Rent Seeking Kills

by  Alex Tabarrok in

It’s illegal to offer compensation for a transplantable human organ.  As a result of the price control there is a shortage of organs and thousands of unnecessary deaths.  None of this is news to readers of this blog.  The price control on organs, however, kills in another less well recognized manner.  The reduced supply of organs raises their value.  Organ donors can’t capture that value so who does?  Transplant centers.

    Transplant centers are artificially high profit centers because they capture some of the rents generated by the shortage of organs.  As a result, there are too many transplant centers in the United States and each center performs too few transplants.  Practice makes perfect so when a transplant center performs only a few operations a year lives are lost.

Medicare requires that transplant centers perform 12 transplants a year to be certified but many programs are in violation of that standard with little consequence.  Medicare is even thinking of reducing the standard from 12 per year to 9 in 30 months.  As one specialist says "I wouldn’t take my car to be serviced by someone who repaired nine cars over the past three years.  Would anyone do that?"

This Washington Post article has more on the excess number of centers although it doesn’t draw the connection between the organ shortage and the incentive to build a center.  Here’s some data, from the article, on centers local to Washington.

Transplants

Race and Culture

by  Alex Tabarrok in

The NYTimes reports that in Queens the median income for blacks is above the median income for whites, the only large county in the nation for which that is true.  The median income for blacks in Queens, $51,836, is also well above the national median income ($46,000).

What makes the statistics especially interesting is that many of the blacks in Queens are recent immigrants from the West Indies.  Malcolm Gladwell, whose own genealogy traces to the West Indies, recognizes the implication:

The implication of West Indian success is that racism does not really
exist at all–at least, not in the form that we have assumed it does.
The implication is that the key factor in understanding racial
prejudice is not the behavior and attitudes of whites but the behavior
and attitudes of blacks–not white discrimination but black culture. It
implies that when the conservatives in Congress say the responsibility
for ending urban poverty lies not with collective action but with the
poor themselves they are right.

but ultimately he can’t accept the implication and offers instead a strained interpretation.  West Indian blacks are successful only because, according to Gladwell, they provide a convenient way for whites to distinguish "good" and "bad" blacks allowing themselves to pat themselves on the back for not being racist while at the same time continuing to practice racism against the majority black class.

Gladwell offers scant evidence for his hypothesis, the most interesting point being his claim that Jamaican blacks are perceived as bad citizens in Toronto where they are dominant but as good in New York where they can define themselves in opposition to American blacks.  Gladwell’s argument is weak, however, because West Indian blacks distinguish themselves not just in dress or accent but in just those behaviors that also increase income for whites and other successful minorities: they get married and stay married, pursue education, work hard and are entrepreneurial.  Gladwell himself notes:

When the first wave of Caribbean immigrants came to New York and
Boston, in the early nineteen-hundreds, other blacks dubbed them
Jewmaicans, in derisive reference to the emphasis they placed on hard
work and education.

The title of the post refers of course to Thomas Sowell’s classic.

GMU’s Space Tourist

by  Alex Tabarrok in

The amazing Anousheh Ansari grew up in Iran coming to the United States only in 1984 without speaking any English.  With her husband and brother-in-law she started Telecom Technologies in 1993 selling it just a few years later for half a billion dollars.  She used her share of the proceeds to help endow the Ansari X-Prize and also to become, just 10 days ago, the first female space tourist.  She has been blogging from space.  Today, she returns to Earth.

The GMU connection?  She earned her degree in electrical engineering and computing from George Mason University.

Penny Politics

by  Alex Tabarrok in

Eliminating the penny is about the most straightforward, obviously beneficial public policy that one can imagine.  The idea that eliminating the penny would increase inflation is a joke.  (Note also that although many products are priced at _.99 most purchases are of more than one product so many bills are of the form _.01 or _.02 so many bills will be rounded down even when prices are rounded up.)

But politics infects everything even the most technocratic of decisions.  The main lobbying group in favor of the penny, for example, is Americans for Common Cents, which is funded by the zinc industry (zinc being the main ingredient in pennies).  Thanks to AfCC we will have at least four new pennies in 2009 to honor that famous penny pincher Abraham Lincoln.

