New at Cato Unbound: Dan Klein on Coercion in Economics

This month’s issue of Cato Unbound, “Should Coercion Count? The Place of Liberty in Economic Theory,” kicks off today with a penetrating essay by GMU economist and Econ Journal Watch editor Dan Klein. 

Klein writes:

In my view, economic understanding, by experts and the general public alike, would gain by economists doing more of the following: (1) using the voluntary/coercive distinction in their formulations, analysis, and discourse; (2) making that utilization explicit and unabashed; (3) thinking hard about the content of that distinction, particularly by clarifying the holes and gray areas; (4) making it clear that, while they may promote a presumption of liberty, they do not mean to suggest that the distinction carries a necessary condemnation of coercion.

Why don’t economists do all this already? Read Dan’s essay, and the forthcoming replies from Harvard economist Ed Glaeser, NYU philosopher Liam Murphy, and Chicago law and economics powerhouse (and Cato scholar) Richard Epstein.

Government Schools to Parents: Leave Your Money, Your Kid, and Shut Your Mouth

Jay Mathews, ed-beat superstar for the Washington Post, has a story today that perfectly sums up the government school response to involved parents; leave it to the professionals, stupid. 

Across the country, parents hit a solid wall of silence when they question the actions of school administrators.   But these same administrators have the gall to blame uninvolved parents for the sorry state of our government schools.  Mathews reports:

Schools nationwide are calling on parents to get involved. The Maryland State Board of Education endorsed a broad range of family outreach initiatives in a 2005 report that called public education “a shared responsibility.”

Yet some parents in Montgomery County and elsewhere have discovered limits on the get-involved policy when they ask questions about individual teachers, whether those queries are about alleged abuse of students or a decision to fire a popular instructor.

In Montgomery County, beloved third-grade teacher Soon-Ja Kim was bounced on the word of one reviewer despite an outpouring of support from parents who knew what great work she had done with their children.  I can’t say it better than it’s reported:

But a panel of eight teachers and eight principals charged with reviewing Kim’s performance gave little weight to the parent letters when they considered her future in a closed-door meeting, according to panel members.

Doug Prouty, vice president of the Montgomery County Education Association and co-chairman of the panel, said in an interview that the strong parental support for Kim was considered only a “secondary data source.”

The good test scores of Kim’s students, he said, were also secondary. The primary sources for the decisions, he said, were the judgments of Principal Elaine Chang, a consulting teacher assigned to evaluate Kim and the panel members themselves that Kim was ineffective in the classroom and hurting her students’ progress.

“That’s a bunch of hooey,” said Elyse Summers, one of the multitude of pro-Kim parents. “Our children went to Mrs. Kim’s class every day, came home and are performing extremely well.”

“We take parent feedback, both good and bad, about teachers very seriously,” Edwards replied. But the Montgomery schools spokesman added that “the final decision about the effectiveness of teachers must come down to those with the professional expertise.”

Thanks to Mathews for pointing out these object lessons in government schooling.  Teachers work for the government school system, not the children or the parents. 

I only wish that Mathews had pointed out the obvious solution to this problem; giving parents the power through school choice.  Otherwise, “those with the professional expertise” will continue to demand more money and less input from parents. 

Congress Backs Official Idiocy

Here’s Congress siding with Boston’s idiotic public officials. The Terrorist Hoax Improvements Act of 2007 would allow government officials to sue people who fail to promptly clear things up when those officials mistakenly think that they have stumbled over a terrorist plot.

There’s nothing in the bill allowing individuals or corporations to sue government officials when hare-brained overreactions interfere with their lives and business or destroy their property.

The NYT’s IRS Puff Piece

In advance of a rigged Senate Finance Committee hearing, the New York Times recently ran an article that blindly accepted the assertions of those who want more powers and money for the Internal Revenue Service.

Part of the article dealt with a report from the Government Accountability Office  that purports to show that offshore tax evasion is easy because of a three-year time limit. Yet buried later in the article is an acknowledgement that the time limit is not binding.

