The Nanny State: Pet and Human Welfare

We put too many burdens on our neighbors through the state.  Jaya Narain describes the actions of an overweening state protecting society from a 66 year-old woman selling goldfish to a minor in "Pet shop owner fined £1,000 and told to wear an electronic tag... for selling a GOLDFISH to a boy aged 14" published by Mail Oline.

Her offence was to unwittingly sell a goldfish to a 14-year-old boy taking part in a trading standards 'sting'.

At most, pet shop owner Joan Higgins, 66, expected a slap on the wrist for breaking new animal welfare laws which ban the sale of pets to under-16s.

Instead, the great-grandmother was taken to court, fined £1,000, placed under curfew - and ordered to wear an electronic tag for two months.

The punishment is normally handed out to violent thugs and repeat offenders.

The prosecution of Mrs Higgins and her son Mark is estimated to have cost taxpayers £20,000 and has left her with a criminal record.

Mark, 47, was also fined and ordered to carry out 120 hours of unpaid work in the community.

If members of a free society must police the sale of goldfish, is it any wonder that the United Kingdom has budget problems? 

Narain also reported that the police also found a cockatiel with a bad eye and a broken leg which was ironically put down to stop its suffering.  I wonder which metric they used to determine that the bird's future suffering outweighed its future pleasure? 

Did those who designed the law stop to think that pet stores that attempt to sell damaged goods don't sell much? 
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Bittlingmayer, Havenner and Hazlett on the Stimulus

George Bittlingmayer, Art Havenner and Tom Hazlett, three of my professors at U.C. Davis, teamed to write, "They Don't Call It Stimulus No More" for Real Clear Markets.  They argue that the American Recovery and Reinvestment Act has failed to achieve the goals promised by its supporters, the failure of the bill is yet another nail in the coffin of Keynesian economics, and the large deficit produced by the bill will hinder long-run economic growth.  The article is well written.  I quote a few of my favorite paragraphs.

Despite the debate raging over whether the $787 billion "stimulus package" passed by Congress in February 2009 worked, the argument is over: the Obama Administration has capitulated. And it was on display in the President's signing ceremony last week for the next round of federal economic elixirs. No government official dared to call the $18 billion spending package anything but a "jobs bill."

Hello. The spending strategy unveiled a year ago was Keynesian - fatter federal deficits would jolt investor sentiments, igniting capital spending and putting Americans back to work in the private sector. That's the theory.

But now, besieged with prolonged high-level unemployment, the President and his congressional allies have put forward yet another deficit-enhancement plan. The "stimulus" tag has been abandoned; this is a jobs bill. And the rhetoric defending last year's spending binge has been duly adjusted, trumpeting the school teachers and fire fighters who kept their jobs due to credit extended to the states by the Federal Government.

The change is anything but subtle, and is entirely appropriate: massive U.S. deficits aren't stimulating private sector job gains...

President Obama blames the Bush Administration for the high cost of government - a bad situation that existed "when I walked in the door." One need not dwell on the fact that Senator Obama went to Washington in 2004 and proceeded to vote for the spending he now tags as profligate. The point is extremely well-taken: Bush43 did a fiscal belly flop, drenching the national ledger in red ink. For that, he is rightly held in low esteem, and his party swept from office.

Now the Democrats are making Mr. Bush's failures their own. Mushrooming deficits have not saved the economy. Even assuming that job losses have bottomed out, today's optimistic scenario, no post WWII recession has taken longer to turn around. And no recession has suffered employment losses so steep in percentage terms. This might be blamed on a Republican predecessor too, but for the fact that such a debacle was precisely what the Obama Administration forecast would be avoided by the February 2009 "stimulus."

Now, fiscal dereliction poses threats of its own. Economists Carmen Reinhart and Kenneth Rogoff have written the book on financial crises in history, THIS TIME IS DIFFERENT: EIGHT CENTURIES OF FINANCIAL FOLLY (Princeton, 2009). Just as the low-visibility risks taken by Fannie Mae and Freddie Mac appeared to be a free political lunch up until the fateful instant that they proved calamitous, sovereign debt can be a silent killer. The national debt, being pushed substantially higher just as the Baby Boomers retire, only looks harmless. But, "at some point," write the authors, "interest rate premia react to unchecked deficits." Fiscal "stimulus" must be withdrawn; austerity results. And "higher taxes have an especially deleterious effect on growth."...

