Namibia's Economy

Namibia is a country that not many people think about. It is a small nation, right above South Africa, that bases most of its economy on tourism and mineral exports. However, it is currently on “junk status” meaning that the country will have to pay more for additional loans. In order to gain an understanding of how Namibia reached this economic low point, we must learn from its history.

Namibia gained independence from South Africa on February 9th, 1990 and since then it has pursued “free market principles, commercial development, and job creation for disadvantaged Namibians”. Because of these goals, Namibia’s economy is heavily dependent on the profits from its main commodity exports: minerals, livestock, and fish. Despite gaining independence from South Africa’s old regime, Namibia’s economy is still intertwined with South Africa. For example, the Namibian dollar is valued at a fixed exchange rate of 1:1 to South Africa’s rand. Because of this, Namibia imports almost all of its goods from South Africa and exports a majority of their goods to South Africa. Namibian leaders have realized that their dependence on South Africa’s economy is precarious and have attempted to diversify their relations. They have been doing this by expanding their market to Europe and embracing the African Growth and Opportunity Act. This act provides “preferential access to American markets for a long list of products”.

Despite these attempts to augment their economy, Namibia has been facing numerous problems, including a recession in 2016. Recently, they have seen their public debt explode from 30% of their GDP to 50% of their GDP. A report titled, Fiscal Risk Statement, by the International Monetary Fund, an organization that works to foster global monetary cooperation, showed the urgency of Namibia’s economic downfall. The IMF pointed out four main risks: “state-owned enterprises, municipalities, the dependency on the South African economy, and the lack of economic reforms”. In response, Namibia has worked with advisors from the IMF to create a new, 3 year, fiscal plan. It is incredibly important that this plan works because Namibia is a stunning country with a beautiful balance of wildlife, beaches, and innovation. When I had the opportunity to visit Namibia, I found that everyday Namibians were truly happy despite having little material wealth.

USA Gymnastics Bankruptcy

As a result of the over “100 lawsuits filed by more than 350 Nassar survivors” and the United States’ Olympic committee’s plants to strip USA gymnastics of its “national governing body” status, USAG has filed for Bankruptcy. USA Gymnastics has been under fire during the past two years due to their attempts to cover up Larry Nassar’s rampant sexual abuse of American Gymnasts. Larry Nassar was a longtime physician for USAG and Michigan State. USAG failed to protect its athletes from Nassar’s action despite being fully aware.

Kathryn Carson, the chairmen of the USAG board, claims, “Our primary reason to do this (file bankruptcy) is to expedite those survivor claims.” Additionally, USAG emphasized that the claims will be paid by USAG’s insurers because the federation does not have the necessary assets. In contrast, John Manly, an attorney for many of the survivors, said “Today’s bankruptcy filing by USA Gymnastics was the inevitable result of the inability of this organization to meet its core responsibility of protecting its athlete members from abuse," This idea is supported by the fact that Michigan Stated took a $500 million settlement in order to move on from the Nassar issue.

The largest repercussion of USAG’s mishandling of the Nassar case and the main reason for filing bankruptcy is that the United States Olympic Committee plans on revoking USAG’s national governing body status. The USOC’s main rationale behind their decision is that a “national governing body must have the capacity and capability to provide the support, protection, and services that we expect for all Olympic athletes in the United States” and that USAG did not achieve these requirements. USAG attempts to appeal this process because their success and revenue are based on the NGB status. Without this status, USAG will be a meaningless organization on an inevitable decline.

USAG is the perfect example of a monopoly. They control all gymnastics competitions (except for NCAA competitions) and the entire certification process within the United States. More specifically, they were an unregulated monopoly. Their marginal costs for running the projects were next to nothing. Yet they were able to charge incredibly high prices because of the high demand for women’s gymnastics. All of this was because the NGB status prohibited anyone else from being a true competitor. Despite this ideal business model, USAG was so corrupt that they jeopardized their NGB status. USAG has acted so immorally and stupidly that they were able to go bankrupt as an unregulated monopoly.

Portugal's Decriminalization of Drugs Part II

The main health effects of the decriminalization of drugs in Portugal were that: the opioid crisis stabilized, there was a dramatic drop in drug use, HIV and Hepatitis infection rates. Specifically, HIV infection went from 104.2 new cases per million in 2000 to 4.2 million cases per million in 2015.

These reductions in violence and health issues, however, were not solely created by the decriminalization of drugs. There was a larger cultural shift that enabled these progressive changes. Specifically, the language regarding addiction changed. People stopped calling drug addicts “drogados” junkies and instead called them “people who use drugs” or “people with addiction disorders”. Additionally, the Official decriminalization of drugs made it much easier for service agencies (health, housing, psychiatry, employment... ) to effectively serve their communities.

