Cleaned by Capitalism, Mold Edition

In humid climates such as Virginia, mold can be a real problem in homes and other poorly-ventilated areas.  There are lots of health issues associated with household mold, but fortunately, there are many ways provided to us by capitalism to fight mold.  Dehumidifiers, both large and small, can prevent mold from forming.  Should mold form, there are lots of products that make cleaning mold easy and cheap.  So, for less than an hour’s worth of work for the average American laborer, s/he can clean their bathroom from mold and prevent it from growing again.

This is just another small example of how our world is becoming a cleaner and better place.

Savings Is Not A Cost

Don Boudreaux draws my attention to an opinion piece at the Washington Post written by Robert Samuelson.  Don addresses one concern Samuelson has, but I want to address another, more fundamental point.

Samuelson writes (emphasis added):

A simple example shows why the theory works. Consider (hypothetically) widgets. Assume that new technologies cut widget production costs by 20%. These savings must go somewhere, and the chances are that they will be spent, thereby creating new jobs. The major candidates to receive the windfall are: (a) consumers, who could benefit from lower widget prices; (b) widget workers, whose salaries might be boosted; or (c) the shareholders of widget makers, which might raise dividends or build factories.

This logic could be thwarted if the windfall were saved and not spent.

Strictly speaking, this is not true.  If the windfall were saved and not spent, that does not mean that benefits do not occur.  Savings are economically productive, too.  Even if 100% of the windfall were saved, that would mean there are more funds for investment: housing loans, car loans, retirement, business loans, etc.  An increase in savings would help boost the economy, too.

Let’s do some thinking on the margin.  Let’s say that the windfall results in $1m saved.  Taking Samuelson’s argument above at face value, it’d mean that the $1m saved was a loss for the economy.  However, that $1m is loaned out to a new business owner who uses it to build his building, stock his store, and, once up and running hires more workers and produces more wealth for his community and the world.  The economy certainly has benefited.  I would suggest the following edit to Dr. Samuelson’s paragraph (bold and italicized part is my writing):

A simple example shows why the theory works. Consider (hypothetically) widgets. Assume that new technologies cut widget production costs by 20%. These savings must go somewhere, and the chances are that they will be spent, thereby creating new jobs. The major candidates to receive the windfall are: (a) consumers, who could benefit from lower widget prices; (b) widget workers, whose salaries might be boosted; (c) the shareholders of widget makers, which might raise dividends or build factories; or (d) borrowers/investors who now have a larger pool of loanable funds from which to draw, if some of the windfall is saved.

This logic could be thwarted if the windfall were saved and not spent.

 

Mistakes to Avoid When Discussing Health Care

Noah Smith has an interesting piece on health care at Bloomberg.  The piece is worth a read, although there are some head-scratchers in there.  Smith’s big conclusion is this:

In other words, don’t believe the argument that the cost difference between the U.S. and other countries is the inevitable price of a more innovative health-care system. Americans really are being greatly overcharged for their care. For whatever reason, health seems to be one industry where government does things more cheaply than the private sector.

There’s a problem with this conclusion, namely that it uses biased data to support the claim.  Health care is cheaper in other countries because the price system is rigged: universal health care keeps prices down by refusing to let them rise.  So, one cannot compare prices in a system where prices are allowed to fluctuate vs one where prices are determined by government diktat.

Prices are a signal.  They provide us valuable information about the relative scarcity of commodities.  When prices are allowed to adjust, they provide accurate information.  When they are not, they provide poor information, and lead to worse outcomes.

It is also important to note that monetary costs are not the only costs involved.  They are one cost, sure, but there are many other kinds of costs: wait times, quality, quantity supplied in general, that sort of thing.  Monetary prices can/will adjust for these different factors (for example, a luxury higher quality car may sell for more than a lower quality car), but if prices cannot adjust, these other costs will rise; there ain’t no such thing as a free lunch, after all.

Let’s take, for example, Canada.  In the US, monetary costs for doctor visits may be higher, but in Canada, wait times are much longer (in the US, it’s approximately 24 days to see a doctor.  In Canada, it’s 20 weeks).  This is a real cost.  Quality of care is another cost.  In Britain, for example, you’re about 45% more likely to die in a hospital than the US.  This is a real cost.

It’s admirable to want to compare costs and benefits among two systems like Smith does, but he makes two major mistakes when doing so: 1) he compares price signals from a relatively free market to price signals that are artificially low, thus biasing his estimate (this is a point Bob Higgs has made repeatedly when discussing GDP), and 2) does not do a full accounting of the costs.  Smith may be right that health care is an area where government can provide cheaper than the private sector, but the evidence he puts forth for his claim is weak.

A Non-Technical Guide to Econometrics

Chris Auld has an excellent piece on his blog regarding interpreting the “competing” Seattle minimum wage studies from the University of Washington and UC Berkeley.  It’s long, but very much worth the read.  In fact, it’s probably the best short introduction to statistics/econometrics I think I’ve read (another great one is Chapter 1 of Robert Abelson’s Statistics as a Principled Argument.  I’m also a big fan of Angrist & Pischke’s Mastering ‘Metrics).

