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Contentions

Our Chandelier Problem

While we are on the subject of the USSR—Boris Yeltsin’s death was the subject of one of my posts here yesterday—it is a good moment to remember that one of the very best things about the now defunct Soviet Union was its centrally planned economy. If nothing else, it could be counted on to produce an endless series of amusing anecdotes. In the topsy-turvy world of the five-year plan, factory managers and workers were rewarded not for profits but for maximizing other success indicators, like gross physical output, often with bizarre results.

Nikita Khrushchev famously complained about the immense size and weight of chandeliers. It turned out that workers at a Moscow lamp factory were awarded bonuses for production measured in tons. The chandeliers they produced grew ever heavier until they led to a rash of ceiling collapses.

The United States has a market economy—but we also have a huge government sector, where amusing Soviet-style distortions often creep in. Yesterday’s Washington Post reported on the “Metrochek” program in Washington D.C. These transportation vouchers are issued to government employees to encourage use of subways, buses, and trains. But it turns out, unsurprisingly to any student of the old Soviet economy, that a thriving black market has emerged.

Some 300,000 federal employees across the country receive the transportation vouchers, and some unknown number of them are not using them but rather driving to work and reselling the coupons to others, sometimes in the hyper-efficient auction marketplace of ebay (where, as of yesterday, a $100 metrochek was selling for $75).

Predictably, in the face of the emergence of a market for these discounted vouchers, there are calls for tighter controls, like verification of commuting expenses and ensuring that government employees who use the program do not also receive parking spaces. Administrative sanctions and criminal prosecutions are also now being contemplated. But as in the Soviet economy, more controls will only produce more ingenious forms of evasion, followed by calls for even more stringent controls.

Congress, in its wisdom, has also created Metrochek-type programs in the private sector, where they are known as “cafeteria” or “flexible-benefit” plans. Employees can set aside pre-tax money for transportation, medical expenses, and childcare. The rules include a use-it or lose-it feature, rife with perverse effects. If one sets aside too much money for, say, medical care in a given year, at the end of the year the money is lost. To avoid wasting hard-earned funds, employees are sometimes compelled to go on spending binges at the end of the year, stocking up on approved items like extra eye-glasses that they do not need. Unsurprisingly, optometrists love the flexible spending plans every bit as much as Soviet chandelier workers loved the weight-output norms.

Here in New York City, there are other curious effects. Even as the city tries to discourage drivers from commuting to work in congested Manhattan, the flexible-spending programs cover parking, making it available at a significant discount. And because parking in the city is so expensive, the benefit for driving to work can far exceed the benefit for traveling on mass transit, sometimes by a factor of two or three.

Public-policy objectives are being tied in knots by such programs, but reform or outright abolition is not in the cards. The reason why is that everyone who takes part in them profits (full disclosure: Commentary Inc. has a flexible-benefit program for its employees and I am enrolled in it) even as the net result is economic distortion and waste. Nikita Khrushchev would have smiled.



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