Where people drive to work alone

According to new Census data, nearly three-quarters of American workers drove to their jobs alone in 2008. Economix illustrates this below:

Alabama, Tennessee and Ohio were the least carpool-friendly states with about 83 percent of workers driving alone. Washington, DC and New York, whose residents rely largely on public transportation, were the most carpool-friendly states, at 37.2 percent and 53.7 percent.

New York Restaurant No Longer Accepts Greenback

From the Wall Street Journal:

At the Greenwich Village restaurant Commerce, cash is off the menu.

In the latest encroachment of credit and debit cards onto the greenback’s turf, the high-end New York City restaurant said goodbye to dollars and cents this week. The message to diners: Tip in cash if you wish, but otherwise, your money is no good here.

Americans these days are swiping their cards to pay for taxi rides, donate to Salvation Army kettles, even tithe in some churches. And at Commerce, more than 90% of customers had already made the switch to plastic.

“If you don’t have a credit card, you can use a debit card,” said the restaurant’s co-owner, Tony Zazula. “If you don’t have a debit card, you probably don’t have a checking account. And if you don’t have a checking account, you probably shouldn’t be eating at Commerce to begin with.”

Will this be a growing trend?

The Power of the Poor

On October 8, PBS will braodcast The Power of the Poor, a new documentary featuring Hernando de Soto, among my favorite economists. The documentary was produced by the same team that brought us Milton Friedman’s classic documentary series Free to Choose. Below is a preview of what to expect:

The Power of the Poor will demonstrate “how free markets, individual freedom and especially the right to property can transform the poor into the most powerful resource in the world. At its heart is the potential triumph of capitalism as a system.”

Click here to read my previous post on the ideas of Hernando do Soto.

Why free crosstown busing is a bad idea

Earlier this month, New York City Mayor Michael Bloomberg propsed a plan to make all crosstown buses in New York City free. Of course, nothing is free to everyone.

Dan Ariely, Duke University behavioral economist, explains why this is a bad idea:

In order to speed up the pace of Manhattan’s famously slow crosstown buses, mayor Bloomberg suggested eliminating the $2.25 fare on a few of the buses, as it would put an end to all the time passengers spend fumbling for their MetroCard and cash at the bus door. It would mean free bus rides for all, but without much additional cost to the city, he reasoned, since the majority of crosstown passengers are already riding for free, using their MetroCards to transfer from the subway. If we aren’t charging folks anyway, it’s not a big money loss, is the gist of his claim.

In short: win-win.

Except, there’s a flaw to his argument.  If bus fare falls to zero, it’s likely that more people (many more people) will start riding the bus, which will lead to even worse congestion and potentially require the city to spend on introducing more buses.

In other words, mayor Bloomberg is harboring under the assumption that demand for the cross town bus will not change as the price drops. In all likelihood, however, the number of bus-riders will go up dramatically because free is exciting. In fact, according to our research on free, such a change will cause many people who now walk a few blocks, to switch their ways and hop on the free bus.

The Invisible Economy

Jeremy Main of Fortune Magazine writes,

The underground economy, also called the informal, invisible, or black economy, is regarded around the world as a refuge of drug traffickers, smugglers, and tax evaders. Now a new view is taking hold: At least in the Third World, the underground economy is mainly good, not bad. It embodies the entrepreneurial energy of ordinary people striving in admirable ways to break out of poverty. It comprises thousands of craftsmen, storekeepers, truck and bus drivers, and food vendors whose operations would be perfectly legal in the U.S. but whose governments force them to ply their trades illegally. The underground economy is part of the solution, not the problem. If this entrepreneurial spirit were legalized and nurtured rather than fettered and suppressed, goes the argument, a burst of competitive energy would be released. Living standards, which have been dropping in much of the Third World, would start rising. International trade would increase, and developing countries could service their huge and debilitating external debts more easily.

Using data from the World Bank’s 2002 World Development Report, Peruvian Economist Hernando de Soto calculates that,

The total value of real estate held but not legally owned by the poor of the developing world is at least $9.3 trillion.

He estimates that the total amount of land informally or illegally held is 85% of total urban land holdings and 53% of total rural land holdings. By assigning a fair market value to all this informally held land, the grand total comes to $9.3 trillion-more than the total value of all the companies listed on the New York, Tokyo and London stock exchanges.

De Soto also points out that,

In Argentina, according to Marcos Victorica of the Institute of Contemporary Studies, an economic research organization, the unreported, informal economy last year produced $50.4 billion, vs. the official GNP of some $70 billion.

In Kenya the lethal minibuses called matatus that cruise around Nairobi are the most colorful expression of the unofficial economy, which the ministry of planning says contributes about 35% to the country’s GNP.

