Wednesday, January 20, 2010

Maybe We Should Allow People To Sell Their Organs

Alex Tabarrok had a good article on this in the 1-9/10-2010 edition of the WSJ, p. W1. It was called The Meat Market. Here are the key exerpts:
"Iran has eliminated waiting lists for kidneys entirely by paying its citizens to donate."

"Millions of people suffer from kidney disease, but in 2007 there were just 64,606 kidney-transplant operations in the entire world. In the U.S. alone, 83,000 people wait on the official kidney-transplant list. But just 16,500 people received a kidney transplant in 2008, while almost 5,000 died waiting for one."

"To combat yet another shortfall, some American doctors are routinely removing pieces of tissue from deceased patients for transplant without their, or their families', prior consent. And the practice is perfectly legal."

"The shortage of organs has increased the use of so-called expanded-criteria organs, or organs that used to be considered unsuitable for transplant. Kidneys donated from people over the age of 60 or from people who had various medical problems are more likely to fail than organs from younger, healthier donors, but they are now being used under the pressure."

"Already, the black market may account for 5% to 10% of transplants world-wide."

"Only one country, Iran, has eliminated the shortage of transplant organs—and only Iran has a working and legal payment system for organ donation." (although the payment system works mainly through the government)

"The Iranian system and the black market demonstrate one important fact: The organ shortage can be solved by paying living donors. The Iranian system began in 1988 and eliminated the shortage of kidneys by 1999. Writing in the Journal of Economic Perspectives in 2007, Nobel Laureate economist Gary Becker and Julio Elias estimated that a payment of $15,000 for living donors would alleviate the shortage of kidneys in the U.S. Payment could be made by the federal government to avoid any hint of inequality in kidney allocation. Moreover, this proposal would save the government money since even with a significant payment, transplant is cheaper than the dialysis that is now paid for by Medicare's End Stage Renal Disease program."

Economists See Crisis Response as Risky

That is the title of a WSJ article from 1-6-2010, p. A2. Here is the link: Economists See Crisis Response as Risky . Here are the key exerpts:
"...some suggest governments' response has increased the chances of a repeat, making the banking system more crisis-prone, putting new strains on institutions such as the Federal Reserve and stretching government finances closer to the breaking point."

""Our response has made us more vulnerable to a bigger crisis," said Tom Sargent, a New York University economist."

"By providing massive bailouts to commercial banks and securities firms, the logic goes, governments have given bank executives a sort of catastrophe insurance -- and an incentive to take even greater risks than they did before the crisis."

""If the banks really feel that they are insured, then we have a dangerous situation," said Stanford University's Robert Hall, the association's president. "The incentives are to take a very risky position. They get to pocket it if they win and it's the federal government's problem if they lose."" (Hall is the president of the American Economic Association)

"In the next few years, for example, the gross government debt of both the U.S. and the U.K. will exceed 90% of their annual economic output, an event that could both spook investors and seriously impair economic growth.

When advanced countries cross the 90% threshold, their annual growth tends to be about one percentage point lower, said Mr. Rogoff and Carmen Reinhart of the University of Maryland."

