Organ capitalism revisted Wednesday, Dec 2 2009

A couple of months ago, I wrote a piece supporting the sale and purchase of organs. I argued that allowing for a market for organs would get rid of the lack of supply of organs that are desperately needed to save the lives of those in need of an organ transplant (the literature tends to agree, as does empirical evidence from Iran). Every year, tens of thousands of people (about 100,000 in the U.S. alone) in need of new organs must wait because there lacks a supply of healthy organs available to them, and thousands more die because of this shortage. Every year the shortage continues to rise (demand is increasing faster than supply is). Healthy organs abound, but the shortage arises from the fact that it is a crime to sell or purchase organs. The altruistic donation of organs, while undoubtedly saving many lives, simply does not come close to supplying the necessary amount of organs. The logical conclusion seems to suggest there ought to be a market for organs.

Some people, however, detest this notion. In a recent post on his blog, Dr. Filip Spagnoli makes several nuanced arguments against free organ trade. The main arguments he makes, insofar as I understand them, are that the poor, qua the poor, will be desperate for money and therefore forced to sell their organs; the wealthy, qua the wealthy, will be able to disproportionately afford the organs and therefore be unfairly benefited; organ transplants are dangerous; solid organs donation is nonrenewable and therefore decidedly and relevantly different from blood donation; organ trade is tantamount to commodification of the body; and an opt-out system is the best solution to our problem.

King Banaian, a professor and chairman of the economics department at SCSU, made an argument similar to first listed above, back in 2005. The poor are desperate, goes the argument, and so it’s unfair they would end up selling organs (i.e. they lack informed consent). The basic underlying premise of this argument is that the poor are irrational, incapable of thinking for themselves. The government, therefore, knows what’s better for them than they themselves do. That is, they have to be protected from themselves (because they’re poor). I reject that argument. If the premise is true for the sale of organs, then it would be equally true of other economic decisions they make, including the sale of their labor or their purchase of goods. That doesn’t seem to be the case and, if it is, we certainly don’t restrict completely their involvement in the market (and even more certainly not the involvement of others).

So the argument seems to be that, if it weren’t for the money incentive being offered, the poor wouldn’t choose to donate their organs. But that’s true of basically all people. Economic agents would not do many things if it were not for the money incentive. Dell wouldn’t sell me computers if they weren’t being compensated for it. Is that exploitation (of their want for money)? I don’t think so. That’s called trade, and both the seller and buyer are made better off by it. So what the detractors have failed to explain is how the poor are made better off by ensuring they are not able to receive money that would help alleviate their predicament.

The second argument is that the wealthy, because they obtain more wealth, “will be able to benefit disproportionately from the market because prices will be high …” Dr. Spagnoli says this is true because society is aging, but admits prices will fall because of competition among suppliers, particularly from poor places like Africa. Still, the fact that the wealthy can disproportionately afford things does not suggest to me there ought not to be trade. So long as the distribution of wealth is unequal (which seems to always be the case), some people will be able to afford more than others. That doesn’t mean we outlaw trade. (The wealthy can afford more food and labor than the poor; do we therefore outlaw the sale of food or labor?) That seems to be punishing the rich merely by fact that they’re rich. And in this case, the punishment is death. Detractors of organ trade fail to explain how outlawing trade benefits the less-than-wealthy who are in need of an organ. It seems to me that as the wealthy begin to demand less organs, prices will begin to fall (allowing even the poor to afford to buy organs). By outlawing organ trade, detractors are (at best) disallowing some people from buying lifesaving organs merely because of their wealth.

The next argument is organ transplants are dangerous, so they should not be allowed. It’s true that all surgery, even the most benign, carry risk (including death). That reason alone is not enough to outlaw transplantation of organs. If it’s dangerous to sell organs for money, then it’s equally dangerous to donate organs altruistically. But we allow the altruistic kind. Clearly, danger is not the underlying factor here. Moreover, the dangers are overplayed, I think. The death rate for liver transplantation in Japan is at 0%, and 0.3% in the United States. These rates will continue to decline as advances in medicine continue and as surgeons progress along the learning curve. Kidney transplantation is even safer (people who donate kidneys live longer than those who don’t). Remember, it was Joseph Murray who won the Nobel Prize in medicine for completing the first kidney allograft in 1954. The patient in that case is still alive. While there is serious risk in many activities, including surgery (or timber cutting or smoking, which are both legal), that’s not enough to outlaw the practice.

Another argument is that blood (or sperm perhaps) is okay to sell because it’s renewable. The only defense here is that the distinction between renewable and nonrenewable is “relevant,” but without any further explanation. How is the distinction important? The fact that some goods are scarce doesn’t tell me a lot (other than that their price is going to be higher). Furthermore, modern liver transplantation in live patients consists of removing only a portion of the liver from the donor, which will regenerate and return to full functionality within a matter of a few weeks. Does the detractor now accept the trade of livers? (Similarly, the sale of bone marrow, which is just as renewable as blood, is a serious crime in the United States.)

A very common argument that also comes up is that the trade of organs is tantamount to the commodification of the body. I say, So what? It saves the lives of real human beings. That’s what matters. “Commodification is dehumanization,” they say. I counter that there is nothing more dehumanizing than simply letting people die, which is precisely what you do when you outlaw the trade of organs. So what is worse: that people might sell parts of their body or that hundreds of thousands of people are unable to get organs that could save their lives? Supporters of this argument also fail to explain how blood, bone marrow, sperm, ovarian eggs, or bearing children (all of which have markets) do not constitute commodification. Or, if they do, do they believe these practices ought to be outlawed? It’s also worth mentioning that even in altruistic donations, people are still profiting from it: the doctor, the nurses, the hospital, and so on. That is, everyone except the donor.

