Mon, 31 May 2004

The Labor Theory of Value

This dude on slashdot complains about "our purely monetary system -- there is no measure for the labor hours, or the quality of those hours, that go into the production of much of anything. The cost of things that can't be measured monetarily is all too often assumed to be "ZERO", but that simply isn't true. Even freeware costs somebody something to make."

Marx had this theory for the source of value. At the time he was writing, there was no consensus among economists for the source of value. Why are diamonds more valuable than water? They couldn't explain that, since obviously water is more necessary to human life. They didn't have the idea of marginal utility, so they were casting about for an explanation. Marx's explanation was that the value of something came from the labor that went into it. Water was easy to get, but diamonds had to be mined from the earth.

Curiously, some people still believe that theory even though there are numerous counter-examples to it. For example, it doesn't take into account time preference. If all else is the same, people value something now over something later. If I hide two packets of gold coins, and offer to sell you their location, one of which you will be told immediately, and the other of which you will be told in twenty years, you will pay more for the first than the second. How can that be, according to the labor theory of value? The same exact labor has gone into each packet.

The slashdot dude has obviously made the same mistake. There is no measure for the labor hours or the quality of those hours, that go into the production of anything. That's not how you assign a value to something. First, since value is relative, everyone assigns their own value to something. There is no such thing a single measurement of value. Second, you cannot assign a value to something by looking at what it cost you. If the value of something was always equal to its cost, nobody would ever sell anything for less than what it cost them. Third, the way you find out how much somebody values something is by looking to see what they will trade for it.

If something is not scarce, it is not an economic good, and you cannot measure its value with anything, much less money. Since it's not scarce, nobody will trade anything that is scarce for it. Doesn't matter what: time, drugs, sex. Or even money. Economics is not about money. It's about figuring out what people will trade for what. So, what would you trade to get a copy of the Linux kernel? Not the bits themselves, I mean the right to use or redistribute the Linux kernel. What would you give up to get that right?

Answer: nothing, because you already have that right. It's not scarce. Its value to you has nothing to do with its cost to you, or to the amount of labor that went into it.

Posted [23:21] [Filed in: economics] [permalink] [Google for the title] [digg this]

Tue, 25 May 2004

A Living Wage

Sigh. George Gonos, thinks that the minimum wage should be doubled. It's currently $5.15, and he's quoted in the May 24th Watertown Daily Times as saying that he would like it "set higher than $10/hour". He's listed as having gotten his PhD in Economic Sociology. I would call it instead Economic Fantasy.

Anyone is free to demand a living wage, of course. That's not what George wants. He wants employers to be forced to have to pay a minimum wage. The trouble with that idea is that no employer is forced -- no employer can be forced -- to employ anybody.

Go to anyone who employs people at the minimum wage, and ask to see their books. It's quite likely that most of them would refuse, but you'll find one who will agree. Double the wages of anyone making the minimum wage, and bring everyone else up to George's new proposed minimum of $10. Suddenly the books won't balance. You can be 100% sure that the employer will now be losing money. So go through the expenditures, looking to see what can be cut so as to make the business break even again. I can guarantee that there's only two places to get enough money to cover the new costs: employees wages, and prices.

So, one way to pay the new living wage is to fire half your employees. This is actually do-able. What you do is tell your existing employees "At the end of this work week, the new living wage law goes into effect. Half of you will lose your jobs, and the other half will continue to be employed. The ones who will continue to have jobs are the ones who have doubled the amount of work they get done in the same amount of time. Have a nice week!" Your employees will hate each other by the end of the week, but that's not your problem. This is, by the way, likely not the solution that George expects will happen.

The other possibility is to raise prices. The problem with doing this, of course, is that not all work has to be done on the spot. Some of it can be moved offshore. If employers suddenly have to double their wage expenses, equally suddenly offshoring will grow. Those companies will not have to raise their prices, and the companies that do will go bankrupt. This, too, is probably not what George expects. Even if businesses manage to raise prices without losing business (when has that ever happened?), who will have to pay those higher prices? Yep, the same people earning the new living wage. So, the calculations that went into the living wage will get completely thrown off, and it will no longer be a living wage. George seems not to have anticipated this effect.

