The Liberal Order

Who Benefitted from the "Cash for Clunkers" Program

When a per unit tax is levied on the sale of some good or service, who actually bears the incidence of that tax - who actually pays the tax - depends on the relative elasticities of supply and demand for that good or service. If it's a buyers' market then the seller bears the greater share, and if it's a sellers' market then it's the purchaser who ends up paying the greater share. 

The same is true of a subsidy, though it's who benefits, not who pays. So during the C4C program, for cars that were in short supply a sellers' market ensued and many dealers did what you would expect them to do - they increased the prices of cars in limited supply above the MSRP. Consequently, the dealers and automobile companies internalized the total subsidy paid by the government. 

Is this really a surprise?

DailyTech has an exclusive inside look at some Toyota dealers' so-called "market value adjustments" (MVAs) on popular vehicles such as the 2010 third-generation Prius hybrid.  With the typical sticker price of the Prius coming it at around $26,000, many dealers across the country have been charging $3,000 to $10,000 markups, more than offsetting the "Cash for Clunkers" rebate of $3,000 to $4,500 in some cases.

On the forum PriusChat, one customer reports, "We live in Lake Placid Fl. and could not deal with the dealer here. One charge they wanted was a market adjustment for this area of $3999.99 also dealer fees of $695.00."

A number of others on the same site share similar stories of their own.  States one buyer, "A certain dealer in NJ that I am not at liberty to mention charges 6500 over sticker and calls it fair market value adjustment. luckily I found another one close by with better morals. They are charging sticker price and not a penny more." 

What are the most difficult businesses to start?

In order:

1. Restaurants
2. Sales from home 
3. Online retail (eBay, etc.) 
4. High-end retail 
5. Independent consultant 
6. Franchises 
7. Online networking sites 

Story here.

With regards to online networking the following quote sounds exaggerated, but if it's true it's an extraordinary site that can accomplish it.

"Until you get to the point where you have a million page views a day, you're nowhere."

Sugar Quotas

The Wall Street Journal opines on the failure of the Obama Administration to scale back quotas on imported sugar, which would be in the interest of sugar consumers (all of us) and against the interest of a few dozen sugar growers. 

Each year, the amount of foreign sugar that manufacturers may use is limited to protect U.S. sugar farmers who benefit from artificially higher prices on the domestic market. According to the letter to Secretary Vilsack, signed by companies like Kraft, Hershey and Mars, without some easing "consumers will pay higher prices [and] food manufacturing jobs will be at risk." But scarcity is only half the issue. The other half is a protectionist program that distorts trade and has negative economic consequences.

The costs have been a sticky issue for years. According to a 2006 study by the U.S. International Trade Administration, each sugar job saved by propping up domestic producers costs three jobs in manufacturing, with many companies relocating to countries such as Canada and Mexico where the price of sugar can be one-half to two-thirds the rate in the U.S. So instead of importing sugar, the U.S. brings in more sugary finished products, with imports rising to $18.7 billion in 2004 from $6.7 billion in 1990.

Two important things to note: 

First, the quotas were first enacted under a Republican administration (Reagan in 1982), so this is a bipartisan failure to promote the "general welfare" in order to curry donations from a small political lobby.  

Second, it's not just the few dozen sugar growers that benefit from sugar quotas; it's also the corn lobby. Corn syrup is a substitute for sugar and the corn lobby, led by Archer Daniels Midland, has one of the most, if not the most, powerful lobbyists working Capitol Hill. Given this and the fact that Secretary of Agriculture Tom Vilsack is from the busting-at-the-seams-with-corn state of Iowa, we shouldn't be surprise to see government serving the narrow interests of the sugar and corn growers at the expense of hundreds of millions of the rest of us.

The Marginal Benefit of Government Education

You would think that if something is being given away for free, and especially if it's been happening for over one hundred years now, it would need no advertising. No so with government schooling, at least in Washington, DC.

