Ben Muse

Economics and Alaska

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How to read a book title

Brad DeLong gives another lesson in how to read, here: "Books: A.J.P. Taylor: The Struggle for Mastery in Europe".

I remember a comment from Mortimer Adler's book, How to Read a Book, that the reading appropriate for the best materials is like the reading a person brings to a love letter and, I imagine, especially a letter from one loved intensely, but about whose feelings one is uncertain. Every word would be weighed and evaluated for its significance.

DeLong's blog suggests he brings this approach to his reading routinely. I don't know where he finds the time or energy. Anyway, here's another example of DeLong teaching by example.

Deontology, Utilitarianism, and Virtue Ethics

Larry Solum has provided introductions (for beginning law students) to the three main schools of normative ethics at his Legal Theory Blog: (a) "Deontology", (b) "Utilitarianism", and (c) "Virtue Ethics". These introductions are part of Solum's "Legal Theory Lexicon" series.

I generally check this blog each Sunday for a new installment in the series. Each posting is a well-written introduction to a topic of interest to the beginning law student (and generally to persons with an interest in public administration and economics), together with a set of references and useful web links. The complete set of lexicon posts is here: "Legal Theory Lexicon".

More on Robert Rubin's new book

Robert Rubin, first head of Clinton's National Economic Council, and his second Secretary of the Treasury, has written his memoirs, with co-author, Slate editor Jacob Weisberg: In An Uncertain World.

David Warsh reviews the book briefly in the New York Times, here: "'In an Uncertain World': The Man Behind the Surplus (Remember?)": "...this gem of a book." He summarizes some of Rubin's story, compares Rubin to Andrew W. Mellon, Republican Treasury Secretary during the 1920s, but does little evaluation of the book itself.

Robert Lenzner reviews the book for Forbes, here: "Robert Rubin On Surviving The 1990s" Lenzer strongly recommends the book (" must read Rubin on finance as you would read Kissinger on diplomacy.") , although he finds Rubin reticent about the internal politics of policy making ("All the passionate infighting and internecine politics that pervaded the White House in the Clinton era are absent from In an Uncertain World, providing an antiseptic picture of reality."). Rubin has certainly had experience with financial crises, the future holds more:
    "Rubin predicts that "future financial crises are almost surely inevitable and could be even more severe." The reason is that "markets are getting bigger, information is moving faster, flows are larger and trade and capital markets have continued to integrate."

    Wall Street's chronic memory lapses always lead to another disaster, he believes: "The collapse of the southwest real estate bubble in the United States didn't prevent investors from over-investing in Asia. The Asian crisis didn't prevent the Nasdaq bubble from developing." Rubin says he was "surprised by how rapidly the crisis mentality vanished. People can forget the lessons of a painful experience very quickly, and that can lead to poor decisions."
Greg Farrell at USA TODAY also has a good review, here: "Rubin turns out compelling memoir". "...Rubin's central theme, drawn from a philosophy course at Harvard in the 1950s: that "nothing is provably certain," and that in an uncertain world, the best way to conduct your affairs is through probabilistic decision making." Farrell also recounts an early Clinton administration cabinet retreat:
    "Rubin captures his inability, or unwillingness, to open up with an anecdote about a "bonding" session for Cabinet members at Camp David early in Clinton's presidency.

    "The concept — which was the vice president's — might well have been good, but the event itself was pretty awful," he writes. "Saturday night, after dinner, we sat around in a circle, and each of us was supposed to talk about something the others didn't know about us. The president talked about having been overweight when he was in school and how everyone had made fun of him. When my turn came, I said I didn't have anything I particularly wanted to share. By that point, (then-Treasury secretary) Lloyd Bentsen had wisely gone home for the evening."
Brad Delong is reading, and enjoying, the book: "Robert Rubin Makes a Mistake" and "A Little Polite Score-Settling".

Carol Loomis provides a biogrpahical sketch of Rubin for Fortune magazine on November 24, here: "The Larger-Than-Life Life of Robert Rubin". This isn't really a review of the book. Loomis reviews Rubin's career at Goldman Sachs before his stint with Clinton, and at Citigroup after. Four paragraphs cover Rubin's time with Clinton. Here are three:
    "From the start, Rubin was intent on persuading Clinton to forgo some of the campaign promises he'd made about lowering taxes and to focus instead on reducing the huge budget deficits of the early 1990s. Politically difficult as it was to do so, Clinton accepted Rubin's arguments, and during his administration the budget moved from deficit to the surplus that was handed over to George W. Bush. Waging the deficit battle, Rubin often encountered stiff opposition from tax-cutting proponents in Congress and spending enthusiasts in his own administration, among them Secretary of Labor Robert Reich. At one tense moment in 1995, Rubin appears to have done a little probabilistic thinking, found the odds not great for his side, and concluded he should be proactive. Making an SOS call to New York businessman and former cabinet officer Peter "Pete" Peterson, Rubin asked Peterson to help arrange a bipartisan display of support for fiscal discipline. Peterson engineered a double-truck newspaper ad that pleaded for balanced budgets and that was signed by 96 high-level businessmen (yes, they were all men). One of the six lead signers, along with Peterson, was CSX chairman John Snow, now Secretary of the Treasury and custodian of a 2004 budget deficit forecast to be $480 billion.

    Working with Rubin in all his economic battles, including those that focused on the financial morasses of Mexico and Asia, was a team of people he drew deeply into his decision-making process and who came to be highly respected. Mark Malloch Brown, who worked with Treasury when he was at the World Bank in the 1990s and is now at the United Nations, calls this team "probably the most formidably excellent since Alexander Hamilton's." The names of Hamilton's folk may not pop readily to all minds, but Rubin's included Lawrence Summers, Rubin's successor as Secretary of the Treasury and now president of Harvard, and Timothy Geithner, an undersecretary to Rubin who was just named to head the New York Fed. Both admire Rubin greatly, and that is probably not just because he helped each get his job. Summers, now 49, elegantly focuses on Rubin's decision-making powers: "For some people, the defining act is a speech, for some an argument, for some an essay. For Bob, the balanced and nuanced decision is the defining act." Geithner, who is 42, says that "while Rubin enjoys an amazing amount of public respect and credibility, people who have worked with him know that he's substantially better than even that exalted perception."

