Listening to NPR yesterday, I heard a very interesting short segment on happiness derived from wealth; something I take personal opinion to as being relatively unrelated. (Read: http://www.npr.org/templates/story/story.php?storyId=95650430) As most commodities, wealth seems to have diminishing marginal returns. That is, as wealth increases, the satisfaction derived from each additional unit tends to decrease. It becomes harder to become marginally happier as we get richer. Make sense? Of course it does. Unfortunately, most standard measurements of implicit happiness in countries is GDP-- a country's income. It is assumed that as standards of living increase, and people become marginally more well-off financially, their happiness will increase continually as well. This is not true, logically as well as scientifically.
Perhaps if someone has very little wealth, an increase in income will decrease the burden of taking care of a family, paying bills, paying rent or a mortgage, whatever. This will be very noticeable when this person's income is increasing from very little to begin with. After a certain point, though, it will have little or no effect on happiness. Human beings are social creatures, and need human interaction to lead content and satisfied lives. Money has a little to do with happiness, but is vastly overestimated. The country Bhutan started a Gross International Happiness Program, based on Buddhist principles, in which GDP is not a fair measure of well-being of a country's citizens. Bhutan has attempted to isolate itself from the effects of globalization and international trade. Over recent years, this has proved to be somewhat impossible and perhaps as a result, the Gross Happiness Index has fallen.
Interesting concept, don't you think?
"Increases in income are matched by increases in aspirations for income. And the net effect is no change in happiness."-Prof. Richard Easterlin; happiness economist.
Monday, October 13, 2008
Why Bono is doing more harm than good for Africa
For somewhat ridiculous reasons, I got to thinking a lot about international aid-- in particular the celebrity endorsement of completely ineffective policies in an effort to "help" Africa. For the purposes of my own argument (and because his music is awful) I single out Bono. This is fair, in my opinion, to counter the absurd amounts of praise this man receives for promoting the mass consumption of consumer goods like iPods, increasing the sale of his records by painting himself as a hero, and most importantly, diverting very scarce amounts of money, knowledge, and willing hands away from significant problems in order to focus on what is most popular.
The very notion that the West is the only way Africa may be saved is underhandedly racist and insulting. Though we may like to believe we have come a long way from believing colonization was simply "saving" uncivilized Africans, we have truly only shifted our haughtiness to a new line of rhetoric- Africa is in ruin and we must sweep in and save the continent as only we can. There is no stastical link between throwing money at nations and economic growth or disease control. In fact, the policies that have been used have worked so horribly, they have arguably contributed to a negative growth rate, perpetuation of corrupt institutions, and growth of disease. Funny, then, that the IMF, the World Bank, and the alphabet soup of aid organizations continues in this direction. You may say we don't know-- and you would be correct. There are little efforts to ask those affected by these policies if the problem to be addressed is getting better. There is zero accountability.
The far-reaching, utopian ideas spout out by Jeffrey Sachs and Bono are quite attractive. Unfortunately, without accountability and feedback (paraphrasing from Easterly's book) we have no way to see what needs to be done and what is most effective. It is interesting that people have tended to gravitate towards speaking out against worldwide calamities only when they become severe and difficult to address. The outbreak of AIDS, for instance, was well predicted by the international community as early as the 1980s. Where were prevention programs, why wasn't Bono inspiring others to support sex education in Africa? Instead, it was ignored, implying that, although the problem was known and preventable, we decided to let it happen anyways. Perhaps there is more implied racism in the Western aid's actions than its self-proclaimed purpose. Revealed preference theory in economics aligns perfectly with this idea. Here is a concise definition of this very simplistic idea from economist.com:"This is the notion that what you want is revealed by what you do, not by what you say. Actions speak louder than words."
Anyways, the most important non-contribution to relief efforts has been diverting resources away from what is most important. If you truly care about who you are trying to help, despite their nationality, cries from celebrities, and your own past failures-- you will place what you have in what will help the most amount of people in the quickest amount of time. When we prolong the life of an AIDS victim one more year, we divert at least $1500 away from other problems. Vaccines to prevent much wider-spread diseases (malaria, diarrhea, etc.) sometimes cost pennies and can save thousands of lives at the cost of prolonging someone's life an additional year. These diseases kill 2.5 times more people than AIDS, but cost much less to prevent and to treat. It seems cruel to say that we are effectually killing people by giving money instead to people already infected with AIDS, but from a simple tradeoff approach, it is true.