They might respond, We’re not letting them die because we have a solution, which is the op-out system. Opt-out, also called presumed consent, begins with the assumption that all people wish to donate their organs upon death. If you do not consent, you must specifically tell this to the state. (My contention is that this is akin to saying the state owns your body by assumption.) This is opposed to the opt-in system, like in the United States, where the assumption is that people do no wish to donate their organs upon death, unless it is otherwise specified. In that way, the hope of opt-out supporters is that people are not altruistic, but rather lazy or ignorant. I find that deeply unethical, but Dr. Spagnoli points to several studies from his country, Belgium, which show opt-out is providing an ample amount of organs (that is, people seem to be lazy or ignorant). (The rate of “donation” is marginally higher than that of the U.S.) A lot of the scholarly literature, however, does indeed seem to suggest opt-out provides higher rates of organ “donations” than opt-in. If this were necessarily true, though, Sweden and Israel (opt-out states) would not have such low donation rates. A study published in 2005 further shows that opt-out systems do not guarantee higher donation rates. The authors find that, when correcting for mortality rates, the apparent efficacy of opt-out disappears. Perhaps better than opt-in or opt-out, a better choice would be mandatory choice. All competent adults must choose whether or not they wish to donate their organs or not. Family decisions (which negatively affect the efficacy of both opt-in and opt-out) must not override the individual’s choice.

Still, it seems giving enough of an incentive to potential donors is the key to finally getting rid of organ shortages, which cause unnecessary deaths each year. As I explained earlier, Iran has been successful in accomplishing this. If detractors are unwavering, however, then perhaps markets are not necessarily the correct solution. Instead, I might propose a system wherein the government pays for the organs and then distributes these as equitably as possible. This removes a lot of the fears detractors have of unfair market allocations. Others, unfortunately, might reflexively bash the idea because it relies on (*moan*) the government. But I ask these people the same question as before: What is worse—that the government might be involved in the trade of organs or that thousands must die needlessly each year because they are unable to procure necessary organs?

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Taxing luxury goods Monday, Nov 23 2009

A little less polemical I hope, I’ve been thinking about sales taxes on luxury goods. Daniel Hamermesh has a post about this topic at the Freakonomics blog. His discussion is of college textbooks and a proposal to cut the sales tax on them (currently at 9%). Why cut taxes on a good that the wealthy disproportionately buy (“because college education is disproportionately undertaken by the offspring of higher-income families”)? This would be tantamount to “more tax breaks for the rich,” Hamermesh argues. (You might want to check out my post on whether college education is actually inferior.)

It is, of course, not true that only the wealthy pay for textbooks (or other luxury goods, for that matter). Reducing the cost of a good, including luxury goods, means people at lower incomes that were previously priced out of the market are now able to afford that good. Removing the sales tax on Rolls-Royces probably does nothing to help the poor. Textbooks, however, are goods that the poor are sometimes likely to buy, thanks to financial aid and other subsidies that help them afford university (you won’t find the poor getting aid to buy high-end luxury automobiles). Increasing the availability of higher education, I think, is a definite improvement for the poor. I think the argument that lowering the sales tax on textbooks is a bad idea is rather dubious.

Also, here is a good article by Aaron Edlin and Ian Ayres published on the Freakonomics blog regarding the recent tuition hikes in California (an astounding 32% by next fall), which students there have been protesting. Edlin and Ayres argue the tuition hike isn’t so bad—so long as there is a similar increase in financial aid going to the poor to help them afford it. It makes things fairer, they say. The rich, who were disproportionately benefited by the low tuition, now “pay a tuition much more commensurate with what he or she can afford.” The poor, on the other hand, are shielded from the tuition hike by the (supposed) increase in financial aid they’re receiving (the rich, of course, are not usually eligible for financial aid). (Whether California will be increasing financial aid is an entirely different story.)

This makes one wonder: are students who are protesting the tuition hikes in California only the rich students who are disproportionately benefited by low tuition? I suspect not. One reason might be the lack of increase in financial aid, another might be the increase in debt associated with higher use of financial aid (loans), and yet another might be the perception of really high tuition rates (e.g. at Yale and other private universities) that dissuade the poor to begin with (there seems to be information asymmetry). I suspect it’s probably not true that raising state tuition in this way is a “good thing.”

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The profit motive Friday, Nov 20 2009

In my global marketing strategy class the other day, instructor David Thomsen showed two pretty shocking videos in discussing public relations. One was on the Bhopal disaster of 1984. The Bhopal gas tragedy is the worst industrial disaster in human history, leaving 8,000 dead within hours of the gas leak in the Indian city, 25,000 dead since the disaster, hundreds of thousands adversely affected by the chemicals, continuing side effects on humans and other animals, and environmental damage that persists today. The “compensation” the video talks about was less than $900 per injured person. Union Carbide, the corporation responsible for the leak, denied any culpability. The Dow Chemical Company later bought them in 2001. The CEO of the company at the time, Warren Anderson, was charged with homicide and manslaughter. He left the country and fled to the United States, where he currently resides, and refuses to appear before Indian courts.

The second video was a report by Australia’s Channel 7 revealing that Nike, a corporation marred by its human rights violations and despicable working conditions in Third World countries, continued to engage in forced labor practices in sweatshops in Malaysia as late as 2008. Note this is after they claimed to have cleaned up their act.

There is a simple reason these types of actions, and others like them, occur, which is what’s called the profit motive. When profit-maximization is the creed, what happens to people is only incidental. There is a whole generation of businesspeople who have been influenced by the work of people like Milton Friedman and Ayn Rand, whose principle message is that the only socially responsible (and indeed morally right) action is to maximize self-interest by way of profits. These ideas are justified by ethical egoism, a morally bankrupt and vacuous theory that says the only morally right actions are actions that maximize the acting agent’s self-interest. That’s what’s called “the moral economy.” The right, in their usual perversion of Smithian theory, always tries to defend this on economic grounds, appealing to what they refer to as “the invisible hand,” a term meant to describe the unintentional benefit to society that corporations bring about through acting in their self-interest. Adam Smith, of course, only used the term once in his The Wealth Nations and only as a “casual metaphor” for risk-adverse merchants wary of foreign exchange who inadvertently help their own countries. Smith, like many of the other great anti- and pre-capitalist Enlightenment thinkers, denounced greed and selfishness. As most serious scholars of Smith recognize, Smith never saw the “invisible hand” as a reality or “law” of markets. As Joseph Stiglitz puts it, “the reason that the invisible hand often seems invisible is that it is often not there.”

