Recycling my mind

You may remember that here at MM we are always looking for ways to change our minds. In fact, it is an ongoing resolution. Well, we may have found my jewel of the Nile for this year.

I referenced this recycling conversation in my last blog post. I highly encourage you to read all the essays and followup conversation. Mike Munger makes what is for me the first rational point I've ever encountered theoretically supporting mandatory recycling programs. Recycling is an economics and business issue. It is about optimal use of resources. The problem might be that we have too little of it. Why? Because the incentives might be messed up. How? Because we want them to be. I don't mean choose them to be in some sinister, corporate-cronyism sort of way (although there is plenty of that in the larger political economy of recycling). I mean truly want them to be . . . to a degree and as an unintended consequence.

The intention is to make landfills artificially cheap by subsidizing them so that illegal and undesirable dumping is minimized. As a result the relative incentive to recycle is lower than it should be as compared to landfilling. In his response essay Steven Landsburg raises very good and strong concerns about what that actually implies for a recycling effort. Remember, I said theoretical case for mandatory recycling. It is in seeing now a theoretical defense of mandatory recycling (or preferably some less coercive means of encouraging recycling) that I have changed my mind. To that point and in his last response in "The Conversation" Munger makes a very Coasian/Hayekian point about how we need to shift the incentives (Coase would emphasize property rights here) but that he doesn't know, a la Hayek, what that solution(s) will actually be. I agree very much with that thought process.

Another very important point raised throughout the issue is how the moral crusade for recycling is quite an awful thing. It magnifies and worsens all that is bad about excessive recycling, and most mandatory recycling is excessive. A little neglected in the issue is the simplistic but problematic solution of fighting the subsidy come incentive problem with an additional subsidy--this time for recycling. That would be the road to a farm bill for waste/recycling. You think I hate mandatory recycling now . . .

The tip of the iceberg

Should tipping be banned? That is the topic of a recent Freakonomics podcast. Listen to the whole thing.

Tipping expert Michael Lynn says if he had his druthers he would outlaw tipping. I found the reasoning for this conclusion lacking. Most of his research is based on survey data, which by its nature comes with a full shaker of salt. Of course many of the results of the survey research agrees with conventional wisdom priors, and this is a rare instance when I tend to agree with conventional wisdom. Hard to say that the surveys tell us much when they simply tell us what we already believed.

Confirmation bias is seductive. For example, we are told that physically attractive females earn better tips especially from men. What isn't so clear is if assuming they could earn more, the female servers actually deliver superior service to that target audience. Or perhaps they are take the game theory to the next level. Since the men are a sure thing, the female servers focus their attention on other patrons. The men appreciate them just the same while the other patrons get superior service. In this case tips rise from all patrons when compared to the alternative--non-attractive servers for the men and standard or inferior service for other patrons.

The major case Lynn finds against tipping is that it is de facto racially, et al. discriminatory assuming the survey results match reality. Here is where the reasoning is poor. Association with an outcome potentially undesirable, such as black waiters making less tips than white waiters when other factors besides race are supposedly held constant, is then construed as being the undesirable behavior per se. It is as if tipping were the cause of the discrimination rather than simply a correlated symptom of the problem. This is the logic of the disparate impact doctrine. Unfortunately, eliminating tipping even if it is truly used in a discriminatory manner including simply having a discriminatory result doesn't eliminate racial discrimination or disparate impact.

A bigot can exert harm in ways that may be more harmful if the tool of tipping is removed. This is true if the discrimination is done consciously (disparate treatment) or unconsciously (disparate impact). Without the ability to choose a restaurant blind to the color of the staff knowing the bigot can always tip less if the server is of an "undesirable" race (from the perspective of the bigot), the bigot may be lead to only consider restaurants that have low to no proportion of "undesirable" races employed within. In this thinking tipping is a more subtle tool for exerting bigoted behavior. Take away the tool, and the bigot is left with only more blunt means of acting out the bigotry.

