Kling Introduces "Deutungshoheit"

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Source: Arnold Kling, "Word of the Day," askblog.com, July 31, 2013

Robert Lucas on Redistribution vs. Production

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From the Essay:
Of the tendencies that are harmful to sound economics, the most seductive, and in my opinion the most poisonous, is to focus on questions of distribution. In this very minute, a child is being born to an American family and another child, equally valued by God, is being born to a family in India. The resources of all kinds that will be at the disposal of this new American will be on the order of 15 times the resources available to his Indian brother. This seems to us a terrible wrong, justifying direct corrective action, and perhaps some actions of this kind can and should be taken. But of the vast increase in the well-being of hundreds of millions of people that has occurred in the 200-year course of the industrial revolution to date, virtually none of it can be attributed to the direct redistribution of resources from rich to poor. The potential for improving the lives of poor people by finding different ways of distributing current production is nothing compared to the apparently limitless potential of increasing production.

Source: Robert E. Lucas, Jr., “The Industrial Revolution: Past and Future,” The Federal Reserve Bank of Minneapolis Annual Report, May 2004 Issue

Landsburg on Recycling

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From the article:

But there’s another great downside [to recycling that Professor Munger] didn’t mention. Namely: When you cast policy issues in moral terms, you degrade the character of public discourse. You lead people to see conflicting priorities as an occasion for battle, rather than an occasion for compromise. You send the message that policy is best decided by appeals to one’s inner conscience (or, more likely, to the polemics of demagogues), rather than by appeals to impersonal cost-benefit analysis. And this is a very bad thing. If overusing landfills is a bad habit, then branding everything you don’t like as evil is a far worse one.

If we’re determined to instill blind moral instincts that make people behave better most of the time, I’d like to nominate a blind moral instinct to respect price signals and the individual choices that underlie them—an instinct, for example, to recoil from judging and undercutting other people’s voluntary arrangements. I like it when my neighbors dispose of their beer cans properly. I’d like it even more if they’d stop trying to dictate other people’s wages, working conditions, housing contracts, and drug habits.

By concentrating our moral resources on recycling, we not only crowd out that nobler mission; we actually undercut it, by sending the message that price signals are unreliable. Of course, some price signals are unreliable, but the whole point of the moral suasion agenda is to get things right most of the time, not all of the time. Every time a misguided locavore makes the world a poorer place by choosing expensive local food, it’s because she’s absorbed the false lesson that prices are generally a poor measure of social cost - a lesson first absorbed, I suspect, at the feet of the recycling propagandists she first met in elementary school.

That’s a good reason to be squeamish about using moral suasion as a policy tool. On the other hand, there are times when we might want to overcome that squeamishness. I’m on board, for example, with making people feel guilty about committing murder for hire. I might be on board with making people feel guilty about working as OSHA inspectors, or accepting jobs that wouldn’t exist without tariff protection, or installing solar panels solely because they’re subsidized.

Source: Stephen Landsburg, “Don’t Cast Recycling as a Moral Issue” from the discussion of "The Political Economy of Recycling," Cato Unbound, June 2013

Munger on What Is A Resource?

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I once proposed a guessing game to determine whether something is a resource or just garbage, to be disposed of at the lowest possible cost, including costs to the environment. The answer comes down to price.  If someone will pay you for the item, it’s a resource. Or, if you can use the item to make something else people want, and do it at lower price or higher quality than you could without that item, then the item is also a resource. But if you have to pay someone to take it, then the item is garbage.

Source: Michael Munger, Recycling: Can It Be Wrong, When It Feels So Right? from the discussion of "The Political Economy of Recycling," Cato Unbound, June 2013
 

Pethokoukis on Leftist Economic History

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Full test of the article:

The left views 1980s and 1990s policies of freer markets as responsible for stagnant incomes that they are now in the process of fixing. "It’s a new term for the old leftist dream of redistribution over wealth creation."

President Obama has finally stopped blaming George W. Bush for America’s current economic mess. Now it’s Ronald Reagan’s fault.

Obama didn’t use those exact words or make that explicit claim in his Knox College speech last week, but that’s the gist of it. The Great Recession and its slow-growth, high-unemployment aftermath are really just the culmination of three decades of pro-market economic policies that favored the rich at the expense of the middle class.

Here’s how Obama rewrites economic history: The shared national purpose of World War II was followed by a golden age of shared prosperity in the 1950s and 1960s. Unions were strong, taxes high, pension benefits guaranteed — thanks to a grand egalitarian bargain between Big Government, Big Business, and Big Labor. “But over time, that bargain began to fray,” Obama said. “Technology made some jobs obsolete. Global competition sent a lot of jobs overseas. It became harder for unions to fight for the middle class. Washington doled out bigger tax cuts to the very wealthy and smaller minimum-wage increases for the working poor.” And with the recession and financial crisis, Obama concluded, “the decades-long . . . erosion of middle-class security was suddenly laid bare for everybody to see.”

