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?

I have pointed out that the so-called “living wage” ordinance will actually hurt the poor. That raises a question: who will actually benefit from this wage floor? The answer: labor unions. They enjoy the spoils of reduced competition.
Here is a great summary of the logic by John Stossel in context of Davis-Bacon. And New Mexico exacerbates the situation with its “little Davis-Bacon.”
And now Albuquerque may increase the spoils of these selfish scoundrels with its “living wage” proposal. The voters have the opportunity to say “NO” on this October 4. And they will have future opportunity to say “NO” to the state’s union-legislature monopoly.

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.