Reason Magazine - Topics > Trade/Globalization

The Pursuit of Happiness

schapman@tribune.com (Steve Chapman) — Thu, 03 Jul 2008 07:00:00 EDT

One of the pleasures of living in America is getting to argue about rights—what they are, who has them, and how to define them. In the last week, we've all had a rousing time debating the right to keep and bear arms. Americans can hardly talk about political issues without invoking these fundamental prerogatives.

Other countries may have a similar inclination to quarrel over whether people have a legitimate claim to religious freedom, a fair trial, health care, or housing. The right to life and the right to liberty, on the other hand, are common assumptions around the world. But only America was founded on a right that, even today, sounds eccentric: the right to the pursuit of happiness.

The delegates in Philadelphia who approved the Declaration of Independence had a long list of complaints about King George III. They excoriated him for maintaining a standing army, dissolving elected assemblies, imposing taxes without the consent of the taxpayers, and sending out "swarms of officers to harass our people, and eat out their substance."

Those are all specific, tangible abuses understandable to anyone. But the idea that the king was somehow interfering with Americans' propensity to chase after bliss was a novel one at the time. No more. One of the notable changes in the world in recent decades is the spread of freedom, including the freedom of each person to pursue happiness as he or she conceives it.

Letting people do that, it turns out, actually makes them content. This may sound like the most incontestable of truisms, but it's not.

Some science suggests that happiness is essentially a fixed commodity. It may rise or fall sharply because of events—getting a raise, breaking a leg—but over the long run, people adapt to those experiences and revert to their natural level of satisfaction (or melancholy).

Scratch that theory. According to a recent global survey, happiness is not only variable but on the rise in most of the world.

Two things, it appears, are needed to increase the supply of happiness: freedom and money. As it happens, a substantial amount of freedom is crucial to the creation of wealth. There is no such thing as a rich totalitarian country, as even the onetime totalitarians in Beijing finally realized. So in a very real sense, freedom is the key to happiness.

The survey, by the Institute for Social Research at the University of Michigan, involved asking people in 97 countries two simple questions: "Taking all things together, would you say you are very happy, rather happy, not very happy or not at all happy?" and "All things considered, how satisfied are you with your life as a whole these days?"

What the researchers found is that in the 52 countries where the poll has been done over the last couple of decades, the percentage of people giving upbeat answers rose in 40. Among the places where smiles have been spreading are such developing countries as China and India, which have grown freer as well as more prosperous.

The same has occurred in much of the advanced world as well, including the United States, France, Canada, Denmark, and Japan. Only four countries (Austria, Belgium, Britain, and Germany) have gotten less happy since the pre-1981 era. They are all free as well as rich, which suggests those two factors are necessary but not sufficient for people to count their blessings.

Still, if money can't buy happiness, it certainly makes misery easier to bear. Some of us might rather be a depressed Brit than a sunny Sudanese.

The Germans also might take a more chipper view of their fortunes were they to consider, say, Zimbabweans, the most unhappy people on the planet. Small wonder, since they live under a psychotic tyrant who has wrecked the economy, inflicting hyperinflation and mass hunger.

The 18th-century English writer Samuel Johnson wrote, "How small, of all that human hearts endure, that part which laws or kings can cause or cure." The people who wrote the Declaration of Independence, by contrast, understood that if you want to be happy, it helps to have a decent government and a free society.

As it happened, they did want themselves and their descendants to be happy. They also created a pretty good model for any country that wants to be.

COPYRIGHT 2008 CREATORS SYNDICATE, INC.

ICANN Embraces Censorship

mriggs@reason.com (Mike Riggs) — Fri, 27 Jun 2008 10:34:00 EDT

The voting members of the Internet Corporation for Assigned Names and Numbers (ICANN) decided yesterday to expand the number of top-level domains (TLD), or ends of web addresses (.com, .org, .net). In anticipation of the vote, I argued that more domain names would be a good thing, for the reasons listed by Jesse Walker, and also on principle: More choice is better than less choice.

But ICANN dropped the ball:

New names won't start appearing for at least several months, and ICANN won't be deciding on specific ones quite yet. The organization still must work out many of the details, including fees for obtaining new names, expected to exceed $100,000 apiece to help ICANN cover up to $20 million in costs....
The streamlined guidelines call for all applicants to go through an initial review phase during which anyone may raise an objection on such grounds as racism, trademark conflicts and similarity to an existing suffix. If no objection is raised, approval would come quickly.

So, what some people initially thought was going to be good for everyone is going to end up being good mostly for the special interest groups that have ICANN's ear. Not one to let the organization's history of bureaucratic failures get him down, tech guru Brad Templeton suggests someone break up ICANN:

In effect, allow a moderate to large number of largely autonomous, competing name managers. Each could have its own system, its own rules, its own prices and its own dispute resolution policy. Each would innovate and price to attract users and win the competitive battle. Some might be almost identical in function, others might be quite radical. Each would have its own brand—as a top level domain, and be fairly free about what was done below it.
The stripped down remains of ICANN would be a trans-national organization, beyond the power of any single national government, which would exist only to maintain the root servers and to assure that the competing name companies remain on a level playing field.

Thanks to Patrick Melody for the Templeton link.

OC Register Outsources Copy Editors

mriggs@reason.com (Mike Riggs) — Wed, 25 Jun 2008 12:30:00 EDT

Many a newsperson has bemoaned the shrinking size of the newsroom, but it seems that at least one paper is welcoming new hires:

An Indian company will take over copy editing duties for some stories published in The Orange County Register and will handle page layout for a community newspaper at the company that owns the Pulitzer Prize-winning daily, the newspaper confirmed Tuesday.

On the opposite side of the newspaper management-labor dispute is Gene Weingarten, who wrote a tongue-in-cheek column for last Sunday's Washington Post Magazine, criticizing the Post's decision to buy out some of its copy editors:

Truth to tell, I feel badly for all copy editors whom, I'm afraid, will suddenly find themselves out of a job. Time has past them by, however, efeated the Red Sox 6-5 in extra innings and it doesn't make sense for us to weep for copyeditors anymore than it makes sense for us to lament the replacement of bank tellers with automated ATM machines.
So to all my former copyediting colleagues, I wish them a soft landing. Finally, I'd like to give particular shoutouts to my friends Pat Meyers and Bill O'Brien, two longtime copyeditors for the Washington Post who took the early retirement: We'll miss ya, guys, even if we didn't need you all that muck.

What's happening at papers has been happening in other industries for a long time: As companies streamline processes and embrace new technology, their demand for labor fluctuates; out with the old, in with the tech savy; etc., etc. The recently retired can kick back, consult, or go back to school and get with the program.

As much as I love the idea of tucking a press card in my hat, smelling a newspaper that has just flown off the press, and naming my hemorrhoids, I really hope the Indian copy editors pan out. Hindus are better than no news.

Leave Martha Alone!

mriggs@reason.com (Mike Riggs) — Fri, 20 Jun 2008 16:54:00 EDT

Britain's Home Office has denied a visa to one of America's most notorious white collar criminals: Martha Stewart.

"We continue to oppose the entry to the UK of individuals where we believe their presence in the United Kingdom is not conducive to the public good or where they have been found guilty of serious criminal offenses abroad," he said.

Theodore Dalrymple's essay from the winter 2001 issue of City Journal offers some context for understanding the Home Office's decision:

The British attitude to immigration and immigrants has always been grudging, a mixture of xenophobia and socialist zero-sum economics. Britons have traditionally regarded the desire of foreigners to come to their shores as more of a threat than a compliment...

Despite the xenophobic, socialist snub, Martha responded as she always does to these little inconveniences—in good form:

"She has engagements with English companies and business leaders and hopes this can be resolved so that she will be able to visit soon," Charles Koppelman, chairman of Martha Stewart Living Omnimedia, said in a statement.

If standard efforts at negotiations fail, she should send the Home Office some treats.

To read about how other government entities have tried to hurt sweet Martha, check out reason's "Why Martha Stewart should go to heaven and the SEC should go to hell."

'Our Flag Is Hip-Hop'

khowley@reason.com (Kerry Howley) — Fri, 13 Jun 2008 12:00:00 EDT

One Company Wants to Buy Another Company. America Is Doomed!!!

matt.welch@reason.com (Matt Welch) — Thu, 12 Jun 2008 12:28:00 EDT

So, the Belgian beermaker InBev, which brews Beck's and Stella Artois, wants to buy the maker of even shittier beer: Anheuser-Busch. But not if idiot Republican politicians have any say in the matter!

Republican Gov. Matt Blunt said Wednesday he opposes the deal, and directed the Missouri Department of Economic Development to see if there was a way to stop it.
"I am strongly opposed to the sale of Anheuser-Busch, and today's offer to purchase the company is deeply troubling to me," Blunt said in a statement.
Web sites have sprung up opposing the deal on patriotic grounds, arguing that such an iconic U.S. firm shouldn't be handed over to foreign ownership. One of the sites, called SaveAB.com, was launched by Blunt's former chief of staff, Ed Martin.
"Shareholders should resist choosing dollars over American jobs," Martin said in a statement Wednesday night. "Selling out to the Belgians is not worth it - because this is about more than beer: it's about our jobs and our nation."

One of many ironies in the matter is that Anheuser-Busch lifted the name "Budweiser" from a Czech brewery that first opened in 1795 (the word has been used to describe beer from the town of Ceske Budejovice since Medieval times). A-B has been licking its chops at the prospect of buying the original makers of Budweiser, but Czech protectionism (and the outstanding trademark disputes) has kept it from being privatized.

Bonus bad joke, grafted from the grand and pointless old Coors-boycott days of my youth: How is drinking Budweiser like making love in a canoe?

A: It's fucking near water!

