Archives: 05/2017

Can Regulation Keep Up with Accumulating Knowledge?

What some doctors say about regulating the treatment of sepsis has much broader application. Sepsis, an often lethal reaction to infection sometimes called blood poisoning, is the leading cause of death in hospitals, Richard Harris reports for NPR. Understandably, then, some doctors and regulators have a typical reaction: “A 4-year-old regulation in New York state compels doctors and hospitals to follow a certain protocol, involving a big dose of antibiotics and intravenous fluids.”

Other doctors aren’t so sure about the rush to regulation. 

Dr. Jeremy Kahn at the University of Pittsburgh believes that regulations can prod doctors to follow the latest protocol. But “The downside is that a regulatory approach lacks flexibility. It essentially is saying we can take a one-size-fits-all approach to treating a complex disease like sepsis.” Harris continues:

That’s problematic, because doctors haven’t found the best way to treat this condition. The scientific evidence is evolving rapidly, Kahn says. “Almost every day another study is released that shows what we thought to be best practice might not be best practice.”

Kahn wrote a commentary about the rapid changes earlier this month for the New England Journal of Medicine.

For a while, medical practice guidelines distributed to doctors called on them to use one particular drug to treat sepsis. It turned out that drug did more harm than good. Another heavily promoted strategy, called goal-directed therapy, also turned out to be ineffective.

These are concerns that economists often raise about regulation: that government mandates may be rigid, inflexible, and frozen in time. They don’t change easily in response to new information. They may require a specific protocol that may turn out not to be the best practice:

And a study presented last week at the American Thoracic Society and published electronically in the New England Journal of Medicine finds that one of the steps required in New York may not be beneficial, either.

The regulations call for a rapid and substantial infusion of intravenous fluids, but that didn’t improve survival in New York state hospitals….

In fact, some doctors believe that most patients are better off without this aggressive fluid treatment. There’s a study getting underway to answer that question. Dr. Nathan Shapiro at Harvard’s Beth Israel Deaconess Medical Center hopes to enlist more than 2,000 patients at about 50 hospitals to answer this life-or-death question.

But that study will take years, and in the meantime doctors have to make a judgment call.

“It is possible that at present they are requiring hospitals to adopt protocols for fluid resuscitation that might not be entirely appropriate,” Kahn says.

Somehow this reminds me of the phenomenon noted in the 1980s when Canada banned cyclamates and the United States banned saccharin. Presumably one country had banned the less dangerous sugar substitute.

Economists Gerald P. O’Driscoll Jr. and Lee Hoskins wrote about the problems with regulatory mandates in 2006:

Coercion may bring uniformity of product or conduct, but only at the expense of innovation and flexibility. Merchant law suffered when the hand of the state took it over: “Many of the desirable characteristics of the Law Merchant in England had been lost by the nineteenth century, including its universal character, its flexibility and dynamic ability to grow, its informality and speed, and its reliance on commercial custom and practice” (Benson 1989: 178).

Markets excel in adapting to changing circumstances, while legislation and government regulation are notoriously rigid. That is perhaps the strongest case for market self-regulation over government-mandated regulation.

Regulation seems to substitute the judgment of a small group of fallible politicians or bureaucrats for the results of a market process that coordinates the needs and preferences of millions of people. It sets up static, backward-looking rules that can never deal with changing circumstances as well as voluntary decisions by people on the ground, whether entrepreneurs, customers, scientists, or doctors.

Trump’s Infrastructure Plan

Greater reliance on user fees, federal loans rather than grants, and corporatization are three keys to the Trump administration’s infrastructure initiative released as a part of its 2018 budget. The plan will “seek long-term reforms on how infrastructure projects are regulated, funded, delivered, and maintained,” says the six-page document. More federal funding “is not the solution,” the document says; instead, it is to “fix underlying incentives, procedures, and policies.”

In building the Interstate Highway System, the fact sheet observes, “the Federal Government played a key role” in collecting and distributing monies to “fund a project with a Federal purpose.” Since then, however, those user fees, mainly gas tax receipts, have been “inefficiently invested” in “non-federal infrastructure.”

As a result, the federal government today “acts as a complicated, costly middleman between the collection of revenue and the expenditure of those funds by States and localities.” To fix this, the administration will “explore” whether transferring “responsibilities to the States is appropriate.”

The document contains a number of specific proposals:

  • Allow states to toll interstate and other federally funded highways;
  • Encourage states to fix congestion using “congestion pricing, enhanced transit services, increased telecommuting and flex scheduling, and deployment of advanced technology”;
  • Corporatize air traffic control, as many other developed countries have done;
  • Streamline the environmental review process by having a one-stop federal permit process and “curtailing needless litigation”;
  • Expand the TIFIA loan program and lift the existing cap on private activity bonds, both of which will make more money available for infrastructure without increasing federal deficits.

