Scott Sumner  

The silence of the lambs

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Public choice theory teaches us that small, well-organized special interest groups can often enact legislation that benefits them at the expense of the broader public. The examples are endless; teachers unions, farmers, bankers, taxi companies, auto dealers, lawyers, doctors, etc.

Even the poor have some clout, although less than other groups. The poor benefit from programs like food stamps, Medicaid etc. But there is one very important special interest group that is actually quite powerless: smokers.

There are still tens of millions of smokers in America, and they pay absurd tax rates on cigarettes. I live in Massachusetts, where a one pack a day smoker would pay over $1600/year in taxes. (My dad used to smoke 1.5 packs per day.) Most states are lower, but New York is considerably higher. There is an externality argument for cigarette taxes, but it only justifies a small tax rate that is a tiny faction of actual tax rates. This is simply a punitive tax on a politically weak group of voters.

Even though smokers are in the minority, I am a bit surprised that the tax was pushed this high:

1. Smokers tend to be low income, so this places a real burden on poor families. You'd think they'd lobby hard against the tax---threaten to vote against politicians who support it. But all I hear from their camp is silence. Why?

2. Inequality is the hot issue of the day. Here's one of our biggest inequalities, and one of the easiest to fix. Cut the cigarette tax by 90% and raises sales taxes enough to offset the revenue loss. I'd support that, and I think most other free market types would at least go along with the idea. If the Piketty fans would direct their energy in that direction, we could make real progress against inequality. But again, all I hear from the left is silence. Why? Where's the outrage?

My second example is the kidney shortage:

Thirty years ago this week, President Reagan signed the National Organ Transplant Act (NOTA), which established the federal legal framework for the procurement, donation and transplantation of organs needed by desperately ill Americans. The law's advocates hoped that it would end organ shortages, but today over 120,000 Americans are on waiting lists. With the need for organs - especially kidneys -- projected to outstrip supply even more in coming years, intense debate has broken out over whether NOTA should be amended to allow funding of incentives for donors.

The interests at stake are colossal. About 30 Americans a day either die on the waiting list or are removed from it because they have become too ill to receive a transplant. Taxpayers also bear a significant burden in the case of kidneys because of the special status of renal dialysis within the Medicare program. In 1972, Congress mandated that Medicare cover the costs of care for end stage renal disease regardless of patient age. In 2011, over 500,000 people took advantage of this benefit at a cost of over $34 billion, which is more than 6% of Medicare's entire budget.
. . .

Keith Humphreys: What kind of incentives would you envision being tested and who would provide them?

Sally Satel: Donor enrichment would need to begin as a pilot trial. No one is talking about a traditional free market or private contract system. No organ "sales." And no large lump sum of cash to donors. Those of us who want to test the power of incentives to increase the number of people receiving kidney transplants - and it is a rich network of transplant surgeons, nephrologists, legal scholars, economists, and bioethicists - envision a system where every needy patient, not just the financially well-off, can benefit.


No one? I'm advocating cash sales.

Think about how America has freaked out about the nonexistent threat from Ebola. Now imagine that a Boeing jet carry 210 passengers crashed once a week as a result of terrorism. How much money would we spend beefing up airport security?

At this point people tell me that I'm just an unimaginative utilitarian. There are other issues at stake; human dignity, natural rights, etc., etc. OK, let's return to the one Boeing a week crashes hypothesis. What sort of indignities would Americans meekly put up with at airports in that case? How many "natural rights" would they give up in a heartbeat? The truth is that human dignity and natural rights don't explain our lack of a kidney market, it's ignorance on the part of the public. If they understood the gains they'd accept the market immediately, even if they had to accept these costs. Just as they'd accept tighter airport security, at a cost of freedom and dignity, if terrorism got that bad.

Another problem is "cognitive illusions." People are hardwired (or taught?) to think that money taints certain types of transactions, but not others. Other bloggers have explained this problem much better than I can. My point here is that these cognitive illusions (smokers deserve to pay for their sins, drug users deserve to be put in prison, money taints transactions, etc) are not costless. Indeed they create some of the very worst evils in our society.

