Corruption, 2018

Transparency International, the non-governmental organization responsible for the Corruption Perceptions Index (CPI), has released its new findings for 2018 (here). The CPI “ranks 180 countries and territories by their perceived levels of public sector corruption according to experts and businesspeople, [using] a scale of 0 to 100, where 0 is highly corrupt and 100 is very clean.”

2018_CPI_Globa_Map

The top three spots are held by Denmark, New Zealand, Finland, Singapore, Sweden and Switzerland (there are ties at position #3). Compared to 2017, Denmark and New Zealand swapped places, while Singapore and Sweden bumped Norway out of the top three. Denmark’s score remained the same while New Zealand’s fell by 2 points.

The United States was ranked #16 in 2017, but it dropped to #22 in 2018, losing 4 points off its CPI score. Its score of 71 is the lowest since 2012; neighbors on the list are France, United Arab Emirates and Uruguay.

We often focus on countries at the bottom of the CPI, such as Sudan, North Korea, Yemen, South Sudan, Syria and Somalia. These countries deserve attention. Corruption in those countries is compounded by violence and political unrest.

But countries at the top of the CPI are not perfectly clean, either. An analysis by Transparency International, entitled “Trouble at the Top: Why High-scoring Countries Aren’t Corruption-Free,” describes cases of money-laundering, bribery and other cases of public and private malfeasance. The problem is that these countries are home to large multinational corporations that export many goods and service, and that “most of these countries are failing to investigate and punish companies when they are implicated in paying bribes overseas.”

It’s important that we promote transparency, rule of law, democratic processes and leaders of integrity. But it’s probably more important that we care. Vice thrives in an environment of indifference and distraction. Caring means we pay attention to reports of corruption and what goes on in the world, including our own backyards. Less important is what’s the latest show to binge watch on Netflix or what’s happening in our Facebook feed.

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In defense of the morality of capitalism

I am tired of capitalism being misrepresented by politicians, academics and other commentators. Both proponents and critics of capitalism are to blame.

Proponents typically argue that if the government gets out of the way and if people are free to own property and pursue their own interests, everything will be fine. Generalized statements such as this demonstrate virtually no understanding of what capitalism is and how and why it works.

Critics point to problems (e.g., market cycles, corporate scandals, income inequality, etc) as evidence that capitalism is not working and cannot work. Is the fact that the profits of some companies are so high (Apple made $48 billion, Verizon and AT&T about $30 billion each, and Wells Fargo $22 billion in 2018, according to Fortune) an indication that capitalism is functioning as intended, or not?

Several years ago my wife brought home a book from the library for me to read by an academic who proposed ideas on how to solve many of the economic problems we are observing in society. In the introduction the author noted that “standard textbook economics” supports the view that an unregulated capitalistic system consisting of private enterprise will solve all of our problems. Frankly, I am not familiar with any contemporary economic textbook that makes such as claim, and if there is one the author (presumably an academic) should immediately be stripped of tenure. I didn’t finish the book.

adam-smith-9486480-1-402The crucial element of capitalism that is missing by proponents and critics alike is the role of self-restraint, public virtue and justice. Capitalism cannot persist without a people that is willing to exercise some self-control in their personal, economic and public behavior. Even the “father” of modern capitalism, Adam Smith, recognized this. He wrote Theory of Moral Sentiments before Wealth of Nations. Moral sentiments are the foundation, not a by-product, of capitalism. There is a plethora of modern scholarship supporting this view of Smith. Unfortunately, our policymakers, and even many academics, do not keep up with the academic literature.

Justice is the pillar that holds up capitalism. Justice requires both a just people and just institutions. Many, if not most, of the problems we are experiencing in economic society occur because people are excessively selfish. Period. Where is the other-regarding behavior necessary for capitalism to survive? While self-interest is a central aspect of Smith’s economic system (capitalism), selfishness is not.