    Part of Rubin's approach to decisions at the Treasury was to put them off as long as possible. Some people might call that procrastination; Rubin called it getting that one last fact or well-judged opinion, from whoever at the table might offer it, that might make a decision the right one. Geithner says the young members of the Treasury staff would on occasion rush into Rubin's office, imploring him for a decision about something consequential. Rubin's first question would often be, "How much time do we have before we have to decide?" Summers tabs this Rubin's habit of "preserving his optionality."
I've also come across this July 2000 PBS Frontlinetranscript of an interview with Rubin by Chris Bury: "Interview Robert Rubin". This interview appears to be part of a PBS retrospective on the Clinton Administration. The site also includes interviews with administration economic figures Leon Panetta (OMB Director) and Robert Reich (Labor Secretary).

This posting continues the summary of commentary on Rubin's book that I began with this post: "Robert Rubin memoirs".

Paul Krugman explains why free trade is so important

In this New York Times Column: "The Good News".
    "... in the mid-1970's, development economics was just too depressing to pursue. Indeed, it might as well have been called non-development economics. No third world nation had made the transition to advanced-country status since 19th-century Japan. Circa 1975 it seemed that the club of nations with decent living standards was no longer accepting new members.

    "Now we know that the club isn't that exclusive, after all. South Korea and several smaller Asian economies have made a full transition to modernity. China is still a poor country, but it has made astonishing progress. And there are signs of an economic takeoff in at least parts of India. I'm not talking about arid economic statistics; what we've seen over the past generation is an enormous, unexpected improvement in the human condition.

    "How was this improvement achieved? Whenever I give talks about my latest book, someone asks whether I still believe in free trade. The answer is yes — not because I have any fond feelings about multinational corporations, but because every one of those development success stories was based on export-led growth. And that growth is possible only if rising economies can expand into new markets..."
Krugman has reservations and the overall column is more nuanced. But this is the key point.

The loss of the HMAS Sydney

Geitner Simmons posts on one more mystery of the sea - the loss of the Australian light cruiser Sydney with all hands in a battle off the west coast of Australia on November 19, 1941. Sydney was sunk by a smaller German commerce raider, which itself sank. The only witnesses were German survivors. No on really knows what happened to the Sydney. Simmons links to sites on the battle and to sites detailing the search for the wrecks of the two vessels. Here: "". 645 officers and men died on the Sydney, 80 on the German raider.

Interjurisdictional vice competition

Jim Leitzel at Vice Squad posts on the pressures put on one government when a neighboring government either liberalizes or, interestingly, moves to restrict, limits on gambling or prostitution: "Gambling Cascade".

The True Story Behind "Alice's Restaurant"

Now, after 40 years, Alice breaks her silence, with Char Priolo of WOMR-FM in Provincetown. Eric Williams reports in the Cape Cod Times, here: "Behind the counter at Alice's"
    " ..."This was our first Thanksgiving in the church, and we invited everybody," said Brock. "It was wonderful. We had it in the main part of the church. I think the table was set up on the altar."

    One of the guests was Arlo Guthrie, then 18. The Brocks met Guthrie when they were on the staff of a private boarding school, where Guthrie had been a student.

    Before dinner, Brock asked Guthrie to get rid of some trash that was clogging up the church.

    "This was not garbage," said Brock. "This was not coffee grounds and rotten eggs. This was building debris. Old pieces of wood and empty bags of plaster and insulation. It was not stinky garbage. We did not live with stinky garbage."

    Guthrie and company loaded up the trash in a Volkswagen microbus and headed for the local dump. Not surprisingly, it was closed for Thanksgiving. This is where the trouble started..."
If any of this means anything to you, go to the Times to read the whole thing. But don't wait long, my experience is that the Times doesn't leave stories up long.


Brad DeLong asks, "How Rich Is Fitzwilliam Darcy?".

Alaska budget deficit projections lowered

The Murkowski Administration has apparently lowered its projections of the budget deficit for the upcoming fiscal year. Murkowski is trying to keep the deficit below $400 million a year for four or five years, by which time he expects resource development revenues to fill the gap. Last spring he expected to use spending cuts of $250 to help do this. This fall he expects the cuts will be lower. See this Associated Press story in today's Juneau Empire: "Gov. Murkowski backs off target of $250 million in budget reductions". Higher oil prices make this possible.

Congestion pricing on roads

Alex Tabarrok of the blog Marginal Revolution is recommending a new report on road congestion pricing, "combating Gridlock: How Pricing Road Use Can Ease Congestion," by Deloitte Research. Here's a link directly to the report: "Combating Gridlock".

How the Dismal Science got its name

Why is economics the dismal science? Thomas Carlyle apparently coined the phrase, referring to the antislavery advocacy of economists like John Stuart Mill - it wasn't a reference to the population theories of Malthus. Barry L. Ritholtz at The Big Picture links to, and comments on, an article on this bit of intellectual history: "Dismal Science ?".

P.S. 11-24-03: On the same topic, Brad DeLong points to this online essay by Robert Dixon: "The Origin of the Term "Dismal Science" to Describe Economics".

What is the "theory of second best"?

Lawrence Solum has an introduction to the theory of "second best" (and its use in economics, political theory, and law) on his Legal Theory Blog, here: "Legal Theory Lexicon: Second Best". (Written for introductory law students).

The economics of terrorism

Robert Garcia Tagorda at Priorities & Frivolities points to a conference at the University of Rochester this weekend on the economics of terrorism. The texts of the six papers delivered are all posted at the conference web site. Tagorda has the link and some commentary in his posting: "The Macroeconomic Consequences of Terrorism".

