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Monday, October 31, 2005

Why Boeing is More Economical than Airbus

Over the past year doomsayers have been claiming that Airbus’ double-decker jetliner rang the toll of Boeing’s demise. Sure, Boeing will linger around as a defense contractor, but the golden-age of 7*7 series jetliners had set course into the sunset. Airbus created the bigger plane which must mean that airliners will flock to it. Minor problem; everyone it seems is buying Boeing jets. In the November 7th issue of BusinessWeek Stanley Homes and Carol Matlack report in their article “Boeing Roars Ahead” that three more Airlines are swinging towards buying jets from that doomed company that is Boeing. How could this be? Three possible ideas from economics may hold the answer.

The first idea isn’t all that unique to economics; in fact, neo-classical economics has trouble dealing with it. That being technological improvements. Yes supply and demand models (even macro models) can shift supply curves to handle changes in technology, but tech is not inherent in the model. As Homes and Matlack reported:

Indeed, Boeing's move to twin-engine planes couldn't have come at a better time. Rising fuel prices have prompted carriers to seek out more efficient jets -- and two engines are a whole lot cheaper to operate than four. The 777 burns about 24% less fuel per seat-mile than Airbus' four-engine A340. That's a huge difference, and some airlines flying A340s -- such as Air Canada (), Austrian Airlines, Singapore and possibly Qatar -- are looking to replace them with 777s.

It seems to me that while Airbus chased the static goal of bigger is better, Boeing chased the elusive prey of technological advancement and succeeded. While Airbus was content to build gas hogs, Boeing recognized that Airlines want more efficient planes, and with the recent surges in oil prices the balance drastically shifted towards the lucky seven company. Yet this isn’t the only time Boeing played soothsayer.

The traditional structure of the Airline market is the ‘hub and spoke’ where a few mega-airports (Los Angeles, Tokyo, London, and New York to name a few) are connected together by flights and then smaller airports are connected to the network by flights to these hubs. Boeing thought that this market might change and designed aircraft not for the ‘hub and spoke’ routes of yesterday, but for a more even network where routes connect more like a woven fabric. According to the article in BusinessWeek:

Boeing execs determined -- correctly as it turned out -- that the market was changing. They predicted passengers would prefer to fly nonstop rather than fly through a hub and switch from a big jet to a smaller one. Filling that demand, Boeing figured, would require fleets of smaller, twin-engine planes rather than Airbus' four-engine A340.

Instead of viewing the market for airliners as static (or reliably stable) as other might, Boeing believed that it might just be subject to dynamic forces such as economic and population growth. Cites that might have gone unnoticed just a few years ago have become important destinations. The growth of Singapore is an example of a city that, at the dawn of the jet age, was a simple city in Asia, but has now has boomed to be an important destination of airliner traffic. Dynamics has one more appearance to play.

Unlike Boeing (a single corporation), Airbus is a conglomeration of European airspace companies. When groups get together expect there to be friction. Stanley and Matlack describes this friction for airbus as such:

Boeing's resurgence comes at a time when Airbus is stalling badly. Delivery delays of its 555-seat A380 super-jumbo jet have angered key customers. And an inability to settle on the final design of its new A350 has given the 787 and 777 an even bigger head start.

While Airbus brought together the greatest minds in the European aerospace this federation has the problem of dynamic friction. With each member of the group having different objectives this friction will stall the group objective; in this case allowing those pesky Americans off the ropes and back to the top of the Airliner industry. In a sense these two companies may serve as a metaphor for economic thought: Airbus is the static neo-classical thought that models show how to manipulate the market, while Boeing is taking a more dynamic track that the market will change and the best way to survive is to flow with it. Time will tell who will dominate the skies.

Want a cut of the $14 billion in energy law? - Green Machines - MSNBC.com

Want a cut of the $14 billion in energy law? - Green Machines - MSNBC.com: "Here's how the credits work: Buy or lease a hybrid gas-electric vehicle and qualify for a tax credit of up to $3,400. Install solar power in your home and get up to a $4,000 tax credit. Make your home more energy efficient and get credits ranging from $50 to $500."
The push for vehicles with better fuel economy and more efficient energy use in the home drives incentives. Its possible to find tax relief in the purchase of your new hybrid car, or perhaps you can install an expensive solar power source and receive subsidies for that. The government if offering money in the form of "tax breaks" to provide incentive to use economical or what I would consider sustainable goods.
If we look at these subsidies in terms of "efficiency" then these goods must produce positive externalities. The case of personal solar power I can see some positive externalities, since not only do you not have to rely much on local power plants; there is also chance that you create output back into the local community benefiting others with more power available. If your putting into the market, knowingly or not, you should find a return for that. So in the case of solar power, yes subsidies should be provided in essence pay for the extra power.
The concern in what of hybrid cars? Certainly they are more fuel efficient and already offer some incentive to alternative. A hybrid has better gas mileage, which in the long run save money. What is the connection to incentives to purchase hybrid vehicles. "BALTIMORE - For months now, hybrid drivers in some areas across the country have been getting access to commuter lanes, but Baltimore is going a step further — offering hefty discounts on monthly parking for owners of the gasoline-electric vehicles." Cities like Baltimore and LA are offering even more incentives for hybrids, such as cheaper paid parking and access to HOV lanes. Why should this be? Hybrid cars are the next best alternative to gaguzzlinggg cars. With gas prices raising the fuel economy becomes attractive to more people. Do hybrids offer positive externalities? Perhaps the less pollution produced is considered, but the car still produces some amount of pollutant although perhaps harmless, but certainly not beneficial. Another arguable point is that less gasoline is used in the market by hybrids, but that just cause a shift in demand. There are no definite positive externalities demanding that government offer a subsidy for hybrid cars.

Environmentalism—People Want it, Honestly They Do.

An article in the current Economist edition—How to persuade people to go green (subscription required) described British Airways new program to help the environment: beg. But the program hasn’t been the success the environmentalists hoped. According to the article:

“LAST month British Airways (BA) announced it would give passengers the chance to do their bit for the planet by letting them pay a few pounds extra on every ticket and use the money to offset the carbon emissions from their trip. Last week the airline admitted that, so far, hardly anybody seems interested, with fewer than 1 in 200 passengers willing to cough up. That sits oddly with people's professed anxiety in polls about climate change.”

Considering the significant damage caused by each flight, why is it that passengers wouldn’t want to pay for their part of the damage they cause? That seems to be the question posed by the environmentalists, and if that question seems to be flawed you might be an economist.

It may be a simple axiom, but nevertheless, people will not pay more for something than they have to. British Airways basically asked their passengers if they would voluntarily pay a tax. So it should come as no surprise that passengers decided to forgo voluntary taxes. So what do the environmentalist claim was the reason for the failure of the article? According to the article, “Greens accuse it [BA] of failing to do enough advertising.”

