“With no taxes or tithes there to devour up your wages/​When you’re on the green fields of America.” A classic emigration song for St. Patrick’s Day, sung here by Kevin Conneff of the Chieftains, and from the repertoire of the great Paddy Tunney. 

According to textbook economics, government funding is crucial to scientific progress and technological innovation. The reasoning is that pure science (e.g., the structure of DNA) underlies most applied science (e.g., genetic testing). Pure science, however, is easily copied once discovered, so it cannot earn significant profits. Private actors therefore underinvest in pure science, and applied science suffers. In economics lingo, pure science is a public good because knowledge is non-excludable.

This perspective is reasonable but hardly decisive. Government funding suffers bureaucratic inefficiences and risks politicization of the nation’s research agenda (e.g., an excessive focus on defense research). And even if some role for government makes sense, the right amount is hard to gauge; no evidence shows that current amounts are insufficient.

In addition, the textbook argument assumes that private actors will not fund basic research. Yet as this New York Times piece documents, private actors contribute mightily to scientific research:

Paul G. Allen, a co-founder of Microsoft, .. set up a brain science institute in Seattle, to which he donated $500 million, and Fred Kavli, a technology and real estate billionaire, … then established brain institutes at Yale, Columbia and the University of California. …

The new philanthropists represent the breadth of American business, people like Michael R. Bloomberg, the former New York mayor (and founder of the media company that bears his name), James Simons (hedge funds) and David H. Koch (oil and chemicals), among hundreds of wealthy donors. Especially prominent, though, are some of the boldest-face names of the tech world, among them Bill Gates (Microsoft), Eric E. Schmidt (Google) and Lawrence J. Ellison (Oracle). …

So far, Mr. Ellison, listed by Forbes magazine as the world’s fifth-richest man, has donated about half a billion dollars to science. …

The philanthropists’ projects are as diverse as the careers that built their fortunes. George P. Mitchell, considered the father of the drilling process for oil and gas known as fracking, has given about $360 million to fields like particle physics, sustainable development and astronomy — including $35 million for the Giant Magellan Telescope, now being built by a private consortium for installation atop a mountain in Chile. …

Eli Broad, who earned his money in housing and insurance, donated $700 million for a venture between Harvard and the Massachusetts Institute of Technology to explore the genetic basis of disease. Gordon Moore of Intel has spent $850 million on research in physics, biology, the environment and astronomy. The investor Ronald O. Perelman, among other donations, gave more than $30 million to study women’s cancers — money that led to Herceptin, a breakthrough drug for certain kinds of breast cancer. Nathan P. Myhrvold, a former chief technology officer at Microsoft, has spent heavily on uncovering fossil remains of Tyrannosaurus rex, and Ray Dalio, founder of Bridgewater Associates, a hedge fund, has lent his mega-yacht to hunts for the elusive giant squid. 

Whether a role remains for government funding is not clear; perhaps the projects funded by private investors will not address the breadth of important questions in basic science.

And government funding has undoubtedly supported huge amounts of valuable research; that is not in dispute, only whether the research would have occurred even without government.

The wealth of private funding nevertheless suggests that outrage over cuts to science budgets is misguided. The private sector will fill much, perhaps all, of the gap.

From a Baltimore Sun article on the regulatory fate of car-sharing services Uber and Lyft, bitterly attacked by their more highly regulated taxi competitors: 

At a recent work session on the issue, Kelley [Sen. Delores G. Kelley, D‑Baltimore County] rejected the contention from Lyft and Uber that it’s a matter of consumer choice about whether to use the application to book a ride and they won’t do it if the price is too high. 

“We regulate all sorts of things because the general public is not smart enough to know when they’re about to be fleeced,” Kelley said.

But what about members of the general public who are smart enough to know they’re about to be fleeced, but are unable to do anything about it because it’s lawmakers and market incumbents combining to make that happen? 

“IMF Warns on the Dangers of Inequality,” screams the headline of a story by Ian Talley in the Wall Street Journal. The IMF – which Talley dubs “the world’s top economic institution”– is said to be “warning that rising income inequality is weighing on global economic growth and fueling political instability.” 

This has been a familiar chorus from the White House/​IMF songbook since late 2011, when President Obama’s Special Assistant David Lipton became Deputy Managing Director of the IMF. It echoes a December 2012 New York Times piece, “Income Inequality May Take Toll on Growth,” and a January 14, Financial Times feature, “IMF warns on threat of income inequality.” This isn’t news.

Talley writes, “The IMF … says advanced and developing economies need to raise more revenues through taxes, focusing on progressive taxation that moves more of the burden for social security, health care and other state benefits to the high-income earners.” That isn’t news either. The IMF has an ugly history of advising countries to raise tax rates, with disastrous results. The inequality crusade is just a new pretext for old mistakes.

