Archive for the ‘economics’ Category

A stimulus package for… the porn industry?

There are news reports that Larry Flynt of Hustler and “Girld Gone Wild” creator Joe Francis are planning to ask Congress for a $5 billion federal stimulus package.   Apparently, adult DVD sales are down 22 percent over the past year, so maybe porn isn’t as recession-proof as some previously thought.

Anyway, like that’s really gonna happen.  A $5,000,000,000 bailout for pornographers, about a third as much as the auto industry was seeking?  I think the auto industry is more than three times as important to our overall economic well-being as the porn industry.  The pornography industry makes about $13 billion per anum and, as Flynt and Francis admit, is in no danger of collapsing any time soon.

I’m sure that Messrs. Flynt and Francis also know this and are simply making this request to get publicity.  Maybe sort of like the folks that tried to hit up Virgin Galactic to film a porno on one of their space ships.

Incidentally, Francis, of “Girls Gone Wild Fame,” is scheduled to be tried in federal court in a few months on tax evasion charges, according to the LA Times.

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Thoughts on China’s economy

Did you know that red was Karl Marx's favorite color?  Anyway, the PRC has a good flag.

Did you know that red was Karl Marx's favorite color? Anyway, the PRC has a pretty good flag.

Jonah Goldberg, editor and columnist for National Review Online, raises some interesting questions about the Chinese economy.  He is skeptical of all the claims that China will surpass the United States economically in 2027 (or whatever year people are now predicting) on account of some serious structural problems with China’s institutions.

Ask yourself this: Why are we in this financial crisis?

Any short list of reasons would include a lack of transparency in markets and regulatory rule-making; collusion between business and government; the politicization of lending practices (including the socialization of risk and the privatization of profit through giant governmental entities like Fannie Mae); and, of course, simple greed.

Does anyone honestly think China doesn’t have these problems ten times over? It has no free press, no democratic accountability, and no truly independent regulators.

After every Chinese earthquake, we discover that safety inspectors couldn’t be trusted to oversee the construction of schools and hospitals. And we’re supposed to believe that China’s corrupt model produces toxic baby formula but spic-and-span finances?

Goldberg calls China’s entire economy “one big Fannie Mae” and suspects it won’t be anytime soon that the People’s Republic surpasses the United States as the world’s leading economy, just as predictions in the 1980s that Japan would do so proved incorrect.

People selling their bodies to make ends meet in bad economy

MSNBC has a story about people selling their bodies for money to make ends meet in the current economy:

Increasingly, industry officials say people are hoping to trade spare body fluids, tissues and other parts for payments that can range from $20 to $50 a pop for blood plasma to $60 to $100 for a shot of sperm, $200 for a shiny ponytail and up to $7,000 for a fertile egg.

At the Seattle Sperm Bank alone, donor applications have tripled from 50 to 150 a month during this financially precarious autumn, staff members said, while officials at egg donation agencies from Chicago to Houston estimate that calls are up at least 30 percent over last year.

Apparently, sperm donors can make $60 a pop ten times per month.  But according to one industry insider, only 9 out of 1000 applicants are finally approved (medical reasons and failing a background check are two possible pitfalls for would-be sperm donors).

If you clicked on this post thinking it was about prostitution, you need not be disappointed.  ABC News reports that Nevada’s brothels, which operate legally, are seeing a big increase in the number of women applying.  (In the video report one brothel owner said she had a 72-year old woman apply!)  While demand for prostitutes has remained steady, incomes are down as the customers have less money to spend.

I hope I’ll be excused for not including any images with this post, but Nevada’s flag is really lame.

Eliot Spitzer: bailouts a bad idea

Eliot Spitzer, the former Attorney General and Governor of New York State who resigned the later office amid a prostitution scandal, has an interesting op-ed on the current bailouts and America’s economic problems in general.

