Here is Earl offering advice to Obama and sounding like Scott Sumner.  He attributed excessively tight monetary policy to banker (i.e., creditor) control of the Fed.  Read this too; he disliked the Bernanke reappointment.

Here is my review of Earl's book; read the first six lines.

Here is his home page, with many more links to articles.  Here is a UCLA obituary:

Earl Thompson was an eccentric in an age of conformity. He kept odd hours: he was alone in his office in Bunche Hall at 4:31 AM on January 17, 1994 when the Northridge earthquake hit, where he found himself unharmed but covered with fallen books. He loved muscle cars, dressed as if the 1950s were just yesterday, and always had a sneaky grin on his face. He will be missed by his colleagues, his students, his friends and his family.

Earl Thompson was an American original.

I strongly suspect these patterns are driven mostly by customers, i.e., that more accurate professionals would be less successful in inspiring confidence by others in them. If you are a successful professional, that is probably in part because of your unjustified arrogance.

Here is part of my take on Hayek's Individualism and Economic Order:

And is it a readable book?

In many ways not, which is why I picked it. I think there is a lot to be said in any area for having at least one book which isn’t very readable. And there Hayek is my pick. But it’s brilliant, it won a Nobel Prize, and it’s one of the most important books of the century. Is it clear and fun? No.

I believe my list selected too many accessible books, as I was tired when I did the interview.  Still, Pessoa, Hesse, and David Weinberger don't make it on to most of the other comparable surveys.

The Miami Heat easily sold out its season tickets after LeBron James announced he was joining the team. That turned out to be bad news for the ticket-sales staff, which the Heat fired Friday.

``Now that the supply for [season tickets] has been exhausted we no longer require a season ticket sales team,'' the Heat said in a brief statement Friday afternoon.

A team spokeswoman, Lorrie-Ann Diaz, declined to comment or answer questions about the firings, which one staffer said cost roughly 30 people their jobs.

The full story is here and for the pointer I thank Michael R.

The fact that generous people are unpopular is consistent with the well-documented aversion to exceptional individuals: dislike of those who seem extremely competent; displeasure with those who offer help; and, more recently, the rejection of those who adhere strongly to a moral position. …

Within a group task setting, social comparison tends to induce feelings of inter-personal competition. People feel driven to outdo the group member who is setting the standard. In a setting such as ours, the standard being set by the benevolent other is to give up a considerable amount of personal resources and receive only a small payoff in return. To compete with such a person means that one would need to give even more and take even less, not a very desirable prospect. Removal of this person would eliminate that competitive standard. Further, it is known that in social dilemma situations, people ignore the objective nature of their outcomes in favor of a subjective, relative evaluation of them. (more; HT Tyler)

Need any clearer evidence that status has a big relative (or positional) component? Similar behavior happens in the real world. Forager band hunters often exchange arrows, to hide who actually killed the animal everyone is eating; claiming credit for a kill is bad form and punished. The book Managerial Dilemnas describes Hawthorne Works electrical factory workers in the 1930s:

The [official] incentive system was almost completely negated by social norms dictating roughly equal reported output. The two pieces of equipment per day averaged out to 825 connections an hour by each of the wiremen. Those who worked above this norm suffered some degree of social ostracism. They were given nicknames such as “Speed King” and verbally chastised. They were also likely to be the butt of a game known as “binging,” in which one person hit another as hard as possible on the upper arm, to which the other nominally had the right to respond by hitting back. If a large number of people chose to play the binging game with the same norm violator, this amounted to a significant negative sanction. …

The four people who met or exceeded this norm were Krupa, Capek, Mueller, and Taylor. … Krupa, Capek, and Mueller were also the three most unpopular men in the room. Taylor was highly popular, but managed his productivity without violating the norms, .. [as he] consistently reported making fewer connections than he actually did! Because he underreported his outpout, his productivity could not be regarded as a greedy attenpt to get a larger share of the fixed revenue generated by the two pices of equipment produced per day; instead, his efforts could only be interpreted as a pure contribution to the public good. …

There were other people in the room who produced less than the norm. They were tolerated with greater equanimity because their nonproductivity was not at such a level that it threatened the prescribed two unit per day goal, … [or as] “greediness.” Instead, they … had slightly less status, but were otherwise members in good standing. …

Members of the group were not allowed to “put on airs” by appearing to be better educated or better dressed than other members. Such a distinction might presume to indicate that the peson was sufficiently exalted as to justify an unequal contribution to the cooperative work effort. Indeed, any attempts by group members to seek such a socially distinct status were regarded by other members as almost as dangerous as free riding itself – and were santioned in the same spirit of tit-for-tat. (pp. 189-190)

Many suggest that even without a global agreement, the US should unilaterally tax carbon, as a contribution to the global public good, in order to shame other nations into following our example. But might not this instead make such nations hate and retaliate against the US all the more?

The mosquito's immune system instinctively attacks the parasite, encapsulating the intruder in scabs and bombarding it with toxic chemicals.  To survive, the parasite must unleash armies of progeny in such massive numbers that fighting it off becomes more trouble than it's worth.  Male and female forms of the parasite, called gametocytes, then fuse, and the resulting parasites create cysts that cling to the walls of the bug's gut.  (The spasmodic waving of the male gametocyte's long tail, which precedes the act of fusing with the female -- yes, this microbe reproduces sexually as well as asexually -- is called exflagellation.)  Tens of thousands of slithering threads explode from the cysts and swarm up to the mosquito's salivary gland.  This is the form of parasite must take to infect human beings.  Malariologists call it the sporozoite.  When a mosquito starts a blood feed, some two dozen slivery sporozoites will escape into their next host.

It's an excellent book.  There is a short review and excerpt here.

Ravi Jagannathan, Andrei Jirnyi, and Ann Sherman have a new and comprehensive study (NBER) of this long-standing question.  Here is the abstract:

At least 25 countries have used IPO auctions, but most have since abandoned them. We argue that this is because auctions, being indirect mechanisms, require a level of sophistication above that of many investors. Through suitably calibrated examples, we show that even sophisticated investors can make mistakes while bidding in auctions, especially when facing uncertainty about the number and type of bidders, and such mistakes impose costs on other participants. We provide empirical support for our arguments. IPO auctions have been plagued by unexpectedly large fluctuations in the number of participants, return chasing investors, and high-bidding free riders. Our analysis suggests that a direct mechanism that resembles a transparent version of book building would be preferable to auctions.

Here is one summary of the piece.  Here is a different, 2007 paper on the question.  Here is another related paper, and here (by Jagannathan and Sherman, much older draft, minus Jirnyi).  Here is a one-year-old ungated version of the main paper, I am not sure how much it differs.  Do any of you know of an ungated version of the current draft?

Here is an earlier Alex post on the Google IPO, which was held as an auction.

John Taylor on the Blinder-Zandi attempt to analyze the impact of government intervention.

Taylor vs. Zandi on the PBS NewsHour.

Arnold Kling critiques here and here.

My take is summed up the by the quotations marks I’ve put around “measuring.” Blinder and Zandi don’t really measure the impact of government intervention. They measure what the model says is the impact. The model is based on past relationships that were unable to predict where we are now. This quote from the CBO explaining why their estimates of the impact of the stimulus on employment did not actually look at the actual data of the economy after the stimulus passed sums it up best for me:

CBO has also examined incoming data on output and employment during the period since ARRA’s enactment. However, those data are not as helpful in determining ARRA’s economic effects as might be supposed, because isolating the effects would require knowing what path the economy would have taken in the absence of the law. Because that path cannot be observed, the new data add only limited information about ARRA’s impact.

In other words–we don’t have a reliable model of the economy in its current state. The CBO concludes that we should instead look at previously estimated relationships in the economy (holding everything else constant) and that’s the best we can do. I conclude we’re incapable of holding everything else constant and therefore the CBO’s results are fake science.

The current downturn is a mix of AD and real shocks, in uncertain proportions, and in a manner which is hard to separate empirically.  It is now obvious there is a lot of structural unemployment and there is a quick and probably unjustified rush to define it all as AD-influenced unemployment turned sour.  The structural theories have their problems, but they can better explain why corporate profits are high and can better explain the distribution of unemployment across income and educational classes.  The regional distribution of unemployment is persisting because of labor immobility, which involves both AD and structural issues.  The sectoral shift view is more about shifting out of optimism-linked activities, within any particular sector, rather than about shifting out of construction and finance per se.

The mix of structural and AD factors does not, in any case, support liquidationist policies.  It supports AD-stabilizing policies, though it suggests that in absolute terms those policies will do less well than expected.  The failure of the fiscal stimulus is consistent with a number of different views, not just the claim that it should have been bigger.  We've yet to see a good theory of how stimulus scales up to produce a bigger and better multiplier at higher levels.

I don't trust stimulus analyses which fail to assign a central role to confidence and confidence is hard to model.

Current experience is also consistent with (but not unambiguously favoring) an Austrian-like view that the stimulus boosts some activity and then shortly thereafter pulls away the rug, leaving us more or less back where we started, albeit with some smoothing gains in the short run and some adjustment costs in the longer run.  The persistence and scale-up from the initial fiscal boost is hardly guaranteed.  The empirical papers on multipliers are not to be trusted and the results are in any case hard to generalize from one period to another.

Harald Uhlig's paper is one statement of the case against stimulus.  There is nothing measured by the Alan Blinder study which rules out the central result of this paper, namely transitory gains in the short run and high costs in the longer run.

Macroeconomics is rarely simple.  

Elizabeth Warren is unlikely to prove an effective agency head, and the two sides to this debate ought to switch positions.  Yet...politics very often isn't about policy.

On the AD front, Scott Sumner has been vindicated more than any other writer.  His best critic is Arnold Kling, especially with regard to whether there are only two kinds of inflation regimes, low or high and variable.  A related question is what a looser monetary policy would have done to financing the long-run debt burden and the use of the interest rate spread to recapitalize banks.  

We still don't know what we are doing.

2. This story makes no sense to me (Japan)

3. How the Apollo astronauts self-insured.

4. For worrywarts.

5. How Mexico can win its drug war.

Robin has it completely backward: When the wife of a 30 year old man (who is well past the prime age of violence) has an extramarital affair with an 18 year old, she is alleviating the problem, not contributing to it. Besides, most extramarital affairs do not deprive the husband of a long term sex partner.

Well there are several factors here to disentangle. If the problem was just that some men never got any sex, well then yes women having more partners couldn’t hurt. And if the problem was instead inequality in male sex, and if women had affairs with random men, then that couldn’t hurt either. But if the problem is sexual inequality and if women are hypergamous, preferring the very best men, then we should expect it to be the same few, most likely married, men who repeatedly benefit from affairs. An affair-occupied wife tends give less sex to her husband, which increases male sex inequality.

Now if you assume that women who want affairs, lesbian relations, or husband sharing would, if denied their favorite option, simply refuse to have sex with anyone, then allowing these things can’t reduce any guy’s sex. But allowing such things can make a difference when women would substitute other options.

So yes, banning polygamy could be part of a larger coherent strategy to reduce male sexual inequality, to resist natural female hypergamy. But banning polygamy and also polyandry and prostitution, while allowing lesbian relations and preventing natural punishment of wife affairs, well that looks nothing like a coherent strategy to reduce male sexual inequality. We should look elsewhere to explain our pattern of what we ban and what we allow.

Andrew Wylie has decided to become a publisher...I am appalled, however, that Andrew has chosen to give his list exclusively to a single retailer.

That is from the president of Macmillan, Wylie is a famous agent, the topic is eBooks, and the retailer of course is Amazon.  The authors in this newly consummated deal include John Updike and Philip Roth.

Giving Amazon exclusive rights boosts their incentive to market the book.  For books there is significant "spillover" demand through consumer word-of-mouth, but in this case all the recommendations will lead to purchases at Amazon and none to Barnes and Noble.  On the downside, you lose sales to people who don't buy through Amazon, but for eBooks how many people can that be these days?  You also lose spillover sales from the marketing of other, now-excluded retailers, such as Sony eBooks.  Maybe that's small potatoes.

If the president of Macmillan is upset, he fears the Amazon marketing will drain demand from his titles.  (Bookstores are upset too.)  If I were Wylie, his letter would have me cackling with glee. 

For a while.  Does Wylie know he is the next middleman to be cut out of the deal?  His agent-like services are more valuable to the extent there are competing bidders for the book rights.  The only question is whether the authors (or their estates) will squeeze him or Amazon will squeeze him, or both.

(You might think that Wylie would gain by extending the market power of the authors to market power at the retail level.  The economic theory of "double marginalization" shows this won't work and that the market power of Amazon cannot benefit the upstream rights holder, who does best by seeking out competitive retail and charging a higher transfer price for the IP rights.)

Antitrust aside, does competition constrain Amazon from acquiring ever more eBook titles in this fashion?  It works for Amazon only if their (potentially) stronger marketing increases net sales and thus increases output.  It's easy enough for that marketing to work for any single set of titles, especially when accompanied by all this publicity.  It's much harder for that marketing push to work for books as a whole and therefore there is a natural check on how much of the market Amazon will lock up in this fashion.

Got eBook, anyone?

I thank S. for the pointer.

Inevitably, the neocons are epistemological relativists (though of an anti-egalitarian nature), which is the source, as we shall see momentarily, of their moral relativism.  Because the political good in their world is mutable and always changing, the neoconservatives do not want fixed principles to which they are hbeholden, nor do they strive to be morally or politically consistent.  Their power and authority is generated and sustained by the illusion that the world is in a state of constant change and that it is governed by what Machiavelli called fortuna.  The truth or falsity of an idea is, according to the neocons, determined by its usefulness in a particular situation and for particular people.  What is true today, they argue, may not be true tomorrow if an idea or an action fails to work in new and different situations.  In such a world, there can be no certainty, no absolutes, no fixed moral principles.

The author writes -- correctly -- "hoi polloi," instead of the redundant "the hoi polloi."

Thompson argues that Leo Strauss showed sympathies for the Italian fascism of Mussolini, at least relative to liberalism and religion.

At times the book sounds like Bryan Caplan criticizing me, though I take such ripostes to say more about Bryan than about me.

When I was young, I very much enjoyed reading John Robbins's Calvinist answer to Ayn Rand (revised here), even though I did not agree with much of it.  I often learn more when ideas clash in relatively stark forms.

In my view, principles and politics don't always mix but the problem is neither epistemological nor moral.  Ill-informed voters, especially in diverse societies, can only swallow so much in the form of principle.  If one is committed to intellectual discourse, but within the range of the politically feasible, a lot of intellectual principle is difficult to sustain.  I do believe in principles, but I don't see that any point of view has overcome this quite general problem.  In that sense I do not blame neoconservatism per se.  But am I a neoconservative?  No, and Brad's book gives some of the reasons why not.

As always, I thank you in advance for your assistance.

This is now my best account of disagreement. We disagree because we explain our own conclusions via detailed context (e.g., arguments, analysis, and evidence), and others’ conclusions via coarse stable traits (e.g., demographics, interests, biases). While we know abstractly that we also have stable relevant traits, and they have detailed context, we simply assume we have taken that into account, when we have in fact done no such thing.

New data suggests a different view:

The results of 4 studies suggest that when individuals mentally construe an attitude object concretely, either because it is psychologically close or because they have been led to adopt a concrete mindset, their evaluations flexibly incorporate the views of an incidental stranger. However, when individuals think about the same issue more abstractly, their evaluations are less susceptible to incidental social influence and instead reflect their previously reported ideological values. …

The results of these four studies appear quite robust: They held for a variety of political and social attitude objects (including general issues and specific policies related to four different and important topics: organ donation, euthanasia, illegal immigration, and universal health care), and they emerged across different types of evaluative responding (overall attitudes, voting intentions, and elaboration positivity) as well as different manipulations (temporal distance and two direct manipulations of construal level). …

Whereas local evaluations serve to guide responding in the here and now by flexibly incorporating incidental contextual details, global evaluations can help to guide action at a distance by consistently reflecting a person’s core values and ideals, which are likely to be shared within important relationships or groups. (more)

Here’s my tentative reading of this. We pay more attention to messy detail in near far, relative to far view. On any given topic, we see our core values and explicit reasons as big important central influences on our opinions, whereas we see the opinions of others more as incidental detail. So we think we should listen to random other people more on small detail topics, and less on big important topics.

