More Takings

If you are interested in the implications of the Kelo opinion, then you may want to follow the Institute for Justice. The Institute has a list , with links, of news articles on takings post-Kelo.

Social Security Surplus Follow Up

I was just looking over the 2005 Social Security Trustees Report and I thought some of the numbers I found there might make an interesting follow up to my earlier post on the Social Security surplus .

At the end of 2004, there were 33 million retired workers and dependents who were receiving benefits, along with 7 million survivors of deceased workers. The Disability Insurance (DI) part of the program was paying benefits to 8 million disabled workers and their dependents. On the revenue side of the program, it is estimated that during 2004 some 157 million people had earnings on which payroll taxes were paid. The Social Security program paid out $493 billion in benefits while taking in $658 billion in revenue. This means the Social Security program took in $165 billion more in revenue from the payroll tax in 2004 than was needed, which is about a 33% excess of revenue over benefits paid.

It is probably difficult for most of us to think in terms of numbers in the millions and billions, so let’s put these numbers for 2004 on an average, per person basis. Each of the 48 million recipients of the Social Security program received, on average, about $10,271 in 2004. Each recipient had about 3.27 workers earning the incomes that generated the money for their benefits received from the Social Security program. Or, each worker covered almost 1/3 of the income paid by the Social Security program to a recipient. On average, in 2004 each worker paying the payroll tax was responsible for about $4191 in payroll tax revenue. Since the payroll tax is split 50%-50% between employer and employee, this means that each worker paid about $2096 out of her salary checks in 2004, while her employer paid another $2096 in payroll tax (an amount the employer might have paid in wages instead of taxes) on her behalf. The $165 billion surplus of payroll tax revenue over program benefits paid translates into an average of $1051 per worker in 2004. Again, this means each worker paid about 33% more than necessary for the Social Security program in the year 2004. If you paid payroll tax in 2004, I would what you would have done with an extra $1000 in spendable income?

We should think of these per person figures as ball park estimates because there are some minor additions to income and minor additions to those who are recipients. For example, some of the revenue comes from taxing 50% of the Social Security benefits paid to recipients who receive more than a certain benefit level, and some of the payments are to the financial interchange with the Railroad Retirement system.

Sen. Cornyn Proposes Limits on Eminent Domain:

Senator Cornyn is introducing legislation that would bar the use of eminent domain for economic development. This seems like a baby step in the right direction. Do you think this legislation can limit some of the abuse of the eminent domain power? Can a simple statute limit the abuse, or will it be necessary to amend the Constitution?

Kelo: Even Worse Than It Seemed?

Could the circumstances in Kelo mean that the abuse of the eminent domain power is even greater than it seems? Consider this passage from the Supreme Court's opinion:

. . . . The city council also authorized the NLDC to purchase property or to acquire property by exercising eminent domain in the City's name. . . . [page 4]

What? The city itself did not exercise eminent domain, but "authorized" someone else? Who or what is NLDC?

. . . . respondent New London Development Corporation (NLDC), a private nonprofit entity established some years earlier to assist the City in planning economic development, was reactivated. . . . [page 2]

Now, this sounds like a PRIVATE ENTITY was exercising a city's eminent domain power. Does this make any sense? Why would the city not want to directly exercise it's power of eminent domain? Why would the city think it made sense to "authorize" a private entity to condemn the private property of others and then take it? For that matter, why didn't the city want to purchase the property itself?

Freedom

Separate property from private possession, and liberty is erased.

Russell Kirk

10 Commandments OK With Eminent Domain

In a pair of rulings on the constitutionality of the 10 Commandments on government property, the Supreme Court today said the commandments may be displayed on public land if that property has been seized from private owners for 'public purposes' under eminent domain.

The 5-4 decision comes on the heels of this week's court declaration that so-called "private" property is actually government land temporarily under private management until its eventual seizure.

Just a little fun over at ScrappleFace.

Political Integrity Club

So far, there have been no nominations to the Political Integrity Club. Perhaps the membership will indeed be the null set. But, let me suggest two former Presidents and ask for comments, pro or con: George Washington and Franklin Delano Roosevelt.

