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19 августа, 20:32

Prominent Economists Who Wouldn’t Sign My 1990 Statement about War for Oil, by David Henderson

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In late August 1990, I published an article in the Wall Street Journal. The title was badly chosen, though not by me: “Sorry Saddam, Embargoes Don’t Hurt U.S.” My editor at the time, by the way, was David Frum, and, although he and I differed on the issue of war against Saddam Hussein, he was a fantastic editor. I’ve published that article on my own web site here. Here are the opening two paragraphs: Saddam Hussein is an evil man who has no qualms about hurting innocent people. But many Americans believe that if he were to succeed in extending his control to a large part of the Arab world, he could severely damage the oil-dependent U.S. economy. No less an authority than Henry Kissinger has claimed that an unchecked Saddam would be able to “cause a world-wide economic crisis.” But is it true that Saddam Hussein can impose large costs on our economy? Economic analysis of the oil market answers with a resounding, No. The annual cost to the U.S. economy of doing nothing in the Gulf would be less than half of 1% of the gross national product. The vaunted oil weapon is a dud. Early in September 1990, I wrote and circulated among economists a statement making the point I made in the WSJ op/ed, and asked them to sign. It was titled “Economists Speak Out on War for Oil.” The statement, though substantially shorter than my article, was somewhat lengthy. For that reason, I’m not typing it in here unless 2 or more people demand it. Ed Crane of the Cato Institute thought he could get some funds to publish a big ad in major publications with the statement and, underneath it, the names of signers. We hoped to get a lot of names people had heard of. I got some but not enough and so we junked the project. The signers, in alphabetical oder, were: Barbara Bergmann, American University Tyler Cowen, George Mason University Richard Ebeling, Hillsdale College James K. Galbraith, University of Texas George Horwich, Purdue University John M. Heineke, Santa Clara University Me Dwight R. Lee, University of Georgia William A. Niskanen, Cato Institute David Ranson, H.C. Wainwright & Co. Alan Reynolds, Hudson Institute Jennifer Roback, George Mason University George Selgin, University of Georgia Richard Timberlake, University of Georgia Robert D. Tollison, George Mason University David Weimer, University of Rochester Lawrence H. White, University of Georgia Benjamin Zycher, UCLA   In going through some old files on Friday, I found some notes I had taken verbatim about my conversations on the issue with three prominent economists who had all refused to sign: Gary Becker, Paul Samuelson, and Sam Peltzman. Milton Friedman wrote me a separate letter saying that he agreed with the analysis but wouldn’t sign because many people would conclude that he was against the war, and he wasn’t. Here are the conversations with Becker, Samuelson, and Peltman:   Gary S. Becker: I agree with the economic point you made. But I won’t sign. I’m not a signer. Also, Saddam Hussein is a threat in other ways. But I agree that the threat does not arise from his power over the price of oil.   Paul A. Samuelson: This war isn’t about the price of oil.Henderson: Maybe it’s not but that’s the justification that’s being given by Bush and Baker. [I should have said “one of the main justifications.”] Samuelson: It is and it isn’t. But I won’t sign.Henderson: Do you agree with my analysis? Samuelson: I don’t have any quarrel with your analysis. Henderson: If I’m ever asked, can I quote you to that effect? Samuelson: (Pause.) Sure. Your analysis was correct.   Sam Peltzman: The analysis is right but I won’t sign. Henderson: Can I quote you as saying the analysis is right? Peltzman: Why do you want to quote me? Henderson: You’re a name. You said the same thing that Paul Samuelson, Murray Weidenbaum, and Gary Becker said. You guys are names. Can I quote you? Peltzman: Sure. I don’t care.   Why do I post this here? First, because I’m kind of proud of the results and second, to make the point that when you ask for something that you don’t get, try to get something out of it. (3 COMMENTS)

