Thursday, July 15, 2010
Anything for money
That could be the conclusion of an op-ed piece in yesterday's New York Times, "Economics Behaving Badly." People make irrational decisions all the time, say authors George Loewenstein and Peter Ubel, and the field of behavioral economics helps to explain why. Unfortunately, policymakers are misusing behavioral economics "as a political expedient, allowing policymakers to avoid painful but more effective solutions rooted in traditional economics"
Loewenstein, a professor of economics and psychology at Carnegie Mellon University, and Ubel, a professor of business and public policy at Duke and the author of Free Market Madness: Why Human Nature Is at Odds With Economics, pile up examples of everyday irrationality.
For instance, New York City requires restaurant chains to post calorie counts on menus. This is supposed to encourage diners to lose weight. Good idea, but it won't make people slim. Studies indicate that people consistently choose whatever food is plentiful and cheap, and as long as we continue to subsidize corn and refuse to tax junk food, obesity rates will stay high.
Or consider the inflated prices of American pharmaceuticals. Studies have repeatedly shown that "pharmaceutical industry gifts distort decisions by doctors," and yet the health-care reform act does not ban them. Instead, it requires doctors and teaching institutions to "make information about these gifts available to the public." Does anyone seriously think that informed patients will rise up and refuse to accept prescriptions from doctors who are stuffed to the gills with bribes?
In every example in Loewenstein and Ubel's article, the bottom line is money. Consumers go for whatever is cheap, whether or not it is good for them. Suppliers go for whatever makes the most money, whether or not it is good for their clients.
The authors don't extend their discussion to Congress or state legislatures, but our elected representatives have a history of voting for whatever the most generous lobbyists and campaign contributors want them to vote for, even if most of their constituents don't want it, even if the nation or state can't afford it, and even if the effects will be generally harmful.
And then, knowing that their constituents, like themselves, want to have as much money as possible, state and federal legislators vote to reduce - or at least not to raise - taxes.
Such ill advised spending without adequate resources has led my home state, California, and my state of residence, Illinois, to the brink of financial collapse (see "Illinois Stops Paying Its Bills, But Can't Stop Digging Hole"). This is not rational behavior, but any other approach - raising revenues, for example, and trimming spending - seems just too painful to consider.
After all, the sky is not falling. Yet.