Tag: Microeconomics and policy analysis

“Planet Money” and Planet Earth

Just because a bunch of smart economists agree on something doesn’t make it true. Especially about drug policy.

NPR’s “Planet Money” built an episode on the interesting if unoriginal premise that economists, across the political spectrum, agree on a bunch of policies politicians wouldn’t touch with a barge pole. To prove that they talked to Dean Baker of the Center for Economic and Policy Research, Kate Baicker of the Harvard School of Public Health, Robert Frank of Cornell, and two other players unknown to me (one a libertarian from GMU) and got them to more or less agree on a bunch of politically toxic ideas.

The implicit assumption is that the economists are right - the headline proclaims a “No-Brainer Economic Policy” - and that the political non-starter-ness of their ideas reflects the ignorance, folly, or selfishness of the voters and the cowardice of politicians who seek applause rather than practical solutions. It doesn’t seem to occur to any of the people involved that in some cases the voters and their representatives may know something the economists don’t, or that some actual problems involve phenomena and causal relationships different from those assumed and taught in Intro to Microeconomics.

[Update  Not so. Dean Baker has thought about much of this, and posted a protest on the NPR website about some of the oversimplifications. I’m  glad to know that in this case most of the arrogant carelessness came from journalists, for whom it’s a professional qualification, rather than from academics.]

When it comes to drug policy, for example, the five economists are just waving their invisible hands at a problem they don’t have a clue about.

Continue reading ““Planet Money” and Planet Earth”

Paid line-standing v. congestion pricing: getting the economics right

A seat in a crowded committee hearing room is unlike space on a crowded freeway.

Yes, Michael Sandel demonstrates why people who can’t pass the Intro Micro final shouldn’t be allowed to vote. But our colleague Matt Kahn demonstrates why freshwater economists shouldn’t be allowed to vote, either. (Or write about political theory: if Sandel is “:the leading moral philosopher of our age” then Tom Friedman is its leading foreign-policy thinker and Judge Judy its leading jurist. There’s nothing valid in Sandel’s work that Michael Walzer didn’t say first, and better.)

As RBC commenter NCG points out, the example of lobbyists hiring “line-standers” for Congressional hearings is almost comically ill-chosen to illustrate Matt’s point. Yes, both the lobbyist and the person he hires to stand in line for him come out ahead, as demonstrated by their willingness to engage in the transaction. But the money-poor but time-rich ordinary citizen who doesn’t get in to the hearing because the paid line-stander is willing to show up earlier comes out behind. So, of course, do the victims of whatever piece of plutocratic legislation the lobbyist is there to advance.

So there are two reasons to make this a “blocked transaction”: it’s about a purely positional good (paying line-standers doesn’t produce more places in the hearing room) and it’s about the contest for political power. (Matt’s reasoning can also prove that bribing voters should be allowed, since both the bribor and the bribee come out ahead.)

[Note also that, instead of allowing paid line-standers, it would be unarguably more efficient to simply auction off seats in the hearing room. I think it could be shown that  there is no case in which it is true that (1) rationing-by-waiting is the right way to allocate a good and (2) people should be allowed to get around rationing-by-waiting by paying proxies to wait for them.]

None of this requires going outside the rubric of economics, merely applying that rubric correctly, based on the phenomena under consideration. And that’s why I, as opposed to NCG, object to paid line-standers for hearings but support congestion pricing on highways.

Analysts and advocates

Even good actions have bad consequences. Analysts study that fact; most advocates deny it.

The LA Times story about the marijuana-legalization briefing Jon Caulkins, Beau Kilmer, and I presented at AEI gave the impression that we were opposed to state-level legalization as proposed, for example, in Colorado. Part of the problem was the headline, but a subsequent exchange with the reporter revealed that we had in fact conveyed to him an anti-legalization message.

Much of the discussion at the briefing concerned the likely effects on prices outside of Colorado if the Colorado proposition were to pass.  We predicted a very large drop nationwide, since dealers from the rest of the country could buy at retail in Colorado for way less than they now pay growers for bulk marijuana.

That would create some bad effects in the form of increased drug abuse and some policy problems for the federal government. It would also create some good effects, such as displacing Mexican imports and thereby somewhat reducing the revenue flows of violent Mexican drug gangs. We made no claim about whether the price drop would be good or bad on balance; we just wanted people to notice that it would very likely happen.

So why did this seem to the reporter like an argument against the Colorado proposition? Here’s my hypothesis:

The first principle of policy analysis is that virtually any action has both advantages and disadvantages, compared with the status quo or with some alternative action. So an analyst is always looking for the disadvantages, especially the disadvantages of ideas he supports.

