The big pretend that costuming and repurposing mall food court workers as “security” will be anything approaching that has fooled the lazy American public that takes its civil liberties for granted.
They miss most of the items in DHL tests of their detection abilities, and really, it is clear that this is not security but a jobs program for unskilled earners, a cash program for former government employees like Michael Chertoff and the companies they are associated with, and obedience training for the American public — to be docile in the face of their rights being yanked from them.
Amy Alkon, “The Tragedy In Belgium Shows Up The Utter Fallacy That The TSA Will Keep You Safe”, Advice Goddess Blog, 2016-03-22.
April 1, 2016
QotD: The real purpose of the TSA
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March 1, 2016
QotD: Tall building mania
This is a sign of growing maturity on the part of the United States. Many of these super-tall building projects make little economic sense, but are completed to validate the prestige of emerging nations, like teenage boys comparing penis sizes. Grown men are beyond that behavior, just as are grown-up nations. I discussed this in the context of rail a while back at Forbes. In that case, it seems everyone thinks the US is behind in rail, because it does not have sexy bullet trains. But in fact we have a far more developed freight network than any other country, and shift of transport to rail makes a much larger positive economic and environmental impact for cargo than for rail. It comes down to what you care about — prestige or actual performance. Again choosing performance over prestige is a sign of maturity.**
The US had a phase just like China’s, when we were emerging as a world economic and political power, and had a first generation of successful business pioneers who were unsure how to put their stamp on the world. So they competed at building tall buildings. Many of the tallest were not even private efforts. The Empire State Building was a crony enterprise from start to finish, and ended up sitting empty for years. The World Trade Center project (WTC) was a complete government boondoggle, built by a public agency at the behest of the Rockefeller family, who wanted to protect its investments in lower Manhattan. That building also sat nearly empty for years. By the way, the Ken Burns New York documentary series added a special extra episode at the end after 9/11 on the history of the WTC and really digs in to the awful crony and bureaucratic history of that project. Though Burns likely did not think of it that way, it could as easily be a documentary of public choice theory. His coverage earlier in that series of Robert Moses (featuring a lot of Robert Caro) is also excellent.
** I have always wondered if you could take this model further, and predict that once-great nations in decline (at least in decline relative to their earlier position) might not re-engage with such prestige projects, much like an aging male seeking out the young second wife and buying a Porche.
Warren Meyer, “This is a GOOD Sign for the United States”, Coyote Blog, 2015-01-15.
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February 6, 2016
The most likely explanation for politicians doing what they do
In his weekly column for USA Today, Glenn Reynolds distills down the essence of public choice theory:
The explanation for why politicians don’t do all sorts of reasonable-sounding things usually boils down to “insufficient opportunities for graft.” And, conversely, the reason why politicians choose to do many of the things that they do is … you guessed it, sufficient opportunities for graft.
That graft may come in the form of bags of cash, or shady real-estate deals, or “consulting” gigs for a brother-in-law or child, but it may also come in broader terms of political support and even in opportunities for politicians to feel superior or to humiliate their enemies. What all these things have in common, though, is that they’re not about making life better for voters. They’re about making life better for politicians.
This doesn’t sound much like the traditional view of politics, as embodied in, say, the Schoolhouse Rock “I’m Just A Bill” video. But it’s a view of politics that explains an awful lot.
And there’s a whole field of economics based on this view, called “Public Choice Economics.” Nobel prize winning economist James Buchanan referred to public choice economics as “politics without romance.” Instead of being selfless civil servants motivated solely by the public good, public choice economics assumes that politicians are, like other human beings, heavily influenced by self-interest.
Public choice economists say that groups don’t make decisions, individuals do. And individuals mostly do what they think will be best for them, not for the “public.” Public choices, thus, are like private choices. You pick a car because it’s the best car for you that you can afford. Politicians pick policies because they’re the best policies — for them — that they can achieve.
