National Gazette

" EACH YEAR since 2002, the number of U.S. and allied troops in Afghanistan has grown. And each year, during the "fighting season" of spring and summer, the number of attacks by the Taliban has also increased, prompting commanders to conclude that still more troops are needed. This year is no exception. There are 66,000 foreign troops from 40 countries in Afghanistan, including 37,500 Americans; the force under NATO command has grown by 20,000 in 18 months. But Taliban attacks are up 40 percent in eastern provinces this year compared with 2007, and there has been another spike in coalition casualties. In May and June, more Western soldiers died in Afghanistan than in Iraq. Adm. Michael G. Mullen, chairman of the Joint Chiefs of Staff, says that "at least" three additional brigades, or about 10,500 more troops, are needed for combat operations and training of the Afghan army. " ~ The Washington Post

" THE AMERICANS With Disabilities Act (ADA), passed in 1990, was supposed to level the playing field for the disabled. It ended up helping some more than others. If you had an incurable disease, such as epilepsy, that affected your everyday actions but could be treated with medication, you were not disabled, the Supreme Court determined, and you did not deserve the accompanying rights. That soon may change, thanks to a remarkably cooperative effort by businesses and advocates of protections for the disabled. The House recently voted overwhelmingly to expand those protections, and the Senate is expected to follow suit. Although President Bush has expressed concerns that excess litigation may ensue, he is unlikely to veto the bill, nor should he. " ~ The Washington Post

" VIRGINIA LAWMAKERS are locked in partisan battle over a rescue package for the state's badly underfunded transportation network. In Richmond, where a special legislative session transportation resumes Wednesday, all is pessimism: Virtually no one who understands the scope of the problem believes that the legislature is likely to do enough to buttress the state's basic infrastructure and economic future. In the Republican-controlled House of Delegates, it's not even clear that Speaker William J. Howell (R-Stafford) will allow a full debate on the merits of various bills. Against that gloomy backdrop, it is worth examining the stakes of a game that has already cost the commonwealth dearly. " ~ The Washington Post

"The Democratic establishment is out in full force now, providing justification for the crappy FISA Amendments Act that's about to become law. While they haven't learned how to fight like Republicans (who have redefined "compromise" to mean "capitulation") they've learned how to lie like them. Case in point, Nancy Soderburg, who was Clinton's deputy national security advisor and an ambassador to the UN. She pens a truly deplorable op-ed in today's LA Times, in which she tries to rewrite not only the history of the Bush administration's lawlessness, but also this law. I can't write a better take down of this nonsense than Glenn, so be sure to read his whole piece. But here's this part that's particularly salient: It's notable because the political establishment is not only about to pass a patently corrupt bill, but worse, are spouting -- on a very bipartisan basis -- completely deceitful claims to obscure what they're really doing. This is what Soderberg says is what happened: The Senate is dragging its feet because the compromise bill's opponents -- mostly Democrats -- want also to punish the telecommunications companies that answered President Bush's order for help with his illegal, warrantless wiretapping program. That is the wrong target. In the aftermath of Sept. 11, the White House directed telecommunications carriers to cooperate with its efforts to bolster intelligence gathering and surveillance -- the administration's effort to do a better job of "connecting the dots" to prevent terrorist attacks. In its review of the effort, the Senate Intelligence Committee concluded that the administration's written requests and directives indicated that such assistance "had been authorized by the president" and that the "activities had been determined to be lawful." We now know that they were not lawful. But the companies that followed those directives are not the ones to blame for that abuse of presidential power. I would really like to know where people like Soderberg get the idea that the U.S. President has the power to "order" private citizens to do anything, let alone to break the law, as even she admits happened here. I'm asking this literally: how did this warped and distinctly un-American mentality get implanted into our public discourse -- that the President can give "orders" to private citizens that must be complied with? Soderberg views the President as a monarch -- someone who can issue "orders" that must be obeyed, even when, as she acknowledges, the "orders" are illegal. That just isn't how our country works and it never was. We don't have a King who can order people to break the law. I have no doubt that people like Nancy Soderberg are spending the July 4 weekend paying shallow homage to the Founding, all the while being completely ignorant of or indifferent to the principles they pretend to celebrate. This line of thinking is not only patently false, it's absolutely dangerous. Political expediency has been put ahead of principle, which happens all the time in politics. Politicians are always going to be politicians and they are always going to be basing their actions on the next election. In this case, it wasn't even smart strategy. There are basically three groups who care about this legislation--us, The Villagers, and the Bush/Cheney cabal. Voters aren't clamoring for the Democrats to cave--Bill Foster's win proves that. So in a valiant effort to appease The Villagers, they piss off the activist base. As usual. But this time is different. This time it's the Constitution we're talking about, the core principles of our founding--separation of powers, rule of law, all those "quaint" phrases that have kept this country going for 218 years. Now the phrase we get is "it's good enough." Literally, Nancy Soderburg says this bill is "good enough." Sorry, but some of us have slightly higher standards. One of the reasons the Republican establishment is about to be thrown out by the American people is because we're sick of being lied to. Dems should take that as a cautionary tale, and realize that we're just not that stupid. That goes for our soon to be President, as well. We have a much better chance of continuing this battle, repealing this legislation, and having the information related to this program declassified with a President Obama than we do a President McCain, and I relish the opportunity to do just that. That's why I'm supporting Obama fully in this election. He's got my vote. But truthy talking points are not going to fool us--we will not sit by while Dem leaders lie to us about what this bill does and and watch them confer the king-like powers on the office we hope he takes. " ~ Daily Kos

"Coming Up on Sunday Kos .... georgia10 will explore the new face of activism and what it looks like for the millennial generation. DemFromCT will review recent polling on health care as it relates to the 2008 campaign, and the chances for health reform after the election. DevilsTower will take a look back at Freedomnomics, sockpuppetry and misleading economics. Think the Cold War ended? Think again. Plutonium Page will take us on a tour of one of the most contaminated nuclear sites on Earth... right here in the United States. DarkSyde will give a lyrical salute to one of the most beautiful places on earth. " ~ Daily Kos

" This isn't new—indeed it's 40-plus years old—but this commercial is still incredibly funny, strange, and totally fucking bizarre. No wonder the Soviets lost the Cold War!Watch as Barney Rubble and Fred Flintstone goldbrick and debate the merits of Winston cigarettes in a kinder, gentler America:" ~ Reason

"Here is the story and list. Achieving a chess rating of over 2700 is very hard to do. This is a reflection of either: a) just how much talent and sponsorship the modern world has, or b) just how narrowly..." ~ Marginal Revolution

"Alex is back, alive and well. But he still has a raspy voice from sucking in all that air pollution. Here is one reason why, as explained by Brad Plumer: China's central government is well aware that its blackened rivers..." ~ Marginal Revolution

"Prof. [Anita] Elberse looked at data for online video rentals and song purchases, and discovered that the patterns by which people shop online are essentially the same as the ones from offline. Not only do hits and blockbusters remain every..." ~ Marginal Revolution

"This has already achieved widespread circulation through the NYT, but if you don't already know, its presented expected value is high. A good way to eat pumpkin seeds is to fry them with chopped tomatillos and chopped white onions and..." ~ Marginal Revolution

"The main idea is that when you busy people's minds with a routine task, they are less able to rationalize their own behavior and they are more likely to report the truth about what they are doing. The most quotable..." ~ Marginal Revolution

"Biofuels have forced global food prices up by 75% - far more than previously estimated - according to a confidential World Bank report obtained by the Guardian. The damning unpublished assessment is based on the most detailed analysis of the..." ~ Marginal Revolution

"1. Government and the American Economy: A New History, no editor but the book is dedicated to Bob Higgs by Price Fishback. Imagine essays by economic history luminaries, mostly classical liberals, covering many different eras of American economic history. For..." ~ Marginal Revolution

"Among cities with more than 500,000 residents, Detroit has the safest drivers, with accident rates that are 20 percent below the national average. For cities with more than 1 million residents, Phoenix has the safest big-city commuters, with accident rates..." ~ Marginal Revolution

"I was just invited to a conference -- a very good one in fact -- where the price of registration rises by $150 for every week that passes. This encapsulates at least two principles of behavioral economics. First, it combats..." ~ Marginal Revolution

"Here is the male privilege checklist. Here is the female privilege checklist. Robin Hanson, scientist, continues: "The next obvious step is to assign point values to such privileges, so we can add them up and compare totals." You can imagine..." ~ Marginal Revolution

"An overview is here, the list of contributors is very prestigious (disclaimer: I wrote the article on the social discount rate), and the Palgrave name is golden. The old Palgrave Dictionary of Political Economy still makes for fascinating browsing. Yet..." ~ Marginal Revolution

"The "likely consequence" of growing numbers of Chinese learning English without "enough quality spoken practice" means that "more and more spoken English will sound increasingly like Chinese." Already, non-native speakers far outnumber native speakers, and in the next decade, native..." ~ Marginal Revolution

"The wine aisle in your grocery store is probably organized this way. Yes, I know there is a California section and an Import section and even a jug/box wine spot, but look within each wine display and you’ll see the..." ~ Marginal Revolution