Throughout the podcast there seemed to be an air of confusion about what the purpose of tipping is and a dismissiveness in the sense that a practice while long standing and ubiquitous was nevertheless illogical.

The purpose of tipping is to properly align incentives and minimize principal agent problems. It is not a gift. It is not a requirement. A tip should be understood as part of the compensation withheld until service is rendered to be delivered directly from the patron with potential variability depending on quality. It is an emergent solution to a knowledge and cooperation problem.

Some more thoughts:

• Those eligible for tips should be those with an ability to perform above or below the standard. 
• "They work for tips" is not adequate reasoning for how much one should tip. That is simply the definition of the service arrangement. 
• Inflation does not imply that the rate used for a standard tip should change, say from 15% as the old norm to 18% as the new norm. That is really bad math.
• For tipping to be effective, one must be willing to differentiate. At the least that means tipping a minimum amount (perhaps 10%) subject to upward revision if service is excellent. More desirably it means a willingness to tip zero for horrible service or negative (complaining to the manager) and a willingness to tip very well for excellent service.
• Tipping based on a percentage of the cost of goods is generally fine, but there is a floor and ceiling on this causing the rate to become an S curve rather than a straight line. If I order a Coke at the bar while my friends drink beer, I don't simply tip 15% on the $2.00 soft drink. Likewise, an expensive dinner for my wife and I where the before-tip bill is $300 might only rate a $50 tip even if service is excellent. 

Thoughts on The Tornado

It is hard to describe the feeling you get watching the news from work downtown helplessly miles away from your home and family as a storm bears down. Not that your presence could do much, but the distance adds to the agony. You watch as a system that had largely passed the area suddenly develops on the back end. Then a storm chaser identifies a funnel emerging from the cloud. It quickly takes structure. And builds from there. A moment later it has made contact with the ground. In complete opposition to both likelihood and desire, it strengthens and strengthens and strengthens. Its direction is along a probable path but with random veering. All that is certain is that it will move northeasterly. As the overly excited and less than informative storm chasers on the scene and meteorologist in the station alternate between calm but incomplete narration and screaming panic, you do math in your head. What are the chances it moves more north than east? Too much north too quickly and your home and family are more and more likely to be in the certain path. What are the chances it dissipates? What are the chances it reaches your neighborhood but only glances your home? What are the chances your family can survive a direct hit? How powerful is this monster?

Here is what it looked like as neighbors watched it pass.

It was less than 2 miles south. It moved east more than north. My family was spared. Others were not so lucky of course. Their agony was realized in a crashing horrific wave. My heart is heavy for them.

The best I can do to describe the horrible, random terror is to say it is like a plane crash. Or perhaps like knowing that a few planes today will crash. You're in a plane; your family is in another; there are hundreds that will survive, but some will not...

Some other thoughts:

• The fear of price gouging raised its ugly head not long into the tragedy. Although this tragedy was more isolated within a larger, unharmed community, the importance of letting the price system allocate goods and services was still as always very relevant. Hotel space, dump trucks, and pod storage units are just a few examples that come to mind. Immediately after the storm as sirens echoed as they would for hours, my neighbor told me that he was going to rush to the store to get ice as soon as his wife made it home. I had been home only about 30 minutes after the storm. Our power was out and would be out indefinitely. Once his wife got home he indeed went to the store returning with a very large camping cooler full of ice. This made me think of Munger's great example using ice (bottom of page 4) showing why anti-price gouging laws are very bad. In researching the link for that ice example I immediately found that Munger was already on the case. Because of the limited nature of this tragedy, the ice example may not apply here as well as in other cases. Yet it may still considering how bad traffic is in the area and how limited supplies may be over a short, critical period. I also don't know exactly why my neighbor with two young children felt the need to get the ice--might be for insulin, might be for beer.
• These types of events challenge the lifestyle I live. I contend with two strong forces in my psyche: between being a minimalist and being a librarian/museum curator. I both long for an existence of commoditized possessions--easily replaceable, without sentimentality but at the expense of authenticity and personality--as well as an existence surrounded by things that tell a unique story. 
• The conventional wisdom on storm shelters is based on weak cost-benefit analysis. The probability of need is very low, much lower than commonly felt, and the cost is high and non trivial, both the explicit cost of purchase and implicit costs of inconvenience and risk. 
• That said . . . here is an idea of my own that borders on spending other people's money--gotta love that. Schools seem to be a way people (children mostly) are particularly vulnerable. Kids are a dependent group. Hospitals fall into this category as well somewhat. Retrofitting existing structures is most likely cost prohibited. But why not design new structures with intentionally collapsible hallways? This might work either in a basement structure or on a first level. The idea is basically a cylindrical-shaped long hall where the end walls are designed to fall into it to seal it off. Perhaps actual doors could be used or a staggered design to segregated the cylindrical hallway. 
• The signs of generosity are amazing as is how freely and naively people will give money in support of the cause with little or no accountability.

