Archive for December, 2010

Economics of the Mustang Ranch

December 30, 2010

Stephen Fry’s television tour of America took him to the Mustang Ranch in Nevada. As a legal brothel in the US, Fry’s interview revealed the nature of the economic transactions entered into – almost any discussion seems to have a double meaning, but let me proceed.

The Ranch is privately owned and managed providing the infrastructure for the services provided. The girls are independent operators who do business with the clients that visit the Ranch. They make their own deals and give a percentage of the transaction to the Ranch owners.

The related activities are closely regulated by the State of Nevada. For example, each week the girls must have a medical check for AIDS and other sexually transmitted diseases. The health of clients is also checked as explained below.

Each client passes through a series of stages. On entry, there is a room where the available girls are presented and the client makes a choice or if not satisfied is directed to the bar. Assuming a choice is made, the girl escorts the client to an office where the deal is discussed and priced – the house has no involvement in the details of the transaction except that it takes a percentage of the price. At this point a DC is undertaken, known as a Dick Check or inspection of the client’s genitalia by the girl. This is to ensure (as far as possible) that the client is not suffering from any disease that can be sexually transmitted. How a layperson can ensure this from a short examination is unclear to me, but the client is required to use a condom as well as having the DC, even for oral sex.

From the office the two proceed to an elaborate bedroom each of which has a particular theme and is provided by the Ranch owners as is its maintenance. The foregoing provides the basics of this brand of whorehouse economics. There are many variations that occur. Further detail is available on the Web where clients recount their experiences, some favourable, some less favourable, from their visits. The information provided is similar to that for a book, movie or restaurant. A legal whorehouse has similarities to other businesses and so it is not surprising that there is both advertising and client reporting.

Wartime Britain – 1

December 29, 2010

The first time I read Juliet Gardiner’s excellent book Wartime Britain I wanted to learn about a period I had lived through as a child. The book clarified and documented things I had been vaguely aware of at the time, and reintroduced other aspects of this period. I have just reread the book and like all good historical works it allowed me to see these times in different ways. The one I want to comment on here is what happens when a predominantly market economy becomes subject to measures of central planning.

While some wartime production had started before 1939, after the declaration of war the British economy shifted to weapons output and to directing production of items like food, clothing a shelter to wartime needs. With a fully employed economy, which Britain soon became with military conscription, building more guns required reducing the supply of butter. Government planners had to decide what to produce for the armed forces and what for the civilian population. In turn this required allocating labour and materials to different needs. Two of the methods used were conscription of labour and rationing of civilian consumption, each of which illustrate the difficulties of planning. This is not to suggest that there was any obvious alternative to introducing some form of command economy.

Each type of economic activity presented different challenges for the planners and provided opportunities for black-markets to coexist with the controlled markets. There was money to be made by gaming the system and in turn the need for further controls to limit these effects. The television series Foyle’s War illustrates some of these side-effects.

Conscription of men and women

Men between certain ages were conscripted to join the military. Some who were too young falsified their age to join up, while others young enough pretended they were older in order to avoid call-up. The conscripts had to pass a medical exam and some were exempted because their skills were needed in factories for wartime production. At very short notice a screening mechanism was set up to assess the qualifications and attributes of those conscripted. Mistakes were made and with time people learned to game the system.

Women of a certain age were also conscripted into the forces, as well as for farm and factory work. The participation rate of women in the labour force rose during the war but gave rise to postwar problems when they were replaced by men demobbed from the forces.

Special arrangements were made for conscientious objectors (COs), those who refused to fight. They had to appear before boards set up to review their objections. The boards would often include retired military persons who were less than sympathetic to these requests. A few COs were excused altogether, some were directed to non-combat jobs such as medical orderlies, and some were sent to prison. It was an imperfect process but seemed to work and illustrated how some human rights were preserved even in extreme circumstances.

Rationing of food, clothing and gasoline

Ration cards for food were issued to all civilians. Not all items were rationed and those that were became subject to price controls. It was forbidden to swap or give rationed items like sugar and butter to others, but nothing to prevent someone baking a cake or pie including these ingredients and giving it to a neighbor. Absurdities like this abounded. Candies were rationed at so many ounces every two weeks. This lead many children to eat more candies than normal and rot their teeth. Beneficial effects resulted from the children receiving a weekly milk allowance. This improved the diets of many poorer children who as they grew up became taller and sturdier than their parents

Rationing is easy to administer if everyone is treated the same, but this cannot happen. Arrangements had to be made for vegetarians, people with religiously prescribed diets, pregnant mothers and others with special dietary needs. Younger people received lower amounts of some food items and all this had to be administered and enforced.

