Prof. Bryan Caplan

Econ 103

Spring, 2000


Week 15: Some Modest Proposals

I.                  Economics and Policy

A.                 Many economists try to rationalize most or all government policies as "efficient."

B.                 I tend to be skeptical of these arguments.  In my view, since most people don't understand economics, many government policies don't make economic sense.

C.                Moreover, very unpopular policies often have a strong intellectual case to back them up.

D.                My goal: Present some seemingly outrageous policy proposals, and argue that there are consistent with what we have learned about economics during the semester.

II.               Proposal #1: Legalize Baby-Selling

A.                 It is currently against the law to sell babies to people who want to adopt.  You can give babies away from adoption, but you can't sell them.

B.                 Economic analysis: This is a standard market with a price maximum of zero.  All of the usual efficiency arguments work here.

C.                Is there any externality for the babies?  If anything, the externality seems positive: The babies move from biological parents who may be unable to care for them to adoptive parents who are more than ready for children.

D.                So why not?

III.            Proposal #2: Privatize National Parks

A.                 National parks are no more a public good than Disneyland.

B.                 So why not privatize them?  If people are willing to pay to enjoy them, they will stay wilderness.

C.                Otherwise, they will be converted to other uses people value more highly.

D.                So why not?

IV.            Make Employee/Borrower/Consumer Rights Waivable Options

A.                 The law currently gives employees, borrowers, and consumers various "rights."

B.                 Strange feature: You typically can't waive your rights in exchange for a discount!  How is this supposed to benefit consumers?

C.                So why not allow people to waive their rights for compensation?  E.g., you sign an enforceable statement that "I will not sue my employer for any reason," in exchange for $1000/year raise.

D.                If everyone waives their rights, that's a clear sign that granting the rights was a bad idea in the first place.  Why?  It shows that providing the rights is costly but not highly valued.

E.                 So why not?

V.               Legalize Drugs

A.                 Many drugs are currently illegal, but there are legal drugs with similar effects (especially alcohol).

B.                 Obvious costs: 100% successful prohibition destroys all surplus in the market.

C.                Is there any efficiency argument for banning drugs?  When pressed, many emphasize the externalities of violent crime.  But these mostly stem from illegality.  Alcohol manufacturers killed each other during the Prohibition era, but no longer.

D.                Moreover, drug offenders crowd out violent offenders from prison.

E.                 What about workforce productivity?  Just allow employers to have mandatory drug screening if they want.  Then if drug use impairs work performance, drug users will just earn lower wages.

F.                 Externalities from accidents are no different from drunk driving: You can severely punish harm to others without banning the product itself.

G.                So why not?

VI.            Eliminate Subsidies to Education

A.                 I previously argued that most education is just "signaling."  It usually doesn't make people more productive workers, and it isn't fun for most people.

B.                 Nevertheless, education is heavily subsidized by the government.  How does this help anyone?  As I said earlier, there seems to be a basic fallacy of composition at work here.

C.                Many people see positive externalities of education.  Why?

D.                Strictly speaking, the signaling story could even justify a tax on education!  But I'll just make the more moderate proposal to eliminate subsidies.

1.                  If you insist, you could keep subsidies for poor children, but otherwise it would be parents' responsibility.

E.                 Without subsidies, many people would find it difficult to afford college etc., but you wouldn't need years of college to get a job.  You would probably just start as an apprentice and learn on the job.

F.                 So why not?

VII.         Restrict the Franchise

A.                 I argued that democracies face serious externality problems.  People have little incentive to acquire information or think rationally.

B.                 My proposal: Require people to pass a test of political and economic knowledge to vote.

C.                (Note that this eliminates the best public good argument for education).

D.                Many people see the right to vote as sacred, but it's not clear why.  When people vote, they are making decisions about how other people have to live.  Irrational voting is the political equivalent of pollution.

E.                 So why not?

VIII.      Conclusion

A.                 While I don't expect to win everyone over on all of these proposals, the important thing to understand is the economic rationale behind each of them.