The Victim Costs of Illegal Drug Use

Many types of narcotics are illegal in the U.S. Through the threat of jail time, the government attempts to limit the use of certain types of drugs. At some point, however, the costs of preventing drug use begin to outweigh the benefits of this prevention. Therefore, policy decisions must be made that account for the respective benefits and costs, and that utilize preventative resources in the most efficient way possible.

What are the most important and relevant costs that should be accounted for in these decisions? An economic analysis of crime prevention would emphasize focusing on the prevention of crimes that yield high victim costs (i.e. injury, recovery time, lost property, etc.). If the primary benefit of crime prevention is the reduction of victim costs, then effort and capital should primarily be utilized to limit the crimes that hurt victims the most. It would not make economic sense to incur high costs in order to acquire inconsequential benefits, and similarly, it is inefficient to spend tons of tax dollars in order to limit insignificant victim costs from crime.

This gets back to the original topic of drug use prevention. If crime prevention should primarily be based upon limiting victim costs, then analysis of drug laws should similarly focus on the victims of drug use. So, who are the victims of drug use?

One potential victim of illegal drug use is “society.” As a somewhat abstract collection of individuals, it is difficult to genuinely assess these potential costs. However, many would argue that society is harmed by drug use in terms of lost productivity from unemployable addicts. Further, there are negative externalities such as violence that are often associated with drug use.

Another potential victim of illegal drug would be the friends and family members of drug users. As identifiable individuals, the effects on this group of people are much more concrete and quantifiable. The potential harm to this group of people ranges anywhere from physical abuse to lack of monetary provision. It should be noted, however, that drug use does not necessitate the existence of these negative effects. While violence and other costs might often be caused by drug use, they are not universally caused by all drug use. Further, there are already laws that exist to prevent many of these effects (i.e. abuse).

A final potential victim of drug use is the user himself. Of all the groups discussed so far, drug users experience the most direct negative effects of their decision to use drugs. From decreased health to diminished employability, drug users endure the most certain and significant costs of their decision.

If, as I would argue, the drug user is the primary victim of drug crimes, then there are significant problems and inconsistencies with current drug laws in the U.S. Why is the victim being punished for the crime? By using drugs, these individuals harm themselves in many ways and the penalty of prison time imposes additional harm onto these drug users. We don’t impose prison sentences on victims of other crimes, rather, we seek to restore victims and limit their future harm. Therefore, this practice of punishing drug users for harming themselves seems absurd.

Even if you would disagree with my prior analysis and argue that society and/or the friends and family of drug users are the primary victims, there are still significant problems with the current policy. After all, the drug user’s prison time is financed by the very group that he supposedly harms by using drugs. Therefore, rather than restoring these victims for the initial costs of the drug use, taxpayers (namely, society and/or the friends and family) are charged with higher taxes in order to punish the user. And while this punishment may limit some of the negative effects of his initial drug use (such as abuse or violence), it will not provide restitution for the loss of provision to the family or the lack of productivity to society.

I realize that this can be a sensitive issue and I do not intend to offend anybody who has personally dealt with any of the potentially awful effects of drug use. Further, I realize that a stoical analysis of benefits and costs could come across as insensitive and I want to reiterate that this was not my intention. And I also want to note that from a moral perspective, I would never advocate the use of many of these types of drugs. However, I do believe that there are problems with current U.S. anti-drug policies that should be pointed out.

There is a lot more that could be discussed regarding this issue, much of which I am not qualified to expound upon. I did not describe any alternative policies, although there are many that would be more efficient and equitable than the current policies. I did not discuss the particular misplaced incentives, unintended consequences, or specific economic problems that exist in the current anti-drug environment. Furthermore, I did not consider the moral aspect of drug use and the government’s role in legislating behavior. This is a complex matter that would require more than a mere blogpost to fully analyze. That being said, I intended to discuss one aspect of the war on drugs and hopefully, you found it interesting and thought-provoking.

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As usual, feel free to leave a comment or send me an email. I’d love to hear your feedback and thoughts regarding this post. Thanks for reading!

Inflation & Taxation: A Consideration of the Validity of Certain Government Actions

It can be challenging to critique government action. Although anybody can proclaim that they disapprove of a piece of legislation, determining a basis upon which to judge the validity of government behavior can be difficult. After all, since government creates the law, unless it breaks its own rules, evaluating the legality of government action is unhelpful.*

Besides analyzing the legality of government action, however, are there higher laws that would establish the morality of government action? Specifically, what gives government moral justification to perform actions that are legally and morally discouraged at the individual level? This is a complex philosophical issue which is beyond the scope of this blogpost. However, in the remainder of this post, I want to use these questions to analyze a couple of actions that are illegal and immoral at the individual level, but generally accepted when performed by the government.

Does the fact that an action is being performed by the government rather than the individual make it morally permissible? If not, how does one make the distinction between moral and immoral government action? While I am not necessarily going to answer these questions in this post, think about them as you consider the rest of this discussion.

