Q&A

Question: Why isn’t air traffic control function of the FAA fully funded by air travelers and, instead, partially funded by Federal taxes?

Answer: So the air traffic controllers can be used as political budget pawns.

Profits and Ballot Boxes

In the comments of this post, commenter Wally and I discuss the business feedback of profit and government feedback of votes.

W. E. Heasley, of The Last Embassy blog, recently posted an excellent short video from Learn Liberty that helps explain why voting isn’t a very effective feedback mechanism:

 

Most of us make purchasing and voting decisions. Sometimes they are a little of both, like when you vote with your family on what’s for dinner.

The following are links to and excerpts from previous posts I’ve made quoting economists Thomas Sowell and Walter Williams, who do an excellent job of explaining why purchase decisions are a more effective feedback mechanism than voting.

1. From this post in 2010, I quoted from Thomas Sowell’s book, Intellectuals and Society.  He explains the difference in these feedbacks well:

The fundamental difference between decision-makers in the market and decision-makers in government is that the former are subject to continuous and consequential feedback which can force them to adjust to what others prefer and are willing to pay for, while those who make decisions in the political arena face no such inescapable feedback to force them to adjust to the reality of other people’s desires and preferences.

A business with red ink on the bottom line knows that this cannot continue indefinitely, and that they have no choice but to change whatever they are doing that produces that red ink, for which there is little tolerance even in the short run, and which will be fatal to the whole enterprise in the long run.  In short, financial losses are not merely informational feedback but consequential feedback which cannot be ignored, dismissed or spun rhetorically through verbal virtuosity.

In the political arena, however, only the most immediate and most attention-getting disasters — so obvious and unmistakable to the voting public that there is no problem of “connecting the dots” — are comparably consequential for the political decision-makers.  But laws and policies whose consequences take time to unfold are by no means as consequential for those who created those laws and policies, especially if the consequences emerge after the next election.  Moreover, there are few things in politics as unmistakable in its implications as red ink on the bottom line is in business.  In politics, no matter how disastrous a policy may turn out to be, if the causes of the disaster are not understood by the voting public, those officials responsible for the disaster may escape accountability, and of course, they have every incentive to deny having made mistakes, since admitting mistakes can jeopardize a whole career.

2. In three paragraphs that I quoted from Thomas Sowell’s book, Applied Economics, he explains the differences in our buying and voting decisions. Here are those three paragraphs:

Politics and the markets are both ways of getting people to respond to other people’s desires.  Consumers deciding which goods to spend their money on have often been analogized to voters deciding which candidates to elect to public office.  However the two processes are profoundly different.  Not only do individuals invest very different amounts of time and thought in making economic vs. political decisions, those are inherently different in themselves.  Voters decide whether to vote for one candidate or another but they decide how much of what kinds of food, clothing, shelter, etc. to purchase.  In short, political decisions tend to be categorical, while economic decisions tend to be incremental.

Incremental decisions can be more fine-tuned than deciding which candidate’s whole package of principles and practices comes closest to meeting your own desires.  Incremental decision-making also means that not every increment of even very desirable things is likewise necessarily desirable, given that there are other things that the money could be spent on after having acquired a given amount of a particular good or service. For example, although it might be worthwhile spending considerable money to live in a nice home, buying a second home in the country may or may not be worth spending money that could be used for sending a child to college or for recreational travel overseas.  One consequence of incremental decision-making is that increments of many desirable things remain unpurchased because they are almost–but not quite–worth the sacrifices required to get them.

From a political standpoint, this means that there are always numerous desirable things that government officials can offer to provide to voters who want them–either free of charge or at reduced, government-subsidized prices–even when the voters do not want these increments enough to sacrifice their own money to pay for them.  The real winners in this process are politicians whose apparent generosity and compassion gain them political support.

3. In his classic column, Conflict or Cooperation, which I linked to in this post, Walter Williams explains how to pit beer drinkers against wine drinkers. Here’s a taste:

Different Americans have different and often intense preferences for all kinds of goods and services. Some of us have strong preferences for beer and distaste for wine while others have the opposite preference — strong preferences for wine and distaste for beer. Some of us hate three-piece suits and love blue jeans while others love three-piece suits and hate blue jeans. When’s the last time you heard of beer drinkers in conflict with wine drinkers, or three-piece suit lovers in conflict with lovers of blue jeans? It seldom if ever happens because beer and blue jean lovers get what they want. Wine and three-piece suit lovers get what they want and they all can live in peace with one another.

It would be easy to create conflict among these people. Instead of free choice and private decision-making, clothing and beverage decisions could be made in the political arena. In other words, have a democratic majority-rule process to decide what drinks and clothing that would be allowed. Then we would see wine lovers organized against beer lovers, and blue jean lovers organized against three-piece suit lovers. Conflict would emerge solely because the decision was made in the political arena. Why? The prime feature of political decision-making is that it’s a zero-sum game. One person’s gain is of necessity another person’s loss. That is if wine lovers won, beer lovers lose.