How do they get away with this? First, most voters are “rationally ignorant.” That is, they realize that their vote isn’t likely to make much of a difference, so it’s not rational to learn all the ins and outs of policy or of what political leaders are doing. Second, the entire system is designed — by politicians, naturally — to make it harder for voters to keep track of what politicians are doing. The people who have a bigger stake in things — the real estate developers or construction unions — have an incentive to keep track of things, and to influence them, that ordinary voters don’t.
Can we eliminate this problem? Nope. But we can make it worse, or better. The more the government does and the more decisions that are relegated to bureaucrats, “guidance” and other forms of decisionmaking that are far from the public eye, the more freedom politicians have to pursue their own interest at the expense of the public — all while, of course, claiming to do just the opposite. Meanwhile, if we do the opposite — give the government less power and demand more accountability — politicians can get away with less. But they’ll always get away with as much as they can.
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December 15, 2015
Hillary Clinton’s well-intentioned plans will make the prescription medicine market even worse
Another older post from Megan McArdle on the nice-soundbites-but-terrible-economic-notions from the Hillary Clinton campaign to fix the prescription medicine marketplace:
Hillary Clinton thinks drug development should be riskier, and less profitable. Also, your health insurance premiums should be higher. And there should be fewer drugs available.
This is not, of course, how the Clinton campaign would put it. The official line is that Americans are just paying too darn much for drugs, and she has a plan to stop that:
- Regulate direct-to-consumer advertising more heavily, and strip its tax deductibility
- Require drug companies to spend a certain percentage of revenue on research and development, or face penalty payments and the loss of their R&D tax credit (I am inferring that this is what she is talking about, since the actual language of the proposal is long on paeans to the importance of federal research funding and short on details)
- Cap out-of-pocket costs for drugs
- Reduce the exclusivity period for biologic drugs
- Prohibit companies from making side payments to generic manufacturers to keep generic competition off the market
- Allow drug reimportation
- Require that new treatments be proved to be a substantial improvement over existing treatments — i.e., eliminate the dreaded “me too” drugs
- Allow Medicare to “negotiate” drug prices
Eliminating the side payments seems eminently sensible. (Yes, yes, you can strip my libertarian card, but market-rigging contracts shouldn’t be enforced.) It also seems reasonable to require some sort of comparative effectiveness research. Other provisions will certainly drive down drug prices, at the risk of also driving down innovation.
Still other provisions, however, are simply bad economics. In what other market do we worry about having a second product available that’s merely just as good as the first? Should we really only have one antidepressant, one statin, one blood pressure medication, and so forth? Might there be variation among patients so that drugs that are statistically about equally effective in large groups are nonetheless individually more or less effective for different people? Might one drug’s side effects be better tolerated by some patients than another’s? Might having two drugs in the category help keep prices down?
Then there is notion that we should force pharmaceutical companies to spend a set percentage of their revenues on R&D. This seems to me to be … what’s the word I am looking for? Ah, I’ve got it: “insane.”
[…]
Economically, large parts of this plan make little sense. Politically, many of these items would be very difficult to pass, not least because the Congressional Budget Office would assess the likely effects and would make it sound much less appealing than it does in a gauzy stump speech. But away from those harsh realities, purely as campaign rhetoric, it probably works very well.
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September 15, 2015
QotD: The Ex-Im Bank
… every time the Ex-Im Bank gets involved in a deal, there are only two possibilities: The government is needlessly subsidizing something that would have happened anyway, giving away cheap money to a huge corporation. Or else it’s subsidizing a deal that wouldn’t have happened anyway, in which case we are defending the use of taxpayer dollars to sell cheap manufactured goods to foreigners. It’s not even as if we’re picking out especially needy foreigners, who may require a charitable contribution from the prosperous citizens of the United States; the subsidy is distributed on the basis of who is willing to, say, buy cut-rate U.S. airframes. And guess who benefits? U.S. corporations that export a lot.
This is not a good use of taxpayer dollars, and conservative ideologues, bless their hearts, are quite right to want to get rid of it. Their passion is a little out of proportion to the harm that this agency does, but even a small step in the right direction is better than none. The bank’s opponents concede that. For them, the appeal of taking on Ex-Im is that they might be able to take it down.
