Wednesday, February 27, 2013

Don't Spillover On Me, Don't Tread On Me

"Things tend to work out best when people have to live with the consequences of their own behavior"

or to put it another way

"Things tend to work out poorly when the consequences of our actions spill over onto other people"

This is probably one of the most insightful statements that I have ever seen. When I first read it I copied it and put this simple principle up on the wall to be reminded of it every day.

However, as simple and obvious as it is, it is amazing how often we ignore what is really one of the most important principles of economics.

I saw this statement in a book by Steven E. Landsburg who teaches economics at the University of Rochester who goes on to say,
Whether you're blowing leaves or discarding litter, having children or having sex, saving or spending, smoking or drinking, setting fires or reporting them-your actions have costs and benefits.  As long as you feel all the costs and benefits, you'll tend to get the quantity right.  You'll drop the right number of banana peels, or have the right number of children, or choose the right number of sex partners.  But, if you feel only the benefits while someone else feels the costs, you'll tend to overindulge.  And conversely, if you feel only the costs while someone else feels the benefits, you'll underindulge.
It makes a lot of sense doesn't it?

You know how it works. When you are out to dinner with friends and you have agreed to split the check equally, do you order the $10 dessert?  Of course you do.  Your skinny friend who does not like desserts is going to pay part of your cost.  You win.  He loses.  Your friend also stops going to dinner with the group in the future.  He is tired of the decisions of others spilling over on him.

The bottom line is that spillovers cause bad outcomes.   If someone wants to pollute their own swimming pool, feel free.  However, when the sludge spills over the edge of the pool and into the community stream that we all share they should be prepared to pay for the damage.

In my view one of the big problems we have in the country today is our inability to draw the line between rights and freedoms on the one hand and consequences and costs on the other.  Where do individual rights end and where does the the public interest begin?

First, we have too often ignored the primary principle that people should have to live with the consequences of their own behavior.  You fail to take advantage of the free public education that everyone has access to in this country and can't get a job.  That's ok, we have welfare assistance.  You have a child out of wedlock.  That's ok, we will give you money to pay for the child. You buy a flat screen tv rather than health care insurance.  That's ok, just go to the emergency room and someone else will pay your medical bill.

At the same time each of these actions is spilling over onto other people who were attempting to live their life responsibly without infringing on others. The person who studied and went to school, married, had children and bought healthcare insurance rather than the flat screen tv ends up paying these bills as well as their own.

A great example involves whether someone riding on a motorcyle should be required to wear a helmet. I'm all for giving someone that freedom.  However, what happens when they are in an accident and suffer brain damage and need medical care for the next thirty years?  Who is going to pay for that?  If it is me through my health care premiums or higher taxes I don't feel quite the same about that person's individual rights and freedom as I did before.

We have been living in an era over the last generation where individualism has reigned supreme in the United States.  Respect for the individual and their rights has been preeminent over the collective good in most instances.  It has been more about ME than WE.  A good example is the recent federal court ruling enjoining Florida from requiring welfare recipients to take a drug test before they can qualify for public assistance.  The court has ruled that such a requirement in the Florida law is an "unreasonable search".  Where do these judges come up with this logic?  A similar court decision enjoined the state of Florida from using random drug testing of state employees. Bear in mind that the majority of private sector employees today cannot get a job without submitting to a pre-employment drug test.

How does any of this make sense?  In effect, we know that most of the people in the private sector are clean, drug free and paying taxes.  However, those people are not allowed to even ask whether the people they are supporting have even a chance of getting off welfare at some point in the future.  After all, if you can't pass a drug test, you most likely are not going to get a job and get off welfare since it is a condition of pre-employment with the majority of employers.

Contrast this with some of the laws in the country of Singapore.  You can be arrested for not flushing the toilet in a public rest room or spitting anywhere.  They don't want germs spreading and spilling over on other people. It is also illegal to sell chewing gum in Singapore.  Who wants to walk down the street and look at all that gum on the sidewalk because someone just threw it down with no regard to the public good? Take a look down on any sidewalk in a major city in the United States and you will see what I mean.


Where do we draw the line?  What is the proper balance between liberty and tyranny that balances individual rights and the public interest?  I think this is the major question of the next decade in this country.  It is at the core of many of our big issues today.  Gun rights.  Immigration.  Health care.  Welfare.

Our largest failing over the last half century in this country is not coupling individual rights with individual responsibility.  You simply cannot have a well functioning society where these two are not in alignment.  There have to be clear incentives for people to do the right things and even clearer disincentives to prevent people from doing the wrong things.

William Strauss and Neil Howe predict in their book, The Fourth Turning, that we are entering a new cycle in which public interest will be on the ascendancy and special interests and individualism will wane.  There will be more calls for personal responsibility and civic duty.  Conformity with core values will become more important.   Perhaps this will lead to better alignment between individual rights and responsibility.  Unfortunately, the lessons of history often tell us this only comes about when society has got its back to the wall and it does not have much choice.  You either have got to focus on WE or there will be no ME left.

In the meantime, I only ask for two things.  If you are a fellow citizen, don't spillover on me.  If you are the government, don't tread on me.  If we can get both of these right, we are all going to be ok.

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