As ethical egoism posits to us, there is a certain calculus all moral agents are supposed to undertake in their actions. Namely, they are to ascertain which actions will ultimately lead to profit maximization and undertake those actions. For Union Carbide, that meant denying responsibility for the worst industrial disaster in human history and paying its victims an inconsequential and truly unjust fraction of its coffers. For Nike, that meant finding the cheapest source of labor and exploiting them in the worst kinds of ways—that is, until they’re caught. And while these might indeed be the profit-maximizing choices, surely nobody agrees they have improved the lot of all. When we ignore the rights of people and the laws that regulate acceptable behavior (as, indeed, ethical egoism asks us to do when it is profitable), the necessary result is an abject and deplorable world. The fact that the far-right advocates the abolition of regulations intended to safeguard against such massive injustices from ever happening is justified, they say, by a certain euphemism they call “market democracy” (the idea that ordinary market participants, like you or me, can shape business behavior—but you more than me, because I’m poor). The sobering reality: Dow’s revenues in 2008 totaled more than $57.5 billion, and over $16.6 billion for Nike.

So long as corporations continue to operate within the framework of this “moral economy,” justified by Friedman, Rand and others, we will continue to witness the tragedies and corruption that we hear about on an everyday basis. What is needed instead, at the most minimal level, is a better consideration for those other than the self, as advocated in theories like stakeholder theory, and better regulations and stiffer penalties to ensure “profit over people” (what Smith described to as “the vile maxim of the masters of mankind”) does not become the norm.

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A new era: worth its weight in lead Sunday, Nov 15 2009

The last 35 years or so, an era of liberalization and “globalization,” has been hailed as an era of fantastic growth and economic prosperity. Thanks to Reagan and his economic reforms, we currently live in an era of magnificent economic conditions. Is it true? Is all the triumphalism merited? Well, as usual, it depends on who we’re talking about. It’s true that there has been outstanding performance of the economy, but it’s a very narrow part of the economy. It’s quite true that the ultra-rich have been making out like bandits. We get to read about their euphoria all the time. For the ordinary American, however, the story is quite different.

In my post on what are called “economic miracles,” I noted that the ordinary worker in America has been working harder and longer hours only to see their wages stagnant or decline. Most people have actually seen their wealth go away, not accumulate. The poor have been getting poorer (and the rich, richer). On my post on what’s being called “globalization,” I pointed to data to shows world GDP growth rates have slowed nearly 40% in this new era compared to the era before, which was called the Golden Age (Robert Skidelsky also discusses this in his book, Keynes: The Return of the Master). Poverty rates were steadily declining right through the early 1970s; since then, the poverty rate has either increase or stagnated. The same is true of unemployment rates, but instead of staying stagnant after the early ’70s they soared to unprecedented levels and today we are again approaching the levels we saw under Reagan.

Just about on every measure, this “Golden Age of Capitalism”—the Bretton Woods era—has outperformed this new era, which is now being dubbed the “Leaden Age.” Writes David Harvey, “The only general point of agreement is that something significant has changed in the way capitalism has been working since about 1970.” In The Long Twentieth Century: Money, Power, and the Origins of our Times, Giovanni Arrighi explains: “Rigidities increased further, real growth ceased, inflationary tendencies got out of hand, and the system of fixed exchange rates, which had sustained and regulated post-war expansion, collapsed. Since that time, all states have been at the mercy of financial discipline, either through the effects of capital flight or direct institutional pressures.” That is, states have been undermined by “the empowerment of financial capital” and economies have gone out of control.

The Golden Age of Capitalism (by “capitalism,” it’s understood we mean “state capitalism”), unlike the current Leaden Age, was marked by economic growth that was egalitarian, less severe business cycles, and overall stabilization. The dismantling of the Bretton Woods system and the descent into the Leaden Age has brought about rampant speculation, loss of capital controls, and unregulated exchange rates, all resulting in volatility, severe business cycles (take now, for example), slower growth, higher interest rates, worker insecurity (or, more euphemistically, “labor market flexibility”), and all the rest described above. (This descent is also discussed in John Eatwell and Lance Taylor’s book, Global Finance at Risk.) Now Paul Krugman, an economics professor at Princeton University and the recipient of the Nobel Prize in Economics in 2008, has been doing some Reagan mythbusting of his own. First, he debunks the idea that growth was greater in the Leaden Age than in the Golden Age. Next, he dispels myths about Reagan policies creating greater growth on a per capita basis. Finally, he goes on to explain productivity growth was more rapid during the Golden Age, not during the era of Reaganomics.

Now I’m sure some people may not be happy with the foregoing arguments, even though I find them more descriptive than normative. They might see it as an attack on free markets, but I don’t think it is. In fact, the Bretton Woods system was built around the idea that free trade was good but there needed to be some regulations on finance. Those arguments are not novel and you don’t need to read Keynes to find them. And while Reagan certainly liberalized the economy in some senses, for example through deregulation, Reagen really had no faith at all in free markets. He was, in fact, a big-time state capitalist; take, for example, James Baker who boasted to business groups that the Reagan administration has offered more protection to American business than any post-war presidency (it was, in fact, more than all of them combined). Today, we continue to operate on the idea which is that you socialize risk and costs and privatize profits—the idea of lemon socialism. Contemporary examples stare us right in the face. But Bush’s idea of abandoning “free market principles to save the free market system” is not new by any means. The point I wish to make, if any, is that these ideas are not healthy for democracy are not, as shown above, particularly conducive to economic growth in any meaningful sense.

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Does the state have the right to murder? Thursday, Nov 12 2009

As I live, saith the Lord GOD, I have no pleasure in the death of the wicked; but that the wicked turn from his way and live. Ezekiel 33:11

I remember very clearly the state of terror that gripped the East Coast during fall of 2002. I was only just entering high school then, but the atrocities taking place along the Eastern Seaboard were so jarring to me. The atrocities I’m speaking about are the murders committed by John Allen Muhammad and Lee Boyd Malvo, who shot 13 people and killed 10 of them. Last night, Muhammad, dubbed the “D.C. Sniper,” was put to death last night via lethal injection in the state of Virginia for the heinous crimes he committed.

The question I want to focus on is whether the death penalty is ever justified, even for decidedly evil people like Muhammad. In 2008, the United States put to death 37 people, the fifth most just after North Korea, Saudi Arabia, Iran, and China. That’s quite the distinguished neighbor we’re in, to say the least. Each of these nations (including the U.S.) is known for their human rights violations, which should not come as a surprise. The U.S. is surpassed only by Pakistan for the most prisoners on death row awaiting their “imminent deaths” that can take up to 20 years to come. All of the West, with the exception of the U.S., has outlawed capital punishment. The United States is the only developed nation, outside of Japan and Singapore, to still execute people. In the EU, Article 2 of the Charter of Fundamental Rights of the European Union outlaws the barbaric practice.

