Monthly Archives: June 2007

Income Inequality

Mario Rizzo has written a great letter to the Financial Times:

Sir, Lawrence Summers’ article “Harness market forces to share prosperity” (June 25), on reducing income inequality, leaves several critical questions unanswered.

First, why should we care that income inequality is increasing? Was the previous distribution of income more just, simply because it was more nearly equal? Second, neither Professor Summers nor anyone else has a comprehensive understanding of the causes of recent trends in income distribution. In general, it is a bad idea to look for solutions to a “problem” whose causes we do not understand. Third, the whole idea of “sharing prosperity” seems to imply that prosperity is some kind of aggregate to which we all have some claim, much like members of a family. What justifies looking at society as a family? If it is, Prof Summers can just send me a monthly cheque without the need for legislation.

Finally, Prof Summers uses a shameful rhetorical trick. By suggesting a “solution” that steers a middle ground between excessive regulation and doing nothing (as if we do not redistribute income now), he appears to be very reasonable. Perhaps it is even more reasonable, however, to think through the rhetoric of increased redistribution before inventing new policies.

Mario J. Rizzo
Department of Economics
New York University
New York, NY 10012, US

HT: Don Boudreaux

Everyday Econ is Family Friendly

QandO points to a site that has developed a blog rating system in an apparent attempt to generate traffic. In any event, here is this blog’s rating:

Online Dating

Minimum Retail Pricing

The New York Times reports:

Striking down an antitrust rule nearly a century old, the Supreme Court ruled on Thursday that it was not automatically unlawful for manufacturers and distributors to agree on minimum retail prices.

The decision will give producers significantly more, though not unlimited, power to dictate retail prices and to restrict the flexibility of discounters.

The attempts to prevent manufacturers from setting minimum retail prices are misguided. Greg Mankiw previously explained this here:

… some economists defend resale price maintenance on two grounds. First, they deny that it is aimed at reducing competition. To the extent that Superduper Electronics has any market power, it can exert that power through the wholesale price, rather than through resale price maintenance. Moreover, Superduper has no incentive to discourage competition among its retailers. Indeed, because a cartel of retailers sells less than a group of competitive retailers, Superduper would be worse off if its retailers were a cartel.

It is Bryan Caplan, however, who summarizes my feelings on the issue:

Since I’m what Larry White of NYU … calls “the ‘antitrust crazies’ who want to repeal of [sic] all antitrust laws,” you know where I stand.

Indeed.

I, Pencil: iPod Edition

Hal Varian explains.

Secret Ballots

The USA Today reports:

Senate Republicans on Tuesday blocked a bill that would allow labor unions to organize workplaces without a secret ballot election.
Democrats were unable to get the 60 votes needed to force consideration of the Employee Free Choice Act, ending organized labor’s chance to win its top legislative priority from Congress.

The final vote was 51-48.

The outcome was not a surprise, with Senate Minority Leader Mitch McConnell, R-Ky., saying for months that he would stop the legislation in the Senate. The White House also made it clear that if the bill passed Congress it would be vetoed.

The House passed the bill in March. Democrats and labor unions pressed for a vote in the Senate in hopes of rallying their voters in the 2008 elections, where they hope to win the White House and increase their majorities in the House and Senate.

[...]

The legislation was a litmus test vote for organized labor and businesses, strong supporters of Democrats and Republicans respectively. “Today’s vote shows us who is standing with workers and which politicians are in collusion with corporate America to destroy the middle class,” Teamsters President Jim Hoffa said.

This bill would never have passed and even if under some strange circumstances it did pass, it would have been vetoed. In other words, there was absolutely no chance of this bill ever becoming law. It defines what I loathe about the political process: symbolic votes. Hoffa’s comments essentially sum this up.

Even more startling were the comments made by John Edwards:

Union membership can be the difference between a poverty-wage job and middle-class security.

Does Edwards truly believe this?

