Fatalities from Drunken Driving--BECKER

One of the most disturbing aspects of the holiday season is the sharp rise in automobile fatalities, in part due to drunk driving from overdrinking at parties and other celebrations. The United States has almost 40,000 deaths per year from automobile accidents, and about 40 percent are due to drunk driving. This exceeds the annual number of deaths from major diseases like prostate and breast cancers, and drunk driving deaths are also concentrated among young persons, while deaths from most diseases come at much later ages. That the number of deaths per mile driven is not fixed but varies greatly with different conditions is seen from the wide differences among countries in the number of deaths per passenger vehicle. The United States is at the high end, and in 2004 had about 1.8 road traffic deaths per 10,000 vehicles, compared to less than 1 per 10,000 vehicles in Sweden and Norway, 1.1 in Germany, and 1.0 in the United Kingdom. A few countries in the more economically advanced nations have higher death rates than the United States, including S. Korea at 3.6, and Hungary at 3.9. A number of factors help explain these international differences, including the quality of the roads, speed limits, minimum driving ages, age distribution of the driving population, density of traffic, amount driven per vehicle (presumably higher in America), and other factors. I concentrate on accidents due to drinking. The American approach to drunk drivers has been more laissez faire than other nations, with relatively light punishment for drunk driving, often even when it caused serious accidents. In the last couple of decades, however, under pressure from groups like Mothers Against Drunk Driving (MADD), states and the federal government have begun to crack down on drunk driving, and driving by youth. Largely in response to such pressure, the minimum drinking age in all states has been raised from what was typically age 18 to age 21. States also established more standardized criteria for what constitutes driving while drunk, and have lowered the minimum level of blood-alcohol concentration that is taken to indicate driving while drunk from 0.10 per cent to 0.08 per cent. More checkpoints and patrols have been put on the road to give sobriety tests to suspected drunk drivers. As a result, alcohol-related fatalities fell dramatically from 1982 to 1994. But the trend has stalled since that year, and alcohol-related driving fatalities have bottomed out at about 17,000 per year. When adult drivers cause their own accidents or that of their passengers because they were drunk, one can reasonably assume they and their passengers are capable before they get drunk of determining what risks to take, such as whether to drive, speed, how much alcohol to absorb, and other factors that increase their risk of an accident. But drunk drivers often kill or injure persons in other cars, or pedestrians, and in this way they impose what are called negative externalities on these innocent victims. This is the main case for public policies to reduce drunk driving and other externality-causing driving behavior. One approach is to tax gasoline and perhaps cars to cut down the amount of driving. Another way is to tax alcohol to cut down the amount of alcohol consumed. But these are very blunt policy instruments because they punish also people who drive without driving while drunk, or people who drink even in large quantities without driving or otherwise endangering others. By punishing only people who are discovered to be driving while drunk, or who get into accidents because they were drunk, or who are much more likely than others to drive while drunk, such as teenagers, one avoids much punishment of drinkers or drivers who do not risk the lives and property of others, and concentrates punishments on those who either are likely to, or actually did, impose external costs on others. At the same time, this would discourage, perhaps greatly, the tendency to drive after heavy drinking. My colleague, Kevin M. Murphy, prepared estimates for the United States for the year 2000 of the total cost imposed by drunk drivers who get into accidents on drivers and passengers in other cars, and on innocent pedestrians. These costs include estimates of the statistical value of the lives lost (see my post on September 3, 2006 for a discussion of this concept), the value of medical expenses for those injured, and the value of the property lost. The total of all these external costs from drunk driving in the year 2000 is about $15 billion, with the great majority of this total coming from the $5 million value placed on each of the more than 2,000 innocent persons who lost their lives in that year because of drunk driving. About 1.4 million persons in that year were arrested for drunk driving. Given the calculations in the previous paragraph, this means the cost imposed on others from driving while drunk amounts to about $10,000 per person arrested for drunk driving. This is a large amount, and provides a first order guidance to the punishment that should be imposed in some form on the drunk drivers arrested: large fines, suspended licenses, and jail terms in some cases. Such large punishments would match the damages done from drunk driving, and at the same time would encourage many persons to avoid driving while legally drunk. To show this with a little algebra, suppose that g per cent of all drunk drivers (=N) are arrested, and let that be the same for everyone- presumably it is higher for those who actually cause accidents. Let the punishment to those arrested be d per person, which is Murph''s $10,000 figure, where d=D/gN, and D is total damages from all accidents caused by drunk driving. Then the total punishment to those arrested =gNd=D, which is the right number in order to have drunk drivers pay for all the damages to others that they cause. On incentives to drunk drivers, the expected damages per drunk driver =gd=gD/gN=D/N= damages per drunk driver=p D/pN, which is what it should be, where p is the assumed common probability that a drunk driver gets into an accident. The assumption of a probability common to all drunk drivers of causing an accident is clearly not perfectly accurate, but far better than the assumption that all persons who drink are equally likely to harm others. Morover, the size of the punishment might not be the same for all those arrested, but could depend on alcohol-blood levels, the recklessness of the driving behavior, and the severity of the accident if they had been in an accident, past offenses, and other factors that try to relate punishment to the magnitude of the "crime" committed and the degree of individual responsibility. To my knowledge, no state in the United States imposes anything approaching such serious punishments on persons arrested for drunk driving. In fact, they are generally much too lenient, and do not treat this as the serious crime that it is. Countries like Sweden are much harsher in their punishment of persons arrested for drunk driving. Driving with a blood alcohol level exceeding only 0.2 parts per thousand may lead to prison terms of up to six months, and the driver's license is usually suspended. Driving with a blood alcohol level of over 1.5 may lead to one year of prison. My experience there and in Norway is that these deterrents work very well, and induce people who are planning on drinking any significant quantities to be careful not to drive afterwards. Several econometric articles by H.L. Votey indicate that punishments by fine, revoking of driving licenses, and imprisonment are important in explaining the lower tendency in Sweden to drive while drunk and the lower rates of accidents due to drunk driving, although some of the results are disputed by H. Lawrence Ross. The American approach to drunk driving is surprisingly soft, often including the treatment of drunk drivers who seriously injure or kill innocent persons because of reckless driving. Given the sharp increase during the past 20 years in the severity of punishments for felonies, and the over 2 million persons in jails or prisons, this reluctance to try to cut down the disgraceful number of highway deaths due to driving while drunk is anomalous and disturbing.

