
Source: The Sanders Campaign Has Crossed Into Neverland | Mother Jones.
Celebrating humanity's flourishing through the spread of capitalism and the rule of law
18 Feb 2016 Leave a comment
in applied price theory, fiscal policy, politics - USA
15 Feb 2016 Leave a comment
in applied welfare economics, economic growth, energy economics, environmental economics, environmentalism, labour economics, macroeconomics, politics - New Zealand Tags: expressive voting, Greenpeace, Leftover Left, New Zealand Greens, rational irrationality, Twitter left
14 Feb 2016 1 Comment
in applied price theory, applied welfare economics, economics of regulation, fiscal policy, health and safety, health economics, politics - New Zealand
Do-gooding curmudgeon Gareth Morgan takes great pride in his positions on public policy and health and safety such as a sugar tax are evidence-based.

He is quick to suggest that those that disagree with them are ignorant or steeped in moral turpitude, preferably both. His offsider has even suggested that I am too dogmatic to bother arguing with. Me!
It will be a slow train coming before Gareth Morgan takes an evidence-based health and safety approach to bikes and swimming. They are dangerous activities that should be banned if he is to be consistent. Morgan is a keen motorcyclist and recently asked for exclusive access to a seaside batch.

As I have previously argued, all the evidence suggests that riding a bike is dangerous. Both motorcycles and bicycles are way more dangerous than travelling by car.
Riding a motorbike and a bike should both be banned to protect motorcyclists and bicyclists from themselves. Like people who drink sugary drinks, they just do not understand the risks.

Swimming is an even more dangerous activity with multiple fatalities of a weekend common in summer. Again, people do not understand the risks of swimming both in the city and in rivers. They must be protected from themselves.
The argument that Gareth Morgan and his entourage will make in response to a demand for bans is the exact same one made against the food police.

I am sure Morgan will point out that people know that riding a bike or swimming is dangerous. Even those living in a cave also know that drinking sugary drinks and having a smoke is also dangerous. Indeed, the evidence is people overestimate the risks of these socially disapproved activities rather than underestimate them.
The argument that Morgan and his entourage would use against banning bikes, motorbikes and swimming is voluntary assumption of risk.
We live in a free society. If people want to lead a risky life, they are free to do so as long as they do not harm others.
Morgan is quick to point out the cost of the public health system of sugary drinks and other targets of the food police and the safety Nazis.

Last time I looked, bicycle and motorbike accidents resulting trips to emergency wards and other expenses to the taxpayer.
You cannot have it both ways. Arguing that the fiscal cost of sugary drinks and other roads is a rationale for regulating their consumption. That argument applies just as strongly to the case for – updated banning motorbikes, bicycles and swimming.
Until Gareth Morgan’s do-gooding extends to calling for the banning of a passion of his life, which is motorcycling, his evidence-based crusades do not have much standing.
You cannot reject voluntary assumption of risk on a selective basis especially when you engage in one of those risky activities yourself.
UPDATE: Morgan has in the past called for the insurance levy on motorbikes to reflect risk better than is the case now.
…research we’ve done at the Motorcycle Safety Advisory Council indicates that the risk of serious and expensive injury on a motorcycle is around 45 times higher per person-kilometre travelled as it is for occupants of other vehicles.
And we have a lot more bumps, scrapes and bruises per person-kilometre as well.
It gets worse. We also found that up to 31 per cent of our injuries arise from incidents involving no other vehicles. In other words we do this to ourselves because we can’t handle the road conditions.
Now of course we can blame the road as some of us are wont to do, but the reality is in most cases it’s pure incompetence or lack of self-management.
Any charging regime that gives riders an incentive to ride within their level of competence, to self-manage risk by wearing better protective clothing for example, or even lifting competency levels has to be a win-win doesn’t it?
This is not a call for a ban. Moreover, this is just a calm discussion of actuarial risk and the rampant cross-subsidies in the New Zealand universal, no fault accident compensation scheme.
Buried in at all these remarks by Morgan is people have the right to take risks and ride a bike if they want. No similar courtesy to people who like sugary drinks and those who support their right to drink and eat what they please. No similar courtesy to honest disagreement over whether a sugar tax is worth the trouble and strife.
What I must also add is the Morgan Foundation is a famous advocate of sugar taxes but a little-known advocate of actuarially fair insurance levies on motorbike. If the notoriety was the other way around, this debate would have more credibility. That is why I missed it in the first draft of this post.
I am still waiting for Gareth Morgan to call for bans on advertising of motorbikes and bicycles to children and on children’s television because they are impressionable. Why are motorbike and bicycle ads safe for children but cigarette and junk food ads not?

