Economics and Government

The April 23, 2007 edition of the Washington Post has an article by Elizabeth Williamson regarding the recent food contaminations found in peanut butter, spinach and dog food.

According to the article the FDA new for years about contamination problems at the PB and Spinach plants, but due to the huge growth in the industry, “relied on producers to police themselves.” Sounds like the FDA want the producers to be the Baptists. No surprise that the bootleggers are also the producers. Gee, I wonder where the problems lie!

Further, following a complaint from the CDC regarding an earlier salmonella spike, a spokesman for the FDA said that the “FDA … cannot force a disclosure, a recall or a plant closure except in extreme circumstances, such as finding a hazardous batch of product.” Of course following a death the processing plant can be closed.

It would seem to me that we could classify this as a market failure and the need for government might be warranted. “But Wait” I hear you cry. “The FDA is a government agency.” That is correct, however, since the FDA seems to have little control on preventing serious accidents from occurring we can draw one of two conclusions:

1) A market failure exists even with government intervention
2) Government action is not large enough to correct the market failure.

It would seem Congress agrees with the second conclusion since they have recently “voted the FDA a $10 million increase to improve food safety.”

Perhaps Congress thinks the FDA was wrong in its presumption that the producers could be both the bootlegger and the Baptist.

Phillips, one of the worlds largest manufacturers of light bulbs announced in March that it joined a campaign to push for legislation to phase out by 2016 the use of traditional lighting in favor of more planet-friendly compact fluorescent light bulbs and LEDs. In an article I read, it stated “The Lighting Efficiency Coalition - an amalgam of several environmental groups and their corporate allies - supports legislation to promote the switch to less energy-intensive lighting through energy consumption standards for lighting, green buying programs for government agencies and financial incentives for consumers.”

This coalition is a great example of the relationship between Baptists (environmental groups) and bootleggers (manufacturers). According to the coalition the US could save around 18 billion dollars in annual electricity costs, which would in turn eliminate 158 million tons of carbon dioxide from the atmosphere. The coalition however seems to ignore how much more the new bulbs will cost. They also fail to mention that the fluorescent and LED lights contain toxins such as lead and mercury, which need special recycling centers to properly dispose of(many cities do not have proper recycling centers). Calling these bulbs environmentally safe is blasphemy, in actuality we would be exchanging one bad for another.

Don Boudreaux:

Not long ago, Corinne Maier boasted in The New York Times that "... in many years French workers have a higher productivity rate than their American counterparts."

Measures of productivity do regularly reveal French workers to be more productive than American workers. So Ms. Maier, a trained economist, must be right to conclude that this statistic is "proof that you can work better by working less."

In fact, she's probably mistaken.

France's labor regulations are much more burdensome than those in the US. By artificially raising the cost of hiring workers in France, these regulations make it unprofitable to hire the lowest-skilled workers. One result is that only higher-skilled workers get jobs in France. But because US labor regulations are less restrictive, a higher proportion of low-skilled workers find jobs in America.

With a larger proportion of highly skilled workers, France's average productivity is bound to be higher.

But the French shouldn't be cheering.

I drive this point home to my students by asking them what would happen to average worker productivity if Uncle Sam were to impose a minimum wage of $500 per hour. The correct answer is: "The productivity of the average worker would skyrocket!" This achievement, however, would be no cause for celebration, for this higher productivity would result chiefly from the firing of all workers incapable of producing at least $500 worth of output per hour. Measured productivity in America would jump impressively even as the US economy tanked and most workers were cast into lasting unemployment.

The larger lesson is that proper interpretations of statistics often are surprisingly counterintuitive.

After all, our intuition tells us that countries with higher labor productivity do better economically than do countries with lower worker productivity. But our intuition is wrong.