Dreaming On
Any post ( “California Dreaming”, below ) that begins with a joke about Canada and ends with a surfing reference probably shouldn’t be taken too seriously. And yet, I think I have a point. If we think about bad local government as a tax on the citizenry, the magnitude of this tax is small relative to other things that determine the quality of life. Which is why I suggested that political theory, in the pragmatic sense of how to design a government so that it functions well, seems not to be a major concern. Of course, government design ties into the bigger question of political theory: what should be the purview of government? As Mike correctly points out, the world has had some bad experiences with crazy political theories (and individuals), but the national debate is not whether we should turn the US into North Korea, it’s whether we should turn it into Canada.
Now, this could matter. GDP per capita in Canada is substantially less than in the United States (take this kind of data with a grain of salt, but it is fine for rough comparisons). And in part, this gap is due to differences in government policies. But let’s not get carried away about how bad it is. I would be happy living in Canada, and indeed, if Vancouver had Los Angeles’s weather, I would prefer it. Of course, this is personal preference - my version of the good life includes sun and the ocean - others may prefer wilderness, or traditional big cities, or whatever, but in any case, it is rarely differences in governments that drives us.
Maybe people in California care less than elsewhere (I know people in DC do care, but I’ve lived inside the Beltway, and its not like anywhere else). I really think that these issues rationally do not matter much for the average person (and since we are writing about this for fun, we are definitely not average). A policy that wastes 50 billion dollars per year still only moves us only a fraction of the way to Canada and can be made up with less than 1% growth in GDP per capita. Of course, there is no reason to do bad policies, and there is the whole Everett Dirkson thing, but I’m not surprised that people do not get excited about political issues.
Oh, and I had some other comments, but the weather is too nice and I think I’ll go to the beach :)
Friday, July 18, 2003
The Wages of Sin Are Death, Prison, and Taxes
Mark Kleiman (here, here, and here) and Juan Non-Volokh (here and here) have been having a polite debate on the subject of alcohol taxation. Click the links to read Iain Murray's and Stuart Buck's comments on the same topic.
Mark’s main point is that alcohol consumption creates a variety of negative externalities, such as drunk driving accidents, increased public health costs, criminality, and so on, and a tax would internalize the externality. His back-of-the-envelope calculations indicate that each beer consumed creates external costs of about $1. Juan replies by emphasizing that a tax would fall on all consumers of alcohol, not just the minority of abusers who create the vast majority of the social ills associated with alcohol (a harm Mark concedes but considers justified on net). Juan also observes that alcohol consumption can also create health benefits in terms of preventing heart disease, and some of that beneficial consumption would be deterred by a tax.
All of this is fine, but I think there’s a point that both Mark and Juan have given inadequate attention. Taxes are by no means the only way to internalize externalities. There are both civil and criminal punishments for the ill effects of drunk driving and other criminal behavior. If you actually cause harm to another person or property, you can be sued in civil court. If you get caught driving drunk, you can lose your license and go to jail. If you’re still allowed to keep your license, your insurance premiums will assuredly rise. Note that all of these types of punishment are focused on the real abusers, not the responsible drinkers. All of these facts indicate that if the external cost of a drink is $1 (Mark’s estimate), the optimal tax would have to be less than $1. To figure out how much less, we would need to calculate the expected dollar value to the consumer of the potential punishments that would result from the marginal drink. And don’t forget that taxes on alcohol already equal about 25% of the net-of-tax value per gallon (the average price per gallon of malt beverage is about $1). So we’re already about 25% of the way to Mark’s estimated external cost, without even having taken into account non-tax punishments.
Mark could still be right about the optimal tax needing to be raised (though not by the whole $1 per drink). The answer depends on two main things: first, the expected dollar-value of jail time, loss of license, and other non-tax punishments; and second, whether you’re willing to assume all policies other than the tax rate remain fixed. If the size of non-tax punishments is increased, the optimal tax will naturally decrease. And keep in mind that some of the “external” costs that Mark cites are not inherently external, such as the public health costs in socialized healthcare systems (like Medicare, Medicaid, and public ERs). As frequent readers of this blog will know, this is one of my hobby horses: when you socialize health costs, you create a political incentive for the regulation and taxation of personal lifestyle choices. Alcohol is but one example; others include eating fatty foods, engaging in high-impact sports, and being sexually promiscuous. Would we also support placing excise taxes on these other activities, which unlike alcohol currently are either untaxed or taxed at the same rate as everything else?