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19 августа, 00:10

Charter cities in China, by Scott Sumner

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Paul Romer has long advocated the creation of “charter cities”, especially in countries with a dysfunctional government. This would involve isolating a section of a larger country and replacing control from the central government with a new administration composed of technocrats.  It would feature transparency, low levels of corruption, property rights and the rule of law. Hong Kong and Shenzhen are sometimes cited as successful examples of this concept, although Shenzhen has less independence than is typically contemplated for a charter city. In a book of essays, Simon Leys makes a case for China being place where the charter city concept was first developed, more than 2500 years ago: [Confucius] spent virtually his entire life wandering from state to state in the hope of finding an enlightened ruler who would at last give him a chance and employ him and his team–who would entrust him with a territory, however small, where he might establish a model government. All his efforts were in vain. The problem was not that he was politically ineffectual or impractical—on the contrary. The elite of his disciples had superior competences and talents, and they formed around him a sort of shadow cabinet: there was a specialist in foreign affairs and diplomacy, there were experts in finance, administration and defence. With such a team, Confucius presented a formidable challenge to the established authorities: dukes and princes felt incapable of performing up to his standards, and their respective ministers knew that, should Confucius and his disciples ever get a foothold at court, they themselves would quickly be without employment. Wherever he went, Confucius was usually received with much respect and formal courtesy at first; in practice, however, not only did he find no political opening, but cabals eventually forced him to leave. No wonder Romer had so much trouble finding willing partners. I’ve ordered a copy of the Analects.  I wouldn’t be surprised if Confucius is one of those people (like Smith, Burke, Machiavelli, etc.) who is somewhat more liberal than his reputation. (2 COMMENTS)

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17 августа, 23:15

Think on the Margin in Airport Lines, by David Henderson

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Earlier this month, I went to the Winnipeg airport to fly home. One sign of a good vacation, for me at least, is that I’m so relaxed at the end that I forget to check carefully what time my flight leaves. I did that this year. For some reason, I had etched in my mind the idea that my flight from Winnipeg to Denver left at 4:30 p.m. So I took one last somewhat leisurely visit with my friend and mentor, Clancy Smith. At about 2:10 p.m., I left his house to stop at a drug store to find chocolate bars that I have trouble finding in the United States. I dropped off my car at the Winnipeg airport and got to the United kiosk just shy of 2:55 p.m. Lots of time, I thought. Surprisingly, though, there was no one else ahead of me in the United line. When I went to the front of the line to check my suitcase, the United employee tried to do so on the computer but was stymied. He made a quick call in which he asked another United employee to unlock the baggage check. A few seconds later, he printed out a baggage tag. He explained that the U.S. customs and immigration people don’t like people checking in when there is less an hour to go and I was checking in with 57 minutes to go. (When you fly out of Canada to the United States, you go through pre-clearance; when you go through U.S. customs and immigration, you are legally on U.S. soil and, indeed, once you’re through, you see a sign saying “Welcome to the United States.”) “57 minutes to go,” I thought. I had thought I had over an hour and a half. But it turns out that my flight was to leave at 3:55, not 4:30. When I got to Canada’s equivalent of TSA, I told an employee that I had TSA-Pre, showing him that designation on my ticket. He laughed and said that that wasn’t recognized there. Not to worry. There were only 8 people in front of me. But 3 minutes later, there were 7 people in front of me. Canada’s “TSA” was moving very slowly. I figured that once I got through, U.S. Customs would go quickly. (On this last, I was right.) So I thought on the margin. There’s a dishonorable way to get further up in the line and that is to ask someone near the front if you can go ahead of him or her. That way, you impose costs not just on him but also on everyone behind him who was previously ahead of you. There’s also an honorable way. That is to ask the person directly in front and ask if you can switch places with him. That way, the person who makes the decision is bearing the whole cost. I went with the honorable way. My plan was to do this with as many places I could before someone said no. I explained to the man in front that I had less than an hour before my flight left and asked him how much time he had before his flight. He said he had about 2 hours. So I asked him if he would switch. He looked kind of incredulous, as if my request were unfathomable. Then he said, “Forget it; you won’t make your flight anyway.” I answered, “I might or I might not, but if we switch, my odds improve a little.” He agreed and let me switch. The person in front of him heard all this and, with a twinkle in his eye, let me switch. So did the person in front of him. So within 1 minute I had moved 3 spaces up. By that point, there were only 3 or 4 people in front of me. One was a flight attendant who wouldn’t let me switch. Later I saw her on my flight; she was the only flight attendant on the flight and I could tell by the faltering way she read the directions from her cell phone that she was pretty new on the job. It made sense that she didn’t want to risk being late. Thinking on the margin can be pretty powerful. Oh, and I made my flight. The boarding didn’t start until about 10 minutes after I got to the gate. (9 COMMENTS)

