Tag: public choice

Why Are Environmental Policy Conflicts So Intractable?

On Earth Day the op-ed pages remind me of “Groundhog Day.”  Environmentalists argue we need stricter environmental regulation.  Business interests argue such regulations reduce economic growth and cost the economy jobs.  Each also invokes “sound science” as an adjudicator of the conflict.  Environmentalists invoke “science” in the case of CO2 emissions and effects while business interests invoke “science” in the case of traditional pollution emissions.  Each year we wake up and the same movie plays out.

The scientific validity of people’s preferences plays no role in the market’s delivery of private goods.  Markets can and do supply organic lettuce regardless of whether it is really “better” for your health.  The scientific validity of people’s preferences is irrelevant.

Air- and water-quality environmental disputes are more challenging to analyze than the supply of organic lettuce for two reasons.  First, while property rights exist for lettuce, they often do not exist for air and water.   Thus, environmental politics involves continuous struggle over implicit property rights and the wealth effects that flow from such rights.  Second, both conventional air and water quality are “local” public goods (club goods) rather than private goods, thus individual differences in consumption, the primary method of reducing conflict associated with private goods, are not possible.  Instead, everyone’s varied preferences for environmental goods can only result in one jointly consumed outcome.

One possible impediment to the implementation of market-like solutions to air and water quality is that the initial ownership of property rights to air or water emissions not only has wealth but also efficiency effects.  That is those particular property rights (the right to a pristine environment) are so valuable relative to other assets that their initial allocation alters the willingness of people to pay for them and thus affects how much pollution exists.  In such cases the initial distribution is the whole ballgame because it determines the resulting air- and water- quality levels.

New Coke and the Iraq War

Donald Keough, who was president of Coca-Cola, has died at age 88. All the obituaries lead with his role in the New Coke debacle. On April 23, 1985, Coca-Cola replaced its amazingly successful product with a new formula, called New Coke. Some people liked the new flavor, but many did not. On July 11 the company reversed its decision and reintroduced the original formula, called for a time Coca-Cola Classic. Wikipedia reports, “ABC News’ Peter Jennings interrupted General Hospital to share the news with viewers.”

The experience was generally regarded as one of the biggest stumbles by a major corporation in memory. But what struck me at the time, and what I’m reminded of now, is how fast the company realized its error and reversed it – less than 11 weeks.

How well do governments do at realizing their errors and reversing them? The obvious comparison at the time was the Vietnam War. It took the U.S. government about 14 years, from 1961 to 1975, to realize and reverse that mistake.

Today we might think of the Iraq War. The United States invaded Iraq in March 2003, based on mistaken intelligence reports, a hazy sense that somehow Saddam Hussein was involved in al Qaeda’s 9/11 attacks, and deeply flawed assumptions about the ease of the undertaking. The war officially ended in December 2011, though of course we still have 3,000 troops there and are contemplating further involvement in response to the ISIS insurgency. Taking the official end of the war, the U.S. government continued that mistake for about 8 years and 9 months.

What about other government failures? How fast were they reversed? Let’s consider:

Alcohol prohibition – 13 years

Marijuana prohibition – approximately 84 years and counting

War on drugs – 44 years or 101 years and counting

The Pruitt-Igoe housing project – 18 years

Airline price and entry regulation – 47 years

Soviet communism – 74 years

And that’s without even counting the mistaken programs that aren’t yet widely agreed to be failures, from the Federal Reserve to the welfare state

Incentives are different in business and government. Some critics of capitalism suggest that democratic government is more responsive than corporations are. But voting is a flawed way to register dissatisfaction. When businesses make mistakes, they tend to lose customers. And they know that very quickly. Because business owners have their own money at stake, they have a strong incentive to correct mistakes promptly. Government officials run little risk of losing their jobs for failure. Indeed, government officials who fail to solve a problem – poverty, homelessness, dropout rates – may be rewarded with more money and staff. No wonder government failures last so long.

A diamond is forever? Government failure is forever. 

What Public Choice Theory Says about Ebola

What does public choice theory say about responding to Ebola?

That is: What are the costs and benefits of various policies – not to the public – but to self-interested politicians? Public choice theory holds that politicians’ interests don’t always coincide with the public’s, and sometimes they diverge quite sharply. When interests diverge, politicians will often side with their own self-interest, even at the expense of the public.

So what do they want? Politicians want public esteem. They want above all to be seen as heroes. If that means sacrificing civil liberties - to little or no public benefit - then they will do so.

