Category - Econ-Atrocity

[See part one]
Jonathan Teller-Elsberg, CPE Staff Economist

It’s worth remembering that commons already exist, lots of them, in various places and parts of the world’s economies. Most often, however, they are informal arrangements—holdovers from before the rise of modern market capitalism. In general, commons are not recognized formally by governments as a type of property arrangement deserving protection, the way conventional private property is legally protected.

It is this lack of protection that enables the famous “tragedy of the commons.” Barnes argues that, contrary to the standard perception, commons aren’t undermined by internal tragedies—they are victims of infringement from the outside. Marx described the enclosure of common land into private land as “the primitive accumulation of capital”; today, Barnes is primarily concerned with the ability of corporations to horn in on remaining commons as they seek new resources to exploit for private gain. A recent example is with the digital TV broadcast spectrum, with an estimated value of $70 billion but which the U.S. government gave away for free in 1996 to media conglomerates, even though the airwaves are supposed to be the shared property of all Americans.

An important debate in the social health literature is whether more inequality causes worse health. At some later date I’ll post a bibliography, or maybe commenters can help. In any case the list of publications is long, the contributors illustrious, and the findings varied and at odds with each other. Some of the most important papers representing a range of findings include those by Deaton, Deaton and Lubotsky, Mellor and Milyo, Lynch, et al., Kawachi, Subramanian, et al., Navarro, et al., Wilkinson, et al., and Marmot, et al.

Note that the debate is about the effect of inequality, per se, on health. Everybody knows that being rich reduces mortality and being poor increases it. The relationship between income and health (mortality, infant mortality, life expectancy, morbidity) is so well known in the literature that it is simply known as “the gradient.” It obtains at the macro and micro levels in dozens of studies. For example, let me quote Angus Deaton, who is BTW an inequality-mortality skeptic, “Men in the United States with family incomes in the top 5 percent of the distribution in 1980 had about 25 percent longer to live than did those in the bottom 5 percent. Proportional increases in income are associated with equal proportional decreases in mortality throughout the income distribution” (Angus Deaton “Policy Implications Of The Gradient Of Health And Wealth”). But I digress.

There are three basic channels through which an association between inequality and health could occur. The first two are causal in that social inequality affects individual health.

1. Direct. Inequality creates stress, which is bad for health.
2. Indirect. Inequality disrupts the production of health-supporting public goods or causes the production of health-reducing public bads, which is bad for health.
3. Artifactual. More income improves the health of the poor more than it improves the health of the rich. (The health-income relationship is concave.) A more unequal society will have worse average health than a more equal society with the same mean income because the health gain to the rich from being much richer is not as great as the health loss to the poor from being much poorer. Note that individual income only affects individual health, but the distribution of income affects average health.

A fairly recent entry in the field is Leigh and Jencks, “Inequality and mortality: Long-run evidence from a panel of countries” (Journal of Health Economics 26 (2007) 1-24). Here is a link to a working paper version which is very similar to the published version. In a nutshell, the income share of the richest 10 percent of the population is the measure of inequality, and life expectancy at birth and infant mortality are the two main measures of health outcome.

Jonathan Teller-Elsberg, CPE Staff Economist

A few weeks ago, CPE Staff Economist Jerry Friedman wrote an Econ-Atrocity reviewing Bill McKibben’s new book, Deep Economy. Though he says McKibben “has written a clear attack on much of what ails us,” Friedman nonetheless criticizes McKibben for approaching the environmental and social problems of the day from an individualist perspective. For all that McKibben wants to promote and revive “community,” he has the attitude (says Friedman) of a “personal Salvationist . . . [who thinks that] the enemy [is] ourselves: we use too much, waste too much, want too much; and the only salvation for the environment is to change our preferences, use less, recycle more, and choose to live simply.” What McKibben misunderstands or ignores, Friedman argues, is the power of social institutions to drive behavior, regardless of the desires and seemingly free choices of individuals.

