I’ve fallen behind on my blog reading, so I missed Greg Laden’s post a few days ago in which he tries to argue that carbon taxes aren’t really taxes. Actually, he seems to prefer to call them a “carbon dividend,” which is apparently the trendy new name for this idea. I googled and found this page at the Citizens Climate Lobby which explains it. It’s basically a carbon tax — shorthand for taxing the production of atmospheric carbon dioxide, usually by taxing the fuel that will be burned to produce it — with the added bonus of bribing people to like it:

100% of the net fees from the carbon fee are held in a Carbon Fees Trust fund and returned directly to households as a monthly dividend.

About two-thirds of households will break even or receive more than they would pay in higher prices. This feature will inject billions into the economy, protect family budgets, free households to make independent choices about their energy usage, spur innovation and build aggregate demand for low-carbon products at the consumer level.

Sigh. The billions of dollars it injects into the economy is, by basic accounting, exactly offset by the billions of dollars it takes from the economy, which will presumably hurt family budgets and reduce household choices in all matters. And the only way this increases demand for low-carbon products is by pricing high-carbon products out of the market. I suspect this chicanery is an attempt to head off criticism that carbon taxes are just another case of loving high taxes and big government. It’s understandable, but it ultimately feels dishonest. 

And no matter how many times Laden says otherwise, “carbon fees” or “carbon charges” really are taxes. In fact, they’re a very specific type of tax known as a Pigovian tax, after economist Arthur Cecil Pigou, who formalized the concept in the 1920s as a way to address a problem known as the “tragedy of the commons.” That’s the economics term for what happens when people have access to a resource they don’t have to pay for.

The idea is to get business incentives to align with society’s incentives. Under normal market conditions, when a bakery uses 1000 pounds of wheat flour to make 1000 loaves of bread, the benefit to society is that it gains 1000 loaves of bread, and the cost to society is that it loses 1000 pounds of wheat flour.

Those are also the costs and benefits facing the bakery: They have to buy 1000 pounds of wheat flour, and they get to sell 1000 loaves of bread. Because the bakery has to take market prices when buying and selling, they will only choose to bake bread if 1000 loaves of bread are worth more than 1000 pounds of flour. And since the price of flour and bread in their respective markets are determined by society, the bakery will therefore only choose to bake bread from flour if bread is more valuable to society than flour. In converting flour to the more valuable bread, they will be increasing the value of the goods available to society, and because the bakery faces the same benefit/cost trade-off as society, they have the right incentives to make a decision that is good for society as a whole.

Now consider a rancher who grazes his cattle in pastures not owned by anyone. The benefit to society is the resulting cattle, and the cost to society is the grass they consume. For the rancher, however, things are different. The benefit to the rancher is that he gets to sell the cattle, but the cost to the rancher is zero, because he doesn’t have to pay for the grass his cattle use.

The result is that the rancher derives a much greater net benefit from raising cattle than society does, which means the rancher has an incentive to raise far more cattle, using up far more grass, than would be best for society. Society would almost certainly be better off with fewer cattle and more grass, which could presumably be put to better use in some other way. In the worst case, so many ranchers raise so many cattle that they consume all available grazing land, at which point they have to stop raising cattle. Because Brits call public land “common land,” British economist William Forster Lloyd called this “the tragedy of the commons.”

It’s not hard to find examples. Catching a fish means one less fish in the sea, which is a cost for society as a whole, but not for the boat that catches the fish, and thus we get depleted fisheries like the Grand Banks, which pretty much ran out of cod after a few decades of commercial fishing. Chopping down a tree means one less tree for anyone else to use, but in old-growth forests nobody had to pay the cost of planting and growing the tree in the first place, so logging on public land (such a North American frontier land) led to deforestation and limited growth due to lack of lumber.

Not all examples of the tragedy of the commons involve direct consumption. Consider traditional industrial pollution, with giant factories belching smoke as they grind out manufactured goods. The goods they produce are a benefit to the factory owner, who gets to sell them, and to society, which gets to consume them. But the pollution is a cost only to society, which has to endure foul air.

To understand how this is similar to the cattle grazing example, it can be helpful to think not in terms of the cost of pollution, but of the cost some resource being consumed. So don’t think of the factories as creating dirty air. Instead, think of them as consuming clean air. Just as cattle are the benefit from the cost of consuming grass, factory goods are the benefit from the cost of consuming clean air. And since the factory doesn’t have to pay for clean air, the net benefit to factory owners is much higher than the net benefit to society. This gives factory owners an incentive to build a lot more factories and produce a lot more pollution than would be best for society.

