The Market for Body Odor

I read this comic strip the other day. I found it to be humorous, and could relate to the experience. Walking out of Subway today, I noticed the polite man holding the door for me smelled like tacos. Interesting, you might say, considering Subway doesn't sell tacos.

Then it hit me... that taco smell was plain, ol' funky body odor. The classic BO.

Which got me to thinking, maybe deodorant is an under-provided good. You know, there's a positive externality in using the stuff, everyone benefits from your refreshing floral smell. Don't get me started on the enormous cultural differences that make it difficult to sit next to an international student in the movie theater...

Maybe the government should subsidize its production, tax "polluters" and make them pay to stink, or just sign it into law as mandatory to wear. Heck, this is one situation I could stand for a little statism!

Maybe similar effects exist for halitosis. Who knows?

Externalities in a Nutshell: Part 2

More correspondence with a student in an introductory class. I think I somehow view this dialog or parlay as "brain candy" (hat tip to JurisNaturalist for term), and that's why I enjoy it so much. I've got to stop blogging and get some work done... anyway, here it is:

Consider this example - say I want to contribute to a particular cause with my church which I consider worth my time and money. Say you also have a cause which you consider worth while to which you donate your time, money, and effort. Finally, say that we each consider the other person's cause to not be the best way to spend time or money - not that either are bad, simply they are not how we would each choose to use our resources. Would it be morally acceptable for either of us to force the other to contribute to our cause?

Consider then that this is what government can do in programs such as education, welfare, and other such public works. If you do not pay your taxes, then you are subject to legal penalties - thus, whether or not you approve of a particular program, you must support it or face penalties.

The idea rolling around in my head to fix that issue is simply this - let consumer taxes be raised to fund those programs which are necessary for the entire country to function - arguably, those which are non-excludable, such as roads, national defense, police - these can be divided between federal and state as each are more capable to accomplish (largely state - if Montana has less roads to maintain than New York, it can have a lower tax to support them). Beyond such necessities (setting aside determining what they would be for now), let additional programs be supported by taxes of choice - if you desire the benefits of a program, then you can pay a proportion of your income to support it. Thus, the amount of revenue, and thus the degree to which a program can grow, is determined by the demand for its service. For example - if I want to homeschool my children, I don't pay the proportion of tax set aside for that purpose, and spend it on educational materials instead.

Observations, comments, improvements?

1. If you get "happy" from doing something, we call this gaining utility and you are said to have "gained utils." If something you do is enjoyable, whether or not you get a monetary reward, you should engage in that activity.
2. Its never OK to force someone to engage in a particular activity. It unethical and uneconomic. If you think someone else should be doing something, and they aren't, the reason they aren't is twofold: a) they don't have the same tastes and preferences as you and/or b) they don't get anything out of the activity. Forcing them to do something would never increase total social welfare because they themselves would experience "disutility" from engaging in that activity, which can be viewed as a cost (instead of reward) and hence would lead to decreased total social welfare.
3. Taxes and education get tricky. In the above example, I said the person would receive disutility, and hence its a cost to that person. Taxes are also a cost to individuals, and those that pay them may not like it, but they must pay taxes. Are we forcing them to do something? Yes. Is it unethical? Maybe. Is it uneconomic? No. We have a could reason to tax these individuals due to the nature of education--it provides positive spillover benefits to everyone. I hardly think forcing someone to do community service against their will helps anyone, but in any case the persons receiving the benefit and bearing the cost are two different individuals. Therefore, with education, everyone should pay for the benefits they receive. No free lunch and all that.
4. Our government has actually accomplished much of what you state in the first part of your last paragraph. Most states do have different tax rates for highways, for instance. Check your gas pump next time you fill up, there should be a sticker with the tax rates of most of the south east on it. Some are low. Ours are not, but we have six major metropolitan areas in our state, and more roads. Go figure.
5. Finally, the problem is that "taxes of choice" are analogous to charitable donations in the private sector. Charity is "under-provided" meaning that more people could be helped, but aren't, because costs and benefits aren't aligned to the correct people. Basically, like in point 3 above, the same people should bear costs and receive benefits, otherwise there is the classic "free rider problem." With charity, it may be that the beneficiaries are "free riders" themselves, they receive an external benefit from the donors decision to give (the donor bears all costs and receives some benefit to the transaction, if he didn't it wouldn't take place). The beneficiaries of the donation pay no costs associated with the transaction, and are not forced to "pay-it-forward." Similarly, "elective taxes" would pose the same problem without a corresponding enforcement scheme. Assuming we could accurately forecast demand/tax rates, whose to say that wouldn't be more costly than the current system?

