I picked up a few groceries -- fulfilling my get-out-of-the-house-and-walk-somewhere quota for the day. I went out around noon and it was warmer out than I expected (though weather.com said 73F). It took me under 35min to walk home from the Shaw's in Porter. Color me impressed. I got all sweaty, but it wasn't too bad.
via InstaPundit: "Gas Prices: The Real Story"
Speaking of economics... I did my econ reading tonight (Ch. 1-2 of Mankiw's Essentials of Economics, fourth edition). Hi, behavioral decision making :)
Consider how a seat belt law alters a driver's cost-benefit calculation. Seat belts make accidents less costly because they reduce the likelihood of injury or death. In other words, seat belts reduce the benefits of slow and careful driving. People respond to seat belts as they would to an improvement in road conditions—by driving faster and less carefully. The end result of a seat belt law, therefore, is a larger number of accidents. The decline in safe driving has a clear, adverse impact on pedestrians, who are more likely to find themselves in an accident but (unlike the drivers) don't have the benefit of added protection.Ch. 2 includes an excerpt from the former president of the Federal Reserve Bank of Dallas Robert D. McTeer, Jr. [full text here]. The part that stuck out for me was his concern about "Whenever a government program is justified not on its merits but by the jobs it will create." He relates a parable about a broken window, which I disliked as an example because there's already a broken window theory in soc of crime (though apparently the economics version dates back to 1850). But anyway.
At first, this discussion of incentives and seat belts might seem like idle speculation. Yet in a classic 1975 study, economist Sam Peltzman showed that auto-safety laws have had many of these effects. According to Peltzman's evidence, these laws produce both fewer deaths per accident and more accidents. He concluded that the net result is little change in the number of driver deaths and an increase in the number of pedestrian deaths.
The broken window didn't create net new spending; it just diverted spending from somewhere else. The broken window does not create new activity, just different activity. People see the activity that takes place. They don't see the activity that would have taken place.The excerpt in the textbook actually ellipses from "computer gurus" to "So instead of counting jobs" which seems an odd choice to me -- in that it leaves out the "there will always be more work to do than people to work" contention.
The broken window fallacy is perpetrated in many forms. Whenever job creation or retention is the primary objective I call it the job-counting fallacy. Economics majors understand the non-intuitive reality that real progress comes from job destruction. It once took 90% of our population to grow our food. Now it takes 3%. Pardon me, Willie, but are we worse off because of the job losses in agriculture? The would-have-been farmers are now college profs and computer gurus or singing the country blues on Sixth Street.
If you want jobs for jobs' sake, trade in bulldozers for shovels. If that doesn't create enough jobs, replace shovels with spoons. Heresy! But there will always be more work to do than people to work. So instead of counting jobs, we should make every job count.
I see how in the parable, spending was merely diverted rather than created, but I feel like it's not quite so clear-cut in the case of job creation. Though I do agree with the ultimate takeaway lesson that one should be concerned with the quality of jobs created (including paying attention to what existing jobs you might be taking these "new workers" away from).