This remains true even if the “heroic” measures at hand amount to Ebola security theater. It would appear that’s what we’re getting - a set of state-level quarantines that are actually contrary to what doctors and epidemiologists recommend. (No, the public probably won’t care what the experts say. I mean, look – the public still buys antibacterial soaps, and public health experts don’t recommend those either.)

In general, then, we can expect politicians to be eager to quarantine. This eagerness will be completely independent of the specific facts of any particular disease. Recall that lots of politicians once wanted to be able to set up an HIV quarantine, too, even long after it was well known that HIV can’t be transmitted by hugging, kissing, sharing utensils, sharing toilet seats, non-euphemistic cuddling, or what have you. (Wasn’t that a loooong time ago? No: It was just last year. And they got what they wanted.)

In short, whether or not a quarantine is right in any particular case – and it might be right in some cases, though I wouldn’t know – public choice theory says that politicians will err on the side of quarantine.

If that seems cynical, consider the flip side: Politicians also don’t want to look like the ones who let Ebola into the country. Note that one might look like the person who brought Ebola into the country even when one’s policies are responsible for exactly zero additional Ebola risk. Life is unfair sometimes. Even to politicians.

To look like a screwup, all you have to do… is nothing. The public will be left to stew in its fears, and they hate it when that happens. So they will punish you, and your party, at the next possible opportunity. (When is that again?)

The costs of doing nothing here are especially high if your constituency happens to be made up of conservatives – in whom Jonathan Chait has pointed out a strong emotional preference for purity and cleanliness. We should thus expect to find fear of contamination at or near the top of the to-do list for conservatives, who will try, first, to intensify these fears, and second, to promote their own policies as the only ones capable of relieving them.

ObamaCare Exchanges Recklessly, Often Unlawfully, Throwing Taxpayer Money At Health Insurance Companies

Robert Laszewski, health policy wonk, blogger, and president of Health Policy and Strategy Associates, tells Inside Health Insurance Exchanges:

The Obama administration has no idea how many people are currently enrolled [in exchanges] but they keep cutting checks for hundreds of millions of dollars a month for insurance subsidies for people who may or may not have paid their premium, continued their insurance, or are even legal residents.

And if you think they’re doing those “enrollees” a favor, remember that if it turns out a recipient wasn’t eligible for the subsidy, he or she has to pay the money back.

Surprised? Don’t be. This is part of a deliberate, consistent strategy by the Obama administration to throw money at individual voters and key health care industry groups—lawfully or not—to buy support for this consistently unpopular law.

In Malawi, Beef Is the New Pork

Does giving voters goodies help to get their votes? In Malawi they think so:

Malawi’s President Joyce Banda is betting voters in her poor African nation will rank cows and corn flour ahead of economic tumult and corruption allegations in Tuesday’s elections….

To sweeten the deal for eight million registered voters, most of whom are poor farmers, she spent the past few months giving away hundreds of cows and thousands of 100-pound bags of corn flour at rallies across the country….

“This old-school electoral patronage, a-cow-for-every family, is effective with female voters especially,” said Anne Fruhauf, vice president at the risk-analysis firm Teneo Intelligence. “No one else is courting that half of the electorate.”

As it turns out, this may not have worked as well as observers expected. Banda, running behind in early returns, annulled the election and called another for 90 days later. But clearly she and many other people thought that the distribution of cows would help her chances.

Meanwhile, here in the United States, elected officials prefer to stick with the tried-and-true distribution of cash from the federal Treasury, as the Washington Post reports today:

One of [Sen. Mary] Landrieu’s television ads this spring stars shipbuilder Boysie Bollinger, a longtime GOP fundraiser and activist. As Bollinger walks through his shipyard in a hard hat, he says into the camera, “Louisiana can’t afford to lose Mary Landrieu,” adding that her energy committee post “means more boats, more jobs and more oil and gas. She does big things for Louisiana.”

Bollinger Shipyards, which employs 3,000 people in Lockport, has been a big beneficiary of Landrieu’s largesse. Last fall, she helped secure a $250 million federal contract for Bollinger to rebuild Coast Guard cutters.

It might be cheaper just to give away cows. But cows or contracts, politicians buy votes with taxpayers’ dollars.

