Good Enough for Government Work

Less than fifty percent of new start-up businesses last beyond five years before failure.  (http://smallbiztrends.com/2012/09/failure-rates-by-sector-the-real-numbers.html)  The reason: the new business fails to generate sufficient benefits for its customer base.  The successful business is successful if: 1) it recognizes an unmet need of consumers; and 2) it meets that need in an efficient way.  Failure occurs due to trying to enter a market that is already well served, or in failing to economize on delivery costs.  In 2010, 4.1 percent of the employed workforce lost their jobs due to business failure.  (http://www.businessweek.com/articles/2012-05-08/the-silver-lining-in-the-drop-in-startups).  This number is historically low – trending down from 6.1 percent in 1977.  But the number is still rather startling – 4 out of every 100 people will lose their job this year because some new business owner has over-estimated the net benefits offered by his business to consumers.

The beauty of business failure is this – it is the ultimate cost-benefit test – and it doesn’t rely upon theoretical debates about its costs and benefits.  It is the job of the business owner to control his costs and to convince his potential customers that the benefits of the product or service he offers meets or exceeds the price - he cannot compel customers – he must convince them to spend their own money.   Fifty percent of new business owners, who lay money on the line, and subsequently a good deal of sweat, miscalculate the cost-benefit comparison and in the process lose a good amount of their own investment.

Now consider any given government program or agency.  What is the likelihood that it doesn’t also share the same 50 percent failure rate in terms of delivering benefits that exceed its costs?  In fact the likelihood is very low that it shares the same 50 percent failure rate – it is more likely a failure rate that goes well beyond 50 percent.  Why?  Because unlike a private business, which relies upon convincing each and every customer that the benefits exceed the costs, a government program is financed out of general tax revenues, its costs are hidden, its benefits are in many cases amorphous and a matter of debate, and there is no competitive pressure to deliver more with less over time.

There is the old line that it is not difficult to convince Paul to rob Peter to pay Paul, which refers to the political salability of redistribution in a democracy – if Pauls out number Peters 51-49, you’ve got yourself a winning policy.  Now the reality of course is that there is an administrative cost to robbing Peter and paying Paul – if we’ve stolen $100 from Peter, less than $100 will go to Paul.  How much less depends upon the administrative efficiency of the government.  Even if Peter agrees that he should be robbed to pay Paul, so that the idea of government redistribution is universally accepted, there is still the issue of the fiduciary duty of the government to both Peter and Paul to do so at minimal cost.  If it costs $10 to administer, this is surely worse than a $5 administration fee, as it reduces the amount that goes to Paul.  At some level of administrative fee, the program would also presumably lose the support of Peter.

Let’s say that the Peters actually outnumber the Pauls, but enough of them still vote to tax themselves (and other recalcitrant Peters) to pay the Pauls.  Will administrative excess ever get to the point where Peter pulls back?  Probably not, for various reasons.  One, Peter doesn’t pay a different tax for each different government program – the same taxes go toward the military, law enforcement, the courts, and welfare, so while he may express dissatisfaction with the inefficiency of this or that agency, he views it as a bundle, and may be satisfied with the aggregate bundle even if he knows he is getting screwed on this or that item.  Two, he has very little visibility to the inefficiency of any given agency, and efforts to learn about it are more likely to just add to his frustration, as he has little ability to do anything about it.  Three, ultimately the admin costs may only be pennies – more pennies than are necessary – but still not worth bothering with at the end of the day.  And because it is only pennies, our old friend “Expressive Voting” comes into play – although Peter may oppose a policy because he knows the costs exceed the benefits, his relative powerlessness as one vote among 200 million leads him to espouse favor on the policy so as to be perceived as being compassionate. 

All of which brings me to the sequester, which requires all of a 2 percent cut to the current budget, which is itself an increase over the prior year’s budget.  If you don't bemoan the potential loss of jobs caused by the sequester, you're a heartless conservative who wants to starve children.  It is a problem that the cuts are more or less indiscriminate across agencies – surely there would be a better way to allocate the same cost reductions – but this is not to say that the aggregate bundle of cuts would not be hugely beneficial to the American taxpayer. (i.e. the costs to the taxpayers vastly exceed the benefits).  It is already a well established fact that federal government employees are paid more than comparable workers in the private sector.  (http://articles.washingtonpost.com/2012-11-18/opinions/35503295_1_federal-salary-council-federal-workers-federal-employees)  Workforce reductions in government, as rare as they may be, more often than not occur due to attrition rather than layoffs – it is very hard to get fired from a government job.  If the private sector find that 4 percent of its workforce is simply not cutting the mustard each year (and this figure is due only to business failure, not inclusive of firings for lousy performance), is it at all likely that the number in government is zero? 

In my work, I get to see a lot of contracts between businesses for the delivery of products or services, and these contracts almost invariably require productivity improvements over the life of the contract, delivered as price reductions to the customer.  While it is certainly true that a vendor or service provider who performs well under a contract can expand its business with its customers, it cannot generally raise its price for delivering the same product or service (the one exception is in cases where the product being delivered has a cost that is affected by commodity prices – but even here, there is a formula for pricing that allows for increases due to underlying commodities but which still builds in an expectation of productivity improvements).  Every mature business, after experiencing a growth period where it is scrambling to meet growing demand, and is therefore more afraid of austerity measures than it is of wasteful costs, eventually sees its demand stabilize, at which point in time it starts to trim the fat.  This most recent recession, it is often noted, has been marked by good growth in labor productivity – i.e. companies have laid off the fat without losing output.

This suggests two possibilities – 1) the same exact services provided by government bureaucrats could be provided with a 5 percent reduction to their numbers, as efficiency gains should allow for such reductions to the workforce; or 2) five percent of the services performed by these agencies have costs that exceed the benefits they deliver, and should be eliminated or scaled back in some way; or 3) the same exact services could be provided with a 5 percent reduction to the compensation of the government employees.  We already know that 4 percent of the entire workforce (which is a higher percentage of the private sector workforce) loses their jobs as a result of not delivering sufficient value.  We know two things from the private sector – 1) the company that fails to achieve these types of productivity gains will lose business, ultimately fail, and every person in the organization will lose his job; and 2) the same level of employee, even without the same job security offered by government, is willing to work for less.  If a government agency were to take the first approach, and were to fail in delivering the same “output,” this would clearly be an indication of its lack of efficiency.

The labor market in government is a real problem.  It is hampered by the lack of ability to objectively measure the performance of an agency and the lack of competition forcing the agency to improve its efficiency over time.  It is only due to the lack of competition that it is able to get paid more than private sector counterparts for doing less, with almost no risk of being laid off.  I know and respect many government workers, so this is not a critique of all government workers – many are very capable and hard working people.  But as a group they are overpaid. 

