Category: Economics

A question came up in the combox down yonder about the Great Depression and how it can be accounted for undr different economic theories.

Tom Woods posted a comment linking to some resources on the question that I thought folks might want to check out, so con permiso here is what guestblogger Tom Woods had to say:

Just a little comment on the Depression: it certainly did not occur
at the height of free-market thought [as one commenter suggested]. The American Economic Association
had been all but hijacked by statist thinking coming out of Germany.
Promoting "associationism," which consisted of "voluntary"
government-business partnerships, was the order of the day. (See Butler
Shaffer’s book In Restraint of Trade for all the details of just how
anti-market the intellectuals and even the business executives were at
the time.) And in the 1920s you had so-called economists gleefully
suggesting that permanent prosperity was here, that the Federal Reserve
could fine-tune the economy. Well, the Federal Reserve is not a market
institution! It is created and sustained by government, and it
consitutes an intervention into the market for money.

I discuss the causes of the Depression both in The Church and the Market and in this video, toward the beginning:

http://www.mises.org/multimedia/video/Woods/Woods5.wmv

Also audio:

http://www.mises.org/multimedia/mp3/Woods/Woods5.mp3

The Austrian School, for my money, has by far the best explanation for economic depressions.

Over at ChronicleMagazine.Org, Scott Richert has wondered what I’d make of the just price theory that developed out of Scholasticism and how I’d compare it to my own views.

The concept of a just price has varied considerably over the course of time, and so for me to interact with it, I need a definition to work from. Fortunately, Mr. Richert has provided one. In the combox over yonder, he endorses the following as a good working definition of the just price concept:

all commodities [in the Middle Ages] had a certain value which common estimation could
determine and which accidental circumstances, such as scarcity or the
special needs of the buyer or seller, could not substantially change.

Mr. Richert takes this definition from Fr. Edward Cahill’s book Framework of a Christian State, which was first published in the 1930s. In order to understand the above passage in the sense that Fr. Cahill wrote it (and, I assume, the sense in which Mr. Richert means it), one needs to see it with a bit of context. Here is the full quote as given by Mr. Richert (emphasis in original):

The doctrine of the Just Price and the whole mediaeval attitude towards
trading profits imply a fundamental contrast between the Catholic
economic outlook and the one that prevails in modern times. Although it
may be difficult to determine with exactness the intrinsic value of a
commodity or the just price at which it might be sold, it was
universally admitted that all commodities had a certain value which
common estimation could determine and which accidental circumstances, such as scarcity or the special needs of the buyer or seller,
could not substantially change. Competition was thus confined within
the limits of natural equity, and the unjust activities of the
financier, the middle-man and the trader were kept in check [p. 45].

This brings out an important element that one needs to understand the just price concept. Fr. Cahill alludes to the difficulties that exist if one wants to "determine with exactness the intrinsic value of a commodity or the just price at which it might be sold," which indicates that commodities have intrinsic values that are relevant to the price that may justly be charged for them.

Just before this passage, in a section Mr. Richert does not quote, Fr. Cahill is even more clear on the point:

According to medieval teaching on the other hand, the price of a commodity was supposed to be determine by objective value alone; and could not be justly influenced by the special need or ignorance of buyer or seller [p. 43].

We might try to combine these conditions to form a definition of the just price as follows:

The just price of an item is a sum of money equivalent to (a) the intrinsic value of an item (b) as determined by the common estimation of the community and which (c) is not substantially affected by accidental circumstances.

Without feedback from Mr. Richert, I can’t say if this is an accurate rephrasing of his understanding of the just price, but I have tried to make it accurate. If I’m wrong, I hope Mr. Richert will correct me.

Now here are the problems with this definition.

Continue reading “Just Price Analysis”

Yesterday over on ChroniclesMagazine.Org Scott Richert posted a comment in which he said that I’d attributed someone else’s words to him and that he’d asked me to correct it and that he assumed I would. Thing was, I never got the e-mail and so figured he might be using an old or otherwise bad address for me. Since I couldn’t find his e-mail, I called him, because I wanted to make sure that I got any misattributions corrected. He told me that, on further examination, he saw that I hadn’t misquoted him.

