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All Reason.com articles with the "Economics" tag.



Published: Sat, 24 Jun 2017 00:00:00 -0400

Last Build Date: Sat, 24 Jun 2017 14:46:01 -0400

 



A Spectacularly Stupid Idea: Governing Land as a Global Commons

Fri, 02 Jun 2017 14:31:00 -0400

"Land must be considered as a global commons—conceptually by researchers and legally by the international community," argues Felix Creutzig, a climate change economist at the Technical University of Berlin. He makes this perplexing claim in "Govern land as a global commons," an article in the current issue of Nature. Creutzig cites the arguments of the philosopher Mathias Risse, who Creutzig believes has "made a powerful case for humanity's collective ownership of the Earth." Let's briefly consider Risse's position. In his 2008 working paper "Original Ownership of the Earth," Risse begins with two intuitions: "First, the resources of the earth are valuable and necessary for all human activities to unfold, most importantly to secure survival; second, those resources have come into existence without human interference." There is a prior question that Risse (and Creutzig) must answer: What is a resource? Surely edible plants and meat animals count. And just as surely, our forager ancestors claimed and defended territories containing wild edibles against encroachment by other groups. They had no notion that land was collectively owned by all human beings. In any case, Risse's second claim is basically wrong. The vast majority of resources come into existence as a result of what he is pleased to call "human interference." As Creutzig and Risse both note, the 17th century British philosopher John Locke argued that before the rise of civilization, land and natural resources were notionally held in common by mankind. They do not consider deeply another of Locke's arguments: that without the application of human ingenuity, "nature and the earth furnished only the almost worthless materials." Only with the development of private property rights and the rule of law to defend them did nature's worthless materials become useful and valuable. As Locke explained, a landowner has a strong incentive to increase the productivity of his land. By intensively cultivating it, he produces "a greater plenty of the conveniencies of life from ten acres, than he could have from an hundred left to nature, [and] may truly be said to give ninety acres to mankind." Locke also wrote that a privately owned cultivated acre in Britain produces 1,000 times more value than an uncultivated acre left in the commons in America. The same is true for other natural resources. For example, as I have pointed out elsewhere, a deposit of copper is just a bunch of rocks without the know-how to mine, mill, refine, shape, ship, and market it. Petroleum was a nuisance until Edwin Drake figured out in 1859 how to drill for it and refine it into lamp oil. In any case, Creutzig's model for global land governance is to adopt international agreements like the Antarctic Treaty, the Law of the Sea, and, yes, the Paris Agreement on climate change. This is exactly backwards: To the extent that those pacts are needed, it's because they deal with unowned, open-access commons—Antarctica, the oceans, the atmosphere. No treaties are needed when formerly open-access commons have been enclosed and protected by secure property rights. Creutzig does reassure us that "private property will remain protected with the common ownership of global land." But he doesn't appear to really mean that. "Land-use rights can be assigned for a limited period," he suggests. He then notes, with apparent approval, that "Chinese property law limits them to 40, 50 or 70 years." Creutzig doesn't just favor global common ownership; he wants what amounts to global zoning. Who would be the zoning board? The United Nations, of course. "The United Nations' Sustainable Development Goals...don't call explicitly for global coordination of land uses," Cruetzig concedes. But he notes hopefully that the first steps toward such U.N.-led coordination might be taken when the U.N. Convention to Combat Desertification publishes its Global Land Outlook later this year. He also looks forward to the Intergovernmental Panel on Climate Change's upcoming report on land use and climate, due in 2019. "An overarching case for land[...]



