Let’s make two assumptions: (1) the state (any level of government) really cares for the poor; (2) it is minimally efficient to reach this objective. What then would it do in case of large and sudden price increases caused by a natural or man-made catastrophe?
Create a shortage by capping price increases? Certainly not, for the poor are the ones least able to get ahead of waiting lines. They often don’t have the necessary contacts and are less able to physically move to places where shortages are less stringent. They can’t wait out the emergency at a far away Hilton and or use their private planes to take refuge under better skies.
What the state would do given our assumptions may be to ban the sale of “essential” supplies without ration coupons (on top of previous prices) and distribute the coupons at least proportionately to the poor. Moreover—and this is essential if the state believes that the poor who elected its politicians are not stupid idiots—it would allow the coupons to be openly traded on the free market, so if a poor family prefers more medical masks to more soap, they can sell some of their soap coupons to buy more masks. (Note that voters, as opposed to consumers, remain rationally ignorant.)
It is true that setting such a system is complicated (costly), and the more so if it needs to be rapidly in place during a sudden and temporary emergency–as opposed to, say, a long war. But given our assumptions above, the government would already have spent resources preparing such stand-by systems, instead of, say, waging wars on smoking, vaping, and sugary drinks, or instead of preparing laws and hiring cops to stop “price gouging” during an emergency. By assumption, efficient rationing systems would be ready to go when a serious emergency points its ugly head.
So why doesn’t the state do that? Could it be that the state is not as benevolent and efficient as in our (heroic) assumptions? Could it be that, for example, the state cares less about the poor than about hiding the rationing system preferred by politicians and bureaucrats (or by the mob), which is rationing by queues and stealth requisitions (keeping supplies for its public health clients)? Could it be that the state is less concerned about the poor than interested in increasing its power? Could it be that Bertrand de Jouvenel was right when he wrote (in The Ethics of Redistribution [1952], LibertyPress, 1990, p. 72):
The more one considers the matter, the clearer it becomes that redistribution is in effect far less a redistribution of free income from the richer to the poorer, as we imagined, than a redistribution of power from the individual to the State.
To follow up on my Econlog post of yesterday morning, we learned, thanks to Reason Magazine, that eBay stopped allowing sales of coronavirus supplies out of fear of “anti-price-gouging” laws. It seems that Amazon, for the same reason, stopped its third-parties from letting customers bid up prices of such supplies, otherwise generally unavailable. There is too much top-down benevolence and not enough free self-interest in America and the world. Why not try free enterprise?
READER COMMENTS
Christophe Biocca
Mar 7 2020 at 3:51pm
While ration-tickets are better than waiting lines, they still don’t incentivize any increase in production, which is one-half of how to deal with shortages.
Seems easier and more readily feasible to give actual cash than rationing coupons, and it allows total volume sold to increase more easily. The amount should be based on the actual market prices of the deemed-essential goods. That also has the nice side effect of making the expense visible instead of obscuring it by shifting the burden onto various private actors.
Pierre Lemieux
Mar 7 2020 at 4:49pm
Very good point, Christophe. I should have mentioned it.
Chris
Mar 9 2020 at 1:50am
I feel like the most efficient method would be for the government to buy a huge number of the important items and then sell them at cost to the public. The government has the resources to evaluate the materials to ensure quality and can get a good price through volume. The outcome would be that manufacturers win by selling large quantities, the public wins by getting necessary goods at reasonable standardized prices, and the large demand incentivizes the quick manufacturing of more.
I also feel like it’s worth disagreeing with your point that the government is not acting in good faith but instead trying to accumulate power over citizens. First, the government is comprised of people, most of whom are just doing a job, and many of whom are working in government because they legitimately want to make the world a better place. Thinking that this group is going to now focus on accumulating power is irrational. Politicians may be the exception, but they are elected officials beholden to their citizens for the most part. It would take a lot of people working in unison, often against their own self-interest, for the government to accumulate power.
Second, the more likely reason that the government isn’t well prepared with rationing plans is that it is politically unpopular. Republicans would destroy any politician or departments that recommended and planned for rationing, because it would cost the government money and isn’t free market enough. A large number of Democrats would probably complain as well, arguing how it would favor one group over another. Federally, rationing would likely require congress to enact a law, since it would cost the government money and involve interstate commerce. Can you imagine congress in the last 20 years being able to get that politically charged idea into a coherent policy?
