Tariffs vs. Quotas

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Greg Mankiw writes,

rationing under price controls is never perfect. Under rent control, for example, apartments do not automatically go to those who value the apartments the most. The misallocation due to imperfect rationing makes the actual welfare cost of price controls much higher than the standard deadweight loss triangle.

Suppose that the minimum wage is $10. You have one worker who would be happy to work for $8 and another worker who would be happy to work for $10. If the second worker is the one who happens to get the job, you lose $2 of surplus due to what Greg is calling “imperfect rationing.”

I remember being taught the equivalence between tariffs and quotas. But it seems to me that such an equivalence fails by the same reasoning. The quota may be imperfectly rationed, unless rights to sell within the quota are tradable.

North, Wallis, and Weingast

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It is not a new book, but still I wanted to review it.

Open-access orders are likely to be highly stable. Everyone who is ambitious and able to organize others is free to attempt to earn a profit or address a political problem. This gives citizens a feeling of having a stake in the system. Moreover, the layers of beliefs, norms, and institutions that precede the open-access order all serve to reinforce the order once it is in place. For example, Americans are culturally committed to free speech, disdain for corruption, and obedience to the Constitution.

This leads one to be relatively optimistic about the prospects for the United States, regardless of how one feels about recent political and economic trends.

Capitalism Bee Sustainable

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Shawn Regan writes,

Last year, riding the buzz over dying bees, the Obama administration announced the creation of a pollinator-health task force to develop a “federal strategy” to promote honeybees and other pollinators. Last month the task force unveiled its long-awaited plan, the National Strategy to Promote the Health of Honey Bees and Other Pollinators. The plan aims to reduce honeybee-colony losses to “sustainable” levels and create 7 million acres of pollinator-friendly habitat. It also calls for more than $82 million in federal funding to address pollinator health.

But here’s something you probably haven’t heard: There are more honeybee colonies in the United States today than there were when colony collapse disorder began in 2006. In fact, according to data released in March by the Department of Agriculture, U.S. honeybee-colony numbers are now at a 20-year high. And those colonies are producing plenty of honey. U.S. honey production is also at a 10-year high.

He goes on to describe how market forces cause beekeepers to enhance the bee population, in spite of other forces that cause decline.

Note that the title of this post is supposed to be (bee?) a pun.

Medicaid, Obamacare, and Bootleggers

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The abstract of a paper by Amy Finkelstein, Nathaniel Hendren, and Erzo F.P. Luttmer reads,

We develop a set of frameworks for valuing Medicaid and apply them to welfare analysis of the Oregon Health Insurance Experiment, a Medicaid expansion for low-income, uninsured adults that occurred via random assignment. Our baseline estimates of Medicaid’s welfare benefit to recipients per dollar of government spending range from about $0.2 to $0.4, depending on the framework, with at least two-fifths – and as much as four-fifths – of the value of Medicaid coming from a transfer component, as opposed to its ability to move resources across states of the world. In addition, we estimate that Medicaid generates a substantial transfer, of about $0.6 per dollar of government spending, to the providers of implicit insurance for the low-income uninsured. The economic incidence of these transfers is critical for assessing the social value of providing Medicaid to low-income adults relative to alternative redistributive policies.

In plain English, this says that most of the benefit in Medicaid goes to the supply side, not to the recipients. The recipients would be better off with cash. I am sure that the same holds true for food stamps, housing subsidies, mortgage subsidies, and so on.

In the Public Choice theory of regulation, the theory of Bootleggers and Baptists holds that regulation is supported by naive do-gooders (the Baptists) and private interests (the Bootleggers). But non-cash assistance programs also fit that model. The naive do-gooders want to subsidize food or health insurance or housing for the poor. These Baptists are cheerfully joined (and ultimately the policies are dominated) by the Bootleggeres, which in this case are the suppliers of food or health insurance or what have you.

Did you see how much the stock prices of health insurance companies and hospitals shot up after the Supreme Court refused to strike down the Obamacare subsidies for states without exchanges?

Yankee Scandinavian Dandy

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Nima Sanandaji writes,

The descendants of Scandinavian migrants on the other side of the Atlantic live in a very different policy environment compared with the residents of the Scandinavian countries. The former live in an environment with less welfare, lower taxes and (in general) freer markets. Interestingly, the social and economic success of the descendants of Scandinavian migrants in the US is on a par with or even better than their cousins in Scandinavia

Pointer from Tyler Cowen. This is political incorrectness, squared. It argues that the Scandinavian welfare state is not the success that its reputation advertises. And it implicitly assumes that some groups enjoy genetic and/or cultural advantages relative to others.

