The Price is Right
One of the most bizarre aspects of the organ shortage is that it is illegal to pay for cadaveric organs for use in transplants but it is legal to pay for cadavers. That’s right, it’s illegal to pay people to donate their organs for the purpose of saving lives but medical schools can pay people to donate their bodies so that plastic surgeons can practice their nip and tuck.
In a remarkable paper forthcoming in Cato’s Regulation and reported in the Washington Post, economists David Harrington and Edward Sayre take the argument one step further. Medical schools regularly offer to pay funeral expenses for whole body donation. So does the offer of payment deter altruistic donation and decrease the supply, as we have been told could occur if we were to compensate organ donors? Of course not. In fact, Harrington and Sayre note that the offer to pay funeral expenses is worth more in states where the funeral industry is heavily regulated and thus prices are high and, just as predicted in Econ 101, the supply of whole body donations is higher in those states.
It’s time to lift the price control on human organs, relieve the shortage and save lives.
The Friedman Magic
One of my favorite Friedman papers is "The Effects of Full-Employment Policy on Economic Stability: A Formal Analysis" which you can find in Essays in Positive Economics.
Friedman sets up a very simple model, Z(t)=X(t)+Y(t) where Z(t) is income at time t, X(t) is what income would be if there were no counter-cyclical government policy and Y(t) is the amount added to or subtracted from X(t) by the history of government policy.
You wouldn’t think that much could come out of such a simple model but Friedman takes the model, notes that the formula for the variance of two random variables is V(Z)=V(X)+V(Y)+2 r(X,Y) Sd(X) Sd(Y) (where V is variance, r correlation and Sd is standard deviation) and proceeds to show that:
In order to cut the variance of income fluctuations in half (which would cut the standard deviation by less than a third), r(x,y) must exceed .7.
The result is powerful because once you start thinking about the correlation coefficient, r, it’s hard to see how it could be as high as .7. Very few government actions taken in time t have an effect in time t – there are lags between recognizing a problem, deciding what to do about the problem and implementing a policy. Once the policy is implemented there are lags before the policy takes effect. All of these lags are of uncertain and changing length so actions taken in t-5, t-4, t-3, and t-1, may influence Y(t) making a high correlation between X and Y unlikely. Moreover, Friedman’s bound is an upper bound, requiring optimally sized interventions – when we recognize that the size of the intervention might be too little or too much and that in both cases this will reduce the decrease in variance we have a strong case for skepticism about the efficacy of counter-cyclical policy.
But was Friedman right? In the thirty or so years after he wrote, when counter-cyclical policy was in vogue, the variance of the US economy was much lower than in the pre-World War I years. Reality it appeared, refuted Milton Friedman.
Friedman, however, lived to see his simple model proved correct (Essays in Positive Economics!). In a series of papers beginning in 1986, Christina Romer showed that the pre-WWI volatility was an artifact of the way the data was collected. Once the pre-WWI and post-WWII data were collected consistently, using the same methods, the post-WWII economy showed no big drop in volatility.
Almost nothing in, a surprising and powerful result out, and an implicit prediction proven correct after thirty years. That’s the Friedman magic.
Headaches
Tyler asks, following philosopher Alastair Norcross, whether it could ever satisfy a cost-benefit test for one person to die a terrible and tortured death in order to alleviate the headaches of billions of others by one second. Tyler begs off with "a mushy mish-mash of philosophic pluralism, quasi-lexical values" and moral conceit. I will have none of this. The answer, is yes.
The clearest reason to think that we should trade a terrible and tortured death of one in order to alleviate the headaches of billions is that we do this everyday. Coal miners, for example, risk their lives to heat our homes and to generate the electricity that drives this blog. We know that some of them will die horrible deaths but few of us think that we are morally required to give up electricity.
Banishment II
The Washington Post has an article today on sex offenders and banishment. Georgia is again the focus where a new law forbids offenders to live within 1,000 feet of a school, playground, church or school bus stop. As a result, there are many counties where not a single house meets the requirements. The sponsor of the bill is clear about his goals:
My intent personally is to make it so onerous on those that are convicted of these offenses…they will want to move to another state.
See my previous post on negative spillovers and federalism. And for those whose first thought is to roast sex offenders in hell it should be noted that the list includes "a 26-year-old woman who was caught engaging in oral sex when she was in
high school, and a mother of five who was convicted of being a party to
a crime of statutory rape because, her indictment alleged, she did not
do enough to stop her 15-year-old daughter’s sexual activity."
Women We Love
Emily Oster is featured in Esquire discussing her research on Aids in Africa.
Hat tip to Greg Mankiw.
