Too many regulations in America

Two forces make American laws too complex. One is hubris. Many lawmakers seem to believe that they can lay down rules to govern every eventuality. Examples range from the merely annoying (eg, a proposed code for nurseries in Colorado that specifies how many crayons each box must contain) to the delusional (eg, the conceit of Dodd-Frank that you can anticipate and ban every nasty trick financiers will dream up in the future). Far from preventing abuses, complexity creates loopholes that the shrewd can abuse with impunity.

The other force that makes American laws complex is lobbying. The government’s drive to micromanage so many activities creates a huge incentive for interest groups to push for special favours. When a bill is hundreds of pages long, it is not hard for congressmen to slip in clauses that benefit their chums and campaign donors. The health-care bill included tons of favours for the pushy. Congress’s last, failed attempt to regulate greenhouse gases was even worse.


America needs a smarter approach to regulation. First, all important rules should be subjected to cost-benefit analysis by an independent watchdog. The results should be made public before the rule is enacted. All big regulations should also come with sunset clauses, so that they expire after, say, ten years unless Congress explicitly re-authorises them.

More important, rules need to be much simpler. When regulators try to write an all-purpose instruction manual, the truly important dos and don’ts are lost in an ocean of verbiage. Far better to lay down broad goals and prescribe only what is strictly necessary to achieve them. Legislators should pass simple rules, and leave regulators to enforce them.

http://www.economist.com/node/21547789?fb_ref=activity

The costs of coverage

Why does increased health insurance lead to increased health spending? One factor is that when individuals have insurance, they tend to consume more health care. This makes sense: If you only have to pay some fraction of the cost, you are more likely to go for an extra doctor's visit or get an additional diagnostic test than when you have to pay the full cost out of pocket.

Another reason is that hospitals and doctors respond to the increased demand for health care by changing some of the ways in which they practice medicine. For example, hospitals were more likely to adopt new medical technologies after Medicare was introduced because now, with greater insurance coverage, there were more people who could afford these new technologies. This in turn may have encouraged the development of a new generation of health-care innovations. All of this contributes to higher health-care spending.

Medicare did not have any effect at reducing elderly mortality in its first 10 years of existence. While the health benefits from Medicare therefore remain uncertain, we found clear evidence of a different type of benefit: It provided substantial financial protection to the elderly. This is the goal of insurance -- not to prevent an awful event from occurring, but to make sure that if it does occur you are not devastated financially.

The Medicare experience offers valuable lessons for today. Recent state efforts to create universal health-insurance coverage would reduce the fraction of the population in a state without insurance by similar amounts as did the introduction of Medicare nationwide. And if that program is any guide, we may perhaps see changes in the structure of the health-care system, such as the development and adoption of new medical technologies. We are likely to witness an improvement in the financial security of the currently uninsured. There are also likely to be increases in health-care spending -- quite possibly substantial ones.

General equilibrium

The extension from this partial equilibrium in a single market to general equilibrium reflects  the idea that it may not be legitimate to speak of equilibrium with respect to a single commodity when supply and demand in that market depend on the prices of other goods.On this view, a coherent theory of the price system and the coordination of economic activity has to consider the simultaneous general equilibrium of all markets in the economy. This of course raises the questions of (i) whether such a general equilibrium exists; and (ii) what are its properties.


An exchange economy is an economy without production.There are a finite number of agents and a finite number of commodities. Each agent is endowed with a bundle of commodities.We want to know whether there exist prices such that when everyone tries to trade their desired amounts at these prices, demand will just equal supply, and also what the resulting outcome will look like – whether it will be efficient in a well-defined sense and how it will depend on preferences and endowments.

Each agent chooses consumption to maximize her utility given her budget constraint.


We now define a Walrasian equilibrium for the exchange economy. A Walrasian
equilibrium is a vector of prices, and a consumption bundle for each agent, such
that (i) every agent’s consumption maximizes her utility given prices, and (ii)
markets clear: the total demand for each commodity just equals the aggregate
endowment.

