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What Else Can We Legalize to Help the Economy?

March 10th, 2010 . by economistmom

gayweddingcake

A front page story in this morning’s Washington Post explains why DC’s legalization of gay marriage has been good for the DC economy:

As the first same-sex couples married in Washington on Tuesday, the city is in the national spotlight as a pioneer in the gay-rights movement. But local officials say the historic event also has more practical implications for a city grappling with 12 percent unemployment: jobs. A study by the nonprofit Williams Institute predicted that legalizing same-sex marriage will create 700 jobs and contribute $52.2 million over three years to the local economy.

“We think it’s a great opportunity to capitalize on groups that will be coming to Washington,” said Elliott Ferguson, chief executive of Destination D.C., the city’s tourism and marketing arm. “It’s the nation’s capital. It’s symbolic.”

Businesses are already lining up to cater to what Forbes estimated is a $16.8 billion national market. A local restaurant answered the phone Tuesday with “Happy gay marriage day.”

Organizers of the city’s first gay and lesbian wedding expo, planned for spring at the Renaissance Hotel in Dupont Circle, said hotels were jockeying to host the expo — a dramatic change from the days when hotels were reluctant to put signs with same-sex couples’ names in the lobby.

It makes great sense to me.  I know from just casual observation that some of the nicest parts of Rehoboth Beach, DE, with the most beautiful (and pricey) homes, are the parts known to have a high concentration of gay homeowners.  This may be stereotyping, but gay people do seem to like to shop (certainly more than the average run-of-the-mill heterosexual male who is one half of most “couples”), and they do seem to have above-average taste and style.  So legalizing gay marriage means there will be some unusually tasteful and stylish (and probably expensive) weddings, honeymoons, home furnishings, etc.  Good for the economy, for sure.  And because there’s this thing called the sales tax (which is pretty high in DC–10% for restaurant meals, meaning wedding receptions!), gay marriage will be good for government budgets as well.

It reminds me of the economic argument I’ve heard for why we should legalize marijuana.  And I think when prohibition (of alcoholic beverages) ended, that was probably pretty good for the economy, too.  I mean, where would all that Super Bowl commercial revenue come from if it weren’t for (legal) beer?

24 Responses to “What Else Can We Legalize to Help the Economy?”

  1. comment number 1 by: SteveinCH

    Well, given that it’s DC. We should legalize bribery and tax it. Think of the money to be made.

    On a more serious note, this is more shifting the economy and taxes than growing it. But that’s the great thing about Federalism, in those few places it exists. State or district decisions have consequences, both economic and noneconomic.

  2. comment number 2 by: Brooks

    We could legalize the rights of life*, liberty, and the pursuit of happiness, thus attracting, cultivating and facilitating a particularly productive population…oh wait, we already did that**.

    * By “life” I mean life of persons, and I’m not commenting on what qualifies as a person; I’m not weighing in on the abortion issue here.

    ** That phrase is from the Declaration of Independence, not the Constitution, but the latter, and in particular the Bill of Rights, other Amendments, and at least generally speaking, the interpretation/application thereof over time, have legitimately reflected those words.

  3. comment number 3 by: Brooks

    Steve,

    lol, re: legalizing bribery. Of course, I’d rather render the current legal bribery largely ineffective via a voluntary, mostly publicly funded campaign finance system — with the Fair Elections Now Act a step in the right direction.

  4. comment number 4 by: Brooks

    Steve,

    Oh, and re: shifting, yes, much (probably most) of a town/city/state’s gain from the incremental marriages and other consumption Diane mentions would be from shifting, but I assume some would be incremental even if the whole nation had marriage equality. (Of course, that’s not the main argument for it — equality is. By the way, nice post by Donald Marron the other day. I do see the legal battle for today’s issue of marriage equality as similar to Loving v Virginia )

  5. comment number 5 by: Brooks

    I linked to the wrong Donald Marron post in my comment above. Here’s the right link: http://dmarron.com/2010/03/04/love-wins/

  6. comment number 6 by: Brooks

    Apparently I was 0 for 2 on the links in my earlier comment. Here’s the correct link for Loving v Virginia http://en.wikipedia.org/wiki/Loving_v._Virginia

  7. comment number 7 by: Powers

    Diane, be sure to specify whether you’re talking about gay people or gay culture, which is not one in the same. A gay person might not associate oneself with gay culture, and vice versa.

  8. comment number 8 by: BillSmith

    “will create 700 jobs and contribute $52.2 million” What is that based on? Why should anyone believe it? Someone got anything to back it up?

