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It has just been announced that our Spring 2015 Frederic Bastiat Guest Speaker, the Economic Historian, Robert Higgs, who spoke here just two weeks ago, has been named as the winner of the Juan de Mariana Award.  This international award was first given in 2007 and Dr. Higgs is the first U.S. winner.  The previous and current winners are:

2007 – Luis Reig Albiol (Spain)

2008 – Manuel Ayau (Guatemala)

2009 – Anthony de Jasay (Hungary)

2010 – Carlos Alberto Montaner (Cuba)

2011 – Giancarlo Ibargüen (Guatemala)

2012 – Mario Vargas Llosa (Peru)

2013 – Carlos Rodríguez Braun (Argentina)

2014 – Pedro Schwartz (Spain)

2015 – Robert Higgs (USA)

Join me in congratulating Dr. Higgs in winning this international award from the Insituto Juan de Mariana in Spain.

-MC

 

Note–I originally posted this in May of 2011, but somehow I must have deleted it by mistake (you know that sort of thing never happens); but I did find it in my files and am reposting it here.

Those famous lines from Coleridge’s “The Rime of the Ancient Mariner,” come to mind when we consider that Sulphur, Louisiana is only about 100 miles from Butte LaRose, Louisiana.  While Butte LaRose is expected to soon be under water from the opening of the Morganza spillway, Sulphur is asking its residents to conserve their water use (see http://www.kplctv.com/story/14681736/sulphur-tells-its-residents-to-lay-off-the-pipes).  With a break in their water main, water levels and pressure have fallen in the city, prompting citywide restrictions in water use.

In the KPLC article, it is noted that there are no residential water meters in Sulphur, with residents being charged flat fees.  There is then no natural incentive to conserve to avoid high water bills.  The incentive that high water bills give citizens elsewhere a reason to call the plumber when there is an annoying water leak is gone in Sulphur.  There, citizens receive a flat bill each month of $43 to cover the costs of water, sewerage treatment and trash pickup.  While the city plans to raise that bill to $45 per month, the higher but still flat fee does not help residents conserve water, as they pay that same flat fee no matter their use of water, whether they draw a drop or use water at rates approaching the Morganza’s flow.  No matter what they do, they get charged the same rate.  What economists call their “marginal cost” of water is zero.  For each extra unit they consume after the first, they pay nothing extra.  There is no incentive for them to conserve other than to be a good citizen, but sometimes “being good” just isn’t enough.

Water in Sulphur is drawn from the Chicot Aquifer, a resource, that, for all practical purposes is a non-renewable resource (while actually renewable, our use is well beyond any sustainable rate).

-MC

About 20 years ago I went to Seattle to present a paper at the Western Economic Association.  One of the things I loved about that trip was the food in the restaurants there.  From some of the best Asian cuisine in the US outside of San Francisco to wonderful fresh northern Pacific fish and crabs, it was wonderful. I am afraid such experiences will become rarer.

As you may know, Seattle has raised its minimum wage to $15 an hour.  Seattle’s higher minimum wage is set to go into effect in stages over about 3 to 5 years, starting on April 1st.  Seattle is already seeing the effects of the rise in minimum wages: more and more of their restaurants are closing, according to this article in Seattle Magazine.

Some may wonder how a wage hike that does not begin for another few weeks can already have an effect on restaurant closings. The answer is simple: owners can do the math. Those who may want to get out of a lease or sell their property know that they have to start doing so. Those who wish to liquidate their other equipment will also start doing so.

Notice that fewer restaurants mean fewer restaurant jobs, part-time work that is often very suited to college students. Remember, just because they have to pay you more if they hire you does not mean they will hire you!

Of course, with fewer restaurants in Seattle, there might just be some opportunities created right outside of town. But if their wage hike had been statewide or nationwide, just outside of town just won’t be far enough.

