Monday, June 26, 2006

Social Market Failure?

Washington Post columnist Sebastian Mallaby gets sucked in by the study on the decline in close friendships I discussed previously and argues that this is a case of individuals screwing themselves:
If you get sick, stressed or just plain sad, you are going to want the sort of friend you can rely on. Maybe you'll be able to convert an acquaintance into a soul mate when you discover you need one. But this just-in-time approach to emotional crises isn't always going to work. Look at the way the slow decline of friendship has been mirrored by the rise of emotional problems. Over the past half-century, the prevalence of unipolar depression in affluent countries has jumped tenfold.

People's myopia on friendship is like their myopia on saving. They know that jobs are insecure, that a health problem can cause bankruptcy, that retirement is fabulously expensive; but the household savings rate has fallen below zero. Equally, people know that spouses aren't immortal and that divorce is common. But nearly one in 10 -- a much higher share than in 1985 -- reports that their husband or wife is the only person they confide in.
He suggests that a gas tax might offset some of this problem by encouraging people to car pool (and presumably become friends with people as a result). Greg Mankiw fails to see the externality that needs to be corrected by such an intervention. While I also am not convinced that Americans are suffering from lack of friendships (or screwing themselves in the way Mallaby argues), I do think such a policy may actually help solve a different market failure -- the loss in aggregate social capital associated with the decline in connections among neighbors (although I have no idea if it is actually an efficient way to do this).

As I have written previously, I think Robert Putnam's worry about declining social connections among neighbors may be warranted:

... in a number of contexts, market institutions have replaced social institutions substantially changing the returns to many forms of social investment and thus the composition of social capital. Such changes are clearly apparent in individuals' neighborhoods. Today, people rely on their neighbors for a smaller set of favors, and thus people are less inclined to "grin and bear" socializing with the random people who happen to live nearby. Instead, they choose to socialize with people who they know they like and who, because they have a great deal of shared interests, will involve them in very enjoyable (high return) activities and experiences.

These changes don't imply that individuals' stocks of social capital are smaller. People are likely to (and do) spend as much or more time engaged in social activities as they used to. They are likely to have as many or more social ties then they used to. However, who they are tied to, what ties them together, and the social skills necessary to make and maintain useful social ties have probably changed. Specifically, we have fewer ties to those who randomly share the same space. Thus Putnam may be right to worry. Many problems require collective action among neighbors and the coordination necessary to solve these issues is hindered by an absence of social ties among neighbors. Specifically without norms of trust and reciprocity people are unwilling to compromise, skeptical of others motives, and lacking familiarity with certain social skills and manners that help govern the process.

So when developing a list of all the benefits of imposing a gas tax, one may be able to include a small additional benefit from any potential positive social externalities stemming from the increase in social investments among carpoolers from the same neighborhoods or communities.

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