(Note that while factory owners do suffer from general pollution like everyone else, they don’t suffer significantly from their own decision to pollute. The costs are distributed over so many people that their personal share is tiny. The costs they impose on any single other person is also tiny, but that cost can be considerable when summed across the whole of society. Alternatively, the cost per person can get quite high when the tiny personal cost of each polluting factory is summed across many thousands of factories.)

Pigou proposed a solution to this mismatch of incentives: Charge the factories for the clean air they consume. No one owns the air, of course, but through its power of taxation, the government can nevertheless charge factories for clean air, just as if it was a production input like flour. Then if the tax on using clean air truly represents the cost to society when it loses that clean air, then factory owners will be facing the proper incentive structure so that decisions they make to benefit themselves will also benefit society.

Economists prefer solutions like Pigovian taxes over government regulations because they are more flexible. Regulations tend to specify rigid rules and lock in narrow solutions. For example, a prohibition on a certain type of high-pollution industrial process would force all users of that process to switch to something else. That might be fine for 90% of the industry, but for the remaining 10% it might be economically infeasible. The would either go out of business or lobby Congress do carve out an exception or perhaps make use of some kind of exemption system built into the law already. This can quickly become a confusing and unpredictable mess where businesses live or die based on whether they can get government permission to do things a certain way.

Pigovian taxes, on the other hand, apply a relatively simple tax rule and let businesses and the market figure out a solution. So instead of banning a high-pollution process outright, they just increase the cost of that process by taxing the pollution. Now each business can figure out how to respond to that increase in costs. Most businesses would likely switch to an alternative, but for the 10% that find it too expensive, they could remain in business if they were willing to pay the taxes. That’s not a problem if the incentives are right, because what the business is producing is presumably more valuable than the clean air being consumed.

Of course, if the taxes were too expensive, they would still have to go out of business. But then they were never really a successful business anyway — they were just getting away with it because they were getting to pollute for free. Once they had to pay the full cost of what they were doing, they were faced with reality: They had been a net loss for society, and now they were experiencing that loss for themselves.

Anthropogenic global warming is also a tragedy of the commons. People and industries are dumping carbon dioxide into the atmosphere, and the Earth is warming up because of it. That imposes costs on everyone in the world, but the people releasing the carbon dioxide experience none of that cost. My knowledge of climate science isn’t good enough to figure out what resource they are consuming for free (The Earth’s carbon recycling buffer? Its energy handling capacity?), but they are definitely not paying the full social cost of using fossil fuels. At least in theory, a Pigovian tax — the carbon tax — would fix that.

Naturally, there are objections:

A resolution declaring carbon taxes to be “detrimental” to the U.S. economy sailed through the Republican-controlled House this morning with the support of most — but not all — of its GOP members.

Somehow, this is treated as controversial. But of course carbon taxes will hurt the U.S. economy. We’ve been using fossil fuels for many years without paying the full cost. Once that cost is imposed, we will begin to change our energy production technology to use less fossil fuels, either through increased efficiency or by switching to an alternative energy source such as nuclear or solar. Since those were not our first choices, switching to them represents a loss. It would have to, since using the more expensive energy necessarily means spending less on something else.

The world economy, on the other hand, experiences a net gain due to the reduction in greenhouse gases and, consequently, harm from global warming. The U.S. experiences some of that gain too, of course, but only a fraction of it.

Another objection is that it will be hard to determine the amount of the tax, since we’re talking about changes that will happen all over the world and far into the future. Given how much the world economy has changed in the last 300 years, I don’t think we can make reliable economic projections that far into the future, which makes it hard to calculate the level of carbon taxation needed to balance the harm. Any estimate we make will be not much more than a wild guess. But maybe that shouldn’t stop us from trying.

Note that the benefits of Pigovian taxes are obtained when the taxes are enacted and the people burdened by the tax change their behavior to be more in line with society’s welfare. Except for the relatively tiny cost of administering the tax, there’s no change to government spending. So if we impose a carbon tax, what should the government do with the extra revenue?

Well, if the government doesn’t need the money, the default position of most economists is that we should make the carbon tax revenue-neutral by lowering some other taxes. Let the American people keep their money and spend it however they want.

There’s an argument, however, that carbon taxes will hit poor people especially hard because energy costs are a larger proportion of the cost of living for the poor. Even if that’s not the case, the increase in energy costs will still increase the cost of living, which poor people will be less able to tolerate. For these reasons, many people think the carbon tax revenue should be used to increase aid to the poor, either by focusing the tax breaks on the poor or by giving them money with direct payments. The Citizens Climate Lobby’s “carbon dividend” proposal is to distribute the money evenly to everyone:

Equal monthly per-person dividend payments shall be made to all American households (½ payment per child under 18 years old, with a limit of 2 children per family) each month. The total value of all monthly dividend payments shall represent 100% of the net carbon fees collected per month.

In other words, they want to use the carbon tax to fund a Universal Basic Income (UBI) scheme.

