Fri, 21 Nov 2003

Risk Overflow

Steven den Beste makes reference to the Precautionary Principle that some people espouse. These people prefer coal mining to nuclear power, by inference anyway since they're against nuclear power, and we're currently generating electricity by burning coal.

Note: these numbers are created from whole cloth to make a point. These numbers are not real. Every year there's a 5% chance of a coal mine accident killing twenty people. Annualized, that's a 100% chance of one person dying every year. Every year there's a .000000001% chance of a nuclear accident killing 100,000 people. Annualized, that's a .0001% chance of killing one person every years.

The Precautionary People think that nuclear power is riskier than coal mining. Why? Because they don't trust the size of the numbers. Yes, when you multiply a very small number times a very large number, you get a risk for nuclear power which is much less than that of coal. Add or subtract a zero or two, though, and suddenly the risk is much larger. The problem that I see is that most humans are not well equipped to evaluate very small risks of very bad consequences. People prefer known risks of tolerable consequence. Or, to put it another way, people buy insurance.

I would also add that the relatives of the Precautionary People don't mine coal, so the risks don't affect them, but that would be petty, so I won't.

Posted [02:52] [Filed in: economics] [permalink] [Google for the title] [digg this]

Wed, 19 Nov 2003

Anti-capitalist Activists

Heard on NPR this morning, in a report about a peace rally in London at the Euston Quaker Meeting house: "Outside, anti-capitalist activists sold T-shirts for $16."

'nuff said.

Posted [09:19] [Filed in: economics] [permalink] [Google for the title] [digg this]

Sun, 16 Nov 2003

Banning Cell Phones

[Before I get into this subject, I want to nod to Chapter 20 of David Friedman's _Hidden Order_, from which this explanation is derived. This was inspired by a report by the Institute for Highway Safety on the NY hand-held phone ban.]

After initial reports that the hand-held phone ban in New York State was working, compliance with the law has dropped off. The report says that's to be expected, simply because motorists don't comply with new laws very well. There's another reason, though: the law is stupid.

Driving is a highly skilled activity. It takes about forty hours of on-the-road training before a driver is considered competent to drive without an experienced driver in the car. Driving is also a fairly dangerous activity. Forty thousand people a year die on American roads. Walking, flying, and riding are all dangerous, too. What makes driving so different is that very often a poor driver kills rather than merely dying. Even if you're careful around roads, you can still get hit by a careless driver.

People want to be at least reasonably safe near roads. Besides required licensure of drivers, automobiles must have yearly safety inspections. These inspections are not designed to keep the driver safe, but instead to keep the public safe. You can see this because they check the lights and the brakes. The lights on a car are mostly there to signal to other people the intended path of a car. The brakes are there not only to stop the driver from getting hurt, but to stop the car from hurting someone else.

There are other constraints on drivers. Besides being licensed, they must be old enough to be responsible behind the wheel. Age is not the only determinant of responsibility. An irresponsible driver can be distracted from his driving. Driving is a skilled activity that requires concentration. If that concentration is broken, the driver can cause a crash. Many accident stories start with "I was doing X..." where X was not a normal part of driving. For example, today's newspaper had a report of a truck driver who had an accident because he was changing his clothes.

People, to be safe from distracted drivers, want laws which discourage distraction. Herein lies the problem with the hand-held phone ban. It bans one particular type of distraction, when the problem is not any one type of distraction, but any type of distraction. A state legislature could try to micro-manage driver's distractions, eliminating them one by one, but in the end, they will fail. People are inherently distractable, but each person is distractable in different amounts by different things.

There is no reasonable set of laws regulating external behavior which will prevent all drivers from being distracted. Each driver has a different set of external behavior which distracts or doesn't distract them. Perhaps they are very good at balancing a laptop on one leg, a mouse on the other, and reading their email while they drive? Perhaps someone else can't chew gum and drive at the same time? What is needed is a law that says "Thou shalt not be a distracted driver."

In essence, the way that accident liability is structured does that. In New York State, the last person who could have stopped the accident is at fault for not having done so. If you have an accident, and you were distracted, you have to pay for it. It all goes through your mandatory automobile insurance, but you can be sure that in the long run, you will pay out of pocket for being distracted.

That is why the hand-held cell phone ban is stupid. There's already an effective ban on driving while distracted. If you get distracted by using a hand-held phone while driving, then you should decide not to do it. If you're not distracted, then holding a cell phone while driving is perfectly acceptable. According to the Institute for Highway Safety's report, most New York drivers have decided that they can make their own decision about whether they are distracted or not. New York drivers, if not New York legislators, have decided to repeal the law.

Posted [00:53] [Filed in: economics] [permalink] [Google for the title] [digg this]

Hand-held cell phone use goes back up in New York, despite year-long ban.

Once the publicity dropped off, drivers resumed old dialing habits.

