National Gazette

"Are our brains being affected by technology? Probably. Nicholas Carr worries:Over the past few years I’ve had an uncomfortable sense that someone, or something, has been tinkering with my brain, remapping the neural circuitry, reprogramming the memory. My mind isn’t going—so far as I can tell—but it’s changing. I’m not thinking the way I used to think. I can feel it most strongly when I’m reading. Immersing myself in a book or a lengthy article used to be easy. My mind would get caught up in the narrative or the turns of the argument, and I’d spend hours strolling through long stretches of prose. That’s rarely the case anymore. Now my concentration often starts to drift after two or three pages. I get fidgety, lose the thread, begin looking for something else to do. I feel as if I’m always dragging my wayward brain back to the text. The deep reading that used to come naturally has become a struggle.I know what he means. On the other hand, I'm reading Anna Karenina right now. On a Kindle. So it's really a mixed bag. Carr concedes so much by the end of the article. My favorite part is his chronicling of the history of similar concerns:Maybe I’m just a worrywart. Just as there’s a tendency to glorify technological progress, there’s a countertendency to expect the worst of every new tool or machine. In Plato’s Phaedrus, Socrates bemoaned the development of writing. He feared that, as people came to rely on the written word as a substitute for the knowledge they used to carry inside their heads, they would, in the words of one of the dialogue’s characters, “cease to exercise their memory and become forgetful.” And because they would be able to “receive a quantity of information without proper instruction,” they would “be thought very knowledgeable when they are for the most part quite ignorant.” They would be “filled with the conceit of wisdom instead of real wisdom.” Socrates wasn’t wrong—the new technology did often have the effects he feared—but he was shortsighted. He couldn’t foresee the many ways that writing and reading would serve to spread information, spur fresh ideas, and expand human knowledge (if not wisdom). The arrival of Gutenberg’s printing press, in the 15th century, set off another round of teeth gnashing. The Italian humanist Hieronimo Squarciafico worried that the easy availability of books would lead to intellectual laziness, making men “less studious” and weakening their minds. Others argued that cheaply printed books and broadsheets would undermine religious authority, demean the work of scholars and scribes, and spread sedition and debauchery. As New York University professor Clay Shirky notes, “Most of the arguments made against the printing press were correct, even prescient.” But, again, the doomsayers were unable to imagine the myriad blessings that the printed word would deliver. " ~ Cafe Hayek

(about 4 hours ago) Rivers on polling (by Russell Roberts) from Cafe Hayek

(about 4 hours ago) Skepticism about prices (by Russell Roberts) from Cafe Hayek

(about 4 hours ago) Casino Capitalism (by Don Boudreaux) from Cafe Hayek

(about 4 hours ago) Southwest knows more than we do (by Russell Roberts) from Cafe Hayek

"Both Bryan Caplan and David Friedman think the purpose of boarding pass numbers is to get the people on the plane more quickly. They both want the people in the back to get on first. They are surprised that the last row doesn't board first. This would seem to speed up the boarding process. (Though maybe not.) This reminds me of my students telling me that it's stupid for Fedex to send all packages to Memphis (or some other hub). Fedex knows that when a package goes from Fairfax, Virginia to Richmond, Virginia via Memphis, it is traveling farther than if the package went directly. Evidently, there is some other saving that is obvious to them and not obvious to us. For the answer, go here and listen at the 25 minute mark.) They used to board in reverse order (last rows first) on almost every airline. One problem was monitoring. People would cheat and board before their row was called. But I doubt that was the only problem. The reason I say that is that Southwest never did it that way. Southwest let people board in groups and the groups were unrelated to your seat. Your group just determined where you sat. And then I noticed other airlines started copying Southwest. They had boarding "groups" that were unrelated to where your seat was. Southwest has thought about this more than Bryan or David. They have a lot of money at stake. So there is something else going on. What is it? It even gets weirder because now Southwest has people board in order within the groups. So if your boarding pass says A10, you board before someone who is A25. It used to be all the As just lined up and an A25 could board before an A10 if the A25 was eager enough. Now you can't, or at least you're not supposed to. Why? Why would it benefit Southwest to have people line up like that? And why might it benefit travelers? The Southwest method would seem to punish travelers. When other airlines were calling out "Rows 25-28 can now board," Southwest induced eager passengers who wanted to make sure there was luggage space for their carry-on (or who wanted to make sure they got an aisle or a window) to stand or sit on the floor rather than remaining in their seats in the lounge. That discomfort lowered the well-being of Southwest customers. That lost well-being cost Southwest something. One answer (I first saw this at Vox Baby) is that Southwest passengers arrive earlier and are less likely to miss their flight or delay a flight as people board at the last minute. At Southwest, you get there early to get a decent seat. Fewer late flights means more cost savings for everybody either in time or lower fares. But I think there is another reason given Southwest's new system of precise ordering within each group. The basic idea is simple--now it gives everyone an incentive to get their boarding pass early. That in turn gives Southwest information. Why is this valuable? I'm not sure. Perhaps it gives them more info on whose likely to travel rather than cancel. Because now, it's not just enough to get your boarding pass by say midnight the night before. Now people are careful about getting their boarding pass 23 hours and 59 minutes before the flight. Now the earlier the better. The other possibility is that this gives Southwest a chance to make money. Southwest now has some premium service that lets you pay a little extra and guarantee that you're in the first ten people on board. (You also get a free drink). Peace of mind for those folks who are anxious about luggage space or getting an aisle seat. More money for Southwest. Maybe lower fares for everyone or at least higher profits for Southwest. Southwest knows more about its business than you do. If it looks like madness, there is probably a method in it. " ~ Cafe Hayek

(about 4 hours ago) Coase and California (by Russell Roberts) from Cafe Hayek

"One of the deepest insights of Coase's 1960 article on externalities is the understanding that externalities are reciprocal and that rules and norms affect how much care people take in a risky situation when they are linked to others. McCloskey taught me this in my first grad price theory class arguing that if drivers are liable for hitting pedestrians, then they will be more cautious and pedestrians will be more careless. If drivers bear no liability for hitting pedestrians then drivers will be less careful and pedestrians will take more care. On the surface, this seems silly. It is wrong to run someone over, so justice requires drivers to be liable. Yet Coase's point is that it's not clear which set of rules is socially desirable. If the goal is to minimize pedestrian fatalities from cars, it might be better to have drivers take less care and pedestrians take more care. A key word in the previous sentence is "might." It might not be. It depends on who can avoid the harm most effectively and cheaply. It would seem in this case, that drivers can avoid the harm most cheaply and effectively, so they should be liable. But the other factor is how elastic the response will be from the side that is not liable. If pedestrians respond to driver care by being very reckless, the outcome could still be very costly. In this particular case, the whole issue seems moot--after all, how reckless can pedestrians be, especially compared to how reckless cars can be? And the kicker would seem to be that whether drivers are liable or not, they still feel guilt at running someone over. And pedestrians are going to be badly hurt or killed when they get hit, so how reckless can they really be? But being out in California for a visit, it is obvious how differently people behave here. Here, unlike much or all of the rest of the country, the pedestrian is king. It is partly a social norm, partly the result of social legislation. The mix doesn't matter. What matters is that pedestrians cross streets in ways that are very different than in Washington DC where I live. The driver takes more care here. You have to if you don't want to hit someone. So here's my hypothesis. Of the people who do get hit by cars here in California, I would guess that a disproportionate share get hit by drivers who are visiting from out-of-state in rental cars who are not used to the California norms and legislation. I don't know if the data are out there. I think the place to start would be with the rental car companies to see if there are higher accident rates involving civilians per mile traveled in California than elsewhere. " ~ Cafe Hayek

(about 4 hours ago) Inconsistent McCain (by Don Boudreaux) from Cafe Hayek

(about 4 hours ago) Regulation by Markets, Not by Bureaucrats (by Don Boudreaux) from Cafe Hayek

