Archive for August, 2009

Karl Marx on free university education

Monday, August 31st, 2009

Karl Marx, unlike many of his followers today, recognized that ‘free’ university education represents a transfer of income from taxpaying workers to the upper classes.

“Universal compulsory school attendance. Free instruction.” The former exists even in Germany, the second in Switzerland and in the United States in the case of elementary schools. If in some states of the latter country higher education institutions are also “free”, that only means in fact defraying the cost of education of the upper classes from the general tax receipts.

Karl Marx, Critique of the Gotha Program, 1875.

Marx today would no doubt oppose subsidised tuition for higher education, possibly with the exception of students from working-class families.

Recycled from the Thought du Jour 2003 archive.

Latin America’s political refugees

Monday, August 31st, 2009

The generals took over Brazil in 1964 and by the mid-seventies the military ruled all over South America, except for the states bordering the Caribbean. …. A diaspora of Latin American political refugees concentrated in the few countries of the hemisphere providing refuge — Mexico and, until 1973, Chile — and scattered across North America and Europe: the Brazilians to France and Britain, the Argentinians to Spain, the Chileans everywhere. (Although many Latin American intellectuals continued to visit Cuba, very few actually chose it as their place of exile.)

Eric Hobsbawm, Interesting Times: A Twentieth Century Life (Pantheon Books, NY, 2002), p. 378.

Why did Latin American leftists prefer capitalist countries over socialist Cuba as a place of refuge? Marxist historian Eric Hobsbawm does not ask this question, much less answer it.

Recycled from the Thought du Jour 2004 archive.

organ sales and abortion

Saturday, August 29th, 2009

I’ve always been struck by how the same people who fervently believe that abortion should be legal (“every woman should be free to do whatever she wants with her own body”), can also argue that organs should not be sold.

To me, it seems quite incoherent. Either one is free to do whatever they want with their own body, or one is not. If exceptions are made, it would make more sense to start with abortion (which involves one’s body AND one’s fetus’s body) rather than organ selling.

Why do people object to impoverished people selling their kidney to pay for school, but fight for impoverished women’s right to have an abortion to, for instance, finish their studies without being burdened with a child?

It seems to these two situations are exactly the same: a poor person undergoes a medical procedure because circumstances lead them to. The difference is that, with organ selling, no only would they improve their circumstances, they would also save a life.

‘Damien’, commenting on Bryan Caplan,  “Why Do People Oppose Organ Markets?“, EconLog,  posted August 29, 2009 4:00 AM.

Bryan Caplan, an economist at George Mason University and the Cato Institute, wants to understand better the widespread opposition to legalisation of organ selling. He ascribes the opposition to economic ignorance: “In my experience, 100% of people who can correctly explain economists’ standard case for legalization favor legalization, and 100% of people who can’t correctly explain the case oppose legalization.”

The question sparked many interesting comments. This one by ‘Damien’ caught my attention. I am not sure, though, that the parallel is appropriate. Organ donation is a gift of life. Isn’t this analogous to giving a baby for adoption, rather than aborting a fetus?

Comments are welcome, either here or at EconLog.

Africa’s demographic transition

Friday, August 28th, 2009

Africa is still something of a demographic outlier compared with the rest of the developing world. Long berated (or loved) as the sleepiest continent, it has now become the fastest-growing and fastest-urbanising one. Its population has grown from 110m in 1850 to 1 billion today. Its fertility rate is still high: the average woman born today can expect to have five children in her child-bearing years, compared with just 1.7 in East Asia. Barring catastrophe, Africa’s population will reach 2 billion by 2050. To get a sense of this kind of increase, consider that in 1950 there were two Europeans for every African; by 2050, on present trends, there will be two Africans for every European.

Yet Africa is also starting out, a little late, on a demographic transition that others have already traced: as people get richer, they have fewer children. In 1990 the continent’s total fertility rate was over six, compared with two in East Asia. By 2030, according to United Nations projections, the total fertility rate in sub-Saharan Africa could fall to three. By 2050 it could be below 2.5…..