Yet there is more that this story has to tell. Particularly that pesky difference between what people say they want, and what they are willing to pay for. To put it another way, the article describes this difference thus, “Economists spy an example of what they call revealed preferences—the idea that talk is cheap and actions provide the best guide to somebody's beliefs.” This example should lead any policymaker to be wary of what people actually want when they receive the latest polls.

Flat Tax - Is the time finally here?

The President's advisory Panel on Federal Tax Reform is scheduled to release its final recommendations tomorrow, Nov. 1, 2005, and this could lead to an opportunity to finally enact a flat tax!
Steve Forbes has been advicating a flat tax for over a decade. A quick overview of his proposal as outlined in the October 2005 NewsMax magazine:
Under Forbes' flat-tax plan:
o 17% tax rate on personal income and corporate profits
o Individual deductions of $13,200 for adults and $4,000 for each child, plus $1,000 tax credit for each child aged 16 and under
o A Family of four would pay no federal income tax on its first $46,165 of income
o The capital gains tax would be eliminated, as would the Alternative Minimum Tax and estate tax (Death Tax)
o Companies could expense all investments at once - no more depreciation schedules
I believe that this overhaul of the tax system would bring about greater efficiency in many ways to the US economy and would be a much fairer system.
First, imagine all the billions of man-hours hours freed up from not having to file a complex tax form every year and all the documentation that goes with it. You could file a "postcard return" that could be completed in minutes. It has been estimated that compliance with the current Federal Tax system takes Americans 6 billion hours a year and costs $200 billion dollars.
Second, it would encourage individuals to invest more with gains from investments no longer taxed. This would be a good thing for our counrty with a current savings rate of nearly nothing and the federal government having to sell billions in treasury bonds monthly, mainly purchased by foreign lands, to finance the federal governments overspending. This increase in savings and investing would led to new businesses which would increase the the tax base, increase government revenue, and spur job growth. This job growth could help put to more productive use all the unemployed former IRS workers. Just think of all the money saved by the federal government from shutting down most of the IRS!
Third, with a flat tax of only 17% it would lessen the incentives for individuals to hide income that is currently taxed at much high rates, thus bringing more of the underground economy back into the legal economy.
Fourth, every one would be taxed at the 17% tax rate and individuals with the same income would pay nearly the same Federal tax. This would be much fairer then what we currently have to endure, individuals with the same income and one owns their home and the other doesn't paying vastly different Federal Tax bills. Every year the IRS tax code gets more and more complex as politicians manipulate the system to benefit special interest groups. Your tax bill will increase or decease depending on which loopholes you jump through or fail to jump through.
The Flat tax has a greater chance to pass now, than it has had in years with the successful enactment by Lithuania, Latvia, Estonia, Ukraine, Slovakia, Romania, Goergia, and Serbia. Even Russia adopted the Flat-Tax four years ago and revenue more than doubled.
I support the flat tax and encourage you to do the same.

Dan Collins

Windfall profit tax on gasoline.

"Exxon Mobil the nation's biggest oil company, reported $9.9 billion in net earnings -- the biggest corporate profit on record." "Sen. Byron Dorgan has introduced a three-year tax of 50 percent for any profit oil companies make for oil sold above $40 a barrel.""Still, even with exploration costs offsetting part of any windfall tax, the tax could raise $3 billion to $4 billion a year from each of three or four biggest oil companies, according to Philip Verleger, an economist and senior fellow at the Institute for International Economics."

With the huge profits being made by the oil companies a profit tax that is talked about in this article might seem like a good idea, however I don't believe that for consumers it would do any good. First of all the article mentions that any big oil company that was believed to be in price gouging would face a stiff penalty, however as we discussed in class its would be very difficult of finding that certain someone to blame. For the simple reason that the market controls the price especially in the short run. In the long run production could be expanded or lowered however the last couple months were we have experienced a sharp increase(and now decline), well the big oil companies didn't have as much impact as most people believe. It was actually people like me and you who decided it was a good time to invest in oil and enough people did that to sharply drive up the price.

Since this is a tax it would change the incentives of the oil companies. Being a profit tax it does have different effects than a normal tax however there are still gonna be disincentives of some kind and it will have some effect on the price of oil that consumers will end up paying. Some analysts have predicted that this tax could possibly raise 3 to 4 billion dollars for the government, but as we know, we as a population ,well, we most likely wont see any of that money(but even if its misspent, and mere pennies to our government, its probably better that we have the money then foreign oil companies) and if the oil companies are paying 3 to 4 billion, even if it is off of profits, well there gonna try to find a way around it. Which could include lowering production numbers which would raise the price, and other things that I cant think of right now.

Choice and liberty

Is choice necessary for individual liberty?

This topic came up in response to our discussion of abortion and the "right to choose." It was suggested that looking at the "right to choose" was perhaps not the best way to frame the issue from the perspective of liberty. However, I think that the right to choose is inseparable from the idea of individual liberty.

I want to equate the right to choose with the notion of free will. It is said that God, in all his glory, gave man the gift of free will. Man's fall from grace came as a result of his free will. Some would say that the apple was only the beginning of man's fall and given man's propensity to misuse this gift it is a wonder that God gave him free will at all. After all, if it is within God's power to make us all do the right thing then why doesn't he?

The answer is that, whether you are talking about religious virtue or individual liberty, choice is the only way that actions can be judged as right or wrong. If we do not have the right to choose as the starting ground for actions, how can they be judged as right or wrong? For God, it is not enough that people do the right thing, they and they alone have to make that choice.

The example of hitting someone over the head with a baseball bat has been broght up numerous times in class. It has been said that no one has the right to make the choice to hit someone over the head with said bat. I don't want to confuse the idea of having a right and being right. In this context I see a right as the freedom to take some action. Therefore, it can be said that a person has the freedom to hit someone with a bat. Because this person has the right to choose to take that action, we can then say that the person was wrong and they can be punished according to the standards of individual liberty.

However, what if that same person did not have freedom of choice? What if he were being coerced, say by another man holding a gun to his head? Could we still say that the person swinging the bat was wrong? I think it would be much more difficult to draw the line between right and wrong in such a case. We see this a lot in self-defense murder cases. A person who commits a murder in self-defense is rarely held liable for their actions. They are not liable because they were denied the right to choose. The agressions of another denied that person the right to choose, therefore they cannot be considered "wrong".

The right to choose, or the freedom to choose, is necessary for individual liberty because it is the only way that actions can be judged. Individual liberty boundaries can only be defined and protected (esp. through establishing punishments and reconciliation) if we assume that everyone has the right to choose.

