``Business Enterprise and Public Policy'' G406, Spring 2009 (12 May 2009)


I expect you to think critically in this class. Do not think that just because an article is on this syllabus that it is reliable or correct. Some articles as examples of fallacious reasoning, some are only partly correct, and some are on subjects for which we do not know the correct beliefs.

I don't mean for you to read items listed as "For Reference". I will probably not even talk about most of them in class. They are included only because you might find the links useful for reference.

You must attend class, and this will account for 10% of the grade, although you may skip 2 sessions without penalty if you send me an email. There will be six quizzes (36% of the grade) a midterm (20%), a final examination (34%). I am happy to talk about the answers to any test questions if regrading is not the subject, but if you think that something was graded wrongly, even something as trivial as that points were misadded, please write me up a memo rather than speaking to me about it.

The quizzes will be on Thursday: January 22, February 5, February 19, March 26, April 9, and April 23. The midterm will be in class on March 5. I will post answers at the date links after the tests. The final will be in the same classroom, 10:15 a.m.-12:15 p.m., Thursday, May 7 cumulative over the entire semester. Spring Break is March 15-22.

You can see the 2005 and 2004 and 2006 answers answers for the first of the two midterm tests I gave in previous years. You can see the 2004 and 2005 and 2006 answers for the second test. Also available is the 2007 midterm and 2007 final.
Here are old 2004 and 2005 and 2006 final exam answers

I will package up the readings for easy printing here as the course proceeds. Please note that this packaging is not necessarily complete, since I am adding readings as we go along.

INTEGRITY AND HONESTY

    Undergraduate students in the Kelley School have developed an Honor Code that defines a vision for what it means to be a Kelley graduate, and can be found online at http://www.kelley.iu.edu/ugrad/academics/code.cfm. Academic dishonesty, defined as a violation of the Honor Code, will not be tolerated at the Kelley School of Business and I will take appropriate disciplinary actions will be taken against any offenders. Do not cheat! I am strict about that, and have used the official procedures of the Dean of Students before. Most important, cheating is immoral, whether or not you get caught.

 

I. Overview of Regulation

1. Equilibrium and Optimality
To read:
  1. "Economic Regulation and Social Regulation," Eric Rasmusen. (Readings 1)
  2. "Behind Slow Growth in Europe: Citizens' Tight Grip on Wallets: A Thicket of Laws to Protect People Damps Spending," Marcus Walker, The Wall Street Journal, p. A1 (10 December 2004). (Readings 1)
  3. Slides on value maximization

For reference:
  1. None now. Slides on value maximization
2. Market Failure and Government Failure
To read:
  1. "Government Regulation in a Free-Market Society," Chapter 7, The Economic Report of the President, 2004, http://www.gpoaccess.gov/usbudget/fy05/pdf/2004_erp.pdf (original) or just that chapter. (Readings 1)
  2. Slides on market failure

For reference:
  1. The World Bank site on doing business in different countries ( http://www.doingbusiness.org) .
  2. Dept. of Labor minimum wage FAQ and interactive map showing state minimum wages.
  3. "Inaugural Disaster: We live in a permanent state of routine emergency, with taxpayers on the hook for the fix," Mark Steyn, National Review, http://article.nationalreview.com/print/?q= ZGFlMzQ2NDA2MWFmOTMwMjAxYzZhOWI4ZGU5NTAzNzU= (19 January 2009).

3. Administrative Law
To read:
  1. "Manager's Journal: The Federal Register: Capitalist Tool," Bruce D. Fisher, The Wall Street Journal, p. 1 (3 June 1985). (Readings 1)
  2. The United States Constitution. (Readings 1)
  3. Wikipedia, "Chevron U.S.A., Inc. v. Natural Resources Defense Council, Inc." (10 Dec. 2008). (Readings 1)
  4. Viscusi, Chapter 2. (Readings 2)
  5. Powerpoints on administration

For reference:
  1. SCHOOL RECORDS REGULATIONS. Here is the Buckley Amendment, or FERPA, from the United States Code. Falvo v. Owasso 534 US 426 (2002) is perhaps the leading Supreme Court case interpreting it, a case in which the U.S. Solicitor General supported less regulation. The Dept. of Education has made regulations and issued opinion letters saying no grades allowed on postcards and no use of the last 4 digits of SS number for posting grades. Also, I've linked the Dept. of Education FERPA site and Indiana University's "Main Points for Faculty to Remember".

