Economics and Government

In the October issue of National Geographic [Geographica department], Peter Gwin wrote an article (“Free Love, Not Land”) describing the current situation of the commune Christiania.  Located at an abandoned fort on the inner harbor of Copenhagen; Christiania now sits on valuable land that the Danish government wants tax revenue from.  It should come as no surprise that the land has become highly valued and developers want to build new apartments along with other redevelopment projects.  According to Gwin, “In 1989 [Danish] parliament recognized the enclave as a legal ‘social experiment’ but retained the state’s ownership of the land.”  That may be all well and good, you might say, but what does this have to do with John Locke.  Using Locke’s normative framework of liberty two interesting points can be made.
First Point:  It can be argued, and I would concur, that the commune of Christiania has taken the abandoned fort from the state of nature and mixed it with their labor to make it their own. The fort, and the land it rested upon, is still recognized as belonging to the Danish government, but the abandonment of the fort I think can be considered as returning the property to the state of nature.  That being the case, the commune would have a claim to the property by removing it from the state of nature through their improvements to the abandoned fort.
Second Point:  Some may have found it strange that I have discussed the abandoned fort as the property owned by the residents of the commune; ownership is the last thing one expects to find in a commune but that’s exact what is found in Christiania.  Property ownership can be seen in the homes of the residents.  Being an abandoned fort, dwellings were in scarce supply so they built their own homes which were then decorated with colorful murals.  These houses are owned by those who built them, and there doesn’t seem to be much dispute about this.  
More striking than property is the existence of markets in the commune.  Among others, Christiania had drug market which, according to Gwin, ‘was shut down last year by the police.’  Markets are inextricably linked to capitalism, but here we have a market in the last expected place: a commune.  This I see as another example that markets are everywhere.  The way I see it, it is not the commune (with its ownership of property and markets) that is peculiar, but people’s conception of what a market is.  Far too long markets have been conceived as some physical place, but a market should more properly be defined by the actions that take place.  Another way to say this is that: a market is the transactions of buyers and sellers of goods and services to make each better off.  As such markets are not just an aspect of capitalism, but are a fundamental aspect of human life.
In the end, I found that this article about Copenhagen’s besieged commune demonstrates the fundamental inalienable right to life, liberty, and property.

From the Opinion Section of the Colorado Springs Gazette Our View - Friday (30 SEP) "Calling Bush's bluff Congressional pork - cutting plan has promise: Colorado Congressman Mark Udall of the Second Congressional District has joined a few Republican colleagues in cosponsoring a piece of legislation aimed at helping to defer the cost of hurricane recovery efforts. And I think this idea has promise. It's called "Stimulating Leadership In Cutting Expenditures" Act- SLICE- and it would authorize President Bush to identify for elimination any wasteful or unnecessary spending items he can find in the recently approved transportation bill, as well as 2006 appropriations bills." I'm all for cutting wasteful and unnecessary spending in the bloated Federal government budget! Let me first look at what is the purpose for the cuts- to help fund hurricane recovery efforts. Is it the Federal governments job (under our Constitutional Republic) to come to the rescue of States and or Cities and take over recovery efforts and nearly completely fund the reconstruction? Looking at it from an Individualistic Ethics (economists) view is their a market failure that warrants Federal intervention? I don't see that this situation fits any of the 3 sources of market failure (monopoly, externality, or public good). So, I suppose I'll have to look at this from a Normative Economics point of view. Given that the American people have always been rather generous and helped out each other and the world in a time of need, I believe that the American people support by a significant majority the Federal governments efforts in reconstruction. Given that the area of devastation is nearly the size of the United Kingdom at over 90,000 square miles and that even with record levels of giving to charities and from Foreign countries (Glad to finally see that all these foreign countries we helped over the years, some are finally helping us in this time of great need!) that fund raising may total only about $10 billion dollars when all is collected and with maybe $50 billion from insurance covered losses that would only cover about 20% of estimated losses given that estimated losses of about $300 billion dollars there is no entity, but the Federal government that is capable of currently funding this recovery effort. The alternative is that we just don't rebuild a good portion of the devastated area and leave it to mother nature? This would still leave 100's thousands of refugees to resettle elsewhere. I don't think that as Americans, we would accept that alternative and we have always been fighters and have rebuilt from other disaster's like the great San Francisco Earthquake in the early 1900's. That also took Federal efforts to stabilize the area and to help the recovery efforts. Now back to SLICE, I think that given the political reality that the Federal Government is going to fund the bulk of the recovery efforts and that we currently are running over $300 billion a year Federal annual budget deficit this proposal is a good idea and deserves futher exploration. The recently approved pork laden Federal transportation bill was fat with about I believe to be $25 billion in pork (about 10% of the bill), one good example is the nearly 1/4 billion dollar bridge in Alaska that will connect a town of 8,000 people to an island with only 50 residents! The Federal budget is riddled with special interest projects and wasteful spending for top to bottom and it shouldn't be hard to find at least $100 billion dollars to cut in fiscal 2006 bills ($300 billion would be more like it , but I'm a political realist). The Federal budget is over $2.2 Trillion annually and a $100 billion is only 4.5% of the annual budget! This would be like you or I with let's say $40,000 a year income in having to cut back $1,800 a year or $150 a month. It may seem like a lot, but given that you and I are already adjusting our spending by about $60 a month to afford needed gas each month and that the winter heating is projected to cost the average household an additional $1,000 this year. You and I have already adjusted or will be adjusting our budgets by about $1,800, should we expect anything less from our Federal Government?

http://online.wsj.com/public/article/0,,SB112648762814437625-CQUqdIgrUSaJbV4rjhoJIUkVKFQ_20060912,00.html?mod=blogs
An article in the Wall Street Journal from September 12th.


"With gasoline prices topping $3 a gallon and consumers searching for relief, what's the smartest thing the government could do? Make sure the prices stay at least that high, say some economists."

"High prices could boost conservation and diminish the country's oil thirst. The last time that happened was from 1978 to 1981, when average gasoline prices rose about 90 cents to $2.86 a gallon in today's dollars, and gasoline consumption fell 11%, while imports slumped 28%."

"Walter McManus, a University of Michigan automotive economist, estimates that if prices jumped to $2.86 a gallon and stayed at that level, sport-utility vehicle sales would fall 18% in five years. If gasoline rose to $3.37 a gallon, SUV sales would fall 28%. Sales of pickups and vans would plunge.""Congressional Budget Office Director Douglas Holtz-Eakin calculates that a $1 increase in gasoline taxes would cut consumption 20% within 14 years."

"Economy.com economist Mark Zandi says a gasoline-tax increase now would be well-timed. The economy still is expanding, and consumers already have confronted the shock of $3-a-gallon gasoline. The consequences will be clear in the next six to 12 months, the time needed to pass a gasoline tax. Fifty-six economists polled by The Wall Street Journal online edition said, on average, it would take sustained gasoline prices of $4.06 a gallon to threaten the economic expansion."

"A $1 increase in gasoline taxes would raise about $100 billion"

This idea presents more problems than it solves. As we all know in the short run a lot of people would be hit very hard by a tax this large. The article mentions that 56 economists from the Wall Street Journal online edition speculate on average that it would take sustained gas prices of $4.06 a gallon to threaten economic expansion. I think 3$ a gallon would do the trick quite nicely. With gasoline involved in some way in every transaction in the market from Wal-Mart to McDonalds, a possible dollar tax would put a huge strain on the economy. With everything delivered to Wal-Mart, McDonalds or most any other store or restaurant by truck, prices would have to go up, right? With everything in the economy priced higher but with profits for business's staying the same, salaries wouldn't go any higher. Prices would have to be raised even higher to give employees the satisfaction of a raise, and this could cause unwanted inflation. A $1 dollar tax on gas could potentially have a big effect on an economy like the Springs. Being that Colorado Springs relies quite heavily on tourism this could have a huge effect on our economy. Not only will car travel be down but people will be flying less because airlines are going to be charging more for tickets.