I hate this kind of proposal. Whether or not a carbon tax is a good idea has nothing to do with whether or not universal basic income is a good idea. They are separate and unrelated decisions. The federal budget has to balance over the long term, but there’s no policy reason for specific line items like carbon tax revenue and UBI expenditures to match. If we want the government to help poor people with the increased cost of living due to rising fossil fuel costs, our expenditures should be based on the amount of help they need, not on how much money we’re getting from a single revenue stream.

Linking revenue and expenses this way is usually a cheap trick to justify a tax increase by tying it to something wholesome, e.g. “for the children.” Furthermore, if the carbon tax works as intended, fossil fuel use will decline by design, and therefore funding for the UBI “dividend” will decline. That’s a perverse relationship which could have perverse consequences. Either we will allow the “dividend” to decline and become less effective, or else UBI supporters will lobby to increase the carbon tax to raise more revenue, neither of which seems very smart.

(Or we will do something really stupid, like subsidize oil drilling to encourage more revenue-generating fossil fuel use. If that sounds too dumb even for our government, remember that the government used to run an anti-smoking public health campaign at the same time it gave subsidies to tobacco growers.)

The good news is that all of this may not matter. Solar energy has gotten a lot less expensive to produce than it was when I was a kid buying hobby solar panels to run a radio. Some estimates of costs indicate that utility scale photovoltaic solar power generation is actually cheaper than conventional production, without even factoring in global warming. If that’s an accurate estimate, it won’t be long before utilities switch to solar power just because it saves them money. Then we won’t need a carbon tax or a carbon dividend.

On Monday of last week, Harley-Davidson announced that it will be moving production of motorcycles destined for the European Union to somewhere outside the United States. The reason isn’t hard to understand:

In response to U.S. duties on European steel and aluminum, the EU enacted tariffs Friday on more than $3 billion worth of U.S. goods including bourbon, yachts and motorcycles.

U.S. tariffs on steel and aluminum imports have increased the cost of Harley-Davidson’s raw materials at the same time the European tariffs on motorcycles made it less profitable to sell U.S.-made motorcycles in Europe, so the company is moving their manufacturing operation outside the U.S. to avoid both sets of border-crossing taxes. It’s a logical business decision, and the possibility that some U.S. manufacturers would do things like this in response to tariffs was entirely predictable to anyone with even a modicum of economic education or business experience.

Naturally, Harley-Davidson’s decision made Trump angry, because he’s a babyman who cries when he can’t get his way: 

God, what a bully Trump is. He’s the abusive boss who makes life hell for employees and then calls them “ungrateful losers” when they quit. He’s the father who beats his son and then calls him weak for crying. Trump is driving companies out of business and then blaming them for quitting.

That’s not true. Harley-Davidson was responding directly to new tariffs. They announced in May of 2017 that they were moving some production to Thailand to avoid that country’s just-announced 60% tax on imported motorcycles, In addition, by manufacturing in that region, they would also be able to avoid some taxes when selling into nearby countries. Of course, they wouldn’t need to do that if they were protected by some sort of free trade pact that limited tariffs against U.S. manufacturers, such as the Trans-Pacific Partnership agreement that Trump had pulled the U.S. out of just four months earlier.

Thanks to Trump foolishly tearing apart our hard-won international free trade policies, Harley-Davidson had a strong incentive to reduce production in the United States and open factories in not just one but two separate economic regions. This is not exactly shocking: When you create isolated islands of trade, the market will create isolated islands of production. That’s wasteful, and it will cost American jobs and ultimately reduce the income of Americans.

For example, Jack’s Ornamental Iron, a small ornamental metal working company, has been forced to cancel a planned expansion because of Trump’s taxes:

The two were caught off-guard when President Donald Trump announced tariffs on foreign steel. Jack’s watched the price of steel shoot up nearly 25 percent in just two weeks.

“We buy roughly a million dollars worth of steel a year,” Schow said, “so that’s going to be $150,000 to $200,000 in additional cost to our business.”

The tariffs have put a halt to the growth of the company — plans to buy a nearby building for possible expansion are no longer a reality, Schow said. Also, plans for employee raises and expanding their workforce of 25 have been put on hold for now.

This illustrates one of the worst aspects of Trump’s trade war: It’s unnatural and therefore unpredictable. Jack’s Ornamental Iron was following all the rules for success in in the market — hard work, high-quality production, good customer relations — and yet their plans for expansion were scuttled by changes in tariffs. Every business now faces additional uncertainty in its planning and investments because of Trump’s stupid trade war.

It gets worse. As Reason‘s Eric Boehm argues, Trump’s trade policy will put a lot of power over businesses into the hands of government bureaucrats:

At three manufacturing plants in Arkansas, some 1,500 workers are waiting to hear whether the Commerce Department will let them keep their jobs.

