Deinonychus antirrhopus

The Economics of Bootstraps

This need for business to have plenty of customers with disposable income used to be widely understood. There was a time when wage supports, be they labor contracts or minimum wage increases, where almost universally supported.

This was a comment that appeared this post by James about the number of people applying for jobs at Wal-Mart.

The problem with this view, and I think it is a view that is somewhat pervasive on the Left, is that it can't ultimately work. The basic notion here is that we can, in effect, tax ourselves into prosperity. Granted Ken, the author, did not mention taxes, but things like the minimum wage work in many ways like a tax. The minimum wage raises the price of labor for the demander (firms) just as tax would. Further, the minimum wage comes with a deadweight loss just as with taxes.

It is the former that is a particular problem for the view point suggested above. Suppose we raise $100 in taxes on the rich, and it is transferred to the non-rich as a straight income transfer. The idea, as expressed by Ken, is that the poor, with their higher marginal propensity to consume will spend that money on things produced (directly or indirectly) by the rich. Thus, the economy keeps chugging along. The problem is that, the cost of the tax isn't simply $100, it could very well be $150 and unless $50 in additional value is produced as a result of the additional transactions induced by this tax-and-transfer policy the economy is actually worse off. Basically, it is a variant of the Broken Window Fallacy.

On top of this, there is the issue of savings and investment. The rich might very well be able to afford the $100 tax, but they are surely going to change their behavior. They will either consume less, invest less, or both. Hence, $100 has been taken out of the economy at one end (the rich end) and put back in at the poor end ($100). It is a wash. And lets not forget the cost of bureaucracy. The tax collector will need to be paid, the person who distributes the income transfers will need to be paid, and lets not forget the bureaucrat that is in his cubicle watching television, he needs to be paid too.

This kind of notion of growth is just completely specious. Yet it seems to be very popular way of looking at the economy. We'll take from the haves, give to the have-nots, and the economy will actually be better off. While there are undoubtedly arguments for taxes, income transfers and other governmental activities this isn't one of them.

Note: This post originally appeared at Outside the Beltway.

Kelo Hypothesis

Well it seems that Los Angeles is going to pull a Kelo. The Left Coast Bastion of Liberalism has decided to do a snatch-and-grab and it is being orchestrated by none other than the former police chief and now city councilman Bernard Parks. But while this is a reprehensible action on the part of Bernard "the Weasel" Parks, what got me thinking is where are we likely to see the strongest push-back against things like Kelo.

My understanding of the issue is that the ruling in Kelo while expanding the power of eminent domain to an extent that puts property rights in serious jeopardy, but it does not prevent states from restricting the power of eminent domain. So given this where would we most likely see resistance to Kelo like land grabs that would lead to the state instituting restrictions on eminent domain?

My thinking is as follows. Democrats generally speaking prefer policies that are geared towards promoting the general welfare. Hence grabbing some land that have people's houses on it and selling it to a business and upping the tax base to engage in other policies would be less onerous than to Republicans who are marginally more likely to favor limiting government. Thus, the hypothesis is that we'd see more laws against Kelo type abuse of eminent domain in "Red" states.

Now, this is just a hypothesis and the great thing about it is that over time we could look at how states deal with this issue, or even if it is an issue in a given state. That is the hypothesis does have the potential to be testable. Anyhow, those are my thoughts on this issue.

Here is an early data point. Of course, until the bill passes it doesn't support the hypothesis all that much.

Update: Here we have a liberal actually defending Kelo. The defense, IMO, can be boiled down to: since it happens to blighted/poor neighborhoods lets broaden the powers to include non-blighted/non-poor neighborhoods. Then the author argues that this will have the somewhat counter-intuitive result or reducing the use of eminent domain abuse in general. Of course, nevermind that it doesn't seem to be working.

The Censors of Ghost Town

Bryan Caplan has a good post (whose title I've also shamelessly stolen) that describes my feelings about the FCC.

Howard Stern premiered today on Sirius satellite radio, and I couldn't be happier. I don't find Stern funny. I don't subscribe to Sirius. But this move is another market-driven nail in the coffin of the censors at the FCC. These guys give new meaning to the phrase "pompous bureaucrats" - in the age of the Internet, when every child knows how to google any depravity that interests him, the FCC starts handing out fines for a risque glimpse of Janet Jackson. Good grief.

The only thing is...will the FCC lay down in their coffin. What I imagine happening is that the FCC will look for new territory in which to foist the pompousness on the American public. After all, when was the last time you heard of a bureaucracy going out of existence? Me neither.

I can easily see the FCC trying to expand into areas like satellite television, radio and cable. Why? Because broadcast radio and television will want to hamstring the competition. How do you do that? Make sure they operate under the same rules you do. Add in the oprtunistic busybody politicians who see a political advantage and you have all you need for rent seeking behavior. Granted satellite radio, television and cable will want to fight it, but think of all the wasted resources that go into such a process.

And the thing that gets me is that the biggest proponents of an activist FCC are the Republicans for the most part. They go on about decency, obscenity, and immorality. But then turn around and talk about personal responsibility, parental responsibility and so forth. They seem completely oblivious to the inherent contradictions in the two positions. That is a heavy handed FCC removes the need for parents and people to exercise that responsibility. That parents can ignore what their children are watching on television since the government is looking after the kids.

I've recently heard that the Republicans have given up being a party of ideas and values. I didn't give it much thought at first, but now I'm begining to think there very well might be something to such a statement.

McCain and ID

Stephen Bainbridge has a good post on McCain's views about the Dover case.

John McCain told MTV re intelligent design that we should "Let the student decide." What a crock. Should I let my students decide whether the business judgment rule should be taught? It's the worst sort of pandering.

And another thing. McCain also told MTV that "There's great uncertainty out there .... We have to provide a lot more certainty for young Americans. That's my job." Huh? Since when is it government's job to provide "certainty," let alone it being the job of a solitary senator from a minor state? Once again, as with campaignh finance, steroids, and a host of other things, McCain proves he has no sense - none, nada zilch - of what limited government means.

Well, based on this kind of idiocy coming from Republicans like McCain, I still plan on getting falling down drunk and then voting for Lyndon LaRouche at the next presidential election.

Egads, but the Republicans are quickly becoming a complete joke these days.

Humor

I'd laugh if it weren't so damn accurate.

Corporations Going Green

My recent issue of Reason had an interesting article on corporations that are "going green". The meat of the article was about McDonalds, in partnership with Environmental Defense (formerly Environmental Defense Fund), changing their refrigeration equipment to reduce emissions of green house gasses and reduce refrigeration costs by 17%. That last part struck me as key. Businesses are not going to be terribly interested in green solutions that do not, in some way, take into consideration the bottom line--profits.

I would say that all firms are focused predominantly (if not exclusively) on profits. This can actually be something environmental groups could use to their advantage. Instead of simply sitting around in their hemp pants, tie-dyed t-shirts and birkenstocks hugging trees and complaining about the evils of corporations, they should be looking for cost-cutting measures that are also good for the environment.

The article also noted that when environmental solutions are sought via federal regulations and laws the effects can often times be less beneficial than initially anticipated. Frequently firms, being the cost minimizers that they are, will look for the least costly alternative to the offending process, compound, etc. In some cases, these alternatives turn out to be worse for the environment. This is one of the problems with governmental solutions. They tend to take a rigid and "one-size-fits-all" approach to issues. The potential for perverse outcomes is ignored, and in the end things aren't improved either very little, not at all, or even made worse.

By taking a decentralized approach and working in cooperation with the corporations, at least in the case of McDonalds, a much better solution was found.