Africa's poor does not need our pity, does not need our aid dollars spent on what "we" think is best for them. My dislike for Bono is simply due to his extremely loud presence and the focus of his message to be increasing the amount of aid poured into countries, rather than its effectiveness. It is easy to say that you are concerned with the world's poor and suffering. Most people stop at that, and are not concerned with whether or not our interference is helping those we are supposedly intending to help. As long as we are doing something, right? Anything? The West is, again, effectually hurting Africa much more than it is helping; while it can sleep at night thinking it is the hero, the savior, of those it is convinced cannot help themselves. History repeats itself in interesting ways, and it is even more fascinating why it is never realized.
If you're as interested as I in this topic, I highly recommend William Easterly's The Elusive Quest for Growth and The White Man's Burden: Why the West's Efforts to Aid the Rest Have Done So Much Ill and So Little Good; as well as Paul Collier's Bottom Billion.
The very notion that the West is the only way Africa may be saved is underhandedly racist and insulting. Though we may like to believe we have come a long way from believing colonization was simply "saving" uncivilized Africans, we have truly only shifted our haughtiness to a new line of rhetoric- Africa is in ruin and we must sweep in and save the continent as only we can. There is no stastical link between throwing money at nations and economic growth or disease control. In fact, the policies that have been used have worked so horribly, they have arguably contributed to a negative growth rate, perpetuation of corrupt institutions, and growth of disease. Funny, then, that the IMF, the World Bank, and the alphabet soup of aid organizations continues in this direction. You may say we don't know-- and you would be correct. There are little efforts to ask those affected by these policies if the problem to be addressed is getting better. There is zero accountability.
The far-reaching, utopian ideas spout out by Jeffrey Sachs and Bono are quite attractive. Unfortunately, without accountability and feedback (paraphrasing from Easterly's book) we have no way to see what needs to be done and what is most effective. It is interesting that people have tended to gravitate towards speaking out against worldwide calamities only when they become severe and difficult to address. The outbreak of AIDS, for instance, was well predicted by the international community as early as the 1980s. Where were prevention programs, why wasn't Bono inspiring others to support sex education in Africa? Instead, it was ignored, implying that, although the problem was known and preventable, we decided to let it happen anyways. Perhaps there is more implied racism in the Western aid's actions than its self-proclaimed purpose. Revealed preference theory in economics aligns perfectly with this idea. Here is a concise definition of this very simplistic idea from economist.com:"This is the notion that what you want is revealed by what you do, not by what you say. Actions speak louder than words."
Anyways, the most important non-contribution to relief efforts has been diverting resources away from what is most important. If you truly care about who you are trying to help, despite their nationality, cries from celebrities, and your own past failures-- you will place what you have in what will help the most amount of people in the quickest amount of time. When we prolong the life of an AIDS victim one more year, we divert at least $1500 away from other problems. Vaccines to prevent much wider-spread diseases (malaria, diarrhea, etc.) sometimes cost pennies and can save thousands of lives at the cost of prolonging someone's life an additional year. These diseases kill 2.5 times more people than AIDS, but cost much less to prevent and to treat. It seems cruel to say that we are effectually killing people by giving money instead to people already infected with AIDS, but from a simple tradeoff approach, it is true.
Africa's poor does not need our pity, does not need our aid dollars spent on what "we" think is best for them. My dislike for Bono is simply due to his extremely loud presence and the focus of his message to be increasing the amount of aid poured into countries, rather than its effectiveness. It is easy to say that you are concerned with the world's poor and suffering. Most people stop at that, and are not concerned with whether or not our interference is helping those we are supposedly intending to help. As long as we are doing something, right? Anything? The West is, again, effectually hurting Africa much more than it is helping; while it can sleep at night thinking it is the hero, the savior, of those it is convinced cannot help themselves. History repeats itself in interesting ways, and it is even more fascinating why it is never realized.
If you're as interested as I in this topic, I highly recommend William Easterly's The Elusive Quest for Growth and The White Man's Burden: Why the West's Efforts to Aid the Rest Have Done So Much Ill and So Little Good; as well as Paul Collier's Bottom Billion.
