Reason #72 to avoid big government

Washington Post has an amusing story about farm subsidies to dead farmers. It’s more sad than amusing, as it serves as yet another example of government’s inability to effectively steward the scarce tax dollars we offer it every year.

n Indiana corporation that was owned entirely by one person never notified the government of the owner’s death in 1993 and continued to collect unspecified payments for a decade before new owners filed for farm benefits. The government made $567,000 in payments to an Alabama estate over seven years on behalf of an owner who died in 1981. Another estate continued to receive unspecified payments on behalf of a person who died in 1973 — more than three decades ago — without any investigation or review.

Excellent.

Flight of the Concords…. hard to resist

Flight of the Conchords – Hiphopopotamus vs. Rhymenoceros

Totally unrelated to economics… but friggin hysterical.

Economics of Harry Potter

BusinessWeek offers an interesting take on who’s making money from Harry Potter… and who stands to lose from his demise. In short — no one actually makes that much money from Harry, other than J.K. Rowling. Wal-Mart and Amazon use the book as a loss-leader to pull in new customers, and this puts pricing pressure on the smaller bookshops, who can’t cut prices nearly as much. The publishers (Bloomsbury outside the U.S. and Scholastic in the U.S.) make a ton of money on Harry, but his presence can cause them to lose focus on their other businesses, and both stocks have priced lower recently. One interesting fact:

Scholastic Corp., which has U.S. rights, will never speak ill of the boy wizard whose last book accounted for 8% of revenues and an estimated one-third of profits in the fiscal year that ended in May, 2006.

Wow! Harry Potter provided one-third of the profits for a major publishing house last year.

Ron Paul – The “Anti” Candidate

OK, so apparently I’m a little behind the technorati on this one, but I find this guy fascinating. He’s kind of a libertarian, but his blend of small government, fiscal responsibility, foreign policy isolationism has attracted just this incredibly wide range of supporters who feel unrepresented by the Democrats and Republicans. Though I won’t be voting for Ron Paul (I’m in favor of keeping our commitments to NATO, the WTO, the IMF, and the Federal Reserve), you can count me among the kooks who feel under-represented by current politicians.

The New York Times Magazine has a great feature on the presidential candidacy of Ron Paul.

His school of Republicanism, which had its last serious national airing in the Goldwater campaign of 1964, stands for a certain idea of the Constitution — the idea that much of the power asserted by modern presidents has been usurped from Congress, and that much of the power asserted by Congress has been usurped from the states. Though Paul acknowledges flaws in both the Constitution (it included slavery) and the Bill of Rights (it doesn’t go far enough), he still thinks a comprehensive array of positions can be drawn from them: Against gun control. For the sovereignty of states. And against foreign-policy adventures. Paul was the Libertarian Party’s presidential candidate in 1988. But his is a less exuberant libertarianism than you find, say, in the pages of Reason magazine.

The myths of bottled water

Great article in Fast Company this month about bottled water — what it is and what it ain’t. Long and short of it is that

[a] chilled plastic bottle of water in the convenience-store cooler is the perfect symbol of this moment in American commerce and culture. It acknowledges our demand for instant gratification, our vanity, our token concern for health.

The article doesn’t tell us anything we don’t know already about bottled water — it is roughly the same quality and taste as tap water (in the U.S., at least), it’s expensive to ship, and it’s packaging is often excessive and highly wasteful. But the article highlights it all through some powerful stories. For example, this little vignette about San Pellegrino:

In the town of San Pellegrino Terme, Italy, for example, is a spigot that runs all the time, providing San Pellegrino water free to the local citizens–except the free Pellegrino has no bubbles. Pellegrino trucks in the bubbles for the bottling plant. The man who first brought bottled water to the United States famously failed an impromptu taste test involving his own product. In Maine, there is a marble temple to honor our passion for bottled water.

Some good numbers, too:

In San Francisco, the municipal water comes from inside Yosemite National Park. It’s so good the EPA doesn’t require San Francisco to filter it. If you bought and drank a bottle of Evian, you could refill that bottle once a day for 10 years, 5 months, and 21 days with San Francisco tap water before that water would cost $1.35. Put another way, if the water we use at home cost what even cheap bottled water costs, our monthly water bills would run $9,000.

You want to be eco-friendly? Just think how many miles that bottle of Fiji Water was shipped… and then have a glass of tap water.

“For God’s Sake, Please Stop” Giving Us Aid

A great article in the new magazine, The American, continues the story of the TED forum held in Arusha which I discussed early. The article highlights on the key problems in interational developing: throwing capital at developing countries distorts markets and incentives, beckoning the most skilled professionals to careers in governments and the non-profit sector. You want to help Africa? Create access to finance for entrepreneurs.

Though the article is polemical at points (and I worry about whether it’s entirely factually accurate, though I have NO BASIS for that assertion), the conculsion is compelling:

Here’s a radical idea: if we really want to help, why not ask Africans, not their governments, how they perceive the challenges before them, the dreams they have for the future, and the resources they think they need to realize them?

Instead, we let a well-intentioned Irish rock star, a Jewish-American economist, and their Hollywood cohort become the voice and face of Africa.

And in the process, the story of the other Africa, the Africa that is dynamic, creative, and wants to work as a partner and the leader of its own future, is being drowned out by the clarion cry of the anti-poverty glitterati–and our own appetites for gripping, salacious headlines of war, poverty, and grief.