My guess is that few progressives would accept the factual claims and analysis of the author. But if they did, and they wanted to maintain the oppressor-oppressed axis, might they argue that moving to America enables Scandinavians to profit more from being an oppressor class than they are able to profit from remaining in Scandinavia?

The Trade Slowdown

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Bernard Hoekman writes,

Slow trade growth has led to worries that the world economy has run into a ‘peak trade’ constraint, i.e. the ratio of global trade to GDP has reached a limit (Economist 2014). Global trade increased 27-fold between 1950 and 2008, three times more than the growth in global GDP. As a result, according to the World Bank’s World Development Indicators database, the trade-to-GDP ratio for the world as a whole rose from roughly 25% in the 1960s to 60% today. The slow (absence of) growth in trade since 2009 has meant no change in this ratio since 2008. If the recent decline in trade is sustained, this 60% may turn out to be a peak for the world as a whole.

Pointer from Tyler Cowen.

To be clear, “trade” is not slowing down. All economic activity is trade. The ratio of “trade to GDP” is the ratio of trade across borders to total trade, which includes trade that takes place inside national borders. Some thoughts:

1. As the share of GDP devoted to the New Commanding Heights (education and health care) increases, we might see a slowdown in cross-border trade. Note, however, that cross-border trade could pick up if distance learning and distance health care catch on.

2. As incomes rise in China and India, the “Samuelson effect” starts to kick in. That is, the comparative advantage of cross-border trade is reduced. That is, you do more production in China when American wages are 10 times Chinese wages than when they are only 4 times Chinese wages (using made-up numbers here).

3. As the cost of robots comes down, they displace workers in all countries, and this also reduces the comparative advantage of cross-border trade.

The Greek Crisis and the Subprime Crisis

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Ana Swanson writes,

Matthijs compares the situation to the U.S. subprime crisis. Who was really at fault for the housing crisis in the U.S.: The subprime borrowers who bought houses they couldn’t afford, or the predatory lenders who encouraged them to take them out?

I, too, see parallels with the subprime crisis. However, I do not think that predatory lenders are to blame for either. In both cases, bank regulators were responsible for allocating credit. In the first instance, the regulators encouraged banks to treat mortgage loans as low risk. In the second case, they encouraged banks to treat all European sovereign debt as low risk. See The Regulator’s Calculation Problem.

The irony is that after messing up credit markets, the regulators ask for and receive more power. With the sub-prime crisis, the regulators were rewarded with Dodd-Frank. I presume that the ultimate outcome of the Greek crisis will be similar.

Vickies, Thetes, and Artisans

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Allison Schrager writes,

Harvard economist Lawrence Katz thinks that when the economy shifts, those who lose out experience “retroactive unemployment” in pursuit of jobs that no longer exist; however, he anticipates a bright future for men in the new economy. As an expert in the ways technology affects the middle class, Katz predicts the rise of the “new artisan” as a substantial trend in middle-class employment.

His theory holds that technology will commoditize and cheapen products in all industries but that artisanal workers will offer a superior interpersonal experience coupled with unique goods and services, commanding premium prices in turn. Men, he notes, are especially well suited to such roles.

Pointer from Tyler Cowen. This sounds like something straight out of Neal Stephenson’s The Diamond Age, except that Katz’s vision strikes me as more fictional.

Is Futile Care the Issue in Health Costs?

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Timothy Taylor writes,

The gains from reducing costs of end-of-life care shouldn’t be overstated. The proportion of Medicare spending that goes to end-of-life care has been roughly the same for the last few decades at about 25%. This regularity suggests that while overall health care costs have been rising, end-of-life care is not an increasing part of that overall issue. Intriguingly, Aldridge and Kelley report: “Medicare expenditures in the last year of life decrease with age, especially for those aged 85 or older … This is in large part because the intensity of medical care in the last year of life decreases with increasing age.” Indeed, older adults as a group are a minority of those with the highest health care costs in any given year

Read the whole thing. His Aldridge-Kelly citation is to a report of the sort that only Tim Taylor seems to dig up.

Uncharitable Behavior on Twitter

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James Poulos says much with which I agree.

Twitter is a megaphone for the worldview wars. It fosters constant competition among our claims that everyone should care and act as we do.

Read the whole thing. I would like to thank a commenter who told me about “unfollowing,” which is one of many useful but hidden options on Facebook. I have been unfollowing friends, left and right, who use Facebook only to post political views.

I think of myself as anti-elitist. But I am even more anti-mobist. When the mob emerges, I cease to be libertarian and instead become ultra-conservative. There is no phenomenon more barbaric than the mob.