John Taylor Thinks Low Interest Rates Contributed To The Credit Crisis

He wrote an article for the Wall Street Journal called The Fed and the Crisis: A Reply to Ben Bernanke (1-11-2010, p. A19). Low interest rates can mean too many people borrowing money to buy things like houses. Then too many are built and prices collapse, people can't pay their loans back and banks start to lose money. Ben Bernanke said that low interest rates were not the problem. But Taylor, an economics professor at Stanford had this to say to refute Bernanke:
"My critique, which I presented at the annual Jackson Hole conference for central bankers in the summer of 2007, is based on the simple observation that the Fed's target for the federal-funds interest rate was well below what the Taylor rule would call for in 2002-2005. By this measure the interest rate was too low for too long, reducing borrowing costs and accelerating the housing boom. The deviation from the Taylor rule, which had characterized good monetary policy during the previous two decades, was the largest since the turbulent 1970s."
"he put the Fed's forecasts of future inflation into the Taylor rule rather than actual measured inflation."
"First, the Fed's forecasts of inflation were too low. Inflation increased rather than decreased in 2002-2005."
"if one uses the average of private sector inflation forecasts rather than the Fed's forecasts, the interest rate would still have been judged as too low for too long."
"Mr. Bernanke cites no empirical evidence that his alternative to the Taylor rule improves central-bank performance."
"Mr. Bernanke also said that international evidence does not show a statistically significant relationship between policy deviations from the Taylor rule and housing booms. But his speech does not mention that research at the Organization for Economic Cooperation and Development in March 2008 did find a statistically significant relationship."
"two of the economists he cites—Frank Smets, director of research at the European Central Bank, and his colleague Marek Jarocinski—reported in the July/August issue of the St. Louis Fed Review that "evidence that monetary policy has significant effects on housing investment and house prices and that easy monetary policy designed to stave off perceived risks of deflation in 2002-04 has contributed to the boom in the housing market in 2004 and 2005.""
"The real interest rate during this period was persistently less than zero, thereby subsidizing borrowers."
" an objective observer of all this evidence would have to at least admit the possibility that monetary policy was too easy and a possible contributor to the crisis."
"Indeed, one of the lines from Mr. Bernanke's speech most picked up by Fed watchers is that "we must remain open to using monetary policy as a supplementary tool for addressing those risks." We have very limited ability to fine tune monetary policy in such an interventionist way."
"it is wishful thinking that some new and untried macro-prudential systemic risk regulation will prevent bubbles."

Friday, January 15, 2010

Why Minimum Wage Laws Are a Bad Idea

"... research shows that in the long run the adverse effects of a higher minimum wage are quite substantial." (page 84, The Economics of Public Issues, 13e, by Roger LeRoy Miller, Daniel K. Benjamin, and Douglass C. North).

"In a new report, economists David Neumark of the University of California at Irvine and William Wascher of the Federal Reserve Board say a review of more than 90 studies in more than 15 countries since the early 1990s shows nearly two-thirds of the studies find a "consistent" though not always statistically significant negative impact on employment. Fewer than 10 found a consistently positive impact. While there's "no consensus," they say, "the weight of empirical evidence" supports the traditional view." (The Wall Street Journal, p. A4, Nov. 3, 2006)

From Greg Mankiw's blog:

"Economists Richard Burkhauser (Cornell University) and Joseph Sabia (University of Georgia) report:

a beneficiary from a proposed federal minimum wage hike to $7.25 an hour is far more likely to be in a family earning more than three times the poverty line than in a poor family. In total, only 12.7 percent of the benefits from a federal minimum wage increase to $7.25 an hour would go to poor families. In contrast, 63 percent of benefits would go to families earning more than twice the poverty line and 42 percent would go to families earning more than three times the poverty line."

Paul Krugman said "government should typically leave markets alone"

"Careful study of how markets work has led microeconomists to the conclusion that government should typically leave markets alone. Except in certain well-defined cases, government intervention in markets usually leaves society as a whole worse off. There are, to be sure, important tasks for microeconomic policy-ensuring that markets perform well and intervening appropriately in the well-defined cases in which markets don't work well. But the area of microeconomics, in general, suggests a limited role for government intervention."

Page 141 of Macroeconomics by Paul Krugman and Robin Wells

Study of the Great Depression Shapes Bernanke's Views: Federal Reserve Chair Ben Bernanke agrees with important monetarist idea

Milton Friedman and Anna Jacobson Schwartz upended that view in 1963 (that the Depression was the inevitable consequence of excess investment, flawed corporate governance and speculation in the 1920s). In "A Monetary History of the United States, 1867-1960," they argued that the Depression was far from inevitable, but brought about by an "inept" Federal Reserve. First, they said, the Fed foolishly raised interest rates in 1928 to end speculation on Wall Street, causing a recession the next year that precipitated the crash. Then, it let thousands of banks fail and the money supply shrink. In part, it thought weak banks should be allowed to fail. It also feared that lower interest rates might lead foreigners to dump dollars, straining the currency's link to gold.

