Wednesday, December 29, 2010

Regulation, common goods and institutions

Boyes raises the question about the public choice implications of state regulation. Regulation or coordination, can take place in a number of settings. The state can generate top down regulation and, as Eleanor and Vincent Ostrom observe, regulation can be bottoms up - that is individuals can develop modes of coordination or regulation that deal with issues arising from commons, expernalities and public goods.

I recall a comment made years ago at a Liberty Fund conference in which a participant observed that the world is characterized by ubiquitous externalities. As I reflect on this and the important considerations raised by Seabright in The Company of Strangers I can see how institutions have emerged and evolved to address issues of the commons. Seabright uses the metaphor of the stranger to illustrate this issue and I think his analysis provides food for thought. How does coordination emerge and persist in social settings? Vernon Smith argues that successful societies have emergent ideologies of honesty. This trust is an important lubricant for the functioning of a society.

So the question becomes, are there any tops down regulations that in fact foster rather than inhibit emergence and persistence of honesty and trust?

For some reason this question lead me back to Adam Smith's view in The Theory of Moral Sentiments that humans all have a moral sense composed of justice, beneficience, prudence and self command.

Regulation or coordination that is both wealth creating and supportive of liberalism must support and encourage self command and not replace it. One of the costs that state mandated regulation is at risk of creating is weakening individual self command.

Complex modern societies confront the challenge of coordination or regulation daily. Successful societies tend to evolve a mix of coordination systems to foster honesty and trust. Failed states or societies devolve and the coordination and regulatory schemes become predatory.

Douglass North's last book - Violence and the Social Orders argued that successful, modern societies evolve a mix of coordination and regulatory matrices that include public and private schemes. The public organizations (the North definition of organizations) are dense and diffuse and operate at local, state and national levels in a mosaic of interconnections with each other and the private sector.

This argument is intriguing and one that libertarians confront - the empirical evidence, at least in North's work, suggests that the open access orders (developed, successful societies) manifest honesty and trust in an environment of significant state presence. Natural orders (developing societies) range from failed states to mature natural orders and tend to have markedly less public sector presence in the form of public organizations.

So, coordination is the challenge of societies. What is the mix and source of regulation that emerges to support honesty and trust?

Is Regulation for Sale

Pratt asks "Is Regulation for Sale?" The question should be is there any regulation that does not provide benefits to special groups. As long as democracy enables diffused costs and concentrated benefits to guide legislation, regulation is nothing but a saleable service; that is why it is referred to as rent seeking and rent providing. Moreover, the larger the size of government, the greater the returns to rent seeking. Allocating resources to non-productive activities -- rent seeking -- becomes increasingly a better policy for firms than allocating resources to productive activities.

A case in point is the Dodd-Frank financial regulation bill just enacted. It is a full package of benefits to special interests. We should have a look at the bill. In a future post we will.

Economic Optimism? Yes, I’ll Take That Bet

Interesting NY Times article by John Tierney - I just finished Paul Seabright's book - The Company of Strangers and Tieney's replication of the Julian Simon "experiement" is a wonderful illustration of the emergence of problem solving among strangers.

Seabright's book is a wonderfully accessible and informed integration of the work of Hayek, Simon, Mancur and Vernon Smith - although he does not cite the first or last.

The chapter dealing with the economics of water is a masterful application of the economic way of thinking and, I would argue, must reading along with Capitalism and Freedom.

Sunday, December 26, 2010

EconTalk Podcast Listening Guides | Library of Economics and Liberty

Russ Roberts has a series of outstanding podcasts that illustrate the economic way of thinking. For a number of these he has developed listening guides for use in guiding student discussion and debrief.

EconTalk Podcast Listening Guides | Library of Economics and Liberty

Saturday, December 25, 2010

Friday, December 24, 2010

Is regulation really for sale?

The answer is obvious and implies a change in both the attitude toward government regulation and adtion to effect that changed attitude. Unfortunately, as Hayek and later Sowell point out, the intelligensia either ignore the answer to this question (difficult to do, but still within their considerable hubris) or respond that the answer is more regulation.

