Why Rand Paul is wrong about Title II

by Roger Koppl

Rand Paul won the Republican primary in the Kentucky Senate race and almost immediately stepped into a big pile of steaming controversy by telling Rachel Maddow that he did not support Title II of the Civil Rights Act of 1964.  Since then few voices have defended his statements on Maddow’s show, with John Stossel as one of the rare exceptions.  In his recent Christian Science Monitor op-ed on this topic, Sheldon Richman defends Paul’s statements saying, “individuals are either free to do anything peaceful or they are not.”  I reject libertarian objections to Title II precisely because I agree with the quoted remark: individuals are either free to do anything peaceful or not. (For the record: I’m not a libertarian, but the quoted statement is a logical truth, not a political program.)  Black and white people in the recently-Jim-Crow South would not have been free to associate without the assistance of Title II.

Naked Truth on NYT Finance Column

By Chidem Kurdas

Media coverage compounds the confusion about financial problems. Take a recent piece by Floyd Norris, probably the best informed of the New York Times finance columnists. 

“Credit-default swaps are, in reality, insurance,” he writes in “Naked Truth on Default Swaps”.  The seller of a credit default swap pays the buyer of the contract if there is a default on the specified bond. Mr. Norris asks: shouldn’t CDS be subject to the principle that “you cannot buy insurance on my life, or on my house, unless you have an insurable interest”?

That would mean that you should not be able to buy a default swap on a bond unless you own the bond. But this is a false deduction, because in practice even life insurance does not work on the insurable interest principle.

The Fundamental Transformation in Breaking Dawn

by Glen Whitman

If you’re on Team Edward, you might think the fundamental transformation in Twilight: Breaking Dawn is a person getting turned into a vampire. Or if you’re on Team Jacob, you might think it’s a boy morphing into a wolf. But if you’re an economist, it’s the conversion of undifferentiated assets into relationship-specific assets.

That came out more boring than I planned. But it’s true! On Deadline Hollywood, Nikke Finke reports that several supporting actors played hardball during negotiations for the final installments of the Twilight series:

Really, my eyes glazed over at the recent ruckus that those secondary actors were demanding as much as $4 million each to do the 4th and 5th installments of the Twilight Saga. … I’m all for higher pay for thesps, and Summit has tons of cash to spread around. But in this case Summit gave these actors their big break, and offered them 10 times what they’d made in the first movie, and could have replaced every one of them with hungry unknowns had it not been for the execs’ fears of offending fans.

We’ve seen this happen before, of course, most notably when the six leads on Friends wangled $1 million each per episode in their final season. In economics jargon, stories like these illustrate what Oliver Williamson dubbed the fundamental transformation (see p. 176).

On Bentham and Utilitarianism

by Mario Rizzo

An interesting discussion has begun at Marginal Revolution on “Benthamite utilitarianism.” It started with a small comment I made on Tyler Cowen’s remark regarding the discussion of Robert Frank’s position goods idea. Then Tyler responded in a post. And then I made a comment. It is all here.

Discussions of this subject can be interminable. So perhaps just a little is best.

Bleg: What are the Predictions of Austrian Cycle Theory?

by Mario Rizzo

If you were going to try to adduce evidence with regard to the Mises-Hayek-Garrison “Austrian Business Cycle Theory” what would you expect to see in the expansion, upper turning point and perhaps in the recession itself? Specifically, what would you expect to see in this most recent episode, the so-called Great Recession?

Unfortunately, it would not be helpful to refer to empirical phenomena about which no data is collected. This is a problem with most attempts to measure the elongation of the production structure, for example.  But be creative. George Stigler used to say that it is no excuse to say, “The data doesn’t exist.” There may be indirect ways to measure.

Any ideas?

New Paternalism, Regulation and Cass Sunstein

by Mario Rizzo

The New York Times magazine has an interesting, if somewhat uncritical, article on Cass Sunstein, the Obama regulation czar. The “best” part is the section about me:

Some scholars dislike the strong, if subtle, governmental hand that is embedded in this last proposal. It seems more forceful than a nudge. “Once you get to a point where you have automatic enrollment, you raise the question, What kind of fund?” Mario Rizzo, a professor of economics at New York University, says. “The problem is that if you were enrolled automatically, you could complain later that you’d been put into either a too-risky or a too-conservative fund. So then you micromanage that and you say you have to have a balanced fund. But pretty soon you’re on a slippery slope, where you’re dictating people’s retirement choices.” Rizzo told me about an academic study of gift-giving that found that most people would value cash more highly than the gifts they get for holidays; if even your friends and family can’t figure out what you want, he asked, how can a distant bureaucrat? “Sunstein is very taken with the need for experts,” Rizzo says. “But it turns out experts are subject to these cognitive quirks, too.”

Welcoming the Bankruptcy of the Welfare State

by Mario Rizzo   

There are at least two kinds of opponents of the welfare state. There are those who think it has gone too far because, for example, it is very expensive, counterproductive, reduces incentives for economic initiative, depresses general economic growth, and may cause an unsustainable debt burden. You can count many economists in this group.  

Then there are those who believe that these consequences will follow but also believe that the welfare state is a profoundly immoral institution. It is true that these economic consequences are one of the things that make the welfare state immoral. But that is not all that makes it immoral.  

The root of the problem is the welfare state’s bogus liberality.

The European Central Bank Turns into the Fed?

by Andreas Hoffmann*

The European Central Bank (ECB) and the Fed differ in many aspects. First, the ECB is considered to be more hawkish on fighting inflationary tendencies. Its primary goal is price stability and it has continued to watch money growth. Output gaps below full-employment are only considered secondary as instrument to forecast inflation.

Secondly the ECB was constructed to be more independent than the Fed. Thus there has been less interaction with fiscal authorities. Less mobility from governments to the ECB (and vice versa) documents this independence. While in the US it is common to see central bank officials and the secretary of treasury plan the future of the economy, in Europe this is not the case. Central bank independence is considered an important aspect of credibility and stability of the currency (the German central bank model). However, the current crisis has made the ECB more “Anglo-Saxon.”

European Bailout’s Scapegoats and the Future

by Chidem Kurdas

Before the near-trillion-dollar bailout package for financially shaky euro-zone governments was announced, French president Nicolas Sarkozy hauled out the financial whipping boys yet again. He promised to “confront speculators mercilessly.” They would soon “know once and for all what lies in store for them,” he said.

Presumably he meant that those betting on the decline of the euro will be squeezed and made to understand that he and his fellow office holders will protect the currency. Thus Mr. Sarkozy framed the issue—we’re not bailing out profligate governments, we’re defending our common currency against demonic speculators.

This message appears to play well politically  But beneficial as it may be in the short term for those in office, it compounds the real problem.

All Decisionmaking is Doomed to Failure: Questions for the Bias Industry

by Mario Rizzo  

Behavioral economists have an embarrassment of biases. They have discovered many cognitive and behavioral biases which plague human decisionmaking. By one count there are nearly a hundred of them.  

A cognitive bias is a systematic departure from rational decisionmaking. For example, a person may react differently if he is told that a drug has a 90% cure rate or that it has a 10% failure rate. A behavioral bias is the systematic inability to act in accordance with one’s true preferences. For example, I resolve to stop drinking but I don’t have the willpower.  

But what does all of this add up to?