(about 4 hours ago) Nonsense on Speculation (by Don Boudreaux) from Cafe Hayek

(about 4 hours ago) Should US Taxes on Gasoline be Higher? Becker from The Becker-Posner Blog

" Gasoline prices have increased rapidly during the past several years, pushed up mainly by the sharply rising price of oil. A gallon of gasoline in the US rose from $1.50 in 2002 to $2 in 2004 to $2.50 in 2006 to over $4 at present. Gasoline prices almost trebled during these 6 years compared to very little change in nominal gas prices during the prior fifteen years. The US federal tax on gasoline has remained at 18.4 cents per gallon during this period of rapid growth in gasoline prices, while state excise taxes add another 21.5 cents per gallon. In addition, many local governments levy additional sales and other taxes on gasoline. Gasoline taxes have not risen much as the price of gasoline exploded upward. The price of gasoline is much lower than in other rich countries mainly because American taxes are far smaller. For example, gasoline taxes in Germany and the United Kingdom amount to about $3 per gallon. Some economists and environmentalists have called for large increases in federal, state, and local taxes to make them more comparable to gasoline taxes in other countries. Others want these taxes to rise by enough so that at least they would have kept pace with the sharply rising pre-tax fuel prices. At the same time two presidential candidates, Hillary Clinton and John McCain, proposed a temporary repeal during this summer of the federal tax in order to give consumers a little relief from the higher gas prices. We discuss the optimal tax on gasoline, and how the sharp increase in gas prices affected its magnitude. Taxes on gasoline are a way to induce consumers to incorporate the "external" damages to others into their decision of how much to drive and where to drive. These externalities include the effects of driving on local and global pollution, such as the contribution to global warming from the carbon emitted into the atmosphere by burnt gasoline. One other important externality is the contribution of additional driving to road congestion that slows the driving speeds of everyone and increases the time it takes to go a given distance. Others include automobile accidents that injure drivers and pedestrians, and the effect of using additional gasoline on the degree of dependence on imported oil from the Middle East and other not very stable parts of the world. A careful 2007 study by authors from Resources for the Future evaluates the magnitudes of all these externalities from driving in the US (see Harrington, Parry, and Walls, "Automobile Externalities and Policies", Journal of Economic Literature, 2007, pp 374-400). They estimate the total external costs of driving at 228 cents per gallon of gas used, or at 10.9 cents per mile driven, with the typical car owned by American drivers. Their breakdown of this total among different sources is interesting and a little surprising. They attribute only 6 cents of the total external cost to the effects of gasoline consumption on global warming through the emission of carbon into the atmosphere from the burning of gasoline, and 12 cents from the increased dependency on imported oil. Perhaps their estimate of only 6 cents per gallon is a large underestimate of the harmful effects of gasoline use on global warming. Yet even if we treble their estimate, that only raises total costs of gasoline use due to the effects on global warming by 12 cents per gallon. That still leaves the vast majority of the external costs of driving to other factors. They figure that local pollution effects amount to 42 cents per gallon, which makes these costs much more important than even the trebled cost of global warming. According to their estimates, still more important costs are those due to congestion and accidents, since these are 105 cents and 63 cents per gallon, respectively. Their figure for the cost of traffic accidents is likely too high –as the authors' recognize- because it includes the cost in damages to property and person of single vehicle accidents, as when a car hits a tree. Presumably, single vehicle accidents are not true externalities because drivers and their passengers would consider their possibility and internalize them into their driving decisions. Moreover, the large effect of drunk driving on the likelihood of accidents should be treated separately from a gasoline tax by directly punishing drunk drivers rather than punishing also sober drivers who are far less likely to get into accidents. On the surface, these calculations suggest that American taxes on gasoline, totaling across all levels of government to about 45 cents per gallon, are much too low. However, the federal tax of 18.4 cents per gallon is almost exactly equal to their figure of 18 cents per gallon as the external costs of global warming and oil dependency. To be sure, a trebled estimate for global warming would bring theirs up to 30 cents per gallon. However, the federal government also taxes driving through its mandated fuel efficiency standards for cars, although this is an inefficient way to tax driving since it taxes the type of car rather than driving. Still, the overall level of federal taxes does not fall much short, if at all, from the adjusted estimate of 30 cents per gallon of damages due to the effects of gasoline use on global warming and oil dependency. Any shortfall in taxes would be at the state and local levels in combating externalities due to local pollution effects, and to auto accidents and congestion on mainly local roads. Here too, however, the discrepancy between actual and optimal gasoline taxes is far smaller than it may seem, and not only because single vehicle accidents are included in their estimate of the cost of car accidents, and accidents due to drunk driving should be discouraged through punishments to drunk drivers. One important reason is that congestion should be reduced not by general gasoline taxes, but by special congestion taxes- as used in London and a few other cities- that vary in amount with degree of congestion (see our discussion of congestion taxes on February 12, 2006). Congestion taxes are a far more efficient way to reduce congestion than are general taxes on gasoline that apply also when congestion is slight. In addition and often overlooked, the sharp rise in pre-tax gasoline prices has partly accomplished the local pollution and auto accident goals that would be achieved by higher gas taxes. For higher prices have cut driving, just as taxes would, and will cut driving further in the future as consumers continue to adjust the amount and time of their driving to gasoline that costs more than $4 a gallon. Reduced driving will lower pollution and auto accidents by reducing the number of cars on the road during any time period, especially during heavily traveled times when pollution and accidents are more common. The effects of high gas prices in reducing congestion, local pollution, and accident externalities could be substantial. These authors estimate the size of local driving externalities, aside from congestion costs, at 105 cents per gallon. Even after the sharp run up in gas prices, this may still exceed the 28 cents per gallon of actual state and local taxes, but the gap probably is small. It surely is a lot smaller than it was before gas prices exploded on the back of the climb in the cost of oil. In effect, by reducing driving, higher gasoline prices have already done much of the work in reducing externalities that bigger gas taxes would have done when prices were lower." ~ The Becker-Posner Blog

(about 4 hours ago) Borrowing and Consumption over the Life Cycle-Becker from The Becker-Posner Blog

" The types of loans available to consumers have grown at unprecedented rates during the past 40 years. These include credit card debt, expanded availability of mortgages, student loans, payday loans, reverse mortgages, and many other types. The provocative social commentator and columnist David Brooks, in the article referred to by Posner, laments this development- he calls his column "The Great Seduction". He believes that one of its main consequences is that individuals use credit to consume too much when they are younger instead of saving at these ages so that they can consume more at later ages. Obviously, some individuals borrow too much, and get caught in a spiral of high interest rate payments, bankruptcy, and insufficient assets as they age. Nevertheless, on the whole the growth of credit instruments available to consumers has been a positive development that helps finance investments in education and other human capital, and produces a more optimal consumption profile over the lifecycle. In the earlier times mentioned by Brooks, many families were farmers with incomes that fluctuated greatly because of changes in the weather, and because of pests and diseases. Urban workers also faced severe risks due to the threat of unemployment and other difficulties in labor markets. Families had little opportunity to get commercial credit to help tide them over the bad times. They had either to borrow from relatives, accumulate assets that could protect them against future risks, or suffer much during the bad times. They would have saved less and welcomed credit cards, mortgages, and harvest loans as more effective ways to adjust to these risks. Until the past 50 years, children from well off families had a large advantage in going to college because their studies were in large measure financed by their parents. The great boom in college education (that we wrote about last week) has seen many more students from modest income backgrounds entering and often completing college. They typically finance their education by working while in school and by borrowing with student loans and credit card debt, or their parents borrow in various ways to help them out. Without such credit, many of these students would be unable to get the college education that is so crucial to success in modern economies. The debt of college students does not simply pay for tuition, but also helps cover living expenses while in school. College students earn little then and in the first decade or so after they enter the labor force, while they earn much more when they are older. For this reason, the most forward looking and least impulsive college educated individuals want to borrow, not save, when they are young in order to raise their consumption then, and thereby help smooth out their consumption as they age. In addition, most men and women have greater consumption pressures when they are in their thirties and early forties because they raise their children then, and often provide financial support to elderly parents. Most young people who do not go to college are high school graduates, and they too have lower earnings and greater family responsibilities during their thirties and forties. They also would like to borrow at younger ages to raise their consumption at these ages to more appropriate levels compared to their consumption when they are older. Studies by my colleague Erik Hurst show that consumption of Americans beyond age 65 is generally not low relative to consumption at younger ages; apparently, they save enough when younger to enable them to consume generously when retired. In earlier time, families had to save to provide for their old age consumption since social security and company pensions were non-existent. A few other factors have contributed to the borrowing boom in recent decades. The decline in family stability has reduced the access to credit from relatives during bad times. Commercial credit has substituted for the family credit that was formerly available. Improvements in the capacity of lenders to track and monitor their loans, and to compensate restaurants and other businesses for their short term loans to credit card users, has reduced effective interest rates to consumers on small loans much below what they were in the past. Household Finance and other lenders of small amounts to consumers used to charge over 30 percent annual interest, and more when that was legal. In a rational world, much lower interest rates on consumer debt would induce considerable additional borrowing, and it has. Every new form of credit brings with it abuse from some borrowers and lenders. This has clearly been the case with the expansion in consumer credit instruments, but the benefits from this expansion seem to have far outweighed the costs. " ~ The Becker-Posner Blog

