Brock mentions below the hypothesis that a significant portion of the value of real property in the suburbs is related to school quality, and that improving inner-city schools would reduce this value.

It seems to me that parents, for the most part, want good schools rather than better schools. While the Memphis city school system does exhibit this relationship—property values in the White Station High enrollment zone are higher than those in, say, the Ridgeway or Egypt Central zones—I’m not sure this applies once a certain baseline is crossed; I don’t believe there is this contrast among property values between Germantown, Houston, and Collierville high schools in the (separate) Shelby County district, even though I’m fairly certain there is an academic pecking order among these schools.

The only areas we might expect this effect is where jurisdictional transfers take place: for example, where new annexations by Memphis shunt students in southeast Shelby County from the county system (e.g. Germantown High) to the city system (e.g. Kirby High, which has never had a very good reputation). In these cases, we’d expect a precipitous drop in property values, particularly for “middle-class” homes; my anecdotal impression is that this, in fact, did take place. But I’m not sure the same effect would have been there if students had been sent to known “good” city schools like Ridgeway or Cordova.

Matthew Yglesias notes today that, at least in theory, affluent families in good school districts have little incentive to push for improving educations in bad school districts. If we could wave a magic wand and improve the quality of underperforming rural and urban school districts, "suburban property owners are screwed, since a significant proportion of their home equity is tied up in the proposition that owning property in District X entitles your children to a superior education."

Here's a bit of anecdata to support this, from an article in today's Commercial Appeal (obnoxious registration required) about White Station High School, a Memphis public school with a very high reputation:

It's that mystique that ratchets up home prices in the neighborhoods around White Station High, and causes homes to sell 10 days faster than most Zip Codes in the metro Memphis area. Prudential Realtor Laura Zarecor sold her clients' home at 4792 Cole in two weeks. One open house is all it took.

I get four or five credit card offers per week in the mail, and I usually just throw them away without even looking at them.

Today, though, my wife and I both received credit card offers from CapitalOne. On the outside of each envelope were terms for balance transfers. My envelope offered

2.99% fixed APR for life on all balances transferred.

My wife’s envelope, on the other hand offered

3.99% fixed APR for life on all balances transferred.

My wife's reaction to this blatant inequity: “I didn’t want their crummy credit card anyway.” Neither did I.

At Cafe Hayek, George Mason University economics professor Russell Roberts quotes James Surowiecki writing in the New Yorker about the Bush administration’s manipulation of economic statistics for political gain:

Statistical expediency and fiscal obfuscation have become hallmarks of this White House. In the past three years, the Bush Administration has had the Bureau of Labor Statistics stop reporting mass layoffs. It shortened the traditional span of budget projections from ten years to five, which allowed it to hide the long-term costs of its tax cuts. It commissioned a report on the aging of the baby boomers, then quashed it because it projected deficits as far as the eye could see. The Administration declined to offer cost estimates or to budget money for the wars in Afghanistan and Iraq. A recent report from the White House’s Council of Economic Advisers included an unaccountably optimistic job-growth forecast, evidently guided by the Administration’s desire to claim that it will have created jobs.

Prof. Roberts then goes on to praise Bush for this:

[T]his indictment of the Bush Administration is disappointing. I was expecting to read that Bush had leaned on the bureaucrats to redefine unemployment or some such measure in order to look good in November. But except for the BLS example, Surowiecki's examples are examples of where the Administration has made inaccurate forecasts that led to more palatable political results. That's a good reason to ignore most forecasts....

Administration lies are good when they lead to political results that Prof. Roberts likes.

(Link via Marginal Revolution.)

(Updated to correct Prof. Roberts' institutional affiliation and link to Marginal Revolution.)

Have I mentioned how much I hate writing the front half of research papers? I guess this means I should find a frequent collaborator who likes writing literature reviews but hates data analysis…

(On the other hand, maybe I should just publish in economics journals… that discipline apparently considers three sentences to be a long lit review.)

Michael Jennings ponders who pays who to include the trial versions of Norton AntiVirus on laptops. My guess is Norton supplies the software either gratis or at a low, lump-sum price.

