What about government externality?

I’ve written on this blog a few times that government begets more government and regulation begets more regulation.

Few people realize that many of the problems that we’re trying to solve with government today were caused by government actions of the past.  Too often they believe these problems were caused by free markets.

A commenter on Cafe Hayek helped me figure out a way to articulate this process.  Out of the comments of Russ Roberts’ Cafe Hayek post, A Theory of Government,  Jonathan Catalan writes that:

…government itself is an externality!

As Russ Roberts points out, one theory of government is that it:

…exists to correct externalities and provide public goods.

An externality is a cost not included in the price of a product paid by the consumer.  Rather, that cost is covered by other unwilling parties.

For example, many folks think that gasoline has an environmental cost from its pollution that is not included in the price of gas that we pay at the pump.  If it were, the theory goes, then the price of gas would be higher and folks would use less of it.  Since this environmental cost is not included, these folks call this a market failure.

They think that a legitimate function of government is to correct for such market failures.  One way to do this would be to collect a big tax on gas.

Perhaps the idea that government should correct externalities causes a blind spot.  Since government is the arbiter of externality, who would think that it would be externality itself?

But, the reason government begets more government is exactly because government causes externalities.  Catalan does a nice job of explaining it in this article.  He writes:

The root of our current medical problem lies in the collectivization of the consequences of an individual’s irresponsible choices. The issue is that the costs of one person’s decisions are spread equally throughout society, to the point that that individual hardly feels the penalties of his value judgments — short of illness and death.

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Anthony Case and Our Courts

Based on my limited knowledge of the Anthony case, I agree with Alan Dershowitz’s take in today’s Wall Street Journal.

A criminal trial is neither a whodunit nor a multiple choice test. It is not even a criminal investigation to determine who among various possible suspects might be responsible for a terrible tragedy. In a murder trial, the state, with all of its power, accuses an individual of being the perpetrator of a dastardly act against a victim. The state must prove that accusation by admissible evidence and beyond a reasonable doubt.

Even if it is “likely” or “probable” that a defendant committed the murder, he must be acquitted, because neither likely nor probable satisfies the daunting standard of proof beyond a reasonable doubt. Accordingly, a legally proper result—acquittal in such a case—may not be the same as a morally just result. In such a case, justice has not been done to the victim, but the law has prevailed.

Few appear to be pleased with the outcome of the trial.  But the reasons for displeasure are different.

For those who agree with Dershowitz, the displeasure stems from the lack of hard evidence to prove the state’s case beyond a reasonable doubt.  But, they understand that the reasonable doubt standard is there to protect all of us from a potentially oppressive state.

For those who believe the purpose of the courts is to wield moral justice (i.e. what we emotionally feel ought to be done), the Anthony verdict is displeasing because it doesn’t appear to deliver that moral justice.

Why this horrible tragedy has reached the fever pitch for the moment over all the other horrible tragedies out there is beyond me.  But, maybe it will serve to educate some folks on the true purpose and valid limitations of our courts.

Un-Scientific American

On a recent business trip, I picked up a copy of Scientific American magazine at an airport news stand to read on the plane.

I’m not a regular reader.  I was a put-off by the lead editorial in the magazine, Physician Heal The System.  In it, the editors conclude:

It [the U.S.] spends far more per capita than any other industrial nation, yet all that money fails to buy the best care.

And how did they determine what the “best care” is?  They at least mention more than life expectancy.  But, that’s the only stat they expand on.

In terms of people’s level of disability, the care they receive for chronic conditions, and their life expectancy, the U.S. ranks below many other countries that spend much less. Compared with the average American, the average citizen of France or Israel lives three years longer, the average Australian four years, and the average Japanese five years.

But, the fact that they even included life expectancy and then gave actual figures on it alone made me think that the editors are not scientific, but rather political.

It doesn’t take much scientific thinking to figure out that life expectancy is not a good measure on which to make cross country comparisons on the quality of medical care because there is much more that influences life expectancy.

For example, Americans, drive more miles on average than citizens of other countries that happen to have taxpayer provided medical care.  Driving more miles increases the chances of dying in a car accident and is not related to the quality of the medical system.

