More on Welfare and Incentives

Again from Rodney Hide. This numerical example highlights what we try to teach about the marginal rates of taxation and the incentive effects of many welfare programmes.

[A] family with 2 children, on $35,000 a year, with housing costs of $300 a week, will have a -17% tax rate. They get net $788 a week.

If this family works longer hours, or Mum goes to work, and they earn $20,000 more lifting them to $55,000, they only get net $837 a week. For $20,000 gross extra earnings, the family gets only $2,548 net a year. So despite earning $400 more a week, the Government takes $350 - they get $50.

That is a tax rate of 89%. It is composed of 33 cents statutory tax, 30 cents off Family Support, 25 cents off Accommodation Supplement, 1.2 % ACC.

The problem for this family is how do they set about to improve their lot? What is their incentive to lift their income and raise their income?

This serious trap is far worse if any of the families in this situation are also amongst the hundreds of thousands of New Zealanders with Child Support and/or Student loan debts. If they are, their effective tax rate will exceed 100%, and over 113% if they have both.

Marginal rates of taxation in the range of 89% to over 100% are very effective ways to reduce incentives to work and earn more; it is little wonder they call it the "welfare trap". For more on the distortions created by the welfare system, see here and this link to my previous posting on this topic.

The Socionomology of the Work-Leisure Trade-off

The Onion has a great spoof of leisure studies:

BOSTON—According to a report released Monday by Boston University's School of Lifestyle Management, more than 180 trillion leisure hours were lost to work in 2004.

"The majority of American adults find work cutting into the middle of their days—exactly when leisure is most effective," said Adam Bernhardt, the Boston University sociology professor who headed the study. "The hours between 9 a.m. and 6 p.m. are ideally suited to browsing stores, dozing in front of the television, and finishing the morning paper. Daytime hours are also the warmest and sunniest of the day, making them perfect for outdoor activities. Unfortunately, most Americans can't enjoy leisure during this time, for the simple reason that they're 'at work.'"

...The report's internals reveal that full-time workers are hit hardest, with part-time workers coming in a close second, and freelancers marking a distant third.

"Ironically, the unemployed fared the best in this report," Kletter said. "One of the questions that remains unanswered, unfortunately, is how jobless citizens' high number of available leisure hours somehow fails to translate into overall happiness."

Read the whole thing. It's a great study in opportunity costs.
It looks as if they missed some academics in their study. [H/t to Jack]

Is Terrell Owens on Steroids?

I just Googled "Terrell Owens" + "on steroids" and got nothing. Then I Googled "Terrell Owens" + steroids. That got lots of hits, but nothing discussing the question of whether Terrell Owens is on steroids. This seems odd to me, since

1. Steroids have a big effect on promoting healing, and
2. Terrell Owens recovered very quickly from some serious damage.

How else did he make such an amazingly fast recovery? Was it steroids or was it God?
Or was it something else?

A Blog Dedicated to Ending Agricultural Subsidies

It was part of the lore when I was a graduate student at Iowa State University that Ted Schultz (the economist, not the cartoonist) left there in a big dust-up because he came out publicly in opposition to the state's ban on oleomargarine. Chicago was only too glad to snap him up.

Protection of agricultural interests is anathema to economic efficiency. I was once at a conference where someone supporting Canada's ban on the import of chicken meat asked with a straight face, "But do you want to become dependent on the Americans for your supply of chicken?"

Yes, if they do a better job of it than our protected chicken farmers.

I was just pointed to a blog [H/T to BrianF] that is opposed to all agricultural subsidies.

Here is one of its recent postings:

The Afghanistan government may be forced to give subsidies to farmers to persuade them not to grow opium. (poppies account for 60% of economic activity) and to grow wheat, rice and cotton instead. Farmers can’t compete with Western exports of these commodities because they are so highly subsidised.