(about 4 hours ago) The Boom in College Education-Becker from The Becker-Posner Blog

" The worldwide boom in college education during past several decades has been as remarkable as it was unexpected. Many economists in the United States were claiming in the 1970s that college education was overrated, at least as far as its effects on earnings. Yet starting in the late 1970s, the number of American high school graduates who went on for higher education began to grow at a reasonably fast rate. Were these college students disappointed by the effects of their education on their subsequent earnings and other aspects of their life, or did the nay-saying economists just get it wrong? The evidence is now crystal clear that in fact college education turned out to be an excellent investment for the vast majority of these students. Despite books like "The Overeducated Americans", published in the late 1970s, that argued that the earnings gains from a college education were in serious decline, the gains from attending and graduating college actually increased rapidly after 1980. A natural interpretation of the increased enrollments in college is that expectations of improvement in their earnings, health, and other determinants of welfare attracted large numbers of Americans into higher education. Supporting evidence for this interpretation is that the same trends in earnings and enrollments took place in the rest of the world. The earnings gap between persons with university and high school education increased in the great majority of countries, more or less regardless of their level of economic development. And as in the United States, the higher benefits from college stimulated sizable increases in the fraction of high school graduates who went on for further education. For example, in the top half of countries as measured by per capita incomes, the average percent of 30-34 year olds with a higher education increased between 1970 and 2000 from about 12 percent to over 20 percent. Lower income countries had similar increases, although poorer nations have much smaller fractions of persons with higher education. In the great majority of countries, women increased their propensity to go to college much more rapidly than men. This sharply reduced the gender gap in college education. In fact, more women than men are getting higher education in virtually all the rich countries, and also in many middle -income countries. In the United States, a little under 60 percent of younger college graduates are now women, whereas in 1970 men were far more likely than women to start and especially to finish college. Higher returns to college are an important immediate cause of this boom in the number of persons going to college in countries all over the globe and at different stages of economic development, but why did returns to college increase so universally? The answer must relate to general causes that were widely applicable. One factor that immediately comes to mind is the sharp expansion during the past several decades in the amount of international trade, including a rapid growth in foreign direct investment (FDI). The classical theory of international trade implies that in poorer countries with cheap low skilled labor, a growth in trade of goods and services should increase the demand for goods using relatively much of the low skilled labor, and trade should lower the demand for goods using the relatively expensive skilled labor. Increased trade has the opposite effects in rich countries. As a result, increased trade should raise the earnings of skilled workers relative to other labor in richer countries, but lower the relative earnings of skilled workers in poorer countries. Yet the gap between the earnings of skilled and less skilled workers has tended to rise in poorer countries as well. The growth in FDI helps explain this apparent contradiction to classical trade theory, for FDI tends to raise the demand for educated and other skilled workers in recipient countries. Educated and other skilled workers become more valuable in developing countries when they import capital from the technologically advanced nations. The newer technologies that have been developed during past three decades, such as the computer and the Internet, biotech, the mapping of the genome and other advances in medicine, and cell phones and social networking, also increased the overall demand for educated persons. Since the United States is the most important innovator in the world, and has one of the most efficient economies, it has experienced a particularly rapid widening of the college earnings premium. Under the right circumstances, these newer technologies flow from the rich innovating countries, such as the United States and Japan, to developing and other countries. Technologies may be embodied in internationally traded goods and services, or in capital transfers, or brought back by students who study in the innovating nations. Since the international transfer of technologies is expedited by having a larger number of well -educated persons, the transfer of technologies also raises the demand for persons with higher education. Many articles have complained that the increased benefits from higher education have contributed to widening inequality, not only in the United States, but in many other countries as well, including major developing countries like China and India. The larger education earnings premiums certainly helped widen income inequality, but these larger premiums also raised the efficiency of investments in capital by raising rates of return on human capital. Higher returns on capital obviously raise the efficiency of an economy. The challenge to public and private policies is to increase the number of persons who manage to go to and benefit from college, for that would reduce inequality while raising the number of persons who benefit from the higher returns to a college education. How to accomplish this is too large a topic to be considered in this discussion, but improving the preparation of disadvantaged children so that they can benefit more from schooling should probably have high priority. Also important would be to increase the quality of schools available to these children by raising the degree of competition among schools. " ~ The Becker-Posner Blog

(about 4 hours ago) The Boom in College Education--Posner from The Becker-Posner Blog

"The increased percentage of persons who go to college is not surprising. Advances in technology have reduced the demand for brawn and increased the demand for brains. But several significant questions (concerning college education in the United States, to which I confine this comment) remain: The first is why female college enrollment has increased so much faster than male college enrollment, and why female college students do much better, as measured by grades and graduation rate, than male. If college is more valuable to a woman in the labor market than to a housewife, then as more women work relative to engaging in full-time household production, women's demand for a college education will rise; apparently this factor has dominated the effect of advances in technology on both sexes, for otherwise their rates of enrollment would be growing at the same rate. Of course technology, in the form of labor-saving household appliances, more reliable contraception (including abortion), the higher ratio of light to heavy work, and reductions in infant mortality (a factor in limiting the size of families) may underlie the increase in women’s participation in the labor market. But only the increase in the ratio of light to heavy work is a change in the technology of work that favors women by reducing the demand for brawn and hence for male labor relative to female. But why are proportionately more women going to college and, once there, outperforming the male students? One answer may be that they get more out of college than men do. Maybe they gravitate to fields in which college learning is more valuable than it is in the fields that men gravitate to. Suppose that men have a comparative advantage (as they probably do) in jobs that involve danger, disagreeable working conditions, upper-body strength (of course), and financial risk. Those are jobs to which going to college, or in some instances (such as financial risk taking) concentrating once there on academic performance, may not contribute a great deal. Another question is whether college attendance or graduation is the right variable for estimating the returns to education. Suppose that high schools deteriorate; that would increase the demand for college, especially for community colleges that may offer a level of teaching no different from that of a good high school. Most high schools are public and do not compete for students. The college market is far more competitive. A community college may offer a superior high school education. And finally, how much more will college attendance increase? Will it go to 100 percent (currently, about 60 percent of high school graduates go on to college--of course many kids drop out of high school)? That depends on two factors: the brain/brawn tradeoff, and IQ (or some alternative measure of intellectual aptitude). If the intellectual demands of work relative to the physical demands continue to increase, the demand for college will also increase. IQ is, though, a limiting factor. But it is less of a limiting factor than one might think. The reason is that a frequent byproduct of technological advance is deskilling. Fifty years ago, a driver had to know how to change a tire and put chains on a tire, how to check the engine's oil level and the water level in the radiator, and how to start a car in freezing weather. These skills are no longer required. Most cashiers no longer need to know how to make change; the cash register tells them how much change to give the customer. Printers no longer need to know how to set type upside down. With advances in neuroscience, artificial intelligence, computer science, robotics, and nanotechnology, many jobs that require a college education today will require little in the way of education tomorrow. Many people may then defer college until retirement, in order to increase the returns to leisure by widening their cultural horizons. " ~ The Becker-Posner Blog