 

II. Information Imperfections

4. Protecting People from Their Mistakes
To read:
  1. "More Employers Ask Job Seekers for SAT Scores," Kemba J. Dunham The Wall Street Journal, 28 October 2003, p. B1.
  2. Articles on Erin Brockovich and benzene in Beverly Hills from The New Republic, The Wall Street Journal, and Columbia Journalism Review.
  3. Powerpoint slides for information.

For reference:
  1. The thinking test's master version, version AA, version BB. .
  2. Restaurant inspections.
  3. Phthalates: See references at "More on Phthalates, " Eric Rasmusen's Weblog, , http://rasmusen1.blogspot.com/2009/03/more-on-phthalates.html (March 8, 2009).
  4. "The Price of Discrimination Set-Asides May Die Soon, Now that Officials Are Being Held Liable," John Sullivan & George La Noue, The Weekly Standard, 27 December 2004, Volume 10, Issue 15.
  5. "TV and Film Industry Wins Waiver on Truck- Safety Rules,"The Wall Street Journal, 29 January 2004.

5. Product Safety and Litigation
To read:
  1. Viscusi, Chapter 22.
  2. "The Tort System," Chapter 11 of The Economic Report of the President, 2004, ( http://www.gpoaccess.gov/usbudget/fy05/pdf/2004_erp.pdf).
  3. "The Patient's Right Not to Sue; How about a Right to Opt Out?", James D. Miller, The Weekly Standard, 13 August 2001, Volume 6, Issue 45.
  4. Powerpoints

For reference:
  1. "La Grippe of the Trial Lawyers,"William Tucker, The Weekly Standard, 25 October 2004, Volume 10, Issue 7.
  2. "Risky Riders Touting Freedom, Bikers Take Aim at Helmet Laws Fatality Rates Are Increasing As Campaign Succeeds; Manufacturers Bow Out Sputnik Travels to 39 States," Karen Lundegaard, The Wall Street Journal , 30 November 2004, p. A1.
  3. Articles from The Wall Street Journal on drug for mental illness, lack of lupus drugs, and hearing aids.
6. Corporate Governance
To read:
  1. "Corporate Governance and Its Reform," Chapter 2 of The Economic Report of the President, 2003, http://www.gpoaccess.gov/usbudget/fy04/pdf/2003_erp.pdf.
  2. "Would a GM Bankruptcy Crash Its Suppliers? They might actually be safer in Chapter 11," Mark Roe, Wall Street Journal (2 March 2009)
  3. Financial regulation and corporate governance slides.