Comments

[rjh]

US laws are not as mild as you think. The difference is that they ramp, rather than starting draconian.

Germany starts at up to 2 yrs jail. By contrast

Massachusetts: first offense, up to 90 days jail, second 60day minimum, upto 2.5 yr;
third 180day minimum, upto 5 yr;
fourth 2yr minimum, up to 5 yr;
fifth 2.5yr minimum, up to 5yr. Massachusetts matches Germany at the second offense.

California runs 90-360day, with an additional 1yr jail per person injured in any accidents. This is milder than Germany if nobody is hurt, but can be much more severe if people are injured. (Serious injuries and deaths get additional penalties beyond these.)

There is also loss of license, fines, insurance costs, and for multiple offenses, seizure of cars, etc. in both states.

One problem is that it is clear that after the first two offenses, you are dealing with a fundamentally different problem. There are many one time offenders and some endlessly repeating offenders. The draconian punishments are not effective against repeat offenders, in part because of non-penal social issues.

It is not feasible for a habitual drunk to maintain a job and not drive in the US. In Europe, it is feasible for most people to adapt to a life without driving. It may be inconvenient, but it is practical. So the habitual drunk can manage to avoid driving.

[Haris]

I agree with rjh, the availability and cost of public transportation surely plays into the drunk driving statistics. The more densely populated European states certainly have an advantage in these areas, although public policy is just as important as density in these cases. W

Also, for a truly American approach, click on this link:

http://www.youtube.com/watch?v=klCcjAcdS1s

[David]

Would it not also be better to punish drunk drivers based on the degree of their intoxication? Surely, there is some difference between a person with a blood-alcohol level of .09 and one with a BAC of .20 in terms of their likelihood of injuring an innocent person. The first, as you point out, would not have even been breaking the law 20 years ago! And on the other hand, a driver with a .07 BAC is still endangering people (if only a little), though he is not breaking the law.

[rjh]

California does double the penalties if the intoxication is over 0.20.

You should not go too far with this given the current very poor state of the science of intoxication. The makers of the meters refuse to disclose their technical details. The police refuse to disclose their calibration. The relationship between breath alcohol levels and driving impairment is not well characterized scientifically. Gross relationships are clear, hence my comfort with the gross level assessments like California.

Those limited scientific impairment studies that are available have been comparisons of cell phone usage with drunkenness. Cell phone usage appears to impair function more than drunking at the legal limits for intoxication. These studies are limited and given public attitudes I doubt that they will go much further.

For various political reasons scientific analysis of impairment by drinking is not popular and not supported. It could easily give results that differ from conventional wisdom. So there is very little scientific evidence beyond the very crude measures of "falling down drunk" vs "a little drunk".

[Fritz Wunderlich]

Professor Becker:

You are a Titan!

[Teesside Website Design]

Best way is to not drink at all.

[Bernard Yomtov]

When adult drivers cause their own accidents or that of their passengers because they were drunk, one can reasonably assume they and their passengers are capable before they get drunk of determining what risks to take, such as whether to drive, speed, how much alcohol to absorb, and other factors that increase their risk of an accident.

But those decisons - " whether to drive, speed, how much alcohol to absorb, and other factors that increase their risk of an accident" - are not made before the drinking but during and after it, when judgment is unsound.

I take it that the point here is that we shouldn't worry about harm to the drunk driver himself, or his passenger, because they have made rational decisions about their own wellbeing. But they haven't done that at all. They've made their decisions at a time when their judgment was badly clouded. Surely that matters.

If you were at a party and a friend who was clearly drunk decided to drive home, would you feel no obligation to stop him, call a cab, etc.?

[Paco]

Dear Prof. Becker:

Although I usually find myself in agreement with your various analyses since Posner and you began this blog in late 2004, I do not fully agree with your analysis of drunk driving.

I would argue (as Posner seems to imply) that there is indeed an 'optimal' level of drunk driving and that the US approach is far too puritanial when it comes to this issue.