Africa does not have much time to get things right. The period of greatest potential, when the working-age population is disproportionately large, is not open-ended. In demographic terms, it is just a moment or two. Societies age, and as they do the number of older dependents grows and the moment passes.

Africa’s population: The baby bonanza“, The Economist, 29 August 2009.

The demographic transition to lower fertility can yield what is known as a “demographic dividend”. This brief essay explores its potential in Africa. “On some calculations, demography accounted for about a third of East Asia’s phenomenal growth over the past 30 years.” But a high working-age share is no guarantee that a population will reap the potential demographic dividend. Demography is not destiny. Poverty, hunger, disease and civil war makes it difficult if not impossible for Africa to take full advantage of its demographic transition. Urban unemployment and underemployment produces crime and violence, not economic growth.

This essay is a quick but rewarding read, with clear and helpful charts.

Iceland after the financial crisis

Thursday, August 27th, 2009

In the space of a few days last October Iceland’s whole banking system collapsed and was taken into public ownership, including the three banks which went from nowhere in 2002 to rank among the world’s 300 biggest by 2007. These three now make it into a less glorious league – Moody’s list of the 11 biggest financial bankruptcies in history. The country’s average income fell from 160 per cent of the US’s in 2007 to 80 per cent this year.

Yet, walking around Reykjavik and other cities this summer, one sees no signs of economic distress. The country looks amazingly prosperous. Traffic density has fallen a little, but only to 2005 levels. Unemployment has risen to 8 to 9 per cent, nearly twice the previous postwar record – but is still below that of several other high-income countries. Applications for free food from charities have increased, but numbers remain small. Four out of five households have been affected only at the margins.

Robert Wade, “Iceland shows the dangers ahead for us all”, Financial Times, 27 August 2009.

That is the good news. The bad news is “appearances are deceiving”. Professor Wade believes that crisis has not been averted, but only postponed: “When the government brought in the International Monetary Fund in late 2008 the IMF prescribed deferring the pain for a year. Now the pain is coming.”

But is such gloom and gloom justified? I have not followed Iceland closely, but my understanding is that its government did not bail-out the banks, although it did protect depositors – domestic depositors at least. With one exception, the government abstained from nationalising failed banks, taking them into receivership instead. This should translate into reduced costs for Iceland’s taxpayers, and most of those who stand to lose money – the creditors of failed banks – are foreigners. For this reason net public sector debt is projected to rise only modestly, to 40% of GDP next year, from approximately zero before the financial crisis.

Is Professor Wade’s forecast plausible? Time will tell. In the meantime, comments are open. Please enlighten me.

Political scientist Robert Wade is author of Governing the Market (1990, 2003). He is currently Professor of Political Economy and Development at the London School of Economics.

Update: Iceland’s parliament has agreed to pay more than 5 billion dollars to the governments  of the UK and the Netherlands to compensate about 400,000 depositors who lost money in the Icelandic online bank Icesave. Payments will begin in seven years, and will be limited each year to a maximum of 6% of Iceland’s GDP. The government expects this concession to help it to get additional financial aid from the UK and the Netherlands. The governments of the UK and the Netherlands still have to ratify the agreement, but there is nothing in these developments so far to support a forecast of gloom and doom. More information is available here and here.

placebos are becoming more effective

Wednesday, August 26th, 2009

From 2001 to 2006, the percentage of new [pharmaceutical] products cut from development after Phase II clinical trials, when drugs are first tested against placebo, rose by 20 percent. The failure rate in more extensive Phase III trials increased by 11 percent, mainly due to surprisingly poor showings against placebo. ….

It’s not only trials of new drugs that are crossing the futility boundary. Some products that have been on the market for decades, like Prozac, are faltering in more recent follow-up tests. ….

It’s not that the old meds are getting weaker, drug developers say. It’s as if the placebo effect is somehow getting stronger. ….