In addition to a radio and bus sign ad campaign ("Go public and get a great free education!" said some spots), principals visited homes, held community barbecues and conducted enrollment fairs in concert with immunization clinics held by the District's health department.

Regular public school enrollment in the District has declined by more than half since 1980, while the public charter community has grown dramatically since the independently operated schools began in the 1990s.

I guess this demonstrates that the marginal benefit of government education is not worth the marginal cost, which is free. Hence, the marginal benefit must be negative.

TANSTAAFL

As I reported in this post, Bryan Caplan asks a very interesting question.

It can take years for a foreigner to obtain a visa permitting them to enter this country legally, so for many seeking to escape political and economic disasters in their own countries, entering illegally is their only option. The cost can be very high.

The Washington Post reports on the extraordinarily high cost immigrants face when entering this country illegally. 

As U.S. control of the border has strengthened since the Sept. 11, 2001, terrorist attacks, it has become harder for people to cross illegally. That has spawned a boom in hostage-taking as smuggling cartels have realized that they can extort money from illegal immigrants' families in the United States, many of whom wire the ransom instead of risking their own deportation by contacting police.
Although the cartels hold captives in the southwest border states, the crimes have reached into the Washington region, where established immigrant communities include undocumented people who left their families behind in Central America. The kidnappers prey on working-class, Spanish-speaking immigrants because they are especially vulnerable: They would do almost anything to free their loved ones, and they are sometimes equally fearful of U.S. authorities.

----

As Martinez was receiving the extortion calls in January, his in-laws, Walter Flores, 42, and Sonia Maribel Valdez-Navas, 47, were squatting in the corner of a crowded and stinking bedroom at 8821 W. Palm Lane in Phoenix. The windows were covered with plywood, the hostages were stripped of their clothes, shoes and belts, and talk of escape was wistful and unrealistic. A guard flashed a 9mm handgun.

"They said terrible things," Valdez-Navas said in Spanish from El Salvador. "I worried a lot. I cried a lot. I didn't eat. They said if they didn't get the money, they would take out our organs and sell them. I cried a lot."

Valdez-Navas and her husband had made their way to the United States via Mexico on a journey to the Washington area to meet their grandson. They earned enough money in Mexicali to pay for what they expected would be a $1,500 trip. After walking in the desert for three days and crossing into Arizona near the dusty town of Sasabe, they were rushed to a U.S. highway and shoved in the back of a vehicle before arriving at the Phoenix house.

"They sold us like chickens," she said. She and her husband were in a room with about 10 other hostages, occasionally eating soup and sleeping on a dingy gray carpet.

Police and border patrol agents have been finding dead bodies and body parts throughout the deserts of Arizona and Texas. Many are bodies (or body parts) of rival gang members, but some are also relatives of loved ones who did not pay the ransom. (There's no sense in making the threat if it is not credible.)

Speaking of Outrageous Comments

I've been very busy lately finishing up a few research projects and getting ready for a new semester. This has curtailed blogging. But this piece by Mark Thoma is unbelievable and I couldn't let it pass.

Thoma criticizes Richard Posner who, in this Atlantic commentary, expressed concern that some academic economists, once in public office or as media stars, altered and even outright contradicted their previous academic writings. Case in point is Christina Romer who as an academic economist at U.C. Berkeley argued that fiscal policy was largely ineffective as a countercyclical policy tool, but once in office as chair of Obama's CEA, contradicted herself by promoting the stimulus package as necessary and effective. 

I remember Joseph Stiglitz when he was part of Clinton's economic team had argued in favor of increasing the minimum wage. This contradicted the lessons from in his principles textbook, which argued that minimum wages reduce employment opportunities, especially for the least skilled. When queried about this contradiction, Stiglitz responded by saying, (and I paraphrase) "Sometimes you change your mind." I'm sure you do Mr. Stiglitz.

Thoma berates Posner and accuses him of doing exactly the same as what he accuses academic economists of doing. Here is Thoma's allegation of Posner's hypocrisy.

