Category Archives: public choice

Richard Green Disses Car Dealers

Posted on by

He writes,

The Wall Street Journal has a good story today about how car dealerships are (successfully) lobbying legislatures to ban Tesla Motors from marketing their cars directly to consumers. GOP legislators, who get the willies about regulation that actually solves real problems, are on board with supporting protectionist policies for auto dealerships.

In economics textbook, government acts to correct market failures. I am tempted to say that, in the real world, government acts to create market failures.

I wish that the car-dealer case were an unusual exception. But basic public choice theory (which ought to be in more economics textbooks) suggests that concentrated interests win and broader interests, including correcting market failures, lose.

I was tempted to title this post, “Richard Green shoots at Republicans, hits mainstream economics,” but that would have been uncharitable.

If Economists had a PAC

Posted on by

It would not lobby for what one of Tyler Cowen’s readers calls

political solutions which represent common sense agreement on a variety of issues

My guess is that it would lobby for more NSF grants in economics and more college subsidies for students to take economics courses. Or for barriers to competition that might reduce the incomes of American economic professors.

To see what PACs are all about, follow my rants about housing policy (note that Tyler links to data saying that the realtors are the largest PAC, and they donate almost equally to both parties). Or John Cochrane’s rant on energy policy absurdities. Or follow the Washington Post editorial page as it discusses Montgomery County unions.

If libertarians are guilty of averting their eyes to economic inequality, then progressives are guilty of averting their eyes to the reality of public choice.

Wesley Mouch Update

Posted on by

Veronique de Rugy writes,

In 2009, Fisker received a $529 million federal loan from the Department of Energy’s ATVM program. According to the New York Times, two years after receiving the loans, the company repeatedly missed production targets and other deadlines. They’ve now fired 75 percent of their workforce and hired bankruptcy advisers. It has not built a car since July 2012. That lead the DOE to suspend their support, after having guaranteed $192 million of the $529 million loan. Like Solyndra, taxpayers will foot that bill, minus the $21 million that the government managed to seize from the company’s cash reserves.

At the time that the loan was made, I hailed it.

Forget a carbon tax. Forget cap and trade. Steven Chu is going straight to picking winners and losers.

Two months later, I was still ecstatic.

The American people are being forced to participate in a venture capital fling in which they take most of the down side and none of the up side. And it is not being debated. Nobody has to come before the public and explain themselves. If you call yourself a progressive, are you proud of this?

If there were any justice in the world Steven Chu would be occupying a cell with Bernie Madoff.

aaAARRGGH!!!!

Posted on by

That sums up my post-mortem on the hearing today. You can watch a replay here. The witness testimony begins about 1/5 of the way through, and I am the last witness, so I start about 23 percent of the way through. (My media player does not show minutes.) After that, there are questions/speeches from members of the House Committee.

I left with a sense that it was me against everyone else. Everyone else thought that the problem with withdrawing FHA, Freddie, and Fannie from the mortgage market is that private capital is not ready to take their place. I tried to point out that all of the capital in the mortgage market today is private capital. The real issue is that taxpayers are taking much of the risk in mortgage lending. If taxpayers were not taking that risk, then, yes, interest rates would rise, particularly on 30-year fixed-rate mortgages. But to say that private capital is not ready to come into the market makes it sound as though the consequences of phasing out the GSEs would be much worse than actually would be the case.

Even more frustrating to me were the other three witnesses, who insisted that securitization is necessary for mortgage markets. The guy next to me was particularly insistent on that point, and some of his comments during the Q&A reminded me of the worst of the spokesmen in the Freddie/Fannie propaganda machine. It took a lot of restraint on my part not to yell “baloney sandwich!” at the top of my lungs.

It disgusts me that these witnesses are the people that Congress brings in to “educate” themselves. Interest groups are not the people that you want providing education. They can provide input to people who are educated, but if you are not educated enough to know when they are informing you and when they are spinning you, you should not be listening to them.

This is the Financial Services Committee, and I think they need a basic course that teaches the concept of financial intermediation. After that, they could take my housing finance course, but right now my course would be too advanced for them.

Of course, I should be the last person who is surprised by the knowledge-power discrepancy. But for some reason I was not prepared to be reminded of it, and I walked out of the hearing with a need to scream.

What I’m Reading

Posted on by

Building Home, a biography of savings and loan mogul H.F. Ahmanson, who flourished from the 1930s until his death in 1968. I had low expectations for this book, but I’m actually getting much more out of it than I did the widely-praised Hirschman bio, even though the latter is the product of prodigious skill and effort. Eric John Abrahamson, the author of Building Home, does a really good job of capturing the post-WWII political economy zeitgeist. On p. 115,

Thus the relationship that developed between regulator and regulated by the early 1950s was often collaborative and mutually supportive. Regulators believed that a major part of their job was to protect the health of the industry as well as the consumer or depositor. When changes needed to be made to the law, industry officials often drafted the new legislation, and legislators in Sacramento and Washington often accepted their recommendations with little other public input. When influential regulators retired, they often became owners, managers, or consultants to savings and loans. Meanwhile, many legislators owned shares or served on the boards of local savings and loans.

The conventional wisdom after World War II was that industry and government had collaborated to win the war, and that similar partnerships could address social needs, such as housing. Public trust in government and industry was high. Supposedly, we now live in an era in which there is much more polarization concerning the free market vs. regulation, and there is much less public trust in government and in corporate behavior. But re-reading the excerpted paragraph, how much has really changed in the last 50 years about the way financial regulation operates?

