Service Learning in Public Economics

As I was glancing through the New York Times online archives, I came across an interesting article. Unfortunately, it was an article that needed to be purchased in order to be read. As you all may know, when you glance through an archive you see certain portions of articles emphasized to capture your interests. In the brief summary, I saw three terms (age, length of residency, neighborhood satisfaction) and began to ponder. Are age and length of residency factors in determining neighborhood satisfaction? My assumption is that residents who are older and more connected with their neighborhood take more pride in and have more concern with the conditions of their neighborhood; this is not to say younger residents do not. However, I assume there is a correlation between age and deep care and concern for neighborhood conditions and satisfaction. A resident that has lived in a neighborhood longer might be apt to show more care for the community. Potential outliers of my assumed correlation could be residents who live in a neighborhood for a short length of time and show deep concern and residents who’ve lived in a neighborhood for a long period of time and show no care. The more and more I glance through articles and academic journals, I believe there are a great number of determinants for neighborhood satisfaction       

I’ve decided to discuss my percieved importance of service learning. An important element of the Public Economics course here at Randolph College built into the curriculum is service learning. I strongly believe our service learning project facilitates an important part of gaining a higher education that is imperative. Higher education should extend beyond learning complex theories and arguments. Courses that incorporate service learning are important because they enrich students learning by linking textbook material to the real world. In doing so, service learning accomplishes many tasks. It fosters an environment that allows students to become more passionate about what they’re learning. Service learning mutually benefits students and community organizations. In the case of our project, our research will benefit community leaders, students and scholars. The results of our research will provide implications that have strong potential to motivate actors who care to promote change. Moreover, service learning builds rapport between institutions of higher education, area non-profits and the government sector. It proves to the community that the institutions serve a good purpose for existing. My assumption is that the City of Lynchburg is fortunate to be a municipality abundant with colleges and universitites. Service learning helps build that relationship that benefits many actors.    

Welfare (income redistribution), comes in many forms, but generally in two different categories: money and in-kind transfers, which are payment in goods, such as food stamps or subsidized housing. In-kind transfers of welfare are often seen as less efficient than simple cash gifts because the recipient cannot choose the form of the resources he or she is receiving. If the recipient would have preferred to use 10 dollars cash on cereal instead of receiving $10 worth of cheese, this is not possible. To maximize the utility of the recipient, he or she should be able to choose how these resources are used. From the recipient’s stand point, it makes sense to allow the person who knows best to make the decisions: would I prefer ham or chicken? Bread or cereal? Naturally, it seems as though the choice should be left up to the recipient of these resources, so therefore cash is the best option when giving welfare payments.   However, what is lost in this discussion is that welfare is resources given to the recipient by the government. And the government has no money ‘of its own.’ All the money that the government possesses is, in fact, taxes taken from citizens. Therefore, it is not only the ability to maximize the utility of the recipient that should be taken into account. The utility of those persons to whom the money actually belongs should be consulted, because it is their utility that would suffer most if the money is spent in a way that is not welcome. Those whose money is being used for welfare would generally not want it to be used for something like gambling or alcohol or any number of other uses that do not sustain the life of an individual in economic distress. In this way, transfer payments make the most sense. It is probably politically unfeasible to give welfare payments only in cash, because the public would be outraged that its money could be used in ways in does not approve. Therefore, politicians (to save their office) have not allowed all welfare to be paid in cash, but to be given in a way that is more publicly palatable. 

A couple of classes ago, we learned about the Gini coefficient and how it is constructed. The Gini coefficient is a measure of income inequality in a country. It is created by the ratio between how income is actually earned by individuals and an equal distribution of income among all members of a society.  This construction assumes that an equal distribution of income is the preferred outcome in any society because it is the ideal standard which the actual is compared. Distribution is used to refer to equal income being received by all people because it will never happen that way voluntarily or naturally in a market system, where production and earning are linked. Therefore the income is not earned, but distributed by someone else so that everyone gets a certain equal amount. Is an equal distribution of income to all persons in society actually the best outcome for any society? Is it the pinnacle of human achievement? Is it the best form of equality, the one that is most important?

My answer is no. Equal distribution of income assumes that the government should favor certain individuals over others by taking different shares of the income they have earned and giving it to people who didn’t earn it. Equal distribution assumes that those who earn more money have less of a right to their money (property) than those who earn less. In other words, it assumes a lack of equality before the law between persons who earn large or small amounts of money. Amount of income is just another false distinguishing factor that can be used to undermine equality before the law, which is supposed to be the birthright of every American citizen. It is for this reason that I believe equal distribution of income inherently creates legal inequality and therefore is not the best form of equality to attain. 

I agree with Rachel on the point that nobody with extraordinary talent should be constrained simply because other people aren’t performing at his or her level. However, I think that the issue of “making suitable assignment of initial endowments” (i.e., initial allocation of resources in society) is more complicated than moving the starting blocks so that everyone ends up in exactly the same place.