I wish peace to those who have lost so much in this. And let perpetual light shine upon those who never emerged to see the Sun after the wind had passed.

Rule of democracy: politicians don't lead, they follow.

I've thought about this idea for some time, and I continue to see examples of it. It isn't original to me except maybe to the extent I find it nearly ubiquitous.

I believe a rule of democracy is that politicians do not tend to lead but rather tend to follow the common view. This is true in a general sense and in most specific instances. On the surface it shouldn't be surprising, after all democracy is should give rise to this, and it is unclear if in aggregate it is a feature or a bug. I believe it is a bug on net, but only slightly, and I assign low confidence to this view. Say what you will about the results of totalitarianism, at least it is an ethos of leadership.

The most recent example I found was this one from Todd Zywicki of the Volokh Conspiracy. It the piece he is pointing out that traffic fatalities were falling for a steady and long period before the formal introduction of the National Highway Traffic Safety Administration (NHTSA) in 1970. His discussion is a bit richer than just that as he considers the merits of liability law and regulation versus market forces. Here is the graph that caught my eye (original source):

A similar graph can be plotted for nearly every regulatory agency. The one above reminded me of one I saw back in college, which led me to get out my old Economics of Regulation and Antitrust textbook. In that example workplace safety is shown to be steadily declining prior to and after the creation of OSHA.

I think Robin Hansen would be in agreement with my view--"Politics isn't about policy".

The reason I think this is a net bug is that government isn't well suited for many of the tasks it takes on. The incentives are bad, perverse, or at best non existent. Government is highly subject to regulatory capture. Government's one-size-fits-all approach, which is a natural and good product from equality before the law, is antithetical to evolutionary adaptation.

The reason I think this is only a slight net bug is that what we see generally is just a codification of the mores and demands society otherwise possesses. Hence, my libertarian problems with the 1964 Civil Rights Act with its limitations on freedom of association are mitigated by the virtues the law sought to create and the fact that society was moving that way anyhow. Government then just becomes a clumsy way to achieve what we are otherwise moving toward.

I'm sure I'll have more examples and more thoughts on this. Suffice it for now to summarize that while regulatory approaches to problems are suboptimal solutions (at best second-best if not third-best approaches) they are in fact more solution than new problem. But of course when opportunity cost exceeds benefit at the margin even slightly, the makings for compound disaster are created.

Escape from New York

I've returned from a jam-packed trip to NYC that was part business and part pleasure. I always find it hard to leave New York without feeling that leaving is a mistake. It is such an amazing place. Very few places on Earth can boast the same wide-range of risk/return opportunity sets. Here are some thoughts:

• To my impression, by a wide margin no other American city is as much an international city. This is an underappreciated quality.
• It is a shame people tend to be too uncreative to appreciate experiences that are not "tourist traps". 
• The success of the city, largely a reflection and exacerbation of the success of American free enterprise, disguises and minimizes the drag of being in the People's Democratic Republic of Bloomberg [insert any prominent former or future mayor as well]. It is hard to see the forest of unintended consequences when dealing so directly with the trees of real-world problems. Viewed in this lens, it becomes easier to excuse the frequent acquiescence to bureaucratic and technocratic power.
• If your only impression of life in NYC was from television sitcoms, you would be missing 75% of it. If it were only from movies, I'd say you are still missing 50%, and most of that corresponds to the prior missing 75%. 
• Goldman Sachs, the business portion of my adventure, is a first-class organization. I am often a critic of the revolving door between government regulators of GS and executive positions at GS along with other regulatory capture issues. Being in the heart of the dragon, one sees clearly how that cozy relationship maintains harmony. Literally, the janitors at GS exude more confidence and professionalism than I've seen among bank presidents. Uniformly both in informal conversations and formal presentations, every representative of GS was quite impressive--not cocky or arrogant, but definitely assured of themselves and their organization and certainly serious. They can and do laugh (when appropriate), but I am certain they physically lack the ability to giggle. 
• I appreciate Goldman for having me as a guest at what was a very good conference filled with good information and entertainment. I now have more respect for them as a money manager, and it is with more confidence that I consider investments with them for my clients. 
• Here is a random thought I had during the conference: Does corporate paternalism and generosity breed acceptance for governmental paternalism? This is similar to the forest/trees thought referenced above. People in these companies are very well taken care of with all ancillary needs provided or sourced, they are used to showing ID cards and having limited access within their firm and even on their floor or in their business group, they work in "safe" environments insulated from the "chaotic" world outside, etc. 
• Depending on your perceptive sensitivity to any given behavior, you can get the feeling that "everyone" in NYC matches that given behavior. For example, everybody jogs. Of course, everyone doesn't. But it is easy to be misled being that there are countless examples of any behavior, activity, etc. to be found. That is one thing >60,000 people per square mile will get you. This goes a long way to explain misconceptions visitors come away with.
• Being in the beautiful jungle of so many choices, a thought I have had previously occurred to me again. A key to happiness is being easy to please. If you can see the good in things (be optimistic) and if you can refrain from pickiness (see things as highly substitutable), you can greatly expand your happiness. In economic terms, the flatter your indifference curves and the looser your budget constraint, the greater your utility potential. 
• Nearby our hotel was a Whole Foods grocery. We have a Whole Foods store in Oklahoma City, but the store in NYC, as a microcosm of so much else, is quite different from the store in OKC. The selection was larger in scope and scale, and the services included delivery for a flat $10 fee. No such delivery option is available in OKC. Discussing this with my wife dovetailed with other grocery economics discussions we have had. We've thought before about the intrinsic differences among stores like Whole Foods and Central Market versus Safeway and the local Crest Market versus Sam's Club and Costco. Not to get too far off on tangents, but this thought problem brings up the difficulty of finding a comparable basket of goods for inflation as well as other comparisons. Back to the central idea, what are people getting out of food shopping? The joy of bargain hunting (optimizing $/calorie) versus the joy of elegant shopping (optimizing the experience per se) could be generalized extremes along what seems a reasonable dimension of quality/quantity tradeoffs (optimizing selection and discovery). At what point is the only physical grocery shopping we do that done as an entertainment (elegant shopping) with the remainder done online including preprogrammed? 
• Enough random thoughts. Here are some pictures from a great trip. Enjoy!

Greed versus Envy

The White House put out a budget just a couple months late of when it is supposed to, which is a rather good record in comparison to the Senate who hasn't passed a budget in four years. Contained within it was an interesting proposal--capping the amount a person can save for retirement through tax-deferred accounts such as traditional IRAs where taxes are paid only once distributions begin, which is usually during retirement.

The maximum a person could set aside in an IRA would be $3 million--an amount Obama feels is plenty enough. Just when you thought we were doing all we could to punish saving and reward consumption, we get this to up the ante. Here is a voice of concern about the implications for tax-deferred savings accounts in general. Here is another. Seems there might be unintended consequences from the government deciding for us how much deferred consumption is enough.