Like a rain dance that produces no clouds, we are now into our fourth round of federal deficit creation - the automatic "stabilizers," followed by the Bush (2008), Obama I (2009), and Obama II (2010) versions. With each dry day, the deficit dancing intensifies. When the rain finally falls, we will be told that the recovery is a tribute to the Keynesian Gods. But it's already clear that something has gone wrong: the "stimulus" chant has fallen silent. Our dance on a fiscal cliff has lost its theme music.

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Alabama and the NCAA: Vacating Wins and Common Sense

The University of Alabama was caught providing student athletes with free textbooks and for this sin the NCAA is forcing the Tide to vacate twenty-one wins in football and records from three other sports from 2005 to 2007 ("Alabama's penalty from '09 ruling stands").  The university describes the punishment as "so excessive as to constitute an abuse of discretion."  The penalties were certainly more severe than historical precedents.  The NCAA Division I Infractions Appeals Committee said that the NCAA needed latitude in meting out punishment because no two cases were the same. 

Again the NCAA paints itself into an odd corner.  Top athletes are underpaid and, as this case demonstrates, over regulated.  Under normal circumstances, lowering the cost of education is considered a good thing.  If the student happens to be an athlete, it is bad.  If the regulation changed and all division I programs were able to provide free books, the competitive balance would not change.  Does anyone believe that USC, Texas, Ohio State, or LSU couldn't find free texts for athletes?
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The Stimulus, Crowding Out and Growth

The stimulus (The American Recovery and Reinvestment Act) was sold as a necessary government intervention to restore employment and economic activity.  Such Keynesian plans are fraught with problems including bad timing, spending for political gain, bad economic investments, and permanent increases in the deficit. 

De Rugy (Veronique de Rugy, "Politics: Democrats Stimulus Haul Is Almost Double Republicans") finds that stimulus spending in Democratic districts ($471,533,539) is nearly twice spending in Republican districts ($260,675,663) and that there is no relationship between spending in a district and the unemployment rate in a district.

The stimulus could permanently increase deficits and the national debt and many economists believe that larger permanent debt could raise interest rates for all borrowers both public and private.  The rise in interest rates lowers private investment a phenomenon known as crowding out.  Last week's Treasury three offerings that totaled $118 billion were met with weak demand and interest rates rose.  Both the Wall Street Journal ("Debt Fears Send Rates Up") and the Financial Times ("Supply fears start to hit Treasuries") noted that U.S. Treasuries had yields above that of high quality corporate bonds. 

One week's data does not constitute a trend, but, as James Hamilton suggests ("Interest rates spike up"), the bond market bears watching.  He also offers a rosier explanation based on the simultaneous increase in stock prices and interest rates.  Perhaps investors believe that the economy is improving.  Being an optimist, I like the explanation that the private economy is improving but I worry about rise in Treasury yields compared to corporate bonds and that the poor financial condition of the federal government will limit private sector growth.   
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Thoughts on Schumer and Graham's Immigration Reform Outline

Now that health care reform has been signed into law, it appears that comprehensive immigration reform will be the next item on the legislative agenda.  Senators Charles E. Schumer of New York and Lindsey Graham of South Carolina presented an outline of a comprehensive immigration reform bill in "The right way to mend immigration" which was published in the Washington Post and supported by President Obama according to a Washington Times article "Obama backs plan to legalize illegals" written by Stephen Dinan.  Schumer and Graham offer justification for reform.

Our immigration system is badly broken. Although our borders have become far more secure in recent years, too many people seeking illegal entry get through. We have no way to track whether the millions who enter the United States on valid visas each year leave when they are supposed to. And employers are burdened by a complicated system for verifying workers' immigration status.

