Wednesday, December 28, 2005

Exporting Crime?

Officials in Canada are blaming the United States for recent increases in violent crime. A CNN article states, "Canadian Prime Minister Paul Martin and Toronto Mayor David Miller warned that Canada could become like the United States after gunfire erupted Monday on a busy street filled with holiday shoppers, killing a 15-year-old girl and wounding six bystanders -- the latest victims in a record surge in gun violence in Toronto ... 'It's a sign that the lack of gun laws in the U.S. is allowing guns to flood across the border that are literally being used to kill people in the streets of Toronto,' Miller said. Miller said Toronto, a city of nearly three million, is still very safe compared to most American cities, but the illegal flow of weapons from the United States is causing the noticeable rise in gun violence. 'The U.S. is exporting its problem of violence to the streets of Toronto,' he said. Miller said that while almost every other crime in Toronto is down, the supply of guns has increased and half of them come from the United States."

Regions with strict gun control legislation often blame neighboring areas for "exporting crime" when the neighboring areas have fewer restrictions on firearms. They cite that the guns used to commit crimes often come from areas where firearms are less restricted. The idea is not new. In 2003, a group calling themselves "Americans for Gun Safety" issued a report stating that Georgia was exporting firearms used to commit crimes in other states. The report included, among other things, a list of the "top ten crime gun exporting states," alleging that:

"Of the 109,870 crime guns traced by BATF in 2001, 36,828 (33.5%) were originally purchased in one state and used in crime in another. The top ten crime gun export states in 2001 were:
1. Virginia – 2,489 crime gun exports
2. Georgia – 2,428
3. California – 2,228
4. Florida – 2,048
5. Texas – 1,851
6. Mississippi – 1,772
7. Ohio – 1,697
8. Indiana – 1,684
9. North Carolina – 1,454
10. Alabama – 1,301
Of these leading crime gun exporting states, only California and North Carolina require criminal background checks for all handgun and assault rifle sales at gun shows. In fact, on average the states that have failed to close the gun show loophole are the source of 53.4% more crime gun exports than states that have closed this loophole. In a published federal report, BATF indicated that gun shows were the second leading source of firearms recovered in illegal gun trafficking investigations. This finding is borne out in the raw data from 2001, which show that almost none of the top crime gun exporting states require criminal background checks for unlicensed firearms sales at gun shows."
(Note: I would be reluctant to take the statistical evidence presented above as fact. The report states that criminal background checks are not required at gun shows, a statement which is blatantly false. Contrary to the "gun show loophole" myth, it is federally mandated that all engaged in the business of selling firearms call the FBI prior to every sale, regardless of whether the sale is from a store or a gun show. The FBI runs an instant criminal background check and authorizes the sale.)

It is not areas with less gun control that have more crime. Instead, we see a flow of crime towards areas with fewer guns. Why?

Contrary to what many proponents of gun control believe, there are significant positive externalities from residing in an area with many gun owners, particularly when individuals are permitted to carry firearms concealed from view. Perhaps your .45 clashes with your outfit one day, perhaps it is inconvenient for you to carry a gun with you everywhere, or perhaps you hate guns and would never dream of owning one. A criminal has no way of knowing that you are unarmed.

In Virginia, carrying handguns openly is legal and carrying them so that they are concealed and accessible is legal with a concealed carry permit. In Washington, D.C., neither is legal. If we compare the crime statistics between Washington, D.C. and Fairfax County, VA, we see that crime is much higher in D.C. than in Virginia. In 2000, there were two murders reported in Fairfax County, with a population of nearly 1 million. In the same year, 239 murders were reported in the District of Columbia, with a population amounting to less than 600,000.

The United States is not exporting crime to Canada, nor is Virginia exporting crime to D.C. Instead, it is the gun control legislation in Canada and D.C. that produces helpless targets on which criminals prey.

Saturday, December 24, 2005

Legal to Give, Illegal to Sell

Stories like this one showcase the generous, caring nature of individuals who are willing to go through risky surgeries to donate a kidney to save the life of another person. With well known sayings like, "'tis better to give than to receive," who can deny that giving up an organ is a noble thing to do?

While it may be better to give than to receive, the truth is that few people choose to give up an organ during the course of their lives, especially to a stranger. We hear of cases where someone has donated a kidney to a loved one, but rarely do we hear of cases where someone has donated a kidney to a complete stranger. The reasons are obvious. The surgery is inherently risky, the recovery can be costly and difficult, and the gain is limited by law to the warm fuzzy feeling obtained from helping someone.

