Economics and Government

http://www.huntingtonnews.net/health/060327-shns-smoking.html

http://www.colorado.gov/governor/press/march06/smokingban.html

Colorado House Bill 1175 was signed into law by Gov. Owens this week essentially bans smoking in any building open to the public (and even many that aren’t open). It is my opinion that under all three of our normative frameworks (equity, efficiency, and liberty) this ban will be considered acceptable.

Equity

First the easiest of the three: equity. I define equity as: equality of opportunity. Since this ban is applied to all citizens of Colorado I see no objection under this normative framework.

Efficiency

Now for a slightly harder justification: efficiency. For efficiency there needs to be a potential Pareto improvement for a public policy to be viewed as acceptable. According Gov. Owens’ press release, “In Colorado, the costs attributable to secondhand smoke are estimated to be $180 million annually for direct medical expenses and $19 million for loss of life.” While these figures aren’t quite proper to be used directly in economic BCA they do show that there are benefits to the ban that—by itself—would move Colorado citizens to a higher indifference curve.

Obviously though smokers will bear a cost to this ban that—again, by itself—will their lower utility. But this isn’t the end of the story.

According to an article on huntingtonnews.net, “evidence from the 12 states with smoking bans, as well as the many U.S. cities with widespread bans, indicates that along with fewer burning eyes and hacking coughs comes an uptick in tax revenues from bars and restaurants.” This seems to disprove the common belief that smoking bans will reduce the demand for bars and restaurants in America. As the huntingtonnews.net article reports bar and restaurant revenues in Ireland declined after a ban there was enacted, New York City saw an 8.7% increase in tax revenue the year after their ban was enacted. Also huntingtonnews.net reports, “the ZagatSurvey for New York restaurants indicated that 23 percent of respondents dined out more often after the ban, while just 4 percent of respondents said they were dining out less.”

All this boils down to that people like non-smoking places more than smoke filled ones. Does this demonstrate a potential Pareto improvement? Without more accurate data a conclusive position is impossible, but from this evidence I believe that Colorado’s smoking ban is a potential Pareto improvement.

Liberty

Now for the final framework: liberty. The opponents of the smoking ban argue that it is the smokers’ right to smoke if they wish that is being violated by such smoking bans. Some also argue that business owners (and the like) have their rights violated by the government not allowing smokers to light up if they wish.

The proponents of the bans, while rarely if ever in any proper economic form, argue that second-hand smoke is a violation of the rights of others. If a smoker lights up, much like a polluting firm, they emit pollution that is forced upon others. Arguments can be attempted that people could avoid smoking places, but this doesn’t change the fact that any time someone smokes they are coercing anyone around them to suffer their smoke. Thus, when someone smokes they are harming those around them which, and that is a case for corrective action. As for the argument of the businesses, since businesses accept both smokers and non-smokers into their establishment the firms are indifferent to the smoke. Even if business is enhanced by allowing smoking, since that act is unacceptable under liberty, any subsequent effects of the smoking ban would be irrelevant. Such complaints would be like a fence arguing that the police harm their business by arresting thieves.

Since some corrective action is necessary, is a ban the most appropriate method of correction? The smokers do have a claim that this ban will prevent them from smoking even if no one would be harmed, but other policies (such as establishing a smoking police) would be far to costly than this ban. Try to imagine an IRS like agency running around taxing smokers; certainly a freighting thought. That is to say, a smoking ban is the least costly method to correct the harm done by smoking.

Who knew that the government could actually do something actually defendable under our normative frameworks? I think that Colorado’s smoking ban is a good demonstration of this, but would like to know what others think.

The local AARP of Black Forest marched at the state capitol last week in hopes to increase spending for local senior citizens. After the recession in 2000 the state spending decreased by more than half (from $4.5 million to $2million) The House has passed a bill to increase spending to $3 million, while there are still hopes to add another $1 million dollars from the State General Fund.

