11/11/2006

When Good Intentions Meet Bad Economics

The British government intends to fine criminals who make money selling their stories. I won't debate the morality of what is either a) Letting people profit a second time from heinous acts, or b) Censoring people because you don't like them. But this line stood out: "Ministers insist the move is targeted at the criminal and will in no way affect the publishers of papers, magazines or books." They're forgetting a trivial lesson of economics: The legal incidence of a tax does not affect the economic incidence (unless one side can process the payments more cheaply or they react differently to price changes).

The usual proof for this involves charts, equations, and a college lecture (at least, that's how I learned it), but it's pretty simple when you consider a real-world example. One of the selling points for Social Security is that the employer 'pays half'. From the employee's perspective, this employer half never existed -- it doesn't get deposited into any account the employee can see, but it doesn't get confiscated, either. It might as well never have existed. But to the employer it's a different matter: That extra X% is just another X% added to the cost of hiring someone. All else being equal -- and in cases like this, it is -- that just means that the employer sees a new employee as X% more expensive, and they'll act (through pay cuts or layoffs) accordingly.

Even if the British government's intentions are perfectly noble, they're thwarted by the laws of economics: If they prevent criminals from selling interesting stories to the media, all the clever rhetoric they can muster* won't keep them from hurting journalists and authors, too.

*And if there's one reason to applaud British politicians, it's their rhetorical musterings.

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posted by Byrne Hobart at 10:57:00 PM

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