Banned Books

In the Bill of Rights, the first amendment says, " Congress shall make no law respecting an establishment of religion, or prohibiting the free exercise thereof; or abridging the freedom of speech, or of the press; or the right of the people peaceably to assemble, and to petition the government for a redress of grievances." Every year books in the U.S. and some other countries (but not many) ban books because of their content. Of the books put on the list only about 30% of them get banned. Now groups like the American Booksellers Foundation for Free Expression are moving onto the banning content on the Internet.

Each person has a view on what is "proper" content or subject matter in today’s world. That’s the beauty of our world; we are free to be ourselves and read whatever we want. So why do people want to ban books from our families? We obviously read these books we want to ban and we "turned out" just fine. Our minds aren’t "warped" and we haven’t done evil or horrible things because we read it out of a book we were required to read in school.
The whole point of getting students to read these books is to make them aware of the bad things in the world. Take To Kill a Mocking Bird as an example; it talks about discrimination of mentally handicapped people and African American people. It teaches you to not judge those you don’t know, something we SHOULD be teaching our children, but it’s on a censorship list. It hasn’t been, because even I have read that book. Another example is The Adventures of Huckleberry Fin, which is on the list because of its promotion of unruly and dangerous acts. There are entire sites dedicated to the list of books that people want banned, one such site is http://www.ala.org/ala/oif/bannedbooksweek/bbwlinks/100mostfrequently.htm.

What I don’t understand is why we think our children would have any due influence from these books outside of what the book was trying to get across. To Kill a Mocking Bird is a great and inspiring book that teaches us to keep an open mind and not judge people by how the look or act. Why would we NOT want our kids to listen to that?! If we look at it from a freedom and liberty scale what we read is our own right. Child or not I think they should have some say in their right to read something.

If it deals with sex, murder, or other violent acts then I can see why some would want to keep it away from their children, but not ban it altogether. Instead why not create an age limitation of the books. Say for example Withering Heights, which has some sexual content and most children don’t read it till high school and by then its not such a delicate topic. I just believe that some of the books on any censorship list really shouldn’t be there. Their content is not harmful to children. Several of the groups that support these lists are all about "being a part of the family" and being an active part of your child’s life". If the parents were an "active part" of their kid’s life, then why would be it be so wrong to let them read the book? If you enforce and promote the behavior you expect of your children then you shouldn’t have any problem with them taking the true message from the book and understanding it.

I just think its restricting the child’s right to read and learn different things. Plus, to me, its as if we are teaching the child to be all right with other people controlling what you do, read, say, and think. What part of that is freedom???

Internet Freedom

Something interesting, laughable, and also scaring has been happening recently. Various nations, including China, Iran, Cuba, and the E.U. have been trying to get the U.S. to hand over control of the internet to the U.N. An editorial in the Rocky Mountain News (http://www.rockymountainnews.com/drmn/opinion/article/0,1299,DRMN_38_4192676,00.html) points out the reason they want this:

"It doesn't take any great insight to realize that what most of these countries want is control over the information their peoples have access to. It's a short step from controlling the means of communication to controlling what is communicated."

Kind of scary considering China (http://www.sfgate.com/cgi-bin/article.cgi?file=/c/a/2005/09/18/MNGDUEPNLA1.DTL&type=tech) regulates what people say on the internet:

"U.S. tech giants are helping the Chinese express themselves online -- as long as they don't write about democracy, Tibet, sex, Tiananmen Square, Falun Gong, government corruption or any other taboo subject."

Even scarier since within the past year there has been enough corruption scandals and sex harrassment scandals to make its headquarters look like a prison where the criminals run free. But let's look at this from an economic perspective. First, let's review the 3 reasons for government intervention; externalities, monopolies, and for public goods. No third party is adversly affected by the internet. Many companies, governments, and consumers have benefited greatly from the internet, but they are taking part in market transactions over the internet, so to say they benefit from positive externalities would be a case of externality abuse.

The second reason government might get involved in the internet is if it's a public good. Public goods are non-rival - meaning consumer aren't competing for resources - and non-exclusive - meaning consumers can't be excluded from enjoying the benefits of the good. However, consumers compete for transmission channels, which affect transmission speeds, making this good rival in consumption. They can also easily be exluded from the internet, which is why people have to pay ISP's like Adelphia in order to get internet access. A rival and excludable good certainly isn't a public good that needs to be controlled by the U.N.

Before I get to analysing whether the internet is a monopoly, I want to explain a couple of things about the internet to avoid any confusion. No one owns the internet. However, the U.S. does define the property rights to it. Everytime someone logs onto the internet, they are assigned a temporary numbered address. ISP's purchase a number of these from the U.S. (or an agency under it's supervision, which would be the government's way of controlling monopolies) and in turn the ISP's sell them to customers like me. Businesses are interested in keeping the same adddress at all times, so they get there own and assign it do there domain name. So when you go to ebay.com, you are really going to a numbered address. The ISP's translate the difference. The U.S. controls this so that there are no duplicate domain names or addresses. Also, domain names are divided into .com, .gov, .edu, etc. Since the U.S. doesn't want people typing in a .gov address and getting an Iranian government website that advocates "death to the infidels," they don't let other governments use .gov. Instead, other nations get domain names that end in .co.uk for the UK, .co.au for Australia, etc. The UN wants control of this, along with the ability (with the help of microsoft and yahoo) to censor what is said on the internet. They get this ability because they can track down perpetrators via their internet addresses. With all this said, let's talk about monopolies as they pertain to the internet.

If one company owns the internet, then the government should step in to make sure the company acts efficiently. No company owns the internet, so the government should keep out of efficiency questions on the internet, which it does. The U.S. does have a monopoly on property rights, as viewed by other nations, which could lead other nations to argue the UN should step in for efficiency reasons. However, aside from the fact that the UN isn't usually efficient-minded, but rather control-minded, there is another reason the U.S. should retain control - national security. U.S. control makes it difficult for other nations or even the UN to censor or inhibit speech, such as pro-U.S. speech.

U.S. control over the internet insures other nations cannot abuse any power over the internet to harm the U.S. or its citizens. The U.S. must retain its sovereignty, because other nations are hostile towards us. It is our government, so for efficiency purposes for us, U.S. citizens, it should retain control of the internet. For us citizens at least, this is efficient. Therefore we, as U.S. citizens, should support the U.S. government's decision to retain control of the internet.

Teacher Incentives

I found this article and though it was an interesting idea, especially through the lens of economic efficiency. It seems to me that the current pay structure for teachers in the k-12 system encourages apathy on the part of the teachers, since pay is not directly related to performance; this strikes me as an inefficient way to assure good teaching through the incentive of pay.

From an economic efficiency perspective it makes sense to have pay related to performance, because it creates an incentive to achieve positive results, and could also encourage ingenuity in achieving those results. It seems to me that most professions base pay on performance rather than seniority, though I could be mistaken in that judgment. Such a system makes the most sense if the goal is economic efficiency. After all, seniority has little to do with actual achievement of a job, so, in order to be efficient, pay should not increase only in relation to seniority.