Paul Krugman wins Nobel Prize!
In case you're interested (as I certainly am), Paul Krugman-- professor at Princeton University, op-ed writer for the New York Times, and a well-respected member of the economics community, won the Nobel Prize in economics. Quite deservably, if you ask me!
From the NY Times, today:
Honoring Paul Krugman
By Edward L. Glaeser
Edward L. Glaeser is an economist at Harvard.
Rarely, if ever, has an economics Nobel laureate been as widely known before receiving the prize than Paul Krugman. His New York Times columns have been read by millions; he has argued economic policy eloquently in a large number of popular books. Yet these pursuits had little to do with the decision of the Nobel committee. They gave this prize to honor a truly seminal figure in economic trade and geography. Mr. Krugman’s fame as a public intellectual should not lead anyone to think that they understand his contributions to economic research just because they regularly read his columns.
The Nobel Prize citation highlights two distinct but connected contributions: Mr. Krugman’s development of the “new trade theory” and his work on the “new economic geography.” International trade has a long history in economics, and for the bulk of the field’s history, patterns of trade have been explained by factor endowments and comparative advantage. Why does England export wool and Portugal export wine? The cold winters of Yorkshire produce really fluffy sheep and the banks of the Douro produce splendid grapes. Yet comparative advantage does little to explain much of modern international trade, especially not trade within industries.
Mr. Krugman published two seminal papers in 1979 and 1980 that made sense of the fact that Toyota sells cars in Germany and Mercedes-Benz sells cars in Japan. Mr. Krugman started with a variant of Edward Chamberlain’s model of monopolistic competition. In this model, every firm sells a slightly different good — an Infiniti is not exactly the same thing as a BMW. There are fixed costs of production, which means that producers get more efficient as they sell more. Finally, consumers like variety, so that even if they live in the Land of the Rising Sun, with its abundant well-made cars, they still occasionally want something a little more Teutonic.
These ingredients came together and provided a framework than can match the world’s trade patterns better than the 19th-century framework of David Ricardo, or the mid-20th-century models of Eli Heckscher, Bertil Ohlin and Paul Samuelson. The fact that two out of three of those 20th-century giants are themselves Swedes should remind us of how seriously the Swedes take their trade theory, and what a big deal it is for them to admit Mr. Krugman to the pantheon.
Mr. Krugman’s trade models became the standard in the economics profession both because they fit the world a bit better and because they were masterpieces of mathematical modeling. His models’ combination of realism, elegance and tractability meant that they could provide the underpinnings for thousands of subsequent papers on trade, economic growth, political economy and especially economic geography.
Mr. Krugman’s 1991 Journal of Political Economy paper, “Increasing Returns and Economic Geography,” is the first article that provides a clear, internally consistent mathematically rigorous framework for thinking simultaneously about trade and the location of people and firms across space. It is one of only two models that I insist that Harvard’s Ph.D. students in urban economics be able to regurgitate, equation by equation.
The model begins with the same basic elements as the new trade theory: monopolistic competition, scale economics, love of variety. To these elements Mr. Krugman adds free migration of workers across space and industries. Because workers are able to move, real wages equalize across space. People in New York City may be paid more, but they give some of that back in the form of higher housing prices. The paper provides economists with a clear framework that can make sense of where we all live. Firms and workers are pulled toward the same location to reduce transportation costs of shipping goods. For example, the garment industry located in New York City, in part because of the vast trade in textiles that was already moving through the city and because of the large number of customers already living in America’s largest city.
Of course, we don’t all live in the same city. A good model of geography needs both a centripetal and a centrifugal force. In Mr. Krugman’s model, populations are pulled apart by the desire to be close to natural inputs, like land or coal mines. Cyrus McCormick moved his reaper business from Virginia to Chicago to be closer to his rural customers in the Midwest. Later models incorporated traffic congestion and other forces that limit the growth of a single large urban area. Mr. Krugman’s model proved to quite adaptable; it has received thousands of citations.
