The Liberal Order

Speaking of Super Bowl ads . . .

. . . here is a funny remake of the old Coke commercial starring Amy Sedaris. Amy is from Raleigh and my wife and I enjoyed her talk at Quail Ridge Books last spring.

 

HOAs and State Legislation

What differentiates a local, state, or national government from a homeowner's association (HOA)? Given the limited scope of the HOA, as well as the incentives of developers to provide an efficient mix of public goods (i.e., landscaping, garbage and lawn debris removal, pools, etc.), as Don Boudreaux and Randall Holcombe point out, HOAs tend to be less controversial. The HOA agreement is an ex-ante contract that you agree to prior to buying your home. 

So HOAs ought to be viewed more favorably than typical forms of government, thought they still are governments. Consequently, there has to be some means of residents petitioning and challenging their HOAs without having to run for office.

North Carolina's state legislature is considering limits on HOAs that intrude on homeowners' rights. 

Another hot-button issue was the ability of HOAs to foreclose on homeowners that don't pay their dues and assessments.

Tammy Neal, a real estate broker and former appraiser who lives in Union County, said she ran across an HOA board that foreclosed on a homeowner who owed $50. She called it "a travesty."

I agree, that sounds heavy-handed, but is it any less egregious than current asset seizure forfeiture laws? 

HOAs need to find more resident-friendly means of addressing delinquent residents and those who refuse to comply with guidelines. Yes, some residents are simply malcontents, who then need prodding by formal public institutions to hold them accountable. But such action should be a last resort. 

From my experience, I've seen too many people who sit on HOA boards who are control freaks that relish in exercising their authority and pushing people around. But it's also the case that HOAs cannot selectively enforce regulations, leaving them little room when it comes to enforcing what appear to be minor infractions.

For example, if the HOA agreement stipulates no commercial vehicles are permitted in a homeowner's driveway for more than ten consecutive days (this provides leeway for a homeowner having commercial work done on their home), then by allowing a resident to park a car in her driveway emblazoned with logos on the side of the college where she works, it makes the HOA susceptible to a lawsuit if it then denies the right of the homeowner who owns a moving business to park his moving truck in his driveway.  

Why "Race To The Top" Will Be Another Failed Government School Initiative

Suppose restaurants were owned and operated by state and local governments as I discussed here. The federal government also intervenes under the guise of "serving our nation's children."

First, as I noted in the post linked to above, there would be little incentive on the part of restaurant principals managers to provide quality food and service to their "customers," nor would they innovate and discover ways of better serving their customers. Unlike privately owned restaurants that must compete for customers by providing them more value per dollar than what competing restaurants offer, government restaurants would pay the suppliers (i.e., the government restaurants) regardless of their output and whether or not they actually provide their customers more value per dollar than that offered by any other restaurant.

Now, what if someone proposed that to improve the poor quality government restaurants in the U.S., cash grants would be awarded to states that came up with the best ideas to improve their crappy restaurant products and services, would you really expect substantial changes to come from it? I wouldn't.

It's why there will be nothing substantial coming from this outside of increased returns to the respective state's education bureaucracy. Student outcomes will not improve one iota, nor will the customer/students/parents and taxpayers realize any returns on the investment.

Nine states will share $500 million in grant money won in a high-profile competition intended to jump-start improvements in early childhood programs, the Obama administration announced Friday.

California, Delaware, Maryland, Massachusetts, Minnesota, North Carolina, Ohio, Rhode Island and Washington state will see funding for innovative efforts in often-overlooked pre-K schooling.

By subsidizing the supplier rather than the customer, government schooling serves the interests of the education bureaucracy and the teachers, not the customer/student/parents and the taxpayers. 

Diane Sawyer and ABC News "Making America Poorer"

ABC News and Diane Sawyer are on a mission to make America poorer.

The average American will spend $700 on holiday gifts and goodies this year, totaling more than $465 billion, the National Retail Federation estimates. If that money was spent entirely on US made products it would create 4.6 million jobs. But it doesn't even have to be that big. If each of us spent just $64 on American made goods during our holiday shopping, the result would be 200,000 new jobs.

Let's forget for a moment that by "buying America" you forego buying goods and services that will provide you more value per dollar, like not buying a Toyota or Honda that you prefer over a Chevy or Chrysler. (If you did not expect that buying a Toyota rather than a Chevy would provide you more value per dollar, then you wouldn't have even considered purchasing a Toyta anyway.) The real problem with this plan is that it does not create jobs - it protects some jobs (typically union jobs, hence the media attention) at the expense of other jobs.

A dollar is a claim on goods and services produced in the United States. If I send $1,000 US to China in exchange for a television set produced by a Chinese firm (and it doesn't have to be a Chinese firm, it could be an American firm operating overseas and they enjoy the profits), then the Chinese company with which I did business has three options for using those $1,000: 1) buy something from someone in the U.S. worth $1,000; 2) buy something worth $1,000 from someone somewhere else in the world who wants the money so she can purchase something produced in the U.S.; or 3) invest the $1,000 in the US so that others can purchase goods and services produced in the U.S. (Yes, the Chinese company could do any combination of these three, but that's irrelevant. And yes, the Chinese company could burn these green pieces of paper, but we'll ignore this option since it's not likely to happen and we'd be much better off anyway.)