Hang on a minute. Wouldn’t it be simpler for the US, Japan and Europe to abolish their own subsidies (thereby returning money to taxpayers) rather than pricing Afghanistan's agriculture out of the market?

Would a slogan such as "Abolish cotton subsidies and help kill the drugs trade" play well in the US?

hear! hear!

Why Iraq is Different from Vietnam

Like Christopher Hitchens (writing in Slate), I was actively involved in the anti-war movement. But that was back in the 1960s and 1970s.

I groan everytime I hear people say Iraq is like Vietnam all over again. It isn't. Here is why. Please read all the points he makes.

His conclusion is:

I suppose it's obvious that I was not a supporter of the Vietnam War. Indeed, the principles of the antiwar movement of that epoch still mean a good deal to me. That's why I retch every time I hear these principles recycled, by narrow minds or in a shallow manner, in order to pass off third-rate excuses for Baathism or jihadism.

Capital-Labour Substitution and Outsourcing - Again

Ben Muse cites several sources that argue, very persuasively, that if many developing countries would relinquish their gubmnt control of the telcoms, they'd be prime candidates for supplying call centre services:

Part of the Times story: "...Kenya's regular phone lines are so abysmal that the founders of KenCall had to go through the cumbersome process of getting government approval to use a costly satellite hookup. Even more dollars were burned on an elaborate generator system aimed at keeping KenCall's computer screens running during Nairobi's frequent power failures..."

Some of Lapite's commentary: "...Outsourcing has the potential to prove as great a boon to French and (particularly) English-speaking Africa as it has for India, if only the national carriers could be shoved out of the way. Unfortunately, the incentives in most sub-Saharan African countries are such that this is unlikely to happen in the near future without significant external pressure: why privatize a parastatal which is both a handy tool for ethnic patronage and a cash cow? If the likes of Gordon Brown and Jeffrey Sachs really wish to make a difference in Africa, I'd suggest they hold off on the calls for debt forgiveneness and start by cajoling the continent's rulers to open up their telecoms and electricity sectors to local and foreign competition."

These gubmnt monopolies have likely done a great deal to inhibit economic growth. But with cell phones, satellite communications, and other innovations, I wonder how long it will take for the gubmnt monopolies to be eroded. If not long, then as I argued earlier, there's no reason why people in Bangladesh (or Ghana or whereever) could not handle McDonald's, Tim Horton's, or Jack-in-the-Box drive-through orders.

Using Advanced Placement to Assess Teachers

There is increasing evidence that parents are using the scores of past students on advanced placement tests to assess a teacher's ability. Here is one link, thanks to JC.

Peter Johnson, chair of the social studies department and AP teacher at Brophy College Preparatory in Phoenix, said, “AP teachers should face some sort of accountability, and having their pass rates become public knowledge can be an effective motivating tool. I know this may sound harsh, but I have known quite a few AP teachers during my career as both a high school student and teacher who have taught AP courses only because they figure that fewer disciplinary problems will arise in such courses, or because they will receive an additional financial stipend for it.’’

Here is another link to a piece by the same journalist.

"The long-term test results of similar cohorts of students taking the same teacher's AP or IB class reflect a good part of the teacher's ability, in the same way that mortality rates for a surgeon and investment results for a financial adviser reflect on those professionals' competency," said Robert Rosenfeld, a parent in Montgomery County. "Although teachers cannot be held to guarantee test results -- as if students are empty vessels waiting to be filled without effort on their part -- nonetheless teachers can be held to deliver effective instruction."

Using AP results to assess teachers is a good start. But there are two big problems:

1. Teachers have an incremental effect, not a total effect. The important question is "What is the value added by one teacher vs. another?" If the starting points and abilities are, on average, the same for all the students, then maybe AP results are a good proxy for teaching ability. But if different students have different abilities and/or different starting points, using AP results will give distorted assessments of teaching abilities.

