Honolulu Advertiser

Second Opinion by Cliff Slater

May 12, 2003



Mixing law and economics

State officials often give lip service to the value of the University of Hawaii as a resource for the community. However, they rarely ask UH faculty members for their expertise.

One discipline that lawmakers could well use to help them evaluate proposed legislation is presently hardly exercised at UH. It is Law & Economics—a specialty that simply means “the economic analysis of law.” It combines the expertise of lawyers and economists in analyzing the effects of law and regulation. In particular, it allows us to not only understand whether proposed legislation will accomplish what is intended, but also whether any unintended consequences might ensue.

Our revered State Auditor, Marion Higa, can tell legislators what has gone wrong after legislation has passed, its programs funded, and they have run for a while. What is needed are those who can tell us ahead of time what might be wrong with what is proposed and how it might be corrected, before the legislation is passed.

For example, had we had an active Law & Economics group at UH during the last session they would have been able to foresee that while Act 221—granting tax credits for high tech investments—has been able to accomplish much of what was intended, it also generated much that was unintended.

Both Democrat Governor Cayetano and current Governor Lingle have subsequently urged revising the Act to rein in some of its excesses. Governor Lingle tells us that if we were to amend the Act to do only what was originally intended, we would collect $55 million more in taxes. Whatever the amount, it shows that some different thinking needs to go into bills before the legislation is passed.

A standard practice in the analysis of tax credits is to weigh the additional employment and other likely benefits that would be generated by the credit, against the revenue loss from investments that would have occurred had there been no tax credit.  Apparently this exercise was not attempted.

Another example is that the Big Island “Green Harvest” crackdown on marijuana appears to have led to a rapid expansion in “ice” trafficking. While not intended, it was a predictable outcome. Prohibition of alcohol from 1922 to 1932 led to a marked shift away from beer and towards very high proof liquor. The economic cause of these outcomes is that the illegal transportation of both drugs and alcohol are safer and less costly for criminals the more the ingredients are concentrated. It is why marijuana is vastly more potent today than it was 20 years ago.

Driving mainland prostitutes from Waikiki streets has had an unintended result of the recruitment of much younger, local girls for such activities in massage parlors, lap-dance clubs and escort services.

The applications of Law and Economics could have warned the legislature that capping the price of gasoline will cause shortages—and why. It could also tell legislators why, when subtle changes were made in health care regulation, most health insurance providers left town. And why, when health care coverage is only required for employees working 20 hours a week or more, the result is far more jobs that are just part-time.

The Bottle Bill, the Gas Cap legislation, and the Prescription Drug legislation are all acts that, had legislators been cognizant of unintended consequences, might well have been handled differently.

Economic analysis might also determine whether legislation has caused supermarket prices here to be much higher than the Mainland even though the prices of Home Depot, CompUSA and other big box retailers here are nearly the same.

We can easily fund a modest program of Law & Economics at UH by either reducing overhead or by considering whether its funding is more worthwhile than courses in Feminist Theory, Badminton and Third World Film.

Cliff Slater is a regular columnist whose footnoted columns are at www.lava.net/cslater