(about 4 hours ago) Oil Prices, Offshore and Alaska Drilling, and Excess Profits Taxes--Posner's Comment from The Becker-Posner Blog

"Although I worry more than Becker does about the environmental consequences of the production and consumption of oil, and although I want oil prices to remain high--indeed to continue rising--I largely agree with his analysis of the rival proposals for dealing with the present "crisis": allowing more drilling for oil on the outer continental shelf and in Alaska versus imposing an excess profits tax on the oil companies. I agree with him that the former is a good idea and the latter a bad one. But I will qualify my agreement by suggesting policy adjustments to minimize the adverse effects of allowing more drilling or of imposing an excess profits tax. Expanded drilling in U.S. territory (including our territorial waters) will reduce both U.S. dependence on foreign oil and the wealth of foreign oil-producing countries, many of which are hostile or potentially hostile to the United States. These are important benefits. But there are also significant costs. Any increase in the production of oil from the seabed and from the fragile Alaskan tundra will create environmental damage, both directly, because of the environmental damage caused by the drilling itself (such as, in the case of offshore drilling, the dumping into the ocean of "drill cuttings"—the solids that are brought to the surface in drilling an oil well), and indirectly, as a consequence of increased production of oil, because of oil spills by tankers, traffic congestion and highway wear and tear, and, most ominously, increased carbon emissions from the burning of oil as a fuel. Becker notes correctly that the less oil we produce, the more that foreign nations will produce. But given the high price of oil, increasing out oil production will increase total world production rather than just substitute for foreign production. So there will be more tanker spills and more carbon emissions if offshore and Alaska drilling is allowed, since the supply of oil will be greater. The problems created by an increased supply of oil can be minimized by an increase in the federal gasoline tax (better still would be imposing a tax on carbon emissions, since such a tax would create an incentive to reduce the amount of emissions per unit of gasoline consumed) calibrated to prevent gasoline prices from declining as a consequence of increased production of oil and hence increased supply. Already the shock of $4 a gallon gasoline has caused a modest decline in U.S. consumption of oil, yet $4 is little more than half the retail price of a gallon of gasoline in most European countries. Distances are shorter in Europe, and so U.S. gasoline prices would not have to double in order to make substantial inroads into our oil consumption. But they should not be allowed to fall as a result of increased world supply due to offshore and Alaska drilling. A gasoline or carbon-emissions tax must not be confused with a tax on the profits of oil companies, which, because of the uncertainties involved in exploring for oil, will, as Becker points out, reduce the incentive to find and exploit new domestic oil fields. (In contrast, a heavy tax on gasoline will increase the incentive to find energy substitutes for oil.) In addition, imposing excess profits taxes sends a bad signal to the business community: that success will be penalized. And there is a danger that the proceeds of the tax would be used to subsidize the purchase of gasoline in order to reduce gasoline prices. The demand would rise without stimulating domestic production, so we would have the worst of all possible worlds: high consumption of oil and increased dependence on foreign production. But in the unhappy event that an excess profits tax is imposed, at least it should be limited to profits from existing oil fields, to minimize the dampening effect on the incentive to develop new fields. Because the environmental risks of offshore and Alaska drilling are greater than those of drilling for oil on land in the lower 48 states, an environmental excise tax should be placed on the oil produced from offshore and Alaska wells. It is not enough to rely on the tort system to provide sanctions for oil spills. Many of the environmental effects of drilling for oil are individually too small to invite tort suits, yet the cumulative effects can be very large. That is true with respect to effects on fisheries and on the frequency of tanker spills. The more oil that is transported by sea, the more spills there will be, but it will rarely if ever be possible to ascribe a particular spill to a particular producer of the oil that was spilled. An environmental tax is therefore necessary to induce the oil companies to internalize the environmental costs that their activities impose." ~ The Becker-Posner Blog

(about 4 hours ago) Have We Lost the Moral Values That Undergird a Commercial Society?--Posner from The Becker-Posner Blog

"David Brooks is one of the most thoughtful newspaper columnists. In a recent op-ed ("The Great Seduction," New York Times, June 10, 2008, p. A 23), he argues that the founders of the nation "built a moral structure around money. The Puritan legacy inhibited luxury and self-indulgence. Benjamin Franklin spread a practical gospel that emphasized hard work, temperance and frugality…For centuries, [the nation] remained industrious, ambitious and frugal." But, Brooks continues, over the past 30 years much of that legacy "has been shredded," while "the institutions that encourage debt and living for the moment have been strengthened.”"And here he mentions "an explosion of debt that inhibits social mobility and ruins lives," because of "people with little access to 401(k)'s or financial planning but plenty of access to payday lenders, credit cards and lottery agents." Among other "agents of destruction" are state lotteries--"a tax on stupidity," which tells people "they don't have to work to build for the future. They can strike it rich for nothing." Other culprits are the astronomical interest rates charged by payday lenders; and the aggressive marketing of credit cards by banks and other financial institutions, as a result of which by the time college students are in their senior year more than half of them have at least four different credit cards. The cures that Brooks offers include "rais[ing] consciousness about debt," encouraging foundations and churches to offer short-term loans in competition with payday lenders, strengthening usury laws, and taxing consumption rather than income, thus encouraging saving. All this is very interesting, but is it correct? I have my doubts, except about the desirability of eliminating double taxation of savings, a problem with our income tax. Max Weber argued convincingly in his famous book The Protestant Ethic and the Spirit of Capitalism that the frugality and industriousness promoted by the early Protestants in opposition to the opulence of the Roman Catholic Church were values conducive to and perhaps critical in the rise of commercial society. Protestants who believed in predestination wanted to show by their modesty, austerity, and avoidance of lavish display that they were predestined for salvation. But saving plays a less important role in economic progress today than it did in the sixteenth century. Its role in powering economic growth has been taken over, to a large extent, by technology. The great rise in standards of living worldwide is due far more to technological progress than to high rates of savings, that is, to deferring consumption. At the same time, now that we have efficient debt instruments that in former times did not exist or were extremely costly, the role of personal debt (Brooks does not criticize corporate or government debt) in human welfare is more apparent than it was. Apart from its role in solving short-term liquidity problems resulting from delay in the receipt of income, debt enables consumption to be smoothed over the life cycle. Without debt, a family might have to wait 20 years before it could afford to buy a house. Of course, debt creates risk for both lender and borrower, as the subprime mortgage crisis has dramatically illustrated. But if the risks are understood, it is unclear why the assumption of them should be thought harmful to personal or social welfare. At worst, debt leads to bankruptcy, but bankruptcy is not the end of the world either for the borrower or for the lender. In situations of desperate poverty, one can expect a heavy debt load; but such a load can also be positively correlated with prosperity, which cushions the risks that debt creates. It is especially odd to suggest as Brooks does that taking on debt is antithetical to hard work; on the contrary, it increases the incentive to work hard by making it at easier for people to obtain the goods and services they want by borrowing the money they need to pay for them, yet at the same time increasing the risk of bankruptcy should they slack off on their work and so let their income fall. The very high interest rates for payday loans tell us that many people will pay a very high premium to shift consumption from future to present. As long as they understand what interest rates are and what interest rates they are paying, it is hard to see why their preference for present over future consumption, and hence for spending and borrowing rather than saving, should have social implications. People who take out payday loans are unlikely to be potential savers (i.e., lenders); and by taking on heavy debt they force themselves to work very hard; and I have suggested that saving is not as important as it once was. I particularly do not understand how, if high interest rates for payday loans are a problem, loans by foundations and churches are a solution. If, as I assume Brooks must mean, these loans are to made be at lower interest rates than payday loans, the former payday borrowers will borrow more. If to try to prevent this the charitable lenders ration their credit tightly, the payday borrowers will borrow what they can from those lenders and top off with a payday loan; their total debt burden is unlikely to fall. As for the "tax on stupidity," it is of course irresistible to finance as much as government as possible by a system of voluntary taxation, which is what a state lottery is. And I don’t think "stupid" is the right word to describe all or even most of the people who buy lottery tickets. I do think that some of them consider themselves "lucky" and so in effect recalculate the odds in their favor. That is stupid; in a game of chance, "luck" is randomly distributed. Some people, though, simply enjoy risk. Others like to daydream, and a daydream is more realistic if there is some chance it may come true, even if a very small chance. And finally and most interestingly, there are people whose marginal utility of income is U-shaped rather than everywhere declining. Usually we think of it as declining: my second million dollars confers less utility on me than my first million, and that is why I would not pay a million dollars for a lottery ticket that gave me a 50.1 percent or probably even an 80 percent probability of winning $2 million. But maybe I lead a rather drab life, and this might make such a gamble rational even if it were not actuarially fair. Suppose that for a $2 lottery ticket I obtain a one in a million chance of winning $1 million. It is not a fair gamble because the expected value of $1 million discounted by .000001 is $1, not $2. But if having $1 million would transform my life, the expected utility of the gamble may exceed $2, and then it is rationally attractive. Brooks complains that government sponsorship of lotteries sends an official and therefore authoritative message that a person can strike it rich for nothing. But of course that is true, even when there are no lotteries. (And he gives no indication of wanting to forbid private lotteries.) You can inherit great wealth. More commonly, you may be able to leverage modest talents into great wealth by the luck of being in the right job at the right time. Brooks himself complains in his op-ed about the message sent by the fact that hedge fund managers often make more money than people who "build a socially useful product." Only the latter, he believes, should earn fortunes. But he doesn't propose an excess-profits tax on hedge fund managers; he accepts the legitimacy of their fortunes at the same time that he attributes those fortunes to luck. There is also an echo of the traditional but erroneous suspicion of speculation as an activity that does not create social wealth but merely shifts it around. That is incorrect. Speculation aligns prices (whether commodity prices or the prices of companies) with values and so creates more accurate signals for production and investment. It is a vital economic service. That is not to say that speculators "deserve" higher incomes than ditch diggers. Desert doesn't enter. Incomes are determined by supply and demand. What is true is that easy credit facilitates bubbles, such as the housing bubble and the related mortgage-financing bubble, and the bursting of a bubble can, as we have been relearning recently, cause economic dislocations. This may require some regulatory adjustments; it does not require a return to Calvinism. " ~ The Becker-Posner Blog

