Good things & bad things: competition and privatization

When I talk to students about anti-competitive behavior, I like to start with a stark illustration. There are lots of things firms might do in order to earn profit, and these things might be good or bad, broadly speaking. Profiting by producing a higher-quality product, or by producing at a lower cost than competitors: good things. Sending Fat Tony to threaten your competitors with violent death if they do not bow out of the industry: bad thing. The good things are profitable to firms because of the benefit to consumers that is generated, whereas the bad things benefit firms at the expense of everyone else. The purpose of competition policy is to preserve firms' incentives to do the good things and preclude them from doing the bad things. There are lots of complications, of course, making it difficult to sort out whether a particular strategy (e.g. a merger between two firms) is actually a good or a bad thing. But the basic idea is that when firms are doing their best to earn profit within the constraints of well-designed laws, their activities enhance consumer welfare.

The same question arises in the context of privatization. If some government-run entity, like a prison, is put into private hands, there is then someone who stands to profit if he does a good job of running the now-private entity. The hope is that a firm running a prison for profit will do good things for the sake of profits, like reducing costs, insofar as this can be done while still fulfilling the purpose of having a prison. I would guess that prisons are a target for privatization for two reasons: in addition to the general phenomenon of government agencies doing things less efficiently than private firms, incarcerating convicts is probably a relatively costly activity. Thus there would be a lot of benefit to be had by creating strong incentives for running prisons better.

On election day, a half-baked proposal

Election day today, albeit not one of the more exciting ones for Texans. Reminds me of an idea I had a while back for reforming the government. A party of sorts forms, with congressional candidates all across the country, on a platform consisting solely of campaign finance reform. Something really drastic, along the lines of Ayres and Ackerman or Lessig. Once these folks get into office and pass the Campaign Finance Reform Act, or whatever it comes to be known, they all resign. Then we can have a serious election. As I noted previously, taking the money out of politics wouldn't solve all of the problems with our current system, but it would sure help a lot.

I think it might actually work if voters could be convinced that a vote for one of these candidates is a vote for campaign finance reform, with no other implications. Two problems I can see: a coordination problem, in that people don't want to vote for one of these candidates if they don't feel confident that enough of them will be elected to pass the law; and there isn't any way for the candidates to commit to the deal, including the resignation part. They could be voted out of office eventually, but I imagine voters would be nervous about the prospect of people with random political stances (except on the one issue) running amok in the federal government for any length of time. Those with a vested interest in the status quo could exploit that nervousness. Thus the characterization of the proposal as "half-baked."

Economists vs. everybody else: jobs and trade

What can and should be done to create and protect jobs? This is one of many questions for which economists and the general public do not see eye-to-eye. The public is often misinformed, but economists can be cavalier in their dismissal of the public's concerns and priorities.

Libertarianism and transformation

I'm not a libertarian, but I think there is a lot to be said for libertarianism, mainly from the standpoint that there are lots of activities that the government just shouldn't be involved in. (Also, as political ideologies go, it's one of the more straightforward and consistent ones.) For any kind of market-based activity, I think that it is reasonable to view non-intervention as the default, and only to intervene if there is a compelling reason to do so. I find that some libertarians are dogmatic (although I couldn't claim there is a greater propensity to dogmatism than that of conservatives or liberals), with a stubborn adherence to the idea of personal liberty and insufficient regard for the practical consequences. Robert Frank describes a "rational libertarian" as someone who places a very high priority on personal liberty, and wants to be as well off as possible given that preference.  I.e. for these folks it is more a practical than a philosophical issue. There was a long exchange on the Cato Institute's blog about libertarianism, and I didn't find the focus on fine philosophical distinctions very useful or interesting.

Campaign finance reform and its implications

This is an issue that I was interested in, then excited about, and then less so. My preoccupation with it peaked when I read Larry Lessig's book Republic, Lost. In it, Lessig details the extent to which money influences policy and presents an alternative system of campaign financing. I highly recommend the book, although if you would prefer to watch a video, this YouTube clip (48 minutes) covers much of what is in the book. Lessig more recently published an e-book, Lesterland, which presents the same basic point more briefly, and he gave a TED talk on it in a few months ago.