One can hope that continued evidence of the unintended and perverse consequences of state action - regulation or otherwise - will lead to constructive steps toward reduced government action.

Freedom Watch hosted 3 Reason thinkers and Nick Gillspie argued that looking forward there was little propect of reducing existing state presence. His advice, work to maintain and strength liberty and freedom in the spheres in which it continues to exist.

Sound advice in my view.

Thursday, December 23, 2010

Creation, Consent, and Government Power over Property Rights

Great conversation this month over on CATO regarding the role of the state and the locus of rights.

A sample . . .

I. Government did not “Create” Property Rights

Scholars such as Robert Ellickson, Harold Demsetz, Elinor Ostrom, and Hernando de Soto have documented how private property rights often emerge even in the absence of government enforcement.[1] The claim that such rights are necessarily “created” by the state is simply empirically false. The institution of private property long predates the existence of the modern state, or indeed states of any kind.[2]

Obviously, states do often enforce property rights, and that state enforcement is sometimes more efficient than private sector alternatives would be. But the mere fact that government enforces property rights does not give it the right to redistribute them in any way it sees fit.

The circumstance that the state enforces a right does not prove either that the right could not exist at all without the state or that its moral legitimacy flows solely from the state’s recognition.

Wednesday, December 22, 2010

Unintended consequences

As Boyes points out, the involvement by the state in college athletics leads to any number of perverse outcomes. The government regulations interacting with a government sanctioned cartel - the NCAA - leads to inefficiency and barriers to entry that perpetuate rent seeking.

Most of the institutions that are affected by Title 9 and other government regulations are state institutions or quasi government institutions. Other than Hillsdale College one would be hard pressed to find a college or university that is not a state enterprise or state controlled enterprise.

The specific example of the UConn woman's basketball team, while interesting, is not really on point. UConn woman's teams actually benefit from the barriers to entry erected by the complex scaffolding of state university and government regulation. This complex witch's brew guarantees that the powerful institutions, UConn woman's basketball may well be the most powerful institution on that campus, will perpetuate in rent seeking. This is not to denigrate the amazing achievement of UConn woman - that team has historically operated at the highest level against all ranked opposition. But the success is, in large part, a result of the government - directly and indirectly through the government sanctioned cartel - NCAA.

The real lesson of Title 9 is the discrimination that is at the heart of all government action. In the name of egalitarian equal outcome, state action leads to discrimination. And in athletics . . . title 9 leads to the elimination of men's sports (think UCal Berkeley men's rugby - defending national champion) and introduction of "innovative" women's sports like rowing that would never be present in the absence of state action. This results in both mis and mal allocation of resources . . . which tends to be typical of state action.

The US government and NCAA "partnership" is reminiscent of the state "support" of athletics in the old Soviet period - in both the old USSR and the Warsaw pact countries.

What we can learn from the UConn woman's record breaking performance is to recognize and oppose the perverse outcomes that always spring from the seedy underbelly of the state intervention that is the basis for the road to serfdom.

Title IX and UConn

Pratt is so far ahead of me that I had forgotten he had already blogged on the Ridley book. In his post, he notes that we should read McClusky and Ridley on Cato. So I went to look at McClusky's discussion on values on Cato and found instead the following comments on Title IX given the women's basketball team at UConn setting a winning streak record:

All of that, however, flies in the face of the implicit rationale of Title IX, the federal statute requiring colleges to offer equal athletic opportunities to men and women. The law assumes that colleges that fail to offer proportionate roster spots are discriminating against girls, but the reality is that women might just not want to play sports as fervently as men.

UConn’s dominance might be just one more bit of evidence that it is time to stop assuming that there is rampant, sexist ill will when it comes to college sports, and for government to let people freely choose what interests they pursue. At the very least, it would probably make a lot of people happier than they’d be getting destroyed by the UConn women’s basketball team.

When will government stop attempting to control every aspect ofour lives? Never. That is just the nature of progressism and most forms of government. Just look at what occurred yesterday. The FCC, on a party line 3-2 vote decided to regulate the internet. Did it need regulating? Absolutely not. It is the freest form of communication in the world today. The dissenters in the totalitarian countries of Iran, China, and others get their information from the internet. This move by the FCC, without Congressional approval, is unconstitutional. But that does not seem to matter to the Administraton. As some congressman recently said, "Not much that we do is constitutional."

