Economics and Happiness

Bluematter via Marginal Revolution:

Bluematter thinks learning economics has made him happier:

1. I cherish my consumer surplus. I value most of the stuff I buy way more than what I have to pay for them; vanilla ice cream makes me happy beyond belief, and the same is true for the music of Dream Theater and the (soon to be purchased) Apple iphone. And what am I asked to pay for them? Peanuts.

2. I cherish my producer surplus. I am getting paid way, way more than the salary that would make me indifferent between supplying labour and staying at home.

3. I never have regrets: I did the best I could given the information available to me at the time. Judging I could have done better using information I acquired at a later date makes as much sense as regretting the existence of gravity. On a related topic, I understand the irrelevance of sunk costs.

4. While I do care for my welfare in relative terms, my welfare in absolute terms looms large in my utility function – and, boy, look how its value has been growing.

5. The selfishness of my fellow human beings does not make me anxious or depressed. Adam Smith (or was it Mandeville?) taught me that humans, selfish as they are, can make happy societies. And perhaps more to the point, they can make me happy.

And from the comments on Marginal Revolution:

I am fairly confident that I would be significantly happier if I had never switched my major to economics in college. I certainly would be more ignorant if I had opted to stay with government, but at least it would have been a blissful ignorance.

Perhaps my sentiment is related to having gone to Mason where a strong emphasis is placed on destroying your soul. Well, not really. However, an econ course load at Mason does place heavy emphasis on and open your eyes to the fact that politicians are no less corruptible than anyone else (and probably more so), voters prefer terrible policies (and far too often act on those preferences) and government does more harm than good (especially when it makes a big show about how much they are helping) all of which (and so many more examples exist) are a tremendous departure from the life-view a public school education creates.

Economists as the vanguard of free market advocacy? Well, in a way

Some statistics that might shock some people:

We surveyed American Economic Association members and asked their views on 18 specific forms of government activism. We find that about 8 percent of AEA members can be considered supporters of free-market principles, and that less than 3 percent may be called strong supporters.

[A]lmost all scholarly free-market supporters are economists. [...] [F]ree-market supporters are practically nonexistent in anthropology, history, political science, and sociology.

This is according to a survey published in the American Journal of Economics and Sociology. I am too afraid to consider what the result would’ve been in Denmark…

Other interesting parts of the article:

Expert economists often reach a conclusion in favor of liberalization. [...] [I]n many areas of microeconomic regulation, the expert economists who express a policy judgment do largely reach a general conclusion about the desirability of liberalization. Consider the case of economists’ views on the Food and Drug Administration. In our survey of AEA members, the average (economist) score on “pharmaceutical market regulation by the Food and Drug Administration” was 2.0, or “support mildly.” However, the economists who study and judge FDA regulation very clearly come down in favor of liberalization. [...]This general pattern holds for many issues[...].

The Natural Logic for Statists

Free Exchange slams essentially collectivist thinking here.

“Why exactly is obesity a public health issue? Well, when, by force of law, you externalise responsibility for providing a good, such as health care, then the effects of all individual choices that affect the cost of providing that good for the individual are thereby transformed from internal to external effects. If you, like Mr Dubois, are in the grip of the blithe assumption that reducing negative externalities by raising the cost of the behaviour that causes them is simply what government does, then obviously my gluttony and sloth are public problems. Because public policy made them public problems! So, obviously, it’s up to the government to fiddle with prices to manipulate our behavior in order to minimise its impact on the tax-financed national budget.”

Reminiscent of my own point here (in Danish).

Added: I wish people like Dubois (see original link) would try to (privately) convince people to change their behavior, instead of using the power of the state to force them to. As Free Exchange writes: such people are very paternalistic.

Quote of the Week

“…it is interesting to compare the approach to measuring the social costs of rent seeking just described with the attempt by Phillips (1966) some time ago to measure “the social costs of monopoly capitalism.” He too proceeded by adding different items from the national income accounts. His criterion was different, however; namely, activities that existed under monopoly capitalism that would not exist in an ideal socialist state. Thus, he included all defense expenditures, since in 1966 these were solely intended to protect American capitalism from Soviet communism. (…) Interestingly, Phillips included all the income of lawyers as part of the social cost of monopoly capitalism. (…) Phillips also included all advertising. When he finished his list summed to 50 percent of GDP.”

Dennish Mueller (2003): Public Choice III, p. 357, my bold.

