Public Unions vs. the Real Underdog

by Chidem Kurdas

Wisconsin governor Scott Walker successfully made the financial case to limit collective bargaining by public unions. Not only have the unions imposed an immense burden on taxpayers, present and future, but they create bureaucratic rigidities that cause dysfunction and, in financial crunches, layoffs of promising employees.

Yet in recent weeks it has become noticeable that these points fail to persuade many Americans.  The Wisconsin bill that just passed and similar reforms in other states face furious opposition, including appeals to the public.  Perhaps it’s not a bad idea to highlight another aspect of government unions, in addition to the purely economic issues.

We need to understand why part of the public supports unions. The best explanation that I’ve seen is from Richard Epstein in Free Markets Under Siege, a 2005 book that analyzes unions and agricultural price supports as examples of cartels in different markets.  These cartels impose social costs and require special dispensation from antitrust law. Why did the rest of the population accept the costs?  “Never underestimate the enhanced political sympathy when the underdog seeks to gain state power,” Professor Epstein points out. Continue reading

Why Are Medical Offices in the IT Paleolithic?

by Gene Callahan

As a social theorist, I find it always interesting, and a useful exercise, to try to arrive at a good explanation for some social anomaly. But sometimes I find myself at a loss, and here is such an instance: Why, oh why, when we go to a medical office, do we write the exact same info on three of four different pieces of paper? Why are we even writing on paper? I mean, if there is one thing that computers have unambiguously improved, isn’t it the storage of routine information like this? Why can tiny St. Francis College, where I teach, in about one minute set me up so that I am receiving Continue reading

Minimax It

by Gene Callahan

I’m always shocked by the idea that “the star has to take the final shot” in basketball. I just watched UConn, down one point with eight seconds left against Louisville, force the ball to Kemba Walker for what must have been about a thirty-foot shot. They had the ball in the hands of Shabazz Napier, a dynamic, fast point guard, who can drive, and they only needed two to win. When Napier saw Louisville was focused on Walker, why in the world wasn’t he given the green light to go to the basket? Continue reading

Kirznerian Baseball

by Gene Callahan

The Mets recently hired Paul DePodesta, one of the key developer’s of the “Moneyball” approach to finding and hiring baseball talent in Oakland. DePodesta describes what Moneyball really is here:

DePodesta, who left Oakland to serve as the Los Angeles Dodgers’ general manager for two seasons before becoming an executive with the San Diego Padres, said that Lewis’s 2003 book — which remains a bible for statistics-minded fans — was a caricature. Statistics are important, he said, but the Moneyball philosophy is more an approach to evaluating talent, not a constrictive road map.

“In my mind, Moneyball really has absolutely nothing to do with on-base percentage; for that matter, it doesn’t really have anything to do with statistics,” he said Tuesday on a conference call with reporters. “Rather, Moneyball is really about a constant investigation of stagnant systems to see if you can find value where it isn’t readily apparent.”

Voters’ Best Interest

by Chidem Kurdas

Ronald Dworkin, a well-known legal scholar, describes last month’s election results as depressing and puzzling. In a commentary in the New York Review of Books, he asks, “Why do so many Americans insist on voting against their own best interests?”  Continue reading

Further Thoughts on The Sensory Order

by Roger Koppl

Over at Austrian Addiction, Dan D’Amico responds to my recent post on The Sensory Order.  Dan wants to know “what Hayek’s theory of neuorscience is really adding here that a more basic understanding of subjective preferences does not already imply?”  Dan is not the only one with this question.  I think enthusiasts for The Sensory Order have given pretty good answers to Dan’s question, but it seems clear that we need to do a better job. Continue reading

The Sensory Order

by Roger Koppl

Over at Marginal Revolution, Tyler Cowen recently said The Sensory Order is “Hayek’s most overrated book.”  In part he was complaining that “many call it his most underrated book.”  Unfortunately, he does not name names.  In any event, Tyler has other gripes including the mistaken suggestion that the science in it was not current.  As I said in a comment, “I don’t understand why TSO gets lukewarm to negative reactions from serious people who are otherwise keen on Hayek.”  The most salient example of TSO bashing may be that of Dan D’Amico and Pete Boettke, who criticize “neuro-Hayekians.” Let me go on record as an enthusiast for The Sensory Order.  The latest expression of my enthusiasm is forthcoming in JEBO. Continue reading

Taylor, Krugman and Quantitative Easing

by Chidem Kurdas

In two substantial New York Review of Books articles, Paul Krugman and Robin Wells offer their views on various explanations of the property bubble and ways to get out of the slump.  On the latter front, they advocate aggressive deficit spending by the federal government and  quantitative easing by the Federal Reserve— No surprise to anyone who reads Professor Krugman’s writings.

