Wednesday, March 29, 2006

China Outlaws Organ Markets


A marketplace for organs is a fun idea to bring up for conversation at social gatherings. They draw out a variety of arguments, both pro and con, with varying degrees of legitimacy. On the one hand, most people will consent to the argument that markets generally do a good job of providing for people in a world of scarcity. On the other hand, a market for organs also often highlights certain aspects of markets, such as the potential for unethical activities, that people do object to.

A recent AP article on China's regulation of the transplant business is an interesting example:

China's Health Ministry has explicitly banned sales of human organs in an apparent attempt to clean up the country's lucrative but laxly regulated transplant business. New regulations viewed on the Health Ministry's Web site Tuesday forbid the buying and selling of organs and require that donors give written permission for their organs to be transplanted.
I don't see much problem in the second aspect of the regulation, but I'm concerned about the elimination of organ markets.

Some critics, the article notes, "contend [a market for organs] is profit-driven with little regard for medical ethics." Both parts of this sentence may be true, but I'm not so sure that if they are true, this would be sufficient reason to outlaw the market all together. One of the benefits of a market for organs is that it is profit-driven. After all, supply curves are upward sloping. The article notes that "Voluntary donations remain far below demand, partly because of cultural biases against organ removal". Allowing for monetary payments may create incentives to increase supply and, presumably, save more lives.

Secondly, the potential that some people will not practice medicine ethically seems little reason to outlaw the market in totality. If one truly feared unethical activities, it seems the more prudent step would be to regulate or monitor it, not implement an outright ban.

Other critics raise concerns about the safety of such transplant markets. That doesn't make much sense to me. It seems that outlawing organ sales will increase the danger rather than decrease it. Black market doctors will have more difficulty obtaining quality trained staff and clean operating rooms. It would seem the elasticity of demand for an organ transplant is fairly inelastic; that is, not many people will leave the market just because it's illegal. As a result, nearly as many people will enter worse facilities to get riskier operations. Furthermore, based on the data given in the article, only about .001% of people who received transplants last year become seriously ill or died. That seem extremely low to me.

I admit that the idea of a market for organs is provocative at first glance. There may be some reasons to limit them, but I haven't seen any arguments that make a good enough case to ban them outright.

Friday, March 24, 2006

Op-Ed Ignorance

Below is my letter to the editorial staff of SJSU's daily newspaper, the Spartan Daily, in response to an article titled "Congress needs to answer for the insane price of gas". The writer, Rachel Hill, is astoundingly wrong on most points, but I wanted to limit my remarks to only two of the most egregious errors. Here is my letter:

Dear Editorial Staff,

Rachel Hill's March 23 article "Congress needs to answer for the insane price of gas" ignores two important points. First, despite the comparison she makes to rape, nobody is forced when an individual buys gas. Like all voluntary exchange, both parties anticipate being made better off by the trade. The benefit may be reduced because of the higher gas price, but there is still a net benefit or the individual would not make the exchange. Nobody makes an exchange if they know they will be worse off because of it. Equating purchase of gas to rape ignores the benefit that is gained in the voluntary exchange and diminishes the seriousness that sexual assaults, such as rape, legitimately deserve.

Secondly, Hill fails to understand that the key role of prices is to provide information. When the price of gas goes up, it is appropriate that we feel less inclined to buy it. The higher price provides the important information that gas is scarcer; it tells us that we should search out alternative sources of energy, such as hybrids, and alternative forms of transportation, such as bicycling, walking, and carpooling. Similarly, increases in gas prices convey information to suppliers of oil and gas to increase production capacity. This will allow for an increase of output in the short- and long-run to better serve the needs of the consumers. In a world of scarcity, prices help direct resources to where they are needed the most.

Hill's vague admonition to Congress is to put a limit on how high gas prices are allowed to go. If this advice is followed, the benefits that are created through voluntary exchange will be reduced and buyers and sellers of gas will miss out on the information that is necessary to coordinate people's desires and satisfy the demand for energy. Hill's solution will only exacerbate the situation by causing greater shortages, and it will prevent the real solution, voluntary exchange and market prices, from working.

