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Archive for May, 2011

William Ruger and I will be participating in a discussion of our new study, Freedom in the 50 States 2011, at the Cato Institute on Wednesday June 8 at 4 PM. Michael Barone will be commenting, and John Samples will moderate. All Pileites in the DC area are of course very welcome, and the event will also be streamed online. Details here.

As soon as the study is released, more info will be available on Pileus.

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President Obama has just announced his nominee to be the next Secretary of the Commerce Department. In the WSJ‘s words: “President Barack Obama will nominate John Bryson, a senior adviser to the private-equity firm Kohlberg Kravis Roberts & Co., to be his next commerce secretary.” The Journal continues:

Mr. Bryson, one of 20 senior advisers to KKR, is the former chairman and chief executive of Edison International, a publicly traded power company and the parent of Southern California Edison and Edison Mission Group. He also co-founded the Natural Resources Defense Council, an environmental-advocacy group, and has been a member of the U.N. Secretary-General’s Advisory Group on Energy and Climate Change.

I had not heard of Mr. Bryson before this nomination. People who found “environmental-advocacy group[s]” make me a bit nervous—since such people are sometimes rather longer on the advocacy side than on the scientific side of policy—but I am sure he is an able and capable person.

My question instead is why he is needed at all. Why, in the twenty-first century, when we have a globally connected world with billions of trading partners making trillions (or more) non-centrally-coordinated decisions every day, do we have need for a person to oversee all of this? Does he believe that he will be able to make better decisions from atop his perch in Washington, DC about where people should allocate their scarce resources, which of the options they face are those of which they should avail themselves, which people, businesses, groups, companies, institutes, funds, and organizations should trade or associate with which, what they should trade, and on what terms they should associate, and so on, than the individuals and groups themselves would make?

According to the Journal, a White House official said: “The president is confident in Mr. Bryson’s ability to lead the department and promote job creation, economic growth, sustainable development and improved standards of living for all Americans by working in partnership with businesses, universities, communities and our nation’s workers.”

I confess I am rather skeptical that Mr. Bryson, however able he is, will contribute positively to any of those objectives. This is not an indictment of him personally; it is instead an indictment of the rather voluminously inflated estimation some seem to have of human beings’ ability to consciously design and coordinate large-scale human social institutions. Even if Mr. Bryson were literally the smartest person on the planet, his ability to “promote job creation, economic growth, sustainable development and improved standards of living for all Americans by working in partnership with businesses, universities, communities and our nation’s workers” would be orders of magnitude inferior to the ability to do those things of uncoordinated individuals and private parties acting in competitive markets.  

The Great Mind Fallacy, it would seem, strikes again.

I say cut not only this Secretary’s job, but the entire Commerce Department and its $8.8 billion budget. When we are more than $14 trillion in debt, it would have to have a rather astonishing rate of return on its investment to justify its continued existence. Given the systemic liabilities it faces, I am skeptical it meets that threshold.

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I recently came across this interesting, five-year-old interview with law professor William Ian Miller on “talionic” law in the Middle Ages, which specified literal “eye for an eye” justice. Talionic law developed in societies that lacked stable state institutions, like Iceland and early England. As such, it was embedded in strong extended-family institutions that used tit-for-tat strategies to keep order.

The traditional understanding of “eye for an eye” justice is that it is retributive, that is, that its motivating principle is punishment of the wrongdoer, pure and simple. Miller, however, makes a persuasive case that such systems are actually restitutory, that is, aimed at making the victim whole. In that sense they are much more humane than much contemporary criminal law, which ignores the victim and unproductively locks away criminals. An excerpt that makes the argument in a nutshell:

Your book argues that we often use the term “eye for an eye” to describe a harsh kind of justice from the past. But talionic societies could be said to put a higher value on human life and the human body than we do. They were much more committed to finding the exact worth of body parts and lives. So, let’s say you poke out my eye…

Then, instantly, my eye becomes yours. To get the value exactly right, we say an eye is worth an eye. You have a right to my eye. Now you can say to me, “I’m going to take your eye.” Then I’m going to say, “Hey, what would you be willing to accept instead?” It becomes an initial bargaining position.

If you want victims to be more highly valued and you want real, adequate compensation, this is how to do it. Now if I offer you what some lousy insurance company says your eye is worth — say, $100,000 — you’ll say, “No way! I would never have let you take my eye for that.” Instead, you can be sure I’ll put the same value on not losing my eye that you would have put on yours, and I will pay you that amount to keep my own eye. How about $5 million? Let’s start there. And we’ll bargain it out.

The book mentioned is this.

So how about it – should we return to the lex talionis?

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Bloomberg BusinessWeek has a long story outlining the desperate financial situation that the United States Postal Service is facing. The USPS is currently approximately $15 billion in debt, and with revenues continuing to drop—and, as is becoming the all-too-familiar refrain with government agencies these days, costs of health care and retirement benefits for workers are rising rapidly. As the Bloomberg story reveals, the USPS has no real plan to deal with what even its advocates are calling its imminent insolvency.

Consider this passage from the story:

The USPS has historically placed the interests of its unions first. That hasn’t changed. In March it reached a four-and-a-half-year agreement with the 250,000-member American Postal Workers Union, which represents mail clerks, drivers, mechanics, and custodians. The pact extends the no-layoff provision and provides a 3.5 percent raise for APWU members over the period of the contract, along with seven upcapped cost-of-living increases. The union is happy. “Despite the fact that the postal service is on the edge of insolvency, the union and management have reached an agreement that is a ‘win-win’ proposition,” said APWU President Cliff Guffey on the union’s website.

