Sunday, September 26, 2010

For the Win and Unions

A while a go Wired magazine had someone post a review of the young-adult book "For the Win" by Cory Doctorow (You can find the book to download for free at: http://craphound.com/ftw/download/). Within the review the Wired author mentioned that the book was about labor rights and unions and that the book had strong economic reasoning for a young adults book. Naturally, this piqued my curiosity. So, I downloaded the book and read it.
For a kids book, I don't think that it was too bad. I thought the characters were pretty flat, the story was a bit repetitive at times and was unnecessarily long. Sadly, I thought his understanding of economic consents was particularly weak. For the most part, the book was filled with the standard critiques of the economic conditions in the third world. Complaints about sweat-shops, child-labor, pollution, exploitation, etc. While some of these things may be bad, as usual, there is very little examination on why they exist, other than to say that they are rich powerful people exploiting poor weak people. I am sorry, but I generally do not think that is really the case.
In addition, I thought that his understanding of arbitrage was particularlly weak. Sure, I think that he explained what arbitrage was fairly well. However, his critique of saying that it does not create any economic value was particularly ignorant. For example, he does not seem to understand that getting goods from one person that values something for $5 to someone that values it at $10 creates economic value. His chapter on arbitrage says that the "neighborly" thing to do would be for a person to work to bring these two people together for free. Under this argument, people should be willing to work at any economic activity for free, because that would be "neighborly". However, his entire book is about people wanting to get paid more, not less.
In one area of the book, he has a child worker that is attempting to create a union in India talking with another worker who says that it is not fair for a boss to be able to fire workers, while workers cannot fire a boss. However, this argument fails, simply because it is incorrect. A worker can very easily fire a boss, it is called quitting your job. Under such an arrangement, that individual that was your boss, no longer has any control over your life. In fact, may of the laws we have today, including union rules, make it harder for a boss to fire their workers, however, we have no laws that prevent a worker from firing their boss by quiting. Just imagine the uproar that would occur if a law was suggested that would prevent people from quiting their job unless there was a justifiable reason, just like the laws that many countries have that require a business to have a justifiable reason to fire a worker.
I think that the reviewer from Wired over sold this book. While I enjoy the video game aspects of the book, the poor economics and poor reasoning of the book is going to prevent me from reading this book again. For the most part, it was entertaining, but not enough for me to want to read it again. Perhaps if I was 15 years younger, or I knew less about economics, I would enjoy it more.

Butt Out and Externalities

I just finished watching the South Park episode "Butt Out." I particularly enjoy this episode, because it points out a lot of the ridiculous things that are done to prevent people from smoking, and it makes the very good point that people may be aware of the health costs of smoking, but still choose to do so. I would recommend that everyone should watch this episode. However, I would like to talk about one reason that is used by many to justify the banning of smoking in just about any public location, such as bars, parks, restaurants, etc.
Many times, when you hear people attempting to justify the bans of smoking in public spaces, they bring up the argument that second hand smoke creates externalities (many make this argument even though they don't know what externalities are). The reasoning is this: smoking by one person imposes costs on other people, due to increased health risks, bad smells, and other external costs. Because of these external costs, or externalities, many people, including economists, seem to think that smoking bans are justified and will actually improve total welfare. However, I think that this argument fails pretty strongly. Why?
This line of reasoning forgets the observation that if people know about these costs a head of time, and still take the action that involves others placing an external cost onto them, they have internalized the cost and no externalize exists. For example, if a non-smoker enters a bar that they know to allow smoking, they are accepting and internalizing that cost when deciding if they want to enter that bar. Again, no externalities exists.
It may be easier to see this by looking at a different example. Suppose that there is an empty field, with no one living there. Now, a factory is built there and the owners of the factory own the adjacent land out to a one mile radius. In addition, the factory emits pollution that spreads out in an exact 1 mile radius, and no pollution extends beyond this one mile radius. Currently, no externalities exist. The owners of the factory and land bear the entire cost of the pollution. Now, what if the factory owner sells some of the land and a family purchases the land and builds a house within the one mile radius and lives there. Does the factory impose an externality onto the family that lives in that house? As long as the family knew about the pollution before purchasing the land, no there is not. They knew about the cost and they internalized the cost when they decided to move onto the land.
The same line of reasoning that was applied in the factory example can be applied to the smoking example. As long as customers, or employees, know about the smoking before they enter the restaurant, or bar, the smoking does not impose external costs on others. They gave internalized the externality. This may be a strong reason for why a law that requires all businesses to post their policy of smoking near all enterances may be a good idea, but it is not a good reason to ban smoking all together.
Admittedly, this externality example is only one of many reasons people give for why we need to ban smoking in private establishments. However, I find the externality to be the strongest case for why smoking should be banned from a private business. However, as you may notice, I find this argument to be particularly weak.