Posts Tagged ‘Public Goods’

Happy Stimulus Anniversary! Hope you’re all enjoying the jobs we saved! And your solid gold toilets, and your free taxpayer-funded golf carts! This one is rather long, but I do drop an F-Bomb if you stick around long enough.

Evan Bayh is stepping down, and blaming the poisonous partisanship on the hill. From Yahoo! News (which features consistently good journalism; the ! means quality!):

Bayh blamed the current atmosphere of intense partisanship on the need for senators to constantly campaign to be reelected to another six-year term. Citing his father, a popular liberal senator in the ’60s and ’70s, he noted that “back in the day they used to have the saying: ‘You campaign for 2 years and you legislate for 4.’ Now you campaign for 6!” He noted that the need for constant fundraising made it nearly impossible to focus on passing legislation.

Frustration over the increasing amount of money being spent on political campaigns isn’t exactly a new thing, as spending by candidates in the 2008 presidential election nearly quadrupled the amount of money spent by candidates in the 2000 election. Additionally, winners of House races in 2000 spent an average of $849,158 to do so, while House winners in 2008 spent an average of $1,372,591. Enhancing the concerns of many on the left and the right has been a recent Supreme Court decision to strike down the country’s existing campaign finance laws. Put simply, the ruling opens the door for an even greater influence of money by allowing corporations spend money directly on campaigns.

There are two ways to address the influence of money in Washington

We could spend millions more on intricate regulations, inevitably leading to a greater concentration of power in a select few, who will then be plied with even greater amounts of money to curry favor.

Alternatively, we could limit the power of all of the branches of government, reducing the incentives to lobby Washington, cutting off the flow of money.

But what’s interesting about Senator Bayh stepping down is his implied belief in the power and majesty of bipartisanship. From his comments, it’s evident that the Hoosier Senator believes in the power of Congress to lead, and that synthesizing conflicting or contradictory viewpoints can and will lead to good governance.

I don’t agree. Some of the worst bills are the most bipartisan. Sarbane-Oxley, McCain-Feingold, the egregious Farm Bills, the stimulus, TARP, the 80’s S&L scandles,  and on ad nauseam and ad infinitum. Of course on some issues bipartisan support is clearly a good thing, like defense, criminal statutes, and tax policy. The benefits here are avoiding arbitrary or biased regulation on issues that should be universal. Broadly I’m in favor there.

Where I disagree is in saying that compromise on fundamentally different beliefs can result in good government. Particular ideological beliefs of both parties shouldn’t be compromised to forward mediocre bills. If liberal’s truly believe that healthcare is an affirmative right, or conservatives sincerely hold that life starts at conception, what purpose do compromising these beliefs for political gain accomplish? The answer is in the question; political gain. Influence, privilege and money are preferred by the political class over ideals. The difference here is that these issues are primarily social and therefore subjective or personal, while the former set where I support bipartisanship are broadly universal.

Universal issues have objectively universal consequences, in ways that other issues don’t. For some getting an abortion might be unquestionably the right thing to do, for others it could be abhorrent. But equally important, there is a significant middle class where it’s an open question. Similarly, health insurance may save some (see Megan McArdle for an ongoing discussion on this issue), but the exact same level of care may not save another person suffering from the same disease; the same level of care also has varying degrees of “saved”, as anyone who knows cancer patients can attest. The issues aren’t universal in the same way as defense or tax.

Those areas of policy where compromise is illogical or politically motivated are fertile grounds for bipartisanship. Politicians want to be seen ‘accomplishing’ things, and often have little sense of what their accomplishments represent. John McCain pushed for campaign finance reform and ran on that platform for two presidential election cycles, before getting obliterated financially by President Obama, who skillfully used the rules McCain advocated to choke him.

All too often bipartisanship precludes social experimentation and enshrines one fickle majority upon the whole. Some liberals like Justice Oliver Wendell Holmes realize this. He felt that the constitution was a threat to majority tyranny, and his progressive leanings elevated that elusive creature of ‘the public will’ above constitutional constraints. He famously wrote;

If my fellow citizens want to go to Hell I will help them. It’s my job.

