flinthills

Blundell's Law

A good read: John Blundell's Remember Blundell's Law in today's The Scotsman.

Here's a teaser:

"I will have to refine my insight into an algebraic formula before I can expect my Nobel prize. I’m pretty near the mark when I describe Blundell’s Law as "all new regulations achieve the opposite of their intended effect". This is more subtle than Murphy’s Law and more important than Sod’s Law. "

Murphy's law is named after Edward Murphy Jr., an engineer who ran rocket-sled experiments for the US Air Force in 1949 to test human acceleration tolerances (sounds like he had a perfect lab environment to test his law). The original version was, "If there are two or more ways to do something, and one of those ways can result in a catastrophe, then someone will do it." It is usually stated as, "if something can go wrong, it will," which -- as best I can tell -- is really Sod's Law.

Minimum Wage Again...

I was wondering when it was going to happen... sure enough, Kerry announced that the minimum wage should be raised to $7 an hour.

Price floors create surpluses, price ceilings create shortages. This is basic economics. It is a positive, not normative fact. Assuming we aren't faced with a monopsony (a single employer) - and at the national level I think that's a good assumption - raising the floor on the price of labor will result in those at the lowest end of the economic scale losing their jobs.

Those who put forth the minimum wage argument are either ignorant (not to be confused with stupid) or evil. I suppose another possibility might be that they advocate a bigger role for government in getting those who slip off the end into the welfare system, which, the argument often goes, improves their financial situation anyway. This is simply another form of evil. If you want to get a good sense for how our welfare system destroys entire generations of lives, read Michael Tanner's book, The Poverty of Welfare.

Don Boudreaux at Café Hayek has a nice post on this topic.

It Must be Summer

With the summer months coming up, I'll likely be contributing to this blog less frequently - but I don't plan to stop altogether.

Tom Palmer has me heads-down with an economics text, "University Economics: Elements of Inquiry," by Alchian and Allen as the next step after having read Paul Heyne's excellent, "Economic Way of Thinking." I also just received Dr. Sally's book, "Classical Liberalism and International Economic Order," as well as three other texts... So I've got plenty to plough through for the next couple of months anyway.

I hope all of your summers' are going well - I'm off with Suzy and the girls to Possum Kingdom Lake for a long weekend next week to spend time with some great friends. It's an awesome place if you ever get the chance to go.

Thanks to everyone for the incredible support and kind comments (and the criticism especially!) on this blog. It's wonderful getting to interact with so many insightful, witty and kind people.

Is Free Trade Fair Trade?

That was the subject of last night's panel discussion at the IEA and though all the panelists were interesting and well-spoken, the easy favorite from my seat was Dr. Razeen Sally. Dr. Sally is a professor of Economics and Sr. Lecturer at the London School of Economics. He is, quite simply, brilliant in his ability to articulate the benefits of trade liberalisation. I'm telling you, when this guy gets up to talk, sunshine floods the room and everyone sits up a bit straighter; the air smells faintly sweeter; a choir of archangels can almost be heard in the background. He's that good.

I've ordered his book Classical Liberalism and International Economic Order from Laissez Faire Books and will report back once I've read it. If it's anywhere near as eloquent and interesting as it's author, it'll be a good read.

So far he's got my vote for the next Founding Fathers Lecture Series at the Flint Hills.

Cobden, Entrepreneurs and MBAs

Couple of recent articles in The Scotsman that are worth your time to check out:

First is John Blundell's article, Budding entrepreneurs must not be afraid of risk culture, which points out that "MBA" and "Entrepreneur" are both important but very different animals.

Next is an article celebrating the 200th birthday of Richard Cobden whom many consider the true father of free trade. Most of us know Frederic Bastiat; most of us don't know that it was Cobden who inspired him. According to the Library of Economics and Liberty, upon hearing about Cobden's attack on the British Corn Laws, Bastiat vowed to become the "French Cobden" and subsequently published several articles against protectionism that won him instant acclaim.

There's a nice piece in The Economist celebrating Cobden as well.

Sunny and Blue Skies in London

I'm in London this week and it's sunny skies and very warm. After a walk along the Thames, I lost myself among the bookstacks of the Economist's bookstore on the LSE campus for several hours. Someone once said that if you laid all the economists in the world in a line from head to toe, they still wouldn't reach a conclusion - but it ain't for lack of tryin' -- they sure publish a lot of books. I somehow managed to walk away without buying anything (the stack of un-read books next to my reading chair is getting perilously high)...

