Tuesday, May 18, 2010

Following Arguments Where They Lead

In my recent exchange with Robert Frank, I suggested that his view of schooling has important implications for government policy. If, as he argues, schooling is largely or entirely a positional good, something where what matters to the individual is not how good his education is in absolute terms but how it compares with other people's education, one implication is that we are spending far too much on it. The benefit I get from attending Harvard comes mostly, on this view, at the expense of other people who don't attend Harvard and as a result lose out to me in the later competition for jobs, mates, and status.

It follows that the social benefit—individual benefit summed over everyone—of my attending Harvard is much less than the private benefit, hence that individuals will be willing to spend much more on schooling than it is really worth. Putting it differently, it implies that each person's expenditure on schooling imposes negative externalities on other people. Frank appears to believe that this is true not only of money spent on going to Harvard but on the money spent by well off suburban taxpayers on the public schools that their children attend.

The usual view of economists is that acts imposing negative externalities ought to be discouraged, perhaps by taxing them. Schooling, however, is subsidized on an enormous scale, at both the K-12 level and above. So I asked Frank whether, on the basis of his expressed views, he would favor abolishing subsidies to schooling and taxing it instead. He never answered the question, perhaps because he viewed it as a digression from our central argument.

His failure to answer it raises a more general issue, not limited to Robert Frank or even to economists who share his political views. To what extent are they—I really mean we—willing to follow out the implications of our arguments when they lead to political conclusion we don't like?

Nuclear power is the one source of electric power that does not put carbon dioxide into the atmosphere and can be expanded more or less without limit—at a cost not wildly above the cost of power from fossil fuel. That ought to make it very attractive to those who believe that we face a threat of catastrophic proportions from global warming. Some environmentalists agree—most, at least so far as I can judge, do not. Similarly for the idea of geoengineering, holding the earth's temperature down by large scale projects to reduce the amount of sunlight the earth absorbs or to increase absorption of carbon dioxide, perhaps by fertilizing aquatic algae. In each case, there are undoubtedly arguments against as well as arguments for. But the arguments for do not seem to get much attention from those who, on the basis of their expressed views, ought to find them of great interest.

For libertarians, especially libertarian economists, a similar problem is raised by the issues grouped under the label of market failure—situations where individual rationality fails to lead to group rationality. Standard examples include public goods, externalities, adverse selection and private monopoly. In each case, good economic arguments can be made for the claim that interventions by government can lead to an improved outcome. Just as in the environmental case, the arguments are not conclusive; one can accept their validity while offering reasons to reject the conclusion (links to two different talks). But that approach is very different from the attempt to deny or evade the straightforward economic arguments in favor of intervention—as I believe some libertarian economists do. Libertarians who are not economists face a similar set of problems in justifying existing property holdings, many of which were not obtained by the means that libertarian political philosophy, going back to Locke, regards as legitimate.

Readers are invited to submit other examples—ideally ones associated with political positions they are sympathetic to.


Glen Whitman said...

I'm not sure if this is the kind of example you're looking for. But I like to ask libertarians (and I count myself as one) whether they would support government programs, such as welfare or education, if it could be shown empirically that such programs have a greater marginal impact per dollar in crime reduction than do prisons, police, and other traditional forms of law enforcement. Libertarians usually say the latter types of expenditure are acceptable while the former are not; but a tax dollar is a tax dollar, so shouldn't we spend it where we get the greatest bang per buck? (I am not claiming that the empirical claim is true. The question is based on a hypothetical.)

ErolB1 said...

That's a good question about government welfare & education programs. In an anarcho-capitalist setup, I wouldn't mind my insurance/protection agency spending some of my premiums on welfare & education, if it could show that such spending gave a superior bang for the buck.

With a government program, there's the complication that there's no good reason for the government to stop me from contributing to a welfare & education charity if I don't think the government is spending enough on such things. But there is a good reason for the government to stop me if I contribute to a vigilante court & prison charity because I don't think the government is doing enough to convict & punish criminals.

Another issue is whether the government spending $X of my money on police & prisons erodes my freedom more or less than it spending an equal amount of my money on pro-government education/indocrination programs.

Lo Statuz said...

I believe any adult has the right to buy any drug. However, I expect that if antibiotics were available without prescriptions, they would be so overused that they would become worthless, since many people would take them in ways that select for drug-resistant pathogens. Even with prescriptions, this is already happening to an alarming extent. Drug companies don't make much money on antibiotics that don't work, so they might invent some alternative institution. If not, I'm lead to conclude that antibiotics should require prescriptions (and thus laws about who can write prescriptions).

Assistant Village Idiot said...

You attribute the reluctance to accept nuclear power to rational actors who wish to reduce carbon emissions but are simply misinformed about the best way to do that. I suggest that much of the advocacy for carbon-reduction derives more from the cultural changes they hope would result.