Notes:

*[Admittedly, the U.S. government routinely violates constitutional law and I’m sure other governments behave similarly at times. However, although that would be an interesting topic for another discussion, I did not attempt to analyze the issue of the legality of government action in this blogpost. I merely wanted to mention this matter to set up the rest of my post.]

Inflation

Inflation is a widely accepted negative inevitability. Nobody really likes inflation but at the same time, nobody is really motivated to get rid of it. It is generally expected that it will continue to exist and is often attributed to greedy business systematically raising their prices. However, as historian and economist, Murray Rothbard, notes, “If businessmen are so avaricious as to jack up prices 10 percent per year, why do they stop there? Why do they wait; why don’t they raise prices by 50 percent, or double or triple them immediately? What holds them back?” (“For a New Liberty” page 217). The answer to Rothbard’s final question is that consumers hold back businesses from operating in this way. After all, businesses (generally) cannot force consumers to buy their goods, regardless of the price being charged. Therefore, this is not a convincing explanation for the existence of inflation.

So what does cause inflation? Well, without getting into the technical intricacies of monetary policy, the simple answer is that the government causes inflation by increasing the supply of money. This increase in the supply of money causes the value of existing dollars to decrease. Additionally, the increase in the supply of money held by consumers relaxes their budgetary constraints, increasing their demand for goods. This increased demand causes the higher prices that are generally associated with inflation.

To look at it another way, imagine a world that has only ten units of currency and ten widgets. Each widget is then worth one unit of currency. If someone were to magically create ten additional units of currency and no additional widgets, then the relative price of the widgets would double since the ratio of units of currency to widgets increased. Note that the increased supply of currency was not at all associated with an increase in production.

At an individual level, the creation of currency is known as counterfeiting and is illegal and immoral. After all, by increasing the supply of money, the counterfeiter gains wealth at the expense of others. At its root, counterfeiting is a form of theft in the sense that it devalues the currency held by others. In terms of the immorality of stealing value from others, the Old Testament decries the act of using false weights on numerous occasions as an act of stealing value from others (Leviticus 19:35-36, Deuteronomy 25:13-16, Ezekiel 45:9-10, Hosea 12:7-8, etc.) and counterfeiting is similarly morally reprehensible.

So what gives government the right to do what is illegal and immoral at the individual level? You might say that government has the “greater good” in mind when exercising inflationary policy, but government uses inflation for the same reasons that individuals counterfeit: to increase their wealth at the expense of others. If you believe in human depravity you will likely sympathize with Rothbard’s analysis of the issue, “Since the interest of the counterfeiter is to print as much money as he can get away with, so too will the State print as much money as it can get away with, just as it will employ the power to tax in the same way: to extract as much money as it can without raising too many howls of protest” (“For a New Liberty” page 222). An increased supply of money gives the government an easy method for increasing spending without increasing more obvious taxes and creating these sorts of “howls of protest.”

Thus, inflation is a convenient tax on individuals that will often go unnoticed and will surely not be attributed to government policy by the majority of the population. However, its negative effects are numerous, ranging from decreased savings account values to higher prices. Author R.C. Sproul Jr. sums this topic up nicely, “For a private individual the practice of printing bogus, worthless paper and putting it in circulation is a criminal act, yet it is legal for governments to do it. The practice of inflating the money supply with fiat currency is an act of national theft” (“Biblical Economics” page 105).

Taxation

As an accountant at a public accounting firm, I regularly think about taxes. And based on my interactions with individuals regarding taxation, I want to make two initial observations. First, nobody really likes paying their taxes. It’s a bit ironic that the same people who assert the importance of “contributing to society” will actually complain about doing their part. Second, those affected by high tax rates are actual people, not merely abstract corporations. Seeing a person, with an actual name and a family and a life lose >30% of his/her income is sobering. I want to be clear that the negative effects of taxation on individuals are real, not mere theories or abstractions. (Let me now move beyond this initial appeal to emotion.)

Many of you are likely familiar with the common phrase “taxation is theft.” And although I tend to agree with the sentiments of this phrase, it is a concise but inadequate description of the ideas at hand, which, without further explanation, often causes confusion and/or frustration. That being said, let me explain my thoughts.

Imagine I am a mob boss. I come to your house and demand money from you. Of course (unless you were feeling generous), you would likely turn me away because I have no claim to your money. But I happen to disagree, pointing out that I am actually providing you with a service. In return for your money, I will provide protection and if I do not receive your money, you will “likely” undergo some sort of harm. You would describe this behavior as extortion since you did not ask for my protective services and will be punished for failing to accept and pay for these services. Thus, this type of forced payment is both illegal and immoral at the individual level.*

Nonetheless, this type of extortion is analogous to what government does through taxation. Now you might disagree with me and say that taxes are the cost of living in a free society.** Think of all the public services that one benefits from by paying taxes. However, similar to the situation in the previous paragraph, what if I do not want any of these public services? I still have to pay all of my taxes or face government punishment. What if I only appreciate some public services and would like to only support those services that I need? I still have to pay all of my taxes or face government punishment. Thus, taxation is coercive by definition. On this issue Rothbard notes, “Anyone who persists in thinking of taxation as in some sense a ‘voluntary’ payment can see what happens if he chooses not to pay” (“For a New Liberty” page 62).

(Beyond the blatant issue of the coercive nature of taxation, there are more specific problems with the current tax system. The income tax in and of itself provides a disincentive to work, as more labor leads to a higher tax bill. That’s not even considering the moral issues of taxing the same dollar over and over again. Furthermore, the tax collection process forces employers to act as unpaid tax collectors and forces individuals to work at no pay (or to pay accountants) to verify the correctness of their tax bills. You might not think to describe this process as involuntary servitude, but since millions of individuals are forced to provide labor without any corresponding compensation, it is difficult to accurately describe it otherwise.)

Notes:

*[Since extortion is very similar to theft, I would hope that you wouldn’t question the immorality of it. However, if you need specific examples of the Biblical condemnation of extortion, consider Ezekiel 22 where God denounces Israelites for committing extortion numerous times (vs. 7, 12, 29).]

**[Although, it is interesting to note that individuals do not choose what society they are born into. You might not want to live in a free society, and would prefer to live in a freer society where you don’t have to pay for services you don’t want. Ironically, this is the point where the free society becomes considerably less free and you are thrown into prison, which is quite the opposite of free.]

Conclusion

In the end, you might argue with the points laid out so far by saying that inflation and taxation are inherently different from individual theft because they are performed by the government. This statement would bring us back to one of the questions posed earlier: what gives government moral justification to perform actions that are legally and morally discouraged at the individual level? As science fiction writer Robert Heinlein asked, “Under what circumstances is it moral for a group to do that which is not moral for a member of that group to do alone?” (“Turn Neither to the Right Nor to the Left” page 159).

Without getting too deep into answering this question, it seems that if inflation and taxation are forms of theft, then justification of either of these government actions means affirming that theft is only wrong when performed by certain people. Now, you might dodge this issue by stating that without inflation or taxation, government would not have the funds to run properly. And, while that statement may be true, that is a utilitarian argument that ignores the underlying moral issues. Ultimately, we should not advocate “what works” if “what works” is clearly morally wrong.

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Hopefully, I did not offend too many people with the radical ideas presented here. All in all, I am merely trying to think through many of these issues and formulate a consistent view of government and morality. If you heartily disagree with what I said or were intrigued by this new perspective, I’d love to hear your thoughts. Feel free to leave a comment or send me an email.

For further reading on these topics, check out “For a New Liberty” by Murray Rothbard,  “Biblical Economics” by R.C. Sproul Jr., and “Turn Neither to the Right Nor to the Left” by D. Eric Schansberg.

 

Paternalism, Utility, & Choice

When you were a child, it is likely that your parents told you to behave in certain ways “for your own good.” Out of concern for your safety, they directed you to avoid playing in the streets and sticking your fingers in electrical sockets. Out of concern for your future relationships, they instructed you to avoid unruly behavior at the dinner table and to learn basic manners.

As you grew up and became an adult, maybe the thought of living in a world without this sort of benevolent, careful direction intimidated you? Let me ease your mind and inform you that the friendly federal government is more than willing to take on some of these parental burdens and instruct you on the best possible way to live.

Since you are not able or motivated to adequately plan for your future, you should be encouraged that the Social Security system exists to involuntarily take a portion of your earnings and put it aside for your retirement. Since you may or may not care about preserving your life, you should be relieved that laws exist to force you to wear seatbelts while driving. Since you are quite likely to blow all of your money on lotteries or other betting activities, you should rejoice that the government severely restricts gambling. Since you could seriously damage your health through the use of certain drugs, you should be encouraged that the government has outlawed all sorts of narcotics.*

This sort of behavior on the part of the government is known as paternalism, which can be defined as the practice of subordinating individuals for their own best interest.

According to many economists, however, it is assumed that individuals are rational and already able to make decisions based on their own interests, without additional direction. Individuals maximize their utility (basically their satisfaction, happiness, etc.) by making choices based on a particular set of unique tastes and preferences. This view assumes the following:

a) individuals act based on their self-interests and try to maximize their utility
b) each individual has unique preferences, which means that optimal decisions vary depending on the person involved
b) because of these unique preferences, utility is maximized via choice
d) because of the previous three assumptions, individuals (as opposed to outside forces such as the government) are best able to maximize their own utility**

These assumptions lead to a number of questions/concerns regarding the paternalistic behavior of government.

  1. If people are already motivated to look out for their own interests, why does government need to step in and command individuals to behave “for their own good?” It seems that most people value their lives and would use seatbelts and/or drive carefully without government mandates. Similarly, if saving money for retirement is a wise, self-beneficial thing to do, it seems that most people would do this on their own. If people chose not to put money aside for retirement, this would reflect unique utility-maximizing preferences on the part of the individuals involved. Maybe these people do not expect to live into retirement, see no purpose in saving money for the future, and thus, have a very different idea on how to maximize utility than the government. This leads to the next question.
  2. Assuming the government’s view of an individual’s “best interest” is different than the individual’s view, what qualifies the government to make this distinction? Do we believe that a small, elected group of people have somehow been enlightened to know how millions of others should live for their own good? For example, drinking a large soda will likely have negative effects on my health in the future. But maybe I value the present benefits of this decision over the future costs. The government is free to say that my decision is unwise and inform me of the consequences of my action, but can they legitimately say that my decision to drink a large soft drink is not out of my own interest? Can they truly say that I would be happier foregoing the soda in order to (potentially) live a longer, healthier life?
  3. If individuals maximize their utility through choice, how do inflexible mandates really allow individuals to act “for their own good?” If unique preferences and situations dictate differing decision-making criteria, how do one-size-fits-all commands allow individuals to maximize their utility? Let’s say that preventing an addict from gambling actually works. Due to legal restrictions, this person no longer wastes his/her money and makes more prudent financial decisions. What about the person who has the self-control to place a few bets here or there without causing complete financial ruin? The inexact, unnuanced nature of the law forces all people to behave in ways that might benefit some, while simultaneously hurting others.
  4. Do these paternalistic laws actually work to benefit people?
    – I will probably never see any of the Social Security tax that is being withheld from my paycheck. In terms of aiding me in planning for my retirement, the mere non-existence of the Social Security system, which is a drain on my income, would be incredibly beneficial. If I did not have to pay into such a broken system, I would have additional money to set aside for the future, invest, and earn interest.
    – On another note, do seatbelt laws actually help promote safety? Research has shown that these laws have no effect on driver safety and have a negative effect on pedestrian safety.
    – In terms of gambling, it seems that if I’m determined to blow my paycheck, I have many other opportunities besides betting. That’s not even considering the moral inconsistencies that come into the picture when outlawing certain types of gambling, while only allowing government-regulated gambling activities. If the government is truly concerned about the dangers of gambling addiction, why do they even allow any forms of gambling?
    – It seems that even if the answers to the first three questions necessitate government involvement, the actual results of these paternalistic laws show that this type of intervention has been far from effective.
  5. Does government actually have the right to order people to act “for their own good?” This is a complex question, which would take a considerable amount of time to answer fully. To briefly deal with it, I would argue that people have a right to use their life and property how they see fit and government infringement on these rights necessitates substantial justification, in order to be deemed appropriate (if ever). Furthermore, small paternalistic steps to micromanage and shape certain aspects society can lead to increased government power and future abuses and injustices. Along these lines, economist and historian, Murry Rothbard, argues that paternalism “leads straight down the logical garden path to [a] totalitarian cage, where people are prohibited from eating candy and are forced to eat yogurt ‘for their own good'” (from “For A New Liberty,” page 136). As noted earlier, one’s own good (from an economic standpoint) can be quite subjective and by allowing the government to legislate utility-maximization, we create numerous opportunities for tyrannical, unnecessary legislation.

Let me conclude by clarifying that I am not advocating moral relativism of any sort. I believe that moral absolutes exist regardless of personal feelings. However, analyzing actions from a moral perspective is different than analyzing them based on the amount of personal utility derived from the action. A murderer can derive significant satisfaction from a blatantly immoral action, making it easy to label this action as immoral, but impossible to say that this individual failed to maximize self-interest.***

And even if a person makes a decision without fully realizing some of the benefits or costs, it makes much more sense to use persuasive means than coercive means to attempt to alter behavior. For if a person is rational and an action will truly be self-beneficial, why would that person need to be forced to perform the action?

This gets to the heart of paternalistic legislation, which revolves around the government’s arrogant assumption that individuals cannot make rational, self-beneficial decisions for themselves. To end where this post began, good parents order their children to do things for their own benefit when they are young. But as these children grow up and become adults, parents tend to take on advisory roles, rather than purely authoritarian positions, allowing their children to make their own decision. The federal government, on the other hand, does not affirm individual rationality and capability and continues to treat individuals as children, even into adulthood.

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Hopefully, this post made you think a little bit. I did not intend to fully deal with all of the topics mentioned, but rather, give a brief overview of a few issues that I have been thinking about lately. Whether you support government paternalism or agree with my critiques, I’d love to hear what you have to say. Feel free to send me an email or leave a comment below. Thanks!

NOTES:

*Some of the laws mentioned here may have other non-paternalistic motives behind them. For example, prohibitions on drug use may be motivated by protecting society or limited some of the negative externalities created by drug use (i.e violence). However, in this post, I am limiting my analysis to the area of paternalism. Therefore, any analysis of these other issues/motivations will have to be dealt with at a later time.

