Economics and the mid-life crisis have much in common: Both dwell on foregone opportunities

C'est la vie; c'est la guerre; c'est la pomme de terre . . . . . . . . . . . . . email: jpalmer at uwo dot ca

. . . . . . . . . . .Richard Posner should be awarded the next Nobel Prize in Economics . . . . . . . . . . . .

Saturday, April 02, 2005

Pornography Conference Next Weekend at UWO

I posted the call for papers back in January. Here is the conference announcement. [thanks, Alan]. Be sure to check out the list of special events, which promises a "Fantasia Party."

The link to the conference announcement is an .mx file with lots of bells and whistles.

I don't see any Paris Hilton films on the schedule.

Vanity Plates

Some time ago, Phil at Market Power posted about vanity license plates. My wife and I both have vanity plates.
Hers is her name, rewritten in Hawaiian.

Mine is

T1 TA3

Imagine how you'd react after passing my car, then looking back at the car you just passed and seeing that plate in your rearview mirror.

One time when I was crossing the border, returning to Canada from the US, I pulled up to the little immigration booth as usual. There's a mirror on the back of the sign that says "Wait here until the car ahead of you leaves"; it's there so they can check license plates and the backs of automobiles.

The young lady in the booth did a double-take, and then asked, "Do you know what your license plate says in the mirror?"

Me, innocently, "No, what does it say?"

Trespass and Harm:
Who Is Least-Cost Bearer of the Risk

This is pretty galling. A teenage criminal trespasses, falls 40 feet, is injured, and sues the building owner for not having maintained a better fence that would have kept him out.

A teenage criminal who received £567,000 in compensation after falling through a roof while trespassing boasted about his wealth yesterday, saying that he was looking forward to buying "a few houses and a flash car".

In his first public interview since receiving the award, Murphy - who has convictions for robbery, burglary and assault - said that he did not care about the response.

"I deserve this money and I don't care what anybody says about me," he said. "I'm going to buy a big house so I have a place to live with me mum when she gets out of jail. I might buy a few houses - I'll buy whatever I want." He added: "The papers just call me a yob and a thug because I've been done for robbery and assault but those were just silly stupid little things, like.

"I want to spend my money the way I want without people interfering and I want to have a prosperous future.

"I want to take my mates to Liverpool games and get a flash car. This money is mine now and I'll do what I want. I don't care about anyone or what they have to say about it."

Murphy received his compensation after suing the company that owned the warehouse. He claimed that if the perimeter fence had not been in disrepair he would not have been able to gain entry and suffer his injuries.

Maybe contributory negligence would have led to some contribution by the building owner (1% of the loss?), but for a tresspasser? I don't care about the doctrinal law in this case -- awards like this create the wrong incentives. If the common law is efficient, what happened here??

Thanks to BenS for the tip. His comment: "Crime does pay."

Friday, April 01, 2005

Hurt Me Some More..... Please!

BrianF sent me this (the one at the bottom of the page to which this link leads). Quite frankly, I don't care if it works -- I'm not trying it.

Russian scientists claim a beating with a cane on the naked buttocks is a way to cure everything from depression to alcoholism, reports Izvestia. Researchers at the Novosibirsk Institute of Medicine say the caning releases endorphins, leading to feelings of euphoria, a reduction of appetite, the release of sex hormones and an enhancement of the immune response. "The treatment works," says biologist Dr. Sergei Speransky. "I'm not sadistic, at least not in the classical sense, but I do advocate caning." Dr. Marina Chuhrova added she had 10 patients she caned regularly: "At first they didn't like it, but when they started to feel the benefits, they kept asking for more."
From one of my all-time favourite movies, "Thank you, sir! May I have another?"

The U.S. soldiers weren't torturing prisoners at Abu Ghraib --
they were practicing Russian acu-caning.

Age and "Performance"- Enhancing Drugs

What performance-enhancing drug is this guy on [$ subscription required; thanks to Jack for the story]:

An 87-year-old American sex tourist who was arrested as he set off to have sex with two pre-teen girls in the Philippines was sentenced to 20 years in jail yesterday. ...

Seljan, a former country singer, was the first person to be convicted at trial of violating the 2003 Protect Act that punishes U.S. sex tourists irrespective of where the crime occurred.

He was arrested at Los Angeles International Airport in October, 2003, prior to boarding a flight to thePhilippines, where prosecutors said he was planning to have sex with two girls aged nine and 12.