-MC

What is missing in the photo of pharmacy bins in this article by Sergio Held of OZY.com.  In the article, a pharmacist tweets looking for a drug his niece needs. A pharmacist cannot find the drug.  If a pharmacist is unable to track down a drug his niece needs, how can an ordinary person?

You might want to check out the tweets sent out on #ServicioPublico mentioned in the article.  People are desperate for ordinary drugs.

The article mentions the government-subsidized products are being smuggled out of Venezuela.  The government subsidies are used to keep the prices in Venezuela below ordinary market prices, but of course, this just make it profitable to buy such products up, and medicines are included here, in order to resell them across the border, to Columbia.  Notice also that in trying to keep the government’s image up, Venezuela has made it illegal for families to bring in their own supplies to the hospital for treatment.

Setting a price lower than the market would set does not make it easier to get.  In fact, it usually makes it unavailable.

Notice the parallel between Venezuelans getting their drugs from Columbia and the illegal drugs that are supplied to the U.S. consumers by Columbians. I think the Venezuelans are doing better at keeping drugs out of their country than we are.

-MC

I have never condoned the recreational use of drugs other than alcohol. In of my classes recently, I discussed how the war on drugs has led to an increase in crime.  Here, Texas Tech Professor and Independent Institute Senior Fellow Ben Powell discusses the economics of the war on drugs. One point that he makes is that the large drugs cartels are probably in favor of our war on drugs, as it drives the price of drugs up and drives out of business smaller drug organizations who are both less efficient at smuggling drugs and protecting drug sales territories.

What do you think?

-MC

The gross-receipts tax, as proposed by Nevada Governor Brian Sandoval (R), is much like an ordinary sales tax, taxing firms’ sales by taking a certain percent of sales in taxes.  Since the tax will be a somewhat a percent of sales, or purchases, it is sure to be as regressive as any sales tax. However, a gross-receipts tax is much worse than an ordinary sales tax for five reasons.

First, since the tax is on a percent of sales, no matter where those sales take place in the supply chain and is cumulative along that supply chain, the shorter the chain, the lower the effective tax rate becomes, leading to a more costly supply chain.  Such a tax scheme only serves to induce businesses to reduce the links in that chain as much as possible, through vertical mergers and by pushing as much of the vertical chain outside of the state as possible.  This reduction in “the middle man” in the supply chain, instead of cutting costs to consumers only serves to raise costs, as business activity becomes less efficient–the only reason middlemen are used in supply chains is they reduce costs.  Europeans who now use the value-added tax once used gross-receipts taxes.  They transitioned to the value-added tax which is a tax on the net revenues (net of cost of goods sold), so that a 10% sales tax and a 10% value-added tax raise prices to consumers by the same amount and collect the same amount of money. The gross-receipts tax was just too inefficient.

Second, with an ordinary sales tax, certain goods can be shown favor by exempting them from taxation, such as exempting food, medicine and/or electricity from sales tax, exemptions which reduce or eliminate the regressivity of sales taxes.  A gross-receipts tax, just as with the European value-added tax, cannot eliminate or cut the rate on certain types of consumer goods from taxation to cut the tax’s regressivity, but can only cut or eliminate the tax on particular industries.

Third, taxing industries instead of taxing types of goods leads to more intense lobbying, since producer groups are more concentrated and have more reason to get together than consumers.  Nevada Governor Sandoval proposes to have different tax rates for 30 different identified industries.  Such industry-level taxation only serves to encourage industries to lobby the Nevada state government more intensively seeking favors in the form of more favorable tax treatment for their industry.  This only encourages more back-room deal making for special treatment for particular industries.  Such favoritism in taxation not only wastes resources by encouraging lobbying, the unfair tax treatment with different businesses taxed at different rates also decreases efficiency in the economy by directing resources by government taxes instead of market prices—people are encouraged to use their resources for government-approved purposes rather than market-approved purposes, and the government-approved purposes are the ones with the most lobbyist money behind them.

