The WaveShield is Fraud

I came across this fraudulent nonsense while listening to the radio show of Dr. Eliezer Ben-Joseph (Natural Solutions Radio). Because it sounded like Mel Gibson's character in "Conspiracy Theory" interviewing himself, it would have been fun to listen to Dr. Ben-Joseph's breathless interview ("Really?! Oh, my goodness. Oh, my! That's amazing!") of Shelly Kalnitsky if I weren't shouting "What?! That's nonsense!!" the whole time. Among other things, Kalnitsky was saying,

• Using a hands-free set is more dangerous than just the cell phone because the hands-free set emits RF energy. (he made this statement about both Bluetooth and wired sets)
  
• The energy of the cell phone comes out the end of the antenna. Gosh, if that's true, I wonder how Yagi and log-periodic antennas work? I guess I must have been aiming them wrong all this time, too.
  
• The Waveshield blocks radiation from entering your ear. There was some related speculation, mostly from "Dr." Ben-Joseph, about the deafness of people like Eric Clapton and others, and their exposure to this radiation.
  
• You get a burst of microwave radiation out of the earpiece as you travel between towers. Oh, my goodness!
  
• The WaveShield is made of -- get this -- the same material used to protect workers in nuclear facilities, as if ionizing radiation and speaker emanations were even remotely similar.
• Cell phone usage increases by several thousand per day, and he has been getting reports of dozens of brain cancers *every week*. Hmmmmm ... that can't be coincidence.
  
• Two Russian journalists hard boiled an egg with cell phones and you can pop popcorn with them. (hoax explained here and here)
  

His theory appears to stem from the idea that radiation shoots out of various orifices in the cell phone (the speaker and the end of the antenna) and into various orifices in your body. Therefore, your ear and the speaker port being the closest orifices, the radiation shoots out of one into the other. The WaveShield is a ridiculous grill that sticks onto your speaker and blocks "97%" of the hypothetical energy.

One of the more bizarre aspects of the interview was their constant insinuation that cell phone companies have blocked all research into cell phone-related health issues because the cell industry lobbies heavily. The implication is that the federal government is the source of all research, but is also easily corruptible. Simultaneously, Kalnistky was advertising his material as being "tested by the government" as if that was the acme of standards and inherently free from corruption. Good luck finding a link to those test results, or a description of this marvelous material.

As I recall, IEEE Spectrum ran a whole issue several years ago highlighting various aspects of cell safety. Finite Element Analysis (FEA) of the human skull and tissue showed that use of the phone could cause something like a 1 degree C heating in tissue near the antenna. This is not ionizing radiation, like x-rays, but simply radio frequency radiation. Could it be a problem? Sure. But let's put it in perspective.

• You walk around underneath a huge yellow source of ionizing and other radiation every day. It cranks out something like 1 kW/m^2 at our orbital position, much more than the mW-level transmitter in your phone ever could, certainly much more than you are going to receive per square meter from even the closest cell tower.
  
• Cancer incidence has been going down, not up. Brain cancer (pdf) specifically has been declining to flat over the last 20 years. Of course, maybe you don't believe government statistics? Not that I would blame you, but it would be at least a little interesting if there were anything like a positive relationship between the soaring penetration of cell phone usage and brain tumors in that time.
  

Two other things you might consider when contemplating whether or not to regard the product and its purveyor and its purveyor's website, Cell Phone Radiation News Bureau (CPRNews), as fraudulent:

First, Kalnitsky cited the recent work of Dr. Siegal Sadetzki of Tel Aviv University in Epidemiology magazine as finding a link between cell phones and cancer. Dr. Sadetzki is somewhat less forceful in summarizing the findings:

Dr. Siegal Sadetzki, an epidemiologist and lecturer at Tel Aviv University, has been studying the effects of cell phones on public health for 10 years. In her work, she has found some connection between cancer and heavy cell phone users, but the results are not conclusive and the "consensus is that additional research is needed," she said. [emphasis added]

If I was going to guess, heavy cell phone usage, especially by children, may be found to be a problem. As cell phones have become more ubiquitous, towers have become more common, and coding algorithms have become more efficient, the actual power necessary to transmit a conversation is falling. Using wired (non-Bluetooth) hands-free devices drastically reduces your exposure to radiation, as does using the phone for texting. But Kalnitsky is nothing like nuanced in his misuse of such things as anecdotal evidence, hearsay, urban myths, hoaxes, pseudo-science, junk science, and unfiltered bovine excrement.

