One convenient thing for limited government types is they get to avoid many of the tricky issues that develop when action is undertaken by the government on behalf of individuals. If you believe individuals should have the sole prerogative to their health decisions, for instance, you needn’t worry much whether they then choose to spend their money on silly things. Transfer that authority to the government on behalf of the polity, however, and wastefulness becomes less innocuous:

Prue Lewis listens as they explain their symptoms. Then Lewis — a thin, frail-looking woman from Columbia Heights — simply says, “I’ll go to work right away.” She hangs up, organizes her thoughts and begins treating her clients’ ailments the best way she knows how: She prays.

This is health care in the world of Christian Science, where the sick eschew conventional medicine and turn to God for healing. Christian Scientists call it “spiritual health care,” and it is a practice they are battling to insert into the health-care legislation being hammered out in Congress.

Leaders of the Church of Christ, Scientist, are pushing a proposal that would help patients pay someone like Lewis for prayer by having insurers reimburse the $20 to $40 cost.

The provision was stripped from the bill the House passed this month, and church leaders are trying to get it inserted into the Senate version. And the church has powerful allies there, including Sens. John F. Kerry (D-Mass.), who represents the state where the church is based, and Orrin G. Hatch (R-Utah), who said the provision would “ensure that health-care reform law does not discriminate against any religion.”

This story is usually packaged to fit into a debate about church and state, but let’s slide that to the side and instead inquire about efficiency: could paying for prayer be a less wasteful use of tax dollars than the alternatives?

The instinctive answer is no because prayer can at best have a placebo effect–better to spend the money on more effectual ends. This answer is incomplete, however, because we have to specify at what margin we’re thinking: Are we talking about the first dollar one spends to cure an ailment, or the ten thousandth?

Most knowledgeable people seem to think Americans overspend on healthcare. That is, the extra dollar we spend doesn’t bring extra benefit. To reduce waste, we could reduce our spending to a level where we’re still getting a bang for our taxpayer buck, but this is the government after all, so we can forget about that. Instead, seeing as the extra treatment brings us no extra benefit, we could just select cheaper treatments in order to hie away waste. At the end of this line of reasoning lies the sort of counter-intuitive conclusion economists hold so dear: paying $20 buck a pop for prayer can be a more efficient use of healthcare spending than, say, paying for a $100 visit to the doctor.

It’s true that for the first dollars we spend we’re better off ignoring faith-based solutions, but at some margin, going to a witch doctor is just as worthwhile as going to the family doctor. And if we take a Hansonian view of heathcare, that margin is at a level lower than we think.

The New Times, Rwanda’s English paper of record, reports today:

East African Business Council (EABC) has asked East African Community (EAC) governments to treat cement as a sensitive product to protect the domestic industry from cheap imports.

The local cement industry is currently faced with high production costs resulting from high energy and labour costs, poor distribution network especially railway transport and inadequate ancillary industries for spare parts and consumables.

The Executive Director of East African Business Council Charles Mbogori said the influx of cheap cement imports from countries with lower production costs will in the long run have negative impact on the local industry.

Here’s a satirical petition Frédéric Bastiat wrote in 1845.

From the Manufacturers of Candles, Tapers, Lanterns, Candlesticks, Street Lamps, Snuffers, and Extinguishers, and from the Producers of Tallow, Oil, Resin, Alcohol, and Generally of Everything Connected with Lighting.

To the Honorable Members of the Chamber of Deputies.

Gentlemen:

You are on the right track. You reject abstract theories and have little regard for abundance and low prices. You concern yourselves mainly with the fate of the producer. You wish to free him from foreign competition, that is, to reserve the domestic market for domestic industry.

(…)

We are suffering from the ruinous competition of a foreign rival who apparently works under conditions so far superior to our own for the production of light that he is flooding the domestic market with it at an incredibly low price; for the moment he appears, our sales cease, all the consumers turn to him, and a branch of French industry whose ramifications are innumerable is all at once reduced to complete stagnation. This rival, which is none other than the sun, is waging war on us so mercilessly that we suspect he is being stirred up against us by perfidious Albion (excellent diplomacy nowadays!), particularly because he has for that haughty island a respect that he does not show for us.

We ask you to be so good as to pass a law requiring the closing of all windows, dormers, skylights, inside and outside shutters, curtains, casements, bull’s-eyes, deadlights, and blinds—in short, all openings, holes, chinks, and fissures through which the light of the sun is wont to enter houses, to the detriment of the fair industries with which, we are proud to say, we have endowed the country, a country that cannot, without betraying ingratitude, abandon us today to so unequal a combat.

You can read the rest of the fairly brief petition here. As you read, just try and not marvel at how little such arguments have changed in the past 160 years.

Economists stress the importance of incentives in how we creatures make choices, but are often too keen to think of incentives only in monetary terms: if you want to encourage Herr Human to do something, just offer some money as a reward for doing that thing and let economics unfold. In vast expanses of human experience this assumption holds, but pockets of obstinacy can cause it to fall apart like a soggy twenty-dollar bill. For reasons as varied as people, money ceases to be a motivator and can even effect an outcome opposite to the intended purpose. Cash is commercial and can cheapen an achievement or negate whatever intrinsic motivations existed. Perhaps paying kids to make good grades, such what economist Roland Fryer is attempting, will result in better outcomes, but perhaps not. Incentives, as the Austrian school stresses, do not exist in an objective plane, but are formed in the subjective perceptions of the individual.