The Economist on Organ Transplants
The Economist has cogent things to say on setting up a market for organs including the fact that organ sales are legal in, of all places, Iran and the shortage in that country has been eliminated. Here’s another interesting point:
America already lets people buy babies from surrogate mothers, and the
risk of dying from renting out your womb is six times higher than from
selling your kidney.
Hat tip to Harold Kyriazi.
Milton Friedman: Entrepreneurial Economist
Great economist by day and crusading public intellectual by night, Milton Friedman was my hero. Friedman’s contributions to economics are profound, the permanent income hypothesis, the resurrection of the quantity theory of money, and his magnum opus with Anna Schwartz, A Monetary History of the United States, 1867-1960, all stand as great achievements.
But Friedman did not restrict his genius to the academy, he used economics to forcefully argue for a better world. Friedman was a key player in ending the draft, he championed school choice and drug legalization. He not only wrote about floating exchange rates he helped to bring them into being. The end of welfare as we know it? Friedman’s negative income tax was an inspiration.
Milton Friedman loved liberty. Even today, chills run down my spine whenever I read the slashing opening to Capitalism and Freedom.
President Kennedy said, "Ask not what your country can do for you – ask what you can do for your country."… Neither half of that statement expresses a relation between the citizen and his government that is worthy of the ideals of free men in a free society.
Damn right.
On a personal note, Friedman inspired my book, Entrepreneurial Economics: Bright Ideas from the Dismal Science, in which I said Milton Friedman was the greatest entrepreneurial economist of the twentieth century. It was thus a real thrill for me and a bringing around of the circle when I sent him a draft and he wrote back praising the book (see the back cover!).
He will be missed.
The Federalization Fraud
Every time there is a nationally publicized crime some Federal politician stands ready to get tough and pass a law. In recent years, we have had The Juvenile Crime Control Act,
The Church Arson Prevention Act,
The Sex Crimes against Children Prevention Act and so forth leading the naive to wonder why Church arson wasn’t illegal before the act was passed.
Of course, arson has always been illegal and well prosecuted under state law. Federal law is not only unnecessary in many cases it is a fraud. Take the most recent example, the Adam Walsh Child Protection and Safety Act passed this year. The act dramatically increases the penalties for aggravated sexual abuse (or an unsuccesful attempt at such abuse) to a mandatory 30 year prison sentence with no opportunity for parole. The penalties are draconian but here’s the kicker. The penalties only apply to Indians on reservations, citizens of Washington DC and those few offenders who might cross a state line in commission of their offense. No other citizens face anything like these kinds of penalties.
For more on the Theory of Federalism and an application to crime see my powerpoint discussion given last week to a group of Federal judges.
Moral Wiggle Room
If Bob and Alice prefer vanilla to chocolate ice cream then when given the choice we wouldn’t be surprised to see each of them choosing vanilla. Now suppose that Bob and Alice are given the following choice, if either chooses vanilla they both get vanilla only if both choose chocolate do they receive chocolate. If Bob and Alice prefer vanilla to chocolate it seems plausible that they will continue to choose vanilla. But suppose that we observe Bob and Alice choosing chocolate in the second experiment. How might we explain this?
Imagine that chocolate is considered sinful and vanilla is thought to be nice. Bob and Alice might want to be sinful but they choose nice in the first experiment to avoid social condemnation. In the second experiment, however, Bob and Alice are sinful only when both sin. True preferences are revealed only when no individual can be singled out for condemnation.
That’s the setup of one of the clever experiments in an excellent new paper, Exploiting Moral Wiggle Room, except the experiment isn’t about chocolate and vanilla ice cream it’s about fairness in a division game. In the first experiment Alice and Bob must each decide whether to choose $6 for themselves and $1 for a third party (Cindy) or $5 for themselves and $5 for Cindy. In this experiment most Alice and Bobs choose to be nice, they divide "fairly" with Cindy. Many researchers have concluded that Alice and Bob must have a preference for niceness.
But put Alice and Bob together in the second experiment and Alice and Bob are each much more likely to choose the sinful division, $6 and $1. Alice and Bob may prefer chocolate after all.
Read the paper for several other experiments along these lines. The implications for societal organization are profound.
Hat tip to Robin Hanson.
The Million Dollar Brain
Ogi Ogas is a doctoral student in cognitive neuroscience at Boston University. He got a spot on Who Wants to Be a Millionaire and used his knowledge of neuroscience to win $500,000. And no, none of the questions were about neuroscience.
Hat tip to Paul at Truck and Barter.
Where is Marginal Revolution?
The IP address for the NBER is http://66.251.72.129/. I’d like to know the IP address for Marginal Revolution but it’s more complicated because MR is hosted by Typepad. Does anyone know if there is a numerical address for MR like that for the NBER? Please comment if you know it or can find it. Thanks in advance!