The real issue is that IRS agents actually are subject to poor performance reviews if it turns out that they were engaging in baseless harassment of law-abiding taxpayers. Needless to say, the reporter did not bother to interview anyone representing the interests of taxpayers:

The IRS is curtailing audits of many people who use offshore tax havens, even when agents see signs of tax evasion, because agents fear they cannot meet a three-year deadline for finishing an examination, congressional investigators have found. In a report to be released on Thursday, the GAO found that I.R.S. agents are so hobbled by “dilatory tactics” by offshore taxpayers and other problems that it takes almost two and a half years to complete a typical audit.

…The average assessment of unpaid taxes tripled to $17,500 for the limited number of audits that were allowed to run longer than three years, and it shot up to nearly $100,000 for the small number allowed to run four or five years.

…As part of its inquiry, the G.A.O. examined 12 offshore tax audits. …Audits can be pursued for more than three years, but agents have to meet tough requirements and their findings can be dismissed and the agents reprimanded if the unpaid taxes turn out to be smaller than expected.

It’s also worth noting that the story allowed a left-wing law professor to make an extremely weak claim about the amount of tax evasion taking place offshore, even though the so-called offshore sector does not show up in IRS tax-gap estimates and the Congressional Research Service has determined that similar evasion estimates are, for all intents and purposes, fabrications:

…Reuven S. Avi-Yonah, a professor of law at the University of Michigan who will testify at the Senate hearing on Thursday, estimated last year that the United States could be losing as much as $50 billion from international tax maneuvering.

Romney ‘Loves’ Government-Run Health Care

Asked during last night’s Republican debate about whether his campaign was downplaying his health care plan, former Massachusetts governor Mitt Romney replied, “I love it.” While praising the plan as a model of bipartisanship — and citing support for it from both Ted Kennedy and the Heritage Foundation — Romney failed to tell viewers what was in the plan.

It’s worth reminding people, therefore, that the plan Romney loves:

  • Imposes an unprecedented individual mandate, requiring everyone in Massachusetts to purchase a government-designated insurance product or face thousands of dollars in tax penalties.
  • Significantly increased Medicaid eligibility and provided taxpayer-funded subsidies for a family of four earning as much as $62,000 year, effectively extending welfare well into the middle class.
  • Creates a Hillary Clinton managed-competition-style regulatory authority called the Massachusetts Health Care Connector. This new regulatory body has already mandated that every health care policy sold in the state must cover prescription drugs and has outlawed policies with deductibles of more than $2,000.
  • Imposes a penalty on businesses that do not provide health insurance to their employees (although in fairness, this provision was enacted over Governor Romney’s veto.)
  • Greatly expands the state’s health care bureaucracy, creating at least 10 new boards, commissions, and other institutions to study and regulate health care.

Last night’s debate was held at the Ronald Reagan Library in California. The Gipper must surely be spinning in his grave.

Digg, Hacking, and Civil Disobedience

Randy Picker asks when civil disobedience is acceptable, and concludes that posting HD-DVD encryption keys doesn’t cut it:

I wouldn’t think that not being able to play an encrypted high-definition DVD on your platform of choice would fall into that category. I understand fully that people disagree about whether digital rights management and the Digital Millennium Copyright Act are good copyright policy. I also understand that users can be frustrated by limitations imposed by DRM (I’ve run into those myself). But I think the DMCA (and the DRM that it makes possible) is a long, long way from the sorts of laws for which civil disobedience is an appropriate response. Simply not liking the law is not enough. There must be more, something that recognizes the nature of reasonable disagreement over law, and the range of possible legitimate variations about those laws.

Ed Felten points out some of the reasons that geeks felt so strongly about this case. Partly it was geeks’ knee-jerk opposition to censorship. Partly it’s a protest against the DMCA.

