Politics Imposes External Harms

The following article originally was published on May 12, 2008, by Grand Junction’s Free Press.

Politics imposes external harms

by Linn and Ari Armstrong

In our last article, we pointed out that a tax-funded recreation center unfairly charges people who don’t use the center and pushes out competing voluntary services. We argued that, if a recreation center is a good idea, “then it will be profitable on a free market. Those who want the center can… pay for it all by charging their customers (or collecting voluntary donations).”

Keith J. Pritchard sent a reply to FreeColorado.com, your younger author’s web page. Pritchard argued that we’re “missing an important economic concept — beneficial externalities.” We supposedly aren’t “considering the marginal social benefit. For example, it could provide a nurturing environment for youth who might otherwise be on the street experimenting with drugs. If the center kept these youth out of trouble with the law and out of prison (paid for by taxpayers), that is a beneficial externality.”

How silly of us: we didn’t realize that the only two choices in life are going to a tax-funded recreation center or doing drugs and going to prison.

There is a little problem with Pritchard’s case: every recreational activity offers an external benefit. Children who attend Boy or Girl Scouts are not “on the street experimenting with drugs.” Other alternatives include going to the movies, reading a book, joining 4H, dancing, martial arts, skiing, going out to eat, cooking a family meal at home, playing games, and so on. All the money forcibly redirected to the recreation center is not available for all the other goods and services that people otherwise would buy.

What is an externality? It is any benefit not funded by the beneficiaries or any harm not funded by the party causing the harm. The problem is that “beneficial externalities” are ubiquitous. If the government should subsidize every activity that offers external benefits, then the government should subsidize nearly everything.

Pritchard has no way of knowing that the external benefits of a recreation center exceed the external benefits of the recreational activities that would otherwise be funded. Thus, by his logic, government should also subsidize theaters, dance studios, restaurants, board games, camping stores, and so on. Not a single provider of recreation should be excluded from the tax trough.

But why stop with recreation? Children need good shoes so that they can walk to and around school. They need cool shoes so that they can have good self-esteem. Obviously, then, the government should subsidize all shoe makers and stores. Children need food so they can develop their minds and get good jobs, so perhaps Fruita should open up a tax-funded grocery store. Books provide all sorts of positive externalities, so clearly government needs to run the book stores.

But let’s not stop with businesses! Attractive people walking down the street offer an external benefit to those who appreciate their appearance. What’s needed, by Pritchard’s logic, is a subsidy for good-looking people and a tax on ugly people. We also need an Attractiveness Index, so that the best looking people get the most tax subsidies while the ugliest pay the highest fees. (Your authors could be in trouble.)

If the government is going to be in the business of subsidizing positive externalities and taxing negative ones, the government should control not only the entire economy but all of our personal choices. Pritchard cannot point to a single human activity for which we cannot show some externality.

Pritchard is “missing an important economic concept” himself, the concept of Public Choice, the branch of economics popularized by Gordon Tullock and James Buchanan (who won a Nobel for his efforts). One of the many interesting implications of Public Choice economics is that politics is a gigantic source of negative externalities.

In the name of “fixing” externalities, politicians impose high taxes, slow the rate of economic growth, hamper the flow of economic information by distorting market prices, create tax-sucking bureaucracies and commissions, impose protectionism, waste funds, and subject our paychecks to special-interest warfare.

The alternative is a free market in which government’s only role is to protect individual rights by preventing violence and preserving private property. With rights consistently protected, people are best able to apply their reason to the problems of living and enter into voluntary, mutually-beneficial exchanges.

A system of individual rights is best able to handle externalities. Negative externalities such as pollution of specific properties are resolved through the courts. Social negative externalities, such as rudeness and body odor, are solved by such measures as social pressure, the property holder’s right of invitation, and soap commercials. Positive externalities are captured by private businesses and philanthropies.

Those who invoke the theory of externalities to rationalize tax subsidies for their pet projects in fact sanction the greatest contributer of negative externalities, the political process of robbing Peter to pay Paul. The system of individual rights provides justice as well as the best framework for solving economic problems.

Linn is a local political activist and firearms instructor with the Grand Valley Training Club. His son Ari edits FreeColorado.com from the Denver area.