For reference:
  1. "Risk Management: For Financial Whistle-Blowers, New Shield Is an Imperfect One --- Claims of Employer Reprisal Go to OSHA Investigators Unschooled in Accounting --- A Fired CFO Lingers in Limbo," Deborah Solomon, The Wall Street Journal, 4 October 2004, p. A1.
  2. A WSJ article, May 20, 2006, on cheating with executive stock option dates.
  3. A WSJ article, May 20, 2006, on accounting problems at General Motors.
  4. "Classic Financial and Corporate Scandals," http://projects.exeter.ac.uk/RDavies/arian/scandals/classic.html.
  5. Jonathan Macey “The Demise of the Reputational Model in Capital Markets: The Problem of the ‘Last Period Parasites’” ,, http://www.law.yale.edu/documents/pdf/News_&_Events/Macey_Demise_Reputational. pd f.
  6. Jonathan Macey, Corporate Governance, Princeton University Press (2008).
7. Banking and the Financial Crisis of 2008
To read:
  1. "The Case- Shiller House Price Index, 1988 to 2008," diagram, http://rasmusen.org/g406/readings/houseprices.jpg .
  2. "The MSM start catching on," Steve Sailer, Steve Sailer's iSteve Blog, http://isteve.blogspot.com/2009/03/msm-starts-catching-on.html (March 6, 2009).
  3. "Ex-Leaders of Countrywide Profit From Bad Loans," Eric Lipton, The New York Times, http://www.nytimes.com/2009/03/04/business/04penny.html?_r= 1&pagewanted=print (March 4, 2009).
  4. "Recipe for Disaster: The Formula That Killed Wall Street," Felix Salmon, Wired, http://www.wired.com/techbiz/it/magazine/17-03/wp_quant?currentPage=all (February 23, 2009).
  5. "Why Is Home Ownership a Good Thing? ," Eric Rasmusen, http://rasmusen.org/g406/readings/housing-rasmusen.doc (March 8, 2009).
  6. "Extortion in Chicago," Doug Bandow, The American Spectator ( http://spectator.org/archives/2008/12/15/extortion-in-chicago/print) ( 12.15.08).
  7. " Economists Have Abandoned Principle Twelve months ago nobody could have imagined government interventions we now take for granted," Oliver Hart and Luigi Zingales, The Wall Street Journal ( http://online.wsj.com/article/SB122826736608874577.html) (December 3, 2008).
  8. "Accounting Standards Wilt Under Pressure," Glenn Kessler, The Washington Post, p. A01, http://www.washingtonpost.com/wp- dyn/content/article/2008/12/26/AR2008122601715.html?hpid=topnews (27 December 2008).
  9. "Fixing the ratings game," Katie Benner, Fortune , http://money.cnn.com/2007/09/28/news/companies/ratings_agencies.fortune/index.ht m (October 4 2007) .
  10. "Let's Write the Rating Agencies Out of Our Law: Bond ratings should be like a recommendation from Consumer Reports," Robert Rosenkranz, The Wall Street Journal, ( http://online.wsj.com/article/SB123086073738348053.html)(2 January 2009).
  11. "The True Origins of This Financial Crisis ," Peter J. Wallison, The American Spectator, http://spectator.org/archives/2009/02/06/the-true-origins-of- this-finan (February 2009).
  12. "Matters of Principal," John D. Geanakoplos and Susan P. Koniak, The New York Times, http://www.nytimes.com/2009/03/05/opinion/05geanokoplos.html?_r=1&pagewanted= print ( March 4, 2009).
  13. " Does the financial crisis discredit libertarianism?Eric Posner, The Volokh Conspiracy blog, http://volokh.com/posts/1230069292.shtml (December 23, 2008).
  14. " Carping about TARP- ing," Eric Posner, The Volokh Conspiracy blog, http://volokh.com/posts/1231997535.shtml (January 15, 2009).
  15. "Hot Spots of Mortgage Crisis," map, USA Today, p. 7A, http://rasmusen.org/g406/readings/07.map.pdf (March 6, 2009).
  16. Banking slides.

For reference:
  1. "Turning Away Talent Another harmful 'stimulus' provision," The Wall Street Journal, http://online.wsj.com/article/SB123672890680789063.html (March 10, 2009).
  2. "On default correlation: a copula function approach," David X. Li, The Journal of Fixed Income, http://www.sfu.ca/~sp6048/Reading/Li%20(2000)%20Default%20Correlation%20Copula %2 0Approach%20JFI.pdf (2000).
  3. "Bailouts," course syllabus, Profs. Baird, Henderson & Picker, University of Chicago Law School, Winter 2009, http://picker.uchicago.edu/bailouts/BailoutsSyllabus.htm (undated).
  4. " Bank solvency and the "Geithner Plan", " Bronte Capital, http://brontecapital.blogspot.com/2009/02/bank-solvency-and-geithner-plan.html (February 16, 2009).
  5. "The Origins of the Financial Crisis," Martin Neil Baily, Robert E. Litan, and Matthew S. Johnson, http://www.brookings.edu/papers/2008/11_orgins_crisis_baily_litan.aspx?p=1 (November 2008).
  6. "Wall Street on the Tundra," Michael Lewis, Vanity Fair, April 2009 issue, http://www.vanityfair.com/politics/features/2009/04/iceland200904?printable= true¤tPage=all (undated).
  7. "What Really Happened?" Lawrence H. White, Cato Unbound, http://www.cato-unbound.org/2008/12/02/lawrence-h-white/what- really-happened/ (December 2nd, 2008).
  8. "The Subprime Turmoil: What's Old, What's New, and What's Next," Charles. W. Calomiris, www.kc.frb.org/publicat/sympos/2008/Calomiris.10.02.08.pdf (October 2, 2008).
  9. "Facts and Myths about the Financial Crisis of 2008," V.V. Chari, Lawrence Christiano, and Patrick J. Kehoe, Federal Reserve Bank of Minneapolis, Research Department, Working Paper 666, http://www.minneapolisfed.org/research/WP/WP666.pdf (October 2008).
  10. "The Rise in Mortgage Defaults," Christopher Mayer, Karen Pence, and Shane M. Sherlund, Journal of Economic Perspectives, 23 (1): 27-50 (Winter 2009).
  11. "Deciphering the Liquidity and Credit Crunch 2007–2008," Markus K. Brunnermeier, Journal of Economic Perspectives, 23 (1): 77-100 (Winter 2009).
  12. "The Banking Crisis Game," G406 notes, (March 25 2009).
  13. "Today's Mortgage Rates for You," Amerisave quotes on various kinds of mortgage (7, 10, 30, 40-year, fixed, floating, various fee structures) to borrow $280,000 secured by a $350,000 house in Bloomington, Indiana (March 28, 2009).
IIA. Coordination Problems

