Music to my ears; and it gets even better.

I am all for reducing the state’s tax burden. That should be our highest priority. But the latest proposal to help consumers of gasoline will do very little. In fact, it is likely to be counterproductive in the long run. Here is what I know about the proposal according to the Albuquerque Journal (subscription):
“The next regular session of the Legislature won’t come until January. Richardson said he wants state lawmakers to consider even sooner the possibility of giving taxpayers a one-time tax rebate and whether to temporarily suspend the state’s 17-cents-per-gallon gasoline tax.”

Here is roughly the current situation pictured in supply and demand terms:

The lines S and D represent supply and demand. The price P of gasoline is on the vertical axis, quantity Q is on the horizontal axis. The supply curve S is shifted upward to S+T because of the tax T (17¢ per gallon). Firms sell quantity Qo at price Po (currently about $2.71 per gallon). Firms actually receive Po-T per gallon of gas sold (currently about $2.54 per gallon less any other taxes). The revenue collected by the state can be represented by the area of the rectangle enclosed in red. Notice that the quantity supplied (the S line schedule) is much less responsive to a change in price than is the quantity demanded (the D line schedule). Economists agree that this is roughly the situation.
Here will be roughly the situation after the tax is suspended temporarily:

The price will fall slightly to P1 (about $2.69 per gallon) and the quantity sold will increase slightly to Q1. The yellow area represents the trifling gain to gasoline consumers; it is much less than the gain enjoyed by firms (the green area).
Why will the temporary tax suspension likely be harmful to consumers beyond the suspension? It sends the wrong signal to firms in the gasoline business. They know the tax reduction is temporary, so it will not affect their decision making. More uncertainty is introduced, however: Thanks to government intrusion and activism firms do not have a stable policy environment in which to make decisions. They are less likely to take action to supply more gasoline. Less supply will mean higher prices for consumers.
By the way, the harmful effects of rising gasoline prices have been blown way out of proportion by the main stream media and their political brethren.

We’ve heard a lot of platitudes about the Constitution this week. My personal favorite was Joe Biden’s description of the document as “our civic bible.” Most politicians treat the Constitution as some sort of flag: An iconic and patriotic symbol to be revered. It is a convenient symbol for them, easily worked into speeches as a substitute for apple pie, eagles soaring and other American metaphors.
Unfortunately, I believe that few politicians actually think about the Constitution. Few know its purpose, its meaning and what “respecting” it actually means. Far too often, politicians are opportunistic about constitutionalism. They proudly don the language of strict constructionism when doing so will promote their pet cause only to turn around and praise the benefits of a looser interpretation when the Constitution seems to stand in the way of their goals. They are fair-weather constitutionalists.
Think, for example, of Al Gore who complains regularly that the Justice Department’s prosecution of the war on terror has jeopardized important constitutionally-guaranteed rights. Personally, I think the former VP has a good point. Unfortunately, it is vitiated when we consider that just a few years earlier it was Gore who said that the Constitution was “a living, breathing document.” It was he who claimed that we should not strictly interpret the Constitution so as to limit government’s ability to do what seems right. His philosophy might be described as something like this: The Constitution permits policies which I feel are right but prohibits policies I feel are wrong.
Lest you think I am picking on Mr. Gore, the conservatives are just as bad. A few months back the Supreme Court struck down the national “do not call list” because it was erroneously put under the purview of the Federal Trade Commission, an agency which lacks the statutory authority to oversee such a program. The President argued that two popularly elected branches of government had made a decision and that the third should respect that decision. This is exactly the wrong way to think about our constitutional system.
We have a constitution because we DON’T think that the popular majority should always get what it wants. What if a majority of people want to disarm a minority? What if a majority wants to establish a national religion? Put someone in jeopardy of life or limb without due process? Tough. They can’t. And it is the Constitution which ensures that they can’t. As John Adams put it, ours is a nation of laws and not men.
This may mean that we have to inconvenience ourselves and do things by the book. It may even mean that policies like the “do not call list” will be delayed while we find the Constitutionally-permitted solution (which, by the way, we have in the case of the list).
Why should we inconvenience ourselves? What is the virtue of a society based on the rule of law? What if the law is bad? What if it seems like you can achieve more good in the short run by breaking the law?
To answer these questions, we must first appreciate that government has a monopoly on force. It has the legal authority to take property, arrest citizens, order certain conduct and even put someone to death. We need government to have these powers because we need it to protect us from others. But we must recognize that government’s authority might be very dangerous. As Washington put it, “Government is not reason; it is not eloquent; it is force. Like fire, it is a dangerous servant and a fearful master.” Recognizing this, it is important that government’s power be carefully circumscribed by a strictly adhered-to constitution. It is necessary that the constitution explicitly state the powers delegated to the government so that those with a monopoly on force are not permitted to use force arbitrarily. It may even be necessary to explicitly say what powers are not given as in the prohibition on establishing religion or infringing on the right to keep and bear arms.
But notice something very important: One need not agree with everything in the Constitution to believe that the Constitution should be obeyed! I, for one, do not care for the 16th Amendment’s legalization of the income tax. Nor do I like the fact that the Constitution permits capital punishment. While my opposition to these provisions might make me support amendments to change them, they do not make me change my interpretation of the Constitution. Clearly, the Constitution permits income taxation and capital punishment (the latter is mentioned a number of times in the document). To argue otherwise is to misuse the Constitution. It is to weaken the document by finding provisions in it which are simply not there.
Today the Constitution has been severely weakened. The government no longer bothers to follow the Constitutional requirement that Congress declare war when it sends troops into combat. Since 1936, Congress has regulated labor contracts despite the fact that no such power exists in the Constitution. Since 1942, Congress has regulated commerce even when that commerce is not interstate as the Constitution requires. More recently, it has been declared Constitutional for local governments to take private property and give it to other private citizens. And the latest: An American citizen can be detained indefinitely without honoring the 5th Amendment requirement that no one be deprived of life, liberty or property without due process.
Any justice willing to stand up to this slow but ever-advancing erosion of constitutionalism would be a welcome addition to the Supreme Court. Let us hope that Judge Roberts is such a judge.