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17 августа, 18:15

Bill Gates Makes Classic Error, by David Henderson

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Harvard economics professor Greg Mankiw quotes from a recent book review by Bill Gates: By the second semester of my freshman year at Harvard, I had started going to classes I wasn’t signed up for, and had pretty much stopped going to any of the classes I was signed up for – except for an introduction to economics class called “Ec 10.” I was fascinated by the subject, and the professor was excellent. Greg’s interest, understandably, is who the professor was. He wonders if it was Otto Eckstein. I’m wondering if it was Elizabeth Allison. In December 1973, when I was in my second year at UCLA, I did a “busman’s holiday,” flying to Boston en route to Canada to visit my undergrad friend Lawrence Siskind and my econ graduate student friend Danny Steinberg. Danny invited me one evening to go with him to Elizabeth Allison’s place where she had a meeting of her teaching assistants (Danny was one) to go over some questions for an exam for a self-paced economics course she was teaching. It was an introductory course. Maybe she taught Ec 10 also. But I have a less personal and more professional interest in the Gates’ review. After drawing a supply and demand curve correctly, Gates writes: There are two assumptions you can make based on this chart. The first is still more or less true today: as demand for a product goes up, supply increases, and price goes down. If the price gets too high, demand falls. The sweet spot where the two lines intersect is called equilibrium. Equilibrium is magical, because it maximizes value to society. Goods are affordable, plentiful, and profitable. Everyone wins. In the second and third sentences, Gates messes up big time. If demand for a product goes up, the price goes up. With an upward-sloping supply curve such as the one he draws, the quantity supplied rises. Net result: equilibrium price and quantity are higher. The price does not go down. I’m criticizing Gates not to suggest that I’m smarter than he—I’m positive that I’m not—but simply to correct his analysis. One can make some pretty big follow-on mistakes if one doesn’t understand his mistake. I’m also not suggesting that he should have stayed at Harvard longer and understood economics better. If he had, almost all of us would have been at least slightly worse off. Interestingly, in the paragraphs that follow, Gates does get at the crucial part of economics that matters for his industry. I’ll leave that part to you if you’re interested.   (12 COMMENTS)