"Arguably this is a spoiler, so I'll put it under the fold. But maybe it's not a real spoiler, I'm just speculating but I do think it is possibly true. I don't want to ruin the show for you but..." ~ Marginal Revolution

"Who knows, but just maybe: Doubts about the official version of the rescue surfaced in Switzerland where a public radio station quoted an unidentified source - "close to the events, reliable and tested many times in recent years" - saying..." ~ Marginal Revolution

"Would Americans be well-served by Uncle Sam opening up an academy to train bureaucrats?  George Leef argues not, and for good reasons. " ~ Cafe Hayek

"Reading this morning these opening words in a report at Yahoo Sports -- "Wimbledon came under fire from animal activists on Tuesday for using marksmen to shoot down dive-bombing pigeons" -- reminds me yet again that our society is extraordinarily wealthy.  That ordinary people are sufficiently and securely fed, clothed, shod, and sheltered to enable some of them to devote substantial stores of their emotional energies to the care of pigeons is a sure sign of deep and widespread prosperity. " ~ Cafe Hayek

"Bjorn Lomborg writes great good sense in today's Washington Post. " ~ Cafe Hayek

"I broke down and bought a Kindle. What I like after taking it on a four day trip:Having a bunch of different stuff to read that takes up very little space. The act of reading on it. It's surprisingly pleasant. I find myself reading quickly. How relatively easy it is to take notes. How incredibly easy it is to mark a passage The ability to download a bunch of samples to read before you buy and buying the one you're in the mood to read. Buying books that don't clutter my house. I have a lot of books already.What I don't likeNot having books around the house I've read to pick up and share with my family and friends Reading the Sunday New York Times. It's just not as much fun. Not even close. Didn't really even want to read it. I'd really have to want to read a particular article. Having to turn it off when the plane takes off or lands.It's a weird thought to think that this might be the future of reading. It's possible that it might be. It would be sad to lose the opportunity to look at a shelf of books and figure out what I want to read next or what I want to share with my kids. But it might be worth it if it means you can carry around a few thousand books with you all the time which is the way it's heading. " ~ Cafe Hayek

"Because of family matters, this past Spring found me way behind in my reading (including reading books that I agreed to review -- a task which I'm catching up on now).  Here are three books that I'm especially eager to read this summer once my decks are all clear:Stealing from Each Other: How the Welfare State Robs Americans of Money and Spirit, by Edgar K. Browning (2008).  Economists know Butch Browning for his excellent research in public finance.  This book promises to be well-researched, well-reasoned, and important. The Dirty Dozen: How Twelve Supreme Court Cases Radically Expanded Government and Eroded Freedom, by Robert A. Levy & William Mellor (2008).  Bob Levy (a successful entrepreneur turned successful lawyer and inspiring policy analyst) and Chip Mellor (co-founder and president of the vital Institute for Justice) bring, I'm sure, passion and brilliance to their review of some of the Supremes' most unfortunate rulings. Fooled By Randomness, by Nassim Nicholas Taleb (2005).  The praise this book has received is immense -- and not least from Russ Roberts. " ~ Cafe Hayek

"The latest episode of EconTalk is a conversation with Arnold Kling on how to improve health care outcomes in hospitals. Given how complex the human body is, specialization doesn't always improve health--the heart doctor worries about a heart attack and neglects the impact of bed rest on infection. Arnold wants to see better planning within hospitals to take account of the complexity of the human body. I wonder why the incentives aren't in place for that to happen already. Arnold has lots of interesting observations about our current system and what it does, both good and bad, to human beings. I am working on interviewing a hospital administrator in the fall. " ~ Cafe Hayek

"Reading this op-ed in today's Washington Post -- an op-ed with several flaws and false premises -- causes me to wonder the following: How many people who ridicule the idea that higher corporate taxes meaningfully reduce a country's total output of goods and services also believe that government subsidies meaningfully increase a country's total output of goods and services? " ~ Cafe Hayek

"George Will's column in today's Washington Post is especially good (save for his slipping into the mistake of apparently assuming that America competes economically with other nations). Especially noteworthy is this wonderful -- and wonderfully Smithian and Hayekian -- line:Modernity means the multiplication of dependencies on things utterly mysterious to those who are dependent -- things such as semiconductors, which control the functioning of almost everything from cellphones to computers to cars.I would add only that our dependence is not only on things utterly mysterious to each of us, but also on millions of strangers -- as Adam Smith noted in Book I, Chapter 2 of The Wealth of Nations:But man has almost constant occasion for the help of his brethren, and it is in vain for him to expect it from their benevolence only. He will be more likely to prevail if he can interest their self-love in his favour, and show them that it is for their own advantage to do for him what he requires of them. Whoever offers to another a bargain of any kind, proposes to do this. Give me that which I want, and you shall have this which you want, is the meaning of every such offer; and it is in this manner that we obtain from one another the far greater part of those good offices which we stand in need of. It is not from the benevolence of the butcher, the brewer, or the baker, that we expect our dinner, but from their regard to their own interest. We address ourselves, not to their humanity but to their self-love, and never talk to them of our own necessities but of their advantages. Nobody but a beggar chuses to depend chiefly upon the benevolence of his fellow-citizens. Even a beggar does not depend upon it entirely.Also relevant here is the final paragraph of Hayeks' 1945 essay "Individualism: True and False":What [true] individualism teaches us is that society is greater than the individual only in so far as it is free. In so far as it is controlled or directed, it is limited to the powers of the individual minds which control or direct it. If the presumption of the modern mind, which will not respect anything that is not consciously controlled by individual reason, does not learn in time where to stop, we may, as Edmund Burke warned us, "be well assured that everything about us will dwindle by degrees, until at length our concerns are shrunk to the dimensions of our minds." " ~ Cafe Hayek

"Here's Karol in The Guardian, explaining how unnecessary -- and often deadly -- conflict is sparked by labor-market regulations.  The setting for this sad story is South Africa.  Here's Karol's conclusion:Making the labour market more flexible would actually benefit the poorest citizens. If it were less expensive to hire and fire workers, and if the regulatory costs of compliance with labour laws were lower, the formal sector in South Africa would employ more people. And if more jobs were created in the formal sector, people would feel less threatened by immigrants who have filled South Africa's townships. Employment policy reforms are not only necessary in South Africa, they are a matter of life and death. " ~ Cafe Hayek

"Below is a link to an MP3 file that features part of President Jimmy Carter's July 1979 speech on energy policy.  Carter made all sorts of grand promises and commitments about reducing America's dependence on foreign oil, blah, blah, blah.  Big words, government diktats, and collective 'solutions' to problems real and imaginary sounded no less silly back in the disco days than they do today. Download National_Energy_Crisis_Address.mp3 (HT my friend Terry Brock) I have no doubt that 30 years from now people will revisit the speeches, blog-posts, and writings of the likes of Barack Obama and John McCain and find them to be just as fancifully idiotic as is this speech by Jimmy Carter. " ~ Cafe Hayek

"I love this insight from Matthew Arnold; it's from his Culture and Anarchy.This is the social idea; and the men of culture are the true apostles of equality.  The great men of culture are those who have had a passion for diffusing, for making prevail, for carrying from one end of society to the  other, the best knowledge, the best ideas of their time; who have labored to divest knowledge of all that was harsh, uncouth, difficult, abstract, professional, exclusive; to humanize it to make it efficient outside the clique of the cultivated and learned , yet still reaming the best knowledge and thoughts of the time, and a true source, therefore, of sweetness and light.(HT to my close friend Lyle Albaugh.) " ~ Cafe Hayek

"A reader obviously interested in stroking my already out-sized ego asks me to post an old article of mine on why politicians are like shopping-mall Santas.  Here 'tis. Shopping-mall Santas remind me of politicians.  No joke. Consider the similarities: each Santa sits upon a throne and receives from stangers demands for free goodies. Each child who asks for things from Santa asks for these somethings free of charge. Others – Santa and his elves – bear the full cost of supplying little Johnny with his bicycle and little Suzie with her doll. Therefore, from the perspective of each child, requests made to Santa are costless – there's no reason to hold back. Each child will request many more toys than he or she would buy if he or she had personally to pay the cost of making the toys. Politicians are surprisingly like shopping-mall Santas. Each elected official is routinely approached by representatives of this and that special-interest group – sugar farmers, labor unions, the steel industry, the textile industry, the plastic-bag industry and on and on and on. Each lobbyist asks elected officials for some special favor, usually a privilege that must be paid for by third parties. There's little reason, therefore, for lobbyists to moderate their requests. So they ask and ask and keep on asking. It's actually quite a child-like arrangement. (Indeed, just as children often bellyache and whine when Christmas morning reveals that Santa did not fulfill every wish, interest groups often bellyache and whine when government doesn't come through with every requested special privilege.) Of course, the analogy between shopping-mall Santas and politicians isn't perfect. Shopping-mall Santas are less harmful than politicians. To see why, imagine for a moment what the world would be like if shopping-mall Santas actually possessed some of the power possessed by politicians. Each Santa would receive the requests of all the little children visiting his mall. All of these Santas would then assemble in a grand building – say, a marble-domed edifice at the North Pole – and inform each other of the different demands that each Santa received from the children. Each Santa would seek to satisfy as many of "his" children's requests as possible. Satisfying such requests – assuming no elves exist – requires the House of Santas to get resources from third-parties. This is where our assumption that Santas enjoy power similar to that enjoyed by politicians comes in. With the best of intentions, the jolly old fellows tax and regulate the faceless masses in order to satisfy the requests of the cute little Suzys and the adorable little Johnnys. Of course, the masses are not completely accommodating. If the Santas tax too heavily, they risk getting fewer, rather than more, tax revenues. So not each and every and all requests of each child can be completely satisfied. Bargaining among the different Santas assembled will determine just which demands are completely satisfied, which are ignored, and which only are partly satisfied. But clearly the amount of society's resources used to make toys will be excessive. Each child who registered his or her demands with a shopping-mall Santa was unconstrained in doing so. Likewise, in seeking to satisfy as far as politically possible each child's request, each Santa is spending other people's money. The world would have far too many toys and too little of those things that children don't fancy. We should be jolly happy that each shopping-mall Santa in fact immediately forgets each child's request the moment each child hops down from his knee. Too bad members of Congress take their role as Santa much more seriously. Woe, woe, woe. " ~ Cafe Hayek

