The New Prohibitions - Drugs and Prostitution

In a fit of largely useless moralising, our governments - both State and Federal - have criminalized drug possession and use as well as the sale and consumption of commercial sex.

The efforts to stamp out illegal drugs can best be described as a total and very expensive failure while prostitution - the "oldest profession" - continues to flourish. Mostly this is because these enforcement efforts ignore the fundamentals of economics.

There is no evidence that there is anything that looks like a major imbalance between supply and demand in either of these lines of business. There is, however, a major imbalance in the enforcement efforts.

In both the drug trade and prostitution, most of the law enforcement effort is concentrated against the suppliers. While some drug users are given grossly harsh sentences for possession of relatively small amounts of drugs, these users tend to be the poorest and least influential members of the customer base.

In the sex business, prostitutes are routinely arrested for soliciting and fined (i.e. just another cost of doing business like a tax or license) but their customers, except for the occasional "name and shame" program, are largely ignored.

We have two choices. Either we can legalize these businesses so that excess profits are removed, and taxes are paid, or we can get serious about law enforcement.

Legalization appeals to libertarians but is not, in the current environment, a political possibility. Getting serious about law enforcement, therefore, is the best option. Given the profits available in both of these trades, attacking the supply side is doomed to failure: reducing supply raises prices which increases supply in an endless loop.

What then?

How about going after the customers and reducing demand? What do you think would be the effect on consumption - and the coolness of drug use - if quite a few Hollywood stars and Wall Street investment bankers got ten years for cocaine possession, rather than being sentenced to a treatment facility and six months probation? Raising the risks, and reducing the cool factor, will definitely reduce consumption.

Forty years ago, smoking was cool and every movie showed the stars with lighted cigarettes. Now smoking is dumb, and uncool, so demand is down. The same process will work for illegal drugs.

With respect to prostitution, most of the customers are already vaguely ashamed of their tastes. Let them be arrested, named, shamed, and jailed. Demand will dry up amazingly quickly.

Alternative energy and the market.

While markets have problems, they are generally far preferable to government intervention.

One of the ways in which markets fail occurs when capital costs are high and when the time required to bring alternatives into production is long. Too often, Government's first response is regulation. It should be a last resort.

Right now, the vast majority of our energy is derived from fossil fuels. Unfortunately, fossil fuels were created over millions of years and burning them can be likened to spending an inheritance rather than investing it for sustainable income.

At some stage, in the not so distant future, the supply of fossil fuels will be insufficient to meet the demand. We will have spent so much of our inheritance that there is not enough to support our lifestyle.

While the exact date is not important, it is clear that conversion to sustainable energy sources (wind, solar, tidal etc.) will be a long process. It is also clear the immediate costs of sustainable energy sources make them mostly uncompetitive now.

How then should the government react when the market is not yet giving price signals that will enable conversion to sustainable energy sources in a timely manner?

Just considering the supply issues, we can agree - even without introducing issues of global warming - that burning fossil fuels is bad idea (although not, perhaps, if we don't care about our children and grandchildren) and that we need to convert to sustainable and renewable sources of energy.

Europe has introduced a so-called "cap and trade" mechanism for controlling Carbon Dioxide (CO2) emissions. In theory, this will limit the use of carbon based fossil fuels and encourage those who can reduce their usage at the least cost to do so.

Unfortunately there were two fatal flaws in the first phase of the system. First, emissions permits were issued at no cost to the recipients and, second, far more permits were issued than were demanded. This is a classic case of government regulating and getting it wrong. The result was that there were large costs incurred to produce little that was good. The second phase may be better but the market is still best.

The U.S. government is now considering a cap and trade system. It also subsidizes alternative energy sources. So we have the government regulating - with the risk of getting it badly wrong - while simultaneously setting the scene for the lobbying industry to get its clients favored at the expense of economic sense - and trying to pick winning technologies.

Sometimes, in the case of the subsidies for domestic ethanol combined with sky high import duties on Brazilian ethanol, it does both at the same time!

Since government's record in picking winners is really poor, we need another way forward. That solution is the market but, in this case, the market needs a bit of help.

Since burning fossil fuels is a bad idea, tax them - a lot. To avoid economic disruption raise the taxes over a period of a few years which will allow energy users and suppliers to adjust in a controlled manner. Reduce or abolish other taxes (many are inefficient, unproductive, or outright harmful) to compensate for the increase in energy costs.