I think that Friedman will find solace in Peter Barnes’ recent book, Capitalism 3.0: A Guide to Reclaiming the Commons, since Barnes’ approach is definitively institutional. The problem, according to Barnes, is that the structure of the economy and society leave too much power in the hands of corporate capitalism. Even if all the CEOs and boards of directors and politicians were replaced with kind-hearted souls like McKibben, we would still face pretty much the same issues of environmental decay, economic inequality, and other social ills—the logic of capitalism and the legal structure of private property rights force the leaders of corporations to do what they currently do. He learned this from personal experience as co-owner and manager of several business ventures, most famously Working Assets (a telephone and credit card company that donates one percent of gross revenues to progressive charitable organizations). “I’d tested the system for twenty years, pushing it toward multiple bottom lines [that consider social and environmental impacts in addition to profit concerns] as far as I possibly could. I’d dealt with executives and investors who truly cared about nature, employees, and communities. Yet in the end, I’d come to see that all these well-intentioned people, even as their numbers grew, couldn’t shake the larger system loose from its dominant bottom line of profit.” (Ironically, Bill McKibben is quoted on the front cover of Capitalism 3.0 helping to promote Barnes’ book.)

By Helen Scharber, CPE Staff Economist

Last month, the recall of 60 million cans and pouches of pet food by Menu Foods left Americans concerned and confused. The pet deaths and illnesses that spurred the recall have since been linked to melamine, a chemical added to animal feed in China to boost its reported protein content. Melamine is not digested in the same way as vegetable protein, however, and therefore lacks nutritional value. Why, then, are Fluffy and Fido eating it? In short, because companies value profits over pets. Using melamine increases profits by lowering costs, and without effective regulation, the drive for profits tends to trump other concerns, including human and animal health.

Melamine is a hard, white, coal-derived substance used primarily to make fertilizer and plastics. You may have melamine bowls or plates in your house; a warning on the bottom declares them unfit for use in microwaves or dishwashers, since high temperatures can cause the plastic to break down and contaminate your food. Animal feed manufacturers in China buy scrap melamine cheaply and add it to feed in order to boost its nitrogen content, which inflates protein levels in tests. According to a Chinese animal feed factory manager interviewed in the New York Times, “If you add it in small quantities, it won’t hurt the animals.” He goes on to justify the substitution of vegetable protein with melamine’s indigestible protein. “Pets are not like pigs or chickens… they don’t need to grow fast.” Profits, he might have added, do need to grow fast, and substituting melamine, at one-fourth the cost of vegetable protein, helps profits grow.

The pet food recall case illustrates the problems that can spring from increasing globalization paired with poor regulation. While the use of melamine in food is prohibited in the United States, it isn’t in China. Because it reduces costs and has the added benefit of beefing up advertised protein levels, Chinese manufacturers use it as a filler, despite its total lack of nutritional content and poorly understood health effects.

The contaminated feed makes its way into the U.S. via companies like ChemNutra, the American importer that supplied the contaminated wheat gluten to Menu Foods. Steve Miller, the chairman of ChemNutra, claims that his company is actually the victim, not the offender. “We are concerned that we may have been the victim of deliberate and mercenary contamination for the purpose of making the wheat gluten we purchased appear to have a higher protein content than it did,” he writes in a public letter. Moreover, according to Miller, “[ChemNutra] had no idea that melamine was an issue until being notified by the FDA on March 29. In fact, we had never heard of melamine before.”

If ChemNutra did not know about the melamine, Menu Foods, the Ontario-based pet food manufacturer that bought wheat gluten from ChemNutra, could not have known either. But if Menu Foods is not to blame for the contamination, they are responsible for the extent of the problem. Menu Foods, a company most Americans hadn’t heard of before March, manufactures wet cat and dog food under nearly 100 familiar brand names. These brands are sold in most major grocery and pet food stores around the country.

Incidents like the pet food recall and last year’s spinach contamination reveal just how concentrated – and, therefore, vulnerable – our food supply is. Such incidents also underline the importance of market regulation. It was the operation of the free market – specifically, Chinese animal feed processors seeking higher profits – that resulted in melamine-enhanced wheat gluten. Legally, the U.S. Food and Drug Administration (FDA) is responsible for protecting our food supply from harmful and illegal substances such as melamine. But faced with increasing numbers of food imports and inadequate staff, the FDA is unable to filter out every last potential culprit. Because the short-staffed FDA is unable to conduct necessary inspections, the Center for Science in the Public Interest (CSPI), in a press release from April 24, advocates a temporary ban of grain products from China. “If U.S. pets must serve as the ‘puppies in the coal mine,’” writes CSPI executive director Michael Jacobson, “we urge FDA to heed the warning and take action now to ban grains and other grain products until the Chinese government and producers can guarantee that these imports are free of illegal and dangerous substances.”