Random others are little people, you see, which are fit for little topics. But they are just not big and important enough to influence us on big important topics; only big important things should do that. Like big explicit reasons. This makes us tend to disagree greatly with most others on what we see as big topics, though much less on millions of small detail topics, like “there’s another tree.”

Perhaps it makes sense to keep random others from influencing our core values (which are about us), but on questions of fact (which are about the world out there), most folks seem to make the huge mistake of vastly underestimating the info contained of others’ opinions, relative to the info contained in their own explicit reasons. Yes there may be people and times when others’ opinions really do contain relatively little info, but most folks are far too quick to assume that this applies to them now.

Via Tom Smith.

Saudi Arabia responded to the crisis with the largest fiscal stimulus relative to GDP in the G-20, which the IMF deemed appropriate. The IMF website forecasts real GDP growth to be 4 percent for Saudi Arabia in 2010.

By the way:

The International Budget Partnership (IBP), an organization dedicated to evaluating fiscal transparency in countries throughout the world, gave Saudi Arabia a score of 1 percent in its 2008 Open Budget Index (OBI). This score leaves Saudi Arabia ranked 79 out of 85 countries surveyed.

There is basically no accounting or public recording of how the money is spent. 

I don't consider this a valid test case for ramp-up stimulus in general, in part for lack of transparency and also because the Saudi economy is so closely tied to the price of oil.  Nonetheless it will be interesting to see how this develops.

2. Is there a desire to expel extreme altruists from the group?

3. Medical care in Haiti: model for the USA?

4. Die young, live fast? (speculative)

5. The oversupply of larger homes, and zero marginal value homes?

6. The Amish population boom.

7. Which regions of the country buy which colors in clothes? (hints: the Midwest likes black and the Upper West Side of Manhattan dresses conservatively)

Nonetheless the book does not answer my two longstanding objections to how this literature is sometimes interpreted:

1. To what extent is "economic freedom" actually proxying for "quality of government?" (the link is the best blog post of this year so far, by the way)

2. Why say so much about growth rates and so little about income levels?  The latter are positively correlated with size of government.  You don't have to view big government as causing high per capita income, but at the very least the account of differential growth rates should be consistent with the account of differential levels of per capita income.

Why does AEI price the paperback at $20?  Aren't think tanks supposed to subsidize the books they produce?  Amazon, by the way, was claiming (incorrectly) that there is a hardcover at $30.

Here’s a letter to the Washington Post:

E.J. Dionne argues that rich Americans are “undertaxed” (“In American politics, stupidity is the name of the game,” July 29). He quotes the Congressional Budget Office to explain why: “the gaps in after-tax income between the richest 1 percent of Americans and the middle and poorest fifths of the country more than tripled between 1979 and 2007.”

Mr. Dionne’s view of “undertaxed” is odd. The IRS reports that in 2007 (the latest year for which data are available) the top 1 percent of taxpayers in the U.S. paid 40.4 percent of the total income taxes collected by Uncle Sam. This percentage is well above the 24.8 percent of the income-tax burden borne by this group in 1987, the year after the 1986 tax reform. Moreover, the top 1 percent of taxpayers now pay more federal income taxes than do the bottom 95 percent combined!*

If taxes are the price we pay for government services – rather than booty to be extracted simply because someone is unusually wealthy – then Mr. Dionne’s conclusion that rich Americans are undertaxed overtaxes credulity.

Sincerely,
Donald J. Boudreaux

* See the Tax Foundation’s Scott Hodge. (New IRS data should be released any day now.)

Gypsies believe the lower half of the human body is invisibly polluted, that supernatural defilement is physically contagious, and that non-Gypsies are spiritually toxic. I argue that Gypsies use these beliefs, which on the surface regulate their invisible world, to regulate their visible one. They use superstition to create and enforce law and order. Gypsies do this in three ways. First, they make worldly crimes supernatural ones, leveraging fear of the latter to prevent the former. Second, they marshal the belief that spiritual pollution is contagious to incentivize collective punishment of antisocial behavior. Third, they recruit the belief that non-Gypsies are supernatural cesspools to augment such punishment. Gypsies use superstition to substitute for traditional institutions of law and order. Their bizarre belief system is an efficient institutional response to the constraints they face on their choice of mechanisms of social control.

Steve Levitt blogged the paper here.  Relative to Peter, I am much more likely to find social institutions inefficient.  I think individual decisions are often inefficient for behavioral reasons and furthermore individual norms often produce bad or dysfunctional outcomes when multiplied at the social level.  Historically, most of human history has been lived under conditions of extreme poverty and misery, a warning sign of potential inefficiency.

I don't have any personal opinion about gypsies (about whom I know little), but just from reading Peter's paper (or abstract) I thought he should have called it "Why gypsies are inefficient."  I received the impression that a more efficient set of gypsy norms would do more to encourage integration and education, especially when gypsies live in wealthier, freer countries.  I don't doubt that some of the norms are partially functional, relative to the poverty, but some of the norms also seem to support the poverty.

I was unable to find data on gypsy per capita income or rates of assimilation, but I was searching only in English.  Do any of you know?

The U.S. housing vacancy rate--an unemployment rate for homes--is at its highest level since at least 1965 (see figure).  Why?  Is it sticky prices? Lack of aggregate demand? Structural?

House prices may be sticky but they have fallen a lot--maybe not enough--but they have fallen a lot more than have wages.  On the other hand, house prices rose a lot more than wages. Maybe house prices are sticky relative to the required variation in market clearing levels.

What about lack of aggregate demand?  The homeownership rate was 67.2 in 2000 and today it's 66.9.  Thus, we don't have too great a supply of houses in the aggregate so aggregate demand is likely a factor.

Is the problem structural?  It does seem that we have too many houses in the South and the West where the boom was concentrated.  If we think of the unemployment rate as a measure of where there are too many houses then the following figure shows that there is a positive correlation between the home vacancy rate and the unemployment rate.  It's not as tight as one might expect, however.  California, for example, has a high unemployment rate but a home vacancy rate slightly below the national average and many states such as Wisconsin have plenty of unemployment but a very low home vacancy rate.

My guesstimate is 50% AD, 25% sticky prices, 25% structural.  Tyler would read it differently. I do think more progress could be made if greater attention were given to theories of unemployed resources and not just unemployed labor.

Does polygamy between consenting adults harm anyone else? The question has been raised in Canada, where polygamy has been illegal since the nineteenth century, but the supreme court in British Columbia is going to have to decide whether this law is unconstitutional. Doesn’t it infringe the right of adults to arrange their lives by mutual consent? The original law was directed against Mormons, and the present test is also directed against a polygamous fundamentalist Mormon commune. …

There has been one brief filed against decriminalising polygamy … from … anthropologist Joe Henrich. … [He says] monogamy gives huge advantages to societies which practice it. It arose, like philosophy, among the Greeks, passed through the Romans, and then the Christian church took it over as an ideal and managed over the course of around a thousand years to establish it as the norm in Europe, even for the aristocracy. ….

Men who fail to get wives will be driven by competition that it increasingly dangerous to society and to themselves. … Unmarried men are more violent and more generally criminal. … The worst affected are the poor and uneducated. … Because the competition for women is so fierce, making them valuable objects rather than loveable people, men … must control them more carefully. The same dynamic places pressure on the recruitment of younger and younger brides into the marriage market. … Finally, the men will reduce their investment in any particular wives and children. … because they will increasingly spend their efforts on getting more wives rather than looking after the ones they have.

Henrich argues that these factors help to explain the measurable economic failures of highly polygynous countries, including low saving rates, high fertility, and low GDP per capita. … Monogamous marriage has unobvious advantages. In fact he considers that it was the seedbed of European ideas of democracy and, later, human rights and women’s equality. (more)

I very much doubt the Greeks invented monogamy, and the rest of this seems also exaggerated. But such arguments seem worth considering, as a US legal suit to allow polygamy would probably face similar complaints.

Note that such arguments, that polygamy creates more unmarried men, who are unhappy and violent, and makes men compete more fiercely for women’s admiration, also support other laws. For example, they support laws prohibiting lesbian female relations, or more generally prohibiting women from remaining unmarried to any man. After all, unmarried women just as directly cause unmarried men, relative to polygamously married women. Yet there is little political support for such prohibitions.

[Added 7a: These anti-polygamy arguments also make good pro-polyandry arguments, since men who share a wife are also no longer unmarried men. Added Thurs: They also argue for prostitution.]

These anti-polygamy arguments also support more vigorous punishment of extra-marital affairs. After all, men whose wives cheat on them also get unhappy and violent, and the prospect of inducing wives to cheat makes men compete more fiercely for their admiration. Yet not only does our formal law have only weak punishments for such cheating, it actually goes out of its way to prohibit what would be the naturally strong punishment of blackmail. And our informal social norms regarding cheating spouses usually advise others to “stay out of it.”

It seems to me pretty obvious that we prohibit polygamy mainly because the folks who want to do it (rural religious communes) have low status in our society. Also, since high status folks cheat and don’t want that discouraged via blackmail, we prohibit blackmail. Yes there is an element of inertia, but gays have overcome such inertia in ways that polygamists can’t. Gays are common in high status communities and professions; for our elites, many of their best friends really are gay. Not at all true for polygamists.

More interesting data from WrongBot reviewing the book Sex At Dawn:

The book’s first section focuses on the current generally accepted explanation for human sexual evolution, which the authors call “the standard narrative.” … Men are attracted to fertile-appearing women and try to prevent them from having sex with other men so as to confirm the paternity of their offspring; women are attracted to men who seem like they will be good providers for their children and try to prevent them from forming intimate bonds with other women so as to maintain access to their resources. …

[Against that, the authors] offer a wealth of examples in support of their thesis — that in the human evolutionary environment, communal sexual behavior was the dominant paradigm. …

We … take it for granted that any given individual can have only a single father, [but] this was not established scientifically until the 19th century. … [But] dozens of South American tribes (both foragers and farmers) … believe in partible paternity. …. Chimp and gorilla mothers never allow other females in their tribe to hold their young children … Yet, in 87% of human forager societies, mothers are willing to allow other women to breastfeed their children. … Well-respected anthropologists … are in the habit of declaring that marriage is found every human society. … [But] anthropologists are willing to consider all kinds of arrangements to be “marriage”, though, creating confusion that is easily amplified by imprecisions of translation.

Tonight at 7:30 p.m. a meeting will be held in Hopewell Borough, N.J. to discuss the possibility of dissolving the town’s municipal charter and incorporating as a non-profit entity.

What gave Mayor Paul Anzano this idea? He cites the cost of state-wide mandates on the small municipality’s budget. State-mandated full-time animal control and health awareness programming alone cost the borough of 2000 residents $40,000 a year. Residents don’t want to merge with neighboring Hopewell Township, which the Mayor argues will not only lead to the town’s loss of community identity, but will also raise taxes on residents.

In the non-profit entity model residents would be charged for basic services. Students would still attend public schools and residents would be taxed, as they are currently, for the schools.

The big issues discussed tonight will include how to organize elections, the treatment of revenue, aid and tax benefits, the future of municipal employees, and the potential need to close the municipal court.

It’s a fascinating development that points to one of the most misunderstood features of New Jersey’s political and fiscal history. New Jersey’s 566 municipal governments, and 600 + school districts are a perennial target of policymakers in search of solutions for the state’s high property taxes and government inefficiency. An often-offered remedy: centralize. Consolidate municipalities and “rationalize” the map of New Jersey. Bigger governmental units are better.

But it’s a remedy that fails to ask a basic question. What’s causing the inefficiency and high property taxes to begin with?

New Jersey’s municipal map is silent on the last half century of interplay between the state, federal, and local govenrments in forming New Jersey’s current fiscal landscape. It only shows the boundaries that formed between the 17th and 20th centuries, set since 1956, of a state that grew prosperous in a period marked by institutional diversity and decentralization.

Here’s a letter to the New York Times:

I appreciate the sub-headline, appearing on your website, to a report on the BP oil spill: “The oil is clearing much faster than expected, but concern remains over the unseen effects” (“On the Surface, Gulf Oil Spill Is Vanishing Fast; Concerns Stay,” July 28).* Being an economist, I’m accustomed to looking beyond the visible effects of economic and political actions in order to take account also of unseen effects that often swamp that which is immediately seen.

But a source of frustration when reading your pages is the frequent failure of your writers to do the same. For example, whenever minimum-wage legislation is discussed in your pages, your writers see only the obvious – namely, higher hourly take-home pay for low-skilled workers who have jobs. Your writers remain blind to the unseen effects on these workers – namely, fewer job opportunities or worsened work conditions.

Likewise with stimulus spending. It’s easy to see the immediate, beneficial consequences of more government spending. The unseen consequences, however – such as higher, enterprise-discouraging taxes in the future – are treated either as though they don’t exist or as if they are unquestionably minor in comparison to the seen effects.

There can be no doubt that the unseen consequences of economic and political activities on the environment deserve our attention. The same is no less true for the unseen consequences of these activities on the economy.

Sincerely,
Donald J. Boudreaux

* The quoted passage appears on the main – and frequently changing – NYT home page.

The always-vital-and-vibrant Institute for Justice hits another home-run.

My former GMU student Alex Nowrasteh writes wisely on immigration in today’s Wall Street Journal. Here’s a key ‘graf:

Worse, deputizing all of Arizona’s police officers as federal immigration agents will make their jobs more difficult and dangerous. This is because unauthorized immigrants would be all the more reluctant to report crimes or work with police as witnesses. As William Bratton, the former police chief in Los Angeles and Boston, has said, officers “can’t prevent or solve crimes if victims or witnesses are unwilling to talk to us for fear of being deported.”

Here’s my latest column in the Pittsburgh Tribune-Review.

I agree with Megan McArdle that tenure is a lousy system.

I suppose I can appreciate that some folks want to signal they don’t fear social retribution, though I suspect many interpret them as signaling that they have no political or managerial ambitions. But it occurs to me that folks could be more systematic about this signal; imagine a Brave Position Club.

The Brave Position Club would have an official long list of, perhaps 100, brave topics, and club members would simply be defined as folks who had publicly declared a clear current position (perhaps chosen from a menu) on all those brave topics. The topics should be chosen to be the most socially awkward topics, ones for which people typically fear the most social costs for taking certain positions. The topics should also be chosen neutrally, so as to “gore everyone’s oxen” equally, rather than to preferentially expose the hypocrisies of certain disfavored groups.

The topic list should be long enough so that people who chose positions by “thinking for themselves” would likely choose socially-awkward retribution-worthy positions on at least a few of the topics. A club member who declared the safe opinion on all the brave topics would be clearly identified as a “kiss-ass brown-noser” who didn’t think for themselves.

I’d be tempted to join such a club, at least if some careful analysis had gone into picking the topics neutrally, and if I expected enough other folks to join for it to become focal. Would you join? Who should join and why?

Rather than rely on obvious logos, expensive products use more discreet markers, such as distinctive design or detailing. High-end consumers prefer markers of status that are not decipherable by the mainstream. These signal group identity only to others with the connoisseurship to recognize their insider standing.

In one study, fashion students were more likely than regular students to favor subtle signals for products visible to others, like handbags. But for private products less relevant to identity, like underwear and socks, there was no difference between the groups. (more; HT Nicholas Walker)

This is one of the factors that makes signaling hard to study – signals are often designed to be hard for ordinary folks to discern. And that fact makes it easy to be skeptical that any signaling is going on at all. Skeptics can say “signals, what signals?”

Here’s a letter to the New York Times:

Bob Herbert is impressed with a new Rockefeller Foundation study by Yale’s Jacob Hacker and others that finds that Americans have become increasingly economically insecure over the past quarter century (“Long-Term Economic Pain,” July 27). I read the study and, for several reasons, cannot accept the authors’ (and Mr. Herbert’s) conclusion that this measured insecurity reflects a failure of public policy.

For example, among the critical findings – as summarized by the Rockefeller Foundation – is this one: “Because many Americans have little or no savings, it can take six to eight years for families to recover from a 25% income drop.” I’m sorry, but in modern America a lack of savings is almost always the result of individual choice.