Bernanke read the book as a graduate student at Massachusetts Institute of Technology in the 1970s. "I was hooked, and I have been a student of monetary economics and economic history ever since," he recalled at a 2002 conference honoring Friedman's 90th birthday. Bernanke, by then one of the Fed's seven governors, told Friedman: "Regarding the Great Depression. You're right, we did it. We're very sorry. But thanks to you, we won't do it again."

Copyright 2005 Charleston Newspapers Charleston Gazette (West Virginia)
December 11, 2005, Sunday SECTION: NEWS; Pg. P8E
BYLINE: Greg Ip, The Wall Street Journal

RUBEN NAVARRETTE Says Envy, Class Jealousy Are Wrong

Click here to read the article

He says some people earn more than others because:

"Much of it is tied to individuals' decisions about how much education they're going to pursue, and how hard they're going to pursue it. Most obstacles people face are self-imposed and self-designed. We can't say that enough, especially at a time when too many Americans blame others for their troubles, failings and shortcomings."


"Whether movie stars, professional athletes or television and radio personalities, a simple formula decides someone's worth: It's what someone else is willing to pay them. I bet that makes sense to most people. But for others, there is an emotion that always seems to get in the way. It's class envy - the sense that it's simply not fair that some earn in an hour what it takes others to earn in a month. It doesn't help that plenty of politicians and pundits shamelessly try to cultivate that resentment and use it for their own purposes."

Are College Professors Liberal?

Are College Professors Liberal?

From the Thursday, October 19, 2006 Chronicle of Higher Education:

"The report, by the Institute for Jewish & Community Research, was based on an online, nationally representative survey of 1,259 professors at four-year colleges and universities in the spring of 2005. It found that, in general, professors are critical of American business and foreign policy and are skeptical of capitalism.

Among other findings, the report, "A Profile of American College Faculty: Volume 1: Political Beliefs & Behavior," says that:

Professors are three times as likely to call themselves "liberal" as "conservative." In the 2004 presidential election, 72 percent of those surveyed voted for John Kerry.

Almost one-third of professors cite the United States as among the top two greatest threats to international stability -- more than cited Iran, China, or Iraq.

Fifty-four percent of professors say U.S. foreign policy in the Middle East is partially responsible for the growth of Islamic militancy.

Sixty-four percent say the government's powers under the USA Patriot Act should be weakened."

A separate report showed that there are 2.5 Democrats for every 1 Republican amongst economics professors. It was 58% Democrat, 23% Republican, 2.66% Libertarian and 0.76% Green Party.

"Social science and humanities faculty are the most liberal and Democratic, and least diverse in their political culture. Fully 54% of the social science and humanities faculty identify as Democratic and 60% as liberal, and only 11% as Republican and 12% as conservative, a 5-to-1 ratio."

State Universities Favor Athletes In Admissions

Read Admissions exemptions aide athletes By ALAN SCHER ZAGIER. I saw the article in the 12-31-09 San Antonio Express-News, page 2E. State or government run schools should be serving the public interest. Favoring athletes is not fair. When the market does something that seems unfair, some people say that it shows that capitalism is evil. But what about when government does things like this? I rarely hear anyone say maybe we should have less government. How does it help society if we give athletes greater access to education than average people? I don't think it does. This is government discrimination. The Express-News article said the AP looked at 92 public schools.
"The review identified at least 27 schools where athletes were at least 10 times more likely to benefit from special admission programs than students in the general population."

"At Alabama, 19 football players got in as part of a special admissions program from 2004 to 2006, the most recent years available in the NCAA report. The school tightened its standards for "special admits" in both 2004 and 2007, but from 2004 through 2006, Crimson Tide athletes were still more than 43 times more likely to benefit from such exemptions."

"The NCAA defines special admissions programs as those designed for students who don't meet "standard or normal entrance requirements.""