The New York Times' Tax Coverage Goes Off the Rails

Mon, 15 May 2017 16:00:00 -0400

Binyamin Appelbaum is one of the more fair-minded and accurate reporters at The New York Times. For an example of his best work, one might look back to his reporting from Hazleton, Pa., in October of 2016. So it was particularly dismaying to read Appelbaum's dispatch over the weekend in the Times, under the headline "Trump Tax Plan Will Not Bolster Growth, Economists Say." The Times news columns have been openly campaigning against Trump's tax cuts, from the moment they were rolled out. The paper's day one front page headline was "Tax Overhaul Would Aid Wealthiest." Its day two headline was "Trump's Plan Shifts Trillions To Wealthiest." Even by that low standard, though, the Appelbaum story was something to behold. It's worth taking a careful look at as an example of the techniques that the press uses with the effect of distorting the debate about the tax cut. The first ingredient is a headline that goes beyond what the story itself says. Buried in the penultimate paragraph of Appelbaum's article are two estimates of how tax cuts might bolster growth. "The Tax Foundation thinks 0.4 percent is a reasonable estimate of the best case. Mr. Holtz-Eakin said that he regarded 0.5 percent as an upper bound on the potential benefits," the story says. It's not clear whether these estimates are of any tax cuts or of Trump's tax cuts in particular. But the Tax Foundation blog carries an article that says just a cut in the corporate tax rate to 15 percent—without the individual rate cuts Trump is also proposing—would generate "something more like 0.4 percent over the budget window: a sustained period of 2.3 percent growth instead of 1.9 percent growth, until the economy is eventually about 4 percent larger." So the headline about "will not bolster growth" is inaccurate. The cuts would bolster growth, at least by some estimates, just not by the amount that Appelbaum has arbitrarily set up as a goalpost. The way the Times describes these growth numbers—as decimal percentages—is itself a kind of spin. Using language like "0.4 percent" makes the growth sound small. But higher annualized growth rates compound over time. When, in other articles, the Times talks about other percent-based fees—say, those charged by money managers to public pension funds—it uses real dollar figures to make the numbers sound larger: "almost $750 million in direct investment expenses," "an additional $1.8 billion over five years and almost $8 billion after 15 years." The U.S. annual gross domestic product is about $18 trillion, so a "4 percent larger" economy means $720 billion—or $720,000,000,000—more goods and services produced each year. That is nothing to sneeze at. At that is just the effect of a corporate tax reduction, not other growth-inducing steps such as personal income tax reductions, deregulation, increased energy exploration and production, a stable dollar, or (if you buy the idea that this is stimulative) a military buildup. Nor are the growth numbers the only way that this Times article uses numerals in a misleading way. The newspaper is also spinning when it comes to tax rates. The article says: "there is little evidence that current rates are high enough to discourage people from earning as much money as they can. When Mr. Reagan took office, the top tax rate was 70 percent; now, it is 39.6 percent." The Times-chosen comparison of "70 percent" and "39.6 percent" makes the current rate appear low. It would have been accurate, however, to write, "When Mr. Reagan left office, the top individual income tax rate was 28 percent; now, as the Times reported on its front page back in 2013, in California the combined top state and federal income tax rate is 51.9 percent, while in New York City it is 51.7 percent. Even for lower-income individuals, the combined effects of means-tested benefit phase-outs and marriage penalties can create all kinds of perverse incentives, as the University of Chicago economist Casey Mulligan argues in his book The Redistribution Recession." The Times took this argument seriously [...]



You Are Ignorant, But Not Necessarily Dumb.

Fri, 05 May 2017 13:30:00 -0400

You probably suffer from the "illusion of explanatory depth." Moreover, you often succumb to the "illusion of understanding." So say two cognitive scientists, Philip Fernbach of Colorado University and Steven Sloman of Brown, in The Knowledge Illusion: Why We Never Think Alone. Disagree? OK, then write down how a zipper works. Or draw all the parts of a simple bicycle in their proper places. If that's too complicated, tell me: How does a flush toilet operate? The illusion of explanatory depth was exposed in experiments by Frank Keil, a cognitive scientist at Cornell. Keil asked subjects to rate on a scale of 1 to 7 how confident they were about their understanding of how such mechanisms as zippers, flush toilets, helicopters, quartz watches, and piano keys worked. Then Keil asked them to write down a detailed explanation. Most could not. Afterwards, Keil reported, "many participants reported genuine surprise and new humility at how much less they knew than they originally thought." Fernbach and Sloman then report cognitive scientist Thomas Landauer's estimate that the average adult's brain has the capacity to store about a gigabyte of information. The computer on which I am typing this review has about 1,000 times more memory than that. "Human beings are not warehouses of knowledge," the authors observe. Instead, we maneuver through the complexities that surround us by abstracting the relevant information that enables us to achieve our goals. The purpose of thinking, Fernbach and Sloman argue, is to choose the most effective action given the current situation. Our minds think causally, not logically. To illustrate that, the authors offer a logical puzzle: If my underwear is blue, then my socks must be green. My socks are green. Therefore my underwear is blue. When asked, many people agree with the conclusion. But what about: If I fall into a sewer, then I need a shower. I took a shower. Therefore, I fell into a sewer. It's the same logical mistake, but this time our knack for causal thinking prevents most people from making it. The authors also note that we are much better at thinking about how a cause produces an effect than we are at reasoning backward from an effect to find its cause. It is easier for a doctor predict that an ulcer will cause stomach pain than that stomach pain is the result of an ulcer. We are better at prediction than diagnosis. The authors also cite Daniel Kahneman, the economics Nobelist who elucidated the difference between intuitive and deliberative thinking. Think of an animal whose name starts with E. For most Americans, elephant comes to mind quickly and intuitively. (For the record, I thought of echidnas. I don't know why.) Now unravel the anagram: vaeertidebli. The answer is "deliberative" and, for most of us, it takes deliberative thinking to figure it out. The authors argue that we depend upon intuitive thinking to navigate most of our daily lives. We tend to turn to deliberative thinking when we encounter novel situations or engage in cooperative activities with others. Sloman and Fernbach note that more deliberative folks are somewhat less subject to the illusion of explanatory depth, and that they score better on the standard 3-item test measuring cognitive reflection. (Less than 20 percent of the U.S. population gets all three answers right.) If we are all so deeply ignorant, how is the modern world possible? The book's answer is that we live in hive mind where knowledge is distributed throughout the human community. We are, in the authors' words, "built to collaborate." When we don't know something, we tap into the knowledge and expertise of our fellow human beings." Ignorance has to do with how much you, whereas being dumb is relative to other people," the authors point out. Like everyone else you are ignorant, but you are not therefore necessarily dumb. We don't need to know how a flush toilet or the internet works. All we need to know is how to use these tools effectively to achieve our goals. Most our "knowledge" is really a [...]