2. Furthermore, not only will using AP results to assess teaching ability induce teachers to try to get students who will receive low scores to drop out of the AP classes, but it will also induce them to recruit the better students into their classes (sort of the way top universities try to attract the best students).

After all, people respond to incentives.

How NOT to Internalize a Risk Externality

The Trono Globe & Mail reports that when young adults drive while talking on cell phones, either hands -free or hand-held, their reaction times slow down so much that they start driving like seniors [hey! I'm not too keen on this analogy!].

“If you put a 20-year-old driver behind the wheel with a cell phone, his reaction times are the same as a 70-year-old driver,” said David Strayer, a University of Utah psychology professor and principal author of the study. “It's like instant aging.”

...In fact, motorists who talk on cellphones are more impaired than drunken drivers with blood-alcohol levels exceeding 0.08.

My first reaction is, "What's the problem? Hold them liable for whatever damages they cause, and they'll adjust their behaviour." That's one of the main goals of tort law -- the deterrent effect.

Oops. Oh yeah. We have no-fault insurance in Ontario. So gubmnt intervention in one market distorts incentives elsewhere, providing further justifications for additional gubmnt intervention in other markets. Surely Franz Kafka must have written something about this.



What about us seniors and near-seniors?

...elderly drivers using a cellphone aren't any more of a hazard to themselves and others than young drivers.

Nyah Nyah Nyah....

UPDATE: Tom Hanna has some interesting thoughts in light of the results of this study:

...a teen on a cell phone and your average 70 year old are both more impaired than a .08 BAC two-beer “drunk”. So, either there needs to be a vicious crackdown on the first two complete with arrests, handcuffs and jail time or the third isn’t as bad as we’ve been led to believe. Now, are we ready to cuff and stuff Granny, yank her driver’s license, fingerprint her, take her mugshot, print her name in the paper as the moral equivalent of a murderer or is it time that maybe as a free society we rethink the whole zero-tolerance hype?

"Those crazy Canadians are stealing our growth!"

The U.S. calculates their exports to Canada by using data on Canadian imports from the U.S. This procedure usually works well, but in November, apparently due to a computer change-over, Statistics Canada missed one day's worth of import data, and it turned out to be a day that would otherwise have been a big reporting day. The result was that U.S. economic production for the 4th quarter was understated by about 0.5%, giving rise to the quotation in the title of this posting once the error was discovered. (Be sure to check out the comments section of that link [thanks to Phil for e-mailing me the pointer]).

It is fun to ridicule gubmnt bureaucracies and their egregious errors, but this really is not a laughing matter. If U.S. macro policy makers (aka witch doctors) think that U.S. growth was considerably below expectations for the fourth quarter, they would be tempted to over-stimulate the economy, especially if they are into fine-tuning in a big way. The St. Louis Fed understands this problem very well:

Since 1978, two-thirds of the revisions between the advance estimate and the final estimate of real quarterly growth were between -0.6 and 0.9 percentage points. This means that the likely range of the final estimate of fourth-quarter real GDP growth-which we won't see until the end of this quarter-is between minus 0.4 and plus 1.1 percent. To compound the problem, the so-called final estimate isn't the last estimate. Every summer, in July or August, the final estimates are revised and every three years we get major revisions. Since 1978, latest estimates have differed from final estimates by an average of 1.2 percentage points in either direction. Thus, the latest estimate for 1980, say, changes over time. As a consequence, economists like to say that history is never what it used to be! In principle, the estimates keep getting better as the statisticians find improved source data, refine estimation methods, and improve underlying concepts.

When one considers the enormous task of estimating the size of the U.S. economy, these problems might seem small. But, for making monetary policy decisions, they can make a critical difference. In fact, the range of uncertainty over growth rates can imply opposite short-run monetary policy responses. Given the uncertainty, it is often best for policymakers to sit tight, waiting for the uncertainty to be resolved by new information and revised data. What this means, obviously, is that sometimes it is clear in hindsight that policy action should have come sooner, or even in a different direction.