He explains,

Extra legal businesses are taxed by the lack of good property law and continually having to hide their operations from the authorities. Because they are not incorporated, extralegal entrepreneurs cannot lure investors by selling shares; they cannot get low interest formal credit because they do not even have legal addresses. They cannot reduce risks by declaring limited liability or obtaining insurance coverage. In fact, the only ‘insurance’ available to them is that provided by their neighbors and the protection that local bullies or mafia are willing to sell them. Moreover, because extralegal entrepreneurs live in constant fear of government detection and extortion from corrupt officials, they are forced to split and compartmentalize their production facilities between many locations, thereby rarely achieving important economies of scale. With one eye always on the lookout for police, underground entrepreneurs cannot openly advertise to build up their clientèle or make less costly bulk deliveries to customers.

Ultimately, De Soto concludes,

Most people do not resort to the extralegal sector because it is a tax haven but because existing law, however elegantly written, does not address their needs or aspirations. In Peru, where my team designed the program for bringing small extralegal entrepreneurs into the legal system, some 276,000 of those entrepreneurs recorded their businesses voluntarily in new registry offices we set up to accommodate them – with no promise of tax reductions. Their underground businesses had paid no taxes at all. Four years later, tax revenue from formerly extralegal businesses totaled US$1.2 billion.

Informal Economy as percentage of GNP (follow link for complete data):

For more on the invisible economy, Capitalism’s struggle in the developing world, and property rights, I would highly recommend reading Hernando do Soto’s The Mystery of Capital: Why Capitalism Triumphs in the West and Fails Everywhere Else.

Economic Freedom and the Average Size of the Informal Economy

NYC Women earn more than NYC Men

US Census Bureau: New York spends most money per pupil, Utah the least

Data released this week from the shows the average American state spent $9,666 per pupil in 2007, a 5.8 percent increase over 2006. New York State’s public schools spent $15,981 per pupil in 2006, more than any other state.

After New York, the states that spent the most per pupil were New Jersey ($15,691) and the District of Columbia ($14,324). Tennessee ($7,113), Idaho ($6,625) and Utah ($5,683) spent the least per pupil.

Here are the full rankings:

HT: Economix

New York City flies homeless out of town, seriously

Julie Bosman of the New York Times today wrote a very interesting piece. It begins as follows:

They are flown to Paris ($6,332), Orlando ($858.40), Johannesburg ($2,550.70), or most frequently, San Juan ($484.20).

They are not executives on business trips or couples on honeymoons. Rather, all are families who have ended up homeless, and all the plane tickets are courtesy of the city of New York (one-way).

The Bloomberg administration, which has struggled with a seemingly intractable problem of homelessness for years, has paid for more than 550 families to leave the city since 2007, as a way of keeping them out of the expensive shelter system, which costs $36,000 a year per family. All it takes is for a relative elsewhere to agree to take the family in.

New York City reportedly spends $500,000 annually on the program, and none of the aided families have returned to shelters. If the city in fact saves money, is this an appropriate program? Its appropriateness, of course, depends on if you believe the government should host shelters to begin with.

More on kidney sales

Following my previous post in defense of Iraqi Kidney sales, the issue has arisen in the United States and Israel. According to the Wall Street Journal,

Federal agents swept across New Jersey and New York on Thursday, charging 44 people — including mayors, rabbis and even one alleged trafficker in human kidneys — in a decadelong investigation into public corruption and international money laundering.

The article continues,

The probe includes a bizarre sideshow: the alleged trafficking of human kidneys, a lucrative, illegal industry and not one that’s typically showcased alongside political shenanigans.

In the course of the investigation last year, Mr. Dwek [a real-estate developer who became an informant after being arrested on bank-fraud charges in 2006] came into contact with an alleged organ trafficker, Levy Izhak Rosenbaum, and told him Mr. Dwek’s uncle needed a new kidney, according to court papers. The two men discussed how Mr. Dwek would pay a $160,000 fee to buy a kidney from a donor in Israel, documents show. According to the complaint, Mr. Rosenbaum described himself as a “matchmaker.”

I will not advocate breaking the law, but I will advocate making the law consistent with both freedom and societal circumstances. When a black market develops, whether in organ sales, drugs or the like, it is generally a mark of inconsistency between society and its laws. Often the black market itself becomes more dangerous than the trade the government originally outlawed. This is the case with most black markets –drugs and organ sales included.

Consider if this was a true story, as is often the case. What if Mr. Dwek really did need a kidney to save his uncle’s life? If all partners in the transaction–the kidney donor, Mr. Rosenbaum, Mr. Dwek, and Mr. Dwek’s uncle– voluntarily entered the transaction, there should be no objections. No coercion would have been used and everyone would have taken part in the transaction to gain something, in some cases health in others profit. In the end, however, everyone should be contempt otherwise they would not have entered the transaction in first place.  This being the case, the government has no right to intervene.