Lessig seems to be focused on spreading information and generating enthusiasm for changing the system. I'm still totally on board with the kinds of reforms he is suggesting. I have to wonder, though, how much of an improvement it would really be. Even if we create a system that forces politicians to cater to large numbers of voters, we can't expect that all the best policy decisions will be made. Voters don't generally have incentive to become informed, and they tend not to very good at processing what information they do receive. To take just one example, consider how difficult it is to convince the general public of the dangers of global warming. Uncertainties and biases can be exploited, especially by those with abundant resources at their disposal. It may not be as easy to influence voters through informational campaigns as it is to influence politicians through campaign donations; but surely it would happen to some extent. Even if no one actively tries to manipulate voters, how will they arrive at their voting decisions? I would feel fairly confident that our system of governance would improve if we dramatically reformed campaign financing, but I would still be looking out for some nutty policies to emerge.

Academics can be trolls too

Referring to the pic above and its accompanying post, Munger at Kids Prefer Cheese says, "Only libertarians recognize that these really ARE essentially the same issue." My criticism is of the word recognize and its implication that anyone who disagrees is simply wrong. A more accurate characterization would be that dogmatic libertarians view these as the same because they are focused on personal liberty to the exclusion of all other considerations. The poster masks one issue behind another in a manner common in today's political pseudo-discourse. The issue placed at the forefront is stated in the second sentence, "We should not base our laws on personal dislikes." I wholeheartedly agree with this one, and I would argue that it is key in a number of contexts. However, this is not the issue (or at least not the primary one) for proponents of gun control. Rather, it is public safety.

What's wrong with public debate, part 2

A previous post sparked another frustrating Facebook debate. Remarkably, the most active participant (other than me) continued to do many of the things that I had criticized in the post, even though these very criticisms initiated the debate, and even though I repeatedly pointed out that he was doing this. He never took issue with the items in the post itself; he just continued to provide examples of unreasonable, non-constructive debating tactics (inadvertently, I presume).

Regarding gun control specifically, these tactics do nothing to foster understanding between opponents, not to mention consensus of any kind. Still, to me, the more interesting and important issue is the nature of the debate itself. It may be understandable that people argue in nonsensical, counter-productive ways without realizing it, but it’s harder to understand, and to defend, when these things are at the forefront of the conversation. Limitations on cognitive ability or effort may provide part of the explanation, but not all of it. It is becoming increasingly clear that there is something other than pure reasoning going on: see, for example, Haidt's elephant and rider analogy, Kahneman's system 1 vs. system 2 thinking, Lakoff's metaphors and frameworks, or Kling's three axes model. I am nonetheless surprised to see the aggressive opposition to reason that I have encountered recently, and I wonder how typical it is.

Clearly we don't understand these psychological issues entirely, and if everyone could be aware of the things we do understand, we wouldn't have agreement on every issue that is currently contentious; but it would be clear where the disagreements really lie, and surely some areas of disagreement would be eliminated, if we were all on the same page about how the reasoning is actually happening. So should we strive toward greater enlightenment as a means of resolving (or reducing) conflict over public policy? I'm inclined to think that this is unrealistic. More likely we as a society will have to take these weirdnesses in mental processing as given and do the best we can in the face of them. For example, rules of evidence can be viewed as a means of managing jurors' potential irrationality, rather than trying to break through it (or pretend it isn't there). I have new respect for this approach. What to do in broader contexts, I have no idea. Yet.

What's wrong with the gun-control debate (and public debate in general)

The debate over gun control frustrates me immensely, and this has nothing to do with whether or not anyone supports any specific law that I may or may not support.  It's all about how people defend their own opinion and criticize others' opinions.  This debate is a good illustration of problems that appear in public debate over lots of issues.  After the jump is a (probably non-exhaustive) list of tactics that aren't helping any.