In his public role, Paul Krugman is often a polarizing figure, loved by millions but also intensely disliked by his political opponents. I still chuckle over an old New Yorker cartoon with one plutocrat saying to another that he gets some satisfaction from the fact that his vote will cancel out the vote of Paul Krugman. Within the less divided world of the academy, Mr. Krugman’s economic research has generated plenty of light, but far less heat. His papers are universally acknowledged to be immense contributions that helped to create two distinct fields. His Nobel Prize is extremely well deserved and not unexpected. I, for one, had bet on him in Harvard’s Nobel Prize winner pool.
From the NY Times, today:
Honoring Paul Krugman
By Edward L. Glaeser
Edward L. Glaeser is an economist at Harvard.
Rarely, if ever, has an economics Nobel laureate been as widely known before receiving the prize than Paul Krugman. His New York Times columns have been read by millions; he has argued economic policy eloquently in a large number of popular books. Yet these pursuits had little to do with the decision of the Nobel committee. They gave this prize to honor a truly seminal figure in economic trade and geography. Mr. Krugman’s fame as a public intellectual should not lead anyone to think that they understand his contributions to economic research just because they regularly read his columns.
The Nobel Prize citation highlights two distinct but connected contributions: Mr. Krugman’s development of the “new trade theory” and his work on the “new economic geography.” International trade has a long history in economics, and for the bulk of the field’s history, patterns of trade have been explained by factor endowments and comparative advantage. Why does England export wool and Portugal export wine? The cold winters of Yorkshire produce really fluffy sheep and the banks of the Douro produce splendid grapes. Yet comparative advantage does little to explain much of modern international trade, especially not trade within industries.
Mr. Krugman published two seminal papers in 1979 and 1980 that made sense of the fact that Toyota sells cars in Germany and Mercedes-Benz sells cars in Japan. Mr. Krugman started with a variant of Edward Chamberlain’s model of monopolistic competition. In this model, every firm sells a slightly different good — an Infiniti is not exactly the same thing as a BMW. There are fixed costs of production, which means that producers get more efficient as they sell more. Finally, consumers like variety, so that even if they live in the Land of the Rising Sun, with its abundant well-made cars, they still occasionally want something a little more Teutonic.
These ingredients came together and provided a framework than can match the world’s trade patterns better than the 19th-century framework of David Ricardo, or the mid-20th-century models of Eli Heckscher, Bertil Ohlin and Paul Samuelson. The fact that two out of three of those 20th-century giants are themselves Swedes should remind us of how seriously the Swedes take their trade theory, and what a big deal it is for them to admit Mr. Krugman to the pantheon.
Mr. Krugman’s trade models became the standard in the economics profession both because they fit the world a bit better and because they were masterpieces of mathematical modeling. His models’ combination of realism, elegance and tractability meant that they could provide the underpinnings for thousands of subsequent papers on trade, economic growth, political economy and especially economic geography.
Mr. Krugman’s 1991 Journal of Political Economy paper, “Increasing Returns and Economic Geography,” is the first article that provides a clear, internally consistent mathematically rigorous framework for thinking simultaneously about trade and the location of people and firms across space. It is one of only two models that I insist that Harvard’s Ph.D. students in urban economics be able to regurgitate, equation by equation.
The model begins with the same basic elements as the new trade theory: monopolistic competition, scale economics, love of variety. To these elements Mr. Krugman adds free migration of workers across space and industries. Because workers are able to move, real wages equalize across space. People in New York City may be paid more, but they give some of that back in the form of higher housing prices. The paper provides economists with a clear framework that can make sense of where we all live. Firms and workers are pulled toward the same location to reduce transportation costs of shipping goods. For example, the garment industry located in New York City, in part because of the vast trade in textiles that was already moving through the city and because of the large number of customers already living in America’s largest city.
Of course, we don’t all live in the same city. A good model of geography needs both a centripetal and a centrifugal force. In Mr. Krugman’s model, populations are pulled apart by the desire to be close to natural inputs, like land or coal mines. Cyrus McCormick moved his reaper business from Virginia to Chicago to be closer to his rural customers in the Midwest. Later models incorporated traffic congestion and other forces that limit the growth of a single large urban area. Mr. Krugman’s model proved to quite adaptable; it has received thousands of citations.