On the opposite side is representative Jim Kolbe who Sebastian Mallaby calls an Olympian statesman for his opposition to the special interests and dedication to efficiency.  Well maybe, but it’s no accident that Kolbe is from Arizona the dominant producer of copper the main ingredient in… you guessed it… the nickel.

Hat tip to Roger Congleton.

Why Can’t We Have a Better Press Corps?

by  Alex Tabarrok in

Kathleen Day’s article in the Washington Post on Wal-Mart’s plan to offer a $4 price for many generic pharmaceuticals is a classic example, practically a caricature, of anti-market, anti-big-business bias.   Here with emphases added are some choice quotes from the front page article:

Retailing giant Wal-Mart Stores Inc., known for forcing prices down to
dominate nearly every market it enters, said yesterday that it would
sell nearly 300 generic drugs for $4 per prescription…

Using its might as the nation’s largest retailer and its legendary
ability to force suppliers to cut prices to the bone, the company will
begin the $4 price program in its 65 stores in the Tampa area today…

…the program has the potential to transform the $230 billion
prescription-drug business the way Wal-Mart has transformed other
industries, including groceries and toys, where its aggressive pricing
has forced some competitors out of business and allowed it to dominate
entire categories of merchandise.

In the entire article there is not a single positive mention from the reporter of consumer benefits or Wal-Mart productivity.  It’s not until inside the fold that you even get a hint of consumer benefits and then it’s in the context of an absurdly biased attack on Wal-Mart.

Wal-Mart executives, criticized by labor unions and consumer groups
that say the company shortchanges its employees on pay and health care,
said they started the program to help families and retirees, especially
those on Medicare.

The only thing missing is how Wal-Mart executives achieve their legendary efficiencies by eating small children for breakfast.

For comparison the AP story, written by Mitch Stacy, covers the same angles but without bias or rancor and it’s better written.  Here’s the first sentence:

Wal-Mart,
the world’s largest retailer, plans to slash the prices of almost 300
generic prescription drugs, offering a big lure for bargain-seeking
customers and presenting a challenge to competing pharmacy chains and
makers of generic drugs.

The Minimum Wage Fantasy

by  Alex Tabarrok in

MaxSpeak is pushing a letter from economists, already signed by notables Alan Blinder, Clive Granger, Rebecca Blank and others, to raise the minimum wage.  Don’t worry, I won’t bore you with the usual story about unemployment.  A small increase in the minimum wage will have only a small unemployment effect, nuff said.  Nevertheless, parts of the letter strikes me as absurd.  The letter says, for example, that "The minimum wage is also an important tool in fighting poverty."  Rubbish.  But don’t take my word for it. 

The minimum wage is a blunt instrument for reducing overall poverty, however, because many minimum-wage earners are not in poverty and because many of those in poverty are not connected to the labor market.  We calculate that the 90-cent increase in the minimum wage between 1989 and 1991 transferred roughly $5.5 billion to low-wage workers…. an amount that is smaller than most other federal antipoverty programs, and that can have only limited effects on the overall income distribution.

The source? Card and Krueger in Myth and Measurement (p.3).

The letter also states that most of the people earning the minimum wage are adults.  Most workers are adults so this is hardly surprising.  What is more surprising is that 25% of the workers earning the minimum wage are teenagers, even though teenagers are a much smaller percent of the workforce.  In addition, over half the workers earning the minimum wage are younger than 25.  The letter can spin things how it wants but it would be more informative to say that most of the workers earning the minimum wage are young workers who with a little age and experience would have their wages increased in anycase.

That brings me to a second strange statement, the idea that "the minimum wage helps to equalize the imbalance in bargaining power that
low-wage workers face in the labor market."  One wonders how bargaining power is defined.  Do these economists really believe that the fat cats are getting rich slurping up surplus from the low-wage workers?  If you measure bargaining power as a difference between wages and marginal productivity it is surely high wage workers who lack bargaining power.

The real rebuke, however, to the bargaining power idea is this: a lot of people earning the minimum wage are teenagers but more than 90 percent of working teenagers earn more than the minimum wage.  Either most teenagers are very good bargainers or wages depend less on "bargaining power" than on productivity.  Either way the letter is confused.

The debate over the minimum wage is more about rhetoric than reality.