Tuesday, May 20, 2014

The Daddy Warbucks Theory of Public Goods Allocation.

The GTM is puzzled. He's puzzled because he thinks he sees something that do-gooder street-pounding libertarians miss: parking is a scarce resource. To allocate a scarce (i.e. valuable) resource, the various constituents of society are obliged to use some rationing method. Mike's trained as an economist, so he understands the virtues (and the vices) of the price system, mostly that Prices Are Information. Prices let consumers better weigh alternatives (taking the bus, parking in a private garage, staying home, et al), and prices goose producers into making more of the stuff that's in high demand (and, ideally, when to scrap stuff no one wants anymore). The alternative to priced street parking is non-price queuing which has deadweight cost. Deadweight cost is what happens when economic activity is outright trammeled: every minute someone spends cruising for a parking spot while some insouciant doofus yaks away on his phone, lingering over a finished plate of free-range couscous when he otherwise would have skedaddled, the meter having run out is a minute of lost production, never to be recovered. This minute is valuable both to the itinerant parker and to the customers he serves. As I've said before, Mike is a natural economist, so he understands this in his bones. Hence, puzzlement.

But perhaps what ol' Mungo missed can be seen in John Huston's 1982 silver screen treatment of the Broadway musical based on the classic newspaper comic Annie. In the film, "Daddy" Warbucks takes Annie out to a private screening of a movie. And it wasn't in his tastefully appointed private theater in his own palatial home; they watched in an open-to-the-public cinema. Daddy Dub-Bucks bought out the whole dang theater for the showing, simply to indulge the scruffy, ringlet-bedecked, ginger urchin. To a kid, it looks like a dream of Midas come true. "Good Golly, generic dog, I get the whole theater to myself! I don't have to sit behind some flatulent, cigar-chomping adult, trying in vain to peer around his porcine shoulders the whole time! Callooh Calay! Frabjous joy!"

Yet the sober, temperate adult sees something entirely different. The sober temperate, adult sees a crass beltway bandit who made his fortune hawking the implements of war arrogantly buying up an entire theater during a premium showtime. If he wanted to watch a reel with his snotty adopted brat all alone in the theater, he can do like everyone else does: wait three weeks and catch a weekday matinee.

I call it the Daddy Warbucks Theory of Public Goods Allocation (DWTPGA for short): great wealth obviates the equimarginal principle. In other words, people with accumulated wealth can corner markets for any reason they like, or no reason at all. Consider this passage from a recent Interfluidity post (h/t JR, and all emphasis in original):
[W]illingness to pay cannot be taken as a reasonable proxy for contribution to welfare if similar individuals face the choice with very different endowments. Congestion pricing is a reasonable candidate for near-optimal policy in a world where consumers are roughly equal in wealth and income. The more unequal the population of consumers, the weaker the case for price rationing. Schemes like congestion pricing become impossibly dumb in a world where a poor person might be rationed out of a life-saving trip to the hospital by a millionaire on a joy ride.
Waldman accepts all of the best economic arguments in favor of lassiez-faire, including Austrian dynamism, but still maintains that confiscatory taxation is socially preferable to a world where Lil' Orphan Annie gets sick and Daddy Warbucks buys up every bed in the hospital just so she can recover in peace.

This curious theory of human behavior is as puzzling to me as the parking meter vigilantes are to El Mungowitzo. Do millionaires actually buy up roads just to take joyrides without having to worry about traffic? Would they if they could? The only recent occurrence of someone maliciously blocking traffic I can recall was done for political gain. Similarly, I strain to recall an instance where a rich man unfairly took land through a process other than eminent domain. If the rich wish to gorge at the public trough, they invariably do so under the vigilant eye of the government. Wealth and power are coeval. I am unaware of the mechanism by which punitive taxation administered by political elites can possibly do anything but further cement the already dreadfully tangled, incestuous bond between the business and the political elite.

To his great credit, Waldman notes that it is the rentier class that is the most troubling. They are the ones who dwell in the political muck. My great worry, perhaps it offsets the risk of DWTPGA, perhaps not, is that by imposing confiscatory tax rates, more business elites will be tossed into the sty. The contest to avoid drastic wealth taxes is yet another rent, with all the attendant deadweight loss, with all the shadow pricing, with all the craven, coercive cozening that inevitably accompanies an encrease in the dominion of the sovereign.

The moral intuitions behind meter maid vigilantism aren't that different from folks who want to eat the rich: some exchanges aren't euvoluntary, therefore they should be free. Unfortunately, cost doesn't vanish if you just wish (or legislate) hard enough. Ordinary citizens will waste time looking for congested parking spots, self-indulgent oligarchs will buy politicians. The purpose of taxation is to provide for the common weal. Creating additional opportunities for corruption and disorder is hardly in the common weal.


  1. I read this twice. I have absolutely no idea what you are talking about.

    English is a useful language. I recommend it.

    1. I think Waldman's theory is sound, and that's why it perplexes me. My favorite version of the "real world distribution affects welfare, willingness to pay is imperfect" came from David Friedman.

      In a seminar at GMU, a conversation arose regarding social welfare and price constraints. The short of it was that where you end up in line matters. Combine that with non-linearities in a demand curve and you do end up with the potential for someone to corner the market.

      Citing that it never happens isn't a convincing counter-argument. Absence of evidence is not evidence of absence.


Do you have suggestions on where we could find more examples of this phenomenon?