The Top Ten Solutions to the World's Biggest Problems

rbailey@reason.com (Ronald Bailey) — Fri, 30 May 2008 15:00:00 EDT

Copenhagen, May 30—Where in the world can we do the most good? Supplying the micronutrients vitamin A and zinc to 80 percent of the 140 million children who lack them in developing countries is ranked as the highest priority by the expert panel at the Copenhagen Consensus 2008 Conference. The cost is $60 million per year, yielding benefits in health and cognitive development of over $1 billion.

Eight leading economists, including five Nobelists, were asked to prioritize 30 different proposed solutions to ten of the world's biggest problems. The proposed solutions were developed by more than 50 specialist scholars over the past two years and were presented as reports to the panel over the past week. Since we live in a world of scarce resources, not all good projects can be funded. So the experts were constrained in their decision making by allocating a budget of an "extra" $75 billion among the solutions over four years.

Number 2 on the list of Copenhagen Consensus 2008 priorities is to widen free trade by means of the Doha Development Agenda. The benefits from trade are enormous. Success at Doha trade negotiations could boost global income by $3 trillion per year, of which $2.5 trillion would go to the developing countries. At the Copenhagen Consensus Center press conference, University of Chicago economist Nancy Stokey explained, "Trade reform is not just for the long run, it would make people in developing countries better off right now. There are large benefits in the short run and the long run benefits are enormous."

Nobelist and University of California, Santa Barbara economist Finn Kydland noted that unless the economies of developing countries grow, they will still be mired in the same problems of poverty ten years from now as they are today. "By reducing trade barriers, income per capita will grow, enabling more people in developing countries to take care of some of these problems for themselves."

The remaining top ten priorities addressed problems of malnutrition, disease control, and the education of women. For example, the number three Copenhagen Consensus priority is fortifying foods with iron and iodized salt. Two billion people do not have enough iron in their diets which results in energy sapping anemia and cognitive deficits in children and adults. Lack of iodine stunts both physical and intellectual growth. More than 30 percent of developing country households do not consume iodized salt. Correcting these mirconutrient deficits would cost $286 million per year. The other seven of the top ten solutions include expanded immunization coverage of children; biofortification; deworming; lowering the price of schooling; increasing girls' schooling; community-based nutrition promotion; and support for women's reproductive roles.

Take solution number seven, lowering the price of schooling. Nobelist and Chapman University economist Vernon Smith emphasized that this solution is not about lowering the cost of schooling, but reducing the price faced by poor parents who have to choose between sending their kids to school and having them work to supply household income. Ways to reduce the price is to supply vouchers or channel more public funds to schools. When Uganda cut school fees by $16 per year (60 percent), enrollment nearly doubled, with most of the increase in enrollment being girls. Smith pointed out that research shows that educating girls increases average productivity more than does educating boys. The cost for this proposed solution is $5.4 billion per year.

So what proposed solutions are at the bottom of the list? At number 30, the lowest priority is a proposal to mitigate man-made global warming by cutting the emissions of greenhouse gases. This ranking caused some consternation among the European journalists at the press conference. Nobelist and University of Maryland economist Thomas Schelling noted that part of the reason for the low ranking is that spending $75 billion on cutting greenhouses gases would achieve almost nothing. In fact, the climate change analysis presented to the panel found that spending $800 billion until 2100 would yield just $685 billion in climate change benefits.

Noting that he has been concerned about climate change for 30 years, Schelling argued that tacking climate change will take public policy responses such as carbon taxes to address the issue. Schelling added, "The best defense against climate change in the developing countries is going to be their own development." He explained that funding education to create a literate labor force boosts the productivity of a country enabling economic growth. Economic growth produces wealth that helps people address and adapt to the problems caused by climate change. Bjorn Lomborg, head of the Copenhagen Consensus Center, pointed out that funding research and development of low-carbon energy technologies is ranked at a respectable number 14 out of the 30 solutions considered.

Also low on the list of priorities are proposals to reduce outdoor air pollution in developing country cities by installing technologies to cut the emissions of particulates from diesel vehicles. Other low ranked solutions included a tobacco tax, improved stoves to reduce indoor air pollution, and extending microfinance. These are not bad proposals, but other proposals were judged to provide more bang for the 75 billion bucks available in the exercise.

The experts chose not to bother ranking any of the proposed solutions to the challenge of transnational terrorism. This is not surprising. Even the scholar (funded by grants from the Department of Homeland Security) who did the benefit cost analysis for the Copenhagen Consensus project found that we get just nine cents of value for every dollar spent trying to stop terrorists. Interestingly, the number 1 priority identified by the experts in the 2004 Copenhagen Consensus was combating HIV/AIDS. That dropped to number 19 in the 2008 ranking.

How does the ranking of solutions by the participants in the Youth Forum compare to the experts' ranking? Youth Forum participants also ranked supplying vitamin A and zinc to poor children in developing countries as their number 1 priority. In general, the Youth Forum placed a stronger emphasis on solutions aimed at preventing disease and malnutrition. Here's the list of the Youth Forum's top ten in order, followed by a number in brackets indicating the experts' ranking of the same solution: vitamin A and zinc supplements [1]; malaria prevention [12]; borehole wells [16]; immunization [4]; health and nutrition programs [not ranked separately by experts]; community-based nutrition promotion [9]; iron and iodine fortification [3]; tuberculosis treatment [13]; total sanitation campaign [20]; HIV combination prevention strategies [19].

The biggest difference between the two rankings is that Youth Forum gave the Doha trade negotiations a low priority. Speaking with several participants revealed that trade ended up near the bottom because the youths were concentrating on how to allocate the $75 billion budget. Trade was considered by many to be an issue of "political will" which did not fit into any budgetary category. Interestingly, the experts basically agree with that perception because they deduct no costs from the $75 billion budget when allocating expenditures among their top priorities.

The Copenhagen Consensus process is certainly not perfect. However, its use of benefit cost analysis helps concentrate the attention of policymakers, charitable foundations, and members of the public on the relative urgency and costs of the world's big problems. As the final press release quotes economist Finn Kydland, "It's hard to see how one could do any better in terms of coming up with a well-founded list of where to start for the purpose of the betterment of the dire conditions in much of the rest of the world."

The complete ranking of the 30 proposed solutions to ten of the world's greatest challenges by the Copenhagen Consensus 2008 Conference are available here.

Ronald Bailey is reason's science correspondent. His book Liberation Biology: The Scientific and Moral Case for the Biotech Revolution is now available from Prometheus Books.

Disclosure: Danish taxpayers are paying my travel expenses to attend CC08. There are no conditions placed upon my reporting.

Read reason Science Correspondent Ronald Bailey's previous dispatches from the Copenhagen Consensus Conference 2008:

Where in the World Can We Do the Most Good? , Ronald Bailey, May 26, 2008

Counterterrorism, Conflict Prevention, or Hunger: Which Would You Spend Money On?, Ronald Bailey, May 27, 2008

Does Fashionable Beat Rational When It Comes to Solving the World's Biggest Problems? , Ronald Bailey, May 28, 2008

And the World's Top Priority Is... Free Trade?*, Ronald Bailey, May 29, 2008

Help set the Copenhagen Consensus for 2008! Go here to rank global problems and proposed solutions.

The results will be tabulated and announced next week at reason online.

Sharon Stone's Bad Karma About Bad Karma

gillespie@reason.com (Nick Gillespie) — Thu, 29 May 2008 07:22:00 EDT

Luxury retailer Christian Dior has pulled advertisements featuring Sharon Stone from stores across China after the actress suggested the country's earthquake was "bad karma" for Beijing's policies in Tibet.

At least 68,000 people died in the May 12 quake in southwest China, which came months after unrest in Tibet that sparked an international outcry over Beijing's handling of the predominantly Buddhist region, which Communist troops entered in 1950.

"Due to some customer reaction we have decided to pull her image from all of the department stores and from all of China," Christian Dior China said in a statement.

More here.

Questions: Does this demonstrate the endless vapidity of Hollywood stars who rule the world like the dinosaurs once did? Or Sharon Stone's firm grasp of karmic understanding? The power of the market responding to new signals by punishing those who disappoint or dismay consumers? The power of a government that oversees the people who produce a ton of luxury goods sold in the West? Do Buddhists simply get what they deserve in every situation? Why was Buddhism so popular for a while among Westerners (Zen Archery, Hesse's Siddartha, Gary Snyder, "Karma Chameleon," and all that)? Do Theravada Buddhists emit less karma than than Mahayana believers (actual mileage may vary)?

Sharon Stone at Wikipedia here.

Adam Smith on Chinese earthquakes here.

reason's Kerry Howley on luxury fever here.

Help Set "The Copenhagen Consensus"!

info@reason.com (Bjorn Lomborg) — Wed, 28 May 2008 16:30:00 EDT

A note from Bjorn Lomborg, author of The Skeptical Environmentalist and the director of the Copenhagen Consensus Project, which seeks to prioritize global policy decisions according to sound science and rational cost-benefit analysis rather than media-driven hysteria:

The pain caused by the global food crisis has led many people to belatedly realize that we have prioritized growing crops to feed cars instead of people. That is only a small part of the real problem.
The crisis demonstrates what happens when we focus doggedly on one specific—and inefficient—solution to one particular global challenge. A reduction in carbon emissions has become an end in itself. The fortune spent on this exercise could achieve an astounding amount of good elsewhere.
In a year, malnutrition in mothers and their young children will cause 3.5 million deaths. Conflict will wreak havoc and cause untold suffering. Malaria will take a million lives—most of them among children.
Yet famine, war, and disease are rated poorly when residents of the First World are asked to name the planetary challenges causing them the most concern. Along with climate change, the issue that creates the most anxiety is terrorism.
The Copenhagen Consensus 2008 project is designed to put fear to one side and highlight the best solutions among all of the world's biggest problems. The research on these pages reveals our stark spending choices in 10 areas.
Comparing costs and benefits is a transparent and practical way to show whether expenditure is futile or worthwhile. It gives us a means to step back and weigh competing options for the public purse or philanthropist's checkbook. It prompts us to take another look at our current priorities and ask: is this really the best that we can do?
Acknowledging that some investments shouldn't be our topmost priority isn't the same as saying that the challenges don't exist. It simply means working out how to do the most good with our limited resources, right now.
In the last week of May, top economists—including five Nobel Laureates—will gather in Copenhagen to weigh the costs and benefits of each policy option, and make a prioritized list showing the best and worst choices.
Have your say ahead of their decision. With limited resources, which challenge do you think global decision-makers should tackle first?—Bjorn Lomborg

What follows are short discussions about how to deal with 10 areas, ranging from air pollution to global warming to women and development. Each topic section includes two options to ameliorate the situation. Each solution has been assigned a benefit-to-cost ratio (BCR) by researchers commissioned by the Copenhagen Consensus Project 2008. For information about the researchers for each section, please go here.

reason online readers are invited to rank which areas of concern they think are most important and which solutions you prefer. You may submit your rankings here. The results will be tabulated and announced on the site next week.