Many advocates, on the other hand, live in a world in which no one concedes anything. To mention or acknowledge that some course of action has a disadvantage is to oppose that course of action. So supporters of marijuana legalization deny that legalization would increase marijuana abuse, while supporters of continued prohibition deny that prohibition causes non-drug crime. Of course this isn’t true of all advocates; some prefer a more analytic approach and hope that frankly acknowledging the downside of whatever they’re proposing will help their credibility. But the journalistic reflex is to treat every such acknowledgement as a concession of ground. And the journalistic convention of even-handedness prevents reporters from stating, accurately, that one side is being honest and the other is lying. That tends to thin the ranks of honest advocates

These are two utterly different ways of looking at the world, and the mutual incomprehension is profound. Analysts often hold advocates in contempt; “Are these people really stupid enough to believe the crap they put out, or are they just a bunch of liars?” And many advocates deeply disbelieve in the possibility of analysis, and assume that every statement made in a policy debate is simply a move in a game.  Because I point out the disadvantages of both legalization and prohibition, there are legalizers who quite sincerely believe that I’m a closet drug warrior and warriors who equally sincerely believe that I’m a closet legalizer.

The facts on both their houses!

 

Progressive policies are good for rich folks

You don’t have to be an altruist to earn like an Episcopalian and vote like a Puerto Rican; you just need to understand that, at the margin, a dollar spent on public goods gives you, personally, more benefit than a dollar spent on private consumption.

No doubt Keith (citing Jonathan Haidt) is right to say that poor people who are victims of Republican downward class warfare and who vote Republican anyway because they think Republicans agree with them on “values” questions aren’t necessarily acting irrationally. As as Weber pointed out a long time ago, “ideal interests” are just as genuine as material interests.

I don’t think it’s irrational for me to vote according to my beliefs about what would make a better world, independent of the effects of specific policies on my individual situation; why should I think it’s irrational for other people to behave the same way?

Of course, there’s a different question hidden here; the progressives asking “What’s the matter with Kansas?” mostly think that some of the “values” Red voters are voting for - expressing their prejudices against blacks and Latinos, a sexual-purity fetish, opposition to women’s personal and economic independence, and hostility to scientific inquiry - are themselves irrational. But “People shouldn’t believe that” does not imply either “People don’t believe that” or “People who believe that are acting strangely if they act on those beliefs.”

Where I disagree with Keith is on the flip side of the question. He thinks Warren Buffet and other Blue-team rich folks are favoring their ideal interests over their material interests just as much as the Red-voting poor and working-class folks. I disagree: they’re voting (consciously or not) for what’s good for them and their families.
Continue reading “Progressive policies are good for rich folks”

State-level marijuana legalization

UCLA public policy students have solved an apparently insoluble problem: how to regulate and tax at the state level something that remains a federal felony.

Marijuana legalization initiatives at the state level - Prop. 19 in California in 2010, the proposals likely to be on the ballot in Colorado and Washington State this fall - run into a tricky set of problems. Marijuana, if legalized, ought to be regulated and taxed. But how can you tax and regulate, at the state level, something that remains a Federal felony? It might seem that all a state can do is what New York did with alcohol in 1923: repeal its state law entirely, leaving the business unregulated by the state and allowing the federal government to enforce its prohibition, or not.

In fact, it did seem that way to me when I proposed the design problem as an assignment to UCLA first-year public policy students as part of their introduction to policy analysis. I thought I was giving them a problem with no good solution; discovering that such problems exist is an important part of policy education, and the class was so extraordinarily strong I thought they were ready to absorb that rather daunting lesson early in their educations.

Well, it turns out I was right about the students, but wrong about the problem. Much to my surprise, one of the groups came up with a workable regulatory scheme (based on liquor stores) and another with a workable tax scheme (physical tax stamps). (A third group had the idea for a sunset provision, with a commission to propose revisions to whatever the new law was in light of experience.)

I wrote up the students’ ideas in a short memo and sent it around to some of the activists I know, with no perceptible result; the Washington and Colorado proposals don’t incorporate these ideas, and California is going nowhere.

At a reader’s request, I’m now posting the memo. Comments welcome.

Update Link fixed.

Footnote Since this was a class exercise, I can’t post the names of the brilliant people who did the actual work without their consent. If you were part of the class, and want your name on the document, please let me know. If you’re an employer looking to hire some of the smartest MPPs ever, I know where to find them.

The billionaire vs. free-riding multimillionaires

Love this account of a pissing match between Warren Buffett and Mitch McConnell.  The Senator from Kentucky has been urging the Sage of Omaha to make voluntary contributions to the Treasury if he felt he was undertaxed.  Buffett has now responded that he’ll match any such contributions made by Republican Senators.

This dialogue makes in a different form an argument offered by that raving lefty Milton Friedman.  Voluntary contributions to reduce poverty (or do any of the other things we rely on the government to do) are insufficient, because everyone would be willing to pay his/her share only if s/he could be sure that everyone else would be willing to pay his/her share.  Otherwise, no dice.