(about 4 hours ago) Cats and Dogs, and "Sensible" Bequests-Becker from The Becker-Posner Blog

" Leona Helmsley's bequests of $12 million to her dog, and several billion dollars to the welfare of dogs in general, are highly unusual, eccentric, and strange. Should these and similar bequests be allowed? No doubt $12 million is far more than can be spent on a single dog in any reasonable way, but is that the right criterion to use? An analogy with huge bequests to individuals is appropriate. The number of billionaires in the world has been growing rapidly rapidly, and a large fraction of these are in the United States. Most of them will leave hundreds of millions, and even billions, of dollars to their spouses, children, and grandchildren. Some of these recipients may recklessly go through these huge bequests in a short time, but is there any sensible way heirs can spend billions, or even hundreds of million, of dollars in their lifetimes? It is difficult for the rest of us to imagine how to spend that much, even with purchases of private planes, several expensive homes, and other luxuries. Spend these sums they may, but not in ways that would generally be considered useful or sensible. Similarly, I have no doubt that it is possible to spend $12 million on Helmsley's dog, but that would involve expenditures that most would consider at least as foolish and wasteful as the way some very wealthy heirs spend their much larger inheritances. This type of reasoning would explain why the Uniform Trust Act authorizes judges to reduce bequests to pets to a so-called maximum comfort level. Yet, with a couple of exceptions, I do not believe that trustees or anyone else should have the power to decide whether the nature and amounts of bequests for particular purposes are excessive and inappropriate. Respecting individual preferences, no matter how idiosyncratic, is one important measure of a free society, even when those tastes relate to bequests and inheritances. As Posner said, peoples' tastes take many forms, and it is not possible to prove objectively that some preferences, such as the huge bequest to Helmsley's dog, are much worse than even larger bequests to worthless children? One traditional exception to the principle of accepting bequests relates to those bequests made by persons judged to be incompetent, either because of demonstrated senility or mental illness. Such an exception, when used sparingly to avoid abuses, can be useful since bequests made by mentally incompetent individuals may well have no rational basis, not even eccentric ones. Another exception to the rule of allowing bequests, no matter how strange or eccentric, would concern bequests that violate laws. For example, a bequest to give guns to individuals would be disallowed if there were stringent gun ownership laws. Similarly, a bequest to promote white supremacy, or the employment only of males, would be judged to violate anti-discrimination laws. Respect for individual preferences does allow bequests to be taxed. To reduce the importance of bequests that make little sense, Posner proposes to tax large bequests given to charitable organizations. Yet it is not bequests that raise questions about appropriateness, but inheritances. A large bequest divided among many recipients, including many individuals and charities, does not raise anywhere near the same ethical or other problems as the same large bequest given to a few children or charitable organizations. The United States' estate tax and that of many other countries is wrong-headed because they tax bequests rather than inheritances. The case for making charitable organizations exempt from estate, inheritance, and other taxes that apply to individuals and for-profit businesses is that these charities decentralize giving to hospitals, universities, the poor, and for many other purposes that are not readily made self-financing. Absent private charities, the financial support of these purposes would be concentrated, that is monopolized, in the hands of governments, as it is in countries that do not exempt foundations and charities from estate and other taxes. The major concern about private charities and foundations is not that they are too large, but that their leaders often perpetuate their organizations beyond any reasonable duration, partly by transforming their goals over time. I believe a case can be made for keeping the tax exemption in place, but changing present laws to require charities and foundations to have limited durations, perhaps 30 years. That is, to introduce a kind of sunset provision for private charities and foundations. If they stayed in business beyond that time period, they would then be subject to significant wealth and income taxes. " ~ The Becker-Posner Blog

(about 4 hours ago) The Graying of College Faculties-Becker from The Becker-Posner Blog

