EconLog
Bryan Caplan and David Henderson

Because I'm a resident of Newton, Massachusetts, I couldn't help noticing that it was recently named the Best Suburb in America for education. And it's easy to see why:

That's largely because this wealthy Boston suburb has the money to fund some really excellent schools. In fact, out of all of the places we looked at Newton spent the third most on each student: $17,343.
It's a sad comment on our country that money is lavished on schools in wealthy suburbs like Newton, while schools that are dominated by black and hispanic students (such as nearby Boston) are starved for funds. Here's Boston's public school demographics:

Screen Shot 2014-09-19 at 3.12.22 PM.png
Unfortunately I was unable to find per pupil spending in 2014 for Boston, but I did find a web site with per pupil spending in 2013 for all the towns in Massachusetts. Just look at the savage inequalities in our system:

Per pupil spending in 2013:

Newton: $16,400

Boston: $17,283

PS. My daughter attends one of the most expensive high schools ever built, costing over $200 million. The locals call it the "Taj Mahal."

June 26 (Bloomberg) -- A $200 million high school scheduled to open in 2010 in the Boston suburb of Newton, Massachusetts, will be the state's most expensive. It may also be the last of its kind.

The 413,000-square-foot (33,368 square-meter) Newton North High, featuring an arts complex and an athletic wing with swimming pool and climbing wall, has become a symbol of excess in Massachusetts, where households bear the country's eighth-highest property-tax burden, according to the Washington-based Tax Foundation.

The project's estimated cost of $478 a square foot has doubled since Newton Mayor David Cohen proposed it in 2003. The price jump sparked a taxpayer revolt that kept him from seeking a fourth term next year. Massachusetts Treasurer Timothy Cahill, who called the building the ``Taj Mahal,'' wants to limit the price for future state-subsidized schools, including one proposed by the neighboring town of Wellesley, to $100 million.


But even we can't compete with Boston.


   


Anarchy in the UK? Not so much. Scottish voters have decided to stay in the UK, and Justin Wolfers calls this "a loss for pollsters and a win for betting markets." I agree: betting markets produce a much higher signal-to-noise ratio than polls.

In spite of this, they are routinely ignored. I suspect this is because they don't produce the same human drama we get from a poll, they are morally suspect because they take very emotional questions of meaning (e.g., "who are we as Americans/Scots/whoever?" and turn them into relatively dry statistical calculations, and betting is already morally suspect among a lot of people. We're poorer for it: we're substituting noise for signal by talking about polls when we should be talking about betting markets.

So how do we change it? In response to my post on pricing driving, Robin Hanson suggested that economists who care about influencing public policy would

1. Identify a few strong candidate policies that are a) widely endorsed by economists, b) based on relatively simple clean analysis, c) not much adopted in the wider world, and d) should bring big gains.

2. Try to engage other intellectuals in detail on one or a few of these, seeking to either gain their endorsement, or to understand better the barriers that block them. If possible, do this as a group, and using all our status levers to make them respond in detail. If we succeed in persuading intellectuals, then join with them to try to persuade policy-makers, again either succeeding or better understanding barriers.

3. Once we better understand barriers, focus our economic research on doing what it takes to overcome them.

I think betting markets likely fit #1. So what's the next step?


   


I've done a lot of interviews on education at EconTalk and there's always more to learn. There were two moments that really stuck with me from this conversation with Elizabeth Green about her book, Building a Better Teacher.

One is the importance of coaching. Having taught for 30 years, I did spend some time thinking about how to do my job better. But nobody coached me. As some of you know, my wife is a math teacher and the head of the math department in her school. She has been deeply influenced by Doug Lemov and has come to believe that you can become a better teacher and that coaching makes a difference. I think it's huge at the K-12 level, especially for new teachers. The analogy that I mentioned in the conversation has stuck with me--teaching is a craft and not unlike others crafts such as hitting a baseball. Professional baseball players who are extraordinary at what they do still have coaches who help keep them in a groove. Probably a good idea for teachers.

In the response to the Extra for this episode, Dan Winters--a teacher and an administrator--mentions the idea of a Kickstarter to help train teachers. Amy Willis points out the challenge of certification--how would people know that the teachers had learned something? I think equally challenging is the incentive problem. I think Doug Lemov could start a national teacher training program or a program that trained coaches to go into schools to help teachers. The problem is that too few public schools have an incentive to send their teachers to such schools or to hire coaches.

The importance of coaching and the difficulties of teaching well help remind me that wanting to be good at something isn't enough if you don't know how to get better. Incentivizing teachers is very important but even if they want to do better, I fear they often do not know how to get there from here. I do believe in a truly private system, ways of getting better would come more naturally and be part of the entire process.

The other point I got out of this episode was the point about power. It's hard for teachers to remember that they have a lot of power over students. Adolescents particularly dislike being told what to do. The grading process and that feeling of having someone with power over you can really disrupt the classroom and the learning process. That's what I meant when I said that it's not about you, the teacher. It's about them, the students. When student believe that the teacher wants them to learn as opposed to believing that the teacher wants to control them or punish them with a bad grade, it changes everything.

Coming Monday, Thomas Piketty talking about inequality and his book, Capital in the 21st Century. It gets lively. Here is a sneak preview:

CATEGORIES: EconTalk , Education

   


If a business rents land, any accountant will count the rent as a cost of doing business.  If a business borrows to buy land, any accountant will count the interest payments as a cost of doing business.  What happens, though, if a business owns its land outright?  A good accountant will estimate implicit land rent - the rent the land would have fetched in the open market - and count that as a cost of doing business.  Opportunity cost, not out-of-pocket cost, is what counts.

The same logic holds, of course, for schools that own their land outright.  If you're estimating the total cost of education, you should count schools' implicit land rent.  As far as I can tell, however, official spending numbers don't do this.