Initially food stores had to clip coupons from ration books, but this was seen to be an enormous waste of time and later on the coupons were stamped once used. What became clear is that something as vital as food rationing becomes a complex administrative process once it is recognized that the diversity of the recipients means that not everyone can be treated in the same way, and that once people are treated differently they will engage in transactions with each other.

Clothes rationing gave rise to designs that reduced the use of cloth such as the removal of cuffs from men’s trousers. Old clothes were kept in use much longer and items like socks were darned. Also people shared clothes in order to have some variety. Those in the forces were clothed in a common uniform and this simplified the production process for certain items.

Employment of volunteers

Volunteer organizations were created for people unable to serve in the military especially those over 50. The Home Guard was a voluntary organization staffed mainly by men who were prepared to assist the military in the event of invasion and during air raids. Everyone carried Identity Cards (I still have mine) and could be called on to produce it in public places. My father, who had served in WW1, was a member of the Home Guard and would man a local defense post certain nights of the week. At the same time he worked daily at an office in London. Women served in voluntary organizations to provide medical, health and other services. All of this required a degree of central planning with orders passed on down an organization.

There are many interesting stories of cock-ups but the surprising thing was how quickly a planning system was introduced and effectively dealt with unforeseen problems. No doubt, the recognition of a common enemy and the obvious threat posed lead people to cooperate in a manner that would not occur at other times. The allocation of people to the production and delivery of a wide range of goods and services meant that there was full employment including people who would normally be considered too old or infirm to work.

Gasoline rationing, through the use of coupons, meant that people carefully planned their journeys for shopping and other purposes. They shared rides so that it was much less likely to see only one or two people in a car. Bus and train transportation was used more frequently and civilians tended not to travel far from their homes. Bicycles and horses and carts were used to carry people and goods around. People quickly adapt to various constraints by adjusting their behavior.

The DREAM Act and Canada

December 24, 2010

How do recent immigration stories in the US resonate in Canada? Daily, one to three news stories about immigration from the New York Times are sent to me by e-mail. Most deal with the US but some with Europe and other countries. They all tell a common tale of immigration issues being high on the policy agenda for national and lower levels of government. Each country has a particular configuration of policy issues but what occurs in one place tends to have a counterpart elsewhere. Below I examine how the proposed US legislation known as the Dream Act, which was not passed in 2010, relates to immigration issues in Canada.

The Dream Act proposed to give official recognition to the children of illegal immigrants in the US, providing they serve for a time in the US military or attend a college program for two years. The benefits to the US would be military recruitment at a time when more volunteers are needed, and the attraction of educated persons to the work force, who in addition to their skills would not require language training and thus be employable at once.

How do these issues appear in Canada? First, Canada is not looking to expand its military with immigrants or others. The country has been willing to live under the defense umbrella of the US since the end of WW2 and continues to do so. It is in Canada’s interest for the US to have a well equipped and staffed military. Second, Canada seeks to attract economic migrants, that is those who will contribute directly to the economy and not be a burden on it. Temporary foreign workers and students constitute particular migrant categories, and there is now provision for them to apply for permanent resident status from within Canada. This is not the same as regularizing the status of illegal immigrants but aims to attract people who have the desired skills.

A further aspect of the Dream Act is that it would be of particular benefit to the Hispanic community in the US. By opposing it, the Republican party has alienated this community especially in Texas, other parts of the US south-west and in other locations where Hispanics are concentrated. Election outcomes are likely to be influenced by the failure to pass this legislation.

While Canada has no equivalent of the Dream Act, it has communities in Montreal, Toronto and Vancouver where ethnic support can affect political outcomes. It is the inevitable consequence of receiving immigrants from different parts of the world that they will gather in certain locations and then enjoy political influence which will alter the political status quo. In the case of illegal immigrants to Canada, their presence is strongly opposed by those who have arrived recently through the regular screening process.

Almost all stories about immigration in other parts of the world can be used to illustrate how similar situations play out in Canada.

Teaching Economics to Primary Grade Children

December 22, 2010

While teaching economics for over 30 years, I used to think about how to introduce the discipline to students in primary grades. Through the miracle of search engines, I have found that others have been writing about this since the 1960s and especially from the 1990s. So, I claim no originality for the idea but merely offer some views on it.

