Monday, March 19, 2007

Latin America lender wary of U.S. recession

Source: http://money.cnn.com/2007/03/19/news/international/bc.usa.recession.iadb.reut/index.htm?postversion=2007031906

The article hints at the possibility of a U.S recession, even though it is extremely unlikely. Currently, the housing market in the United States is having a slump, thus directly impacting consumer spendings, leading to a possible recession. U.S Federal Reserve Chariman Alan Greenspan hinted at the possibility of a recession towards the end of 2007. Others remain optimistic that economic growth will continue in the United States. A National Association for Business Economics survey showed that the economic growth for this year was estimated at 2.7%, the lowest value since 2002, the year following the September 11th attack. The IADB claimed that fiscal positions in many countries are expeceted to weaken; however, economic stability won't be jeopardized.

Saturday, March 10, 2007

Anemia drug overused, says FDA

THIS IS MY FINAL COPY FOR MY COMMENTARY, ANY COMMENTS?

Anemia drug overused, says FDA
http://www.montereyherald.com/mld/montereyherald/living/health/16875610.htm

Erythropoietins, anemia fighting drugs, generated $10 billion in sales in American alone last year to fight anemia, a common blood disorder in which the patient’s red blood cell levels are short of normal. According to the article, FDA (Food and Drug Association) reports claim that erythropoietins are being used so aggressively that patients are being harmed. Damages include blood clots in the legs and lung, some fatal, as well as an increased risk in dying for cancer patients.
This situation illustrates two market failures, where the resources are not being allocated at an optimal point. The resource erythropoietin is a clear example of a demerit good, where the government considers the product to be harmful and it is being over consumed. This illustrates one key market failure, problems of information. Theoretically, consumers and producers have perfect knowledge of the market, but in this case, the consumers are not aware of the side effects of erythropoietin. Consumers are purchasing based on inadequate information, causing the market failure. Currently, erythropoietins are being given to some patients at doses higher than FDA approved. The consumption of these good results in a negative externality resulting in another market failure, negative externality of consumption. This occurs when the consumption of a good or service results in the harm of a third party, in this case society as a whole. As people with low red blood cell levels take erythropoietin, there is an increase in the risk of death. Consequently, they will consume hospital space, increasing demand for hospital. Thus, insurance costs and costs for going to the hospital will increase for other people. This is an external cost which is not accounted for when producing erythropoietin. Consumers who consume the good will not take into account the external cost created to other members of society.



Erythropoietin is currently being produced at point a (Q1, P1) where MSC intersects MPB (Marginal Private Benefit). As seen by Figure 1, this does not include the external cost, which results in a negative externality. Point b (Q2, P2) is where the market should be producing to eliminate the market failure; this is where MSC intersects MSB, taking into account all external costs, thus eliminating the welfare loss.

Figure 1. Graph depicting the negative externality resulting from production of Erythropoietin

There are a host of options that would effectively correct this market failure. The most obvious solution would be to ban the use of erythropoietin. This would effectively eliminate all legal uses of this drug; however, this is not the optimal point as production needs to be reduced and not eliminated. This would also destroy shareholders of companies such as Johnson & Johnson who depend on the sales of such drugs. A more realistic approach would be to place an indirect tax on erythropoietin. The tax removes any welfare loss and also gives the government tax revenue. The tax revenue can be placed into research for a better cure for anemia that does not contain the negative externalities that erythropoietin does. The issue with taxes on drugs is that it will only work on a worldwide scale. If prices increase only in the United States, patients tend to purchase the drug in Canada, where prices are significantly lower.



2. MARKET FOR ERYTHROPOIETINS WITH INDIRECT TAX (VAT)

When the government imposes an indirect tax on erythropoietin, the MSC curve shifts outwards to the curve of MSC+TAX. Production shifts from point a (Q1, P1) to point c (Q2, P3), where the light grey shaded area of welfare loss no longer exists. The dark grey area represents tax revenue [(P2-P3) x Q2] received by the government, where consumers pay the tax portion from P1- P3 and the producers pay the portion from P2 - P1.

Figure 2. Graph showing the result of placing indirect tax on a product with a negative externality


Another solution that has already been put in place by the FDA is negative advertising. The FDA has placed black label warnings on all new bottles of erythropoietin being produced. Other forms of negative advertising can include education on the negative aspects of taking the drug. This also effectively minimizes and possibly eliminates the market failure of problems of information.



3. MARKET FOR ERYTHROPOIETINS WITH NEAGATIVE ADVERTISING
As consumers learn about the negative externalities, the MPB curve will shift left to point b, where MSB intersects MSC. Quantity supplied will decrease as well as price and the market will produce at the optimal point, thus the welfare loss will be eliminated.

Wednesday, March 7, 2007

Pollution from China and India Altering Global Whether

Pollution emitted from Asia is severely altering global whether, causing major storms, according to a recent study conducted by Texas A&M University researcher. The researcher points out that severe pollution from the Far East is almost certainly affecting the weather near you.