Regarding the causes of the bubble, they favor the “global savings glut” explanation.  This view absolves the Federal Reserve from having spiked the punch bowl at the intertwined credit and real estate parties—by keeping interest rates exceptionally low from 2002 to 2005. It is remarkable that Krugman and Wells dismiss the case against the Fed without even bothering to mention the work that argues and presents evidence for the Fed’s pivotal role in causing the crisis—namely, Stanford professor John Taylor’s book and articles, including a Wall Street Journal piece.  

Why does this matter? Continue reading

Two Takes on Political Donations

by Chidem Kurdas

The Wall Street Journal reports that the biggest campaign spender of 2010 is a public sector union, the American Federation of State, County and Municipal Employees, which lavished $87.5 million on helping Democrats. This single union outspent the US Chamber of Commerce, which came second with $75 million.

Reading the WSJ article by Brody Mullins and John D. McKinnon, I thought that AFSCME is giving taxpayer money to politicians who will help it further pick my pocket.  Whereas had I confined myself to reading the New York Times’ front-page piece on the same topic, I would have had no such concern, because there is no mention of AFSCME.  The NYT campaign finance story focuses entirely on the US Chamber of Commerce and says not a word about the public union. Continue reading

Krugman Mangles Smith

by Gene Callahan

Here’s Paul Krugman, explaining the meaning of Adam Smith’s pin factory, and why it opposes Smith’s invisible hand metaphor:

“What may not be obvious is the way these two concepts [pin factory and invisible hand] stand in opposition to each other. The parable of the pin factory says that there are increasing returns to scale — the bigger the pin factory, the more specialized its workers can be, and therefore the more pins the factory can produce per worker. But increasing returns create a natural tendency toward monopoly, because a large business can achieve larger scale and hence lower costs than a small business. So in a world of increasing returns, bigger firms tend to drive smaller firms out of business, until each industry is dominated by just a few players.”

And, of course, this monopolistic competition wrecks the operation of the invisible hand, per Krugman. Continue reading

Which Market Process Theorist Said This?

by Gene Callahan

No fair googling!

‘Continual deviations of the prices of commodities from their values are the necessary condition in and through which the value of the commodities as such can come into existence. Only through the fluctuations of competition, and consequently of commodity prices, does the law of value of commodity production assert itself and the determination of the value of the commodity… become a reality. Continue reading

Understanding Markets: Point/Counter-Point

by Thomas McQuade and Chidem Kurdas

Though it should be obvious to all that markets are of immense benefit to humanity, any appreciation of these institutions is almost always hedged with a perceived need to constrain and regulate—in short, to subject them to conscious outside control.  The reasoning is understandable: the unconstrained pursuit of self-interest can only lead to chaos.

But the preference for constraint through centralized direction betrays a profound misunderstanding of the way markets work.   

Can we explain that claim any better than the volumes already written on the topic?  We find that, when we discuss the issue, we agree on the basics, but differ in emphasis and details—and details matter.  Here is part of our discussion, in point/counter-point format. Continue reading

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. Continue reading

Two Takes on Class Conflict

by Chidem Kurdas

A presentation at this week’s NYU Colloquium by Ralph Raico, professor of history at the State University of New York Buffalo, generated a thought-provoking discussion.  His paper traces the early-to-mid 19th century development  of the classical liberal theory of class conflict—which long predated Marx and is different from class conflict in the Marxian sense.

Marx and his followers identified class conflict as something that happens in the market economy, where the owners of capital appropriate value produced by workers. This market-based notion of class still dominates public discussion, with the state regarded either as a capitalist tool or possibly a mediator between capital and labor.

By contrast, from the classical liberal perspective the state and the groups that control it are the central players. Using the power to tax and regulate, the governing class appropriates society’s wealth, spends it ways to benefit itself and doles it out to political supporters. It is this old concept that makes sense of today’s economic conflicts, from riots in Greece to the rise of Tea Partiers in America. Continue reading

Arizona law a blow to liberty

by Roger Koppl

Kris Kobach defends Arizona’s new immigration law, SB 1070, in today’s New York Times.  He says, “Presumably, the government lawyers . . . will actually read the law, something its critics don’t seem to have done.”  Well, I read the law and I do not like it.

