Russell Roberts's Blog, page 1451

Fight of the Century with Japanese subtitles

Public Supermarkets

In the May 5 edition of the Wall Street Journal, I explore how groceries would be supplied were they governed by the same perverse institutions that govern the supply of K-12 schooling in the United States.  Here are my closing three paragraphs:

In the face of calls for supermarket choice, supermarket-workers unions would use their significant resources for lobbying—in favor of public-supermarkets' monopoly power and against any suggestion that market forces are appropriate for delivering something as essential as groceries. Some indignant public-supermarket defenders would even rail against the insensitivity of referring to grocery shoppers as "customers," on the grounds that the relationship between the public servants who supply life-giving groceries and the citizens who need those groceries is not so crass as to be discussed in terms of commerce.

Recognizing that the erosion of their monopoly would stop the gravy train that pays their members handsome salaries without requiring them to satisfy paying customers, unions would ensure that any grass-roots effort to introduce supermarket choice meets fierce political opposition.

In reality, of course, groceries and many other staples of daily life are distributed with extraordinary effectiveness by competitive markets responding to consumer choice. The same could be true of education—the unions' self-serving protestations notwithstanding.

Fight of the Century with Italian subtitles

Rising inequality

Planet Money reports on a new OECD study that finds that income inequality is rising worldwide within most countries:

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Planet Money cites three possible explanations given in the OECD study for the trend:

1. Robots, etc.

Trade barriers have come down. Technology has advanced. The combination of these two factors has disproportionately benefited highly-skilled workers. You want to be the guy building the robot, not the guy whose job got replaced by a robot.

2. Rich people marry rich people

Inequality is calculated by household, not by individual. And a few changes at the household level have driven some of the increase in inequality.

For one thing, it's become more common for people to choose spouses in their own income bracket. In other words, rich people are now more likely to marry other rich people, and poor people are more likely to marry other poor people. (There's a creepy term for this: "assortative mating.")

Single-parent households and single-person households without children have also become more common. Both groups are disproportionately likely to be at the bottom of the income ladder.

3. Free-wheeling job markets

State ownership of corporations has declined. Price controls have become less common. Minimum wages have fallen relative to average wages. Legal changes have made it easier to fire temporary wokers.

Taken together, these changes have actually improved overall employment levels. (Businesses are more likely to higher hire workers when they can pay lower wages and when it's easier to fire people.)

But despite the gain in employment, the same shifts may also have driven up inequality. In the words of the report, "the high-skilled reaped more benefits from a more dynamic economy."

That last explanation is the Paul Krugman explanation. In the 1950′s we had less competition and less economic freedom. Unions were more powerful protecting workers. We're living in a libertarian's paradise and of course, the rich get richer and the poor get poorer. I reject that interpretation of what unions actually do, but even if you agree with Krugman, is it really the case that Sweden and other countries have reduced their legal protections for workers?

There is a fourth explanation. The fourth explanation is that these results are statistical anomalies. They come from how we calculate inequality using household income. The underlying cause of the worldwide trend is an increase in the divorce rate that caused an abrupt change in the number of households and an unexpected increase in the labor force participation of married women. It is not a result of a dysfunctional economy or a dysfunctional political system or technological change. It's the result of an increase in the availability of the pill and other forms of birth control that changed the sexual and marital culture leading to a world where divorce is much more common.

UPDATE: Oops. My "fourth" explanation is partially embedded in the second explanation given above. I read the heading "Rich marrying the rich" and missed the part about single-parent and single-person households. HT to Jacob Goldstein for pointing that out.

Harsanyi on the debt ceiling

Excellent as always. An excerpt:

It is likely that we will now witness another ridiculous debate on the topic, followed by another Republican surrender, because a measly $14.3 trillion cap won't do for a great nation. By now, you've also probably seen the quote from a once-chaste future president, arguing that even a debate about raising America's debt limit was a sign of failed leadership (Bush!). A signal, he claimed, that the U.S. government could not pay its own bills, that we were dependent on the assistance of foreigners to fund our "reckless" fiscal policies.

Obama was just kidding. Those were impetuous days in 2006 when Democrats railed against increasing the debt ceiling and Republicans — not yet having discovered "The Road to Serfdom" — were doing what they could to power it through. Today, via the magic of partisanship, the role reversal is complete.

American Exceptionalism

I disagree with Holman Jenkins's thesis – expressed in today's Wall Street Journal - that the killing of Osama bin Laden "vindicates" American civilization.  However necessary or just it was to kill Bin Laden, a civilization's value is never measured by the skill and alacrity with which its government kills even the most deserving victims.

Secular and spiritual authorities have killed people for millennia.  And these authorities have often employed impressive organizational talents and state-of-the-art techniques both to gather intelligence on the whereabouts of their prey and to perform the actually killings.  In taking down Bin Laden, the U.S. government did what governments throughout the ages have regularly done.  Success at this task does nothing to distinguish America from any of hundreds of other societies – societies present and past, good and bad, great and contemptible, civil and uncivil.

