February 26, 2006
Response on Googling in China-BECKER
Let me provide a very brief response to very good comments on Googling in China.
How much of an accommodation to make to governments with different values than our own is always a matter of degree. I believe Google made the right compromise.
I agree that it is important to keep Google-type servers out of China as long as possible. That is a big advantage of Google's reaching an accommodation with the Chinese government.
Someone made the important comment that a Chinese search engine company would be far more subservient than Google or other foreign companies. That is clearly right and important.
The website reference provided by Timba indicates that over 150 million persons with Chinese as their native language have access to the Internet. Many of these, however are in Hong Kong, Taiwan, Singapore, etc. I would guess that close to 100 million persons in China have Internet access. A large fraction of these could read English, and that fraction is growing rapidly since English is by far the most important subject to study in China. Moreover, many more young Chinese can read English than can members of the older generation. Since the young are the most dissatisfied with censorship, they will be creating growing problems for Chinese internet-censors in the future.
Thanks Katherine for the sentiment.
Posted by Gary Becker at 07:25 PM | Comments (12) | TrackBack
Summers' Resignation and Organization Theory--Posner
On February 27 of last year, almost exactly one year ago, I posted a longish note about the organizational issues raised by the controversy between Harvard President Lawrence Summers and his faculty critics, a controversy that has now culminated in his resignation. Here is what I said (with a few deletions and other minor changes), based on my almost 40 years as either a full-time or part-time university faculty member and my current interest in organization theory (I am also an alumnus of the Harvard Law School):
"The 'case' against Summers made by his faculty critics is a four-legged stool: he had the temerity to challenge the absenteeism of a prominent faculty member, Cornel West, who as a result resigned in a huff; he is peremptory, perhaps even rude, in his dealings with faculty; he refuses to consult faculty on administrative matters, such as the expansion of the campus into Alston, across the Charles River from the traditional campus; and, most notoriously, he challenged the conventional left-liberal view that any underrepresentation of a group in a prestigious activity (e.g., women on the science faculties of Harvard) must be due to discrimination rather than to preferences or capabilities.
"For these actions, Summers--the most exciting and dynamic president that Harvard has had since James Conant--has been (or at least has felt) compelled to undergo a humiliating course of communist-style “reeducation,” involving repeated and increasingly abject confessions, self-criticism, and promises to reform. He has been paraded in a metaphoric dunce cap.
"To appreciate the sheer strangeness of the situation, imagine the reaction of the CEO of a business firm, and his board of directors, if after the CEO criticized one of the firm’s executives for absenteeism, ascribed the underrepresentation of women in the firm's executive ranks to preferences rather than discrimination, dealt in peremptory fashion with the firm's employees, and refused to share decision-making powers with them, was threatened with a vote of no confidence by the employees. He and his board would tell them to go jump in the lake. But of course there would be no danger that the employees would stage a vote of no confidence, because every employee would take for granted that a CEO can be brusque, can chew out underperforming employees, can delegate as much or as little authority to his subordinates as he deems good for the firm, and can deny accusations of discrimination.
"If, however, for employees we substitute shareholders, the situation changes drastically. The shareholders are the owners, the principals; the CEO is their agent. He is deferential to them. Evidently the members of the Harvard faculty consider themselves the owners of the institution.
"They should not be the owners. The economic literature on worker cooperatives identifies decisive objections to that form of organization that are fully applicable to university governance. The workers have a shorter horizon than the institution. Their interest is in getting as much from the institution as they can before they retire; what happens afterwards has no direct effect on them unless their pensions are dependent on the institution’s continued prosperity. That consideration aside (it has no application to most professors' pensions), their incentive is to play a short-run game, to the disadvantage of the institution--and for the further reason that while the faculty as a group might be able to destroy the institution and if so hurt themselves, an individual professor who slacks off or otherwise acts against the best interests of the institution is unlikely to have much effect on the institution.
"All this is true of Harvard. The faculty are interested primarily in their own careers, and what is good for their careers and what is good for Harvard are only tenuously connected. The individual faculty member who denounces Summers knows that his denunciation is unlikely to bring about Summers' departure, and even if it was decisive, and even if Summers is the best president that Harvard could find, an inferior replacement would be unlikely to do so much harm to Harvard as to have a discernible impact on the career of the denunciator. What is more, that replacement might be more inclined to kow-tow to faculty, enhancing their careers at the expense of the long-run health of the institution.
"Apart from the misalignment of faculty and university interests, faculty at research universities, like intellectuals generally, tend not to be responsible participants in collective action, such as university governance. The academy does not select for people who have interpersonal skills, because most academic research is either solitary or conducted in groups of two or three, though there are exceptions, primarily in the hard sciences. In addition, faculty are highly specialized, many in fields wholly unrelated to the financial and other practical questions that loom large in a university as large and affluent as Harvard.
"Universities are increasingly complex enterprises. Harvard has a multibillion-dollar annual budget. It is ludicrous for English professors to think they have a useful contribution to make to decisions involving budgetary allocations, building programs, government relations, patent policy, investment decisions, and other key dimensions of modern university governance. They are in no position to balance Summers' strengths in these areas with what they consider his weaknesses in relations with faculties, or his ideological views that they find offensive.
"Because universities are organized as nonprofit entities, there are no shareholders, and hence no owners in the conventional sense. As a practical matter, the university's trustees (the members of the Harvard Corporation) are the owners; they control the endowment and the other assets of the university and they appoint the president, who in turn appoints the administrative staff of the university. The trustees' interests are better aligned with the university's interests than the faculty's are. The trustees do not have a personal financial stake in the university's success, but the position of a trustee of a major university is prestigious and even visible, and trustees who botch their job will experience embarrassment and loss of reputation.
"Of course, as part timers and (mostly) outsiders to academia, the trustees cannot actually manage the university. Nor do they try. Their principal function, besides general supervision and assistance in fund raising, is to hire a president, and to fire him if he performs badly. (So they are much like the board of directors of a business firm.) That is a limited function which a board of trustees should be able to discharge competently. The president is the CEO and he has both a reputational and a financial stake in the success of the institution. The president and his administrative staff, not the trustees--and not the faculty--should manage the university. The role of the faculty should be teaching, research, and appointments (subject to override by the president or provost) within their field of academic specialization.
"So I would like to see faculty think of themselves as employees and leave governance to the university’s president. And for the further reason that preoccupation with governance is a distraction from teaching and scholarship, and so reduces faculty output. In doing so it compounds the bad effects of academic tenure, an institution that reduces the productivity of many academics.
"Against all this it can be argued, first, that competition among universities will assure good performance regardless of the governance structure and, second, that a comparison of American with foreign universities shows that our universities must be doing something, or rather a lot of things, right, because our universities are the world's best. Competition is indeed a powerful force for efficiency, but interuniversity competition is blunted by a variety of factors, including the lack of a profit incentive and the difficulty of evaluating a university’s output.
