Why Fear the Rummage Sale?

I caught a glimpse of the Sunday morning talk shows. Topic of discussion: Obama ‘saving’ the US auto industry.

One person (I think Carly Fiorina) correctly pointed out that Ford stayed viable and gained strength without a government bailout. I might add that they have done so with some good ‘adult’ management (making tough choices) and by making stuff that people want.

Another person responded saying that the US auto industry wouldn’t exist if it weren’t for Obama. Yet another added that an auto industry collapse would have had far-reaching effects in the economy.

Both present an overly simplistic false choice: Either government bails out the auto industry or the industry disappears and takes a lot with it.

That’s not true. In our world, big businesses rarely go out of business completely. Their restructurings and bankruptcies are like exploding stars that give birth to new stars and planets.

Big hunks of the business would continue in some form or fashion. Other companies may buy the healthy operations or the workers might buy their divisions to form new companies.

My father worked for a company that was owned by a steel company that no longer exists. As the steel company was going out of business, the leaders of his division organized an employee purchase of his part of the company. That employee owned company is still around, nearly 30 years later, and much larger and stronger than it was then.

Or, new management may take over during bankruptcy and renegotiate the obligations that have become untenable and allow the business to continue with a more competitive cost structure.

Lots of things can happen.

The unhealthiest portions of the business may go away, but these were the parts that were holding the company back. And this is exactly what is supposed to happen. Without the barriers caused by the unhealthy parts, the healthy parts can thrive and grow to quickly offset the unhealthy part that died off.

This is not much different from what most of us do with our personal belongings. We buy nice shirts to look nice at work. Eventually, we get tired of it. How often do you throw away shirts?

When I’m done with my shirts, I give them to family members, sell in a garage sale or donate it to a thrift store so others can get use from them.

If I kept all the shirts that I stopped wearing, I’d have to rent storage lockers to store them and eventually the cost of renting those storage lockers would prohibit me from buying new shirts.

If I started talking about selling all my shirts in those storage lockers, my two good friends from the Sunday morning talk show would complain.

The first would say that without me renting storage lockers, the storage locker industry will suffer, so Obama needs to help save that industry.

The second would say that if the storage locker suffers, others will too, so Obama needs to help prevent the spread of collateral damage.

I ask, but what about all the companies that make shirts that will benefit now that I will have some proceeds from my shirt sales and saved storage locker fees to buy more? Maybe I’ll buy some pants, too. Might other rent the locker space that I vacate?

In the end, the ‘auto industry’ (or some evolved semblance of it) would survive. It may look different. But, what’s remaining might be healthier and better poised to grow.

Things aren’t always what they are cracked up to be

Relating to my previous post, there was an excellent illustration of things aren’t always what they seem, on a recent episode of the sitcom Parks & Recreation.

In it, Leslie Knope traded her city council office — the only one with a private bathroom — with another city councilman in order to gain his vote to extend the swimming pool hours for the swim team.

Knope wanted the swim team to learn a lesson in ‘government working for you’. You guys wanted something. You came to me – a city councilwoman. I championed it. You got what you wanted. 

Knope didn’t want them to know about the horse trading she had to do get their extended hours.

Somewhere in our early years we seem to develop a high regard for the political process. Maybe that’s inspired by the idealistic interactions like what the Pawnee swim team had with Councilwoman Knope.

Had the swim team been exposed to the true dealings that got their extended pool hours, they may come away with a different regard for the political process.

The Will of the People does not exist

As you get older, you learn things aren’t always what they seem. A magician isn’t magical, he’s just highly practiced at misdirection and concealing what’s really happening, for example.

The idea of the Will of the People is similar. We take for granted that majority rule is a fair way to decide things. If the majority wants it, it’s the will of the people and it’s fair. Rarely do we question that.

But, in this week’s EconTalk podcast, Rodden on the Geography of Voting, this idea is put to the test. Near the end, I found the conversation on majority rule and the will of the people very interesting (emphasis added):

[Host] Russ [Roberts]: I think a lot of people have a romance about majority rule. Certainly one way that small groups of people settle disputes is they say: Well, let’s take a vote. And whatever gets the most votes wins. And I think to a lot of people that’s obviously the fairest, best way to decide stuff. And so all of these things that we’ve been talking about that mitigate that–whether it’s the Electoral College, winner take all districts–a lot of people say that’s just not the right way to do things. Everything should be decided by a majority vote. And yet, as we know from work by Kenneth Arrow and others, majority vote in the normative sense, meaning leading to outcomes we like, isn’t so strong as it seems. On the surface, nothing could be fairer than majority rule. And yet when you look a little closer you start to see that majority rule’s got some very deep flaws in it.

