Most people do not understand inflation. They notice the price of gasoline increasing; and they think that is inflation. They may also notice that housing and health care prices are rising; then they are really convinced that inflation is on the rise.
They are wrong. And Craig Newmark briefly explains why here, while correcting the errors of some thoughtful commenters. I recommend you check it out.
Robert J. Samuelson’s recent article in the Washington Post got the discussion going. Newmark provides a link to Samuelson’s article.
Speaking of inflation, we can now obtain all kinds of insights from scholars like Craig Newmark for practically nothing (all you need is access to the Internet). Insights at a price of almost zero — and they are not included in measuring inflation!

From RGF President John Dendahl:
The Rio Grande Foundation is a new, and small, part of the network of think tanks giving so much heartburn to the wealthy bunch of Leftists discussed today in the Washington Post. Excerpt:
“At least 80 wealthy liberals have pledged to
contribute $1 million or more apiece to fund
a network of think tanks and advocacy groups
to compete with the potent conservative
infrastructure built up over the past three
decades.”
The Heritage Foundation is probably the largest and best known, but our movement may include one hundred or more.
The Left has just one problem, but it’s a fatal problem: its answer is always some version of socialism. In the memorable words of Lady Margaret Thatcher: “President Reagan and I knew … what didn’t work –
namely socialism in every shape or form. And how many forms there are! Socialism is like one of those horrible viruses. You no sooner discover a remedy for one version, when it spontaneously evolves into another … Nowadays socialism is more often dressed up as environmentalism, feminism, in international concern for human rights … New slogans; old errors.”

Matt’s recent posts on pork barrel spending and lack of fiscal discipline made me curious about voting records on the “transportation” and “energy” bills. I decided to create an honor roll of representatives and senators who voted against both bills. Here are the few, the proud, the defiant.
No to Corporate Welfare Honor Roll:
House
Flake, Jones (NC), Royce
Senate
Gregg (R-NH), Kyl (R-AZ), McCain (R-AZ)
BTW, if you would like to see how members voted during the last session of congress look here for the senate and here for the house.

The Albuquerque Journal reported yesterday (subscription required) that some of the spending is coming our way.
Here is how I described the incentives of pork-barrel spending in the public choice class I taught earlier this summer (those familiar with public choice may recognize this as a modified version of “Tullock’s roads example”):
Imagine you and two friends are out to dinner at Sadies (a fantastic Albuquerque restaurant for you non-New Mexicans). After a delicious meal, the waiter asks if anyone would be interested in dessert. You look at the menu and think, “I like mousse. I might be willing to spend $5 on one. They cost $6, though, so I think I’ll pass.” Let us assume that your two companions think the same thing. No one orders mousse because no one feels that it is worth it.
But, now something happens to change the incentives. The waiter informs you that he is sorry, but he forgot to split the check and it is impossible for them to itemize the bill. Did I mention that your two friends happen to be from the Democracy for New Mexico group? Well they are. Being a “social progressive,” one of your friends suggests that you just split the tab into equal thirds—everyone paying the same amount, even if some eat more than others. And being enamored with democracy, the other suggests that you take another look at the dessert menu and take a vote on whether or not you will have any dessert. The decision to have dessert has just been collectivized.
One of your friends has enjoyed many margaritas and when he gets up to go to the bathroom, you and your other friend make a deal. You will form a coalition: each voting for mousse for the other guy. When you do this, there will be two mousses (misse?) ordered at a cost of $6 a piece. Total cost will be $12, split three ways. The two of you in the majority coalition will each pay $4 for mousse which you value at $5. Pretty good deal for the majority. The (minority) third dinner-companion will also pay $4, but he gets no mousse! Pretty bad deal for the minority.
But notice what happened. The table collectively ordered $12 worth of mousse which it valued at only $10! That is insane!
Now, imagine if you made all of your dining choices this way. We could imagine shifting coalitions among the three parties: a carne adovada coalition, a tamale coalition, a chile relleno coalition. When you add up all the costs, you can expect to lose in the long-run. The table will order way more food than it really wants.
Where you went wrong was in collectivizing the decision in the first place. By doing so, you were able to concentrate benefits on the few, but diffuse the costs over the many. You should have kept dessert a private, individual decision.
Hopefully by now you see the purpose of our little parable. Every time legislators get together to vote pork for their district they are doing the same thing as our dinner companions. They are concentrating benefits on their constituents and diffusing the costs over the rest of us. For a particular project, the constituents may be better off, but in the long-run, we all lose!
We don’t even have to assume greedy, avaricious or immoral legislators. Even good people trying to help out their constituents face an incentive to spend on pork. The problem is not with the people, but with the democratic system.
The founders, of course, knew this. Franklin argued that, “Democracy is two wolves and a lamb voting on what to have for lunch.” Washington warned that “Government is not reason; it is not eloquent; it is force.” Armed with this knowledge, the founders did not create a democracy, but a constitutionally-limited republic. Under such a system, a Constitution limits government to only those powers which are specifically enumerated. In the words of Madison, “The powers delegated…to the Federal Government are few and defined.”
Unfortunately, too few people respect the Constitution these days and too many have fallen in love with unchecked democracy.

