Assorted Links (4/18/2012)

Here’s a list of articles that I have been reading lately:

The TurboTax Crime Wave

“In The Wall Street Journal, Rodney Mock and Nancy Shurtz write that when using TurboTax or other tax software, taxpayers deserve the same defense from IRS penalties as Tim Geithner.”  Quoting further from this article, “Taxpayers who utilize a professional tax adviser such as a CPA or attorney can often avoid IRS penalties by alleging reliance on the tax adviser… But for someone who uses commercial software to prepare returns, no such defenses are generally available: The software isn’t considered to be a “professional tax adviser.” These rules have “regulatory capture” ( written all over them (in this case, by the AICPA; AKA the American Institute of Certified Public Accountants)…

Scientist Uses Physics to Escape a $400 Traffic Ticket

“When encountering a tricky problem, it always pays to play to your strengths. Like a scientist from USCD who was issued with a traffic ticket for failing to completely stop at a stop sign. His response? A four-page paper describing how the ticket defied the laws of physics.”

Why Vote? – New York Times

“There’s no good economic rationale for going to the polls. So what is it that drives the democratic instinct?”  With the political season kicking into high gear, here’s what the dismal science has to say about how economists view voting. The short (1 minute) embedded video located at also summarizes the New York Times article referenced here.

Why Your Highway Has Potholes

“The Wall Street Journal writes about the new highway bill and says that Americans don’t want to live in Transportation Secretary Ray LaHood’s car-free utopia.”

The main reason why Americans don’t want to live in Transportation Secretary Ray LaHood’s “car-free utopia” has everything to do with an important economic concept called the income elasticity of demand, which measures the sensitivity of one’s demand for a particular good or service to changes in one’s income. It is well known that public transportation has a negative income elasticity; e.g., Robert Frank cites a -0.36 income elasticity in his “Microeconomics and Behavior” textbook (cf. This implies that for every 1 percent increase in income, the typical consumer’s demand for mass transit declines 0.36%. On the other hand, the income elasticity of the demand for automobiles is strongly positive – 2.46, which implies that for every 1 percent increase in income, the typical consumer’s demand for automobile transit increases 2.46%.

Similarly, health care has a very strong positive income elasticity; Nobel laureate Robert Fogel write that “the long-term income elasticity of the demand for healthcare is 1.6—for every 1 percent increase in a family’s income, the family wants to increase its expenditures on healthcare by 1.6 percent.” (source:

For more information on the topic of income elasticity of demand, see

Physics Envy May be Hazardous to Your Wealth | Farnam Street

“In this talk Andrew Lo addresses the problem of finding the right level of abstraction with which to think about economic phenomena. He compares economics to physics, with some surprising results. In physics it takes 3 laws to explain 99% of the data. In finance it takes more than 99 laws to explain about 3% of the data.”  The embedded 1 hour video featuring MIT finance professor Andy Lo is well worth watching!

Freakonomics » A Bar With Changing Prices

Wonderful example of the market at work! 🙂

Competition Is Good for Governments, Too

“Companies, as well as people, can vote with their feet if they don’t like the way their state or local government is treating them.”

Wonderful essay by Harvard economist N. Gregory Mankiw. Quoting from this article, “Whether competition among governments is good or bad comes down to the philosophical questions of what you want government to do and how much you fear government power. If the government’s job is merely to provide services, like roads, schools and courts, competition among governmental producers may be as good a discipline as competition among private producers. But if government’s job is also to remedy many of life’s inequities, you may want a stronger centralized government, unchecked by competition.” Since I fear stronger centralized government, unchecked by competition, my vote is for the first as opposed to the second vision for government…

Rainfall or Rainmaking? Lawyers, Courts, and the Price of Mold Insurance in Texas

Nerd alert! Finally, forthcoming in the Journal of Risk and Insurance, my paper with Baylor economists Chuck North and Carl Gwin on the political economy of mold in the Texas homeowners insurance market!

The Downside of Cohabiting Before Marriage

“Don’t drift into living together; give it some thought and planning.”

Ducking the Medicare Crisis

“The Affordable Care Act will either be fully paid for or will begin to address the Medicare problem — not both.”  This New York Times op-ed by former Obama administration official (aka “car czar”) Steven Rattner accuses the administration of dishonest accounting in financing ObamaCare.

Getting a Big Tax Refund Means You’re Doing It Wrong

“About 75% of individual taxpayers will receive federal income tax refunds, with the average refund totaling around $3,000. From a purely economic standpoint, this makes no sense.”

Time To Pay Your Taxes, Chump

“When you pay your taxes, big businesses don’t have to pay theirs.”

Don’t change planes here

“EVERY business traveller prefers to fly direct. Switching planes mid-trip is stressful and risky: if your first flight is delayed, you can miss a connection and be stuck for hours.”  Here’s the advice from this Economist article: “…stay away from Newark, San Francisco, LaGuardia, Boston Logan and JFK. Those five airports were considered worst for connections in 2011, with the lowest percentages of on-time arrivals and departures in America.”

How My Aunt Marge Ended Up in the Deep Freeze . . .

Amazing story about a forthcoming Linklater film which is arguably the “Fargo” of east Texas…

Cracking Down on Oil Market Manipulation

This coming Saturday will mark the one year anniversary of the creation by the Obama administration of the “Financial Fraud Enforcement Working Group” (see the MSNBC article from 4/21/2011 entitled “Obama says new task force will examine gas prices”, available on the web at The article referenced below (entitled “Cracking Down on Oil Market Manipulation”) is from the White House blog and is dated 4/17/2012.

While the notion that “high” gas prices result from “price gouging” by a cadre of unsavory and greedy oil companies, energy traders, and speculators makes for a provocative political narrative, it’s really bad economics. As canards go, this one is particularly favored by politicians; indeed (as you can see from the time-date stamps of the April 2011 MSNBC and April 2012 White House blog articles), you can almost set your watch on these kinds of things.

I wrote a blog posting about the economics of “high” gas prices on April 23, 2011 (source:, and many, if not most of the points I raised in that article are as applicable today as they were then (now the geopolitical risk du jour is Iran; back then it was Libya)…

Cracking Down on Oil Market Manipulation | The White House

“President Obama announces a new series of steps to strengthen oversight over the energy markets.”