[C]urrent bailouts—a remarkable $7.8 trillion in equity, loans, and guarantees so far—may merely perpetuate a fundamentally flawed status quo. So far, at least, we are simply rebuilding the same edifice that just collapsed. None of the investments has even begun to address the underlying structural problems that are causing economic power to shift away from the United States, sector by sector.

This long-term change frames the question we should be asking ourselves: What are we getting for the trillions of dollars in rescue funds? If we are merely extending a fatally flawed status quo, we should invest those dollars elsewhere. Nobody disputes that radical action was needed to forestall total collapse. But we are creating the significant systemic risk not just of rewarding imprudent behavior by private actors but of preventing, through bailouts and subsidies, the process of creative destruction that capitalism depends on.

Spitzer argues that, instead of rescuing these financial giants as they currently are, we should take this opportunity to rethink how these institutions are set up.  He says the gigantic financial institutions that currently exist create three problems: (1) they become too bloated and inefficient; (2) with fewer banks and other institutions competition is decreased; and (2) they become “too big to fail.”  The first problem could be solved by market forces, given time; the later two cannot.

The erstwhile governor argues that “the better policy is to return to an era of vibrant competition among multiple, smaller entities—none so essential to the entire structure that it is indispensable.”  If we’d done that previously, we might not have to throw trillions of dollars at these companies now and could dedicate the funds to solving other problems like:

  • our incredibly low, if not negative, household savings rate;
  • our huge trade deficit;
  • our huge budget deficit; and
  • middle class stagnation.

It’s an interesting article.  Unfortunately, it does a much better job demonstrating the problems than pointing out their solutions.

Why I’m voting NO on Maryland’s slots referendum

Maryland's flag is one of the best in the Union

Maryland's flag is one of the best in the Union

With Maryland certain to cast its 10 electoral votes for Barack Obama in tomorrow’s presidential election, the most controversial state-wide ballot question is the Constitutional amendment that would legalize slot machines at five locations in the state.  The purpose of the measure is to raise tax revenue for education, but, after a lot of thought, I am going to vote no on the amendment and urge my fellow Marylanders to do likewise.

The problems with gambling are well known: gambling addiction, increased alcoholism and bankruptcy, and the potential for increased crime and family problems.  Treatment and response to these issues could cost $228 million to $628 million annually, absorbing some of the revenue the state would gain through legalizing slots.  Liberals and those interested in social issues should note that these challenges all fall most heavily on the poor, both because they can least afford to gamble and because these taxes are very regressive, they take a much larger percentage of a poor gambler’s income than of a rich one’s—and this is after the General Assembly just increased the regressive sales tax by 20%.  There are good reasons why our state Comptroller, Peter Franchot, opposes the measure.

These are bad for Maryland

Don't believe the hype; these are bad for Maryland

Just as importantly, the many promises of the pro-slots side are unlikely to be fulfilled.  The revenue estimates were made before the current economic downturn and are therefore too high.  Additionally, some of those estimates assume that 100% of the money that Marylanders currently spend on slots in neighboring states will be spent in-state if the measure passes, clearly an unreasonable assumption.  The money won’t be staying here in the Seventh State; the biggest beneficiaries of slots will be wealthy, out of state license holders and horse breeders, not our school children and local business owners.  Many stores and restaurants near the gambling locations will suffer, as just about every dollar stuck in a slot machine is a dollar that would have been spent elsewhere.  And the five locations that slots would be limited to under the current measure are not particularly good spots for such devices; it’s quite possible that this amendment is only allowing slots their foot in the door before a future measure will be needed to fix this one and make slots even more profitable.

Fiscal conservatives may want to note that this measure doesn’t just raise an existing tax, or create a new tax; it creates an entirely new industry—that brings with it all sorts of economic and social problems—just so the state can tax it.  And, since money is the most fungible of all resources, in the future this will probably result in a net increase in state spending, since general revenue dollars that otherwise would have been needed for schools will then be free to be spent elsewhere.  Conservatives like me should also be concerned about subsidizing the horse racing industry.  If I were going to give welfare to an industry, it certainly wouldn’t be one that is non-vital and essentially a form of entertainment.

