Errors of Enchantment

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Advice from Santa


Look who dropped into our Toastmasters meeting Tuesday evening!Santa00_0028_edited.JPG
No shopping mall Santa, he proceded to distribute gifts purchased by each of our generous members. Reality based as it was, we all felt like kids again.
He left these parting words of wisdom: “It’s too bad New Mexico cannot be reality based. We still have too many grownups who believe in the tooth fairy.”

A Private Prison Expert


A few years ago I conducted a national study of private prison costs. The results were published in two papers, one written for the Foundation and the other for the Maryland Public Policy Institute. The editor of an important book on the subject and a professor of my acquaintance at George Mason recently received a letter from an expert on the subject–a prisoner. Read it here.

Leland Thompson, Jr.


We at the Foundation are saddened to learn of the death of our good friend, supporter and champion of liberty.
Leland and his family moved to New Mexico from Midland,
TX around 1960. He had been a wildcatter in the Permian
Basin, an activity in which George H.W. Bush had also been
active, and they were (and remained) close friends. In
fact, Leland gave George W. Bush his first ride in a small
He was a first-rate businessman, and a valued director in a
number of New Mexico companies. He was also a wise
investor in real estate, owning outright or with others
in partnership perhaps 25,000 acres of undeveloped land
on the outskirts of Santa Fe. One such investment, Rancho
Viejo, is now home to Santa Fe Community College as the
result of an outright donation of its campus lands by Leland
and his partners. The Institute of American Indian Arts and
a large Catholic church have similarly located on land donated
by the Rancho Viejo Partnership.
Leland was also a founder of Santa Fe Preparatory School,
the premier independent school (grades 7-12) in Santa Fe,
and involved in a major way assisting establishment of
the Santa Fe campus of St. John’s College.
His widow is Evaline (nee Rife), and they have five grown
children. Three are married daughters with children who
live out-of-state. One is a son, Warren, who is married
with (I believe) two sons, is now chairman of the Santa Fe
Preparatory School board and is respected in the Santa Fe
business community. Another son lives in Taos.

Academic Bias, II


Read the latest column by George Mason Professor of economics and nationally syndicated columnist, Walter Williams, for yet more evidence on the academy’s bias.

Bias? What Bias?


Harry recently posted about liberal academia. The London-based Economist magazine (a moderate-left paper, in my opinion) has an article about the phenomenon in its latest issue. The Economist calls liberals’ reluctance to release their grip on academia is a “tragedy not just for America’s universities but also for liberal thought.”
Here is some more:
“Academia is simultaneously both the part of America that is most obsessed with diversity, and the least diverse part of the country. On the one hand, colleges bend over backwards to hire minority professors and recruit minority students, aided by an ever-burgeoning bureaucracy of “diversity officers”. Yet, when it comes to politics, they are not just indifferent to diversity, but downright allergic to it.
Evidence of the atypical uniformity of American universities grows by the week. The Centre for Responsive Politics notes that this year two universities—the University of California and Harvard—occupied first and second place in the list of donations to the Kerry campaign by employee groups, ahead of Time Warner, Goldman Sachs, Microsoft et al. Employees at both universities gave 19 times as much to John Kerry as to George Bush. Meanwhile, a new national survey of more than 1,000 academics by Daniel Klein, of Santa Clara University, shows that Democrats outnumber Republicans by at least seven to one in the humanities and social sciences. And things are likely to get less balanced, because younger professors are more liberal. For instance, at Berkeley and Stanford, where Democrats overall outnumber Republicans by a mere nine to one, the ratio rises above 30 to one among assistant and associate professors.”
And my favorite:
“It is notable that the surveys show far more conservatives in the more rigorous disciplines such as economics than in the vaguer 1960s ‘ologies’.”
If you would like to read the whole article, it can be found here with no subscription required (though I’m not sure how long that will last).

Election Postscript


Of the 12,167 certified “provisional” ballots cast for Bush or Kerry in New Mexico Bush received less than 40 percent. Does that seem suspicious?

One in Three New Yorkers on Medicaid?