The two of us had a very nice chat. Mr. Richert was a real nice guy, and he said that, although he hadn’t meant his post the way it was taken, he could see why someone would take it that way. I therefore consider that aspect of the matter closed, and no hard feelings.

He also said he looked forward to seeing my interaction with the rest of his post so . . . onward!

Continue reading “A Very Nice Chat”

A reader writes:

I’ve really been enjoying your series on money and Star Trek, I’m hoping that in the wake of the disaster in LA that you might also touch on the issue of "price gouging" (which I don’t think is going on).

Which comes to my question.  Is there such a thing as price gouging from the standpoint of Catholic ethics?  People think that hotel rooms going from $75 to $200 overnight is wrong, but I don’t think they know the point behind prices.  But are there instances where there could be genuine "gouging?"

First, let me say that the following is NOT an analysis of how things are right now in the areas ravaged by Hurricane Katrina. What I’m about to sketch are some principles, but I am NOT saying that these do or don’t apply to the situation in the Gulf states. What the situation is on the ground there is still unclear. We still don’t even know how many people have been killed, much less could I say anything about the economics of the area–besides urging people to SEND AID (see the bottom of this post for into on how to help the disaster victims).

At the moment there are reports that there is a generalized law and order breakdown that call into question the degree to which the local economy is functioning. We can only do what we can to help and pray that stability will be restored soon.

I am not aware of any magisterial documents that use the term "price gouging." (Googling the Vatican web site doesn’t turn up any.) However, here’s what the Catechism of the Catholic Church has to say:

2409 Even if it does not contradict the provisions of civil law, any form of unjustly taking and keeping the property of others is against the seventh commandment: thus, deliberate retention of goods lent or of objects lost; business fraud; paying unjust wages; forcing up prices by taking advantage of the ignorance or hardship of another.

Though the term "price gouging" is not used here, the same basic idea seems to be present.

Note one element of what the Catechism says, though. It speaks of "forcing up prices." I’m not sure of all the different kinds of circustances that might happen. I suppose that it happens if a manufacturer were to start deliberately making less of something that was in demand due to a hardship. For example, if in a middle of a famine, a farmer decided to grow less food in order to drive up prices then that would be "forcing up prices by taking advantage of the . . . hardship of another."

But that’s not what we’re talking about in the case of a hurricane and hotel rooms. In that case, a hotel owner isn’t forcing up prices. The natural price point for the hotel rooms changes due to factors beyond the hotel owner’s control (i.e., the fact that a hurricane has rendered many homes unusable).

He would be forcing up prices if he decided, for some reason, not to rent all of the rooms he had in order to make more per room. For example, if he said: "Well, I’ve got 200 units I could rent, but I’ll close up 100 of them so that only 100 will be available for rent. Then I’ll make more on those 100 rooms." And he likely would be right: He’s make more per room with only a hundred rooms available for rent since the overall number of rooms available for rent in the city would be less.

It seems to me, though, that what such a manager did would be rather short sighted. First, while he would make more per room by doing this, it is not at all clear that he would make more money overall. In general, the market functions most efficiently and people will make the most money if they don’t do things like this. They may mistakenly think that cutting back production (or refusing to rent certain rooms) in order to cause a price spike will make them more money, but this may not be true.

For example, if the natural price point is $100 per room if the owner has 200 rooms to rent, he would make $20,000 a night for those 200 rooms. But if he closes half his rooms and that pushes the price point up to $120 per room (there still being a lot of other hotels that aren’t arbitrarily closing their rooms, so the natural price point doesn’t rise that much) then he’ll only make $12,000 a night for his 100 rooms in rent. He thus actually stands to make less money by forcing up prices.

Second, the motel owner who refuses to rent half his rooms in the wake of a hurricane is taking an awful risk that people will realize what he is doing. If they find out (and they are quite likely to find out; hotel staff know what rooms they’re not renting or cleaning, and they’re likely to talk) then at a minimum he will earn the severe displeasure of everyone who learns of this. He may find his business harmed for years afterward. He may find it harmed even sooner. He may have people simply force their way into his units and refuse to pay anything for them (and police are not likely to evict them given all the other pressing needs of the crisis). If he handles that situation badly, he may even find himself lynched.