Even if Chinese grains were banned for a while, food production in the U.S. would continue to be complexly intertwined with the global food supply. Thus, federal regulatory agencies must step up their efforts to protect consumers from unsafe food, often a direct result of cost cutting by companies eager to increase profits. Current food safety laws are over 100 years old, and according to the CSPI, the FDA inspection staff has shrunk by 15 percent since 2003. To better protect the public from food-borne illnesses, Senator Dick Durbin and Representative Rosa DeLaura have introduced the Safe Food Act that would create a unified food agency with more modern rules. In tandem with better regulations, we should also make it harder for companies like Menu Foods to sell contaminated food to such large swathes of the country, by encouraging a less concentrated food processing and distribution system. After all, what’s the point of healthy profits if we don’t have healthy pets and healthy people?

Resources

New York Times web page with links to articles about the pet food recall

Center for Science in the Public Interest press release, urging FDA to ban grain imports from China – April 24, 2007

Letter from the chairman of ChemNutra about the pet food recall

Senator Dick Durban’s bill to establish a Food Safety Administration, introduced February 15, 2007 [pdf]

© 2007 Center for Popular Economics

Econ-Atrocities and Econ-Utopias are the work of their authors and reflect their author’s opinions and analyses. CPE does not necessarily endorse any particular idea expressed in these articles.

By Gerald Friedman, CPE Staff Economist

At the time of the first Earth Day, April 22, 1970, the Environmental Movement straddled two approaches to addressing environmental problems, approaches rooted in two alternative theories. Senator Gaylord Nelson of Wisconsin proposed the first Earth Day to “force this issue onto the political agenda,” to promote changed government policy to protect the environment. But many of the 20 million Americans who took part in this first Earth Day were deeply suspicious of organized politics or state action. “Personal salvationists,” they blamed environmental troubles on our weaknesses as individuals. Instead of failed social policy, the enemy was ourselves: we use too much, waste too much, want too much; and the only salvation for the environment is to change our preferences, use less, recycle more, and choose to live simply.

Twenty seven years later, the Environmental Movement confronts the same division between personal salvation and political action, a division nicely illustrated by a new book, Bill McKibben’s Deep Economy. A prominent environmentalist, McKibben has written a clear attack on much of what ails us; but he misses the underlying cause of these ills and, therefore, his prescription for remedial action is necessarily off. In many ways, a pleasure to read, the book also left me so frustrated that I threatened to throw it against the wall.

By Hasan Tekguc

What are honeybees, the favorite economic textbook example of a positive externality, doing nowadays? The short answer is: they are vanishing in droves, in billions.

Let’s take a step back and see what economics textbooks tell us. In many economics textbooks and introductory classes honeybees are referred to as the perfect example of a positive externality. A positive externality is the benefit from economic activity that falls on a party ‘external’ to the activity. Economics textbooks and professors explain that when honeybees visit flower after flower to collect nectar, they help flowers to pollinate. However, honeybee keepers are not paid by orchard owners for honeybees’ services and hence the pollination service is underprovided. The market-based solution offered in textbooks is to expand the market to include the positive externalities; in plain language if the orchard owners start to pay the beekeepers for bees’ services, the beekeepers will keep more honeybees, more flowers will be pollinated, and the trees will bear more fruit.

By Helen Scharber, CPE Staff Economist

On February 8, Representative Louise Slaughter (D-NY) introduced the Preservation of Antibiotics for Medical Treatment Act of 2007, a bill designed to limit the use of antibiotics in healthy farm animals. Though their surnames do not lend themselves as aptly to a bill about livestock, Senators Kennedy (D-MA) and Snowe (R-WA) introduced a nearly identical bill to the Senate the following week. Why are lawmakers suddenly so concerned with porcine penicillin? As Snowe explains, “The effectiveness of infectious disease fighting antibiotics continues to be compromised by their overuse for agricultural purposes.” In other words, the antibiotics we’re feeding our edible friends are speeding the development of drug-resistant super bacteria, a type of progress that’s bad for pigs and for people.

