Monday, January 01, 2007

Smart people

The LA Times ran their annual "New Year's wishes" lead editorial today. Some wishes are whimsical and some are serious. High on the list is this one:

"For local officials to spend some of their Proposition 1B bond riches on extending the Red Line subway down Wilshire Boulevard to Fairfax Avenue; getting it all the way to Westwood would be even better."

The existing 16-mile line accounts for negative net benefits of near $300-million per year, all things considered. Extending the line will surely make this worse.

But this is now an old story. The larger problem is that many smart people (including many economists) ignore the application of basic economic principles when it comes to questions of public policy.

(I had never thought that any serious person took "internalities" seriously until I read in Jonathan Gruber's Public Finance and Public Policy that they were a reason for government to regulate smoking, p. 164. Slippery slope, anyone?)

Many see (negative) externalities practically everywhere. These are, of course, remediable by politicians. Many observers will not take delivery when possible externalities have been accounted for. Others see redistributional opportunties everywhere. Some of them ignore the fact that governments typically make a hash of redistribution -- and that the opportunity cost in terms of growth avoided is an anti-poverty opportunity missed.

Politics is bad enough. But politics given a pass by smart people is worse.