Thursday, July 29, 2010

Cares Cafe

Today's post is inspired by an article in this week's Time Magazine. It discusses Cares Café, a non-profit branch of Panera Bread located in Clayton, Missouri. Cares Café serves the same food as all other Panera restaurants, but allows you to pay your own price. The idea is that affluent customers will pay at or above the "requested amount" (the price charged at other Panera restaurants), allowing those facing tough financial times to pay less. Customers can also volunteer at the café to cover the cost of their food. If Cares Café makes enough money to cover its costs, then I think that it is one of the best non-profits I've ever heard of. It has the potential to be a self-sustaining organization that provides a basic service to those in need.

If everyone were to pay the "requested amount", either in cash or in volunteer time, then it would require absolutely no charity on the part of anyone, including Panera. It would simply allow those in need to pay for their food by volunteering. This is effectively employing people who need extra money and paying them in food, increasing their incomes. Unlike traditional forms of charity, this model doesn't just help those poor enough to go to a soup kitchen. It also benefits those who are better off, but in need of some extra cash to make ends meet.

Even if everyone doesn't, or can't, pay the costs of the food they eat, this model still has great promise. Panera is a hugely successful restaurant, so we already know that people will choose to eat there. If some of the affluent customers pay above the "requested amount", then someone who cannot pay the requested amount is able to buy food at a discounted price without requiring charity from Panera.

I am eager to see the model succeed without needing charity on the part of Panera (admittedly an unlikely occurrence). This would mark the birth of an organization which is both profitable and charitable. I don't see any applications of this model outside of fast-food style restaurants (where volunteering would be effective because, I assume, minimal training is needed for most positions). However, if other establishments in this niche adopt this model, then food will be more affordable to those experiencing hard times without requiring corporate benevolence.

Monday, July 19, 2010

On Unemployment Benefits

With tomorrow's swearing in of Robert Byrd's replacement in the Senate, the Democrats will have enough votes to extend unemployment benefits to America's jobseekers. Republicans have held out on the measure, saying that they support the extension of unemployment benefits but that it must accompany a reduction in spending elsewhere. In this instance, I am fully on the side of the Republicans.

I support unemployment benefits because I think that they provide relief to those who need it most. According to The Economist, there are approximately 5 unemployed for every job opening. I think that statistic alone is pretty good support for the extension of unemployment benefits.

Unemployment benefits are not without cost, however. A traditional argument against unemployment benefits is that they create a disincentive for people to find jobs. While I am sure this occurs to some extent, I am not particularly convinced by this argument. I find it hard to believe that a substantial number of people would choose to live off of government unemployment when they have the option of working, both because of the psychological (dignity, self-worth, social stigma) and standard of living costs. In any case, I'd rather err on the side of trust in human decency.

However, there are other costs to consider. Whenever taxes are collected, a deadweight loss is incurred by the American public. Instead of incurring more (future) deadweight loss by increasing the deficit, I think spending should be cut elsewhere to pay for the program. This is not the only reason that the unemployment benefits should be offset by spending cuts. One of the primary justifications for the extension of unemployment benefits is that the unemployed are the most likely to spend their money and stimulate the economy. I agree that this is true. However, I argue that this effect will be dampened if the unemployment benefits are not offset by spending cuts.

If the unemployment benefits simply add to the growing federal deficit, then the benefits given to the unemployed are partly a loan that they will have to repay when their taxes go up in the future (the entire package that they receive isn't a loan because all taxpayers will have to pay it back, not just those with unemployment insurance). Knowing this, the only ones who will spend all of their unemployment benefits are those who would like to take out a loan on their own but cannot. The rest will simply save the part of their benefits for the inevitable future tax increase. I am admittedly making large assumptions about the economic and mathematical savvy of average people, but I believe I am right in principle and that what I've described will occur to some extent. Therefore, an offsetting spending cut will reduce the costs of unemployment benefits while making the program somewhat more effective. Unfortunately, it looks like the supermajority will stop me (and the Republicans) from getting my way.

Wednesday, July 14, 2010

On Soda Taxes

In the past year many states and cities have proposed adding a tax on soda and other sugary drinks in order to raise revenue that would close their budget gaps. Despite backing from many public health groups, the measures have largely failed but will likely be put back on the table in the future. Contrary to my usual anti-tax opinions, I actually think that a soda tax is a good idea, at least to a certain extent.

Before I explain why, I want to make two important points. First, I think that states should seek to close their budget gaps primarily, if not exclusively, through spending reduction and not through tax increases. Second, I think that the government is never justified in passing laws with the intent of discouraging unhealthy behavior unless such behavior causes harm to those who do not participate (a situation economists refer to as an externality problem).

I support a level of taxing soda and other sugary drinks (though not necessarily the level of taxation being proposed) because it is such an externality problem. Soda consumption in the US is a major factor contributing to obesity. Obesity increases the incidence of obesity related diseases. When people get sick more often, demand for health care goes up. When demand for health care goes up, the price of health care goes up. Therefore, people who drink too much soda and become obese raise the cost of health care for those who drink soda in moderation and maintain a healthy weight.

While taxation is not always the best solution to an externality problem, I believe that it clearly is in this case. Therefore, I support a soda tax that will discourage people from drinking soda to the extent that the excess burden placed on the healthcare system is relieved, and no further. Despite my misgivings about raising taxes to cover budget deficits, however, I realize that some tax increases are inevitable. I therefore would also support a soda tax over other sales/excise tax increases. As I said earlier, I believe that it is wrong for the government to pass a tax for the purpose of discouraging unhealthy behavior, but I do feel that a tax that is intended to raise revenue that results in discouraging unhealthy behavior is better than a tax intended to raise revenue that doesn't discourage unhealthy behavior.