Sorry for the lack of posts

I apologize for failure to post since Friday, November 14. I've been traveling on business and haven't had much opportunity. I'm home in Juneau now, and I'll be posting shortly.

African Growth and Opportunity Act

Marc Lacey in today's New York Times has a nice article on the benefits, to Africa, of the African Growth and Opportuntiy Act (AGOA): "U.S. Trade Law Gives Africa Hope and Hard Jobs". The article uses Uganda as a case study of the benefits flowing to African's from this act which reduced tariffs and quotas on some 1,800 items.

Master and Commander gets great reviews

A.O. Scott reviews Master and Commander, which comes out tomorrow, in the New York Times: "Master of the Sea (and the French)".
    "This stupendously entertaining movie, directed by Peter Weir and adapted from two of the novels in Patrick O'Brian's 20-volume series on Aubrey's naval exploits...

    "Aubrey (Mr. Crowe) is an ideal personification of modern executive authority — the Harry Potter of the managerial class. His adventures are salted with arcane technical lore and administrative wisdom that resonate deeply with even the most landlubberly middle managers and office workers. "Master and Commander," were it not a movie, could be a Powerpoint seminar advertised in an airline magazine: Leadership Secrets of the Royal Navy. [so worthwhile for UAS Public Administration students - Ben]

    "This is not by any means to slight Mr. Weir's accomplishment (or, for that matter, O'Brian's); it is, rather, to explain why, in his expert hands, the smallest details of shipboard behavior become so breathlessly absorbing. The battle sequences are filmed with impressive coherence and rigor, but "Master and Commander" is, if anything, most thrilling between skirmishes, when the complex system of authority and deference that runs the Surprise — and the personality traits needed to keep it running — is at the center of attention."
At the Washington Post, Desson Howe likes it too: "A Masterful Performance".
    ""MASTER AND Commander: The Far Side of the World" isn't just a fabulous seagoing spectacle. It's one for the ages. Not only does Peter Weir's film give you an atmospheric feel for the agony and ecstasy of early 19th-century sea warfare, it's a rollicking good story."
At Slate, David Edelstein thinks its
    "....a rousing and magnificently crafted 19th-century warship saga that handily dispenses with pesky questions about ulterior motives, civil liberties, and recalcitrant indigenous populations that bedevil our country's present-day engagements. Oh, to be in England, when the seas were high, the seamen higher, and the enemy plundering Frenchmen—led by Napoleon Bonaparte, bent on lining Trafalgar Square with guillotines. See you in hell first, rude Frog!"
"Naval Gazing. Peter Weir's swashbuckling Master and Commander.".

Dealing with Alaska's deficit

Eight business (and other) groups have signed a joint letter to the governor and the legislature asking for action to deal with the state deficit. The proposed three-part solution includes belt tightening, use of some Permanent Fund income for state expenses (with some decline in dividends), and a "broad based" tax, either an income or sales tax. As Sean Cockerman reported in the Anchorage Daily News on Tuesday ("Groups call for 3-part fiscal fix"), the concerned organizations included the Associated General Contractors of Alaska,
    "the Anchorage Chamber of Commerce, the Association of Alaska School Boards, the Council of Alaska Producers, the Alaska Support Industry Alliance, Eagle River and Chugiak Chamber of Commerce, the Resource Development Council and the Juneau Economic Development Corp."
Many of these are big campaign contributors. The economic insecurity behind the continuing deficits was an important motivation:
    "Larry Houle, general manager of the Alaska Support Industry Alliance, said the state's budget uncertainties damage the economic climate in Alaska. Businesses hesitate to invest or relocate here out of concern they could end up being targeted to fill the fiscal gap, he said."
Cockerham reports on the key element of the Murkowski Administration's fiscal strategy:
    "Murkowski will propose a mixture of budget cuts as well as taxes or other revenue measures in the coming months, Frasca said. The bottom line for the administration, officials have repeatedly made clear, is not to take more than $400 million each year from the state's budget reserve.

    "Murkowski Chief of Staff Jim Clark described the thinking behind the $400 million number in a newspaper column this summer.

    "There was $2 billion in the (budget reserve) when Governor Murkowski was elected," Clark wrote in June. "We figured it would take five years for natural resource development to start providing revenues to the state. Thus, we divided $2 billion by five years."
In today's Daily News, Cockerham reports that Republicans in the state House of Representatives favor legalizing gambling as part of the deficit solution. "House GOP pushes for gambling":
    "JUNEAU -- Republican leaders of the state House are pushing ahead on video poker and a state lottery and are pointing to a new poll as evidence that Alaskans are interested in more gambling.

    "This latest poll shows that Alaskans have basically changed their attitude," said House Speaker Pete Kott, a Republican from Eagle River.

    But less than half the people surveyed by the recent poll supported video gambling initially. It was only after the pollster read them pro-gambling information that support for video gambling jumped to almost 60 percent...

    The Alaska Cabaret, Hotel and Restaurant Retailers Association, which includes bars that would benefit from video poker, paid for the poll. CHARR headquarters did not have details on the cost Wednesday. It was done by Ivan Moore Research of Anchorage..."
Free registration may be required for the Anchorage Daily News site.

Why are ties longer now?

Will Baude at Crescat Sententia quotes his friend Dimitriy Masterov's economic analysis of the reasons why men's ties have become longer (at the end of the post), here: "Tying things up (the economics of tie length)".

Robert Rubin memoirs

Robert Rubin is the Goldman Sachs investment banker who set up the National Economic Council (a Clinton administration innovation) and was Clinton's second Secretary of the Treasury. His memoirs will be published by Random House later this month. Here is the link to Amazon's page: "In an Uncertain World: Tough Choices from Wall Street to Washington".

