The return of piracy

by  Tyler Cowen in

Ninety-five per cent of the world’s cargo travels by sea. Without the merchant marine, the free market would collapse and take Wall Street’s dream of a global economy with it. Yet no one, apart from ship owners, their crews and insurers, appears to notice that pirates are assaulting ships at a rate unprecedented since the glorious days when pirates were ‘privateers’ protected by their national governments. The 18th and 19th-century sponsors of piracy included England, Holland, France, Spain and the United States. In comparison, the famed Barbary corsairs of North Africa were an irritant. Raiding rivals’ merchant vessels went out of fashion after the Napoleonic Wars, and piracy was outlawed in the 1856 Declaration of Paris (never signed by the US). Since the end of the Cold War, it has been making a comeback. Various estimates are given of its cost to international trade. The figure quoted most often is the Asia Foundation’s $16 billion per annum lost in cargo, ships and rising insurance premiums.

The International Maritime Bureau (IMB), which collects statistics on piracy for ship owners, reports that five years ago pirates attacked 106 ships. Last year they attacked 370. This year looks worse still. In the first nine months, there were 344 attacks, up from 271 for the same period in 2002. Twenty crewmen have been murdered so far this year, up from six a year ago. If violent crime increased more than 300 per cent in five years in New York or London, the public would demand urgent police action. At sea, where the only lives lost are those of poor seafarers from the Third World, no one cares.

Here is the full story. The U.S. government is not making this a priority, but the next major terrorist attack may well be seaborne.

Bad Science Poisons Our Children’s Brains

by  Alex Tabarrok in

The Natural Resources Defense Council has got mercury on its mind. They write, “Mercury Poisons Our Children’s Brains” explaining:

Mercury is a potent neurotoxin that, like lead, especially threatens the brains and nervous systems of fetuses and young children. A number of neurological diseases and problems are linked to mercury exposure, including learning and attention disabilities — which are a growing problem — and mental retardation. Mercury also might be linked to the recent increase in autism, Parkinson’s disease and Alzheimer’s disease…one in every 12 women of childbearing age has mercury in her blood above the EPA “safe” level…Toxic mercury emissions from power plants put 300,000 newborns each year at risk for neurological impairment.”

Frightening isn’t it? Lets take a closer look before sending the NRDC a check. How was the EPA’s safe-level arrived at? There are three major studies of mercury and neurological impairment in children due to consumption of contaminated fish. One study found no effect, one was ambiguous, the last found some mild impairment (You would never notice the impairment on an individual level and can detect it only in a large sample. Not to be ignored if it exists, but we are not talking about Downs children). To be on the safe side, the EPA focused on the one study that found an effect. Within that one study there was some uncertainty about how much mercury caused a problem so the EPA took that study’s lower bound (the lower bound of the 95 confidence interval for the statisticians in the audience.) Finally, to really be on the safe side, they divided the lower bound by ten!

Now notice how the charlatans at the NRDC twist a number of true facts to make a big lie. It is true that mercury can cause neurological impairment and it is true that 8% of women have blood mercury greater than the EPA safe level but you would never learn from the NRDC that the EPA safe level is more than ten times smaller than levels that have ever been found to cause mild impairment and that even the existence of such impairment is open to question. Throw in a few warnings about how learning disabilities are a “growing problem” and, for all the readers who don’t have children, don’t forget to mention the “recent increase” in Parkinson’s and Alzheimers and you have a perfect example of advertising masquerading as science. (Ever notice how many public interest groups sound like used car salesmen? Sale! Sale! Sale! Buy now before its too late!)

The NRDC wants emission levels cut by 90% in three years, an approach that would cost billions of dollars. The Bush administration wants to cut levels by 30% over the same time period, which would have a marginal cost of virtually nothing because of other regulations scheduled to take effect in anycase, and by 70% over a somewhat longer time frame. Naturally, the NRDC thinks this is evil. This time, I agree with the administration.

I have cribbed from CEIs Joel Schwartz and AEIs Lutter and Irwin.

