The Ethics of Economists

by  Alex Tabarrok in

I have an article in TCS today on why economists tend to be more in favor of immigration than the typical person.  Surprisingly, the ethics of economists may be part of the answer!  Here’s an excerpt:

Economists…tend not to distinguish between us
and them. We look instead for policies that at least in principle make
everyone better off. Policies that make us better off at the price of
making them even worse off are for politicians, not economists.

Immigration makes immigrants much better off. In the normal debate
this fact is not considered to be of great importance — who cares
about them? But economists tend not to count some people as worth more
than others, especially not if the difference is something so random as
where a person was born.

Economists do sometimes distinguish between the rich and the poor,
but high school dropouts in the United States are rich compared to
low-skilled immigrants from Mexico. It’s a peculiar kind of ethics that
says we should greatly penalize very poor immigrants in order to
marginally benefit relatively rich Americans (peculiar at least if one
is not stuck in the Robbers Cave).

Das Einwanderungsmanifest

by  Alex Tabarrok in

My Open Letter on Immigration has been published in German in the Financial Times Deutschland.  The letter will be officially released shortly, in the meantime Brad DeLong, Greg Mankiw and Vernon Smith have been joined as signatories by a number of other prominent economists including Franklin M. Fisher (MIT) , Ed Glaeser (Harvard), Roger H. Gordon (U.C. San Diego) and many others.  I would be delighted to have further signatories from economists and other social scientists.  You can sign by sending an email with your name and affiliation to [email protected].  Thanks!

Med Mal Price Gouging?

by  Alex Tabarrok in

I have an op-ed in today’s Wall Street Journal on medical malpractice insurance premiums.  Here’s a sample:

On its face, price gouging is a peculiar explanation
for recent increases in insurance premiums. Is greed new to the world?
Were insurance companies followers of Mother Teresa just a few years
ago? If greed and gouging are the explanations for rising premiums, why
did the St. Paul group — one of the nation’s largest suppliers of
medical malpractice insurance — pull out of the market in 2001? Were
the profits from all that gouging just too much for St. Paul’s guilty
conscience? And consider that almost half of doctors are insured
through mutual, i.e., doctor-owned, insurance companies. Are the
doctors gouging themselves?

The gouging explanation fails more than the credulity
test. Price gouging can work only if firms have monopoly power — so if
gouging is the explanation for higher premiums, we would expect to see
higher premiums in states with less competition. My student, Amanda
Agan, and I tested this hypothesis in a study released two days ago by
the Manhattan Institute. Contrary to the gouging hypothesis, we found
that a 10% increase in industry concentration reduces premiums
by $2,200. The result makes sense if we remember that, to increase
market share, firms don’t raise prices but rather lower them. Wal-Mart
has grown into the nation’s dominant retailer by lowering prices, not
raising them.

Dismal’s Paradox

by  Alex Tabarrok in

Here is the Daily Show’s John Hodgman explaining how the Dismal Science got its name:

Jon Stewart: Uh, the way you’ve explained the tax cuts doesn’t really seem fair.

John Hodgman: Fairness isn’t really the point.  They don’t call economics the dismal science because it’s fair. 

JS:  Well, I suppose not.

JH: No, no, they call it that after Sir Eustice Dismal.  The 18th century English economist who proposed making smokestacks out of children. 

JS: I uh, I actually never knew that.

JH: Yes, it was a very interesting proposal but ultimately flawed.  I mean if you make the smokestacks out of children who will you force to clean them?…

JH: Yes, it’s referred to as Dismal’s paradox.

The real story which, contrary to popular opinion has nothing to do with Malthus, can be found here.

Open Letter on Immigration

by  Alex Tabarrok in

I have written an open letter on immigration reflecting the consensus opinion of economists on the major issues.  In cooperation with the Independent Institute I am looking for as many
signatures as possible from economists and other social scientists.  Brad DeLong, Greg Mankiw, Vernon Smith, Tyler Cowen and many others from both the left and the right have already signed on. 

You can sign by emailing your Name, Title and Organization.

I do hope that bloggers of all political stripes will circulate the letter.

The goal of the letter is not to cover all the issues but rather to say, ‘here is the hard-won consensus that economists have come to on these major issues.  By all means let us have a debate but let it be an informed debate.’