Those workers make a product that you’ve probably never thought much about: tire cords. They are the lattice-like structures, often made of steel fibers, that line the inside of rubber tires to help them maintain their shape. The owners of those three Arkansas-based tire cord manufacturing plants say they will have to close their doors and lay off their workers, Arkansas Today reports, because the type of steel wire needed to make tire cords is not available from domestic manufacturers and foreign suppliers are now subject to a 25 percent import tax. They have applied for a special exemption from President Donald Trump’s steel tariffs, and the Commerce Department is considering the request.

Because of Trump’s trade policies, it’s no longer enough to run an efficient business and produce a good product. You have to kowtow to bureaucrats.

Perhaps nothing else about the ongoing debate over tariffs so clearly demonstrates the quiet horror of the Trump administration’s attempt at central planning. Workers and factory owners who produce a necessary but unremarkable product, filling a hole in a supply chain that few Americans ever notice, now fear that they will be forced out of business if their application for relief does not find favor with federal bureaucrats.

They are hardly alone. More than 1,200 businesses have filed over 20,000 requests for exemptions from the Trump administration’s steel tariffs.

I started writing this last week, and since then the trade war has created a few more casualties:

On Friday, the Trump administration levied tariffs on some $50 billion of Chinese goods, including everything from x-ray tubes and aircraft tires to ultrasound machines and agricultural equipment. China retaliated with its own tariffs on imported Americans cars, meats, and produce.

[…]

“Every time there is a trade friction, the first thing that gets hit with retaliatory tariffs are the fresh products,” says Steve Reinholt, export sales director for the Washington-based agricultural export company Oneonta. “We pack and ship things within 48 hours. If you have a bit of a slowdown, it can effect things quickly.”

Hardest hit, says Reinholt, are the cherry growers his company buys from, who over the past decade had been doing steadily increasing business with China.

[…]

“We’re very much expecting to have less volume to China this year,” says Thurlby. “Historically we would ship two million boxes in July alone. There’s just no way we see that happening this year, not with the amount of tariffs we’re talking about.”

Exporting to China had always been a challenge for the 2,500 or so Pacific Northwest growers that Thurlby’s organization represents. In the past, these growers have had to contend with a flat 10 percent import tax as well as a 13 percent value added tax.

Trump’s trade policies have only made things worse.

In response to the U.S.’s protectionist drift, China has upped tariffs on U.S. produce twice in the last three months, once in April and again last week, getting us to the 50 percent tariffs growers now have to pay.

This sort of micro-management of the economy isn’t just some unfortunate side effect. Trump is bragging about it:

I suspect that Trump gets this attitude from his years as a New York real estate developer. For a lot of people in local government, the job is not about the civics textbook version of government — passing good laws, running departments efficiently, serving constituents. Rather, it’s about making deals: Factory deals, strip mall deals, housing deals, stadium deals, land deals, development deals.

If you’re a businessman who wants to buy some land and develop it into a shopping mall with a residential complex, you will have to involve city politicians and planning officials every step of the way. You definitely need them to get zoning variances and permits, maybe some rent-control exceptions, permission for curb cuts, connections to city water and sewer, and so on. In addition, if you have enough influence (as Trump certainly did), you can probably get them to throw in some tax breaks, or maybe even use eminent domain to grab some of the real estate you need. You’ll get your lucrative development deal, and the politicians will get campaign contributions and bragging rights for bringing in new development and jobs.

That was the world Trump lived in for decades in New York, and that that seems to be his vision of what he should be doing now: Putting together deals for businesses that will help help him look good. In international trade, this means adding and removing tariffs to choose winners and losers, instead of letting the free market decide. This is pretty much the definition of crony capitalism.

The system of free international trade benefits everyone who participates, and Trump is tearing it down, hurting people on all sides. When you forcibly take value from other people to keep for yourself, that’s stealing. But when you simply destroy things that are valuable to other people, to the benefit of no one, that’s vandalism.

Megan McArdle is one of my favorite columnists, and she has a new gig over at the Washington Post, where she recently wrote an article about a fascinating just-released economics working paper that caught my eye. The authors, Jennifer Doleac and Anita Mukherjee, studied how the opioid addict population has responded to the drug naloxone becoming more readily available.

Naloxone (a.k.a. Narcan) shuts down the effects of opioids, so it is commonly used by EMTs to rescue people who have overdosed on opioids, including heroin. Out of concern that it can take a while for EMTs to arrive, states have passed laws making it easier for ordinary people to get naloxone, allowing addicts to be rescued by family, friends, and fellow opioid users.

