Posner's Response to Several Weeks of Comments

I have been terribly remiss in responding to comments these past few weeks. Let me try to make limited amend: National Cultures: One comment helps to dispel the mystery of French productivity, by pointing out that regulation has shrunk the service sector in France relative to the rest of the economy, and service sectors tend to have the lowest productivity because they are so labor-intensive. Lobbying: Three good comments bearing on the puzzle that the expenditures on lobbying seem very small relative to the potential gains. One, which help to solve the puzzle, is that huge contributions would be too conspicuous, and thus boomerang--it would be obvious to the politicians' constituents that some group or industry was trying to buy favorable legislation. Another comment, which also helps to solve the puzzle, is that much less than the entire federal budget is in play in any given year: quite apart from entitlements, which consume a large part of the federal budget but are not subject to fundamental change from year to year, much of the federal budget is committed and cannot be altered by lobbying. Lobbyists work at the margin. The third comment, which cuts the other way, is that there are huge potential rents from legislative changes that do not affect the federal budget, such as a law making environmental regulations more or less stringent. Tax Simplification: Taxes must not be viewed as mere revenue generators. They are also means of regulation, for example of externalities. I would like to see heavy taxes on carbon dioxide emissions. But regulatory taxes are generally not part of income tax, where the tax-preparation expenses that were the focus of Becker's and my posts are mainly incurred. Equality: I had emphasized product improvements as a source of real though not pecuniary increases in income that have helped to reconcile people to the fact that, for many of them, their money incomes have not risen in recent years. One comment points out insightfully that if income is defined in terms of the services that are yielded by the products (and services) that we buy, it is much more equal than if it is defined in money terms. The comment compares a Camry to a Lexus. The Lexus is a better car, but it costs three times as much and is it three times better? No. The 18-year-old Macallan (a single-malt Scotch) costs about twice as much as the 12-year-old, but the difference in taste is very slight. This seems a general characteristic of luxury goods. This is the sense in which people of widely different incomes can all consider themselves middle-class without being delusional.

Comments

[nada]

Service sector still represent 70 % in France ...

[Pierre Rochard]

High French productivity is due to the 35 hour week and other labor regulations: French companies are constantly under-manned (in order to avoid gigantic "social" costs) so the others have to pick up the slack, ergo higher productivity.

[Paco]

Dear Judge Posner:

I had wanted to reply to your analysis of lobbying when it first came out, but I was in Egypt that week with Leonor. I had wanted to say that another reason why expenditures on lobbying is so small relative to federal spending is perhaps that the sum of all the efforts of various lobbyists tend cancel each other out at the end of the day.

That is, on any given question or public policy issue, there are a wide variety of lobby groups and thus the efforts of these groups may cancel each other. This, at least, is the impression I get whenever I reread Federalist No. 10: Madison's counter-intuitive and ingenious solution to the problem of factions is not campaign-finance reform or strict controls on lobby groups, but the creation of more lobbies, for the more lobbies there are, the more difficult it is for the various groups to reach an agreement.

On this view, the question is why an 'arms race' has not developed among lobby groups?

Paco

[Paco]

Judge Posner:

Before I forget, I wanted to make a comment on your comment on 'regulatory taxatation'. I understand your argument in favor of taxes on activities that generate large negative externalities (such as carbon dioxide emissions).

However, while I was Egypt I discovered that the price of oil there is only one British Pound per gallon (or about 20 cents per gallon). Thus Egypt, in effect, subsidizes the emission of carbon dioxide beyond the optimal level.

My concern, then, is similar to the Bush Administration's objection against the Kyoto Protocol: why should consumers in wealthy countries pay higher taxes on oil in order to reduce the externalities associated with oil consumption, when consumers in poor countries do not? It seems we have a difficult coordination problem, since imposing a regulatory tax on oil consumption in poor countries may not be politically feasible.

Paco

[David]

Judge Posner writes:

"The Lexus is a better car, but it costs three times as much and is it three times better? No. The 18-year-old Macallan (a single-malt Scotch) costs about twice as much as the 12-year-old, but the difference in taste is very slight. This seems a general characteristic of luxury goods. This is the sense in which people of widely different incomes can all consider themselves middle-class without being delusional."

Translation: Let them eat cake, because - after all - cake is pretty good. :)

But more to the point, someone who spends $80K for Lexus that is only marginally better than a $25K Camry cannot truly be considered "middle class." Calling F. Scott Fitzgerald..

[Grace Smith]

This point about luxury goods is awesome!

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