Lord knows there is plenty of dead wood in the private sector, but this is not an argument for letting it persist in government.  Ultimately, the deadwood in the private sector is on borrowed time – especially the white collar dead wood.  I never really have any sympathy for a white collar worker who is part of a workforce reduction (as opposed to those who lose their job because the business fails).  There are plenty of people who feel entitled to a job and a good salary due to various reasons unconnected to their work performance, and many of them are permitted to float along without adding value by managers who prefer not to deal with the mess of firing someone until they are told they have to.  But the market often imposes the discipline that leads to ownership putting the boot to these people.  And when it doesn’t, such inefficiency is at least partially constrained by competition.  To the extent that it is not, that there is always some dead wood, it is a cost born by both consumers and the business owners, but no consumer is compelled to pay for it.  Not so with a taxpayer and his government – there is no market discipline, the excessive costs are borne by the taxpayer alone, and he has no choice in the matter.

As an illustration of the problem, I am aware of one government agency that not too long ago posted openings for economists, and had something on the order of 100 applicants per opening.  Admittedly, not all of these applicants were likely qualified, but let’s be conservative and say that only 40 such applicants were qualified.  Let’s also concede that they may have been applying for other open positions which they may get and choose over the government role.  So now maybe we have only 10 people qualified and available at the end of the day to take each position.  If I see that in the private sector, my first reaction is that I am offering too much money, and I scale back the salary so that the demand for the job is equal to the supply.  I probably do not go to my existing employees at the same level and give them a pay cut, but this is due only to my goodwill – the fact that there are multiple people lining up for the job at a lower salary indicates I can safely fire my overpaid employee and replace him with someone equally qualified.  If you were selling your house, and posted a price that drew in 100 contracts meeting that price, you would inform everyone that they are competing with 99 other contracts, and give them all one last chance to bid.  If you had a real estate agent who randomly accepted one such offer and didn’t ask them to re-bid, you would rightly consider yourself ripped off by your agent.  The same holds true when the government draws 100 applicants per opening and doesn’t lower the offering salary.

How big is the problem?  Federal salaries to civilian employees (i.e. excluding military) were $271 billion in 2011, compared to $3,539 billion for the total federal budget in 2011.   (I don’t mean to exclude the military under the assumption that they are paid correctly, I just couldn’t find the stat inclusive of military salaries.)  This amounts to slightly over 7 percent of the federal budget, not necessarily large in the scheme of things, but shaving $27 billion (10 percent) off of it should be entirely possible without losing much if any benefits, and certainly it is not likely we would lose benefits in excess of $27 billion.  Bottom line – we are probably eliminating jobs that would never survive in the private sector, where no one is willing to pay prices to justify them.  When the taxpayer is put on the hook for such expenses, it is pure theft.  It may be pennies in the ultimate scheme of things, but this just makes it sophisticated theft (per Office Space, it is much smarter to steal pennies at a time across a base of millions of people or transactions, rather than trying to steal $1 million off of one person or one transaction). 

But why limit this discussion to federal government salaries?  If you extend this to state and local government, you are probably talking about real money.  So much of the federal budget is transfer payments unconnected to salaried employees, but especially at the local level, we are primarily talking about salaries for teachers, police, firefighters, etc.  The same labor market problems exist here, except they are limited to some extent by the ability to move to a different town that is more efficient in its provision.  When the flap over teacher’s collective bargaining rights in Wisconsin took place, I had remarked that the fact that there was no shortage of teachers in Wisconsin probably indicated that they were, on average, overpaid as a group.  If I had the power, I would cut their salaries 5 percent across the board, and see if a shortage arose; absent a shortage, rinse and repeat until you see one, and then increase as necessary so that there is no excess supply of teachers.  (It’s a little more complicated than this, as there are no doubt individual teachers who are underpaid relative to their abilities, which is the fault of their unions.  These might be the ones most likely to walk due to a salary reduction, but the point remains that if you could eliminate the union you could lower the average pay and still retain the best teachers). 

As an aside, there is nothing that bugs me more than people whining that such and such a profession deserves to be paid more than it is, because those professions most prone to such whining are the ones most likely to be overpaid.  Teachers are the best case in point.  If you think you are underpaid, leave and find another job, otherwise shut up.  It’s a noble profession, true.  But there is an ample supply of noble people who would do it for less.  (In fact, there are about a gazillion hours that go into voluntarily teaching kids to play various sports – not reading or writing, granted, but not entirely devoid of value).  The only way to maintain premium salaries in such a profession is to limit the ability of would be teachers to compete against each other for available jobs.  This is done by erecting bogus barriers to entry (education degrees), and by unionizing to restrict the ability of local governments to contract directly with individual teachers on mutually agreeable terms.  I know of a guy who has a law degree from Yale, experience in investment banking, significant experience as a youth wrestling coach after competing as a Division 1 wrestler, who has to jump through certain hoops in order to get a job teaching high school in Texas, one of the most conservative states.  Now, he may be a better teacher for going through these hoops (though he may not), but there are plenty of people who have probably jumped through these hoops who are known to still be lousy teachers. 

Buying Beach Front for Bird's Eye View of the Flood

Perhaps the next most pointless intellectual endeavor after writing a blog is getting into a Facebook debate.  Facebook is great for those smarmy little political cartoons that, in the spirit of tolerance, try to smear in some way anyone with the opposite political view.  A friend recently posted a cartoon with the teacher from the Simpson’s, lit cigarette in hand, and this caption:

Bad Teaching 101: A New Bill in Kansas Would Require State School Teachers to Question The Existence of Climate Change

My friend added the following remark: “Really?! You may debate cause. You may not debate the evidence.”  A mutual friend then made two successive comments: “unbelievable …” followed by “I take that back … too easily believed …”

I seemed to have adopted the anti-Andrew Carnegie approach to Facebook, which is to lose friends and influence no one, so I made the following comment regarding the believability:

“You are right, it is too easily believed, but not because it's true; it's too easily believed because of a little cognitive shortcoming called confirmation bias - you want to believe it is true about us knuckle draggers, so you accept it at face value. But a five second google search shows that the language of the statute is "climate science," not "climate change", even though the blog I found the wording on also made the swap of "change" for "science," probably due to the same cognitive shortcoming. It's a distinction that is a big difference. It allows, for instance, about debates over cause. All that said, there is nothing simple about climate science - if it is taught at all, it should be part of an AP course, and honestly very few people with a bachelor's degree teaching high school science are capable of understanding the nuance of it. For that reason, it is more likely that what you would be taught is what the teacher wants to believe.”  

Which beckoned the counter:

“…let's be honest the debate is not over whether or not our climate is at some sort of tipping point but rather over whether or not man is contributing to the causes or speed of the change and therefore whether human action can be legislated. This Kansas legislation is very political in nature, and I do see this sort of legislation as spearheaded by knuckle-draggers... these are not people looking to debate the cause/speed of climate change but rather are deniers.... and denial is simply not upheld by hard science. Politics aside, I know you are a scientist, led by models and proof, so am surprised if you feel climate science is controversial... but I do NOT see all Republicans as knuckle-draggers...”