Neither of my parents (both of whom were from working-class families and both of whom retired in 2001) ever earned more than the median income. Yet they raised four children and always had adequate savings to see us through times when one or both of them were out of work or when we had unexpectedly high medical expenses.

To use the irresponsibility of some people as an excuse for raising taxes and imposing more regulations only enervates the economy while further encouraging irresponsibility.

Sincerely,
Donald J. Boudreaux

Once again, in the midst of the cacophony, calls abound for a national “dialogue” on race. Yet our nation cannot muster the patience or stamina to sustain such a discussion beyond a single news cycle. … At the barest suggestion of race, we line up at opposite corners and start hurling accusations. …

Racial inequality is perpetuated less by individuals than by structural racism and implicit bias. Evidence of structural inequality is everywhere: in the grossly disproportionate numbers of young black men and women in prison; in the color of students shunted into remedial and special education tracks. … It is evident, too, in the history of blatant discrimination against black farmers practiced by the Agricultural Department.

But that does not make doctors, nurses, police officers, judges, teachers, lawyers, city planners, admission officers or others prejudiced. Most are well-intentioned professionals who believe themselves to be free of racial bias. … Implicit bias is a reality we must confront far more openly. A growing mass of compelling research reveals the unconscious racial stereotypes many of us harbor that affect our decisions. … White and black test-takers match black faces more quickly than white ones with words representing violent concepts. … The more stereotypically black the features of a criminal defendant, the harsher the sentence he or she is likely to receive. Implicit bias has been shown to factor into hiring decisions and into the quality of health care that individuals receive. …

The good news is that structures can be dismantled and replaced and unconscious biases can be transformed. … First, though, they must be acknowledged. … Our nation has to stop denying the complexity of our racial attitudes, history and progress. Let’s tone down the rhetoric on all sides.

Many folks reasonably suspect invitations to discuss race are traps – it seems hard to say much on race without being accused of racism, racial insensitivity, etc. But let me cautiously weigh in anyway.

Yes, we have unconscious expectations about others, yes those depend in part on race, and yes those expectations are a mixture of info and error. Some unconscious race-based expectations are a reasonable summary of actual common differences between races, while others are mistaken, with expectations that are too favorable or unfavorable for particular races.

I see two basic approaches to reducing racial expectation errors:

1. Rely on, and perhaps improve, local incentives for individual decision makers to identify and correct their own errors, and to select themselves into decision places well matched to their abilities to avoid such errors.
2. Have a broad conversation on the rough sorts of racial errors we expect to be common, then authorize officials to use discretion to pick regulations to reduce such errors at an acceptable cost, relative to other considerations.

One big problem with the regulation approach is that giving regulators discretion can make things worse, as well as better. Two examples above, of racial errors by sentencing judges and by the Ag Dept, seem examples where regulator discretion went quite wrong. Since medicine is heavily regulated to preserve doctor discretion, racial treatment errors by doctors has a similar cause.

Unfortunately, judges, ag dept officials, and regulated doctors have only weak incentives to overcome their racial biases. Sure they might fear that a broad conversation will arise and create a consensus among voters both that such folks had been racially biased, and that they should be punished strongly for it. But really, how likely is that?

In contrast, employers choosing who to hire can have much stronger incentives. If a labor market isn’t too heavily mis-regulated, any employer could profit substantially by preferring to hire folks that other employers unfairly neglect. If ordinary hiring specialists are too busy or distracted to notice such opportunities, hiring consultants can specialize in charging to identify such opportunities.

Yes, such incentives don’t prevent all employer racial bias, and yes thoughtful hard-working well-meaning regulators (including politicians and civil servants) can and have developed labor regulations that could reduce such bias. The problem is, when you empower regulators to fix such problems, you empower many other kinds of regulators as well, also including lazy stupid racially-biased ones. And you give all these regulators only weak incentives to overcome their biases.

For problems about which many people feel strongly, it is indeed a feels-right forager way to seek a communal conversation to identify new communally-enforced social norms to solve the problem. In large modern societies, however, this urge to solve problems by national conversations and laws seems largely dysfunctional.

Much better, when possible, is to rely on local incentives. For example, if employer incentives to overcome racial biases seem currently too weak, let’s up the ante by enabling corporate raiders, proxy access, etc. Forms of futarchy can give participants strong incentives to overcome racial biases regarding policy recommendations. There is plenty we can do, if people really want to overcome racial biases.

Writing in Saturday’s edition of the Wall Street Journal, Peter G. Peterson makes the case for tax increases and spending cuts:

While I believe that spending cuts must play a lead role in any solution to our long-term structural deficits, the sheer magnitude of the imbalances requires revenue increases.

The University of Rochester’s Steve Landsburg is a refreshing antidote to this line of thinking:

There is this notion abroad that an extra billion in federal spending can be converted from “irresponsible” to “responsible” as long as it’s accompanied by an extra billion in tax hikes. That’s like saying a $500 haircut can be converted from “irresponsible” to “responsible” as long as you withdraw the $500 from your bank account.

Here, according to Landsburg, is why:

The government’s chief asset—in fact, pretty much its only asset—is its ability to tax people, now and in the future. The taxpayers are the government’s ATM. Make a withdrawal today, and there’s less available tomorrow.

The bottom line: Under reasonable policy assumptions, government’s share of GDP is set to climb dramatically in the coming decades. We can not solve the problem by taxing ourselves to solvency.

Insurance companies take in premiums, and pay out claims and administrative expenses; the difference is profit. If payouts were perfectly predictable, competition might drive this difference to zero. But since payouts are uncertain, premiums must be set higher, to prevent bankruptcy. In fact, insurance regulators set minimum allowed levels of such “surpluses.”

The new Obamacare rules create a lot more uncertainty – insurers aren’t sure what exactly how it will change their costs, and the rules make it harder for insurers to raise premiums. The natural response of responsible insurers should be: collect larger surpluses, to insure against these uncertainties. And in fact non-profit insurers have been doing just that. Some are not at all happy:

The report released Thursday by the Consumers Union … found that seven of 10 Blue Cross Blue Shield affiliates examined had amassed surpluses that are more than three times the level regulators deemed necessary for them to remain solvent. Sondra Roberto … who co-wrote the report … said the prospect that nonprofit plans may be running unwarranted surpluses was even more troubling, given their mandate as charitable organizations.

Geez. Why even have private insurers, if you aren’t going to let them choose how to respond to changing conditions?

Here’s a letter to the Wall Street Journal:

Like New York Times columnist Thomas Friedman, Gilbert Mathis wants government “to launch a Manhattan-type project to make our nation energy self-sufficient” (Letters, July 26). Even if such an achievement is possible, and even if it would prove to be worth its costs – two big ‘ifs’ – “energy independence” is unlikely to allay one of the chief concerns of its champions. Americans would still be critically dependent upon foreigners for other things of value.

Achieving energy independence in the U.S. would require Americans to gain a comparative advantage at producing all forms of energy. But as every ECON 101 student learns, to go from having a comparative disadvantage to having a comparative advantage in one industry means that a country goes from having a comparative advantage to having a comparative disadvantage in some other industry (or industries). Looked at differently, energy independence would mean that resources now used in other American industries – for example, in agriculture, aviation, or biotech – would shift into American energy industries.

Americans would then become more dependent upon the likes of foreign food suppliers, airplane builders, and pharmaceutical companies. And it’s not at all clear that such “dependence” would be any better (or worse) than dependence on foreign oil suppliers.

Sincerely,
Donald J. Boudreaux

A cryonics patient from our time is revived, refuses to sign paperwork to pay his 5% income tax, and inspires a mass movement blaming corporations (not parents!) for the “slavery” of having to pay installment payments on voluntarily purchased and consumed school, etc. In April I complained:

[It] is widely praised for its thought-provoking premise. Yet I find no evidence that it provoked thought about its premise. … Among the 70+ reviews/comments on the book I’ve read, a few take a position on this idea (all against), but none engage the idea, i.e., offering arguments for or against it based on details of the book. … In the book’s 500 pages no one ever resents parents; it is all those conniving corporations. … Also, the book never even considers the possibility of non-voting [income shares].

The sequel, The Unincorporated War, is “action-packed”, and readers seem to like it, but alas it inspires even less thought. Spoilers below the fold.

The sequel begins with our anti-tax activist hero inspiring the creation of an “Outer Alliance,” of the solar system outside Mars, seeking geographic military autonomy. They of course want our blast-from-the-past hero to be their absolute military ruler. Since many out there accept the usual income shares system, the alliance has no official position on that issue. The war quickly becomes a total of attrition, with mass casualties, huge tax rates, and strong central management.

While the alliance has only 1/10 of the population, space folks make better space soldiers, and their generals are far more moral and clever, leading to a near stalemate for many deadly years. Religion, patriotism, and devoted submission to adored leaders all make huge comebacks, at least in the alliance.

Alliance leaders say they want total war because the central confederation has increased the rate of psych audits, a rarely used way to check someone’s sanity, and found a way to use audits to brainwash folks. But alliance leaders don’t make a public accusation about this until halfway through the book. Federation leaders say they want total war because they expect the outer solar system to economically dominate the distant future.

The books says little about why a public used to vast peace and wealth, having forgotten war and nationalism for centuries, would suddenly revel in a total war over geographic autonomy. The book isn’t really very interested in such ordinary folks. It seems to just be assumed that future folks are deep down very eager to return to twentieth-century ways.

Here’s a letter to the Wall Street Journal:

Undersecretary of Commerce for International Trade, Francisco Sanchez, boasts about the Obama administration’s efforts to boost U.S. exports (Letters, July 24).

Alas, there’s nothing special about exports – which is to say, there’s nothing special about the geographic locations in which products are sold. Economic activity serves the public interest best when competition drives firms to produce those outputs whose sales yield the highest profits. If some of those sales are to foreigners, that’s fine. But it’s poor reasoning to conclude that because competition leads 100 American-made products to be profitably exported, then Americans would be even wealthier if government distorts competitive markets to ensure that 150 American-made products are exported.

Exports, as such, are no more or less fundamental to a country’s economic prosperity than are, say, products that are yellow. Suppose that in competitive markets growers of lemons and sunflowers thrive, along with producers of yellow polka-dot bikinis. Would it therefore be wise economic policy for government – impressed by the profits earned by these yellow-thing producers – to artificially encourage the production of greater numbers of yellow things? Clearly not; such a conclusion is obviously unwarranted. Yet a similar error in reasoning is applauded when the products are labeled “exports.”

Sincerely,
Donald J. Boudreaux

Here’s a letter to the Wall Street Journal:

Undersecretary of Commerce for International Trade, Francisco Sanchez, applauds U.S. Trade Representative Ron Kirk for “negotiating tough bargains, ensuring that when America gives other countries the privilege of free and fair access to our market, U.S. businesses will get the same treatment in theirs” (Letters, July 23).

Question for Mr. Sanchez: What is this “our market” to which Uncle Sam allegedly holds the keys?

There is no single “our market” that requires a collective doorkeeper and bouncer. Instead, in the U.S. there are a couple hundred million individual such ‘markets’ – individual consumers – and access to each of these markets is best governed by each of the consumers whose own money is being spent and whose specific and unique demands are meant to be satisfied by the expenditure of that money.

Like every American, I’m perfectly capable myself of giving producers “the privilege of free and fair access” to the market for my consumer dollars – and of denying that access as I choose.

Sincerely,
Donald J. Boudreaux

Bob Higgs ruminates on a recent essay by Angelo M. Codevilla.

City Journal‘s Nicole Gelinas wrote this remarkably powerful essay. Here’s a slice:

Over the past year, hundreds of authors have published books on the crisis. What becomes clear—often despite the authors’ own intentions—after reading ten of the most significant of these works is that the mainstream narrative is wrong. Over the two decades leading up to 2008, financial markets were anything but free. The nuts-and-bolts government infrastructure that free markets require to thrive—healthy fear of failure, respect for the rule of law, and fair rules for everyone—was crumbling. The crisis books make clear, too, that Washington’s extraordinary rescues of Wall Street have eroded much of what’s left of free-market infrastructure in finance. Worse, Congress’s efforts to reform the industry will do yet more damage. The next time the financial world implodes, it will hurt the economy even more severely.

The United States remains the world’s largest exporter, with Germany second and China third. (HT Bridgett Wagner)

Washington Post columnist Robert Samuelson draws some ominous lessons about Obamacare from Massachusetts’s experience with health-care ‘reform.’

The Competitive Enterprise Institute (CEI) has a page devoted to several (mostly short) antitrust papers that I wrote for that institution in the mid- and late-1990s.

Mario Rizzo celebrates the paperback release of Tyler Cowen’s book Risk and Business Cycles: New and Old Austrian Perspectives.

In this video, my former GMU student – now working at CEI – Alex Nowrasteh debates the merits of Arizona’s new statute on immigration.

Finally, Steve Landsburg weighs in again against Paul Krugman.

In this letter in today’s Wall Street Journal, Undersecretary of Commerce for International Trade, Francisco Sanchez, praises “[U.S. Trade] Ambassador Ron Kirk’s commitment to negotiating tough bargains, ensuring that when America gives other countries the privilege of free and fair access to our market, U.S. businesses will get the same treatment in theirs.”

Translation: “Ambassador Ron Kirk is committed to holding the interests of American consumers hostage to the interests of American corporations and labor unions. He is tough in his determination to ensure that any trade deals struck on his watch will shield politically powerful U.S. producers from the competitive consequences of free consumer choice.”

NPR reports that in the city of Bell, California three city administrators agreed to resign after residents expressed outrage over their salaries. City Administrative Officer Robert Rizzo earns $787,637 a year, which twice the salary of the President of the United States.

The former administrators will not receive severance packages but they will collect pension benefits.

Mr. Rizzo will collect $650,000 a year making him the highest-paid beneficiary in the state’s pension system.

What is interesting is how they got their pay raises. The Los Angeles Times reports that the Bell City Council exempted themselves from state salary limits when they placed “Measure A” on the ballot in 2005 to change the city to “charter status” in a special election that only attracted 400 voters. Since passage, salaries for council members, who serve part-time, shot up by 50 percent to at least $96,996 a year.

The reason for the sudden switch was a state law passed in 2005 that limited the salaries of council members in “general law” cities. A law that itself was prompted by outrage over the pay of officials in South Gate, California.

Even more interesting is that Measure A didn’t bypass salary limits for serving on city councils. Instead, it gets around the salary limit imposed on boards and commissions. The City Council members receive $150 a month for council service, and $7,873.25 a month for serving on the Planning Commission, Surplus Property Authority, and the Solid Waste Recyling Authority.

How did Bell’s Council get its salaries? By fiscal evasion.

In today’s New York Times, David Brooks nicely summarizes recent research that suggests that moral rules “emerged from a long history of relationships.” A chief conclusion, as he describes it, is vital: “To learn about morality, you don’t rely upon revelation or metaphysics; you observe people as they live.”

It’s worth noting that Adam Smith arrived at the same conclusion 251 years ago. In The Theory of Moral Sentiments (1759), this brilliant scholar – who, in 1776, published an even more influential book – wrote that “Our continual observations upon the conduct of others insensibly lead us to form to ourselves certain general rules concerning what is fit and proper either to be done or to be avoided.”

Just as workable economic arrangements are not, and cannot be, designed and imposed by a higher power, so too, Smith explained, workable morality itself is the product not of any grand design but of the everyday actions, reactions, observations, and practical assessments of ordinary people going about their daily business.

Check out also Matt Ridley’s 1997 book The Origins of Virtue.

When I talk about risk and safety, I always like to point out that it’s easy to make sure that no one ever dies in an airplane crash: ban air travel. The fact that we don’t suggests that we really don’t want perfectly safe air travel.

Similarly, it’s easy to make sure that you luggage is never lost when you fly–fine airlines $1,000,000 for every lost bag. (First heard this example used by Jonathan Skinner) Not only would you never lose a bag, if you could collect the fine as compensation, you’d encourage travelers to try to get their bags lost. But even without that perverse result, travelers don’t want a million dollar fine. True, no bag would ever get lost, but the cost of a ticket would become much higher because of all the costs that airlines would incur to avoid lost bags. The bottom line is that we don’t want the probability of a bag being lost to be zero.

