Let’s start today’s post with the following quote(emphasis mine):
Some economists say that ghe distribution of annual consumption is more meaningful for examining inequality of well-being than is the distribution of annual income. In a given year, people’s consumption of goods and services may be above or below their income because they can save, draw down past savings, use credit cards, take out home mortgages, spend from inheritances, give money to charities, and so on. A recent study of the distribution of consumption finds that annual consumption inequality is less than income inequality. Moreover, consumption inequality has remained relatively constant over several decades, even though income inequality has increased.
after reading that, I had to go check when this book was originally published. I mean, we’ve just been through a massive economic crisis caused in part precisely by consumption being greater than income. And we’ll be spending a LOT of time recovering from it! At the end of that article is an even more stupid quote from The Economist:
More than 70 percent of Americans under the official poverty line own at least one car. And the distance between driving a used Hyundai Elantra and a new Jaguar XJ is well nigh undetectable compared to the difference between motoring and hiking through the muck. … A wide screen plasma television is lovely, but you do not need one to laugh at “Shrek”.
Those intrepid souls who make vast fortunes turning out ever higher-quality goods at ever lower prices widen the income gap while reducing the differences that really matter.
First, that must have been written by someone who has never driven a used anything; because my experience with old cars is that they have a very bad habit of breaking down when I need them to get to work most. And of course 70% of poor people have a car; there’s virtually no public transportation system, and living near jobs is unaffordable. In fact, virtually every application I’ve ever had to fill out asked whether I had “reliable transport”, which translates to “do you have a car that won’t break down” in most circumstances. And yet, 30% DON’T have a car, and when oil-prices spiked a few years back people had to quit their jobs because they couldn’t afford putting in enough gas to get to their jobs. To praise America’s car-dependence is some sort of perverse (and the same goes for the “even homeless people have cellphones” argument: of course they do, how else are they supposed to stop being homeless? cellphones have become a necessity for many of them), and so is the “reducing the differences that really matter” comment. The ability to watch TV is “what really matters”? The ability to drive a car is “what really matters”? Really!? And here I thought that would be affordable housing, nutrition, healthcare, and education. You know, the things more and more Americans are simply not able to afford. And I could write a rant about “higher-quality goods at lower prices”, too, since for the ACTUAL things that matter this is often not true. My ancient cast iron pans are worlds better than any newfangled teflon-coated piece of shit I could buy from Walmart and which will fall apart in a year or two. Electronics might be the only exception here.
Anyway, the entire chapter on inequality is like the quote, a longwinded attempt at pretending it’s not so bad. For example, they explain that the rising inequality since the 70′s was primarily caused by a sudden increase in the need for highly skilled workers in biotech, IT, etc instead of blue-collar workers. And then smoothly transitioning into explaining how this increased demand for skill explains the astronomic rise of CEO pay. Which, as far as I can tell, are actually two entirely separate things, but whatever. Also, I was under the impression that the demand for blue-collar work was replaced by a demand for service-industry jobs, which are mostly even less skilled and more importantly not unionized. That, combined with their claim that “incomes have risen in all quintiles, income growth has been fastest in the top quintile” (is that so? I was under the impression that the lowest quintiles were barely, if at all, keeping up with inflation, nevermind an actual rise in incomes) seems to indicate that they want to claim that rising inequality means that no one got poorer, but that plenty of people got richer. Which is pure and unadulterated bullshit.
And then they top this off with a beautiful tu quoque: “Second, increased income inequality is not solely a U.S. phenomenon. The recent rise of inequality has also occurred in several other industrially advanced nations”. Indeed it has. And? It’s still a bad thing. And “in several” implies that it didn’t increase in ALL of them. Did these other nations not have an increased need for IT, biotech etc. professionals? Do they have no need for highly skilled CEO’s and highly paid athletes and entertainers? Or is it maybe that these things alone don’t explain the rising inequality?
Then there’s a chapter on healthcare. In the beginning paragraph is this sentence: “Those with insurance or other financial means receive the world’s highest-quality medical treatment, but many people, because of their inability to pay, fail to seek out the most basic treatment.” While the second half of that sentence is correct, the first is only true for a subset of the insured. Plenty of people with insurance get shitty care, get denied treatments or payment for treatments, have their treatments delayed while the hospitals and the insurance fight over what is or isn’t covered, etc. And then there’s the fact that many insurance plans still don’t cover preventive care (The insurance plan for NDSU students for example only covers visits to the doctor when you’re sick).
Then they do some “international comparison”: they admit that “for whatever reason”, the U.S. has the highest spending, but at least, “there’s general agreement that medical care (although not health and not “preventive care treatment”) in the United States is probably the best in the world.” and what the bloody fuck does it mean to have the best medical care in the world if your preventive care and your health sucks? Anyway, then they list all these awesome things brought to you by the U.S. medical system. And they’re the very same things that the not-best-in-the-world systems in Europe have achieved as well, at much lower costs: rising life expectancy, “most advanced” equipment and technology, virtual elimination of polio, angioplasty, bypass surgeries, transplants, prosthetics, joint replacements, etc. The only point I’m willing to give them is that most of the medical research funding comes from the U.S.
