A few days ago I engaged in a thought experiment.
What might Gordon Tullock have suggested to address the problem of the rising number of younger people testing positive for COVID-19. I used Tullock’s spike, the example he gave of placing a spike in the middle of a steering wheel to “encourage” safe driving, as a way to frame a discussion of how we might think about young people being forced to internalize the cost of irresponsible behavior that is leading to more COVID cases.
I suggested one way of dealing with this issue might be to tax young people who get infected for irresponsible behavior. Now in the spirit of a less statist, more voluntary solution, let’s think about the problem differently. The term externalities gets attributed to Ronald Coase, in particular regarding the so-called “Coase Theorem.” In fact, that is a phrase that George Stigler coined in describing Coase’s work. Coase himself might have framed the problem COVID problem very differently.
In many of the examples that Coase uses, we tend to see the costs as only being externalized in obvious ways that fit our sympathies. I live downstream in a river. Someone builds a factory and begins polluting the river. The “externality” is typically the pollution that I now have flowing past my home, smelling up my yard and ruining my view. The pollution kills fish and poisons the underwater plant life. That’s the way we usually think about it. Blame and recompense is the way we approach it.
But aren’t I, through my anti-pollution bias, incurring a cost on you the factory owner? Rather than simply say, yes, the factory owner should pay the other people living downstream to compensate for the pollution, shouldn’t we also think about the factory owner employing people, creating a good that is presumably in demand and increasing social welfare? Coase probably would have preferred bargaining between the parties in dispute with a solution satisfactory to both.
Young people today aren’t the only ones not internalizing their externalities. They have suffered significant losses. They have forgone employment, educational, and social opportunities while facing almost zero risk of dying from COVID. They have seen trillions in debt added to the government’s balance sheet, which will have to be paid not by the older politicians who have pursued these policies, but by their own and future generations. They have now lived through two several economic disruptions – this crisis and the financial crisis of 2007-8. No wonder they have serious doubts about free markets and the American political economy!
Coase, rather than Tullock, might approach this problem differently. Can generations contract and bargain voluntarily to solve this problem? The elderly, the ones most at risk from COVID, are also coincidentally the richest age group in the United States. They receive massive subsidies from the government and have much more in savings than young people on average. Why can’t the elderly bargain to materially pay younger people for safer activity? Would a large scale scholarship program to younger Americans who wear masks and avoid social gathering (and don’t test positive for COVID) do the trick? How about more generous unemployment benefits for younger people who submit to regular testing and contact tracing paid for by a cut or at the very least a forgone COLA to Social Security?
The young are being asked to bear a tremendous material, social, economic, and educational burden at the moment. Older Americans are the ones who benefit most from this sacrifice. I smell a Coasian bargaining solution.
READER COMMENTS
JonB
Aug 6 2020 at 5:20pm
I agree.
The young people should extract MASSIVE tax increases, not symbolic scholarship programs, from the elderly, especially since the total number of life years lost is possibly 2# in the young relative to older population. The CDC director testified this July that they are already seeing increased mortality in this group, presumably from suicide and or drug overdoses. We bent the curve downward in the inpatient setting to protect a disease which kills old people in nursing homes and bent the curve upward in the outpatient psychiatric clinics. The morbidity costs are unimaginably worse since the virus kills you quickly in medical times frames while the diseases of despair are lingering torture.
The fatal conceit is strong in this essay……
I am afraid we are going to paying for this failed experiment in public health command and control for a very long time. I pray to God the public health “experts” stay out my clinic for this next crisis……
Thomas Boyle
Aug 6 2020 at 7:43pm
You do need to be careful about some of the asymmetries, and being careful what you pay for. If you start to pay people for not catching diseases, you are creating a demand for diseases, and people will work to supply them. Taxing people for catching diseases does not create that kind of demand (although I may be missing some other perverse incentive there).
In the same way, when Coase argues that those with preferences for a pleasant environment (perhaps, those who object to the noise from the apartment of the drumming instructor) are symmetrically imposing externalities on others (the drum instructor and her students), he ignores the potential for deliberate creation of externalities (strongly amplified heavy metal music), by people intent on getting paid to stop.
Fred_in_PA
Aug 7 2020 at 10:51am
Thomas Boyle;
While I’m in agreement with your post, I’m confused by one part:
You say, “If you start to pay people for not catching diseases, you are creating a demand for diseases, and people will work to supply them. Taxing people for catching diseases does not create that kind of demand.”
If I substitute something tangible — let’s say “foxes” — for your “diseases,” this starts to look really counter-intuitive.
Is the answer perhaps in a different wording? If it said, “If we start to pay people for avoiding diseases, we may create a demand for situations in which they can be avoided.”? If the tea-totalers will pay people not to drink when in a bar, will this increase the number of people who want to go to bars so they can collect the bounty? (Or something like that.)
Geoffrey Brand
Aug 6 2020 at 9:49pm
Great post – that made me think of the Covid situation from a completely different angle.
Jens
Aug 7 2020 at 3:58am
Isn’t it actually even a bit more complicated ? As long as young people are infectious, they provide negative externality. If they are immune, they are positive externality (blocking infection paths, better than neutral). If you don’t know for sure whether they are one or the other, they are somewhere between risk or chance.
Mm
Aug 7 2020 at 9:09am
How about offering early Medicare & remove the SS “penalty” for anyone over 60-62 to retire early and thereby open up more jobs fir younger people? Rather than pay the young not to work (which greatly reduces future earnings) pay those close to retirement to retire now? This also helps those with greater comorbidities to more easily isolate ehile placing those with vastly reduced risk (the young) in the workforce?
Fred_in_PA
Aug 7 2020 at 10:29am
There is still much we don’t know about this disease.
(And it doesn’t help that the media (to “sell newspapers”?) will hype every little blip in the data.)
But there is at least some reason to think that the disease may lead to longer term health problems — rather the way chicken pox can show up 50 years later as shingles. Blood clots and chronic fatigue syndrome seem to be getting the most attention in media I read.
Of course, this may just be a little do-gooder shaming to get young people to behave more “responsibly.” (The do-gooders’ definition of “responsibly,” of course.)
Or. Young people may be facing higher direct costs from the disease than we’ve allowed for.
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