Comparing Our Marketing Bills

In today’s Albuquerque Journal journalist Colleen Heild (subscription) summarizes Bill’s $3 millon marketing campaign for the state. She makes the following statement:
“The $3 million to be spent in the first year under the new contract pales in comparison to what some states spend on such promotions. Texas, for example, planned to spend nearly $14 million on domestic advertising while Arizona budgeted $8.5 million last fiscal year, according to the Travel Industry Association of America.”
Journalists (and even some economists) need to do a better job of interpreting such figures rather than taking them at face value. The three states are not alike. The Bureau of Economic Analysis estimates NM’s 2004 population at 1,903,000; Texas at 22,490,000 and Arizona at 5,744,000.
That means NM’s planned expenditure is roughly 6.5% higher per capita than Arizona’s last expenditure this year. And NM’s planned expenditure is a whopping 153% higher per capita than Texas.
Guess who is going to get the Bill for this marketing? (Hint: It won’t be Bill.) Will Bill’s spending binge never end?
Update 7/25/05: If we calculate the Bill based on personal income in each state, we find that NM’s planned expenditure will take some 18 percent more of personal income than Arizona’s last year expenditure. And we find that NM’s planned expenditure will take some 186 percent more of personal income than Texas’s planned expenditure.

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More Environmental Fraud Brought to You by Big Government

House Republicans are proposing an $11.4 billion fund to clean up water contaminated by the gasoline additive MTBE. According to the Wall Street Journal (subscription):
“The proposal would give makers of MTBE, which has been found to contaminate drinking water supplies in at least 36 states, protection against product liability lawsuits brought by communities facing billions of dollars in cleanup costs.”
The story goes on:
“MTBE, or methyl tertiary-butyl ether, is an additive that in the 1990s became used widely in gasoline as an oxygenate to help reduce air pollution. It since has been found to contaminate drinking water across much of the country when gasoline leaks from underground storage tanks. While its health impact is uncertain, MTBE even at low concentrations causes a foul smell and taste in drinking water. Unlike other, even more toxic, components of gasoline, MTBE flows easily through water because of its chemical composition and isn’t biodegradable, causing particularly difficult cleanup problems.”
I wonder about doing nothing at zero cost; the foul smell and taste suggest that humans will not drink the stuff.
Incredibly, the story does not mention that use of this additive resulted from EPA regulations in the 90’s. Those regulations require that reformulated gasoline (RFG) have a predetermined percentage of an oxygenate such as MTBE. Now refiners are potentially liable as a result of complying with the regulations! Here is a good description of the background and consequent problem resulting from the regulations.

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The Ethanol Fraud

Did you happen to see the small story on page A3 of yesterday’s Albuquerque Journal: Study: Ethanol Wastes Energy (no link available at the Journal’s website). I did some checking; and here is what I found:
“There is just no energy benefit to using plant biomass for liquid fuel,” says David Pimentel, professor of ecology and agriculture at Cornell. “These strategies are not sustainable.”
The study provides these estimates of the energy waste for ethanol:
*corn requires 29 percent more fossil energy than the fuel produced;
*switch grass requires 45 percent more fossil energy than the fuel produced; and
*wood biomass requires 57 percent more fossil energy than the fuel produced.
Ethanol is NOT renewable energy. Moreover, it actually adds to pollution, since it requires more energy in its production than is provided by the ethanol.
Update: The powerful ethanol lobby (you know, the one that has been ripping us off for years — think ADM) was quick to discredit the study. See this, for example. Typical of this group’s self-serving interest, they criticize the scholars for receiving some payment from the energy industry. They don’t criticize the scholarship itself. Did you notice who will benefit by continuing ethanol subsidies and gasoline-ethanol regulations? (Hint: it won’t be you.) The Iowa caucuses should be more fun than usual in 2008.

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How Mrs. Adkins Got Her Job Back

As the “living” wage debate heats up in Albuquerque, it seems appropriate to stop and remember how we got here.
Of course, we at the Foundation have long argued that minimum wage laws are abhorrent because they harm the very people they are intended to help: the poor. By raising wages above their market-clearing levels, these laws increase unemployment among low-skilled workers. Don’t believe me? Open up any intermediate microeconomics texts such as this one. Or this one. Or this one.
Aside from the economics of the issue, what does the law say? From the very beginning, American jurisprudence held an individual’s right to contract sacrosanct. No act of government could overturn a contract lawfully entered into by consenting adults. An integral aspect of Roman and English common law since time immemorial, the right to contract was codified in the famous Dartmouth College Case of 1819. The trustees of Dartmouth College had entered into a contract with the King of England in 1769. A half century later, the New Hampshire legislature amended the charter without consulting the trustees. The trustees filed suit and the Supreme Court found that New Hampshire had impaired “the obligation of a contract.” The Dartmouth College case was a powerful demonstration that though governments rise and fall, an individual’s sacred right to contract with his fellows shall not be infringed.
The right to contract was again affirmed in the 1905 Lochner decision which struck down a law limiting working hours. The court found that if two consenting adults can agree on terms of employment, government has no right to interfere.
In 1923, an important case raised the issue yet again. A 21 year old woman of the last name Adkins worked as an elevator operator at a children’s hospital in Washington, D.C. According to the court, “[Ms. Adkins] alleges that the work was light and healthful, the hours short, with surroundings clean and moral, and that she was anxious to continue it for the compensation she was receiving.” For its part, the hotel found her “services were satisfactory” and “would have been glad to retain her.” Unfortunately, upon the enactment of a federal minimum wage law, the hospital could no longer afford to pay Ms. Adkins and had to let her go. Thankfully for Ms. Adkins, the court found the minimum wage law violated her right to contract. The court struck down the law and Ms. Adkins returned to work.
In 1936, in Morehead, the court came to the same conclusion in a similar case. Then, in an astonishing move, the court reversed itself just 10 months later in the famous West Coast Hotel vs. Parrish case. The reversal came about because of one man: Justice Owen Roberts. To this day, it remains somewhat of a mystery as to why Justice Roberts reversed himself (some have argued Roberts was trying to appease FDR in order to get the president to abandon his court-packing plan).
In any case, the sacred and ancient right to contract was forever abandoned and minimum wage laws have been legal ever since.
As the city of Albuquerque contemplates a drastic hike in its minimum wage, it seems appropriate that we pause and remember the plight of poor Ms. Adkins. There are many like her today who stand to lose their jobs because some well-meaning folks haven’t taken an economics class.

