Russell Roberts's Blog, page 1448

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Emily Skarbek (who, BTW, earned her Econ Ph.D. at GMU) talks with Reason.tv's Nick Gillespie about the Independent Institute's Government Cost Calculator.  It can handle big numbers.

Relatedly, in this video Duquesne University economist Antony Davies discusses what Social Security means to a typical 22-year-old American.

James Warner explores a policy debate between Dostoevsky and Tolstoy on whether powerful governments should intervene in global trouble spots for humanitarian purposes.  Plus ca change, plus c'est la meme chose. (HT Walter Grinder)

In this paper, University of Michigan law professor Douglas Kahn and Washington & Lee law professor Jeffrey Kahn question the strength of the free-rider argument for justifying the "individual mandate" in Obamacare.  Here's the abstract:

Section 1501 of the Patient Protection and Affordable Care Act added section 5000A to the Internal Revenue Code to require most individuals in the United States to purchase a minimum level of medical insurance. This requirement, which is enforced by a penalty imposed on those who fail to comply, is sometimes referred to as the "individual mandate." A frequently stated defense of the individual mandate is that there are a vast number of persons who do not purchase medical insurance and then obtain free medical care when the need arises, and the individual mandate will require those persons (often referred to as "free-riders") to pay their share. It is the significance of this free-rider justification that we question. We conclude that the free-rider problem, if it existed at all, likely was of minor significance and can hardly be said to justify the adoption of the new health care program. The actual congressional reason for adopting the program seems to rest on an entirely different purpose, and the debate over the desirability of the program should focus on the merits of that other purpose.

Cato's Dan Ikenson – and The Atlantic's Megan McArdle – each, in his and her own way, explains that (in McArdle's words) "GM's profits are still a huge net loss for taxpayers."

The Washington Post discusses Russ's and John Papola's remarkable rap videos.

If Only Wal-Mart Would Start Supplying K-12 Schooling!

Here's a letter to the Wall Street Journal:

Critical of my argument that the quality of K-12 education would be higher if K-12 schools – like grocery stores – had to compete directly for customers, Liana Neyer writes "low-income earners and people living in rural areas have limited access to high-quality supermarkets or fresh produce in their neighborhoods" (Letters, May 16).

First, my argument isn't that people in poor neighborhoods enjoy access to groceries equal in quality to the access enjoyed by people in wealthy neighborhoods.  Rather, I argue that more competition in K-12 education would make the schooling available to people in poor neighborhoods better than it is now.  However relatively lacking is the selection of groceries in poor neighborhoods, grocers there still must compete for customers' dollars – a requirement that obliges those grocers to be more responsive to their customers than are those neighborhoods' public schools which receive their revenue, not from voluntarily paying customers, but from taxpayers forced to pay regardless of how well or poorly their schools perform.  Consider, for example, that 47 percent of adults in Detroit are functionally illiterate while approximately 0 percent are starving or wanting for the likes of toothpaste, paper towels, and laundry detergent.

Second, as with education, low-income Americans' relatively poor access to groceries is caused partly by misguided government policies.  As I write, DC's government is threatening to stop Wal-Mart from opening stores (which would sell groceries) in low-income DC neighborhoods.  Is there better evidence than Wal-Mart's efforts to open stores in poor neighborhoods that competition would serve poor Americans well if only government would step aside and let entrepreneurs compete freely – in supplying schooling no less than in supplying groceries – for consumer dollars?

Sincerely,

Donald J. Boudreaux

Romney's candidacy is a joke

Michael Cannon explains why.

Byers on the Blind Spot

The latest EconTalk is mathematician William Byers discussing what he calls the blind spot–the uncertainty and imperfection of science. He contrasts the science of certainty with the science of wonder. It was an interesting conversation–the part I liked the best was unplanned–an excursion into the implications of his ideas for teaching.

Macaulay's "Southey's Colloquies on Society" (the abridged version)

A friend reminded me that, back in 2000, I published (as a column in The Freeman) this heavily abridged version of Thomas Babington Macaulay's 1830 essay "Southey's Colloquies on Society."  I highly recommend that you read the entire essay, but – short of reading that remarkably eloquent essay in full – my humble, abridged version will do.

Answer to Question #1

Here's the answer to question #1 on Friday's pop quiz:

1. Which group of persons would most likely benefit from rent control imposed in the city of Washington, DC?

a. landlords in Washington, DC

b. persons seeking to rent apartments in Washington, DC

c. landlords in the DC suburbs without rent control

d. renters in the DC suburbs without rent control

Correct answer: C. Rent control in DC reduces the number of rental units supplied in DC – reducing this number from what it would be without rent control.  The result is that a greater number of persons who would would have rented in DC (if that city didn't have rent controls) – but discovering themselves unable to find rental units there – will spill over into DC's suburbs in search of rental units.  The resulting increase in the demand for rental units in DC's suburbs will raise the prices that landlords in these suburbs will fetch for their rental units.

Answer A is incorrect for obvious reasons: the rent-control legislation reduces the prices that DC landlords can fetch for their units and, more generally, ties these landlords' hands in dealing with tenants and potential tenants.