The paper also includes proposals for reforming inland waterways, the Power Marketing Administration, and water infrastructure finance. Like the transportation proposals, these call for increased reliance on user fees, corporatization, privatization, or loans rather than grants.

“Corporatization” means creating a non-profit or for-profit corporation that may be government owned but doesn’t necessarily rely on taxpayer subsidies. Comsat is a classic example, but Canada and other countries’ air traffic control systems work in this way.

Except for air traffic control reform, Trump’s plan isn’t fleshed out in detail. But these ideas have all been tossed around enough that everyone pretty much knows what they mean. Most importantly, they mean a significant change in the way Washington deals with infrastructure.

Because it doesn’t contain a list of projects that members of Congress could take credit for, the plan has received relatively little notice in the media. Democrats, of course, are unhappy with it, but they would be unhappy no matter what Trump proposed.

One of the more controversial proposals is to allow the states to toll interstate highways. “I don’t like paying for a road twice,” Representative Sam Graves (R-MO), who chairs the Highways and Transit Subcommittee of the House Transportation and Infrastructure Committee, told The Hill. But, given that Congress has had to inject tens of billions of dollars of general funds into the highway trust fund in recent years, what makes Graves thinks existing user fees are paying for the roads now? All roads need maintenance and occasional rehabilitation, so the fact that user fees paid for construction 50 years ago doesn’t mean that costs stop.

The most important point is that Trump wants user fees to pay a greater share of infrastructure costs. Naturally, the transit lobby, which represents the most heavily subsidized form of transportation, per unit of output, is upset about this. But Trump’s agenda sounds good to anyone who wants an efficient, user-fee-driven infrastructure program.

Extreme Speech in Portland

Politicians seem increasingly likely to (falsely) assert that “hate speech is not protected by the First Amendment.” The mayor of Portland, Oregon, just did so following anti-Muslim violence in his community. Former governor and Democratic Party official Howard Dean said the same last month.

The Washington Post does a good job of showing why the claim is false. Courts have not recognized a “hate speech” exception to the First Amendment. To allow us such a prohibition would allow the government to discriminate among viewpoints, a power precluded by the First Amendment. As the FIRE Guide to Free Speech on Campus says, “Laws that ban only certain viewpoints are not only clearly unconstitutional, but are also completely incompatible with the needs, spirit, and nature of a democracy founded upon individual rights.”

Part of the problem here is the term “hate speech” itself. People generally do not like expressions of hatred of individuals or groups. The term “hate speech” in and of itself makes censorship more likely especially when compared to the more neutral term “extreme speech” often used by legal scholars.

Indeed extreme speech can be odious. But we also should recall the general libertarian principle that allowing liberty to do or say something does not constitute endorsing what is done or said. You can criticize extreme speech and argue against prohibiting it. In other words, we need to defend the rights of a speaker but not what he or she says. That difference is likely to be lost in the extreme events that sometimes evoke extreme speech. Indeed that appears to have happened in Portland.

Dilbert 1, Scientists 0.

A communications group at Yale University has put out a video that seems to be a rebuttal to a Dilbert cartoon by Scott Adams poking fun at climate scientists and their misplaced confidence in models. The video is full of impressive-looking scientists talking about charts and data and whatnot. It probably cost a lot to make and certainly involved a lot of time and effort. The most amazing thing, however, is that it actually proves the points being made in the Dilbert cartoon. Rather than debunking the cartoon, the scientists acted it out in slow motion.

The Dilbert cartoon begins with a climate scientist saying “human activity is warming the earth and will lead to a global catastrophe.” When challenged to explain how he knows that, he says they start with basic physical principles plus observations about the climate, which they then feed into models, pick and choose some of the outputs, then feed those into economic models, and voila. When asked, what if I don’t trust the economic models, the scientist retreats to an accusation of denialism.

The Yale video ends in exactly the same way. After a few minutes of what I will, for the moment, call “scientific information,” we see climatologist Andrew Dessler appear at the 4:28 mark to say “It’s inarguable, although some people still argue it – heh, heh.” As in, ah those science deniers.

What exactly is “inarguable”? By selective editing we are led to believe that everything said in the video is based on multiple independent lines of evidence carrying such overwhelming force that no rational observer could dispute it. Fine, let’s go to the 2:38 mark and watch someone named Sarah Myhre tell us what this inarguable science says.

“It’s irrefutable evidence that there are major consequences that come with climate warming, and that we take these Earth systems to be very stable, we take them for granted, and they’re not stable, they’re deeply unstable when you perturb the carbon system in the atmosphere.”