Whenever a  law enforcement officer makes a “lawful contact” with a person, the officer must attempt to determine that person’s immigration status if he or she has “reasonable suspicion” the person is an illegal immigrant.  It is a “lawful contact” if the cops ask for a statement at the scene of an accident, for example.  Illegals now have an incentive to flee even as mere witnesses.  The local police or sheriff’s office cannot have a policy to counter this incentive lest they be sued.  The law provides that “a person” may bring suit against any “official or agency” that has a policy that “limits or restricts the enforcement of federal immigration laws to less than the full extent permitted by federal law.”  The central provision of SB 1070 threatens to reduce the ordinary protections of the law for illegal aliens, which threatens order and security for them and everyone else. Continue reading

Time for a Truth Commission

by Roger Koppl

London’s The Times reports on evidence suggesting “George W. Bush ‘knew Guantánamo prisoners were innocent.’”  (HT: Radley Balko)  Supposedly, Bush, Cheney, and Rumsfeld were all in on it.  “The accusations were made by Lawrence Wilkerson, a top aide to Colin Powell, the former Republican Secretary of State, in a signed declaration to support a lawsuit filed by a Guantánamo detainee.”

According to The Times, “He [Wilkerson] said that many [persons] were turned over by Afghans and Pakistanis for up to $5,000.”  The problem with these payments is clear.  Paying persons serious money to turn in supposed terrorists creates a powerful incentive to invent false charges so that you can get the money.  In that part of the world, $5,000 is very serious money indeed.  It is hard to avoid the conclusion that many persons swept up in that operation were innocent persons who were sold out to fatten a wallet.

Karl Rove has said that waterboarding is not torture.  (Go to about 3:07.)  He has also said that “harsh interrogation” produced lots of good actionable intelligence (2:25).  That’s not a credible remark in my book.

In the US, our government has rendered, sequestered, and tortured.  Our government has flouted the rule of law and suspended habeas corpus.  It has made war on a nation that was not a threat to us in any way.  It has spied on us without the legal nicety of a specific warrant.  It has, in other words, grown tyrannical.  Isn’t it time for a truth commission?  It is too much to hope for a real criminal trial of our highest officials, but is it really too much to ask for the truth?  Patrick Leahy called for a truth commission in February 2009.  It’s time.

The Abstract and the Concrete

by Gene Callahan

Abstraction can be an entertaining and useful activity. But every abstraction falsifies reality simply because it is an abstraction – it is a one-sided emphasis on certain aspects of the real at the expense of neglecting or even denying others. That is not necessarily harmful as long as we remember what we have done. But the abstraction, being simpler and more manageable than the real world, is a seductive fantasy, and the temptation to ignore messy reality and attempt to replace it with a clean and neat dreamworld.

Let me offer a few examples to illustrate what I am on about. For instance, Jared Diamond, in Guns, Germs, and Steel, wants to replace the history of the individual with what he seems to think he has founded, namely, “scientific” history. The end result is that he often winds up botching his history. Continue reading

Crowding Out DeLong: A Clarification

by Mario Rizzo  

“What it [the total of stimulus-created or saved jobs — MR] doesn’t consider are the jobs lost due to the very policies that are “saving” jobs. Government can only spend what it takes from the private sector one way or another, either through taxation, borrowing, or the redistribution effects of inflation. For every dollar that government spends, there is one less dollar being spent somewhere else in the economy. The jobs that weren’t created because the private sector lacked access to capital due to increases in government borrowing should be offset against whatever jobs the stimulus supposedly is creating.”  Steve Horwitz.   

Brad DeLong says (in the comments below my previous post) that I got Steve Horwitz’s point about crowding out wrong and therefore my defense of Horwitz is inappropriate. Furthermore, then, I miss the importance of DeLong’s evaluation that Horwitz is incompetent.  

First, and most important, I did not intend my post to be primarily a defense of Horwitz and therefore an implicit criticism of DeLong in his criticism of Horwitz. (Got that, readers?)

I intended to say simply that (1) DeLong is wrong for not worrying about crowding out in its various dimensions; and (2) that someone who worries about crowding out, like Steve Horwitz, is therefore not clueless or worse. Continue reading

A Keynesian in China

by Mario Rizzo

Paul Krugman is complaining about China’s exchange rate policy. Its government is maintaining an artificially cheap renmimbi (yuan) against the US dollar. This has stimulated the purchase of Chinese exports by US companies and individuals. It has expanded the Chinese trade surplus with the US.