  9. comment number 9 by: Gigi

    Just because something is good for the economy doesn’t make it right. Arguably, there are plenty of things we could do that on paper would create money and jobs. Legalize prostitution and tax it? What about cocaine as well as marijuana too and set up a legal, taxable market for it? Not that gay marriage is on par with these 2 examples, but I think all of them undermine the moral integrity of the country. The negative effects of this are sure to overpower anything positive that comes out of it economically.

  10. comment number 10 by: NS

    First, it should be noted there are 600,000 second-class citizens in the District of Columbia. Through the denial of representation in both the Senate and the House of Representatives, the residents of the District of Columbia have waited many years for same-sex marriage to be permitted by Congress. Although the residents have two openly gay city councilmembers, the Constitution gives exclusive control to Congress to tyrannically impose laws on the subjects living in the District. This means that same-sex marriage could not have taken place during the last 8 years of the conservative control of Congress because the values of those unelected government officials did not mesh with the progressive values of the residents of the District of Columbia.

    Second, the District of Columbia is in the process of implementing it’s own medical cannabis law. Due to the issues stated above, for the last 12 years Congress has prevented the residents of the District of Columbia changing their own laws. Called Initiative 59, the Legalization of Marijuana for Medical Treatment Initiative of 1998, this citizen organized ballot initiative was passed by 69% of the District population. It passed in every precinct and in every ward of the entire city only to be met with Congressional interference. Social riders, line items of control, were placed on the District of Columbia’s budget, which has to be approved by Congress every year, that said that the DC government could not enact the citizen approved measure or change any existing cannabis laws. Each year since Congress would approve the DC budget with the same riders in place– until last year when they were finally removed.

    Third, DC’s sales tax is so high because Congress has prevented the District government from imposing a commuter tax on any employees who work in the District of but live in Maryland or Virginia. Millions of dollars are withheld from the District government through this practice. If it were a state, which it is already treated as such, the District could lower the sales tax. Yet the result is high sales tax as well as an aggressive parking enforcement with steep fines. Per capita, DC residents pay more taxes than any other American citizenry, and to highlight this injustice their license plates say “taxation without representation.”

    In summary, what should be legalized? The full participation of the second-class American citizens who live in the District of Columbia should be legalized through either outright statehood or a constitutional amendment. The constitution was changed once for the District of Columbia (see 23rd), and it could be updated again to include the population of more than the entire state of Wyoming into the American political arena. It’s only fair as Americans they have same voice as every other American, regardless of geography.

  11. comment number 11 by: Brooks

    Gigi,

    Hate to break it to you, but your religious doctrine — what you think an imaginary guy in the sky wants people to do and not do — does not equate to “moral integrity”. And yeah, I am presuming that that’s where you’re coming from.

  12. comment number 12 by: Jim Glass

    “We think it’s a great opportunity to capitalize on groups that will be coming to Washington.”

    To Washington, from somewhere else, which place will suffer a corresponding loss, with no net gain to “the economy” at all. Only to one local economy (at best) at another’s expense.

    The logic smacks of that behind “new sports stadium to boost the economy-itis” that afflicts so many politicians.

    E.g., bankrupt California’s politicians just voted to build a new pro football stadium in Los Angeles at taxpayer expense, even though there is no pro football team in Los Angeles, because attracting an existing team from another city (Minneapolis, Buffalo, etc.) would be good “for the Los Angeles economy”. (Illustratve pix!)

    Of course it would be just as bad for the other city’s economy, and either way there will now be an unused football stadium falling apart somewhere, in one city or the other — at taxpayer expense.

    Guvnor Ahnold recognized this explicity saying “The team doesn’t have to come from another California city”. So as long as another state takes the hit, its OK with him.

    The “at best” is because study after study shows the substitution effect works locally too — the “new money” spent on entertainment at the new sports stadium to “boost the economy” just comes out of the money that otherwise would be spent on entertainment elsewhere, at movies, other events, whatever. People don’t increase their entertainment budgets because of the new stadium, they just shift their spending. So there is no boost even to the local economy. Thus CA taxpayers take the hit, paying for a stadium to fall apart from unuse somewhere, and there is no economic boost at all.

    That California’s politicians, as broke as that state is, are proud of further running up the state’s debt this way, on a stadium without a team …. it says something about the nature of politics …. “As California goes, so goes the nation” …. brrrrrrr … perhaps there is no help for us.

