The Wire

  • New tunnel, premium RV section at Talladega Superspeedway on schedule despite weather


    Construction of a new oversized vehicle tunnel and premium RV infield parking section at Talladega Superspeedway is still on schedule to be completed in time for the April NASCAR race, despite large amounts of rainfall and unusual groundwater conditions underneath the track.

    Track Chairman Grant Lynch, during a news conference Wednesday at the track, said he’s amazed the general contractor, Taylor Corporation of Oxford, has been able to keep the project on schedule.

    “The amount of water they have pumped out of that and the extra engineering they did from the original design, basically to keep that tunnel from floating up out of the earth, was remarkable,” Lynch said.

  • Alabama workers built 1.6M engines in 2018 to add auto horsepower


    Alabama’s auto workers built nearly 1.6 million engines last year, as the state industry continues to carve out a place in global markets with innovative, high-performance parts, systems and finished vehicles.

    Last year also saw major new developments in engine manufacturing among the state’s key players, and more advanced infrastructure is on the way in the coming year.

    Hyundai expects to complete a key addition to its engine operations in Montgomery during the first half of 2019, while Honda continues to reap the benefits of a cutting-edge Alabama engine line installed several years ago.

  • Groundbreaking on Alabama’s newest aerospace plant made possible through key partnerships


    Political and business leaders gathered for a groundbreaking at Alabama’s newest aerospace plant gave credit to the formation of the many key partnerships that made it possible.

    Governor Kay Ivey and several other federal, state and local officials attended the event which celebrated the construction of rocket engine builder Blue Origin’s facility in Huntsville.

2 weeks ago

When the impossible happens

(DoD/Contributed, YHN)

The Berlin Wall, the most visible manifestation of Communist oppression, came down thirty years ago. This totally unexpected event was a triumph of hope and the human spirit. How can social scientists explain a seemingly impossible event?

The Wall isolated West Berlin, part of democratic West Germany, almost 100 miles inside communist East Germany. The Wall and the Iron Curtain appeared to permanently divide Europe. The Wall was built in August 1961 to halt an East German exodus, including 30,000 persons in July 1961. The Wall symbolized the human tragedy of European communism: an existence so bleak that nations had to be turned into virtual prisons.

The Wall did not seem to be going anywhere. The East German regime was well-entrenched and supported by its ruthlessly efficient secret police, the Stasi. And military intervention by the Soviet Union, as in Hungary in 1956 and Czechoslovakia in 1968, loomed should a Warsaw Pact nation abandon communism.


Change, though, was brewing. Mikhail Gorbachev had initiated glasnost and perestroika in the Soviet Union, and in Poland, the Solidarity labor movement was sharing power. Eastern Europe’s planned economy was in shambles. High oil prices had propped up this woefully inefficient system, which workers described aptly as “We pretend to work, and they pretend to pay us.” Tumbling oil prices in the 1980s brought ruin to European communism.

Events unfolded quickly. In June 1989, Mr. Gorbachev announced that the Soviet Union would no longer intervene to prevent regime change in eastern Europe. Peaceful Monday evening protests began in Leipzig, which the East German regime chose not to violently crush. The soldiers and leaders, I think, realized they were no longer building or defending a worker’s paradise; maintaining a bankrupt regime was just not worth bloodshed. Protests spread to East Berlin and other cities and East Germans began migrating west through Hungary. After the Wall fell, Germany peacefully reunited in 1990.

How can we explain such rapid and unexpected change? Public choice economists study government decision-making, most frequently within democracy. Following the lead of Gordon Tullock, some public choice economists, myself included, have also studied authoritarian politics. Duke University economist Timur Kuran’s research on preference falsification provides an excellent explanation.

How does this work? The stability of any regime, democratic but particularly authoritarian, depends on public attitudes and statements by citizens, soldiers, bureaucrats, and other government officials. People also have personal beliefs about the regime or leader.

Publicly expressed beliefs can differ from personal beliefs, the possible falsification. Authoritarian leaders typically punish dissent, providing one reason for people to lie. The incentive is greatest when almost everyone publicly supports the government.

A successful dictator needs widespread expressions of support, which can be sustained, or coerced, even when most everyone despises the regime. The public support can keep people from learning that almost everyone dislikes the regime. An unpopular dictator can maintain control and yet still be highly vulnerable. A few sparks can suddenly and unexpectedly bring the Berlin Wall crashing down.

Is preference falsification relevant for America today? I think so, in two ways. Many supporters of President Trump face social pressures and sanctions. Game show host Chuck Woolery, for instance, recently said he thought that supporting Mr. Trump ruined his career. Whether true or not, Mr. Woolery’s sentiments reflect the views of many Trump supporters, who may well choose to remain quiet.

Republican politicians have also faced a significant backlash from Republican voters for criticizing Mr. Trump. South Carolina’s Mark Sanford, for one, lost a 2018 primary challenge. Other Republicans have surely stayed silent even when disagreeing with the President’s actions and tweets.

Widespread preference falsification allows rapid and unexpected change. Many observers think that the Republican-controlled Senate would never remove President Trump if he were impeached; preference falsification suggests not so fast. And public opinion polls will almost certainly underestimate Mr. Trump’s support among voters, as in 2016. We may just need to expect the unexpected.

Daniel Sutter is the Charles G. Koch Professor of Economics with the Manuel H. Johnson Center for Political Economy at Troy University and host of Econversations on TrojanVision. The opinions expressed in this column are the author’s and do not necessarily reflect the views of Troy University.

4 weeks ago

The good and bad economics of plea bargains


Plea bargains let persons accused of crimes plead guilty and receive reduced charges or a reduced sentence. Although some people find the reduced criminal incentives offensive, this bargaining makes economic sense. But our mass incarceration illustrates a limit of the economic argument.

Our criminal justice system extensively employs pleas; 97% of criminal convictions result from such bargains. Although TV dramas focus on jury trials (and particularly defense lawyers like Matlock or Perry Mason), trials are rare.

Plea bargains make economic sense because trials are costly. Trials require courtrooms, lawyers, judges, court reporters, bailiffs and juries. Witnesses must come to court to testify. A guilty plea saves these costs.


Why should defendants ever plead guilty and willingly agree to go to prison and waive their right to an appeal? A plea deal must offer defendants a better deal than conviction at trial. In a murder case, for example, prosecutors might agree not to seek the death penalty. A plea-bargained conviction ensures at least some punishment for a crime and helps deter crime overall.

This bargaining situation parallels labor strikes. Strikes are costly: workers miss paychecks, factories lie idle and businesses might permanently lose customers. Both labor and management are worse off than if they agreed to the same contract with no strike. Strikes represent bargaining failures.

The economic model of bargaining predicts that plea deals should reflect the strength of the evidence. The prosecution will not give much with an open-and-shut case, but the defense attorney should recognize this and counsel shaving a few years off the sentence. If important evidence gets suppressed or a witness recants their testimony, the shaky case makes prosecutors agree to a reduced charge.

Actual guilt or innocence is secondary in the bargaining model to the likelihood of conviction at trial. While we might hope that innocent defendants always get acquitted, wrongful convictions happen, especially with overworked and underfunded public defenders. An innocent person should consider a deal if they look guilty enough. Emotions, not logic, might explain an innocent person’s refusal to plead guilty. We must move past the fantasy that only a guilty person would ever plead guilty.

Building criminal justice almost exclusively around plea bargaining has negative consequences. These highlight the limits of the economic focus on trial costs. Plea bargains enable incarceration on the American scale, with over 2.3 million persons behind bars as of 2016. Whether you think our current incarceration rate is repressive or responsible for the significant drop in crime over the past three decades, mass incarceration could not happen without low-cost plea bargains. The constitutional right to a speedy trial would be violated without guilty pleas. Conversely, speedy adjudication would require many more judges, trial lawyers, and courtrooms.

Another negative of plea bargaining is adding charges to encourage a deal. This is largely necessary. Suppose that the fair sentence for a crime is ten years. If this is the max sentence at trial, a defendant will only accept a plea for a shorter sentence. Prosecutors need to threaten twenty years to induce a plea to ten years. This practice has received attention in the ongoing college admissions bribery case. Actress Lori Loughlin and the other parents refusing plea deals were recently hit with additional bribery and conspiracy charges.

Finally, pervasive plea bargaining might undermine the quality of criminal evidence generally. Cross-examination uncovers mistakes, lies, and bogus theories, but only at trial. If over 90% of convictions come from pleas, the evidence need only be strong enough to induce a deal, not to withstand cross-examination. Sloppy and faked drug tests in two different Massachusetts crime labs recently led to 47,000 convictions being thrown out. Weak evidence also increases the likelihood of innocent people being accused and forced to plead guilty.

We may wish to blame “the system” for plea bargaining’s problems, but ultimately we fail to provide sufficient resources for more trials. This makes prosecutors coerce pleas, inevitably producing miscarriages of justice. Economists contribute too, by overemphasizing the immediate cost savings from plea bargaining.

Daniel Sutter is the Charles G. Koch Professor of Economics with the Manuel H. Johnson Center for Political Economy at Troy University and host of Econversations on TrojanVision. The opinions expressed in this column are the author’s and do not necessarily reflect the views of Troy University.

1 month ago

Did we win the trade war?

(Pixabay, YHN)

President Trump recently announced a partial trade settlement with China. Does this mean we have won the trade war?

Details remain sparse, and the present deal may merely forestall further tariff hikes. It may be a truce rather than a peace treaty. Nonetheless, avoiding escalation of the trade war is good news.


To think about trade with China or other nations, we should not view nations as trading. Individuals and businesses trade through buying. As consumers, we face a range of options for cars, clothes, phones and so forth. Sometimes a “foreign” product better serves us or offers comparable value at a better price. Businesses similarly consider who can best supply the inputs they use. Today’s global supply chains make the difference between foreign and domestic manufacturers a matter of degree.

Viewing trade as individual action helps us recognize that trade makes consumers better off. Overseas sales boost American firms’ revenues and make their customers across the globe better off too. Voluntary trade in markets benefits all involved, even when they live in different countries.

All nations’ governments limit their citizens’ freedom to trade internationally. This is unfortunate; a world economy with everyone participating would be more prosperous. And governments use their tax dollars to help their companies sell in foreign markets. These export subsidies hurt the world economy by making products artificially attractive to consumers.

What can we do if other nations keep their citizens from buying American products? As a rule, I think we should engage in trade to the extent possible. Limited trade still produces benefits.

The charitable interpretation sees President Trump’s trade war as trying to make China open their markets. Tariffs on Chinese imports threaten the profits Chinese companies earn selling here. A trade war tries leveraging this pressure for a better deal. If successful, the costly trade war would yield future benefits.