The conservative right in this country has always perplexed me with their unwavering commitment to the sanctity of life when it comes to the unborn but, at the same time, almost reflexively support the state’s right to murder human beings. This is evidenced by the fact that an overwhelming majority (95% last year) of executions in the United States occur in the South, with Texas being the leader.

Some may state that my use of the word “murder” here is unfair, biased, etc. However, let’s consider the conditions under which people are being killed by the state: the person is incapacitated, restrained, and no longer a threat. Let’s say someone invades your house, but you are able to capture him and tie him up. You are not then allowed to shoot the person once you have him under your control. That would be murder. Specifically, murder is the unjustified “killing of another human being with intent.” Therefore, capital punishment is unambiguously murder. In order for this to be so, we must explain why it is unjustified.

Now that we’ve seen that we are in isolation within the West on this issue, that conservatives are the biggest supporters and perpetrators of capital punishment, and that this constitutes murder, let’s try to evaluate some of the claims. One of main justifications given for capital punishment is the so-called “deterrent effect.” If the state puts to death a murderer, this disincentivizes (deters) would-be murderers because they are fearful of being put to death by the state if they are caught. Of course, this has been the justification for all sorts of draconian practices. “If we want to stop a practice, we can murder whoever does it and it will stop.” (If we want to stop robbery, why don’t we just impale robbers, as Draco did?) As one might expect, this theory falls flat on its face as soon any empirical data are examined. The “deterrence effect” is a myth. A review of the scholarly literature by Bailey and Peterson published in the 1997 book “The Death Penalty in America” (Chapter 9) emphatically affirms there exists no “deterrent effect.” Just a cursory survey shows that murder rates are higher in states that have the death penalty than in those that do not. That’s the correlation. What’s the causation? Well, there are obviously many factors, but one interesting one is what’s called the “brutalization effect.” This hypothesis says that when the state kills human beings, it sends the opposite message that it intended: the deliberate killing of human beings is acceptable and there exists no inherent sanctity in life. In effect, the death penalty brutalizes society and homicide rates go up. That is to say, executions dehumanize people and sends the message that human beings are mere instruments. Interrupted time-series analyses from Oklahoma have found a brutalization effect for homicide of strangers. Older studies find a similar effect in New York and Arizona.

Supporters also claim executions create a “specific deterrent,” i.e. those put to death are deterred from committing future crimes because they are dead. We could therefore claim that if we wanted to stop a robber from robbing again, we could kill him. Does anyone accept that argument? No one does. Moreover, life in prison for murderers is also a “specific deterrent” (as well a general deterrence). There is no reason to take the unnecessary step of execution.

But what if executions deterred? It is the utilitarian argument that killing human beings is okay because it may save the lives of would-be victims from would-be murderers. Since it is utilitarian, it is concerned with the consequences of actions, not the principles on which they are based. It follows from this theory, if we assume executions deter future crime, that the execution of innocent prisoners is in fact moral because it deterred future crimes. That is one of the many “repugnant conclusions” that practitioners of utilitarianism must accept. Further, if we are truly committed to deterring future crimes, we should be impaling or burning prisoners at the stake, which would surely deter would-be criminals. But no one accepts this, because it is an elementary moral principle that humans are not mere tools for creating some desired end. We accept that there are things we simply do not tolerate as moral beings, even against the most reprehensible of people.

It might be argued that it simply isn’t the case that innocent people would not be executed. This is also another interesting argument coming from the conservative right; for all their contempt and distrust of government, they also almost reflexively assume the judiciary gets it right and the criminal justice system is inherently efficient and just. The sobering fact is that, “since 1973, 139 people in 26 states have been released from death row with evidence of their innocence” (source). This fact alone, that the criminal justice system in the United States is prone to errors of enormous consequence, demolishes any conceived justification for capital punishment (if we agree putting innocent people to death is wrong). Unfortunately, once prisoners are executed, there is no longer any effort to examine their guilt. The aforementioned source mentions at least eight executed prisoners whose guilt has been seriously doubted. They also note two people who have pardoned or exonerated after their execution.

Furthermore, the use of capital punishment is discriminatory. The race of the victim murdered is the greatest predictor of whether the person who committed the murder will be executed. According to a 2003 report by Amnesty International that explores the role of race in the judicial system, “Blacks and whites were the victims of these murders in almost equal numbers. Yet 80 per cent of the people executed since 1977 were convicted of murders involving white victims.” The report also finds that minorities are also underrepresented in juries, which may skew the result of convictions and sentences. Explains Justice Scalia, “the unconscious operation of irrational sympathies and antipathies, including racial, upon jury decisions and (hence) prosecutorial decisions is real, acknowledged in the decisions of this court, and ineradicable.” Justice Scalia neglects to mention, however, that the death penalty is not ineradicable. In the words of Senator Feingold, “We simply cannot say we live in a country that offers equal justice to all Americans when racial disparities plague the system by which our society imposes the ultimate punishment.”

In the United States, this “ultimate punishment” is most often manifested in lethal ejections. In their dubious quest to find more “humane” and efficient ways to kill human beings, practitioners of executions have settled on a lethal cocktail of drugs meant to swiftly and painlessly kill its victim. The effectiveness of this practice has been highly criticized. It is argued that the anesthetic used, a short-acting barbiturate, quickly wears off and leads to a very painful death for the prisoner. The prisoner, however, is unable to communicate this pain as the pancuronium bromide, a paralytic muscle relaxant, has paralyzed the prisoner. The attempts to make executions look like medical procedures have had, in Dr. Groner’s words, the purpose of making them “socially more acceptable.” A 2007 study found that current procedures “may not reliably effect death through the mechanisms intended” and that prisoners may in fact be fully aware and suffering painful asphyxiation rather than the intended cardiac arrest. To wit, a prisoner named Angel Diaz who was put to death in 2006 required two doses of the lethal cocktail because the first was insufficient to kill than man within 35 minutes. A list of further botched executions can be found here.

Additionally, from a purely economical standpoint, executions are more costly than life in prison. Eliminating the death penalty could save the public hundreds of millions of dollars, which could be better spent on public safety and efforts that actually succeed in reducing murder and other crime. Saving money alone should not be the sole purpose of abolishing the death penalty, but if we accept the argument I have made above then we get the benefit of increased efficiency and a better utilization of scarce resources.