How big is the problem?  To get a rough answer, I searched for estimates of (a) typical school acreage, (b) rent/price ratios, and (c) the price of an acre of land.  What I found:

For (a), the best source I could find was a 1963 (!) piece by the Planning Advisory Service.  The report begins by quoting their earlier finding:

Although acreage is related to size of school enrollments, most authorities say that the minimum land area requirement for elementary schools is five acres, with an additional acre for each one hundred pupils of ultimate enrollment. Secondary schools should have a minimum of ten acres, plus an additional acre for each one hundred pupils of ultimate enrollment.

It then adds:

Although elementary school standards for minimum site size have not changed appreciably during the past decade, those for junior and senior high schools have increased rather dramatically, in some cases 100% over what they were in 1952. The recommended size of junior high sites ranges from 10 to 20 acres, with the median being 15 acres; recommended senior high sites range from 20 to 30 acres, with the median being 25 acres. The standard formula of one additional acre for each one hundred pupils of ultimate enrollment applies for both junior and senior high schools.

For (b), I found the Lincoln Institute of Land Policy's up-to-date numbers here.  The current rent/price ratio is about 5%.

For (c), I found no usable nationally representative numbers. (Please tell me if I've missed anything).

Fortunately, we don't need precise numbers on acreage price to see the magnitude of the effect.  Consider a high school with 1000 students.  Using the original rule of thumb, the school will have 20 acres.  So even assuming a very steep land price of $500,000 an acre, the per-student cost of land is only $500/year.  That's less than 5% of total spending.  Using a more normal - though still somewhat high - price of $100k an acre, implicit land rent only adds 1% to the education's true cost. 

Bottom line: Implicit land rent may be important in New York or San Francisco.  But at the national level, it's a rounding error.


   


Start!

David Henderson

Over at marginalrevolution.com, Tyler Cowen has posted some excellent rules for managing your time. I won't repeat them here--they're short enough--but I want to add an important one, comment on a few, and add a final one.

Here's the one I want to add:

Rule Number 0: Start!

Most of the people I talk to, and I, find that one of the hardest things to do is start something. We picture it in prospect and think that we have a big mountain to climb. It seems intimidating. But even climbing a big mountain starts with a single step. And once you take that step, you actually build a little momentum and the project typically doesn't feel as hard as it did.

That's my big contribution--thus the title of this post.

My comments on a few of Tyler's rules.

Tyler: Do the most important things first in the day and don't let anybody stop you.
DRH: Yes, and arrange the items you wish to accomplish in order of priority. Assign roughly accurate estimates of time to each. Then start with #1. Don't make the mistake of listing 12 important things you want to do if realistically you can accomplish only 5 of them. When you see that you did 5, you should be able to celebrate rather than beating yourself because you didn't do all 12. That's where the time estimates come in.

Tyler: Each day stop writing just a bit before you have said everything you want to. Better to approach your next writing day "hungry" than to feel "written out." Your biggest enemy is a day spent not writing, not a day spent writing too little.
DRH: I'll hone this point a little. I try to stop when I'm in the middle of a relatively easy point I'm making rather than when I'm trying to solve a complex issue. Then, when I begin the next day, it's easy.

Final rule and it's also about starting:
Let's say you get to about 4:50 p.m. and you normally go home at 5:00 p.m. You have just finished one task on your list, but there are some left. None of them takes as little as 10 minutes. Start the next task anyway. The 10 minutes you spend today is 10 minutes you don't need to spend tomorrow. Think on the margin. (Pillar #3.)


   


Scotland, Quebec, and Tupy

David Henderson
Scotland's greater statism and, ironically for the birth place of Adam Smith, suspicion of capitalism, is a potent obstacle to reform in England and Wales. It is also a serious danger to economic prosperity north of the border. Sooner or later, Scotland will need to introduce reforms that it would never accept from a Westminster government. The end of the Union maybe [sic] a high price to pay for the end of socialism on the British isles, but the rewards from a more robust, long-term economic growth are not negligible either.
This is from Marian L. Tupy, "Scottish Independence Will Kill Socialism on Both Sides of the Border," September 17, 2014.

I think Marian's point is exaggerated but I think he has the direction of change correct. This is similar to a point I made in a piece in the Wall Street Journal when Quebec voters were voting on separation in the mid-1990s. I can't find the piece on-line but it's David R. Henderson, "If Quebec Separates, Almost Everybody Wins," Wall Street Journal, January 19, 1996.

The basic idea of both Marian's and my pieces is that the smaller entity whose majority votes to secede, if they do so vote, is one that is more statist than the one that they voted to secede from. So statism in the bigger country will fall. One would expect statism in the smaller country to increase because it is no longer constrained by the bigger country. But what people in the smaller country will learn is that they can socialize the costs only within their smaller country, not within the bigger country. So they face a constraint that is tougher than the one they previously faced. Therefore, they become less statist. Is that a sure thing? No, but the odds are good.

One big hedge about Quebec. I have made this argument about Quebec to my Canadian friend Jason Clemens. Jason comes back by pointing out that in Canada there is zero federal intervention in education. "Why do you think that is?", he asks. "I don't know," I answer. "Because Quebec is in the union and they won't allow it," he answers, "Let Quebec out and that constraint goes away." He has a point. So the bottom line is that the consequence for a particular country will depend, more than I said in my WSJ piece, on the specifics.

By the way, Marian L. Tupy wrote "European Union" for The Concise Encyclopedia of Economics.

Postscript: At the risk of making this post too chatty, let me add that I like the post of our guest blogger, Alberto Mingardi, earlier today on this. I do want to challenge, though, not Alberto, but Clive Crook, on one thing. Crook writes:

A Scotland that stays in the union reluctantly will be of little use to itself or anybody else.

This is way too anthropomorphic. If Scotland stays in the union, Scots will have lives, just as if they left. It reminds me of various comments I've seen over the years on Canada of the flavor, "Why does it exist?" or "What's the point of Canada anyway?" I can assure you that when I grew up in Canada, well before I became a libertarian, I didn't ask those questions. Nor do, typically, adult Canadians. The people who ask those questions tend to be the type (I'm thinking Bill Kristol here) who think that nations have to stand for something rather than being places where people can carry on their lives in peace.