I am weary of politicians who call for legislation by decrying some part of our economy as "badly broken" and comprehensive legislation to fix these problems.  While the senators do not call their proposal a comprehensive plan, it certainly is.  While the senators correctly observe that the government has difficulty keeping track of people entering the country illegally or overstaying their visas, they do not claim economic damage due to illegal entry.  This damage is harder to find and quantify than many might believe and some researchers find net gains.  For example, Ottaviano and Peri find that the wages of low skilled workers do fall, but that is based on the low wages earned by immigrants.  Low skilled workers born in the experience a 3 to 4% increase in wages ("Rethinking the Gains from Immigration: Theory and Evidence from the U.S.," National Bureau of Economic Research, Working Paper 11672, September 2005.

If illegal immigration does not cause economic or other damage, then the governmental apparatus designed to stop it could be considered an unwarranted expense and intrusion on people's liberty.  The people I refer to are legal citizens who trade with illegal immigrants.  I suppose that I am part of a tiny minority that does not view immigration, particularly illegal immigration as a big problem and if immigration is to be limited rationally, the senators' outline could improve existing laws.  They provide a very broad outline.

Our plan has four pillars: requiring biometric Social Security cards to ensure that illegal workers cannot get jobs; fulfilling and strengthening our commitments on border security and interior enforcement; creating a process for admitting temporary workers; and implementing a tough but fair path to legalization for those already here.

I have a couple of comments on their pillars.  If you wish to limit illegal immigration, some sort of high tech identification will be necessary.  Carrying yet another card is a legal citizen's burden of controlling the border. 

Their plan for stopping illegal immigration does not deal with the problem of anchor babies: foreign parents securing U.S. citizenship for their children by birthing them in the U.S. and then using U.S. law that attempts to keep families intact to secure their own citizenship.  If the senator's plan works at curbing illegal employment, we may find that successfully stopping the parents from gaining employment may be more expensive to taxpayers than allowing them to work illegally.  For example, perhaps the parents will return to Mexico until the child turns eighteen and then return to the U.S.  Their child will have a substandard education, will not speak English, and may not have their parents' drive to succeed.  They will qualify for welfare benefits. 

The four pillars do not separate high skilled workers who wish to work legally in the U.S. from low skilled workers who come illegally, but the rest of their article does make this distinction.  The high skilled workers could certainly be dealt with in an independent, less controversial bill that if more likely to pass.  The economist in me finds it difficult to oppose intelligent, high skilled workers from working in the U.S.  The Grinch in me must point out that if immigration of low skilled workers hurts the wages of American born low skilled workers than the immigration of high skilled workers must have the same impact on the wages high skilled workers. 

Finally, a plan to deal with illegal immigrants should have a path to citizenship.  I am not big on punishment for arriving illegally because I do not believe that the crime is big.  I rate it about like driving ten miles an hour over the limit on the highway and most of us do that or worse on a daily basis.  By coming illegally to the U.S., many guarantee their children better nutrition, health, education and higher standard of living.  While it is illegal behavior, it is also moral behavior. 
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Toyota and Sudden Acceleration

Last week in class, I theorized that the sudden acceleration problem experienced by a few Toyota drivers was not due to the design or manufacture of the cars but a media and political feeding frenzy centered around a normal number of malfunctions experienced by any make of cars.  The media hungers for stories that sell papers, and politicians thirst for a villain to demagogue.  Toyota was just an unlucky victim.  William M. Briggs, a statistics consultant, writing for Pajamas Media in "Sudden Acceleration or Creeping Fear?" proposes the same theory and supports it with evidence.  We both may be wrong, but it is always good to question the media (and economics professors).  I quote the first several paragraphs and recommend the entire article. 

Just look at these headlines!

• “Inquiry on Auto Acceleration Expanded by U .S.,” New York Times


• “Cars That Speed Up Mysteriously Spark Bitter Dispute Over Cause,” Wall Street Journal


• “Runaway Cars,” Detroit News

And how about these?

• “Car Plows into Park, Killing 3 & Injuring Dozens,” New York Times


• “Car Kills Woman At Market,” Post-Standard


• “Sudden Acceleration May Be the Cause of Recent Accidents…,” Corporate Crime Reporter

Boy, doesn’t Toyota have problems?