A natural question that remains is, Why does capital punishment still exist in the United States? There may well be a rational explanation, which is that “The death penalty has served the political class at great expense to the greater society.” Politicians benefit from supporting the death penalty because it helps them win elections. It will only be after the American public realizes, as they increasingly are, that death penalty is inherently wrong that policymakers will stop clinging to the antiquated practice.

As we remember the moments of terror that shocked the nation seven years ago, let us reflect on the statement of those who protested the execution of even the most reprehensible kind of person: “We remember the victims, but not with more killing.”

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The cost of production and living standards Saturday, Nov 7 2009

Updated below

There’s an interesting discussion at the SCSU scholars blog regarding capital and labor (click comments). Classical economic theory tells us that firms are (or at least seek to be) profit-maximizing (whether or not that is true will be ignored here). Profits, remember, are revenues minus (economic) costs. So one way firms can increase profits is by lowering the costs of production. Classical analysis states there are three factors of production: land and natural resources, labor, and capital (sometimes referred to as “the means of production”). It follows, as Dr. Banaian points out, that when the cost of labor relative to the cost of capital goes up, firms will substitute capital for labor when possible. That is, firms will attempt to increase profits by using the cheaper factor of production. (Of course, the decisions a firm can make in the long-term and in the short-term differ, but that will be ignored here. It is also important to note whether the market for labor and capital are perfectly competitive; it’s dubious, but I assume they are here for simplification.) Theoretically, a firm can look at their isocost and isoquant curves to determine the cost-minimizing combination of labor and capital, but we don’t need to get into that level of technical analysis.

Anyway, we might just assume firms will choose to replace capital with labor when it becomes cheaper to do so. Does this make cheap labor a bad thing, as “spencer” posits? He claims the move to labor-saving capital has been the key to rising standards of living (apparently the “liberal” position). Therefore, labor-intensity is a bad thing and high capital-to-labor ratios are a good thing. I don’t think it matters. In my mind, and I’m sure in the firm’s, what matters is what’s cheaper. If the cost of production is lower by increasing capital, then increase capital. If the cost of production is lower by increasing labor, then increase labor. That’s how I see it. That’s how you increase profits, which is assumed to be a good thing. Still others disagree, arguing that labor retention is a higher moral obligation than profit maximization (apparently the “conservative” position). In particular, the “radical perspective” in labor relations sees a conflict between capital and labor wherein organized labor fights against their exploitation by capital. The importance of the mobility of labor and the mobility capital is highlighted here, with the argument that capital is mobile and labor is more immobile (for example, a firm can lower wages just by threatening to move its manufacturing).

What I want to focus on, though, is the point that spencer makes. It reminded me of a passage I read from “Cannibals and Kings” by Marvin Harris (I’ve referenced the book on previous occasions—see here). Here is a somewhat long passage from pages 266-271—the end of Chapter 14 (“The Origin of Capitalism”) and the beginning of Chapter 15:

Capitalism, then, is a system that is committed to an unbounded increase in the production in the name of an unbounded increase in profits. Production, however, cannot be increased in an unbounded way. Freed from the restraints of despots and paupers, capitalist entrepreneurs still have to confront the restraints of nature. The profitability of production cannot expand indefinitely. Any increase in the quantity of soil, water, minerals, or plants put into a particular production process per unit of time constitutes intensification. It has been the burden of this book to show that intensification inevitably leads to declining efficiencies. That declining efficiencies have adverse effects upon the average standard of living cannot be doubted.

What must be made clear is that environmental depletions also lead to declining profits. The relationship is not easily understood because, according to the laws of supply and demand, scarcities lead to higher prices. Higher prices, however, tend to lower consumption per capita (the market symptom of declining living standards). Profits can be sustained temporarily if the drop in per capita consumption is compensated for by an expansion in total sales based on population growth or the conquest of international markets. But sooner or later the curve of rising prices caused by environmental depletions will begin to rise faster than the curve of rising consumption and the rate of profit must begin to fall.

The classic entrepreneurial response to a fall in the rate of profit is exactly the same as under any mode of production that has been overintensified. To compensate for environmental depletions and declining efficiencies (which manifest themselves as falling rates of profit), the entrepreneur seeks to lower the cost of production by introducing labor-saving machines. Although these machines require more capital and hence usually have higher start-up costs, they result in lowering the unit cost of production.

Thus a system that is committed to perpetual intensification can survive only if it is equally committed to perpetual technological change. Its ability to maintain living standards depends on the outcome of a race between technological advance and the relentless deterioration of the conditions of production. Under the present circumstances, technology is about to lose that race.

Chapter 15: The Industrial Bubble

All rapidly intensifying systems of production, whether they be socialist, capitalist, hydraulic, neolithic, or paleolithic, face a common dilemma. The increment in energy invested per unit time in production will inevitably overburden the self-renewing, self-cleansing, self-generating capacities of the ecosystem. Regardless of which mode of production is involved, there is only one means of avoiding the catastrophic consequences of declining efficiencies: to shift to more efficient technologies. For the past 500 years Western scientific technology has been competing against the most rapidly and relentlessly intensifying system of production in the history of our species.

Thanks to science and engineering, the average standard of living in the industrial nations is higher than at any time in the past. This fact, more than any other, bolsters our faith that progress is inevitable—a faith, incidentally, shared as much by the Comintern as by the U.S. Chamber of Commerce. What I want to emphasize here is that the rise in living standards began only 150 years ago, while the race between rapid technological change and intensification has been going on for 500 years. During most of the post-feudal epoch, living standards hovered close to pauperdom and frequently fell to unprecedented depths despite the introduction of an unbroken series of ingenious labor-saving machines.

I’ll leave analysis of the above excerpt up to the reader (keep in mind this was written in 1977).

Update: The Becker-Posner blog has a post about the recent upshoot in production vis-a-vis higher unemployment. Dr. Becker, an economics professor at the University of Chicago, argues that the increase in productivity is, in the long-run, a good thing despite the higher unemployment. His argument is that it will ultimately lead to higher employment, in the same way the advent of the computer, the Internet, biotechnology, or supermarkets have. He is assuming here, like “spencer” does at SCSU Scholars, that technological advances have been the source of the recent spike in productivity.

