Wednesday, October 31, 2007


We’ve often heard the statement ‘good enough for government work’ or have heard the criticism that government workers are incompetent. The truth is, many government employees are highly trained and competent professionals. Unfortunately they don’t always have the correct information or the incentive to act on that information to achieve results. When they do take action, it may not be an action that uses resources in the most effective manner. In this situation, limited resources become more limiting. Government institutions and bureaucracies often generate bad information and terrible incentives.

With markets, partial bits of decentralized information that are possessed by multitudes are coordinated to produce results. Prices provide information and incentives to act on that information. As explained in the article on Public Choice theory, government decision makers have less incentive to take appropriate actions.

Instead of relying on information in prices, which reflect the tradeoffs made by millions of individuals making decisions based on their own well being and first hand information, the involvement of government shrinks the pool of knowledge to just a few ‘experts’ with limited information.

This is the great ‘knowledge problem’ that government decision makers face. It is the reasoning that economists such as F.A. Hayek give for the collapse of the Soviet Union, and why so many free market economists are critical of expanding the role of government.

The Use of Knowledge in Society
F.A. Hayek
The American Economic Review Vol 35 No 4 (Sept 1945) p. 519-530

Tuesday, October 23, 2007


In a previous post ‘OUR COMMONS, OUR CHOICE’, I cited the analysis of the economist Ronald Coase. The discussion was related to environmental pollution.

Traditionally when it comes to enviromental pollution, the general philosophy was that ‘the polluter pays’. A factory polluting the air or water should pay for the damages that are caused. In a much simpler case, if you build a house next to me and you don’t like the smell of livestock waste coming from my property, the traditional philosphy would hold that you could have the government stop my operation.

The insight that Coase brought was 1) yes it is true that my operation is harming you via air pollution. 2) however, in stopping me via government or legal intervention ( or taxing my waste production) you are harming me.

Coase says that the issue is that nonone owns the air that sourrounds my livestock operation and your home. There then follows a dispute over how the air should be used- to absorb livestock odor, or to provide a scent free atmosphere in your back yard. Whenever the cost of one’s behavior is not factored into a price at which a choice can be valued, I can harm you without compensating you for it. ( i.e. an externality exists)

However, if I own rights to the air, then I can choose to pollute the air. If you own rights to the air, then you can prevent me from polluting it. If noone owns the air, then it is first come first served or winner takes all.

That is not the end of the story though. What Coase emphasizes is that if I own the rights to pollute, you can pay me to limit my pollution i.e. buy those rights from me. I can then use the proceeds to alter my livestock nutrition, genetics, and management to reduce the odor my operation is causing. On the other hand, if you own the rights to pollute I can purchase those rights from you, or invest in technology that will allow me to continue my operation without violating your rights. I will do which ever is most optimal. This can be accomplished without major goevernemnt regulation, or the arbitrary imposition of a tax.

The assignment of property rights and the potential for bargaining results in behavior that is changed or altered to account for the negative impact our choices have on others. This is the essence of what is known as the ‘Coase Theorem”

Thursday, October 18, 2007



In the last entry on voting paradoxes, I mentioned that things are different if preferences are single peaked. Let’s look at another scenario.

voter X: A B C

voter Y : C A B

voter Z : C B A

In this case, no matter what order is undertaken, C always ends up being the law that is enacted. These preferences are single peaked. ( if you graph them, you will find that for each individual they will have a top choice ( a peak point), and as you move further away from that choice ( in the A-B-C spectrum) they prefer the other choices less and less. In the previous example, voter Y did not have single peaked preferences and that is what caused the cycling or order dependent outcomes.

With single peaked preferences there is a new problem. With single peaked preferences, the median point of the preference distribution will elicit the most votes. Only those laws or candidates with a centrist twist will get the majority of the votes. Only those voters with centrist views will be happy, and it makes it very difficult for candidates to be elected if they want to bring about major reforms. This phenomenon is referred to as the ‘median voter theorem.’

Friday, October 12, 2007


I've linked to this before , but there are so many things that it highlights, that I think this deserves another post.


1. If you worry about food safety you should know that GM foods are as safe as other foods and that GM crops are grown with fewer pesticide applications than traditional crops.

2. If you treasure butterflies you need to know that pesticides used in conventional farming are far worse than GM crops for butterflies.

3. If you have allergies you need to know that GM technology can eliminate food allergens and that all GM crops are extensively tested to make sure that no new allergens are introduced. In addition,GM crops are being created in which the major allergens have been eliminated.

4. If you are worried about cancer you should take note of the fact that 99.99 percent of the carcinogens in your food supply are natural chemicals that humans have been eating for thousands of years. However, GM technology provides the means of increasing levels of phytoestrogens, isoflavones,carotenoids, and other antioxidants known to prevent cancer.

5. If you are a woman and worried about getting sufficient iron you should know that genetic modification can increase the iron content of cereals and has eliminated chemicals (phytic acid) that prevent iron absorption.

6. If you have doubts about the government’s approval of GM crops you need to know that extensive testing and a long approval process accompany every GM crop introduction. In the United States, three agencies regulate these crops.

7. If you care about the environment you may want to know that GM foods can make a significant contribution to alleviating the negative impact that agriculture has on our environment.

Thursday, October 04, 2007

Clean Water Authority Restoration Act

The Clean Water Authority Restoration Act ( House Bill H.R.2421 S.1870) attempts to remove the requirement that bodies of water be ‘navigable’ to be federally regulated. Unfortunately, many don’t think critically about environmental problems. As economist F.A. Hayek has pointed out to us, the requisite knowledge for solving many of our problems seldom presents itself in complete integrated form. Instead, it is dispersed among multitudes of individuals and circumstances.

Technology has allowed for many environmental problems in Agriculture to be internalized. The use of global positioning systems and biotechnology are examples of how markets have utilized the dispersed knowledge of individuals acting in their own interest to help mitigate environmental problems.

Family farms make up 98% of all farms, and small farms account for 70% of farm real estate. These operations will be affected most by this legislation. They currently manage the resources that would fall under the jurisdiction of the Clean Water Act should the CWARA pass. These producers have specialized knowledge with regards to producing food in an environmentally sustainable manner. If the CWARA is passed, it could substitute the limited knowledge of a few experts for the well-coordinated knowledge and experience of multitudes of farmers. Is there any reason for us to believe that this would necessarily be better for the environment?

Tuesday, October 02, 2007


The Jawa Report, August 29, 2007

"Recently, it was reported that the Agriculture and Cooperatives Ministry was going to seek cabinet approval for a lifting of the ban on open-field trials of transgenic crops. Assuredly, Greenpeace was not amused and reacted by dumping tons of papayas at the entrance to the ministry.”

This reminds me of the following quote:

"...a band of scientific illiterates who use Gestapo tactics..."
- Greenpeace Co-Founder, Patric Moore, describing his former organization.

The funny thing is, the local people were very excited to get ‘free’ GM papayas and took care of the clean up.