One of the concerns that the people had was that “a statewide survey showed that, wile most seniors have enough to eat, 8 percent (or 6.200) in the area do not eat two or more meals a day.” Another concern that the article mentioned was that of low funding for hearing aids and dental care. This got me thinking about how much money government is putting into senior citizen programs. Not only are they throwing our money away with Social Security, but other programs that smaller and more individualized. I wonder why the government is spreading funding out to several different resources so that when funding gets pulled from one of them, there is uproar.

Social Security, the way it stands now is a joke. People need to realize that if there isn’t going to be a change with Social Security than by the looks of it current senior citizens are going to be benefiting greater than when this generation ages. It seems that we are now learning more about savings and investments (but not everyone). How can it help to ask the government for more money and more money and just know that we are going to have that debt for a future generation?

Families should be the first to jump in if a loved one is legitimately unstable with their finances. Otherwise, there needs to be one program provided by the government that is set to help those in need. It seems that we could save money by condensing all of these programs (or even eliminating some).

*The article about the march was found in the March 22, 2006 Tribune

It has come to my attention that there is the proposal of a bill that would require employers in Colorado to offer "uncompensated time off" for employees for use at their liesure. I was shocked to find out that this bill was actually going to go so far as being voted on in the State Legislature.

Under what power, either from the economic efficiency framework or the individual liberty platform, does government have the right to effectively implement and enforce such an absurd requirement.

In short the governement has listened to a few individuals who believe that requiring their employer to reliquish and additional 30 hours of unpaid leave time is the way to go about getting what they need. I understand the reasoning behind such measures. Parents very often need to get to their child's school in order to address parent/teacher conferences, etc. However, what kind of message does this send to those employees who are without child? Are we opening the door for such discrimination in the work place?

It should be the employer's choice to offer such benefits to individuals, and the individual's choice to seek out such employers in the workforce. It should not under any circumstances be governments role to mandate such policy that requires workplaces to incur the additional cost of these measures.

In the midst of all the publicity, that has surrounded the immigration reform issue, there has been a somewhat less obvious issue present: Sen. Russell Feingold has initiated a resolution to censure Bush because of his allowance of wire tapping activities after September 11th. According to CNN, a former white house counselor (John Dean) said that Bush’s activities were not in accordance with the 1978 Foreign Intelligence Surveillance Act. I will not speak to whether he violated this act, but I think that an economic analysis of Bush’s policy could be helpful in discerning whether his activities are truly as reprehensible as they have been represented as being.

From the freedom perspective I think that the analysis is initially clear, though somewhat muddled after a closer examination. Initially I am inclined to say that the freedom perspective would dictate that Bush should not be allowing wire-tapping. However, this would be an overly simplified view of the issue. Bush allowed wire-tapping after he was allowed the use of, "all necessary and appropriate force" by an act of congress after September 11th. The wire-tapping in question was not completely without supervision and was used to monitor only people known to be involved with Al Qaeda in some way. This seems to qualify as protecting people from harm. Though this point is arguable to some extent, it seems that generally this could be considered an acceptable rationalization. From the freedom perspective, it seems that Bush’s use of wire-tapping would be justified.

I think that both efficiency and equity do not particularly speak to this issue, and I would struggle in defining another perspective which would be helpful, but common sense does seem to speak to it to some extent. I think that even if you object to government interference in general it is not difficult to think that perhaps the only people that would be negatively affected by wire-tapping would be those who have something to hide. This is not to say that government should be permitted to listen in on all phone calls, but it certainly makes the issue a little more clear. I think that the freedom perspective cuts through much of the rhetoric that has been used and shows that the issue is simple. Bush used wire-tapping as a means of protection. Whether or not a person agrees with the activity it at least needs to be acknowledged that there was some justification for the activity. Since there is a rational justification for Bush’s wire-tapping, I would not support censuring him.

Daniel O'Connor:

"Assuming for the sake of discussion that we can adequately define and measure degrees of economic allocation, distribution, scale, and depth, what can we say about right allocation, right distribution, right scale, and right depth? Given the positive economic truths, what are these normative economic rights? Who decides?

