The poverty curve

In Bill Gates' annual newsletter, 2014 edition he addresses 3 myths about global poverty.

1. Poor countries are doomed to stay poor
2. Foreign aid is a big waste
3. Saving lives leads to overpopulation

All 3 sections are interesting; I have mixed thoughts about number 3, though noticed after I had read it that is was authored by Melinda Gates.

In the first section Gates has a graph on the change in individual wealth of the world over the last 50 years. Note that the x-axis is logarithmic.

This comes about through productivity and trade. Wealth is created. Some of the big drivers of productivity include rule of law, private property, and low tax which suggests that had we seen optimum conditions in the last few decades we may have seen even better improvements. Still, this is encouraging. Gates mentions several other drivers such as health and education. Not mentioned (as a cause of productivity) is energy which allows significantly more output per person. The climate change paragraph can be ignored, developing nations need cheap and reliable energy, not low carbon energy.

Patents and price setting

A conversation with my pastor got me thinking about how we treat patents. He is more socialist minded than I. In defence of his position he used a patented medical product as an example of what he considered excessive markup within the market. The problem as he saw it was that people would mortgage their homes to purchase medications if it would potentially cure them, or stave off death for some time.

Now one could argue for the market based on the fact that the company has invented a cure that was not previously available; without the company the cure would not exist. So perhaps they should be allowed to charge what they will. And people are willing to pay large sums of money for medical promises that are known to provide no benefit. Health is a difficult area. One could argue for some federal involvement or oversight because health is an area that people are forced into (sickness is not usually a choice), and they often make decisions in a vulnerable state. Perhaps an issue for another time.

Nevertheless, the discussion got me thinking. Arguing for the free market using patented products has one on the back foot. Competition and productivity allow for low prices for consumers and wealth creation. Patents interfere with this mechanism.

Patents apply to intellectual property, which is not property at all. A better argument for patents (and copyright) is that the government allows a temporary monopoly to sell in acknowledgement that the person created the concept. Such reasoning for patents has some merit. If we accept this however, we are appealing to the government to enforce our monopoly. This raises the question as to whether the government can also have a say on the conditions of monopoly.

I think an argument can be made that allows the government to set minimum sales figures and maximum prices. The first is to prevent artificial scarcity, driving demand by intentionally limiting supply, a supply that cannot be made up by competitors. The second to limit profiteering, especially of a product that is excessively desirable such as a cure for cancer.

Now one could argue (as above) that these products would not exist if it were not for their inventors, and people are no worse off if such an item does not come to the market than they were prior to the invention. This is not necessarily the case however. People are creative. It is likely that several people would occasionally invent similar things to solve a problem. Here are a couple of situations.

The first is software. There seem endless patents in software for ideas that many programmers would solve given a problem. It seems that many patents are little more than a race to state (code) the obvious. There is true innovation, but not all of it is. If several programmers come up with a solution independent of each other and are hit with patent infringement, perhaps it wasn't that innovative.

The second is biomimetics. Many ideas arise from imitating an idea derived from the living world. Think velcro, though there are many others. Copying design from the living world has led to a plethora of new creations. Of course such activity still requires much research and subsequent experimentation. But again this is a race to copy more than be innovative. If several researchers copy the same part of an organism to create a similar machine or product, the first there gets all the benefit.

Some ideas arise from a single person and may be unlikely to arise in the near future otherwise. Our situation is not really different after such a product becomes available but prohibitive to acquire than what it was before that person invented it. However consider when similar ideas arise frequently. Our situation may improve as useful products become available and competition lowers price. But if the right to production limited to the first person to register it then the consumer fails to gain these benefits because other creators who are prepared to make and sell the product are prohibited from doing so. The monopolist may price the product significantly above production cost and outside the price range of many people, yet others who arrived at the idea independently and who are prepared to sell marginally above cost are prevented from doing so by law.

If we are to have a state enforced private monopoly for creativity via patent and copyright law then perhaps the state can dictate the conditions of the monopoly. Such a position would mean that creators could either patent or not patent a concept. If they choose not to patent they can sell the quantity they wish and charge what they will with the benefit of being the first to the market and the ability to maintain secrecy. Competitors would need to reverse engineer a product then copy it as best they can. If the creators choose instead to patent their concept then they gain a temporary monopoly enforced by the state but must sell a minimum number of products at a fixed price (or markup), both set by the state.