   


Clive Crook on Scotland

Alberto Mingardi

Clive Crook has a taste for contrarian views that makes him well worth reading. He wrote two articles on Scottish independence.

Here he emphasizes the reasons why Scotland shouldn't go for secession, though he points out also the dishonesty on the "no" side of the debate ("When unionists talk about what might be lost, with much stress on Britain's international standing, they usually aren't talking about what Scotland would lose. The remainder of a dismantled Britain would be diminished, perhaps even humiliated, and would count for less in the world - but an independent Scotland would count for more").

Here he argues that Scotland should go for secession. His argument is culture-centered, so to say. Crook agrees with Paul Krugman and Martin Wolf that a currency union won't be viable for Scotland, and maintains that transitional costs will be high (though he doesn't get into details). But he also argues that there are strong cultural reasons Scots should go for independence ("Scots are bound more tightly to each other -- by history, culture and ethnicity -- than they are to the rest of the U.K").

I'm not particularly impressed by this argument, but I find Crook's conclusions commonsensical and wise:

A friendly separation is possible, though -- and in the longer term, for the best. My guess is that Scotland will, after all, vote against independence tomorrow, cowed by the risks and uncertainties and by the sudden force of international opinion telling them to think again. If so, it will be a shame. A Scotland that stays in the union reluctantly will be of little use to itself or anybody else. Alongside childish simplicity on fiscal and monetary policy, peevish resentment of the English has been a persistent aspect of the independence campaign. The cure for both is to grow up and move on.

We'll see how Scots will vote today.

CATEGORIES: Eurozone crisis

   


Tribal Desire

Bryan Caplan
On Twitter, Mark Krikorian opined that, "Desire for membership in a tribe is as inherent to the human personality as some form of body covering."  He's not exactly wrong, but omits three essential caveats.

1. Desire for tribal membership varies widely.  Some humans, like Mark, seem to think about their tribal membership on an hourly basis.  Others, like me, are perfectly happy belonging to no group larger than the nuclear family.  The median level of tribal desire is hard to nail down.  Do most Americans think about their Americanness once or more per day?  People usually find even simple abstractions boring, so I doubt it. 

2. Desire for tribal membership is extremely elastic.  Virtually any identity sticks if you're immersed in it at an early age: city, state, country, religion, ethnicity, political party, union, sports team, hobby - even a show on t.v.  The real barrier to cosmopolitanism isn't "inherent tribal desire," but inertia - the same barrier countless successful redefinitions of identity have already managed to overcome.  If you can convince British subjects that they're Virginians, and Virginians that they're Americans, you can convince Americans that they're humans.

3. Desire for tribal membership is superficial.  Social Desirability Bias leads most Americans to announce passionate commitment to the American tribe.  But their behavior tells another story.  What fraction of Americans bother to recite the pledge of allegiance on their own initiative?  To display a flag on their front lawn?  To participate in a weekly patriotic function?  99% of the ubiquitous icons of Americanism that popped up after 9/11 have long since faded into nothingness.  Americans put about as much energy into their identities as Christians who only attend church on Easter and Christmas. 

Am I projecting my freakish individualism onto all mankind?  Ponder this: How far would government revenue fall if Americans' tax bill were a voluntary recommendation rather than a legal obligation?  Sure, a few libertarians would conscientiously refuse to pay because they "love their country but fear their government."  But most Americans have no doubt that government spending on pensions, education, health care, military, etc. is good for their country.  If they were sincere patriots, they'd happily pony up for the perceived common good.  But it's hard to imagine that government revenues wouldn't plummet - especially a few years into the great voluntary tax experiment. 

Of course, if the true patriots of America want to prove me wrong by giving my experiment a try, they have my full support.


   


In early 2013, I had the privilege of speaking at a student conference in Brazil. While I was making my travel arrangements, I asked my Facebook network whether I should pay the extra $100 for Economy Comfort on the international legs of the flight. My sister (who was a missionary in Brazil for a few years) pointed out one of the likely benefits: I wouldn't be surrounded by teenagers on their way back from Disney World (though that probably wouldn't have bothered me very much).

I remembered her insight while standing in line at the airport in Rio on my way home. It reminded me of an op-ed by a Florida Congressman that makes "A conservative case for sugar tariffs" and that I now have my students read every semester (I incorporated my principles students' analysis of free trade into this response). Rooney argues that Brazil is "the OPEC of sugar" and worries about the jobs we will lose without sugar tariffs.

If those jobs in sugar cultivation disappear, people will be able to find employment elsewhere. Let's suppose we buy more sugar from Brazil and less sugar from Florida. Brazilians in the sugar industry can then use those earnings to visit Disney World, which creates new opportunities in Orlando hospitality and tourism. Sugar cultivation jobs disappear, but they're replaced with jobs building, maintaining, cleaning, and managing hotels.

Free trade with Brazilians benefits Americans. Why? Because Brazilians go to Disney World.

CATEGORIES:

   


This morning, our six-year-old earned fifty cents. That fifty cents topped of the money he has been earning recently and gave him enough to buy a $17 toy he wants. I couldn't be prouder: when he wants something, he finds a way to earn the money to buy it.

Some of our kids' household responsibilities are non-negotiable. Keep the bedrooms and playroom clean(ish), fix your own breakfast and snacks, help us when we make reasonable requests, etc. The kids still have a lot of opportunities to earn money. Here are a just a few examples of some things our kids do for money:

1. Fix Dad's lunch (usually just avocados and nuts, so nothing difficult).

2. Fix Dad a cup of coffee when he's working at home (we have a Keurig, so this is also pretty easy)

3. Pick up sticks in the yard

4. Shelve my books (they're still working on this as it's not exactly fascinating work)

5. Scan and destroy documents (with the shredder or in the fire pit--this is obviously closely supervised)

6. Reading word lists. We're a little hesitant about this because we want our kids to love reading for its own sake, but it doesn't seem to hurt their reading.

I've had less success with paying for book reviews, though I thought saying "Daddy earns money by reading and writing about books; you can, too" would be a winner. Maybe later.

