What goes around, comes around

The FBI is investigating Jefferson County in southwestern Mississippi, a poor area with fewer than 10,000 residents. Apparently the county is known for its very high tort settlments. For instance, when the makers of fen-phen were sued, the five plaintiffs from that county received $150 million. The 800 other fen-phen cases received a total of about $400 million.

One source notes:

Since 1995, lawyers say, Mississippi juries have returned at least 19 verdicts of $9 million or more, including 5 that exceeded $100 million each, although plaintiffs sometimes settle for less as the appeal process proceeds. Lawyers seek clients through aggressive advertising.

Mississippi state now has limited suit rewards by law, but there remain many cases filed before the relevant deadline for this limitation. One settlement recipient remarked that juries “awarded these people this money because they felt as if they were going to get a cut off of it.”

The above link offers this jaw-dropping fact:

Jefferson, with 9,740 residents, is a small county, but litigation there is a big business. An affidavit filed in June by a researcher in one case, who combed the files of the Circuit Court, said that more than 21,000 people were plaintiffs in Jefferson County from 1995 to 2000.

The possible corruption runs deep:

Bankston Drug Store, the only pharmacy in Jefferson County, has been named in hundreds of suits since the fen-phen settlements as a way for mass claims to be filed in the county.

Hilda Bankston, the pharmacy’s former owner, was subpoenaed earlier this year by the same grand jury that indicted…the others.

Bankston was asked to turn over, along with customers’ personal and prescription histories, customer and pharmacy records “that appear to be false or not produced by your company.”

Something is rotten in the state of Denmark, as they say.

Organ trafficking

I learned the following today:

1. Most sales of body organs involve kidneys.

2. Patients who receive a kidney from a living donor have a much better chance of surviving.

3. In the developing world the going rate for a kidney is between $1000 and $2000.

4. In the Philippines there is essentially a free market in bodily organs. The “grey market” is growing rapidly in many countries.

5. Two different studies suggest that kidney sellers do not benefit in the long run. Most sellers pay off debts with the money, and end up back in debt, their acts of desperation do not succeed. Many end up with long-run health problems, or can no longer perform heavy labor.

From this week’s New York Review of Books (electronic subscription required), “The Organ Market,” by Sheila and David Rothman. The authors are involved with an “organ watch” movement, which seeks to stop organ sales abuses.

My take: I can believe the “behavioral irrationality” argument that most kidney sellers do not benefit very much, if at all. But the Rothman piece never tries to estimate how many lives are saved by the practice. Furthermore, many of the selling “victims” might have performed some other desperate act instead. So the organ selling idea, although repugnant to many people, in my mind remains in the running as a serious policy proposal.

There is a moral hazard problem, namely hospitals and doctors may take kidneys from people when they shouldn’t. Or a hospital or doctor may let a patient die, to harvest the kidneys. Are more lives lost through the moral hazard problem than are saved through the kidney sales? I doubt it. Do the kidney buyers benefit more than the kidney sellers lose? Probably.

Utilitarian calculations are not the only value at stake here, but so far they point toward allowing organ sales. The best argument against is to cite the likelihood of accompanying rights violations, which are real, and claim that such a factor outweighs the utilitarian benefits of the practice.

Addendum: On point number two, the authors write: “patients who receive an organ from a living donor have far better prospects than those who receive an organ from a cadaver.” Co-blogger Alex sends me the following link, which shows a correlation of about ten percentage points more of survival, if you receive an organ from a living donor, the causal relationship may be weaker, given the differing ages of various recipients. Alex wonders if allowing kidney demanders to “buy from the dead” would reduce the problems of sale from the living. This is a good point, but I am not sure it eliminates the basic problem. First, sales from the dead may not displace sales from the living; I cannot determine whether the Philippines (not to mention other locales) restricts sales from the dead but it is not obvious that such differential restrictions exist. Second, many of the buyers are relatively wealthy. If a “live kidney” raises the chance of survival by only a single percentage point, they may still pay for that, which would continue to prop up the market in kidneys from the living. Kidney middlemen may find it easier, and more profitable, to buy from the living for a thousand or two, rather than pursue cadavers, where the quality of the kidney is presumably harder to determine.

Should libertarian economists vote Democrat?

Jeffrey Frankel, a member of President Clinton’s CEA, charges (Milken Institute Review, registration required) that:

When it comes to economic policy, Republican and Democratic administrations have switched places since the 1960s. The Republicans, who were so long identified with free markets and less-is-more government, have become the party of fiscal profligacy and market intervention. Democratic presidents have (by comparison) become the agents of fiscal responsibility and arms-length microeconomic policies.

Robert Ekelund and Mark Thornton have a rebuttal in the latest issue of the MIR (3rd quarter, 2003) but it’s a strange “rebuttal” that begins:

We certainly agree with Jeff Frankel (Milken Institute Review, 1st Quarter 2003) that the “Republicans have become the party of fiscal irresponsibility, trade restriction, big government and failing-grade microeconomics.” However, we would argue that there is less mystery to this exchange of economic platforms with the Democrats than meets the eye. The Republican Party was established in the 19th century as a party of big government and economic intervention.