Fourth, when something seems to be free, we want more of it, but nothing is free, there are not free lunches, leading to more government than we would want if we knew the real cost.  In the nineteenth century in the American West, saloons would often advertise free lunches (free with the purchase of a drink).  Customers found out that their drinks would be more expensive and those free lunches would be very salty, making them crave more drinks—they realized those lunches were anything but free.  A major problem with the gross-receipts tax is one that the Nobel Laureate James Buchanan labelled “fiscal illusion.”  With a sales tax, buyers see that they are paying the tax.  So voters, as tax-paying buyers see how much their state government costs them with every loaf of bread or can of beans they buy.  But with both the value-added tax and the gross-receipts tax, the taxes paid on the item are hidden in the final sales price.  The cost of new spending plans by legislators and governors, instead of being clearly seen at the cash register become completely hidden from view.  Many people were shocked to find how the level of deceit it took to pass the “Affordable Care Act.” A gross-receipts tax sets up a deceitful system that hides the costs of programs from voters to get government programs passes.

Finally, government expansion financed by such “free money” is often difficult to reverse. I am told that in our National Parks, feeding the animals is discouraged because it gets the animals dependent on the handouts.  “Free lunches” or the free stuff given out by government creates program dependency and are difficult to repeal from government.  Such free stuff seems freer still when financed by taxes that seem to be paid for by someone else, but that someone else, Senator Russell Long’s “fellow behind the tree,”  just turns out to be us crouching down under the load of hidden taxes.

-MC

 

 

Sometimes in your life, you meet people who alter your life’s course, who shape your life, or change your course in some way.  Certainly, your parents do alot to set the general direction, or more importantly, teach you how to sail in the first place, how to manage rough and calm seas alike.  I came across Don Boudreaux’s column in the Pittsburg Tribune-Review, marking the passing in October of two people who changed his life.  One of them was Michelle Baillet, who taught at Nicholls for many years and was the person who recruited me to come to Nicholls at a meeting in 1984 and was my first department chair at Nicholls.  Don will be speaking here at Nicholls, his Alma Mater, this Thursday.

-MC

 

Don Boudreaux, an alum of Nicholls, is the inaugural speaker for the  Frederic Bastiat Guest Lecture Speaker, Donald J. Boudreaux, Ph.D., J.D. who will speak in the Ridley J. Gros, Jr. Auditorium in Powell Hall, Thursday, November 13th at 1:30 and at 7 p.m.  His talk is titled “The lens of economics.”

He is the author of Globalization and Hypocrites & Half-Wits: A Daily Dose of Sanity from Café Hayek, based on his daily writing of letters to the editor of major newspapers around the country.  He also writes a popular blog on economics with Russ Roberts, Café Hayek.  He is now the Director of the Center for the Study of Public Choice.  He was the Chairman of the Department of Economics at George Mason University, where he had two winners of the Nobel Award in Economics in his department.

He was the president of the Foundation for Economic Education.  In 1996 he was the Olin Visiting Fellow in Law and Economics at Cornell Law School.

As a witty and prolific blogger with many readers worldwide, he follows in the footsteps of this lecture’s namesake, Frederic Bastiat, who was a witty and prolific pamphleteer, the nineteenth century equivalent to today’s bloggers.

Here, he hits the same theme that Dr. Kurth did several days ago, being rationally ignorant.  Here is what Professor Booudreaux had to say.

What do you think?

-MC

 

Here is a great discussion of how Bitcoin and other new “cryptocurrencies” work.  The source here, The New Palgrave Dictionary of Economics, is a well-respected source.

http://www.dictionaryofeconomics.com/article?id=pde2014_C000625

-MC

This post was written by my long-time friend and graduate school classmate and recently retired professor of economics from McNeese, Dr. Mike Kurth.  This article appeared in Lagniappe, a Lake Charles magazine.  I have his permission to post.

Kurth

Democracy may be a great political system, but it is not perfect.  One of its flaws is what economists call “rational ignorance,” which some have dubbed “the dumb voter theorem.”  The premise is simple: information is costly and rational people chose to acquire knowledge only to the extent that the expected benefits exceed the expected cost.

