Archive for July, 2011

Well, actually I think the time is well-spent.  But it is funny how often economic thinking and concepts directly intrude on my thoughts the older I get and the more time I spend with economists in person and in print.  Two cases in point, both related to the concept of opportunity cost:

1.   I was stuck at the airport for much of last Saturday and so perused the magazine racks there at some length during breaks from the pain of trying to work in an airport chair.  At one point, my eyes wandered over to the newest edition of Psychology Today – a pretty awful magazine – and noticed the front cover advertising an article titled something like: Why Smart People Have Less Sex.  I instantly and without really thinking at all said to myself, “Well that must be due to their higher opportunity cost,” before I even processed anything on a more intellectual level or even picked up the magazine.  I decided to see if the article did touch on this (obvious) possible explanation and was disappointed during a quick perusal to see it wasn’t really discussed as an alternative in anything more than a cursory fashion.

2.  My eldest son was taking forever eating his dinner tonight so I tried to explain to him the concept of opportunity cost.  I was tired of just telling him to eat his supper and stop playing with his food, so I thought I’d try to rationalize with him once again.  I proceeded to teach him the phrase opportunity cost and how he should think about what fun he was foregoing by taking twice as long to eat as it should even allowing for enjoyable organic family conversation.  When I quizzed him about what this all meant, he responded such that he certainly knew what I was talking about.  I thought victory was at hand.  And then he proceeded to tell me that it was still so much fun to make his pasta into a ski jump – thus handing me a defeat in my quest to get him to eat faster than paint dries.  However, I was pleased that his internal economist is working quite well since he seemed to be calculating the trade-offs!

Note: I wrote this post before David Henderson said this earlier in the week about opportunity cost.  Worth a look.

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There once was a man who, by every possible measure, had reached a girth that was too great to be compatible with a long and flourishing life. One could have considered any number of indicators if one had wished—percentage of body fat, body mass index, blood pressure—and they all pointed in the same direction and carried the same dire consequences. Although the man usually shrugged them off (“My mother always told me I was a husky boy with big bones,” he would tell himself), in his heart he knew the truth and understood the consequences of continuing the habits that had left him in this awful state. Indeed, he did not have to look too far to see others with similar weights suffering from sclerosis and, in some cases, facing a premature death. He decided to seek out advice from some of his most trusted friends.

One day a friend dropped in for tea to discuss the situation.  The fat man sighed and said: “Perhaps after years of eating too much and exercising too little, it is time again to get on the scale and face up to my situation.” The friend put down his cup of tea and scolded: “We have been down this path before. Every few years you get on the scale and each time you weigh more. This time will be no different.  Do not get on the scale until you are fully committed to a new fitness regimen. To do so, would simply make you fatter.” The fat man didn’t quite understand the logic. “The scale does not make you fat, no more than any other indicator I have read about.” The friend looked sternly across the table and replied: “This is the very thinking that you into this situation. Follow my advice and refuse to get on the scale. Make it a pledge.”

The logic seemed to escape the fat man. Fortunately, another friend dropped in and offered a glass of chardonnay and some competing advice. “Three things, my friend. First, don’t even use words like ‘fat’ since they are often a hallmark of intolerance. There are many large people—far larger than you—who are very happy. Who ever heard of a jolly thin man anyway? Second, throw the scale away altogether. Eat, drink and be merry! As long as you have credit, you can enjoy a wealth of world pleasures. In the long run, we are all dead! Finally, think about how your decisions will affect others—the most vulnerable among us. The minute you stop eating dessert, the poor people who cook your pastries and scoop your ice cream will find themselves with less demand for their services. Do you really want to pursue health on the backs of the food service industry?”

The conflicting counsel confused the fat man. Fortunately, a third friend came to the door and offered a quick critique of the earlier pieces of advice. “You must get on the scale. It only tells you what you already know and however much you want, you can’t change your past decisions about eating and exercise. Just jump on and jump off. If you don’t like what you see, you can always start planning your New Year’s resolutions.”  The fat man frowned: “I have tried the resolution route before. It never ends well.” The third friend winked and lit a cigarette. “Well then, get on the scale. But do so with a commitment to stop ordering cheesecake after dinner. In a few months, you can commit to getting on the scale again but only if you combine that with a further decision to stop drinking milkshakes.” Fatman looked a bit puzzled. “I don’t like cheesecake and rarely drink milkshakes.” His friend smiled once again: “Even better. Those things are high in calories—they have been scored as such by the nonpartisan USDA—even if you don’t normally consume them, even if you gave them up years ago, there is no reason why you shouldn’t view these commitments as important steps toward a new healthy lifestyle. There is an additional advantage: if you frame your commitments with care, you might even bring your other two friends aboard. We have found consensus in the past.”

Regardless of which advice he followed, the fat man finally concluded, he would still be fat, and most likely fatter as the years progressed. He had read the reports on the long-term consequences of morbid obesity; the projections of the health problems he would face in future years were sobering. That day he made an important decision. The first step to good health was clear: get a new set of friends.