On the other hand there would be some good that would come out of this. With a tax, demand would drop over the long run and our country would be less reliant on foreign oil producers. Also as mentioned in the article, car companies would be pushed to create more fuel efficient cars and hybrids. Also development on alternative fuel vehicles would increase dramatically. Pollution would be reduced as a side effect. The extra 100$ billion the government would make could be put to good use, but I'm guessing that's not a strong possibility.

The link to the article no longer takes you to the article I read, but that’s okay because the article wasn’t really relevant to my question anyway. The article mainly discussed tax reform for the Colorado Springs airport. However, there was one statement in the article that prompted my question. That statement was, “I’m not telling you that terminals should be privately financed or airports should be privatized, but it’s a way to go for some to fill the separation between where airports and airlines are going. Developers have capital.” This made me wonder…why are airports government owned in the first place?

The first thing I tried to do was to fit airports into a basic supply and demand model. But what is their product? At first I thought it was airplane rides, but they don’t supply airplane rides, they supply runways, terminals, gates, space for other businesses, and the services associated with an airport. Then I tired to find a market failure in their products or services. I can’t find any externalities, airports aren’t really monopolies since they are located in multiple places throughout the United States, and personally I don’t think they are public goods. I suppose some may say that they are a public good, but I don’t think so. They are rival (just look at the competition between DIA and the Colorado Springs airport) and they are certainly excludible. So, from an efficiency stand point it doesn’t seem to me that they should be government owned.

Perhaps the reason is safety. Is it possible that no other organization other than the government, would be able to coordinate safe takeoffs and landings of multiply airplanes at the same time? My hunch is that there are many organizations that could do just as good of a job as local governments currently do. It’s not like the government is actually sitting in the airport on a daily basis making sure everything runs smoothly. The people who actually run airports or sit in watchtowers are regular people just like you and me. So, is the government the only organization that is capable of hiring competent people? Not likely.

Maybe government feels they need to be involved for security purposes. Security is currently a big issue, but it seems to me that security is a good just like any other good. The “market” can determine the amount of security to be supplied. If an airport supplies less security than is demanded the cost would be too low and people could get hurt because harmful people could get onto airplanes. People may then be too afraid to fly out of that specific airport. If too much security is supplied and it costs people more than they are willing to spend and fewer people will use the airport. Therefore, I believe equilibrium can be found for security without the interference of the government.

So, I think the real reason local governments own airports is because they are profitable. Special interest groups (like the airlines or local businesses) are able to gather enough support in a city to get an airport approved and once it’s built the government is unwilling to give it up because it brings in a lot of revenue. Not only do they get the money from the products and services they sell, but they also get taxpayer money.

Based on our discussion of human organ donation in Economic Freedom the other day, I found this article fitting.

The article talks about how egg donations are becoming very profitable in other nations such as India. Currently in the US it is legal for a woman to sell her eggs, but it is not legal for her to sell her kidneys. In other countries, such as the UK and France, selling human body parts is completely illegal including the sell of human eggs. The morality or lack of morality in the market exchange of body parts is not discussed in the article, but the fact that there is a lot of money that can be made by woman who are willing to sell their eggs is. The author explains that the demand for eggs is rising and as long as the monetary reward is sufficient their can always be an ample supply. “To sum up, the growing acceptance and use of assisted human reproduction techniques have caused demand for `donated’ sperm and eggs to outstrip supply, and medical professionals and others argue that monetary reward is the only way to recruit sufficient numbers of `donors’.” He also explains that there is a risk for women who choose to donate, but that the high price increases the incentive for women to take the risk.

The supply and demand of human eggs can easily be shown in a basic Supply and Demand model for a normal good. In fact is seems to me, that pretty much any body part could be seen as a normal good. So, what reason does the government have to ban the sell of body parts, but still allow eggs and sperm to be sold? From an efficiency perspective there is no externality, eggs are not public goods, and no monopoly exits in the supply of eggs. Therefore, there is no market failure that would justify government intervention.

The part in the article that I thought was the most interesting was, “Legal experts say that the moral basis for treating these body parts or products as commodities stems from the body-as-property view found in some strains of libertarian political thought, which holds that the body and its parts may be bought, sold or/and rented.” The author makes it sound so cold, like libertarians have no morals. He doesn’t mention that this thought stems from the idea of natural rights and economic freedom, which most Americans would support. Libertarians are not in the frame of mind to pass out judgments about morals or ethics. As Milton Friedman put it, “Indeed, a major aim of the liberal is to leave the ethical problem for the individual to wrestle with”. If there is demand and supply for a good, for a liberty perspective, the government has no right to pass laws against it if it is not harming another person. And by harm I am not referring to risk. The risk involved in selling eggs is something the seller is willing to take by choice. As I see it, according to the current laws, I own my eggs, but the rest of me I only “sort-of” own. I say sort-of own, because the government allows me to change my body if I want, but it doesn’t allow me to sell it.

Since the government ban on the sell of body parts is not justified by efficiency, liberty, or any other economic framework I can think of, I wonder how it is that in an “economic free” country it is illegal to sell most body parts. The only thing that I can come up with is that some laws are not approved based on an economic framework, but rather a religious framework. A framework where government tells people what sort of ethics they should have. It certainly doesn't sound like the type of government that was in the minds of the writers of the constitution.

A recent editorial in the Washington Post (WP) demonstrates what happens when a little (and I mean very little) economic knowledge is misused to come to an already determined conclusion.

The article claims that taxing the currently high gasoline prices would have a greater impact on fuel conservation than under more normal market conditions. To do this the article uses economics in such an illogical manner that I can’t understand it. As the article states:

“Contrary to what you might suppose, there is something to be said for imposing an energy tax when prices are already high, as they are at the moment. Precisely because consumers are already outraged by fuel prices, a further, tax-induced price increase would force demand down more sharply than it would in normal market circumstances.”

Maybe the author this editorial missed that day in basic economics (that is if the author actually took economics) when they covered the fact that price (which covers tax) is implicit in the model of demand. That is a change in price will change the quantity demanded and not the entire demand curve. As fore the claim that taxing an already increase price would reduce quantity demanded more would require a demand curve to become more elastic as the price increases. That means the demand curve would have to be shaped concave to the origin. That I’ve never seen.

Maybe though it was a momentary lapse; I’m sure we all have had those moments when we just get our facts wrong. That may be true of other cases of misapplication but the errors just keep coming in this article. For example take this little gem of economic analysis:

“Consumers don't like cutting back. But the sharp reduction in demand would cause the pretax fuel price to fall sharply, too, offsetting the after-tax increase.

This is a smart way to make oil producers subsidize U.S. taxpayers. Because of the energy tax, producers would face lower demand and lower market prices; they would, in effect, pay perhaps a quarter of the energy tax, with consumers picking up the balance.”

Before I try to tackle the issue of subsidy; there is evidence in this quote that the author of this article is not as ignorant about economics as one might believe. That is to say there is a grain of truth (although be it very small) about who pays the tax.

As I am sure the reader is aware it is the supply that shifts (vertically upward by the amount of the tax) and the only effect in demand is most likely a change in quantity demanded. I say most likely because the slope of the demand curve would need to be known to determine the exact share the supplier and buyer pay. If for some reason demand was perfectly inelastic a tax placed on the product would not change the quantity demanded and the price would increase by the full size of the tax. For demand curves that aren’t perfectly inelastic the curve is less than vertical and so the price does not shift up by the entire size of the tax. That difference is paid for by the supplier. That grain of truth though was severely distorted in the editorial.