 

Big Business Gets Yet Another Obamacare Delay That Individuals Don’t

“I didn’t simply choose to delay this on my own,” President Obama reassured the nation about his unilateral decision to delay Obamacare’s employer mandate. “This was in consultation with businesses all across the country,” he said, as if that made the situation better instead of worse. Obama threw his “consultants” another bone when he decided to delay the reporting requirements the law imposes on employers, also until 2015. The president’s generosity toward large corporations will be financed by the American taxpayer. The Congressional Budget Office projects these delays will cost taxpayers another $3 billion in new government spending and reduce federal revenues by $9 billion, for a total increase in the federal debt of $12 billion. Yet the president fails to show the same concern for individual taxpayers. When the House of Representatives, including dozens of Democrats, voted to extend the same break to individuals by delaying Obamacare’s individual mandate by one year, President Obama threatened to veto that bill. Bizarrely, he also threatened to veto another bill (approved by an even broader bipartisan majority) that would make legal his illegal delay of the employer mandate.

So perhaps we should not be too surprised now that the New York Times reveals yet another delay the president approved at the behest of big business:

In another setback for President Obama’s health care initiative, the administration has delayed until 2015 a significant consumer protection in the law that limits how much people may have to spend on their own health care.

The limit on out-of-pocket costs, including deductibles and co-payments, was not supposed to exceed $6,350 for an individual and $12,700 for a family. But under a little-noticed ruling, federal officials have granted a one-year grace period to some insurers, allowing them to set higher limits, or no limit at all on some costs, in 2014…

[F]ederal officials said that many insurers and employers needed more time to comply because they used separate companies to help administer major medical coverage and drug benefits, with separate limits on out-of-pocket costs…

A senior administration official, speaking on condition of anonymity to discuss internal deliberations, said: “We knew this was an important issue. We had to balance the interests of consumers with the concerns of health plan sponsors and carriers, which told us that their computer systems were not set up to aggregate all of a person’s out-of-pocket costs. They asked for more time to comply.”…

Theodore M. Thompson, a vice president of the National Multiple Sclerosis Society, said: “The promise of out-of-pocket limits was one of the main reasons we supported health care reform. So we are disappointed that some plans will be allowed to have multiple out-of-pocket limits in 2014.”

It is a sign of Obamacare’s complexity that the Obama administration felt it needed to issue this delay. It is a further sign of the law’s complexity that this delay was announced in February, yet is only coming to light now.

Faith in Government, Unshakable

Belatedly, I’ve come across the review by Jonathan Martin of Politico of the book Act of Congress: How America’s Essential Institution Works, and How It Doesn’t by Robert Kaiser, a 50-year reporter and editor at the Washington Post. What struck me was that both of these very knowledgeable Washington journalists seem very clear-eyed about the deficiencies of the legislative process, and yet their understanding doesn’t cause them to question the idea of having government manage every facet of our lives. Here are some excerpts from the review:

Congress is dominated by intellectual lightweights who are chiefly consumed by electioneering and largely irrelevant in a body where a handful of members and many more staff do the actual work of legislating. And the business of the institution barely gets done because of a pernicious convergence of big money and consuming partisanship.

That is Robert Kaiser’s unsparing assessment in “Act of Congress,” the latest volume in a growing body of work lamenting our broken capital….

In the passing of Dodd-Frank, the public interest—however that might be defined—often took a back seat to money, special interests and political expediency.

It did not help, notes Mr. Kaiser, that many members of Congress are politics-obsessed mediocrities who know little about the policy they’re purportedly crafting and voting on. Indeed, it is Mr. Kaiser’s frank and often scathing criticism of Congress that enlivens a book that might otherwise strain the attention of anyone not intensely interested in the regulation of derivatives….

That phone call, writes Mr. Kaiser, underlined a fact of modern congressional life: “Most members both know and care more about politics than about substance.”…

“Of the 535 members of the House and Senate, those who have a sophisticated understanding of the financial markets and their regulation could probably fit on the twenty-five man roster of a Major League Baseball team,” Mr. Kaiser writes. “Members’ ignorance empowers lobbyists and staff.”

What makes “Act of Congress” especially valuable is its detailed portrait of Washington’s influence peddlers and, in particular, the powerful aides who script their boss’s statements, write the bills and often become lobbyists themselves after leaving the government payroll. 

Martin concludes:

Big money, small politicians, and the lobbyists and staff running the place: It’s hardly a new story about Washington. But Mr. Kaiser names names and spares no one.

So the question is, If you understand just how poorly most legislation is crafted, if you understand the corruption and ignorance that go into making rules for 300 million Americans, why are you still wedded to the idea that inevitably ignorant and corrupt people should make rules for everything from health care to banking to retirement to drug policy? 

Both Jeffrey Friedman and Ilya Somin have written for the Cato Institute, and in Somin’s forthcoming book, about the problem of public ignorance and value of a much smaller and less centralized government that could depoliticize decision-making and limit the scope of errors.

Faith in government, like a second marriage, is a triumph of hope over experience.

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