The Doleac-Mukherjee study explores the possibility that this is creating what economists call a “moral hazard.” The basic idea is that naloxone reduces the risk of dying, and the risk of dying is part of the non-financial cost of using opiods, so naloxone effectively reduces the price addicts pay to get high. The  law of demand predicts that when the cost of something goes down, people will buy more of it. So making naloxone more available could cause an increase in opioid usage.

If you’re not used to economic thinking, this might seem crazy. It’s hard to imagine addicts thinking, “Since people around me have naloxone, I can use more drugs!” It’s even harder to imagine that someone who has never used opiods will suddenly think, “Hey, with all this naloxone around, I think it’s time to try heroin!”

What makes this theory plausible, however, is that economic effects happen on the margins. Every day, some Americans decide whether or not they will use heroin that day. Some say “yes,” and some say “no.” And it’s reasonable to assume that some people who say “yes” are just barely saying “yes,” and some who say “no” are just barely saying “no.” Those are the people most affected by changes in incentives: Give them a slight nudge in the other direction and they might make the opposite choice. So while most heroin non-users will not be swayed by naloxone, there are likely to be some who change their mind.

Similar effects have been seen in other contexts. The most famous example is when seat belts were required for automobiles. Economist Sam Peltzman predicted that since seat belts made accidents less dangerous, people would start to have more accidents, and subsequent studies have confirmed this prediction. The effect is not huge, but it’s real. In economic terms, since seat belts reduced the “cost” of accidents, people “bought” more accidents.

That’s not to say that people literally make a conscious decision to have more accidents. But knowing that the seat belt will protect them from minor accidents, they may decide to drive faster, or they may feel it is safer to fiddle with the radio or talk to passengers more often.

If that still seems unlikely to you — if you’re sure that you would never drive recklessly just because your car protected you better — then consider a scenario suggested by economist Gordon Tullock: Disable your air bags, remove your seat belts, and mount a seven-inch steel spike in the center of your steering wheel, pointed straight at your chest. Now ask yourself how your driving would change. Given that even a moderate accident could drive that spike into your heart, you will probably drive a lot more carefully. But if you agree that making your car more dangerous would make you drive more carefully, then you must agree that the level of safety you currently enjoy is allowing you to drive less carefully. You are responding to an incentive by driving more recklessly.

(Use of the name “moral hazard” for this phenomenon is unfortunate, because it implies a judgement against some measure of morality, and that’s not usually how economics works. The term comes from the insurance industry, which has to worry that car owners who can’t make their loan payments will “sell it to the insurance company” by driving the car into a river and reporting it stolen, or that building owners who are upside down on their mortgage will burn the building down for the insurance money. But the problem also rears its head in more mundane ways, such as when people with theft insurance are more likely to leave their car windows cracked open on sunny summer days, and more likely to leave their car running in the driveway in winter with the keys inside. And yes, people with insurance also get into more accidents. The insurance industry takes a dim view of all this, thus the name “moral hazard.”)

Getting back to opiods and naloxone, there are no data sets that directly report opioid consumption, so the study looked at proxy variables, such as opioid-related crime and opioid-related emergency room visits. Because the dates on which naloxone became available vary from state to state, the study was somewhat able to randomize away confounding variables. E.g. The proxy measures in one state might change because law enforcement anti-drug activity changed at the same time that naloxone became available, but that coincidence would be unlikely to occur in every state. This creates a kind of “natural experiment” that allows for stronger results.

So, cutting to the chase, are addicts using more opioids because of naloxone?

Yes, and to a surprising degree. The Doleac-Mukherjee study observes that the introduction of easily-available naloxone is associated with a 17% increase in arrests for possession of opiods and a 27% increase in arrests for selling opioids. Opioid-related emergency room visits went up 15%.

(There are a few caveats, of course. The study is a working paper that is being released for review, so the results could be subject to revision. Also, as with any study of this kind, the authors make a lot of reasonable-seeming assumptions — which are extensively documented in the paper — some of which might turn out to be wrong in ways which substantially alter the conclusions.)

The opioid-related mortality figures are especially interesting, and I’ll get to them in a minute. But I want to address one part of the study that’s been upsetting people on Twitter:

Naloxone access may unintentionally increase opioid abuse through two channels: (1) saving the lives of active drug users, who survive to continue abusing opioids, and (2) reducing the risk of death per use, thereby making riskier opioid use more appealing.

To be very clear, contrary to what alarmed Twitter users are claiming, the study authors are not saying that saving the lives of drug users is a bad thing.

The reason they bring up this issue is because the study is intended to look at increasing opioid use due to the “moral hazard” behavioral change (channel 2), but opioid use could also increase simply because longer-lived drug users have more time to consume drugs (channel 1) and the study cannot directly distinguish between the two explanations. It would be dishonest not to mention this.