But the line between self-interest and selfishness is thin. Both Smith and Darwin noted that altruism does not necessarily give individuals a selective advantage, but groups made of up altruistic individuals will. In his 1871 book, The Descent of Man, Darwin said that a group that has members “possessing in a high degree the spirit of patriotism, fidelity, obedience, courage, and sympathy, [who] were always ready to aid one another, and to sacrifice themselves for the common good” would out-compete selfish groups. I can’t believe I’m writing this, but Darwin is correct. So everyone else practice public virtue while I lie, cheat and steal. And that is the rub. Since other people will have this same thought, public virtue and moral behavior decline. Another example of the Prisoner’s Dilemma. This is the root cause of our economic failings.

Capitalism is not the problem. The problem is people who believe that anything they do to enrich themselves will be good for society. Adam Smith’s “invisible hand” does not work this way. If we can’t live with an invisible hand, then someone, or something, else’s iron hand will become all too visible. Note the connection with the foundation of a Constitutional republic. Quoting John Adams: “Our Constitution was made only for a moral and religious people.” And Benjamin Franklin: “Only a virtuous people are capable of freedom. As nations become corrupt and vicious, they have more need of masters.”

If we lose capitalism in our selfish pursuits, then are we really willing to accept what must come in its place?

Should voluntary actions to improve water quality require a regulatory nudge?

Missouri_River_near_Hermann_9-1990

Water quality is a huge problem in many parts of the world. People and animals need clean and uncontaminated water to live. But people also work in and live near enterprises that can create serious risks of contamination, so balancing our interests in producing with our interests in drinking safe water can be a challenge. For example, factories can discharge pollutants and chemicals into waterways, or they might incorrectly store waste resulting in eventual leaching into waterways and underground aquifers. Farms use fertilizers or other chemical inputs that drain into rivers and streams. Ranches and concentrated animal feeding operations produce a lot of animal manure that can contaminate water sources. How do we address these issues in a way that is fair to all stakeholders?

One way of doing this is educating relevant stakeholders and encouraging them to take voluntary actions to reduce their share of contaminants reaching water sources. An example is the Nutrient Reduction Strategy. This is an effort by 12 states, whose farms and businesses contribute to the problem of hypoxia in the Gulf of Mexico, to reduce contamination of the Mississippi/Atchafalaya River Basin (MARB). The US Environmental Protection Agency (EPA) coordinates the effort and encourages states to develop their own strategies “for implementing and developing load reductions,” according to the EPA’s website on the topic (here). This website also links to each state’s strategies and reports on their progress.

Important here is that the EPA “calls” for states to develop and implement nutrient reduction strategies, but it doesn’t require them to do so. In effect, this creates a classic prisoner’s dilemma. While all states recognize the importance of reducing contamination of the Mississippi River, the ideal is for 11 states to do this aggressively while the 12th state does it slowly, since regulations can be costly and unpopular. But if all states face this incentive, then the push for states to get the job done is weakened. So, sometimes a regulatory or legal nudge is needed to move all states to a cooperative outcome.

One way of doing this is to bring a lawsuit against a state that does not seem to be making the progress that one thinks it might otherwise have completed. This recently happened in Iowa. According to a Feedstuffs article, “Groups sue Iowa over water runoff. Suit alleges state of Iowa is failing to protect its waterways from farms.” The lawsuit states the following, as reported in the Feedstuffs article:

“The most recent ‘Iowa Nutrient Reduction Strategy Progress Report’ was released on March 7, 2019. The report acknowledges that adoption of the strategy’s agricultural best management practices was not making sufficient progress towards its nonpoint-source nutrient reduction goal. While annual progress continues in the implementation of these practices, early [Nutrient Reduction Strategy] efforts only scratch the surface of what is needed across the state to meet the nonpoint-source nutrient reduction. Progress has occurred, but not at the scale that would impact statewide water quality measures. Local water quality improvements may be realized in the short term where higher densities of conservation practices are in use, but the ability to detect early trends in measured water quality will vary from case to case. Statewide improvements affected by conservation practices will require a much greater degree of implementation than has occurred so far.”

However, lawsuits can be a double-edged sword. On the one hand, if successful they can push state legislatures to be more proactive in promulgating laws to reduce point and non-point water pollution. On the other hand, defending against lawsuits diverts government attention away from the very thing the lawsuit stresses. According to one farmer quoted in another news report of the Iowa lawsuit (here), “At a time when farmers are struggling financially from low commodity prices and also now from historic flooding, this lawsuit is a low blow. It will divert the state’s financial resources from implementing soil and water conservation practices, and also divert resources away from helping our farmers recover from the latest natural disaster.”

