It strikes me that government is something like a backpack.
If you're planning to take an all-day hike, you'll want to take some essentials: a Swiss army knife, some snacks, a compass, and a few other things, depending on where you are and how long you'll be out.
But if you're only going to be out for a day, there's no need to bring a tent, sleeping bag, cooking gear, and waders (unless you're going fishing). That stuff would just weigh you down.
There's a sweet spot between carrying too little and too much, depending the nature of the trip and what the hiker is willing to risk lacking versus unneccessarily lugging around. Too little can leave you in a bind, while too much slows the hiker down and makes the journey less pleasant.
So too with government and the productive sector. The core functions are right there in the Constitution: national security, courts for adjudicating disputes, regulating money, preventing restrictions on intrastate trade, and so forth. The benefits far outweigh the burdens for these.
Corporate welfare, earmarks, and the criminalization of just about everything represent the dead weight. The benefits for the few special interests are dwarfed by the burdens for the rest of us.
You can also get too much of a good thing--like a hiker with 50 pounds of food or a government that maintains armaments far greater than necessary to ensure self-government and the protection of vital interests. And there's the grey area.
But as the government burden increases, the private (productive) sector strains more and more under the weight, its (metaphorical) steps slowing. Hong Kong becomes the United States, which becomes Germany, which becomes India, which becomes Zimbabwe, Haiti, or North Korea, each of which is in almost utter collapse.
No wonder that the markets continue to tank: accumulating burdens with no prospects of relief in sight.
Thursday, March 5, 2009
Wednesday, March 4, 2009
Fairfax Budget Blues & School Choice
The County of Fairfax in which I now live is facing large budget deficits. I've just started to go through the Proposed FY2010 Budget, but I was struck by this image of proposed expenditures.
Spending on schools is a huge portion of the budget: $1.79 billion, or 54% of 3.31 billion, and that figure may exclude some relevant costs.
The projected enrollment for the current 2008-2009 school year is 168,384. If enrollment doesn't change that much, that works out to almost $11,000 per student per year.
Some have touted vouchers and education tax credits as the silver bullet to education quality problems, but they seem to be overlooked in budget discussions. We usually assume that spending less gets you less--and shortchanging our children's futures is obviously unacceptable--but isn't it possible that at least some of the spending isn't adding much to their education?
Andrew Coulson over at Cato crunched the numbers to see what would happen if Illinois, Texas, Wisconsin, and New York adopted an education tax credit, and he finds massive cost savings.
If savings in Fairfax County are anything comparable, something like this could take care of the budget crunch, improve choice, and enhance educational quality all at once. At least it's worth a look.
More budget analysis to come...
Spending on schools is a huge portion of the budget: $1.79 billion, or 54% of 3.31 billion, and that figure may exclude some relevant costs.
The projected enrollment for the current 2008-2009 school year is 168,384. If enrollment doesn't change that much, that works out to almost $11,000 per student per year.
Some have touted vouchers and education tax credits as the silver bullet to education quality problems, but they seem to be overlooked in budget discussions. We usually assume that spending less gets you less--and shortchanging our children's futures is obviously unacceptable--but isn't it possible that at least some of the spending isn't adding much to their education?
Andrew Coulson over at Cato crunched the numbers to see what would happen if Illinois, Texas, Wisconsin, and New York adopted an education tax credit, and he finds massive cost savings.
If savings in Fairfax County are anything comparable, something like this could take care of the budget crunch, improve choice, and enhance educational quality all at once. At least it's worth a look.
More budget analysis to come...
Sunday, March 1, 2009
Free Market Environmentalism
Utah Governor Huntsman has been calling for Republicans to be more moderate on environmental issues, apparently putting him at odds with the bulk of his party.
What is it about environmental issues that so turns off conservatives? After all, many of them are outdoor recreationists, and all of us value clean air and water.
Most likely, conservatives recoil from the redistributionist, anti-market, anti-corporate, and collectivist strains within the modern environmentalist movement that impose bureaucratic micromanagement on private decision making.
Current environmental statutes impose heavy burdens on the private sector, but some of them have significant public benefits as well--especially those that reduce air pollution.