1. Air Pollution

The Olympic Games has given China the motivation to get serious about the smog that chokes its capital city.

Major polluters have been shifted away from Beijing. Coal-burning boilers have been converted to cleaner fuels, and vehicle emission standards have been introduced. All this so that athletes—and the world's media—see clear skies. Sadly, few other cities in the developing world have similar motivation to clear the air. Air pollution—in the form of outdoor urban pollution and of ‘indoor' pollution caused by old-fashioned cooking methods—kills nearly 2.5 million people each year; 90 percent of the fatalities happen in developing nations.

Option One: Improved Stoves

There are simple, cheap solutions to the problem of indoor air pollution.

More than 3 billion people are exposed to household pollution. Women and young children are especially affected because they spend more time indoors, near cooking stoves using solid fuels like wood, charcoal, peat, and coal.

The answer is surprisingly simple: improved stoves with good venting of smoke and the use of alternative fuels.

For $2.3 billion in U.S. dollars, we could provide a rocket stove to half the people using unhealthy, old-fashioned stoves. A rocket stove is easy to construct, and uses low-cost materials, and cuts out the negative health effects caused by solid fuel use by a third.

The economic spin-offs from improved health would be 4.6 times higher than the costs.

Option Two: Diesel vehicle technology

In many developing countries, road vehicles are generally found to be the major source of outdoor polution, partly because of high levels of diesel use, badly maintained engine, and little or no emission control technology.

Particulate emissions from diesel vehicles can be reduced by a diesel particulate filter, a device designed to remove diesel particulate matter or soot from the exhaust gas of a diesel engine. A diesel-powered vehicle equipped with functioning filter will emit no visible smoke from its exhaust pipe. Another option is to use a chemical process to break down pollutants in the exhaust stream into less harmful components.

Diesel vehicle particulate control technology is, unfortunately, very expensive, so the benefits are very low compared to the costs.

Experience from several developing city studies shows that retrofitting older and newer diesel-fuelled buses and delivery trucks with particulate control devices has economic benefits worth only 50 cents for every $1.00 spent.

2. Conflict

The food crisis is further increasing global political instability at a time when, according to research by Paul Collier, the risk of new civil wars is already rising. Many recently negotiated peace settlements have left nations fragile, while the commodity boom and the discovery of mineral resources in countries with weak governments have sown seeds for discord.

Since Iraq, the developed world has lost faith in using military force to reduce conflict. However, Iraq is a misleading guide to the effectiveness of intervention. Unlike the vast majority of conflicts, its civil war was sparked by an international war.

The far more typical scenario is a relapse of political violence within a small, low-income, low-growth nation already troubled by fighting. This is the real security challenge that developed nations must deal with this decade.

Option One: Aid

Post-conflict aid designed to stop violence recurring is much more politically acceptable than the use of force.

If it proves just as cost-effective—or more so—than military intervention, then it is clearly a more attractive option.

In a nation recovering from violence, each additional percentage point of national growth lowers the risk of conflict re-emerging by around 1.5 percentage points. In a typical case, achieving a one percentage point lift in national growth requires annual aid of $400 million: Aid is very expensive.

This investment doesn't just reduce the risk of civil war, but also boosts growth. The overall benefits are worth nearly three times more than the costs.

Post-conflict aid therefore looks to be a good use for aid money, but not so spectacular that it would trump most other calls on scarce international public resources.

Option Two: Military intervention

Four new civil wars are expected to break out in the next decade in low-income nations.

The real problem with most peacekeeping interventions is that they are too short—the risk of renewed civil war in post-conflict situations declines slowly with time.

The degree of risk reduction depends, not surprisingly, on the scale of deployment.

Compared with no deployment, spending $850 million on a peacekeeping initiative reduces the ten-year risk of conflict re-emerging from around 38 percent to 7 percent. A smaller military intervention would reduce the risk by a smaller amount.

Because of war's horrendous and lasting costs, each percentage point of risk reduction is worth around $2.5 billion to the world.

The economic benefits to the world from spending $1 billion each year to reduce the risk of conflict add up to $12.6 billion: Each dollar achieves $12.60 of good.

3. Disease

Life expectancy is decreasing in some parts of the world. Ten million children will die this year in poor nations; this figure would be just 1 million if rates were the same as in rich countries.

The hurdle is not just poverty—some poor nations have reasonably good health conditions—but getting cheap treatment and prevention methods to the Third World.

Some health problems receive a lot of publicity. But in areas that we hear less about, we could invest wisely to make a big difference. The two options here (out of seven being looked at by the Copenhagen Consensus's expert panel) are two where the benefits significantly outstrip the costs.

Option One: Tackling Malaria

In poor countries, malaria will claim more than 1 million lives this year—most of them among children under five.

Measures to reduce its transmission are simple. We need to expand the coverage of insecticide-treated bed nets. We need to get more preventive treatment to pregnant women so they don't transmit malaria to their children. And we need to ensure there is more indoor spraying with the much-maligned pesticide DDT.

Treating malaria is becoming harder than it was because of growing resistance of the malaria parasite to the cheapest, most common anti-malarial drugs. Some poor nations cannot afford the new ‘combination' treatments.

It makes sense to combine prevention options like bed-nets with subsidies on the new treatments for poor nations. Spending $500 million would save 500,000 lives a year—most of them children.

The economic benefits from ensuring people are healthier and more productive would be 20 times higher than the costs.

Option Two: Reducing Heart Disease

Third World heart disease seldom makes the news agenda in developed nations. Though not a "sexy" problem, the rewards for investment are high.

Heart disease represents more than a quarter of the death toll in poor countries. Developed nations treat acute heart attacks with inexpensive drugs that aren't available in the developing world.

Spending just $200 million getting these cheap drugs to poor countries would avert 300,000 deaths in a year.

Put into economic terms, the lower burden on the health system and other economic benefits mean that a dollar spent on heart disease in a developing nation will achieve $25 worth of good.

4. Education

A fortune is spent in an effort to get more—and better—education to children in the developing world. A lot of this money could be better spent.

Building more schools isn't the smartest approach. Indonesia doubled its number of schools in six years, leading only to a 3 percent rise in the amount of time kids spent at school. In much of the world, schools already exist where most children live. New ones can just divert them from other schools.

Similarly, many attempts to increase the quality of education go wrong because there's still no agreement on what constitutes "quality."

A quarter of children in developing nations do not complete their first five years at school—but more than half of these kids did start. One cost-effective approach is to focus on eliminating grade school drop-outs in developing nations before we try to attract children who have never attended school.

Option One: Health and nutrition spending

Thirty percent of children in developing countries are moderately or severely undernourished, and nutritional supplements or treatments for intestinal parasites can be an inexpensive way to raise school attendance and increase physical and mental capacity.

Children who are better nourished in their first years of life stay in school longer and learn more each year they are there. In areas where malnutrition or worm infestations are common, nutritional supplements or treatments for intestinal parasites offer an inexpensive way to raise attendance and physical and mental capacity.

A Bolivian program providing support for day care, nutritional supplements, and preschool activities for low-income children resulted in permanent gains in cognitive development and motor skills. The cost per child is $1,300 to $1,400, while the monetary value of the increase in the children's future wages is between 2.5 and 3.6 times higher than the amount spent.

A school-based de-worming program in Kenya had even more remarkable results with benefits at least 450 times higher than the costs.

Most opportunities will not be as rewarding, but it is safe to assume the benefits are around 25 times higher than the costs in many cases.

Option Two: Conditional Cash Transfers

Another option proven to work is the provision of cash payments to poor households whose children attend school regularly. These are known as Conditional Cash Transfer Programs, and increase enrolment and attendance in program areas.

These programs can go wrong when they are not targeted at the right households. In a Brazilian program, self-selection allowed families whose children would have been in school anyway to receive the money. The most careful evaluation of the Brazilian program failed to show significant benefits.

Families in some rural communities of Honduras, Nicaragua, and Mexico get monthly hand-outs if their children attend 85 percent of school days. The Nicaraguan program increased school enrolment rates by about 23 percentage points. The benefits from increased future earnings are four times higher than the costs of around $3,000 per child.

5. Global Warming

There is unequivocal evidence that humans are changing the planet's climate.

We are already committed to average temperature increases of about 0.6°C, even without further rises in atmospheric carbon dioxide concentration.

The world has focused on mitigation—reducing carbon emissions—but when we take a close look at the costs and benefits, relying on mitigation alone is a very poor approach.

Option One: Continue to focus on mitigation

Even if mitigation—economic measures like taxes or trading systems—succeeded in capping emissions at 2010 levels, then the world would pump out 55 billion tons of carbon emissions in 2100, instead of 67 billion tons.

It's a difference of 18 percent; the benefits would remain smaller than 0.5 percent of the world's GDP for more than 200 years. These benefits simply aren't large enough to make the investment worthwhile.

Spending $800 billion over 100 years solely on mitigating emissions would lose money overall.

When you add up the benefits of that spending—from the slightly lower temperatures that would result—the returns are only $685 billion. For each dollar spent, we would get 90 cents of ‘good' back.