7A. Fiscal Stimulus and the 2009 Recession
To read:
  1. "Tracking the Recession," Federal Reserve Bank of St. Louis, http://research.stlouisfed.org/recession/ (2009).
  2. "Government Spending Is No Free Lunch Now the Democrats Are Peddling Voodoo Economics," Robert Barro, http://online.wsj.com/article/SB123258618204604599.html (January 22, 2009).
  3. "An $800 Billion Mistake," Martin Feldstein, The Washington Post, Page A19 http://www.washingtonpost.com/wp- dyn/content/article/2009/01/28/AR2009012802938.html (January 29, 2009).
  4. "How economists analyze the stimulus," Arnold Kling, The Atlantic, http://business.theatlantic.com/2009/01/how_economists_analyze_the_stimulus.php (Jan 26 2009).
  5. "Fiscal Stimulus, Fiscal Inflation, or Fiscal Fallacies?" John H. Cochrane. Version 2.5, http://faculty.chicagobooth.edu/john.cochrane/research/Papers/fiscal2.htm (Feb 27 2009)
  6. "Restoring Hope: An Alternative to the Stimulus Bill," Eric Rasmusen, http://rasmusen.org/g406/readings/pyramid-rasmusen.doc (March 8, 2009).
  7. "On true 'Bad Faith Economists'" Nicolas Chatfort, Samizdata.net blog http://www.samizdata.net/blog/archives/2009/02/bad_faith_econo.html (February 06, 2009).
  8. "Lessons from the Great Depression for Economic Recovery in 2009," Christina D. Romer, Brookings Institution presentation, http://www.brookings.edu/~/media/Files/events/2009/0309_lessons/0309_lessons_ro m er.pdf (March 9, 2009).
  9. "Please Don't Kill My Export Business, Mr. Obama," Eric Rasmusen, http://rasmusen.org/g406/readings/07.students-rasmusen.doc (March 11, 2009).
  10. Pontius Pilate as bureaucrat handout and slides.
  11. Stimulus slides.

For reference:
  1. "A Simple Model of Keynesian Stimulus," Eric Rasmusen notes, (March 28 2009).
  2. "Keynesian Stimulus Grand Links Accumulator, " Eric Rasmusen, http://rasmusen1.blogspot.com/2009/01/keynesian-stimulus.html.
  3. "Five Reasons Why Fiscal Policy Might Be Completely Ineffective: A Textbook Exposition," Menzie Chinn, Econbrowser blog, http://www.econbrowser.com/archives/2009/01/five_reasons_wh.html (January 26, 2009).
  4. "Dissecting the stimulus debate," Megan McCardle, The Atlantic, http://meganmcardle.theatlantic.com/archives/2009/01/dissecting_the_stimulus_deb ate.php (29 Jan 2009).
  5. "The paradox of thrift,"James Hamilton, Econbrowser blog, http://www.econbrowser.com/archives/2009/02/the_paradox_of.html (February 8, 2009).
  6. The Great Depression: "The New Deal and the Great Depression II," Brad DeLong, Grasping Reality with Both Hands blog, http://delong.typepad.com/sdj/2007/01/the_new_deal_an.html (January 10, 2007); and "New Deal Economics," Paul Krugman, The New York Times, http://krugman.blogs.nytimes.com/2008/11/08/new-deal-economics (November 8, 2008); and "The New Deal and the Great Depression," James Hamilton, Econbrowser blog, http://www.econbrowser.com/archives/2007/01/the_new_deal_an.html (January 10, 2007); and "Wartime Prosperity? A Reassessment of the U.S. Economy in the 1940s," Robert Higgs, The Journal of Economic History http://www.independent.org/newsroom/article.asp?id=138 (March 1, 1992).
  7. "Where Nations Go to Die You say “stimulus,” I hear “syphilis.”" Mark Steyn, http://article.nationalreview.com/?q= ODljYzM3YTc0ODA4MmVmMjI2YzVmNGM3NWU3ODE2NWI= (January 31, 2009).
  8. "Mr. Keynes and the "Classics"; A Suggested Interpretation," John R. Hicks, Econometrica, 5(2): 147-159 , http://stevereads.com/papers_to_read/keynes_and_the_classics.pdf (April 1937).
  9. "Brad Delong Posts from January 2009 on Keynesian Stimulus," Brad DeLong, weblog, compiled by Eric Rasmusen, http://rasmusen.org/t/2009/delong.stimulus.htm (Feb. 1, 2009).
III. Externalities