The Washington Post joins me in urging Marylanders to oppose slots.  You can read their editorial here, and they provide additional information about the issue here. See also what the non-aligned Ballotpedia has to report about the measure.

The revenue raised will likely be much lower than advertised, and less than half the profits would go to education in any event.  Besides, it’s immoral to balance the state budget on the backs of the poor with a regressive tax like this.  The biggest gainers if we amend our Constitution for this will be already rich out of state casino owners who won’t have to worry about the problems we’re creating for ourselves here.  Maryland did well to get rid of slots in 1968; let’s not bring them back in 2008. Vote NO on Question 2.

Thoughts on progressive taxation, redistributing wealth

Here is a quick, multiple choice, quiz.  First, consider the following quote:

The subjects of every state ought to contribute towards the support of the government, as nearly as possible, in proportion to their respective abilities; that is, in proportion to the revenue which they respectively enjoy under the protection of the state.

Now, who said that?

(A) Karl Marx
(B) Vladimir Lenin
(C) John Maynard Keynes
(D) Adam Smith

I’ll get to the answer shortly. I bring it up due to recent discussions on the “redistribution of wealth” in the context of the imminent presidential election.  Specifically, John McCain criticizing Barack Obama for wanting to “spread the wealth around” and such.  But, as a recent Slate article points out,

Government redistributes wealth to some extent by its very existence, since it’s impractical for citizens to pay for or benefit from it in equal proportion, even if that were desirable. So long as you have a system of taxation and a spending on public goods like education and roads, some people will do better in the bargain than others.

The same article points out that McCain himself supports all sorts of programs that unquestionably distribute wealth, including inter alia Social Security, Medicare, and the Earned Income Tax Credit.  And he opposed President Bush’s 2001 tax cuts on the grounds that they unfairly favored the rich.  (He has since changed his mind.)  And then there’s McCain’s hero, Theodore Roosevelt, who said this:

We grudge no man a fortune in civil life if it is honorably obtained and well used. It is not even enough that it should have been gained without doing damage to the community. We should permit it to be gained only so long as the gaining represents benefit to the community. … The really big fortune, the swollen fortune, by the mere fact of its size, acquires qualities which differentiate it in kind as well as in degree from what is possessed by men of relatively small means. Therefore, I believe in a graduated income tax on big fortunes, and … a graduated inheritance tax on big fortunes, properly safeguarded against evasion, and increasing rapidly in amount with the size of the estate.

Slate argues, in another article, that McCain should either stop calling Teddy Roosevelt his hero or should stop calling Obama a Socialist. T. R., after all, supported the 16th Amendment which authorized progressive income taxes.  That first Slate piece then critiques claims that, while McCain’s redistributive policies are okay, Obama’s are far different and go too far.  But if you’ve read that article you already know that.

McCain might call this man a Socialist for wanting to redistribute the wealth of nations

McCain might call this man a Socialist for wanting to redistribute the wealth of nations

And you also know the answer to the question which lead off this post.  So, who did say that people “ought to contribute towards the support of the government, as nearly as possible, in proportion to their respective abilities”?  Was it Karl Marx?  Or Lenin? Hopefully you didn’t guess either of them; they weren’t very big on any sort of private revenue at all, let alone protecting it with the state, whose existence Marx disdained.  So it must have been Keynes, right?  Nope.  The correct answer is (D) Adam Smith. The quote is straight from The Wealth of NationsBook V, Chapter II, Part 2 to be precise.  If, like me, you own the Modern Library edition you’ll find it on page 888.  I was pleased to see that I’d underlined that particular passage when I had last read the work.