Fifty cents here and a quarter there adds up quickly, and they're well on their way to mathematical fluency and financial literacy. We're currently exploring the feasibility of opening Roth IRAs for them. If they have $5000 in a Roth at age 10 and then never contribute again, they'll still have over half a million dollars at age 70 with a real return of 8%. I would call that a pretty good start.

What are some other ways kids can earn money?

CATEGORIES: Family Economics

   


Earlier this week, I posted a 1983 memo that I wrote to my boss at the Council of Economic Advisers, Martin Feldstein, about a meeting to discuss relaxing the limits on exports of Alaskan oil. Below is a follow-up memo on the same issue, written a few months later to Bill Niskanen at the Council. Everything in square brackets is added by me now to explain things that otherwise might not be clear.

Notice how "political" I was.

MEMORANDUM
COUNCIL OF ECONOMIC ADVISERS
February 14, 1984
TO: Bill Niskanen
FROH: David Henderson
SUBJECT: Feb. 15 IG Meeting on Alaskan Oil

Murkowski [U.S. Senator from Alaska] recently sent a letter to Marty asking him to support an Amendment to the Export Administration Act to allow exports of up to 200,000 barrels of Alaskan. oil. That sounds good, but unfortunately, the oil would have to be carried on U.S. ships. This would be an extension of the Jones Act to foreign nations and would thus set a dangerous precedent. There is no such requirement for privately owned goods so far, and a bill that would have required some U.S. oil imports to be shipped on U.S. ships was defeated during Carter's Administration. Geoff [Carliner] and I both think that it would be better to keep the export ban than to extend the Jones Act.

I found out that this will be discussed at tomorrow's IG meeting. Glozer of OMB is advocating opposition because of the Jones Act precedent. He thinks that NSC and Commerce will favor it because they badly want the Export Administration Act. DOT is hard to predict. Their constituent, the maritime union "firmly and unequivocably" opposes the Amendment. (See attached NY Times article). Glozer felt sure that Charles Schotta of Treasury would oppose this, but because Schotta is out of the country, it's not clear who will represent Treasury. I'm not sure how State stands.

One thing I am sure of is that VP Bush did not, as the NY Times piece says, tell Senator Murkowski that the amendment should be acceptable to the union. Boyden Gray told me that Bush just listened and made no comment. Gray told me that Bush's only concern is to keep a campaign commitment to sell some Navy ships to private owners so that union members can replace sailors. However, Gray didn't think this would get far because Bush has tried unsuccessfully to get Weinberger and Lehman on board (pardon the pun). The Navy does not want to give up the ships because this would reduce their billets and thus screw up their promotion system. Gray also said that if the Murkowski amendment were really a serious effort, then Stevens, the senior Alaska senator, would have been its
sponsor.

The one cloud in all this is that Gray quoted Jim Baker [Reagan's chief of staff] as saying to the VP that the amendment would be a good idea because it would reduce the trade deficit with Japan.

I will be away the rest of the week in Monterey. I have talked about these issues with Geoff. Will Milberg has access to my Alaskan oil files.

Attached is a copy of the Murkowski letter and proposed amendment.

Attachments
cc: MF [Marty Feldstein], BP [William Poole], GC [Geoff Carliner], WM [Will Milberg], AW [Alice Williams]


   


In the past, I've argued that Steve Sailer's citizenism is a moral travesty.  Advancing the interests of your in-group should always play second fiddle to respecting the rights of out-groups.  But recently, he presented what sounds like a universal argument for citizenism:
We live in a world of about 200 countries, a world that for all its flaws, is relatively peaceful and prosperous. And the basis of that order has been a set of assumptions about what the purpose of government is that both Caplan and myself call citizenism... The difference between Caplan and me is merely that he wants to take this order based on citizenism and blow it up, while I don't.
Charitably interpreted, Sailer's saying something like: "Citizenism isn't just great for us; it's great for mankind.  Vigorous pursuit of national self-interest leads to great global outcomes."  An interesting claim, but is there any reason to believe it?  Steve's only argument seems to be that (a) most countries on earth rest on citizenist principles, and (b) the modern world is, by historical standards, awesome. 

This argument is painfully weak.  Citizenism is hardly a recent ideological development.  Appeals to the moral ideal of national self-interest have been around for as long as the nation-state itself.  Recall Cicero's maxim, "Let the good of the people be the supreme law" ("Salus populi suprema lex esto").  What's novel about the modern world is precisely that aggressive pursuit of national self-interest is finally widely recognized as a vice, not virtue.  Putin's policies are bad for Russians, but we condemn them primarily because they're bad for Ukrainians.

You could object, "Due to comparative advantage and blowback, bellicose nationalism is actually contrary to national self-interest.  The best way for countries to help their own people is the path of trade and peace."  A fair point, but not one that citizenists have ever emphasized.  Psychologically, the wonders of trade and peace are easier for tolerant cosmopolitans to internalize.  I've yet to meet an open-borders citizenist - or even a citizenist intrigued by the prospect of using keyhole solutions to redistribute the astronomical benefits of immigration from foreigners to natives. 

In any case, the harmony between national self-interest and civilized policies is far from perfect.  Bellicose nationalism occasionally pays.  In a citizenist world, countries would self-righteously harm foreigners each and every time such callousness genuinely advanced the national interest.  Not a pretty picture.  It would be like living in a world where everyone steals whenever they know they can get away with it.

If citizenism can't possibly deserve credit for the awesomeness of the modern world, what does?  Distinctively modern ideas - ideas like tolerance and cosmopolitanism.  This isn't rocket science.  When people idealize patriotic solidarity, they build repressive, inward-looking societies.  When they idealize cosmopolitan tolerance, they build live-and-let-live, outward-looking societies.  Sure, no country fully lives up to these ideals.  What's special about the modern world is that the influence of these modern ideals is noticeable.

Contrary to Sailer, I deeply appreciate the modern world - probably more than he does.  But the world now enjoys historically unprecedented peace and prosperity despite citizenism, not because of it.  The modern world exists because cosmopolitan tolerance finally loosened citizenism's time-honored cultural stranglehold.  But there's still plenty of room for greater peace and prosperity.  The sooner cosmopolitan tolerance fully triumphs, the sooner we'll get them.

