Dentists Protecting Turf

It has been argued in an earlier post here that in spite of the failure to ensure coverage for US citizens, the American Dental Association was fundamentally opposed to any initiatives to allow dental therapists without full training to provide routine care. according to this NYT report, it appears that they are losing the argument because Alaska has allowed a number of professionals with capability to provide routine dental care to consult with patients.

As would be expected, the ADA continues to argue against through scare tactics involving allusion to uncontrolled bleeding. While I note that proper care is required, maintain that it is indefensible that a child with cavities has to wait for four years to receive dental care from the therapists whose skills the members of the ADA so disparage. Given the high income that some dentists have and their ability to restrict supply by keeping working for fewer hours, it is clear that the therapists are infusing competition while serving people without access. For as long as the population grows much faster than the ADA will allow training, the therapists must continue to provide basic dental care in the rest of the US too. There's no reason why the dental care should not operate as a market.

Allocating Seats at the British Library

An interesting story by Sarah Lyall appearing in the NYT discusses the predictable response that followed the relaxation of the admissions policy into the British Museum's library section. It appears that following the expansion and relocation of the facility, the number of readers exploded and this has let in a number of students who are not as studious as the traditional and older readers.

To my mind, this relaxation of policy should have been predictable because it is the direct price cut for entry into the library. Any facility with a seating capacity of 1480 against an active membership of 127,000 should understand this as a pricing problem. the demand for seats is much higher than the supply and therein lies the possibility of useful trades through appropriate pricing of the seats.The older and more studious users of the library ought to pay for the privilege of keeping the flirtatious students from the facility.

One of the brilliant economists from London should help to sort this out and prevent the library from this severe rationing. It may even get the less serious undergraduate students realize that answering calls in the reading rooms is an inefficient way to spend money spent to secure seats. From the chief librarian's perspective, this should be a nice problem to have as it is evdience of the value of those spaces.

Buffet Completes a Sweet Merger

Mars is most known to many people as a very good brand of candy but it has just made an equally sweet move by buying up the chewing gum corporation Wrigleys. The Guardian traces the details of the merger and supplements with the fascinating background about the serendipity of the finding by the founders of the acquired firm that selling chewing gum was superior to the soap and baking soda. No surprise though that Warren Buffet of Berkshire Hathaway was involved in the deal and it is to his credit that he is commended by Wrigley's owners as the guy whose cheque was considered truly good.

I am however surprised that the deal cost $ 23 billion at the total cost of the deal. However, while I am a cautious observer large business mergers, I think that this one stands a high chance of being all sweet and chewy for the shareholders.As warren Buffet states, the balance sheet of the acquired firm is far more straightforward and easier to understand than that of many an investment bank. That says a lot and confirms Warren Buffet's keen eye for good businesses.

GDP and Immigration

I am often confounded by the tendency to take GDP figures so seriously especially when the resulting figure is the result of very broad aggregates and subject to large errors in calculation. Tim Harford's piece in Slate Magazine reviews a paper that proposes a fascinating approach to GDP. Its implications and conclusions are surprising as well. By showing that emigration from poorer countries raises annual incomes of individuals by as much as 50%, it should provide a sobering fact to those promoting anti-immigration policies. Just ask what it takes to stop a person from raising annual income by that much.

To my mind, it shows that the pay off from relocation is so high that when legal mechanisms are closed off, then people will understandably make desperate moves like using a rickety raft to cross seas or fill up a truck at the risk of suffocation.very strict laws meant to keep immigrants away work to the advantage of smugglers.

Food Crisis: Old Ideas Still Valid

Continuing the discussion about the causes of the food crisis and what the appropriate role of governments should be requires some reference to this dated but largely sound piece at the Foundation for Economic Education. E.C. Pasour argues argues cogently against the fallacy of that "Malthusian Spectre" and the danger that governments may react by restricting trade in food through price controls and control on land sizes.

Since it is three decades since this article was written, one would hope that the lessons have been learned. My worry though is that the worst ideas come to the fore at such times because of the inescapable panic that result from an increase in food prices. No need to preempt the piece but it makes the clear argument that reduction in the property rights of producers of food through uninformed state intervention causes a reduction in supply. Adding the point stated by Amartya Sen in the book Poverty and Famines, he reiterates that contrary to popular contention starvation and hunger are not necessarily the results of a reduction in supply of food but often the inability to purchase adequate food supplies. essentially therefore, hunger is best viewed as a problem of income.