The ideal, of course, is for all of us to recognize the responsibilities we have to be mindful of the environment and our role in contaminating it. Stewardship is a good word here. Those who intensively use natural resources have a particular responsibility to be wise stewards over those resources and to be cognizant of how their actions affect others. Solving the prisoners dilemma is possible without formal laws and regulations, but it requires that everyone cooperative and share the burden.

Aldo Leopold’s Land Ethic

Aldo Leopold Leopold (1886–1948) was a trained forester and early environmental philosopher and ethicist. He taught at the University of Wisconsin, was director of the Audubon Society, and founded the Wilderness Society. He was born in 1886 and died 71 years ago this month (April) in 1948. A nice, brief biography produced by the Aldo Leopold Foundation is here.

a-sand-county-almanac-cover-insetRecently, I had students in my agricultural ethics course read his most famous essay, “The Land Ethic,” excerpted from his book, A Sand County Almanac, which was published a year after his death. In this essay, Leopold argues that we need to change the way we think about land and natural resources, especially how we value them. According to Leopold, the value of the land does not come merely or even largely from its productivity, profitability or commercial value. We must “quit thinking about decent land-use as solely an economic problem,” he writes. Rather, we should “regard the land as a biota, and its function as something broader.”

Leopold was particularly critical of conservation education. He complained that the problem with conservation education was not about volume but rather its content. Leopold wrote, “as I understand it, the content is substantially this: obey the law, vote right, join some organizations, and practice what conservation is profitable on your own land; the government will do the rest.”

I asked my students who have taken conservation, land management and agroforestry courses about their content. While efforts have been made to incorporate principles of sustainability in lectures and readings, my students reported that the underlying messages are still largely governed by economics. As an economist I should be comfortable with this, but as an ethicist I am troubled that after nearly three-quarters of a century, we still have not learned Leopold’s lesson that economic motives must be moderated and self-restrained. We should talk and teach more about stewardship and obligation and less about commodity production and narrow economic self-interest. “Obligations have no meaning without conscience,” according to Leopold, “and the problem we face is the extension of the social conscience from people to land.”

Leopold’s essay is insightful for many reasons. One of my favorite quotes is his commentary about ethics. He says,

An ethic, ecologically, is a limitation on freedom of action in the struggle for existence. … All ethics so far evolved rest upon a single premise: that the individual is a member of a community of interdependent parts. His instincts prompt him to compete for his place in that community, but his ethics prompt him also to co-operate (perhaps in order that there may be a place to compete for).

I don’t think we appreciate how interconnected we are–to each other and to the world around us. My actions affect not only me but also my family, neighbors, coworkers and others in society. But Leopold encourages us also to consider how our actions and attitudes affect the land as well. “The land ethic,” he writes, “simply enlarges the boundaries of the community to include soils, water, plants, and animals, or collectively: the land.”

If you still subscribe to a narrow economic self-interest, then consider the fact that if we fail to continue to appreciate and respect the land and our environment, then when they go we will go as well.

When should we erect statues of prominent public figures?

The violence in Charlottesville, Virginia, centers on a proposal by the city council to remove a statue of Robert E. Lee, the leading general of the Confederate Army during the U.S. Civil War. One of many news articles about the statue and the controversy over its removal is here. Some groups approve of the plan to remove the statue. Some groups oppose the plan to remove the statue. Some group oppose the groups approving or opposing the plan. It’s a real mess.

Rpbert E Lee statue

But the situation in Charlottesville is not just messy and ugly. It is also complicated by persistent and unresolved problems of racial prejudice and discrimination that exist in the country. Therefore, it is not surprising that the question of the statue removal has resulted in arguments fueled more by emotion than by reason.

I don’t pretend to have an answer to these problems. But I would like to revisit the plan to remove the Confederate general’s statue. Is removing the statue the right thing to do? The answer to this question depends on understanding why we erect statues of prominent public figures and when it is necessary to remove them.