In any case, when we look at the mortality figures, Doleac and Mukherjee discovered something astounding:

On average across all urban areas, we find that these laws have no significant impact on the opioid-related death rate. Thus, while the risk per use has gone down due to Naloxone access, the number of uses increases enough that we find no net effect on opioid-related mortality.

In other words, in response to the availability of naloxone, opioid users appear to have increased their use of the drugs so much that it completely negates the life-saving benefits of naloxone.

The magnitude of this effect was a surprise to the researchers. In an email message, Dr. Doleac explained what it means for the first causal channel:

When we first started this paper, we expected to find a big decline in mortality, in which case that channel could be very important. Given that we don’t find a net decline in mortality, it is probably less important[.]

In her article about the Doleac-Mukherjee study, Megan McArdle discusses possible policy responses to this startling finding:

The coldly logical response to this would seem to be to discontinue naloxone use. But there’s something repulsive about that conclusion, and Doleac and Mukherjee can’t bring themselves to go there. “Our findings do not necessarily imply that we should stop making Naloxone available to individuals suffering from opioid addiction,” they write, “or those who are at risk of overdose. They do imply that the public health community should acknowledge and prepare for the behavioral effects we find here.”

Sally Satel echoes Doleac and Mukherjee, both on the moral hazard of naloxone and on whether access to it should continue. Satel, a psychiatrist who is also a drug policy scholar at the American Enterprise Institute, says the paper’s findings reinforce what she has heard from patients: “Patients occasionally tell me that having naloxone on hand has served as insurance against overdose. So, in some instances, it enhances risk taking.”

“That said,” she emphasizes, “we must use it to save people in the immediate term.”

So how can public policy prepare for those “behavioral effects” found by Doleac and Mukherjee? Satel suggests we look at civil commitment for patients who overdose multiple times in a short period. But she also notes that civil commitment can’t work without good treatment options — and in a lot of places, those aren’t available.

Which brings us back to something that’s easy to forget about the Peltzman Effect: It can be used to argue as much for more regulation as for less. Insurance companies, after all, have been fighting moral hazard for centuries, which is why they reward people who install burglar alarms or fill in their swimming pools (or punish people who don’t do those things). And so, too, can the government — for example, by aggressively ticketing speeders, passing tougher drunken driving laws, or using a combination of carrots and sticks to help addicts get clean. There are better policy responses to moral hazard than mounting a spike on the steering wheel — or depriving addicts of a second chance at life.

Much of that seems reasonable, but I wish McArdle had considered something else that’s easy to forget about the Peltzman Effect: It’s not necessarily a bad thing. When surgical anesthesia became a lot safer during the last century, we began to do a lot more surgery. When Elisha Otis invented the safety brake, people all over the world started riding elevators. As air travel becomes safer, more people flew through the sky. Doing more of what we want is usually considered a good thing.

That’s because economists usually make a formal assumption that people will act rationally to improve the quality of their lives. So if people decide to consume more of some goods — apples, oranges, antibiotics, haircuts, televisions, surgical anesthetics, elevators, airplanes — economists assume they do so because it makes their lives better. So why shouldn’t economists be happy that naloxone allows heroin users to consume more heroin?

There are two common answers to that question. One is to reject the idea that heroin is a “good.” This is a common position in public policy analysis, where certain actions, such as prostitution or consumption of illegal drugs, are deemed to be axiomatically bad. Doleac and Mukherjee kind of take this route by default, never really considering that increased opioid use may be a benefit. However, being good economists, they do allude to the possibility, noting that “welfare implications of drug and alcohol abuse themselves are unclear: Some argue that people can do whatever they want to their own bodies, no matter how harmful.”

McArdle takes the other route, arguing that because drug use is addictive, it’s not an actual choice:

It makes a certain amount of sense that the Peltzman Effect would show up particularly strongly in drug users; after all, drugs hijack the brain’s reward system, redirecting it toward drug-seeking even at high personal risk.

In other words, drug addicts fail to be rational in pursuing the improvement of their lives: Their addiction takes away their ability to make rational choices, so their apparent choices no longer represent consumption decisions that improve their lives. Somebody has to step in and make those choices for them.

McArdle’s argument is somewhat undermined by the Doleac-Mukherjee study itself:

It may seem surprising that drug users respond to incentives in a sophisticated way. One may think that drug users are poor decision-makers or that addiction makes rational choices impossible. Addiction surely clouds judgement and makes policy in this area difficult, but there is substantial evidence that even drug users respond to incentives. A large body of empirical evidence documents that the consumption of addictive substances is sensitive to prices. For example, increasing taxes on alcohol reduces alcohol consumption (Cook and Durrance, 2013). Alcohol abuse also responds favorably to increasing the likelihood of punishment, as seen in evaluations of the 24/7 Sobriety program (Kilmer et al., 2013). Hansen, Miller and Weber (2017) show that marijuana consumption is price inelastic in the short run, but quickly becomes price elastic, with consumers reducing their consumption in the face of higher marijuana taxes. And finally, Moore and Schnepel (2017) show that a massive reduction in the heroin supply in Australia resulted in a long-term reduction in heroin consumption among those using heroin at the time, due to a spike in the price of the drug. These findings suggest that, at least on the margin, drug abuse may be sensitive to non-monetary costs such as the risk of death.

