Organ Market Ethics

It is hard to find an economist who agrees with U.S. law on organ markets. Currently it is illegal to sell your organs to another. This law means we watch tens of thousands of people needlessly die every year in the U.S. and we deny yet another avenue for the poor to find an escape. The current system blatantly favors the rich who have the networking ability to get their name to the top of the list, generating an enormous amount of inequality. Curiously, those who raise "ethical" objections to organ markets seem to get this backwards. Regardless, biochemist Stephanie Murphy at U Mass-Amherst has written a nice short essay titled "Eight Ethical Objections to an Organ Market...And Why They're Wrong."
Hat Tip to the Perfect Substitute.

Proud to Serve the Dismal Science

Courtesy Robert Dixon:

Carlyle puts the view that 'work' is morally good and that if a "Black man" will not voluntarily work for the wages then prevailing he should be compelled to work. He writes of those who argued that the forces of supply and demand rather than physical coercion should regulate the labour market that: "the Social Science ... which finds the secret of this Universe in supply and demand and reduces the duty of human governors to that of letting men alone ... is a dreary, desolate, and indeed quite abject and distressing one; what we might call ... the dismal science"

In short, economics became the dismal science because everyone is treated as equally important and defends the right to pursue happiness regardless of the manner in which society views them. Slaves, CEO's, and Mexican immigrants all receive equal treatment for their role in society from the economist.

NAFTA + Ohio = Good Economy

Though you wouldn't know it if you listened to the politicians stumping in Ohio for the primaries, Ohio has benefited enormously from free trade, especially from the NAFTA agreement. If we stopped all international trade, it would not bring back those manufacturing jobs (jobs which were created by trade in the first place). Consider the unemployment rate in Ohio and Cleveland since January 1993 (Month 0), the start of NAFTA (other Ohio cities do not go back that far):
Since the start of NAFTA, Ohio and Cleveland have never experienced more unemployment than the month it began, which was not a historically high level anyway. Even during the recession, unemployment only got as high as 6.5 percent, which is still low by historical standards. Unemployment rate is by no means the only important statistic on labor force activity, but it is reflective and probably a surprise to those who listen to wanna-be presidents.

More China Fantasy

This is from Economist Greg Mankiw's Blog:

From a recent Gallop Poll:

"Which one of the following do you think is the leading economic power in the world today?"
China: 40 percent
The United States: 33 percent
Japan: 13 percent
The European Union: 7 percent
India: 2 percent
Russia: 2 percent

Here is the reality, as I have said before, we are economic giants:

Economics of Universal Health Care

A student stopped by my office today and asked for materials on the economics of universal coverage. Apparently his instructor in Social Work class showed the movie "Sicko" and used the opportunity to rail for government provided health care. He asked for a few quick links to gather material for a 5-minute defense of markets. Below is a copy of the e-mail I sent him, you may find it informative as well:

A podcast on the topic:
http://www.econtalk.org/archives/2007/11/arnold_kling_on.html

A good case study:
http://www.marginalrevolution.com/marginalrevolution/2008/02/cherrypicking-1.html#comments

Video of Economics of Health Care:
http://www.youtube.com/watch?v=84CDvTfz_y4

This article is written for a general audience and is very good:
http://i.abcnews.com/2020/Stossel/story?id=3580676&page=1

Academic Study:
http://www.nber.org/papers/w13429
It's main points:
1. You cannot compare U.S. and Canada's life expectancy or infant mortality because of innate population differences
2. Once you have been diagnosed with a condition, you are much more likely to die in Canada than in the U.S.
3. Point 2 is partly due to the fact that it is much more difficult to be screened for problems, and thus you are diagnosed much later in the prognosis.
4. Income is at least as important in Canada, and probably more important than in the U.S. This is known to be true for Britain, especially for Children's Health (see http://www.nber.org/papers/w13495)

Finally, make the point that a profit driven system induces innovation in the advancement of medical technology. We invent cures for profit much more quickly than we do for the feeling of "doing good". The U.S. is the leading innovator in developing new drugs and technologies, the rest of the world just copies what we accomplish. This makes it less expensive for them (and more expensive for us) to achieve the same level of technology and drugs. If we stopped doing this, they would be in a much worse situation. For an analogy, suppose you put nice siding on your house, and your neighbor comes over and rips it off and puts it on his house. Then people come by and say, "Wow, your neighbor's house looks so much better, and he did it at a much lower cost!" That is what world health care is like.