The suspect was well-prepared, with US$8,000 in cash, 45 kilograms of chocolates, sex aids, 127 pornographic pictures and sexually explicit letters written to the two young girls. He also had maps to the girls’ homes.

I wonder what happened to the Los Angeles street price for hookers' services after this case broke. In a sense it is analogous to any other trade barrier that reduces the foreign supply and/or increases demand for the domestically produced good or service.

On a different note, I find it intriguing that some people are willing to pay so much for certain types of services when there are others that seem, at least to me, like close substitutes that are available for considerably lower prices. Quite likely the answer is that they are not close substitutes for some people.

100 pounds of chocolate??

Thursday, March 31, 2005

Smoot - Hawley All Over Again

Just as I suggest Canada needs to develop WMD to threaten retaliation against US trade barriers, Canada decides to join other countries in imposing punitive tariffs on US products because of the Byrd amendment [h/t to BF]:

The announcement of a 15 per cent surtax on cigarettes, oysters and live swine from the United States came Thursday, just as the European Union took similar measures.Canada is joining countries from around the world protesting a U.S. trade measure known as the Byrd amendment, which the World Trade Organization has deemed illegal.The Byrd amendment allows American companies to keep the proceeds that Washington collects in anti-dumping disputes - something Canada and other countries complain unfairly enriches their U.S. rival firms.

"For the last four years, Canada and a number of other countries have repeatedly urged the United States to repeal the Byrd amendment," Trade Minister Jim Peterson said in a statement Thursday."Retaliation is not our preferred option, but it is a necessary action. International trade rules must be respected."

The highly unusual Canadian sanctions, which also cover certain types of fish, are to take effect May 1.

The EU says it will slap duties of up to 15 per cent, also on May 1, on such U.S. imports as paper, textiles, machinery and farm produce.The 25-member EU said it took that action "in light of the continuing failure of the United States to bring its legislation in conformity with its international obligations."

Both Canada and the EU have long asked Washington to repeal the three-year-old Byrd amendment.Last November, the WTO gave Canada and the other co-complainants the authority to retaliate.

The other countries involved include Mexico, Japan, India and Brazil.

I certainly hope we are not squaring off for tariff wars like the ones initiated by the US with the Smoot-Hawley tariffs. Nobody wins with those.

The Minimum Wage Revisited

Who is helped and who is hurt by the minimum wage? Here's one answer from the Emirates Economist:
As I was relating to my students just the other day, the unintended consequence of the minimum wage in the U.S. is that it enriches white middle class families with working teenagers and further impoverishes working class black families. When you show students the unintended consequences of the minimum wage I've noticed that in South Carolina and in the United Arab Emirates there are some students who will ask this question in class: "Say what? You said the purpose of the minimum wage law was to benefit the poor. Why are you teaching us about something that shows the opposite effect?" Though they feel confused, such a student has learned a lot in 50 minutes.

Relate that to the following statistic, cited in that same piece:
It's not exactly macroeconomics, but PowerLine takes note that the "The Employment Policies Institute has calculated the average family income of employees who would benefit from an increase in the minimum wage based on Census Bureau Data (click here). According to the EPI breakdown (based on 2003 data), the average family income of Minnesota's destitute minimum wage workers is...$57,421."

Read that again: $57,421.

His blog belongs on everybody's blogroll.

Predatory Pricing in Minnesota

Minnesota has passed a law that says big nasty corporate gasoline stations are not allowed to make consumers better off by charging low prices for gasoline. The reason? They'll drive the small guys out of business and then jack up the prices when they have the market all to themselves. Phil Miller at Market Power has a terrific post debunking such nonsense.

Here is a quote from the article that shows the predatory pricing argument is at work here:
But Cornish said the survival of small stations is at stake if major corporate sellers offer gas at below cost. "It will be a way of closing down these stations - the little ones," Cornish said. That could be devastating for smaller towns where there might be just a single option for purchasing gas, Cornish said. And if most competitors are eliminated, the big sellers would ultimately be able to sell at a higher price than they could if nearby rivals still existed.

First, if consumers in the small town have an option to buy low-price gasoline at a "corporate" gas station, why should the government restrict their options and how would this be devastating to the community? It would have just the opposite effect. Sure, the owner of the gas station would feel a negative effect, but the consumers of gas in the small town would gain. Not only could they get gas cheaper, but they can put the savings towards the purchase of other things.

