Will San Diego Ban Wal Mart?

From Yahoo News:

SAN DIEGO - The City Council here voted late Tuesday to ban certain giant retail stores, dealing a blow to Wal-Mart Stores Inc.'s potential to expand in the nation's eighth-largest city.

The measure, approved on a 5-3 vote, prohibits stores of more than 90,000 square feet that use 10 percent of space to sell groceries and other merchandise that is not subject to sales tax. It takes aim at Wal-Mart Supercenter stores, which average 185,000 square feet and sell groceries.

So what's the problem with Wal-Mart and similar stores? I'm not a big Wal-Mart fan, but that's mainly because I prefer shopping at Target (I'll happily accept endorcement offers).

Banning Wal-Mart (The San Diego Union-Tribune):
One of local governments' primary responsibilities is land use and setting standards for development within the city. After more than three years of review by the Planning Commission and the City Council's Land Use and Housing Committee, the city's planners have concluded that superstores would provide no economic benefit to the city and would result in the closure of locally owned stores and increased costs to the city in the form of street repairs, police and fire services and other city services required by mega-sized stores....

The proposal's limits would only affect the potential introduction of stores that can be over 250,000 square feet. These stores have traditionally been developed in rural areas of the South and Midwest where land is more available and traffic is less congested. The introduction of these superstores in suburban and urban settings creates so much traffic, smog and economic blight that several cities in California, including Long Beach and Los Angeles, have already passed limits on their development.

So what's really different about these stores? The combination of groceries and retail into one store allows that company to sell groceries as a loss leader, meaning that they artificially price them below market prices to attract buyers into the store, and then they make their profits on the cheap, foreign-made items with markups of more than 500 percent. And because groceries create the most traffic per square foot of any store, these superstores draw more traffic than any other combination of goods anywhere....

So what's really different about these stores? The combination of groceries and retail into one store allows that company to sell groceries as a loss leader, meaning that they artificially price them below market prices to attract buyers into the store, and then they make their profits on the cheap, foreign-made items with markups of more than 500 percent. And because groceries create the most traffic per square foot of any store, these superstores draw more traffic than any other combination of goods anywhere.

So if congestion and car pollution is the problem, why not address that with policies that specifically "target" reducing congestion and pollution such as improving public transportation or considering the use of peak-time tolls?

No. Move would cost residents the chance to save money. (The San Diego Union-Tribune)
Banning Wal-Mart Supercenters from San Diego could cost residents the chance to save as much as $2,300 per year on their grocery bills, according to independent economic studies....

The ordinance was originally proposed in 2003 by the Joint Labor Management Committee, which is comprised of labor unions, large grocery chains and other businesses. Although they are in bed together now, unions and grocery stores recently faced off during a prolonged strike.

As these folks are behind the genesis of the anti-Supercenter effort, it stands to reason they hope to gain by it. Unions would block the presence of a nonunion employer, no matter that Wal-Mart Supercenters would bring hundreds of well-paying, highly sought-after jobs to the city. And the grocery stores, what could they possibly get out of it? Why, they could dodge the bullet of having a major competitor set up shop in San Diego.

[AF]

A Revival of Sociology's Dominance over Economics?

Brad DeLong posts:

Here Mark Thoma watches Tony Giddens in the Guardian discourse on conditions for a "revival of sociology." I listen for a while, and then I want to sidle quietly away before I am noticed:

Economist's View: Did Economics Crowd Out Sociology?: A call to arms, by Anthony Giddens, Commentary, The Guardian:

All you sociologists out there! All you ex-students of sociology! All of you (if there are such people) who are simply interested in sociology and its future! I'd like to hear from you. We live in a world of extraordinary change, in everyday life, family relationships, politics, communications and in global society. We are witnessing, among other things, a return of the gods, as religion re-emerges as a major force in our societies, locally and on a worldwide level.... [W]hy isn't sociology again right at the forefront of intellectual life and public debate?...