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17 августа, 16:12

Land Taxes: The Return of Henry George, by Pierre Lemieux

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An article in the August 9 issue of The Economist, “The Time May Be Right for Land-Value Taxes,” suggests to reconsider the land-value tax advocated by American economist Henry George in his 1879 book Progress and Poverty. George proposed to tax away the rent on the unimproved value of land, and to replace all other taxes by that single one. The improved value, represented for example by a house or an industrial building, would not be taxed. Presumably, the implicit rent a homeowner earns on the land on which his house stands would be taxed. The receipts from the tax would finance public goods. These goods boost land rents–think about a police station or even a park or a road–and benefit the landowners more than the landless, who have paid wage taxes and other taxes to finance the public goods. In other words, the rent tax would be redistributed to the landless in free public goods. By the way, the Economist article contains many good illustrations of economic theory. For example, a land tax is capitalized in land values, which decrease by the present value of future tax payments. A Danish government study apparently provided an empirical confirmation (a useful citation would have been appreciated). A convincing argument exists for taxes on improved land, from the double perspective of economics and ethics. The economic argument is that land being in fixed supply, a tax on unimproved land does not change the allocation of resources. It will be totally capitalized—negatively—in the land prices. In traditional public finance theory, a tax on unimproved land is an efficient tax. In 1978, Milton Friedman said that “the least bad tax is the property tax on the unimproved value of land, the Henry George argument of many, many years ago” (quoted by Fred Foldvary of San Jose State University, a proponent of the Georgist tax). The basis of the ethical or distributive argument for Georgist taxes is well summarized by The Economist: The most famous attempt to justify land ownership was made by John Locke in the 17th century. He argued that because people own their own labour, toiling on the land confers ownership rights over the resulting product (a farm, say). Yet even Locke said this only works as long as there was “enough, and as good, left in common for others”. This proviso may be met in a wilderness but not in booming cities. In any case, such a combination seems a shaky justification for acquisition. Robert Nozick, a 20th-century libertarian philosopher, doubted whether pouring his can of tomato juice into the sea, combining the two, meant that he could then claim ownership over the ocean. Without a good basis for land ownership, how can it be fair for landlords to get rich from rent? As attractive as a Georgist tax or other similar land-value taxes appear, there are many issues to explore. Let me mention a few. (The more I talked to Fred, the fewer issues I was left with! Perhaps I am, like it has been said of Donald Trump, overly influenced by the last person I talked to?) First, even taxing the whole rent would not produce enough government revenues to replace all existing taxes. Total (federal, state, and local) government expenditures in the US amount to about $6 trillion a year.  Economist William Larson estimated the value of all land in the US at $23 trillion in 2009; let’s increase the estimate to, say, $50 trillion in order to account for increasing land prices since then. Assuming an annual rent of 5%, taxing all of it away would yield “only” $2.5 trillion a year. This problem, however, would be more an advantage than a disadvantage if it could force a reduction of government expenditures by some 40% ($2.5 trillion is 42% of $6 trillion). Such a change could be gradually realized over several years, perhaps a generation. Of course, this scenario assumes that governments can make and keep such a commitment. It is even more difficult to imagine in a federal system. A second issue is that a new land tax expropriates, at least partly, the current owners of land, who paid for the capitalized value of future non-taxed (or lightly taxed) rents when they purchased their land. This problem could be solved by reducing the landowners’ income taxes or other taxes by an amount equivalent to their capital loss. As all governments in America levy about $5 trillion in taxes per year, a long transition would again be necessary. A third issue–or perhaps a complex of issues–is whether land-value taxes should tax away the whole rent (or more) as George wanted, or only part of it as Friedman probably envisaged. A related issue is whether confiscation of the whole rent by government means the same as the nationalization of land. And once the government has this whole field of taxation open to it, will it not stealthily nationalize all land by charging land taxes higher than the rent and high enough to make the private possession of land uneconomical? It seems to me that there are three possible lines of argument against taxing all land rents, two of a moral nature and one more economic: Reformulate the Lockean argument in a way to make it defensible. Argue, like Anthony de Jasay, for a presumption of liberty and a prima facie case that property simply is, and may only be contested if a precise tort can be proven. (See my Econlib article “An Unavoidable Theory of the State,” and the links therein.) Make a public-choice argument to the effect that a government with a monopoly of land would a very dangerous Leviathan. As argued by Geoffrey Brennan and James Buchanan in their 1980 book Power to Tax, the unrestrained Leviathan will charge in taxes what the market will bear. We seem to always come back to the question of the justification of the state and, if such a justification is found, to the problem of chaining Leviathan. (11 COMMENTS)

