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Archive for November, 2009

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 bucks 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.

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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.

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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.

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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:

Jeff Molmes indeed!

The interpretation can also confound:

That rogue Mr. Ildnes--my Moriarty

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?

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Perfectly Pointless

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.

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Management guru edition:

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

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