Yet pressuring governments on trade is problematic. A government that restricts imports demonstrates relatively little concern for their citizens’ well-being. For many years Japan limited rice imports, an important staple of their national diet. If Japanese rice growers were so important that politicians were willing to make households (who could vote against the politicians in elections) pay more for rice, could we possibly have enough leverage to force a policy change?

The dispute with China also involves allegations of unfair trade. One element of unfairness is government assistance to companies exporting to the U.S. Another component is currency manipulation, or keeping the value of China’s currency, the yuan, low to make exports artificially cheap. (Intellectual property and technology transfer are also concerns but these issues are sufficiently involved to warrant separate treatment.)

Government export assistance raises fairness concerns and harms the world economy. We might accept it when American companies lose out in fair competition against companies from Canada, Europe or Asia. Export subsidies inflict pain on Americans with no gains for the world economy. Why should we let American companies go out of business and American workers lose their jobs due to government-assisted exporters?

Yet establishing the unfairness and even existence of specific forms of assistance when governments are extensively involved in the economy is exceedingly difficult. Are the tax breaks and worker training provided by Alabama and other states unfair assistance in international trade? International finance economists do not agree whether China is currently manipulating the yuan to aid exports. Absent some way to clearly identify unfair assistance, every American company facing international competition will seek protection.

The details on this agreement and any follow up agreements will tell us if President Trump’s trade war has increased the freedom of Americans and Chinese to trade. Wars sometimes result in bloody stalemates, with leaders then peddling a deal restoring the status quo ante as victory. The cost of trade wars and shooting wars makes peace with honor, if possible, an attractive alternative.

Daniel Sutter is the Charles G. Koch Professor of Economics with the Manuel H. Johnson Center for Political Economy at Troy University and host of Econversations on TrojanVision. The opinions expressed in this column are the author’s and do not necessarily reflect the views of Troy University.

2 months ago

The persistent problem of hazing

(Pixabay, YHN)

Two Troy University fraternities were recently suspended for hazing, which is a recurring problem at our nation’s colleges. According to Wikipedia, 20 college students have died in hazing incidents this decade. Economics can offer insight into how initiation rituals help build groups and why hazing persists.

In addition to fraternities and sororities, bands, sports teams, firefighters, and military units have all had abusive initiations exposed. Economists would hope that our insights will apply across different groups.


Economics distinguishes between positive and normative analysis. Positive analysis focuses on factual questions, cause and effect, and how things work. Normative economics deals with questions about what should be.

My discussion is positive. Personally I did not join a fraternity and consider initiation rituals ridiculous. Economists focus on understanding practices in society without imposing personal biases. We should understand what rituals do before we possibly ban hazing.

Enduring initiation signals a new member’s commitment to a group’s cause or purpose. Initiation differs from training. Training develops skills used in group tasks; initiation generally does not. Demanding training can cause many applicants to drop out, similar to initiation.

What types of groups benefit from making prospective members signal commitment? Ones where the group experience or its performance depends on members’ actions and effort, and where the valued types of effort are difficult to describe. Fires and coworkers’ carelessness can put firefighters in grave danger. Firefighters need to have each other’s backs, and in ways that go beyond training protocols. Initiation signals this willingness.

Initiation screens prospective members. Sometimes a group can enroll all applicants and boot those failing to perform. Natural limits on group size make signaling more valuable. Only eleven players play football at once, only so many firefighters ride on a truck, and an exclusive fraternity or sorority cannot admit everyone.

Signaling also generates value when other ways of screening fail to identify high quality applicants. The inability of resumes, interviews, and background checks to identify the best potential members makes signaling more important.

An action works as a signal when only outstanding potential members willingly take the action. That is, a good signal separates the prospective great members from others. Many things serve as signals in life; I recently wrote about Professor Bryan Caplan’s book on higher education as a signal.

Economic models of signaling reveal an unpleasant truth: a signal is valuable because it is costly. Initiation rituals consequently must be unpleasant or humiliating. A pleasurable initiation would not deter any would-be members.

Initiation likely persists because it helps sustain cohesive groups. Yet even if hazing “works,” alternatives may exist. Perhaps a less costly signal could still separate the prospective good and bad members. The initiation could be less demeaning and dangerous – and not cross the line into hazing – and still help a fraternity or fire department function effectively.

Human emotions can make initiations unnecessarily dangerous or persist when no longer needed. Turnabout may not be fair play, but is a natural reaction after we undergo a trial. Rituals may not be precise and are carried out by members with imperfect memories. Members may believe they endured worse abuse than occurred and unintentionally push exercise and drinking into hazing.

Economics also suggests that preventing hazing will be difficult. A cooperative victim greatly facilitates criminal prosecutions. Normally crime victims want their attacker punished. Prosecuting “victimless crimes” like drugs or gambling is difficult because all parties voluntarily participate; few gamblers want their bookie arrested and put out of business.

Young men and women choose to join fraternities and sororities and undergo initiation. Pledges will be reluctant to report hazing, even with websites and hazing hotlines. And illegality serves as a further barrier to reporting; a fraternity member risks punishment when reporting an initiation that went too far.

Should initiations be done away with as a relic of the past? Perhaps, but we should recognize that they play a role in building valued groups in society. We should constantly assess if safer initiations can serve the signaling function.

Daniel Sutter is the Charles G. Koch Professor of Economics with the Manuel H. Johnson Center for Political Economy at Troy University and host of Econversations on TrojanVision. The opinions expressed in this column are the author’s and do not necessarily reflect the views of Troy University.

2 months ago

Is it payday for college athletes?

(Pixabay, YHN)

California recently passed a law allowing college athletes to receive compensation. This stokes anew the debate about paying college athletes and may provide an example of competition between governments producing legal change.

Whether college athletes should be paid provokes strong responses.

On the one hand, student-athletes already receive numerous benefits, including a scholarship and tutoring assistance in addition to recognition and fame from playing on television and in front of huge crowds. Do they really need more?

On the other hand, FBS football and Division I men’s basketball together generate billions in revenue. The fans pay to watch the players, not the university’s faculty or administrators. Why shouldn’t the persons doing the hard work and bearing the risk of injury get a share of the pie?


The bill was passed by the California legislature and signed by Governor Gavin Newsome in September. The law has sometimes been described as paying student-athletes, but this is not accurate. Athletes will be able to make money off their name and image, basically by legalizing endorsement deals. Athletic departments would not pay student-athletes. This arrangement would be good for universities because the payments will not come from athletics department budgets, but raises equity issues.

How many college athletes have marketing potential? Tua Tagovailoa certainly, but even most Alabama football scholarship players are pretty anonymous and largely interchangeable from an endorsement perspective. Teams could have stars with six-figure endorsement deals playing alongside others earning nothing. The seemingly limited potential endorsements for women athletes also raise Title IX gender equity concerns.

Economics provides a reason to downplay the pay disparities. In the market, the money to pay employees (or spokespersons) must come from their employer’s revenues. With sufficient competition for their services, workers get paid the value of what they produce for a business. Economists are very used to thinking in these terms. We see no problem with Men’s World Cup soccer players getting paid ten times more than Women’s World Cup players because the men’s tournament generates so much more revenue. Nonetheless, pay disparities trouble many people.

Competition between governments hastens social and legal change, and we may get to see competition in action. For example, 15 states gave women the right to vote before passage of the 19th Amendment. Research shows that Western states and territories enacted women’s suffrage to attract residents.

Let’s consider competition between states more closely. Politicians will balance the benefits of allowing player compensation against the costs. California’s legalization of payments changes the balance of benefits and costs for others. Universities now face a competitive disadvantage recruiting the best players, making other states more likely to legalize payments.

Florida legislators have already introduced a bill to follow California’s lead. Other states will likely join. Alabama legislators never enacted a lottery. I make few predictions here, but I suspect that our lawmakers will legalize these payments to keep Alabama and Auburn football competitive nationally.

Competition may not play out in this fashion. The NCAA may bar California schools from competing. If the NCAA carries through with this threat, then legalizing payments would keep a state’s universities from participating in the College Football Playoff or March Madness. This should deter competition between states. Congress could also preempt state-by-state legalization by legalizing the payments nationwide.

Whether the NCAA will kick out California schools is uncertain. It would be hard to imagine college football without USC or basketball without UCLA. An NCAA hardline would invite creation of a rival athletics association if just a few states legalized paying college athletes. The top talent would almost certainly gravitate to a rival allowing compensation.

California has acted to enable college athletes to receive compensation for generating billions in revenue. Even should the NCAA parry this thrust, California or other states might take other steps in pursuit of this goal. However the drama unfolds, college athletes seem closer than ever to being paid to play.

Daniel Sutter is the Charles G. Koch Professor of Economics with the Manuel H. Johnson Center for Political Economy at Troy University and host of Econversations on TrojanVision. The opinions expressed in this column are the author’s and do not necessarily reflect the views of Troy University.

2 months ago

Is Greenland for sale?

(WH/Flickr, Wikicommons, YHN)

President Trump recently suggested that the United States buy Greenland. Denmark emphasized that the world’s largest island is not for sale. Regardless of whether buying Greenland offers value, Mr. Trump’s proposal represents progress in international relations and raises interesting questions regarding property and markets.

This is not the first time we have inquired whether Denmark might sell Greenland; President Harry Truman asked in 1946. Land purchases clearly have precedent in American history: the Louisiana Purchase from France in 1803, the Alaska Purchase from Russia in 1867 and the Gadsden Purchase from Mexico in 1854.


Some commentators who engaged with President Trump’s proposal raised the question of an appropriate sale price. We would be purchasing the sovereignty of the territory, not each piece of property. Greenland would become a U.S. territory and the current property owners (presumably) could maintain ownership. (However, land claims under Mexican law in parts of Texas were ignored after Texas joined the Union.)

Throughout human history, kings, emperors and nations have taken land via military conquest, with payment in blood. America has also expanded via war, acquiring the future states of California, Arizona, Nevada, Utah and parts of Colorado and New Mexico from Mexico and Puerto Rico from Spain. The American Revolution resulted in our first land acquisition, independence from England.

Wars have frequently redrawn the map of Europe. Germany seized the French provinces of Alsace and Lorraine after the Franco-Prussian War. France’s desire to reclaim these provinces helped ignite World War I.

Economic freedom begins with secure property rights. If you own something, others can only acquire with your voluntary consent. This produces the buying and selling of markets. Nations should deal with each other similarly, as opposed to through force and conquest.

Unfortunately, individuals and nations have often tried taking territory and other possessions by force (or by enslaving others). Might makes right has too often been the guiding principle.

Underestimation and discounting of the costs of war have encouraged nations to pursue conquest. Psychologists have documented the pervasive nature of overconfidence bias. The combatants in wars have often expected quick and easy victory, making conquest appear inexpensive. And the leaders who decide on war rarely do the fighting and dying.

