Has the ‘gun bubble’ popped?

Has the ‘gun bubble’ popped? David M. Levitt at Bloomberg thinks so, and I think with good reason (see chart below).

Peak Gun – Bloomberg

Sturm Ruger and Smith & Wesson are the only two publicly traded U.S. gunmakers. Their sales have plummeted (down 13.4 percent and 23 percent, respectively) and stock values each cut by more than one-third.

Levitt relates the spike in gun sales to to Obama–namely, fears on the part of gun owners that Obama’s anti-gun agenda would gain ground. The failure of his agenda to get off the ground, then, explains the sudden drop.

I think he’s right, not in the least because I know people who bought guns for that very reason.

Truth on inflation, and some questions

Peter Klein speaks my mind on CPI. Namely, CPI doesn’t immediately reflect the malinvestment facilitated by artificial credit expansion because it measures inflation for “ordinary” consumer goods. It does not readily capture asset price inflation in things like equities, commodities, and agricultural land.


My question now, however: Is it feasible to differentiate artificially-induced asset price inflation from those variances we should expect to see as supply and demand for various assets changes over time? David Ranson, for example, famously argues that CPI understates inflation and that commodity prices should be used to more accurately gauge the extent of monetary inflation in the economy. He writes:

Market analysts usually attribute changes in the prices of commodities – uniform, widely traded goods, such as metals – to higher or lower demand in major world economies, such as the United States and China. However, the price of a commodity also relates to the value of the currency in which prices are expressed, in most cases the U.S. dollar.

But I’m skeptical. Simply saying that the price of a commodity “also relates to the value of the currency in which prices are expressed” doesn’t tell us anything if we don’t know the extent to which a commodity’s price shifts reflect changes in supply and demand (“fundamentals”) versus changes in the money stock. Ranson doesn’t really answer this problem in his analysis, yet he proceeds to use the rising price of gold to indicate monetary inflation.

Some police force data

Some interesting facts about police in America. From the FBI (via Governing.com):

  • Washington, D.C. is the most policed city in America. It employs 61.2 officers for every 10,000 residents (excluding nonresident commuters, who exceed the city’s nighttime population).
  • Los Angeles employs 25.9 officers for every 10,000 residents (excluding non-resident commuters). 
  • Youngstown, OH–a top-ten most dangerous city in America–employs 22.7 officers per 10,000 residents.
  • Detroit, the most dangerous city in America, employs 36.3 officers for every 10,000 residents.
  • In 2007, according to the BJS, municipal and township police departments employed an average of 2.3 officers per 1,000 residents. This puts the United States among the bottom half of all countries when it comes to police per capita.

As far as I know, this data does not include police employed by states or federal agents of any type.

I find this information useful toward putting the debate about America’s growing “police state” in context. No, we don’t live in communities dominated by police presence. We aren’t even close to the most heavily-policed society in the world. This has nothing to say about growing police budgets and militarized police forces, of course. It simply puts specific numbers to an issue often discussed in overly- and unhelpfully-general terms.

Why “incentive talk” rubs me the wrong way

I had my first graduate microeconomics class today.

One thing the professor posited as a “guidepost” for economic thinking is that incentives matter. As an example, he used welfare. If the state guarantees a certain level of income in an effort to reduce poverty, some people will respond by quitting their job and free-riding off state welfare programs. In other words, and more generally, people respond to incentives. Policymakers can’t just pass a law and expect people to act exactly as they did before. Human beings choose and economize within constraints. When relevant constraints change, our choices often change, too.

But talk like this has always rubbed me the wrong way, and I wasn’t sure why until tonight.

That’s because just minutes after positing this “guidepost” for economic thinking, he posited value is subjective as another guidepost. Value is subjective to each individual person, of course. This is economics 101.

But if value is subjective, then how can we really know how people will respond to incentives? How do we even know what is and is not an incentive for other people? And can we really know what incentives they are responding to?

Yes, I realize it’s usually safe to say that lowering the monetary cost of something will increase quantity demanded for that something (in the case of college loan subsidies, for example, more people will seek college loans). But this isn’t something we can logically deduce. Our ability to predict how a policy will affect incentives depends on how well we guess at other people’s subjective values based on our past observations and experience. It’s really just a guessing game. It doesn’t seem to align with the axiomatic-deductive method espoused by the same economists who engage in this type of “incentive talk.”

Maybe I haven’t read enough about this, but I’ve at least put my finger on just what about “incentive talk” has always left me perplexed.

Why writers (like me) procrastinate

An offbeat post, I’m aware. But I’m a writer, so I try to read about writing as often as I read about economics or finance. Here’s Bloomberg’s Megan McArdle on why writers are the worst procrastinators. If she isn’t right in general, she’s definitely right about me.

Over the years, I developed a theory about why writers are such procrastinators: We were too good in English class. This sounds crazy, but hear me out.

Most writers were the kids who easily, almost automatically, got A’s in English class. (There are exceptions, but they often also seem to be exceptions to the general writerly habit of putting off writing as long as possible.) At an early age, when grammar school teachers were struggling to inculcate the lesson that effort was the main key to success in school, these future scribblers gave the obvious lie to this assertion. Where others read haltingly, they were plowing two grades ahead in the reading workbooks. These are the kids who turned in a completed YA novel for their fifth-grade project. It isn’t that they never failed, but at a very early age, they didn’t have to fail much; their natural talents kept them at the head of the class.

This teaches a very bad, very false lesson: that success in work mostly depends on natural talent. Unfortunately, when you are a professional writer, you are competing with all the other kids who were at the top of their English classes. Your stuff may not—indeed, probably won’t—be the best anymore.

If you’ve spent most of your life cruising ahead on natural ability, doing what came easily and quickly, every word you write becomes a test of just how much ability you have, every article a referendum on how good a writer you are. As long as you have not written that article, that speech, that novel, it could still be good. Before you take to the keys, you are Proust and Oscar Wilde and George Orwell all rolled up into one delicious package. By the time you’re finished, you’re more like one of those 1940’s pulp hacks who strung hundred-page paragraphs together with semicolons because it was too much effort to figure out where the sentence should end.

Economics as “Catallactics”

In considering why the allocation paradigm emerged as the dominant framework of orthodox economics, James Buchanan identified the use of the word “economics” as part of the problem. According to Buchanan, focusing on economizing behavior leads economists to think in terms of maximization and allocation instead of in terms of coordination and exchange. In place of the word “economics,” Buchanan suggested the use of “catallaxy” or “symbiotics” to draw attention to interaction, association, and exchange. The term catallaxy derives from the Greek verb katallattein (or katallassein) which means “to exchange,” and “to admit into the community,” as well as “to change from enemy into friend.”

From Chris Coyne’s “Economics as the Study of Coordination and Exchange,” as published in Peter Boettke’s Handbook on Contemporary Austrian Economics.

Coyne’s larger thesis is to draw attention to the fact that economics is a science of coordination and exchange, not of mere resource allocation. Thinking about economics in terms of the latter leads to wild conclusions and lends itself to equilibrium modeling that is hard-pressed to provide real-world insights that effectively inform economic policy.

Student loan debt is hardly a “crisis”

Here’s an interesting study from the Brookings Institution. It shows that the mean payment-to-income ratio on student loan debt repayments is lower than it was in 1989, which does damage to the claim that student loan debt is the reason why young people are seemingly absent from the home and stock markets.

Ratio of Loan Payments to Income

Hard to argue with that. Additionally, I found this chart from College Board (below) showing that while the number of student borrowers has indeed increased, the average amount borrowed has remained relatively stable since 2002.

The only indication I can find in favor of a student loan debt “crisis” is that the number of borrowers has risen considerably over the past decade. As the chart above shows, the number of undergraduate borrowers has risen from around 5 million in 2002 to upwards of 8 million in 2013.

Of course, my mini-analysis here doesn’t address the fact that twentysomethings’ 6.6 percent unemployment rate remains well above rates for older, more experienced workers. Unemployment, of course, makes payment-to-income ratios on student loan debt worse, leaving less left over to invest in homes and stocks. But I don’t think this is significant toward explaining why young people aren’t investing. 6.6 isn’t super high, and I’m assuming at least some of that number includes twentysomethings without a college education and, therefore, with no student loan debt. In fact, such people are probably over-represented in that 6.6 percent rate.

Finally, it’s interesting that just as much student loan debt is held by 30-39 year olds as by 20-29 year olds. This doesn’t seem intuitive — 30-39 year olds have had much longer time to pay off debt. But throw grad school into the mix, and it begins to make sense. As the chart above shows, graduate students — while representing just 15 percent of student borrowers — take on about three times as much debt as undergraduate students. This debt is usually not in repayment until after or about age 30.

I’ll have a longer, more formal report on this issue coming out soon. I link to that here when it’s available. In the meantime, any thoughts?

QOTD: Ronald Coase

Contemplation of an optimal system may provide techniques of analysis that would otherwise have been missed and, in certain special cases, it may go far to providing a solution. But in general its influence has been pernicious. It has directed economists’ attention away from the main question, which is how alternative arrangements will actually work in practice. It has led economists to derive conclusions for economic policy from a study of an abstract of a market situation. It is no accident that in the literature … we find a category ‘market failure’ but no category ‘government failure.’ Until we realize that we are choosing between social arrangements which are all more or less failures, we are not likely to make much headway.

From Ronald Coase’s 1964 paper “The Regulated Industries: Discussion” published in the American Economic Review.

Heading home for a new beginning

I don’t often write about my personal life on this blog, but I’ll probably look back on today as one of the more consequential days of my life. I figure that makes it worth mentioning here.

As of 4:30 p.m. today, I’m no longer on staff at my job of the past 14 months. I moved to Harrisburg, Pennsylvania for this job in May 2013–one week after graduating from college. Saying goodbye wasn’t easy. I’ve learned at lot in Harrisburg and will always think fondly of this city and region.

But last spring, I was accepted into the MA in Economics program at George Mason University in Fairfax, VA. I’ve long been a fan of GMU’s economics program, so getting in was quite exciting (and surprising, at least to me). My wife encouraged me to apply, and was eager to try her hand at a new job, as she’s yet to experience nursing outside of central Pennsylvania. These things, along with the fact that we both grew up in Fairfax and most of her family lives there, made the right decision quite obvious (even if hard to make).

So we took the plunge. She found work in Fairfax and quit her job in Harrisburg. I quit mine soon after.

I start evening classes at GMU in late August and will write as much as I can during the day–at least daily on this blog, and hopefully weekly at other, more “formal” publications. I’ve also accepted a position as a senior writer for an exciting startup. It’s still in stealth mode, but I’ll update you as soon as I have the go-ahead.

To kick it all off, I’m attending the Advanced Austrian Seminar at the Mercatus Center late next week. I’m told Israel Kirzner himself will present at the seminar, so to say I’m excited is definitely an understatement.