So it seems remarkably foolhardy for someone to try this, but he would at least be trying to force up prices in order to take advantage of the hardship of others, and thus he would be sinning.

Let’s consider the more common situation, though: A hurricane rips through an area causing untold human suffering and in the process it wipes out or otherwise makes temporarily unusable many of the homes in the area. In this circumstances, people have several options: (a) sleep outdoors, (b) sleep in an emergency shelter like a sports stadium or school gym or homeless shelter, (c) stay with friends or relatives, or (e) rent a hotel room.

Obviously having a hotel room is preferable to options (a) and (b), and for many it is also preferable to (c). There is thus increased demand for hotel rooms. But since hotel rooms can’t be built overnight, the increased demand is met with a constant supply. When that happens, prices rise.

But in this case it’s not the hotel owner that is forcing up prices. The hurricane did that by destroying a bunch of homes. It was the hurricane, not the hotel owner, that changed the natural price point for a hotel room.

Could the hotel owner–out of the generosity of his heart–charge less than the new natural price for a room? Sure he could! But note two things:

1) At this point the hotel owner is being generous. It isn’t greed to charge the natural price for something in current market conditions. It’s generosity to charge less than the natural price of a thing. He thus might be generous in order to help out folks who would otherwise have difficulty paying for rooms.

2) It’s not clear that this generosity of the hotel owner would actually help that many people. It might even cause overall harm. Why’s that? Thomas Sowell explains:

Those who got to the hotel first would fill up the rooms and those who got there later would be out of luck — and perhaps out of doors or out of the community. At higher prices, a family that might have rented one room for the parents and another for the children will now double up in just one room because of the "exorbitant" prices. That leaves another room for someone else.

Someone whose home was damaged, but not destroyed, may decide to stay home and make do in less than ideal conditions, rather than pay the higher prices at the local hotel. That too will leave another room for someone whose home was damaged worse or destroyed.

In short, the new prices make as much economic sense under the new conditions as the old prices made under the old conditions.

It is essentially the same story when stores are selling ice, plywood, gasoline, or other things for prices that reflect today’s supply and demand, rather than yesterday’s supply and demand [SOURCE].

This is a situation that I may one day face, personally. California doesn’t have hurricanes, but it does have other disasters (earthquakes, fires, mud slides). A couple of years ago, the fires were closing in on the area where I live, and I came within minutes of evacuating. I had my pickup packed and everything.

At that time, QualComm Stadium was being used as an emergency shelter, and I might well have gone there. It would have been better to sleep on a mat in the stadium than in a building that was burning down around me, but it would have been better yet to sleep in one of the hotels down the road from the stadium. (The stadium is right next to "Hotel Circle" in San Diego.) If I learned that the rooms in Hotel Circle that normally go for $100 a night were now going for $300 dollars a night, I’d have to ask myself: "Is it really worth it to me to pay the money to sleep in one of those rooms, or would I rather keep my money and sleep here in the stadium for a few nights?"

Personally, I’d probably have chosen the latter and roughed it in the stadium, but there are many people who might have special needs that I don’t have (e.g., a person in frail health who needs a room and bed more than me) and who would be willing to pay for it. The jump in prices that deterred me from renting the room thereby opened it up for someone who felt they needed it more than I did and who was willing to pay the price to get it.

Of course, rich people are more able to pay for such rooms than poor people, but then the rich aren’t likely to stay in an area being devastated by fire or hurricane or what have you. If I were rich, I’d probably try to get transport out of the area altogether and stay in a hotel where the prices were lower rather than pay for an expensive one in the city center.

Further, imposing price caps (voluntarily or by government mandate) so that people who aren’t rich can more easily afford the rooms also will prevent people who really need the rooms (as opposed to those who could sleep in the stadium or with friends and family or even out of doors) from being able to get them since they’ll just fill up quicker with people who don’t have that high a need for them.

The market mechanism in most situations is thus still the best method for determining the allocation of goods and resources. It’s not perfect, and in fact the market can break down so much that the ordinary rules regarding property rights are morally suspended. The Catechism notes:

2408 The seventh commandment forbids theft, that is, usurping another’s property against the reasonable will of the owner. There
is no theft if consent can be presumed or if refusal is contrary to
reason and the universal destination of goods. This is the case in
obvious and urgent necessity when the only way to provide for
immediate, essential needs (food, shelter, clothing . . .) is to put at
one’s disposal and use the property of others.