But you see, deferred consumption amounts to deferred taxation. And that is where the greed angle comes in. Obama would have us believe that greed is good in this case--the greed the government has for tax revenue now rather than later. Yet there are two facts that make me doubt that greed is the true motive here:

1. The proposal is estimated to generate a negligible amount of $9 billion in tax revenue over the next decade--about 3% of 1% of what the federal government plans to spend over that time. 
2. If this were really about accelerating tax payments from the future to the present, then part of the proposal would include allowing unlimited Roth IRA contributions where taxes are paid up front. 

The absence of the second component in the budget makes me think this is more about envy than greed.

On the road again

I've been tearing up the Oklahoma interstates and toll ways the past several days. In one business-week's time, last Friday through Thursday tomorrow, I will have traveled over 1,000 for work. All of it driving having taken me southwest, north, northeast and finally southeast.

Besides the $.55 per mile reimbursement, the windshield time has enabled me to catch up with many of my podcast backlog. Especially helpful is Downcast's feature allowing 1.5x playback speed.

Two of the podcasts I listened to over this stretch along (Robert Pool on How to Build Infrastructure During an Age of Sequester from ReasonTV and Freakonomics Radio on The Downside of More Miles Per Gallon) with catching up with the latest installment of Chunka Mui's analysis and prognostications about Google's driverless car led me to do some predicting of my own.

In 30 years we will want to privatize and it will seem as obvious to privatize the roads as we want today to privatize and it seems obvious to privatize the US Postal Service. This applies to all roads from interstate highways to major metro arteries to lesser used neighborhood and rural roads. The impetus and obviousness of privatization as the natural solution decreases as we go down that list. Yet I predict that will indeed be the majority opinion held by those who seriously and objectively consider the situation. There will be strong doubters. It will probably prove to be a politically incorrect position. There will be entrenched special interests.

That is all to say that in 30 years we will be about 5-10 years away from road privatization -yes, that is indeed a prediction about the USPS today as well.

I have 80% confidence in all these predictions. I give a 75% probability that in 10 years the USPS will be gone or very largely gone as we know it today. I'll give the same probability about public roads (funding, maintenance, ownership, etc.) for the year 2053. Check back then . . .

Honey, I shrunk the bank.

As a continuation of the on-going discussion I have with colleagues, one sends me this link to a WSJ article by Dallas Fed Chief Richard Fisher and his executive VP Harvey Rosenblum on "How to Shrink the 'Too-Big-to-Fail' Banks". My comments were:


I generally like it—a step toward less government involvement and less social insurance of profit-seeking firms. But there is a bit of hand waving over the third tier in their proposal:

Third, we recommend that the largest financial holding companies be restructured so that every one of their corporate entities is subject to a speedy bankruptcy process, and in the case of banking entities themselves, that they be of a size that is "too small to save." Addressing institutional size is vital to maintaining a credible threat of failure, thereby providing a convincing case that policy has truly changed.

Easier said than done in defining how small a bank would need to be. They need more specifics here; otherwise, the cronyism is in the details.

What do you mean a multi-billion $ gov't program has problems?!?

How could this be? Back in the 80s a government program was hatched with the explicit goal of ensuring the poor had access to telephones and the implicit if originally unintended goal of making some firms profits while politicians felt good about themselves. Somehow it went awry. Well, the implicit purpose got out of hand enough that the program has crossed over into waste, fraud, and abuse land.

I asked how can this be? Exhibit 1 (the Baptists):

The Lifeline program—begun in 1984 to ensure that poor people aren't cut off from jobs, families and emergency services—is funded by charges that appear on the monthly bills of every landline and wireless-phone customer. 

Exhibit 2 (the Bootleggers):

The program, which is administered by the nonprofit Universal Service Administrative Co., has grown rapidly as wireless carriers persuaded regulators to let people use the program for cellphone service. It pays carriers $9.25 a customer per month toward free or discounted wireless service.

That's how.

