Free Market and Ethical Issues

Hello I’ve attached the rubric and instructions for this assignment. Also here is a note from the teacher regarding the assignment:

Class,

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Hopefully you have read the loooong welcome announcement. If not, do so now. Announcements are visible by clicking on the course name at the top of the screen. Click on “Show All Announcements” at the bottom of the page if you can’t see the first announcements anymore.

For the Unit 1 assignment, here are the instructions. Full details are available when you click on the orange “Unit 1” bar on the menu to the left. I have had students not follow these instructions carefully, so I want to emphasize a few things.

You can write your research about social problems where the free markets are not allowed to function, which includes the market for a particular illegal good and service, a regulated market, etc.
Select a social problem where free markets are not allowed to function, and conduct research on the social problem.
Describe how free market features could be introduced to help alleviate the social problem through free market operations of supply and demand.
Discuss the risks of introducing market mechanisms of supply and demand in situations where ethical issues are present.
The key problem, I think, is that students sometimes don’t know what free markets are. I have had students write papers on how medical care isn’t a free market because we have to pay for medical care. But “free market” does not mean that the good or service is provided for free. Free markets are markets that operate without government intervention. Nearly every market–for better or worse–has some government intervention, so it’s a matter of degree, really. So you’re supposed to write about a social problem resulting from a government intervention, basically. Here are some examples. Feel free to use one of these if you want.

drug prohibition and the “war on drugs.” This is very popular–probably 1/3 of students write on this. I have probably read hundreds of papers on this over the years. I suppose I could read more, if you want to write on this. The social problem might be that people have various illnesses that could be treated with marijuana, but the prohibitions or restrictions on marijuana in many jurisdictions prevent these treatments. Or it might be that there is widespread incarceration resulting from the drug war, with all of the damaging effects on families and income earning potential when a person is imprisoned. There are other problems you may be able to identify as well.
recycling mandates: do they really help? See this chapter from The Economics of Public Issues, 18th ed., by Miller, Benjamin, and North (New York: Pearson): https://drive.google.com/open?id=1Zf6Jda223dXhmKvTfq6HSQKHScGTx6ES
government intervention in medical care. I have had students say that the Affordable Care Act is a “free market feature.” No. Government requirements on insurance companies, or government requirements that people buy insurance, are not free market features. But you could write about what’s happened to the cost of medical care as government has paid more of the bill. Basically, when people don’t pay as much of the cost of something, that makes them less careful about the price, and they buy more, so the price will often go up overall. See https://www.researchgate.net/publication/339955682_The_Role_of_Third-Party_Payers_in_Medical_Cost_Increases. There are different directions you could go with this: on transparent medical pricing, see https://www.mercatus.org/commentary/transparent-health-care-pricing and on single-payer, suggested reading: https://www.mercatus.org/%5Bnode%3A%5D/commentary/single-payer-dream-nightmare-or-status-quo.
government intervention in housing markets. Some economists argue that the last recession was largely due to government making rules that made it artificially cheap to borrow money for a house. So the government intervention led to the social problem of a recession. Or you could write about the government intervention in housing markets through rent control. Rent control can act like a price ceiling, making it harder for people to find housing, causing deterioration in housing quality, contributing to housing market discrimination, and other problems. So you could write about how removing rent control laws could help reduce these social problems. Suggested reading: https://www.creators.com/read/veronique-de-rugy/03/19/statewide-rent-control-laws-cannot-escape-the-law-of-supply-and-demand
Uber restrictions in various municipalities. Some people have said that Uber reduces drunk driving because it makes getting a ride cheaper than it would be if you had only taxi services available. But taxi drivers have sometimes tried to get their local governments to keep Uber, Lyft, etc. out of their cities. In Austin, TX, restrictions were applied, and DUI arrests went up.
FDA limits on new drugs, and expensive requirements for testing. Some economists say that the FDA actually causes deaths and suffering because it tends to raise the costs of bringing new drugs to market–so people suffer longer while waiting for the new drug to be allowed onto the market. One Nobel Prize winner said years ago that a delay in the introduction of an antibiotic called Septra cost about 250,000 lives.
Unemployment due to the minimum wage: economic theory as covered in your textbook suggests that price floors like the minimum wage will tend to create surpluses–in the labor market, that translates into unemployment. Some have suggested that despite the widespread belief that a higher minimum wage will help the least skilled workers, it could make them less likely to get or keep entry-level jobs. Economists have written extensively on this. Some examples:
Burke, Debra, Joseph Long, and Stephen Miller. 2011. “Minimum Wage and Unemployment Rates: A Study of Contiguous Counties,” Gonzaga Law Review. Also available at:
https://asp.mercatus.org/publications/minimum-wage-and-unemployment-rates-study-contiguous-counties“[T]here is a strong correlation between a higher legislated minimum wage rate and a higher unemployment rate.”