8. Pollution
To read:
  1. Viscusi, Chapter Chapter 21..
  2. "A Free Lunch?" Philip Cook, The Volokh Conspiracy weblog ( http://volokh.com/archives/archive_2009_01_04-2009_01_10.shtml#1231334141) (7 January 2009).
  3. The 1991 Larry Summers toxic waste memo
  4. Powerpoint slides, http://rasmusen.org/g406/slides/21-enviro.ppt.
  5. Figure 21.3 and cap-and-trade, http://rasmusen.org/g406/pollution.figures.pdf.

For reference:
  1. Water Pollution in China
  2. Making Nuclear Missiles Comply with EPA Regulations
  3. Save Toby, the bunny-killing extortion website.
  4. "Scientists Revisit Idea that a Little Poison Could Be Beneficial," Sharon Begley, The Wall Street Journal 19 December 2003.
  5. "Death by Environmentalist," The Wall Street Journal, (29 December 2004) p. A8.
  6. The fisheries classroom game in pdf
  7. "Invisible Export a Hidden Cost of China's Growth: Mercury Migration Turning to Coal, Nation Sends Toxic Metal around Globe; Buildup in the Great Lakes Conveyor Belt of Bad Air," Matt Pottinger, Steve Stecklow, and John J. Fialka, The Wall Street Journal, (17 December 2004) p. A1.

9. Recycling and Conservation
To read:
  1. "Recycling Is Garbage," John Tierney, New York Times, Sunday, Section 6, P. 24, http://www.williams.edu/HistSci/curriculum/101/garbage.html (30 June 1996).
  2. Leaving computers on overnight = $2.8 billion a year," (26 March 2009) taken from "Leaving PCs on overnight costs companies $2.8B a year" Jon Swartz, USA TODAY; and "The Amazing Waste from Turning Off Computers Each Night," Eric Rasmusen, Eric Rasmusen's Weblog, http://rasmusen1.blogspot.com/2009/03/amazing-waste-from- turning-off.html (30 March 2009).
  3. "Be Green: Drive," Steven D. Levitt, Freakonomics blog, http://freakonomics.blogs.nytimes.com/2008/03/19/be-green-drive, (March 19, 2008); "How Virtuous is Ed Begley Jr.?", John Tierney, New York Times, http://tierneylab.blogs.nytimes.com/2008/02/25/how-virtuous-is-ed-begley-jr (February 25, 2008).
  4. Recycling slides, http://rasmusen.org/g406/slides/09- recycling.ppt.

For reference:
  1. "Bicycling Wastes Gas?" Michael Bluejay, Bicycleuniverse.info , http://bicycleuniverse.info/transpo/energy.html (February 2009).
10. The Social Discount Rate
To read:
  1. United States Office of Management and the Budget, "Circular No. A-94 Revised: Guidelines and Discount Rates for Benefit-Cost Analysis of Federal Programs," ( http://www.whitehouse.gov/omb/circulars/a094/a094.html) (October 29, 1992).
  2. Daniel Farber, "From Here to Eternity: Environmental Law and Future Generations," University of Illinois Law Review, 2003: 289--335 just pages 289-305. ( http://home.law.uiuc.edu/lrev/publications/2000s/2003/2003_2/Farber.pdf).
  3. Discounting slides, http://rasmusen.org/g406/slides/10- discounting.ppt.