You Are Ignorant, But Not Necessarily Dumb: New at Reason

Fri, 05 May 2017 13:30:00 -0400

(image) You probably suffer from the "illusion of explanatory depth." Moreover, you often succumb to the "illusion of understanding." So say two cognitive scientists, Philip Fernbach of Colorado University and Steven Sloman of Brown, in The Knowledge Illusion: Why We Never Think Alone.

Disagree? OK, then write down how a zipper works. Or draw all the parts of a simple bicycle in their proper places. If that's too complicated, tell me: How does a flush toilet operate?

If we are all so deeply ignorant, how is the modern world possible? The book's answer is that we live in hive mind where knowledge is distributed throughout the human community. We are, in the authors' words, "built to collaborate."




Physical Scientists Are So Darned Cute When They Finally Understand Economics

Mon, 01 May 2017 16:00:00 -0400

Remember Peak Oil? What about Peak Everything? The Limits to Growth myth of impending mineral resource exhaustion was running once again rampant just a decade ago. The world didn't run out of any critical minerals or metals. Why not? Because as rising demand boosted the prices for minerals like tin, copper, zinc, and iron ore, geologists and entrepreneurs went in search of new sources while manufacturers and consumers economized on the amounts required to make their products. The current issue of Geochemical Perspectives is devoted to considering "Future Global Mineral Resources." The good news is that the group of geologists who put together the study have stumbled upon economics and now understand a bit about how demand and supply works. From the abstract: Some scientists and journalists, and many members of the general public, have been led to believe that the world is rapidly running out of the metals on which our modern society is based. Advocates of the peak metal concept have predicted for many decades that increasing consumption will soon lead to exhaustion of mineral resources. Yet, despite ever-increasing production and consumption, supplies of minerals have continued to meet the needs of industry and society, and lifetimes of reserves remain similar to what they were 30-40 years ago. ... Over the last 150 years, improved technologies, economies of scale and increased efficiency have combined to reduce costs hence allowing lower-grade ore to be mined economically. The net result is that the long-term inflation-adjusted price of most metals has decreased more or less in parallel with increasing production, a second apparent paradox that frequently is not well understood. The press material released by the University of Geneva to accompany the study notes: To define reserves is a costly exercise that requires investment in exploration, drilling, analyses and numerical and economic evaluations. Mining companies explore and delineate reserves sufficient for a few decades of profitable operation. Delineation of larger reserves would be a costly and unproductive investment, and does not fit the economic logic of the modern market. The result is that the estimated life of most mineral commodities is between 20 to 40 years, and has remained relatively constant over decades. Use of these values to predict the amount available leads to the frequently announced risks of impending shortages. But this type of calculation is obviously wrong, because it does not take into account the amount of metal in lower quality deposits that are not included in reserves and the huge amount of metal in deposits that have not yet been discovered. Hmmm. Who else has made that point? In my chapter "The Depletion Myth" in my 1993 book Eco-Scam: The False Prophets of Ecological Apocalyse I wrote: Impending scarcity provokes people to search for substitutes and to improve technologies used to exploit natural resources. For example, copper reserves are not only expanded through new ore discoveries, but also through technology. Improvements in refining allow humanity to exploit copper ores now that are eight times less rich than those mined in 1900. ... A deposit of copper is just a bunch of rocks without the know-how to mine, mill, refine, shape, ship, and market it. Similarly in my 2015 book, The End of Doom I report: Why does the horizon of mineral reserves never seem to go out further than a few decades? Basically because miners and technologists do not find it worthwhile to find new sources and develop new production techniques until markets signal that they are needed. How this process evolves is encapsulated by the USGS report which notes that in 1970 known world copper reserves stood at "about 280 million metric tons of copper. Since then, about 400 million metric tons of copper have been produced worldwide, but world copper reserves in 2011 were estimated to be 690 million metric tons of copper, more than double those in 1[...]



Katherine Mangu-Ward and Tyler Cowen on Robots, Death, and Complacency [Reason Podcast]

Fri, 14 Apr 2017 16:15:00 -0400

"When there's volitility, people will latch on to some non-optimal ideas," says George Mason economist Tyler Cowen in a conversation about his new book, The Complacent Class, with Reason magazine Editor in Chief Katherine Mangu-Ward. In a wide-ranging conversation that took place at the Mercatus Center in March, Mangu-Ward and Cowen cover automation, mobility, Donald Trump, productivity, immigration, whether complacency is a "rot" overtaking the United States, and whether we should be embarrassed by the fact that we order our dates, entertainment, groceries, and toilet paper without leaving our sofas.

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Welcoming Immigrants Means Higher Wages

Fri, 14 Apr 2017 13:30:00 -0400

"The benefits that immigration brings to society far outweigh their costs," declares an open letter to congressional leaders and President Donald Trump. The letter, published on Wednesday and signed by nearly 1,500 economists—including six Nobel Prize winners—notes that immigrant entrepreneurs start new businesses that hire lots of Americans; that immigrants are far more likely to work in innovative, job-creating fields such as science, technology, and engineering; and that they bring diverse skill sets that keep our workforce flexible, help companies grow, and increase the productivity of American workers. A new study parsing employment data between 1991 and 2008 confirms that immigrants significantly boost both the productivity and the wages of workers. The paper, published this week in the journal Economic Geography, compares how 160 U.S. metropolitan areas are faring according to the statistics compiled by the Census Bureau's Longitudinal Employer-Household Dynamics program. (This dataset has information on more than 30 million workers at 1.2 million businesses, including their sex, age, race, wages, length of employment, education, and country of birth.) The authors, economic geographers Abigail Cooke of SUNY-Buffalo and Tom Kemeny of the University of Southampton, note that "inclusive institutions" encourage trust, lowering costs and fostering cooperation. To get a handle on how inclusive various American cities are with respect to immigrants, the two researchers devise two indicators. The first measures how widespread social capital is in each city, and the second accounts for pro- and anti-immigrant ordinances adopted by local governments. Social capital consists of the connections of trust between individuals and entities that can be economically valuable. The authors constructed their indicator for social capital by assessing data from the County Business Patterns on the number of social, political, advocacy, business, professional, and labor associations per 10,000 residents in each metropolitan area. They also take into account the number of gathering places, such as specialty food shops, restaurants, cafés, bars, hair salons, corner stores, fitness centers, sports clubs, and bowling alleys. For a stark contrast between places with inclusive institutions and those without, the researchers focus their analysis on the cities that scored in the top and bottom third of their social capital indicator. Municipalities with the highest social capital included Appleton, Wisconsin; Des Moines, Iowa; and Trenton, New Jersey. Those with the lowest include McAllen, Texas; Fayetteville, North Carolina; and San Bernardino, California. Next they develop an inclusiveness indicator based on pro- and anti-immigration ordinances enacted by various metropolitan areas. They note that most of the ordinances specifically focus on undocumented immigrants, but they argue that their adoption indicates residents' attitudes toward immigration more generally. Some cities pass English-only rules or try to punish employers who hire undocumented immigrants; others pass sanctuary laws. In their analysis, they include the 160 urban areas that alternatively crossed thresholds in which at least 50 percent of their municipalities and counties had adopted either pro- or anti-immigrant ordinances. Metropolitan regions with more mixed policies were excluded. Among the cities scoring highest on the pro-immigrant indicator were Salem, Oregon; Austin, Texas; and Fresno, California. Anti-immigrant areas included Charlotte, North Carolina; Green Bay, Wisconsin; and Harrisonburg, Virginia. On top of all that, the researchers used the Census data to determine what percentage of people in each urban area is native and foreign-born. They also follow people's work and wage histories. The results? "What we found was remarkable. In cities that are unwelcoming to immigrants, as diversity rises, p[...]