    I’ll assume that DC isn’t subsidizing gay marriage with hundreds of millions of dollars at taxpayer expense (if it is I’ll be heading there soon to perpetrate a sham) so it won’t be as costly to the economy as the new LA football stadium. But it won’t be any more beneficial either.

  13. comment number 13 by: Brooks

    Jim,

    To Washington, from somewhere else, which place will suffer a corresponding loss, with no net gain to “the economy” at all.

    Has the possibility of incremental economic activity not occurred to you? What you are saying would only necessarily (or even likely) hold if such weddings/marriages were the status quo everywhere else, but they aren’t. A wedding that takes place that otherwise wouldn’t take place anywhere (and which is not displacing some equivalent spending in another form of equal magnitude) is incremental period, not just to the local economy.

  14. comment number 14 by: Jim Glass

    Has the possibility of incremental economic activity not occurred to you? … A wedding that takes place that otherwise wouldn’t take place anywhere (and which is not displacing some equivalent spending in another form of equal magnitude) is incremental period.

    Sure. Unfornatnately, money consumed on a wedding ceremony can’t be consumed on something else — it does displace other spending elsewhere. (Believe me, I paid for my own wedding, I know!) That’s offsetting decremental activity, period. A shift in consumption spending is just a shift in consumption spending, a wash.

    What’s “good for the economy” is policy that increases productivity … so the population ends up with more income to consume.

  15. comment number 15 by: Brooks

    Unfornatnately, money consumed on a wedding ceremony can’t be consumed on something else — it does displace other spending elsewhere.

    Sounds like you’re saying that there can be no such thing as incremental consumption — that any consumption merely displaces an equivalent amount of some alternative consumption. That doesn’t strike me (intuitively) as a valid economic assumption. Presumably you don’t think that it’s impossible to have incremental consumption today — that someone having a wedding now otherwise would have spent an equal amount on something else — but rather are arguing that higher consumption today translates necessarily into an equivalent magnitude of lesser consumption in the future. Are you saying you think that timing ($X of incremental consumption today vs. consumption in the future of $X in real or present value terms) can’t have a net effect over time on consumption or wealth? I would think that all sorts of dynamics and resulting consumption and wealth over time can be affected by consuming more now vs. consuming less now (i.e., saving more), including higher saving reducing the cost of capital (which could argue for a net negative effect over time of higher consumption today but still demonstrates a difference in effect based on timing of consumption), as well as other potential timing differences in terms of experience curve effects, economies of scale, multipliers, acceleration of consumption that moves forward future consumption on an enduring basis, inflation, etc., some of which relate in part to where we are in the economic cycle (I presume incremental consumption when there is a lot of slack in the economy, excess productive capacity, low inflation, etc. is generally more beneficial than at other times). Some of the above relate inherently to the productivity you mention, but it’s the incremental consumption driving higher productivity (or the higher saving instead driving it, as the case may be). And I’m probably missing a few factors and considerations. I’m not an economist, but again, intuitively I’m inclined to think timing can matter — that incremental consumptions today is not “a wash” in terms of consumptions and wealth over time.

  16. comment number 16 by: SteveinCH

    No offense guys, but it’s very small peanuts either way. The sports stadium is much bigger and much more clearly substitution.

  17. comment number 17 by: Brooks

    No offense taken, for one thing b/c I wasn’t implying any great magnitude. I am interested in whatever Jim’s argument may be re: economic theory on which his assertion is based.

  18. comment number 18 by: Jim Glass

    I am interested in whatever Jim’s argument may be re: economic theory on which his assertion is based.

    Well, if that’s the case…

    It’s simple: Consumption can’t exceed production. Income is finite, you can’t spend more of it than there is, and that amount is limited by production (what people are paid to produce, directly or through investment returns).

    With income thus fixed consuming more of it on A means consuming less on B-Z. And there’s no net economy-wide benefit in consumption shifting.

    Thanks to the DC gay marriage law one group that will receive a hefty incremental increase in consumption spending — guaranteed! — is the DC divorce attorneys. Good for the economy?

    Probably not. More from you to the divorce attorney, less from you for the supermarket (down to buying generic brands), less for the auto industry (that old car has to last longer), etc. Of course the divorce attorney spends more on steaks and a new Lexus, so it’s a wash. Consumption shifting is just a wash.

    Can one increase the portion of income one consumes? Sure. By reducing savings, and by running up debt one can consume even more than one’s income temporarily — we *all* can, temporarily — but not over time. Wouldn’t it be great if it was “good for the economy” to just consume more and more … starting on divorce lawyers … with no concern about lack of savings or zooming up debt? There’d be a lot less to concerned about on this blog.

