The Liberal Order

Rahm Emanuel and the R-Word

Shouldn't Rahm Emanuel be forced into ideological boot camp re-education camp sensitivity training for this? Why does he get off so easy?

The Who and the Super Bowl

Wasn't watching The Who perform during the halftime of the Super Bowl as painful as watching Dick Clark hosting the New Year's Eve celebration?

"CEOs and Custodians"

Duke University Professor Kenneth Dodge opines in Sunday's News & Observer (not online):

1. that CEO pay is too great and that income inequality in the U.S. is greater than it is in any other developed country;
2. and his solution is to regulate CEO pay so that it cannot be greater than one hundred times what the lowest paid employee of the firm earns.

First, might it be that the income inequality in the U.S. relative to other developed nations is a feature, not a bug, of sound economic policy. (Which we may be losing, by the way.) Looking at the list, with a Gini coefficient of 15.9, income inequality is indeed greater in the United States relative to Canada (9.4), Denmark (8.1), France (9.1), Germany (6.9), the Netherlands (9.2), Sweden (6.2) and Switzerland (9). Compare this to Argentina (40.9), Bolivia (168.1), Columbia (68.3), Central African Republic (69.2), Lesotho (105), and Venezuela (48.3). Is he implying that to much capitalism causes less income inequality? He certainly can't be boasting about the income inequality in the least free countries, could he? And then seek to make the U.S. economy less free?

Maybe the explanation for the higher income inequality in the U.S. relative to other developed nations is due to greater innovation and invention (i.e., entrepreneurship) in this country relative to the other developed nations cited above. Larry Page and Sergey Brin, Pierre Omidyar, Steve Jobs, Bill Gates, T.J. Rogers, Ben Huh, Charles Koch, and on, and on, and on for this country seems to be absent in those other countries. This seems to me a benefit of income inequality, not a curse, notwithstanding the laments by those envious of the successful.

On the part of CEO pay and Professor Dodge's recommendations, why is it that when a market fails there is an immediate call for more government intervention, but when government fails there is no corresponding call to rely more on markets? The question that needs to be asked prior to any legislation dictating wages is what may be causing this inequality? If the wage differential between a CEO and the firm's janitors is a function of an oversupply of janitors and an undersupply of CEO talent, then the differential seems to me efficient and any move to reduce that inequality simply makes the firm and its shareholders (and its employees, including the janitor) worse off. Show me that the market for janitors and CEOs is somehow inefficient - cries of something being unfair are unfounded and subjective. What professor Dodge is telling us is that people are too stupid to see the inefficiencies in the wages of CEOs and his plan, which is based on the enlightened intervention of highly intelligent technocrats, is superior to what people freely choosing on their own would produce.

Can there be inefficiencies? Indeed, but then you must explain how they got there. I would argue that absent competition within the firm, there must be some obstacle to competition for control of the firm outside the firm. How about the following government-induced changes that changed the corporate structure?

1. Anti-hostile takeover laws that make it difficult for outsiders to now take control of a firm that is currently run inefficiently.
2. Government protection barring or reducing competition that would prevent existing firms from becoming too big. The larger the firm, the greater the reward to the CEO heading that firm. If it's so big that the firm is operating inefficiently, including the wages paid to its CEO, then what's barring competition from making the firm smaller?
3. The increased regulatory measures that make the CEOs job less desirable and less secure, as well as requiring additional political savvy to navigate the regulatory minefield. This also includes the more prevalent and onerous legal malpractice environment that requires CEOs to now have not just business experience, but the additional skills and stomach needed to steer their firm around these obstacles.

Rather than adding another layer of government regulation on the edifice that currently exists, which likely contributes to the problem, how about increasing the level of market competition for control of the firms and its products by releasing markets from the existing regulatory stranglehold.

Leno and Letterman In Super Bowl Ad

Here is the story behind one of the best (of the abysmally few) ads that aired during the Super Bowl.

Wise Words From Arnold Kling

Ultimately, I think that democracy is a very unreliable friend of economic freedom. The ability to vote with your feet is more valuable than the ability to cast a ballot. The trend in the U.S. is toward giving people less power to vote with their feet, as power becomes more centralized. If the median voter would like more decentralization, that is one message that is not getting through.

Here's the link.

In an outstanding explanation of the limits of democracy - it is a means, not an end - Mike Munger argues:

[W]e don't just demand too little of our democratic procedures, we are expecting too much of our democratic process. The educational system in the U.S. has failed students, because we don't know the limits of unlimited democratic choice. We teach that consensus as a value in itself, even though we know that true consensus appears only in dictatorships or narrowly defined decisions. As James Buchanan, Kenneth Arrow, and a host of public choice scholars have shown, groups cannot be thought to have preferences in the same way that individuals do. To put it another way, it is perfectly possible, and legitimate, for reasonable people to disagree. The role of democracy is not to banish disagreement, but rather to prevent political disagreements from devolving into armed conflict.

It seems to me that the fact you have to institute bi-partisan commissions to (at least attempt to) constrain politicians from wasting resources (to such an exorbitant degree that such commissions have to be instituted in the first place, rather than Congress doing its job) that it's obvious why it's essential to limit what democratically elected politicians and bureaucrats are permitted to achieve through the political process. As the size and scope of government expand, inefficiencies increase, and consequently you have to foreclose more exit opportunities for more and more people to keep the inefficiencies going. In other words, as Mancur Olson spelled out, the longer a stable democracy exists, the more likely it is to be captured by special interests seeking transfers from producers of wealth, which leads to economic stagnation. Keeping the transfers going, which is in the narrow interests of politicians, but against the broader interests of the people, requires monopolizing the decision making process to prevent the productive from fleeing to competing systems.

