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Ending the War on Kidneys – Article by Sanford Ikeda

Ending the War on Kidneys – Article by Sanford Ikeda

The New Renaissance Hat
Sanford Ikeda
October 13, 2012
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The war on drugs can be dated to 1914, although the phrase “war on drugs” was coined in 1972 during the presidency of Richard Nixon.  The war on kidneys began in 1984.

It’s an oft told tale how drug prohibition has led to the promotion of organized crime, skyrocketing violence here and abroad, and a simultaneous increase in potency and decrease in safety.  (See here and here for examples.)  The solution to these perhaps unintended but predictable negative consequences is legalization.  So it is, too, with the sale of organs–kidneys in particular.

Meanwhile in Iran…

Since 1984, under the leadership of Senator Al Gore, the United States government has made it illegal to buy or sell kidneys and in so doing has effectively launched a “war on kidneys.”  Again, the consequences, unintended but predictable, are mostly if not wholly bad.

According to the Human Resources and Services Administration there are currently over 93,000 persons in the United States on the waiting list for a donated kidney.  Another source estimates that the list grows by 3,000 to 4,000 candidates a year.  Between 1988 and 2008 yet another source reports that the number of kidney transplants performed in the United States has ranged from 8,873 (in 1988) to a high of 17,091 (in 2006) for an average of about 13,847 per year.  While that may indicate a dwindling list of candidates, the reality is that the number who die each year still runs into the thousands.

The United States Department of Health and Human Services, for instance, claims that 18 people die each day waiting for a kidney donor.  That’s 6,570 deaths a year, and though their figure for the waiting list is considerably higher than the HRSA’s, they are in the same ballpark.

Kidney sales are legal in Iran, which offers a mix of private and government financing for kidney transplants.  Not surprisingly, waiting lists there are practically nonexistent (because of a larger supply), and so is the number of people dying while waiting for one.

Moreover, the incidence of black markets and of “medical tourism”—in which relatively wealthy foreigners travel to relatively poor countries to buy local kidneys or have other procedures performed at lower cost than in the United States—would probably fall, much as legalization of alcohol after Prohibition saw the downfall of speakeasies and bathtub booze.

What’s the Downside?

And although some estimate that the cost of a kidney may be as high as $100,000—which would make the total cost of the transplant procedure around $350,000—keep in mind that in addition to the value of the lives saved, the savings from unnecessary kidney dialysis is about $70,000 per person per year.  (See also this article from The Economist.)

Some argue that only the rich would get organs and only the poor would die giving them up.  Existing black markets and medical tourism already reinforce any such tendency by keeping prices high.  Would a free market in organs mean that the relatively poor would supply the relatively rich?  Perhaps.  More generally, would abuses occur?  Yes, they would, just as they do in other aspects of organ transplantation—such as in shabby hospitals or lousy medical care. Nobody suggests banning hospitals or doctors because some hospitals and some doctors occasionally screw up.  The cure lies largely in greater competition, the prerequisite of which is making organ sales legal.

Some are put off by the very idea of a market in kidneys, and many who aren’t might have some reservations about extending the list to other parts of our bodies.  Some of this can be attributed to a socio-ethical resistance to “commoditizing the human body.”  Perhaps this is a valid concern.  Interestingly, there is a legal market for cadavers, so it seems to be OK to pay for bodies but not for organs.

What about other organs or body parts?  The thing about kidneys—or eyes, ears, hands, and feet—is that removing them from our bodies does not entail death or, in the case of kidneys, any significant decline in the quality of life to the donor.  But what about selling something vital such as a heart, which would spell certain death?  That’s a difficult question that we may not have to settle just yet.  Let’s start with kidneys.

The Moral Alternative

I confess to being uncomfortable with the thought of selling off body parts. In the same way, I would never recommend to anyone, including myself, taking cocaine for fun.  But I would stop short of banning cocaine, and my qualms about selling body parts doesn’t keep me from staunchly supporting legalization, especially when a strong case can be made (as in this video by Professor James Stacey Taylor) that banning it would itself be immoral.  Selling body parts for money should be no more illegal than letting people make a living fishing for crabs on the high seas or give up their lives for a cause they believe in.  I may disapprove of a practice that harms the practitioner, but that by itself doesn’t give me the right to stop it, especially if it harms no one else.