The distortion comes in the discussion of the pretax fuel price. I honestly cannot be sure what the author meant by pretax fuel price. The price paid before the tax was enacted will not change as a result of the tax. It was what it was no matter how much it is altered now. What I think was meant is that the price the oil company receives from the sale of fuel is lower now as a result of the tax, but this in no way can be said to be a pretax price because this lower price is a direct result of the tax. Therefore it is the elastic nature of the downward sloping demand curve that, when faced with a per unit increase of the good, results in a lower quantity demanded, which in turn causes the price to rise by less than the full amount.

Now I shall turn back to the issue of the subsidy. If we are to be accurate about a subsidy it would be a vertical shift up in the demand curve by the size of a subsidy. So, if anything, a subsidy would increase the price oil company receives for any quantity demanded. This is exactly opposite to what is said in the editorial. Thus a tax is not a subsidy to the fuel market. The only truth about the tax is that it is not entirely born by the consumer. This is only a critique of the use of economics tools, and there is plenty to be said about the application of economics from a normative framework of liberty and efficiency.

From the standpoint of economic efficiency it’s clear that their needs to be a source of market failure for justification of governmental interferences. The article does not talk about monopolist power being used; I can’t see how public good can be applied to gasoline as a good; so maybe the market inefficiency is through an externality. While pollution from fuel burning can be considered an externality; pollution is not mentioned in the article. The only defense made for the tax is that of conservation, but what externality exists if consumers use oil now instead of preserving the supply for later use?

From economic liberty this author’s tax is clearly an affront to liberty as demonstrated by this passage:

“It [President Bush’s statement urging conservation of fuel] recognizes that any serious energy strategy has to include conservation. But there is a difference between supplication and policy. If Mr. Bush really wants to promote more careful energy consumption, he ought to tax it.”

In other words if something should be done, people should be coerced into providing it. The author of the editorial tries to disguise the coercion as a promotion, but promotion would be to persuade people of the importance energy conservation and not to force its importance upon the people. Careful energy consumption is not something people in general are willing to provide, but for some reason it is argued that the U.S. government’s power (given to the government by those same people) should be used to provide it. If the people don’t want energy conservation government’s use of coercive power to provide it is against economic liberty.

Gazette.com: "The $11 million park will be formally dedicated Friday evening in an event anticipated since 1992 when civic leaders first envisioned the park as an anchor for urban renewal. "
"Voters bought into that vision in 1998 when they approved a bond issue that included funding for the park. "

The Colorado Springs government used the sales of bonds to raise $11 million dollars to subsidize a park. It is apparant that the park is in demand, as voters approved this action. The question is, what is the normative decision government should make in subsidizing parks. In terms of effieciency you must evaluate the demand and if there is a market failure of demand. Does a park provide a positive externality? For a park to be a positive externality it must be a public good. If it is not a public good it can be excluded and kept in the market. As a public good it can have a person who is not a part of the market, interdependent and uses it unintentionally. A park can be seen as a public good, but only as the government chooses not to exclude it, because it can be physically excluded. I believe that a park though nice and desirable , is not a public good nor a positive externality. A park is a club good; a part of market transaction. Therfore there is no market failure and by efficiency standards this means that government should not get involved, but rather those who demand it should pay for it.

Through all of the national coverage of Katrina, Rita and DeLay one might hear a still small whisper of the state and local hot topics as related to the November ballot. Perhaps its during your favorite soap opera or during the early edition of the local news, but lately all I've seemed to notice are the nagging commercials about Referendum C & D. Both sides seem to have "broken the bank" in regard to spending the most on their campaign. So in order to put the issue to rest, I decided to look at it from the normative framework of our class.

Please keep in mind that this posting is viewed from the Economics and Government portion of class and will primarily look at the issue of funding regarding the allocation of funds proposed in these referendum.

Strikingly similar to our discussion in class regarding "Euphoria Higher Education," is the underlying theme to Referendum C & D. These referendum, in short, would reallocate funding from TABOR and allow for bonding against said funds. One of the areas proposed to gain in the area of reallocated funds are the "K-12 schools and the Community and State Colleges." (As directly from C & D.) This would amount to a total of 30% each. However, it is not the percentage of, or direct numbers that concern me, but the idea that it is specifically outlined to PUBLIC institutions of higher learning. This sets forth flawed (and most likely partisan) reasoning.

FLAW #1
Th0ugh the area may be gray for class purposes, for my bolg contribution I will express my individualistic ethic in suggesting that there is not a positive externality regarding higher education. That said, government should not be subsidising colleges or universities in any respect. We have allowed for the subsidising of a "good" that does not fit with the model.
FLAW #2
If we were to say that higher education did specifically contribute in terms of a positive externality, these referendum only speak to the increase of funding regarding the public institutions. Wouldn't the effect of the positive externality be universal to that of higher education? Shouldn't both the Public and Private institutions benefit financially from the perceived positive externality of higher education. And if the positive externality were greater from the private institutions, wouldn't they inherently receive more funding?

Political affiliation set aside it would seem to me that in an attempt to "reallocate" Colorado's taxpayer funding, these referendum do NOT classify as a pareto optimal improvement. If anything the separation of public/private institutional funding seems like a significant step back in the progression to efficiency.


Yes on C&D
No on C&D

When I saw this opinion piece, I found it a little disturbing from an economic liberty perspective. My first problem with the whole idea of expecting taxpayers to pay for Katrina is that it seems like a misuse of government’s coercive power. It seems to me that from the point of view of the corrective state, government has no business stepping in on the Katrina relief efforts in the first place. This may seem like an inhuman statement, but I think that natural order would indicate that individuals would take care of the situation better than the government would. However, since the government is unlikely to step back from its efforts the problem of how to pay for these efforts arises.

I disagree with Mr. Frost’s idea that a one time flat tax is the right course of action. It seems to me that economically this would only add insult to injury to consumers, and that it would be a further abuse of government power. From the liberty perspective this tax would be stealing, since the role of government is to prevent people from harming each other and the money would not be going towards such a purpose. From an efficiency perspective, this tax is still inappropriate. There is no market failure present as far as I can tell. A hurricane is not an externality, a public good, or a monopoly. A tax would only hurt people further, by reducing the amount of money that they can spend from what they earned. Many have been complaining of rising prices resulting from Katrina, and an increase in taxes would increase the effects of those price increases, and further slow down the growth of the economy.

I do realize that the money to pay for what the government has done has to come from somewhere, but I do not think that there is any economic justification for a tax increase of any kind. The government needs to figure out how to pay for what it does with the money that it already has. It would be a government failure for them to raise taxes from an efficiency or a liberty perspective. I think that this situation is a good example of why we need to have limits on government. How much better could this situation have been if government had just allowed people to help voluntarily? It seems to me that everyone who pays taxes in the US has been forced to help with Katrina relief whether or not they want to, and that such coercion leads to inefficiency. I am uncomfortable with government taking any more money for a project that could be better handled by private citizens.

From BBC News:

When the World Bank’s new president, Paul Wolfowitz, presides over his first annual meeting, he will be confronted with a radical new report from his own organisation that sees ending inequality as a key to reducing poverty. The World Bank’s annual development report often sets the tone for its discussion on development issues. And this year’s report squarely confronts one of the key issues in development – the role of inequality.

The “Equity and Development” report is the first time that the World Bank has explicitly acknowledged that redistribution – as well as economic growth – is needed to end world poverty. The authors are careful to emphasise that they are not anti-growth, but that equity enhances the effect of growth on poverty reduction. They also put their main emphasis on equality of opportunity, pointing out that groups (such as religious or ethnic minorities) excluded from better health and education reduce the overall capacity of the economy to grow.


Older models of economic growth have given credence to physical factors of production. Land, labor and capital (inputs) are utilized to create outputs – the increase in these inputs or the specialization of these inputs would then, theoretically, result in the increase of outputs, or, economic growth. As the world has become globalized, it has become evident that there are additional “inputs” beyond those of land, labor, and capital that are necessary for such growth to occur.