Similarly, we don’t want ratings agencies to be perfect seers. The WSJ reports:

Ford Motor Co.’s financing arm pulled plans to issue new debt, the first casualty of a bond market thrown into turmoil by the financial overhaul signed into law Wednesday.

Market participants said the auto maker pulled a recent deal, backed by packages of auto loans, because it was unable to use credit ratings in its offering documents, a legal requirement for such sales. The company declined to comment.

The nation’s dominant ratings firms have in recent days refused to allow their ratings to be used in bond registration statements. The firms, including Moody’s Investors Service, Standard & Poor’s and Fitch Ratings, fear they will be exposed to new liability created by the Dodd-Frank law.

The law says that the ratings firms can be held legally liable for the quality of their ratings. In response, the firms yanked their consent to use the ratings, hoping for a reprieve from the Securities and Exchange Commission or Congress. The trouble is that asset-backed bonds are required by law to include ratings in official documents.

The result has been a shutdown of the market for asset-backed securities, a $1.4 trillion market that only recently clawed its way back to health after being nearly shuttered by the financial crisis.

Many horrific results of legislation are intended. But this one, I suspect is more in the J. Alfred Prufrock category: That is not what I meant at all. That is not it, at all.”

As Hayek said in The Fatal Conceit:

The curious task of economics is to demonstrate to men how little they really know about what they imagine they can design.

Harry Reid asks (HT: Becky Chandler):

“Isn’t it a good thing today in America that we have an automobile manufacturing sector?

Maybe. Certainly it’s a bad thing today to subsidize mediocre companies (GM, Chrysler) making it harder for others (Ford) to thrive. And it’s a bad thing tomorrow if the costs of those subsidies turn include further encouraging companies to please politicians instead of customers.

But it’s particularly bad to think that helping GM and Chrysler is good for Ford, the mistake Reid makes in the video clip. Watch the clip. It’s less than a minute long. This is one of the leaders (for now) of the Senate.

Most states know they have big problems and that today’s budget gaps were created over a long period by policy and budgeting choices.

In my latest Mercatus Center Working Paper “Fiscal Evasion in State Budgeting” I discuss how states got into this situation, in part, by (legally) concealing and avoiding the full costs of policies. Some of these tactics, such as deferring pension payments, have gotten alot of attention. And others are harder to tease out.

For example, see this video at the Yankee Institute for Public Policy on how Connecticut used state university tuition to balance its budget.

In response to my post earlier this week about unemployment insurance being stimulative, Harry Moroz over at Huffington Post, makes a good point. 

I had cited evidence showing that—contrary to conventional Keynesian expectations—those with lower net wealth and those with lower incomes actually have lower marginal propensities to consume compared with high-wealth, high-income people.

According to Moroz, I “wholly conflated ‘the poor’ with ‘the unemployed.’ ” Fair enough. Unemployment and low income are not the same. But research by the Center for Labor Market Studies at Northeastern University shows that the correlation is extremely strong (in fact, as Veronique de Rugy has pointed out, the blogosphere has lit up lately with posts about the high unemployment rates among low-income people):

So: low income people are more likely to be unemployed; and according to the Sahm, Shapiro, and Slemrod study, low-income workers seem not to have high marginal propensity to consume. Putting these two facts together, I would be surprised if unemployment insurance were particularly stimulative.

In my mind, the central argument comes down to three points:

1. Keynesians will argue that transfer payments to the unemployed will—through the magic of the multiplier—lead to a boost in aggregate demand. I tend not to put a ton of stock in this because many estimates of the multiplier are relatively low and the latest estimates of the multiplier are even lower. Also, as I argued in my last post, I don’t see a lot of evidence to indicate that the unemployed or the poor have really high marginal propensities to consume (and probably no higher than those from whom the revenue is obtained through taxation or borrowing). The bottom line: We can quibble about which estimate is right but it seems that many proponents of stimulus are over-confident in their assessment that fiscal stimulus works. Given the ambiguities in both the theoretical and empirical research, I’d say a little humility is in order.
2. Even if we take the Keynesian multiplier arguments at face value, we must acknowledge that there are other forces at work. In the most basic economic model, if you tax work and subsidize non-work, then on the margin you should expect less work. And, indeed, numerous studies have found that increasing the length of potential unemployment benefit duration increases the average length of the unemployment spell. We may not like this result, but as Alan Blinder notes, we have to acknowledge what this is what the research shows. This must be weighed against the Keynesian result in #1 above. 
3. The final point is a long-term one. Compared with other countries, the U.S. has significantly lower long-term unemployment rates. Moreover, the unemployed in the U.S. tend to remain so for shorter periods than in other countries. At the same time, U.S. unemployment insurance replaces a much smaller fraction of income and does not last as long (see charts below). Numerous studies have found this is no coincidence: the difference in European and U.S. unemployment experiences seems to be due to the relative dynamism of the U.S. labor market. Compared with Europe, we have relatively low taxes on labor, limited regulation of employment, and limited duration of unemployment benefits. I believe that if we really want to decrease the likelihood of unemployment and the length of the average person’s unemployment spell, then the best thing we can do is ensure that ours continues to be a dynamic labor market. Ironically, extending unemployment benefits may very well make that more difficult. 

Here’s a letter to the Washington Post:

You’re right to worry that Uncle Sam responded to the public’s anxiety about terrorism by creating an overgrown intelligence bureaucracy with bloated budgets that strain our wallets and arbitrary powers that mock the Constitution as they threaten our freedoms (“The overgrowth of intelligence programs since Sept. 11,” July 22).

But why do you not also worry about similar extensions of government’s reach into areas such as health-care and finance? As with fears of terrorism, Americans’ concerns about the cost of medical care and the role of Wall Street have been cynically stoked and used by politicians to expand the role the state. Vast and bloated bureaucracies are being created to exercise arbitrary powers that are unconstitutional as well as a threat both to our freedoms and to our prosperity.

Will bureaucrats in, say, the new Bureau of Consumer Financial Protection spend taxpayer funds more wisely than do bureaucrats in the NSA? Is the power to command people to purchase health insurance, or the power to prohibit consenting adults from buying and selling certain kinds of financial instruments, really so mild and beneficial that we should calmly welcome the exercise of these powers while we simultaneously quake with fear at the exercise of “intelligence” powers?

Sincerely,
Donald J. Boudreaux

Here’s a passage from the not-to-be-missed book by Benn Steil and Manuel Hinds, Money, Markets & Sovereignty (Yale University Press, 2009), pages 94-95:

There are many reasons why economies became dramatically more integrated after 1870, both within and across countries. Among these are tremendous technological advances in transportation and communication, particularly the railroad, steamship, telegraph, cable, and refrigeration. The spread of free-trade thinking from Britain to the European continent, underpinned by vested interests in Germany and France which saw greater export opportunities afforded through trade liberalization, also contributed to large declines in some import tariffs. But the disintegration of markets internationally, particularly capital markets, coincided strongly with the tribulations and eventual collapse of the classical gold standard after 1914. The heyday of globalization was an historical period in which monetary nationalism was widely seen as a sign of backwardness; adherence to a universally acknowledged standard of value a sign of abiding among the civilized nations. And those nations that adhered most reliably to the gold standard (such as Canada, Australia, and the United States) paid lower borrowing rates in the international capital markets than those which adhered less (such as Argentina, Brazil, and Chile). The gold standard not only reduced exchange risk, but country default risk. The evidence suggests strongly that being on the gold standard represented the most credible form of commitment to pursuing prudent fiscal and monetary policies over time, given the ever-present temptation to inflate away the burden of debt and manufacture seigniorage revenues.

UPDATE: From The Economist.

Boston Globe columnist Jeff Jacoby argues against government subsidies to journalists and the news media. (My two cents: anyone who believes that a government-subsidized press would not be a politically beholdened press – a press leashed like a lap dog to its paymaster’s fist – is hopelessly out of touch with reality.)

Katya Brancato – who earned her economics PhD from GMU – turned her dissertation into an excellent book.

Former GMU student Ryan Young explains, at the American Spectator, some differences between economists and economics.

I join Paul Jacob in celebrating and applauding the great work done by the Institute for Justice.

Bob Higgs does battle, with his always-mighty pen, against America’s ominously growing surveillance state.

And Bob Higgs here calms fears of foreign investments in dollar-denominated assets – if not of Uncle Sam’s profligacy.

Like James Pethokoukis, I don’t want Obama to be pro-business.

Over at EconLog, Arnold Kling carefully examines the austerity of 1945-1947.

In March 2010, the total federal debt stood at almost $14 trillion. In a recent Mercatus study, “Everyman’s Deficit” by Dr. Bruce Yandle, finds each American citizen’s share of the debt now about $40,000. What’s worse, this $40,000 does not include fiscal exposure, like the unfunded liabilities (Fannie Mae, Freddie Mac, etc.) that taxpayers would have to pay. Thus, the debt and the deficit now belong to families like the Everymans. In this podcast we discuss the consequences of the growing debt, what the United State’s debt means for its citizens, and recommendations for the first steps to mitigating the size of our debt. Joining us is the author of the special study, Dr. Bruce Yandle.

Dr. Bruce Yandle is a Professor Emeritus and the BB&T Scholar at Clemson University, where he has been a faculty member since 1969. From 1976 to 1978, he was a senior economist on the staff of the President’s Council on Wage and Price Stability, where he reviewed and analyzed newly proposed regulations. In addition, Dr. Yandle was executive director of the Federal Trade Commission and is the author or co-author of numerous books and articles. He received his Ph.D. and M.B.A. from Georgia State University and his A.B. degree from Mercer University.

Related Material:

• Everyman’s Deficit: Spending Beyond Our Means (Mercatus Center Special Study, July 2010)
• Video: Debt and Deficits: Implications for US and Global Economic Recovery (National Press Club Newsmakers Event, July 20, 2010)
  

In addition to collecting a pension, most public employees also participate in Social Security. A few states, such as Maine, never integrated with the program, which means their public sector workers don’t collect Social Security, nor are they subject to the 6.2% payroll tax.

Mary Williams Walsh reports that in an effort to solve their pension underfunding Maine is considering changing its Social Security holdout status. Maine’s state employees would begin paying into and collecting Social Security without having contributed to the system over their working lives. While reducing Maine’s risk of paying for large losses, the move doesn’t address the $4.1 billion hole in Maine’s pension plan (a hole already underestimated since assumes a 7.75% return on assets). And there is the instability of the Social Security program which is projected to begin running a deficit in 2017.

However, integrating with Social Security could be part of a transition to an improved state retirement system. Joshua Rauh explains at the New York Times‘ Room for Debate how the federal government might step in to head off the state pension crisis.

Writing in today’s Baltimore Sun, Marta Mossberg correctly argues that a proposed “living-wage” bill for Baltimore will hurt the poor. This unintended effect is the inevitable result of prohibiting workers from accepting any wage lower than $10.57 per hour – a wage well above the hourly value that many unskilled workers are capable of producing for employers.

So why are so many people enthusiastic about statutes such as this one?

Proponents of such legislation are economic creationists. They do not grasp the fact that beneficial economic arrangements emerge – and emerge almost exclusively – without being designed by an altruistic higher power (supposedly, government). Widespread prosperity and economic order are taken on faith as resulting from the conscious intercession of a sovereign superior whose incantations, ceremonies, and commands work miracles. And, too often, persons who challenge this creationist dogma are accused by its True Believers of being devils sent from the underworld to disrupt the heavenly work of the creating angels.

(Here’s an earlier and longer take on this issue.)

Our dear friends at Guatemala’s Universidad Francisco Marroquin have assembled these video-taped interviews of Hayek – interviews conducted by Armen Alchian, Jim Buchanan, Tom Hazlett and others. They’re fascinating.

Division of Labour‘s Frank Stephenson’s letter in today’s Wall Street Journal is priceless:

I was surprised to read that “White House economists believe that taxes have little effect on growth.” Just a few days ago I received the June 2010 issue of the American Economic Review, the flagship journal of academic economics. The current issue contains an article by CEA Chair Christina Romer and her husband David Romer on the macroeconomic effects of tax changes. Their paper examines “all major postwar tax policy actions” and concludes that “tax increases are highly contractionary.” For emphasis, the authors add that this finding is both “strongly significant” and “highly robust.”

Could it be that the White House economic team is suffering a bit of cognitive dissonance?

E. Frank Stephenson

Chair

Department of Economics

Berry College

Rome, Ga.

Faced with declining property and sales taxes and a police department slapped with $19 million in claims against officers (which caused the city to lose its insurance), led Mayor Ana Rosa Rizo of Maywood, California to do the unthinkable. She fired everyone. “It was either this or bankruptcy.” What is remarkable in this small, but densely populated, blue-collar city south of L.A. is that nobody really noticed the difference.

Anarchy did not follow. Public safety duties were handed over to the Los Angeles County Sheriff’s Department. The Mayor’s husband got a parking ticket from enforcement officials contracted by the city a few hours after the municipal employees were let go.

While the city is not trying to present itself as a model for other municipalities facing bankruptcy civic leader Hector Alvarado says the firings sent the right message to a dysfunctional public workforce, “Remember the Soviet Union? They had a lot of bureaucracy, and they lost. Maywood was like that. Now people know if they don’t work, they will be laid off. Much better this way.”

In New York City, urban planners are considering new rules which would make it more difficult for developers to construct parking garages, the Wall Street Journal reports. Currently, parking garages are prohibited if they are expected to increase congestion:

The current process requires developers to show that their garage won’t adversely affect traffic congestion in the immediate neighborhood. Some transportation advocates want the city to take a broader view when considering the issue of congestion, which could make it harder for developers to get permits.

Parking is a complex issue in planing regulation. On the one hand, some urban critics argue that subsidized parking facilitates urban sprawl by allowing people to easily rely on cars for transportation without bearing the full cost of driving and parking. On the other, privately-managed, unsubsidized parking garages offer a relatively efficient way for commuters to park in high-density areas while better internalizing the cost of this behavior.

As New York City may move toward limiting parking garages, others are celebrating their contributions to city life. Baltimore author Shannon McDonald has recently written The Parking Garage: Design and Evolution of a Modern Form, exploring the architectural and utilitarian contributions of American garages. She points out that in addition to serving the need for storing vehicles in high-density places, entrepreneurs have recently developed new uses for garage roofs including green roof parks, swimming pools, and solar energy plants.

On the Diane Rehm Show with McDonald, Robert Puentes of the Metropolitan Policy Project at the Brookings Institute points out the if municipalities broadened the role of the private sector in parking garage provisions, they could unleash incentives for entrepreneurs to improve the mix of uses of existing garages.

Here’s a letter sent yesterday to the Wall Street Journal:

Alan Blinder asserts that opposition by tax-cut proponents to further increases in government spending is inconsistent (“Obama’s Fiscal Priorities Are Right,” July 19). Not so.

Viewing reality through a Keynesian template, Mr. Blinder perceives tax cuts as “stimulating” the economy only in the same way that government spending does: by increasing aggregate demand. In fact, though, the chief argument for tax cuts is not that they increase aggregate demand but, rather, that they increase the return to productive effort and risk-taking.

Perhaps I and other advocates of tax cuts are mistaken to predict that letting producers and risk-takers keep more of the fruits of their efforts will boost employment and economic growth. Regardless, our advocacy of tax cuts not only is consistent with our objection to more government sending – it demands such an objection because higher government spending inevitably entails higher taxes.

Sincerely,
Donald J. Boudreaux

Alan Blinder has an interesting article in today’s Wall Street Journal. 

In it, he says that the Obama Administration is on the right policy track in its attempt to extend unemployment benefits, create more fiscal stimulus, and permit the Bush tax cuts to expire for people earning more than $250,000. 

He makes a claim that has become increasingly popular: policies that tax the rich and redistribute to the poor are not only compassionate, they are stimulative. There was a time when those on the left talked about a tradeoff between redistribution and growth. But Blinder and others now argue that redistribution is, on net, stimulative; that it is possible to have one’s cake and eat it too. 

Blinder begins by conceding a point to the opponents of more generous unemployment insurance. He writes:

[L]onger-lasting benefits dull the incentive to seek work, which in turn drives up unemployment. Economic research suggests they are right.