Case analysis of AIDS, Patents, Access and Pharmaceutical

In this case, company GSK faces the accusation that it monopolizes the price of AZT, a drug used to kill and deactivate HIV virus. Though GSK is granted the right to exclusively market the drug, lack of competition leads to some undesirable outcomes and ethical condemnation. The current patent system as a result draws a lot of attention and debates. In my opinion, though the patent system prevents company from suffering competitors’ imitation, it reduces necessary competition, makes the world more unequal and impairs the shareholder values.
From the perspective of consequentialism, which contends that we should judge an action in virtue of its consequences, the current patent system is problematic. When the firms are protected by the patents, they can monopolize the market and set a price higher than that in competitive market. Here is the reason: if GSK were in a market with competition, it couldn’t set price high because customers would switch to other cheaper substitutes. But patent-protected GSK dominates the market, how many drugs it puts on the market will affect the ultimate market price, namely the more drugs it markets, the lower price it get from the last sold drug. So GSK can now set the price by deciding how many drugs to produce, and to get a higher profit it will produce fewer drugs than it would in a competitive market. As a result, there will be few AZT in the market and the price will be high because of short of supply.
In addition, with patent weapon GSK can attack any other company which intends to step in the market to get a share. In this case, the pharmaceuticals firm Barr was sued because it sold a similar drug at a lower price. Some of my opponents may step out and argue, “It is known to all that in pharmaceutical field the cost of researching and inventing a new kind of drug is far higher than imitating the producing a similar drug. If we don’t use the patent to protect the innovative firms, other companies would free-ride the benefit and reduce the incentive for all companies to invent new drugs.” This plausible argument probably is the best justification for the legitimacy of pharmaceutical monopoly. But the problem is that sometimes the company that gets the patent is not the FIRST one that gets the idea and invents the new drug. It’s not unusual to see in the history that several people came out with similar inventions independently. (For example, Newton and Leibniz independently set foundation of calculus) One possible and destructive outcome of patent-mania would be that companies try hard to get patent in order to exclude other companies from getting the benefit. But this leads to an irony: patent system was legislated for the purpose of getting more innovations, but it now turns out that companies use patents to bar competition and creation. To some extent, patents actually delay the innovations. Many companies can’t wait to patent their crude ideas and products without further research and investigation, and the huge amount of patents actually set threshold for later companies to do the refinement because they first have to pay patent fee to those companies. So I cast doubt on my potential opponents’ argument because it’s hard to know whether other companies imitate or invent independently, and patent may reduce or delay the innovations.
Patent system has another bad outcome. Pharmaceuticals firms do researches in area they think will give them substantial profits, and thus it’s not hard to find out why companies focus on inventing drugs treating prevalent diseases like heart diseases. But there is another kind of disease called orphan disease that is ignored by private sectors. Companies don’t have financial incentive in making and marketing new medication for two reasons. First, these diseases are rare. Second, diseases like malaria are prevalent in poor countries, and thus patients cannot afford the high price of medicine. As a result, these people lack medicine to get rid of the diseases and face miserable outcomes.
As I have analyzed, pharmaceuticals firms, when granted the monopoly rights, will not produce enough drugs and set a high price to get maximum profits; a lack of financial incentive leads firms to neglect researching non-profitable orphan diseases treatment. From the perspective of deontology, a philosophy school contending that actions should be judge based on their adherence to rules, patent system is bad because it causes more inequality. Thousands of third-world people die of AIDS, malaria because of shortage of necessary medical treatment. These poor people are deprived of the usage of drugs due to exorbitant prices; they even cannot get generic drugs because patent systems exclude these substitutes to protect high-price drugs.
Some headstrong opponents may object that, “But if we don’t adopt the patent system, the shareholder value of pharmaceuticals firms will be impaired and their employees will be poorer. Your argument isn’t consistent because you are just transferring one group’s welfare to another group, and you eliminate inequality by creating new inequality.”
It seems that I fall into a fallacy, but I would argue that being free from the patent system may not hamper shareholder value. Here are the reasons. With the existence of patent system, companies have to take great effort applying and getting the licenses. They also have to scrutinize whether other companies are suspicious of plagiarizing their ideas. In order to maintain their benefit, patent-protected companies will use lawsuits to bar competitors from the market. All of these methods and procedures consist of huge amount of opportunity costs. The companies could have time, energy, money to do more researches to lower the cost of producing. In my opinion, companies like GSK are bearing big and unnecessary cost to protect their limited benefit brought by monopoly rights. This short-sighted way of business will eventually impairs the shareholder values in the long run. Besides, the companies may get the reputation like non-cooperating and overbearing, which will incur bad consequences in future business.
Some people may suggest that an alternative to fix the problems caused by private patent system may be government funding and sponsoring. This method has the advantage of fixing market failure, namely directing companies to pay attention to orphan diseases, but it’s not a flawless plan. There are two possible drawbacks. The first is the incentive problem. Conventionally government funding is given to the applicants before substantial physical progress, so it brings about the classic issue of information asymmetry. Researchers, after being given the fund, may not work wholeheartedly because they are not using their own money; they may intentionally delay the progress in order to get more fund; they may also set aside the project for a while and concentrate on their own work. The second problem is that researches may be negatively influenced by bureaucratic red tape and political goals.
In my opinion, prizes may be a good method for fixing the issues. For example, now the government plan to let more poor people get drugs treating AIDS. It can offer sponsorship to the companies whose samples are qualified for the standard test set by FDA. Government doesn’t have to worry about cost because it’s up to every participating company to control its cost. If the company thinks that it can get profit, it will join. Government covers part of the investment to all qualified companies and let those companies to compete. By doing this, no patent need to be granted, but innovations are guaranteed because all companies want to be the first one to step in the market and get a profit.
In conclusion, patent system may not be the best method to stimulate innovations because of inevitable costs like market failure and ethical controversies. If we can come out with a way to fix the problems, the world will be a better place to live.