Matt Ridley

My Oct. 17 blog post on Matt Ridley's The Rational Optimist, echoes Boyes positive view.

I find intriguing his contention and that of Adam Smith, that voluntary exchange is inherent to humanity.

Ridley does a nice job of outlining the benefits to growth and the role that decentralized exchange plays.

He also posted a reaction over on CATO to the current discussion of McCluskey's view of the central role played by values and informal norms.

His full essay is well worth a read - he writes (as he always does so well)

“A true liberalism, what Adam Smith called ‘the obvious and simple system of natural liberty,’ contrary to both the socialist and conservative ideologues, has the historical evidence on its side.” Yes!

So let’s agree that absolutely key to the economic success of the last 200 years is that people are free to innovate in an undirected way. What I cannot bring myself to agree with is that this was an idea that had to be invented. I cannot agree that “what changed around 1700 was the valuation of economic and intellectual novelties within a system of all the virtues.”

Tuesday, December 21, 2010

The Rational Optimist

Matt Ridley's The Rational Optimist is a fun and interesting read. His thesis is that development and growth, from millions of years ago continuing through today, is due to voluntary trade based on specialization according to comparative advantage. He also bases his arguments on a bottom up development rather than a top down one. He plays tribute to, but does not put in the premiere position I do, the role of private property rights. Trade will not occur without a form of private property rights.

This morning's Wall Street Journal has an opinion piece by Bret Stephens that makes a point I have been trying to make for some time. China's development is currently a top down procedure. It will not be successful in the end. Much like Japan's 1970s industrial policy, which people like Lestor Thurow and Paul Krugman were supporting as the way to go, ledto the lost two decades Japan is currently experiencing. Top down development can not be successful; to think so is to ignore Hayek's Fatal Conceipt.

Another good read, but not easy going, is Capitalism with Chinese Characteristics. It ties in with the Ridley book.

Dan Klein on Coordination and Cooperation | EconTalk | Library of Economics and Liberty

Dan Klein on Coordination and Cooperation | EconTalk | Library of Economics and Liberty

Monday, December 20, 2010

Dwight R. Lee, The Political Economy of Morality: Political Pretense vs. Market Performance | Library of Economics and Liberty

At a time when the power of emotion seems to color discussion and debate, contemplation of the moral or ethic dimensions to freedom and responsibility may be worthwhile. Dwight Lee models such a reflection in this Liberty Fund column.

Dwight R. Lee, The Political Economy of Morality: Political Pretense vs. Market Performance | Library of Economics and Liberty

Sunday, December 19, 2010

Regime uncertainty

This is perhaps the clearest illustration of what Bob Higgs refers to as regime uncertainty. The unintended and perverse consequences of this uncertainty has been analyzed in Higgs' work. To the extent that this type of government action continues, our society will be plagued by bubbles and booms and, more importantly, increased rent seeking by actors attempting to mitigate this regime uncertainty.

The WSJ reports on the current tax code discussions:

This means that if the compromise passes largely intact, the U.S. will have no permanent regime governing levies on salaries, capital gains and dividends, the Social Security tax, as well as a slew of targeted breaks for families, students and other groups. This on top of dozens of corporate-tax provisions that already were subject to annual renewal.

The level of uncertainty, unusual for developed nations, complicates planning and discourages hiring and investment, many economists and corporate executives say.

"I haven't seen anything like it, and it's hard historically to find anything like" the current and pending negotiations, says Mortimer Caplin, an Internal Revenue Service commissioner in the Kennedy administration who at 94 is just three years younger than the income tax itself. "This Congress has left an awful lot up in the air."


Pratt notes the Warsh lament that economics is not empirical enough. I think the Austrians would disagree. Empiricism can measure what has occurred; it can differentiate among hypotheses. However, to do that requires assumptions usually resting on static equilibria. If an economy is never in a static equilibrium, how valid are the empirics based on it. In addition, there are the errors that begin with the assumption of a normal distribution -- how often does that apply to economic data? Having said this, I think that looking at data is necessary and important. But, there is a difference between empiricism and examining data.