I'm not sure what George expects will happen, really, but doubling the minimum wage will also require the imposition of tariffs on many imported goods, as well as new laws forbidding the exporting of services. Laws do not lead to freedom. Laws lead to more laws. Freedom leads to prosperity.

Posted [01:43] [Filed in: economics] [permalink] [Google for the title] [digg this]

Mon, 24 May 2004

Minimum Wages

Let's get this out of the way fast: any minimum wage law is wicked, and should be immediately abolished.

If that alone doesn't convince you, then let's get into details. A minimum wage law says, in effect, that anybody whose labor is not worth the minimum shall not be employed. Nobody would support a minimum wage law if it were written that way. The Department of Labor minimum wage page says "The FLSA requires that most employees in the United States be paid at least a minimum wage and overtime pay at time and one-half the regular rate of pay after 40 hours in a workweek."

Minimum wage laws are supported by four sets of people:

  1. Employers who do not want to have to compete with other employers who have lower labor costs.
  2. Employees who do not want to have to compete with other laborers willing to accept lower wages.
  3. Employees, typically represented by unions, who can claim that they are providing skilled labor, and should be paid more than a worker hired at the minimum wage.
  4. Busybodies, who support "a living wage".

The classic example of an employer supporting the minimum wage is the Northeast U.S. textile manufacturer. Textile mills were originally built in America in the Northeast, where water power was necessary and abundant. In time, water power became less important, and textiles could be manufactured anywhere. Labor was cheap in the South, and textile mills began to be built there, competing against Northeast mills.

The Northeast mill owners did not want to have to compete with the Southern mills. To raise everyone's costs to that of the Northeast, they supported a minimum wage law. Rather than allow the South to make textiles, and the Northeast workers move on to more profitable activities, the Northeast textile manufacturers lobbied for a minimum wage. In the end, they couldn't compete anyway, and most Northeast textile mills have closed.

Employees want to be paid as much as they can, of course. They will always have an incentive to have their own wages increased for the same amount of effort. The wise employee will realize that they are making a Faustian bargain. Their increased pay comes from another laborer's unemployment.

Unions are a legal monopoly on labor. A union will (at least in theory) take the members dues and spend them in such a manner as to raise the members wages enough higher to pay for the dues and then some. One of the ways they can do this is by supporting minimum wage laws. Typically, union members' wages are higher than minimum, sometimes by a factor of two or three. They do this so that they can argue "Well, the minimum wage is now fifty cents higher. Our members should get a raise of fifty cents."

Busybodies support minimum wages out of a sense of fairness. Some of them adhere to Marx's labor theory of value. This is the idea that labor produces all value, and so all profits should go to laborers. It's obviously balderdash, but it's convinced some people. There's also shouldness: nobody should have to work for such a low wage. This is obviously true, but the economist needs to add her own should: nobody should lose their job because of a minimum wage law. Equally obviously true.

Some busybodies total up the costs of living the way they want poor people to live, and call the wages necessary to pay thoses costs "a living wage". Without further thought, they support a minimum wage law to increase the wages to a "living wage." This is a "should" rather than an "is", just as in the previous paragraph. Just as they "should" get a living wage, neither "should" they endure the consequences of forcing employers to pay a living wage.

Follow the money

A minimum wage coerces an employer to pay more in wages than they are receiving in labor. Clearly, if the employer was receiving that value in labor, free market competition would force them to pay the wage for that labor. The money to pay wages in excess of labor received does not come from nowhere. It is a new cost imposed on a business. In a free market economy, in time, that cost will be reflected in the price of the good. Go read about prices, costs, and value if you think otherwise.

If nothing else changes, then, prices will rise to cover the increase to the minimum wage. The effect would be for everyone in the economy, including those formerly employed at the minimum wage, those currently employed at the minimum wage, and unemployed people, to pay for the increase. While the now-minimum-wage employees are better-off, the already-minimum-wage employees and unemployed people are worse off. They are paying more for things, but not getting any more themselves, even though they're equally or worse as well-off as the now-minimum-wage employees. This effect is ignored or dismissed by proponents of minimum wages.

