2013 proves revised principle of economics that "people aren't that stupid"

Yoram Bauman's stand up routine about Greg Mankiw's 10 principles of economics is worth a laugh. (I show it to my students in principles classes.)

The past few years have reminded of me of principle three, which jokingly says that "people are stupid".

Given the support for Obamacare, Obama's reelection, the continued support for higher minimum wages, and more, there is plenty of evidence to support the third revised principle of economics.  I would prefer to think that "people are ignorant of economic consequences", but regardless, there is plenty of support for disastrous policies.

Thankfully, 2013 provided some evidence for point number four which says "people aren't that stupid".  The plunge in support for Obamacare after seeing the consequences should give us all a bit of hope.  The support for Obama himself after his lies about "keeping your doctor/plan" has also plummeted.  It's now at 40%, which is one of the lowest approval ratings for any president.

If you hit people over the head with the evidence of the bad policy choices, they'll start to realize their mistakes.  That's a good thing and provides evidence for translated principle number four:

People aren't that stupid.

Liquor privatization on way in PA? And other links

1. On the prospect for liquor privatization in PA.

2. Great quote/picture:

3. Dan Mitchell on the biggest risk factor leading to premature death

Excerpt:

Nope, the answer isn’t smoking. Or fatty food. Or 16 oz. sodas.

And it’s not alcohol, driving too fast, or standing between politicians and a TV camera.

In the past 100 years or so, the biggest cause of premature death has been government.

4. Your tax dollars at work: US government is funding pornography research.

Economic restrictions in Minnesota

Link here

Excerpt:

Winona implemented the nation's first comprehensive rental cap ordinance in 2006.The so-called 30 percent rule was imposed to rein in "excessive on-street parking, anti-social behavior and deteriorating housing conditions" among students renting houses near the university. 

"The importance of the case is the city's ability to impose appropriate licensing standards for the betterment of the community," said George Hoff, who represented the city before the appellate court. 

Since property owners with rental units were grandfathered in, the number of houses that can be legally rented varies block to block. 

I'm glad somebody is fighting this.  Rent controls like these almost always result in economic inefficiencies, and in this case its clear that big-business (the university) is just trying to capture more economic gains by these restrictions.

I'm not optimistic that the courts will resolve this on the side for freedom, but I'm happy that these individuals are fighting for it.

Would debtor's prison raise money?

Link here

There is a legal question here which I'll ignore.  I want to focus on the question of whether debtor's prison really costs a county money.  The story seems to imply that these are not only costly for the individuals, but for the governments that run these prisons. 

Excerpt:

"The problem is it's not actually much of a money-making proposition ... to throw people in jail for fines and fees when they can't afford it. If counties weren't spending the money jailing people for not paying debts, they could be spending the money in other ways."

The Brennan Center for Justice at New York University's School of Law released a "Tool Kit for Action" in 2012 that broke down the cost to municipalities to jail debtors in comparison with the amount of old debt it was collecting. It doesn't look like a bargain. For example, according to the report, Mecklenburg County, N.C., collected $33,476 in debts in 2009, but spent $40,000 jailing 246 debtors -- a loss of $6,524.

The analysis done by these advocacy groups, as you might expect, is flawed.  While the county in NC mentions how they lost $6,524 that year, there is no discussion of the fines that were paid by others who wished to avoid being jailed.  There likely are many who pay their debts faster (or more completely) when there is a threat of serving time in jail.  

I suspect that for the cost of $6,524, Mecklenburg County, which has a population of about 970 thousand, might have an extra 500 people who pay their $50-$500 fines specifically because they know they could go to jail if they don't pay.  That would mean an extra $25,000-$250,000 in revenue.  That is a pretty nice return on the $6,524 cost incurred.

Often the economic analysis in news stories isn't sound.  This is a good example.

If economists wrote Christmas cards, and other links

1. If economists wrote Christmas cards - funny!

2. Great Greg Mankiw post about measuring changes in income, and how statistics can be distorted.  

It concludes:

Take this as a cautionary tale.  When people talk about changes in income over time, make sure you know what measure of income they are citing.

3. Jayson Lusk on the hidden cost of food.

The last paragraph is really good ...

This essay arose from my failed attempts to explain externalities to noneconomists and my desire to challenge fellow economists to think more seriously about the real-world implications of policy advice derived from simple textbook models. In popular writing about food and agriculture, there seems to be a lack of appreciation for the types of externalities that reduce welfare and of the difficulty associated with crafting corrective actions that actually increase the size of the pie.