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15 августа, 23:48

A Torch Kept Lit, by David Henderson

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A long-time friend gave a copy of William F. Buckley, Jr.’s A Torch Kept Well Lit to his daughter, who is in her late 20s. My friend has a Ph.D. in economics from UCLA and is a successful businessman. His wife used to be a columnist for the Wall Street Journal. Ideas and books are discussed a lot in their household. His daughter, who got good grades at a pricey private high school, read the whole thing and, afterwards, said, “Dad, I learned nothing in school.” Her point was that there was so much about U.S. culture, politics, literature, etc., that she didn’t know and she realized that fact after reading the book. So I ordered the book and read half of it on a flight from L.A. to Denver last month. It didn’t have the same effect on me because, of course, I have learned a lot over the years. Nevertheless, the book is excellent. I don’t recommend reading it in one sitting. It’s composed entirely of obituaries that Buckley wrote for politicians, novelists, thinkers, friends, etc. and reading one obit after another can get old. I would recommend a minimum of three sittings punctuated by days. One of my favorites is the obit of Ronald Reagan. Buckley tells about an event in the spring of 1961. He and his sister-in-law were eating at one end of a restaurant while Ronald and Nancy Reagan were eating at the other end. They hadn’t yet met, but Reagan was to introduce Buckley, who was the speaker. Here’s my favorite paragraph: He distinguished himself that night—and dismayed Mrs. Reagan—by what he proceeded to do after discovering that the microphone hadn’t been turned on. He had tried, raising his voice, to tell a few stories. But the audience was progressively impatient. Waiting in vain for the superintendent to unlock the door to the tight little office at the other end of the hall, in which the control box lay, he sized up the problem and, having surveyed all possible avenues of approach, climbed out the window at stage level and, one story above the busy traffic below, cat-walked, Cary Grant style, twenty or thirty yards to the window of the control room. This he penetrated by breaking the window with a thrust of his elbow; he climbed in, turned on the light, flipped on the microphone, unlocked the office door, and emerged with that competent relaxed smile of his, which we came to know after Grenada, Libya, Reykjavik, and Moscow; proceeding with the introduction of the speaker. And all that was thirty years before bringing peace in our time! It probably goes without saying, given my views on foreign policy, that my quoting this does not mean that I agree with what Reagan did with respect to Grenada and Libya.   (0 COMMENTS)

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15 августа, 16:41

How You Can Find Socialism in a Capitalist World, by Bryan Caplan

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Before and after my “Capitalism vs. Socialism” Debate with Elizabeth Bruenig, we had quite a while to chat.  While I was nonplussed by her case for socialism, she was quite gracious in person.  There are probably plenty of socialists like her: Nice people who find capitalism disgusting.  Which gets me thinking: If capitalism made my flesh crawl and I knew socialism wasn’t coming anytime soon, how would I cope?  What is the best way for a can-do socialist to find socialism in a capitalist world? Step 1: Live very modestly.  Shop at Walmart – or better yet, Aldi’s.  Move to a low-cost part of the country.  Don’t own a car; just take the bus – or Uber if you must.  Get books and DVDs from the library.  Buy durables at estate sales; they’re practically giving furniture away.  Use a 5-year-old phone.  Victims of consumerism may scoff at your frugal lifestyle, but you know that real happiness comes from autonomy and community. Step 2: Cheat the rat race.  If you want to consume lots of luxury products, you’ll probably have to run capitalist rat races for decades.   But if you practice personal austerity, you have flexibility.  You can take a low-paid full-time job you enjoy.  You can take a better-paid part-time job you don’t enjoy.  You can run the standard rat race for a 5, 10, or 15 years – then shock your co-workers by retiring.  Or any mix thereof. Step 3: Get some roommates who share your values.  You aren’t really living socialism until you live in a commune.  Start by recruiting family members and close friends.  Then expand from there.  Sure, many landlords will object, but shop around until you find some outliers.  And remember – you can approximate a commune just by living in the same apartment complex as your comrades. Step 4: Delay child-bearing until you’ve found a livable escape from the rat race.  If you’re an eco-socialist, of course, you might want to avoid kids altogether.  If and when you have kids, don’t compromise with the outside world.  No kid “needs” Nikes or iPads. Step 5: Avoid capitalist vices.  When greedy businesses try to sell you alcohol, sugar, tobacco, or illegal drugs, just say no.  To repeat, real happiness comes from autonomy and community, not ephemeral and addictive stimulants. The top objection to my advice, I expect, will be that it’s imperfect.  What if a socialist doesn’t want to work a square job for a single second?  This objection is true but childish.  In the real world,  there are no perfect solutions.  You have to game the system as best you can.  If I were a socialist, I would use my playbook. You could also object that my approach is tantamount to surrender.  I’m teaching people how to endure capitalism, instead of how to end it.  Reply: Why not be the change you want to see in the world?  You can live a socialist lifestyle and promote broad social change at the same time.  The key difference is simply that you don’t have to convince the world to build your socialist Bubble. So why wait? Last, you might object that you don’t want to live an austere, unambitious, communal, puritanical lifestyle.  If so, some soul-searching is in order. Yes, socialists have long quarreled about what ideal socialism would look like.  Should we just meet everyone’s basic needs and focus on community – or produce enough to let everyone live like a millionaire?  But in practice, this debate is premature.  Whenever socialists actually acquire the power to remake society, the modest lifestyle I’ve sketched above remains far out of reach of most of the population.  People in Cuba and Venezuela struggle even to feed themselves, and feel far more fear than fellowship; and both are paradises compared to the Soviet Union or Maoist China.  As a practical matter, the best place to experiment with a socialist lifestyle is in a wealthy capitalist society.  So why not give it a go – and tell the rest of us how it works out? (39 COMMENTS)