You never have the case of nothing else changing, when you change the price of something. Because goods and services produced by minimum-wage employees are now more expensive, fewer of them will be purchased. Fewer minimum-wage employees will be needed. This effect is ignored or dismissed by proponents of minimum wages.

Labor is now more expensive. Whenever the cost of an input to production changes, the manager of that production will re-evaluate the production methods. It may be that a tool whose cost was formerly prohibitive is now cost-effective. The McDonalds near me now has a french-fry basket loader. They dump a big bag of fries into the hopper, and it loads a specific amount into a fry basket. No doubt the machine is cheaper to employ than the employee's time. This effect is ignored or dismissed by proponents of minimum wages.

An employer may reevaluate his processes, and find that he can do without the employee entirely. Perhaps a tool could be employed? Perhaps the production process may be made more efficient? Perhaps he can get other workers to work harder? This effect is ignored or dismissed by proponents of minimum wages.

No matter how you cut it, somebody worse-off than the employee ends up paying for the increased (above market) wages. That's a result of economics, which is value-neutral. We could use our values to decide that that's acceptable, fair, and moral. I don't think it is. Minimum wage laws should be abolished solely because of that negative effect.

Why didn't I notice this?

Right about now, somebody will say "there is no evidence that the minimum wage law creates unemployment." They are fortunately quite correct. The current minimum wage law doesn't lift wages much above the market level. That means that they also don't create much unemployment. You can point to the many people who have minimum wage jobs, if you want. That won't help, because some of those people will have minimum wage jobs anyway simply because the market price matches the minimum.

Another reason you won't notice the unemployment caused by the minimum wage is a very simple fact of human nature: it's hard to see things that don't exist. We are biased by millenia of evolution to notice things that exist, and disregard things that don't exist. It's very easy to see minimum wage jobs. They're advertized in the newspaper. People who are unemployed don't walk around with a sign saying "Unemployed because the minimum wage went up." Everybody who is alive today have ancestors who paid close attention to deadly things that exist, and less attention to things they only imagine.

Also, when a minimum wage law destroys a job, it does so stealthily. The loss of the job associated with an increase in the minimum wage might happen many months after the wage increase.

Some people want the minimum wage to be much higher than it is now. They would like to double the minimum wage. The Haitian lace industry was destroyed (and the livelihoods of thousands ruined) by application of a 1930's US minimum wage law which doubled the wages of workers there. We could try that experiment, but I wouldn't advise it. Any minimum wage law which significantly increased the minimum wage would also significantly increase unemployment. Thank your lucky stars that the existing minimum wage laws have so little effect.

Update, 09Dec2003: David writes:

There is another issue with minimum wages not mentioned in your entry, that of people assuming that banning something will make it go away.

In Australia, we have minimum wage laws and worker protection laws similar to those in western europe. What happens when you say that people can't legally work for less than a certain amount is that large numbers of people start working illegally for less than the minimum wage.

Before finishing my degree, I've worked as a delivery driver, dishwasher, cleaner, kitchenhand, counterhand, coffeemaker, night-filler, farm labourer and research assistant. For all but two of those jobs I worked cash in hand, for around one third to one half of the minimum wage. Thousands of others do the same.

Aside from being paid below the minimum wage, the real problem for workers in this sort of situation is that they are effectively excluded from protection under most worker protection, harassment and injury compensation laws. I've seen people injured while working who had to pay nearly a weeks wages for an ambulance to hospital.

Workers at the lower end of the economy are often the most vulnerable to exploitation, and these laws usually make things worse for them.

He is, of course, quite correct. Making jobs illegal doesn't eliminate the jobs, but it does take them completely out of the purview of the legal system.

Posted [23:52] [Filed in: economics] [permalink] [Google for the title] [digg this]


The most basic result of economics is the law of supply and demand. If the demand exceeds the supply, the price will go up. If the supply exceeds the demand, the price will fall. An indisputable observation is that people are getting paid more and more. This has been true for about the last four centuries. If you put these two things together, then you have to conclude that we don't have an overpopulation problem. We have, in fact, an underpopulation problem. It is not a new problem, and it is not likely to go away any time soon.

