The most recent episode of EconTalk features fan-favorite guest Mike Munger of Duke University. His goal here is ambitious: to “build a bridge between philosophers and economists”. The question: why is it that some types of voluntary transactions are seen as repugnant and made illegal, even though all parties to the transaction are made better off and enter into the transaction voluntarily? The question (a special case, at least) is also asked another way: Why does it happen that it is legal to provide certain goods or services, but not to charge what they are worth? Examples include organ sales, blackmail, “price-gouging”, and various aspects of low-cost labor. (I should point out that Prof. Munger does not claim here to establish what the laws “should be”, just to better understand the reasons for some laws and social norms that seem counterproductive from an economist’s standpoint, and why they persist despite undesirable unintended consequences.)
Also, some insight into German beer festivals.
(If you’ve never listened to EconTalk before, you might want to check out some of Mike Munger’s previous appearances on EconTalk first. If you’re already listening to the current episode and liking it, you’ll surely want to hear more from him.)
Now, the key ingredient in his analysis here is something called BATNA (best alternative to a negotiated agreement), which is used here as a way of economically quantifying imbalances of power. (Overly simplified and blatant example: If you are lost in a vast desert and I drive up in my desertmobile, offering to sell you water. My best alternative to selling you water is to drive away and sell it somewhere else. Your best alternative may very well be to drop dead. Consequently I can charge you very high amounts of money, and we’re both better off than if we had made no deal, but there is something repugnant about my behavior.) He’s probably on to something, but the conversation left me thinking about something rather different.
There is a very common fallacy in human thinking about rules and making rules, about how our views of morality and our preferences inform our lawmaking decisions. At least, I think it’s common, if not pervasive. It’s not one that I have seen on the “standard” lists of fallacies (such as this one), so let’s call it “Closer to Perfection” fallacy. (Those of you who like your fallacies and rhetorical terminology in Latin, knock yourselves out.)
Closer to Perfection Fallacy. If a certain phenomenon would not occur in an “ideal” world, making that phenomenon illegal or impossible can only make the world more like the ideal.
Example. In an ideal world, people with water would seek out people lost in the desert to give them water free of charge, out of mercy, and there would be no need for you to buy my water for $1000. Consequently, it should be illegal for me to sell it to you.
I believe that many of us are prone to make this mistake, and that it says a lot about why genuine and well-meaning people can do so much damage when attempting to legislate morality. What do you think? Does this, or something like it, already have a name?