Not sending dollars overseas to obtain goods and services (mostly goods) produced by foreigners in other countries means that these foreigners don't have dollars to purchase goods and services produced in the US, goods and services that provide more value per dollar to them relative to any other choice they may have had. That makes us, and them, poorer, not richer! 

Yes, by "buying America" some jobs are saved in the domestic import industry, but other jobs are lost in the domestic export industry. Why ABC News can generate a positive response with this fallacious gimmick is due to the fact that the jobs lost in the domestic import industries, which operate at a comparative disadvantage relative to their foreign competitors, are visible. I buy a Toyota and someone at Ford loses a job. On the other hand, the jobs that are created in the domestic export industries, jobs in which we have a comparative advantage, are not so visible because without trade they never materialize.  

I don't quite understand the logic of ABC News with its "Buy America" advocacy campaign. If "Buy America" makes us better off, then why stop at promoting America as if it's some individual? Why not improve the wealth of every state in the union by advocating that North Carolinians buy only from people and firms located in North Carolina and people from New York buy only from people and firms located in New York? If this improves our states' economies, why not take it one step further to the county level? Or better yet, let's take it even further and advocate buying only from family members. Because it's obvious now that doing so is a sure road to poverty. This same road to poverty argument scales upward to the "Buy America" level as well.

And how are we any less different than Europe?

With Americans increasingly likely to live well into their 80s, critics question whether paying lifetime pensions to retirees from age 55 or 60 is financially sustainable. An Associated Press survey earlier this year found the 50 states have a combined $690 billion in unfunded pension liabilities and $418 billion in retiree health care obligations.

Story here.

North Carolina's unfunded pension liability stands at $36 billion (with a "b").

Health care. Social Security. Education. The long list of poverty programs. 

"If something cannot go on forever, it will stop." Herb Stein

Errors In Government Spending

From an editorial in today's Raleigh News & Observer:

It's a lot of money to put into a soccer stadium, but Cary seems to have the right, "if you build it, they will come" attitude. The municipality of 140,000 people figures that its soccer park could draw national collegiate championship playoffs back to town with the 3,000 additional seats that are being added.

In recent years, Cary has lost out to other communities with new stadiums and more space. But Cary, in terms of additional amenities such as hotels and restaurants and shopping, takes a back seat to no one and isn't shirking from the competition. It wants the 2012 men's collegiate championship and the men's and women's finals in 2013.

Soccer is an international sport whose popularity will only grow in the decades to come. And in terms of facilities, it is not on the super-expensive scale of major college football or basketball. For Cary this adds up to smart sport, and smart business.

For many like me, it's not that I regard government spending on things like this misguided, and therefore inappropriate, because markets are infallible and if things like a soccer stadium were truly socially efficient markets would have already supplied it. No, it's that because of the incentive structures in place, individuals acting in private markets and spending their own money are far less likely to err relative to politicians and bureaucrats spending other people's money in deciding how to allocate scarce resources.  

UPDATE: Neal Inman and some commentators on the the Civitas Institute blog offer further insight. 

The Effect of Tuition Subsidies On College Tuition

Alex Tabarrok [links to analysis by Virgina Postrel] that provides a very accurate analysis of who benefits from a tuition subsidy to college students - mostly the faculty and administrators of colleges and universities. I'm going to take it one step further.

Two reasons for subsidizing college education: one is fairness and the other is the external benefits someone with a college degree supposedly provides society. We want everyone to have a fair chance at financial success, including potentially capable students from lower income families. We therefore subsidize talented lower income individuals. And we also want to realize the presumed external benefits that result from someone attending college who might not otherwise have attended without a subsidy. 

But we can hopefully agree that it's most likely not beneficial to taxpayers to subsidize someone who will not realize the added benefits from a college degree, both personally and socially, in excess of the cost of the subsidy. In other words, we do not want to subsidize someone $100 if we expect the private and social benefits from that education won't exceed $100. Why subsidize someone to attend college whose desires and/or talents won't permit her to actualize the benefits of a college education in excess of the subsidy?

So now we can see the effect of subsidizing college education a little more thoroughly; it's not all internalized by all universities and their professors. The most selective schools and their affiliated faculty and administrators benefit handsomely, but that's not necessarily the case for less selective schools.

Look at the graphs below. To the left is the supply and demand for education at a very selective school, say a UNC Chapel Hill. Notice that the supply curve is relatively inelastic. UNC-CH, like most highly selective shools, is capacity constrained; an increase in demand cannot immediately be met by expanding enrollment. Therefore, a subsidy that increases applications results in an increase in tuition, which increases the marginal revenue product of the faculty and administrators of that college.