In other words, according to Obama, the only lasting effects of the Reagan “neoliberal” revolution are stagnant middle-class wages, extreme income inequality, and reduced income mobility. And with those claims, Obama is using the bully pulpit to propagate the leftist story that after 30 years of failed supply-side, “trickle-down” economics, America needs a dose of “middle-out” economics. That phrase, “middle-out,” was coined by Clinton speechwriter Eric Liu and venture capitalist Nick Hanauer, who argue in a new Democracy magazine essay, “We have 30 years of terrible policy to undo.”

Time for a fact check:

1. The U.S. economy in the 1950s and 1960s benefited greatly from its temporary postwar position as the world’s dominant industrial producer. That, along with a constrained labor supply from the 1930s baby bust and from war casualties, produced huge income gains for workers. But both factors were fleeting, of course. Our competitors rebuilt their industrial capacity, and all those returning soldiers started families. What’s more, research from economist Alexander Field finds that the basis for much of the productivity boom of those decades was built on technological advances of the 1930s.

2. With their postwar recoveries fully in place, our competitors began to catch up to U.S. levels of wealth — until the 1980s. At the exact moment that Obama and the middle-outers contend the U.S. economy went off track, it began once again to pull away from Europe. French per capita GDP, for instance, went from 64 percent of U.S. per capita GDP in 1960 to 82 percent in 1980. But when America decided to re-embrace market economics, France sniffed at it. France’s per-person wealth is now back down to 73 percent of America’s.

3. Echoing the claims of the middle-outers, Obama said, “The income of the top 1 percent nearly quadrupled from 1979 to 2007, while the typical family’s barely budged.” That’s not right. The economic consensus is that real median market household income — inflation-adjusted income before taxes, government transfers such as Social Security and the Earned Income Tax credit, and health-care benefits — actually rose more like 20 percent over that period. And once you adjust for taxes, transfers, and benefits — median incomes are up 40 percent.

4. Obama also claimed the “link between higher productivity and people’s wages and salaries” was severed during the past three decades, with workers no longer enjoying the fruits of their labors. The gains all flowed to the wealthy. But research from both the Heritage Foundation and liberal economist and productivity expert Robert Gordon of Northwestern University finds only a small gap between middle-class incomes and productivity.

5. While high-end income has risen dramatically since the 1970s, it doesn’t seem to have affected economic mobility. Research from Brookings scholar Scott Winship found that men experienced, at most, only a bit less ability to climb the economic ladder than did their counterparts born in the early 1950s.

To believe the middle-out view of economic history, one also has to believe that beleaguered middle-class voters from 1981 through 2008 voted time and again against their own economic interests by electing conservative Republican presidents and a Democratic one who slashed investment taxes and signed a massive free-trade agreement. When it comes down to it, “middle-out” economics seems little more than a mildly clever rebranding of pre-Clinton, Democratic economics: high taxes, protectionism, and industrial policy all held together by boomer nostalgia for the ’50s and ’60s. It’s the familiar leftist dream of redistribution over wealth creation. Dealing with America’s economic woes will take fact-based, data-driven analysis of its problems and an accurate appraisal of how we got here. Obama and the middle-outers are apparently uninterested is doing either.


Source: James Pethokoukis, “Fact-free 'Middle-out Economics',” nationalreview.com, July 29, 2013

McArdle on Renters vs Owners

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If the majority own their own homes, there will be successful pressure to use the state to subsidize, aid, and otherwise help homeowners.  If the majority rent, there will be successful pressure to use the state to subsidize, aid, and otherwise help renters.  Both create inefficient policies that cause a great deal of harm.  However, the issue is a defective democracy not defective economics.

Source: Megan McArdle, "Who Are Worse, Renters or Owners?," bloomberg.com, July 30, 2013

McArdle on Who Should Set Medicare Prices?

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In a regulated industry, there are no alternatives to letting the professional experts determine  prices.

Source: Megan McCardle, "Who Should Stet Medicare Prices?" bloomberg.com, July 29, 2013

Bill Nojay on Regulatory Disfunction in Detroit

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A list of burdens imposed by inefficient regulatory rules and bureaucratic structures.

Article text:

Since Detroit declared bankruptcy on July 18, the city's crippling problems with corruption, unfunded benefits and pension liabilities have gotten the bulk of airtime. But equally at fault for its fiscal demise are the city's management structure and union and civil-service rules that hamstring efforts to make municipal services more efficient. I would know: I had a front-row seat for this dysfunction.

