TOO BAD HE DIDN’T TAKE ECON FROM ME EITHER

Craig Newmark points out that Glenn Reynolds did not get the full picture in Econ 101 if he thinks that people donating for stuff they could get for free is irrational. And as Craig says so well, it’s about the exchange of value for value, not about money. Of course you want to get as much as you can for paying as little as possible, but humans understand the dynamic reality that if you don’t pay at all, the stuff may go away, and then you get no value in return.

Which reminds me, I’m off to Magnatune to buy those CDs I mentioned …

WALTER WILLIAMS ON SWEETS

Chicago has historically been one of the biggest locales for the production of candy in the country. Brach’s had their factory here, as did Ferrara Pan, Fannie May, and of course the local Frango mints sold at Marshall Field’s (yum!) were made here too. One of the more delightful and tempting things about Chicago is walking downtown in the late afternoon and having the scent of chocolate waft over you.

This is changing. Frangos are now made elsewhere, Brach’s and Ferrara Pan have closed their factories and moved production to Mexico, and within the past month the new owner of the Fannie May factory has closed its doors. The scent of chocolate will still waft, though, because we have a couple of smaller chocolatiers that are still here. For now.

Walter Williams does a beautiful job in this Town Hall column of connecting this shift to the sugar lobby and the subsidies paid to domestic sugar producers.

Chicago has been home to many of America’s candy manufacturers, but today they’ve fallen on hard times. In 1970, employment by Chicago’s candy manufacturers totaled 15,000, and now it’s 8,000 and falling. Brach used to employ about 2,300 people; now most of its jobs are in Mexico. Ferrara Pan Candy has also moved much of its production to Mexico. Yes, wages are lower in Mexico, but wages aren’t the only factor in candy manufacturers’ flight from America. After all, Life Savers, which for 90 years manufactured in America, has moved to Canada, where wages are comparable to ours.

One of the ignored stories in the clamor and demagoguery over job losses, not only in the candy industry but in others as well, is the devastating impact of congressionally created “miracles” on our industries. American sugar producers fight tooth and nail to keep foreign sugar imports out of our country. They’ve spent $722,000 in campaign contributions to both Democratic and Republican congressmen to enact sugar import tariffs and quotas.

Williams goes on to describe the cost in terms of US jobs from these protectionist sugar policies:

According to the Sugar Users’ Association, an organization that represents companies who use sugar as an input, such as candy manufacturers, the protectionist miracle that Congress has created for the sugar industry has cost anywhere from 7,500 to 10,000 jobs in sugar-using industries due to higher sugar costs. Higher sugar costs make U.S. candy manufacturers less competitive in both domestic and world markets. Life Savers became more competitive simply by moving to Canada — it saved itself a whopping $10 million dollars a year in sugar costs.

By moving to Canada! Appalling.

Another facet of the sugar protection racket that Williams does not address is the environmental impact of subsidized sugar protection. A few years ago a group in my Environmental Economics class did a research project, and found that the sugar industry is one of the prime contributors to the degradation of the Everglades in Florida. They are also blocking efforts to reclaim some of the wetlands and the ability of the wetlands to serve as a nutrient filter for the local ecosystem. And it’s not even land that they own, and they are degrading it. If we had a proper system of property rights in environmental quality, then a common law tort suit would do the trick. Grrrr.

Arnold Kling does a nice job of connecting this article with the jobs issue and asking for some intellectual consistency from the “jobs outsourcing should be stopped” camp. Simply asking

What might be the secondary consequences of legislation that discourages American companies from using overseas software programmers?

points out the hypocrisy of supporting sugar subsidies while wanting to keep existing American jobs. The secondary consequences, if the sugar and candy industries are any indication, would be to drive the production of software itself offshore, not just the work of some of the inputs. Software companies would leave the US so that they could have access to labor at a wage that better matches the value of the marginal product of their labor. Or, as Walter Williams points out, there may be other factors in determining whether a company stays in the US beyond labor costs. In the case of software I’d imagine it being costs of patenting/IP protection. But software is more labor-intensive, in the sense that labor costs are a higher share of the budget, than candy.

Hmmmm ….

RUSS ROBERTS AND VIRGINIA POSTREL ON JOBS

Russ Roberts has a typically clear and lucid commentary on jobs and “outsourcing” in Business Week. Short of jumping into the fray on this issue, let me simply suggest that you read this, circulate it, and consider his conclusion:

The hardship that results from economic change always tempts politicians to limit individuals’ freedom to buy what they want and businesses to hire whom they desire. Such political restraints will make life more secure — but poorer and less dynamic. Ultimately, it will have no effect on the number of jobs in the U.S. but only make the ones that survive pay less.