I would suggest two main ones. First, sociology's star was dimmed by the rise of market-based philosophies from the early 1980s onwards. As a phase of government, market fundamentalism lasted some twenty years - roughly the period covered by the Reagan and Thatcher governments.... If markets settle most aspects of social life, including social justice, the scope of social factors - the prime province of sociology - is correspondingly reduced. The economic, as it were, predominates heavily over the social.

A second reason I would single out is the impotence many people feel in the face of the future. There are no longer utopian projects that would supply a source of direction.... [S]ociological thinking... was regularly stimulated by an engagement with those who wanted to change the world for the better. ...

What is the remedy...? Market fundamentalism is disappearing from the scene. The stage is set for a return to the social. After all, even the IMF these days gives social and political factors a significant place in development processes - and Mrs Thatcher is long gone....

The answer for me is a return to the style of thinking that originally drove the sociological enterprise. A little bit more utopian thinking might help too... We need more positive ideals in the world... that link to realistic possibilities of change...

I would be less alarmed by Tony Giddens if I were sure that he knew that of the two Bretton Woods institutions it is the IMF--the "Fund"--that is focused on international capital flows, reserves, and exchange rates; and that it is the IBRD--the "World Bank"--that is focused on development processes.

I would be less frightened of Tony Giddens if I believed he took the extraordinary reach and power of market exchange in our world to be something important and interesting to analyze, rather than something regrettable that we mention as little as possible now that Mrs. T. no longer lives in Downing Street, and that we deal with by boxing it up into obsolete Marxist categories.

DeLong continues. The comments are also quite interesting to follow.
[AF]

The Nation on Friedman

Friedman's Cruel Legacy by William Greider

Now that the economists and their camp followers have mourned and celebrated the life of Milton Friedman, allow me to kick a little dirt on the icon. Without question, Friedman was the most influential economist of the second half of the twentieth century, as his admirers claim. What they do not say is that he was also the most destructive public intellectual of our time.

Friedman actually failed as a scientific economist but succeeded as a moral philosopher. His greatest scholarly accomplishment--his monetarist theory of how to regulate money and credit--was intellectually flawed at its core and collapsed when the Federal Reserve tried to follow it. The central bank wisely discarded Friedman's money-supply approach before it did more damage. It is now a forgotten relic at the Fed.

Friedman's broader argument--that a society should be governed by self-regulating markets instead of big government--did better but also did not lead to the utopia he promoted. His "free market" faith has produced instead the very thing Friedman regularly denounced: a bastardized system of interest-group politics that serves favored sectors of citizens at the expense of many others. Enterprise and markets were indeed set "free" of government regulation, but big government did not go away (it grew bigger). Only now government acts mainly as patron and protector for the largest, most powerful interests--the same ones that demanded their liberation. Instead of serving the broad general welfare, government enables capital and corporations to feed off the taxpayers' money and convert public assets into private profit centers, shielded from the wrath of any citizens trying to object. If that is what Friedman really had in mind, he should have said so.

His most profound damage, however, was as a moral philosopher. He championed an ethic of unrelenting, unapologetic self-interest that effectively pushed aside human sympathy. In fact, humans' responsibility to one another has been delegitimized--portrayed as an obstacle to the hardheaded analysis that maximizes returns. Friedman explained: "So the question is, do corporate executives, provided they stay within the law, have responsibilities in their business activities other than to make as much money for their stockholders as possible? And my answer to that is, no, they do not."

Pay no attention to the collateral consequences. Your only obligation is to the bottom line. Friedman's message was highly appealing--he promised people a path to freedom--but it triumphed, ultimately, because it served the powerful forces of capital over labor, economic wealth over social concerns. Government was indeed failing on many fronts, especially inflation, and liberalism had no answer. Friedman's answer was alluringly simple. Get rid of government.

People everywhere now understand what Friedman's kind of "freedom" means. America has been brutally coarsened by his success at popularizing this dictum--millions of innocents injured, mutual trust gravely weakened, society demoralized by the hardening terms of life. Most people know in their gut this is wrong but see no easy way to resist it. Friedman's utopia is also drenched in personal corruption. The proliferating scandals in business, finance and government flow directly from his teaching people to go for it and disregard moral qualms. When you tell people in power that their highest purpose in life is to maximize their own returns, there is no limit to how much "good" they will do for the rest of us. I don't recall hearing Friedman express any discomfort. Perhaps he regarded looting and stealing as natural features of capitalism that market forces would eventually correct.