Any Gains from The Food Crisis

Many commentaries state that there's a food crisis out there but I am cautious about the use of the word crisis because of very liberal use for everything today. Prices of cereals have risen rapidly in the last year and this has led to panic. As with the prices of crude petroleum, many forget to make comparisons based on real as opposed to nominal figures and thereby fail to account for inflation.

In my reading, I found that this piece by Paul Krugman explains clearly what are the causes while another NYT piece by Keith Bradsher here shows how farmers in Australia are responding to severe drought in many ways, including the substitution of grapes for rice as the former requires less water and has a higher margin for volume.

Let the Middle Class Grow

Foreign Policy Magazine is known for very pithy and well-argued pieces covering international affairs. In the current issue, its Editor in Chief, Moises Naim argues with himself by asking the question about whether the world can afford a mass middle class. With the benefit of hindsight and looking at the questions being asked about human contribution to resource depletion and global warming, to question whether human progress is sustainable in the future is not altogether surprising.

Having to contend with the fast growth rates of both India and China and the implications for consumption should they build decent sizes of a middle class is something that may cause worry to a large number of people. In my view though, to question the viability of an expanded global middle class points me to Malthusian theories and the assumption that physical resources are fixed in quantity. This assumption is incomplete because it fails to reckon with the fact the limits on physical resources do not apply to human ingenuity and technology. Naim hedges by stating that Malthusian theories have been proven incorrect in the past and thereby implies that the 21st Century society should not count on as much luck.

Looking at the dreadful history of human development and the squalor that was common to humanity until three centuries ago, I am convinced that the world can afford that middle class. Among the attributes of middle class living is that income expansion allows for a proportionately smaller part of income to be used in procuring food. So notwithstanding the rise in prices of commodities, it is precisely because of the growth of such incomes and an expanded middle class that the citizens of India and China will do well. It is also significant that increased demand will lead inevitably to increased supply with the effect that those prices will be substantially moderated. For these obvious reason, I would not be worried about the creation of a real middle class as they will be able to care for themselves and pay for the risks of their age.

Global Warming as a Precursor for Crimes

Most commentaries on global warming concentrate almost exclusively on its possible effects on the proliferation of disease, droughts and rising sea levels. Nicholas Kristof writes this fine piece for the NYT and highlights the unforeseen consequences of drastic climate change. Drawing from separate studies by Edward Miguel and Emily Oster, he posits that vulnerable women in most low-income societies may suffer from violence and homicide.

These studies show that people with low political power who also suffer from discrimination are even more vulnerable in predominantly agricultural societies.The studies are interesting because they suggest a common cause for the witchcraft trials in Western Europe and the execution of elderly women in Tanzania more recently. To my mind, the principles that are applicable show that in periods of scarcity, elimination becomes more attractive and the lack of stable institutions exposes the politically weak to such elimination. Lynchings witnessed three centuries apart had a very subtle but real economic motivation.

Limits of Micro-Loans

The dilemma of most low-income countries is that a majority of the citizenry often have no employment or regular incomes. The Grameen Foundation based in Bangladesh and the micro-finance movement has had deservedly high acclaim following the award of the Nobel Peace Prize to its founder, Mohammed Yunus. A cursory view of its website and records show that the institution has provided lots of small loans to a lot of people in Bangladesh while its equivalents are intensifying their efforts all over the globe.

This naturally leads to the issue that James Surowiecki addresses intelligently in the New Yorker. His article questions the degree to which the faith in micro-finance and micro-loans is justified especially regarding its ability to effectively tackle mass poverty. Among the difficulties are that the borrowed sums are often too small to facilitate meaningful business expansion in addition to the tendency for the sums to used to respond to emergencies. His clear answer is that the character of the manner in which the loans are provided and managed naturally limits the amount of income growth that comes from them. Citing an article by Karol Boudreaux and Tyler Cowen which appeared in the Wilson Quarterly.

In sum, micro-finance and micro-loans is an extremely useful factor but what most indigent people require is employment. Provision of employment should be the central concern of the governments of most low-income countries. Entrepreneurship is glorious but highly successful firms are most efficient creators of employment than are small enterprises.

From Supercrunchers to Disaster Algorithms

Decision making by numbers is gaining respect for accuracy and overall utility as Ian Ayres argues convincingly in Supercrunchers. In spite of the harsh commentary by a number of reviewers on Amazon, I insist that the subject of the book demonstrates the power and limitations of techniques for quantifying phenomena and using those results for public policy or business strategy. My rating of the book would award a 4 star for demonstrating the diverse ways in which regression analysis and randomized testing could be applied meaningfully.

