Topic: Government and Politics

Planning for the Unpredictable

How do you plan for the unpredictable? That’s the question facing the more than 400 metropolitan planning organizations (MPOs) that have been tasked by Congress to write 20-year transportation plans for their regions. Self-driving cars will be on the market in the next 10 years, are likely to become a dominant form of travel in 20 years, and most people think they will have huge but often unknowable transformative effects on our cities and urban areas. Yet not a single regional transportation plan has tried to account for, and few have even mentioned the possibility of, self-driving cars.

Instead, many of those plans propose obsolete technologies such as streetcars, light rail, and subways. Those technologies made sense when they were invented a hundred or so years ago, but today they are just a waste of money. One reason why planners look to the past for solutions is that they can’t accurately foresee the future. So they pretend that, by building ancient modes of transportation, they will have the same effects on cities that they had when they were first introduced.

If the future is unpredictable, self-driving cars make it doubly or quadruply so. Consider these unknowns:

  • How long will it take before self-driving cars dominate the roads?
  • Will people who own self-driving cars change their residential locations because they won’t mind traveling twice as far to work?
  • Will employers move so they can take advantage of self-driving trucks and increased employee mobility?
  • Will car-sharing reduce the demand for parking?
  • Will carpooling reduce the amount of vehicle miles traveled (VMT), or will the increased number of people who can “drive” self-driving cars increase VMT?
  • Will people use their cars as “robotic assistants,” going out with zero occupants to pick up groceries, drop off laundry, or do other tasks that don’t require much supervision?
  • Will self-driving cars reduce the need for more roads because they increase road capacities, or will the increase in driving offset this benefit?
  • Will self-driving cars provide the mythical “first and last miles” needed by transit riders, or will they completely replace urban transit?

Latvia, the Country Prof. Krugman Loves to Hate, Wins 1st Prize

I constructed a misery index and ranked 89 countries from most to least miserable based on the available data from the Economist Intelligence Unit. My methodology is a simple sum of inflation, bank lending and unemployment rates, minus year-on-year per capita GDP growth. The table below is a sub-ranking of all former Soviet Union (FSU) states contained in my misery index.

For these FSU states, the main contributing factors to misery are high levels of unemployment and high interest rates.

The low misery index scores in Estonia and Lithuania don’t surprise me as I helped both countries establish sound money with the installation of currency boards in 1992 and 1994, respectively. Latvia, a country Paul Krugman loves to hate, takes the prize for the least miserable of the former Soviet Union countries in this sub-ranking.

Pennsylvania Lawmaker Portraits Now Come With Conviction Footnotes

Truth in legislative portraiture from the Pennsylvania State Capitol, as reported by Kris Maher in the Wall Street Journal: “On Tuesday, officials in the capital, Harrisburg, placed plaques beneath the portraits of three former state House speakers and a former Senate president pro tempore listing when the lawmakers left office—and when they were sentenced to prison.” The idea was a compromise between those who felt the portraits should be taken down entirely and those who favored keeping them on display with no mentions of criminality. The plaques cost $63.75 each, and if their shaming presence even slightly improves lawmakers’ incentives to avoid corruption, they could prove a good investment: 

Pennsylvania was ranked the fifth most corrupt state in a recent study that analyzed federal data from 1997 to 2008. During that time, malfeasance among state officials appeared to boost per capita spending by about 5% in the 10 states with the highest levels of corruption, the study published in Public Administration Review found.

Paul Light on Government Failure

Paul Light of Brookings and NYU is a top expert on the federal bureaucracy. He has a new study on federal government failures over the 2001 to 2014 period.

Light’s paper is useful. He identifies 41 major federal failures, examines the reports completed on each, and classifies the types of mistakes that took place. From the 9/11 terrorist attacks to the recent veterans health care scandal, Light points to failures in both “operations” and “oversight.”

Certainly, government operations and oversight fail frequently. But I look at many of Light’s 41 events and see more fundamental failures than he does. Federal policies, for example, often distort the economy in ways that are bound to cause problems. Federal interventions based on coercion are generally worse than solutions developed in the private, voluntary sphere of society.  