Pierre Lemieux
Mar 9 2020 at 7:53pm
Chris: I suggest that your vision of the state is too close to what Buchanan called romantic politics. Besides Buchanan, de Jasay is a must (in much more radical); Jouvenel makes an easy reading and is eye-opening. So here are some recommended readings:
Anthony de Jasay, The State (the Liberty Fund edition is available online at https://oll.libertyfund.org/titles/jasay-the-state). It’s one of the major economics and political philosophy books of the 20th century, although it does require a strong background in economics and political philosophy). But be aware that a big trigger warning applies. I have a review of the book at https://www.econlib.org/library/Columns/y2018/Lemieuxstate.html.
James Buchanan, The Limits of Liberty. I reviewed it too at https://www.econlib.org/library/Columns/y2018/Lemieuxlimitsofliberty.html.
Bertrand de Jouvenel, On Power. In this case as in the others, reading the book is better than reading a review (such as https://www.econlib.org/library/Columns/y2019/Lemieuxonpower.html). On Power is an easy book to read.
Chris
Mar 10 2020 at 3:39pm
Pierre,
Thank you for the reading list. In searching out the ‘romantic politics’ phrase you referenced, I also found a very good, concise summary from Econlib, below (for anyone else with less background in economics, like myself).
https://www.econlib.org/library/Enc/PublicChoice.html
In hindsight, I do think that I may have over-emphasized and generalized the amorality of government. I did not intend to paint the state as benevolent. I did however intend to argue (and still do) that our government’s lack of planning for potential disasters is not caused by the direct malice you insinuate, but by the political issues with allocating funding for future issues. Because such planning entails costs now for a possible future benefit to an unknowable constituency, there is a lack of political will to address the problem. When politicians or government entities do try to address emergency planning through policy or legislation, there is substantial pushback by groups with various political motives. The outcome is that an organization composed of people acting out of simple rationality (rather than malicious plotting) is unable to address something as abstract as future harms.
Do not attribute to malice what can be more easily attributed to the interactions of unrelated self-interest.
In a related note:
Various government departments on the federal and state level do in fact conduct research on and plan for future emergency situations. There are government funded scientists researching human and crop diseases and possible solutions. There are government funded planning specialists that develop policy solutions to possible emergency situations. There are departments within the DoD that look at ways of mitigating emergencies and how to address catastrophe when it hits. The state does in fact put substantial resources into preparation for future catastrophes. Something like rationing, however, is incredibly politically contentious and likely very costly and therefore extremely hard to get large scale support for. There are also many difficult questions that it brings up, such as how to accomplish it efficiently, how to keep it from being abused, how to win over conservatives that view it as a power grab, etc. Just within the comments on this one blog post there have been multiple competing ideas on how to accomplish price stabilization, so it’s no wonder that the issue isn’t well addressed on a national scale. Why would a politician burn political will with something nearly impossible to gain large scale support for when they can work on accomplishable goals. This is likely the reason for why we have funding allocated for the research: it is cheap enough to trade with others for support, while valuable enough to signal to constituents.
Pierre Lemieux
Mar 11 2020 at 1:18am
@Chris: I broadly agree with your first point. The state is not a single person (even under an autocrat). It is an assemblage of individuals who each looks for his own interest but can have other motivations. And some are probably persuaded that the “public interest” is identical with their own interest. We don’t need conspiracy theories to explain the harm done by what Jouvenel called “totalitarian democracy.” As you discovered, public choice theory is a major tool for modeling government.
Thaomas
Mar 9 2020 at 8:34am
It is no doubt the case that when a new idea for how to improve a complex system like the economy springs from a naive, hunter-gatherer-optimized brain, it’s likely to have a low benefit cost ratio. Isn’t it the job of economists to thy to improve on such ideas which can include, but should not be limited to, demonstrating the low ratio (which can be interpreted as meaning that the system cannot be improved)? Even as a rhetorical strategy for arguing against A, isn’t it better to show that A’ is better?