Economics is taught in some high schools and from first year university. Initially, the concepts and approach may be new to students, but the subject matter is very familiar to them. It concerns the way we live and organize our lives. With each day having 24 hours, choice has to be made as to what to do and how to do it. Life requires weighing alternatives. Children as well as adults do it automatically as they see the constraints facing them.

Introducing the concepts used in economics could be done at an early age, making it easier to discuss the discipline more formally to students in high school and university. Failure to do so in my view means losing an opportunity to improve public understanding of economic issues.

One place to review past work is a 2007 paper by Rodgers, Hawthorne and Wheeler, “Teaching Economics through Children’s Literature in the Primary Grades,” at http://econkids.rutgers.edu/images/pdf/final_draft_reading_teacher.pdf

Discussing the content of children’s stories is one way of connecting children to economic concepts like scarcity, choice, opportunity cost, prices, wages, technology, labour, capital, competition, monopoly and opportunistic behavior. The last is found in how the fox lures Jemima Puddleduck to his house in the woods and how Kep the Collie Dog provides a police-like protection service. Stories are often about choices made and paths taken with the possibility of considering what the alternatives were.

Aside from literature, children become familiar with their surroundings both in their home, school and places they visit. Situations can give rise to questions about what is happening, what different people are doing, why and how. The answers and comments are often interesting as children see things and ask questions that often do not occur to adults. Children have not yet become programmed in the way adults are to think in along certain lines. Some of the toughest questions can come from first year economics students who see concepts in different ways.

Consider economics in the home – what is delivered to the home and what is taken from it? A list of things received might include the following: water, gas, electricity, oil, telephone, internet, cable and satellite services, newspapers, mail, hand-delivered fliers and so on. Things taken from the house include garbage, waste water and sewage. With these familiar examples, questions can be raised about who supplies the good or service, how they are paid for, why some people pay more than others, why some have gas and others oil heating and so on. Any text that introduced these topics to children would benefit enormously by being illustrated. Richard Scarry already does this with “What people Do All Day” and there are other such books that provide excellent texts for discussing economic ideas.

Comparing where people live is another way of introducing economic issues. The house and the apartment block are two examples of housing with different economic features. Each may be owned or rented – what’s the difference, what are the costs of each, how do externalities arise such as coping with noise? Rural versus urban living provides examples of a wide range of economic issues such as different types of occupations, how people train for these, what type of work is done, who they work for and how unemployment is dealt with. I use to bore my children by asking whether they thought a particular job was boring or interesting and why.

Receiving and spending a child’s allowance illustrates a wide range of monetary and other economic phenomena such as the circular flow of income and expenditure, the role of banks and ATMs, credit cards, decision making and opportunity cost. The costs of operating a mobile phone and buying items on the internet are activities that will receive close attention by children.

I would venture to say that any activity, fact or fiction can be used to tease out the economic dimensions of a situation if the teacher knows what to look for, and this does not require a graduate degree in the discipline. There is really no need for new textbooks. Existing story and other books together with shopping and vacation trips provide teaching material. Newspaper and magazine stories also contain readily available content – some economics professors have been known to teach from the headlines of the daily papers and some write columns in the papers. What you can discuss with a six year old will be different from a twelve year old, but there is no shortage of material for all ages.

I suspect that it is easier to discuss with children concepts and relationships in microeconomics than in macroeconomics. The intricacies of national accounting, GDP and money supply are more difficult to discuss than the prices of food and movies. Unemployment, inflation, the exchange rate, exports and imports can be explained in terms of things children are familiar with, but how all of these interact and affect our lives is not well explained by macroeconomists today.

In sum, I think the discipline would do itself and perhaps society a favour by injecting itself into the curriculum in the primary grades. With the present economic turmoil, this might be a good time to make a start.

Illegal Immigration

December 17, 2010

1. The problem of illegal immigration can be described in different ways. From the viewpoint of countries supplying the emigrants, migration represents a loss of people, often those who are motivated and might have made a contribution to their countries of birth. Receiving countries consider illegal migrants to be similar to goods smuggled into the country. These countries typically have an immigration policy that has an annual total and a screening procedure to admit those desired. Illegals, represent persons who have bypassed the formal process requiring some kind of policing measures to deter entry or to deport. The details of how persons arrive and what they do after arrival means that the problem is much more complex than the above description suggests and is partly illustrated by the following discussion.