Workplace Safety

Don Boudreaux responds to a critic regarding the economic approach to workplace safety. Here is the critic's view and then Boudreaux's answer, in part:

Increased safety standards don't necessarily decrease production, if the costs avoided - for example premature death, risk averse behavior leading to less work and so on - are less than the costs of safety standards themselves. They might as well assert that immunization reduces the total production. What safety standards do change is the ability of some individuals to externalize their costs on to other people by health pollution. We should expect the people externalizing costs - that is making money from others misery - to object. But that doesn't mean that their ability to improve their position at the expense of others adds to total productivity.

Mr. Newberry misunderstands the argument. The argument is neither that increased workplace safety has no benefits nor that these benefits are small. Of course there are benefits to increased workplace safety. But even benefits are not free.

To build a sturdier factory, to equip it with more fire extinguishers, sprinklers, and first-aid stations, to ventilate it better – whatever improvements in safety are supplied require resources for their realization. These resources have alternative uses. The value of the goods and services that these resources would have been used to produce were they not used to enhance workplace safety is the cost of enhanced workplace safety.

If you are interested in workplace safety and especially the economics of workplace safety, then Boudreaux's post is worth reading.

I'm thinking Mr. Newberry wouldn't do well on the Economy in Heaven question. He seems to think scarcity is not pervasive here on earth.

Freeport moves to seize 3 properties

With Thursday's Supreme Court decision, Freeport officials instructed attorneys to begin preparing legal documents to seize three pieces of waterfront property along the Old Brazos River from two seafood companies for construction of an $8 million private boat marina.
. . . . . .

The tracts of land would be used for a planned 800- to 900-slip marina to be built by Freeport Marina, a group that that includes Dallas developer Hiram Walker Royall. He would buy the property from the city and receive a $6 million loan from the city to develop the project.

Freeport Marina would then invest $1 million in the project and contribute a 1,100-foot tract of land, valued at $750,000, to it before receiving the loan.

SUPREME OUTRAGE: Kelo Opinion

. . . . nor shall private property be taken for public use, without just compensation.

These words are found in the 5th Amendment to our Constitution. These words became part of our written Constitution on December 15, 1791 because the procedure specified in Article V for amending our Constitution was followed:

The Congress, whenever two thirds of both Houses shall deem it necessary, shall propose Amendments to this Constitution, or, on the Application of the Legislatures of two thirds of the several States, shall call a Convention for proposing Amendments, which, in either Case, shall be valid to all Intents and Purposes, as Part of this Constitution, when ratified by the Legislatures of three fourths of the several States, or by Conventions in three fourths therefore, as the one or the other Mode of Ratification may be proposed by Congress . . . .

These words in the 5th Amendment became part of our Constitution because a supermajority vote in both houses of Congress approved adding these words AND because a supermajority of states approved adding these words.

Yesterday, the Supreme Court released its opinion Kelo et. al. v. City of New London et al. In this opinion the Supreme Court says that a city can take private property for the purpose of having a developer build a new shopping mall, and that such a taking of private property does not conflict with these words of the 5th Amendment. In other words, the Court is saying that government can take private property from Mr. Smith and give it to Mrs. Jones, as long as government pays "just compensation."

Of course, this is not at all what the written words, quoted above, in the 5th Amendment say. In essence, the Court's opinion in Kelo means that the 5th Amendment has been changed, has been amended, to read:

. . . . nor shall private property be taken, without just compensation.

How did the 5th Amendment come to be amended? When was the 5th Amendment amended? Which Congress, by supermajority, voted to remove "for public use" from the 5th Amendment? Which states approved the removal of "for public use" from the 5th Amendment? Is it really the case that legislatures in three fourths of the states ratified removing "for public use" from the 5th Amendment?

Of course, we all missed these events because they did not happen. Instead the Supreme Court has taken the words "for public use" out of the 5th Amendment. The Supreme Court has amended the Constitution. On the opinion of only 5 Justices, the 5th Amendment has been changed. Unfortunately, the Supreme Court is not mentioned at all in Article V of the Constitution which establishes the constitutional way of amending the Constitution. I want to suggest that we should all think that the Court's opinion yesterday represents an unconstitutional action by the Court by which the Constitution has been changed.