This is something I struggle with when I teach principles of microeconomics.  The nuance of when government intervention would be worthwhile. When we discuss market failures, textbooks all seem to assume that a government that attempts to fix the failure won't have failures themselves.  I.e., they will be completely efficient at fixing the problem.  Anybody with one lick of common sense knows this isn't true, yet even "right-leaning" textbooks seem not to acknowledge this issue.

Criticism of my "Learning Economics Through Pictures" series

On Saturday, a comment was posted criticizing my "learning economics through pictures" series.  (See here for my most recent post in the series.)  I had posted a link to one of the posts on the "teaching economics" page on LinkedIn and she provided a comment.  It was by Karen Reid (who I don't know).  I'll post her comment here, and my response below

Not sure what you’re going for with this chart and accompanying comments. I never hide my political leanings when I teach – the students deserve to know any potential bias I may bring to the material. In that light, I’ll reveal my position now. I am tend to be liberal, especially on social policies, but I am also an economist which brings balance to my poor bleeding heart. That said, I strive to present both sides of the issues accurately if I have to enter the political realm. Generally I try to remain in economic land. 

I looked at your other two pages on minimum wage and poverty to try to get a clearer picture. First let me say that I am not a fan of using secondary, tertiary (or beyond) data. Not familiar with tipstrategies.com or Townhall.com, but am opposed to using Wikipedia as a reliable source for anything. 

Looking at the minimum wage page, you say that you are framing an “economic” argument, assuming discrepancies in unemployment particularly during the last recession offer sufficient proof. You mention the damaging effects of the forty five cent minimum wage increase. Over a year, working 40 hours for 50 weeks that increase will cost the employer an additional $900.00 per worker. Is that an onerous burden? It doesn’t necessarily seem to be, at least to me. I don’t think it would hurt McDonald’s bottom line at all. Since employees (especially at the lower end of the wage scale) are likely to have a marginal propensity to consume near one, that extra money will be spent, thereby increasing GDP. If we’re looking at strictly economic effects that should be considered. Finally, on the minimum wage, I fear that the important discussion is not only economic, it is a question of values, of how people survive, of what kind of country we want to live in, of equity. There are many valid points on both sides of the issue which bear discussion. I realize that these pages you present are only a part of the discussion and that during class you have the opportunity to present a more complete picture. 

Briefly, in your War on poverty presentation, 15% poverty is a large enough number to warrant LBJ’s attention and I think it was commendable of him to take action. The problem is, as it so often is with politicians, that they neglected to consider incentives. In this case, these policies did often create a disincentive to work. The interesting question is how much abuse of the system actually occurs. Many people justifiably deserve some help, and we all know that the majority of those living in poverty are children. Should we penalize them for the assumed sins of their parents? Or create other programs that are child specific, bypassing the parents completely. Again, this issue transcends economics and goes to the question of what kind of country we want to live in. 

Finally, what bothers me about the federal government spending page –besides the fact that the chart is from Wikipedia – is that your points have a more normative than positive flavor. Simply presenting the numbers should be enough to provoke thought and discussion among your students. Commenting with one opinion on balancing the budget, the efficacy of other federal programs, and the horrors of the debt belong somewhere else, not on a page that is trying to present information. Unless, of course, your true intent is to make points of another kind.

Here was my response on the LinkedIn page 

1. I use secondary charts/data often on my blog. I only allocate a small amount of time for blogging, as I don't want it to interfere with my teaching, research, and personal time. I’m familiar enough with all this data where I'm comfortable with it’s accuracy. If you think any is inaccurate, please let me know. But as long as its accurate, using secondary charts/pictures in a blog seems perfectly appropriate to me. 

2. On the general idea of normative vs. positive economics. In introductory classes, I agree that we should teach positive analysis. That’s what I teach, and my normative views are not taught in the class. However, for my blog (which isn't required), I use positive analysis to help make normative recommendations. I see that the unemployment rate among teenagers is 25% and know that the literature generally shows that minimum wage increases cause unemployment (positive analysis) and therefore think that is a reason we should (normative analysis) lower the minimum wage. 

3. More on the minimum wage. I don't know that a picture will ever provide sufficient proof of an (economic) consequence.  But a picture is simple, easy to understand, but can make some good points. That's why I like this series. If you want "sufficient proof" of minimum wage increases harming society, see the book that reviews all the literature by Newmark and Wascher. Regarding a minimum wage increase boosting the economy, I disagree. While some would keep their jobs and make more, others would lose their jobs and earn nothing. 

4. On the values of a minimum wage. I think a set of rules that allows people to be able to work to gain marketable skills is good and reflects good values. Related to this, a minimum wage decrease would be the "right" thing to do, strictly from a human rights perspective. Being able to obtain a job (or keep it) is crucial. With our current minimum wage and the high teenage unemployment rate that comes with it, many who are now unemployed will be worse off throughout their whole lives based on not being able to obtain an entry-level job now. That is a travesty. 

5. More later on the War on Poverty …

Wonderful speech by Vince Flynn

Link here

Vince Flynn was my favorite author.  This speech by him is funny and very informative about foreign policy issues.

Another bad idea by Elizabeth Warren

She's been so wrong about so many things in the past.  Now ...

Link here: Proposal to prevent credit checks.

Excerpt:

Sen. Elizabeth Warren (D-Mass.) on Tuesday proposed legislation to prevent companies from using a person's credit history ...

Why would we want to ban a company from using all relevant information about a person prior to hiring them?  If a credit history is a good indicator of success on a job, this is valuable, and those who are responsible will be rewarded (correctly), and those who aren't will have a tougher time getting jobs (correctly).

If a credit history isn't a good indicator of success on a job, then companies who waste they're time on this will lose profits to other companies.

There are always adverse consequences when you try to interfere with the free market.  Senator Warren hasn't figured that out yet.  Unfortunately, since she isn't a job creator and appears to have no meaningful interaction with businesses, she probably never will.

Replacing minimum wage workers

My brother sent me this one.  (Source: weknowmemes.com)

I find this a bit humorous, but also sad.  I spent two years working in fast food restaurants for minimum wage.  I know that I wouldn't have been hired at the higher wages (even adjusting for inflation) that are being requested.

Groups differ on economic impact of fracking ...

Link to story here

I'm quoted at the end. (Reasonably well ... I was interviewed at home and I was managing my children at the time.  It wasn't my best interview, so I'm happy the quote turned out OK.)

An excerpt:

Energy In Depth Ohio, the public-relations arm for the state’s oil and gas industry, touted the findings on its website. Shawn Bennett, the group’s field director, posted a blog entry under the heading “New Report Shows Major Growth in Ohio Shale Jobs” and praised the “tremendous 30 percent” bump in core employment.

But not everybody saw those numbers as such a success.

“Thirty percent of a few thousand jobs is not that many,” said Amanda Woodrum, a researcher for Policy Matters Ohio.

How Nelson Mandela embraced markets and other assorted links

1.  Over 50 times more people sign up for online gambling in NJ than Obamacare.

2.  Critique of "warmists", from NY times oped

Excerpt:

People have a right to religious and cult beliefs within reason. But the warmists have been proved wrong time and again, each time reacting with little more than pictures of forlorn polar bears on ice floes and trying to shut down the opposition. (More bad timing: Arctic ice increased by almost a third this past year, while that at the South Pole was thicker and wider than it’s been in 35 years.)

3. How Mandela switched views to embrace markets.

Excerpt:

The story of Mr. Mandela’s evolving economic view is eye-opening: It happened in January 1992 during a trip to Davos, Switzerland, for the annual meeting of the World Economic Forum. Mr. Mandela was persuaded to support an economic framework for South Africa based on capitalism and globalization after a series of conversations with other world leaders.

Learning economics through pictures: Who pays taxes in the US?

This is the fourth post in a series about learning economics through pictures.

Links to ...

Post 1: The Minimum Wage

Post 2: The War on Poverty

Post 3: Federal Government Spending

Here are two pictures showing who is paying taxes in the United States:

Source: Greg Mankiw's principles of economics textbook.  And a bonus picture

(Source: Taxfoundation.org)

These two related pictures provide several insights:

1. First, incomes are unequal.  The occupiers rallied about it, and while my view of the occupiers is generally quite negative, they were right about the fact that incomes in the US are very unequal.  (In my opinion they're wrong about what to do about inequality, their view that showers are overrated, and more, but on this point they're right.)

2. Another claim by the left, however, that the rich do not pay their fair share in taxes, is incorrect.  Those who make high incomes contribute far, far more than those without high incomes.  The top 1% paid over 28% of the federal income taxes collected in this country.  28%!  That is stunning contribution from such a small percentage of our country's citizens.

3. Those earning these high incomes are contributing far more than they receive back in government spending.

4.  When I see the bottom graph, I fear what may happen.  It shows that middle income individuals are receiving more in benefits than they are paying in taxes.  I'm not certain this is entirely true, but you will run into a problem when the median voter is getting more back from the government than he or she is contributing.  I think they're probably including social security/medicare in here, which isn't an ideal comparison, since many people pay into that system prior to receiving those benefits (so I don't view it as unpaid benefits).

Regardless of how benefits received are computed, the percentage of people in this country that are receiving more in government benefits than what they're paying in taxes has been growing.  When people have no sense of responsibility to pay for their own food, healthcare, housing, phones, etc., we'll see more votes for politicians who promise benefits without regard to the costs.

The politicians get power and a nice salary.  The voters get to legally rob their neighbor.

Great oped about legalizing online poker

From The Federalist - Link here.

Excerpt:

The federal government recently told the individual states it would not interfere with state-specific laws authorizing and regulating online poker. However, only a few states have begun to seriously consider this option. Those that do will have differing regulations and standards, meaning gaming companies will have to navigate a patchwork of often contradictory legal requirements. Moreover, each state that authorizes online poker must ensure that nobody can access that state’s poker sites from outside the state. For all intents and purposes, online poker remains dead thanks to the U.S. Justice Department, even though few seriously argue that it is illegal.

Radio interview about minimum wages, the Pope, and more

Link is here.

We talked about freedom, gambling, minimum wages, and how the Pope is clueless.  Fun times.

Journal retracts study about genetically modified foods

From LA Times

Excerpt:

In a statement released from its Cambridge, Mass., offices on Thursday, publisher Elsevier said that upon closer review of the paper, editors determined that the experimental sample was too small to allow for clear conclusions.

Also, the type of rat involved in the experiment is known for high incidence of tumors, it said. ... "However, there is legitimate cause for concern regarding both the number of animals in each study group and the particular strain selected."

... It was quickly embraced by opponents of genetically altered foods and stoked debate over California's failed Proposition 37, which sought to require labeling for genetically modified foods.

Kudos to the journal for retracting, but this was a huge mistake as it allowed a number of people to be misled.  This mistake by Elsevier made the world a worse place.  

Why the Pope is wrong and other Assorted Links

1.  Jayson Lusk talks about the questions he heard on a chat with a radio station.  

It's a bit depressing.

2.  Seattle-Tacoma airport passes a bill attempting to help the poor that will hurt the poor.  

Minimum wage to $15/hour.  Does anybody really think these firms are going to hire people who can't otherwise get a job for $10/hour?  Unfortunately, it appears that a majority of voters in that area are that unintelligent.

3. More people are renouncing their US citizenship.

4. The Duke accuser got convicted of murder.  Nobody reports it.

Every faculty member at Duke who spoke against the Lacrosse players should be fired.  If I was provost, dean, etc., I would do it, and I wouldn't care if they had tenure.

5.  Why the Pope is wrong about capitalism.

Excerpt:

Actually, he might. Because, as compelling and as charismatic as he is, if we, in The City of Man, took the Pope’s advice on economic issues, we’d end up with millions more living in poverty.

Quite frankly, this Pope is an idiot.  He's also dangerous, for reasons the quote above indicates.  Nothing has done more to bring people out of poverty than the free market.

NPS director retracts anti-fracking statement and other fracking links

1. NPS director retracts anti-fracking statement.  Link here

Excerpt:

Jarvis, in his mid-November letter to Rep. Rob Bishop (R-Utah), said nobody in management reviewed the staff comments and that their handling was “contrary” to NPS protocol.

The NPS sent the comments in August to the Bureau of Land Management (BLM), which is drafting rules to govern hydraulic fracturing — or “fracking” — on federal and Indian lands.

The comments enraged the gas industry by citing an op-ed.

2. Fracking could be coming to Spain

When more countries open up to fracking, it becomes more likely that the price of natural gas will stay low.

3.  New Yorkers split on fracking

I find this stunning.  With all the scare-tactics used and money expended by those who oppose fracking in New York, I am stunned that only half the population opposes it.

My newest oped - Casinos do not create cultural wastelands

Appears in The Federalist

Excerpt:

Opponents of casinos and gambling will often claim that casinos cause terrible problems.  In a way, the opposition to gambling makes for strange political alliances.  For example, the right-wing organization Focus on the Family claims gambling “is morally bankrupt from its very foundation.”  They also quote the Bible in their opposition.  Many on the left also oppose gambling, but for different reasons.  For example, some on the left who oppose gambling claim that gambling is like a tax on the poor and uninformed.  Others claim that people who gamble are exploited by casinos, which are large corporations.  The opponents of gambling think if a new casino moves into an area, it only hurts society.  They’re wrong.