Second, those who use the predatory pricing argument say they fear monopolization. Never mind that the evidence suggests that predatory pricing exists in models but not in practice. If there really is only one gas station in a small town, doesn't that station have market power which it can use to jack up its prices? Won't legislation designed to keep competitors out enhance its market power and allow it to maintain its high prices? The answer to both questions is yes.

Third, do we really think that the small town gas station would actually go out of business? What if the nearest "corporate" gas station is 30 miles away? How often are residents of the little town going to drive 60 miles (30 miles there and back) just to get a full tank of gas?

Despite such cogent pieces as this, it seems our work is never done.

Canada Needs a Nuclear Weapons Programme
Walk Softly and Carry a Big Nuke

Over the past several decades, the Canadian gubmnt has made a number of empty pronouncements to assert its identity and its sovereignty in a world in which it, de facto, has little or no power.

Two recent notable incidents include Canada's refusal to support the United States' invasion of Iraq and Canada's pronouncement that it would not support the U.S. missile defense system. Clearly neither of these positions had any influence on anything anywhere in the universe other than to make many Canadians feel a bit less dependent on, or under the influence of, the United States and make some of them feel morally superior to the war-mongering gringos.

At the same time, U.S. protectionism and barriers to trade have been problematic for Canadian producers in some industries. Old conflicts over hogs and logs and the negotiation of the autopact led many Canadians to hope that continued negotiations and better treaties would reduce some of the erratic protectionism from the U.S. Reducing U.S. non-tariff barriers to trade, especially its "guilty-until-proven-innocent" anti-dumping tribunal and the multitude of local content restrictions, was a major reason so many Canadians were hopeful that recent trade treaties would be even more beneficial to both countries than they turned out to be.

Unfortunately, despite the general movement toward considerably freer trade between the U.S. and Canada, the continuing softwood lumber disputes and the continued U.S. ban on imports of Canadian beef are clearly protectionist motivated. [see here for a clear statement of the growth of U.S. protectionism]. The problem for Canada is that we have no way of threatening anything to the U.S. in order to obtain speedier and fuller compliance by the U.S. with the Canada-U.S. Free Trade Agreement, with the North American Free Trade Agreement [NAFTA], and the decisions made by the WTO. The best we can come up with is, "If you don't stop hurting our beef industry, we'll just have to.... we'll just have to .... well, we'll think of something."

My proposal is that Canada should develop a nuclear weapons programme.

The U.S. has shown with both Iran and North Korea, especially when pressured by other gubmnts, that it is willing to try to buy off the gubmnts of other countries that appear to be well along the way toward development of nuclear weapons.

For this strategy to work, the Canadian gubmnt would have to get the project well underway, lest the U.S. treat us like Iraq: invade us and demolish it, or hire the Israelis to do it for them [or just nuke us 'til we glow]. But once Canada has a few nukes pointed at New York City, Washington DC, or Burbank California, it would be difficult for the U.S. to threaten pre-emptive strikes. And then we could talk about maybe, possibly dismantling our programme depending on the U.S. position on softwood lumber, beef, and many other trade issues.

I am not a political insider. For all I know, the Canadian gubmnt is already on this path. Let's face it, we have plenty of uranium and a well-developed nuclear power industry, and so movements in this direction would not be out of the question.

It's not a new idea. Not only have North Korea and Iran exploited it; see The Mouse That Roared.

An(other) Exercise in Opportunity Costs

We teach our students that people respond to incentives. If you want to attract more resources to a given use, you must offer more to meet or exceed the opportunity costs. It follows that if you offer less, you will attract fewer scarce resources.

I usually illustrate this concept in the classroom by asking how many students would be willing to work for me as a research assistant at various hypothetical wage rates. Invariably the responses trace out a 3rd-degree polynomial that is positively sloped throughout.

This is nothing more than common sense: supply curves are upward-sloping, except in very extreme cases which are more theoretical than real-world.

So why don't politicians and bureaucrats understand this? From Number 2 Pencil:

Hmm, so slashing the pay for substitute teachers results in...a huge dearth of substitute teachers. Who would have thought?

Denver Public Schools is asking parents to fill in as substitute teachers. The school district said it's so short of subs that it's writing to parents in hopes that they'll step in. The shortage comes after daily pay for substitutes was cut from $120 to $81.

School officials say substitutes do not need teaching experience, just a college degree and a special certificate, which can be obtained.