Now, if the President acts in a way that is unconstitutional, the people have a remedy. The President's actions can be challenged in the judicial branch of government, and the Supreme Court can hand down the opinion that the actions are indeed unconstitutional and that the President is barred by the Constitution from acting in that way. Similarly, if Congress acts in a way that is unconstitutional, the people have the same remedy. Challenge the action in the judicial branch of government. What remedy do the people have when the judicial branch of government, and more specifically the Supreme Court, acts in a way that is unconstitutional?

I'm afraid it seems there is no clear and easy remedy. Perhaps we can look to Article III, Section 1 where we find

The Judges, both of the supreme and inferior Courts, shall hold their Offices during good Behavior. . .

It would seem to me that a Supreme Court opinion that amends the Constitution, when the Court does not constitutionally have the power of amendment, could will be consistent with the idea of bad behavior. Perhaps we could impeach those Justices who choose to remove words from our written Constitution? But, this doesn't seem a very likely or practical remedy.

Some will suggest that opinions like Kelo point out how important it is to make good choices when Justices are appointed. Indeed, I think the Kelo opinion emphasizes what the current political fight over Judicial appointments is all about. So, this may be a more practical remedy, as uncertain is it is, given politics today.

One final remedy that I can think of is to work to amend the Constitution after Court opinions like Kelo are handed down. How might the Constitution be amended after Kelo? Perhaps we could add the following words to the 5th Amendment as we think it is currently written:

. . . .AND we really do mean it -- government can only take private property if it takes ownership of that property, it cannot take property owned by A to make that property then owned by B.

Another possible amendment that I think we should probably consider is:

No government (national, state, nor local) can take private property, period.

I strongly urge the belief that in our system of political economy it is outrageous for government to take property owned by A so that B can own it, and develop it, instead. The sense of outrage is deepened, for me, because I'm pretty sure that any attempt to amend the 5th Amendment to remove "for public use" that follows the Constitutional method of amendment found in Article V would never be able to gain the constitutionally required supermajorities in Congress or in the states.

Here are the thoughts of some others I think are worth reading:
Stephen Bainbridge, Don Boudreaux, Todd Zywicki , Charles Fried , and Glenn Reynolds .

Just Say NO To Social Security Surplus

The lead Wall Street Joural editorial today endorses a Social Security proposal by Wisconsin Congressman Paul Ryan and South Carolina Senator Jim DeMint.

The conventional Beltway wisdom says Social Security reform is dead, thanks to near-unanimous Democratic opposition. Well, not so fast. Republican reformers are introducing a new plan to invest Social Security surplus funds into personal accounts that has the potential to shake up the debate.

Wisconsin Congressman Paul Ryan and South Carolina Senator Jim DeMint are calling for legislation to bring an immediate halt to the ongoing political raid on the surplus payroll taxes collected by Social Security. Congress now spends that cash on current programs--from cotton subsidies, to defense, to the Dr. Seuss Museum. Every day that Congress fails to act, another $200 million is spent rather than being saved for future retirement. Daniel Patrick Moynihan once called this "thievery," and if corporate America were engaged in this type of accounting fraud Eliot Spitzer would be hauling CEOs to jail.

Instead of spending this retirement money, the reformers would allow individual workers to divert every surplus Social Security dollar--from now until the extra cash runs out in 2016--into personal retirement accounts. For the record, we endorsed this idea some months ago, so we're glad to see it gaining steam.

I certainly like the idea of bringing "an immediate halt to the ongoing political raid on the surplus payroll taxes collected by Social Security," and the creation of individual personal retirement accounts may be okay as well. But, politically it seems that any mention of personal retirement accounts along with the phrase "social security" brings forth near hate speech in rejoinder.

