The Liberal Order

S&P 500 Annual Yield 1871 - 2010

Maybe Tyler Cowen is right.

UPDATE: And yes, I do understand the implications of tax policy on dividends.

Data source.

What Do You Buy With Your $19 Million Lottery Winnings?

Why a dishwasher, of course. 

Mahar -- who watched the drawing at home with her boyfriend -- said she hadn't decided what to do with the money. But she says that she at least wants a dishwasher.

Fortunately for Gabrielle Mahar, we have this video to show. Though it's not a dishwasher, it's similar in its significance.

 

Ed Glaeser on Detroit's Decline

Ed Glaeser adds more insight into the problems facing Detroit.

Millions of people throughout the world benefited from inexpensive cars, but there was little reason to keep automobile production in Detroit once unionization pushed up labor costs and access to the Great Lakes became largely irrelevant. The Big Three started moving car production out of greater Detroit long before they started losing market share to Japan.

All of America's older, colder cities faced de-industrialization crises in the '70s. Education proved the best source of urban resurgence. The success of Minneapolis and Boston reflects their high numbers of college graduates—43.3% and 42.9%, respectively—and the links between their universities and pioneering firms like Medtronic, the medical device giant based in Minneapolis. In Detroit, only 12% of adults have college degrees.

I must add that Michigan's Single Business Tax, a value added tax on certain business activities, now replaced by the Michigan Business Tax, put that state at a disadvantage, especially after increased competition from Japanese automakers.

The SBT worked well when domestic automakers did not encounter too much competition from abroad. This meant that the car companies faced a relatively inelastic demand curve for their products and would largely push the tax onto consumers, most of whom lived outside the state. Increased competition from abroad simply put the Michigan companies (all of them) at a competitive disadvantage.

Glaeser's conclusion needs to be repeated over and over again.

Neither Detroit nor the U.S. suffer from any profound transportation problem that can only be fixed with vast federal spending. The country doesn't need more People Movers. It needs unleashed, educated entrepreneurs—and they will only be held back by taxes being funneled into fanciful make-work projects in a futile attempt to fix our economic malaise. 

From Facebook to Wanbee

A hilarious news parody by The Onion on how Facebook is the CIA's number one tool for tracking terrorist activity.

CIA's 'Facebook' Program Dramatically Cut Agency's Costs 

HT: Mike Munger

Markets In Everything - Apple Edition . . . Now Unedition

Apple has removed the controversial Exodus app popularly referred to as the "gay cure" app.

Exodus International says the app was developed to guide users to "freedom from homosexuality." The iPhone and iPad app featured news and information from the organization designed to address "unwanted same-sex attraction" according to the group.

The app has drawn the ire of some 150,000 that signed a petition calling the app hateful and bigoted, and demanding the app be removed.

The app can no longer be found in the app store. Apple has not yet commneted on the removal.

Story here.

 

Actually, Lawrence Taylor Makes Sense

Laugh all you want, and I'm certainly not stating that I believe prostitution should be legalized, but Lawrence Taylor makes some sense with his comments after being sentenced to 6 years probation for having sex with an underage prostitute.

Taylor blamed the institution of prostitution for the fact that he ended up with an underage girl.

"It's the world of prostitution," he said during the Fox News interview. "You never know what you're gonna get. Is it gonna be a pretty girl, an ugly girl or whatever it's gonna be."

Or a young girl? Smith asked.

"You can only ask," Taylor said. "I don't card them. I don't ask for a birth certificate."

It's not "the world of prostitution" that's at fault here; it's the world of illegal prostitution. Make it legal and you'll see these problems disappear overnight since there will be a profit-seeking entrepreneur responsible for filtering the female (or male) employees on her staff.

You don't see problems like this in Nevada where prostitution is legalized and everything is in the open and there are firms responsible for dealing with their employee prostitutes. 