There is a proven linkage between economic liberty and economic growth. Economic freedom has been systematically measured since 1983, first produced by Raymond Gastil and Lindsay Wright and presented in Freedom House’s annual report on political and civil liberties from around the world. Beyond these variables and indices that were determined and measured by organizations like Freedom House, the Fraser Institute, and the Heritage Foundation, there was research done on the effects of economic liberty on the distribution of wealth, and correspondingly, economic growth. Gerald W. Scully, in 1992, “determined that liberty had favorable effects on the distribution of income as well as its level [of income]”(Hanke and Walters, 1997). These findings were important to understanding how economic growth was affected by not only the physical factors of production, but also the economic freedom and equality of those who produce and consume in that society.

It seems to follow that these same concepts and theories that apply to states, apply to the world community, as a whole. Perhaps now that there is a realization of this, we can look forward to a world that is not only full of economic freedom, but also full of equality and the benefits that are associated with this, like economic prosperity.

With the Denver Broncos current win and almost flawless game against the Kansas City Chiefs, one of my friends is already preparing to see the Bronco’s go to the Super Bowl. My friend is also expecting the repercussions of the win to affect ticket prices dramatically!

I see her point from an economic stand point and Denver has experienced it in previous years. If a Super Bowl win increases the Broncos’ popularity, which it has, then we could find ourselves in a shortage over Broncos’ tickets. This is just a simple supply and demand analysis; when the demand increases, we find ourselves in a shortage. As a result, the market price for Broncos’ tickets will most likely increase.

The cost for Bronco’s tickets has already increased after the new Invesco Field was built to replace the old Mile High Stadium. If the additional costs for tickets don’t appeal to Broncos’ fans this too would have an effect on the demand curve; we’d also see an increase in ticket scalping. There are many factors that play into pricing tickets and it is hard to predict exactly how this particular situation will play out.

This morning I heard audio clips from a political conference. Several speakers were talking about oppression.

What is "oppression?"

Where can we find it?

I can think of at least one normative framework in which this type of contribution would be justified, that framework is social justice. Social justice is based on the idea of equality and if suddenly a lot of people are no longer equal (or even have the ability to be equal) than the government's contribution is legitimate. Whether by equality we are referring to distributive equality or opportunity equality, when a city is destroyed the victims are no longer "equal" in either respect.

However, I also think that the government's contribution could be justified from a libertarian perspective as well. Government assistance to victims wouldn't be justified from a utopian idea of liberty, but from a constitutional idea of liberty I think it could be. Perhaps it wouldn't be legitimate the way that this specific contribution happened, but this type of monetary help could be justified if the large majority of people voted to help victims of natural disasters. Consent to tax for the specific purpose of helping victims of natural disasters is certainly consistent with liberty. I also believe that the majority of people would in fact vote for such a policy. (I don't know that for sure, but I think it's a possibility.) The utopian idea of liberty would lead us to believe that government isn't even necessary, but I think that most of us would agree that it is indeed necessary. Therefore, we have to compromise the strict sense of liberty at times and I believe that perhaps Katrina may be one of those circumstances. Again maybe not the way that the government stepped in in this specific case, but perhaps the government should consider putting a policy regarding monetary assistance in the event of a natural disaster on the ballot for people to decide.

Furthermore, living on this earth is risky no matter where you live. Of course some places have higher risk than others and some people are going to be more risk adverse than others. It would be unrealistic to expect people to live only in places with the lowest risk of natural disasters. Maybe a policy could be accepted that would include some kind of graded scale that would take into consideration the level of risk to determine the amount of assistance to give, although I'm not sure how that could be done.

Take a look at this:

"If we all agreed what 'pork' was, there wouldn't be any of it in the budget. The 'pork-busting' idea needs to be backed up by its backers with specifics on what should be cut and why.

With the National Budget Simulation, one can specify exactly where cutting should be - and see what the outcome is.

It's a static model, but it's a good starting point.

As one who thinks that taxes are plenty high enough, on the rich as well as on everyone else, and that budgetary problems should be solved by budget cutting, it's time to go to work.

Here's my first cut, which actually yields a $347.47 billion surplus:"

Surplus, eh? Sounds pretty good. See what you think about all the areas the national government is involved in, and what you think about Ken's reasons for cutting, increasing, or holding even. To what extent do you think his choices are informed by economics?

Joanne Kelley wrote an article in the Rocky Mountain News Business Section about how it would be beneficial to Colorado's economy promote our arts. She reports that the Colorado Tourism Board Chairman says we as a state need to be spending $15 million to 20 million to "embrace and support the arts and culture" versus the $5.7 million that is being spent right now.

First, let me say that phrases like "embrace and support the arts and culture" don't quite excite me the way it may excite others. I feel any phrase that uses the words "embrace" and "arts" in the same sentence comes from people who spend way too much time looking at and admiring crazy decorative stuff (read crap) that will never help people or benefit their lives in any way. However, my opinion on that doesn't really matter because this is soley from the vantage point of economic efficiency. In fact, because of the individualistic ethic, we have to accept art lovers' desires at face value. In other words, if they say their well-being is increased by art, then we all have to believe them.

Now on to the important stuff. This isn't just about whether someone enjoys art, it is ultimately about whether or not the government should be involved in the marketing of Colorado's art for the purpose of bringing tourists to the state. The fact the some people apparently increase their well-being by seeing Colorado's art does not justify the state spending money on it. Their are only three reasons that would justify the state's involvement with marketing art and culture. State involvement is justified if (a) a monopoly exists, (b) an externality exists, or (c) the good that is traded is a public good, meaning it is rival in consumption and non-excludable.

When going thought these three reasons, it is obvious that a monopoly doesn't exist since nobody has complete control over art. However, an externality may exist if Colorado's art and culture provide benefits or harm to third parties not involved in the transactions. While I would like to claim there is a negative externality to me because I feel like gagging every time I hear high-social class phrases like "arts and culture," I don't think that kind of suffering is going to fly as a negative externality. However, a positive externality may exist if if the local community benefits in some way from tourists who come to view our arts and culture. As for the public good aspect, it is rather difficult if at all possible to exclude people from our culture, and while at some point congestion may eventually make our arts and culture a rival good (not to mention provide a negative externality for us), it is as far as I can tell, nonrival. As for our arts, if we are talking about art in museums, those are very excludable and rival in consumption, but if we're talking about the open-for-all-to-see art that stands in the public (well, some people call it art, like that big yellow thing you can see from the highway) then that is non-excludable and nonrival and is therefore a public good.

If the art and culture is a public good, then the government should own it, but that has nothing to do with government marketing the product. If, however, there is a positive externality from marketing our art and culture that outweighs any negative externalities that exist, then the government is justified in subsidizing the marketing of the good. If the article correct that marketing the good can increase tourism, thereby increasing the economy, employment rate, land values, tax revenues, etc., then there may well be a positive externality resulting from the marketing of the good. If there is a positive externality, the next step would be to find out how much that externality increases the well-being of third parties.

The government already spends money marketing the arts and culture of Colorado to increase tourism. (By the way, tourism is an industry, so increased jobs and land values are all calculated within the market and therefore any externality cannot arise from these figures alone, but the name recognition that would result from the advertising and tourism could bring people and businesses to Colorado, and that would be an externality.) This money may already cover the externality and may even overpay for it. The amount of money that should be spent on marketing should be determined by how much benefit the marketing would provide to third parties.

What do you think? Viewing the article through the eyes of public finance, do you think the government should increase spending, decrease spending, or keep it the same, or do you think there even is an externality that justifies the spending in the first place?

Valeska has posted below on the Endangered Species Act. Consider the following which was taken from the news article Valeska comments on:

"An important part of the legislation is a provision that allows the Interior Department, the parent agency of the Fish and Wildlife Service, to provide 'conservation grants' to property owners who are deemed to be helping conserve an endangered species. The legislation also requires that property owners be paid 'fair market value' if, in the view of federal biologists, their development plans would violate the law.