Against this impeccable economic and political logic, the bank’s supporters marshal a few arguments. First, they often claim (as Nocera implies) that the Ex-Im Bank generates a lot of money for the Treasury. Which is sort of true … except. First of all, it doesn’t account for the opportunity costs of the distortion; resources are diverted into production of certain goods, and away from others. And second of all, government accounting for loans is rather weird. According to the Congressional Budget Office, if we used a fair value accounting method, which would account for the risk of changing market conditions, the Ex-Im Bank’s six largest programs would be generating a deficit, not a surplus.
We are also told that Ex-Im is a vital matter of national security. I’m going out on a limb here, but I’m pretty sure that if the U.S. government needs to find some money to give foreigners as a vital matter of national security, they will manage to find it even if the Ex-Im Bank is shuttered and its silent halls hold only the lingering ghosts of departed exporters.
Megan McArdle, “Ex-Im Bank Is a Tiny But Tempting Target”, Bloomberg View, 2015-08-03.
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September 1, 2015
August 25, 2015
Roger Kimball says Elon Musk is crazy
Oh, sorry, he actually said Musk is “crazy like a visionary“:
I am an unlikely fan of Elon Musk, the flamboyant, Steve Jobs-like (some would say Tony Stark-like) entrepreneur behind SpaceX, SolarCity, Tesla Motors, and other enterprises that seemed like starry-eyed impossibilities a scant decade ago. Musk’s two governing passions, he has said repeatedly, are “sustainable transport” to battle “global warming” and finding a way to make mankind an interplanetary species, beginning with a space colony on Mars.
For my part, the word “sustainable” has me reaching, if not for my revolver, then at least for an air-sickness bag. I regard the whole Green Lobby as a cocktail composed of three parts moralistic hysteria mixed with a jigger of high-proof cynical opportunism (take a look at Al Gore’s winnings from the industry) fortified with a dash of beady-eyed left-wing redistributionist passion. You can never be Green enough, Comrade, and if the data show a 20-year “hiatus” in global warming (so much for Michael Mann’s infamous hockey stick), that’s no reason not to insist that capitalist powerhouses like the United States drastically curtail their CO2 emissions right now, today, while giving egregious polluters like China a decade or more to meet its quotas.
No, when it comes to energy, I often quote, sometimes with attribution, the Manhattan Institute’s Robert Bryce: what the world needs now is cheap, abundant energy, period, full stop, end of discussion. My motto is: frack early, frack often. Do you want to help the poor/clean up the environment/save the spotted wildebeest? Then you need economic growth, and to achieve that you need energy, which at the moment means you need fracking. Q.E.D.
When it comes to interplanetary travel, I suspect that Musk’s passion for transforming us into “space-faring” creatures was heavily influenced by his youthful reading of Isaac Asimov, Robert Heinlein, and (one of his favorites) The Hitchhiker’s Guide to the Galaxy. Not that those adolescent chestnuts necessarily argue against the plausibility of his ambitions. Behind Musk’s enthusiasm for space colonization is a worry that a future “extinction event” might delete human consciousness from the emporium of the universe.
For what it’s worth, I’m very much split on Musk and his works: I generally agree with his desire to help get humanity expanding beyond our single, frail planet … I just wish he wasn’t guzzling down government subsidies to get there. I’ve read the book Kimball is reviewing (Ashlee Vance’s Elon Musk: Tesla, SpaceX, and the Quest for a Fantastic Future), and I certainly feel I got my money’s worth from the purchase … Musk is potentially a very great man. Right now, he’s a pretty good man who still takes everything he can get from the government.
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August 24, 2015
Billionaires, good and bad
In the Washington Post, Ana Swanson examines the good and bad (for economic growth) of the billionaire class:
Over the past few decades, wealth has become more concentrated in the hands of a few global elite. Billionaires like Microsoft founder Bill Gates, Mexican business magnate Carlos Slim Helú and investing phenomenon Warren Buffett play an outsized role in the global economy.
But what does that mean for everyone else? Is the concentration of wealth in the hands of a select group a good thing or a bad thing for the rest of us?
