Yesterday, Tyler and I met with Tom Vander Ark, the president of the X-Prize Foundation, to discuss and debate the future of prizes.  One interesting bit of trivia that Tom mentioned was that the X-Prize was funded with an insurance contract.  The funders paid the premium and the insurance company agreed to pay if the prize conditions were met.

To figure out how to price the contract the insurance company called "the experts" at Boeing and McDonnell-Douglas.  According to the experts the conditions for the X-Prize to be won (carrying three people to 100 kilometers above the earth’s surface, twice within two weeks) were so unrealistic as to be basically impossible within any reasonable time frame.  Thus, the funders got lucky.  The insurance company offered the contract at a very low premium and the rest is history!

The X-Prize Foundation is doing exciting work.  They are building on the huge success of the Ansari
X-Prize to launch many more prizes.  Prizes in auto technology and
genomics have already been announced and the foundation will be funding
many more prizes in the future (You can suggest a prize here).

Systems of actual socialized medicine, like Britain’s, are actually
very good at saying no: there’s a limited budget, and the medical
professionals who run the system set priorities. That’s the reason
British health care delivers results better than ours, at only 40
percent the cost – there are long waits for elective surgery, but
that’s because doctors think that it’s not a high priority…

Krugman gets points for a mostly honest description but he is a lousy salesman. Is there any doubt that most people reading this will say "no way, not in America."?

In 2002, the STAR program (Supplemental Terrorist Activity Relief) authorized the Small Business Administration to guarantee loans to businesses that were "adversely affected" by the attacks of 9/11.  At first the loans were not taken up because most businesses didn’t think they were adversely affected but in true bureaucratic fashion the SBA wanted a bigger program so they announced:

…the SBA believes that a very large percentage of small business borrowers located in areas throughout the country may be eligible for the STAR program.  In guaranteeing a STAR loan, the SBA will rely on the lender’s determination that a small business was adversely affected by the terrorist actions. When performing compliance or loan purchase reviews, the SBA will be looking only to verify that the lender documented its evaluation of the small business’ eligibility for the STAR program. The SBA has not established any requirements regarding the severity or duration of the adverse impact that the small business suffered.  (italics added).

Are you surprised that Office of Inspector General could not find any terrorism connection to the vast majority of the loans?  More than 3 billion dollars were guaranteed including millions for Subways.  Protecting public transport, right?  No, protecting America’s sandwich demand.  There was also $22 million for Dunkin Donut franchines in nine different states, and guarantees for a Salt Lake City "dog boutique," a South Dakota radio station, a Virgin
Islands perfume shop and much else besides.

Interviewed by the FT Ned Phelps has this to say:

Phelps feels that he is at the stage in his career “where I can afford
to be as radical as I want to be. And so I am having a lot of fun
thinking about capitalism and trying to imagine how economics would
have to be re-written to capture the heart of that kind of system.”
Traditional economics, he explains, sees the world as if it were a
plumbing system. “It’s basically rooted in equilibrium – things work
out as people expect them to do.” Capitalist reality, however, “is a
system of disorder. Entrepreneurs have only the murkiest picture of the
future in which they are making their bets, and also there is
ambiguity, they don’t know when they push this lever or that lever that
the outcome is going to be what they think it is going to be – there is
the law of unanticipated consequences. This is not in the economic text
books, and my mission, late in my career, is to get it into the text
books.”

Phelps is clearly getting at many of the ideas emphasized by the Austrians, Hayek, Schumpeter and among the moderns my colleague Peter Boettke.

The Federal Reserve Bank of Richmond’s Region Focus interviews Kip Viscusi.  Here is one good bit:

…in the case of Superfund cleanups of hazardous
wastes, the people who benefit from the cleanups are
not paying the costs directly and thus demand the most
stringent standards possible. The result is that the median
cost per cancer case averted is about $7 billion. It’s off the
charts because you are using the responsible parties’ money
to clean up the site. In contrast, if you look at the amount of
money people are willing to pay for houses that are not
exposed to hazardous waste risks, you don’t observe that
kind of large trade-off at all. It’s more like $5 million rather
than $7 billion. Similarly, the premium that workers require
to work in relatively dangerous jobs is a lot less than what
government agencies spend on regulations.