In sufficiently extreme circumstances, the government might even step in and declare marital law and commandeer hotels, prioritizing who gets the rooms on a needs basis. The Catechism also acknowledges:

2406 Political authority has the right and duty to regulate the legitimate exercise of the right to ownership for the sake of the common good.

But much of the time it would be hard for the government to do as good a job as the market in determining the most efficient use of resources. That’s why Communism failed.

One therefore shouldn’t be too quick to seek a government remedy to a difficult situation. It is possible that the government solution may be better than what the market would produce, but usually this is not the case. The market tends to be more efficient than the government.

To sum up:

• While the Church doesn’t seem to use the term "price gouging," it does recognize that one can immorally force up prices to take advantage of others’ hardship.
• This is not the same thing, though, as having the natural price point of a resource change due to a disaster.
• It is not greedy to charge the new natural price of a thing, but it is generous to charge less.
• Doing so may help some but may not help the right ones since it may prevent those who need the resource more from getting it since others may fail to conserve the resource if prices are kept artifically low.
• In certain and extreme circumstances (which we haven’t fully explored) one can simply take what one needs without it being stealing.
• The government has a right to regulate the exercise of private property rights, but there must be caution in this area because the government usually isn’t as efficient as the market.

All that being said, I have no idea what the economic situation is at present in the areas hit by Katrina. I simply hope that people will continue to pray for those harmed by the hurricane and that they will do what they can to help them directly.

SEE HERE FOR INFO ON HOW TO DO THAT!

A piece back I reviewed the book Freakonomics, which is quite an enjoyable read. Today I’d like to talk about Ferengi-nomics, though–the economics that exist (or could exist) on the world of Ferenginar.

There’s an episode very late in DS9 (in fact, it’s the next to last episode, if memory serves) in which taxes have been introduced on Feriginar as part of Grand Nagus Zek’s left-leaning societal reforms.

Quark is horrified when he learns of this, saying that taxes run contrary to the spirit of the free market. “That’s why it’s called free,” he says.

Actually, that’s not why it’s called “free,” at least not on Earth, but it’s a good line, and you can’t expect the Hollywood lefties who write the show to understand economics.

What’s worse (from Quark’s perspective) is that not only have taxes been introduced, a progressive income tax has been created.

For those who may not be aware, a progressive income tax is one in which people who make more money are charged a higher tax rate. They not only pay more tax total, they pay taxes at a higher rate. Thus if a person in a lower income bracket pays 20% of his income in income tax, a person in a higher income range might pay 40% of his income.

The theory behind progressive income taxes is that the more money you have, the more you can afford to pay a higher percentage of your income in taxes.

The problem with progressive income taxes is that they serve as a dis-incentive to make more money. If you have to work harder for each new dollar of (after tax) take-home pay then that unmotivates you to do the work needed to get that dollar, and so at some point you say, “Eh. I’ve got enough. Why should I work harder to get more when the government will only take more of it.”

And thus economic development caps out. That means that there are fewer jobs that exist than would exist if the income tax rate weren’t progressive. The progressiveness of the tax rate serves as a drag on the economy that ends up keeping people jobless and harms them in bunches of different ways related to an absence of money in the economy that would otherwise be there.

What happens if you make the tax rate less progressive? People in the top tax bracket (i.e., the ones with the money) get more motivated to make money since they can now keep more of it. Economic growth is stimulated. Jobs are created. And, in many circumstances, the tax revenue that the government collects actually goes up since the economic stimulus provided by the lower rate more than offsets the fact that the rate has itself gone down.

Which raises a question.

Think for a minute about Ferenginar.

Assuming that they did have taxes there, and assuming that we set aside the Hollywood writers’ progressive income tax on Ferenginar idea, what kind of tax rate would they have there?

Ferengi place a value on economic development above all else. If having a highly progressive tax rate highly hampers the economy, and if a less progressive tax rate hampers the economy less, then I bet on Ferenginar they’d have a negatively progressive tax rate.

