Archive for October, 2013

Ah, yes, a bit of nostalgia from the “summer of recovery”: the Car Allowance Rebate System (CARS), also known as Cash for Clunkers.

It seemed quite promising to many in the halcyon days of 2009.  Citizens could trade in their old gas guzzlers (which were subsequently destroyed) for a rebate that could be applied to purchase a more fuel-efficient car. It would simultaneously stimulate the economy (and the auto industry) and improve the environment. Undoubtedly, as part of the stimulus efforts, it would pay for itself.

Ted Gayer and Emily Parker have a new paper and policy brief at Brookings on the program. (For a brief overview, see Kevin Robillard’s piece in Politico). The discussion below draws from the policy brief.

How did Cash for Clunkers perform?

  • By the end of the program, 677,842 vehicles were traded for vouchers, at an overall cost of $2.85 billion (some $4,200 per rebate).
  • But according to Gayer and Parker, the program only added 380,000 additional sales to what would have occurred absent the program, and these were largely sales that were pulled forward from sales that would have normally occurred in the future. “Ten months after the end of the program, the cumulative purchases from July 2009 to June 2010 were nearly the same, showing little lasting effect.”
  • And while there was a short-term addition of $2 billion to GDP, it was simply pulled forward from the next two quarters.
  • Cars for Clunkers did create jobs, but at a cost of $1.4 million per job.

There are some additional information in the brief on the distributional impacts (surprise: the recipients tended to be more affluent than those who purchased a new or used car during the same period without a rebate) and the environmental impacts (surprise: Cash for Clunkers was not a cost-effective means of reducing carbon emissions).

Bootlegger-Baptist coalitions (a term coined by economist Bruce Yandle) are common in politics (particularly in regulation). In essence, a Bootlegger promotes a policy that will further its economic interests. It  legitimizes its efforts by forming a coalition (often implicit) with the Baptists, who appeal to higher values or the public good. A simple example: renewable fuel standards. Agribusiness secures a market for corn ethanol, and draws on environmental advocates for cover.  In Cash for Clunkers, the bootlegger is easy to identify: auto dealers. Robillard’s article notes that the program retains the support of the National Automobile Dealers Association, which strongly advocated the program at its inception and lobbied quite effectively for its expansion from $1 billion to almost $3 billion. Its spokesperson noted: “There’s no question Cash for Clunkers was the best Obama administration program to date.”  From the perspective of the industry, what’s not to like? It provided a de facto subsidy for the industry, and industry self-interest was veiled by tying it to the larger goals of promoting the needs of the unemployed and saving the earth. Even if the Baptists were hung out to dry (another parallel with ethanol), what’s the harm? The $2.85 billion price tag (not including interest) will fall to future generations (i.e., the children who had the brief privilege, in 2009, to ride in their parents’ new cars).

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This question, made famous during the Watergate hearings, seems to be the driving question these days, whether one is speaking of the clumsy rollout of the Affordable Care Act, the number of people in the independent insurance market who will in fact lose their coverage, or the NSA’s surveillance program. In Dana Milbank’s words (Washington Post):

It stretches credulity to think that the United States was spying on world leaders without the president’s knowledge, or that he was blissfully unaware of huge technical problems that threatened to undermine his main legislative achievement. But on issues including the IRS targeting flap and the Justice Department’s use of subpoenas against reporters, White House officials have frequently given a variation on this theme.

Question: What did Obama know and when did he know it?

Answer: Not much, and about a minute ago.

Milbank concludes:

On one level, it would be reassuring — and much more credible — if the White House admitted that Obama is more in the loop than he has let on. On another level, it would be disconcerting: Is it better that he didn’t know about his administration’s missteps — or that he knew about them and didn’t stop them?

Eugene Robinson (Washington Post) also finds the claims of ignorance difficult to accept, albeit with a somewhat more ominous alternative:

Either somebody’s lying or Obama needs to acknowledge that the NSA, in its quest for omniscience beyond anything Orwell could have imagined, is simply out of control.

Both could be true, of course. The growing scale and complexity of government creates enormous problems of oversight and political control. Even if a well-intentioned and moderately intelligent president attends national security briefings and takes copious notes, there are distinct limits to how much one can know and how effectively one can alter the course of the bureaucracy.