There is no way I would go into a classroom with kids I didn't know (but who knew I was a substitute teacher -- I remember how we treated substitutes when I was a kid) for pay that amounts to not much more than I could earn as a socionomologist flipping burgers or selling coffee at a donut shop. No wonder they are having difficulties finding substitute teachers.

Thanks to BrianF for the pointers.

Wednesday, March 30, 2005

Data Collection

This will surely be making the rounds, from Mahalanobis [thanks to BrianF for the pointers]:

From the Scottish Journal of Political Economy (Pricing Personal Services: An Empirical Study of Earnings in the UK Prostitution Industry): In late 1998, a website named Punternet was launched in the UK by an individual using the pseudonym 'Galahad'. The website's main purpose is an information exchange for clients. Clients are invited to submit 'reports' to the site on prostitutes whom they have recently encountered. The report is submitted pro-forma, and contains the location and duration of the encounter, the working-name and contact details of the provider, some information about her physical attributes and personality, a description of the services rendered, and, most crucially, the price paid. <> The data set generated by this website presents us with a rare opportunity to identify the factors which determine the price paid to a provider for their services.

At the same time, a bunch of MPs in Canada are proposing a massive, long junket to Sweden, the Netherlands, and Nevada, to study the different possible schemes for decriminalizing prostitution in Canada. I wonder what type of research they have in mind that they cannot do from their offices...

To read more on the possible decriminalization of prostitution in Canada, see this and this.

The Coase Theorem and Terri Schaivo

According to the Coase Theorem,

  1. If legal entitlements are well-defined and easily enforceable, and
  2. if transactions costs are low, then
  3. resources will move to their most highly valued use.

In the case of Terri Schaivo, the courts appear to have decided: her husband has the legal entitlement to decide what to do with her. It has been costly for him (and many others), but this legal entitlement has withstood many assaults and is (in some sense) comparatively easy to enforce.

If her parents wished to obtain the legal entitlement to decide what to do with her, presumably the transaction costs were quite low. They could have made a deal. If her husband was in it strictly for the money, he could have sold his legal entitlement for quite a large sum, according to Steven Landsburg.

I have less understanding of why Schiavo's parents want to keep
feeding her. And insofar as they want others to keep feeding her—through Medicare, etc.—I think we can safely ignore their preferences. But provided they and their supporters are willing to bear those costs, I infer that this is something they want very much and there's not much reason to stop them.

You could argue in response that Michael Schiavo has signaled an equally strong desire to bury her (by turning down an offer of $1 million and by some reports $10 million)...

He turned down a $10m offer to purchase that legal entitlement? I understand he wanted to remarry, and that he is nominally a Roman Catholic and so divorce might not have been acceptable, but why would he turn down such a large offer?

He may not have had much of a choice. Aside from the bad PR he would receive -- accepting money for his wife's life would seem like some form of ghoulish ransom -- the decision was apparently made many years ago. This is from Wikipedia:
On March 11, 2005, media tycoon Robert Herring (who believes that embryonic stem cell research could cure Schiavo's condition in the future) offered $1 million to Michael Schiavo if he agreed to waive his
guardianship to his wife's parents. The offer was rejected, Schiavo having reportedly found it "offensive." Schiavo's attorney, George Felos, stated that Schiavo has received other monetary offers, also rejected, including one of $10 million. These offers may have been made under the misconception that the removal of Mrs. Schiavo's feeding tube remains simply a matter of Mr. Schiavo's choice. It was ruled in February 2000 that Mrs. Schiavo would choose to have the tube removed, and Michael Schiavo does not have the ability to simply overrule this legal determination.
According to this interpretation, the legal entitlement was determined to belong to Terri Schiavo herself; the court also determined that she did not wish to sell it to her parents (or their representatives) on behalf of her husband. I am sure there are many other interpretations of the events, but I like this Coasian approach.

Titanium and the Tsunami

According to the April, 2005, issue of Discover magazine, the December 26, 2004, tsunami washed tonnes of titanium ore up onto the beaches of India [h/t to BrianF].
The December 26 tsunami that killed more than 250,000 people in southern Asia and Africa brought India a macabre windfall: tons of titanium ore, worth untold millions of dollars, deposited along more than 300 miles of shoreline. The deposits—as high as 10 feet in some places—were left on sand dunes about a mile inshore, significantly adding to the titanium ore already there. The Times of India speculates that more than 40 million tons landed on the coast, but Victor Loveson, a geologist for the Central Mining Research Institute, says it’s too early to make an accurate estimate.