The differences in political and private decisions has spawned a branch of economics study called public choice economics. Here’s more.

 

“The worst possible thing is to have people with good motives, but bad understanding.”

The title is quoted from Bryan Caplan at about 8:30 of the Freakonomics podcast, We the Sheeple.

I recommend listening to the entire 24 minute podcast.

In one segment, Caplan addresses some Obama and Romney campaign planks and explains why they are terrible economics, but good vote-getters.

Regarding making it easier to go to college, Caplan points out that the benefits are not that clear from economic standpoint because:

We already have an enormously high drop-out rate, especially for marginal students. Most of the benefit from college is from actually finishing it.  Over the last decade we’ve seen a large rise in the number of people who start college, but the fraction that actually finishes is very flat. It seems quite likely that this is just going to encourage some people to waste a couple of years of their lives with very little to show for it.

But the reason politicians campaign on it:

And yet, what I just said is not anything you’d ever want to tell voters. You certainly don’t want to get in front of a national audience and say, ‘you know, I think too many go to college, a lot of people aren’t very serious. That’s just the fact. A lot of people aren’t meant for college.’ That sounds terrible.

[Host Dubner]: And, therefore, campaigning on the idea of sending more people to college is a great thing to campaign on.

[Caplan]: Sounds great. And, of course, we’re going to pay for all this stuff…sounds good… I mean who wants to pay for stuff?

That last question sums up politics. Who wants to pay for stuff? Nobody really. But we hope others will.

Two for those who voted today

Question 1: Was your vote influenced by concern of losing some direct benefit that you are now receiving from the government?

Maybe you believe that your vote will help preserve your Social Security check or Medicare coverage. Or perhaps you’re a teacher who thinks the Federal government will help fund your paycheck. Or you work for a Federal contractor that you expect will get more government work under one administration than the other.

Question 2: At any time recently have you grumbled or thought about ‘how broken our political system’ is because of all the special interests, lobbyists and politicians who promise one thing and do others?

If you answered yes to both questions, have you considered that you are part of the reason  the ‘system is broken’?

Anecdotes are powerful political tools — but shouldn’t be

I just had to add this passage from John Cochrane’s health care essay:

The critics adduce a hypothetical anecdote in which one person is ill served, by a straw‐man completely unregulated market, which nobody is advocating, with no charity or other care (which we’ve had for over 800 years, long before any government involvement at all).  They conclude that the anecdote justifies the thousands of pages of the ACA, tens of thousands of pages of subsidiary regulation, and the mass of additional Federal, State, and Local regulation applying to every single person in the country.

How is it that we accept this deeply illogical argument, or that anyone in making it expects it to be taken seriously? If you can find one person who falls through the cracks, the government gets to regulate the whole market, not that we craft a minimal solution to fix that person’s problem.

But wait, will not one person fall through the cracks or be ill‐served by the highly regulated system? If I find one Canadian grandma denied a hip replacement, or someone who can’t get a doctor to take her as a medicare patient, why do I not get to conclude that everyone must be left to the market?

 

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.

Straw man army

Much political debate nowadays is one side putting up a straw man fallacy while the other side tries to dismantle it — all of which takes away from productive discourse.

A straw man fallacy is usually an absurdly inaccurate representation your opponent’s position — so absurd that it’s easy to defeat, or knock down, like a ’man made of straw’.

We begin using straw men right about the time we start talking.

“Mom! Brother called me a booger!”

“Brother, quit calling your sister a booger.”

“I didn’t. I told her she’s a selfish snot, because she will not share her toys with me.”

“Sis, we’ve discussed this. Share.”

Sis, won’t tell Mom what her brother actually said. She intuitively knows that her selfishness will not gain her much sympathy from Mom. Best leave that part out and turn make it seem her brother made an unprovoked malicious comment.

Using a straw seems to imply one of three things.

1. You know, like Sis, that your opponent’s position is stronger than you’d like it to be, so you carefully avoid the truth and construct the straw man.

2. You expect your target audience to be dumb and not recognize the straw man.

3. You’re dumb.

Most political ads are straw men. “My opponent wants to destroy something or the other! Don’t vote for him.”

These campaigners hope that you’re dumb and that the army of straw men they construct will sway your vote their way.

It must work to some degree. Straw men still exist. Unlike Mom, enough of us don’t call BS and request that the campaigners address the real positions.

Keep your eye out for straw men in this election season.