Posner’s response, however, is that technological innovations have not been the cause of increased productivity over the past two quarters. “More likely they have been due to old-fashioned cost cutting spurred not by technological advances but by economic distress. The only explanations I have seen offered for the productivity surge is cutting wages and working the workers harder. I have found no suggestion of any technological change that might be responsible for such a large, sudden surge in productivity,” he states. The optimism, then, that Dr. Becker displays seems to be unfounded. If firms are merely adapting to the dire economic situation simply by old-fashioned cost-cutting techniques, the spurt in productivity is not likely to last and not likely to result in increased employment.

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Libertarianism. What’s in a name? Sunday, Nov 1 2009

I just got done reading an excellent article by Kerry Howley in Reason, a libertarian magazine. I think the article raises some very thought-provoking questions concerning libertarianism.

What exactly is libertarianism, and what does it entail? Is it, as the article asks, the opposition to coercion and authority only by the state? Or does it entail opposition to other forms of coercion and authority outside of the state, such as that coming from cultural norms, societal practices, traditions, or other institutionalized structures and conventions? If libertarianism is concerned with liberty, particularly individual liberty, do we define it only as liberty from the state? Are there other ways individual liberty is restrained that libertarians ought to care about? Are there practices and norms all people calling themselves libertarians ought to fight against, “even if no one has bothered to codify the rules in an Important Book and call them ‘laws’”?

A central question for left-libertarians or leftist anarchists is whether private power is just as bad (or even worse) than state power. To them, the answer is a resounding “Yes.” This is why, for example, they oppose capitalistic economic orders that act to propagate “unaccountable private tyrannies” (corporations) and private property. Traditionally, libertarianism was associated with these leftists. Today, and most notably in the United States, “libertarianism” is associated with rightist libertarians—those who advocate free markets and the protection of private poverty. American libertarianism, most closely associated with the Libertarian Party, is very much a part of the Lockean imagination. To quote Ayn Rand:

The right to life is the source of all rights—and the right to property is their only implementation. Without property rights, no other rights are possible. Since man has to sustain his life by his own effort, the man who has no right to the product of his effort has no means to sustain his life. The man who produces while others dispose of his product, is a slave.

These are profound remarks. According to Rand, “Those who advocate laissez-faire capitalism are the only advocates of man’s rights.” Similarly, as Murray Rothbard states, “Capitalism is the fullest expression of anarchism, and anarchism is the fullest expression of capitalism.” As Howley explains, however, free markets and anti-statism are only one part of the story. “It’s possible to be an anti-government zealot with no interest whatsoever in individual liberty,” she writes.

According to Howley, “libertarians for whom individualism is important cannot avoid discussions of culture, conformism, and social structure. Not every threat to liberty is backed by a government gun. . . . when a libertarian claims that his philosophy has no cultural content—has nothing to say, for instance, about society’s acceptance of gays and lesbians—he is engaging in a kind of cultural politics that welcomes the paternalism of the mob while balking at that of the state.” As I said, I think this raises many interesting questions. Particularly, if we see a social injustice that we perceive to be limiting the individual liberty of certain people, is it our moral obligation to attempt to change that? If a particular society’s mores dictate that women should be restricted to the confines of the home, is it the libertarian’s job to fight against it? Importantly, would that not entail forcing our cultural preferences and ideals on others whom we might consider “backward”? As the response by Todd Seavey to Howley’s article strongly proclaims, “Freedom’s Just Another Word for Kerry Howley’s Preferences.”

Truly, all libertarians should be concerned with the exercise of authority, in any context. As the left-anarchist Noam Chomsky posits, “The core of the anarchist tradition, as I understand it, is that power is always illegitimate, unless it proves itself to be legitimate. So the burden of proof is always on those who claim that some authoritarian hierarchic relation is legitimate. If they can’t prove it, then it should be dismantled.” To wit, it is not enough to simply confront political and economic orders that restrict individual liberty; rather, it is required of us to oppose even the social and cultural orders that act similarly, working under the basis that power is illegitimate by assumption. Writes Howley, “In turning so definitively from the left, libertarians denied themselves a powerful vocabulary with which to engage discussions of individualism.” Even those libertarians concerned with free markets and other rightist agendas ought to concern themselves with other institutionalized forms of coercion and authority. The answer to the question “Are Property Rights Enough?”, I believe, is “No.”

Your own thoughts about the nature of libertarianism are invited.

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Business ethics and economics Thursday, Oct 29 2009

Today I attended a presentation given by Paul Neiman, an Assistant Professor of Philosophy at SCSU. The topic of his presentation was international business ethics. He focused on providing an ethical framework for conducting international business from a social contract perspective, expanding on the work of John Rawls and his “A Theory of Justice.” The presentation is based on a paper he is currently in the process of writing.

The basic premises are that social contracts should incorporate common shared presumptions that are reasonable and generally acceptable. Based on this, Dr. Neiman argues there are four restrictions that seem reasonable and generally acceptable to place on free markets:

1. Contractors should not be forced into accepting or rejecting principles.
2. Contractors should not be willfully deceived in arguing for or against principles.
3. All contractors must have an equal right to propose or argue against principles.
4. All contractors should expect that the terms of the social contract will be enforced.

These are all well and good. They are reasonable and generally acceptable rules to impose. The problem is when Dr. Neiman ventured into what these rules would result in for two contractors, one representing a corporation and another representing a community, coming to negotiate a deal but who are completely unfamiliar with their constituents. That is, the business contractor does not know anything about the corporation he is representing other than that they seek profit maximization. Likewise, the community contractor does not know anything about the community she represents except that they care about their living standards, their culture and social norms, their environment, and so on. These two people are then supposed to negotiate a deal based on the four rules above, and we’re supposed to assume both have an equality of power (the community does not desperately need the corporation and the corporation does not desperately need the community).

Based on these rules, Dr. Neiman posits that the negotiators will come to expect that the corporation is obligated to pay a living wage, be fully responsible for any environmental damage it creates, respect cultural and social norms all the time (i.e. not just when it is profitable to do so), and so on. Clearly it seems the balance of power rests with the community negotiator, not with the corporation (and Dr. Neiman justifies this by saying it is the community that has the deal-breaking terms, as if the corporation has none of its own).