In other words, they wouldn’t have a progressive tax rate, they’d have a regressive one.

On this scheme, your tax rate would be higher if you make less money and lower if you make more money. Someone in a lower income range would be paying the 40% (or whatever) and someone in the higher range would be paying 20% (or whatever).

You can just imagine how they’d justify it, too. I can see Quark giving a speech in which he says, “This way it gives the poor an incentive to not be poor any more, to work hard and look for economic opportunities that will let them make enough money that they can get into that next tax bracket. That makes them richer. It makes society richer. It stimulates economic development. It’s better for everybody. Don’t give me your silly Federation ‘morality.’ A progressive income tax rate is positively immoral! How can you be so cruel to your poor as to subsidize their poverty and keep them trapped in it?”

It’s too bad that there aren’t any Trek TV-writing jobs available at the moment. I could probably work a pretty good episode out of that idea, or at least the B story of an episode.

SURPRISINGLY, SOME HU-MONS HAVE EXPERIMENTED WITH REGRESSIVE INCOME TAXES.

They apparently have one in Taiwan.

Y’know how the Federation–or human civilization at any rate–doesn’t have money on Star Trek?

That’s soooo stupid.

And originally, it wasn’t that way. In the original series, there are periodic references to money. Sure, they call their units of money "credits" rather than "dollars" or "yen" or what have you, but it’s money. There are also references to traders, commerce, and even mail-order brides.

And then came what should have been a throwaway line.

In the movie Star Trek IV ("The Search For Whales"), Kirk and the gang are back in the 20th century (remember that one?) and Kirk is going on a sort of date/business meeting with a marine biologist to a pizzeria, and he explains that he’s from the future. She is incredulous and not taking him very seriously, and then when the time comes to pay the check, she says, "I suppose that you don’t have money in the future."

Kirk replies, "As a matter of fact, we don’t."

Funny line! Good delivery by Shatner. And if it had stopped there, everything would have been fine. The line could have been taken as a joke, or it could have been taken as a statement that in the future nobody carries cash (i.e., they all use debit cards or something).

Unfortunately, the Powers That Be at Star Trek chose to take it in a much more literal sense (probably dictated by Gene Roddenberry’s over-optimistic secular humanism), and so it became canon that they don’t have money at all in human civilization. Instead, as articulated in Next Gen and DS9, the human race abandoned money for an economy driven by a mutual desire for improving oneself and the common good.

Riiiight.

All those greedy traders from the original series like Cyrano Jones and Harry Mudd were driven by a desire for mutual self improvement. That’s what led them to unleash ecologically unsafe life forms (tribbles), traffic in contraband substances (magic beauty crystal drug thingies), and risk jail and stuff.

The difficulty of making Star Trek over into a Leninist workers paradise has problems that go way beyond continuity problems, though. The basic problem is that Leninist workers paradises don’t work. That’s why the Soviet Union early on abandoned its efforts to have a cashless society and reintroduced the use of money.

Money plays a vital role: It tells you how much somebody wants something that is in short supply. Person A wants to have something that Person B also wants to have (say, a nice fluffy tribble that has been safely neutered). Who wants it more? Money is the best way to settle that. (Fisticuffs not being a good way.) You want this tribble? How much are you willing to pay for it? Supply and demand.

Even monkeys can get the principles involves.

A society of humans couldn’t be more advanced than us and yet lack money. Whether  cash or electronic, money is the most efficient way of settling how wants what how much and thus who gets it. It’s the best way to organize resources on a wide scale. Any other system is going to be inefficient and result in the misallocation of resources and greater human suffering.

Star Trek is able to ignore this because it is held to such low standards of realism, but no human society built on a touchie-feelie, moneyless self improvement philosophy could possibly work. We know. We’ve tried them. They all fall apart (usually very quickly). Even the kibbutzim are either changing or dying.

Even with the low-realism standards of Star Trek, though, the problem shows through. There are episodes of DS9 (whose writers hated the moneyless business) where the problem is thrown into sharp relief. How could it not be?–when some of the principal characters on the show are Ferengi and thus devoted to the pursuit of money.