What does distinguish America and the west from most other civilizations (including the primitive one championed by Bin Laden) isn't our élan for, and skill at, martial deeds, but our embrace of individual liberty – liberty that clears space for peaceful and creative commerce.

Our civilization is vindicated by our supermarkets full of food, by our shopping malls full of clothing, by our homes with solid floors and solid roofs and air-conditioning and automatic dishwashers, by iPads and smart phones and aspirin and antibiotics and Amazon.com, by the globe-spanning cooperation that makes these things real – and by the freedom from central direction and mind-numbing, soul-shriveling superstitions that have made so many other 'civilizations' sanguinary and hellish.

What we've learned about Obama (and power)

Go back to the campaign of 2008, McCain (remember him?) and Obama. Suppose in the middle of the campaign, someone returned from the future and told you that by 2011, the President of the United States will have kept Guantanamo Bay open, launched a war against Libya, and crossed covertly into an ally's territory to assassinate Bin Laden. Who would you think that would be? McCain or Obama?

Couldn't be Obama. The man who was repulsed by American exceptionalism, who pledged to close Guantanamo Bay, the man who said the way to deal with bad guys is to talk to them, not attack them.

What happened?

Three possibilities come to mind. The first is that politicians on the campaign trail lie and dissemble. They need to motivate their base, craft an image, and so on.

The second possibility comes from a CIA economist who told me in the middle of the 2008 campaign that when Obama becomes President, he'll know what Bush knows (meaning horrific and frightening classified information) and he'll do the same thing as Bush.

The third possibility is that when you get into power, you change. It's fun to play video games with real lives. You can't help yourself. It's easy to convince yourself (given that classified information) that you have no choice.

I think it's a mix of two and three. I think Obama the candidate really thought he would be different. President Obama is not so different.

Some Links

Herein is yet another reason why ancient Rome was not home to the industrial revolution.

Piyali Bhattacharya explains seven reasons to oppose tax increases.

The always-deeply-insightful Jim DeLong astutely explains that the Tea Partiers are generally more ethical than are the rogues and bandits on Capitol Hill and in the White House (and elsewhere in political-power places).

My good friend Wayne Crews of the Competitive Enterprise Institute asks how much regulation is enough.

The great Bob Higgs on what does not make a nation great.

University of Illinois law professor Larry Ribstein, over at Truth on the Market, exposes the myth of government protection of financial markets.

Mark Perry always entertains and enlightens when he edits a politician's or a pundit's economics-challenged or hypocritical prose.

Finally, my brilliant younger colleague Bryan Caplan has the lead essay at this month's Cato Unbound.  Bryan is unfailingly worth reading, and carefully so.

'Poor' Americans, Amply Served by the Market

Here's another letter to the Wall Street Journal, using a different angle than the last, on Peter Donovan's claim that government subsidies to finance the construction of down-market residential apartments are necessary to keep poor Americans "out of the cold":

Peter Donovan asserts that failure of government to subsidize loans to build lower-end rental units would result in poor Americans being homeless (Letters, May 3).

Nonsense.  Unsubsidized markets do not cater exclusively to the middle-income and rich.  Quite the contrary.  Automakers produce not only luxury vehicles such as Lexuses but larger numbers of low-end makes such as Chevys (not to mention the existence of a thriving market in used cars).  We see not only high-end retailers selling the likes of hand-crafted Stickley furniture but also, and more abundantly, Wal-Mart and other discount retailers selling inexpensive household furnishings.  America boasts not only pricey restaurants such as the Inn at Little Washington but, far more commonly, inexpensive eateries such as Olive Garden, Denny's, and (dare I mention it?) McDonald's.

This same pattern holds for clothing, hotels, groceries, entertainment, works of art, and nearly every other species of goods and services in our economy.  It's unreasonable to suppose that without government-subsidized loans to developers, housing would be built only for middle-income and rich Americans.

Sincerely,

Donald J. Boudreaux

Flawed Logic

Here's a letter to the Wall Street Journal:

Writing about the residential rental market, Peter Donovan asserts that "Private capital may serve the higher-end properties and top-tier markets well, but it has not shown the same interest in work-force housing or housing in smaller markets.  A private-only solution would leave many markets unserved and millions of Americans out in the cold.  As evidence, fully 90% of the government-sponsored enterprise-financed apartments over the past 15 years -10 million units – were affordable to families at or below their community's median income" (Letters, May 3).

Mr. Donovan mistakes an artifact of current policy as being some sort of law of nature.  The fact that government subsidizes the financing of a huge chunk of lower-market apartments means only that government subsidizes the financing of a huge chunk of lower-market apartments.  Because government – unlike private lenders – can offer arbitrarily low interest rates on loans to apartment developers, it would be shocking if such government involvement the market for lower-end apartments did not result in this market being dominated by government-subsidized loans.

If Uncle Sam were instead to subsidize the financing only of luxury apartments, the construction of a huge chunk of these apartments would be financed with government-subsidized loans.  Would Mr. Donovan then conclude that 'a private-only solution would leave luxury-rental markets unserved and millions of wealthy Americans out in the cold'?

Sincerely,

Donald J. Boudreaux