To be frank, the presentation made little economic sense to me, as someone who is minoring in the subject. That’s just my opinion. Let’s take the living wage obligation, for example. Dr. Neiman says the community won’t accept any corporation that won’t pay its population a living wage because that would decrease their wages. I assume that means they won’t take any salary below the average. Already something seems quite wrong with this ethical framework. What happens to, say, cashiers at a grocery store? They usually don’t get paid a “living wage” because they do not add at least that much revenue to the company. If the marginal cost of an additional laborer does not at least equal the marginal revenue of hiring that laborer, the laborer won’t be hired. That is, the company won’t hire someone at a cost that exceeds the benefit that hiring that person would bring. Otherwise they’re just losing money. So what does this mean when we say the corporation is obligated to pay a living wage? Well, it means this theoretical world doesn’t have any cashiers or any other job, for that matter, that would normally pay less than a “living wage.” (That’s the classical argument against minimum wages, a topic I’ve explored here [by far my most popular post for some reason]. The difference, really, is in the magnitude in setting the minimum. The hypothetical purpose of a minimum wage, as I see it, is to set wages at an equilibrium price that clears the market, essentially correcting for market failures that exist. A “living wage” minimum sets it way above this level and is based more on ethical rather than economic arguments.)

So the result is actually very high unemployment because there is a lack of jobs. Jobs that cannot afford to pay a “living wage” won’t exist. People whose labor is not worth this living wage are out of luck. And I did ask Dr. Neiman about this problem. He essentially responded that he doesn’t buy the argument and that perhaps some people will just have to live unemployed to persevere the interests of the community, namely high wages. To me, this is a very astonishing ethical guideline he is proposing. What he is saying is that it is better to receive nothing rather than something. That it is better to live in poverty and in unemployment than to receive at least some amount equal to the worth of your labor (if your labor is worth less than the “living wage”). Is that ethical? Further, having people earning zero rather than even a minimal amount decreases the average wage, what Dr. Neiman was originally against.

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Re: SuperFreakonomics & global warming Sunday, Oct 25 2009

A little while ago, I wrote about the “the globe is currently cooling” myth, which, unfortunately, was propagated in Steven Levitt and Stephen Dubner’s new book, SuperFreakonomics. As I explained earlier, I was big fan of their earlier book, Freakonomics, which is why I was disappointed to learn of their unfortunate mistake. I also linked to two criticisms of Levitt and Dubner’s chapter on global warming (which can be read here). A lot has happened since then.

Most recently, Dr. Levitt wrote a blog post at the Freakonomics blog defending the chapter. Mr. Dubner also wrote a post defending the chapter and going after one of the main criticizers, Joseph Romm. Dr. Romm wrote one of the original critiques (which I linked to in my previous post, along with Dr. Connolley’s), pointing out errors and Levitt and Dubner’s misrepresentation of the main scientist they used for their chapter. The links I’ve just provided here provide plenty of background to the controversy as well links to other posts surrounding the ill-fated chapter, including responses by Nobel laureate Paul Krugman, Union of Concerned Scientists, Tim Lambert, Gavin Schmidt of NASA, and plenty others.

The gist of the controversy, from I found sifting through the countless attacks and defenses of the chapter, is that Levitt and Dubner misrepresented Ken Caldeira, the main climate scientist they refer to in their chapter; make several errors in their analysis of the science; and advocate geo-engineering (pumping sulfate aerosols into the atmosphere) as opposed to greenhouse gases reductions as the preferable way to mitigate the effects of anthropogenic global warming. For a more thorough understanding of the controversy, visit some of the links I’ve posted above as well as the links the authors of those posts provide. From my perspective, it seems that Levitt and Dubner have chosen the contrarian position and pushed forward shocking conclusions because, frankly, that’s one way to become bestsellers. Unfortunately, there was a not a lot of room for mistake and errors were certainly made. The barrage of criticism across the Web has been unrelenting as a result.

But what is the core issue, particularly as the book deals with it? The core issue here, as I see it, is the best way to deal with the climate crisis (which everyone agrees exists). Levitt and Dubner advocate geo-engineering as the solution, as a means to reflect sunlight and thus reduce global mean temperatures. They say it is a quick and cheap solution. On the other hand, they disagree with lowering emissions because it is a long and difficult process that could cost what they say is thousands times more than their solution. (Part of the disagreement is that Dr. Caldeira is very much for eliminatation of carbon emissions and supports research into geo-engineering, which is not reflected in the book.) As Dr. Levitt points out, the question they’re answer is, What is the cheapest and fastest way to cool the Earth? He says environmentalists and scientists are asking other questions: “The sorts of questions they tend to ask are ‘What is the “right” amount of carbon to emit?’ or ‘Is it moral for this generation to put carbon into the air when future generations will pay the price?’ or ‘What are the responsibilities of humankind to the planet?’“

Is it the case that geo-engineering is the correct solution while reducing greenhouse gas emissions is not? It’s doubtful. Dr. Caldeira argues that our emissions are necessarily wrong: “I compare CO2 emissions to mugging little old ladies … It is wrong to mug little old ladies and wrong to emit carbon dioxide to the atmosphere. The right target for both mugging little old ladies and carbon dioxide emissions is zero.” So already we see that Dr. Caldeira is very much opposed to greenhouse gas emissions, though SuperFreakonomics claims, “Yet his research tells him carbon dioxide is not the right villain in this fight.” Quite preposterous. Dr. Caldeira continues in his e-mail to Dr. Romm:

I am in favor of fire insurance but I am also against playing with matches while sitting on a keg of gunpowder. I am in favor of research into geoengineering options but I am also against carbon dioxide emissions.

Carbon dioxide emissions represent a real threat to humans and natural systems, and I fear we may have already dawdled too long. That is why I want to see research into geoengineering — because the threat posed by CO2 is real and large, not because the threat is imaginary and small.

The problem that Levitt and Dubner fail to account for is that greenhouse gas emissions are responsible for many changes besides just temperature increases. That’s why “climate change” is becoming a more popular term than “global warming.” Warming is just one aspect of it. The effects our actions have on climate are broad, including ocean acidification, changes in rainfall patterns, extreme weather events, and so on. While pumping sulfate aerosols into the stratosphere may take care of the temperature problems, it neglects a whole host of issues that are caused by human activity. Furthermore, the proposals Levitt and Dubner make are likely to have their own negative effects as well as technical and strategic issues. Writes Dr. Schmidt, “if the planet was a single column with completely homogeneous properties from the surface to the top of the atmosphere and the only free variable was the surface temperature, it would be fine. Unfortunately, the real world (still) has an ozone layer, winds that depend on temperature gradients that cause European winters to warm after volcanic eruptions, rainfall that depends on the solar heating at the surface of the ocean and decreases dramatically after eruptions, clouds that depend on the presence of condensation nuclei, plants that have specific preferences for direct or diffuse light, and marine life that relies on the fact that the ocean doesn’t dissolve calcium carbonate near the surface.” Add to that “unknown unknowns” and it seems the geo-engineering proposal is not the cheap or desirable solution it was made out to be.

