Burning Money

I think that the Fourth of July is one of my least favorite holidays. Now I typically do fun things and often spend time with family on the Fourth of July, but I usually do that for most holidays, so when comparing and ranking holidays, activities like that are really irrelevant (because they are the same across all holidays). And yes, I absolutely do like the United States and I am certainly in favor of celebrating our independence. I simply don’t like one particular aspect of how people typically celebrate the Fourth of July.

I recognize that most people will disagree with the opinion that I’m about to share and that I will probably hear about it from a number of people that read this. But I’m going to say it anyway: I don’t like fireworks. And that is one of the biggest things that sets the Fourth of July apart from other holidays. In fact, I don’t like them enough that the Fourth of July is one of my very least favorite holidays primarily because of them. This might seem weird, so let me explain why I don’t like them.

From a purely utility-maximizing-consumer perspective, I personally think fireworks are not worth purchasing. They are often very expensive, and as my grandpa pointed out yesterday, buying fireworks is a lot like burning money. I would say that the only difference between burning money and buying fireworks is that when you buy fireworks then the flames are different colors, they smells worse, and they make a lot of accompanying noise.

In addition to that, they are pretty inconvenient and annoying. Take last night, for instance. I arrived home at my apartment pretty late to find that a group of people were lighting fireworks in the entrance to my apartment complex’s parking lot. Now when you have an entire parking lot at your disposal with a couple of corners that are totally vacant, why would you pick the entrance to light fireworks? I don’t have any idea, but they did. And you couldn’t possibly argue that they were trying to stay away from parked cars, because they were close enough to some that I would have been pretty uncomfortable if the cars had been mine. Anyway, more generally speaking, navigating most streets on the Fourth of July can be a complicated task. Everywhere you turn there are fountains of sparks in your way or piles of burned out trash for you to drive over.

So then when I went to go to bed, it turned out that those same people where still lighting fireworks (at about 1:00 AM) in the entrance to the complex, which was coincidentally located right under my bedroom window. So I had to endure stupendously bright flashes of light and eruptions of sound for quite a while before going to sleep. I was a little annoyed.

Now let’s move from mere inconvenience to arguments of more substance. Each year there are a huge amount of injuries and damages caused by fireworks. Here’s a bit of data taken from The Department of Health and Human Services:

  • In 2006, eleven people died and an estimated 9,200 were treated in emergency rooms because of fireworks. Hospitalization was required for 5% of these people.
  • Most firework injuries happen around the Fourth of July. One third of injuries were children under age 15; almost half were under age 20.
  • Injuries from fireworks include severe burns, hearing damage, contusions, lacerations, and foreign bodies in the eye. Fireworks can cause blindness, third degree burns, and permanent scarring.
  • There were around 2,200 reported structure or vehicle fires started by fireworks in 2004. These fires resulted in $21 million in direct property damage.

Those are pretty serious side affects, resulting in a huge amount of expense caused by injury or damages, not to mention the drastic impact many of these injuries have on the individual that was injured and their family.

Above all else, though, the reason I dislike fireworks is for the foul stench they cause. Fireworks smell much worse than other kinds of fire. And if you are anywhere in the vicinity of fireworks being shot off, you end up smelling like them yourself. In fact, with the prevalence of fireworks on the Fourth of July, all you really have to do is walk outside in the evening and then I have to take a shower to get rid of the smell.

Closely associated with the horrible stench is the pollution. For days after the Fourth of July you can smell and see the firework smoke. It is often pretty thick and heavy. It’s funny that you regularly hear all about how we need to cut back on polluting the environment and cut back on carbon dioxide emissions, yet no one ever talks about the effects of fireworks. Many fireworks contain toxic amounts of heavy metals and chemicals that eventually pollute water systems and can cause serious health risks when inhaled.

I think that shooting off fireworks imposes a significant negative externality on other people. If you don’t know what a negative externality is, read this digression on the topic:

In economics, an externality is any affect, either positive or negative, from a transaction or activity that impacts people not directly engaged in that transaction or activity. Pollution is the classic negative example: if a factory pollutes while producing its good then a cost is imposed on those affected by the pollution. These costs are not typically taken into account during production—hence the usual solution to regulate or tax pollution to help account for this cost.

On the other hand, the affect can be quite positive. If a man keeps bees in order to harvest honey, then the surrounding area benefits substantially from the pollination that takes place. This benefit might even outweigh the benefit of the honey itself, but the beekeeper is typically not compensated for the full benefit of the bees to the community. It is often the case that things that generate a negative externality are overproduced and things that generate a positive externality are underproduced—hence the need for taxation/regulation or subsidization in some cases.

Now it does get much more complicated than that. Suppose someone is playing music really loud at their apartment. One neighbor might be really annoyed by the music and would say that he is imposing a negative externality on the complex and demand that it be regulated (by a noise ordinance, for instance). Another neighbor might really enjoy the choice of music and the quality of the sound system and would say that he is imposing a positive externality. So the net effect can be complicated to determine and the need for and method of government intervention in many cases is highly debated.

Now back to fireworks.

Many people would argue that fireworks impose a positive externality. If your neighbor or your city are shooting off fireworks they can’t stop you from watching even if you didn’t pay. So you get to freeride on them and benefit from their purchase. I personally disagree. I think that fireworks impose a negative externality on those of us that don’t care for them and their effects. We have no choice but to endure the inconvenience, the sound, the light, the costs from damages and injuries (through taxation), the stench, and the pollution caused by other people’s decisions.

This year it occured to me that a serious recession might (hopefully) significantly impact the purchase of fireworks. I’ve been really curious the past few days: what does the income elasticity of demand for fireworks look like? Here’s a digression on elasticity, if you’re not familiar with it:

An Elasticity is a ratio between the percent change of one variable and the percent change of another variable. One common elasticity is the price elasticity of demand for a good, which is the amount that demand for a good changes based on a change in its price. Gasoline is an example of a fairly inelastic good: as the price of gasoline goes up, demand drops pretty slowly, compared to the change in price.

Another common elasticity is the income elasticity of demand. This is a measure of how demand changes for a good based on a change of income of those purchasing the good. In other words, if you suddenly make less money, how much will this affect the quantity you purchase of a particular good? This is what I’m curious about with respect to fireworks.

The question is then, will people significantly cut back on purchasing fireworks because of having less spending money (i.e. demand is very elastic with respect to income) or will they spend roughly the same amount and cut back on other things (i.e demand is very inelastic)?

From what I’ve read about this so far in the news, it’s hard to say. Some people say sales are similar to previous years; others are saying they are down from previously years. But most seem to think that the affect is small if there is any affect at all. I wish that I had some firework demand data so I could estimate the income elasticity of demand for fireworks. Could it really be true, though, that demand for fireworks is that inelastic? I would find that hard to believe (yet somehow not that surprising). Hopefully the news reports will shed some light on the subject in the next few days. And hopefully fireworks are a really elastic good, so the smell and pollution will be a little less over the next few days.

Images courtesy of Scott Jarvie. They (and others) can be found on his blog.