**I’ll try to illustrate these four assumptions using a real world situation. When going to an ice cream parlor individuals act based on their self-interests and try to maximize their utility by choosing their favorite flavor of ice cream. If you’ve been craving cookies and cream ice cream, it makes sense that you would choose that flavor. Additionally, each individual has unique preferences, which means that optimal decisions vary depending on the person involved. So although you might desire cookies and cream, not everybody will share that preference. Therefore, because of these unique preferences, utility is maximized via choice. If you are not able to choose the flavor that you prefer, chances are you will be unhappy, or at least less happy than you would have been if you were allowed to choose. Because of the previous three assumptions, individuals (as opposed to outside forces) are best able to maximize their own utility. If your friend has to pick your ice cream for you, he/she may not choose the flavor that you prefer. Even worse, if someone who doesn’t know you chooses the flavor for you, you are even more likely to be disappointed by the ice cream selection. The worst situation, however, would be someone, without intimate knowledge of the individuals involved, choosing one flavor that everybody has to consume.

***Hopefully it is clear that when I refer to individuals acting “for their own good,” I am referring to an economic weighing of benefits and costs that vary depending on the individual and the situation. This is not to discount the existence of moral/spiritual absolutes which would declare certain actions “good” and other actions “bad.” And if, in the cases discussed, the government were legislating purely based on these moral absolutes, that would be one thing (and that would lead to questions about government’s role in legislating morality, etc.). However, this post is limited to analyzing legislation that forces individuals to act “for their own good.”

My Political Ideological Journey Part #5: College Years, Economics, and Libertarianism

I went into college with a fairly skeptical view of the state. My high school readings had lead me to conclude both that the federal government was often inefficient and that government’s intended role was very limited. However, I knew almost nothing about economics.

During my first semester of college, I took an introductory economics class which confirmed my views of the inefficiency of most government action. Analysis of topics such as the minimum wage, rent controls, and import tariffs showed me that government intervention tends to hurt more than it helps. On the other hand, the free market tends to allow people to express their choices and satisfy their particular wants in a more efficient manner.

After that first semester, I went a couple years without really thinking about political issues. However, the presidential primaries in the spring of 2016 forced me to consider the voting process and criteria for supporting presidential candidates. I wrestled with whether or not to vote for the lesser of two evils and what minimum requirements a candidate should meet in order to garner my support.

During the fall of 2016, I took a Microeconomic Theory course, which gave me a much deeper understanding of economics and public policy. Taught by Dr. Eric Schansberg, this course examined numerous public policy issues from unions to Obamacare, from taxi medallions to protectionism. Dr. Schansberg was fairly outspoken about his libertarian beliefs and was critical of both political parties, which intrigued me. His deep understanding of economics made me want to further understand his political theory.

The winter directly following that semester I read his book “Turn Neither to the Right Nor to the Left,” which establishes a Christian lens through which to analyze public policy. I’d never really been exposed to a comprehensive, consistent, and thoughtful view of government and public policy from a Christian perspective and this book greatly furthered my political ideological progression.

While this book was helpful in offering an alternative view to the common narratives espoused by our two main political parties, I felt like I needed to learn more about libertarianism. Up to this point, I had generally had a soft spot for libertarians. Sure they were radical and cooky at times, but I admired their consistency and their willingness to take their ideas to their logical conclusions. This lead me into a deep exploration of libertarianism as a political theory.

Thankfully, very early on I stumbled across the site Reformed Libertarian, which reconciles the libertarian political theory with the Christian worldview. This was important to me because I did not want my political beliefs to somehow supplant my Christian worldview. Rather, I desperately desired (and still desire) to hold a political ideology that is consistent, both logically and with the Christian worldview. This site was extremely helpful, both in dealing with common questions/issues regarding libertarian thought and in recommending introductory books to read.

Since then I’ve been reading a lot of books to try to better understand libertarianism (specifically of the the voluntaryist/propertarian variety). I wouldn’t say that I have it all figured by any means. There’s still a whole lot that I want to learn and better understand. I’m not even 100% sure where I stand politically at the moment since even the term “libertarian” has a lot of negative connotations and associations. That being said, I’m definitely ideologically moving towards libertarianism, if defined correctly. A number of my future posts will likely deal with some of these political ideas I’ve been thinking about and reading about.

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As usual, I’d love to hear your thoughts/questions/concerns on this topic. Like I said before, my goal is to hold to a consistent political ideology, both logically and with the Christian worldview. Therefore, I am excited to hear critiques or questions that will push me towards greater consistency and intellectual soundness. I hope to find a balance between being open to change my views in the face of well-reasoned arguments, and being passionate and articulate in explaining the views that I currently hold. Thank you for reading this post and I appreciate any comments that you might choose to leave for me!