References and further information can be found here.

Here is the text.

Dear President George W. Bush and All Members of Congress:

People
from around the world are drawn to America for its promise of freedom
and opportunity. That promise has been fulfilled for the tens of
millions of immigrants who came here in the twentieth century.

Throughout
our history as an immigrant nation, those who are already here worry
about the impact of newcomers. Yet, over time, immigrants have become
part of a richer America, richer both economically and culturally. The
current debate over immigration is a healthy part of a democratic
society, but as economists and other social scientists we are concerned
that some of the fundamental economics of immigration are too often
obscured by misguided commentary.

Overall, immigration has
been a net gain for existing American citizens, though a modest one in
proportion to the size of our 13 trillion-dollar economy.

Immigrants
do not take American jobs. The American economy can create as many jobs
as there are workers willing to work so long as labor markets remain
free, flexible and open to all workers on an equal basis.

Immigration
in recent decades of low-skilled workers may have lowered the wages of
domestic low-skilled workers, but the effect is likely to be small,
with estimates of wage reductions for high-school dropouts ranging from
eight percent to as little as zero percent.

While a small
percentage of native-born Americans may be harmed by immigration,
vastly more Americans benefit from the contributions that immigrants
make to our economy, including lower consumer prices. As with trade in
goods and services, the gains from immigration outweigh the losses. The
effect of all immigration on low-skilled workers is very likely
positive as many immigrants bring skills, capital and entrepreneurship
to the American economy.

Legitimate concerns about the impact
of immigration on the poorest Americans should not be addressed by
penalizing even poorer immigrants. Instead, we should promote policies,
such as improving our education system that enables Americans to be
more productive with high-wage skills.

We must not forget
that the gains to immigrants from coming to the United States are
immense. Immigration is the greatest anti-poverty program ever devised.
The American dream is a reality for many immigrants who not only
increase their own living standards but who also send billions of
dollars of their money back to their families in their home countries–a
form of truly effective foreign aid..

America is a generous
and open country and these qualities make America a beacon to the
world. We should not let exaggerated fears dim that beacon.

Sign here if you are in agreement.  Thanks!

Med Mal Talk

by  Alex Tabarrok in

On Thursday morning I will be speaking in New York at the Harvard Club on my new Manhattan Institute study (with Amanda Agan), Medical Malpractice Awards, Insurance, and Negligence: Which are Related?  No link yet, the study will be released Thursday.

There is a reception, 8-8:30 am, followed by the seminar and questions, 8:30-9:30 am.  If you would like to attend RSPV to (212) 599-7000 and be sure and give me the secret MR signal at the club so I know who you are.

Outsourcing Tutors

by  Alex Tabarrok in

Tutoring companies figure: If low-paid workers in China and India can
sew your clothes, process your medical bills and answer your computer
questions, why can’t they teach your children, too?…

When Studyloft.com, a Chicago-based tutoring company with more than
6,000 clients, advertised in Bangalore for tutors with master’s
degrees, more than 500 people applied for 38 spots, according to Bikram
Roy, the firm’s founder and chief executive. "There is just a huge
hotbed of talent there in math and science," he said. "India has the
best tutors — the best teachers — in the world."

From the Washington Post.  It’s a shame immigration restrictions prevent more insourcing of the tutors.  Here is the most unintentionally funny comment:

Teachers unions are vigorously lobbying for legislation that would make
it more difficult for overseas tutors to receive No Child Left Behind
funds. Weil, of the American Federation of Teachers, said after-school
tutors should be required to pass the same rigorous certification
process as public school teachers.

Thanks to Ramin Seddiq for the pointer.

Get Lucky or Get Rich Trying

by  Alex Tabarrok in

The Why Not? guys, Ian Ayres and Barry Nalebuff, have another great idea (Forbes, reg. req.).  Instead of earmarking lottery revenues to education (which is mostly a charade since money is fungible), why not earmark the revenues to private retirement accounts?

A lottery savings ticket would look just like
a lotto ticket, scratch like a lotto ticket, cost a buck and pay out
the same prizes. The only difference would be that half the revenue
would be earmarked for a personal retirement savings account rather
than for education. There would still be about a third for prizes and
the remainder for administering the game.