Since no one really knows what alternative technologies will work best, let the market choose.

To tax what we know is bad will work far better than trying to guess what might be good - and then subsidizing it.

Medicine and the market

There are politicians and economists, mostly Republicans, who claim that the "market" is the solution for our current health care cost crisis. They neglect important characteristics of a market.

The first problem is the fact that we have a semi-socialized system where a third party insurance company, rather than the customer, pays. We have prepaid medical services plans rather than insurance plans.

For those who have good coverage, the price of medical care is essentially zero. Economics 101 is clear: as the price of a good or service declines to zero, demand rises uncontrollably.

Another major problem is asymmetry of information. I have a degree in agricultural science and, for various reasons, far too much experience as a customer of the medical profession. Notwithstanding the fact that my understanding of anatomy, physiology and pharmacology is far superior to that of the average patient, I am still woefully unqualified to negotiate the details of my care with a physician or hospital.

Up until 15 years ago, the trade of Used Car Salesman used to be highly profitable. While buyers knew that they had been taken, they did not know how badly and had no effective way of fighting back. Now the information that is available online has largely negated - at least for those who do their homework - the information asymmetry that used to be exploited by used car salesmen. The market is working much better. In medicine, there has been little progress in reducing the assymetry of information problem.

Then there are the advertisements designed to generate consumer demand:

Ask your doctor if [this expensive and highly profitable pill] is right for you.

The customers duly appear, demanding [this expensive and highly profitable pill], and the doctor, pressed for time and desiring to satisfy a customer - at least in the short term, duly writes a prescription.

Unfortunately, the amount of information and education needed to perform a proper evaluation of the treatment options offered is more than the vast majority of us can acquire. And medical professionals have biases: surgeons propose surgery while internists (and pharmaceutical companies) propose medication.

Few patients will ever be qualified to suggest a treatment plan but in all dealings with the medical profession, scepticism is a major asset.

Governor Eliot Spitzer: only the most recent hypocrite.

Eliot Spitzer, Governor of New York, resigned yesterday after being linked to a high priced ($5,000 per hour!) prostitution ring.

And there are many other politicians who have resigned under a cloud, are serving jail terms, or are just sneaking around up to no good.

We should not be shocked since there is nothing new under the sun. These quotes merely prove that proposition:

When they call the roll in the Senate, the Senators do not know whether to answer "Present" or "Not guilty."
Theodore Roosevelt.

It could probably be shown by facts and figures that there is no distinctly American criminal class except Congress.
Mark Twain

Enough said!

Senator George McGovern

Senator McGovern was the 1972 Democratic candidate for President. His platform included abandoning the [unpopular] Vietnam War, slashing defense spending by at least one third - while the Cold War was still raging, and providing a guaranteed income to every American.

He lost to Richard Nixon by a landslide because he was, then, far too left wing and radical for the country. Among the accusations leveled at him - by an anonymous Democratic Senator - was that he stood for acid, amnesty (for draft evaders) and abortion. The loss of his Senate seat came in 1980 as a part of the Reagan Revolution.

Those of us who remember 1972 tend to dismiss the Senator as a raging lefty from whom the country was mercifully spared. In his retirement, however, he has said some things that I, a naturalized American who believes that we need a refresher course in the Declaration of Independence, much appreciate.

These quotes from Senator McGovern's March 7 article in the Wall Street Journal are worthy of extended contemplation:

"Since leaving office I've written about public policy from a new perspective: outside looking in. I've come to realize that protecting freedom of choice in our everyday lives is essential to maintaining a healthy civil society."

and

"The nature of freedom of choice is that some people will misuse their responsibility and hurt themselves in the process. We should do our best to educate them, but without diminishing choice for everyone else.

Freedom is the foundation on which our country is built. Some members of the current administration, including the President, seem happy to trade our freedom for the illusion of security or the even greater illusion that we can, and should, be protected from our own mistakes, greed and misjudgements.

When we let them do that, we lose.

Candidates for political office: shouting and shrieking

There were four important Presidential primaries this week. As part of the news coverage, we had the dubious privilege (?) of hearing excerpts from the candidates' speeches.

