Reinforcing good behavior
On sales taxes, strike zones, and the use in reaching good multiparty agreements
In a Pulitzer Prize-winning editorial, the Birmingham News argued, "As Alabama shifts from a manufacturing to service economy, there will be more pressure to apply the sales tax to retail services. And why not? [...] A sales tax on services, while still regressive, has a lighter impact on Alabama's poorer families. A poor family has to buy milk and bread, but seldom pays somebody else to launder its clothes." It is crisp reasoning that distills a significant macroeconomic shift into sound public-policy advice.
■ The Pulitzer Prize it received was awarded in 1991. The fact we continue to struggle -- more than 30 years later -- with the most basic public understanding of the shift from a manufacturing-centered economy to a service-centered one is an indictment of the economic literacy of the country. The shift was literally "old news" more than three decades ago.
■ Something else that ought to be long-established is that big, multi-nation agreements mutually agreeing to dismantle trade barriers are superior to patchwork, piecemeal arrangements brokered between just two countries at a time. Yes, it's better to reach agreements with friends (like the UK) and rivals (like China) than to have no mutual understandings at all.
■ But bilateral agreements in trade are not unlike teams agreeing on the rules of sports. Perhaps baseball could be played by the Cubs negotiating and reaching terms on the rules of play against the Cardinals, and then the Pirates, and then the Mets.
■ It makes a great deal more sense for them all to engage together in a common Major League Baseball rulebook and to stick with the rules in a mutually-reinforcing set of interlocking agreements. That way, if one team starts to cheat, all of the other teams share a common interest in punishing them and curbing further abuse.
■ It's easy to behave badly on your own. Good behavior stands up better when there is mutual reinforcement involved. It has been this way practically forever, and economists have known how this applies to trade for many decades. If anything should be old news, this ought to be it.