Going too far in Italy

by  Tyler Cowen in

The Italian Communist Party recently put a rider in a bill to ban all child labor in advertisements. The main goal was to disrupt the government but now it appears that the bill will pass. If so, babies will no longer be allowed in Italian television ads. One in three Italian TV ads uses a baby, although (because?) Italian women are having so few babies. 1.2 children are born per woman, well below the replacement rate, and one of the lowest rates in the world. Some companies are wondering how they will publicize diapers. The source is the Weekend Financial Times, this French Internet Cafe makes linking very difficult.

Dangerous Rice

by  Tyler Cowen in

Rice arrived in Spain in about the eighth century, from the Moors, and the Spanish word “arroz” comes from the Arabic. In medieval times, growing rice was extremely controversial, largely because the rice fields were a breeding ground for malaria. For this reason, the Spanish city of Valencia, to this day renowned for its rice and its paella, was called “land of rice, land of tears.” Various regulations restricted the growth of rice in order to limit malaria. Debates continued to rage throughout the eighteenth century, a distinction was commonly drawn between fields with stagnant water and irrigated fields, which were supposedly safer.

The clincher: Malaria has long been eradicated in Spain, but to this day “the allocation of land or enclosures for rice growing requires special authorization from the office of the Spanish Ministry of Agriculture in Valencia.”

Parisian puzzles

by  Tyler Cowen in

I am pleased to have several free days in Paris, but of course this only stimulates my curiosity. I have been wondering the following:

1. Why do so many high-rent districts in Paris have fancy-schmancy bookshops that appear to stock no more than five hundred books? How do they possibly pay their rent?

2. Why has French art plummeted in quality and popularity so drastically after the Second World War? I love Yves Klein as much as does the next guy, but France is no longer a world leader in painting.

It can’t be the wartime devastation or the Nazi persecution. German contemporary art, in comparison, has been robust, as evidenced by Baselitz, Kiefer, Richter, and others. Nor are government subsidies the root of the problem. A good case can be made that the subsidies have wasted money. But no one in France forces artists to stop selling to private customers. The subsidies are not so large as to make French artists richer than Baselitz and Richter, who sell to the private sector. So why doesn’t a dynamic private art sector coexist with the less entrepreneurial subsidy-supported sector?

Perhaps subsidies somehow corrupt the entire artistic network, but the logic of this argument remains to be spelt out. Furthermore many European countries subsidize their artists, but the fall of French art is much steeper than we find elsewhere.

3. Why are there so few Internet cafes in Paris, and why are so few open Sundays? Demographics may be part of the answer here, since the Parisian French population is aging. And while the French minitel (a kind of ecommerce through the phone network) remains, it has not prevented robust French internet growth over the last few years.

It would be neat if one aspect of French culture, or the French economy, helped explain all three of these facts. I do not, however, expect such simple answers.

Price Controls and the Medicare Bill

by  Alex Tabarrok in

I agree with Tyler that the special interest subsidies in the new Medicare law are outrageous, albeit to be expected. What really depresses me, however, is not the subsidies (which are mostly transfers) but that we are now on an inevitable path towards price controls on pharmaceuticals. True, the law as written explicitly forbids this but political pressure will burst that dam of parchment. (Recall that the original Medicare act forbid the federal government from exercising control over the practice of medicine – try telling that to a doctor today.) Costs will soar as increased demand pushes up prices and more people are added to the program and when this happens the public will demand controls. With controls you can expect significant curtailment of R&D in new pharmaceuticals. I only hope that the drugs that will help me deal with my old age will already have been discovered.

The new Medicare bill

by  Tyler Cowen in

I am growing tired of attacking this bill, but here is another good link, from The Boston Globe, for my other writings on the topic scroll down through the last two weeks. The authors write:

In the name of greater free-market competition, the legislation offers massive new subsidies to the pharmaceutical and insurance industries. In the name of providing greater protection, it threatens Medicare’s guarantee of universal benefits. (Indeed, it even provides more than $6 billion to support Health Savings Accounts outside of Medicare, risking the fragmentation of the broader insurance risk pool.) And in the name of greater cost containment, it encourages the expansion of private plans that have, to date, not saved Medicare money, while creating new budgetary rules that could very well make Medicare less equitable and affordable down the road.