In his public role, Paul Krugman is often a polarizing figure, loved by millions but also intensely disliked by his political opponents. I still chuckle over an old New Yorker cartoon with one plutocrat saying to another that he gets some satisfaction from the fact that his vote will cancel out the vote of Paul Krugman. Within the less divided world of the academy, Mr. Krugman’s economic research has generated plenty of light, but far less heat. His papers are universally acknowledged to be immense contributions that helped to create two distinct fields. His Nobel Prize is extremely well deserved and not unexpected. I, for one, had bet on him in Harvard’s Nobel Prize winner pool.
Saturday, September 20, 2008
Hoover versus McCain
Thank you, Paul Krugman, for pointing out an interesting coincidence.
Herbert Hoover, Oct. 25, 1929: "The fundamental of business is sound."
John McCain, September 16, 2008: "The fundamentals of our economy are strong."
Time to pay for deregulation. We'll just blame Alan Greenspan for this one, just like all the other flaws of an economy. After all, being Fed chairman gives you sole power of the immediate and long-run health of the economy. Right? Excuse my sarcasm, but I hate scapegoating. Particularly if it is Alan Greenspan, a man I give much respect to.
President Bush announced with Treasury Secretary Henry Paulson, a proposal to buy up highly leveraged investment banks, hoping to add liquidity to the markets. Unfortunately, this seems to me like putting a bandaid on the problem and offering incentives for banks to increase risk in the future. Not to mention the bad money that is being created to buy these banks, probably at a cost that is above what they are worth, placing the burden on taxpayers. we'll see what happens, but I have a bad feeling about the prospects of government taking over bad assets with taxpayer money.
Tuesday, September 9, 2008
Abusurdity in the World of Aid
Though my faith in international aid organizations was weak at best to begin with, I think it has reached a new low. The International Monetary Fund and what would become the World Bank never intended to be lasting institutions. They were created for the sole purpose of establishing order in the international financial world that had been in chaos because of the war. Power was vested in the victors of the war, mainly the United States and to a smaller extent England. Countries who lost the war were given much lesser power, and those without any financial clout were ignored entirely. These were temporary organizations. And temporary organizations, particularly when created for the sake of security, allow those in control to act above what is normally acceptable. In times of war and fear of war, this is also very prevalent.
My concern isn't entirely with the foundations of these organizations. My concern is the way that they are handled today. As the gap between the world's poor and rich thickens, it becomes easier to distance oneself from the deprivation of the third world, living in a relatively excessively rich country as the United States. And it is easy to say that we are doing all we can--that it is up to the governments to respond-- perhaps, according to a quasi-racist remark in a university classroom-- it is simply their culture, assuming that they are happily starving and dying of disease because they hold onto a particular ancestry. I find that difficult to believe. It reminds me of a dehumanization process that people allow themselves to undergo when they are at war, or they want to justify the murder or oppression of large groups of people. It is also difficult for me to believe that, for example, Africans' culture has made their poverty, and not the blundering, raping, and divisiveness of European colonization.
In any case, as an economics student, I have been conditioned to believe that people are selfish. And I do agree with this. I believe that any benevolent act-- regardless of its positive effect or perceived kindness, has a selfish intention. Even if this is to make a person feel better about their own soul, whatever it may be, people have little to offer others besides their self-interest. And this can be managed! That's the best part. Adam Smith, though preceded by similar thinkers, was the loudest voice of the utilization of self-interest to the betterment of society. And this is possible, (why not?) on a global scale the same as it applies to closed economies. In fact, I believe it would be even more effective. The important point to keep in mind is that a global organization must align people's incentives with goals of world development and growth, particularly for third and second world countries. The IMF and the World Bank have the power to do this. But instead, they arbitrarily give loans to countries who cannot pay them back. And these organizations indirectly make sure that they will never pay back these loans by allowing recipient country's governments to have a constant and perpetual cushion of aid.
William Easterly's point in The Elusive Quest for Growth--which I highly recommend-- is that the appearance of helping developing countries is far more important than the actual benefit given to these countries. This could explain why there is little emphasis put on asking the poor what they need. The not-so-underlying assumption is that we know better than they do, while our half-hearted efforts to help have unquestionably failed. Before I get too carried away, I want to say that a large part of this failure is also failed economic theories of growth. The World Bank and the IMF still cling to the theory that investment will automatically trigger growth--that there is a so-called financing gap between the savings potential of a country and the investment potential of a country. This is an attractive theory. It must have been, for those in international aid organizations to cling with such undying fervor. That's a beautiful thing, when the theory hasn't been proven wrong over and over throughout the past century.