Immigrant Diversity Boosts Native-Born Wages: New at Reason

Fri, 14 Apr 2017 13:30:00 -0400

(image) "The benefits that immigration brings to society far outweigh their costs," declares an open letter to congressional leaders and President Donald Trump. The letter, published on Wednesday and signed by nearly 1,500 economists—including six Nobel Prize winners—notes that immigrant entrepreneurs start new businesses that hire lots of Americans; that immigrants are far more likely to work in innovative, job-creating fields such as science, technology, and engineering; and that they bring diverse skill sets that keep our workforce flexible, help companies grow, and increase the productivity of American workers. A new study in the journal Economic Geography parsing employment data between 1991 and 2008 confirms that immigrants significantly boost both the productivity and the wages of workers.




How Payday Lenders and Check Cashers Help the Poor

Thu, 13 Apr 2017 13:23:00 -0400

Payday lenders and check cashers have never been more popular with consumers. There are more payday lenders in the U.S. than there are McDonald's locations and Starbucks combined. Yet their business practice of charging extremely high fees and interest rates is widely condemned. Do alternative financial service providers merit their reputation as rip-off artists? Why do their customers choose to remain "unbanked?" To better understand how these businesses operate and why people choose to patronize them, Lisa Servon took a break from teaching at the University of Pennsylvania to work as a teller in the South Bronx and Oakland. She discovered that traditional banks are neglecting the poor and bilking the middle class, leaving payday lenders and check cashers to fill a crucial need. Reason's Todd Krainin spoke with Servon about The Unbanking of America: How the New Middle Class Survives, a first-hand account of what may be America's most widely misunderstood industry. Read J.D. Tuccille's review of the book from our March 2017 issue. Read Finance on the Fringe, our look at alternative banking services fifteen years ago. Produced, edited, and hosted by Todd Krainin. Cameras by Meredith Bragg and Josh Swain. Subscribe to our YouTube channel. Like us on Facebook. Follow us on Twitter. Subscribe to our podcast at iTunes. This is a rush transcript—check all quotes against the audio for accuracy. Todd Krainin: The first thing that really struck me in the book is that there are more payday lenders and check cashers in the United States than McDonald's and Starbucks combined. Is that true? Lisa Servon: Yes. Todd Krainin: That sounds crazy. Lisa Servon: It's actually just payday lenders, right? Todd Krainin: Right. Lisa Servon: Not even counting the check cashers, and that's an important difference because, in 13 states, payday lending is illegal. Todd Krainin: That speaks to some incredible need for this, what you call, alternative banking services. Lisa Servon: Exactly. Exactly. Particularly in the case of payday lenders for short term credit; small amounts of money for a small amount of time. Todd Krainin: What gave you the idea to take a break from your Ivy League job and work, of all places, in the South Bronx? Lisa Servon: I was interested in why so many people were using alternative financial services ... Payday lenders, check cashers, pawnshops ... when the story about them that you hear in the press, and even from consumer advocates and from policymakers, is that they're predatory, they're taking advantage of poor people, and yet, in the early '90s, you started to see an upward trajectory of use. These businesses are growing an incredible amount. Payday lending grew from a $10 billion business to a $30 billion business in about 10 years in the early 2000s. The implicit message in all of that writing was that low income people who were presumed to be the primary users ... I found out that wasn't exactly true either ... were somehow making bad decisions, that they weren't informed enough. If only they had the information that wealthier upper middle class people had then they would choose differently. That's the whole implicit message, even in the FDIC's categorization of people who's banked, unbanked, under-banked. By looking at the numbers, I couldn't really figure it out. I knew from working in poor communities for 20 years that low income people know where their money goes, probably more than people who have more of a buffer. I realize that if I wanted to really understand it, I had to get as close to the problem as possible. When you're a researcher, you have to match the method to the question. The only method I could really figure out was to get really close. I knew that even just talking to people and interviewing them would not give me the full story. It turned out to be right. Really, by working beh[...]



The United Airlines Incident Does Not Require New Laws, Despite What Chris Christie Says. It Could Have Been Resolved by Intelligent Use of Markets.