That’s just one non-medical care factor.  There are others.  Rates of obesity, age composition of the population, smoking habits, alcohol and drug abuse and ethnic diversity also contribute to the differences in life expectancy and also have nothing to do with the quality of medical care.

I think most people are intuitively skeptical of the life expectancy/quality of medical care link.  If it were true that we could get three to five years longer lives simply by moving to these countries to take advantage of their high quality and “free” health care systems, wouldn’t more people be moving out of the U.S. to these countries? Aren’t we shortening our children’s lives by raising them in this country with high-cost, lower quality medical care?

Thomas Sowell discusses this topic in his column today and its worth a read.  He writes:

But supporters of government medical care show virtually no interest in such realities [actual quality of medical care in those countries]. Their big talking point is that the life expectancy in the United States is not as long as in those other countries. End of discussion, as far as they are concerned.

They have no interest in the reality that medical care has much less effect on death rates from homicide, obesity, and narcotics addiction than it has on death rates from cancer or other conditions that doctors can do something about. Americans survive various cancers better than people anywhere else. Americans also get to see doctors much sooner for medical treatment in general.

In the same issue of Scientific American magazine, just a few pages later, writer Jessica Wapner explores why rates of HIV are so high in the southern U.S.  Amazingly, she didn’t just assume medical care quality as the sole reason for this statistical disparity.   She writes:

As with all these other health problems, however, addressing the HIV epidemic in the southern U.S. requires much more than just having effective and affordable medicine. It demands an understanding of why individuals in the South turn out to be particularly likely both to delay testing and to seek medical attention only in the later stages of HIV infection, when it is most difficult to treat.

Nice job Jessica.  Perhaps you can teach your editors something.  I would like to reword your passage as such:

As with all these other health problems, however, Addressing the life expectancy variations HIV epidemic between in the countries southern U.S. requires much more than just having effective and affordable medicine. It demands an understanding of why individuals in the U.S. South turn out to be particularly more likely both to delay testing and to seek medical attention only in the later stages of HIV infection, when it is most difficult to treat to engage in life shortening behavior.

Incentives Matter Test

Folks have a difficult time seeing that incentives do matter in certain situations.

Two of these situations involve education and health care.  Paying for these via third party, be it Federal government, local school district or insurance company mandated by government to provide certain levels of coverage, causes higher demand, which in turn causes higher prices.

Folks wonder why the cost of education (K-12 and college) and health care have been outpacing inflation.  They shouldn’t wonder.  The answer is simple.

But, for some reason the connection between third party payments and rising prices seems too abstract for some folks to grasp.  They either ignore or under appreciate how incentives can change the outcome.

While waiting in line at the grocery store recently, I wondered if folks could guess what might happen if I were to stand at the cash register and start paying for the other customers coming through the check out lane.   I would make no announcement or set any deadline. I’d just start paying.

I think it’s easy to predict that word would spread fast and folks would start loading up their carts with more things than they would have if they were paying and try to make it through my line before I stopped paying.

Of course, the store wouldn’t respond immediately by raising prices, but if I were to continue the practice indefinitely, you can well imagine that the store would raise prices.  What would stop them?

If they did raise prices, I suppose I could stop my generous activities at that store and move to the next store.

But, what if I did this at all stores?

Observation from the road

Ford Focus ST

Pretty darn close to what I drove

When choosing from a line of rental cars on a recent business trip, I chose the only “American” car in the line-up (I use the word “American” here as it is commonly used, but  I believe the more appropriate term is “union-assembled”).

It was the reason I chose the “American” car that I found interesting.

About 10 years ago I remember thinking that “American” cars were cookie cutter, drab-looking, uninspired vehicles, while the “foreign” cars were more stylish and varied.

Things seemed to have come full circle.  The “foreign” cars in this line-up were drab and look-alike.  The brand new Ford Focus, though, stood out and called to me with a fresh, sporty design.  The interior was nice as well.  I chose it and I enjoyed driving it.

I believe that your business is in trouble when your primary marketing strategy is to guilt-trip folks into buying your products.  I always thought a more sustainable strategy would be to put the products that folks want to buy out there.

Kudos to Ford for seeming to be able to do that.