By Heidi Garrett-Peltier, CPE Staff Economist

You are what you eat. And according to Michael Pollan, author of The Omnivore’s Dilemma, that means we’re corn. Corn has now made its way into our diet in the form of fillers, sweeteners, oils, alcohols, pills, and breakfast cereals, not to mention of course the indirect path it takes through animal feed. Why should we care? Because cheap corn has been linked to obesity, and obesity will soon overtake tobacco as the leading cause of preventable death.

By Matthew Riddle, CPE Staff Economist

The Regional Greenhouse Gas Initiative, or RGGI, grabbed headlines in Massachusetts recently when Governor Deval Patrick signed onto it, committing Massachusetts to a cut in its emissions of greenhouse gasses from power plants, and reversing Mitt Romney’s decision to abandon the agreement. In addition to rejoining RGGI, Patrick also outlined some proposals for its implementation, which may prove to be even more significant than his decision to join.

By Jonathan Teller-Elsberg, CPE Staff Economist

With Al Gore on Oprah giving his “inconvenient” PowerPoint presentation, new reports of melting ice sheets and rising sea levels, and the release of the British government’s Stern Review, which is the latest major estimate of the economic costs of climate change, the issue of global warming is becoming a part of mainstream politics and kitchen-table conversations. Since the burning of fossil fuels (oil, natural gas, and coal) is the main source of human-caused warming, the need for alternative forms of energy is clear.

By Helen Scharber, CPE Staff Economist

When your child’s doctor gives you advice, you’re probably inclined to take it. And if 60,000 doctors gave you advice, ignoring it would be even more difficult to justify. Last month, the American Academy of Pediatrics (AAP) issued a policy statement advising us to limit advertising to children, citing its adverse effects on health. Yes, banning toy commercials might result in fewer headaches for parents (“Please, please, pleeeeeeease, can I have this new video game I just saw 10 commercials for????”), but the AAP is more concerned with other health issues, such as childhood obesity. Advertising in general – and to children specifically – has reached astonishingly high levels, and as a country, we’d be wise to take the doctors’ orders.

By Helen Scharber, CPE Staff Economist
Dec. 20, 2006

Ahh, the holidays. So full of joy, laughter, good cheer… and contradictions. The holidays are all about spending time with loved ones. Or are they all about finding the perfect gift? They are a time of relaxation and spirituality. Or perhaps a time of stress and consumerism? According to a 2005 poll by the Center for a New American Dream, more than three in four Americans (78%) wished that holidays were less materialistic, yet shoppers around the country planned to spend an average of $907 on gifts this holiday season. Sixty percent of people polled anticipated spending less this year than last, but according to the National Retail Federation, holiday retail sales were forecasted to rise five percent to $457.4 billion. As Howard Dvorkin, founder of Consolidated Credit Counseling Services, Inc. (CCCS), observes, “It seems that consumers are trying to be more conservative with spending this year over last, but many of the best laid plans fall through when the pressures of advertisers and unrealistic holiday expectations hit a fever pitch of season overload.” The fast pace and high cost of the holidays can seem to be out of our control, but there are a number of good reasons to take the reindeer by the antlers and reign in holiday consumption.

By Gerald Friedman, CPE Staff Economist
Dec. 1, 2006

A recent article in the New York Times (October 25, 2006) entitled “Hospitals Try Free Basic Care for Uninsured” raises an intriguing possibility. The Times reports how some local governments and hospitals have found that by providing primary care, supportive services, and preventive care for the uninsured they can save money by avoiding higher costs when conditions worsen down the road. Following the experience of a diabetic patient at Seton, a Roman Catholic hospital network in Texas, the Times shows how preventive care reduced “costs for the hospital” by helping the woman avoid expensive emergency room visits. By improving her health, preventive care cut her medical bills nearly in half. “The money we save,” Dr. Melissa Smith, medical director of three Seton clinics, “money that is not hemorrhaging through the I.C.U., is money we can do so much more with to help her upfront.”