From elementary economics, we know that when maximum prices are imposed on a valued item, the quantity supplied declines. In this case, the maximum price is zero. Naturally, the number of organs supplied decreases. For this reason, people wait for years for a matching donor, and often die waiting.

It is selfish to demand that people's generosity be the only means of obtaining an organ because we don't like the idea of profit-motivated people selling a kidney to a dying person. Should I be required to rely on the generosity of others for food, shelter, medicine or other items necessary for me to live? I would expect that I would be much less likely to obtain any of those items and stories about how a generous food donor saved my life would start making headlines.

Friday, December 23, 2005

Bundling Up for Alaska

I see no benefit to myself of knowing that there are acres of pristine ice & snow in Alaska where elk and caribou may run freely without having to look at mechanisms for extracting oil. I’ve never actually interviewed the wildlife in Alaska to ask if they share the Sierra Club’s aversion to all things “not natural.” My hunch is that we humans find “unnatural” structures more repulsive than do the animals on which we have projected our preferences.

Regardless, Sen. Ted Stevens’ combining drilling in ANWR with a defense spending bill is like trying to sell a carton of eggs with a margarita. Unfortunately in voting, it’s an all-or-nothing deal. Like many Democrats, I would have voted against the measure as well – but not because of my ties to environmentalists or my aversion to drilling for oil in Alaska, but because I would not have voted to spend more of other people’s money on the troops and Katrina victims. Of course, I didn’t hear anyone complaining about the “$2 billion to help low-income households pay this winter's heating expenses,” also contained in the bill.

The term ‘bundling’ is used to describe when multiple items are packaged together as one. It can be a good sales tool by reducing the search costs of the person trying to buy related items or trying to obtain multiple functions in one item. My cell phone, for example, combines the functions of a voice recorder, camera, phone, calendar, and alarm clock with some other features I never use. Bundling is an effective technique in politics, and I can’t really fault Stevens’ attempts to use it. Politicians use this technique all of the time. We are always voting for package deals when we elect candidates. We can’t choose the features we like from one candidate and the features we like from the other candidate. Instead, we take the qualities we like with the qualities we don’t.

Wednesday, December 14, 2005

Don't Worry, Buy Imports

The news seems to have an infatuation with listing the latest data on the so-called trade deficit that we run with other countries, saying that "The U.S. trade deficit widened unexpectedly in October to a record $68.9 billion despite a drop in the cost of imported oil, as the deficits with China, Canada, the European Union, Mexico and OPEC all hit records, government data showed Wednesday." To set the record straight, there is no trade deficit. As I've explained before, trade with other countries is good.

Suppose you sell me a watch. I give you $20 and you give me a watch. My cash account dropped by $20, but my goods account increased by a value that I perceive to be greater than $20. (Were it an “even” exchange, I would have been indifferent between the watch and my $20 bill). To you, the $20 was worth more than the watch, so while your goods account dropped by some amount that you perceive to be less than $20, but your cash account increased by $20. Neither of us owes each other any additional amount and both of us are better off. There is no “trade deficit.”

I could have knitted the sweater I’m wearing today. But I didn’t. Someone living across the world did. Should I be concerned that some portion of my wealth went to the person who knitted my sweater? Should I be worried about my “trade deficit” with someone because they reside in another country? Of course not. Obviously I believe the person earned it and I am better off, or I would not have made the purchase in the first place.

Don't worry - buy the Swiss watch, the French wine, the Japanese car. You're not creating a "trade deficit."

Thursday, December 08, 2005

Hindsight Is Never 20/20

Suppose you are an air marshal. You observe a passenger behaving erratically, running through the aisles of the airplane. He claims to have a bomb in his carry-on luggage. Your job is to protect the passengers in the plane – and yourself. You don’t know if he is bluffing or if he actually has a bomb. In the time it takes to find out, you and the rest of the passengers (including the man claiming to have a bomb) could be dead. What do you do?

Sadly, air marshals in Florida were faced with a similar scenario yesterday afternoon. Acting on the information that they had, they chose to shoot the man rather than to risk the lives of the remaining passengers. It was later discovered that the man did not have a bomb in his possession, and was 44-year-old American, Rigoberto Alpizar. His irrational behavior may have been explained by his bipolar disorder and need for medication.