"I agree that our universities are the best in the world, but comparisons of this sort are invitations to complacency. (If the Harvard trustees were complacent, they wouldn't have appointed Summers president!) When the United States had monopolistic regulation of the telephone industry, as it did until the breakup of AT&T, we had the best telephone system in the world. When we lost the war in Vietnam, we had the best armed forces in the world. When the Civil Aeronautics Board administered an airline cartel, we had the best airlines in the world. We have the best universities, but I believe that they would be even better if they were governed differently. My belief is supported by the fact that American universities are evolving in the direction of greater conformity to the principles on which private businesses are run. The time has come to retire the faculty slogan '“we are the university.'”
__________________________________
The passage of a year has reinforced rather than undermined what I said about university governance. It is clearer now than it was then that Summers' policies--ranging from greater emphasis on science, on modernizing and rationalizing the undergraduate curriculum and improving undergraduate teaching (a serious Harvard weakness since time immemorial), and on intelligent utilization of Harvard's extensive real estate, to tuition remission for students from families of modest means and blocking weak tenure candidates in weak disciplines--are entirely sound. It is also clearer now than it was a year ago that Summers' blunt manner (I would prefer to call it forthright) were not the decisive factor in the faculty revolt that has led to his fall from power. (Whether he was forced out, or he merely concluded that he could no longer be effective as president without the unwavering support of the Harvard Corporation, is unimportant.) What was crucial was that he challenged the worker'-cooperative model of university governance (a model adhered to more closely by foreign universities--which is one reason they are on average inferior to our own), that an influential fraction of the faculty rebelled, and that a timid and inept set of trustees were unwilling to back Summers against the rebels. I knew a year ago that Summers was embattled; I never thought it a battle he could lose. I am greatly disappointed in the Harvard Corporation and would be gratified to see its members resign in embarrassment.
One sign of the Corporation's ineptitude is its decision that there shall be an 18-month period in which, in effect, Harvard will have no president and the faculty will consolidate its power. But as serious is the signal that the Corporation is sending to potential candidates. The signal is that only individuals willing to be weak presidents need apply for the job--individuals willing to concede a veto power to the Faculty of Arts and Sciences and devote their presidency to fund-raising, glad-handing, and back-office management. Eugene Robinson, in a good-natured column in the Washington Post defending Summers' resignation but expressing hope that Summers, whom Robinson appears to admire, would become an active member of the Harvard faculty, argues that such a change in roles would mean that he was "no longer an ineffective herder of cats but once again the big cat he was meant to be." Cats cannot be herded, but faculty members merely do not want to be herded. They have soft jobs with life tenure. The loftier the institution, the greater the salary and prestige and the softer the job. So little is demanded that retirement has few attractions. The result is a faculty many of whose members are both smug and superannuated.
Summers' resignation should, but will not, precipitate serious thinking at Harvard about transformative change. The following suggestions, quixotic in the short run, are offered as aids to thinking imaginatively about the governance of the nation's most prominent university:
1. The members of the Harvard Corporation should resign; their successors should rescind Summers' resignation.
2. The reconstituted Corporation should redefine the lines of command of the university, making clear that faculty are not the owners or "citizens" of Harvard, but rather are honored employees.
3. A purely consultative University Senate should be created so that the university administration can obtain reliable, representative expressions of faculty opinion.
4. The president of the university should be authorized to appoint the department chairmen.
5. The anachronistic institution of tenure should be reexamined and perhaps jettisoned. The market for university professors is highly competitive; a good person whose contract is not renewed can get a comparable job elsewhere. (See my post on tenured employment of January 15 of this year.)
6. A generous buy-out program should be instituted in order to encourage early retirement and thus provide greater career opportunities for young academics.
If the suggested measures precipitated some, even many, resignations of faculty, the quitters could easily be replaced with individuals of equal or higher quality.
Posted by Richard Posner at 10:47 AM | Comments (61) | TrackBack
Summers’ Resignation and University Governance-BECKER
I will follow Posner's example, and compare my present views with what I said a year ago in our discussion on February 27th about the opening controversy between Harvard President Larry Summers and his faculty critics. My views remain close to what they were, but some of my statements then need to be clarified and even changed somewhat.
"As Harvard's president, Summers has shown vision, enormous ability, and strength, qualities typically lacking in university presidents…. If allowed to persist in his endeavors, he will go down as one of the great university presidents of recent decades."
Alas, he was not allowed to finish his agenda, although it was a breath of fresh air and long overdo not only at Harvard but also at many universities. He made promising starts in revitalizing sciences at Harvard, recruiting a younger and more balanced faculty, holding faculty to higher responsibilities for teaching and research- the Cornell West episode is one good example of this- and beginning the process of giving Harvard undergraduates a better education.
It is not clear to an outsider how to weight different aspects of the faculty opposition that led to his resignation. But I believe it is a combination of the inherent tendency of all faculties to resist changes in what they do, despite their radicalism on many political issues, a concern that he was usurping some of the authority that faculties claimed for themselves, and Summers blunt style. Those overly sensitive faculty members at Harvard who consider his style blunt and confrontational should attend some of the seminars in the department of economics at the University of Chicago. Summers would appear relatively mild in comparison. Summers has an inquiring mind, and he ran up against faculty members with closed minds on issues like explanations for the differences in male and female achievements, or the contribution of some members of the African American Studies program.
"Posner argues against the view that faculties should be running universities. He points out several problems with such a system, including that professors pursue their own narrow interests instead of the universities long-term goals, that professors are not selected for interpersonal skills, and that universities have become too complex to be run by a faculty collective. Strangely, he comes down in favor of university trustees as having interests that are better aligned with those of universities. Yet my experience is that trustees typically know little about, and generally do not have much interest in, the universities they oversee, they are intimidated by professors, are not very brave in their trustees' role, generally go along with whatever is presented to them by university administrations, and very seldom force a university president to quit."
The Harvard experience has strengthened my views on university trustees. Perhaps one reason why university trustees are usually so ineffective is that they are mainly drawn from business, with an eye to fundraising and their own financial contributions, and have had little experience with university administration. By contrast, corporate boards usually contain many members who do or have run companies, so they know a lot about corporate administration.
That said, I failed to mention last year my long-standing belief in greater power for presidents, deans, chairmen of departments, and other administrators than found at most American and foreign universities. A faculty-run university is usually biased toward compromise and the status quo, while a president and his administrators will sometimes take bold actions when given the power. Power and boldness can lead to major blunders and great variability in outcomes, but it can also lead to university greatness. The great presidents of the past, such as James Conant of Harvard and Nicholas Murray Butler of Columbia, were not reluctant to use their power to transform the sluggish universities they headed. Since it is so hard to be a really great university, that risk is well worth taking.
"Still, I believe the only satisfactory way to evaluate how universities (or businesses) are run is by their success or lack of it in the long run. Although there is no simple way, like profitability, to judge universities, there is an effective way to judge a university system. The American college and university system is widely accepted as the strongest in the world. This is why American universities are filled with students from abroad, including those from rich nations with a long history of higher education, like Germany and France.