The business-regulatory collaboration extended to mortgage redlining. On p. 107,

In the 1930s, the Home Owners Loan Corporation (HOLC) had institutionalized the practice of racial and economic segregation in housing development and residential lending…Social segregation continued to permeate public policy during and after the war, and the FHA explicitly perpetuated racial discrimination in mortgage lending. When the Community Homes cooperative in Reseda sought FHA approval to finance 280 single-family homes in 1947, for example, it was turned down by the government because the cooperative refused to adopt racial restrictions.

Big Sugar’s Gall

Posted on by

This is the first time I have ever written a blog post to comment on a newspaper advertisement, in this case in The Washington Post, on March 6th. I assume that there is no way to link to it. The ad says:

Big Candy’s Greed
[picture of a suit pocket stuffed with cash next to a picture of a farm with a foreclosure sign]
Jeopardizing 142,000 U.S. jobs and America’s food security isn’t a game. It’s a travesty.
So why are Big Candy executives lobbying Congress to outsource America’s sugar production?
To boost their already bloated profit margins at the expense of American farmers, workers and consumers.
Winners: A few corporate executives.
Losers: America
Support Current Sugar Policy–It Works for America
American Sugar Alliance
Backing America’s Beet and Cane Farmers

Why did the trade association executives choose to run this ad? Consider these possiblities:

1. They do not actually believe the oppressor-oppressed narrative they have concocted (to support sugar tariffs, of course), but they think that they can fool people with it and thereby influence policy.
2. They do not believe the narrative will influence policy, but they believe that they can fool the donors who sponsor their organization into thinking that they are getting something valuable for their contributions.
3. Actually, they are not trying to fool anyone with this narrative. In fact, they believe it themselves, even though to everyone else it is transparently ridiculous.

I lean toward (3). When you cash your paycheck from a pure rent-seeking organization, you want to convince yourself that you are actually a good guy, and in the process you make someone else the bad guy.

Some Perspective on Budget Cuts and Austerity

Posted on by

Employment, in thousands:

Category 2000 2006 2012
Private sector employment 111,101 114,155 111,820
Government employment 20,790 21,975 21,915

Source: FRED graph, establishment survey. Private sector employment increased less than 1 percent from 2000 to 2012, while government employment (Federal, state, and local) increased more than 5 percent.

Spending, millions of dollars:

Category 2006 Q4 2012 Q4
Total GDP 13584.2 15851.2
Government Expenditures 4325.9 5704.9

Source: FRED graph, national income accounts. Government spending (again, including state and local government) is up 32 percent since 2006.

In my view, these facts can provide some perspective on the issue of spending cuts and austerity. Draw your own conclusions.

As an aside, two documents that usually come out in February were not available when this was written (on March 6th, scheduled for posting March 8th). One is the President’s Budget. The other is the Economic Report of the President. I wonder if they are being planned for release at “news graveyard” time, which is late afternoon on a Friday.

Ezra Klein Stumbles Over the Truth

Posted on by

He writes,

In general, politicians are overworked and understaffed. They’re traveling constantly, buried under too many meetings and constituent requests, and working desperately to stay one step ahead of whatever they’re getting yelled at about that week. …however well or poorly the health-care reform effort turned out, the one thing that people on both sides agree about is that it didn’t go according to anyone’s plan. Almost nothing does, and that’s because there usually isn’t much of a plan, or because the plan that did exist was quickly overtaken by events and no one had the time to really update it.

Pointer from Tyler Cowen.

Mr. Klein, if you were to take a job in business, you would discover the same thing. Executives are overworked and understaffed, buried under too many meetings, etc. Plans are quickly overtaken by events, etc. In fact, Mr. Klein, even technocrats and regulators are subject to human frailty and organizational dysfunction.

However, I have confidence that Mr. Klein will pick himself up and go on advocating Washington wonkery as if nothing had ever happened.* Continue reading →

Paul Romer’s Latest Gig

Posted on by

He writes,

If there is something wrong with the rules in finance and healthcare and if those rules in some sense have actually grown worse since the 1970s, and these sectors are becoming much larger fractions of GDP, it is conceivable that they are behind some of the broader measures of distress in the economy.

…Remember, we could have had a system like the military that sets the rules. We could have had a system like the Supreme Court. But what we have is a Congress that passes bills and then agencies that implement those bills with regulations. That legislative process may be too vulnerable to manipulation by very well financed entities with an enormous amount of wealth and income at stake. Every dollar of cost savings in healthcare means a dollar in reduced income for somebody in that sector.

Read the whole thing. Choosing an excerpt is very difficult. Note that I disagree with him on the virtues of non-profit organizations and independent technocrats.

Pointer from the the Urbanization Project blog, which seems to be Paul’s latest gig. Brandon Fuller is a player there as well.

Government Pay

Posted on by

My latest essay:

I would recommend replacing the system of automatic step increases with a system of automatic step decreases. That is, a government worker’s salary should go down as the worker spends more years at an agency.

Awhile back, I mentioned that I thought that the “revolving door” between government and the private sector ought to revolve faster. Instead of a lifetime sinecure, government employment should be a temporary period of service. I think that this might reduce the disconnect between bureaucrats thinking and the way that the private sector works. More important, I believe that this would change the mindset of government workers, so that they try to resolve problems rather than become invested in programs.