A Level Economics 53: Demerit Goods

Market Failure of Demerit Goods:

Demerit goods are goods and services that are considered to have negative effects on individuals and society. Their consumption can lead to detrimental outcomes, such as health issues, social problems, or environmental degradation. Demerit goods tend to be overprovided and overconsumed in the free market due to several factors, leading to market failure. The market failure of demerit goods can be attributed to externalities and imperfect information.

Externalities: Externalities are unintended spillover effects of a transaction that affect third parties who are not directly involved in the exchange. In the case of demerit goods, negative externalities are often associated with their consumption. When individuals consume demerit goods, such as tobacco, alcohol, or fossil fuels, it can lead to adverse effects on others and society as a whole. For example:

• Tobacco Consumption: Smoking tobacco not only harms the health of the smoker but also exposes non-smokers to secondhand smoke, causing respiratory issues and increasing healthcare costs.

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• Fossil Fuel Consumption: The burning of fossil fuels for energy contributes to air pollution and greenhouse gas emissions, leading to climate change and environmental degradation that affect the global population.

These negative externalities lead to an overallocation of resources by the free market because private consumers do not consider the broader costs imposed on society when making consumption decisions. As a result, the quantity of demerit goods consumed in a free market is higher than what is socially optimal, leading to market failure.

Imperfect Information: Another reason for the market failure of demerit goods is imperfect information. Consumers may not fully understand the potential harm and negative consequences associated with the consumption of demerit goods. In some cases, producers may actively mislead consumers or downplay the risks, leading to uninformed choices. For example:

• Alcohol Advertising: Misleading or glamorous advertising of alcoholic beverages may hide the potential health risks and negative social impacts, leading to increased consumption among vulnerable populations.

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• Fast Food Industry: Consumers may not be fully aware of the long-term health consequences of consuming fast food high in saturated fats, sugar, and salt.

Due to imperfect information, consumers may undervalue the costs and negative externalities of demerit goods, leading to higher demand and consumption in the market. As a result, the free market may allocate too many resources to produce and provide these goods, causing market failure.

Government Intervention and Policy Implications: To address the market failure of demerit goods and negative externalities, governments often intervene through various policy measures, such as:

1. Taxes and Regulation: Governments may impose taxes, such as excise taxes on tobacco and alcohol, to internalize the negative externalities associated with their consumption. Higher taxes increase the cost of demerit goods, reducing demand and consumption.

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3. Public Awareness Campaigns: Governments can invest in public awareness campaigns to educate consumers about the risks and negative consequences of consuming demerit goods. This helps to counteract the effects of imperfect information.

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5. Health and Safety Regulations: Governments can implement health and safety regulations on products and industries that produce demerit goods. For example, regulations on the advertising and packaging of tobacco products can discourage consumption.

By addressing the market failure of demerit goods and negative externalities, governments aim to reduce the harmful impacts on individuals and society and promote more socially responsible consumption behavior. This leads to improved overall welfare and societal well-being, creating a more efficient allocation of resources and maximizing the positive impact on both consumers and society as a whole.

Why is Apple so shifty about how it makes the iPhone?

The paragon of modern tech risks losing its shine by dodging queries about Indonesia, and an orgy of unregulated tin mining

BETA

• 
• • George Monbiot
  • The Guardian, Monday 23 September 2013 20.30 BST

‘When asked where it obtains its minerals, Apple looks arrogant, lumbering and unaccountable.' Photograph: Eduardo Barraza/Demotix/Corbis

Are you excited about the launch of Apple's new iPhones? Have you decided to get one? Do you have any idea what you're buying? If so, you are on your own. When asked where it obtains its minerals, Apple, which has done so much to persuade us that it is deft, cool and responsive, looks arrogant, lumbering and unaccountable.

The question was straightforward: does Apple buy tin from Bangka Island? The wriggling is almost comical.

Nearly half of global tin supplies are used to make solder for electronics. About 30% of the world's tin comes from Bangka and Belitung islands in Indonesia, where an orgy of unregulated mining is reducing a rich and complex system of rainforests and gardens to a post-holocaust landscape of sand and acid subsoil. Tin dredgers in the coastal waters are also wiping out the coral, the giant clams, the local fisheries, the endangered Napoleon wrasse, the mangrove forests and the beaches used by breeding turtles.

