Reviewing Global Crises, Global Solutions

gcgs.bmpProving once again that the “freelance writer” part of this blog’s subtitle isn’t just there to lend a false sense of legitimacy, I have another book review up on aBetterEarth. This time the subject is Bjorn Lomborg’s Global Crises, Global Solutions, the 650 page final report of the inaugural Copenhagen Consensus.

Due to the nature of the book, there was too much to cover for me to go into much detail on any particular chapter. I did have a few comments on the issue of climate change, however, that were (understandably) cut from the final draft that I want to discuss here. If you’re unfamiliar with the Copenhagen Consensus, read my review first and then come back to this entry. If you’re already familiar with the CC’s conclusions, feel free to just read on.
Continue reading “Reviewing Global Crises, Global Solutions”

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A peek at EU airline regulations

Chad Wilcox tipped me off to this article about new airline regulations going into effect in the EU. I was tempted to write about it but don’t know anything at all about the European airline system. Fortunately, the Adam Smith Institute blog has saved me the trouble by hitting all the major points. Dr. Eamonn Butler elucidates many of the possible drawbacks and unintended consequences that could arise from the situation.

I do want to comment broadly, however, on the ridiculous epistemics involved in making these regulations. The new rules define how much compensation airlines must pay passengers for cancellations due to certain causes, setting higher penalties based on how long the missed flight is. They also stipulate that after a two hour delay airlines must provide snacks or meal service. After five hours, refunds and possibly hotel accommodations are in order.

Do those penalties sound reasonable? I guess so, but how would I know? How does the committee drafting the regulations know? The short answer is, they don’t. They choose what seem to be reasonable numbers in 2005 and impose them on all manner of flights. These rules will remain rigidly in place until bureaucrats decide to revise them; they’ll do so based on inputs from lobbying groups representing passengers, airlines, and perhaps other groups. Who benefits from those revisions will depend on who has the most influence on the regulatory agency.

It seems that a better approach for the EU would have been to ensure that consumers have access to information about what they can expect from various airlines, who would be relatively free to set their own policies. Allowing markets to handle the problem would have numerous benefits. Airlines would have to compete against each other to meet travelers’ needs. Travelers and airlines could work out different levels of ticket security for different types of travel, with leisurely vacationers taking discount fares while business class fliers pay a premium fare for better guarantees of timeliness. Most importantly, the policies of different airlines could be changed dynamically in response to a feedback loop provided by customer demand. Leaving aside the particular regulations at issue, which process would one expect to create better policies over time? Perhaps the EU should have examined what needs to be done to improve the transparency of its travel markets rather than overriding them.

To the EU’s credit, the new regulations do permit airlines to offer benefits to passengers to free up overbooked space. According to the NYTimes article, about 250,000 passengers lost their seats to overbooking in 2002, so it’s a real problem. I’ve noted before that a reverse auction system works great here in the U.S. and am amazed that it’s taken this long to be adopted in the EU. Regrettably, the regulations referenced above set a de facto price ceiling on the process. If a carrier can’t find volunteers to be bumped from an overbooked flight before reaching the amount of the mandated penalty, it appears that it can arbitrarily choose someone at that price. Perhaps the ceiling will be set high enough that that rarely happens, but it’s hard to see how giving airlines this escape clause is good for the consumers the regulations are supposed to protect. Again, why would one believe that EU bureaucrats can set a fairer price than an on the spot auction?

Finally, the new regulations subvert market solutions in another way the Times article barely mentions: they’ve been extended to charter airlines for the first time. By definition, charter airlines exist to cover the needs that the major market misses. And unless the European travel system is very different from that in the U.S., they probably tend to cater to a wealthier clientele that doesn’t need government intervention to protect its interests. What justification is there for making the charter market play by the same rules as everyone else? Is this a case of the mainstream airlines capturing the regulatory agency and trying to hamper the competition, or is it just run of the mill regulatory overreach?

In conclusion: If composing this post has taught me anything, it’s that I’m glad I write about regulatory policies as just a hobby and not as a living. I already want to bang my head against the wall and I don’t even live in Europe.