Alternative ways to spur the medical researches

Some traditional ways:
(1)Patents protection-- man-made monopoly
(2)Government intervention and subsidy
(3)Prizes

The first and second way are the most common, but they also cause unintended consequences.

Patents:
The monopoly pricing of patented goods prevents some people who need those goods from buying them. If intellectual property rights are not respected, private firms will lose their incentive to develop new drugs.


Patents nevertheless create insufficient incentives for original research because, even with patents, inventors do not capture the full benefit of their inventions.
(1) The demand is inelastic, so how much the producer produces will affect the marginal price. But the price may be too high for most people to afford.
(2) Some of the benefits accrue to consumers who value drugs more than the price.
(3) Some of the benefits accrue to consumers who then go to buy generic substitutes after the patent expire.


The patent system creates an incentive for other firms to design around the first patent so as to produce a competing vaccine and obtain a share of the market.
Sixty percent of patented innovations are imitated within four years; the average cost of an imitation is typically two-thirds the original cost of an invention.

In addition, patent blocks the potential room of improvement for the patented products.

Government funding:


The government often has difficulty in selecting appropriate research projects and in motivating researchers to focus on developing viable projects.Researchers applying for grants have an incentive to present the prospects of success in the best possible light to increase their chances of receiving funding. Research administrators in turn have incentives to tell their superiors that prospects for success are bright in order to increase the budgets of their divisions.


It can be difficult to determine whether a researcher is focusing on development of a product, trying to publish an academic paper, or preparing the next grant application. Another problem with direct government financing of r&dis that organized interests (e.g., defense contractors and aids activists) may lobby to influence these decisions, diverting research expenditures from objectives that are scientifically meritorious or economically viable.

Third way: Prizes
Prizes are granted only if the project get success and thus it provide stronger incentive to researchers. (By contrast, government funding may suck because researchers get funding first, and they may try to get more grant rather than finish the task in the most efficient way.)

Private research focuses on lucrative stuff. Those that are most important may not be in consideration of researchers because they are not profitable.


Drawbacks of government financing:
First, recipients of government funding have incentives to be overly optimistic.

Second, government project directors have incentives (aside from embezzlement opportunities) to fund unpromising research.

Third, because the recipients of government subsidies are paid before delivering a product, they may be tempted to divert resources away from the search for a vaccine






Unlike direct government financing of research, a purchase commitment allows the private sector to decide which projects to pursue; that is, research priorities are not centrally planned by government, but independently decided by private firms reacting to the market incentive offered by the purchase commitment.