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A magnificent quotation in the LA Times about ObamaCare courtesy of a health care provider in California:

Pam Kehaly, president of Anthem Blue Cross in California, said she received a recent letter from a young woman complaining about a 50% rate hike related to the healthcare law.

“She said, ‘I was all for Obamacare until I found out I was paying for it,'” Kehaly said.

At least one American wakes up to the fact that there are no free lunches!  Unfortunately, I bet she’d still be all for it if someone else were paying. Reminds me of Senator Russell Long‘s aphorism:  ”Don’t tax you, don’t tax me, tax that man behind the tree.”

(HT: Grumpy Economist)

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Update: added missing caption to figure

Next year, the New Hampshire House will take up a bill to abolish the death penalty. Several libertarian legislators have signed on as co-sponsors, and observers think the bill has a good chance.

What should libertarians think about the death penalty? In general, hardcore civil libertarians have opposed it, but there does not seem to be anything in the moral principles libertarians have adopted that straightforwardly generate an a priori skepticism of capital punishment. The case for or against capital punishment depends on empirical research in a way that the case, say, for or against certain gun laws does not. (Banning handguns would be wrong even if it reduced the violent crime rate, I would argue.)

Some libertarians say that the state can never be trusted with the death penalty. But this too is an empirical claim. What is the rate of killing of innocents when the government has a death penalty of a certain kind? We also need to think about what rate would be unacceptable. (Every criminal justice system will punish some innocents, because no criminal justice system is perfect.) That latter threshold presumably depends on what the deterrent effect of capital punishment is. If capital punishment deters a significant number of murders, presumably an extremely rare execution of an innocent — while horrible and thoroughly regrettable — does not make the system unacceptable.

So does capital punishment deter murders? Apparently not. The literature on capital punishment in the U.S. has shown mixed results, with some models showing a positive deterrent effect (lives saved) and others showing a negative “deterrent” effect (more murders). The recent research by Durlauf, Fu, and Navarro (here and here) helps us adjudicate among these results.

The most plausible set of models consists of those that assume that a higher probability of execution affects murder rate via a logistic function (which reduces the influence outliers). Here’s how they summarize their results in the Journal of Quantitative Criminology for various sets of models (marginal effects reported for the mean 1996 death penalty state):

capital punishment deterrent effects
Fig 2: Positive deterrent effect of executions (net lives saved)

The “linear, state coefficients” models are the least plausible: these models assume the deterrent effect of the death penalty (that is, the marginal effect of executions on the decision to commit homicide) varies by state. As they point out, that is a bit like assuming that the treatment effect of a drug is different in Texas than in other states. In general, linear models are less plausible than logistic models, which assume a functional form more appropriate to the data.

All of the logistic models show a net lives lost effect from capital punishment. Varying the other model details seem not to make a big difference to the results. However, the authors also calculate the posterior probability of the model’s being true given its assumptions and the data, and model 16 above comes out best. This model yields one of the highest “negative deterrent” effects of capital punishment.

In summary, the evidence leads me to believe that capital punishment does not, on net, save lives. It may even cost lives through a kind of “brutalization” process. This information is highly relevant to the normative policy implications.

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The other day I referenced Tom Watson’s piece in Salon, rejecting any libertarian involvement in the Stop Watching Us demonstration (as you might recall, libertarians were the ones who use a “few positive civil liberties positions as a predator uses candy with a child”).

Watson’s piece generated a useful response  in Salon from David Segal: “Liberals Should Unite with Libertarians (sometimes).”

A few quotes:

While the benefits of this sort of cooperation are concrete, Watson never convincingly describes the potential harm. Yes, when those on the left and right meet, perhaps some impressionable young progressives will become more libertarian in their leanings — but it’s important that burgeoning libertarians be made to understand that not all Democrats stand with President Obama, Dianne Feinstein, Steny Hoyer, Nancy Pelosi and other party leaders as shills for the state’s surveillance apparatus, and perhaps that (and a few friends they make while marching with lefties this weekend) will encourage them to learn more about, and eventually embrace, progressive economic principles – post-Keynesians, please. …

We cannot cover up harms perpetrated by our government just because pointing them out might make some people more inclined to distrust the state.  If we hope to maintain enough credibility with voters to one day win progressive majorities at the ballot box then we must not shy away from naming state overreach and corruption where it is transparently manifest.