The key to growth, according to Robert Solow (read Growth Theory: An Exposition) is technology. Investment is only about a third of the causation behind growth. The problem is, that aid organizations dump funds, theoretically, for investment-- though most or all of it goes to immediate consumption-- and this leads to zero growth. Even with high investment, countries cannot grow because they are missing 2/3 of their growth recipe. This 2/3, according to Solow, is contributed to technology. Unfortunately, access to technological change is not available in many countries with already slow or even negative growth rates.
It's a shame that the IMF and World Bank do not acknowledge a different theory of growth besides outdated and evidently wrong theories. Although it is very easy to continue business as usual, particularly when it looks so good. Treatment of AIDS, for example, looks much more admirable than prevention. Prevention involves birth control and family planning-- which have most definitely been pushed aside by the Bush administration, if not the rest of the world. Unfortunately, what we are dealing with is not numbers and data and theories. It is the lives and suffering of people who do NOT have what you have, and do NOT know what it is like to always have food and always have a safe place to go to sleep at night. It may sound clicheed, but it shouldn't. It should give you chills. It should make you want to do something, to be outraged. At the very least, be the most grateful you can possibly be if your situation is better than most of the world's, and you never have to worry about your children starving in front of you.
My concern isn't entirely with the foundations of these organizations. My concern is the way that they are handled today. As the gap between the world's poor and rich thickens, it becomes easier to distance oneself from the deprivation of the third world, living in a relatively excessively rich country as the United States. And it is easy to say that we are doing all we can--that it is up to the governments to respond-- perhaps, according to a quasi-racist remark in a university classroom-- it is simply their culture, assuming that they are happily starving and dying of disease because they hold onto a particular ancestry. I find that difficult to believe. It reminds me of a dehumanization process that people allow themselves to undergo when they are at war, or they want to justify the murder or oppression of large groups of people. It is also difficult for me to believe that, for example, Africans' culture has made their poverty, and not the blundering, raping, and divisiveness of European colonization.
In any case, as an economics student, I have been conditioned to believe that people are selfish. And I do agree with this. I believe that any benevolent act-- regardless of its positive effect or perceived kindness, has a selfish intention. Even if this is to make a person feel better about their own soul, whatever it may be, people have little to offer others besides their self-interest. And this can be managed! That's the best part. Adam Smith, though preceded by similar thinkers, was the loudest voice of the utilization of self-interest to the betterment of society. And this is possible, (why not?) on a global scale the same as it applies to closed economies. In fact, I believe it would be even more effective. The important point to keep in mind is that a global organization must align people's incentives with goals of world development and growth, particularly for third and second world countries. The IMF and the World Bank have the power to do this. But instead, they arbitrarily give loans to countries who cannot pay them back. And these organizations indirectly make sure that they will never pay back these loans by allowing recipient country's governments to have a constant and perpetual cushion of aid.
William Easterly's point in The Elusive Quest for Growth--which I highly recommend-- is that the appearance of helping developing countries is far more important than the actual benefit given to these countries. This could explain why there is little emphasis put on asking the poor what they need. The not-so-underlying assumption is that we know better than they do, while our half-hearted efforts to help have unquestionably failed. Before I get too carried away, I want to say that a large part of this failure is also failed economic theories of growth. The World Bank and the IMF still cling to the theory that investment will automatically trigger growth--that there is a so-called financing gap between the savings potential of a country and the investment potential of a country. This is an attractive theory. It must have been, for those in international aid organizations to cling with such undying fervor. That's a beautiful thing, when the theory hasn't been proven wrong over and over throughout the past century.
The key to growth, according to Robert Solow (read Growth Theory: An Exposition) is technology. Investment is only about a third of the causation behind growth. The problem is, that aid organizations dump funds, theoretically, for investment-- though most or all of it goes to immediate consumption-- and this leads to zero growth. Even with high investment, countries cannot grow because they are missing 2/3 of their growth recipe. This 2/3, according to Solow, is contributed to technology. Unfortunately, access to technological change is not available in many countries with already slow or even negative growth rates.