The above quotation is from a speech by Wm. Poole, President of the St. Louis Fed, in February 13, 2002.

Anti-Dumping Policies, Canadian Style

In response to my earlier posting about U.S. anti-dumping policies, BrianF wrote to remind me about Canada's use of anti-dumping policies to protect Heinz baby foods from competition by Gerber. It is a fascinating yet sickening tale:

Back in the late 1990s the Canadian baby food market was served by two companies - Heinz Canada and Gerber. Gerber had closed its Canadian operation in 1990 and supplied the Canadian market from its US plants. In 1998, as a result of a complaint from Heinz Canada, the Canadian International Trade Tribunal [CITT], brought down an anti-dumping ruling on the grounds that Gerber was selling baby food in Canada at lower price than it sold it for in the US.

The CITT slapped a tariff on Gerber, basically ordering it to raise its prices in Canada by 60%. the CITT ruled that Gerber's presence had done material harm to Heinz by preventing it from raising its prices. The CITT noted that while other factors had contibuted to the shrinking of the baby food market, and while Heinz had been able to maintain its market share during the period of the alleged dumping, it had done so only by keeping its prices down. Heinz submitted that, prior to 1995, it had been able to increase list prices by an average of 3 to 4 percent per year, but that its ability to continue this practice, in 1995 and the years following, was constrained by the dumping. (Reasons NQ-97-002 op cit pg. 23). Pg. 24" "...the Tribunal is of the view that, to a large extent, the inability of Heinz to increase its net prices beyond 1995 levels was due to it having to deal back some of the benefits of these price increases to its consumers to counter the effect of low pricing, with dumped goods, by Gerber."

Gerber decided that it couldn't compete under those conditions, and announced that it was pulling out of the Canadian market. That left Heinz Canada with a monopoly.

The CITT then decided that that wasn't quite what it had intended to do, and announced that it would hold another hearing to decide whether the recommended tariffs should be lowered. Heinz put out a statement saying that this would threaten Heinz's operations in Leamington Ont. and also threaten "a way of life for Canadians in southwestern Ontario".

The second hearing recommended a reduction in the tariffs, but Gerber stayed out of the Canadian market. Just to add to the oddities, the Competition bureau took the whole business to a NAFTA tribunal, so that one arm of the Canadian government was appealing to a NAFTA tribunal over a decision of another arm of the Canadian government. The NAFTA tribunal ruled that there had been no errors of law made in the original CITT decision.

Shortly after all of this, the price of baby food started to rise. Heinz denied that this had anything to do with it exercising its monopoly power, but rather that it was correcting for the fact that prices had been held down to an inappropriately low level due to dumping by Gerber.

The tariffs have since expired.

Apparently the CITT eventually decided that any harm Heinz Canada would suffer if Gerber were to re-enter the Canadian market would be due to the erosion of its monopoly profits, and that that could not be a dumping-related injury. (See the Tepperman and Trebilcock piece in the CdnCompetitionRecord link .

Ain't Government wonderful?

[Here is a graph of the prices over time that Brian sent]



I've got to admit, until I dug that stuff up yesterday I hadn't fully appreciated the concept of "doing material harm" - I'd vaguely thought it meant Heinz had lost market share. Which is a bad enough reason for a tariff, but when it turns out that the material harm was that Heinz hadn't been able to raise its prices as planned ...............

In an earlier Econoclast post (and comments), you raised the issue of the difference between pro-business and pro-market. This case sets it out pretty clearly. pro-market means letting markets work and being willing to let businesses fail, pro-business means propping them up. So I told my intro micro students that the National Post is pro-market and the Toronto Star, though it would deny it, is as often as not Pro-business. Adam Smith, of course, was pro-market because that was the best way to be pro-consumer.

Brian also pointed me to a Reason article on this mess.

My only comment (besides Thanks, Brian!) is that Brian misspelled "gubmnt".