Coleman Young's Legacy Lives On - Detroit Loses 25% Of Its Population Last Decade

This isn't surprising.

According to the U.S. Census Bureau, Detroit saw its population drop from 951,270 in 2000 to 713,777 last year -- its lowest since the 1910 census.

And it certainly was not unpredictable given the legacy of Coleman Young.

Young’s racial favoritism can be seen in his tax policy and his distribution of city services. A 1982 referendum tripled the commuter tax from 0.5% to 1.5%, and raised the residents’ income tax rate from 2% to 3%. This tax, which had no impact on Young’s poorer black supporters, strengthened the incentive for the better off to leave Detroit. City governments rarely pass income taxes, pre- sumably because of the adverse migration effects. Young eagerly sought to tax his richer constituents to fund redistribution, arguably to drive them out.

Young initiated large building projects that put his supporters on the payroll. He lobbied for federally supported public housing—an absurdity in a city with huge amounts of housing selling for less than new construction costs (Glaeser and Gyourko, 2002)—to keep his supporters, as opposed to whites, as city residents. At the same time, Young cut back on the basic services that white Detroiters valued, such as police and fire. In 1976 he cut the police force by 20%, which along with his other attacks on the police department, perpetrated lawlessness in Detroit. Trash collection declined by 50% during Young’s early years.

 

What A Sham

Yesterday was a very sad day for about nine hundred kids and their families in Wake County. Raleigh Charter High School went through its annual ritual of selecting students based on a lottery system. It's demoralizing to sit there listening to the names of the few lucky enough to have their names drawn, knowing that the chance that your child's name will be drawn diminishes with each name called. In the coming weeks, thousands more will do the same across the rest of the state. 

To commemorate the occasion, I'm re-posting something I did a few years back, with the first paragraph edited to reflect this year's numbers at Raleigh Charter High School.

Imagine coming upon a bakery where many hundreds of people have gathered at the front door, anxiously waiting. You question some in the crowd and learn that this bakery is preparing eighty-two loaves of delicious bread that it will distribute via lottery to just eighty-two of the one thousand and eighty-two people waiting outside, people desperately hoping they hold one of the lucky tickets. 

The parent company of this bakery has a larger bakery down the street that will provide bread to those who don’t win, but the bread sold there is not nearly as good even though it costs the same. Consequently, an increasing number of people are rejecting this larger bakery and demanding the higher quality product from the better bakery. Unfortunately, in order to protect the workers at the larger bakery, the parent company is limiting the quantity of bread produced by the good bakery to just eighty-two loaves. Sadly, the vast majority of people waiting will leave disappointed.      

As absurd as this scenario sounds, thousands of families across North Carolina experience something similar each year. Eager to get their kids out of low-performing schools, every spring they apply to have their child accepted to one of the hundred charter schools in North Carolina. They then anxiously wait, hoping their child will be one of the lucky few to win access to a charter school and escape the poorly performing public school to which their child has been assigned.          

To illustrate the extent of this demand, thirteen charter schools currently operate in Wake County, North Carolina, home to the state's capital. Nearly all are limited to admitting just a fraction of those who apply. For example, in 2009, Franklin Academy in Wake Forest received 1,800 applications for approximately 100 slots from kindergarten through grade 12. Raleigh Charter High School received 649 applications for fewer than one hundred slots, and is expecting more applications this year. Magellan Charter School expects to admit 40 students from the more than 600 applications it received. And Endeavor Charter School received approximately 700 applications for just eight open seats.          

To the dismay of most of these parents, despite this increasing demand for charter schools, North Carolina’s legislature capped the number of charter schools that can operate in the state at 100. Consequently, these parents will remain disappointed. So much for serving the interests of the customer/taxpayer/voters.           