I have personally seen this program in action from both sides: Poor consumers on a street corner under a tent signing up for a phone, and a newly rich entrepreneur rent seeker whose company signs up said consumers and then passes them on to a carrier or administers the telephone plan himself. And still somehow the program's illusory value carried it passed the media's suspicion for some time. I really don't know what it takes to sufficiently raise media suspicion--that would be valuable information.

This problem has more than just some good lessons in incentives including the classic B&B example. I think it also tells us something about how we think based on our reaction to the story (i.e., who we blame and who we pity).

If asked to list out the victims and culprits, who would go in which category? To me the victims are the people taxed to pay for this program and the poor consumers who the program intended to help--more on this second group shortly. The culprits are government officials who created the program especially those who helped craft its evolution to the current mess and the private firms who participated in the fraud--this extends to lobbying to expand/continue the program and encouraging or failing to properly discourage fraud.

Notice how I don't include the poor consumers in the culprit category. Not broadly at least. While certainly there were many who knowingly abused the system, I find it hard to put much blame on people in very difficult situations responding to incentives. In fact, programs like this can be a victimizing force in the lives of those it is designed to help. There are consequences to welfare programs, poorly designed or otherwise, and those consequences can include dependency. People in tough situations do not have the luxury of always taking the ethical high road. Just evaluating what is the ethical high road may be out of their reach.

James Buchanan, RIP and ATRA

This past week we lost an intellectual giant, James Buchanan, whose contributions were and are still under appreciated. Among other contributions, Buchanan helped discover and bring to a fuller light facts that should have been obvious: political actors are subject self interest and incentives just like everyone else and government failure is as much if not more a fact of life as is market failure.

See these excellent appreciations of the Mr. Buchanan's life work:
     From Alex Tabarrok
     From Steve Horwitz
     From Arnold Kling
     From Don Boudreaux
     and From the WSJ editorial page

It is a bit fitting unfortunately that Buchanan's death would come so closely to the passage of the American Tax Relief Act of 2012 (ATRA)--the resolution to the so called tax portion of the Fiscal Cliff. This disgusting example of political corruption would have been well understood by Buchanan. The act contains nothing resembling fiscal responsibility or improvement. It is a giveaway to the special interest of the tax lobby (tax preparers, tax advisors, estate lawyers, et al.) and other corporate special interest. It leaves us with a tax code more punishing on work and savings, more complicated, more encouraging of the rich to spend and use rather than save and share, more taxing on all taxpayers as everyone's income tax burden has increased (not just but especially those making more than a couple hundred thousand in a particular year--the $450,000 is a fiction), and more likely to bring us fiscal problems down the road. But it should have all been of no surprise to any of us; I was not surprised. The whole thing reminds me of this exchange:

Muriel Blandings: You remember Bunny Funkhouser, dear, that clever young interior decorator that we met at the Collins' cocktail party.

Jim Blandings: You mean that young man with the open-toed sandals? What about him? 

Muriel Blandings: Well, you know how long we've said we've got to do something about fixing up this apartment. Well, a couple of weeks ago, he called, and I asked him to come over, and he had some simply wonderful ideas, and I didn't want to bother you with sketches and estimates until I knew whether we could afford it. So I sent them over to Bill. 

Jim Blandings: How much? 

Muriel Blandings: What's the point in asking how much until you know what you're going to get?

Jim Blandings: I've seen Bunny Funkhouser. I *know* what I'm going to get. 

RIP, James Buchanan. We still have a lot to learn from you.

A predictable intrusion

The Commodity Futures Trading Commission (CFTC) today sued the Ireland-based prediction market firms Intrade and TEN effectively shutting them out of the U.S. market. Here is the CFTC's press release. Intrade has this statement posted on the site stating that all U.S. customers should immediately close their positions and their accounts.

Here are two early takes on the matter from John Stossel and Bryan Caplan. I eagerly await Robin Hanson's take on the matter.

