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Why Pay Air Marshals When Others Would Pay To Do the Job? May 24, 2007

Posted by David Bookstaber in Government Spending, Open Questions, Transportation.
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The Federal Air Marshals budget this year is $700MM.  In exchange for that we get teams of Air Marshals hogging first class seats on roughly 5% of commercial flights.

As I recently settled into my first class seat on an overseas flight I realized that I am willing to pay quite a bit for the privilege of flying up front.  There are probably a lot of people like me who feel the same way: Law enforcement and military professionals with government clearances and firearms training who, in the normal course of their travels, would be happy to carry guns on board as a deterrent to terrorists.

At present the Transportation Stupidity Administration is spending roughly $350k per year per marshal to field a group of unhappy officers who almost never have to do anything.

Marshals have made 59 arrests since 2001 and drawn their weapons only twice — once shooting a man dead. In the end, none of the incidents were found to be related to terrorism.

Meanwhile, the same agency has done all it can to stymie the Federal Flight Deck Officer program, which is capable of arming pilots on nearly every flight.  (Even so, there are now more armed pilots than air marshals flying.)

Full-time Air Marshals are a stupid and wasteful idea.  Since the only requirement is to deter terrorists and restrain belligerents until an aircraft can be brought to the ground we do not need a cadre of specialists dedicated fulltime to such extremely rare emergencies.  An Air Marshal should be any government officer willing and able to carry firearms in the air.  And since Air Marshals typically sit in first class, I believe officers in the normal course of their work and vacation travels would pay out of their own pockets for the privilege of defending our skies.

Smoke-Free Travel? May 23, 2007

Posted by David Bookstaber in Open Questions.
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I am grateful to have lived most of my life in an era in which smoking is completely forbidden on commercial aircraft.  But I just got back from a cruise, which reminded me just how far we have to go: There are still no cruise lines that operate smoke-free ships.

Any time one is on a public deck you’re at the mercy of smokers and the wind.  It’s hard to go through a day without coming back to the cabin bearing the putrid odor of tobacco smoke.  Depending on the ship, one may not even be safe in one’s cabin: Sometimes the HVAC ducts and air pressures are such that smoke wafts into our room no matter what we do!

I have given up buying cabins with private balconies because invariably we end up with chainsmokers upwind of us, which makes it unpleasant to sit outside or even open our veranda door to try to get some fresh ocean air.

I would like to bring teargas canisters to set off upwind of smokers who ruin my air.  But, unlike smokers, I won’t engage in a behavior that could indiscriminately inconvenience others just to satisfy my own urges.

But I would like to know:

  1. Why can’t nicotine addicts satisfy their needs with smokeless tobacco or nicotine pills, patches, gum, etc.?
  2. Isn’t there enough demand now for smoke-free cruises that it would be profitable to market them?

A Simple Fix for Democracy May 20, 2007

Posted by David Bookstaber in Government, Special Interests, Taxation.

Recent posts here have lamented the structural deficiencies of American democracy in withstanding the tyranny of the majority, and the tyranny of special interests.

A recent discussion with a pragmatic conservative suggested that we could probably fix these problems with two simple constitutional provisions:

  1. Progressive taxes are forbidden
  2. Only those who pay some tax (i.e., stakeholders) can vote.

QOTD: “College is an expensive way of taking an IQ test” May 18, 2007

Posted by David Bookstaber in Education.

In her recent essay, “The Higher Education Scam,” Barbara Ehrenreich notes:

[T]here are ways in which the higher education industry is becoming a racket: Buy our product or be condemned to life of penury, and our product can easily cost well over $100,000. … My theory is that employers prefer college grads because they see a college degree chiefly as mark of one’s ability to obey and conform.

James Taranto compellingly blames the Supreme Court.  “[T]he higher-education industry and corporate employers have formed a symbiotic relationship in which the former profits by acting as the latter’s gatekeeper and shield against civil-rights lawsuits.”