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14 августа, 22:12

Interpreting public opinion, by Scott Sumner

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I have now had a chance to read the paper I commented on yesterday, and I’ve seen the data that led to the conclusions reached in the abstract: In 1932, the American electorate was surveyed in a poll that has languished in the archives. The survey was conducted by Houser Associates, a pioneer in market research. It interviewed face-to-face a representative cross section about voter choices and issue attitudes. Although conducted on behalf of the Hoover campaign, the poll was not biased in his favor. The most striking revelation is that the electoral sway of the Depression was quite limited. The government was not seen by most voters as the major culprit or as having been ineffective in alleviating it. Even many FDR voters agreed. Moreover, there was no widespread “doom and gloom” about the future. What loomed larger in 1932 was the issue of Prohibition. The American people overwhelmingly favored repeal. The Democratic stand on it—that is, outright repeal—was a sure electoral winner, given Hoover’s staunch defense of Prohibition. This is certainly a plausible interpretation of the findings, but I still lean toward the view that the Great Depression largely explains FDR’s landslide, and I’d like to use this an example of why it is difficult to interpret survey results.  In doing so, keep in mind that Hoover won a 18 point landslide in 1928, and FDR won by the same margin in 1932. The first point I’d make is that the survey covered over 3000 people, of which 670 were swing voters that indicated they intended to switch their votes from Hoover to FDR in 1932. In my view these are the key voters to focus on, as they explain the huge swing toward the Democrats.  Thus while most voters did not blame the government for the Depression, 58% of this swing group did blame the government. In fairness, 85% of the swing group favored repealing Prohibition, so it’s certainly possible that Prohibition was a bigger issue than the economy.  But I’d point to two other considerations that cast doubt on that view: 1.  Even voters that did not blame the government for causing the Depression (many blamed Wall Street) might have been dissatisfied with Hoover’s performance, and/or thought FDR would do more to solve the problem.  Note, for example, that 77% of the swing voters favored more spending on public works.  Thus it’s certainly possible that the Depression played a role in voter dissatisfaction that went well beyond the question of who was to blame for causing the Depression.  Even those voters not convinced that FDR would do better might reasonably have thought it was worth a shot.  If there were no depression they might have stayed with Hoover. 2.  While 85% of swing voters favored repealing prohibition, this does not prove the issue “loomed larger” than the economy.  There are many issues where public opinion is fairly one-sided, but the issue is not a major factor in elections.  Even if there were a big difference between Democrats and Republicans on flag burning, for example, it probably wouldn’t sway many votes. Thus when considering the impact of public opinion on elections, you need to consider a number of factors, such as the views of the swing voters, the fact that political issues are complex and one question may not fully elucidate the perspective of the public, and that what matters is not just the number of voters that hold a certain view, but also the importance with which they regard the issue. Prohibition was probably more important than most people assume, but I still think the economy was the decisive issue.   (3 COMMENTS)

