Why Not Mandate This?

There are two beliefs that animate government R&D policy in the energy arena.

Belief #1: If you subsidize it, it will come. Wanting technology x to succeed in the market is a simple matter of throwing government money at technology x.

Belief #2: Politicians have every right to tell market actors what to invest in and what to buy. George Bush’s preferences for what Detroit ought to build (engines powered by hydrogen-powered fuel cells) and his preferences for what we ought to put in our fuel tanks in the meantime (200 proof grain alcohol, which goes by the moniker “ethanol”) should rule the day.

OK then, why not both subsidize the creation of – and mandate the production of – cars run by air? It’s doable. It’s carbon-free. And what possible environmental complaint might anyone have? Sure, it might be costly, and the car might not perform all that well, but government dough is like magic – all will be made right.

The Great Crocodile Dies

P. W. Botha, who was prime minister of South Africa as the struggle against apartheid reached its climax, has died at 90. In 1988, I attended a conference organized by South African libertarians in neighboring Swaziland. When I arrived at the conference and approached the registration table, the first thing I saw was a stack of bumper stickers reading “I ♥ PW.” I was appalled – libertarians proclaiming their support for the boss of the apartheid state?

Then I got closer and realized it wasn’t a heart, it was a tomato, as in “I PW.” Why a tomato? My hosts explained to me that the bumper sticker expressed solidarity with a protester who had thrown a tomato at the State President. Well, that’s better, I thought.

Botha was pushed out of power soon after that by F. W. de Klerk, who freed Nelson Mandela from jail and negotiated the end of apartheid.

The Upside of Nature’s Wrath

Fourteen months after Katrina devastated large swaths of the Gulf Coast, the Commerce Department has finally gotten around to promulgating new regulations that could relax antidumping and countervailing duty restrictions for a temporary period after the next national emergency.

In the weeks following Katrina, some observers (including this one) pointed to the absurdity of maintaining restrictions on foreign cement, lumber, and steel when the costs of those crucial building materials comprised a substantial chunk of the projected reconstruction bill.  Of course, trade restrictions raise the cost of production to U.S. businesses and the cost of living for U.S. citizens everyday.  But the effects of the hurricane provided an extreme example of the lunacy of trade restrictions, which is what was necessary to get the Commerce Department to acknowledge that its protectionist trade policies carry real costs.

The scope of circumstances that will trigger temporary lifting of trade remedy restraints prospectively is a bit unclear, but it requires the president to authorize Commerce “to permit the importation of supplies for use in ‘emergency relief work’ free of antidumping and countervailing duties.”  Considering that emergencies are typically met with a costly (and often mismanaged) federal response, a regulation that actually mandates loosening the federal noose is welcome news indeed.

Now, all we need is a president who will consider it “emergency relief work” to educate policymakers about the predictable impact of constrained supply on price. 

Income Data Misquoted and Fundamentally Flawed

An op-ed in the Washington Post on Sunday included data purporting to show that the rich are grabbing an increasing amount of the income earned in this country.

Jacob Hacker of Yale University cites data from economists Thomas Piketty and Emmanuel Saez supposedly showing that “the share of national income held by the richest 1 percent of Americans–stable at about 32 percent throughout the middle decades of the 20th century–began to rise sharply in the 1970s and by 2002 had surpassed 40 percent.”

Actually, the Piketty Saez data show that it is the top 10 percent whose share supposedly rose from 32 to 40 percent.

More importantly, a forthcoming Cato paper by Alan Reynolds shows that the Piketty-Saez data, based on federal tax return information, is a deeply flawed source for such income “distribution” analyses.

For example, because of tax law changes since the 1970s, a huge share of business income that used to be reported on corporate returns is now reported on individual returns. Reynolds finds that much of the supposed rise of the share of income at the top is simply a result of this paper shuffling regarding where business income is reported.

This Piketty-Saez data has been frequently misused by Paul Krugman, the Economist magazine, and many other news outlets to draw grand conclusions about how the gains of U.S. economic growth have supposedly only gone to the those at the top. Reynolds study shows that that is probably not true. At least, his findings show that reporters and pundits should be very careful in using any data that claims to show changes in income shares over time.

Certainly, they should not use sloppy language like Hacker’s phrase ”income held by the richest.” Income data shows an annual flow–it is not “held” like wealth. Note that “richest” also refers to wealth holdings, not annual income flows.   

Health Care Involves Non-Monetary Costs, Too

The Fraser Institute of Vancouver, B.C., has released its 16th annual “Waiting Your Turn” report on waiting times for health care in Canada’s state-run Medicare system.  The median wait for surgical and therapeutic services increased slightly over the 2005 median to less than one day shy of their all-time high of 17.9 weeks in 2004.  Throwing more money at the system doesn’t seem to make a difference; the Frazer Institute has documented that waiting times often increase with increased spending on Canada’s Medicare program.

