Category Archives: Setting Economic Priorities

A Classic Paper on Spectrum Property Rights

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From Arthur S. DeVany and others.

One possible way to take explicit account of the unpredictable variations in field strength is to devise a stochastic definition for the spectrum-use property rights. For example, an operator could be permitted to exceed the field-strength limit (X v/m) in adjacent areas by up to 10 percent during 15 percent of the time he transmits.

The problem is that your cow could randomly walk from your field over the edge into my field. If I insist that any intrusion is a violation, then you have to keep your cow well inside your field, effectively reducing the size of your field. A stochastic definition of my property rights could allow your cow to come 10 percent into my field 15 percent of the time without penalty. In the end, though, the authors think that a stochastic definition is not better than a fixed definition. I would agree. To me, it seems that under the stochastic definition, the size of my field has been effectively reduced, because I cannot be sure that my crops near the edge won’t be trampled by your cow.

Later,

intermodulation interference occurs in a third frequency only when the frequency equals either the sum of the other two frequencies or their difference.

I do not know with modern technology how important this is. If it is important, then authors propose a rule for assigning liability for such interference, and that rule puts the burden on the owner of that transmitter to negotiate a solution. Again, I have no idea where that solution is practical in today’s environment.

Still later,

require that all agreements by TAS [Time/Area/Spectrum] owners relating to the use of spectrum be recorded in a central registry.

This is analogous to having property deeds recorded in a central registry, such as the county recorder’s office. Right now, the FCC has to manually approve every transfer of spectrum. In a true spectrum market, the FCC might be responsible for maintaining the database, but private parties would not require approval for spectrum transfer. TAS means that what you own is the right to use at a particular time (which might be 24 hours a day) in a particular area a particular band of spectrum.

On the one hand, I am very pleased to see detailed specifics in their proposal for spectrum property rights. On the other hand, I worry that over fifty years later some of the analysis needs to be redone.

A Spectrum of Possibilities

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How can the United States make better use of wireless spectrum? Broadly speaking, there are three categories of tools.

1. Engineering. Design and deploy transmitters and receivers that allow more data to be transmitted within given bands.

2. Allocation. Take spectrum away from owners who use it inefficiently and give it to more productive owners.

3. Pricing. Improve the incentives for users to make efficient use of spectrum

More discussion below the fold. Continue reading →

Why I would be inclined to replace the FCC and the FDA

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Francis Fukuyama writes,

Institutions are created to meet the demands of specific circumstances, but then circumstances change and institutions fail to adapt. One reason is cognitive: people develop mental models of how the world works and tend to stick to them, even in the face of contradictory evidence. Another reason is group interest: institutions create favored classes of insiders who develop a stake in the status quo and resist pressures to reform.

Pointer from Tyler Cowen.

The same holds true in business. Business organizations develop group-think biases and constituencies that resist change. However, if this gets to the point where the organization becomes dysfunctional, the market weeds out the organization. Government agencies lack such a weeding-out mechanism.

Overall, I found Fukuyama’s views did not correspond well with mine. I am concerned with the fundamental knowledge gaps that plague government policymakers. I think that the difference between market competition and government monopoly is significant. I also think that there are diseconomies of scale and scope in government.

Of Interest to Libertarians

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1. From George Leef.

Since 2003, the [North Carolina Board of Dental Examiners] has been issuing cease and desist orders to beauty shops or any other business that offered teeth whitening services. The legal basis for such orders is that the “practice of dentistry” is restricted to licensed dentists and the Board decided that teeth whitening falls within that practice. Unless you’re a licensed dentist, you must stop.

2. From Graeme Wood.

Minerva is built to make money, but Nelson insists that its motives will align with student interests. As evidence, Nelson points to the fact that the school will eschew all federal funding, to which he attributes much of the runaway cost of universities. The compliance cost of taking federal financial aid is about $1,000 per student—a tenth of Minerva’s tuition—and the aid wouldn’t be of any use to the majority of Minerva’s students, who will likely come from overseas.

