Loss of Jobless Benefits Could Lower Unemployment Rate

CNBC article "Loss of Jobless Benefits Could Lower Unemployment Rate" (June 30th, 2010) argues that when unemployment benefits run out, some unemployed will become depressed and stop looking for work, causing the unemployment rate (a measure of those looking for jobs but unable to find them) to decrease. Presumably, this is bad for the economy and such a decrease in the unemployment rate would be a false sign of recovery. Then the article makes a point that would seem to wash over its whole argument, but the article does not elaborate.

"We believe that the expiration of jobless benefits will cause many workers to drop out of the labor force and will motivate others to accept jobs they had previously rejected."

If jobless benefits were causing people to stay out of the labor force by rejecting jobs in order to continue a search for work they likely will not find, the these benefits were creating frictions in the economy that kept it from adjusting to a shift in the labor force composition. Unemployment benefits are rationalized by the notion that people need time to find the most efficient job. If months of search prove fruitless, it may be time to adjust to a new labor market equilibrium. It is unclear exactly why people would drop out of the labor force if they are not paid to look for jobs. On the contrary, it would seem that in order to eat, they would start working immediately. The economist Casey Mulligan provides evidence to this effect at his blog Supply and Demand. He creates the following chart, showing that as soon as unemployment benefits run out (weeks around exhaustion = 0), there is a huge jump in the number of people returning to work (click here to enlarge image).

Why we protest education cuts

CNN.com article "Why we protest education cuts" (March 4th, 2010) claims that:

While California is facing the largest cuts to education, similar cuts are happening all over the country, making it harder for students to afford college and lowering the quality of the education they receive.

It would be reasonable to assume that some students of high quality attend lower-quality public universities because they want to save money. We would predict that as the monetary difference between school decreases, student selection into schools will become more quality based. In fact, this would cause the quality of the best institutions to increase, and that of the worst to decrease. The marginal student is the student who expects to gain from a college education exactly what he paid for it. Thus, as the cost of education rises, we should see that students gain more from their education are the ones who continue to receive an education.

This student quality improvement could be met also with an improvement in teacher quality. The article, turning to a discussion of why charter schools are poor makes the following statement:

Furthermore, charter schools are almost always non-union, which means their teachers receive can receive lower compensation and have less job security.

Less job security for teachers would lead to an improvement in teacher quality. First, job security distorts incentives. Without job security, and teachers will work hard to keep their jobs. In addition, without job security the worst teachers get fired and replaced with fresh faces. These younger replacements have lower salaries, saving the state even more. In general, we should expect that increased efficiency would only increase the quality of education.

Overhaul of U.S. food safety system is overdue

Los Angeles Times article "Overhaul of U.S. food safety system is overdue" (December 14th, 2009) offers a chimerical argument for an expansion of the U.S. FDA's authority for oversight of food products.

Support for overhauling the nation's food safety system is nearly unanimous. Even the agriculture industry agrees, by and large, that current levels of inspection and tracking by the U.S. Food and Drug Administration are inadequate to safeguard the nation's health.

One should not be surprised that support is "unanimous" among major players in the industry. There are four players that are to be considered in food oversight. The FDA, the existing food industry, potential entrants to the food industry, and consumers. Of the four parties with a stake in food oversight, the FDA and food industry both have organized industry groups, while consumers and pre-existent firms do not. What would be better for FDA technocrats than an increase in power of oversight? And what might be better for erecting barriers to entry for an industry than a government agency they have established connections with?

In the meantime, consumers and marginal entrants do not have established connections with the FDA, and further do not have a large enough reason per person to organize as a special interest group, unlike the food industry. The food industry should use the FDA to artificially restrict output (by denying marginal entrants), and increase prices.

Why not privatize the FDA? What administration is more efficient? The FDA, or the many Kosher oversight companies, like Triangle K, KOF-K, and Orthodox Union competing with one another? It is important to note that companies like Nachalt Yitzchak and Keter HaKashrut, kosher companies that are less universally respected, may simply fall by the wayside, concurrently providing a cautionary tale. A monolithic FDA has misaligned incentives--private firms competing provide a vastly less malignant, and a fortiori more competent solution than government intervention.

The United States continues to steal from Indians

Star Tribune commentary "The United States continues to steal from Indians" (December 14th, 2009) supplies ample rancor toward a recent U.S. federal court decision ruling that the government is to pay Indians $3.4 billion as a result of a class-action lawsuit, citing documentation that a larger sum, $137 billion, is actually owed. The commentary is concerned that Federal courts will act under the aegis of the Federal government, rather than some neutral third party.

So basically, now, the U.S. government is saying that it has identified the thief of Indian royalties and resources as itself. It has allowed the thief to determine the value of the settlement and mostly has allowed the thief to keep what has been stolen.

However, the question is not who pays the bills of a Federal judge, but where the incentives for the judge lie. Evidence that there is a principal-agent "problem" for the Federal judge that decided the case is exiguous. Just because the salaries of judges are paid by the federal government does not mean that they are beholden to it. In this case, a judge has little reason to rule "for" or "against" the government, as he gains nothing from either outcome. It is ludicrous to claim shadowy conspiracy without first asking "what are the incentives of relevant actors?"

Shaving real estate commissions can save sellers thousands

Los Angeles Times article, "Shaving real estate commissions can save sellers thousands" (December 6th, 2009), offers an unnecessarily complicated, misguided, and misleading analysis of a simple problem--what commission to pay your real estate agent.  First, the author suggests that in such a poor housing market, real estate agents desperate for work will accept lower commissions, saving sellers money.  Of course, real-estate agents' effort (the amount of work they puts into getting a sale) is an increasing function of how much money they can make from a deal, so they will exert less effort for lower commission.  For example, if it costs them $10,000 to put in the effort necessary to sell a house for $200,000, they will put in the effort to sell the house at that price for a 5% commission, but not for a lower commission.  Thus, even if a buyer can negotiate for a 1% lower commission, he may end up losing more than 1% of his potential gain from a house sale.

Like in any economic problem, the seller should simply maximize his earnings as a function of the sellers' commission, and the market likely has set this rate for the seller already.  If there were more money to be made for both parties through either a higher or lower commission rate, why would such a commission rate not emerge in the market?  Without clarifying why one would expect this to be true, the author offers an extreme example where one woman saved money by paying the market price, rather than a steeply discounted commission offer.

In addition, the author falsely implies that simply cleaning up a home will increase a real-estate agents' efforts.  Certainly, no one in the business of real estate would survive if they were mislead about the quality of a home due to a few dirty dishes!

A seller who invites a professional into his unkempt house -- dirty dishes everywhere, general clutter or filth -- may convey a message that the house will be difficult to sell. The longer a place takes to sell, the more an agent's cost per hour goes up -- and the likelihood of the agent offering a discount diminishes. Sellers in today's difficult market demand sophisticated marketing strategies, all of which are financed by the agent's commission.

Jones said she sometimes can tell immediately whether a home is likely to sell quickly or languish. Sellers who fix their places up to make a good first impression on agents are more likely to get a double payoff: top dollar on their property, plus a discount on the commission they pay.

More likely, dirty dishes signal that the seller is uninterested in presenting himself well to the real estate agent and similarly is uninterested in negotiations.  If sellers' market experience suggests that clean homes signal nit-picky, tough negotiating sellers, then they will offer the discount they know is coming.