I conclude from this that the American university system must be doing many things right, at least relative to the other systems. And what is right about this system is rather obvious: several thousand public and private colleges and universities compete hard for faculty, students, and funds. That the American system of higher education is the most competitive anywhere is the crucial ingredient in its success.
Competition tends to weed out the inefficient and the ineffective, regardless of whether competing enterprises are private profit –maximizers, as are most business firms, private non-profits, as are many American universities, or public non-profits, as are the majority of universities. In any industry, including the education industry, many different approaches are tried, as in the Robert Hutchins great books approach to undergraduate education at the University of Chicago. Many of these approaches fail, as the great books approach failed because it turned out to be a poor way to teach science, economics, and many other subjects.
The basic effect of competition is that only the successes tend to survive in the long run. What survives in a competitive environment is not perfect evidence, but it is much better evidence on what is effective than attempts to evaluate the internal structure of organizations. This is true whether the competition applies to steel, education, or even the market for ideas.
Given the effectiveness of the American higher education system, its governance, including the role of faculty, is probably on the whole along the right lines. Some literature has even shown that an industry composed of workers cooperatives, Posner’s analogy to faculty-run universities, in a competitive environment tends toward efficiency because these cooperatives have to bid against each other, and against other industries, for labor and capital. Much of that literature would apply to universities run by professors, and to other aspects of the structure of American universities.
Yet enterprises in even the most competitive industry often appear to be inefficient when looked at under a microscope. This is why the many best sellers every year on how to improve the management of American companies before long pass into the market for shredded paper. I am dubious about proposals to improve a competitive system that is working. The American university system is competitive and it is working well, at least judged by its ability to continue to attract the best students from abroad, that few Americans go abroad for advanced degrees, and by the current efforts to imitate the American system of higher education in many other countries. We should not be complacent, but that is pretty effective evidence in its favor, including the approach to governance."
I still support these claims about the beneficial effects of competition, and that the American system is superior to other higher education systems. But I should have been clear that this does not mean that every organization even in a highly competitive industry is doing well and cannot be improved. Defective companies can continue to survive for quite a while even in competitive environments (look at General Motors). This is especially true among universities. Past reputations count for much more at universities than at say car companies, which is why the ranking of universities is much more stable over time than is the rankings of firms in various other industries (an observation on rankings that Summers once brought to my attention).
I support many of Posner's proposals for change that he lists at the end of his post, but I weight them somewhat differently. The following are to me the most important:
1. The Arts and Sciences faculty has too much power relative to professional schools at Harvard, as shown by what happened during the Summers controversy. An overall University Senate would have helped Harvard during this crisis, as it would have helped Columbia during the student disturbances of the late 1960's (where I taught at that time). It was crucial in the University of Chicago getting through those disturbances in much better shape than Columbia and many other universities.
2. Presidents should have more power and faculties less, for the reasons I gave. Universities will continue to be run mainly by faculties, but their power is excessive at Harvard and many other universities.
3. In light especially of the Federal law of the 1990's that prevents universities from forcing faculty members to retire, and because of the great competition among universities for faculty, a competition that in many fields is becoming worldwide (see my post on tenure of January 15th of this year), academic tenure is excessively strong. It should be greatly weakened, if not abolished.
Posted by Gary Becker at 10:33 AM | Comments (16) | TrackBack
February 21, 2006
Response on Traffic Congestion-BECKER
I will respond briefly to this rich set of comments.
Several of you raised the issue about whether potential drivers would have the information if a more complicated congestion pricing system were implemented. But clearly, information is abundant that congestion is greater during peak hours, on Fridays, during snowstorms, etc. so higher prices at these times would be an enormous improvement. Note that in many cities, parking on certain streets is restricted during snowstorms, and that usually works since parkers anticipate when the no-parking rules go into effect. The old adage "the best is the enemy of the good" is applicable. I am not advocating a perfect system, but one that would greatly improve congestion and reduce the time wasted in traffic.
London pricing is based on its central city as a hub, but the principle of charging for traffic during peak times is applicable to suburbs, Los Angeles, and other areas without hubs. Electronic pricing makes that relatively easy.
Parking fees are not a good substitute for congestion pricing because no parking lot owner incorporates all the costs imposed on others of driving into or in highly congested areas. Delays caused by people looking for on-street parking raises additional issues. These delays are created by parking fees.
It is not obvious that congestion fees are regressive since poorer persons are more likely to take buses or subways to work than to drive. Moreover, labor force participation rates are generally lower at the bottom end of the income distribution. So the regressive issue is more complex. Moreover, avoiding congestion pricing because of income distribution effects is a bad way to deal with inequality issues.
It would not be effective to charge employers since that requires keeping track of which company each driver works for, and whether their employees drive to work. It also ignores driving during congested times by shoppers. Otherwise, as someone commented, it generally does not matter whether employees or employers "pay" congestion taxes since the incidence of a tax would be the same.
I do not know if downtown property would increase or decrease in value. For example, the number of shoppers going downtown could increase if the reduction in travel times by car makes shopping in downtown areas more attractive.
Posted by Gary Becker at 09:11 PM | Comments (6) | TrackBack
February 20, 2006
Google in China--Posner
Last week a congressional committee questioned representatives of Google, Yahoo, Microsoft, and Cisco concerning Chinese censorship and surveillance of Internet services (and in the case of Cisco, equipment) provided by these companies. Google, for example, has acknowledged that it does not offer email, chat rooms, or blogs in China, but only Web search, image search, local search, and Google news and that it censors these programs so that Chinese customers cannot search for "democracy," "Falun Gong," and other topics that China wants to shield its people from. Yahoo apparently provided information about one of its Chinese customers that led to his arrest and a 10-year prison sentence for political activity that would be legal in the United States. Cisco is said to have sold equipment to the Chinese police that assists them in monitoring dissidents. Members of Congress are incensed and are threatening legislation that might forbid U.S. companies to knuckle under to political restrictions imposed by China as a condition of permitting our Internet companies to do business there.
In general, U.S. companies, including Internet companies, are required to comply with the laws of every country in which they operate. Thus, for example, they have agreed to block access, in France and Germany, to Nazi Web sites, pursuant to those countries' laws against Nazi advocacy. They have agreed in a number of countries including the United States to block access to sites that infringe copyright. Like other companies that possess information that is not considered the "property"`of the people who furnished it (and this is generally the case with respect to information voluntarily provided to an online vendor), the Internet companies often respond to informal government requests for information, and they are also subject to having such information subpoenaed.
Of course there is a difference between foreign laws that we regard as defensible, including some laws, such as those forbidding Nazi advocacy, that would be unconstitutional in the United States (which has by international standards an extravagant conception of freedom of speech), and laws that we regard as contrary to fundamental human rights, which is an accurate description of Chinese laws designed to suppress political freedom and, in the case of persecution of the Falun Gong and of some Christian sects, of religion as well; there are also forced-labor camps in China, torture, and other human rights violations.