Milton Friedman argued that people agree on most social objectives, but they differ often on the predicted outcomes of different policies and institutions. This leads us to Robert and Zeckhauser’s taxonomy of disagreement
Positive disagreements can be over questions of:
1. Scope: what elements of the world one is trying to understand?
2. Model: what mechanisms explain the behaviour of the world?
3. Estimate: what estimates of the model’s parameters are thought to obtain in particular contexts?
Values disagreements can be over questions of:
1. Standing: who counts?
2. Criteria: what counts?
3. Weights: how much different individuals and criteria count?
Any positive analysis tends to include elements of scope, model, and estimation, though often these elements intertwine; they frequently feature in debates in an implicit or undifferentiated manner. Likewise, normative analysis will also include elements of standing, criteria, and weights, whether or not these distinctions are recognised.
Obesity by Occupation: In US police, firefighters, & security lead the pack. #dataviz
Source: wsj.com/articles/memo-… http://t.co/fPyQGKIUMk—
Randy Olson (@randal_olson) December 18, 2014
The origin of political disagreement is a broad church in a liberal democracy. Those you disagree with are not evil, they just disagree with you. As Karl Popper observed:
There are many difficulties impeding the rapid spread of reasonableness. One of the main difficulties is that it always takes two to make a discussion reasonable. Each of the parties must be ready to learn from the other.
Feel-good policies attacking sugar in drinks will do nothing but provoke opposition and delay the day when people confront the fact that they are going to the fatter than their parents and their grandparents because they are richer.
https://twitter.com/DKThomp/status/599218426620485633
I lost 18kg after I was diagnosed with type II diabetes. Giving up sugary drinks and biscuits contributed maybe 2 kg to that weight reduction. Central to that weight production was I was well motivated.

A rise in the price of a sugary drink and the political fight over that turns friends into enemies and is a distraction from the larger cause.
https://twitter.com/DKThomp/status/698174875630989316
Greg Mankiw was on point when he said that do we really think that meddling at this micro level of sugary drinks serves any purpose and can government be trusted to micromanage our lives with pushes rather than nudges:
To what extent should we use the power of the state to protect us from ourselves? If we go down that route, where do we stop?
Taxing soda may encourage better nutrition and benefit our future selves. But so could taxing candy, ice cream and fried foods. Subsidizing broccoli, gym memberships and dental floss comes next. Taxing mindless television shows and subsidizing serious literature cannot be far behind.
Even as adults, we sometimes wish for parents to be looking over our shoulders and guiding us to the right decisions. The question is, do you trust the government enough to appoint it your guardian?
13 Feb 2016 Leave a comment
in economic growth, labour economics, labour supply, macroeconomics Tags: labour productivity
12 Feb 2016 Leave a comment
in economic growth, economic history, fiscal policy, macroeconomics, politics - Australia, politics - New Zealand, public economics Tags: Australia, growth of government, lost decades, size of government, Sweden
I came across this data showing that New Zealand and Sweden had the same sized public sectors in the mid-1980s some years ago. The data could not be found again for a long time in the OECD statistical databases. One reason was the OECD changed its name to general disbursements.
Data extracted on 12 Feb 2016 08:45 UTC (GMT) from OECD.Stat.
The size of the public sector in Australia has not changed much for 30 odd years. The public sector has been in a long decline in Sweden and New Zealand since peaks as a percentage of nominal GDP in the late 1980s and early 1990s respectively.
I know of no comments on the large size of the New Zealand public sector as measured by general government expenditure in the late 1980s. Its contribution to the stagnant economic growth of that time is worth exploring.
12 Feb 2016 Leave a comment
in applied price theory, Austrian economics, business cycles, economic growth, F.A. Hayek, fiscal policy, job search and matching, labour economics, labour supply, macroeconomics, unemployment, unions Tags: job search, mismatch unemployment, search unemployment, union power, union wage premium, waiting unemployment
11 Feb 2016 1 Comment
in applied welfare economics, economic growth, health economics, liberalism, politics - New Zealand, population economics, Rawls and Nozick