Anyway, arguments against progressive taxation have long seemed a bit inconsistent to me.  Bill Gates must pay at least tens of thousands of times as much as I do in income taxes. But does he get tens of thousands of times more use out of the Interstate Highway System?  Does the U.S. Army protect his freedoms a million times more than they do mine?  Sure, he’s got more property to protect, but we’d both be about equally upset if the Canadians invaded and destroyed our homes.   So, unless you want a poll tax, where everyone pays the same dollar figure regardless of income, or to have everything based on user fees, you are in favor of redistributing wealth.  But, don’t worry, you’re in good company.

Attractive people make more money

CareerBuilder has an interesting story about the positive correlation between physical attractiveness and earnings. The money passage is as follows:

Good looks can have a real impact on workers’ bank accounts, according to research by Daniel Hamermesh and Jeff Biddle published in the Journal of Labor Economics. Attractive people earn about 5 percent more in hourly pay than their average-looking colleagues, who in turn earn 9 percent more per hour than the plainest-looking workers. This means if an average-looking person earned $40,000, their prettiest co-workers would make $42,000 while their least attractive colleagues brought home just $36,400. Plain-looking workers may also receive fewer promotions than those awarded to their more striking contemporaries.

The story also reports that students consistently give better evaluations to more attractive professors. It also says that “It remains uncertain whether the handsomest people translate their good looks into higher productivity.” The effects of being attractive are also disputed by some people investigating the issue. See the CareerBuilder article for details.

it is simple, distinct, and uses meaningful symbolism.  Sadly, most municiple flags are not so good.

The flag of Santa Barbara, California is very attractive: it is simple, distinct, and uses meaningful symbolism. Sadly, most municipal flags are not so good.

In any event, while it may be unfair, it is legal in most jurisdictions to discriminate on the basis of looks, unlike race, religion, and national origin. Washington, D.C. and Santa Barbara, California are two of the only municipalities with laws against appearance discrimination. On a whim, I checked the Hooters store locator to see if either city had a franchise. Santa Barbara does not, but Washington, D.C. does. I wonder if they have to do anything different to comply with the law there.

2008 Ig Nobel Prize winners

The winners of the 2008 Ig Nobel Prizes have been announced and the awards ceremony was held yesterday at Harvard. The Ig Nobel Prizes, obviously punning on ignoble and the Nobel Prizes, are given out each year for research that “first make[s] people laugh, and then make[s] them think.” Many of the categories mirror the Nobels: physics, chemistry, physiology/medicine, literature, and peace, but awards are also often given out for accomplishments in the fields of public health, engineering, biology, et cetera.

A full list of this year’s winners is available here, but here are some highlights from this year’s prizes:

ARCHAEOLOGY PRIZE. Astolfo G. Mello Araujo and José Carlos Marcelino of Universidade de São Paulo, Brazil, for measuring how the course of history, or at least the contents of an archaeological dig site, can be scrambled by the actions of a live armadillo.

BIOLOGY PRIZE. Marie-Christine Cadiergues, Christel Joubert, and Michel Franc of Ecole Nationale Veterinaire de Toulouse, France for discovering that the fleas that live on a dog can jump higher than the fleas that live on a cat.

ECONOMICS PRIZE. Geoffrey Miller, Joshua Tybur and Brent Jordan of the University of New Mexico, USA, for discovering that a professional lap dancer’s ovulatory cycle affects her tip earnings.

I’m usually most interested in the Ig Nobel Peace Prize, the first of which was given to Edward Teller, the father of the hydrogen bomb, “for his lifelong efforts to change the meaning of peace as we know it.” Last year it went to The Air Force Wright Laboratory “for instigating research & development on a chemical weapon—the so-called ‘gay bomb’—that will make enemy soldiers become sexually irresistible to each other.” (Don’t worry, the presumably non-lethal weapon never got beyond the concept phase.) This year’s peace prize winner?

The Swiss Federal Ethics Committee on Non-Human Biotechnology (ECNH) and the citizens of Switzerland for adopting the legal principle that plants have dignity.