BTW, I don't favor tighter airport security, as I don't think the gains would justify the costs---even on utilitarian grounds, abstracting from dignity and natural rights. And isn't "dignity" a part of utility?


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COMMENTS (31 to date)
Ken from Ohio writes:

There are many good points made by Prof. Sumner

My thoughts:

"Holy Smokes" a $1600/year targeted consumption tax seems extreme. I wonder how much this tax changes smoking behavior - or is it just punitive?

Maybe we are already experiencing the tight airport security required to prevent the once per week terrorist hijacking. After all, there are very few hijackings these days.

Although I am sympathetic to the concept of a cash market for transplant organs, this is the type of thing that makes Libertarians seem "scary" to the general public. An indirect system of payment would more likely be acceptable.

Examples: A monthly social security stipend - for life.

Free college tuition for the donor.

A cushy lifelong government job.

Obviously these are all cash payments - but they are indirect, and provided by the government. So they would take the dreaded free market Libertarian concept out of the process.

Tom West writes:

I think for many, the argument against organ sales is a little more subtle and similar to one made against the legalization of prostitution.

Once something becomes party for an economic transaction, there starts a cultural shift that normalizes it to in relationship to other things we do for money.

Once there's an active market for kidneys, why don't we demand that excess organs become assets in the same way as other things we can sell?

Likewise why should prostitution be excepted from the jobs that someone must accept before receiving unemployment benefits, etc.

All of these are unthinkable now, but I think quite a number, including myself, worry about the effect of normalization of both organ sales and prostitution (and I weakly support the legalization of both).

Andrew_FL writes:

@Ken from Ohio-The problem with those suggestions is they are all several times as expensive as the kidney would be.

I don't get why this is a "scary" thing. I guess it's economic ignorance.

I find no single government policy so evil as imposing an effective price ceiling on kidneys. Libertarians really need to reclaim, forcefully, the moral high ground that is rightfully theirs on this subject. Those who disagree with this idea are responsible for, I'd figure, many thousands of deaths by now-if not millions. When will the state sponsored death stop?

Tom West writes:

As for smoking, the reason that taxes are high is simple. There's a very direct (inverse) correlation between price and how many teenagers start smoking.

It's the *only* tool that's been shown to seriously affect teen smoking rates (all the others, including packaging changes, criminal charges for selling to youngsters, ad campaigns, no-smoking on premises laws, etc. all apparently seem to have almost zero value with respect to teenagers starting smoking...)

And since no-one is campaigning on "more children need to smoke", the upper limit on taxes is only hit when it becomes worthwhile for criminals to engage in large-scale tax evasion (as Canada found out, and subsequently rolled back large tax increase a few years ago...)

And to be honest, I think there are better fields for Libertarians to die on than "market interference is preventing large numbers of children from taking up smoking" :-).

J K Brown writes:

Not only does the Left to champion the downtrodden indigent smoker who is afflicted with this high tax, they've moved to stop the one effective stop smoking product, e-cigarettes, that has none of the documented damaging health effects that smoking does. The only obvious reason other than the priority of aesthetics over health and mortality is that they are working to prop up the tax revenue, Big Tobacco and Big Pharma (purveyors of nicotine gum, etc.).

The WHO prioritizes the stopping of e-cigarettes over the stopping of Ebola.

On smoking
I too have wondered why smokers were not more organized to defend themselves. I would have thought that smokers could self-organize under a "Proud to be a Smoker" flag. But my current guess is that most individual smokers feel defensive about their smoking; many will say that they should quit but can't or haven't.

On airline security
Consider private security. Your portrayal, Scott, of an airline security nightmare seems to me to suggest that the only type of solution you imagine is of the type in which government power is increased.

Whereas I have tried to form the opposite habit. When I perceive a problem I ask: not what more government could do to alleviate this problem; but rather what government has done already that helped to create this problem. What legislation, if repealed, would make problems such as this less likely to recur.

Toby writes:

"1. Smokers tend to be low income, so this places a real burden on poor families. You'd think they'd lobby hard against the tax---threaten to vote against politicians who support it. But all I hear from their camp is silence. Why?"