I live and teach in Puerto Rico, but I have lived and studied in the States (and in Spain), so I can attest to this. Here, in Puerto Rico (and also in Spain), the people seem to take the view that the increased risk of accidents is simply the price of being able to have fun and enjoy drinks with friends. There is a clear trade-off, and we have made the trade off in favor of enjoyment rather than safety.

As I see it, if people in the US want to choose in favor of safety, they are free to do so, but they don't have to be so pious about it.

[Jack]

Posner asks:

Given the sharp increase during the past 20 years in the severity of punishments for felonies, and the over 2 million persons in jails or prisons, this reluctance to try to cut down the disgraceful number of highway deaths due to driving while drunk is anomalous and disturbing.

jjjj: I've not been overly impressed with the results of lengthy federal mandatory minimums nor CA's costly and silly "three strikes" law that has us locking up people at 5 times the rate of the "civilized" countries and still having higher rates of crime. I suspect that the demographics of the baby boomers aging out of their peak years for crime and killing has a lot to do with the declining trend of the last 20 years; a trend that seems to be reversing itself as the "echo boomers" come of age.

Which gets me to the point of it not being the severity of the sanctions but the certainty of being caught that increases compliance. For example were it known that the odds of getting caught were 90% per attempted trip and the fine was a flat $250, a $25 cab ride would look pretty good to most. We have no means of providing such odds so mention it only to note that harsh penalties with low odds of apprehension are made much more effective by increasing the severity and especially so when reasoning is impaired.

Today, the financial costs of a DUI are crippling to to low income folk, but only an annoying nuisance to upper income folk. For most a DUI is their first brush with our legal system and especially for lower income or lesser educated people being laid open to lawyers, bondsmen, and towing operations seem not to enhance one's view of government.

The two sanctions that seem effective across income levels and that have very positive aspects are community service and having an intoximeter installed for six months.

Taking even a quick look at the subjectivity of police "field tests" and the percentage of false positives of intoximeters it's easy for the public to suspect heavy financial penalties are being extorted to pay for police and government and levied selectively, so I would argue against them being raised.

The ad and educational campaign of "Friends don't let friends drive drunk" seems to have done a lot to change attitudes and behavior, but not enough and I wonder if our commercial "hosts" are doing their share. Over the years limits on liquor licenses and other economic incentives seems to have replaced "Cheers" with huge mills of anonymity where no one knows nor cares what shape their patrons are in when the head for the parking lot, other than "dram shop" liability.

We, or at least I, would want to know more about where most of the drunk drivers are coming from; ie is it home? or from a private party or from the bars? Then (sorry Libs!) we could focus more attention on the preventative side which may be less expensive and more effective than increasing the severity of punishments.

One is the cab industry. In most cities the number of cabs are limited by permits or medallions that cost $50,000 per cab or more. It's not the worst of it that that capital has to be rewarded and the cab fares are higher, but that the laws also prevent the use of mini-buses or limos from operating. With cellphones and wireless internet access mini-buses could fill a niche by being on call to collect downtown revelers headed to certain suburbs at more affordable prices than cabs.

(We had a "Jazz-Limo" here for a year or so that ferried jazz fans between seven jazz clubs. In addition to not having to get in a cold car and again find parking, it added a lot of fun to going out and catching a set in several different clubs)

More training of cabaret staff? As their entire salary comes from a tip per drink or 20% of the tab it takes unusual character to work in favor of slowing sales. Is tipping the best way to pay those selling strong drugs? Wouldn't a tavern still have plenty of incentive to provide good service if their staff were paid professionals not reliant on over-serving?

Intoximeters are rarely seen in bars, is that because the bar might be stuck with the liability for A. false reading B. having more knowledge of a customer being inebriated? Or something else? Could, and should legislation be used to make meters available? Especially in bars that do not serve meals? The beverage industry too can do more in the spirit of "Friends don't let friends drive drunk." Jack

[unemployed observer]

Surfing the web suggest that the cost of first time DUI is not too high in California either. The exact penality is different in each county, but is about 3-5 years of court probition, $1,400-$1,800 fine, 6 months loss of CA License, DUI school and 48 hours jail time (may be replaced by social service).
http://www.kandblaw.com/penalty_chart.html#first

Lets do some guestimation: The median income for a 4-person family in CA is about $68,000 (2003 US census). Suppose 2 of 4 are working. Each work 52 weeks in a year, 40 hours a week. This translates into $16.3/hour. Average commute time for a typical San Franciscan is about 29.2min (2002 US census). Suppose during the 6 months of license suspension, you double your travel time. 6 months loss of CA license costs extra $8 a day, or $1,040 for the 6 months (26 weeks x 5 days x $8). DUI school costs about $50. 48 hours (2 days jail time) loss of income $260 (16.3 x 16 hours). These sum up to $3,150. Don't know how much costs for the probation. Lets all round up to total cost at $4,000.

Put this together, the probability of being caught should be about 0.02 to make a risk neutral driver indifferent between driving or not driving. I would guess the actual probability of being caught is way lower than that. I guess that is one of the many reasons why people DUI.