But, he says, “one shouldn’t exaggerate the magnitudes.” Furthermore, he sees reason to believe that unemployment benefits can be stimulative. The key to this reasoning is his assertion that the poor are more likely to spend a marginal dollar than the wealthy. That’s why we can tax the wealthy, redistribute to the poor, and see a net gain.

He writes:

[C]onsider three different ways to add a dollar to the budget deficit: increase unemployment benefits by $1, give a $1 tax cut to someone earning $50,000 a year, or give a $1 tax cut to someone earning $5 million a year.

While the immediate impacts on the budget are identical, the near-term spending impacts are not. The unemployed worker struggling to make ends meet will likely spend the entire dollar right away. The $50,000 earner probably will spend the lion’s share of it, saving just a bit—that’s what most Americans do. But the $5,000,000 earner probably will save most of the new-found dollar.

Blinder is referring to the “marginal propensity to consume.” Keynesians have long-argued that the poor have higher marginal propensities to consume than the wealthy. That is, Keynesians believe that if you tax a wealthy guy and redistribute the revenue to a poor guy, the economy will actually grow in the short run. Why? The wealthy guy wasn’t going to spend that money (or at least not much of it) anyway. He was just going to let it sit in his bank account (never mind that savings makes its way into aggregate demand as investment—buy Keynesians have other stories for why that doesn’t work). The poor person, however, is different. He will go out and spend that dollar right away, leading to a multiplier in terms of growth.

In my mind, this makes theoretical sense. The problem is: it doesn’t seem to be true. And President Bush’s Stimulus I provides the evidence. Economists Claudia Sahm, Matthew Shapiro and Joel Slemrod studied the way people spent the stimulus checks that were sent out in the first half 2008. Using data from the Reuters/University of Michigan Survey of Consumers, they found that spending patterns were “strongly at odds with the conventional wisdom.” It turns out that the poor were actually less likely to spend their 2008 stimulus checks than the wealthy. What’s more, analysis of the 2001 stimulus found much the same thing.

Now there may very well be humanitarian reasons for unemployment insurance (I’ll leave it to others to debate those). But is seems to me that the data are making it increasingly more difficult to argue that redistribution through unemployment benefits is both humanitarian and stimulative.

Last summer I had the experience of learning how cost-prohibitive it is to obtain local budget records for Woodbridge, New Jersey.

Only the current year budget is online. Previous year budgets were not available electronically. So I went to City Hall expecting they would be available to the public. Instead, I was asked to file an Open Public Records Act (OPRA) request with no guarantee the request would be fulfilled.

The costs were jaw-dropping. The first 10 pages cost 75 cents. Pages 11-20 dropped to 50 cents a page. And for each page thereafter the cost was 25 cents.

For 10 years of municipal budgets I would be charged roughly $242.50.

Undeterred, I went across the street to the Woodbridge Public Library. The librarians were incredibly helpful. They carted forty years of budgets to my table. And, told me if I called ahead they would have them ready should I want to do future research.

I spent about an hour copying at fifteen cents a page. Turns out, I only needed five pages from each document. (Something I could not have specified through an OPRA. In order to know what pages I needed I had to look at the documents first.)

I spent $30 for 40 years of specific budget data.

A New Jersey court has ruled that the state should reduce copying fees at state agencies. It seems my complaint is shared by good government groups and many New Jersey residents.

While reducing copying fees grants greater accessibility to public records, why not go a step further and put more online? Is it that costly for New Jersey’s local governments to keep a record of budget data on their websites? In the time it took to photocopy 40 years of budgets the pages could have been scanned into a computer.

Granted my fiscal history of Woodbridge is incomplete. I could not find the school district’s budgets at the library. But it is a start which you can check out at Sunshine Review.

Here is an item I meant to blog on a while ago. In an article title “Local Governments Spend Millions Lobbying State,” the Pekin Daily Times reports that:

Thirteen downstate bodies in 2009 together spent more than $194,000 on lobbying for an average of more than $16,000 each.

Now, $16,000 X 13 = $208,000. So, in the aggregate, these governments spent $194,000 in an attempt to gain a prize worth $208,000. 

Economists use the term “rent seeking” to refer to the expenditure of resources—time, money, and effort—in an attempt to redistribute existing wealth (which economists called a “rent”). Rent seeking is a wasteful activity. Instead of creating new wealth by finding new ways to satisfy consumer demand, people end up expending valuable resources chasing existing wealth. It is the difference between fighting over a piece of bread and baking a new loaf.

Theory predicts and studies have confirmed that the losses associated with rent seeking vary as conditions vary (for example, it makes a difference if lobbying is subject to increasing or decreasing returns to scale). “Complete dissipation” is the term economists use to refer to a situation in which the rent seeking expenditures are equal to the entire size of the rent. In downstate Illinois, it appears that we have an unfortunate example of (nearly) complete dissipation.

Governor Christie unveils merit pay plan for N.J. teachers

DOJ charges 94 people with Medicaid/Medicare fraud

WSJ: Senate VIP loans mount

Non-unionized workers picket on behalf of unions to protest nonunion hiring practices

In the Wall Street Journal, John Fund reports on the Aspen Ideas Festival, a large gathering of innovators and creative policy thinkers. Discussing education reform, he points out that Bill Gates seems to agree with Eileen and Veronique on the problems of fiscal illusion.

Mr. Gates said a big part of the problem [with education spending] is “fraudulent” state budgeting systems, which fail accurately to account for the cost of pension promises. A legislator who “says ‘yes’ doesn’t feel any pain at all,” he said. Thus the “accounting fraud” that lets politicians treat generous teacher pensions as a free lunch rewards them for spending more on retired teachers than on current students.

As Eileen and co-author Andrew Biggs put it:

Given the costs and risks inherent in the defined benefit plan to taxpayers, as well as the political incentives for legislators to over promise benefits to public sector workers while shirking on the state’s contributions, the state should close the current defined benefit plan to new workers and expand the existing defined contribution plans for all new state and local workers. Shifting employees to a defined contribution plan would ensure that New Jersey’s pension system for its public sector workforce is sustainable in the long term and reward younger workers with a guaranteed employer contribution to their individual retirement.

As Mr. Gates is well aware, this problem isn’t some Sopranos-state anomaly, it’s common practice at all levels of American governance. If we want to move forward on fixing our institutions, we have to get an accurate picture of how badly they’re being mismanaged, and eliminate those harmful practices. Students, parents, teachers, and taxpayers are all in this together.

A few hours ago, the Obama Administration released a new report estimating that Stimulus II saved or created about 3 million jobs. Shortly thereafter, my colleague, Veronique de Rugy, testified before Congress on the impact of the stimulus. She argued, among other things, that more realistic estimates show that fiscal stimulus tends to do more harm than good.

All of this talk about jobs reminds me of one of Veronique’s recent posts:

Since the beginning of the recession (roughly January 2008), some 7.9 million jobs were lost in the private sector while 590,000 jobs were gained in the public one. And since the passage of the stimulus bill (February 2009), over 2.6 million private jobs were lost, but the government workforce grew by 400,000.

I will leave it up to you to draw conclusions.

In the spirit of drawing conclusions: one body of research suggests that the conclusions are not happy ones. A number of studies have examined the relationship between government employment and private employment, concluding that the former crowds out the latter. Using data from 19 countries over 17 years, Horst Feldmann (2006), for example, examined the relationship between a large government sector and unemployment. He found:

[A] large government sector is likely to increase unemployment. It appears to have a particularly detrimental effect on women and the low skilled and to substantially increase long-term unemployment.

What is more, Feldmann is not the only one to come to this conclusion. As he reports in his literature review:

Several empirical studies suggest that an increase in government expenditure impairs labor market performance. For example, Karras (1993) observed negative employment effects of government spending in eight countries in his sample of 18 countries. Yuan and Li (2000) came up with the same result for the US. In a cross-country study of 15 major industrial countries, Abrams (1999) found that the government expenditure ratio was positively related to the unemployment rate. Christopoulos and Tsionas (2002) examined the relationship between the government expenditure ratio and the unemployment rate for 10 European countries over the period 1961 to 1999 and found that there was unidirectional causality from government size to unemployment rate.

The magnitude of the government (un)employment effect is not trivial. Looking at a sample of OECD countries for 40 years, Algan, Cahuc, and Zylberberg (2002) found that the “creation of 100 public jobs may have eliminated about 150 private sector jobs”

Pennsylvania has put together a $28 billion budget that is balanced through evasive practices. The budget relies on hundreds of millions in not-yet-promised federal money and overstated revenue increases. More disturbing is the $66 million in “WAMs” or Walking Around Money. Pennsylvania’s version of legislative pork politics, WAMs are revenues that are set aside for lawmakers to shower on pet projects in their districts.

WAMs were ruled unconstitutional in 1995. So the legislature renamed them Legislative Initiative Grants (LIGs). Last year, Pennsylvania lawmakers handed out $110 million in WAMs showered on everything from youth baseball to jazz festivals and fire departments. WAMs are generally reviled as a blatant means of buying votes with public dollars. But what makes the appearance of WAMs in recent budgets all the more offensive is summed up by Marc Levy at AP, “PA Lawmakers tapped grants while deficits grew.”

Last week, Michael Powell over at New York Times’s Economix blog characterized my position as one of “tough-love.” That is probably a fair way to put it. 

In an example of un-tough-love, yesterday’s Grey Lady featured an article by Christopher Edley Jr. (dean of the University of California, Berkeley, School of Law). In it, Dean Edley argues that states ought to be allowed to borrow directly from the Treasury:

[S]tates are managing huge budget crises with the only tools they have, cutting spending and raising taxes — both of which undermine the federal stimulus.

That’s why the best booster shot for this recovery and the next would be to allow states to borrow from the Treasury during recessions. We did this for Wall Street and Detroit, fending off disaster. It’s even more important for states.

From my view, such a policy would permanently enshrine the notion that states are too big to fail. We know that states have a spending problem. According to data from the Bureau of Economic Analysis, for the last 9 years, the inflation-adjusted average annual growth rate of state and local government spending was 2.6%. At the same time, the private economy—on which state and local governments depend for their tax revenue—only grew at an average annual growth rate of 1.4%. In other words, states are already spending at a faster rate than the economy can create wealth. Furthermore, they are doing this without the power to deficit spend (for general operating expenses) or the power of the printing press. 

Allowing states the permanent ability to rely on the Federal Treasury would, of course, change all of that. How might we expect them to behave under those circumstances? Important research by the University of Rochester’s David Primo gives us some idea. It turns out that while all states save Vermont have balanced budget requirements, these requirements vary considerably from state to state. Some are allowed to carry deficits over from one year to the next while others are not. Furthermore, others are required to balance their planned spending, while others must balance their actual budgets at the end of the year. Lastly, some states are checked by independent courts, while others are not. In sum, some states face strict balanced budget requirements while others face weak balanced budget requirements. In his analysis, Professor Primo found that state and local spending in states with strict balanced budget requirements averaged $3,336 per citizen. In contrast, in states with weak requirements, the average was $3,756 per citizen.

The Federal Government’s balanced budget requirement isn’t weak; it is nonexistent (you might say they are on the honor system). So what might we expect spending to look like if every state in the union could borrow from the Federal Government whenever it was expedient? I prefer tough love.

IMF tells US to reduce deficit

NYT op-ed: Treasury should pour (more) money into state budgets

WSJ: Unemployment Benefits Aren’t Stimulus

American Dream Eludes the Next Generation

Prohibition Redux?

The New York Times reports that Illinois has taken the place of California for the state with the biggest troubles. Downgraded by every ratings agency, Illinois’ pension system is likely to run out of money to pay retirees in the next few years. And the state has hasn’t figured out how to close its $12 billion deficit, representing about half of its budget.

Illinois has avoided program cuts and tax hikes by borrowing. Those bond issues are now another budget line item for interest rate payments. Last year Illinois paid $55.3 million for two short-term borrowings it issued to pay for operating expenses. Former Govenor Rod Blagojevich, pushed the state to issue $10 billion in Pension Obligation Bonds, and Governor Quinn is currently considering issuing more pension bonds to make the state’s payment. The POBs haven’t helped. Today Illinois officially reports $70 to $80 billion in unfunded liabilities, a figure that vastly understates the systems’ true unfunded liability which is likely closer to $219 billion or about one-third of the state’s GDP.

A key component of Governor Chris Christie’s spending and tax reduction plan is his proposal to place a hard cap of 2.5% on property tax increases, based on Massachusetts’ Prop 2 and 1/2. A compromise was reached with the Legislature this weekend to create a 2% cap with several exceptions for pensions, health care, and debt.

The Asbury Park Press covers how the cap evolved this weekend.

My reservations over the property tax cap boil down to a basic theoretical observation. Capping one source of revenue only shifts the bill. The problem in New Jersey does not lie with the property tax, per se, but in the evolution of an intergovernmental aid system, and state spending mandates that have eroded Home Rule.

Local budget watchers will want to keep an eye on how local governments choose to navigate the cap this year. Pension costs and health care are set to consume the state’s budget in the coming decade. Cap or no cap, as the Governor knows, New Jersey has plenty left to cut.

After my last post, some friends stopped by my office with a few questions: “If, as you say, we are conducting a big experiment in spending, will the experiment produce evidence that finally answers the question of whether or not fiscal stimulus works? Why can’t we just compare the economy’s performance during periods of stimulus with its performance during normal times? Why mess with military spending as Barro and Redlick do, when what we want to know is whether stimulus spending works, not military spending?” (This latter question gets at Harry Moroz’s point too).

Here is my attempt at an answer:

Let’s start by imagining the ideal conditions to test for the effect of a stimulus. Suppose the distribution of stimulus money were determined not by the political process, but by a scientist. This scientist would probably randomly assign units of observation two groups: a “treatment” and a “control” group. He would use a coin or some other random process to select some regions to receive money and some regions to receive none. Ideally, he would do this over the course of several years, distributing money both during boom and bust periods to see if the economy responded differently. Then, he would compare various measure of well-being (growth rates, unemployment rates, etc.) in times and places that received stimulus (the treatment group) with comparable measures in times and places that did not receive stimulus (the control group). 

Unfortunately for the scientist (fortunately for the citizen), stimulus money isn’t doled out this way. Instead, politicians make some attempt to target the expenditure of stimulus money to hit times and places that are in need (as my colleague, Veronique de Rugy has shown, they aren’t always very good at hitting their target). But this means that it becomes very difficult for the economist to assess, empirically, the impact of fiscal stimulus.

Why? Because economies in times and places that are in need tend not to grow at the same pace as more normal economies. As standard economic theory teaches us, market-based economies have natural recuperative properties. For example, if aggregate demand suddenly falls, causing a contraction, a chain of events is set in motion that helps sow the seeds of recovery. Spending will fall, lowering prices and increasing savings. The lower prices cushion some of the blow, allowing consumers’ dollars to go farther than before and allowing them to spend more than they otherwise would. As saving increases, interest rates fall and business investment picks up. As these processes work their way through the system, the economy begins to heal. Economists famously argue about how effective this process is, but few would deny that there is some truth to this story.

But knowing that this process happens to at least some degree, we can’t simply compare economic growth in times and places that receive stimulus with that of times and places that don’t. Otherwise, instead of picking up the effect of stimulus, we may just end up measuring the natural recuperative abilities of the market economy. Nor, more generally, can we compare economic growth in times and places where governments spend a great deal of money with economic growth in times and places where governments spend little. This is because there is strong reason to believe that causation runs the other way too: when the economy is humming, state and federal coffers are flush with cash and tend to spend more and when times are lean, states have no choice but to cut back spending.

The problem is analogous to that of understanding the impact of police patrols on crime. We would like to measure crime rates in times and places where patrols are sent with crime rates in times and places where patrols are not sent. But, like politicians distributing stimulus funds, police captains don’t randomly pick the areas where they send their patrols. Instead, they try to target patrols to the places and times where they are needed. Thus, a naïve look at the data shows that places with more police patrols tend to have more crime! This clearly doesn’t make sense, but it is what the data show.

Which gets us to the question: why study military spending when we are interested in stimulus spending? The answer is that it helps solve the statistical problems I mention above. I won’t get into the technical details of two-stage least squares regression techniques (I’d prefer you finish reading the post), but here is the basic gist of the strategy: start by finding some phenomenon that is correlated with the treatment (the treatment here being cops or government spending) but uncorrelated with the outcome of interest (in this case, crime rates or economic growth). If you can find such a phenomenon, you can use it to study the pure, unbiased effect of the treatment on the outcome.