It is easy and far too common for reporters to hand out blame after more facts come to light. By that time, the reporters do not have to rely on incomplete information. However, they often forget that the actors in their stories are almost always acting on incomplete or incorrect information. The event demonstrates that the cost of obtaining information is not zero. In hindsight, Mr. Alpizar was not a threat. But in the real world, we don’t make decisions based on hindsight. We can only make decisions based on what we know now.

I was once asked for my opinion on sending the military into Iraq. I answered that I would have to know the end results before making a determination. My answer was clearly wrong. Much like poker or blackjack, you never know what cards the other person has. Your decisions can be based only on the cards that you hold and what you know of the statistical possibilities that the other person or the dealer has a better hand than you. You can’t wait until the game ends to place your bets.

Tuesday, December 06, 2005

Doing Away with Christmas

With retailers trying to determine whether to say “Merry Christmas,” “Happy Holidays,” or just “Have a nice day,” many people commenting on the news have said that in the name of political correctness we are “doing away with Christmas.” Still more have claimed that this will hurt the retail industry. After all, much of their profits are made when people purchase Christmas gifts for friends and family.

Yet their claims have no more foundation than the reasoning FDR gave for moving Thanksgiving one week sooner (to allow for an extra week of shopping after Thanksgiving and before Christmas), or than those who believe not conducting any transactions during the course of one particular day will defeat “consumerism” (Buy Nothing Day). The “extra week” is taken into account by buyers and sellers and has no effect, except to harm the calendar industry by making its already printed calendars obsolete. Proponents of the “Buy Nothing Day” forget that people have lots of buy nothing days throughout the year. Religious people often set aside a buy nothing day each week, usually falling on either a Saturday or Sunday. It doesn’t hurt the retail industry or defeat “consumerism.” People simply make their purchases on other days.

Retailers wouldn’t fall into bankruptcy if there were no Christmas. You and I would still be earning the same salary and would still exhibit the same budget constraints and endless wants. However, our expenditures would shift to different things. We might throw more lavish birthday parties and buy more expensive birthday presents. We might buy nicer things throughout the year, instead of setting aside money throughout the year to spend in December. There will be no discernible effect on retailers.

Merry Tuesday, everyone.

Saturday, December 03, 2005

Education is Not a Public Good

For those of you who may not have followed the extensive comments section in my post earlier this week, the discussion evolved into one of whether education is a public good. For those who believe that it is the responsibility of government to take your money to pay for public goods, answering this question is important.

A public good is defined as, "one which is capable of being used by many persons at the same time without reducing the amount available for any other person."[1] We say that a public good exhibits two characteristics: it is both non-excludable and non-rival. We might also term this inexcludability of consumption and jointness of supply. The value of pi, 3.1415926....., is a public good. Its production costs (or discovery costs, as the case may be), are entirely fixed; there are no variable or marginal costs. I can use this constant repeatedly without paying anything and can use it at the same time as mathematicians around the world. As a result, I may utilize this constant to make unnecessary calculations. At the same time, my use does not preclude others from simultaneously using pi to perform their own calculations and no one pays a fee each time they make calculations with pi. The true "value" to "society" of pi's discovery remains unknown. Perhaps I valued my first use of pi at $10 and the thousandth use I value at only $0.01. Because I am not paying for each use, one cannot observe my demand for pi.

Some have argued that education is a public good. However, it clearly does not exhibit the same characteristics described above. When people claim that education falls under the definition of a public good, what they mean to say is that some results of education are public goods -- results like the discovery of pi.

However, most results of education are entirely excludable. I reserve the use of my ability to perform financial analyses for the company that pays for it. I was not educated for the benefit of society, but for my own benefit and the benefit of the company that will pay me the most for it. In fact, the company that I work for did its best to ensure that I exclude its competitors from the use of my knowledge for some time, by requiring me to sign a non-compete agreement in exchange for my salary.

Even though I'm sure many of my tax dollars go to educating children that live nearby, I'm not allowed to go over to little Suzie's house and demand that since I helped pay for her to learn to read, she needs to read at least one entry in my blog. Education goes to the person receiving it, to use as he pleases. An individual's knowledge cannot be consumed by everyone simultaneously.

[1] Alchian, Armen A. and Allen, William R. Exchange and Production: Competition, Coordination, and Control, 3rd Ed., Wadsworth, Inc., 1983.