For reference:
  1. Office of Management and Budget, "Circular A-4: Regulatory Analysis," http://www.whitehouse.gov/omb/circulars/a004/a-4.pdf, (September 17, 2003).
  2. John D. Graham, "Valuing the Future: OMB’s Refined Position," The University of Chicago Law Review 74: 51--57, http://lawreview.uchicago.edu/issues/archive/v74/74_1/Graham.pdf (2/23/2007).
  3. Coleman Bazelon and Kent Smetters, "Discounting inside the Washington D.C. Beltway," The Journal of Economic Perspectives, 13(4): 213-228, http://www.jstor.org/stable/2647020 (Autumn 1999).
  4. Bloomberg interest rate quotes http://www.bloomberg.com/markets/rates/index.html.
  5. Student bond values ,(A=10 in 1 year, B=10 in 50 years, C=1 every year) http://rasmusen.org/g406/bondvalues.xls (April 23, 2009).
11. Global Warming
To read:
  1. Nicholas Stern, "The Economics of Climate Change." American Economic Review, 98(2): 1-37 (May 2008) (just read pp. 1-17).
  2. "The Case for Skepticism on Global Warming, ". Michael Crichton, speech to the National Press Club, Washington DC ( http://www.michaelcrichton.com/speech-ourenvironmentalfuture.html)(25 January 2005).
  3. "2008 Temperature Summaries and Spin," "Gavin," RealClimate weblog, ( http://www.realclimate.org/index.php/archives/2008/12/2008-temperature- summaries- and-spin/#more-632) (16 Deember 2008).
  4. "Some Economics of Global Warming," Thomas C. Schelling, The American Economic Review, 82(1): 1-14 (March 1992).
  5. The Pew Center on Global Climate Change: Economics FAQs and Policy FAQs, http://www.pewclimate.org/global- warming-basics/faq_s/.
  6. The Supreme Court opinion in Massachusetts v. EPA, in an abridged version for you to read (and the unabridged opinion just for reference).
  7. A 2007 Washington Post article on carbon permit trading in Europe.
  8. John McCormack, According to an MIT study, cap and trade could cost the average household more than $3,900 per year," The Weekly Standard, http://www.weeklystandard.com/Content/Public/Articles/000/ 000/016/412cwueq.asp?pg=2 (4/22/2009).
  9. Bjorn Lomborg, Table 2, Cool It: The Skeptical Environmentalist's Guide to Global Warming, New York: Vintage Books (2008).
  10. EPA, "Proposed Endangerment and Cause or Contribute Findings for Greenhouse Gases under the Clean Air Act ," http://epa.gov/climatechange/endangerment.html (April 22, 2009).
  11. Powerpoint slides on global warming, http://rasmusen.org/g406/slides/21a-globalwarming.ppt.

For reference:
  1. "Surfacestations.org," ( http://www.surfacestations.org/).
  2. Data: NASA data on global temperatures monthly 1880-present, and annual temperatures, total and by hemisphere, and world weather station data, picking points on a map (unadjusted for urbanization, etc.).
  3. IPCC "Climate Change 2001: Synthesis Report; Summary for Policymakers."
  4. "Two Thirds of EU Countries Set to Miss Kyoto Commitments," IPPR, http://www.ippr.org.uk/pressreleases/?id=1863, (27 December 2005).
  5. "Kyoto's 'Capitalists'," The Wall Street Journal, 13 December 2004, p. A16.
  6. The Cato Institute: "Global Warming and Climate Change, chapter 48, The Cato Handbook on Policy, 6th Edition (2005), http://www.cato.org/pubs/handbook/hb109/hb_109-48.pdf.

I will post my review slides here (http://rasmusen.org/g406/slides/99.review.ppt).

If we have extra time in the course, we will cover one or more extra topics.

URL: http://www.rasmusen.org/g406/0.g406.htm. Indiana University, Department of Business Economics and Public Policy, in the Kelley School of Business , BU 438, 1309 East Tenth Street, Bloomington, Indiana 47405-1701, (812)855-9219. Comments: Erasmuse@Indiana.edu.