You might be used to hearing criticisms of inequality, but economists actually debate this point. Some argue that inequality can propel growth: They say that since the rich are able to save the most, they can actually afford to finance more business activity, or that the kinds of taxes and redistributive programs that are typically used to spread out wealth are inefficient.
Other economists argue that inequality is a drag on growth. They say it prevents the poor from acquiring the collateral necessary to take out loans to start businesses, or get the education and training necessary for a dynamic economy. Others say inequality leads to political instability that can be economically damaging.
A new study that has been accepted by the Journal of Comparative Economics helps resolve this debate. Using an inventive new way to measure billionaire wealth, Sutirtha Bagchi of Villanova University and Jan Svejnar of Columbia University find that it’s not the level of inequality that matters for growth so much as the reason that inequality happened in the first place.
Specifically, when billionaires get their wealth because of political connections, that wealth inequality tends to drag on the broader economy, the study finds. But when billionaires get their wealth through the market — through business activities that are not related to the government — it does not.
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May 24, 2015
Mitchell’s First Theorem of Government
Dan Mitchell clearly understands what modern western government is really all about:
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May 23, 2015
Debunking the “GM killed the streetcars” conspiracy theory
There are many railfans who still believe, strongly and passionately, that General Motors was involved in a devious plot to kill off the streetcars across North America in order to sell more buses. At Vox.com, Joseph Stromberg explains that this wasn’t the case — in fact, the killer of the streetcar/interurban/radial railway systems was their willingness to lock in to long-term uneconomic agreements with local governments in exchange for monopoly privileges:
Back in the 1920s, most American city-dwellers took public transportation to work every day.
There were 17,000 miles of streetcar lines across the country, running through virtually every major American city. That included cities we don’t think of as hubs for mass transit today: Atlanta, Raleigh, and Los Angeles.
Nowadays, by contrast, just 5 percent or so of workers commute via public transit, and they’re disproportionately clustered in a handful of dense cities like New York, Boston, and Chicago. Just a handful of cities still have extensive streetcar systems — and several others are now spending millions trying to build new, smaller ones.
So whatever happened to all those streetcars?
“There’s this widespread conspiracy theory that the streetcars were bought up by a company National City Lines, which was effectively controlled by GM, so that they could be torn up and converted into bus lines,” says Peter Norton, a historian at the University of Virginia and author of Fighting Traffic: The Dawn of the Motor Age in the American City.
But that’s not actually the full story, he says. “By the time National City Lines was buying up these streetcar companies, they were already in bankruptcy.”
Surprisingly, though, streetcars didn’t solely go bankrupt because people chose cars over rail. The real reasons for the streetcar’s demise are much less nefarious than a GM-driven conspiracy — they include gridlock and city rules that kept fares artificially low — but they’re fascinating in their own right, and if you’re a transit fan, they’re even more frustrating.
This is one of the reasons I’m generally against new plans to re-introduce streetcars (or their modern incarnations generally grouped under the term “light rail”), because they fail to address one of the key reasons that the old street railway/interurban/radial systems died: they were sharing road space with private vehicles. Light rail can provide a useful urban transportation option if they have their own right-of-way, but not if they are merely adding to the gridlock of already overcrowded city streets.
And once again, I’m not anti-rail … I founded a railway historical society and I commute most work days on a heavy rail commuter network. I don’t hold this position due to some anti-rail animus. If anything, I regret the passing of railway systems more than most people do, but I recognize that they have to be self-supporting (or close to self-supporting) to have a chance to survive. Being both more expensive and less convenient than alternative transportation options is a sure-fire path to extinction.
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May 15, 2015
This is why California’s water shortage is really a lack of accurate pricing
David Henderson explains:
Of the 80 million acre feet a year of water use in California, only 2.8 million acre feet are used for toilets, showers, faucets, etc. That’s only 3.5 percent of all water used.