Saturday, December 18, 2010

Economic Turbulence: Is a Volatile Economy Good for America?

I have tremedous respect for the work of David Warsh. So, his conclusion - is the basis for a thoughtful and civil discussion/disagreement.

Indeed, more attention to measurement in economics in general wouldn’t hurt. It has been more than 25 years since the last Nobel prize went to a measurement economist – to Richard Stone, of Cambridge University, in 1984 (and just two others before that, to Simon Kuznets and Wassily Leontief, both of Harvard, in 1971 and 1973, in the early days of the prize). Economics needs to become much more empirical.

The eventual payoff was 2006 book by Clair Brown, John Haltiwanger and Lane: Economic Turbulence: Is a Volatile Economy Good for America?, that offered a clear definition right from the start. Economic turbulence was as the entire process of economic change; workers changing jobs, firms expanding and starting up, contracting and shutting down. The sheer amount was staggering, they wrote: in any given quarter, one jon in four begins or ends, one in thirteen jobs is created or destroyed, and one in twenty establishments opens up or closes down.

A Few Words about the Vladimir Chavrid Ward

Friday, December 17, 2010

Economic Education

Two announcements that show the options for economics instrutors who want to impact economic education.

The National Science Foundation (NSF) recently funded an initiative to promote the use of innovative economic education at community colleges (see

The project is co-led by Mark Maier, Glendale Community College (CA), and Cathryn Manduca, Science Education Resource Center, Carleton College (MN).

The first phase of this project will bring together 20 economic educators for a workshop to plan regionally-based outreach programs and workshops for community college economics instructors. The economic educators will be joined by 8 experts from other disciplines that have already developed national outreach programs targeting community college instructors. The entire group will meet in Palo Alto, CA, May 31-June 1, 2011. Working in a collaborative manner, building on material prepared in advance of the meeting, the group will develop plans for four regionally-based training programs to take place during 2011-2012. Participants in the June workshop will be encouraged to apply to take part in these efforts.

The NSF grant will pay the following expenses for the economic educators selected to participate in this workshop:

* two nights, hotel and meals for representatives from four-year colleges and universities;
* two nights, hotel, meals and travel for representatives from two-year institutions.

This meeting was intentionally scheduled just prior to the inaugural National Conference on Teaching Economics and Research in Economic Education (June 1-3, 2011, Palo Alto, CA) <> with the hope that workshop participants would also be able to participate in the conference. Note, however, that the grant will not pay for the conference registration or for accommodation after June 1.

National Conference on Teaching Economics and Research in Economic Education
June 1-3, 2011 Palo Alto, CA

The AEA Committee on Economic Education, in cooperation with the Journal of Economic Education, will host a national conference on Teaching Economics (at the undergraduate and graduate levels) and Research in Economic Education (all levels, including precollege) from June 1-3, 2011.

The venue for the conference will be the Stanford Institute for Economic Policy Research, with a dinner on June 1 at the San Francisco Federal Reserve Bank. Due to space constraints, registrations will be limited to 150.

Plenary sessions at the conference will include:

■Vernon Smith, "Bringing Experiments and the Scottish Enlightenment into the Classroom"

■B. Douglas Bernheim, "What Have We Learned About the Effects of Economic and Financial Education on Household Financial Decisions?"

■John Taylor, “Lessons from the Financial Crisis for Teaching Economics”

Tuesday, December 14, 2010

Columbia Eminent Domain Case Will Not Be Heard - Megan McArdle - National - The Atlantic

Boyes illustrates the growth of the state in the recent Washington "compromise" over tax policy. The Washington decision illustrates the public choice observation that concentrated perceived benefits will be "maximized" in the short run if costs can be differed into the future. This short term/long term element of public policy offers continuing opportunities for rent seeking as well as stimulus for expansion of the state.

Another example of the expansion of the state takes place in New York City.

Megan McArdle ends her post on the expansion of the state:

I don't understand why this is an issue that only fires up libertarians. Can't we all agree that it would be better to live in a world where Columbia cannot do this sort of thing? I guess not, though.

