Nicholas Geiser

Post image for Driving the Market out of the Marketplace of Ideas

Senator Elizabeth Warren’s recent letter to financial services companies demanding they disclose their contribution to public policy groups continues a troubling new development in the campaign against business participation in the public square. Along with Senator Dick Durbin’s letter this summer to more than 300 companies affiliated with the American Legislative Exchange Council (ALEC) demanding they explain their views on ALEC’s “Stand Your Ground” model legislation, anti-business groups increasingly seek to drive business out of the marketplace of ideas through shame and intimidation campaigns. Through legislation, public campaigns, and shareholder activism, groups hostile to business’s political activity now seek to isolate business and hinder its ability to defend itself against the regulatory state.

Disclosure proponents bring an apparently powerful one-two punch in favor of disclosure. Groups like the Center for Political Accountability argue that secret political spending by corporations exposes investors to legal, political, and reputational risks, which justifies mandatory disclosure rules. And on the other side of the relationship, critics like Public Citizen and the Center for Media and Democracy argue that business funding of public policy groups constitutes a conflict of interest for them.

Both these arguments, however, are mistaken. Consider the interest investors purportedly have in disclosure. In a highly mixed economy, corporations must engage in public policy debates over subjects such as anti-trust, intellectual property, environmental regulation, and numerous others as part of their fiduciary obligations to shareholders. Disclosure of this spending would not only be a costly legal expense to firms—it also may be unnecessary. Individual and institutional investors do not necessarily have an informational advantage over managers and boards of directors to identify political risks facing the company or public policy groups with common objectives to the firm. Firms might want to disclose for fear of shakedowns or political attacks. But a fair accounting of the risks must also include the risks from disclosure itself. Disclosure would undoubtedly invite shame campaigns and attacks on company brands by anti-corporate or other hostile organizations.

While firms should be free to weigh the costs and benefits of disclosure, they should not bow to disclosure rules from fear or curtail their political involvement as a consequence of disclosure. The challenges presented by a mixed economy to business profitability require more engagement with the public policy and political worlds.

Public policy groups and think tanks, for their part, risk the accusation of a “conflict of interest” for engaging with or raising money from the business community. There is certainly a risk of false or misleading research when one party stands to benefit from the outcome of research. But unlike candidates for political office, public policy groups can reward their donors at most by producing white papers or false research. Concerns about conflicts of interest also underestimate the degree to which peer scrutiny and a think tank’s long-term reputation of depend on integrity in scholarship. Within the public policy world, think tanks constantly evaluate one another to expose erroneous and misleading research, and public policy groups risk loss of public credibility should they engage in quid-pro-quo corruption.

At the same time, greater collaboration between business and free market public policy groups is necessary on principled grounds. Business participation in the research process helps public policy groups better document the unseen harms of regulated industries from direct costs of performance and technology standards, uncertainty, and compliance. The experience and research of firms could provide a powerful new perspective on the impact of policies on the ability of companies to innovate, expand, and create value for customers.

Limited working alliances between public policy groups and businesses are essential to the preservation and expansion of economic liberty. On the one side, public policy groups must do more to advance a positive role for business in a market economy by documenting how cronyism doesn’t pay. On the other hand, business needs intellectual allies to help it fend off political interference in a mixed economy fraught with political dangers.

At a time when anti-business groups seek to hamper businesses’ engagement with the public policy world, the case for businesses to find allies and partnerships has never been stronger. Neither business nor the free market public policy world can afford to remain aloof from the other when law and culture threatens to cleave them apart.

Post image for Two More Strikes against the Export-Import Bank

Two common points made in defense of the Export-Import bank are its recent profitability and the number of jobs it supports. During the recent reauthorization debate, defenders argued that it would be silly to cut a program that makes a profit for taxpayers and supports American jobs. The Ex-Im bank claims it posted a $1 billion profit in FY2013 and supports 255,000 American jobs.