Setting up a personal retirement account would
be no more difficult than setting up a mutual fund. Players would
receive a swipeable card that would automatically credit a portion of
each losing ticket to the player’s retirement account…

Some 20 million Americans spend at least
$1,000 a year on lottery tickets. For these heavy purchasers the new
tickets would increase their personal savings by $500 a year. Invested
over 40 years, these savings tickets would generate an expected
retirement nest egg of $200,000. This is a lot of money for the mostly
not very prosperous crowd who buy lottery tickets every week.

The biggest defect of the idea is that by lowering the price of lottery tickets it will increase the quantity demanded.  Nevertheless, I don’t think the elasticity is that high and I am confident that savings would go up.

It is incredible that many poor people spend more on lottery tickets than on retirement.  My non-bleeding heart libertarian friend would point out that this shows how much poverty is due to irresponsibility and he would probably be right.

Nevertheless, Adam Smith said the goal of social policy is to create institutions like the market that channel self-interest in ways that redound to the social interest.  Call me a libertarian paternalist, if you must, but I like how lottery savings tickets channel failures of reason and prudence in ways that redound to the individual’s self-interest.

Thanks to Carl Close for the pointer.

The H Prize

by  Alex Tabarrok in

Legislation creating the "H-Prize," modeled after the privately funded
Ansari X Prize that resulted last year in the first privately developed
manned rocket to reach space twice, passed the House Wednesday on a
416-6 vote. A companion bill is to be introduced in the Senate this
week….

The measure would award four prizes of up to $1 million every other
year for technological advances in hydrogen production, storage,
distribution and utilization. One prize of up to $4 million would be
awarded every second year for the creation of a working hydrogen
vehicle prototype.

The grand prize, to be awarded within the next 10 years, would go for breakthrough technology.

From CNN.

French Universities

by  Alex Tabarrok in

The United State’s has one of the most admired university systems in the world and one of the most deplored k-12 systems.  Could the difference have something to do with the fact that universities operate in a competitive market with lots of private suppliers while k-12 is dominated by monopolistic, government provided schools?

What would our university system look like if it operated like the k-12 system?

Look to France for the answer.  The riots of 1968 forced the government to offer a virtually free university education to any student who passes an
exam but as a result the universities are woefully underfunded especially for the masses.  Amazingly, with just a few exceptions
for the elites, students are required to attend the universities closest to their
high schools.  Sound familiar?

The NYTimes sums up with a look at a typical university:

Only 30 of the library’s 100 computers have Internet access.

The
campus cafeterias close after lunch. Professors often do not have
office hours; many have no office. Some classrooms are so overcrowded
that at exam time many students have to find seats elsewhere. By late
afternoon every day the campus is largely empty.

Sandwiched
between a prison and an unemployment office just outside Paris, the
university here is neither the best nor the worst place to study in
this fairly wealthy country. Rather, it reflects the crisis of France’s
archaic state-owned university system: overcrowded, underfinanced,
disorganized and resistant to the changes demanded by the outside
world.

Thanks to Daniel Akst for the pointer.

On Galbraith

by  Alex Tabarrok in

Robert Frank quotes Galbraith from the Affluent Society:

The family which takes its mauve and cerise, air-conditioned,
power-steered, and power-braked automobile out for a tour passes
through cities that are badly paved, made hideous by litter, blighted
buildings, billboards, and posts for wires that should long since have
been put underground.

Frank’s take is that Galbraith was right for the wrong reasons (the correct reasons, coincidentally, are the ones that Frank pioneered.)  My take is that Galbraith had the right premises but the wrong conclusion.

Galbraith’s premise is correct.  The market does provide ever-better products at ever lower prices while the unproductive state forces us to buy its low-quality, high-priced junk.  Galbraith concluded that we need to expand the junk sector and contract the market sector.  Yeah, and Socrates is immortal.

Fortunately, Americans have been a lot wiser.  Since Galbraith wrote, for example, the number of privately owned communities has exploded.  Today some 55 million Americans live in a private community, many of which provide their own roads, garbage pickup, and aesthetic regulations.