I am looking forward to Wednesday night's IEA event, "Is Free Trade Fair Trade?", which will be a panel discussion and the first of a series in the Templeton Morality and Markets Forum. Will try and report back on that later in the week.

On another topic... I wrote a previous blog entry ( Someone Needs to Get Their Head Examined) that poked fun at the "Trust-Me-I'm-a-Liberal" op-ed in the Eagle, which it turns out was followed by an equally goofy reply in the name of "conservatism", and last week that was followed by this op-ed titled, "Liberal Not the Root of Evil," by a Mr. Cecil Merkel.

I'm getting a bit underwhelmed by the "I'm in this box your in that box" thinking that passes for critical analysis these days among the editorial pages of "our" local paper. Especially when they can't even intelligently define the boxes. [I thought for a while on how to play on the phrase "wet paper bag" but gave up].

The wise and infinitely more patient George Pearson, who is the Chairman of the Board and Directs the Flint Hills Institute for Public Policy, made the following point on Merkel's "responsible economists" remarks.

Merkel: "Every responsible economist has said the present national debt is dangerous and any budget deficit will only make it worse. We liberals recognize that the just way to cut the debt is to repeal the Bush tax cuts for the extreme wealthy, the top 2 percent."

Pearson:"Milton Friedman, James Buchanan, George Stiegler and Ronald Coase are four Nobel prize winning economists who have not said that. I could be wrong, but I don’t believe that you will find Vernon Smith, Wichita’s recent Nobel Laureat in Economics, saying that either."

Thanks George!

The Real Oil Problem

Around 1993 the MIT Press published as compendium of economist Morry Adleman's papers under the title, The Economics of Petroleum Supply. Dr. Adleman is the "rock"-et scientist of mineral resource economics. The book isn't bedtime reading (unless your goal is to fall asleep as quickly as possible), but it provides excellent insights into its subject and helped me greatly in my attempt to understand the industry when I was getting started.

He's recently written a more layman-oriented and accessible article for Cato's Regulation Magazine titled The Real Oil Problem that is well worth your time to read.

The summary is:

• The world, contrary to conventional thinking, is not running out of oil.
• The world will never run out of oil
• The real oil problem is the OPEC cartel
• That problem is exacerbated by poor energy public policy that (1) cooperates with OPEC under mistaken beliefs; (2) has blatant disregard for the price mechanism.

Here's a quote to pique your interest (if some of the above statements didn't already):

"The moral is this: It doesn't matter how much oil is produced domestically and how much is imported. Presidents may declare there is an 'urgent need' to cut imports and boost 'energy independence' -- noone ever lost political support by seeing evil and blaming foreigners. The facts are less dramatic. Imports do not make any importer 'dependent' on any particular exporter, or even all of them taken together. Therefore, direct or indirect spending to reduce imports is a waste of resources. Some public support of research into energy may bring us knowledge worth paying for, but public outlays for energy development are a waste."

Enjoy.

Goofy Law: Fining Gas Stations for not Charging Enough?

From the "can laws really be this stupid department"... Here's a story that was carried last week in the Wichita Eagle from AP saying that Minn. is fining gas stations that don't charge enough for their gasoline (yes you read that right).

This is partly the "cost as justification" trap: the (bad) idea that it's okay if a seller covers his "costs" -- but no way should he be allowed to charge significantly over or under those "costs." That would surely be an attempt at exploiting some unfair advantage.

This conveniently ignores the fact that all costs are opportunity costs and thus subjective; moreover, historical costs (like what you bought that last unit of gasoline for from the wholesaler) are sunk and irrelevant to the decision to sell that unit now - which depends on your perceived costs and benefits at the margin. And those marginal costs are never independent of demand.

Clearly this 8-cents-over-wholesale price floor is an attempt by someone to limit competition among the suppliers. Call me cynical, but I'm guessing this law was introduced and pushed for by a group of the least-competitive suppliers in the area. It was probably even sold to the public under the guise of preserving competition.

It's easy to see that this Minnesota law is bad because it keeps high gasoline prices from falling below a certain level (floor), which will virtually guarantee ticking off the majority of us as consumers. I'm not sure we'll as quickly line up to condemn price ceilings, which are just as bad, for some of the same reasons.