How does she know this? From models of course. These claims are not rooted in observations but in examining the entrails of model projections. But she has to pick and choose her models because they don’t all say what she claims they say. Some models show very little sensitivity to greenhouse gases.  If we put the low-sensitivity results into economic models the results show that the economic impacts of warming are very low and possible even negative (i.e. a net benefit). And the section of the IPCC report that talks about the consequences of warming says:

For most economic sectors, the impact of climate change will be small relative to the impacts of other drivers (medium evidence, high agreement). Changes in population, age, income, technology, relative prices, lifestyle, regulation, governance, and many other aspects of socioeconomic development will have an impact on the supply and demand of economic goods and services that is large relative to the impact of climate change.

It goes on to show (Figure 10-1) that at low levels of warming the net economic effects are zero or positive. As to the climate being “deeply unstable” there’s hardly any point trying to debate that since these are not well-defined scientific words, but simple reflection on human experience will tell you that the climate system is pretty stable, at least on decadal and century time scales. The main thing to note is that she is claiming that changes to atmospheric CO2 levels have big warming effects on the climate and will cause a global catastrophe. And the only way she knows this is from looking at the outputs of models and ignoring the ones that look wrong to her. Granted she isn’t bald and doesn’t have a little beard, but otherwise she is almost verbatim the scientist in the cartoon.

Cut the Corporate Tax Rate; Drop the BAT.

We will never achieve a good tax reform by trusting bad revenue estimates.

According to Wall Street Journal reporter Richard Rubin, “Each percentage-point reduction in the 35% corporate tax rate cuts federal revenue by about $100 billion over a decade, and independent analyses show economic growth can’t cover all the costs of rate cuts.”

Economic growth does not have to “cover all the cost” to make that $100 billion-per-point rule of thumb almost all wrong.  If extra growth covered only 70% the cost of a lower rate, the static estimates would be 70% wrong.  Yet the other 30% would be wrong too, because it ignores reduced tax avoidance.  Mr. Rubin’s bookkeepers’’ rule-of-thumb implicitly assumes zero “elasticity” of reported taxable profits. Corporations supposedly make no more effort to avoid a 35% tax than to avoid a 25% tax.

Acceptance of this simplistic thumb rule – which imagines a 35% corporate rate could raise $1 trillion more over a decade than a 25% rate – explains why Ways and Means Committee Chairman Kevin Brady still insists a big new import tax is needed to “pay for” a lower corporate tax rate. 

In this view, a border adjustment tax (BAT) is depicted as a tax increase for some companies to offset a tax cut for others.  No wonder the idea has been ruinously divisive – with major exporters lobbying hard for a BAT and major retailers, refiners and automakers vehemently opposed.  Mr. Rubin declares the BAT “dead or on political life support,” while nevertheless accepting that it would and should raise an extra $1 trillion over a decade – assuming no harm to the economy and no effect on trade deficits.

Like Mr. Rubin, Reuters claims “Trump could have trouble getting the rate much below 30 percent without border adjustability.”  That is false even on its own terms because the Ryan-Brady plan would eliminate deductibility of interest expense, which is enough to “pay for” cutting the rate to 25% on a static basis.  Adding a BAT appears to cut the rate further to 20%, but the effective Ryan-Brady rate is really closer to 25% because the import tax and lost interest deduction are not a free lunch.

In any case, the entire premise is wrong. There is no need to “pay for” cutting a 35% corporate “much below 30 percent” because nearly every major country has already done that and ended up with far more corporate tax revenue than the U.S. collects with its 35% tax.  

The average OECD corporate tax rate has been near 25% since 2008, and revenue from that tax averaged 2.9% of GDP.  The U.S. federal tax rate is 35% and revenue averaged just 1.9% of GDP.  Ireland’s 12.5% corporate rate, by contrast, brought in 2.4% of GDP from 2008 to 2015.

Sweden cut the corporate tax rate from 28% to 22% since 2013 and corporate tax revenues rose from 2.6% of GDP in 2012 to 3% in 2015 according to the OECD. Britain’s new 20% corporate tax in 2015 brought in 2.5% of GDP according the same source, unchanged from 2013 when the rate was 23%. 

The New York Times Is Wrong About Transit’s Effect on Urban Development

The New York Times has once again published a report claiming that transit hubs are a “growing lure for developers.” The Times published a similar story eight years ago, and I quickly showed that subsidies from tax-increment financing (TIF) and other government support, not transit, was what stimulated those developments.

So has anything changed since then? Nope. The first development described in the recent story by Times reporter Joe Gose is Assembly Row, in the Boston suburb of Somerville. Is it subsidized? Yes, with at least $25 million in TIF along with other state funds. Far from being “free money” as its advocates claim, TIF steals from school districts and other agencies that rely on property taxes to subsidize developers.