It's a shame that the IMF and World Bank do not acknowledge a different theory of growth besides outdated and evidently wrong theories. Although it is very easy to continue business as usual, particularly when it looks so good. Treatment of AIDS, for example, looks much more admirable than prevention. Prevention involves birth control and family planning-- which have most definitely been pushed aside by the Bush administration, if not the rest of the world. Unfortunately, what we are dealing with is not numbers and data and theories. It is the lives and suffering of people who do NOT have what you have, and do NOT know what it is like to always have food and always have a safe place to go to sleep at night. It may sound clicheed, but it shouldn't. It should give you chills. It should make you want to do something, to be outraged. At the very least, be the most grateful you can possibly be if your situation is better than most of the world's, and you never have to worry about your children starving in front of you.
Friday, June 13, 2008
The value of human life
I suppose I'm more of a wannabe economist than an actual economist, however, I do understand the science more than the average person. I realize this doesn't say much, either. One thing that has always startled me, intrigued me--the value that people inadvertently place on human life. It is unappealing to do so, but it is done all the time. The families of the victims of 9/11 were compensated based on their loss. The value of that loss would, in rough economics terms--be equal to the amount of satisfaction given to the family members had this person stayed alive. This is only according to the government, however, which I can say for certain is not a good judge for morality. I am almost certain that the family members would be less likely to place an equal monetary value on their loved one's life.
A brief article in Time suggested that economists were attempting to place a value of human life for kidney research, placing the value at 126,000 USD. This is amazing to me. Where they derive this number, I'm not sure, but on first glance, it seems as though it is completely arbitrary and incredulous. However, perhaps the average person is worth more than $126,000.00 (to whom it doesn't say)--based on what they contribute and consume in their average lifetime. This "average" person will also have negative impacts on his or her environment, for example. When the positive and negative contributions are calculated, perhaps one can put a monetary value on it.
As revolting as this may seem to you, no matter what value you place on human life--whether it be 99 million--it will always be equal to another commodity, such as 99 million orders of french fries from McDonalds. And, if the value of human life truly is that high--which to our government I assure you it is not-- then the government, theoretically run by rational men and women, would weigh the value of human life with issues such as health care, war, and the wrongful death penalty convictions. If the value of life was in fact 99 million, what could the benefits possibly be from war that would compensate for this loss?
This leads me to believe that perhaps there are personal gains from the indirect, or direct, loss of life that exceed the individual reaps. It is difficult for people to be rational unless they are trying to benefit themselves the best they possibly can. This is terrifying. The government is not made up of worldly, selfless individuals. It is made up of people who are constantly trying to maximize their gains, just like the rest of the population, but these are the people that make huge, important decisions. Doesn't that worry you?
A brief article in Time suggested that economists were attempting to place a value of human life for kidney research, placing the value at 126,000 USD. This is amazing to me. Where they derive this number, I'm not sure, but on first glance, it seems as though it is completely arbitrary and incredulous. However, perhaps the average person is worth more than $126,000.00 (to whom it doesn't say)--based on what they contribute and consume in their average lifetime. This "average" person will also have negative impacts on his or her environment, for example. When the positive and negative contributions are calculated, perhaps one can put a monetary value on it.
As revolting as this may seem to you, no matter what value you place on human life--whether it be 99 million--it will always be equal to another commodity, such as 99 million orders of french fries from McDonalds. And, if the value of human life truly is that high--which to our government I assure you it is not-- then the government, theoretically run by rational men and women, would weigh the value of human life with issues such as health care, war, and the wrongful death penalty convictions. If the value of life was in fact 99 million, what could the benefits possibly be from war that would compensate for this loss?
This leads me to believe that perhaps there are personal gains from the indirect, or direct, loss of life that exceed the individual reaps. It is difficult for people to be rational unless they are trying to benefit themselves the best they possibly can. This is terrifying. The government is not made up of worldly, selfless individuals. It is made up of people who are constantly trying to maximize their gains, just like the rest of the population, but these are the people that make huge, important decisions. Doesn't that worry you?
