Shopping on a national holiday

Today is the biggest national holiday around here, and I celebrated by going shopping with a friend. She was looking for a new phone–preferably a smartphone.

Naturally, we went to the phone district. Dozens of shops were decked out in inflated dragons, balloons, and posters, and several had announcers with megaphones to coax passers-by to stop in and have a look.

But it didn’t stop at the thresholds to the shops! We were in one of the shops when I looked up and saw, marching right past me, a troupe of six models, dressed in white and holding phones delicately. No smiling. No sternness, either; a little bored, perhaps. They did two laps around the store, and then went back outside, where they stood in a loose formation. No one paid the slightest attention to them, except perhaps to get out of their way.

So, that was kinda weird. I hadn’t seen that before. But then in came a different troupe: two women wearing bunny ears, eight women in berets, three people in gray…rabbit costumes, and five people in teddy bear suits. We did not buy a phone there.

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What’s a euvoluntary transaction?

According to standard economics, a voluntary transaction benefits both the buyer and the seller (in expectation, anyway). Yet there are many transactions that are widely condemned, and even banned–if they occur at the market price. Consider the following examples:

  • vote sales
  • organ sales
  • blackmail
  • prostitution
  • low-wage labor
  • emergency resources, e.g., ice during a summer blackout
  • adoption

In each of these cases, people don’t object to the transaction itself–it’s admirable to donate a kidney–but when it occurs at the market price, the transaction becomes objectionable.

Rochester economist Mike Munger, in an attempt to understand opposition to such apparently beneficial transactions, has invented the term euvoluntary to describe transactions that people generally have no objection to. I hope to go over his ideas more later, but I want to get the conversation started now. What do you think the transactions mentioned above have in common? Are there more that should be added to the list?

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Size and freedom

I know this is old news, but…

So, the latest rankings of countries by economic freedom have come out, and it looks like the US has dropped a bit. Based on 2009 data, the US has gone from sixth place to tenth.

That’s bad news, of course, but look at the other top scorers: Hong Kong, Singapore…Mauritius?! These places are tiny! In fact, the population of the US is about twice a large as the population of the top nine countries’ combined!

Is it easier to administrate an economically free zone if it’s minute, and if so, why?

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Russ did it first

It turns out that Russ Roberts had a post explaining the broken window fallacy just before I did! That guy is so smart.

By the way, you ought to check out his podcast, EconTalk. Russ is a fair and careful interviewer; it’s always a pleasure to hear how respectfully he listens to his interlocutors. We could use more like him!

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Bring the boys back home

Michele Bachmann has agreed to do various things to entrench in legislation the conservative vision of family. In particular, in July she signed this pledge, a copy of which has so helpfully obtained.

What strikes me about it is the bullet point fifth from the last, in which the signer pledges to support “prompt termination of military policymakers who would expose American wives and daughters to rape or sexual harassment, torture, enslavement, or sexual leveraging by the enemy in forward combat roles.”

Now, I’m as opposed to these horrid acts as anyone else, but I’ve gotta ask…what about our boys? Would the conservatives who serve up pledges like this support “prompt termination” for policymakers who would expose ANY United States troops to mutilation or death in forward combat roles?

If this pledge were motivated by a love of these females as human beings and a desire to prevent them from coming to harm, then consistency would predict a similar concern for all soldiers, and thus a strong desire to avoid war whenever possible.

If, on the other hand, this pledge is motivated by an unconcious drive to protect the females of our group because they are the mothers who will ensure the continuance of our DNA, then we should expect an emphasis on protecting females without a commensurate opposition to war generally.

Which one of these predicitions is closer to reality, and what does that say about the crafters of this pledge?

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Destruction destroys

tl;dr: Effort expended to re-divide the pie is wasted effort, from the impersonal perspective of economic efficiency.

I know! It’s paradoxical, but it’s true. And yet folks (including this blogger) don’t always apply it.

The other day I had a long conversation with an old friend. As usual, we disagreed, and the topic of rent-seeking came up. Rent-seeking is trying to get wealth without adding wealth to the world. Rent-seekers try to be “in the right place at the right time,” so they can collect on existing wealth. Or they try to bring the right place and time to themselves. (Don’t worry, the connection to destruction will become clear.)