The purpose of the compensation would be 'to alleviate the burden of conservation measure imposed on' landowners who forgo their plans in order to help a species' survive."

I would like to ask you to consider this statement from the perspective of economic efficiency and market failure. Specifically, noting that the statement discusses payments to individuals, which source of market failure would we want to look for to provide economic justification for such payments? And, do you think such a source of market failure exists with respect to endangered species?

I would also like to ask you to consider the statement from the perspective of liberty. How might we use the liberty framework to either support or criticize the policies suggested in the quote?

William Polley:

"In a way, this brings us back to the question of the value of economic literacy. If the only reason for becoming economically literate was to become a more intelligent voter, then ignorance would be individually rational. However, the economic world would keep right on spinning. Markets would keep right on working -- except to the extent that policy makers, not subject to the constraints of an economically literate population, get in the way. However, there is a larger social issue at stake. Economic literacy has positive externalities. For me the most compelling argument for economic literacy is not to make sure everyone can shift a demand curve, but simply to teach people how to avoid being taken in by fallacies of composition and other logical fallacies.

[. . . .]

. . . . There's a great deal of social value in a citizenry able to recognize free lunch claims and refute them."

What? Positive externalities? This couldn't be another example of externality abuse could it? Probably not. After all, the implication of there being positive externalities would be to subsidize economists.

From O'Reilly's Talking Points last night:

"One thing struck me. After all the experts we've talked with, after all the research we've done, we still can't find out who exactly sets the price of a gallon of gasoline, which human being in America does that."

My reaction? I can't believe it. Perhaps it suggests we should draw the conclusion that there is widespread economic illiteracy?

My question for you is: How would you explain to someone listening to or reading O'Reilly's analysis that he's got things all wrong? I suggest that you should consider 2 ways to approach this. You could think about this in terms of the standard model of a market with demand and supply curves. Or, you could think in terms of Hayek's idea of a spontaneous order. I'm also curious about whether you think one of the 2 approaches is better than the other?

Bryan Caplan gets it right:

"R.J. Rummel's critique of a Cato study set off a big bloggers' debate about the value of think tanks. The following passage in Rummel's critique got my attention:

This correlation is meaningful for the kind of regression analysis Gartzke did, but he apparently doesn't know it. A problem in regression analysis is multicollinearity, which is to say moderate or high correlations among the independent variables. If two independent variables are highly correlated they are no longer statistically independent, and the first one entered into the regression, in this case economic freedom, steals that part of the correlation it has with democracy from the dependent variable. Thus, economic freedom is highly significant, while democracy is not. If Gartzke had done two bivariate regressions on his MID data, one with economic freedom and other with democracy as the independent variables, he surely would have found democracy highly significant.

This reminds me of one of the best few pages I've ever read in a textbook. The book: Arthur Goldberger's A Course in Econometrics. The subject: Multicollinearity and micronumerosity.

Goldberger's main point: People who use statistics often talk as if multicollinearity (high correlations between independent variables) biases results. But it doesn't. Multicollinearity leads to big standard errors, but if your independent variables are highly correlated, they SHOULD be big! Intuitively, big standard err"

In my view, when you do empirical estimations or when you evaluate the estimations of others, it is very important to understand what happens to your estimates if there are any number of ways in which your data do not meet the statistical assumptions on which your estimates are based. One of the assumptions of regression analysis is that your "explanatory" variables are independent. Often data on your explanatory variables are not statistically independent, and this is gives rise to the problem of multicollinearity. As Professor Caplan explains, the multicollinearity causes the estimated standard erros on the coefficients to be biased and too large. The result is that a hypothesis test for the significance of the estimated coefficient is biased as well. The estimated coefficient is itself unbiased, but the hypothesis test will tend to say that a statistically significant explanatory variable is not significant, when it is. I don't think it is accurate to suggest that one explanatory variable takes on a significance from another explanatory variable.

Further, long, long ago, I learned about statistics and econometrics and one thing I learned was not to say things like "highly significant." You pick your significance level for your hypothesis test, and either your reject the null hypothesis or you don't. The margin by which you make this decision has no meaning. One reason you would take the position that the margin has no meaning is because you know all the ways in which your hypothesis test could be biased, e.g. multicollinearity.

When I read this article in the New York Times this morning, my first reaction was that this new bill is a good idea, since it gives people a bit more freedom. I also wondered a little bit about the endangered species act, and how it could possibly be justified from an economic freedom or an economic efficiency standpoint.

From the standpoint of economic freedom, it seems to me that the endangered species act is a government failure to act with the intent of preserving individual liberty. The endangered species act has only served to limit individual liberty, often preventing property owners from using their land in the way that they choose. I wonder if there is any way that such an act could be justified from the perspective of economic freedom.

From the standpoint of economic efficiency, it seems to me that the endangered species act is still a government failure. There may be a market failure revealed by the endangerment of species, but the government did not act in a way that would eliminate the market failure. If there truly is a market failure then the government should have identified the source of the failure in the market and used a tax to raise the cost experienced by consumers to the actual cost.

The new bill appears to be a step in the right direction, from either economic perspective discussed. In the case of economic freedom, the new bill is a step toward the removal of an act that would not be supported by a government that aims to preserve freedom. In the case of economic efficiency, the new bill is still a step in the right direction, since a tax would seem to be more effective in preventing a possible market failure. I wonder what value judgments were used to justify the endangered species act, and if those value judgments are such that we could be comfortable with them.

Judging efficiency can be a hard task. Judging efficiency in education can be even harder. I was on line reading about efficiency and education and found the best way to calculate it. Economist always want to know if they are getting the return on their investment. This is a critical idea when it comes to public education. On average, in Indiana, they spend$8550 a year for every student's education. Is this worth our tax dollars? The only way we have to judge is through testing.

In Indiana they wanted to identify the efficient allocation of tax dollars that went to education. In some districts they spend fifty percent of their tax dollars on education. This is huge. This information shows us that the American population spends a large amount of our tax dollars on education. Is it worth it? To judge the spending the economist used different identifiers, cost per student, teacher to student ratio, FTE's or percent ofemployees that work in the classrooms, they also used the score on state ISTEP. This is a test that judges the performance of each individual on math and english skills.

The cost per student in Indiana was an average of $8550. This money covers the materials neccessary to complete that school year. The next is student to teacher ratio. In Indiana the average students per teacher is 18.9 to 1. This calculation alone proves nothing due to the fact that there is a neccessity to have more teachers in urban schools. The next is the FTE. On average in Indiana 87 percent of the employees work in the classroom. The last identifier was the performanc on the ISTEP test. This score should be used lightly because there are more variables that play a part in its result, ie. parents contribution and environment. In the 2002-2003 school year 63.4 percent of sophmores were above the states math and english standards. This identifies that the education is providing some increase in human capital. With all this information how can we determine efficiency?

We can use the cost per student as well as the "overhead cost" to determine if the result, ISTEP, is worth the funding. The numbers identify some of the schools in indiana can be more efficient with their money. These identifiers could be used throughout the country.

If the federal government used its resources to judge the performance of school districts in a meaningful way, it is possible to make schools more efficient. I believe that public education is a neccessary public good. It has been show that the more human capital you have the higher production possibilities. It is also easy to see that the nations that have a higher per capita education spending provide a higher GNP. With all this information it is still neccessary to critic the services you are receiving. The American society provides a lot of money to education. We need to ensure that everyone has the ability to achieve a higher social status/budget line if they desire. This will allow society to grow as an aggregate.

Anthony D. Romero wrote an article called In Defense of Liberty at a Time of National Emergency, where I pulled this quote:

"Recent changes to U.S. laws have given government expanded power to invade our privacy, imprison people without meaningful due process, and punish dissent."