An editorial comment at the Amazon site may explain the book's title:
    "Rubin's fundamental philosophy is that nothing is provably certain. Probabilistic thinking has guided his career in both business and government. We see that discipline at work in meetings with President Clinton and Hillary Clinton, Chinese premier Zhu Rongji, Alan Greenspan, Lawrence Summers, Newt Gingrich, Sanford Weill, and the late Daniel Patrick Moynihan. We see Rubin apply it time and again while facing financial crises in Asia, Russia, and Brazil; the federal government shutdown; the rise and fall of the stock market; the challenges of the post-September 11 world; the ongoing struggle over fiscal policy; and many other momentous economic and political events."
This week's Newsweek magazine has an excerpt with Rubin's reflections on Bush Administration policies: "They Called It ‘Rubinomics’". Newsweek also carries this interview with the current Bush Administration head of the NEC, Stephen Friedman (also a Goldman Sachs banker): "Q&A: ‘The Deficits Are Quite Manageable’".

The Random House web site carries an excerpt from Chapter 1, dealing with the Mexican financial crisis: "Chapter One".

The Korean Ministry of Finance and Economy has already refuted one statement in Rubin's book. Park Jong-sae at the Chosun Ilbo reports: "Ministry Refutes Rubin Memoir ".

What does Robert Rubin read? He told an NPR interviewer last summer. You can access the interview, here: "Robert Rubin". The site also has links to Rubin's biography at the Citigroup Web site, a 'Frontline' interview with Rubin for The Clinton Years series on PBS, a tribute to Rubin delivered by Sen. Christopher Dodd (D-CT) after Rubin left the Clinton administration, and ay 13, 1999: NPR's John Ydstie's NPR coverage of Rubin's departure from the Clinton administration for Morning Edition on May 13, 1999.

11-13-03: Rubin's co-author is Jacob Weisberg, editor of Slate

Sometimes it is hard to focus

Scheherazade again: "Hard to Concentrate".

Advice if you have to negotiate something

Scheherazade (Stay of Execution) says not to talk more than you have to: "Negotiations".

The Baumol effect and French Cooking

John Quiggin explains the Baumol effect ("Relative prices, the Baumol effect and myths of rich and poor") and Chris Bertram applies it to French cooking ("Vacuum-packed cassoulet"). (Thanks to Quiggin for the Bertram link).

The WTO steel decision

Monday's stories

Paul Blustein and Jonathan Weisman wrote the story for the Washington Post on Monday: "U.S. Loses Appeal On Steel Tariffs".
    "The World Trade Organization issued a final ruling yesterday that the steel tariffs imposed by President Bush violate international trade rules, raising expectations that the White House will soon repeal the tariffs to avoid imminent European retaliation.

    "The WTO decision gives the European Union and several other countries the right to impose retaliatory tariffs on billions of dollars worth of American exports unless Bush reverses the decision he made in March 2002 to give American steelmakers protection from imports. Such sanctions could be the largest ever applied in a WTO case..."
The New York Times carried a story by Elizabeth Becker, here: "U.S. Tariffs on Steel Are Illegal, World Trade Organization Says".
    "WASHINGTON, Nov. 10 Ă‚— The World Trade Organization ruled on Monday that steel tariffs imposed by President Bush last year were illegal, clearing the way for the European Union to impose more than $2 billion of sanctions on imports from the United States unless Washington quickly drops the duties.

    "The final decision by a W.T.O. panel, which was widely anticipated and has been discussed for weeks at the White House, puts Mr. Bush in a difficult spot. As an election looms, he must choose between continuing to help the steel industry Ă‚— which could bolster his electoral prospects in crucial industrial states Ă‚— or respecting international trade laws and increasing his chances of winning new regional and global trade agreements...

    "The European Union has made the president's decision more difficult by aiming its proposed sanctions at products in states considered pivotal in the 2004 election Ă‚— threatening, for example, to impose tariffs on citrus fruit imported from Florida."
Tuesday's stories on foreign reaction

Paul Blustein and Jonathan Weisman at the Washington Post survey foreign reaction, here: "Nations Demand U.S. Drop Steel Duties".
    "The WTO decision gives the European Union and several other countries the right to impose retaliatory tariffs on billions of dollars worth of American exports unless Bush reverses the decision he made in March 2002 to give American steelmakers protection from imports. Such sanctions could be the largest ever applied in a WTO case...

    "If the steel tariffs remain in place, the EU would add to many American exporters' woes by imposing punitive duties ranging from 8 to 30 percent, starting in mid-December, on $2.2 billion worth of American goods, including motorcycles, citrus fruit, textiles and farm equipment. Seven other countries backing the EU case -- Japan, South Korea, China, Brazil, Switzerland, Norway and New Zealand -- could impose additional sanctions..."
The New York Times has a story on responses by Asian countries, here: "Japan and E.U. Threaten U.S. on Import Sanctions".
    "HONG KONG, Nov. 11 Ă‚— A day after the World Trade Organization ruled that American steel tariffs are illegal, Japan and the European Union threatened the United States today with billions of dollars' worth of sanctions. China and South Korea threatened similar action if Washington retained the tariffs on imported steel."
Blogger commentary

Trade expert Peter Gallagher links to the actual WTO decision, and explains the WTO's Appellate Body decision, here: "Why the USA 'lost' the steel case ".

Daniel Drezner points to a Financial Times story suggesting that "The US is considering a radical change to its laws on unfair trade that would severely penalise importers even if Washington bows to the World Trade Organisation's demands that it remove tariffs on foreign steel." Drezner links to the story (which is on line), quotes from it, and comments on it, here: "The battle over trade policy: it keeps going and going and going.....". Drezner thinks the Times story confirms his theory of Bush Administration trade policy: "hypocritical liberalization." Drezner links to this New Republic column from September, which sets out his theory: "Protection Racket". Drezner even manages to squeeze in "other depressing trade news."

John Quiggen thinks this may be it for the WTO: "The end of the line for the WTO". Peter Gallagher disagrees with Quiggin, here: "Quiggin predicts the 'end for WTO' ".
    "...The big countries back the WTO because they believe it's in their own interests to do so: the foreign policy costs of returning to more traditional forms of settling trade conflicts (remember WWII?) are too big. They much prefer dispute settlement.

