Category: Law
Price gouging and the elasticity of supply
Jeff writes:
…in fact it is quite typical for the consumer surplus maximizing solution to be a rationing system with a price below market clearing. I devoted a series of posts to this point last year. The basic idea is that the efficiency gains you get from separating the high-values from the low-values can be more than offset by the high prices necessary to achieve that and the corresponding loss of consumer surplus.
Why would we only care about consumers’ surplus and not also the surplus that goes to producers? We normally we care about producer’s surplus because that’s what gives producers an incentive to produce in the first place. But remember that a natural disaster has occurred. It wasn’t expected. Production already happened. Whatever we decide to do when that unexpected event occurs will have no effect on production decisions. We get a freebie chance to maximize consumer’s surplus without negative incentive effects on producers.
This is a very clever post and it provides much to think about. But I don’t accept the main premise that supply is inelastic. Last night most stores were closed! At higher prices more of them might have opened, and in fact in most places it was logistically possible to have a store open in Fairfax. There might also be effects from mechanisms such as “should I leave these flashlights out for sale, or take the extra home to the family?” Furthermore the periodic demand for batteries, flashlights, bottled water, etc. around here has become (sadly) a regular event, where longer-run “option ready” supply arguably is linked to precedents from previous experience.
Report from Singapore
The government has been working with food stall owners to cut the amount of oil and salt used in cooking and persuade them to use brown rice, considered healthier than polished white rice.
Here is more.
In case you haven’t been paying attention
And now the world’s largest general scientific society is weighing in on the debate.
The American Association for the Advancement of Science says labeling would “mislead and falsely alarm consumers.” The AAAS – best known for publishing Science magazine – says genetically modified foods are fundamentally no different from conventionally bred foods. In fact, the organization says they are tested more extensively than most new crop varieties.
And:
Opponents of genetically modified foods have a variety of concerns. Some have a gut feeling that these crops are unwholesome. Others worry that the technology is driven simply by corporate profits for seed companies as well as herbicide producers. Indeed, industry has poured nearly $41 million into advertising to defeat the ballot measure, with “No on 37” TV and radio ads warning that the labels could lead to higher prices at the store, according to The Wall Street Journal. ..
Sometimes worries about genetically modified foods are expressed as concern over food safety, but the AAAS says that concern isn’t supported by the science.
“Civilization rests on people’s ability to modify plants to make them more suitable as food, feed and fiber plants and all of these modifications are genetic,” the AAAS statement says.
Here is more, with hat tip to Michael. Isn’t it time for some of the respected left-wing economists to weigh in on this one?
GMOs and pesticide use (an email from Greg Conko)
Here is a further Mark Bittman column on GMOs, arguing against GMOs on the grounds that they lead to greater use of chemicals and pesticides. I would start with quite a simple point, namely to the extent there is a problem with chemicals and pesticides (as there may be with or without GMOs), let’s regulate that problem directly. Somehow that option is not put on the table as an alternative to what is widely recognized as a rather dubious referendum. In any case, I posed the question about GMOs and pesticides to Gregory Conko, who has written a book on GMOs, and he responded to me (Greg’s email goes under the fold)…
GC: Note that “pesticide” is a broad term that includes both insecticides and herbicides, as well as fungicides, nematocides, rodenticides, etc. Use of GE crops has had a measurable impact on insecticide and herbicide use, with insecticide use incontrovertibly down and a mixed record on herbicide use. And because there is much more acreage planted with GE herbicide tolerant varieties than with GE insect resistant varieties, herbicide use trends tend to drown out insecticide use trends. Critics tend to obfuscate these distinctions by using the term “pesticide”, rather than the more specific sub-types, probably because they know casual readers will think “insecticides”. But even the herbicide data need some additional context.
When measuring raw quantities of active ingredient, you find herbicide use on herbicide-tolerant GE crops to vary widely with crop species and region. In corn, for example, where atrazine is used extensively on non-GE varieties, a switch to Roundup Ready varieties tends to reduce slightly the quantity of active ingredient used, but mainly results in a switch from one to the other chemical. In soy, on the other hand, where herbicides of any kind are used much less frequently in non-GE varieties, a switch to RR soy almost invariably increases active ingredient use significantly. And because RR soy is by far the most widely grown GE crop (amounting to well over 60 percent of all the soy grown anywhere in the world), on net across all species, this tends to result in an increase in quantity of active ingredient for GE crops generally.
However, merely saying that GE HT varieties result in higher use of active ingredient says little about the environmental or human impact of that change. Because glyphosate, the active ingredient in Roundup, has close to zero mammalian, avian, invertebrate, etc. toxicity, and biodegrades rapidly, it has a vastly lower Environmental Impact Quotient (EIQ) than the herbicides it’s replacing. Thus, a switch to RR soy may result in an increase in “pesticide” use while nevertheless being far better for humans and the environment. Focusing only active ingredient use without any discussion of EIQ is therefore patently misleading.
