The policeman pulls you over for speeding. Instead of asking you how fast you were going, he wants to know your income. In order to be fair to lower-income drivers, fines are now based on income, not on how much over the limit you were going. In fact, all prices will soon be income-adjusted, to make sure no one has an unfair advantage.
Fairy tale or fact?
Actually, it's a fact. In Finland, traffic fines are based on the offender's income, not his offense, this according to a recent Wall Street Journal article written by Steven Landsburg, professor of economics at the University of Rochester. The story goes like this: a senior vice president at Nokia, who had recently cashed in a whole lot of stock options, was fined $103,600 for running his motorbike down a Helsinki street at 47 miles per hour in a 30 mph zone. Had his gardener been driving, the fine would have been $50. A government minister explains that progressive punishment is just like progressive taxation—The more you earn, the more you pay.
If the Finns want to have dumb traffic laws, that's their business. But this dumb law is derived from an equally dumb principle; and that dumb principle infects political discourse in the United States. So it's worth spelling out that principle, and what's dumb about it. Here's the principle: Equal pain for equal acts. It's just another version of the discredited "ability to pay" principle once espoused by Marx.
The first thing to be said about this principle is that nobody believes in it, not even the Finns. After all, a $20 restaurant bill is less painful for a tycoon to pay than for a janitor, but nobody thinks restaurant bills should be adjusted for income. Or, just in case some crazed egalitarian steps forward to prove me wrong, what I should say is that if you do believe all prices should be adjusted for income, so that wealth conveys no advantages at all, then you might just as well equalize everyone's income and be done with it. Why muck around with traffic laws?
The "equal pain" principle completely undermines the purpose of the law. Laws are intended to stop people from doing bad things. Speeding is bad when the cost (as measured by the threat you pose to other drivers) exceeds the benefit of speeding (as measured by the size of the fine you're willing to pay). At other times, speeding is good, like when you're in a hurry or during an emergency, imagined or otherwise. If you're willing to pay $500 to do 25 mph in a 20 mph zone, then you ought to be speeding.
Now, before you say something silly like, "No, all speeding is inherently bad," ask yourself this: If it's so bad, then why don't we abolish it? Make it a capital crime. Then nobody would speed, and we'd never have to face the distasteful task of executing speeders. If you still have qualms, we could at least double the existing fines and have a lot less speeding than we have today. But we don't. Instead, we set a moderate price and invite drivers to decide whether it's worth paying that price.
In other words, we treat speeding a lot like we treat eating pizza. That's appropriate, because eating a pizza is a lot like speeding. In both cases, you impose a cost on your neighbors, either by leaving one fewer pizzas for someone else to buy or by making the roads less safe for every other driver. And, in both cases you pay accordingly, either by digging in your pocket to buy the pizza or by risking a speeding ticket. As long as you pay the going price, nobody thinks that eating a pizza is a moral failing (though I have to admit there are now those who actually do make such a claim). In other words, it's okay to impose these costs on your neighbors, so long as you pay the going price. Of course, when everyone pays the same price, tycoons can afford to eat (or speed) a lot more than janitors. But having more options is what being rich is all about, or why would anyone want to be rich?
The Finns allow our man's gardener to speed provided he pays, say, a $50 fine. They could have set a higher fine but didn't. Presumably that's because a single case of speeding causes (on average) less than $50 worth of damage. But, if it causes that level of damage, then why not let our tycoon speed for the same price? The community still comes out ahead.
This all gets a whole lot clearer if you think not about our tycoon's gardener but his chauffeur. If our tycoon speeds while his chauffeur rides in the passenger seat, the price for speeding is $100,000. But, if they switch seats, the price drops to $50. This makes no sense. Nobody cares who's driving; all they care about is being on the road with a speeding car and how much damage it can do. The price differential serves no social purpose.
In this country, we're already doing a great deal of fiddling with prices—unemployment compensation to take away the pain of unemployment, prescription drug price subsidies to take away the pain of being sick, student loan subsidies to take away the pain of insufficient savings, minimum wage laws to take away the pain of insufficient education—need I go on?
The point is, in a non-competitive environment, government has no clue whatsoever whether the price being set is too high or too low. Speeding fines, bridge tolls, import quotas, minimum wage laws, farm-price subsidies, are all prices of one sort or another, all set by government at an arbitrary level to engineer some sort of social agenda. The problem is endemic in our political system, but there is a better way. Some examples:
Our citizenry believes there are more people who want to immigrate here than we have room for. While I don't agree with the premise, the sensible solution would be to auction off green cards. Let potential immigrants bid for the right to be here. Instead, we have a convoluted immigration law in which most of the economic value of a green card sticks to the fingers of the immigration lawyers.
The United States restricts textile and sugar imports by issuing quotas. Now it goes without saying that the world would be a better place if there were no trade barriers, but if we are going to restrict trade, quotas issued to a lucky few are the wrong way to do it. We should auction off the quotas and let the would-be importers bid on them.
A town wants to restrict development, again a questionable enterprise, but one that many towns engage in. The fair solution? Issue partial development rights to everyone concerned and let people buy and sell these tickets. Owners of the parcels that are developed would in effect compensate owners of the parcels that aren't. The American solution?—issue development permits in an arbitrary and haphazard way, thus ensuring that zoning insiders and their lawyers get all the loot.
As with so many things, the chances for reform are slim. But the thing you have to remember is this: a government of arbitary powers is one in which politicians have a lot of power. Setting prices, whether they be speeding tickets or farm-price subsidies, is a business government shouldn't be in.