This is what the memorials left out: the cruel quality of Friedman's obliviousness. Art Hilgart, a retired industrial economist, recalls hearing Friedman lecture in 1991 and recommend the destruction of Medicare, welfare, the postal system, Social Security and public education. The audience was dumbfounded.

Finally, a brave young woman asked what this would mean for poverty. "There is no poverty in America," Friedman instructed. A clear voice arose from the back of hall: "Bullshit!" The audience cheered wildly.

[AF]

Mankiw Calls for Friedman to Respond

From Greg Mankiw

The Associated Press reports today:

Americans would have to sign up for a new military draft after turning 18 under a bill the incoming chairman of the House Ways and Means Committee says he will introduce. Rep. Charles Rangel (D-N.Y.) said Sunday he sees his idea as a way to deter politicians from launching wars. Rangel, a Korean War veteran who has unsuccessfully sponsored legislation on conscription in the past, has said the all-volunteer military disproportionately puts the burden of war on minorities and lower-income families. Rangel said on CBS' "Face the Nation" he will propose a measure early next year.

It might be worth repeating this old story about Milton Friedman and General William Westmoreland, who was once commander of U.S. troops in Vietnam.

In his testimony before the commission, Mr. Westmoreland said he did not want to command an army of mercenaries. Mr. Friedman interrupted, "General, would you rather command an army of slaves?" Mr. Westmoreland replied, "I don't like to hear our patriotic draftees referred to as slaves." Mr. Friedman then retorted, "I don't like to hear our patriotic volunteers referred to as mercenaries. If they are mercenaries, then I, sir, am a mercenary professor, and you, sir, are a mercenary general; we are served by mercenary physicians, we use a mercenary lawyer, and we get our meat from a mercenary butcher."

Who will play Friedman against Rangel's Westmoreland?

[AF]

David Brooks on Milton Friedman

David Brooks: The Smile of Reason (NY Times):

[Friedman] was proudest of his contributions to technical economics, but he also possessed that rarest of gifts, a practical imagination, and was a fountain of concrete policy ideas. During World War II, he helped draw up plans to withhold people’s income tax and then worked with mathematicians like Jack Wolfowitz (Paul’s father) to calculate how many pieces artillery shells should burst into to produce maximum damage.

In the ensuing years, he developed ideas like the volunteer army, the negative income tax (which evolved into the earned income tax credit), post office deregulation (which gave us FedEx), the flat tax and floating exchange rates.

...

His passing is sad, too, because classical economics is under its greatest threat in a generation. Growing evidence suggests average workers are not seeing the benefits of their productivity gains — that the market is broken and requires heavy government correction. Friedman’s heirs have been avoiding this debate. They’re losing it badly and have offered no concrete remedies to address this problem, if it is one.

Walter Block also writes a nice tribute on mises.org.
From the WSJ is a collection of Friedman's views on various issues.
[AF]

Milton Friedman

From Brad DeLong writing in Salon:

Friedman's thought is, I believe, best seen as the fusion of two strong and very American currents: libertarianism and pragmatism. Friedman was a pragmatic libertarian. He believed that -- as an empirical matter -- giving individuals freedom and letting them coordinate their actions by buying and selling on markets would produce the best results. It was not that he thought this was a natural law. He didn't believe that markets always worked best. It was, rather, that he believed that places where markets failed were atypical; that where markets failed there were almost always enormous profit opportunities from entrepreneurial redesign of institutions; and that the market system would create new opportunities for trade that would route around market failures. Most important, his distrust of government told him that government failure was pervasive, and that any expansion of government beyond the classical liberal state would be highly likely to cause more trouble than it could solve.

[AF]

Milton Friedman, Free Markets Theorist, Dies at 94

The "Nobel" Prize winning, free market economist died today. Read the article fromt the NY Times here.