The fatal conceit

扩展秩序并不是人类的设计或意图造成的结果，而是一个自发的产物：它是从无意之间遵守某些传统的、主要是道德方面的做法中产生的，其中许多这种做法人们并不喜欢，他们通常不理解它的含义，也不能证明它的正确，但是透过恰好遵循了这些做法的群体中的一个进化选择过程——人口和财富的相对增加——它们相当迅速地传播开来。


除了让产品在竞争性市场中进行分配之外，尚不知有什么其他方法能够告诉个人，他们该为各自的努力确定什么方向，才能为总产量做出最大限度的贡献。


所谓“正确运用理性”，我是指那种承认自我局限性的理性，进行自我教育的理性，它要正视经济学和生物学所揭示的令人惊奇的事实所包含的意义，即在未经设计的情况下生成的秩序，能够大大超越人们自觉追求的计划。


我们的道德既非出自本能，也不是来自理性的创造，而是一种特殊的传统——就像第一章的标题所示，它处在“本能和理性之间”——一种极其重要性的传统，它能够使我们超越自己的理性能力，适应各种问题和环境。我们的道德传统，就像我们文化中许多其他方面一样，并不是我们理性的产物，而是与我们的理性同时发展的。有些人也许会对这种说法感到奇怪或不解，但是这些道德传统的确超越了理性的局限。


霍布斯讲述的原始人的个人主义，纯属无稽之谈。野蛮人并不是孤立的人，他的本能是集体主义的。人类通过发展和学会遵守一些往往禁止他按本能行事的规则（先是在狭小的部落里，然后又扩展到更大的范围），从而不再依靠对事物的共同感受，由此建立了文明。这些规则实际上构成了另一种新道德，我愿意用“道德”一词来定义它，它制止或限制了“自然道德”，即让小群体聚集在一起并保证该群体内部进行合作的本能，其代价则是阻止或堵塞了它的扩展。


扩展秩序中的规则与把小团体结合在一起的本能直觉是相互冲突的。我们非常不喜欢这些限
制，但很难说我们能够选择它们，倒不如说是这些限制选择了我们：它们使我们得以生存。


我们在自己既不十分了解、其结果也并非出自我们的设想的环境引导下——譬如通过市场交换中的价格机制——去做某些事情。在我们的经济活动中，我们既不了解我们所满足的那些需求，也不了解我们所获得的物品的来源。我们所服务的人，我们几乎全不认识，甚至我们不在乎他们的生存。同时我们的生活，也要依靠不断接受另一些我们一无所知的人所提供的服务。这些事情之所以成为可能，不过是因为我们处在一个巨大的制度和传统架构——经济的、法律的和道德的——之中，我们通过服从某些并非由我们制定、从我们了解自己制造的东西的功用这个意义上说我们也并不理解的行为规则，使自己适应了这个架构。


经营所需要的“有关成百上千个具体事物的琐细知识，也只有可以从中获利的人才会去习”

像市场这种收集信息的制度，使我们可以利用分散而难以全面了解的知识，由此形成了一种超越个人的模式。在以这种模式为基础的制度和传统产生之后，人们再无必要（像小团体那样）在统一的目标上求得一致，因为广泛分散的知识和技能，现在可以随时被用于各不相同的目标。


这种通过学习规则逐渐消除本能反应的过程，使人和动物有了越来越大的区别，尽管喜欢本能的集体行为的禀性，仍然是人类所保留的若干动物特征之一


为了使竞争造成有利的结果，要求参与者遵守规则，而不是诉诸武力。惟有规则能够结成一种扩展秩序。


过去，进化论的伦理学观点失信于人，主要就是因为它错误地把进化和所谓的
“进化规律”联系在了一起，其实进化论必须把这种规律视为不可能而断然予以否认。
我曾经说过（1952），对于复杂现象，只能限于我所说的模式预测或原理预测。