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I don’t want to speak for the other Pilei, but I am in favor of nearly total drug legalization.*  The large majority of harm (and potential benefits) from drug use itself is largely internalized by the person engaged in that particular behavior.  When there are spillovers to others not party to the drug use (what economists call externalities), the government can legitimately punish the resulting behavior if it goes so far as to constitute a substantial violation of the rights of others.  For example, it can arrest someone who while drunk unjustifiably punches another at a bar due to the drug-induced inability to exercise appropriate judgement.  Or more obviously, it can throw the book at someone who kills another in a drunk driving accident.  It can also step in when someone is doing something while “on” drugs that is so potentially threatening to the rights of others as to justify preemptive intervention as in the case of drunk driving.  However, in these cases, what you are punishing isn’t really drug use but a behavior that whether drug-induced or not violates the rights of others who didn’t sign-up for the experience.  So drug use itself isn’t really a problem legally unless you think the government should define the kinds of things we should be able to do with or to our own property – our body and mind. 

Of course, this is a hard position to maintain in a society such as ours even in normal times.  However, it is especially difficult to advocate this position in the immediate aftermath of any bad news related to the misuse of drugs.  Enter rehab hating Amy Winehouse and her sad death (sad especially to those like me who loved her retro music).  I am sure that Drug Warriors will take the occasion of Winehouse’s death to tell the body politic how terrible drug use is and how we need to keep up the legal fight against the production, sale, and use of drugs deemed too dangerous for unprescribed or even prescribed use.  In other words, they’ll sing “Amy shows we shouldn’t le-gal-ize, no, no, no” to the beat of “Rehab.”

Despite my support of drug legalization and opposition to the Drug War, I don’t think we should forget that with liberty comes great responsibility — and that we should expect those who cannot exercise that responsiblity to pay the costs for their behavior, whether to the self or to others whose rights they may violate.  In the case of Winehouse, if we are going to respect her autonomy and human dignity, we also have to assume that she accepted the potential costs and benefits of her behavior, discounted the costs as she saw fit, and proceeded to use drugs despite the costs.  It isn’t the choice I would make.  Moreover, I would argue that such a choice is immoral given how inconsistent it is with human flourishing.  But it is a choice we should respect politically even if we don’t ethically.  To do otherwise would allow the state to make more choices about what we ought to do than it is capable of making, especially given our vastly different preferences and discounting rates (not to mention different moral theories and the information paucity governments face).  Even more important, as Frank Meyer and the fusionists claimed long ago, state restriction on non-rights violating moral choices essentially takes away our ability to be virtuous since it can hardly be said that being forced to act in a certain way makes us truly good. 

Therefore, if you love liberty and virtue, you can mourn Winehouse’s passing, get angry she made such a self-destructive choice, and even scorn her behavior.  But we should also applaud the idea of a legal system that would have allowed her to define what a good life for her was (without acting in violation of the positive law) and allowed her the freedom to be truly virtuous should she have taken a different path.            

 *I think certain drugs like antibiotics should be regulated on the grounds that usage dictated by individual choice would have huge negative externalities or may be viewed as a rights-violating act (see Jason Sorens here on this latter claim).   Given the collective action problem, individuals would rationally take antibiotics even when medically unnecessary (or would misuse them as is the case when you take these drugs until you feel better as opposed to the entire duration prescribed) and this will cause antibiotic resistant bacteria to be more prevalent.

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The WSJ has an editorial today entitled “Entitlement Nation” in which it outlines America’s political history that has led to so many millions of us today receiving, even living off, payments of money, goods, or services from the government. The numbers are shocking: “50.5 million Americans are on Medicaid, 46.5 million are on Medicare, 52 million on Social Security, five million on SSI, 7.5 million on unemployment insurance, and 44.6 million on food stamps and other nutrition programs. Some 24 million get the earned-income tax credit, a cash income supplement.”

The Journal rightly argues, “Congress has made so many promises to so many Americans that there is no conceivable way those promises can be kept.” It is because the current debt-ceiling negotiations are not even discussing the drastic changes to Medicaid, Medicare, and Social Security that would be needed to keep us fiscally afloat that they are really just playing pretend. We are still looking for the proverbial Adult In The Room. 

When the subject of reforming the Big Three entitlement programs arises, one often hears, especially from people receiving payments from them, some version of: “I paid into those programs, so I’m entitled to get my money back.” It seems like a reasonable position: people should get what they paid for, especially when they were promised to get what they paid for.

The problem is that what you paid is long gone. The money you paid over your working career was spent immediately on all manner of government cornucopia—programs, benefits, bureaus, agencies, institutes, centers, initiatives, divisions, projects, expenditures, studies, commissions, summits, departments, and on and on. You may not have noticed, or may not have been paying attention, but every single penny that was taken from your paychecks was spent. Not saved, not invested: spent. So it is now gone. Indeed, it is more than gone, since what has been spent is a lot more than what came in—which means that not only was every penny they took from you spent, but they’ve promised others a lot more of your, or someone’s, pennies.

The obvious question must now be asked aloud: If all that money, and then some, has already been spent, what is funding those entitlement programs right now, today? Answer: it is being extracted from other people’s paychecks, and financed by debt that other people will have to pay in the future. People receiving entitlement payments now are living off the money taken, or promised to be taken, from other people.