Finally, today it’s considered perfectly legal and moral to allow husband A to give up his kidney to his wife B without compensation.  Or, if A’s kidney is not a match for B, it’s okay for A to donate to C, whose husband D could then donate to B.  That is like trading a goat to Jack to get a pile of bricks to trade to Jill for a sack of grain, which is what you wanted for your goat in the first place.  While the Internet and creative websites have made organ bartering of this kind easier than in the past, humans long ago developed another institution that gets the job done much more easily:  buying and selling for money.

Crimalizing activities—whether  drugs, prostitution, or organ sales—typically generates consequences that are usually unintended but, with the aid of some basic economic knowledge, mostly predictable.  After decades and over a trillion dollars spent and countless lives ruined, a summit of Latin-American politicians earlier this year declared that “the war on drugs has failed,” a sentiment echoed around the world.

It’s time that our government ended the war on kidneys, too.

Sanford Ikeda is an associate professor of economics at Purchase College, SUNY, and the author of The Dynamics of the Mixed Economy: Toward a Theory of Interventionism.

This article was published by The Foundation for Economic Education and may be freely distributed, subject to a Creative Commons Attribution United States License, which requires that credit be given to the author.

TANSTAAFL and Saving: Not the Whole Story – Article by Sanford Ikeda

TANSTAAFL and Saving: Not the Whole Story – Article by Sanford Ikeda

The New Renaissance Hat
Sanford Ikeda
October 3, 2012
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How often have you heard someone say, “There ain’t no such thing as a free lunch,” or, “Saving is the path to economic development”?  Many treat these statements as the alpha and omega of economic common sense.

The problem is they are myths.

Or, at least, popular half-truths.  And they aren’t your garden-variety myths because people who favor the free market tend to say them all the time.  I’ve said them myself, because they do contain more than a grain of truth.

“There ain’t no such thing as a free lunch” (or TANSTAAFL) means that, with a limited budget, choosing one thing means sacrificing something else.  Scarcity entails tradeoffs.  It also implies that efficiency means using any resource so that no other use will give a higher reward for the risk involved.

That saving is necessary for rising labor productivity and prosperity also contains an economic truth.  No less an authority than the great Austrian economist Ludwig von Mises has stated this many times.  In an article published in The Freeman in 1981, for example, he said:

The fact that the standard of living of the average American worker is incomparably more satisfactory than that of the average [Indian] worker, that in the United States hours of work are shorter and children sent to school and not to the factories, is not an achievement of the government and the laws of the country. It is the outcome of the fact that the capital invested per head of the employees is much greater than in India and that consequently the marginal productivity of labor is much higher.

The Catalyst

But the statement is true in much the same way that saying breathable air is necessary for economic development is true.  Saving and rising capital accumulation per head do accompany significant economic development, and if we expect it to continue, people need to keep doing those activities.  But they are not the source–the catalyst, if you will–of the prosperity most of the world has seen in the past 200 years.

What am I talking about?  Deirdre McCloskey tells us in her 2010 book, Bourgeois Dignity: Why Economics Can’t Explain the World:

Two centuries ago the world’s economy stood at the present level of Bangladesh. . . .  In 1800 the average human consumed and expected her children and grandchildren and great-grandchildren to go on consuming a mere $3 a day, give or take a dollar or two [in today’s dollars]. . . .

By contrast, if you live nowadays in a thoroughly bourgeois country such as Japan or France you probably spend about $100 a day.  One hundred dollars as against three: such is the magnitude of modern economic growth.

(Hans Rosling illustrates this brilliantly in this viral video.)

That is unprecedented, historic, even miraculous growth, especially when you consider that $3 (or less) a day per person has been the norm for most of human history.  What is the sine qua non of explosive economic development and accelerating material prosperity?  What was missing for millennia that prevented the unbelievable takeoff that began about 200 years ago?