The only news in the Journal article is “a 67-page paper detailing how the IMF’s 188 member countries can use tax policy and targeted public spending to stem a rising disparity between haves and have-nots.” That paper is just one of many “staff discussion notes” which “should be attributed to the authors and not to the IMF.” The main “warning” from those authors (Jonathan Ostry, Andrew Berg, and Charalambos Tsangarides) is that “the data are particularly scarce and unreliable for redistribution, even more so than for inequality.” Despite unreliable data, the IMF economists nevertheless claim that” higher inequality seems to lower growth. Redistribution, in contrast, has a tiny and statistically insignificant (slightly negative) effect.”

This IMF discussion draft relies on “a recently-compiled cross-country dataset (Solt 2009) that carefully distinguishes net from market inequality and allows us to calculate redistributive transfers—defined as the difference between the Gini coefficient for market and for net inequality.” Frederick Solt of Southern Illinois University reconstructed the usual pretax, pre-transfer Gini indexes to estimate a “net” Gini — adjusted for direct taxes and cash transfers, but not sales taxes or in-kind transfers.

The Solt Gini index is scaled from zero to 100, where zero would be total equality (everyone has the same income) and 100 would be total inequality (one person has all the income). The U.S., for example, had a pretax, pre-transfer Gini of 46.5 in 2011, but a much lower net Gini of 37.2 after adding cash transfers and subtracting taxes. The net Gini would be much lower if the data accounted for America’s unique reliance on refundable tax credits and in-kind benefits (which makes U.S. inequality appear higher than in countries that pay transfers in cash).

According to The Wall Street Journal, “Inequality in several advanced economies, including the U.S., has returned to levels not seen since before the Great Depression, the fund said.” Irrelevant nonsense. The IMF study’s data only go back to 1960. The authors once rehashed rhetorical comparisons to 1928 in a blog, but that is a stale fallacy repeated uncritically from Thomas Piketty and Emmanuel Saez. It wrongly compares prewar data based shares of personal income with incompatible postwar data based on shares of a much narrower measure of income reported on individual tax returns after subtracting all transfer payments. 

Getting back to the Solt list of 153 countries, inequality is lowest in countries with a net Gini around 30 and highest with a Gini over 45. Yet most countries The Wall Street Journal singles out as suffering from high inequality actually have low inequality.

“For the fund,” says the Journal, “protests in Athens, Lisbon, Caracas and Tripoli … are manifestations of the broader underlying reality of income inequality.” That might work for Lebanon, but not the others. The latest net Gini is a low 33.1 for Greece, 33.2 for Portugal, and 35.6 in Venezuela. The Journal also claims income inequality “helped propel widespread unrest” in Egypt and Ukraine, but the latest Gini was a super-low 30.9 in Egypt and an amazing 25.6 in Ukraine (much lower than even the USSR in 1992). Mr. Tally may mean these egalitarian governments went broke trying to redistribute too much, but that would contradict the IMF paper’s other claim – that redistribution is innocuous.

Contrast the very low inequality numbers from countries like Greece and Ukraine with the much higher Gini estimates for all the rapidly-expanding BRIC countries. The latest net Gini is 46.4 for Brazil, 49.9 for Russia, 49.7 for India and 47.4 for China. Among these fastest-growing economies the Gini is virtually the same with or without taxes and transfers, suggesting no redistribution. Minimal redistribution just lowers the Gini from 47.9 to 47.4 in China and from 50.6 to 49.7 in India.

Unfortunately, countries begging for IMF loans may have to swallow IMF advice to push their highest tax rates even higher, and redistribute the added revenue (if any) to appreciative political supporters. Such loans may shore up unworthy governments, but the attached strings will surely strangle the nascent private economy.

In the 1996 case Auer v. Robbins, the Supreme Court ruled that where there is any ambiguity or disagreement over what a federal regulation means, courts should defer to the interpretation favored by the agency that issued the regulation. The practical consequence of this decision has been that government agencies have had the power not just to create and enforce their own rules but also to definitively interpret them. Given the mind-boggling number of federal regulations that exist—and the exceptional breadth of behavior that they govern—the importance of this “Auer deference” can’t be overstated.

While handing the powers of all three branches of government to the bureaucracy is problematic in and of itself, a recent decision by the U.S. Court of Appeals for the Ninth Circuit further extended the deference courts show to agency rulemakers by declaring that an agency’s interpretation of its own rule is authoritative even if the agency has altered its interpretation dramatically since the regulation came into effect. Under that logic, an agency could spend decades saying that its regulation governing footwear only applied to shoes—and then, without warning or consultation, unilaterally decide to extend the rule to sandals and slippers (despite explicitly saying for years that they were not covered by the regulation).

