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

Random Reflections: 2/7

Russ Roberts has an interesting piece about the recent financial crisis. It’s a commentary on an essay by Robert Samuelson, who outlines the Left and Right's respective explanations for the financial crisis, and why they are both wrong. Samuelson argues that the Right's moral hazard explanation, in which they argue that the collapse was due in part to government bailouts artificially increasing risk-taking, is faulty because investors largely weren't shielded from losses in this financial collapse. Roberts points out that this is irrelevant, because creditors were protected. This caused banks and other bondholders to continue to lend to companies that were overly risky because they expected bailouts.

The Washington Post has a remarkable article about the pace of global poverty since 2005. They report that during this six-year period, over half of a billion people were lifted out of extreme poverty. This is a remarkable achievement on its own, and it seems that the trend will continue in coming decades. In my opinion, public discourse focuses far too much on charity and "solving" economic inequality. While charity and generosity are certainly commendable, this article reminds us that economic development is the best way to reduce poverty.

Jeff Jacoby has an excellent article about the current state of US manufacturing. He does a great job explaining why the mainstream idea that the US manufacturing sector is in decline is bogus. My favorite stat is that "Americans manufactured more goods in 2009 than the Japanese, Germans, British, and Italians — combined". The only sense in which American manufacturing is in decline is in the sense that there are fewer manufacturing jobs as a result of higher productivity. What this really means, however, is that more people are free to work in other sectors than ever before, while at the same time those who are in manufacturing are getting paid higher wages than ever* (remember that wages are derived from worker productivity). Unfortunately, Jacoby neglects the fact that US manufacturing superiority is economically irrelevant. What matters is our standard of living, and if other countries can sell us goods at lower prices than we can make them ourselves while we produce something else, then we're all the better for it. There is no reason to think a decline in US manufacturing output, as long as it is accompanied by an increase in output in some other sector, has a negative effect on our economy. Don Boudreaux makes a similar point here.

*Two Centuries of Compensation for U.S. Production Workers in Manufacturing, Lawrence H. Officer, Professor of Economics at the University of Illinois at Chicago, 2009, Page 171, http://books.google.com/books?id=UHuW43F1i5QC&lpg=PA177&ots=Mraf7EHRBs&pg=PA171#v=onepage&q&f=false, through here

The Path to Universal Healthcare

To start with, I'd like to make clear that I'm not supporting or attacking Obamacare. I don't know nearly enough about the bill to do that in an intelligent way. Instead, I'd like to add my thoughts to the debate on the concept of universal healthcare.

I find it highly desirable that everybody have access to healthcare. However, I don't think that anyone has a "right" to healthcare. Saying that poor people have a right to healthcare means that other people have the obligation to provide it for them. In its extreme case, this obligation could mean that the government has the power to require people to become doctors, force doctors to work more hours than they would like, prevent doctors from retiring, and compel citizens to pay higher taxes, all in the name of providing universal healthcare. That doesn't seem right to me.

Further, it doesn't seem right to me that if society decides it wants to spend $X on helping poor people that we should force these poor people to buy healthcare. They may want food, or an apartment in a better neighborhood, or to send their children to a better school more than they want healthcare. I don't feel comfortable telling other people how to spend their money, and I therefore don't think tax dollars should be spent buying health insurance for the poor.

The way to help poor people get health insurance isn't by buying it for them, its by getting them out of poverty. While reasonable and intelligent people will disagree, I think that the clear way to do that is to enact market reforms that create a freer economy. This spurs economic growth and moves people out of the lower class, enabling them to buy health insurance.

As far as healthcare reform goes, our current system is clearly not working. It's obvious even to a casual observer like myself that the market is filled with inefficiencies and a lack of competition, and my basic economic intuition tells me that reforms which increase competition will improve quality while driving down prices. This makes everyone better off without forcing obligations on anyone.

The Truth about "Sweat-Shops"

I have often suspected that there was something amiss about the argument in favor of imposing minimum wages and standards for working conditions on sweat-shops in poor countries. If people are willing to work in them, shouldn't they be allowed the opportunity? I'd love for everyone to make $100 an hour and work in comfort, but I suspect that the way to get there is through economic development and not through government regulation. Paul Krugman makes this argument more elaborately and intelligently than I can here and here. Let me know what you think.

Free Trade Victories

Free trade is on the verge of several victories worldwide. According to the NY Times, the Obama Administration has asked Congress to pass a Bush Administration free trade agreement with South Korea after the midterm elections. The administration has committed to tying the removal of South Korean restrictions on beef and auto imports to the agreement. This is great news for the hard-hit American auto industry, as it will be more competitive in the South Korean market and could help fuel an American economic recovery.

Talks between Taiwan and China also look promising. While the agreement on the table between the two nations has serious flaws (such as a 10-year Taiwanese fund to keep some businesses competitive after trade opens), it is an encouraging sign. It appears to be a forerunner to China allowing Taiwan to seek free trade deals with other nations free of interference, which is good for both Taiwan and the rest of the world. It is likely that this agreement, which heavily favors the Taiwanese, is a move to create sympathy for reunification with China on the island. In spite of this, I still think that Taiwanese nationalists should welcome the easing of trade restrictions.