Highly linkable

I'm back from my unintentional hiatus. Now that my bracket is busted and other things have been put to bed, at least for a while, I can get busy with a lot of blogging that has been on my mind. To begin, let's get some good links in.

Megan McArdle takes just six minutes in this Cato Daily Podcast to very effectively explain what insurance is and what it is not and why Health and Human Services Secretary Kathleen Sebelius is in the camp of confusion. The all-too conventional wisdom is that insurance is about a transfer of expense, but this should obviously be nonsense. How could a redistribution scheme be a profitable endeavor? Insurance is rather a transfer of risk.

While we enjoy the excitement of March Madness, let us not forget the madness that is the non-free market of college athletics. Dave Berri has a column on Freakonomics asking simply, "How about a free market for college athletes?"

Speaking of Freakonomics, if you'd like a scary example of how quickly a consortium of "experts" can slip into technocratic thinking and tyrannical behavior, listen to this Freakonomics podcast on fighting obesity. There was a strong vein of Kling's oppressor-oppressed narrative running through these progressives.

John Cochrane explains why boogeyman-like fears of genetically modified organisms (plants, foods, etc.) is not only misplaced, anti-science, and anachronistic, but it is also very bad for the poorest among us. GMO just ain't the big, bad wolf.

Finally, Stephen Landsburg makes a point in principaled agreement with me by showing in two videos how magnificently wealthy we are.

Highly linkable

This Los Angeles Review of Books interview with evolutionary biologist Michele Pridmore-Brown touched on a lot of interesting topics including some good challenges to the Paleolithic man obsession currently in vogue. I myself am sympathetic to the Paleo ideas, but like all things it must be taken in moderation and in proper context. The magnitude of how Paleo you go matters, so to speak. 

Scott Sumner lays out a great explanation as to why we can all say, "Well, here's another nice mess you've gotten me into!" 

Last month the great economist Armen Alchian passed away. Among so many other contributions such as the importance of property rights, Alchian is famous for the Alchian-Allen Theorem which for example tells us why we're more likely to find the highest quality apples in Washington, D.C. rather than Washington state where they are grown. Don Boudreaux shared his thoughts on Alchian in this brief Cato Daily Podcast. David Henderson offered his remembrance in this WSJ article. 

Elizabeth Warren suggested what?

A $22 per hour minimum wage might be reasonable.


Here is a telling passage from the full article on Huffington Post:

"If we started in 1960 and we said that as productivity goes up, that is as workers are producing more, then the minimum wage is going to go up the same. And if that were the case then the minimum wage today would be about $22 an hour," she said, speaking to Dr. Arindrajit Dube, a University of Massachusetts Amherst professor who has studied the economic impacts of minimum wage. "So my question is Mr. Dube, with a minimum wage of $7.25 an hour, what happened to the other $14.75? It sure didn't go to the worker."

It seems she basically believes that employers wouldn't pay workers without people like her making them. Now that is dumb. She also severely confuses average worker productivity with marginal worker productivity. Claiming that the minimum-wage worker in 1960 grown at the rate of productivity growth is the equivalent to the minimum-wage worker in 2013 is 1 + 2 = 7. That is dumber. Has nothing else changed since 1960? Job descriptions, labor pools, employer compliance with regulations, et al. all the same? Are we really sure the worker who should be earning the MINIMUM wage today is equal to the worker in 1960 who should have been earning the MINIMUM wage plus the AVERAGE growth in worker productivity?

Think about this simplified thought experiment that ignores A LOT of other changes: A grill cook with little capital equipment at a fast-food burger joint in 1960 can produce 200 burgers per hour. A grill cook with lots of capital equipment at a fast-food burger joint in 2013 can produce 500 burgers per hour. Should the worker in 2013 be paid a full 2.5x more than the worker in 1960, or should the guy who bought the capital equipment be paid something, which eats into the 2.5x for the worker?

It is good that the NRA sets the tone the gun makers follow

On today's NPR Morning Edition Bloomberg Businessweek assistant managing Editor Paul Barrett was trying to express concern but instead expressing confusion about the role the NRA plays in the debate over gun rights. Here he is again on Bloomberg TV.

