The big idea

The smartest thing I read today:

The Big Economic Story of our times has not been the Great Recession of 2007–2009, unpleasant though it was. … The Big Economic Story of our own times is that the Chinese in 1978 and then the Indians in 1991 adopted liberal ideas in the economy, and came to attribute a dignity and a liberty to the bourgeoisie formerly denied. And then China and India exploded in economic growth. … And contrary to the usual declarations of the economists since Adam Smith or Karl Marx, the Biggest Economic Story was not caused by trade or investment or exploitation. It was caused by ideas. The idea of bourgeois dignity and liberty led to a rise of real income per head in 2010 prices from about $3 a day in 1800 worldwide to over $100 in places that have accepted the Bourgeois Deal and its creative destruction.

There's a useful chart, too.

IPA by candlelight

(August 7, 2013, The Roaring Fork, Austin, Texas)

The "public investment" fantasy

Today's Wall Street Journal has a useful response to the president's continuing argument that we need more public investment to stimulate the economy. It is behind the subscriber wall, but a few choice excerpts give the gist:

For almost five years now, President Obama has been making the argument that government "investments" in infrastructure are crucial to economic recovery. "Now we used to have the best infrastructure in the world here in America," the president lamented in 2011. "So how can we now sit back and let China build the best railroads? And let Europe build the best highways? And have Singapore build a nicer airport?"

In his recent economic speeches in Illinois, Missouri, Florida and Tennessee, the president again made a pitch for government spending for transportation and "putting people back to work rebuilding America's infrastructure." Create the infrastructure, in other words, and the jobs will come.

History says it doesn't work like that. Henry Ford and dozens of other auto makers put a car in almost every garage decades before the National Interstate and Defense Highways Act in 1956. The success of the car created a demand for roads. The government didn't build highways, and then Ford decided to create the Model T. Instead, the highways came as a byproduct of the entrepreneurial genius of Ford and others.

Moreover, the makers of autos, tires and headlights began building roads privately long before any state or the federal government got involved....

Railroads are another example of the infrastructure-follows-entrepreneurship rule. Before the 1860s, almost all railroads were privately financed and built. One exception was in Michigan, where the state tried to build two railroads but lost money doing so, and thus happily sold both to private owners in 1846....

In fact, when the government built the transcontinentals, they were politically corrupt and often—especially in the case of the Union Pacific and the Northern Pacific—went broke....

No matter where you look, similar stories come up. America's 19th-century canal-building mania is now largely forgotten, but it is the granddaddy of misguided infrastructure-spending tales....

In Ohio, when the canals were privatized, one newspaper editor wrote: "Everyone who observes must have learned that private enterprise will execute a work with profit, when a government would sink dollars by the thousand."

In all of these examples, building infrastructure was never the engine of growth, but rather a lagging indicator of growth that had already occurred in the private sector. And when the infrastructure was built, it was often best done privately, at least until the market grew so large as to demand a wider public role, as with the need for an interstate-highway system in the mid 1950s.

There is a lesson here for President Obama: Government "investment" in infrastructure is often wasteful and tends to support decaying or stagnant technologies....

There is another version of this argument that one often hears from Democrats who long for the New Deal: Big infrastructure projects directly stimulate the economy while they are underway. True, without question. The problem is one of timing. Today, one cannot just decide to dam up the Colorado River or build a highway along the California coast, as Roosevelt did. The years of permitting and litigation required to start such a project mean, first, that the actual stimulative benefit for working stiffs (as opposed to Washington lawyers and lobbyists) is deferred for years, if not forever. Therefore, these projects are no longer useful for Keynesian countercyclical effect. Second, delay massively increases the costs of such projects, which means they are much harder to justify as anything other than crony capitalism for the principal beneficiaries, including those lawyers and lobbyists.

Las Vegas tab dump

In Vegas for a weekend with my sweetie after a long run at work, but, yet, still there are open tabs needing to be passed along. Herewith.

This post almost precisely summarizes our view of climate change and the ineptitude of greenie policy prescriptions to address it. Why is it germane? Because it calls out lefty chrony capitalism, one of our big sore spots.

A list of the top "aspirational cities" in the United States. What are they?