Rip Out the First Two Rows of Seats

I recently had a fun discussion with Roy MacGregor, columnist with the Trono Globe & Mail. He is the person who rekindled discussion about banning the penny in Canada.

Our discussion was about hockey. We both agreed that regardless of the outcome of the current labour strife, and regardless of when some sort of resolution is reached, the NHL still needs to do something to make the game more marketable.

Interestingly, we also both agreed that requiring a larger ice surface would have a positive influence on the game. It would encourage more skating and passing, and less clutch, hook, grab, and trap defence. The game would become more open and more exciting.

I think Brian Goff, co-blogger at The Sports Economist, would agree:

Hockey -- especially the small-rink, clutch-and-hold, two-line offside pass, dump-and-chase North American variant -- does not mesh well with TV. Some of those points were also true of NASCAR in the 1980s, but unlike NASCAR and the NFL, the NHL teams play events practically every other night. Also, the NHL, unlike NASCAR, appears unwilling to make or even experiment with significant changes that make the product more appealing to a wider audience, that is, if you don’t count the TV-enhanced puck.

And as I suggested earlier, The NHL will also have to consider requiring players to serve their now off-setting two-minute minors.

Rental Car Discrimination

Earlier, thanks to John Chilton at the Emirates Economist, I posted about how United Arab Emirates nationals sufferdiscrimination in the rental housing market in their own country. Landlords tend to believe that nationals have special privileges as tenants, leading to larger losses on the part of apartment building owners. The result is that superintendants are often under instructions to favour foreigners over nationals when renting units.

It turns out that UAE nationals also experience the same problem when it comes to renting cars. Here is the Gulf News link. As John Chilton says

Membership has its privileges. Membership has its costs

Here is the link to his piece on this topic.

All This on a Politician's Salary?

Tennessee State Senator, John Ford, is in court, being sued for additional child support by a former employee. His defence is that he already has two households, between which he shares his time, one with his ex-wife and their three children, and the other with his girlfriend and their two children. [Story at CNN; thanks to BrianF for the pointer]

In the hearing, Ford said he lives some days with ex-wife Tamara Mitchell-Ford and the three children they had together. On others, he said, he stays with his longtime girlfriend, Connie Mathews, and their two children.

This news story raises several questions:
1. Is this de facto polygamy?
2. Is this de jure polygamy?
3. How does he do this on a state senator's salary?
4. If Canada legalizes polygamy, Brian wonders, will this guy become a consultant? What will his fees be?

Make the Perp, Not the Victim, Whole?

One of the many legal compensation principles floating around is that the victim be made whole -- as well off as s/he would have been had some harmful incident not occurred.

It would be reasonable to expect the courts to apply this principle to the victim of a bank robbery, but not so in Holland. There, in an effort to make the perpetrator whole, the courts required him to repay a bank he robbed, but he was allowed to deduct the cost of the pistol he purchased to carry out the robbery.

As one of the commenters here remarked, if they are going to implement policies like this, perhaps it is better that the courts not understand the concept of opportunity costs!

I really do not understand how making the perpetrator whole should take precedence over making the victim whole.
[H/T to BrianF]

German Prostitution and Unemployment Revisited

My previous posting on this topic went out about the same time as many others in the blogosphere. We were all quoting the same source, a UK tabloid.

Here is a slightly calmer perspective, though it still provides considerable pause.
[pointer courtesy of ToddZ]
UPDATE: also check out the comments to the original posting.

The Emirates Economist

John Chilton, a former colleague, now teaches in the United Arab Emirates. Regular readers of this blog will recognize the large number of postings here with the notation "[thanks to JC...]" -- that's John. He has just joined the front lines of the blogosphere with The Emirates Economist, after having supplied so many of us with so much material until now.

I am absolutely certain that his blog will be a superb read. It'll go on my "Check every day" list. As an example, consider this recent posting about Al Jazeera's being up for sale in part because it is losing so much money:

To turn it around financially, a buyer would be obliged to pull its teeth, which would incense its team of professional journalists, many of whom formerly worked for the BBC.