The Washington Post has a nice piece on the GOP’s profligacy today. Congressman Flake of Arizona, one of only 8 House members to vote against the recently passed $285 BILLION transportation bill is quoted: “If you look at fiscal conservatism these days, it’s in a sorry state….Republicans don’t even pretend anymore.” In addition to being the former head of the Goldwater Institute (he left for Congress shortly before I worked there), Flake was also my representative when I lived in Arizona. I’ve lived in three congressional districts in my short voting lifetime and he is the only representative of whom I can say I am proud.

I just saw Mario at lunch and he was a little chagrined that I characterized his blog as “usually-reasonable.” For the record, I am a big fan of his blog and have to date not found an unreasonable post. Perhaps I am subconsciously jealous that his blog is more widely-read than our own?
On another note, I now realize I should not have characterized Joe Monahan’s blog as right-of-center. I apologize if I have offended either Joe or bona fide righties.
Unlike some politicos, we here at the Foundation are not ashamed to admit our mistakes.

New Mexico has a small but growing community of bloggers. Here, in no particular order, are some of my personal favorites:
Mario Burgos: His is a usually-reasonable right-of-center perspective from an active Republican.
New Mexico Politics with Joe Monahan: Another right-of-center perspective from an even more active Republican.
Duke City Fix: A mostly-apolitical mélange from a very diverse group. Their newest writer is a senior at my alma mater!
Albloggerque: A left-of-center chronicle of life around Nob Hill from a socially-conscious educator named Jon Knudsen.
Gregpayne.com: A right-of-center blog from a New Mexico State Representative and ubiquitous commentator.
Democracy for New Mexico: At face-value it would appear that we at the Foundation have very little in common with this decidedly lefty-group. That said, I’ve always believed that libertarians and progressives have a lot more in common than most people think. Both groups are skeptical of “big power,” “special interests” and invasions of civil liberty. Furthermore, both share a deep concern for the plight of the poor and the powerless. Now, if we could only get the progressives to appreciate that the best way to lift the poor out of poverty is to permit free individuals to interact in a free market.
And finally, we have the latest entrant:
NewMexicoMatters: A blog from a self-proclaimed “non-blogger,” this center-left New Mexico patriot’s commentary looks promising. Welcome!

More proof today that New Mexico’s education system is moving (running?) in the wrong direction. As many states and communities around the country are contemplating education reform which would break the public school system’s monopoly on education, we in New Mexico are talking about strengthening that monopoly.
This morning’s Albuquerque Journal reports (subscription required) that six Albuquerque schools are going to start requiring that parents produce four proof-of-residency documents in order to enroll their students. Apparently, there is a concern that these schools are overcrowded. Many suspect that there are students going to these schools who—gasp!—don’t live in the district!
James Monroe Middle School principal Vernon Martinez said that his school is even considering home check-ups to verify residency.
This is very sad.
Wouldn’t it be wonderful to see a day when providers of education are subject to the same level of competition as grocery stores? Wouldn’t it be great to see a day when schools are no longer assigned their customers but actually have to work for them like any other business? I hope that some day every public school in the state will compete with every other public AND private school for the privilege of educating our youth. Economics would predict and empirical evidence has shown that when schools do compete, education standards improve.
When I was in grade school I was lucky enough to have an industrious mother. She and an equally-industrious mother of my good friend worked diligently to navigate the red-tape and get us transferred to Jefferson Middle School. I feel that the education I got there was far superior to what I would have received in my home-district school (which shall remain anonymous). Every year our mothers hunted down the obscure forms and applied for a transfer. My friend and I came from a privileged background. We had parents who could afford to spend the time to figure out how to get around the red-tape. Unfortunately, most in New Mexico are not so lucky. Most are forced to accept the school to which they are assigned. Now it looks like even more students will have to accept mediocrity.