According Richard Delevan,
Apparently a bizarre side effect of the tsunami in December was that it threw up 40 million tons of titanium ore onto the beaches of India. A rough calculation of the price (last pricing I could find was 1998, so any commodities traders do get in touch) of $4.38/lb would mean there's roughly $350 BILLION lying around on the beaches, which would roughly pay for all of the reconstruction work in every affected country, wouldn't it?

Really? If so, I would expect the spot price of titanium to drop (unless, concurrently, there has been some whoppingly huge and unanticipated increase in the demand). Yet, when I Googled "titanium" and "prices", all I could find were forecasts that the price of titanium is expected to rise perhaps as high as $8.50/lb over the next few years. And when I looked at CBSMarketWatch for any indication that spot or futures prices of titanium had dropped, all I could find were announcements that titanium prices are rising:

2:37pm 03/23/05 Kerr-McGee raises outlook for chemicals unit - Jim Jelter
3:55pm 03/22/05
DuPont to raise Ti-Pure price in Latin America April 1 - Heather Wilson
3:50pm 03/22/05 [
3:49pm 03/22/05 [
6:02pm 03/18/05
Movers & Shakers: Highlights of rising and falling U.S. stocks - Michael Baron
10:23am 03/18/05
Altair Nanotechnologies shares rise on research data - Carolyn Pritchard
11:59am 03/16/05
Kerr-McGee to up titanium dioxide pigment prices - Carla Mozee
5:03pm 03/15/05
Kronos to up titanium dioxide grade prices worldwide - Chelsea Bellows
4:57pm 03/15/05 [
11:11am 03/14/05
DuPont Titanium to raise titanium dioxide price 5c - Heather Wilson
11:07am 03/14/05 [

A little supply and demand could go a long way in helping to make sense of these widely divergent stories.

$1 Billion in Farm Aid from the Canadian Federal Gubmnt

The Canadian Federal Gubmnt has announced that is will provide $1 billion in aid for Canada's farmers [from the Globe & Mail, registration req'd]

Tuesday's payment comes as Canadian beef farmers continue to be hammered by continued trade restrictions with the United States. Grain growers, meanwhile, are struggling to overcome low commodity prices, the impact of a stronger Canadian dollar and the one-two punch of recent droughts and frosts in some regions.

This bailout policy, like all previous ones, is being implemented to cushion farmers' losses from detrimental risk. Essentially, all Canadian taxpayers are providing insurance for the farmers.

The main beneficiaries, however, are not farmers, per se. Rather, the main beneficiaries are farm land owners. If farmers had buy their own insurance or had to bear these risks themselves, people would be less willing to go into farming, the demand for farm land would be lower, and farm land prices would drop. But by subsidizing farming through these types of insurance schemes, the gubmnt induces more people to stay in farming (or get into farming), thus increasing the demand for farm land. It has gotten to the point that most people expect the gubmnt to bail out farmers during off-years, and this expectation is now capitalized into the price of farm land.

The other major beneficiary of this aid is lending institutions. What would happen if the gubmnt just let the farmers go bankrupt? Major lending institutions would lose big on many of their agricultural loans. The result of bailing out farmers (who likely could work elsewhere in the economy) is that the financial institutions can avoid the costs and losses due to bankruptcy proceedings.

Of course, as Posner and Becker point out, if lending institutions anticipate that borrowers are less likely to declare bankruptcy, the borrowers will receive lower interest rates on their loans. And so once again, they will be willing to pay more for the farmland.

Henry George would have loved it.

Tuesday, March 29, 2005

Terri Schaivo and Precedence

When Tyler Cowen visited The University of Western Ontario last year, one of the many topics for informal discussion was his prediction that continued growth in medical technology means we will be able to keep people alive for many more years in the not-very-distant future. As he points out today, these technological changes mean that we will increasingly be faced with competing issues, pitting the costs of keeping people alive against the ethics of killing people:

I don't see much guidance here from economics, political philosophy, or virtue ethics. My instincts are to "look toward the future," but I don't have a good argument that avoids all possible repugnant conclusions. ...
As Medicare grows as a percentage of the federal budget, this issue will become increasingly important. And as technology advances, no one will be left with a comfortable intellectual position.
Tyler is correct. The Terri Schaivo case is only the first of many such cases in which people will have to make very difficult decisions.

In Canada, given the shortages of medical services (at zero prices), we tend to leave the reconciliation of these conflicting issues to medical professionals, many of whom seem to relish the idea of playing god.