I'm not so sure they've all left the BBC....

Son of Ban the Penny (and Nickel)

Whenever something about my interest in getting rid of pennies and nickels is carried nationwide (in Canada), there is a flurry of interest from talk shows and others. This one might be of interest:

CBC Radio One (live audio streaming via the internet)

Between 1pm and 2pm (EST) today, February 1st (2005), I'll be interviewed and possibly subjected to calls from listeners.

UPDATE: JC writes about the UAE, "The dirham has 100 fils. I've never seen a fil. I think I've seen a 5 fil coin. In change the seller generally rounds to the nearest half dirham, to his/her advantage."

Ottawa Has It ALL Wrong on Kyoto

I am not persuaded that global warming exists (though I expect it does) nor that it is caused by burning carbon-based fuels (though I suspect it is, in part), nor that it will become a problem (but I realize it might); for more on these issues, let me recommend Taken by Storm, by Chris Essex and Ross McKitrick, available here.

But if Canada is going to honour its commitments under the Kyoto Accord to reduce carbon emissions, it is going about it the wrong way. See this in the Globe & Mail (reg. req'd) for a summary of Ottawa's proposals. The gubmnt is proposing tax credits and subsidies for those who use and develop energy-efficient technologies.

Ottawa is considering a five-year package of more than $2.4-billion in carrot-like tax incentives and subsidies as a means of convincing business and consumers to curb Canada's output of greenhouse gases under the Kyoto accord, documents obtained by The Globe and Mail indicate.

This is another example of gubmnt intervention and risk of taxpayer money that is backwards. It presumes that politicians can pick the winners better than individuals risking their own money in the market can. It also builds and feeds a bureaucracy that is unnecessary.

My proposal is to tax the snot out of carbon-based fuels and let the market react by developing, producing, and adopting more fuel-efficient technologies and products. It would be considerably more efficient.

And to all those who claim they need special help or tax breaks, I reply: if burning carbon-based fuel is bad for the environment, you are not covering the full costs of doing so unless you pay this tax.

Anti-dumping Legislation:The Enemy of Free Trade

When Canada was negotiating the U.S. Free Trade Agreement and later the NAFTA (North American Free Trade Agreement), one of the goals hoped for (even promised by some supporters of the treaties) was that the U.S. would stop using its anti-dumping legislation to erect barriers to trade with Canada. This goal has largely remained unmet.

"The antidumping law, perhaps the most arbitrary and disruptive U.S. trade barrier, is defended as a means of ensuring “fair” trade and maintaining a “level playing field” for domestic producers. Tough antidumping rules, its defenders claim, facilitate freer trade by providing assurances that “unfair” trade will be punished and thus deterred.

But that dubious justification is a smokescreen, pure and simple. The fact is that the antidumping law is protectionist, contradictory and unfair. Its overzealous application routinely punishes U.S. importers and foreign exporters who transact fairly, and ultimately undermines the administration’s broader trade agenda.

In Canada producers have run afoul of these laws in softwood lumber, especially, but other industries as well.

Dumping is said to occur when an exporter’s prices in the United States are lower than those it charges for similar merchandise in its home market. Procedures for determining these price differences are not straightforward. They are subject to curious conditions and indefensible calculations, which are strictly the domain of the Import
Administration."

And here is the real kick in the teeth:

"In virtually every case, all of the exporter’s U.S. sales are compared to only a higher-priced subset of its home-market sales (sales in its own country). Home-market sales priced below the average cost of production are simply disregarded. If an exporter sells five widgets in both the U.S. and the home-markets at prices of $1, $2, $3, $4, and $5, the average price in both markets is $3. No dumping, right? Wrong! If it costs $2.50 to produce these widgets, the home-market sales at $1 and $2 are dropped, causing the average home-market price to rise to $4 and generating a dumping margin of $1, or 33 percent. A tax of 33 percent would be slapped on future U.S. sales from that exporter. This procedure alone accounts for a significant portion of most dumping margins “calculated” by IA across industries, across countries, and over time. Yet, not a single antidumping defender could reasonably justify this so-called “cost test.”

