That doesn't mean that free markets are perfect. Or that you can't have bankruptcies or meltdowns or bubbles or busts. But to get a really spectacular meltdown like we're in the middle of now, for that you need government.

Spotted at Cafe Hayek.

Is it just me or did Ken Arrow ever feel the need to correct his Mom on economic matters? Did Adam Smith? "Look Mom, I know you're upset about the price of mutton but let me tell you about this new theory I've been working on..."

-Alex Tabarrok over at Marginal Revolution. He was explaining gas prices to his mother.

I've been holding onto this for a little while, not sure what to do with it. This quote comes from Dan Rothschild of George Mason University.

The lesson of Katrina that matters the most is that the promise of federal assistance that will likely never materialize can be as destructive as the initial disaster...

What residents need in this maw of confusion is certainty. They need to know which roads will be rebuilt, and when the power and water will come back online. They need to know that the rule of law will be enforced. In short, they need to know what economists call the "rules of the game" for rebuilding.

These rules are critical to the myriad private-sector decisions that follow and signal whether and how a community will rebuild. Decisions about insurance coverage, when and where grocery stores, banks and numerous other businesses will reopen, and where children will play are vital private-sector decisions that require clear, credible commitments from the public sector to be made efficiently...

What residents of disaster-stricken areas don't need are vague promises from officials that add to the confusion and force residents to delay the millions of decisions, small and large, they need to make to re-create a viable community. And they don't need government leaders to make promises that are unlikely to be kept.

The dirty secret of government disaster response is that what's promised immediately after a disaster seldom comes to fruition.

Emphasis is mine. I think this is very much true; the market will provide for people, but not if the government promises that they will do it. If the federal government wants to help, post hoc subsidization of particularly useful acts seems more helpful to me.

Joseph Schumpeter from his diary:

Politicians are like bad horsemen who are so preoccupied with keeping in the saddle that they can't bother about where they go.

David Byrne on his modern-day journal: his Blog

In my opinion, this is just the beginning. When gas tops $10 a gallon THEN perhaps we’ll see the US public demand that our government seek alternative energy sources and demand that everything in our lives be more energy efficient. That day is not so very far away. (And this might actually be a good thing if we consider our carbon footprints)....

This sounds depressing and ominous, but I sense that one’s quality of life is not actually tied to these goods, and is certainly not tied to the automobile and all the roads and services it’s demanded for almost a century. US commuters, for example, will probably blame the Arab world, but will also look for alternate solutions, like decent public transportation, and living closer to their place of work, which is also a good thing. In fact, after some very nasty times we could — if we don’t let our anger and pain get the better of us — emerge with a better quality of life than what we have now.

Just a reminder to any readers that come to the site, the sidebar on the right contains an box with the last five items that I've shared in Google Reader. I try to reserve these for interesting intellectual reading that would be both time-consuming (to me) to write up, and also probably rather boring for the people who read my blog, basically just my family.

Today I've shared a piece from the Becker-Posner blog, whom I've covered before, about "bribing" poor children to stay in school. The post is by Becker, about a Mexican program that pays parents to keep their kids in school, and the recent NYC initiative to pay high schoolers for passing performance. Interesting reading. And of course, check out my other starred items while you're at it.

Incidentally, if there are any Google Readers out there, you can either subscribe to my shared items as an RSS feed, or you can "friend" me.

See here. I've hesitated to link to him in the past, as he is acerbic and rude, and may turn off people who aren't already generally oriented for it. I don't agree with every thing he says, but I do agree with the gist of this article. The dissenting opinion I would like to express is that by alleviating personal responsibility for environmental damage, one is begging for collective, negligent action. Where the line is drawn I don't know, but check out this article if you've ever thought beyond the surface on environmental issues.

Hat tip to Tyler Cowen and Don Boudreaux for their respective links to a Boston Globe article by their colleague Peter Leeson. It's about efficient democracy, effective criminal justice, division of labor........and pirates.

The stimulus package....political self-gratification at its finest.

Steven Landsburg makes a good point about twilight industries (for example, those pandered to most sloppily during the primary season):

Ultimately, the only solution to unemployment is for displaced workers to get retrained and find their way back into the workforce. The new stimulus package only delays that process by propping up dying industries for a while and postponing the day of reckoning. Ultimately, there will be just as much hardship because the stimulus package can't last forever. Why spend all this money trying -- and probably failing -- to delay the inevitable?