"Texas was one of seven schools that reported no use of special admissions, instead describing "holistic" standards that consider each applicant individually rather than relying on minimum test scores and grade-point averages.

But the school also acknowledged in its NCAA report that athletic recruits overall are less prepared. At Texas, the average SAT score for a freshman football player from 2003 to 2005 was 945 — or 320 points lower than the typical first-year student's score on the entrance exam."

The Drug War In Mexico Is Not Working

Read Saving Mexico: To weaken the cartels, some argue the U.S. should legalize marijuana, let cocaine pass through the Caribbean and take the profit motive out of the drug trade. It was by DAVID LUHNOW and appeared in the 12-26/27-09 WSJ, page W3.
"In the 40 years since U.S. President Richard Nixon declared a "war on drugs," the supply and use of drugs has not changed in any fundamental way. The only difference: a taxpayer bill of more than $1 trillion."

"...the horrific drug-related violence in Mexico that has claimed around 15,000 lives in the past three years."

"In the late 1980s and early 1990s, the U.S. government cracked down on the transport of cocaine from Colombia to U.S. shores through the Caribbean, the lowest-cost supply route. But that simply diverted the flow to the next lowest-cost route: through Mexico. In 1991, 50% of the U.S.-bound cocaine came through Mexico. By 2004, 90% did."

"...Colombia waged a successful war to break up the country's Cali and Medellin cartels into dozens of smaller suppliers. Both moves helped the Mexican gangs,..."

"...Mexican drug gangs are a one-stop shop for four big-time illicit drugs: marijuana, cocaine, methamphetamines and heroin."

"...illegal drugs are the most successful Mexican multinational enterprise, employing some 450,000 Mexicans and generating about $20 billion in sales, second only behind the country's oil industry and automotive industry exports."

"One drug lord's accountant who was arrested in 2006 had a mid-level job at Mexico's central bank for 15 years."

"Mexican customs has stumbled upon a long list of ingenious methods to transport cocaine, including one shipment of liquefied cocaine smuggled in red wine bottles. Another recent bust yielded 800 kilos of cocaine—worth an estimated $40 million—stuffed inside a batch of frozen sharks.

After Mexico restricted the importation of pseudoephedrine to slow the manufacture of methamphetamines, drug gangs found another way to make the drug using different, unrestricted chemicals widely used in the perfume industry."

Thursday, January 14, 2010

British priest excuses shoplifters in sermon

That is an article you can read here. I first saw in the 12-23-09 issue of the San Antonio Express-News, p. 2A. Key exerpt:
"The Rev. Tim Jones caused an uproar by telling his congregation that it is sometimes acceptable for desperate people to shoplift – as long as they do it at large national chain stores, rather than small, family businesses."

"From his pulpit at the Church of St. Lawrence in York, about 220 miles north of London, Jones said in his sermon Sunday that shoplifting can be justified if a person in real need is not greedy and does not take more than he or she really needs to get by."

This kind of statement results when respect for capitalism, free markets and private property is ridiculed by the intellectual elite. They are basically saying "the system is unfair, the capitalists are the bad guys, so go ahead and steal from them."

The Health Care Bill Might Hurt The Insurance Industry And Competition

That comes from a Richard Epstein article in the 12-23-09 edition of the WSJ, p. A21. The article is Harry Reid Turns Insurance Into a Public Utility: The health bill creates a massive cash crunch and then bankruptcies for many insurers. Key experpts:

"Lost in the shuffle has been its intensely coercive requirements on health insurance issuers, especially in the individual and small group markets. Taken together, these restrictions are likely to drive them out of business..."

"...the bill's rebate program, which holds that once an insurance company spends more than 10% of its revenues on administrative expenses, its customers are entitled to an indefinite statutory rebate determined by state regulatory authorities subject to oversight by the Secretary of Health and Human Services."

these are "... heaviest in the small group and individual markets, where they typically range between 25% and 30%, without the new regulatory hassles."

"The CBO concluded that this one restriction turned the Reid bill into "an essentially governmental program.""