A More Complete Story

Economics teaches us the importance of TANSTAAFL and capital investment.  Again, the trouble is they are not the whole truth.

As I’ve written before, however, there is such a thing as a free lunch, and I don’t want to repeat that argument in its entirety.  The basic idea is that what Israel M. Kirzner calls “the driving force of the market” is entrepreneurship.  Entrepreneurship goes beyond working within a budget–it’s the discovery of novel opportunities that increase the wealth and raises the budgets of everyone in society, much as the late Steve Jobs or Thomas Edison or Madam C.J. Walker (probably the first African-American millionaire) did.  Yes, those innovators needed saving and capital investment by someone–most innovators were debtors at first–but note: Those savings could have been and were invested in less productive investments before these guys came along.

As McCloskey, as well as Rosenberg and Birdzell, have argued, it isn’t saving, capital investment per se, and certainly not colonialism, income inequality, capitalist exploitation, or even hard work that is responsible for the tremendous rise in economic development, especially since 1800.

It is innovation.

And, McCloskey adds, it is crucially the ideas and words that we use to think and talk about the people who innovate–the chance takers, the rebels, the individualists, the game changers–and that reflect a respect for and acceptance of the very concept of progress.  Innovation blasts the doors off budget constraints and swamps current rates of savings.

Doom to the Old Ways

Innovation can also spell doom to the old ways of doing things and, in the short run at least, create hardship for the people wedded to them.  Not everyone unambiguously gains from innovation at first, but in time we all do, though not at the same rate.

So for McCloskey, “The leading ideas were two: that the liberty to hope was a good idea and that a faithful economic life should give dignity and even honor to ordinary people. . . .”

There’s a lot in this assertion that I’ll need to think through.  But I do accept the idea that innovation, however it arises, trumps efficiency and it trumps mere savings.  Innovation discovers free lunches; it dramatically reduces scarcity.

Indeed, innovation is perhaps what enables the market economy to stay ahead of, for the time being at least, the interventionist shackles that increasingly hamper it.  You want to regulate landline telephones?  I’ll invent the mobile phone!  You make mail delivery a legal monopoly?  I’ll invent email!  You want to impose fixed-rail transport on our cities?  I’ll invent the driverless car!

These aren’t myths. They’re reality.

Sanford Ikeda is an associate professor of economics at Purchase College, SUNY, and the author of The Dynamics of the Mixed Economy: Toward a Theory of Interventionism.

This article was published by The Foundation for Economic Education and may be freely distributed, subject to a Creative Commons Attribution United States License, which requires that credit be given to the author.

Are We Destroying the Earth? – Article by Sanford Ikeda

Are We Destroying the Earth? – Article by Sanford Ikeda

The New Renaissance Hat
Sanford Ikeda
October 3, 2012
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People often complain that mankind is destroying the earth: that insatiable consumption and relentless production have laid waste to irreplaceable swaths of our planet, and that these activities have to stop or someday it will all be gone.

Which raises the question: What does it means to “destroy” something?

When you burn a log, the log is destroyed but heat, light, smoke, and ashes remain.  It’s in that sense that physics tells us that matter is neither created nor destroyed.  Similarly, cutting down a forest destroys the forest but in its place are houses and furniture and suburbs.

The real question is: Is it worth it?

Value Can Be Both Created and Destroyed

What people usually mean when they say mankind is destroying the earth is that human action causes a change they don’t like.  It sounds odd to say that my wife, by eating a piece of toast for breakfast, is “destroying” the toast.  But if I wanted that toast for myself, I might well regard her action as destructive.  Same action, but the interpretation depends on purpose and context.

When a missile obliterates a building and kills the people in it, it may serve a political purpose even though the friends and family of those killed and the owners of the building are harmed.  The perpetrator’s gain is the victim’s loss.  In the political realm, one person’s gain is necessarily another person’s loss.  You rob Peter to pay Paul; you kill Jack to appease Jill.  It’s a “zero-sum game.”