I'm thinking that a better approach might be simply to bring "an immediate halt" to raiding the surplus payroll taxes. How about a statute that says any surplus payroll tax must be rebated to those who have paid the payroll tax each year? I think many people might be persuaded that since government hasn't been investing the annual surplus payroll tax it has simply been overtaxing employees and employers with its payroll tax. Maybe people would warm up to "Just Say No To Surplus Payroll Taxes." Once the payroll tax surplus was no longer available to be spent by Congress, perhaps more of our loyal public servants would see the wisdom in reforming the social security system.

Economic Progress

The improvement of the condition of the poorest 20 percent of households is one of the most notable accomplishments of the third religious-political cycle. The real income. . . .of these households increased nineteenfold between 1890 and 1990, several times more than the gain in the balance of the households, the upper four-fifths. The poor of the 1990s are relatively rich by 1890 standards because, a century ago, only households in the top 10 percent of the income distribution had real incomes that exceeded our current poverty line.

Robert William Fogel, The Fourth Great Awakening and the Future of Egalitarianism, p. 170.

Political Integrity Club

I've often mentioned to students and others my belief that politicians frequently lie (or you could say spin if you prefer the diplomatic approach). This often comes up because, for example, a politician says something like "Social Security lockbox." I know there is no lockbox, and I generally have assumed there is no elected politician who is sufficiently ignorant of our Social Security system to believe, honestly, that there is. As I consider the various policy issues I've paid attention to, and further if I think about all the politicians I've paid attention to, my conclusion is that nearly all (and perhaps all) politicians lie.

Now, I'm reading a biography of a former President, and I'm wondering did this President lie and how often? Then this question leads me to be curious about how historians figure out what to write about politics and politicians. Do historians assume that the things spoken and written by politicians are what the politicians honestly believed? Or, are they able to take into account the likelihood that the people they study are practiced liars?

Then there is another question that comes to mind. When I mention to others that I think politicians, in general, are accomplished liars I don't remember any one ever disagreeing with me in general. Some will agree completely, while others will suggest that there are a few who are honest politicians and people of integrity. (I'm not sure I remember any illustrations I could agree with when I asked.) I have to wonder, why do We The People elect liars to be our political leaders? Why don't we elect people we think say what they mean and mean what they say?

Of course, I may be all wet about this accomplished political liar stuff. So, I have an idea. I would like to open the floor for nominations of politicians to be included in the Political Integrity Club. Please nominate any politician you can think of who has integrity, who says what she means and means what she says? I would also add that we don't have to just concentrate on politicians. There are many in the news business and in punditry who comment on politics and public policy all the time. So, you could also suggest people who aren't politicians but who are public figures frequently writing or speaking on politics who are people of integrity. I wonder if the membership in the Political Integrity Club will turn out to be a null set?

Spending Spree

Veronique de Rugy offers interesting commentary :

The time has now come for fiscal conservatives to publicly admit the truth: the Republican complicity in the great spending spree of the early 21st century has placed our agenda on life-support.

Cafe Hayek: Sunstein on Sovereignty I

Don Boudreaux offers important comments concerning The Second Bill of Rights by Cass Sunstein:

The first part of Sunstein’s argument is undeniably correct: law is indeed necessary for order, freedom, and prosperity. But he’s factually incorrect that government is the exclusive source of law. Indeed, I would argue that government is not even the chief source of law, nor a particularly good source of law.
. . . . . . . . .
Over the centuries, this fractured sovereignty (although giving way somewhat to greater centralization of power in the 16th and 17th centuries) – this competitive struggle among different sources of law – produced a complex law that is the product of no sovereign. Instead, it is truly and very largely the product of spontaneous order. It is the result of human action but not of sovereign design. It evolved; it was not created.

CU Tuition (Price) Discrimination

The University of Colorado recently proposed increasing tuition for in-state students by 28%. The response by the Governor and by other state politicians was not very supportive. Today we hear in the news that CU is considering a compromise proposal:

The University of Colorado may cut a 28 percent tuition increase nearly in half for students whose families make less than $80,000 a year, under a proposal floated Monday.

CU officials scrambled to find a compromise to satisfy state officials who have threatened to block the tuition hike. Earlier this month, CU announced a variety of tuition hikes, including a 28 percent increase that applies to many in-state undergraduates - including all students in arts and sciences - on the Boulder campus this fall.

