Tag: public choice

‘1099’ Repeal Speaks Volumes About ObamaCare

From my latest Kaiser Health News op-ed:

When 34 Senate Democrats joined all 47 Republicans last week to repeal ObamaCare’s 1099 reporting requirement, their votes confirmed what their talking points still deny: ObamaCare will increase the deficit, no matter what the official cost projections say…

This public-choice dynamic [of concentrated benefits and diffuse costs] is why the Congressional Budget Office, the chief Medicare actuary, and even the International Monetary Fund have discredited the idea that ObamaCare will reduce the deficit. It is one of the principal reasons why, as Thomas Jefferson wrote, “The natural progress of things is for liberty to yield, and government to gain ground.” In other words, the game is rigged in favor of bigger government.

It also explains why the Obama administration is sprinting to implement ObamaCare in spite of a federal court having struck down the law as unconstitutional. The White House needs to get some concentrated interest groups hooked on ObamaCare’s subsidies – fast.

Read the whole thing here.

Tax Lawyers, Tax Complexity, and the Broader Problem of a Self-Serving Legal Profession

The Internal Revenue Code is nightmarishly complex, as illustrated by this video. Americans spend more than 7 billion hours each year in a hopeless effort to figure out how to deal with more than 7 million words of tax law and regulation.

Why does this mess exist? The simple answer is that politicians benefit from the current mess, using their power over tax laws to raise campaign cash, reward friends, punish enemies, and play politics. This argument certainly has merit, and it definitely helps explain why the political class is so hostile to a simple and fair flat tax.

But a big part of the problem is that tax lawyers dominate the tax-lawmaking process. Almost all the decision-making professionals at the tax-writing committees (Ways & Means Committee in the House and Finance Committee in the Senate) are lawyers, as are the vast majority of tax policy people at the Treasury Department and the Internal Revenue Service.

This has always rubbed me the wrong way. Yes, some lawyers are needed if for no other reason than to figure out how new loopholes, deductions, credits, and other provisions can be integrated into Rube-Goldberg monstrosity of existing law.

But part of me has always wondered whether lawyers deliberately or subconsciously make the system complex because it serves their interests. I know many tax lawyers who are now getting rich in private practice by helping their clients navigate the complicated laws and regulations that they helped implement. For these people, the time they spent on Capitol Hill, in the Treasury, or at the IRS was an investment that enables today’s lucrative fees.

I freely admit that this is a sour perspective on how Washington operates, but it certainly is consistent with the “public choice” theory that people in government behave in ways that maximize their self interest.

There’s now an interesting book that takes a broader look at this issue, analyzing the extent to which the legal profession looks out for its own self interest. Written by Benjamin H. Barton, a law professor at the University of Tennessee, The Lawyer-Judge Bias in the American Legal System explains that the legal profession has self-serving tendencies.

Glenn Reynolds, of Instapundit fame, interviews Professor Barton about his new book.

I freely confess that I’m looking at this issue solely through my narrow prism of tax policy. But since Barton’s thesis meshes with my observations that tax lawyers benefit from a corrupt tax system, I’m sympathetic to the notion that the problem is much broader.

One of the most qoted lines from Shakespeare’s Henry VI is, “let’s kill all the lawyers.” But rather than making lawyer jokes, it would be a better idea to figure out how to limit the negative impact of self-serving behavior - whether by lawyers or any other profession that might misuse the coercive power of government.

This is one of many reasons why decentralization is a good idea. If people and businesses have the freedom to choose the legal system with the best features, that restrains the ability of an interest group - including lawyers - to manipulate any one system for their private advantage. This new study by Professors Henry Butler and Larry Ribstein is a good explanation of why allowing “choice of law” yields superior results.

Congress: Where 20 Jobs = $580m

When talking to groups about the political economy of trade protection, I always mention concentrated benefits versus diffuse costs. Public choice theory explains many bad policies, of course, but tariffs and subsidies are excellent examples of interventions that benefit the few at the expense of the many.

Congress, or specifically two members of that esteemed body, have recently provided me with a textbook example. The Generalized System of Preferences is a federal program that offers duty-free access to the U.S. market to certain goods from certain developing countries. Or, I should say, was a federal program, because it expired on December 31. My opinion of the program is ambivalent at best, but one cannot deny that the program brings real cost savings to American consumers and businesses – to the tune of $580 million a year – through lower import duties.

But those duty savings are, apparently, worthless in the face of special interest politics. From Inside U.S. Trade on January 6 [$]:

An Alabama sleeping bag manufacturer that benefited from the expiration late last year of the Generalized System of Preferences (GSP) program is now taking further steps in an attempt to ensure that Congress does not renew the program this year in the same form.

Exxel Outdoors CEO Harry Kazazian this week said his company is in the process of expanding its U.S. plant by adding workers and increasing production, and that this expansion is occurring as a direct result of the fact that Congress allowed the GSP program to expire on Dec. 31.

Under GSP, Bangladeshi sleeping bags that competed with the Exxel Outdoors product were able to enter the U.S. duty-free. On behalf of Exxel Outdoors, Sen. Jeff Sessions (R-AL) last year refused to let any renewal of GSP pass that would not remove at least some sleeping bags from the scope of the GSP program (Inside U.S. Trade, Dec. 23).

With the future of the GSP program still uncertain, Kazazian said he is now expanding his Alabama plant in part to put pressure on Congress to either not renew the GSP program, or renew it in a modified form that would exclude imported sleeping bags from its scope.

Kazazian said that if GSP is renewed in its old form, he would have to reverse his expansion plans. He reasoned that members of Congress may be more willing to accommodate Sessions and remove sleeping bags from GSP if faced with the prospect that renewing the program in its full form would lead to the firing of U.S. workers.