Maybe not. That first set of headlines was from an earlier “epidemic” of sudden accelerations thought to be caused by Ford automobiles. The second set was blamed on Audi.
These sudden — then called “unintended” — accelerations happened in the mid-1980s to early 1990s. They were so popular that CBS’s 60 Minutes, in a now infamous segment, “televised a sensational demonstration in which a rigged Audi 5000 was coaxed into accelerating without any hint of pressure on the gas pedal.” They later had to issue a “correction.”

Complaints of unintended acceleration to the National Highway Traffic Safety Administration (NHTSA) were not unusual and were associated with cars of almost every make and model. But after the media reported a cluster of accidents involving first Fords, then Audis, more complaints about those cars were subsequently received.

The unintended accelerations were thought to be caused by everything from electromagnetic interference to sticking gas pedals. But the NHTSA investigated and found: “The major cause appears to have been drivers’ unknowingly stepping on the accleratator [sic] instead of the brake pedal.”

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The Unemployment and Labor-Force Participation Rates

During a recession, the public and media place a great deal of emphasis on the unemployment rate (=unemployed/labor-force *100) as a measure of human suffering, but, like all statistics, it is subject to errors in measurement such as that caused by discouraged workers. These workers become "discouraged" by the bad job market and stop looking for employment. By definition, an adult must be employed or looking for employment to be in the labor-force, and must be an adult without employment but looking for it to be unemployed. An increase in discouraged workers causes an equal drop in the unemployed and the labor force and makes the unemployment rate lower as the labor market worsens. Conversely, a decrease in discouraged workers makes the unemployment rate rise as the labor market improves.

Period	1	2	3	4	5	6
Adults	1,000	1,000	1,000	1,000	1,000	1,000
Labor-force	660	657	654	651	653	655
Employed	601	598	595	592	593	594
Discouraged Workers (DW)	0	4	8	12	10	8
Unemployed	59	58	57	56	57	58
Labor-force participation rate	66.00	65.70	65.40	65.10	65.30	65.50
Unemployment rate with DW	8.94	8.83	8.72	8.60	8.73	8.85
Unemployment rate w/o DW	8.94	9.70	10.15	10.61	10.30	10.00

The example contained in the Table demonstrates how the employment rate can fall as the labor market deteriorates from period 1 through period 4 and then rise as it improves from period 4 to period 6. The number of adults who wish to work remains constant at 660. They do not all remain in the labor-force. The labor market deteriorates during the first four periods resulting in a decline in employment of 3 workers each period. As the market deteriorates, the number of discouraged workers increases by 4 each period, one worker greater than the number losing their jobs. Because discouraged workers are not part of the labor-force or the unemployed the labor-force falls from 660 workers in period 1 to 651 workers in period 4 and unemployment falls from 59 to 56 during the same period. Even though employment is falling, unemployment is decreasing because workers are leaving the labor-force. The unemployment rate falls from 8.94% in period 1 to 8.60% as the labor market deteriorates. If these workers had not become discouraged and had persisted in seeking employment, the unemployment rate would have worsened from 8.94% in period 1 to 10.61% in period 4 as should happen in a deteriorating market.

The labor market improves in the last two periods with an unemployed worker being hired each period. Sensing the improvement in the labor market, two discouraged workers rejoin the labor-force each period and are now counted as unemployed. As the labor market improves, the unemployment rate rises 8.60% in period 4 to 8.88% in period 6.



Using the labor-force participation rate in conjunction with the unemployment rate paints a more accurate picture of the labor market. The graph shows the U.S. labor-force participation rate measured on the left vertical axis and the unemployment rate measured on the right vertical axis from September 2007 through February 2010. Initially, the labor-force participation rate remains stable as the unemployment rate increases. Beginning in June 2008, the labor-force participation rate falls as the unemployment rate rises suggesting a rapidly worsening labor market. Between October 2009 and December 2009, the labor-force participation and unemployment rates fall, the exact situation as described in the table. The labor-force participation rate improved from December 2009 to February 2010 as the unemployment rate improved suggesting a strengthening labor market. This analysis rests on the assumption that the labor-force participation rate declined because many workers became discouraged. If correct, it may take many months for the unemployment rate to fall to historical levels as the discouraged workers reenter the labor-force.
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