Nothing has been done to impede unionization through this process. The vote upholds the status quo (which seemed to work very well for unions for so long).

Nevertheless the Edwards-type rhetoric is often spewed as though it were truth when, in fact, it is far from it.

Let’s look at an example. NPR reported not long ago the story of Renee Brown:

Renee Brown works assembling the Camry — the nation’s best-selling car. She puts in seat belts and cup holders at Toyota’s plant in Kentucky horse country.

Brown grew up in Beattyville, a tiny, struggling town in the state’s Appalachian coalfields. The town doesn’t have many good jobs today.

Brown previously worked as an assistant manager at Dairy Queen, where she made $20,000 annually. Six years ago, she got a job at Toyota.

Now, Brown makes $70,000 a year — more than twice the average manufacturing wage in the area.

The United Auto Workers have tried to crack the Toyota plant since before it opened. Last spring, they opened their own organizing office just down the road.

But Brown says that Toyota’s wages are so close to the union’s, she doesn’t see the advantage.

I do not wish that unions were illegal and I do not discount the success that they have had in raising wages through collective bargaining. However, to claim that one should be able to go from poverty to middle class simply by joining a union is preposterous. Unions membership is down, but it is not because it is any harder to form a union than it was in the past, it is simply because unions are becoming increasingly obsolete. Ironically, they are becoming obsolete because businesses are replicating Henry Ford and paying efficiency wages.

The example above is not merely anecdotal. It is true that companies would prefer to have non-union workers, but the best way to achieve this is to eliminate the incentive for employees to unionize and thus increase their wages and benefits.

Unfortunately, as Edwards’s comments illustrate, the Marxist belief in the surplus value of labor and exploitation persists to this day.

UPDATE: Greg Mankiw weighs in:

I have no doubt that making it easier for workers to form cartels would raise wages–at least for those workers in the cartels. But demand curves slope downward.

Moore Sicko

David Denby writes in The New Yorker:

In each country, Moore interviews doctors who speak proudly of how well their country’s system works. But the candor of these doctors is no more impressive than that of the corporate spokesmen Moore has confronted in the past. No one mentions the delays or the instances of less than first-rate care. We find out that a doctor in Great Britain makes a good income (about two hundred thousand dollars), but not how medical care in, say, Toronto might differ from that in a distant rural area, or how shortages may have affected the quality of Cuban health care. Moore winds up treating the audience the same way that, he says, powerful people treat the weak in America—as dopes easily satisfied with fairy tales and bland reassurances.

UPDATE: Michael Moynihan also highlights Denby’s review and points to pictures that are worth more than 1000 words regarding the Cuban health care system.

The Forgotten Man

In his review of Amity Schlaes’s The Forgotten Man, John Updike writes:

The impression of recovery–the impression that a President was bending the old rules and, drawing upon his own courage and flamboyance in adversity and illness, stirring things up on behalf of the down-and-out–mattered more than any miscalculations in the moot mathematics of economics.

This statement is extremely telling. Under no circumstances should the government have the right to expand its influence over the economy simply to demonstrate its ability to do something. FDR expanded the scope of government, challenged the Constitution, and perhaps prolonged the Great Depression.

Regarding the New Deal, Robert Higgs wrote in Crisis and Leviathan:

“The [National Recovery Adminstration] organized mass demonstrations of public support, including a parade of 250,000 people in New York. Billboards, posters, buttons, and stickers displayed the NRA’s messages. Volunteer boosters, like the Four Minute Men of the wartime Liberty Bond drives, spoke in support of the great crusade. Radio stations and newspapers fell, or were driven, into line. Not since the war had there been anything like the outpouring of hoopla.”

This was all done for show and was blatant propaganda. I guess John Updike wouldn’t have it any other way.