One of the things that the show just has to ignore is how moneyless humans interact with moneyed Ferengi (and other cultures). Think Quark isn’t going to charge humans for drinks in his bar? Or to use his holosuites? Think again.

This is not to say that the economics of the future wouldn’t look different than ours. Technological change alone would ensure that. If you have replicator technology (which didn’t come in until Next Gen) and abundant energy then the unit cost of countless consumer goods is going to be vanishingly low (even if replicated food doesn’t taste as good as real food), but it will still exist.

And so what should have been a fun, throwaway line in a movie about searching for whales turned into a HUGE, HULKING, ENORMOUS, WHALE-SIZED WRITING PROBLEM FOR THE FRANCHISE.

Sigh.

GET YOUR COPY OF THE RULES OF ACQUISITION.

The Denver Post reports that sales of religious books have increased 285% since 1983, and that growth in the Christian Book market is outpacing that of other adult book categories. Religious books accounted for 7% of all book sales in 2004. Denver is hosting the national convention of the Christian Booksellers Association for 2005.

I attended one CBA convention several years ago (about the time Veggie Tales was breaking big) and found the experience a mixed bag. I got to see some of the top names in Christian Music perform live. I got to hear Franklin Graham speak and I went home with a whole bag of cool freebies for the kids, but I was somewhat uncomfortable with the commercial atmosphere and kept wondering what Jesus would think as he wandered down the colossal aisles of million-dollar vendor displays.

How the money do flow!

The CBA is about more than just books, of course. Christian bookstores carry devotional items, music, jewelry, toys, videos, framed art – all kinds of products, some of which I find helpful and am grateful for. I even found a vendor that was carrying beautiful icons from eastern Europe (Catholic products are rare in the CBA, however). I know from experience that the success of the Christian marketplace has attracted many that have no interest in the spiritual nature of the products they are associated with. It is a business.

One has to wonder what this all means. Is America on the verge of a religious awakening? Or have great commercial interests simply awakened to the "Christian Market?"

GET THE STORY.

I wasn’t able to do a post on Freakonomics yesterday because of time and because one of the stories I’m researching on it took an unexpected (and very interesting!) turn and I haven’t been able to pin down all the details yet, so it’ll probably have to wait until at least next week.

But here’s a Freakonomics post that originally appeared over on the Freakonomics blog (CHT to the reader who e-mailed!) under the intriguing headline "Pat Robertson For President?":

Author Steven Levitt writes:

I appeared on the 700 Club this morning with Pat Robertson, in an interview that a blogger anticipated would be the "must-Tivo event of the summer." Conventional wisdom suggested this would be a bloodbath – that the Freakonomics perspective on the abortion question would enrage Robertson and a shouting match would ensue. (Indeed, my publicist was planning on turning down the 700 Club’s invitation to appear without even asking me, but decided she should at least ask.)

As so often is the case, conventional wisdom turned out to be wrong. The folks from the 700 Club could not have been kinder or more gracious, believe it or not. Pat Robertson knew the book quite well, asked all the right questions, and heaped enough praise on me to make me blush. We even talked about the abortion issue without incident. And the time and effort that the crew had taken in assembling footage and clips for a lead-in surpassed any other TV show I’ve done.

After I went on the Daily Show, I plugged Jon Stewart, suggesting he would make a great president. So what about Pat Robertson? I didn’t actually get to meet Robertson in person or interact with him off-air (like I did with Jon Stewart) since I wasn’t in studio for the 700 Club interview, but rather shot remotely in a TV studio in Chicago. So, honestly, I don’t have any special insights on Robertson (making the title of this blog post a bit misleading, sorry). I will say this, though. The large segment of our society that wants to demonize Robertson will get no fodder from my interview with him, and the large segment of folks who like him won’t find anything in the interview to change their mind, either.

We’ll post a transcript of the full interview segment when it comes available so you can see for yourself [SOURCE].

Kudos to Levitt!–And Robertson!

Like I said, pro-lifers and non-pro-lifers can discuss the abortion-crime issue in a reasonable way. Levitt sought to do so in his book, and I’m glad that Robertson did on his show!

If you’ve missed what all this is about, SEE MY PRIOR POST or

READ THE BOOK.

Time prevents me from being able to do a more detailed post on Freakonomics today, so lemme give you a brief one.