"...the bill will create state health-care exchanges supported by generous federal subsidies to unspecified millions of needy and low-income individuals. Any health insurance carrier that steers clear of these exchanges cannot keep its customers."

"...all insurers have to take all comers and to renew all policies except for nonpayment of premiums."

"... it's the government that requires extensive coverage including "ambulatory patient services, emergency services, hospitalization, maternity and newborn care, mental health and substance abuse disorder services, prescription drugs, rehabilitative and habilitative [sic!] services and devices, laboratory services, preventive and wellness services and chronic disease management, pediatric services, including oral and vision care.""

the bill "...authorizes state regulators, after recommendations from the federal government, to exclude insurers from the exchanges if their prices are too high,..."

"One common talking point of proponents of the Reid bill is that competitive markets don't really do a very good job of reining in costs. Indeed, the most common justification for the public option was to supply real competition to the private sector. Now that the option has vanished, the alternative regulatory technique is brute regulatory force. The argument seems to be that price controls alone can force out the waste and inefficiency that are posited to be the hallmark of private markets."

"... no insurer can simply cut back on services provided given the minimum standards."

Tax Cuts Might Accomplish What Spending Hasn’t

That was the title of an article in the 12-13-09 edition of the NY Times by Greg Mankiw that you can read Tax Cuts Might Accomplish What Spending Hasn’t (Business section, p. 6). Here are the key exerpts:

"...recent studies suggest that conventional wisdom (that more government spending is the answer) is backward."

"One piece of evidence comes from Christina D. Romer, the chairwoman of the president’s Council of Economic Advisers. In work with her husband, David H. Romer, written at the University of California, Berkeley, just months before she took her current job, Ms. Romer found that tax policy has a powerful influence on economic activity.

According to the Romers, each dollar of tax cuts has historically raised G.D.P. by about $3 — three times the figure used in the administration report. That is also far greater than most estimates of the effects of government spending.

Other recent work supports the Romers’ findings. In a December 2008 working paper, Andrew Mountford of the University of London and Harald Uhlig of the University of Chicago apply state-of-the-art statistical tools to United States data to compare the effects of deficit-financed spending, deficit-financed tax cuts and tax-financed spending. They report that “deficit-financed tax cuts work best among these three scenarios to improve G.D.P.”

My Harvard colleagues Alberto Alesina and Silvia Ardagna have recently conducted a comprehensive analysis of the issue. In an October study, they looked at large changes in fiscal policy in 21 nations in the Organization for Economic Cooperation and Development. They identified 91 episodes since 1970 in which policy moved to stimulate the economy. They then compared the policy interventions that succeeded — that is, those that were actually followed by robust growth — with those that failed."

"All these findings suggest that conventional models leave something out. A clue as to what that might be can be found in a 2002 study by Olivier Blanchard and Roberto Perotti. (Mr. Perotti is a professor at Boccini University in Milano, Italy; Mr. Blanchard is now chief economist at the International Monetary Fund.) They report that “both increases in taxes and increases in government spending have a strong negative effect on private investment spending. This effect is difficult to reconcile with Keynesian theory.”

These studies point toward tax policy as the best fiscal tool to combat recession, particularly tax changes that influence incentives to invest, like an investment tax credit."

Thursday, January 7, 2010

Mortgage Assistance May Not Be Working Well

The article is Borrowers with modified loans falling into trouble. I first saw the article in the San Antonio Express-News, 12-22-09, page 4C. It seems like the government is trying to help people who were in trouble on their mortgages but they still fall behind anyway. Here are the key exerpts:

"One of the biggest challenges to ending the foreclosure crisis is this: A surprising number of homeowners who get their monthly payments reduced fall behind again within a year.

When borrowers get into financial trouble, lenders have several ways to help. They can offer grace periods, longer repayment schedules, lower interest rates or reduced balances.

But nearly 40 percent of homeowners across the nation who had their monthly payments cut by 20 percent or more last year were delinquent again within a year, according to a report released this past week from the federal Office of the Comptroller of the Currency and the Office of Thrift Supervision."

