August 27, 2007 by Tom Armstrong.

Short article on restricting labor competition in order to raise wage rates in your particular profession. Notice that the free market determines the equilibrium wage rate, and the state jumps in to modify that wage rate upward for the lobbying party, increasing the cost of that good or service to society. As explained in the article:

In fact, government licensing requirements are almost never pushed by consumers or consumer groups, but by associations of the professions or vocations to be licensed. The reason is simple. Licensing reduces competition, increasing the income of existing practitioners. License requirements that involve training subsidize businesses that often teach skills that may or may not be related to what is required to perform the job in the real world. And while licensing boards may occasionally pull the license of a bad apple licensee, they more commonly focus on tracking down unlicensed practitioners.

The license in not required to ensure a competent provider. The market will decide this through profits and losses. Provide a good service, and you’ll be rewarded; provide a bad service, however, and you’ll face bankruptcy (equivalent to having your license pulled).

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August 27, 2007 by Tom Armstrong.

How do teachers respond to financial incentives? Much like anyone else, as opposed the the idea held by some that they are entirely benevolent, self-sacrificing champions of children. Here is a story of one pilot program for teacher merit pay.

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August 27, 2007 by Tom Armstrong.

Notable from this article appearing today at National Reveiw Online:

The following are facts about persons defined as “poor” by the Census Bureau, taken from a variety of government reports:

46 percent of all poor households actually own their own homes. The average home owned by persons classified as poor by the Census Bureau is a three-bedroom house with one-and-a-half baths, a garage, and a porch or patio.

80 percent of poor households have air conditioning. By contrast, in 1970, only 36 percent of the entire U.S. population enjoyed air conditioning.

Only six percent of poor households are overcrowded; two thirds have more than two rooms per person.

The typical poor American has more living space than the average individual living in Paris, London, Vienna, Athens, and other cities throughout Europe. (These comparisons are to the average citizens in foreign countries, not to those classified as poor.)

Nearly three quarters of poor households own a car; 31 percent own two or more cars.

97 percent of poor households have a color television; over half own two or more color televisions.

78 percent have a VCR or DVD player.

62 percent have cable or satellite TV reception.

89 percent own microwave ovens, more than half have a stereo, and a more than a third have an automatic dishwasher.

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August 27, 2007 by Tom Armstrong.

From the WSJ Econ blog today:

Since credit markets began to seize up in late July, the Fed has used a variety of tools to try to restore confidence, short of cutting its main interest rate, the target for the federal funds rate, from its current 5.25%. Economists say it still has several tools left, but whether the Fed would be willing to use any is an open question.

The possibilities include: lowering the discount rate further; accepting a wider range of collateral in open market operations; permit non banks to borrow from the discount window; create a joint lending program with Treasury to lend to needy institutions, as it did in 1989 with thrifts; create a temporary facility for lending against commercial paper similar to what it created in late 1999 for the century date change; and open swap lines with the European Central Bank. A more detailed discussion follows.

Some have praised the Fed for trying to restore confidence to credit markets without cutting the federal funds rate, which they say would create moral hazard by bailing reckless lenders out of their bad decisions. Yet proponents of this logic need to be wary: bending rules and conventions so much to boost particular markets could ultimately create more moral hazard than a rate cut.

Fed vice-chairman Donald Kohn alluded to this very tradeoff in a speech last May. In it, he said a world in which capital markets have displaced banks as credit intermediaries probably would have more crises requiring cuts in interest rates, but this was “not really bad news.” Cutting rates “can greatly ameliorate the effects of market events on the economy, and … will carry less potential for increasing moral hazard than would the discount window lending that was a prominent feature of crisis management” when banks were more important.

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