Posted [10:06] [Filed in: economics] [permalink] [Google for the title] [digg this]

The Unions are for the Unions

Just as in Lewis's The Last Battle, where "the dwarfs are for the dwarfs", so, too, "the unions are for the unions". Make no mistake about it, unions are not in any way public interest organizations. Oh, they'll tell you how good they are for society. There's even a bumper sticker that reads "Unions: the people who brought you the weekend." Don't believe it for a moment.

One of the functions of a union is to monopolize labor. To the extent that they actually succeed in doing so, unions are bad for society in the same way that any monopoly is bad for society. In case you haven't been following along on the play-by-play, it's because a monopoly can charge monopoly prices. A monopoly gets monopoly prices by restricting the amount of production so as to move the price point to a more profitable position. You can see, now, why unions are always threatening to strike, and why unions are hard to get into.

A union doesn't have to form a monopoly to be useful. They can still create benefits for their members by reducing transaction costs. They can also contract for insurance, which is substantially cheaper if you can supply the insurance company with a need-blind pool of customers. They can administer a pension program. They can supply social needs, like picnics and parties.

Unions claim to have coerced employers into reducing the work-week to 40 hours (in the US; 35 in France and Germany). This probably isn't the case. A union would have to have monopoly power over all labor, and that's never been the case. I don't remember the exact number, but even in the heyday of union power, they never had more than 50% of the work-force as members. What's more likely is that as people became more prosperous, they valued leisure over the incremental hour of work. In a free market, people generally get what they can afford. When blacks were freed following the US Civil War, they worked fewer hours per day. Not because blacks are lazy, but because they preferred leisure over the marginal value of those extra hours of work. Freed of the need to make a profit for their owner, they could afford the extra leisure.

Now I want to look at how unions form their monopoly over labor. It's not pretty. A monopoly is hard to maintain, particularly when it's over the efforts of individuals. Basically, some union members were assigned the task of beating the crap out of people who weren't union members, but did union work. Or burning their cars, or houses, or whatever. Most of the methods for monopolizing labor involve intimidation and/or actual violence.

Today, unions use the violence inherent in government to get their monopoly. In most states, a workplace is either unionized or it is not. If it is unionized, then you MUST be a member of the union to work there, and you MUST pay union dues. A simple majority vote of the workers is sufficient to unionize a workplace. The employer is very strictly limited in what she can say about unions.

It gets worse: unions, through the voting bloc of their membership, have extorted union workplace rules out of governments. As the membership of unions in corporations has decreased, it has increased in local governments. Yes, your taxes to go support unions whose purpose is to benefit a small class of workers, and the hell with everybody else. Outrageous? Enough to make you into an angry economist? It has me.

Update Sun May 18: the head of the CWA local, Mark Seymour, has a letter to the editor in today's paper, complaining about the DANC fiber. He uses some good reasons, but also a bad one (from an economist's perspective): because it might throw some CWA union members out of work. Sorry, Mark, I count you as a friend, but preserving your job is not a good reason to not improve society. It so happens that we're arguing the same point, but your reasons for doing so are not my reasons.

Posted [09:51] [Filed in: economics] [permalink] [Google for the title] [digg this]


Unemployment. Sounds like an undesirable attribute, like "undressed", or "unable", or "unstable", or ... "undesirable". It's true that anybody who wants to be employed surely doesn't want to have the label "unemployed". And yet ... there are nearly always jobs being advertised in the newspaper. So why is there persistent unemployment?

Another word for unemployment is leisure time. Sounds odd to put it that way, but yes, someone who is unemployed can be said to value leisure over all possible jobs. Leisure don't pay the mortgage, so why would anyone prefer leisure over employment?

The answer is simple enough: because they're waiting to find a better job. Someone who has taken an inferior job will be hindered in finding and getting a better job. Rather than get stuck in an inferior job, they refuse labor.