And then comes the section that talks about the Moral Hazard Problem of health insurance. Now, I know that this is hypothetically relevant, but come on… “if their insurance covers rehabilitation programs, some people may be more inclined to experiment with alcohol or drugs”? Really? I’m thinking that belongs into the “hypotheticals I pulled out of my ass” category. Plus, they list people going to the doctor more often and requesting more test as a negative effect of health insurance.
In the chapter on Supply and Demand, we get the following essay:
Ticket prices for athletic events and musical concerts are usually set far in advance of the events. Sometimes the original price is too low to be the equilibrium price. Lines form at the ticket window and a severe shortage of tickets occurs at the printed price. What happens next? Buyers who are willing to may more than the original ticket price bid up the ticket price in resale ticket markets.
Tickets sometimes get resold for much greater amounts than the original price – market transactions known as “scalping”. For example, an original buer may resel a $75 ticket to a concert for $200, $250, or more. Reporters sometimes denounce scalpers for “ripping off” buyers by charging “exorbitant” prices.
But is scalping really a rip-off? We must first recognize that such ticket resales are voluntary transaction. If both buyer and seller did not expect to gain from the exchange, it would not occur! The seller must value the $200 more than seeing the event, and the buyer must value seeing the event at $200 or more. So there are no losers or victims here: Both buyer and seller benefit from the transaction. The scalping market simply redistributes assets (game or concert tickets) from those who would rather have the money (and the other things that the money can buy) to those who would rather have the tickets.
Does scalping impose losses or injury on the sponsors of the event? If the sponsors are injured, it is because they initially priced tickets below the equilibrium level. Perhaps they did this to create a long waiting line and the attendant news media publicity. Alternatively, they may have had a genuine desire to keep tickets affordable to lower-income, ardent fans. In either case, the event sponsors suffer an opportunity cost in the form of less ticket revenue than they might have otherwise received. But such losses are self-inflicted and separate and distinct from the fact that some tickets are later resold at a higher price.
So is ticket scalping undesirable? Not on economic grounds! It is an entirely voluntary activity that benefits both sellers and buyers.
Yes, this is a defense of scalpers. As an explanation of supply and demand, using scalping would have worked; but actually defending it? It doesn’t even work “on economic grounds”, since the scalpers don’t provide a service that wouldn’t be available to the buyers otherwise: the tickets they sell are not tickets that magically add capacity. Rather, scalpers remove tickets from the original supply-pool, and distribute them back to the pool of people wanting the tickets, to whom these tickets are now not available at the original price. They get something for nothing. (and what’s with the implication that scalpers sell “their” ticket? If it’s an event the scalper actually wants to attend, they will. Scalpers sell additional tickets, i.e. ones that have no value to them beyond the price they themselves paid for them).
And lastly, this is another instance of “assume robots”. Imagine for example that the sponsors of the Soccer World Cup decided to price their tickets at “equilibrium price”, which would mean the tickets would go for hundreds of thousands of dollars. The result would be worldwide riots, not a calm “oh well, I can’t afford it, I guess I’ll watch it on TV instead”. NO ONE wants that kind of publicity, especially since it would be likely to result in dead people.
And even in less drastic situations, you REALLY don’t want to price yourself out of theoretical range of too many of your fans. After all, very few sports teams and musical entertainers primarily earn money from their shows. Most of it comes from sales of merchandise and advertisement, with the live performances being more like the “free gift with purchase” enticement that mostly is just supposed to cover the costs of maintaining/renting the venue. With musical events, there’s of course some balance necessary between the need of the venue owners to make a profit and the performers to maintain mass appeal, but only venues that actually strive for a certain level of “elite” appeal would use high pricing to limit the number of people who will show up, in my experience. The entertainment business simply cannot be reduced to its economic components only.
In the same chapter you get another essay, this time proposing a legal market for human organs. Their main arguments for it are that people should be free to make any transaction they want, that this would increase the number of people who sell their bodies at death(!), and that not making it legal just means the trade goes on illegally.
Goddamn robots again. After all, the same argument could be used for selling oneself (or one’s children) into slavery. After all, that also happens on the black market already, it’s economically viable-ish, and will increase the availability of cheap human labor. It’s also still a really shitty idea once we remember that we’re talking about human beings, not robots and their spare parts. Besides, the claim that it would increase the number of people who give their bodies away after death is disingenuous, since it blatantly ignores that there’s already better ways to do that (opt-out instead of opt-in policies), and that no one gives a flying fuck about what people do with their dead bodies; it’s the sale of organs out of still perfectly alive bodies, which actually might still need those organs, that’s the problem.
Lastly, a possibly minor point is also the selectiveness on some of their graphs. For example, when showing examples of countries on the Index of Economic Freedom, they use Hong Kong, Ireland, and the US as examples of “free” countries, but not Denmark; similarly, they use Venezuela, Cuba, and North Korea as examples of “repressed” countries, but not Zimbabwe or Syria. This isn’t much, but it still makes it look like you need to be a neo-con country to be free, while all (and only) socialist countries are repressed. Also, that graph is sourced to The Heritage Foundation; not exactly the world’s most unbiased source.
There’s still about 1/3 of the book I haven’t looked through. I expect the same problems to crop up there. If they piss me off enough, and are interesting enough to write about, I might make a third post about them in the future. But I think this is quite a lot of clusterfuckery already, and certainly pretty good evidence that these sorts of textbooks are what produces so many libertarians in this country :-/