Psychology also complicates the selling of land. People form sentimental attachments to family homes or farms and possess patriotic and nationalistic feelings. Sentimental attachments likely contribute to the use of eminent domain by governments to force sales. And Greenlanders do not want to lose their national identity as part of Denmark.

Selling land I think also touches fundamental views about how to live life. For thousands of years, people, tribes and nations have tried forcibly to take others’ land and possessions. People have long had to protect their possessions. We are likely hard-wired to stand our ground and protect what we own. And we also may perceive our self-interest as requiring fighting to protect what is ours.

Market exchange has arisen only recently in human history. A real estate developer’s offer to buy our land is not the same as a bully’s or bandit’s threats. Yet the deep connection many people feel to their land may make the offer sound like a threat. Sentimental attachments and perceived self-interest combine to make the price of purchasing land very high, when people are even willing to sell. People who want to use land for valuable purposes may rationalize using force to take it. Today this primarily occurs through eminent domain, which is far less disruptive for society than bloodshed.

Economic freedom requires secure ownership. Landowners can rightfully refuse even a very generous offer, and for any reason. Yet markets require that owners willingly sell land. That the world’s most powerful nation considers buying instead of conquering a territory is a testament to human progress. President Trump’s offer for Greenland may not be generous enough, but it certainly is not preposterous.

Daniel Sutter is the Charles G. Koch Professor of Economics with the Manuel H. Johnson Center for Political Economy at Troy University and host of Econversations on TrojanVision. The opinions expressed in this column are the author’s and do not necessarily reflect the views of Troy University.

2 months ago

Is Alabama a poor state?

(PIxabay, YHN)

By most measures of income, yes, Alabama is a poor state, but income does not account for the cost of living. Does a low cost of living offset lower income in Alabama? And is a low cost of living necessarily good?

Based on Census data, Alabama currently ranks in the bottom five states for both median household and per capita income. Alabama has been in the bottom ten states on these measures for years.

In 2018 Alabama ranked 46th, with less than half the cost of living in Hawaii, the highest cost of living state. Annual of income of $50,000 certainly goes further in Alabama than in Hawaii or New York. When adjusting income for cost of living, Alabama ranks in the thirties among states.


Do cost of living measures truly account for differences across states? This is an intriguing question. The measured cost of living overstates and understates the full cost in some ways.

Cost of living measures overstate differences in living costs due to substitution. People will buy similar goods when one increases in price relative to the others. Suppose that the price of Coke doubles while the price of Pepsi remains unchanged. Many people consider Coke and Pepsi interchangeable, or what economists call close substitutes, and will just buy Pepsi and be little affected by the price increase.

Substitution applies with most goods. Consider housing, one of the biggest factors in cost of living differences. A person might rent a one bedroom apartment if they lived in New York City versus a townhouse if they lived in Montgomery. A price index must measure the prices of the same market basket of goods for an apples-to-apples comparison. Yet price differences lead consumers to substitute.

Perhaps the bigger difference between high and low cost states is the difference in availability of goods and services in expensive cities like New York or San Francisco versus Alabama. For instance, a major city has a much wider variety of restaurants, including very expensive ones. Is the cost dining out higher? Yes, but dining involves eating food that is closer to your tastes.

Here’s another way of considering this point. The cost of dining at one of America’s finest restaurants if you live in Alabama likely includes airfare. The cost of dining out in Alabama does not reflect prices at many fancy restaurants, giving Alabama a low cost of dining.

Availability applies to museums, art galleries, and shopping in addition to restaurants. The cost of living is lower but fails to include certain options at all. Differences in availability do not impact everyone the same however. An Alabamian who does not value fancy restaurants, avant garde art, or $25 cups of coffee will not miss out. Economic statistics cannot control for such differences in tastes.

Technology and innovation, specifically the internet, Walmart and Amazon, have increased rural America’s consumption opportunities relative to large cities. Alabamians and New Yorker can both now find their favorite music, books and movies online.

Economic theory tells us that real estate prices should reflect all the good and bad things about a place. Anything making a community a more desirable place to live – including nice weather, recreation, and natural beauty in addition to consumption opportunities – increases the demand for housing and thus real estate prices. Things that people dislike lead to lower prices. Because not everyone agrees on the desirability of each item, real estate prices must reflect average or typical preferences. Government land use and zoning policies, however, reduce housing supply and increase prices, so price differences do not reflect desirability exclusively.

On average, house prices will be lower in places where fewer people prefer to live. Economists consequently recognize the limited appeal of inexpensive housing in recruiting job candidates. Differences in the availability of goods, services and opportunities offset lower prices for common items. As a result, whether you find Alabama to be a poor state is to some degree a matter of taste.

Daniel Sutter is the Charles G. Koch Professor of Economics with the Manuel H. Johnson Center for Political Economy at Troy University and host of Econversations on TrojanVision. The opinions expressed in this column are the author’s and do not necessarily reflect the views of Troy University.

3 months ago

What is the responsibility of business?

(This Morning/YouTube, Wikicommons, YHN)

The Business Roundtable (BR), a group of chief executive officers (CEOs) of some of America’s largest corporations, recently released a statement claiming that businesses have a broader purpose than simply making profit. By contrast, in a famous essay economist Milton Friedman argued that the social responsibility of business was to increase its profit. The BR statement may perhaps be pure public relations. Still, should we regard profit as less important than other potential business goals?

Answering this depends on the nature of profits. In the market, all transactions are voluntary. No business, however large, can compel anyone to buy their product, work for them, or loan them money. Profit must be earned by producing valuable goods or services. Customers will only buy a product that delivers more value than comparably priced goods, or similar value for a lower price. Workers will only work if the pay and conditions compare favorably to other jobs.


In a market economy, profit cannot be made through exploitation. Some people, unfortunately, do not have very good alternatives. Many Americans do not consider a minimum wage job attractive; the person willing to work for $7.25 an hour is better off, given their other options. We might lament the lack of better alternatives but any better opportunity is an improvement.

Should corporations lower prices or pay workers more instead of earning profits? Not necessarily. Profit is the reward for investors who enable investment, the hiring of workers, and production. Profit also enables charity. America’s great philanthropic foundations – like the Ford, Rockefeller, and Gates Foundations – were built off enormously successful and profitable businesses. If Microsoft were not so profitable, Bill Gates could not be so charitable today.

Why will stockholders want businesses to earn profits? Millions of Americans own stock, either directly or through their pension plans. They invest for many different reasons: for retirement, to provide for their children or grandchildren, or to enable donations to charitable causes. Money allows the stockholders to pursue these distinct goals. Absent specific evidence otherwise, we should presume that stockholders want profit.

The BR statement says that corporations have commitments to other stakeholders: they should deliver value to customers, treat and compensate employees fairly, and deal ethically with suppliers. I see no real divergence here from Professor Friedman, who insisted that increases in profit had to be achieved within society’s legal and ethical bounds.

This might seem surprising, as corporations appear to many to shortchange customers and take advantage of employees. Yet markets are entirely voluntary. Providing a shoddy product and ignoring customer complaints may reduce costs and increase profit in the near term. But dissatisfied customers will turn elsewhere and damages a company’s reputation.

Corporations rely on their employees, as the owners do not do all the work themselves. The workers know how to make a business’ products. Dissatisfied workers can quit, taking their training and skills with them. Stiffing workers on overtime or benefits may save a little money, but losing skilled workers is very costly.

Treating people the right way – especially customers, employees and suppliers – is arguably how to increase profits. It may be difficult to quantify how much this adds to the bottom line and so may appear to be an item of faith. Still, the BR statement here just seems like good business.

One of Professor Friedman’s concerns remains relevant today. CEOs make decisions, give speeches, and receive media attention but ultimately do not own corporations. Owners ultimately get to make the decisions; the CEO works for the stockholders, represented by the board of directors.

A CEO may choose to support trendy social causes to build a reputation as an enlightened executive. It is easy to be charitable with other people’s money. Hold your applause when businesses support broader social causes. CEOs ultimately should heed the stockholders and not grab the spotlight to boost their egos.

Daniel Sutter is the Charles G. Koch Professor of Economics with the Manuel H. Johnson Center for Political Economy at Troy University and host of Econversations on TrojanVision. The opinions expressed in this column are the author’s and do not necessarily reflect the views of Troy University.

3 months ago

Before you blame the coach

(Pixabay, YHN)

If you are a football fan, you’ll know this frustration. Your team faces third and one. Instead of handing off, the quarterback throws a pass that falls incomplete and the punt team comes on. You scream, “Just run the ball and get the first down!” Game theory suggests that your anger may be misplaced.

Often in life, our decision will depend on actions by others. Most games we play for fun fit this bill, like chess, checkers, and monopoly. Business also offers these interactions. For example, automakers consider rivals’ plans when deciding which new models of cars to develop. Decisions like which side of the road to drive on also exhibit this strategic element.


Economists, mathematicians, and other scientists use game theory to analyze strategic social situations. While interactions between firms, members of a group, or nations are not games per se, we borrow the term from of games of strategy. Game theorists typically analyze pretty simple games to allow us to think through all the complications.

One question economists have studied is how calculating persons will play games. Pondering strategic considerations can appear overwhelming, as Vizzini and Westley’s discussion of which chalice contains the poison in The Princess Bride illustrates. We impose structure to avoid a muddle.

Game theorists have won numerous Nobel prizes in economics. John Nash, profiled in the 2001 movie A Beautiful Mind, shared the 1994 prize for helping deduce how people will play games against rational players. Nash’s idea was that players will adjust until one would want to change their action even if they knew the actions other players were taking.

Football illustrates a challenge for this adjustment. Let’s simplify the offense to a run and a pass and let the defense defend either the run or the pass. If the two teams are comparable in talent, the defense should be able to stop the play they are trying to defend but be vulnerable to the other play. Seemingly the teams here won’t be able to adjust their actions to each other: if the offense runs, the defense will defend the run, making the offense pass, and the defense then defend the pass, and so on.

Professor Nash surmounted this problem by viewing each player’s choice in probability terms. We could describe an offensive strategy as a 60 to 40 percent balance in favor of passing. And the defense might blitz on a given percentage of plays. Thinking of strategies in probabilistic terms, or what are called mixed strategies, allows mutual adjustment. If the offense passes say 20 percent of the time on third and short, the defense can’t sell out to stop the run.

Thinking about strategic choices as probabilities reinforces and challenges our intuition. One the one hand, we readily recognize the danger of being too predictable. Yet running on every third and short makes a team too predictable. So don’t criticize that pass on third and short.

Even when varying our choices, we can still be predictable. If a team alternates run then pass on third and one, opponents can guess what is coming. Flipping a coin on the sideline to decide run or pass could make sense.

