Topic: Government and Politics

How I Learned to Stop Worrying and Love Behavioral Economics

By
Mark Moller

Peter raises the threat that behavioral economics poses to free market policy. I’m less concerned about this movement, in large part because its teachings can be turned against central regulators. 

Here’s law professors Stephen Choi and Adam Pritchard, from the conclusion to their excellent 2003 article Behavioral Economics and the SEC (from the Stanford Law Review; working paper version available here):

Regulators are vulnerable to a wide range of behavioral contagion. Regulators may suffer from overconfidence and process information with only bounded rationality. Heuristics play a large role in how regulators make decisions. Even with expertise, regulators may misapply heuristics across the spectrum of different regulatory problems. Regulators may also suffer from confirmation bias, supporting prior regulatory decisions whatever the wisdom of the decisions.

And in groups the decisionmaking of regulators may decline rather than improve. On the one hand, groups and organizational structures may help alleviate some of the mistakes that derive from individually biased decisions. Studies of group decisionmaking provide evidence that the total can indeed be greater than the sum of individuals in enhancing the accuracy of decisions. But cognitive illusions may grip entire groups. Groupthink may also lead to an uncritical acceptance of regulatory decisions.

If both investors and regulators operate under the influence of behavioral biases, the value of regulation in correcting these biases comes into question. If regulators are not well equipped to determine whether regulation will counteract the biases facing investors, regulation may well do more harm than good. Worse still, SEC regulators may suffer greater behavioral biases than securities market participants. Investors that perform poorly will either learn (and perhaps put their money into an index fund or otherwise hire expertise) or exit the market. Private institutions face similar market pressures to serve the interests of their client-investors or perish. Although some types of biases may give institutions a competitive edge, the magnitude of such biases is limited by the cost that they impose on investors. The market may not function perfectly, but regulators under the present regime face no such pressures.

Topics: 
Government and Politics, Regulatory Studies

A New Solution to the Trade Deficit ‘Problem’

By
Sallie James

I’ll be honest with you folks — in Australia we have an expression, “Only in America!” It is used whenever outlandish, seemingly crazy, or especially unusual ideas or events occur over here. It is frequently used by news-readers. Please don’t be offended.

Anyway, I am proposing a new expression, “Only from Congress.” It could be used to describe, well, whenever an outlandish, seemingly crazy, or especially unusual idea is announced by members of Congress. And to kick things off, I would like to introduce the first item for your consideration.

Two Democratic senators, Byron Dorgan of North Dakota and Russ Feingold of Wisconsin, have proposed that any company wishing to import goods into America would need a government-issued certificate. The senators, according to this New York Times article (link requires subscription), view this as a “market-based system to cut the trade deficit to zero within 10 years.”

It would work thus: Any company that exports goods would be issued an import certificate that would allow it to import goods. The “exchange rate” would fall from $1.40 in the first year (i.e., $1 worth of exports would earn $1.40 worth of imports), to $1.30 in the second year, and so on until we achieve “balance.” If a company does not wish to import anything, it can sell the import certificate to someone who does. I guess that’s the “market-based” part.

Sherman Katz of the Carnegie Endowment for International Peace was quoted in the article as saying that “’it looks on the face of it to represent an enormous intrusion of government activity into business totaling trillions of dollars each year.”

“Enormous” doesn’t seem to quite capture it though, does it? How about “insane”?

Can you imagine the type of federal oversight this would require? And how would our trade partners react to the U.S. market being restricted in this way?

And what about oil? Ah, the wise senators have already thought of that. Oil would be given a 10-year phase-in, to allow the economy “time to find and develop alternative energy supplies.”

Imports of goods keep inflation in check and imports of capital keep interest rates down and help finance economic growth. Restricting imports would necessarily restrict capital flows into the economy because of the necessary balance between the current and capital accounts. To bring investment in line with savings, domestic interest rates would need to rise, reducing investment and economic growth. (More here.)

Question for the senators: What sort of certificate would you issue to cope with those sorts of macroeconomic effects?

I’m guessing we can expect lots of “Only from Congress” ideas in the coming campaign season. I’m excited.

Topics: 
Government and Politics, International Economics and Development, Trade and Immigration

Shameless

By
Radley Balko

On the off chance anyone may have thought there were any vestiges of limited government left in the ranks of today’s GOP:

Senate Majority Leader Bill Frist is trying use a bill authorizing U.S. military operations, including in Iraq and Afghanistan, to prohibit people from using credit cards to settle Internet gambling debts. Frist, R-Tenn., and his aides have been meeting with other lawmakers and officials in both the House and Senate to get the measure attached to a compromise Defense Department authorization bill, according to a Senate GOP leadership aide.

If this goes through, any senator who would dare suggest that the gambling ban be killed on the grounds that what people do with their own money on their own time in their own homes is none of Bill Frist’s business now risks accusations that he doesn’t support U.S. troops overseas.

What’s most aggravating about Congress’ full-throttle push to ban online game is that there’s really no call for it from the public, save for some of the fringe family-values conservatives. Some in Congress – Sen. John Kyl, and Reps. Goodlatte and Leach, for example – have been pushing this ban for years. But Frist’s sudden interest looks like little more than election year red meat.

Public opinion polls show most voters are overwhelmingly opposed to an online gambling prohibition. And to my knowledge, supporters of the bill can’t point to a single study showing that large numbers of Americans are gambling away their futures on these poker sites. Thus far, they’ve justified the bill with no more than a few anecdotes.