Wed, 12 Apr 2017 13:45:00 -0400

Predictably, America's least popular governor, Chris Christie of New Jersey, approaches the national conversation generated by Chicago aviation police beating up and dragging Dr. David Dao off a United Airlines flight on Sunday by demanding more legal action. Christie, a Republican, is calling for quick federal action to ban the process of "overbooking," that is, selling more seats on an airplane than there are physically available. As a post here explained the other day, a libertarian-leaning economist, the late Julian Simon, invented and policy-entrepreneured into existence a wonderful price-system, free-market model for solving the problem of overbooking. Here's how it usually works: the airline starts offering monetary incentives (could be flight vouchers or cash or other considerations) to get enough customers to voluntarily give up their seat, increasing the offered price until the market for seats has cleared, that is, you've found enough people to give up the seat they paid for. That way everyone is happy, either with their seat or with payment that the person considers sufficient to make up for losing the seat. My criticisms of United and the police in this incident are not based on general hostility to overbooking, which both makes great economic sense for the airlines, almost certainly makes ticket prices less than they otherwise would be for customers, and creates win-win scenarios for airlines and passengers when the airline is smart enough to actually carry through the Simon policy to a market-clearing result. In the case of this United flight from which Dao was violently ejected, by all accounts United tried two rounds of offers, and after $800 decided to start busting heads. There is zero reason to believe that quick increases in the price offered to voluntarily abandon your seat would not have resolved this situation far more quickly and justly than calling the cops on Dao. (And, almost certainly after all the dings in the market and possibly the courts ahead for United, it all would have been far less costly for United as well.) Free market types are understandably attracted to explanations for seemingly idiotic or perverse behavior on the part of companies that blame government. In the conversation surrounding this United debacle, I've seen many people excited about a Department of Transportation regulation that sets a cap on the airlines legal obligation to pay off those bumped from an overbooked flight: Compensation shall be 400% of the fare to the passenger's destination or first stopover, with a maximum of $1,350, if the carrier does not offer alternate transportation that, at the time the arrangement is made, is planned to arrive at the airport of the passenger's first stopover, or if none, the airport of the passenger's final destination less than two hours after the planned arrival time of the passenger's original flight. But that has no application to United's bad decisions in the case of Dao's abuse. (Remember, the police's equally bad decisions were triggered by United's bad decision; while the cops should have been more curious about why they were asked to commit violence against Dao, they did so because the airline decided to treat him as an intruder on their property for no good reason, when what he was was a paying customer.) First, by all reports United didn't even reach their regulatory obligation to offer as much as $1,350 as an incentive. (I am discounting as extremely unlikely any possibility that no one on that plane paid more than $200 for a seat, though if that were so they would have met the obligation by offering 400 percent of that.) Second, despite how some want to interpret it, nothing in that regulation says it is illegal to offer more as compensation. It is not written as a price ceiling. It merely says the airlines' legally orde[...]



Why Should Police Help United Airlines Cheat Its Customers?

Mon, 10 Apr 2017 14:15:00 -0400

The world is rightly abuzz over an awful incident yesterday in which a man was beaten and dragged off a plane by police at Chicago's O'Hare airport for the crime of wanting to use the seat he's paid for on a United Airline flight getting ready to leave for Louisville. The man claimed to be a doctor who had patients to see the next morning, explaining why he neither took an initial offer made to everyone on the plane to accept $400 and a hotel room for the night in exchange for voluntarily giving up his seat nor wanted to obey a straight-up order to leave, in an attempt on United's part to clear four seats for its own employees on the full flight. No one considered even the $800 that was offered after everyone had boarded enough for the inconvenience, so United picked four seats and just ordered those in them to vacate. But the one man in question was not interested in obeying. (Buzzfeed reports, based on tweets from other passengers, that the bloodied man did eventually return to the plane.) While United's customer service policies in this case are clearly heinous and absurd, let's not forget to also cast blame on the police officers who actually committed the brutality on United's behalf. NPR reports that the cops attacking the man "appear to be wearing the uniforms of Chicago aviation police." While there may be something to be said for the ability for private businesses to summon the help of the police to remove people from their premises if they refuse to leave peacefully and their presence is unwanted, there is no excuse for the police to cooperate when the reason their presence is unwanted is not "causing a disturbance" or being violent or threatening to other customers, or stealing goods or services, or doing anything wrong at all, but rather wanting to peacefully use the service they legitimately paid for. Shame on both United for calling the cops on a passenger to make the lives of their employees and business easier, and shame on the police for having any part of it. [UPDATE: According to A.P., others may agree with the above; "Chicago aviation department says officer involved in dragging man off United flight placed on leave," A.P. tweets.] Buzzfeed News reports an interesting tag team of evaded responsibility as they tried to report on whether this was standard operating procedure. When asked why the airline had the man forcibly removed, and whether that was standard procedure in cases of overbooked flights, United refused to comment. Instead they told BuzzFeed News all further questions should be referred to Chicago Police. BuzzFeed News contacted Chicago Police and were told to contact the Chicago Department of Aviation. When BuzzFeed News contacted the Chicago Department of Aviation they were transferred to a TSA message bank. A TSA spokesperson later told BuzzFeed News they were not involved and to contact Chicago Police. It is not surprising that the wonderful and, if the price offered goes high enough always effective, voluntary means to get passengers to surrender an overbooked flight was developed by a fascinating economist from the libertarian movement thoughtworld, Julian Simon, whose role in the wonderful, rights-respecting, and economically efficient policy is detailed in this 2009 story from the Illinois News Bureau: Thirty years ago, U.S. airlines stopped arbitrarily grounding passengers on overbooked flights, instead offering rewards if travelers give up seats to make room for hurried fliers who need to touch down on time. Economist James Heins says the seemingly subtle switch has provided a $100 billion jolt to the U.S. economy over the last three decades - allowing airlines to run fuller, more profitable flights that in turn has trimmed air fares and increased tax revenue. Now, he hopes the milestone anniversary finally[...]