Most of us will never coach a football team, but mixed strategies can help in business. For example, a branch manager did not necessarily make a mistake by choosing a weak option. It may be part of a mixed strategy yielding better performance over the long run.

Game theory is also applied to international relations. Still, I find it troubling to think of the President, with access to nuclear weapons, acting unpredictably just for strategic advantage. If unpredictability is truly valuable, President Trump should be ready to accomplish some strokes of diplomatic genius.

It is difficult for fans to validly criticize a coach’s play calls. After all, a brilliant play call can blow up due to poor execution. And that third and one pass could constitute an optimal mixing of plays. My advice is to just sit back and enjoy the season!

Daniel Sutter is the Charles G. Koch Professor of Economics with the Manuel H. Johnson Center for Political Economy at Troy University and host of Econversations on TrojanVision. The opinions expressed in this column are the author’s and do not necessarily reflect the views of Troy University.

3 months ago

History comes to Troy

(Troy University/Contributed)

Troy University will host an exhibition from The Remnant Trust from September through the end of November. The artifacts and books included afford an opportunity for Alabamians to see some history.

Founded in 1999, The Remnant Trust is a foundation dedicated to preserving items important to the history of individual freedom and human dignity. Partnered with Texas Tech University since 2014, the Trust has a collection of over 1,400 documents for research and exhibitions like the one coming to Troy University. The Troy exhibit will include items from ancient Greece and the Middle East, early editions of Shakespeare, Newton and Tocqueville, and documents like the Magna Carta, Declaration of Independence and Emancipation Proclamation.


The exhibition also features some classic economics books. To help understand their significance and contemporary relevance, the Johnson Center is pleased to bring two nationally-renowned scholars to Troy.

Our first scholar, visiting on September 24, is Dr. James Otteson of Wake Forest University. Dr. Otteson is an expert on Adam Smith and author of What Adam Smith Knew. Adam Smith, the founder of economics, wrote An Inquiry into the Nature and Causes of the Wealth of Nations in 1776, expounding on (among other topics) the source of prosperity and the nature of the market economy.

When Smith wrote, the Mercantilists dominated policy in England and France. The Mercantilists viewed gold as wealth and colonial empires as the way to build national gold stocks. By exporting more than importing (running a trade surplus), a nation could accumulate gold. Europeans would pay for English goods with gold, increasing England’s gold holdings. Colonies allowed the mother country to avoid importing raw materials.

As Smith explained, a nation is prosperous because its citizens enjoy a high standard of living, not because it has the most gold. Ultimately production and consumption matter. President Trump seemingly holds Mercantilist ideas regarding a trade surplus.

Furthermore, Smith showed how market institutions are the products of human action but not human design, or spontaneous orders. Smith’s metaphor of an invisible hand guiding people’s actions describes this beautifully. People act in their self-interest in impossibly complicated ways.

Spontaneous order explains why economists or government officials cannot plan or control our economy. Politicians who think, mistakenly, that someone designed our entire financial system will think that they can restructure it with no adverse consequences.

On November 12, we will host Dr. Daniel Jacobson of the University of Michigan, a scholar of 19th Century British political economist John Stuart Mill. Mill’s On Liberty provides a classic case for freedom of speech and inquiry. The souring of so many political and intellectual figures on free speech makes Mill’s arguments important today.

Mill offered two arguments for free speech. The first was the importance of free inquiry as a means of learning the truth, or the idea of a marketplace of ideas. The second was the potential for abuse of restrictions on speech. Free inquiry will always upset government leaders, who never like being told they are wrong. Furthermore, criticism can spark defiance of political authority.

Some commentators might dismiss The Remnant Trust project as Western cultural hegemony. I do not find the Trust’s mission to preserve our heritage of “individual liberty and human dignity” ethnocentric. The Troy University exhibit includes the Torah, the Quran, and the Morals of Confucius.

More significantly, I have met persons from across the globe in my years as a student and faculty member. People generally want better lives for themselves and their families; the dignity and value of individuals are human, not Western, values. Unfortunately, human history also abounds with oppression by rulers. Today’s freedom and prosperity did start in Western Europe with the Enlightenment and the Industrial Revolution. Yet I see this as more of an accident than a consequence of culture. Diffusion of these values shows the universal appeal of freedom and dignity.

The Remnant Trust exhibit will be on display at the Troy University library. Hopefully, many of you will come out and see these items.

Daniel Sutter is the Charles G. Koch Professor of Economics with the Manuel H. Johnson Center for Political Economy at Troy University and host of Econversations on TrojanVision. The opinions expressed in this column are the author’s and do not necessarily reflect the views of Troy University.

3 months ago

Celebrating labor

(PIxabay, YHN)

Labor Day was established as a national holiday 125 years ago, championed by labor unions. Despite unions’ recent decline, we should still celebrate work. The market for labor is an important element of the liberal society, and peoples’ willingness to work for a living makes our economy function.

The decline of unions in America has been remarkable. Over 30% of workers were unionized in the 1950s, versus 10% in 2018. The private sector unionization rate is only 6.4% – about one out of 16 workers. A number of factors explain this change, like the decline in manufacturing employment; America still manufactures as much as ever, just with fewer workers due to automation. The shift of jobs to Southern right-to-work states has also contributed.


Less remarked is a more conciliatory approach to labor relations by management. The U.S. labor movement was always more about job conditions than politics. Americans formed unions over specific grievances; when management stopped offending workers, the demand for unionization declined.

The existence of a market for labor is significant, regardless of whether unions represent workers. Liberalism, in both its classical and modern forms, views individuals as possessing moral value, not means to other peoples’ ends. Liberalism transformed politics, from people serving the emperor, king, or dictator, to government for the people.

Throughout most of human history, some people have forced others to work for them as slaves, serfs, or conscripts. Forced labor implies unequal moral worth; Egypt’s pharaohs could make thousands of people build pyramids. Slavery persisted in the United States (and other nations) until the 19th Century. Twentieth Century authoritarian governments forced citizens to do their bidding.

The labor market assumes that everyone is free. The rich and powerful cannot force others to work for them; instead they must offer enough compensation to secure willing assistance. An unpleasant or dangerous task will require greater compensation. And people can leave one job for a better one.

Markets ensure that commercial interactions are based on mutual agreement. We need food, clothing and shelter to survive, and want more than the necessities of life. In the market, the suppliers of goods and services cannot be forced to produce for us. We must trade for the things we want, and for most of us, what we have to trade is money earned from a job.

The functioning of a market economy requires that people accept working for a living. We face a lifetime of working to afford the things we need. Accepting the need to work is a moral choice, to live through production and exchange as opposed to begging, borrowing, or stealing. One beneficial trend over the past fifty years has been the emergence of jobs resembling play more than work, like freelance writers, college football recruiting gurus, and YouTubers. But for millions of Americans, work is hard, exhausting, stressful, boring, and dangerous.

Widespread acceptance of the work imperative may be eroding. One sign of erosion is the decline in labor force participation for men aged 25 to 54. Anecdotes of college graduates living with their parents and not working are also troubling. And interest in a Universal Basic Income for all Americans reflects, I think, a hope that work may soon be optional.

Working for a living entails many costs: being away from family during the day, commuting to and from work, and being tired after work. It means relegating many enjoyable activities to weekends and vacations. Of course, work can also be a source of challenge and accomplishment as well as where we meet new friends. But it is called work for a reason.

Erosion of the work imperative makes our economy less productive and may undermine the freedom underlying the labor market. Our nation has relied on an all-volunteer military, the appropriate way to defend a free nation, since 1973. The willingness of enough volunteers is crucial here; failing to meet recruiting targets would likely produce pressure to reinstate a draft. The same dynamic could be in play in the larger economy. This is another reason to celebrate work this Labor Day.

Daniel Sutter is the Charles G. Koch Professor of Economics with the Manuel H. Johnson Center for Political Economy at Troy University and host of Econversations on TrojanVision. The opinions expressed in this column are the author’s and do not necessarily reflect the views of Troy University.

3 months ago

Is a renewable electric grid a mirage?

(PIxabay, YHN)

Reducing greenhouse gas emissions to curb climate change will require enormous sacrifice. The enormity of the required sacrifice suggests that we should have consensus on the goal before acting. Recent discussions of the Green New Deal have highlighted some of the required sacrifices, but I suspect that the full implications of an all-renewable power electric grid remain obscure.

The Green New Deal was sponsored by New York Congresswoman Alexandria Ocasio-Cortez and Massachusetts Senator Edward Markey. The proposal highlighted measures like a renewable energy electric grid, eliminating greenhouse gas emissions in transportation (including phasing out air travel), and creating a smart electric grid. Limiting atmospheric carbon dioxide to 440 ppm, the European Union’s goal, will require these changes and then some. Assessing whether aggressive mitigation of climate change is worthwhile requires recognizing the full cost.


An all-renewable energy electric grid appears feasible. Over 30 states already require a minimum portion of electricity generation from renewable sources; Hawaii will require 100 percent renewables by 2040. Renewable fuels are certainly costly, but the consequences go way beyond cost.

Wind and solar power and batteries are the components of a zero-emissions grid. Yet wind and solar generate power only about 30% of the time. Currently, utilities rely on fossil-fuel-powered plants to provide backup; a zero-emissions grid will require batteries. The Manhattan Institute report, “The ‘New Energy Economy’: An Exercise in Magical Thinking,” demonstrates the flaws of such an approach.

One concern involves simply building enough wind farms and solar panels to meet electricity demand. In 2018, the U.S. had 1.1 million megawatts of electricity generation capacity, 62% from natural gas and coal. Due to intermittent production, we would need perhaps 3 million megawatts of wind or solar capacity for the grid. If we used only wind turbines, we would need a wind farm larger than Texas. We would need perhaps 1.5 million turbines, each requiring 150 acres for an undisturbed flow of air, or 350,000 square miles.

Even this is almost surely an underestimate. Wind energy potential maps have already allowed use of the best wind farm sites. Electricity demand has been steadily rising and would jump further to charge the electric cars, trucks, and trains and eliminate gas and diesel-powered vehicles.

The battery numbers are also troubling. One year’s production of batteries from Tesla’s “Gigafactory” can store enough power for the U.S. grid for three minutes. The “New Energy Economy” report contends that 1,000 years of “Gigafactory” production would be needed to store just two days of power.

Producing such quantities of turbines, solar panels, and batteries will use enormous quantities of fossil fuels. A standard wind turbine requires an estimated 900 tons of materials, including concrete and metal. The lithium, cobalt, nickel and other needed chemicals for solar panels and batteries must be mined and transported. In addition, turbines, panels and batteries will need replacing periodically.

The power grid has long operated on adding capacity to meet demand. Millions of decisions have been made based on this principle. We assume we can power our air conditioners, refrigerators, and computers, and soon charge electric cars in a timely fashion. Gas-powered generators provide backup as needed.