Light classifies the 2008 financial collapse as a failure of federal “oversight.” He says, “after years of risky investments and with little regulation, the banking system collapsed under the weight of toxic assets created by risky mortgage loans, poorly understood financial instruments, and a credit crisis that froze the economy.”

But it was government policies—such as Federal Reserve interest rate policies and federal housing subsidies—that incentivized the bad behavior on Wall Street. Federal oversight may have been poor, but the main problem was that government-created distortions cascaded and undermined markets.

On Hurricane Katrina, Light notes that the federal emergency response was a failure in operations, and it is true that FEMA officials were mired in confusion and indecision when the storm hit. However, it was decades of misguided policies that encouraged many people to live in low-lying and dangerous areas in New Orleans in the first place, which made the disaster much worse.

After an initial coding of failures between “operations” and “oversight,” Light does proceed to look more deeply into why the government failed in each of the events. He finds multiple causes behind all of the failures, with the most common factor being poorly designed policies.

Still, there are deeper reasons why the government fails than the potentially fixable problems that Light identifies. Superficially, the veterans health care scandal is just a failure of “operations,” but the fundamental problem is the federal attempt to centrally plan an industry rather than relying on markets.

Light’s study is a thoughtful piece that will hopefully generate a broader discussion about government failure. The 15 factors in this recent testimony are my initial stab at identifying some of the more fundamental reasons for government failure.

Politicians Befriend Big Business, Undermine Free Market

The recent primary defeat of House Majority Leader Eric Cantor was one of the bigger shocks to American politics in some time. Congressional leaders, known to bring home the bacon for local folks, usually are handily reelected.

But Cantor’s loss will do more than simply reshuffle the biggest offices on Capitol Hill. He gave lip service to fiscal responsibility but was, argued Nick Gillespie of Reason, “atrocious and hypocritical in all the ways that a Republican can be,” constantly voting to grow government.

Indeed, Cantor’s constituency was as much corporate America as it was Virginia voters. Business was counting on him to help reauthorize the Export-Import Bank, known as “Boeing’s Bank” for lavishing extensive benefits on one company; extend terrorism risk insurance, which transfers financial liability for loss from firms to taxpayers; and preserve Fannie Mae and Freddie Mac, which nearly wrecked the economy while subsidizing homeowners, builders, and lenders. 

CBO Long-Term Spending Projections

The Congressional Budget Office has released new long-term projections of federal spending and debt. Without reforms, spending is expected to rise steadily and dangerously as a share of the economy in coming decades. The chart below shows spending under CBO’s “extended alternative” scenario, which assumes that politicians keep current policies in place. Spending would rise from 17.6 percent of GDP in 2000, to 20.4 percent this year, to 31.8 percent by 2040.

Under that scenario, federal debt held by the public would rise from 74 percent of GDP this year to a giant 170 percent by 2040. But if spending and debt were to rise along that trajectory, we would surely have a major financial and economic meltdown long before we got to 2040.

Our fiscal outlook is actually much worse than reflected in this scenario. That’s because under the basic extended alternative, CBO does not take into account the negative effects of rising spending and debt on GDP over the long term. CBO does have a special chapter in their report looking at some of these negative effects—but only some of them. In this testimony, I mention reasons why the outlook is worse than under the CBO baseline.

    

Bulgaria Wins Balkan Prize

Every country aims to lower inflation, unemployment, and lending rates, while increasing gross domestic product (GDP) per capita. Through a simple sum of the former three rates, minus year-on-year per capita GDP growth, I constructed a misery index that comprehensively ranks 89 countries based on misery. The table below is a sub-ranking of all Balkan states presented in the full index.

 

All of the Balkan states in my index suffer from high unemployment and relatively high levels of misery.

That said, the least miserable Balkan country is Bulgaria. For all of its problems, including a recent bank run, the country’s currency board system - which I, as President Stoyanov’s adviser, helped design and install in 1997 - provides monetary and fiscal discipline, and produces positive results in a region plagued with problems.