Saturday, May 31, 2008
Suspending gas tax=Bad
I love that politicians will say whatever rhetoric they imagine will make voters support them. As if people will start pissing themselves in sheer joy when they are told that they do not have to pay a gas tax for a couple of months, run to the polls, and confess their undying support. John McCain (and Hillary Clinton, though less vocally)-- believe it or not, does not have another reason to suggest levying the tax than for gaining support where he seems to be lacking it.
Any economist can tell you that suspending the gasoline tax would be counterproductive to the economy, the environment, and may even help corporations. Gasoline is a fairly inelastic good, for now; until some kind of reliable and inexpensive substitute is introduced. Even so, when the price of gasoline is lowered; eliminating the excise tax of 18.4 cents per gallon, the demand for gasoline will be higher, people will buy more gasoline, and consume more of it. Because of this increased consumption, will the price of gasoline actually increase? Basic supply and demand tells us yes. Even if it does not dramatically increase the price of gasoline, the prices will remain relatively high because of its demand, and any trends in gasoline prices will continue after the tax is reinstated. Gasoline will NOT go down in prices, for as long as we continue to have a universal demand. As the supply decreases, there is no other way for prices to go but up. Corporations will therefore be generating higher profits; their costs to produce will be exactly the same (they don't have to pay any of the tax) but their demand for gasoline will be artificially higher, and they will sell more. Good for them! Even the basic argument is flawed; you cannot help the poor by decreasing the prices of goods; it is usually ineffective. The government should focus on raising the incomes of the poor, rather than temporarily and minimally reducing the burden of an 18.4 cent gas tax.
Adam Smith would tell us that the price of gasoline is so high because that is what people demand, and I believe that is correct. When you arbitrarily lower prices, you are working outside the market and forcing a shortage, which in turn creates a higher demand and higher prices. In a "free" market, there is no room for price-fixing, it is always ineffective and sometimes destructive to the economy at large. Erasing the satisfaction generated by public goods from the gas tax, when factored in, would hardly be compensated by the satisfaction of an ordinary person saving 18.4 cents per gallon, to ALL consumers of gasoline despite their income level.
The absurdity of this program sticks out not only to me--and I can barely comprehend what else would be in store for the economy should McCain be elected. Republicans, if you ask me, are steering far away from the free market capitalism that they are "supposed" to support. Their history of fixing prices and bigger government hinders a free market and makes it impossible to allocate resources effectively.
Any economist can tell you that suspending the gasoline tax would be counterproductive to the economy, the environment, and may even help corporations. Gasoline is a fairly inelastic good, for now; until some kind of reliable and inexpensive substitute is introduced. Even so, when the price of gasoline is lowered; eliminating the excise tax of 18.4 cents per gallon, the demand for gasoline will be higher, people will buy more gasoline, and consume more of it. Because of this increased consumption, will the price of gasoline actually increase? Basic supply and demand tells us yes. Even if it does not dramatically increase the price of gasoline, the prices will remain relatively high because of its demand, and any trends in gasoline prices will continue after the tax is reinstated. Gasoline will NOT go down in prices, for as long as we continue to have a universal demand. As the supply decreases, there is no other way for prices to go but up. Corporations will therefore be generating higher profits; their costs to produce will be exactly the same (they don't have to pay any of the tax) but their demand for gasoline will be artificially higher, and they will sell more. Good for them! Even the basic argument is flawed; you cannot help the poor by decreasing the prices of goods; it is usually ineffective. The government should focus on raising the incomes of the poor, rather than temporarily and minimally reducing the burden of an 18.4 cent gas tax.
Adam Smith would tell us that the price of gasoline is so high because that is what people demand, and I believe that is correct. When you arbitrarily lower prices, you are working outside the market and forcing a shortage, which in turn creates a higher demand and higher prices. In a "free" market, there is no room for price-fixing, it is always ineffective and sometimes destructive to the economy at large. Erasing the satisfaction generated by public goods from the gas tax, when factored in, would hardly be compensated by the satisfaction of an ordinary person saving 18.4 cents per gallon, to ALL consumers of gasoline despite their income level.
The absurdity of this program sticks out not only to me--and I can barely comprehend what else would be in store for the economy should McCain be elected. Republicans, if you ask me, are steering far away from the free market capitalism that they are "supposed" to support. Their history of fixing prices and bigger government hinders a free market and makes it impossible to allocate resources effectively.
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