For my take see my earlier post, The Beast Isn’t Starving.

Manufacturing fallacies

Some fallacies just keep coming back no matter how many times they have been exploded. Jobs in the manufacturing sector are disappearing and have been doing so for 30 years. The reason this has occured, however, is not because we have “sent the good jobs overseas” and it is not because our manufacturing sector is “rusting.” Jobs have disappeared because the manufacturing sector has been spectaculary successful. When measured in terms of what ultimately matters, output, the U.S. manufacturing sector has more than doubled in size over the past 30 years. We are now producing more “stuff” than virtually ever before and because of productivity improvements we are doing it with less labor. The graph below from The Economist is for the G7 countries, not just the U.S., but it conveys the correct idea. (For the US data see Robert Hall’s recent testimony before Congress).

“Job destruction” is a vital aspect of progress. If we had not destroyed millions of farm jobs most of us would still be working in agriculture today.
manufacturing.gif

Franco Modigliani, in memory

Nobel Laureate Modigliani passed away several days ago. Read this tribute, which explains Modigliani’s views on religion, his flight from the Mussolini regime as a boy, and his opposition to Berlusconi. Here is one of the more personal bits:

When I saw the holes in his socks I liked and admired him even more. I thought, here is a man who doesn’t give a damn about appearance; someone who is all meat, no smoke.

Is “dollar pessimism” justified?

Brad DeLong reproduces and responds to a well-reasoned critique of the pessimistic view that he and Paul Krugman share about the prospects for the American dollar.

The main point of the critique:

These authors–and the conventional wisdom generally–miss two, closely related points. First, foreign investors’ risk exposure to dollar assets has essentially nothing to do with the current account deficit. Second, the ability of U.S. households, firms, and the government to service their liabilities has essentially nothing to do with whether those liabilities are owed to foreign or domestic investors.

Click on the link to read Brad’s response, it is not easily summarized.

My take: Given the composition of my assets, my implicit position in the dollar market is long, but probably more because of inertia than anything else.

This link will keep you busy for a long time

“The philosophers have only interpreted the world, the point, however, is to change it.” So said Karl Marx. Economists Ian Ayres and Barry Nalebuff agree, though not in a way that Marx would have imagined. Their new book: Why Not: How to Use Everyday Ingenuity to Solve Problems Big and Small offers their ideas on how to make the world a better place.

How do you feel about brake lights that indicate how fast you are decelerating?

Or how about “animal repelling devices”?

…[there are] a disturbing number of dead animals along [the road]. I personally did everything in my power to avoid hitting anything (there is a racoon on US301 that owes me his life since I nearly lost mine!) So I spent a lot of time thinking about it. Maybe a device that would be like a license plate on the front bumber, emitting ultrasonic sounds and infrared light? Wild colors, loud sounds, & flashing lights might displace the animals from the road area until things quieted down.

The new idea I need least: Movie titles at the end of movies, so you know what you just watched on TV.

The new idea I need most: A special signal for when your car is making a U-Turn.

The authors also want to offer Palestinians stock in Israeli companies, in return for a peace settlement. Here is a pre-publication New York Times review, which refers to “Daredevil Ideas from the Anti Dilberts.”

And sorry Barry, but I have to vote “no” on “colored salt,” I don’t care how bad my eyes get.

Does Hollywood like the free market?

Read this interesting paper by law professor Larry Ribstein, link courtesy of Ben Muse and ProfessorBainbridge.com. The question is why so many movies appear to be so anti-business. A money quote:

This article seeks to provide a plausible explanation of films’ bias against capital. It is not business itself that filmmakers do not like, but the capitalists who control it. This may sound like Communism, but it is not the classic view of the struggle between capital and labor. Filmmakers display little concern with the problems of the workingman, and they do not usually blame firms’ social irresponsibility on the fact that capital rather than labor is in control. Rather, the filmmakers’ main problem with capital being in control seems to be that the filmmakers are not. The “workers” that are oppressed are often creative types, and middle managers who stand in for them, who are being denied adequate opportunity to display their creativity. The point of displaying the evil that firms do seems not to stop it, but to show how much we need the artists and seekers among us to do the finding…

We are told that as technology lowers costs, and moviemakers become less dependent on capitalists, the problem will diminish. If this is true, drama should be less anti-capitalist than costly special effects spectaculars. I am not sure I buy this, but the paper nonetheless makes for interesting reading. For an alternative perspective, see my earlier post on movies for entrepreneurs.

Jim Crow in professional sports

I have already written a post on this topic. My central query was why segregation lasted as long as it did in major league sports. I have since learned more:

1. Black players were common in professional football in the late 19th century and through 1933, when segregation was introduced by team owners.

2. The pressure to segregate came from fan demand, and was enforced by game commissioners, working through a collusive league structure.

3. John McGraw, manager of the New York Giants (baseball), regularly tried to sneak African-Americans onto his team, claiming that they were “Cuban.” The baseball commissioner was both strong and racist, however, so he failed in these attempts.