Another Alternative to the FDA Process

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Alex Tabarrok writes,

MelaFind was submitted for marketing approval in Europe in May 2011. It was approved just five months later. One key reason for Europe’s efficient approval process is that European governments don’t review medical devices directly. Instead they certify independent “notified bodies” that specialize and compete to review new products. The European system works more quickly than the U.S. system, and there is no evidence that it results in reduced patient safety. Rather than tweak the current system, why doesn’t the U.S. just adopt the European model and call it a day? Our health and our economy would be better off for it.

Reihan Salam points to a review by Daniel Klein from 2001 of a book by Henry I. Miller.

Miller develops a reform proposal that would attempt to institutionalize the cooperative virtues of the European systems. Drug development and application would be overseen by nongovernmental “drug certifying bodies.” They would compete with one another for hire by companies developing a new drug. The hired drug-certifying body would oversee investigation, help develop the new drug application, and then make an initial decision on the application—that is, decide whether to certify the drug. The European agencies would also be permitted to serve as drug-certifying bodies. The company and its certifying body would then go together to the FDA for final approval of the new drug. The FDA, therefore, would retain final authority, but would rely on a set of trusted drug-certifying bodies, which would compete to get it right, do it quickly, and keep fees low. Under such a regime, says Miller, the FDA “becomes primarily a certifier of certifiers, rather than a certifier of products.”

Speaking of the FDA, apparently, as soon as someone writes an app for a mobile phone that does something like monitor glucose levels, this threatens to make turn the phone into a medical device, inviting the FDA to regulate.Scott Gottlieb and Colleen Klasmeier write,

The ambiguity created by the guidance and the agency’s premarket review processes forces innovators to seek the FDA’s nod for every new launch and every small advance. This slows progress to a crawl. Worse, the lag may be almost entirely unnecessary, as most of these products are not properly regarded as a medical device in the first place.

The Case for a Basic Income Grant

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Matt Zwolinski writes,

Unlike other welfare programs which encourage or require recipients to consume certain specific kinds of good – such as medical care, housing, or food – a BIG simply gives people cash, and leaves them free to spend it, or save it, in whatever way they choose.

He lists four main advantages of this over the current approach: less bureaucracy; lower cost; less rent-seeking; and less paternalistic.

The “lower cost” is a bit of a swindle. He cites Ed Dolan’s suggestion that we cut middle-class entitlements while reforming programs for the poor, and counting those cuts the cost is indeed lower.

There is a significant contrast with Paul Ryan’s block grant proposal, which we have been discussing. Ryan’s vision is unapologetically paternalistic, and we have seen arguments that it would actually increase bureaucracy.

My proposal for a flexible benefit is somewhat paternalistic, since funds could only be used for “merit goods.” Compared to a BIG, my proposal would require more bureaucracy, in order to qualify the providers of merit goods. That in turn could lead to some rent-seeking, as businesses on the margins claim to be providing health care or education. However, there would be less bureaucracy than the current system.

Doubts About Devolution

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Callie Gable finds that John J. DiIulio, Jr., has concerns with Paul Ryan’s idea of turning anti-poverty funds to the states.

He mentions Pennsylvania’s Summer Food Service Program, a federal program intended to replace the nutrition kids get during the school year from free or subsidized lunches, to illustrate how complicated tracking aid and its impacts can be. The program is funded through the U.S. Department of Agriculture, which gives the money to the state of Pennsylvania, which then distributes the money to three major cities in Pennsylvania, which pass it on to Pennsylvania school systems, which give it to individual schools, which then work with any number of local providers.

This money changes hands five times before finally being translated into lunches for kids. And after that, it’s hard to be sure that the community providers are using the funds efficiently and providing a quality service. That’s just one, ancillary program.

My preferred approach to consolidating anti-poverty programs is to send lump-sum funds to individuals, while limiting the use of such funds to “merit goods” such as health care, food, housing, and education. However, I do think that state and local governments must then play a role in identifying specific needs in their jurisdictions and coming up with programs to address those.

