Economics and Ethics

The beginning of August nears and time to gear up for Fall classes. This is also a time I get to read more of the news. One story floating out there is the New Jersey corruption case that snared several public officials and even some Rabbis. The interesting part of the case (yes, political corruption has become too common to be interesting) is the black market that has developed for kidneys. It seems that we have a simple supply and demand problem – a growing demand for transplanted kidneys and a paltry supply. As usual, laws on the books have helped create the black market rather than make it easier for getting needed kidneys.

But this is one is a tough issue from an ethical point – do we want to create business markets for human organs? Should people be compensated for giving away their kidneys? Even a market person like me sees problems with this. I like the idea of good Samaritans donating, rather than this become a mercenary trade.

Yet, because demand has grown out of step with supply (or if supply has been artificially depressed), a potentially bigger problem has developed—a black market for organ trafficking. Consider that the demand for organs is very inelastic regarding price: those that need an organ transplant will be willing to pay just about anything as described by a Dr. Satel, who herself received a kidney transplant. Dr. Satel said had not a friend stepped up to donate her kidney she would have been desperate enough to pay the six-figure amount in the black market.

This might be a good current event for an economics class – or ethics (or at least a good report for a student to write about!). Honestly, I don’t know what the right answer is on this one. Dr. Satel makes a case of compensating organ donors but how do you set a price on something that is priceless?

Democracy and economic freedom

My colleagues Dr's. Stack and Gartland recommended the book The Elephant and the Dragon, which does a nice job of explaining the impact of globalization for the two fastest growing economies of China and India. The book along with current events in Honduras point to the impotence of democracy unless there is also functioning economy.

As pointed out in the book China and India have grown because global economic forces that have driven companies to source manufacturing and services to these countries which have a capable supply. They have done it with two very different political structures as China is extremely autocratic, a communist regime, and India democratic. Although autocratic, China's leaders have opened up much of the economy to be capitalistic, which has created enormous growth and significantly increased the wealth of its citizens--though MANY still live on a pittance the pittance has grown and created a consuming class that has also fueled the growth.

This raises the question of what is more important: political freedom or economic freedom? It is assumed that these are tied together but China has shown not necessarily. Their regime is still in many ways VERY repressive (right now they are trying to enforce a rule that all computers have censoring software on them so the government can monitor what people are doing on the Internet). But the country has made great strides since the Mao regime crippled the economy from the 1950s to the 1970s (Mao died in 1976). Ironically, the centralized control has made it easier to institute economic reforms. India's growth has been much slower than it might because of the inefficiency of their democratic government.

In fact, even with few political rights, people can improve their lots greatly if they have some type of economic freedom. Early in the 20th Century, American Jews faced lots of discrimination and were largely unrepresented in government office. Yet, because they had some freedom to pursue careers in law, medicine, and business many Jews were able to achieve success.

On the other hand democratic regimes like Honduras struggle because they cannot establish an effective economy. Reportedly, 50% of Honduras people live in abject poverty and many more in poverty. This condition leads to democratically elected leaders seeking power grabs (ala Hugo Chavez), which seems to have taken place here (though there are different opinions on who is at fault). Democracy is easily taken for granted by Americans, but the one thing that is essential to making it work is that there are economic freedoms with some form of market mechanism underlying those freedoms.