"The subprime mortgage debacle, efforts by New York City to ban trans fats in restaurants, the discovery of lead in toys manufactured in China, and concerns about safety inspections of airplanes and laxity in regulation of new drugs have brought to the fore the issue of the optimal scope and methods of regulation designed to protect consumers. There are two reasons to think that consumers might need more protection than is provided by competition among sellers, even as backed up by court-enforced law. Few opponents of regulation doubt the appropriateness of such judicially enforced rules as the implied warranty of fitness and safety that accompanies the sale of products. The first reason for thinking that it might make economic sense to add a layer of regulation to competition plus court-enforced law is the high costs to consumers of obtaining information about products and services (but I will confine my attention to products). The busier people are and hence the higher their costs of time, and the more complex that products are, the higher consumer information costs will be. Product information could be thought a product in itself that a competitive market would generate in optimal quantities, but that is far from certain. The problem is what might be called "fouling one’s nest." If a cigarette producer advertises its cigarettes as "safer," it is implying that cigarettes are unsafe, and this could reduce consumption. Now in fact everyone knows about the dangers of smoking, so that is not a serious problem; but it is a problem when the hazards of a product are not widely known. A restaurant that advertises that its food contains less trans fat or less salt than other restaurants is telling consumers that there are bad things in restaurant food. Moreover, and probably more important, it is very difficult for an advertiser to explain why trans fat or salt or butter is bad for one. I believe that the obesity epidemic must be due in in part to the ignorance of many consumers, especially if they are poorly educated, of the causes and consequences of obesity. There are three possible responses to the problem created by consumer information costs. The first is to require producers to provide more information; the second is to ban products upon on the basis of a judgment that if consumers knew the score they would not buy the product in question; and the third is to leave the burden of information on the consumer, thereby increasing the incentive of a consumer to inform himself about the products he buys. Often the preferred ranking will be 2, 1, and 3. Banning the product eliminates information costs, though to justify so drastic a measure requires a high degree of confidence that informed consumers would not buy the product if they knew the facts about it. If as I believe trans fats have close and much more healthful substitutes that cost little more than trans fats, the attempt to ban trans fats in New York City restaurants made sense. Forcing sellers to provide more information to consumers can paradoxically raise consumer information costs by requiring consumers to sort through more warnings and interpret and evaluate them. There is also a lulling effect: required warnings create the impression that the government is protecting consumers by regulating sellers, which it may not in fact be doing; or may create resentment because consumers feel overloaded with unnecessary warnings: a "crying wolf" problem. A related problem is that consumers have very different stocks of information, making it difficult or even impossible to draft a warning that will provide a significant net increment in consumer knowledge. Finally, encouraging consumers to become better informed about products on their own, in lieu of relying on government regulation, might be excessively costly. It would force consumers with high time costs to reallocate high-value time to the study of consumer products, at a cost and a cost of this reallocation that might exceed the cost of regulation. Take the case of health inspections of restaurants. My guess is that those inspections add little to the cost of restaurant food (I am assuming the inspections are financed by a restaurant tax). In their absence a consumer could not just drop in on a new restaurant with confidence that he would not get sick because of unsanitary conditions. (So such regulation may encourage entry into the restaurant industry.) No doubt services would spring up to rate the healthfulness of different restaurants, just as services like Zagat rate the quality of the food and service offered in different restaurants. But the inspectors employed by a private service would not have the powers of public inspectors--to inspect without notice and shut down a restaurant found to have unhealthful conditions. Perhaps some restaurants would consent to grant such powers to a private service, but then the consumer in evaluating the private inspection services might be faced with a formidable search cost to determine the best service. Apart from costs of obaining information, there is the distinct problem of evaluating or processing information. This is the domain of the cognitive quirks that have been illuminated by the recent literature (increasingly influential in economics) in cognitive psychology. An example is the seeming inability of many consumers to appreciate the practical identity between an item priced at $9.99 and the identical item priced at $10.00. Merchants' unquestionably sound conviction that consumers exaggerate the difference between these two prices is the only thing keeping the penny in circulation, as it costs more than a penny for the U.S. Mint to produce a penny. I do not think these quirks provide a compelling reason for additional regulation of consumer products and services. Such regulation would amount to telling consumers that they can't think straight, and would reduce consumer utility, at least in the short run, by denying them $9.99 "bargains." I would however favor incorporating into the curricula of high schools, and perhaps even elementary schools, courses in cognitive psychology that would make students alert to the pitfalls that await them as a result of cognitive defects that, though hard-wired in the brain, are avoidable if one is alert to their existence. The existence of cognitive deficiencies may have been a factor in the subprime mortgage debacle, though on the consumer rather than the producer side. Many consumers may have been incapable of properly evaluating the risks of heavy borrowing; cognitive psychologists have found that average and even very intelligent people have difficulty handling probabilities. On the producer side of markets, however, there are forces for minimizing the effect of cognitive deficiencies. People who don't handle probabilities well are not going to thrive in the insurance business or other financial businesses. They will be selected out by competition; the analogy is to natural selection in biological evolution. I suspect that the housing bubble and ensuing credit crunch reflect, on the business side of the market, not so much irrational optimism as risk taking that was rational given asymmetries of loss and gain. Generous severance benefits truncate downside risk for the top management of large companies, and speculation in the face of a known bubble can be rational because until the bubble bursts values are rising very rapidly; the trick is to jump off the hurtling train just before it crashes. " ~ The Becker-Posner Blog

"The Mexican and New York City programs are well described in Becker's post and in a recent article in the Financial Times by Christopher Grimes, "Do the Right Thing," May 24, 2008, www.ft.com/cms/s/0/a2f1b24a-292a-11dd-96ce-000077b07658.html?nclick_check=1. I cannot comment on the Mexican program; nor do I oppose social experiments financed by private money, as in New York. But I am skeptical about the New York program, and if I were a New Yorker I would be reluctant to support public financing of it. Before Milton Friedman proposed to replace welfare programs with a negative income tax--that is, a cash grant with few if any strings attached--welfare programs were in part devices by which the government endeavored to buy good behavior from the poor. Hence food stamps, but not food stamps that could be used to buy liquor. Or money earmarked for health or education. Friedman's criticism of such programs was that people have a better sense of their needs than government bureaucrats, so that if the government simply gave poor people money they would allocate it more efficiently than the welfare bureaucracy would do. This philosophy was eventually adopted by the federal government in the form of the earned income tax credit. The danger in giving the poor money (or anything else for that matter) is that it will reduce their incentive to work; this problem was addressed by the replacement of welfare by workfare at the state and later the federal level. Friedman's analysis requires qualification, however, when the issue is the welfare of children. The reason is that not all parents balance their own welfare with that of their children in an impartial manner. That is why we have laws forbidding child neglect and abuse. It is also why we have compulsory-schooling laws and forbid child labor. These are paternalistic laws in a quite literal sense, but are justified to the extent that there is legitimate concern that not all parents are faithful agents of their children. Nevertheless, as a general rule parents both know better than welfare officials what is good for their children and love their children more than the officials, however well meaning, do, so any proposal to expand the role of government in controlling children should be viewed with caution. Public school is both free and compulsory, and schooling adds considerably to a child's lifetime income prospects, so we must ask why some parents do not compel their children to attend school regularly. One reason might be that some of them do not value their children's welfare. Another that they cannot control their children. And a third that they do not think their children benefit significantly from regular attendance. I would guess that the second and third reasons are more common than the first. Paying children to go to school would probably have at least some effect in countering all three cases. However, the benefits would be limited to children who, but for the payment, would attend school less frequently. I do not know how those children could be identified in advance, which means that the program would confer windfalls on some, perhaps many, children. (It would be odd to disqualify children on the basis of their good attendance!) In addition, there would be substantial costs, both direct and indirect, to the program. The direct costs would consist of the costs of distributing the money to the kids, making sure that it is not appropriated by the parents, and monitoring the children's school attendance. (So: more bureaucracy.) The indirect costs would include perverse incentive effects--some parents would spend less on their children to offset the payments that the children would be receiving for staying in school. Also, giving children their own source of income would reduce parental control and by doing so weaken already weak families. And some children contribute more to family welfare by occasional truancy than by consistent school attendance--for example, they may be older children helping to take care of younger siblings in households in which the parents work full time, or in which there is only one parent. Also, how does one end such a program? If the payments are suddenly withdrawn, will the kids feel aggrieved and resume truancy with a vengeance? The largest indirect cost, I would guess, would consist in relaxed pressure to improve the public schools or to allow them to be bypassed by means of voucher systems. High rates of truancy may be due in significant part to low quality of schools. Paying children to attend school will reduce truancy rates some but without improving school quality, and perhaps without improving the education of the children receiving the payments. (School quality may actually decrease, with more crowded classrooms--crowded by kids who don't really want to be there.) Suppose that a school is in session 200 days a year, a student is truant 10 of those days, and if paid to attend would be truant only 5 days. Then the effect of the payment would be to increase the number of days the child was in school by only 2.5 percent. If it's a bad school, there might be zero benefit from this modest increase in attendance. Granted, there are many children in New York who are truant for much longer periods. An article by Harold O. Levy and Kimberly Henry, "Mistaking Attendance," New York Times, Sept. 2, 2007, www.nytimes.com/2007/09/02/opinion/02levy-1.html?_r=2&ex=1189396800&en=1d2692cb89c474d7&ei=5070&emc=eta1&oref=slogin&oref=slogin, estimates that 30 percent of New York public school students miss a month of school every year. But they may be children who for mental or psychological reasons, or extreme family circumstances, cannot benefit significantly from additional schooling. The beneficial effects of paying children to go to school are likely to be concentrated on the kids who are casual rather than extreme truants, and those benefits, as suggested by my numerical example, may be slight. Another component of the program is paying children for performing well on standardized exams. Such measures reward work more directly than paying for attendance, and also avoid the bad signal that is emitted by bribing people to do what the law requires them to do (i.e., attend school until 16 or 18, depending on the state), but they may largely reward intelligence rather than study. Working hard in school is no guaranty of getting good grades. Scholarships for promising students and awards for high performance have good effects, but the paid students are unlikely to qualify in competition with students who do not have to be paid to attend school. Paying children to attend school is a band-aid approach at best. Far better would be a voucher system that would create competition among the public schools to serve children better. " ~ The Becker-Posner Blog

