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Quotation of the Day…

… is from pages 44-45 of my colleague Richard Wagner’s deeply insightful 1996 monograph, Economic Policy in a Liberal Democracy:

Suppose medical care is financed through state budgets, or, equivalently, through private insurance that is constrained by government to charge common pricing.  Once this happens, a new network of interests is created.  People who make relatively low use of a service form a natural interest group in opposition to those who might make relatively high use.  What was once a matter of a simple toleration of different choices of life-styles under conditions where the choosers bear the costs associated with their choices, becomes a matter of political concern.  In the presence of collective provision or common pricing, activities that entail above-average costs, actuarially speaking, will be shifted partially on to those whose activities entail below-average costs.

The state necessarily becomes involved as a battleground for the adjudication of disputes over personal life-styles.  When economic activity was organized according to the principles of property, contract, and liability, a society could tolerate peaceably a variety of such life-styles because those who conducted more costly patterns of life would pay for them.  But once the market principle of personal responsibility is abridged for some principle of collective responsibility, interest groups are automatically established that will bring personal life-styles on to the political agenda.

People on the left pride themselves on their rationality and tolerance for different lifestyles – tolerance for the preferences and choices of people who differ from the norm.  Yet a rational person understands that if you force A to subsidize the life-choices of B, then at least three unhappy consequences of note occur.

First, B will make some lifestyle choices that he or she would otherwise not make – in which case it becomes inaccurate to describe B‘s life-style choices as a genuine reflection of B‘s true preferences.  A person’s preferences are in large part the particular ways that that person makes trade-offs.

In 1992 I had the opportunity to earn a princely salary by accepting a position at a Washington, DC, law firm.  And although I (like nearly everyone) prefer more money to less, I turned that job down for a much-lower-paying position on the faculty of Clemson University.  I prefer the lifestyle of an academic (including the greater leisure) so strongly that I rejected the (much) higher law-firm salary along with its lifestyle.  An even better deal for me, of course, would have been to get paid the law-firm salary while having to work only as an academic. That option, however, wasn’t available.  Yet suppose there was a government program in place that subsidizes any on-the-job leisure I might take were I to work full time as a lawyer.  That is, suppose that a government program forces other people to do whatever law-firm work should be done by a full-time lawyer but is not done because the full-time lawyer spends much of his time on the job reading economics books for pleasure rather than doing his work as an attorney.  In that case, I might have chosen the law-firm job instead of the lower-salaried college teaching job – with the result being too much leisure being taken by lawyers and too many resources being spent by government to compensate for this inefficient leisure-taking.

The point is that my preferences deserve respect only if I pay the full costs of indulging my preferences.  But if some of those costs are shoved onto other people, then my preferences change – they are no longer, I would say, my true preferences given the constraints of reality.

The second unhappy consequence of forcing A to subsidize B‘s choices is that A is necessarily forced to make choices different from those that he most prefers.  A‘s preferences are ignored.  A is obliged to live in part by what are not only the preferences of B, but by the improper preferences of B – preferences (as explained above) that are not easily described as being B‘s true preferences but are, instead, preferences that B indulges only because A is forced to pay part of the costs of B‘s choices and actions.

The third unhappy consequence is the one highlighted by Dick Wagner in the above quotation: A will attempt to forcibly restrain B‘s choices and actions.  Society will become less diverse and less tolerant.