Mitigation alone will clearly not "solve" the climate problem.

Option Two: Combining mitigation with other policies

In addition to mitigation, policy-makers must ensure that we adapt to climate change. Adaptation can mean doing things like growing drought tolerant crops, spending more on irrigation, developing rainwater storage systems, or proactively preventing the health issues that climate change poses.

But to make a real difference, the world needs to increase its research and development into carbon saving and sequestering technology.

Instead of spending $800 billion (in total present-day terms) solely on mitigation, we could keep the investment the same size but direct a small amount to adaptation policies, and $50 billion each year to research into greener technology.

This research spend would add up to about 0.1 percent of global GDP.

As the gap between the cost of carbon-free and carbon-emitting technology decreases, any tax on emissions should become smaller. This allows the research and development to essentially pay for itself.

With research and development in the mix, the total benefits from this $800 billion investment would add up to more than $2,129 billion. That is a more respectable $2.70 return on each dollar spent.

6. Hunger

The food crisis has reminded rich nations of the hunger and malnutrition that is a daily reality for many in South Asia and sub-Saharan Africa.

Malnutrition in mothers and their young children will claim 3.5 million lives this year. Global food stocks are at historic lows. Progress is distressingly slow on the United Nations goal of halving the proportion of hungry people by 2015.

Tragedy on an individual scale adds up to hardship on a national level. Shortened lives mean less economic output and income. Hunger leaves people more susceptible to disease so that more money has to be spent on health care.

Those who survive the effects of malnutrition are less productive; physical and mental impairment means children benefit less from education.

Option One: Micronutrient supplements

Improving the quality of developing nation diets is as important as improving the quantity of food.

More than a 100 million children are deficient in Vitamin A, which causes eyesight and immunity problems.

It is estimated that one-fifth of the world's population is at risk of zinc deficiency, which puts young children at risk of stunted growth.

Providing Vitamin A capsules to one person for a year costs just 20 cents; zinc supplements cost a dollar.

Reaching 80 percent of all children aged under-two in Sub-Saharan Africa and South Asia would require annual spending of just $2.4 million for Vitamin A and $58 million for zinc.

The economic benefits from improved future earnings and reduced health care spending would add up to $240 million each year. In other words, every $1.00 spent would generate economic benefits worth $17.

Option Two: Nutritional education

Another tack to consider is to encourage developing nation households to change their food practices, to create lasting dietary improvements.

Education would be more expensive than any of the shorter-term interventions like micronutrient supplements, but could create enduring improvements among the world's poorest billion people.

Pregnancy and post-pregnancy are an opportune time to provide nutritional education to mothers, and can lead to a reduction in the probability of underweight babies and an increase in growth-rates for infants.

Creating community-based, volunteer-managed education campaigns to cover 80 percent of South Asia and sub-Saharan Africa for one year would cost $798 million.

This would reach eight out of 10 children aged under two. The annual benefits from a reduced burden on the health care system and healthier population would equal $10 billion: The benefits are 12 times higher than the costs.

7. Terrorism

Harsh security measures at airports make us feel safer, but what we see as a visible reassurance is a display of billions of dollars poorly invested.

Trans-national terrorists take, on average, just 420 lives each year and cause relatively little economic damage.

An extra $70 billion has been spent annually on homeland security since 2001. Although there has been a 34 percent drop in trans-national terrorist attacks, there have been 67 more deaths, on average, each year. This is entirely predictable. Terrorists have responded rationally to the higher risks imposed by tougher security measures and shifted to fewer attacks that create more carnage.

Hardening targets is a poor way to save lives. Policymakers who want to reduce the terrorists' toll have stark options.

Option One: Greater international cooperation

While many terrorist groups share knowledge, governments jealously guard their autonomy over police and security matters.

If political obstacles could be overcome, nations could work together more coherently to clamp down on the charitable contributions, drug trafficking, counterfeit goods, and illicit activities that fund terrorist attacks.

This would be ineffectual at reducing small events such as "routine" bombings or political assassinations, but would significantly hamper spectacular attacks requiring a lot of planning and serious resources.

Doubling the Interpol budget and allocating one-tenth of the International Monetary Fund's yearly financial monitoring and capacity-building budget to tracing terrorist funds would cost about $128 million annually. Stopping one catastrophic terrorist event would save the world at least $1 billion. Under these assumptions, this would mean a return of around $9.00 on each dollar spent.

Option Two: Increased proactive response

Some argue that the United States and its allies should "take the war to the terrorists."

To see what extra money on proactive measures would achieve, we can look at the effects of Operation Enduring Freedom, an offensive campaign that included the United States-led invasion of Afghanistan.

In the two years after 2001 (when there was the greatest proactive anti-terrorism campaign, and before other countries started to pull out), Operation Enduring Freedom resulted in a 13 percent reduction in attacks—but 159 more annual deaths and 916 more injuries, on average, than in the 10 years before. The exercise shifted attacks around.

Policymakers undaunted by the extra bloodshed might pause when they consider the economics of the exercise. Converting the effects of that carnage into monetary terms, each dollar of the Operation's $35.5 billion cost over this time achieved only around ten cents worth of good.

8. Trade Barriers

Protectionist sentiment and fear of globalization are on the rise. When the Doha trade round was launched shortly after September 11, 2001, there was plenty of international goodwill. But disenchantment with globalization has since set in.

Free trade would lead to an overwhelming boost to welfare everywhere, especially in the developing world. Grasping these benefits is potentially one of this generation's greatest challenges.

Increased negative sentiment could have the worst possible result: not just Doha's failure, but also the raising of trade and immigration barriers.

Option One: Doha Development Agenda

The greatest hope is getting the Doha round back on track.

If developing countries cut their tariffs by the same proportion as high-income countries, and services and investment were also liberalized, the global annual gains could be as high as $120 billion, with $17 billion going to the world's poorest countries.

The long-term impact of free trade is huge. Recast after calculating the net present value of the stream of future benefits, a realistic Doha outcome could increase global income by more than $3,000 billion per year, $2,500 billion of which would go to today's developing countries.

In addition, the experiences of successful reformers like Korea, China, India, and Chile suggest that trade liberalization immediately boosts annual economic growth rates by several percentage points for many years.

There would, of course, be costs. In addition to social costs, firms and workers would need to adjust as reform forces some industries to downsize or close and allows others to expand. Yet the benefits of a successful Doha round are around a staggering 1,027 times higher than these costs.

Option Two: Freeing international labor movement

The benefits of liberalizing international labor flows is worth contemplating—not least because otherwise illegal migration is likely to increase. Historical experience shows that migration is the fastest way to bring about a convergence in living standards.

Migrants and host countries incur direct costs in making and processing applications, finding housing, etc. The costs to a migrant in the year of migration are estimated to be in the range of $7,000 to $21,000, and the costs to the host country (including social welfare benefits) are in the same range. After the first year, we assume migrants to be fiscally neutral for their host country.

Increasing the rate of migration sufficient to boost the labor force in high-income countries by a total of three percent over a 25-year period would lead to global gains at the end of the period of $674 billion annually, with all but $50 billion accruing to current citizens of developing countries, either as migrants or via their remittances.

Depending on the economic assumptions used, the benefits are estimated to be around 224 times higher than the costs. Citizens of today's developing countries (particularly the migrants) would be the major beneficiaries.

9. Sanitation and Water

At the turn of the 21^st century, about 1.1 billion people lacked improved water supplies and more than 2.7 billion had no sanitation service.

The Millennium Development Goals includes the goal of halving the proportion of people without access to water or sanitation by 2015. This may be difficult to achieve, partly because the need to ensure the benefits of improved access are large enough to cover the costs of those who bear them is often overlooked.

The incremental benefit of improved water supply may simply not cover the large cost of providing it, since by definition everyone has some access to water in order to live, and the willingness to pay for an improvement may be low.

Rather than focusing on expensive piped network solutions, non-network interventions could prove helpful as intermediate solutions.

Option One: Rural water supply

Where deep groundwater is the best available water source, a borehole and communal hand pump is usually considered a low-cost and appropriate technology.

Following the failure of many rural water supply projects, a new and more successful planning model emerged in the 1990s. This is based on "demand-driven" community management where households are involved in decision-making and pay for all of the costs of providing and maintaining the service plus at least some of the capital cost.

The capital costs are $6,500 on average, and program overhead is $3,500; a total of typically $10,000. Adding the necessary costs for labor and maintenance, the total annual cost is $1,630, or about $135 per month. We assume 60 households will share the borehole, which gives a monthly cost of $2.26 per household.

Benefits come from time savings for water collection, increased use of higher quality supply and the monetary value of health improvements.

These benefits together add up to $7.19 for a typical rural household in a month, compared to a cost of $2.26, implying a benefit-cost ratio of about 3.2.

Option Two: Biosand filters

Biosand filters are a technology to remove contaminants in raw water supplies. There are now close to 100,000 biosand filters in use by households in developing countries. They use commonly available materials and are inexpensive, convenient and simple to use. A filter can easily produce hundreds of liters of clean water a day.

While only a partial solution to a wider problem, biosand filters do help to provide clean water from traditional sources. They do however have disadvantages. They must be cleaned periodically, and are quite large, so are more appropriate for rural areas than urban slums.

We assume a base case of $75 for the filter manufacture plus $25 for transport and delivery. There are no time savings for this intervention, but health benefits from a reduction in diarrhea incidence. Total household benefits are $3.86 a month, and costs $1.40.

10. Women and Development

Gender equity is not only an important goal in its own right, but also a factor in overall economic development. Gender issues have become increasingly prominent in the last 30 years, and gender equality is now included in the Millennium Development Goals. National constitutions affirm the principles of basic human rights, and even explicitly refer to non-discrimination by gender. However, in practice there are still multiple barriers to these goals.

Option One: Affirmative Action

Gender inequalities in political representation remain large. Some countries have mandated quotas for political representation at various levels, with some success.