Is it possible to have more effective protection of air, water, soil, biodiversity, and climate while reducing the costs of those efforts? Absolutely yes.
What to do:
- Transfer control over local problems to local authorities. It makes no sense to restore land to agriculture quality (as Superfund requires), when it's intended to be redeveloped into a factory, a shopping center, or a parking lot. When 'federal' money is at stake, no one cares about the cost, but more local decisions would better weigh costs and benefits.
- Replace current pollution control requirements with a pollution fees. This allows emitters to decide how best to reduce pollution and gives them a continuing incentive to reduce emissions. To maintain international competitiveness, the funds from these fees should be used to reduce taxes on investment.
- Address climate change first through 'no-regret' policies, then through emissions fees that pay for reduced taxation of savings and investment. No-regret policies are good economic policies that have the side benefit of reducing greenhouse gas emissions. These include ending all subsidies for agriculture (including fishing and forestry), energy (fossil AND alternatives), and rural and coastal development; removing all trade barriers; encouraging adoption of tradable water permits, especially in the West; and moving towards privatization of transportation infrastructure.
This list is hardly comprehensive, but it's a good starting point. Current laws to protect the environment are horribly inefficient and counterproductive, and many bear the stamp of political opportunism rather than sober policy analysis. Environmental protection can also be fiscally responsible and economically wise.
Governor Huntsman is quite correct if he means that Republicans would be wise to adopt a free market environmentalism.
Democrats could keep their political edge on those issues by beating Republicans to the punch on adopting incentive-based environmental policies. Of course, that would mean giving up micromanagement of the private sector.
Markets v. Government: What Works?
In the wake of the financial crisis, I keep hearing claims about the discrediting of free markets. To begin with, there's a compelling narrative that the financial crisis was caused by government intervention rather than free market excess.
As to whether government intervention can get us out of this mess, it may well be that individuals and businesses--especially in the financial sector--need to reduce the amount of debt they carry. This podcast argues that this process of deleveraging (reducing debt) is necessary and may take years, but that government policy is trying to prevent this. But delaying spring cleaning keeps the house dirty.
The turmoil in heavily regulated financial markets sheds light on some important questions: which parts of the economy are we happiest with and which make us miserable, and does any link exist between government involvement and our level of satisfaction?
As a middle-class consumer, what works well for me?
- The internet.
- Retailing.
- Reading material like books and magazines.
- Restaurants
What drives me crazy?
- The post office (a government monopoly on first class mail).
- Flying (government owns the airports and air traffic control system, runs the security).
- Health care (government uses tax dollars to pay for half, tilts playing field against individual coverage, regulates health provision and insurance, and on and on).
- Commuting to work (government ownership precludes road expansion or other ways to reduce congestion, such as variable rate tolls).
Now, is there a pattern, or am I just cherry picking?
Well, whenever I've come across something that doesn't work the way it should, I've almost always found that politicians have messed up the incentives for producers to respond appropriately to their customers.
Does greater intervention yield greater dissatisfaction? I have no doubt.
As to whether government intervention can get us out of this mess, it may well be that individuals and businesses--especially in the financial sector--need to reduce the amount of debt they carry. This podcast argues that this process of deleveraging (reducing debt) is necessary and may take years, but that government policy is trying to prevent this. But delaying spring cleaning keeps the house dirty.
The turmoil in heavily regulated financial markets sheds light on some important questions: which parts of the economy are we happiest with and which make us miserable, and does any link exist between government involvement and our level of satisfaction?
As a middle-class consumer, what works well for me?
- The internet.
- Retailing.
- Reading material like books and magazines.
- Restaurants
What drives me crazy?
- The post office (a government monopoly on first class mail).
- Flying (government owns the airports and air traffic control system, runs the security).
- Health care (government uses tax dollars to pay for half, tilts playing field against individual coverage, regulates health provision and insurance, and on and on).
- Commuting to work (government ownership precludes road expansion or other ways to reduce congestion, such as variable rate tolls).
Now, is there a pattern, or am I just cherry picking?
