Monthly Archives: May 2007

Your Tax Dollars at Work

Thought of the Day

Bryan Pick of QandO observes:

I’m curious: is the irony of this lost on anyone? “[The seatbelt] not only protects you. It protects your wallet.” That is, the government is taxing you to purchase ad space for the consoling message that wearing the seatbelt that the government requires your car manufacturer to equip protects you from the government taking away your money. Who but the government could get away with that?

Copyrights

Hal Varian writes:

Here’s a quiz question for authors: To copyright a written work in the United States, you must (a) register it with the Copyright Office; (b) insert a notice that says “Copyright © 2007”; (c) insert a notice that says “All rights reserved.”

Answer: none of the above. Under current law, a work is automatically copyrighted the moment it is “fixed in tangible form.” And these days, that copyright lasts virtually forever: 70 years after the death of the author, in most cases.

Read the whole thing.

Slowflation

The AP reports:

The economy nearly stalled in the first quarter with growth slowing to a pace of just 0.6 percent. That was the worst three-month showing in over four years.

The new reading on the gross domestic product, released by the Commerce Department Thursday, showed that economic growth in the January-through-March quarter was much weaker. Government statisticians slashed by more than half their first estimate of a 1.3 percent growth rate for the quarter.

The really bad news is that inflation is still slightly above the high-end of where the Fed would like it to be. It is certainly not staglation, but perhaps slowflation?

Thought of the Day

I often hear individuals complain that oil companies are likely to reduce supply since their profits are high. So it was with great pleasure that I read this by Don Boudreaux:

Morning anchor Mike Moss proposes that the U.S. government enter the business of gasoline refining. He argues that the private sector has no incentive to build more refining capacity as long as oil-company profits are high.

Moss’s economics is backwards. It implies that private firms would consistently refuse to expand outputs of MP3 players, gourmet coffee, cell phones, and other high-demand products. Firms instead would invest only where profits are low or negative – treating consumers to endless supplies of the likes of chocolate-coated olives and cardboard condoms.

In fact, of course, the profit motive drives firms to invest precisely where returns are highest — assuming that they’re not thwarted by government regulations.

Legacy Costs Are Only Part of the Story

James Surowiecki writes in The New Yorker:

But, while legacy costs help explain why American automakers are decidedly unattractive as investments, they’re only one reason—and not the most important one—for the automakers’ current struggles. If Cerberus is going to turn Chrysler around, it will have to do a lot more than pay less for health care.

To be sure, paying less would help. A 2006 report by the Harbour-Felax Group, a well-respected automotive-industry analyst, concluded that in 2005 Chrysler’s health-care costs were about eleven hundred dollars more per vehicle than Toyota’s. But even if that gap were closed Chrysler and other U.S. automakers would be far less profitable and would be growing more slowly than their foreign competitors. Ultimately, American manufacturers sell too few cars for too little money, and have to offer too many incentives—thousands in cash back or low-interest financing—on the vehicles they do manage to sell. That same Harbour-Felax report found that, on average, Japanese automakers’ profits for 2005 were twenty-nine hundred dollars more per vehicle sold in the U.S. than those of American automakers. And most of that profit comes not from lower production costs but from the Japanese automakers’ being able to charge more, because their cars are better designed and more reliable, and because their mix of products is smarter. Honda’s revenue per vehicle, for instance, was twenty-six hundred dollars more than Chrysler’s.

Read the whole thing.

eBay and Rationality

Tim Harford writes:

You might think that if there’s one thing an economist should be able to tell you how to do, it’s successfully list an item on the auction Web site eBay. Auction theorists are, after all, celebrated in the profession; one of them, Susan Athey, won the John Bates Clark medal in April. (Clark medalists, who include Paul Samuelson, Joe Stiglitz, and Steve Levitt, are scarcer than Nobel laureates.)

Yet, although the theory of auctions is well-developed, its predictions are sensitive to wrinkles in reality. For example, the standard economic assumption that people are rational is usually a good one: When the price of beer rises, most people drink less beer. But auctions require “if he thinks that she thinks that I think that he thinks” chains of reasoning that tend to have weak links. Those links can easily break if any bidder has any reason to suspect that any other bidder is irrational.

Finding Hayek

In the 33 years since Friedrich Hayek gave his Nobel lecture, economists have become more like mathematicians than philosophers. This would normally be cause for concern amongst Hayekian economists. However, over the last few years, a new medium – one that is Hayekian in spirit — has allowed economists to have the best of both worlds.

That is the topic of my latest essay at TCS Daily.

Buffet’s Successor

Austan Goolsbee writes:

Then I found out that the 76-year-old Mr. Buffett had asked for applications from people wanting to become his successor. Many hundreds applied. So at the annual shareholders’ meeting in Omaha this month, he announced his new search strategy: rather than decide from old-style résumés and interviews, he planned to choose three or four top candidates and then give each $5 billion or so to manage and see how they do. The winner gets the job.

When I heard about this, the romance died. For all of Mr. Buffett’s reputation as the ultimate nonmutual fund, he may have just fallen into one of the biggest mutual fund traps of all — forgetting how incentives affect fund managers’ behavior.

Read the whole thing.

Farming Subsidies

Kristyn Birrell writes:

A prosperous farm sector without government subsidies? Sounds too good to be true…sounds like a fairy tale. It’s not. In 1985, New Zealand permanently eliminated 30 different agricultural production subsidies and export incentives. Over the past 20 years, as New Zealand’s farms flourished without assistance, the opportunity cost to American consumers and taxpayers of U.S. farm programs has totaled more than $1.7 trillion.

Read the whole thing.