Children are employed in shocking conditions. On average, one miner dies in an accident every week. Clean water is disappearing, malaria is spreading as mosquitoes breed in abandoned workings, and small farmers are being driven from their land. Those paragons of modernity – electronics manufacturers – rely for their supplies on some distinctly old-fashioned practices.

Friends of the Earth and its Indonesian counterpart, Walhi, which have documented this catastrophe, are not calling for an end to tin-mining on Bangka and Belitung: they recognise that it supports many people who would not find work elsewhere. What they want is transparency on the part of the companies buying the tin extracted there, leading to an agreement to reduce the impacts and protect the people and the wildlife. Without transparency there's no accountability; without accountability there's no prospect of improvement.

So they approached the world's biggest smartphone manufacturers, asking whether they are using tin from Bangka. All but one of the big brands fessed up. Samsung, Philips, Nokia, Sony, BlackBerry, Motorola and LG admit to buying (or probably buying) tin from the island through intermediaries, and have pledged to help address the mess. One company refuses to talk.

Tim Cook, Apple's chief executive officer, claimed last year: "we want to be as innovative with supply responsibility as we are with our products. That's a high bar. The more transparent we are, the more it's in the public space. The more it's in the public space, the more other companies will decide to do something similar". Which would be fine, if Apple did not appear to be pursuing the opposite policy.

Mobilised by Friends of the Earth, 25,000 people have now written to the company to ask whether it is buying tin from the ecological disaster zone in Indonesia. The answer has been a resounding "we're not telling you".

I approached Apple last week, and it felt like the kind of interview you might conduct with someone selling televisions out of the back of a lorry. The director of corporate public relations refused to let me record our conversation. He insisted that it should be off the record and for background only, whereupon he told me ... nothing at all. All he would do was direct me back to the webpage I was asking him about.

This states, with baffling ambiguity, that "Bangka Island, Indonesia, is one of the world's principal tin-producing regions. Recent concerns about the illegal mining of tin from this region prompted Apple to lead a fact-finding visit to learn more." Why conduct a fact-finding visit if you're not using the island's tin? And if you are using it, why not say so? Answer comes there none.

Today I asked him a different set of questions. In a previous article, in March, I praised Apple for mapping its supply chain and discovering that it uses metals processed by 211 smelters around the world. But, in view of its farcical response to my questions about Bangka, I began to wonder how valuable that effort might be. Apple has still not named any of the companies on the list, or provided any useful information about its suppliers.

So I asked the PR director whether I could see the list, and whether it has been audited: in other words, whether there's any reason to believe that this is a step towards genuine transparency. His response? To direct me back to the same sodding webpage. Strange to relate, on reading it for the fourth time I found it just as uninformative as I had the first time.

While I was tearing out my hair over Apple's evasions, Fairphone was launching its first handset at the London Design Festival. This company, formed not just to build a genuine ethical smartphone but also to try to change the way in which supply chains and commercial strategies work, looks like everything that Apple should be but isn't. Though its first phone won't be delivered until December, it has already sold 15,000 sets: to people who want 21st-century technology without 19th-century ethics.

The Restart Project, which helps people to repair their own phones (something that Apple's products often seem designed to frustrate) was at the same show, pointing out that the most ethical phone is the one you have in your pocket, maintained to overcome its inbuilt obsolescence.

This isn't the only way in which Apple looks out of date. Last week, 59 organisations launched their campaign for a tough European law obliging companies to investigate their supply chains and publish reports on their social and environmental impacts. Why should a company be able to choose whether or not to leave its customers and shareholders in the dark? Why shouldn't we know as much about its impacts as we do about its financial position?

Until Apple answers the questions those 25,000 people have asked, until it displays the transparency that Tim Cook has promised but failed to deliver, don't buy its products. Made by a company which looks shifty, unaccountable and frankly ridiculous, they are the epitome of uncool.

Is this the loneliest generation?

The Government is trying to quantify social isolation amid health fears

Brian Brady

Sunday, 13 January 2013

Government officials have been ordered to find out exactly how lonely Britain's population is, amid concerns that "the most isolated generation ever" will overwhelm the NHS.

The Department of Health is attempting to measure the extent of "social isolation" in the UK, after warnings that it has sparked spiralling levels of illnesses including heart disease, high blood pressure, dementia and depression.

Research has revealed that loneliness is a growing problem in the UK – particularly among the elderly – with one in three admitting that they sometimes feel lonely. Among older people, more than half live alone, 17 per cent are in contact with family, friends and neighbours less than once a week, and almost five million say the television is their main form of company.