It’s also worth noting that there is nothing unique about genetic engineering’s ability to produce herbicide tolerant crop varieties. In fact, there are scores of non-GE herbicide tolerant varieties grown all around the world. A farmer who wants to plant HT canola or rice but doesn’t want to be beholden to Monsanto, or another farmer who’s tired of waiting for full regulatory approval of Roundup Ready wheat or sunflowers, can buy “Clearfield” branded seed from BASF that’s been bred with induced mutagenesis to tolerate the herbicide imidazolinone. Why are GE opponents not talking about imi-tolerant crops? Because they’re not GE. Plant breeders can expose seeds to mutagenic chemicals or ionizing radiation to scramble the plant’s DNA in entirely unpredictable ways and then put them on the market in the United States without reporting to or asking permission from a single regulatory agency, and not a one environmental activist or consumer group will bother criticizing them for doing so. For some reason, skeptics seem to be fixated on the use of recombinant DNA techniques, even though what they criticize publicly are phenomena that occur with all sorts of plant breeding methods.
See here, for example, for a nice critique of the recent study by Charles Benbrook concluding that GE crops increase pesticide use: http://weedcontrolfreaks.com/2012/10/do-genetically-engineered-crops-really-increase-herbicide-use/. And a related discussion, with references
to the literature, can be found here: http://academicsreview.org/reviewed-content/genetic-roulette/section-6/6
-2-new-herbicide-tolerant-crops/.For a more general discussion of the impacts of GE crops on pesticide use, see:
National Research Council, Impact of Genetically Engineered Crops on Farm Sustainability in the United States, 2010,
http://www.nap.edu/catalog.php?record_id=12804
” Generally, GE crops have had fewer adverse effects on the environment than non-GE crops produced conventionally. The use of pesticides with toxicity to nontarget organisms or with greater persistence in soil and waterways has typically been lower in GE fields than in non-GE, nonorganic fields. … When adopting GE herbicide-resistant (HR) crops, farmers mainly substituted the herbicide glyphosate for more toxic herbicides.” (p. 3). And, ” Targeting specific plant insect pests with Bt corn and cotton has been successful, and the ability to target specific plant pests in corn and cotton continues to expand. Insecticide use has decreased with the adoption of insect-resistant (IR) crops” (p.6).G. Brookes and P. Barfoot, “Global impact of biotech crops: Environmental effects 1996-2009,” GM Crops Vol. 2, No. 1 (2011) pp.
34-49, http://www.landesbioscience.com/journals/gmcrops/BrookesGMC2-1.pdf
Abstract:
This paper updates the assessment of the impact commercialised agricultural biotechnology is having on global agriculture from an environmental perspective. It focuses on the impact of changes in pesticide use and greenhouse gas emissions arising from the use of biotech crops. The technology has reduced pesticide spraying by 393 million kg (-8.7%) and, as a result, decreased the environmental impact associated with herbicide and insecticide use on these crops (as measured by the indicator the environmental Impact Quotient (EIQ)) by 17.1 %. The technology has also significantly reduced the release of greenhouse gas emissions from this cropping area, which, in 2009, was equivalent to removing 7.8 million cars from the roads.
TC again: In other words, the charge about chemicals and pesticides is not such a strong one. As we can see from the earlier Indian farmer suicide accusation, the critics are still just clutching at straws.
*The Bretton Woods Transcripts*
That is the new eBook edited by Kurt Schuler and Andrew Rosenberg. I cannot open the file they sent along to me, but Amazon summarizes:
The Bretton Woods Transcripts is the confidential, verbatim record of meetings of the historic conference that established the International Monetary Fund and the World Bank. The Bretton Woods conference, named after the New Hampshire town where the conference was held in July 1944, began a new era in international economic cooperation that continues today. Delegates from 44 countries attended the conference. The best known then and now was John Maynard Keynes, the most influential economist of the 20th century.
A companion Web site for the book contains extensive background material, including photos of the original transcripts and previously unreleased conference documents: http://www.centerforfinancialstability.org/brettonwoods.php
The culture that is Denmark
Some of them he slept with more than once, but most were one-timers. In all, he earned just over 24,000 kroner, or $4,150.
Henrik only paid 6,300 kroner ($1,090) in taxes, or 24.2 percent, because he was able to deduct 11,000 kroner ($1,900) for expenses, including his Macbook. He had sex with a client in Croatia when he was there on vacation, and when he returned, he called the tax authorities to ask if he could deduct the cost of the holiday. Flights yes, came the answer, hotel no.
I asked Henrik why his spreadsheet listed the distance he cycled to each client.
“Bike rides,” he says, “are reimbursed half a kroner per kilometer.”
Here is more.
Medicare cost control in action
Tens of thousands of people with chronic conditions and disabilities may find it easier to qualify for Medicare coverage of potentially costly home health care, skilled nursing home stays and outpatient therapy under policy changes planned by the Obama administration.