I wonder that Teachers' Unions have resisted performance based pay? What motivation is there for resisting this? One person mentioned that fair treatment is the goal of the Unions. It seems to me, on initial evaluation, that performance based pay is a way to treat people fairly, however there is one problem with the system being proposed. Though this does not really entirely answer my question, I think it is worth some thought. Apparently the teachers' evaluations would be at least partially based on their principal, so if there is a personal problem with the principal and the teacher this could cause some difficulty in creating an actual evaluation of performance, which would be necessary for a performance based pay system to insure efficiency in the system.

If there was a more concrete way to measure teachers’ performance, such as test results, it would seem that performance based pay would be an excellent way to help achieve the goal of efficiency in our k-12 school system. Perhaps it could also serve as yet another way to make sure that school funds are used efficiently as well, which could help alleviate some of the perceived financial pressure on the system right now.

The AMT is A-OK

Taxes, taxes, taxes. In some way, shape or form, it seems that any conversation regarding government will eventually fall upon the dreaded subject. Some pay, others do not, but when it comes down to it, taxes seem to be both the success and demise of many individuals come April 15. However, with the current structure of progressive taxation, it would seem that this system of vertical equity, seems all too unequal, not to mention inefficient.

Under our current system of progressive taxation certain individuals of society pay little to no tax, and other individuals pay as much as 40% of thier annual income. True, certain tax breaks and deductions give these "high payers" slight movement within the tax bracket, but the current system still remains inefficient.

Short of adopting a proportional tax rate structure, it would seem that all attempts for efficency and equity have fallen short of their goal. However, the Alternative Minimum Tax seems to be closest shot at the bullseye on the proportional tax rate target.

The alternative minimum tax, established in 1969 in attempt to "ensure that high-income individuals, corporations, trusts and estates pay at least some minimum amount of tax, regardless of deductions, credits or exemptions." In short, it makes it so individuals have to pay their fair share of tax. Now it Washington could only figure out what that fair share was in real terms. The alternative minimum tax is successful implementation of one small step towards the proportional tax rate structure. The AMT requires that at least a minimum, is required and that no one can avoid paying tax. This tax is expected to bring in almost $1.2 trillion over the next ten years. Now if only this tax were assessed accross tax brackets evenly, we would be inching our way toward the proportional system. But alas, President Bush is attempting to rid the nation of the AMT. The tax reform commission is working as I write to repeal the tax. But they seem to have noticed one small problem with the repeal; making up the difference in the budget.

I for one suggest that we keep the AMT, after all, what would more efficiency hurt?

Higher education: efficiency or social equity?

While discussing the government's role in higher education, the question arises if government has a place in it. From an efficiency standpoint, government subsidies to higher education are questionable. For efficiency to be achieved, a positive externality must exist. The question then is if these externalities exist, what are they? One could argue that as education increases, so does income, which leads to a reduction in the crime rate. One could also argue that increased education leads to more informed voters and thus, better government. While these may be positive externalities, they are shaky at best. A reduced crime rate can also stem from better policing, while voting choices are made not only on education, but political ideologies and personal/religious beliefs as well. So, from an efficiency perspective, government subsidies to higher education most likely do not lead to efficiency.

But efficiency is only one value judgement. One could argue that funding higher education is not a question of efficiency, but one of social equality. Efficiency is a value judgement of the free market. But, the free market is "perfectly disgusting," meaning the equality and equity are not necessarily considered. But, government funding can level the playing field, meaning those who could not have afforded a higher education previously could find it easier to do so. What we see is more college-educated people who can give more to society as doctors, lawyers, scientists, politicians, economists, etc., etc. The social equality created by the government funding betters society as a whole.

To be sure, this is a very utopian view of a social equity value judgement. I think that government subsidies and funding to higher education lie somewhere in a murky grey area of efficiency and social equity. We see cuts to higher education subsidies, and if coming from an efficiency perspective, then it's a case of "no harm, no foul." Because positive externalities are at best questionable, then government really has no role to play in higher education. But, from a social equality stance, the free market doesn't really allow for that equality, and government cuts to funding can end up hurting a lot people, both directly and indirectly. I for one would chose the social equality value judgement when looking at higher education funding. It may not address the issue of efficiency, but that does not make it "wrong."

Sunday, October 30, 2005

Yes or No for Denver Pot Initiative

Legalizing marijuana has been a hot issue for many years. A new law has been put on the ballot to be voted on in November to legalize the possession of an ounce or less of marijuana by people over the age of 21 in the city of Denver.

Why marijuana and other drugs are illegal is a bit of a mystery to me? From a liberty perspective, it is not the role of the government to mandate morals. From an efficiency perspective, standards create or worsen inefficiencies. There is a demand and a supply for drugs and therefore, must be an efficient amount. Zero tolerance is inefficiency. Thus, whatever normative framework is used to justify laws against the use of drugs it is not liberty or efficiency.

From a liberty point of view laws are passed to protect personal property. By passing laws against the use of drugs, the government is taking away a person’s ability to choose for their own bodies. However, I can see government passing laws against it if it could be proven that drugs harm other individuals OTHER than just the individual making the decision to use the drug. I suppose you could say that by a person using illegal drugs they in turn hurt those close to them. However, I believe this to be a far stretch and not worthy of passing laws against it.

This article in the Denver Post shows that the author would like people to vote no against the law, but not because drugs are immoral. He believes that people should vote no because the original laws are bogus and this particular law would accomplish nothing except to add another law to the books. I tend to agree with most of his sentiment except for the fact that I think people should vote yes. A Yes vote is possible to send a message to government that people do not like the current laws against marijuana and they should be eliminated. Taxpayer money should not be wasted to fight against bogus laws. Especially when that fight against drugs doesn’t work.

Saturday, October 29, 2005

Sowell Insights: Segregation

"The death of Rosa Parks has reminded us of her place in history, as the black woman whose refusal to give up her seat on a bus to a white man, in accordance with the Jim Crow laws of Alabama, became the spark that ignited the civil rights movement of the 1950s and 1960s.

Most people do not know the rest of the story, however. Why was there racially segregated seating on public transportation in the first place? 'Racism' some will say -- and there was certainly plenty of racism in the South, going back for centuries. But racially segregated seating on streetcars and buses in the South did not go back for centuries.

Far from existing from time immemorial, as many have assumed, racially segregated seating in public transportation began in the South in the late 19th and early 20th centuries.

Those who see government as the solution to social problems may be surprised to learn that it was government which created this problem. Many, if not most, municipal transit systems were privately owned in the 19th century and the private owners of these systems had no incentive to segregate the races.