I think part of the answer to McArdle's bafflement is twofold - first an evolution in the belief system that underlies our ethical concern with freedom and second the shaping of this belief system by the intelligensia.

First, as the debate over at CATO illustrates, there is a real debate today over the source of rights. The majority in our society seem to agree that that state is the source of rights. This would reflect the change in culture that has become both collectivist and focused on security rather than liberty. McArdle's outrage is understandable in this case, but the state will consistently respond to rent seekers and the concentration of benefit to a large university will predicably override the diffused costs to the inhabitants of the surrounding area. This case also illustrates the power of the intelligensia - university concerns are, in their view, much more important than the concerns of the "common" folk surrounding Columbia.

McArdle seems to miss the point as she writes below. The benefit, from the perspective of the elite intelligensia is a larger capacity to create more elite intelligensia. The consequence - NYC becomes more elite and able to shape society - this is the perceived benefit to the rent seekers at Columbia and the threat that Leviathan poses to us all. While it is not surprising that elite rent seekers would strive to expand their sphere of control, nor that the elite intelligensia (would members of the courts in this area have attended elite schools?) would support this expansion, it is of concern (although not surprise) that the "common" inhabitants of New York City and our country so willingly acquiese to this sacrifice of the source of liberty - our property rights.

In the case of Columbia, there's a tangible public loss--they're going to tear down one of the few gas stations in Manhattan in order to give Columbia's privileged students more space. And what public benefit does the city get? We're talking about taking taxpaying private properties and transferring them to a non-profit which will not pay taxes, and will turn a large swathe of Manhattan into a quasi-compound for some of the wealthiest and most privileged people in the city.

One's gut and one's social conscience positively riot at the thought of taking this seized land and handing it over to wealthy private institution that almost exclusively serves the affluent class.

Columbia Eminent Domain Case Will Not Be Heard - Megan McArdle - National - The Atlantic

The Tax Compromise

The so-called tax compromise looks sure to pass. It keeps tax rates where they have been for eight years for another two years, increases the death tax from its current zero percent to 35%, increases unemployment compensation by allowing those long term unemployed to receive benefits another thirteen months, and reduces the employee payroll tax by two percentage points. And this is all paid for by ......borrowing, printing money running higher deficits and increasing debt. And this is good? It seems to me that a better solution would have been for Republicans to demand spending cuts along with a permanent extension of income taxes. If businesses have been unwilling to invest because of uncertainty about taxes, how will this help. Invest now so tyhat in two years you might have significantly higher taxes? Doesn't make sense.

In the WSJ today, Jeremy Siegel says the Fed policy is working. The QEII is to print $600 billion (Bernanke says not print money but digitize it??) and focus on bringing long term rates down. But, the fact that long term rates have risen suggests the Fed policy is working -- quite convoluted, but Siegel says that the rates are rising due to expectations of an improving economy and future inflation. I am a little confused over this, although the expectations of future inflation surely have to be there. However, with that debt ratio (debt to GDP) getting higher, I don't see how expectations of strong economic growth can exist.

I just finished a fascinating book titled "Capitalism with Chinese Characteristics". Not easy going but explains how the state continues to control things in China, how the entrepreneurial spirit that developed in the 1990s in the rural areas has been taken over by state spending in urban areas. I mention this because so many people are arguing that the US should follow the Chinese example of state capitalism. With the tax compromise and Fed policy, the US is doing just that -- the state continues to grow.

Monday, December 13, 2010

Coordination v cooperation

Dan Klein of George Mason University talks with EconTalk host Russ Roberts about the marvel of economic coordination that takes place without a coordinator--the sequence of complex tasks done by individuals often separated by immense distances who unknowingly contribute to everyday products and services we enjoy. Klein also discusses what he calls "the people's romance"--the idea that the highest form of human cooperation is through government action.

This podcast is an accessible and thoughtful introduction to the work of Adam Smith and FA Hayek and provides a set of resources that might be of interest to those interested in comparative institutional arrangements.

The Liberty Fund has an annual conference on each of these thinkers.