I can imagine that those individuals who'd like to stop smoking could also favor higher taxes on cigarettes. I believe this argument was made by Buchanan once when discussing the incidence of taxation.

The usual ways one stops to smoke is, either willpower, or to make the behavior more costly. Even irrational individuals will start to consume less on average then. Personally, I'd prefer to make that behavior more costly as willpower is a far too precious a resource.

I think that the silence might be indicative of recognizing the benefits of smoking less.

Jason writes:

I agree Toby. My brother-in-law, a smoker, favors higher cigarette taxes.

Kevin Erdmann writes:

There is a market for human eggs, which functions quite well without the horrors imagined by organ donor opponents. If only their slippery slope fears were true, we'd already have a kidney market.

Scott Sumner writes:

Tom, "Likewise why should prostitution be excepted from the jobs that someone must accept before receiving unemployment benefits, etc."

Note that this would also be an argument against lots of other jobs. Should a 60 year old women be required to install steel beams 50 stories up on a skyscraper, or mine coal deep underground? Most people would (rightly) say no. So I'm not too worried about people being forced into prostitution by the UI office. On the other hand, throughout history governments have done far worse things, so perhaps I should be more concerned.

Cigarette taxes may not seem like a big problem, but if you are a single mom trying to raise a family on $20,000 a year, I could see where $1600 could take a big bite out of your discretionary income.

JK, Good point about e-cigarettes.

Richard, You misunderstood my post--I am opposed to the TSA; I'd like to see it abolished.

Kevin, Good point.

Tom West writes:

Note that this would also be an argument against lots of other jobs. Should a 60 year old women be required to install steel beams 50 stories up on a skyscraper, or mine coal deep underground? Most people would (rightly) say no.

But those are jobs that she could not possibly successfully work at.

If the goal is to have sex workers treated like just a job, how does prostitution differ from, say, being a janitor, where one may have to deal with human waste, or other unskilled jobs with mildly distasteful aspects?

It's not the government being evil, it's society treating prostitution exactly the way that many legalization advocates would like to see - it's just a job.

(A counter-argument is that once such a social shift has occurred, then most people wouldn't be any more traumatized by being "forced" to work as a prostitute any more than they're forced to work as a retail worker. Would suck to be a traditionalist, though.)

Likewise, if we can throw off the social mores that cause repulsion at the idea of selling organs, and simply treat it as any other asset that people may buy or sell, then why shouldn't it be treated like, well, any other asset.

Again, I think the positives of legalization or prostitution or the selling or organs outweigh the likely dangers, but I'm well aware of what those concerns are.

Ryan P writes:

I'm skeptical there's even a tiny externality for smoking. Any secondhand smoking in private businesses or homes are necessarily internalized costs, and the remaining effects have got to be pretty small.

The usual response at this point is to talk about pecuniary externalities on the social welfare system. But there we have no less an authority than Jon Gruber pointing out that by dying early, smokers consume less SS & likely Medicare and so the fiscal argument, taken seriously, would suggest we should subsidize smoking.

Rajat writes:

$1600 a year - ha, that's notta tax! Try Australia, where the excise on a pack of 20 is now $A9.25, or $A3,376 pa ($US2,940 pa) for a pack a day smoker.

I think Tom is right that many governments see tobacco taxes as having favourable behavioural effects. Certainly, smoking rates in Australia are a lot lower than in places with lower taxes.

Joe Teicher writes:

Perhaps smoking doesn't have major externalities, but what about the externality of being poor? It seems politically difficult to tackle that issue directly, so we have to about it other ways. Lotteries, cigarette taxes, soda taxes, carbon taxes etc. Whatever we can do to get the poor contributing a little more to society brings them closer to being net neutral and that's a good thing.

NZ writes:

Sorry to nitpick here, but I thought this was a bit smug:

Think about how America has freaked out about the nonexistent threat from Ebola.
As John Derbyshire said, the real problem wasn't so much the risk that America would be scourged with Ebola, but that a key aspect of what you might categorize under our national defense was shown to be vulnerable and rife with incompetence.

What about the next disease, one that requires diligence and strict controls to contain? There's the sense that we once were capable of protecting ourselves from such a thing, but now we see that is only an illusion.