The relatively rich (compared to their Chinese counterparts) American workers are suffering from depressed industries that might be stimulated if Chinese policy were to change. Specifically, if the Chinese were to allow their exchange rates to float, the US dollars would be worth less and the US would export more to China. This would stimulate the employment of resources here.

But wait a minute. Continue reading

Lists: A Blog Post on Madness

by Mario Rizzo

I don’t like lists. Many bloggers really love them. There are lists for everything. The top 5 books on gardening in October, and so forth.

I don’t like lists because they make me feel insecure. Do I have the top books? Is my blog in the top for new academic blogs in economics? (Some people think so; others do not.) How many views did we get divided by the number of posts relative to other blogs?

Am I reading the top young economists? What about the top economists in a particular area like behavioral-economics rationalized paternalism?

Are my categories in the top ten? Even if I read the top articles in a field, is the field itself in the top as determined by the top economists and the top universities?

I love champagne. Recently, the New York Times had a list of the best champagne that costs between $30 and $40 per bottle. But is that the best price category? (Is the third best champange over $50 better than the second best under $40?)

The store I went to had only the second best champagne in the Times category. I bought it. Should I feel bad?

Finally since I don’t like lists and don’t like other things as well (e.g., Obama), am I missing something by not prioritizing my dislikes? How much time should I spend criticizing Obama relative to, say, Paul Krugman?

I really don’t like lists.

Happy New Year.

The Informant’s Incentive

by Chidem Kurdas

This October, prosecutors announced a case of hedge fund insider trading with multiple arrests and perp walks amid great media fanfare. Revelations from court documents have become curiouser and curiouser.

The government’s key witness, Roomy Khan, comes across as a determined practitioner of insider trading going back more than a decade.  She pleaded guilty to the crime in 2001.  At that time or earlier, she became an informant for the FBI.

Subsequently she went on a brazen run, obtaining and trading on private information about company after company, acting as if she were protected from legal consequences. Her bizarre career highlights the ambiguity surrounding this issue. Legal scholar Richard Epstein has pointed out that enforcing insider trading law involves heavy costs and intrusion—see his  Simple Rules for a Complex World. He  argues that insider trading should be generally regarded as legal.

Consider the implications of the broad case based on Ms. Khan as informant and witness. Continue reading

Healthcare Tax Gimmick

by Chidem Kurdas

Yesterday at a news conference  President Obama laid out his view of the healthcare bill being hammered out in Congressional committees. One could question many of his statements—although the members of the press picked to ask questions did not. So as not to write a post of inordinate length, I’m will focus on just one point.

Mr. Obama says that savings will take care of about two-thirds of the cost of the new entitlement program. “The remaining one-third is what the argument has been about of late,” he says.  For the sake of the argument, let’s stay with that.

The one-third of the money is to come, in one form or another, from the rich—or those so defined. The President says he’s OK with the House proposal to add a surcharge  to families with a joint income of a million dollars. He emphasizes how important it is that the middle class not be saddled with this additional burden. Continue reading

Why the Catholic Position on Homosexual Marriage Is Not Mere Bigotry (But Still Is Mistaken)

by Gene Callahan

“Summum autem bonum si ignoratur, vivendi rationem ignorari necesse est.”* — Cicero

My friend Roger Koppl, in a recent discussion on this blog, contended that the only reason anyone might object to legalizing gay marriage is “bigotry.” Now, it is always a good bit o’ fun to insult one’s political opponents like this, but it may not always be helpful. So, I wish to take a moment here to demonstrate that at least the Catholic position contra gay marriage is not based on mere bigotry. Continue reading

Unintended Consequences of Mortgage Foreclosure

by Mario Rizzo  

We are a serious bunch here at ThinkMarkets. We make major advances almost daily in all recognized realms of intellectual thought. So now it is time to illustrate the great principle of unintended consequences of human behavior in a very vivid way.  

A brilliant new horror movie was released on May 29th: Drag Me to Hell. It is the story of an ambitious bank loan officer who is keen to get a promotion. Her superior is looking for someone who can make difficult, but profit-maximizing, decisions. Enter now an old lady who has missed payments on her home. She had already been given two opportunities to make up for delays in paying her mortgage. Now she wants a third. The bank officer struggles with the matter – pitting her natural benevolence against the justice of contractual obligation. Since acting on the basis of the latter will improve her chances for promotion, she denies the woman’s request. At that point, all hell breaks loose.   

Forget issues of aggregate demand and wealth effects. Attend, instead, to the perverse multiplier of selfishness. If you like Ayn Rand this movie will drag you to hell.