Here’s an example. Two people are standing on the bank of a river, waiting for the next load of goods. It’ll be floating down on a raft when it comes, and whoever touches it first gets to keep it all. At first, Ivan is standing downriver from Dmitri. But that won’t last long, now, will it? Ivan will leapfrog around Dmitri so that Ivan’ll have a better chance at touching that raft. And Dmitri, seeing that he has been displaced, will do the same. And so on. They just keep doing it until the raft comes and one of them grabs it.

The problem with this behavior is that it’s wasteful. No extra wealth was generated by all of their silly leapfrogging; the only result of the leapfrogging was a change in who ended up with the goods. So the pair of them gained nothing, and in the meantime wasted their energy (and dignity, no doubt) weaving up and down the bank like a couple of loonies.

Here’s another example, a less…um…obviously made-up one. I think I got it from this EconTalk podcast (sometime between 24 and 34 minutes in, I believe), and it’s theo ne my friend and I were actually talking about. Suppose the federal government is offering a grant to state housing agencies. The grant is $100,000. The people at your state’s housing agency will be willing to pay up to $100,00 to get the grant. They might literally pay a lobbyist or grant writer to help them, or they might incur the costs less directly. But no sane housing bureau would fork over more than $100,000 to get $100,000.

Ah, and there’s the problem: No single sane bureau would do it, but the set of all the state bureaus as a whole might very well spend more than $100,000 in lobbying, cajoling, etc. Ten departments, each spending only $20,000, with an award of $100,000, yields a cost of $200,000 and a benefit of $100,000. That’s waste.

Now, I know what you’re thinking. (At least, I know what my friend was thinking, and for all I know, you are he.*) You’re thinking, “Waste? I should say not! It’s not as though the money was incinerated.** It was spent, i.e. given to people, and those people in turn used in the way they saw fit. The exact same thing would have happened no matter what–someone’s gotta have the money, right?”

But this position is false, false, false. Yes, someone would have had the money no matter how much or how little the state governments lobbied. But the state governments diverted the money from its alternative uses in order to achieve–nothing. $200,000 of alternative uses were forgone in order to realize $100,000 of benefit. Money is not the same as wealth, as resources, as effort, as…as any of the things money can be used to buy. Those things were wasted because they were consumed wastefully.

OK, it’s destruction time. This same pattern–people spending resources without result–appears in the famous “broken window fallacy.” That’s the one, remember, where the window breaks and the townspeople are actually thankful because it will mean more labor for the window repair workers. The problem with their line of thought is that it ignores the alternative uses to which those workers’ talents (and tools, as well as the raw materials from they are made) might have been put. Given a broken window, those resources go toward repairing the window–taking us back to the status quo ante. Given a whole window to begin with, those resources go toward fulfilling the next thing on the list. It’s as though the window, through never needed repair in the first place, maintained itself for free, leaving those window workers and tools available to help in other areas.

Yet somehow people still say that hurricanes, earthquakes, and personal tragedies are blessings in disguise. Now, there may be interesting reasons why this might be so, but the mere fact that they take resources to recover from sure ain’t one of them.

*Yes, I know, he’s probably come around by now, so you’d have to be his past self. I wouldn’t rule it out. The Web’s weird place, man. Gives me the creeps.

**Actually, incinerating the money shouldn’t affect total wealth. It’ll make the owners of that money poorer, but it’ll make the money in everyone else’s hands that much more valuable.

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Triumphant return

I’m finally back from my vacation. I spent some time in the old country, and then moved on to one I’d never visited before (in Scandinavia).

I realized something about myself on this trip. I don’t actually like museums! For some reason, on previous trips as a tourist I’d always felt the need to visit museums–the more, the better. It felt like the real way to experience a place.

This is no longer my view, and this change has felt like a load off my back. Walking around unfamiliar cities and slowly getting to know the place were far more enjoyable than I expect any of the local museums would have been.

Maybe that’s because of the quality of the local museums, of course. There were none that I’d previously heard of, and I was totally unfamiliar with the history of the area.

Another drawback to museums is that they don’t provide much added value beyond jsut seeing pictures of the stuff on the Web. But somehow, lakes and forests aren’t as photogenic. As beautiful as they are in pictures, they’re far better in person.

Again, though, maybe a “museum person” or an architecture buff would disagree.

In any case, it’s great to be back!

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