Oh, one other thing: the strategy of setting a tax equal to the marginal external cost only makes sense if the market is actually a competitive one in other respects, so that the price of the product is relatively close to its marginal cost of production. But in the case of alcohol, a slew of state and federal rules protect wholesalers from competition (and the laws also prevent suppliers and retailers from dealing directly with each other -- alcohol products must go through the wholesale sector). As a result, there is good reason to believe that alcohol prices are already a good bit higher than marginal cost of production.
[Note: the statistics I’ve cited here all came from my head, as a result of some research I did about a year ago. They do have original sources, of course, which I could track down if I had to, but I’m too lazy to do it right now.]
Thursday, July 17, 2003
Your Money and Your Life
Julian has an excellent article on the valuation of life up at Reason, with some further ruminations on the subject posted on his personal blog. I have just a couple of comments.
First, as a political matter, I wonder if the EPA’s short-lived plan to discount the value of life for the elderly (for purposes of doing cost-benefit calculations) would have met less opposition if it hadn’t adopted such a sharply discontinuous value of life function. According to Julian, the EPA placed a value of $2.3 on the life of someone over 70, versus a value of $3.7 on the life of someone younger. Well, it’s not like something magical happens at the age of 70. They could just as well have adopted a “years of life saved” metric, without even having to refer to particular lives. The value of your total remaining years of life would consequently decline as you got older, simply because you have fewer of potential years remaining. I wonder why they chose to look at two arbitrarily defined blocks (over 70 and under 70) instead?
Second, in the discussion on his personal blog, Julian takes on the notion of valuing a life by finding out how much money one would accept to avoid a risk. In his example, if someone would take $5K to accept a one in 1000 chance of death, you might think we could just multiply $5K by 1000 to find that the value of life is $5 million. Julian argues that this approach is mistaken because “the function is non-linear, and … asymptotic to infinity as probability approaches one and time-to-demise approaches zero. (In other words, there's no amount you'd take to be killed with certainty five seconds from now.)”
This is all perfectly correct, and it explains why we wouldn’t let a potential murderer just pay a fee of $5 million for the privilege of killing his lover. But it seems to me that, when we’re talking about environmental regulations, product liability, and so on, that the logic works just fine, because we aren’t talking about a certainty of death for any particular individual. We cannot identify in advance the specific person killed by a certain increment of pollution, or saved by the EPA regulation (or liability rule) that prevents that pollution. We only know the specific person after the fact, and sometimes not even then (because we don’t know which death was the marginal death). So in cases like these, it seems perfectly appropriate to value lives in the manner described, because for each individual we are talking about a small risk of death rather than a certainty. One odd implication of this approach, though, is that there may be many different values of life depending on the size and context of the risk. The value of life would presumably be much, much larger for a one in 100 chance of death than for a one in 1000 chance of death. Perhaps it is misleading to call this a “value of life” at all, and we should call it a risk premium instead. But at the aggregrate level, it comes out in the wash: counting $5K one thousand times is functionally equivalent to count $5 million just once.
Contrarian Thought for the Day
The erudite, ever-feisty, eminently readable John Derbyshire on colonialism.
Wednesday, July 16, 2003
Living Libertarian
I sympathize with both Mike and Jim (see the two posts below). I posit that the seeming conflict between their views actually represents a dualism inherent in libertarianism. On the one hand, libertarians tend to be among the most political people you’ll ever meet. They have some of the most definite and vociferous political opinions around, and often as not, they won’t shut up about them. They realize, with Mike, that political institutions make a difference. On the other hand, the substantive content of libertarian belief is that most people should not have to be political. If government would just restrain itself to a narrow set of vital but manageable tasks, regular people could stop thinking about politics and instead focus their energies on the things that really matter in life, like running their businesses, raising their children, and, as Jim indicates, sipping cocktails and watching the surf roll in.
Sometimes I will meet a person who is apathetic about politics, who has very few opinions about politics aside from a good dose of cynicism, but who is just trying to make his own life – and the lives of those around him – better. And I think to myself, “That's libertarianism lived, not argued.”
Californians Love Political Theory
In the post below, Jim Dow claims below that Californians--actually, he says "most people"--don't care about political theory. I don't think that he could be more wrong. Californians may not realize that they care about political theory but they do (at least if they care about maintaining their "Californian" lifestyle).
I spent a not-insignificant amount of time studying political theory specifically and so I may be biased, but let me try and justify why I think political theory is really important. I went to school expecting to study politics but not necessarily theory. Actually, I didn't even really know what theory was. But after taking some introductory classes and talking to some professors I respected, I knew that this was the interesting part of politics, the "head" of the political science.