Saturday, December 11, 2010

Robert Nozick -- Why Do Intellectuals Oppose Capitalism?

Boyes and I have blogged on more than one occasion on the notion of spontaneous orders (emergent and evolutionary in nature) and command systems. The former arise from the actions of individuals, what Austrians characterize of human action and not of human design. That is, liberal societies that are civil allow for a diversity that leads to outcomes far different than anything a single human could envision.

The latter suggests that the chaos of humanity is best tamed and controlled in order to achieve some aim.

Hayek and Sowell have invested time in exploring this difference in cosmology. Nozick's article is an accessible and provocative examination of the underlying rational for the command perspective. I found his focus on intellectuals and public education thoughtful and worth considering:

Central Planning in the Classroom

There is a further point to be added. The (future) wordsmith intellectuals are successful within the formal, official social system of the schools, wherein the relevant rewards are distributed by the central authority of the teacher. The schools contain another informal social system within classrooms, hallways, and schoolyards, wherein rewards are distributed not by central direction but spontaneously at the pleasure and whim of schoolmates. Here the intellectuals do less well.

It is not surprising, therefore, that distribution of goods and rewards via a centrally organized distributional mechanism later strikes intellectuals as more appropriate than the "anarchy and chaos" of the marketplace. For distribution in a centrally planned socialist society stands to distribution in a capitalist society as distribution by the teacher stands to distribution by the schoolyard and hallway.

Robert Nozick -- Why Do Intellectuals Oppose Capitalism?

The analysis of the alternative perspectives - individual v command, is the topic of the Econ Talk episode with Dan Klein.

Dan Klein of George Mason University talks with EconTalk host Russ Roberts about the marvel of economic coordination that takes place without a coordinator--the sequence of complex tasks done by individuals often separated by immense distances who unknowingly contribute to everyday products and services we enjoy. Klein also discusses what he calls "the people's romance"--the idea that the highest form of human cooperation is through government action.

Thursday, December 9, 2010

The Grinch Who Stole Christmas

The following story was posted by Art Carden on the website.
How Economics Saved Christmas
Dec. 9 2010 - 9:11 am

Every Who down in Whoville liked Christmas a lot.

But the Grinch, who lived just north of Whoville, DID NOT.

He stood and he hated the Whos and their noise

He hated the shrieks of the Who girls and boys

For fifty-three years he’d put up with it now—

He had to stop Christmas from coming, somehow.

He asked and he questioned the whole thing’s legality

Then his eyes brightened: he screamed “externality!”

He reached for his textbooks; he knew what to do

He’d fight them with ideas from A.C. Pigou

This idea has merit, he thought in the frost

A tax that was equal to external cost

At the margin, would give all the Who girls and boys

An incentive to stop all their screaming and noise

Failing that, an injunction to make them all cease

And they’d have to pay him to have their Roast Beast.

Low costs of transacting meant that if the Whos

Were the high-value users and wanted to use

All the rights to have feasts and the rights to sing songs

Then they’d have to buy them, to right their Who wrongs

They’d buy a noise easement, if they wished to sing

Until then, the Grinch could stop the whole thing.

On Christmas Eve Night, the Grinch went to town

He stole all the presents, he took their wreaths down

He stole their Who Hash, everything for their feast!

He swiped their Who Pudding! He swiped their Roast Beast!

He looked at his sled loaded up with Who snacks

‘Twas quite an efficient Pigovian tax!

Then late in the night, when he got to Mount Crumpit

For he’d taken the load, and he threatened to dump it

The Whos, with one voice crying out in the night

Screamed “bring back our stuff! You haven’t the right!

“We know that we’re noisy all through Christmas Day,

But if you don’t like it, it’s you who should pay!

“For we were here first, and homesteaded the rights

To sing, to make noise, and to hang Christmas lights

“The costs of our Christmas joy helped you to save!

They were fully reflected in the price of your cave!”

“We’ll all be good neighbors, and we’ll be polite

“But you’ve done us wrong on this Christmas Eve Night!”