Well, whenever I've come across something that doesn't work the way it should, I've almost always found that politicians have messed up the incentives for producers to respond appropriately to their customers.
Does greater intervention yield greater dissatisfaction? I have no doubt.
Monday, February 23, 2009
Politicians: Missing the Point, Again
Ohio Congresswoman Marcy Kaptur (D-OH-Toledo) gave a speech on the House floor a few minutes ago lamenting the power that China, OPEC countries, and other unpleasant governments in Africa, Latin America, and Asia possess over the United States.
The source of that power? Their decision whether to buy U.S. government-issued debt. Here’s the argument: by selling off their accumulated U.S. Treasury Bonds or by simply refusing to buy more, they could cause the value of the dollar to crash relative to other currencies. They can supposedly use this leverage to influence U.S. policy.
Leaving aside the fact that a weak U.S. dollar would increase our exports (a policy she favors) because U.S.-produced goods would be cheaper for foreigners, it was striking that she railed against the symptom without even mentioning the cause.
If not for persistent deficits (column D), our government would have no need to issue debt in the form of bonds. Of course, eliminating the deficit requires cutting spending (the reasonable course), raising taxes (an especially bad idea during a recession), or some of both.
But then again, most politicians are known better for empty rhetoric than for making real decisions.
The source of that power? Their decision whether to buy U.S. government-issued debt. Here’s the argument: by selling off their accumulated U.S. Treasury Bonds or by simply refusing to buy more, they could cause the value of the dollar to crash relative to other currencies. They can supposedly use this leverage to influence U.S. policy.
Leaving aside the fact that a weak U.S. dollar would increase our exports (a policy she favors) because U.S.-produced goods would be cheaper for foreigners, it was striking that she railed against the symptom without even mentioning the cause.
If not for persistent deficits (column D), our government would have no need to issue debt in the form of bonds. Of course, eliminating the deficit requires cutting spending (the reasonable course), raising taxes (an especially bad idea during a recession), or some of both.
But then again, most politicians are known better for empty rhetoric than for making real decisions.
Thursday, August 28, 2008
Ending the Western Water Game
Last week, Senator McCain upset a lot of people in Colorado when he mused about renegotiating an agreement that allocates water usage from the Colorado River to various interests in the West.
The intesity of feeling about water is strange to those of us from the eastern portion of the United States, where water is so abundant that a staggering number of dams are used simply to prevent downstream flooding. Pittsburgh, for example, receives 3.1 inches of precipitation per month on average with a July high average of 3.8 inches and a February low of 2.4 inches. Denver averages 1.3 inches and ranges from 0.5 to 2.4 inches. Other Colorado River users include Las Vegas (.37, 0.1-0.5) and Yuma (.28, 0.0-0.6). Water is scarce in the West, and scarcity breeds conflict, as Mr. McCain recently discovered.
As long as water resources are allocated by political methods, their allocation will be insecure and subject to intense feelings. But this compact was finalized in 1922, and water needs have clearly changed since my grandmother was born. Water is too expensive in some places and too cheap in others.
An ideal solution would not only allow water to flow (physically and metaphorically) to its highest-valued use, but it would also draw the political venom out of the issue. The answer seems obvious: convert historical water allocations into water rights that can be bought and sold in normal markets. The rights must granted to individuals and businesses, and state governments must be prohibited from owning them.
This system would not force anyone to give up their water, but if they decide they're better off selling or leasing all or part of their right, they would be free to do so. Nothing would prevent conservation groups from purchasing the quantities of water to ensure ecosystem preservation goals.
Waste and inefficiency would be greatly reduced, users would have true choices, and the issue would be much less contentious. Propose that, Senator McCain!
The 86-year-old water compact says that Arizona, Nevada and California can take 7.5 million acre feet of water from the river annually. The rest is split among Colorado, Utah, New Mexico and Wyoming. The four up-river states worry that the more populous southerly trio would use a renegotiation to quench its ever-increasing thirst at their expense.
