Deadweight loss of taxation

Argentina is doing their bit to help economics instructors explain the deadweight loss of taxation. After the Argentinian Government increased export taxes on agricultural exports:

The tax rise would lead to some 2m hectares (5m acres) being left idle next year, reckons Pablo Adreani, an agricultural consultant. Some producers are already cutting back: Alexis de Noailles, who runs Rincón de Chillar, a large farming company, says the new policy caused him to stop work on a new milk factory, costing ten families their jobs.

From the Economist

Hazard perception test

The NSW government recently introduced a hazard perception test in their increasingly byzantine car licensing requirements. In this test you are shown a series of videos of various driving situations and asked to touch the screen when you would take a particular action (e.g. break or turn right). The test was introduced because research in Victoria showed that people who passed the test were far less likely to have an accident.

The problem is in NSW you're allowed to sit the test as many times as you like and people who fail don't have to undertake any action. I will admit a persons first attempt at the test probably has predictive value in telling you whether they're more likely to have an accident because very cautious people are far more likely to pass the test the first time. Passing the test on the fifth attempt, however, is unlikely to mean that you've suddenly improved as a driver. It's probably far more likely to mean that you've finally learned how to game the test and give the RTA the answers they're looking for.

The problem is they don't take any action to improve the hazard perception of drivers that fail. If they asked the drivers that failed on the first (or second attempt) to do some kind of course that was shown to improve hazard perception and reduce the risk of an accident then the test would be meaningful but they don't. Instead you can sit the test as many times as you like until you work out when they want you to press the screen, not necessarily when you've become a better driver.

Marglin Podcast

A recent Econtalk Podcast was with Stephen Marglin about his new book, "The Dismal Science: How Thinking Like an Economist Undermines Community". As always the podcast was very interesting. I heard about his book a couple of weeks ago and was somewhat skeptical and this podcast didn't change my opinion.

His main point seemed to be that conventional economic analysis undervalues the benefits of "community" where community is some kind of group thats costly to leave. As a critique of main-stream, highly technical economics may have some substance but from what I understood his reasons for not being a Hayek-ian were highly confused. If joining a community is so beneficial then why not leave that up to individuals? Surely communities have--and could, if people wanted it--develop ways of voluntarily making a credible commitment to join the community such that it would be extremely costly for an individual to leave that community. Does he think that there is no way for people to voluntarily credibly commit to joining a community? Alternatively, does Marglin think that people, irrationally, underestimate the benefits of joining a community and, as such, are unwilling to join communities that require them to voluntarily make the initial credible commitment to join? I couldn't work it out.

I could think of a lot of organizations that require a very heavy upfront voluntary commitment to join and the members of the community endure very heavy losses to leave. These communities are mostly religious cults where the leader usually absconds with the community members' money but they do seem to exist.

Smith quote

I thought this quote from Adam Smith was fantastic:

The property which every man has in his own labour, as it is the original foundation of all other property, so it is the most sacred and inviolable. The patrimony of a poor man lies in the strength and dexterity of his hands; and to hinder him from employing this strength and dexterity in what manner he thinks proper without injury to his neighbour, is a plain violation of this most sacred property. It is a manifest encroachment upon the just liberty both of the workman, and of those who might be disposed to employ him. As it hinders the one from working at what he thinks proper, so it hinders the aothersa from employing whom they think proper. To judge whether he is fit to be employed, may surely be trusted to the discretion of the employers whose interest it so much concerns. The affected anxiety of the law–giver lest they should employ an improper person, is evidently as impertinent as it is oppressive.
Adam Smith

HT: Tom Palmer

Resumption of intermittent service

It turns out that this isn't the echo chamber I thought it was. Not only does my brother read this blog it turns out that someone else at his university reads this blog too! Not only that but they noticed the recent laziness induced hiatus! So this post is just to say that the intermittent blog posts will be resumed posthaste.