Archive for the ‘Public Choice’ Category

The Public Has Spoken – Sort Of

Once you understand public choice theory, watching politics unfold becomes less of a frustration and more a source of amusement.

I just heard President Obama lay out his near term agenda. He was elected by a decent majority and will fight for the issues for which he campaigned. The people have spoken, and the people want a Democratic agenda implemented.

But the House of Representatives was also just elected. It is firmly Republican. The people have spoken, and the people want a Republican agenda implemented.

Same voters. Two conflicting agendas.

Some pundits say that voters want compromise. I don’t understand how you compromise between raising taxes and lowering taxes, for example.

I can only conclude that what voters actually favor is gridlock. This restrains both Democrats and Republicans and preserves the status quo. The last several presidents, when given a compliant Congress, have moved the country in unhappy directions. Gridlock forces politicians to take a “timeout”¬†and allows only actions which are broadly acceptable to voters.

voting day in a small town

voting day in a small town (Photo credit: Muffet)

Don’t expect a lot to happen in a gridlocked political system – the public has spoken and inaction seems to be our preference as a nation.

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Adventures In Government

Barron’s has an amusing articledescribing some of the history of government “investments”. It’s mostly about the Erie Railroad, which I would hope is no longer controversial. There are countless other examples. Suffice it to say that, as an investor, government tends to do a terrible job. The reasons are fairly obvious. Nevertheless, there are constant calls for more government investment, as if things will be different this time. I’m sure that there are government investments that have worked out well, but the overall track record is poor. Wouldn’t it be nice if we knew more about which kinds of investments were probably good and which were probably bad? Yet I suspect that even if we knew, we’d ignore the facts. For politicians

1884 map

Image via Wikipedia

, there are a lot more important things than facts.

Healthcare Costs

Most of what is being written about healthcare is rather shallow and uninformed. I recommend an exception here, courtesy of Arnold Kling. One commenter on this post made an exceptionally insightful observation: the issues of healthcare costs involve far more than economic efficiency. There are deep ethical issues as well. The commenter said it well:

Nothing short of brutal, heavy-handed rationing can control health care costs. The problem with Kling’s voucher plan is that it makes this explicit. It would make each of us ration our own care (maybe half of us could cope with that). But it would also force people to ration care for their family members. I think most people know, deep down, that this must be done, but, come hell or high water,they will not do this individually. Just as people hate to take responsibility for their choices in the mate market, people¬†desperately need a way to ration care while pretending they aren’t.

Governments fill this role. In Britain, NICE is the whipping boy. People rage at the bureaucrats so they don’t have to feel guilty for not dialyzing their demented octogenarian grandparents.

Maybe private insurance companies could ration care if they had the backing of the government (e.g. approved guidelines and procedures which make it virtually impossible to win a lawsuit against a compliant insurer).

Maybe doctors could enforce the rationing. They can pretend nothing more can be done. . . . I think the Swiss system may be something like this, though I’m not sure.

It takes two executioners simultaneously turning two keys to start a lethal injection machine. That way no one person can be held directly responsible for killing another. We get to pretend the “state” did it.

Controlling costs means denying care. Denying care means killing, even if we do it softly.

It’s worth noting that Public Choice theory says that politicians would never ever make rules for rationing. They will, of necessity, pawn it off on a bureaucracy. Maybe all those lunatics talking about “death panels” aren’t so lunatic after all.

UPDATE: Kling explains, with perfect clarity, what can and cannot happen, when, and why. Most informative!

Climate Change Progress

Recently, the U.S. House of Representatives took time out from fending off the world and exempted large cattle-, dairy- and hog-producing operations from an Environmental Protection Agency requirement for reporting greenhouse gas emissions. And 13 Great Lakes cargo ships were exempted from a proposed mandate requiring the use of low-sulfur fuel. When constituents’ interests conflict with global grandstanding, Congress’s rule is “act locally, think globally tomorrow, maybe.”

via George F. Will – George F. Will on the changing climate for a global warming treaty – washingtonpost.com.

No student of Public Choice theory would be the least bit surprised. Elected politicians will act to increase their chances of re-election or post-career economic well being. Politicians from farm states know not to aggravate their farmers. That’s why the government pays farmers to grow tobacco. Politicians from industrialized states know not to aggravate the unions. That’s why public education has almost no chance of improving. Politicians who receive huge campaign funding from lawyers know not to aggravate the lawyers. That’s why there’s no interest in reforming malpractice insurance.

I’m not a big believer in taking urgent action on climate change, but even if I did think something was required, it’s apparent that there’s not enough campaign cash flowing through the political system to make a difference. We might get a “cap and trade” law to supposedly help the climate, but it’s main effect will be to reward campaign contributors and punish non-contributors.

The Ties That Bond

Financially literate bloggers continue to be critical of the seemingly bizarre actions of Team Obama at the U. S. Treasury. If all this seems utterly arcane, allow me to offer a simplified explanation. The Treasury is taking actions on many fronts to aid bond holders at the expense of stock owners. You can argue that this is wise or you can argue that it is unwise, but I will argue that it is predictable. The issue is not stock and bond owners – the issue is about the companies that issue stocks and bonds. Small growing companies depend upon equity financing (stocks) in their early years. Well established companies can issue bonds at a reasonable cost. It’s also the well established companies that can afford lobbyists and can (indirectly) make campaign contributions. Tilting the table to favor bond owners helps the well established companies, threatens their upstart competitors, and assures future income for politicians.

You might want to consider increasing your exposure to corporate bonds.

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.