On 60 Minutes tonight, there was a story about how some corporations are filing income in other countries to get around our 35% corporate income tax rate. Leslie Stahl went to the international headquarters in Geneva of two companies from Texas and found that, in fact, they don’t really do anything in Geneva. Nobody was there – they just have mailboxes. She interviewed Texas congressman Lloyd Doggett, who wants to pass a law that requires companies to pay taxes based on where they do business and make decisions, which would mean that those companies would have to pay U.S. taxes.  It seems the simple threat of that is making those companies take action. And guess what they did…

The companies sent their executives to live in Geneva so that they can be in compliance with the law if it’s passed. Now not only does the U.S. not get to tax their companies’ profits, they don’t get taxes on all the daily items their executives buy because they’re spending most of their time in Geneva. Way to think that one through, Rep. Doggett.

As the congressman says, “We can’t write a law that their lawyers can’t get around. That’s the whole problem here.” Although it pains me to say this, the problem is not the lawyers. The problem is that we have the second highest corporate tax rate in the developed world (soon to be the highest when Japan lowers its next month) and, duh, companies are going to want to get around it. If you try to make them file taxes where their executives are, they’ll move their executives where it is cheap. If they tried to make them pay where their production facilities are, guess what? Some of them will move their production facilities and we’ll lose even more jobs.

Ms. Stahl responds: “You’re in Congress. Why did Congress write these laws that allows (sic) this to happen?”

I don’t know who is revealing their ignorance more in this interview, but clearly neither of them has heard of the Law of Unintended Consequences. Rep. Doggett seems to think that we need to find a way to draft a law that forces people to stay in this country, prevents any company from moving, and makes people do what the government wants to them to do so they can collect their taxes. Ms. Stahl implies that it’s possible to write a law that will have no unintended consequences, and seems to chastise Congress for not having done so already.

They both need to read Applied Economics: Thinking Beyond Stage One by Thomas Sowell to understand that if all you’re thinking about is the immediate impacts of a law, you’re bound to write a bad law. Every policy has initial impacts and then secondary and tertiary impacts as people respond to it. Focusing on stage one is easy, and is what our lawmakers do most frequently. It also often leads to bad policy.

People are rational. The tax base responds negatively to higher tax rates. Raise taxes and people will try to find ways around paying them. Change the rules and they’ll find even more ways. What’s so hard to understand about that?

The problem Doggett has is not with the laws. He has a problem with basic human behavior and rational thinking — the people responding to laws by changing their behavior to make themselves as well off as possible are rational; the people writing laws thinking they can control how people will respond are the irrational ones.

I received word today that my article in the Journal of Industrial Organization Education on the Hotelling Model is finally published.

This comes on the same day I received an e-mail from my school asking me to take a survey about online research and resources.

The survey made me realize that almost all of my research is based online now. All journals have an online presence, and some like Berkeley Electronic Press are exclusively online. The costs of printing used to limit the supply of available journal spots, making it harder to publish. But that doesn’t necessarily mean that the standards of online journals are any less strict. My work was peer-reviewed, by the editor of the journal himself, James Dearden, who was the most helpful editor I’ve ever had the pleasure of working with. I’ve since done a review for another article in BEPress, and I took the same care I did with other print-based journals.

Online is going to be the future of academic publications, and it doesn’t have to be inferior. BEPress does a great job and I recommend it to my colleagues in academia.

Royal Caribbean is trying out a new pricing policy for its drinks, according to a new report.

For those unfamiliar with cruise ship drink policies, most of them have already gone to an “all you can drink” flat fee pricing scheme for sodas, somewhere in the range of $30 or $35 for a 7-day cruise. They used to give you sodas for free but that changed many years ago. Now all you can get for free is tap water. You can’t buy alcohol in the duty free store on board and drink it — they stow it below and give it to you when you leave the ship. And any alcohol you buy in port is likewise confiscated until the trip is over. If you want to drink, you’re going to have to either smuggle alcohol on board or pay some pretty exorbitant prices for alcohol.

Now Royal Caribbean is experimenting with a range of all-you-can-drink policies for alcoholic beverages: one for just beer and house wine, a more expensive one that includes mixed drinks with cheap liquor, and the primo one including top shelf liquor. Right now it’s only on a few ships in Europe, where people tend to handle their liquor a little better and the “all inclusive” is more of a staple. Their argument is that it will help people determine the cost of a cruise more accurately. The likely impact is that people will spend more total on alcohol, but have a much better time, and profits for the cruise ship will increase. Everybody wins. They might even be able to start a beer pong tournament. The ocean swells would make it a real challenge, I’m sure.

While some will argue that making alcohol cheaper is a bad thing, those people have obviously never been on a cruise before.

I was watching At Issue this morning and they were discussing the current debate in Minnesota about requiring new homes to be equipped with sprinkler systems. Here’s a good link to a discussion of this issue, going through costs and benefits, and providing some facts about house fires. The House rejected such an idea, but the Senate could take it up.

I was just hearing about it for the first time, and of course the libertarian streak in me thought “If I want to put a sprinkler system in my home, I’ll probably pay less in homeowner’s insurance, but that should be a choice I make, not one the goverment imposes on me.” I haven’t been through a house fire and I can’t remember anyone I know ever going through one. They’re not that common these days. In 2009, only 2,564 people died from a fire in a home. I say “only” because more people than that die each year while waiting for kidney transplants they never receive, but the government still won’t let people sell their kidneys to people whose lives would be saved. And now suddenly we have to require people to do spend $3,000 to $5,000 (plus 30 years of interest on it) so that we can stop all the deaths caused by housing fires?

When this came on the television, I said to my girlfriend Sam, “The real question is, how many houses catch on fire every year?” Is it even worth the cost? In 2009, firefighters responded to 362,500 home structure fires. There are over 128 million homes in this country, so your odds are pretty slim that you’ll need a fancy new sprinkler system in your home. As a sign of how much she’s rubbing off on me, my initial concern wasn’t even the price tag it would add to a new home. It was how it might affect the aesthetics of the ceiling.

And as a sign of how much I’m rubbing off on her, her answer to me was, “Actually, the question is, how many house fires result in neighboring houses catching fire?” In that one question, she showed me she understands externalities, insurance markets, and personal responsibility.

I was proud of her last week as we swam with dolphins, snorkeled, and ziplined our way through the treeline outside Puerto Vallarta, and she did it all like she’d been doing it for years. But I think I’m more proud of her for this.

P.S.: A note from a colleague: According to him, the estimated cost is closer to $12,000, and the number one issue with them is false alarms that cause major water damage. Since he’s an economist, he reminds me there are always both Type 1 and Type 2 error. This reminds me of a recent Valentine’s Day dinner gone wrong resulted in a small fire in the dining room. Apparently really tall candles can fall over relatively easily. Who knew? Anyway, I shudder to think that something like that, which we put out in 10 seconds and which caused essentially no damage, could have flooded our whole house.