Boycott Follow Up

One major area overlooked when I previously wrote about reasons behind the Chinese boycott was their alleged involvement in selling small arms to Sudanese rebel groups. They are linked to supplying these rebel groups with weapons that have been used to massacre and maim hundreds of thousands in the war torn country of Sudan. People were and still are outraged about the prevalence of human rights violations (and the relationship to other such violations) by the Chinese government; but, the tune of many government officials and superstar athletes changed leading up to the Olympics.

Despite the possibility for a platform opposed to China’s treatment of their citizens (most visibly in Tibet) and their alleged supply of weapons to Darfur in exchange for oil many are viewing the Olympics less for social change and more for sport.

Recall that when I last posted, EU Vice President stated that the very least the EU would do was to protest the opening ceremonies. However, when looking for news reports about who boycotted the opening ceremonies the only major world leader absent from the opening ceremonies for the purpose of boycott was the Prime Minister of Poland, Donald Tusk. Something must have happened because Mr. Tusk was not the only world leader talking boycott.

Similarly, an excellent piece was done recently on Outside the Lines piece where Lebron James and Kobe Bryant were questioned about their sudden retreat from a previously position of no-toleration with respect to China’s human rights record. And, the consensus was, “This is sport –not politics.” That sentiment was echoed by the recent release of Boycott: Stolen Dreams of the 1980 Moscow Olympics that profiles 21 athletes that had once-in-a-lifetime dreams slip from their hands because the US government thought a boycott would be effective in our opposition to the crawl of Communism. In hindsight the boycott was not effective. And, the author claims that the people that hurt the most were those athletes not the USSR.

Returning to Mr. Tusk, did his being absent have a significant effect on China’s decisions? (The question of whether a singular Christian’s actions though not effective on earth are celebrated in heaven may be a different story and other perspectives are welcome). Or, was his decision based upon the dissatisfaction with China’s lack of compassion towards its people? Some may even say that he could extend his protest. Poland allows Chinese goods to be imported and consumed by its citizens. Should Poland boycott China, not with their mere absence from the opening ceremonies, but really hit them in the wallet with embargo? That is a decision with broader implications. While the Polish people may say, “That’s okay, Donald can do whatever he wants,” because it does not affect them, in the case of embargo it actually will affect them. (We may want to talk about embargo later, so stay tuned)

The reason this post was such a long time coming is that I could not find any literature regarding boycotts and their historical effectiveness. However, if I am to play armchair historian it seems that the only protests that were impactful were those joined with sacrifice and suffering on the part of the protesters. Even then this conjecture is weak. Consider the Civil Rights Movement and Apartheid where both groups of protesters were subject to brutal police beatings that stirred the fence riders around them and throughout their country. But, the question of whether somebody else opting not to go the Olympic ceremonies has an impact --- the answer seems to be no.

Fourth-Party Payer Problems

Two of the core concepts in analyzing health insurance reform are 1 ) the so-called "third payer" problem and 2 ) the historical accident in the United States which has tended to tie group health insurance to the employment relationship. Each of these factors has its own attendant distortions. What I want to argue here is that they interact in a particularly perverse fashion.

The "third payer" problem is not unique to health insurance. It occurs with other kinds of insurance, and even other types of economic activity. Consider automobile insurance. If you are rear-ended, suppose the payment for repairs falls to the other person's insurance. What typically occurs in the negotiations over the repairs? Because you are not paying the bill for the repair, you have every incentive to instruct the paint and body shop to provide for essentially a gold-plated repair job, perhaps even beyond what is needed to return your car to its pre-crash condition: brand new own-brand replacement parts, possibly repairing damage or wear that existed before the accident, and so forth. The insurance company which is footing the bill naturally has an incentive to resist at every turn. Anyone who has ever been involved in one of these disputes knows they can be unpleasant. For a more mundane non-insurance example, suppose you told your teenager "I will buy you five new shirts for back-to-school." If nothing else transpires, the person who chooses the clothes is not the person who pays the bill. This "third party payment problem" is endemic in health care, where the people who choose the level of services are typically not the ones who pay the bill.