To cross the finish line holding hands is not exactly a suitable arrangement for American society. For almost all of us, there will always be someone who is paid more, lives in a nicer neighborhood, a bigger house or whose title holds more prestige than our own. This isn’t necessarily a bad thing, though. It’s important for a healthy society to recognize greatness and motivate excellence. I don’t think many Americans would be able to function efficiently in a world without leaders and bosses, but I don’t think those leaders and bosses should be honored or paid in excess, while their followers and employees go completely unrecognized and can hardly pay for their groceries.

It’s the excess in our society that bothers me when it comes to allocation of wealth and resources. It’s not about stripping America’s wealthiest of all the assets they’ve accumulated over generations and plopping them down in a 3-bedroom colonial with the rest of middle-class America. That would make the wealthiest Americans very unhappy, I imagine. Pareto improvements are supposed to make others better off without diminishing anyone else’s satisfaction. However, because of our culture of rampant consumption and excess, I think so many people have a horribly skewed vision of what makes them unhappy. I think that, realistically, many of the wealthiest families in America could stand to pay a lot more taxes and not suffer terribly crippling lifestyle changes.

An awesome little video that explains our culture of excess and the resulting mindset is Annie Leonard’s The Story of Stuff.

One of the most important ideas in what is termed “welfare economics” is The Second Fundamental Theorem of Welfare Economics. Our book puts it this way: “society can attain any Pareto efficient allocation of resources by making a suitable assignment of initial endowments and then letting people freely trade with each other” (p44). The book also quotes an interesting explanation of the theory by author Tim Harford in his  The Undercover Economist on the 100 meter sprint: 

“If your goal is to have all the sprinters cross the line together, you could just change the rules of the race, ordering the fast runners to slow down and everyone to hold hands as they cross the line. A waste of talent. Or you could move some starting blocks forward and some back, so that although each sprinter was running as fast as he could… the fastest had to cover enough extra ground that he would end up breaking the tape neck-and-neck with the slowest [pp 73-74].”

This theorem does sound great, but I think it is fundamentally false. Changing the starting blocks is no different from making people slow down and hold hands to cross the finish line together. The only difference is that the first one is a more blatant waste of talent. Just to be clear, what is meant by “moving the starting blocks” and “making suitable assignment of initial endowments,” is taking money from one person and giving it to another. In the context of one 100 meter sprint, this moving the starting blocks may sound like a great idea, but what about in the context of multiple sprints? Wouldn’t someone catch on and not work as hard, if they know that no matter what they do, they will merely end up in the same place as everyone else at the same time?

The thing that people forget when using such examples as the race is that to have money to give out as “initial endowments” the government would have to have taken it from someone already. The government cannot create money out of thin air (and it if does, we have the examples of pre-WWII Germany and present-day Zimbabwe to show the consequences). Those people whose money was taken away are very much aware of why it was taken away from them and given to other people. They may run as fast as they can for a while, but life is not one sprint, it is a multitude of sprints and marathons. In game theory, we might say that there is an infinite number of repetitions of the game being played. When that happens, people learn what the rules are and therefore what incentives exist because of them. In other words, this whole theorem lacks the context of human psychology and even worse, incentives, which are supposed to be the foundation of economics itself. If everyone has the same amount of money in the end, if all work ultimately ends in the same reward, then there is little incentive to sprint as fast as you actually can or work as hard as you might. The only thing that still gives incentive to strive is pride in accomplishment and your own work. This incentive will not last long, however, when there is no reward for it and sloth is on equal footing with excellence. Creating a system of incentives that promotes lack of effort and effectively punishes talent and excellence is no better than forcing people into slowing down and holding hands over the finish line. Both such systems are a waste of talent. The second only lacks the honesty of clear intention. However, they are not only a waste of talent, but also a waste of human potential. 

On Friday I read this article in the NY Times, “Cities turn to fees to fill budget gaps.”

At first read, the thought of an accident response fee was horrifying. I honestly imagined injured motorists, who had in the past refused to pay their response fee, being let alone to hobble off to a hospital after a highway accident, with broken bones sticking out of their skin, because they were on the city’s list of defaulters. Then I realized that’s pretty unrealistic. City safety services (fire, police, etc.) have a pretty serious obligation to respond to situations in which public safety is affected. If you’re cut and bleeding, an ambulance will probably show up whether you want it to or not. These response fees are probably not going to jeopardize public safety.

The woman interviewed in this article said that her $316 response fee wasn’t fair. Is it fair to make someone pay for a police response to a collision when, by law, you must call the police when damages exceed some specified amount? I haven’t been able to come to a conclusion on that.

The article implied that the fee would be charged to the party at fault. So the most simple response to her “No fair!” cry is that maybe she should have made more of an effort to avoid crashing her car. However, don’t we already have enough incentives not to crash our cars? You can already be fined for speeding or reckless driving, plus your car insurance is adversely affected by accidents, and you usually have to pay something to fix the damage to your car. Not to mention the prospect of serious bodily harm. I’m not sure a city could play the accident prevention angle when defending an accident response fee. It seems like the only actual reason for the existence of these fees is to increase local government revenue. I mean, it doesn’t seem to serve a dual purpose.

