Topic: Regulatory Studies

White Coats Über Alles

Last week, a group of scientists announced the formation of a new coalition – Scientists and Engineers for America (SEFA) – to campaign for politicians “who respect evidence and understand the importance of using scientific and engineering advice in making public policy.” While the group professes to be nonpartisan, “the group will discuss the impact the Bush Administration’s science and technology policies have had in their fields and the need for voters to consider the science and technology policies by candidates in this year’s mid-term elections.”

I imagine that most people would agree that, in the words of SEFA, “Scientists and engineers have a right, indeed an obligation, to enter the political debate when the nation’s leaders systematically ignore scientific evidence and analysis, put ideological interests ahead of scientific truths, suppress valid scientific evidence and harass and threaten scientists for speaking honestly about their research.” But there’s more than a whiff of the sentiment here that Americans should just shut up and let the guys in the white coats run the country.

What irks me about the increasing bossiness of the self-appointed guardians of “science” is the lack of humility about their own profession.

First, there is disagreement among scientists about many of the issues they are concerned about – like global warming – and it’s not clear even to scientists exactly what is going on in the atmosphere. Assertions to the contrary are simply dishonest.

Second, scientists of all people should know that scientific truth is not determined by a show of hands. Theories stand or fall on hard data and evidence, not majority votes within politicized professional bodies. Virtually every single thing that the scientific “consensus” believes today was once a fringe minority perspective. Would we ever have arrived at our present intellectual location had minority dissenters been run out of town on a rail or burned at their professional stake? Scientific theories demand criticism to fulfill their promise. Scientists should welcome a public “kicking of the tires” and not try to punish those who engage in it.

Third, scientists might be able to better inform society about the facts of various matters, but they should not be allowed to dictate to society how it deals with those facts. The judgment of scientists regarding the proper trade-offs between this or that set of policy options is no better than yours or mine. In short, they have a lot less to contribute to the policy world than many people apparently think.

Finally, asking scientists to settle our policy problems for us inevitably politicizes science and corrupts the entire endeavor.

So to SEFA, I say “zip it.”

Feariness about Data Loss

In the spirit of Stephen Colbert’s “truthiness,” here’s another useful term for the pop lexicon:

fear i ness (fir’ e-nes) n. The quality of being feared, even though logic and/or evidence indicates there is little to fear.

A prime example of feariness right now is data loss — the loss of control over confidential information that could lead to violation of a person’s privacy, identity theft, and fraud. This feariness has been fanned by the recent thefts of government and corporate computer hardware containing important data files.

Though privacy violations and fraud are worrisome, an article in today’s New York Times explains that much of the alarm over data loss is just feariness:

The veterans’ laptop episode underscores the crucial distinction between data loss and malicious data theft — a distinction that has often been glossed over or ignored in the recent wave of alarming disclosures of data breaches at government agencies, universities, companies and hospitals. In most cases, the consequences — financial and otherwise — of the data losses have been slight.

But while high-profile data breaches are common, there is no evidence of a surge in identity theft or financial fraud as a result. In fact, there is scant evidence that identity theft and financial fraud have increased at all. Even when computer networks are cracked into, and troves of personal information intentionally stolen, fraudsters can typically exploit only a tiny fraction of it.

Readers of Cato’s Regulation Magazine already know this story. In last spring’s issue, Tom Lenard and Paul Rubin describe how the incidence of data theft–inducing fraud is fairly stable, how most of that fraud is the product of the theft of old-fashioned paper statements instead of electronic information, and how the response to data loss (including government-mandated response) is far more costly in aggregate than any resulting fraud.

Public Health & Economic Literacy

My former research assistant is now pursuing a master’s degree in public health at Harvard. She recently blogged about her economics course:

During econ class today, the professor explained in great detail the ways in which the federal government tinkers with agricultural output, like price floors and crop restriction and so forth. A lot of my classmates were genuinely surprised at the extent to which government messes with food production to placate the farm lobby, and that, in turn, surprised me. I thought most people — or most well-educated grad students and medical residents, who make up my class — knew all about concentrated benefits/diffuse costs, and why we probably pay more for milk than we should. At one point, a student from India, astonished, said, “You mean the government actually sets aside these funds every year for this purpose?” Professor: “Of course not. We run deficits.”

Again, these students made it all the way to Harvard without any exposure to such things. Makes me wonder if any research has been done on the economic literacy of the public health profession. (E-mail me mcannon [at] cato [dot] org" href="mailto:mcannon [at] cato [dot] org">here if you’re aware of any.)

Let’s just hope that Adrienne’s econ class is a required course.

How I Learned to Stop Worrying and Love Behavioral Economics

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.

A Compelling State Interest in… Fabulous Decor?

I know, this one’s outside my bailiwick, but can you blame me? Apparently New Mexico has forbidden interior designers from calling themselves “interior designers” unless they are officially certified by the government.

What, exactly, is the compelling state interest for such a ban? Are New Mexico legislators fearful that citizens will suffer irreversible harm from bad Feng Shui? “You’ve lined up your dining room table with your couch?!? Are you mad!?!”

Or have they developed such a keenly felt artisitic sensibility that they must spare New Mexicans from a return to the “Interior Desecrations” of the 1970s?

As a forthcoming Cato Institute paper reveals, state licensure of professionals is a bad idea even in important areas like teaching (“Giving Kids the Chaff: How to Find and Keep the Teachers We Need”). That it is even contemplated in interior design is, at the very least, decidedly tacky.

Hat tip, Jacob Sullum.