Second, Kalnitsky, his company, and similar product manufacturers were told to stop making false claims about their products in a 2002 action brought by the FTC. Story here and here. Of course, it could be that the lobby-influenced government was only doing its masters' bidding, but it could also be that the product is a scam. If the purpose of the FTC is to stop such activity, why haven't they? This wouldn't be an example of government failure, would it? Should we blame it on the laissez-faire environment under Bush? Well, I suppose that the facts that they were prosecuted in 2002, but are thriving in 2009 would seem to undermine that theory, but that's no reason to drop it, is it?

The FAQ on their website is filled with similar howlers.

• "In the beginning when analog phones were 800-900 MHZ of power, ... However as manufacturers raised the power of their phones up to 1800-2000MHZ" and "However as signal strength grows from a few hundred MHZ of power to beyond 800 MHZ..." MHz is a measure of frequency, not power. I believe they are doing this intentionally so that they can cite the increasing frequencies and conflate that in the mind of the reader with power.
  
• "What is the difference between a Radio Wave and a Microwave? ... However as signal strength grows from a few hundred MHZ of power to beyond 800 MHZ, the electro-magnetic spectrum increases and these waves become microwaves." Besides being inaccurate as noted above, this is misleading: there is no qualitative difference between radio waves and microwaves. Both are electromagnetic waves that radiate through space, both are non-ionizing radiation, and the distinction between radiowave and microwave is rather arbitrary. The primary difference in the use of the two terms is that "microwave" refers to electromagnetic radiation (radiowaves) whose wavelengths are on the order of a micrometer. In other words, microwaves are radiowaves. I believe that they are trying to get the reader to think of microwave ovens. You can find the wavelength by dividing the speed of light in a vacuum (300 x10^6 m/s) by the frequency (800 MHz = 800 x 10^6 cycles/s, for example) to get the wavelength (3/8 m/cycle, or .375 m). Note that you can express any distance in terms of any unit: .375 m is 375 millimeters or 375,000 micrometers. Thus, the term "microwave" is arbitrary and generally refers to anything in the 300 - 300,000 MHz band.

And finally, Kalnitsky and others have been speculating on a link between Ted Kennedy's brain cancer and cell phone usage. The tumor was on the left side. I submit that Kennedy probably used the cell phone on his right ear: here's video of him throwing the first pitch earlier this year (fwiw, though not a fan of his political career, I do not condone the disrespect that I found accompanying many of the references to this event).

If, after reading this, you are still convinced that the WaveShield is anything but government lab-proven fraud, then I suggest that you look into sticking them onto your radiation-spewing computer monitor as they suggest on one page of their website. Shame on you, Dr. Ben-Joseph, for helping this snake-oil salesman and for betraying the trust of -- dare I say, preying upon? -- your audience.

Which way does adverse selection run?

Regarding Paul, Alex, Henry, and Megan,

I have to admit I'm confused. When people talk about adverse selection from the standpoint of patient action, they say that the healthy obviously will not sign up for insurance because it's a waste of their money. When they talk about it from the standpoint of healthcare companies, they say that they obviously will try to deny the unhealthy. So, do they cancel out?

Alex Tabarrok offers this paper (Table 10) as evidence that the uninsured are generally more rather than less healthy, which may be evidence that insurance companies are less than successful at getting unhealthy people out. Meh - given such facts as your insurance is tied to your employment, I am skeptical about Krugman's (and Kenneth Arrow's) theoretical arguments, and therefore also skeptical about whether that evidence refutes it.

I at once thought about the "2nd Best Economist" flap that arose between Dani Rodrik and Alex, as did apparently Henry Farrell. Once again, someone (Dani in the earlier episode, Krugman in the latest) uses a theoretical argument about market failure to justify the simplistic formula I have posted about repeatedly. As Megan McArdle seems to note, this episode follows the same logic as Akerlof's "The Market for Lemons" theory. Krugman swallows the bullet and asserts that Arrow's paper "demonstrated -- decisively, [Krugman] and many others believe --" that there can be no market in insurance, just as there are no Used Cars, Used Car Salesmen, Used Car Lots, or Used Car sections in the classified ads.