That may be the worst perversion of the role of the judiciary ever. I’m less offended by outright bribery than by Holmes’ complete abandonment of constitutional duty. What a fucker.

Other progressives/liberals will argue that a centralized technocracy will avoid this majoritarian fickleness, but there’s very little evidence to support that theory. Even as politically insulated a technocrat as Alan Greenspan kept one finger always testing the political winds.

The genius of American federalism is that it leaves plenty of experimentation space for competing ideas of all stripes, and allows people with limited knowledge and limited rationality to demonstrably embrace one system or another, all while bearing the responsibility for their choices. Bipartisanship, and centralization in general, goes a long way towards chipping away at that dynamic. Jeffersonian “laboratories of democracy” don’t require unanimous or cross-party support, but Madisonian faction-on-faction action.

P.S. For more proof that Holmes is indeed a fucker, among his hundreds of terrible rulings,  he held that the mentally handicapped could be sterilized by the state. Perhaps the nadir of Liberal Fascism.

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Can you renounce your state citizenship? (more…)

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We all know Michigan’s economy is craptastic; it’s become proverbial, like the Pope crapping in the woods.  (Is that a joke anyone makes besides my dad?)

Michigan’s a poisonous mix of high, progressive taxes, union influence, and “investments” in public money-sinks like education, public works, and corporate subsidies. From the WSJ

Meanwhile, the new business taxes didn’t balance the budget. Instead, thanks to business closures and relocations, tax receipts are running nearly $1 billion below projections and the deficit has climbed back to $2.8 billion. As the Detroit News put it, Michigan businesses are continually asked “to pay more in taxes to erase a budget deficit that, despite their contributions, never goes away.” And this is despite the flood of federal stimulus and auto bailout cash over the last year.

Following her 2007 misadventure, Ms. Granholm promised: “I’m not ever going to raise taxes again.” That pledge lasted about 18 months. Now she wants $600 million more. Among the ideas under consideration: an income tax increase with a higher top rate, a sales tax on services, a freeze on the personal income tax exemption (which would be a stealth inflation tax on all Michigan families), a 3% surtax on doctors, and fees on bottled water and cigarettes. To their credit, Republicans who control the Michigan Senate are holding out for a repeal of the 22% business tax surcharge.

As for Ms. Granholm, she and House speaker Andy Dillon continue to bow to public-sector unions. There are now 637,000 public employees in Michigan compared to fewer than 500,000 workers left in manufacturing. Government is the largest employer in the state, but the number of taxpayers to support these government workers is shrinking. The budget deadline is November 1, and Ms. Granholm is holding out for tax increases rather than paring back state government.

The decline in auto sales has hurt Michigan more than other states, but the state’s economy would have been better equipped to cope without Ms. Granholm’s policy mix of higher taxes in order to spend more money on favored political and corporate interests.

Where’s Harold Meyerson on this blow to manufacturing?  Oh that’s right, he thinks only private industry can screw up this badly.

In related links, check out Forgotten Detroit, for an on-going pictorial study detailing the death of a city.  Sadly fascinating.

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California is collapsing.  The Guardian has an outsider’s perspective on the downfall of the world’s eighth largest economy.  The Golden State is fading.

California has a special place in the American psyche. It is the Golden State: a playground of the rich and famous with perfect weather. It symbolises a lifestyle of sunshine, swimming pools and the Hollywood dream factory.

But the state that was once held up as the epitome of the boundless opportunities of America has collapsed. From its politics to its economy to its environment and way of life, California is like a patient on life support. At the start of summer the state government was so deeply in debt that it began to issue IOUs instead of wages. Its unemployment rate has soared to more than 12%, the highest figure in 70 years. Desperate to pay off a crippling budget deficit, California is slashing spending in education and healthcare, laying off vast numbers of workers and forcing others to take unpaid leave. In a state made up of sprawling suburbs the collapse of the housing bubble has impoverished millions and kicked tens of thousands of families out of their homes. Its political system is locked in paralysis and the two-term rule of former movie star Arnold Schwarzenegger is seen as a disaster – his approval ratings having sunk to levels that would make George W Bush blush. The crisis is so deep that Professor Kevin Starr, who has written an acclaimed history of the state, recently declared: “California is on the verge of becoming the first failed state in America.”