Venezuela Reminds Us That Socialism Frequently Leads to Dictatorship

Tue, 04 Apr 2017 07:00:00 -0400

On March 29, the Supreme Court of Venezuela dissolved the country's elected legislature, allowing Venezuela's top court to write future laws. The court is filled with allies of Venezuela's socialist president, Nicolas Maduro, while the legislature is dominated by Maduro's opponents, and the court's ruling was seen as the latest step on Venezuela's descent into a full-fledged dictatorship. But following international outcry—as well as the appearance of cracks within Maduro's own party—the court reversed itself just a few days later, on April 1. Thus, the uneasy standoff between Venezeula's legislature and executive is set to continue. Last week's episode is only the latest reminder of the tendency of socialism to lead to dictatorship, as identified by the Nobel Prize-winning economist Friedrich Hayek in The Road to Serfdom. In 1944, when he wrote his book, Hayek noted that the crimes of the German National Socialists and Soviet Communists were, in great part, the result of growing state control over the economy. As he explained, growing state interference in the economy leads to massive inefficiencies and long queues outside empty shops. A state of perpetual economic crisis then leads to calls for more planning. But economic planning is inimical to freedom. As there can be no agreement on a single plan in a free society, the centralization of economic decision-making has to be accompanied by centralization of political power in the hands of a small elite. When, in the end, the failure of central planning becomes undeniable, totalitarian regimes tend to silence the dissenters—sometimes through mass murder. Hayek was fortunate enough to live to see the defeat of both the Nazi and Soviet totalitarian regimes. Unfortunately, there are still places where Hayek's most dire warnings remain relevant. Nicolas Maduro's Venezuela is one such place. Beginning in 1999, when Maduro's predecessor, the late Hugo Chavez, became President, the government has played an ever-increasing role in the Venezuelan economy. Price and wage controls were put in place, trade was restricted, and private property was expropriated—often without compensation. Partly as a result of those economically illiterate actions (the fall in the price of oil, which Venezuela depends on, did not have such dire consequences in any other oil-rich country), Venezuela's economy tanked and public opposition to the ruling regime increased. Thus, the 2015 parliamentary election saw the opposition to Maduro's leftist policies capture a super-majority in the country's National Assembly. Unfortunately, socialism, in spite of its manifest failings and Hayek's warnings, refuses to go away. Wannabe socialists are thus destined to learn not from history, but from their own mistakes. In the meantime, ordinary people suffer. To give just one example, between 1999, when Hugo Chavez took over as President, and 2016, average per capita income in Venezuela rose by 2 percent. In the rest of Latin America and the Caribbean, it rose by 41 percent. A similar story can be observed in Zimbabwe. Robert Mugabe, Chavez's erstwhile friend, has been in charge of his unfortunate country since 1980. Since then, Africa's income per person rose by 48 percent. In Zimbabwe, a socialist dictatorship, it has declined by 25 percent. Plus ça change, plus c'est la même chose. [...]



Philadelphia Says Soda Tax Revenue Exceeded Projections in February, While Pepsi Stops Offering Two Liter Bottles, Six-Packs

