Wednesday, March 9, 2011

Random Reflections: 3/9

This post on my favorite blog takes a stab at the gloomy pessimism of the current environmental debate. A point Boudreaux hints at, but doesn't really emphasize, is that there is often confusion over what constitutes a "resource". Nobody cares if we run out of light bulbs; we care if we run out of sources of artificial light. One point about resources that many economists like to make is that we will never run out of resources like energy, not that we will never run out of "resources" like oil. Either we find more efficient methods of production, such as better oil extraction, or we find completely new ways to get the same resource, such as solar power. What matters is the light, not the light bulb, and since we have the profit incentive to spur innovation, resources aren't an issue.

There's not much I can add to this excellent post by Scott Lincicome. It’s a bit long, so I'll summarize:

  • Cotton producers have gotten the Federal Government to give them big subsidies so that they can compete on world markets
  • These subsidies violate WTO rules, so the US Government pays Brazilian cotton manufacturers $140 million a year to prevent the Brazilian government from imposing retaliatory tariffs
  • This means that American consumers face higher cotton prices because of the subsidies AND pay Brazilian farmers $140 million a year to prevent damaging tariffs that wouldn't be a threat if the subsidies didn't exist in the first place
  • The House, even most of the "fiscally conservative" Republic party, voted against ending these payments and have made no attempt to reform these ridiculous subsidies

A well-written article on government "investment". I think that the crucial takeaway is the reminder that public investment often comes at the expense of private investment, not in addition to private investment. This is obviously bad, since in the private sector investors care whether or not their investments are socially useful (i.e., make a profit), while in the public sector the politicians and bureaucrats who are responsible for investing care about maintaining their position. Since their positions are most effectively held by catering to special-interest groups and not by investing wisely, they act accordingly.

This phenomenon is costly and unfortunate, but can easily be explained. The bureaucrats who work in the FDA don't receive benefits from saving lives by allowing treatments to enter the market, but they do face punishment if a patient is harmed by a device that was allowed to go to market without extensive testing. This causes them to ignore the unseen costs of dollars and lives that are wasted because life-saving treatments were delayed before they went to market, only taking into account the lives and dollars that are cost by allowing a product to go to market too early. This biased cost-benefit calculation results in medical products and procedures being unnecessarily delayed.

Also worth reading: David Henderson's take on how unions affect the lower class