The sugar tax championed by among others the Morgan Foundation is the latest manifestation of do-gooding that dates back to sumptuary laws of mediaeval times. Black’s Law Dictionary defines them as
Laws made for the purpose of restraining luxury or extravagance, particularly against inordinate expenditures in the matter of apparel, food, furniture, etc.
These early attempts through sumptuary laws to regulate how people live their lives to make sure that they did not dress above their social rank as well as risk hellfire and damnation has been critically applied include alcohol prohibition, drug prohibition, gun control laws, bans, and restrictions on dog fighting.
The sugar tax attempts to save us from a bad diet because others know how to run our lives better than we do despite having never met us, much less lived our lives and dreamed our dreams. The calling of the do-gooder is a busy vocation.
The do-gooders want to stop smoking, overeating, and the partaking of too much sugar but undoubtedly support the decriminalisation of marijuana because of the futility of prohibition.
The right to get stoned is a civil liberties issue but sugar is a legitimate topic of public health regulation. Those who do not want to save people from sugar are ignorant or steeped in moral turpitude, preferably both.

We live in an age of obesity. When I was a kid, the poor were thin, they are now fat. I can still remember the names of the 2 boys in my high school class who were in any way overweight. Now the majority of school kids are overweight.
Sugar taxes are also when the Left stage a temporary conversion to supply-side economics. When you tax something, less will be supplied. The Left are surprisingly unwilling to admit that unless it suits their agenda of the day.
The Morgan Foundation is a curious position of advocating a great big new tax: a comprehensive capital taxation. It is also arguing that sugar taxes will cut consumption. I wonder what it estimates to be the response of saving and investment in its capital tax. Does it take the conservative estimates, or the liberal estimates of the responsiveness of savings, investment and labour supply to higher taxes?
Sugar taxes are a blunt instrument. They tax fat people, thin people and the potentially fat of tomorrow. They are not like alcohol and tobacco taxes which are narrowly tailored to taxing sin. Richard Posner said that
People who crave sugar will find no dearth of substitutes for sugar-sweetened sodas. Moreover, most consumers of these sodas are not and never will be obese. They may well be overweight, but all that that means is that they are heavier than the “ideal” weight calculated by physicians; if they are only slightly or even moderately heavier, the consequences for health or social or professional success are apparently slight. To the extent that a soda tax would cause substitution of equally sugared foods, it would not only have no effect on obesity; it would yield no revenue…
Last time I looked, people enjoy food. Some enjoy food quite a lot.
We are in a free society where some people are just simply like eating while others have a bad draw of the genes. Others like to exercise. As Richard Posner said:
The obese are people who by dietary choice and preference for a sedentary style of life have traded off the costs of obesity against the costs of being thin and have decided (at least in a “revealed preference” sense–they may not have consciously chosen a style of life that predisposes them to obesity) that the costs of thinness preponderate over the benefits. And in general we do not try to prevent people from making such trade-offs.
But there are two situations in which preventing people from choosing the style of life that maximizes their utility can be defended (provided certain assumptions are made about cost and efficacy) on economic grounds.
One is where consumers are unable to evaluate a product or to act upon their evaluation; another is where a voluntary transaction imposes costs on other people which the transactors do not take into account.
The fact that car unhealthy lifestyles may impact on the public health budget is not much of an argument for intervention. Private insurers are quite capable of working out whether they need information on people’s lifestyle and diet or not.

If you are to provide people with universal health insurance at the expense of the long-suffering taxpayer, you should at least have the decency not to try and take over their entire lives so that you can be a social justice warrior on the cheap.
As for children seeing advertising for sugar, the sugar tax and a ban on advertising is a token gesture. You trying to take over from their parents. As Gary Becker noted:
Many doctors and others who advocate taxing sugared beverages and fast foods at heart do not believe that consumer taste for sugar and fast foods should be taken into account in devising public policy.
Until the nanny state brigade and sugar tax advocates address that simple question, they have no standing in a public debate. Like all the prohibitionists who came before them, they are simply unwilling to admit the people like food, drink and sugary things.
Women demonstrating against Prohibition, 1932. https://t.co/xE30ApkNBB—
Historical Images (@Historicalmages) January 29, 2016
Until they put forward a way of balancing that common preference to enjoy life including food and risk against their meddlesome preferences in their role as the great central planner of our lives, they are just having us on. As Richard McKenzie said recently
The people most concerned with the country’s weight gain—self-appointed “fat police”—have favoured supposedly easy and direct policy solutions: tax and ban high-sugar and high-fat products.
Such policy courses are a snare and delusion, especially if Americans’ cherished freedoms of choice, which are at the heart of the country’s economic engine, are to be preserved.
The great driver of obesity is prosperity, not sugar. People can simply afford to buy more and enjoy the food they have more.
John Rawls argued that people should have every right to live their lives according to their own lights. In nanny state brigade just do not accept that point of view.
Rawls believed the most distinctive feature of human nature is our ability freely to choose our own ends. The state’s first duty with its citizens is to respect this capacity for autonomy.
Instead, the fat police and the do-gooders want to engage in the futile gesture of pestering you and taxing you when you buy a sugary drink even though there are almost unlimited alternative supplies of sugar laden products.
The fat police are far too busy feeling good about themselves in the expressive politics of public health. They cheer for sugar taxes, boo obesity and feel good about themselves for having told other people how to live their lives better. A good number of them then celebrate by lighting-up a joint. Many of the rest have a wine, not beer.
The particularly annoying ones ride a bike, which is a dangerous activity, or are so boorish as to exercise in a public place, much to the annoyance of the rest of us who are getting on with having a good time.