According to the article, “Politicians tend to regard fees as more palatable than taxes, and more focused too. If a state needs to finance an infrastructure to oversee fishing, why shouldn’t fishermen foot the bill? But groups like the nonpartisan Tax Foundation in Washington worry that governments are now using fees to shore up budget shortfalls rather than cover specific costs incurred by specific users.”

Who can say that the money from accident response fees is actually paying for that kitty-litter stuff firemen use to clean up blood and oil? Would citizens see this as more fair if they received an itemized response fee?

More generally, are response fees and other fees more effective or efficient than everyone paying more taxes overall? What do these methods of collecting revenue do to community and individual indifference curves? Could you graphically explain preferences for fees versus taxes? This article raised an incredible number of questions in my mind, and I am hoping to discuss some of them in class next week.

Last Thursday we talked about arguments concerning the redistribution of income in society.  Okay, we didn’t just talk about these arguments, we actually had them. There’s such diversity of opinion in this classroom (as our blog reveals at times), and debates about both theory and policy are always lively and well-informed.  I’m often amazed by how much independent reading these students have done, and how quickly and enthusiastically they connect what they’re learning in economics to what they’re learning in other departments. (Recollection of readings and discussions in Dr. David Schwartz’s Ethics and Public Life course figured heavily into Thursday’s discussion.)

We also mapped out how we’d like our research to progess between now and the end of the semester.   Building from their research proposals, the students will write a collaborative research paper and deliver an oral presentation of our results to the LNDF and hopefully to leaders at the Yoder Center. In their paper and presentation, the class will also make recommendations for how this project should progress throughout the summer and the next academic year. 

In her April 4th blog, Sarah mentioned that we’re not going door-to-door collecting our neighborhood and residential satisfaction surveys (which was what we originally planned to do). Instead, we are using the Yoder Center and getting help from the Johnson Health Center. We’ve got surveys and collection boxes at both places, and we have been able to directly assist some citizens in the completion of the questionnaires.  Since Johnson offers services to more than Tinbridge residents, we’re actually going to be able to collect and compare demographic and neighborhood satisfation data for a variety of Lynchburg communities. So far, our response rate (from approaching people individually) has been great.  People want to be asked what they think of their houses and communities.

On April 2, we dropped our survey materials off at Johnson and met some of its very helpful staff.  In the hour before we could show up at the Yoder Center, we stopped at the Starlight Cafe on the 500-block of 5th street to see area commercial development and squeeze in a table-top lecture on measures of income inequality. (This class was particularly keen on learning more about the Gini coefficient, and it wasn’t just the coffee talking! I’ve got to credit their interest to my colleague John  Abell’s poverty assignment in another class.)  After visiting Starlight, we  headed to the Yoder Center to meet  its director, Aubrey Barbour.  We learned more about the Center and Tinbridge and got his support and advice on our survey and methods. 

The following week, we visited Johnson Health Center to collect surveys, and two of us attended the monthly neighborhood meeting at the Yoder Center.  We were given time to talk about our survey and administer it, and we chose to stay beyond that time.  Before we were introduced, a police officer gave a crime report for the area and took questions and concerns from the attendees. Neighbors later spoke about the community garden, a visit from the Food Bank, and the upcoming Run for the Roses, a local race to raise funds for an extension to the Yoder Center.  The extension will allow students who don’t have homework to play in the Center while not distracting those who do.   

Dr. Perry forwarded us an interesting article from the News & Advance today, “Hundreds in Lynchburg appeal jump in home values.” One of the things I like about the online edition of the paper is that readers are able to leave comments, which I often find more enlightening than the articles themselves. Some people make very good intelligent points, while others tend to spew emotion and pick on others’ comments, but it’s nonetheless an interesting forum.

One reader wrote that “a $10,000 increase in your assessment means you pay $8.75 more per month in taxes on our $1.05 rate” and that she would be willing to fork over the extra cash, because she would like to see improvements in city infrastructure. So I wondered what area of Lynchburg she lives in, where she drives to get to work, what fraction of an hour she might work to earn $8.75, how many kids she has, etc. Furthermore, if her $8.75/month were not spent on improvements in her own neighborhood, would she be so willing to pay?

Essentially, this article explains that the largest percent increases in assessed home values were for smaller and older homes; naturally in more low-income areas in the city than not.  However, I wonder if those areas where people are paying around 7% more property taxes are seeing the city spend maybe 7% more on infrastructure improvements in their neighborhood. Probably not.

My guess is that the most property tax dollars are not necessarily spent on the people who pay the most taxes, especially in a city like Lynchburg where there are huge variations in neighborhood income (take the historic district in Garland Hill and Tinbridge Hill, for one example). I don’t know how the city budget works here in Lynchburg, but I’d be curious to know how equitably infrastructure improvements, and other spending projects, are distributed across the city.