Thursday, May 21, 2009

Pop lessons in economics

The first in a hopefully multi-part series.

I can't help but analyze the media I see in terms of economics. There are a lot of good and bad lessons found in our entertainment ripe for the analyzin'. Take, for instance, 2Pac's "Brenda's Got a Baby" from the album 2Pacalypse Now. The song begins with a sort of exhortation. You may think that Brenda's problems are not your business, but 2Pac is going to explain why you should care:

I hear Brenda's got a baby
But, Brenda's barely got a brain
A damn shame
The girl can hardly spell her name
(That's not our problem, that's up to Brenda's family)
Well let me show ya how it affects the whole community
In economics, we describe spillover effects as externalities. A transaction may be mutually beneficial but socially harmful. The standard example is pollution. You want to buy heating from your home, a provider wants to sell you electricity, so you both profit. But the burning of fossil fuels creates smog, etc. that harms a third party.

Externalities can range from high-profile planetwide events (global warming) to the totally innocuous. For instance, if I buy an ugly shirt that I like a whole lot, I and the shirt vendor both benefit whereas you suffer a minor externality; that is, you see my ugly shirt and hate it. Since this is extremely common, we tolerate most externalities.

It's important to distinguish between internalized and externalized costs. Yes, making a t-shirt uses cotton, polyester, ink, machines, and so on, which all cost money. But those costs are internalized. The shirt manufacturer outbid other people who wanted to use those things, meaning they went to the person with the highest preference for them. Depriving other manufacturers of those goods is "efficient" (i.e. it satisfies willingness to pay requirements). Other manufacturers wanted to use those goods, but they didn't want them as much as the t-shirt manufacturer. There is no need to use political action to adjust these costs unless you have good reason to oppose efficiency as a rubrick.

Externalized costs spill over onto third parties not involved in the transaction. I may value breathable air, but since I am not involved in the manufacture or purchase of your t-shirt, I don't have a say. Pollution is an externalized cost, one that we often wish to solve through political action.

So when I hear 2Pac say that Brenda's pregnancy affects the whole community, it almost certainly does--but then what doesn't affect the whole community? Few people actually oppose any sort of action just because it "affects the whole community" (though there are exceptions), so what I'm listening for is an explanation of the externalized costs involved. How does Brenda's getting pregnant invoke significant social costs on her neighborhood?

Unfortunately, 2Pac fails to provide. The rest of the song details how Brenda's sad situation affects Brenda. (You can read the lyrics here.) Brenda gets dumped, is not smart enough to know who to ask for help, has the baby, gets abandoned by her family, turns to selling drugs, finally turns to prostitution, and gets murdered.

Little of this affects the surrounding community in any significant way. Some of the community members may be offended by drug-selling or prostitution, but "offense" is not usually considered a significant externality. Again, with exceptions. In the U.S. we seem to use this criterion alone to ban prostitution, drugs, the sale of organs, and so on. But thinking in efficiency terms, political action is only economically justified if the collective amount the offended is willing to pay outweighs the collective amount the transaction parties are willing to pay. The song notes that nobody cares about Brenda, including her family, so it's safe to say that few people in her community would be willing to pay Brenda not to sell drugs or sex. Selling drugs and sex to customers is a benefit, not a cost, so we can't count that. The customers get drugs and sex, Brenda gets money, and they both profit from the transaction.

One could argue that Brenda is too young or stupid to be selling sex. She can't adequately weigh the costs and benefits of her actions, and therefore makes bad decisions. That argument is fair enough, and almost certainly true (2Pac emphasizes her young age and low IQ). But this is an argument that what Brenda perceives as a net gain is really a net loss. This affects Brenda's costs, not the whole community's. There is still not an externality--Brenda's increased costs are offset by the gains to her customers, who would not get her services if she were smarter.

This is where efficiency standards might fail. One might argue that Brenda's costs are more important than her customers' gains. Because of her special status (as an underaged, undereducated rape victim), we have to weigh her costs and benefits differently. I can buy this argument--fully support it, even! But we still haven't established any externalized costs on the community aside from ordinary ol' "I take offense at that!"

From what I can tell, there are none to be found. Brenda gets robbed as a drug dealer and murdered as a prostitute. Crime certainly has spillover effects, but these are the result of criminals' actions, not Brenda's. Drug selling is not an inherently criminal-laced activity. In the U.S. we sell drugs (alcohol) legally all the time with few more robberies than you'd expect from any retail store. So now we have an externality, but not one caused by Brenda's actions. The community is affected by robbers and murderers, not by dumb girls having children.

(There might be an argument that Brenda's child is especially likely to grow up to be a robber or murderer. This is the case made in Elvis's "In the Ghetto." But that's another story.)

The closest thing I can find to a community-wide cost is a mention of social workers. Social workers are taxpayer funded, meaning that other people in the community are subsidizing the care of Brenda's baby, which could be inefficient if they don't actually want to do so. Brenda is less likely to have a baby to begin with if she doesn't have that eased burden.

Somehow, I don't think "we need to reduce government programs to reduce moral hazard" is the theme 2Pac was going for.

Until next time, kiddos!

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