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.

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.

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.

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!

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. )

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.

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.

Poor Thinking on Population

According to Livescience.com:

On Saturday, Feb. 25, at 7:16 p.m. Eastern Standard Time, the population here on this good Earth is projected to hit 6.5 billion people.

Many people see this as a landmark in mankind's pursuit to destroy itself. They argue, in standard Malthusian fashion, that an increasing population on Earth will lower standards of living and ultimately destroy the planet. See Paul Ehrlich's work for an example.

The increase in Earth's population is driven by, what many would consider to be, increases in the standard of living - namely, a dramatic increase in life expectancy. As one UN consultant put it, "It's not that people suddenly started breeding like rabbits; it's just that they stopped dying like flies." Should society be concerned that more people are living longer?

Is 6.5 billion people and the growth trend that it designates something to be concerned about? According to the U.S. Government's official data (as cited in The Skeptical Environmentalist), "the growth of the global population peaked in the early 1960's at just over 2% a year". In fact, UN scientists predict that the world's population will stabilize just short of 11 billion in the year 2200. It seems that concerns of eternal population growth are simply not worth worrying about.

But what is the sustainability of the predicted stabilized population size? Economist Julian Simon has researched the impact of populations on economic growth and finds that:

...more people and more wealth has correlated with more (rather than less) resources and a cleaner environment...The most important benefit of population size and growth is the increase it brings to the stock of useful knowledge. Minds matter economically as much as, or more than, hands or mouths. Progress is limited largely by the availability of trained workers.

As such, Simon deems people as the "ultimate resource" and welcomes their presence. More people is likely to make the world better off.

Considering that the growth of world population is slowing and will reach a steady state and that people are a valuable resource, I can't help wondering why there has been so much needless commotion about population growth.

Revealed Preferences

Economics has an advantage over the other social sciences because it recognizes that people reveal their preferences through their actions. If a person is confronted with two options, Option A and Option B, and the person chooses Option A, then we know that he prefers Option A to it's alternative.

This does not mean that Option A is the ideal choice in a world of no scarcity or even that it is an enjoyable choice. It may be the best from a set of bad options. Economics simply recognizes that given the individual's set of preferences (based on subjective valuation), he preferred one over the other.

While this may seem a rather trite topic for those immersed in economics, it is often completely overlooked by scholars in other disciplines. For example, Bruce Shelley writes in his book on church history about the changing fortunes of the workers during the Industrial Revolution:

The Industrial Revolution greatly increased the wealth of mankind, but it brought a host of evils for the workers massed together in the ever expanding factories of European and American cities.

Shelley goes on to list a variety of "social ills" such as dangerous working conditions, low pay, cramped living quarters, long hours, etc. I gladly grant that these are generally not preferable. Most people, including myself, don't want to work fifteen-hour days in a dirty, dangerous factory for a pittance. However, that doesn't automatically make such a situation an "evil" one.

There was, as Shelley notes, a great immigration into cities from the rural area during this time, and this should tell him something very important. That is, although factory work and city life was not ideal, it was better than the alternatives according to the preferences of the workers. They believed that they were better off in the city than if they had stayed in the country.

Seen from the individual's perspective, these "social evils" evaporate into thin air. In actuality, it was these social evils that were making the everyday worker better off.

The Man Without a Plan

In times of crisis, hysterical people are want to cry out "Somebody do something!" There is a feeling that action must be taken and that it must be taken decisively. This is the perspective that Amartya Sen offers in his scathing review of William Easterly newest book, The White Man's Burden (yet to be released).

Sen's perspective on development economics differs widely with Easterly's. On the one hand, Sen recognizes that Easterly has brought up important issues:

"[he] is also right to note that the failure of many grand schemes results from their disregard for the complexity of institutions and incentive systems and their neglect of individual initiative, which must be societally encouraged rather than bureaucratically stifled."

Greater attention to the formal and informal institutions is critical when considering aid to developing countries. If a blind eye is turned to theses, incentives are easily distorted and result in tragedy. The first half of Easterly's first book, The Elusive Quest for Growth, is an ample source of examples of such.

On the other hand, Sen feels that Easterly is overly exuberant in his castigation of planners and insufficient in argument. Sen believes that Easterly's greatest oversight is his failure to understand the distinctions between different types of economic problems. Sen argues that there is a fundamental differences between the market for Harry Potter books and the products that are needed to save the lives of poor populations. Easterly allegedly eschews this distinction in favor of supporting an entrepreneurial driven market solution.