Gable point to an article DiIulio wrote in 2012, where he said

About three-quarters of non-profit organizations, including most faith-based ones, spend under a half a million dollars a year and receive little or no government grant or contract money. But the quarter of the sector’s organizations that boast its biggest annual budgets are highly dependent on direct government funding, meaning that one-third of all non-profit dollars are from government, paid through grants or contracts.

This gets back to a point that I have made, which is that I do not think we want to put non-profit organizations on some kind of pedestal.

Robert Doar on the Ryan Plan

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He says,

He left out Medicaid, I think, because he recognizes that he couldn’t commit to preserving funding levels for it because it’s unrealistic as a fiscal matter. Unless we address Medicaid’s spending trajectory, we won’t be able to address our fiscal problems.

In other words, if he folds Medicaid in with other anti-poverty programs, he either has to cut the total amount spent on poverty or leave in place a fiscal doomsday machine. I’ll have to think about that argument.

Paul Ryan on Income Assistance

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On the safety net, his Expanding Opportunity plan says,

It should always pay to work. But fixing these incentives is no easy task. To phase out benefits more slowly would mean to subsidize millions of middle- and even upper-income families; in other words, it would be prohibitively expensive. But lowering the effective marginal tax rate at the bottom of the income scale by reducing the amount of aid would mean deep cuts for the most vulnerable.

Suppose we are talking about cash assistance. You can pick two of the following three characteristics:

1. Enough money for people with no income to be able to obtain basic needs, such as food and medical care.

2. Low implicit marginal tax rates, meaning that as people earn their own income, their cash benefits phase out slowly (or not at all).

3. Low overall budget cost.

What Ryan is saying is that he will leave it up to the states to deal with these trade-offs. His thinking is that if aid is administered locally through community and non-profit agencies, those institutions can attach the appropriate conditionality to receiving aid. If someone is able to work but does not seek or accept work, the agency can cut that person off. It is harder for a remote Washington agency to make the determination of who is trying to find work and who is not.

These local providers also can customize aid. As Ryan puts it,

it makes little sense to provide a household with a consistent stream of SNAP benefits when what the household may need most is reliable transportation to and from work. Giving providers this kind of flexibility will allow them to intervene early on with targeted benefits in cases where short-term assistance can prevent someone from falling into deeper poverty.

I strongly agree with Ryan that conditionality and customization ought to be applied at the local level, not the Federal level. However, my own view is that only some income assistance should be conditional and customized. I would like to see the Federal government provide assistance that depends on income but is otherwise unconditional. I think that the government assistance should phase out at a low rate of, say, 20 percent or 25 percent as an individual’s earnings rise.

My thinking is that this federal assistance might not be sufficient to satisfy condition (1). State and local governments would fill in the “needs gaps.” They would do so by looking carefully at individual household situations, attaching conditions and customizing.

Ryan would address the issue of Federal income assistance by expanding the Earned Income Tax Credit (EITC) so that it covers childless workers. Also, he writes,

another potential area of reform should focus upon EITC simplicity and delivery. If families received
the credit with their paychecks, the link between work and the EITC would be that much clearer.40 This reform
would also allow low-income to keep more of their money if it could reduce improper payments (which
amounted to $13.3 billion in fiscal year 2013 alone); they wouldn’t have to rely on tax-preparation firms to get
the credit. The most recent attempt at creating a periodic EITC was through the Advance EITC, which
experienced low take-up rates and extremely high rates of fraud and noncompliance.43 This proposal, therefore,
would direct the Treasury Department to investigate further how to provide a work-based tax credit that may
appear on a worker’s paycheck.

Finally, I commend Stephanie Mencimer of Mother Jones for offering a serious, informed critique of what I am calling conditionality and customization. She concludes,

the safety net today really doesn’t deliver the kind of customized service that Ryan thinks it should. It’s just too expensive, too hard to provide on a large scale, and in the end, not all that more effective than simply giving people money they need to keep the lights on until they can get back on their feet on their own.

Read the whole thing. Pointer from Tyler Cowen. Again, I think that some assistance should be customized/conditional, and funded at the state and local level. Federal assistance should look more like straight cash, with crude, simple rules.