Answer B is incorrect because, by reducing the number of rental units available in DC (while simultaneously increasing the number of these units that are demanded by potential renters), DC's rent-control statue creates a classic sellers' market – albeit one (1) without higher prices serving as a means of rationing supply among potential buyers; and (2) without the rising prices that call forth a greater quantity supplied of rental units.  Many people seeking to rent apartments in rent-controlled DC will be frustrated in their attempts to find suitable apartments.  Some of these frustrated would-be DC tenants will spill over into DC's 'burbs and, in addition to having a longer commute and less-agreeable neighborhoods (according to their tastes) than they would have had had they been able to rent in DC, these tenants will pay higher prices for their suburban apartments than tenants in those apartments would have paid if DC had no rent control.

Finally, even those persons fortunate enough to succeed in finding rental units in rent-controlled DC will have to endure apartments in the District of lower quality (such as less square-footage, or fewer amenities)  than would be available without rent control.

Answer D is incorrect because DC rent control causes rents in surrounding jurisdictions to be higher than otherwise (see above).  So even persons who from the get-go wished to rent in DC' 'burbs will, because of DC's rent-control policy, have to pay higher rents for their suburban apartments.

….

I'll post answers to questions #2 and 3 later.

Pop Quiz

Here are a three multiple-choice questions that I wrote for my Principles of Economics (ECON 103) final exam that my students took earlier this week:

Which group of persons would most likely benefit from rent control imposed in the city of Washington, DC?

a. landlords in Washington, DC

b. persons seeking to rent apartments in Washington, DC

c. landlords in the DC suburbs without rent control

d. renters in the DC suburbs without rent control

Suppose that engineers at BMW invent a new machine that dramatically increases BMW's efficiency at producing automobiles and, thus, causes BMW's production costs to significantly fall.  As a result, BMW expands its output and lowers its prices.  But also, BMW patents this new machine; only BMW can use it.  What is the most likely consequence of this particular invention on the prices that General Motors, Ford, Toyota, and other auto makers charge for the automobiles they produce?

a. no change in the price of non-BMW automobiles

b. the price of non-BMW automobiles will fall

c. the price of non-BMW automobiles will rise

d. there's insufficient information to answer this question

In the 1970s, the federal government imposed price ceilings on oil.  The goal was to make fuels such as gasoline and heating oil more affordable.  One consequence was

a. consumers ended up getting less oil (and oil products, such as gasoline and fuel oil) than they would have gotten without the price ceiling

b. gasoline shortages

c. higher costs to consumers of acquiring oil and oil products

d. all of the above

Anyone want to list the answers in the comments section?

Not Cynical, Actually; A Realist

Politico reported yesterday that GOP leaders argue that extending the PATRIOT Act is especially important because the killing of Osama bin Laden might inspire retaliatory terrorist attacks against Americans.

Call me cynical, but had Bin Laden not yet been killed or captured, I'm sure that these same GOP leaders would argue that extending the PATRIOT Act is especially important because Osama bin Laden remains on the loose.

Thus the unique danger of declaring war on "terror": the enemy – being a method rather than an identifiable group of people – is impossible to eradicate completely.  And so the power-hungry in coalition with the paranoid have available an inexhaustible supply of superficially plausible excuses for keeping citizens in a perpetual state of fear, war, surveillance, and suppression.

MP3 of Fight of the Century

It's here folks. Enjoy.

Oily Witch Hunt

Here's a letter to Washington, DC's, WTOP Radio:

Mark Segraves reports today that Maryland Attorney General Doug Gansler, having received complaints about rising gasoline prices, "sent a letter to [gasoline wholesaler] Empire requesting documentation to justify the spike in prices."

Here's how I hope Empire will respond to Mr. Gansler's letter:

"Mr. Gansler: We're in receipt of your request for us to justify our decision to raise the prices we charge for our products.  Because Empire is a private firm with no government-granted protection from competition, our pricing policies are none of your business.  But we'll humor you this once: our 'justification' for raising prices is that we believe the market will bear these higher prices.

"Being experienced in this industry (unlike you), we believe that over the next few days, weeks, or months, gasoline supplies (relative to demand) will be unusually low and, hence, unusually valuable.  If our belief is correct, we'll earn profits for helping to bring gasoline prices into line with these prevailing market conditions.  The higher prices will give oil producers and gasoline refiners incentives to work extra-hard to bring more supplies to market.  These higher prices will also prompt consumers to conserve today on their use of gasoline.  You would agree, no doubt, that both of these responses are appropriate when gasoline supplies are tight.

"If our belief is incorrect, however, we'll lose market share – and, hence, lose profits – to rival gasoline wholesalers who are better than we are at reading prevailing conditions in the market.

"Either way, we gain nothing at the expense of consumers who (especially if our assessment of market conditions is correct) are made better off than they would otherwise be over the long-run by having prices rise today so that gasoline will be more abundant tomorrow."

Sincerely,

Donald J. Boudreaux

FYI, I defend oil "speculators" tonight on John Stossel's Fox Business show (10pm EDT).