I am looking forward to future columns in which Paul will explain how turtles naturally migrate onto fenceposts. Also, on how he expects single-payer programs to expend significantly fewer resources on uncovering fraud and unnecessary expenses while simultaneously reducing the amount of money spent on health care and increasing the number of people covered. Wow, that single payer program must be impressively efficient!

And the more I think about this, the less impressive Krugman's argument is. He begins with an explanation of insurable events (low probability, high cost), and concludes with a diatribe on the profit motive:

The big bucks are in triple coronary bypass surgery, not routine visits to the doctor's office; and very, very few people can afford to pay major medical costs out of pocket.

This tells you right away that health care can't be sold like bread. It must be largely paid for by some kind of insurance. And this in turn means that someone other than the patient ends up making decisions about what to buy. Consumer choice is nonsense when it comes to health care. And you can't just trust insurance companies either -- they're not in business for their health, or yours.

This man won a Nobel? Shorter Krugman:

Insurable events happen, therefore health care is not a commodity, it is something whose purchase must be negotiated by someone else who is driven to screw you because of profit motivation.

I buy car insurance pretty much like a commodity. When something happens to my car, I go to any reputable body shop, and the insurance company cuts a check. That's pretty much the opposite of what Krugman is saying in the quoted passage. But it must be my imagination.

Okay, car insurance isn't like health care. Yes, that's the point: insurance is insurance, health care is insurance plus some attempt to insulate you from the cost of non-insurable events, like regular visits to the doctor's office or visits for colds and flu and medicine to treat such minor illnesses. Either Krugman doesn't know this (not good), or he does but does not want to mention it (also not good).

An example tied to the bold conjecture

So, my not-so-modest conjecture accused pragmatists of deriving ought from is. I don't think that any 21st century pragmatists are going to agree with any of the following, but I wonder whether their 18th and 19th century counterparts would have done so.

If you are going to look at a current state of affairs and conclude that, well, whatever is best for everyone, efficiency, progress, and all of that may be used as the bases for judging a policy (I don't, but then I'm an ideologue in their eyes), then I suggest that you must conclude that certain out-of-style labor policies in US history were good policy. Why?

As Pietra Rivoli relates in The Travels of a T-shirt in the Global Economy, Gavin Wright found institutional failure in the agricultural labor market in the south in the 18th-19th century. Cotton required labor to be available, sometimes on a moment's notice, to hoe weeds and to pick the cotton when it was ready. The weed-hoeing depended on rainfall in the spring, while the harvest went on for four months in the fall. Further, harvesting could not take place while the bolls were wet from rain, but then again, the bolls have a tendency to fall to the ground and/or get spotted and weak from rain, so the labor had to be available during harvest, within about 4-7 days after a rainfall. Markets for such labor could not exist in an era with poor communication and transportation.

Further, cotton yields apparently increased with farm size up to 600 acres. Thus, a large plantation was more efficient than a small farm. However, it would have been difficult for would-be large plantation owners to find white labor because they had to compete with a pesky competitor: land was relatively cheap, and almost no capital was required (not even a mule in the early days), so most white laborers could have run their own family farm. Since the family farm would have needed the same irregular attention as the plantation, no plantation could have gotten off the ground while the family farm existed. [1] Legally sanctioned slavery, practiced by paternalist owners, resolved the failure.

Dr. Rivoli proceeds to find similar issues in the post-slavery era. Sharecropping was another effective method of resolving the labor market problem, but there were two new problems (from the landowners' perspective): first, the tenants might borrow money from someone besides the landowner, breaking the dependency cycle, and second, the tenants might find higher paying work elsewhere. The former was thwarted through the passage of crop lien laws, cutting off the tenants' access to capital markets, while the latter was thwarted through such methods as vagrancy and anti-enticement, what Rivoli calls "alienation of labor", laws. Later, during WWII, the labor shortage created by wartime demand led to the creation of the Bracero program. Once again, the special conditions of cotton growing created institutional failure, which was addressed by (1) having the Department of Labor screen the workers for health, potential productivity, and absence of certain political tendencies; (2) restricting the laborers to only one employer so that they couldn't be bid away to the highest bidder; and (3) having specific numbers of workers ready to be picked up on the farmers' schedules.

