from Jim Heckman, who sets the standard for caution and reliability in social science. I highly recommend the whole interview; you can read it here.

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Separated at Birth?

Carl Pistorius, facing charge of culpable homicide
Alexander Grothendieck, greatest mathematician of the 20th century

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Public Service Announcement

The Big Questions is likely to be down intermittently between about 9PM and 11PM eastern time on Friday, 2/22 for scheduled maintenance.

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Thoughts on the Minimum Wage

The usual case against the minimum wage has three components:

  1. Minimum wages reduce employment among unskilled workers.
  2. Therefore minimum wages are bad for unskilled workers.
  3. Therefore minimum wages are bad policy.

The problems with this case are that

  1. Minimum wages might not reduce employment very much.
  2. Even if they do, that doesn’t make them bad for unskilled workers.
  3. Therefore we cannot conclude (via this route) that minimum wages are bad policy.

Minimum wages are bad policy, though — but for entirely different reasons.

I’ll get to those reasons shortly, but first let’s examine the traditional argument a little more closely. I’ll number my paragraphs to make it easier for commenters to respond.

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It’s All About Me

The new issue RegionFocus (the magazine of the Richmond Federal Reserve) is out, including an interview with yours truly.

There are a few things I might wish I’d said a little differently, but Aaron Steelman (the interviewer) did a fantastic editing job.

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Paul Krugman Hopes You’re Stupid

Paul Krugman, apparently relying on the stupidity of his readers, opens with this quote:

“At some point, Washington has to deal with its spending problem,” Speaker John A. Boehner of Ohio said Wednesday. “I’ve watched them kick this can down the road for 22 years since I’ve been here. I’ve had enough of it. It’s time to act.”

Then Krugman comments as follows:

22 years, huh? Indeed, Boehner was elected in 1990, and entered the House at the beginning of 1991. So what kind of can-kicking was going on during his first, say, decade in office? Here’s the picture:

Hmm — it sort of looks as if the US was sharply reducing its debt during the presidency of a guy named, I don’t know, Bill something or other.

See what he did there? Boehner says something about spending; Krugman responds with an irrelevant chart depicting debt, and hopes you won’t notice he’s completely changed the subject.

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Can My Readers Throw Some Light On This?

On, we find the following query:

How can I find a list of retail markup % by industry? My husband won’t let me buy new lamps because his mother worked in a lamp store 60 years ago and the markup was “astronomical”. I’m betting that there are plenty of things he buys that have a similar markup as do lamps. I know that the average markup varies between industries (i.e. groceries being very low). Appreciate any insight! Thanks!!!!

Several questions arise, or which the most compelling is: When you buy a lamp, why would you care about the markup, as opposed to, oh, say, the price? In fact, if you’re the sort of person who worries about things like minimizing your carbon footprint and otherwise curbing your resource consumption, you should of course prefer items with high markups, since the markup is the part of the price that doesn’t reflect resource consumption. Or to put this another way: Given the price of the lamp, isn’t it better for the seller to earn more profit rather than less?

Since economic theory tells me that the author of this inquiry is perfectly rational, I see only a small number of possibilities:

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The Ricardian Model

With Richard III much in the news lately, I’ve been inspired to reread Paul Murray Kendall’s excellent biography of the king (Kindle edition here). Here’s a little tidbit I learned from that book:

In early 1464, with Lancastrian rebellions breaking out all over England, King Edward IV found it prudent to raise an army. He therefore dispatched “commisions of array” to the twenty-two counties of southern England, each charged with rounding up the able-bodied men of the county and turning them into an army. In most cases, the county commission consisted of a half dozen or more men, including one great magnate. But Richard, Edward’s brother, inspired so much trust that he was appointed sole commissioner for nine counties — everything from Shropshire and Warwickshire through Somerset to Devon and Cornwall. Richard, in other words, was solely responsible for levying troops from a quarter of the realm. He was not yet twelve years old.

This makes me believe that my seventeen-year-old stepdaughter has too few chores.

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Stress Test

A man applies for a job, which requires him to undergo three days of testing. But just before the testing period begins, he gets another good job offer. How does this affect his effort and performance?

If you’ve got your economics-blinders on, you’ll probably answer: Once he’s got an offer in hand, he won’t try as hard and therefore won’t do as well. But Michigan grad student Susan Godlonton decided to put that theory to the test. She was here in Rochester this week to tell us what she learned.

Godlonton did her research in Malawi, where her research funds went a long way. 278 job applicants were recruited for a three-day training program, with job offers contingent on their performance. At the beginning of the training period, about 20% of the applicants (randomly chosen) were offered an alternative job; another 20% were randomly told they’d not be getting the alternative offer. (Still others were told they had various probabilities of receiving the alternative offer, but let’s concentrate on the extremes.) These alternative offers were kept secret from the evaluators at the training session.

The result: After controlling for background characteristics such as performance on standardized tests, previous experience, age, and so forth, applicants with no outside offer perform considerably worse in the training sessions, as measured by written exams, and the quantity and quality of their verbal participation. Those with alternative offers are 11.3% more likely to make verrbal contributions, and their verbal contributions are better.

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