Showing posts with label regulation. Show all posts
Showing posts with label regulation. Show all posts

Saturday, March 19, 2022

Who You Gonna Call? Trustbusters!

David Henderson has written two very good pieces recently at the Hoover Institution's Defining Ideas. They are a two-part discussion on antitrust: Let Freedom Rein In Big Tech and A Populist Attack on Big Tech. I particularly like his conclusion:
The more regulations there are to enforce a government official’s idea of competition, the more likely it is that those regulations will hamper actual competition. Companies that give their own products and services an advantage in the marketplace are simply harvesting the value of an asset that they took big risks to create. Competition is dynamic, not static. But heavy regulation will make markets more static. Let’s keep competition dynamic by not penalizing successful competitors but by leaving the market open to alternative business models.
Do read the whole thing in both cases. 

He makes many excellent points--ones that I myself had in some notes for a future piece on antitrust. (Of course, he makes them much better and more fully than I could.)

Sometimes one must be patient for competition to work it’s magic. Just because a monopoly, oligopoly, or other sinister market-dominant firm seems entrenched today, does not mean it will always be or that the cost of immediate correction is worth bearing. Forced correction may not even be feasible. 

At any one point in time there are a lot of reasons the world is the way it is. The challenge for the trustbuster is to know with very-high certainty that the current state of the market is suboptimal ("inefficient" is the eye-of-the-beholder term of choice) and that a better world can and should be achieved through government action. 

It is easy to conjure up a hypothetical better world because only in the wild through real-world experience, the so-called market test, do we truly discover all the constraints and tradeoffs. Comparing the unicorn to the horse is always subject to bias--imagined reality almost definitionally engages in willful blindness. But the trustbuster's Dunning-Kruger problem does not end there. The "can be achieved" is naively assumed through hand-waving theory. The "should be achieved" is generally ignored altogether.

In the realm of current worry, Big Tech (dunt, dunt, duh!), see MySpace, Yahoo!, and AOL along with InternetExplorer, Mapquest, Garmin, Blackberry, et al. Then consider Twitter, Facebook, and TikToc, along with Google, Apple, et al.

Also, remember when the government broke up IBM? Yeah, I don’t either. Apologists for activist government regulation will tell you the threat posed by the 13-year case that went nowhere is what reined in the highly-successful company, but this theory only works by willfully ignoring the fabulous work performed by IBM’s various marketplace competitors. Those quick to point out “you didn’t build it” rely on their own wishful agency when the real work is being done by those actually in the field. 

Why in antitrust do we grant so much benefit of the doubt to regulators and so little deference to the world as it is? Are we just that willing and hopeful that a white knight can remake that which we suppose is in error? Is it just because we don't listen to master Yoda?

Tuesday, January 25, 2022

Crony Capitalism (Vacation Rental Edition)

My wife and daughter just returned from a delightful long weekend in Santa Fe, NM. The entire family will return soon to Saint Francis's fine city where, as Hermann Banks reminds usstrangers are kind and beauty is overflowing and the local government is captured by crony capitalists. In fairness to Banks he never has said as much about local government, but I would imagine he wouldn't dispute it. 

Case in point:

A friend of mine has a vacation home there that he purchased a few years ago for both personal use and as an investment. Part of the investment is renting it out as a short-term vacation rental.

About six months ago I booked his place for my family's trip this coming April. In October I received an urgent text message from the rental property service directing me to check my email. Doing so I saw a short message stating that my reservation was no longer available, they were searching for a substitute property, and would be back in touch soon. I somewhat shrugged it off as being a mistake since I knew the actual owner well. But before I had a chance to contact my friend I received another email regretfully informing me that my reservation was cancelled with no substitute.

I reached out to my friend still thinking this was just a clerical error in their system. While a clerical error had occurred, it had a deeper problem behind it. My friend was somewhat upset but a lot calmer about it than I would have been. In fact I was livid for him and ready to go to the barricades. Not because of my vacation plans being disrupted but because of why this was happening and the implications it had for him.