The roots of the placebo problem can be traced to a lie told by an Army nurse during World War II as Allied forces stormed the beaches of southern Italy. The nurse was assisting an anesthetist named Henry Beecher, who was tending to US troops under heavy German bombardment. When the morphine supply ran low, the nurse assured a wounded soldier that he was getting a shot of potent painkiller, though her syringe contained only salt water. Amazingly, the bogus injection relieved the soldier’s agony and prevented the onset of shock.

Returning to his post at Harvard after the war, Beecher became one of the nation’s leading medical reformers. Inspired by the nurse’s healing act of deception, he launched a crusade to promote a method of testing new medicines to find out whether they were truly effective. ….

By 1962, … Beecher’s double-blind, placebo-controlled, randomized clinical trial—or RCT—was enshrined as the gold standard of the emerging pharmaceutical industry. ….

Beecher’s prescription helped cure the medical establishment of outright quackery, but it had an insidious side effect. By casting placebo as the villain in RCTs, he ended up stigmatizing one of his most important discoveries. The fact that even dummy capsules can kick-start the body’s recovery engine became a problem for drug developers to overcome, rather than a phenomenon that could guide doctors toward a better understanding of the healing process and how to drive it most effectively.

Steve Silberman, “Placebos Are Getting More Effective. Drugmakers Are Desperate to Know Why”, Wired Magazine, September 2009.

This article is fascinating, and well worth reading. It is a superb addendum to Merrill Goozner’s 2004 book on Big Pharma. After years of ignoring the effect of placebos, Merck, Lilly, Pfizer, AstraZeneca, GlaxoSmithKline, Sanofi-Aventis, Johnson & Johnson, and other major firms are now funding a massive data-gathering effort called the Placebo Response Drug Trials Survey. It is now clear that response to placebo is a physiological phenomenon, not—as previously thought—a psychological trait related to neurosis and gullibility of patients.

It is possible that—because of mass advertising and because of the increased effectiveness of real drugs—people have more faith in all types of pills. Pharmaceutical companies then are victims of their own success.

I don’t understand, though, how Big Pharma will be able to profit from a study of placebos. Perhaps they don’t expect to, which would explain why they are co-operating, rather than working secretively and independently.

Steve Silberman ia a contributing editor at Wired Magazine. HT to Tyler Cowen at Marginal Revolution.

rationing medical care

Wednesday, August 26th, 2009

Allocation of scarce medical interventions [-including beds in intensive care units, organs, and vaccines during pandemic influenza-] is a perennial challenge. During the 1940s, an expert committee allocated—without public input—then-novel penicillin to American soldiers before civilians, using expected efficacy and speed of return to duty as criteria. During the 1960s, committees in Seattle allocated scarce dialysis machines using prognosis, current health, social worth, and dependants as criteria. How can scarce medical interventions be allocated justly? This paper identifies and evaluates eight simple principles that have been suggested. Although some are better than others, no single principle allocates interventions justly. Rather, morally relevant simple principles must be combined into multiprinciple allocation systems. We evaluate three existing systems and then recommend a new one: the complete lives system.

Eight simple ethical principles for allocation can be classified into four categories, according to their core ethical values: treating people equally, favouring the worst-off, maximising total benefits, and promoting and rewarding social usefulness. We do not regard ability to pay as a plausible option for the scarce life-saving interventions we discuss. ….

The complete lives system [that we recommend] discriminates against older people. …. Unlike allocation by sex or race, allocation by age is not invidious discrimination; every person lives through different life stages rather than being a single age. Even if 25-year-olds receive priority over 65-year-olds, everyone who is 65 years now was previously 25 years. Treating 65-year olds differently because of stereotypes or falsehoods would be ageist; treating them differently because they have already had more life-years is not.

Govind Persad, Alan Wertheimer, Ezekiel J Emanuel, “Principles for allocation of scarce medical interventions”, Lancet, Vol 373 (31 January 2009), pp. 423-431. (Free download, registration required.)