The Frying Pan Fable Follow-Up

Imagine you are in your house when suddenly you hear an intruder. Fearing for the safety of your family, you rush over to your closet and start loading your Tommy gun. As you are preparing your weapon, you have a random thought: “This Tommy gun is pretty effective for self-defense, but I think I might just use my trusty frying pan instead. Sure I’ll have to get closer to the intruder and put my life at considerable risk, but I just like my frying pan a whole lot.” Throwing your Tommy gun aside, you pick up your frying pan and go to defend your house.

Last week I made the point that created items generally work best when put to use according to their intended design. Additionally, this opening illustration highlights another key point about roles: when you utilize something beyond its intended role, you often usurp the designed function of something else. 

In terms of the role of government, this is an important concept to understand. When weighing benefits and costs, we must realize that as the role of government expands, the roles of other societal forces shrink. Just as the frying pan rendered the Tommy gun useless when its role expanded unnecessarily, so government enlargement can hinder the effective and intended functions of other societal institutions. This can be seen in two specific areas: social welfare and economic regulation. (I will merely touch on these issues as an illustration of the above point. A fuller discussion of either topic will have to be put off until a later date.)

Social Welfare

Most people would likely agree that it is important to help the poor and the less fortunate. And through welfare, the federal government is very involved in attempting to achieve this goal. However, as government gets involved in these poverty-reduction endeavors, it pushes out other more appropriate institutions, such as the church. Tony Evan notes, “The primary job of caring for those in need was never intended to be a function of government. Can you imagine Paul going to Caesar and asking for a federal grant to fix the problems of poverty within the church in Jerusalem?” (“Turn Neither to the Right Nor to the Left” page 241).

The Bible calls believers to look out for the interests of others (Phil. 2:4, 1 Cor. 10:24), and to materially give to those in need (Rom. 12:13, James 2:15-16). Thus, through the church, we have an institution that is designed for dealing with poverty.  Government welfare, on the other hand, is patently inefficient and unable to make noticeable improvements in terms of poverty reduction, because government was not designed to eliminate or alleviate poverty. Marvin Olasky describes our current welfare system as “the ultimate bureaucracy –an anonymous public supporting anonymous machinery supporting anonymous clients” (“Turn Neither to the Right Nor to the Left” page 208). As follows, the government suffers from a lack of knowledge about individuals and a (potential) lack of motivation to actually help the poor improve their productivity and get off of welfare.*

In summary, the government was never designed to financially provide for the poor. And by acting outside of its role, it inhibits the normal functioning of other effective private institutions, such as the church.

(There’s much more that could be said about the relative efficiencies of private versus public charity, improving private poverty relief, and the morality of government income redistribution. These topics are beyond the scope of this post, but if you’re interested in learning more, I would recommend two books: “Poor Policy: How Government Harms the Poor” by D. Eric Schansberg and “The Tragedy of American Compassion” by Marvin Olasky.)

Economic Regulation

While government economic interference is a very broad topic, the main point that I want to highlight is that government interference in the economy via interventions, such as price controls, usurps the effective and intended function of the price system.

What is the price system, you ask? Economist Robert Murphy explains the role of prices, “A market price is the balance between how eager you are to buy something and how reluctant the producer is to sell it. If something has a high price tag, it’s because it is scarce; if it has a low price tag, it’s because ‘they’re a dime a dozen.’ In short, market prices are not arbitrary” (“The Politically Incorrect Guide to Capitalism” page 9). Among other purposes, the price system has at least two important and related functions in the market: signaling and coordinating.

Prices act as signals to market participants, demonstrating the value that market participants place on the goods in question. Additionally, prices enable individuals to calculate profit and loss, which direct the actions of entrepreneurs. Economist Gene Callahan describes the market process as, “the ceaseless striving of entrepreneurs to locate price discrepancies and profit from them, thus adjusting production to the wishes of consumers” (“Economics For Real People” page 159). Thus, the price system signals to entrepreneurs areas of unsatisfied consumer wants and to intervene to provide the requested good or service. Without a price system, entrepreneurs would be unable to determine which new enterprises might be viable and profitable.

Prices also function to ration goods and services. Rather than allocating goods to consumers based on preference, nepotism, or some other form of discrimination, the price system allocates goods based on the consumer’s willingness to pay. Callahan again states, “the market guides scarce resources toward their most important uses through the voluntary rationing of the price system,” as “the new, higher price of the good motivates people to use less of it” (“Economics For Real People” page 199).

In summary, the price system is fluid and able to react to changes in supply and demand. Economist F.A. Hayek noted, “Fundamentally, in a system in which knowledge of the relevant facts is dispersed among many people, prices can act to coordinate the separate actions of different people” (“Economics For Real People” page 163). Prices serve to alleviate the problem of insufficient knowledge of market factors and to coordinate supply and demand.