A zero-emissions grid will not just involve much more expensive electricity. The supply of electricity will be insufficient to meet the demand. “Smart” appliances will ration electricity by running only when electricity is available. After ensuring hospitals and fire stations have power, we may be unable to charge our cell phones and electric cars.

The ripple effects will be enormous. How do we get to work if our electric car didn’t charge overnight? How will we heat and cool our homes? Could global supply chains still operate? The Green New Deal has highlighted some of the dramatic changes required to aggressively combat climate change. But I doubt that Americans understand the consequences of ending on-demand electricity.

Daniel Sutter is the Charles G. Koch Professor of Economics with the Manuel H. Johnson Center for Political Economy at Troy University and host of Econversations on TrojanVision. The opinions expressed in this column are the author’s and do not necessarily reflect the views of Troy University.

4 months ago

Why go to college?

(PIxabay, YHN)

More than three million students will begin college this year, many pursuing degrees needed for high paying jobs. Amazingly, bachelor’s degrees open economic doors despite little evidence of significant learning in college. How can students who retain so little knowledge make so much money?

A college degree can identify people who employers want to hire. A recent book by George Mason University economist Bryan Caplan provocatively titled The Case Against Education argues that this signaling explains much of the college earnings premium.

The college earnings premium is real. According to the Bureau of Labor Statistics, in 2018 college grads earned 64% more than high school grads who never attended college, and 39% more than associate’s degree holders. College grads are also less likely to be unemployed, with a 2.2% unemployment rate, versus 4.1% for high school grads. The earnings and unemployment differentials have both persisted for years.


Businesses require bachelor’s degrees for many jobs. Every time a business chooses college grads, they pay more. Profit-hungry businesses should not hire more expensive workers unless they create more value.

Economics offers two theories for education’s value. The first, called human capital, contends that learning makes workers more productive. In the human capital story, the college curriculum must be directly valuable to employers. High paying degrees, like economics, must teach skills businesses value more.

Alternatively, college degrees might allow students to signal characteristics which businesses desire; the content of degrees may be largely irrelevant. Life offers many examples of signaling. Romance and courting involve numerous signals, like engagement rings. A diamond is of little practical value, but signals the willingness to make a life-long commitment.

What does college signal? Professor Caplan argues three main traits: intelligence, conscientiousness, and conformity. Businesses desire workers who are smart, able to learn challenging material, and willing to follow rules. Conformity is probably becoming more important, as businesses can no longer afford workers who tell off-color jokes or express racial, religious or sexual intolerance.

Intelligence and ability to learn are valuable because the details of jobs differ greatly across employers. Employers must train workers to do a job their way. Employees must be willing to turn off their cell phones and pay attention.

How important is human capital versus signaling? Discussions of higher education policy generally presume human capital theory. Yet Professor Caplan contends that the college premium is about 80% signaling and 20% human capital. The content of education clearly has some relevance; engineering firms will not hire inexpensive social work majors over expensive engineers because they prefer graduates already familiar with engineering.

Professor Caplan presents a wealth of statistical evidence in support of signaling. Yet several puzzles demonstrate signaling’s importance. Perhaps most telling is the one mentioned above, the lack of evidence on long-term learning. Knowledge forgotten – of Shakespeare, calculus, or supply and demand – cannot be generating productivity. Furthermore, a student who is one or two classes short of a degree has acquired perhaps 95 percent of a degree’s human capital, but will face a significant salary penalty. And attending classes allows acquisition of knowledge without earning college credit, and has essentially no market value.

Signaling creates value for the economy even if course content is largely irrelevant. College helps employers find the workers they want. Yes, four years of college is costly, but everyone wants high paying jobs and would likely lie during an interview. Whether higher education provides efficient signaling depends on whether an alternative can separate high and low-quality potential workers at a lower cost.

The potential exists for excessive and wasteful signaling. Completing high school used to separate one from the crowd. Arguably we now use college degrees as a signal instead of high school diplomas. Credential inflation is potentially costly.

For parents of college students, signaling offers some solace. Even if Sally or Johnny seem to forget everything after the semester ends, passing forgettable classes can readily signal employers their willingness to learn a boring job.

Daniel Sutter is the Charles G. Koch Professor of Economics with the Manuel H. Johnson Center for Political Economy at Troy University and host of Econversations on TrojanVision. The opinions expressed in this column are the author’s and do not necessarily reflect the views of Troy University.

4 months ago

The economic value of national unity

(Pixabay, YHN)

The Edmund Burke Foundation recently hosted the National Conservatism Conference which explored, among other questions, the meaning and importance of patriotic national unity. Conference organizer Yoram Hazony argued that conservatives need to break away from the libertarian and classical liberal idea of the “individual … as the only thing that matters in politics.” Politics is about citizens pursuing their common interests, and the bonds formed in this pursuit are important for the economy as well.

America’s founders were liberals, or the classical liberals mentioned by Mr. Hazony. Liberalism maintained that governments were supposed to serve people, not the other way around. This idea was radical at the time, and had been established slowly in England over centuries.


England’s “constitution” was never written down or formally adopted. In the 1770s, King George III was pushing for more royal prerogative. Our founders’ decided to create a country based on an idea, not ethnicity or military conquest. And the idea was freedom.
Founding a nation based on agreement among citizens follows naturally from the political theory of liberals like Hobbes, Locke and Montesquieu. The consent of the governed legitimates government, and the Declaration of Independence, the Constitution, and the Bill of Rights made this explicit.

A nation can only have one set of institutions. Politicians will either have limited or unlimited power. Property rights and economic freedom will either be respected or not. Either people will be free to live, or must get permission to move, work, or worship. America’s institutions – limited government, markets, and personal freedom – achieve the founders’ values.

Institutions significantly impact economic performance and prosperity. Physical capital (factories, mines, and farms) produces our goods and services, but secure property rights encourage people to make these investments. Limited government secured through representative democracy establishes the rule of law.

The citizens of a nation must accept its institutions, and by implication, the values the institutions embody. Acceptance based on genuine agreement binds people together. Even if everyone agreed on fundamental values like life, liberty, and the pursuit of happiness, disagreements will arise on specifics or the form of government to best secure these values. No one gets exactly what they want. We agree to respect our differences and not let them tear us apart.

Libertarians emphasize the universal nature of human rights. The Declaration of Independence’s rights to life, liberty, and the pursuit of happiness apply to all people, even when ignored by a dictator. Many libertarians’ internationalism, I think, offends conservatives’ strong sense of nationalism.

Yet I think there should be common ground here. Not all people agree on fundamental human rights. People who believe in freedom can found a country based on this. A foundation in freedom has enabled America to accommodate so many immigrants historically. Americans’ shared values more than offset racial, religious and linguistic differences.

The citizens of a free nation effectively bond together to protect these values and the institutions which secure them. This is how politics is about more than just individuals. And it must be because many people and nations which do not accept freedom will act in criminal and imperial ways. Freedom isn’t free, and citizens must protect each other’s freedom.

Shared values and the commitment to defend each other also produce trust, or a widespread belief that fellow citizens are not trying to take advantage of them. Research demonstrates the economic value of trust, even when controlling for institutions like the rule of law and economic freedom. Markets function better when employers trust employees, businesses trust customers, investors trust financial institutions, and so on.

Politics is about more than individuals. In a free country, politics involves a shared commitment to protect our fellow citizens’ freedom. And freedom allows individuals to pursue their happiness in many different ways.

Daniel Sutter is the Charles G. Koch Professor of Economics with the Manuel H. Johnson Center for Political Economy at Troy University and host of Econversations on TrojanVision. The opinions expressed in this column are the author’s and do not necessarily reflect the views of Troy University.

5 months ago

How far should we take equal pay?

(U.S. Soccer, Los Angeles Lakers/Facebook, YHN)

Whether the U.S. Women’s Soccer team should be paid the same as (or more than) the U.S. Men’s team is one part of gender pay equity. The debate highlights how determinants of pay in markets do not align with our notions of fairness and equity.

In the labor market, supply and demand set wages and salaries. Potential employers (the demanders of labor) make offers to potential workers (the suppliers). The two sides must reach mutually agreeable terms. Economists recognize that factors like the number of people with a given talent or the ability to learn a craft and the potential for machines to replace workers affect wages. Many of these factors, however, do not seemingly justify people earning different amounts of money.


For instance, LeBron James’s and Steph Curry’s unique basketball talents allow them to earn over $30 million a year. More people watch the Men’s World Cup than the Women’s World Cup, resulting in prize pools of $400 million and $30 million for the most recent tournaments. But we consider hard work, conscientiousness, and honesty as reasons why one person should earn more than another.

Do women make less than men? One widely reported statistic is that women make only 77% as much as men. Yet, economists know that earnings depend on education, experience, and hours worked among other factors. Controlling for these factors eliminates most of the pay gap.

Yet the absence of a pay gap does not leave us without concerns. Differences in educational attainment by gender, particularly in science and technology, may reflect biases. And women are less likely to leave the labor force to have and raise children, which may reflect stereotypes.

The interpretation of pay gaps, when they exist, is also complicated. The determinants of supply include personal values and decisions. The American Enterprise Institute’s Mark Perry and Andrew Biggs note that men hold 94% of jobs in the 20 professions with the highest on-the-job fatality rates. These dangerous jobs pay higher wages to compensate workers. Is it gender bias if women are less willing than men, on average, to take dangerous jobs?

The absence of a pay gap when controlling for relevant factors may seem surprising, but the profit motive can explain this. Suppose that airlines preferred hiring men over women as pilots. If pilots earned $150,000 a year, equally skilled female pilots shut out of the market might be willing to work for only $100,000 a year. A high-minded airline might break the gender barrier and hire women. But so would a greedy airline, to save $50,000 per pilot. Until the pay gap disappears, profit-seeking businesses should prefer hiring women.

What if bias affected access to education and training? Consider medicine, where arguably women were steered (or forced) into nursing, while men were encouraged (or allowed) to go to medical school. A nurse does not have all the skills of a doctor, but if not for bias, many women nurses would have become doctors.

Comparable worth laws mandate equal pay for jobs requiring comparable skill and responsibility. Some free-market economists worry that firms cannot afford the mandated higher pay for women. Yet married men’s earnings premium demonstrates that employers typically have some discretion on pay. They can give a raise to a married man to help support his family instead of a single man looking to buy a fancier car.

A bigger problem, I think, is that comparable worth changes the salary setting process. The labor market balances supply and demand; no one person or entity sets pay. Any gender pay gaps result from decisions by thousands of people. Enacting comparable worth requires a government expert to determine which professions deserve equal pay. Once the government decides some wages, any group of workers can demand that the government boost their pay.