In the case of police and crime ­­­­­­­­­Steven Levitt came up with an ingenious phenomenon to help unravel the real relationship. He accurately surmised that elections might induce elected officials to increase the number of patrols on the street. And since elections are not directly related to the underlying crime rate, this allowed him to obtain an unbiased estimate of the effect of patrols on crime. As you probably guessed, this unbiased estimate showed that, indeed, more police patrols actually lead to less crime.

So what about stimulus? As I mentioned in my previous post, Robert Barro and Charles Redlick use military spending to assess the impact of stimulus spending on economic growth. Military spending is positively related to overall government spending. But it turns out that it isn’t related (positively or negatively) with economic downturns. Thus, it makes an ideal phenomenon to assess the impact of stimulus. As I mentioned, Barro and Redlick found that stimulus spending isn’t stimulative.

Similarly, Lauren Cohen, Joshua Coval, and Christopher Malloy, make clever use of another phenomenon to assess the impact of government spending on economic activity. They rely on the fact that government spends more in Congressional districts whose members are chairs of powerful committees than in districts whose members are just rank and file. Like Barro and Redlick, they find that government spending isn’t stimulative.

I suspect that right now some clever economist is working on a study of the current stimulus that relies on a technique similar to these. I sincerely hope that it will bring us closer to a consensus on the effect of stimulus. If Barro and the others are correct, we can’t afford to keep throwing good money after bad.

New Jersey’s public sector defined benefit pension systems are underfunded by more than $170 billion according to a new study, “The Crisis in Public Sector Pension Plans: A Blueprint for Reform in New Jersey” by Eileen Norcross of the Mercatus Center at George Mason University and Andrew Biggs of the American Enterprise Institute. This is not a sustainable path, and in order to avert a fiscal crisis and ensure that future state employees have dependable retirement savings, Norcross and Biggs offer recommendations for state policy makers to reform the public pension system.

Joining us for the podcast is one of the author’s of this study, Eileen Norcross. Eileen is a senior research fellow at the Mercatus Center at George Mason University. She blogs on state and local issues at Neighborhood Effects.

Related Research:

• The Crisis in Public Sector Pension Plans: A Blueprint for Reform in New Jersey

In January the federal estate tax, sometimes called the “death tax”, completed a ten-year phase out and expired. However, the estate tax will return with a top rate of 55% on January 1, 2011 when the Bush tax cuts expire. In this podcast we discuss who the estate tax affects, the effects of inheritance taxes in the states, how the estate tax affects the everyday American and policy recommendations concerning the estate tax.

Joining us to discuss these issues is Dr. Antony Davies. Davies is currently an associate professor of economics at Duquesne University who has published a study on estate taxes and written extensively about the issue.

The Economist - After the Senate bill was passed, Mr Obama pledged to “ensure that we arrive at a final product that…secures financial stability while preserving the strengths and crucial functions of a financial industry that is central to our prosperity and ability to compete in a global economy.” That remains to be seen. If the history of financial legislation is a guide—just think Sarbanes-Oxley—the new law will have more than a few unintended consequences. For now, though, the White House can revel in a political triumph that a year ago seemed to many to be beyond reach.

There are several states that do not allow grocery stores to sell wine in grocery stores. However, in the midst of dealing with budget woes and shrinking revenues many states are considering changing existing laws to now allow the sell of wine in grocery stores as a means to increase revenue for the state. On this podcast, we provide an overview of current existing policy in several states, the affect on consumers in maintaining laws that prohibit the sale of wine in grocery stores, and what role the sale of wine in grocery stores plays on states’ economies.

Joining us this week is Dr. Jerry Ellig, a senior research fellow at the Mercatus Center at George Mason University. Jerry is back on the podcast to talk about new developments in regulation of wine, specifically the sale of wine in grocery stores. Between 2001 and 2003, he served as deputy director of the Federal Trade Commission’s Office of Policy Planning and coauthored the FTC staff study on direct wine shipment

The Economist – “This plan was not just about preventing Greece’s sovereign-debt crisis spreading to Portugal and Spain. It was about stemming a growing financial panic that could have plunged the world economy back into the quagmire from which it has spent the past two years struggling to escape….

This plan buys time, but it does not repair the fiscal and structural flaws that led the euro zone into this mess in the first place. Worse, it comes with risks attached that Europe urgently needs to deal with. “

States are facing tough decisions. Spending cuts, restructuring programs, and re-thinking the role of state government is being taken up across the country by “streamlining commissions” where a blend of private and public sector representatives offer recommendations how making state governments more effective and efficient.

Over past year the Mercatus Center has been advising the Louisiana Streamlining Commission. Joining us to discuss streamlining state government commissions regarding their experience with the Louisiana Streamlining Commission is Maurice McTigue and Daniel Rothschild. McTigue is the Vice President, Director of the Mercatus Center’s Government Accountability Project and served New Zealand as a Cabinet Minister, Ambassador, and member of Parliament. Most recently, he was appointed to Virginia’s Governor McDonnell’s Commission on Government Reform and Restructuring. Daniel Rothschild is the Managing Director of the State and Local Policy Project for the Mercatus Center.

The Economist – “Even as negotiators from the European Union and the IMF are haggling with the Greek government over an ever-growing bail-out package, the yield on Greek debt has ballooned: two-year bonds soared towards 20% this week. Portugal’s borrowing costs jumped. Spain’s debt was downgraded, along with Portugal’s and Greece’s, and Italy came worryingly close to a failed debt auction. European stockmarkets have slumped and the euro itself fell to its lowest level in a year against the dollar.”

Complex ideas can be communicated in different ways, so why not a rap? On the podcast we are joined by Dr. Russ Roberts. Roberts is the Smith Scholar at the Mercatus Center and a Professor of Economics at George Mason University. Along with his popular blog Café Hayek and famed podcast Econ Talk, Dr. Roberts the co-creator with filmmaker John Papola of the rap video “Fear the Boom and Bust”. In this economic rap video, John Maynard Keynes and F. A. Hayek, two of the great economists of the 20th century, come back to life to attend an economics conference on the economic crisis. Before the conference begins, and at the insistence of Lord Keynes, they go out for a night on the town and sing about why there’s a “boom and bust” cycle in modern economies and good reason to fear it.

On the podcast, Roberts discusses how they came up with the idea for a rap about economics, what audiences they are reaching, and the economic implications of some of the Keynesian based policies implemented to deal with the current deficit. Also, tune into hear what more to expect from Papola and Roberts at Econstories.tv in the future.

Washington Post – “The suit asserts that Goldman defrauded investors when it sold them a subprime-mortgage investment in 2007 that was secretly designed to lose value. The agency alleges that Goldman created and marketed the investment without telling its clients that Paulson & Co., a prominent hedge fund, had helped the bank assemble the investment while at the same time was placing bets that it would lose value. The bank received $15 million from Paulson & Co. for its services. “

To help staffers on Capitol Hill better understand the economics of taxation and our current tax options, the Mercatus Center hosted this lecture by Dr. Garett Jones, Assistant Professor of Economics at George Mason University. In his talk, Dr. Jones provides a fundamental overview of taxation and explores how shifts in tax policy affect individual behavior and the economy as a whole.

Dr. Jones discusses such questions as:

• How do taxes affect the incentives of individuals and firms?
• What are the economic and social trade-offs of different types of taxes and taxation systems?
• If we had to raise taxes, which tax would have the least effect on economic activity?
• What are the implications of a Value Added Tax (VAT)?

NYT – “The number of homeowners who defaulted on their mortgages even after securing cheaper terms through the government’s modification program nearly doubled in March, continuing a trend that could undermine the entire program…The Treasury Department said it could not explain the growing number of what it called cancellations, almost all of which were apparently prompted by the borrower’s being unable to make the new payment. A scant number — 37 — were because the loan had been paid off, presumably because the borrower sold the house. About seven million households are behind on their mortgage payments.”

WP – “Bernanke sounded the same restrained tone in describing his expectations that he did in testimony back in the winter. ‘On balance, the incoming data suggest that growth in private final demand will be sufficient to promote a moderate economic recovery in coming quarters,’ Bernanke said in prepared testimony. He added later that, ‘if the pace of recovery is moderate, as I expect, a significant amount of time will be required to restore the 8 1/2 million jobs that were lost during the past two years.’”

NYTimes - “A committee of economists, charged with determining the beginnings and ends of recessions, confirmed Monday that it cannot yet declare an end to the recession that began in December 2007.

‘Although most indicators have turned up, the committee decided that the determination of the trough date on the basis of current data would be premature,’ the group at the National Bureau of Economic Research said in a statement.”

Kenneth Rogoff - FT – “As the global economy reflates, many people are asking: “Is the next bubble in gold? Is it in Chinese real estate? Emerging market stocks? Or something else?” A short answer is “no, yes, no, government debt”…

…The real challenge for investors and policymakers is to detect large, systemically dangerous departures from economic fundamentals that pose threats to economic stability beyond mere price volatility. The answer, as Carmen Reinhart and I demonstrate drawing on centuries of financial crises, is to look particularly for situations with large rapid surges in leverage and asset prices, surges that can suddenly implode if confidence fades. When equity bubbles burst, investors who made money in the boom typically swallow their losses and the world trudges on, for example after the bursting of the technology bubble in 2001. But when debt markets collapse, there inevitably follows a long, drawn-out conversation about who should bear the losses. Unfortunately, all too often the size of debts, especially government debts, is hidden from investors until it comes jumping out of the woodwork after a crisis.”

WSJ – “Former Federal Reserve Chairman Alan Greenspan urged U.S. policy makers Wednesday to place significantly higher capital and collateral requirements on the financial-services industry, warning of the likelihood of future financial crises if steps aren’t taken to address “too big to fail” firms and the inability of the private market and regulators to predict major risks.”

What explains the migration decisions of young adults in the prime years of their working lives, people 25-39 years old, the builders of future economies? Are they driven to find emerging knowledge economies where returns to their investment in human capital may be highest? Or are they more oriented toward avoiding high taxes and onerous regulation and finding greater personal freedom? Do people migrating within the United States behave like foreigners migrating to the United States? Does protection of personal freedom matter? In short, what are the knowledge and freedom determinants of migration? These questions are discussed in this podcast with returning guest, Dr. Bruce Yandle.

Dr. Bruce Yandle is a Professor Emeritus and the BB&T Scholar at Clemson University, where he has been a faculty member since 1969. From 1976 to 1978, he was a senior economist on the staff of the President’s Council on Wage and Price Stability, where he reviewed and analyzed newly proposed regulations. In addition, Dr. Yandle was executive director of the Federal Trade Commission and is the author or co-author of numerous books and articles. He received his Ph.D. and M.B.A. from Georgia State University and his A.B. degree from Mercer University.

Related Research:

• Mercatus Working Paper: Can Freedom and Knowledge Economy Indexes Explain Go-Getter Migration Patterns?
  by Dr. Bruce Yandle and Tate Watkins
• Quarterly Economic Update , Capitol Hill Campus Presentation, March 2010

FT – David Roche and Bob McKee – “Sovereign debt is normally deemed risk-free. It is the touchstone by which other riskier financial assets are priced. It forms the core of low-risk portfolios destined to fund such real social needs as pensions and casualty and cataclysm insurance. It is the liquid asset that lies at the heart of current regulatory reforms to oblige banks to hold sovereign debt in proportion to their exposure to riskier assets and potentially illiquid short-term funding.

A repricing of sovereign debt as dangerous debt would be an earthquake for financial markets. It would blow a hole in the balance sheets of previously safe financial institutions. That would be a new chapter in the credit crisis. But it would be a logical progression.”

Forbes - “Something unusual happened over the past few weeks. Bank lending in the U.S. didn’t fall significantly.

Since the onset of the financial crisis, outstanding loans at U.S. commercial banks have been in a free fall. Over $600 billion in loans have been repaid or gone into default. Together, that represents an 8% contraction in credit.

Since the Federal Reserve began tracking loans in 1973, there has never been a significant drop in outstanding credit. “

Are we finally on the road to recovery or is there more economic turmoil to come? With markets staying reasonably high but unemployment also remaining high, policymakers, employers, and economists are uncertain about the days to come. Positive signs, such as 2009 finishing with a GDP of 5.9%, higher than expected, raised a little more confidence in our current situation. Though a major budget crisis is upon us and there is a fear that higher interest rates are just around the corner.

To keep Congressional staffers up to date on the current economic situation, the Mercatus Center hosts quarterly briefings that survey the current economic scene. Special attention is paid to inflation, GDP, unemployment, and interest rates. Hosted by Dr. Bruce Yandle, one of our most popular speakers, these quarterly briefings are free of charge and open to all congressional staffers.

In this quarterly update, Dr. Yandle addresses these questions:

• Are we on the road to recovery, or is there more economic turmoil to come?
• What sectors of the economy are bouncing back and which ones are lagging behind?
• Do we need to worry about inflation?
• What does unemployment look like and should we expect it to improve?
• What are the states’ economic outlooks and are some states recovering faster than others?

Learn more by downloading Dr. Yandle’s most recent Economic Situation Report.

WSJ - “A sudden drop-off in investor demand for U.S. Treasury notes is raising questions about whether interest rates will finally begin a march higher—a climb that would jack up the government’s borrowing costs and spell trouble for the fragile housing market.

For months, investors have focused their attention on the debt crisis in Europe, but there are signs the spotlight is turning to the ability of the U.S. to finance its own budget deficit.”

WSJ - “Fannie Mae and Freddie Mac won’t be allowed to return to a precrisis structure that rewarded shareholders with big profits for years but ultimately saddled taxpayers with massive losses, Treasury Secretary Timothy Geithner will tell a congressional panel on Tuesday.

The administration will outline broad principles for the future of the mortgage market at the hearing, including stronger consumer protections and explicit guarantees for any government backstop of mortgages.”

WSJ - “Consumer prices were flat in February—and even with volatile food and energy removed from the equation, the needle barely moved: Prices ticked up a scant 0.1%, the Labor Department said Thursday. Over the past year, prices have increased 2.1%, or 1.3% omitting food and energy, the smallest rise in six years.

Behind these numbers stands a huge excess—of workers, factory space and homes. Until more of the nation’s productive capacity comes into use and starts pulling workers off the unemployment line, the sellers of everything from golf clubs to paving machines have little ability to raise prices.”

WP - ”While the largest banks have borne the brunt of criticism for their role in triggering the crisis, they were among the quickest to give back their federal bailout funds. Sales of the warrants that these firms were required to hand over to the federal government as a condition of the aid also proved lucrative for the Treasury.

But hundreds of community banks have yet to return their bailouts. More than 10 percent of the 700 banks that got federal bailouts and are still holding the money even failed to pay the government a quarterly dividend in February.”

WSJ - “The market is not perfect. It is run by humans who make mistakes. But the same humans run government where they make different, often more costly, mistakes for which the public pays.”

NYT - “The Senate approved and sent to President Obama on Wednesday what Congressional Democrats hope will be the first in a series of bills spurring employment by providing tax breaks and other hiring incentives to businesses.

 
The measure, approved on a bipartisan vote of 68 to 29, would give employers an exemption from payroll taxes through the end of 2010 on workers they hire who have been unemployed for at least 60 days. It also extends the federal highway construction program and takes other steps to boost public building projects.”

The current outlook for states is dire. In recent reports, states are expected to face a cumulative budget shortfall of $193 billion for fiscal year 2010. Federal bailouts, increased taxes, and budget gimmicks are emerging as solutions to fill budget gaps. It is critical that states employ policies and practices that enhance economic competition.

Joining us today to discuss just where your state ranks and how states can avoid losing that competitive edge is Professors William Ruger of Texas State University and Jason Sorens of the University of Buffalo. They are the authors of the Mercatus Center’s “Freedom in the 50 States” that ranks each state on economic, personal and regulatory freedoms.

Related Research:

• Freedom in the 50 States: an Index of Personal and Economic Freedom
• Event Video: Boosting Economic Competitiveness in the 50 States

There is an emerging trend of state attorney generals serving as enforcement arm of the federal government by issue of federal law. On the podcast this week we discuss how the role of the state attorney general has changed through history, and how this current trend effects federalism.