There are a variety of reasons that the DMCA is bad public policy. I presented some of them in a paper I did for Cato last year. But instead of rehashing those arguments, let me quote an excellent essay by Paul Graham about America’s heritage of hacking. Prof. Picker dismissively characterizes this week’s incident as a dispute over “being able to play an encrypted high-definition DVD on your platform of choice,” but from the perspective of computer programmers it’s about something more fundamental than that:

Hacking predates computers. When he was working on the Manhattan Project, Richard Feynman used to amuse himself by breaking into safes containing secret documents. This tradition continues today. When we were in grad school, a hacker friend of mine who spent too much time around MIT had his own lock picking kit. (He now runs a hedge fund, a not unrelated enterprise.)

It is sometimes hard to explain to authorities why one would want to do such things. Another friend of mine once got in trouble with the government for breaking into computers. This had only recently been declared a crime, and the FBI found that their usual investigative technique didn’t work. Police investigation apparently begins with a motive. The usual motives are few: drugs, money, sex, revenge. Intellectual curiosity was not one of the motives on the FBI’s list. Indeed, the whole concept seemed foreign to them.

Those in authority tend to be annoyed by hackers’ general attitude of disobedience. But that disobedience is a byproduct of the qualities that make them good programmers. They may laugh at the CEO when he talks in generic corporate newspeech, but they also laugh at someone who tells them a certain problem can’t be solved. Suppress one, and you suppress the other…

It is by poking about inside current technology that hackers get ideas for the next generation. No thanks, intellectual homeowners may say, we don’t need any outside help. But they’re wrong. The next generation of computer technology has often — perhaps more often than not — been developed by outsiders.

In 1977 there was, no doubt, some group within IBM developing what they expected to be the next generation of business computer. They were mistaken. The next generation of business computer was being developed on entirely different lines by two long-haired guys called Steve in a garage in Los Altos. At about the same time, the powers that be were cooperating to develop the official next generation operating system, Multics. But two guys who thought Multics excessively complex went off and wrote their own. They gave it a name that was a joking reference to Multics: Unix.

The latest intellectual property laws impose unprecedented restrictions on the sort of poking around that leads to new ideas. In the past, a competitor might use patents to prevent you from selling a copy of something they made, but they couldn’t prevent you from taking one apart to see how it worked. The latest laws make this a crime. How are we to develop new technology if we can’t study current technology to figure out how to improve it?

Why are programmers so violently opposed to these laws? If I were a legislator, I’d be interested in this mystery — for the same reason that, if I were a farmer and suddenly heard a lot of squawking coming from my hen house one night, I’d want to go out and investigate. Hackers are not stupid, and unanimity is very rare in this world. So if they’re all squawking, perhaps there is something amiss.

Could it be that such laws, though intended to protect America, will actually harm it? Think about it. There is something very American about Feynman breaking into safes during the Manhattan Project. It’s hard to imagine the authorities having a sense of humor about such things over in Germany at that time. Maybe it’s not a coincidence.

Hackers are unruly. That is the essence of hacking. And it is also the essence of Americanness. It is no accident that Silicon Valley is in America, and not France, or Germany, or England, or Japan. In those countries, people color inside the lines.

No-Tax Texas Out-Competes High-Tax Arkansas

Writing in National Review, Greg Kaza discusses how Texas has been growing faster and creating more jobs than Arkansas. Much of the credit, he writes, is due to the fact that Texas has no state income tax while Arkansas penalizes workers with a  tax rate of 7 percent: 

Employment growth in Texas has been significantly higher than in Arkansas during periods of economic expansion. The population in Dallas has nearly tripled in the post-WWII period, while the population in Little Rock has barely doubled in size. Per capita personal income in Texas is 94 percent of the U.S total. In Arkansas it’s 77 percent of the nation’s total, a level that has hardly budged since the 1970s.

The list of statistical disparities is long, and there’s a good reason why: While Arkansas and Texas share a common border, each taxes income and capital in radically different ways. Arkansas has a top income-tax rate of 7 percent, the highest among the bordering states. Texas, however, does not impose an income tax. The imbalance is the same for capital gains: Arkansas taxes them. Texas does not. As a result, we can see a very basic economic principle at work: Talent and capital always will flow toward higher returns.