The above quotations are from Daniel Ikenson of the Cato Institute. Ben Muse has a number of recent postings about trade and the WTO, all of which are worth a look.

What costs are being used to calculate that $2.5o figure? ATC? AVC? LRMC? SRMC?

UPDATE: Will the U.S. gubmnt impose anti-dumping duties on French wine after these subsidies are given to French Vintners?
[Thanks to BrianF for the link]

Legalized Prostitution and Unemployment Benefits

I am not opposed to exchanges made between two competent adults not under duress; i.e., I generally favour the freedom to make contracts (with exceptions for contract killings, etc., so clearly the freedom of contract should not be absolute).

But here is a problem posed by an article in the News.Telegraph. Germany has legalized prostitution. Because prostitution is legal, women can have their welfare/ unemployment benefits reduced or eliminated if they refuse to take jobs that are legal (including prostitution), and so

"There is now nothing in the law to stop women from being sent into the sex industry," said Merchthild Garweg, a lawyer from Hamburg who specialises in such cases. "The new regulations say that working in the sex industry is not immoral any more, and so jobs cannot be turned down without a risk to benefits."

I find this appalling.

The government had considered making brothels an exception on moral grounds, but decided that it would be too difficult to distinguish them from bars. As a result, job centres must treat employers looking for a prostitute in the same way as those looking for a dental nurse.

No wonder the German birth rate is dropping if their bureaucrats cannot distinguish between brothels and bars.

Pointer from LloydC

Man Urinates Way Out of Avalanche

A survival story from AlexK:

A Slovak man trapped in his car under an avalanche freed himself by drinking 60 bottles of beer and urinating on the snow to melt it.
Rescue teams found Richard Kral drunk and staggering along a mountain path four days after his Audi car was buried in the Slovak Tatra mountains.

... He said: "I was scooping the snow from above me and packing it down below the window, and then I peed on it to melt it.

My guess is that the calories in the beer helped him stay warm and heat up the fluid; otherwise it might have been just as effective (and quicker) to pour the beer directly on the snow.

Afterthought: Does this really seem plausible? How long would it take to drink 60 bottles of beer? And how much did he sleep? And how long did his flashlight last (assuming he had one)? The reason I ask is that I know I would pass out after 6 bottles of beer. One of my former colleagues, however, ....

Welfare, Incentives, and Family Formations

Rodney Hide, a Member of Parliament in New Zealand, quotes this in his blog:

A married couple, with the mother at home looking after a baby and the father earning $12.50 an hour, will have annual income of $23,254 after taking into account tax, family support and child tax credit. In contrast, if they had decided not to get married, with the woman on the DPB refusing to name the father of the baby and the man living in the same house as a "boarder", their household income would be $35,780, some 53 per cent higher.

Some of the commenters are outraged: "Don't they know that is illegal?" which misses the point. People respond to incentives, and sometimes they/we even do illegal things in response to those incentives. Laws and policies which fail to recognize this are sure to generate unexpected and unintended results.

Capital-Labour Substitution in Fast Foods

What happens when the minimum wage goes up? Employers have an incentive to use more capital and less low-wage, typically unskilled, labour.

But how do they do that in the fast food industry? How do you replace burger-flipping socionomology graduates with machines? You don't, necessarily, but you can replace order-taking socionomology graduates with cheaper labour and some capital:

The McDonald's restaurant in Hermiston, Oregon appears to be
"outsaucing" customers [sic] drive-thru meals.

The restaurant on Highway 395 has outsourced one of the most important jobs at the drive-through window -- order taking.