We could all hope that there will be enlightened insurers who will respond to these stories. The Times is certainly hoping to promote a free-market win-win where the poor will receive care that will help them stay healthy, and health insurers and providers will increase their profits by reducing total expenditures. But this worthy goal misses the fundamental flaw of for-profit health insurance: Capitalist businesses, including America’s health insurers, are not eleemosynary institutions. They do not set out to produce useful things. Instead, they seek to create profits; any social value or use is purely coincidental. In the specific case here, our capitalist health care industry is organized to produce profits; any quality health care that it provides is a desirable, but secondary, product.

By Gerald Friedman, CPE Staff Economist

As I write this, it appears likely that after 12 years in the wilderness, the Democrats will capture a majority in the House of Representatives and will make substantial gains in the Senate. (My favorite objective source, http://www.electoral-vote.com/, gives the Democrats a 225-208 lead in the House and a gain of 4 Senate seats to move to 49-51 in the upper body.) After 6 years of almost uninterrupted one-party rule, and the worst government this country has endured since the 1850s, we can only rejoice at Democratic gains as, if nothing else, a sign of a return to sanity after the trauma of September 11, 2001. But, beyond this, what can we expect from the Democrats? Can we anticipate a reversal of Bushism, and a renewed push for social progress?

By Michael Ash, CPE Staff Economist

A recent finding from two researchers at the Federal Reserve Board implies that rich people did all of the extra consuming during the 1990s “boom.”

They reached their conclusion by looking at savings, the flip side of consuming. While the historic pattern has been that the rich save and the poor eat hand-to-mouth, the pattern of savings stratified by income class reversed over the past decade. The savings rate of high-income households declined very sharply, and the increased savings of the poor partly paid for the upper-class consumption spree.

The overall savings rate (savings as a percent of income) fell from 5.9 to 1.3 percent over the 1990s. Table 1 shows savings stratified by income class.

By Jonathan Teller-Elsberg, CPE Staff Economist

In the U.S., talk of tax reform usually means debates about taxes on income and wealth. A little less common are discussions of flat taxes and a shift from payroll, income, investment, or property taxes to consumption taxes—that is, a federal sales tax.

We’ve seen the miserable results of lowering taxes on the rich, and we’ll be dealing with the massive government debts for decades to come. Flat taxes are simply another way to lower taxes on the rich, under the guise of simplifying the tax system. (To be sure, simplifying taxes is not exactly something to dismiss out of hand—the system is far more intimidating than it should be.) The supposed advantage of a shift to consumption taxes is that the shift away from payroll and/or other taxes should lead to more jobs. This is because a payroll tax makes it “expensive” for a business to have an employee. If the payroll tax is reduced or eliminated, the business will have more money available to hire additional workers. The problem with consumption taxes is that they tend to be regressive—meaning that they fall hardest on lower-income members of society.

Another type of tax reform that deserves more attention is the environmental tax shift (ETS), also known as the green or ecological tax shift. The idea here is to increase taxes on activities that result in environmental damage and use the money generated to reduce other taxes by the same amount. As with the consumption tax idea, most proposals center around reducing payroll taxes.

By Heidi Garrett-Peltier, CPE Staff Economist

In 1810, 84 percent of the U.S. workforce was employed in agriculture. Today, it’s down to two percent. Thanks to dramatic increases in productivity resulting from advances in technology and the mechanization of agriculture, we can produce a great deal more food with far fewer people than we could 200 years ago. But does this progress come at a cost?

Large-scale corporate farms are able to out-compete small-scale (often family-owned) farms and drive them out of business. Economies of scale (the competitive edge gained by being bigger) enable large corporate farms to produce more cheaply than smaller farms. These large farms are able to invest in expensive machinery and buy their inputs (fertilizer, seed, etc.) more cheaply than small farms, which in turn makes it difficult for small farms to compete. One might think that corporate farming is better for the consumer – large farms, producing more efficiently, can offer products at lower prices. In addition, the vast network of global agriculture allows consumers access to many varieties of foods throughout the year that can not be produced locally.

By Thomas Masterson, CPE Staff Economist

The Basic Income Guarantee (BIG) is just what it sounds like: a guaranteed basic level of income. Most proposals suggest that it be distributed to every adult citizen without regard to income or wealth. BIG would replace all of the social programs currently in place that attempt to reduce or eliminate poverty, such as welfare, unemployment insurance, and Medicaid, with a monthly payment sufficient to lift an individual out of poverty.