California is screwed.  It’s a disaster, and it’s easy to point to a few reasons why.  The legislature has been staunchly Democratic since 1970, with one brief interlude of Republican control.  The state is the absolute paragon of liberalism, the fullest flower of the public-service/welfare state apparatus.  Republicans are a minority in every single voting district in the entire state, at all levels of government.

But you wouldn’t know that if you read some of the left’s critical analysis of California’s plight.


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It seems to me that most justifications for government welfare programs are moral arguments that claim the right and obligation of government to take money from the rich and give to the poor.  My intuition is that this argument is misguided, but I won’t address that here.  Instead, I’m interested in another argument, an actual economic one.  It’s one that isn’t often made, but it’s quite provocative.  The claim is that charity produces positive externalities, and because of this, it should be provided as a public good.

Now, it’s important to note that when economists talk about a public good, they mean a good that is non-rivalrous and non-excludable.  This means that one person’s consumption of the good does not detract from another person’s consumption of it, and that it is difficult or prohibitively expensive to exclude people from using it so that they could be charged for their use.  There are varying degrees of these two dimensions for different goods, but the purest example of a public good cited is national defense.

Lots of activists and politicians clamor for the government to provide things as public goods, but saying so doesn’t make it so.  A private good, which is excludable and rivalrous, is usually best provided on a market, where it is efficient.  You can prevent me from eating an ice cream cone, and your consumption of an ice cream cone diminishes my ability to enjoy it.  The justification for government provision of public goods is much more solid.

Is charity is a public good?  The first premise of the argument is that people care about one another.  They get utility from helping other people, even strangers.  I see this intuitively, but evolutionary psychology proves this.  To illustrate, suppose that you encounter a desperate stranger who informs you if he does not acquire $10.00 in the next ten minutes to buy medicine, he will die.  No one else around has $10.00.  Suppose you believe all this to be true.  You will probably give him $10.00 if you have it.

The second premise of the argument is that when individuals donate to charity, non-donors also get utility from knowing that people are being helped.  The claim is that there is a positive external effect, so there is an incentive to be a free rider.  If people get utility from the actions of others, they will not donate as much as they otherwise would if they only got utility from making the donations themselves.

You can see that the conclusion is for government to tax people and provision charity because private charity does not provide enough.  It is claimed that charity is a public good.  One person’s donation does not diminish utility for another, and it is difficult to exclude a person from feeling good when they know that the poorest in society are cared for by the people who donate.

I take issue with the second premise and therefore the conclusion.  The two premises together constitute a fallacious equivocation.

Yes, people get utility from making a donation, but they do not, in any meaningful amount, get utility from knowing that other donors exist.  My problem is that there is an obvious limit on how much utility people get from knowing about some social problem.  The knowledge must be local for a person to get utility; people can only get utility from helping people that they know about.  It would be silly to ask even a bleeding heart who regularly gives money to beggars how much they’d be willing to donate to a beggar across town that they have never encountered.  The natural capacity to help people, as evidenced by revealed preferences, is certainly not the same thing as utility from the knowledge that people are being helped by others.

These supposed external effects of charity do not really exist in any meaningful way.  People aren’t doing a mental calculation of how much they forgo in donations because other donors cover them.  I concede that this is actually a problem for many, if not most, public goods.  People don’t really know what they might pay for a public good that wouldn’t exist if it were not provided collectively.  Still, regarding charity, people get utility from being involved in giving, not nebulously understanding that donations have been made by other people.

It’s incoherent to suggest that because of positive externalities the government should arbitrarily provision some higher amount of money in a welfare program than what private charities already provide.  Such externalities do not exist.

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