A city at its best, wrote the philosopher René Descartes, provides “an inventory of the possible.” The city Descartes had in mind was 17th-century Amsterdam, which for him epitomized those cities where people go to change their circumstances and improve their lives. But such aspirational cities have existed throughout American history as well, starting with Boston in the 17th century, Philadelphia in the 18th, New York in the 19th, Chicago in the early 20th, Detroit in the 1920s and 1930s, followed by midcentury Los Angeles, and San Jose in the 1980s.

Yes, the great rule of aspirational cities is that they change over time, becoming sometimes less entrepreneurial, more expensive, and demographically stagnant. In the meantime, other cities, often once obscure, suddenly become the new magnets of opportunity.

Old media death spiral: The Boston Globe sells for less than a Red Sox outfielder.

More on the astonishing surge in Texas oil production.

Oops, we're heading out. More later.

American generosity

If, as the left often argues, "compassion" requires statist public policy, what explains this?

Monday evening linkage

A question Americans need to understand, and non-Americans ought to understand: Why Do Most Of The Successful Startups Come Out Of The USA?

Another question we need to understand: Why didn’t Obama mention entrepreneurs and startups in his big economic speech?

Is the McDonald's double cheeseburger the greatest food in human history? Possibly, and not only if you are on a road trip with children.

Biking vs. running. DE is all about the biking.

Richard Branson on the best places to find inspiration.

Are you smarter than an 8th grader from 1912?

Bad news for "our friends" the Saudis:

Saudi Arabian billionaire Prince Alwaleed bin Talal has warned that the kingdom's petroleum-dependent economy is increasingly vulnerable as rising production of U.S. shale oil and gas decreases global demand for crude from members of the Organization of the Petroleum Exporting Countries.

In an open letter dated May 13 addressed to Saudi Oil Minister Ali al-Naimi and several other ministers, which was published Sunday on a Twitter account previously used by Prince Alwaleed, he said the kingdom won't be able to fulfill its plan to increase its crude production capacity to 15 million barrels because of the shale threat.

Remember, the people who oppose production of American shale oil and gas are working on behalf of the Saudis, even if they don't know it.

All about MOOCs. We need to get smarter, faster. (See 40 web sites that will make you "cleverer" right now.)

Keep the flag flying.

Saturday morning linkage

The many uses of drones. Burritos are involved.

Senators are so worried about their tax reform proposals leaking that they are requiring the National Archives to keep them secret for 50 years. Outrageous behavior, and I expect better out of my employees.

A great video history of the government's regulation of bus travel, including how the Obama administration's regulators are hurting consumers and driving people back in to automobiles, which is inconsistent with its safety and environmental objectives.

Crony watch: The insane subsidies for the film industry.

Obama's inequality speech: Maybe it (all) ain't so.

In the category of good news, serious mortgage delinquencies are down to their lowest rate since 2009. But maybe the vaunted housing recovery is not all it is cracked up to be.

The continuing crisis.

How locavore enthusiasts look at "sustainability" from only one point of view, and therefore are not being intellectually honest. For my own part, I think it is fine as a marketing pitch -- believing as I do in "keep Austin weird," I'm all for supporting local businesses out of unreconstructed parochialism -- but I do not confuse it with some sort of moral or other measure of merit. Buy local because it is fun, or the farmer is your friend, but stop patting yourself on the back.

Has the United States Treasury already exceeded the debt limit? Much as I would enjoy seeing the press hang Obama on this one, I would prefer that the capital markets not notice, because it will make me poorer.

The Texas Tea keeps flowing.

Detroit is a harbinger, not an exception.

Have a good Saturday.

Immobility's cities

Some people deplore inequality of income, but we at TSOE care fare more about mobility, both over one's lifetime and from one generation to another. Well, a huge new study that examines income mobility, or lack thereof, at a local level will, or at least ought to, upend the debate about policy responses to the problem. The findings challenge the dogmas of both left and right, which is so much more entertaining than the usual social science. In the extracts below, we have rendered findings that will irritate talking-point conservatives in bold, and those that will confound party-line liberals in italics. A few findings are bound to irritate both groups, depending on the details.

The study — based on millions of anonymous earnings records and being released this week by a team of top academic economists — is the first with enough data to compare upward mobility across metropolitan areas. These comparisons provide some of the most powerful evidence so far about the factors that seem to drive people’s chances of rising beyond the station of their birth, including education, family structure and the economic layout of metropolitan areas.