Interestingly, this proposal is drawing support from the right as well as the left (leftists have long supported versions of this proposal). Even Charles Murray (think “The Bell Curve”) likes it: he has written a book about it in which he seems to say that he thought it up, calling it “The Plan.” By eliminating the need to monitor for fraud and abuse of the system, BIG would actually be cheaper than our current system of multiple benefits and eligibility criteria. BIG would also get rid of the disincentive to work built into the welfare system–often working for pay leads to a decrease in benefits, making work a less attractive option. And, by allowing people to decide on their own what to use the money for (though Murray’s plan calls for $3,000 of his $10,000 annual grant to be spent for health insurance), BIG would increase efficiency. Lefties like it because it frees people from dependence on employers and gives them more bargaining power to demand good working conditions and better pay.

By Helen Scharber, CPE Staff Economist

The new national bankruptcy laws that went into effect in late 2005 prompted a big stir, not to mention a record-setting level of bankruptcy filings just before the laws changed. What is it about the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 that caused so much controversy? Like its Orwellian cousins the Clear Skies and Healthy Forest Initiatives, this act—whose very title suggests it will enhance consumer protections—does anything but. Indeed, the problems with this new law have much to do with what it does not include.

by Jonathan Teller-Elsberg, CPE Staff Economist

After eighteen years holding the reigns of power, Alan Greenspan has finally ended his career as chair of the Board of Governors of the U.S. Federal Reserve, as a result of legal limitations on the length of his term. As the person in charge of monetary policy in the U.S., Greenspan was, by some accounts, the single most powerful person in the world economy. His term as chair coincided with the early 1990s recession that contributed to George H. W. Bush’s loss to Bill Clinton; continued through the longest continuous period of economic growth in U.S. history; included the multi-billion dollar bailout of the Long-Term Capital Management hedge fund in 1998; persisted through the internet-inflated stock market boom and bust as the new century began; and has finished in the current period of feeble recovery.

By Jonathan Elsberg, CPE Staff Economist

One of the more attention-grabbing ideas that has crossed academic disciplinary boundaries, as well as entered into everyday language, is the notion of the “tragedy of the commons.” Made most famous by late Professor of Human Ecology Garrett Hardin in an essay by that name, the idea is not too complicated, very powerful–and rather alarming.

The tragedy describes a situation in which there is public access to a resource. It is to the advantage of each individual to use a little bit extra of the resource, but when all individuals do this simultaneously, the resource is ruined for everyone. Dozens of references to the “tragedy” can be found in newspapers in just the last year, dealing with issues such as depleted fisheries, email spam, risky growth in hedge-fund investing, and worker migration and associated destruction of local communities.

While resources available “in common” sometimes have been tragically exploited, reality is (happily) more complicated, and tragedy is not destiny. One aspect sometimes overlooked by pessimistic analysts is that there are different kinds of common property resources. Some resources are totally open to any and all users, and are properly called “open access” rather than “commons”. These are the ones that are most likely to suffer tragic overuse. The earth’s atmosphere, and its ability to absorb global warming pollution, is one example.

Often, the “cure” recommended for these tragic commons is either strict government control or the conversion of the resource into pure private property. Under the ruling ideology of our times, it is the latter that gets the most promotion.

However, many resources are held in common by a group which is able to sustainably use the resource without resorting to the use of strict private property. The members of the group, be it a local community, professional organization, or national society, control and share access to the resource, yet establish and follow rules of behavior that override greedy urges and keep individual’s use of the resource to an acceptable level. These successful cases of working social rules and norms are arguments against the call for knee-jerk privatization of common properties, or for total government control.

Some examples include the sharing of fishing zones in Alanya, Turkey, maintenance of acequia irrigation systems around New Mexico, U.S.A., and the Ozone Transport Commission NOx Budget established among eight northeastern U.S. states to reduce smog-related air pollution.

