Ban less, tax more

Indifference Merv recently wrote that non-smokers supporting the smoking ban is the equivalent of turkeys voting for Christmas. His argument is simple: whatever the 'negative externalities' associated with second-hand smoke, smokers compensate non-smokers handsomely for the costs they impose on them. In fact, the average non-smoker in the UK is no less than £135 better off each year as a result of taxes on tobacco.

Merv is absolutely right. In fact, his point applies much more widely.

In economics, saying that x generates a negative externality simply means that whenever someone does/produces/consumes x, he pisses off someone else (x could be harming that latter someone physically, or it could simply be that she objects to x on grounds of taste, morality etc). If you are looking to maximise social welfare and your solution to the externality is to ban x, the assumption has to be that the person(s) suffering from the externality are no less that infinitely pissed off.

Economists are often accused of knowing the price of everything and the value of nothing; in actual fact, economists know that nothing has a value of infinity, and there are very few things that society should keep pretending are absolutely invaluable (for example, the right of a citizen to not get murdered). Banning anything for which adequate compensation can be paid to those adversely affected is inefficient, and we would all be better off if we could ban less and tax more (and then perhaps returning the extra money by reducing income or corporation tax).

Look, for example, at the ban on fox-hunting. Now, a large part of the population believes that 'killing a fox is wrong'. 'Wrong' is a relative statement - and, for most people, fox hunting is near the bottom of the 'wrong' list. What if each dead fox meant 10 children in Africa could be vaccinated against deadly diseases? The fox-hunters would prefer taxation to an outright ban, and so would almost everyone else.

Or think of the (recently reformed) restrictions on pub opening times in England: did anyone in their right mind ever propose that allowing an establishment to operate beyond 11pm would carry a social cost of infinity? What about making large political donations?

No. So, people: let's stop banning 'socially undesirable' stuff, and let's start haggling over the price.

Postscript 1: There are some generic cases where taxation can be no alternative to outright prohibition. One is property crime: how can I possibly compensate you for the £100 I stole from you and be better off myself at the same time? Also, coercion of any type still ought to be illegal (if you could compensate someone for 'forcing' them to do something, how would that be coercion?), as should various behaviours involving minors.

Postscript 2: I have just come back to Athens from here (jealous, anyone?) I'm returning to London and regular blogging in a couple of days, but I thought I would drop by and say hi.

by datacharmer | Monday, September 03, 2007
  , | | Ban less, tax more @bluematterblogtwitter


  1. Anonymous Says:

    Datacharmer good to have you back (though indifference merv was great too)!

    My place of work won't let me look at the beautiful place you have been too- I'm wishing they would tax my time looking at non-work related sites rather than ban it.

  2. Scott Freeman Says:

    Have you ever read Freehold by Michael Z Williamson? It's a science fiction novel set in the distant future on an ex-colony of earth (the only one to declare independence) called Freehold. There is almost no government, and there are no prison sentences. Instead, criminals must compensate those they harm and if they cannot pay then they become endentured until they have paid off the debt. An interesting concept.

  3. Anonymous Says:

    I don't think any amount of money can compensate me for getting lung cancer from passive smoking.

  4. Anonymous Says:

    Which just goes to show that all these bans are political manouevres rather than economic ones. And since they seem to work (e.g. fox-hunting ban attracted spiteful left-wing support for labour) they're not about to stop.

    Anonymous, would you allow yourself to be compensated for the very low risk of contracting lung cancer?

  5. Anonymous Says:

    "Life threatening" negative externalities perhaps need to be dealt with by a more benevolent "macro" approach than that suggested by Datacharmer and Indifference Merv (both of whom i suspect are heavy smokers themselves). For example, left to purely economics (i refer to relying on people imputing a price to their "perceived" discomfort) i suspect that it would be possible for greenhouse gases spewing factories in vast parts of the world to monetarily compensate the general population with the level of gases still above "optimum". Of course the analogy is an exageration but i hope it would still bring home the point that sometimes in view of the fact that not everyone can be trusted to be healthy, wholesome, happy individuals, some amount of "policy parenting" becomes essential. You may argue that this is tantamount to saying that individuals dont know their own good or bad. But i'd still say that the Freedom to Choose a healthy lifestyle and to LIVE by the less cynical and more hypochondriacal of us is a stronger case For the ban. After all there is nothing if there is no life - neither a smoke in the pub nor a smoke in your room.

  6. datacharmer Says:

    Simon Clark - thanks for the suggestion, it sounds interesting and I will have a look!

    Anonymous 1 - no-one is going to compensate you for getting lung cancer from passive smoking: the compensation refers to the (extremely small, really) risk of getting lung cancer, as anonymous 2 points out.

    ns - thanks for a thoughtful comment. For the record, I smoke, Indifference Merv doesn't :) I don't agree with you on 'policy parenting' for adults, but that's a huge issue I won't go into now. On the distinction you make about 'life-threatening' and 'non-life-threatening' externalities, how about taxing people that smoke and polluting factories and investing the money in cancer research? Or safety on public transport? More police? Free vaccinations and health-care more generally? You get the drift...

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