Sicko Review

Michael Moynihan watches Sicko so you and I do not have to:

Michael Moore is as conspiratorial as ever. The online leaking of Sicko, his new documentary on the American health care system, was an “inside job,” he said. It was an attempt at “ruining the opening weekend’s box office” by those with a “vested interest” in seeing the film fail. And that’s not all. Government officials, the Fahrenheit 9/11 and Bowling for Columbine director told reporters, are so anxious about his paean to Cuba’s health care system that he stashed the master reel in Canada, lest the Bush administration try to seize it.

But the administration needn’t worry about Sicko. As with much of his previous work, Moore’s latest film is, by turns, touching, naïve and maddeningly mendacious, a clumsy piece of agitprop that will likely have little lasting effect on the health care debate. Moore is right that the American system is sick—on this, there is bipartisan and public consensus. The United States has the highest per capita health care spending in the world, with comparatively disappointing results. But his radical prescriptions, which include a call for a British-style, single-payer system, will likely have little resonance with viewers. Indeed, according to a recent ABC News/Kaiser Family Health study, insured Americans are overwhelmingly (89 percent) satisfied with their own care, while broadly concerned about rising costs of prescription drugs and critical of the care others receive.

[...]

Sicko presents us with the case of Doug Noe, whose young daughter Annette was born with an acute hearing disability. When a doctor suggested a pair of cochlear ear implants, Noe’s insurance provider, Cigna HealthCare, approved the procedure for only the left ear, arguing that a two ear operation was “experimental.” But when Noe alerted Moore to Cigna’s intransigence, the company quickly reversed its decision, fearing bad publicity.

Score one for Citizen Moore.

Such heartless penny-pinching, Moore argues, is uniquely American, the logical endpoint of a system that puts profit before people, as the saying goes. But fear not. For according to Sicko, there exists an alternative, modestly utopian alternative. In Europe—specifically France, England and Scandinavia (Moore filmed in Norway, but didn’t include it in the film, he told audience members at the Washington, DC premiere, because it was so generous he feared American audience members would think it was pure fiction)—every health care issue is handled by a squadron of munificent bureaucrats.

But, the viewer is left wondering, who will pay for all this generosity? Don’t governments too suffer from cash shortfalls and ballooning budget deficits; situations that require corners to be cut, beds to be freed up, the cheapest route taken? What of Moore’s implication that, once turned over to the government, things become “free?”

Take the case of four-year-old Elias Dillner. In 2004, Dillner’s parents were told by doctors that their son too would benefit from cochlear implants. After being fitted with the first implant, Dillner’s insurance provider said the second operation could not be “prioritized.” The family would have to wait. “We will do anything,” Elias’s mother told reporters, “even if it means that we have to take out a loan for the operation.” Without insurance, the second procedure would likely cost $40,000.

But Dillner’s truculent insurance provider was not Aetna or Kaiser, but the notoriously generous Swedish welfare state, where health care is “free.” And because there is no private clinic in Sweden that could perform the operation, Elias will sit in a queue, hoping, in lieu of privatization, for prioritization. Swedish legislator Robert Uitto said that the Dillner case was unfortunate, but “People shouldn’t, on principle, be allowed to purchase care in the public system.”

Sicko also introduces us to Diane, whose brain tumor operation was initially denied by Horizon BlueCross because it didn’t consider her condition “life threatening.” She eventually received treatment, but “not without battling the insurance companies,” Moore says.

Jack Szmyt found himself in a similar situation. After waiting two months for his initial diagnosis—he too had a brain tumor—Szmyt was told that it would be another month until doctors could start the necessary treatment. Rather than wait in a queue, he borrowed $30,000 from a friend, and flew to a private clinic in Germany. Had he not sought private treatment abroad, his German doctor said, he would likely have died. When contacted by the media, his insurer, again the Swedish government, said it didn’t consider the assigned waiting period “unreasonable.”

Such examples suggest that Moore’s depiction of European-style medicine as an easy panacea for America’s problems is rather more complicated than presented. Massive queues and cash shortages have plagued all of the systems profiled—and celebrated—in Sicko.

Read the whole thing.