Japan in particular moved their economy extremely quickly from Industrial Revolution-era industries to high-tech ones by subsidizing the losers: paid re-training for computer skills, severance packages for older workers, and other more subtle (keyword: market-tweaking) measures.

Also today, I'm going to do the unthinkable: link to a Bob Herbert post. Okay, so it's still sophomorically written and over-simplified, but it's one meta-issue on which I agree with Mr. Herbert (can I have that job??). Read Investing in the U.S. at the NY Times; the crux of the issue is that the nation's infrastructure is falling behind the rest of the world and more importantly, behind the capabilities of our economy. Mr. Herbert reminds us that government spending on public works is good for economic stimulus, pointing to the Erie Canal and the New Deal. OK, great. Obvious, but true. Let's not wait for another I-35 Bridge Collapse or Hurricane Katrina to prove that our roads, bridges, dams, ports, trains, etc. are out-moded.

Tyler Cowen at Marginal Revolution noted recently that it would be more beneficial for everyone who got money back to invest in annuities so that the feds could borrow at low interest rates for us. I think he hits the nail on the head by saying that inadequate aggregate demand was never the problem, and thus, greater liquidity isn't a solution. Read his always-cogent comments here.

Finally, Greg Mankiw, never one to beat around the bush, puts together a list he calls The Coalition Against Fiscal Stimulus, including Mr. Landsburg, Alex Tabarrok at Marginal Rev., Russ Roberts and Don Boudreaux at Cafe Hayek, and a host of others.

I feel that it's about time that I mention Gary Beckner and Richard Posner's blog. Becker is a Nobel laureate economist and Posner is a decorated law scholar. The format is an every-Sunday long-ish essay on a topic by one, with the other providing their thoughts and somewhat briefer commentary in the next post (same day).

I have shared with my reading public their most recent post on the Black-White Income Differential. You can find Becker's essay in my "Google Reader Shared Posts" on the right-hand sidebar. For Posner's comments, click here.

The photo above is the header for the blog, and a teaser for Becker's portion.

Check out this NYT article about the immigration issue in AZ. I live at 36th and McDowell, which is two stoplights from 35th and Thomas. Click here. These are the parents of the children Miss Bee and I teach, their tios and primos and friends of their parents.

Definitely check out the slideshow that goes with the article. Sheriff Joe Arpaio is overboard, but he's got a lot of support here.

My take? The January 1st law, which punishes businesses for hiring undocumented workers, is one of the most overt displays of racism you're likely to see. We allow the import of cheap foreign goods and export service jobs to foreigners for lower wages.

On the flipside, it certainly is much more difficult to compete as a blue collar business when your competition is using underhanded techniques like paying wages and taxes in cash, for lower than market prices.

Without local government intervention, perhaps we could see the markets respond appropriately, but given the response from the sheriff's department, we're more likely to see an exodus of hard-working men and women.

Economics is the study of trade-offs. When these families move back to Mexico, it contributes to instability in the schools, generally lowering class sizes. Smaller class sizes, decreased local tax revenue, and already poor support for school districts all contribute to a reduction in the number of teachers, and prohibits increases in salaries for teachers. As a result, there are fewer talented people attracted to small, poor school districts, perpetuating the cycle of lower-quality education for what is labeled a lower-quality district, school, and community.

Raise wages for teachers and I promise that you'll see an improvement in the long run...but what administrator can plan for the next three to five years when their job depends on the next one or two?

As Lawrence Downes narrates, "These are men who want to work". Regardless of whether they are in the U.S. or Mexico they are very poor, and seeking the best for their family. Is that so horrible?

One is by Nawaz Sharif, the former President of Pakistan, whose government was deposed by military leader Pervez Musharraf several years ago. When General Musharraf declared the Constitution invalid a few weeks ago, it was really the latest of a series of human rights violations that includes the refusal of 160 Pakistanis the vote and the denial of governance to minority group leaders Mr. Sharif and Benzanir Bhutto; while Ms. Bhutto has in fact herself been found guilty of corruption, military autocracy, the suppression and disbandment of the judiciary, and the absence of the rule of law based on the opinions and political ends of one man should be swiftly dealt with...like, by the denial of funds to the corrupt government. By some estimates, more unaccountable cash is given by the U.S. directly to Musharraf's government (the Pakistani military, which itself is really more of a large collection of mercenaries) than through proper foreign assistance channels. Read Mr. Sharif's comments here.