However, new evidence undermines both these claims. As part of the 2012 Export-Import Bank Reauthorization Act, Congress directed the Government Accountability Office to review the Export-Import Bank’s method for calculating its impact on employment. The Bank feeds the value of the exports by industry into input-output tables published by the Bureau of Labor Statistics (BLS) to calculate the total number of jobs it supports. As the GAO’s report notes, there are several limitations of to this methodology:

  1. The Export-Import Bank’s method cannot distinguish between jobs its programs create, jobs its programs merely maintain, and jobs that are shifted to exporting sectors. The bank often elides this distinction by speaking of jobs its program “supports” or jobs “associated” with its programs. In fairness, this ambiguity is a general limitation rather than a specific failing on the bank’s fault.
  2. The input-output tables produced by the BLS are based on 2002 data and have not been updated in over a decade. The Export-Import Bank’s calculations, then, do not reflect structural changes to the economy from the Great Recession and its aftermath.
  3. The Bank counts full-time, part-time, and seasonal work equally. But in fact, we don’t know how many of the jobs it supports are part-time or temporary. Furthermore, the Bank measures the number of jobs not the number of persons employed, so workers holding multiple jobs show up multiple times in the data.

The GAO report criticizes the Ex-Im bank for failing to specifically identify these limitation of its methodology. While the Ex-Im bank admits the number is an estimate, it owes it to the public to disclose significant sources of uncertainty in its estimate.

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Steven Teles tells us in the fall issue of National Affairs that over the next decades, the challenge of “kludgeocracy” will come to the forefront of national politics:

In recent decades, American politics has been dominated, at least rhetorically, by a battle over the size of government. But that is not what the next few decades of our politics will be about. With the frontiers of the state roughly fixed, the issues that will define our major debates will concern the complexity of government, rather than its sheer scope.

Teles is certainly right that the underappreciated costs to our economy of administrative complexity and regulatory compliance ought receive more attention in spending debates. The first step is to think about regulation as a form of government spending itself. When we usually think of government spending, we imagine the government taxes individuals and firms and spends their money for them. But government can also spend money in a different sense by issuing spending directives to those individuals and firms themselves. As documented in CEI’s Ten Thousand Commandments: An Annual Snapshot of the Federal Regulatory Statethe costs of regulation reached over $1.8 trillion in 2013.

A bigger challenge Teles presents for libertarians, however, is his argument that “kludgeocracy” is the result of our political system’s numerous obstacles to political action and Americans’ ambivalent attitudes toward government:

American institutions do, in fact, serve to constrain the most direct forms of government taxing and spending. But having done so, they do not dry up popular or special-interest demands for government action, nor do they eliminate the desire of politicians to claim credit for new government activity. When public demand cannot be addressed directly, it is met instead in complicated, unpredictable ways that lead to far more complex legislative solutions


One of the clearest findings in the study of American public opinion is that Americans are ideological conservatives and operational liberals. That is, they want to believe in the myth of small government while demanding that government address public needs and wants regarding everything from poverty and retirement security to environmental protection and social mobility. The easiest way to satisfy both halves of the American political mind is to create programs that hide the hand of government, whether it is through tax preferences, regulation, or litigation, rather than operating through the more transparent means of direct taxing and spending.

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Post image for “Ingratitude” at Tesla Motors?

Mother Jones’ profile of Elon Musk and Tesla Motors trots out a familiar story about industrial policy’s role in the success of infant industries. It also blasts Musk’s Silicon Valley cohorts for their ingratitude in the face of government assistance. But when we look a little more closely, the Mother Jones narrative about Musk’s success breaks down.

The relevant program in Tesla Motors’ case is the Advanced Technology Vehicles Manufacturing (ATVM) Loan Program, a $25 billion fund established by the 2007 Energy Independence and Security Act. The ATVM putatively offers loans to automotive companies to help them meet the Corporate Average Fuel Economy (CAFE) goal of 35 mpg by 2020. Boosters tout the ATVM as a program to help companies through the so-called startup “Valley of Death” during which companies transition from product release to full-scale production, a period so-named because companies are particularly vulnerable.