You may be wondering, what does the decriminalization of drugs have to do with economics? Specifically, why are you talking about social and medical changes within Portugal? Knowing Portugal’s history with drugs is integral in understanding the economic benefits of the decriminalization of drugs.

Simply, sending drug addicts to rehab is much more cost effective than sending them to prison. This is because initial drug treatment is cheaper than incarceration. The costs related to incarceration are cut when one goes to a rehabilitation center because “people who are in recovery are less likely to commit expensive crimes and be arrested again”. Since the longterm health of an individual will improve if they seek treatment rather than going to prison, the “cost for the healthcare of uninsured patients is drastically reduced”. As a final factor, law enforcement and court costs will be cut because “when crime rates drop fewer arrests occur”.

If 40 percent of addicted offenders, in the United States, received treatment “there would be an estimated savings of $12.9 billion USD”. The most important comparison of the economic benefits of rehabilitating drug addicts is that the price of a three-month stint in rehab only costs $5,000. In comparison imprisoning an inmate for one year costs taxpayers an average of $31,000 per year. This is compounded by the fact that an average sentence for drug possession is 3 years. Overall, it is economically and socially more beneficial to decriminalize and reallocate spending into rehabilitation centers rather than punitive prisons.

https://www.dualdiagnosis.org/drug-rehab-instead-of-prison-could-save-billions-says-report-2/

Portugal’s Decriminalization of Drugs Part I

During the 1980s, Portugal had a national drug problem where robberies and muggings were rampant. At the start of 1980, there was an influx of heroin in the once quiet fishing town of Olhao, Portugal. This influx made Olhao one of the top drug capitals in Europe. Because of this 1 in 100 Portuguese citizens began dealing with heroin addiction and the HIV infection rate became the highest in Europe.

Simply, Portugal was unprepared for the influx of marijuana and heroin. They had previously been ruled under Antonio Salazar’s oppressive regime. This government prohibited education and implemented stringent rules. This meant that the average citizen was uneducated and oppressed. Once they shifted towards an open economy, Portuguese residents had access to all the goods they could imagine, including drugs. The lack of education lead thousands of people to use heroin.

In an attempt to reduce crime, the new Portuguese government decriminalized all drugs in 2001. Instead of being arrested, an individual who is caught possessing drugs will have multiple options. They can be fined, given a warning, or go to a local “commission”. At a commission a doctor, lawyer, and social worker talks to the addict about “treatment, harm reduction, and support services that are available to them”. These actions are based on Portugal's three tenets regarding drug addiction. The first tenet is that “there’s no such thing as a soft or hard drug, only healthy and unhealthy relationships with drugs”. The second idea is that “an individual’s unhealthy relationship with drugs often conceals frayed relationships with loved ones, with the world around them, and with themselves”. The final tenet is that “the eradication of all drugs is an impossible goal”.

https://www.theguardian.com/news/2017/dec/05/portugals-radical-drugs-policy-is-working-why-hasnt-the-world-copied-it

The Samaritan's Dilemma

The Samaritan’s Dilemma is an economic concept that has wide-ranging consequences for today’s society. It deals with the economics of philanthropy and donation, and comments on the human nature’s potential to fall into patterns. The Samaritan’s Dilemma is highly related to the moral hazard problem. Adrienne Mitchell wrote a great article that relates moral hazard to senioritis, check it out below.

The Samaritan’s Dilemma is always present when giving need; that is, every time philanthropy or donation occurs to address a need, there is the possibility that it will incur more need. An example of this in a non economic sense is when you give a child candy once, they will ask for more candy. It is more of a psychological concept than an economic one, but because economics is really the study of human behavior there is a great deal of overlap between the two. The Samaritan’s Dilemma as it pertains to economics only occurs when the condition of being in need is in some way controlled by the individual who requires aid. For example, and this is purely theoretical, say there’s a homeless person who can control their homelessness, or at least influence it. They could get a job, but because of the help they get in their present state, they don’t do so, generating more need long-term than if the donor had not given aid in the first place. The Samaritan’s Dilemma is basically weighing the short term benefits of helping against the long-term cost of helping.

The Samaritan’s Dilemma also leads to perverse incentive issues, where instead of inaction, negative action is taken in order to receive aid. This occurs, say, when welfare is income based. If a recipient of welfare understood that the less income they have the more welfare they get, they may be motivated to take the second option, as it means less work for them. The help given has now incentivized against working harder to escape poverty, instead causing a rise in the number of those in need and the degree of their need.

