Monday, June 27, 2011

Flying cars would solve a few problems.

My reason for being a strong proponent of public transport is two fold:
- Environmental damage and resource consumption - ie carbon emissions and the economic threat of peak oil. Using a car seems to be an extravagent use of a precious resource.
- Congestion - even if cars were using a renewable clean energy - you would still have a problem of traffic congestion - this wastes everyone's time. We would be a more productive society without it.

If we invented flying cars, and a clean renewable energy to power them, this would solve both these problems. Unlike in movies like the Fifth Element, there would be no intersections with flying cars; at the points where there usually would be intersections, the cars could just fly around each other (similar to how highway clovers don't intersect).

There is still an issue with resources I guess, if given we have the energy to run a flying car for everyone, we would still need the materials. But this seems like a problem that would easily be solved by free market allocation.

Sunday, June 26, 2011

My model for drug regulation.

Drug Policy
From an economics point of view, I don't really want to be commenting on what society's attitude toward drugs should be. However I think in the context of this discussion it is useful to have a minimal type of approach. So: drug use should not be encouraged. For this reason, drug advertising should be illegal (alcohol advertising should be made illegal). We assume that people are rational actors and make their own mind about what value their is to take from using drugs. Education should be given to so that they can make decisions based on all information available. The real grey area here, is whether drug use should be condoned or seen as a legitimate social activity - I'm talking mainly about drinking and smoking cannabis here. I guess why could try say, from a government point of view 'that's not our business - that's up to the people to decide'. The practical issue here is, do we allow bars and smoking cafes?

Legalize all drugs and legislate such that people need to earn a 'drug using license' before they can buy drugs.
They need to earn their license for each drug they wish to take, including alcohol and cigarettes and possibly even caffeine. In practical terms the licenses would be on a single ID card, which displays which licenses they have acquired, similar to how a NZ drivers license lists which various license types you have (full car, heavy traffic, motorcycle etc...).

The license test would require demonstrating that the user is aware of the effects and consequences of use of that particular drug, and that they know how to use the drug 'responsibly' as determined by the government drug regulation authority. We would require that this authority actually does some good research in to determining genuine effects of drugs and their responsible use.
For the harder drugs like heroin and methamphetimine, it's more a matter of 'damage control'. Ideally the licenses might only be given to people who are already addicts. The test could involve seeing a doctor, who might refuse a license to someone who is wanting to try heroin for a bad reason (ie if they were just feeling depressed at the time).

Good things to test:
- Appropriate dosage
- Addiction potential. (Ask how they plan to deal with it, see if they give a mature response).
- Appropriate activities/contexts for drug use (ie for party drugs: raves good, crowded malls probably not so).
- Physiological effects.

Drugs like alcohol, cannabis and cigarettes could be sold as alcohol currently is, at regulated licensed premises. The drug ID cards could include a scanner strip of some sort to quickly authenticate that person is allowed to buy the drugs.
Drugs like LSD, ecstasy and other 'party' drugs should be sold at pharmacies or specific 'party pill stores', which could specialize in giving advice and selling associated equipment.
Hard drugs like methamphetamine and heroin should be sold at pharmacies only.

The value of this system.
- Standard argument: massive savings on enforcing prohibition; ability to collect tax revenue.
- It's a robust way to educate.
- Can use taxes to consumption levels. Double bonus of reducing consumption from it's natural level, and increasing government coffers.
- Can collect information about drug use. Makes for good research.
- Can keep an eye on 'problem' drug users - ie with methamphetimine and they might be inclined to wig out and become dangerous the police can be prepared.
- A chance to intervene (doctor example above).

Thursday, November 4, 2010

Can we really call the environment a public good?

Public goods are defined as good which are non-rival (consuming them doesn't deplete other's ability to consume) and non-excludible (it is not viable to prevent access to this good).

I question whether a good such as the climate, or the air is really non-rival.

Consider air - we can see it having more than 2 uses. One people use to breath, or we can use it to dispose of pollution. Consuming air for breath doesn't change a factories ability to pollute, but a factories pollution does have the cost of air quality for people's breathing.

Friday, October 22, 2010

Just a quick thought:

The main driving force behind capitalism is that competition leads to efficiency yes? (There is also respect to principles such as freedom, independence etc, but anyway).

Essentially this means that it is required that there are atleast two suppliers in each market - in any monopoly it all breaks down - as is the case with natural monopolies (infrastructure - such as power lines, roading, water supply), where we use some form of government intervention.

This seems all very well, as most industries do have more than one supplier. eg most towns have more than one supermarket, more than one cafe, there's more than one auto factory etc

However - it maybe that this need to have more than one supplier has an opportunity cost of otherwise reaped scales of economies. ie. if the multiple suppliers were consolidated, there could be scales of economies to be reaped. If you think you have say 3 cafes, each able to supply 100 people, and each hiring 5 staff, if you consolidated them, you would probably cut down total staff. (of course it's nice for consumers to have choice etc, but this is purely on a economic/financial level).

Tuesday, August 3, 2010

Valuing the social/environmental impact of a project.

