Costs and Costs

Are you more likely to brave a snowstorm and drive to a concert if you had already paid $50 for a non-refundable ticket than you would have if you were given that same ticket from a friend?  My guess is that many people (me included) would answer yes.  This might help explain why Mark Sanchez will take the field for the N.Y. Jets on opening day.

Video: Jeff Miron on drug legalization

Harvard economist Jeffrey Miron is perhaps the world’s foremost expert on the economics of drug prohibition and legalization. In November 2010, we were pleased to host Dr. Miron for a lecture at UD. To view his presentation, copy the following into your web browser.


Note: Works in Internet Explorer, works at least sometimes in Firefox, but does not seem to work in Chrome.

With responsibility comes freedom

Many scholars, such as F.A. Hayek in his book The Road to Serfdom, have explained that political and personal freedom cannot survive without economic freedom. The argument, however, is an intellectual one, typically presented in mostly abstract terms. And unfortunately, the abstract concept cannot easily compete with the raw emotional propaganda trafficked by the enemies of economic freedom. As a consequence, most people continue to believe that government can expand its control of the economy without threatening political and personal freedom. The folly of this view is best revealed through example, for as Edmund Burke observed, “Example is the school of mankind, and they will learn at no other.”

Consider, therefore, the treat to freedom posed specifically by government control over the provision of health care. In the United States, government has already taken responsibility for about half of all spending on health care, and the enactment of Obamacare is certain to increase this figure substantially. Does government control over health care pose a threat to liberty? Well, just this week come two news stories suggesting that government is preparing a crackdown on smokers and others with unhealthy habits.

First, Oregon’s state legislature is considering a bill to make cigarettes a controlled substance, requiring a physician’s prescription.

The bill would force all cigarette smokers to carry a prescription from a doctor or face jail time. Offenders of the proposed law would face maximum punishments of one year in prison, a $6,250 fine or both, Fox 12 Oregon reports.

The article includes the following quote from another sterling product of our school system.

“I hope it passes, and I hope people actually think about it,” said Rick Cannon of Salem. “You know there’s less and less smokers everyday because they know how bad it is for them, so I just hope people wake up and realize how bad it actually is for them.”

And if people don’t “wake up,” Rick Cannon of Salem is apparently perfectly happy to wake them up with fines of up to $6,250 and/or imprisonment for up to one year. Feel the love!

In addition to smokers, the following Associated Press piece extends the love to those who are overweight or obese. They too will have to get with the program.

If 1 in 5 U.S. adults smoke, and 1 in 3 are obese, why not just get off their backs and let them go on with their (probably shortened) lives? Because it’s not just about them, say some health economists, bioethicists and public health researchers. “Your freedom is likely to be someone else’s harm,” said Daniel Callahan, senior research scholar at a bioethics think-tank, the Hastings Center….

“When you ban smoking in public places, you’re protecting everyone’s health, including and especially the nonsmoker,” said S. Jay Olshansky, a professor at the University of Illinois-Chicago’s School of Public Health. It can be harder to make the same argument about soda-size restrictions or other legislative attempts to discourage excessive calorie consumption, Olshansky added. “When you eat yourself to death, you’re pretty much just harming yourself,” he said.

But that viewpoint doesn’t factor in the burden to everyone else of paying for the diabetes care, heart surgeries and other medical expenses incurred by obese people, noted John Cawley, a health economist at Cornell University. “If I’m obese, the health care costs are not totally borne by me. They’re borne by other people in my health insurance plan and – when I’m older – by Medicare,” Cawley said.

Now, in a free society, individuals would be responsible for their own medical costs. And if you are in fact paying for your health care yourself, people can generally agree that smoking a cigarette or eating a pint of ice cream in the privacy of your own home is nobody’s business but your own. “When you eat yourself to death, you’re pretty much just harming yourself.” Indeed, the article correctly points out that

there would be less reason to grouse about unhealthy behaviors by smokers, obese people, motorcycle riders who eschew helmets and other health sinners if they agreed to pay the financial price for their choices.

But the problem is that responsibility for payment has been turned over to government, and he who pays the piper calls the tune. When the public at large, through the state, assumes responsibility for medical costs, any personal behavior that impacts those costs becomes a matter of public interest. Smoking and obesity in particular are perceived to increase the government’s liability for health care costs: “Annual health care costs are roughly $96 billion for smokers and $147 billion for the obese, the government says.” With the public bearing the cost, now smoking that cigarette or eating that ice cream becomes an anti-social act. What had been “your freedom” suddenly becomes “someone else’s harm.” The state will therefore act to suppress those freedoms.

[P]ublic health officials shouldn’t shy away from tough anti-obesity efforts, said Callahan, the bioethicist. Callahan caused a public stir this week with a paper that called for a more aggressive public health campaign that tries to shame and stigmatize overeaters the way past public health campaigns have shamed and stigmatized smokers.

National obesity rates are essentially static, and public health campaigns that gently try to educate people about the benefits of exercise and healthy eating just aren’t working, Callahan argued. We need to get obese people to change their behavior. If they are angry or hurt by it, so be it, he said.

Feel the love! And ponder what is being proposed: An “aggressive public health campaign”–which sounds to us like something that would be funded and implemented by government–that would “shame and stigmatize” a subset of society. Maybe the government’s campaign can coin a convenient catch-all term for those it seeks to shame and stigmatize. “Kulaks,” perhaps. Or maybe “refuseniks.”

In any event, this assault on freedom would never arise in a world where people took responsibility for their own health care. Everyone is familiar with the old saying that “with freedom comes responsibility.” But it may equally be said that with responsibility comes freedom.