In the economic realm, however, a thing is destroyed to the extent that it loses its usefulness to somebody for doing something.  Someone may want to bulldoze my lovely home just for fun.  If she pays me enough I may let her do it and be glad she did.  When not physically coerced, a trade won’t happen unless each side expects to gain.  If it does happen, and if the people who traded are right, then all do in fact gain.  Each is better off than before. The trade has created something–value.  If they are wrong they destroy value and suffer a loss, which gives them an incentive to avoid making mistakes.

Profits and Losses Help to Minimize the Destruction of Value

In free markets gains manifest themselves in profit, either monetary or psychic.  (In the short run, of course, you can sustain a monetary loss if you think there’s a worthwhile nonmonetary aspect to the trade that will preserve the profit.)  Now, the free market is not perfect, despite what some economics professors say about the benefits of so-called “perfect competition.”  People don’t have complete or perfect knowledge and so they make mistakes.  They trade when they shouldn’t, or they don’t trade when they should.  Fortunately, profits and losses serve as feedback to guide their decisions.

There’s another source of market imperfection.  People may be capable of making good decisions but they don’t trade, or trade too much, because the property rights to the things they would like to trade aren’t well-defined or aren’t effectively enforced.  In such cases their actions or inactions create costs they don’t bear or benefits they don’t receive.  The result is that their decisions end up destroying value.

If I free-ride off the oceans, if for example I don’t pay for dumping garbage into it, then the oceans will become more polluted than they should be.  If there is a cleaner, more efficient source of energy than fossil fuels, but no one can profitably use it because the national government prevents anyone from doing so (for example by prohibitions or excessive taxation), then again the value that would have been created will never appear.

Aesthetics or Economics?

Our esthetic sense of beauty is part of what makes us human.  If we wish to protect a lake or a valley from development because we think it beautiful, how do we do that?

To some extent it’s possible to do what the Nature Conservancy does, and purchase the land that we want to protect.  But that’s not always possible, especially when the land is controlled not by private persons but by the national government, which makes special deals with crony capitalists in so-called public-private developments.  In any case, even the free market is not perfect.  Economic development and material well-being mean that some beautiful landscapes and irreplaceable resources will be changed in ways not everyone will approve.

Remember, though, that economics teaches us that an action is always taken by someone for something.  There are no disembodied costs, benefits, and values.  In a world of scarcity, John believes saving rain forests is more important than saving the whales.  Mary believes the opposite.  If we are to get past disagreements on esthetics–essentially differences of opinion–that can turn into violent conflict, we need to find some way to settle our differences peacefully, some way to transform them into value-creating interactions.

Imperfect though it may be, the free market has so far been the most effective method we know of for doing that.

Sanford Ikeda is an associate professor of economics at Purchase College, SUNY, and the author of The Dynamics of the Mixed Economy: Toward a Theory of Interventionism.

This article was published by The Foundation for Economic Education and may be freely distributed, subject to a Creative Commons Attribution United States License, which requires that credit be given to the author.

Property Rights Aren’t Always the Libertarian Solution – Article by Sanford Ikeda

Property Rights Aren’t Always the Libertarian Solution – Article by Sanford Ikeda

The New Renaissance Hat
Sanford Ikeda
July 15, 2012
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At FEE’s seminar last week on libertarian perspectives on current events, a participant asked: “How do we privatize the air?”

The student may have had in mind the economic principle, popularized by Ronald Coase, that externalities–especially negative externalities such as air pollution– result from ill-defined or unenforced property rights. The question also seems to reflect a common libertarian idea that in a free society all scarce resources must be owned by somebody. That would include the atmosphere when clean air is scarce.

Property Rights and Economic Development

The Coase Theorem is an economic proposition which says that when property rights are well defined and enforced, and the costs of search, bargaining, and enforcement are reasonably low, voluntary trade will tend to produce results that are economically efficient. Negative externalities will be internalized, as unowned resources are transformed into marketable goods. And if, because of incomplete property rights, entrepreneurs are unable to capture enough of the benefits from their actions (that is, if positive externalities would result), they will be less inclined to make the discoveries that drive economic development. Those benefits would be internalized, too.