I’m most unlikely to pay for an anti-virus subscription on my new laptop, as I have a virus scanner that processes all my mail anyway, and I really don’t download much software for Windows (except essential stuff like Adobe Reader and the like); I do most of my real work in Linux, and have done for going on a decade. If I see a Norton Utilities 2004 bundle (which includes an annual Norton Anti-Virus subscription) especially cheap at Costco, however, I might reconsider.

The 2003 Chairman’s Letter to the shareholders of Berkshire Hathaway was released this morning, and Warren Buffett gets in a couple of subtle digs at the Bush administration. The best one was this one on page 19, regarding the opening of a new Nebraska Furniture Mart (NFM) store in Kansas City:

“Victory,” President Kennedy told us after the Bay of Pigs disaster, “has a thousand fathers, but defeat is an orphan.” At NFM, we knew we had a winner a month after the boffo opening in Kansas City, when our new store attracted an unexpected paternity claim. A speaker there, referring to the Blumkin family [the founders of NFM], asserted, “they had enough confidence and the policies of the Administration were working such that they were able to provide work for 1,000 of our fellow citizens.” The proud papa at the podium? President George W. Bush.

Here’s the punchline from Steve Verdon:

I used to have quite a bit of respect for Krugman. Now I see him as a despicable, low-life, partisan jackass.

Read the whole thing for the rest. It’s pretty sad.

Steven Bainbridge, in the course of congratulating Steven Taylor on his promotion, makes the following observation:

When I was up for tenure (a nerve-wracking time, even worse than sweating out the bar exam), a senior colleague told me that getting tenure didn’t change anything in your life except that you stopped thinking about tenure. I didn’t believe him, but it turned out to be true. If you’re internalized the norms of teaching and scholarship, you don’t change what you do. You just keep teaching and writing.

This seems like an odd analysis; the grant of tenure* doesn’t remove the incentive to publish, teach, and perform service at a high level (in the various department and college-prescribed ratios); while it is true you can no longer be fired for failing to do those things as proficiently, most associate-level professors at least aspire to promotion to full professor and the prestige and monetary rewards associated with that rank, which requires a similar level of effort (as between assistant and associate) to attain. Thus, we would rationally expect that professors would be more likely to slack off after promotion to full professor, rather than after achieving tenure.

Matt Stinson looks at the importance of branding, drawing from his ongoing experiences in China. He also leaves off with this disturbing thought:

In the future, China will be the biggest market for PBR. This scares me more than anything else I’ve seen here.

Hey, it could be worse. It could be Schlitz…

Greg Goelzhauser at Crescat Sententia considers the use and abuse of behavioral economics by legal scholars, jumping off from this interview with Berkeley economist Matthew Rabin. Greg writes:

That humans fall prey to a variety of heuristics is nothing new or extraordinary. What is important for law and economics is if some of these heuristics lead the relevant actors to systematically err in their decisionmaking. Unfortunately, many of those writing in the behavioral law and economics field care little about whether the actors they are concerned with actually rely on the heuristics attributed to them or, if they do so happen to rely, whether reliance actually leads to systematic error. The reason? These are often difficult empirical questions.

I’m not sure that this is an accurate characterization of what a heuristic is; it’s not simply a matter of “falling prey” to them, as many are reasonable shortcuts. You assume that the store with the cheapest price on a product is advertising it, rather than calling every store in town. Instead of digging through the platforms to find the most stridently anti-war presidential candidate, you assume the candidate making the most noise about the war is that candidate.

Now, as Tversky and Kahneman have pointed out, some heuristics do lead to systematic, non-random error. And some of those errors are big enough that the cost associated with the error is larger than the deadweight loss of not using the heuristic (calling every store in the world or spending hours reading the minutae of Lyndon LaRouche’s campaign platform).

Greg’s larger point—that social scientists and legal scholars often assume away the “difficult empirical questions” associated with determining whether systematic error exists—is well-taken, but I think characterizing heuristics as something we “fall prey” to assumes away the more important question of whether the systematic error involved in using heuristics outweighs the costs we avoid by using them.