Last year, I served as chief operating officer of the Detroit Department of Transportation. I was hired as a contractor for the position, and in my eight months on the job I got a vivid sense of the city's dysfunction. Almost every day, a problem would arise, a solution would be found—but implementing the fix would prove impossible.

We began staff meetings each morning by learning which vendors had cut us off for lack of payment, including suppliers of essential items like motor oil or brake pads. Bus engines that the transportation department had sent out to be overhauled were sidelined for months when vendors refused to ship them back because the city hadn't paid for the repair. There were days when 20% of our scheduled runs did not go out because of a lack of road-ready buses.

The obvious solution for a cash-tight operation is to triage vendor payments to ensure that absolutely essential items are always there. But in Detroit, no one inside the transportation department could direct payments to the most important vendors. A bureaucrat working miles away in City Hall, not responsible to the transportation department (and, frankly, not responsible to anyone we could identify), decided who got paid and who didn't. That meant vendors supplying noncritical items were often paid even as public buses were sidelined.

A major expense for Detroit is the cost of lawsuits filed against the city for various alleged injuries on municipal property. At the transportation department, there were hundreds of claims arising from bus accidents alone. How many of those claims were fraudulent? How many were settled (with the cost of settlement and legal fees posted against DDOT's budget) at unnecessarily high cost?

It was impossible to know, since the city's law department handled all litigation and settled cases without consulting the DDOT staff. It was the law department's policy to settle virtually all claims—which meant that the transportation department became easy prey for personal-injury lawyers bringing cases with little or no merit, costing the city millions.

In the DDOT we tried to hire our own lawyers to fight these claims. But we were blocked by city charter provisions prohibiting any city department from hiring outside counsel without the approval of the Detroit City Council. When we inquired with the mayor's office we were told that the union representing the law department—in Detroit, even the lawyers are unionized—would block any such approval.

Disability and workers' comp claims were routinely paid with no investigation into their validity. More than 80% of the transportation department's 1,400 employees were certified for family medical-leave absences—meaning they could call in for a day off without prior notice, often leaving buses without drivers or mechanics. Management's only recourse to get the work done was to pay the remaining employees overtime, at time-and-a-half rates. DDOT's overtime costs were running over $20 million a year.

Then there was the obstructionism of the City Council. While I was at the DDOT, roughly 10% of bus-fare collection boxes were broken. In another city, getting a contract to buy spare parts to repair these boxes would be routine. The City Council publicly expressed outrage that we didn't fix the fare boxes, since the city was losing an estimated $5 million a year in uncollected fares.

But the reason we couldn't fix the fare boxes was that the contract for the necessary spare parts had been sitting, untouched, in the City Council's offices for nine months. Due to past corruption, virtually every contract had to be approved by the council, resulting in months-long delays. Micromanagement by the council was endemic; I once sat for five hours waiting to discuss a minor transportation matter while City Council members debated whether to authorize the demolition of individual vacant and vandalized houses, one by one. There are over 40,000 vacant houses in Detroit.

Union and civil-service rules made it virtually impossible to fire anyone. A six-step disciplinary process provided job protection to anyone with a pulse, regardless of poor performance or bad behavior. Even the time-honored management technique of moving someone up or sideways where he would do less harm didn't work in Detroit: Job descriptions and qualification requirements were so strict it was impossible for management to rearrange the organization chart. I was a manager with virtually no authority over personnel.

When the federal government got involved, it only made things worse. A federal lawsuit charging that the DDOT did not fully comply with the law in accommodating disabled riders had dragged on for years because of idealistic but painfully naïve Justice Department attorneys seeking regulatory perfection. I felt like a guy in the boiler room of the Titanic, desperately bailing to keep the ship afloat for a few more hours while the DOJ attorneys complained from their first-class cabin that their champagne wasn't properly chilled.

Detroit's other municipal departments had similar challenges. I would often compare notes with managers trying to run the city's street lights, recreation programs, police departments and smaller offices. All of us faced similar gridlock.

The last thing Detroit needs is a bailout. What it needs is to sweep away a city charter that protects only bureaucrats, civil-service rules that straightjacket municipal departments, and obsolete union contracts. A bailout would just keep the dysfunction in place. Time to start over.

Mr. Nojay, a Republican, is a member of the New York State Assembly, representing the 133rd District in upstate New York.

Source: Bll Nojay, “Lessons From a Front-Row Seat for Detroit's Dysfunction,” The Wall Street Journal, July 30, 2013, p. A15