QOTD: Compassionate Socialism May 17, 2007

Posted by David Bookstaber in Economic Policy, Markets.
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Robert Sirico in this month’s Imprimis:

When we speak of the common good, we need also to be clear-minded about the political and juridical institutions that are most likely to bring it about. These happen to be the very institutions that socialists have worked so hard to discredit. Let me list them: private property in the means of production; stable money to serve as a means of exchange; the freedom of enterprise that allows people to start businesses; the free association of workers that permits people to choose where they would like to work and under what conditions; the enforcement of contracts that provides institutional support for the idea that people should keep their promises; and a vibrant trade within and among nations to permit the fullest possible flowering of the division of labor.

Happiness in the Pursuit May 15, 2007

Posted by David Bookstaber in Social Politics.

Happiness research is always illuminating.  Those of us who are no longer locked in a struggle for basic subsistence tend to lose our bearings and forget to think about what matters in life — what we want, what we need, and what will satisfy us.  (We also tend not to think rationally about how we should spend our excess capital, but that is a topic I’m drafting for a later date.)

Richard Voss in a letter in today’s WSJ summarizes some recent writing on the subject and makes a useful point:

What makes us happy is the pursuit itself. There is no viable, sustainable state of actually being happy. …

This leads to an important political point: We should stop worrying so much about inequality in wealth and income. So long as we have sufficient opportunity for social and economic mobility, we’re all involved in the pursuit and, thus, more or less equally happy….

Confiscatory Tax Policy Can Prevent Rent Exhaustion May 10, 2007

Posted by David Bookstaber in Human Markets, Markets.

We should be wary of using tax policy to “fix” markets.  But following up my recent example of a market suffering rent exhaustion I am wondering if it might actually be useful to levy a very high tax on the earnings of “superstars” to prevent the inefficient allocation of human capital.  After all, every superstar author, actor, athlete, and artist inspires myriad aspirants to chase the same lottery.  People who would not otherwise devote their energy to sport or performance look at the millions (even billions) that can accrue to the superstars in a field and decide that the low odds of winning are more than compensated by the potential payoff.

Alex Tabarrok recently offered a great observation of how globalization creates increasingly wealthy — and serendipitous — superstars.  Will Wilkinson followed by expounding an earlier book on the subject:

[I]n The Winner Take-All Society, Robert Frank and Philip Cook argue that huge payouts for superstars induce inefficient overinvestment in their fields. The point of taxing superstars, on this account, is precisely to limit entry into superstar fields and to channel human capital investment that will otherwise be wasted in the largely futile attempt to become NBA players or Hollywood screen legends into more socially productive uses. Frank and Cook acknowledge that this may result in a reduced supply of excellence in certain fields, but argue that this loss is more than offset by more mundane economic gains from increased efficiency in the allocation of skills to people. Even if we don’t get the best rock stars, we’ll still have good rock stars, and we’ll have fewer people wasting productive years trying to be rock stars.

I am surprised to find myself agreeing that free markets can suffer from such a fundamental defect.  Robert Frank, in an essay on his aforementioned book, follows a number of clear examples with this summary:


Feds Call Out the Realtor Cartel May 9, 2007

Posted by David Bookstaber in Real Estate.

“Realtors” have long colluded with state legislatures and regulators to maintain their cartel at the expense of consumers.  The U.S. Department of Justice together with the Federal Trade Commission issued a report, “Competition in the Real Estate Brokerage Industry.”  As summarized in their press release:

The review by the Department and the FTC suggests that, although the real estate industry has undergone a number of substantial changes in recent years — particularly as a result of technological advances such as the Internet — competition in the industry has been hindered as a result of actions taken by some real estate brokers acting through multiple listing services and the National Association of Realtors, state legislatures, and state real estate commissions.

The report is particularly critical of “three types of restraints imposed by state laws and regulations that are likely to reduce competition and consumer choice in the real estate brokerage industry: anti-rebate laws and regulations; minimum-service requirements; and overly broad licensing requirements.”