2. The issue of illegal immigrants is common to all developed and some less developed countries, namely attempts to reduce the impact on recipient countries. In eras when there were no sovereign states, populations were nomadic, people did not travel far, and there were no processes of formal immigration. People would wander into each other’s territories and either co-exist or fight each other for control of the land area. Today the world is divided geographically into sovereign nation states that try to exercise sovereignty over their borders. Some achieve it better than others but the entry and presence of illegal immigrants illustrate where failures exist.

3. Three background factors to consider are population size, the number of countries and the pressures for people to move between countries both legally and illegally. The increase in world population and in the number of countries with sovereign borders has resulted in more crossborder migration. The wealth disparities between rich and poor countries provide a strong incentive for people to move from poorer to richer places, either by being screened through the approved processes or by bypassing these procedures. The increasing number of illegal immigrants arriving in richer countries suggests that more people are bypassing formal application channels.

4. Global population has almost tripled from 2.5 billion in 1950 to 5 billion in 1985 and almost 7 billion now. There were about 100 countries in 1945 when the UN was formed (about 50 joined) and about 200 now. Where did the new countries come from? Some emerged from decolonization and the demise of the British and other European empires. Fifteen countries became independent with the dissolution of the USSR after 1989. Yugoslavia split into five countries. To see how country boundaries in Europe have change from 1AD to 2000 AD, check http://www.euratlas.net/history/europe/index.html . History shows that national boundaries are constantly changing and there is little reason to expect that this will stop in the future.

5. While the size of the world has not changed, the land area is split up into more sovereign countries each of which seeks to control what crosses its borders by way of people, trade and investment. Migration has similarities to trade. Those on the move are exports from one country and imports to another. If people enter without formal permission they are similar to smuggled goods.

6. The direction of current migration flows is from poorer countries in Asia, Central and Latin America and Africa to wealthier countries in Europe, North America and Australasia. This is the case for flows of both legal and illegal immigrants and for refugees. However generous the policies are of those countries receiving immigrants, because of global population pressures demand will continue to exceed the supply of places officially available and the problem of illegal immigrants will persist.

7. The issue is complicated by other reasons why people cross borders. In a typical recent year, Canada admitted about 30.5 million people. Roughly, thirty million are tourists or short term visitors, 250,000 are temporary foreign workers and students and the remaining 250,000 approved permanent residents. These totals do not include those who have entered illegally, but there is a catch here in that some of those who entered legally may have stayed beyond their permitted entry time and thus become an illegal immigrant. Note the 30 million equal 83,561 per day and the 500,000 equal 1,370 per day giving rise to considerable administrative costs in Canada and abroad.

8. A further complication is that although Canada may announce an annual quota of 250,000 permanent residents each year in various subcategories of economic migrants, family members, business migrants and refugees, it also has a policy that makes it easier for those who entered as temporary foreign workers and students to apply for permanent residency status from inside Canada. If you are an outsider looking in, there are two legal routes to consider, one is applying for permanent residency from abroad and the other is applying for temporary entry as a worker or student and then applying for permanent residency. Not surprisingly, where demand exceeds the supply of spaces, opportunities arise to bribe those who review applications.

9. Those who arrive at Canadian airports or by boat and ask for asylum are illegal when they arrive but become part of a legal process when their claims are assessed. If they are accepted as refugees they become permanent residents who in turn can become citizens and able to sponsor family members. Unlike those that are accepted by Canada as refugees before they arrive, those asking for asylum on arrival are barging their way to the front of the queue.

10. This thumbnail sketch of the pressures for people to migrate from poorer to richer countries and the administrative difficulties of allowing entry only for approved applicants outlines the relative ease with which illegal immigrants can enter and remain. Estimates of illegal immigrants in Canada are as high as 500,000. In the US, 12 million is an oft-quoted estimate. The EU is another region that has difficulty controlling entry from outside. Between EU countries there is supposed to be free movement of labour. Numbers of illegals are guesses which tend to receive authority by repetition. We don’t know how many there are, but it is reasonable to suggest that the number has been growing especially in developed countries.

11. In the following paragraphs I discuss what measures can be taken to address the problem of illegal immigrants. Assuming that it is not possible to prevent people arriving within a country, what ways are there to detect them once they have arrived. This raises issues of privacy rights and the right of governments and others to collect information on individuals. I would argue that we have already relinquished many of these rights in other areas. Below is an illustrative list of how information is already in the public domain, often as a result of individuals providing the information in return for some good or service, and sometimes resulting from information collected such as from CCTV cameras in public and other places.