One of the things that you can do with economic analyses is figure out which terms in advertisements result in better sales. F’rinstance: Here are five words commonly used in advertising homes for sale that correlate with higher priced sales of the homes:

• Granite
• State-of-the-Art
• Corian
• Maple
• Gourmet

How all those get worked into ad for houses, I’m not sure. (I don’t know anybody who has a "gourmet house," though I suppose people might advertise that the home comes with "gourmet kitchen equipment" of some kind.)

You can similar track what advertising elements are correlated with lower sale prices on houses–i.e., things you don’t want in your ad. Here are five such terms:

• Fantastic
• Spacious
• ! (an exclamation point)
• Charming
• Great Neighborhood

Why do these correlate negatively? And what do the positive terms have in common? For those answers you can

READ THIS EXCERPT FROM THE BOOK.

Freakonomics also contains info on what elements are most (and least) successful in personal ads on Internet dating sites, though if you want to know what they have to say about that subject then you’ll need to

GET THE BOOK.

The most controversial claim of the book Freakonomics is that abortion appears to be a key factor in lowering the crime rate in recent years.

A decade ago, you may remember, the press was filled with stories about how the youth of America were disintegrating and that soon we would be awash in an unstoppable crimewave perpetrated by "superpredators" who were totally sociopathic.

The experts were sure this was going to happen.

But it didn’t.

Why?

Various explanations were tried: Better law-enforcement techniques, more police officers, a justice system that finally "got tough" with offenders, stricter gun control laws, an aging of the population.

As the authors of Freakonomics explain, some of these (e.g., the justice system getting tough, more police officers) really do have an impact on crime. Others (e.g., restrictive gun control laws) don’t. But even the ones that had an effect weren’t enough to explain the dramatic drop in crime that occurred.

Author Steven Levitt, and his then-co-author John J. Donohue, proposed a different explanation: Abortion was responsible.

The argument runs something like this: If women of every socioeconomic group were equally likely to have an abortion then we wouldn’t expect to see abortion decreasing the crime rate. But that’s not the way thing are. In point of fact, women from certain socioeconomic groups are more likely than others to have abortions, and the groups more likely to do so (e.g., among the poor) are the very groups that tend to give rise to the most criminals. As a result, babies likely to grow up to be criminals were disproportionately aborted and so the overall crime rate went down.

In other words, Evil eugenicists like Margaret Sanger and her cohorts were right: By legalizing abortion it would alleviate certain social problems (crime, at least) by wiping out the people involved. These were, in the words of some, "pre-emptive executions"–applications of capital punishment to those who would have committed crimes in the future (as well as an awful lot who wouldn’t have).

When Donohue and Levitt published their paper, it caused a Big Argument.

When Levitt and new co-author, Stephen J. Dubner, released Freakonomics and rehashed the issue in a more popular format, it again caused a Big Argument.

Many pro-lifers, understandably, did not want to credit abortion with solving or helping to solve any social problems.

My own attitude toward the issue is somewhat reserved. I’m not prepared to concede that their Levitt and Donohue’s work is correct unless I go through it in detail, which I haven’t.

THOUGH THE ORIGINAL PAPER IS ONLINE HERE. (WARNING! Evil file format! [.pdf])

I’m not going to dismiss the claim, either, though. After all <philosophical thought experiment>if the abortion rate were raised to 100% then the crime rate would automatically fall to 0% in one generation</philosophical thought experiment>. There wouldn’t be anybody left to commit crimes!

If it happens to be the case that allowing abortion on demand (for a price) in contemporary American society has a negative impact on the crime rate, that’s an empirical matter, not a moral one.

It does, however, raise a legal question–and a semantic one. The "crime" that we’re talking about is the kind tracked by law-enforcement officials. There are two kinds of crime, though, that are not tracked by law-enforcement.

First, there are crimes that are never discovered and recorded, such as when you stole that pen from work a while back. It may have been illegal for you to do that, but it’s not worth anybody’s time to both hunting down and prosecuting such offenders.

Second, there are crimes that are not illegal. These are crimes against the higher law to which human law is oriented. They are "crimes against humanity," "immoralities," "sins," or whatever you want to call them. They violate human rights, natural law, moral law, God’s law, or whatever you want to name the higher law.