But this is where the tie to the employer comes in, with what I call the "fourth party payment problem." In the automobile insurance example, the consumer does have some long-run choices to be made. If it is your insurance company that is balking, you can shop around for companies with better reputations. Some even advertise how they help you get what you are entitled to from the other companies. Certainly through advertisements, word of mouth reputations, and well-respected independent ratings sources (such as Consumer Reports) a consumer may obtain information that allows him to exercise competitive pressure before the "third party" problem is an issue. In health care, however, even that minimal level of competitive pressure is distorted because we employees often don't have any choice (or only very limited choices) over our health carriers. Very few employers offer a full "cafeteria" plan of all available health insurers and HMOs, many provide a small set, some simply make a single choice for all employees. And, the criteria that employers use to choose health plans may not be the ones that employees would wish. Taken at the limit, an insurance or HMO plan that held down costs by being aggressive in fighting health-customer wishes might be the one favored by a cost-conscious employer. Many times, employers use their employer contributions to distort the underlying rate structure. How many automobile insurance companies that you know of simply have two rate levels: one for individuals, and one for "family" coverage, where "family coverage" could mean anything from you plus one spouse, or you and one non-spouse partner, or you and one spouse and four teenage drivers? Furthermore, if you don't like those rate classifications, you can always go shop around. That's almost never the case with employee-provided health insurance. With the fourth party payment problem, at best you incur the incredible transactions costs of switching employers, and that supposes that your new employer doesn't alter its plan after one year. Trying to argue with your human resources department that you and your spouse shouldn't pay the same "family" premium as a family of eight is just spitting in the wind. Can you imagine if we paid for restaurant food under this same system? (In Florida, the system is even worse. As an employee of Florida State University, I pay money to Florida State, Florida State has its own rules and bureaucracy and pays money to an independent contractor for the State of Florida, the independent contractor for the State of Florida has its own rules and bureaucracy and then pays the insurance company, which has its own rules and bureaucracy. I effectively have "fifth party" payer problems! I have three different health care ID numbers: one at Florida State, another for the State of Florida, and a third for the insurance company. I can't threaten even to move to a different employer if that other university is also a part of the Florida system. And, when as has happened to me repeatedly, a computer error threatens to cancel my health insurance, I end up with three bureaucracies pointing fingers at one another.)

All of this is a reason that I believe that the most important part of health insurance reform is to pry apart the welding of the employment relationship and the individual's decisions about health insurance coverage. This involves moving the tax deduction for health insurance away from the employer and to return some competitive pressure to the employee.* Employees could buy individual policies, or, for favorable group ratings, continue to associate with the other employees of their current firms. We might see a return to non-employee based group ratings that existed long before our current system. Group ratings could be available for fraternal organizations, affiliation groups (AARP hosts various types of independent insurance plans), churches, trade associations (the American Economics Associational already hosts group rates from outside life insurance companies for its members) and so forth. Something very much like this was the model for many years for membership in credit unions. With this reform, I believe that a major anxiety about health insurance ("If I lose my job, I lose my employer-provided health benefits") would be significantly attenuated.

Please do not misunderstand me. Moving health care choices to individuals and away from employers is not a win-win situation. Employee-provided health care insurance packages have served as a social vehicle to force comprehensive ratings pools that avoid, to a large but not complete degree, the problem of "individual rating." In car insurance, we tend to accept individual rating. Young male drivers with a lot of speeding tickets tend to pay much higher premiums, and sometimes getting any insurance may be a problem. I believe that we accept this because many of the rate disparities are tied either directly to individual behavior (lots of crashes and tickets) or indirectly to unseen attributes that have obvious basis in statistical reality. Every parent may believe that their 16 year old son drives more safely than 95 percent of the 16 year old girls they see around town, but the aggregate statistics are pretty compelling. With health care, if we re-boot the system to tie health insurer choice to individuals, what do we do with the people who already have cancer, heart disease, MS, Cystic Fibrosis, and so forth? How do we handle the incredible advances for genetic screening, even probabilistic genetic screening? This is the Achilee's Heel of such a switchover, and I will consider some possible solutions in a later post.

*Because about half of all American pay very little in income tax, we might have to move to a refundable tax credit system.

When Is A Market Not a Market?

