Posted 8:34 AM by Robert

Eliot? O, Eliot? Can We Have A Word In Private, Please? For Your Own Good?

Eliot Spitzer's various crusades increasingly seem to presume that the Econ Monsters of the Midway don't understand economics.

Is this the best way to enter history or help out a struggling markets-dependent State of New York?

Sample of Mr. Spitzer's economic insight:

Relying on the market to fairly price prescription drugs has also failed, he insisted, since some severely ill people rely so much on one particular drug that they will pay anything to get it. "The government," said Spitzer, "has to come up with a pricing scheme."

Yes, indeed. Mr. Spitzer is no doubt proceeding on the basis of the notable success of past government imposed pricing schemes for rare and valuable products? Gas? Oil? Trucking? Western water? Security brokerage services? California insurance? Maybe he'll pause sometime to give us an example or two.

If Mr. Spitzer finds the icy economic winds from the Midway uncomfortable and harsh, perhaps he may wish to consider - on a completely secular basis, of course - the "The Parable Of The Pearl Of Great Price." Few would considered the parable to be an argument for government price regulation for religious services - even though Jesus is making the same point about faith that Mr. Spitzer is noting about certain drugs. Now, if the owner of the Pearl of Great Price had actually possessed monopoly power, the Parable might have had a different ending - the man might have brought an anti-trust action, instead of selling everything he owns. It only takes a few competing pearls to strip the supracompetitive profit from the scarcity rent! And there are at least a few busy oysters in the sea. Mr. Spitzer could try this out at the midtown jewelry exchange – he won’t even need a subpoena, just a gimlet eye for the deal.

Mr. Spitzer's argument doesn't seem to dawdle in the uncertain terrain of the interaction of the "patent monopoly" and "market power." He seems to leave those details to the Chicago Boys and their followers, who have spilled many gallons of ink on the subject! Reform may be required in the structure of the patent monopoly for various products, including drugs. There is now a lot of literature on the difficulties faced in attempts to establish the right (often, “wealth maximizing”) intellectual property rights. That topic is and has been for decades much studied and discussed on the Midway and elsewhere. Gosh, even Justice Brandeis recognized and wrestled with the problem.

But not Mr. Spitzer! He's too busy drawing charicatures that could easily devastate New York State and much of the rest of the economy if some legislature were foolish enough to act on them:

Free markets, the theory goes, will correct most excesses by making it impossible for those guilty of bad behavior to survive. "They've said that intervention by...government is wrong," Spitzer said. "But they haven't taken into account that markets can have structural flaws." Contacted by BusinessWeek Online for a reaction, University of Chicago professor of business and economics Kevin Murphy said Spitzer's interpretation of the schools position was simplistic. Says Murphy: "I think we have better things to do than beat up a straw man."

Maybe it's time for the SEC and Justice Department - or even Congress - to put Mr. Spitzer in a bag.

And it's getting well past time for the Nobel Committee to deck Professor Murphy's halls.