An increasing number of parents are registering their preference for alternatives to traditional public schools every year and charter schools are their most affordable option. For those whose family incomes cannot afford private school tuition, it’s their only means of escaping the traditional public school system. And yet, the education bureaucracy refuses to satisfy their demands. To the contrary, it spends time and money lobbying the legislature to maintain the cap on charter schools, thus foreclosing alternatives for these thousands of families who are dissatisfied with the education their children are receiving in traditional public schools.          

Why does the education bureaucracy refuse to serve the interests of its customers? To understand why, let’s employ another analogy.

Suppose restaurants operated like the public school monopoly. A restaurant bureaucracy assigns you to a restaurant based on their preferences, not yours. You are taxed each year to cover the costs of operating these public restaurants and can only “attend” the public restaurant to which your family has been assigned. You are provided meals not of your choosing, but of that prescribed by the restaurant bureaucracy. Should you desire something better, feel free to patronize any private restaurant of your choice, but don’t expect a refund of the taxes you paid to fund the state-run restaurants.    

It's easy to see whose interests would be served in this situation. Restaurants would not incur a loss for failing to satisfy its customers’ demands and we should therefore not expect them to do so. Moreover, they have every incentive to fight tooth-and-nail to protect their monopoly privilege to serve meals against competition from outsiders. 

Our government-run schools operate under the same incentives. They receive funding regardless of their performance and how well or poorly they satisfy the interests of their customers. They therefore have little incentive to serve them well. In fact, by providing poorer quality services, parents complain more, which provides the education bureaucracy better ammunition for lobbying the legislature to increase its budget. Protecting this racket means blocking competition from outsiders despite the overwhelming demand for alternatives such as that provided by charter schools.

The education lobby and union officials routinely argue that teaching our children is not like buying a hamburger or a loaf of bread. I agree; educating our children is indeed far more important than buying a hamburger or a loaf of bread. All the more reason to not leave the education of our children in the hands of a government-run monopoly that has little incentive to serve the interests of its customers. Economic growth and success in the twenty-first century require better-educated students than those graduating from today’s public schools. Competition among providers is the only means for successfully realizing this objective.          

To paraphrase Ronald Reagan, Governor Perdue, “tear down this wall.” 

 

It's the Spending, Not the Debt

Steven Landsburg offers great insight into why the public debt isn't a problem - it's the spending.

If the government borrows an extra $10 trillion dollars tomorrow in order to cut taxes by $10 trillion, it will have to make, say, an extra $300 billion a year in interest payments (for which we are collectively responsible) and at the same time, we’ll collectively earn an extra $300 billion on our savings portfolios. No favor to the taxpayers, but no harm done either.

It’s important to understand this in order not to be bamboozled by tricksters who try to misdirect every conversation about government spending into a conversation about government debt. It’s spending, not debt, that can impoverish us, and that’s what we should be talking about.

 

 

Bastiat's Broken Window Fallacy Revisited

Bastiat's "broken window" fallacy is being discussed here and here. A commenter on Coordination Problem believes that critics of Larry Summers are too harsh by not considering the benefits of the disaster in Japan - putting idle resources to work. There is a simple test to determine whether or not residents of an area devastated by a hurricane, earthquake, or other natural or man-made disaster, see the resulting destruction, inlcuding loss of life, as having a silver lining or not.

On August 29, 2005 Hurricane Katrina plowed through New Orleans and other Gulf Coast states, causing more than $100 billion in damages. About three weeks later, Hurricane Rita, at the time another category 5 hurricane, was barrelling down on the coast of Galveston, Texas. How many residents of Galveston were thinking two days before the hurricane made landfall, "Hot damn, economic growth is coming our way!"?

There is no silver lining to these natural disasters. Might idle resources be put to work rebuilding the destruction? Certainly. But they could have been put back to work digging, and then refilling, holes with fewer thousands of lives lost and billions of dollars of resources destroyed. I'll pick idle resources and no devastation every time. 

UPDATE: It also seems to me that if there really was an economic silver lining to Japan's devastation, the Nikkei average would be rising, not falling.