Climbing the income ladder occurs less often in the Southeast and industrial Midwest, the data shows, with the odds notably low in Atlanta, Charlotte, Memphis, Raleigh, Indianapolis, Cincinnati and Columbus. By contrast, some of the highest rates occur in the Northeast, Great Plains and West, including in New York, Boston, Salt Lake City, Pittsburgh, Seattle and large swaths of California and Minnesota.

“Where you grow up matters,” said Nathaniel Hendren, a Harvard economist and one of the study’s authors. “There is tremendous variation across the U.S. in the extent to which kids can rise out of poverty.”

...

What they found surprised them, said Raj Chetty, one of the authors and the most recent winner of the John Bates Clark Medal, which the American Economic Association awards to the country’s best academic economist under the age of 40. The researchers concluded that larger tax credits for the poor and higher taxes on the affluent seemed to improve income mobility only slightly. The economists also found only modest or no correlation between mobility and the number of local colleges and their tuition rates or between mobility and the amount of extreme wealth in a region.

But the researchers identified four broad factors that appeared to affect income mobility, including the size and dispersion of the local middle class. All else being equal, upward mobility tended to be higher in metropolitan areas where poor families were more dispersed among mixed-income neighborhoods.

Income mobility was also higher in areas with more two-parent households, better elementary schools and high schools, and more civic engagement, including membership in religious and community groups.

At some we will read the underlying paper and report further, but the linked newspaper account is a good start, even if it is the New York Times.

The limits of Bloombergism

Bloombergism -- the snarky name for Mayor Michael Bloomberg's idea that the government can hector people in to better behavior -- definitely has its limits. Apparently, for example, education about healthy calorie consumption causes fat people to eat... more.

You might think that customers buying their lunch at McDonald’s would order meals with fewer calories if someone handed them a slip of paper reminding them that women should eat no more than 650 calories at lunchtime and men should not exceed 800 calories. But you would be wrong.

Instead, researchers found that diners who received these supposedly helpful reminders actually purchased more calories than those who didn’t, according to a new study in the American Journal of Public Health.

One theory is that such people do not, perhaps because they cannot, do math:

The study authors have a theory. Perhaps their plan backfired because people compared the calorie count of their entree to the calorie information on their slip of paper and got “a false sense of staying within the calorie allowance,” they wrote. That, in turn, may have made them feel safe ordering a bigger soda or to supersize their fries. A Big Mac packs 550 calories, which doesn’t sound so bad, until you add in 500 calories for large fries and 280 calories for a large Coke.

Sounds like professorial condescension to me. Maybe people were previously worried that they were massively over the limit, and the little reminder slips were reassurance that they were not far off and could deprive themselves at some meal less tasty than McDonald's. Or, maybe, people found the little reminder slips obnoxious, and rebelled even as they agreed to participate in the study. We admit, our inclination would be to do what we could to mess up the results, which is generally how we react to public opinion polls.

Anyway, here's the best bit:

A previous study that tested the value of posting calorie information on menus found that it did steer diners toward lower-calorie meals. But in that study, conducted at a Subway sandwich shop, it only worked for customers who had a healthy BMI, not those who were overweight.

Or, maybe, "it only worked for customers who give a shit, not those who don't." Who really knows? What we do know is this: Many people, especially American people, do not enjoy being told how to live their lives and will subvert those who attempt to do so.

Dodd-Frank regulation: A treasure trove for lawyers and lobbyists

The behemoth Dodd-Frank law regulating financial institutions has spawned a surge in regulation that boggles the mind:

Rules implementing the Dodd-Frank financial reform law could fill 28 copies of Leo Tolstoy's War and Peace, according to a new analysis of the Wall Street overhaul.

The law firm Davis Polk, which closely tracks the Dodd-Frank rule-making process, released a graphic Friday that highlights the gargantuan size of the financial reform bill's overhaul of regulations.

All told, regulators have written 13,789 pages and more than 15 million words to put the law in place, which is equal to 42 words of regulations for every single word of the already hefty law, spanning 848 pages itself.