In short, Easterly believes that property rights and markets will allows "searchers", i.e. entrepreneurs, to bring prosperity to countries that are mired in penury. Sen interprets this "hands off" approach as actually being no plan at all. He suggests that minor tweaking of current organizations and projects will in fact deliver the desired results.

Indiana's road to freedom

In a surprising move by the Indiana state government to make their principality more efficient, the State seems poised to sell the 157-mile Indiana Toll Roll to a Spanish/Australian partnership. Under the proposed deal, Cintra (Madrid) and the Macquarie Infrastructure Group (Sydney) would pay $3.85 billion for the rights to maintain, operate, and profit from the highway. Senate approval awaits; the House has already given the go-ahead.

Indiana, by the way, is rated at number 10 in Fraser's Economic Freedom of North America, a ranking of American states and Canadian provinces.

The privatization of the roads is starting to gain steam. Here's a list of non-interstate toll roads in the U.S.; a handful of them are privately held.

Since we here at TPS believe in the vitality of a wide spectrum of ideas, here's an enjoyable post that does not support the Indiana toll road proposal. A personal favorite: "...the very fact that the privatization of state roads in on the table is a troubling development that only encourages other enclosures of the commons." It is unclear whether the author believes that roads should be provided by those according to ability to those according to need. Nonetheless, objections to toll roads are usually along these lines.

Governments have no incentive to maintain roads to any level of respectability because they will receive payment (in the form of taxes) regardless of their actions. A state-run toll road is no solution either. Government-run toll roads simply impose an additional cost on top of taxes proportionate to those who use the road; while the matching of use with payment is a step in the right direction, the government can ultimately use the power of taxation in order to support any road, toll or otherwise, it so chooses. The government just doesn't have the incentive to run a road well.

The important aspect of privatizing roads is that the new owners become residual claimants on their recently acquired asset. Cintra and Macquarie have every incentive to make sure that their road runs flawlessly; after all, they can not resort to John Q. Public to compensate for their mistakes. The road will be better maintained. Improvements will be done in a more expeditious manner. Those that do not derive benefit from the road will not be coerced into paying for it.

There is no doubt that privatizing the Indiana Toll Road is a move away from the red tape of state road management and a move towards a better, more efficient roadway system. Congratulations to the Indiana State Legislature for seeing the road from the potholes.

How much more regulation is left in the tank?

There's a been quite a bit of hubbub over Exxon's record profits for the fiscal 2005 year-- $36 billion at final count. (For a sense of scale, that puts them right above the 2004 GDP of Croatia, and ahead of Luxembourg, Iceland, and Estonia.) Some choice quotes:

- Senator Barbara Boxer (D-CA): "Working people struggle with high gas prices and [oil companies'] sacrifices appear to be nothing."

- House Speaker Dennis Hastert's spokesman Ron Bonjean: "The message is basically that while it's not the American way to punish success...what are [oil companies] doing to bring down the costs?"

- Senator Arlen Specter (R-PA): "We intend to do something about [rising prices to consumers]...It just may be time to legislate in this field."

Moreover, those ciritical of Exxon's profit level have called for an excess profits tax, and the FTC is looking into whether the oil companies varied production levels and manipulated prices.

Excess profits tax? Economics aside-- even if there were justification for imposing such a tax, how could you ever impose it in a non-arbitrary manner? At what level to profits become "excess?" (My cousin made a killing selling lemonade for $3 a glass last summer-- isn't that a bit "excess?") Is it on a percentage basis, or do we all just get intimidated by big companies that generate a lot of revenue simply because of their size and draw the line at, say $10 billion? Taxes don't help anyone outside of the people that levy them-- that much is easy to see. But they are a part of everyday life, so I think that all you can hope for is that they apply to everyone equally. With this excess profits tax, not only will it not apply to big companies in the same way it applies to small companies, but all large companies won't even be treated the same. I've heard plenty of talk about hammering the oil companies; the Wal-Marts of the world seem to have been spared the crosshairs (at least on this issue). Interest group politics, indeed.

One figure that shouldn't be overlooked: Industry profit on gasoloine is an "excess" amount of 9 pennies per gallon. In light of the prices at the All-Star Express in Morgantown this morning, that amounts to a 3.9% take on the sale. 3.9% is excess? What does that make the 35% that the IRS imposes on the top income bracket?

The message that Congress wants to send to oil companies is to maximize the volume of their activities, not the profitability. I might be wrong, but didn't the Soviet Union try that with all of their companies for about 70 years?