I've been hearing and seeing a lot about markets recently. People wonder if I am a "free market" economist, whatever that is. And there's been a lot of discussion about the "subprime mortgage market" and whether that debacle indicates some kind of boundary of the usefulness of markets. This is going to be the first of a couple of posts on this general topic, and I want to start by teasing apart the not-so-obvious question "What is a market?"

In particular, I think it is necessary to distinguish between the concepts of voluntary action and markets. For one thing, both "liberals" and "conservatives" sometimes launch a government vs. markets debate that can be both incomplete and inaccurate. In the 1960s, Richard Cornuelle popularized the term the "independent sector" in his book Reclaiming the American Dream. The important point he made was that a lot goes on in American society that is not summed up by an artificial polarity of government action versus for-profit-enterprises. In this indepedent realm we find religious, charitable, philanthropic, and non-profit activity. Furthermore, this important sector need not be insulated from the concepts of government and/or markets. Doug is really the expert on this area, so I hope he can expand on this in the future.

Instead I'd like to consider the discussion of the sub-prime mortgage market. It's important to remember that this is a particular economic institution with particular economic features. Just because it is a "market" does not mean it should be immune from criticism by economists who recognize that government, also, can fail, nor is our choice simply between this market and some undefined "government" alternative that might or might not have made things better. Consider, for example, how most consumer loans, including many mortgages, used to be made. The customer would approach a bank loan officer, fill out some forms, and have a discussion with the loan officer. The loan officer either could make the decision regarding the loan or had, at the very least, a great deal of input in that decision. Banks kept track of the performance history of loans made by their loan officers. A loan officer could be rated down for a portfolio of loans that was either a ) so cautious that there were few problems but not enough returns, or b) a history of making too many bad loans.

The process I've just described may or may not look like a modern definition of a "market." There is no organized central location, nor a thick shelf of formal bids and offers. The loan officer may or may not have much leeway over some of the loan's terms, but might have some flexibility on others. A good loan officer might be one who relied upon everything from instinct to long-term experiences to refinement of those parts of the loan agreement over which she had some control. Nevertheless, I consider this system a "market" system, or, more specfically, one of private, voluntary exchange. (Of course, the mortgage could have been an FHA mortgage, and thus the entire transaction might have simultaneously been a market transaction in the context of government activity).

As has been widely discussed, the changes in the mortgage "markets" over the last several years include the significant increase in practices such as re-selling and bundling mortgages into mortgage backed securities traded in national and even international markets. ALL OTHER THINGS BEING EQUAL, these advancements had the theoretically advantageous properties of increasing liquidity and diversifying risk. A portfolio of one-ten-thousandth of 10,000 loans diversifies risk more than a full share of a single one of the loans.

But, are ALL OTHER THINGS EQUAL? One obvious change was that loans were typically originated and processed differently. The importance of the local loan officer down at the local branch diminished considerably. I have a colleague in financial economics who, in addition to calling the housing market a bubble long before anyone else I know, has plausibly argued that all other things were not equal. Specifically, he points out that the older practice of individual loan officers having responsibility for the performance for a small group of loans with "their names on them" is very different than when 10,000 people each share in 10,000 loans. Namely, the old system created an evaluation process with a loan officer having a strong incentive to balance all available information in making a decision about the loan and to keep watch on the loan as it was being paid. Much of this may have been lost in a "Here, fill out this form" mentality in which mortgages were quickly resold and then bundled and resold again as diversified securities.

If we have found that there are advantages to moving back to the older system, and if the older system seems less "market-like" in some kind of Bonfire of the Vanities sense, then so be it. Not all forms of private, decentralized, voluntary exchange look like eBay auctions or trade-sports markets. Of course, the real kicker to the sub-prime mortgage mess is that the newer, more sophisticated "markets" had a Big-Government six-ton elephant in the living room anyway: Fannie Mae and Freddie Mac were creatures of the federal government designed to look like private entities with a maybe-we-do-and-maybe-we-don't role for the U.S. taxpayer. Many officials of these firms had resumes that were more political than financial. That doesn't exactly look like a "free market" in any sense that I'm used to talking about.