Keep in mind, we don't live in a democracy; we live in a constitutional federalist republic. The establishment of this form of governance was deliberate and intentional. 

Gerard Alexander On the Condescending Attitude of the Democratic Party

Don Boudreaux points to this article appearing in Sunday's Outlook section of The Washington Post.

It's well worth the read, though the same argument could be made about some conservatives. A day in hell for me would be spent having to listen to a debate between Michael Moore (or Paul Krugman) and Ann Coulter (or Bill O'Reilly).

Here are two relevant and important paragraphs.

Starting in the 1960s, the original neoconservative critics such as Daniel Patrick Moynihan expressed distress about the breakdown of inner-city families, only to be maligned as racist and ignored for decades -- until appalling statistics forced critics to recognize their views as relevant. Long-standing conservative concerns over the perils of long-term welfare dependency were similarly villainized as insincere and mean-spirited -- until public opinion insisted they be addressed by a Democratic president and a Republican Congress in the 1996 welfare reform law. But in the meantime, welfare policies that discouraged work, marriage and the development of skills remained (MS: "remain") in place, with devastating effects.

- - - -

Perhaps the most important conservative insight being depreciated is the durable warning from free-marketeers that government programs often fail to yield what their architects intend. Democrats have been busy expanding, enacting or proposing major state interventions in financial markets, energy and health care. Supporters of such efforts want to ensure that key decisions will be made in the public interest and be informed, for example, by sound science, the best new medical research or prudent standards of private-sector competition. But public-choice economists have long warned that when decisions are made in large, centralized government programs, political priorities almost always trump other goals.

Latest Survey of Home Buyer Preferences

Home buyer preferences have been changing a lot recently, especially with regards to the size of the home - smaller is now preferred over gargantuan. In other words, the McMansions are out and more modest size homes filled with "green" amenities are in.

Here a list of home buyer preferences recently compiled by AVID Ratings Co.

1. Large kitchens with an island
2. Energy-efficient appliances, high-efficiency insulation and high window efficiency
3. Home office/study
4. Main-floor office suite
5. Outdoor living room (i.e., a patio with a fireplace or wood burning stove)
6. Ceiling fans
7. Master suite soaking tubs
8. Stone and brick exteriors
9. Community landscaping, with walking paths and playgrounds
10. Two-car garages

I agree with 1, 3, 6, 9 and 10.

We just had an offer on a home rejected; we came in well below the seller's asking price. Not only are there too many homes on the market, this home had a small kitchen that was poorly organized and looked to be an afterthought of the builder rather than a focus of the home. We would have redone the kitchen.

I also don't understand #7. Nobody I know uses these except for bathing their young children. They seem more of a status symbol for the home - they are never used but you have to have one in order for it to sell. One agent told me that large luxury showers are becoming a preferred alternative to the Jacuzzi tub.

Teaching In the Post-Modern Era

Anecdotal Evidence for Why Deficits Won't Go Away Anytime Soon

Certainly anecdotal, but from polling students in three classes, there is near unanimous consent that the government debt burden is too large and action should be taken right away to reduce it. However, when confronted with a plan that would cut government subsidies to higher education, on average about one percent of the students agreed to it.

No, even the efforts of a bi-partisan commission to reduce the debt burden will be fruitless.

Which Is the Best Movie of All Time?

After seeing Avatar and reading all the hype that this movie is about to surpass Titanic as the highest grossing movie of all time, is it really? I even ranked movies based on their real rather than nominal revenue here to show that it isn't, but even that is not accurate of which are the best movies of all time.

There have been probably over one million movies released in movie theaters since their inception in 1896. (Even this date is debatable.) A database that includes all these movies, including the nominal revenue each earned from their movie theater sales, would be too cumbersome and time consuming to put together. So there has to be some criteria for determining which movies to include in such a data set, and nominal revenue is currently the sole criterion used.

The problem is, the consumer price index (CPI) was 10 in 1913, and is more than 214 in 2009. That means that money in this country has been devalued to where a dollar today is worth less than five percent of what it was worth in 1913. (Even here there is some discrepancy.) Even still, a movie theater ticket was priced at, say, 10¢ in 1910, while the average price today is about $9, or 90 times greater than its price in 1910. Consequently, the nominal revenue earned by a movie released in the last ten years is by a large factor greater than one released in 1910, if only because it takes so many more dollars to purchase a ticket today relative to one in 1910. Any ranking of movies based on nominal revenue will be heavily weighted toward movies released post-1980.

In fact, I have students do just this (rank the top 500 or so movies based on real revenue), and 13 of the top 20 movies ranked based on nominal revenue were released in 2000 or later. After adjusting for inflation, there are none in the top twenty.

There are probably dozens of movies released in the 1920s that don't make a list based on nominal revenue, but would be in the top ten if ranked by real revenue. A movie released in 1920 had to earn less than $24 million in nominal revenue in order to make the top ten list based on real revenue (like that I have listed here). But how many movies that earned just $24 million are on anyone's top grossing movies of all time?

Any ranking based on nominal revenue just to make the cut appears to shortchange movies released prior to 1980. However, prior to video cassette and DVD players, and especially before television sets became popular, movies were re-released to movie theaters every few years. This explains the popular presence of Disney movies in my top-ten rankings. But the nominal revenues of these movies are listed for the year in which the film was initially released, which means that ticket revenue from subsequent releases is overvalued when converting to real figures. Again, not all movies were re-released, but it's enough to raise questions about any ranking based even on real revenue.

So, let's just admit that there are some outstanding movies from every era and generation and let's stop trying to make quantitative judgments about them.