Will Baude is the latest to jump into the public universities argument (roughly between Jack Balkin and the Volokh conspirators); Will writes:

I don’t particularly have a problem with government involvement in the private education market—either through direct subsidy (which is probably unnecessary) or through regulating the likely capital market failure. In other words, government-guaranteed student loans are great; a “graduate tax” could accomplish the same thing.

I used to generally agree with Will on this point; however, I’ve come to think that government subsidies—like guaranteed student loans, Pell grants, and student loan interest credits—make public and private universities insensitive to price as a rationing mechanism. This leads to much of the same problem we see in the health care market: most consumers don’t discriminate on the basis of price, because they have no personal stake in the price of service. In the case of higher education, the problem is more subtle, as at least there are direct costs to the consumer—they just aren’t felt until after college, due to in-school deferments of loan interest and principal payments. Regardless, this allows universities to increase tuition and fees at rates well in excess of inflation.

The disconnect between price and demand also allows universities to use price as a “prestige” factor; although virtually nobody actually pays $40,000 a year to go to Harvard, the price premium makes it appear as if you’re getting a better education than you would paying $15,000 to go to Americana State University. (You probably do get a better education at Harvard, but I suspect the premium is not worth $100,000.)

There are good reasons to criticize public subsidies of state universities—particularly in a poor state like Mississippi—but public subsidy of colleges and universities in general bears considerable scrutiny as well.

Update: Will Baude responds:

One thing to think about—

The reason, in general, that American[a] State U has a tuition of 15,000 to Harvard's 40,000 has a lot to do with the subsidies that American State provides to its U. To be sure, some private colleges are cheaper than others, but lots of kids I knew did indeed take price (and their financial aid packages) into account when choosing between them. And the diversity of price in private universities is pretty small—I don't know whether that's due to a universal-ness of costs (I doubt it) or more likely because demand is fairly price-inelastic. While it's true that subsidies (and to a lesser degree, loans) encourage that elasticity, it's not actually clear that's bad. On the one hand, some kids go to Harvard who really should have gone to Miss. But on the other hand, some kids go to Miss who otherwise wouldn't have gone at all.

Just a thought.

My experience as an undergrad (granted, 5+ years ago) was that there was more price differentiation among private universities; I know the tuition at Rose-Hulman was significantly lower than that of Georgetown, and the price differential was more than could be justified on the basis of cost of living differences between D.C. and Indiana (not to mention that Rose-Hulman is a superior academic institution to Georgetown). There may be less differentiation among elite-tier private institutions like Chicago, Stanford, and the Ivys, however (some of that used to be due to now-illegal agreements among the Ivys to limit financial aid awards to exceptional students).

Now it is true that price does matter to some people, even with government subsidies (both to universities and students). On the other hand, I find it difficult to justify subsidizing a flagship public university like Ole Miss on the backs of working class people; that being said, Ole Miss may be something of an aberration in this regard, although I suspect a number of other colleges, like the University of Alabama, Auburn, and LSU, are similar “blue blood” state universities (to say nothing of elite-level state universities like UC-Berkeley and Michigan, which are far more selective).

Alex Tabarrok endorses an econometrics text that makes two rather bold simplifying assumptions:

Stock and Watson use a “robust” estimator of standard errors right from the beginning. This means that they can dump an entire chapter on hetereoskedasticity and methods of “correcting” for hetereoskedasticity (these rarely worked in any case.)

They do not waste time discussing the difference between the t-distribution and the normal-distribution. Instead, they assume reasonably large datasets from the get-go and base their theorems on large-sample theory.

I can sort-of-see the value of always using heteroskedasticity-consistent standard errors (although I think it’s better to model the heteroskedasticity if you can), but dispensing with the t distribution seems to be a bridge too far. Large sample theory is nice, but (a) common econometrics software (e.g. Stata, LIMDEP, and R) uses the t distribution even into sample sizes in the 100s, so you need to discuss it anyway, and (b) there are plenty of theorems that can only be tested with small samples due to data limitations. Now, these may be less problematic in the large-n world that economists inhabit, but I’d have real trouble justifying such a text for a graduate seminar in political science methods (undergrads rarely get beyond bivariate regression).