PrometheeFeu writes:

Tom West,

You can sell your plasma and sperm. But neither are repossessed in bankruptcy.

aram writes:

If I am a teenager, then my 60-year-old future self seems like a different person to me, and I may do a lot of things that are not good for him. So the government may use the logic of externalities to force me to go to school, to pay high taxes on cigarettes, etc.

This is the flip side of the principle that we want emergency rooms to treat anyone, including people who got there through a suicide attempt or by doing something irresponsible.

I hate to say this in an economics/libertarian forum, but people are not perfectly rational self-interested actors. So when 2/3 of smokers say they want to quit but most don't, policies like cigarette taxes start to make more sense.

ThomasH writes:

America did not just "freak out" over Ebola. There was a concerted campaign to use Ebola as an 2014 election issue both for its own sake and to reinforce the anti-immigration issue. With the election over the "freak out" will disappear just like Benghazi did.

Fran├žois Godard writes:

The high tax rate on smoking cannot be explained in terms of interest groups; indeed it calls into question the whole Public Choice materialist framework. The high rate reflects the dominant ideology -- thought in schools, and implicit in all (news and entertainment) media references to smoking.

Nathan W writes:

I think a current and relevant example is security agencies. They often behave worse in relevant ways compared to the other groups you refer to.

Scott Sumner writes:

Tom, So you are horrified that society will come to view it as just like another job? And that's obviously awful because it's obviously not just like another job? Then why would society come to view it that way?

In any case, in America people are not forced to take any job that they don't want to take.

Ryan, Yes. I've made similar arguments.

Rajat, Yes, but why should government try to influence behavior?

Tom, I don't see why you want the poor to be "net neutral."

NZ, You said:

"What about the next disease, one that requires diligence and strict controls to contain? There's the sense that we once were capable of protecting ourselves from such a thing, but now we see that is only an illusion."

I've always viewed it as an illusion, so nothing surprised me here. The Secret Service can't even protect the President from a nut walking in the White House door. Why would anyone think the government can protect us? I'm more worried about the government murdering us all with nukes.

aram, Sorry, but I don't trust the government to make better decisions for me than I can make. I don't doubt they would be able to on a few occasions, but as a general policy it's likely to fail.

Thomas, You said:

"America did not just "freak out" over Ebola. There was a concerted campaign to use Ebola as an 2014 election issue both for its own sake and to reinforce the anti-immigration issue."

The second claim in no way contradicts the claim they freaked out.

Tom West writes:

Tom, So you are horrified that society will come to view it as just like another job? And that's obviously awful because it's obviously not just like another job?

It's a bad consequence (as far as *I* am concerned) because *I* do not view it as "just another job".

Scott, I don't advocate for policies that violate *my* moral framework, or will, in my estimation, lead to changes in society that violate my moral framework. I imagine that's true for all of us.

If I thought it likely (rather than just possible) that social changes as a result of the normalization of organ selling led to, for example, organs being forcibly removed from those subject to capital punishment, I would be against it, even if it would be socially acceptable to those of that era.

I don't pretend that my morality is "universally correct", but I'm still going to advocate for it and avoid policies that I feel will lead to the abrogation of that morality.

NZ writes:

@Scott:

I've always viewed it as an illusion [that we were capable of protecting ourselves], so nothing surprised me here.
Maybe you weren't surprised (give yourself a gold star), but a lot of people understandably were. The Ebola incidents register as a serious and high profile failure of our basic national defense systems. More generally, they revealed a palpable sense that America today is made of lower quality stuff than in past generations.
The Secret Service can't even protect the President from a nut walking in the White House door. Why would anyone think the government can protect us?
In the past the Secret Service enjoyed a popular reputation as being very effective bodyguards. Of course, that was in the Bad Old Days of Gender Inequality, when women weren't typically hired on.
I'm more worried about the government murdering us all with nukes.
Really?

michael pettengill writes:

Well, Scott Sumner makes a great case for consumers and voters behaving irrationally, thus making most of political-economic theory wrong.