Allow me to highlight two items in particular from this blog:

There is no statistical magic which can fully overcome these fundamental [causal] problems.  We will never be able to “prove” what the effect of the minimum wage was: that’s not the way statistics work in general, and in a case study like `what was the effect of the 2015 increase in minimum wages on employment in Seattle?’ the best we can hope for is to bring some suggestive evidence to the table. [Emphasis added]

 

In other words, what they Berkeley team means when they report “no effect” on employment is not that there is no effect on employment (yes, that is confusing).  What they mean, again, is that there is no statistically significant effect on employment, whereas the UW team, using different data and somewhat different statistical methods, finds a statistically significant effect.  But the difference between statistically significant and statistically insignificant is often itself not statistically significant.

One team found there were no statistically significant effects on employment, but that result should not be misunderstood as a claim that the study “proves” the effect was actually zero… [original emphasis]

Any additional commentary I add here will only detract.  Read Dr. Auld’s post.  It’s excellent stuff.

H/T: Michael Enz

Some Links

Scott Sumner points us to some good news on trade for the world.  His conclusion is excellent:

Unfortunately, one major country stands on the sidelines pouting while the rest of the world moves toward ever freer trade. Sad.

JMM: So much for making America great again…

Mike Munger reviews Nancy MacLean’s smear-job new book on James Buchanan and Public Choice

John McGinnis discusses what happens when government moves beyond its core functions.

Mike Rappaport on law and legislation

Mark Perry celebrates Thomas Sowell’s 87th birthday

A Presumption of Competence

Why free markets?  Why am I prejudiced toward emergent order vs imposed order in economic matters?  Why is my default position against government involvement?  Why do I invoke such a high standard before justifying active government involvement in the economy?

Because the presumption of competence that is prevalent throughout a free society should be applied to economics as well.  The American civil legal system and the concept of Justice, at least in theory, have presumptions of competence built in.  Parties may contract with one another, with only the need for an arbitrator if there is a disagreement or fraudulent behavior.  They don’t need government to direct their contracts; each party is assumed to understand the deal.

Other freedoms are the same way: the freedom of speech presumes that the speaker is competent and that his audience is capable of choosing whether or not to listen.  Freedom of religion presumes each person is capable of finding their own belief system (or not).  Freedom of press assumes each reader is competent to understand ideas.  Freedom to marry presumes each person is competent in choosing a life-partner.

Economics is the same.  When two people complete a transaction, the presumption of competence is with both: each person trades knowing, to the best of his ability, how to improve his situation.

What about externalities?  Externalities may require necessary government involvement, but the presumption of competency still stands.  People in groups are quite clever.  The market institution does an amazing job channeling resources to reducing all costs, not just private costs.  A presumption of competence allows the market institution to work.

Unfortunately, most economic policies (especially the interventionist ones) rely on a presumption of incompetence.  Tariffs, punitive taxes, many kinds of regulations, et cetera all contain a presumption of incompetence: these regulations must be passed because at least one party (typically the consumer) is incompetent for one reason or another to make his/her own choices.*  The justification is usually “the consumer can’t act in his own best interest.”

I defer to the emergent order because of the knowledge problem.  Without overwhelming evidence to the contrary, the presumption of competence on the parts of the actors (and incomplete information on the part of the observer) should be observed.

*A potential objection an interventionist might raise is that these regulations are necessary because of a lack of information on the part of consumer.  For example, FDA regulations and testing are necessary because otherwise firms will just try to pass off placebos or post biased results.  However, prima facie this justification doesn’t make sense for an interventionist policy, rather than an advisory policy.

First World Problems, Third World Nation

I like to think I am an optimist.  I like to look for the good in the bad.  This CNN story is one such example:

More than 2 billion adults and children globally are overweight or obese and suffer health problems because of their weight, a new study reports.

This equates to one-third of the world’s population carrying excess weight, fueled by urbanization, poor diets and reduced physical activity.

Another way of delivering this message is one-third of the world has too much to eat.  It’s true, according to the study, that much of this is in the highly developed nations like the US, but obesity is also becoming problems in poorer nations [emphasis added]:

The United States has the greatest percentage of obese children and young adults, at 13%, while Egypt led in terms of adult obesity, with almost 35%, among the 195 countries and territories included in the study.

The data revealed that the number of people affected by obesity has doubled since 1980 in 73 countries, and continued to rise across most other countries included in the analysis.

In terms of numbers, the large population sizes of China and India meant they had the highest numbers of obese children, with 15.3 million and 14.4 million, respectively.

What’s causing the increase?  The authors of the study write:

Obesity levels have risen in all countries, irrespective of their income level, meaning the issue is not simply down to wealth, the authors say in the paper.

“Changes in the food environment and food systems are probably major drivers,” they write. “Increased availability, accessibility, and affordability of energy dense foods, along with intense marketing of such foods, could explain excess energy intake and weight gain among different populations.”

This is an amazing development.  In 1992, approximately 17.5% of the world’s population was undernourished.  Now, we have the exact opposite problem!  1/3rd is over-nourished!  Undernourishment has fallen to approximately 9.8% of the population. In short, we’ve gotten so good at producing and distributing food, we’re dying from having too much!

To be sure, obesity has a myriad of health problems associated with it, but the fact that people who are in countries that, not too long ago, were suffering from starvation and famine, is an encouraging sign of how wealthy the world has become, especially since the fall of socialism and the rise of globalization.