Women have faced discrimination and restriction of their right to earn a living. This is unfortunate. Gender bias is, I think, disappearing, and where pay gaps still exist, greed in the market will help equalize pay.

Daniel Sutter is the Charles G. Koch Professor of Economics with the Manuel H. Johnson Center for Political Economy at Troy University and host of Econversations on TrojanVision. The opinions expressed in this column are the author’s and do not necessarily reflect the views of Troy University.

5 months ago

Battling on and off the field

(FOX Soccer/YouTube)

The U.S. Women’s soccer team is fighting two battles this year. On the field in France, they successfully defended their World Cup title. In March, team members sued the U.S. Soccer Federation for gender discrimination. The case highlights gender pay equity and potential discrimination by sports fans.

Determining compensation is trickier than you might think, due to differences in numbers of games and whether either team is playing a World Cup. Court filings suggest that for an equivalent schedule, women are paid 62 percent less than men. If this is true, is it fair?

If you think pay should depend on performance, the U.S. women should make much more than our men. The women have won four World Cup titles and Olympic Gold medals each; the Men have never won either and failed to qualify for the 2018 World Cup.


If you think pay should depend on effort and hard work, equal pay probably seems fair. The members of both teams undoubtedly train and play extremely hard.

Economists would focus on revenue generation by each team. Total player compensation across major professional sports leagues is generally 50 to 60 percent of revenue. Economics would find the pay differential fair if based on a revenue difference.

Economics explains how athletes’ compensation depends on revenue, but is this fair? We can offer a fairness defense as follows. Participation on the national soccer teams, like all market activity, is voluntary. And fans choose voluntarily to attend games, watch on TV and purchase merchandise. Voluntary participation means that events like the Women’s World Cup make the world a better place than otherwise. And pay differentials provide people an incentive to supply more labor, if possible.

Sports economics also suggests why unequal pay may persist even with equal revenue. Competition between employers in labor markets drives salaries up to the value a worker generates. Competition in sports is less intense than other professions because athletes make so much more in their sport than other work. Salary caps and other measures can further limit bidding for players. U.S. Soccer could potentially indulge prejudices regarding gender and pay if desired.

Whether the soccer pay gap is due to revenue is unclear. Gate revenue from women’s and men’s matches has been equal since 2015, but the gate is only one component of overall revenue. Litigation will likely reveal the truth.

Let’s turn then to a more challenging question: do revenue differences reflect fan prejudice against women’s sports? The prize pool for the Women’s World Cup was $30 million, versus $400 million for the 2018 Men’s World Cup. Huge earnings differences also exist in professional basketball. In 2017-18, the average WNBA salary was $72,000, compared with a minimum NBA salary of $838,000. These enormous pay gaps are primarily due to differences in revenue. Do sports fans just not like watching women play?

Economists have tested for racial discrimination using sports data, particularly focusing on salaries from within the same sport. Different sports leagues, to my mind, represent different products. Economists generally attach little moral significance to people’s preferences across products. Americans like football more than soccer, but so what? Such differences in preferences simply make the world more interesting.
Differences in fan interest though may well be due to gender stereotypes and consequently be disturbing. Even so, separating gender stereotyping from other, less problematic, preferences would be difficult. Should we try to mandate equality in fan attendance and spending for the NBA and WNBA? Should companies have to sponsor both the men’s and women’s national soccer teams for the same amount?

The long run provides reason for optimism. Women’s sports are relatively new – the WNBA is 21 years old and the first Women’s World Cup was held in 1991 – and sports loyalties are often formed young. As gender stereotypes break down, fewer fans will be biased. The 2019 World Cup’s record TV audiences worldwide demonstrate progress. When the revenue gap between men’s and women’s soccer disappears, if it still exists, equality in pay should follow.

Daniel Sutter is the Charles G. Koch Professor of Economics with the Manuel H. Johnson Center for Political Economy at Troy University and host of Econversations on TrojanVision. The opinions expressed in this column are the author’s and do not necessarily reflect the views of Troy University.

5 months ago

Not in my backyard: How zoning restrictions create construction gridlock


Zoning and land use regulation has largely choked off housing construction in many American cities. This is an unintended but predictable consequence of requiring government permission for building.

Understanding why requires starting with the why of zoning. Some land uses interfere with the use and enjoyment of nearby property. These nuisances include noise, smells, vibrations, and smoke, and often have a very limited range of impact. Consequently physically separating conflicting uses can address the problem. Zoning typically establishes residential, commercial, and industrial zones.


Zoning requires government control over building. A planning board exercises this control. Some boards are elected, and others appointed by the city council or mayor. Importantly, we have government permission and electoral control.

Zoning protects against a factory being built next to a house. The factory lowers home values, and moving does not make back this loss. People will naturally seek to protect what is for many families their largest investment.

Building homes or apartments nearby typically imposes costs on homeowners. The building is noisy. The homes or apartments, once occupied, increase traffic, make parking scarcer, lead to longer lines at local grocery stores, and create more noise problems. Adding housing also burdens local government services, like water and sewer, although impact fees on developers and the property taxes paid by new construction can cover these costs. Building smaller homes on smaller lots can also lower property values. So zoning often specifies minimum lot and home sizes.

People will want to use the government permission process to protect their neighborhood. Residents frequently rally to the NIMBY cause (Not in My Backyard). NIMBYism dominates in local politics. Why? Aren’t planning boards supposed to make land use decisions in the best interest of the entire community?

Consider, however, the position of an elected local official. Most citizens will not follow most of the actions of the planning commission. The neighbors of a proposed subdivision or apartment complex will be aware and attend the planning commission meeting. They might well take revenge on commissioners in the next election. Approving building typically looks like a losing electoral proposition: you lose the neighbors’ votes and win few others (except perhaps from the developer’s).

Repetition of the NIMBY refrain significantly restricts housing supply. High housing prices and rents limit growth in some of America’s most productive cities, as I discussed last time. Economists Chang-Tai Hsieh and Enrico Moretti estimate that zoning and land use restrictions lower income nationally by $4,000 annually.

The restricted supply benefits home and apartment owners and hurts lower-income families who rent who have difficulty finding affordable and decent housing. Nonetheless, I see high house prices as a by-product of NIMBY. Homeowners turn out at planning commission meetings to oppose building in their neighborhood, not to boost home prices city-wide.

Requiring government permission to build is the root of the problem. Proponents might say zoning will be used to rationally plan cities, but elected officials will listen to the people who participate in the political process. And this produces NIMBY and gridlock.

Government permission is not necessary to coordinate land use in cities. Houston has never enacted zoning, and McAllen, Texas, where I previously lived, had almost no zoning. Our realtor cautioned us when we were house-hunting to buy in a planned community with a neighborhood association. Otherwise, a neighbor might start raising goats or put six old trailers on their property.

Neighborhood associations and the legal covenants behind them allow homeowners to control nuisances within their neighborhood. But developers can build homes on lots without covenants. Without the requirement for government permission, neighbors can only limit building as specified by the covenants.

People will understandably want to protect the value of their homes. Zoning can avoid conflicting land uses, but permission to build will be given as electoral forces dictate. The predictable result is no building in anyone’s backyard.

Daniel Sutter is the Charles G. Koch Professor of Economics with the Manuel H. Johnson Center for Political Economy at Troy University and host of Econversations on TrojanVision.  The opinions expressed in this column are the author’s and do not necessarily reflect the views of Troy University.

6 months ago

The high cost of zoning

(PIxabay, YHN)

The state legislature gave Alabama’s public school teachers a 4 percent raise this year. Relaxing zoning and land use laws in America’s most productive cities could give us all a similar raise. Zoning illustrates the costs of a permission-based economy.

How do land use regulations in New York or San Francisco affect America? Businesses with new products or new technology can create value for our economy but need to hire workers. While virtual offices are now a possibility, workers still generally need to be on the premises.


A growing economy needs people to move to new jobs. The auto industry’s growth in the 20th Century illustrates this. Thousands of families moved to Michigan from states as far away as Alabama and Mississippi. The good paying jobs lifted these families into the middle class, and the workers helped the industry reach its full potential.

The families that moved to the jobs were better off, while affordable cars improved life for Americans. The migration also benefitted those who stayed behind. The departure of some workers to Michigan increased wages for the people remaining in Alabama or Kentucky.

Yet people can move to jobs only if housing is available where industry is thriving. Michigan built homes and apartments to accommodate new workers. Over the past 40 years, zoning and land use regulations have largely choked off building in East and West coast cities with thriving industries like finance and high tech. As Harvard University economist Edward Glaeser puts it, the “most productive parts of America [have] stopped adding population” due to regulatory barriers.

Productive industries will pay high salaries to attract people to their jobs. Economic theory tells us that with residential construction limited, house prices and rents will rise to offset high salaries. People choose not to move to the high paying jobs because of high housing costs. Thriving businesses cannot hire all the needed workers, making our economy poorer.

How much poorer? Economists Chang-Tai Hsieh and Enrico Moretti offer an estimate. To do so they use estimates of available land and the stringency of regulatory barriers on construction in 220 U.S. metro areas. They particularly focus on New York, San Francisco, and San Jose. Between 1964 and 2009, productivity increased dramatically in these cities, indicating the potential to add high paying jobs, and salaries rose. Employment, however, did not increase relative to the economy, and housing prices spiked. Hsieh and Moretti estimate that restrictions on building reduced growth nationally by 36 percent between 1964 and 2009, leading GDP to be 4 percent lower today than otherwise.

News reports put a human face on the housing shortage. Since 1990, California’s average household size has increased while declining nationally. High rents – median rent is $2,500 a month in Los Angeles – force people to share space. Adults rent rooms, sleep in bunk beds, and use dividing walls or curtains to break up rooms. One fortunate company, RoomDividersNow, is riding the crest of this “boom.”

Unfortunately, many Californians now want government rent control. Legally limiting the maximum rent landlords can charge does nothing to increase the supply of apartments, but that is a topic for another day.

The effects of restricting housing in America’s cities are enormous. Thousands of young people have not moved to highly productive cities, arguably reducing opportunities for upward mobility. The inability of people to move to the coasts has depressed salaries in Southern cities like Atlanta, Dallas, and Houston which have built housing to accommodate new residents. The young professionals priced out of New York or San Francisco must compete for jobs in these cities.

How did America arrive at this situation? It is a complicated tale involving largely unintended consequences. Zoning regulates land uses that might cause conflict and nuisance but effectively requires permission from current residents for new construction. Further details will have to wait until next time.

Daniel Sutter is the Charles G. Koch Professor of Economics with the Manuel H. Johnson Center for Political Economy at Troy University and host of Econversations on TrojanVision. The opinions expressed in this column are the author’s and do not necessarily reflect the views of Troy University.

6 months ago

Are you afraid to answer the phone?

(Pixabay, YHN)

Millions of Americans fear answering their phone due to a plague of billions of robocalls. These calls have made a mockery of the national Do Not Call Registry and touch on several public policy questions.

We had seemingly ended the problem of unwanted telemarketing calls. Congress authorized the Do Not Call Registry in 2003 after more than a decade of calls disrupting the peace and quiet of our homes. Fines of $11,000 per violation largely put telemarketing companies, with hundreds of thousands of employees, out of business.


Why have unwanted calls returned? VOIP technology (voice over internet protocol) allowed anyone with a computer and an internet connection to make thousands of calls. A handful of responses can make thousands of calls worthwhile when the cost is almost zero. Furthermore, technology makes robocallers mobile and elusive.

By contrast, telemarketing firms employed hundreds of people at call centers. The authorities could find and fine telemarketers. Firms had to comply with the Do Not Call registry, even if forced out of business.

Technology further frustrates the control of robocalls. Spoofing makes a call appear to be from a different number. Spoofing a local number increases the chance of someone answering, defeats caller ID, and makes identifying the calls’ source difficult.

By contrast, technology allowed the elimination of spam email. It’s easy to forget that fifteen years ago spam threatened the viability of email. Email providers connected accounts to IP addresses and eventually identified and blocked spammers. Google estimates that spam is less than 0.1 percent of Gmail users’ emails.

The Federal Trade Commission (FTC) banned almost all robocalls in 2009 (political campaigns and schools were excepted). Yet the volume of calls and complaints from the public rise every year. And the “quality” of the solicitations is lower: legitimate businesses employed telemarketers, while most robocalls seem to be scams.

Telephone companies and entrepreneurs are deploying apps and services to block robocalls. The robocallers then respond, producing a technological arms race. The technology of this arms race, however, is beyond me.

I’d rather consider some issues robocalls raise. The root of the problem is some people’s willingness to swindle others. Although we all know there are some bad people in the world, free market economists typically emphasize the costs and consequences of government regulations over the cheats and frauds who create the public’s demand for regulation. People can disagree whether a level of fraud warrants regulation, but free marketers should not dismiss the fear of swindlers.

Robocalls also highlight the enormous inefficiency of theft. Thieves typically get 25 cents on the dollar (or less) when selling stolen goods. Getting $1,000 via theft requires stealing goods worth $4,000 or more. In addition, thieves invest time and effort planning and carrying out crimes, while we invest millions in locks, safes, burglar alarms, and police departments to protect our property. America would be much richer if we did not have to protect against thieves or robocallers.

Finally, having the government declare something illegal does not necessarily solve a problem. Our politicians like to pass a law or regulation and announce, “problem solved.” Identifying and punishing robocallers is difficult; the FTC had only brought 33 cases in nearly ten years. And less than ten percent of the over $300 million in fines and relief for consumers levied against robocallers had been collected. Government has no pixie dust which magically solves hard problems.

The difficulty of enforcing a law or regulation does not necessarily imply we should not act. The Federal Communications Commission, for instance, recently approved letting phone companies block unwanted calls by default, and perhaps this will prove effective. We should weigh the costs of laws and regulations against a realistic projection of benefits and laws failing to solve problems as promised should be revised or repealed.
Still, a law that accomplishes little can have value. Cursing robocalls accomplishes little yet can be cathartic. A law that costs little might provide us satisfaction until technology solves the problem.

Daniel Sutter is the Charles G. Koch Professor of Economics with the Manuel H. Johnson Center for Political Economy at Troy University and host of Econversations on TrojanVision. The opinions expressed in this column are the author’s and do not necessarily reflect the views of Troy University.

6 months ago

Can federalism help us today?


Alabama and other states have recently passed new laws restricting or criminalizing abortion to challenge the Supreme Court’s 1973 landmark decision in Roe v. Wade in the wake of Justice Kavanaugh’s appointment. America’s founders saw a role for federalism in managing disagreements. But recent abortion, same-sex marriage and transgender bathroom controversies raise doubts whether federalism can still help us today.

The U.S. Constitution established a federal republic, with multiple levels of government (the states and the national government) which are not entirely subordinate to the other. Constitutional provisions like selection of Senators by the state legislatures were intended to preserve the co-equal status of the states, while the 10th Amendment reserved powers not explicitly delegated to the national government for the states.


Economists often discuss fiscal federalism, or the location of tax and spending policies within the federal structure. Local governments should make policies with primarily local effects, with wide-ranging policies reserved for the national government. Schools, streets, and parks primarily impact local communities, so local governments can decide spending and funding for these programs.

Federalism also enables the so-called “laboratory of the states,” letting states experiment with innovative new policies. This limits the costs of unsuccessful experiments and allows emulation of successful experiments. Plus, garnering enough political support for an experiment is more likely in one state than nationally.

Democracy involves non-violent resolution of political conflict. The losing politician, faction or party must “accept” election results, meaning not resorting to violence, intimidation, or coercion. Democracy also guarantees the opportunity to peacefully change policy through argument and election campaigns.

State policy variation on contentious issues facilitates this peace. If the U.S. has one policy on abortion or same-sex marriage, the disfavored side might get fighting mad. Geographic variation provides an alternative to a compromise policy acceptable to all Americans. And for persons on the losing side of an issue, changing policy only requires changing minds in one state, not the entire nation.

Fiscal federalism also in a sense manages political conflict. Alabama and Massachusetts, for example, can run different Medicaid programs instead of fighting to agree on one system.

I’m not a lawyer, but my understanding is that should the Supreme Court overturn Roe, it would be for a federalism solution, not to ban abortion nationally. Federalism helps because citizens disagree about moral values and the corresponding government policies. The correct view on abortion or same-sex marriage (my views, of course!) may be less important for democratic peace than how we deal with those who disagree. Others are likely just as convinced of the correctness and morality of their views.

I am unsure if Americans would accept federalism on divisive issues today. We increasingly see all moral issues as involving fundamental human rights. America was founded in liberty; the Constitution was designed to protect the fundamental rights of individuals, which should not be violated for any reason. Federalism is inappropriate to secure fundamental rights; the Civil Rights Act and Voting Rights Act rightly ended tolerance for discrimination by states based on race. Tolerating dissenting views requires that we afford others respect, and that the values questions do not involve fundamental rights.

Both conservatives and liberals might wish to set themselves up as moral dictators and make everyone live by their values. The idea of having a moral dictator of course becomes frightening if you may not be the dictator. But even if you are guaranteed to be the dictator, will those who disagree accept your dictates? Fighting to defend the fundamental rights essential to freedom is understandable; yet, are all moral questions worth fighting over?

Liberal democracy requires agreement among citizens on the value of freedom. And yet disagreements are inevitable. America’s Founders understood how federalism could keep our disagreements from escalating to prevent cooperation based on shared values. Today’s polarization suggests that liberals and conservatives may no longer respect each other enough for the Founders’ design to serve us.

Daniel Sutter is the Charles G. Koch Professor of Economics with the Manuel H. Johnson Center for Political Economy at Troy University and host of Econversations on TrojanVision. The opinions expressed in this column are the author’s and do not necessarily reflect the views of Troy University.

7 months ago

The great truck driver shortage


The Alabama legislature lowered the minimum age for a truck driver’s (CDL) license to 18 for within-state transport (the minimum age remains 21 in interstate trucking) to help alleviate a driver shortage the American Trucking Associations (ATA) says has existed since 2005. Trucking has long been a major employer in Alabama and Pike County. What are the economics of this shortage and the future of trucking?

Trucking contributes enormously to our economy. Seventy percent of freight, over 10 billion tons annually, ships via trucks. Our modern economy could not exist without reliable truck transportation; any uncertainty would render just-in-time production impractical.


News reports for years have noted trucking companies’ struggles to hire drivers. The most visible have been ads on tractor-trailers encouraging drivers to switch jobs for better pay and working conditions. Our economy shows few signs of a shortage of transport, as stores have remained stocked and factories operating.

About 1.7 million people drive “heavy” trucks requiring CDLs, while 1.3 million more drive light delivery trucks. About half of the heavy truck drivers work for trucking companies serving many customers. Most of the remaining drivers work for companies which ship a great deal of freight. Some drivers work as independent owner-operators.

According to the Bureau of Labor Statistics, heavy truck drivers earn $44,000 per year. But experienced CDL drivers earn more than $60,000 and team drivers over $70,000. These are solid salaries for “blue collar” jobs requiring only a high school degree.

Why then is there a shortage of truck drivers? As an economist, I find the ATA’s claim of a 15-year shortage noteworthy. Economists expect that prices or salaries will rise to quickly eliminate shortages and fall to eliminate surpluses. What’s going on?

Part of the answer may arise from different uses of the term shortage. A recent economic analysis finds that the market for heavy truck drivers has been tight but not in shortage. The ATA estimates the shortage at around 50,000 drivers, or just three percent of all heavy truck drivers. A trucking company can lose business if ever short on drivers and may perceive difficulty hiring as a serious shortage.

Truck driver salaries have risen, as we would expect in a shortage, 25 percent between 2005 and 2016, versus a 19 percent increase for all other blue collar jobs. Yet this is a modest increase relative to oil industry salaries during the shale boom. The 14 percent decline in employment during the 2008 recession shows that there were more drivers than loads during a portion of the driver shortage.

The training drivers require could potentially limit the supply. Aspiring truckers can learn driving by paying (or borrowing) up to $7,000 for a truck driving school or signing on for training from a trucking company paid for through a lower first-year salary. Access to training seems unlikely to significantly limit supply.

Long hours and extensive travel constitute a more significant limit. Days on the road make having a life, and particularly a family, difficult. Truckers must be paid extra to accept these undesirable working conditions. And factoring in the unpleasant conditions makes the good pay more apparent than real.

Truckers create tremendous value, but the demands of the job heavily burden people. Self-driving trucks might resolve this dilemma. Robot drivers will not miss being away from their family. Artificial intelligence will likely automate jobs people find particularly unpleasant.

Self-driving technology could be a boon to truckers. Experts suggest that the technology will be operational on rural interstates long before for urban driving. If so, trucks could drive autonomously between cities, with truckers driving across urban areas. A trucker driving rigs across Birmingham all day could go home every night. Autonomous trucks may not initially reduce the number of drivers, rather change driving arrangements.

Efficient, reliable truck transport has enabled America’s prosperity and lifted millions of families into the middle class. Yet the burdensome job conditions make finding drivers difficult. Automation could make both truckers and our economy better off and end the great truck driver shortage.

Daniel Sutter is the Charles G. Koch Professor of Economics with the Manuel H. Johnson Center for Political Economy at Troy University and host of Econversations on TrojanVision. The opinions expressed in this column are the author’s and do not necessarily reflect the views of Troy University.