11 Feb 2016 Leave a comment
in human capital, job search and matching, labour economics, labour supply, law and economics, managerial economics, organisational economics, personnel economics, property rights, unemployment Tags: employment law, employment protection laws, employment regulation, firm-specific human capital, job search, labour market regulation, severance pay
There are a wide differences across the OECD in mandatory severance pay in the event of a layoff.
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Source: Labor Market Regulation – Doing Business – World Bank Group.
Severance pay makes it more expensive to fire and therefore more expensive to hire. This means fewer job vacancies will be created but they will last longer.
The presence of mandatory severance pay could increase or reduce the unemployment rate but unemployment durations will increase because it takes longer to find a suitable job match among the fewer available vacancies.
Mandating severance pay does not make the job match inherently more profitable. It just redistributes some of the surplus from the job match to the end when it is terminated.
Employers and jobseekers may agree to severance pay where investments in firm specific and job specific human capital for the job is profitable.
Severance pay in these circumstances gives the employer and more reasons to invest in specific human capital. The promise to pay severance pay will make the employer hesitate to lay them off. The employer will instead retain them over a slack period or redeploy them within the company rather than pay them out. This pre-commitment encourages investment in firm specific and job specific human capital by both sides more secure, which makes the job match more profitable overall for both sides.
Of course, if it was possible to negotiate completely around severance pay mandated by law, there would be no effects on hiring, firing and unemployment durations. All it would mean is take-home pay would be less but in the event of a layoff, these employees would get that this wage reduction back as a lump sum.
09 Feb 2016 Leave a comment
in applied welfare economics, economic history, labour economics, macroeconomics, politics - USA Tags: 2016 presidential election, antiforeign bias, antimarket bias, Leftover cab left, pessimism bias, rational rationality, The Great Enrichment, Twitter left
06 Feb 2016 Leave a comment
in economics of bureaucracy, macroeconomics, monetary economics
06 Feb 2016 Leave a comment
in development economics, economics of regulation, entrepreneurship, fiscal policy, growth disasters, growth miracles, industrial organisation, labour economics, law and economics, macroeconomics, monetary economics, property rights, public economics Tags: capitalism and freedom, Chile, China, The Great Escape, Venezuela
06 Feb 2016 Leave a comment
in economics of media and culture, fiscal policy, income redistribution, labour economics, labour supply, law and economics, poverty and inequality, property rights, public economics, rentseeking Tags: basic income, car racing, Finland, guaranteed minimum income, negative income tax
05 Feb 2016 Leave a comment
in applied price theory, economic growth, macroeconomics Tags: endogenous growth theory, great stagnation
04 Feb 2016 Leave a comment
in business cycles, currency unions, Euro crisis, global financial crisis (GFC), great recession, inflation targeting, macroeconomics, monetarism, monetary economics Tags: central banks, liquidity trap, monetary policy
02 Feb 2016 Leave a comment
in applied price theory, business cycles, economic history, entrepreneurship, financial economics, global financial crisis (GFC), great recession, macroeconomics, monetary economics, movies Tags: bank runs, financial crises
About the only time the Hollywood Left oozes with patriotism is when getting stuck into Wall Street. Hollywood must get its revenge for all those times investors did not back their film pitches, trimmed budgets and get the lion’s share of merchandising royalties and syndication profits. As Larry Ribstein explained:
American films have long presented a negative view of business…. it is not business that filmmakers dislike, but rather the control of firms by profit-maximizing capitalists… this dislike stems from filmmakers’ resentment of capitalists’ constraints on their artistic vision.
The Big Short is still a good film despite the left-wing populism, worth going to see. Its limitations in not discussing the monetary policy of The Fed or regulations that encouraged lending to high risk borrowers are justified poetic license and editing.
The film is already 120+ minutes long despite frequent resorts to breaking the fourth wall to explain technical terms, who was what and what they were doing, past and present. The Big Short is a film designed it make money at the box office, not a semester long documentary.
The Big Short is well acted, funny, insightful and still a good story despite the documentary element that was impossible to do without.
The Big Short highlights that its protagonists had skin in the game. They were investing in mortgages or shorting the same in the expectation of a crash. There were no windbags and armchair critics in The Big Short talking gloom and doom on the horizon without investing their own money to profit from their forecasts. That said, the protagonists betting on a sub-prime mortgages crash, bar two of them, were a little bit nutty.
I do not know any of the critics of the economics of the film’s explanation of the sub-prime crisis who suggested how they could fix these gaps in its economics without making the film much, much longer.
These critics fall into the exact same trap that the Big Short was not about. The Big Short was about investors to put their money where their mouth is. The critics of the film should put their script doctoring skills where their mouths are at least of The Big Short.