What standards should the government concern itself with?

In a previous post I identified 3 principles from Amos that merchants should take note of when trading. They were:

1. Accurate labelling
2. Clear agreed price
3. Not passing off refuse for merchandise

One could argue that the third is a variation on the first.

How can we apply this to our current culture? Let's consider how salesmen may abuse these principles in the West.

Inaccurate labelling

This is difficult to do because of current law but examples could include:

• Jimmied scales
• Misquoting house or land area

Unclear agreed price

This is also difficult to do because our money does not have intrinsic value. Ignoring the prudence, or lack thereof, of this policy, this means that the value of cash in a single transaction is not usually disputed. There are however several actions which I think abuse the principle of agreed price. These are when there is an added cost that is not immediately apparent such as:

• Additional transaction costs
• Excluding sales tax
• Postage and packaging, especially when the item cannot be purchased without paying this and when the amount does not correspond to the true cost

Refuse for merchandise

I think there are several examples of these that currently occur

• Cars involved in previous undisclosed accidents
• Functionless fuel additives
• Liquid in food
• Air in food
• Sick livestock

Including these principles in law

Many of these issues can be avoided thru enforced labelling. This gives people relevant information on a product. It is hard for an individual to consider every product. This is why a Ministry of Standards is useful, they can research such things. The important thing is that people get what is agreed to. These are my introductory thoughts.

Foodstuffs

All food should be sold subject to weight or volume. Foods that are solid at room temperature should have weight included. Liquids at room temperature should be volumes. One could consider the addition of weight or volume based on the temperature sold at, so for some items both weight and volume would be required, i.e. frozen liquids.

All food labels should include a moisture content and air content (if relevant). If water is added it should be listed as an ingredient. Note that there may be nothing wrong with including water and air in food. Air makes for texture in ice cream and other desserts. Adequate labelling, such as selling ice cream by weight in preference to volume discourages abuse of this process.

Energy and macroingredients (fat, protein, carbohydrates, moisture) should be included on all labels. I am not certain if ingredient lists should be mandatory by law but as a consumer this is my personal preference.

Machinery and electronics

Objects should be assessed for relevant function. The attributes that contribute significantly to this function should be mandatory for labelling and an independent definitions should be used.

Objects that are not fully functional without additional items or purchases need to be clearly labelled.

It seems somewhat reasonable to specify expected lifetime of the equipment under normal use. It would be difficult for this to be enforced for individual items but appropriate for state prosecution if the majority of items fail prior to the specified lifetime.

Medications

Strength and range of strengths for individual doses should be noted. Example 50 mg (48–54 mg). Non-existent accuracy should not be implied by several significant figures for dosing. Side effects (absolute greater than placebo) should be documented to a set frequency, eg. 1%. Though serious events may need to be documented to a lower frequency.

Claims of benefit with no comparative studies can be made but mention of this should be required. Example: May aid sleep, no controlled studies comparing to placebo available.

What constitutes a medication versus a supplement and who should be allowed to prescribe presents a much larger question and probably fits the domain of a broad Medicine Act rather than a Standards Act.

Second hand items

This will depend on the item but a list of relevant disclosures could be mandatory. This is currently the case in this country with vehicles, probably because of their cost and previous abuses.

Pricing

All costs must be disclosed on saleable item. Quoting price with a disclaimer mentioning exclusions of unspecified costs should be forbidden. Granted sales tax goes to government and not to the business, but the customer still has to pay this figure. Quoting full price with the disclaimer "includes a sales tax of $x" is acceptable.

Exceptions may exist for international transactions where sales tax and postage will depend on the customers destination, though this could be easily addressed.

Caution

As mentioned in previous posts, this is about information the consumer needs to make an appropriate decision, it is not about setting what the minimum standard should be. One can insist that paper is labelled by the density (mass per square meter) without specifying what density paper should be sold at.

I also think that in general enforcement should be at the level of government rather than individual. Individuals fighting corporations in the courts are usually at a disadvantage. Individuals can choose to argue their case thru the courts if they wish, but bringing the matter to a regulatory body should be sufficient. It is too time consuming for an individual to fight over a few dollars, but worthwhile for a company. Because such episodes are unlikely to be isolated, a regulatory body would have powers to enforce appropriate action (relabelling products) and an appropriate fine if necessary.