Coyote Blog

I hate to quote almost all of someone's blog post but hopefully Todd Zywicki will treat it as a compliment

Some of the results in this new article by Zeljka Buturovic and Dan Klein in Econ Journal Watch (a peer-reviewed journal of economics) are startling:

• 67% of self-described Progressives believe that restrictions on housing development (i.e., regulations that reduce the supply of housing) do not make housing less affordable.
• 51% believe that mandatory licensing of professionals (i.e., reducing the supply of professionals) doesn't increase the cost of professional services.
• Perhaps most amazing, 79% of self-described Progressive believe that rent control (i.e., price controls) does not lead to housing shortages.

Note that the questions here are not whether the benefits of these policies might outweigh the costs, but the basic economic effects of these policies.

...

It would be hard to find a set of propositions that would meet with such a degree of consensus among economists to rival these propositions"“which boils down to supply restrictions raise prices and price controls create shortages.  These are issues on which economic theory is exceedingly clear, well-confirmed over decades of empirical support, and with a degree of unarguable consensus among trained scholars in the field.  Apparently the existence of a "consensus" among trained scholars on certain policy issues is less important on some issues than others.

Todd Zywicki has a nice post on the The Two-Income Trap: Why Middle Class Mothers and Fathers are Going Broke by Professor Elizabeth Warren and Amelia Warren Tyagi. 

In his writings on the tactics for engineering the communist state, Karl Marx talked a lot about the need to "proletarianize the middle class."  This has been a very popular tactic among leftish writers and politicians today, attempting to convince the middle class that they never had it so bad.

I won't repeat Zywicki's whole post, but the books author's argument revolve around examples which purport to show that as families go from one to two earners, their costs (health care, child care, cars, mortgage, etc.) go up by more than the additional income, making them poorer on a discretionary spending basis.

Zywicki first points out the same thing I immediately thought of when I read a summary of the book:

It is not clear what to make of all of this, except that it is hard to
see how this confirms the central hypothesis of "The Two-Income Trap"
that "necessary" expenses such as mortgage, car payments, and health
insurance are the primary draing on the modern family's budget. And
again, this unrealistically assumes that all increased spending on
houses and cars is exogenously determined, ignoring the possibility
that an increase in income leads to an endogenous decision by some
households to increase their expenditures on items such as houses and
cars.

While the assumption seems crazy, it makes sense in the context of leftish ideology, which holds that the middle class have only limited free will and tend to have their decision making corrupted by advertising and other corporate pressures.

But Zywicki goes further, and actually digs into the author's numbers.  He finds that the authors are surprisingly coy about addressing changes in taxation in their numbers.   Zywicki then uses the authors' own numbers, this time with taxes factored in using the authors' own assumptions, and gets these two charts:

As Zywicki summarizes:

As can readily be seen, expenses for health insurance, mortgage, and automobile, have actually declined
as a percentage of the household budget. Child care is a new expense.
But even this new expenditure is about a quarter less than the increase
in taxes. Moreover, unlike new taxes and the child care expenses
incurred to pay them, increases in the cost of housing and automobiles
are offset by increases in the value of real and personal property as
household assets that are acquired in exchange.

Overall, the typical family in the 2000s pays substantially
more in taxes than in their mortgage, automobile expenses, and health
insurance costs combined. And the growth in the tax obligation
between the two periods is substantially greater the growth in
mortgage, automobile expenses, and health insurance costs combined. And
note, this is using the data taken directly from Warren and Tiyagi's
book.

Todd Zywicki notes that Congress "has been on a binge diet of junk social science."  Is there another kind of social science?  Particularly in the media, I really think the main influence of social science has been to substantially lower the bar for scientific inquiry and skepticism thereof.

