Family Externality

Ed Glaeser:

I am also unenthusiastic about eliminating tax preferences for larger families. Most people seem to think that giving tax relief to bigger families is a matter of simple fairness. As an economist, I lack standing to make proclamations about fairness, but there is another reason to subsidize larger families. When parents decide to have kids, they are creating a massive benefit for their children. As much as parents may love their children, they are unlikely to reap all the benefits those children will offer during their lives. Economists often think that it makes sense to subsidize behavior that generates big "external" benefits for others: parenting seems like a particularly natural example of such behavior.

Externality abuse.

Health Care Policy 101

Don Boudreaux:

Who cares what modern health care-delivery methods are called? The elemental problem is that more and more people feel entitled to vast quantities of high-quality health care paid for by someone else.

And politicians, ever lusting for office, are only too happy to conjure the ridiculous illusion that A will get top-flight service from B when C is forced by G to pay the bills.

Government & Forced Riders

Tim Haab takes a look at survey results that speak to this question: Would you be willing to support climate change policy if it cost someone else money? And, the survery said. . . .? It said that about 70% of respondents would answer yes.

This reminds of a recent visit by a government official to my class on economics of the public sector. The discussion was about funding public universities and the difficulties of this task these days in Colorado. One of my students asked if we shouldn't just provide higher education privately and without public subsidy or public provision. The answer sounded a lot like: "No, because there are positive externalities." Now, this government official was also unaware that we had discussed this idea in class just the period before he spoke, and he was unaware of my explanation to my students that I thought the idea of positive externalities associated with higher education was likely an illustration of what I call "externality abuse." But, I guess this point is sort of an aside.

What was really interesting was the government official's suggestion about the reason for public funding or public subsidy. His story went something like this: "I realize that I'm better off or that I get some benefits myself because you are here taking classes at the university. That's why I'm willing to tax myself to pay for part of your education." It seems the idea was that we should all recognize the external benefit to us and therefore we should all be willing to tax ourselves.

Now, I'm thinking this is not really what supporting the public policy of subsidizing higher education is really about, because I'm thinking that if this official realizes he is personally better off because my student is at the university, then he can simply give my student some money to pay for tuition or books. Or, this government official can choose to give his money to university scholarship funds.

Professor Haab's question and answer suggests the same sort of things I talked with my students about after the public official's visit to my classroom. The argument offered for subsidizing higher education sounded like it was personal (I'm willing to tax myself), but it seems to me this was really about taxing others to pay for something he personally valued. I'm thinking that we are considering an aspect of politics and public policy that is pretty much the opposite of the free rider we economists talk about with respect to public goods. That is, it is an effort to use government's power to tax to force others (many of whom probably don't believe they are benefitted by my students being my students) to pay for things a person values for themselves. It seems very much an effort to make use of forced riders.

Changing The Constitution

Megan McArdle:

Turley is not the only liberal legal scholar who has turned on this interpretation, and it seems to bode a welcome retreat from the notion that the constitution means--whatever we think it ought to have meant. Having realized that a plastic constitution could also, horrors, be manipulated by people they disagreed with, the "living constitution" proponents seem to be retreating to the notion that constitutional interpretations ought to have a least a tenuous relationship to the underlying text. I'm not a constitution-worshipper, but I think society functions better if you change the rules by changing them, not by declaring that they mean whatever those in power say they do. Yes, I'm aware that this happens to some degree in every society, but the less of it the better, thank you very much. We needn't make the perfect the enemy of the reasonable.

I like reading that the idea of the "living constitution" might be in a bit of retreat. I'm not sure I believe this yet. I also like the part about changing the rules by changing them.

UN Sanctions -- Not

Claudia Rosett has been a bulldog staying on the UN Oil for Food story of corruption. I think the story was supposed to be that sanctions against Iraq and Saddam Hussein were creating great hardships for the people of Iraq, and the Oil for Food program was supposed to be the means of providing humanitarian aid to the people of Iraq. It seems the reality was something quite a bit less than humanitarian. The following is from Rosett's commentary in the WSJ ($$) yesterday:

Messrs. Khudair and Yacoub described a system corrupt to the core. Their duties inside Saddam Hussein's bureaucracy consisted largely, and officially, of handling and keeping track of kickbacks. That included who had paid and how much, and via which front companies. When Saddam's regime systematized its Oil for Food kickback demands across the board in 2000, keeping track of the graft flowing into Saddam's secret coffers became a job so extensive that the marketing arm of Iraq's Ministry of Oil, known as SOMO (State Oil Marketing Organization) developed an electronic database to track the flow of the "surcharges," as they were called.

