Economic Costs of Freedom

This is partially inspired by this thread.

According to Wolf and Colditz, the total cost of obesity to the United States in 1995 $99.2 billion. By almost any reckoning this is a tremendous amount of money. About half of this figure is attributable to direct medical costs, or 5.7% of the US’ national health care expenditure.

So the social costs for obesity, cigarette smoking, chatting on cell phones while driving, not bathing regularly, nosepicking, and liberal/conservative ideology are considerable.

The government intervenes in some of these theatres in order to minimize these social costs. In some cases it passes laws (the ban on using cell phone handsets while driving), in other cases it creates markets or implements pigovian taxes (like pollution dumping credits), and in others it does nothing at all (I really wish my neighbor would bathe before he tries to talk to me in the hallway).

The question I would ask is what the criteria should be for government intervention of any kind to minimize the social costs of ordinarily non-prohibited behavior. Some possibilities to consider:

[ul]
[li]The intervention has to pass some non-obtrusive litmus test.[/li][li]The intervention must achieve some demonstrably a priori measure of success.[/li][li]The intervention cannot compromise any Sacred Cows of American social consciousness.[/li][li]Interventions that cause large market distortions should not be implemented.[/li][li]The problem has to pass a certain severity test in the first place to see if it merits intervention.[/li][/ul]

What do you think?

If these “ordinarily non-prohibited behavior[s]” are causing marginal external costs the market is already distorted and government intervention would be corrective. So, rather the opposite of your suggestion should hold.

It’s near bedtime for me, but if you’re interested (well, you invoked Arthur Pigou) try a search for the “impossiblity of a Paretian liberal” which takes the smelly neighbour case to its conclusion (reading an offensive book).

My (vague) suggestion: the government should intervene when the likely government failure is less than the historical market failure.

To clarify: the government should not intervene when its intervention would distort the market worse in order to suppress undesirable behavior.

Thanks for the recommendation.