My reply:

“I have to be honest with you, I would support this legislation 100 percent as a second best option to not touching the subject at all in grade school or high school. It is in no way shape or form a "fundamental" science, in the sense that I want my kids learning biology, chemistry, and physics. It is a sub-specialty of a sub-specialty of a sub-specialty, and therefore its presence in the curriculum itself is very political in nature. If you want to argue that it is worth teaching because of its policy relevance, then you: 1) prove my point; and 2) should instead consider a curriculum that teaches some fundamental economics, which has far more policy relevance. And actually the debate is over both whether we're at a tipping point and whether humanity has contributed to the situation or not.

This put in mind of a correspondence I had with the author of Big Questions, Steven Landesburg.  In that book, the author makes the argument that no one really believes in God, because given the known deterrent effects of punishment, and the prospect of eternal damnation, we would essentially see far less sinning.  I asked him at the time if he ever thought about the same argument relative to catastrophic global warming, adding that very few professed believers personally cuts back their "footprint" dramatically enough on an individual basis to lead to an aggregate result that would do anything even if all believers and non-believers followed suit. I acknowledged, however, that this could be a free-rider problem, with the share of non-believers being too big for any efforts of the believers to matter, and so the believers go ahead and spew out as much CO2 as the rest of us.

His reply was interesting: “It seems to me that an even better indicator is this: How many of the professed believers are buying up land in areas where land will become more valuable if their predictions are true? (E.g. cold climates, inland cities, etc.)”  He is absolutely correct that this is a better indicator, because unlike my indicator, it doesn’t suffer from the free rider problem of the deniers doing nothing to counter global warming.  In fact, it relies upon the deniers doing nothing for speculative purposes.  The logic is this – right now there are all these deniers out there who don’t realize that Manhattan will be flooded, and that Minneapolis will soon become a tolerable climate, so I can sell what is now over-priced land in Manhattan to buy land on the cheap in Minneapolis.  Once the reality hits, and the deniers are under water in Times Square, this speculative investment pays off big time.  Why did all of this come to mind?  Because the person who is worked up about the knuckle dragging deniers just bought beach front property.

I really don’t want to debate global warming, which is as you may have noticed a very passé term, replaced by climate change, which clearly allows for ups and downs – the change in term is probably an indication of retreat from a rigid position that I am guessing no longer enjoys true support.  It is a fashionable smear on Republicans to say now that they are anti-science.  But there is merit in being skeptical about the claims of a fairly new science; history is replete with examples of false scientific theories that enjoyed the consensus of the brightest scientific minds of the time – whether we are discussing spontaneous generation, the earth-centered universe, the list can go on and on. 

There is no point in history where scientists suddenly as a group become immune to mistaken adherence to incorrect theories.  What we do know is this – 1) the predictions of the models that formed the basis of the global warming alarmists have been way way off; 2) the scientists who have been at the head of the global warming alarmism have been caught with significant egg on their faces – withholding data and black-balling legitimate scientists that are skeptical; 3) global warming alarmism has been a career-maker for many scientists – absent the purported policy implications of their theories, government funding for their work would be a fraction of what it has been over the last 2 decades; and 4) for every industry that has a vested interest in denying global warming that seeks to fund scientists to reach a foregone conclusion, there is an equal and opposite industry that has a vested interest in inflating the occurrence or damage of global warming which also seeks to hire scientists to reach a foregone conclusion (witness the parade of green energy companies getting government subsidies).  For someone who may not be competent to judge the merit of the different positions in the debate or the ability to pick which experts are trustworthy, or who otherwise does not have the time to educate himself to make their own informed decision, these four facts do not lend themselves to blind adherence to global warming alarmism.  The second point especially seems almost damning to the global warming crowd, and it gives the lie to the idealized version of science being an open and disinterested search for truth.  It seems the knuckle draggers are not alone in trying to avoid debating the cause/speed of climate change.

Professional scientists are very smart people, but they are not immune to ethical problems or to severe confirmation bias in their work.  In the long run, the scientific process usually corrects the errors of past theories, but in the short run claims to certainty are almost certainly overblown.  And, in fact, the tide is beginning to turn on the false “consensus” about catastrophic global warming: only 36 percent of geoscientists and engineers believe that humans are creating a warming crisis; the remainder either believe nature is the primary cause or that future warming will not be a big problem (http://www.forbes.com/sites/jamestaylor/2013/02/13/peer-reviewed-survey-finds-majority-of-scientists-skeptical-of-global-warming-crisis/)  Not buying it?  Sell your Manhattan real estate for something in Minneapolis and laugh at us knuckle draggers all the way to the bank!

The Midas Touch

This week a facebook friend who is a scientist posted this quote from the state of the union address:

"Every dollar we invested to map the human genome returned $140 to our economy. Today, our scientists are mapping the human brain to unlock the answers to Alzheimer's; developing drugs to regenerate damaged organs; devising new material to make batteries 10 times more powerful. Now is not the time to gut these job-creating investments in science and innovation. Now is the time to reach a level of research and development not seen since the height of the space race."

Because arguing with strangers on Facebook is the best part of Facebook, I posted this rejoinder: “As a scientist, you should be skeptical about a claim that $1 of investment in anything has ever yielded $140 of benefit, or that it would continue to do so in the future. He could have claimed we've finally discovered a perpetual motion machine, and you would have laughed your ass off. You should be doing the same with this claim. (That said, I am a proponent of funding the sciences, but I am not a proponent of crazily stupid claims to get others to buy in).”

And that is when it got interesting, because someone with 30 seconds more time on their hands posted in a comment a link to a study with the subtitle: “How a $3.8 billion investment drove $796 billion in economic impact.”   (http://battelle.org/docs/default-document-library/economic_impact_of_the_human_genome_project.pdf)  That’s a ratio slightly over 200, which suggests that Obama was understating the case for government funded R&D.  Damn fact checkers!  That’s always my first thought.  But I am way too skeptical of my mad skills, as the kids these days say.  

The key here is the distinction between “economic impact” (the subject of the study) and “return,” which is what is stated in the speech.  The return consists of the combination of benefits to consumers (called consumer surplus) added to any corporate profits (producer surplus) derived from new products that have stemmed from such initial research efforts (assuming there are corporate profits, this implies that the costs of the investment and any production costs are recovered in the price of new products that arise out of that research). Follow-up research efforts would form part of the economic impact, but have nothing to do with the "return" on the initial investment.  

The economic impact is really meaningless. Suppose, for example, that the government dug a $1 billion ditch in the wilderness under the mistaken impression that there was gold in that area, and that following this a multitude of private investors dug 140 ditches at a cost of $140 billion, and not one ditch yielded any gold. Now, the economic impact of the $1 billion spent by the government is 140 times its initial investment, but the entire investment of $141 billion is a loss of $141 billion. Why is it a loss? Because all of the $141 billion of resources that went to the hunt for gold would have otherwise been employed in more productive pursuits. The economic impact is simply a measure of the follow-on investments, which may or may not yield a combination of consumer and producer surplus that exceeds the initial investment amount. I am not suggesting that these investments will not yield a return (as in the gold example), only that what is measured in that article has nothing to do with the return.

