It is human nature that makes us want to see issues in simple terms of right or wrong, good or bad. However, life is complicated and things are seldom that neat.
Twenty-five years ago I was writing a long comprehensive exam while completing my master’s degree. I chose to answer a question about “market imperfects in resource markets” by noting some of the perverse incentives of academic tenure for professorial output at different stages of their careers.
That was dangerous.
I was feeling puckish that morning, and I was lulled into complacency by my department’s repeated assurances that our test answers would be graded with our identities completely blinded to the committee of readers. We were each assigned a code number to write on our test booklets and were told that only one individual, sworn to silence, knew whose name went with which essay.
So I was taken somewhat aback when I was accosted in the hallway a few days later by a faculty member who was displeased with my comments on tenure. I never had taken a course from him, so he could have identified me from handwriting. He must have gone to some effort to break the guaranteed anonymity.
The point of this long anecdote is that even Ph.D. economists fall into a common trap. We want issues to be black or white, right or wrong. But they seldom are.
This professor saw tenure as key to academic freedom, an important consideration for productive scholarship. He was right. I, and many others, saw that tenure sometimes also gave perverse incentives to academics. We were right, too. To reach a judgment about the overall effects of tenure for society one had to take both the good and the bad into account. However, most people don’t like that; they want an all-or-nothing, right-or-wrong answer.
Take the fight to limit child labor a century ago. Advocates of laws prohibiting child labor pointed to the injuries and illness suffered by coal mine “breaker boys” and other working children. Opponents of such laws argued that banning child labor would reduce incomes for poor households, especially those headed by widows.
While unsophisticated modern histories paint the prohibition of child labor as an unalloyed good, the real outcome was mixed. Child labor laws did reduce the exploitation, maiming and sickening of hundreds of thousands of children. But in the absence of welfare, food stamps, medical assistance and other programs to help the poor, child labor bans did also make many fatherless families poorer.
On balance, banning child labor was good for U.S. society, but some people were hurt.
The same is true in the debate over globalization. Workers in developing countries making sneakers or assembling VCRs often are mistreated, cheated and deprived of rights considered fundamental in modern societies. At the same time, they are better off with such jobs than without them.
The key in facing situations with such ambiguous tradeoffs is to acknowledge that tradeoffs exist. Try to identify ways in which one can ameliorate the negative aspects of the situation without sacrificing the positive ones.
Many economists and environmentalists argue that a substantial increase in the gas tax of 50 cents or more per gallon would improve the efficiency of the U.S. economy. Taking into account external costs such as pollution, congestion and exposure to international political risk, a higher gas tax would give U.S. residents greater satisfaction of needs and wants for the same use of resources.
Opponents, however, note that gas taxes, like most other excise taxes, are regressive. They are a harsher burden to low-income households than to high-income ones.
Both arguments are correct. Higher gas taxes would make the U.S. economy more efficient and would hit the poor harder than the rich.
One solution would be a federal gas tax increase structured to be revenue-neutral. A tax would be imposed that would counteract externalities and improve economic efficiency. The proceeds from the tax could be used to increase the zero-bracket amount for federal income tax returns or to expand the Earned Income Tax Credit. Poor people would pay more in gas taxes but they would pay less in income taxes or get bigger EITC-based refunds. It would be an improvement over our current situation in both efficiency and fairness.
© 2003 Edward Lotterman
Chanarambie Consulting, Inc.