Watching the “Lack of Competition” Meme

Ars Technica — a wonderful publication with brief, informative, and interesting pieces on technology — is showing a little sloppliness in covering the broadband competition issue. The question whether there is sufficient competition in the provision of broadband Internet service underlies the debate about “net neutrality” — whether there should be public utility regulation of broadband.

Discussing FTC chair Deborah Majoras’ speech at the PFF Aspen Summit, an Ars reporter casually observes, “[M]arket forces really do not exist when it comes to broadband.” That’s at least overstatement. A little more caution would be good given the centrality of the issue.

To show the existence of a duopoly (which is not inherently a competition-free situation), the report links to an earlier Ars piece interpreting a study as showing “not much” competition between DSL and cable. But that conclusion goes only to price competition. And it’s a little overstated, too.

The actual study, from a group called Kagan Research, seems to show that DSL is the low-cost option (and getting lower), while cable is the high-bandwidth option (getting higher in bandwidth while dropping in cost more slowly). That diminishes head-to-head price(-only) competition because each is focused on a different niche. But they’re still in competition.

The Kagan Research analyst concludes: “Eventually, cable will probably have make [sic] some reductions to cater to the lower end of the consumer market simply to get more customers.” So the study author believes more direct price competition is coming.

That’s some distance from “market forces really do not exist when it comes to broadband.” There is some price and quality competition among the major broadband platforms. Substitutes (such as getting broadband at work and getting information and entertainment offline) play a role in the competition question. And several competitors wait in the wings, to become viable through improvements in technology, new investment, or bad behavior by the current platforms.

I hasten to add that I am not satisfied with the current level of competition. I would like it to be more intense along all fronts and in all regions.

Capitalism Saves

The Sunday New York Times has a great article — the first of a series on aging — titled “So Big and Healthy Nowadays That Grandpa Wouldn’t Even Know You.” Reporter Gina Kolata begins with this 19th-century biography:

Valentin Keller enlisted in an all-German unit of the Union Army in Hamilton, Ohio, in 1862. He was 26, a small, slender man, 5 feet 4 inches tall, who had just become a naturalized citizen. He listed his occupation as tailor.

A year later, Keller was honorably discharged, sick and broken. He had a lung ailment and was so crippled from arthritis in his hips that he could barely walk.

His pension record tells of his suffering. “His rheumatism is so that he is unable to walk without the aid of crutches and then only with great pain,” it says. His lungs and his joints never got better, and Keller never worked again.

He died at age 41 of “dropsy,” which probably meant that he had congestive heart failure, a condition not associated with his time in the Army. His 39-year-old wife, Otilia, died a month before him of what her death certificate said was “exhaustion.”

But his modern-day descendant, living in the same town of Hamilton, is healthy and going strong at 45. Kolata interviews doctors, economists, and gerontologists to find out why Americans are taller, heavier, healthier, and living longer. Describing the research of Nobel laureate Robert W. Fogel and his colleagues on Union Army veterans, she notes:

They discovered that almost everyone of the Civil War generation was plagued by life-sapping illnesses, suffering for decades. And these were not some unusual subset of American men — 65 percent of the male population ages 18 to 25 signed up to serve in the Union Army. “They presumably thought they were fit enough to serve,” Dr. Fogel said….

People would work until they died or were so disabled that they could not continue, Dr. Fogel said. “In 1890, nearly everyone died on the job, and if they lived long enough not to die on the job, the average age of retirement was 85,” he said. Now the average age is 62.

Much of this research has surprised scholars:

Life expectancy, for example, has been a real surprise, says Eileen M. Crimmins, a professor of gerontology and demographic research at the University of Southern California. “When I came of age as a professional, 25 years ago, basically the idea was three score years and 10 is what you get,” Dr. Crimmins said. Life span was “this rock, and you can’t touch it.”

“But,” she added, “then we started noticing that in fact mortality is plummeting.”

So why? Why has this epochal change — what Fogel calls “a form of evolution that is unique not only to humankind, but unique among the 7,000 or so generations of humans who have ever inhabited the earth” — happened? Kolata discusses the benefits of better nutrition, cheaper food, vaccines, and antibiotics. But still:

“That’s the million-dollar question,” said David M. Cutler, a health economist at Harvard. “Maybe it’s the trillion-dollar question. And there is not a received answer that everybody agrees with.”

Kolata is a science reporter, so she’s looking for a scientific answer, and she’s found several that contribute to our health and longevity. But she’s missed the forest. What is it that started changing in the United States and northern Europe in the past few centuries? (Fogel’s book on the general trend is The Escape from Hunger and Premature Death, 1700-2100: Europe, America, and the Third World.) Technology, yes. Nutrition and antibiotics and a better understanding of diet and exercise, absolutely. But what caused those things to appear after, as Fogel says, 7,000 generations?

Capitalism.

The introduction of the institutions of economic freedom in the Netherlands, Great Britain, the United States, and then the rest of the world beginning around 1700 caused what historian Steven Davies calls a “wealth explosion.” A great part of the unprecedented wealth creation went into sanitation and more abundant food and later into the research necessary to produce vaccines and antibiotics. Those institutions include secure private property, the rule of law, open markets, and economic freedom generally — or what Adam Smith called “peace, easy taxes, and a tolerable administration of justice.”

Capitalism has made the West rich and thus healthier and longer-lived. It could do the same for Africa, Asia, and the Arab world.

Kolata overlooked this point. Her article never mentions capitalism, freedom, or even wealth as an answer to the trillion-dollar question. But it’s still a great report on just how much better off we are. For more data on such trends, check out It’s Getting Better All the Time: 100 Greatest Trends of the Last 100 Years by Stephen Moore and Julian L. Simon.