The authors claim BS, PhD and MD degrees, respectively, and work in the Department of Bioethics of the National Institutes of Health (NIS) in Bethesda, Maryland, USA. Dr Emanuel (1957-), who, as Director of the Department, is the superior of his co-authors, is currently Special Advisor for Health Policy to Peter Orszag, the Director of President Obama’s Office of Management and Budget.

Dr Emanuel has become a figure of controversy in the US healthcare debate. Note that he and his co-authors rule out a market solution – increasing price to the point that demand equals supply – in the case of medical interventions. Most – though not all – Canadians would agree. The same is true, I believe, of Europeans. But in the United States, many favour treating health care like any product or service, to be distributed by ability to pay, perhaps with some minimimal distribution of free services to the poor. This, after all, is the way that food, which is essential for life, is distributed: food stamps for the poor, market prices for everyone else.

Dr Emanuel and his colleagues raise very serious and very difficult ethical issues. As Princeton philosopher Peter Singer recently explained, rationing of health care is inevitable. A public debate over how we ration is necessary. Should the wealthy be allowed to spend their own money to jump to the head of the queue? Countries such as Canada and the United Kingdom, with single-payer systems of health care, explicitly prohibit this. The United Kingdom does allow any citizen who has the desire – and the means – to do so to leave the public system and access private health care. Canada so far has not granted its citizens this freedom, but the US border, and a system where health care is rationed only by price, for most Canadians is only a short drive away.

religion and health

Monday, August 24th, 2009

I … find that, at least on average, over all [142] countries, and over countries sorted into income groups, religious people do better on a number of health and health-related indicators. These protective effects appear to be stronger the poorer is the country—… religion is a route to a better life in poor countries, but not in rich ones—and to protect men more than women, though this hypothesis requires more extensive investigation.

None of the results show that the health benefits of religion can be obtained simply by joining a church, or even by undertaking a serious conversion. People who are religious are almost certainly different from non-religious people in ways that go beyond their religiosity and beyond the basic educational and demographic controls that are used here. Even so, some of the correlations presented here are remarkably universal across the religions and countries of the world, and need to explained and better understood.

Angus S. Deaton, “Aging, religion, and health”, NBER Working Paper No. 15271, August 2009.

An ungated version can be downloaded here

Princeton economist Angus Deaton (1945-), current president of the American Economic Association, is well-known for his empirical studies of household behavior and for his research in health economics and economic development.

Professor Deaton in this paper assumes “a simple triangular causal structure, in which religiosity and religious practice are caused by income, education, age, and sex, and in which health is caused by religion, income, education, age and sex.”. He emphasises that he is actually measuring correlation, not causation: the latter is assumed, not proven. Many economists are not so careful, and claim too much for their econometric results.

the ‘Viagra effect’ on pensions

Sunday, August 23rd, 2009

[A recent] report, by Brazil’s National Social Security Institute [INSS], showed that a trend of men in their sixties marrying women half their age was leaving a big pool of young widows collecting benefits for much longer than anticipated.

“The social security system was planned so that the wife receives her husband’s pension for only 15 years or so,” the author of the study, Paulo Tafner, said.

“With growing life expectancy and remarriages with much younger women, benefits today stretch out over 35 years.”

He said the younger-wife phenomenon was commonly called the “Viagra effect”.

But he noted that in fact the trend started in the 1970s — well before the advent of the little blue pill that has since the mid-1990s helped men carry their sex lives well into old age…..

Under current laws, when a retired man dies, his wife continues to receive his full pension until her own death.

According to the INSS, 94 per cent of pensions go to women.

“This is a grave and serious challenge for the future of the country, and it’s going to require a reform of the pension system,” Mr Tafner said.

“‘Viagra effect’ drains pension system”, Daily Telegraph, 18 August 2009 (from AFP correspondents in Rio de Janeiro).

Is it fair for a married person to take more from a pension fund than a single colleague, with similar life expectancy, who has contributed an equal amount? I have often wondered about this. In ‘defined benefit’ systems, it is common to award a pension to any surviving spouse, although this pension is typically half the husband’s pension, not the 100% pension enjoyed by widows in Brazil.