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14 августа, 19:10

Perverse Insurance Regulation, by David Henderson

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In Leslie Scism, “The Problem With Government Flood Insurance,” Wall Street Journal, August 13, 2018 (print edition), an interview with Evan Greenberg, CEO of Chubb, Scism asks: Will state insurance departments approve the large rate increases that insurers may feel necessary for homeowners if extreme weather leads to higher claims costs? Greenberg answers: For insurance lines that require filing rates with state regulators, premium increases are based on evidence of loss. You have to be able to justify the rates you charge customers. Some jurisdictions understand this and balance the needs of their constituencies. And some, for politically expedient or populist reasons, choose to ignore the need to raise prices, and I think that’s ultimately not in the interests of their constituents. When we can achieve an adequate rate, which we can in most instances, we are amenable to both maintaining and increasing our exposure. Where we can’t, we will shrink our exposure. See the problem? I’m sure Greenberg does, but is simply happy to be able to raise rates based on past experience. Here’s the problem: In insurance markets that are unregulated, insurance companies tend to base rates on expected future payouts. Past losses are sometimes a good guide to future payouts, to be sure, but they’re often not a good guide. Fires in California this year, for example, could easily mean fewer fires in the future because so many of the forests and trees otherwise at risk are now burnt. But state insurance regulation doesn’t allow rates to be based on expectations of future payouts. Interestingly, the following was left out of the print version: WSJ: Does Chubb have the ability to reprice or otherwise modify its contracts annually to adjust for climate changes? MR. GREENBERG: Contracts are annually renewable but the ability to reprice depends on the kind of coverage and the jurisdiction. In the United States, making changes in pricing personal lines coverage is subject to a regulatory process. You can’t just do it at the drop of a hat. There are regulatory constraints on your ability to reduce exposure or to manage exposure differently. In the commercial-lines business, you can reflect the price of the exposure more quickly, and you can manage exposures on a more nimble basis. But you’re not looking to change your portfolio on a seasonal basis. Changes generally evolve over time. The whole interview, which also discusses pricing insurance for climate change, is well worth reading. Unfortunately, it’s gated.   (1 COMMENTS)

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13 августа, 22:20

Be skeptical of surveys of public opinion, example #441, by Scott Sumner

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Tyler Cowen and David Henderson recently linked to a study of the 1932 election by Helmut Norpoth.  Here’s the abstract: In 1932, the American electorate was surveyed in a poll that has languished in the archives. The survey was conducted by Houser Associates, a pioneer in market research. It interviewed face-to-face a representative cross section about voter choices and issue attitudes. Although conducted on behalf of the Hoover campaign, the poll was not biased in his favor. The most striking revelation is that the electoral sway of the Depression was quite limited. The government was not seen by most voters as the major culprit or as having been ineffective in alleviating it. Even many FDR voters agreed. Moreover, there was no widespread “doom and gloom” about the future. What loomed larger in 1932 was the issue of Prohibition. The American people overwhelmingly favored repeal. The Democratic stand on it—that is, outright repeal—was a sure electoral winner, given Hoover’s staunch defense of Prohibition. I’m skeptical of this claim.  Consider the 1928 election, where the GOP supported prohibition and the Democrats opposed prohibition.  Herbert Hoover won that election in a landslide (by 18%).  Yes, religion might have cost the Democrats a few votes in 1928, but they had lost the popular vote in the previous two elections by even more overwhelming margins (25% and 26%).  Those results are hard to reconcile with the claim that opposition to prohibition played a decisive role in American politics. Then in 1932 we saw a complete reversal, with the GOP not just losing, but losing in a landslide (by 18%)—after three consecutive landslides in their favor.  What had changed so dramatically?  Certainly not prohibition, which was there all through the 1920s.  Rather the economy had gone from a boom in late 1928 to the worst depression in US history by 1932. It’s also interesting that support for Hoover seemed to pick up a bit in the summer of 1932, when the economy improved for three consecutive months, and then fell off in October, when the economy turned down again. (Actually, we can’t be sure of that claim because polling was not very advanced at that time.  But that was the view of the media I have read, and seemed to be the view of the stock market as well.) So why would people suggest that their vote depend on prohibition?  It is possible that by 1932 prohibition had become a more important issue than during the 1920s.  Repeal was seen as giving a boost to the economy, and also providing revenue to cover the budget deficit.  So perhaps prohibition and the economy interacted. But I still find it hard to believe that the 1932 election would have differed so dramatically from the previous three elections were we not near the bottom of the worst depression in US history.  People may think it sounds respectable to tell pollsters that the Depression is not the government’s fault, but at some level the degree of economic pain almost certainly led to at least a subconscious desire to try something new.  There is plenty of evidence from other elections that a bad economy does hurt the incumbent party. This is not to deny that prohibition was a significant vote winner for the Democrats—I believe it was.  I just don’t think it explains the huge election swing from 1928. PS.  The paper itself is gated.  If someone has access, please let me know if the paper addresses any of my reservations. (9 COMMENTS)