Readers of this page will know that constitutionalism is very near and dear to our hearts. Both Harry and I are products of George Mason University, an institution made famous by the pioneering work of Nobel Laureate James Buchanan on the political economy of constitutions. Buchanan’s life-long career might be described as an intellectual defense of James Madison’s project, that is, a defense of constitutionalism. With two vacancies on the Supreme Court, now seems an appropriate time to muse over some Constitutional issues. Stand by for a number of posts on the subject.

Bush’s proposal to throw money on New Orleans raises a bunch of initial comments and questions:
1. This will cost the average taxpayer (those who actually pay taxes) about $2,000 each. Harry to W: Yes, it is taxpayers who will foot this bill, not “government.”
2. Because of 1. I wonder how much private giving will be crowded out? Are you going to give generously knowing that you the taxpayer will be coerced into sending an average of $2,000 for “government” help? I’d like to know.
3. New Orleans residents will receive an average of roughly $100,000 each of government spending. Wouldn’t it be better to give them some direct financial aid and let them decide how to use it to rebuild their lives?
4. Shouldn’t local citizens, businesses and government determine their own risks and benefits for rebuilding? Why is it our responsibility to totally rebuild a below-sea-level city in a hurricane zone? They rolled the dice and lost; now the rest of us pay up.
5. Economic freedom, not big government, is what works. Bush was already moving us quickly in the opposite direction by his unprecedented spending binge. That being said, I wonder what kind of sea change this may cause in political loyalties? Those of us (and there are many) who are enthusiastic about the joys of liberty are not going away.

This actually happened in Las Vegas. Sounds kind of ACORNY to me.