One year after New York became the first state to enact a law that bans the use of handheld cell phones while driving, use rates have returned to the same level as before the law. This is the main finding of a follow-up study by Institute researchers, who previously reported a 50 per cent decline in phone use rates in the months immediately following enactment of the law (see Status Report, Aug. 17, 2002

Before police started warning violators in November 2001, researchers observed a hand-held phone use rate of 2.3 per cent in four areas of the state. Several months after the ban, the rate had dropped to 1.1 per cent, a significant decline. However, by March 2003 the rate was 2.1 per cent, which isn't significantly different from before the law. Meanwhile, hand-held cell phone use among drivers in Connecticut, where no ban exists, showed a small, statistically non-significant increase from 2.9 per cent to 3.3 per cent over the same time period.

"Comparison with the Connecticut experience suggests phone use among New York drivers still may be 20 per cent lower than it would be if the law hadn't been enacted," says Adrian Lund, the Institute's chief operating officer. "Nevertheless, the data show clearly that compliance with the law is eroding."

Senior researcher Anne McCartt adds that "the pattern of initial compliance and then a gradual return to previous behaviors is typical when new traffic laws are introduced. Without enforcement that's well publicized and vigorous, drivers tend to revert to their prior behaviors."

The enactment of the ban in New York drew blanket media attention, which "may have encouraged compliance early on," McCartt says. "But the publicity rapidly dropped off, and so did the compliance."

New York is the only state that bans all motorists from talking on hand-held cell phones while driving. Police can issue $100 tickets to motorists who violate the law . But the study indicates this isn't happening regularly. Only about 2 per cent of traffic citations issued in New York between December 2001 and January 2003 were for cell phone use.

In a survey conducted by the National Highway Traffic Safety Administration, one in three drivers said they use a cell phone during at least some trips -- and one in four said at least half of their trips. The agency reports that on a national basis hand-held phone use while driving is up from 3 per cent in 2000 to 4 percent in 2002.

Data tying cell phone use to crashes are scarce, and studies have yielded varying risk estimates. One 1997 study analyzed phone billing records for a sample of Canadian drivers in minor collisions, finding crash risk four times higher when drivers were using cell phones (see Status Report, March 22, 1997. Difficulty in accessing telephone billing records has prevented such a study in the United States.

The above taken with permission from The Institute for Highway Safety's Status Report August 26, 2003.

Posted [00:14] [Filed in: economics] [permalink] [Google for the title] [digg this]

Sun, 09 Nov 2003

Monopoly, Competition, and Antitrust

I've touched on monopolies quite a number of times before (licensure-is-censure, patents-form-monopolies, price-cost-value, the-non-problem-of-public-goods, tragicomedy, unions-are-for-the-unions, and where-is-the-freedom. ) It's interesting that monopolies come up so much, because they aren't the serious problem that so many people make them out to be.


A monopoly isn't necessarily a bad thing. A monopoly might be the result of one efficient firm putting all other firms out of business, because they were all inefficient and wasteful. That's a good thing, without question. The chief problem of a monopoly is when it can charge monopoly prices. A monopoly price is when the monopoly deliberately restricts its production because it sees that it can make more profit by selling less and charging even more.

Even so, this isn't necessarily bad. Consider that I can charge monopoly prices for my time, if it makes sense. Nobody else can sell my time. Similarly for my software. If I choose to sell my software, I can charge monopoly prices for it, because nobody else can sell software exactly like it.

So let's be clear: it's not just the existance of a monopoly; it's not just its ability to charge monopoly prices; it's actually how high those monopoly prices can be. That is affected more than anything else by the ability for other firms to enter the monopoly's market and compete. Consider the case where a monopoly exists in a market which is easily entered. Why is there such a monopoly? Why wouldn't someone enter the market? Simply enough, because there might not be any profit in it. The existing monopoly might not be charging monopoly prices. If it isn't, and it's an efficient firm, there might be no room for another entrant into the marketplace.

To sum up, monopolies are a problem only because of monopoly prices, only because of excessive monopoly prices. They arise only because it's hard to enter the market.

Set that thought aside.


Now I want to talk about competition. When two companies compete with each other, they're offering products that can substitute for each other. Clearly, unless two products are absolutely identical, the method of delivery is identical, and the reputations of the companies are identical, the companies are not perfectly competing. Given that laundry list, it's safe to say that in the real world, there is no such thing as perfect competition. Any two companies are always offering different products. so whether these products compete is a judgement call rather than an exact comparison. There's no bright line: on this side there is competition; on that side not. For example, within the broad market category of "Audio Entertainment", records, tapes, CDs, and live concerts compete with each other. They're not identical, but you can find the same song by the same artist in each media.

Similarly, you can have products which are wildly different, but all of which substitute for each other. For example, Black and Decker has created a electric jar opener. It competes with the metal wedge jar opener you screw to the underside of a kitchen cabinet, with the little bit of rubber sheet that helps your hands get a grip, and of course your bare hands. All of these will open jars; they are all vastly different.

You can go beyond that level of competition to a higher level of competition. You can buy food in cans, instead. Or dried in a box, or fresh, or go eat in a restaurant. The point here is that there are many ways to get at preserved food; some of them more competitive than others.

Set that thought aside. We'll combine these thoughts in a moment.