I have heard that the accident rate in US is higher than Germany, why? I have also heard that some areas in Germany have no speed limit, any correlation there?

Another thing I notice is that in some cities, car is a luxury goods. Only wealthy people can afford a car. Public transportation is good enough to accomodate most prople's need. In this case, those with cars are wealthy people. The cost of having an accidient is high enough that they will drive safely. Accidient tends to be lower as a result. This is another reason (in addition to lower air pollution) why we want to promote public mass transportation.

[unemployed observer]

Here is the 1st paragraph before the above comment:

I had dinner in the city with friends last weekend, and of course drank some. I took a cab home and left my car in the city. The cab fare is about $40, the garage parking cost $30. I came back to pick up the car the day after cost $10. Total cost of not driving was about $80. Quite a lot of money, considering the dinner/person was about $50-60.

[Jack]

Unemployed Observer (love the name, Good Luck for the New Year!)

UO sez:
I have heard that the accident rate in US is higher than Germany, why? I have also heard that some areas in Germany have no speed limit, any correlation there?

jjjj You inspired me to take a look as our fatalities/mile has been dropping continually (but has flattened in the last few years) as shown:

http://en.wikipedia.org/wiki/Transportation_safety_in_the_United_States

and I thought the answer would be that US drives so many more miles than anyone else does and that our rate/mile might be a lot better than other nations. We do drive a lot more miles. But interestingly most of the advanced nations are fairly similar in fatalities per mile.

http://en.wikipedia.org/wiki/Road_safety

At a cost of 45,000 lives and $250 billion? (if that's the right number) we could surely benefit from turning our attention to reducing these costs and lowering DUI fatalities would still rank as the lowest hanging fruit. And perhaps our attitudes? Is competitive tailgating the ultimate loser sport?

With the change in energy costs and supply it would be wise to look at ways to shorten our average commute anyway, (the highest, and most wasteful, in history) perhaps by making our abandoned cities more habitable? better planning for sprawl? and improving public transportaion.

Jack

[Jake]

Jack writes: "Today, the financial costs of a DUI are crippling to to low income folk, but only an annoying nuisance to upper income folk."

What "upper income folk" does Jack speak of? The ultra-rich? In that event, his point may be well taken.

Otherwise, there are plenty of so-called "upper income folk" -- lawyers, notably -- whose credentials, reputation, and earnings cannot withstand a DUI conviction unless their public behavior changes for the better.

[Jack]

Sorry for the off topic, but wanted to respond to Ben..... despite the other thread, apparently being shut off w/o any notice... hope you don't mind..... Jack
Jack, as usual your response here is just off-topic.

That's a great bunch of statistics in responding to economic expansion - does it refute that an expansion occurred during a deficit? No. You also conveniently ignore (or, rather, were entirely unaware of) the 8 years before 2000 when a mainly privately-induced trade deficit existed alongside the largest expansion in the US economy in history. Historically, the US economy expands faster, investment rises, unemployment is lower, and poverty falls, under a trade deficit.

Then you challenge whether oligopolies are innovate by pointing out one firm paid their CEO a lot of money. This may have fairness implications but it has nothing whatsoever to do with whether that industry is innovative.

Also, do you really think that this once great economic power must reach out and borrow 6% of GDP in order to fund a rather measely 2.5% growth? a significant portion of which is phony?

Such breathtaking inanity. The US is close to the wealthiest nation on earth, it is growing much faster than most other first world nations, particularly those in Europe, it is the world's only superpower, and yet you take all that for granted and complain that 2.5% is not enough.

Now I will answer your questions. Are these seriously the questions you are berating me for not answering?

Are most of your views equally faith-based and favorable to "our" nationless corps over the welfare of the hard working people of our once great nation?

Gee, good point. Have you stopped beating your wife yet?

But perhaps if you can't or won't do the things you refuse to tackle in your last post; perhaps you could do something else?

Yes.

Say "Before our 8% of GDP per year becomes, double digits? triple digits?"

There is a question mark on the end of your sentence but I don't see the question.

"Why much of any exportable work would be done in the US given the massive surplus of labor in far lower cost venues which replicate or even exceed the skills of US workers?"

Finally. A substantive question. My answer is that US labor is much more productive than in countries with surplus labor, and in fact data shows the ratio of productivities in countries is almost exactly the ratio of wages. Americans are paid 30 times more, they produce 30 times more per hour. See Wolf 2004 (I don't have a page ref on me). As I have pointed out, even countries with absolute disadvantages in all products must by definition have comparative advantage in some.

For the soaring trade deficit itself just look around. Do you have a competing theory as to why we have a trade deficit? Or any predictions as to whether it's likely to change for the better?

Yes. Americans save less than foreigners (particularly in East Asia) and use inwards investment to pay for imports. The trade deficit is mainly the product of the US's attractiveness to foreign investors and exceptionally high savings rates in Asian economies. Some researchers have pointed out this inwards investment is actually a very positive indicator for the US economy's health.

....... I'm assuming other first and second world countries. Is that helpful?

Yes. And convenient.