Kudos to Winthrop Quigley for his ABQ Journal article (subscription) about price “gouging.” I often complain about the economic ignorance of journalists, so now I am delighted to see one get it right. Well worth reading the whole thing.
Excerpt:
“While price gouging makes a great sound bite, it has virtually no economic meaning. As with most attempts to control prices, however well intentioned they might be, most economists will tell you pricing laws do little except create shortages.”
Quoting economists Walter Williams and Thomas Sowell, Quigley even gives us good insight into the misunderstood and under appreciatied roll of price as a coordinating mechanism: “if the legislature decides what the price of gasoline should be, two things will happen. Gasoline will flow out of the state to people willing to pay the market price, and the only people who get gasoline in New Mexico will be those who happen to be at the pumps before the fuel runs out.”
As far as political opportunism goes, Quigley points out that prominent federal and state politicians on both sides of the aisle are calling for investigations and possible control of the so-called “gouging.”

SUPPLY AND DEMAND
“When Jill puts her house on the market for $450,000 — triple what she paid 10 years ago, but the going price in her neighborhood today — the politicos understand that the 200 percent markup is the result of supply and demand in the real estate market. Senators don’t call press conferences to denounce Jill as a profiteer. Attorneys general don’t threaten to prosecute her. Governors don’t compare her to looters.
“But when Joe’s service station ups the price of gasoline by $1 a gallon, the political world freaks out. Never mind that a Category 4 hurricane has devastated oil production throughout the Gulf Coast, depleting the nation’s already strained refining capacity by 2 million barrels a day and driving up the price Joe’s wholesaler is now charging *him*. For some reason, politicians forget everything they learned in Economics 101, and rush to savage Joe for ‘gouging’ his customers.”
– Boston Globe columnist Jeff Jacoby
Hat tip to Chuck Muth.

My mission in life is to keep pointing out that bigger, more intrusive government is counter productive. Those who think big government will improve our lives are wishful thinkers. For example, here is my very first blog. Or, here is the first research work I did for RGF.
Now empirical evidence of the counter productive effects of big government (North America or worldwide) is available at your fingertips. Thus my challenge to the wishful thinkers: tell me again how you are going to make things better when you have not done so throughout history????? How is it that you think government bureaucrats and politicians can make decisions about people’s lives better than the people themselves???? I really want to know.

The Albuquerque business community has mobilized to oppose the “living wage” measure that would impose a $7.50 an hour minimum wage. So far, their main argument against it is the bothersome clause that would give access to businesses to “inform employees of their rights.”
Clearly this is a bad feature of the ballot initiative, but is it the right one to stress in a campaign against the measure? I don’t believe it is.
The “access” clause is rightly opposed by business, but I doubt whether the the voting public cares much one way or the other.
Anti-minimum wage advocates should, in my opinion, stress the traditional economic arguments: It costs jobs, raises costs, and forces buwiness to move away.

The images and stories coming out of New Orleans are just awful. It is nearly impossible to scroll through the pictures without tearing up (of course, I sometimes tear up watching Puppy Chow commercials).
Anyway, the politicians will be pledging lots of taxpayer money and accepting accolades for their generosity. If you want to one-up the politicos and be generous with your own money, Glenn Reynolds offers a list of good charities. You might also try this guide to “wise giving,” or this charity navigator.

You’ve probably noticed tha little yellow box on the home page of this website. It’s a quote from Henry Hazlitt that cites his “economics in one lesson” principle: The art of econmics is to look past the primary effect of some action to all of the good and bad effects that follow. This certainly applies to the “living wage” proposal that would set the miniumum wage in Albuquerque to $7.50 an hour, to be adjusted upward with the cosumer price index.
Here’s the chain of effects past the first one of raising the legal minimum: Those workers not worth $7.50 get fired. Cost of doing business in Albuquerque rises. Firms either raise prices or move out of town. Tax base declines. Taxe rates increase. Higher tax rates capitalized into the price of commercial and residential real estate, both of which decline.
So much more than (supposedly) just raising someone’s wages.

Does this sound familiar?

The red line shows how real oil prices have changed from 1945 to July 2005 (July 2005 dollars):

Makes you wonder why just about everyone thinks crude oil prices will continue upward trend forever. Maybe this is the reason.

Yesterday I reported Thomas Sowell’s prediction that the government is sure to come in and make things worse. Sure enough, momentum is now building for COMPLETELY ABSURD FUEL ECONOMY STANDARDS.