Sweatshop

In the case “NIKE’s defense of its Vietnamese sweatshop”, NIKE faces the accusation that it exploits Vietnamese workers by providing bad working environment and infinitesimal wages. Some social groups and activists applaud Vietnamese government’s protection like minimum wage laws for domestic workers. They also call for American government to force NIKE and other multinational corporations to give workers higher wages and better welfare.
In my opinion, these arguments are wrong. One principle I learned from college is that good intentions can lead to bad consequences, and this motto can be applied in this case. Government’s protection is inefficient in enhancing workers’ well-being; it causes more inequality by creating favored groups and depriving people of rights to choose what they desire. Besides, those fervent humanists impose their own value upon those Vietnamese workers.
Consequentialism contends that we should judge one action in virtue of its outcomes. Minimum wage law is probably one of the worst laws ever designed and implemented because it causes huge loss to every group in society. When the Vietnamese government mandates minimum wage upon NIKE, it increases cost for NIKE to do business in Vietnam. NIKE, as a result, has to do something to cut the cost. In labor market, the demand for labor is highly sensitive to the change of price. Empirical researches show that on average when the price of labor increases by 1 percent, the demand of labor will fall by 3 percent. So it means that NIKE will have to hire fewer workers because of the minimum wages.
This is only part of the story. Minimum wage not only hurts employers, but also impairs the well-being of workers, whom the laws are targeted to protect. Welfare consists of wages and other subtle things like working atmosphere and health care. Now the wages are higher, it’s thus not unusual that workers will receive relatively less good working environment and health care coverage. In addition, more people will compete for fewer jobs because of the higher nominal wages, and the result will be that people bear more cost to get the jobs and less people get employed. The reasons are straightforward: now that there are more applicants than job spots, people have to use other ways to get the job, either by waiting or bribing, but time and energy are wasted for these unnecessary competition.
So the minimum wage law is efficient because employers hire fewer workers, workers bear most costs to get the job and enjoy less welfare, and more people are rejected.
Some people may still argue that government is justified do something to protect domestic workers regardless of the potential social cost, but from my perspective, government’s intervention deprives people of free rights to choose jobs.
There are two possible reasons why these Vietnamese workers continue to work for NIKE even though they complain that they can barely make ends meet. The first is that NIKE forces workers to work for it. But that’s not plausible in this case because of the very presence of minimum wage law, one of whose outcomes is that more people compete for fewer jobs. So company doesn’t have to stick to one particular worker: it has too many options. The second reason is that working for NIKE is the BEST option for these Vietnamese workers. For these workers, the alternative jobs may be prostitution, scavenging and smuggling. Compared with these jobs, making shoes in NIKE is less humiliating and more tolerable to Vietnamese workers. If the government allows its citizens to choose their jobs freely, these workers can decide whether to quit the job based on their own judgment of his situation. But with the government’s intervention, more people get unemployed, and thus they lose the chance to make comparison between different jobs. In addition, with the implement of protection laws, NIKE will find it harder to fire workers, and the bad side will be that NIKE workers are now the favored group of Vietnamese government: they get the job, and they aren’t easy to lose jobs. The irony will be that government intends to ask for benefit for its people, but it eventually creates more inequality than before.
At this point those compassionate social activists may step out, “Your argument is totally unethical! These Vietnamese people are living miserably without recreation and education. Isn’t it corporations’ social responsibility to enhance their well-being and make the world a better place? NIKE and other multinational enterprises must pay them higher salaries. If they don’t show social responsibility, we will boycott their products.” I admit that these arguments are charming, but I have to say these humanists have narrowed understanding about ethics and economics.
There is no company that is too big to fail, or there would not be drastic changes in ranking of profitable corporations every year. I agree with Milton Friedman that company’s priority is profit maximization and it’s important to minimize the cost. In the case of Vietnam sweatshop, NIKE seems to account for 5 percent of the Vietnam export, but it doesn’t mean NIKE dominates the market. Adidas, Reebok are all competitors of NIKE, and when they learn that NIKE earns great profit in Vietnam, they will invest in Vietnam and compete with NIKE. As long as the market is free, competition will force NIKE to give more attractive offers to hire Vietnamese workers, and thus Vietnam economy will develop. If we care too much about current benefit, the strict protection law may force companies to leave Vietnam. Similarly, boycott in the end impairs the benefit of third-world workers. Without enough work, these people will have no wages to support their families.
What about the ethics issues? Well, I think some of the Westerns are imposing their own values upon others, totally neglecting the difference in economy situations. Sure not very many people desire working hard in suffocating environment to make ends meet, but if we look back at how our ancestors survived by hunting and gathering, we can hardly believe that they had to worry about whether they could survive the winter. Third-world countries like Vietnam is poor, and it is even poorer when compared with developed countries like America. The difference of living standard will inevitably lead to different ranking of goods and services. What average Westerners take for granted, such as clean air, good education, may not be pivotal considerations of Vietnamese people. What they desire is food and less risky jobs. It’s unfair to force these people to judge things like Westerners do. Money is neutral and functions as medium of exchanges. It is physical goods and services that counts. And where do goods and services come from?
In conclusion, the condemnation of sweatshop is not convincing.

Rational irrationality

The desire fir truth can clash with other motives. Material self-interest is the leading suspect, and social pressure for conformity is another force that conflicts with truth-seeking. In addition, some beliefs make us feel better about ourselves. Illusions endure because illusion is a need for almost all men, a need they feel no less strongly than their material needs.