Update: On a related note, these really low academic standards in the social "sciences" are the reason I think firing Ward Churchill is bogus, as I wrote here.  Academic standards for things like ethnic or gender studies are incredibly low, particularly for the "research" done in these departments.  As I pointed out before, Cal State Long Beach, for example, hired a paranoid schizophrenic who had served prison time for beating and torturing two women as the head of their Black Studies department.  It is almost impossible to imagine Ward Churchill fired for violating the academic standards of his discipline because his discipline tends to have none, and everyone knows it.  The University of Colorado fully knew what it was getting with Ward Churchill, but they hired him to check a politically correct racial/gender/ethnic box.  Everything UC supposedly fired him for were known to them or should have been known to them with the most minimal of due diligence when they tenured the guy.  Nothing has changed, except that he is no longer a PR asset for the university.  As I wrote previously:

I could go out tomorrow and find twenty tenured professors of
ethnic/racial/gender studies in state universities whose academic
credentials are at least as bad as Churchill's and whom no one would dare fire.  This has nothing to do with Churchill's academic work or its quality.  UC is getting exactly
what it expected when it tenured him.  This is about an attempt to fire
a tenured professor for the content of his speech, speech that has
embarrassed and put pressure on the university, and I can't support
that.

Even More:  Background from KC Johnson:

Churchill was hired through a "special opportunity" position, designed
by the university to help "recruit and hire a more diverse faculty." He
had an M.A. from little-known Sangamon State University and no Ph.D at
all. As documents from the time noted, his qualifications included only two items: strong lobbying from Evelyn Hu-DeHart,
the chair of the Ethnic Studies program, and the now-disputed fact that
"Ward is a Native American," meaning his hire would contribute "to
increasing the cultural diversity on campus."...

How, then, could his fellow academics have originally found Churchill's
scholarship acceptable? The outcome, alas, suggests that in politicized
fields such as African-American Studies, Women's Studies, and Ethnic
Studies, the message too often trumps quality. In this case, it appears
that Churchill's extremist arguments that the U.S. government engaged
in genocide against Native Americans blinded his academic reviewers to
the poor quality of his scholarship. Indeed, some Churchill
sympathizers, led by Cornell professor Eric Cheyfitz,
have continued to maintain that the former professor's writings
constitute appropriate scholarship for the field of Ethnic Studies.

I contend that Churchill was and is still exactly what UC thought he was, and his scholarship was and still does exactly conform to the (miserably low) standards of his discipline.

I am weeks late finding this article, but Todd Zywicki at Volokh posts what may be the definitive economic analysis of Kelo.  He talks about not only the issue of subjective value that leaves homeowners undercompensated for the taking, but about the deceitful game local governments are playing:

Second, focusing on the holdout problem in the Kelo context is to focus on
the wrong issue. The scenario here is different from when a government wants to
build a school or post office, traditional public use purposes. Schools and post
offices have to go in a particular geographic area (that's why they are being
built), and thus strategic bargaining may be plausible because it is similar to
a bilateral monopoly situation. The small group of landowners in the relevant
area can act strategically and try to extract a high price for its sale.

In Kelo, however, there is no obvious holdout power because Pfizer could put
its building in any city in America. So its not like a neighborhood school,
road, or post office. In Kelo, the holdout power is created artificially
by the city's desire to give Pfizer a sweetheart deal to bring it to town.

So ex ante, there is no viable holdout power in this situation because
there are an infinite number of close substitute sites for the building. The
building is going to be built somewhere, the only question is what city--New
London, Hartford, Bridgeport, Boston, New York, Chicago, etc. The artificial
scarcity that says the building has to be built in New London was created by the
city's other subsidies to attract Pfizer to town (the obscenely low rent,
etc.).

So if one is truly concerned about the holdout power problem, then the
correct solution is to require the city to eliminate the artificial scarcity
that "requires" the building to be built in New London rather than some other
city, the same way that a new school would have to be built in New London. If we
allow both the subsidies and the Taking for the benefit of the private party, we
are allowing the distribution tail of what city the Pfizer headquarters will be
built to wag the efficiency dog of whether the homeowner is holding out versus
having subjective value. Instead, we want to have the parties bargain ex ante
before they finally select the city--i.e., choose the city and the plot of
land at the same time--not bargain ex post after the city is selected.
Forcing an ex ante bargain when there are still many substitutes for the
proposed site would eliminate the holdout problem and allow us to determine the
extent of parties' subjective value, because the negotiations would be conducted
against the backdrop of a competitive market, rather than a bilateral monopoly.
The bilateral monopoly is thrust upon the city in the road or post office
scenario; it is freely-chosen in the Kelo situation.