Here is yet some more from this depressing story:

To be sure, politics usually requires compromises. But what’s shameful about the present bill is just how deeply the compromises — or, more accurately, the concessions to knee-jerk beliefs and private interests — undercut the stated goal of the bill: drug coverage for seniors. By our back-of-the envelope calculations, the roughly $400 billion in new spending over the next 10 years (not to mention the $140 billion in new premiums paid by Medicare beneficiaries themselves) will buy only about half as much coverage as a sensibly designed bill could. This is not only because of the subsidies for private health plans and for Health Savings Accounts, but also because of the higher overhead costs of private plans (about five to six times higher than for traditional Medicare) and the 20-to-30-percent higher prices for drugs that seniors will have to pay because Medicare is forbidden from using its bargaining power to negotiate better deals.

Indeed, a significant proportion of Medicare beneficiaries will almost certainly be worse, not better, off under the bill. This includes several million low-income seniors who will lose the generous coverage they now enjoy under state Medicaid programs. It also includes millions who already have pretty good drug coverage through their former employers — coverage which will likely be dropped, despite the bill’s subsidies for employers that retain coverage.

I don’t accept the authors’ implication that our main health care policy goal should be to subsidize seniors, most of whom are relatively wealthy. But it should not be to subsidize pharmaceutical companies either. Read the whole story to learn just how much special interests shaped the final legislation.

Why is there a shortage of flu vaccine?

by  Tyler Cowen in

Dr. Rangel offers one hypothesis:

Years ago there used to be several makers of flu vaccine but that number has fallen to just two. Why? These days the government buys and distributes most of the vaccine and it pays for it below cost. When profits from the vaccine dried up most of the other companies moved on and the two that were left produced only what they thought the nation would need based partly on how much the government usually purchases. Because the profit margin is so thin on vaccines, producing more than was needed would cost these companies millions. In a single payer system could this happen to other drugs? Do we want to find out?

Read his whole post on why national health insurance and single payer systems are bad ideas. Here is another juicy bit:

This problem of completely eliminating the free market would extend to the other sectors of the health care industry from testing to diagnostic equipment to innovative treatments and surgical techniques and on and on. Essentially what happens to an economic system when the government takes over and eliminates any free market is that the quantity and quality of goods and services in this industry goes down. Part of the reason is because competition and innovation are lost. The other part is that the single payer underpays in order to contain costs. Dr. Woolhandler doesn’t seem to understand that this happens when she was asked if rich and middle-class people would accept a single payer system.

Yes our medical care costs more, but that is for two reasons. First, our current mixed public/private system has a variety of screwy incentives. Second, we devote unprecedented amounts of time and money to patients in their last year of life.

Here is the clincher:

Actually waiting lists for medical care in countries with nationalized health care are on the average of six to seven hundred thousand and waits for elective surgery can last four years! Her solution like any other socialist responding to criticism of poor quality in nationalized health care is to raise funding, i.e. raise taxes. But how high? Tax rates in the UK are already among the highest in Europe and the NHS still suffers serious problems with quality and efficiency. Some European countries have tax rates as high as 60%. In these cases health care is not really “free”. It’s only free if you have little or no income, pay little to no taxes, and use a lot of health care services.

Amen.

Full disclosure of commercials?

by  Tyler Cowen in

Ralph Nader’s Commercial Alert is complaining that movie theaters do not warn moviegoers about previews and commercials before a movie starts. The fear is that Americans are being tricked into wasting their precious time.

Is anyone so stupid as not to know about commercials and previews? At my favorite theater the preliminaries average between 17 and 18 minutes, I have it down pat and they glad volunteered this information to me.

Furthermore early ads promote efficiency. You can come early, and sit through the ads, and get a better seat. Latecomers miss the ads but have to sit behind a tall person or scrunch up their necks in the front row. In quality-adjusted terms, the theater offers different prices, depending on whether you are willing to endure the ads, and how good a seat you want. This, of course, is price discrimination, which as we know usually increases output. If only the television networks could be so clever.

And of course ads are not required:

According to the Los Angeles Times, New Line Cinema and Warner Bros. don’t allow in-theater advertising before their films.