And if that seems like a lot, keep in mind that by Davis Polk's estimate, the work implementing the law is just 39 percent complete. (bold emphasis added)

Not only does it require a great many bureaucrats to write, vet, review, revise, and sign off on so much regulation, but a vast army of lobbyists to argue for changes in same to benefit one sort of financial firm over another, and countless legions of lawyers to interpret, litigate, and detect loopholes in no doubt imperfect drafting after the regulations are implemented. Our banks will then spend billions restructuring to comply with the law, if they have not succeeded in limiting its effect by dint of the aforementioned lobbying. If the great and powerful Oz were able to confirm to a certainty that all this would prevent another financial crisis, it might be worth the dead-weight load on the economy, not to mention the further corruption of our republic. Unfortunately, no such assurances obtain.

Sunset in the ATX

Last night, looking west at 12th Street and West Lynn, just east of Nau's Enfield Drug Store.

(July 19, 2013, Clarksville neighborhood, Austin, Texas)

America goes it alone in corporate tax

The Wall Street Journal this morning. Fair use excerpt:

What happens when the international economy changes but tax policy does not? That is a central question facing the United States and Japan, which have the highest corporate tax rates in the industrialized world. The need for action is acute, and emerging trends in global commerce demonstrate the need for tax policies that align with those trends.

A recent analysis by Thomson Reuters of business acquisitions showed that at least 484 U.S. firms, with a value of more than $43.6 billion, have been acquired by foreign interests this year alone. One factor in these acquisitions is the different ways in which nations impose corporate income taxes.

When a company is sold, the price is established by myriad factors, one of which is the tax structure facing the buyer. Corporations based in countries with taxes lower than in the U.S. can offer a higher price because of a smaller tax liability after acquiring the new firm. In which countries do companies have the built-in advantage over American firms in a bidding process? The answer is simple. All of them.

When the U.S. last cut its corporate tax rate in 1986, 218 of the world's 500 largest corporations measured by revenue were in the U.S. Today, that number is 137.

Similarly, the number of Japanese corporations in the Fortune Global 500 fell to 68 last year from 81 in 2005. While there is no single explanation for the drop, Tax Foundation chief economist William McBride tells us: "The common thread behind all of this is the U.S. corporate tax, which is the most punitive in the developed world."

Other nations are taking actions to welcome foreign capital into their economies. A 2012 analysis by PricewaterhouseCoopers conducted for the World Bank showed 133 corporate tax reductions since 2006. The cuts reflect a world that is recognizing the need to adjust tax rates to attract new investment and provide incentives for multinational corporations to repatriate overseas profits.

The U.S. is not among these countries, and Japan has only recently recognized the importance of updating its tax policy. Japan had the highest corporate tax rate in the world until a reduction last year. Since then, the issue has become so politically potent that Japan's ruling Liberal Democratic Party is vowing further corporate tax reductions in its campaign for Sunday's elections to the Upper House.

Background reading: Corporate taxation for the layman.

Victory lap

The end of "peak oil".

Man bites dog: The left discovers tort reform

The Center for American Progress -- a "progressive" think tank, for those of you who who do not keep track from home -- has suddenly detected the problem of defensive medicine on account of runaway malpractice liability:

Faced with both financial and nonfinancial costs, the risk of being sued may cause physicians to practice what is known as defensive medicine, or the ordering of excessive and unnecessary medical tests, procedures, or further consultations done in part to protect the physician from accusations of negligence. Defensive medicine increases health care costs without improving health outcomes.

In the most recent peer-reviewed study, orthopedic surgeons recorded in real time whether imaging was required for clinical care or ordered for defensive reasons and found that physicians ordered 19.1 percent of imaging tests and 38.5 percent of MRIs for defensive reasons. Tellingly, physicians who had been sued within the past five years were substantially more likely to order defensive imaging. The same was true for physicians who had practiced medicine for more than 15 years.

Interesting admission from the political allies of the trial bar, about which a bit more below. And note this bit of trickiness from the Affordable Care Act (emphasis added):

The Affordable Care Act provides federal grants for state demonstration projects to test and implement medical-malpractice reforms. But the law strictly limits funding to projects that would not change existing state liability standards—a limitation that rules out most safe-harbor reforms.

Commentary

It should surprise nobody that Obamacare, passed by Democrats for Democrats, does nothing to trim the wings of the tort lawyers, a core Democratic constituency and a huge source of campaign contributions (around 75 percent of the total in Texas, for example). But the ACA also gives "progressive" wonks and activists a huge interest in making medical care more efficient, which puts them in direct conflict with the interests of the trial bar. The wonks will, of course, be unsuccessful in changing the priorities of the Democratic Party, but the admission that defensive medicine drives costs, perhaps substantially, will be useful in jurisdictions controlled by the Republicans.