Thu, 23 Mar 2017 15:30:00 -0400

Philadelphia's Department of Revenue says it collected $6.4 million from the city's new soda tax in February, and says that's more than the $5.9 million it projected. Last year the city collected $5.9 million on a projection of $2.3 million. City officials said their projections were conservative because they weren't sure how long it would take for various businesses to comply with the tax, which is required to be paid at the distributor level. While the city was still optimistic last month that it would meet its annual projection of $91 million, that would require monthly revenue of $7.87 million for the remainder of the year. Mayor Jim Kenney initially claimed the tax could bring in $400 million over five years when he proposed a three cent an ounce tax. The tax that passed was half as large, at one and half cents an ounce, although at $91 million for the first year the projections haven't been cut in half. The projections seem particularly unrealistic given long term trends in soda sales, which have been down for more than a decade, hitting a 30-year-low in 2016. Soda companies, which are challenging the Philadelphia tax in court, also say sales are down in the city, which anyone living here should be able to confirm. Pepsi said this week it would stop distributing two-liter bottles and six packs to stores in Philadelphia because of the effect the tax has had on sales. "Because of the Philly Beverage Tax, people are buying far fewer taxed beverages," Pepsi wrote in a letter to store owners, as ABC 6 reported, "particularly those in larger package sizes because they now cost so much more." Pepsi previously laid off dozens of workers in Philadelphia-area plants due to the tax. The city uses Pepsi's opposition to a tax that obviously harms it as a reason to dismiss any of the company's complaints. "Pepsi's reasoning for their layoffs and for no longer distributing certain beverage sizes is all self-reported by a company that is actively fighting to overturn the beverage tax in court," a city spokesperson said according to ABC 6. Pepsi says its sales are down 40 percent in the city and up 10 to 15 percent outside the city. Kinney credited his ability to get a soda tax passed when his predecessor, as well as mayors in other cities, failed to do so, by framing it as an effort to raise revenue for specific proposals (public funding for things like universal pre-K and parks in particular) as opposed to an effort to incentivize healthier choices, as it had often been framed previously. That framing just adds another level of deception. While vice taxes are loathsome tools of social control, at least their nature as taxes whose revenue declines in the long term as consumers alter habits to avoid the tax, is incorporated into the proposal—it's the whole point. Not so here, where the city promises to fund all kinds of things with the new tax, without taking into account that revenues will by design decline, and in fact denying that reality all together. The city wants to get around the problem by borrowing $300 million before the revenue is in to fund the projects it insisted the soda tax would pay for, and blames the ongoing lawsuit, set to go to trial next month and to which state representatives from both major parties have signed on with amicus briefs, for slowing down that process of borrowing money based on rosy revenue projections.[...]



OPEC Cracks?

Tue, 14 Mar 2017 15:05:00 -0400

(image) One of my go-to analysts on oil production is former Italian oilman Leonardo Maugeri, who now works at the Belfer Center at Harvard University. In my book, The End of Doom, I cited his 2012 analysis Oil: The Next Revolution published when oil prices hovered around $100 per barrel in which he correctly predicted that they would drop steeply in the middle of current decade. Why? "Oil is not in short supply. From a purely physical point of view, there are huge volumes of conventional and unconventional oils still to be developed, with no 'peak-oil' in sight," he argued. Maugeri was right: WTI oil fell below $30 per barrel in early 2016.

Last fall, the Organization of Petroleum Exporting Countries (OPEC) and Russia agreed to restrain their production (create a shortage) in order to boost prices. The Saudi Arabians had let their own production rip for the last couple of years in the hope of pushing down oil prices so low that they would bankrupt U.S. shale oil producers. Many rigs did stop drilling, but U.S. producers became much more efficient and many successfully competed with OPEC oil even at the lower prices. The recently higher prices over $50 per barrel spurred by OPEC's supposed production restraint has been a gift to U.S. oil producers who have ramped production back up to over 9 million barrels per day.

In his latest analysis, Maugeri suggests that OPEC's production numbers are fishy and notes that global oil demand is less than anticipated. As if right on cue, the price of WTI crude fell $50 per barrel on the day Maugeri released his new report. From Maugeri:

[W]e still need more data and elements in order to make a sound assessment of what will actually happen on global oil markets in 2017. But it's not too early to raise a red flag: there is something wrong in the numbers that circulate globally about oil supplies. And one thing is for sure: OPEC and non-OPEC cuts are not enough to re-absorb the world's excess supply. So, unless oil demand growth rebounds to record levels in 2017, oil prices could head for another substantial fall.

Peak oil indeed.

In any case, Maugeri does believe that era of cheap oil—sustained prices below $30 per barrel—is over, but thinks that prices will bounce between $50 and $70 until the end of this decade at least.




The Complacent Class, Sex Robots, and Deathbed Regrets: A Conversation with Tyler Cowen

Tue, 14 Mar 2017 14:00:00 -0400

Last week, I sat down with economist Tyler Cowen, of Marginal Revolution and Ethnic Dining Guide fame to talk about his brand-spanking-new book, The Complacent Class: The Self-Defeating Quest for the American Dream on his home turf at the Mercatus Center at George Mason University.

Cowen posits that "restlessness, ambition, and innovation are key American traits. But today, Americans are working harder than ever to avoid change" and notes that Americans are less inclined to pick up stakes and move, less likely to start a business, more likely to marry someone very similar to themselves, and increasingly focused on minimizing exposure to new, challenging, or different experiences. "As a result, we could see a version of America that is more segregated, more unequal, and no longer the leader of tomorrow's greatest achievements."

This chat covers a lot of territory, but if you only have a couple of minutes to listen, skip to 49:45 to hear Tyler go full economist on his hopes for his final moments.

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