Archives For June 2010

When BP Spills Coffee…

June 25, 2010

A little humor for your Friday:

I read an interesting piece by Greg Mankiw on the subject of taxing sugary drinks. The reasons for taxing the drinks are:

1. raise tax revenues

2. curb the consumption of those drinks because they have an adverse impact on society

Despite the topic, Mankiw’s piece is interesting, particularly about cigarettes:

They [cigarettes] are among the economy’s most heavily taxed products, as governments try to discourage people from smoking. Yet the case for such a policy cannot rely on a conventional externality argument.

When a person sits at home and smokes two packs a day, the main adverse impact is on his or her own health. And even if second-hand smoke is a concern, that problem is most naturally addressed within the household, not at the state or federal level.

Sometimes, advocates of “sin” taxes contend that consumers of certain products impose adverse budgetary externalities on the rest of us — that if the consumption induces, say, smoking- or obesity-related illness, it raises health care costs, which we all pay for through higher taxes or insurance premiums.

Yet this argument has a flip side: If consumers of these products die earlier, they will also collect less in pension payments, including Social Security. Economists have run the numbers for smoking and often find that these savings may more than offset the budgetary costs. In other words, smokers have little net financial impact on the rest of us.

The bottom line to Mankiw’s article is: do we want government taxing items because they are considered “bad for us?” If so, where does it end? Ice cream, milk, cream, cookies, cakes, white bread,?… In other words, who’s to decide what is healthy for us?

If you have a minute or two, read Mankiw’s piece.

Something interesting I read in Thomas Sowell’s The Housing Boom and Bust: Revised Edition* was about the Great Depression. I remember being taught that excessive borrowing (margin) used to purchase stocks formed a bubble. The bursting of that bubble and the closing of banks(1) caused the Great Depression and that Roosevelt’s New Deal (and World War II) pulled the nation out of that depression.

Sowell makes the case that it was the RESPONSE (government intervention) to the stock market crash that prolonged the depression. Take unemployment for example:

Those who think that the stock market crash in October 1929 is what caused the huge unemployment rates of the 1930s will have a hard time reconciling that belief with the data in that table.

Although the big stock market crash occurred in October 1929, unemployment never reached double digits in any of the next 12 months after that crash. Unemployment peaked at 9 percent, two months after the stock market crashed– and then began drifting generally downward over the next six months, falling to 6.3 percent by June 1930.

This was what happened in the market, before the federal government decided to “do something.”

What the government decided to do in June 1930—against the advice of literally a thousand economists, who took out newspaper ads warning against it—was impose higher tariffs [Smoot-Hawley tariffs], in order to save American jobs by reducing imported goods.

This was the first massive federal intervention to rescue the economy, under President Herbert Hoover, who took pride in being the first President of the United States to intervene to try to get the economy out of an economic downturn.

Within six months after this government intervention, unemployment shot up into double digits—and stayed in double digits in every month throughout the entire remainder of the decade of the 1930s, as the Roosevelt administration expanded federal intervention far beyond what Hoover had started. (2)

In the last chapter of The Housing Boom and Bust: Revised Edition*, Sowell lists several government measures that took place during the depression that he believes helped prolong the depression:

…The biggest of the New Deal interventions was the National Industrial Recovery Act of 1933, which controlled prices and wages in industry. The Agricultural Adjustment Act of 1933 established federal control over prices and output in agriculture. The National Labor Relations Act of 1935 made it mandatory for employers to negotiate wages and working conditions with labor unions. FDR also took the country off the gold standard and issued thousands of executive orders—more than all the subsequent Presidents of the United States in the twentieth century combined.

A paragraph or two later, Sowell writes:

The Roosevelt administration’s rapid succession of sweeping and unpredictable interventions in the economy, interpsersed with anti-business rhetoric, caused even a liberal like John Maynard Keynes to question whether some of the New Deal reforms, includeing some he regarded as “wise and necessary,” might “impede” economic recovery because they could “upset the confidence of the business world and weaken their existing motives to action.”

Of course we’ll never know what would have happened had the government not intervened during the depression (the same way the current administration can’t talk about how many jobs they “saved” with their stimilus bill). But, we do know that government intervention does have consequences and sometimes those consequences are not what we expect.

I’m a newbie when it comes to economics discussions but I’m going to be doing a lot more reading on this topic in the future.

(1) Sowell mentions in his book that a “wholly disproportinate share of those banks that failed then were in states with laws preventing banks from having more than one location,” which increased risk.
(2) A Mind-Changing Page

*Affiliate Link

“Few things blind human beings to the actual consequences of what they are doing like a heady feeling of self-righteousness during a crusade to smite the wicked and rescue the downtrodden.” – Thomas Sowell


Just where in the Constitution of the United States does it say that a president has the authority to extract vast sums of money from a private enterprise and distribute it as he sees fit to whomever he deems worthy of compensation? Nowhere.

That’s a quote from this Thomas Sowell piece I read this morning.

I wondered that about the Administration putting a moratorium on drilling in the Gulf. How can he do that? The drilling moratorium gets on my nerves because it serves no purpose other than to give us less oil. How long have we been drilling for oil in the Gulf? How many serious accidents have we had during those years? I just don’t see the justification for such drastic action.

The randomly-selected winner of Thomas Sowell’s “The Housing Boom and Bust” was commenter #13, Mike. Congrats to Mike.

I’ll be offering another giveaway soon. Thanks for playing.

I’m Back…

June 21, 2010

Wow! Twelve days is a long time to be away from home. On this vacation we visited my hometown (3 days), then went to Kansas City for a wedding (1 day), then to St. Louis (3 days), and then to Branson (3 days), plus two full days of travel. We got back home Friday night. Then, last night we sent our boys off on a weeklong camp in Missouri. This is the third week the kids have been out of school and our boys haven’t been home for any of it. After this week though, things will slow down for the rest of summer.

Yesterday was Father’s Day. My wife and kids bought me one of the Margaritaville machines. It’s pretty cool but we haven’t used it yet because we didn’t have any of the necessary ingredients to make a mixed drink. So, I guess I’ll be visiting the liquor store today. Yesterday marked the third Father’s Day since my dad passed away. Makes the day kind of weird.

Anyway, I’m glad to be back. I’ll announce the book giveaway winner in a bit.

Stay tuned…