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?

Carbon Neutral vs Carbon Optimal

We can learn two things from Prince Charles' fancy new Carbon Neutral lifestyle:

• Hippy trends are still hip, even for squares.
• It takes the wealth of a king to achieve that lifestyle

Most of us don't have the resources required to be completely carbon neutral. Perhaps carbon optimality (The Undercover Economist, Tim Harford) is a better choice? Think about it like an economist... you should only abate your own carbon usage to the point where the marginal cost of abatement is more than total marginal benefit.

Since it can be assumed that one person's abatement has a small market presence, we can assume to the total amount of abatement needed by society is greater than the individual can achieve. Therefore, stated simply:

One should abate carbon usage until they can no longer afford additional abatement. Whether subject to time or budget constraints, this is how the rational eco-minded individual will and should act.

As always, everything in moderation.

Follow Up: Have I Found the Liberal Economists

Wall Street also posted today in their "Informed Reader" section a short blurb about heterodox economists.

"The so-called heterodox economists question some of Adam Smith's conclusions that "markets, private property and minimal government will achieve maximum welfare," says heterodox economist David Ruccio of the University of Notre Dame. Beyond that, heterodox economists have a wide variety of positions, ranging from those who question whether humans are as rational as neoclassical economists assume to those who argue that an unequal distribution of power affects how markets work."

The article goes on to describe how their research is ignored, their ideas are gaining momentum, social mores are changing, &c. which leads me to believe that these are, in fact, the missing link--liberal economists.

But, does this logic force conservatism into the mainstream?