To illustrate this concept, a few years back my wife, Cathy, decided she needed a new car.  I quizzed her about her needs: size, number of seats, fuel efficiency, price, etc., then I spent two days on the Internet researching and comparing various makes and models to come up with a list of the top five vehicles I thought met her needs.  I printed out the list and gave it to her with the suggestion she visit local dealerships and test-drive each car.  She set off with one of her girlfriends and returned that evening the proud owner of a bright red car that didn’t come close to resembling any of the vehicles on my list.  “Why did you choose that car?” I querried.  Her answer was simple: “I liked the color.”

I am not faulting Cathy’s decision.  It was her car and she bought what she liked.  But I walked away shaking my head at myself and wondering why I had invested all that time into acquiring information about a choice over which I had no control.

Tis is the proposition faced by voters trying to decide which candidate to vote for in an election: how much time and effort should they invest in learning about the issues and the candidates, when the probability that their informed vote will affect the outcome of the election is close to zero.

My good friend Lynn Jones, the Clerk of Court for Calcasieu Parish, disagrees with me on this.  He says there are many cases of elections being decided by a small number of votes, and once in a while an election is even decided by a single vote.  I will grant him that this happens on occasion, but the probability of an election being decided by a single vote certainly decreases as the number of voters increases.  In other words, an election for Governor, Senator or President is far less likely to be decided by a single vote than an election for Dog Catcher.

So, if one vote is unlikely to change the outcome of an election, why bother voting?  Part of the answer is that many of us don’t vote: just over 50% of eligible voters turnout for presidential elections, and the turnout for local elections is generally much less.  But among those who do vote, I suspect the most common answers are that they consider it their civic duty or, like the millions who vote for their favorite performer on American Idol, they want to register their support for a candidate they like.

But the bigger question is how informed are those who show up at the polls on Election Day?  Rational ignorance suggests they have little incentive to expend much effort acquiring information.  That is why candidates spend millions of dollars “informing” voters with selective information, half-truths and outright lies … and get away with it.  Name recognition and image are what really matters in a political campaign.

One of the most famous cases of voter ignorance occurred in 1986 when Adli Stevenson II, a well-known Democrat politician in Illinois, was running for governor against Republican John Thompson.  The night of the primary people were shocked to learn that followers of the political nut-case Lyndon LaRouche won the Democrat Party nomination for Lieutenant Governor and Secretary of State.  The most likely explanation is that the media had focused on the hotly contested Stevenson-Thompson race and nobody was paying attention to the candidates running for Lieutenant Governor and Secretary of State and the voters—acting out rational ignorance—did their civic duty by voting for the first names and the ballot for those positions, which just happened to be followers of LaRouche.  The end result was that Stevenson refused to run on the ticket with the LaRouchites, formed an ad hoc “Solidarity Party” and lost the general election to Thompson by 10 points.

When it comes to image over substance, one of the best-known examples is the 1960 presidential campaign between Nixon and Kennedy.  In the first-ever televised presidential debate, Americans glued to their television sets saw a young, charismatic John Kennedy take on then Vice President Richard Nixon with a five-o’clock shadow that made him look like a crook, an image Nixon never lived down.  Kennedy won the election by an extremely thin margin, and many credit his victory to the poor job by Nixon’s make-up artist for the debate.

We have a very important election coming up November 4th, an election that could change the course of the nation.  Some will tell you it is your civic duty to vote.  I say it is your civic duty to cast an informed vote.  Casting an ignorant vote does not further the cause of democracy, rather it undermines democracy by reducing it to little more than voting for your favorite singing contestant.  Take your civic duty seriously.  Don’t just sit on your couch ingesting the B.S. fed to you in slick commercials or form your opinion based on image.  Do the research yourself, check the facts, and then go to the polls to perform your civic duty.

-MK

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