These owners may have been racists themselves but they were in business to make a profit -- and you don't make a profit by alienating a lot of your customers. There was not enough market demand for Jim Crow seating on municipal transit to bring it about.

It was politics that segregated the races because the incentives of the political process are different from the incentives of the economic process. Both blacks and whites spent money to ride the buses but, after the disenfranchisement of black voters in the late 19th and early 20th century, only whites counted in the political process."

Friday, October 28, 2005

The Pension risk

In the last few years, about 200 to 2005, pension plans have become a wasted effort in the eyes of employers. Companies can’t afford the programs, and are "dumping" them at an alarming rate. Of the several reason why companies "dump" their plans is the continuous pay out and long run debt that is acquired by having the plans. Another is that Congress is encouraging companies to drop pensions and go towards defined-contribution plans. Congress has created laws that prevent workers from suing for their "entitled" money.

All the while CEO’s are retiring in rapid numbers and receiving huge lump sum retirement packages. Take Leo Mullin, former CEO of United AirLines, who received a $16 million retirement package. A package that said he worked 28.5 years, when only 21 years were actually worked. CEO’s have benefit programs that allow them to receive bonus years when retiring. These CEO’s are retiring before their packages are no long available, while their workers don’t have any idea and are left to chance.
People today are being told "you are on your own for retirement," but they hear this too late in the game for it to be of any use to them.

What I want to know is how this is an efficient way of running a company? Pension plans are in general viewed as being a substitute for wages. Companies have to agree on the promised contribution (e.g., 5 percent of salary or wages) each year. If the firm owns the pension fund the firm should choose the funding and portfolio strategy with the highest net present value to it. This leads to two polar-opposite solutions: underfund and buy risky assets, or overfund and buy high-grade bonds. Firms are only allowed to dump pension plans is if the pension fun is greater than the amount or benefit acquired by the bankruptcy. Pension plans are costly for companies in the long run and the short run. The long run is the actual pay out of several people, who retire with in time frames, not just one person, but general age groups. In the short run the cost of setting aside money, that in all rights isn’t there, is enough of a reason to avoid pay outs of any kind. The tax write off that employee’s benefit from is one of the main reason why people liked pension plans. Their money wouldn’t be cut and divided into smaller amounts.
The more companies that dump their pension plans onto the PBGC, which is the Pension Benefit Guaranty Corporation, the bigger the burden it is for other industries to keep carrying pension plans. It’s a continuous downfall, as more and more pensions are dumped, more weight is put on other companies and more money is needed for the programs, which in turn lead to them being dumped as well.

One might say that there should be a law against this… well there is, in a way. When Studebaker fell they went back on promises of pension, which lead congress to make the ERISA, which is the Employee Retirement Income Security Act of 1974. This Act established minimum standards for retirement plans and created the PBGC to guarantee them. However the PBGC is not founded by taxpayers. It’s a volunteer funded program that has too much falling down on it. Its duties have become so extensive in minor pay outs that’s its going to collapse in less than 3 years, or so its believed. In order to keep going PBGC would need a multi-billion dollar taxpayer bailout, which won’t be happening given its requirements of funding. The congress that created the program will avoid all please for help and let the program fall apart leaving millions of Americans with no money and not way to survive their retirement.

Congress was been pushing the use of the 401(k) system, which was never intending to be a retirement program. It was a tax break out that congress awarded to executives. We have seen just how unsafe it is by the Enron disaster. People can’t rely on a program that is all guesswork, but then again that’s what pension plans have become.

The more large companies file for bankruptcy the worse the market will get, or so that how I see it. Large companies can’t keep themselves afloat because of its workers. Programs are "dumped" and employees are lost or fired due to being laid off. Unemployment goes up and more money is put out in the form of unemployment checks. The amount of money needed to support pension recovery programs will make taxes increase, and less spending. If the idea alone of saving money for a retirement you can’t plan for anymore isn’t enough to make people spend less. I see the whole "dumping" of pensions to be a huge economic problem and not just for the people you are losing their only source of income.

Vaccine Makers

In response to the posting on September 21 entitled “Vaccine Shortages” I would like to take the time to agree that government’s heavy hand is involved:

“Under the policy, even if the total cash due is paid up-front for a product, ‘revenue should not be recognized until final delivery has occurred.’”

This means that no matter how much the government puts aside for vaccine-makers, they cannot include this money in their sales until it is actually delivered to the doctors when and if an outbreak occurs. As a result vaccine makers will take a loss if they contribute to the stockpile and the vaccines go unused.
To me it sounds like the government wants to encourage vaccine makers to have a reserve on hand, but they are unwilling to financially support vaccine makers for their time and effort. It was even stated in the article that trial lawyers would have something to say about ‘deceptive’ accounting if vaccine makers profited without actually distributing the vaccines.
When there is no benefit for keeping vaccines on reserve, what is the motivation for vaccine makers to prepare for outbreaks? There seem to be more policies against vaccine stockpiling than not. When an outbreak does occur the first people to blame are the vaccine makers and it appears they are in a lose/lose situation.

On immigration policy, we've got it backward

This article in Fortune Magazine written by Geoffrey Colvin explains that there are two groups of immigrants. Those that are legal and those that are illegal. Most of the legal immigrants are allowed into the country on a H1-B visa and allowed to work, go to school, and live in the US for a period of time. Currently there is a limit that allows 65,000 H1-B visas to be given out yearly. This group is generally comprised of highly skilled workers and “by law, they’re here only because no American is available to do the work they’re doing, and that work is so valuable that it helps US companies create more jobs for Americans”. These immigrants play by the rules, follow our laws, learn our language, and pay the appropriate taxes. On the other hand, the illegal immigrants come in by the hundreds of thousands every year and because they are here illegally they do not play by the rules.

Colvin explains that both types of immigrants are needed and desired for the American economy.
“Group one comprises highly skilled workers who come to the U.S. on H1-B visas. Group two is made up of the illegal immigrants who do lawn care, meat processing, house painting, and other low-skilled U.S. jobs. And while it sounds as if group one is desirable and group two isn’t, that’s not quite right. In fact, they’re more similar than different.
The U.S. labor force has long had shortages at the very top and the very bottom. Most people are trained and suited for the broad middle, leaving them overqualified for the lowest-level jobs and under qualified for the highest. Yes, our flexible labor market should solve the problem, but for whatever reason, they don’t. So we turn to foreign workers to fill some of the gaps.”

So, if Colvin is correct, what exactly is the problem with immigration? The two biggest complaints I hear is that illegal immigrants take jobs from Americans and that they do not pay taxes and yet take advantage of the things taxes pay for.

The picture Colvin paints shows that immigrants do not take American jobs. He says that the demand for low and high paying jobs is higher than the supply from American citizens causing a shortage. Therefore, immigration creates efficiency by reducing the shortage. In fact, if Colvin is correct, immigration laws that reduce immigration create inefficiency; the exact opposite of the role of government. So, taking jobs is not an issue.