List

Forty websites that will make you clever "right now". A cool list, although we doubt a website can actually make you clever, or even cleverer. But you can learn a lot in lieu of filling up your brain with mush if that is your default alternative.

My whereabouts

We are here, and delighted to blog, but unwilling to compete in this space with all the big news lately, from defending or denouncing the DOMA to "standing with Texas women" to the Zimmerman trial. And never mind the Tour de France and the long-speculated taper. But we anticipate a return to normalcy, perhaps even this very morning.

My favorite 4th of July song

Having moved a bit beyond the Battle Hymn of the Republic and Dixie, both of which are awesome, the post-modern American in me loves Dierks Bentley's "Home," as good a 4th of July song for 21st century America as we are likely to have.

Beer consumption across the states

Per capita beer consumption, by state. Utah not surprisingly drinks the least beer, and North Dakota the most. New York and New Jersey are way down the list, as is California (a big wine producer) and Kentucky (home of some great brown stuff). I suspect there are good local reasons for all of these anomalies, but the differences are interesting nonetheless.

Crony Watch: The Christmas tree farmers are looking for protection

A fleecing avoided with the demise of the most recent farm bill:

One item that was part of the (thankfully) deceased farm bill that got little attention was a levy on live Christmas trees.

Apparently, live Christmas tree producers are upset at competition from artificial trees. And there is nothing to which Congress is more sympathetic than using government coercion to help industry incumbents fight off new competition.

We almost had a tax on Christmas trees to finance advertising for, well, Christmas trees. You know, as if they were beef or milk. All part of using ever-growing government to entrench incumbent businesses.

Incidentally and irrelevantly, we are forced to wonder whether such a program would survive an Establishment Clause challenge.

Yet another reason to move your business out of New York City

Once again, a northeastern government (this time the City of New York) legislates a reason for employers to move their businesses elsewhere, or, at least, to start them elsewhere.

Governor Perry, call your office.

Name your business wisely

On Saturday, I went on a walkabout in my new home town of Austin and stumbled across this establishment. Still deciding whether the name is brilliant or a mess, and cannot imagine how to benchmark hookah as a business.

(June 29, 2013, Austin, Texas)

Regardless, we hope the jihadis don't take notice.

New regulation makes it much harder to get a mortgage

Yes, the residential housing market is finally recovering, however slowly. But regulation has made it very difficult or even impossible for many people to get a mortgage, and clear existing foreclosures. Watch the linked video.

We who oppose burdensome regulation need all the help we can get

Even from a reality TV star...

Debasement

I have found Jim Rogers, a money manager and private investor, fascinating for years (his book Investment Biker: Around the World with Jim Rogers is a gas). Now, Rogers is getting worried about the rampant printing of money by the world's central banks and its consequences for the global economy. You might respond that anti-Bernanke investors have been complaining about this since 2008 and they have been wrong to date. All well and true, but it is also true that what cannot go on forever, will not.

The flood of Texas Tea

For all you peak oil enthusiasts, the graph of oil production in Texas:

This is the highest level in 28 years. By the end of the year, Texas may well surpass Venezuela, Kuwait, Mexico, and Iraq in daily oil output.

We report, you decide.

Bear vs. Lone Star: The cage match

In comparing the economic performance of our two largest states, it is not even close. It is as though California and Texas are two different countries.

Growth and human ingenuity

In this age of easily panicked media, one cannot be reminded too often that the Club of Rome was just about as wrong as wrong can be. Not the finest hour of the technocrats, who forever and always underestimate all human ingenuity other than their own, and a useful reminder that the many prophets of our doom -- especially the contemporary scientists among them -- have all so far been wrong.

CWCID: Glenn Reynolds, who ascribes motives.

Everything is bigger in Texas

Including, recently, manufacturing.

A bad week for trial lawyers

The trial bar has had a bad week. Let's hope for several more.

Defending the One-Percent

Harvard professor Greg Mankiw has released a draft paper "defending the one-percent." For those of you who engage with redistributionists and Occupiers, Mankiw's paper is the gold standard.