Category Archives: public choice

Dean Baker on Housing Finance Policy

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He writes,

Way back in the last decade we had a huge housing bubble which was propelled in large part by junk loans that were packaged into mortgage backed securities (MBS) by Wall Street investment banks and sold all around the world. Unfortunately few people in policy positions are old enough to remember back to the this era, which is why they are now in the process of altering rules so that investment banks will be able to put almost any loan into a MBS without retaining a stake.

Pointer from Mark Thoma.

I have argued that the general trend of housing policy is to give Wall Street and the housing lobby, particularly the Mortgage Bankers Association, exactly what they want. Baker is one of the few economists on the left who is willing to speak up on this. When I suggested to an audience of conservatives that we needed to engage Brookings and the Urban Institute to study the effects of housing finance subsidies, people came up to me afterwards to say that they thought that those think tanks would not want to offend important donors.

Wesley Mouch Outcome

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Detroit News reports,

Fisker Automotive Inc. filed for Chapter 11 bankruptcy on Friday and the Energy Department sold its green-energy loan for $25 million to investor group Hybrid Tech LLC. Taxpayers will lose $139 million on the $192 million loan to the failed electric vehicle startup, the Energy Department confirmed

I referred to energy secretary Steven Chu as Wesley Mouch. Of course, right now the Wesley Mouch award is more likely to go to Obamacare than to the crony-capitalist “green energy” loan guarantees. Competition is tough.

Why Public Choice Matters

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Reihan Salam writes,

And so Gyourko calls for replacing the FHA with a subsidized savings program aimed at helping low-income borrowers accumulate a 10 percent down payment, a policy he describes as preferable for a number of reasons…

2. Focusing on borrowers helps ensure that benefits will flow to the intended beneficiaries rather than realtors and homebuilders.

From a public choice perspective, the realtors and the homebuilders are the intended beneficiaries. People with modest incomes are what Thomas Sowell calls the mascots for the policy. The housing lobby isn’t going to come out and say that they engaged in rent-seeking. They tell you that if you abolish FHA, you will be depriving people of the American Dream™.

Pinpoint the Scandal

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The Sunlight Foundation reports,

All but one of of the 47 contractors who won contracts to carry out work on the Affordable Care Act worked for the government prior to its passage. Many–like the Rand Corporation and the MITRE Corporation–have done so for decades. And some, like Northrop Grumman and General Dynamics, are among the biggest wielders of influence in Washington. Some 17 ACA contract winners reported spending more than $128 million on lobbying in 2011 and 2012, while 29 had employees or political action committees or both that contributed $32 million to federal candidates and parties in the same period. Of that amount, President Barack Obama collected $3.9 million.

I don’t hold it against the contractors that they had prior government experience. I don’t hold it against them that they lobby or contribute to campaigns.

To me, the scandal is that there are 47 different organizations involved in building the site. I cannot imagine that any sane project executive would want it that way. I am just guessing, but it seems more likely to me that this many contractors were imposed on the project executive because there was a requirement to “spread the work out” to keep all these companies in the politicians’ pockets.

In any case, if you are trying to fix something that was assembled by 47 different organizations….good luck with that. Megan McArdle considers the possibility that it won’t get fixed in time.

Macro-prudential = Micro Management

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So says John Cochrane.

This is not traditional regulation—stable, predictable rules that financial institutions live by to reduce the chance and severity of financial crises. It is active, discretionary micromanagement of the whole financial system. A firm’s managers may follow all the rules but still be told how to conduct their business, whenever the Fed thinks the firm’s customers are contributing to booms or busts the Fed disapproves of.

Echoing what I wrote.

Politicians want to make credit allocation decisions. Whatever its nominal purpose, bank regulation is used to enable politicians to undertake credit allocation.

Banks and Political Power

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Simon Wren-Lewis and I may disagree on many things, but not on this.

Most economists are instinctively against state subsidies, unless there are obvious externalities which they are countering. With banks the subsidy is not just an unwarranted transfer of resources, but it is also distorting the incentives for bankers to take risk, as we found out in 2007/8. Bankers make money when the risk pays off, and get bailed out by governments when it does not.