If China were a small, poor country, its violations of human rights might induce international sanctions, such as were imposed on Rhodesia and South Africa before the fall of their racist regimes. But because China is an enormous country, rapidly developing, soon to be--perhaps already--the second largest economy in the world, and very much open to investment by foreign, including U.S., companies, sanctions are out of the question as a practical matter.
A separate question is the effects of sanctions. The theory of cartels is useful in illuminating that issue. When competing firms get together and agree to raise price (and thus limit output, since increased price will cause some customers to switch to other products) in order to increase their profits above the competitive level, they face two problems. First, each member of the cartel will have an incentive to cheat because by charging a price slightly below the cartel price it will have proportionately greater sales and its net revenue will rise. Second, firms outside the cartel will have an incentive to increase their output by selling slightly below the cartel price, for the same reason that impels cheating. The harder it is to cheat, and the smaller the fringe of competing firms outside the cartel, the more effective the cartel will be.
A sanctions regime is similar. Each country that has agreed not to buy from or sell to the sanctions target will have an incentive to cheat, and countries that have not agreed to the imposition of sanctions will have an incentive to increase their trade in the embargoed goods. So our Internet companies, were they under political or public relations pressure, or were compelled by U.S. law, not to agree to conditions imposed by China would have an incentive to try to circumvent the ban; and Internet companies in countries that did not impose such a ban would have an incentive to enter the Chinese Internet market.
But it is not clear to me how effective such incentives would be. The U.S. Internet companies would be reluctant to violate, or perhaps even to circumvent, U.S. law, since they are taking a big public relations hit from the revelations of their complicity with Chinese repression. And in the short run at any rate it does not appear that foreign Internet companies can provide close substitutes for the services that our companies provide. Of course in the long run an exclusion of our Internet companies from the vast Chinese market would stimulate the growth of foreign companies offering close substitutes for our companies’ products. This assumes that faced with abolishing censorship of the Internet or losing Google search and other Internet services that U.S. companies uniquely provide, China would choose to lose the services. This seems, however, by far the likelier outcome given the perceived threat to the regime that political and religious freedoms pose. If so, then the only effect of the sanctions regime would be to slow Chinese economic growth slightly by reducing the Chinese people’s access to Internet services that promote economic efficiency. One reason to think the effect will be slight is that China does have its own Internet providers, such as Baidu, which provides a Google-like search service, although not as good a one as Google.
The deeper question is whether it is in the U.S. national interest either to promote Chinese democracy, religious freedom, etc. or to impede Chinese economic growth by inducing it to curtail its people's access to the Internet beyond the current censorship. The answer probably is "no." Lifting the repression lid from Chinese society might, for all I know at any rate, have destabilizing effects that might result in a worse government (from our standpoint) than the present one. Slowing Chinese economic growth might also be destabilizing, and would harm the world economy as a whole, and probably the U.S. economy. Then too, although there are inherent tensions between the United States and China, owing in part to the American military and political presence on the periphery of China, China is not an enemy and we don't want to make one by imposing sanctions on it. Although the behavior of our companies may be offensive and their claim to be altruistically motivated is ludicrous, it is unlikely that efforts to prevent the companies from complying with ugly Chinese laws will help either the Chinese people or the American people.
A possible intermediate solution, however, would be to forbid U.S. economies (or for them to agree under pressure of American public opinion) to assist the Chinese government in surveillance of their customers. There is a difference between censorship and surveillance. Most governments engage in some censorship, including our own (child pornography, national security secrets, copyright violations, defamation, false advertising, criminal solicitations, etc.). But for our companies actively to assist a foreign, repressive regime to persecute its political and religious dissidents is a step beyond. It is unlikely that the Chinese government would bar our Internet companies merely because they did not provide active assistance to Chinese police.
Posted by Richard Posner at 11:47 AM | Comments (24) | TrackBack
Googling in China-BECKER
Posner has a very good discussion of many aspects of the controversy over the concessions to the Chinese government by Google, Yahoo, and a few other high-tech companies. I generally will come to similar conclusions but from a little different perspective.
I do believe that it is reprehensible for Yahoo to disclose the names of Chinese citizens using its services, particularly when the information Yahoo gave about one of them led to his arrest and imprisonment. Whatever one’s beliefs about other rules of corporate behavior in China, disclosure of names of "dissidents" who face arrest and punishment is unacceptable.
During the remainder of my comment I will pretend that I am the CEO of Google (alas, I am slightly less rich) to discuss whether Google should accede to the demands by the Chinese government to prevent access to Google users in China to websites on democracy, the Tiananman Square uprising in 1989, the Falun Gong sect, and a few other subjects. Presumably, it might be very profitable to make these concessions under the very likely assumption that the government would not agree to any significant compromise.
However, profits in the Chinese market are not the only consideration, even from the viewpoint of maximizing Google's (and mine as CEO) market value. Google has a deserved reputation as a very independent as well as innovative company that does not cave in to unreasonable government demands. From our vantage point the Chinese government's demands are not reasonable. For this reason we did indicate on our website in China that we were excluding certain enumerated subjects from our search engine.
That said, under present conditions we are still providing millions of people in China, we hope that will climb to hundreds of millions, access to an unbelievable array of information. The subjects covered are far too numerous to enumerate, but let me just mention information about DNA and its discovery, medical treatments for breast and prostate cancers, the determination of prices under different market conditions, riots in the U.S. and elsewhere, the Becker-Posner blog, and many more.
Chinese Google users also have access to information that is highly informative about democratic institutions and processes. This includes discussions of elections in Japan, Great Britain, the U.S., the turnover of parties in power in democracies, histories of countries that were transformed slowly, like Great Britain, or rapidly, like Japan, from powerful monarchies to lively democracies. They also have some access to information on the overthrow of communism in East Germany, Poland, and the USSR, although that information is not as openly available as I would like.
In this way Google is still exposing millions of Chinese to information and knowledge that was unavailable to any one in the West even a decade ago. Isn't this a priceless contribution to the welfare of the Chinese people, despite the restrictions placed on their access to certain subjects from using Google?
Suppose we at Google had refused to go along with the Chinese demands and were excluded from the Chinese market. It is very possible that our place would have been taken either by European or Japanese companies, or indigenous Chinese companies, only too willing to comply with the government's demands. In this case, American stockholders, workers, and taxpayers would be (a little) worse off, and the Chinese people would also be also worse off since these other companies are not as good as Google. The only gainer, aside from the company taking our place, would be the Chinese government since they would have a more docile search engine company to deal with.
A different scenario is that the Chinese people would have been deprived of a search engine for years. Perhaps that would slightly weaken the government because of increased resentment among the population, but it would hurt the typical Chinese computer user much more. Why should we be the instrument of making the Chinese people suffer any more than they already have during the past many centuries from isolation from Western technology and knowledge?