“I can’t see how anyone would make any decisions against us,” he said in an interview this week. “We are going to work as hard as we can to make sure sleeping bags are exempted from the GSP.”

These expansion plans must be really something if they can justify holding up such a broad program, right?

Kazazian said that he plans to hire 20 additional employees to start a fourth production line at the Alabama plant. He said he will commence the first phase of its expansion this month by investing in additional equipment and retooling the plant’s operations.

That’s right, readers. The GSP expired and millions of U.S. consumers and businesses (not to mention developing country exporters) are being penalized to save a hypothetical 20 (that’s two-zero) jobs that don’t even exist yet. The jobs being lost by businesses that depend on the GSP to keep them competive are, apparently, not worth consideration. And as for consumers’ buying power being eroded, well forget it.

Come back, Mancur Olson. Your country needs you.

Stopping the ‘Culture of Spending’

Sen. Mitch McConnell’s quick reversal on the subject of earmarks was a surprise, but that quick, largely symbolic win against profligate spending certainly won’t translate into a more permanent movement without sustained effort. Shortly after McConnell made his speech supporting a “moratorium” on earmarks, I spoke with Matt Kibbe of Freedomworks about turning the enthusiasm for smaller government into that enduring force. He said understanding public choice gives lawmakers a better shot at turning popular anger at government into reductions in its size and scope. Freedomworks recently held orientation sessions for freshmen members of Congress. A primer in public choice was on the agenda.

Cato’s Government Failure: A Primer in Public Choice is a good place to start to understand the mechanics of government dealmaking.

Bending the Cost Curve: Ryan’s Roadmap Would Succeed Where ObamaCare Fails

From my oped in today’s Investors Business Daily:

Rep. Paul Ryan’s (R-Wis.) “Roadmap for America’s Future” proposes even tighter limits on Medicare’s growth, leading columnist Bruce Bartlett to opine, “the Medicare actuaries have shown the absurdity of the Ryan plan by denying that Medicare cuts already enacted into law are even worthy of projecting into the future.”

On the contrary, experience and public choice theory suggest that the Ryan plan has a better shot at reducing future Medicare outlays than past efforts, because the Roadmap would change the lobbying game that fuels Medicare’s growth.

For more on Ryan’s Roadmap, click here.  For more on Medicare, read David Hyman’s Medicare Meets Mephistopheles.  For more on public choice economics, click here.

Would the Schools Work Better If They Outlawed All Competitors?

In the Washington Post, columnist Courtland Milloy praises the “profound egalitarian insights” and “radical oneness” of D.C. Schools Chancellor Michelle Rhee (and billionaire Warren Buffett):

“I believe we can solve the problems of urban education in our lifetimes and actualize education’s power to reverse generational poverty,” Rhee wrote. “But I am learning that it is a radical concept to even suggest this. Warren Buffett [the billionaire investor] framed the problem for me once in a way that clarified how basic our most stubborn obstacles are. He said it would be easy to solve today’s problems in urban education. ‘Make private schools illegal,’ he said, ‘and assign every child to a public school by random lottery.’ “

Milloy’s not satisfied that Rhee is taking on entrenched interests, firing principals and teachers who aren’t doing a good job, and apparently actually improving the schools in the District of Columbia. No, he’s attracted to the “radical concept” of outlawing private schools and forcing everyone in the District into the same schools, with no hope of escape. There would be one method of escape, of course: moving to the suburbs.  And you can bet that lots more people would do that if Milloy and Rhee got their way.

I wonder what a total government monopoly on education would look like. Are Buffett and Rhee right that a government monopoly forced on every citizen would work well? Would work so well that it would “solve the problems of urban education … and reverse generational poverty”?

Well, one answer might be glimpsed on the same page B3 where part of Milloy’s column appeared. In an adjacent column, columnist John Kelly discussed his “Kafkaesque” five-hour visit to the state of Maryland’s Motor Vehicle Administration:

I was at the MVA. I was in Hell.

I know that complaining about the MVA or the DMV is the last refuge of a scoundrel columnist, but I don’t care. You don’t know what it was like. You weren’t there, man. I spent five hours at the Beltsville MVA on Thursday. Five hours. I could have driven to New York in that time….

I thought: Can this really be happening? Can I really have stepped into a Kafka story? Shouldn’t every counter be filled with employees working as fast as possible? Shouldn’t management be out there helping, and Maryland state troopers, too? This is the Katrina of waiting, people.

The MVA, of course, is a monopoly government bureaucracy. Everyone must go there – CEOs, diplomats, even Washington Post columnists. And yet, somehow, that has not led to the MVA equivalent of solving problems and reversing poverty. Five hours to get a drivers’ license just might be worse performance than that of the public schools.

It’s the system, Mr. Milloy and Ms. Rhee. Monopolies don’t have much incentive to improve. Give everyone the chance to go to a different supplier, and then you’ll see improvement. Giant Food wouldn’t last long if it took five hours to buy your groceries – because it has competitors. But as long as the schools are a near-monopoly, and the MVA or DMV is a total monopoly, don’t expect real improvement.

Baptists and Pot-Growers

The L.A. Times reports that the city of Oakland has approved an ordinance paving the way for the industrial production of marijuana. There is more to this than simply a victory for liberty in the drug war.  As the story describes and Josh Blackman analyzes, the episode demonstrates “Baptists and Bootleggers”-style public choice economics in action: existing small-time growers are displeased at the competition, barriers to entry are high, the approved pot factories engaged in serious rent-seeking, and the city profits from a new stream of tax revenue.

And so, as liberty expands, government reserves the power to decide who gets to benefit most – after taking a slice for itself off the top.