Well said.

While we’re talking jobs, I have a couple of observations that are consistent with Virginial Postrel’s NY Times article from Sunday about new non-tech jobs. Her observations about the establishment of spa service jobs, and the number of women performing these jobs in a free-lance and more difficult to measure way, ring true in Chicago. In the past six months I’ve seen four new nail salons open, and that’s just within about a 20-square-block area in Lakeview. Virginia points to manicurists as one of the most overlooked professions in the Bureau of Labor Statistics surveys, and it is one that has been growing fast recently:

Similarly, the bureau has missed more than 300,000 manicurists. It puts the total at around 30,000, compared with the count of 372,000 — up from 189,000 a decade ago — by Nails magazine, using private survey and state licensing data. Even if not all licensed manicurists are practicing, the bureau number is off by an order of magnitude. There are 53,000 nail salons in the country, most of them with more than one manicurist. The industry supports two major trade magazines, each with about 60,000 subscribers.

Compared with stone crafters, gardeners or graphic designers, manicurists should be easy to track. ”This is not a gray market business,” says Cyndy Drummey, the editor of Nails. ”It is licensed and regulated.” Yet because this business is wildly decentralized and doesn’t fit traditional categories of what constitutes a job — most manicurists are independent contractors or shop owners — it can add tens of thousands of jobs without catching the government’s notice. And behind each manicurist are people making the tools of the trade.

And the esthetician who used to share the chiropractor’s office downstairs from us went out and got her own space, after having gone freelance from working at a spa about 3 years ago. I also see the same phenomenon happening with personal trainers, particularly given the current trend for exercises that don’t necessarily require lots of heavy and expensive gym equipment.

The nature of the economy, and the highest value uses of resources (including labor), is dynamic. What was valuable yesterday may be less so tomorrow. And as Russ’s piece suggests, protecting what was valuable yesterday may rob us of the ability to create what will be valuable tomorrow. Or worse, when inevitably someone does create what will be more valuable tomorrow, we won’t be the creators, and our status quo jobs won’t provide us with enough income to afford to buy into it. We will be made even worse off than if we had let the things go that weren’t our comparative advantage.

Thanks to Kevin Brancato for the pointer to the Russ Roberts article, and for his forceful conclusion to his own discussion of the matter:

So some of the lowest-skilled service industry workers today are making as much or more than the best technically-skilled assembly line workers of Henry Ford’s day. And that’s because of outsourcing.

NAVARRO PINOT NOIR 2001

Navarro is an Anderson Valley/Mendocino winemaker, lovely, carefully made wines. Their Gewurztraminer is to die for. This Pinot Noir has a sprightly little zip on the tongue and a smokiness that is reminiscent of a young Burgundy, perhaps a Morgon. Apples in the foretaste, toasty/dusty in the middle, berries and slight carbonation in the aftertaste, then a tannin aftertaste. Very smooth, and it went well with the dinner of salmon, spinach with roasted peppers, and … tater tots!

LOW TAXES DO WHAT?

The Wall Street Journal is chock full of goodies this morning. I recommend special attention to Thomas Sowell’s commentary on economic literacy (subscription required). His focus is on the value that academic economists provide when they explain economic relationships to the public:

Some years ago, the distinguished international-trade economist Jagdish Bhagwati was visiting Cornell University, giving a lecture to graduate students during the day and debating Ralph Nader on free trade that evening. During his lecture, Prof. Bhagwati asked how many of the graduate students would be attending that evening’s debate. Not one hand went up.

Amazed, he asked why. The answer was that the economics students considered it to be a waste of time. The kind of silly stuff that Ralph Nader was saying had been refuted by economists ages ago. The net result was that the audience for the debate consisted of people largely illiterate in economics and they cheered for Mr. Nader.

Prof. Bhagwati was exceptional among leading economists in understanding the need to confront gross misconceptions of economics in the general public, including the so-called educated public. Nobel Laureates Milton Friedman and Gary Becker are other such exceptions in addressing a wider general audience, rather than confining what they say to technical analysis addressed to fellow economists and their students. By and large, the economics profession fails to educate the public on the basics, while devoting much time and effort to narrower and even esoteric research.

The net result is that fallacies flourish in discussions of economic policy issues, while the refutations of those fallacies lie dormant in old books and academic journals gathering dust on library shelves. As former House Majority Leader Dick Armey — an economist by trade — put it: “Demagoguery beats data in making public policy.”

He then goes on to highlight common political misunderstandings of the economic consequences of trade policy and tax policy. It speaks to me because he has hit upon one of the reasons why I do what I do.