In summary, the benefits are quite clear: cotton and then textile production sparked the Industrial Revolution, and later kept the Southern and then the West Texas economy afloat. The institutional failures are also quite clear: large farms reap economies of scale, but in the days when cotton production was labor intensive, there was no way to obtain the labor when and where it was needed, and at a reasonable price, because of the lure of family farms, other farmers, and competitive capital markets. We can see that your average, pragmatic, non-ideological, empiricist would have found the Bracero restrictions, and before them the legal restrictions on sharecroppers, and before them slavery, to be good things and beneficial state policies. Those pragmatists would have included Northern industrialists dependent on the cotton trade (especially the Lowells, but also New York shippers and financiers) as well as those who relied on the South as a market for manufactured goods, but certainly no small number of intellectuals supportive of Hamiltonian means would have defended the policies on the basis of the undeniable outcome. Those people who were committed to certain -- yech! -- Manchesterite, hyperindividualistic ideologies might well have been found in the company of the much-hated, unreasonable abolitionists.

I can hear the protests now: "Oh, but that's not what we mean! We're not in favor of efficiency at all costs."

Really?! Is there some sort of universal moral axiom that was violated by those policies?

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[1] We know from more recent experience that state intervention to increase the effective size of the farm is thought by empiricists to have been a good thing because it increased the percentage which any farmer could have left fallow. See, for example, this review of Tim Egan's The Worst Hard Times.

Knowledge regimes

The way most sciences are taught is to start with very simple models in which many unrealistic assumptions are made so that students can learn the big picture and major forces, and then the assumptions are gradually relaxed so that you end up with very sophisticated models. It is true of physics and economics. That was what the First vs. Second best debate between Dani Rodrik and several other bloggers was about a few months ago, to which I had three responses (here, here, and here).

I find the claim among the so-called Second Best camp to be over-simplified for several reasons. The first is the problem of vulgar second best-ism in which they spot an institutional failure, propose a correcting policy, and assume success without investigating whether there are multiple institutional failures which counteract each other, whether there is a private institutional response to the failure, whether the policy actually corrects the problem, or whether the policy has unintended consequences which give rise to a new institutional failure. I have a whole category for this.

The second is their assumption of a knowable, static set of affairs. This is an assumption that the Econ 101 theory is correct, but that the real-world solution of some master equation for universal efficiency and total spiritual creaminess requires state intervention because of those chewy chunks of degradation known as "institutional (market) failure" [1]. This presumes an optimal state of affairs that we should strive for -- the "correct" allocations of inputs, outputs, numbers and types of goods to be made, and prices. This seems to me to be impossible not only because of the unknowability of the current set of all knowledge, but because of the unknowability of all possible knowledge. Hayek was only half right: Not only is the sum of current human knowledge unknowable to a single person, but the sum of all possible knowledge is unknowable to all persons or groups except for the group which consists of all humans over all time.

Although the book isn't explicitly about this, Dengjian Jin's The Dynamics of Knowledge Regimes illustrates a relatively simple case in cultural comparisons, a single slice through the cone. The book is Jin's explanation of the competitive differences between the US and Japan. He notes that previous explanations of Japan's rise fail to explain the current stasis of that economy. Those explanations approach the problem from neoclassical, revisionist, institutional, cultural, technological, and complexity schools of thought, among which the revisionist and complexity schools might be counted as Second Best approaches, the former noting the importance of industrial policy, and the latter noting issues like path dependency. Jin, on the other hand, focuses less on trade and transaction and more on the way in which each culture creates, stores, transmits, and uses knowledge. Each culture has its distinctive isomorphic regime (to use his phraseology), and the two regimes are nearly mutually exclusive.