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Laffing it up

After writing the previous entry, it’s a nice to be reminded that the public’s grasp of economics isn’t generally so bad. This interview in the Pittsburgh Trib reveals a wonderfully optimistic Arthur Laffer making note of the real progress that’s been made in the last thirty years. I think he’s a little too forgiving of Bush, but overall it’s a nice piece. The questioner is Bill Steigerwald:

Q: What’s the most prevalent and most dangerous economic myth that the public believes that needs to be debunked?

A: Bottom line, I think the public’s got it.

Q: Really?

A: I’m really impressed with the public. The electorate really sees through all this crap. They understand free trade. They understand low, flat-rate taxes. They understand sound money. The electorate is really cool. I’m superbly impressed by democracy — and I’m not natively that way inclined, just so you know.

Q: I was going to ask you whether the public and its leaders were getting smarter in economics. I guess you answered it.

A: They’ve been great. Look at what’s happening. Since that ’79 interview we had, OK, let’s take a look at what happened to marginal tax rates. The highest rate has gone from what — 70 percent — down to what, 35 percent? What’s happened to inflation? What’s happened to regulation restrictions? What’s happened to America and the world? What’s happened to the stock market? What’s happened to everything you and I believe in? Do you remember what unemployment rates looked like back in 1979? Do you remember what the prime was when Ronald Reagan came into office on Jan. 20, 1981? It was 21 percent.

Q: This is a happy economist. It’s not dismal at all, is it?

A: I cannot believe how wonderful it is. When (Nobel Prize-winning economist) Bob Mundell and I sat there at the University of Chicago in 1967, ’68 and ’69, we dreamt of a world. That world is now. Can you imagine a world with no inflation? Everything that’s happened. It’s absolutely spectacular. I’m just so happy about what’s happened to this world. Don’t you feel that way?

Link via David Tufte’s voluntaryXchange, one of my favorite weblogs of late.

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“Do my columns make any sense?”

From the same man who asked, “Are libertarians and communists any different?” comes another compelling question: “Does free trade lead to totalitarianism?

[Update: Tim Boyd provides his own response.]

I submitted a rather lengthy response to his column. It may take a while for The Hustler to post it, so I’ve copied it here below the fold…
Continue reading ““Do my columns make any sense?””

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More worldly philosophy

Cato Executive V. P. David Boaz has written his own balanced obituary for economist Robert Heilbroner (see my post below). It includes a quote from an excerpt from an article Heilbroner wrote for Dissent in 1992 about the collapse of socialism:

Capitalism has been as unmistakable a success as socialism has been a failure. Here is the part that’s hard to swallow. It has been the Friedmans, Hayeks, and von Miseses who have maintained that capitalism would flourish and that socialism would develop incurable ailments. All three have regarded capitalism as the ‘natural’ system of free men; all have maintained that left to its own devices capitalism would achieve material growth more successfully than any other system. From [my samplings] I draw the following discomforting generalization: The farther to the right one looks, the more prescient has been the historical foresight; the farther to the left, the less so.

Friedrich Hayek couldn’t have asked for a better response to his wonderful dedication in The Road to Serfdom, which read, “To the socialists of all parties.” He could, however, have asked to see it sooner.

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Passing of a worldly philosopher

I learn via Marginal Revolution that economist Robert Heilbroner has died. His famous economic history book, The Worldly Philosophers, was my introduction to the field as a junior in high school and piqued my interest in the subject. I later read his Teachings from the Worldly Philosophy, which expands upon his original book and provides direct excerpts from the thinkers under discussion. In college I studied his Essential Adam Smith, which includes substantial parts of Smith’s obscure and well known writings along with useful commentary.

When it came time for me to pitch my idea for an interdisciplinary major with a broader scope than was possible in just the economics department, I chose “worldly philosophy” as the natural name for it. The phrase captures the often underestimated breadth and importance of economic thinking.

In honor of Heilbroner, here’s a memorable passage from the introduction to The Worldly Philosophers:

One would think that in a world torn by economic problems, a world that constantly worries about economic affairs and talks of economic issues, the great economists would be as familiar as the great philosophers or statesmen. Instead they are only shadowy figures of the past, and the matters they so passionately debated are regarded with a kind of distant awe. Economics, it is said, is undeniably important, but it is cold and difficult, and best left to those who are at home in abstruse realms of thought.

