1. Basic Concepts

Wikipedia contributors, “Advertising” http://​en.​wikipedia.​org/​wiki/​Advertising accessed October 9, 2014.

Bureau of Economic Analysis, US Department of Commerce. November 23, 2010, Table 3. Gross Domestic Product and Related Measures: Level and Change from Preceding Period.

Some argue that hypothetical compensation should suffice for efficiency. According to this theory compensation does not actually have to take place, but mere possibility of compensation suffices. Thus, as long as gainers gain more than losers lose, the policy is efficient, but of course the theoretical possibility of compensation does not help the lives of those who lose and is therefore not a humanistic approach to economic policy as losers are never compensated by the winners. Leaving some people worse off is cruel economic policy.

Anemona Hartocollis, “Medical Schools in Region Fight Caribbean Flow,” The New York Times, December 22, 2010. http://​www.​nytimes.​com/​2010/​12/​23/​nyregion/​23caribbean.​html?​_​r=​1&​hp accessed October 9, 2014.

Wikipedia contributors, “Global warming,” http://​en.​wikipedia.​org/​wiki/​Global_​warming#cite_​note-7 accessed October 9, 2014.

“To amend the Truth in Lending Act to establish fair and transparent practices relating to the extension of credit under an open end consumer credit plan, …” US Congress, House, Credit CARD Act of 2009, HR 627, 111th Congress, 1st session, January 6, 2009. http://​www.​creditcards.​com/​credit-card-news/​assets/​credit-card-act.​pdf accessed October 9, 2014. Wikipedia Contributors, “Credit Card Act of 2009,” http://​en.​wikipedia.​org/​wiki/​Credit_​CARD_​Act_​of_​2009 accessed October 9, 2014.

Joseph Stiglitz, “Thriving Through Balance,” https://​www.​aeaweb.​org/​aea/​2015conference/​program/​preliminary.​php accessed October 9, 2014.

One person was trampled to death. YouTube, “Black Friday stampede,” http://​www.​youtube.​com/​watch?​v=​aeSgBL7gpAk accessed October 9, 2014. YouTube, “Store Worker Trampled, Dies,” http://​www.​youtube.​com/​watch?​v=​7aUwmsi6Wc0&​NR=​1&​feature=​fvwp accessed October 9, 2014.

Mark Landler, “US Credit Crisis Adds to Gloom in Norway,” The New York Times, December 2, 2007, http://​www.​nytimes.​com/​2007/​12/​02/​world/​europe/​02norway.​html accessed October 9, 2014.

The US Food and Drug Administration did not begin to require testing and approval of IUDs until 1976.

Diarrhea is not the only sickness. A person in 2009 had convulsions and eventually became paralyzed from consuming E. coli-tainted ground beef. Michael Moss, “The Burger That Shattered Her Life,” The New York Times, October 3, 2009 http://​www.​nytimes.​com/​2009/​10/​04/​health/​04meat.​html?​th&​emc=​th accessed October 9, 2014. Gardiner Harris, “E. coli Kills 2 and Sickens Many; Focus Is on Beef,” The New York Times, November 2, 2009 http://​www.​nytimes.​com/​2009/​11/​03/​health/​03beef.​html accessed October 9, 2014.

FDA commissioner Margaret Hamburg said that “there is no question that these farms that are involved in the recall were not operating with the standards of practice that we consider responsible,” In July, the FDA started requiring large farms to improve refrigeration and do more disease testing, steps it said would reduce salmonella infections by more than half. Erik Eckholm, “Egg Industry Faces New Scrutiny After Outbreak,” The New York Times, August 23, 2010. http://​www.​nytimes.​com/​2010/​08/​24/​us/​24eggs.​html accessed October 9, 2014. Britain and New Zealand, with a more effective oversight, had overall low prevalence rate for salmonella. David McSwane, “Prevention Before Recalls,” The New York Times, August 24, 2010. http://​www.​nytimes.​com/​roomfordebate/​2010/​8/​24/​why-eggs-became-a-salmonella-hazard/​prevention-before-recalls accessed October 9, 2014.

Kevin Sieff, “The plight of the high school homeless.” The Washington Post. December 27, 2010. http://​www.​washingtonpost.​com/​wp-dyn/​content/​article/​2010/​12/​26/​AR2010122602334.​html?​wpisrc=​nl_​pmheadline accessed January 13, 2012.

Nicholas Kristof, “A Woman. A prostitute. A Slave.,” The New York Times, November 27, 2010. http://​www.​nytimes.​com/​2010/​11/​28/​opinion/​28kristof.​html?​scp=​1&​sq=​A%20​Woman.​%20​A%20​Prostitute.​%20​A%20​Slave.​&​st=​cse accessed October 9, 2014.

Gardiner Harris, “US Identifies Tainted Heparin in 11 Countries,” The New York Times, April 22, 2008, http://​www.​nytimes.​com/​2008/​04/​22/​health/​policy/​22fda.​html?​ref=​heparindrug accessed October 9, 2014.

Eric Wilson, “Health Guidelines Suggested for Models,” The New York Times, January 6, 2007 http://​www.​nytimes.​com/​2007/​01/​06/​business/​06thin.​html?​scp=​1&​sq=​Health+Guideline​s+Suggested+for+​Models&​st=​nyt accessed October 9, 2014.

Andrew Martin, “In a Sign of Foreclosure Flaws, Suits Claim Break-Ins by Banks,” The New York Times, December 21, 2010 http://​www.​nytimes.​com/​2010/​12/​22/​business/​22lockout.​html?​_​r=​1&​emc=​eta1 accessed October 9, 2014.

Why does competition not work in eliminating such issues? The answer is simple, because of asymmetric information and opportunistic behavior. For example, suppose that some ground beef manufacturer would put a label on the ground beef stating “We guarantee that this beef has only 1 million E. coli bacteria per pound. We’ll give you a thousand dollars if you get sick.” Or “we’ll pay you a million dollars if you can find more than 1 million E. coli bacteria in this pound of ground beef.” Would people buy such ground beef? I know that I would not and I doubt that anyone else would, because many of us do not even know that E. coli exist in the ground beef at all, we do not know what the FDA-approved limit is, and we do not know how our acceptable level compares to that approved by the FDA. Moreover, if we want to be truthful about it, we do not want to know either and suppress it from our conscious thinking even if we have some vague notion about. All we want to know is that we will not get sick if we cook the beef properly. Basically, we do not want to consume food with any E. coli in it. So labeling cannot be a competitive substitute for government regulation.

Editorial, “The Customer Always Comes Last,” The New York Times, August 24, 2010 http://​www.​nytimes.​com/​2010/​08/​25/​opinion/​25wed2.​html?​_​r=​1&​th&​emc=​th accessed October 9, 2014.

I was also subject to such surprises recently as I purchased something from Canada and did not know about the fact that there will be extra charges for foreign purchases on my credit card.

Wikepedia Contributors, “Thomas Aquinas,” http://​en.​wikipedia.​org/​wiki/​Thomas_​Aquinas#Epistemology accessed October 9, 2014.

St. Louis Federal Reserve, “S&P Case-Shiller US National Home Price Index,” http://​research.​stlouisfed.​org/​fred2/​series/​USCSCOMHPISA accessed October 9, 2014.

Being unable to take care of her two children a financially desperate unemployed women killed them. Robbie Brown, “Mother in South Carolina Killed 3 Children, Police Say,” The New York Times, August 11, 2010 http://​www.​nytimes.​com/​2010/​08/​18/​us/​18drown.​html?​_​r=​1&​hp accessed October 9, 2014.