Let us also not forget that not only has the Chinese economy been expanding for the past quarter century at a remarkable rate, but so too have freedom of expression, travel abroad, and some other freedoms that are important parts of the foundation of a true democracy. The Chinese government supports strongly the economic progress, yet bemoans the increased freedom that naturally accompanies this progress. Government controls over these freedoms cannot keep up with their pace of development as the economy charges forward.
Software is rapidly developing that would enable Chinese users of the internet to bypass their censors, and gain access to the information that they prevent us, Yahoo, and other companies from directly providing them. Chinese censors and other Chinese restrictions on basic freedoms are engaged in a losing battle as long as the economy, including its human capital, continues to go global. Even somewhat limited access to the vast information made possible by Google further pushes the battle in favor of freedom and against government restrictions.
Given these considerations, and admiting our concern as a company with maximizing the wealth of our stockholders and employees, does not the entry of Google into China even under these restrictive terms contribute to the tidal wave of freedom that is overwhelming the Chinese government?
I (that is, GSB) agree with the CEO, for I would give an affirmative answer to that question.
Posted by Richard Posner at 11:42 AM | Comments (11) | TrackBack
February 13, 2006
Response on Health Care Reform-BECKER
Many good comments, but I can only address a few of them.
There is no reason why health savings accounts will reduce the interest in preventive medical care. I give people more credit than that, and believe that they will spend some of the money in these accounts on psa tests and other blood tests, etc. Indeed, these accounts are very likely to increase spending on prevention by encouraging some persons who now do not have medical insurance to set up accounts.
People are interested in insuring against bad health because of uncertainty about the incidence of various diseases. Borrowing also offers insurance by redistributing spending over time, but borrowing is in most cases, and certainly in the health case, a very imperfect substitute for explicit insurance.
HSAs are basically flex-spending accounts with carry over possibilities, and with tax advantages. In effect, health savings accounts combine the advantages of IRAs with the opportunity to withdraw money before age 65 if the withdrawals are spent on health care. This combination is quite attractive.
"Medical tourism" provides global competition for American doctors and hospitals, and I am all for it. However, medical tourism is still small compared to the numbers who come to the US for advanced treatments.
Some of you argued that individuals who take out health insurance are at a "power" disadvantage compared to insurance companies. This is not true for car insurance, and I see no evidence that it holds for health insurance.
One of you asked why should companies offer portable HSAs if that would increase employee turnover? The reason is that they would then be able to hire employees more cheaply since potential employees would realize they would not be locked-in to the same employee. For the same reason, companies offer training that is useful in other companies as well.
I was explicit that I would not discuss all aspects of health insurance because I wanted to concentrate on health savings accounts. Some of you mentioned issues that I did not discuss, such as adverse selection into insurance plans, mandated coverage by states of predictable expenses, like normal child delivery expenses, state restrictions on out of state insurance coverage, the weaknesses of Medicare and Medicaid, and still others. For the most part, extending HSAs would not make any of these problems worse, and would make some of them better.
For example, some healthy young persons who now form a good part of the uninsured pool would be induced to take out a health savings account since they would be able to save unused balances for retirement. Some low -income families who now rely on Medicaid will also set up HSAs because of the tax credits and other advantages of having private insurance compared to the onerous restrictions imposed by Medicaid.
Posted by Gary Becker at 07:24 PM | Comments (12) | TrackBack
February 12, 2006
Response on Health Care-BECKER
Sorry that I did not have time today to respond to the comments on health care and HSAs. I will do this on Monday.
Posted by Gary Becker at 09:48 PM | Comments (1) | TrackBack
The Solution to Traffic Congestion-BECKER
An iron law of economics states that demand always expands beyond the supply of free goods to cause queues. There is no better illustration of this law than the traffic congestion in virtually every major city and also in many smaller cities that has resulted from allowing city roads to be used without paying any fees. During much of the day, traffic moves slowly not only in NY, Los Angeles, Chicago, and many other American cities, but also in Mexico City, San Paulo, Paris, Rome, London, Tokyo, Beijing, Shanghai, and Bombay.
Congestion has greatly increased over time, and traffic has become congested not only during morning and evening rush hours on commutes into and then out of cities, but also during rush hours in the opposite direction as well. That is, traffic is heavy and progress is slow also going out of cities into suburbs during the morning rush hours, and back into a city during evenings. The direct cause of the growth in road congestion in developing countries like Brazil, China India, and Mexico is the huge increase in the number of cars. The number of cars also rose in the richer countries, partly due to the increase in the labor force activities of married women who drive to work.
Despite the greater traffic congestion on roads, most men and women still choose to drive since that gives them greater flexibility about the times to travel for leisure or working. In addition, cars have become more comfortable, reliable, and safer with power steering, four wheel drive, improved tires, air conditioning, cell phones, and advanced audio equipment. Opposition to the building of additional highways on environmental and other grounds slowed down the construction of highways in many countries to accommodate the growing number of cars on the road.
The Texas Transportation Institute estimated that the extra time and fuel spent in driving as a result of traffic congestion in 1994 was worth over $75 billion. They assumed about one and one quarter persons per car, and that the average value of time per person was $11 per hour. The increase in congestion and in the value of time since then would suggest that a comparable figure for 2005 would likely exceed $150 billion, or more than one per cent of American GDP. Moreover, these estimates do not account for any pollution damage caused by the excessive driving that causes congestion.
Like the weather, everyone talks about traffic - Goggle lists over 11 million web sites that discuss traffic congestion- but aside from some new roads and public transportation system, little has been done to reduce this congestion. Congestion is inevitable when people live in cities and in highly built up suburbs. But there is a fundamental reason why the amount of traffic congestion is greater than the efficient amount. When a person decides to drive to work during rush hours, he takes into account any extra time it will take because of congestion on the roads at those times. But he generally does not take account of the effects of his driving on the congestion faced by others.
Economists call this increase in the congestion he causes others a negative externality. Of course, each person that decides to drive during a congested period only imposes a very small harm on others since he only increases traffic times by a tiny amount. But adding up all these small externalities over thousands of cars sums to a large aggregate externality, and a large increase in traffic congestion, that does not enter in any individual's decisions about whether to drive or not, or whether to avoid rush hour traffic.
The optimal way to induce drivers to take account of the congestion they cause to others is to charge them fees for driving during congested periods that would vary with the degree of the congestion. So these fees would be higher during rush hours than during other hours of the day, and they would be lower on weekends when traffic is generally lighter than on weekdays. Fees should be greater when it is raining or snowing since congestion is greater with bad weather, in part because driving is slowed down by the weather, and in part because more people decide to drive rather than walk or take public transportation when it rains.