Let me close with another example. My wife and I many years ago used a heating and air-conditioning contractor I'll call "Company E." Over the years, we have found Company E to perform high quality work and to provide exceptional customer service. When we decided that it was time to replace a unit, we had Company E secure bids across manufacturers, but we did not ourselves structure a formal competition between Company E and other contractors. Company E had won our trust and our loyalty. Our decision to go directly to Company E may not have looked much like a market-based decision. But I think that it is a good example about why economists should talk in terms of the whole scope of voluntary actions. I think our decision is just as much a "free-market" decision as a formal and highly centralized market that is whirring away under some vague assumption that the government will step in if the outcomes get too uncomfortable. Too many people think that notions of trust, commitment, loyalty, reciprocity, discernment of intentions, monitoring and so forth are concepts that exist in opposition to markets. I believe, instead, that they are integral to the notion of markets as voluntary action. Too many people also believe that government intervention somehow is a perfect antidote to bad faith dealings and moral hazard problems, when as we have seen they can actually make things worse. I think it's instructive how much the prophets of the Old Testament disliked the hybrid of economic and political power acting together for unjust purposes.

The universe of voluntary exchange structures is vast, and no economist should confuse that universe with any specific manifestation. Human society is capable of vast feats of physical engineering, but we still have bridges that collapse and door handles that break and computers that overheat. The subprime mortgage market may not have worked well, but we may yet decide that it worked better than the current hysteria suggests that it did. (I can make an argument that a lot of responsible people were able to purchase homes under this system that might have been shut out by our hypothetical local loan officer.) But we can also talk about other market processes that might do things better. We can talk about whether the fact that there was an active role of government influence made things better or made things worse

Leavin' on a Jet Plane

World magazine continues to provide a public benefit to the non-profit community by their interest in accountability and transparency for evangelical Christian missions and organizations. In this week's issue, in an article titled "What Would Jesus Fly?," they look at the issue of Christian non-profits that operate private jets for senior personnel. They not only list the organizations and their planes in specific detail, they give the organizations an opportunity to respond as to why expensive private jet service is considered an essential part of the mission of the organization (in most cases, even sending people on full-freight, full-frills, first-class airline tickets is cheaper than operating private jets). Whether you agree or disagree with their conclusions, having a large organization lower the cost of gathering information for faithful stewardship for Christians is a good thing.

The article makes plain (sorry) that they are not questioning Christian mission and care organizations that use utilitarian air transport for things such as delivering food and medical supplies in hard to reach parts of the world.

China and Boycotts: Introduction

In March the ceremonial torch relay was under siege by people protesting China’s human rights record in many cities throughout the globe. Now, three months later, many Olympic qualifying events have taken place and athletic teams are being assembled as the 2008 Olympics in Bejing, China approach on August 8, 2008.

Amidst the cries of injustice the International Olympic Committee (IOC) has indicated that the show will go on and reminded people that the consistent nature of world conflict has frequently made the Olympics a source of political tension. And, despite the show going on many discussed and are still discussing boycott. Edward McMillan-Scott, European Parliament Vice-President said in a March ABC interview, “There will be a boycott of some sort, what kind of boycott is the question right now. … At a minimum I think the EU should require that no elected official from the 37-member states attend the opening ceremony, but that is the minimum." The purpose of this article is to further understand what exactly is happening in China and what the economic and social impact of various types of boycotts would be for the Chinese and their people.

China has made a number of overtures to the IOC as a potential host of the Olympic Games. For the 2000 games China was dismissed on the grounds of their brutal treatment of their citizens with regards to the death penalty, detention without trial, and large amounts of censorship and restrictions on the internet and journalistic reporting. The Amnesty International website noted that death penalty reform which consisted of more review and more procedures prior to execution so as to reduce “wrongful deaths” and more freedom of speech for foreign journalists were improvements. But, other areas such torture and detention without trial still were lacking reform. Nevertheless, when China demonstrated to the committee in 2001 that they were mending their ways the Olympic Committee decided to give China the opportunity to host in 2008.