Renyi Zhang, professor of atmospheric sciences at Texas A&M and lead author of the paper, says the study is the first of its kind that provides indisputable evidence that man-made pollution is adversely affecting the storm track over the Pacific Ocean, a major weather event in the northern hemisphere during winter. The project was funded by the National Science Foundation and NASA.
Zhang says the culprit is easy to detect: pollution from industrial and power plants in China and India. Both countries have seen huge increases in their economy, which means more large factories and power plants to sustain such growth. All of these emit immense quantities of pollution — much of it soot and sulfate aerosols — into the atmosphere, which is carried by the prevailing winds over the Pacific Ocean and eventually worldwide.
Using satellite imagery and computer models, Zhang says that in roughly the last 20 years or so, the amount of deep convective clouds in this area increased from 20 to 50 percent, suggesting an intensified storm track in the Pacific.“This pollution directly affects our weather,” he explains.”During the past few decades, there has been a dramatic increase in atmospheric aerosols — mostly sulfate and soot from coal burning — especially in China and India,” he explains.
“We compared these deep convective clouds from the 10-year period of 1984-1994 to the period from 1994-2005 and discovered these storms have risen anywhere from 20 to as high as 50 percent.”“It is a direct link from large-scale storm systems to anthropogenic (human-made) pollution.” Zhang says the problem is especially worse during the winter months.
Because of various climate conditions, the northern Pacific Ocean is more susceptible to the aerosol effect in winter. Aerosols can affect the droplets in clouds and can actually change the dynamics of the clouds themselves, Zhang adds.The Pacific storm track carries these polluted particles to the west coasts of Canada and the United States, across America and eventually, most of the world, Zhang notes.
“The Pacific storm track can impact weather all over the globe,” he says.”The general air flow is from west to east, but there is also some serious concern that the Polar Regions could be affected by this pollution. That could have potentially catastrophic results.”
Soot, in the form of black carbon, can collect on ice packs and attract more heat from the sun, meaning a potential acceleration of melting of the polar ice caps, he believes. “It possibly means the polar ice caps could melt quicker than we had believed which of course, results in rising sea level rates,” he adds.
The pollution from the storm tracks could also signify wild weather changes, he believes.”You might have more storms, and these storms might be more severe than usual,” he says. “Or it could lead to the opposite — severe droughts in other areas. The Pacific storm track plays a crucial role in our weather, and there is no doubt at all that human activity is changing the world’s weather.”
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This is the post i'm considering on doing for the commentary on market failure. The rise in both the chinese and indian economy has drastically increased the emission of carbon dioxide in the atmosphere. In the past 20 years, the amount of deep convective clouds in this area increased from 20 to 50 percent.

In order for this problem to be solved, the international community has to impose regulations or taxes. China is famously known for the pollution generated by the thousands of coal mines nationwide. The government does have pollution regulations, minimizing the amount of carbon dioxide in the atmosphere; however, it has exceeded the regulated amount each year. It is up to the international communtity, with the likes of American and the EU, to initiate a plan to impose strict rules upon carbon emission in India and China