Instead, the ruling in Kelo enables the worst possible economic
outcome--it permits cities to create artificial scarcity just to get a larger
piece of a stable-sized pie (getting Pfizer to New London rather than Hartford),
while then permitting cities on the back end to take land from private
landowners who may or may not be losing subjective value and being
undercompensated in the process.

And the incentive effect of Kelo is obvious--it now enables corporations to
extract both subsidies and takings as the price for locating in city A rather
than city B.

I have written about my frustrations with local governments subsidizing business relocations here and here.

Todd Zywicki at Volokh has an interesting post on what is driving hybrid car purchases in certain cities.  While certain segments are driven by environmentalism and fuel economy, the real boom in certain cities has come with the legal change in some cities allowing single persons in hybrid cars to use the carpool lanes.

"'I'd say 95 percent of the people who buy a Prius say it's to get into HOV,'" said Jay Taye, sales manager at Ourisman Fairfax Toyota. "'They talk about the tax break and the HOV, and once in a while they say they prefer it for the gas mileage as well.'"

By the way, he links an absolutely dead-on article about public transit in the Onion here called --"Report: 98 Percent of Commuters Favor Public Transportation For Others"

The link between the Onion article and the Washington Post story referred to by Zywicki is that what people really want is a fast commute in their car, and they are willing to pay for it.

Several years ago, I sent in a proposal to the Arizona Dept. of Transportation for their new HOV lanes in the Phoenix area, though I never got a response back.  I suggested that HOV lanes probably did not really increase carpooling, since they probably just shifted vehicles that would have already been carrying 2+ people into the faster lane.  Why should I get this artificial subsidy of a dedicated lane when I am driving my kid to a soccer game but not when I am driving myself to do productive work?  Either way, the lane is not changing my behavior.

Anyway, I suggested that instead, AZ DOT should create a number of special passes for exclusive use of the HOV lane.  The number of passes should be set as the largest number that could be issued while keeping the HOV lane moving at the speed limit at rush hour.  Maybe 5000?  Anyway, they would have the stats to set the number, and it could be adjusted over time.  I proposed that they then auction off these passes in a dutch auction once a year.  I posited that the clearing price might be as high as $1000, thus raising $5,000,000 a year that could be used for other transportation projects.

I have friends that said I was crazy, that no one would spend $1000.  Back then, I argued it in two ways.  First, thousands of people in town spend not $1000 but tens of thousands of dollars, in the form of purchasing a nicer-than-basic-car, to make their driving experience better.  In those terms, to the Mercedes or Lexus owner, $1000 was nothing and in fact the price might go higher.  Second, if each pass holder saved 15 minutes per commute, or 30 minutes per day over 250 work days, they would save 125 hours of their time each year.  Bidding just $1000 for this would mean that people would have to value their free time (since commuting generally comes out of free and family time) at $8 an hour.  I certainly value my free time at a MUCH higher rate than this.

This article cited above effectively adds another data point to what people might pay.  To buy a Prius, they are spending at least $5000-$10,000 more than a similar car that can't go into the HOV lane, and probably even more when you consider features they may be giving up to have the car.   

Today, I would bet that the clearing price for 5000 such passes may be $3000-$5000, thus increasing the annual revenue to the city/state as high as $25,000,000.

By the way, though it is a bit different than what I am suggesting, the best related plan that I know of that has actually been executed succesfully is congestion pricing in central London.

UPDATE:  Dang, reading up further in Volokh, Zywicki anticipated my post with a similar one here.