"A newspaper is a bundled product. A bundled product is one that combines a number of products the demands for which may be quite different--some consumers may want some of the products in the bundle, other consumers may want other products in the bundle. (Another good example is the Windows operating system, a bundle of a number of different programs.) Bundling is efficient if the cost to the consumer of the bundled products that he doesn't want is less than the cost saving from bundling. A particular newspaper reader might want just the sports section and the classified ads, but if for example delivery costs are high, the price of separate sports and classified-ad "newspapers" might exceed that of a newspaper that contained both those and other sections as well, even though this reader was not interested in the other sections. Bundling also facilitates price discrimination by snagging consumers who place a high value on particular products in the bundle. It also increases the risk of entry by single-product competitors because the marginal cost to the consumer of the bundle of any component of it is zero. He gets the sports section for "free" (in the sense that the newspaper costs him no less if he throws the sports section away without reading it) but would have to pay a positive price for a free-standing sports newspaper. Like other intellectual products, a newspaper has high fixed costs (the newsroom, etc.) but low marginal costs (the cost of printing and selling one more copy), and so there is a tendency to natural monopoly in local newspaper markets. It is offset, however, to an extent, by differences in content, outlook, and so forth among different newspapers, which limits substitutability and therefore makes some degree of competition viable. Nevertheless newspapers tend to be quite profitable (as recently as 2006, the average ratio of profit to revenue was 17 percent, which is high relative to industry as a whole), because competition is limited. High newspaper profits sometimes are attributed to the fact that most information comes free from public sources and that newspapers deal directly with their customers and so economize on distribution costs. But low costs are not a reason for high profits, since competition tends to push revenues down to costs. High profits may seem inconsistent with declining revenues, but are not if the firm, seeing no future for itself, ceases investing in the its future and instead cuts costs to the bone (thus treating the firm's product or service as a "cash cow"). Many newspapers are doing that. Still, newspaper profits are plummeting, and with them the value of the companies. The reason is declining ad revenues (an inflation-adjusted decline of 20 percent between 2000 and 2007, and a further decline this year). This is a function in part of declining newspaper circulation but more profoundly of unbundling, as unbundling is the cause both of the declining ad revenues and of declining circulation. The Web provides a virtually costless method of distributing the products that are bundled in a newspaper. The distribution is not only cheaper, but better, because it avoids the time and space constraints of hard copy delivered on a daily (rather than instantaneous) basis and space-constrained by the cost of paper. The unbundling goes deeper than the section level (classified ads, the sports section, etc.), for every section of a newspaper is itself a bundle. The news section bundles a variety of news stories that different readers value differently; readers who have no interest in foreign policy nevertheless pay for a newspaper that may maintain costly foreign bureaus in order to produce good stories on foreign policy. The Web provides a customized news service that enables the tastes of particular readers to be identified and then satisfied by instantaneous and often costless delivery of a product laser-focused on those tastes. The bother associated with the physical bulk of the newspaper is also eliminated. A study by comScore, Inc. in March of this year found that persons 65 and older are almost six times as likely to read a newspaper six days a week than persons aged 25 to 34 (and almost ten times as likely as those aged 18 to 24). The principal reason for the difference is not I think that older people have more leisure, because people in the 45 to 54 year old bracket, who do not have more leisure than the young, are more than twice as likely to read a newspaper six days a week than the young cohort. The reason, rather, is that younger people are much more comfortable getting information online than older people are; they have grown up in the electronic revolution. This will not change as they get older. It appears that the only hope for the newspapers is to go online, and they have done this and have attracted many viewers to their Web sites. But they have not been able to charge for online ads anything like what they can charge for ads in their hard-copy editions. The reason I think is that there is much more competition in online advertising than in print advertising, especially for advertising, such as classified advertising, that is primarily informational; for the information in the ads is often available online at no or nominal cost from other sources, such as Craigslist. Moreover, the online newspaper is still a bundled product, and the Web provides close substitutes for all the sticks in the bundle. The blogs are a big factor here; in the aggregate, they not only are nimbler, but contain a vastly greater body of specialized knowledge, than the newspapers or other conventional media (as Dan Rather learned to his sorrow). Suppose, then, that the newspapers are doomed, or, more realistically, that they are likely to continue to shrink, eventually becoming a retirement service, like Elderhostel. Are there social consequences that should trouble us? A common argument is that if news is customized to the tastes and interests of every individual in the society, people will not be exposed to conflicting views and as a result will become incapable of active civic engagement, for example as voters. That is implausible. It is important to distinguish between opinion and fact. Most people do not want their opinions challenged. So if they are liberal they read the New York Times and if they are conservative they read the Wall Street Journal. But people are both interested in, and influenced by, facts, such as the fall of communism or the rise in gasoline prices, and they will learn these facts (and more quickly) on the Web even if they do not read newspapers. The few people who actually read, compare, and take seriously opposing views on matters of public policy will continue to do so after they stop subscribing to print newspapers. With the rise of the blogs, moreover, the amount of information and opinion reaching the public is far greater than in the heyday of the print newspapers. A second concern, to which the rise of the blogs may be only a partial answer, is that Internet news services (such as Google News) are parasitic on the print newspapers' large staffs of reporters, so that if they drive the newspapers out of business the Internet news services will lose much of their content. The copyright law cannot prevent this, because a newspaper can prevent the copying only of its articles--that is, of the verbal form in which the information in an article is expressed--and not the information itself. And it cannot prevent a news service from simply sending the viewer to the newspaper article via a Web link. The concern, in short, is that the Internet will kill the goose that lays the golden egg. But this is unlikely. If online viewers want the level of news and opinion that print reporters generate, the Internet news services will hire reporters, defraying the cost out of their online advertising revenues, which will be greater for an Internet news service that attracts additional viewers by offering them richer, newspaper-type fare. Indeed, long after newspapers like the New York Times and the Washington Post have ceased print publication, their Web sites may be among the leading Internet news services. The aggregate amount of news and opinion may be less, however, because unbundling will eliminate internal subsidies, for example of the news and op-ed pages by revenues from classified ads." ~ The Becker-Posner Blog

