Small Thinking Sinks Immigration Reform Bill

An editorial appearing on the LA Times sums up the regretable fact that the US Senates' Immigration Reform Bill has failed. With all the intransigence from both parties, I am sure that this grand failure has happened in spite of the best efforts from president Bush. As the editorial states, the main points of contention are the proposals to grants amnesty to illegal immigrants on the one side and the effects of immigrants on the wages of US citizens on the other. Without doubt, these are matters that concern a number of senators.

The sorry thing about the claims is that this grand failure resolves neither of them and the failure to take the bill forward through compromise is a classic illustration of posturing. Even if the number of illegal immigrants is a mere fraction of the 12 million estimate, it is highly unlikely that all can be effectively identified, rounded up and effective deportation orders achieved against them. Thinking of the costs to tax payers and the expended time of law enforcement officers, this is obviously not wise use of US tax payers money. As for the second concern that immigrant labor depresses the wages of low income earners, a myriad of studies have shown that the overall effect is not only positive in the medium term, but further that the effect is often temporary and of a low intensity.

What this failure to think broadly should portend for most of the senators is that this issue will have to be brought back for discussion at a later date. Immigration reform ought to be viewed more realistically and should not be an excuse for job losses that will occur anyway (to the Democrats). As for the other argument about the need to flex muscles about to express displeasure at illegal immigration and illegal extension of stay in the US; it may help to consider thinking of that fact as a sunk cost and not worthy of disproportionate expenditure in the quest for a reversal.

Fight the Taliban, not the Poppy Farmers

One of the most puzzling matters for this blogger relates to the outright refusal by governments to learn the costly mistakes that have been made in drug control policies. This article, by Richard Norton-Taylor in the Guardian shows that in spite of the escalated efforts to eradicate the growth of opium poppy, Afghanistan will have a record harvest in this year. As the story acknowledges, farmers in Afghanistan now account for 92% of global illicit production of that crop and the record harvest represents a 49% growth over the preceding year.

This blogger finds it quite curious that the military objectives of defeating the Taliban and affiliated terrorists is being tied to the fight for the eradication of the opium poppy from Afghanistan. To my mind, the rationale for the consolidation of drug policy and security policy is quite wrong-headed and results in an unfair use of a capable military outfit. In the interest of the larger security goals, the separation of the drug control policy and the security policy will ensure that the British forces are deployed more meaningfully in Helmand Province and the rest of that country. Otherwise, the evidence suggests that the loss to the Taliban will eventually follow the increasingly apparent failure in controlling the opium crop.

Just before any further resources are dedicated to the war on Opium poppy in Afghanistan, it may help to be acquainted with this paper: The Economic Theory of Illegal Goods: The Case of Drugs.

Fight the war that you can win. In other words, fight and beat the Taliban. That is the legitimate military target. This law and order approach is not the most beneficial way of facing the cultivation of opium poppy.

A Book on the Chicago School

The University of Chicago's record regarding the number of its students, professors and other associates that have made a contribution to the discipline of economics is altogether enviable. In this book review, the Economist Magazine dissects Johan Van Overtveldt's book, The Chicago School. It mentions the understandable and largely plausible reasons for the rise of this school situated in Hyde Park. The most interesting revelation in the review relates to the peculiar geographical location of the University which the author credits with having left professors and students with no option but to debate issues incessantly. That is an ingenious way of converting the disadvantage of being locked between Lake Michigan on one side and a deprived district on the other. That response is in itself evidence of the keen minds that were resident at the school.

I surmise from the review that the book does not gloss over the fact that Chicago economics, however influential is not without equally erudite dissenters. Indeed, certain professors in the school are leading critics of some of its tenets such as the efficient-markets hypothesis. this blogger will post a full review after reading the text in full.

Are These House Representatives Bullies?

This article in Forbes.com reports that the Financial Services Committee of the House representatives has summoned the five commissioners in the commissioners serving in the Securities and Exchange Commission for a hearing. the real agenda of the meeting is unclear as it is characterized as an oversight hearing. The representatives appear to be concerned about the profitable operations of Hedge Funds, concerns about Chinese acquisition of publicly quoted firms and the problem with sub-prime mortgages.

This blogger thinks that most hedge funds are run by such sophisticated instruments that the house representatives here are unlikely to make much sense of their operations through these hearings. The ostensible concern about the risks that arise from investment of pension funds into hedge funds could be regulated by the establishment of investment limits or fuller disclosure. bullying SEC commissioners is unlikely to cover whatever risks may arise from highly geared hedge funds and neither is the resort to higher taxes justifiable.

To their credit, it may well be that the legislators are intent on protecting individual investors but that is no reason to seek to punish successful enterprises merely because their business models are not comprehensible to a majority. successful enterprises are built on that fact; accomplishing tasks that other cannot and ensuring that they do not catch up. As for the real risks that a number of hedge funds would fail,I am certain that this law and order approach is less likely to reduce those risks one bit. Let hedge fund managers and investors be.

Judge Determines Ridiculous Suit

Henry Cauvin of the Washington Post reports on the decision about the ridiculous suit yesterday with a fairly predictable outcome. Having posted about the case here a while ago, the gratifying part for a dispassionate blogger is that the plaintiff's demand for US$ 54 million was not only outrightly dismissed but that the hearing judge determined that the plaintiff was entitled to zero dollars. Noting that the plaintiff retains the option of an appeal, I hope that it all comes to an end here. Let the judge get back to his work.