And right below it on the page is a column from NH Senator John Sununu on a bill he is proposing that would treat VOIP as an information service, not regulate it with an obsolete approach from the days of copper. Worth thinking about.

But now I have to go catch a plane …

NEW SOURCE REVIEW’S PERNICIOUS INCENTIVES

In a comment to a post on clean coal technologies, Robert Prather has a concise statement of what I think makes the most sense for dealing with emissions from old power plants:

When the clean air act was put into place it was assumed that a lot of older plants would shut down so they were exempted from the clean air regulations. Well, they didn’t shut down at least in part because their competitors had been hamstrung with the clean air act. The concept of grandfathered plants should be done away with and the cost of their pollution pushed back on them using a cap-and-trade system. They should be treated like every other plant. If it’s economical for them to do the upgrades, they should. If it’s economical for them to purchase enough credits in the cap-and-trade system to continue operations, that should happen. If they can’t produce power in a way that’s both economical and clean, within the rules of the system, they should shut down.

Hear, hear.

STERLING CENTRAL COAST CAB 2001

I came home Sunday to find that my husband had bought and opened a bottle of Sterling Vintner’s Collection Central Coast Cabernet Sauvignon 2001. So it had started to oxidize when we finished the bottle Sunday night with pork medallions in a black cherry cognac sauce, haricots verts, and crusty bread.

I believe this is Sterling’s lower-priced range (I think this one was $12), and it drank like good value for money as far as I’m concerned. Although it’s a young cab it doesn’t have any of that annoying green pepper alkali sharpness to it that you get with inexpensive young cabs. Of course, that may be because it had already been opened and started to oxidize, but my husband said he didn’t get green pepper on Friday night. I got a lot of blackberry in the nose and mouth, and chocolate in the palate as well. It went very well with the sweet/savory sauce on the pork. And with the Lindt 85% cocoa dark chocolate we had for dessert!

I don’t get excited about California cabs even the cult ones, but I would put this in the same category as the Robert Mondavi coastal cab — good value for money, a solid, consistent wine.

HERNANDO DE SOTO ON EGYPT

Friday at the Mercatus Chief of Staff Retreat, Hernando DeSoto spoke on the work that they are doing in Egypt. Hernando DeSoto founded the Institute for Liberty and Democracy in Peru, successfully fighting the Maoist Shining Path guerillas in Peru. DeSoto laid out the economic and philosophical argument for why law, liberty and democracy are fundamental foundations of development in The Other Path. His most recent book, The Mystery of Capital, delves into the consequences of the lack of legal ownership and property rights in poor societies.

DeSoto and ILD have been working in Egypt for 4 years, mapping out how much of the asset base in Egypt is actually “owned” and operates beyond the confines of existing law, and how much economic activity takes place in an underground economy. They have found that 92 percent of Egypt’s asset base is in the hands of Egypt’s working poor, and that ownership of these assets is not supported or enforced by Egypt’s legal system. DeSoto and the ILD have been working to persuade the Egyptian government that bringing law and property rights to the Egyptian people will not only create an environment in which they can be economically productive, it will also be a good political move to be the government that empowers such a large percentage of the voting population.

This was the first time I have heard DeSoto speak, and he truly is inspiring. He is able to move from the specific features of Peru or Egypt to the general benefits that accumulate when societies have the legal institutions that support the move from personal to impersonal exchange. Trust is an important precursor to exchange, and institutions that enable trust among strangers and thus facilitate exchange are important precursors to economic growth. Another aspect of trust is the longevity of the business. To paraphrase from DeSoto’s remarks, in poor societies you worry more about whether the businessman is going to have a heart attack, because the legal institutions do not exist that support the longevity of his business beyond his life. This lack of longevity shortens timeframes, meaning few or no long-term contracts and diminished investment.

Another interesting point that he made is that in economically vibrant countries like the US, most small business is initially funded by mortgages and second mortgages on homes. The ability to borrow against your home is not available in many poor countries because of the lack of legal ownership. As he put it, in the US your home can do many things for you simultaneously. In poor countries, it does one thing: provides a roof over your head.

And as DeSoto said, these legal and economic institutions are more important than roads or ports, so if we really want to help the poor in developing countries, we should focus on institutions that create business longevity, facilitate impersonal exchange across larger markets, and enable people to borrow against their assets.