Joining us to discuss these issues is Rob Raffety, the Associate Director of the Regulatory Studies Program and the Government Accountability Project at the Mercatus Center. In this capacity, Rob manages research for a wide network of economic, legal, and public policy scholars. Aside from his duties at Mercatus, Rob is an adjunct professor of law and public administration for the GMU School of Law and the Department of Public and International Affairs and teaches a seminar on attorney generals.

Dr. Veronique de Rugy
Senior Research Fellow
Mercatus

Dr. Donald Marron
Visiting Professor
Georgetown Public Policy Institute

Dr. Maya MacGuineas
President
Committee for a Responsible Federal Budget

Our nation is facing a budget crisis at both the state and federal levels. The federal government’s budget deficit reached $389 billion through the first three months of fiscal 2010 and states are expected to face cumulative budget shortfalls of $193 billion for fiscal year 2010.

In light of this critical situation, what steps should Congress and the President take to restore common sense budgeting practices and rein in federal spending? Join us as three veteran budget experts provide an overview of the President’s FY 2011 Budget Proposal, and discuss ways to reform the federal budget process to restore confidence in federal budgeting practices.

Dr. Veronique de Rugy is a senior research fellow at the Mercatus Center. Her research interests include the federal budget, homeland security, and tax issues.

Dr. Donald Marron is a visiting professor at the Georgetown Public Policy Institute in Washington, DC, where he teaches microeconomics and public finance. From 2002-2009, he served as a Member of the President’s Council of Economic Advisers, Acting Director of the Congressional Budget Office, and Executive Director of the Congressional Joint Economic Committee.

Dr. Maya MacGuineas is President of the Committee for a Responsible Federal Budget at the New America Foundation. She is an expert on the budget process, and served as a Social Security advisor to the McCain 2000 campaign and has also worked at the Brookings Institution, the Concord Coalition and on Wall Street.

For more information and research on spending and budget issues, please visit the Mercatus Center’s new Spending and Budget Initiative website.

The Mercatus Center at George Mason University recently played host to Mercatus Affiliated Scholar and 2009 Nobel Prize Winner in Economics, Elinor Ostrom. She joined the Mercatus Center to discuss the unique research agenda of the Workshop in Political Theory and Policy Analysis at the Bloomington School.

During her visit, Dr. Ostrom sat down with the host of Inside State and Local Policy, Jim Musser, to discuss her pioneering work in economics, her fascinating field work and the tradition that has become known as the Bloomington School of Economics.

Dr. Yandle joins us again to discuss the latest news in the economy as 2010 kicks-off and trends happening in the states. As the economy continues to give mixed signs of recovery, Dr. Yandle discusses the role of the states in this recovery and the top significant economic trends.

Dr. Bruce Yandle is a Professor Emeritus and the BB&T Scholar at Clemson University, where he has been a faculty member since 1969. From 1976 to 1978, he was a senior economist on the staff of the President’s Council on Wage and Price Stability, where he reviewed and analyzed newly proposed regulations. In addition, Dr. Yandle was executive director of the Federal Trade Commission and is the author or co-author of numerous books and articles. He received his Ph.D. and M.B.A. from Georgia State University and his A.B. degree from Mercer University.

Related Materials:

• Economic Situation Report

Massachusetts like most states grappled with a significant decline in revenue (2.5 billion in MA) in 2009. Despite efforts by way of spending cuts and tax increases to create a sustainable 2010 budget in Massachusetts, there is still a 600 billion gap. In reaction to this volatile cycle, the Beacon Hill Institute has put forth recommendations in their recent publication “Massachusetts Fiscal Policy: The Legend v. the Facts” on how states can move away from relying on forecasting tax revenues, which are unstable in recessions and economic downturns, and enact reforms to eliminate a structural deficit.

Joining us to talk about this project is Paul Bachman, Director of Research for the Beacon Hill Institute. Mr. Bachman shares how the Institute conducted this research project and offers specific recommendations that all states can enact to cure these budget woes.

Related Research:

• Massachusetts Fiscal Policy: The Legend v. the Facts

• BHI Massachusetts State Revenue Forecast

Dr. Bruce Yandle
Professor Emeritus and BB&T Scholar
Clemson University
Distinguished Adjunct Professor of Economic
Mercatus Center at George Mason University

The economy continues to give mixed signs of recovery. While manufacturing in the U.S. has expanded for the fourth month, the U.S. jobless rate jumped up 0.4 percentage point to 10.2% in October. However the latest preliminary unemployment report indicates the rate dipped to 10% in November.

To keep Congressional staffers up to date on the current economic situation, the Mercatus Center at George Mason University hosts quarterly briefings that survey the economic scene. Specific attention is paid to GDP data, employment, inflation, and interest rates, all conveyed in a way that is understandable to the economist and non-economist alike. This “birds-eye-view” of the economy will be valuable to staffers interested in promoting policies intended to aid economic performance.
Topics to be discussed shall include:

• How has the economy fared overall in the past quarter and what can we expect from the economy in the next quarter?
• How has the labor market changed across states and who is the best and the worst off?
• What has the weakening dollar meant for the economic outlook?

Hosted by Dr. Bruce Yandle, one of our most popular speakers, these quarterly briefings are free of charge and open to all senior congressional staffers. Bruce Yandle is a Professor Emeritus and the BB&T Scholar at Clemson University, where he has been a faculty member since 1969. From 1976 to 1978, he was a senior economist on the staff of the President’s Council on Wage and Price Stability, where he reviewed and analyzed newly proposed regulations. In addition, Dr. Yandle was executive director of the Federal Trade Commission and is the author or co-author of numerous books and articles. He received his Ph.D. and M.B.A. from Georgia State University and his A.B. degree from Mercer University.

Several states are facing huge structural budget deficits as they come back to their state capitols this month. In the past year several states raised taxes to deal with budget gaps. These taxes were generally on minority groups such as high-income earners, smokers, out-of-state business transactions, or other targeted groups. In this podcast we discuss some of the trends in taxation from 2009, what to expect in state taxes in 2010 and what are sustainable options for states to balance their budget with declining revenues due to the economic downturn.

Joining the podcast to discuss these issues is Joe Henchman of the Tax Foundation. Mr. Henchman, is the Tax Counsel and Director of State Projects at the Tax Foundation in Washington DC.

Relevant Research:

• A Review of Significant State Tax Changes During 2009

StimulusWatch.org, the website that has attracted over 3 million visitors, has recently re-launched. While the original site featured proposed stimulus projects taken from the U.S. Conference of Mayors survey, the new version contains actual stimulus spending in your neighborhood from the information recently released by recovery.gov.

In this podcast we discuss: how to find stimulus projects in your community, phantom districts, and interesting ways to use the data provided on the site.

Joining us to discuss this innovative website is one of the creators,  Jerry Brito. Brito is a senior research fellow at the Mercatus Center at George Mason University, and director of its Technology Policy Program. He also serves as adjunct professor of law at George Mason University. His research focuses on technology and telecommunications policy, government transparency and accountability, and the regulatory process. Jerry is the also creator of OpenRegs.com, an alternative interface to the federal government’s regulatory docketing system.

Please visit www.stimluswatch.org and comment on projects in your neighborhood!

Sub-local forms of governments (private community associations, business improvement districts, etc) have been on the rise throughout America the past thirty years. Sub-local governments can specialize and otherwise more effectively address urban problems that have defied the efforts of conventional city governments. Professor Nelson joins us on the podcast to discuss what the rise in more localized systems means for city and urban governance and the provision of public goods at various levels of government.

Robert Nelson is a Professor at the University of Maryland’s School of Public Policy and a Senior Scholar at the Mercatus Center. Prior to joining the University of Maryland, Dr. Nelson worked in a variety of government posts addressing public policy in the areas of the environment, industry, and land use policy.

TABOR (the Taxpayers Bill of Rights) is on the ballot in two states (Maine and Washington) this week for the first time since it was enacted in 1992 in Colorado by voters. TABOR limits state spending from increasing faster than the growth of state population plus inflation in any given year. On this podcast we discuss the orgins of TABOR in California in the 1970s, where Colorado is now after 20 years of TABOR, and what the passage of TABOR in one or both of these states will mean for nation.

Joining us to discuss TABOR is Jonathan Williams, Director of the Tax and Fiscal Policy task force for the American Legislative Exchange Council and a co-author of Rich States, Poor States. Mr. Williams has been working in both Maine and Washington to discuss the benefits of TABOR.

Over the last 10 years spending has gone up dramatically at both the federal and state level. The progression of spending as a percentage of GDP over the last decade has risen from 18% to over 26%. This trend is not only true for the federal government, but also in many states. In this episode  Dr. Veronique de Rugy, a senior research fellow at the Mercatus Center, joins us to discuss the dangers of the spending addiction, fiscal federalism, unfunded mandates to the states, and provides recommendations to state policy makers on unique ways to gain revenue.

Dr. de Rugy’s research interests include tax competition, financial privacy, spending, and fiscal sovereignty issues. She holds a Ph.D. in Economics from the University of Paris-Sorbonne.

Related Research:

• Will the Stimulus Bill Crowd Out Good Economics?
• President Obama’s First Budget
• Spending Under George Bush

This week we talk with the Tax Foundation to discuss their interesting and telling new publication the “2010 State Business Tax Climate Index.” The Index measures the competitiveness of the 50 states’ tax systems and ranks them accordingly based on the taxes that matter most to businesses and business investment: corporate income, individual income, sales, property and unemployment insurance taxes. Tune in to find out which states come out on top and bottom, and what policy makers can do to boost their ranking.

Joining us to discuss the findings of the Index is author Dr. Kail Padgitt. Dr. Padgitt holds a Ph.D and Master’s degree in economics from George Mason University concentrating on the areas of Public Economics, Industrial Organization and Experimental Economics. Kail has taught Public Choice and International Economics at George Mason University.

Related Materials:

• 2010 State Business Tax Climate Index, Tax Foundation

Dr. Yandle joins us from Capitol Hill to discuss the latest news in the economy and trends happening in the states as a result of the recession. In this podcast we discuss: signs of the recession ending, unemployment outlook in the US, what states will be the leaders in pulling us out of recession, explanation of the knowledge economy, and migration trends between states.

Dr. Bruce Yandle is a Professor Emeritus and the BB&T Scholar at Clemson University, where he has been a faculty member since 1969. From 1976 to 1978, he was a senior economist on the staff of the President’s Council on Wage and Price Stability, where he reviewed and analyzed newly proposed regulations. In addition, Dr. Yandle was executive director of the Federal Trade Commission and is the author or co-author of numerous books and articles. He received his Ph.D. and M.B.A. from Georgia State University and his A.B. degree from Mercer University.

Related Materials:

• Dr. Yandle’s Presentation on Capitol Hill (9/11/2009)
• September Economic Situation Report by Dr. Yandle

Russ Roberts, PhD
Professor of Economics
George Mason University

Arnold Kling, PhD
Former Economist
Federal Reserve and Freddie Mac
Member
Mercatus Center Financial Markets Working Group

Twelve months after the failure of Lehman Brothers, introduction of TARP, a freeze-up of interbank lending, and the beginning of a stock market roller coaster ride, what do we know about what really happened? What really caused the housing bubble and how did that lead to the crisis? If the crisis was the result of many mistakes, how should we go about thinking about what kinds of mistakes were made and who is really at fault?

Russ Roberts, PhD and Arnold Kling, PhD present the findings of their in-depth investigations of the causes and nature of this unique economic event.

Dr. Bruce Yandle
Professor Emeritus and BB&T Scholar
Clemson University
Distinguished Adjunct Professor of Economic
Mercatus Center at George Mason University

With unemployment slightly declining and GDP expected to rise, Americans are beginning to hope that the economy is on the mend. In July, the unemployment rate came in at 9.4%, a tenth of a percent lower than the previous month while the Dow Jones average moved above 9,000. These positive changes signal an improvement however economists and policymakers still fear another downturn.

To keep Congressional staffers up to date on the current economic situation, the Mercatus Center at George Mason University hosts quarterly briefings that survey the economic scene. Specific attention is paid to GDP data, employment, inflation, and interest rates, all conveyed in a way that is understandable to the economist and non-economist alike. This “birds-eye-view” of the economy will be valuable to staffers interested in promoting policies intended to aid economic performance.

Topics to be discussed will include:

• Have we hit the bottom of the recession?
• Will unemployment continue to improve?
• How do each of the 50 states compare in this tough economic climate?
• Which states are leading the charge and which states lag behind?
• What can we expect from the American Economy in the third quarter of 2009?

Hosted by Dr. Bruce Yandle , one of our most popular speakers, these quarterly briefings are free of charge and open to all senior congressional staffers.

Bruce Yandle is a Professor Emeritus and the BB&T Scholar at Clemson University, where he has been a faculty member since 1969. From 1976 to 1978, he was a senior economist on the staff of the President’s Council on Wage and Price Stability, where he reviewed and analyzed newly proposed regulations. In addition, Dr. Yandle was executive director of the Federal Trade Commission and is the author or co-author of numerous books and articles. He received his Ph.D. and M.B.A. from Georgia State University and his A.B. degree from Mercer University.

Download Dr. Yandle’s Quarterly Economic Report.

The Mercatus Center at George Mason University recently released the study, “Institutions Matter: Can New Jersey Reverse Course?” by Eileen Norcross and Frederic Sautet. They examine the current dire strait of the Garden State’s public finances and discuss how the state created its fiscal crisis. The study includes an examination of over 30 years of public policy decisions that led to the state’s large budget deficit. The paper recommends specific reforms to help the state right its fiscal ship, including legislating better constitutional rules to constrain spending, simplifying and flattening the tax system, and reducing budget gimmickry.

Joining us is one of the author’s of this study, Eileen Norcross. Eileen is a senior research fellow at the Mercatus Center at George Mason University and the lead scholar on the Mercatus Center’s State and Local Policy Project. She blogs on state and local issues at Neighborhood Effects. During this episode she talks to us about how New Jersey got to this point and offers state policy makers a roadmap of what not to do.

Related Research:

• Institutions Matter: Can New Jersey Reverse Course?

Russ Roberts
Professor of Economics
George Mason University
J. Fish and Lillian F. Smith Professor of Economics Chair
Mercatus Center at George Mason University

For years, Russ Roberts has led a seminar on the fundamentals of trade, taking the lessons from basic economics and applying them to our economic situation. In this revised seminar, Roberts adds new insights that will help participants understand just what’s at stake with trade policy and how traditional models of trade can mislead.

Join us we address such questions as:

• How does trade create prosperity?
• What is at stake when we alter our trade policy? Why is trade policy more volatile during a recession?
• What’s wrong with Buy American or Buy Local? Who wins and loses when trade is restricted?

Eileen Norcross
Senior Research Fellow
Mercatus Center at George Mason University

Jerry Brito, JD
Senior Research Fellow
Mercatus Center at George Mason University

On February 17, 2009, President Obama signed the American Recovery and Reinvestment Act, one of the largest government spending projects since the Great Depression. When the $789 billion plan was passed, the Obama Administration made a pledge “to spend wisely, reform bad habits and do their business in the light of day.” To follow through on that commitment, the government created the website, recovery.gov which enables every citizen to monitor the progress of the recovery.

Almost five months have gone by since the bill was passed. As Congress’s August recess approaches, policy makers are preparing to return to their districts where their constituents will hold them accountable. Even with recovery.gov up and running, the stimulus and its transparency remains a subject of debate. To help congressional staffers better understand the current status of the Stimulus and Stimulus Transparency, the Mercatus Center at George Mason University will host a panel with Eileen Norcross and Jerry Brito, co-creators of StimulusWatch.org and Senior Research Fellows at the Mercatus Center. Join us as we address such questions as:

• What is the current status of the Stimulus Plan? What portion of the money has been spent or committed?
• What does stimulus transparency mean for members of congress and their constituents? What are the current activities of the Recovery Accountability and Transparency Board?
• How can citizens track the stimulus? What is being done with regards to the Recovery.gov effort?

David Hyman, MD, JD
Professor of Law
University of Illinois

Click here to view Dr. Hyman’s research paper.