The iPad Tax

This Marginal Revolution blog post, linking to another post by Miles Kimball, who suggested we thank the top 100 tax payers, reminds me of this post of mine from 2010 where I — less eloquently than Mile — suggested that we thank the rich for the taxes they pay, rather than demonize them.

I thought the comment discussion to that Marginal Revolution post was lively. I was intrigued by a couple of comments. MPS wrote:

The richer you are, the more you benefit from government. It’s obvious from the standpoint of if you were born out in the jungle, you wouldn’t be so rich. In more proximate terms, your wealth derives from things like intellectual property protections and other safeguards of capital that allow people to extract large sums with little physical labor. This is all very well and good as part of a system of government intrusions designed to incentive behavior that increases overall wealth, but when you become wealthy it is through a channel created by government to reward your wealth-enhancing behavior, and not because you exerted so much physical labor to earn it at true competitive market rates.

Too many people share some sort of version of MPS’s sentiment on government, which explains why it has grown well beyond the too-much-of-a-good-thing level. These people vote for politicians who use government to solve problem any problem, instead of electing politicians willing to make tough and responsible choices like balancing the budget and cutting programs that should be outside the scope of government.

A I have few responses for MPS.

1. As I wrote in this post, government is overhead.

Our ancestors didn’t create government and then get wealthy. We got wealthy enough to afford government. How? Our hunter-gatherer ancestors weren’t wealthy enough for government. They spent most of their time scrounging up food. They didn’t have enough time to send folks off to govern. As they got better and applied innovations like cooking, preserving food and farming, they created wealth (i.e. some slack time). Eventually, they freed up enough of their calorie producing activity to go vote on bills and hob-knob with lobbyists. Government emerged from wealth.

2. As Sowell and  Boudreaux point out, rich folks already pay for whatever benefits MPS imagines they get more of. Why should they have to pay again?

3. As Boudreaux also pointed out, there are, or have been, private solutions for much of the infrastructure that MPS believes only government can provide.

4. But, for me, the most important point is that rich people who earned their success didn’t get rich by government incentive channels as MPS describes. They got rich by providing something that made the rest of us better off. They benefited because we benefited.

Those that earned their success took risks that would turn MPS’s stomach. They tried and failed at several things, shook it off and tried again, when most of us would’ve been afraid to try, and if we got up the courage to give it a go, would have stopped after our first failure.

We use to want to encourage these people because we knew it resulted in good things for us. We wanted folks to get wealthy, because we recognized that they owned their effort and ideas and its only fair that they get rewarded, but more importantly, we wanted more good things for us. We use to not be too stingy about sharing bridges with them. 

MPS doesn’t realize his belief that we got those good things from the incentives and channels that government laid out ensures he will get fewer good things.

Folks like MPS love the iPad. I wonder if he would be willing to give it up. When he uses “the rich benefit more” reasoning to support higher taxes on them, he is paying that tax by forgoing opportunities to buy future innovations.

What ‘earned success’ means

What ‘earned success’ means to a…

…libertarian: You take risks and with quite a bit of luck, persistence and hard work you discover something that creates value by improving other folks standard of living so much that they willingly trade some of the value they have created (or been given) for it. Folks earn their success by providing for the needs and wants of others.

…conservative: Smart people take risks and with persistence, laser-like focus, the right connections and hard work build an empire. Conservatives tend to gloss over parts about luck and providing for the needs and wants of others.

…moderate: You work hard and become successful.

…liberal: You win prestigious awards, you are viewed as humanitarian or anything else deemed praise-worthy, like designing a really cool phone or giving a heart-felt portrayal of a monster of history on the big screen.

…progressive: Being picked as a winner by a progressive government. If you do what the that government deems as worthy, you’ve earned it. If government is not controlled by progressives at the moment, look to the next most progressive government to see what they deem as worthy.

Brooks: Redistribution v Free Markets

From Arthur Brooks’ The Road to Freedom, via Bryan Caplan at EconLog, regarding the debate between government redistribution and free markets:

Average Americans are thus left with two lousy choices in the current policy debates: the moral left versus the materialistic right.  The public hears a heartfelt redistributionist argument from the left that leads to the type of failed public policies all around us today.  But sometimes it feels as if the alternative comes from morally bereft conservatives who were raised by wolves and don’t understand basic moral principles.

While it is earned success that really matters, people are nevertheless wired to “keep score.”…

Just for fun, find a Marxist college professor – who scoffs at the idea that people work less if they lose the incentive of money – how he would feel if his name were not put on any of the academic articles he published.  Instead, the articles would be published under the name of another academic who needed the recognition more than he did.  After all, he would still have the satisfaction of having written the articles.  Why shouldn’t that be enough?  His completely reasonable response would be that he earned the right to have his name on those articles, and denying him that measure of earned success is viciously unfair.  Exactly.