File Under “You Just Don’t Get It”

Russ Roberts:

It reminded me of a recent conversation I had with a very nice woman sitting next to me on a flight to California. We were talking about California’s fiscal problems and she suggested that the state should raise taxes on the rich. I pointed out that a lot of people had left California for lower-tax states like Nevada and Arizona and that raising taxes would encourage even more people to leave. Her reply was “Good riddance! Let them go!” I suggested that that might make the funding problem a little more challenging than it already was. She was eager to be free of people whose political views she found unappealing and who didn’t want to support programs she believed were important. But someone has to pay for those programs. California is in trouble …

I sometimes think the world would be a better place if you had to own a bond to vote; a bond you could get by being born in or moving to a state, but whose coupons you could only redeem for cash if you continued to live there, and whose value depended on the quality of life in the state.

In short, if you vote for things now that point the state toward ruin, you end up with coupons that have lost most of their value. A lot of people who voted in California would end up with worthless bonds if we did this.

But, of course, I’m an economist, and I view things like the conditions of the roads, the crime rate, and pollution to be a form of bond. The coupon isn’t in cash, of course, instead it’s in the stream of services you receive from decent roads, low crime, and clean air. So Californians already own those bonds. And on those counts, California isn’t doing too well.

Technorati Tags: california,bond,tax,rich

Comments

[Rodet]

Look into free cities: http://www.economist.com/node/21541391

There's a lawyer here at Chapman that was consulting on the project in Honduras. There are also co-ops designed in a similar way where a renter gets a share in the corporation that owns the building. I believe these provide voting rights as well as a vested interest.

[David Tufte]

My understanding, mostly based on Romer, is that the Honduras thing got poisoned by the politicians pretty early.

Good point about co-ops. The thing is, our cities are already co-ops, but without these sort of protections.

[Rodet]

From what Tom Bell told me, the only way to get this going was to amend the constitution, which happened. But the legislature came back and found the method of amending the constitution to be unconstitutional by the supreme court. He has yet to find opinions by the justices to explain the reasoning.

What they wanted to do was different from what Romer's conception is. He wants to outsource governance to other governments, right? Tell me, who would ever ok that? If the politicians are corrupt, they wouldn't go for that. If not, why would the people agree that they are incompetent and need a country like Canada to come in and govern them? The other issue, why would Canada or any other country want to do that?

The free cities idea is essentially an extension of specialized free trade zones where the laws (except for criminal law) are set up endogenously. The question yet to be answered is how to set up voting rights. Is it based on sheer dollar investment within the free city? Time of residecy/occupancy?

[Dave Tufte]

Interesting. Romer should have thought through his game theory a bit more, eh?

In a perfect world, perhaps they'll set up a free city under each possibility, and we can see which works best.