Guest [Rodden]: Yeah. This is one of the things that when I teach courses to undergraduates on institutions, we do this in the first or second week. It’s a very easy thing you can do to have the students give their rank ordering of their preferences for what type of pizza that they would like; you have each student rank three and then you put them together. And it’s very easy to find groups of students who have what in the social choice literature is called cycling majorities, where you can show that there is no such thing as the majority will. If I set up the institutions in such a way that there’s first a round robin tournament of pepperoni versus vegetarian and then the winner of that is paired off against sausage, I can get a different outcome than if I do the initial pairings in another way. And so I can show that whoever controls the agenda controls what kind of pizza the students are having. It’s kind of something that we’ve known since Condorcet and Arrow, the classics of social choice theory: it’s simply nonsensical to say that the majority has some kind of will that we will then translate into policy. And so the students are always sort of surprised by this. We like to believe that there is such a thing as the collective will. And I think one of the basic lessons of politics and institutions is, unfortunately, it’s possible to aggregate those preferences in very different ways in different institutions and get different outcomes. So we should[n't] attribute so much importance to something that we believe was the outcome of some kind of majority choice. Often the truth is much more complicated. Agenda control and political power are often used in getting us to the outcomes we see. It leads us to think in a different way about how we interpret the decisions that are made by legislatures and what they actually mean.

Russ: The other problem I have with “will of the people” is majority election. Whether it’s 55-45, or 90-10, the loser obviously felt differently. So it’s not the will of the people. It’s will of those who won that election, whether it’s a majority or whether it’s proportional or whether it’s this weird system we have in the United States. We don’t have referenda on every item. It’s this weird thing called the Legislature, Congress, Senate; we have committees; all this baggage, this incredible superstructure and infrastructure around the way political outcomes are coming out of our preferences. It’s not just a majority rule referendum. But the most important thing to me is that we all have different preferences. And so once you put it into a political process you are basically saying: We are going to get one outcome, and you are stuck with it–because it was the result of a vote. And I don’t see that as necessarily fair at all.

Walter Williams wrote about this, from a different perspective, in his classic Conflict or Cooperation column.

Thomas Sowell also has some excellent thoughts on the topic here .

I like how Russ Roberts finishes the thought in the podcast:

Because political decisions will struggle to reflect anything remotely like the will of the people, I want as few decisions as possible put into that sandbox. I’d rather have the competition of free association and free choice make those decisions and allow for the diversity of outcomes that private markets and private decisions have rather than political decisions, which are inevitably coercive.

Update: Here’s another post relating to the topic: Politics is a group of people making a decision for you.

Government does not eliminate scarcity

From George Will’s column, Seeds of our Dysfunction:

America’s public-policy dysfunction exists not because democracy isn’t working but because it is. Both parties are sensitive market mechanisms, measuring more than shaping voters’ preferences. The electoral system is a seismograph recording every tremor of public appetite. Today, the differences that divide the public are exceeded by the contradictions within the public’s mind.

America’s bold premise is the possibility of dignified self-government — people making reasonable choices about restrained appetites. But three decades ago, Harvard political scientist Samuel Huntington postulated that America suffers regularly recurring political convulsions because the gap between the premise and reality becomes too wide to ignore.

 

Electoral College

At some point long ago, I thought I had posted my thoughts on the electoral college, but I can’t find it.

Every Presidential election cycle, there is no shortage of criticism for it.

I think the criticism is rooted in a misunderstanding of the Constitution and our form of government and a lack of appreciation for the weaknesses in democracies that were demonstrated in falls of previous civilizations.

The common criticism for the EC is that it may elect a President that did not win the popular vote, therefore, it could override the will of the people.

But I think this misses two key things.

First, is the name of our country. We call it the United States of America, not the United People of America. We call it this because we recognize the states are represented in the federal government, not just the population.

We see this federal representation of individual states in two key areas — the Senate and the senatorial electoral college vote. Each state is equally represented in both respects, no matter what the population of the state is.

To simplify: In the fall of other civilizations, political power became too concentrated into the centers of population, which led to those centers making decisions in their own best interest. Eventually, the folks in the outer reaches of those empires stopped participating because their voice wasn’t heard and the civilization began to crumble because those population centers didn’t recognize their importance. They produced food for those folks and provided natural land barriers for invading forces. When the folks producing your food stop caring, your civilization is in trouble.

Second, the Federal government has an important place where population does matter, in the House of Representatives. And, it is Congress, after all, where all Federal legislation is supposed to originate. There is also a population component in the electoral college vote as well.

Also, while not originally designed this way, Senators are selected by popular vote. So, while each state gets the same representation in the Senate, who is selected to be a Senator is chosen by the ‘will of the people,’ or the will of the majority of the people anyway.

So, whenever my friends lament that their vote for President counts a little less than some of their friend’s votes in other states, I encourage them to think about these two points above and to more carefully consider how they exercise their Federal political power when it comes to choosing Senators and Congressman.

I bring this up now, because I so rarely see arguments against the Electoral College that addresses these specific points and I rarely see arguments in favor of the Electoral College. However, I was pleased to see that Garret Jones, at Econlog, shares my appreciation for it. Here’s his key line:

As it stands, presidential candidates are trying to appeal to the median voter in each state across a large number of states.  That’s how you get to be president.  This reduces regional tensions because candidates are never trying to get 90% of the votes in a state.   When you’re pitting 90% of one region of the country against 90% of another region of the country, you’re substantially raising the probability of social conflict.

