Growing poverty rate for Ill. children

Chicago Tribune article "Growing poverty rate for Ill. children" (February 11th, 2010) speaks on high child poverty rates in Illinois without asking why that might be the case. Corrections suggests that the reason a place like Illinois might have many individuals below the poverty line is because they do good things for the poor, rather than neglect them.

"Now is not the time to pull back on ensuring that our children have the basic education and health care they need to develop to their full potential," Ryg said.

This may "exacerbate" Illinois's problem. Corrections suggests, as Ed Glazer and Josh Gottlieb did in their NBER Working Paper "The Wealth of Cities: Agglomeration Economies and Spatial Equilibrium," (2009), that the reason cities might have many poor people is because they are good places for poor people to be, not bad, as one might intuitively suggest. The reasoning is simple: poor people move to places where they can get the most assistance, the best living standards.

Imagine a world in which there are four cities. One large one and several small. Before time t, the large city and smaller cities have the same poverty programs. At time t, the large city enacts a welfare program to help the poor. The poor from other cities will move to the large city, and the impact of welfare by a city may be to increase the number of poor while perhaps decreasing the total number of poor people. The increase comes from having more poor people move to the city than the program eradicates.

Three 3-D graphics, where the x and y axes are spatial coordinates of cities, and the z axis is level of poverty, are displayed. The center city is the city that enacts the welfare program.The first diagram represents poverty levels in the cities before the welfare program was enacted (click to enlarge).



The second diagram represents poverty levels in the cities after the welfare program was enacted (click to enlarge). Note the z-axis increases slightly, which hides the increase in the central city (but displays more prominently the decrease in outside cities.



The third diagram represents the difference in poverty rates (click to enlarge). The poverty program reduced total poverty, but the gain was seen by the outer cities.



Corrections concludes that local, city, or state poverty levels tell us little about whether or not the poor are better off in a location. Indeed, our modeling suggests that areas with more poor people are perhaps doing more for the poor--that is why they are there. Finally, and as a side note, Corrections could forego the above exercise and note that applying the Law of Demand indicates that good welfare programs encourage high poverty rates. (Though we note they also have a direct effect).

L.A. city officials need to think twice about layoffs

Los Angeles Times opinion "L.A. city officials need to think twice about layoffs" (January 27th, 2010) provides an inconceivable suggestion. The article discusses unemployment in Los Angeles. It quotes a member of the mayor's office that suggests the mayor's office would print money to pay for full employment if it could.

Another senior member of the mayor's team, who asked not to be identified, put it this way: 'If we were the federal government, we'd simply print more money and keep everybody working, but we don't have that choice. People are your largest fixed cost in the public sector, and we don't have any choice but to reduce their number'"

If it wasn't in print today, Corrections would have believed that this sort of thinking died as its run grew long. The consequences of printing money to the Weimar Republic in 1923, Hungary in 1946, China in 1949, or Zimbabwe in 2004-2008 should have expelled this folly as a real consideration from the minds of all men.

Inflation is a monetary phenomenon.  When the government prints more money, makes it available, or credibly is expected to increase the money supply, higher prices result and the currency is devalued.  In the mean time, if money growth impacts transaction costs, as may happen when growth is very high, then real production may shift downward.  We would, for example, expect a shift to household production and other non-monetary activities.  We help create a sclerotic economy that further worsens our problems.

This is not, however, the end of our problem.  Were this the case, then we note that Tiebout sorting can take place--individuals with the most to gain from moving to a place or country with low transaction costs will be individuals who do the most activity in the marketplace.  This offers an additional loss to the sort of hyperinflation that the Los Angeles Times opinion editorial will bring about.

Bill gives casinos all of the cards

Philadelphia Inquirer opinion piece "Bill gives casinos all of the cards" (January 6th, 2010) offers yet another compelling reason why the concern of individuals over the right of others to gamble should be nugatory. Specifically, the author argues against a bill helping a casino open an extension, arguing that individuals who live near a proposed casino will be more prone to be "addicted" to gambling:

If Foxwoods is unable to open its proposed casino on the South Philadelphia waterfront before the statutory deadline, its license should be revoked. But S.B. 711 would empower the gaming board to give it an extra year to open at that location, which is extremely close to residential neighborhoods. Addiction rates increase significantly with proximity and convenience.

In addition to the six other reasons Corrections has given in the past, the Inquirer now adds another. Specifically, economists expect Tiebout Sorting to take place; in common parlance Tiebout Sorting is referred to as "voting with one's feet."

Individuals are rational and forward-looking about their decision-making. If an individual knows they are prone to becoming addicted to gambling, and if addiction rates are actually related to proximity causally, then we should expect those who are most prone to becoming addicted to move away before a casino opens. Additionally, we should expect those already addicted to move into the neighborhood.

Far from being a curse for those who argue casinos should be legalized and built, a causal argument about proximity gives a reason why harm from a casino is actually mitigated. The point Corrections is making is displayed graphically below (click to enlarge). Note that the average harm is lower with selection than without, because people who are to be harmed by the addiction they can see coming will select out of living near a casino.  Corrections further notes that "Actual harm done" in the second diagram does not have to be linear.  It could be increasing or decreasing.  It remains true that average harm across people will be lower than the average harm from no selection, though the shape of the line may be different than that displayed..