That above statement worries me greatly. I just love that U.S. law gives the government the right to invade my life. The fact that some how it got so miss worded that now the government can tap my phone, can come into my home, download my computer and not tell me till after the fact. What happened to limited government?

All the above things I listed as being things the government now has permission to do are stated in the USA Patriot Act, which was proudly and aggressively supported by the President. One of the provisions listed in the Patriot Act is a part about "extended wiretap authority", which says, "law enforcement can obtain the equivalent of blank search warrants, and by authorizing intelligence wiretaps that need not specify the phone to be tapped or be limited to the suspect’s conversations." At what point in time did my family, friends, or anyone else for that matter agree to that? I want my government to protect my property and me, but not to the point where they can just invade my life when they want.
Another thing listed in the Patriot Act is "the use of ‘sneak and peek’ searches to circumvent the Fourth Amendment." Which in basic terms means law enforcement officials could enter your home, office, or other private place and conduct a search, take photographs, and download your computer files without notifying you until after the fact. What gives them the right to over rule amendments? What kind of paranoid world must we live in to violate our own amendments and privacy? I don’t know if I have faith in my government to protect me anymore. I don’t know if I ever would want to. I can you power to protect me from other people doing these things to me, not so the government could freely do these things.

Did you?

Feel Protected?

USA Today reported on Thursday, President Bush endorsed the closure of 22 military bases and reconfiguring of 33 others. If I were to think the role of government was to protect my property and me I would not see this as a good thing. I doubt any one really will even if they didn’t think of the government as a protective state. In some cases I think more is better than less. I want what is mine to be protected and keep safe from all who wish it harm or wish it to be there own.

"The Defense Base Closure and Realignment Commission said that this plan would have an annual savings of $4.5 million, instead of the $5.7 million it had originally suggested in May. "
While I am all for saving money that is mine to begin with, I think I might have considered this expense worth while. This amount was already being "forked out", so there would be no real change and that would be just dandy! However, I might have a problem if you decided to tax me to reconfigure those 33 bases. I like my protection to cost me as little as possible, thank you very much.

What I find ironic about this whole thing is, "Congress reluctantly authorized this round of closures only after the White House threatened to veto an entire defense bill if it did not give the Pentagon the go-ahead."

Are There Externailities In Baseball?

Before any discussion about whether or not baseball has externailities, lets define it. Textbooks will say that externalities are cost or benefits of market transactions not reflected in prices, which lead to third party benefits or harm. In my economics class it’s defined as unintentional, nonmarket, interdepence. J.C. Bradbury defined it as, "in market transactions, these slipovers, also known as externalities, lead to inefficiencies because prices do not accurately reflect the total social benefits and cost of actions."

The writer goes on to say that "while no direct market transactions between players occur in athletic contests, slipovers can enhance and diminish individual players performance." Now so far it’s nonmarket because there are no real direct transactions, and the players aren’t a buyer or a seller. Also the players themselves are interdependent of each other. If a pitcher throws a bad pitch, then the other players have to react and save the play. The pitcher relies on the other players to help him out. However, the other opposing team doesn’t necessarily depend on the pitcher, he wants to not depend on the pitcher. The unintentional part runs a thin line. The pitcher knows that the other players will help him out because it makes the team look good and their selves at the same time. However, one might see it more along the lines that the pitcher’s goal is to do the best he can with out ever relying on the other players. Gerald Scully wrote a paper in 1974 about baseball and economics and he stated, "individual performance carries with it no externalities, so that team’s performance is simply the linear summation of individual performances."

Bradbury instead goes on to talk about two forms of externalities in baseball, that he believes prove that there are externalities. One is called the "protection externality", which is expressed as, "results from a good on-deck batter forcing the pitcher to throw the current hitter more hittable pitches, yielding more hits and more hitting power." As far as I see it this means that the better the hitter coming up the harder the pitcher has to try with the current hitter, which tends to result in more hits. The other is "effort externality", which "occurs when a good on-deck batter causes the pitcher to use more effort to pitch to the current batter, thereby lowering the hit probability of the current batter." Again as I see it this means that the better the hitter coming up, the more effort the pitcher has to put forth on the current hitter and if he does so, the pitcher will lower the hit probability cause he is trying harder. Given the last statement, does the first externality even matter, or exist? It would make more sense that if a better hitter is up next, the pitcher would try to put forth more effort to strike out the current hitter, that way if for some reason they next hitter does get a hit, it won’t have as big an effect? Especially if the pitcher had walked the current hitter and the next hitter (the better one) did score, which creates even more of a problem for the opposing team. If we to assume that both effects did exist and mattered we would need to look to see if they cancel each other out. If they don’t then, "the sum of the external effects may influence individual batting statistics, thereby distorting marginal revenue product estimates derived from seasonal batting statistics."
It may be a bit of a far stretch, but I believe that the author has a point. Lets consider pollution for a second. It meets all the requirements of externalities. The effects of pollution, our negative externality, influence those who buy things that create pollution, as well as those you make the pollution. That in turn lowers the company’s revenues since no one is buying their product that when created made pollution, and when used creates even more. The same is true about Bradbury’s view on baseball. If either of those above listed externalities takes place there is likely to be an influence on the teams statistics, which lower the teams "credibility" and then lowers revenue. If the team in your city has bad overall statistics you probably are less likely to go to watch them cause you assume its going to be a bad game. Of course that leads to less revenue for the stadium and team. Also if we viewed it from a player’s standpoint, their statistics help get them picked by better teams and get more money, so those externalities mean something to them too.

Given that the suggestion being made that there are in fact externalities in baseball, one would assume that subsidies would be the next step to take to help fix the so-called "problem". The U.S. government has spent over $17 million dollars on financing stadiums for four professional sport leagues: hockey, baseball, basketball and football. About two thirds of that comes from taxpayers. Those taxpayers that decided going to watch their bad team wasn’t worth the money. In essence taxpayers are paying for the strikeouts, home runs, walks, fools, and so on that their team, and other teams get.
The questions I would like to put forth today are:

Do you believe there is truly externalities in baseball?
Should we really subsidize baseball to correct this negative externality?
If you do believe that subsidies are needed, can you tell me how you think we can possibly measure the MSB? How would the MEB be measured? Would it be by the ticket sales, or possibly a new stadium that was financed by taxpayers?

It seems to me that the social cost of paying more taxes for something I probably will never go enjoy. There have been studies done on what they call subsidies-to-victories ration (SVR). Generally speaking those teams that had new stadiums, or new improvements, built by more tax dollars had terrible seasons (like the Milwaukee Brewers had a 68-94 season), which resulted in a higher SVR. The teams that had less tax dollars spent had a lower SVR.

I believe that sports run a very thin line on whether they have externalities or not. I don’t think that the externalities, if any, have anything to do with the market in general. I also believe that there is no possible way to measure how bad baseball teams are effecting third parties. I think the government created a bad tax for baseball. I don’t think that player or team statistics can force the market to be inefficient.

Well, what he really said was, "Four years after the frightening experience of September 11th, Americans have every right to expect a more effective response in a time of emergency. When the federal government fails to meet such an obligation, I as president am responsible for the problem, and for the solution. "

The link includes the entire transcript of the President's speech.

If there's one think I don't understand about our President, it's the fact that he seems to somehow be able to bring up terrorism with every topic/speech. I also don't understand how he could possibly be responsible for Katrina (since he is responsible for the "problem"). What happened in Louisiana was a natural disaster. No human could possibly predict how hard mother nature would hit. The weather team in Louisiana, Mississippi, and the other states affected could all make a close approximation, but they could hardly be accurate.

I choose to call the most affected area Louisiana, rather than New Orleans, because of the surrounding cities of New Orleans were also affected, some even heavier than New Orleans because of the eye of the hurricane.