If drug users are rational enough to alter their behavior to respond to these changes in incentives, that undermines the argument that their decision to consume drugs is irrational, leaving the way open for the possibility that increased opioid use is actually a benefit of naloxone.

That may seem a little insane, because, you know, it’s heroin. But suppose we could figure out a way to make opiates completely safe to use. This would likely cause a big increase in heroin use, but I hope you’ll agree that an increase in the use of completely safe drugs is not a health crisis. Nothing is completely safe, of course, but maybe between naloxone and some other policy changes, we can get close enough to greatly improve the lives of recreational opiate users.

Some nations have experimented with supervised injection centers which provide sterile equipment, trained staff, and of course a supply of naloxone.

Studies consistently show that supervised consumption facilities work. These kinds of sites have opened in Canada, Australia, and Europe, showing drops in drug overdoses, related emergency care calls, risky behaviors that lead to HIV or hepatitis C transmissions, and general public disorder and nuisance associated with drugs.

(I don’t know if there are studies on whether supervised injection centers lead to increased opioid use, but I wouldn’t be surprised if they do.)

One thing these centers do not provide are the drugs themselves, so addicts still face risks inherent to a drug supplied with uncertain concentrations, uncontrolled contamination, and unpredictable adulterants. At the risk of yet another increase in consumption, we could conceivably control all of those problems — and reduce the need for addicts to commit crimes to feed their habit — by permitting the development of a legal source of drugs that is inexpensive, uniform, sterile, and…hmm…I think I’ve just invented the friendly neighborhood Heroin Bar.

About a year ago, my friend Jennifer was mocking our current lack of school choice with this analogy to the Supplemental Nutritional Assistance Program (SNAP):

…the system we have, wherein people are given food stamps to spend at whatever store they please, is FAR better than a system wherein poor people are only able to get food from ONE specified grocery store in their neighborhood — and if that store is subpar and has a crappy selection of food, tough shit for them; if they want to shop at a decent grocery store, their only option is to move to a neighborhood which has one. Yet that dysfunctional hypothetical is EXACTLY how our public education system works now.

The SNAP program is far from ideal, but it’s much better than Jennifer’s laughably zany idea.

Fast forward a year, however, and it turns out that the Trump administration has come up with something much, much dumber.

The Trump administration wants to slash food aid to low-income families and make up the difference with a box of canned goods — a change that Office of Management and budget director Mick Mulvaney described in a Monday briefing as a “Blue Apron-type program.”

“What we do is propose that for folks who are on food stamps, part — not all, part — of their benefits come in the actual sort of, and I don’t want to steal somebody’s copyright, but a Blue Apron-type program where you actually receive the food instead of receive the cash,” Mulvaney said. “It lowers the cost to us because we can buy [at wholesale prices] whereas they have to buy it at retail. It also makes sure they’re getting nutritious food. So we’re pretty excited about that.”

People have come up with a lot of questions about this plan, and I have a few concerns of my own.

[Update: And so does my friend Jennifer, who scooped me on this angle with a post of her own.]

Will it really be cheaper? Sure, the government can buy the food in bulk, but they still have to distribute it to everyone, which is a job that retailers do right now. Can the government actually perform the distribution cheaper than people whose livelihood depends on controlling costs?

What about delivery costs? Under the current system, the cost of getting the food to people’s homes is born by the SNAP benefit recipients themselves, in the sense that they pick the food up themselves. Granted, delivery is probably a nice time-saving benefit for recipients, but there’s no way it’s cheaper for the government.

What about people who move a lot? What about transients and migratory farm workers? What about people who crash with friends? What about the homeless? How will the delivery service work for them?

(Frankly, I wouldn’t expect the deliveries to last. Somebody will decide that since poor people aren’t working, they have plenty of time to pick the food up from a local depot…thus more closely conforming to Jennifer’s original mocking suggestion.)

Even if the system of in-kind food distribution reduces costs, I’m pretty sure it will be far from cost effective — recipients will be getting far less bang for the buck. With food stamps or EBT cards, the recipients get to make their own choices about which foods to buy, which means they can carefully target their needs. That’s just naturally more efficient than letting distant bureaucrats decide what they need.

