Friday, June 4, 2010

Vitamins pills and oil spills.

I recently saw Bjorn Lomborg on television talking about how to get the most bang for your buck when it comes to improving global welfare. (He wrote an article about this in the Wall Street a while back, and it's worth reading.)

He pointed to an economics study done that prioritized different projects that could improve the world:

Providing micronutrients -- particularly vitamin A and zinc -- to 80% of the 140 million or so undernourished children in the world would require a commitment of just $60 million annually, a small fraction of the billions spent each year battling terrorism or combating climate change.

(This is from his WSJ article mentioned earlier.)

So if you had a bunch of money to spend, you could either provide micronutrients to the world's poor or decrease global temperatures (in 100 years) by a tiny fraction of a degree.

Of course, going to micronutrient rallies doesn't help you meet women or make you seem as trendy as getting worked up over various environmental causes.

Ok, fine. But what does this have to do with oil spills? Steven Landsburg made the point today that people get very worked up over the gulf oil spill, but there are bigger economic disasters that a lot of people aren't even aware of:

The BP oil spill threatens to cause something like $10 billion worth of damage. That’s pretty bad. By contrast, an extra trillion dollars worth of federal spending threatens to cause something like $300 billion worth of deadweight loss (that is, underproduction due to tax avoidance and disincentives to work). That’s 30 times worse. How is it that so much angst about the former seems to be coming from people with a history of shrugging their shoulders at the latter?

I can't argue with that. Every single year, we incinerate hundreds of billions of dollars through economic distortions, thanks to the tax code. Does anyone care? If you go to a dinner party tonight (instead of sitting at home, eating Chinese food, and watching Bjorn Lomborg on tv like I'll be doing), are you more likely to hear people lamenting the oil spill or deadweight losses due to taxation? How many people at the party are likely to have heard of "deadweight losses"?

When it comes to world social causes, people are much more likely to get concerned about #30 on the list (global warming) than #1 (micronutrients for the 3rd world). When it comes to economic disasters, people are much more worried about the (admittedly catastrophic) oil spill than a problem that's 30 times as bad.


Anonymous said...

Landsburg is wrong, and like all learnèdly ignorant neoclassicals, understands macroeconomics less than the average child. He doesn't understand modern money. He (a) equates the spending with the taxation, assuming something like Ricardian equivalence, one of the silliest concepts ever perpetrated, an insult to David Ricardo. And (b) The spending simply need not be paid through future taxation. In times like now laying an extra $1T of $ or bonds on the private sector would do nothing but good for the economy. The biggest loss now is unemployment due to the lack of the $1T. And I'd take a Martin Feldstein estimate about how bad big government is with a grain of salt.

ESM said...

I agree in principle that Landsburg is wrong to equate spending with future taxation. But he is not wrong that our system of taxation is highly inefficient. Estimates of the cost of compliance with the income tax code range from $500B to $1T annually. That's a lot of wasted resources.

As for the spending side of the equation, the fact that spending $1T now is better than doing nothing is beside the point. That's one of those false choices that Obama likes to disparage but makes use of in his rhetoric ad nauseum. For example, it would have been far better to drop $1T out of helicopters than to spend it on last year's stimulus package. Yes, some MMT proponents see value in having people doing even stupid jobs rather than being unemployed. I don't agree. See for some examples.