" Time is the most precious resource of men and women, and even older children. This is why it is disturbing that so much time is wasted through bad policies of the public authorities that manage infrastructure. I have been bothered for many years by the tendency of local and state authorities to repair roads only during weekday daylight hours. Presumably, that saved money through the avoidance of overtime and double time pay for night and weekend work, but it usually added many hours to travel times because of the huge traffic jams that were created during the most congested times. Even modest estimate of the value of the time of those caught in traffic holdups would have easily exceeded the extra pay required to have work at night and during weekends when traffic is much slower. Fortunately, recognition of the importance of the value of time has apparently increased in recent years since much more repair work now takes place at night and on weekends. Yet few other efforts are being made to reduce the time lost due to heavy traffic on roads in major, and many smaller, metropolitan areas. Traffic has grown in virtually all cities, with consequent greatly increased delays during commuting and other times. Moreover, heavy delays are no longer found only while entering the central city in the morning and leaving it in the evening, as delays are also common while exiting a city in the morning and returning in the evening during the increasingly common reverse commuting. The solution is not mainly new urban highways, which are expensive to construct and disturb the functioning of local communities, but through pricing traveling on roads that already exist in order to economize on the time of commuters and other travelers. One important way to price roads and reduce the time of those caught in traffic delay is to introduce "congestion tolls" that vary with time of day and extent of the traffic. London, England has been using congestion tolls for several years to reduce the heavy traffic during weekdays into and out of the center of London. Despite some grumbling, this toll system has been successful, and is being extended to other parts of London where congestion is also a serious problem. Mayor Bloomberg of New York has proposed similar tolls for entry into the busiest parts of Manhattan, but so far his proposal has been blocked by the state. The opposition to traffic congestion charges is not based on concerns about the feasibility of such a toll system since London and several other cities have successfully demonstrated that modern electronic transponders make congestion charges easy enough to use and enforce. Much of the reluctance comes instead from opposition to higher taxes in cities already burdened with heavy taxes. Reductions in other taxes could offset a congestion tax to keep total city tax revenue unchanged, but experience shows that every new tax is usually only partially offset by reductions in other taxes, and that total tax revenue in fact increases. Perhaps such opposition could be blunted if New York explicitly offered to combine a road congestion tax with compensating reductions in its local gasoline taxes to keep unchanged the total tax revenue collected from drivers. Congestion tolls are more effective than gasoline taxes in reducing traffic during periods of heavy traffic since gasoline taxes do not raise the cost of driving by more during periods of heavy traffic. Congestion tolls are probably also more effective in reducing local, although not climate-damaging global, pollution. Similar reluctance to price the time of travelers appropriately is seen in the growing delays in air travel. The Joint Economic Committee has estimated that the total cost of United States air traffic delays in 2007 may have been as large as $41 billion. Almost a third ($12 billion) of that is due to the value the Committee places on the 320 million hours spent by air travelers during these delays. As Posner indicates, $12 billion may underestimate the true time cost since it neglects factors like the cost of missing connecting flights. On the other hand, it may overstate the true cost of the time involved since the Committee values this time on the average at about $38 per hour, or almost $80,000 per year for persons working 2000 hours. That valuation would be too high if persons caught in traffic delays use their time to work on their computers or read for pleasure. A new airport runway is almost finished at O’Hare airport. However, before building new runways, busy airports, such as O’Hare, Kennedy and LaGuardia, and Los Angeles International, should start charging much more for the use of existing runways, and for take off slots during the busiest hours of travel. This would cut delays, and the time and other costs caused by delays, by inducing airlines to shift some of their departure and arrival times away from the busiest and most expensive times. To be sure, as Posner indicates, there is a coordination problem among the different airports connected by air travel. Still, a city would encourage more travelers to use their airports if they priced takeoffs and landings better, so that travelers would spend less time in delays, and airlines would spend less on fuel, and the personnel used during delays." ~ The Becker-Posner Blog

" Increases in energy prices sharply accelerated during the past year, as the price of oil more than doubled, and gasoline prices in United States rose by 25 percent. Responding to these price increases, Senator McCain and President Bush have called for an end to the 27-year old federal moratorium on offshore drilling for oil and gas in US waters, while Senator Obama supports a continuation of the ban. McCain has also indicated that he is reconsidering his opposition to drilling in the Artic region of Alaska. In another response to the energy price boom, Obama has proposed an excess profits tax on oil companies, while McCain has come out against such a tax. What does economic analysis contribute to an evaluation of these proposals? Supporters of a continuation of the moratorium worry that offshore drilling and oil leakages will kill many fish, and damage beaches and other coastal areas. These are potential risks, but whether to continue the moratorium involves a balancing of the advantages of drilling against environmental and other risks. These risks have not been affected by the rise in energy prices, but the benefits from drilling clearly have increased. Additional oil (and gas) from offshore drilling would lower US spending on imported oil, and thereby reduce the transfer of wealth from Americans to other oil and gas producers. Larger domestic energy supplies would also improve energy security in the event of a disruption in the supplies of oil and gas from major producers located in places like the Middle East and Nigeria that have had terrorist attacks on oil production facilities. Even if offshore drilling started tomorrow, it would take several years before actual production began since construction of platforms in deep water and installation of equipment take time. The value of ending the moratorium now would depend not on energy prices and risks of disruption this year or the next, but on the situation beginning in several years and extending over the following decade. Some oil specialists are predicting a rise in the price of oil to $200 a barrel during the next few years. I have argued previously why such a large price increase is unlikely (see my post on May 11); indeed, oil may very well retreat from its present level of over $130 a barrel. Still, as long as world GDP continues to grow over the next decade at a sizable pace-which is likely- the price of oil will remain far above what it was in the 1990's. This means that the financial and other benefits from offshore drilling are likely to greatly exceed the benefits at the time the moratorium was imposed, for oil was then much cheaper even in inflation-adjusted terms. The increasing share of imports in the oil consumed by the United States, and the rise in oil prices, explain why the value of imported oil rose more than five fold since the 1980s. This is why cost-benefit calculations of whether to end the moratorium and allow offshore drilling have shifted in the direction of allowing drilling. Although the risks of offshore drilling are much harder to quantify than the benefits, I believe the shift in the benefit-cost ratio has been large enough so that the time has come to allow drilling. Norway and Great Britain, to take two examples, have allowed drilling in the North Sea for many years without suffering major environmental damage. To be sure, in the end oil companies are the ones who have to decide whether the gains from drilling are worth the risks, including lawsuits if there are damaging oil spills, but these companies seem eager to start drilling offshore. The proposed excess profits tax on the earnings of oil companies would discourage the search for additional oil, and hence would have the opposite effects on this search from a relaxation of the moratorium on offshore drilling. An excess profits tax that is expected to persist for many years discourages further exploration for oil simply because much of the profits on new oil production would be taxed away. In 1980, President Jimmy Carter introduced a windfall tax on oil companies to prevent them from profiting a lot from the high price of oil due to the Iran-Iraq war. An evaluation by the Congressional Research Service, a think tank that provides reports to Congress, concluded that the tax significantly reduced domestic oil production and raised oil imports. Disillusionment with the tax led to its abandonment in 1987. Yet the lessons from this fiasco have been forgotten, for since the post-Katrina rise in gasoline prices in 2005, members of Congress have made regular attempts to introduce legislation with a sizable excess profits tax on oil companies. Even those Americans who worry a lot about global warming and other global pollution form the use of oil should be reluctant to discourage oil production offshore or elsewhere by American oil companies. Lower production by American companies would cause a rise in the world price of oil. Moreover, increased production by other countries would tend to offset reduced production by the United States, so that the effect on global warming and global pollution is likely to be modest. However, the increase in wealth transferred from the United States to the Middle East, Russia, Venezuela, and other oil-producing countries could be substantial. " ~ The Becker-Posner Blog