“Freegans”

The New York Times reports:

ON a Friday evening last month, the day after New York University’s class of 2007 graduated, about 15 men and women assembled in front of Third Avenue North, an N.Y.U. dormitory on Third Avenue and 12th Street. They had come to take advantage of the university’s end-of-the-year move-out, when students’ discarded items are loaded into big green trash bins by the curb.

New York has several colleges and universities, of course, but according to Janet Kalish, a Queens resident who was there that night, N.Y.U.’s affluent student body makes for unusually profitable Dumpster diving. So perhaps it wasn’t surprising that the gathering at the Third Avenue North trash bin quickly took on a giddy shopping-spree air, as members of the group came up with one first-class find after another.

Ben Ibershoff, a dapper man in his 20s wearing two bowler hats, dug deep and unearthed a Sharp television. Autumn Brewster, 29, found a painting of a Mediterranean harbor, which she studied and handed down to another member of the crowd.

Darcie Elia, a 17-year-old high school student with a half-shaved head, was clearly pleased with a modest haul of what she called “random housing stuff” — a desk lamp, a dish rack, Swiffer dusters — which she spread on the sidewalk, drawing quizzical stares from passers-by.

[...]

A few of those present had stumbled onto the scene by chance (including a janitor from a nearby homeless center, who made off with a working iPod and a tube of body cream), but most were there by design, in response to a posting on the Web site freegan.info.

[...]

Many freegans are predictably young and far to the left politically, like Ms. Elia, the 17-year-old, who lives with her father in Manhattan. She said she became a freegan both for environmental reasons and because “I’m not down with capitalism.”

There are also older freegans, like Ms. Kalish, who hold jobs and appear in some ways to lead middle-class lives. A high school Spanish teacher, Ms. Kalish owns a car and a two-family house in Queens, renting half of it as a “capitalist landlord,” she joked. Still, like most freegans, she seems attuned to the ecological effects of her actions. In her house, for example, she has laid down a mosaic of freegan carpet parcels instead of replacing her aging wooden floor because, she said, “I’d have to take trees from the forest.”

Not buying any new manufactured products while living in the United States is, of course, basically impossible, as is avoiding everything that requires natural resources to create, distribute or operate. Don’t freegans use gas or electricity to cook, for example, or commercial products to brush their teeth?

“Once in a while I may buy a box of baking soda for toothpaste,” Mr. Weissman said. “And, sure, getting that to market has negative impacts, like everything.” But, he said, parsing the point, a box of baking soda is more ecologically friendly than a tube of toothpaste, because its cardboard container is biodegradable.

These contradictions and others have led some people to suggest that freegans are hypocritical, making use of the capitalist system even as they rail against it. And even Mr. Weissman, who is often doctrinaire about the movement, acknowledges when pushed that absolute freeganism is an impossible dream.

Don Luskin remembers when these people were called bums. J.H. Huebert meanwhile takes on this concept of freeganism:

Of course it is only because of capitalism that people — even college students! — are so wealthy that they can simply throw away such miraculous products as television sets and computers when they’re done with them, and bums (let us call freegans what they are) can live relatively well off them for no money. These people have not “absented themselves from capitalism” — they’re among its least productive (and thus highest paid) beneficiaries.

We’re From the Government…

Radley Balko writes:

A few weeks ago, Rustico owner Greg Engert put a St. Louis Framboise in the freezer to chill and forgot all about it. A few hours later, he went back to retrieve the beer and noticed it had frozen solid. He chipped out a chunk, tasted it, and an idea was born: the hopsicle. He quickly moved to put a variety of frozen beer treats on the menu.

Enter the Virginia Department of Alcoholic Beverage Control. We can’t have people innovating, you know. And we certainly can have people making alcohol fun or interesting. As it turns out, beer must be sold in its original container, or poured immediately into a glass (though I’m not sure how this accounts for deserts or foods made with beer). So the state egency is sending an appropriately official sounding “special agent” to investigate.