The Regulatory Process
I am always disappointed by public meetings. We hold public meetings for people to give us comment, and we never get the kind of comment I hope for. I keep hoping some guy will stop in and say “Why, that problem looks like one we solved for a tricky transportation issue! You might not think so, but I think the underlying structure is the same. Have you thought about this algorithm, which worked for us?” And then I would say, “That just might work! Maybe you could show me how you derived it over dinner tonight.” And he would say “Only if I can take you out for dessert after, so we can talk about other potential applications. But it will have to be in Midtown, because I rode my bike here.” And then I would start blushing and fanning myself, because I would be thinking impure thoughts.
That is from Megan Non-McArdle. Her politics are not mine, but if you scroll down her blog for the last few days, you’ll find some of the best posts on regulation in all of Blog Land; here is her post on how regulation can go wrong.
From my angle:
1. Government regulations have a very large aggregate net benefit relative to their costs; rules for clean gas, taken alone, might be more valuable than all the other regulatory costs we bear. If you don’t believe me, try visiting Mexico City in November. I’ve also been to Delhi.
2. Many government regulations are simply unnecessary.
3. No one has come up with a good algorithm for weeding out the bad regulations from the good ones. Nonetheless cost-benefit analysis, for all its philosophic flaws, can serve this function. You don’t have to take CBA very seriously for this to be true. It will reject towing in icebergs from the Arctic to supply water in New Zealand, and for the right reasons. A deeper question is whether throwing darts at the Federal Register, as a means of eliminating new excess regulation, will bring a positive expected return.
4. In many areas the difference between "government regulation" and "government protecting property rights" is not well-defined. Reread #3.
5. The costs of regulation sometimes involve intransitivities. Many small regulations, examined individually, might be said to bring zero net harm, but taken collectively they tax innovation. It is simply very hard to run a business and deal with extensive regulation; attention and effort are scarce. More people on the left should take seriously the political conversion of George McGovern to a pro-business stance, after he tried running a business himself.
6. In Megan’s area — water policy — property rights are especially likely to be poorly defined and the scope for regulation (or is that "enforcement of property rights"?) is especially likely to be strong.
Mental models of me
Kieran Healy has many mental models. My mental models have mental models of various people having mental models of me, but fortunately a fixed point theorem applies, at least on alternate Tuesdays.
Market based management
The Science of Success: How Market Based Management Built the World’s Largest Private Company, by Charles Koch, due out this coming Tuesday. This is Koch’s account of how the economics of Hayek and Polanyi (Michael, not Karl!) helped him do it.
Here is Mark Skousen’s class on free market management. Here is a bibliography on Austrian economics and management. Here is Hal Varian on Kaizen, recommended.
Markets in everything
Or should this post be titled "Department of Uh-Oh"?
Indonesia, which has had more human cases of avian flu than any other country, has stopped sending samples of the virus to the World Health Organization, apparently because it is negotiating a contract to sell the samples to an American vaccine company, a W.H.O. official said yesterday. The strains of the H5N1 virus circulating in Indonesia are considered crucial to developing up-to-date vaccines and following mutations in the virus.
Here is the story. At the very least, is it not better to release the information but require a payment of royalties from any company using it profitably? Or since the virus has a 60-70 percent fatality rate in Indonesia, maybe they might go back to simply giving the information away…?
Here is further commentary, perhaps the Indonesians are resentful that they would not be able to afford any resulting vaccine. If this entire episode does not convince you that IP law is out of control, I don’t know what would.
Department of Uh-Oh
Or should this post be called "Markets in Everything"?
…there is plenty of anecdotal evidence that Germany has become less attractive for people in fields like medicine, academic research and engineering. Those who leave cite chronic unemployment, a rigid labor market, stifling bureaucracy, high taxes and the plodding economy – which, though better recently, still lags behind that of the United States.
Here is the full story, which is an object lesson in what happens if you don’t pay your doctors enough…
Lester Troyer, medical tourist
Lester Troyer, an Amish construction worker from near Mansfield, Ohio,
said he was in Tijuana for low-cost medical care with friends, all
without health insurance. Their van was stopped and searched for drugs
by federal police; they were released without incident. "They were
nice," he said.
Here is the story, most of which concerns Tijuana, not Lester.
How good was the New Deal?
Econoblog, Arnold Kling vs. Brad DeLong, excerpt:
The New Deal is a mythical event in history. Just as we revere the
constitution as the basis for our government and we revere Abraham
Lincoln for ending slavery and preserving the union, we are supposed to
revere the New Deal as somehow providing the basis for our modern
prosperity. Yet the policies of the New Deal are quite a mixed bag, to
say the least. Most were discarded by 1950. The survivors include
agricultural policies that were almost certainly wrong then and are
almost certainly wrong now. Most of the financial regulations, such as
interest rate ceilings on bank deposits, proved unworkable by the
1970s. Social Security, and its offspring Medicare, are going to be the
next great financial crisis in this country.
Can you guess which of the two wrote that?
The John Edwards health insurance plan
Kevin Drum writes:
John Edwards’ new healthcare proposal is, basically, an individual mandate (everyone is required to get health insurance coverage somehow) combined with community rating (private insurers have to take all comers, regardless of medical condition) and government subsidies (the feds will pay for insurance if you’re too poor to afford it). Private insurance would be available through a mechanism Edwards calls "Health Markets."