Hero of the day: BB&T

Eminent domain is one of worst violations of property rights to which the government can resort. Previously used to commandeer private land for public use, the Supreme Court ruled in June that cities can now redistribute private property to other private hands to "promote economic development." (Is it me, or does it seem that Justice Stevens is almost apologizing while delivering the lead opinion of the Court?)

There's plenty to say about eminent domain; plenty has already been said. I'll offer a Ludwig Von Mises line: Progress cannot be organized.

Thus, it is wonderfully refreshing to see that BB&T, a growing bank in the eastern half of the United States and the top financial institution by market share here in West Virginia, will not make loans to developers whose projects involve land taken from private citizens through eminent domain. The Washington Times has an article on it here. A number of other papers picked up the AP story as well.

Indeed, as BB&T's chief executive John Allison notes, "the dollar amount is insignificant." BB&T stands to lose less than one percent of its lending business, and there is no shortage of financiers for eminent domain-related projects. But the message is an important one-- companies can take a definitive stance against eminent domain. After all, while BB&T could often be privy to the sleight of government hand, it may well be them on the wrong end of the coercive sword the next time around.

BB&T's stance does raise the issue of corporate responsibility. In the interest of maximizing shareholder value, should BB&T be refusing loans based upon philosophical difference? It comes down to which effect is larger-- the negative impact from foregone profit opportunities on passed over loans, or the positive impact of more funds to loan from like-minded depositors. We know that the balance sheet impact is "insignificant," so even if the announcement generates no net inflow of loanable funds, the whole deal would be a wash.

Balance sheet implications aside, BB&T is free to run its company according to any moral standards it chooses. They have made their values clear; shareholders can react accordingly.

One bank's stance against eminent domain is valuable not in its immediate fiscal impact but in the message it sends. If other institutions chose to do the same, then the impact could be palpable. It would be a glorious market-based solution to a government-created problem.

Hamas = No Harm

As the Hamas parliamentary election victory changes the face of Palestinian politics, many critics anticipate there will be an increase in violence, political instability, and social turmoil. I am only a dilettante when it comes to theories of war and conflict, but I am skeptical of these claim. I see two reasons why this election might moderate violence rather than enhance it.

First, Hamas has, in essence, transformed itself from a roving bandit into a stationary bandit. They now have an incentive to maintain social and economic systems in order to facilitate the future attainment of taxes, power, and prestige. As the status quo, they now have a incentive to reduce potentially disruptive terrorist activities for their own benefit. Despite their threats against Israel, this election has given them a lot to lose from frivolous military action.

The second force acting against greater violence is that terrorism is more difficult to fight than wars between nation states. As Martha Crenshaw writes in "The Strategic Logic of Terrorism", terrorism is a weapon of the weak -- of those not represented by governments. The Hamas victory has indelibly linked the group with a nation state. To an extent, they have lost the ability to engage in stealthy terrorist activities. Furthermore, the United States and other countries can now blame Hamas and the state of Palestine for terrorist activities even if they are not responsible. This will create some incentive for Hamas to regulate terrorism even if it is towards goals which they approve.

These two reasons alone are not enough to be carefree about the situation in the Middle East. Clearly, these could be very troublesome times. These are, however, two reasons to hope that the pessimism of journalists and political commentators is misplaced.

Your taxes, their dictators

Parade Magazine, the inserted Sunday magazine in a wide swath of the nation's newspapers, just published "The World's 10 Worst Dictators." They add 11 through 20 here. Rankings always make for a good time, don't they? Why should dictators be exempt?

(As a side note-- if you are ever looking for comedy online, read the comments by readers at the bottom of articles like this one. Someone out there has to filter these, so you know they have to have a sense of humor about them. I particularly like this jewel: "Read Noam Chomsky or Michael Moore if you can not read articles of Nelson Mandela." That might be the best sentence I've read all year.)

Anyway, here's the breakdown by region: Africa 7, Non-Southeast Asia 4, Southeast Asia 3, Middle East 3, Europe 2, and North America/Caribbean 1. I'd be willing to bet that, Israel witheld, if you were to rank the same regions in terms of development assistance received, you'd get an order that would be pretty similar.

But what about these particular countries under the rule of these particular despots? Are they getting development aid in the face of horrific rights atrocities? Well, a quick visit to the World Bank's World Development Indicators shows that the DAC has given money to every single one of these regimes. Some examples are below. If there's enough demand for it, I'll put up the data for all twenty dictators with their respective U.S. shares.