Read the whole thing. Pointer from Mark Thoma

State and Local Finances

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Steven Malanga has lots of depressing news.

New York City’s average pension contributions have risen from 6.1 percent of its budget in 2005 to 11.5 percent today, according to a recent paper by Manhattan Institute scholar Daniel DiSalvo. In 2005, pension payments consumed 43 percent of income-tax revenue; in 2013, “every penny in personal income tax we collect will go to cover our pension bill,” Mayor Michael Bloomberg recently complained. America’s second-largest city, Los Angeles, has seen its pension payments rise from 3 percent of its budget to 18 percent today. Atlanta’s pension payments increased from $43 million annually in 2002 to $144 million in 2010, consuming 19 percent of its budget, before the city finally initiated pension reforms that capped costs and began reducing debt.

Read the whole thing. The way I see it, public employee unions are the 800-pound gorillas of state and local politics, at least in the blue states.

Central Planning, in Practice

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The Washington Post reports,

Unknown to most, a single committee of the AMA, the chief lobbying group for physicians, meets confidentially every year to come up with values for most of the services a doctor performs.

Pointer from a reader, who requested that I comment. Actually, I had seen the article, but I thought it was too depressing/frustrating to even begin to comment.

The truly fundamental error is the belief that there is any objective way to measure cost. See my essay on subjective value. If you really want to see the fundamental nature of the error, see James Buchanan’s Cost and Choice. And, speaking of Buchanan, would he have been the least bit surprised that when the government is deciding how doctors get paid, a trade group representing doctors takes over?

Property Without Rights

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Nick Sibilla writes,

Airbnb rentals in Paris contributed $240 million in a year to the local economy, while Crain’s estimates they could have an economic impact worth $1 billion in New York State. Plus, the property owners can earn some income on the side. It’s a win-win-win…except for the established hotels.

For some reason, the laws against renting out your own property strike me as a more fundamental violation of property rights than other regulations.

Of course, when it comes to making me angry at government regulation, shutting down cheap bus service is also right up there.

Stories like these are what make a phrase like “Government is the name for the things we do together” ring so hollow in my ears.

Yglesias vs.Edelman, Continued

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A reader writes,

What Yglesias doesn’t discuss is WHY this might be the case. Sorting is part of it, but one interesting and often overlooked dimension is the end of earmarks. It used to be you could buy votes for middle-of-the-road legislation by getting pols to cash in whatever principles they had for funding for a bridge or a hospital or day care center with earmarked $$$. You can’t do it anymore. So now pols are more responsive to movement political forces and donors. I’m not sure which system is better or worse, but it certainly has been a part of the recent dynamic.

Actually, I think Yglesias is speaking to this. I think he would say (or at least could say) is that the price of buying a vote with earmarks has gone up. Moreover, the reason that it has gone up is that there are now well-sorted, politically-engaged, ideologically-driven groups out there. That is, the inability of centrist leaders to use earmarks to obtain legislation is not some causal force that appeared out of nowhere. It is the result of the forces that have created ideological polarization.

A commenter writes,

What would such an example [of insiders not winning] … It can’t just be a lot of incumbents losing power; I anticipate you would simply characterize that as one group of insiders being replaced with another.

Right, it’s not about who wins elections. It’s about the farm lobby controlling farm subsidies (including food stamps), the teachers’ unions controlling education policy, the real estate lobby controlling housing policy, Wall Street controlling financial regulation (as actually implemented), health care providers controlling health care policy, and so on. Those are the real insiders. You know that insiders have been defeated when consumers win and rent-seekers lose.

Anyway, my original point is that while more partisanship might be changing the dynamics between centrist and non-centrist legislation, it is not changing the dynamics between insiders and outsiders. And, while I have not read This Town, to which Yglesias referred in his original post, the commentaries on it suggest that it speaks to the issue of insiders and outsiders.

By the way, this week’s econtalk also is on the topic of polarization. The guest, Morris Fiorina, seems to me to offer support for Yglesias.