In Jin's description, the cultures can be identified along the relationship and identity axes, with Japanese falling more into connectual and contextual while Americans fall more into contractual and individual. In those terms, Williamson's contractual schema have little to do with the Japanese experience and therefore are relegated to the status of a subset of the possible relationship schema. The American knowledge regime both results in and encourages the creation of isolated, modularized, disconnected, universal knowledge, while the Japanese regime results in and encourages the creation of highly contextualized, tacit, specific knowledge. Jin also notes that the relationship between the state and industry tends to fall into the same isomorphic pattern, with Japanese government working very closely with the affected industries and American government working (or appearing to work) in a universalist relationship, i.e. DARPA awards contracts for knowledge creation in a competitive bid process while MITI would work closely with an alliance on a development project. Jin's book explores these ideas in detail and also shows how this produces competitive advantage for each culture in distinct sectors. For example, the American approach results in leadership in sectors such as software and biotechnology where talent and knowledge can be modularized and reconfigured endlessly, while the Japanese approach results in leadership in complex fabrication and assembly such as automobile and opto-electronics.

So whereas Americans work with a system which emphasizes contracting, Japanese work within a system which emphasizes long-term relationship building. Asymmetric knowledge and opportunistic breach of contract are therefore rarely a problem in Japan. On the other hand, network effects certainly are a strong problem for the Japanese while the creative destruction machine that is modern America blows through network effects rapidly (and the process appears to be accelerating). Thus, a problem that worries the second-besters in one culture doesn't even make it on to the radar in the other regime.

Now pull back a little and realize that Jin was only comparing dominant Japanese and US knowledge regimes. What would be the result of a similar study of all cultures? Or of subordinate cultures within the US, Japan, and other dominant culture types? Also, the Japanese emphasize tacit knowledge, some of which is destroyed by the simple act of trying to objectify and communicate it, so it is not even clear that we could understand all of the institutional failures in our own culture that a Japanese would note, and vice versa. What would happen if we were to be able to look at our own institutions not only in terms of Japanese understanding, but of all existing, or of all possible cultures?

Now, having made those observations, I immediately begin wondering about things like,

• What institutional failures are we failing to note?
• How many failures could there be that have yet to be discovered?
• Are there some failures that cannot be detected or described in terms understandable within our culture?
  
• Since failures may work in both directions, is the net effect of those underprovision or overprovision of the good or service in question? How can we know?
  
• Because we aren't aware of these failures -- indeed, because the state's relationship falls into the same patterns -- isn't it likely that attempts to counteract them will only exacerbate a set of underlying, undetected problems?
• Even if it were possible to detect all of the possible failures, is it possible to counteract those features which are (A) a distinguishing feature of our society, and (B) only detectable to someone outside our society, and (C) solvable only through techniques which are not available to our society or our state-society relationship? In other words, some problems are apt to be an undeniable feature of our society, but their solution is unavailable to us unless we fundamentally change our society ... in which case many of the other institutional failures and the corresponding responses will be rendered meaningless while we simultaneously choose a whole new set of institutional failures for which we have neither experience nor remedy. At best, we could go back, but then all we have is a mono- or bi-stable system in which we never completely eliminate institutional failure, but rather trade one type for another.
  

Don't think of the Stay-Puft Marshmallow Man, Ray!


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[1] pro forma, we ignore failures of the Really Big Institution, The State

More 1st and 2nd best fun

I enjoy this so much that I'm not going to let my own comments on Rodrik's blog languish there. The quoted material below is from Dani's post in response to Alex Tabarrok (along with more, previously covered here).

the rest of us in the classroom would roll our eyes at the stupidity of the questioner.

And my wife calls libertarians mean?

They envisage a real good world out there that looks like nothing we have now (or have ever had), and they want us to get there.

I think that's essentially correct: take all of the evidence we have of institutions that worked, improve them, and see what happens.

"Most importantly, I believe government can be a force for good; they do not."

The second part is true of the anarchists, not so of the minarchists. The key phrase in the first part is "can be". It can also not be.

"But third, libertarians hold on to their priors so strongly that they seem impervious to evidence. They shrug off the fact that there is more freedom and more wealth in those parts of the world where the government is stronger, not weaker. With respect to industrial policy proper, they refuse to engage with the fact that every nation that has grown rapidly has made use of it."

Partly true, partly false, partly misleading. This is the problem with Dani's posts: he wants to claim evidence, but then loads the dice with heavy rhetoric, implying that he doesn't want an honest debate. This is why Alex believes that his argument can be boiled down to "I'm sophisticated, you're simple."

