Just a thought on Steven Levitt...

Freakish thinking is sometimes just freakin’ silly

Professors of economics at the University of Chicago like being provocative. Following the tradition of Milton Friedman, they enjoy causing a stir by making crazy, freaky claims in public. So it is really no surprise to hear economist Steven Levitt of Freakonomics fame make the claim that “it doesn’t take a whole lot of smarts or a whole lot of blind faith in markets to recognize that when you don’t charge people for things (including health care), they will consume too much of it.” This is why, he suggests, a country such as the UK would benefit by replacing their silly publicly funded healthcare system with a truly free market where people would have to pay for everything — the market could then through the price mechanism work its miracles and produce a vastly superior outcome, without anyone being tempted to over-consume.

I suspect that Levitt cannot possibly believe this — at least I hope not. If he does, then he has an embarrassingly woeful knowledge of the literature in his own field, as it doesn’t take a lot of smarts to realize that this statement ought to come with about 10 pages of qualifications and conditions. For a dose of reasoned good sense on the topic, see commentary by Noah Smith, and also this excellent insight from Cameron Murray. Makes you wonder by how many decades the Freakonomics series has actually set back the public understanding of economics.

But in the spirit of “Thinking like a Freak” — a new book pushing bold thoughts of this kind by Levitt and co-author Stephen Dubner — I thought I’d try to see if Levitt’s idea, taken seriously, might lead to something interesting. I think it does. Perhaps Levitt really is on to something freaky big and astonishingly brilliant, if we’re only brave enough to follow the logic through to its end without fear or trembling. Let’s suppose Levitt is right that “when you don’t charge people for things… they will consume too much of it,” and let’s think about the causes of climate change, as well as possible remedies.

Scientists generally believe that CO2 emissions of human origin are a significant cause of global climate change, and we mostly think about sources such as industry, farming, traffic, energy production and the like. But wait — isn’t it pretty freakin’ obvious that another major source of CO2 is ordinary human breathing? Each of us takes in oxygen, and breathes out CO2, and there are 7 billion of us doing this all day and all night long. Googling around on the data, I find that human activity related gas emissions amount to about 1.5 billion metric tons of CO2 per year (20% or so of the total), and this amount is a serious concern. But human breathing on its own amounts to a number of the same order of magnitude — roughly 1 billion metric tons per year.

Now, how much are we paying to do all this breathing? NOTHING! I go all day and all night breathing just as much as I like without ever having a single thought about what I have to pay for it. So do you. Hence, by Levitt’s law of cost free over-consumption, we can conclude that all of us must be over-consuming oxygen, and thereby overproducing waste CO2, quite possibly by a vast amount. As with Levitt and Dubner’s proposal for how to fix UK health care by making people pay for it, an easy and obvious solution to the problem of breathing over-consumption is to put a price on breathing so that people won’t consume much. Let’s think about it.

People take about 1000 breaths per hour, or roughly 25,000 or so each day. So let’s suppose we had a mechanism to charge, say, $1 for everything 1000 breaths. (A mechanism isn’t so hard to imagine with today’s devices.) That would be $25 per day, and people would start thinking hard about how much they breath. The price mechanism would clearly encourage less breathing. People might learn to breathe more slowly, or to avoid wasteful activities such as walking up hills or stairs, or running, which increase the heart rate and demand for oxygen. I bet people could easily reduce their oxygen use by 10-20% just by being a little more thoughtful, which they would be if they had to pay for breathing, as they should. Some people might learn to breathe in the morning, and then spend the afternoon doing something else.

Not only that, but creating a free market for breathing would also encourage innovation. A simple paper bag held over the face greatly reduces the intake of fresh air, forcing a more efficient use of oxygen and reducing CO2 output per breath. I can imagine lots of companies hitting the market with fashionable bags or masks, equipped with sensors to encourage bio-feedback learning, or colorful mouthpieces designed to restrict airflow. This market would encourage economic growth. You might quickly also see the emergence of a secondary market in breathing, in which one could buy or sell breaths. People who find it easy to reduce their breathing, for example, might sell breaths they don’t use to others who find reducing their consumption more difficult, or who simply really like to breath and are willing to pay to do it more.

Imagination is the only limit. The market might well encourage the invention of breathing simulators, devices giving the enjoyable experience of breathing without oxygen or CO2 even being involved. Who knows, the price mechanism might eventually induce some people to stop breathing entirely, and replace oxygen with some other alternative resource. That would demand real discovery — but that’s what markets make happen!

This is the power of thinking like a freak. Don’t be held back by annoying details of reality. Economists, after all, have mathematical theorems which demonstrate the superiority (under certain conditions) of free markets over alternative arrangements. Freaks don’t worry too much about those bothersome conditions, as they have bigger and bolder points to make. As a result, the power of their penetrating intellect reaches much further than it would if tied down by the Spirit of Facts.

Of course, we should probably investigate a little more before actually implementing such a market in breathing. Just in case, by some strange quirk, we’re not actually over-consuming it, even though it is free. We should probably also think a little more about where all that carbon comes from that we keep breathing out.