People live in different ways in different countries in a large measure because of politics. Why should we suppose that life on one side of the Baja peninsula (in California) is so different than life on the other side (in Mexico)? Is it because of the genetic make-up of the people? We know too much science to believe that. Is it because of pre-existing cultural conditions? Perhaps there is some of that. Do natural resources and geographic circumstances make a difference? Sure. But much of the difference can be attributed to the laws and institutions that exist on different sides of the border. And while not all of that is attributable to planning, deliberation, and public reasoning--some of it is spontaneous--much of it is attributable to paths that we have taken consciously. So politics matters. What governs politics? Political theory, of course. While political philosophy may be more rigorous, it is too abstract and rigid to carry into the process of formulation. Political theory discusses what we want from society, defines our vision of the good life, makes claims about what human beings are like, and tries to delineate our obligations to one another. It also does 1,001 other things.
Why is life so much different in North Korea than in South? In the former East Germany than in former West Germany? In South Africa vs. Zimbabwe?
Our instinct might be to turn towards institutions, laws, cultural norms, natural resources, geographic situation, historical records--anything that we can touch.
But we ought to focus our attention elsewhere, turning our gaze somewhat higher. What motivates men to govern each other in such-and-such a way? What is their organizing principle? Do they believe in laws that apply equally to all or do they believe in commands given by rulers to subservients? Do they value individuals? Do they value groups? Which groups are valuable to them? Do they have an organic or a positivist vision of the state? Do they even believe in states or do they believe in the unity of their ethnicity or fellow religious believers?
Political theory studies their beliefs, which in turn governs their political actions which, for better or worse, provides the framework for their society in which to flourish or whither.
To answer Jim's final (and probably rhetorical) question: I hear that the weather's great in Cuba but I still wouldn't want to live there.
Tuesday, July 15, 2003
California Dreaming
The joke about Canada goes like this: Canada could have had American ingenuity, French culture and English government, but instead it ended up with English ingenuity, American culture and French government. I was thinking about this as I was sitting in a restaurant on the beach in Los Angeles. California has managed to combine the French version of the good life (sitting outside in a café drinking wine) with American ingenuity (computers, biotech, entertainment). But somehow we haven’t managed to get the third part right. Not only did we not get English government, we ended up with Italian government!
But if you could only get two right, I think we picked the right two. Which is maybe why most people don’t really care about political theories. Libertarian, communitarian, goofytarian; how can it matter when the sun is shining and the surf is high?
Monday, July 14, 2003
Revelation Rumination
What is the difference between an atheist and an agnostic? The simple answer is that the atheist denies the existence God, whereas the agnostic neither denies nor affirms the existence of God. But the line between these two is not so easily drawn. Consider the “spectrum of non-belief,” which measures the percent likelihood that one assigns to the non-existence of God. Someone with a score of 0% is a true believer in God. Someone with a score of 100% would clearly be an atheist. But what interval on this spectrum corresponds to the agnostics? Where are the dividing lines?
Interestingly, I’ve found that self-identifying atheists and agnostics both draw the lines so as to maximize the size of their own group. Thus, atheists tell me than any score of greater than 50% qualifies you as an atheist, because you think it’s more likely than not that God doesn’t exist. Meanwhile, agnostics tell me that any score less than 100% (and greater than either 0% or 50% -- I haven’t quizzed them on that end of the spectrum) qualifies you as an agnostic, because you place some probability, however small, on the possibility of God existing. Since I’m at about the 99.99%mark, I would meet both definitions, thereby qualifying as both an atheist and an agnostic.
My friend Bob proposes a sensible rule: you are an atheist if the possibility of God’s existence doesn’t actually affect your life in any concrete way. In other words, if you received definitive proof of God’s non-existence tomorrow, would your behavior change? In my case, the answer is no, because my behavior is unaffected by that 0.01% chance. But even this rule is subject to quibbling. For me, the main reason my behavior wouldn’t change is that the probability is just too small. But we can imagine other reasons for God’s possible existence not affecting you. For instance, you might think that theological ethics and secular ethics make identical demands, and so even a large change in your score on the non-belief spectrum wouldn’t make a difference. Or you might observe (correctly, I think) that believing God might exist is a far cry from knowing what he wants from you, and thus your behavior must still be guided by secular reasoning. And both of these reasons for your behavior being unaffected by the possibility of God are perfectly consistent with agnosticism or even theism.
Incidentally, here’s a great article by Daniel Dennett on defending the rights of agnostics and atheists, whom he refers to collectively as “brights.” Thanks to Radley for the pointer.