Jane Galt writes:
As you may or may not know, the states set the level of Medicaid spending, but the Feds match the states dollar for dollar. New York State decided that a good way to soak up extra Federal money was to require the local governments to match the state, dollar for dollar. Since the Feds match all state and local spending, this had the effect of doubling Medicare spending in the state of New York…

Your Tax Dollars in Action


I propose that we add two new words to the English language:
wandingerous adj., colorless, feeble, tiresome and repetitious — wandingerousness n. To see why you should read the opinion piece by Angela Wandinger-Ness in the Albuquerque Journal Friday (11/10).
In it she attacks our president John Dendahl for poor writing and lack of rigor. Here is a sample of what she thinks is good writing:
“There should be accountability and a factual basis that underlies a credible opinion.”
I am not making this up. If you have a subscription to the Albuquerque Journal , you yourself can compare the writing skills of John and Ms Wandinger-Ness. Now tell me what do you think of my proposed new words!
With respect to lack of rigor, Ms Wandinger-Ness cites the ACLU website as evidence that John has not done his homework. The ACLU website???? Why doesn’t she look here or here or here?
Ms Wandinger-Ness lost her PC constraint in the article. I guess the Academy will forgive her, since her personal insults are directed at someone who does not share the Academy’s world view. Aren’t you glad your tax dollars fund such wandingerousness?

What Fun!


In my post last Sunday I emphasized three margins to help you assess presidential election strategies. The turnout margin for Republicans turned out to be decisive, making the other margins irrelevant nationwide. It sure is fun to be right!
Even though the other margins are irrelevant nationwide, the Democrat’s fraud margin is getting interesting play here in New Mexico. Our politically ambitious governor has a huge stake in turning our state blue. How many of the 19,500 “provisional ballots” will be valid? Who decides on whether or not a ballot is valid; and how much individual discretion can the deciders exercise? What percentage of the “valid” ballots will go for Bush? Is the percentage of these ballots for Bush statistically possible? We may not be so dumb that we cannot answer these questions precisely. And if the result turns out to be out of the range of statistical possibility, what will that do to our governor’s reputation? You yourself can watch as the results are tallied. This is fun. Stay tuned.

Assessing Election Strategies


Thankfully the election will be over in two days. The presidential election appears to be quite close. However it turns out, the economic way of thinking may help you assess the success or failure of each party’s strategies.
Economists think at the margin. Margins are net changes from an existing situation. Taking the existing situation as the 2000 presidential election, what strategies may make a difference at the “margin?”
Get out the vote: Post 2000 election analyses suggested that the Democrats were far more effective at getting out the vote. If that is the case, then Republicans likely have more to gain at the margin than do Democrats. Advantage Republicans
Engaging in Fraud: It looks like Democrats are taking political entrepreneurship to new heights! Republicans may be engaging in fraud, too; but so far they have not been caught. How many extra votes will the Democrats get from the “living dead,” dogs, or those “voting early and often?” We will probably be able to tell by examining election results where fraud is suspected. Advantage Democrats.
Legal Challenges: Armies of lawyers from both parties are poised to challenge results in battleground states. One new tactic being tried by Democrats is to challenge results based on voters being “disenfranchised.” “Provisional ballot” rules are somewhat vague and could lead to high-stakes political war. If you want more detail on what is going on check here or here. Advantage: unknown. If the Republicans were sitting on their hands, there would be a large Democrat advantage. The net marginal effect will probably depend on how well each side is able to persuade the public of the righteousness of their arguments. This should be quite interesting if the election is close.

Crazy is Popular these Days


“Lyndon LaRouche is an ex-con who thinks brainwashed zombies have been sent to kill him, Dick Cheney is a tool of Satan and September 11 was an American military plot. Guess what? You’ve paid him millions to run for president.” This was the lead in to the October 24th Washington Post Magazine cover story on LaRouche by April Witt. It doesn’t amaze me that there are such crazy people in the world. What really amazes me is how far they get in life. If you haven’t spent time on a college campus recently, you might not know just how popular LaRouche is with the college crowd. It’s truly amazing. The story is long, but well worth the read.



“I could think of no worse example for nations abroad, who for the first time were trying to put free electoral procedures into effect, than that of the United States wrangling over the results of our presidential election, and even suggesting that the presidency itself could be stolen by thievery at the ballot box.”
–Thomas Jefferson

Thank God our Power to Vote is Limited!