In his discussion of macroeconomic policy, he doesn't even get the basics right (to name just one obvious example, his definition of investment in Y=C+I+G includes financial assets, something principles of macro courses make abundantly clear shouldn't be done, and he talks about foreign demand for US goods, but doesn't include NX in his definition of output). Yet, nowhere does he say “I don’t know what I am talking about because I am a judge, not a macroeconomist.” Instead, in his role as a public intellectual, he acts like he is an expert in the field. Ethics indeed.  

There is a huge difference between an academic who writes and publishes something with a stated position and then once in office or as a "public intellectual" takes a completely different position, and that same person commenting on something about which they have little expertise. To comment in error on a subject about which one is not completely familiar is not equivalent to someone who, as a result of their academic record achieves some public status, and the platform that consequently goes with that status, affects public policy using blatant contradictions of that same academic record. For Thoma to not realize this difference is pathetic. 

I don't care if the contradiction comes from someone on the left or on the right. As Posner argues, there has to be some adherence to - some enforcement of - academic standards. But adding more to the ineptitude displayed in Thoma's original post is this comment by Richard Serlin.

Very typical of Right wing propagandists. They tell outrageous lies and/or mislead outrageously, and they have the nerve to accuse the other side of what they do themselves to the extreme, and immensely more than the left. It's like the National Enquirer accusing the New York Times of serial dishonesty.
What he said fit immensely better with right wing economists than left, or center. Greg Mankiw's the quintessential example.

Really. Here is a challenge for Mr. Serlin. Provide one explicit example of Professor Mankiw, in his position as chair of Bush's CEA, contradicting a position he formerly took in his academic writings. 

Further Evidence Of How Well We Have It In This Country

Our trash is another country's treasure.

Freakin' Health Care Insurance

I knew there was someone or something else to blame.

We find weak evidence that more generous insurance coverage increases body mass index. We find stronger evidence that being insured increases body mass index and obesity.

HT: Managerial Econ Blog

The Never-ending Examples of American Prosperity

It’s not easy being the son or daughter of an economist.

When my daughter was eight-years-old she received an American Girl doll game. It’s a role-playing game where eight girls dress up in period costumes and, with their favorite doll beside them, each plays a role by reading a script that portrays life in a wealthy 1905-era family. They each read their prepared script and try to solve a puzzle before the end of the game, at which point the solution to the mystery is revealed. Only six of the seven girls my daughter invited over to play the game were able to make it, so I played the role of Aunt Gert (un-costumed and sans doll, of course). In the middle of the game I stopped play to emphatically point out that half of the girls were playing roles of servant girls who attended to the other half. I then asked how many of them in real life were ever either servants or had servants attend to them. No one answered affirmatively. My daughter’s glare indicated that it was time to get back to the game.

We go to museums on occasion and I make it a point to explain to my kids something pertaining to the periods in which certain paintings and sculptures were created. For example, I explain to them that paintings depicting food and fat babies were means of signaling the wealth and prosperity of the family that commissioned the work. (This was pre-1800s, after which time such prosperity was so prevalent that such paintings did not necessarily signal the family's superior status). The kids bored easily and begged me to take them to the cafeteria.

The other day we were shopping at the local Asian food market. They were intrigued by all the animal parts in the meat section, including trays of chicken feet (including the talons), bull penises, pig hearts, cow’s tongue, stomachs, and ox tail. They were also fascinated by the whole ducks, beaks and all. I explained to them that many Asians live in extreme poverty and as part of their culture you don't throw things like that away - if it is edible it is food. I went on to point out that we are wealthy enough in this country that even though such stuff is fit for human consumption, we throw such stuff away because we have enough other stuff to eat. They quickly tired of the lesson and implored me to buy them an Asian treat. I should have bought them some durian ice cream. Fittingly, it smells like decaying flesh.

TSA Security Checkpoint . . . A Toy for Kids

From Amazon.com. I love the reviews.

Thank you Playmobil for allowing me to teach my 5-year old the importance of recognizing what a failing bureaucracy in a ever growing fascist state looks like.