Nothing could be further from the truth. A man who thinks that economics is only a matter of professors forgets that this is the science that has sent men to the barricades. A man who has looked into an economics textbook and concluded that economics is boring is like a man who has read a primer on logistics and decided that the study of warfare must be dull.

No, the great economists pursued an inquiry as exciting — and as dangerous — as any the world has ever known…

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Getting lucky in the air

No, not like that. With tickets. I returned late last night from a short trip back home to Spring, TX and had a few fortunate experiences with American Airlines coming and going.

The first was the familiar situation of having a flight that’s over capacity. When this happens the airlines entice willing passengers to take a later flight with various offers. This is a win-win situation: over-booking flights creates lower costs for airlines and passengers, and when too many passengers show up the auction ensures that those who can most easily afford to change their schedules are the ones to do so. In my case, that meant agreeing to hang out at Reagan International for a few extra hours in exhange for a free flight voucher and an upgrade to first class.

This is a routine occurence now, but econ-savvy readers know that it took the brilliance of economist Julian Simon to make it happen. In the bad old days, airlines dealt with over capacity flights by arbitrarily bumping the passengers they believed would offer the least complaint. This made flying an unreliable mode of transportation and did nothing to efficiently distribute costs. Simon came up with the idea of offering passengers inducements to switch. The airlines scoffed until, finally, American Airlines gave it a try. Today they all do it. As I landed at Houston Intercontinental in the comfort of a leather seat and with a free ticket voucher in my bag, I silently thanked Julian Simon for his simple idea.

Walking back into Houston Intercontinental, I almost lost that ticket voucher just as easily as I had obtained it. My dad had dropped me off and as I approached the short line at the check-in counter I anticipated an easy, unhurried walk through security and onto my plane. I swiped my credit card through the reader, and it recognized me as Jacob R Grier. It could do this because it’s standard industry practice to put a customer’s name on the first stripe of magnetic data on a card’s magstripe. As I reflected on this thoroughly useless fact, I silently thanked the in-flight magazine that taught it to me the last time I traveled.

The machine asked for the first three letters of my destination, I typed in “WAS,” and it dutifully searched for my itinerary. After an abnormally long wait, it informed me none could be found. “That’s odd,” I thought, and tried again for my stop over in Dallas. “DAL” I typed and the machine once again performed a long search, found nothing, and suggested I talk to a ticket agent.

The agent came over, I gave her my name and flight number, and she looked for it in the computer. To our mutual confusion, nothing came up. Then she figured it out. “Oh, you’re supposed to be at Houston Hobby.” Of course. Houston has two large airports, located many miles apart. An hour before boarding I was checking in at the wrong one. This was a typically Jacob Grier kind of thing to be doing.

I weighed my options. Should I hustle for a cab and make a mad dash for the other airport? Or should I waste my precious flight voucher on another flight to D.C. to make up for the one I was about to idiotically miss? Luckily for me, the kind ticket agent was able to change my booking to a flight leaving Hobby for Dallas just three minutes later than my original flight would be leaving Intercontinental. Boarding my flight, I silently thanked her and American for not taking advantage of my inattention to detail.

In hindsight, I almost wish that they did make me use my voucher on the return leg of the very same trip I earned it on, just because that would have made a better story. Almost, but not quite.

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From the mouths of babes

So Iím getting coffee the other day and I somehow strike up a conversation with a guy who claims to be a writer. I figured he leaned a bit to the left when I saw him reading Barbara Ehrenreich, but that was just scratching the surface. Soon I was hearing about how all the good jobs were going overseas, weíre headed toward environmental crisis, and the United States is just four or five years away from going the way of the Roman Empire. I think he might have said that the U. S. government must have surely known about 9/11 before it happened, but Iím not entirely sure thatís what he meant so I wonít go casting aspersions. Suffice it to say that this guy had all the talking points of the far left down pat.