Ordinarily, false beliefs lead individuals to take actions that would be optimal if the world were different. The private cost of an action can be negligible, though its social cost is high.

If agents care about both material wealth and irrational beliefs, then as the price of casting reason aside rises, agents consume less irrationality.

Rational irrationality implies that people have "demand for irrationality". The "quantity" is a degree of irrationality--the magnitude of the agent's departure from the unbiased, rational belief. The "price of irrationality" is the amount of wealth that agent implicitly sacrifices by consuming another unit of irrationality.

Neoclassical demand-for-irrationality curve: demand is a vertical line overlapping the y-axis, indicating an agent who has no desire to be irrational at any price.

Sweatshop

In the case “NIKE’s defense of its Vietnamese sweatshop”, NIKE faces the accusation that it exploits Vietnamese workers by providing bad working environment and infinitesimal wages. Some social groups and activists applaud Vietnamese government’s protection like minimum wage laws for domestic workers. They also call for American government to force NIKE and other multinational corporations to give workers higher wages and better welfare.
In my opinion, these arguments are wrong. One principle I learned from college is that good intentions can lead to bad consequences, and this motto can be applied in this case. Government’s protection is inefficient in enhancing workers’ well-being; it causes more inequality by creating favored groups and depriving people of rights to choose what they desire. Besides, those fervent humanists fall into economics fallacies and impose their own values upon Vietnamese workers.
Consequentialism contends that we should judge one action in virtue of its outcome. Minimum wage law is probably one of the worst laws ever designed and implemented because it causes huge loss to every group in society. When the Vietnamese government mandates minimum wage upon NIKE, it increases cost for NIKE to do business in Vietnam. NIKE, as a result, has to do something to cut the cost. In labor market, the demand for labor is highly sensitive to the change of price. Empirical researches show that on average when the price of labor increases by 1 percent, the demand of labor will fall by 3 percent. So it means that NIKE will have to hire fewer workers because of the minimum wages.
This is only part of the story. Minimum wage not only hurts employers, but also impairs the well-being of workers, whom the laws are targeted to protect. Welfare consists of wages and other subtle things like working atmosphere and health care. Now the wages are higher, it’s thus not unusual that workers will receive relatively less good working environment and health care coverage. In addition, more people will compete for fewer jobs because of the higher nominal wages, and the result will be that people bear more cost to get the jobs and more people stay unemployed. The reasons are straightforward: now that there are more applicants than job spots, people have to use other ways to get the job, either by waiting or bribing, but time is wasted for these unnecessary competition. So the minimum wage law is efficient because employers hire fewer workers, workers bear most costs to get the job and enjoy less welfare, and more people are rejected.
Some people may still argue that government should do something to protect domestic workers, but from my perspective, government’s intervention deprives people of free rights to choose jobs.
Think about why these Vietnamese workers continue to work for NIKE even though they complain that they can barely make ends meet. There are two possible reasons. First is that NIKE force workers to work for it, but that’s not plausible in this case because of the very presence of minimum wage law. One of the outcome of this law is that more people compete for fewer jobs, so company doesn’t have to stick to one particular worker: it has too many options. The second reason is: working for NIKE is the BEST option for these Vietnamese workers. In third-world countries, the alternative jobs may be prostitution, scavenging and smuggling. Compared with these jobs, making shoes in NIKE is less humiliating and more tolerable to Vietnamese workers. If the government allows its citizens to choose their jobs freely, these workers can decide whether to quit the job based on their own judgment of his situation. But with the government’s intervention, more people get unemployed, and thus they lose the chance to make comparison between different jobs. In addition, with the implement of protection laws, NIKE will find it harder to fire workers, and the bad side will be that NIKE workers are now the favored group of Vietnamese government: they get the job, and they aren’t easy to lose jobs. The irony will be that government intends to ask for benefit for its people, but it eventually creates more inequality than before.
At this point those compassionate social activists may step out, “Your argument is totally unethical! These Vietnamese people are living miserably without recreation and education. Isn’t it corporations’ social responsibility to enhance their well-being and make the world a better place? NIKE and other multinational enterprises must pay them higher salaries. If they don’t show social responsibility, we will boycott their products.” I admit that these arguments are charming, but I have to say these humanists have narrowed understanding about ethics and economics.
There is no company that is too big to fail, or there would not be drastic changes in ranking of profitable corporations every year. I agree with Milton Friedman that company’s priority is profit maximization and it’s important to minimize the cost. In the case of Vietnam sweatshop, NIKE seems to account for 5 percent of the Vietnam export, but it doesn’t mean NIKE dominates the market. Adidas, Reebok are all competitors of NIKE, and when they learn that NIKE earns great profit in Vietnam, they will invest in Vietnam and compete with NIKE. As long as the market is free, competition will force NIKE to give more attractive offers to hire Vietnamese workers, and thus Vietnam economy will develop. If we care too much about current benefit, the strict protection law may force companies to leave Vietnam. Similarly, boycott in the end impairs the benefit of third-world workers. Without enough work, these people will have no wages to support their families.
What about the ethics issues? Well, I think some of the Westerns are imposing their own values upon others, totally neglecting the difference in economy situations. Sure not very many people desire working hard in suffocating environment to make ends meet, but if we look back at how our ancestors survived by hunting and gathering, we can hardly believe that they had to worry about whether they could survive the winter. Third-world countries like Vietnam is poor, and it is even poorer when compared with developed countries like America. The difference of living standard will inevitably lead to different ranking of goods and services. What average Westerners take for granted, such as clean air, good education, may not be pivotal considerations of Vietnamese people. What they desire is food and less risky jobs. It’s unfair to force these people to judge things like Westerners do. Money is neutral and functions as medium of exchanges. It is physical goods and services that counts. And where do goods and services come from?
In conclusion, the condemnation of sweatshop is not convincing.