And how does the United States fit into the mix? Studies have shown that the U.S. tends to give development assistance primarily for the pursuit of democracy, so it would be surprising if the U.S. gave any significant amount of money to these leaders.

Yet they have-- and quite a bit in some cases. The DAC figures include all money given from the 23 member countries, but USAID gives just the U.S. portions. I like to think of the resulting percentage as the share of dictatorship that the United States has bought into for each country.

Foreign aid doesn't cause economic development-- Bauer liked to say that money was the result of growth, not the precursor to it. Despite the wishful thinking of first-world countries, aid doesn't cause democracy either.

Some examples:

1) Omar al-Bashir, Sudan. $6.31 billion in aid, $1.04 billion from the United States, for a 16.5% share.
2) Kim Jong-il, North Korea. $1.07 billion in aid, $581.5 million from the U.S., for a 54.3% share.
3) Than Shwe, Burma (Myanmar). $1.26 billion in aid, $31.8 million from the U.S., for a 2.5% share.
4) Robert Mugabe, Zimbabwe. $7.41 billion in aid, $1.13 billion from the U.S., for a 15.3% share.
5) Islam Karimov, Uzbekistan. $1.5 billion in aid, $385.4 million from the U.S., for a 25.7% share.
8) Saparmurat Niyazov, Turkmenistan. $348 million in aid, $143.4 million from the U.S., for a 41.2% share.
12) King Mswati III, Swaziland. $698 million in aid, $155.1 million from the U.S., for a 22.2% share.
13) Isayas Afewerki, Eritrea. $1.97 billion in aid, $364.8 million from the U.S., for a 18.5% share.
14) Aleksandr Lukashenko, Belarus. $702 million in aid, $153.5 million from the U.S., for a 21.9% share.
17) Pervez Musharraf, Pakistan. $6.59 billion in aid, $1.11 billion from the U.S., for a 16.9% share.
18) Meles Zenawi, Ethiopia. $8.2 billion in aid, $1.86 billion from the U.S., for a 22.7% share.

Creative Destruction and Economic Calculation

Ludwig von Mises's debate against Socialism in the 1920's was an important step in the development of economics. He argued that economic calculation, and thus economic growth, is not possible when government owns the means of production. This point is well-accepted amongst Austrian, and many neoclassical, economists. This idea, however, is not accepted amongst most politicians.

Donald Williamson, mayor of Flint Michigan, has proposed that the city own and run an assembly plant. The article quotes Williamson:

"We will (build) our own manufacturing plants that the city funds" he said. "We are going to specialize in nothing but truck accessories."

There is plenty of factory space available and people who are used to working on the assembly line. And once the city proves the plants can make a profit, buyers are certain to come knocking, Williamson said.

Not everyone in Flint agrees with Williamson. Paul Keep, editor of the Flint Journal questions the mayor's plan: "It seems like the private sector ought to be the one developing plants and not the municipality."

I see two significant problems with this policy proposal. First, the unemployment caused by failing assembly plants is certainly difficult for those who lose their jobs, but it is this process of "creative destruction" that is the source of the economy's strength. This process forces resources into more productive pursuits. Second, the government is distorting the system of relative prices that is required for economic calculation. Admittedly, it is only an intervention and not total socialism, but it will distort the efficient flow of resources. Preventing these two forces will slow the economic growth that the people of Flint, Michigan so desperately desire.

While Mayor Williamson may be ideologically drawn to partial (whole?) state ownership of the means of production, his policy will do much to limit the economic prosperity that comes as the result of market prices and the perennial gale of creative destruction.

Always more regulation...always

Wal-Mart is a popular scapegoat for everything people feel is wrong with corporate America. Health care coverage for employees is as hot a topic as any, and Wal-Mart takes its fair share of abuse on this topic. Enter the Fair Share Health Care Act, West Virginia's latest stab at retaining the bottom position on the Fraser Institute's Economic Freedom Index. A general run down of the situation as it pertains to West Virginia is here. (If nothing else, the Mountain state has proved its bills are as lyrical in name as any.)

The bill mandates that all companies in West Virginia that employ 10,000 or more employees spend at least 8 percent of their wages on health care costs. Given that only Wal-Mart would be subject to the legislation, this isn't a bill about health care as much as it's another competitive obstacle that Wal-Mart has to hurdle to keep their company moving forward. After all, if this were about health care, why not have every company be required provide some degree of health insurance? What makes Wal-Mart employees particularly susceptible compared to, say, supermarket employees?