Some may take issue with the claim that the resources that went to the hunt for gold would have otherwise been employed elsewhere in the economy, but during the time frame of the study, the economy was, but for some minor exceptions, running at full employment.  Usually when people speak of a stimulus effect of government spending, it is during periods of recession, although even then the “multiplier” effect – i.e. $1 of government spending yields more than $1 of additional GDP – is not universally accepted among economists (although it clearly is among politicians).  Professor Vic makes a living debunking these same specious arguments in relation to public subsidies for stadiums and sporting events.

In fairness to Obama, the report itself uses the term “return” in speaking of the impact of the human genome project.  But this is not a harmless matter of semantics, and it is somewhat startling that this line was left in the state of the union speech.  Taken to its logical extreme, it is an argument for taking the entire federal budget and spending it all on R&D.  As the federal budget has been running at roughly 25 percent of GDP for Obama’s term (up 5 percentage points from the historic average over the last 30 or so), if you dedicated that amount to R&D, that simple investment would increase GDP by a factor of 35 – we’d be 35 times richer as a country!  As for those wide-eyed fans of the President (the press), there is a halo effect at work that has them take this claim at face value – if this President can finally right the injustice of women having to pay for their own $7 a month birth control, than surely he can pick R&D investments that yield a 14,000 percent return on investment.  Forget about Midas, who merely turned everything he touched into gold, or Jesus with the miracle of the loaves and fish, we have Obama, who does both simultaneously. 

As with most of the content of Obama’s speeches, the R&D schtick is a straw man.  If you are against government funding of R&D, you are against the human genome project, because all government research is as valuable as the human genome project.  (Never mind that the beginning funding of the human genome project occurred in the Bush 1 years, and continued on through the Bush 2 years.)  The essence of his political speeches is to constantly suggest we can all have something for nothing (the one percent accepted of course), and that all that prevents this is Republican intransigence.  The truth is that there are very few pieces of fruit hanging low on the tree that we've simply failed to see, and now we can all sit down and enjoy; government is more about redistributing the fruit, and in the process it kills the tree. 

There is a legitimate potential benefit from government financing fundamental science – first off, although follow-up research coming from the findings of that fundamental research may yield commercially beneficial innovations, the cost and risk of the basic level science may be too large for a corporation to embark on such fundamental research.  Or, assuming that is not the case, it may be in the interest of the government to finance such research so that the intellectual property created by the fundamental research is in the public domain, which can allow for multiple parties to build on that base knowledge in deriving innovations with commercial value.  (Even in the case of the human genome project, there was a private company making the same efforts as funded by government.)  If all in the hands of one party, dissemination of such knowledge may be slower, leading to a slower pace of innovation or higher costs to consumers.  This is the theoretical case for a legitimate government role.

So much for theory – as a practical matter, not every government research project fits this mold or even has any potential commercial or policy value, and there is a real public choice problem regarding whether the most promising R&D possibilities will be funded, as opposed to those that are most arduously lobbied for. Witness all of the subsidies to alternative energy companies that are all going bust. These are monies channeled away from potentially more lucrative private sector R&D investment possibilities, which have yielded nothing for us commercially, but which have handsomely rewarded those who have supported Obama and the Democratic party.  Governments are generally not very good at “industrial policy” – picking certain industries to support – and to the extent inflated stories about the magic of R&D are used to justify de facto industrial policy in support of pie in the sky green energy, all they serve to do is make Al Gore rich.  It is much as I predicted about Obama back in January of 2009:

“Here’s my prediction – the Obama administration will do very little in connection to the environment. There will be some payola to the parties that benefit from the alarmism created by the wild claims, enough perhaps to keep them quiet. I would say it will take very little to keep them quiet once Obama is in office, and in fact a little extra their way will have them lauding the policies of Obama even if in fact they are mere lipstick on what we’ve been told for eight years is a pig. (I suspect he may go a little too far and choose a policy that reaps great economic harm without any real prospect of confronting seriously the devestation we are told is imminent.) We’ll see, in short, if Al Gore really drinks his own kool-aid, and I suspect that he doesn’t. If he is honest, the policies he will see should make him the Kierkegaard to Obama’s environmental church [i.e. he should be incensed], but something tells me he will quietly glide into the pew and keep quiet in exchange for the promised donuts in the parish hall. At the end of the day, it will be a moral posture that is good for business and the Democratic party, and nothing more. Like homeless people circa 1992, environmental problems will largely disappear.”

Hate to say I told you so.

A Simple Test of Economic Justice

Hatcher’s two question test of economic justice:

1)      Scenario 1: one man has ownership of another as a slave, based on the announcement of the king.  Ownership entitles him to the following: he gets to extract all of the economic benefit of the man’s labor, less the cost to keep the slave alive (i.e. food, clothing, shelter).  The slave cannot do work of his choosing, instead having to follow the directions of the slave owner.  The slave also works the hours he is told to work, and leisure is restricted to the minimum time necessary to maximize the slave’s output. In order to exert this much control, the slave owner is able to restrict the man from ever leaving the slave owner’s estate, thus severely limiting his freedom of association, his freedom of speech, and his freedom to practice his religion.  (All such rights are limited to that which he can exercise among his fellow slaves.)  The slave owner uses the profit he derives from his slave for his own private consumption.

2)      Scenario 2: same as scenario 1, except that the slave owner allows the slave to pick from among various jobs needing to be done for the benefit of the slave owner.

3)      Scenario 3: same as scenario 2, except that the slave owner allows the slave the freedom during his leisure time to go where he sees fit.  (Assume, in all scenarios, that any privilege granted by the slave owner cannot result in the slave escaping to freedom, so that ownership and its prerogatives are always enforceable.)

4)      Scenario 4: same as scenario 3, except that the slave owner pays the slave a small wage above and beyond the subsistence costs incurred by the slave owner.  This wage, while small, is beneath what we assume the slave would be able to earn in the free market above and beyond the costs he would face to clothe, feed, and shelter himself.

5)      Scenario 5: same as scenario 4, except that the slave is able to choose his own level of work hours for a week, subject to the constraint that they are sufficient to cover the costs incurred by the slave owner for room and board. 

6)      Scenario 6: same as scenario 5, except that the slave is able to seek work outside of the plantation, where he can negotiate his own wage, but the slave has to pay a percentage portion of this wage (i.e. a tax) to the slave owner that exceeds the costs to the slave owner of room and board for the slave, so that there is still a profit for the slave owner.  Note that now enforcement of the slave owner’s rights requires that the slave owner is able to audit the slave’s economic relationships with his employers, whereas in contrast the slave owner’s economic relationships are private.

7)      Scenario 7: same as scenario 6, except that the slave is permitted to live and work where he wishes, and the tax is reduced by an amount equivalent to what the slave owner would have paid for the slave’s room and board, as these expenses are now assumed directly by the slave.  The profit for the slave owner, who now has no expenses related to the slave, is simply the amount of the tax.

8)      Scenario 8: same as scenario 7, except that instead of one person being the slave owner, the king names a consortium of many people as the collective slave owner, and these people evenly divide the tax paid by the slave.

9)      Scenario 9: same as scenario 8, except that instead of using the profit (tax) for personal consumption, the consortium redistributes all such profits to another set of persons the consortium considers to be in need.  (Assume that in the absence of such redistribution, the slaves would not have voluntarily transferred as much money to the group of recipients.)

10)  Scenario 10: same as scenario 9, except that instead of the king assigning the consortium of slave owners, that consortium is elected by a democratic process.

11)  Scenario 11: same as scenario 10, except that the slave can move out of California, and go to Texas, where the democratically elected consortium takes a slightly different view (13% income tax versus 0%).

Query 1: In the continuum from Scenario 1 to Scenario 10, at which scenario does the  relationship between slave owner(s) and slave become just?

Query 2: If a slave living in California makes a fortune as the pioneer of the Bro and/or Manzere(uh, wait a minute, an easy google search suggests that the more real world example would be a man making a fortune as a professional golfer), and the consortium of slave owners in California raise his taxes yet again, is he an uppity slave if he moves to Texas?

Drunk Teenagers Can Effectively Estimate the Impact of Decisions on Lifetime Income

Feels like I’m three beers into a beat down of Professor Vic on the foosball table after three or four dogs at the Wienery.  The good professor left a comment that is worth looking at for what I am up against in making my case, because a guy like Professor Vic is exactly who I am referring to in saying that some of my liberal friends are more conservative than they think they are.  Rather than a comment of complete capitulation, along the lines of - “Ahh, now I see it, you’ve been right all these years and I have been a foolish naïf, and I am thankful for your forbearance in always treating me with kindness and friendship despite my ignorance.  I will go forth and sin no more” -  I get agreement on two fundamental points, and resistance in the main.  So I win some battles but lose the war.

First, the two areas of agreement: 1) “the Jerky is clearly right that 2-parent families are clearly better at raising kids”; and 2) “No doubt that welfare programs make single motherhood more common.”  Put the two together and you have here a big concession – that welfare leads to more instances of problematic child rearing.  And by problematic, I mean for the kids themselves – they are more likely to drop out of school, have dimmer lifetime economic prospects, etc. – as well as for society, which faces a higher likelihood of criminal behavior.  Even the first point – the superiority of 2 parent families – is one that is by no means held by all liberals; many influential authors, particularly African American women, have gone to lengths to argue that such a view is mere prejudice.  Such nonsense spawns from an impulse to deny the elephant in the room – if your community is racked with illegitimacy rates close to 70 percent, people might start noticing that this is the source of many of the problems faced by such communities, and that racism has little to do with the problem.

But the second point – that welfare adds to the rolls of single moms – is a huge point of agreement, because it gives the lie to the notion that opposition to welfare is necessarily mean spirited or motivated by selfishness.  For that reason, it is a point that very few people on the left either grasp or willingly admit – better to think yourself morally superior to the Scrooges on the right.  Even Professor Vic is somewhat schizophrenic on the point.  If welfare increases single motherhood, it does so through the standard economic explanation – reducing the private costs of single motherhood is tantamount to subsidizing it, and any subsidy will increase supply.  So if welfare adds to the little bastard population it does so via a rational economic decision on the part of the mother.  Welfare affects decisions.

But here is Professor Vic denying a point he has already conceded: “Lots of bad choices are being made by parents out there, so how do you minimize the effects of these bad choices on the kids?” The first part of the sentence treats the choice as independent from the policies intended to minimize the bad effects of said choice.  As Professor Vic astutely recognizes, once a kid is involved you have to consider the welfare of the child in addition to the incentives for more children being placed in such a situation.  As I said in the initial post, if the stork randomly delivers these babies to various single moms, it changes the whole issue – now the welfare of the child can be considered without changing the equation.  He recognizes there is a “trickier” trade-off, but then either ignores the trade-off entirely, or alternatively assumes that current welfare policy is either optimal or insufficient; otherwise he would agree some scaling back of welfare is good public policy.  

Professor Vic accepts the frequency of bad decisions given current policy.  Currently, almost 40 percent of children are born to unmarried parents; in 1940, it was approximately 4 percent (http://www.cdc.gov/nchs/data/databriefs/db18.pdf).  Apparently back in 1940, contra Professor Vic, making life “miserable for single parents in the hope that a couple of drunk teenagers fooling around in the back seat of a Chevy do an accurate lifetime income estimation before doing the  deed” worked quite effectively.  If we think of 1940 as the normal number, Professor Vic is willing to accept a tenfold increase in single parenthood in order to make it easier for what might otherwise be the 4 percent of kids born out of wedlock.

This comparison no doubt glosses over broad cultural changes that have also affected the illegitimacy rates, one of which was the loss of the stigma surrounding pre-marital sex or single motherhood.  Perhaps there is no stuffing the genie back in the bottle, but even if such stigmas were to re-emerge, I doubt they would have much effect given current welfare policies.  It is already the case that motherhood is viewed by many teenage moms as a path to independence from their parent(s), who they know will not approve of them getting pregnant – they already face significant disapproval at home, which has little deterrent effect. 

If we go back to 1940, prior to the emergence of the welfare state, a teenage pregnancy was a ticket to prolonged dependence upon your parents, not independence from them.  Which also highlights what is in many cases the false trade-off posited by Professor Vic – i.e. assuring the welfare of the child inadvertently improves the welfare of the mother, but such is not the intent of welfare.  Does a welfare system that enables a single parent to move out of grandmom and granddad’s house improve the welfare of the child?  Absent welfare, in the majority of cases extended family would step up to see to the well-being of the child.  With welfare, the single mom who likes to make bad choices can safely tell such family to go pound sand.  Starting with the 4 percent, how many of them would have been raised with the help of grandparents who simultaneously try to help the mother step up to her responsibilities?  I would guess at least 3 percent.  Now the tradeoff becomes even worse – to ensure the material welfare of 1 out of 100 kids, you jeopardize the overall welfare of 39 out of 100 kids. 

Suppose there were a disease that was both extremely painful and eventually fatal.  And some maliciously evil Big Pharma company were to develop a treatment that removed the physical pain, and maybe even extended the lifespan of the patient, but at the cost of making the disease contagious, to the point where the epidemiology would suggest a 40 fold increase in the incidence of the disease.   Oh, and let’s add that only children suffer from the disease.  Would you approve the drug? 

Putting all that aside, Professor Vic has three suggestions for either bringing the 40 percent number down or otherwise limiting the fallout from single motherhood.  First, to limit the number:  “Obviously, you could try to prevent pregnancies to unwed mothers in the first place, which is why John is a big supporter of Planned Parenthood.”  Right, because pharmacies don’t sell condoms or the pill at prices that are a fraction of the cost of the smokes and cell phone data plans that most impoverished single moms already can afford, I need to support Planned Parenthood (or Obamacare for that matter) so they can get it for free.  Planned Parenthood has zero effect on the prevention of pregnancy.  Planned Parenthood exists to end pregnancies, not prevent them.  In so doing, there is an argument that they help to reduce single motherhood (and there is a counter-argument), but the logic of that as a policy prescription is “destroy the village to save it.”

Second, again to limit the number: “You could break down barriers that prevent people from getting married, which is why John is a big supporter of marriage equality.”  Yes, because most unwed mothers got knocked up by their gay partner?  Although I think Professor Vic would be somewhat surprised by my opinion of marriage equality, that is an issue for another day, and it is a complete non sequiter for the issue of single parenthood. As I’ve argued, policies that make welfare contingent upon not being married are the biggest barrier preventing parents of children from getting married.  Other than that, I cannot think of any significant barrier to would-be parents getting married. 

Third, to limit the fallout: “You could provide generous subsidies to education so that all kids, regardless of parental status, have the chance to maximize their potential, which is why John is a big supporter of public funding for education.”  Professor Vic, what if I told you I know of a school district where the per-pupil spending at the primary and secondary level is close to $30,000 per year (http://www.cato.org/blog/census-bureau-confirms-dc-spends-29409-pupil)?  And, as is your wish, it is free to all residents regardless of parental status.  Would you move there and send your kids happily off to those great schools?  That city is Washington, D.C., and your girls would be breaking the color barrier as the only white kids in attendance.  (In 2010, when D.C. was under-reporting its expenditures to the Census Bureau by 40 percent, it was still tops in the country.)   You wouldn’t have to worry about them for too long – chances are they would drop out eventually.  And for the record, I am a supporter of public funding of education, which is not the same as public education.  Unlike welfare, the benefits go directly and unambiguously to the kids.

The Barbarians at the Gates

Lesson number 1: if people are more educated about economics, they will tend to be more conservative.  In a lot of these posts, I’ve focused on the ignorance surrounding the economic effects of taxation and simple welfare policies, but I can and will expand this to many other areas – unions, trade, minimum wage laws, regulation, etc.  Lesson number 2: many people who lean Democrat champion policies and the changing of cultural norms that are inimical to their own cultural conservatism.  

Every society faces the equivalent of the barbarian invasion on ancient Rome with the spawning of each new generation of kids, which is the perpetual consequence of men and women getting their freak on, as the kids these days say.    Every kid born to this world is a threat to civilization.  The question is how to convert the barbarian hoards to the Roman ways prior to their pissing in the aqueducts. 

The best way, as is now indisputably established by countless Federal grants bent on using social science techniques to confirm common bleeping sense, is that a kid, especially a boy, be raised in a two parent family.  If a boy is raised as such, he is much less likely to spend his teen years lopping off the heads of the Michelangelo statues; if a girl is raised as such, she is much less likely to repeat the same mistake of having a boy out of wedlock, who then joins the fun by stealing concrete benches out of the Coliseum with his wayward uncle. Everyone in polite society – conservative or liberal - knows these fundamental truths. 

 

 

I have great friends who are liberals – despite deep and profound differences in politics we share a common and laudable goal in child rearing - raising kids to become responsible adults who develop their talents and contribute to civic life.  In short, in their actions these friends reveal a fundamental agreement with me in their regard for the role and importance of family.  But for reasons that are many, they simultaneously champion changing norms and mores, as well as government policies, which have the effect of diminishing marriage and family and adding more diapered barbarians bent on future mayhem.    
 

Single parenthood is a negative externality.  In general if a behavior or choice carries with it a negative externality, you want to tax it so the one responsible for generating it considers the fuller social cost in his or her decision.  On an island the full cost of the petty crimes of the fatherless kid is borne fully by Mommy dearest, but in the city, when the kid breaks out of the crib and onto the street, bullets start flying and there is a cost borne by someone other than the mom.  Because potential moms don’t face the full potential cost of single motherhood, they oversupply the little barbarians.  In small numbers, we can absorb and minimize the cost.  Back in my day, the few kids who could run free at an early age stealing small sections of railroad found few potential accomplices who wouldn’t face the wrath of two parents, and because everyone knows you need two people to carry a small section of railroad, such petty crimes never made it past the planning stages.  But once you start adding in a few more kids into the neighborhood with plenty of time on their hands, a distracted mom, and a non-existent dad, suddenly things quickly progress from the planning stage to the doing stage.  And the costs begin to multiply.  The costs are not limited to the effects of crime on the victims, or to the increased need for crime prevention and enforcement.  Much of it is more innocuous – taking the form of the many programs that comprise welfare. 
 

Although this is fundamentally an issue of culture, the recognition that single motherhood is a negative externality ties it right in with the general economic ignorance of the voting public.  Given the negative externality, there is some optimal level of cost that should be foisted on potential single mothers and/or the shiftless irresponsible fathers.  The right amount of cost leads to acceptably low rates of illegitimacy.  If you look at changes in society over the last sixty years, they take two forms.  First, we’ve instituted policies (the Great Society, Obamacare, etc.) that subsidize single parenthood, thus alleviating the private costs that were always assumed by the single mother and her family.  Second, we’ve otherwise removed any social stigma connected with single motherhood, which has the effect of removing the “tax” that we traditionally levied on pre-marital sex.  Remember, optimality requires adding to the cost of single-motherhood beyond the private costs faced by the single mother; we’ve removed much if not all of that private cost with welfare, and additionally eliminated the stigma that had the effect of making people consider the fuller social costs of out-of-wedlock births.
 

Welfare is nothing if not well-intentioned – helping those most in need and all that – but it unambiguously subsidizes single motherhood.  If getting on the dole is tough, as it once long ago was, adding a (or another) mouth to feed looms as a hardship, and the would be single mothers are careful to require that would-be suitors “buy the cow” if they want to sample the milk.  Absent any stigma attached to single motherhood, bearing the full cost of raising the child alone would still limit the extent of illegitimacy.  If you make it easy to get on the dole, some young women will purposefully get pregnant to get an income stream that grants them full independence from their parent(s).  Indeed, our welfare policy has even worked against the societal pressure for the father to step up and make an honest woman of the mother – it is much harder to collect welfare if the father marries the mother.  Marriage for the young mom brings with it the uncertain reliability and perhaps limited income potential of an uneducated father, and this is compared to the no strings attached benefits of food stamps, Section 8 housing, Medicaid, etc.  Young single moms may be uneducated, but they’re not stupid.  They know that there are worse things than the dole – marrying a loser or living under the autocratic rule of your parents – “whatever!”

Perhaps 1950s America was no less engaged in premarital sex, but the costs of the obvious consequence was borne locally, principally by the family of the woman – hence shot gun weddings to make sure the father stepped to the plate to handle the costs.  Absent this, the costs were still absorbed by the mother and the family, and the costs were appropriately ramped up (tax the negative externality) by the stigma attached to single parenthood.  If your daughter got knocked up, there was some judgment of you as a parent, so you took pains to make sure that it didn’t happen.  If it did, you took out the shotgun and paid for a wedding.  Failing that, you suffered the cost of the stigma, and such was life.  Now, we can look back at that time and bemoan the cruelty, intolerance, and judgmentalism, but we cannot ignore the beneficial effect of that stigma.  The effect was the protection of children, plain and simple, because the child born to the single mom is the one member of society who bears the largest cost of single motherhood. 
 

Social pressures exerted on unexpected fathers, and some basic moral counseling for young single women that helps them avoid unexpected pregnancy, still persists among the well-educated set.  But elsewhere?  Sex is the ultimate democratic good – income and wealth can be “inequitably” distributed – but at least the poor have their sex.  Indeed they do, which is largely why they stay poor.   And in the past – people were held to account for the obvious consequences of sex outside of marriage.  Now we dare not be critical of people who find themselves in difficult straits due to getting knocked up.  The cost has been spread so that the shotgun wedding is no longer in play, the behavior has been excused and women and men left off the hook for one of those unfortunate consequences of unfettered sex; indeed, the women in these cases have been lionized as heroic victims – no stigma there.  Fathers feel less obligation to the mother because there is no shame assumed by the mother, and because the financial well-being of the mother and child is not at issue.  Your girlfriend got pregnant?  Shit happens, as the kids these days say.
 

But stigmas have a funny way of morphing and persisting.  In its uglier aspects, the olden days stigma attached to the kids as well – the child is a “bastard” and all that - but to the extent that the stigma made a woman think twice before having a kid, it prevented kids from being born into a single parent home.  You know where the stigma is now?  Smack dab on the foreheads of the kids, but in a different way.    Regardless of what lip service we all (liberal and conservative) may pay to the notion that single motherhood is noble, to the notion that we should not judge such mothers, to the notion that stigmatizing single motherhood was an ugly injustice that we are glad to be rid of, people of means will spend any amount of money to make sure that their kids live their lives in a cocoon safely protected from all the progeny of the noble and proud single moms.  They don’t want their kid joining in on coloring Hitler mustaches on the Mona Lisa. The village can raise the little vagrants if they far outnumber them, but as the ranks of the vagrants grow, the village simply moves to the next town over or sends its kids to Sidwell Friends.  The kid is still a bastard, we just don’t call him one.

 

Erosion of the stigma, and simultaneously the not coincidental emergence of generous welfare policies, have the combined effects of assuring that more kids each year be born without the benefit of two loving parents.  These changes can only be viewed as beneficial under the assumption that the stork delivers babies at random.  But of course the stork doesn’t deliver babies at all.  Babies come from the decision of young adults, and those decisions have become more and more prone to yielding fatherless kids as a direct result of these changes.  Right now in America, the percentage of out-of-wedlock births by major ethnic groups is as follows: 68 percent for blacks, 45 percent for Hispanics, 24 percent for whites, and 15 percent for Asians.  The situation created by welfare policies are self-reinforcing, in that they yield a generation of kids who will themselves be much more dependent on the state, thus increasing the demand for more generous welfare, which ensures further dissolution of family. 
 

If you’re celebrating the gains made on behalf of the welfare state in the last 4 years, don’t break your arm patting yourself on the back, because these advances likely come at the cost of more kids being deprived of the full parental guidance you were probably blessed with.  You can wring your hands over ancillary issues such as gun control and the occasional random massacre of innocents, but meanwhile please don’t celebrate policies that lead to the rearing of kids who will quite predictably be the perpetrators and victims of the less random versions of violent crime.  It's like a bad drug - the initial demand doubles the subsequent demand.

Free Riding the Gun Owners

Just when I was about to tell you the second of two factors that leads me to believe many who vote for the Democrats are more conservative than they think they are, I left you hanging for over a month.  Work got busy, and then of course the holidays came along.  Now that I’m back, I’ll leave you hanging for another week while I digress on ye olde gun debate.

As is the Hatcher’s style, rather than re-hashing all of the standard arguments pro and con, I’d like to point out some factors that seem to go widely ignored, and which have more general application outside of this particular debate.  Full disclosure, I am not a gun guy – I only recently overcame my fear of power tools, and am proud to say that I now only tremble slightly when I need to use a chainsaw.  So I am not writing this while admiring my collection of firearms.  My mode of self-protection is to not be a drug dealer, and to make enough money to live in gated communities.

Prior to considering the issue of rights, I want to look at the issue on purely economic grounds.  Let’s define a few economic terms before getting started.  An externality can either be a cost (negative externality) or a benefit (positive externality) from a private activity borne or enjoyed by someone other than the guy engaging in that activity.  If a neighbor has outdoor speakers that blare the collected works of Vanilla Ice 24 hours a day, this would generate a negative externality (unless you are Vanilla Ice, and even then maybe).  In contrast, if a neighbor invests in landscaping that makes her yard look like the Hanging Gardens of Babylon, enhancing the beauty of the street, there is a positive externality.

As a general principal, if some private activity generates a negative externality, in principal we would like the private actor to bear the externality cost in some form (a tax, for example), so that the full cost of the activity is considered by that actor relative to the benefit.   A tax that increases the cost of that activity will not in all cases eliminate that activity, but it will ensure that those who still engage in it are doing so because the private benefits they receive exceed the full cost to society; in principal (though rarely in practice), the tax revenues generated from those who still partake can be redistributed to those who suffer from the negative externality in such a way as to make them whole, and all is good.   Although some activity or purchase may generate a negative externality, we do not in general outlaw the activity or purchase.  The private benefit may exceed the sum of the production costs of the item and the externality cost, in which case we do not want to bar the activity entirely. On the flipside, for the those activities that generate a positive externality, because the private actor faces the full cost while receiving only the private benefit, you generally get an under-provision of such activity.  Policies that would somehow subsidize these activities would be good for increasing overall welfare. 

The Sandy Hook shooting is clearly an example of a negative externality of gun ownership – a legal gun owner does not protect her stash of guns, they are stolen, and terror ensues.  From my understanding, the killer was not able to obtain guns legally due to laws in place.  If no one other than the police (assuming they are able to prevent the theft of their guns) is in possession of a gun, there is no possibility for the killer to steal them, and the mass gun killing doesn’t occur, although it may have otherwise been achieved (a home made bomb, or some other method).  It follows that if gun ownership were banned, and all guns could be confiscated from the law abiding and non-law abiding alike, Sandy Hook doesn’t happen, or at least doesn’t happen with a gun.  For the sake of argument, let’s say it doesn’t happen at all.

Gun ownership for law abiding citizens can therefore in theory have a negative externality on society, and it is not limited to such guns being used with malicious intent.  Guns not properly secured or handled by their owner may be involved in accidental shootings and killings, as happens from time to time.  But the presence of a negative externality, as stated, is no rationale for banning gun ownership.  There is a private benefit to be considered for the gun owner, which is the feeling and reality of enhanced security for themselves and their families.  

Admittedly, the true probability of being the victim of a violent crime, for which one would rationally desire a gun, is probably very low for most people, and many who purchase guns may do so because they over-estimate that probability.  This comes from a combination of factors – there is the “availability cascade” – we are inundated in the news with stories of violent crime, which are preceded by prime time shows that revolve around violent crime, and so we naturally over-estimate the probability.  Perhaps, as according to Obama, some are irrationally driven to “cling” to their guns because they are adrift in the modern world, and are excessively risk averse. 