That’s a deeper way of looking at my first point. If Presidential candidates focused on getting 90% of the vote in just the most populous states, the other states would stop caring about the United States rather quickly.

Beware the Bimodal

Missouri incumbent Senator Claire McCaskill thinks Missourians should vote for her because she is in the middle, #50, in a ranking of Senators based on how liberal/conservative they are.

Be careful of the political spin. This ranking doesn’t mean that she’s a ‘centrist’, as she likes to claim. This is the group that does the rankings and here is how it is calculated.

They grade on a curve. Think of a test in high school. If her and fellow Democrat Senators all scored 85 or higher there’s a couple of ways to look at the scores.

First, we might say they all scored well and deserve As and Bs.

Second, we could rank them by their scores and we’d find Claire ranked #50 with a score of 85.

Which method do you think is a better indicator of her true performance? The #50 ranking or the score of 85? I’d argue that the score of 85 is better.

By no means would we say that she’s closer in ability to a person that scores 50 or lower. But that’s exactly what she wants you to believe with her touting of the #50 ranking.

In statistics, a test score distribution where you have a clump of people at 85 and above and another clump of people scoring 40 and below, with very few in between, is a bimodal distribution (or two modes).

In the Senate, you are pretty much either liberal or conservative. Saying you are the least liberal doesn’t mean much, except that you are comfortable misleading people.

While I don’t agree with everything about all conservatives, I don’t very often see a conservative try to mislead folks into believing they aren’t conservative. It should be distressing to liberals when their candidates try to leverage the general public’s weak understanding of statistics to pretend they are not liberal.

 

“Life Would Be So Much Better Without Capitalism!”

Thanks to Cafe Hayek for pointing me to this well done video from the Fund for American Studies:

 

All the good stuff we get from capitalism and don’t even notice is a them I like to explore often. The video does a nice job of illustrating it.We take for granted something as mundane as having 24-hour pharmacies nearby chock full of stuff to help many ailments that can be ours for a relatively small price. Have you considered that billions of people in the world now and before us would love to have.

In the video, an anti-capitalism protester who enjoys plentiful gadgets, food and overall decent standard of living (due to capitalism), is knocked out by a sign waver at the demonstration and gets to explore a world without capitalism while out cold, aided by a little dude with wings to help explain why everything is so dreadful there.

I love this line:

Anti-capitalist: My X-Box is gone?

Little winged guy: Yeh. In this world, that greedy Bill Gates works at a bowling ball factory in Akron.

Join the discussion.

JALJA

Seth Godin on fire drills:

An organization that’s run on emergencies and reaction to incoming doesn’t know what to do when there are no problems.

Instead of seeking out new ways to delight, they run around looking for new emergencies, and if they look hard enough, of course they’ll find them.

(Two reasons for this: emergencies concentrate the mind and allow things to get done, and history).

I’ve worked in my share of fire drill factories, which is why I like Seth G.’s thoughts here.

I once coined a code word for fire drills: JALJA. It stands for Jumping Around Like Jack-Asses, which is what a lot of folks do when fire drills come along.

It’s pronounced J-owl-j-uh.

It was a part the lexicon at work for awhile. Even my bosses would use it. They’d call me into their office and say:

Seth (me, not Seth G), looks like we have another JALJA coming our way. Do you have plans tonight?

Free Condoms

In high school, I was the campaign manager for a student council president candidate.

We weren’t all that serious. We made lots of posters with sexual innuendo and at one point promised the electorate that my candidate would look into getting free condom dispensers in the bathrooms, if elected. It was a public high school, after all.

The principal wasn’t thrilled with our behavior. In his office, he told us we ran the most asinine campaign he had seen in his 25 years in education. I was honored. Even then I wasn’t enamored with politics and politicians.

I never would have guessed that one of the campaign promises we joked about would be a serious issue in the campaign for the President of the United States. I wonder what my former principal thinks of that? We were way ahead of our time.

I also learned a good early lesson in politics. While the authority figure wasn’t pleased with our antics, the electorate got a kick out of it. My candidate won. Of course, even then, I was decent at seeing the big picture. My candidate didn’t need my help and I knew it.

What does grade-level mean anyway?

Talk radio discussion topic from this evening’s drive:

Some school district is setting goals to increase reading proficiency for students from X% of students reading at their grade level to Y%.

The discussion was about the different goals set for different races and how that sends the message that it’s okay to underachieve to folks from races with lower goals.

However, that’s not what I’m writing about. I was more concerned with obvious oversight.

In the old days, to move up to the next grade you had to demonstrate your mastery of various things expected at that grade, including reading at grade level.

If you couldn’t demonstrate sufficient mastery of your grade-level expectations, you were held back. That was a darn good motivator for students and their parents to try hard.

In one population cited on the radio, 38% of that group could read at grade-level.The easy way to fix that is to hold the 62% who are not reading a grade level back until they are.