Now, my question to you. Jack I know you have no idea why or how a trade deficit can harm Americans apart from some vague idea that households that spend more than they earn will get into trouble some day. But that really has little to do with a trade deficit. I also know you can find the answer on google in 5 minutes and pretend like you knew all along. I also know that when you discover how little you know the complaint will suddenly morph into a series of unrelated statistics that poorly disguise your attempt to cover your entirely uninformed earlier comments.

But what the hell, let's have some fun. My question, again: What is the chain of events by which an the average American will be made worse off by the US trade deficit i.e. how does a trade deficit translate to costs for the man on the street?

Posted by ben at December 25, 2006 05:09 AM | direct link

~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~

Ben! Thanks! I've been looking forward to a glimpse of the "special" economics favored by some. What a nice gift it is that you stretched out and answered at least one of my questions!

Jack asks:
"Why much of any exportable work would be done in the US given the massive surplus of labor in far lower cost venues which replicate or even exceed the skills of US workers?"

Ben sez:
Finally. A substantive question. My answer is that US labor is much more productive than in countries with surplus labor, and in fact data shows the ratio of productivities in countries is almost exactly the ratio of wages. Americans are paid 30 times more, they produce 30 times more per hour. See Wolf 2004 (I don't have a page ref on me). As I have pointed out, even countries with absolute disadvantages in all products must by definition have comparative advantage in some.

Jack wonders just why we'd "trade" if the 30-30 or rush pell mell to site our factories there for no, or small gain? Do you suppose it's ENTIRELY related to the benefits of abusive transfer pricing schemes and taking the profits in that little building in the Caymens which, amazingly for its small size, holds the HQ's of 12,000 of "our" increasingly nationless corps?

Jack asks:
For the soaring trade deficit itself just look around. Do you have a competing theory as to why we have a trade deficit? Or any predictions as to whether it's likely to change for the better?

Ben sez:
Yes. Americans save less than foreigners (particularly in East Asia) and use inwards investment to pay for imports.

Jack nods in agreement being very familiar with how credit card balances can get so high using these policies.

Ben posits:
The trade deficit is mainly the product of the US's attractiveness to foreign investors

And Jack reminds him that without the TRADING deficit the US could be VERY attractive but the "investor" (ie hot money recycler) would not have the currency with which to buy large chunks of our equities and real estate. And that the "investor" could seek investments elsewhere, but then the US buck would tank and our consumers NOT have sufficient credit on his card to "just go shopping" again.

Ben continues:
and exceptionally high savings rates in Asian economies. Some researchers have pointed out this inwards investment is actually a very positive indicator for the US economy's health.

To which Jack waxes nostalgic for the days when WE had trade surpluses or at least not massive and soaring deficits and had savings and investment funds we could call our own to invest where WE pleased which was most often for plant, equipment and research done right here at home. He's also noted the rise in the numbers of "researchers" whose opinions and conclusions are "market based" as well as others that are "faith-based". Neither of our recent Fed chairmen seem to share this view and deem the game to be "unsustainable" in very somber tones.

....... I'm assuming other first and second world countries. Is that helpful?

Yes. And convenient.

Ben rants on:
Now, my question to you. Jack I know you have no idea why or how a trade deficit can harm Americans apart from some vague idea that households that spend more than they earn will get into trouble some day. But that really has little to do with a trade deficit. I also know you can find the answer on google in 5 minutes and pretend like you knew all along. I also know that when you discover how little you know the complaint will suddenly morph into a series of unrelated statistics that poorly disguise your attempt to cover your entirely uninformed earlier comments.

But what the hell, let's have some fun. My question, again: What is the chain of events by which an the average American will be made worse off by the US trade deficit i.e. how does a trade deficit translate to costs for the man on the street?

Jack points out that the NORMAL economic principles are available with "five minutes of googling" and need not be taught here especially to believers in "special" breeds of econ perhaps involving pins being stuck in painted dolls. He is however interested in why Ben skipped gayly past the discussion of the foreign "investment" of 7% of our GDP ginning up only a sickly and partially phonied 2.5% of GDP growth.

In closing perhaps Ben has talked to some "man on the street" who has tried presenting a pile of his shriveling "Bushy-bucks" for a night's lodging in Europe OR Asia? Or for a bit of oil? or any of the "hard assets" such as gold, silver, platinum, or real estate anywhere in the developed world?

Does your special econ contain a diagnosis for a country that runs massive and deepening trade deficits, a growing federal debt of 65% of GDP, record consumer debt, with housing leveraged higher than at any time in history with a year of unsold inventory on the books, combined with flat or declining wages for half its working population?

Would the prescription be to shop harder, especially for imports so China, Japan and other "savers" will have more money to lend to us? Thanks, Jack

[Anonymous]

Sorry for the off topic, but wanted to respond to Ben..... despite the other thread, apparently being shut off w/o any notice... hope you don't mind..... Jack
Jack, as usual your response here is just off-topic.

That's a great bunch of statistics in responding to economic expansion - does it refute that an expansion occurred during a deficit? No. You also conveniently ignore (or, rather, were entirely unaware of) the 8 years before 2000 when a mainly privately-induced trade deficit existed alongside the largest expansion in the US economy in history. Historically, the US economy expands faster, investment rises, unemployment is lower, and poverty falls, under a trade deficit.