Central planning supplants the role of the price system, but cannot allocate goods nearly as efficiently. After all, no individual or group of individuals could possibly track the changing preferences of millions of consumers and producers like the price system can. Furthermore, interferences like price controls distort the signaling function of the price system, disallowing consumers from “voting” for certain goods through their spending practices.  Murphy again notes, “When the government interferes with prices, it cripples the ability of free people to make intelligent economic decisions, just as surely as if politicians interfered with phone lines, e-mail, or other means of communication” (“The Politically Incorrect Guide to Capitalism” page 10). This behavior by the government has the negative effect of causing unnatural shortages and surpluses.

These shortages in particular lead to a rationing problem. If the government sets an artificially low price, the quantity demanded will increase, but the quantity supplied will decrease, leading to a shortage. In a free market setting the price would rise, rationing the good in question based on consumers’ willingness to pay. However, the price control disallows the price from rising, which forces the government to ration the good in question based upon some other criteria besides willingness to pay.

In conclusion, the government was never designed to direct the intricate adjustments of the market. And when it acts outside of its role, it inhibits the normal functioning of an effective societal force: the price system.

Conclusion

My intent was to briefly touch on two areas of public policy as a means of showing some of the unintended consequences of expanding the function of government. I didn’t want to go into considerable depth in terms of discussing the role of government, nor did I want to write extensively on these policy issues. Those will have to be topics for another day. However, hopefully this helped you think through the intended function of government and some of the unintended consequences of government expansion.

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If you have thoughts about how government expansion can detrimentally affect other societal institutions, feel free to leave a comment or send me an email. Additionally, if you want to specifically discuss the role of government or either of these policy issues, you’re welcome to leave a comment. Again, thank you so much for reading this blog!

 

*(You might ask why government and the church can’t work together to deal with the issue of poverty? Does government involvement in welfare necessarily supplant the role of the church? That’s a good question and I’ll try to touch on it briefly. I would say that government’s attempt to alleviate poverty through the welfare system not only have negligible positive effects, but often actually have considerable negative effects. Examples of these effects would be: incentivizing recipients to stay on welfare (a culture of dependency), incentivizing recipients to not establish marriages, and coercively taking money from individuals to fund the welfare system.  Hypothetically, if the government were able to alter this system entirely, it might be able to work with the church. But the bureaucratic, budget-maximizing nature of the government makes it difficult for me to envision an efficient government-operated welfare system. Further, the question of roles becomes important (as I’ve tried to stress throughout these posts). Is it within government’s intended function to deal with poverty?)

Buying Local, Trade, and Protectionism

I always buy locally-made products…unless I can find non-locally-made products of the same quality for a lower price.

“Buying local” is one of the current trends in our culture. Various companies and brands craft entire marketing campaigns around the fact that their products are produced locally, made out of local materials, and/or created with local labor. Now, why would the fact that a company is selling “local” products be persuasive and enticing to consumers?

One potential explanation would be that local consumers buy into a variation of “protectionism” on a smaller, local scale.* This explanation would argue that local consumers want to support their community and facilitate economic wellbeing within the local business environment by shopping primarily or exclusively at local dealers. This might be more of an emotional situation where consumers not only buy a product, but also purchase a good feeling of sorts.**

One of the problems with this line of thinking is the same problem that large-scale protectionism faces. When considering the economic well-being of a certain area, one must look at both the producer and consumer side of things. Buying local products at a higher price (and from my experience these locally made and marketed products tend to be more pricey) may benefit certain local producers but it also hurts local consumers (including you). If a whole bunch of consumers buys overpriced, locally-made coffee, the local coffee shop benefits at the expense of the five consumers.*** Therefore, it is difficult to argue that the local community is better off on net.

And why should local producers be my primary concern? Not to say that I should intend to hurt my community, but this sort of thinking can have the effect of hurting many foreign (or non-local) producers. Think of producers many states away who are efficiently producing cheaper, equal quality goods. Why should I turn away their products, which are of equal quality and a lower price?

Competition and trade forces producers to innovate and cater to consumers. Therefore, consumers should want as much trade as possible and as many product options as possible. This forces producers to use their time and resources in the most effective way possible. If local producers know that I will buy their goods because I am emotionally motivated to support them, then those producers will not be worried about their non-local competition and will be less likely to innovate, produce quality goods, and charge low prices. While this is a much smaller scale example, the “buy local” marketing scheme is similar to an import tariff in that it attempts to limit local consumption of non-local goods.

Now some might say that it saves resources to buy local. And this may or may not be the case. Dr. Arnold Kling in his recent book Specialization and Trade: A Re-Introduction to Economics argues that buying local can actually waste resources:

“Many people believe intuitively that it saves resources to “buy local.” Surely, we think, cheese or vegetables from a local farm must save on the energy required for transportation. However, if the grocery store sells cheaper products that comes from hundreds of miles away, some factor must offset the higher transportation costs. Chances are, the land elsewhere is more suited to growing crops, so that fewer acres are being used to produce a given amount of output. The local land might be better used for housing or as wilderness.
Water or other resources may be used more heavily locally than on distant farms. Whenever produce from distant farms is cheaper than locally grown produce, the price system is telling us that “buying local” wastes resources.”