Will the Dems Raise Taxes?

Michael Mandel at Business Week writes:

Probably not, if this chart is any guide.

The thin blue line tracks federal revenues as a share of GDP (through the second quarter of 2006). The purple horizontal line is the average revenue share since 1960.

Generally speaking, we are more likely to get tax cuts when the revenue share is well above the long-term average, and tax increases when the revenue share is below the long term average of 18.4%. So the tax revenue share had peaks in 1981 (19.8%) and 2000 (20.9%), right around the time of the 1981 Reagan cut and the 2001 Bush cut. And the tax revenue share bottomed in 1992 (18.1%), right before the Clinton tax increase. (all these numbers are based on BEA data).

I think of this in political terms. When Americans are paying a lot of money in taxes, they are more receptive to a tax cut. And if they are paying relatively less money, they are less opposed to a tax increase.

Of course, this link does not explain the second Bush tax cut, in 2003, when the revenue share of 17.2% was already well below the long-term average.

But still, with the federal revenue share at 19.4% according to the BEA, that's well above the long-term average. And that suggests that Democrats will find a fair bit of "push-back" if they try to raise taxes.

[AF]

Death and Taxes

Jess Bachman has put together another great Death and Taxes poster using the 2007 proposed spending. It is a great visual guide to how US federal discretionary budget is allocated. The entire poster is here. [AF]

San Diego Housing Prices on Decline

Calculated Risk posts:

The San Diego Union reports: County housing prices rise slightly

San Diego County housing prices reversed course and rose slightly last month to reach a median of $485,000, locally based DataQuick Information Systems reported Monday.

There is month to month variability in the numbers, however on a YoY basis, the median San Diego home price declined 5.5% from $513,000 in October 2005.

As for sales, San Diego County had 3,282 transactions last month, up 2.3 percent from September but down 21 percent from a year ago, the 28th straight month to have a year-over-year decline.

There were 3,282 sales in October 2006, down from 4,155 sales in October 2005.

This is the lowest transaction level for October in San Diego since 1996 - the end of the previous housing bust in San Diego.

The DataQuick numbers for the rest of California will be released this week.

[AF]

Did the futures markets fail?

Atrios points out:

Well, the magic power of market predictions is not so magic.
The magic market was heavily predicting Senate control would remain with the Republicans. Oops.
And, hey, so was I. But the idea that there's something magical about market aggregated preferences seems to have infected the minds of too many people. They provide a cute distillation of conventional wisdom, but that's all..)

Is this really evidence that the market is unable to accurately aggregate information? If I toss a coin and it comes up heads, was my 50-50 prediction wrong? By the way, here are links to the IEM. [AF]

Now that the voting is over...

Economists always like to bring up the (ir)rationality of voting during election times. I often wonder if it is just a ploy to get the non-economists (and therefore less informed population, of course!) to not vote on election day, thereby boosting the influence of those who do vote. Regardless, it goes back and forth.

Earlier this week, Makiw revisited an article that he wrote on the benefits of not voting. What I like about this article is that it not only explains why people don't vote, but makes a normative statement that there are those who *shouldn't* vote.

There are those who argue with this desciption. Benefits are not always as simple as getting a particular candidate to win. Many of us (myself included) derive implicit benefits from the act of voting itself. Or maybe its simply the joy one gets from cheering for the winning team, even though it won't help their team win the game (D. Friedman). Perhaps people are altruistic and the benefits they enjoy are not simply those direct benefits. From Statistical Modeling:

Our preferred explanation...We understand voting as a rational act, given that a voter is voting to benefit not just himself or herself, but also the country (or the world) at large. (This "social" motivation is in fact consistent with opinion polls, which find, for example, that voting decisions are better predicted by views on the economy as a whole than by personal financial situations.)

On the other hand, there are some who argue that its just bad math to assume your vote won't make a difference, such as Jordan Ellenberg who writes for Slate.com.

Despite all of this discussion of the rational voter paradox, economists always seem willing to provide their opinions despite the often low probability return. [AF]

Economics Club

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The First Post

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