In a proposed settlement of a nationwide class-action lawsuit, the administration has agreed to scrap a decades-old practice that required many beneficiaries to show a likelihood of medical or functional improvement before Medicare would pay for skilled nursing and therapy services.
…Neither she nor Medicare officials could say how much the settlement might cost the government, but the price of expanding such coverage could be substantial.
The story is here. Without knowing the cost, it is difficult to say whether this coverage expansion is a good idea. But that is exactly my point. I see a good deal of cognitive dissonance when I read discussions of plans for Medicare cost control.
Italian scientists sent to prison for false predictions
Six Italian scientists and an ex-government official have been sentenced to six years in prison over the 2009 deadly earthquake in L’Aquila.
A regional court found them guilty of multiple manslaughter.
Prosecutors had said the defendants gave a falsely reassuring statement before the quake after studying tremors that had shaken the city.
The defence had argued that there was no way to predict major earthquakes even in a seismically active area.
The 6.3 magnitude quake devastated the city and killed 309 people.
Here is the link, here is some back story.
In case there was any remaining doubt
The Supreme Court of Honduras ruled today that the Honduras legislation establishing charter or model cities was unconstitutional. A ruling two weeks ago from the constitutional branch of the court established by a 4-1 vote that the law was unconstitutional. Because that decision was not unanimous, the entire Supreme Court had to consider and vote on the issue.
The full court voted 13-2 that decreto 283-2010 which reformed two constitutional articles to enable the model cities legislation violated the constitution.
There is a bit more here, including some information on one of the companies involved.
Greece fact of the day
Was this driven by the median voter, or by special interest groups?:
The government just passed a law allowing supermarkets to sell expired food at discounted prices.
The story is here.
In which the Minnesotans call off the paddy wagon and leave us free
Pogemiller, according to the e-mail, said a 20-year-old statute requiring institutional registration clearly did not envision free online, not-for-credit offerings.
“When the legislature convenes in January, my intent is to work with the Governor and Legislature to appropriately update the statute to meet modern-day circumstances,” said Pogemiller. “Until that time, I see no reason for our office to require registration of free, not-for-credit offerings.”
Of course pursuing such an issue was not a political winner in the first place.
The link is here, and for the pointer I thank M.
Marginal Revolution University has been Banned in Minnesota!
Minnesota has banned MRUniversity and other online education services from providing content to Minnesota residents. This seems like a joke but it is not from The Onion. Coursera, one of the larger players in this field, has rewritten its terms of service to prohibit Minnesota residents from taking its courses:
Coursera has been informed by the Minnesota Office of Higher Education that under Minnesota Statutes (136A.61 to 136A.71), a university cannot offer online courses to Minnesota residents unless the university has received authorization from the State of Minnesota to do so. If you are a resident of Minnesota, you agree that either (1) you will not take courses on Coursera, or (2) for each class that you take, the majority of work you do for the class will be done from outside the State of Minnesota.
Tyler and I wish to be perfectly clear: unlike Coursera, we will not shut down MRU to the residents of Minnesota. We are prepared to defend our rights under the First Amendment to teach the good people of Minnesota all about the Solow Model, water policy in Africa, and the economics of garlic–even if we have to do so from a Minnesota jail!
Subsidies for virtual water
From Robert Glennon:
In 2012, the drought-stricken Western United States will ship more than 50 billion gallons of water to China. This water will leave the country embedded in alfalfa–most of it grown in California–and is destined to feed Chinese cows. The strange situation illustrates what is wrong about how we think, or rather don’t think, about water policy in the U.S.
Here is more, and for the pointer I thank the estimable Chug.
Michael Pollan on Proposition 37
I am a big fan of the food writings of Michael Pollan, but his recent opinion piece on GMO labeling could be stronger.
His argument for voting “yes” on mandatory labeling is mostly mood affiliation, namely that this is part of some broader battle against “Big Food.” He doesn’t for instance consider how the Proposition may damage many smaller farmers, or that GMOs seem to lower carbon emissions and otherwise help the environment. Here is yet another discussion of benefits, or see this survey post.
His final and in fact main argument contains a simple error in economics, all too common among food writers:
…to date, genetically modified foods don’t offer the eater any benefits whatsoever…
He forgot to mention that they increase supply and lower price. Quick question: how did the GMO products otherwise obtain market share?
For the pointer I thank Michael.
Eric Maskin on Patents
From a letter to the NYTimes:
… in the software industry, progress is highly sequential: progress is typically made through a large number of small steps, each building on the previous ones. If one of those steps is patentable, then the patent holder can effectively block (or at least slow down) subsequent progress by setting high license fees.
Moreover, like any other monopolist, it has the incentive to set such fees.
Thus, in an industry with highly sequential innovation, it may be better for society to scrap patents altogether than try to tighten them.
ERIC S. MASKIN
Cambridge, Mass., Oct. 8, 2012The writer, a professor of economics at Harvard, is a 2007 Nobel laureate in economics.