Alex Tabarrok comments on Google's Dutch Auction IPO.#

Here is a nice graphic from the NYTimes explaining the Dutch auction IPO. I think Google's IPO will be a success, it will raise more money for Google than a traditional IPO with its high transactions costs (which flow to the investment banks). Remember the standard to measure success is the cost per dollar of raised funds it is not whether the stock price hits a predefined target and not whether the stock pops. Indeed, Google's stock price is unlikely to pop. The success of a traditional IPO is often counted by the size of the pop but that is ridiculous. A pop means the firm left money on the table - money which was transferred to a handful of insiders who were allocated stock at the low IPO price. A pop is thus the sign of a bad IPO not a good one. The Dutch auction method ensures that the initial price is a market price (thus Google's price is unlikely to plummet either). There has been a lot of negative publicity about the Google IPO but my guess is that this was stirred up by the investment banks who are fearful that their halcyon days are ending.

Michael Munger writes about regulations.#

This reminds me of my first "professional" job, at the Federal Trade Commission in the first Reagan Administration (1984). In the afternoon, we would take a break from our exhausting day of blocking asinine regulations, and go have a big frozen yogurt at a place right beside the entrance to the Washington School for Secretaries. Sitting there having a yogurt, watching dozens of attractive women walk by, we would sometimes say to each other, "You know, this is criminal. We are just stealing our money."

But then one of us would state the standard defense, one all of us believed fervently: "Not true! If it weren't for us, occupying these crucial desks, they might very hire someone who would write new regulations! We are doing God's work here, gentlemen! We are constipating the intestines of the cow of regulation!"

And then we would all click our foam yogurt cups, and argue about where we would go for happy hour that night. Now, those were the days.

James Wilson on the Bible and the Constitution.#

What does this say? That the Constitution is not, and never really was, the issue. That ethically-neutral proceduralism — allegiance to written words — can not and will not preserve liberty or any other ethical principle. Sheer ambition, political will, and persuasion of the people, will override any plain meaning of the words of a Constitution or any other document.

[...]

What I am suggesting is that the Constitution, if the letter of its law was obeyed, would be preferable to the government we have now. But we can't go back. If the Constitution itself was so good, it would have been obeyed from the very beginning. But near the very beginning, it was violated, and has been violated ever since. Whether from a self-perceived higher ethical law, or expediency, the Constitution will always be violated. It has not been, is not now, nor ever will be, a check on despotism. Yes, Americans will still think of themselves as free and therefore morally superior to other nations. But many public school students in the Soviet Union also used to think of themselves as free. Illusion is not reality, not even the grand illusion of our Constitution.

[...]

The Constitution is powerless against the claims and wants of the people, especially if those wants are moral and religious in nature yet cloaked in secular, "public good" language. No Constitution can protect the people from a charming demagogue that the people themselves support.

If the ethics and the faith of the vast majority of the people favor liberty and decentralization, they will get it and enjoy it regardless of what a Constitution says. But if they want to control other people in other places through the National State, they will get that also, regardless of the paper restraints on the government. And if the people are indifferent, the government will recognize that as well.

[...]

I'd rather fight for liberty rather than for a Constitution, just as I'd rather give my life to God than to the State.

I mentioned something about this in an article and I talked to Michael Williams about it a few weeks ago.

And that's what I call REAL ULTIMATE POWER#

Chris Coyne quotes Fukuyama on emerging democracies.#

In countries below the $6,000 threshold we should push for a liberal autocracy as democracy will fail to deliver the desired outcomes. On a related note Pete's earlier post on whether institutions cause growth and my earlier post on Fukuyama's latest book on state building.

Empires can provide such a liberal autocracy.

No, THAT'S what I call REAL ULTIMATE POWER#

Newmark links to Deborah Solomon interviewing Ray C. Fair.#

As a professor of economics at Yale, you are known for creating an econometric equation that has predicted presidential elections with relative accuracy.

My latest prediction shows that Bush will receive 57.5 percent of the two-party votes.

The polls are suggesting a much closer race.