Maybe not paying taxes is the problem. The main tax that is avoided by illegal immigrants is income tax. If they are being paid under the table their wages are never reported to the government. However, many illegal immigrants take on false identities for employment. So, the employer is paying the payroll taxes, but the immigrant does not pay the income taxes. Once the IRS catches up to them, they change identities again. However, as stated above most of the illegal immigrants work low paying jobs and I think that most of them probably make below the yearly level to pay taxes anyway. In addition, even if they wanted to pay taxes they cannot. If they crossed the boarder without going through the appropriate channels (where they could be denied) our system does not give them a way to pay taxes. If they try, they get deported. I’m not trying to convince you that most of them want to pay taxes because I’m sure they don’t, I’m just pointing out that our immigration laws make it impossible for them to pay income taxes. So, if they wouldn’t even qualify to pay income taxes, taxes aren’t the issue either.

Perhaps the problem is population growth? This article doesn’t discuss population growth and I don’t know if it’s an issue or not. Since I don’t hear people talk about it too much with regards to immigration I don’t think it’s a large problem.

Here are Colvin’s policy recommendations that I tend to agree with:
“The best solution for group one is simple: Eliminate the cap on H1-B visas, currently just 65,000 a year. That is hardly a radical notion. For nearly 40 years, until 1990, there was no cap. Now is the worst time to be turning away some of the world’s most capable, value-creating workers. The solution for group two is more complicated, but the outline is clear. Forget about deporting them. It’s impossible, and any attempt would just waste billions of dollars. Instead, make it worth their while to become tax-paying, on-the-books workers for at least a few years. Many would do it happily in return for one cost-free privilege: the right to travel freely between the U.S. and home.”

Thursday, October 27, 2005

Katrina & K-12 Vouchers

"Hey, this sounds like a voucher, we can't be doing things that way. It might work and things could then get out of hand. Vouchers in Colorado for higher education. Now vouchers proposed for helping children after Katrina. People may be starting to see there is wisdom in education vouchers, eh?"
Read the rest.:

Wednesday, October 26, 2005

About Oppression

There has been a lot of talk lately about Oppression. In class we were asked what we thought about Oppression, but I have seen encounters even on the news and the internet.

To me the way the Iraqi prisoners were treated could be considered Oppression. They were tortured and in some ways used for the pleasure of the soldiers stationed there. At the same time, the Prisoners of War were oppressed as well by the Iraqi citizens.

Here in America, Slavery was an extreme form of Oppression.

The www.oppression.org website says this about the Oppression. "There was once was a battle between good and evil, between the virtuous and the wicked, between head of virtue and the head of impiety. There once rose a man who championed the rights of the oppressed; a man who stood against corruption and the destruction of human rights. He and his band of seventy-two rose against an army of thousands, creating a historical symbol of unity and struggle against evil, injustice, and oppression. This stance was reminiscent to Moses against Pharaoh, David against Goliath, John the Baptist against Herod, Christ before Pontius Pilate, and Muhammad against Abu Jahl and Abu Sufyan. This man was Husayn ibn Ali, the grandson of the last of Prophet of Islam, Muhammad al Mustafa. "

Oppression is something extreme. It is something cruel. The above quote comes from an article called a "Cycle of Oppression." This is true, I believe that Oppression is cyclic. Histroy tends to repeat itself. It is our job as human beings to stop this from happening. To torture someone or to cause someone physical harm is wrong. Sexual Abuse, Kidnapping, Murder, Domestic Violence are all various forms of Oppression. The govermment has many punishments for people who cause someone harm, but they are not strict enough. A first account of Violence only puts someone in jail for 30 hrs. to a few days. That person then gets out of jail and starts the vicious cycle over again. We need to figure out a way to stop this from happening. This our job to consider these acts of Oppression seriously and make some drastic changes in the judicial system.

Referendum C- A Freedom View

Governor Owens visited our campus Tuesday, as did Douglas Bruce, the El Paso County Commissioner who authored TABOR. I realize that there has already been a lot of commentary on Referendums C and D, but I would like to add my view from the perspective of economic freedom.

First, it is clear that referendum C would constitute a tax increase on some sort of permanent basis, given the way TABOR is structured, even after we return to its enforcement, we would experience a higher tax rate. Here I think it is important to remember that government is composed of people, and it is certainly not the most efficient handler of money, since there is little or no incentive for the people in government to use other people's money efficiently. One of the main arguments I have heard for referendum C is that it would cause a tuition increase. Perhaps this really is the case, but I don't think that from an economic freedom standpoint it makes sense to raise taxes to pay for individuals to go to college. If people own themselves, wouldn't it also make sense that people are responsible for themselves? I pay for my school; all my other classmates are responsible for paying for theirs. It seems wrong to me to take money from other people to pay for my schooling. I think that it would make sense, after what we have studied of spontaneous order, that the problem, if it really is one, would be taken care of without government intervention.When we allow people to take care of problems, rather than the government, we preserve our freedom. There has also been some evidence to support that economic freedom has a certain amount of correlation to economic freedom, so it makes sense, if the goal is to maintain economic prosperity, that we should allow people to be responsible for themselves and each other, rather than allowing the government to take our freedom. If people do not want tuition to increase it would make more sense for those people to donate money to the school, rather than forcing everyone to donate money to the school through taxation.

Another argument that I have heard for referendum C is that it will help Colorado economically. I really struggle with this idea, since the referendum is for a tax increase, which is more likely to reduce consumer spending. If we want Colorado to have more economic growth, it would make more sense to either keep taxes the same or reduce them, and allow people the freedom to spend their money on what they choose.

Overall, it seems like referendum C is unnecessary government intervention. I found it most helpful to understand the referendum through thinking critically about its possible effects.

Tuesday, October 25, 2005

Economics in immigration

This blog is going to identify the economics of immigration into the United States, the policies that America has to immigration, as well as the perscriptions to this issue. America is the "land of opportunity." There are many ways for a immigrant to increase their way of life. The immigrants come to America here for many reasons, such as; monitary, occupational, educational, healthcare, and cultural differences. This immigration to America creates issues that are on the minds of many politicians and policy makers.

America has been open to the legal immigrants entering the country from our independence. The legal immigrants are allowed to enter the country for the main purpose of increasing their ability to produce goods and services, as well as to increase the American GNP. The immigrants that are legal provide increased tax revenue, and increased G&S to the economy. This is good for the economy. The problem has now become the illegal immigrants. Illegal imigrants come to the country through uncontrollable means. The American government can not control the influx of these people currently. This creates a proble for the economy. The policy of controling the illegal immigrants is broken.