These are important lessons, because some potentially tragic commons cannot be fully privatized or put entirely into the hands of the government. For example, avoiding global warming will require extensive international cooperation (there is disagreement on whether this cooperation can be built from the ground up, or must be imposed by a powerful, central world power). Not only will the citizens and businesses of each country have to take responsibility for their CO2 emissions, but each government will have to help establish a working institutional framework for such responsibility within its borders. However, each government, business and individual faces the tragic temptation - allow all the others to control their CO2, while we fake compliance and reap the economic advantages.

No international treaty will hold if the signers don’t want to follow it. Only through combined dedication to the well-being of the whole along with creative, yet feasible, new institutions to guard against cheating will the individual community members make triumphant rather than tragic choices. It is through the study of past common property success and failures that we can learn to succeed more often.

Sources:

Herman Daly, “Logic that leads to a plundered world,” The Guardian (London, England), September 1, 2003, pg. 25. www.guardian.co.uk/wto/article/0,2763,1033054,00.html

Nives Dolšak and Elinor Ostrom, eds., The Commons in the New Millennium: Challenges and Adaptations, MIT Press, 2003. (I especially recommend the chapter by Einar Eythórsson on Icelandic fisheries. It is an excellent analysis of a privatization scheme with mixed positive and negative results.)

Garrett Hardin, “The Tragedy of the Commons,” Science, Vol. 162, No. 3859, Issue of 13 Dec 1968, pp. 1243-1248. (Also available online at www.garretthardinsociety.org/articles/art_tragedy_of_the_commons.html.)

Tor Hundloe and Daryl McPhee, “No reason why we can’t have our fishcake and eat it,” Courier Mail (Queensland, Australia), August 25, 2003, pg. 11.

Barney Jopson, “Don’t turn to hedge funds when depressed,” Financial Times (London, England), March 31, 2003, pg. 25.

Las Vegas (New Mexico) Citizens’ Committee for Historic Preservation, “Historic Acequias of Las Vegas, New Mexico” web-brochure. www.nmhu.edu/research/cchp/tours/acequias/default.htm.

Elinor Ostrom, Governing the Commons: The Evolution of Institutions for Collective Action, Cambridge University Press, 1990.

Jonathan Turley, “Uncle Sam and spam,” Milwaukee Journal Sentinel, (Wisconsin, USA), April 28, 2003, pg. 13A.

(c) 2003 Center for Popular Economics

Econ-Atrocities are a periodic publication of the Center for Popular Economics. They are the work of their authors and reflect their author’s opinions and analyses. CPE does not necessarily endorse any particular idea expressed in these articles.

(6/25/03)
By Anita Dancs, Staff Economist for the Center for Popular Economics and Research Director of the National Priorities Project

With great fanfare, President Bush signed the ‘No Child Left Behind Act’ in 2001. Contrary to Administration claims, this Act will leave many children behind. The Act sets out requirements on public schools in an effort to raise student achievement, but it also promises additional funding. Despite these promises, the Bush Administration’s proposed budget for the coming year would underfund the Act by $7 billion. State and local governments mired in fiscal crises in recent years, will have to find ways of meeting the Act’s requirements while also dealing with rising Medicaid costs, underfunded homeland security mandates, and neglected roads.

By Léonce Ndikumana, Assistant Professor, University of Massachusetts, Amherst

American interest in Africa has been traditionally peripheral, opportunistic at best. In the past, aid to African countries supported client regimes that the United States and its allies needed to prevent the expansion of communism on the continent, as in the case of former Zaire under the late Mobutu Sese Seko. In these circumstances, the objective of economic aid was not economic development of African countries, but instead aid often contributed to propping up dictatorships that catered to the interests of the West.

By Michael Ash, CPE Staff Economist

A recent finding from two researchers at the Federal Reserve Board implies that rich people did all of the extra consuming during the 1990s “boom.”

They reached their conclusion by looking at savings, the flip side of consuming. While the historic pattern has been that the rich save and the poor eat hand-to-mouth, the pattern of savings stratified by income class reversed over the past decade. The savings rate of high-income households declined very sharply, and the increased savings of the poor partly paid for the upper-class consumption spree.

The overall savings rate (savings as a percent of income) fell from 5.9 to 1.3 percent over the 1990s. Table 1 shows savings stratified by income class.