The Grinch was crestfallen, he knew he had lost

For he was the source of the “external” cost

He’d come to the nuisance, and yes, he was wrong

He’d now have to live with their noise and their songs

He realized that day, though, that they could be friends

His heart grew three sizes (you know how this ends)

The Whos asked the Grinch to join them in their feast

And he—he, the Grinch—carved the Roast Beast.

The holiday season brings specials galore

They teach us that Christmas can’t come from a store

Reflect, as you watch them, as day turns to night

On good economics, and property rights.

Monday, December 6, 2010

Civil society and voluntary self help

Boyes raises what is a significant illustration of the difference in outcomes from voluntary exchange v. centralized planning. That there will be those less fortunate and in the extreme those unable to maintain themselves is a regretable yet universal in society.

The alternatives for providing assistance to those in need range along the same continue of all exchange - on one hand voluntary self help groups to centralized programs.

Boyes and I both work for the state, but the holiday efforts to coerce "giving" can lead to unfortunate outcomes. Like Boyes I prefer to provide assistance voluntarily to those groups that I view as achieving ends that I support - for example The Foundation for the Teaching of Economics, the Arizona Council for Economic Education, the congregation that my family attends.

This individual, voluntary support had a long history in American culture - deTocqville was struck by the magnitude and generosity of 19th century Americans. Our society inculcates through secular and religious institutions this self help, which continues at a reduced level due to the expansion of the Welfare and Warfare state.

Boyes points out an interesting empirical issue - statists tend to provide less private support to charity than do those who value liberty and freedom. In order to support a civil society the strength of private support for values such as self help and mutual support seems essential. With a commitment to liberty comes a commitment to responsibility and it appears that responsibility is defined and viewed very differently depending upon the perception of the role and significance of the state in charity.

That said, the 20th and 21st century emergence of a welfare state seems to have "crowded out" some private support at the margin.

Russ Roberts elaborates on this point:

Perhaps Americans are less generous than they appear to be. But economics suggests a different explanation. Charitable giving by Americans one hundred years ago was a very different picture. Back then, numerous private charities helped the destitute, the insane, the single mother, and the elderly. Some catered to the poor of specific nationalities or religions. Some provided coal in the winter or work or food or clothes. What has changed?

The simple answer is the role of the federal government in the welfare system. It is commonly believed that before the great depression, the poor, the elderly, and the vagrant had to rely on private alms. That turns out not to be true. The government has been involved in helping the poor in America since colonial times.

But the Great Depression is a key watershed. Before the Great Depression, public aid to the poor typically took place in almshouses or poorhouses, facilities run by the city or county where destitute people could get work and receive food and shelter in return. By all accounts, these were distinctly unpleasant places, perhaps deliberately so, as stigma was believed to be an important deterrent to dependency.

Free markets tend to allow for the emergence of systems of survival. Part of this emergence are private systems of assessment, the one Boyes references is very useful Chairty Navigator - which has a mission to:

Charity Navigator, America's premier independent charity evaluator, works to advance a more efficient and responsive philanthropic marketplace by evaluating the financial health of over 5,500 of America's largest charities.

Click over to determine the efficacy of the charity you are voluntarily considering for support v the charity that your employer is attempting to promote.

For fun, I compared the ratings of the Goldwater Institution -

and, while I was unsuccessfully in a review of Greenpeace, I did look at United Way of Mesa -

Saturday, December 4, 2010

The Christmas Season, Charities and Government

It is the Christmas season and with the economy experiencing high unemployment, many people are donating to charities. Arthur Brooks, Who Really Cares, notes that conservatives are more generous than liberals and religious people are more generous than secular people. I read today that Cuomo, the ne governor of New York, gave approximately $2,000 when his income exceeded 1.5 million dollars and gave nothing when his income was near $300,000. Liberals believe that charity is carried out through the coercion of taxes. I am being charitable if I support raising your taxes and transferring that money to others. One problem is that the liberals never point out the relative inefficiency of public income redistribution programs. Public income redistribution agencies are estimated to absorb about two-thirds of each dollar budgeted to them in overhead costs, and in some cases as much as three-quarters of each dollar. Robert L. Woodson (1989, p. 63) calculated that, on average, 70 cents of each dollar budgeted for government assistance goes not to the poor, but to the members of the welfare bureaucracy and others serving the poor. Michael Tanner (1996, p. 136 n. 18) cites regional studies supporting this 70/30 split.
In contrast, administrative and other operating costs in private charities absorb, on average, only one-third or less of each dollar donated, leaving the other two-thirds (or more) to be delivered to recipients. Charity Navigator (, one of several private sector organizations that rate charities by various criteria and supply that information to the public on their web sites, found that, as of 2004, 70 percent of charities they rated
spent at least 75 percent of their budgets on the programs and services they exist to provide, and 90 percent spent at least 65 percent. The median administrative expense among all charities in their sample was only 10.3 percent. (See )