Tyler Cowen, whose blogging at Marginal Revolution I generally admire, is apparently trying to prove that economists really are nothing more than shills for the wealthy. He quotes vapid blowhard George F. Will, who really is nothing more than a shill for the weathly, and asks

In 1979 the top 1 percent of earners paid 19.75 percent of income taxes. Today they pay 36.3 percent. How much is enough?

This is supposed to be some sort of appeal to fairness, I suppose. “It’s just so unfair that the top 1% of the income distibution bear 36% of the cost of the federal government.”

Let’s just set aside the fact that Will and Cowen are focusing solely on federal income tax, and ignoring the regressive federal payroll tax and state sales taxes, both of which raise the bottom 99 percent’s share of the overall tax burden.

The important point is this: statistics about the percentage of the tax burden born by a given segment of the income distribution are utterly meaningless in absence of data about what percentage of overall income (or wealth, or whatever you think is fair to tax) that segment controls. Even if we instituted a perfectly flat income tax, the top 1% would pay a greater portion of the tax burden than people at the bottom of the income distribution, for the simple reason that they have more income.

The reason that the top 1% pay a heavier share of the federal income tax burden now than they did in 1979 is not that the federal income tax has become more progressive. On the contrary, federal income tax has become flatter since 1979. The rich pay a higher share now because the rich have seen sharper gains than the rest of the population. By and large, most people have gotten richer in the past two decades, especially during the 90s, but the rich have gotten more richer than the rest of us.

My opinion as a utilitarian: Fairness is a useful concept for dividing splitting the cost of pizza between friends, but worthless when trying to determine what share of the tax burden an individual should bear. Economist can tell us about the effects of various tax schemes on economic efficiency, i.e. the total size of the economic pie as measured in dollars, euros, or what have you. But any gains in efficiency brought about by making the tax system less progressive may be offset by the diminishing marginal utility of money. If we shift $100 dollars of the tax burden from Bill Gates to some pauper, there’s a net loss in utility, because that $100 was worth more to the pauper than to Bill Gates, who could afford to wipe his ass with $100 bills if he wanted to. Somewhere in the middle lies the perfect tax system that maximizes utility, but we’re not going to find it by bloviating about fairness.

My opinion as a snarky blogger: You're supposed to post your insightful stuff at Marginal Revolution, Tyler, and post crap like this over at the Volokh Conspiracy, where it fits in well with crap by Barnett and Bernstein.

UPDATE: Dan Chak makes pretty much the same point I do, and then fills in the missing data.

Brock rather optimistically wrote below:

The presumptive nominee, John Kerry, deserves credit for voting in favor of NAFTA. I hope he has the courage to stick by what he knows is true: that tariffs and other protectionist measures do more harm to the country than good.

Brock apparently missed tonight’s Democratic debate, in which Kerry virtually repudiated NAFTA by advocating wider use of its environmental and labor side-agreements for protectionist ends—even though, in fairness, he was the best of a horrible field on that score. I’ll let Alex Knapp speak for me on Democrats’ commitment to our nation’s international agreements on trade:

You know, for a bunch of people who criticized Bush for being unilateral on military issues, they sure are eager to act unilaterally in rescinding our international obligations on trade issues. Or does international law not mean anything to these candidates?

Of course, since France is also a highly protectionist country, any issue where we agree with France but repudiate agreements with other countries apparently doesn’t meet the Democratic definition of “unilateral”.

Alex Tabarrok continues his insightful criticism of Democratic rhetoric on free trade.

Let me take this opportunity to say that the one thing likely to make me push the Libertarian button on the Shouptronic machine in November is continued protectionist demagoguery from whoever the Democrats nominate: and all of the remaining candidates are guilty of this to some degree.