"The consumer protection issue has been thrust into public attention by the housing debacle because many families have had lenders foreclose on their homes, while other home owners are in serious arrears on their mortgage payments. Ye neither consumer ignorance nor cognitive defects in consumer decision-making had much to do with the housing bubble. Many home owners with low education and earnings, and with limited financial acumen became homeowners toward the end of the bubble period. They tended to lose little from the bubble since they put almost no money down, and they were given low ("teaser") interest rates on their mortgages. They frequently walked away from their homes when prices dipped below the value of their mortgages, and lost little. On the other hand, highly sophisticated lenders, including giant companies like Bear Stearns, Citibank and UBS, lost billions of dollars through paying too much for their mortgage-backed securities. Many top executives of these banks were out millions of dollars because they owned lots of shares of their companies, and they had generous options that went under water. Government regulators, not private incentives, created the important asymmetry between gains and losses to the executives of these companies. Financial leaders know that when many banks get into financial difficulties at the same time, the "too large to fail" principle of bank regulators would be applied, so that equity owners would be at least partially bailed out. Bear Stearns' equity investors lost a lot when JP Morgan purchased the company, but they would have lost more if the Fed had not guaranteed $29 billion of BS assets. The consumer ignorance and cognitive defects stressed by Posner did not cause the housing bubble, for it was due to a belief that rising housing prices and the general good times would continue for much longer. Allan Greenspan, probably the greatest central banker of the past several decades, recognized that it is not easy to distinguish legitimate increases in prices from excessive price increases. The fact is that during price bubbles, regulators, including central bankers, usually get caught up in the same optimistic frenzy that drives participants. How would greater regulation have helped when commercial banks, one of the most heavily regulated of all industries, did so badly during this housing bubble? I am not trying to deny that consumers often have very imperfect information about the products they buy, but they do not have to rely only on their own information. The advantage to companies of getting and maintaining their reputations as they compete for consumers is a powerful regulator of the quality of products that consumers receive. Shoppers, for example, rely on Whole Foods, Safeway, and other supermarkets to do much of the information processing for them, and consumers hold the supermarkets responsible for bad-tasting foods, and other products that do not live up to claims of their suppliers. It is not the diligence of regulators but the reputations of companies that are mainly responsible for all the high quality merchandise consumers purchase without having to know all the details. I agree with Posner that companies do not want to "foul their nests", but still companies have had no hesitation in saying that they do not use trans fats-a purely voluntary provision of information to consumers not required by regulations- or that their cereals use oats that may be good for the heart, or that their products are lower than before in salt and fat, or that their airlines have better on-time records or more comfortable seats than competitors, or that their cars have better repair records or better hold their value as they age than cars of competitors, or that their drugs can prevent erectal dysfunction, lower cholesterol levels, treat pain better because of more powerful ingredients than in the past, or have other positive effects on the health and pleasure of consumers. Posner seems to believe that consumers have less information than in the past because their time is more valuable and they are busier. Their time is more valuable in large measure because they have greater levels of human capital that increases their skills, and enables them to use and process information more effectively. The Internet has also made an enormous difference in enabling consumers to acquire information more easily, whether through offering comparisons of hotel rates and prices of cars being offered for sale, or through the provision of information about effectiveness and side effects of different drugs and medical procedures. The same factors that make time more valuable to consumers make it easier for them to acquire and process information about the products they buy. Various groups have pushed in recent years for greater regulation of all types of consumer choices, including smoking, eating of fast foods, the ingredients allowed in foods, such as trans fats, the drinking of alcoholic beverages, and many other products and services. This pressure toward greater regulation of consumer choices is not the result of consumers finding it more difficult to get information about products and the consequences of consuming them. Nor have the cognitive defects referred to by Posner become more prevalent or harmful. Instead, the movement toward increased regulation of consumer choices reflects in large measure greater reluctance among some groups to accept these choices. It is unacceptable to many persons both inside and outside the medical profession that some individuals want to smoke or eat a lot and become overweight, even if they knew and possibly exaggerate the negative health consequences of smoking and overeating. The increase in weight of teenagers, for example, is not explained by cognitive biases, but by sharp declines in the cost of fast foods, and the development of Internet and other sedentary games.Increasing intervention in consumer choices also reflects the erosion of individual responsibility (see my discussion on March 16), so that consumers and their advocates blame others when consumer choices turn out to be harmful and costly. I do not deny that regulations may be required when the consequences of mistakes are very serious, and when the forces unleashed by competition provide inadequate protection. One example is the permissibility of lawsuits against surgeons who make obvious mistakes during their surgeries, such as leaving sponges in a patient's body. Another possible example is the regulation of airline safety, although airlines suffer a lot when they have accidents, regardless of regulatory measures, and government safety regulations have often been inadequate and misleading. Important exceptions notwithstanding, the overall trend toward greater regulation of consumer choices is disturbing. Consumers make worse decisions when they are not responsible for their decisions, or when they can sue or otherwise get compensated when they make bad decisions. Consumers make mistakes, but they learn from them when they have to bear the consequences of their decisions. They are generally far more competent to make decisions in their own interests than are regulators or lawmakers as long as consumers are the ones who benefit from good choices and are hurt by bad choices. This is why I continue to be a minimalist on government regulation, and greatly prefer the controls over behavior that stem from consumer responsibility and the discipline of competition. " ~ The Becker-Posner Blog

"The increased percentage of persons who go to college is not surprising. Advances in technology have reduced the demand for brawn and increased the demand for brains. But several significant questions (concerning college education in the United States, to which I confine this comment) remain: The first is why female college enrollment has increased so much faster than male college enrollment, and why female college students do much better, as measured by grades and graduation rate, than male. If college is more valuable to a woman in the labor market than to a housewife, then as more women work relative to engaging in full-time household production, women's demand for a college education will rise; apparently this factor has dominated the effect of advances in technology on both sexes, for otherwise their rates of enrollment would be growing at the same rate. Of course technology, in the form of labor-saving household appliances, more reliable contraception (including abortion), the higher ratio of light to heavy work, and reductions in infant mortality (a factor in limiting the size of families) may underlie the increase in women’s participation in the labor market. But only the increase in the ratio of light to heavy work is a change in the technology of work that favors women by reducing the demand for brawn and hence for male labor relative to female. But why are proportionately more women going to college and, once there, outperforming the male students? One answer may be that they get more out of college than men do. Maybe they gravitate to fields in which college learning is more valuable than it is in the fields that men gravitate to. Suppose that men have a comparative advantage (as they probably do) in jobs that involve danger, disagreeable working conditions, upper-body strength (of course), and financial risk. Those are jobs to which going to college, or in some instances (such as financial risk taking) concentrating once there on academic performance, may not contribute a great deal. Another question is whether college attendance or graduation is the right variable for estimating the returns to education. Suppose that high schools deteriorate; that would increase the demand for college, especially for community colleges that may offer a level of teaching no different from that of a good high school. Most high schools are public and do not compete for students. The college market is far more competitive. A community college may offer a superior high school education. And finally, how much more will college attendance increase? Will it go to 100 percent (currently, about 60 percent of high school graduates go on to college--of course many kids drop out of high school)? That depends on two factors: the brain/brawn tradeoff, and IQ (or some alternative measure of intellectual aptitude). If the intellectual demands of work relative to the physical demands continue to increase, the demand for college will also increase. IQ is, though, a limiting factor. But it is less of a limiting factor than one might think. The reason is that a frequent byproduct of technological advance is deskilling. Fifty years ago, a driver had to know how to change a tire and put chains on a tire, how to check the engine's oil level and the water level in the radiator, and how to start a car in freezing weather. These skills are no longer required. Most cashiers no longer need to know how to make change; the cash register tells them how much change to give the customer. Printers no longer need to know how to set type upside down. With advances in neuroscience, artificial intelligence, computer science, robotics, and nanotechnology, many jobs that require a college education today will require little in the way of education tomorrow. Many people may then defer college until retirement, in order to increase the returns to leisure by widening their cultural horizons. " ~ The Becker-Posner Blog

" The run-up in the world price of oil during the past several years, and especially the rapid climb during the last few weeks to over $120 per barrel, has fueled predictions that the price will reach $200 a barrel in the rather near future. Such predictions are not based on much analysis, and mainly just extrapolate this sharp upward trend in oil prices into the future. The price of oil in "real" terms (i.e., relative to general prices) will not reach $200 in this time frame without either terrorist or other attacks that destroy major oil-producing facilities, or huge taxes on oil consumption. I try to explain why in the following. The two previous sharp increases in the world price of oil, in 1973-4 and 1980-81, were due to supply disruptions. The first one was the result of the formation of OPEC that led to output restrictions by members of this cartel, while the later one was due to the Iran-Iraq war that curtailed petroleum production in these two countries. Although the world price of petroleum rose by a lot in all three episodes, worldwide oil production went down in the two earlier ones, while production has risen during the current price boom. The present boom in oil prices has been mainly driven by increases in demand from the rapidly growing developing nations, especially China, India, and Brazil, although output growth in the US and European have added to world demand, and speculation on potential future price increases also contributed to the increased price of oil. To be sure, supply problems in Nigeria, Venezuela, Russia, and other major oil-producing states have contributed to accelerations in the oil price increases at times during the current boom. Note the contrast between the major causes of the current explosions in oil and food prices. Although the sharply rising prices of different commodities are often lumped together, increases in the prices of corn and other foods have in larger part come from the supply side rather than from demand. The main supply culprits in the market for foods have been the diversion of corn acreage to the production of ethanol, and the increased cost of fertilizers and chemicals used in food production due to the rise in the price of oil (see my discussion of rising food prices on April 13 and 17). The rapid growth of world oil prices during 1973-74 and 1980-81 contributed in a significant way to the world recessions during those years. Yet even though world oil prices in real terms are now above the prices in 1981, the previous peak in oil prices, and despite the sharp run-up in prices during the past couple of years, the world economy has not (yet!) been pushed into recession. One reason for the difference is that unlike the previous episodes, the current price rises have slowed rather than eliminated the boom in world output. Another difference from the previous episodes is that the share of oil and other energy inputs in GDP is down by a lot in the developed world since 1980, especially in Japan and Europe, but also in the US. Of course, even with energy's smaller role in the production of output, any rise in oil prices to over $200 a barrel in the next few years would have serious disruptive effects on the world economy. To many persons who have commented on this prospect, such a high oil price seems plausible, given the expected continuation of the rapid growth in the GDP of China, India, Brazil, and other major developing countries. For the evidence is rather strong that the short run response of both the supply of and the demand for oil to price increases is rather small. The small elasticity of both the supply and demand for oil explains why the moderate reductions in world oil supply during the earlier price spikes, and the moderate increase in world demand during the current price boom, produced such large increases in price. However, the long run response to price increases of both the demand and supply for oil and other energy inputs is considerable. For example, given enough time to adjust, families react to much higher gasoline prices by purchasing cars, such as hybrids and compacts, that use less gasoline per mile driven. They also substitute trains and other public transportation for driving to work and for leisure purposes. High energy prices, and hence the opportunity for large profits, induce entrepreneurs to work more aggressively to find fuel-efficient technologies, including the use of batteries as a replacement for the internal combustion engine. Clearly, given high enough oil prices, many ways are available to increase the supply of petroleum, Explorations for additional supplies will be extended deeper into oceans and other remote places because the high cost of extracting oil from these sources would be offset by the high energy prices. Usable petroleum is also already being extracted from oil sands and oil shale, and high and rising oil prices will speed up and extend this process. The reserves of tar sands in Canada and Venezuela are huge; indeed, Canada is getting much of its oil production from this source. Oil shale is also abundant in several places, including the United States, and while extraction of petroleum from shale is expensive and complicated, the high prices have induced some countries to start doing this. Rising prices of oil and other energy inputs will eventually be controlled by new technologies that greatly economize on the use of these inputs. Increased supplies of oil and other energy sources that become profitable to exploit only with prolonged high prices will also push these prices back. " ~ The Becker-Posner Blog