To the right is the supply and demand for a less selective college, say a Fayetteville State University. The supply curve for Fayetteville State is more elastic given that it is not capacity constrained. Even though the school does not accept 100% of its applicants (it still has standards), it is not necessarily operating at full capacity. An increase in demand for admission to FSU due to a tuition subsidy can largely be met by increasing enrollment. Though there are still restrictions that limit its expansion to something less than the total increase in new applicants, but it can still expand enrollment more than can UNC-CH. Therefore, a subsidy does not have the same effect on tuition and salaries at a less selective school that it does on a more selective school. (BTW - here is tuition data for 2009-2010 on schools in the UNC system.) In this case, enrollment expands.

Now, consider the type of student we believe will realize positive returns, both to herself and to society, from a subsidy. Where are they likely to attend? And consider the student who is less likely to realize positive returns, both to herself and to society, from a subsidy. Where are they likely to attend? The student with the most potential is likely to apply to and get into a UNC-CH, which means they benefit little from the subsidy. The less capable potential student likely goes to a Fayetteville State University. In other words, the colleges and their affiliate faculty and administrators likely internalize most of the financial benefits of a subsidy to students we expect will actually benefit from it, both themselves and society, while students not likely to realize benefits above and beyond the subsidy are likely to internalize more of those benefits of a subsidy. The faculty and administrators of the less selective colleges are not likely to benefit from a subsidy as much as their peers at the more selective colleges and universities. 

UPDATE: Virginia Postrel provides a comment (below) that first, the analysis was from her Bloomberg article and not Tabarrok (my apologies for the mistake), and second, that the demand curve for the less selective school should be more elastic than the demand curve for the more selective school. I totally agree. I was mostly trying to show that a subsidy is not always internalized by a college or university and its affiliated faculty and administration, not the impact on actual tuition paid by students at the different schools. Had I drawn a more elastic demand curve for the less selective school, and I drew the difference in tuition before and after the subsidy, it would show that what students actually pay out of pocket in both types of schools would not decline that much after a subsidy.  

And Who's Making That Money?

Lotteries are taxes on the poor and those largely inept at understanding probability. Here is a story of a woman and her daughter who stole $389,001 in lottery tickets from the grocery store where they worked. 

And how did it work out for her (other than now going to jail)?

Of the lottery tickets she took from Lowes Foods, the SBI said, Barakat found eight winners, which she illegally redeemed for $11,090 in cash at local grocery stores. The winnings included one payout of $9,680 from a Lowes grocery, court records show.

The SBI says Montejano collected $34,035 in stolen lottery winnings from seven area grocery stores. They also think she redeemed two of the stolen tickets - one for $11,000 and the other for $10,000 - at the offices of state lottery headquarters on Yonkers Road.

All right, it's kind of confusing determining exactly how much she won, but let's say it was the larger number, $55,035 ($34,053 + $11,000 + $10,000). Had whe actually paid for the tickets in hopes of winning large, she would have won just 15.15 cents for every dollar she spent. If a casino returned those kinds of odds, they'd be thrown in jail for theft.

 

Thinking Ahead About His Post-College Career

I guess with a major like this, Mr. Goodwin needed some experience in alternative careers to support himself after he graduates.

Police have issued a warrant for Gordon Miller Goodwin, 22, charging him with common law robbery.

Karen Moon, a UNC-CH campus spokeswoman, described Goodwin as a senior, full-time student majoring in peace, war and defense studies.

 

Lead, Follow, or (Government) Get Out of the Way

Ben Braxton wants to work and train to be a chef. Seth Kingsbury, owner and chef at Pazzo's restaurant in Chapel Hill is willing to train Ben. Problem: Ben is only 14-years-old. What could possibly go wrong?

Kingsbury took Ben under his wing two years ago, taught him the skills of the kitchen and saw the boy improve his grades and even get off his ADHD medication. But despite Kingsbury's good intentions and results with the boy, the chef was unknowingly violating child labor laws. He has been fined almost $8,000 by the U.S. Department of Labor.

But this is just a travesty; Ben should be taking home economics or teen living in high school, not engaged in servitude to this greedy chef/owner. How has it helped Ben?

At school, Ben thrived. During his freshman year at Cedar Ridge High School in Hillsborough, he took three honors courses and got a 3.6 GPA. He used his time at Pazzo toward 400 hours of a food service internship to earn a national certificate. He talked about attending the Culinary Institute of America in Hyde Park, N.Y. Ben's mother noticed a change in her son: "There's just a maturity about him."

Read the whole story. As a finale, Ben's mother, Kingsbury (the chef), and Ben's doctor all wrote the state asking for a waiver to allow Ben to train at Pazzo. You see, Pazzo sells liquor and this violates state law. (Read the account of Our State magazine and how this story led to Kingsbury's problems.) The state acquiesced under the provision that Ben not cook over an open flame and that he not handle alcohol. . . . Oh yeah, and that Kingsbury pay another $300 fine.