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13 августа, 19:17

Wow!, by David Henderson

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In 1932, the American electorate was surveyed in a poll that has languished in the archives. The survey was conducted by Houser Associates, a pioneer in market research. It interviewed face-to-face a representative cross section about voter choices and issue attitudes. Although conducted on behalf of the Hoover campaign, the poll was not biased in his favor. The most striking revelation is that the electoral sway of the Depression was quite limited. The government was not seen by most voters as the major culprit or as having been ineffective in alleviating it. Even many FDR voters agreed. Moreover, there was no widespread “doom and gloom” about the future. What loomed larger in 1932 was the issue of Prohibition. The American people overwhelmingly favored repeal. The Democratic stand on it—that is, outright repeal—was a sure electoral winner, given Hoover’s staunch defense of Prohibition. This is the abstract of an article by Helmut Norpoth, “The American Voter in 1932: Evidence from a Confidential Survey,” published July 27, 2018. In short, FDR won because he was a deregulator. Think about all the thinking and conclusions that this piece, if credible (I’m betting it is) overturns. HT2 Tyler Cowen. (7 COMMENTS)

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13 августа, 14:00

Many Americans Don’t Like Free Speech, by Pierre Lemieux

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One worrisome result in a recent Ipsos opinion poll is how many Americans don’t believe in freedom of the press. It is true that 85% agree (strongly or somewhat) that “freedom of the press is essential for American democracy,” but 4% disagree (strongly or somewhat, disregarding again those who neither agree nor disagree or who don’t know). The answers to the question of whether freedom of speech “is one of the values that makes America great” are roughly similar. The belief in freedom of the press tends to drop when, instead of a broad question of principle, specific questions are asked. The answers to the statement that “the president should have the authority to close news outlets engaged in bad behavior” are striking, as shown on the table below which I borrowed from Ipsos. Although a bare majority of 53% of the total sample disagrees, fully 26% agree—43% among Republicans agree and 12% among Democrats. Going to an even more specific question about some large news outlets, however, the enthusiasm for shutting them down is cut by roughly half. But still 13% agree—23% among Republicans and 8% among Democrats—that “President Trump should close down mainstream news outlets, like CNN, the Washington Post, and the New York Times.” These results are not exactly consistent with the same survey showing that more people have an unfavorable opinion of Donald Trump (or consider him untrustworthy) than of most of the 25 news outlets listed. In fact, only for Breitbart and the Daily Beast do we find a higher proportion of people expressing an expression of untrustworthiness than for Trump. But such inconsistency is not unusual in aggregating the preferences of many individuals. Although the respondents’ reactions may be partly a partisan reflection of who is in power and who is currently being most criticized, note that many Democrats also agree with censorship. Yet, this opinion poll suggests that the Republicans are now the party of censorship—real, hard government censorship. Oh yes, to put the finishing touch to the picture of an advancing mob, 29% of the respondents agree with the statement: “The news media is the enemy of the American people.” Among Republicans, the proportion is 48%, compared to 12% among Democrats. The advancing mob seems to be a widespread phenomenon in today’s world. Opinion surveys tend to show that Americans are less classical-liberal or libertarian than we might think. This one is especially troubling. As Ipsos explains, the sort of online sample on which this survey is based is not random in the sense of ordinary statistical samples. “Bayesian credibility intervals” are used instead of the usual margins of error. (In the present case, the credibility interval is 3.5 percentage points for the whole sample, 5.9 for Republicans, and 6.2 for Democrats.) These methods appear less reliable than standard methods. We can only hope it is the case here, and that the difference would go the right way! (3 COMMENTS)