Because the ecological economists have already put a proposal on the table for three out of the four normative judgments, it might be useful to start with this. As they see it, economics must seek the appropriate means via market, state, and social processes to the desired ends of efficient allocation, fair distribution, and sustainable scale. "

The blog post this comes from is right on our topic for this coming Monday's class. I want to encourage you to read over it, and consider an analysis of what you read here. We can discuss it on Monday.

Yesterday, over 500,000 people came out in LA to protest a bill calling for a 700 mile wall to be built along the U.S.-Mexican border. Such protests show how contentious the subject of immigration has become. Not only has it become divisive, but the issue of immigration is quite complex, making it rather difficult for politicians to find the median voter on the issue. For starters, there are party activists on both sides who see this from the perspective of "which party can get the most votes?" This leaves parts of the population, some Republican, some Democrat, who want to allow unlimited immigration for the sake of picking up votes for their party. Then there are those who, for the purpose of garnering anti-immigration votes, who oppose all immigration. Neither of these groups are confined to the politicians - individual voters are thinking this way, and it all has to do with their opinions on where the median voter lies. They vote for their politicians based on this, so they are counted amoung voters when determining the median vote. Then there are those who form opinions without making political calculations. Some want less immigration because they belive immigration is driving down wages. Then there are others who want more immigration because the additional labor is an added resource, meaning that immigration would make the U.S. economy better off.

If immigration were only confined to the issues I just mentioned, finding the median voter would be easy; simply increase or decrease the number of immigrants allowed into the country through the election process until voters are unwilling to increase or decrease immigrants. For example, have a referendum that would increase (or decrease) the number of legal immigrant allowed to come here by say 100,000 per year. If it passes, repeat the process. If the median voter wants an increase of 700,000 immigrants per year, voters will approve immigration increases of 100,000 per year until 700,000 immigrants per year are allowed in. While referendums aren't used on a nation-wide basis, the same can be achieved with politicians. Voters can elect a politician (if this was the only issue) who will increase immigration allowance by 100,000 per year until the median voter was satisfied, then elect somebody else. However, other matters and opinions complicate the immigration issue, matters that can't be resolved with numbers.

While various segments of the population holds various opinions about the level of immigration that should be allowed, these segments, even those that agree with each other on such levels, find themselves further divided with regards to what happens to those immigrants already here illegally. Some want them deported, because they broke the law. Others believe that the law is already unjust. Then there are matters of national security. How stringent should we be with the tests that allow permanent residency? Should it require that they speak English? If so, how long do they have to learn it? What countries do we allow immigrants from? Should Iranian immigrants be held to the same standard as Mexican immigrants? At what point should immigrants be allowed to vote? Politicians are trying to answer all these questions at the same time. The result is that the median voter is very hard to pick out with regard to immigration.

The fact that the issue is so complex could prevent a median voter from being discovered, killing the chances of an immigration reform bill. With seemingly multiple issues being presented as a grouped bill (there are actually many bills as a result of this, not just one), there may not be just one median voter, but many. There is or should be a median voter for each of the questions posed by the bill. Over the coming months, politicians are going to be trying to find a median voter within the median voters. Unfortunately, politicians are typically only good enough for government work. "Good enough for government work" may be progress, but I fear that their difficulty in finding the median voter will result in their giving up on trying and in fact do nothing.

Heather Boushey and Russell Roberts discuss inequality at the WSJ econoblog (free feature). Here is Roberts:

"The super-rich guy at that charity dinner may have flown on a private jet, but I can afford to fly by jet, too, albeit in a coach seat. The super-rich guy may have been chauffeured to the dinner in a luxury car, but my Honda Accord is pretty quiet and comfortable. The rich guy wears a custom-made suit that may have cost over $1000. But my Lands' End suit is 100% wool and looks pretty good. I'd have to finger the fabric of his jacket to feel inferior. Yes, his watch is more expensive. But mine probably keeps better time. Unless I stop by his house for a visit, I'm unlikely to feel the pinch of my lower income status. Compare that to 50 or 100 years ago, when the qualitative aspects of the lives of the wealthy were much more noticeable to the average person.