There are some positive externalities that most, perhaps all, of those who favor tough property enforcement would hesitate to try to privatize. For example, cultures develop in part on the basis of imitation. Jazz musicians copy from one another all the time, from motifs to entire songs, and reinterpret them in their own creations. Classical musicians have also done this. As a courtesy, the protocol is to name the artist from whom you are copying, such as in “Variations on a Theme of Paganini.”

On an even higher level of abstraction, artists, writers, and even ordinary people partake in an esthetic ethos; scholars, intellectuals, and laymen draw on the intellectual milieu of a place and time. Without the experimentation that comes from such borrowing and give-and-take, cultures would stop evolving; they would die.

The same thing goes for economic development. One entrepreneur discovers a demand for flat-screen televisions and is soon followed by imitators, which in the long run results in lower prices and better quality–and often new products and uses, such as tablet computers.

Don’t get me wrong! Private property rights prevent the kind of free riding that hinders economic development. And of course private property is essential for personal freedom: Property rights not only help to avoid or resolve interpersonal conflict–such as the tragedy of the commons–they are what provide a person with a sphere of autonomy and privacy in an economically developed world where contact with strangers is commonplace.

Elinor Ostrom on the Establishment of Conventions

There are many instances where free riding is a net negative, and the overuse of the atmosphere in the form of air pollution is probably one of them. Despite the efforts of some economists, legislators, and policymakers to institute so-called “cap-and-trade”–which would attempt to establish property rights in the air through government policy–it may be impossible to do something similar for all scarce resources, either by legal mandate or market arrangements. But this need not discourage libertarians, of either the minimal-state or market-anarchist variety.

Consider the work of Elinor Ostrom, winner of the 2009 Nobel Prize in economics, the only women so far to be so honored. Sadly, Ostrom died on June 12, a great loss for social science. While few would consider her a libertarian–I don’t believe she thought she was–libertarians can learn a lot from her work. She is perhaps best known for her 1990 book, Governing the Commons, in which she presented her methods and findings regarding how people coped (or didn’t cope) with what has come to be known as “common-pool resource” (CPR) problems:

What one can observe in the world, however, is that neither the state nor the market is uniformly successful in enabling individuals to sustain long-term, productive use of natural resource systems. Further, communities of individuals have relied on institutions resembling neither the state nor the market to govern some resource systems with reasonable degrees of success over long periods of time.

Voluntary Conventions

In those instances the nonstate, nonmarket institutions she studied were, when successful, conventions that the users of common-pool resources agreed to and used sometimes for centuries. They were made voluntarily and evolved over time, but they were not market outcomes, at least in the narrow sense, because no one “owned” the resource in question and it was not bought and sold. Ostrom added:

The central question of this study is how a group of principals who are in an independent situation can organize and govern themselves to obtain continuing joint benefits when all face temptations to free-ride, shirk, or otherwise act opportunistically.

Her research covered the harvesting of forests in thirteenth-century Switzerland and sixteenth-century Japan and irrigation institutions in various regions of fifteenth-century Spain. Although not every community Ostrom studied was successful in establishing such conventions, it is instructive how highly complex agreements, enforced by both local norms and effective monitoring, were able to overcome the free-rider problems that standard economic theory–and perhaps vulgar libertarianism–would predict are insurmountable without property rights.

Dealing with air pollution is of course a more difficult problem since it typically entails a much larger population and more diffuse sources and consequences. But it’s important to realize that a “libertarian solution” to air pollution may not necessarily be a “market solution.”

Sanford Ikeda is an associate professor of economics at Purchase College, SUNY, and the author of The Dynamics of the Mixed Economy: Toward a Theory of Interventionism.

This article was published by The Foundation for Economic Education and may be freely distributed, subject to a Creative Commons Attribution United States License, which requires that credit be given to the author.