The influx of illegal immigrants provides a problem for the economy of America. "the presence of immigrants tends to “crowd out” natives in the education system, particularly at the secondary school level." says Chris Minns. This is a problem for the market. If Americans are being pushed out of the school system, they will loose the human capital that could have been included in the American economy. Anothe issue is that of medical care. Chris quotes Janet Currie who states, "the children of immigrants are more likely to be eligible for Medicaid than are the children ofnative-born Americans." This is an increase cost to American citizens who are providing illegal immigrants with free health care. Illegal immigrants also crowd our legal system. Illegal's spend more time in our prisons, increase prison population, and cost America more money. The illegal immigrants also create a convergence of American wages. The FPE, Factor Price Equalization, of labor entails the fact that Americans are going to be paid less, for working, than they would if there were no immigrants. This creates a dissutility for some Americans.

The American population needs to take serious the problem of immigration. There has already been an exponential growth of new immigrants. The historetic effect, or idea that the past will determine our future is true. The more immigrants that are allowed in the country the easier it will be for the future generations of immigrants to move to America. The government needs to control the boarders, and decrease the benefits of moving here. In California there are public schools that teach in Spanish. This makes the immigration easier. The increase of immigration will decrease wages and increase overall costs to the American population. I perscribe that we enforce the practice of the English language, increase the cost to move, increase boarder patrol, and engage in the repopulation of mexico with mexicans. We need to make it easier to punish the illegal immigrants, and the deportation of such people easier. It is time for America to identify the problems of immigration.

Friday, October 21, 2005

Vaccine Shortages

Looks like government's heavy hand is at work again.

Tuesday, October 18, 2005

Eminent Domain and Efficiency

Eminent domain has, until recently, referred to the power of federal, state, or local government to pay just compensation and take ownership of private property to be used for some public purpose. Once the Supreme Court delivered the Kelo ruling this all changed. Now eminent domain may be invoked to promote economic development. What this means is that if you own some coveted piece of property that someone else wants to build a shopping mall on, watch out, you just might loose your property.

This new outlook on eminent domain has sparked a national debate and raises several questions arising from the frameworks of the Constitution, liberty, and economic efficiency; and has prompted me to consider the legitimacy of eminent domain in the first place. I will only address eminent domain from the framework of economic efficiency here, although I would be interested to hear your thoughts on the others either pre- or post- Kelo.

Economic efficiency holds that it may be appropriate for government to act when the market fails to provide a public good, or a monopoly or an externality is present. The issue here is whether or not the exercise of eminent domain is the appropriate tool to use to correct for market failures.

Eminent domain is not effective at correcting the inefficiencies resulting from the presence of a monopoly. Someone may try to make the argument that by taking private property and turning it over to developers independent of the monopolistic force a monopoly controlling a community could be dissolved be creating competition. I tend to think such action would only serve to create a different kind of monopoly, one on development. This sounds like central planning, which we know is not efficient.

Similarly, I don’t see how the burden of an externality could be alleviated by using eminent domain. Someone might try to argue that if pollution from the smoke stacks of a firm are imposing a negative externality on nearby property owners, then government could take the firm’s property and shut it down to get rid of the externality. Such logic is flawed because economic efficiency offers a solution that keeps the firm producing and compensates the victim of the externality so resources do not go unused or to other less productive means.

Eminent domain may however be acceptable as a means necessary to provide some public good. National defense is the only public good I see provided in our system of political economy as it is both non-rival and non-excludable. This of course does not mean it’s the only good provided by government, it’s just that most of the goods and services provided by government are either private or club goods. In the course of providing national defense it may be necessary to invoke the power of eminent domain. For example, it might be determined that the construction of a new military facility in a densely populated area is necessary. Land is scare in such areas and eminent domain may have to be used in order to get the facility built, especially in the case of hold-outs. Or maybe the area’s not that densely populated. Maybe government needs vast open spaces without anyone around. In this case government might take farms or ranches. It’s certainly hard to conceive of a time when government doesn’t have enough of its own land, but that doesn’t preclude government from getting more in the name of national defense from the framework of economic efficiency.

Saturday, October 15, 2005

The judicial fails in Oregon

A judge overturned a voter-passed property compensation law as unconstitutional . . . The law, passed in November 2004, requires that state and local governments compensate land owners when regulations lower property values or waive the rules.

How do you think the law might violate the Constitution?

I think the law is a good one. Why should property owners be forced to endure a reduction in wealth because government wants to regulate their land?

Wednesday, October 12, 2005

Net GDP or Tax Inefficiency

Bruce Bartlett:
" What really qualifies Ms. Tritch to lecture the rest of us about tax policy is an absolute conviction our tax system is tilted too much toward the rich. To read her diatribe, one would think the wealthy pay no taxes at all and that the tax burden falls almost entirely on the poor and middle class. One would also come away thinking taxes do not affect economic growth at all.

According to Ms. Tritch, our tax system should serve one purpose and one purpose only -- to soak the rich. Any reduction in tax rates, especially on saving and investment, has nothing to do with raising growth, but is nothing but a giveaway to the ultrawealthy. One can see now why she was hired by the Times despite a paucity of knowledge or experience in the field of economics.

The reality is the wealthy pay almost all the federal income tax and there is clear and compelling evidence our tax system -- especially its misguided redistributive elements -- impose a heavy cost in growth terms ultimately paid by the nonwealthy via lower productivity and, hence, lower wages and incomes.

Interestingly, the latest Internal Revenue Service data on distribution of the tax burden were released the same day Ms. Tritch's tirade appeared. They show the top 1 percent of taxpayers paid 34.3 percent of all federal income taxes in 2003, although they earned just 16.8 percent of the adjusted gross income. The top 5 percent of taxpayers paid more than half of all federal income taxes, the top 10 percent paid two-thirds, and the top half of taxpayers paid 96.5 percent, meaning the bottom half paid just 31/2 percent.

Another IRS report decomposed the top 1 percent and found the top 10 percent of the top 1 percent (the top 0.1 percent) increased their share of all federal income taxes from 7 percent in 1980 to 15.3 percent in 2003. These 129,000 tax filers earned 7.6 percent of the income and paid an average tax rate of 23.6 percent. This came to $114.6 billion -- 4 times more than all the taxes paid by the 64 million taxpayers in the bottom 50 percent, who paid an average 2.9 percent rate.

I would be curious to know just how much more Ms. Tritch thinks the wealthy should pay? . . . .

[ . . . . ]

According to a new report from the U.S. Government Accountability Office, we pay a very heavy price for the heavy taxation of saving, investment, corporations and estates that Ms. Tritch strongly favors. It found the tax system's efficiency cost -- output lost over and above the tax itself -- is between 2 percent and 5 percent of the gross domestic product. In short, we lose between $240 billion and $600 billion every year just because of how we levy taxes. "
Is there a better way for the national government to raise revenue? Do we really want to loose 2% to 5% of the economy's output every year merely because of the way government chooses to raise revenue? The President has created a Commission to make proposals to reform the tax system, and I wonder, what are the odds the Commission's proposals will find a way to reduce this large tax burden of lost output?