The government is a camel

Over dinner with friends last week, I remarked that our government is a camel.  This was a reference to an old aphorism, "A camel is a horse designed by committee," nicely illustrated in this episode of Parks and Recreation:

The idea is that a compromise among many different opinions results in something that doesn't come anywhere near accomplishing the original goal.  I have often thought that the U.S. government would be immensely improved if it really embraced a single ideology, whether that ideology is liberal, conservative, libertarian, or whatever.  Even though I disagree with some libertarian (or liberal, or conservative) policies, I think that we would be much better off if we let the libertarians (or liberals, or conservatives) have their way across the board, rather than these groups working at cross-purposes most of the time.

I am also gaining more of an appreciation for how deep political differences really are.  It is much more than differences in values or priorities.  In The Political Mind, cognitive scientist George Lakoff describes the metaphors and narratives within which people frame political issues, and how these framing differences inhibit fruitful discussion, not to mention any kind of agreement.  I'm still reading the book, but it seems that Lakoff's aim is to improve the political process by creating greater awareness of our mental processes.  I'm not so sure that that's a realistic goal for the majority of the population (and I'm working on my own grand theory of how to achieve public consensus, but whether I'll get anywhere with that remains to be seen).

A more pointed objection I have to Lakoff is his insistence on the moral mission of government.  He says that health care, for example, is a moral necessity and as such should not be provided by for-profit entities.  Again, haven't finished the book yet, but I'm not sure how he is drawing the line between moral and non-moral issues, and more importantly, I don't know why he assumes that the government is a moral entity.  I'm always in favor of keeping morals out of the discussion as much as possible, especially when it's straightforward to consider welfare in a non-emotional, non-judgmental way.  Certainly the government can, at least some of the time, accomplish things that accord with at least some people's morals, but the real difference between government and firms is that the government is a mechanism for collective action.  Anarchists notwithstanding, we agree to give the government certain power over the citizenry, and if we're more or less in agreement about the aims to which that power should be put, the presence of the government makes everyone better off.  In any given situation, either government action or private action may be preferable because of the different incentives that exist in different kinds of organizations; but starting from the presumption that the government does what is moral is at best unnecessary and at worst very misleading.  The interesting thing here is that Lakoff seems to be subscribing to a narrative of government without being aware of it.  There's irony for you.

Lakoff's discussion of narratives and metaphors is largely consistent with Arnold Kling's three-axes model:

My hypothesis is that progressives, conservatives, and libertarians view politics along three different axes. For progressives, the main axis has oppressors at one end and the oppressed at the other. For conservatives, the main axis has civilization at one end and barbarism at the other. For libertarians, the main axis has coercion at one end and free choice at the other. So here is what I recommend doing when arguing with each:

When arguing with a progressive, start by saying, “It is sometimes appropriate to view particular classes of people as oppressors and other classes as oppressed.” Slavery is an example. Proceed then to suggest that, on the other hand, there are instances in which this way of looking at things is not so compelling. For example, if you think about it, borrowers who obtained homes with no money down are not necessarily oppressed, and the banks that lent them the money are not necessarily oppressors.

When arguing with a conservative, start by saying, “It is sometimes appropriate to view particular practices as barbaric and to view tradition and authority as protecting civilization.” There are, for example, criminals who commit assault and murder without remorse. Proceed then to suggest that, on the other hand, there are instances in which this way of looking at things is not so compelling. For example, if you think about it, Latin Americans who sneak across the border in order to work in this country are probably more civilized than barbaric.

When arguing with a libertarian, start by saying, “It is sometimes appropriate to view particular policies as coercion.” For example, taking tax revenue to hand out political favors. Proceed then to suggest, that, on the other hand, there are instances in which this way of looking at things is not so compelling. For example, if you think about it, it is plausible that some activities function better as monopolies: water and sewer service; courts; road systems. If competition is unworkable, then provision via elected government should not be considered coercive.

I think that this is a very useful model.  Recognizing the presence of all three axes doesn't necessarily lead to agreement, but it helps to put public debate on a reasonable footing.