I agree there is strong correlation between governance and freedom/prosperity (the truth); I think it would truer to characterize it as "good" rather than "strong" government. Totalitarian governments are strong, but not good, and their people are poor and not free. I think it might also be fair to say that in some cases those people are free/prosperous in spite of government, not because of it, while he seems to assume/imply causality.

Also, Dani tends to conflate everything from those things minarchists would accept (defense) to those things few accept (the list is long) under "legitimate government responsibility" (the misleading). Although he is unfortunately not alone in this confusion, there is a symmetrical problem on the libertarian side: it is the tendency to defend the actions of private actors benefiting from state-induced distortions as "free market" (defending GM and Exxon, for example, as if the massive public investment in roads was not an indirect subsidy of the oil and auto industries).

The false bit is the claim that libertarians are impervious to evidence. Actually that would also be misleading - I submit that they are neither more nor less impervious than Dani. He isn't arguing about evidence, he is arguing about interpretation of it and claiming that his is fact. Instead of setting for himself a task to discriminate between things properly left to a market or government, he seems to be determined to try to figure out how to justify everything the government does and maybe find new tasks for it. Proof? He said so:

I look at the world and see some government programs that work and others that fail. I want to understand what determines these outcomes, and to know how we can improve the ratio of the first to the second.

Some libertarians would rather say "I look at the world and see some institutions that work and others that fail. I want to understand what determines these outcomes, and to know how we can improve the ratio of the first to the second. As a side constraint, I want to prevent the world from becoming dominated by a few powerful people."

First-best v Second-best

Wow, this is great: Vulgar Second Best Theory, bonanza edition.

First we have Dani Rodrik claiming that simple supply and demand thinking doesn't always work (granted), so state interventions are justified. Rodrik doesn't bother to justify this: it's self-evident, to him and his fellows, because they see imperfections and have many models from which to choose. The rest of us just aren't very sophisticated, I suppose. Then we have Tyler Cowen asking (worth reading) how the state interventions got promoted to second best and asks who the real utopian is. Then Rodrik responding that since "almost no-one questions whether [health, education, social insurance, macroeconomic stabilization] properly belong in the government's arsenal", then the state's role in any other activity industrial policy is justified. Alex Tabarrok rightly calls him on defending this idea on the basis that the heart of his argument is that the intervention in both cases is "targeted on a loosely-defined set of market imperfections that are rarely observed directly, implemented by bureaucrats who have little capacity to identify where the imperfections are or how large they may be, and overseen by politicians who are prone to corruption and rent-seeking by powerful groups and lobbies."

Again, let's review the basics of Vulgar Second Best Theory:

1) Identify market failure (any will do, no need to quantify, ignore counteracting multiple failures, ignore private responses, ignore existing state interventions' effect on "market")
2) Identify intervention
3) Declare victory (ignore unintended consequences, ignore government failure, no need to verify outcomes, everything can be fixed with refined intervention)

Once upon a time (August 2006), I had an exchange with David Anderson, a guest poster at Environmental Economics blog. Among the points I felt worth discussing:

• David asserted that petroleum is artificially underpriced with no explanation -- why? How does he know? By how much? That would be an interesting post. On the one hand, we know that gasoline taxes have generally exceeded profits in the past 20 years. On the other hand, the justification for those taxes is to build roads. On the other hand, only 1/3 to 2/3 of those road taxes actually make it to the roads. On the other hand (sheesh, 4 hands?), we know that the costs of security and the externalities listed as well as other costs are not included in the price. However, the latter would be at least partially offset by the former and some discussion of magnitude would seem to be consistent with alleviating imperfect information. Incidentally, I found that we had spent about $727 B total on the war between 2003 and 2006, and we consumed approximately 146 B gallons of gasoline per year, so (727/3)/146 =~ $0.61 / gallon for Iraq. How much has the price gone up since the start of hostilities?
  