    What's the evidence on disputes? Over and over, in the 8 years of WTO's existence, the US, EU and Japan have complied with decisions against them (see the scorecard in my earlier story). Even in multibillion-dollar cases such as the EU 'bananas' case (a $50 billion industry at EU wholesale prices) which the EU lost. Comprehensively. Three times. To developing countries..."
Kash, at Angry Bear, reports on the ruling and wonders what the administration will do in response: "BushÂ’s Steely Dilemma: The tariffs are illegal".

Stephen Karlson posts some useful links at Cold Springs Shops. These include a link to an Institute for International Economics policy brief by Gary Clyde Hufbauer and Ben Goodrich on the issues surrounding the tariffs. The policy brief was produced in October, so it was done weeks before the appeal was decided on Monday. "MORE ON THE STEEL TARIFF". You can link to the policy brief through Karlson's posting. Hubauer and Goodrich describe their purpose:
    "In this policy brief, our fourth since steel safe-guards first appeared on the horizon, we review the safeguard saga to October 2003 in box 1, speculate on the possible extent of trade retaliation or tariff
    rebalancing in the highly likely event that the WTO Appellate Body affirms the decision of the WTO panel, and consider the impact of steel tariffs on US steel producers and steel users. Our speculation on retaliation or rebalancing presumes, of course, that the administration does not revoke the steel safeguards or offer alternative tariff concessions as compensation once the WTO Appellate Body has issued an unfavorable ruling."
I don't have access to the electronic Wall Street Journal, but Brad DeLong quotes some paragraphs from their story in this posting: "Why Oh Why Are We Ruled by These Fools? Part CCCXXVII".

At CalPundit, Kevin Drum points to another instance where the WTO declared a U.S. action, a tax action, illegal. Some in Congress are in the process of using the ruling as an excuse for a tax bill that repeals the action, but provides businesses with additional tax cuts that more than compensate for the revenue loss, her: "THANKS A LOT, WTO....".

Will the President lift the tariffs in response to the WTO ruling, or will he keep the tariffs and accept the retaliation? Jane Galt is too depressed over the way trade issues are going to assume he will comply with the WTO ruling: "Strike a blow for free trade".

Earlier related postings

July 11: "WTO rules agains U.S. on steel tariffs"

August 28: "Steel tariffs back on the table?"

September 22: ""What a revolting development this is!""

Updated on 11-12-03.

The Estate Tax

Steve Verdon at Deinonychus antirrhopus links to a recent recent speech by Gregory Mankiw on the estate tax, and provides commentary, here: "Mankiw on the Estate Tax"

Virtue is a scarce resource

We shouldn't waste it, argues Jim Leitzel in this Vice Squad posting: "(Almost) Free Money".

Why are self-service gas stations illegal in some states?

I can pump my own gas in Alaska, but not when I travel to Oregon. Apparently another state (New Jersey) also prohibits self-serve gas pumping. Tyler Cowen posts on this topic, and on possible opportunities for price discrimination when a state allows both self-serve and full-service stations, here: "Gasoline and market power". Various links rehearse pro and anti "self serve" arguments. My favorite argument (although I find it unconvincing) for continuing the prohibition on self-serve in New Jersey is:
    "...the most academic argument in favor of the service (as opposed to non-service) stations was put forth by Nick Acocella, editor and publisher of "Politifax," an electronic newsletter on politics in New Jersey. New Jersey's gas stations give the state a unique cultural heritage — representing the "single greatest cultural advantage of living in New Jersey," said Mr. Acocella at a conference two weeks ago in Princeton."
(Quoted from a column by Pat Hersh, a staff writer for the Princeton Packet, Cowen provides a link).

The best retirement calculator

Kelly Greene, writing in today's Wall Street Journal says its the T. Rowe Price Retirement Income Calculator.
    "The Internet is filled with calculators purporting to tell you how much money you need to retire. But how do you know what goes into the math? We asked a dozen financial planners across the country to try out seven of the most popular online options and select the best overall tool.

    "Their pick: the T. Rowe Price Retirement Income Calculator...developed by the Baltimore-based mutual-fund company. The calculator helps people who are approaching retirement, or who are already retired, figure out whether their monthly income goals are realistic.

    "To do so, it uses "Monte Carlo" simulation - a type of probability analysis that generates hundreds of computer scenarios of what might happen to your money over any given period, and then uses that information to determine your portfolio's probability of success. You have to supply your starting retirement age, retirement length, marital status, retirement assets, monthly income goal, and investment mix of stocks, bonds and short-term securities. The calculator does the rest..."

A leading indicator of job growth

Daniel Gross continues his Slate series on unusual leading economic indicators, with "Delaware incorporations and formations," here: "Listening to Delaware". New Delaware incorporations are likely to be a leading indicator of an economic upswing:
    "...Because Delaware houses a huge chunk of existing businesses, and because it captures a disproportionate share of new business formation, the secretary of state's office is one of the first places one might detect economic vigor. If companies are merging and acquiring or starting new subsidiaries, if individuals are turning their one-man consultancies into 10-person consulting firms, if venture-capital-backed companies obtain another round of financing—the evidence is likely to show up first in the First State..."

What Caused the Dust Bowl of the 1930s?

Dust storm near Stratford Texas, 1935
NOAA photo archive

Severe drought produced the "Dust Bowl" in the 1930s; similar droughts in the 1950s and 1970s were not as destructive. Why?

Zeynep Hansen and Gary Libecap argue that smaller farm sizes and greater costs of collective action made it harder to address soil erosion externalities in the earlier period ("Small Farms, Externalities, and the Dust Bowl of the 1930s", National Bureau of Economic Research (NBER) Working Paper 10055, October 2003).

The Great Plains states were hit by a series of droughts in the 1930s. Agricultural tilling of the soil had removed ground cover and broken up the soil. Drought dried it up. Winds carried small soil particles off in enormous clouds, moving them hundreds of miles. Less dramatic in photos, but maybe as destructive, was the movement of larger soil particles across the ground.