Prohibition: Bootleggers, Baptists, and Bandits – Article by Sanford Ikeda

Prohibition: Bootleggers, Baptists, and Bandits – Article by Sanford Ikeda

The New Renaissance Hat
Sanford Ikeda
July 7, 2012
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The political economist Bruce Yandle’s phrase “bootleggers and Baptists” captures the idea that special-interest groups with conflicting moral positions often find common cause in particular government interventions.  Many on the political left agree with crony capitalists that government should make taxpayers bailout some businesses that are “too big to fail”; some radical feminists agree with some Christian fundamentalists that government should ban pornography.  Their reasons are different but the policies they support are the same.

Bootleggers and Baptists

The inspiration for “bootleggers and Baptists” (pdf) comes directly from the diverse support that so-called “blue laws” have historically received.  According to Yandle,

Bootleggers . . . support Sunday closing laws that shut down all the local bars and liquor stores [because they increase the demand for illegal hooch].  Baptists support the same laws and lobby vigorously for them [because they believe drinking on Sunday is wrong].

Of course the story behind Prohibition era in the United States, marked by the passage of the Eighteenth Amendment to the U.S. Constitution (1920-33), is this lesson writ large.  Banning the sale of liquor, whatever it did to deter drinking, did wonders for promoting organized crime, which had (and still has) a comparative advantage over law-abiding people in supplying and demanding illegal goods. By clamping down on a product in such high demand, local and national governments (including the fledgling Federal Bureau of Investigation, which also prospered during Prohibition) spurred mob activity, intentionally or not, from Los Angeles to Chicago to New York.

Ken Burns: No Eighteenth Amendment without the Sixteenth

What I hadn’t realized until I saw Ken Burns’s excellent documentary “Prohibition” is that an important and, I think, less-known connection existed between the anti-liquor lobby–which included among others the Anti-Saloon League (ASL) and the Women’s Christian Temperance Union (WCTU)–and passage of the Sixteenth Amendment to the US Constitution.  That amendment gave Congress in 1913 the power

to lay and collect taxes on incomes, from whatever source derived, without apportionment among the several States, and without regard to any census or enumeration.

(The Supreme Court had ruled an earlier income tax law unconstitutional in 1895.)

In an earlier FreemanOnline column, Don Boudreaux explained why Prohibition was repealed after only a dozen or so years.  In short the inability to tax liquor, now illegal, along with the onset of the Great Depression, had a devastating impact on government tax revenues.  My focus is on the alliance between anti-liquor forces on the right, pressing for prohibition, and Progressives on the left, pressing for an income tax.

Now, according to one source:

By 1868, the main source of Government revenue derived from liquor and tobacco taxes. . . . From 1868 to 1913, almost 90 percent of all revenue was collected from . . . excises.

That’s a significant source of taxes, without which the government could hardly operate, let alone grow to the size needed to implement the Progressives’ agenda: making government more efficient in order to run society along “rational” principles.  Government programs to improve schools, health care, and industry need a steady funding source, and without liquor taxes intervention could not go far enough.  So no matter how hard prohibitionists argued, marched, and lobbied, and no matter how sympathetic government officials may have been to their cause, they would never dream of sacrificing their cash cow on the alter of idealism–at least not without an equally reliable alternative.

And that of course led naturally to the social conservatives support of the progressive (in both senses of the word) income tax.  The Sixteenth Amendment passed in 1913, opening the way in 1919 for the Eighteenth Amendment.  The rest is history.

Baptists and Bandits

I’m not arguing that the alliance was primarily responsible for passage of the amendment, but rather that it’s clear the interests of social conservatives and the taxman were perfectly aligned.  “Baptists” on the one side, and on the other, those eager to expand the use of aggression to plunder wealth created by trade and to spend it to indulge their own preferences–that is, bandits.

Sanford Ikeda is an associate professor of economics at Purchase College, SUNY, and the author of The Dynamics of the Mixed Economy: Toward a Theory of Interventionism.

This article was published by The Foundation for Economic Education and may be freely distributed, subject to a Creative Commons Attribution United States License, which requires that credit be given to the author.