Let's say it right out: there will always be unemployment in a free market. The "natural" level of unemployment is affected by a number of things: the likelihood of someone finding a better job than any of their choices, their savings, whether they have other means of support (e.g. relatives), and their non-discretionary expenses. This level of unemployment is called "structural unemployment." The only way to eliminate this type of unemployment is to take away people's freedom to work at the job of their choice.

Another possibility is simply that labor is not desirable. Take as an example my wife, Heather. She has worked part-time as a bookkeeper for the local food coop, and could surely work full-time elsewhere as such. My income as a consultant makes it unnecessary for her to work. The incremental value of her salary is below the value of her leisure time to the family, so she doesn't work.

Now comes the truly interesting thing: how do you measure unemployment? The answer can only be that you can't. Someone who has the attribute "unemployed" has that attribute solely in their head. If they want a job and don't have one, they're unemployed. If they don't want a job and don't have one, they're at leisure. The only way to tell the difference, all the work of the Bureau of Labor Statistics aside, is to ask. Conduct an opinion poll.

Unemployment is in the mind of the beholder. Remember that the next time you hear authoritative-sounding figures about unemployment.

Posted [09:45] [Filed in: economics] [permalink] [Google for the title] [digg this]

Trade Deficits

People are, like, massively confused about "trade deficits", y'know? So often you hear this or that pundit pontificating about how horrible it is that we have a trade deficit with one country or another. We currently have a trade deficit with China.

It's more or less meaningless to compare the volume of goods sold by Chinamen to Americans against the volume of goods sold by Americans to Chinamen. They have very little to do with each other. Often you can make sense of trade issues by bringing them home. If it makes sense in your family, then it makes sense in international trade (if only because countries tend to act like two-year-olds!)

Let's say that you are a student at the University of Illinois at Chicago (UIC). You have a trade deficit with them. You buy more from them than you sell to them. Assuming that you can get the necessary tuition money, does anybody perceive this situation as a problem? The trade deficit could go on forever. Certainly there are some gradual students who would prefer that state of affairs.

Note the assumption, though. To make the previous paragraph true, I had to assume that you had a source of tuition funds. Where are the tuition funds going to come from? Let's say that you are very good at something, and you can do that thing well enough to earn enough money to pay the tuition, whilst still leaving you enough time for college classes. You could stay in college forever and have a permanent trade deficit with UIC.

In case that's not clear enough, consider that you have a permanent trade deficit with the supermarket that you buy your food from. They are forever selling you things, you are forever paying them, and yet you NEVER offer to sell them anything. Nobody has a problem with this. Nobody is decrying the trade deficits that customers everywhere have with stores. Of course not, because the concept is just wrong.

Another way to look at it: your employer has a trade deficit with you. You are constantly providing services for him; he is constantly paying you; and you rarely if ever buy anything that you produce for him.

Do you see why a "trade deficit with China" is a confusing idea? It has, at its core, an assumption that we are ultimately bartering with China -- that the sum total of goods we sell to them must be equal in value to the sum total of goods they sell to us. But we can sell things to Japan, who sells things to China, who sells things to us. That makes for three trade deficits and yet lots of happy people.

A trade deficit with everybody

Some people are less confused than others. They worry, instead, about having a trade deficit with everybody. Let's go back to our example. Let's say that we constantly shopped; had a trade deficit with every store we enter. To keep this relevent to international trade, let's say that we used our personal IOUs to pay (being a proxy for dollars). As long as we redeem our IOUs faithfully, stores will continue to accept them. If they pile up too excessively (trade deficit with the world), people are going to be reluctant to accept our IOUs. In the parlance of international trade, our IOUs (currency) will decrease in value. The dollar will fall against other currencies. Foreign products will be more expensive in dollars than they were. Our exports will be cheaper.

The goal is to import as much as you can, and export as little as you can. "Buy low, sell high" is not new financial advice. People will help us import by giving us some credit (by taking our money/IOUs), but only if we have a history of paying back the credit. In order to do this, we have to create products that other people want to buy. To the extent that we do this well, we won't have to export much (work hard) to get the imported goods we want.