4. Early football leagues were chaotic and had little power, including little power to enforce segregation in the early days of the sport.

5. Paul Brown, coach of the Cleveland Browns football team, decided to play black players in 1946.

6. The Los Angeles Rams quickly followed suit, in part because they wanted public funds for a stadium, and needed to avoid possible legal problems.

7. The Washington Redskins were the last football team to integrate, and only when they received “artfully applied pressure” from the Kennedy Administration.

8. Bill Walsh, the very successful coach of the San Francisco 49ers, hired a racially conscious sociologist to his staff, in recent times, to manage race relations on his team.

All points are from the recent and excellent Tackling Jim Crow: Racial Segregation in Professional Football, by Alan H. Levy.

How and why does democracy matter?

Last week Casey Mulligan presented his paper on democracies and autocracies at George Mason; the work is co-authored with Ricard Gil and Xavier Sala-i-Martin.

The main result is surprising: democracies don’t allocate their public budgets much differently than do autocracies. Of course this result requires that we adjust for national income and other relevant factors. The data cover 142 countries from 1960-1990.

The authors do find notable differences between democracies and autocracies. Autocracies are more likely to use the death penalty, restrict free speech, and spend on the military. The paper doesn’t mention death squads, but autocracies are more likely to do that too. At the same time, spending on social programs, spending on education, and various taxation issues do not differ significantly across the two kinds of regimes.

The authors also use some case studies. Chile, Spain, Greece, and Portugal have all moved from autocracy to democracy in recent times. Yet again changes in economic policy are hard to find.

How should these results be interpreted? One hypothesis suggests that special interest groups rule under both systems, and that voting doesn’t matter much. More plausibly, to this economist, autocracies have to be concerned with public opinion too. Autocrats want to secure their stream of rents, which leads them to restrict political competition. At the same time, the autocrat will try to secure a content populace. David Hume wrote long ago that governments are founded on opinion and consent.

I still see a strong case for democracy, not only on moral grounds but also practically. Once people get the democratic idea into their heads, and have a high level of wealth, democratization is extremely difficult to stop. Just look at Taiwan and South Korea. It is better to go with the tide of the times rather than to fight it.

Do girls cause divorce?

OK, you probably already read Steven Landsburg on Slate.com. But this article of his is too good a link to pass up. It turns out that divorce is considerably more likely when the child is a girl, rather than a boy. Here are two choice bits:

In the United States, the parents of a girl are nearly 5 percent more likely to divorce than the parents of a boy. The more daughters, the bigger the effect: The parents of three girls are almost 10 percent more likely to divorce than the parents of three boys. In Mexico and Colombia the gap is wider; in Kenya it’s wider still. In Vietnam, it’s huge: Parents of a girl are 25 percent more likely to divorce than parents of a boy.

Here is another:

Take a typical unmarried couple who are expecting a child and have an ultrasound, which more often than not reveals the child’s sex. It turns out that such couples are more likely to get married if the child is a boy. Apparently, for unmarried fathers, the prospect of living with a wife and a son is more alluring than the prospect of living with a wife and a daughter.

It seems that fathers enjoy marriage more when there is a son around the house, confirming an old stereotype. The original research was done by Gordon Dahl and Enrico Moretti.

Shutting up talkers

Robin Hanson suggests that time is a scarce, yet unpriced resource in group conversations, conferences, and seminars. We are all familiar with the conference participant who talks too much, this is really just tragedy of the commons. So let’s attach a price to talking.

Robin argues that each person should receive a fixed number of tokens. Every now and then a buzzer will go off randomly. If you are talking when the buzzer goes off, you lose a token. If you lose all your tokens, you can’t talk any more. So presumably you will speak only when you feel it is important, to conserve your time. My note: I don’t see why the randomization is necessary, why not just use something like chess clocks to limit how much each person talks?

Robin and I have talked of trying this out. Would it work? I can see a few problems:

1. It may violate fairness norms to shut up a person who has lost all of his tokens.

2. Without rationing, smarter people can persuade/bully their way into talking more, and this is better than giving everyone equal time. (Note: you can have non-egalitarian variants of the scheme, or perhaps allow people to donate their tokens to the smart.)

3. The methods and procedures of implementation may distract from the discussion. Imagine the buzzer going off in the middle of your briliant point.

4. Conferences are not about ideas production, they are about the production of publicity, and the device does not work toward this end.

I am most concerned with #2 and #4, but I still see merit in the idea. If and when we try it, I will let you know, let me know if you have ever tried some version of the proposal.

Here are some other wild ideas that Robin likes, most or all of them wilder than the buzzer idea.

Addendum: Here is Robin’s own description of the idea.

New economic policy blog from England

The Adam Smith Institute has recently started its own blog. The focus is on current events, in both Britain and around the world, the perspective is market-oriented.

Friedrich Hayek is well-know for writing an essay “Why I am Not a Conservative,” here is Madsen Pirie’s take, from ASI, entitled Why F A Hayek is a Conservative. Pirie is one of the main bloggers on the site.