Edwards is honest enough to tell us this will raise our taxes. Kevin Drum is honest and he tells us that the best hope for this plan is evolution toward a single-payer system. Here is Matt Yglesias, here is Ezra, here is more.
Loyal MR readers will know that I do not favor a single payer system but I can appreciate its logic. If we are going to regulate insurance companies very heavily, they become a superfluous middleman and a source of manipulation, while yielding few offsetting benefits.
In the United States doctors (check out those wages) and insurance companies are far more politically powerful than elsewhere. You might think that makes our health care system worse, if so it will make our health care reforms worse too. If anything happens, those groups will have a veto, more or less, on the distribution of the resulting rents.
I believe that the best and most intelligent Democratic bloggers are already rooting for an evolutionary path whereby the first-step reforms — whether at the state or federal level — eventually succeed only by making matters intolerable and unprofitable for doctors, insurance companies, and perhaps hospitals as well. After profits have suffered enough, perhaps everyone will see the light at the end of the tunnel and simply abolish those nasty private health insurance companies.
Given how politics actually works, I do not consider this a promising sign for the future of American health care reform.
Addendum: I did very much enjoy reading the first comment left on this post…
The new FelixSalmon.com
Here, he covers bankruptcy
futures, the World Bank, Ecuador; he is freed from the shackles of
institutional constraint, look for more in the days to come…
Economic resources for high school students
A loyal MR reader writes:
I teach Advanced Placement economics in high school. I would appreciate if you could suggest a short list of articles, essays, or books that you would consider essential for students to read as they begin their study of economics.
Your ideas?
DeLong on the Symmetry Argument
Brad DeLong has an excellent post on the prisoner’s dilemma, the symmetry argument and Newcomb’s problem. He hits the nail on the head with this:
I am a dominant-strategy guy. If you find the Symmetry Argument
convincing–well, Grasshopper, you have once again failed to snatch the pebble
from my hand. But I feel the force of the other side: If you find the Symmetry
Argument an obvious fallacy–well, Grasshopper, you have once again failed to
snatch the pebble from my hand.
Department of Hmm…
But winners [from the Bush health care plan] could turn into losers with time. Even people with policies under the cap could eventually hit the ceiling as health costs rise. That’s because the cap would be indexed to general inflation — not health care inflation, which has risen more rapidly in recent years.
That is from today’s Wall Street Journal, p.D3, "How Health Care Proposals Could Affect the Insured." Here are some numbers on how much the two inflation rates differ; so is the Bush plan simply an eventual phase-out of this tax deduction?
Immigrants: Your Country Needs Them
That is the title of this new book by Philippe Legrain, and no I don’t know how you can buy it outside the UK. Legrain is also the author of the excellent Open World, a defense of economic globalization.
This work is the single best non-technical defense of a liberal immigration policy. What I liked most was how
it put U.S. debates in a broader context; most American sources don’t
do this. For instance how normal or extreme is the American experience
compared to other histories of absorbing immigrants? The book is original in this regard, yet without moving beyond easily
understood arguments.
I do understand the
concerns raised by Steve Sailer and others against immigrants, and I
readily grant that the idea of open borders is a non-starter. But is
the United States today in a position where Latino immigrants are
tearing us apart? I think not.
Yes I know your anecdotes, but here is what it would
take to budge me. Do a study of real estate prices in San Diego, Santa
Ana (a largely Mexican part of Orange County), and the relevant
sections of Houston, among other locales. Show me that real estate values in those areas
are falling or even plummeting, and yes I do mean in absolute terms and
no the recent collapse of the real estate bubble doesn’t count. Then I’ll
give the issue another look. Otherwise the worst I am going to believe is that "things are not getting better as rapidly as they might otherwise be," and that, whether or not you like such a possible state of affairs, does not represent the sky falling.
But for purposes of balance, here is the most anti-immigration post I have written. Here is an interesting recent paper on migration.
Addendum: Here is a good article on immigrant entrepreneurs.
Dr. Neruda’s Cure for Evil
I’ve loved Rafael Yglesias’s book Dr. Neruda’s Cure for Evil for about ten years, but only Friday, when browsing in the library, did it occur to (silly) me it was also The Best Novel By A Father of A Major Blogger.
The story, told by literary flashback, turns around a doctor who encourages his patients to relive their childhood traumas but goes one step or more too far. One review: "Entertaining, thought-provoking, shocking, enlightening, puzzling, this fascinating work
tackles many issues such as incest, insanity, the nature of love, the drive for power,
religious, business and political creeds, therapeutic ethics — and, of course, what (or who)
is evil."
Somehow, unjustly, the book never captured the "For Smart People Who Are Looking for Conceptual Yet Fun Fiction Along the Lines of Byatt, Eco, and Calvino" slot that grabs so many readers. It seems largely forgotten.
By the way, here is the son’s post on government contracting. Here is yet another generation up.
School Choice in Utah?
Utah could be getting a reasonably serious school choice program. In Friedman’s vision it is students that are funded not schools and students are funded equally regardless of where they choose to attend school – i.e. no fiscal discrimination. In the Utah plan, in contrast, the voucher money is still less than is spent per public school student and it is means tested. Nevetheless, the voucher is reasonably large and the program is state wide which together would make it the most significant voucher experiment in the United States.
Thanks to Fred Hastings for the pointer.