The intesity of feeling about water is strange to those of us from the eastern portion of the United States, where water is so abundant that a staggering number of dams are used simply to prevent downstream flooding. Pittsburgh, for example, receives 3.1 inches of precipitation per month on average with a July high average of 3.8 inches and a February low of 2.4 inches. Denver averages 1.3 inches and ranges from 0.5 to 2.4 inches. Other Colorado River users include Las Vegas (.37, 0.1-0.5) and Yuma (.28, 0.0-0.6). Water is scarce in the West, and scarcity breeds conflict, as Mr. McCain recently discovered.
As long as water resources are allocated by political methods, their allocation will be insecure and subject to intense feelings. But this compact was finalized in 1922, and water needs have clearly changed since my grandmother was born. Water is too expensive in some places and too cheap in others.
An ideal solution would not only allow water to flow (physically and metaphorically) to its highest-valued use, but it would also draw the political venom out of the issue. The answer seems obvious: convert historical water allocations into water rights that can be bought and sold in normal markets. The rights must granted to individuals and businesses, and state governments must be prohibited from owning them.
This system would not force anyone to give up their water, but if they decide they're better off selling or leasing all or part of their right, they would be free to do so. Nothing would prevent conservation groups from purchasing the quantities of water to ensure ecosystem preservation goals.
Waste and inefficiency would be greatly reduced, users would have true choices, and the issue would be much less contentious. Propose that, Senator McCain!
Alabama's Health Transformation
From the Associated Press last week:
There's nothing wrong with people having the incentives to be healthy, but this proposal is a rather crude attempt to go about it. It could be thought of as part of the employer-employee contract, but it misses the point of that relationship: to produce something of value for the employer. Being concerned with workers' health distracts from and takes resources away from fulfilling the mission of the organization. Employee health should be left to the individual.
Since health care costs are "free" to Alabama state employees, however, and at taxpayer expense, it's reasonable for the state to seek ways to manage its labor costs. If that includes charging more to cover additional projected expenses based on health indicators, that might be okay. But block fees for two particular unhealthy habits? Aside from the resources diverted to compliance, these fees are likely to undermine collegiality and trust at work.
A better, less intrusive approach to improving the health of state employees (and saving taxpayer money) is to empower them to take care of themselves. A possible first step would be to convert each person’s health benefit into a high-deductible insurance plan (like an HSA), where the monthly premiums are individually rated (underwritten) based on physical examinations of the covered persons. If a worker decides that higher premiums are worth paying to continue smoking, to avoid losing weight, or otherwise risking their health, individuals should be free to make that decision, but at their own expense.
Alabama, pushed to second in national obesity rankings by deep-fried Southern favorites, is cracking down on state workers who are too fat.
The state has given its 37,527 employees a year to start getting fit -- or they'll pay $25 a month for insurance that otherwise is free.
Alabama will be the first state to charge overweight state workers who don't work on slimming down, while a handful of other states reward employees who adopt healthy behaviors.
Alabama already charges workers who smoke -- and has seen some success in getting them to quit -- but now has turned its attention to a problem that plagues many in the Deep South: obesity.
There's nothing wrong with people having the incentives to be healthy, but this proposal is a rather crude attempt to go about it. It could be thought of as part of the employer-employee contract, but it misses the point of that relationship: to produce something of value for the employer. Being concerned with workers' health distracts from and takes resources away from fulfilling the mission of the organization. Employee health should be left to the individual.
Since health care costs are "free" to Alabama state employees, however, and at taxpayer expense, it's reasonable for the state to seek ways to manage its labor costs. If that includes charging more to cover additional projected expenses based on health indicators, that might be okay. But block fees for two particular unhealthy habits? Aside from the resources diverted to compliance, these fees are likely to undermine collegiality and trust at work.
A better, less intrusive approach to improving the health of state employees (and saving taxpayer money) is to empower them to take care of themselves. A possible first step would be to convert each person’s health benefit into a high-deductible insurance plan (like an HSA), where the monthly premiums are individually rated (underwritten) based on physical examinations of the covered persons. If a worker decides that higher premiums are worth paying to continue smoking, to avoid losing weight, or otherwise risking their health, individuals should be free to make that decision, but at their own expense.
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