There are other ways to get people to redeem our IOUs/dollars. We could sell ownership in our businesses. That has happened -- a LOT. Several reasons for this: 1) American businesses are very productive. We make very efficient use of capital. 2) Ownership is very secure in America. Businesses don't get expropriated like they do in other countries. 3) The dollar is widely accepted. Because of #1 and #2, Russians will accept dollars from Gambians. 4) The dollar has been fairly stable of late. We haven't been printing up new dollars since Reagan's presidency. That makes the dollar a reasonable currency to hold.

If people are willing to buy businesses in the USA, then just like a supermarket, we can have a trade deficit with the rest of the world forever. We need to stay productive, but it's not the bad thing that some pundits posit. We can keep creating new businesses to sell to foreigners until the cows come home.

Posted [09:41] [Filed in: economics] [permalink] [Google for the title] [digg this]

Wed, 19 May 2004

Stupid AP Inflation Headline

Sigh. Some non-economist writer was given the task to write about inflation and botched it. Or, to be fair, some idiot editor got hold of the article and wouldn't let go of it until he had thoroughly screwed it up. "Wholesale prices up 0.7 percent in April, showing inflation on the rise". It's not just the headline that they botched, either, because the first paragraph ends in "... providing fresh evidence that inflation is awakening after a long slumber."

Inflation is not a general rise in prices. Inflation will cause prices to rise, but other things can also cause prices to rise. For example, everything gets transported somewhere, so if the price of transportation rises, prices will generally rise. Inflation is, instead, caused by an inflated supply of money. If you read farther on in the article, you'll see that the real inflation rate is only 0.2%, in line with analysts' expectations.

Posted [17:29] [Filed in: economics] [permalink] [Google for the title] [digg this]

Tue, 18 May 2004

Speculators in the oil futures market

According to NPR, one of the forces driving up gasoline prices are speculators in the oil futures market. From the way they said it, it sounded to me like they thought that speculation was a bad thing. It's not. Speculation is a good thing.

Prices do more than simply determine how much you pay for something. They also carry information. When something gets more expensive in a free market, that indicates that the demand for it has risen without a corresponding rise in the supply. This has two effects. First, it rewards the people who were careful to own the thing which is now in demand. Second, it causes people to husband their supply of that thing.

Everyone expects us to run out of oil. My entire lifetime people have been anticipating the day when we'll finally "run out of oil." That day has not yet come and never will. We'll never run out--we'll just run out of oil that anybody is willing to pay for. So, the price of oil will rise in the future because of increased demand and lessened supply. The trouble is "when".

The function of a speculator is to tell is when oil will get more expensive. If they think oil will be more expensive in the future, they'll buy an option to purchase oil in the future at a fixed price. If everyone chooses wisely, the price of the options plus the fixed price of the oil will be the future market price of the oil. The more people who want these options, the higher the price for them will be. So, when people think oil will be more scarce, more valuable, and command a higher price, they'll bid up the options.

A speculator brings the future into the present. Sometimes the future is unpleasant (higher prices for oil). This leads some people to call for laws limiting speculation. This is merely shooting the messenger. If the speculators are right, oil will be more expensive, and the sooner we start acting that way, the better. Speculators who have bought oil (or an option to buy oil) now when it's relatively cheap will make a profit by conserving it until it's more valuable later. If speculators are wrong, they'll lose money. Speculators who are consistently wrong will go broke. That's one of the pleasant effects of a free market -- people who screw up lose their chance to screw up in the future.

Now, imagine instead if the price of oil was controlled by a government. Governments are typically short-sighted, where "short" is defined as the period between now and the next time they have to get elected (term limits help ensure the short-sightedness of a legislator--no need to think beyond the limit on your term). If the government sets the price lower than a free market including speculation, then people would consume oil at a higher rate. That would lead to shortages, and radically higher prices. If the government set the price higher, then people would consume oil too slowly, and miss out on some of the value of present consumption.

Outlawing speculation is like trying to outlaw the future.

Posted [16:06] [Filed in: economics] [permalink] [Google for the title] [digg this]

Wed, 05 May 2004

Greed and Envy

If you're reading this blog, then you find economics interesting (I can't imagine why you would read it otherwise). I hope, then, that you will take this next lesson to heart. Do not mix moral judgement with technical description. Many times you will hear people talk about the greedy rich and the envious poor. These terms should be a marker that says "The following has nothing to do with economics and everything to do with morality."