Certainly, as Segal points out, left-libertarians alliances have borne fruit in the past and there remain many things that the left and libertarians can agree on–most notably opposition to growth of the security-surveillance state, the targeted execution of U.S. citizens abroad, indefinite detentions, and the absurdities of the War on Drugs–and there remains much work to do. While Segal hopes that a few libertarians might learn more above progressivism, it may also be the case that a few progressives (Watson included) will learn more about classical liberalism in the process.

What’s the harm?

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I’ve listened to NPR in the car a fair bit over the last two weeks.  If I learned my economics from that station, I’d have to conclude that wealth is essentially just something that exists and is expropriated by individuals and countries.  It is a fixed pie that one either has a slice of (or two or three or four in the case of rich people and nations) or not.    Little sense that wealth is created, that liberal institutions and values are better at creating the conditions of wealth-creation than others, and that one’s piece of pie can grow without the slices of others getting smaller.  And perhaps most importantly, it is an article of faith on NPR that state action is required to remedy just about any problem (and consistent with the nirvana fallacy, only rarely is there discussion of the problems of such remedial actions and their agent).  Or perhaps I just happened to not be in the car at the times that other views were shared ( I did catch a short bit of a piece talking about a failed foreign aid project.  Fair and balanced at NPR!).

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Jordan Weissmann at The Atlantic has a story on the revelations that George Washington University rejected applicants on the grounds that they would have required financial aid. Apparently the university had advertised itself as “need-blind” in its admissions policies, but in fact the admissions office ended up rejecting marginal needy applicants in favor of marginal tuition-paying applicants in order to balance the books.

I have a couple of problems with the way Weissmann editorializes on this story. First, he tries to put GWU’s practices in a better light:

Some schools have openly defended this approach by arguing that it allows them to offer fuller financial-aid packages to the lower-income students they do admit. That’s the line GW is adopting now, and it may or may not be true. At the very least, their approach is less ethically disturbing than the widespread practice of “gapping,” where schools admit students on a need blind basis, but frequently award them a financial aid package that’s too small, sometimes with the express purpose of discouraging them from attending. Kids who fail to take the hint just sink deeper into debt.

And just why is GWU’s lying about its admissions policy less “ethically disturbing” than otherGWU schools’ practices of letting needy students themselves decide whether to come or not? One practice is a fraud or very near a fraud; the other practice “discriminates against” non-paying customers in the same way that a Jaguar dealer is likely to “discriminate against” me. In Weissmann’s view, policies that refrain from engaging in paternalism toward needy applicants (“you really shouldn’t take on this much debt, and so we won’t give the choice to”) are ethically more “disturbing” than fraudulent policies.

Then there’s this:

Finally, this incident is also symptomatic of a wider sickness in higher education: the mania for prestige. Even while it’s freezing out poorer qualified applicants, the university continues using “merit aid” to recruit desirable students who might be able to pay their own way. GW isn’t alone in that practice. It just got caught covering it up.

Wait, what’s wrong with merit aid again? I’ve seen proggy types crusading against it here and there, but I haven’t seen anyone even bother to make a real case against it — to them anything that doesn’t overtly maximize the well-being of the poor is wrong, I suppose. Let’s remember that we live in a world of resource constraints. Universities operate in a competitive environment and have to at least break even in order to finance facilities, faculty, and staff. It’s wishful thinking to suppose that they will be completely blind to the ability and willingness of their customers to pay. There’s every reason to think that if a university did operate on a completely need-blind basis, unless a generous benefactor insisted on such a policy, it would enjoy fewer resources, fewer faculty, smaller facilities, and be able to admit fewer students. How do poor students benefit from that outcome?

In my own case, I was from a poor family and qualified for full financial aid: a 100% free ride, work-study, Pell grants, and all the rest. However, for the last three years of my undergraduate education, I actually got a merit scholarship that covered everything. If you’re a student from a poor – or perhaps, especially, a middle-income – family, and you want to go to a private college, you need to count on going to a college that is a little bit below your ability level. You’ll be one of the big fish in the little pond helping to drive up the college’s scores and attracting the applicants. That’s what you’re giving them in exchange for their ignoring your inability to pay. You can still get a great education and have plenty of opportunities ahead of you, if you have the right attitude about it.

If you think the poor in America don’t get a fair shake, (more…)

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