May 3rd, 2005


Eco 200: “Fairness” fanatics

(group) Read, contemplate, exchange thoughts and respond by next Thursday: Thomas Sowell “Fairness” Fanatics

This polemic is better argued than the other Sowell pieces assigned so far.

However, I think he misses a few key points. 1st, he still likes to use straw men for his arguments. In his dismissal of "fairness" on drugs, he paints the picture of a totally unfettered drug market vs. one with price controls. Then he sets about pointing out that price controls would reduce the number of life-saving drugs on the market. But he ignores that drug companies already benefit hugely from price supports, in the form of government paid research, from patent protection (which is a restraint of free trade), from bans on negotiating lower prices, from bans on importation, and other methods. Some of the high prices could lowered not by imposing price controls, but by removing price supports. In addition, much of the high cost of drugs in the U.S. is due to convincing people they need drugs they do not. As Heyne pointed out earlier in the book, the concept of need is fallacious and removes the element of choice. Drug demand (and thus prices) lowered by counter-advertising or removing tax deductions for drug advertising. These still might result in fewer life-saving drugs on the market. I'm not qualified to evaluate the proposals in depth. But it's not simply a question of the unfettered market vs. price controls.

On his life insurance example, he cites the "fact" that it is more expensive to insure men than women, when his example actually shows that it's more expensive to sell annuities to those who live longer and more expensive to sell insurance to those who have more accidents. Rather than discriminate on the basis of sex, insurance companies can discriminate on that basis instead.

He's right, in that there is no such thing as a free lunch. Every choice has associated costs, and someone has to pay them. I'd be more inclined to disagree with "unisex" insurance pricing because I can't see insuranace companies going to the effort to find other ways to price their products, and overall the prices would increase.

However, he ends his polemic with a diatribe against fairness fanatics. I look at this skeptically because I often see people trying to shift the costs of their own economic decisions onto others. For example, drivers who want free roads but not gas taxes or tolls. I see business like pharmaceutical companies take advantage of the manipulated market, much like farmers take advantage of more explicit price supports. It makes sense for them to do so. They are no better than those who argue for price limits.


Eco 200: newspaper a monopoly?

(group) Does a firm have a monopoly if it publishes the only morning newspaper in a particular city? If it publishes the only daily newspaper, morning or afternoon? If it publishes the only daily newspaper and owns the only television channel in the city? What are the various goods that a daily newspaper supplies? With what other goods do they compete?

According to Heyne, no true monopolies exist. A newspaper supplies news & content to subscribers, and advertising space and access to subscribers to advertisers. Some newspaper companies supply other goods such as sports teams, but content and advertising are the two supplied by all newspapers.

Television, magazines, radio, movies, and others supply goods that compete with both types of goods.

DVD suppliers, city parks, and nightclubs also are suitable substitutes for much of the content supplied by newspapers. Most newspaper consumers are filling recreational time. If the price of the newspaper climbs high enough, buyers will fill their entertainment desires elsewhere. Some specialized content cannot be substituted by generic entertainment. For instance, some readers strongly desire local government meeting agendas or public bid notices. Particular content may have fewer substitutes.

The U.S. Postal Service with delivery of direct mail, outbound call centers, and signboard carriers compete in selling advertising space to locals.