    What is good for the economy is increasing productivity, so people get more for less. That’s what increases welfare.

    Say Vegas builds a new Super Casino Hotel with a Honeymoon theme and in-house Wedding Chapel with slots and gaming tables, performing gay marriages. The consumptioness that shifts there is good for Vegas, bad for Atlantic City, Niagra Falls and the DC wedding chapel industry. That’s a wash, economy-wide.

    But if in the course of building the new Super Casino, to more effectively compete with Atlantic City, Niagra Falls and DC, the Casino owner innovates new construction methods that let it put up a better building for less cost … and better financing methods that reduce transaction costs … and better ways to more cost-effectively market to its targeted customers … and all these new innovations can then be copied by other businesses … THAT’s good for the economy!

    E.g.: Reducing construction cost means the quantity of construction demanded goes up, which creates demand for more labor (a real gain, not a shift) and higher wages, and on the other side increases the supply of buildings, which reduces their cost and rents, so buyers and renters get “more for less” and are qualitatively better off. (DC divorce attorneys can expand their offices at lower cost, with *more* money left over to share with their suppliers of steaks and new model cars, which is good for the economy!) And it’s the same with all the other innovations. They increase productivity.

    Government programs designed to draw consumption over the border from “that” side to “this” side on their face constitute beggar-thy-neigbor policy that amount to a net wash, economy-wide.

    Of course in practice they usually involve subsidies and tax breaks (often even worse, competitively with other governments) and such, which makes them net losers, like the new LA Football Stadium Without A Team.

    OTOH, they *can* be good, if they operate by reducing obstacles to economic activity (special interest-protecting laws, anti-business regulations, etc) — that is, by reducing transaction costs and offering businesses and consumers the opportunity to benefit from increased productivity. When governments compete on these grounds it can be really good for the economy, but how often does that happen?

    OK, that’s a lot of words, but the bottom line is really simple:

    GDP — national production — sets the limit of consumption. For us to be all better off in economic terms, GDP per capita has to go up. That’s an increase in productivity, definitionally. The faster productivity goes up, the faster grows the pie we all get to share.

    When GDP per capita isn’t going up, the pie isn’t growing, people aren’t happy — because they cannot in the aggregate be gaining economically. When GDP per capita is falling, it’s called a recession. And in these cases it doesn’t matter how the pattern of consumption gets shifted around.

    Consumption sets the level of economic welfare. Productivity sets the level of consumption.

    (Of course GDP isn’t the definition of human welfare. If gay marriage in DC makes gays who marry better off in other personal ways, that’s a fine thing and a net benefit in other dimensions … but human welfare is another story. Happiness isn’t counted in the national economic statistics.)

  19. comment number 19 by: SteveinCH

    Actually, some government “beggar thy neighbor” policies are worse than a wash. So LA builds a new stadium and pulls a team from let’s say, Carolina. Of course, Carolina paid money to build their stadium in the first place and now the stadium has nothing in it so the revenue assumptions that financed the bonds are no longer true and eventually somebody defaults.

    We’re all worse off when government bid down the costs of scarce resources, whether that’s stadia or manufacturing facilities. The deadweight loss is actually substantial.

    At best, it’s a wash. At worst, it’s actually a lot worse because it is possible to overpay through competition for scarce assets.

  20. comment number 20 by: Brooks

    Jim,

    First your argument was apparently that an increase in wedding-related consumption in one local economy was merely coming at the expense of such consumption from some other local economy. I then pointed out that it could be incremental consumption for the entire geographical area in question (the U.S.).

    You then apparently asserted (as you are still) that if there is incremental consumption of wedding-related services today, it must be fully offset (or more) by some foregone consumption today and/or in the future. As a note, the incremental consumption we are talking about results from a change in law that opens up a market (wedding-related services) to a new segment that previously was barred from such consumption, thus allowing more free trade.

    Now, if all you’re saying is that, for increased consumption today NOT to be a total “wash” (fully offset) with foregone consumption today and/or in the future, productivity — GDP per capita — must increase (assuming a static population size), then that isn’t really saying anything, because that happens by definition due to the incremental consumption. That’s why I thought your point was that the only thing that can lead to higher consumption over time is increased efficiency in processes, lower input costs vs. output value, etc.

    Bottom line: I still don’t see a reason why your assertion (and let me know if I’m misrepresenting it) is valid (unless your “point” is that non-point I mentioned re: GDP per capita). First, due to dynamics to which I referred in my prior comment (and I probably left much out), incremental consumption today can lead to efficiency gains. Second, as I mentioned, we are indeed talking about freer trade. I would also note (although not central to my point) that wedding-related services represent domestic consumption to a much greater degree than does consumption as a whole, which is another factor in incremental consumption over time (vs. such consumption being “a wash”, fully offset by foregone consumption over time).