"The term "infrastructure" is much used but lacks a clear definition. I shall use it to mean inputs, often provided by government rather than private enterprise, into a very large variety of products and services. Good examples are transportation, communications (including the Internet), education, the environment (including water resources), public health (in the sense of prevention of communicable diseases), and law enforcement (including the judiciary). Current concerns with our allegedly deteriorating infrastructure focus on road and air transportation and on primary and secondary education, and I shall confine my discussion to them. I am going to bracket road transportation and education because the problems of both could probably be solved satisfactorily by privatization or, in the case of education, semi-privatization. Air transportation I discuss separately because its problems almost certainly require a governmental solution. America's roads (including bridges, which carry mainly roads) have been deteriorating, as is obvious to any user of the interstate highway system. The reason for the deterioration is that the system is carrying vastly more traffic than it was designed for in the 1950s. The result is not only rough surfaces which wear out tires and slow down traffic, but also delays due both to construction and to the sheer increase in traffic volume. Congestion and therefore potholes and delay have also increased on local and commuter roads. Wear and tear, and delay, are real costs, but the costs of road building and road improving to reduce the costs of wear and tear and of delay are real too, and the challenge is to spend only up to the point where the last dollar spent yields a dollar in benefit. Government seems incapable of doing that. Privatization should be able to. This is obvious in the case of toll roads, where in fact a privatization movement is under way, as we have discussed in a prior post. The toll can be set equal to the cost that a vehicle imposes on the road in congestion and wear and tear. (That cost varies with the size and weight of the vehicle, but the toll can be made to vary with these factors as well.) There is a concern about monopoly; there are not always good alternatives to a particular route. If the state or other public owner of the toll road auctions the road to the highest bidder, the winning bid will capitalize monopoly rents, and the tolls will therefore contain a monopoly markup. That is inefficient, but the revenue that the state obtains from the auction is a tax substitute, and taxes have the same general misallocative effects as monopoly prices. The state can if it wish avoid the monopoly problem by specifying a minimum quality of service and then auctioning the road to the lowest bidder who agrees to provide that quality. Not all roads are toll roads, but given modern technology all can be made toll roads. Electronic toll systems are available that do not require vehicles to slow down, and these can be adapted even to local roads, so that the entire street system of a city or an entire metropolitan area could be privatized. This may seem a bizarre suggestion, but it is no more bizarre that allowing a private company to own the telephone or cable grid of a city. The street system is just another grid, and the potential monopoly problems can be dealt with in the same way that cities deal with telephone or cable monopolies, where auctioning franchises may again be the most efficient approach. The American system of public education is heavily criticized. Costs per pupil are high relative both to private education and to public education in foreign countries that turn out better students. Many parents are voting with their feet, as it were, by putting their kids in private (including parochial) schools, home schooling the kids, or moving to communities that have better public schools. These are alternatives are costly to parents. It is not clear why government is in the business of operating any educational facilities. It is appropriate for government to require that children attend school up to a specified age, to fix minimum educational standards with regard both to curriculum and to performance, and to finance the costs of education for impecunious parents. None of these things requires that government own and operate schools. But public education is not about to be abandoned, and it could be semi-privatized by adoption of a voucher system, which by permitting parents to choose among public schools would force public schools to compete with each other. Air transportation presents a baffling problem in infrastructure deterioration. The deterioration in airline service in the last five years has been dramatic, involving as it does not only extraordinary delays but also horribly crowded airplanes and crummy airports. The delays are masked by the fact that the airlines have increased the scheduled time of flights and by the difficulty of measuring delay resulting from canceled flights and missed connecting flights. A study this past month by the majority staff of the Joint Economic Committee of Congress entitled "Your Flight Has Been Delayed Again" estimates the annual cost of airline delay at some $41 billion. Of this amount $12 billion is attributed to traveler time costs. That estimate strikes me as too low. It includes the delay due to schedule change, but excludes delays due to missing connecting flights, to canceled flights, and to lost time when in order to avoid missing an appointment one has to take an earlier flight and hence if it is not delayed has dead time on arrival. The uncertainties of air travel also cause some potential travelers to substitute, at some cost, another activity (maybe even another job, requiring less travel). On the other hand, the $41 billion figure is misleading because it is the cost of total air transportation delay, not avoidable delay; optimal delay is not zero, because of unavoidable weather conditions and equipment failures. The deterioration in airline service is puzzling because the high cost of aviation fuel has virtually bankrupted much of the industry, and so one would expect a contraction; this is beginning yet there is no expectation that flight delays will diminish. The reason is that the airline industry has very heavy fixed costs, so that even when high fuel prices push up its marginal costs, each flight, provided the revenue from the flight exceeds the marginal cost of the flight, will contribute something to the airline's fixed costs, and so airlines are reluctant to reduce the number of their flights. This explains, moreover, why airline service has deteriorated. When demand grows, as it has done rapidly in recent years, the industry responds by adding flights. No airline has an incentive to balance the revenue from additional flights against the costs in additional delay, because one airline's reducing the number of its flights would have little effect on delay, but a dramatic negative effect on its revenues. One culprit in the deterioration of airline service is Congress, and another is the Administration; between them, they have failed to create a modern air traffic control system that would reduce delay by reducing the safety-required spacing of planes both on the runway and in the air. But that would not solve the basic problem, which as I have said arises from the fact that no individual airline bears the full costs of the delays it creates. The airways are like a highway of fixed size with no tolls, facing an increase in traffic. Another apparent culprit is the airports, but they are in much the same position as the airlines. They are locally owned and in principle (but not in practice) can control congestion by limiting the number of takeoffs and landings either directly or by fees. If every city had two airports, if most airline traffic were between just two cities, and if two companies each owned one airport in each city, then the competitive situation would be identical to that of two competing toll roads, and, assuming a modern air traffic control system, the optimal amount of delay would be achieved. But these conditions are not satisfied. No single airport can optimize congestion, because it does not control the traffic to and from, and hence delay at, other airports, and that delay will in turn cause delay at its airport. The best solution might be a federal airplane congestion tax that would vary from route to route depending on delays, which vary considerable across regions and specific airports. The revenues could be used to update the air traffic control system. An alternative might be to allow some limited collusion among the airlines, enabling each airline to reduce the number of flights without losing business to its competitors. But that would be in essence a return to the system of airline regulation prior to the abolition of the Civil Aeronautics Board, and that was a thoroughly unsatisfactory system. " ~ The Becker-Posner Blog

"Although I worry more than Becker does about the environmental consequences of the production and consumption of oil, and although I want oil prices to remain high--indeed to continue rising--I largely agree with his analysis of the rival proposals for dealing with the present "crisis": allowing more drilling for oil on the outer continental shelf and in Alaska versus imposing an excess profits tax on the oil companies. I agree with him that the former is a good idea and the latter a bad one. But I will qualify my agreement by suggesting policy adjustments to minimize the adverse effects of allowing more drilling or of imposing an excess profits tax. Expanded drilling in U.S. territory (including our territorial waters) will reduce both U.S. dependence on foreign oil and the wealth of foreign oil-producing countries, many of which are hostile or potentially hostile to the United States. These are important benefits. But there are also significant costs. Any increase in the production of oil from the seabed and from the fragile Alaskan tundra will create environmental damage, both directly, because of the environmental damage caused by the drilling itself (such as, in the case of offshore drilling, the dumping into the ocean of "drill cuttings"—the solids that are brought to the surface in drilling an oil well), and indirectly, as a consequence of increased production of oil, because of oil spills by tankers, traffic congestion and highway wear and tear, and, most ominously, increased carbon emissions from the burning of oil as a fuel. Becker notes correctly that the less oil we produce, the more that foreign nations will produce. But given the high price of oil, increasing out oil production will increase total world production rather than just substitute for foreign production. So there will be more tanker spills and more carbon emissions if offshore and Alaska drilling is allowed, since the supply of oil will be greater. The problems created by an increased supply of oil can be minimized by an increase in the federal gasoline tax (better still would be imposing a tax on carbon emissions, since such a tax would create an incentive to reduce the amount of emissions per unit of gasoline consumed) calibrated to prevent gasoline prices from declining as a consequence of increased production of oil and hence increased supply. Already the shock of $4 a gallon gasoline has caused a modest decline in U.S. consumption of oil, yet $4 is little more than half the retail price of a gallon of gasoline in most European countries. Distances are shorter in Europe, and so U.S. gasoline prices would not have to double in order to make substantial inroads into our oil consumption. But they should not be allowed to fall as a result of increased world supply due to offshore and Alaska drilling. A gasoline or carbon-emissions tax must not be confused with a tax on the profits of oil companies, which, because of the uncertainties involved in exploring for oil, will, as Becker points out, reduce the incentive to find and exploit new domestic oil fields. (In contrast, a heavy tax on gasoline will increase the incentive to find energy substitutes for oil.) In addition, imposing excess profits taxes sends a bad signal to the business community: that success will be penalized. And there is a danger that the proceeds of the tax would be used to subsidize the purchase of gasoline in order to reduce gasoline prices. The demand would rise without stimulating domestic production, so we would have the worst of all possible worlds: high consumption of oil and increased dependence on foreign production. But in the unhappy event that an excess profits tax is imposed, at least it should be limited to profits from existing oil fields, to minimize the dampening effect on the incentive to develop new fields. Because the environmental risks of offshore and Alaska drilling are greater than those of drilling for oil on land in the lower 48 states, an environmental excise tax should be placed on the oil produced from offshore and Alaska wells. It is not enough to rely on the tort system to provide sanctions for oil spills. Many of the environmental effects of drilling for oil are individually too small to invite tort suits, yet the cumulative effects can be very large. That is true with respect to effects on fisheries and on the frequency of tanker spills. The more oil that is transported by sea, the more spills there will be, but it will rarely if ever be possible to ascribe a particular spill to a particular producer of the oil that was spilled. An environmental tax is therefore necessary to induce the oil companies to internalize the environmental costs that their activities impose." ~ The Becker-Posner Blog

