Some Things Never Change

Foreign Policy has a nice article about things that won’t change regardless of who becomes President. My list would be longer. The reason some things won’t change has to do with incentives. Politicians respond to incentives just like anyone else - that’s the core idea of Public Choice Theory. And one of the stronger incentives is to keep getting elected, which, in turn, depends upon a volatile and under-educated electorate. It’s a wonder that things are as good as they are!

The Coming Ice Age

Global warming, global cooling - both give politicians a chance to take your money and give it to pliant voters, campaign donors, and future employers or clients. The facts don’t matter: any cause will do. Since most of us will believe just about anything we’re told, it’s an almost foolproof game plan.

Corruption? Or Business As Usual?

This list of the ten worst corruption cases in government is pretty depressing - but at least it’s bi-partisan! And charges made are not charges proven. Nevertheless, it’s pretty depressing, even if Public Choice Theory predicts such behavior.

Iran and NAFTA

I sure don’t know what to make of the sudden intelligence reversal on Iran, other than Israeli intelligence doesn’t agree with the US assessment. Some suspect skullduggery. But, given our intelligence success in preventing 9/11, understanding what was happening with WMDs in Iraq, and now admitting they were dead wrong about Iran only a short while ago, it’s hard to put much credence in anything they say. One of the few things that I know for sure is that the Democratic candidates were all over the issue, and each other, prompting National Public Radio’s fact checkers to point out several out and out falsehoods during the last debate.

The Democratic candidates seem to be working overtime making false claims. The Washington Post, no friend of the Republicans, has complained about the Democrats’ false claims about NAFTA. Don Boudreaux questions, with such “profligate lying or gross stupidity”, why we should entrust these guys with health care.

Some of the blame has to go to the “availability cascade”. An availability cascade occurs when a lot of people share an “availability bias“. Huge numbers of voters can passionately believe something that is untrue, and it’s doubtful that a candidate can get elected without seeming at least sympathetic to these false beliefs. That’s why the Democratic candidates speak against NAFTA and why the Republican candidates endorse creationism. It’s either smart calculations by smart liars or a stunning show of ignorance. I’m hoping the next President is a very good liar and not a dunce.

Political Motives

This got me thinking: what does motivate politicians? Or, put another way, why are some people motivated to be politicians and others not? Most of John Salvatier’s list of reasons could apply to most anyone. I suspect that Robert Heinlein was almost right when he said there are two kinds of people in this world: those who want to tell other people what to do and those who don’t. I imagine that it’s more a matter of degree. Politicians must have a greater than average desire for power, combined with whatever skills are needed to be elected or appointed.  They see themselves as having good intentions and see their exercise of power as a public service. That’s all it takes. You can be dumber than dirt and have the ethics of a weasel and still be a successful politician.

It’s hard for ordinary citizens to understand what drives politicians. I imagine most of them think the greatest public service than can perform is to remain in office. Everyone has to trade off between things they value highly and things they value less highly, and for politicians, remaining in office or attaining higher office has a very high value indeed.  For the common good, of course.

Choices

Wow! I’ve got to remember to use the thinking style used in this article about global warming. Economists call the problem opportunity cost. Whatever resource I expend on A, I cannot spend again on B. We must make choices in spending our time and money. And we unfailingly choose those things we value more highly at the time.

Politicians are no different when spending our money. Some things they value on the basis of principle, and some things they value because it improves their future prospects. This is the essence of public choice theory and I can’t see how it could work any other way. It’s equally true in democracies and dictatorships.

We often err by ignoring the implicit choices. We see a problem and develop a solution, ignoring the fact that the solution diminishes our ability to address other problems. The trick isn’t in developing solutions - the trick is picking the right problems.

More Bridge Nonsense

Today’s WSJ editorial pretty much sums up my reaction to the I-35W bridge collapse and the political response. The current political noisemaking is about whether the new bridge should make allowances for light rail. What is it about light rail that politicians find so attractive? All the numbers I’ve seen make it look like a pretty anemic alternative to traditional roads and bridges unless you have an incredible population density (New York) or historic antiquities that make road expansion impractical (London and Paris). Maybe the politicians want Minneapolis to be like Portland. There are, after all, good jobs to be had for transit lobbyists after your political career implodes.

Extortion as Public Policy

Public Choice Theory says (among other things) that politicians will find ways to monetize political power. Here is a great example right out of the headlines. There is no way to avoid this, short of rolling back a host of Supreme Court decisions back to about 1937. What’s 1937 have to do with it? Watch this video.

Ron Paul

I haven’t followed a politician named Ron Paul, but his words sure are impressive. Read about him here. He’s a treasure trove of great quotes. But what I appreciate most is this:

Perhaps alone among those plying their trade in Washington, Paul recognizes and opposes the central danger of government: Its power will be captured by organized special interests and used to advance narrow objectives by imposing costs on others. He seems to be the only one inside the beltway acting on the reality that it is impossible for all citizens to gain from this, as those that cannot compete as effectively in the political arena of special interest must lose from the government transfer game.

Trouble Ahead?

It’s not every day that I find a Web posting that touchs on the Political Economy, Public Choice, and Running Money - but this one qualifies.

I agree that, in small scale environments, governments can invest in equity markets if they’re very careful to restrict themselves to blind and broad indexing. Of course, that never happens. All you have to do is look at the various pension funds for public employees. It doesn’t take long for “inside deals” and political agendas to take over. This is why public pensions have such hapless performance and why public pension funds are almost all underfunded.

John Bogle has a new book out that offers the best explanation yet of why indexing is superior to “selective investment”. It’s not that selective investing can’t outperform an index - it often happens. But all it takes is one big mistake, one really bad year, and the jig is up. Over the course of decades, it’s extremely unlikely that you can beat the index. Sure, there’s always a Warren Buffet, but the odds of you doing as well, or as well as an index, are very very thin. Now imagine that you’re trying to do it with other people’s money, with marginal oversight, and with a political agenda.