Polls are notoriously flaky this far ahead of the election, and there is a limit to how much you want to trust polls.

Why should we trust your equation, which seems unusually reductive?

It has done well historically. The average mistake of the equation is about 2.5 percentage points.

In your book ''Predicting Presidential Elections and Other Things,'' you claim that economic growth and inflation are the only variables that matter in a presidential race. Are you saying that the war in Iraq will have no influence on the election?

Historically, issues like war haven't swamped the economics. If the equation is correctly specified, then the chances that Bush loses are very small.

But the country hasn't been this polarized since the 60's, and voters seem genuinely engaged by social issues like gay marriage and the overall question of a more just society.

We throw all those into what we call the error term. In the past, all that stuff that you think should count averages about 2.5 percent, and that is pretty small.

It saddens me that you teach this to students at Yale, who could be thinking about society in complex and meaningful ways.

I will be teaching econometrics next year to undergraduates. Econometrics is a huge deal, because it is applied to all kinds of things.

Yes, I know one of your studies used the econometric method to predict who is most likely to have an extramarital affair.

In that case, the key economic question was whether high-wage people are more or less likely to engage in an affair. They are slightly more likely to have an affair. But the economic theory is ambiguous because if your wage is really high, that tends to make you work more, and that would cut down on how much time you want to spend in an affair.

Are you a Republican?

I can't credibly answer that question. Using game theory in economics, you are not going to believe me when I tell you my political affiliation because I know that you know that I could be behaving strategically. If I tell you I am a Kerry supporter, how do you know that I am not lying or behaving strategically to try to put more weight on the predictions and help the Republicans?

I don't want to do game theory. I just want to know if you are a Kerry supporter.

Backing away from game theory, which is kind of cute, I am a Kerry supporter.

I believe you entirely, although I'm a little surprised, because your predictions implicitly lend support to Bush.

I am not attempting to be an advocate for one party or another. I am attempting to be a social scientist trying to explain voting behavior.

But in the process you are shaping opinion. Predictions can be self-confirming, because wishy-washy voters might go with the candidate who is perceived to be more successful.

It could work the other way. If Kerry supporters see that I have made this big prediction for Bush, more of them could turn out just to prove an economist wrong.

Perhaps you could create an equation that would calculate how important the forecasts of economists are.

There are so many polls and predictions, and I am not sure the net effect of any one of them is much.

Yes, everyone in America is a forecaster. We all think we know how things will turn out.

So in that case, no one has much influence, including me.

François-René Rideau wrote a very Bastiat critique of software patents.#

Any successful incentive to innovate that patents may foster leads to a new monopoly where everyone is disincented to innovate anymore, since competition is lessened. The incentive of patents is an incentive to find ways of earning money at destroying the global economy; it makes possible and encourages business models centered around rent-seeking and parasiting the economy at large, to the double detriment of the public, and against the global interest of society. Innovations will be incented not in direct proportion to their global social utility, but in direct proportion of their ability to generate monopoly rent and prevent subsequent social utility. It is the worst inventions that are most incented by the patent systems: those whose patenting detriments the public most.

Patents on public research:

Patents were meant as an indirect way to foster innovation; so far, we have found them to fail on this account. But even should they, by some magic, succeed in certain cases, it would be absurd to patent the results of public research: indeed, in the case of public research, the public has already paid for the research, through taxes, so it needn't pay for it a second time; the only result of the patent is the monopoly, that restricts the use of the technique that was paid for, and deprives the public from both the technique and from the monopoly rent. And of course, it would be absurd to assert that monopoly is necessary to ensure that the technique would be deployed, since more competitors, as prohibited by the monopoly, could only mean more deployment of the technique (and if no third party wants to deploy it, there's no need to grant a monopoly to the first-come industrialist so that he may remain the sole exploiter of it).

The patent is absolutely no incremental encouragement to innovate for public research, since the encouragement was already completely given as public funds; but the patent will still have its detrimental effects on the public, and its limiting effects on the use of the discovered technique. Patents issued from public research is proactively negative research; it is citizens paying to be oppressed rather than to be freed.