Sometimes the green part of green regulations isn’t the environment. It’s money.
Economics says that people act according to their incentives. Public choice theorists say that politicians and regulators also act according to their incentives — just like the rest of us. Those incentives include maximizing agency budgets and winning elections.
This short video from Reason.tv shows public choice theory in action:
Andy Greenberg reports that the TSA would like to expand its scanning operations to pedestrians and train passengers.
The House passed a budget enforcement resolution yesterday. It sets 2011’s discretionary spending $7 billion below what President Obama has requested.
Next year’s discretionary spending target is $1.12 trillion for next year. The $7 billion difference represents savings of 0.625 percent. Barely a rounding error. If total spending (including mandatory and defense spending) ends up at $3.5 trillion next year, the savings becomes 0.2 percent.
Of course, 2010 discretionary spending was $1.39 trillion. 2011 spending will very likely end up much closer to that than the targeted $1.12 trillion. The appropriations process is not kind to non-binding resolutions, however well-intentioned. Especially when the resolution “doesn’t detail how Congress should reach that [deficit reduction] goal.”
Congress lacks the will to cut $270 billion of spending. The interests benefitting from that spending will scream bloody murder the second their programs are put on the chopping block. In an election year when incumbents are more fearful than usual, no politician worth his salt wants to cause an uproar.
Congress need not worry too much, though. Even in anti-incumbent years, re-election are almost always above 90 percent. The vast majority of congressional turnover happens through retirement, running for other office, or death.
The pattern is holding this year, so far. The University of Virginia’s Larry Sabato recently pointed out that 5 incumbents have lost their state primary elections this year, while 240 were re-nominated. That’s a 98 percent success rate. There will be a few more casualties, especially in the November general elections.
Most members are safe. They can, and should, rock the boat by cutting unnecessary spending. If anything, the most aggressive cutters might become folk heroes like Chris Christie in New Jersey. They just don’t have the guts.
I will be more than happy if Congress proves me wrong. We’ll find out over the next few months.
Maybe there is something to John Edwards’ “Two Americas” conceit after all. Except the warring factions aren’t the haves and have-nots. They are what Steven Malanga calls tax eaters and tax payers. And the two see the world very differently. See this revealing excerpt from today’s WSJ Political Diary (subscription required).
Pollster Scott Rasmussen uses several questions to break down voters demographically, but one of his most original tweaks is to differentiate between those voters he calls the “Political Class” and those he calls “Mainstream Americans.” The “Political Class,” representing about 14% of the electorate, tend to express “trust” in political leaders while rejecting suggestions that government is its own special interest and often works with big business against consumers. In contrast, “Mainstream Americans” represent about 75% of the voting public and identify with or lean toward a more populist skepticism about the intentions and actions of political leaders.
Striking is how the two groups divide on the question of repealing ObamaCare. “Mainstream Americans” support repeal by an overwhelming 73%, while the numbers are almost exactly reversed among the “Political Class,” 72% of whom oppose repeal.
When Niccolo Machiavelli died in 1527, Washington, DC was still more than two and a half centuries away from being founded. But he understood perfectly how that dismal city would work, as Bertrand Russell reminds:
“In the absence of any guiding principle, politics becomes a naked struggle for power; The Prince give shrewd advice as to how to play this game successfully.”
-Bertrand Russell, History of Western Philosophy, xxii-xxiii.
Machiavelli was, in many ways, the first modern public choice theorist. Had he lived in a post-Adam Smith world, he would have made a fine economist. A politician’s guiding principle is usually not ideology. It is to remain in power. So they behave accordingly. The first lesson of economics is that people respond to incentives. If someone’s incentive is to get re-elected, they will behave in a way conducive to achieving that goal. Morality and the greater good compete for a distant second.
Sen. Richard Shelby, who placed holds on over 70 of President Obama’s nominees, has lifted all but three of them. Politico reports:
A spokesman for the senator said Monday that with attention brought to these two concerns, the political maneuver had “accomplished” its goal and was no longer necessary.
Translation: “We were getting too much bad publicity.”
The three holds that Sen. Shelby is keeping in place have directly to do with the Alabama-based pork projects that he believes will make him look good to the Alabama voters he will be facing in November. So, in a way, nothing has changed.
This brings up a legitimate question: can earmarking abuse sometimes be an agent for smaller government?
Few, if any, of President Obama’s appointees will work to decrease the size and scope of government. Now that their path is cleared, they will probably do net harm to taxpayers. This is the nature of government workers, whether Republican or Democratic.
Sen. Shelby’s motive for blocking them is despicable: stealing from taxpayers to improve his re-election prospects. But one wonders if those same taxpayers would have been better off if Sen. Shelby had stuck to his guns.
It is illegal for grocery stores to sell wine in the state of New York. Only liquor stores are allowed to sell the stuff.
This regulation, a relic of Prohibition, lives on because of one of the central concepts in public choice theory: diffused costs and concentrated benefits.