If this is true for almost all philanthropy, how can any donation be effective? The answer is that there is no way to tell for sure, but steps can be taken to ensure that the dilemma has as little effect as possible. One of these steps is private donation. If there is no organizational middleman, that is, if the individual donating has control over how the resources are used, then the Samaritan’s Dilemma can be reduced. Because they are the ones controlling the money, the private donors would be incentivized to make sure that the money is effectively used and not abused for the short-term benefit.

The existence of the Samaritan’s Dilemma does not mean you should stop donating. There are many situations where the condition of need is outside the individual’s control, like the recent wildfires in California. For the people who lost their homes and belongings, it was not by choice. Donating for their benefit will not cause long-term costs, and the Samaritan’s Dilemma does not exist. For donation to other causes, however, you should keep the Samaritan’s Dilemma in mind when you donate. If possible, donate to an organization or individual who you know to be strict about their usage of funds. Philanthropy is an important way to give back, but we should be economically smart about it.

https://fee.org/articles/the-samaritans-dilemma-and-the-welfare-state/

The Tragedy of the Anticommons

I previously blogged about the Tragedy of Commons, and this is a follow up to that post. Briefly put, the tragedy of commons occurs when a common resource is overused. The solution to the tragedy of commons depends on the situation, but the most common is to privatize the property. This usually works, with resources like water being controlled by private companies. However, in certain situations issues with this solution will arise. If there are too many private owners of a resource, each owner can block the other’s use. This phenomenon of common resource underuse was first called the tragedy of the anticommons by Michael Heller, law professor at Columbia University.

The Tragedy of the Anticommons occurs when there are too many private owners of a resource, allowing individual owners to block access to other owners. An example Heller uses is of patents. If 50 people own a patent relating to resources used to create a product, each of them can block access to the resource. As a result, the product isn’t going to be produced AND the resources aren’t being utilized to their maximum efficiency. This underuse of resource is rooted in the social and economic system of the United States. The United States was founded on freedom, and economic freedom is a fiercely protected right. But with such heavy emphasis on private property and individual ownership rights comes the risk of the anticommons. Other examples Heller uses are technology, biomedical research, broadcast spectrum ownership, and even the music industry. All of these industries have a high risk of the anticommons tragedy, because of the wide ownership of key resources needed to produce the goods in those industries.

So, why don’t we learn about the tragedy of anticommons when we learn the tragedy of the commons? The answer is in two parts. One, the tragedy of anticommons is a relatively recent concept, with Heller’s research being published in 2010 compared to our textbook’s publication in 2005. The second part is more alarming. The tragedy of the anticommons is a hidden phenomenon, invisible until identified. It’s not an issue that builds in severity until dealt with, it’s one that is found or not found, and only once it’s found can it be dealt with. This is because opportunity costs are not visible, and the tragedy of the anticommons is essentially what happens when the opportunity costs of not producing. For example, nobody knows about that the anticommons blocked a new drug from being produced for the very reason that it was not produced. As Heller puts it, “Innovators don’t advertise the lifesaving cures they abandon”.

With that in mind, researchers found that the underuse associated with the tragedy of anticommons is more likely to occur than the tragedy of commons, and that fact, coupled with the invisibility of the tragedy of anticommons, makes this phenomenon very harmful to society. If we can’t identify that we’re underusing resources, we can’t fix the inefficiency and society suffers. In Heller’s words, the tragedy of the anticommons “wrecks markets, stops innovation, and costs lives. Our society needs to shift in order to understand the consequences of too much private ownership to address the growing issue of the tragedy of the anticommons.

http://wealthofthecommons.org/essay/tragedy-anticommons

Economics of College Applications (sorry if triggering at this time)

College tuition is not the only high expense related to college. Paying to even just apply to colleges has become crazy expensive. Over the years more and more applicants have been applying to colleges meaning more rejections, but that also means more and more students pay to apply with higher chances of getting rejected. Let's look at Harvard for example. Harvard got about 35,000 applications last year and with an application fee of $75 they made about 2.6 million just from fees. Students end up spending hundreds of dollars on application fees which are basically a fixed cost. The average application fee is $37.88 and let's say you apply to 10 schools; that would cost about $380! The average application fee is the highest it has been in 5 years and I am not surprised. With the increase in the number of students applying to colleges and in the number of colleges, universities have bumped up the prices to apply to gain even more profit. Most families say that the costs to apply are worth it and I agree, you want to keep options open to further your education. But why are there even application fees at all? If you do not end up attending the school why should you have to pay them any money at all? These are questions that do not have reasonable answers but either way, it is important to at least keep in mind how much you end up spending on applications alone.