Of course, there’s also the naked hypocrisy of exempting state lotteries and the politically powerful horse racing industry from the ban. There actually are studies showing state lotteries to be a primary outlet for gambling addicts.

Topics: 
General, Government and Politics

Fool Me Twice, Shame on Me

By
Justin Logan

The Washington Post decided to bury a story on page A17 today on how the IAEA responded to a House Intelligence Committee report on Iran (.pdf).  The report, which came out to media fanfare a few weeks ago, was drafted by John Bolton’s hyper-hawkish lieutenant Fred Fleitz, who’s reportedly currently drafting a report on North Korea’s capabilities.

Anyway, the IAEA was none too happy with Mr. Fleitz’s handiwork, calling attention to several unsupported claims, among them that Iran is producing weapons-grade uranium at Natanz, noting that the 3.5 percent to which Iran has enriched is a far cry from the roughly 90 percent that is needed for a weapon.

The IAEA was similarly displeased with Mr. Fleitz’s accusation that Mohamed el Baradei kicked an inspector off the Iran project for worrying that Iran was deceiving inspectors.  The IAEA responded by calling this allegation “outrageous and dishonest,” pointing out that the inspector in question was still working on Iran.

More alarming by far, though, is David Albright’s* characterization of what’s been going on:

This is like prewar Iraq all over again.  You have an Iranian nuclear threat that is spun up, using bad information that’s cherry-picked and a report that trashes the inspectors.

*Albright’s outfit, the Institute for Science and International Security, really has been doing yeoman’s work on the Iran question, including its analysis (and posting) of Iran’s August 22 response to the EU3+US proposal.  If you want as dispassionate an analysis as you can get of the issue, go to ISIS.  Good stuff.

Topics: 
Foreign Policy and National Security, Government and Politics

Borrow and Spend, Spend and Elect

By
David Boaz

As chairman of the National Republican Congressional Committee, Rep. Tom Reynolds (R-NY) is charged with helping House Republicans get elected and re-elected. In this difficult year for Republicans he’s facing a tough race at home in the Buffalo area. According to the Wall Street Journal (paid reg. required), he’s using today’s standard Republican formula: promise to cut taxes and spend, spend, spend:

Mr. Reynolds, with about $3 million in campaign contributions, has run ads on local television for more than a month, earlier than in past campaigns. The first emphasized his support for low taxes and few business regulations, ending, “Tom Reynolds – Fighting to save New York jobs.” Another had two retired military officers hailing his role in saving the Niagara Falls Air Reserve Station from shutdown. The third featured a mother holding her toddler while recalling the congressman’s help in forcing Blue Cross/Blue Shield to cover surgeries for the child’s cleft palate. “Tom Reynolds has a big heart,” she says into the camera.

Topics: 
General, Government and Politics, Tax and Budget Policy

Ouch.

By
Justin Logan

I’m anything but an expert on British politics, but if the head of the Conservatives is making noises like this, we’ve got a serious image problem abroad:

“I and my party are instinctive friends of America and passionate supporters of the Atlantic alliance,” [Conservatives chief David Cameron] said, warning against the “intellectual and moral surrender” of anti-Americanism. But he added that being an uncritical ally was dangerous for Britain: “I fear that if we continue at present we may combine the maximum of exposure with the minimum of real influence over decisions.”

Risking a rift with the Republicans and his own traditionalists, he attacked the “unrealistic and simplistic” neoconservative philosophy of Mr Bush’s closest colleagues and advisers, calling it “a view which sees only light and darkness in the world – and which believes that one can be turned to the other as quickly as flicking a switch”.

Topics: 
Foreign Policy and National Security, General, Government and Politics

Goldwater on Goldwater on HBO

By
David Boaz

Next Monday, September 18, HBO will broadcast a new documentary, “Mr. Conservative: Goldwater on Goldwater.” The film was made by Barry Goldwater’s granddaughter, CC Goldwater. The Los Angeles Times calls it “an unabashedly admiring — though not wide-eyed — attempt to reclaim her grandfather’s legacy, and to reconcile the man she adored — the avid gadgeteer, ham-radio operator, aviator, and truly talented photographer of American Indians — with the controversial political figure, often heralded as the father of the American conservative movement.”

There are three kinds of people these days who like to call themselves “Goldwater Republicans”:

* libertarians, who tend to ignore the social conservatism of the senator’s 1964 presidential campaign, focusing on his rugged-individualist opposition to the federal leviathan and his later opposition to the religious right;

* liberals, who would perhaps have been Rockefeller Republicans in 1964, when they denounced Goldwater as literally insane; and

* limited-government conservatives, who still believe in the ideals of Goldwater’s book The Conscience of a Conservative and regret the big-government conservatism that now dominates the Republican party.

My guess is that “Goldwater on Goldwater” is going to appeal more to the first two groups than to the actual Goldwaterites. It interviews people from across the political spectrum, but George Will appears to be the only Goldwaterite interviewed, while it also features Hillary Rodham Clinton, Teddy Kennedy, Ben Bradlee, Walter Cronkite, Al Franken, and James Carville. Interviews with the daughter who had an abortion and the gay grandson also indicate a strong emphasis on the later Goldwater.

Either way, spending 90 minutes with Barry Goldwater has got to be a welcome respite from the world of George W. Bush.

Topics: 
General, Government and Politics

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