Quotas must be matched with the launch and maintenance for at least 30 years of a nationwide, systematic public information or advocacy campaign. It is hard for women to win elections. Campaigns can be effective, but must be a long-term commitment.

There should also be an investment in leadership and management training for female politicians, since many who aspire to political office will have had little opportunity for previous involvement.

Evidence from an Indian reform at the village council level suggests that where leadership is reserved for women, the supply of safe drinking water is higher by 0.95 percent, children between one and five have a 2 percent higher chance of completing the immunization program, and are two percent more likely to attend a community child care center. The condition of rural roads is better, which could increase work opportunities and reduce barriers to schooling.

Because women, on average, have relatively less political experience and less political capital than male politicians, electing women may mean short- to medium-term productivity losses.

Taking into account these assumptions, the benefits are around 2.7 times higher than the costs.

Option Two: Microfinance

Microfinance institutions such as Bangladesh's Grameen Bank allow self-employed women to build successful businesses in the informal sector, lending to individuals, groups or villages. Women have better repayment records than men, and when they have greater bargaining power in the household, a larger share of the household's limited resources are devoted to children's human capital. Women's access to credit also tends to increase their labor force participation.

We assume that the number of loans would increase annually by 35 percent, which was the experience of the Grameen Bank in Bangladesh. The average annual number of members reached by the Grameen Bank in 1992 was 1.4 million, of whom 1.3 million were women, and 348,000 new borrowers. We assume that each year the program would lend only to new borrowers, as the evidence points to diminishing marginal returns to credit.

We assume $285 to be the average loan to each new borrower. Microfinance programs are costly and typically require extensive subsidies. Based on a number of studies, we assume that each dollar loaned per year will increase household expenditures by about 10 percent in the first year, and that benefits will continue to accrue annually by about 1 percent for an average 30 year lifespan of the borrower. Bringing together these assumptions, the benefit-cost ratio is around 3.2.

Read reason Science Correspondent Ronald Bailey's dispatches from the Copenhagen Consensus Conference 2008 here.

Help set the Copenhagen Consensus for 2008! Follow directions below to rank global problems and solutions. The results will be tabulated and announced next week at reason online.

Where in the World Can We Do the Most Good?

rbailey@reason.com (Ronald Bailey) — Mon, 26 May 2008 12:00:00 EDT

Copenhagen, May 25—The opening press conference for the Copenhagen Consensus Center's 2008 conference took place in one of the gilt-edged ballrooms at the Moltkes Palace. The action unfolded beneath a bas-relief depicting heroic Danish burghers in top hats carrying a banner supplemented by bas-reliefs on pilasters portraying such everyday tools as hammers, pliers, squares, and drawing compasses. The PowerPoint question displayed on the screen behind the head table of notables was, "Where can we do the most good for the world?" Danish Prime Minister Anders Fogh Rasmussen began, "The Copenhagen Consensus is a simple but powerful idea. The world faces a number of serious challenges. We only have limited means to solve them, so where do we start?"

That's the question that the Copenhagen Consensus Center conference for 2008 (CC08) will try to answer this week. The Copenhagen Consensus Center is the brainchild of "skeptical environmentalist" Bjorn Lomborg. Headquartered at the Copenhagen Business School, the CC08 is convening leading economic experts with the aim of ranking 10 of the world's biggest problems. The expert panel is supposed to figure out which ones should receive priority and which should be bumped further down the queue. To make the exercise concrete, the experts are notionally deciding what challenges should be allocated an "extra" $75 billion in foreign aid over the next four years.

Among the experts are Nobel Prize winners in economics Vernon Smith, Thomas Schelling, Douglass North, Robert Mundell, and Finn Kydland. Other expert panelists include economists Nancy Stokey from the University of Chicago, Jagdish Bhagwati from Columbia University, and Francois Bourguignon from the University of Paris. The experts are considering detailed reports by prominent international researchers regarding ten challenges, including air pollution, armed conflicts, diseases, education, global warming, malnutrition and hunger, sanitation and access to clean water, subsidies and trade barriers, terrorism, and women and development. In each area, the researchers define the problem, suggest options for solving the problem[*], and assign a benefit-to-cost ratio (BCR) to each solution. The higher the BCR, the more cost-effective the solution is.

Prime Minister Rasmussen concretized the value of the CC08 exercise by referring to the earlier version in 2004. He noted that in 2004, CC04 participants put controlling the HIV/AIDS epidemic in developing countries at the top of the list. Consequently, the Danish government began to devote a higher proportion of its overseas development aid to combating that disease, doubling the aid from $100 to $200 million per year by 2010.

Rasmussen got ahead of the 2008 deliberations a bit when he turned to the subject of climate change. He argued that the case for action is strong, and that the world needed to cut its greenhouse gas emissions. To address the problem, Rasmussen called for "a new Green industrial revolution and a new Green world economy." Interestingly, the 2004 Copenhagen Consensus report ranked measures to address climate change at the very bottom, finding that proposals for carbon taxes and implementing the Kyoto Protocol would have costs that "were likely to exceed the benefits."

Of course, the prime minister is likely making politic noises as he gears up to host the 2009 United Nations Climate Change Conference. At that meeting in Copenhagen, governments are expected to adopt a comprehensive new global warming treaty on climate change. Lomborg opposes stringent limits on greenhouse gas emissions as not being cost effective when it comes to helping poor people. At the end of the week, we'll see what the experts say this time.

Lomborg followed the prime minister, claiming that the Copenhagen Consensus is not about doing what's fashionable, but instead focuses on doing what's rational. He pointed out that politicians and activists often argue that we should solve all problems. But the fact is that in a world of scarce resources, a couple of big issues will get the bulk of the available resources. Trade-offs have to be made. When Lomborg is speaking of resources, he is basically talking about foreign development aid. What the Copenhagen Consensus hopes to do is help donors, both public and private, to spend their money is ways that solve the most urgent problems.

To illustrate how issues might be ranked, Lomborg cited some findings from a paper dealing with the challenge of disease. Spending $1 billion on controlling tuberculosis would save 1 million lives and result in estimated benefits of $30 billion for a benefit-cost ratio of 30 to 1. Spending $200 million on treating heart disease in poor countries (which accounts for 25 percent of deaths in those countries) with an inexpensive "polypill" combining aspirin and statins would produce $5 billion benefits implying a 25 to 1 benefit-cost ratio. And a $1 billion spent on malaria produces a benefit-cost ratio of 20 to 1.

During the question and answer period, I noted that the CC08 process looks to shower money on problems, but does not address many of the institutional impediments for making sure that the money would actually be spent effectively. In fact, I suggested, the reason poor countries are poor is because they do not have effective governance and economic institutions. Lomborg responded that of course institutions are important, but the Copenhagen Consensus was focusing chiefly on "what can money do to help." He pointed out that the Copenhagen Consensus conference in 2004 considered corruption as an issue, but couldn't figure out how spending money would be able to help fix that problem. Earlier Prime Minister Rasmussen correctly observed, "No problem has ever been solved only by throwing money at it. We must prioritize." Unfortunately, as New York University development economist William Easterly has documented, the West has thrown $2.3 trillion dollars in aid to poor countries during the past five decades without much to show for it.

Lomborg further suggested that institutional analysis could be implicit in deciding how to prioritize the challenges. For example, if the experts decide that corruption or lack of private property rights would get in the way of effectively deploying money to solve a specific problem, they could give it a lower priority.

The deliberations of the expert panel are private, but all of the research papers and respondents to them will present their work to a forum of 80 young people drawn from 37 different countries during the week. These presentations are public and I will be reporting on their findings in daily dispatches from Copenhagen.

Ronald Bailey is reason's science correspondent. His book Liberation Biology: The Scientific and Moral Case for the Biotech Revolution is now available from Prometheus Books.

Disclosure: Danish taxpayers are paying my travel expenses to attend CC08. There are no conditions placed upon my reporting.

For live webcasts from CC08, go here.

[*]: Corrected from an earlier version that, due to an editing error, implied only two options were suggested.

Globalization and Its Discontents

kmw@reason.com (Katherine Mangu-Ward) — Tue, 20 May 2008 12:28:00 EDT

A little good cheer from The Guardian's Bill Emmott on the future of free trade, during this primary season of anti-NAFTA trash-talking:

A year ago, the prime candidate for a protectionist backlash was the fount of globalisation itself, the United States. If anyone had said then that in the midst of the American presidential election the country would be suffering a recession caused by a financial crisis, most economists would have predicted a big upsurge in protectionism during the campaign. It is time to admit that this hasn't happened. America is not becoming isolationist. In fact, globalisation is not under any serious threat at all, from either side of the Atlantic.

And when Obama wins the nomination, there's good reason to hope the trade issue will fade to a mere whisper:

John McCain, the Republican candidate, is a firm advocate of free trade, so Obama might choose to sound protectionist in order to emphasise the difference between them. But that is unlikely; since McCain is a clear, lifelong free trader, Obama needs to sound only a little critical on trade to differentiate himself.

That sounds about right to me. (There are those, of course, who question just how free-tradealicious McCain really is, but he's sounding pretty good these days.)

For the pessimistic take, go here.

Dissent's Mild Dissent on Naomi Klein

info@reason.com (Damon W. Root) — Tue, 20 May 2008 10:10:00 EDT

Following up on Michael Moynihan's post on Johan Norberg's takedown of anti-globalization polemicist Naomi Klein and her book The Shock Doctrine ("hopelessly flawed at virtually every level"), I noticed (via Arts & Letters Daily) the following in the midst of an otherwise very favorable review of the book in the latest Dissent:

Klein's depiction of a monolithic class of politico-corporate elites is not tailored for every political situation. It is not particularly helpful for recognizing and exploiting the differences between Clintonian "free traders," Republican realists, and neocon fundamentalists. It provides little guidance for understanding what to make of it when the Weekly Standard opposes permanent normal trade relations with China, a key goal of corporate globalists, on human rights grounds. Nor does it allow for distinctions between different sectors of capital-recognizing, for example, that the interests of the vast tourism industry (which is currently furious about how Bush's War on Terror has adversely affected its business) may not be the same as those of Halliburton. Finally, it denies out of hand that religious conviction or nationalism, independent of commerce, might be forces in influencing Bush administration policy.