POLLUTION: A CASE OF MARKET FAILURE OR GOVERNMENT FAILURE? Monday, March 05, 2007

Pollution has been declared indisputably bad. After all, who wants to drink dirty water or breath dirty air? So why not ban it completely and go for a pollution-free world? Why Shouldn't we insist on our politicians taking strident measures to combat the 'pollution menace' and save the planet? The answer is both simple and surprising. Not only is a pollution-free world impossible, it would also be severely damaging to human welfare!
What we should concern ourselves with is not pollution itself but excess pollution. What we must strive for is the socially desirable level of pollution: what the economists call the optimum pollution point. Pollution is generally defined as the release into the environment of man-made impurities. Not so. To have any practical meaning pollution must be defined as substances that are found in a locality and in such quantities as to damage directly or indirectly human welfare.
So what is the optimum? It is that point where cutting pollution by a given amount equals the benefits of doing so. It is that point where we maximise our welfare. Hence we stop cutting pollution when the costs of doing so exceed the benefits. In general, the more pollution is cut the more it will cost to cut it further and thus the gains to society will diminish with each successive redution. It is simply irrational to try and cut pollution beyond the point where the costs to society exceed the benefits. It would be like changing $100 note for a $20 note. It would leave us worse off and we wouldn't willingly do it.
It should be obvious that cutting pollution is not a costless task, regardless of what green propaganda implies. It involves the transfer of labour and capital from other activities. We do not live in a world of superabundance. It is not simply a case of more of everything but more of some things and less of others. In short, we are faced with a choice problem: a 'better environment' or fewer schools, hospitals, clinics, etc. This is something that ideologically motivated journalists and venal politicians do not tell the public.
The real cost of anything, be it a house or a new car, is what you must sacrifice to get it. If, for example, you have only enough money for a car or a holiday, and you choose the car, then the real cost of the car was the forgone holiday. This is what the economists call opportunity cost. And it is the real cost of anything. It therefore follows that society foots the bill for a 'cleaner environment,' not business. Economic laws will always ensure that so-called 'environmental costs' imposed on business will be factored back onto society, no matter what Bob Brown and other greens suggest. There is absolutely no way to escape that fact.
The concepts of optimum pollution and opportunity cost are vital to any understanding of the pollution debate. Without them we are rudderless. They allow us to formulate policies that will help maximise society's welfare while also helping to expose the economic fallacies expounded by the self-appointed guardians of the public interest. (The biggest fallacy/lie of these Green Guards is that 'conservation' is either costless or its benefits always exceed the costs).
This is not to deny that we do have pollution problems. In many instances the optimum is clearly being violated and 'social costs' are exceeding 'social benefits'. This is not caused by market failure, profiteering, capitalist greed or “economic growth at any cost”. (The true cost of growth, incidentally, is always forgone consumption), as claimed by 'conservationists'. It is caused by governments refusing to fully recognise and defend all property rights. Where governments should intervene, they have not. Thus we are faced with government failure and not market failure.
So basically we find that pollution is a private property problem. For example, if a factory spews out a chemical that damages surrounding property, economists call this an externality. What they mean is that the firm is being unwittingly subsidised by the neighbourhood. Firms do this because they are bad, they do it because the local environment is not priced.
The absence of local property rights has sent them a false signal. They have been told that the local environment is a free good that does not have to be factored into their production costs. Because the environment has not been priced investment is misallocated in way that encourages the use of air-polluting technology. (The situation might be different if residents were allowed to make arrangements with the firm that would result in a trade off that is satisfactory to both parties). (R. H. Coase, The Firm, the Market and the Law, University of Chicago Press, 1990).
If the environment is properly priced firms will be forced by economic incentive to treat it as they would any other factor of production. This means that they will have a constant incentive to find more economic ways of using it. Remember that in a free market firms not only strive to make money, they also strive to minimise costs.
As the environmental price will tend to be uniform the more efficient companies will use less of the environment than their less efficient competitors who will be forced to free their resources for other uses. Now some economists have claimed that by pricing the environment we would be directing resources from investment to consumption thus reducing future living standards. It would be better, they assert, to have more pollution so we can have more 'investment'. They believe that the value of the additional 'investment' would exceed social costs of the additional pollution.
They have made a grave error. Pricing the environment actually makes the investment\consumption ratio correspond more closely to consumers' preferences. These economists have overlooked that any investment directed by the market toward cutting pollution is actually contributing to human welfare by conforming more closely to consumer preferences. (Furthermore, these economists have unconsciously tried to substitute their values for those of the consumers. This is what greens consciously do).
However, even though there is no such thing as a free lunch the free market will still let us eat our cake and have it too. How so? Economic growth is the answer. Economic growth is not, as Green fundamentalists claim, a fiendish process based on "stupidity and greed" and which is "wantonly poisoning" and "raping Mother Earth". Economic growth is actually a resource generating process. It is economic growth that has flooded the Western world, and even parts of Asia, with unparalleled abundance.
Because economic growth means material progress which in turn generates more resources (and the greater the growth the greater the progress) we can allocate more of these resources to protecting the environment at less and less cost to ourselves. That is why only rich countries have the resources and the incentives to clean up the environment. The reverse, of course, is equally true.
Remember: richer really is safer and healthier.




Gerard Jackson Founder, the New Australian Brookes News Economic Editor
View all articles by Gerard Jackson

British Documentary: Global Warming 'Biggest Scam of Modern Times'

A British television station is set to do something that no American network (including Fox News) has ever done--air a lengthy documentary arguing that global warming is not caused by humans.
The Washington Times has the story:
With a packet of claims that are almost certain to defy conventional wisdom, a television documentary to be aired in Britain this week condemns man-made global warming as a myth that has become "the biggest scam of modern times."
The program titled "The Great Global Warming Scandal" and set for screening by TV Channel 4 on Thursday dismisses claims that high levels of greenhouse gases generated by human activity causes climate change. Instead, the program suggests that the sun itself is the real culprit.[...]
In his program, Mr. Durkin rejects the concept of man-made climate change, calling it "a lie ... the biggest scam of modern times."
The truth, he says, is that global warming "is a multibillion-dollar worldwide industry, created by fanatically anti-industrial environmentalists, supported by scientists peddling scare stories to chase funding, and propped up by compliant politicians and the media."
Channel 4 says that the program features "an impressive roll-call of experts," including nine professors, who are experts in climatology, oceanography, meteorology, biogeography and paleoclimatology.
There's lots more:
Scientists in the Channel 4 documentary cite what they claim is another discrepancy involving conventional research, saying that most of the recent global warming occurred before 1940, after which temperatures around the world fell for four decades.
Mr. Durkin's skeptical specialists view this as a flaw in the official view, because the worldwide economic boom that followed the end of World War II produced more carbon dioxide, and therefore should have meant a rise in global temperatures -- something he says did not happen.
"The Great Global Warming Swindle" also questions an assertion by the U.N. Intergovernmental Panel on Climate Change's report, published last month, that it was backed by some 2,500 of the world's leading scientists.
Another of Mr. Durkin's professors, Paul Reiter of Paris' Pasteur Institute, an expert in malaria, calls the U.N. report a "sham" because, he says, it included the names of scientists -- including his own -- who disagreed with the report and who resigned from the panel.
"That is how they make it seem that all the top scientists are agreed," he says. "It's not true."