IBM has constructed a model that is intended to guide in the management of disasters and their mitigation. I am unable to make much of its real capability from the description here but still consider that if it is deployed primarily in assisting with decisions on the responses that work in managing the crisis, then it is likely to be a very useful model.

However, it is also described as an instrument for automating complex risk decisions and begins to sound as if it is a glorified model that financial houses use in predicting what next year's bond prices will be. My reluctance is driven by the fact that the complexity of the mathematics used in the model is not necessarily correlated to the overall accuracy of the model. To what extent is th e construction of this algorithm different in approach to those that many hedge funds used to diminish risk. As an earlier post on hedge funds reported, John Kay thinks that a model is just as weak as the assumptions built into it in addition to the inherent weakness of the model itself.

Abusing Evolution to Explain Economic Behavior

As a student of economics, I have had no problem in admitting the necessary principal theories in explaining a number of phenomena at hand. Indeed, the rise of behavioural economics on the one side and the fact that data is often unavailable in sufficient amount and of high quality to test general assumptions is a fact that a good number of professional economists would concede. Despite this necessary concession, I remain skeptical of the tendency to ascribe to evolutionary theory certain aspects of human economic and social behavior.

In this thoroughly enjoyable piece in Slate magazine, Tim Harford asks why there is a strong human tendency to resist price rises even when the fundamentals of supply and demand would make that price hike quite rational behavior. He cites the fact that manufacturers are loathe to raise prices for items such as PlayStations and X-box 360s in spite of the fact that such pricing action would equalize demand and supply and increase profits. I am fully agreed with him until he resorts to using purported behavioral instincts emerging from early evolution of the human species.

That evolution has real scientific backing cannot be gainsaid but I think that the evidence that it came with pre-programmed behaviour is not supported by science today. As Tim Harford clearly writes, the clever theories given for the existence of this odd behavior is unconvincing. This blogger finds the evolutionary explanation unconvincing too. Biology is a powerful instrument for explaining human behavior but that is no reason to use intuition to attempt explanations for economic behaviour.

Take Some Investments Away from Real Property

For many astute observers of world financial markets, it is clear that this is almost certain to be a very difficult and humbling year. For that reason, the housing crisis that has precipitated this series of financial crises has almost been written about to the extent that it is difficult to say anything new about it. What I suspect is less clear to students of economics is why all this started with housing. Especially since the conventional wisdom is that owning a home is one of the safest ways to invest one's money.

Writing in the regular NYT column, David Leonhardt writes about how US citizens came to be overinvested in real property and housing. Understandably, it all goes to the question of incentives generally and those that deal with the relative advantages -provided by public policy to housing and mortgages. Not only is a higher proportion of taxes deductible for real property but the nominal figure is also high. Considering the first principles that would suggest that people would respond to the incentives, it is altogether understandable that investments would not only be moved into property but they would be kept there in the belief that they would never lose value.

Before there were greedy corporations pushing mortages that were unaffordable for some together with a variety of creative financial instruments, the tax code was already tilted towards house ownership. What is unclear is whether the conventional wisdom has been exploded.

Should WIPO be Concerned With Cyber Squatters?

A number of posts on this blog have been dedicated to commenting about the difficulty in calibrating the degree of protection for IP rights holders. Whereas I am completely in agreement that a measure of rights is required to spur innovation, I am less sympathetic to the absurd claims that more stringent Intellectual Property rights should be bestowed upon corporations because innovation would otherwise come to a complete halt.

This document on WIPO's site, states that the WIPO has reported that the phenomenon of cyber squatting is increasing. To my mind, cyber names are numerous and the DNS system should be less concerned with a dispute between individuals on cyber names. It is quite unlikely that an individual that takes up a popular name would be able to use the same to market competing products for long before the customers of the genuine corporation are alert to the fact. For that reason, I am at a loss that WIPO even considers the phenomenon of cyber squatting as worthy of this much attention.

Carrying out a successful business on the Internet is a desire of many but one that only a handful of businesses will be capable of. Against that background, I ask why WIPO even considers cyber squatting a sufficiently serious vice to deter through arbitration. There are good number of firms that are less worried appropriations of names by cyber squatters primarily because most of the individuals doing this are unable to make much use of recognized brand names. I am inclined to think that save for a few cases, cyber squatting is just not very profitable and corporations should not negotiate with cyber squatters.