    As a note, we agree that increased consumption today can reduce net consumption over time (due to lost wealth and to the lower savings rate increasing cost of capital and lowering investment in future production), but you seem to think only that higher consumption today can lower consumption over time — rather than being just “a wash” net of foregone consumption today and/or tomorrow — and reject the possibility that higher consumption today (for wedding-related services and in general) can cause an increase in net consumption over time (including today’s consumption).

    Maybe I’m misinterpreting the point you are making, but if it’s what it seems to be, it doesn’t seem valid to me intuitively.

    Diane — can we get some EconomistHelp here?

  21. comment number 21 by: Gigi

    Brooks - although this may shock you, one does not have to be a religious nut to be socially conservative. I hold the view that illicit drugs and prostitution, along with a host of other things from abortion, adultery, alcoholism to zealotry (alphabetical order) are destructive to society. If you believe otherwise, feel free to drink excessively, cheat on your spouse, and solicit prostitutes while shooting up heroine. Then tell me this does not have negative consequences (economically and otherwise), RELIGION aside. The fact that gay marriage makes my list is simply my opinion, which by definition, cannot be right or wrong. You can simply choose to agree or disagree.

    Putting this argument aside, though, as it does not seem relevant to the discussion at hand (which has nothing to do with social beliefs and everything to do with economic theory), I thought I would add in my 2 cents to your’s and Jim’s discussion.

    I think you and Jim both have valid points. A policy change like this shifts the demand curve, increases consumption in a particular area, and accordingly production must increase to keep up with demand. Because of this increased production, efficiency gains will be found because of the factors you mentioned in your previous comment. But as Jim pointed out, the substitution effect cannot be ignored. Something else will take a hit – if that hit doesn’t happen now, it is because of less saving and/or increased debt – both of which have carrying costs. And whatever takes that hit will therefore cut back on production and miss out on the opportunities for growth and efficiency gains they might have enjoyed otherwise.

    I think it is also important to point out that not all consumption is created equally. Money spent on new cars, making more money available for research to finally find that car that runs on grass clippings and garbage (being facetious, I know, but exaggerated to make the point) is more beneficial than developing a way to make a cheaper, better-tasting wedding cake.

    From a standpoint rather than a theoretical, I’m inclined to go with SteveinCH – small peanuts compared to multimillion dollar stadiums. And the stadium is small peanuts compared to the kind of consumption-shifting entitlements currently being tossed around congress (*cough cough* Obamacare).

  22. comment number 22 by: Brooks

    Gigi,

    Spare me/us the bullcrap re: your immoral view of morality. I notice that you didn’t deny that your (apparent) religion plays a role in your views on marriage equality and on homosexuality, you just asserted that religion is not necessary to view marriage equality (and presumably homosexuality) as harmful to society, even though you present no argument to support such an assertion, not that I wish to yet again go through an Abbot & Costello “Who’s on First?” routine with your apparent type, in which you make one assertion/argument after another that falls apart under scrutiny. Been there, done that several times, always encountering the same nonsense. For elaboration and a link to an example on Redstate.com (where I was “BrooksRob”), see http://dmarron.com/2010/03/04/love-wins/#comment-2072

    So again, spare me/us your faux morality and convenient, baseless assertions regarding harm that are mere fronts for your (apparent) desire to impose on others your (apparent) religious doctrine.

  23. comment number 23 by: Gigi

    You outed me! I’m a closet (insert religion of your choice here) whose real rationale was to “ensure that government continues to implicitly confirm and impose their religious doctrine by denying equal rights to same-sex couples.” Great job! It’s sure been fun being lambasted for expressing my belief.

  24. comment number 24 by: Brooks

    Gigi,

    If the shoe fits.

    And yeah, sometimes people should be lambasted for expressing their beliefs, and I’m sure you do the same in some cases. If you advocate policies that would harm others greatly under the pretense that those policies have some benefit (or mitigate/prevent some other harm), you deserve to be lambasted. And such is the case here.

    And no need to not-so-cleverly imply (without stating explicitly) that I’m wrong that you have strong religious beliefs and that your views on this issue are driven by them. Go ahead and explicitly deny that you have any such beliefs. Not that I’ll believe you if you do, but perhaps you should choose between lying and continuing to be weaselly.