A Spending Cut is a Tax Cut

Distinguished Harvard University Professor Robert Barro writes an interesting piece on macroeconomic policy, taxes and long term deficits.  It is well worth reading from start…

One of the many things I learned from Milton Friedman is that the true cost of government is its spending, not its taxes. To put it another way, spending is financed either by current taxes or through borrowing, and borrowing amounts to future taxes, which have almost the same impact on economic performance as current taxes.

to finish…

Indeed, it is nonsense to think that cuts in government spending should be avoided in the “short run” in order to lower the chance of a recession. If a smaller government is a good idea in the long run (as I believe it is), it is also a good idea in the short run.

The Raisin Administrative Committee?

No, I’m not making this up. Here is the story of California raisin farmers Marvin and Laura Horne’s battle with the USDA. What is the dispute about?

In this case, the USDA imposed on the Hornes a “marketing order” demanding that they turn over 47% of their crop without compensation. The order—a much-criticized New Deal relic—forces raisin “handlers” to reserve a certain percentage of their crop “for the account” of the government-backed Raisin Administrative Committee, enabling the government to control the supply and price of raisins on the market.

So government is in the business of enforcing agricultural oligopolies. Maybe someone can help me find where that falls in the enumerated powers of the U.S. Constitution?

Update We wrote about a different USDA administrative committee, the one for spearmint oil, here. Which raises the question, just how many administrative committees does USDA have? And how does somebody land a position on one of these committees? We might be prepared to serve if they have one for Cabernet Sauvignon.

Government FAIL of the day: The (almost) empty school bus

Governments at all levels–local, state, and federal–whine incessantly about not having enough of the taxpayers’ money, and calls ring out for ever higher taxes. But why should governments get even a dime more while they are still mismanaging the money they already have? The mismanagement is in fact so pervasive that it’s hard to think of a single good or service provided by government that gives the taxpayer good value for money. For those of us paying attention, it seems that nearly every day brings news of another government boondoggle.

The latest example comes from New York City, where the New York Times reports that busing children to school costs the city approximately $7,000 per child.

Let’s do the math. The school year has 180 days. Assuming two trips per day, to school and then back home, implies 360 trips. $7,000 divided by 360 trips equals $19.44 per trip. The cost for ‘special needs’ children is even higher–$13,000 per child–presumably because the bus is shorter. That works out to $36.11 per trip. Putting each child in a taxi could hardly cost more. And remember, that’s with taxi rates kept artificially high by the government limiting entry to the market. So government in all its glory has achieved something almost inconceivable–making a ride on a bus more expensive than the resource cost of a ride in a car!

Apparently, the cost inefficiencies largely take the form of sub-optimal bus routes and some kind of union featherbedding that causes buses with a capacity of 60 to run with only a handful of students.

[A] long yellow bus pulled up at Public School 282 in Park Slope, Brooklyn, and the little bodies that popped out could be counted on one hand: Three. The big bus had dropped off part of its cargo earlier, at another school, but in all, 10 children had ridden on a bus fit for about 60.

A similarly large bus pulled up with 17. Finally, a modern-looking bus whose side panel said it could carry 66 children arrived with its passengers: Five children.

“I think in some cases, we have one child on the bus,” said Kathleen Grimm, the city’s deputy schools chancellor for operations.

Running a whole bus for just one child! That doesn’t sound good for the environment. Isn’t government supposed to be protecting the environment from evil capitalists?

In any event, the comments to the article provide evidence that the private sector can indeed provide bus service at a much lower cost.

My kindergarten child goes on a private bus from Brooklyn to a public school in manhattan. Since it is cross-boro, DOE doesn’t pay. The cost per year is $3000. So i know the DOE can get a better deal than almost $7000/per child per year.

The service is great from the driver and matron.

Parents and taxpayers could all “get a better deal” by just giving each parent a voucher for $3,000 to spend on transportation. But don’t hold your breath waiting for that to happen. The fact that the problem has been allowed to grow so bad and for so long suggests that the political system is not very receptive to rational solutions. Government truly is the God that Fails, every day, in thousands of ways, large and small.

TSA Union Gets Sacramento Airport Privatization Revoked

Here is the story.    According to J. David Cox Sr., the American Federation of Government Employees Union National President:

The Sacramento airport authority’s attempt to abandon its public servants in favor of corporations with only profit in mind was short-sighted at best. There simply are some functions too important to be left to companies that would be unaccountable to the American people, and securing American skies is definitely one of them.

Hmmm. So those “corporations” that can earn profits only by efficiently serving the  public can’t be trusted with functions “too important,” but largely unaccountable government employees or “public servants” should be shielded from any private sector competition? Luckily, private businesses are still trusted to provide another important product for the public: food. 

U.S. economic freedom declines for fifth straight year

The Heritage Foundation, in partnership with the Wall Street Journal, has published its latest annual update to the Index of Economic Freedom. The index shows that economic freedom in the U.S. has now decreased for five consecutive years.

The only other advanced economy to have as poor a performance is Ireland. The reason for this decline is excessive government spending, high corporate taxes, regulatory overload, and an erosion in the rule of law.

The index accounts only for developments in 2012, and so does not account for the 2013 tax increases. The authors anticipate that those tax increases will cause a further decline in next year’s index, extending the streak to six consecutive years. America is headed in the wrong direction with no turnaround in sight.

As America becomes less free, we can also expect it to become less fair, as the system increasingly rewards political clout, rather than hard work and ingenuity. Good news, perhaps, for America’s political class, but bad news for honest, hardworking Americans.

Hat tip: Jim McCarthy