Externalities such as air pollution are often cited as an example of a problem that can be usefully solved by public policy. In the real world, however, two factors make externalities overemphasized as a reason for law:
- Transaction costs
- Inspired thinking
A recent article by Geoffrey Kabat in Reason Magazine helps explain both of these problems. Back in 2003, Kabat and James Enstrom published a study showing that secondhand smoke had no statistically significant effect on mortality. According to Kabat, the reaction to their paper is a classic example of inspired thinking:
Since that conclusion seemed to fly in the face of conventional wisdom that had long prevented state and local smoking bans in public places, our study understandably sparked controversy in the public health community. But the intensity of our attacks in the pages of a medical journal—critics who were convinced that our study was flawed but often failed to provide direct evidence of fatal errors—shows clearly what can happen when popular policy has taken over. about the nature of the doctrine transcends rational scientific debate. . . .
Exposure to ETS is known to cause eye and throat irritation and aggravate pre-existing respiratory conditions. Plus, it’s simply unacceptable to most people (including me). But evaluating the claim that ETS is more dangerous requires an examination of the available scientific evidence.
Another example of motivational thinking occurs when people complain that smokers lead to higher taxes because of spending on public health care, ignoring the fact that they live much shorter lives and thus collect less public pensions. There are good reasons to resent smoking, but rising financial costs are not among them.
Kabat points out that new scientific research has reached broadly similar conclusions about cigarette smoke:
A recent study by researchers at the American Cancer Society (ACS) reinforces that point by showing that, contrary to what our critics say, the cancer risk from ETS is almost negligible. The authors present that impressive result without commenting on it, which may reflect their reluctance to revisit a debate that anti-smoking activists and public health officials wrongly consider long-settled.
Another problem with tobacco control is that it ignores the issue of transaction costs. Ronald Coase has shown that public policies to deal with externalities are only necessary if there is a significant cost to negotiating a private resolution of the issue. In terms of the level of tobacco smoke that is problematic, it is almost perfect for indoor settings. That means the problem can be easily solved by the owner of the smoking area.
Governments can control smoke in public buildings, and private owners can control smoke in private buildings. There is no obvious reason for the government to regulate behavior in a private space. Property owners already have an incentive to regulate tobacco smoke whenever the benefits of such regulation outweigh the costs.
This is not to deny that there are external indicators of market failure. I like carbon taxes to deal with global warming. But even on that issue, which the private sector can easily fix, I see many examples of motivated thinking. Proponents of “decay” seem motivated by disgust with our modern industrial society, and use global warming as an excuse to push for a return to a simpler past. Carbon taxes are not an attractive solution for people with that kind of agenda, as they would allow society to deal with global warming without giving up all the conveniences of modernity. For some proponents of deregulation, the effectiveness of carbon taxes would be a flaw, not a feature.
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