Whole thing here.

I suppose Klein's refusal to differentiate between free trade and corporate welfare isn't the gravest of her sins, but its still nice to see somebody on the left call her out for it.

More reason dissent on Klein's slipshod work here, here, and here.

Cyclones and Sanctions

khowley@reason.com (Kerry Howley) — Mon, 19 May 2008 15:00:00 EDT

In the mid 1950s, denizens of Burma, Thailand, and South Korea were about equally wealthy, but one nation seemed especially likely to prosper. In contrast to the others, Burma was already an exporter of rice and oil, had a relatively high literacy rate, and seemed well on its way toward a parliamentary system of government. It was full of teak, gems, and rich soil. As David Steinberg points out in Burma: The State of Myanmar, any observer “would have pointed to Burma as the potential economic and political leader of the three.” War-torn, resource-poor South Korea “would not have been a contender in anyone’s imagination.” In 2006, South Korea’s GNP per capita was $24,500; Burma’s was $1,800.

Look closely enough at the pictures of destruction wrought by Cyclone Nargis, and you begin to realize how very little there was to destroy. There, a bamboo house in shambles; here, a thatch roof torn off; there, a dirt road obscured by scattered palm fronds. When the cyclone struck, tens of thousands of people had no solid structure to cling to, and the cyclone’s ghastly death toll is as much a function of the country’s poverty as is the storm’s strength. Had the same cyclone hit the prosperous Burma that might have been, the death toll would have been far less dramatic.

The South Korea comparison matters because Burmese poverty is so often treated as an inevitability rather than a byproduct of bad governance. The imprisonment of activist Aung San Suu Kyi is well known and roundly denounced; the junta’s punishing monetary policy, which maintains an official exchange rate 200 times lower than the market rate in order to benefit state-owned businesses, is less often noted. Burma’s banking system is barely functional, and the government tightly controls trade. According to the Progressive Policy Institute, Burmese rice exports have dropped by 99 percent since 1950. The junta says it is committed to a market-oriented economy, but it has reversed most of the gestures it has made in that direction.

No one is nominating Than Shwe, Burma's military leader, for Administrator of the Year, and it’s not news that the junta has been the cause of suffering. But Burma’s poverty, and the deaths it causes in the best of monsoon seasons, is at the center of a significant debate about the way the West should approach Myanmar. The most extreme advocates of Burmese sanctions, among them Sens. John McCain (R-Ariz.) and Mitch McConnell (R-Ky.), tend to assume that the lives of Burmese people cannot improve without regime change. Economic development is being held hostage to political reform, but there is little reason to expect political reform any time soon.

“I am new to work on Burma, but in my eight weeks of involvement to date I am finding the world of Burma advocacy rigid and doctrinal,” writes Joel Charny, Vice President for Policy at Refugees International, on the organization’s blog. “There is just one overarching narrative: the struggle of the Burmese democracy movement, led by Nobel Peace Laureate Daw Aung San Suu Kyi, against the repressive Burmese generals.”

Based on the assumption that Burma must change politically before it can engage economically, American Burma activists support sanctions and isolation, and many are skeptical of independent humanitarian work. “The Burma solidarity adherents often evoke ‘the courageous Burmese people’ to support the aid embargo,” Charny continues. “This is an easy rhetorical device, and may sound plausible, but it is based on discussions with a narrow set of political actors, most of them outside the country.”

On the flip side, development advocates claim that sanctions and aid restrictions have had no discernible benefit for the Burmese, the majority of whom make less than $200 a year. The National League for Democracy is weak and disorganized, and so dependent on Suu Kyi that it seems unable to operate when she is under house arrest. Our refusal to trade with the Burmese has brought democracy no closer to realization.

Sanctions are a sacrifice we make on behalf of other people; we have volunteered the Burmese to undergo painful economic deprivation in the hope that poverty will drive them to a better future. It hasn't worked, whether because Burma's neighbors have rejected the U.S. approach or because the United States never had much economic leverage in the first place. An alternative approach, one that does not assume the Burmese people’s assent in a scheme to impoverish them, involves coaxing the regime toward basic economic reforms that would at least allow Burma’s rice farmers to move out of their bamboo-and-thatch homes in preparation for the next monsoon season.

Cyclone Nargis is no longer just a natural disaster, British Prime Minister Gordon Brown declared on May 17^th as the junta continued to refuse to allow food and medical supplies to reach victims: “It is being made into a man-made catastrophe.” But Cyclone Nargis was a “man-made catastrophe” the moment the first shoddily built shack was swept out to sea. Burma is poor because it has been made so, and the military has been isolating and impoverishing the country for 45 years now. Why are we helping them?

Kerry Howley is a reason senior editor.

The T-Shirt Standard

jwalker@reason.com (Jesse Walker) — Mon, 19 May 2008 10:06:00 EDT

The filmmakers behind Secondhand (Pepe) discuss Haiti's trade in used clothes. An excerpt:

First off, we should note that you can find pepe for sale on pretty much any street in Haiti. It seemed as though pepe lined the sidewalks with small-time vendors selling a few things by hanging them up on the walls by the sidewalk. Then we also visited all types of dedicated marketplaces. Some were very concentrated with just clothing, and these were often by the ports, where the clothing would arrive. Sometimes the pepe would be sold within larger markets where you could also find food and other goods. Sometimes the clothing was sorted into different areas or by peddler’s specialty -- you would have the used shoe guy over here and the lady that only sold t-shirts over there.

In one of the largest markets in Miragoane, just outside of the gates of the port, in the central town square -- you had people opening up boxes and making preliminary sortings. In the Saline marketplace in Port-au-Prince, there was an incredible expanse of peddler/tailors set up with sewing machines, sitting among mounds of clothing, under tents sewn together from fabric scraps and old blankets.

At times, we learn, Haitians have even used these clothes as an informal private currency, similar to the cigarettes described in R.A. Radford's classic "The Economic Organization of a P.O.W. Camp." The whole interview is here.

Elsewhere in Reason: Kerry Howley describes the used T-shirt trade in Tanzania.

Madrassa Classes Are Hard! Let's Go Shopping!

jwalker@reason.com (Jesse Walker) — Fri, 16 May 2008 10:13:00 EDT

Debbie Nathan writes:

Found this today at the neighborhood 99-cent store, in the Bronx just across the Harlem River from Upper Manhattan. Have no idea what it means. It was mixed with a pile of other pink backpacks decorated with the identical Barbie face, but without the headscarf. The secular Barbies had the same plucked eyebrows, lipsticky lips and hyperMaybelline eyes. But no verbiage surrounded them -- not a word. Meanwhile, Muslim Barbie, as you see here, is trapped in a sea of "Are you happy?"...
But what really got me was, this backpack was Made in China. To me, there's something about 99-cent Asian shlock that seems mystically insightful when it comes to 21st-century American culture.

This is actually a contest. "If you have any ideas about its meaning," Nathan writes, "do tell. In fact, I'd be glad to pass my purchase on to you (postage paid!) in exchange for some inspired words."

I should probably throw in a link to this. And this. And this. And of course this.

30 Years Ago in Reason

Tue, 13 May 2008 12:00:00 EDT

“Scarcely a day goes by without new headlines on the decline of the dollar. In just the past 12 months it has dropped 16 percent against the Deutschemark, 20 percent against the yen, and 30 percent against the Swiss franc.”
—Robert Poole Jr., “Dodging the Falling Dollar”

“The Arkansas Supreme Court has decided that $10,000 is too high a price for the decomposed mouse that Betty McAlpin found in her half-consumed bottle of beer (Budweiser, if you’re interested) and reduced the damages Anheuser-Busch must pay her to $3000. Oh yes; the House just voted to legalize homebrew.”
—Bill Birmingham, “Brickbats”

“Adam Smith has now come to Asia—to the benefit, I might add, of its millions of inhabitants. And who knows, perhaps the success of economic freedom will spur repressive governments to loosen their grip on other areas of people’s lives.”
—Alvin Rabushka, “Pockets of Free Trade in an Unfree World”

The Coming Recession

Mon, 05 May 2008 12:05:00 EDT

As this issue of reason goes to press, the dollar is at a record low against the euro, oil is more than $100 a barrel, consumer prices are up 4 percent from a year ago, and Federal Reserve Chairman Ben Bernanke is cutting interest rates so often that the guys at the office have taken to calling him Edward Scissorhands. The subprime mortgage fallout has yet to finish wreaking its havoc, Bear Stearns is holding on by the skin of its teeth, and the government’s bucket may not be big enough for all the bailouts under way. Gloomy faces dominate CNBC and the Fox Business Channel, muttering long-forgotten terms like inflation and recession.

President George W. Bush, by contrast, is relatively cheery, conceding that we are in “challenging times” but arguing that “our financial institutions are strong” and the capital markets “functioning efficiently and effectively.” “In the long run,” Bush said in a March 17 White House address, “our economy is going to be fine.” And some statistics back up the sunny view: Unemployment is still at a low 5.1 percent, and productivity remains high.

Presidential hopefuls are offering a variety of explanations and possible solutions for what 42 percent of voters say is the most important issue to them, according to a recent CNN poll. At a March 20 rally, Sen. Barack Obama (D-Ill.) suggested the problem was a combination of “special interests” and war: “At a time when we’re on the brink of recession, when neighborhoods have ‘For Sale’ signs outside every home, and working families are struggling to keep up with rising costs, ordinary Americans are paying a price for this war.” Sen. Hillary Clinton (D-N.Y.) took a different tack: The “economic crisis is, at its core, a housing crisis,” she said in a major Philadelphia address on March 24, but she cited other factors as well, including Bush’s “brain dead energy policy.” Sen. John McCain (R-Ariz.) won the Republican nomination without really talking much about the economy.

