The first time I wrote about Chumponomics, a rural homeowner in Tennessee lost his house in a fire after refusing to pay the modest fee for fire protection from a nearby city fire department. The idea behind this system was that maintaining a regular fire department through the usual means of local tax assessment was impractical for the sparsely populated area, so the residents of the area paid city firefighters to cover their needs. The fee wasn’t a tax extracted by force; it was a voluntary fee, and if you didn’t pay it, you weren’t entitled to call that city fire department for help. Most people paid it, but a few decided to challenge the system and refuse to pony up, on the theory that the firemen weren’t going to sit idly by and watch their homes burn down if there was an emergency.
As it turns out, that’s exactly what happened, and a huge controversy erupted. Many observers thought it was totally unreasonable to allow a cheapskate’s house to burn down, but tolerating such free riders made fools of those who did the right thing and paid the fee. The entire system was predicated on the assumption that a large number of chumps would pay into the system, while others abused it without serious consequence. A common “middle ground” suggestion was to answer the call if a freeloader fell victim to a fire, but then charge hefty penalties. Besides the difficulty of actually collecting those penalties, the problem with such an approach is that many people would conclude it made more sense to skip paying the fee, rolling the dice and hoping they wouldn’t have a fire, with the odds stacked heavily in their favor. The entire system would collapse if too many people decided to take their chances, defeating the original goal of charging a very reasonable amount to provide everyone with fire protection.
Unsurprisingly, people across the political spectrum use incidents like these to argue the merits of mandatory taxes for government benefits, versus more libertarian plans that charge voluntary fees in exchange for competitive services. I was struck by how many other examples of Chumponomics I began seeing all around us, including systems based on compulsory taxation, since so many people are exempt from paying those taxes, or pay them at a far lower rate. The key …read more