To show how this worked, prosecutors last week produced a silver laptop onto which Saddam's entire oil kickback database had been downloaded by Mr. Yacoub, from backup copies he made just before the 2003 U.S.-led invasion of Iraq. With the laptop display projected onto a big screen before the jury, Mr. Yacoub booted up the system and into a query box typed "Coastal," the name of Wyatt's former oil company. Up came itemized lists of millions of dollars worth of surcharges he testified that Wyatt's company, or affiliated fronts, had paid to the Iraqi regime. These were broken down not only chronologically, but according to which front companies Mr. Yacoub said had channeled the money.

The other Iraqi witness, Mr. Khudair, corroborated parts of this scene. He explained to the jury a series of detailed notes taken at secret Baghdad meetings, which he had recorded by hand in desk calendars provided as gifts by oil contractors in Iraq.

In the end, Wyatt's guilty plea of conspiracy rested on a payment of about $200,000, made in 2001 through front companies into an Iraqi-controlled secret bank account in Jordan. But as witnesses during the trial sketched out the context, what came into view was a gigantic hidden world of dealings with Saddam's Iraq. From a cooperating government witness, Samir Vincent (who in 2005 pleaded guilty to a number of federal charges related to Oil for Food), the jury heard that Wyatt had paid Vincent's fees and expenses to make more than half a dozen trips per year during the early 1990s between the U.S. and Iraq to try to help Saddam out from under U.N. sanctions.

[. . . .]

Should we expect to see that silver laptop in heavy demand by scores of other U.N. member states trying to bring Oil for Food fraudsters to justice?

Nope. As it is, the U.S. stands almost alone in prosecuting the culprits and sending the guilty to prison. In Russia, China, Syria, Cyprus, Yemen, Egypt, Malaysia, the United Arab Emirates, Turkey and Jordan -- to name a few significant players -- there has been no such summons to justice. In Switzerland, home to a cosmopolitan nest of Oil for Food fronts, a number of companies have paid fines to federal and local authorities, but their names and the details have been kept confidential.

Now, in the future when our political discussions turn to suggestions of seeking UN support or approval about this or that, I want to remember the UN's Oil and Corruption program. Of course, this is not the first expose of UN efforts which seem to have been excellent illustrations of corruption. I think I should also make note of Rosett's list of significant players. It might help me understand what is real and what is not with respect to international politics.

Competition

Peter Boettke:

In one of the papers that I read for the conference there is a discussion about how level is the playing field for different types of start-up enterprises, and how competitive the industries are that they enter into.

A lot of business literature often throws terms around from technical economics, but confuses the colloquial use of a term and the scientific meaning of the term. When text-book economics refers to competitive conditions, they do not mean activity of competing, but instead a set of conditions. When we discuss the idea of a level playing field we mean a fair race, not that the race isn't difficult.

When Austrian school economists speak of competition, they mean the activity of competing. It is analogous to sports competition --- there is rivalry, active seeking of competitive advantage, etc.

In my classrooms these days, some of the differences between neoclassical economics (the economics students mostly study in their textbooks) and austrian economics seem to be coming up more frequently. While Professor Boettke's post is mostly about the value of sports, this excerpt above points out one of the fundamental differences between neoclassical economics and austrian economics. Both approaches to economics use the word "competition," but very different ideas are meant when this word is used.

13th Amendment

Richard Miniter writes about stories told over dinner by Justice Thomas:

At a gathering of black lawyers, Thomas, from the podium, could see a man in the front row, with his arms crossed and his face cross. Naturally, he shot his hand up as soon as the question session began. A long speech in lieu of a question followed, essentially asking how he can interpret the law by relying so heavily on the Founding Fathers when they did not recognize the rights of blacks?

“The 13th amendment,” Thomas said, citing the constitutional amendment that freed the slaves and provided for their equal rights under law.

Thomas went on to take other questions.

At the end of session, the man again raised his hand. In the course of an hour, his view on Thomas had changed. “They lied about you. What are we going to do?”