Doubtless McConnell will ignore Buffett’s challenge and continue his nonsensical bluster about Buffett’s freedom to pay extra if he feels “guilty” about his low tax rate.  But the point isn’t, of course, how Buffett feels, or even what he does—it’s what everyone else does.  And if McConnell and his buddies don’t donate to the Treasury, then they are poster children for the free-rider problem—thereby proving Buffett right: philanthropy is not sufficient and taxation is necessary.

H/T the indispensable Rick Cohen at The Nonprofit Quarterly.

Hotel Nudge

Hotels are willing to pay me if I accept less frequent maid service. I approve.

Two of the last three hotels I’ve stayed in have offered me something I hadn’t seen before: a chance to opt out of daily maid service on environmental grounds (or allegedly those: I’ll get to that).

For some time now, lots of hotels have let guests leave their towels on the rack if they don’t want them replaced, or leave a note on the bed if they don’t want the sheets changed. But until now, it’s been a little difficult to ask that one’s room not be made up. (Leaving a “do not disturb” sign up all day inconveniences the housekeeping staff, who must keep checking in case you later remove it and do want your room made up. Telling the desk you don’t want maid service takes effort, and the message may well be lost.) There’s no reason in the world I need my sheets changed or my bathroom cleaned every day, and during a stay of a few days I rather like being able to leave my stuff all over the floor, bed, and desk knowing that I’m not forcing someone to move it or clean around it.

However, as always when someone offering a good or service changes its customary shape, the details matter a lot. In particular, if the hotel is saving money, I want a piece of the action. Continue reading “Hotel Nudge”

A Chicago Economist Who Should Thrill the RBC

James Heckman’s policy proposal offers the long term benefits of increased economic growth and reduced income inequality.  To misquote Meatloaf, “2 out of 3 ain’t bad”.  What do we do in the short term?   Europe’s Southern nations should sell some of their unique assets (such as their tourist sites) to China and Germany to raise cash to get their fiscal house in order.

Hedonic pricing and quality change

Yes, your cell phone does more stuff now than it used to, and that change belongs in the GDP deflator. But your customer-service experience is much worse than it used to be. That change also belongs in the GDP deflator.

A reflection on Mike’s piece below:

In computing economic growth and changes in the cost of living, it’s necessary to adjust for changes in product quality. Most of the changes actually incorporated into those measures tend to be product improvements. As far as I know, the sheer screaming frustration of being put in voice-mail jail rather than dealing with a live human being about a service problem has never been treated as a negative quality change. That tends to over-estimate standard-of-living gains and make cost-of-living adjustments too small.

Avoiding wasteful government spending

Jacksonville, Florida has avoided it so successfully that residents who find rabid animals in their yards are completely on their own. After all, freedom includes the freedom to get rabies.

A little vignette from Jacksonville: a family discovers a rabid raccoon in the back yard and then discovers that no public agency is prepared to deal with it. Their mistake was not calling Grover Norquist, who no doubt would have been willing to drown the raccoon in the same bathtub with the federal government. Since Norquist already foams at the mouth, a bite wouldn’t have done him any harm.

Looking for a way to stimulate the economy quickly? How about sending some federal money to state and local governments so they can hire people instead of laying them off?

Update Thanks to reader Ed Whitney, who flagged this story for me. Since our hyper-active spam filter has prevented him from posting his comment, here it is:

“Problem solved” when the family kills the raccoon with a shovel—this is where we see the divergence between two philosophies of government. It is a matter of what we conceive as the “problem space” and its boundaries. Brett sees the problem space as the family back yard, with its boundaries defined by the fence that marks the boundaries the property line. This very nearly defines the conservative approach to government; it defines problems in terms of individuals and the boundaries of their private space. The individual family is affected by the rabid animal in the yard, and solves the problem by killing it with a shovel.

On the other hand, liberals will tend to see the problem space with larger boundaries. In this case, the problem space is the entire area in which rabies is endemic in the wild animal population. The entire community is affected by a wildlife population in which the prevalence of rabies is high, and the problem space crosses not only family property lines, but probably crosses county and even state lines.

That makes this story such a fine ink blot test. Or maybe an Ishihara color perception test. Being red-green colorblind, I see mostly spots on the images, but I know people who say that they can see numbers in the patterns. I do not think they are making things up; there are numbers there that I simply cannot see.

In the story from Florida, the pattern “Rabies Control=A Public Good” is loud and clear. If the family had bolted the doors and waited a while, the rabid animal would have gone to another yard, perhaps one where a small child was playing. Clinical rabies remains one disease with a case fatality rate close to 100%. It is a public good to have mechanisms to control it.

If Brett or I leave dirty dishes in our sink, they do not migrate to the neighbor’s kitchen and do not crawl off into the municipal water supply. “Clean Dishes= A Private Good.” Eventually I get tired of the pile of smelly dishes and get out the detergent and take care of them on my own without government assistance, as befits a private good.

This vignette serves well to illustrate a paradigm defining the distinction between conservative and liberal thinking about government and its role.