Then you challenge whether oligopolies are innovate by pointing out one firm paid their CEO a lot of money. This may have fairness implications but it has nothing whatsoever to do with whether that industry is innovative.

Also, do you really think that this once great economic power must reach out and borrow 6% of GDP in order to fund a rather measely 2.5% growth? a significant portion of which is phony?

Such breathtaking inanity. The US is close to the wealthiest nation on earth, it is growing much faster than most other first world nations, particularly those in Europe, it is the world's only superpower, and yet you take all that for granted and complain that 2.5% is not enough.

Now I will answer your questions. Are these seriously the questions you are berating me for not answering?

Are most of your views equally faith-based and favorable to "our" nationless corps over the welfare of the hard working people of our once great nation?

Gee, good point. Have you stopped beating your wife yet?

But perhaps if you can't or won't do the things you refuse to tackle in your last post; perhaps you could do something else?

Yes.

Say "Before our 8% of GDP per year becomes, double digits? triple digits?"

There is a question mark on the end of your sentence but I don't see the question.

"Why much of any exportable work would be done in the US given the massive surplus of labor in far lower cost venues which replicate or even exceed the skills of US workers?"

Finally. A substantive question. My answer is that US labor is much more productive than in countries with surplus labor, and in fact data shows the ratio of productivities in countries is almost exactly the ratio of wages. Americans are paid 30 times more, they produce 30 times more per hour. See Wolf 2004 (I don't have a page ref on me). As I have pointed out, even countries with absolute disadvantages in all products must by definition have comparative advantage in some.

For the soaring trade deficit itself just look around. Do you have a competing theory as to why we have a trade deficit? Or any predictions as to whether it's likely to change for the better?

Yes. Americans save less than foreigners (particularly in East Asia) and use inwards investment to pay for imports. The trade deficit is mainly the product of the US's attractiveness to foreign investors and exceptionally high savings rates in Asian economies. Some researchers have pointed out this inwards investment is actually a very positive indicator for the US economy's health.

....... I'm assuming other first and second world countries. Is that helpful?

Yes. And convenient.

Now, my question to you. Jack I know you have no idea why or how a trade deficit can harm Americans apart from some vague idea that households that spend more than they earn will get into trouble some day. But that really has little to do with a trade deficit. I also know you can find the answer on google in 5 minutes and pretend like you knew all along. I also know that when you discover how little you know the complaint will suddenly morph into a series of unrelated statistics that poorly disguise your attempt to cover your entirely uninformed earlier comments.

But what the hell, let's have some fun. My question, again: What is the chain of events by which an the average American will be made worse off by the US trade deficit i.e. how does a trade deficit translate to costs for the man on the street?

Posted by ben at December 25, 2006 05:09 AM | direct link

~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~

Ben! Thanks! I've been looking forward to a glimpse of the "special" economics favored by some. What a nice gift it is that you stretched out and answered at least one of my questions!

Jack asks:
"Why much of any exportable work would be done in the US given the massive surplus of labor in far lower cost venues which replicate or even exceed the skills of US workers?"

Ben sez:
Finally. A substantive question. My answer is that US labor is much more productive than in countries with surplus labor, and in fact data shows the ratio of productivities in countries is almost exactly the ratio of wages. Americans are paid 30 times more, they produce 30 times more per hour. See Wolf 2004 (I don't have a page ref on me). As I have pointed out, even countries with absolute disadvantages in all products must by definition have comparative advantage in some.

Jack wonders just why we'd "trade" if the 30-30 or rush pell mell to site our factories there for no, or small gain? Do you suppose it's ENTIRELY related to the benefits of abusive transfer pricing schemes and taking the profits in that little building in the Caymens which, amazingly for its small size, holds the HQ's of 12,000 of "our" increasingly nationless corps?

Jack asks:
For the soaring trade deficit itself just look around. Do you have a competing theory as to why we have a trade deficit? Or any predictions as to whether it's likely to change for the better?

Ben sez:
Yes. Americans save less than foreigners (particularly in East Asia) and use inwards investment to pay for imports.

Jack nods in agreement being very familiar with how credit card balances can get so high using these policies.

Ben posits:
The trade deficit is mainly the product of the US's attractiveness to foreign investors

And Jack reminds him that without the TRADING deficit the US could be VERY attractive but the "investor" (ie hot money recycler) would not have the currency with which to buy large chunks of our equities and real estate. And that the "investor" could seek investments elsewhere, but then the US buck would tank and our consumers NOT have sufficient credit on his card to "just go shopping" again.

Ben continues:
and exceptionally high savings rates in Asian economies. Some researchers have pointed out this inwards investment is actually a very positive indicator for the US economy's health.

To which Jack waxes nostalgic for the days when WE had trade surpluses or at least not massive and soaring deficits and had savings and investment funds we could call our own to invest where WE pleased which was most often for plant, equipment and research done right here at home. He's also noted the rise in the numbers of "researchers" whose opinions and conclusions are "market based" as well as others that are "faith-based". Neither of our recent Fed chairmen seem to share this view and deem the game to be "unsustainable" in very somber tones.