So next time you are tempted to buy a product merely because it is locally-made, consider the bigger picture. Look into non-local options and try to use your purchasing power to support producers who make the highest quality product in the most efficient way possible. Don’t discriminate against high quality, cost-effective producers just because they live far away from you.

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If this post resonates with you or irritated you, leave a comment below and tell me what you think of it. You can always send me an email as well; I’d love to hear your thoughts. Thanks for reading!

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*Ironically, one of the most startling side effects of protectionism is that a significant portion of local producers is actually harmed by this type of behavior. Every dollar spent subsidizing the inefficiencies of one producer is a dollar that could have been spent supporting the innovative and efficient ones.

**The price that consumers pay for “local” goods could potentially involve a base price, which would be identical to the price of the product elsewhere, plus a premium to support the local market. This premium portion of the price would then be similar to a charitable contribution in the sense that the only benefit the consumer receives for this added cost is a good feeling for having “supported” the local community.

***How do producers benefit at the expense of consumers? After all, this is voluntary trade, which should be mutually beneficial. The key here is that consumers do benefit, but they could benefit even more by buying a less expensive product of equal quality elsewhere. Thus, this transaction is at least somewhat inefficient, because consumers bear an extra cost without a corresponding benefit.

The Parking Garage Dilemma

I’ve been studying a lot of economics lately and have been intrigued by a field known as “Behavioral Economics.” While I am far from an expert in this field, from my understanding this area of study seeks to explain why individuals make many of the decisions that they do, based on economic theory. This field is rooted in the concept of “rationality” which assumes that individuals weigh costs and benefits when making decisions.

Being a student of economics, and this area in particular, has lead me to try to apply what I’ve learned to some areas of my everyday life. (It is really interesting, as you get into this area of study, to look at and analyze the different decisions that you make on a daily basis. Oftentimes, you will begin to notice that you subconsciously weigh the costs and benefits of decisions without even explicitly thinking about it.)

One such area that I have been wrestling with is the concept of where one should park in a parking garage. I’ve been working in downtown Louisville for the past two years and utilize a parking garage on a weekly basis. Honestly, as I drove into work, I didn’t put too much thought into where to park. I generally would pick the first open spot I could find, so as to limit the amount of time I would spend driving out of the parking garage.

If everybody behaved this way, this topic would be quite uninteresting. After a couple months of parking in this manner, however, I started to notice that cars would drive past me and other open parking spots and head further up the garage in search of other open spots. To be honest, I could not make sense of this decision. Why would somebody pass up perfectly good spots on, say the fourth floor, in order to obtain open spots on the sixth floor? It made no rational sense to me.

Although I didn’t put too much effort into solving this puzzle, it did stick with me and annoy me on occasion. Finally, I obtained some clarity on a day when most of the lower level spots were filled. I drove up to the fifth level and noticed that all of the spots near the elevator were filled. I kept driving past many open spots until I got to the sixth level and also noticed that all of the spots near the elevator were filled. Suddenly, it occurred to me – these people were not trying to minimize the amount of time spent leaving the parking garage, but were trying to minimize the amount of time spent walking to and from the elevator! While I was willing to sacrifice a short walk to the elevator (cost) in exchange for a short drive out of the parking garage (benefit), these other people behaved the opposite way.

(Since writing this initial post in December, I’ve been able to take an “Urban Economics” class, which deals with city structure, transportation, and many other issues, and has given me a few tools to more eloquently explain this situation. Here is a more bit of a more technical explanation of the situation:)

When thinking about the “costs” of travel, economists consider both explicit monetary costs, as well as time costs. These time costs can be further broken down into “access time” costs and “in-vehicle time” costs. Access time cost is merely the disutility that an individual undergoes in order to enter a vehicle (i.e. waiting for a subway, walking to a bus stop, etc.), while in-vehicle cost is the disutility that an individual undergoes during an actual trip (i.e. sitting in traffic, sitting in a crowded bus, etc.).

Generally, to decrease access time, in-vehicle time would have to be increased. For example for a light rail system to decrease access time, the operators would have to add stops to the system. These more frequent stops would, however, increase in-vehicle time for those who were already on the light rail.

Empirical research shows that people actually dislike access time more than in-vehicle time. So, most individuals would rather get on a vehicle quickly, even if the trips itself were to take longer.

This actually lines up consistently with my observations in the parking garage. While I tried to minimize my in-vehicle time by parking in the first spot I saw, these people who kept driving to upper levels were trying to minimize their access time by parking close to the elevators. Apparently, my “ground-breaking” observations can be very easily explained by existing economic theory. Nevertheless, I thought these ideas were worth sharing.

To wrap this up, economics is a fascinating topic and can be used to explain many seemingly confusing aspects of human behavior. I hope this post was interesting and/or beneficial to you.

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If this post piqued your interest or if you believe that this is really too petty of a subject to be discussed, please leave a comment or send me an email. Thanks for reading!