The primary directive for those who lead functional organizations

Make sure that the functional areas coordinate with one another, and do not work at cross purposes. The new GAO report gives us a nice example of a organization that ignores this advice:

The 345-page General Accountability Office report pinpointed 34 areas – from defense and job training to social services – where federal agencies, offices or programs have redundant objectives or are fragmented across several departments, something McConnell described as the government’s “virtual incompetence.”

For example, there are 15 agencies that deal with the nation’s food-safety system, which the GAO said has led to inconsistent oversight and an inefficient use of resources. There are 80 programs across multiple agencies that focus on economic development.

"Unions generally reduce welfare"

Some rational dispassionate economics from Gilles Saint-Paul at the Economist:

"ACCORDING to standard economics, wage bargaining by unions is similar to price agreements in cartels and in good logic should fall under antitrust laws and be prohibited."

The piece is short but full of well reasoned economics.

Hat tip to Jeff Smith

What is the difference between public and private-sector unions?

at 1:44: If a consumer doesn't like the price offered by private sector company, they can take their business elsewhere. The cost of "opting out" of an over-priced state government is much higher. This gives public sector unions greater bargaining power. Remember the Chapter 16 aphorism: "the alternatives to agreement determine the terms of agreement."

What happens when the price of sex falls?

Economists take a look at college relationships:

...despite the fact that women are holding the sexual purse strings, they aren't asking for much in return these days—the market "price" of sex is currently very low. There are several likely reasons for this. One is the spread of pornography: Since high-speed digital porn gives men additional sexual options—more supply for his elevated demand—it takes some measure of price control away from women. The Pill lowered the cost as well. There are also, quite simply, fewer social constraints on sexual relationships than there once were. As a result, the sexual decisions of young women look more like those of men than they once did, at least when women are in their twenties. The price of sex is low, in other words, in part because its costs to women are lower than they used to be.

Note that this is what is known as an example of "economic imperialism," using economics to analyze phenomenon that are traditionally analyzed in other fields of study.

How bad is our fiscal crisis?

Unimaginably bad.  We are going to look back fondly at the debates in Wisconsin.

The bottom line, then, is that we need to look at the infinite-horizon fiscal gap not just for Social Security, but for the entire federal government. That analysis, based on the Congressional Budget Office’s long-term alternative fiscal scenario, shows an unfathomable fiscal gap of $202 trillion. And covering this gap requires coming up with the aforementioned 12 percent of GDP, forever.

Is there any air left in the housing bubble?

Robert Shiller thinks that prices will have to fall 10-15% before we get back to the pre-bubble days.

Doug Holtz-Eakin on the President's budget

NOTE: Doug Holtz-Eakin is speaking at Vanderbilt on March 23 at an invitation only event. If you are an alum and want to come, drop me a line.

Why did the Wisconsin unions blink?

In Wisconsin, spending is several billion dollars higher than revenue, and the new Republican governor submitted a budget that asks state Public Employees to pay a much bigger share of their healthcare and pension costs. It also limits the ability of the public employee union to collect the $700 dues from the public employees. It makes contributions voluntary, instead of mandatory.

The budget would have certainly passed the senate, so the Democratic state senators left the state to prevent a vote. After two days the public employees' union agreed to the higher pension and healthcare contributions, but the governor rejected their concessions.

This dispute illustrates several economic principles. First, it illustrates the "free riding" problem faced by unions. In so-called right to work states, unions can bargain on behalf of workers, but they cannot compel workers to contribute to the union. Since the workers receive the benefits of union representation regardless of whether they pay union dues, few actually choose to pay. This limits the ability of unions to collect big dues, so they lower the dues they charge, and this limits their ability to raise money to influence legislators to give them generous benefits. This is a form of the prisoners' dilemma.

The second principle illustrated by the dispute is the nature of bargaining. If we think about the dispute being resolved not by compromise, but rather by an appeal to the voters of the state, the winning strategy is to move to the center, i.e., to offer an alternative that appeals to the median voter. By offering the wage and price concessions, the union is trying to reframe its alternative as much more reasonable than the one they started out with.

If you outsource, don't make this mistake

...don't tell your subcontractors that if they run into problems, you will take care of them. This decreases their incentive to succeed:

Among the least profitable jobs in aircraft manufacturing, he pointed out, is final assembly — the job Boeing proposed to retain. But its subcontractors would benefit from free technical assistance from Boeing if they ran into problems, and would hang on to the highly profitable business of producing spare parts over the decades-long life of the aircraft. Their work would be almost risk-free, Hart-Smith observed, because if they ran into really insuperable problems they would simply be bought out by Boeing.

Its not hard to guess what happened next.

What do you know? In 2009, Boeing spent about $1 billion in cash and credit to take over the underperforming fuselage manufacturing plant of Vought Aircraft Industries, which had contributed to the years of delays.

Sign a marriage contract only if you are going to get something out of it

A former student alerts me to a NY Times article, that seems to follow on to previous post:

For centuries, marriage was viewed as an economic and social institution, and the emotional and intellectual needs of the spouses were secondary to the survival of the marriage itself. But in modern relationships, people are looking for a partnership, and they want partners who make their lives more interesting.