Tuesday, April 16, 2013

Everyone wishes to feel safe and everyone wishes to be educated.  As two of the most basic public goods, protection and education, there is little ability to decrease expenditures on them (or as economists say, they are relatively inelastic goods).  Contrast public safety and education with the myriad other goods that are purchased by government that have questionable applications.  My personal favorite is the talking urinal cakes that "deter drunk drivers from getting behind the wheel" in Jerry's own Michigan!  As the need to balance a budgetis a requirement for State and Local Government...... 
The real question becomes, why do we as the public continue to support seemingly wasteful programs?
The answer: Endowment.  Or specifically, people really really do not want to give up what they already have.

Consider a professor that buys a case of French wine in 1980 (See Page 3) .  After 30 years the wine is worth $100 a bottle, but he is unwilling to sell it at that price because it is too low, he believes the wine is worth $200.  Yet when asked how much he would pay for it he says $50.  Thus, once endowed with something, we tend to overvalue it, even to the point where it is worth more because we had it then if we were to buy it.
 People really hate losing stuff, even more than they enjoy gaining stuff.  So next time you consider adding a new governmental program (or buying a nicer car, expanding your home, or drinking higher quality coffee) think about how hard it is going to be to give up!

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