Thanks, Dad, for the link.

The perfidious effect of a cash-less economy

Interesting piece in the NYT looking at ways that government (as well as marketers) are playing the trend towards a cash-less economy. The best example is tolls:

A young economist named Amy Finkelstein started thinking about these issues a few years ago when she and her fiancé were driving back and forth between Boston, where they were living, and New York, where they were going to be married. So she collected decades of toll records from around the country and found a clear pattern.

After an electronic system is put in place, tolls start rising sharply. Take two tollbooths that charge the same fee and are in a similar setting — both on highways leading into a big city, for instance. A decade after one of them gets electronic tolls, it will be about 30 percent more expensive on average than a similar tollbooth without it. There are no shortage of examples: the Golden Gate Bridge, the George Washington Bridge and the Tappan Zee Bridge, among them.

Wow. This is economics at its best. Finding a problem we wouldn’t have thought of, gathering a unique data set, and using it to illustrate what can only be considered a clear conclusion — that when we don’t pay cash, it’s easier for us to forget how much we’re spending.

Can you tell that I’ve been reading too much Milton Friedman lately?

Thanks, Dosh, for the link.

Wikinvest – New website for investing research

Shameless plug for a website I’ve been helping with, called Wikinvest. The site aims to create a community around personal investing, where people share ideas, insights, and knowledge on specific companies and concepts. Full disclosure: I wrote a series of pieces on investing in energy for the site.

Check out Wikinvest.

A Social Security Fix?

For those who like to try their hand at policy-making, a great new site has been launched to help both older and younger generations understand the trade-offs implicit in maintaining the pay-as-you-go social security system. The game is sponsored by the American Academy of Actuaries, and playing it even briefly suggests what an incredible pickle we are in with respect to Social Security.

Martha Hamilton, from the Washington Post, details some of the trade-offs required to keep the system solvent. I can’t wait until my Congressman plays.

FYI, when I played, I liked the following set of options:

- Immediately increase the retirement age to 67, then keep increasing as needed

- Tax social security benefits like all other pension income

- Invest 40% of social security fund in the public markets

These three factors get us to 100% funding for current and (most) future retirees, though continued adjustments would still need to be made.

Development and freedom

I came across this gem of an article from Bill Easterly while I was simultaneously making my way through one of the most prescient, insightful economics books I have ever read, Milton Friedman’s Free to Choose. Easterly’s article follows his classic crticisms of the Development field, including a bloated bureaucracy, a belief that rational though and money can “fix” poverty, and a tendency to incentivize governments to support misguided solutions (and the burdensome administrative tasks, such as the infamous poverty-reduction strategy papers, required by them).

In this article, Easterly has taken his thinking, epitomized in his recent book The White Man’s Burden, to new levels. He really is channeling Milton Friedman across fifty years and widely differing ideological spheres:

Few realize that Americans in 1776 had the same income level as the average African today. Yet, like all the present-day developed nations, the United States was lucky enough to escape poverty before there were Developmentalists. In the words of former IMF First Deputy Managing Director Anne Krueger, development in the rich nations “just happened.” George Washington did not have to deal with aid partners, getting structurally adjusted by them, or preparing poverty-reduction strategy papers for them. Abraham Lincoln did not celebrate a government of the donors, by the donors, and for the donors. Today’s developed nations were free to experiment with their own pragmatic paths toward more government accountability and freer markets. Individualism and decentralized markets were good enough to give rise to penicillin, air conditioning, high-yield corn, and the automobile—not to mention better living standards, lower mortality, and the iPod.

The opposite of ideology is freedom, the ability of societies to be unchained from foreign control. The only “answer” to poverty reduction is freedom from being told the answer. Free societies and individuals are not guaranteed to succeed. They will make bad choices. But at least they bear the cost of those mistakes, and learn from them. That stands in stark contrast to accountability-free Developmentalism. This process of learning from mistakes is what produced the repositories of common sense that make up mainstream economics. The opposite of Development ideology is not anything goes, but the pragmatic use of time-tested economic ideas—the benefits of specialization, comparative advantage, gains from trade, market-clearing prices, trade-offs, budget constraints—by individuals, firms, governments, and societies as they find their own success.

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History proves just how much good can come from individuals who both bear the costs and reap the benefits of their own choices when they are free to make them. That includes local politicians, activists, and businesspeople who are groping their way toward greater freedom, contrary to the Developmentalists who oxymoronically impose freedom of choice on other people. Those who best understood the lessons of the 20th century were not the ideologues asking, “What is to be done?” They were those asking, “How can people be more free to find their own solutions?”

The echoes of Friedman, the ultimate supporter of economic freedom in all its many forms, are clear. Money with strings attached and “guidance” in all its many forms takes away the economic freedom which has been the source of ingenuity that has led the developed nations out of poverty. Only when left to flail, to make mistakes, and to choose from the widest possible set of policy alternatives, do countries find their own path out of poverty.

Whenever someone asks me what makes America great, I typically respond with some version of the following, “It’s the best place to have failed in the entire world.” As long as America supports a pro-experimentation, pro-failure culture, a culture that admits that we don’t know what technology will win or what industry should be developed, we will remain one of the most innovative, economically dynamic countries in the world. Shouldn’t the same logic apply to other countries? Perhaps it’s harder to apply that logic when the cost of failure is mass starvation and civil war?