No, according the the Wall Street Journal’s summary of economists’ rankings. The article (subcription) opens with a question:
“Can economics save you from losing your shirt in the housing market?”
It goes on:
“Spurred on by the growing concern that America’s housing market is heading for a crash, a number of top economists are producing lists that rank the metropolitan areas most likely to experience a sharp drop in housing prices. The problem is that these studies, which look at factors from local income to lending practices, come to strikingly different conclusions. Even so, the raft of data can provide useful clues for home buyers and investors wary of getting in at the top.”
Here are the rankings. Notice that Albuquerque is not on the list. But if you happen to be moving (say because of high taxes or the living wage) it should give you a clue about where not to buy a home.

Interesting find from Chronicle of Higher Education Almanac of Higher Education by Craig Depken at Division of Labour: the nationwide “projection of the percentage increase in the number of high school graduates between now and 2015” looks like this

With New Mexico’s so-called education reform, our new secretary of higher education and heaps of corporate welfare, how can this be? I think I know.

Prices have been going up; but there is no “crisis.” Get ready, though: Politicians are almost certain to make things worse. Check out this piece by Thomas Sowell.

Here is some entertaining and enlightening commentary on the state of education today. Once again I thank Craig Newmark for the link. This may sound somewhat familiar to Albuquerque:
“Ordinarily competition is fierce for our final accolade, the coveted George Orwell Creative Use of Language Award. This year, however, there was no competition. The academy, unanimous in its judgment, presents its Orwell to a British educator for her call to abolish the word “fail” and replace it with “deferred success.” Employing this tactic more broadly would yield immeasurable benefits, instantly rendering war “deferred peace,” poverty “deferred prosperity,” and winter “deferred summer.””
Deferred sucess? Even the Albuquerque education establishment wasn’t imaginative enough to come up with that.

Arnold Kling has some good thoughts on why political process leads to inferior results. Good follow-up to my post on why I think Tyler Cowen is wrong on Tax and Spend Limitations.

I am a big fan of Tyler Cowen. He always makes me question my own views. But on this one I think he is wrong.
Constitutional limits on taxing and spending are put in place because voters cannot “simply cut spending by voting for anti-spending politiicians.” The reason is that the political process itself leads to outcomes which are biased in favor of bigger government. On that score he could take a lesson from his student.
Tyler may be justifiably “surprised” about whether or not Tax-Expenditure limitation will survive as a long run political equilibrium. The reason for that is clear; and it is the reason mentioned above.
Experience has shown, though, that Colorado’s limits on taxing and spending could have been better designed. New initiatives in other states will anticipate these problems.

Look here to see that NM is in the top half of states ranked by business expenses (even though New Mexico has competitive wages and below average energy costs).
A few thoughts: There is no attempt to capture regulatory burden. There is no measure of gross receipts tax pyramiding. The weighting scheme for each of the 5 elements making up the index is not clear.
Thanks to Ralph Frasca at Division of Labour for the heads up.

The Albuquerque Journal is up to their usual hyperbole about gasoline prices. There is no question that gasoline prices have been going up; and that hurts. We never like it when the price of something goes up; but we enjoy it when the price of something goes down.
The problem with the Journal article is that it provides no context as to your tradeoffs today versus those in the past. Albuquerque’s reported price per gallon of $2.44 is still 85 percent of the inflation adjusted price in 1981. The 1981 price still holds the record in inflation adjusted terms.
More importantly, on average you “empty your wallet” a lot less today than you did in 1981. In 1981 if you “emptied your wallet” of 10 percent of New Mexico’s average annual disposable income of $8,255, you could buy you 611.5 gallons. Today if you “emptied your wallet” of 10 percent of New Mexico’s average annual disposable income of $25,100, you could buy 1,028.7 gallons. In other words, New Mexico’s average annual disposable income can buy 68 percent more gasoline today than it could in 1981!
That’s not all. Vehicles get some 30 percent more miles per gallon than they did in 1981. The result: New Mexico’s average annual disposable income today can buy 117 percent more vehicle miles than it could in 1981!

Do you really want your children emulating a bunch of losers?