Yesterday’s Albuquerque Journal (subscription required) reported a record windfall in state tax revenue. There are lots of ideas about what to do with the money: spend it on “the kids,” give it back to the people in a rebate, reduce tax rates, etc.
Conspicuously absent is the sort of sentiment expressed by Grover Cleveland when he presided over record surpluses during his first presidential term:
“When more of the people’s sustenance is exacted through the form of taxation than is necessary to meet the just obligations of government and expenses of its economical administration, such exaction becomes ruthless extortion and a violation of the fundamental principles of free government.”

I wonder how much longer we can call consequences “unintended” when we can actually predict how new rules will modify behavior. This today from NCPA:
With the implementation of the No Child Left Behind Act (NCLB), now
three years old, the amount of information about schools presented to
the general public is at an all-time high. However, the average kid in
a failing institution is no closer to escaping now than before the law
was passed, says Lisa Snell, director of the Reason Foundation’s
education program.
Federal and state legislators have a newfound focus on school
accountability, but scant attention is being paid to the quality of
data they are using, whether the topic is violence, test scores or
dropout rates. Consider:
o In the 2003-04 school year, 47 states and the District of
Columbia reported they were home to not a single
unsafe school, yet, in D.C. alone, the D.C. Office of the
Inspector General reported more than 1,700 “serious
security incidents” in city schools, including 464 weapons
offenses.
o Economists from Harvard University’s Kennedy School of
Government explored the prevalence of cheating in public
schools and found that on any given test, the scores
of students in 3 to 6 percent of classrooms are doctored
by teachers or administrators.
o Administrators often misrepresent the dropout rate by
counting students who leave as transfers and not
dropouts, like in the 2003 state audit of the Houston district
where more than half of the 5,500 students who left in
the 2002 school year should have been declared dropouts but
were not.
These distortions hide the extent of schools’ failures, deceive
taxpayers about what our ever-increasing education budgets are buying
and keep kids locked in failing institutions, says Snell. And experts
believe the incentives for teachers and administrators to manipulate
data will only increase as schools begin to feel the consequences of
low scores.
Source: Lisa Snell, “How Schools Cheat,” Reason, Volume 37, Number
2, June 2005.
For text:
http://www.reason.com/0506/fe.ls.how.shtml
By the way, if you do not subscribe to Reason Magazine you should.

I consider myself fit for my advancing years (although I wouldn’t consider running 50 miles). Now comes this study (subscription):
“Exercise can’t hold off the effects of aging, but it can improve an elderly person’s chances of hanging onto an independent lifestyle, researchers said.”
Darn! At least I am still independent.

Not content with this abomination, the Richardson Administration wants us to blow even more of our tax dollars for corporate welfare.
Here is an excellent primer on why wind power is wasteful and hurts the environment. Why cannot we just let the idiots in California blow their money on wind power fantasies? In the highly unlikely event that they actually come up with efficient, environmentally friendly energy sources NM’s utilities will have every incentive to purchase the power or use the technology.
Thanks to NCPA for the link.
BTW, it looks like the House and Senate are poised to provide billions more in corporate welfare for ethanol subsidies. Will this craziness never end?

Check out this great article in the Washington Post. Thanks to Professor Tabarrok at Marginal Revolution for the link.

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.

The money is rolling in; but don’t expect to see any tax cuts in New Mexico. No, the big government folks are dreaming up evem more ways to waste your hard earned income.
You can expect a strong objection to this nonsense soon from the Rio Grande Foundation.

But they don’t have a license!

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.

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.

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.

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.”

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.

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.

Albuquerque is ranked 27 out of 50 cities for high-deductible health insurance plans according to research by eHealthInsurance. Of course we could do much better if we did not penalize such plans. Thanks to NCPA for the link.

It is good to see Bobby Wolff’s bridge column back in the Albuquerque Journal today.