Economics and Government

The drinking water for thousands of residents in Ohio and West Virginia might become less toxic under an agreement reached between chemical giant DuPont and the Environment Protection Agency. DuPont agreed last week to either treat water contaminated by its West Virginia-based facility or provide alternative drinking water to the public. The drinking water in the area near the plant is contaminated by the chemical perfluorooctanoic acid (PFOA), also called C8, used in the Teflon-manufacturing process. The company is already providing some residents with bottled water under a 2005 agreement reached in a civil lawsuit. Under the new settlement with EPA, Dupont will only need to clean up the water if the level of PFOA is 0.50 parts per billion (ppb) or greater. A previous agreement reached with the EPA in 2002 required DuPont to intervene if PFOA exceeded 150 ppb. According to the EPA, the tougher standards are necessary after studies revealed residents had much higher levels of PFOA in their bloodstreams than the national average. DuPont has steadfastly denied that the chemical is harmful to humans, but the EPA has steadily increased warning about the drugs effects.

In DuPont's case it can be looked at as if it was a monopolist, since it holds a very large market share in the chemical production industry. The EPA is forcing DuPont to internalize the cost of the externality. With the idea that DuPont has plenty of excess profits to pay for cost of the polltuion. DuPont, acting like a monopoly will then artificially restrict the quantity supplied, in order to maximize profits. This will not only cut down the amount of pollution due to less production, but will also protect the society from gross amounts of pollution in their water.

Social Security up for discussion. – Cliff Brown

The November 22, 2006 issue of the Washington Post features an article about Social Security written by Lori Montgomery.It seems clear that President Bush is willing to, and pushing for, privatization of SS, whilst the Democrats oppose such a move "on the grounds that they would weaken Social Security overall." Instead they appear to propose raising taxes to curb the problem.
Mr Bush may seem willing to lift the existing cap on the limit paying Social Security from payroll taxes. This would raise the tax revenue and help with the impending doom for the program. However, this raises the questions as to whether this will be enough to solve the problem in the long run, or if it just delays the inevitable? And, is this fair?
Although there may be more bipartisan consideration for resolving the issue following the recent election, it seems like only fiscal fixes are being addressed. Areas of entitlement reform do not appear to be being addressed (with perhaps the exception of raising the retirement age). Surely these areas do need to be considered further.
With many people of my generation coming to the realization that SS may be defunct when they retire, and are therefore making alternative plans, it seems a little bizarre that many politicians are clinging on to a system that needs a bigger fix than that which will necessitate them being re-elected.If those that don't need the program don't pay into the program then, yes, revenues will fall, but so will expenditures. Is this such a sensitive area that politicians are not willing to consider it, only economists?

According to the article Democrats Look To Trim Medicare Costs from the Washington Post, Democrats are trying to cut costs of up to $27.6 billion over five years in Medicare costs. These cuts would reduce the number of managed care plans. "Medicare Advantage" is a managed care plan where insurers receive a set amount per person from the government. The insurers then reimburse the providers of the care. Democrats believe that Medicare should work under a more traditional program where health care providers bill the government for the services they perform.

One of the biggest arguments on the Democrats side is that Medicare is being over-funded. Due to the implementation of managed care programs, each person receiving Medicare receives a set amount. Since not everyone uses that amount, there is a fund called the regional stabilization fund. This fund was put in place because of the over-funding of Medicare and used for emergencies. This fund has not been tapped into. Democrats want to target this fund initially. With the elimination of the fund, they would save about $6 billion over five years.

Republicans and insurance companies do not want to cut these costs because they believe there will be a need for the fund at some point. Insurance companies believe that if Medicare costs are cut there will be a contraction in the number of available hospitals in rural areas of the country. Also, many insurers believe that managed care plans offer more focus on prevention and services, but Democrats believe they are more interested in the profits.

The Medicare Payment Advisory Commission recommend lowering the reimbursements for managed care programs. This would save about $18 billion over five years. This commission is often cited by lawmakers of both Republican and Democratic Parties. The commission believes that over-funding the Medicare program is a mistake. They believe that insurers and health care providing organizations will work more efficiently if they are faced with financial distress.

Over-funding Medicare is similar to over-funding Social Security. People are paying more than what they need and their excess money is going to a government fund or straight to the insurers. Using a traditional Medicare program is best, in my opinion. Every individual has different needs and therefore, should not have a blanket medicare payment. They should pay a premium inline with what services they need.

After our conversation about social security and intergenerational injustice, I thought you might like to read an earlier post at Economics & Liberty titled What Would Jefferson Say?

Pollution

I read an article in The Economist (Oct 21st-27th 2006) titled “Terminating Greenhouse Gasses.” The article was about Governor Schwarzenegger’s plan to set up an Emissions Trading Scheme between California and other states. I think this is a good idea, if it is done correctly (the economic way). Europe has developed an Emissions Trading Scheme, with a goal to cut emissions, get polluters to pay for damages and invest in greener technology. This sounds great to me. It’s just like the example from class. Pollution is a negative externality that causes inefficiency in the market. This can be corrected by making the polluters internalize the externality. This can be done by making polluters pay for the right to pollute (an amount equal to the externality for each unit produced). An Emissions Trading Scheme could do this if polluters had to pay for every unit of pollution. The result would be less pollution, and there would be incentives for companies to invest in greener technologies. In order for this idea to work, the polluters must have an incentive to pollute less. In Europe the policy is not working, because the polluters were given polluting rights for free, which took all the incentives to pollute less away. The externality isn’t being internalized so the policy isn’t working, but if Schwarzenegger does it right his policy should work.

In the New York Times today, there is an article that talks about a labor union in Houston in which janitors have gone on strike demanding a wage increase from $5.25 an hour to $8.50 an hour. The company however says this request is a "62 percent increase, along with health insurance, is unrealistic." However the janitors claim that they are only asking for enough to support their families despite the fact they only work four hours a day.

The union which is called the Service Employees International union in an effort to aid this endeavor "has sent strikers to picket office buildings in Chicago, Jersey City, Los Angeles and Sacramento, enlisting janitors in those cities to honor the picket lines and disrupting cleaning operations there." Previously, the union has distributed leaflets at its offices in Berlin, London, Mexico City and Moscow in order to pressure one of the largest real estate companies. A professor at the University of Houston notes that "If the issue is only money, this should be settled quickly. But if the cleaning companies want to break the union in Houston, it's going to be a hell of a fight."

"We think the cleaning companies have plenty of money to give us a raise" said Ms. Taboada, who earns $5.15 an hour after six years as a janitor. "It's just not fair, $5.15 an hour. We have to mop, take out the trash, clean the computers." What she is failing to consider is she took this job under her own choice knowing how much she was going to make an hour. Although this might not seem fair because maybe she trainedtrianed for any other type of employment and circumstances are such that she cannot get that training. However, the market is putting the price of labor at $5.15 an hour for providing this service and if individuals were not willing to work for this wage given living costs they would not take this job and the firm would be forced to raise the wage it is paying in order to get people in the door. If the individuals no longer wish to work for that wage they have the opportunity to move into a difprofessionfession in which they could make more money. The only reason the company should be held liable is if they are unfairly treating their employees or if they lied in the contract saying the employee's would receive a higher wage.