The US Social Security system awards survivor benefits not only to a surviving spouse, but also to surviving divorced spouses, provided the marriage lasted at least 10 years. So, in the US public system, two or more ‘widows’ can claim survivor benefits. All this largesse comes at the expense of singles and dual-income couples.

The United Nations pension fund is also biased against singles. The UN awards survivor benefits (one-half of the full pension of the deceased functionary) to a surviving wife, provided the marriage was legal on the date of retirement. In the case of multiple wives – permitted in some cultures – the retiree must select one to be his designated survivor. When a designated widow passes away, the pension is passed on to the #2 widow, and so on to any remaining widows.  Divorced spouses are not eligible for survivor pensions.

With a ‘defined contribution’ pension system, provision for suvivor benefits is possible, but it comes at the expense of a smaller pension. This system is fair, in the sense that the expected value of pension benefits is the same for those with the same history of contributions, regardless of marital status. Why don’t ‘defined benefit’ schemes work the same way? Does our sense of justice – our sense of right and wrong – change when a pension system changes from defined benefit to defined contribution? If so, why? This has always puzzled me.

climate engineering

Saturday, August 22nd, 2009

World leaders are meeting in Copenhagen this December to forge a new pact to tackle global warming. Should they continue with plans to make carbon-cutting promises that are unlikely to be fulfilled? Should they instead delay reductions for 20 years? What could be achieved by planting more trees, cutting methane, or reducing black soot emissions? Is it sensible to focus on a technological solution to warming? Or should we just adapt to a warmer world?

Much of the current policy debate remains focused on cutting carbon, but there are many ways to go about repairing the global climate. ….

A groundbreaking paper by economists Eric Bickel and Lee Lane is one of the first – and certainly the most comprehensive – study of the costs and benefits of climate engineering. ….

Bickel and Lane offer compelling evidence that a tiny investment in climate engineering might be able to reduce as much of global warming’s effects as trillions of dollars spent on carbon emission reductions.

Bjørn Lomborg, “Global Warming’s Cheap, Effective Solution”, Project Syndicate, August 2009.

Danish statistician Bjørn Lomborg (1965-) is best-known for his controversial book The Skeptical Environmentalist. This climate change skeptic now concedes that global warming is a serious problem that requires immediate attention, and he actively supports the idea of forging a global agreement at this year’s meeting in Copenhagen.

The paper that Lomborg refers to is an un-refereed report, “An Analysis of Climate Engineering as a Response to Global Warming”, drafted by economists by J Eric Bickel (University of Texas) and Lee Lane (American Enterprise Institute) and recently released by his Copenhagen Consensus Center. The full report can be downloaded here. Bickel and Lane find large net benefits for three specific technologies: injection of aerosols (such as sulfur dioxide or soot) into the stratosphere, increase of marine cloud albedo (by spraying seawater droplets into marine clouds to make them reflect more sunlight), and deployment of a space sunshade (composed of trillions of tiny autonomous spacecraft). In reference to the space sunshade, the authors (p. 47) frankly admit that “the sheer scale of this project boggles the mind”. J.

Eric Bickel has a PhD in Engineering-Economic Systems from Stanford University. Lee Lane has a BA in European history from the University of Wisconsin-Madison.

Meteorologist Alan Robock of Rutgers University commented on the Bickel/Lane report. He concludes:

It may be that the benefits of geoengineering will outweigh the negative aspects, and that most of the problems can be dealt with, but the paper from Lomborg’s center ignores the real consensus among all responsible geoengineering researchers. The real consensus … is that mitigation needs to be our first and overwhelming response to global warming, and that whether geoengineering can even be considered as an emergency measure in the future should climate change become too dangerous is not now known. Policymakers will only be able to make such decisions after they see results from an intensive research program. Lomborg’s report should have stopped at the need for a research program, and not issued its flawed and premature conclusions.

In all fairness, the report’s authors would agree that more research is needed. Bickel and Lane stress that they provide only “a preliminary and exploratory assessment of the potential benefits and costs of climate engineering”.