What about reducing emissions? Claims Dr. Levitt, “a third problem with reducing carbon emissions, which is that it requires worldwide behavioral change, which will be hard to achieve.” Why is that the case? Mr. Dubner explains, “We discuss how it’s a very hard problem to solve since pollution is an externality – that is, the people who generate pollution generally don’t pay the cost of their actions and therefore don’t have strong incentives to pollute less.” Well then… make them pay the cost of their actions! I wrote earlier that global warming represents the greatest market failure ever. The solution is that you correct for that market failure, meaning people pay for the consequences of their actions. Dr. Stern explains, “People would pay a little more for carbon-intensive goods, but our economies could continue to grow strongly.” Dr. Levitt, I’m sure, knows that behavioral change is not that hard, especially when we realize that people respond to incentives—a core economic principle (and the center of their first book). Right now, the cost of emitting greenhouse gases is far less than the actual cost of doing so, meaning there is little (economic) incentive to stop engaging in carbon-intensive activities. As Dr. Schmidt points out, the problems of lead in gasoline and CFCs in spray cans were solved by increasing the costs of these things, which has led to the elimination of both. Nothing says we can’t do the same for greenhouse gas emissions.

Update: Indeed, Dr. Levitt is fully aware. Here’s a quote from Chapter 3: “People are people, and they respond to incentives. They can nearly always be manipulated — for good or ill — if only you find the right levers.”

Update2: Brian Dupuis has a collection of links that may be helpful in following the controversy.

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Globalization. What’s in a name? Saturday, Oct 24 2009

Today, what we call globalization has become ubiquitous. Needless to say, “globalization” has fierce and unrelenting critics; perhaps chief among them is Joseph Stiglitz. Dr. Stiglitz, a professor at Columbia University and the former Chief Economist at the World Bank, won the Nobel Prize in economics in 2001 with two others for his contributions to our understanding of asymmetric information in markets. He has also made what I feel are important contributions to our understanding of the inequities that “globalization” bring about around the world, particularly with his two books, Making Globalization Work and Globalization and Its Discontents. While people like Thomas Friedman may write that “The World Is Flat,” in reality, we know that the playing field is not even but is tilted.

But how can we talk about globalization without first knowing what it is? So, what is globalization? Being an international business major, a lot of my courses have dealt with defining and discussing globalization. Probably the most common definition I hear is “the integration of businesses into world markets,” or something along those lines. That’s one particular way to define it. Used neutrally, however, the term globalization means international integration (that is, of any form). The term is not used neutrality, though. The term, in its current usage, “has been appropriated by a narrow sector of power and privilege.”

The term, as appropriated by the neoliberals, is meant to describe an economic order that favors investor rights over the rights of people. Some people refer to it as market fundamentalism, but I disagree. What is being advocated under this appropriated term really has nothing to do with free markets and is, frankly, and affront to markets. In fact, in incorporates very little of what Adam Smith advocated in The Wealth of Nations, the seminal work that neoliberals are always quick to cite. Take, for example, the free circulation of labor. It’s impossible to talk about free markets without the free circulation of labor. Smith wrote, “the policy of Europe, by obstructing the free circulation of labor and stock both from employment to employment, and from place to place, occasions in some cases a very inconvenient inequality in the whole of the advantages and disadvantages of their different employments….Whatever obstructs the free circulation of labor from one employment to another obstructs that of stock likewise.” This is part of the “perfect liberty” that Smith said would lead to “perfect equality.” Instead, there has been great work to limit the free movement of labor. In fact, in 1994, President Clinton went so far as to militarize the border in what was called “Operation Gatekeeper.” Why 1994? Because that was the year of NAFTA.

What is NAFTA? It is touted as a “free trade agreement” between Canada, Mexico, and the United States (it got the “NA” part correct) whereby barriers to trade and investment are eliminated. What does NAFTA really mean? It means Mexico opens it borders to highly subsidized U.S. agribusiness. This drives the peasants off their land because they cannot compete with this U.S. taxpayer-funded agri-exports. Consequently, they flee to urban slums (what’s called urbanization), driving down wages, allowing for large multinational corporations to exploit their cheap labor. That produces what’s called an “Economic Miracle,” where typical economic indicators like GDP, FDI, and corporate profit soar but the masses approach pauperization. That’s what America means by “free trade.”

What has this particular form globalization brought us? In what is hailed as the era of liberalization and globalization, world GDP growth rates have decreased by nearly 38% over the past 24 years (using the 2003 as the latest year with available figures) compared to the 24 years prior to that (the Bretton Woods era), according to data provided by Angus Maddison. Likewise, Americans have seen stagnated wages. The inequality of distribution of wealth has been simply remarkable, everywhere. Poverty in the U.S. saw a steady decline through the ’60s and ’70s; the ’80s, however, saw an incline in poverty and it has remained relatively unchanged since. Meanwhile, speculative capital flows have erupted, bringing with them destabilization, as Stiglitz has argued. It has also had the effect of wiping out domestic production for domestic needs, as we’ve seen in Mexico. Because local producers cannot compete with U.S.-subsidized agribusiness, many Third World nations must rely on what are called cash crops (as opposed to subsistence crops): bananas, cotton, coffee, sugar, etc. But not all the export crops are as innocuous as bananas; they also include coca, marijuana, poppy, and other drugs that fuel the current-day drug war, with Peru’s president calling the cocaine business the “only successful multinational to emerge” from Latin America in the face of globalization. It has certainly only given more credence to dependency theory.

Naturally, anyone that opposes this particular form of globalization gets called “anti-globalization.” It’s unfortunate because it’s not true, with the exception of very tiny minority who are truly anti-globalization, in the neutral sense of the word. International integration is, in fact, a great thing, as the people at the World Social Forum and other places have been espousing for years. It, however, should not be based on the blind faith in the religion of neoliberal markets, but rather should include more awareness for the rights of laborers, corrections for obvious market failures, and environmental protection as proposed by the adherents of alter-globalization.

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