Such a power to rewrite regulations through after-the-fact “reinterpretation” is incredibly tempting, freeing agencies to change the rules of the game without further legislation or congressional oversight, or even the formalized rulemaking process required by the Administrative Procedure Act.

Peri & Sons, a family-run farm in Nevada (one of America’s largest onion producers), is caught in just such an Kafkaesque morass. In its case, the Ninth Circuit ruled that even though the Department of Labor for over five years interpreted regulations issued under the Fair Labor Standards Act to mean that employers aren’t required to pay employees for the costs of moving for a job (including passport and visa applications), DOL is free to change its interpretation to now require employers to cover those costs.

Cato, along with the Center for Constitutional Jurisprudence and the National Federation of Independent Business, filed a brief urging the Supreme Court to hear this case. We argue not just against the Ninth Circuit’s extension of Auer to cases where the agency has reversed its position, but also that Auer itself was incorrectly decided. Granting agencies post-hoc control over their regulations’ textual meaning is an abdication by the courts of their constitutional duty to zealously guard against executive encroachment on the judiciary’s role as interpreters of the law. And we’re not alone in questioning the wisdom of Auer; as recently as 2011, Justice Scalia criticized the ruling as being “contrary to [the] fundamental principles of separation of powers.”

The Supreme Court will be deciding this spring whether to hear Peri & Sons Farms v. Rivera.We urge the Court to take the case and restore a modicum of the Constitution’s separation and balance of powers.

The great classical liberal sociologist Henry Sumner Maine theorized that societies progressed from status to contract: In a status-based society, one is born into a place in a hierarchy. That place may change, but typically it doesn’t change very much, and your place governs your rights and obligations. Societies of status are stable, rigid, and often deeply illiberal. They tend to be dominated by kinship groups, or clans, and those can be quite collectivist and hostile to individual liberty.

Contract-based societies are very different: In a contract-based society, individuals tend to be legally equal at birth. Family ties are affective and not quite so legally binding. Obligations tend to be voluntarily undertaken rather than assumed at birth. Societies of contract are flexible, may change rapidly, and will often act to protect individual liberty.

At Cato Unbound, this month’s lead essayist, legal historian Mark S. Weiner, argues that the state performs a sometimes unappreciated role in keeping away the status-based society: without a state that’s strong enough to break the power of the clans, then the clans will return, and individual liberty will suffer.

But how real is the danger? Do we really have the strong state to thank for our liberty? Economist Arnold Kling argues that other institutions, including the nuclear family and consensual transfers of property, make clannishness unappealing. The American Conservative’s editor, Daniel McCarthy, suggests that even liberal government is at times a very collectivist, and thus clannish, activity. Legal historian John Fabian Witt will weigh in on Monday, and we welcome your comments as well.

My op-ed in today’s New York Times has prompted numerous critical comments on the NYT website. Let me address some of them.

Some readers questioned the linked source for my statement that infrastructure spending in the United States is about the same level as in other high-income countries. This fact does need some explanation, but I didn’t have room to include it in the op-ed. The data I cited were emailed to me by the author of the linked OECD report. It is national accounts data on gross fixed investment. I charted the data here in Figure 2.

Some readers wondered about my definition of “infrastructure.” That word is often used loosely. The definition that makes sense to me is the broad one of gross fixed investment, which includes such items as government highways and private pipelines and factories. The data are available from BEA Table 1.5.5, where you can see that private investment—even aside from residential—dwarfs government investment.

One reader expressed a common view that in traveling abroad you often find nicer airports than in this country. I think that’s correct, and often those foreign airports are private or partly private, while ours are government-owned.

Numerous readers pointed to shortcomings of particular private companies, and some of those complaints are surely correct. Private companies often screw up, but my experience is that governments screw up more because of deep, structural incentive problems. Furthermore, private markets have the powerful built-in mechanism of competition to fix problems over time, whereas government shortcomings often go unaddressed. Where there is a lack of competition in private markets, policymakers should focus on opening entry to increase it.

A number of readers thought my mention of the Iron Bridge spurious. I thought of that very old cast iron structure after reading this WNYC story about Wednesday’s gas explosion in Harlem. A Con Ed senior VP says that the company checked the Harlem pipes less than two weeks ago and found no leaks. The story notes,

The bulk of the main on that block, however—about 150-feet—is cast iron from 1887. Con Edison has been working to replace such aging pipe citywide. [Con Ed VP] Foppiano said cast iron mains can be in the ground for a couple hundred years and age is not necessarily a factor.

Finally, one reader pointed to rising congestion as a reason to invest more in highways, even aside from the highway quality issue that I touched on. I agree that congestion is a big problem, and in this essay I discuss how we can improve the efficiency of our investment to better solve it.