Rational Gay Union Policy

I'm not attempting to steal JurisNaturalist's thunder, but our recent discussion of the rationality of gay union is even more important to post because we're both fairly conservative Christian men.

JN sent me an e-mail this morning about a possible paper topic. A general outline of our discussion (he might contest it was one-sided pontificating) is below.

Assumptions:

1. Heterosexual unions (hereafter referred to as "marriages") are good for society. They promote procreation, family values, sexual and mental health, and general happiness.
2. Heterosexual couples choose to enter into marriage for these reasons, and according to individual sets of tastes and preferences (often, individuals are said to display a "vector" of preferences, tradition being one common example).
3. Marriage is a private contract and subject to analogs of common contract law. Divorces, alimony, custody and more have analogs in breech of contract, reparations, and property ownership, respectively (forgive the coldness).
4. Individuals enter into contracts only when it is beneficial to both parties.
5. It has not been widely shown by credible sources that homosexual unions (hereafter referred to as "gay unions") are not afforded the same quality of life improvements set forth in step 1.
   
6. It follows that all couples, regardless of sexuality, benefit from union (steps 1 and 4 with 5).
7. As long as individuals benefit, society's welfare increases.
8. It is in the best interest of governments to sanction unions for all couples.

Caveats:

1. Some members of society may receive disutility from the existence of gay unions. One might imagine an extreme conservative Christian to be extremely irked by his state's passage of such a law. In this case, social welfare decreases.
2. Some members of the gay community receive disutility from the ban or non-recognition of gay unions. One might imagine an extreme leftist progressive becoming irate over a state ban of gay marriage. In this case, social welfare also decreases.

We are left with no decision. Either banning or allowing gay union will decrease social welfare. We much measure the total welfare effect of each and compare three worlds:

1. Where gay union is allowed
2. Where gay union is banned
3. Where those receiving disutility from the permission of gay union do not exist

In the first two worlds, both containing the individual that receive disutility from permission, social welfare is not optimal. When that common factor is removed, in world 3, social welfare is optimized based on the above assumptions (thought process).

We see, then, that the market for gay union has a positive externality in that it increases total social welfare, but costs of offending idealogues are included in any individual policy decision. Following general theory of market failures and government intervention from any basic resource economics course, one sees that gay unions are underprovided. This is much in the same way that education is thought to be underprovided in Externalities in a Nutshell; however, in that article, higher than normal costs are borne by buyers but in gay unions, these costs are borne by other individuals.

It occurs to me that, by my last statement, this means the market for gay unions contains a negative externality, not a positive one. This means that the market over-provides the number of unions. However, I believe this discrepancy lies in whom one place initial rights (see Property Law or Google for some more information on "initial allocation". If anyone can find a hole in my logic, please leave a comment. If a negative externality is actually the case, the following analysis is perfectly incorrect.

The common solution, then, is that government intervene to create an environment conducive to more gay unions, either silencing or removal of the offended, or in some other way encouraging couples to enter this contract. If this means subsidizing the union, then I see potential laws being similar to current marriage laws, including tax breaks for the union, for raising children, etc.

It seems more likely, however, that the first step be allowing the unions to take place at all.

Note on Economic Fame

What does it take to make a good economist? Or at least a famous one?

Great economic insight, sometimes at par with contemporaries, sometimes exceptional ability... and one crack-pot theory to set yourself apart from the pack.

Seriously, Rothbard has a knack for explaining things with exquisite analogies. But his stance on currency? *Gag*

And Friedman, so wise, so omniscient in the field. Heralder and harbinger of the greatest truths of 20th century economics, and all at least 10 years before we all started believing him. But his stance on the Fed? I mean, he had to have read SOMETHING good about it!

Keynes gave me reason to participate in the electoral process. He showed that governments do matter, as the largest consumer in an economy. But I just can't touch EVERY market failure as a justification of his theories. There is a natural limit to how much government one can stand. Someone ask Pinochet... oh, never mind.

Oh, and Nash? Well, I guess you can be right about EVERYTHING. But not everyone has his unique grasp on reality.