Friday, October 11, 2002

Laboratory economics experiments

I wanted to update my last post on the 2002 Nobel Prize for Economics. A Slate article on it pointed to an experiment where people seemed willing to force others to give money to another party, and pay for the priveledge, even if they would not give money to others directly.

The article mocked this result as being weird, but I think it illuminates how limited people's understanding of the consequences of their actions are. For example, people often support rules and regulations that take money from one group (i.e. car makers) and give it to another (i.e. steel manufacturers) even though it costs them money (through higher car prices, which in turn reduce the amount of money available for *all* *other* *workers*). This type of wealth destruction is known as dead weight loss, which is pretty obscure outside academic circles. 50 years ago, one economist got so angry at this widespread ignorance that he wrote an entire book talking about nothing else. "Economics in one easy lesson" by Henry Hazlitt is a fun read, which I recommend to all.

Certainly around taxes and regulation, people do seem very willing to make laws which impoverish themselves and confiscate wealth from one party to give to another. I think that people do not realize that government spending comes from taxes, or how law can act as a tax and take money from one group to enrich another, and how this harms society as a whole.


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