To those for whom the jerk reaction is to throw more money at things

Harvey S. Rosen: Public Finance (p. 73-74):

Hanushek [2002] surveys 376 statistical estimates of the relationship between input usage and various measures of educational atttainment. The inputs considered include the teacher/pupil ration, teacher education, teacher experience, teacher salary, and expenditures per pupil. He reaches the startlig conclusion that the data support virtually no correspondence between input usage per student and the quality of the educational experience. (…)

Even granting that inputs have little effect on achievement, the implications are not clear. As Hanushek [2002, p. 46] notes, “The evidence does not say that money and resources never matter. Nor does it say that money and resources could not matter…Indead, a plausible interpretation of the evidence is that some schools in fact use resources effectively but that these schools are counterbalanced by others that do not.” However, the research does indicate that we cannot predict which schools will be effective simply by looking at data on their purchased inputs. (…)

One particularly notable result emerges from the research on class size. It appears that, over a wide range, class size does not affect educational performance. (…)

Why I like economists

I like the way they think.

Madeira and EU’s regional development fund

This fall I was on the Portuguese island of Madeira, off the northwestern coast of Africa. Madeira is a beautiful place, especially if you like long walks in mountainous terrain.

Not only is Madeira beautiful, it also qualifies for the reception of EU regional development aid. As such, it is a great place to observe economically wasteful behaviour.

The first picture, seen below, is a massive sign posted at the beginning and end of a particular route through the mountains I went on. The sign advertises the costs of the recent renovation carried out on the route. As the sign says, the total cost of renovation was over 4.4 million euros (!). And of this, over 3.1 million was paid for by the EU (“Comparticipacao Comunitaria”)! The renovation amounted to, from what I could see, a couple of paved sections of the path and the torching of some mountain-sides (in order to allow a better view). Unfortunately, I didn’t take any pictures of the paved sections, but there’s a picture of the burnt greenery below (although wordpress refuses to upload the bottom part of the picture…). In any event, I can hardly see how the total renovation was worth 4.4 million euros…

On another trek on a different day, I came upon the following mechanical monstrosity of a transport thingie in the middle of nowhere.

This carriage thing (what do you call these?) leads to the middle of nowhere, as seen in the next picture, taken from the main base looking down:

Notice the total lack of other people than those in my party (click on the pictures a couple of times to zoom in). Squander? Of course it is.

I also visited a beach on the northeastern part of the island. The Madeirans had built a massive concrete pathway between the cliff and the entire beach. Did we see other people using that beach? Yes, but only two…This being on a saturday afternoon.

The things one can do with other people’s money…It’s not even like Madeira is especially poor, being a rather successful turist destination and all.

Milton Friedman on the latest tax debate in Denmark

Recent research by Rockwool Fonden has argued that reducing the marginal income tax rate for high-incomes would increase tax revenues (see article in Danish here). This is because lower income tax would induce those of higher incomes to work more than they do now, thus paying more in tax. This conclusion has sparked a minor debate in Denmark, a country in which tax cuts are deemed something evil, and has caused open disagreement between various ministers.

Just now I read a funny quote attributed to Milton Friedman, which sheds a different light on this issue:

“If a tax cut increases government revenues, you haven’t cut taxes enough.”

(Mskousen, found via PrestoPundit.)

Buy Nothing Day

I’m in very real danger of giving this “happening” free publicity, but here goes.

Tomorrow is Buy Nothing Day, a day on which to remark upon and act against consumerism and whatnot by (rather self-explanatorily) not buying anything for the whole day. The idea is, of course, entirely moronic. If people really didn’t buy anything for an entire day (including not buying anything on the stockmarket, etc.) it would have catastrophic consequences. Although this is what the people who join in the happening precisely want, those of us who actually enjoy the prosperity of our society would be hurt thoroughly. Also, try watching Buy Nothing Day’s promotion film at YouTube; have you ever seen a bigger (which the film in reality is) endorsement of capitalism?

So I’m calling for people to buy more than usual tomorrow (Saturday), to counter-act those who buy less. Again, I’m to some extent admitting defeat by calling for a counter-happening, since this implies that Buy Nothing Day actually has an effect. I’m not even sure if it will. I certainly haven’t heard of it to the same extent as I did last year. And even if some people bought less tomorrow, they would buy more today and the day after tomorrow.

Maybe it’s more of a symbolic thing. Buy more tomorrow so the people behind Buy Nothing Day can’t point to a sudden drop in the sales statistics on that day!

Dagens uhyggelige nyhed

Regeringen opgiver at begrænse den offentlige vækst. Dermed bukker den under for den voksende pres fra Socialdemokraterne. I stedet for at forklare de mange fordele ved at begrænse væksten i den offentlige sektor, prøver regeringen nu tilsyneladende at overbevise de tvivlende vælgere om, at den kan fosse flere penge ind i “service” end oppositionen kan. Det er nu officielt. Venstre er et socialdemokratisk parti.

Imens går den socialdemokratiske kommune Århus i den rigtige retning med nedskæringer.