The second is Professor Tyler Cowen of George Mason, writing on the cost of the Iraq war in the form of an open letter to President Bush. After noting that a White House economic advisor was fired after estimating that the war would cost $200 billion, Mr. Cowen tells us the true amount: over $1 TRILLION. He then goes on to say

But all these figures don't quite get at Iraq's real cost. Indeed, we usually don't even frame the question the right way. We'd do better to recognize what we've lost, rather than focusing only on what we've paid.

The article is short and swift, as always with Tyler very well written and reasoned. Some may remember my opposition to the war dating back to, well, before the war, and this editorial sums up quite a few things that I dreaded: massive loss of life (huge costs) while not radically altering the Middle East and in fact empowering other rogue states (grossly insufficient rewards). But most of all, it comes down to opportunity costs. What could we have done with the available federal troops? (New Orleans and southeast coast hurricanes, California wildfires.) What could we have done with the four thousand dead soldiers, the thirty thousand wounded soldiers and the other physical and psychological casualties of war? (Brought the long arm of justice down on bin Laden, put real pressure on Kim Jung Il and/or Mahmoud Admadinejad, had happier Thanksgivings.)

And one thing that Tyler didn't touch on that I would like to is that the U.S. shovels money into Middle Eastern duffel bags at unprecedented rates. With all the tough talk from Washington about Hugo Chavez and South American oil-rich nations, with all our fumbling about in Iraq, Iran, Afghanistan, why are the American people NEVER asked to make a sacrifice Congress are the only American citizens who are ever asked for more money - and it's certainly not out of their pockets. Taxes are lowered while government defense spending goes through the roof. I know this is Thomas Friedman's territory here, but a gasoline tax, a so-called Patriot tax on gas that would dually benefit the environment while not lining the pockets of ayatollahs and Saudi princes?

Read Tyler Cowen's lovely argument for the real cost of the Iraq war here.

Finally, Paul Krugman has a nice post up today about the economics behind the falling dollar. If you have any interest in a discussion of interest rate policy and the resulting effects on unemployment, exchange rates, and spending markets, have a look. It's not as WONKISH as he claims at the beginning, in fact it's rather simple. The first comment appears to be knowledgeable, disagreeing with Mr. Krugman. Read the post and see what you think.

I was trying to think of the term "aptonym"; meaning someone whose name, apropos to their job, is notable. I had all but abandoned this post idea because I couldn't come up with the word and out of nowhere the Freakonomics blog had a link to a pretty good one: a dentist named Dr. Trusty who was dancing to the song 'Car Wash' and got a drill bit stuck in his patient's face.

You can find plenty of examples if you google 'apotonym': the hydraulic engineer named Flood or whatever...but I liked this one. Turns out that there is a gentleman named Thomas Saving who once held the austere title of Public Trustee of the Social Security and Medicare Trust Fund. I love it!

Encountered at Cafe Hayek in Don Boudreaux's reaction to Paul Krugman's Friday column accusing Barack Obama of being hoodwinked by Social Security doomsday predictions.

*Update* Krugman offers more on his blog.

and argues for a "Patriot Tax" on gasoline. Good reading, check out the article.

New Perspectives Quarterly records a late-in-life interview with Milton Friedman:

The great virtue of a free market is that it enables people who hate each other, or who are from vastly different religious or ethnic backgrounds, to cooperate economically. Government intervention can’t do that. Politics exacerbates and magnifies differences.

That little box to the right of the text, my Google Reader Shared Items, shows the last five posts that I've selected to appear there. The top article is by Gary Becker, economist and Nobel laureate, regarding central banking. It's a bit dense perhaps for some, but as Mark once put it to me "we only have so much time to read the Internet" and that we should spend it reading truly brilliant scholars. The next is about No Child Left Behind, which may be of interest to some; the last article is also from Cato-at-Liberty's blog regarding education policy. So keep your eyes open for interesting things I've found floating on the Interweb and check them out.

Two thoughts, apparently completely unrelated.

1. Russell Roberts writes economics textbooks wrapped up in very good fiction. His books are widely available on Amazon, and possibly your local library. That said, I've only read the first, "Invisible Heart". He also blogs at a personal favorite, CafeHayek, with Donald Boudreaux, and also hosts a podcast called EconTalk, if you into those things.

In the spirit of Marginal Revolution, here's the best line I read today before 8 AM:
"Don't expect pigs to fly, cats to bark or politicians to act as if they care about us. They care about us if it helps them prosper. If it doesn't, they care about more important influences."

The post is about libertarian paternalism and its failings.