I'm sure the authoritative people in Louisiana, and the other states did the best they could. I'm also sure I would feel differently if I was, or knew, anyone that was affected. If some people didn't want to leave their homes even after they were ordered to do so, that was their decision to make. Putting the blame on different people, after the fact, can hardly do us any good. All we can do now is help fix the damage caused by Katrina.

Peter Leeson:

"In a paper published two years ago, my colleague at WVU, Russell Sobel, investigated the political economy FEMA. Sobel found that, like nearly all federal decisions to allocate resources, FEMA too suffered from traditional problems of government failure identified by public choice.

In particular, he documented that even after controlling for the severity of disasters, FEMA money was channeled to states more important for presidential elections. In other words, swing states get significantly more money after adjusting for other potentially contributing factors than non swing states. Congressional districts with representatives on FEMA oversight committees also receive more aid and disaster relief tends to be larger in election years.

In addition to teaching us important lessons about self-interested rulers, the recent events in New Orleans can teach us something about government failure and the emergence of private institutions to fill the void left by this failure as well.

If nothing else, government is charged with protecting private property rights. But as the vivid pictures of looters on CNN showed all too clearly, in New Orleans it seems, government was unable to perform even this basic function. In the wake of this vacuum of state-provided protection, the WSJ reported the other day that a number of residents who have not yet moved and do not plan to have hired out private protection for their property."

I'm not sure whether there are markets failures that would provide a justification for a government bureau such as FEMA (Federal Emergency Management Agency), but Leeson points out that there are also sources of government failure. As we sit around as economists, sort of pronouncing from on high, that the role of government is to correct market failures, it seems important to understand the limitations of government in achieving that goal. Government failures may indeed be more severe, perhaps of greater frequency, than market failures. Witness the market response to government failure in New Orleans.

In the aftermath of Katrina Congress approved $62 billion in relief funds. For the life of me I cannot figure out why. When examining the situation from economic efficiency, individual liberty, or Constitutional frameworks there just isn’t a reason government should intervene.

Let’s start with economic efficiency. Efficiency calls for government action when a monopoly exists or the market fails to provide a public good or correct for an externality. Although I make it sound like the market is this tangible thing, the truth is the market is just a term used by economists to explain the interaction between individuals who supply goods and services and those individual purchasing those goods and services. The market is termed to fail when the interaction of free individuals produce a monopoly firm or externalities, or fail to provide some public good.

Monopoly doesn’t apply here. Firms don’t produce hurricanes or their effects. Firms help to deal with the repercussions of hurricanes. But not a single firm will deal with those consequences, in fact many firms will have to work together to rebuild the lost wealth of survivors. And since there are hundreds of thousands of organizations and individuals rallying funds and supplies to help survivors monopoly doesn’t apply to the social aid organizations either.

The $62 billion certainly cannot count as applying to the provision of a public good. The money will provide funds to help rebuild communities and is both rival and excludable. The more people who partake in the consumption of the good, i.e. use the money for relief, the less will be available to others; consequently some people will be excluded from its consumption.

The correction of an externality is not the issue either since no externality exists. Hurricanes are natural disasters and have nothing to do with the transactions between buyers and sellers producing some external cost on individuals outside the transaction. The actions of consumers did not produce Katrina or her effects. God, nature, weather patterns may all be culprits, but the actions of consumers are not.

Monopoly? No.
Public good? No.
Externality present? No.

Economic efficiency just doesn’t call for government intervention.

From the perspective of individual liberty a call for government action is made to protect an individual’s person or property from harm caused by another individual. Katrina is a hurricane, not another individual. Sorry, no room for government.

Furthermore, the survivors chose to live in a part of the nation below sea level. If you live below the level of the sea then you are taking the risk that the sea might one day rise to ground zero. As a federal taxpayer I should not have to shoulder the burden of the consequences of the risk someone else living in another state opts to take. Why should my wealth be decreased because someone else chooses to live below sea level? After all, this is not the first time the area has been flooded. In 1927 the same thing happened. Did government jump in and save the survivors? No. Not a single dollar was given to help rebuild the New Orleans area. In fact the only government provision was tents and lamps loaned to survivors from the Army, who, by the way, sued for reimbursement afterwards.

The most relevant framework to our nation's system of political economy is the Constitutional framework. This framework looks to the Constitution to tell us what actions government may take. I cannot find anywhere in the Constitution a statement authorizing Congress to provide funds for survivors of natural disasters. It seems such action is the exercise of police power, a power conferred to the states, via the Tenth Amendment, to make laws and regulations, not otherwise unconstitutional, which promote public health, safety, and morals. If the legislatures in the states affected by Katrina want to use their tax revenues to provide relief to survivors to promote the health and safety of state citizens, then so be it. However, relief fund provision lies beyond the powers of the national legislature.

Can anyone think of some other normative framework which would authorize Congress to provide $62 billion in relief?

President Bush has proposed to lift the tariff on concrete and lumber. Currently there is a tariff on lumber imported by Canada of approximately 50%. This tariff is in response to American lumber companies citing, "dumping" by Canada. dumping is the process in which a company deliberatly "dumps" goods at an unreasonably low price to push national corperations out of business. This is federaly regulated to allow America the ability, in time of war or hardship, to produce these goods. The tariffs raise prices of lumber.

America has a tariff on concrete imported from Mexico, aswell. The tariff of concrete is not as steep as lumber, however, it is still about 26%. This increases the price of domestic goods. this tariff is in response to concrete componies urging congress to help them remain competetive with the market.

Bush wants these tariffs to be lifted. He has the ability in times of neccessity to lift these tariffs. The lift of the tariffs would decrease the current prices of both lumber and concrete. The elimination of the tariffs would also continue to drive the U.S. economy. Many builders and contractors have taken a huge hit to the revenue they generally enjoy. This puts a huge damper on the economy. Home production is a large indicator of how the economy is performing. The lift of the tariff would allow the economy the ability to perform at the level it once did.

A tariff that is in response to dumping has been proven to do nothing but raise prices. The economic theory of dumping only relates to neccessary public goods, i.e. Security, energy. The economy in a free-market out performs a market that imposes tariffs. Lumber and concrete are markets that need no tariffs. The release of the tariffs will allow a much faster recovery for the hurricane survivors. the economies of Louisiana and Alabama have stopped. Louisiana is a huge producer of concrete. The introduction of outside products will allow those businesses to rebuild much faster and rejoin the market. If the tariffs are lifted the economy will continue to grow, even after such devistating events like hurricane Katrina.

So, my concern is that congress will not support Bush in his decision. In order for our economy to continue its steady growth, we must eliminate any tariffs that include building materials and lumber. Now we will see if the right decision will not be over-shadowed by the media or politics. Should we let the economy run free for a while?

U.S. Proposes New Fuel Standards for SUVs:
The Bush administration has announced new fuel economy standards for minivans, light trucks and small sport utility vehicles. The new rules would require automakers to increase mileage per gallon for those vehicles by about 8 percent starting in 2008, with full compliance by 2011.
Under the proposal, current rules governing light trucks would be displaced by six separate categories for the vehicles, based on size. Each category would have its own fuel economy standards. The smallest vehicles would be required to get better gas mileage than larger trucks.
Light trucks -- including minivans, SUVs and pickups -- accounted for nearly 60 percent of all new vehicles purchased in the United States in 2004.

Critics say the plan doesn't go far enough. David Freedman, research director for the clean vehicles program at the Union of Concerned Scientists, says that, according to information released so far, the proposal would increase fuel economy by less than .5 mpg a year through 2011.

What over all good would come from only increasing the fuel economy by less than .5mpg a year? If we weren't efficient enough to change it now, why stop there? Why not promote different cars that don't run off gas? Why not fund them better? Why not raise the fuel economy standard higher still, to push those companies that have alternative fueled cars to promote more? Wouldn't it be more efficient?