"David Brooks is one of the most thoughtful newspaper columnists. In a recent op-ed ("The Great Seduction," New York Times, June 10, 2008, p. A 23), he argues that the founders of the nation "built a moral structure around money. The Puritan legacy inhibited luxury and self-indulgence. Benjamin Franklin spread a practical gospel that emphasized hard work, temperance and frugality…For centuries, [the nation] remained industrious, ambitious and frugal." But, Brooks continues, over the past 30 years much of that legacy "has been shredded," while "the institutions that encourage debt and living for the moment have been strengthened.”"And here he mentions "an explosion of debt that inhibits social mobility and ruins lives," because of "people with little access to 401(k)'s or financial planning but plenty of access to payday lenders, credit cards and lottery agents." Among other "agents of destruction" are state lotteries--"a tax on stupidity," which tells people "they don't have to work to build for the future. They can strike it rich for nothing." Other culprits are the astronomical interest rates charged by payday lenders; and the aggressive marketing of credit cards by banks and other financial institutions, as a result of which by the time college students are in their senior year more than half of them have at least four different credit cards. The cures that Brooks offers include "rais[ing] consciousness about debt," encouraging foundations and churches to offer short-term loans in competition with payday lenders, strengthening usury laws, and taxing consumption rather than income, thus encouraging saving. All this is very interesting, but is it correct? I have my doubts, except about the desirability of eliminating double taxation of savings, a problem with our income tax. Max Weber argued convincingly in his famous book The Protestant Ethic and the Spirit of Capitalism that the frugality and industriousness promoted by the early Protestants in opposition to the opulence of the Roman Catholic Church were values conducive to and perhaps critical in the rise of commercial society. Protestants who believed in predestination wanted to show by their modesty, austerity, and avoidance of lavish display that they were predestined for salvation. But saving plays a less important role in economic progress today than it did in the sixteenth century. Its role in powering economic growth has been taken over, to a large extent, by technology. The great rise in standards of living worldwide is due far more to technological progress than to high rates of savings, that is, to deferring consumption. At the same time, now that we have efficient debt instruments that in former times did not exist or were extremely costly, the role of personal debt (Brooks does not criticize corporate or government debt) in human welfare is more apparent than it was. Apart from its role in solving short-term liquidity problems resulting from delay in the receipt of income, debt enables consumption to be smoothed over the life cycle. Without debt, a family might have to wait 20 years before it could afford to buy a house. Of course, debt creates risk for both lender and borrower, as the subprime mortgage crisis has dramatically illustrated. But if the risks are understood, it is unclear why the assumption of them should be thought harmful to personal or social welfare. At worst, debt leads to bankruptcy, but bankruptcy is not the end of the world either for the borrower or for the lender. In situations of desperate poverty, one can expect a heavy debt load; but such a load can also be positively correlated with prosperity, which cushions the risks that debt creates. It is especially odd to suggest as Brooks does that taking on debt is antithetical to hard work; on the contrary, it increases the incentive to work hard by making it at easier for people to obtain the goods and services they want by borrowing the money they need to pay for them, yet at the same time increasing the risk of bankruptcy should they slack off on their work and so let their income fall. The very high interest rates for payday loans tell us that many people will pay a very high premium to shift consumption from future to present. As long as they understand what interest rates are and what interest rates they are paying, it is hard to see why their preference for present over future consumption, and hence for spending and borrowing rather than saving, should have social implications. People who take out payday loans are unlikely to be potential savers (i.e., lenders); and by taking on heavy debt they force themselves to work very hard; and I have suggested that saving is not as important as it once was. I particularly do not understand how, if high interest rates for payday loans are a problem, loans by foundations and churches are a solution. If, as I assume Brooks must mean, these loans are to made be at lower interest rates than payday loans, the former payday borrowers will borrow more. If to try to prevent this the charitable lenders ration their credit tightly, the payday borrowers will borrow what they can from those lenders and top off with a payday loan; their total debt burden is unlikely to fall. As for the "tax on stupidity," it is of course irresistible to finance as much as government as possible by a system of voluntary taxation, which is what a state lottery is. And I don’t think "stupid" is the right word to describe all or even most of the people who buy lottery tickets. I do think that some of them consider themselves "lucky" and so in effect recalculate the odds in their favor. That is stupid; in a game of chance, "luck" is randomly distributed. Some people, though, simply enjoy risk. Others like to daydream, and a daydream is more realistic if there is some chance it may come true, even if a very small chance. And finally and most interestingly, there are people whose marginal utility of income is U-shaped rather than everywhere declining. Usually we think of it as declining: my second million dollars confers less utility on me than my first million, and that is why I would not pay a million dollars for a lottery ticket that gave me a 50.1 percent or probably even an 80 percent probability of winning $2 million. But maybe I lead a rather drab life, and this might make such a gamble rational even if it were not actuarially fair. Suppose that for a $2 lottery ticket I obtain a one in a million chance of winning $1 million. It is not a fair gamble because the expected value of $1 million discounted by .000001 is $1, not $2. But if having $1 million would transform my life, the expected utility of the gamble may exceed $2, and then it is rationally attractive. Brooks complains that government sponsorship of lotteries sends an official and therefore authoritative message that a person can strike it rich for nothing. But of course that is true, even when there are no lotteries. (And he gives no indication of wanting to forbid private lotteries.) You can inherit great wealth. More commonly, you may be able to leverage modest talents into great wealth by the luck of being in the right job at the right time. Brooks himself complains in his op-ed about the message sent by the fact that hedge fund managers often make more money than people who "build a socially useful product." Only the latter, he believes, should earn fortunes. But he doesn't propose an excess-profits tax on hedge fund managers; he accepts the legitimacy of their fortunes at the same time that he attributes those fortunes to luck. There is also an echo of the traditional but erroneous suspicion of speculation as an activity that does not create social wealth but merely shifts it around. That is incorrect. Speculation aligns prices (whether commodity prices or the prices of companies) with values and so creates more accurate signals for production and investment. It is a vital economic service. That is not to say that speculators "deserve" higher incomes than ditch diggers. Desert doesn't enter. Incomes are determined by supply and demand. What is true is that easy credit facilitates bubbles, such as the housing bubble and the related mortgage-financing bubble, and the bursting of a bubble can, as we have been relearning recently, cause economic dislocations. This may require some regulatory adjustments; it does not require a return to Calvinism. " ~ The Becker-Posner Blog

" The types of loans available to consumers have grown at unprecedented rates during the past 40 years. These include credit card debt, expanded availability of mortgages, student loans, payday loans, reverse mortgages, and many other types. The provocative social commentator and columnist David Brooks, in the article referred to by Posner, laments this development- he calls his column "The Great Seduction". He believes that one of its main consequences is that individuals use credit to consume too much when they are younger instead of saving at these ages so that they can consume more at later ages. Obviously, some individuals borrow too much, and get caught in a spiral of high interest rate payments, bankruptcy, and insufficient assets as they age. Nevertheless, on the whole the growth of credit instruments available to consumers has been a positive development that helps finance investments in education and other human capital, and produces a more optimal consumption profile over the lifecycle. In the earlier times mentioned by Brooks, many families were farmers with incomes that fluctuated greatly because of changes in the weather, and because of pests and diseases. Urban workers also faced severe risks due to the threat of unemployment and other difficulties in labor markets. Families had little opportunity to get commercial credit to help tide them over the bad times. They had either to borrow from relatives, accumulate assets that could protect them against fu