This year’s report had special significance for me.  Four Sundays ago, I tore my ACL playing soccer.  The following Tuesday, I saw an orthopedic surgeon.  On Wednesday, I had an MRI.  (As a cash-paying patient, I had people offering to cut their MRI list price in half.)  The next Tuesday, I saw the orthopedist again.  He diagnosed the torn ACL and recommended surgery, which he could schedule as early as November 9th.  That’s 4.6 weeks after injury, 3.3 weeks after diagnosis. 

Nadeem Esmail, the lead author of the Fraser report, helped me work out how I would have fared in Canada.  Esmail estimates that, “not counting issues actually getting the referral to a specialist from a GP in the first place,” a typical Canadian could expect to wait:

  • 16.2 weeks to see an orthopedic surgeon,
  • 10.3 weeks for an MRI, and then another
  • 16.5 weeks for ACL reconstruction surgery.

All told, that’s 43 weeks; I could expect to have my ACL reconstructed in early August 2007.  And with a six-month recovery time, I’d be good as new by February 2008.

As it turns out, I’m not having the surgery done on the earliest possible date.  I’m able to walk without too much pain, so I’m taking some time to strengthen my knee, and to research procedures, surgeons, and prices.  Not all waits are problematic. 

But it’s nice to have the choice.  Were I forced to wait until next August for surgery, that would impose significant costs on me and on others.  I would be living in pain, with limited mobility, and might further injure my much-weakened knee.  My wife would have to endure nine additional months of complaining.  Plus, think of all the games my soccer team might lose. 

America’s health care sector is full of waste, but when people say that Canada’s system is cheaper, they’re leaving out some very real non-monetary costs.  Canada’s Supreme Court acknowledged those non-monetary costs in a 2005 opinion that struck down Quebec’s ban on private insurance:

Dr. Eric Lenczner, an orthopaedic surgeon, testified that the usual waiting time … for patients who require orthopaedic surgery increases the risk that their injuries will become irreparable… . [He] also stated that many patients on nonurgent waiting lists for orthopaedic surgery are in pain and cannot walk or enjoy any real quality of life.

The ban on private health insurance effectively kept people from spending more money on health care to reduce health care costs.  (The story of the man who defeated that ban can be found here.) 

Only the individual patient can tally those non-monetary costs and weigh them against the cost of treatment.  If we’re really interested in lowering health care costs, we need to give the patients the money, and let them choose the lowest-cost option.

Kahn on ‘Net Neutrality

Venerated deregulator Alfred Kahn weighs in on “ ‘net neutrality” - the proposal to have Congress and the Federal Communications Commission decide the terms on which ISPs could provide service, and whom they could charge for what. Net neutrality regulation is advanced primarily by the political left. Here’s Kahn on his bona fides:

I consider myself a good liberal Democrat. I played a leading role under President Carter in the deregulation of the airlines (as Chairman of the Civil Aeronautics Board) and trucking (as Advisor to the President on Inflation), against the almost unanimous opposition of the major airlines and trucking companies and–let’s be frank about it–their strongest unions. Among our strongest allies were Senator Ted Kennedy, Stephen (now Supreme Court Justice) Breyer, and such organizations as Common Cause, Public Citizen, the Consumer Federation of America and Southwest Airlines.

On telecommunications competition:

In telecommunications, cable and telephone companies compete increasingly with one another, and while the two largest wireless companies, Cingular and Verizon, are affiliated with AT&T and Verizon, respectively, some 97 percent of the population has at least a third one competing for their business as well; and Sprint and Intel have recently announced their plan to spend 3 billion dollars on mobile Wi-Max facilities nationwide. Scores of municipalities led by Philadelphia and San Francisco, are building their own Wi-Fi networks. And on the horizon are the electric companies, already beginning to use their ubiquitous power lines to offer broadband–to providers of content, on the one side, and consumers, on the other.

His conclusion: “There is nothing ‘liberal’ about the government rushing in to regulate these wonderfully promising turbulent developments.”

The Great Chain of Status?

Last week Henry Farrell over at Crooked Timber objected to the key point of my recent article in Policy (related Cato podcast here), which is that status-seeking need not be a zero-sum game, because there are indefinite dimensions of status competition. (And therefore, the government need do nothing to mitigate the alleged harm of status competition.) It is true that there can only be one winner of every race, but there is no cap on the number or kind of races. The greater the number and variety of races, the more likely it is that everybody will be able to find one in which they can win, place, or at least show. Henry replies:

Wilkinson’s claim implies, unless I misunderstand him badly, that it doesn’t matter very much to me if I’m a despised cubicle rat who can’t afford a nice car and gets sneered at by pretty girls, because when I go home and turn on my PC, I suddenly become a level 75 Night Elf Rogue who Kicks Serious Ass! Now this example is loaded – but it’s loaded to demonstrate a serious sociological point that Wilkinson doesn’t even begin to address. These indefinitely proliferating dimensions of status competition are connected to each other in their own implicit meta-ranking, which is quite well understood by all involved. Being a world-class scrabble-player isn’t likely to win you much respect among people who aren’t themselves competitive scrabble-players; the best you can expect is that someone will write a book that pokes fun at your gastro-intestinal problems . It’s a very different matter if you’re a world class soccer player; you’re liable to be invited to all sorts of fun parties, hit upon by beautiful people, stalked by the paparazzi and the whole shebang. Being a world class blogger is somewhere between the two, albeit certainly much closer to the scrabble-player than the soccer star. Even if you’re king of your own mountain, you’re likely to be quite well aware of the other mountains around you that make yours look in comparison like a low-grade class of a gently sloping foothill, or perhaps even a slightly upraised knob in the middle of a steep declination. You’re similarly aware of those less well-advantaged foothills or knoblets whose owners you can look down upon…. In short, people are highly aware of the relative rankings of their obsessions.