Peter Wallison Said The Credit Crisis Might Happen In 1999

It was in a NY Times article called Fannie Mae Eases Credit To Aid Mortgage Lending from September 30, 1999. His prediction, was based, in part, on government intervention being the cause. Here are the exerpts:

"In a move that could help increase home ownership rates among minorities and low-income consumers, the Fannie Mae Corporation is easing the credit requirements on loans that it will purchase from banks and other lenders."

"Fannie Mae, the nation's biggest underwriter of home mortgages, has been under increasing pressure from the Clinton Administration to expand mortgage loans among low and moderate income people and felt pressure from stock holders to maintain its phenomenal growth in profits."

"In moving, even tentatively, into this new area of lending, Fannie Mae is taking on significantly more risk, which may not pose any difficulties during flush economic times. But the government-subsidized corporation may run into trouble in an economic downturn, prompting a government rescue similar to that of the savings and loan industry in the 1980's.

''From the perspective of many people, including me, this is another thrift industry growing up around us,'' said Peter Wallison a resident fellow at the American Enterprise Institute. ''If they fail, the government will have to step up and bail them out the way it stepped up and bailed out the thrift industry.''"

And this was at a time when minority home ownership was rapidly expanding.

"Home ownership has, in fact, exploded among minorities during the economic boom of the 1990's. The number of mortgages extended to Hispanic applicants jumped by 87.2 per cent from 1993 to 1998, according to Harvard University's Joint Center for Housing Studies. During that same period the number of African Americans who got mortgages to buy a home increased by 71.9 per cent and the number of Asian Americans by 46.3 per cent.

In contrast, the number of non-Hispanic whites who received loans for homes increased by 31.2 per cent."


"In July, the Department of Housing and Urban Development proposed that by the year 2001, 50 percent of Fannie Mae's and Freddie Mac's portfolio be made up of loans to low and moderate-income borrowers. Last year, 44 percent of the loans Fannie Mae purchased were from these groups."

The Price for Fannie and Freddie Keeps Going Up

The Price for Fannie and Freddie Keeps Going Up was an article by PETER J. WALLISON in the Wall Street Journal on 12-30-2009, p. A17. Here are the relevant quotes:

"The GSEs had begun buying risky loans in 1993 to meet the "affordable housing" requirements established under congressional direction by the Department of Housing and Urban Development (HUD)."

"There is more to this ugly situation. New research by Edward Pinto, a former chief credit officer for Fannie Mae and a housing expert, has found that from the time Fannie and Freddie began buying risky loans as early as 1993, they routinely misrepresented the mortgages they were acquiring, reporting them as prime when they had characteristics that made them clearly subprime or Alt-A."

"Market observers, rating agencies and investors were unaware of the number of subprime and Alt-A mortgages infecting the financial system in late 2006 and early 2007. Of the 26 million subprime and Alt-A loans outstanding in 2008, 10 million were held or guaranteed by Fannie and Freddie, 5.2 million by other government agencies, and 1.4 million were on the books of the four largest U.S. banks.
In addition, about 7.7 million subprime and Alt-A housing loans were in mortgage pools supporting MBS issued by Wall Street banks—which had long before been driven out of the prime market by Fannie and Freddie's government-backed, low-cost funding."

"But because of Fannie and Freddie's mislabeling, there were millions more high-risk loans outstanding. That meant default rates as well as the actual losses after foreclosure were going to be outside all prior experience."

"As it turned out, however, none of Lehman's largest counterparties failed—so much for the idea that the financial market is "interconnected"—but all market participants now realized they had to know the true financial condition of their counterparties. The result was a freeze-up in interbank lending."

"...HUD's affordable housing regulations, which by 2007 required that 55% of all the loans the agencies acquired had to be made to borrowers at or below the median income, with almost half of these required to be low-income borrowers."

"Another likely reason for Fannie and Freddie's mislabeling of mortgages was their desire to retain congressional support by "rolling the dice" while making believe they weren't betting."