He demonizes NRA CEO Wayne LaPierre as conspiratorial without any evidence offered, but that is not the major confusion he expresses. What he doesn't seem to understand is that the NRA is an organization lobbying for gun rights, not gun makers. He wants to fit it into a simple box like tobacco lobbyist towing the line for cigarette makers. But that isn't the correct model. What's more, we don't want it to be. And that is true of both ideological sides of the gun debate.

If the NRA were simply the gun manufacturers' political arm, we would expect to see lots more compromise on the issue of gun rights. Sounds good, right? It is not. When a corporation compromises with the government, it is a tit for tat arrangement. Hence, the Tobacco Master Settlement Agreement (MSA) of 1998 was very, very favorable to incumbent tobacco firms. Assuming one's goal was either tobacco freedom or tobacco prohibition, this agreement did not work very strongly in principle or practice to achieve either goal.

From gun rights supporters' perspective, they want an NRA beholden to their principals not the profitability of current gun makers. An NRA working for the gun makers would probably seek to prevent new entrants in the market a la the MSA as well as limit competition among existing firms--government-sponsored oligopoly. These compromises would be indifferent if not contrary to gun rights, but positive to gun makers.

While the limits on competition would be the compromise that somewhat satiates gun prohibitionist by limiting guns in some capacities, it would not be the ideal arrangement for that group either. 200-300 million guns exist in America today. These are highly durable machines. Limiting future production does little to correct what this group sees as a major problem in America (hear Steve Levitt's thoughts here.) An NRA fighting for a chance to capture public officials to the benefit of gun makers is a more dangerous foe than one staking out a principled stance. The latter will fight to the death, and you just might kill him. The former will fight to lose just enough that you won't win but will lose your own will and momentum to fight any longer.

Be able for thine enemy rather in power than use...

A third-grader on the reason for a Pope

In answering a question on her religion test earlier this week, my third-grade daughter indicated where she falls in Kling's Three-Axes Model.

No word yet on her opinion if Pope Francis will be hard line enough. I may be raising the next Sister Mary Stigmata.

On the road again

I've been tearing up the Oklahoma interstates and toll ways the past several days. In one business-week's time, last Friday through Thursday tomorrow, I will have traveled over 1,000 for work. All of it driving having taken me southwest, north, northeast and finally southeast.

Besides the $.55 per mile reimbursement, the windshield time has enabled me to catch up with many of my podcast backlog. Especially helpful is Downcast's feature allowing 1.5x playback speed.

Two of the podcasts I listened to over this stretch along (Robert Pool on How to Build Infrastructure During an Age of Sequester from ReasonTV and Freakonomics Radio on The Downside of More Miles Per Gallon) with catching up with the latest installment of Chunka Mui's analysis and prognostications about Google's driverless car led me to do some predicting of my own.

In 30 years we will want to privatize and it will seem as obvious to privatize the roads as we want today to privatize and it seems obvious to privatize the US Postal Service. This applies to all roads from interstate highways to major metro arteries to lesser used neighborhood and rural roads. The impetus and obviousness of privatization as the natural solution decreases as we go down that list. Yet I predict that will indeed be the majority opinion held by those who seriously and objectively consider the situation. There will be strong doubters. It will probably prove to be a politically incorrect position. There will be entrenched special interests.

That is all to say that in 30 years we will be about 5-10 years away from road privatization -yes, that is indeed a prediction about the USPS today as well.

I have 80% confidence in all these predictions. I give a 75% probability that in 10 years the USPS will be gone or very largely gone as we know it today. I'll give the same probability about public roads (funding, maintenance, ownership, etc.) for the year 2053. Check back then . . .

Honey, I shrunk the bank.

As a continuation of the on-going discussion I have with colleagues, one sends me this link to a WSJ article by Dallas Fed Chief Richard Fisher and his executive VP Harvey Rosenblum on "How to Shrink the 'Too-Big-to-Fail' Banks". My comments were:


I generally like it—a step toward less government involvement and less social insurance of profit-seeking firms. But there is a bit of hand waving over the third tier in their proposal:

Third, we recommend that the largest financial holding companies be restructured so that every one of their corporate entities is subject to a speedy bankruptcy process, and in the case of banking entities themselves, that they be of a size that is "too small to save." Addressing institutional size is vital to maintaining a credible threat of failure, thereby providing a convincing case that policy has truly changed.

Easier said than done in defining how small a bank would need to be. They need more specifics here; otherwise, the cronyism is in the details.