Can Toyota's Model Fix the Health Care Industry?

An earlier blog post concentrated on the reasons why it is increasingly difficult to provide adequate health care under a universal care approach. One of the reasons that was alluded to is that there are a large number of technological developments or surgical techniques whose costs are high but for which alternatives may be available. However, surgeons and the hospitals have understandable incentives to recommend the most expensive one because the profits that are generated from them are high. On the other hand, patients are more likely to insist on receiving the most sophisticated and costly procedures especially when another person is making meeting the financial costs. What results is an oversupply of medical care at the most expensive side of the spectrum.

Thus an attempt to institute a publicly funded health care insurance program would be faced with ever increasing costs and ultimate bankruptcy. A clever idea that has been introduced is the creation of an autonomous institution to determine the relative merits of new treatment procedures relative to the costs.

Writing on the Washington Post's Think TankTown page, Tom Emswiler reiterates the problems with health care provision and looking at the manufacturing methods successfully deployed by the Toyota Motor Corporation. Among these is the principle of adopting only reliable and fully tested technology which provides further justification for establishing the comparative effectiveness institute.

The requirement for this institute is undeniable but this blogger is cautious about the tendency to elevate every corporation and adopt its internally developed logic more widely. In essence, Toyota Motor Corporation is hugely successful but that is no reason to presume that wholesale adoption of its principles would engender similar success elsewhere.

Ridiculous Suit About a Suit

The conventional wisdom regarding vexatious litigation is that clients often resort to suing needlessly or perhaps making outrageous demands that foreclose the possibility of commercial settlement. This blogger has stated in an earlier post about the rising tendency for residents of the UK to become "litigation junkies" more recently.

I have had to rethink the view that most vexatious litigants are not only ignorant of the law but are often driven by the need to be vindictive. The New York Times reports this story about Roy L. Pearson junior who has sued a couple running a dry cleaning service for purportedly misplacing a pair of pants. The ridiculous part of the suit is not only that the costs of the suit have gone above the replacement costs of the pant, but that the plaintiff initially filed for US$ 67.3 million.

As the piece reports, the plaintiff is a judge and has been a legal aid lawyer. Absent a new revelation to this case, I am led to ask whether this is a really judicious judge as he declined to accept settlement for US$ 12,000 offered in March this year. Granted that the plaintiff later adjusted his claim to US$ 54 million, I think that the substance of this case is such that it is a mockery of the judicial process perpetrated by an officer of that court. Get a fresh pair of pants your honor and get back to work.

Double IP Protection for Software

Timothy Lee argues in this OP-ED piece in the New York Times that patent applications for software have gone too far. The thrust of the argument appears to me to be that patents are now being sought by software firms merely to use in strategic ways to extract rents from users and restrict competing firms from innovations.

It is not too difficult to see why corporations resort to patent applications for software when similar legal protections would inhere from copyright protection which is automatically available. This is pure strategic behavior calculated to raise the costs of any challenge to that patent. As this blogger has maintained, the proper welfare effects of stringent IP protection is increasingly becoming questionable because patent protection has gone too far generally and especially in regard to software. That this stringent protection is absolutely necessary for further innovations is a patent lie. Bill Gates used to know this.

Is Universal Health Insurance Affordable?

Judging from the commentaries, this blogger gets the very distinct impression that campaigns for the US presidential elections next year and the Democratic Party's candidate will need to say a lot of really sensible things about the possibility of universal health care. A highly impressive article by David Leonhardt of the New York Times assesses the conventional wisdom and debates regarding universal health insurance and finds that it is informed by the wrong assumptions.

It is clear that the proposals by Sentors Obama and Edwards respectively highlight the fact that universal coverage, while popular, is not the solution because part of the problem is caused by medical professionals pushing expensive medical procedures whose benefits are far from proven. It is clear then that the Edwards proposal would cover everyone but the costs would be unmanageable and wasteful while the Obama proposal that is concerned with efficiency probably will not ensure the coverage of the last person in the US.

Adding these clear contradictions to the fact that health economists cited in the piece are certain that health costs are growing faster than real incomes, one concludes that no easy solutions are at hand. So as all these candidates consider their proposals, the unpalatable fact may be that absolute universal health coverage may not be affordable. David Leonhardt makes it clear that a purely ideological orientation will lose to dispassionate analysis. It is beginning to look as if absolutely universal health insurance is even too costly for the most productive economy in the world. The politics of it is easier than the the economics of it. I figure that at one point, the discussion will have to get to what can be made really universal.

No More Internet Cafes in China

Most people take it entirely for granted that China's impressive growth and export success implies that its bureaucrats and public sector workers are very savvy. While the GDP growth, exports and poverty reduction data is certainly impressive, I sometimes think that in some respects, this government tries to be too clever and turns out to be clever by half.

This story in the Business Week reports that the government of China has ceased issuance of licenses for new internet cafes and that its inspectors will investigate whether existing license holders are renting out their licenses or failing to register the identities of users. One wonders how a nation that has achieved unprecedented feats in economic development can have such small thinkers for bureaucrats.

This is completely wrong-headed policy that leads one to question what the magical number of Internet cafes ought to be. Cant most bureaucrats find better things to regulate?