Clemens, Jeffrey, and Michael Wither. 2019. “The Minimum Wage and the Great Recession: Evidence of Effects on the Employment and Income Trajectories of Low-Skilled Workers,” Journal of Public Economics 170: 53–67.
https://www.sciencedirect.com/science/article/pii/S0047272719300052
“…we find that binding minimum wage increases had significant, negative effects on the employment and income growth of targeted workers. […] In aggregate, our estimates suggest that this period’s minimum wage increases reduced aggregate employment rates by at least half of a percentage point in states that were bound by the federal minimum wage increases.”

Neumark, David, and Cortnie Shupe. 2018. “Declining Teen Employment: Minimum Wages, Other Explanations, and Implications for Human Capital Investment,” Mercatus Working Paper
https://www.mercatus.org/system/files/neumark-teen-employment-mercatus-working-paper-v1.pdf “We find that higher minimum wages are the predominant factor explaining changes in the schooling and workforce behavior of those age 16-17 since 2000. …Higher minimum wages have led both to fewer teens in school and employed at the same times, and to more teens in school but not employed…. [T]he evidence points to adverse effects on longer-run earnings for those exposed to these higher minimum wages as teenagers.”

Sabia, Joseph J. 2006. “The Effect of Minimum Wage Increases on Retail and Small Business Employment.” Employment Policies Institute.
https://www.epionline.org/wp-content/studies/sabia_05-2006.pdf “A 10 percent increase in the minimum wage is associated with a 4.6 to 9.0 percent decline in teenage employment in small businesses and a 4.8 to 8.8 percent reduction in hours worked by teens in the retail sector.”

Security in air travel (i.e., the TSA). A Cornell study (reviewed here) showed that the additional security provided by the TSA after the 9/11 terrorist attacks may have resulted in thousands of deaths–not in the air, but on highways as the hassle and cost of security led some passengers to avoid air travel and drive instead. Since driving, per mile, is far more dangerous than flying, the TSA ironically may have caused more deaths than they saved by discouraging people from flying. What would have happened if the market had been allowed to provide security in air travel without the TSA’s involvement? It’s hard to know, but it’s possible that a balance would have been struck that avoided some of the shift to highway accident deaths.
You don’t have to pick from one of these. But they should give you an idea of what I’m looking for.

What not to do:

I have students who seem determined to turn this into a paper about how free markets don’t work. But note what the assignment says: “Describe how free market features could be introduced to help alleviate the social problem through free market operations of supply and demand.” I have read papers in which the entire discussion was about how terrible it would be if we applied free market principles to social problem X. That’s pretty much the opposite of what is required. If you think that features of a free market will make things worse for your chosen social problem, maybe you should choose another topic.

Topics I strongly suggest you avoid: Some students have written about sex trafficking or human trafficking lately, which is a problem people have become attuned to in recent years. For several reasons, I have seen a lot of confusion where students choose this as a topic, and frankly, it’s probably best that you choose something else. Less common are papers about abortion. This, too, is one of those areas where student papers tend to get tied in knots philosophically, and I urge you to avoid that topic as well. Also, a few students have written about problems with administering some government program, like welfare programs. But welfare programs are not a “market.” Welfare recipients are not being traded as a good or service. So that’s not a good fit for this assignment either.

Hope this helps.

Dr. Terrell

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