Coase Colored Glasses

As we are all aware by now, Friedman says that incentives should be put where they will do the most good. In other words, when fiscal policy is used to stimulate employment (or anything else really) the salient concept should be value. “Where can we get the most bang for our buck?” Derek Thompson of The Atlantic Monthly argues that the $15 Billion jobs bill, which gives employers a payroll tax exemption for all employees hired during 2010, does little or nothing to change the incentives for employers. The point is made that for hiring a $60,000 per year employee, the employer can expect to save approximately $2500 in payroll tax credits. Assuming demand for the good or service produced is unchanged, the added production is meaningless to the employer (as the additional goods produced will not be bought and consumed,  meaning no additional revenue for the producer), leaving him or her with a net loss of $62,500, the cost of paying the new employee minus the tax credit (oversimplified I know, but sufficient to make the point). Obviously, in this case the only employers who will hire (and thus benefit from the bill) are those who were planning to hire anyway. Incentives change for nobody. A more effective solution would be to boost aggregate demand through a more direct stimulus. Basic short-run macroeconomic theory makes clear the “multiplier effect” of government spending. Basically a dollar spent by the government goes farther than a dollar in tax cuts because the dollar is “recycled” through the economy as it passes from government to households, to firms for goods and services, then back to households for factors of production allowing for higher overall income/output in the economy. This extra money being spent increases the demand for goods and services, creating a market based incentive for employers to hire more labor in order to match the increased demand with increased supply. Newly employed workers spend more money, which creates demand for more services, which creates more demand for labor as employers need to boost supply to keep up with increasing demand, causing more workers to be hired, allowing more people to spend more money on goods and services… I think you get the point.

Mr. Thompson finishes by pointing to a blog post by Paul Krugman advocating an extension of unemployment benefits in order to increase aggregate demand. While under normal circumstances, unemployment benefits create a disincentive to find work, with a ratio of five job-seekers to every job opening, these are not normal circumstances. People want to work. The incentive structure for labor is irrelevant right now. What is far more worrisome is the lack incentive for employers to hire right now. In fact, given the interlocking relationship between supply and demand, a temporary expansion of unemployment insurance would likely increase employment in the short run. What do you think?

Friedman describes an efficient rule as a rule where “total gains [are] larger than total losses, making the net effect positive.” This applies to any type of law– be it criminal, tort, or patent law. I’m sure many of you have read about the patent dispute between Apple and HTC. This article discusses the possible inefficiencies if Apple wins the case. The article mentions Apple’s “legal temper tantrum” over “HTC’s alleged infringement on up to 20 Apple patents,” with emphasis on the multi-touch-interface patent. I believe patents are crucial for innovation, because if Apple didn’t have a patent on its multi-touch, what incentives would Apple have to spend millions or billions on R&D? But what happens when patents deter competition and innovation? In that instance, I think some things must be adjusted.

Eric Von Hippel, a professor at the Sloan School of Management, said it best: “It’s a bad scene right now. The social value of patents was supposed to be to encourage innovation — that’s what society gets out of it.  The net effect is that they decrease innovation, and in the end, the public loses out.”

I am a happy iPhone user, but I am pleased to know companies like HTC with Google Android are competing with the iPhone. This competition forces Apple to innovate more and charge a lower price, which is better for me! If HTC is shut down because of this, I will be a less happy iPhone user in the future.

The Associated Press is reporting today about a case being heard before the Supreme Court regarding a tort claim filed against government doctors working for Immigration and Customs Enforcement. The negligence claim arises after the death of 36 year old Francisco Castaneda, an illegal immigrant from El Salvador. Castenda apparently when untreated for penile cancer (yeah, penile cancer … ouch!) while he was being held by I.C.E and later died as the cancer spread throughout his body.  

 This is an extremely odd claim not only because was filed on behalf of an illegal immigrant being held by a federal law enforcement agency, but the highcourt seems to be questioning the legality of the suit with respect to exactly who the tortfeasor is in this case. The basic question being, can the complainant file suit against the doctors individually, or should the suit name the federal government instead. Castaneda’s attorney, Conal Doyle explains: 

“The United States has admitted liability in this case. They’ve admitted their negligence caused his death. And so the only issue really is whether we can pursue these individual claims against the actual medical personnel who cared for him individually,”

Well its not the ONLY issue. First you have the issue that Doyle describes, a federal shield law that would absolve the doctor’s from any liablity in the case. Can anyone say perverse incentives? There is also the issue of a California state statute (that’s where the claim was filed) that would cap any damages awarded to the Castaneda family at $250,000. It’s hard to say what exactly this man’s life could be appraised for given his criminal background and status as an illegal alien. But there is also the issue of if that should be the standard for awarding damages, given the fact that the claim is not one of wrongful death but one of negligence. Finally, the elephant in the room in this story, no doubt, has to be Casteneda’s citizenship status as an illegal immigrant. Should he even have the right to file suit against anyone, let alone the federal government? What do you think?

Re today’s discussion of the second amendment: Mike Munger takes on the New York Times. . Scroll down to “The Grand Game, Handgun Edition.”

This is a common occurrence after a national tragedy, or at least it is now common between the Chileans and the Haitians.  After the tragic quake, the Haitians looted everything, just as what is happening in Concepcion.  The difference between the two countries is that Chile is substantially developed in comparison (which is my assumption).  Why the similarities in the behavior?  Is it the decrease in the risk aversion from the looterees?  Is it a change in the sustainability of livelihood?  Is it the lack of efficiency from the law enforcement?

When we were discussing book one of the Harsh Moon, we were asked what would happen if our class was the last known population on earth.  I am rethinking that conversation after looking at the recent events.  In my opinion, sustainability or survival would become the forefront of our everyday actions.  Looking at difficulty of the livelihood in Chile, I can in a very very roundabout way, condone the actions geared toward nothing but survival (ie food and shelter).  But the stealing of luxuries is not what I would call justified.  Is it occuring because of short-term opportunity cost of no punishment?  The difference between our class discussion and what is happening in Chile is that when the power is restored, the new stereo will sound awfully good.  Is the day that the stereo sings worth the violation of the current laws?

http://www.cnn.com/2010/WORLD/americas/02/28/chile.quake/index.html?hpt=T1