The question of whether a country should be rewarded for partial improvements in the humane treatment of their citizens to me is still debatable; but, the IOC decided that whatever improvements they made combined with exposure towards the country merited their election as the 2008 Summer Olympics host. IOC Chairman Jacques Rogge put it this way, "We were not naive. We knew discussions would flare up in the last six months and that has happened. … We cannot deny one-fifth of mankind the advantages of Olympism. … We believe the games will be a catalyst for change and will open a country, which used to be mysterious to much of the world." Whether or not the Olympic Games have actually been a catalyst is subject to question. Amnesty International suggests that the media scrutiny, especially with Tibet and potential protests at the Olympics is causing China to revert to its inhumane ways. So, now let’s turn to the precursor to my discussion on boycotts.

This may seem like a funny question; but, I will ask it anyway: What is the point of a boycott? Is it a) To demonstrate that you will not stand for the injustice that a country continues to exercise over its people or b) To affect change within the treatment of a country’s people. I do not believe that the two are mutually exclusive but that they walk a razor’s edge. Maybe because I am an economist I will address objective b. Historically speaking how instrumental have boycotts been in impacting the desired change?

11

It’s hard to believe that here at Florida State summer is already half over. Our late April to late August break puts us out of sync with more traditional parts of the country, where summer-itis is just getting into high gear and lasts through Labor Day.

One of the vanities of trying to post a blog is the idea that someone out there might be interested in your “ten favorite list.” I’m finally giving in to the temptation. It seems that over the past week two of the great Christian denominations, the Anglican community and the Presbyterian Church (USA) have reached the tipping point of whether they are going to witness to modern culture or dance to it. I’m not going to beat the dead horse of the issues involved; if you’ve followed the denominations you know what I’m talking about. Instead, I’d like to address exactly that broader issue: how do Christians faithfully witness in the culture without becoming captives of the culture. It is a question as old as Mars Hill and as new as the various Mars Hill churches around the country. Because I want to be different, here is my 11-week list of things to study about Christians and culture. In many parts of the country, these ideas will last through the last gasp of summer, until there’s just a hint of Fall in the air (something that doesn’t happen in the South until sometime in October or November).[1]

Week 1: Read The Gravedigger Files by Os Guinness. This is absolutely the place to start. In this classic book from the 1980s, Guinness nails the corrosive power that modern culture has on the Church. Furthermore, he shows the different paths of the liberal mainline churches (“trendies”) and the conservative evangelical churches (“fossils”). If there was ever a book that is fulfilled prophecy, this is it. Bonus activity: Try an “out of sample” evaluation of the “reform” groups in both camps: renewal groups in liberal denominations, emerging churches among former evangelicals. Ask if they are really reforming, or just making the same mistakes over again.

Week 2: Watch a DVD of Magnolia. Ask yourself how a director who disclaims any religious intent can make such a profound tale of sin, lack of forgiveness, redemption, and divine intervention. Talk about the bigger question: can non-Christian artists create Christian art? Bonus activity: try to catch all of the references to Exodus 8:2. [Warning: a well-deserved R rating]

Week 3: Download the lyrics of “There is a River” by Jars of Clay. Make a list of all of the Biblical references.

Week 4: Watch a DVD of Primer. Unlike Magnolia, this shoe-string budget Indie phenom from 2004 was, in fact, written and directed by a Christian, Shane Carruth. Ask the opposite question: does every film, song, book by a Christian have to have a “Christian” message. Arguably, Primer does address an important moral issue. Can you figure out what it is? Bonus activity [spoiler]: See the movie a second and third time and try to figure out which Abe and Aaron are which.

Week 5: Read Daniel in the Old Testament. This is the ultimate story of a devout man who struggles to remain loyal to God in a foreign culture. Bonus activity: Find a copy of the Apocrypha and locate the story where Daniel plays an Old Testament Sherlock Holmes.

Week 6: Watch a DVD of Lars and the Real Girl. This story is about nothing else if not the struggles of a Christian community (a Lutheran church in a small Canadian town) to balance agape acceptance and agape speaking the truth to one of their flock who has gone astray. In the end, it is all about the casseroles. Never has Hollywood allowed a Christian character to ask “What would Jesus do” with more sincerity.