How will we know when it’s fair to speak the dreaded r-word? In general, a recession is defined as a decline in a country’s gross domestic product for two or more successive quarters. In the United States, an official pronouncement is required from the professional doom diagnosticians on the business-cycle dating committee of the National Bureau of Economic Research, who often take other aspects of an ailing economy into account. GDP growth slowed dramatically at the end of 2007 and is projected to be zero in the second quarter of 2008, so we look to be well on our way.

As oil prices continued to climb and housing prices continued to slide, Reason assembled a panel of economists and other market watchers to help make sense of the headlines, point some fingers, figure out how we got where we are, and offer advice about how to get out with our wallets intact.

Blame the Fed
Gerald P. O’Driscoll Jr.
The U.S. economy is in the midst of an old-style credit crunch brought on by a combination of bad policies and incredibly lax underwriting standards at financial institutions. The biggest policy failure was the decision by Alan Greenspan’s Federal Reserve to hold interest rates too low for too long. That led to a tsunami of credit that inundated the economy with cheap money. Mortgage lenders in particular were flush with funds and searched for deals wherever they could be found. Heretofore unqualified borrowers suddenly “qualified” as underwriting standards relaxed and then disappeared.

Egged on by statements from Chairman Greenspan, market participants came to believe the era of low interest rates would last indefinitely. But the era did come to an end as the Fed was forced to begin raising interest rates. Faced with the prospect of paying higher rates on their mortgages in the future, borrowers began defaulting. First home prices stopped rising, and then home prices began dropping—precipitously in some overheated housing markets. Now we are approximately six months into a new cycle of lower interest rates, but with no end in sight to the crunch.

At least two other factors stoked the crisis. First, many exotic financial products were issued whose value was tied in one way or another to home prices and the value of the securities into which home mortgages were bundled, such as collateralized mortgage obligations. The pricing of these financial products was the product of complex economic models, not the outcome of market transactions. As the value of the underlying homes and mortgages declined, pricing of the financial exotica became nearly impossible. As we learned in the collapse of Long Term Capital Management, these pricing models fail precisely when their accuracy is most important—in times of financial turbulence. The inability to price the financial products has exacerbated losses among the firms holding them.

There is a wonderful parallel here to the collapse of the Soviet Union. As the great Austrian economist Ludwig von Mises argued almost 100 years ago, central planning inevitably fails because there are no market prices to allocate resources. Market prices can only be the outcome of actual market transactions among buyers and sellers. Planners used mathematical formulas to value resources, especially capital. Now Wall Street wizards have imported Soviet thinking to allocate financial capital. Is it any wonder that it failed?

The second factor contributing to the housing market collapse was the federal government’s commitment to “affordable housing.” Lenders, especially Fannie Mae and Freddie Mac, were pressured into promoting housing to low-income groups that could not qualify for normal loans. That policy is predicated on the belief that there is an underserved group of people who, but for economic discrimination or some other market failure, would be homeowners. That social goal and the credit-driven desire for more deals merged into mortgages made without adequate collateral.

We learned two lessons from the drive to make home ownership available to the heretofore underserved. First, many of these were not homeowners because they could not afford a home. Only under the temporary “hothouse” conditions in mortgage markets did they seem to qualify. Second, people who have no equity in their homes cannot meaningfully be said to be owners. When times turn tough, they will walk away. They were effectively renters, not homeowners.

The crisis will end when housing markets hit bottom and the prices of mortgage securities stabilize. Banks also need to unwind their positions in exotic financial derivatives.

The Fed needs to understand it is facing a capital crisis, not a liquidity crisis. The very low interest rates on safe assets show there is ample liquidity in financial markets. The Fed should not supply capital. That is the job of markets, and they are doing it.

Gerald P. O’Driscoll Jr., formerly a vice president and economic adviser at the Federal Reserve Bank of Dallas, is a senior fellow at the Cato Institute.

No Hoofing to Hooverville
Megan McArdle
Just one thing puzzles me about the race to the White House: Why would anyone want to get there? I know that being crowned prettiest girl at the prom is the great lasting rejoinder to everyone who made fun of you in middle school, but given the economic condition of the country, the next four years seem like a rotten time to reign.

Ignore the econopundits making comparisons to the 1930s. While the parallels are striking, we are missing the key ingredient in the onset of the Great Depression: tight Fed policy that caused the money supply to shrink by 25 percent. You can put away that bindle and push the apple cart back in the garage.

But if we’re not exactly hoofing it to Hooverville, we nonetheless face one hell of a rough patch. Record high oil prices, surpassing even the momentous spikes of the 1970s, have brought with them another piece of ’70s memorabilia: stagflation. Federal Reserve bankers are faced with an extremely unpalatable choice. They can tighten up the money supply to combat inflation, at the cost of making the probable recession even deeper. Or they can hang loose and watch inflation march upward while the economy does God knows what. With the credit markets broken, the Fed may end up losing its hard-won credibility as an inflation fighter while producing only marginal benefits to growth.

The president has no control over any of this, but that won’t stop people from blaming him anyway. He will also almost certainly have to come up with some regulatory scheme for increasing transparency and accountability in the vast new financial markets that have been created by the securitization of loans during the last 30 years. It will be a tough order to give investors better information without strangling valuable financial innovation.

But by far his biggest quandary will be the budget. Obama (who I assume will be the Democratic nominee) wants a big new health care entitlement; John McCain wants even more tax cuts. Both will be frustrated by adverse budget math. The economic slowdown is going to cut into tax revenues, and most economists agree that a recession is not a good time to raise taxes—nay, not even on “the rich.” Meanwhile, the baby boomers are about to start retiring, turning Social Security, Medicare, and Medicaid into the sucking chest wound of the federal budget. Assurances that the trust fund won’t run out until 2042 notwithstanding, the president will have to start coping with Medicare deficits as soon as next year, and a falling Social Security surplus soon thereafter. All this will be compounded by the slowdown in GDP growth made inevitable by declining labor force participation and service-intensive elder care.

Any future president should be panicking. That doesn’t mean the rest of us should. At the end of the day, America has the most flexible and resilient economy in the world. We’ll pull through somehow, although a lot of us won’t be very happy in the process. But least happy of all will be the president—the bum we get to throw out when things don’t go our way.

Megan McArdle blogs about economics at The Atlantic.

First, Do No (More) Harm
Ron Paul
This nation is facing an economic crisis the likes of which have not been seen in several generations. It is crucial that we take to heart the lesson that should have been learned after the Great Depression, which is that the central bank should do nothing.

I have been writing and speaking for years about the dangers of the Federal Reserve, but the importance of the actions of the Fed in laying the groundwork for the downturn in the business cycle pales in comparison to the damage done by actions the Fed takes once the downturn arrives. At the first sign of crisis, even with growing inflation, the Fed began to further inflate, lowering interest rates, stepping up open market operations, and injecting liquidity. World markets, already jittery, see these steps as affirmations of their worst fears and react accordingly by selling assets denominated in smoke-and-mirrors fiat currency and fleeing to the solid value of gold, oil, and commodities.

Every action the Fed takes sends a signal that the U.S. dollar will continue to be inflated and therefore debased, which is why the correct action is no action at all. Lower interest rates and liquidity injections are viewed with alarm by foreign markets, while higher interest rates and money tightening are anathema to many domestic investors. The Fed is between a rock and a hard place, and its insistence on inflating the money supply to manage the brittle economy will likely be our undoing.

Until we realize that the Federal Reserve system itself is flawed, and until we recognize that no one economic maestro or committee of economic experts can set prices and plan the economy, this nation will continue to flounder about in an economic malaise. Ending that may take a much more serious downturn than anything we’ve seen yet. It is beyond doubt that our economy is in recession, and the only rational response is for the government to allow malinvested resources to liquidate so that we can return to a stable economy.

While the Fed should take a hands-off approach, Congress should aggressively cut taxes and spending and repeal regulations that stifle economic growth, such as the Sarbanes-Oxley Act. This country has enormous economic potential, an industrious work force, and an enviable history of innovation and entrepreneurship. If the government would learn from its past mistakes and abstain from further interference, we could get back on a solid footing and grow to our full potential.

My fear is that the Fed will continue with its policy of inflation and Congress will be pressured to continue to stimulate the economy with government spending, probably extending to even more outright taxpayer-funded bailouts of financial institutions, subprime mortgages, and government-sponsored enterprises that are “too big to fail.” These debt-funded efforts reward the recklessness of some institutions at the expense of the productive sectors of our economy. Until the federal government acts to extricate itself from intervention in the markets, economic activity will be hindered and true recovery will not take place.

Rep. Ron Paul (R-Texas) is a nine-term congressman and a candidate for the Republican presidential nomination.

The Vicious Ethanol Cycle
Robert Bryce
I see three big dangers to the global economy: the ongoing fallout from the mortgage mess, rising energy prices, and rising food prices. That last item is the most maddening, because surging food prices are largely the result of the ethanol scam.

As U.S. ethanol distilleries vacuum up ever increasing quantities of corn, and corn takes up an ever larger percentage of arable land, prices for all types of food are skyrocketing. During the last two years, corn prices have more than doubled and soybean prices have nearly tripled. In 2007 food prices in the U.S. increased by nearly 5 percent. Bill Lapp, of the Omaha-based research firm Advanced Economic Solutions, told The Boston Globe in March that he expects food prices to increase at an annual rate of 7.5 percent for the next five years.

Because of mandates requiring gasoline producers to mix ethanol with their fuel, 20 percent of the U.S. corn crop in 2006—about 2.1 billion bushels—was diverted into ethanol production. By 2009, according to the National Corn Growers Association, about one-third of the expected crop—some 4 billion bushels—will be used to make motor fuel. And those projections were made in April 2007, eight months before Congress passed the Energy Independence and Security Act of 2007, which requires the consumption of 36 billion gallons of ethanol by 2020, a fivefold increase over current levels.