Should it be this way? Should the government have made promises it could not keep? Should it be the case that the government actually spent the money they took from you instead of saving or investing it? No, no, and no. Alas, what should be often is not.

The moral status of some people living off wealth taken from others, as so many millions of us Americans now are doing, is a separate question. I have my own view about it, but coming to a correct moral judgment about it requires first coming to a proper understanding of the situation.

It might well have been your money that was taken from you all those years, and, especially in retrospect, it might well have been wrong of the government to take it from you. But the money you are receiving now is not that money: it is someone else’s, someone who no doubt also would claim ownership of it. If you accept the money, you have to face that fact squarely.

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The ever-entertaining Jonah Goldberg on the President’s handling of the debt-ceiling limit:

Imagine you’re in a burning office building. Obama’s plan for getting out alive: “Okay, you guys break up into different groups and come up with a series of proposals about how we get out of the building. I will then negotiate with each of you separately and then together, and then separately. Then I’ll get on Skype and tell the world what I think of your respective plans and criticize you for their lack of seriousness. I will insist that we have balanced approach of applying both water to the fire and opening the windows, which some say will only provide more oxygen for the flames. But my base says window-opening is essential. Oh and I will blame all of the gasoline I threw around on the lower floors of this building on the guy who moved out two years ago. And I will veto any plan that requires we have a new plan should we get stuck on another floor. And, did I mention this mess was created by the former tenant and….ahhh what’s that smell?

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The Daily Caller reported recently that a high school in Medina, Ohio has begun charging parents fairly hefty fees for various of the activities and extras that it offers, even for seemingly basic courses like Spanish I and Earth Science. Parents are upset, of course, believing that since they are already paying taxes they shouldn’t also have to pay these additional fees.

They have a point. Why should they have to pay twice? On the other hand, by that logic, why should people who do not send their children to public schools be required to pay the taxes to support them anyway? (The response “because public schools are a public good from which everyone benefits” fails, I believe, on both moral grounds and on empirical grounds, but that is a discussion for another day.)

In Medina, Ohio’s case, I would like to offer a qualified “Good!” The introduction of these fees will expose parents to more of the costs associated with running their school. Although those costs are almost certainly inflated, still as individual parents are asked to pay them for their own children, that will tend to level, ever so marginally, the playing field for other educational alternatives.

Right now all private schools face a significant competitive disadvantage because parents who choose to send their children to their schools must nevertheless still continue paying for the public schools. They have to pay twice. (Imagine someone arguing that because the United States Postal Service was so important to this nation’s [whatever], anyone who sends a package via UPS, FedEx, or any other private service must still pay a fee to the USPS—and the USPS will itself largely determine what that fee will be!) Because everyone in the district must pay the taxes, however, the costs are distributed among a much larger group of households than the actual number that have children in the system. Thus the costs to households using the service are subsidized by households not using them.

The introduction of user fees at the public schools will seem to affected parents much more personal. They will feel it directly, because they will have to write a check for it. This is a good thing. Not only will it help remind people that there’s no such thing as a free lunch, but it may also help those parents who are considering a private option be able to do so. They might think, “If I have to pay $4,446.50 extra for my daughter to take Spanish I, Earth Science, and band, maybe I should just send her to the Catholic school we’d thought about anyway, whose annual tuition is only about $2000 more than that anyway.”

That might lead to competition, which would benefit everyone—public and private alike.

So while the fees in the Medina, Ohio case might well be buoying bloated budgets, benefits, retirement packages, etc., still a little competition spurred by a little personal responsibility can go a long way.

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Here is the budget deal I’d love to see the GOP propose:

Mr. President, you are right that we need to close all those tax loopholes that both parties have been giving rich people for far to long.  No more subsidies.  No more tax credits or waivers.   Tax rates are too high already for everyone, but these giveaways to the rich are a disgrace.  And, why we are at it, let’s cut all government benefits for those greedy rich people.  Why are people who fly to vacations in Vail on the corporate jets eligible for Medicare and Social Security?  Let’s strengthen the social net by making it truly a safety net: something that catches people when they fall, not something that is supposed to lift everyone up to a comfortable living regardless of their effort.  So, let’s start this way: the rich get nuttin’.

I’m not holding my breath.  Whenever the Democrats play the class card, the Republicans just roll over and play dead or repeat the rhetoric that keeping taxes low on corporations and small business owners creates jobs.  Never mind that that rhetoric is actually true.  It’s just such a hard sell.  So, start beating a different drum, one that turns the tables on Democrats by forcing them to justify why we spend such a large chunk of our federal budget on expenses (health care and retirement) that responsible people should be paying for themselves.

How about a GOP that said, “We’ll help the orphans, the widows, the truly poor and destitute, the disabled, the insane.   But, to do so, we need to construct a credible, limited social insurance system in which the great majority of  citizens provide for themselves throughout their lives through hard work,  through saving and sometimes borrowing, and through prudent expenditures.  This will allow us to keep taxes low, to make commerce free once again, and to reign in the size and scope of government.”

Now that would be a party to reckon with.

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