McMillionaires

In an excellent article on the fastfood industry, George Will makes a statement about the McDonalds franchise system that shocked me for a second before I realized that it should have been obvious that this would be true:

McDonald's exemplifies the role of small businesses in Americans' upward mobility. The company is largely a confederation of small businesses: 85 percent of its U.S. restaurants -- average annual sales, $2.2 million -- are owned by franchisees. McDonald's has made more millionaires, and especially black and Hispanic millionaires, than any other economic entity ever, anywhere.

I would bet that many of the McMillionaires started out with McJobs.

China to Regulate Reincarnation

Seriously.

Painfully Predictable

Communist China and Socialist Venezuela have just passed the U.S. in income inequality. That is, the two have greater income inequality than us.

Not unrelated, Venezuela's brilliant leader figures he'll close out a career of shutting down government checks and balances with a lifetime position has head hancho.

There was no need for Vegas to try and give odds for either of those outcomes, they're pretty much gurantees.

"The society that puts equality before freedom will end up with neither. The society that puts freedom before equality will end up with a great measure of both". ~Economist Milton Friedman

Zimbabwe, Price Controls, and Socialism

Zimbabwe has arrested 7,500 since the enactment of price ceilings on many necessities on the convoluted logic that this is will curb inflation. While there are many lessons in this story, there are three big demonstrations of economic principles at play here in the story.

1. The story demonstrates the shortages created by price ceilings (Qd>Qs).
   
   
2. The price ceilings fail because black markets replace the legal markets, so you never actually get a reduction in price anyway:
   
   The price cuts have left shelves bare of corn meal, meat, bread, eggs, milk and other basics that sell for at least five times the government price on a thriving black market. Local beer became the latest item to disappear Monday. Acute shortages of gasoline have crippled commuter transportation and prevented manufacturers delivering diminishing stocks to retailers.
   
   
3. This is a demonstration of how ultimately socialism must resort to totalitarianism, that the idea we can have social freedom without economic feedom is flawed (See here for Nobel Prize Economist Milton Friedman explanation of this).
   
   "Some are ... saying they will not supply goods and services but we say you will," Mugabe said, according to state television.
   
   

Are textbooks too expensive?

An article on CNN reports the new political debate regarding the "high" prices of textbooks. There are a number of problems with the discussion in the article. I just decided to enumerate a few of them:
1. The student estimates he spend $4,500 for a career in college on textbooks. My guess is that he choose to ignore the fact that he probably was able to sell them back for a figure less than that which would probably lower that figure by 60%. The article later states that the average student pays $900 per year on textbooks and supplies, which is no where near what this guy spent. That figure also excludes the resale value.
2. Ambiguous regulations for professors to be cost-conscious. I do not know a professor who does not take this approach already. While there is technically an incentive for professors to choose high prices, there is much more incentive to choose the best book at the lowest price. If I choose the most expensive book, it probably would only earn me an extra few dollars on the resale market. However I would lose much more valuable time in answering questions for students who do not buy the book because it is too expensive or do not understand the book because it does not match my lecture very well. Chances are this regulation would do much more harm than good.
3. Textbooks are the "hidden" costs of education. This was claimed by Rep. Frank Moe. Frank apparently believes people are systematically stupid. Everyone knows that they will spend money on books and they include that estimate in their own cost-benefit analysis of enrollment. While they may over or underestimate the cost, on average they will be right. To say that no-one realizes the costs of textbooks is equivalent to saying everyone who plays darts will miss the bulls-eye to the left.
4. Much of the article is accurate in explaining why textbooks are expensive relative to other books, but they miss a big one. Comparatively low sales volume and a used book market that cannibalizes future sales are good reasons to expect prices to be high relative to the books at Barnes & Noble, but local monopoly power is a big reason too. See fellow Econ professor John Whitehead's blog post against high book costs for his students for a nice explanation.
5. "The textbook industry pulls in more than $6.5 billion dollars a year...." I don't know what this means, or what it is supposed to imply. It sounds like from the sentence that this is the industry revenue, which means nothing as profits might be really low due to costs. I don't know if this is the case or not, but I also think that there are many textbook companies, so this would be distributed among many suppliers and the economic profit would be low. I also suspect that this is a risky industry, so we should expect there to be some economic profit.
6. What is the alternative? Regulations will increase costs, causing prices to rise. You can pretty much guarantee that if the university or the government takes over the industry, both its quality will decline and prices will rise. Just look at the post office, DMV.
7. Rick Howden complains of buying books he never opens. Whose fault is that? If you weren't going to use it, why did you buy it in the first place?