....... I'm assuming other first and second world countries. Is that helpful?

Yes. And convenient.

Ben rants on:
Now, my question to you. Jack I know you have no idea why or how a trade deficit can harm Americans apart from some vague idea that households that spend more than they earn will get into trouble some day. But that really has little to do with a trade deficit. I also know you can find the answer on google in 5 minutes and pretend like you knew all along. I also know that when you discover how little you know the complaint will suddenly morph into a series of unrelated statistics that poorly disguise your attempt to cover your entirely uninformed earlier comments.

But what the hell, let's have some fun. My question, again: What is the chain of events by which an the average American will be made worse off by the US trade deficit i.e. how does a trade deficit translate to costs for the man on the street?

Jack points out that the NORMAL economic principles are available with "five minutes of googling" and need not be taught here especially to believers in "special" breeds of econ perhaps involving pins being stuck in painted dolls. He is however interested in why Ben skipped gayly past the discussion of the foreign "investment" of 7% of our GDP ginning up only a sickly and partially phonied 2.5% of GDP growth.

In closing perhaps Ben has talked to some "man on the street" who has tried presenting a pile of his shriveling "Bushy-bucks" for a night's lodging in Europe OR Asia? Or for a bit of oil? or any of the "hard assets" such as gold, silver, platinum, or real estate anywhere in the developed world?

Does your special econ contain a diagnosis for a country that runs massive and deepening trade deficits, a growing federal debt of 65% of GDP, record consumer debt, with housing leveraged higher than at any time in history with a year of unsold inventory on the books, combined with flat or declining wages for half its working population?

Would the prescription be to shop harder, especially for imports so China, Japan and other "savers" will have more money to lend to us? Thanks, Jack

[Micheal Dayne]

Drunken driving penalities do have a profound effect on the behavior of those who would probably not be inclined to drive drunk in the first place, but have relatively no effect on those who are most likely to cause accidents and fatalities. To compound the problem, police, the state and communities utilize drunken-driving arrests as a revenue source based upon legal systems that make it illogical and too expensive for anyone to contest a first time arrest. As a result we are punishing a great number of individuals while failing to deal with some of the basic issues that underlie this behavior in the first place. Alcohol is promoted shamelessly through the media and held out as a non-destructive substance that is associated with partying and holidays. What we should be doing is equipping cars with standardized gizmos that prevent anyone who has consumed alcohol from driving. I know, I know there are always ways around these devices, but if the technology doesn't already exist to "test" a driver before the car starts, it is not far away. Another practical solution would be to obligate bar owners and restaurant owners who serve alcohol to have alternate transportation at the front door and to police the consumption of their customers.

This may all seem rather harsh, but there are no simple solutions to complex problems. As for me, I'll be staying home this New Year's Eve, enjoying a fine bottle of wine and ensuring that my life will there the following year.

[verisimilidude]

One comment, made by only one post here, is that the 'decision' to drive after drinking is not a rational one. I have no figures but am convinced that the majority of people who cause accidents are addicted to alcohol consumption. An addict needs treatment. It would be far more cost-effective to increase treatment opportunities available to alcoholics than to increase jail time penalties (assuming the current lack of treatment while in jail). The current research on the growth of social responsibility in adolescents and young adults shows that the brain is not fully developed in this 'higher' area until the early 20's. Choosing delayed gratification takes a certain level of physical maturity. Certainly this is also a factor in all adolescent traffic accidents, regardless of alcohol consumption.
My point is that we are talking about how to control behavior (external) based on brain function (internal). If the brain is immature or impaired then arguments about desire and intention as balanced against possible punishments need to take this into account. Rather than draconian possible punishments much more effective would be ensured punishments of a low cost but with a high probability would be much more effective. Things like alcohol analyzing interlocks being installed as a prerequisite for buying alcohol by anyone who owns a car. Or a requirement that g-force and speed recording devices being installed for all adolescent drivers, with the results being provided to parents and insurance companies. With these changes an immediate penalty of loss of the car are more likely than a crushing fine in the faint chance that one is 'caught'.

A reason (not discussed by any commenters that I saw) for the low European accident rates as compared to the US is the much higher level of investment in public transportation in those countries, and the higher density of housing there. If you can walk home from the pub or easily catch a bus after a night out the cost is much lower than calling a cab, waiting a half hour, and then paying a cost equivalent to a day's average US wage for the single ride.

[Petter]

versimilitude echoes another commenter in writing:
A reason (not discussed by any commenters that I saw) for the low European accident rates as compared to the US is the much higher level of investment in public transportation in those countries, and the higher density of housing there.

Well, a quick check on Wikipedia says that the population density is actually higher in the US (80.8 people/sq mi) than in Norway (39.5 p/sq mi) and Sweden (52.4 p/sq mi), which were Becker's main examples.

Living in Norway, I would add the following to the discussion (based on personal observation - I have not reviewed any systematic data):
* The threat of jail sentences (and the corresponding stain on one's permanent criminal record) is very central to reducing drunk driving here
* Since most people keep clean criminal records and stay out of jail, it is also something of a social stigma to end up doing time for drunk driving (which provides a further deterrent)
* Frequent road-side checks are important too, particularly after "party nights" (such Fridays, Saturdays, and occasions such as New Year's Eve). This increases the probability of getting caught, and thus the overall expected cost of drunk driving.
* The "residual" drunk driving is NOT primarily due to alcohol addiction, but rather people taking (more or less) calculated risks.