However, the trend is expected to worsen in the coming years. The Office for National Statistics disclosed last year that the number of Britons living alone has risen to a record 7.6 million – one million more than in 1996 and amounting to almost one in three households.

But beyond the personal problems the "loneliness epidemic" presents, ministers have been put on alert over its wider impact – and financial costs. Loneliness is blamed for piling more pressure on to health and social care services, because it can increase the risk of complaints including heart disease and blood clots. Experts also believe it encourages people to exercise less and drink more – and ultimately go to hospital more often and move into residential care at an earlier stage.

The Government's attempts to measure social isolation among people using health and social care will increase the pressure on the NHS and councils to tackle the problem now – to slash millions from their spending on the effects of loneliness in the future.

The care and support minister, Norman Lamb, said: "For the first time, we will be aiming to define the extent of the problem by introducing a national measure for loneliness. We will be encouraging local authorities, NHS organisations and others to get better at measuring the issue in their communities. Once they have this information, they can then come up with the right solutions to address loneliness and isolation."

It is the latest in a number of attempts to gauge, and change, the national mood: Tony Blair appointed the LSE academic Lord Layard as his "happiness tsar", while David Cameron has previously tried to measure people's well-being. In each case, the driving aim was to cut health and social welfare costs by making people feel better about their lot.

An official guide on combating isolation, issued to local authorities by the organisation Campaign to End Loneliness, says: "Tackling loneliness will reduce the demand for costly health care and, by reconnecting individuals to their communities, it will give renewed access to older people's economic and social capital." The guide points out that a scheme in Essex where lonely people were "befriended" by volunteers cost £80 per person but produced annual savings of £300 per person. Another project directing older people to local services cost £480 but realised savings of £900 per person.

Anne Hayden, a Dorset GP, saved more than £80,000 in costs for six patients who were "high users of NHS services" with a befriending scheme to boost their emotional well-being. David McCullough, chief executive of the WRVS (formerly the Women's Royal Voluntary Service), said: "It's to the benefit of not only the patient, but also the NHS as a whole, that GPs spot the early warning signs of isolation and refer patients to services such as befriending or community centres."

Case study

Win Noble was a nurse who had to give up work to care for her husband after he had a stroke and heart attack.

"It's not until you're on your own that you feel miserable. My husband died in 2001. I had nursed him for 20 years.

"In 2005, my next-to-oldest daughter died and then so did my youngest daughter. I was on my own because the rest of the family don't live in the area and I'm partially disabled, so I can't really socialise. One of my other daughters is housebound, one lives in Rhyl and one in Skegness and my only son is in Sleaford. I hadn't seen my son for five years but he rings me and came down this week.
"I don't see the others. I used to read a lot of books, from the mobile library, and I do a lot of puzzles just to keep occupied.

"Age Concern contacted me and suggested a craft class. After a few weeks they started to get a group together to play games like Scrabble and have quizzes. I got really involved and really enjoyed it. I became a volunteer and people needed me again."

Rachael Bentham

'Freedom' an instrument of oppression

This bastardised libertarianism makes 'freedom' an instrument of oppression

It's the disguise used by those who wish to exploit without restraint, denying the need for the state to protect the 99%

• 
• • George Monbiot
  • guardian.co.uk, Monday 19 December 2011 20.30 GMT
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Illustration by Daniel Pudles

Freedom: who could object? Yet this word is now used to justify a thousand forms of exploitation. Throughout the rightwing press and blogosphere, among thinktanks and governments, the word excuses every assault on the lives of the poor, every form of inequality and intrusion to which the 1% subject us. How did libertarianism, once a noble impulse, become synonymous with injustice?

In the name of freedom – freedom from regulation – the banks were permitted to wreck the economy. In the name of freedom, taxes for the super-rich are cut. In the name of freedom, companies lobby to drop the minimum wage and raise working hours. In the same cause, US insurers lobby Congress to thwart effective public healthcare; the government rips up our planning laws; big business trashes the biosphere. This is the freedom of the powerful to exploit the weak, the rich to exploit the poor.

Rightwing libertarianism recognises few legitimate constraints on the power to act, regardless of the impact on the lives of others. In the UK it is forcefully promoted by groups like the TaxPayers' Alliance, the Adam Smith Institute, the Institute of Economic Affairs, and Policy Exchange. Their concept of freedom looks to me like nothing but a justification for greed.