People are people, and it's very hard not to have feelings about facts. There is definitely a place for acting on these feelings. However, if you are trying to pin down these facts, to find out what the truth is, you cannot let your feelings get in the way. To pick on the issue of the minimum wage, you might think someone heartless if they tolerate wages too low to buy basic necessities. If you stop there, if you act on those feelings, you will not come to the truth of the matter.

It is very tempting to call the rich greedy and the poor envious (although obviously the same person is unlikely to do both at the same time). It is very easy to conclude that, because someone continues to create value beyond their basic needs, that they are greedy. It is also wrong. It is very easy to conclude that, because someone wants someone else to pay for their basic needs, that they are envious. As judgements of rich people and poor people, without reference to the facts of the specific individuals, they are likely wrong. As economic pronouncements, they are certainly wrong, because economics does not make judgements of those forms, and when economists do that, they have taken off their economist hat, and should expect no special protection from criticism.

Ken Mortenson comments.

Posted [20:38] [Filed in: economics] [permalink] [Google for the title] [digg this]

Better Health Care

It should be clear that Health Care is an economic good. That is, it is a scarce good, in short supply. I noticed something interesting about Health Care today. I heard a story about the women's march on Washington on NPR. Some women were reported to be asking for "Better Health Care". Google says that that phrase appears about 65,900 times on the web. The very existance of that phrase points to an effort to turn Health Care from an economic good into a political good. That is, one which cannot be purchased, but which is available (at some level of quality and supply) to everyone.

Ponder this: have you ever heard of a Campaign for Better Hot Dogs? Or the Better Blue Jeans Taskforce? No, of course not, because those are economic goods are supplied via markets. There are many different amounts, kinds, and prices of these goods available to purchasers. Some of these are markedly poor quality, yet they are purchased anyway.

There are a set of people who do not understand economics. I will call them "Good Hearts", because they are generally good-hearted people who mean well. Good Hearts do not understand that everyone has a fixed amount of resources at any point in their life. Everyone has to make decisions about how to allocate those resources. Everyone has choices, and an opinion about those choices. There is in essence no way for anyone to make someone else's choices for them, because you would have to know the person's opinions as well as the choices. I mean, everyone can tell a funny story about an inappropriate gift that they received, right?

Some people, who are usually called poor people, have to choose from mostly unattractive choices. This really bothers the Good Hearts. Unfortunately, rather than try to make more choices available to poor people, they seek to eliminate all of the unattractive choices. This is done on the assumption that if poor people have no unattractive choices left to them, all their choices will be attractive ones.

This assumption is wrong.

Instead of having only attractive choices, poor people are left with fewer choices, or even no choices. This has the unfortunate problem of interfering with their ability to maximize the utility of their total set of choices. In other words, life sucks, then you die. For example, the Good Hearts don't like it when poor people have to live in poor quality housing. So, to make sure that poor people don't have to live in (say) a house with only one or two outlets per rooom, building codes specify that outlets must be every six feet, or eight feet, or ten feet of linear wall. What this does, though, is not to ensure that poor people have high quality homes, but instead to ensure that poor people have no homes at all.

There are many instances of regulations like this, which force a minimum level of quality upon people. There are no circumstances under which this makes people's lives better. All of these regulations should be repealed. Not for the sake of the rich, or the sake of the middle class, but for the sake of the poor, so they have more choices in how to allocate their very limited resources.

Posted [11:33] [Filed in: economics] [permalink] [Google for the title] [digg this]

Sun, 02 May 2004

Ride starting Sun May 2 09:39:12 2004

Posted [09:39] [Filed in: bicycling] [permalink] [Google for the title] [digg this]

Sat, 01 May 2004

Ride starting Sat May 1 17:42:34 2004

Posted [17:42] [Filed in: bicycling] [permalink] [Google for the title] [digg this]

Ride starting Sat May 1 13:00:29 2004

Posted [13:00] [Filed in: bicycling] [permalink] [Google for the title] [digg this]