Abortion is one of these.

So what happens to the violent crime picture if we take these crimes into account? Well, currently there are about 15,000 people killed a year in the tracked-by-law-enforcement sense of "killed." Now let’s add to that the 1.6 million people killed a year by abortion in an "off the books" way. What’s the actual homicide rate in the United States? 1.615 million people murdered each year.

That dwarfs any "savings" caused by abortion in the "on the books" homicide level that the Bureau of Justice Statistics might tell you about. Even if you subtract out the abortions that were occurring before 1973 (so that we have an apples to apples comparison), the same remains true.

So no, abortion has not decreased the violent crime rate in the U.S. It has dramatically increased it. Whether it has alleviated the "on the books" violent crime rate, or even the "on the books" crime rate in general, is a subsidiary question. The fact remains that far more people are being slaughtered in the era of abortion than was the case before.

Now let’s loop this back to Freakonomics: How does the book treat this aspect of the issue? Surprisingly well.

The authors do have an overly simplistic analysis of the effects of "wantedness" versus "unwantedness" on children. (Not surprising since one is a journalist and the other is an economist; neither is a pro-life researcher who has gone over the subject carefully enough to see past those simplistic labels). The authors also betray their own perspective by fatuously editorializing that when the government lets women make decisions in this area that they do a "good job" deciding whether they can raise a child. (This is fatuous because abortion is not the only alternative to raising a child. Not conceiving a child or putting one up for adoption also are, and the government had been letting people use these options and thus make the decision of whether to raise a child long before Roe v. Wade. Roe simply added murder to the list of options parents had if they concluded they didn’t want to raise a child.)

Nevertheless, the authors are much more evenhanded than one would expect. Not only do they make the pro-life point I made above, they also cite a quotation attributed to G. K. Chesterton to the effect that when there is a shortage of hats the solution is not to lop off a few heads.

They even go above and beyond by exploring a middle view between the pure pro-life and pro-abort positions.

What if someone put some value on the life of an unborn child, the authors ask, but not as much as they put on the life of a newborn?–as, in fact, many people in the "mushy middle" of American politics do. What should people in such a position conclude about whether abortion has been a good thing or a bad thing for society in terms of its impact on crime?

Suppose that a person thought that the life of an unborn child was worth 1% of the life of a born person?

Now, you may be thinking: "That’s sounding pretty dang close to the pure pro-abort view to me!"–which it is. But here’s where the math kicks in: If the life of an unborn child is just 1% the life of someone post-birth and you multiply that by the 1.6 million abortions we have a year then that makes the number of abortions equilvalent to 16,000 murders, which is roughly the number of people that are killed in the U.S. each year by legally-trackable homicide. It’s also more than the "savings" in the homicide rate that they hold abortion to have produced.

So even if you only view unborn children as 1% as valuable as post-born people, abortion has still been a net negative to the country in terms of loss of life.

The conclusion–though the authors don’t pose it in these terms–would be that only pure pro-aborts (who view the kid’s life as worth nothing), and those who view unborn children as worth less than 1% what born children are, should be touting the violent crime-reducing effects as a justification for having abortion in this country.

My point is not that I buy their analysis of whether abortion cuts crimes. I’m not in the market to buy into any position until such time as I’d be able to go over the case in detail (the original, Donohue-Levitt one) and the best rebuttals available to it.

There may be a surface plausibility to the argument, but then there are superficial plausibilities all over the place that don’t pan out in economics. Levitt and Dubner point to some of them in their book (as when fining parents for being late to pick up their kids from daycare resulted in an increase in parental lateness). Letting people abort their babies does not mean that the resultant babies will be more "wanted" than if abortion were not allowed. Giving kids contraceptives results in more conceptions out of wedlock, not less, and something similar may be true with abortion. The net impact of abortion may be a devaluing of children and viewing them with a more jaundiced and calculating eye, leading to worse parenting rather than better parenting.

I’m merely suggesting that the book offers a less polemicized discussion of the argument than many might suppose and that before pro-lifers start foaming at the mouth when they hear the abortion-crime link being discussed that they

READ THE BOOK.