So why have we been been so slow to challenge this concept of liberty? I believe that one of the reasons is as follows. The great political conflict of our age – between neocons and the millionaires and corporations they support on one side, and social justice campaigners and environmentalists on the other – has been mischaracterised as a clash between negative and positive freedoms. These freedoms were most clearly defined by Isaiah Berlin in his essay of 1958, Two Concepts of Liberty. It is a work of beauty: reading it is like listening to a gloriously crafted piece of music. I will try not to mangle it too badly.

Put briefly and crudely, negative freedom is the freedom to be or to act without interference from other people. Positive freedom is freedom from inhibition: it's the power gained by transcending social or psychological constraints. Berlin explained how positive freedom had been abused by tyrannies, particularly by the Soviet Union. It portrayed its brutal governance as the empowerment of the people, who could achieve a higher freedom by subordinating themselves to a collective single will.

Rightwing libertarians claim that greens and social justice campaigners are closet communists trying to resurrect Soviet conceptions of positive freedom. In reality, the battle mostly consists of a clash between negative freedoms.

As Berlin noted: "No man's activity is so completely private as never to obstruct the lives of others in any way. 'Freedom for the pike is death for the minnows'." So, he argued, some people's freedom must sometimes be curtailed "to secure the freedom of others". In other words, your freedom to swing your fist ends where my nose begins. The negative freedom not to have our noses punched is the freedom that green and social justice campaigns, exemplified by the Occupy movement, exist to defend.

Berlin also shows that freedom can intrude on other values, such as justice, equality or human happiness. "If the liberty of myself or my class or nation depends on the misery of a number of other human beings, the system which promotes this is unjust and immoral." It follows that the state should impose legal restraints on freedoms that interfere with other people's freedoms – or on freedoms which conflict with justice and humanity.

These conflicts of negative freedom were summarised in one of the greatest poems of the 19th century, which could be seen as the founding document of British environmentalism. In The Fallen Elm, John Clare describes the felling of the tree he loved, presumably by his landlord, that grew beside his home. "Self-interest saw thee stand in freedom's ways / So thy old shadow must a tyrant be. / Thou'st heard the knave, abusing those in power, / Bawl freedom loud and then oppress the free."

The landlord was exercising his freedom to cut the tree down. In doing so, he was intruding on Clare's freedom to delight in the tree, whose existence enhanced his life. The landlord justifies this destruction by characterising the tree as an impediment to freedom – his freedom, which he conflates with the general liberty of humankind. Without the involvement of the state (which today might take the form of a tree preservation order) the powerful man could trample the pleasures of the powerless man. Clare then compares the felling of the tree with further intrusions on his liberty. "Such was thy ruin, music-making elm; / The right of freedom was to injure thine: / As thou wert served, so would they overwhelm / In freedom's name the little that is mine."

But rightwing libertarians do not recognise this conflict. They speak, like Clare's landlord, as if the same freedom affects everybody in the same way. They assert their freedom to pollute, exploit, even – among the gun nuts – to kill, as if these were fundamental human rights. They characterise any attempt to restrain them as tyranny. They refuse to see that there is a clash between the freedom of the pike and the freedom of the minnow.

Last week, on an internet radio channel called The Fifth Column, I debated climate change with Claire Fox of the Institute of Ideas, one of the rightwing libertarian groups that rose from the ashes of the Revolutionary Communist party. Fox is a feared interrogator on the BBC show The Moral Maze. Yet when I asked her a simple question – "do you accept that some people's freedoms intrude upon other people's freedoms?" – I saw an ideology shatter like a windscreen. I used the example of a Romanian lead-smelting plant I had visited in 2000, whose freedom to pollute is shortening the lives of its neighbours. Surely the plant should be regulated in order to enhance the negative freedoms – freedom from pollution, freedom from poisoning – of its neighbours? She tried several times to answer it, but nothing coherent emerged which would not send her crashing through the mirror of her philosophy.

Modern libertarianism is the disguise adopted by those who wish to exploit without restraint. It pretends that only the state intrudes on our liberties. It ignores the role of banks, corporations and the rich in making us less free. It denies the need for the state to curb them in order to protect the freedoms of weaker people. This bastardised, one-eyed philosophy is a con trick, whose promoters attempt to wrongfoot justice by pitching it against liberty. By this means they have turned "freedom" into an instrument of oppression.