" A recent New York Times article indicated that the fraction of full-time faculty members in the United States older than age 50 more than doubled between 1969 and 2005, increasing from 23 percent to over 50 percent. We explore why this graying of American academia occurred, and some of its consequences. Most of the professors who have been retiring in recent years took their first academic jobs in the late 1960s and early 1970s. Colleges and universities were expanding rapidly during those years, which meant that job opportunities were abundant and many young faculty members were added. New hiring slowed as the rate of growth of higher education slowed down in the 1990s and afterwards, which decreased the ratio of younger to older faculty. Congress passed a law in the early 1990s that made it illegal for colleges to force faculty members to retire unless the schools clearly demonstrated that a professor could not teach or do research at a modestly high level. Prior to that law, colleges forced their faculties to retire at a given age, usually 65, and made exceptions for those members they considered special in their teaching, research, or other contributions. Two former colleagues of mine, the Nobel Prize-winning economists George Stigler and T. W. Schultz, were kept on for this reason- in Stigler's case until he died at age 81, while Schultz did not fully retire until he was in his mid-eighties. This is a bad law because colleges now cannot force less competent or less energetic older faculty to retire while keeping the more productive faculty members since they are required by law to offer the same retirement terms to their entire faculty. The older system allowed schools to undo some of the harmful effects of the faculty tenure system by eventually retiring faculty that they should never have appointed. to be sure, given the strong competition among schools of higher education in the United States, the growing physical and mental health of older faculty might anyway have led colleges to raise the general retirement age. Colleges have tried to cope with their inability to force retirement by offering a variety of bonuses to all faculty members who agree to retire voluntarily or go from full time to part time. However, if older members of a faculty like their jobs, optimal buyout plans that try to induce voluntary retirement would generally lead to later retirements than under a compulsory system that is flexible enough to allow for treating different faculty differently. As a result, these buyout plans have not prevented faculties from aging, although they have slowed that down since about a third of eligible older faculty members usually agree to be bought out. Unfortunately, these plans often have an adverse selection effect since the more capable faculty are the ones who frequently accept a buyout. They may not retire but instead take a job elsewhere, often outside of academia. The sharply improved healthiness of older Americans has led many of them to continue working at later ages than did earlier generations. This is true for all types of jobs, but the effect is especially important in occupations requiring intellectual and other mental skills, such as teaching and research at colleges. These skills now usually last until men and women are in their seventies, whereas physical skills, say those required in masonry or assembly line work, tend to decline rapidly as workers get into their fifties. It is more difficult to understand the consequences than the causes of the aging of academic faculties, although one obvious effect is that opportunities for young PhDs have deteriorated. The slowdown in the expansion of institutions of higher learning in the past couple of decades has increased the scarcity of academic positions for younger PhDs. As a result, young academics have to concentrate more on doing good enough teaching and producing enough research to merit tenure in this tougher environment. Adding to this job pressure for American academics is that the market for faculty, along with that of many other services, has gone global since students from all over the world come in large numbers to get their graduate education at American universities, especially in the sciences, economics, and a few of the more humanistic fields. Many of the best of the foreign students stay on to teach and do research. They compete against Americans looking for academic positions, and hence narrow the market for Americans. Indeed, their competition partly explains why in many fields fewer Americans are getting their PhDs, and instead are taking MBAs, law degrees, and other advanced degrees where competition from foreigners has so far been less severe. One might think that aging faculties would tilt toward a more politically conservative faculty since older persons tend to be more conservative. However, as the Times article indicates, this does not appear to be true with regard to the faculty aging that is occurring now. Many older faculty members, especially in the humanities and social sciences, were active in the student and civil rights movements of the 1960s and '70s, and have maintained a radical, often Marxist, orientation toward events and history. The tough competition for academic jobs gives younger faculty much less time for radical and other political causes. Moreover, younger faculty went to school after many of these cultural wars were over, and they have more moderate views, although most still consider themselves Democrats, and are usually anti-markets and anti-business. Important new ideas in different fields come disproportionately from younger persons, and academic research is no exception. Significant advances not only in mathematics, but also in biology (such as Crick and Watson), in economics, and even in the humanities have typically been made by younger rather than older persons. This means that while the aging of faculties at American universities adds greater experience, faculties have lost some freshness of approach that comes from having younger faculty. Of course, it is possible, and perhaps even probable, that growing life expectancy and healthiness of older persons will shift ages of peak creativity toward older ages as well. The one recommendation from my analysis that would slow down the aging of college faculties is to abolish the federal law that prevents colleges from having compulsory retirement ages for most faculty members. The strong competition among these schools would lead to more effective utilization of older teachers and researchers than would result from legislation and regulations. " ~ The Becker-Posner Blog

(about 4 hours ago) Aging Professors: Posner's Comment from The Becker-Posner Blog

"I agree with Becker that it would be good if universities (if everybody) were permitted to impose a mandatory retirement age on their employees. As a matter of theory, however, the removal in 1994 of the professorial exemption from the Age Discrimination in Employment Act's ban on mandatory retirement ages need not have affected the average age of retirement of professors. In general, a law that affects only one term in a contract should have little effect on behavior, because its effect can usually be nullified by a change in another term. Eliminating mandatory retirement age is a good example. If a university wants professors to retire at, say, age 65, it can pay them to do so; that is, it can buy out their tenure contract. In the long run, the professoriat itself will pay for the buyouts, at least in part, because the opportunity for a buyout is a valuable option for which professors will be willing to pay by accepting a somewhat lower wage. (See the discussion of mandatory retirement in chapter 13 of my 1995 book Aging and Old Age.) Even if the result of abolishing mandatory retirement age is higher costs for universities, to the extent that all competing universities are affected, they will be able to shift most of the cost to students in the form of higher tuition. And to the extent that even generous buyouts are refused, universities can offset the effect by increased hiring of young faculty, albeit at increased cost. For just as higher energy costs need not alter the age mix of the faculty, neither need the abolition of mandatory retirement do so. Of course, this assumes that universities want a youthful faculty. As Becker points out, and I below, there is a good reason for universities to want to have a youthful faculty: young faculty tend to be more innovative. The average age of professors has increased, but the increase may largely have resulted from factors unrelated to the abolition of mandatory retirement ages: namely, continued rather dramatic increases in the health and energy--the youthfulness--of the elderly (which may narrow the productivity gap with young faculty); lighter workloads in elite universities; and delegation of teaching to teaching assistants and non-tenure-track teachers, reducing the demand for tenure-track faculty and hence increasing the average age of tenured faculty. The political divergence between old and young faculty (the older being more leftwing) is at first glance odd. If the adoption of a political ideology is driven by information, then since the information available to young and old is the same there should be no age-related difference in ideology. It is plausible that the young would be drawn to more extreme positions, whether left or right, on the political spectrum because lack of experience would make them more susceptible to radical schemes. But in academia it seems that Marxist and other extreme positions are more commonly embraced by the old than by the young. I doubt that the adoption of a political ideology is normally a result of a rational weighing of information. I think it is more commonly a matter of temperament interacting with aspects of personal identity (such as race and sex), life experiences, and nonrational beliefs, such as religious beliefs. (I argue this in my recently published book How Judges Think.) This makes ideology resistant to change based on new information. The expansion of the universities in the 1960s, together with the waning of antisemitism in university admissions and faculty appointments, resulted in a large influx of Jews, and Jews, for reasons never adequately explained, are disproportionately left-leaning. In addition, the expansion must have lowered the age of faculty, and for the further reason that teaching provided a refuge from the draft during the Vietnam War. The extreme to which the youth of the 1960s was drawn was leftist, and the left in the 1960s was farther to the left than today's left. If, therefore, ideology is largely resistant to information, there will be a tendency for a person's ideological identity to persist notwithstanding events, such as the collapse of the Soviet Union and the rise of free-market ideology, that might be expected to move a "rational" ideologue rightward. Becker rightly points to the danger that an increased age of university faculty members will result in reduced innovation. But this cannot be seen as an automatic or inevitable consequence of the age discrimination law even apart from the theoretical argument that I began with, because, assuming an inverse correlation between productivity and age, universities can lower the age profile of their faculty without violating the law and probably without even having to expand the faculty. The age-discrimination law applies equally to private businesses, but one does not hear it argued that there are too many old employees in private firms. Universities could abandon tenure and adopt performance-based compensation schemes. In addition, they could reduce the possibly too methodologically conservative influence of older faculty by reducing the role of faculty in appointing new faculty members. " ~ The Becker-Posner Blog

