11 Oct 2010


Economics, Shameless Self-Promotion 5 Comments

* Goodness gracious, great balls of fire in the geeconosphere. Sis, boom, bah.

* This slipped through the cracks: A podcast with Patrick Donohoe, who is big into the whole life movement. (Doesn’t it sound like a New Agey thing?)

* I warned Bryan that if he didn’t retract his statement that the “first-best” policy for education would be to tax it, that I would write a Mises Daily. I am a man of my word. Here’s the punchline:

At bottom, I think what’s really going on here is that Caplan is trying to tell people that he thinks a person’s decision to purchase more schooling can negatively impact other people. But instead of saying that, Caplan says, “A first-best efficient education policy would actually tax education.”

Yet notice that Caplan could just as easily have written, “An optimal solution to education would actually involve gang members randomly beating up college freshmen.” I am not exaggerating. Caplan’s statement is literally equivalent to my own suggestion in terms of both the economic analysis and even his own (practical and moral) misgivings.

I am not kidding; I really think our proposals are very close. And I addressed at least one loose end in a geeky footnote:

Purists might object to my analogy, because (they learned in grad school) that a government transfer payment is neutral in terms of Kaldor-Hicks efficiency, whereas a gang beating doesn’t seem to be. In other words, if the government taxes a college freshman $500 for going to school, then the freshman is down $500 but the government is up $500, so it’s apparently a wash. In contrast, if a gang member beats up that same freshman, then he imposes harms that are not offset by gains to anybody in society. Hence the “efficiency” of the tax, in correcting the alleged market failure. But this analysis is wrong. In the real world, the government doesn’t gain $500 in disposable income for every $500 it takes from citizens, if for no other reason than the salaries it has to pay bureaucrats at the IRS. Furthermore, in what possible sense is it “efficient” for the government to have $500 more to spend? Since the US government in actual practice uses its funds to impose all sorts of “negative externalities” on people all over the world, even on Caplan’s own terms, it’s not at all clear that extra money in the government’s coffers should be construed as a “social gain.” Finally, for all we know the gang members would be willing to pay more to beat up freshmen than those same freshmen would be willing to pay to avoid the beating. (Maybe the students will get sympathy from their girlfriends or professors and get excused from a hard test.) So we see that, literally, the differences between Caplan’s proposal and mine are merely empirical; they are qualitatively equivalent in terms of the mainstream economic analysis.

As I said, I am being serious. A bunch of professional economists read this blog. If you would never in a million years say with a straight face, “A first-best efficient policy would involve gang members beating up people,” then why can you say that the US federal government should impose a new tax? If anything, I prefer the former policy recommendation.

5 Responses to “Potpourri”

  1. Bob Roddis says:

    This comment is mere potpourri.

    Bob, are you aware of Victor Aguilar’s poem about you?

    Troll sat alone on his seat of stone,
    And critiqued what the Austrians did enthrone;
    For Hayek had got his triangle backwards, clear
    But a rebuttal was hard to come by.
    Done by! Gum by!
    In a cave in the hills he dwelt alone,
    And a rebuttal was hard to come by.

    Up came Bob with his big boots on.
    Said he to Troll: “Pray, what is yon?
    It looks like Prices n’ Production o’ my nuncle Fritz.
    As should be a-lyin’ in the graveyard.
    Caveyard! Paveyard!
    This many a year has Fritz been gone,
    And I thought his books were lyin’ in the graveyard.”

    “My lad,” said Troll, “Hayek’s triangle you extol
    But what be a theory with a logical hole?
    Thy nuncle was dead as a lump o’ lead,
    Afore I wrote my Critique.
    Weak! Shriek!
    He can spare a share for a poor old troll,
    For he don’t need his theory whole.”

    Said Bob: “I don’t see why the likes o’ thee
    Without axin’ leave should go makin’ free
    With the books or the larning o’ the Austrian’s kin;
    So hand the old book over!
    Rover! Trover!
    Though dead he be, it belongs to he;
    So hand the old book over!”


    For reference, this poem mentions the following literature:

    Prices and Production by Friedrich Hayek, 1935

    Critique of Austrian Economics by Victor Aguilar, 2004

    A Reply to Aguilar by Robert Murphy, 2007

    A Rejoinder to Mr. Murphy by Victor Aguilar, 2007

    Capitulation by Robert Murphy, 2007

    Gold Does Not Have Intrinsic Value by Victor Aguilar, 2008



    • bobmurphy says:

      No, I had not seen that. I’m not sure what to say.

      • Bob Roddis says:

        Probably best to say nothing.

        At least it wasn’t a song on youtube:)

  2. Kathryn says:

    Why is everyone assuming that fire service has to be subscription based and that, therefore, there will be non-subscribers (or am I taking these posts too literally)?

    If mice infest my home, I call an exterminator. I can sign up for an all inclusive contract with them that starts effective that day, or I can just pay for the one day of service. I don’t need to have a prior relationship with them. (Mice, like fires, can spread to my neighbors’ houses…I know it’s not a perfect analogy, but I’m just wondering why there seems to be a lack of imagination.)

  3. Bob Roddis says:

    Even under the “optional payment” model in that Tennessee town, they could have made the rule such that one needed to take positive steps to opt out and could have added the fee to the property tax bill. That’s what they do with unpaid water bills in my Detroit suburb. You pay it off when you pay your mortgage.

    On the debit side of the “wonders of government”, I was watching one of those MSNBC crime shows yesterday. Two teenage girls were grabbed off the street and forced into prostitution in Toledo, Ohio. On the 9th day, one of the girls was found being forced to have sex at a Michigan truck stop near Toledo. She told the cops and the other girl’s dad where the other girl was being held in Toledo (apparently, the state line created a jurisdiction problem.) The other girl’s dad then drove to that house and repeatedly called 911 which said that this was not a priority. The dad then went to the door with a crowbar. The kidnapper came out and started beating the dad with the crowbar. The kidnapped girl was then dumped out of the second floor window. Neighbors repeatedly called police about the beating of the dad. It took the cops 20 more minutes to the get there. The kidnapper got 8 years.

    These links appears to be a milder version of the same story: