The basic law of economics is quite simple: People respond to incentives. In fact, that basic law may explain human behavior much better than psychology and the behavior of humanity much better than sociology. It pervades us. We have quid pro quo. We go out of our way to get great deals at sales. We do uncomfortable things like working insanely long hours for a pittance of a pay raise. We may even do the dishes in order to raise our chances of our honey expending a bit of extra attention on us. No one, it seems, is immune. Even the ascetic giving up every material joy or possession is responding to an incentive deferred into the hereafter. We do things to get things.
This being a blog of politically minded readers, the discussion had to circle around to something political. Ted Stevens is loved in Alaska for his prodigious provision of pork (pardon the alitteration - can't resist!). Pork, in the political sense, illustrates what is known as externality. Like the SUV driver who destroys the environment in disproportionate measure to the price he pays for the privilege, a politician gets more from earmarks - pork - than the constituents pay for it. Example is Sen. Stevens's (R-indicted)"Bridge to Nowhere." No sane city planner would want to spend $300 million to connect 50 people adequately served by a ferry to a city with a modern, four-lane bridge. The benefit doesn't justify the cost. Now imagine if you can get the benefit without paying the entire cost - that calculus might just look a little different. This is the calculus of pork and of externality. The bridge still costs the same but the costs are no longer yours. I in Denver am paying a fraction of the cost of that bridge.
Now there are arguments that some pork is beneficial and I won't go there. If Sen. Allard (R-bushclone) gets extra money for the National Renewable Energy Lab in Golden, CO (unlikely - he would vote against funding it if he could), one could argue that the benefit accrues to the entire population. I won't say every earmark ever included in a bill under the cover of darkness and shielded from any debate was pork; however, I would certainly prefer the matter be opened to public scrutiny and Congressional debate.
A second political principle often ignored by the fiscally responsible (sic) right is that of the tragedy of the commons. Economics holds that people make rational decisions. Within limits, this is true, especially when we have use of a resource such as public land without having to pay the costs of its maintenance. We can trash the campground and, if we're not caught doing it, the State will have to pick up the tab (and hopefully the trash). Likewise, millions of people can make economically sound decisions such as funding businesses who never intend to make a profit, buying property on credit that is neither secured nor likely to be repaid, or buying barrels of oil (on credit) with the intention of selling them later. All of these are legal decisions and all of them can be profitable - accruing benefit to the shrewd (read lucky) trader.
The problem is that each of these decisions, taken as an unique case, make sense. In an economic sense, they are rational. On the whole they are destructive to the common good. The case for regulation is based on exactly the common good. No one in their right mind wants to strangle business or limit the entrepreneurial spirit. We live as we do today because of both. The problem begins when the entire cost of the activity do not accrue to the person receiving the benefit, as in the case of speculators or pharmaceutical companies. A pharma executive doesn't die or go bankrupt because of the cost of medication, a consumer does. A speculator suffers high oil prices but not in proportion to the profit gleaned from his or her speculative activities. And it is there that damage is done. It is there that Government regulation, the anathema of all good Republicans, has to step in and defend the common good.
TAGS: Common Good, Economics, Earmarks, Speculation