Big Brother’s beady eyes

nick cowen, 14 May 2008

Is summer now the season for publications pushing increased government intrusion into private conduct? The warm air has been accompanied by the somewhat chillier sensation of the release of two reports with some joyously Orwellian titles: The Politics of Public Behaviour from Demos and Creatures of Habit? The Art of Behavioural Change from the Social Market Foundation. From the mechanisms discussed in both these titles, it seems that the aspiration to get the state more involved in people’s lives remains as strong as ever among many policymakers, but combined (perhaps dangerously) with fresh research into behavioural economics.

It would be foolish to tackle the entire line of thinking behind these reports in a few paragraphs. However, it is worth pointing out what reasons are cited in favour of the state tweaking prices, as well as introducing other social incentives, to push certain consumer and lifestyle choices; and why it is more appropriate for us to look at the Government’s impact on the choices already being made, rather than, as Demos and SMF suggest, prescribing more government intervention.
The theme is averting crises: specifically the ‘crisis’ of climate change and the ‘crisis’ of obesity. Yet what they propose are big on government ambition and a little short on substantiated success. For example, Demos reference the European Union’s Emissions Trading Scheme (ETS) approvingly as an economically literate method of managing carbon emissions, allowing consumers and businesses to take on their own costs of adding carbon to the atmosphere and adapt their behaviour accordingly. But they fail to note that the ETS, so far at least, is best described as a scandal hidden inside a fiasco, as Open Europe have carefully documented. The core reason for this is that the EU attempted to build an artificial market in emissions permits, but as vulnerable to business lobbying and special interests as any other government institution, allowed the price of permits to collapse. This should remind us of the inherent dangers of government run market systems over their spontaneously developed cousins.
An equivalent unintended consequence comes from ratcheting up taxes on cars with poor emissions, also discussed approvingly by Demos. Doing so, in practice, has the perverse impact of reducing older cars to their scrap metal value, making them impossible to resell. On the face of it, it might seem like a good idea to encourage older cars off the roads, but that thinking only factors in use rather than production and disposal of cars (i.e. their entire life-cycle). Hence, government intervention creates an artificial demand for higher (carbon intensive) car production, defeating the purpose of the higher tax. It is surprising that these sort of baroque state interventions, for which perverse incentives are the rule rather than the exception, are enacted by government when there already is a relatively fair and naturally scaling charge on car use: the tax on petrol. It would appear that stealth taxes are not just sneaky. They are frequently counter-productive too.
As for obesity, it is certainly a problem, though a problem more naturally considered to be one for individuals and one that only individuals can solve: we are not farm animals and, as adults, have the final say in what goes into our mouths. Nevertheless, it should be fully acknowledged that people respond to incentives. But before we endorse advertising bans on snacks, getting health officials to officiate diets and sticking more taxes on E-numbers, lets take a look at the more obvious market incentives already in consequence of excessive government power, like the European Union’s Common Agricultural Policy. According to the European Public Health Alliance, ‘The CAP doesn’t support healthy crops, such as the fruit and vegetable sector. There is a shortage of fruit and vegetables in the market, which make them expensive and unaffordable to low income families.’
Should policymakers use the law to tell the general public what they should be eating when it is thanks to government that food prices are kept artificially high, and basic foods like fruit and vegetables are disproportionately priced compared to their processed and meat counterparts? In these cases, it is unclear that government can be part of the solution, but it is certainly part of the problem.