Update: For more on legal precedence involving this case, see Craig Newmark and Instapundit here and my position here.

Will the U.S. Dollar Be the Source of the Next Global Economic Crisis?

Peter Drucker, writing in The National Interest, says "yes".

The next major economic crisis will most probably be a crisis of the U.S. dollar in the world economy. It will put to a severe test the oligopoly of the central banks of the developed countries that now rules over the world financial economy.

Sixty years ago, in the Bretton Woods meetings of 1944, which tried to refashion a world economy that had been devastated by depression and war, John Maynard Keynes, the 20th century's greatest economist, proposed a supra-national central bank. It was vetoed by the United States. The two institutions that Bretton Woods established instead, the Bank for International Development (World Bank) and the international Monetary Fund (IMF), are, despite their impressive names, auxiliary rather than central--the former mainly financing development projects, the latter providing financial first aid to
governments in distress.

The Bretton Woods system was never the stable, "non-political" system Keynes wanted. It could not and did not prevent currencies from being overvalued or undervalued. Still, although it limped from one crisis to the next, the Bretton Woods system worked for most of the half-century after World War II. And there was only one reason why it worked (however poorly): the commitment to it of the United States and the strength of the U.S. dollar as the world's key currency.

The dollar is still the world's key currency. But the Bretton Woods system is being killed by the U.S. government deficit, which is fast becoming the sinkhole of the world financial economy. The persistent U.S. deficit creates a persistent deficit in the U.S. balance of payments, which make both the U.S. economy and the government increasingly dependent on massive injections of short-term and panic-prone money from abroad. The U.S. savings rate is barely high enough to finance the minimum capital needs of industry. It could, in all likelihood, be raised considerably by raising interest rates. But that is not only politically almost impossible; it would also require that a larger share of incomes go into savings rather than into consumption, with an inevitable collapse of an economy based on consumer spending and low interest rates, as for instance, the U.S. housing market.

The government deficit is therefore being financed almost in its entirety by foreign investments in the United States, mostly in government securities like short-term treasury notes and medium-term bonds. The Japanese are converting most, if not all, of their trade surplus with the United States into dollar-denominated U.S. government securities and have thus become the largest U.S. creditor.

... The economic fact is that the United States increasingly borrows short term (U.S. securities can be sold overnight) to invest long term and with very limited liquidity. This, needless to say, is an unstable and volatile system. It would collapse if the foreign holders of U.S. government securities (above all, the Japanese) were for whatever reason (such as a crash in their own economy) to dump their holdings of U.S. government securities. ...

I have written about this potential problem before. My question to Mr. Drucker is, as I asked before, "If foreign central banks decide to hold fewer U.S. dollar-denominated securities, what will they decide to hold more of? Probably not Euros."

Is George Soros shorting the U.S. dollar? If so, what is he buying/holding?

Update: for a fascinating debate on this topic, see here, a Wall Street Journal econoblog debate between Nouriel Roubini and David Altig . My position? I can easily be persuaded that either position is correct. Both seem concerned about the massive U.S. gubmnt deficits.

Canadians Invited to U.S. for CT-Scans

Over the past couple of weeks, Jack has sent me copies of several advertisements that have appeared in The National Post in Canada. Here is the introductory text of one of the ads:

You don't have to wait to have your CT Scan
If you or someone you know is on a long waiting list for a CT
Scan (also known as a CAT Scan) you have another option.
Just across the border in Southfield, Michigan, you can be
scheduled immediately on our state-of-the-art GE/Imatron CT scanner.

If a physician in Canada prescribed a CT Scan for a member of my family, but we were told that there was a 4-month waiting list, you can bet we'd be traveling to Michigan.

The second advertisement advertises heart scans. They even offer a two-for-one special: Jack calls it "His and Hers bad news reports." The third, from a different organization, advertises MRIs for Canadians with no wait.

As Jack says, even if we go to the US to find out more quickly that there is something wrong with our bodies, Canadians still face long waiting lists for most medical procedures.

Here is the CT-Scan ad:

David Ricardo and the Social Security Crisis

The simple form of the theory of Ricardian Equivalence holds that if gubmnts borrow more now to spend more now, private individuals will save more now to meet their increased future tax obligations (or the increased future tax obligations of their heirs).