To me this is a prime example of government regulatory failure. It is also an argument for Principals-Based Regulation. The law will always be slow to recognize and respond to market evolution and innovation. As a result, we fight yesterday's war by applying rules designed around past practices and transgressions to new creations. Instead of considering or even looking for victims, the regulators look for breaks in the pattern where similar activities are not being equivalently regulated.

In this we also find the arrogance of the aristocratic regulator. But for the watchful eye of the regulator, we the naifs and fools would wonder helplessly into harm. Here is the quotable example from the CFTC rationalizing their actions:

The requirement for on-exchange trading is important for a number of reasons, including that it enables the CFTC to police market activity and protect market integrity.

We continue to live in a world less than what it could be all for our own good. The CFTC gave a conclusive prediction to prediction markets that ran something like this: I'll give you a winter prediction: It's gonna be cold, it's gonna be grey, and it's gonna last you for the rest of your life . . . or at least until we stop bluntly applying invasive regulation to every strange thing we see.

Causes of the Great Recession and the Slow Recovery

My views on the macroeconomic landscape in America and abroad over the past five years, much like the landscape, have been in flux. Here is my current view as to the approximate causes of the Great Recession itself and the reason the recovery has been so poor. I'm limiting my evaluation to the more immediate and direct causes--therefore, the notable absence of multi-decade-long TBTF bailout contributions and regulatory failure including subsidization of housing, et al.

Causes of the recession:

1. Federal Reserve policy failure allowing NGDP growth to fall extraordinarily below trend (the tightest money policy since Hoover). This is the shorter-term portion of the causes. For this I'd approximate 50% of the responsibility. (HT: Scott Sumner)
2. Structural problems perhaps best understood through a Patterns of Sustainable Specialization and Trade (PSST) framework. Included in this grouping is malinvestment playing a major role. This is the longer-term portion of the causes. For this I'd approximate 40% of the responsibility. (HT: Arnold Kling)
3. Everything else. 10% responsibility.

The combination of factors 1 and 2 created the perfect storm for this event to be so damaging. A recent post by Scott Sumner relates to this. Either 1 or 2 would have been sufficient causes for a recession or recession-like events. Cause 1 creates much more acute, short-term pain. Cause 2 creates much more hidden dead-weight loss by changing the fundamental glidepath of growth. Perhaps we lose one-half to one percent off of average annual growth for 10-30 years. This would be a truly colossal loss--remember, growth is a compound number that affects results with many orders of magnitude. 

The reason the recovery has been so poor:

1. Federal Reserve policy failure to get us back to or toward trend NGDP levels. Our inability to close the potential-real gap will make future generations both laugh and cry. I'd give this 55% responsibility.
2. Prolonged PSST difficulties. This is hard to avoid given how bad the PSST problem was. Some good portion of it, mind you, was an unavoidable consequence of free market growth in a less than free market world. Government makes creative destruction less creative and more unnecessarily destructive. I'd give this 25% responsibility.
3. Regime uncertainty and undesirableness, which has many facets. Tax policy is a mess. Government spending is on an unsustainable trend with no likely solution or solver to be found. Regulation continues to respond on cue--more complications and gamesmanship (Dodd-Frank), more intrusions and forced bargains (Obamacare). Minimum wage increases and unemployment benefits extension get the incentives backwards from the goal. I'd give this 15% responsibility.
4. Everything else. Surely there is something else, or are these categories jointly exhaustive? Potentially 5% responsibility. 

As with any economic period, there are many contributing factors and some are and may remain hidden.

Progressives and the new NCAA helmet rule

Progressives believe that if you get the right people in place, government can solve problems. I believe their claim is that the problems would be solved in a net beneficial total outcome sense. The “right” people designing policy are a combination of well-intended, highly intelligent, and expert in the particular field for which they guide policy. Here is an example showing just how weak this philosophy can be. It is a beautiful example of the law of unintended consequences.

The NCAA fits the “right people” bill near perfectly in this case. And what do you want to bet that the solution will not be to reverse the rule but rather to institute a new array of rules designed to counteract the undesirable side effects?