The far-reaching economic impact of ethanol mandates is already being felt. In early 2007, tens of thousands of people marched in the streets of Mexico City to protest the rising cost of tortillas, an increase that Mexico’s secretary of economy, Eduardo Sojo, blamed on American corn ethanol production. In March of this year, Pilgrim’s Pride, the world’s largest poultry processor, shuttered a plant in Siler City, North Carolina, and fired 1,100 workers. Company CEO Clint Rivers laid the blame squarely on the ethanol mandates, predicting that “there is much more to come” in the way of food price increases. “We’re spending our tax dollars to raise the price of our food to subsidize the ethanol industry,” he said.

Congressional meddling in the energy market has created what Lester Brown, the president of the Earth Policy Institute, calls an “epic competition” between “the world’s supermarkets and its service stations.” Therein lies the perversity of ethanol mandates: As the global economy heads for rougher times, food prices are soaring. And those prices will increase anxiety among consumers, who will further reduce their discretionary spending. Congress has created a negative feedback loop that will reverberate for years to come.

Robert Bryce is the managing editor of Energy Tribune. His latest book is Gusher of Lies: The Dangerous Delusions of “Energy Independence” (PublicAffairs).

War Is the Health of the Civilian State
Robert Higgs
Adam Smith famously observed that there is “a great deal of ruin in a nation”—that is, nations can take a lot of abuse. Let’s hope he was right, because the George W. Bush administration has taken a great many actions during the past seven years that contribute to economic ruin.

Much of the White House’s faulty economic policy can be traced to its wars in Afghanistan and Iraq, especially the latter because it has been larger, costlier, and more diverting. I use the word diverting deliberately to emphasize that the government’s military adventures in southwest Asia have served to draw the public’s attention away from economic measures that otherwise would have attracted more notice and hence more resistance.

One reason war is always associated with especially rapid growth in the size, scope, and power of the state is that it focuses people’s attention on what is seen as the most urgent matter, so they simply don’t notice what the government is doing in other areas. Another reason is that during wartime many people increase their broad support for the government and are less inclined to challenge its actions even when those actions have little or nothing to do with the war.

Hardly anyone was surprised that real military spending (measured in accordance with the government’s own narrow definition) increased by almost 60 percent between 2000 and 2007, compared to real GDP growth of 18 percent during that time. Note, however, that the government’s real nondefense outlays increased concurrently by more than 24 percent—an increase one-third greater than that of GDP. When people let down their guard in “supporting the troops,” they permit the government to make greater headway in its ceaseless quest to enlarge spending in a wide range of areas, many of them strictly civilian in nature.

The administration has partially concealed the burden of its spending binge by resorting to deficit finance. Federal debt held by the public increased by 49 percent between the end of fiscal 2000 and the end of fiscal 2007—a 24 percent increase after adjusting for inflation. To facilitate this surge in public borrowing, the Federal Reserve engineered a 40 percent increase in the monetary base, easing credit conditions in the commercial banking sector. The real estate bubble (now bursting) and the substantial depreciation of the dollar’s international exchange value are but two of the consequences of these reckless, war-spawned fiscal and monetary policies.

In view of the plunging stock market, my guess is that the current recession—in which many of the easy-credit-induced malinvestments of the past seven years are being liquidated by means of write-offs, loan defaults, bankruptcies, and other asset forfeitures—has much further to run. If you like the present worsening economic situation, write the president and your congressional representatives a letter and thank them for their war and their related economic spoliation.

Robert Higgs, a senior fellow in political economy at the Independent Institute, is author of Crisis and Leviathan: Critical Episodes in the Growth of American Government (Oxford University Press) and many other books.

Stagflation or Depression?
Robert E. Wright
The current U.S. economic outlook is as bleak as it was in 1974 or even 1930. Will the economy wither? Or will it just wilt a little before blossoming in a bath of Fed-supplied liquidity? Nobody knows for sure, but I fear the former. Here’s why:

Our educational system does a poor job of teaching people how to think independently. It always has, but until recently that wasn’t a big problem. Today’s globalized economy, however, demands ever larger numbers of engineers, doctors, scientists, and sundry creative types. We probably won’t create enough independent thinkers until we have school choice at the primary, secondary, and tertiary levels.

Thankfully, entrepreneurs abound. They’ve pulled us out of the economic fire in the past and could do so again. But they are more hamstrung than ever with high, uncertain, and often capricious taxes and regulations that do not appear to be going away anytime soon.

Something stinks in our financial system. Six different mortgage securitization schemes blew up between the Civil War and World War II for exactly the same reason that subprime mortgages tanked last year: very poorly designed incentives for mortgage originators. Why don’t financiers and their regulators pay more attention to America’s rich financial heritage? Their modeling is more sophisticated than ever, but their economic reasoning is not.

The national debt is so high ($9.4 trillion, or almost $31,000 per person) that the government must largely rely on monetary stimulus rather than more salubrious fiscal measures, such as permanently cutting taxes. Too much easing by the Fed could lead to 1970s-like inflation and further financial havoc.

Urged on in part by the example set by their profligate leaders, Americans wallow in a huge pile of private debt as well. A high level of individual leverage has become a permanent fixture of the nation’s landscape. Americans owe so much that to keep growing, financial institutions have to push the margin of safety by making loans on ever thinner collateral and ever weaker covenants. If the economy slows significantly, many more poor-quality loans will hit the proverbial fan. The ensuing mess will stink and take a long time to clean up.

Even if the Federal Reserve manages to save the economy this time, these problems may continue to fester, breeding the next economic catastrophe. Perhaps, though, even greater levels of incompetence in other countries will break our fall.

Robert E. Wright is the author of One Nation Under Debt: Hamilton, Jefferson and the History of What We Owe (McGraw-Hill) and a curator for the Museum of American Finance. He teaches business, economic, and financial history at New York University’s Stern School of Business.

The Only Thing to Fear Is Fear-Driven Government ‘Control’
Donald J. Boudreaux
New York Times columnist Gail Collins was underwhelmed by the president’s folksy course-things-ain’t-great-now-but-we-Americans-with-our-rebate-checks-and-incessant-complaining-about-congressional-earmarks-are-gonna-be-just-fine address to the Economic Club of New York on March 14. She complained that “in times of crisis you would like to at least believe your leader has the capacity to pretend he’s in control.”

This is the attitude that scares me. I worry not a whit that the subprime crisis or falling share prices will cause long-term economic woe. As unnerving as the current downturn might be today, people in competitive markets always find ways of regaining their economic footing tomorrow. Investors recalibrate their expectations and entrepreneurs redirect their energies to take better advantage of the changing economic landscape. Workers’ pay and consumers’ standard of living, after blipping briefly downward, resume their upward trend.

“Nonsense!” a chorus yells. “What about the Great Depression? Or the 1970s?” The experiences of these decades are indeed relevant. They are, however, precisely why the clamor for putting someone “in control” of this crisis is so frightening.

Contrary to the conventional wisdom, whose strength of empirical support rivals that for the flat-earth hypothesis (“It seems so obvious!”), the massive move toward centralized control of the economy during the administrations of both Herbert Hoover and Franklin Roosevelt did not “rescue” Americans from economic hardship. All that FDR’s soaring rhetoric and army of officials manning newly created alphabet-soup agencies managed to do was to prolong an economic downturn into America’s deepest and longest depression—one that showed no reliable signs of ending until after Roosevelt met his maker. As the economic historian Robert Higgs documents in his 2006 book Depression, War, and Cold War, investors were terrified by the very real risk during the 1930s that government would extend its control over the economy even beyond what it achieved with its New Deal programs.

The 1970s weren’t as bad as the 1930s. Most important, there was no serious talk during the ’70s of nationalizing industries or socializing investment decisions. International trade was expanding rather than being suffocated by a disco-era Smoot-Hawley tariff. Still, wage and price controls were in vogue (and in effect), Congress and Richard Nixon were keen on command-and-control regulations, and Fed chairmen Arthur Burns’ and G. William Miller’s control over the money supply was injuriously inflationary. Shot through with so many interventions giving government more “control,” the economy slipped into an infamous malaise.

My only fear, therefore, is fear itself—fear that deludes people into believing that giving government greater control is the key to earthly salvation. As I write these words, the Fed’s aggressive moves to bail out Bear Stearns and prevent other necessary market corrections—along with increasing public support for protectionism, anti-immigrant nativism, and environmental hysteria—send shivers down my spine. The threat of a long-term crisis is only as real as is the likelihood that government will try to exert more control.

Donald J. Boudreaux is a professor of economics at George Mason University.

The Last Communist We Hang Shall Be the One Who Sold Us the Rope

jwalker@reason.com (Jesse Walker) — Wed, 30 Apr 2008 10:40:00 EDT

Globalization and nationalism, chapter CCXXXV:

Police in southern China have discovered a factory manufacturing Free Tibet flags, media reports say. The factory in Guangdong had been completing overseas orders for the flag of the Tibetan government-in-exile.

Workers said they thought they were just making colourful flags and did not realise their meaning. But then some of them saw TV images of protesters holding the emblem and they alerted the authorities, according to Hong Kong’s Ming Pao newspaper.

The factory owner reportedly told police the emblems had been ordered from outside China, and he did not know that they stood for an independent Tibet.

[Via Chris Hayes.]

When Government Is Stupid, Be Grateful for Its Inefficiency

jsullum@reason.com (Jacob Sullum) — Thu, 24 Apr 2008 16:20:00 EDT

According to a new report from the Government Accountability Office, since 2001 U.S. Customs and Border Protection has failed to collect more than $600 million in duties that should have been imposed on imported goods "to remedy injurious unfair foreign trade practices." Specifically, the goods, mainly food products from China, were sold at "unfairly low prices," thereby violating "anti-dumping" rules. Due to CBP's dereliction of duty, American consumers presumably paid less than the government thinks they should for garlic, honey, mushrooms, and crawfish tail meat. This is the sort of bureaucratic inefficiency I can get behind.