Then Gose mentions Chicago’s Fulton Market, downtown Kansas City, Austin, and Denver’s RiNo neighborhood. Fulton Market just happened to receive at least $42 million in support from the city of Chicago, much of which comes from TIF

Supposedly a new streetcar sparked a revitalization of downtown Kansas City. But could it be that revitalization was due more to Kansas City’s twenty-four downtown TIF districts?

Gose doesn’t specify a particular neighborhood or development in Austin, Texas. Of course, Austin is one of the fastest growing cities in America, so anything that’s open for development is going to be developed. But not satisfied to let the market work, Austin has heavily bought into the use of TIF districts. Transit is an afterthought in Austin, carrying less than 1 percent of the passenger travel; the city’s sole rail line was a huge flop that cost way more than expected and now carries fewer than 1,500 round-trips per weekday.

Denver’s RiNo neighborhood–RiNo being short for River North–is growing thanks to at least $44 million on infrastructure improvements in that neighborhood, plus additional TIF funds for special projects.

In Washington, DC, Gose mentions a $3 million project “in Washington’s fast-growing Capital Riverfront neighborhood.” That’s the same neighborhood that received at least $198 million in TIF subsidies.

Still Unhappy with PBS for Airing School Inc.

Before it even hit the fiber-optics, defenders of public schooling were agitated that PBS stations would be airing Andrew Coulson’s documentary School Inc., which takes viewers on a ride through time and around the world to learn how innovation happens, and why it happens too rarely in education. Last Friday a new critique was published, this time on the website of Phi Delta Kappa, a professional association of educators. In the piece, Loyola University Chicago professor Amy Shuffelton asks, “Why did PBS and its local New York affiliate, WNET, agree to broadcast and distribute such an unbalanced, journalistically questionable series on such a controversial and complicated topic as education?”

Perhaps the answer is that PBS officials thought the series had high-quality content, and discerning viewers could determine for themselves whether they accepted its premise. Writes Shuffelton: “According to WNET’s Specter [Shuffelton does not provide a first name], the second part of the series title, ‘A Personal Journey’ is key to understanding the project. ‘When you read that subtitle, you know that you’re going to get a point of view, and we’re not opposed to presenting different points of view.’”

The documentary certainly is clear that you are getting one person’s perspective. And while I don’t watch a lot of television, PBS or otherwise, it seems unlikely that PBS programs such as Bill Moyer’s Journal or Democracy Now! have been committed to strict, equal time for opposing views. As with public schooling, there is good reason to oppose publicly funded television because it is impossible to represent the views of every taxpayer equally. But PBS exists, and points of view seem to be articulated without having to be balanced out.

Of course, the best way to judge the quality and merits of School Inc. is to view it yourself, which you can do here, or by watching this space for future airings in your market. And you should of course read opposing views like Shuffelton’s, though don’t expect objectivity there, either. For instance, Shuffelton says that Coulson quotes Horace Mann and Thomas Jefferson out of context, but does not say how. Worse, she suggests that Coulson believes discrimination in government funding is a solution to religious conflicts in education:

Coulson does consider the possibility of civic discord in the last ten minutes of the series, but his answers are not convincing. School Inc. turns to Supreme Court Justice Steven Breyer’s dissent in the case Zelman v Simmons-Harris, which upheld an Ohio voucher program. Breyer worried that publicly financed voucher programs, which funnel federal funds to religious schools, raise the possibility of religiously based social conflict.

Coulson’s response should raise concern for anyone worried about First Amendment rights. To show that social conflict is unlikely to follow, he uses the example of a voucher program proposed in New Orleans. One of the schools eager to participate was a Muslim school. When Louisianans got wind of this, controversy followed. So the Muslim school dropped out. In Coulson’s eyes, the problem was thereby solved.

Wait, I found myself thinking as I watched, that’s discrimination, not a defense of First Amendment rights. I expected Coulson to explain why it was not, but the series moved on to clips of jazz performances, which, according to Coulson, demonstrate Americans’ ability to get along.

This is just incorrect. For one thing, Coulson devotes nearly half of the final episode to social conflict, choice, and equality. And far from condoning exclusion of the Muslim school, he explains that a fundamental problem with vouchers is that while they create more freedom and equality than majority-rules public schools, they can still unjustly compel people to furnish funds for teachings they oppose, opening choice up for government discrimination.

The solution, Coulson suggests, are tax credits for people who choose to donate to groups that award scholarships. Want to give to a group providing scholarships for Montessori students? Go ahead! Catholic schools? Sure! Muslim institutions? Absolutely! This maximizes freedom for both families and funders, and minimizes incentives to legally exclude groups.

I think there is a huge amount of value to be found in School Inc., but others can certainly disagree. What they should not try to do is squelch the documentary, or misrepresent what it says. Oh, and if they want to learn even more about Andrew and debate his ideas, they can check out this new book. After all, the more open discussion we have, the better!

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