• We learned from an article in The Economist in August 2006 that the world's largest private reserve held by Exxon is only the 14th largest reserve when including state-owned oil companies. Isn't that the opposite of a free market? David asserted the existence of "market power" without any backing discussion -- what does he mean by it? How do you measure it? Why didn't it exist in 1998 when oil prices collapsed? Wouldn't market power imply an artificially high price? Which dominates - the artificially lowness or the artificial scarcity-driven overpricing? And wouldn’t the fact that two of the larger petroleum companies -- Shell and BP -- have substantial investments in alternative energy suggest that any exercise of "market power" to keep solar down indicate a lack of self interest? That would be an interesting claim if he could substantiate it.

I went on ask some questions that needed to be answered before I was ready to concede that market failure and not technical problems or production cost was the reason we couldn't drive cars running on sustainable fuels. Then, David graciously thanked me for the exchange and asked a question similar to the one posed by Rodrik in his industrial policy post:

The crux of our differences may lie in your acceptance of the market failure (your items 2 and 3, which you say are "true") and yet your characterization of the conclusion that markets fail to yield efficient outcomes (your item 6) as controversial.

I responded this way:

• If you want to say, "Market failures exist in this market, therefore this market is inefficient," I can agree with that. If you want to say, "Market failures exist in this market, therefore markets have and will always fail," or "Market failures exist in this market, therefore markets cannot deliver solutions", I think that is a compositional fallacy and an overstatement.
• If you want to say, "I spy a market failure, therefore there can be no free market solution in this market," I am going to have a problem with that, too. First, I doubt whether there are very many markets that don't have at least one type of failure present, so intervention can almost always be justified on the slightest pretext. Unfortunately, most seem to stop their analysis at that point without looking at the inefficiencies introduced by the recommended intervention. The market may not provide a perfect solution, but the best intervention may actually be a third-best solution to a secondary market solution. Radio, which seems to fit the definition of a public good, seems to work pretty well with the inclusion of commercials.
• Second, I think knowledge failures are at least questionable for several reasons. I've read that imperfect information is a cornerstone of Austrian theory and that Vernon Smith's work shows that markets perform amazingly well despite knowledge gaps. Buyers and sellers almost always possess information the other does not. Akerloff would have us believe that a market in used cars can't exist; and yet it does. Markets are also amazingly adept at providing solutions to market failures: Carfax, OU, and CU, for example.
• Third, when a market suffers from multiple failures, they don't add only in one direction; they frequently cancel one another. The state ownership of oil and the corresponding ease with which OPEC should be able to cartelize should raise the price, while externalities imply an artificially low price - which dominates? We know that the cost of our interventions in oil-producing regions is not accounted for in the price, but the risk premium brought about by the unstable regimes and regions that happen to possess the oil and our interventions in them is. Now add Hotelling into the calculus, and figure that the cartel members are going to cheat to drive prices downward, while federal taxes and regulations (not all of which are rational or efficient) raise the price.
• Fourth, "the free market" is not a monolithic organization with a common goal. Toyota is killing GM and Ford with its high efficiency lineup - does anyone truly believe they won't respond? If they don't and fail, are we worse off (less competition) or better off (the better product and organization takes market share)? BlueSun, Piedmont Fuels, Yokayo and other dealers are trying to make a go of biodiesel, and the current high price environment makes them the low cost producer. Incidentally, I can't resist pointing out that you can't buy a new diesel in any state that has adopted CARB, so a grey market in used diesels has sprung up (a market response to a failure caused by intervention!).

Second Best is a simplistic meme that will not die, but needs to. Because its advocates believe their additional analysis is so much more sofisticomated than First Best Analysis, they fail to realize that an even more sophisticated analysis skewers intervention in the same way as their analysis skewers First Best analysis. Their failure leads them to believe that anyone who does not accept their view must be a First Best analyst; it's the left-right, one-dimensional point of view moved from political science into economics, with no more satisfactory results.

Tyler has an interesting approach: he believes that many successful markets have positive externalities and are therefore better than First Best outcomes. In the Rodrikian taxonomy, my approach would be called nth-Best. But I'm not an economist.

Vulgar Second Best Theory: Salt edition

As before, this is a 3 step process with the following relevant variations:

1) Identify supposed market failure (iodized or iodated salt will be underconsumed in a free market)
2) Identify policy (mandate salt iodization)
3) Declare victory (assume policy has solved problem)

As usual, there is no emphasis on determining the truth of 1, the effectiveness of 2, or finding out whether there are other factors at work (sometimes from previous applications of this theory). Case in point: iodine levels are mandated in Guatemala, but outcomes are not met.