When he then mentioned that he had been a practicing physician for many years and was writing a book about how to fix American healthcare, I was all set to hear the argument for socializing it. I was therefore rather surprised when he said roughly the following:

ďThe problems all began with the development of Blue Cross and Blue Shield. These were originally meant just to insure against surgeries and long hospital stays, but were later expanded to cover nearly everything. Now no one pays directly for their healthcare, so thereís no working of supply and demand and the prices have all gone up ridiculously high.Ē

I eventually learned that these escalating costs were the main reason he gave up on private practice a few years ago. Now, it may be that his solution to the problem is to have the government buy and distribute everything on a low cost basis, but he was at least able to see how the lack of markets had negatively impacted the field he worked in. If we could get leftists like him to start applying that reasoning to everything else, we liberals would be in a much better position to make good policy.

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More on Neuticles

What have I started? Just when I thought and hoped there was nothing more to be said about Neuticles, David Tufte of voluntaryXchange proves me wrong. It turns out that they don’t exist for purely aesthetic reasons. He explains how asymmetric information in the dog show world creates a financial incentive for advertising false virility. Neat!

Neuticles have taken the blogosphere from humor to medicine to biology to economics in just a few days. Who knew an artificial testicle could bear so much fruit?

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Oil wells that end well

Zhubin posted a comment below challenging me to respond to this website about the supposedly imminent oil crisis. I could write everything I know about energy policy on the back of a small postcard, so I was just going to ignore it.

By a fortunate coincidence, however, Andrew David Chamberlain has come through with a post on his redesigned weblog The Idea Shop (“where the dismal science gets groovy”). Here he outlines the free market perspective on decreasing oil reserves. Sorry Z, his analogy will still leave you thinking libertarians are nuts, but his point’s a fair one.

Still no indication of Andrew’s perspective on the fake orgasm.

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We’re gonna party like it’s 1989!

There have been a fair number of libertarians leaning toward Howard Dean as a tolerable alternative to Bush. Disappointing as Bush has been in so many areas, I just can’t see Dean as credible on foreign policy. This excerpt from his appearance on “Hardball” yesterday is a case in point. Howard Dean on how to handle Iran’s nuclear ambitions [full transcript]:

“Iran is a more complex problem because the problem support as clearly verifiable as it is in North Korea. Also, we have less-fewer levers much the key, I believe, to Iran is pressure through the Soviet Union. The Soviet Union is supplying much of the equipment that Iran, I believe, most likely is using to set itself along the path of developing nuclear weapons. We need to use that leverage with the Soviet Union and it may require us to buying the equipment the Soviet Union was ultimately going to sell to Iran to prevent Iran from them developing nuclear weapons. That is also a country that must not be allowed to develop nuclear weapons much the key to all this is foresight. Letís act now so we donít have to have a confrontation which may result in force, which would be very disastrous in the case of North Korea and might be disastrous in the case of Iran.”

OK, so he misspoke (which makes him at worst even with Bush). But he still has a credibility problem. As for Bush this week, +1 point for his hinting at a reduction of steel tariffs, -2 points for adding them to Chinese lingerie. One thing I’ll say to the credit of our previous president, we could rely on Clinton not to stem the flow of lingerie into the U. S. (not to mention being a more principled free trader).

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Econ prof forgets her debts

This is from my friend Josh Keltner, describing a conversation he had with his economic history professor at Southwestern University in Georgetown, TX:

JTKeltner1017: say.. have I got a story for you!!
JaRoGrier: I’m listening
JTKeltner1017: I told my economic history teacher this summer that I really wanted to get into theoretical econ and econ history so I was going to read Adam Smith’s The Wealth of Nations.
JTKeltner1017: she said “Oh really, I’ve never really read any of that, I don’t think its terribly important.”
JTKeltner1017: then I say..”Well do you have any suggestions on how I can spend my reading time better?
JaRoGrier: haha, that’s great
JTKeltner1017: and she says..
JTKeltner1017: or actually she shows up the next day with a copy of When Corporations Rule the World, foreword by Danny Glover
JTKeltner1017: UGGGHGHG
JTKeltner1017: MY ECON HISTORY PROF

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