Week 7: Read The Cost of Discipleship by Dietrich Bonhoeffer. Because. You. Must. The beloved Lutheran pastor warns of the perils of a nominally Christian society infected with “cheap grace.” This book was written around the time that Bonhoeffer was running his unofficial seminary, and close to the time he abandoned his pacifism and joined an armed resistance against Adolf Hitler.

Week 8: (Nobody will believe I included this). Watch a DVD of the movie Frailty from 2001. I wish I could remember the site, but the greatest statement I ever read about this movie was that it was a high concept horror movie built around the idea that “Fundamentalist Christians with Guns” would scare the pants off of people in Boston, Brooklyn, Berkeley, and Boulder. Instead, it has the most culturally subversive ending imaginable. OK, so maybe this is “cheap thrills” week and nothing else. I can remember showing this movie to a group of horrified Presbyterians in a movie-Bible-study series. [Warning: a well-deserved R rating].

Week 9: Read the Psalms of Ascent (Psalms 120 – 134). Bonus activity: Read the companion guide A Long Obedience in the Same Direction: Discipleship in an Instant Society by Eugene Peterson.

Week 10: Read “The Simple Art of Murder” by Raymond Chandler. Discuss the role in our culture of his untarnished man who must go down the mean streets. Then, read a Chandler novel, preferably Farewell my Lovely or The Long Goodbye. Bonus activity: draw up a list of contemporary actors who would make a good Philip Marlowe.

Week 11: Read Colossians. This is Paul’s letter to a church fighting an infection of an unnamed heresy.

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[1] Virtually nothing in this list is my original discovery. My thanks to everyone who pointed me in these directions. I hope the readers will find as much in them as I have.

Mythbusters-busters

A couple of days ago a local U.S. Representative (who, because I don't want this to be a political post, shall remain anonymous) sent me an e-mail exposing what he called energy "myths." One of his purported myths was that increased U.S. oil and gas production would lower energy prices. His argument went as follows: there is more oil drilling in the U.S. now than when oil prices started ramping-up; thus, we see that opening more areas to oil production can not lead to lower prices.

BZZZZ, Congressman. It's time for you to attend some remedial study-sessions for my Principles of Economics class. As the above diagram shows, if supply technology for oil production remains the same (the Supply curve) but demand for oil sustains a shift in underlying demand conditions (from D to D+) the result will be both higher market prices and and more production. Such a demand shift is undoubtedly consistent with rapid industrialization of countries such as China and India. If, on the other hand, the conditions and technology of supply change so as to shift the supply curve to the right, then there will be downward pressure on price together with increased production. What would cause such a supply shift to the right? An obvious example would be discrete changes in regulatory policy that open new areas to exploration and development (that is, more areas open to drilling). Florida politicians may want to continue to argue that, unlike residents of Texas, Louisiana, California, Scotland, Norway, and so forth that our citizens are specially entitled to consume energy resources without having to look at oil platforms on the horizons, but you can't make that argument on a misunderstanding about the difference between movement along a supply curve and a shift in the supply curve. You can argue about how large the price response from increased areas for U.S. oil exploration and production would be, but that's a different question, and one that is difficult to answer in advance: MYTHBUSTED - BUSTED.

Furthermore, to pursue the broader purpose of this blog, I wonder whether we can find in Christian theology any rationale for Florida's "special" status not only in avoiding offshore drilling but also in not having a great deal of energy infrastructure such as refineries and pipelines. I recall that several local Christian pastors argued that if residents of Tallahassee weren't willing to allow coal fired power plants in our backyard, we shouldn't be proposing to build them elsewhere and then import the electricity. I think that there's something to that argument. Residents of Tallahassee arguably pay a premium in our electric bills from our "anti-coal" requirements, and I think that there is a Christian case to be made that we shouldn't try to avoid that cost by exporting that externality to other people. There is likewise a serious thought-experiment as to whether residents of Florida's coastal areas should be willing to pay a differential tax to help other people who could benefit from lower energy prices from off-shore Florida drilling.

By the way, before the Congressman's staff figures out whose e-mail I'm talking about and rushes to send me a comment that a supply/demand model is inapplicable because of OPEC, it's pretty obvious that OPEC does not have the power to "fix" the price of crude oil in the sense that it can eradicate the upward slope of the effective world supply curve.