Gov. Bill Owens and the Colorado Commission on Higher Education want to cut the amount the legislature had authorized CU to raise by increasing tuition. CU was initially allowed through this spending authority to raise $43.5 million, but the governor and the CCHE earlier this month asked the Joint Budget Committee of the legislature to rescind $13.8 million of that amount.

The Joint Budget Committee is scheduled to consider that request today.

The main proposal CU is contemplating is to lower the 28 percent tuition increase to 15 percent for students whose family income is less than $80,000 a year, according to sources familiar with the proposal. It would also lower tuition for other in-state students who were facing tuition increases of more than 15 percent. In addition, the plan would also increase money for financial aid for middle-class students.

It seems to me the compromise proposal means that CU would practice price discrimination. Does it seem right to allow a government agency to price discriminate, or to charge different students a different price for the same educational service? Should one student in a microeconomics course be charged a higher price (or tuition) to sit in the same classroom and hear the same lecture as another student? Or should all students be charged the same price?

Freedom

Must the citizen ever for a moment, or in the least degree, resign his conscience to the legislator? Why has every man a conscience then? I think that we should be men first, and subjects afterwards. It is not desirable to cultivate a respect for the law, so much as for the right. The only obligation which I have a right to assume is to do at any time what I think right.

This is Henry David Thoreau in "Civil Disobedience." Comments?

Congress likely to define war detainees

Congress is likely to step into the operation of the Guantanamo Bay detention center with legislation on how the U.S. should legally categorize an unorthodox enemy.

Fitting the enemy in the war on terror into the proper niche is challenging. Al Qaeda terrorists do not wear a uniform. They target civilians and never signed the Geneva Convention governing the treatment of wartime detainees.

This comes from an article in the Washington Times . I want to say that such Congressional action would be unconstitutional. The Constitution lists specific expressed powers that are granted to Congress, and that list does not include making legal categories of this sort. The list does include the power to declare war. I'm thinking that when Congress declares war it is also defining an enemy, and further that in defining an enemy, Congress would be creating the legal catetory mentioned by the news article. Once war is declared, then I believe the Constitution gives great power to the President as Commander in Chief, and included in this Presidential power is the power to decide what happens on the battle field, including what happens to those captured on the battle field. Unfortunately, Congress seems reluctant to carry out its Constitutional power to declare war. Instead, Congress likes to pass War Powers legislation which purports to give the President the power to do things like invade Iraq. Perhaps those in Congress prefer hiding behind War Powers legislation because they can later criticise the President for a war if they see public opinion turning. Personally I would say War Powers legislation is unconstitutional. It seems to me that "declaring war" is a formal act of Congress that says the United States will now be at war with X. I think this is the Constitutional way of doing the things in question. Congress declares war on terrorist groups, in this case, especially terrorist groups who have declared their own war on the United States or who have taken credit for attacking U.S. citizens. The President or Commander in Chief then prosecutes the war and deals with the enemy on the battlefield and the Commander in Chief also deals with those captured as enemy on the battlefield.

The country is already fighting this war, even if undeclared by Congress. There doesn't seem to be a large groundswell of sentiment accusing the President of conducting an unconstitutional war. Therefore, Congress must already think it has given the President the requisite power to prosecute our war on terror, and this requisite power seems to me to include the power to decide what happens to the captured enemy.

Any one else agree with me?

Constitution & Gitmo

These days we are hearing quite a bit of political discussion regarding detainees at GITMO. On June 15 the Senate Judiciary Committee held a hearing on this topic. What follows are comments from the statement made by William Barr at that hearing.

"The United States is detaining all these individuals simply by virtue of their status as enemy combatants. The essence of war is the destruction of the enemy’s forces – either by killing them or capturing them. When the American military captures and holds hostile forces, it does not do so as a punishment or as a prelude to eventual punishment. Our purpose is to incapacitate the enemy by eliminating their forces from the battlefield. Captured enemy forces are normally detained for as long as the enemy continues the fight."