The short version is this: The property management company had failed to make sure that my friend was current in his short-term rental permit with the city of Santa Fe (and yes, this is enough to get me to the barricades--the fact that a city government makes property owners get permission to use their property . . . but wait, there's more). The failure here was pretty significant in that it had expired the prior December 31st. Shame on the management company for sure. 

Should be no problem, though. Just refile as this should be a formality at this point. My friend does so starting a few days before my cancellation email by calling the proper city office. Keep in mind that my friend lives in Tulsa, OK; so all of this is out of direct control for what it's worth. I'm not sure if being able to go down to city hall would have made things better for him. They probably wouldn't have been better for me if I were in his shoes due to the whole ready-to-storm-the-castle attitude I have in these matters. Nevertheless . . . the city official looks it up and says, "Uh-oh, I don't think we'll be able to do this." 

[I swear this is the short version] It seems there exists another, current, valid in-the-eyes-of-the-Duke-of-Santa-Fe short-term rental permit for a property located within 50 feet of my friend's. You see kids, in America Big Hotel has decided that short-term rentals are a threat to their business. They've convinced well-meaning homeowners that people renting out their property could be scary. Soooo, rather than compete they've helped create rules to stop the madness. 

But this no-longer-short story doesn't end with just a Bootleggers and Baptists tale of the hotel lobby working hard to stifle competition along with the help of residents who think they should be able to dictate what happens on other people’s property. We get some government failure and unintended consequences to boot. 

My friend was taken aback at the news he couldn't get a permit because one nearby already existed (a new rule) but was immediately relieved relaying to the official, "Who has a rental? I know all my neighbors, and none of them rent." Upon further inspection, the city official realized that there are two roads with the same name in Santa Fe. The other permit is for a property miles away from my friend's. He could get it after all. Just need to have the local inspector swing by the next day to validate it all. Phew, that was close . . . but wait, there's more . . . as you probably suspect knowing what came next for me. 

The inspector comes out to my friend's house. Presumably begins checking boxes. Sees that there is another property located within 50 feet holding a short-term rental permit by looking it up just like the prior city official did. So he promptly denies the permit and goes about his day. 

This triggers a very fast and unforgiving process in the several rental property agencies my friend uses for his listing. Because I'm sure so as to not fall afoul of city governments everywhere and their crony capitalist controllers, they act swiftly to cancel all of my friend's future rentals. Remember this is October right before a busy Thanksgiving and Christmas season and he depends on repeat business as well as referrals. Along with all of these would-be customers, it is now that I receive a cancellation via email. 

At this point my friend was already on top of getting this reversed--I would not say satisfactorily resolved. He cleared it up with the city and over a LONG weekend was square to lease his property. Then came damage control. Many apologetic messages later with many discounts offered and still a large number of permanent cancellations foregone, he had done all he could to salvage some of his 9+ months of bookings.

It is hard seeing the system work the way it is actually, ultimately intended. It is harder still being a victim of it.

Summer Rental

Thursday, May 13, 2021

Great News, Everybody! They Are Just Stupid. Not Evil.

Consider this graph from the COVID-19 vaccine page on the CDC's website: 

Notice the red trendline, which is the 7-day moving average of first doses, and how it peaks around April 11. Notice also how it is now as of May 8th (as reported May 13th) lower than it has been at any time since January 12th. 

What happened on April 11th??? Well, that was when the CDC and the FDA began floating concerns about the Johnson & Johnson (Janssen) vaccine. Concerns that would manifest themselves two days later in a "pause" of administration of that particular vaccine. 