If individual decision-makers have rational expectations, then people in Canada and in the U.S. should recognize that future gubmnt-provided pensions (Social Security in the U.S., Canada Pension Plan in Canada) will have to be reduced and/or taxes will have to be increased to cover the increased pension entitlements of an aging population. Following the theory of Ricardian Equivalence, if people expect increased taxes or reduced benefits in the future, they should be expected to respond by saving more now and all this increased present-day saving will be in private pension accounts and savings plans.

It is not happening, though. People are spending more and saving less, as a percentage of their incomes. One reason is that many of us do not have rational expectations -- there are people telling us there is no reason to expect a future tax increase and/or benefit reduction. Furthermore, there is no way for people who believe there will be higher future taxes to bet with those who doubt it -- i.e., there is no way for these disagreements to be resolved in the marketplace.

Another reason is that many of us do not care about future generations. I have written before about how odious AARP is in its "pay us now and to hell with future generations of seniors" policy prescriptions.

Fifteen years ago, a colleague asked me, don't you start to save more when you see that the deficit is getting larger? My answer was [slightly tongue-in-cheek, to capture what I believed was prevailing thought, and to be provocative], "No, if I save more, the gubmnt will just have more to expropriate from me in the future. But if I don't have anything left, those of you who have saved will have to look after me." I expect this type of reasoning is still in place for many people.

(At one point everyone at The University of Western Ontario was expected to believe in what I referred to as "rationalized expectorations and overlapping generalizations"),

Monday, March 28, 2005

Absolute Friends: Absolutely Awful

I first came to enjoy the novels of John LeCarre with Tinker, Tailor, Soldier, Spy, followed by Smiley's People. The depth of the intrigue, along with the pathos of the characters and style, all appealed to me. And then when I read The Honourable Schoolboy and Little Drummer Girl, I was convinced he was the best writer of all time.

I was pretty put off by A Perfect Spy, which was filled with more than the usual pathos, but with no redeeming virtues, so far as I could tell. But then Russia House was truly magnificent. I even enjoyed Single & Single, although it was closer in tone to A Perfect Spy than to Russia House

But The Tailor of Panama bordered on being unreadable. Stupidity combined with pathos proved to be a truly horrible combination. I saw the novel as an aberation that was sadly, but unfortunately, of the Perfect-Spy genre; I hoped that was the last of it. Unfortunately, it wasn't. Absolute Friends is very similar to Perfect Spy and Tailor of Panama. The hero is pathetic. The hero is so neurotic as to eschew any semblance of intelligence. And the long, drawn-out retrospective/biography of the hero is both unnecessary and uninteresting. From now on, I'll read the reviews before wasting my time on the bad LeCarre novels.

Manufacturers' Phone Numbers

BenS sent me this link, in case you feel like chatting with a manufacturer's representative (Cdn and US numbers).

What Are Economists REALLY Like?

A number of years ago, I sent this [true] story to someone who was compiling a list of jokes about economists, and so it is probably floating around on the internet somewhere. Let me hasten to add that the story is true.

About 30 years ago, we were at an economics convention, doing the usual stuff -- meeting people, going to paper presentations, interviewing candidates and/or interviewing for jobs, looking at book displays, drinking like fish, etc. After about a day and a half, one of the bellhops at the convention hotel asked us, "What do you guys do for a living, anyway?"

We proudly informed him we were economists. "Why do you ask?"

"I've never seen a convention like this," he said. "More booze than I've ever seen before, but no broads. What's wrong with you guys? Where are the hookers?"

I wonder if times have changed. I wonder if the growth in the number of women in the profession has had an effect on outsiders' perceptions of economists.

[Before you ask, no, I am not implying that female economists might be mistaken for hookers.]

Sunday, March 27, 2005

Loitering in Stores

There is rumour going around that women who go into labour while shopping in major stores receive gifts from those stores.

IT IS the rumour no well dressed expectant mother could afford to ignore: Harvey Nichols gives £500 gift vouchers to pregnant women who go into labour while shopping in the store.

...Now Harvey Nichols has been forced to publicly deny the "urban myth" amid concern at the number of women apparently intent on giving birth in their St Andrew Square shop.

Last night a spokesman for the company tried to pour cold water on the rumours. "We have first-aiders on site but they are not trained in childbirth and therefore this rumour is a concern to us.

So the rumour isn't true, right?



Harvey Nichols’ spokesman said the company was now in a difficult position: it did not want to encourage pregnant women to give birth in the store and yet it would not want to be stingy in the unlikely event that a mother did start to give birth in store.