No city has such a sophisticated form of congestion pricing. But interestingly, it took a left-wing mayor of London, Kenneth Livingstone (sometimes called "Red Ken"), for London to become the first really large city to introduce an extensive congestion road tax, although Singapore pioneered this approach with a license system that began in 1975. In 2003, Livingstone implemented a pricing system for cars entering the central part of London during business hours. Owners of cars that cross the cordon around central London were initially charged £5 for each time their cars crossed; that fee was raised in 2005 to £8. Cameras record the license plates of cars as they cross, and anyone who is caught trying to avoid paying their accumulated charges is fined. This simple system has done much better than some analysts expected, although economists know from many other examples that people find ways to substitute for any good or activity that becomes more expensive. This fundamental law of demand applies to driving during peak hours as well. Car traffic in the central city of London has fallen by about 20 per cent, average traffic speed in the center has increased from about 8 to 11 miles per hour, and both car and bus delays during peak traffic periods have fallen by even larger percentages.
People adjusted by using public transportation, car-pooling, bicycling, or walking into central London instead of driving. More people ended up switching to buses rather than trains because bus travel became a lot faster due to the reduced congestion on central city streets as the number of cars competing with buses for space on the central city streets dropped a lot. In the long run, this toll would induce some companies and shops to move their offices and stores outside the central part of London.
The London system is rather effective, but it is still a crude pricing system since the amount charged for entering the central city does not vary during the business day, even though congestion does vary, due sometimes to changes in the weather. The Deputy Mayor of London told me that they are contemplating introducing a more sophisticated system. Anyone who enters the central city would need to have a device on his car, a tracking system, that would transmit information to electronic toll collectors on the locations of the car at different times. The charge to an owner would then depend on the degree of congestion at the times his car was in the central city. At the end of each month, car owners would be assessed the congestion charges accrued during the prior month.
Such a more sophisticated pricing system would have all the advantages of the present system plus some additional ones since it would raise the tax when traffic was moving more slowly, and lower it when traffic flowed more quickly. Such congestion based tolls would, in addition, encourage some companies to stagger their opening and closing times to avoid the peak rush hours when fees were greater. It would encourage weekday shoppers to wait until rush hours were over before going into the central city, and to leave before traffic became heavy at the end of the working day.
A toll on cars is more efficient than others ways of reducing congestion. Some cities allow cars to enter the central part only on alternative days, an approach that takes no account of the different values placed by different drivers on the advantages of entering every day. A tax on gasoline reduces driving and in this way helps to reduce congestion, but it takes little account of the greater effect on congestion of driving during heavy traffic periods than the effect of driving when traffic is light.
A few weeks ago Mayor Michael Bloomberg of New York rejected the imposition of a tax on cars that passed a cordon imposed around New York’s downtown area. Apparently, the city administration gave no attention at all to a more sophisticated form of congestion taxing. New York's decision is not unusual since many other cities have considered and then rejected imposing tolls to help relieve the terrible congestion during business hours in order to speed up traffic. Partly, the opposition comes from businesses and shops in the downtown area that might have fewer customers and have to pay more for employees. The opposition comes also from car owners and some conservatives who see this as just another tax to raise government revenues.
I certainly have no desire to increase the already heavy tax burden in cities and elsewhere. Ideally, I would like any increase in revenue from congestion tolls to be offset by reductions in other taxes-that is, to be revenue-neutral. However, congestion is a tax too, but a hidden tax on the time of people rather than on their pocketbooks because it increases the amount of time wasted in heavy traffic. This tax on time from congestion is a very inefficient tax because it is not paid to anyone, but in effect just throws away time, the most valuable resource that people have. Unless the government would do great damage with the revenue collected from congestion tolls, these tolls are much more efficient than the current taxes on time that result from traffic congestion.
Posted by Gary Becker at 08:49 PM | Comments (25) | TrackBack
Traffic Congestion--Posner's Comment
Traffic congestion is a classic negative externality. As Becker explains, a driver does not consider the effect of his driving on the other users of the road, but only on himself. The standard method of reducing congestion--building more roads--is not only very costly but to a degree self-defeating, since by reducing congestion (and thus the time cost of driving) it attracts more traffic.
Despite much road building, congestion measured by average commuting delays has increased substantially in recent years. Becker makes the important point that the average per-hour private cost of commuting by car has fallen with the substantial improvements in automobile comfort. But it probably has not fallen enough to fully offset the increased delay.
The usual recommendation by economists for dealing with negative externalities is to tax the activity that produces them. The London solution described by Becker—a fee for driving into central London during weekdays—is a step in that direction, with impressive results, such as a 20 percent reduction in London vehicle traffic. But it is doubtful that this success can be duplicated in the United States. Before the imposition of the London commuting fee, 85 percent of the commuters were already using buses and other forms of public transportation rather than commuting by car. This indicated both that most commuters thought such transportation a good alternative to driving (though of course the 15 percent might not) and, more important, that the public transportation system could easily absorb additional commuters. A 20 percent decline in commuting by car translates into only a 3 percent shift to public transportation if commuters by car are only 15 percent of the total number of commuters before the fee is imposed. True, there are other methods of economizing on driving besides switching to another mode of transportation, such as car pooling, but car pooling has the features that people who dislike public transportation dislike: less privacy and flexibility than driving by oneself.
I believe that among major U.S. cities, only New York has comparable figures--some 80 percent of commuters to downtown Manhattan get there by means of public transportation, mainly subway, rather than by car. All cars entering Manhattan pay heavy bridge or tunnel tolls, however, so there would doubtless be stiff resistance to the imposition of a commuting fee. Mayor Bloomberg considered such an imposition but has backed off.
Resistance to a commuting fee would be much greater in cities that do not have good public transportation alternatives. The reason is that in such cities, heavy commuting fees would reduce the number of commuters, hurting downtown businesses. On average, only about 2 percent of American commuters use public transportation.
Notice also that by reducing congestion and hence the cost of commuting by car, a stiff commuting fee may have only a modest effect on congestion. Indeed, the fee will induce some commuters to substitute driving, if they have a high cost of time, for public transportation.
The political obstacles to commuting fees have persuaded the traffic economist Richard Arnott that more attention should be paid to substitute methods of reducing traffic congestion. A good deal of congestion is due to commuters hunting for parking places and to trucks blocking streets while unloading, as well as to bad driving (for example leading to more accidents), increased vehicle size (e.g., SUVs), poor road surfaces, road repairs, poor road design, weather, and bottlenecks. The problem is that any measure that reduces congestion without imposing any additional cost on the commuter will, as I mentioned, tend to increase the amount of traffic as commuters and other drivers switch from public transportation to cars or make less effort to avoid rush-hour traffic.
A frequent suggestion for combating traffic congestion is staggered work hours. A favorite suggestion of economists that would have a similar effect would be to make the commuting fee vary by time of day, so that it would be higher during rush hours. But these suggestions involve a hidden cost: by reducing the overlap of working hours, they reduce one of the principal economies of urban business districts--the dense network of face-to-face interactions that such districts enable.