When a customer drives through, they'll be patched through to Grand Forks, North Dakota to place the order. Why? Because the minimum wage in North Dakota is $5.15, compared to Oregon's $7.25.

Thanks for the pointer to JC, who wonders, "And what is an hour call to North Dakota costing?"

My guess is that with satellite telecommunications, long-distance calls from Oregon to North Dakota can be sufficiently low-priced to make this arrangement profitable. But why Grand Forks? Why not Bangladesh?

So much for the studies claiming that increases in the minimum wage have no effect on employment in fast-food enterprises.

UPDATE: Phil Miller of Market Power has another example; this one is about four outlets in Missouri using a centralized call centre in Colorado. But in this case it is done to lower costs (presumably through economies of scale, specialization, and improved quality).

60% Turnout in Iraq

In an earlier posting, I speculated that the expected marginal benefits of voting in Iraq might very well be outweighed by the expected marginal costs, given the threats of violence. Privately, I was estimating more violence than was observed, and I did not expect this high turnout.

It looks as if the voter turnout in the Kurdish and Shia regions was very high, but was fairly low in Sunni regions. Overall, the turnout was likely over 60%. I'm impressed (and just a bit more hopeful, now).
I clearly underestimated the expected marginal benefits and/or overestimated the expected marginal costs of voting in the minds of many voters.

Gates and Buffett Short the U.S. Dollar

Alex Tabarrok of Marginal Revolution quotes from this Bloomberg article.

Gates's concern that widening U.S. budget and trade deficits are undermining the dollar was echoed in Davos by policymakers including European Central Bank President Jean-Claude Trichet and German Chancellor Gerhard Schroeder.

... Gates reflected the views of his friend Warren Buffett, the billionaire investor who has bet against the dollar since 2002. Buffett said last week that the U.S. trade gap will probably further weaken the currency.

As you probably know, I share these views.

Another Internet Ad for an Automobile

If you liked the internet ad for the VW Polo, you might like this one, too.

There are similar items at this site.

And be sure to check out what Snopes has to say about this ad and its evil twin.

Pinot Noir v. Plonk

Anne Kingston ($) reports the following interesting wine sales data [hat tip to Jack]:

In Ontario, sales of pinot noir rose 10.5% during November, December and the first two weeks of January versus the same period a year ago, according to Liquor Control Board of Ontario spokesman Chris Layton. Such an increase is “pretty significant,” he says, even though red wine sales have been trending up consistently over the past 15 years. Still, sales of cabernet sauvignon, for instance, only rose 3% in the same period.

Similar growth in sales has been reported elsewhere. She attributes the rapid growth in sales of pinot noir to the praise it receives in the acclaimed film, "Sideways":

[M]oviegoers’ enthusiasm for the film has resulted in what The New YorkTimes has coined “the Sideways effect.” On the basis of anecdotal evidence, the Times estimated thismonth that pinot noir sales in Manhattan have risen 20% since the film was released in October. Onestore in Union Square reported selling 100 cases over the holiday period, up from 50 the year before.

For the handful of you who’ve not yet seen it, Sideways is the tale of
two buddies on a tasting tour of California’s Santa Inez wine country. The main character, Miles, views himself as an oenophile, a word that can be, as it is in his case, synonymous with “bore.” He’s given to irritating wine-speak: He talks of getting a “soupçon of asparagus” from one wine and dismisses another as “quaffable but far from transcendent.” His grand passion, one he shares with many other oenophiles, is pinot noir. He dismisses other wines out of hand and is particularly disdainful of that crowd-pleaser, merlot. “If anyone orders merlot, I’m leaving,” he says at one point. “I’m not drinking any f---ing merlot.”

If I were traveling with someone who has this attitude, I might consider ordering merlot or some other plonk just to get the snob to leave. In the end, though, I don't really care all that much. The only thing that matters to me is, "Does the bottle have a screw-top cap [thanks, Cynthia]?"