3.16.2009

Get the Price Right


In brief: taxing health care benefits good, limiting tax deduction for giving bad. [Thanks to Greg Mankiw's blog for the link.] When people get uppity about paying for something they're not used to paying for - soft drinks on airplanes, or garbage pickup - it's helpful to remember that life is about trade-offs.

It can seem silly to argue that anything is too cheap, but everything has its consequences: too-cheap gas may discourage conservation and encourage sprawl, and too-cheap mortgages may discourage frugality and encourage over-buying. Not coincidentally, global warming and the global housing meltdown are two of the hottest topics around.

We in this country believe in the importance of freedom of speech. It is such a basic right that we too often take it for granted, forgetting that the government controls the press in some countries (hello, Russia!) and jails people for speaking ill of them in others (hello, Thailand!).

Well, economists will tell you price is a form of speech. It communicates so much to both buyer and seller. And it works best when it can adjust to changes in supply and demand. Would that we all become more literate when it comes to divining when prices are artificially low or artificially high as a result of public policy, and ask our elected officials to help get the price right that there might be a more socially optimal level of consumption.
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