12. Passports, driving licences, health cards, social insurance cards, bank cards, credit cards, library cards, videostore cards, club membership cards, subscriptions to newspapers and magazines result from individuals willingly providing information about their activities in return for receiving some good (library book) or service (health care). With records from some of these cards, information can be gained about what people buy or rent, where they shop, what their tastes are, and where they were at certain times. CCTV cameras in public places can also confirm where people are or are not. Security forces use this type of information to track criminals and provide alibis for others. Recently, cameras identified the Stockholm bomber and terrorists who attacked the London underground. In wartime, people are required to carry identity cards. With the amount of recorded information already in the public domain, an identity card might now be superfluous. An Orwellian world of 1984 is already here but far more pervasive than Orwell imagined because he could not foresee how communications technology would evolve.

13. If individuals carry identification for the reasons listed above, it seems reasonable that they should be asked to show whether they are legally in a country. This would be similar to disclosing the type of information that is required when applying for a passport, social welfare or when completing a tax return (which illegals are unlikely to do). Of course, if a person is illegally in a country, they will not access services that require personal details. This promotes an underground economy and practices that do not conform with mandated labour and other standards. One illegal practice tends to support others.

14. The Assange/WikiLeaks case throws some light on the world we live in. Any electronic communication has the possibility of being recorded, stored and given widespread distribution even if it was thought to be made in private. When I started using e-mail about 20 years ago, I was told that even though I might delete a message from my computer, the message could remain on some server to be recovered in the future. The advice was never to put in an e-mail something you would feel uncomfortable appearing in the headlines of your local newspaper. Most people ignore this warning, but employment agencies today report that they may search the content of a person’s Facebook and Twitter postings, which are an electronic record of what people might say in a regular non-electronic conversation where no record is kept other than in the memories of those present. One review of the Assange case states,
“It is really no consolation to anyone that the power of groups like WikiLeaks to challenge the state is increasingly matched by the power of the state to keep track of what its citizens are doing, either by gathering all of this data on their own or by simply contracting out to a myriad of small and nimble data-mining agencies.”

15. Because people do interact with others in a modern economy, the means exist to identify what individuals say and do. Many illegals work in certain sectors, restaurants, construction, agriculture and the hospitality industry including massage parlours. A requirement that employers check the immigration status of employees is the law in certain US states. This is an imperfect measure as employers can pay lower wages in return for not checking an employee’s status. Also, illegal immigrants may have health problems and children requiring schooling. These and other activities provide opportunities to check the immigration status of an individual if there is a desire to pursue an immigration policy of screening and allowing entry only to certain people.

16. Small countries and island countries have done a better job of adjusting to these changes. Australia and New Zealand have a procedure for monitoring those leaving as well as those entering the country. Singapore and Switzerland check who is in the country by using a system of work permits. A female foreign worker in Singapore has to have a medical exam every six months to see if she is pregnant. If the test is positive she is forthwith deported.

17. In the US, some argue to deport the illegals, others to give them amnesty. Labour interests argue that illegals depress wages especially of low skilled workers, while business argues that US labour is not available for certain types of jobs and that illegals fill this need. The anti-immigrant lobby in the US is looking for other ways to apprehend and deport illegals. Arizona is attempting to check a person’s immigration status when stopped for some other reason such as a driving offense. Illegals are often found driving without a license and insurance. One illegal who was the victim of an accident by an insured driver was unable to present either a driving license or insurance. This led the victim to be deported.

18. Newspapers in Europe are full of stories about immigrants, their reception in different countries, their expulsion in some cases such as the Roma from France, their freedom of movement within the EU, and the extent to which they enter the EU illegally from neighbouring countries. On the other hand, there are stories of how in the past skilled workers from Eastern Europe have migrated westward to fill vacancies in various professions and trades. Recently, in Ireland, these people are now moving back to Eastern Europe, while Irish citizens are once more emigrating to North America and Australasia. These are cases of legal temporary foreign workers but those who don’t return when their visas expire become illegals.

19. Migration is not a new phenomenon but its dimensions are changing as more international trade and investment takes place and it becomes cheaper for people to move between countries. There is no simple way to deal with the problem of illegal immigrants, but there are two alternatives to consider, one is to prevent their arrival and the other is to detect and deport them once they have arrived. With high volumes of traffic to certain countries, entry by illegals can be discouraged but not prevented. Detection once in a country is becoming easier providing authorities are willing to collect the information about people as they go about their daily lives. Many will object to employing surveillance techniques but as I have argued above this is already happening in many ways we allow.