(about 4 hours ago) Are Newspapers Doomed?--Posner from The Becker-Posner Blog

"A newspaper is a bundled product. A bundled product is one that combines a number of products the demands for which may be quite different--some consumers may want some of the products in the bundle, other consumers may want other products in the bundle. (Another good example is the Windows operating system, a bundle of a number of different programs.) Bundling is efficient if the cost to the consumer of the bundled products that he doesn't want is less than the cost saving from bundling. A particular newspaper reader might want just the sports section and the classified ads, but if for example delivery costs are high, the price of separate sports and classified-ad "newspapers" might exceed that of a newspaper that contained both those and other sections as well, even though this reader was not interested in the other sections. Bundling also facilitates price discrimination by snagging consumers who place a high value on particular products in the bundle. It also increases the risk of entry by single-product competitors because the marginal cost to the consumer of the bundle of any component of it is zero. He gets the sports section for "free" (in the sense that the newspaper costs him no less if he throws the sports section away without reading it) but would have to pay a positive price for a free-standing sports newspaper. Like other intellectual products, a newspaper has high fixed costs (the newsroom, etc.) but low marginal costs (the cost of printing and selling one more copy), and so there is a tendency to natural monopoly in local newspaper markets. It is offset, however, to an extent, by differences in content, outlook, and so forth among different newspapers, which limits substitutability and therefore makes some degree of competition viable. Nevertheless newspapers tend to be quite profitable (as recently as 2006, the average ratio of profit to revenue was 17 percent, which is high relative to industry as a whole), because competition is limited. High newspaper profits sometimes are attributed to the fact that most information comes free from public sources and that newspapers deal directly with their customers and so economize on distribution costs. But low costs are not a reason for high profits, since competition tends to push revenues down to costs. High profits may seem inconsistent with declining revenues, but are not if the firm, seeing no future for itself, ceases investing in the its future and instead cuts costs to the bone (thus treating the firm's product or service as a "cash cow"). Many newspapers are doing that. Still, newspaper profits are plummeting, and with them the value of the companies. The reason is declining ad revenues (an inflation-adjusted decline of 20 percent between 2000 and 2007, and a further decline this year). This is a function in part of declining newspaper circulation but more profoundly of unbundling, as unbundling is the cause both of the declining ad revenues and of declining circulation. The Web provides a virtually costless method of distributing the products that are bundled in a newspaper. The distribution is not only cheaper, but better, because it avoids the time and space constraints of hard copy delivered on a daily (rather than instantaneous) basis and space-constrained by the cost of paper. The unbundling goes deeper than the section level (classified ads, the sports section, etc.), for every section of a newspaper is itself a bundle. The news section bundles a variety of news stories that different readers value differently; readers who have no interest in foreign policy nevertheless pay for a newspaper that may maintain costly foreign bureaus in order to produce good stories on foreign policy. The Web provides a customized news service that enables the tastes of particular readers to be identified and then satisfied by instantaneous and often costless delivery of a product laser-focused on those tastes. The bother associated with the physical bulk of the newspaper is also eliminated. A study by comScore, Inc. in March of this year found that persons 65 and older are almost six times as likely to read a newspaper six days a week than persons aged 25 to 34 (and almost ten times as likely as those aged 18 to 24). The principal reason for the difference is not I think that older people have more leisure, because people in the 45 to 54 year old bracket, who do not have more leisure than the young, are more than twice as likely to read a newspaper six days a week than the young cohort. The reason, rather, is that younger people are much more comfortable getting information online than older people are; they have grown up in the electronic revolution. This will not change as they get older. It appears that the only hope for the newspapers is to go online, and they have done this and have attracted many viewers to their Web sites. But they have not been able to charge for online ads anything like what they can charge for ads in their hard-copy editions. The reason I think is that there is much more competition in online advertising than in print advertising, especially for advertising, such as classified advertising, that is primarily informational; for the information in the ads is often available online at no or nominal cost from other sources, such as Craigslist. Moreover, the online newspaper is still a bundled product, and the Web provides close substitutes for all the sticks in the bundle. The blogs are a big factor here; in the aggregate, they not only are nimbler, but contain a vastly greater body of specialized knowledge, than the newspapers or other conventional media (as Dan Rather learned to his sorrow). Suppose, then, that the newspapers are doomed, or, more realistically, that they are likely to continue to shrink, eventually becoming a retirement service, like Elderhostel. Are there social consequences that should trouble us? A common argument is that if news is customized to the tastes and interests of every individual in the society, people will not be exposed to conflicting views and as a result will become incapable of active civic engagement, for example as voters. That is implausible. It is important to distinguish between opinion and fact. Most people do not want their opinions challenged. So if they are liberal they read the New York Times and if they are conservative they read the Wall Street Journal. But people are both interested in, and influenced by, facts, such as the fall of communism or the rise in gasoline prices, and they will learn these facts (and more quickly) on the Web even if they do not read newspapers. The few people who actually read, compare, and take seriously opposing views on matters of public policy will continue to do so after they stop subscribing to print newspapers. With the rise of the blogs, moreover, the amount of information and opinion reaching the public is far greater than in the heyday of the print newspapers. A second concern, to which the rise of the blogs may be only a partial answer, is that Internet news services (such as Google News) are parasitic on the print newspapers' large staffs of reporters, so that if they drive the newspapers out of business the Internet news services will lose much of their content. The copyright law cannot prevent this, because a newspaper can prevent the copying only of its articles--that is, of the verbal form in which the information in an article is expressed--and not the information itself. And it cannot prevent a news service from simply sending the viewer to the newspaper article via a Web link. The concern, in short, is that the Internet will kill the goose that lays the golden egg. But this is unlikely. If online viewers want the level of news and opinion that print reporters generate, the Internet news services will hire reporters, defraying the cost out of their online advertising revenues, which will be greater for an Internet news service that attracts additional viewers by offering them richer, newspaper-type fare. Indeed, long after newspapers like the New York Times and the Washington Post have ceased print publication, their Web sites may be among the leading Internet news services. The aggregate amount of news and opinion may be less, however, because unbundling will eliminate internal subsidies, for example of the news and op-ed pages by revenues from classified ads." ~ The Becker-Posner Blog

(about 4 hours ago) Energy Prices, Offshore Drilling, and an "Excess" Profits Tax-Becker from The Becker-Posner Blog

" Increases in energy prices sharply accelerated during the past year, as the price of oil more than doubled, and gasoline prices in United States rose by 25 percent. Responding to these price increases, Senator McCain and President Bush have called for an end to the 27-year old federal moratorium on offshore drilling for oil and gas in US waters, while Senator Obama supports a continuation of the ban. McCain has also indicated that he is reconsidering his opposition to drilling in the Artic region of Alaska. In another response to the energy price boom, Obama has proposed an excess profits tax on oil companies, while McCain has come out against such a tax. What does economic analysis contribute to an evaluation of these proposals? Supporters of a continuation of the moratorium worry that offshore drilling and oil leakages will kill many fish, and damage beaches and other coastal areas. These are potential risks, but whether to continue the moratorium involves a balancing of the advantages of drilling against environmental and other risks. These risks have not been affected by the rise in energy prices, but the benefits from drilling clearly have increased. Additional oil (and gas) from offshore drilling would lower US spending on imported oil, and thereby reduce the transfer of wealth from Americans to other oil and gas producers. Larger domestic energy supplies would also improve energy security in the event of a disruption in the supplies of oil and gas from major producers located in places like the Middle East and Nigeria that have had terrorist attacks on oil production facilities. Even if offshore drilling started tomorrow, it would take several years before actual production began since construction of platforms in deep water and installation of equipment take time. The value of ending the moratorium now would depend not on energy prices and risks of disruption this year or the next, but on the situation beginning in several years and extending over the following decade. Some oil specialists are predicting a rise in the price of oil to $200 a barrel during the next few years. I have argued previously why such a large price increase is unlikely (see my post on May 11); indeed, oil may very well retreat from its present level of over $130 a barrel. Still, as long as world GDP continues to grow over the next decade at a sizable pace-which is likely- the price of oil will remain far above what it was in the 1990's. This means that the financial and other benefits from offshore drilling are likely to greatly exceed the benefits at the time the moratorium was imposed, for oil was then much cheaper even in inflation-adjusted terms. The increasing share of imports in the oil consumed by the United States, and the rise in oil prices, explain why the value of imported oil rose more than five fold since the 1980s. This is why cost-benefit calculations of whether to end the moratorium and allow offshore drilling have shifted in the direction of allowing drilling. Although the risks of offshore drilling are much harder to quantify than the benefits, I believe the shift in the benefit-cost ratio has been large enough so that the time has come to allow drilling. Norway and Great Britain, to take two examples, have allowed drilling in the North Sea for many years without suffering major environmental damage. To be sure, in the end oil companies are the ones who have to decide whether the gains from drilling are worth the risks, including lawsuits if there are damaging oil spills, but these companies seem eager to start drilling offshore. The proposed excess profits tax on the earnings of oil companies would discourage the search for additional oil, and hence would have the opposite effects on this search from a relaxation of the moratorium on offshore drilling. An excess profits tax that is expected to persist for many years discourages further exploration for oil simply because much of the profits on new oil production would be taxed away. In 1980, President Jimmy Carter introduced a windfall tax on oil companies to prevent them from profiting a lot from the high price of oil due to the Iran-Iraq war. An evaluation by the Congressional Research Service, a think tank that provides reports to Congress, concluded that the tax significantly reduced domestic oil production and raised oil imports. Disillusionment with the tax led to its abandonment in 1987. Yet the lessons from this fiasco have been forgotten, for since the post-Katrina rise in gasoline prices in 2005, members of Congress have made regular attempts to introduce legislation with a sizable excess profits tax on oil companies. Even those Americans who worry a lot about global warming and other global pollution form the use of oil should be reluctant to discourage oil production offshore or elsewhere by American oil companies. Lower production by American companies would cause a rise in the world price of oil. Moreover, increased production by other countries would tend to offset reduced production by the United States, so that the effect on global warming and global pollution is likely to be modest. However, the increase in wealth transferred from the United States to the Middle East, Russia, Venezuela, and other oil-producing countries could be substantial. " ~ The Becker-Posner Blog