(This, of course, assumes that the Libertarians manage to nominate someone who isn’t a total crackpot, which is not guaranteed.)

I’m not a single-issue voter in the usual sense. Free trade vs. protectionism is not the biggest issue facing this country. But it is a good issue for determining whether a candidate is more interested in policy or politics (or, as I suspect of Gephardt, whether he’s totally ignorant of basic economics). Our current president is clearly more interested in politics.

The presumptive nominee, John Kerry, deserves credit for voting in favor of NAFTA. I hope he has the courage to stick by what he knows is true: that tariffs and other protectionist measures do more harm to the country than good.

Greg of En Banc links a short paper on the economics of student evaluation forms. Ole Miss just transitioned from paper “bubble sheet” forms handed out in-class to an opt-in online system somehow tied into our all-knowing but completely-screwed-up SAP campus management system.

Last I heard, compliance with the evaluation procedure was sharply lower—something I think would lead to a non-random error that biases responses downward, as students who disliked a class will probably be more likely to bother filling out the evaluations. On the upside, at least you don’t have to keep the original copies of the evaluations around for the written comments—which is a good thing, since the university managed to shred one semesters’ worth of evaluations a couple of years back, making those written comments lost to history.

There’s an excellent factual article over at The Motley Fool on the 2003 tax cuts, much of which is devoted to helping you figure out how much you saved on Federal income tax vs. the year 2002. According to the article, I paid about $450 less this year than I would have given the 2002 tax tables.

Of course, I don’t really count it as a tax cut, given the profligate spending of the Republican Congress and admininistration. I figure I’ll be paying for it one way or another eventually.

Lots of interesting stuff out there today. I’m too lazy to comment on it all, so here are some links:

• Tyler Cowen has some interesting thoughts on immigration. I’m looking forward to his followup.
  
• Bad news: the health benefits of drinking seem only to apply to smokers and ex-smokers.
• Snark of the week: Wonkette suggests some alternate titles for Senator Bill Frist’s family history, Good People Beget Good People.
  
• Clayton Cramer: he’s not just anti-gay, he’s anti-science.
  
• Via Gnostical Turpitude (what is it with all these University of Chicago blogs, anyway?), here's a board game based on one of my favorite novels, Umberto Eco’s The Name of the Rose.
  
• Via Hit and Run, I learned that Marvel and DC are claiming a joint trademark on the term "Super-Hero".
• And Slate has a page with some 1971 Doonesbury strips featuring John Kerry.

Somewhat apropos of Sunday’s discussion of the failure of libertarianism, the Baseball Crank considers a new camp in the conservative big tent, which he describes as “Reform Conseratism”*:

Traditionally, the conservative movement has been driven by small-government conservatism, the idea that government is too big and intrusive and spends and regulates too much. Ever since the Reagan years, the small-government conservatives have been trapped in a sort of limbo: they’ve won the battle of ideas, but lost the political battle, most spectacularly with the failure of Newt Gingrich’s 1994 revolution to eliminate any significant government programs.

Partially in response to this, we’ve seen the growth of what (at the risk of adding another sub-category) I’ve long liked to think of as Reform Conservatism. The central insight of Reform Conservatives has been that the most important problem with government programs is not that that they involve the government, but that they take choices away from individuals. The classic Reform Conservative solution is including privately controlled accounts within the Social Security system; rather than stage a losing battle over trying to scale back or get rid of the program, Reform Conservatives have focused on introducing within it an element of private choice to make the operation of Social Security more like a non-governmental program. The other signature issue of Reform Conservatives, school choice, operates the same way: it’s still redistributing taxpayer money, but the decisionmaking authority over the use of that money is shifted to parents and away from school system bureaucrats.

The Crank contrasts this approach with something he unfortunately calls “neoliberalism”†, who share the conservative critique of government failure but “prefer[] instead to have government enforce standards that demand accountability [for the failure of New Dealesque social policies], rather than depending on individual self-interest” to reform them.