CATEGORIES: Economic Philosophy

   


Stanley Hauerwas, War and the American Difference: Theological Reflections on Violence and National Identity. This wasn't really "recent" as it was several months ago, but Hauerwas spoke at Samford last semester. Hauerwas discusses war--a key sacrament of civic religion--from a liturgical perspective and offers a bracing claim: "the church is the end of war." His book brings into high relief the tragedy of the many instances in which the church has been the beginning of war.

Brian Zahnd, A Farewell to Mars: An Evangelical Pastor's Journey Toward the Biblical Gospel of Peace. There is much to like here. Zahnd chronicles his journey out of his previous life as a pastor praying war prayers in the smite-our-enemies tradition to a rejection of Christian militarism. He offers an easy-to-read, brief, and powerful plea for the church to give up its role as chaplain to the state. Here's my main takeaway in one sentence: if we serve the Prince of Peace, why then do we make so many sacrifices to the god of war?

Peter Enns, The Bible Tells Me So...: Why Defending Scripture Has Made Us Unable to Read It. Enns asks us to read the Bible in context: in this case, in its context as a collection of ancient documents telling the story of a people surrounded by rival gods and traditions. He argues that since a lot of modern interpreters do not recognize the context in which the Bible was written, we bring incorrect expectations to the text. I read this because of Doug Stuart's excellent review on LibertarianChristians.com, which you should check out.

Walter Brueggeman, sabbath as resistance: Saying NO to the Culture of Now. Brueggeman makes a lot of very important points about rest as wise stewardship. Unfortunately, he does so badly as he spends a lot of time entertaining the incorrect "rich people are rich because they exploited poor people" theory of history.

Gregory Clark, The Son Also Rises: Surnames and the History of Social Mobility. Clark is a model scholar, and in The Son Also Rises he uses a clever empirical technique to look at the persistence of surnames at different social strata across a number of societies. He arrives at an interesting conclusion: what he calls "the law of social mobility" holds across a variety of different institutional and cultural contexts. A longer and more detailed review will appear in Regulation.


   


As far as I can tell, spending statistics for education do not count implicit land rent as part of the cost of education.  The Digest of Education Statistics' Table 213 for example, states that:
Current expenditures include instruction, support services, food services, and enterprise operations. Total expenditures include current expenditures, capital outlay, and interest on debt.
Construction costs - but not land - should be included in capital outlay.  If the school borrowed money to buy land, that would be counted in debt service.  But otherwise, it sounds like implicit land rent never enters the equation.

Am I right about this?  Please share relevant references.


   


This is beginning to sound like a broken record. A reformist right-wing government does lots of good things, trimming the size of the public sector. It promises monetary stability but delivers instability---a contractionary monetary shock.

This time it was in Sweden, where the coalition government narrowly lost an election to the left-of-center parties, mostly due to the decision of the Riksbank to ignore the advice of the only qualified person serving on their board---Lars Svensson. Instead of targeting inflation and employment, as they were legally required to do, they went off on a quixotic mission to pop imaginary "bubbles." As a result inflation fell far below target and unemployment stayed unacceptably high. One of Obama's Fed appointees wanted to do the same in the US.

Now Sweden will probably edge back toward bigger government, although thankfully not too rapidly. Because Swedes are relatively moderate and sensible, they won't swing as sharply to the left as Argentina did in 2002, or America did in 1929-33.

Perhaps someday right-wingers will learn how counterproductive it is to discredit their market reforms with tight money policies that result in high unemployment, opening the door to the left.

But we're not there yet.

CATEGORIES: Monetary Policy

   


I'm a big fan of Vanguard. All of my IRA-type assets are in Vanguard funds. And when I mistakenly claimed in a Wall Street Journal that John (Jack) Bogle, who started Vanguard, had learned from work by Eugene Fama, Bogle was very nice in the way he corrected me and then, when I acknowledged my mistake, wrote the following nice letter to me:

Hi, David,

Belatedly--unlike your prompt response to WSJ!--I offer a hearty and sincere Bogle salute to a man who makes an error (but an understandable one), and then stands tall in acknowledging it, sans hedge clauses, excuses, or defenses. You did just what I hope I'd do under similar circumstances . . . but I'm not sure that I'd measure up to your high standard! Thanks for you candor--and for your character.

Interestingly, The Economist made precisely the same "Fama error," and has agreed to publish my letter setting the record straight. Should be in this week's newspaper (as they call it). These things are never sure, so I've got my fingers crossed.

Best wishes and good luck in all that you undertake.

Jack


So please understand that this criticism is friendly fire: I like Vanguard and I just want it to do better.

I've been thinking more about two things: (1) the timing of my retirement and (2) the timing of receiving Social Security. Question (1) is hard to answer. I still love my job and I probably won't retire soon. Question (2) is much easier. Assuming that my health is good when I reach age 66, I will "file and suspend." That is, I will file for Social Security so that my wife can immediately start receiving benefits equal to 50% of the benefits I would qualify for. At the same time, if my expected longevity is good when I reach age 66, I will suspend payments because every year I do so, my payments will rise by 8% (non-compounded) until they max out when I hit age 70. I ran the numbers recently and was shocked at just how much my wife and I will receive.

I was looking around on the Vanguard site the other day and found an article addressing this issue. It's "Social Security: How to decide when it's time," by Colleen Jaconetti. She's got the underlying numbers right, but she computes payments out to various ages as if the real interest rate is zero. So, for example, if you start receiving $3,100 a month at age 70, then, by age 75, your total payments will be $186,000. Divide $3,100 into $186,000 and you get exactly 60. So 60 monthly payments, or 5 years of payments. The only way that makes sense is if the interest rate is zero. Which interest rate: the real or the nominal? Social Security benefits are inflation-adjusted. So she's fine using $3,100 forever, because that's a real number: the nominal number, with low inflation, will be a little higher. You discount real magnitudes by real interest rates. She clearly used a zero real interest rate without ever mentioning that she did so. That's not good financial information. It's mind-boggling (mind-Bogleing?) that Vanguard, where pretty much everyone would understand that getting a real $ today is not the same as getting a real $ tomorrow, would make this mistake.