"The determination that a particular foreign person seized on the battlefield is an enemy combatant has always been recognized as a matter committed to the sound judgment of the Commander in Chief and his military forces. There has never been a requirement that our military engage in evidentiary proceedings to establish that each individual captured is, in fact, an enemy combatant. . . ."

"As to the detention of enemy combatants, World War II provides a dramatic example. During that war, we held hundreds of thousands of German and Italian prisoners in detention camps within the United States. These foreign prisoners were not charged with anything; they were not entitled to lawyers; they were not given access to U.S. courts; and the American military was not required to engage in evidentiary proceedings to establish that each was a combatant. They were held until victory was achieved, at which time they were repatriated. . . . "

It seems to me that much of the public conversation that is critical of US actions at GITMO are based upon an assumption that detainees are like people arrested in the US as suspects in crimes. Mr. Barr says this is not the case, and he also points to the experience in WWII to provide perspective. I think Mr. Barr is correct. What do you think? If Mr. Barr is not correct, then did the US make mistakes in its treatment of POWs in WWII?

"I am aware of no legal precedent that supports the proposition that foreign persons confronted by U.S. troops in the zone of battle have Fifth Amendment rights that they can assert against the American troops. . . . ."

. . . . .

"The situation is entirely different in armed conflict where the entire nation faces an external threat. In armed conflict, the body politic is not using its domestic disciplinary powers to sanction an errant member, rather it is exercising its national defense powers to neutralize the external threat and preserve the very foundation of all our civil liberties. Here the Constitution is not concerned with handicapping the government to preserve other values. Rather it is designed to maximize the government’s efficiency to achieve victory – even at the cost of “collateral damage” that would be unacceptable in the domestic realm. . . . "

It seems to me that Mr. Barr's discussion is pretty solidly within the framework of individual liberty. From the liberty perspective we want our national government to be primarily interested in protecting us from harm by people living outside our system of political economy. As such, the rights and liberties we believe we hold as individual members of the United States, are not really rights and liberties we extend to people captured in war, if for no other reason than they are not citizens of the United States and therefore they are not, in principle, parties to our "social contract." Do you agree? Or, does the framework of individual liberty suggest that our government should be taking a different approach than the approach described by Mr. Barr?

Smoking Bans & Externalities

I want to follow up on the discussion over at The Volokh Conspiracy that was started by Orin Kerr yesterday regarding smoking bans. I also posted on this discussion yesterday from the perspective of individual liberty. The issue of externality market failure seems to be a significant part of the discussion. For example:

There is a market failure because the major cost of a smoking bar - smelly clothes and hair - occurs after a short period of time. Since people typically go to several bars in one night, the value of any single bar being non-smoking is compromised. Thus, bar owners have an incentive to orient their bar towards the interests of smokers, who will always prefer a smoking bar instead of towards non-smokers who will only prefer a non-smoking bar if all of the bars they will be attending are nonsmoking. Aside from distorting incentives for any particular bar, this also creates an entry barrier for non-smoking bars as there must be several such bars before the value addedby being non-smoking can be realized. The result is that virtually no bars are non-smoking in cities where smoking is permitted.

Since the market cannot properly serve consumer preferences, the real question in terms of efficient allocation of resources to meet consumer preferences is whether the preferences of non-smoking bar goers to not be subjected to smokey clothes is greater than the preferences of smoking bar-goers to be able to smoke in bars. Unfortunately this issue cannot be fairly decided electorally becasue numerous non bar goers vote and infrequent bar goers get equal say as regulars. I am not quite sure how to discover this answer.

Also we find:

There are established, emperical economic &social costs to smoking that far, far outweigh anyone's so-called "right to smoke". When the day finally comes--and it will--that smoking is largely forgotten, noone anywhere will miss it.

I suspect that what we have here is a nice example of EXTERNALITY ABUSE.