From not allowing experimentation and wide-scale testing, to not allowing challenge trials, to insisting on doing their own, slow trials on vaccines, to delaying the information and launch of the vaccines, to not doing first doses first, to not approving the Oxford-AstraZeneca vaccine, to not doing half doses or using more efficient needles, etc. we have seen over and over our medical regulatory state fail us. The cost is unnecessary deaths, unnecessary and compounding hardship (emotional and economic), and deterioration in the confidence people have in public health. 

So how is this great news? Consider this:

Summary of Recent Changes
  • Update that fully vaccinated people no longer need to wear a mask or physically distance in any setting, except where required by federal, state, local, tribal, or territorial laws, rules, and regulations, including local business and workplace guidance
  • Update that fully vaccinated people can refrain from testing following a known exposure unless they are residents or employees of a correctional or detention facility or a homeless shelter

The CDC and federal officials in general are backpedaling fiercely from every policy and limitation they adamantly were insisting upon over the past several months. It is clear they are in panic mode over the plunging rates of vaccination. They probably correctly understand that there was a coming falloff from both the most vaccine resistant as well as those who had COVID and didn't feel a vaccine was necessary. All of this snowballing against vaccination as cases and deaths decline rapidly.

The great news is they actually do care and don't want a good portion of the U.S. population to die. One would be forgiven for thinking otherwise given the above list of mistakes. But it turns out they are not evil. They just are stupid. Hanlon's Razor for the win!

Sunday, May 2, 2021

Zoning Laws Suffer From The Fixed Window Fallacy

The Fixed Window Fallacy is an error in reasoning whereby people believe they know or can know what is nice/preferred/optimal. This line of thought is based on unimaginative, linear-thinking and further held back by the Local Maximum Problem

It can be summarized as a thought process that goes: "We know what is best. We/they can afford what is desired (after all, it is usually for our/their own good). Therefore, we should make ourselves/them provide it." 

Both premises are false, and the conclusion is fallacious (non sequitur) as it ignores the critical questions: do we have a right to do this, and can we successfully do this? 
The only constant is change, and it comes in two types. 
  1. Depreciation, which is the natural condition, difficult to counter, and mostly objective.
  2. Appreciation, which is the abnormal condition, difficult to achieve, and highly subjective. 
Attempts to stop depreciation such as zoning laws are never done in a vacuum. They are not single events where good replaces bad, and we move on to the next decision. They are part of economic evolution where decisions made affect trend trajectories with uncertain net outcomes and unpredictable magnitudes. 

Similarly collective action attempts to realize appreciation such as subsidizes for development and master plans are fraught with captured interest risk bringing asymmetric outcomes adverse to the presumed collective goal. In other words the rent-seeking developers and their friends in power do what is good for them and costly for society. For those cases where everyone has the best of intentions, we still have the knowledge problem. When artificial outcomes are engineered by those who do not bear the full risk, bad ideas do not get properly punished and good ideas do not get properly rewarded. 

Back to zoning, trying to stop people from doing things they want to do is prohibition. People and markets work to thwart prohibitions in proportion to how much they desire that which is prohibited. The less morally sound the prohibition, the less compliant are those working against it and those third parties who have no dog in the fight. Fortunately the long-term trend is for less and less prohibition. Unfortunately working against a prohibition is costly as is the administration of a prohibition. 

Whether it is in icky markets (e.g., sex work, recreational drugs deemed illicit, kidney transplants, etc.) or in we-know-better markets (e.g., zoning), an underlying force supporting the prohibition is not in my backyard thinking. In fact I believe NIMBY is the last vestige of prohibition rationalization.

Saturday, May 1, 2021

An Addition to My The Big Five

I hate having to do this, but I feel it is necessary to add to my list of the low-hanging fruit of public policy where 90% solutions (improvements) on these issues are several orders of magnitude more important than 99% solutions on a thousand others. In my defense this was always filed under "partial list", and it continues to be. I just hate making a tag and then needing to update it. 

Keep in mind that I did issue addendums to the list shortly after first publication. This will take one of those and elevate it to the new big list.