Rick Johnson writes:

Not everyone fits neatly into the Public Choice model. Get out and talk to smokers. Many of them don't care about the higher taxes. Two in five think higher taxes are justified.

Economics can't explain everything. Nor is it worthwhile to sit around wondering why people don't behave as the Public Choice model would predict. It's like being baffled that anyone would turn down a job that pays double their old job...as if monetary or political incentives trump all.

Yet that's just what the Public Choice model would lead us to believe.

Tracy W writes:

Tom West: we agree that people can sell their family home. But some jurisdictions treat that asset differently in bankruptcy.

People can legally work in some sorts of porn films, or for strip-clubs in most Western countries but I have yet to hear of the relevant courts or government forcing someone to take those jobs.

And we already give special treatment to bodily issues, eg adults can refuse life-saving medical treatment. So this seems like a very unlikely slippery slope.

Tom West writes:

> So this seems like a very unlikely slippery slope.

Well, I've seen very fast social change for things I agree with (gay marriage), so I'm never certain what might turn out to be a tipping point I didn't foresee.

Thus, I'd say it's a *fairly* unlikely slippery slope, which is why I support organ sales and the legalization of prostitution.

Floccina writes:

Smokers are so chastened by non-smokers that are afraid to even bring it up but it seems to me that a black market for cigarettes is building up.

I like the idea of paying in kind for organ donation like maybe a moth or 2 free health insurance for signing a donor card and life time free health insurance for kidney donation. People love to healthcare and education.

myb6 writes:

Smoking: Is the externality really that small? Not only secondhand smoke, and the social medical expenses plus their deadweight, but all the lost (financial AND non-financial) benefits to society of those healthy person-years. Now add addictiveness and social contagion effects; higher-use leading to more introductions and different social norms, thus even higher-future-use. I'm open to the argument but my priors are for the other side: $1600/yr could be cheap.

Organs: I find the huge benefits of markets are most obvious for things which are simpler, consequentially short-term, repeatable, and not life/death. Organs are on the wrong pole of those spectra. Plus I'm concerned about dynamic effects (international/gray/black market? incentive/ability of market-tournament-winners to dominate?) of such an innovation and those effects' consequences. Playing it slow and safe and incremental seems wise.

"Ignorance" "Cognitive illusions" "Evils"... I wish you'd account for the conflict between this and rational-market arguments, and that people have had far longer to adapt for and learn about functional societies versus an utterly market-dependent lifestyle. Before assuming other people's ignorance, might you start with the wisdom of the crowd and historical outcomes? I once was a market-utopia libertarian but the more I learn the more incomplete I judge that viewpoint.

LD Bottorff writes:

"drug users deserve to be put in prison"
I keep hearing this idea that our prisons are full of drug users. I don't buy it. Sure, there may be a few, but I'm betting that most of the people in prison for drug possession took a plea to a possession charge to avoid a jury trial for trafficking. I know lots of people who have used illegal drugs. I don't know anyone who went to jail for using illegal drugs.

NZ writes:

@LD Bottorff:

Here's my understanding based on having spent the last 5 years researching drug prohibition:

  • a majority or near-majority of prisoners are there on drug charges
  • many of them are there because they plea-bargained down from more serious charges--but not necessarily more serious drug charges; it could have been charges for violent crime or whatever else
  • people typically don't go to prison for using illegal drugs; they go for possessing them, and then typically only if
    • they were caught in possession of some huge amount, which indicates that they're traffickers, or
    • they have a bunch of other priors that indicate either violent criminal activity or trafficking
Cops and local justice departments want the thrill, prestige, and "forfeited" civil assets (thanks, Joe Biden!) to be gotten from chasing after high level drug dealers and their suppliers; as hawkish as they might be in the drug war, they don't want to do the unglorious dirty work of throwing junkies into paddy wagons.

I'm confident that 99% of people in prison on drug charges are people I wouldn't want roaming around my neighborhood, even with drugs out of the picture. HOWEVER, the problem is that they don't stay in prison, and there's no way to have a stable justice system in which even 10%, let alone all, of them did. Instead, they go to prison and essentially receive some number of months or years of instruction on how to be an even more horrifying criminal, then get released back into society.

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