CATEGORIES: Finance , Social Security

   


Last week, I posted here and here about Larry Summers's excellent talk in which he advocated removing the ban on U.S. oil exports. I then remembered that when I was the Senior Economist for Energy Policy with President Reagan's Council of Economic Advisers, I had written a memo on the issue of relaxing the constraint on exporting Alaskan oil. I found the memo and I reproduce it here. Notes in [ ] are ones I've added today. You'll notice that the reasoning on economics is pretty succinct. There's a good reason: the main two people I was writing for were Marty Feldstein (chairman) and Bill Niskanen (member). They didn't need a lot of hand holding on the economics.

MEMORANDUM
COUNCIL OF ECONOMIC ADVISERS
October 19, 1983
TO: Marty Feldstein
FROM: David Henderson
SUBJECT: Alaskan Oil Ban: Background for Cabinet Council on Commerce and Trade with the President
NOTE: IF YOU NEED TO TALK TO ME ABOUT THIS, WE HAVE TO DO IT TODAY. I'll BE OUT THURSDAY AND FRIDAY.

The major purpose of tomorrow's meeting on Alaskan oil is to give the President the background information he requested. He is not expected to decide immediately. Most of the agencies agree that freeing up Alaskan oil for export would be a Good Thing. [DRH note: Those familiar with 1066 and All That--and I think Marty was--will appreciate the reference.] All are aware, however, of the concerns of the maritime industry.

Law

Exports of almost all Alaskan oil are now banned under a number of laws, the most stringent of which is Section 7/d of the Export Administration Act (EAA). Although the EAA expired at midnight Friday, its provisions are being kept in force by a Presidential declaration of an international emergency. The House and Senate are putting a new EAA together which would continue the ban.

Eliminating Section 7/d would not in itself be enough to allow exports, but it would go far. The Mineral Lands Leasing Act also bans exports of crude transported by pipeline over rights-of-way on federal lands unless the President finds that exports won't diminish supplies to the U.S. and are in the "national interest". Congress could override the President by passing a concurrent resolution of disapproval. But the issue before the Cabinet Council is the Alaskan oil ban generally, not just Section 7/d.

The Issue

The basic question to be discussed is whether the Administration should spend the political capital to loosen the ban. DOE, NSC, and State all believe strongly that it should. DOT is the only strong proponent of the status quo. Various options will be discussed but the realistic option is to allow limited exports (about 200,000 barrels per day).

The Economics

Because of the ban, oil companies have to ship about 800,000 barrels per day of Alaskan oil to the Gulf Coast. The shipping cost per barrel is about $5.25 versus $0.50 to Japan. (One of the reasons for the high cost is that the Jones Act requires the oil to be shipped on U.S. flag tankers which have higher capital and labor costs). It is estimated that eliminating the ban would cause the companies to ship about 500,000 barrels per day. (I don't understand why that number isn't more like 800,000. The reason given by both sides is that long-term contracts with the trans-Panama pipeline prevent that, but it seems to me that the companies would have an incentive to breach the contracts. However, this point isn't worth raising for two reasons: (1) the feasible liberalization option is to allow only 200,000 barrels per day anyway, and (2) it's better to let sleeping dogs lie).

The main cost of the ban is to the Federal Govt. The higher transport costs reduce the net price the producers receive and therefore reduce the federal income tax they pay. The second biggest loser is the State of Alaska, because their royalties and severance taxes are reduced. The third biggest losers are the producers. The estimates are that if the ban is preventing exports of 500,000 barrels per day (rather than the 800,000 that I consider more realistic) then the present values of losses are:
U.S. Govt. $3.6 billion
Alaska Govt. $1.5 billion
Oil Companies. $0.6 billion

The net gain to the maritime industry (assuming the displaced ships and seamen have no alternative uses), is $3.3 billion. Therefore the net present value loss is at least $2.4 billion. Incidentally, the average annual pay of maritime employees is $72,000 per year. This ban is clearly not a transfer to the poor.

There is a further (small) loss from the oil not produced because of the lower net price. Of course there is very little impact on the overall U.S. trade balance because if the Alaskan oil were exported to Japan, the Gulf Coast would simply replace it with imports from the Persian Gulf.

Energy Security

One of the arguments made against allowing exports is that it would increase our dependence on the Persian Gulf. This is false. It would increase our imports from the Persian Gulf, not our dependence. The oil market is a world market. The only impact of a reduction in Persian Gulf oil supplies would be on the price. But it would have that impact whether or not we buy directly from the Persian Gulf. We can respond to a reduction in Persian Gulf supplies by buying elsewhere. The world market clears.

Moreover, the International Energy Agency (lEA) sharing plan would be used in a true emergency to allocate supplies. If the allocation is done at market prices, then the lEA is essentially not allocating. If it allocates at below-market prices, then it does so according to each country's oil consumption in a base period. Eliminating the ban wouldn't affect this consumption.

DOT argues that we wouldn't have tankers available to divert Alaskan oil from Japan back to the U.S. in the event of a large supply reduction. But DOE points out that a world oil supply reduction would make numerous tankers available.

An Opportunity

We have an opportunity here to make some good economic policy. The maritime unions are small. They have only 14,400 members. Moreover 53% of these workers are over 50 years old. So there is a window of opportunity here to reduce the demand for them before their younger counterparts replace them. The number of votes at stake is minimal. Only 4,800 seamen and 80 U.S. flag tankers are engaged in the Alaskan oil trade. Allowing 200,000 barrels per day in exports would cost only about 1000 jobs. The main thing the maritime unions have to withhold is campaign contributions. But these aren't important to the President because he can use such funds only in the primaries. The government pays for campaign expenses for the election.