Farmers had two key tools to address soil erosion. They could leave strips of their fields fallow, or use trees and shrubs to create windbreaks. A farmer taking these measures protected his own fields, but lost the use of some agricultural land. He also protected his neighbor's fields from soil drifting off of his own property. A farmer who failed to take these steps not only saw his own farm lose its productivity, but imposed a negative externality on his neighbors as his soil drifted over their fields. Moving soil could form drifts up to 40 feet high.

Small farms had less incentive to leave land fallow than large farms. Fallow land was not producing. A small farmer who left land fallow protected less agricultural land than a larger farmer who left an equal amount of land fallow. A larger proportion of the benefits of a small farmer's fallow land would flow to other farmers.

Hansen and Libecap estimate that, to eliminate most of these externalities, it would have been necessary to create "wind erosion units" of 50,000 to 500,000 acres. This was, however, much larger than the size of farm that would achieve most scale economies (about 1,300 acres). Moreover, in the 1930s, as a legacy of 19th Century homestead size restrictions, something on the order of two-thirds of Great Plains farms were under 500 acres.

As Hansen and Libecap tell the story, the high transactions costs of getting hundreds of small farms to cooperate precluded voluntary cooperation. Although the droughts began in 1930, effective cooperative efforts to address the problem didn't occur until 1937 and after. "More direct and coercive government intervention came in 1937 with inauguration of Soil Conservation Districts (SCDs) that had the authority to force farmer compliance and the resources (subsidies) to cover the costs of erosion control."

Hansen and Libecap support their story with statistical evidence that farm size was associated with the share of land left fallow and that wind erosion was positively associated with the proportion of cropland not fallow. They point to failures of voluntary soil conservation demonstration projects run by the Soil Conservation Service (and to relatively higher non-participation among smaller farmers). They point, in at least three Montana counties, to the role of large farmers in initiating petitions to form SCDs.

The implicit alternative Hansen and Libecap posit is organized coordination between independent farmers. It's not clear why mergers, or the formation of farmer cooperatives couldn't and didn't address the problem to any extent. Perhaps they couldn't on the time frame within which federal and state governments implemented the SCDs. Perhaps these mechanisms were working and continued to work (farms did grow considerably in size by the sixties - perhaps in part as a response to this problem?). I noticed that Hansen and Libecap refer several times to a common property problem. I can see the externality explanation, but I'm not clear what the common property resource was in this instance.

You can find a brief history of the droughts that produced the Dust Bowl, here: "Drought in the Dust Bowl Years". (National Drought Mitigation Center) and some good photos at the National Oceanographic and Atmospheric Administration (NOAA) photo album, here: "Dust"

In a related topic, Keith Windschuttle suggests, in The New Criterion, that Steinbeck got it wrong. See "Steinbeck's myth of the Okies":
    "...Although it is about the experiences of the fictional Joad family, The Grapes of Wrath was always meant to be taken literally. Borrowing from John Dos PassosÂ’s U.S.A. trilogy and other works in the realist or documentary genre of the time, Steinbeck interspersed his fictional chapters with passages that gave a running account of the prevailing social, climatic, economic, and political conditions. Steinbeck himself had researched the living conditions of the Okies for a series of newspaper articles he wrote for a San Francisco newspaper, and, soon after his novel appeared, its tale was confirmed by the publication of AmericaÂ’s most famous work of photographic essays, Dorothea Lange and Paul S. TaylorÂ’s American Exodus, which traced every step of the OkieÂ’s tragic journey across the country. In other words, SteinbeckÂ’s book was presented at the time as a work of history as well as fiction, and it has been accepted as such ever since. Unfortunately for the reputation of the author, however, there is now an accumulation of sufficient historical, demographic, and climatic data about the 1930s to show that almost everything about the elaborate picture created in the novel is either outright false or exaggerated beyond belief......................."
(The New Criterion Vol. 20, No. 10, June 2002).

China is losing manufacturing jobs too!?!

U.S. politicians looking for scapegoats for employment problems, fixed on China this past fall. However, recent research by economists at Alliance Capital Management, and publicized by former Labor Secretary Robert Reich this past week, places U.S. manufacturing job losses in the context of world-wide, productivity-driven, reductions in manufacturing jobs. Chinese manufacturing job rate reductions are on the high side.

Daniel Drezner provides links to, and quotes from, relevant documents, here: "Must be a full moon, because I agree with Robert Reich".

P.S. 11-10-03 Steve Antler at EconoPundit wonders whether or not the story is true. Drezner's post (and other blog posts at other sites) all refer back to this one study. The information available about the study is sketchy. "A new slogan...".

Balancing Alaska's budget with the Permanent Fund

State Representative Jim Holm wants to close out the Permanent Fund dividend program by distributing half the fund to the state residents in one-time $16,000 payments, and then using future income on the balance of the fund to close future state budget deficits. Tom Moran reports in the Fairbanks News-Miner, here: "Holm offers budget alternative":
    "...Holm is proposing to balance the state budget by using earnings from the $26 billion Alaska Permanent Fund, the font of state money originally earned from oil revenues. Under his proposal--which would have to be approved by a popular vote--the state would distribute almost half of the fund as a one-time payout that would total more than $16,000 to each recipient. That would end the dividend program and the remainder of the fund would be used to pay for state spending..."

Moral hazard

Lynne Kiesling illustrates the concept of moral hazard (the idea that if you reduce the potential costs of carelessness for someone by insuring them against possible harm, or by forcing them to use protective gear, they will tend to take less care) with an example from hockey: "Moral Hazard and Protective Gear".

By coincidence, the NBER Digest came today, with an overview of a piece of research on "Auto Insurance and Traffic Fatalities" According to the summary, by free-lance journalist David Francis, the authors

    "...analyzed data from 50 states and the District of Columbia for 1970-98, a period during which most states adopted compulsory insurance requirements and 16 states adopted no-fault automobile insurance. By 1997, 45 states had compulsory insurance laws, although there were variations in the amount of insurance required and the methods of enforcement.