7 months ago

Can cleaning the ocean be marketed?


Trillions of pieces of plastic are creating huge garbage patches in the world’s oceans. One company’s efforts to do something about this problem can lead us to rethink some perceived economic wisdom.

The National Oceanic and Atmospheric Administration estimates that two million tons of plastic enters the world’s oceans each year. Most of this waste results from irresponsible disposal. Ocean currents have created five major garbage patches. The most notable is the Great Pacific Garbage Patch between California and Hawaii, double the size of Texas and containing 1.8 trillion pieces of plastic. The patches are nuisances, can harm ocean life, and provide one rationale for banning plastic straws, silverware, and bags, although the wisdom of plastic bans is a topic for another day.


Floridians Andrew Cooper and Alex Schulze witnessed the ocean trash problem while surfing in Bali and started 4Ocean in response. As the company’s website describes it, “Devastated by the amount of plastic in the ocean, they set out to find out why no one was doing anything about it.”
The problem was that no one could get paid to pick up the trash, and Mr. Cooper and Mr. Schulze hit upon an idea. For $20, customers can buy a 4Ocean bracelet made from recycled plastic and remove one pound of trash. To date, 4Ocean has removed more than 4.4 million pounds of plastic.
Can we trust that 4Ocean removes trash from the ocean? To assure customers, 4Ocean relies on Green Circle Certification. Green Circle provides third party certification of a variety of environmental claims, including recycled content in products, energy savings, and carbon footprint reduction. Companies like 4Ocean pay Green Circle to assess their operations. For certified claims, Green Circle lets the customer use their symbol and enters the product in their online database.

Certification seemingly faces a conflict of interest: Won’t Green Circle always certify the claims of paying customers? While this is a danger, ultimately a third party certifier really sells only its veracity. 4Ocean will only pay if Green Circle’s seal matters to potential customers. Green Circle, which has been in business since 2009, makes money over time only by being honest.

Third party certification has a long history. The case most studied by economists is Underwriters’ Laboratories, which tests consumer products for safety. The UL stamp assures insurers that lamps, toasters, and other products are not fire hazards.

How does this relate to government and environmental protection? Americans value protecting the environment, but conventional wisdom holds that business cannot make money protecting the environment. Any commercial venture must charge for its product or service, and normally does so by allowing only paying customers to get the product or service.

Yet allowing only paying customers to benefit from environmental protection is almost impossible: everyone benefits if the Great Pacific Garbage Pile is cleaned up. If businesses cannot market environmental protection, we will have to turn to government and taxes.

We have an incentive to let someone else clean up the ocean, but also like to contribute to good causes. 4Ocean taps into this sentiment, and their bracelet lets customers to show off their good deed. Environmental groups raise millions of dollars in a similar fashion. Charities do this too; Save the Children allows donors to learn the story of a child they “rescue.”

Proponents of government action will point with justification that the funds raised through markets to protect the environment are small relative to the scale of the problems. The 2,200 tons of plastic 4Ocean is just a drop in the bucket. Yet government efforts can be poorly funded, very costly, and of poor quality. The Government Accountability Office has repeatedly documented the flaws of the Energy Star labeling program.

Ultimately we must pay for environmental protection. Businesses and charities must deliver to continue being supported by their customers or patrons. Each success in marketing environmental protection enables a valuable alternative and should be celebrated.

Daniel Sutter is the Charles G. Koch Professor of Economics with the Manuel H. Johnson Center for Political Economy at Troy University and host of Econversations on TrojanVision. The opinions expressed in this column are the author’s and do not necessarily reflect the views of Troy University.

7 months ago

Can we afford higher tax rates?


Several Democratic presidential candidates are proposing raising the top income tax rate to 70 percent. Proponents want tax hikes to stem worsening inequality and adequately fund the Federal government. Opponents contend that such high tax rates will significantly reduce economic growth.

Economists are famous for disagreeing, but we agree that if we tax anything, we will have less of it. Income taxes reduce the incentive to work and produce income. The extreme case of a 100 percent tax illustrates this. With a 100 percent income tax, a person working full time and earning $50,000 will have the same after tax income as if they did not work. Who will work for nothing?


The Federal income tax is progressive, meaning that the marginal tax rate (the tax paid on the next $1,000 earned) increases with income. The highest current rate of 37 percent applies to income over $500,000. Marginal rates only apply to additional earnings. The tax rate on incomes over $1 million a year does not affect the taxes owed by Americans earning $100,000.

Diminishing marginal utility of income increases the disincentive of top rates. People value an extra $1,000 less when they have $500,000 than when they have $5,000. Millionaires can already pay for life’s necessities. A millionaire facing a 70 percent tax rate who could earn another million dollars might prefer to spend the money they have instead of working for $300,000 after taxes.

The 1980s tax cuts lowered top marginal tax rates from 70 to 28 percent to improve incentives, especially for the most productive earners. Elimination of loopholes made up for much of the revenue lost due to lower rates.

Evidence confirms the cost of high taxes. Internationally, higher tax rates are associated with slower economic growth. Domestically, people and income are migrating from high to low tax states. In 2016, New York lost $8 billion in personal income, while Florida added $17 billion.

Yet other evidence suggests that high taxes might not cost so much. First off, some billionaires continue to work. Anyone with more money than they could spend in a dozen lifetimes who continues to work must value something other than consuming more stuff. If so, will they work less in response to higher taxes? Indeed, despite a top tax rate of 90 percent until the Kennedy tax cuts in 1964, the 1950s and 1960s had the fastest economic growth of any decades since the end of World War II.

Creative economy workers frequently labor for modest monetary rewards. The Beatles complained in Taxman about Britain’s high taxes and yet created and performed their music. Digital copying has made making money from music difficult but has not killed off new music. Computer programmers contribute code for open source software for free.

The saying that money can’t buy happiness contains truth. We fill our closets, garages, and storage units with stuff (or junk). Netflix’s Tidying Up with Marie Kondo recommends throwing out anything not bringing us joy. Perhaps higher taxes will make us only buy things bringing joy.

After securing life’s necessities, many of the things people work for are positional goods. We value keeping up with (or ahead of) the Joneses, while billionaires try moving up the Forbes list of the 400 richest Americans. We cannot all acquire positional goods: everyone cannot have the nicest car. High tax rates might keep us from a fruitless pursuit of positional goods.

Can we integrate this conflicting evidence? For starters, the high-income tax rates of the 1950s were almost irrelevant due to loopholes. The interplay of monetary and nonmonetary motives is complicated, and people might react differently when high tax rates prevent earning extra income. And even if money cannot buy happiness, high taxes may make us quite unhappy.

Can we afford higher taxes? Yes, although taxes entail costs, and the costs rise with tax rates. We must decide whether we want the Federal government to play a large or small role in our economy and lives. A large role for Washington will require higher taxes, and these taxes will be costly.

Daniel Sutter is the Charles G. Koch Professor of Economics with the Manuel H. Johnson Center for Political Economy at Troy University and host of Econversations on TrojanVision. The opinions expressed in this column are the author’s and do not necessarily reflect the views of Troy University.

7 months ago

Which Alabama city is the freest?


Economic freedom is the freedom to engage in commerce and use our property as we see fit. Over the past 25 years, economists have developed measures of the economic freedom of nations and states. A new measure of the economic freedom of metropolitan areas (MSAs) allows us to answer which Alabama city has the most economic freedom?

Measuring economic freedom allows investigation of whether free markets deliver the benefits which economists like I promise. Dozens of papers now document how freer nations and states are richer, grow faster, have less inequality, and cleaner environments.

The Fraser Institute’s Economic Freedom of North America (EFNA) measures the freedom of U.S. and Mexican states and Canadian provinces. The EFNA’s lead author, Dr. Dean Stansel, has taken the state scores down to the MSA. This index will enable research on whether freer markets help explain the variation in prosperity within states.


The index scores MSAs based on government spending, taxes, and labor market freedom. The ratings use the Census of Governments with data from America’s 90,000 governments, including cities, counties and school districts. Economic freedom is scored on a 0 to 10 scale, with 10 indicating the most freedom. The freest MSA is Naples, Florida, with a score of 8.55, while the least free is El Centro, California, at 4.22. Among MSAs with populations over one million, Houston is best at 8.00 and Riverside worst at 5.23.

Birmingham tops Alabama’s 12 MSAs with a score of 6.81, followed by Montgomery and Huntsville. Alabama’s least free metros are Dothan and Auburn-Opelika, with scores of just over 6.0, a relatively modest difference in freedom. If we dig deeper, Alabama’s metros have the best scores on the taxes component and the worst on labor market freedom.

Economic freedom seems to affect metropolitan income and growth. The freest cities have per capita income 6 percent above average, while the least free cities have income 5 percent below average. The freest MSAs also have significantly faster-growing populations.

I should point out that the index excludes zoning and land use regulation. Zoning makes construction of new housing almost impossible in some of America’s largest cities, preventing construction of higher density apartment buildings. An artificially limited supply increases housing cost.

MSA scores reflect the freedom rankings of their state. Cities from Florida and Texas, two of the freest states, dominate the top of the rankings while California and New York cities populate the bottom ranks. Alabama ranks near the middle of the states, and our MSAs reside in the middle of the national rankings. Among the 52 large MSAs, Birmingham ranks 26. Alabama’s other MSAs rank between 118 and 247 among the 330 MSAs with fewer than one million people.

Sizable differences in freedom exist among the cities of some states. MSA freedom exhibits a spread of 4.3 points across the nation. California, New Jersey, and Texas all have differences of over 2.2 points, or half the national spread. California is a relatively unfree state, but its freest MSA is San Jose, which has helped Silicon Valley’s growth.

Some within-state differences may result from scaling: many of the measures of freedom are scaled by income. This lowers the measured economic freedom of poorer MSAs. To see why, Alabama has no state minimum wage. The Federal minimum wage of $7.25 per hour is effective throughout the state. But when divided by MSA per capita income, measured freedom will be lower where income is lowest.

The differences within states illustrate something I call the Upstate New York Dilemma. Economic freedom is just one of many things people care about. Cities like New York, Los Angeles, San Francisco, and Seattle have lots going for them; people will tolerate high taxes and heavy-handed regulations to live in Manhattan. Many fewer people will accept burdensome government to live in snowy and cold Buffalo or Rochester.

No measure of economic freedom will be perfect. Yet once we measure something, we usually readily improve and refine the measurements. The early returns suggest that economic freedom affects the prosperity of Alabama’s cities.

Daniel Sutter is the Charles G. Koch Professor of Economics with the Manuel H. Johnson Center for Political Economy at Troy University and host of Econversations on TrojanVision. The opinions expressed in this column are the author’s and do not necessarily reflect the views of Troy University.