No matter whether a person severely over-estimates his probability of being assaulted, or whether his degree of risk aversion is excessive, it doesn’t really matter:  It is an indisputable fact that there is a private benefit of enhanced security.

As is so often the case, many gun control advocates themselves possess guns, or hire armed security, under the entitled perspective that the threat to them is real, whereas the threat to the average Joe gun owner is wholly imagined.  There was a local newspaper in New York state that published the addresses of all gun owners in a certain county in the aftermath of Sandy Hook (obtained via the Freedom of Information Act)  – such was the outrage over this editorial idiocy that the paper saw fit to hire armed security – guns for me, not for thee.  These people are making an implicit judgment – that either other people are over-estimating the probability of victimhood, or that they are excessively risk averse, and that for one or both of these reasons they are being irresponsible in owning a firearm, and perhaps should be restricted from doing so, but my right to do so should not be abridged because I face a real threat.

One Democratic politician living in the country covered by the gun-map stated that as a result of this publication he felt it necessary to buy a gun.  His logic - every criminal in the county now knows that his particular house is occupied by a guy like the Hatcher whose only method of defense is that used by Monty Python in the great skit on the Inquisition – making the criminal sit in the comfy chair and poking him with soft pillows.  Here, the knowledge of the criminal is key.  Prior to the publication, the criminal had no idea what households were or were not armed to the teeth, and therefore the criminal assumes that each house has some probability of gun ownership.   This acts as a general deterrent for all – gun owners and non-gun owners alike.  (Although my amateurish criminal mind would assume that any house with a Volvo parked in front of it would be occupied by an unarmed liberal who would blame his robbery on “society” and fret over the self-esteem issues of his assailant, surprisingly nearly as high a percentage of Democrats own guns as Republicans, so picking victims based on Volvos versus F-150s is not an effective strategy.)

And guess what?  The general deterrence afforded to non-gun owners from the knowledge on the part of criminals that many households own guns, but the lack of knowledge as to which particular households do, is a great example of  … drum roll please … a positive externality.  The non-gun owning dweebs like me who “use our words” are free riding on the paranoid delusions of the gun clingers!  We don’t have to pay for the gun, or learn to use it responsibly – we just sit back and enjoy a life devoid of violent crime.  A city like Chicago, which has some of the strictest gun control laws in the country, suffers from significant levels of violent crime – criminals there know that the law-abiding by definition will not own guns, and are easy marks.  Even the Batman massacre occurred at the only one of four or five movie theatres relatively equidistant from the killer that posted an explicit prohibition from bringing in a concealed weapon (which is allowed in the state in general).  Just as when the newspaper published the addresses of all gun owners (and thus non-gun owners), specific prohibitions against firearms provide the criminal full knowledge of where the easy target lay, and the general positive externality of gun ownership vanishes.

It follows that you don’t have to arm all schools in order to have some degree of prevention against another Sandy Hook – you just cannot make it obvious which schools are or are not armed.  In fact, if all schools voluntarily announced their policy vis-à-vis armed security, there is no positive externality – the gunman simply avoids those with armed security, and the threat to those without such goes up.  Right now every sicko knows for the most part none of them are.  In the wake of 9/11, for example, I believe it became policy to have marshals on commercial flights (not sure if they just stepped up resources for this or started doing it for the first time): while it is not feasible to have them on all flights, you get a general deterrent effect by not announcing which flights do and do not have them, and of course for the same reason the air marshals are trained to blend in – they’re not supposed to look like a cop.    

So there you have it – gun ownership has a negative externality, which in isolation suggests that you would want to tax it, but it also has a significant positive externality, which in isolation suggests that you would want to subsidize it.  So the economic logic of whether more or less gun control is beneficial or harmful even ignoring the private benefits to the gun owner himself is ambiguous – it could go either way as to whether the non gun-owners are better or worse off.  There is one economist, John Lott, who has done significant work on sorting out that question, and has concluded “more guns = less crime”, i.e. the positive externality trumps the negative externality (although some portion of that crime prevention is gun owners thwarting an assailant, which technically is a private benefit).  I believe most of his work has held up, although I can’t say I follow it too closely. 

How can I be so cavalier and not look further into the research to make sure he is right?  Because there is the question of what is right and wrong, which in some cases is completely independent from the economic question.  As an example I repeat over and over again, I do not think it is right for government to tax the income of a subset of people to transfer it to another set; I believe this whether or not the benefits to the recipients exceed the costs to those taxed.  (Beyond that, I think the benefits to the recipients are woefully small in comparison to the costs to those taxes, so even on the pure economics of the question it is a bad idea.)  Similarly, the right to protect yourself from violence is way too obvious to have to argue, and if some people believe doing so requires owning a firearm, they should be entitled to own a firearm.  Even if one person’s choice to do so leads on net to slightly increased danger for others, which I don’t believe it does, this does not trump your right to self-protection. 

Clearly we do draw a line at what we allow people to purchase for the purpose of self-protection – to my knowledge no one is legally entitled to purchase a working tank, an armed drone aircraft, or surface to air missiles.  Which brings us to the issue of assault weapons, where the gun control debate seems to always play out.  I confess to no extensive knowledge of the distinctions between assault and other more conventional weapons, but it seems to me we are kidding ourselves that a ban on such weapons would have any effect on massacres of this type – Sandy Hook didn’t rely on them to my knowledge, and even if it did, the killer had enough time strolling the school with no armed resistence to do the same damage with other types of guns.  Banning them doesn’t mean you’ve cut off a supply to those really looking to use them for violence. 

Most gun advocates think that the assault ban weapon is the Trojan horse – once achieved, they’ll come for the next category until finally they’ve reduced us all to defending ourselves with karate.  I think there is reason to suspect that, as many cities have gone that route.  But everyone understands that in rural areas hunting, and the guns necessary for hunters, provide important ecological benefits at no cost to the taxpayer.  That is the irony – in the relative safety of rural America, you can own all you like; in the crime-ridden city, they tell you you can’t.  So where you most arguably require a gun for self-protection, you are SOL.  Cities tend to be liberal in orientation, and as such many liberals are self-selecting to live in communities where they restrict their own rights to self-protection, but they also restrict those who may not live in the best part of town. While this is a shame, when you have a city like Washington D.C. that is 95 percent liberal, at least most people are supportive of the gun ban.

So why the big to-do over assault weapons?  The cynical view is that it’s great for business for both parties.  Each party, I think, probably understands that to ban or not to ban will probably have little to no effect either way, but its value as an “issue” to campaign on – and in particular to raise money on – is gold for each.  It’s the liberal that always picks this fight – which suggests it is one that plays particularly well to the “expressive” voting inclinations of their base.  It feels good to be on a certain side of this issue.  The flipside of that good feeling is the license it provides one the pure sport of scorning those they regard as gun nuts.  Sure, some of them probably believe it would have an effect, and are earnest about their scorn, but for the smarter among them it is an issue that allows them their favorite pastime of parading their tribal superiority.