    "The introduction of compulsory insurance laws did lead to a reduction in the number of uninsured motorists. Compared to a base level of 12.9 percent, the number of uninsured motorists fell by 2.4 percentage points. The authors note that the introduction of compulsory insurance requirements made no difference to those who were already buying insurance voluntarily, but did have an effect on those individuals who were not previously buying insurance and chose to do so because of compulsory insurance, and on those individuals who chose to remain uninsured. Drivers who remained uninsured despite the new requirement in theory drove more cautiously, for fear of being in an accident, so their number of fatalities likely dropped. But drivers forced to buy insurance and now facing diminished liability in case of an accident might have driven less carefully, increasing accidents and fatalities. Looking at the data, the authors find a 2 percent increase in fatalities for each percentage point decrease in uninsured motorists. So, compulsory insurance is “not an unmitigated good,” the authors write..."

In Honor of Milton Friedman

The Dallas Federal Reserve Bank sponsored a conference in honor of Nobel Prize winning economist Milton Friedman at the end of October. The conference web site is here:"The Legacy of Milton and Rose Friedman's Free to Choose Economic Liberalism at the Turn of the 21st Century". Many of the papers and talks are available from the site.

Francisco Gil Diaz, the Mexican finance minister, gave talk at the closing luncheon on the second day. His PowerPoint slides are on the site. Virginia Postrel posted some impressions of his key points that day, here: "Mexico's Economic State".

Blogger Matt Mullenweg was there and gives a lot of color and atmosphere in this post: Day One Wrap Up. Tyler Cowen also attended and provided a short post here: "Milton Friedman tribute".

Planning for Iraqi reconstruction

The New York Times Magazine had a survey article Sunday exploring the ways in which the planning for post-war reconstruction in Iraq went astray ("Blueprint for a Mess" by David Rieff). Intel Dump provides a link to it, selections from it, and limited commentary, here: "Failing to plan = planning to fail".

Economic behavior of children

Bill Harbaugh of the University of Oregon and Kate Krause of the University of New Mexico maintain a web site on the economic behavior of children, here: "The Economic Behavior of Children Site". According to the statement of purpose:
    "Textbooks define economics as “the study of rational agents with insatiable desires and limited resources.” With the possible exception of the part about rationality, this definition seems to fit children at least as well as it fits adults. Children live in complex economic environments. They make choices about what to consume and they earn money. Children save, exchange goods, make decisions under uncertainty, and they share and bargain among themselves and with their parents and other adults. This behavior is interesting for its own sake. It is made more important by the fact that those participating in it will grow into the adults that are the usual study of economists. We believe we can learn a great deal about the economic behavior of adults by studying the development of that behavior in children."
The site makes available a collection of the Harbaugh and Krause's papers, including: "Economic Experiments That You Can Perform at Home on Your Children". Also links to the web sites of other researchers.

World Trade Organization rules on subsidies

This may be interesting. Allan O. Sykes of the University of Chicago has a paper on The Economics of WTO Rules on Subsidies and Countervailing Measures The abstract:
    "This paper examines the WTO rules relating to subsidies and countervailing measures from a welfare economic perspective. It suggests that some of the rules relating to "nonviolation" cases, export subsidies and certain agricultural subsidies have sound economic justification. The rules governing domestic subsidies generally, however, do a poor job of identifying undesirable domestic subsidies. Likewise, as has been argued elsewhere, countervailing measures are economically counterproductive."
I learned about this from Lawrence Solum's Legal Theory Blog.

The specter of the Alternative Minimum Tax (AMT)

Yesterday's Washington Post carried a story by Kevin Adler and Annette F. Simon on the federal Alternative Minimum Tax: "Not Rich? You'll Pay Anyway".
    "Here's an idea: Let's devise a politically inept income tax policy. We'll begin by eliminating tax breaks people have been accustomed to for decades, such as those for qualified retirement accounts, and state and local taxes. Next, we'll negate the child tax credit so that families with young children will be hit especially hard. Then, we won't adjust for inflation, so that our tax will affect more people each year as their incomes grow along with the economy and inflation. We'll tell people that they must calculate their taxes twice, using two different formulas -- and finally we'll add insult to injury by requiring them to pay whichever amount is higher.

    Think we're just making this up? We're not. Welcome to the very real world of the Alternative Minimum Tax, or AMT. Designed more than three decades ago to ensure that the handful of people in America who earn CEO-class incomes would be certain to pay some amount of federal taxes each year, the AMT will be the de facto income tax for about 3 million not-especially-super-wealthy American households this year. For many of them, it will negate the tax cuts that President Bush has signed into law, and could mean that their taxes will go up rather than down. The Congressional Budget Office estimates that by 2010, 35 million households, or one-third of the public, will pay the AMT instead of the lower tax generated by the traditional income-tax formula..."
I learned about this from Tyler Cowen at the blog, Marginal Revolution.

Alaska Tax Debate

Should we cover our persistent state deficits with a sales tax, a income tax, should we harvest the permanent fund income, or cut spending? Is anything likely to happen in an election year (2004)? Tom Moran at the Fairbanks News-Miner surveys the debate, here: "Legislators find fiscal debate a taxing issue".

Gephardt, the Democratic field, and free trade

Daniel Drezner excerpts from, and annotates, a David Brooks column from the New York Times on the trade positions of the current field of Democratic presidential candidates. Gephardt, a long time opponent of liberal trading rules, has found a way to frame his opposition so that it resonates with likely Democratic primary voters; and the rest of the field is playing the "me too" game. Brooks summarizes the result:
    "...For three decades the Democrats have been split on trade, but you'd never know it from this campaign. Just as the Democratic field is chasing Howard Dean on Iraq, it is chasing Dick Gephardt on trade — and repudiating Clinton. It is impossible to imagine the next Democratic presidential candidate pushing free-trade deals the way the last one did...."
See: "David Brooks depresses the hell out of me". You can link to the Brooks piece through Drezner's post as long as the Times keeps it "live."