MUSIC FOR AVOIDING ELECTION MEDIA

One of the rituals in which I engage every four years is in mid-January or so, when I can no longer abide the media hoopla over primaries and the election. Almost like clockwork, a day will come in January when I am listening to NPR and I reach a breaking point. I say “that’s it”, get up from my desk, and switch the radio to classical (WFMT in Chicago, where we used to have two classical stations … but that’s another story). There it will sit, except for the Saturday morning Car Talk/Wait, Wait/Michael Feldman/This American Life megafest, until November. Or later, as happened in 2000, when if I heard about hanging chads one more time I was going to violate my generally pacifist tendencies.

I enjoy this regular rediscovery of classical music. My tastes tend toward late classical/early romantic, before it got too histrionic and sentimental. All other things equal I tend to listen to Schubert, especially symphonies and chamber music, with the 9th symphony in C major being my favorite by far. After that, Beethoven’s 3rd and 7th symphonies. Then Mozart, symphonies and chamber music and opera. Bach, Vivaldi, Mendelssohn, Dvorak, and Bartok round out the lion’s share of our collection, which ranges from early chants to Philip Glass.

I also tend to favor anything that’s heavy on cello, with my best recommendations being Vivaldi’s cello concertos and Brahms’s cello concertos. The Brahms recording I have has Jaqueline duPre on cello and Daniel Barenboim on piano, so it’s very good and very poignant (n.b.: she was a gifted phenomenon, they were married, she died from multiple sclerosis, very sad).

This year is particularly interesting, because it’s the first election year in which I have an iPod, which has also reinvigorated my interest in my classical music collection. When I’m writing and need to focus I certainly must listen to classical music (in fact, in graduate school I could only get anything really accomplished when listening to Gregorian chants!). I’ve created playlists of all of my classical music by composer, with goofy names like “Schubertarama”, “Bachannal”, “Vivaldissimo”, and so on. It’s extremely helpful for getting into the flow, unlike having to change CDs or flip cassettes.

In my school office it’s even easier to avoid the election media frenzy. Either I put on my headphones and listen to my iPod, or I listen to a great online radio station called SOMA-FM. As the name would suggest, they are from San Francisco, and they have channels that range from electronic beeps and twitters to lounge to alt country. My channel of choice is Groove Salad, which is “a tasty plate of ambient beats and grooves.” It lacks the almost white noise character of Gregorian chants, but manages to be an interesting listen without being excessively disrupting. If you like ambient-style techno of various tempos (Moby/The Orb/Groove Armada, for example), then you’ll like Groove Salad.

The other sanctuary from election hoopla is my favorite “commercial” radio station, WOXY-FM Real alternative music, not the packaged corporate Clear Channel top-down “alternative” playlist that gets pushed out to so many “alternative” radio stations around the country. Plus they still play bands like the Velvet Underground on occasion, although it’s been a while since I’ve heard Bauhaus. Time to make a request …

When I came home from Philadelphia yesterday, I learned that my husband had been investigating the artist offerings on Magnatune. If you’re not familiar with Magnatune, you have to check them out. Magnatune got a lot of press a few months ago because they are a different kind of recording label. You can try all of their music for free at their website; in fact, they stream radio stations that are mixes of their artists. You can pay what you wish to buy an album; $8 is the recommended price. And half of the price goes to the artist as a royalty, directly.

So I messed around with Magnatune last evening, and there is some great music there. To continue the classical music vein from above, their classical music selection is more extensive than I expected and of high quality. I particularly enjoy Vito Paternoster’s recordings of Bach Cello Suites. I listened to them yesterday, and will probably go back and buy them today. Their classical selection is disproportionately baroque and renaissance, and the renaissance stuff they have is quite distinctive, things I would never know to look for at Amazon or Borders.

They also have a lot of electronica artists. I am going to buy the DJ Markitos album they have; he’s a DJ mix guy from Slovakia and the music is fast and upbeat.

I wish Blue Note Records would move more in this direction. Then I wouldn’t hesitate to buy anything from my beloved Kurt Elling or Stefon Harris. In fact, I so deeply want Harris’s Grand Unification Theory that I am considering breaking my RIAA moratorium.

If you have any music suggestions, please leave ‘em here. Especially if they don’t involve buying any RIAA-label CDs!

COLIN FIRTH, BROODING, AND PITTSBURGH SPORTS TEAMS

It’s not very often that two of my favorite things in the world converge quite so unexpectedly as in this column from the Pittsburgh Post-Gazette about seeing Girl With A Pearl Earring, a “chick flick” on Valentine’s Day. Take this, for example:

I’ve seen Firth brood in “Pride and Prejudice,” in “Bridget Jones’ Diary” and in “The English Patient.” Most of his time on screen, Firth looks so downcast he could pass for a Penguins fan, …

Yes indeedy. As a downcast Penguins fan I can empathize. Is this article a strange convergence or what?