In environmental economics, when we do a cost benefit analysis of a proposed project we are typically valuing net economic or financial benefits vs environmental and social costs.

Let's take a fairly typical example - the construction of a Dam, Jonathan Harris frames the issue like this: "The project will have major economic benefits: hydro electric power, a stable water supply for irrigation, and flood control. It will also have negative effects: Farmland and wilflife habitat will be flooded, communites will ahve to relocate, and certain fish species may become extinct. The project may create new recreational opportunities for lake boating and fishing, but it will reduce scenic white water rating and hiking. ... Some costs and benefits are relatively easy to assess. ... But how can we put a dollar value on the social and ecological lossses that will result?".*

And so we do go on to try monetize the value of environmental damages - using various methods, such as people's willingness to pay to preserve, people's willingness to accept payment for damage, valuing equivelent substitutes for that environmental asset, or examining the value of other goods in relation to the environmental asset (Hedonic pricing - eg looking at the value of houses relative to the proximity of a nature reserve).
Certainly these methods can be usefull to an extent, though it becomes much harder or less reliable for values like 'spiritual value' or asthetics.

I argue, that we need to focus in more depth on the environmental and social benefits of the project. In the example of the dam, just taking the benefit of the additional electricity produced, we shouldn't stop our valuation at the amount of electricity it will produce. We should examine the longer term effects of that as well.

There are two scenarios that would arise from the additional electricity.
-Consumption of electricity remains the same - and less electricity is generated from other sources (eg coal fired plants).
-Consumption of electricity increases, used either in capital or end use consumption, (eg we could run another factory using the additional electricity, or consumers watch more TV, use air conditioning more etc).

This gives us a different method for weighing up the costs vs benefits. We can compare 'Is the flooding/relocation/extinction worth not burning that coal?'. We may be comparing apples and oranges here, and as economists it's nice to be able to put everything into a single perfectly relative $ value, but as we've seen, it's hard to monetize some values. At least this method gives us more perspective.

*Harris, Jonathan M, Environmental and Natural Resource Economics, 2nd ed, 2006, Houghton Mifflin Company

Sunday, August 1, 2010

A thought experiment in capitalism.

Let's start with an even playing field.

Imagine you have two guys, Guy A, and Guy B, they both work the same job at a factory, earning $10,000 a year. After their basic living expenses (food, shelter) they have an disposable income of $1000 a year.

Guy B spends his money on booze. This has the flow on effect that he indirectly partially employs another guy to make the alcohol.
Guy A is disciplined and saves his money. He buys a taxi with his saved money. This has the flow on effect that he indirectly partially employs another guy to build a car.
Guy A (now a capitalist - as he owns some capital - the taxi), continues to work at the factory, but employs someone else to run the taxi.
Effectively here - Guy A and B's choice as to where to spend their money - determines other employment arrangements. Another person in the economy is going to be either a brewer or a car-builder, either going to produce capital or consumer goods - depending on how Guy A and B decide to spend their money. (We're assuming perfectly transmutable skills here).

The town they live in values the taxi service (ie they get more value out of it, than they pay to use it) - and thus the enterprise is a success - and Guy A manages to extract a profit (ie he charges people more than he pays the taxi driver). Guy A's taxi enterprise, on the face of it - seems like a win win situation. Guy A has some more income, and the town have a service that extract value from. Also - growth has occurred - another person has been employed due to Guy A's choice to invest in capital rather than consume.

So let's discuss this state of affairs.
The reason we say that Guy A should keep the additional profit, is not because he deserves it for his discipline (which really delves into moralistic type thinking), but rather we talk in terms of incentives. We allow people to keep the profits of their capitalistic ventures to motivate them to undertake those ventures.

The argument here is - if Guy A wasn't allowed to keep his profit, then he wouldn't bother saving his money, and would join Guy B drinking.
But let's question this - let's say the profit is then equally distributed through out the society. Guy A still receives additional benefit for his saving, both in his share of the profit, and the value of having a taxi service. Is this not incentive enough?

Let's consider how socialists and anarchists would approach this.
Ultimately - under a soviet style socialism - Guy A and Guy B wouldn't have a choice of what they spend their disposable income - (well - their choices would be restricted to a package that the socialist bureaucrat decides they are allowed to spend on).
In the capitalist example - the decision to have a guy working building a car - instead of brewing alcohol comes directly from Guy A's decision to spend his disposable income. Under socialism this would come from bureaucrat decision. Under capitalism - it is incentive that motivates allocation of resources , under socialism it is policy. This has the classic problems of socialism/government ownership - being rife with inefficiencies, vulnerability to corruption, and lack of direct incentive to make an efficient choice.

For anarchists... to me it seems that there is a lack of a model of how things would actually work. But it seems that the guy that can either work as a brewer or a carbuilder, would make the decision himself to build a car instead. Or the town collectively decides they want a taxi and the carbuilder/brewer will fill that demand. But it does leave me wondering what Guy A will do. Bear in mind here, that in order to get the car - consumption of alcohol must be sacrificed - how is Guy A incentivised to sacrifice his consumption? - Under socialism - he simply wouldn't be allocated the alcohol.