The election is nearly upon us and now seems an appropriate time to remember why democracy is so messed up.
Imagine three voters with three different opinions about the Iraq war. Our voters are Abel, Bobby and Carl. Abel is a dove. Her first preference is to have a small number of troops in Iraq. If she can’t have her first preference, Abel wants to keep troop levels where they are now. Her last preference would be an increase in troop levels. Bobby doesn’t like change. He would like to see the number of troops remain as they are. If he can’t have this, his second choice is to increase the number of troops to many. His third preference is to decrease troop levels to few. Finally, we have Carl. Carl’s first choice is to have many troops in Iraq. But if he can’t have this, Carl would like to see few troops there. Comparing the current conflict to Viet Nam, Carl believes that the worst choice we can make is to leave troops at their current, intermediary level. For him, it is best to have either many troops or just a few. Summarizing, our voters have these preferences:
Let us assume that Abel, Bobby and Carl all live in a direct democracy governed by the simple majority rule. What will be the outcome of the election? Let us say that this November, the choice presented to the voters is between many troops and the current level (the option few troops is not on the ballot). Abel and Bobby will vote for the current level, winning the election over Carl’s vote for many troops. Let us then suppose that in December, there is another election, this one asking voters to choose between the current level and a lower level. Abel and Carl will then vote for few troops, beating Bobby’s vote for the current level. Finally, in January, voters are asked whether they prefer few troops to many troops. Now, Bobby and Carl will vote for many troops while Abel will vote for few.
So, without changing underlying preferences, voters will first vote to keep troops at the current level. They will then vote to decrease the level. Then they will then vote to put troops at the highest level. From there, they might vote to put troops back at the initial level. Voter theorists term this problem “cycling.” If we saw it in a person rather than an electorate, many of us would conclude that he or she were crazy! Someone preferring milk to juice and juice to water, ought to prefer milk to water! Notice, moreover, that each of the individuals in our little democracy has completely rational preferences. It is only when we try to aggregate preferences that we run into trouble. I should note that democracy doesn’t always produce this odd result. But it is quite possible under reasonable assumptions. Vote rules other than simple majority can make the cycling less likely, but none can rid us of it.
Perhaps we can avoid the problem by letting voters vote for all three options simultaneously? To see how this might work, assume that 30 percent of the public has Abel’s preferences, another 30 percent has Bobby’s and the remaining 40 percent have Carl’s. Now, if given all three choices, 40 percent of the public would vote for many troops, 30 percent would vote for current levels and another 30 percent would vote for few troops. The electorate would choose many troops. But, referring again to the chart, we see that though the election selected many troops, 60 percent of the public would have preferred current levels to more! (Gore supporters angry with their Nader-voting friends no doubt understand this frustration.)
As far as we know, this problem with democracy was first discovered by a French nobleman named the Marquis de Condorcet in 1785. Though cycling (also called Condorcet’s paradox) received some attention at the time, people seemed to forget about it. The mathematician, C.L. Dodgson (better known as Lewis Carol to readers of Alice in Wonderland) rediscovered the problem in the late 1800s. But again the idea was lost. The economists Duncan Black and Kenneth Arrow independently rediscovered the possibility of cycling in the middle of the 20th century. Though volumes have been written about the problem in academic forums, it has been almost entirely ignored in everyday discussions about democracy.
For me, cycling takes its place alongside many other problems with democracy such as tyranny of the majority and tyranny of the interest group. Given the fairly obvious undesirability of other forms of government, I suppose we are left to deal with it.
We can take solace in the fact that our Constitution severely curtails the power of everyone’s vote. We cannot, for instance, vote to deprive someone of life, liberty or property without due process. Nor can we vote to establish a religion or infringe upon the right to bear arms. There was a time when courts held that we could only vote to have government do those things which were specifically enumerated in the Constitution. So let us celebrate the Constitution which limits our power to vote and lament the passing of an age when the Constitution limited much more.

The Nobels


Today, the Royal Swedish Academy of Sciences announced that it will award the 2004 Nobel Memorial Prize in Economics to Finn E. Kydland and Edward C. Prescott. Kydland and Prescott have made some fascinating and important contributions to macroeconomics over the past quarter century. They are often referred to as founding fathers of the Real Business Cycle school of macroeconomics. Earlier schools of thought had held that the economy grows at some underlying steady rate and that it was the macroeconomist’s job to make sense of fluctuations around this rate. Real Business Cycle theorists, however, reject the “underlying rate of growth” argument and instead claim that it is impossible to separate economic growth from economic fluctuations. In 1986, Prescott wrote: “The policy implication of this research is that costly efforts at stabilization are likely to be counter-productive. Economic fluctuations are optimal responses to uncertainty in the rate of technological progress.” In other words, policy makers should leave the economy alone and resist the temptation to “manage” economic growth. When politicians tinker with the economy, they create more problems than they solve. In an election season rife with rhetoric about stimulating the economy, it would be nice if someone paid attention to these insights.
Without question, Kydland (age 60) and Prescott (63) deserve their prizes. Still, as the Nobel cannot be awarded posthumously, it is disappointing to see that the Academy passed over some older and equally deserving scholars such as Armen Alchian (90), Thomas Schelling (83) and Gordon Tullock (82).
On a personal note, as an Arizona State alum, I am particularly proud that my school attracted Edward Prescott (though not before I graduated). Furthermore, I should disclose that as a current graduate student at George Mason, I am taking a class from Professor Tullock. (I have little reason to think the octogenarian will be surfing the web, so rest assured, I do not lavish praise in hopes of a higher grade!)