I found it very interesting that in my humanities 399-class textbook there was a reference to "the separation of church and state" and how that idea has allowed for an open religious market in the United States. My interest was peaked once again when, in the lecture section, the same ideas were repeated using the same terms.
The last time I checked the phrase "separation of church and state" is not used in the constitution, which was the source cited for the reference. I know that this has been a topic of some discussion by many other people, but the link between that and the "open religious market," meaning the freedom to choose from a variety of religions, was interesting and worth noting.
I think that what most people are actually referencing when they mention "the separation of church and state" is the first article in the amendments which states that, "Congress shall make no law respecting an establishment of religion, or prohibiting the free exercise thereof..." It seems that a lack of establishment has been interpreted to mean separation; the two are not the same. A lack of establishment simply means that the government will not impose a particular religion on people, whereas a separation implies a complete division. Lately, the latter interpretation seems to have been the prevalent one, and this is somewhat disturbing. After all, if we can interpret the constitution in any way we see fit, what purpose does it actually serve?
The idea that there is a free market for religions in the United States is also interesting. Though I basically agree with that idea, I disagree with the idea that it arose from a separation between church and state. Rather, it seems to have arisen from a free dialogue between people and that is allowed by a lack of established religion. I also wonder if religion actually could be considered a market, since many of the ideas that we apply to markets are difficult to apply in the situation of religions.
I hope that there is a way that we can return to a more careful interpretation of the constitution, especially when it used in an educational context. It is slightly disturbing when a professor makes what I would consider a factual error, simply because they hold certain opinions. If the constitution is to remain a useful document, it needs to retain a certain amount of integrity of meaning when it is interpreted.

REPOSTED -- STILL LOOKING FOR COMMENTS

From the Washington Times:

"Congress should consider raising fuel-economy standards for all vehicles for the first time in 30 years in light of the gasoline shortages and huge spike in pump prices caused by Hurricane Katrina, key senators said yesterday.

'I believe we must take another look at the CAFE standards,' said Sen. Pete V. Domenici, New Mexico Republican and chairman of the Senate Energy and Natural Resources Committee, referring to the Corporate Average Fuel Economy rules enacted in the mid-1970s but not updated since.

'We looked at that before, and it was not politically possible. I'm not sure that will be the case after Katrina,' he said.

His comments came as the government reported that gas prices last week breached the $3 level for the first time on average nationwide, with the biggest increases seen in Mid-Atlantic states such as Virginia and Maryland, and in the District, where the average price for regular was $3.29 a gallon.

Republicans and Democrats both said they suspected price gouging as gasoline costs soared in the aftermath of Katrina, but they complained that the government doesn't have the ability to prevent such market abuses.

'The American people are being victimized more than any free market would warrant,' said Sen. Gordon H. Smith, Oregon Republican.

Mr. Smith and other senators at a committee hearing yesterday said regulators, including the Federal Trade Commission, are not aggressively pursuing price gouging and other market manipulation by energy companies reaping huge profits.
'There are growing concerns that oil companies are making too much in profits at the expense of consumers,' Mr. Domenici said.

Some relief at the pump is on the way as the prices of crude oil and wholesale gasoline dropped for a second day in New York trading, and are close to levels that prevailed before the hurricane struck the Gulf Coast, the heart of the nation's oil-producing sector.

Witnesses at yesterday's hearing said pump prices will remain high for weeks and possibly months, however, because the hurricane knocked out about 10 percent of production at oil wells and 5 percent of production at refineries that could take up to a half-year to restore. "

How can we use economic analysis to consider the public policy issues raised here? I can suggest some specific questions:

Is there a market failure justification for the national government mandating fuel economy standards for our vehicles?

Does the term "price gouging" have an economic meaning in general, and do you think "price gouging" is an accurate way to describe what has happened after the hurricane?

Is there a market failure justification for the national government to try to deal with "price gouging?"

Concerning the article about oil prices and possible price gouging, considering that refineries and pipelines are out of commission, I am unsure if the $3+/gallon is really price gouging. How much more are oil companies profiting? To be sure, there were some gas stations in the aftermath of Katrina that were selling gas for $6-7/gallon--obvious price gouging. But we must also take into consideration that gas prices were already high prior to Katrina. I had not heard many complaints of price gouging then. It seems that right now, considering the damage done by Katrina, $3+/gallon is the efficient market price. I do wonder though: because gas prices have finally hit the dreaded $3/gallon mark, many Americans have said they would give up their large SUVs for smaller, more fuel-efficient cars, or change their driving habits. Is that true? Or people still willing to pay the gas money for the SUVs and unchanged driving habits? In short, are people going to cut their demand for gas...and hence the supply and price?

On another note, in the immediate aftermath of Katrina, you heard people talk of $7+/gallon gas prices as if they would be the norm, and not any sort of price gouging. We didn't see this (at least as the normal, efficient price), but I've come across people who are still convinced it will happen and we'll eventually end up in some sort of WWIII/Mad Max type of world. What can one say to people like that?

Walter Williams:

"According to a couple of poorly trained economists, there's a bright side to Hurricane Katrina's destruction. J.P. Morgan senior economist Anthony Chan believes hurricanes tend to stimulate overall growth. As reported in 'Gas Crisis Looms' (Aug. 31, 2005), written by CNN/Money staff writer Parija Bhatnagar, Mr. Chan said, 'Preliminary estimates indicate 60 percent damage to downtown New Orleans. Plenty of cleanup work and rebuilding will follow in all the areas. That means over the next 12 months, there will be lots of job creation which is good for the economy.'

Professor Doug Woodward, of the business school at the University of South Carolina, has the same vision. Professor Woodward said, 'On a personal level, the loss of life is tragic. But looking at the economic impact, our research shows that hurricanes tend to become god-given work projects.' Within six months, Professor Woodward 'expects to see a construction boom and job creation offset the short-term negatives such as loss of business activity, loss of wealth in the form of housing, infrastructure, agriculture and tourism revenue in the Gulf Coast states.'

Let's ask a few smell-test questions about these claims of beneficial aspects of hurricane destruction. Would there have been even greater economic growth and job creation for our nation had Hurricane Katrina not only destroyed New Orleans, Mobile and Gulfport, but other major metropolitan areas along its path, like Cincinnati and Pittsburgh, as well? Would we consider it a godsend, in terms of jobs and economic growth, if a few more category 4 hurricanes hit our shores? Only a lunatic would answer these questions in the affirmative."

Right on Walter. The hurricane destroyed an enormous quantity of wealth and assets, not even mentioning the loss of life which also means a loss of productive resources. Re-creating the wealth and the assets is simply replacing what people in the economy already had achieved through their own productivity.

Llewellyn Rockwell, Jr.:

"This crisis ought to underscore a point made on these pages again and again. Being a government official gives you no special insight into how to best manage a crisis. Indeed the public sector, with all its guns and mandates and arrogance, cannot and will not protect us from life's contingencies. It used to be said that infrastructure was too important to be left to the uncertainties of markets. But if it's certainty that we are after, there is a new certainty that has emerged in American life: in a crisis, the government will make matters worse and worse until it wrecks your life and all that makes it worth living."

Tyler Cowan:

"If hundreds or thousands died, why didn't more people leave town? I can think of a few hypotheses:

1. They were plain, flat out stupid.

2. They were not stupid per se, but human beings underestimate the potential for small probability, massive disruptions to their accustomed status quo.

3. They made a rational calculation, but just happened to catch the wrong number on the roulette wheel of nature.

4. Bad policy meant they didn't have many good options for leaving.

Sadly, #4 seems to have played a role:

As many as 100,000 inner-city residents didn't have the means to leave, and an untold number of tourists were stranded by the closing of the airport. The city arranged buses to take people to 10 last-resort shelters, including the Superdome."