These thoughts were in my head today as I had a haircut.

Haircuts in Rwanda, at least for me and other muzungu males I know, are meticulous and take a long time, at least thirty minutes and sometimes longer. To avoid a wait, which drags the thing out yet more, I go on weekday mornings.  Today as I bumped along on a mototaxi to my preferred place in MTN Centre, I decided to offer a standard incentive to the barber: if he could cut my hair and trim my proud six-week-old beard in 15 minutes or less, I would give him a forty percent tip, and about half that if he took less than 25 minutes.  In the event, he smiled and and began at what seemed to me an accelerated clip (so to speak), but the final snip did not occur until about a half hour later. What’s more, after warmly beckoning me back for future cuts, he said not a word of the tip and shooed me out.

There are many possible reasons why this incentive turned out not to be, so I am loath to draw any conclusions beyond the general one already outlined above. What I do know is the experiment left me doubly sad, for while my haircuts will not be getting shorter, my beard has–a month’s growth gone in one sweep.

Penmanship has never been my strong suit, the doodlings of my pen having been described both blandly as chicken scratch and more memorably as looking like those of a serial killer. Little did all my critics realize this little “flaw” of mine would give me insight and empathy into one of history’s most influential minds!

From The Worldly Philosophers, a thus far great book:

Marx had no work–except his never-ending stint in the British Museum from ten o’clock every morning until seven o’clock at night. He tried to make a little money by writing articles on the political situation for the New York Tribune, whose editor, Charles A. Dana, was a Fourierist and not averse to a few slaps at European politics. It helped for a while, although it was Engels who bailed Marx out by composing many of his pieces for him–Marx meanwhile advising by letter as follows: “You must your war-articles colour a little more*. “ When these articles stopped, he tried to get a clerical job with a railway, but was rejected for his atrocious handwriting.

p. 150

‘Tis true, however, that my horrid handwriting is sometimes a burden. The wine business for example requires me to make several bank transactions every week, and all the forms must be handwritten. How the tellers interpret my name, which I both print and sign on most of the forms, can be amusing:

The interpretation can also confound:

That last one had me puzzled for longer than I care to admit as to who exactly this Jeff Ildnes was and how he had gained access to the account.

*German syntax much?

One cannot walk a long distance down a Kigali sidewalk without running into yellow jersey-clad young men hocking plastic cards containing codes with which to refill a mobile phone’s airtime. I’ve read elsewhere that the business can be lucrative, but whatever the economics before, they’re now a little less attractive:

MTN Rwanda airtime distributors and vendors have since last week hiked airtime voucher cards citing increment in prices at which they purchase the cards from the company.

(…)

“The management of MTN wishes to categorically state that there has been no increase in their tariffs,” said Andrew Rugege, the company’s Chief Operations Officer.

However, in a mini survey conducted by Business Times vendors and distributors decried MTN’s position, saying that the company is the root cause of the problem following an increase in wholesale prices at which they purchase the cards from the cards [sic--they mean "the company"].

“We are expected to sell the airtime at the old price yet the wholesale price has been increased this is not practical,” a distributor at Kacyiru who preferred anonymity for the interest of his business said.

In the Econ 101 model of perfect competition, sellers are price takers. In other words, the market is so competitive that for a seller the price is given–any attempt to charge higher than the market price will quickly send buyers to competitors. When facing an increase in costs, therefore, a seller must swallow them despite his natural desire to pass on the plate. If he can’t stomach them, then he’s out of business.

The phone card business seems to exhibit many of the properties of the perfect competition model: each card is the same as the next, barriers to entry are small, there are many buyers and sellers, and since the “market price” is printed clearly on each card, sellers have no information advantage with which to dupe buyers. Regrettably for the card sellers, what this all means is that their increased wholesale cost is relevant only to them and not to their customers, and any attempt to charge a higher price is ultimately doomed.

Got to give them (phone?) credit for trying, though.

Management guru edition:

When one deviates greatly from the norm, the golden rule loses its hue.

How could you not take subversive pleasure in this letter-duo found in the week’s Economist?

SIR – Philip Bowring’s account of the Far Eastern Economic Review’s encounter with the Singapore government is inaccurate (Letters, October 17th). In 1987 the government restricted the circulation of the Review after it had engaged in Singapore’s domestic politics. But an advertisement-free version was distributed widely at bookshops and supermarkets, and sold more than 1,000 copies. In March 1988 the Review applied to produce a similar version. The government agreed, subject to a ceiling of 2,000 copies, but the Review refused its offer. Would this have happened in Maoist China and North Korea?

Michael Eng Cheng Teo
High commissioner for Singapore
London

SIR – You will be tempted to give the Singapore government the last word on its censorship strategy—as its “right of reply” policy demands—but this will neutralise the criticism of Mr Bowring and others. Readers will simply assume you agree with the government. Assuming you don’t, please print this alongside its next rebuttal, to expose this subtle yet powerful manipulation of the press.