A closer look at the ATVM shows that we should in fact be grateful if the program disappeared altogether. Tesla has been the ATVM’s most public success after  re-paying its $465 million loan nine years early. But Tesla likely succeeded not so much because of its ATVM loan, but because it has a fundamentally sound business strategy and a product capturing the imagination of consumers. While buyers of Tesla’s Model S benefit from a $7,500 federal tax credit for plug-in electric vehicles, in addition to benefits like access to HOV lanes and free charging infrastructure, these subsidies benefit the EV industry as a whole and cannot explain Tesla’s success relative to its peers.

And according to the DOE’s own data, 81 percent of the $8.4 billion spent so far by the ATVM program went to Ford and Nissan Motors—neither of which is a start-up navigating the Valley of Death. These firms could almost certainly purchase loans on the private market—are they really the vulnerable companies that defenders of the ATVM want to benefit?

This is not the ATVM’s only shortcoming. A February 2011 GAO report concluded that the ATVM lacked the expertise to properly monitor loan recipients, and lacked the crucial ability to measure how much the loans contribute to successfully meeting the stricter 2020 CAFE standards. Supporting a program whose success we can’t measure is unwise at best and defending corporate welfare at worst. The ATVM has had some very measurable failures, most notably its $500 million bet on Fisker Automotive that turned south. Despite having received nearly $200 million in taxpayer dollars, Fisker nonetheless announced this May it preparing for a possible bankruptcy filing. Public embarrassment from Fisker’s failure put the ATVM on hold, despite having loaned out barely a third of its allocated funds.

The ATVM has since re-opened and is now accepting applications for loans, but the question remains whether we will see more successes like Tesla or blunders like Fisker. The incentives and track record of subsidized loan programs suggest that it would be wise for the ATVM to quit while it’s ahead.

Post image for The Morality of Market Behavior

Fred Foldvary’s article “Do Markets Promote Immoral Behavior?” in September’s issue of The Freeman considers an important question for defenders of markets—the moral status of market behavior. While a popular and scholarly consensus sees markets as necessary for growth and a useful technique for allocating resources, it nonetheless regards market institutions as either a necessary evil or morally neutral. Thus, markets occupy a fragile position in which they’re tolerated, but constantly under suspicion.

Foldvary argues against the conclusions of a recent study in the journal Science, which apparently shows that a simple isolated choice to be paid $10 or save a mouse’s life produced morally superior outcomes to those of an extended market. But purposes of this post, however, the conclusions of the study are irrelevant. What matters is the Foldvary’s framework for arguing against the study, which is flawed.

In brief, Foldvary wants to argue that the moral basis of markets reduces to consent. But despite the appealing tidiness of Foldvary’s argument, I think there are two big problems:

First, Foldvary is wrong to build so much of his argument on the moral value of voluntary exchange.  Economists usually assume that exchanges will be mutually beneficial only if the exchange is voluntary on the assumption that people are the best judge of their own preferences and that third-parties aren’t any better. But while this is a useful statement of epistemic modesty by economists, it doesn’t tell us anything by itself about the fundamental moral value of voluntary exchange. As Nozick once asked, why should freely-made choices be worthy of respect in and of themselves?  In the case of markets, Foldvary thinks we can understand their moral basis from the fact that buyers and sellers voluntarily participate. But his inference is ill-founded. There is nothing about voluntary action as such that makes it either moral or immoral.

Second, his account talks past critics of markets rather than to them. Critics of markets often want to block even market transactions that are clearly voluntary, which suggests that the interesting disagreement is over something else. Arguing that paying your kids to read, or charging your neighbor for using your generator after a hurricane, or charging for sex, is acceptable if and only if it’s voluntary misses the nature of the objection to those transactions.

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