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I Rather Like our Name!

Economist Craig Newmark of N.C.S.U. recently lauded our own Ken Brown’s calm and reasonable piece questioning the wisdom of light rail in New Mexico. Professor Newmark is not the only one who has taken notice.
I was recently contacted by an acquaintance of mine (okay, ex-girlfriend). She works for a civil engineering firm in Arizona which might be called upon to build our light rail system should it come to that. She was wondering if the Foundation had done any research on light rail in NM. I told her that there have been no comprehensive analyses but that our own Dr. Brown has written a white paper on the subject.
She apparently passed Ken’s piece along to her boss who was not impressed.
He replied: “I guess we’d have to ask the author to point out a freeway in Albuquerque that pays for itself. The worst part of this thing is the name of the organization: ‘The Rio Grande Foundation.’ They do that to get some aura of respectability they can’t get if they refer to themselves as what they really are. The “Anti-Everything Naysayers” just doesn’t have much of a ring in the media…”
Slightly chagrined, this was my reply:
“Wow. How nice. If I may defend my organization, I believe that our small PhD-laden staff gives us an “aura of respectability.” We have three emeritus economics professors, a former CEO, a former governor’s senior policy advisor, an under-secretary from the Commerce Department’s division of Economic Affairs and, of course, me! Several of our staffers have long lists of publications in peer-reviewed academic journals and all of them have published widely in more popular formats.
As for his suggestion that roads cannot be made to pay for themselves, I’m afraid he is sorely mistaken. To start with, most of the early turnpikes in America were private. Despite onerous price regulations, many of them were quite financially successful. And as for today, the examples of financially-viable private roads are legion. I actually drive on one in Virginia called the Dulles Greenway on a semi-regular basis. Its prices are reasonable and its condition is exemplary. Private roads have also worked in California, Chicago, Israel, Hungary and Chile. It is often these private roads that pioneer new technologies like congestion-pricing.
Economists aren’t anti-everything, just anti-waste.”

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Helping Poor Kids Get a Good Education

Kudos to Rio Grande Foundation’s Tim Walsh. Tim is running 50 miles (yes, 50 miles!) Saturday to raise money for Educate New Mexico scholarships. The Albuquerque Journal provides good coverage today (subscription). Excerpts:
“Walsh says combining his passion for running with his passion for school choice is natural for him. He says that’s how he came up with the idea of a “donor challenge” to help raise money for additional scholarships for Educate New Mexico.
Donors can pledge from $1 a mile to $20 a mile through Educate New Mexico’s Web site: www.educatenm.org.”
As I pointed out earlier, since contributions are tax deductible, a donor who contributes $1,000 ($20 per mile for Tim’s run) will be able to put $1,500 into scholarships at a cost to him or her of only $679 net-of-taxes!
Readers, please help. We really do have some school choice in New Mexico.

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With Love From Russia

People often think of the U.S. as a bastion of economic freedom. In the 19th century there could be little doubt that it was. With a strong commitment to the rule of law and property rights, low taxes, moderate tariffs, and almost no federal regulation of commerce, no place on Earth better-exemplified the “natural liberty” of a free market for which Adam Smith so passionately argued.
Today, the U.S. is no longer conspicuous for its economic freedom. Sure, we have drifted closer to a command-and-control economy than many thought possible. But perhaps more importantly, the rest of the world has caught on to Adam Smith’s timeless lesson: economic freedom leads to economic prosperity. Hong Kong, Ireland, Estonia, the United Kingdom and even Chile have all undergone remarkable market liberalization in the last few decades. Not coincidentally, all have prospered–outpacing their neighbors in almost every measure of economic well-being.
In the last few years, even the former communist nations have caught on. Latvia, Estonia, Lithuanian, Russia, Ukraine, Slovakia, and Romania ALL have flat taxes! Two weeks ago, Russia took one further step and abolished its death-tax.
Many of these nations have been slow to develop a strong commitment to the rule of law or property rights. And indeed, these prerequisites for prosperity are some of the more difficult to establish (sadly, they seem difficult to maintain, even here). Nevertheless, we could learn a thing or two from our former enemies.

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