QOTD May 8, 2007

Posted by David Bookstaber in Economic Policy, Government Spending.
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Courtesy of Stephen Dubner, quotes from Tyler Cowen’s Discover Your Inner Economist:

A good intuitive economist approaches a practical problem by asking “What is the relevant scarcity hindering a better outcome?” If we haven’t posed this query, and assembled at least the beginnings of an answer, we may founder. For instance, we might make the mistake of throwing more money at a problem, when money is not what is needed. By identifying the relevant scarcity, we learn where to direct the incentives.

Also today, Will Wilkinson illuminates the forces that keep our government running up debt for (non-investment) entitlement spending.  The long and short of it: Old people are an overwhelming political force, and they don’t mind holding a party for themselves that others will have to pay for after they’re dead.

Rent Exhaustion in Real Estate Brokerage May 4, 2007

Posted by David Bookstaber in Real Estate.
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“Rent exhaustion” refers to a situation where opportunities for large windfalls attract many competitors, who by massing around it essentially destroy the value of the windfall.  Tim Harford gives one classic example:

Rent exhaustion is no economists’ fantasy – go to any place with rich tourists and poor locals (Dar es Salaam, the first African city I visited, fits the description nicely), and you’ll see lots of people waiting for the one generous tip or overpriced taxi fare. If the tourists become more generous or gullible, the local guides don’t get richer, they just multiply. The bigger paydays become less frequent.

Like beggars, Realtors have driven the cartel rents of the real estate brokerage industry to the point of exhaustion.  The cartel has largely maintained the tradition of a 6% sales fee per house transaction.  With houses routinely selling for seven figures there are enormous windfalls — a good year’s salary — to be had from selling even one house.  An article in the Feb 7 WSJ explains,

Although it is difficult to make a good living as an agent, many stay active in the business at least part time, handling transactions for friends and family or hoping to hit the jackpot with one big transaction.

In a normal market price competition would drive the sales fees down to more reasonable levels.  But in this case the cartel has held its grip on the market and, predictably, hordes of salesmen have flocked to the industry, overwhelming the opportunities and wasting a lot of time that would more productively be spent elsewhere.

Though finally, the WSJ reports, “The long-awaited shakeout among real-estate agents is finally happening — much to the relief of those who are sticking with the business and prefer a bit less competition. … Even before sales slowed, people in the industry said far too many agents were chasing too few deals.”

Consumers would have benefited much more if sales fees had come down, instead of rent exhaustion driving out competing salesmen.

Federalism and Tort Law May 2, 2007

Posted by David Bookstaber in Judiciary, Markets, Regulation.
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Michael Krauss’s summary essay in the WSJ today led me to his wealth of scholarship on issues of liability that cross govermental jurisdictions, including his analysis with Robert Levy, “Can Tort Reform and Federalism Co-Exist?

At present our nation’s tort laws add a liability premium to all commercial transactions. When you buy something you pay the fair market value of that good or service, plus something extra to cover the seller’s liability insurance. Krauss writes, “Outlays, including the costs of litigation, consume upwards of 2.8% of GDP, and the share of that going to plaintiffs’ lawyers is roughly $50 billion.”

2.8% may not seem like a very high fee to keep our goods and services safe. But it is not levied evenly: We know of plenty of legitimate industries that have been destroyed in the past (asbestos, private aviation) or that even now are in mortal danger (healthcare, firearms, chemicals) from tort law.

Besides, the nature of tort law in this country — what with forum-shopping and interstate commerce — is such that the most costly state regimes are imposed on everyone.

Suppose, however, a federal law declared that the laws and rules governing product liability applicable to a given product are the rules of the state where that product was first sold at retail.

Thus, if a West Virginian bought his lawn mower in Maryland, it would be Maryland law that determined product liability, even if an accident involving an alleged defect happened later in West Virginia. (Labeling is generally easy and would provide reliable identification of the state of first sale.) Manufacturers could now price goods in each state to reflect that state’s liability rules — allowing consumers to pay for the liability protection they wanted. Competition would provide consumers with knowledge of what this all means. West Virginia retailers would have a keen incentive to explain to consumers how they receive greater protection — in return for a higher purchase price — much as current retailers of name-brand products have an incentive to stress the reasons why the brand they sell carries a premium price as compared to generics.