In most current public opinion polls, health care, and specifically concern over the uninsured, ranks as one of the top issues facing our country. For decades, Congress had considered a variety of solutions to cure this problem, but the complex nature of the issue has proven difficult to overcome. In this lecture, Dr. David Hyman will break down both the problems facing the uninsured and the challenges facing the different solutions that have been proposed.

He will address the following four key issues:

• What demographic groups make up the majority of America’s uninsured? How is the 45.7 million uninsured figure calculated?
• Does expanding access guarantee patients will receive high quality care?
• Who pays for employment based coverage?
• Will current policy proposals be able to solve the cost problems of American health care?

My Podcast Alley feed! {pca-ecbd5b6fb7d7f1871b95d8ec83d6fc37}

Karol Boudreaux
Senior Research Fellow, Lead Researcher, Enterprise Africa!
Mercatus Center at George Mason University

Click here to view Ms. Boudreaux’s Powerpoint Presentation.

With the advent of a new political party, the Congress of the People (COPE) (a breakaway group from the ruling African National Congress (ANC)), this presidential election will be the most significant event since the end of the Apartheid. It will not only have a substantial impact on the future of South Africa but of the southern African region more broadly.

It has been fifteen years since the end of the Apartheid and despite aggressive attempts to improve South Africa’s social and economic situation, the country still struggles with high unemployment rates, corruption, and a spreading AIDS epidemic. Locals, international organizations, and foreign governments have invested a large amount of resources to help restore this country and region. In 2007 alone USAID spent $128 million on development programs in South Africa. Could this new election open new doors for development or show progress towards a less corrupt government?

To discuss this upcoming election and its potential impact on economic growth and development, the Mercatus Center at George Mason University is proud to present a lecture by Karol Boudreaux. Ms. Boudreaux is a senior research fellow at the Mercatus Center; lead researcher for Enterprise Africa!, a research project that investigates, analyzes, and reports on enterprise-based solutions to poverty in Africa; and a member of the Working Group on Property Rights of the U.N.’s Commission on Legal Empowerment of the Poor. Join us as we address such questions as:

• What are the key policy issues facing South Africa today?
• What effect will the election have on economic growth and development in South Africa and its neighboring countries?
• What implications does the election have on U.S. policy toward Sub-Saharan Africa?

Dr. Antony Davies
Associate Professor of Economics
Duquesne University

Click here to view Dr. Davies’s Powerpoint Presentation.

Although the United States is in the midst of a financial crisis and an economic recession, immigrants keep coming, but who is coming? Immigration is often categorized into various distinctions; legal vs. illegal, low-skilled vs. high-skilled. Within the political debate a significant amount of emphasis is placed on low-skilled illegal workers, but what about the high-skilled immigrants? How do they impact our country?

Each year companies from around the United States are able to temporarily employee foreign workers in specialty occupations. These occupations include and are not limited to positions in architecture, medicine, engineering, mathematics, and education. For these workers to legally reside in the country, the federal government issues them an H-1B visa which is meant only for high-skilled foreigners.

Now that our economy has weakened and many people are unemployed, the debate around immigration may shift towards these H-1B visas and if foreigners should be able to enter the country for jobs that could otherwise be employing Americans. To address the issue of high-skilled immigrants, the Mercatus Center at George Mason University is proud to present a lecture by Dr. Antony Davies, Associate Professor of Economics at Duquesne University. Dr. Davies will present the latest research on high-skilled immigration and its impact on the American Economy. Join us as we address such questions as:

• What impact do high-skilled immigrants have on our labor force and our economy as a whole?
• Do these immigrants become more of a government burden or key contributors to America’s entrepreneurship?
• Should the H-1B Visa quotas change during challenging economic times?

Dr. Bruce Yandle
Professor Emeritus and BB&T Scholar
Clemson University

Click Here to view Dr. Yandle’s March Economic Situation Report.
Click Here to view Dr. Yandle’s presentation from this event.

By 2009 the recession has seemingly become a common fixture in our mindset. Although we are currently in a period of deep uncertainty about the future, some have started to look for what may be on the horizon. Building upon the idea of trust in the marketplace, GDP data, and economic indicators from the employment and housing sectors, Dr. Bruce Yandle will present his most recent insights into our current economic situation.

We shall examine questions such as:

• How have the mechanisms to support trust in the financial markets been eroded and how might they be rebuilt? How can we avoid future panic?
• Have we hit the bottom of the recession? How is this recession different from those of recent years?
• How have monetary policy, fiscal policy, and industrial policy come into play on the public policy side of things?

Hosted by Dr. Bruce Yandle, one of our most popular speakers, these quarterly briefings are free of charge and open to all senior congressional staffers. Bruce Yandle is a Professor Emeritus and the BB&T Scholar at Clemson University, where he has been a faculty member since 1969. From 1976 to 1978, he was a senior economist on the staff of the President’s Council on Wage and Price Stability, where he reviewed and analyzed newly proposed regulations. In addition, Dr. Yandle was executive director of the Federal Trade Commission and is the author or co-author of numerous books and articles. He received his Ph.D. and M.B.A. from Georgia State University and his A.B. degree from Mercer University.

Jerry Brito, JD
Senior Research Fellow
Mercatus Center at George Mason University

Dr. Jerry Ellig
Senior Research Fellow
Mercatus Center at George Mason University

Click Here to view Dr. Ellig’s presentation.

Hon. Maurice McTigue
Director, Government Accountability Project
Mercatus Center at George Mason University

Click Here to view Hon. McTigue’s presentation.

With the passage of the American Recovery and Reinvestment Act the U.S. Congress marked a new strategy in combatting economic uncertainty. In order to make certain that appropriated funds will be spent quickly and wisely, new accountability measures have been incorporated, including the use of Recovery.gov and stringent oversight. Such accountability reforms often focus on holding agencies responsible for producing outcomes – tangible benefits that citizens value. Meanwhile, the United States will run unprecedented budget deficits in fiscal years 2008 and 2009, and possibly into the future as well. When comparing the U.S. fiscal experience with the experiences of other nations, we find that America is also reaching a level of deficit as percent of GDP that prompted other countries to adopt significant rule-changes to promote budget accountability. Discussion on these issues will help ensure that stimulus funds are truly spent wisely and within a responsible budget.

To this end, the Mercatus Center is pleased to host a panel of distinguished scholars to share their perspective on these questions:

• How does the U.S. compare to other industrialized countries who have had major budget deficits?
• How large do budget deficits grow before there are calls for greater budget accountability on the part of government? What instruments have other nations used to control costs when this point is reached?
• What kind of measures for accountability have been built into the American Recovery and Reinvestment Act? How can we improve upon the measures already in place?
• How can technology be used as a tool to promote accountability?

Breaking Down the Tax Burden
Dr. Sarah Nutter
Associate Professor of Accounting
George Mason University

Click Here to view Dr. Nutter’s Powerpoint Presentation.

Taxation has always been a major part of American politics and continues to be a focus for debate and discussion. Policymakers aim to create a tax system that meets the government’s needs and goals yet does not hinder the individual or corporation to a significant extent. To better understand the economics of taxation and our current tax system, the Mercatus Center at George Mason University is pleased to present a two-day course on the American Tax System.

With tax cuts being implemented and more people being subject to the Alternative Minimum Tax, the sources of our federal income is likely to shift. To take a more intricate look at our current tax system, Dr. Sarah Nutter of George Mason University will present a detailed analysis of our federal income and examine such issues as the tax burden, progressive and regressive tax systems and the Alternative Minimum Tax.

Join us as we examine such questions as:

• What factors do economists consider when studying tax policy?
• How do taxes affect the incentives of individuals and firms?
• What are the economic and social trade-offs of different types of taxes and taxation systems?
• What does the demographic breakdown of our American tax burden look like?
• How will tax cuts change where our federal revenue comes from?

Session One: Tuesday March 3, 2009
The Economics of Taxation
Dr. Garett Jones
Assistant Professor of Economics
George Mason University

Click Here to view Dr. Jones’s Powerpoint Presentation.

Taxation has always been a major part of American politics and continues to be a focus for debate and discussion. Policymakers aim to create a tax system that meets the government’s needs and goals yet does not hinder the individual or corporation to a significant extent. To better understand the economics of taxation and our current tax system, the Mercatus Center at George Mason University is pleased to present a two-day course on the American Tax System.

As April 15th approaches and families and corporations start filing tax returns, the affect of taxes becomes more apparent. How will taxes influence firms’ and people’s actions and how will it affect the economy as a whole? To better understand the economics of taxation, Dr. Garett Jones of George Mason University will provide a fundamental overview and explore how shifts in tax policy affect individual behavior and the economy as a whole.

Join us as we examine such questions as:

• What factors do economists consider when studying tax policy?
• How do taxes affect the incentives of individuals and firms?
• What are the economic and social trade-offs of different types of taxes and taxation systems?
• What does the demographic breakdown of our American tax burden look like?
• How will tax cuts change where our federal revenue comes from?

Dr. Thomas Klier
Senior Economist
Federal Reserve Bank of Chicago

Please Click here to view Dr. Klier’s power point presentation.

When the top executives from the “Big Three” auto manufacturers came to Washington to seek aid from the federal government they claimed that the domestic auto industry was vital to the overall U.S. economy. Certainly, it has been key to Michigan’s economy for many decades. Yet while the state continues as the center of the U.S. auto industry, its role has been diminished as foreign automakers tended to locate their production facilites in the southern states. As a result, the geography of the auto industry has changed rather dramatically in the last 30 years.

In addition to the auto manufacturers, the auto industry includes many motor vehicle parts suppliers. That part of the industry is large – parts suppliers contribute about 70% of the value added of a motor vehicle – but not as well understood as the assembly sector.

Dr. Thomas Klier from the Federal Reserve Bank of Chicagoand co-author of the new book, “Who Really Made Your Car? Restructuring and Geographic Change in the Auto Industry” will join the Capitol Hill Campus Program for a special look at the auto industry.

In this session we will address questions such as:

• What role do parts suppliers play in the overall auto industry and why are they important?
• Where are auto manufacturers locating new plants? What is the “auto corridor”? Are producers moving out of the Midwest?
• What may the auto industry look like in the next decade?

Daniel Kaufmann
Senior Fellow, Global Economy and Development
Brookings Institution

Please Click Here to view Dr. Kaufman’s Powerpoint presentation.

Garett Jones
Assistant Professor of Economics
George Mason University

Please Click Here to view Dr. Jones’s Powerpoint presentation.

J.W. Verret
Assistant Professor of Law
George Mason University

Please Click Here to view Mr. Verret’s Powerpoint presentation.
With the first phase of TARP behind us, and TARP II ready to begin, this course will examine some of the potential challenges and hazards of this extraordinary involvement in the financial sector. With the federal government taking various degrees of ownership of banks, what can policymakers expect will be the outcome? In the third installment of our ongoing series on the current financial crisis, the Mercatus Center will present a panel of experts to discuss these issues and answer important questions, such as:

• What conflicts could arise between the interests of shareholders and those of taxpayers?
• What will be the Treasury’s duties to shareholders and how will companies pursue their traditional ends of wealth maximization?
• What’s the difference between preferred and common stock, and how does each change the role the government will play?
• What are the benefits and costs of creating an Aggregator Bank?
• What lessons can we draw from other countries’ experiences in similar interventions in light of this new role for government?
• What alternatives are available under TARP to recapitalize banks using existing resources?

Karol Boudreaux
Senior Research Fellow, Lead Researcher, Enterprise Africa!
Mercatus Center at George Mason University

Eileen Norcross
Senior Research Fellow
Mercatus Center at George Mason University

Daniel Rothschild
Associate Director, Global Prosperity Initiative
Mercatus Center at George Mason University

Why do some societies prosper, while others remain stagnant and poor? Why do some economies remain strong while others fail? The Mercatus Center’s Global Prosperity Initiative works to answer these important questions by conducting scholarly research that helps policy makers better understand the driving forces behind international economic development as well as economic growth and opportunity in the United States. In this program, Mercatus scholars will share some of their recent findings and explore the problems of domestic and international economic development and how scholarly research is helping to address these questions.

Fear of a deep recession has led policymakers to propose an unprecedented stimulus package to save the economy, a sort of Main Street economic recovery package that would rely heavily on federally-funded infrastructure projects to create jobs and stimulate economic activity. How have similar measures performed in the past, and what concerns should policymakers consider when evaluating such policy? What institutional structures support economic growth and opportunity?

Looking across the Atlantic Ocean leads us to another but related question: While most regions of the world witness increased standards of living, better health care, and greater economic opportunity, why does sub-Saharan Africa continue to face famine, wide-spread disease, high levels of political corruption, and war? While South Africa has managed to avoid some of the most catastrophic problems associated with their neighbors, they have still been plagued with economic and social troubles that no promised silver bullet has yet addressed.

In April, South Africa faces the most important election in since that transition. What effect will the emergence of a new major party have on the election? What implications does the election have for US policy towards South Africa and the continent?

Please join us as the Mercatus Center hosts an expert panel to address these important topics.

Dr. Roy T. Meyers
Professor of Political Science and
Director of the Sondheim Public Affairs Scholars Program
University of Maryland, Baltimore County

Click Here to view Dr. Meyers’s powerpoint presentation.

Every year the president presents a proposed budget to the Congress and the Congress drafts a budget resolution, spurring heated discussion about the nation’s spending and tax policies and the resulting deficits or surpluses. Though this year’s process will follow this basic pattern, the financial crisis and the economic recession have significantly increased our nation’s budgetary challenges. The Congressional Budget Office recently announced a projected budget deficit of $1.2 trillion for the current fiscal year, which does not count the likely costs of an economic stimulus package and additional appropriations for war fighting. Medium- and long-term projections show budgets that most think are unsustainable.

In recent years, discontent with the current budget process has grown. In response, congressional leaders and others have proposed a variety of budget reforms, such as stronger PAYGO rules, earmark limits, procedural triggers for excessive mandatory spending, and budget policy commissions. While many of these proposals have not yet received sufficient support to be adopted, the exploding debt of the U.S. will soon force the Congress to consider credible reforms to its budget process.

To discuss the current budget situation and possible reforms to the federal budgetary process, the Mercatus Center at George Mason University will host a lecture by Dr. Roy Meyers, a budgetary expert and former analyst at the Congressional Budget Office (CBO). Join us as we address such questions as:

• What is our current budget situation and how will the projected deficits affect us?

• What are the symptoms of a broken budget process? What are the major proposals to fix it?

• Will these proposed reforms work? Are there better alternatives?

Industry Input and Regulatory Reform
Dr. Bruce Yandle
Professor Emeritus and BB&T Scholar
Clemson University

Click here to view Dr. Yandle’s presentation.
Click here to view the video of this presentation.

Understanding the Effects of Bankruptcy
Todd Zywicki
Professor of Law
George Mason University

Government Ownership and Shareholders Rights
JW Verret
Assistant Professor of Law
George Mason University

Click here to view Mr. Verret’s presentation.
Click here to view Mr. Verret’s handout.

In part two of our successful ongoing series, the Mercatus Center’s Financial Markets Working Group will present a panel of experts on various aspects of the financial crisis and its implications for policy. What does Congressional staff need to know about financial markets? How should policy be crafted in light of lessons from economics? What should regulation of the financial and banking sectors looks like?

Drawing upon the Mercatus Center’s expertise in regulatory analysis, the Financial Markets Working Group combines scholarly research with a deep understanding of the policy process to offer productive ideas to address the serious problems in financial markets. In this, the Group’s second event for Congressional and Agency staffers, our scholars will provide a substantive briefing of some of the underlying issues currently being debated in Congress, such as:

• How does industry react in the face of regulatory reform? What insights can economics provide on the issues of regulatory capture and rent seeking by regulated industries? What steps can policymakers take to ensure they are making the best decisions?
• What exactly does it mean when a company files for bankruptcy? What is the difference between a Chapter 11 and a Chapter 7 filing? What role can courts play in reorganization of insolvent firms?
• What rights do shareholders have when disagreements arise about the management of a firm? How can the use of proxies help or hinder the exercise of these rights? How does the Governments role as a large stakeholder in the financial services sector change this dynamic?
• How are economists viewing the overall situation still unraveling in the financial markets? What unique perspective can academics bring to the table?