Without the government data that is so widely reported, how would I ever know that I'm falling behind or that the super rich or even the mere rich are racing ahead? What I really care about is whether I'm moving forward."

I think the discussion can be helpful in exploring some aspects of equity as a normative framework for defining the purpose of government.

See if you agree with my thoughts that Boushey doesn't directly confront the analysis of Roberts.

I've often said you can't trust the news and commentary industry to learn what is going on. If you want to know, you need to find a way to figure things out for yourself. If you want an illustration of the dangers in relying uncritically on the news and commentary industry, then check out this post at the Mudville Gazette

Tyler Cowen:

"Bush is asking for this authority, but it is unlikely to constrain spending. Read this (JSTOR) paper 'Line-Item Veto: Where Is Thy Sting?'. Excerpt: 'Curiously, there exists little empirical support for the presumption that item-veto authority is important.

Or here is Robert Reischauer:

The crux of my message is that the item veto would have little effect on total spending and the deficit. I will buttress this conclusion by making three points. First, since the veto would apply only to discretionary spending, its potential usefulness in reducing the deficit or controlling spending is necessarily limited. Second, evidence from studies of the states' use of the item veto indicates that it has not resulted in decreased spending; state governors have instead used it to shift states' spending priorities. Third, a Presidential item veto would probably have little or no effect on overall discretionary spending, but it could substitute Presidential priorities for Congressional ones [TC: Hmm...].

Reischauer also cites work by Douglas Holtz-Eakin:

Governors in 43 states [circa 1992] have the power to remove or reduce particular items that are enacted by state legislatures. The evidence from studies of the use of the item veto by the states, however, indicates no support for the assertion that it has been used to reduce state spending.

I have one simple model in mind: the legislature comes up with more individual pieces of pork in the first place. Can you think of others?"

I post this with respect to our discussion in class of the supply and demand for legislation. The politicians were thought to be the suppliers of legislation. While we talked in terms of members of the legislature being suppliers, the discussion here of the line item veto suggests that the executive is also a supplier, and futher, that the executive and legislative branches may collude rather than compete. How does this sound to you?

I found a newspaper on campus last week entitled, “People’s Weekly World.” In this paper there was an article entitled, “Taxing the Oil Companies’ Hot Air,” by Mark Weisbrot and Dean Baker, who are cited as the co-Directors of the Center for Economic Policy Research. The article was discussing what should be done about the profits made by oil companies in the last year. The article proposes that we “tax just 40 percent of that excess profit...” I find this thought to be problematic, especially coming from two people who are economists. The first problem I have is the tax of “just” 40 percent. I don’t thin these people would care too much for a tax of “just” 40 percent on their consumption, so what makes such a tax a good idea fo his situation. The second problem that I have with the previous statement is the idea of “excess profits.” What exactly is an “excess profit?” I have never heard of such a concept and the idea that profits are excess is redundant at best and absurd at worst.

I also wanted to look at the proposed tax from a policy analysis perspective. According to the article, “The main economic argument put forth against such a tax is that it would discourage oil companies from further exploration and development. But a tax on current windfall profits would be unlikely to have such an impact.” I would disagree with this: I think the main economic argument against such a tax is that it would not be good policy. I think the precedent it would set would be one of penalizing good performance and I do not think that such a decision would constitute good policy. Also, according to policy analysis, a tax is not a benefit. Since this is the case, I do not see any benefit from the proposed tax. I also do not see how there would be a potential pareto improvement from the proposed tax; oil companies would be made worse off, so by definition it would most likely not fulfill the requirements for a pareto improvement.

All this is really to say that I think taxing the oil companies profits excessively would be an unwise decision. I do not think that there is any reason to tax the oil companies, and the burden of the tax would not rest solely on the oil companies. I think that this is a sufficient argument to leave the oil profits only as taxed as they already are.