One crop, alfalfa, by contrast, uses 5.3 million acre feet. Assuming a linear relationship between the amount of water used to grow alfalfa and the amount of alfalfa grown, if we cut the amount of alfalfa by only 10 percent, that would free up 0.53 million acre feet of water, which means we wouldn’t need to cut our use by the approximately 20 percent that Jerry Brown wants us to.
What is the market value of the alfalfa crop? Alexander quotes a study putting it at $860 million per year. So, assuming, for simplicity, a horizontal demand curve for alfalfa, a cut of 10% would reduce alfalfa revenue by $86 million. (With a more-realistic downward-sloping demand for alfalfa, alfalfa farmers would lose less revenue but consumers would pay more.) With a California population of about 38 million, each person could pay $2.26 to alfalfa growers not to grow that 10%. Given that the alfalfa growers use other resources besides water, they would be much better off taking the payment.
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April 11, 2015
America’s biggest welfare queen
It’s not nice to call someone a welfare queen, but this is a case where it’s hard to find a more accurate way of putting it:
America’s biggest welfare queen is someone you’ve probably never heard of. She’s Hispanic. She’s been living off other people’s hard-earned tax money for years. And she’s gotten rich doing it.
Her name is Iberdrola. She’s a Spanish energy company that has invested in U.S. power facilities. And according to the advocacy group Good Jobs First, she’s raked in more than $2 billion from Uncle Sam in just the past few years.
Good Jobs First maintains a subsidy tracker where you can look up which companies are getting rich from public funds. It recently issued a report on “Uncle Sam’s Favorite Corporations — the companies that have gained the most from federal grants, special tax preferences, loans, and loan guarantees.
The biggest beneficiaries (“by an order of magnitude”) are Bank of America, Citigroup, and other major financial institutions that were bailed out during the 2008 financial crisis. The Federal Reserve, the Troubled Asset Relief Program, and so on threw trillions of dollars at U.S. and foreign banks in a desperate effort to stabilize the financial system. It worked. In many cases (though not all), the institutions repaid the money. In some cases the federal government actually earned a profit.
But hundreds of other companies have raked in billions of dollars in direct grants. Along with Iberdrola, NextEra Energy, NRG Energy, Southern Company, Summit Power, and SCS Energy all have reaped more than $1 billion in federal largess, often receiving payments through programs meant to boost renewable energy. At the same time, many coal companies have taken huge sums from Washington through grants and coal production tax credits. So, as with farm programs—some of which subsidize farmers to farm more and some of which pay farmers to not farm at all—Washington thwarts its own objectives by subsidizing both renewable fuel sources and the fossil fuels they’re supposed to replace.
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April 7, 2015
Regulating the US railroads
At Slate Star Codex, Scott Alexander recently reviewed David Friedman’s latest revision to his 1973 book, The Machinery of Freedom (sometimes called The Machinery of Friedman by libertarian wags). Scott wasn’t totally sold on Friedman’s proposals, but he posted several highlights from the book, including this discussion of how the US government was persuaded to regulate the railroad industry and then the airlines:
One of the most effective arguments against unregulated laissez faire has been that it invariably leads to monopoly. As George Orwell put it, “The trouble with competitions is that somebody wins them.” It is thus argued that government must intervene to prevent the formation of monopolies or, once formed, to control them. This is the usual justification for antitrust laws and such regulatory agencies as the Interstate Commerce Commission and the Civil Aeronautics Board.
The best historical refutation of this thesis is in two books by socialist historian Gabriel Kolko: The Triumph of Conservatism and Railroads and Regulation. He argues that at the end of the last century businessmen believed the future was with bigness, with conglomerates and cartels, but were wrong. The organizations they formed to control markets and reduce costs were almost invariably failures, returning lower profits than their smaller competitors, unable to fix prices, and controlling a steadily shrinking share of the market.
The regulatory commissions supposedly were formed to restrain monopolistic businessmen. Actually, Kolko argues, they were formed at the request of unsuccessful monopolists to prevent the competition which had frustrated their efforts.