Table 1. Savings rate by income class

Income class	Savings Rate
	1992	2000
Highest quintile	8.5	-2.1
Fourth quintile	4.7	2.6
Middle quintile	2.7	2.9
Second quintile	4.2	7.4
Lowest quintile	3.8	7.1

While in 1992 the richest Americans used to save $8.50 for every $100 of income, their savings rate of –2.1 percent by the end of the 1990s means that they were spending more than $102 for every $100 of income. Meanwhile, the poorest fifth of Americans nearly doubled their savings rate, from $3.80 per $100 earned to $7.10 per $100 earned. Because servicing debt counts as “savings,” we can speculate that the poor spent the 1990s digging out from under the accumulated debts of the previous recession.

Yet the thriftiness of the poor could not offset the profligacy of the rich. So high are the incomes of the richest Americans, that when they spend a lot rather than save a lot, the economy booms—at least for them. The authors calculate that the rich switched $240 billion per year from savings to consumption while the poor switched $40 billion from consumption to savings, for a net contribution of $200 billion to aggregate consumption from changed savings rates.

The authors rebut the view that “it would take implausibly large increases in spending by the richest Americans to generate the rapid growth rates observed in the aggregate expenditure data from 1994 to 2000. To the contrary, our direct investigation of saving rates across the income and education distributions…demonstrates that all of the consumption boom really can be attributed to the richest groups of households.”

So the rest of us will just have to wait for the next boom to enjoy implausibly large increases in our spending.

Sources:

There is a brief description of the Federal Reserve report by Maki and Palumbo at www.businessweek.com/magazine/content/01_23/c3735031.htm and the full text is available from www.federalreserve.gov/pubs/feds/2001/200121/200121pap.pdf.

© 2002 Center for Popular Economics

Econ-Atrocities are a periodic publication of the Center for Popular Economics. They are the work of their authors and reflect their author’s opinions and analyses. CPE does not necessarily endorse any particular idea expressed in these articles.

By Kiaran Honderich, CPE Staff Economist

(Reprinted from CPE’s newsletter, “The Popular Economist,” Spring, 2002.)

Over the last year activists have made important progress in the battle against global AIDS. Developing countries won a partial victory at the WTO ministerial meeting in Doha in November, affirming their right to produce affordable generic drugs in a health crisis. And the appalling mainstream consensus that treatment with antiretroviral drugs was too expensive and complex to be made available in poor countries–writing off literally tens of millions of lives at a stroke–is finally giving way to acknowledgement that treatment is possible in resource-poor settings, although it seems likely to be rolled out in a way that neglects rural populations. These battles are by no means finished–the WTO is still hashing out whether poor countries too small to produce their own generic drugs should be permitted to import them from another country; if Bush gains fast track authority then he will be able to take back the gains of Doha; and South Africa’s ANC government is being dragged kicking and screaming by activists towards the treatment programs that its country needs–but real progress is being made.

By Liz Stanton, CPE Staff Economist

1. You’ve Been Psychologically Conditioned To Want a Diamond. The diamond engagement ring is a 63-year-old invention of N.W.Ayer advertising agency. The De Beers diamond cartel contracted N.W.Ayer to create a demand for what are, essentially, useless hunks of rock.
2. Diamonds are Priced Well Above Their Value. The De Beers cartel has systematically held diamond prices at levels far greater than their abundance would generate under anything even remotely resembling perfect competition. All diamonds not already under its control are bought by the cartel, and then the De Beers cartel carefully managed world diamond supply in order to keep prices steadily high.

Heading for the beach this summer? Take your water-quality-testing kit. A new report from the National Resources Defense Council shows a 50% increase in pollution-related beach closings and advisories from 1997 to 1999. The report explains that few states have comprehensively monitored water quality in the past. Those that have begun doing so, like California, are often finding unacceptably high bacteria counts.

Four states qualified as “beach bums” because of limited or zero monitoring and public notification efforts: Louisiana, Oregon, Texas, and Washington.

For more information, including ratings for beaches you might know and love, check out the National Resources Defense Council web site at www.nrdc.org.

Sources:

Barbara Whitaker, “U.S. Beach Closings Soar With Focus on Pollution,” New York Times, 8/4/000

National Resources Defense Council, “Testing the Waters, 2000.”