Sincerely,
David B. Skarbek

Thanks To All The Corporations


The demonization of corporations that abounds in the poorest parts of the world is astounding to me. The Mexican government, according to the AP, has not been able to obtain adequate investment to construct municipal water facilities. This failure -- and potential health disaster -- has been remedied by multinational corporations such as Pepsi, Cadbury, Nestle, Danone and Coca-Cola who now supply most of the bottled water in Mexico. Private companies providing safe, clean drinking water to needy people.

But not everyone is happy about this. Demonstrators at the World Water Forum this week chanted that "Water is not for sale". Thankfully they are wrong and water is for sale.

Monday, March 20, 2006

Development assistance that actually helps

My place of undergraduate study, Claremont McKenna College, along with the Kravis Leadership Institute and Mr. Henry Kravis himself, have named Roy L. Prosterman the inaugural winner of the Henry R. Kravis Prize in Leadership. The Kravis Prize honors leadership in the non-profit sector and, due to Prosterman's work in founding and leading the Rural Development Institute (RDI), he is well deserving of the honor. (Prosterman has also been nominated for the Nobel Prize-- perhaps a debate with fellow development-related nominee Bono would be fruitful in the decision process?)

In stark contrast to much development "assistance," Prosterman has not focused on funneling funds to the Third World's poor. Instead, RDI has centered its efforts on securing land rights for many of the world's poorest farmers. Hundereds of millions of families have been allocated ownership of land parcels-- nearly ten percent of the world's arable land. Further, in addition to privatizing much of the world's centrally held farmland, RDI improves on institutions in order to encourage markets for land. Efficient outcomes abound on both margins.

Leadership is more than good intentions, and Prosterman not only has the intention but the knowledge to actually affect change. It's refreshing to see market-based ideas to world poverty honored.

Sunday, March 19, 2006

Institute for Humane Studies


I'd like to take a moment to recommend an organization that is doing much to advance the cause of liberty, the Institute for Humane Studies. In addition to offering a variety of scholarships, grants, and learning resources, IHS also hosts a wide variety of week-long summer seminars. Every time I attend one of these seminars I meet fascinating, intelligent people and gain a better understanding of economics, politics, and positive social change. I highly recommend them!

Saturday, March 18, 2006

Thaler on Friedman on Assumptions


Richard Thaler examines the assumptions of economic models in the introduction of his book The Winner's Curse. He writes that "Friedman's position is that it doesn't matter if the assumptions are wrong if the theory still makes good predictions". I would say that this is the most common interpretation of Friedman's 1953 paper "The Methodology of Positive Economics".

However, I interpret the article somewhat differently. I read Friedman's argument to say that a model which is perfectly realistic would include everything in the world and would thus not be very useful. That is, a model, by definition, is less than perfectly realistic. As such, assumptions must lack realism to some extent. The extent to which assumptions conform (or should conform) to reality can be determined by the predictive power of the model. Friedman believes that realism has merit but that total realism is not possible. This is quite different than saying that the realism of assumptions is unimportant. I look forward to hearing Thaler's discussion, but I wonder if he will be attacking a straw man.

(Also, I believe the greater question to pose to Friedman's 1953 work is whether or not prediction is the same as explanation. Presumably, it is the economist's job to explain the world. )

Wednesday, March 08, 2006

Pop Musicians' Policy Update

Am I missing something? Are well-known musicians required to support outlandish economic ideas? U2 frontman Bono is an avid supporter of debt relief and heavy foreign aid programs, and for his fervor captured the most recent Time's Person of the Year award and repeated nominations for the Nobel Peace Prize. Chris Martin of Coldplay is an outspoken supporter of fair trade. Now, Paul McCartney has come to the rescue of Canada's seals. The transcript of the McCartneys and Danny Williams, Premier of Newfoundland & Labrador, on Larry King Live is here.

Pro-seal sentiment hasn't been this strong since the 1970s, when activist groups persuaded the United States to pass the Marine Mammal Protection Act and ban imported seal products. McCartney feels that the Canadian government should buy out the portion of the hunters' income generated from the hunt of seal pups. No mention of length of the buyout, COLA increases or the like.

(Curiously enough, the seals with which the McCartneys are pictured haven't been hunted since 1987.)