[Ian Parry]

While Richard Posner’s point that drunk drivers may partly take into account the injury risk they pose to others through expected punishments under the tort system is well taken, I would still agree with Gary Becker that penalties for convicted drunk drivers should be far more severe. Injury costs to other road users only account for about half of the overall external costs of drunk driving; other costs include property damages and medical burdens borne by third parties from all single and multi-vehicle drunk driver crashes, the tax revenue component of injury-induced productivity losses, and government resource costs involved in apprehending and convicting drunk drivers.

An important question that has not been carefully studied is the most cost-effective policy, or mix of policies, to deter drunk drivers. Options include putting more police on the roads to increase the arrest rate for drunk drivers, imposing stiffer fines, or jail terms, or community service, or license suspensions, on those convicted. Yet another option is to require installation of in-vehicle breathalyzer interlock technologies. Sweden has mandated the installation of interlock technologies in its entire passenger vehicle fleet by 2012, while in the United States, New Mexico has taken the lead in promoting interlocks for many drunk driver convictions. These technologies are more effective than one-off fines or jail terms in preventing repeat offences of drunk driving, and far less restrictive to the individual than a license suspension, though they currently cost about $1000 per year in installation and higher vehicle operating costs.

Where I might disagree with Gary Becker is on the case for supplementing stiffer drunk driver penalties with an increase in alcohol taxes, which are now only 12% of pre-tax alcohol prices compared with 50% in 1970. Even if drunk driver penalties were substantially increased they would still fall well short of internalizing the externalities from drunk driving, and some penalties, such as jail terms, are very costly from society’s perspective. Moreover, even if heavy drinkers do not drive, they still impose broader social costs, such as lost tax revenue from diminished workplace productivity, violence, and medical burdens, though the extent of these effects has proved difficult to pin down statistically. And, even if there were no externalities from alcohol consumption, a credible case can be made for higher alcohol taxes to reduce the need to raise revenue from other taxes, such as labor income taxes, to finance the government’s overall budget.

One objection to higher alcohol taxes is that the government may not be trusted to spend the extra revenues wisely; however, this could be addressed if the accompanying legislation specified that other taxes be reduced in order to prevent total government revenue from increasing. More ambitious legislation might include higher alcohol taxes as part of a broader package of tax increases that make economic sense, including taxation of greenhouse gas emissions, higher taxes on automobile use, heavy duty trucks, and air travel, and the cutting back of tax deductions and exemptions for owner-occupied housing and medical insurance. Such a broader tax package might finance a reduction in income tax rates across all brackets, or a partial diversion of social security taxes into privately held accounts.

Ian Parry
Resources for the Future

[William Garvin]

An alternative that is not often suggested for dealing with the drunk driving problem is to subsidize taxis and other forms of transportation that people use as a substitute for drunk driving. The city could specifically do this on high risk days (such as New Years Eve).

[Bernard Yomtov]

I disagree with one principle of Becker's calculation - that drunk driving ough domehow to be a breakeven proposition. His calculations suggest that the proper fine is one which equals the expected damage caused by the driver.

I think this has economic and moral flaws.

First, the calculation of expected damages is wildly imprecise and, perhaps more important, the damages in individual cases vary widely. Surely there ought to be a sort of risk premium built in here, rather than just using averages, as though there were no variation.

Second, since when do we regard punishment as a breakeven proposition? Does this suggest that it is OK for those who can afford it to drive drunk? Or that the proper punishment for a thief is the amount stolen, adjusted for the estimated probability of getting caught?

I don't think this approach is satisfactory, even though it generates, in Becker's calculation, fairly stiff DUI penalties.

[Anonymous]

I don't understand why the Murphy analysis assumes that only 2,000 people per year are killed by drunk drivers, when Becker notes that the actual number is around 17,000. Is it because the 2,000 number represents only "innocent" victims (i.e., people who are neither the drunk driver nor his passengers)?

It seems to me that anyone killed as a result of drunk driving should be considered a victim. I imagine a lot of children are killed as a result of their parents' drunk driving. Certainly they did not contribute to the accident or assume the risk.

[Jack]

Ian: I like, and have long been a proponent of, shifting some of the income tax burden onto scarce natural resources and pollutants. Clinton's BTU tax proposal was ideal in taxing all fossil fuel BTU's evenly to avoid creating a disadvantage (at that level) for any one energy supplier. The market decisions made over the last dozen years would have lowered our energy consumption across the board would have put us in a somewhat better position today.

The extreme wage inequality in the US today makes it tough to do much with increasing alchohol taxes when stopping in for a beer is half an hour's pay for many, but then at Walmart pay there's no discretionary income anyway, regardless of the price of a beer.

[Rene Boufford]

The outcry over our military deaths in Iraq (now 3000+ over 3 years) should be much greater over deaths from DUI's (est. 16,000 per year). Are our values confused?

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