Consider the idea that the "social costs" far outweigh the "right to smoke." To put this just a bit more in the language of economics, the idea would seem to be that the "social costs" far outweigh the smoker's benefits. Such a suggestion is either incomplete with respect to the idea of externality market failure or it is simply misguided. Actually this sort of statement abounds in policy discussions regarding externality market failure, and it seems to be based on the mistaken belief that any social cost implies an externality market failure. Of course, this is not the case because social cost represents the opportunity cost of using resources in a specific way. This opportunity cost, or social cost, is always positive. So, noting there are social costs has nothing to do with discovering whether there is an externality market failure. Instead, when an externality market failure is present, it will be the case that the marginal social cost exceeds the marginal private cost, and the difference will be the marginal external cost. With an externality market failure there will be a divergence between the marginal social cost and the marginal private cost, where the marginal private cost is the cost perceived within the market.

Consider now the possibility that we do have an externality market failure at issue, which is assumed by the first quotation above. My best definition of an externality market failure is that we have an (1) unintentional, (2) nonmarket (3) interdependence between economic decision makers. In the case of smoking in a restaurant, I suspect that these three elements are not all present. There is certainly an interdependence between a smoker and a nonsmoker in a restaurant that allows smoking. However, it seems to me that we cannot say this interdependence is unintentional. If the smoker and the nonsmoker both voluntarily choose to enter the restaurant, then both these economic decision makers must know there will be the interdependence in question because the smoker chooses to light up. This is really the point you can see made in the comments at Volokh Conspiracy that the nonsmoker has no costs imposed by others because the choice to enter the restaurant is made voluntarily. We might also want to say that the interdependence at issue does not meet the nonmarket condition. The restaurant itself seems to be a market setting. People choose restaurants based upon consideration of a broad range restaurant attributes, which probably include prices, menu items, entertainment, whether children are present, and whether smoking is allowed or not. These attributes essentially define the brand supplied by each specific restaurant, and as such, these attributes are part of the market. The interdependence at issue seems to me to be an intentional market interdependence between smokers and nonsmokers. Therefore, I conclude we do not have an externality market failure to be worried about with this policy issue. (I wonder. . . .I think many people like to eat at restaurants that do not have kids present because they can be noisy and disruptive. If we think that smoking in restaurants represent an externality market failure, then perhaps in the name of correcting market failure we will need public policies that prohibit kids in restaurants as well.)

Let's return briefly to the idea that with a externality market failure there would be a divergence between marginal social cost and marginal private cost. The idea is that there are people not party to market exchanges that are worse off because of the exchanges. This results in some part of the entire social cost of the market activity not being part of the market exchange values. This doesn't seem to be the case with our smoking policy concerns. The so-called external costs are costs "imposed" on nonsmokers in the restaurant. The nonsmokers are themselves part of the market exchange in question. The nonsmokers are well aware of the "costs" they bear when they enter a restaurant with smokers. The nonsmokers will see these costs as part of the price (subjective as it may be) they pay for their choice to eat at a restaurant with smokers. In other words, all of the social costs are perceived by the economic decision makers in these market exchanges, and there is no divergence between marginal social cost and marginal private cost.

Finally, while my analysis is that we do not have an externality market failure to be concerned about, let's suppose that smoking in restaurants could be characterized to involve a negative externality. Would the appropriate economic policy response to correct this market failure be to ban smoking? This is unlikely. If we did have a smoking externality, then we would have something very much like a pollution externality. Consult any microeconomic principles textbook on the question of the optimal (efficient) amount of pollution, and you will discover that in general the optimal amount of pollution is not zero. A smoking ban only makes economic sense if the optimal amount of smoking pollution is zero. For the optimal amount of smoking pollution to be zero it would have to be the case that the marginal damage caused by the first, very little puff of exhaled smoke was greater than the marginal benefit to the smoker of that first drag off the cigarette. This condition is very unlikely to be the case. Instead of a smoking ban, if we assume there is a negative externality involved, the typical policy response that economists look to would be to tax the choice that causes the external cost. By the means of taxation it is then possible to get the optimal (efficient) amount of smoking in the restaurant. If we consider the policy proposal of banning smoking in restaurants from the perspective of the economic idea of an externality market failure, then we are led to be concerned to get the optimal (efficient) amount of smoke in the restaurant. We are not led to argue in favor of no smoke in the restaurant.