Quotes Roundup

June 28, 2022
A few great quotes that have struck me recently.
Footnote 6 from Jensen and Meckling’s classic 1976 paper:
Property rights are of course human rights, i.e., rights which are possessed by human beings. The introduction of the wholly false distinction between property rights and human rights in many policy discussions is surely one of the all time great semantic flimflams.”
It struck me because people often deny this notion as a libertarian talking point. In fact, it’s a deep economic insight. Armen Alchian also makes it:
Private property rights do not conflict with human rights. They are human rights. Private property rights are the rights of humans to use specified goods and to exchange them. Any restraint on private property rights shifts the balance of power from impersonal attributes toward personal attributes and toward behavior that political authorities approve. That is a fundamental reason for preference of a system of strong private property rights: private property rights protect individual liberty.”
An almost-throwaway paragraph from Mark Thornton’s The Economics of Prohibition.
“Lindsey (1976) showed that bureaucrats have the incentive to produce goods and services with attributes that are easily monitored and desired by Congress, while shirking the production of attributes that are not or cannot be monitored by Congress. For example, Lindsey found that whereas Veteran Administration hospitals produced measurable output (patient-days) at lower cost, proprietary hospitals provided more staff per patient, "better" physicians, shorter stays, less crowding and waiting, and more environmental amenities. Thus, in the same sense that taxation alters the attributes of products, the incentives of bureaucrats can alter the attributes of products.”
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Thornton here is drawing on the ideas of Barzel, a good summary of which can be found in his 1982 paper. In my view, the idea of “goods-as-attributes” is highly underexplored, which is why I appreciate Thornton highlighting its application to the economics of bureaucracy.
The relative neglect of “goods-as-attributes” is due to a myopic focus on “p’s and q’s”—the MIT way of doing economics. But economics is about more than constellations of “prices” and “quantities.” And, in fact, economics comes to life when we recognize all the other available margins of adjustment.
This insight could be useful for exploring the microfoundations of inflation, for instance. Recently, economists have been doing yeoman’s work, explaining that inflation is “everywhere and always a monetary phenomenon.” True.
But increases in the money supply do more than shift “p’s and q’s.” Shrinkflation is one example, but to my knowledge, these other margins of adjustment in the face of inflation have not been thoroughly explored. Inflation is an “invisible tax,” and we know that taxation alters goods’ attributes. Producers shift out of the taxed attribute into untaxed attributes. Inflation should do something similar, but the particulars, since inflation differs in important respects from taxes, need worked out.
From Doug Allen’s 1995 paper on the organization of churches:
“There are many organizational issues within churches. For example, why are there different payment schemes for clergy and what effect does this have on productivity, what is the effect of financing by large past accumulations of wealth versus funding mostly by contributions and why are all churches non-profit firms? Some churches depend only on the production of traditionally religious goods while others have more commercial enterprises on the side. The organizational differences go on and on. This paper ignores virtually all of these details and asks a broader question.”
It’s easier said than done, of course, but I teach my seminar students to keep an eye out for throwaway lines like these. The author is handing you, for no charge on the margin, a set of unanswered research questions. To these, I might add if/why rates of charitable giving (i.e. tithes, offerings, etc…) differ across denominational contexts.
Also from Allen. This time, the sixth edition of his Economic Principles textbook.
“Some of these questions may appear more economic than others, but that’s just because you’re biased in your thinking. Like most people you probably think economics is only about the business section of the newspaper when, in fact, it covers the entire thing.”
My foundations are different from Allen’s, but I nonetheless appreciate much about his “Neoclassical” textbook, not the least because of the approach this quote summarizes. I’ll be using the newspaper analogy to explain what economics is. Allen would probably disagree with me, but to my mind, there’s no better approach than praxeology to convey that economics is about all of life.
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An old piece that makes an important point:
The idea that a healthy lifestyle substantially decreases demand on the health care system has been repeatedly shot, stabbed, and poked at with sharp sticks, but it won't just die.
The zombie argument goes like this: poor health causes more use of the health care system. Poor health can be caused by an unhealthy lifestyle—smoking, overeating, lack of exercise, and so on. Therefore, unhealthy lifestyles cause increased use of the health care system. In Canada, health care costs are largely covered by the government, so my costs affect your wallet. Therefore, policies which induce people to choose healthier lifestyles are rigorously justified since they mitigate such external effects and reduce demand on the public health care system. For example, last week Mike DeJong, B.C.'s Minister of Health, commented on a smoking cessation program:
Quitting smoking is not only good for your health and the health of those around you, but it is also good for our health-care system as it will avoid the millions of dollars it costs to treat respiratory illnesses, health disease and cancer.
The basic problem with the argument that healthy lifestyles decrease health care use is it draws attention only to the gross costs of treating illnesses caused by unhealthy behaviors, but the relevant costs are net of the costs which would otherwise be incurred under a healthier lifestyle.
However, all people—and I do not mean to shock anyone—die some time, even including people who live very healthy lifestyles. Preventing someone from dying of a smoking-related illness only means that they will die of a non-smoking related illness. The effect of smoking on lifecycle health care costs is the difference between costs which are incurred if the person smokes and the costs which would be incurred if the person doesn't smoke. Whether improvements in lifestyle increase or decrease lifetime health care costs depends in a complicated manner on how a healthy lifestyle affects length of life and health care costs at any given age. Whether smoking or other unhealthy behaviors increase or decrease health care costs is an empirical question.
The evidence suggests that unhealthy lifestyles tend to increase health care use at any given age and reduce life expectancy, so more is spent per year but for fewer years. For example, statistical estimates from a well-known 1997 paper are displayed in the graph. The lower two lines show that if we compare a smoker and a non-smoker who are the same age, we should expect to find that the smoker consumes more health care. But the top two lines show that health care costs for non-smokers eventually become much higher than those for smokers simply because smokers on average die sooner than non-smokers. This study estimated that if every smoker were to spontaneously quit, demand on the health care system would first fall, as the quitters become healthier than they otherwise would be, but eventually rise by 7 per cent in the long run as smokers live longer.”
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This isn’t exactly the point the author is trying to make, but in Public Policy, I use this reasoning to point out that intervention can’t “out-economize” the market. Each person economizes in their own affairs. And the market economy is the only social system that mimics this individual economizing, but on a society-wide scale. In other words, you can’t somehow push society toward “lower costs” by subsidizing public health campaigns.