I can think of two reasons why we erect statues of or monuments to public figures. One is to honor the person and the other is to honor the cause supported by them. For instance, placing the faces of George Washington, Thomas Jefferson, Abraham Lincoln and Theodore Roosevelt at Mount Rushmore would be appropriate because by most standards these men were honorable and the causes they promoted were as well. In saying this we need not approve of all aspects of their lives. But if we can respect persons and want to acknowledge and remember the causes they advanced, then a statue or monument would be appropriate.

What would we say about a statue of Adolf Hitler in Berlin? Well, if we erect statues to honor the person and their cause, then a statue of Hitler would fail on both counts. No reasonable person can argue that Hitler was a good person and that the causes he advanced were honorable. If we want to ensure that we don’t forget our history, then museums, well-written history books, etc, can accomplish this without the need for a statue.

But what if a person was good and honorable but the cause they advanced was not desirable? Of course, we can consider the other possibility, too. What about a statue to someone who was neither good nor honorable but who supported, promoted or advanced a worthy cause? Would we erect a statue to this person? I’m supposing that we would not. So if we won’t erect a statue for someone who is not honorable but who advanced a worthy cause, is it appropriate to erect or maintain a statue for someone who is honorable but who advanced an undesirable cause? I think this question points to why the issue of the removal of Robert E. Lee’s statue is controversial. There may be things we want to acknowledge, remember and emulate about General Lee as a person, but is the cause he fought to uphold—a political and economic system based on slavery—one of them?

Regardless of how we feel about the statue of Robert E. Lee in Charlottesville, Virginia, we need to agree in principle on the conditions that warrant the creation and maintenance of statues of prominent public figures. Once we have decided on this we can determine whether it is appropriate or not to remove a statue. If statues should exist when these two conditions are met—for honorable persons whose works and ideals promoted socially-desirable outcomes—then the answer to question of what to do about the statue in Charlottesville becomes clearer.

If we can’t agree on general conditions or principles for erecting and maintaining statues of prominent figures in public spaces, then debates about the removal of some will degenerate into claims that all statues and monuments will eventually be removed, an outcome that is neither healthy nor desirable for society.

 

Colonel Chamberlain’s speech to Gettysburg mutineers

Our family has a tradition around the 4th of July. We watch the 1993 movie Gettysburg. The movie is based on Michael Shaara’s 1974 book, Killer Angels. The book is an excellent and well-researched account of the Gettysburg battle that combines historical detail with attention to understanding some of the key players. The movie covers the battle at Gettysburg on July 1-3, 1863, where more than 50,000 union and confederate troops lost their lives in battle.

We have this tradition not just because Gettysburg is a great movie (it is), but because it helps us remember the sacrifices so many people have made to make and preserve this great nation of ours, the United States of America. After watching the movie we often read the “Gettysburg Address,” the speech President Abraham Lincoln gave at the dedication of the Gettysburg field as a national park. He ends with the plea “that government of the people, by the people, for the people, shall not perish from the earth.”

We celebrate the 4th of July as Independence Day, the anniversary of the birth of our nation. But we also recognize July 4 as the anniversary after the day of the bloodiest battle on our land since the founding of our country. It was fought in defense of our nation and the principles it was founded upon. Good men died so that children could grow up and become even better men and women. It is important that we remember who we are and who and what came before us, and that we renew our desire to preserve this great nation of ours and make it and our world a better place.

One of the central characters in the movie is Colonel Joshua Lawrence Chamberlain, who commanded the 20th Maine, a part of the Union Army’s Fifth Corps. Early in the movie (about July 1, 1863), Colonel Chamberlain was given charge of a group of mutineers from another (disbanded) Maine regiment. One of the best scenes of the movie is Colonel Chamberlain’s comments to the mutineers. Because of it, most of the men took up arms and joined the 20th Maine, which proved pivotal in the upcoming battle at Gettysburg. This speech, as rendered in the movie, is a classic. Here it is.

This regiment was formed last summer in Maine. There were a thousand of us then. There are less than three hundred of us now. All of us volunteered to fight for the union, just as you did. Some came mainly because we were bored at home — thought this looked like it might be fun. Some came because we were ashamed not to. Many of us came because it was the right thing to do. And all of us have seen men die.

This is a different kind of army. If you look back through history, you will see men fighting for pay, for women, for some other kind of loot. They fight for land, power, because a king leads them or — or just because they like killing.