[…]
It was in 1884 that railroad men in large numbers realized the advantages to them of federal control; it took 34 years to get the government to set their rates for them. The airline industry was born in a period more friendly to regulation. In 1938 the Civil Aeronautics Board (CAB), initially called the Civil Aeronautics Administration, was formed. It was given the power to regulate airline fares, to allocate routes among airlines, and to control the entry of new firms into the airline business. From that day until the deregulation of the industry in the late 1970s, no new trunk line — no major, scheduled, interstate passenger carrier — was started.
The CAB had one limitation: it could only regulate interstate airlines. There was one major intrastate route in the country — between San Francisco and Los Angeles. Pacific Southwest Airlines, which operated on that route, had no interstate operations and was therefore not subject to CAB rate fixing. Prior to deregulation, the fare between San Francisco and Los Angeles on PSA was about half that of any comparable interstate trip anywhere in the country. That gives us a good measure of the effect of the CAB on prices; it maintained them at about twice their competitive level.
In this complicated world it is rare that a political argument can be proved with evidence readily accessible to everyone, but until deregulation the airline industry provided one such case. If you did not believe that the effect of government regulation of transportation was to drive prices up, you could call any reliable travel agent and ask whether all interstate airline fares were the same, how PSA’s fare between San Francisco and Los Angeles compared with the fare charged by the major airlines, and how that fare compared with the fare on other major intercity routes of comparable length. If you do not believe that the ICC and the CAB are on the side of the industries they regulate, figure out why they set minimum as well as maximum fares.
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March 25, 2015
Reason.tv – Sports Stadiums Are Bad Public Investments. So Why Are Cities Still Paying for Them?
Published on 17 Mar 2015
“Anybody that drives around Southern California can tell you the infrastructure is falling apart,” says Joel Kotkin, a fellow of urban studies at Chapman University and author of the book The New Class Conflict. “And then we’re going to give money so a bunch of corporate executives can watch a football game eight times a year? It’s absurd.”
When the Inglewood City Council voted unanimously to approve a $1.8 billion stadium plan on February 24th, hundreds of football fans in attendance cheered for the prospect of a team finally returning to the Los Angeles area.
On it’s face, the deal for the city of Inglewood is unprecedented — Rams owner Stan Kroenke has agreed to finance construction of the stadium entirely with private funds. The deal makes the stadium one of the most expensive facilities ever built and is an oddity in the sports world, where most stadiums require millions in public dollars to be constructed.
And while the city still waits to hear if it will indeed inherit an NFL team, the progress on the new privately-funded Inglewood stadium has set off a bidding war between other cities that are offering up millions in public subsidies to keep (or attract) pro-sports franchises to their area.
St. Louis has proposed a billion dollar waterfront stadium financed with $400 million in tax money to keep the Rams in Missouri. And the San Diego Chargers and Oakland Raiders have unveiled a plan to turn a former landfill in Carson, California, into a $1.7 billion stadium to keep the Rams from encroaching on their turf. While full details of the plan have yet to be released, it’s been reported that the financing would be similar to the San Francisco 49er’s deal in Santa Clara, which saw the team receive $621 million in construction loans paid for with public money.
Even the fiscally conservative Scott Walker is not immune to the stadium spending craze. The Wisconsin governor wants to allocate $220 million in public bonds to keep the Milwaukee Bucks basketball franchise in the area. Walker has dubbed the financing scheme as the “Pay Their Way” plan, but professional sports teams rarely pay their fair share when it comes to stadiums and instead use public money to generate private revenue.
Pacific Standard magazine has reported that in the last 20 years, the U.S. has opened 101 new sports facilities and stadium finance experts say that almost all of them have received public funding totaling billions of dollars. Politicians generally rationalize this expense by stating that stadiums will generate economic revenue and job opportunities for the city, but Kotkin says those promises are rarely realized.
“I think this is sort of a fanciful approach towards economic development instead of building really good jobs. And except for the construction, the jobs created by stadia are generally low wage occasional work.”
“The important thing that we’ve forgotten is ‘What is the purpose of a government?'” asks Kotkin. “Cities instead of fixing their schools, fixing their roads or fixing their sewers or fixing their water are putting money into ephemera like stadia. And in the end, what’s more important?”
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