If the Administration stays out of things, then the ban will surely remain. But Congress is willing to deal. Roger Majak, Staff Director of the House Subcommittee on International Economic Policy and Trade (of the House Foreign Affairs Committee) stated last week that if the WH changed its signal, [Don] Bonker (chairman of the subcommittee) would discuss "leaving the door open for a reasonable amount of oil exports" (Majak's words). Also, Jake Garn, chairman of the Senate Banking Committee, says he is waiting for marching orders from the WH. Although the WH hasn't given a clear signal, it has something to gain and nothing to lose by pushing for liberalized export restrictions.

A Caution

One option that could be kicked around at the Cabinet Council is to allow more exports but to require that they be shipped on U.S. tankers to satisfy the maritime interests. It might be thought that this would be no worse than allowing fewer exports but allowing them to be shipped in any tankers. But it is much worse: it would set a dangerous precedent by extending the Jones Act to purely commercial transport between the U.S. and other countries. The loss from setting this precedent would be very large,

cc: BN [Bill Niskanen], BP [Bill Poole], GC [Geoff Carliner], AW [Alice Williams]


   


It's happened. A few weeks ago I finally bought Minecraft for the kids (the Pocket Edition for mobile devices is only about $7). We're still learning the ins and outs of the game, and early going has meant periodic frustration and my wife and I have tried to learn the game on the fly through YouTube tutorials and the like, but while I knew it was an excellent educational resource I've really been surprised at just how great it is.

Our oldest has built multiple houses for himself and various friends and family members, and right now he's working on building a nineteen-story hotel with a working elevator. Obviously, the kids are learning a lot about problem-solving, and it provides a great starter for conversations with other kids. It's also teaching the kids (and us) patience: learning new things can be kind of tough, so we have to be calm and patient while we figure stuff out.

It's also teaching perseverance. On Saturday, I was trying to help our oldest build an elevator he could attach to the hotel he had just completed (the Embassy Suites Hyatt Regency). I accidentally tapped "lava bucket" when I meant to tap "water bucket" and burned the entire thing down. I was impressed with how he handled it: he was really, really frustrated, but he got over it relatively quickly and started rebuilding.

What does this mean for the 21st century economy? Minecraft Coaches will be a thing. This is perhaps a more clickbait-y way of saying the demand for computer science instruction will rise. There are a lot of great tutorials on YouTube and the like, but I wouldn't be surprised if premium content ends up behind a paywall. Parents spend enormous amounts of money hiring experts to teach their kids how to hit a baseball or shoot a basketball. Google showed me that there was a Minecraft summer camp just up the road at UAB. As one blogger notes, there is much truth in this old Far Side cartoon.

As I posted on The Libertarian Homeschooler Facebook page (quoting from memory), you know you're a Libertarian Homeschooler when you get excited that your kids have gotten into Minecraft.

My biggest mistake? Not doing it sooner.


   


Martin Gilens' Affluence and Influence argues that when America's rich disagree with their fellow citizens, American democracy heeds the rich.  His evidence is hardly airtight, but by the standards of social science, it's fairly compelling.  To me, he provides an interesting story about why democracy isn't even worse.  Gilens himself, however, seems distraught.  As he and subsequent co-author Benjamin Page put it:
What do our findings say about democracy in America? They certainly constitute troubling news for advocates of "populistic" democracy, who want governments to respond primarily or exclusively to the policy preferences of their citizens. In the United States, our findings indicate, the majority does not rule -- at least not in the causal sense of actually determining policy outcomes. When a majority of citizens disagrees with economic elites and/or with organized interests, they generally lose. Moreover, because of the strong status quo bias built into the U.S. political system, even when fairly large majorities of Americans favor policy change, they generally do not get it.
Rather than renew debates about the rationality and selfishness of the American voter (no on both counts, but who's counting?), let's ponder a new question: What does Gilens' research imply for political activism?  Gilens could urge activists to wake the sleeping majority.  But American democracy's fixation on the preferences of the rich looks deeply rooted.  Gilens' results hold for the entire period he examines - from Johnson to Bush II.  There's no sign that matters used to be different.

The pragmatic response, then, is to tailor activism to Gilens' realities.  At first, you might sigh, "It's hopeless.  The rich will get their way no matter what activists do."  This would be a correct inference if rich voters relentlessly sought their objective self-interest.  But Gilens doesn't say that American democracy is heavily biased in favor of the interests of the rich; he says that it's heavily biased in favor of the opinions of the rich.  In fact, the opinions of the rich only sporadically differ from the general population's, which is why sophisticated statistics are required to detect the rich's oversize influence.

So contrary to appearances, Gilens' analysis doesn't imply that activism is futile.  The correct inference to draw, rather, is that effective activism must convert the rich.  Moneybags run the show, but they're open to persuasion.  Swallow your egalitarian scruples and figure out how to communicate effectively with the plutocracy.  Since income and education are highly correlated, you'll want to tailor your rhetoric to both economic and educational elites.  And since the young are far easier to convert than their elders, you'll want to focus on budding elites - not the whole age distribution.

The logic of Gilensian activism may sicken you, but it tantalizes me.  My writings, rationalist and iconoclastic to the core, will never appeal to the man in the street or the powers-that-be.  When I address young elites, however, my thoughts stand a fighting chance.  Even in the best-case scenario, this gives me little influence over short-run policy; young elites are only a minority of the influential class.  But persistence pays off.  Anyone who can convert two successive generations of young elites can move policy mountains.  See gay marriage.

Or how about immigration policy?  From the standpoint of mild liberalization in 2014, my abolitionism is quixotic, if not counter-productive.  The Center for Immigration Studies' Mark Krikorian isn't entirely wrong to tweet:
But Mark does miss the big picture.  Namely: The principled case for open borders is already making young elites wonder if mandatory discrimination against foreigners has a moral leg to stand on.  The more publicity my ideas get, the more young elites will wonder - and it's hard for them to wonder long without reaching the right answer.  Who cares what these overprivileged kids think?  Because if Gilens is right, their opinions will eventually decide policy.


