Bastiat's Bastions

Ever since Nicholls had internet access, I have been a part of a economics teaching listserve, an email-based forum of economics instructors, in the US and beyond.   Yesterday,  Humberto Bareto at Wabash University pointed out this article in the New York Times  (Source: http://www.nytimes.com/2008/01/17/world/africa/17bread.html)  by Michael Slackman, “Egypt’s Problem and Its Challenge: Bread Corrupts”  New York Times, January 17, 2008.

One professor responded that “it’s almost normative economics” but that he agreed with the normative values.  

I could not let that remain, especially after the very good lecture we  we had in my 2M class with Ms. Bhavneet Walia from Kansas State.   Normative values in the article?   Hard to see.   My response was along these lines:

The article is not that normative.  It is about what is happening in Egypt.

The government started a program and created profitable opportunities for some Egyptians–those who could get into the lines and wait.  These people made at least part of their livings off of the program, buying up bread at low, government controlled prices and reselling them to others at market prices.  They come to depend on the program and any talk of cutting back or eliminating the program comes with political resistance, because to do so deprives these people of the opportunities the government set up for them.  They are only doing what comes naturally in markets, and in politics.  

This bread program also created opportunities for government regulators and these special government sponsored bakers.  Sometimes we need to ask “Who monitors the monitors?”  or “Who regulates the regulators?”   This was posed years ago in an article by Darby and Karni (1973), in their paper, “Free competition and the optimal amount of fraud,” Journal of Law and Economics 16, 67-86.   Darby and Karni noted that with consumer fraud, you can’t really regulate it by having inspectors, because if fraud were profitable by, say, auto mechanics, it would also be profitable for fraudulent mechanics to bribe inspectors.

But when the government sets up a program that creates lower prices for some people which makes it profitable to buy up low-priced government subsidized goods and to resell those  goods to others.   I bet this never happens with food stamps–yeah, right.    People will try to make these profits, even if it involves breaking the law and  stooping to corrupt behavior.  

This story is not normative, a statement of what should be, but positive economics, what merely is.   My interpretation is straight prediction.  

Of course, one might interpret the facts in the story in a different way.  Whether this corruption is a good or bad thing, that is normative.  But the reporter laid out the facts and pretty much lets the reader judge.    

In Rome, something similar happened.   The government provided subsidized bread and politicians and the government provided  circuses (gladiator events), placating the voters.  

Would our politicians ever create profitable opportunities for voters and supporters, creating dependence that would lead to uprisings if the program were taken away?   In a New York minute!

-MC

This entry was posted on Saturday, January 19th, 2008 at 1:05 am and is filed under Crime, General, Political Economy. You can follow any responses to this entry through the RSS 2.0 feed. Both comments and pings are currently closed.