Errant economics

A while ago I checked Thomas Schelling’s essays Choice and Consequence out of the library to read his ‘The Mind as a Consuming Organ’ (which I wrote about in the FT). I just read the other essays in the collection that were new to me. I love his work. Rather like Ronald Coase, he has a way of asking questions that seem obvious with hindsight but not at all so with foresight. There’s a terrific essay (Economics and Criminal Enterprise) on the economics of crime, categorising types of crime according to the underlying economic characteristics of supply and demand. Are there economies of scale (drugs distribution) or the reverse (backstreet abortions, a person-to-person service)? Is the market a legally-created monopoly because of some prohibition which has the effect of substantially raising entry barriers?

The essay also covers ‘organized criminal services’ – bankers, lawyers and accountants linking the underworld and upper-world – and also argues that the interaction between policies and the organization of the criminal enterprise need to be better understood. For example, Schelling writes: “The role of vending machines [in stores paying protection money to a racketeer] appears to be that they provide a tax deductible and ‘respectable’ way of paying tribute.” I love that he bothered to wonder why local laundries so often have a vending machine.

Loads of insights too. The chapter on the relation between state and market points out that businesses often welcome coercion by the state, in situations where neither they nor any competitor could be the first to move. “Barbershops, for example, appreciate mandatory closing on Wednesday in Massachussetts, since it precludes competitors from staying open.” I once tried and failed to convince a UK official that this was a reason for a regulation requiring shops to close their doors rather than heat the high street – none would move first for fear their competitors would entice in all the impulse shoppers. This is a good reason too for outlawing ‘free’ bank current accounts; many banks would like to end this pricing distortion, but none dares act first.

Sadly, Schelling died late last year; we need a new crop of errant economists asking questions about aspects of the economy we take for granted.