Of course, even if the bill were to pass and Wal-Mart became subject to its provisions, there's any of a number of actions it could take to side step the blow. Wal-Mart currently employs a little more than 12,000 West Virginians; they could simply cut back operations until their employment fell below the 10,000 mark. Who would suffer more-- Wal-Mart, or the community which Wal-Mart served with lower prices and employment opportunities? Without scaling back operations, Wal-Mart could simply reduce cumulative wages by the amount they would be required to pay in health-care. Nothing would change with respect to the bottom line for the company, nor would the employees be receiving less in value for their labor-- but they would be limited in their choices in how to spend their own money. As such, every employee would be weakly worse off by the legislation.

As is so often the case with legislation, the intended targets of new laws are often not the ones actually effected. Instead of hampering Wal-Mart's ability to compete by increasing their costs relative to their competitors, the Fair Share Health Care Act threatens the communities and the employees of the retail giant.

It took two volleys from the Maryland State Legislature to get their Fair Share Health Care Act passed-- one to get it to the governor's desk, and another to override his veto and turn it into law. As a West Virginia resident, here's to hoping that our legislature isn't as...persistent.

Discrimination or Basic Economics?

According to ABC News, "six female employees at the Wall Street bank Dresdner Kleinwort Wasserstein Securities LLC are trying to break the proverbial glass ceiling with a $1.4 billion sex discrimination lawsuit". The women alleged that they were "passed over for promotions, and generally treated as second-class citizens at the firm". They are pursuing the lawsuit with the hopes of making the world a better place for their daughters.

I am very skeptical of the economic merits of this case. These six women allege that they were not paid what they were worth -- presumably their discounted value of marginal productivity. If these workers are paid less than they are worth, why didn't another company act as an arbitrageur and offer to pay them more? In fact, it seems like an alert entrepreneur could hire an entire firm of women who are allegedly paid too little and earn economic profits. Why hasn't this been done? The most likely answer to me is that they are already being paid a wage commensurate with their business abilities.

The women's attorney, Doug Wigdor, argues that discrimination is obvious considering that "Under 2 percent of the managing directors at the bank are women". This is a common fallacy. A grouping of a particular people does not automatically prove there has been discrimination. It may be that women have not worked in the industry as long as men or that they have different educational qualifications. "2%" is not compelling justification by it's own right. To be a bit more controversial, some people have argued that women are different than men. Some scholars believe that while men and women have the same average intelligence, the variance is greater for men. This explains, among other things, the greater proportion of men in top positions and the greater number of men in prisons and homeless shelters. Should we be upset that there are fewer female beggars than male?

Lastly, it might be that the consumers in general prefer men over women and this is the reason for the alleged discrimination. If so, this lawsuit is completely misdirected. The company should not be forced to pay because they were successfully serving the needs and biases of their consumers.

Trophy Hunting

According to the AFP:

Trophy hunting should be encouraged as a way to protect the dwindling number of African lions facing habitat loss and other threats, a group of conservationists has said. "Regulated trophy hunting was not considered a threat, but rather viewed as a way to help alleviate human-lion conflict and generate economic benefits for poor people to build their support for lion conservation," said a statement from the IUCN-World Conservation Union...

The first key element of economics is "Incentives Matter". This new policy approach towards lions will go a long way to aligning incentives in the best possible way. It now gives poor people an incentive to encourage lion populations because of the substantial sums of money they are worth. This is no small feat; the article notes that "the reality is that lions in Tanzania alone attack over 100 people every year, and they kill over 70 people every year". By allowing a market to develop legally, these people now have an incentive to actually save the lions rather than kill them indiscriminately.

My concern is over the article's statement that trophy hunting is a way to "generate funds that could help governments deal with problem animals." I have few concerns if this simply means that trophy hunting will be taxed like any other product. If so, it carries the same inefficiencies as any other tax. I fear, however, that the government is taking ownership of a portion of the lions or the land that the lions inhabit. If this is the case, this will lead directly to a tragedy of the commons problem. This occurs when individuals share ownership of a piece of property and cannot guarantee use of a portion of that property in the future. The result is that each individual is better off consuming the property now rather than waiting for a more profitable future use. In the future, another own of the owners of the property is likely to have already consumed it.

I hope for the sake of the poor in Africa that the trophy hunting is made legal and ownership of the lions has been given to people in local communities. This will result in a healthier lion population and a wealthier African population.