Each year my employer pushes hard on each employee to contribute to the United Way. I received approximately ten emails from officials at the University asking me to donate. I refuse to donate to United Way because of some of the groups United Way associates with. Moreover, United Way pays executives $300,000 salaries and flies them first class. But, most importantly, United Way keeps around 17% of revenues raised to cover overhead. Then when United Way distributes money to its associated charities they hold on to approximately thirty percent of the funds they receive. This would appear to make United Way a very inefficient charity – of each dollar raised only a little more than fifty cents goes to the people in need.

Cause for wonder

Friday, December 3, 2010

Hi, I'm from the government

NY Times hosted blog, so you can feel free to read on if you are pre disposed to trust that "media" site and distrust the WSJ or AEA. The summary of economic research is both provocative and might inform the calculation of costs and benefits in the short and long term of government interventions.

I fear, as I have blogged previously, that belief will trump any reasoned review of either the incentives or consequences of extensions of unemployment benefits. Odd to consider providing a benefit to unemployment.

Claims that extensions of unemployment are critical for the recovery of the economy smack of the triumph of faith and hope over reason and history. Moreover, the empirical confusion over the impact of 1 dollar spent on benefitting umemployment (this could be tax money or borrowing coerced from those who are working) on future economic performance - creates 1.60 dollars, creates 2.25 dollars, creates .55 dollars, destroys .45 . . . well this confusion or lack of consensus is no reason to not act.

Yet, belief trumps analysis.

As the elected representatives negotiate in Washington - extensions of unemployment in return for temporary extension of the tax cuts, I can't help but think of Bob Higgs and Kurt Vonnegut. Higgs convincingly presents the case for the negative consequences of regime uncertaintly - and the US has plenty of this right now. Vonnegut excelled at demonstrating the absurdity of central planning and that black comedy anticipates what we will be reading about over the next 5 weeks. In fact, the 2012 campaign season seems to have exploded in earnest - and actions to deal with debt and deficit are swept aside, as the media demands that we direct our attention to the unemployed. And any attention toward tax policy is filtered through a lense of rent seeking rather than legitimacy - with my apologies to Simpson and Bowles.

Thursday, December 2, 2010

Great overview of the state of economics

Earlier this fall Washington University in St. Louis hosted a wonderful conference honoring Douglass North and his work. John Nye, a longtime close colleague with North, spoke on the continuing crisis of economics and the dilemma with respect to the acceptance of New Institutionalism. It is a brilliantly delivered talk that is full of important insights.

Wednesday, December 1, 2010

Austrian School of Economics: The Concise Encyclopedia of Economics | Library of Economics and Liberty

Austrian School of Economics: The Concise Encyclopedia of Economics | Library of Economics and Liberty

Well worth a read - 3, 7 and 10 are sadly absent in much of our economic discourse and instruction.

1. Only individuals choose.

2. The study of the market order is fundamentally about exchange behavior and the institutions within which exchanges take place.

3. The “facts” of the social sciences are what people believe and think.

4. Utility and costs are subjective.

5. The price system economizes on the information that people need to process in making their decisions.

6. Private property in the means of production is a necessary condition for rational economic calculation.

7. The competitive market is a process of entrepreneurial discovery.

8. Money is nonneutral.

9. The capital structure consists of heterogeneous goods that have multispecific uses that must be aligned.

10. Social institutions often are the result of human action, but not of human design.