(about 4 hours ago) Trusts for Pets--Supplemental Comment--Posner from The Becker-Posner Blog

(about 4 hours ago) Should Dogs Get $8 Billion from the Helmsley Estate? Posner from The Becker-Posner Blog

"Eyebrows were raised when Leona Helmsley left $12 million to her dog in her will, and they were raised even farther when it was learned recently that she had signed a "mission statement" indicating her wish that the charitable trust created by her will, which has an estimated $5 to $8 billion in net assets, be devoted to the welfare of dogs. The judge supervising the implementation of her will cut the bequest to her dog from $12 to $2 million, and it is uncertain how much of the charitable trust will actually be devoted to dogs rather than to other objects of charity, since the mission statement is (according to news reports) not binding on the trustees who will be administering the trust. Section 408 of the Uniform Trust Act makes trusts for pets enforceable (historically they were not--such trusts were called "honorary trusts" and it was up to the trustee to decide whether to enforce the trust even if commanded to do so by the document creating it, as was not the case with the Helmsley charitable trust), but only up to the amount actually required to maintain the pet in comfortable circumstances. This would not necessarily limit the amount left to dogs as a class; there are so many dogs that even $8 billion could be spent on them without any individual dog receiving more than necessary for its maintenance in comfortable circumstances. The possibility that dogs will receive billions of dollars from a bequest presents three interesting questions: why would a person leave so much money to dogs; should such bequests be permitted by law; and should charitable bequests be subject to estate tax, rather than, as they are now, exempt from it? Some pets are kept for essentially practical purposes, such as mousing in the case of cats and home protection in the case of dogs. But increasingly pets are child substitutes or personal companions and, as such, love objects, and hence natural objects of bequests, particularly for childless or wealthy people. And it is natural to extend one's affection to the entire species, just as, if you love any persons, even if just members of your family, it is natural to have at least an attenuated regard for the welfare of other people, even for the human species as a whole; and so with dogs and cats if you have a pet of one of those species. Therefore, odd as it may seem, Mrs. Helmsley's desire to spend billions of dollars on dogs is more easily understood than her desire to give her dog $12 million, since above a far lower amount (probably far below the $2 million allowed by the probate judge) it is inconceivable that the money could increase the dog's welfare; hence the size of the gift makes no sense as an altruistic measure. This may explain why the Uniform Trust Act authorizes the judge to cut down the amount of the bequest to a pet to the pet's maximum comfort level. What makes a trust of $5 billion to $8 billion for dogs seem eccentric is that so much is spent on them already. A bequest of that amount for endangered animal species or other animal-protective purposes would be easy to understand as an environmental measure, but not a bequest for dogs or cats. However, a fundamental premise of normative economics is the subjectivity of values: value is determined by personal preference, and the preferences of adults who are compos mentis and back their preferences with money are not to be questioned by others unless the expression of those preferences would cause uncompensated harms to unconsenting third parties. Moreover, bequests will decline if judges pick and choose which to enforce; and to the extent that bequest motives are a significant force in motivating people to earn money, people may not work as hard to accumulate an estate if judges will not honor their bequests, or, even if they do work as hard, they may save less because consumption becomes more attractive relative to saving when the objects for which people save are not fully chosen by them. As I said, a bequest for a specified animal that greatly exceeds any conceivable estimate of what the animal needs to be as happy as it can be cannot be rationally altruistic, so perhaps the authority that the Uniform Trust Act confers on trustees to cut back such bequests to reasonable limits is justifiable--and for the additional reason that excessive wealth actually endangers an animal, since once it dies the money will go to residuary legatees; and killing an animal is not considered murder (though it can be a lesser crime) and is easier to arrange and conceal than killing a human being. Expensive security precautions have in fact been taken for the protection of Mrs. Helmsley's dog. These concerns do not attend a bequest for a large class of animals. The size of the Helmsley trust does suggest that it might be sensible to impose a ceiling on the charitable exemption from estate tax. For example, the law might exempt the first $1 billion of a person's charitable gifts (whether made during his or her lifetime or at death), but above that level such gifts would be taxed at the ordinary gift and estate tax rates. It is hard to believe that such a change in law would significantly affect work incentives, and it would therefore be an efficient tax. If it did not reduce people's effort level, it would not reduce aggregate personal income, but (because it would reduce the size of bequests and other charitable gifts), it would merely spread it about somewhat differently. Given that much charitable spending is wasteful because of the weak incentives for efficiency of the staffs of charitable enterprises, economic efficiency might be increased if there were fewer and smaller charitable trusts. " ~ The Becker-Posner Blog

(about 4 hours ago) Should Gasoline Taxes Be Raised or Lowered? Posner's Comment from The Becker-Posner Blog

"The economic study that Becker discusses treats gasoline taxes as a form of regulatory taxation, that is, taxation aimed at altering behavior rather than at collecting revenue. A gasoline tax is an excise tax, and excise taxes are a common method of raising revenue to pay for government. The best excise tax from a revenue-raising standpoint is one that causes minimum substitution against the taxed good or service, since (in the absence of externalities) such substitution distorts the efficient allocation of resources and reduces the revenues that the tax was supposed to generate. A regulatory tax aims at substitution because of the externalities caused by the taxed good or service, but complete substitution is rarely achieved (and indeed would usually be inefficient), and so a regulatory tax raises revenue as well as altering behavior. My guess is that the very high gasoline taxes in Europe, which are primarily responsible for the fact that the price of gasoline in Europe is on average almost twice the U.S. price, are intended and effective as revenue-raising devices, since those taxes antedate the current concerns with global warming, dependence on oil supplies from hostile or unstable nations, pollution, and acute traffic congestion. Whether from a revenue standpoint a stiff gasoline tax is an efficient tax, I do not know. But my guess is that it is. Since distances are shorter in Europe and public transportation far more extensive, Europeans can substitute against gasoline more easily than Americans can; nevertheless the very high price of gasoline in Europe, though for years it has been higher than U.S. prices are now, has not prevented demand for gasoline from growing, though in part this is due to extensive European construction of new non-toll highways and roads. An excise tax on a single commodity will not generate a great deal of revenue, because of its narrow base, but can be justified as part of a comprehensive system of excise taxes. It is likely, judging from U.S. consumers' reaction to the recent increase in the price of gasoline, that a steep hike in the gasoline tax (I am treating the state and federal gasoline taxes as a single tax) would cause a further reduction in demand. Consumers would drive less (some of them by moving closer to work--and telecommuting would increase) and would switch at a higher rate to vehicles with better gas mileage. At some point, however, the fall in demand might cause the price of oil to decline. Th