Corruption and Virtue in New Mexico’s History


I’ve been reading Jim Powell’s FDR’s Folly. It is an economic history of the New Deal. First of all, I would highly recommend it to all interested in an economically and historically sound recounting of the New Deal. (If my word doesn’t carry enough weight, you may be interested to know that it comes recommended by two Nobel Laureates in Economics).
Anyway, I found a little tidbit about New Mexico rather interesting. There is a chapter which describes the way New Deal relief spending was hijacked by political interests, so that all too often aid went not to those in need but to those most likely to get the Roosevelt Administration reelected. Powell quotes historian James T. Patterson as writing, “Democrats in New Mexico, where politics were raw and open, were especially demanding. From the start Democratic Governor Arthur Seligman requested—and got—lists noting the political preference of all relief and [Civilian Conservation Core] workers in the state.”
Despite this obvious black mark, New Mexico did redeem itself. Disgusted with the way New Deal spending was being used for political purposes, the US Congress passed the Hatch Act in 1939. This prohibited federal employees and state and local employees administering federal programs from using their power to influence the outcome of a political campaign. It made it illegal for these employees to offer jobs to political campaign workers or to manage political campaigns. And the author of the Hatch Act? Why, Democratic Senator Carl Atwood Hatch of New Mexico, of course!

Are we European?


In its June 19th edition, the British magazine, The Economist offered its take on New Mexico’s political landscape: “The Spanish families and Indians were members of Roosevelt’s New Deal coalition and have remained Democrats since; in almost European fashion, they tend to view the government as beneficent. The Anglo newcomers are more dog-eat-dog individualists.”
The article (sorry for the subscription link) is the seventh in a series on swing states in the upcoming US Presidential election. In the by-line, New Mexico is said to be “perhaps the oddest of them all.” Well, no argument there!

A Day of Deliverance


“The second of July 1776 will be the most memorable epoch in the history of America. I am apt to believe it will be celebrated by succeeding generations as the great Anniversary Festival. It ought to be commemorated as the day of deliverance by solemn acts of devotion to God Almighty, solemnized with pomp and parade, shows, games, sports, guns, bells, bonfires and illuminations from one end of the continent to the other from this time forward, forever more. You will think me transported with enthusiasm but I am not. I am well aware of the toil and blood and treasure that it will cost us to maintain this Declaration and support and defend these States. Yet through all the gloom, I can see the rays of ravishing light and glory. I can see that the end is worth all the means. And that posterity will triumph in that day’s transaction even though we should rue it, which I trust in God we shall not.”
Such was the opinion of John Adams, expressed in a letter to his wife Abigail. No, John wasn’t wrong on his dates. The 2nd of July, 1776 was the day that Richard Henry Lee’s resolution declaring independence from Great Briton was actually adopted by the Second Continental Congress. Two days later, on the 4th, Congress adopted Jefferson’s draft of the actual document: “The Declaration of Independence.” Somewhat by historical accident, we have come to celebrate the later date and not the earlier one.
For more on America’s founding, including original documents, historical background, biographies and quotes, see some of the following:
The Founder’s Constitution (maintained by the University of Chicago Press and Liberty Fund)
From Revolution to Reconstruction (by the Department of Humanities Computing, University of Groningen, The Netherlands)
The Avalon Project (by the Yale Law School)
The Founder’s Almanac (by the Heritage Foundation)
Whenever you decide to celebrate, we at the Rio Grande Foundation wish you a very happy Independence Day!