Voting

Rational ignorance occurs when the cost of educating oneself on an issue exceeds the potential benefit that the knowledge would provide.

Ignorance about an issue is said to be "rational" when the cost of educating oneself about the issue sufficiently to make an informed decision can outweigh any potential benefit one could reasonably expect to gain from that decision, and so it would be irrational to waste time doing so. This has consequences for the quality of decisions made by large numbers of people, such as general elections, where the probability of any one vote changing the outcome is very small.

Probability multipliers: make sentences tougher as the chance of being caught declines.

Anti-market bias
a tendency to underestimate the economic benefits of the market mechanism
People focus on the profit motive of the companies and neglect discipline imposed by the competition.

Business profit appears to be a transfer but benefits society; business philanthropy appears to benefit society but is at best a transfer.

Anti-foreign bias
a tendency to underestimate the economic benefit of interactions with foreigners.

The law of comparative advantage shows that mutually beneficial international trade is possible even if one nation is less productive in every way.

The prejudice stems from misidentification of money and wealth. The fallacy is not to treat all purchases as a cost, but to treat foreign transactions as a cost.

Make-work bias: a tendency to underestimate the economic benefits of conserving labor.

Pessimistic bias: a tendency to overestimate the severity of economic problems and underestimate the past, present and future performance of the economy.

Public lacks perspective.

Government meddling with money

Governments don't obtain revenue like any other organizations as payment for their services, so they have different objectives and incentives. Inflation creates a tinsel atmosphere of prosperity.

Hyperinflation （恶性通胀）can totally destroy a country's economy.
The first phase: people face increase of price and respond to that: buy less now and wait for price to low, and at the same time demand more money.

Second phase: The price keeps soaring, now people buy things based on the expectation that price will only be higher. Price goes higher.

Third phase: government is forced to do something to relieve the price soaring by printing money, exacerbating the inflation.

Fourth phase: supply of money greatly surpasses demand of money, money loses its function as a medium of exchange, as a result it will be abandoned--in other words, it loses the credit.

The fatal problem with bimetallism:
Gresham's Law
Government mandates the ratio of two money, namely gold and silver. If the ratio is 1/20, it means that 1 ounce of gold is equal to 20 ounces of silver in value of exchange. But we all know that the actual value ratio is ever-fluctuating, so it is not unusual that the actual ratio deviants 1/20, which means one kind of money is overvalued and the other undervalued. But the fluctuation of price may make one situation happen: gold and silver become popular money alternatively. Finally the government has to adopt one medium of exchange, say, gold, and that will mean people who possess silver as money are now worsen off, they cannot use silver to trade stuff. The society is worsen off.

Money in a free society

When society expands beyond a few families, the emergence of money is necessary and inevitable. Exchange is the prime basis of our economics life. Exchange occurs only because different people have different values on goods.