Let's count the ways this makes no sense:

1) McCartney says there is hardly any interest in seal coats and that they wouldn't be sorely missed. He also notes that this industry has been functioning for 500 years. One of these can't be right.

2) Such impartial groups as the Humane Society of the United States and the International Fund for Animal Welfare have declared the hunts cruel and inhumane. No word on beef, cattle, or swine, however. If anyone can find a picture of Sir Paul and his wife at Bovine University, please, send it along.

3) Buying out the Canadian fisherman, aside from typical economy-wide price distortion that comes with government intervention into particular markets, does not end the plight of the seal; it simply changes the market such that harvesting in other areas becomes more profitable than it was before the buyout. Currently, harp seal hunts occur in Canada (two locations), Eastern Greenland and Northwestern Russia (one apiece). Banning hunts in Canada simply transfers the physical location of the harvest. As seals are demanded, seals will be supplied.

Sir Paul likened the seal hunt to the African slave trade. His wife compared it to being traditional like Apartheid. This is absurdity. Stick to what makes everyone better off, Paul-- generating an impressive amount of wealth via pop music.

Friday, March 03, 2006

Excess profits, revisted

A little while back, I posted on the oil industry's record profits, and the political backlash that ensued. The proposed solution is to levy an excess profits tax on (presumably) the oil companies that post the largest revenues and profits in nominal terms.

The idea of the excess profits tax originated during wartime. Due to the increase in aggregate demand during times of national crisis, so the prevailing thought went, companies should not benefit from being able to increase profits via higher prices. Most politicians at the time extended this concept to mean that no one should benefit during wartime. Towards the ends of winning the war, everyone should make sacrifices.

The first excess profits tax emerged in 1917 as a tax revenue generator for World War I; it also surfaced during World War II and again during the Korean War. An "excess profits tax" implies taking money from profitable firms above a threshold in which they are already existing quite comfortably-- but these takings are anything but nontrivial. By the end of World War I, the excess profits tax brought in nearly 60% of the government's revenue; at its peak in World War II, the excess profits tax generated nearly a quarter of the government's revenue. So much for no one benefiting from wartime.

In typical Leviathan fashion, what began as a limited tax expanded to suit the government's need. In 1980, Jimmy Carter levied the only non-wartime excess profits tax in U.S. history against-- you guessed it-- the oil industry. By the time Reagan repealed it in 1988, the tax generated $77 billion for Uncle Sam.

It wasn't as if oil companies were getting as easy ride on taxes. Since 1977, oil companies have ponied up over $1.3 trillion in taxes-- over twice the amount of money they have earned in profits over that time period.

It's easy to understand the oil companies current level of concern. Congress loves appropriating itself more funds-- here's to hoping the oil companies can fend them off.

Junkies Save the Day


One approach to reducing the spread of AIDs in Baltimore is the use of a needle exchange program. The program provides drug addicts with new, clean needles once a week in exchange for their old, dirty needles. Apparently addicts, in their craving for drugs, will use any needle regardless of how dull or AIDs-infected it has become.

Malcolm Gladwell relates in his book The Tipping Point about two problems the needle exchange program faced and how they were overcome. The first problem is that drug addicts are not usually organized and reliable people. How could the program directors make sure the addicts even showed up at all? Secondly, addicts use about one needle per day, so meeting once a week would be far from sufficient.

It turns out that these problems were solved and the program was a success, but it was not due to the hard work of doctors in Baltimore. It was because of the remarkable entrepreneurial spirit. As Gladwell writes:

...what [the doctors] found was that a handful of addicts were coming by each week with knapsacks bulging with 300 or 400 dirty needles at a time, which is obviously far more than they were using themselves. These men were then going back to the street and selling the clean needles for one dollar each. The van, in other words, was a kind of syringe wholesaler. The real retailers were these handfuls of men...who were prowling around the street and shooting galleries, picking up dirty needles, and them making a modest living on the clean needles they received in exchange.
These addicts were doing what the doctors could never do -- provide clean needs to those in need -- and it was only from the incentive and information provided by prices that it was possible.

These addicts, acting as Kirznerian entrepreneurs, had a noted impact on the lives of junkies in the Baltimore area. Here is yet another example of how the profit mechanism can lead selfish individuals to better their communities.