Update: A few more thoughts on Lakoff, since I was still in the midst of reading when I wrote the post. He presents a very interesting and useful framework for thinking about political opinions and conflict, but there are some problems with his exposition (and possibly with his theory itself) that would make it easy for a reader not to take it seriously:

1. He talks about other models of human behavior and interaction as models, with the necessary disconnect from reality that that implies. He presents an alternative model--that people think within frameworks determined by narratives and metaphors--as if it is not a model, but a literal description of behavior. He spends a considerable amount of time discussing the dangers of taking any one model too seriously, not seeming to realize the potential problems of assuming his model is the right one, period.

2. He steps beyond the bounds of his own expertise. As an economist, I noticed this when he occasionally discussed an economic idea in an uninformed and unsophisticated manner. For example, he claims that insurance is fundamentally "anti-market," in a way that reminded me of what a fairly good undergraduate student might say in class without thinking something through. It's very straightforward to demolish the claim. This made me wonder whether he might be mangling ideas from other fields in ways not noticeable to me.

3. He presents his theory alongside advocacy for progressivism. Not that I would criticize progressivism or advocacy in general; nor would I deny that, in a sense, all research is advocacy research (that's a whole can of worms in itself); but Lakoff takes it to an extreme. He is basically saying that conservatives are doing all these things that are patently bad but are able to do them because they successfully manipulate the elements of his model, and that progressives must understand his theory in order to fight back. This can only limit the appeal of the theory.

On paternalism

Arnold Kling imagines the following conversation between parties with opposing views on the desirability of government intervention in citizens' day-to-day decisions:

Libertarian: if a random stranger came to you and forcibly stopped you from drinking a large soda “for your own good,” would you find that acceptable? I would accept advice from a stranger. I might accept forcible restraint from a friend or someone to whom I had given permission to restrain my impulses (like Odysseus with the Sirens). However, why should I want government officials to interfere with my decisions because of my supposed incompetence?

Conly: Government officials are not random strangers. They are experts. That is why the should be allowed to interfere with your decision.

Libertarian: I listen to experts all the time. But what makes government officials so wonderfully expert that I should be forced to listen to them? When it comes to “staying out of debt” and “saving for the future,” are government officials the experts to whom you would have me defer? Seriously?

We should all be able to agree on a few things.  People do, at least on occasion, act in ways contrary to their own best interests.  Perhaps the most compelling evidence of this is ex post regret: "Gee, I guess I should have saved more for retirement."  At the same time, government intervention is imperfect and costly, even at the best of times.  I think it would be a mistake to view either the individual or the government as the ultimate authority in any comprehensive sense.  The libertarian in the above conversation seems to imply that the government should never intervene in individual decisions, and hints that government officials are thoroughly incompetent.  (Maybe I'm reading too much into Kling's post, but the second statement from the libertarian resonates with those views.)

This is one of many issues that is commonly viewed as black and white: should the government intervene in our lives, or not?  Even if we abandon these extremes, the question is often debated as if it were one-dimensional: should we have more or less government intervention?  Even that question is simplistic.  There is no spectrum of degrees of intervention from which we have to choose; rather, it is a matter of considering specific ways in which intervention may improve welfare.  In doing so, why not just think in terms of costs and benefits?  From this standpoint, it is fairly easy to argue against the ban on large soft drinks.  Costs: implementation, enforcement, outrage from affected firms and many members of the public.  Benefits: certain to be positive for some subset of consumers, but limited by consumers' ability to circumvent the law, or the spirit of the law.  This is one place where consideration of government's imperfection really matters.  Even if we agree that it is the government's role to improve public health, is this the way to do it?  Are there better alternatives?  I'm not suggesting that the answer to the first question is a resounding "no," but rather that there is substantial doubt, and that the government should only restrict individual choice if we can make a more compelling case that doing so will create net benefit (which might be the case for something like saving for retirement).

This is the same way I think about government regulation of externalities.  In theory, any time there is an externality, there is a potential welfare gain through government action.  In practice, government action will be costly in various ways and will not hit the theoretical optimum anyway.  So it is only worthwhile for the government to intervene for relatively large externalities.  Determining costs and benefits is typically complex and often controversial; but shouldn't that be the focus of debate, rather than sweeping generalizations about individual autonomy or government effectiveness?