I found myself accepting most of Frank’s arguments in the beginning of both chapters but was always a bit disappointed when he consistently resorted to his most classic views. Be that as it may, he did bring up some interesting questions as to the idea of who may be considered the real perpetrator vs. the victum and also the efficiency of a cost-benefit analysis, which I think ultimately, helped him earn back some much needed credibility.
Ronald Coase’s arguments of transaction cost is said to explain how, since it is often difficult to differentiate between a perpetrator and a victum, a situation which causes undue harm may be negotiated by involved individuals without governmental regulation if “sold to the highest bidder” as Coase suggests. Yet, Coase recognizes that often times there will be barriers to individuals taking full control of a situation simply because the transaction costs are too great. Coase’s ideas as to the nature of these liabilities challenge previous beliefs that the perpetators must always be punished. Oftentimes, defining the perpetrator is not so black and white which leads Coase to the conclusion that, if this be the case, the government should assign responsibility to whomever the burden may be least costly. Coase then seems to come to the conclusion that if an individual fails to resolve the issues, then the government must take up the parental role of making sure the problem is dealt with the most efficient way possible. The point is for the government to mimic as closely as possible what the individual would have ultimately resorted to in the end.
I can’t help but make the comparison to two kindergarteners fighting over crayons. If they cannot resolve their issues, then the teacher will be forced to intervene for the sake of “keeping-the-peace,” deciding who may use the crayons, probably depending on who had them first etc… Essentially, we come in contact with this sort of problem every day, and while we most certainly aren’t kindergarteners, according to Coase, sometimes our “parent” (the government!) is going to have to intervene. I for one would like to think that as practical intelligent adults we are capable of forming some type of compromise without needing to be babysat. Sadly enough, due to barriers and a bunch of other missed-matched reasons, this is often not the case. In a perfect world, doctors would think before moving their practice next to a noisy, dirty factory, and factories would consider the surrounding area before planting themselves next to a silence-loving community. Yet, in a world of self-interested people…a little bit of forethought to avoid the situation altogether is often thrown by the way side.
Yet, even if a reasonable solution is achieved, either by an individual or governmental means, the truth of the matter is that money as a measure can act more as a isolator of interest rather than an equalizer. Someone will always has some value attached to anything whether it be silence, a job opportunity, or a new car. In each circumstance, a person has an idea of what those items mean to them, but as Frank points out, to value those possibilities in real monetary value will often skew the measure of personal desire. Those who have more money may care less yet will be willing to pay more because they have more to give toward any one item versus another who makes a much lower income. The phenomenon of the wealthy paying more for less interest may be considered as a type of accumulated wealth inflation: the more you have the less the individual amount means to you. Therefore, money suddenly becomes relative because no set of two people own the same amount.
Frank acknowledges this and does a fairly satisfactory job in also pointing out in the “grandfather clock example” that although this may be the case, the lack of money will often be effective in deterring those who truly need that money to spend on other things. So while, yes, the rich may pay more, they also can afford it versus the school teacher who really needs to use that $5,000 on supplies and groceries, despite her deep desire to own that antique grandfather clock. In this way, a more optimal level, closer to an equilibrium, is attained as those who would spend $5,000 on a grandfather clock are forced to reevaluate how relatively valuable that money really is to them rather than just considering the object being purchased.
Personally, I appreciated Frank’s illustrations and explanations, especially for the first part of chapter seven. He explained many different sides to costs and benefits in different circumstances, and there also seemed to be less libertarian-bashing which was nice. What I was most thankful to see in this chapter was Frank beginning to use analogies that apply the concept of incentives. Franks example of the overbooked airline flights illustrates quite well that individuals will actively participate if given an incentive to do so. If they should value time over money, then they will chose to forgo the one because of the opportunity to obtain the other, but ultimately it will be the consumer’s choice. It makes sense to give people viable options that allow them to choose what they value most rather than just being turned away. For this reason, I found Franks final hoorah in chapter seven to be…frankly, ironic.
The reason many doubt the effectiveness of the tax system is because our current tax system often fails to appeal to basic human incentives. After all, where does your tax money actually go anyway? On the other hand, while I am personally glad I don’t have to fund my own army, incentives are what really matter in the game of economics, and the government acting as some type of robinhood figure by redistributing income strikes me as kind of humorous.
After all, in the case of farm subsidies, how much good is the government really doing by pumping money into an industry that is slowly trying to die-off anyway? If anything, these subsidies stunt a farmer’s ability to really function within the market at their maximum level in a prosperous industry, even if that industry is different than agriculture. Providing those individuals with incentives to invest in a different part of the market not only benefits the market but provides farmers with the ability to more feasibly endure the transition and not get left in the dust growing subsidized corn which the market won’t be able to absorb anyways!
Another problem with a Robin Hood type government, who supposedly takes from the rich to feed the poor, is that it takes from those who’ve honestly worked for their income, under the rational that those good intentions permit the government to redistribute existing wealth. Yet, Frank seems to believe this is an optimal solution… the perfect way to help make money less relative. Just because we as Americans prefer to let the government control certain aspects of our lives doesn’t mean that we want them to control others.
Frank makes his observations of instances when personal income transfers are successful because of the benefit of encouraged incentives which is partly why I’m confused as to why he desires to use taxes to level-off incomes. Currently, our tax system does little to foster personal incentive to aid the government, which I think is a loss for both the government and American citizens alike. Frank’s ending conclusions in Chapter 7 would probably only work in a perfect world and represent a utopian perspective hinting ever so slightly at a socialistic type of community.
In a nation whose very fabric is built on the concept of “by the people, for the people,” it only makes sense to harness the willful intelligence of consumers through encouraging incentives which will make the market stronger in the long run. While there are plenty of irrational people in this world, I’d like to think that most individuals are not naive kindergarteners but may help resolve conflict in meaningful ways without being babysat and most certainly without any form of Robin Hood coming to the rescue.