P.S. This for a classroom discussion of Domain Name Registrars that I am working on.
Banishment
Today I am in Florida giving a seminar to a group of Federal judges on the law and economics of Federalism and Crime. One of the surprising things that I discovered in my research is that cities, counties, and even most states can legally banish criminals from their borders. I say most states because, for example, the Georgia state constitution makes banishment illegal. Georgia judges, however, have found a way around the law they have imposed "158-county" banishment. (If you guessed that Georgia has 159 counties give yourself two points.)
Banishment is a particulary noteworthy example of a negative spillover – banishment benefits the state doing the banishing but only at the expense of other states. I will suggest to the Federal judges, therefore, that state banishment should be illegal.
There are some arguments for banishment from a city or county. Banishment, for example, can remove a criminal from negative peer influences. Whether the advantages outweigh the spillovers is an open question but city and county banishment should be left to the states because the state government can internalize the city/county spillover.
The Kerry Joke
John Kerry this week has been abjectly apologizing for his statements on Iraq and education. According to Kerry he intended to critique President Bush:
Do you know where you end up if you don’t study, if you aren’t smart,
if you’re intellectually lazy? You end up getting us stuck in a war in
Iraq.
But what he said was:
You know education, if you make the most of it, you study hard, you do
your homework, and you make an effort to be smart, you can do well. If
you don’t, you get stuck in Iraq.
The irony is that the joke he intended to make is a lie but what he actually said may be the truth. The disaster in Iraq was created by a bunch of highly educated intellectuals but the soldiers fighting in Iraq do have less education than the young men and women who have stayed home. According to historian David Kennedy, quoted in the October issue of the Atlantic, 50 percent of 18-24 year olds in the general population have some college education compared to only 6.5 percent of the same age group in the U.S. military. (Kennedy’s figures are contested by others.)
American political correctness extends to more than women and minorities and as in those areas it prevents discussion of important but uncomfortable truths.
Intellipedia
In 2004 in my post on the reorganization of the intelligence services, Decentral Intelligence Agency, I wrote:
The implicit model of the 9/11 Commission is command and control –
move all the information from the roots of the tree to the top of tree
and then one all-encompassing-mind will evaluate it and make the right
decision. Does that model sound familiar? Sure it does, that’s the
model of economic planning that is currently lying on the ash-heap of
history. It’s the model that Mises and Hayek subjected to withering criticism in the socialist calculation debate of the 1930s…An intelligence-Czar faces exactly the same problems. So what can be
done? The intelligence agencies need tools that can spread information
rapidly and widely and that are open to anyone with information whether
they are at the bottom or the top of the hierarchy…Sound familiar?
Yes, blogs and wikis are the right idea. And no I am not being flip.
Today, I am delighted to learn of the creation of Intellipedia.
The CIA and other U.S. intelligence agencies have created a new computer
system that uses software from a popular Internet encyclopedia site to gather
input on sensitive topics from analysts across the spy community, part of an
effort to fix problems that plagued prewar estimates on Iraq.
The new system, called "Intellipedia" because it is built on open-source
software from the Wikipedia Web site, was launched earlier this year. It is
already being used to assemble intelligence reports on Nigeria and other
subjects, according to U.S. intelligence officials who discussed the initiative
in detail for the first time Tuesday….The system allows analysts from all 16 U.S. intelligence agencies to weigh
in on debates on North Korea’s nuclear program and other sensitive topics,
creating internal Web sites that are constantly updated with new information
and analysis, officials said.…[Officials] stressed that disseminating material to the widest possible
audience of analysts is key to avoiding mistakes like those that contributed to
erroneous assessments that Iraq possessed stockpiles of banned weapons and was
pursuing a nuclear arsenal.
Thanks to Carl Close for the pointer.
Gas Guzzling Grapes?
It may look like we are eating Chilean grapes, he [Pollan] argues, but in fact, once we
consider transportation costs, we are guzzling petroleum. Economics offers a
clearer view of what is going on. We do need to save energy, but it is difficult
for a central planner (or for that matter a food commentator) to identify what
is waste, relative to the costs of eliminating it….If fuel becomes more expensive, we’ll likely adopt peak-load
energy pricing, and drivers may scrap their SUVs for hybrids. But we probably
won’t plant grapes in our backyards. While we must conserve energy, we cut back
where it makes the most sense; grape-shipping is not the place to start. Global
trade does involve transportation costs, but it also puts food production where
it is cheapest, again saving energy by economizing on costs of labor,
irrigation, and fertilization, relative to the alternatives.
That’s the ever-wise Tyler reviewing the Omnivore’s Dilemma in Slate.