I conclude that until traffic congestion gets significantly worse, little will be done, and perhaps little should be done, to try to reduce it. But I am not pessimistic. In the long run what will reduce traffic congestion will be the continued digital revolution, which will not only increase the amount of telecommuting but also lead to a substantial substitution of virtual for face-to-face interactions in business, shopping, and even socializing. The business district of the future and the mall of the future may be located in cyberspace.
The digital revolution has altered my own commuting. With high-speed internet access I work at home much more than I did when I started as a judge 24 years ago, and rarely have occasion to drive during rush hour.
Posted by Richard Posner at 08:06 PM | Comments (16) | TrackBack
February 05, 2006
Health Care Reform-BECKER
The American system of health care has many attractive features, and the evidence indicates that Americans of all ages greatly value the large increase in life expectancy and the health quality of life that occurred during the past several decades. In addition, many persons from other countries in all parts of the world come here for advanced medical treatment, while few Americans find it worthwhile to go abroad to treatment. But this system is also the most expensive in the world as both per capita health spending and the fraction of GDP spent on health are larger than in any other nation.
Fortunately, many of the problems in the health system are correctable with the right policies. I believe the three most important defects are the over 40 million Americans who are not insured, the weak incentives to economize on unnecessary medical spending by most people covered by some form of health insurance, and the tying together of health insurance with employment as a result of special tax privileges provided to employers.
Arguably the best parts of President Bush's State of the Union address are his suggested reforms in the health care system. They do not fully attack all the problems, but they do offer significant improvements. I will concentrate particularly on his proposals to extend Health Savings Accounts (HSAs), and to improve the portability of health insurance when workers change jobs.
HSAs were introduced in 2003 to help consumers pay for non-catastrophic health care, and to give them financial incentives to economize on unnecessary medical expenditures. The law allows contributions to these accounts of up to $2700 for individuals and $5450 for a family, as long as their contributions are not greater than the deductible on their health insurance, which is required to be at least $2100 before a person or family is eligible to open such an account. The number of persons with high deductible health insurance has increased rapidly to about three million persons since HSAs were introduced, and some estimates indicate that over one million persons have an HSA.
If a company provides employees with an HSA, the company can deduct the amount they contribute each year from its reported taxable income. Employees do not have to report as taxable income either their employer contributions or their own contributions. As a result, the number of companies offering health savings accounts to their employees has been growing rapidly, especially among larger companies. The well-known companies that offer these accounts include Wal-Mart, Microsoft, General Motors, and Daimler Chrysler.
Companies are attracted by health savings accounts because of their ballooning spending on the medical care of employees. During the flush times in the past, companies like GM offered health insurance coverage that often had minor or even no deductibles. They discovered much to the damage to their balance sheets that employees can find many frivolous ways to spend money on medical care when they do not bear any of the cost. And since employees have become accustomed to this "entitlement", it is hard to raise co-payments when negotiating with unions. So many companies have started offering HSAs in the few years since the present law took effect.
Individuals who take out health savings accounts on their own are at a disadvantage compared to employees since individuals have to contribute after-tax dollars to their accounts. Other tax advantages are common to both individual health savings accounts and those provided by employers. The amount contributed in any year does not have to be spent during that year on medical care, but can be carried over to future years. This distinguishes HSAs from flexible-spending accounts, where contributions in any year have to be spent in the same year. The balance in a health saving account can be carried over to later years without paying any taxes on it, or on the interest earned on these balances. After age 65, dollars in these accounts can be also spent on non-medical items without penalty, but this spending is treated as income and is subject to income taxes.
The President proposed several highly desirable reforms in the system of health savings accounts. Perhaps most important, individuals setting up an HSA on their own would also be allowed to deduct their annual contributions before reporting their income for tax purposes. Since this eliminates one major advantage of employer-based HSAs over accounts set up by individuals, it is an important step in the right direction of leveling the playing field between individual and employer-based health insurance.
This change, if adopted by Congress, would reduce the number of persons without any type of health insurance. For many of them have jobs at companies that do not offer health plans, and they feel the premiums on insurance that they can take out on their own are too high. The proposed exclusion of contributions to an HSA from taxable income would encourage some of these uncovered individuals to buy insurance and set up an HSA. This would reduce a glaring hole in the American approach to health care.
President Bush also proposed raising the ceiling on how much might be contributed each year to a health saving account by tying the limit to the annual deductible in an health insurance policy. This gives families and individuals even greater incentives to economize on their less essential medical expenditures. After all, the purpose of insurance, health or otherwise, is to protect against very large outlays, not against outlays that are more or less expected year in and year out.
Of great importance, Bush also proposed allowing companies to offer employees portable health savings insurance that they could take with them if they change jobs or retire. A major defect in the employer-based health insurance that the United States has relied on since World War II is that employees may lose their company-based private health coverage when they become unemployed, when they retire, or when they change jobs to one of many companies without health insurance plans.
Studies show that this lack of "portability”"of health insurance coverage reduces job turnover, and makes the American labor market less flexible and efficient than it could be. Indeed, under the present system, virtually the only way people can be reasonably assured of continued health insurance coverage is by remaining throughout their working career with stable employers that offer health insurance. This “"ock-in" effect is undesirable in a dynamic economy where good jobs open up in growing industries, and opportunities in declining industries dry up.
In contrast to employees who continue coverage by remaining with the same employer, individuals with their own health insurance plans sometimes lose coverage after contracting a serious illness, or by making too many claims. For various reasons, it is not possible for individuals to buy long-term health insurance, although what they want is protection against future major medical expenditures since it is uncertain how healthy they will be when they get older.
Bush's proposal to allow employers to offer portable HSAs is an important step toward providing such longer-term coverage for the many men and women who do not continue to work for the same employer, or who want to maintain their health insurance plans after retirement. If the ceiling on how much can be placed in these plans is raised to high enough levels, HSAs could cover all but the medical claims induced by major illnesses. Under present rules, individuals can have a health saving account only if that is combined with a catastrophic health insurance policy.
The President also proposed offering up to $3000 in annual tax credits to help low -income families buy health insurance if they also set up a health savings account. Since tax savings are much less important for lower income families, tax credits seems to be the appropriate way to give poorer families greater incentives to economize on their medical spending. It could also reduce the number on Medicaid since lower income families might prefer to get the tax credit and buy their own health insurance combined with a health savings account.
President Bush has proposed changes in the health care system that initially will reduce tax collections and increase federal spending at a time when the US government is already spending too much and running a sizeable budget deficit. However, by making the health delivery system more efficient, this important set of proposals in the State of the Union address might end up raising tax collections, and certainly would improve the efficiency of the American economy.
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Posted by Gary Becker at 09:29 PM | Comments (26) | TrackBack
Reform of the Health Care System--Posner's Comment
President Bush has proposed a number of incremental improvements in the regulation of health care, and, as Becker explains, they seem desirable. Incremental improvements are doubtless the only ones that are politically feasible until crisis hits. But I would like to examine the issue of health care reform from a more fundamental, though less practical, angle.