Source: What ‘The Big Short’ Gets Right, and Wrong, About the Housing Bubble – The New York Times.
Getting stuck into the role of the Fed and regulatory mandates on the banks regarding their level of sub-prime mortgages is for another film. Plenty of people warned of dark days ahead. An essay anyone can read with profit is Ross Levine’s “An Autopsy of the U.S. Financial System: Accident, Suicide, or Negligent Homicide?“
Other films, correctly documentaries, place the blame for the sub-prime crisis and the Great Recession directly on the Fed:
The financial mess we’re still climbing out of can be laid directly at the feet of the Fed, whose misguided advocacy, under Greenspan, of a borrow-and-spend economy rather than a focus on savings and investment has created a situation where, as the title implies, money is disconnected from any underlying value.
There are plenty of points that could be added to the economics of The Big Short if it was a film of more or less unlimited length:
Krugman and friends like the film because it leaves out any discussion of the main culprit behind the financial crisis, which was not Wall Street “greed” but bad monetary and credit policies from the Federal Reserve and the federal government. The movie barely hints at any exogenous factors behind the boom or bust. (This FEE report by Peter Boettke and Steven Horwitz fills in the missing information.) So the pro-regulation crowd is cheering. Viewers are given no understanding of the real causal factors and hence fill in the missing data with a feeling that banks just love ripping people off. To be sure, if you approach this movie with some knowledge of economics and monetary policy, the rest of the narrative makes sense. Of course Wall Street got it wrong, given Washington’s policies on mortgage lending!
To add to the brew, Edward Prescott points out the Great Recession can be explained through productivity shocks. Specifically, a collapse in investment and in particular investment in intangibles such as intellectual property in 2007 in anticipation of more taxes and more regulation.
The Great Recession had many of the same features of the 1990s technology boom but in reverse. The boom in the 1990s and bust in 2007 were somewhat inexplicable because major sources of volatility were unmeasured, specifically, investment in intangible capital.
V.V. Chari also points out that the extent of the financial crisis was overstated. This is because the typical firm can finance its capital expenditures from retained earnings so it was hard to see how financial market disruptions could directly affect investment.
What Chari disputed was that bank lending to non-financial corporations and individuals has declined sharply, that interbank lending is essentially non-existent; and commercial paper issuance by non-financial corporations declined sharply, and rates have risen to unprecedented levels.
John Taylor argues that we should consider macroeconomic performance since the 1960: There was a move toward more discretionary policies in the 1960s and 1970s; A move to more rules-based policies in the 1980s and 1990s; and back again toward discretion in recent years.
These policy swings are correlated with economic performance—unemployment, inflation, economic and financial stability, the frequency and depths of recessions, the length and strength of recoveries. Less predictable, more interventionist, and more fine-tuning type macroeconomic policies have caused, deepened and prolonged the current recession. Robert Hetzel puts it this way:
The alternative explanation offered here for the intensification of the recession emphasizes propagation of the original real shocks through contractionary monetary policy. The intensification of the recession followed the pattern of recessions in the stop-go period of the late 1960s and 1970s, in which the Fed introduced cyclical inertia in the funds relative to changes in economic activity.
Finn Kydland considers fiscal policy to be at the heart of the slow recovery. Instead of restructuring and investing more prudently, Western countries faced with budget shortfalls will seek to increase taxes:
Now imagine trying to incorporate all the above points into a film and keeping it at its current two-hour length?
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