I am unmoved.

I anticipated this objection in a very long blog post back in January. Henry’s argument turns on the claim that “These indefinitely proliferating dimensions of status competition are connected to each other in their own implicit meta-ranking, which is quite well understood by all involved.” I think Henry is wrong that there is shared understanding of the meta-ranking and one’s place in it, and I think he is confusing status, in the sense I was writing about, with fame.

I was talking about status as it is experienced. Higher status correlates with higher concentrations of serotonin, for example, not necessarily because of some objective feature of the world, but because of the subject’s perception (correct or not) of her place in a status hierarchy. Our perception of our place in a status hierarchy is generally constructed from all sort of signals–deference, praise, attention, inattention, mocking–we receive from people in the relevant social group. Henry’s story doesn’t strike me as having anything to do with meta-rankings, but just to do with the fact that at any time there are a number of different status dimensions we care about. If you are, as Henry says, “despised” and “sneered at,” then that may hurt, if you care your status within your office, or with certain pretty girls. But part of my point was that people can and do often arrange their lives to avoid that sort of thing. If they are able to manage it, then the fact that they would be despised and sneered at in other circumstances makes no difference to their status as they experience it.

Here is an example of how I think Henry confuses experienced status and fame. If I am the quarterback of the champion high-school football team in a football-crazy Texas town, my subjective status-meter is likely pegged to the top of the scale. That Peyton Manning is more famous than me, is a better quarterback, makes millions more dollars, and is more likely to impress a random person at a bar, is simply irrelevant. It’s no skin off my back. If I was ever in a room with Peyton Manning, my subjective assessment of my relative standing would no doubt go down. But I’m never in a room with Peyton Manning. In my small pond, I’m a big fish – and I feel like it.

The seminal paper on positional externalities is Robert Frank’s “The Frame of Reference as a Public Good.” I suspect Henry wants to maintain the idea there is a single culture-wide frame of reference against which to evaluate not only our relative position on some dimension of status, but also against which to evaluate the relative position of status dimensions. I think this is exceedingly implausible.

If Henry really thinks there is a widely understood meta-ranking, then he ought to be able to say who is higher-status: Peyton Manning or Chief Justice John Roberts? I happen to think that’s a nonsense question, since there is in fact no common frame of reference against which to compare the status of superstar NFL quarterbacks with superstar judges. Henry is a social democrat political science professor blogger. I’m a libertarian policy wonk blogger. Whose status dimension is higher in the meta-ranking? Obviously, it depends on who you ask. If Henry hangs out with people who confer high status on Henry, and I hang out with people who confer high status on me, then we both experience a sense of high status, and Henry’s doesn’t detract from mine, and vice versa. But suppose, for the sake of argument, that Henry’s dimension is slightly higher in the mysterious zeitgest meta-ranking than mine, but that I rank closer to the top of my dimension. Who’s higher status then? Is the worst player in the NFL higher status than the world’s best Scrabble player? Again: the question is nonsense. There is no common frame of reference.

I’m fully on board with Julian Sanchez’s observation:

I think everyday experience confirms that it’s also emphatically not the case that there is any Great Chain of Being among subcultures. My high school, for instance, was fairly sharply divided into pretty clear cliques with porous but recognizable boundaries. But, contra the 1950s teen movie stereotype, there wasn’t any single ordering of cliques that all of them recognized. Probably the jocks and their hangers on thought it was still 1953, and that they were at the top of the pecking order—the cool kids. But the hippies, the skaters, the computer nerds, the drama kids—they all thought the same thing, ultimately. Just as every faith is the One True Faith to its adherents, every clique is coolest to its members.

The idea that competition for relative position is a zero-sum game that necessarily creates a loser for every winner is the last redoubt of statist egalitarians. The cultural pliability of status, and the fact of our freedom (and responsibility) to opt in and out of status games and to reinterpret the frame of reference against which we judge our lives truly guts the argument. People too often get sucked unwittingly into shiny, culturally salient status races in which we end up suffering, and we too seldom recognize we have the freedom to reevaluate our priorities, and to opt into competing conceptions of a good life better suited to our satisfaction. This is not easy. Once inside a frame of reference for evaluating status, it can be extremely difficult to switch. But it is possible, and it’s much easier if you believe it.