Women’s Work


A federal judge has ruled that a sex-discrimination suit against Wal-Mart Stores can proceed as a class action, which could lead to a huge loss for the megastore. Up to 1.6 million women could join the class action, and at a few thousand apiece it could cost Wal-Mart billions.
Baltimore trial lawyer Peter Angelos made enough from his asbestos lawsuit work to buy the Orioles. Lawyers’ fees in this case could buy the entire American League.
This is not the first big case involving women’s wages. Coke, Home Depot, and Texaco have paid more than $100 million each in such lawsuits.
Now I don’t want to quarrel with any of these decisions. Who knows what went on? How could American courts be wrong? But I call your attention to a larger version of this alleged discrimination, the oft heard claim that women earn, on average, 70 percent of men’s salaries. NBC News this evening cited this figure as a virtual national scandal. Should an Equal Rights Amendment pass, you can bet that lawsuits would follow gigantic enough to make Senator John Edwards dance with anticipation
Any economist worth his or her salt will immediately wonder where this 70 percent number came from and how it would be changed if it accounted for differences in experience, education, difficulty of jobs, and the other factors that affect the demand for a person’s labor. This requires rigorous analysis, not just quoting some data.
But where do you find such analysis? Well, you go to one of my favorite websites,, the home page of the Independent Women’s Forum. This organization published a report called “Women’s Figures” that challenges the 70 percent shibboleth, and they keep up to date on other such issues, presenting a clear, market oriented analysis in a lively format. Yes, they are conservative women!
Maybe women economists should get a raise!

The Great Communicator’s Legacy


I remember a critic once hissed, “Ronald Reagan was two-thirds show and one-third substance.” I’ve often wondered how someone could dismiss Reagan’s substance so readily. Most of us are passively swept along by the tumultuous currents of history. A very few are audacious enough to defy the currents and determine their own course. Ronald Reagan went further. He not only went his own way, but he brought history with him.
When he came to office, unemployment was climbing near 8 percent and the economy was sinking. Meanwhile, inflation was soaring at 12 percent per year. In today’s prices, gas was selling for $2.87 a gallon and interest rates were at 21 percent (the highest level since the Civil War).
The dominant macroeconomic school of thought, Keynesianism, could not even account for simultaneous economic stagnation and inflation. But Reagan listened to a new generation of economists which included Milton Friedman, Robert Lucas and Robert Mundell. They counseled tight monetary policy to break the back of inflation and an easing of the tax burden to free the economy.
Reagan stood by Federal Reserve Chairman Paul Volker as he sharply reduced the supply of money. The President then ushered (cajoled) historical 25 percent tax cuts through Congress. The monetary policy change promised to be painful in the short run. Unemployment soared to nearly 11 percent, and the economy dipped deeper into recession. Despite flagging government revenue, Reagan stayed the course: he would not go back on the income tax cuts.
When the last of the tax cuts finally came into effect in 1983, everything turned around. The economy suddenly grew at a 4.3 percent annual growth rate. GDP then leapt ahead at a 7.3 percent clip the following year and remained strong there on out. Gas prices and interest rates steadily declined. Unemployment began falling too, reaching a low of 5 percent by 1989. The stock market more than doubled in value under his watch. What’s more, inflation remained in check.
In foreign affairs, Reagan was equally influential. He launched the nation on the largest peacetime military buildup in U.S. history and began talking tough about the evils of totalitarian communism. He challenged the decades-old belief that the only way to avoid nuclear war was an offensive strategy called “mutually assured destruction” (MAD). Instead, he proposed a defensive strategy, the Strategic Defense Initiative. And in pure Reagan form, he even promised to share the technology with the Soviets. Eventually, Reagan found “peace through strength.” He and President Gorbachev would negotiate the first-ever reduction in strategic arms.
Between 1974 and 1980, 10 nations had fallen under communism. After 1980, not one more nation would fall. During his two terms, dictatorships collapsed in Chile, Haiti, and Panama. Nine more nations moved toward democracy: Bolivia, Honduras, Argentina, Grenada, El Salvador, Uruguay, Brazil, Guatemala, and the Philippines. Nicaragua soon followed. Within three years after Reagan left office, the Soviet Empire itself had dissolved and Eastern Europe was liberated. In 1975 the late Senator Daniel Patrick Moynihan had written that, “Increasingly, democracy is seen as an arrangement peculiar to a handful of North Atlantic countries.” By the early 1990s, that was no longer true.
Not all was good. Like every other president in the 20th century, Reagan presided over an expansion in government. In 1989, the federal government was almost twice its 1980 size. Welfare reform would have to wait for another president. And we are still waiting for Social Security reform. He launched an expensive but ultimately futile War on Drugs. And, of course, there was the gross mismanagement that led to the Iran-Contra Affair.
For better or worse, Reagan cast a long shadow. He virtually towers over the latter-half of the twentieth century. So how on earth could he be considered “one-third substance?” The answer lies in the other two-thirds. For all his substantive influence on history, the Reagan “show” was even larger. He was a showman and proud of it. Somehow his Midwestern tongue made complicated economic doctrine and grand historical visions accessible to the common ear. And it is in his mellifluent voice that freedom found one of its greatest spokesmen.