Fiscal Externalities and Meddlesome Preferences

I’ll continue some discussion from the comments at TVHE here because it’s getting significantly off the topic of the original post.

I said:

I’ve come across quite a few people advocating breeding licenses in casual conversation, it doesn’t seem that much more repugnant to add a genetic element.

Some parents are bad, therefore we should stop them being parents. The unstated premise is that we have a wise and benevolent government capable of doing this. I don’t think eugenic thought is as anachronistic as you suggest. I’m guessing most people think eugenics was largely confined to Nazi Germany, and are unaware of the nastiness that happened in the States and elsewhere under liberal democratic governments. We’re not racist like those Nazis: we have nothing to worry about.

Eric Crampton replied:

Brad, I think we’ve got another example here of fiscal externalities generating meddlesome preferences – here of some of the most repugnant sort. How many folks talking this way take this tack because the costs of other folks’ childrearing decisions fall on the public purse?

I’ve discussed this with Eric before. It’s an interesting question, and I’m not completely sure of the answer. My thoughts:

Fiscal externalities (i.e. increased cost to public healthcare system, welfare, etc from an activity) are likely part of the story. People use fiscal externality arguments to justify health promotion policies all the time, but I don’t think the externalities really make much of a difference to whether or not they support such policies. Giving more (or even comparable) weight to fiscal externalities than purely expressive moral concerns treats political behaviour too rationally. Fiscal externalities presumably have some expressive component (it’s almost like they’re stealing from us!), but my guess is that it’s nowhere near as important as simple distaste for how certain people raise their kids or live their life.

It only seems to be behaviour people find distasteful (i.e. demerit goods) that people want to regulate on fiscal externality grounds: nobody begrudges you medical care if you have a skydiving accident, but will if you get drunk and fall down the stairs. It seems to me that plain old bigotry or paternalism is doing all the work here. Eric has suggested that fiscal externalities provide a political hook on which people can hang their meddlesome preferences. I don’t think they need such a hook and see fiscal externalities as largely a post-hoc justification for preferences they already have. Without this justification I think they’d find another and continue to hold their views just as strongly.

The fact that smoking produces huge positive fiscal externalities at current tax rates, but calls for further regulation continue and are often predicated on negative fiscal externalities is surely evidence that the actual externalities don’t really matter. Anecdotally, I think most people realise that the tax on tobacco hugely outweighs any costs on the health system, so I don’t think it’s even perceived fiscal externalities that matter. Once people admit defeat on the fiscal externality argument, they will quickly fall back on another position.

13 Responses

  1. Fiscal externalities may well only provide post-hoc justification for pre-existing preferences, but I still think that they tip the balance for a lot of folks from private disgust to wanting public action.

    We still need to run the study some time on extent of nanny state and degree of public health….

    • It could push some people over the threshold, but so would other concerns like ‘smokers smell bad’ or ‘fat people are ugly’. I think fiscal externalities are only another on the list of things people don’t like about smoking/drinking/whatever and should be treated on par with these.

  2. I wonder whether the furore over the AIG bonuses can teach us anything? On the one hand, people have always complained about high executive pay; on the other, it’s more extreme and focused now than I can ever remember.

    On empirical study of nanny state and public health-care: I can’t see how it could work terribly well. There are plausible confounding variables like collectivist culture that I’d assume we can’t really measure well enough to control for.

  3. Well, finding that other forms of nanny regulation precede public health increases would falsify the theory; finding that public health increases tend to precede other nanny regs would be consistent…

  4. It seems to me that plain old bigotry or paternalism is doing all the work here.

    Agreed. Gary Becker said as much when, after looking at the various arguments for taxing fat, he ended with:

    Sometimes I wonder whether much of the public outcry over the gain in weight of teenagers and adults stems mainly from the revulsion that many educated people experience when seeing very fat people. Surely, though, this should hardly be the ground for interventionist policies!

    Your comment Brad:

    Anecdotally, I think most people realise that the tax on tobacco hugely outweighs any costs on the health system

    My experience is the exact opposite. People generally think smokers impose a net cost, and they use that in their mind as justification for regulation.

    • I often come across people making the fiscal externalities argument about smoking, but people will almost always back off from that position when challenged (after all, it’s pretty obviously wrong), and continue to advocate more tax/regulation based on paternalistic grounds.

      My sample is very likely biased. Most people I’ve discussed it with are fairly educated and have at least a basic grasp of economics.

  5. How implausible is the following:
    1. Preference-based dislike for something
    2. Argument X makes the disliked thing seem policy-relevant — it should be banned
    3. Argument X is disproved
    4. Commitment has them stick with the conclusion even though the mechanism has to change.

    • I find that situation very plausible. I’m questioning what argument X needs to be in order for it to work. Sometimes it will be the fiscal externality argument, but I think it could just as well be the ‘smokers smell’ or ‘smoking kills’ argument. Most people don’t think of policy-relevance as economists do, in terms of correcting market failures, etc. I think the moral signaling to the community argument you make here wrt abortion is a much more powerful force than fiscal externalities in support for smoking regulation than fiscal externalities, because it has more expressive value.

      To be clear, I don’t think the statement “fiscal externalities push people towards regulation of demerit goods, in some cases pushing them past the threshold” is wrong. I just think you can replace fiscal externalities with almost anything.

  6. Razib puts what I mean more poetically, in an entirely different context:

    “But I would like to take a step back and suggest that though reason is the “front side of the house” in this discussion, the real work is being done by intuition in concert with social consensus in the kitchen.”

  7. Fiscal externalities are one of many potential triggers, yes.

  8. […] Yep, more evidence that arguments for government intervention are largely post hoc justifications rather than motivating forces. […]

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