BiS: BusinessInSavannah.com - Business news for the creative coast.

Zapp: A matter of economics and rational thought

The economic theory of market capitalism assumes that participants make rational decisions. Only consumers know what goods or services satisfy their needs, and they spend their scarce financial resources accordingly to maximize their personal satisfaction.

No one can tell them what to purchase or what not to purchase in order to improve their well being.

Producers make rational decisions in deciding what to produce and how to produce them. They take information from market prices in order minimize the costs of their production. Their profits are maximized when they sell what is most urgently needed, as indicated by market prices.

High prices reveal the urgency of consumer need.

Whenever decision makers, as consumers or producers, make decisions that are not rational or not based on rational analysis, the efficiency of our economy suffers. We can call these negative effects opportunity costs — what we lose by making these non-rational decisions.

Racial or gender discrimination in hiring is a perfect example. When employers eliminate people from consideration due to criteria unrelated to job performance, they usually do not hire the most efficient employees.

When this happens, the producers do not minimize their costs and we all suffer from higher prices or possibly a failed company.

In Savannah, our city has implemented a “crime free policy” for rental housing. This denies housing to a person convicted of a violent crime, imposes a 10-year waiting period for people convicted of a non-violent crime, and five years for people convicted of misdemeanors. These restrictions apply to everyone living in the apartment, not just those on the lease.

A leading officer in the Savannah-Chatham Metropolitan Police has told me that this policy, though well intended, is not rational. It has become one of the causes of our massive homeless population. Returning citizens, even those who have turned their lives around, cannot find legal housing. What message are we giving them?

Recently Mayor Eddie Deloach announced he was fulfilling a campaign promise by creating a summer internship for 500 at-risk children. Mayor Pro Tem Carole Bell, who was asked to direct the program, explained that applicants must be crime and drug free. When asked why the most vulnerable kids would be excluded, Deloach said the employers set the standards for participation.

If this is true, where is our leadership when it is urgently needed?

Children of upper middle class families who experimented with drugs in the past did not need internships to find their path to a career. They are now business owners and managers. Are they emulating a former politician who claimed he never inhaled? This does not engender the behavior we hope our youth will display.

Possibly the most non-rational economic decision we see is teenagers having babies. Contrary to what some extremists may believe, there are no economic incentives to do so. Approximately two-thirds of teen mothers never finish high school and only 2 percent finish college.

The children of teenage mothers are likely to have low school achievement, high drop-out rates from school, have health problems, be incarcerated, give birth as a teenager and suffer unemployment as a young adult.

Teen births cost society dearly. We pay for public health care, child welfare, increased rates of incarceration of children of teen moms, and lost tax revenue due to decreased earnings.

Sadly, even though rates of teen pregnancy have been falling, Georgia still has higher teen rates than most states. We have the 17th highest teen pregnancy rate in the United States and the fourth highest repeat teen pregnancy rate.

While teaching in Savannah State’s College of Business Administration, I offered several sections of Personal Finance and was invited by students to give lectures on this topic in their dorms. My first message was that having a child in school was the best way to insure a future of poverty. Students were shocked when they heard that current research predicted that on average a new baby would cost its parents approximately $250,000.

Shocking to me was their admitted lack of information about birth control options. They explained that most of their public school systems, including Savannah-Chatham County, used abstinence based sex education curricula that did not provide the technical information they needed to make rational decisions.

All professional organizations whose members work in health and human development, including the American Medical Association, the American Psychological Association, the American Academy of Pediatrics, the National Association of School Psychologists, the American Public Health Association, the Society for Adolescent Medicine, and the American College Health Association support comprehensive sex education. This includes abstinence, contraception, relationships, sexuality and the prevention of disease.

The research is clear: Students with access to comprehensive sex education have fewer teen pregnancies and lower school drop-out rates than those who are denied these services.

As an economist I cannot tell people what they should believe. I can, however, identify the opportunity costs of imposing certain religious views on school children and what they are taught or not taught about sex. Besides condemning teens to a sad future, teen pregnancy costs our state about $400 million annually and our country over $9 billion each year.

This does not seem rational.

 

Kenneth Zapp is a professor emeritus with Metropolitan State University and a mentor with SCORE Savannah. Contact him at Kenneth.Zapp@metrostate.edu.

Comments