Again, referring to Thomas Sowell's book, Basic Economics, I've been able to study his materials to get much greater clarity as to what kinds of activities should be government regulated or managed and which should not. It's interesting that there are relatively simple economic tests that can be used (and seldom are) to determine this.
Sowell uses as an example of where government intervention makes sense the idea of mudflaps on cars. There's no economic incentive for a person to pay for mudflaps on their car because mudflaps on your own car provide no benefit to you, but rather provide their benefit to the person behind you on the road. Since it's not practical to gather compensation from everyone that every drives behind you for their share of your mudflaps, and since mudflaps provide greater value to the overall society than they cost, government regulation to require mudflaps on all cars puts in place a benefit both shared and paid for by the entire group of car owners to their collective advantage. This seems so obvious once the principle is explained.
On the other hand, seatbelts (not Sowell's example) represent an area where government intervention is not required because the person that gains benefit, that is, the person that would otherwise be catapulted out a car window to their death in a crash instead of simply walking away unscathed, is the same person that pays for it. That incentive means that seatbelts availability and usage is inevitable without the government mandate to install them in all cars. This is borne out by the fact that in the U.S., car manufacturers were already beginning to increase safety features before the government ever got involved in defining the standards. They were catching on to the idea that people would pay more or would buy more at the same price if cars were safer.
With this principle in mind, it becomes clear that at least to some extent, governmentally run postal services, education, and toilet tank capacity requirements are largely unnecessary while governmental regulation on environmental pollution, at least until gains in value fall short of marginal costs, are appropriate.
This principle doesn't apply to the military, though, as that's covered by a different principle, that of activities which provide value to more than just those willing to contribute and is beyond the scope of what I want to talk about here.
1 comment:
I think what you have run across is a failure to properly allocate costs. As an example, consider the cost of running a landfill vs. the cost of recyclling things like newspaper and aluminum. Considered on its own, it does not pay to recycle these items in many places. However, I contend (without doing a complete analysis, I admit) that when appropriately allocated, the costs of putting these things into a landfill, which fills up, and which must somehow be replaced, may approximate the cost of recycling the stuff. Apply that to automobiles, for example. If the cost of disposing of the husk of an auto is considered, allocated to either the manufacturer or the user, and factored into the original sale price, it might suddenly appear that building more recyclable autos would be worthwhile.
Does Sowell comment of full allocation of all costs?
It is my impression that few do, including economists.
Another example is the cost of building environmentally clean cars. It isn't enough to say that hydrogen is a cleaner fuel than hydrocarbons. One must also consider the costs of separating hydrogen, transporting it, storing it, selling it, and assuring that the Hindenburg incident is not repeated, ad infinitum, on the highways. It isn't clear to me which fuel makes more sense until the full costs are analyzed.
Akakie
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