Monday, October 10, 2005

This Could Be Oppression

Oppression means different things to different people, for me it is the use of political power and domination having officials control all wealth and goods and dole them out in strict equality to maintain an unjust system, which is for the benefit of the rulers, at the expense of the ruled. Such oppression may exist at the level of the state. Poverty as oppression in America is a direct result of the economic mandates and tendencies of capitalism. A capitalistic economy is inherently impersonal and concerned exclusively with profit. In the ever-present drive for profit, oppression becomes the relationship between workers and employers as employers try to maximize profits by minimizing wages. Thus the primary cause for poverty amidst the working class is oppression. Not only does capitalism require a marginal labor force of the unemployed to depress wages, but recently it has shown its need to eliminate employees and produce internationally to reduce costs. Thus the working class finds itself in periodic poverty due to oppression for three main reasons: unemployment, layoffs, and subcontracting.

Sunday, October 09, 2005

More About Oppression

Oppression seems to be a term misunderstood not only by politicians, but also by writers. Here’s an excerpt from another HUM 399 assigned reading: Redneck Liberation by David Fillingin

Baptist writer, preacher, and native redneck Will D. Campbell provides a better starting point for elaborating redneck identity. Campbell uses the word redneck to refer to “the underprivileged white of mill town and rural South.” The sharecropper system, through which the rednecks eked out a bare existence from the soil, was a “more sneaky kind of slavery, so the redneck never had to acknowledge it.” In other words, the redneck has been oppressed without ever realizing it. The interests of the white Southern oligarchy, historically the oppressors of both poor white and poor black, obviously lay in keeping the fear and anger of the two groups of poor Southerners directed at one another rather that at the ruling elite. Throughout the nineteenth century, the life of the poor white rural Southerner was a transient, migratory, and contingent one. Rednecks moved often, seeking a place where they could farm with some measure of success and security. The best lands were consumed by large-scale planters in the plantation economy, so small farmers were forced into ever more remote locations, leaving them in a marginal position socially and economically.

The way oppression is used is this passage seems wrong to me. If the farmers willingly entered into a sharecropping program that would fail to provide economic well being, then that’s an example of bad decision making, not oppression. The farmers would have been oppressed had they been forced to enter into a sharecropping program and prevented from pursuing any other occupation.

Perhaps what I found to be the worst part of this reading was the “oppression” experienced by the poor white Southerner was equated to the oppression experienced by black slaves. The two situations seem very different to me.

Friday, October 07, 2005

Writing to Learn

I'm not the only economist who thinks about learning-by-doing.

Monday, October 03, 2005

The gas market

Recently Fox News's Bill O'Reilly's made comments about gas prices, and wanting to find the individual who sets such prices. I found such a notion to be laughable and bit unnerving. Gas prices are not dictated by an individual or small group (clandestine or otherwise)--it is part of a market exchange. First, let me explain how prices at individual gas stations are set in a practical way that non-economists (including O'Reilly) can understand: gas stations receive the price of gas that they will pay their distributors. They then set their prices accordingly to make a profit from the gas. No "Gas Czar or some warped version of the Federal Reserve's Board of Governors. The station/distributor exchange is part of the market--supply and demand. Right now, in light of the natural disasters along the Gulf Coast, supply has been decreased, meaning the quantity demanded has increased, and price has increased.

Even before the Gulf Coast hurricanes, demand for gas has increased dramatically, especially in demand from China. Taken with American demand, there will be a price increase, along with an increase in quantity supplied. In short, gas prices are part of the market. People want prices to decrease, but the only we are going to see a significant decrease is if driving habits or the cars people drive change.

I was also uncomfortable with O'Reilly's implication that gas companies are raking in cash at the expense of "victimized" Americans. First, there are no victims in a market, as they are voluntary. Second, as was pointed out in "Anonymous's" post, $3+/gallon does not necessarily equate to $95/barrel. O'Reilly did not take into account the fact that many refineries are off-line and possibly damaged and in need of repair. Second, O'Reilly seems to think that there is some sort of market failure because gas companies are (supposedly) making astronomical profits from price gouging. Perhaps I am reading too much into O'Reilly's comment, but I there are those who do not understand basic economics and believe that we need price controls--ceilings imposed by the government. However, that will do nothing in the long-run to bring down gas prices; all it will do is end up creating shortages reminiscent of the 1970s-1980s. I do not think that high profits necessarily equal price gouging and think that government investigation and intervention (especially in the form of price ceilings) is pointless from an efficiency standpoint. Markets are self-correcting. Should prices get too high, consumers will change their driving habits and/or drive more fuel efficient-cars, bringing prices down. As the Gulf Coast starts its recovery from the hurricanes and the factors of production once again bring about greater supply, the prices will fall (as we are seeing today). In short, gas prices, though high, are just from the supply and demand interaction of the market.

Saturday, October 01, 2005

Government in the health care business?

Managed care practices during the 1980’s and 90’s helped lower the cost of health care for most Americans. However, in recent years, costs have again begun to rise. My question is from both the liberty and efficiency points of view, is it a legitimate use of government coercion to lower the cost of health care?

From the perspective of efficiency, it is my belief that it is not legitimate for government to use its coercive power to lower the cost of health care. Efficiency is concerned with achieving the best possible use of a scarce resource. The free market under the price system allows people to value goods and services based on opportunity cost. In my opinion, the widespread implementation of insurance programs, both private and government funded, has added to the rising cost of health care by creating a “moral hazard”. This simply means that people over consume health care services because they face a lower perceived price due to insurance coverage. The very nature of “over consumption” indicated that the standards of efficiency are not being met. The success of managed care came largely at the expense of health care providers such as doctors and hospitals. It did nothing to curb the “moral hazard” problem. If government were to step in and artificially lower prices this would only exacerbate the “moral hazard” problem and lead to even more over consumption. In my opinion the most efficient thing to do would be to increase the financial responsibility of patients and allow the free market to operate.

From the liberty perspective, the intervention of government in health care would lead to fewer choices for patients. Artificially lowering prices on health care services would lead to the lowest common denominator of health care. We would have quantity, but not quality. Just like any other business, the health care business operates to earn a profit. They seek innovations and a high quality of care to earn a larger market share. If the government were to step in and lower prices, providers would face a lesser incentive to provide the highest quality of care and to create innovations, because no matter what they do they will only receive one price. Health care would be largely standardized. In essence, by setting a price government would be choosing the level of health care available to patients. If the government is choosing, then patients are not. The right to choose is central to individual liberty. Thus, in my opinion, the intervention of government in the health care industry would hinder individual liberty.

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