Now I want to talk about antitrust laws. They exist to solve a problem. The problem is that monopolies are the inevitable result of competition and consolidation (one firm buying another, or two firms merging), AND that monopolies are always bad. Antitrust laws exist to solve a problem which is quite rare. That means that antitrust laws create a problem.

Antitrust laws have the effect of randomly applying the brakes on a car regardless of whether there is something to stop for or not.

From the monopoly section, recall that monopolies aren't always bad. And yet, if you look at the cases where antitrust law is invoked, you'll see that they make no distinction between a monopoly which can charge excessive monopoly prices, and a monopoly which cannot. They take no note of whether a market is easy or difficult to enter.

From the competition section, recall that competition is not an either/or thing. It is a gradation between products; no hard line exists. Therefore, to say that a market segment is monopolized, is to say that customers are unwilling to choose products from another market which substitute for it. It is also to say that nobody will enter the market once monopoly prices appear.

Perhaps, you might wish to argue, antitrust laws could be used in those market segments which are difficult to enter. No. Even then a public policy is served by allowing some monopoly prices to be charged. Consider that if a market segment is hard to enter, there must be a reason for it. Perhaps much concrete needs to be poured, or many people employed all at once. If the market is hard to enter, it must be that a large investment is needed. If you were planning a society in detail, and had full control over everything, you would reasonably be reluctant to create too many firms in this type of market segment. By allowing some monopoly prices, you give potential competitors an incentive to enter the market ... but not too much of one.

Posted [13:50] [Filed in: economics] [permalink] [Google for the title] [digg this]

Wed, 05 Nov 2003


Rather a large number of people are convinced of two things: that "overpopulation" exists as a concept, and that the earth is, or soon will be, overpopulated. I'll address these points separately.

Earlier, I have argued that there is no such thing as "the environment". I also don't think there is any such thing as "overpopulation". I believe that overpopulation is a confusing name for a bundle of ideas. When you look at the negative attributes of overpopulation, you will see that not a one of them is actually inherent in having a large number of people. The confusion in calling this set of problems overpopulation is that it asks and answers the question. It says "The solution to these problems is to control population growth."

Google found a list of problems that some Carleton College students listed. They seem a reasonable-enough list: More cars (more pollution), direct effect on the water table, overuse of natural resources, deforestation, urban sprawl, clearing land for residential use, increased air pollution, increased garbage, overuse of fossil fuels and global warming.

There's not a one of them that is necessarily corrected by having fewer people. For example, if there are fewer people and hence fewer cars, there would be less congestion on the roads. People would find it easier to drive. With fewer people, you have a smaller "mass" to satisfy your mass transit. So busses and trains would have a smaller market. Fewer people might just as well end up causing more miles to be driven rather than fewer.

People do not necessarily need to clear land for residential use. Look at the Northeast, where the population has grown AND the forests have grown.

I'm not going to say that the problems commonly lumped together as overpopulation are not problems. They are problems. Attempts to make fewer people are not necessarily going to fix those problems. Attempts to fix the problems are more likely to fix the problems. Now, if you define as a problem your opinion that there are "too many" people, then you should be subjected to this test: Pick the people you think shouldn't exist. If you think America is currently doubly overpopulated (and some people do), then you should be happy if I chose at random half of your friends for you to give up. You have to tell these (soon to be former) friends "I wish you didn't exist. The world would be a better place without you. Never speak to me again."

Free-market economies naturally grow. Every trade makes everyone better-off, and since people are free to trade as much as they wish, free-market economies grow in value faster than any other type of economy. Since the economy becomes more and more productive, more and more people are needed to work. Population growth needs to be seen as something that doesn't necessarily make us poorer. Depending on the corresponding growth of the economy, a low population growth rate might actually make us worse off, as businesses have to do less because they can't find workers.

Posted [02:39] [Filed in: economics] [permalink] [Google for the title] [digg this]

Tue, 04 Nov 2003

A Moral Obligation

A Friend asked me today "Why must a company always seek out the lowest paid worker worldwide to produce the product of the company? Isn't there some moral obligation other than to the owners or shareholders of the company?"

I'll accept that they *do* have the moral obligation you desire. It is to the customers of the company as much as to the employees. By seeking to reduce the costs, they are able to sell their products for the lowest price. They don't necessarily want to be that moral, but the free market is always watching. (This is a personification, of course. Only people can watch. It is the people who participate in a free market who are watching. But for the sake of keeping the prose moving forward, I say that it is the free market that is watching, thus eliminating bulky parenthesized notes. Um, like this one.)

Why do people of good will concentrate so very much on labor and forget consumers? People are only laborers for 8 hours a day -- they are consumers for the other 16 hours a day. An economist would hold the interests of consumers to be twice as important as those of laborers. If the company has to charge high prices to pay lots of money to its laborers, then they are hurting their customers. From a public policy point of view, that's bad thing.

Haha, fooled you! No, I'm not talking about minimum wage laws yet. Gotta save that for a day when I really want to go off on a rant. Fewer economic interventions are more pernicious than minimum wage laws.
Posted [18:01] [Filed in: economics] [permalink] [Google for the title] [digg this]