Duncan M. Butlin
Chichester, West Sussex

Everything reminds Milton of the money supply. Well, everything reminds me of sex, but I keep it out of the paper.

So said Robert Solow of Milton Friedman. I’ll beg Solow’s and your indulgence, Reader, for these days I have wine on my mind, and I can’t keep it out of the blog.

A few days ago I read the following passage in The Alchemist, which I’ve now finished:

Page 60

The old man continued, ‘You have been a real blessing to me. Today I understand something I didn’t see before: every blessing ignored becomes a curse. I don’t want anything else in life. But you are forcing me to look at wealth and at horizons I have never known. Now that I have seen them, and now that I see how immense my possibilities are, I’m going to feel worse than I did before you arrived. Because I know the things I should be able to accomplish, and I don’t want to do so. ‘

A fun coincidence, reading this when I did, as it came just after a disappointing meeting with a restaurant owner. Despite a drawn-out conversation, the owner to the end held the position that while our wines were better than her limited selection and reasonably priced, she thought her customers were content with what she had and couldn’t be bothered to care about something better. Perhaps she was right, but to me her position smacked of a certain cognitive dissonance, as if she felt she would be better off by denying a choice existed rather than having to make one.  Even still, I doubt this business owner, unlike the one in the book, felt worse afterward.

***

As for my thoughts on the book itself, in short, I didn’t like it. Too easy, simple, trite, thoughtless, contradictory. It reminded me of this bit of data showing Americans, particularly better off ones, like to use the metaphor of a journey to describe their lives. Like Tyler Cowen, I wonder if just reveals “our tendency to impose a false or misleading narrative on events.”

]]> http://therulingzeitgeist.wordpress.com/2009/10/23/the-wrong-path/feed/ 0 Jeff http://therulingzeitgeist.wordpress.com/2009/10/11/minty-fresh/ http://therulingzeitgeist.wordpress.com/2009/10/11/minty-fresh/#comments Sun, 11 Oct 2009 12:24:46 +0000 Jeff http://therulingzeitgeist.wordpress.com/?p=1199 ]]>

At some point in the past few days I acquired an unusually decrepit–even for Rwanda– 2,000 franc note (~$4); not only is it nearly torn asunder, but it’s also missing a quarter sized chunk at the top of the bill. So is it still worth 2,000 francs? The National Bank of Rwanda would say yes, but common sense says no: damaged money is less valuable than its freshly-minted brethren.  This leads to a phenomenon known as Gresham’s law, which Wikipedia outlines as follows:

Gresham’s law is commonly stated: “Bad money drives out good”, but more accurately stated: “Bad money drives out good under legal tender laws.”

Let’s say the government issued a 100% gold coin with a face value of a dollar. After a few mintings, however, the government decides to increase its seigniorage by minting a new series of dollar coins, but this time with only 50% gold. Now two coins are circulating about the economy, and both must be accepted as worth $1 in any transaction. But the citizenry knows one coin has twice as much gold in it as the other and is thus more valuable, so they will hold on to the full-gold coin and use the half-gold coin as much as possible. Soon enough, all full-gold coins will have disappeared, having been driven out by the less valuable but legally equal half-gold coin. In my real-world case, I utilized my full measure of clever to swap out my bad note with a good one in a bank deposit for my wine company.

And now that we’re speaking of wine again (weird, huh?), I’ve come across an inverse wine corollary to Gresham’s law, as explained to me by a restaurant manager as I replenished his supply. Since buying our wine, the manager had instructed his pseudo-sommelier first to get rid of his old inferior stock from another supplier. For whatever reason, however, our good stuff drove out of circulation the bad stuff, of which he has hardly been able to sell a drop.

Several projects command my attention on any given day, but the one consuming most of my time at the moment is a wine business I run with the financial backing of a few expats. We’re currently importing 19 types of South African wine and retailing it in Kigali. In the past week or so, we’ve begun pushing our juice to several restaurants, whom we’ve found are in desperate need of palatable wine.

Last night as one restaurant manager was sampling a few bottles of our selection, he showed my colleague and me his wine list. He explained that he had spent little money or effort on the menu because he was never sure of his supply and always had to be ready to produce a new list. Making the list cheaply meant he could be more responsive to whatever changes might come his way.

This little explanation brought to my face what one housemate calls my “stupid grin,” because it was a great example of what economists call intuitively (for once) menu costs: the costs of a price change. If duck suddenly becomes more expensive, for instance, a restaurant serving foie gras will probably want to charge a higher price for it. They may not do so, however, because the extra cost of updating their menu could outweigh the extra revenue resulting from the higher price. If this were in the fact the case, the price would be dubbed sticky, or resistant to a change in the market.

Some schools of thought in economics stress price stickiness (such as with wages, which don’t tend to go down even in bad times) as an important factor in understanding the ups and downs of economic activity.  I on the other hand stress price stickiness as an important factor in understanding why it’s hard to remove price tags from wine glasses.