To the extent there are problems, they follow from poor coordination and violated expectations. Most moviegoers know to expect the ads, if anyone should be nudged toward full disclosure it is the theaters without ads. But of course, if this is a problem, they already have a good incentive to advertise that the movie starts promptly.

Keep in mind also that most moviegoers are the young, and they go in groups. They talk during the ads and determine the future of their social alliances, and thus the future of the world. If the time is wasted, it is not the fault of the advertisers.

Commercial Alert is also trying to regulate neuroscience and television.

Behaving like an economist

by  Alex Tabarrok in

I drove to the store last night only to find on arrival that I had forgotten my wallet. I returned home frustrated and ready to veg out in front of the tv. It occured to me, however, that my earlier trip was a sunk cost. If the trip was worthwhile the first time it must be worthwhile to return (not so much time had passed as to change the utility of the calculation). I still felt frustrated and I didn’t really want to return but I forced myself to behave like a rational utility maximizer. As I headed back, however, I felt better. Reason and emotion cohered once again as the sunk cost became psychologically sunk.

Score one for economics. A sunk cost is only sunk if you choose to ignore it and economics helps us to do this. But note to self: have more sympathy for students who find the economic way of thinking to be unnatural. Often, they are right.

Water privatization

by  Tyler Cowen in

Lynne Kiesling offers a lengthy discussion of water privatization, with useful links. I have long thought that water is one of the tough cases for market economics. It is hard to imagine having two sets of pipes built to your home and thus it is difficult to see how competition would operate. Even Milton Friedman, to the best of my knowledge, never came out for laissez-faire for water. An obvious option is to have the pipes regulated, but allow competing carriers within a single piping network. You then have to regulate access to the piping network, and regulate the pricing of that access. Furthermore you must make sure that some institution has sufficient incentive to maintain the value of the piping network, comparable issues have proven problematic in the case of electricity. Managed competition may prove a better form of regulation than municipal ownership, or a vertically integrated natural monopoly, but it is regulation nonetheless. And unlike with electricity, it is hard to see decentralized provision of water becoming the norm anytime in the near future. Electricity offers options such as batteries, solar power, and private generators. Water without pipes is simply hard to live with, get ready to carry buckets on your head.

Nonetheless a good case can be made for the private provision of water, with unregulated pricing, in very poor developing countries, such as much of Africa. Let any private supplier sell water at any price the market will bear. Yes this sounds drastic, but the harsh reality is that otherwise many Africans have no access to piped water in the first place. Even a monopoly price is better than carrying that bucket on your head, and don’t forget that well water can cost ten or twenty times the price of piped water. I recall once reading that if the cure for AIDS were a simple glass of clean water, many Africans still would have no chance.

The problem remains that charging for water is problematic in many developing countries. Property rights are poorly defined and people are not used to paying for municipal services. If you set up water piping to the very poor and tried to collect fees in return, many people simply would not pay and legal recourse would be unclear. What can you do, report them to a credit bureau? Attach their wages? You can see the problems. Right now we know that progress in the water sector will be slow at best.

The future of dieting

by  Tyler Cowen in

Economist Ed Glaeser, a trim man, is a vigorous partisan of the Atkins Diet. Nonetheless he argues that McDonald’s brings social benefits, not social costs:

Glaeser’s rationale for suggesting that convenience foods are a social good is that, to judge from consumer behavior in the marketplace, people seem to prefer saving time to being thinner. And in economics, by and large, getting what you want is a good thing. Glaeser notes that until relatively recently, cheaper food (in terms of money as well as time) made us taller and healthier. Only in the past 25 years or so have diminishing returns set in.

Now that less is more when it comes to increased calorie intake, Glaeser expects the marketplace to correct the excesses he attributes to self-control problems. For one thing, food technology can’t advance much farther, “short of direct injection,” whereas weight-loss technology is only in its infancy, with vast room to grow. Glaeser can understand the need for regulation in the schools, or if food companies are misleading people. But he says: “I don’t think anybody ate at McDonald’s and thought it was good for them. I take a dim view of these lawsuits.”

Thanks to newmarksdoor.com for the link, and Daniel Akst for the article itself. See also Alex’s post on Three Oreo Cookies.