Jon Murphy
Mar 9 2020 at 10:59am
Not necessarily. A is presumably designed to solve problem X. Thus, if one can show that A will not solve problem X, then there is no need to demonstrate some X’ (unless X’ includes the status quo, in which case merely showing that A does not solve X necessarily shows that X’ is superior).
For example, if your roof is on fire and someone suggests dumping gasoline on it, it doesn’t require an alternative plan in order to reject throwing gasoline on the fire.
In other words, you must remember that the status quo is always an alternative.
Thaomas
Mar 9 2020 at 4:11pm
That is why I said “include but not limited to.”
Why wouldn’t the person who wishes to offer helpful advice not only advocate against a gasoline-on-fire policy, but advocate for a water-on-fire or some other policy unless letting the fire burn, the statues quo, IS the best policy? Does not advocating for water demonstrate to the erstwhile gasoline user that the adviser shares the concern for the fire, that he agrees that “something should be done” and that demonstration is at least more likely to dissuade the prospective gasoline user that just adjoining him not to use the gasoline?
Jon Murphy
Mar 10 2020 at 8:52am
Yes, you are absolutely right. No doubt there. Let me just say two quick things:
First: my sentence “In other words, you must remember that the status quo is always an alternative,” comes off as very accusative. I apologize for that. I mean to say that “one” must always remember that sometimes doing nothing (ie the status quo) is indeed the best option. I did not mean to sound like I was accusing you, Thaomas, of ignoring the feasibility of the status quo.
Second: you write:
Yes, if and only if water is the best option (I don’t want to use the word “policy” here since policy implies a polity is a necessary part of the decision-making process, which is rarely the case in economic decision making). If “water” is not in the reasonable choice set (say, hypothetically, there is no water for miles around), then suggesting it is not useful. Since economic decision making focuses heavily on subjective valuations and local, often tacit and inarticulable, knowledge, the economist likely best serves his role as a preventer of bad ideas rather than a promoter of active ideas.
Chris
Mar 10 2020 at 4:33pm
An expert (economist or otherwise) that only ever says “don’t do that” instead of offering and supporting helpful alternatives will quickly be labelled a critic and ignored.
Also, simply by saying “don’t do that” the expert is implicitly advocating for the status quo. If the expert’s role is to advise on what not to do, then, when offered the choice between a positive action and the status quo, why would the expert not be expected to evaluate that the status quo is not the right action? In the example, if the homeowner asks the expert whether or not they should use this hose over here with water, why wouldn’t the expert be able to evaluate that letting the house burn is a less good outcome than using the water?
It’s important to think of the status quo (doing nothing) as an active option, meaning that any evaluation is not deciding between doing something and doing nothing, but between two competing options. An expert should be able to discuss the pros and cons of any two competing options without presuming that one of them is a default. Between burning and the water hose, the expert should be able to say “don’t do that” to burning, implicitly advocating for water.
Pierre Lemieux
Mar 9 2020 at 6:53pm
Three rapid points. First, technically, if one believes in cost-benefit analysis, a high “cost-benefit ratio” is not a sufficient condition for maximizing net benefits. Second–and most important–CBA is not a panacea: except arguably for public goods, it requires authority to impose its value judgments on others (reading Anthony de Jasay on that is essential). Third–and this is an idea close to Jim Buchanan’s theory–it is not obvious, as you seem to assume, that economists should be advisers to Leviathan instead of counselors to individuals making up society.
Thaomas
Mar 9 2020 at 10:38pm
Not the ratio, the net present value.
There is a decision to be made that will reflect the maker’s values or the ones he believes he as an agent should use. CB analysis is a way to apply those values to data and estimates of the results of the decision
You raised this as an issue of what a government should or should not do but economists should of course advise voters about which policies they should favor given their values, too.
Pierre Lemieux
Mar 10 2020 at 11:32am
@Thaomas: If I read your first sentence well, you are very close to de Jasay: cost-benefit analysis becomes “merely a roundabout route all the way back to the irreducible arbitrariness to be exercised by authority.” Your second sentence also reaches for the heart of the matter: the problem is that there is not a single voter, but several voters with different values (not to mention the incentive to remain rationally ignorant).
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