Economic Insanity

Here's an article from the Mises Insitute about a new book by Steven Landsburg.

http://www.mises.org/fullstory.aspx?Id=1725

This is the second time that I've come across the name of Steven Landsburg in the past two weeks. The first time was concerning a question in my Public Finance class. The question went as follows:

In his book The Armchair Economist, Steve Landsburg writes: "The only sort of tax that avoids deadweight losses entirely is a head tax, according to which everybody pays some fixed amount that is determined without reference to income, assets, purchases, or anything else over which he has any control." Discuss (a) the constraint(s) of n the imposition of such a tax and (b) the correctness of Landsburg's assertion.

The first part of the question should be obvious to anyone who pays taxes. Simply put, the tax is limited to what the poorest person is able to pay, otherwise the tax will simply put the poorer people in the country in debt to the government perpetually. So that would require some kind of redistributive plan to make sure that people don't end up in debt to the government though no fault of their own, but then the redistribution starts to put distortions in the market place and thus has deadweight losses. As for the idea that the head tax is the only tax that avoids deadweight losses is also incorrect as a tax that is completely unavoidable can also have no distortive effects. The general example is the property tax, which is assessed on land, housing and other types of property. Since it is very unlike to be able to avoid a tax on land or housing, the cost of the tax is built into the price that is charged for the particular piece of land. So Landsburg is incorrect on that level as well.

So Landsburg is back again, this time with the seemingly absurd prospect that in order to limit the spread of AIDS (and presumeably other STDs) people need to have MORE sex with more partners. Now, normally, you'd think that the reverse is true. If you want less STD, then people should stop sleeping around. It's just common sense. But Landsburg sees it a different way, that if the potential pool of people to sleep with, both male and female, increases, then the possibility of getting AIDS or an STD decreases accordingly.

The article does a good job of pointing out the false assumptions that Landsburg makes in constructing his argument, so I won't parrot them here. Instead, I'll mention a couple of things that I disagree with in terms of Landsburg's solution, that is government promotion of sex.

Let's first talk about his suggestion for government to drive down the cost of condoms below zero. And his way of doing that is to pay a bounty for used condoms. Ignoring the public health issues with collecting used condoms, what enables the government to distinguish between condoms used by normally non-promiscuous men and those who sleep around constantly and are at a higher risk for STDs? Presumeably, this could be the same as a deposit that is put on aluminum cans to encourage recycling in certain states (including my home state of Connecticut). Of course, that wouldn't drive down the cost of the condom to below zero, since the cost of producing the condom would still be above zero. Unless the government decides to charge a bounty greater than the cost of the condom, then the cost drops below zero. Of course, then the cost of the condom will increase accordingly since deman will pick up from the bounty on the used condom.

Of course, we can see how this would then drive up the bounty needed to keep the cost below zero, which would then drive up the cost of a condom, etc. The costs of the program would skyrocket, leading to calls from economists like Steve Landsburg for the government to start producing condoms itself, basically nationalizing the industry. And we all know what happens when you go ahead and nationalize an industry.

What Landsburg suggest is for the government to step in where there is a market failure. At least that's what he thinks there is a market failure. But I don't see where the market has failed. I don't see him getting all worried about people who have the clap or herpes. AIDS, for whatever reason, is the hot political topic, and therefore, the government must intervene. And that's the trap that today's society has run into, for better or for worse.