Generally, economists believe that the supply of products and services should be left to the market unless there are significant positive or negative externalities. If some people are too poor to be able to buy a minimum market basket, they can be subsidized out of tax revenues, as by a negative income tax, but still left free to choose what to buy.
So what is special about medical care? The primary answer is that our society does not permit people to be denied medical care (for other than trivial complaints) merely because they can't pay for it. They may not be poor; it may simply be that they didn't buy health insurance because they were gambling on staying well, and now a major medical problem has hit them and they can't afford to pay for treatment. If these forms of "free riding" are thought to present a serious social problem, they could be mitigated by making the purchase of health insurance compulsory, with the premiums for poor people being paid for by the government and with every insurance policy being required to contain a major-medical component to prevent underinsurance that would enable the gamblers to shift the costs of a major medical problem to the government. People with such dreadful health prospects that they, though not poor, could not afford to buy health insurance could be placed in an "assigned-risk pool" and distributed among the insurers, who would not be permitted to charge more than some fixed maximum rate to the assigned (poor) risks. Health insurers would compete to reduce premiums by adopting policies, such as generous deductibles or copayments, that encouraged the policyholders to economize on their demand for medical services.
I don't think the problem of the free-riding patient is a very serious one, however, because people who don't have insurance don't get the best (and most expensive) treatment and because most people don't demand medical care unless they have a serious need for it; many people have a horror of doctors and hospitals. The basic reason why so much money is spent on medical care in the United States is that people attach a very high value to their health. The frequent complaint that 15 percent of GDP is "too much" to spend on health care is superficial. When 80 percent of the average family's budget was spent on food, no one thought that this signified a "market failure" in the food industry.
There are problems of information in health care, as in many markets. Greater use of performance measures for hospital and doctors would reduce those problems, and digitization of medical records, which is now under way, will increase competition among health care providers.
The tax burden of government health programs is a matter of concern. There are several measures, though none at present is politically feasible, that would reduce that burden. One would be to eliminate all tax deductions for medical care. Another would be to reduce federal funding of medical R&D. This measure, combined with reducing patent protection for drugs and medical devices, would have the effect of slowing the rate of technological advance in the medical industry. Such slowing would reduce the amount of money that the government spends on Medicare and Medicaid because once an expensive new technology is developed, it is impossible for the government (or insurers for that matter) to refuse to make it available to charity patients. (I do not suggest eliminating federal funding of medical R&D altogether, just as I do not suggest eliminating patent protection for drugs and medical devices altogether. Both basic and applied research generate positive externalities that justify government support, which in the case of basic research takes the form of direct subsidy and in the case of applied research of patent protection.)
Another measure would be to repeal Medicare. Medicaid would remain available for the indigent; and the "assigned-risk pool" device could be used to spare the nonpoor the crushing burden of a major medical problem. There is no reason the taxpayer should pay for the medical care of elderly people who can afford to pay for it themselves.
Finally, an efficiency measure worth considering would be to reallocate federal funding of R&D from diseases that afflict mainly elderly people, such as most cancers, and from diseases avoidable by behavioral modification, such as AIDS, cirrhosis of the liver, and most Type II diabetes, to diseases that are not avoidable by changing behavior and that afflict mainly children and young adults. Such a reallocation would reduce net medical expenditures and also increase productivity.
Posted by Richard Posner at 09:16 PM | Comments (25) | TrackBack
On the Economy and Hamas-BECKER
Just one comment related to the role of economic factors in Hamas' retaining power. It is of course quite possible that Hamas would try to put an end to further elections, but that would fail unless it either greatly weakens Fatah or they shared power. Still, my post and Posner's emphasize that one election is not democracy, and time will tell whether free elections will continue.
The Palestinian people being ruled by Hamas are very poor with rampant unemployment and with out migration of the most talented. Hamas could possibly replace the one and half billion dollars or so received in aid from other Arab nations, Europe, and the US. Venezuela and Iran alone could give that much, and rich Saudis might also continue to provide generous assistance.
But even twice that amount would not be enough to generate any significant economic improvement in the lot of the typical Palestinian family. The government has to encourage or allow sustained economic progress to accomplish that. I do not see how that is possible, nor are there any historical examples in modern times where that has occurred, without investing in and retaining productive human capital, and encouraging trade in goods and physical capital with other nations.
Can Hamas achieve that while maintaining the destruction of Israel as its primary goal? I think not. So Hamas can highlight its opposition to the existence of Israel, or it can push that into the background, and try to promote economic progress of the Palestinian people. I am not sure which path they will choose, but I believe the probability that they will elect to promote economic progress is being greatly underestimated.
Posted by Gary Becker at 07:27 PM | Comments (6) | TrackBack
Hamas Victory--Posner Reply to Comments
Several comments accuse Becker and me of neglecting the importance of institutions. I don't think this is an accurate accusation. Of course just drafting a constitution or laws creating rights to free speech, etc., is not enough to create a liberal democracy--you need media, courts, police, etc. That goes without saying. My point was only that democracy is not enough; that a nation needs rights as well.
A very interesting question raised by several comments is whether the Palestinians who voted for Hamas were behaving "rationally." On the one hand, Fatah was corrupt and inefficient; on the other hand, Hamas by its extremism and lethal antagonism to Israel could easily bring complete disaster on the Palestinians. I don't think the issue is rationality; it is information. In situations of great uncertainty, the error rate is high. It is easy to point to electoral outcomes, even in nations such as the United States that have a highly educated population and a long history of democratic politics, that in retrospect were clearly mistaken. But I agree with those of you who suggest that redistributive policies, for example those championed by Hamas, have particular appeal to an unsophisticated eelctorate, which doesn't understand the downside of such policies in retarding economic growth.
It was certainly a weakness of my post not to say anything about the religious element in Hamas's victory. I wish I had something to say about the causes and cures of religious zealotry. The one thing that is clear about Islam is that its votaries take religion more seriously than any other body of religious believers. This has profound political implications, but I do not know of any satisfactory analysis of the underlying phenomnenon.
I completely agree with those commenters who say that democracy is not a panacea, that it is compatible with cruel and aggressive policies (with many illustrations from U.S. history). Remember that I'm a Schumpeterian; to me, democracy is simply the system in which the rulers stand for election at frequent intervals. Such a system tends to align policy with public opinion, but there is no reason why public opinion can't be exploitive, discriminatory, etc. What does seem true is that democracy, plus rights, provides a good framework for prosperity, and that a prosperous country is unlikely to initiate a war, because commercial values tend to be antagonistic to martial values. "Unlikely" is an important qualification. A democratic country such as the United States, which has been thrust into an "imperial" position, becoming the "world's policeman," is liikely to be involved in frequent military operations, some of which it will have initiated. But if democratic countries are indeed unlikely to go to war, then two democratic countries are very unlikely to go to war with each other.
Posted by Richard Posner at 09:50 AM | Comments (7) | TrackBack