Consider all of the pathologies contained in that passage—the destructive mindsets, the counter-productive incentives, the perverse priorities.

Those pathologies are brilliantly exhibited by the way the USPS is responding to changing technologies and changing realities of delivering correspondence. In Europe, of all places, postal services have been largely privatized. Sweden’s Posten, for example, closed and then privatized most of its remaining post offices, over complaints and doomsday predictions; yet the service is by most accounts better now than it has ever been. The same has happened in Germany, where the now privatized postal service competes with other postal delivery systems, including digital delivery systems, and turns a profit.

The USPS’s business plan? They hired someone to try to convince banks and other large companies not to use rising digital technologies but to continue using paper statements that must be mailed instead. No wonder they’re in such bad shape.

The solution seems obvious: privatize, and repeal federal laws and regulations that restrict competition. The patterns here follow a familiar path: public-sector services staffed by public-sector unions perform badly and get themselves into a terrible financial position; private and for-profit services perform much better, leading to better service and higher customer satisfaction; yet people do not want to try privatization.

Allowing private individuals, entrepreneurs, companies, and others seeking profits—in other words, free enterprise—compete to meet people’s desires and needs always seems scary. Yet it almost always works when allowed, and it almost always works better than what the government-provided services offer. Fear of the scary monsters in the unknown of the market—we don’t know who exactly will provide the good or service, how exactly it will be provided, which attempts will succeed and which will fail, and so on—continue to stop people from availing themselves, and others, of the enormous benefits of market competition.

Perhaps market competition and free enterprise would not work better in the provision of some goods or services than government provision. But surely the repeated success of the former and the repeated failure of the latter entails that the burden of proof has to be on those arguing for the latter over the former.

There are many places where this reasoning applies—I think it applies to government monopoly provision of public schooling, for example—but it also applies to the USPS. There are romantic attachments to the idea of a USPS, but at some point we need to put romantic attachments aside and look at reality. Cut the USPS loose. Let human ingenuity follow natural incentives to find better ways to satisfy our desires. No system is perfect, and no human attempts at anything will be without mistake or failure, yet there is every reason to be confident that ending the government monopoly on mail carriage would lead to improvements, exactly as free enterprise has our improved our lives in countless other ways.

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Wouldn’t it be nice if city and state welcome signs were simply honest to goodness “welcomes” as opposed to subtle campaign signs for incumbents who get to advertise their name and associate it with a positive message?  Given that name recognition is an important commodity in elections, incumbents who plaster their names on welcome signs and every other manner of city and state property like buses get what amounts to a lot of “free”  – as in paid by someone else! – campaign advertising. 

Thus it was somewhat of a surprise to me when AP recently noted that Chicago Mayor Rahm Emanuel “said he sent a message out this week saying he didn’t want time wasted changing a bunch of signs and wasting taxpayers dollars.”  This comes on the heels of Mayor Daley putting more labels on city property than Benetton put on clothes!  One cheer to Emanuel – who has apparently put his name on only two welcome signs in Chicago (see the picture on the right for one example).  My guess is that the temptation Daley and so many other politicians succumb to will eventually get the best of Mayor Emanuel.

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I don’t expect much from mainstream journalists, but this quote from Fareed Zakaria at Time made me puke:

The good news is that the American economy is back to its pre-crisis size. The U.S. GDP is now about $13.5 trillion, a bit above what it was in 2007, before the financial crisis. The bad news is that we are producing the same amount of goods and services as in 2007 with 7 million fewer workers.

So making the same amount of stuff with fewer workers is “bad news?”  On what planet?  This quote is a perfect example of the media’s warped, feeble-minded economics that I commented on recently.  Producing more with less is progress,  not bad news.

Of course the persistent existence of idle economic resources (unemployed workers and high holdings of cash by firms) is bad news.  But over the long haul continued improvements in technology swamp cyclical variation, which is why we (almost) all drive cars and talk on cell phones instead of driving horses and talking on party lines.
The structural adjustment needed to deploy more idle resources is a puzzle.  Shouldn’t government put the best minds together and try to figure out how to solve that puzzle?  Absolutely not!  The best thing the government can do is take less, spend less and dictate less.   The economy will adjust just fine on its own.
[OK, WordPress keeps jamming these last three paragraphs together even though I've tried to insert a break about 20 times.  What the heck is going on?  Some of these idle resources apparently need to be deployed at WordPress.]

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From Peter Ubel in Free Market Madness: Why Human Nature Is at Odds with Economics—And Why It Matters (Harvard Business Press, 2009):

The government could, theoretically, change the finances of the food industry enough to halt the obesity epidemic. [...] Given that information alone may not suffice to encourage better eating habits, policy makers should consider yet another approach to combat obesity—an approach that structures people’s choices in ways that will lead them to make better choices, not through incentives or coercion, but through emotional or even unconscious psychological forces. (pp. 214, 217-18)

Ubel is a “physician and behavioral scientist” at the University of Michigan. He is apparently unaware of the manifest difficulties with which the word “theoretically” is fraught in the first sentence above; he is likewise apparently unaware of the frightening implications of a medical doctor and behavioral scientist proposing that the government use “emotional or even unconscious psychological forces” to manipulate its citizenry into making what he or it deems “better choices.”

Perhaps someone should remind Dr. Ubel that such things have been tried with a fair amount of vigor and dispatch during the twentieth century; perhaps he would like to inquire into the results?

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