The benefits are concentrated in one constituency: liquor stores. Regulations give them get millions of dollars in free business. That means they have millions of reasons to lobby to keep the status quo.
Consumers, on the other hand, are hurt by the ban by the exact amount that liquor stores benefit. But that hurt is spread far and wide. No one consumer feels enough pain to hire a high-priced lobbyist to open up the market.
That means New York’s misguided restrictions on competition are likely to continue for some time. It’s hard to imagine an aggrieved shopper suing New York’s wine cartel because she has to make an extra trip to get the wine on her grocery list. Or because she pays a bit more than if she lived in a different state.
(Hat tip: Jonathan Moore)
Congressional Democrats are thinking of revoking the health insurance industry’s antitrust exemption; some insurers have spent as much as $20,000,000 opposing the current legislation.
Of course, insurers also gave $20,175,303 to President Obama’s 2008 campaign, roughly triple what McCain netted.
On one hand, this might look like the dog biting the hand that feeds. But really, it isn’t.
If the health care legislation passes, there is a good chance that every American would be required to purchase health insurance.
Suppose that happens. $40 million and change plus some antitrust troubles is a really small price to pay for a legal guarantee of vastly increased business, forever. Plus looking like you didn’t want the favor.
As my friend Jeremy Lott is so quick to remind, it is a wonder that politicians can be bought off so cheaply, given what they could charge for their services.
It is just as surprising that insurers would spend $20 million opposing legislation that would yield many times that in profit. As economist Bruce Yandle notes, “industry support of regulation is not rare at all; indeed, it is the norm. And in the United States it is as American as apple pie.”
Ancient Roman consuls – equivalent to our presidents – wore togas edged in purple to mark their high status. As Republic became Empire, new emperors were said to “ascend to the purple.”
Purple clothing was a status symbol for most of human history. It was the ancient equivalent of the Mercedes-Benz. Originally discovered in the glands of shellfish (reputedly by Heracles’s dog!), it took 12,000 of the creatures to get just 1.5 grams of dye. Purple garments could be as rare and costly as gold in some places.
Modern innovations such as inexpensive synthetic dyes, the Minnesota Vikings, and purple M&Ms have taken away the color’s exotic reputation. But no worry. Federal regulators are doing what they can to bring it back.
Alpinil Industries, a dye manufacturer in India, sells its carbazole violet pigment 23 cheaply. Too cheaply, it seems. Even commoners can afford to buy products colored with their purple hues!
Irate American competitors convinced the government in 2004 to put an anti-dumping duty on Alpinil’s purple dye. That raised the price to match pricey American-made dyes. Purple would once again be reserved for the rich.
Now that the tax has been in place for five years, the Department of Commerce is wrapping up an investigation to see if it has been working as intended. A repeal would be best for consumers. Don’t expect to see it happen, though.
The benefits are concentrated to a few dye manufacturers, who have a strong incentive to lobby to keep the status quo. Meanwhile, the costs are diffused onto millions of consumers, none of whom have much incentive to spend thousands of dollars in an effort to save themselves a few pennies.
I recently finished reading Swedish economist Johan Norberg‘s book about the financial crisis, aptly titled Financial Fiasco. It’s both short and informative. Six chapters and 155 pages, all of them worth reading.
The first two chapters are about the two big regulatory causes of the recession. One, monetary policy that was too easy for too long. The price system works. When the Fed messes with that price system, prices send out the wrong signals. People behave accordingly. Two, a decades-long drive to raise homeownership rates caused a lot of people to take out loans they couldn’t afford. It was only a matter of time before the consequences would come to bear.
Chapters 3 and 4 are about how the private sector reacted to the incentives regulators gave them. Let’s just say they acted badly. If people can game the system, they often will. Norberg’s criticism of overly-complicated securitized mortgage packages is both shocking and infuriating.
Chapter 5 is about how the government and private sector reacted to the crisis once the housing bubble popped. The $700 billion bailout program to reward bad behavior comes under fire.
Norberg is in top form in Chapter 6. Having looked at the causes and consequences of the crisis, now he offers a way out. One lesson is that politicians will always behave badly. “Politicians who distribute pork they cannot afford are reelected; butcher shops that sell pork they cannot afford go bankrupt. (p. 150)” Politicians are just like you and me. They go wherever their incentives lead them. We need to approach them accordingly.
The way to a full recovery is not bailouts. It is letting bad companies fail. And just as important, letting good ones prosper. “Government support for companies is thus not a way to save jobs, as politicians try to make us believe. It is a way to move jobs from good companies to bad companies.” (p. 151) In the long run, bailouts keep the economy down by keeping jobs and resources away from where they would do the most good.
Financial Fiasco has echoes of Tocqueville; a foreigner is trying to figure out how America works. Norberg, like Alexis de Tocqueville, is uncommonly perceptive. His experience living under an economy more thoroughly mixed than America’s allows him to see things that have escaped American commentators. This is extremely valuable. The fact that his book is concise, well written, and accessible to those of us who don’t have economics Ph.Ds makes it even moreso.
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