"If a woman does go into labour we would consider giving her some vouchers if her intentions were not for it to deliberately happen in our store," he said.

Suggestions that the "urban myth" might not be such a myth after all are backed up by the comments of other Scottish stores.

Mothercare and Marks and Spencers said although they didn’t
have a policy on gifts for mothers going into labour it was up to the discretion of individual branch managers if they wanted to give a present of baby clothes and goods.

This non-denial denial is not likely to do much to squelch the rumour. And, as BrianF said when he sent me this link, "People respond to incentives."

If people respond to incentives, I wonder how many women get pregnant in order to collect the gift certificates. More seriously, I wonder how many couples have altered their family planning decisions in light of this information.

Sugar Protection

A little over a decade ago, I was in Lithuania, presenting some seminars and attending some meetings. At one of the meetings, one political advisor said they could probably get someone from the West to buy up the old sugar production plant and start operating it again, thus also helping the sugar beet farmers, if only the gubmnt would guarantee that the output from the plant would have protection against cheap foreign imports.

I nearly screamed. Instead I wrote them a long treatise on the dangers of offering trade protection to an industry that was unable to compete internationally. I have no idea whether the Lithuanian gubmnt implemented protection. I hope not. Otherwise, the country might face this fate:

St. Kitt's is closing down its sugar production now that it no longer has protection.
[h/t to BF]

St. Kitts sugar is exported to the European Union, which has pledged to conform to World Trade Organization regulations and cut the price support it gives to Caribbean sugar production.

Next year, the price St. Kitts receives for its sugar will drop by 37 per cent and further cuts are planned in 2007, Agriculture Minister Cedric Liburd said Sunday."It is unfortunate that after having a sugar industry for some 300 years we have to depart from it," Liburd said....

Rising production costs and falling revenues have left the state-owned St. Kitts Sugar Manufacturing Corp. owing local banks about $117
million US.

"The sugar industry has become like a cancer. If the cancer remains, it spreads; and then it is too late to cure, and the person dies ... I will perform surgery," Prime Minister Denzil Douglas said Tuesday.

All too often, sugar is both protected and subsidized. Here is a recent piece from Kick-Aas about sugar subsidies, and the comment notes the problems of trade barriers.

What have the Queen of England, Prince Charles and Tate and Lyle, the sugar company, got in common? Answer: they have all been milking subsidies from Europe’s Common Agriculture policy. The Queen and Prince Charles received £1 million during the past two years but Tate and Lyle hit the jackpot – with receipts of £233m over the same period.

It may have something to do with the 300% export subsidy that sugar attracts. We know all this only because The Guardian used the new Freedom of Information Act to get the full figures out of the government . The Guardian also wrote an editorial about it asking two questions: why has it taken so long to reveal details of where the taxpayer’s money has been going and, more important, why on earth are these subsidies being paid out in the first place? They are overwhelmingly going to big farmers and wealthy landowners, not small ones. The net effect is to make it almost impossible for developing countries to compete on a level playing field even for crops where they have a climatic advantage - such as sugar.

In America for some years it has been possible to access this web site to
get details of where all the US the subsidies have been going.

I wrote earlier that I expect sugar subsidies and protection will be changed, but only slowly and gradually.

Postscript: It appears my treatise had little effect on the Lithuanian sugar industry.
In Lithuania sugar imports are dutiable which to a certain extent limits sugar imports. The import duty is 87 per cent. The duty is based on a minimum price of LTL 2.20/kg (approx DKK 3.74). This rate of duty will apply until Lithuania joins the World Trade Organisation, and a new rate of duty will be stipulated in the agreement with the WTO.

And see here, too.

LITHUANIAN SUGAR SALES RISE 2 % IN 2003 Lithuania's sugar refineries reported aggregate sales of 81,800 tons of sugar for the year 2003, up by 2 % from 80,200 tons in 2002. Lithuania's sugar stocks reached 150,000 tons at the start of 2004, of which 30,000 tons were over-quota sugar. All surplus sugar would have to be shipped out of the country by May 2005, under the EU's new regulations. Lithuania should export around 60,000 tons of sugar in 2004. The Government is expected to allot around LTL 50 million (€ 14.49 m) to compensate producers for losses due to sugar exports. The Government has not yet set a sugar production quota for 2004. Lithuania has secured an annual quota of 103,010 tons for sugar production from the EU.

Wonderful. More EU agriculture policy at work. Ugh.
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