I hope these food packages will be customized to handle common medical situations, such as low sugar for diabetics, gluten-free for people with celiac disease, no peanuts for those with allergies. On the other hand, the proposed “America’s Harvest Box” program closely resembles the USDA’s current Commodity Supplemental Food Program, which offers only 52 different foods. Even a 7-Eleven stocks over a thousand items.

In any case, there are other reasons besides medical needs for customizing food choices. Secretaries, store clerks, dock workers, nursing mothers, and heart patients all have different food requirements. In addition, many poor people don’t have very versatile kitchens, so they would be better off if they could select foods they can cook easily. And it’s a lot easier to satisfy a picky child with the 30,000 choices from a grocery store than to force them to eat foods they don’t like.

In the long run, with billions of dollars to be spent on food every year, the selection of items to offer is almost certain to be captured by lobbyists for the agriculture industry. They won’t care what foods poor people like, and they won’t even much care what foods are healthy. Instead, food choices will be driven by which agricultural sectors contribute the most money to campaigns or have the most employees in swing states.

The craziest thing about “America’s Harvest Box” program is that it is a giant government-run program proposed by Republicans. Conservatives are supposed to love efficient free markets and hate planned economies, but when Republicans propose programs like this, it shows they don’t really understand why free markets are good. They don’t really believe that individual consumers making choices for themselves will be far better at it than buildings full of government bureaucrats. They only give lip service to “free markets” because it’s what they think their donors want to hear. In practice, gigantic socialist agricultural programs go over just fine with American Republicans. 

I know I shouldn’t be picking on left-leaning goofballs (because they’re powerless these days, and all the damage is being done by the right) but Kate Aronoff at In These Times has written the dumbest thing I’ve seen yet about the Whitefish Energy scandal.

The article is titled “Repulsed by Whitefish Energy? Maybe You Also Hate Capitalism.” That sounds like it might be a defense of the Whitefish mess in the name of greed-is-good capitalism. Or it could be a snarky send-up of that kind of that argument. But what it turns out to be is an argument that if you hate the Whitefish scandal, you might also want to start hating capitalism.

…Whitefish Energy is to disaster capitalism as Martin Shkreli is to America’s for-profit healthcare system: the most obviously bad actors in industries that are full of bad actors by design.

As Myerson wrote, “Satisfying though it might be to adorn his face with a black eye … there are more worthy objects of our loathing. All of Shkreli’s appalling antics and characteristics are in fact emblematic of the real villain: capitalism. Shkreli is capitalism embodied, and if you hate him, you’d do well to take up hating capitalism with at least equal fervor.”

The same goes for the eminently punchable team at Whitefish Energy. […] They did enter into a $300 million contract with the Puerto Rico Electric Power Authority (PREPA) to perform work that they are grossly unqualified to do, on a scale that dwarfs any of the contracts they’ve had thus far. Whitefish’s social media arm also got in a public spat with San Juan mayor Carmen Yulín Cruz, at one point writing, “We’ve got 44 linemen rebuilding power lines in your city & 40 more men just arrived. Do you want us to send them back or keep working?”

To review what we know: Whitefish Energy, a small company owned by a guy who is friends with with U.S. Interior Secretary Ryan Zinke, received a $300 million no-bid contract from the government-owned electricity provider of Puerto Rico. In other words, a government-run entity gave a very sweet contract to a guy with good contacts in high political offices. This is not — in any way, shape, or form — free-market capitalism.

Ironically, the Whitefish scandal could prime the pump to privatize PREPA entirely, a long-sought goal of corporate-friendly interests on the island. The federally-appointed fiscal oversight board that oversees Puerto Rico’s government recently announced that it would move to install a Flint-style emergency manager to oversee the utility with an eye toward selling off large chunks of it. Included in their official reasoning for the decision was PREPA’s contract with Whitefish.

Aside from the gratuitous reference to the awful mess in Flint, Michigan (also largely a failure of governmental entities) this sounds like maybe a step in the right direction. (Although if the privatization effort is overseen by the same corrupt people who ran the government entity, things are unlikely to improve much.)

There’s a general moral sickness to this that’s all-too-common, particularly when corporations and right-wing governments decide to profit off of disasters—financial, ecological or otherwise. Take the case of Jeffrey Chiesa, the lawyer appointed by his friend and ally Chris Christie, New Jersey’s governor, to put Atlantic City’s indebted fiscal house in order.

This is more of the same: The elected leaders of Atlantic City screwed up its finances, and the elected governor of New Jersey gave a sweetheart deal to one of his friends, and somehow that’s capitalism’s fault?

Look, just because a corporation is involved doesn’t mean it’s capitalism. The Whitefish Energy scandal looks like standard-issue government corruption: Somebody with influence got somebody with power to give them the public’s money. It’s insane to call that a problem with capitalism.