The best description of Senator Clinton's tone of voice is a harsh shriek while Senator O'Bama merely shouts at us. I don't like the sound of either and wish that they would take voice lessons. That might reduce the level of discomfort that they both inflict on their listeners.

Senator McCain speaks softly, with authority, and his voice carries. He sounds like an extremely confident man who is having a conversation with a highly intelligent person - albeit in a large and noisy room.

Senator McCain appears impressive and presidential while both Democrats remind me of the worst stereotype of a used car salesperson.

Put one more check mark on Senator McCain's side of the ledger.

Measuring Temperature

The USA is one of the few remaining countries to use feet, yards, and miles instead of centimeters, meters and kilometers; pounds instead of kilograms; and the Fahrenheit scale instead of Centigrade to measure temperature.

Napoleon created the metric system to impose logic on an otherwise illogical Imperial [British] system of weights and measures. It is curious that Theodore Roosevelt, when he decided to rationalize American spelling (theater rather than theatre, honor rather than honour etc.), did not force through a rationalization of our system of weights and measures.

For those of you who are vacationing outside of the USA, and are tired of the calculation required to see the temperature in familiar units (F = 32 + C x 9/5), here are some simple rules of thumb:

• at 10C, take off your coat because it is 50F
• at 20C, take off your jacket because it is 68F
• at 30C, take off your shirt because it is 86F
• at 40C, make sure you are in a swimming pool - or an air conditioned building - because it is 104F

Happy vacation!

Clean Coal

Here are two classic statements said to be the first and second greatest lies of all time:

• I'm from the government and I'm here to help you
• The check is in the mail.

The term 'Clean Coal' has a really good chance of displacing one of these!

In reality, there is no such thing as clean coal. If you look at generating electricity from coal, ignoring all of the intermediate steps, the equation looks like this:

C (i.e. carbon from coal) + O2 (Oxygen) --> CO2 (carbon dioxide) + energy

There isn't any way of changing this fundamental process although it can be made a bit more efficient so that we get a more useful energy from a give amount of coal. If we are to refrain from adding to the CO2 in the atmosphere, we must separate it from the stack gases and, somehow, sequester it for a very long time.

Some have talked about using coal to generate hydrogen for use in [clean] fuel cells. Unfortunately, the equation looks much the same although there are a couple of intermediate steps to show. One way is this:

C (needs to be red hot) + H2O (steam) --> CO (carbon monoxide) + H2 (hydrogen) + energy.

Some of the energy is lost in the process.

This product used to be called town gas and was used in the UK and other countries for heating and cooking. It was also a very efficient product for committing suicide: just put your head in the oven and turn on the gas.

For fuel cell use, the CO and H2 must be separated which consumes energy and then:

2 H2 + O2 --> 2 H2O + energy

There is also a bit more energy available by burning the carbon monoxide:

2 CO + O2 --> 2 CO2 + energy

So we start with carbon and water (steam) and end up with carbon dioxide, water and energy - just like burning coal to make electricity. The carbon dioxide must still be removed and sequestered which is hard to do and expensive.

We could skip the town gas step and make hydrogen from water. Generate electricity by burning coal, then use a technique known as electrolysis. Unfortunately, electrolysis is pretty inefficient. The process goes like this:

2 H2O + a lot of energy --> 2 H2 + O2

and using our fuel cell again:

2 H2 + O2 --> 2 H2O + energy.

As if the inefficiencies (and the need to sequester CO2) were not enough, we are faced with the problem that coal does not consist of pure carbon. The main pollutant is sulphur which, when burned, produces SO2. In the atmosphere SO2 is the main component of acid rain. The second problem is that, at the temperatures found when burning coal, nitrogen in the air burns providing a little additional energy (good) and oxides of nitrogen ( really bad) which contribute to acid rain and smog.

There are well established, and relatively economical, methods for extracting sulphur and nitrogen oxides from the power plant exhaust but safe disposal of these materials must still be accomplished. In the USA, pollution resulting from emission of oxides of nitrogen and sulphur is reasonably well controlled. Not so in many third world countries.

It is possible that coal can be cleaned up - at a price - but the technology for CO2 sequestration still needs much development.

Given the current situation, the best thing is to remember that there is no such thing as clean coal. Then beware those who use misleading words to advance an agenda that is unlikely to be in the interests of all of us.