2. Hilly Kristal has passed away. Founder of the CBGB club in New York's Bowery, Hilly introduced a lot of people to a lot of good music: Television, The Ramones, Talking Heads, Patti Smith, and Blondie are a few that got a real start here. After getting his start at the famous jazz club Village Vanguard, Hilly opened CBGB to cater to the NYC Country Blue Grass Blues crowd, however, Tom Verlain and the boys in Television convinced him to let them play as the house band; a nucleus of punk fans started to hang out there, and the rest is history.

All mp3s hosted by zShare today, as DivShare is giving me more guff than usual. Apologies for the ads.

Television's debut album Marquee Moon rocks. I can't really say I've extensively listened to the rest of their catalogue, but I could post the entire Moon album and not be ashamed.

The first song off their first album: See No Evil

The title track is just huge, eleven minutes of punk masterpiece: Marquee Moon.

Perhaps you don't love the Ramones. I don't. But I do love this song, off 1977's Rocket to Russia: Here Today Gone Tomorrow

I'm not exactly a huge Blondie fan, but I remember Grandmaster Flash talking about this song one time, saying essentially that even though no one knew what the hell Debbie Harry was talking about on this song, the hip hop community appreciated her efforts! You gotta hear this one: Blondie's Rapture.

I've been dreading this. Choosing one or two Talking Heads songs is really difficult.

Clean Break (Live 1977)

Sugar On My Tongue from Talking Heads: 77 extras

And to hark back to my Fela Kuti post: Fela's Riff (Unfinished Groove) from Remain in Light bonus materials.

Post title continuation: "this ain't no Mudd Club, no CBGB, I don't have time for that now."
-David Byrne on "Life During Wartime"

I'm going to start with the last one: Did anyone else see the Yankees get beat by 16 last night! Hahahaha... nice start Moose.

Art de Vany is quite a likable character: he writes with immeasurable wisdom on the science of food, he's an active 70-year old who loves sports - both performing and watching professionals, and he's an economist. He seems like a very even-headed and intelligent guy who's also fun: basically, who I hope to be in 50 years. Check out some of his writing here.

A new paper purports to give evidence that women are better at orienting themselves to healthier food sources, for evolutionary purposes. Men were hunters, women gatherers; thus, while men are generally better at navigation (required to get home after tracking an animal longer distances), when asked post-hoc to locate a particular food source, women more precise. Less convincing to me is their argument for the female predilection towards pink-red hues rather than blue-green. This article is worth reading for the summed up findings.

Is everything we know about saving the environment wrong? That's the title of an article in The New Republic ($1.25 an issue is probably worth it, assuming you're employed). I suppose I could be considered both a believer in "green" issues, as well as a skeptic; this article should give a good indication of why I'm not willing to radically put myself out for the purpose of not harming the environment: there's a good chance that I'm doing something else that harms something else. Economists are familiar with this problem.

Alex Tabarrok of my favorite econ blog Marginal Revolution has a brilliant idea for vetting presidential candidates:

Thus what we need is a way of conveying information to uninformed, unsophisticated voters in a way that is entertaining yet produces information about politicians that is correlated with real skills.

I suggest a game show, So You Think You Can Be President? SYTYCBP would have at least three segments.

Coase it Out: Presidential candidates have 12 hours to get a bitterly divorcing couple to divide their assets in a mutually agreeable manner. (Bonus points are awarded if the candidate convinces the couple to stay together.)

Game Theory: Candidates compete in a game of Diplomacy. I would also include several ringers - say Robin Hanson, Bryan Caplan and Salma Hayek. Why these three? Robin is cold, calculating and merciless - make a logical mistake and he will make you pay. Bryan is crafty and experienced. And Salma? I couldn't refuse her anything but presidents should be made of stronger stuff so we need a test.

Spot the Fraud: Presidential candidates are provided with an economic scenario (mortgage defaults are up, hedge funds are crashing, liquidity is tight). Three experts propose plans. The candidate must choose one of the plans. After the candidate chooses, the true identities of the "experts" are revealed. One is a trucker, another a scuba diver instructor and the last a distinguished economist. Which did the candidate choose?

I added the hyperlinks to Overcoming Bias, of which Hanson is a contributor, and econLog, which Caplan writes with Arnold Kling.

Here's the rest of the article.

Also, Kathy G. responds to the sexism by suggesting the use of George Clooney to interrogate Hillary.

I wonder if he chose Hayek based on her last name...I assume she's no relation to a certain Friedrich.