Overall, I think it’s an interesting discussion of a policy area where many small-l libertarians could be encouraged to agree with elements of the conservative platform. But I think the Crank overstates the case that “Reform Conservatives” make for choice: while they attempt to capture the power of the market in their reforms, the “decisionmaking authority” that citizens receive is narrowly circumscribed. You can only use school choice money for educating your children in certain settings (you generally can’t use the cash to send them to live in Africa for a year, for example, even though that’d probably be far more educational than shuttling them back and forth to a nearby charter school). You must set aside the “private account” in social security for your retirement, rather than investing in (say) your own education, a house, or a new car, things that the average 30-year-old needs more than a nest-egg for a far-off retirement (which, given the solvency of social security, he or she’ll be lucky to see before turning 75). In the end, it’s still a government bureaucrat that ultimately decides the scope of what you can do—reform conservatives just make the scope a bit bigger.

Over at Marginal Revolution, Alex Tabarrok summarizes his new paper on the disconnect between the economic theory of patents and the political reality of patent law. Prof. Tabarrok was kind enough to send me a pdf of the paper, in which he points out the absurdity, from an economic point of view, of rewarding “inventors” with 20-year monopolies on ideas of the kind that occur while taking a shower: ideas like Amazon.com’s infamous patent on “one-click purchasing.” He proposes a system in which the scope of the patent – its length or its breadth – would vary with the amount of sunk costs that go into the invention.

The best quote of the paper:

Edison famously that “Genius is one percent inspiration, ninety-nine percent perspiration.” A patent system should reward the ninety-nine percent perspiration, not the one percent inspiration.

Also noteworthy are studies he cites showing that “most innovations would occur without patents.” The notable exceptions – the chemical industry and the pharmaceutical industry, where firms do face major development costs.

(And the paper is accessible even to a non-economist like me. So if you have any interest at all in intellectual property law, get Prof. Tabarrok to send you a copy.)

Tyler Cowen, noting that drastic fall in violent crime during the 90s may be partly explained by the fall in popularity of crack cocaine, speculates on the reasons that the cocaine business, unlike the marijuana business, is so associated with violent crime.

Is it more due to intrinsic properties of cocaine, such as its addictive nature, and its being a stimulant instead of a depressant? Or is it due to extrinsic features of the drug, such as its centralized production outside the U.S.?

Perhaps some light could be shed on the matter by comparison with the crystal methamphetamine business. I’m not an expert, but from what I’ve read it would seem that crystal meth shares a lot intrinsic properties (such as being a stimulant) with cocaine, but shares with marijuana extrinsic properties such as decentralized production.

If there’s a high rate of violence associated with the crystal meth business, we should look to the intrinsic properties of cocaine to explain the violence associated with the cocaine business, whereas if there is not, we should look to production factors to explain the difference between the cocaine and marijuana businesses.

Alex Tabarrok has just had a co-authored paper published that uses a simulation-based approach (using simulated “placebo laws”) to help test whether the effects of certain types of dummy (binary) variables in a time-series are statistically significant. It seems like a fairly interesting approach, which I’ll have to bear in mind next time I do any time-series stuff (most of my data tends to be cross-sectional, however).

And, the substantive topic of Alex’s paper will no doubt be of interest to those who want to fight over John Lott’s More Guns, Less Crime.

Steve Verdon notes the decline in several strategic sectors of the American economy has become acute over the past 100 years. This continuance of this tragedy must be averted at any cost.

Jeremy Blachman of En Banc watched the Iowa Democratic debate today instead of having the good sense to watch the Packers–Seahawks game. I actually tried to watch a few minutes of it, but every time I switched it on I almost immediately felt like throwing something at the screen.

I’m not a huge fan of literacy tests, but I have make an exception: every candidate for public office should be required to present evidence of having taken—and passed—a course in economics at some point in their lives. Especially idiotic was one candidate’s pronouncement (I think it was Kerry’s) that free trade would be just dandy if every country was exactly the same; of course, if that were the case, you wouldn’t trade at all because nobody would have a comparative advantage.

Meanwhile, Steve Verdon examines another aspect of Democrats’ economic illiteracy—their obsession with outsourcing.