   


Is secession a recipe for disaster? There seems to be an emerging consensus on the point, at least in the case of Scotland. I shall confess I am biased in the opposite direction. I read this piece by Murray Rothbard ages ago, and that convinced me that "every group, every nationality, should be allowed to secede from any nation-state and to join any other nation-state that agrees to have it," or form its own. It doesn't take an anarchist to favour secession over maintenance of the government boundaries as they exist. The Ludwig von Mises Institute has conveniently assembled here a few quotes by Ludwig von Mises on secession, that exemplify rather clearly the classical liberal rationale for secession. It is an argument based on self-determination, on the fact we should be free "to stay with whom we like and who like us," as Italian political scientist Gianfranco Miglio put it.

As always, the real world is different. We know that secession may go together with the creation of almost toxically homogeneous communities, that make life difficult, almost impossible, for anyone with a different background. We know that some secessionist groups may actually be practicing an exercise in nostalgia: nostalgia for smaller, simpler, less open and less tolerant face-to-face societies. We know that sometimes, in the great theatre of politics, secessionist groups may be puppets in the hands of foreign powers, more interested in bringing confusion to the enemy than to aid the cause of long suffocated nationalities.

Not all secessions are alike, and yet I would maintain that, in the broader context of our relatively open societies, there are good reasons secession should be allowed. A very simple example: it was for the sake of the values of our open society, that we thought Kosovo was to be granted the right to secede from Serbia. Not being forced to share a meal with somebody you despise: isn't this, simply, freedom?

I find it difficult to assume that the above mentioned concerns apply to Scotland, or Catalonia. Do we really think that Scots and Catalonians want to secede to close down borders and persecute dissent? For one thing, they have repeatedly pledged they want to stay within the EU, a goal that doesn't seem compatible with claustrophobic localism.

And yet opinion leaders in the Anglo-Saxon world are getting increasingly vocal about Scottish secession. The arguments seem to be of two kinds. One are the bluntly "nationalistic" ones. There is not much reasoning in that. A good example was provided by George Robertson, former chairman of the Labour party in Scotland, in the FT. Before forecasting financial Armageddon, the death of the welfare state, Nato and the EU closing their doors to the Scots, Robertson tells this story:

My taxi driver in Glasgow last week told me the had switched from No to Yes. I asked why. He listed the reasons and I countered, to little avail. Then he delivered the killer blow. Of course there would be difficult negotiations after a Yes vote. Of course there were a lot of risks. "But," he added, "the negotiations will be done by the likes of you and Gordon Brown and Alistair Darling. You guys will sort it out."
I was stunned. He was prepared to break up my country; unpick three centuries of integration; face unquantified risks and the costs of setting up a state - yet he wanted defenders of the union to save him.

Note, for one, that the "reasons" the poor man gave for secession are not even listed by Mr Robertson. He wants to ridicule his taxi driver, who had nonetheless understood that the Scottish referendum is not the movie Braveheart: indeed, there will be long negotiations, and compromises to reach. The taxi driver was perhaps naively assuming that politicians could be trusted in acting for the common good, even if they lose at the ballot box. Mr Robertson's article is no good publicity for his like.

Robertson's reaction is rooted in an understandable longing for stability and keeping the status quo, no matter what, and perhaps in affection for the Union Jack. These are not despicable sentiments, per se: but they are sentiments indeed. One may long for one flag or another. Can we objectively state that for Mark it is better to love Pamela than to love Christine? Are our opinions on that matter enough to prevent him from divorcing one to marry the other?

The other kind of arguments against the Scottish secession is the one economists are making. For them, a currency union "à la euro" with London would be very bad for the Scots, that should thus vote "no."
Paul Krugman expressed this argument with great clarity:

Could Scotland have its own currency? Maybe, although Scotland's economy is even more tightly integrated with that of the rest of Britain than Canada's is with the United States, so that trying to maintain a separate currency would be hard. It's a moot point, however: The Scottish independence movement has been very clear that it intends to keep the pound as the national currency. And the combination of political independence with a shared currency is a recipe for disaster.

You may agree or disagree with this statement, depending on your understanding of the euro crisis. However, is it really a good argument against secession? It looks to me at best an argument against currency unions, based upon a certain understanding of what a currency should be used for (on the opposite side, Harold James suggested the Scots should join the euro).

In a paper by Alberto Alesina, you may find a very different view. Alesina begins with a rather obvious, and yet underrated, point. Borders are man-made. Governments' dimensions should be also part of a learning process, unless we pretend to know already what the "optimal dimensions" should be.
True, it was pre-euro-crisis, but Alesina quotes an article from the Financial Times arguing that

(...) the existence of the European Union lowers the cost of independence for small countries by providing them with a free trade area (...) and by creating a common currency which will relieve the Scots of the need to create one for themselves

By the way, note that the article says that the existence of the EU should "lower", not eliminate, the costs of secession. On the costs of Scottish secession, I recommend this remarkable post by Jason Sorens.

More generally, Alesina argues, "ethnic and cultural minorities feel that they are economically "viable" in the context of a truly European common market, thus they can "safely" separate from the home country." Therefore, going back to the fear of secession leading to homogeneity, intolerance, and isolation, it is precisely the fact that these secessions may happen in a more economically integrated world, that vaccinates us against such risk. Put in other terms, now you can have the pride of waving your own national flag, the opportunity to experiment with your vision of what services government should supply, and yet still reap the benefits of economic integration.

I'd like to add two further considerations.

First, I think it has been extremely civilised of the British government to allow the Scots to have this referendum. Whatever the results may be, it is a great testimony of respect for people's right of self determination, and a great act of faith in democracy, which is considered apt to sort out questions such as this.

Second, it is not perhaps by chance that the strongest opponents of Scottish independence appear to belong to the Labour Party, or to sympathise with it. It has been argued that "The results are so strongly one-sided in Scotland, in fact, that there is a significant electoral advantage to be had for the Conservatives in letting Scotland go - although few will admit it". It would appear that parochial self-interest is not a monopoly of the advocates of secession.

CATEGORIES: Eurozone crisis

   


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