Exchange is inevitable because no one is omnipotent and omniscient. Specialization allows man to develop his best skills and gain benefit from his comparative advantage over others on what he masters. Autarky is the road to starvation and death.

The two problems with barter are: the indivisibility of certain goods and non-coincidence of what people want.

Since problems harass direct exchange, people figure out indirect exchange. We need a medium of exchange. For something to be a desirable medium of exchange, it should be marketable, i.e. it should be desired and wanted by most of the people. That is money. Based on this concept, it is clear that money should be connected with the cumulative development of a society, government has no rights to control the money to control people's economic activities.

Money is a commodity and price is the exchange ratio, somewhat accurately expressing people's value on that good. (I say somewhat because price is an average of all people's value on that particular commodity, but even that price is still an important gauge of how we value things.) Money is neutral, functioning as the medium of exchange.


Golds are traded in units of weight. How much money do we need? One problem with gold standard: if the supply of golds increase, the price of money may fall, and thus people will be worse off.If gold is simultaneously treated as money and real commodity, then we may get confused. Money's value lies in its exchanging function, not with its physical abundance.

Under current system, hoarding is actually good for others. Fiat money is intrinsically useless, what counts are goods and services.

The price of the money is its purchasing power in terms of all goods in the economy, and thus is related to the supply of the money.

The truth and myth of NGOs

Due to the accountability environment in which NGOs operate (i.e. how NGOs interact with their donors) they have literally been rendered unable to claim any such immunity, i.e. ineptitude, callousness and corruption—the entire market is subject to rank inefficiencies due to the way it operates and accounts.

 The disempowerment of NGOs stems from the entities—people, corporations, or governments—that give them money.The first inefficiency is the inability for NGOs to consistently determine success. NGOs are supposed to act as intermediaries between donors and project beneficiaries. However, since the donor market has no standardized way of defining development goals, determining NGO partners, or deciding on resource allocation, NGOs have no standardized way to account for their activities. This leads to a vast spectrum of project quality without the ability to determine effectiveness, especially since comparison to private and public markets is, by nature, discouraged.

To continuously attract the donors, NGOs intend to put more of the money into short-term effective programs. Their different incentive from private companies is the source of inefficiency.

Issues about Corporate Social Responsibilities

It looks like there are six hot topics on the corporate social responsibilities:
(1) Environment issues. (Generally, the negative externalities)
(2) MNEs (Multinational enterprises) whether they take the advantage of developing countries' flaw in law system to do business unethically.
(3) The development of stakeholder theory (that is, we should care about the public interest rather than making profits)
(4) globalization
(5) the impact of NGOs (non-government organizations) the so-called "public interest" group
(6) anti-corporation campaigns

Corporations and companies now face rigorous scrutiny. Thus companies are forced to adapt to the new situations in order to make future profits.

The costs and risks of corporate social responsibility
Those who advocate CSR disregard the consequent higher costs and fewer profits; they overestimate the number of people who also desire the things they fight for; and the advocates intend to impose their opinion and value upon others.

For companies, one most probable result of adoption of CSR is the higher cost of doing business.---or in other words, the performance of the enterprises will be impaired.‘Stakeholder engagement’ and‘implementing the triple bottom line’ could both prove costly exercises


Further decreases in pollutants may involve extremely high costs but only a
small improvement in air quality. For the environment mania, put them into Amazon forest.


Countries and regions differ widely in their physical and geographical characteristics, in levels of productivity and income perhead, and in the tastes and preferences of their people. Norms,standards and regulations, whether statutory or self-imposed by enterprises, should be allowed to reflect such differences. Insistence on cross-border uniformity may involve heavy costs which
bear chiefly on ordinary people.


Regulations and codes, whether imposed by public authorities or decided on
by big companies or groupings of firms, can reduce economic freedom and deprive people of opportunities.
Example: Minimum wage laws


Such a regime is anti-liberal, because of the ways in which it violates the principle of freedom of contract–the principle that people should be free to enter into non-coercive bargains and arrangements for mutual gain.






Among the freedoms that a market economy provides is freedom on the part of a large enterprise to decide for itself, within the limits set by legislation, what its ‘human resources’ principles and policies should be.

Some people may argue that multinational corporations should show developing countries people how to do the business by treating them well. For these people, the key to the economics progress is simple: big companies become philanthropists.


Companies have no democratic legitimacy ...[while] the NGOs ... have no more democratic legitimacy than we do ...