But we are here for something new. This has not happened much in the history of the world. We are an army out to set other men free. America should be free ground — all of it. Not divided by a line between slave state and free — all the way, from here to the Pacific Ocean. No man has to bow. No man born to royalty. Here, we judge you by what you do, not by who your father was. Here, you can be something. Here, is the place to build a home. But it’s not the land. There’s always more land. It’s the idea that we all have value — you and me. What we’re fighting for, in the end, we’re fighting for each other.

Sorry, I didn’t mean to preach. You, you go ahead. You talk for awhile. If you — If you choose to join us, you want your muskets back, you can have ’em. Nothing more will be said by anybody anywhere. If you choose not to join us, well you can come along under guard, and when this is all over I will do what I can to see you get a fair treatment. But for now, we’re moving out. Gentlemen, I think if we lose this fight, we lose the war. So if you choose to join us, I’ll be personally very grateful.

I wonder if it would help if our elected representatives in Washington watched this movie together.

Economic principles and healthcare reform

On Thursday, May 4, 2017, the US House of Representatives passed a bill repealing major aspects of President Obama’s healthcare law (Obamacare), as reported (here) in the Wall Street Journal and other news outlets. The bill goes to the Senate for a vote. The bill ends mandates for people to carry health insurance and for companies to offer specific types of health coverage, among other things. Another Wall Street Journal article (here) states that backers of the bill “are betting that these changes will engender competition, draw healthier people into the insurance pool and cut premium prices overall.” Interesting, this is the same justification that backers of Obamacare gave when it was passed in 2010.

I know a thing or two about economics. There is nothing in economic theory or experience to suggest that anything in the old or new laws will necessarily increase competition or lower costs. Competition exists when there are many buyers and sellers in the market, where it is relatively easy for buyers and sellers to enter or exit the market, and where “all” sellers sell products or services that are similar enough so that it is relatively easy for buyers to comparison-shop for the best product at the best price. In this system, sellers have incentives to lower costs and prices and to increase quality in order to attract customers to their products. Companies that do this well are rewarded with profits; companies that don’t do this well go bankrupt. The incentive to lower costs and prices and to increase quality diminishes when it is difficult for buyers to compare products and services — that is, when it is costly for consumers to shop around, and when companies know it is costly for consumers to shop around — and when it is difficult for potential sellers to enter markets — that is, when there are barriers to market entry. The health care system is rife with problems of comparison shopping and market barriers. That is, the health care system is not a great model of markets and competition, and it won’t be anytime soon.

The root cause of the problem with contemporary health care is the thing Americans like most about it. We pay a monthly fee for health insurance. Then when we get sick or need health care services, we might pay a nominal fee (e.g., $20) in return for health services, while most of the cost of care is paid by insurance companies whose revenue comes from the thousands of patrons paying the monthly fee. Once we have health insurance, we have no incentive to shop for the best healthcare product at the best price, but rather the best healthcare product at any price, because the primary cost of service is paid by the insurance company. The insurance company does not have a strong incentive to induce health care providers to lower costs because the company can pass costs on to patrons.

Even when individuals want to know the cost of a particular medical procedure or service, it is nearly impossible for them to get a straight answer. “How much will the physical therapy cost?” I once asked a clerk at the reception desk? “I don’t know. It depends on the contract your insurance company has with us,” was the reply. “What is your normal rate, and what discount does my insurance company offer on that rate?” I asked. “I don’t know what our main charge is. Your discount will depend on your co-pay and co-insurance.” The conversation never got any better. Only after I got the bill did I learn what the cost of the service was.

Transparency in pricing for medical care will help here. Giving individuals an incentive to price-comparison shop will help, too. Health savings accounts can do this. Recently I have been scrutinizing our health insurance bills because we have a health savings account. It’s time consuming because there are so many individual charges, most of which I do no understand. In one instance we received a bill for a doctor’s visit on a day we could prove no one in our family was at the clinic. If I was not paying out of a health savings account I would not have thought twice about questioning the bill. The insurance company would have paid it. But I did question the charge and was able to get it removed.

I understand the health care system is very complex. But economic principles are not.