Valuing a Good Time, Dearie

Listener 30 May 1987.

Keywords: Regulation & Taxation;

I imagine that somewhere in the megaliths near the Beehive there is a memorandum advocating the decriminalisation of prostitution. It probably starts with the “general principle” that there should be no artificial barriers to the entry or exit of firms to the industry in New Zealand.

It probably contains a simple illustration comparing sex with wool. It might remind us that “the system of property rights governing wool is characterised by the sale of wool to anyone willing to pay the going price for it. Government does not prevent wool owners from selling their wool, stop them from using it for some purposes, specify the production technology they use, or dictate the product designs they can use. If the government were to apply the current property rights system to wool as it applies to sexual activity it would most certainly be seen to be an inefficient allocation system.

The paper must then go on to discuss some of the benefits of decriminalising prostitution. Legal prohibition does not prevent the activity; it merely drives it underground. That involves police resources and in the long run health resources, since we know illegal prostitution is associated with drug abuse (including alcohol and tobacco) and with VD (including Aids). Thus decriminalisation would reduce pressure on public spending.

It would also increase public revenue, since those involved typically do not pay income tax or GST. Overseas, brothels also make significant contributions to local authority rates. It would be a growth industry .We desperately need them in the service sector given what is happening to agriculture and manufacturing. In particular, it would be a real stimulus to tourism, making us more competitive with those Australian states where prostitution is not illegal.

And it would generate jobs, particularly among some of the largest groups of the currently unemployed. No doubt the paper remarks that this is yet another example of a government intervention which costs jobs.

The paper probably has a long and enthusiastic section which affirms a commitment to freedom, asking why, if two people want to enter freely into a contract over a particular activity, the government should get involved other than by setting up an appropriate framework of property rights. And, one may ask, “What is a more private property than one’s sexuality?”

Probably the paper finishes up saying the decriminalising of prostitution would be yet another step in a consistent programme of economic liberalisation, and would mention that measures are needed to decriminalise soft and hard drug supply and use, gambling, and pornography, and to introduce greater contestability (ie, ease of entry and exit) into marriage.

Does such a memorandum exist, or am I just fantasising? What I am not fantasising is the existence of the justification of various economic policies with arguments which have no social, political, or ethical framework.

This arises from a development in welfare economics about 50 years ago, when economists asked whether some policy questions could be answered without a complicated political, ideological, or moral framework. It turned out that sometimes we can; sometimes there can be a change which increases the welfare of everyone. But circumstances when this happens are very rare; the number of cases in the last two years, say, when there has been a “Pareto efficiency” improvement, has been small.

Unfortunately, some have proceeded on the basis that many or most policy issues can be answered from this limited framework. And so we seem to get policy advocation which ignores the human dimension of each issue; presenting itself as amoral. Economists who do this walk a narrow path, because if they admitted that their advice is so narrow, the public would demand more comprehensive advice, which would cut out such economists. It would also become evident that, often unwittingly, advice which appeared to be without a political, social, and ethical framework had a hidden one, and often a very ugly one at that.

I do not know how readily to remedy this deficiency in the public debate. In the long run it involves training economists more broadly; after all, Adam Smith was a professor of moral philosophy. In the short run I guess we should listen to those who complain that policy decisions lack a broader framework.

What I do know is that if we value everything in money terms, then our integrity is for sale. And I know that economic policy whose ultimate goals are economic ones, or which claims to be amoral, is deeply immoral.