"A number of factors are known to influence the stability of iodine in salt, such as the duration of storage, size of salt crystals, impurities, moisture of the salt, ambient temperature and humidity, and sunlight exposure. Iodate, which is used to fortify salt in Guatemala, is intrinsically more stable than the iodide used in industrialized nations. The presence of an inadequate amount of iodine in salt suggests an attempt to fortify the salt at the site of production. Inadequate quality control and lax government monitoring and enforcement probably play a role in the genesis of most samples in the range of 5 to 29 ppm. For samples with lower iodine levels, we cannot discount the introduction of unfortified salt into the supply either as contraband from a neighbouring country or from national producers not in compliance with the legal requirements to fortify their product."

But they have such good intentions. Maybe the problem is not enough power in the hands of their government? Perhaps a salt monopoly is the answer? And stricter border control?

Okay, I think I've beat this topic to death now (1 and 2).

More on the Conservatism of the Left

What are the hallmarks of conservatism?

• Defense of traditional methods and beliefs
• Resistance to change
• Disregard of methods and beliefs used or held by foreigners as un-American

Nothing is more cliched than the defense of public schools by the American Left.

They defend the status quo to the death. No matter that real, per-pupil spending doubles every few years, no matter that test scores are flat or falling, no matter that students are signing up for remedial classes in college or at their employer's in droves. The answer is always the same: there is nothing wrong with it except that it is underfunded.

Suggest any change -- smaller districts, privatization, year-round schooling, changes in the way curriculum is selected, homeschooling, vouchers, or apprenticeships -- and they oppose it.No matter that private schools are all the rage in India, Japan, Eastern Europe, they don't want anything to do with it. Public schooling is an American institution.

For example, see this. It contains several very specious arguments about access to specific public school programs for people who otherwise homeschool. For example,

"One argument that home-schoolers make in favor of access to extracurricular offerings is that they pay taxes that finance the public school enterprise. Therefore, they claim, they are entitled to take advantage of the school's offerings to the extent that they and their children are interested in doing so.

[...]

"This argument may sound persuasive, but it is based on a faulty premise about a taxpayer's entitlements. Paying taxes is not the equivalent of paying tuition for public school. If it were, then people who have no children, or whose children are grown, would not have any obligation or reason to pay. Yet we all pay taxes, regardless of whether we have children and of how many we have."

Note that this whole part of the argument is misdirection. It begins with a statement about whether taxes are tuition, but never actually refutes the claim. What the author is essentially arguing is that public schools are a take-it-or-leave-it package deal: you can either attend and get all of the goodies, or homeschool and get none of them. The underlying truth about school funding is that funds are doled out by many states on the basis of school population, and allowing homeschoolers to participate in some programs might lead to undercounting and therefore underfunding. True enough, but that is not something the author gets around to discussing.

The entire argument, however, rests on a faulty premise itself: that other people should pay taxes to support schools, regardless of whether they have children or not, on the basis that there is a public good generated as an externality. The author makes only passing mention of the private benefits (when pointing out that public schools provide them without charging a fee, as if they were charitable institutions full of volunteer teachers). On average, people's income is related to their educational attainment. The existence of a positive externality is not everywhere and always a reason for moving a transaction totally into the public sphere, nor is it any reason why the institution must be both publicly funded and administered. The author simply assumes away any question of whether the student or his/her parents ought to contribute some percentage of the cost of education, and this is easy to do because the author analyzes only on the basis of the externality, the side-benefit, while hardly acknowledging the main benefit which is private.

This is vulgar Second Best theory at work, yet again, and it proves as bankrupt as in other venues. To review, Second Best consists of a three step process:

1. Identify a market failure (in this case, a positive externality)
2. Recommend a policy solution ("free" public schools)
3. Declare victory (ignore any negative externalities resulting from the policy, ignore any potential market-based alternative solutions)
   

I carry a cell phone, and I can use it to call the police if I see a crime - should the government pay for and operate cellular phone service on that basis alone?