Enshrining the dignity of plants in law? Funny, but it doesn’t come close to the most hilarious award citation ever. That distinction, in my view, is that for the 2005 literature prize. That award went to

the Internet entrepreneurs of Nigeria, for creating and then using e-mail to distribute a bold series of short stories, thus introducing millions of readers to a cast of rich characters—General Sani Abacha, Mrs. Mariam Sanni Abacha, Barrister Jon A Mbeki Esq., and others—each of whom requires just a small amount of expense money so as to obtain access to the great wealth to which they are entitled and which they would like to share with the kind person who assists them.

The winners are invited to the awards ceremony to accept their awards in person (last year, no one from Wright Laboratory showed up to claim the “gay bomb” prize, no Nigerians attended either); actual Nobel Prize winners serve as presenters. It used to be traditional for attendees to throw paper airplanes onto the stage, but that was discontinued in 2006 over “security concerns.” Apparently they are worried that al-Qaeda might hijack one of the paper airplanes or something. I guess.

Anyway, the winners of the Nobel Prizes will be announced soon. In the meantime, I’ll close this blog post the same way the Ig Nobel Prize awards ceremony is traditionally concluded: “If you didn’t win a prize—and especially if you did—better luck next year!”

Intrade markets predict Obama victory

Following last night’s first presidential debate, speculators playing the Intrade prediction markets still anticipate an Obama victory on November 4th.  Intrade is a gambling site where you can bet real money that a certain event will or won’t happen, and the presidential election is just one such event; you buy shares that will pay a fixed amount, I believe $10, if the event happens and nothing if it doesn’t; the value of the shares varies as people buy and sell them as their perception of the likelihood of the event occurring rises and falls.

At this moment, shares that will pay $10 if Obama wins (and nothing if he doesn’t) are trading at $5.60 and shares that will pay $10 if McCain wins (and nothing if he doesn’t) are trading at $4.36.  This means that gamblers—or investors, if you prefer—think there is about a 56% chance Obama will win and about a 43.6% chance that McCain will win; this is a slight move in Obama’s favor since last night’s debate.  They also sell shares for the contests in each of the 50 states plus the district of Columbia.  Currently, speculators think that Obama will win 311 electoral votes and McCain will gain 227, this is with the Democrat winning Nevada, Colorado, Virginia, and, by the thinnest margins, Ohio.

These predictions markets are somewhat like polls in how they attempt to gauge support and predict the ultimate outcome.  However, unlike polls, they anticipate future moves: investors knew that Obama’s poll numbers would rise during the Democratic convention and McCain’s during the Republican convention and share prices took this into account and didn’t move when the expected bumps came.

People interested in the outcome of the election, which is hopefully everyone, may find it interesting to watch the political futures markets.  By putting real money at stake, they attempt to harness the wisdom of crowds, which is often better at predicting the future than even what experts say.

I recently saw the wisdom of crowds at work, though in a considerably different context.  One gentleman, a fireman, had shared an anecdote about the aluminum siding on a house melting in the course of one conflagration he witnessed.  This got me to asking what the melting point of Aluminum is; I didn’t know, and neither did anyone else.  Eventually, I took guesses from everyone to see who could come the closest, promising a prize to the winner.  There were ten guesses, ranging from 162.5° F all the way up to 3200° F.  The actual melting point of Aluminum is 1220.6° F; the two closes guesses were 550° and 1800°.  However, if we’d taken the average of all the guesses (omitting the guess of 8° by the two year old son of one attendee) we’d have 1031.95°—which would have been, by far, the most accurate and would have won the prize: a nickel.

In any event, if you find poll numbers interesting, check out the Intrade prediction market, it just may prove more accurate than Gallup.

10 worst ideas from both Obama & McCain

Foreign Policy, the bimonthly magazine, has interesting articles available online about John McCain’s 10 worst ideas and Barack Obama’s 10 worst ideas.

The two articles are both brief and provide concise reasons why they think the ideas are bad.  I highly recommended the two pieces.  See tags to this post for hints at what some of the ideas concern—but check out both articles for the details.