Lou Dobbs is wrong

Lou Dobbs, CNN economics and business reporter, has been blaming foreign competition for U.S. economic problems recently. Julian Sanchez at Reason On-line ("Lou's Blues. Lou Dobbs and the new mercantilism") and Robert Prather at Insults Unpunished ("This Hurts -- I Read Atrios, And Now I'm Linking Him") rebut.

GDP growth in the third quarter

On Thursday (10-30) the Bureau of Economic Analysis (BEA) released its preliminary GDP estimates for the July, August and September (the third quarter of the year). During the period, GDP grew at an extraordinary rate - an annual rate sof 7.2%, a rate not seen since the 1980s. The BEA press release is here: "News Release: Gross Domestic Product".

Kash at Angry Bear had a nice graphic comparing consumer income and spending and discussing some of the implications: "Explaining the GDP Boom". The graphic points to tax rebate stimulated consumer spending in July and August as the crucial component of the growth. By the third month of the quarter both were falling off. Kash draws some of the implications of this.

'AB' at Angry Bear excerpted and annotated a Paul Krugman column on the growth, here: "Krugman on The Summer Boom". Steve Verdon at Deinonychus antirrhopus also comments on the Krugman column: "A Decent Krugman Column?".

Barry Ritholtz thinks the jury is out on whether or not the rapid third quarter growth implies "a permanent and sustainable growth path." The post has a nice graphic showing quarterly GDP growth back to the first quarter of 1984 (the last quarter with higher growth). Here: "GDP Follow up". In a second post on Monday, 11-3, Ritholtz wonders why the stock market didn't react to the news: "Drilling Down into the numbers".

Finally, Richard Berner at the Morgan Stanley Global Economic Forum explains the three reasons why this summer's 7.2% GDP growth is unsustainable, and the four reasons why it will, nevertheless, "usher in a period of strong growth""United States: Unsustainable? ".

Financing roads

Edward Lotterman, economics columnist for the Twin Cities Pioneer Press, has a new column on funding roads: "Real World Economics: Funding formula paved with intentions"
    "...Before World War I — when roads were overwhelmingly a local responsibility — we clearly underinvested in them. There was no incentive for any town or country to build roads that would benefit non-residents and non-taxpayers. Each municipality built to meet its local needs; no one built to serve the state or nation. Subsequent state and federal road funding made our economy much more productive. It helped make us richer.

    It is cheaper to collect fuel taxes at the state and federal level than having each city or county do it. However, having officials at the city and county level maintain responsibility for most streets and roads produces better results than centralizing decisions at the state or federal level..."

Cost-benefit analysis, negligence and liability

In the law and economics department we find "The Hand Rule And United States v. Carroll Towing Co. Reconsidered" by Allan M. Feldman and Jeonghyun Kim, a Brown University Department of Economics working paper, here: "The Hand Rule...". The abstract:
    "Judge Learned Hand’s opinion in United States v. Carroll Towing Co. (1947) is canonized in the law and economics literature as the first use of cost-benefit analysis for determining negligence and assigning liability. This paper revisits the original case in which the famous Hand formula was born, and examines whether Judge Hand’s ruling in that case would truly provide correct incentives for efficient precaution. We show that the original rule specified by Judge Hand is different from the usual application of the Hand formula by modern law-and-economics theorists in the standard continuous care model. Through a game theoretic analysis of the case, we show that Judge Hand’s negligence rule from United States v. Carroll Towing Co. may in fact produce games with inefficient equilibria. Such a possibility of inefficiency does not depend on the specific liability rule that governed the original case. It is even more ironic that there exist cases where the equilibrium is efficient, but the equilibrium requires that the victim not have a “bargee” on board, which flies in the face of Judge Hand’s opinion."
I learned about this from En Banc.

Utilitarianism for lawyers

Lawrence Solum at Legal Theory Blog posts a survey of utilitarianism for law students, here: "Legal Theory Lexicon: Utilitarianism".
    "This installment of the Legal Theory Lexicon is an introduction to utilitarian moral and political philosophy tailored to law students (especially first-year law students) with an interest in legal theory. Law students learn early on that classroom discussion of cases and statutes may begin with questions about what the rule is but is likely to turn to questions about what the rule should be. And in most law school classrooms, analysis of the “should” question is likely to go down one of two paths. The first path leads to fairness (which outcome in this case is fair to the parties; which rule will produce fair results in the future). The second path leads to policy (which rule will produce the best consequences in the future). Theories about fairness will be covered in future installments of the Legal Theory Lexicon; today, we focus on arguments of policy and the theoretical question, “What does it mean to say that a rule would produce the best consequences?” One answer to that question is “utilitarianism,” a theory of enormous interest and influence. But what exactly is “utilitarianism” and how might it be criticized or defended?..."

Flat tax introduced in Iraq

Dana Milbank and Walter Pincus at the Washington Post report the implementation of a flat income tax in Iraq: "U.S. Administrator Imposes Flat Tax System on Iraq". Milbank and Pincus frame this as a triumph for conservatives who've failed to get such a thing implemented in the U.S.

Donald Sensing is a conservative, sympathetic to the idea, and posts on the implementation in Iraq. His title summarizes his editorial posture: "Iraq gets what America lacks - a fair tax system".

Indian casinos

Michael Nelson describes the evolution of the Indian casino movement since the U.S. Supreme Court's 1987 ruling that states allowing gambling can't prohibit Indian tribes from offering gambling (in California v. Cabazon Band of Mission Indians). The first Indian casino followed in 1992.

The story is in the on-line version of the magazine Legal Affairs, here: "The Quest to Be Called a Tribe. The lure of casinos has raised the stakes for federal recognition.". I learned about this from Vice Squad. The Vice Squad posting has links to other materials, including tribal activity in the cigarette market. Here: "Native Americans as Suppliers of Vice".