The Big Six:
  • Drug Prohibition (end it--allow adults to make their own choices)
  • Education (privatize it--give the government an ever-smaller role)
  • Immigration (open it up--allow people to freely move and freely interact with other people)
  • Taxation (simplify and redirect it--efficiently tax the use of resources not the creation of resources)
  • War (move away from it--make postures less bellicose and violence less of an option).
  • ***AND*** Housing Development (greatly reduce the obstacles and restrictions so that the owners of capital can buy, build, and reconfigure real estate as they see fit)
First because of Kevin Erdmann's work and recently because of Bryan Caplan's current discussion and forthcoming work, I have become radicalized to make this addition to my reform agenda canon. 

Living in a historic district with all its well-intended nonsense, I see this issue close at hand. The HD seems to be a classic case of people being nostalgic for a past that didn’t actually exist. The effect is expense for homeowners, self-righteous satisfaction for busybodies, a jobs program for the rent-seeking suppliers and regulators, and general exclusion for those who don’t fit in or can’t afford to. 

Every day I see stark examples of the perfect being the enemy of the good. 

Sunday, November 29, 2020

There Should Be A Law!

Partial list of areas where there might be a market failure and I might support government intervention:
  • Masks and social/physical distancing rules in a pandemic - I much prefer persuasion in the marketplace of ideas backed by good and plentiful information. That said, in a very serious health crisis a government-enforced policy might keep the peace and prevent very costly experimentation from defectors like a business not complying. Bringing this to the news of the moment--I generally do not think SARS-CoV-2/COVID-19 qualifies. A failure on the part of government (and others) to even properly try the persuasion avenue does not then necessitate the force avenue. Further, compliance with practices consistent with most all of the nonpharmaceutical interventions has been remarkably high and widespread as well as ahead of the mandated institution of the NPIs. This is a point the advocates of force ignore until they wish to defend against the accusation that the economic and other costs have come as a result of forced NPIs. Then they are quick to point out that "it is the virus, not the lockdown". Careful thinkers realize it is both and the latter makes matters on net much worse.
  • Zoning - but not in the way most people think. This one really is more of a government failure that perhaps needs collective agreement. Zoning way too typically becomes NIMBYism protecting vested current interests at the expense of potential and less powerful interests. Basically we may need higher-order (federal) laws preventing localities from encroaching in private property rights.
  • Certain, limited cases of patents - Here is my prior thinking on this subject.
There are at least two problems with most cases of the discovery of market failure:
  1. That you're overlooking some critical factor that negates the market failure condition. There is something else going on here; there are needs being satisfied along an unexplored dimension.
  2. The market failure does exist but will be short-lived and thus insignificant. Short-lived might be in the eye of the beholder, true enough, but this is definitely an area where a longer than average point of view is needed (near-far mode if you will). 
[Updated 12/1/2020 adding to the partial list]
  • Garbage collection
  • Subsidies for under-produced goods (e.g., vaccines, General healthcare, education)
  • General city planning such as road layout and utilities, etc.
It is best to think of these as coordination problems where a central actor can potentially lower transaction costs. The word potential here is doing a lot of work. Just because government theoretically can solve a problem doesn’t mean government in any way, shape, or form will solve that problem in a desirable manner. And note also that just because government might be desired to be a participant in the solution it doesn’t mean they have to provide the solution. Funding it can be a much better role for government to play with private actors actually doing the operational work. School vouchers are perhaps the best example of this, but garbage collection among many others fits as well.

Sunday, February 9, 2020

Highly Linkable

It has been too long since I shared things worth reading...

Scott Sumner explains just how rigged it all is in America, and how despite this the American free market still keeps making it better.

The difference between science and Science! begins with some simple yet important facts--take chemistry for example.

How long until smart phone phobia is behind us? Someday it will be fodder for the Pessimists Archive.

Better post this take down of Elizabeth Warren by Tyler Cowen before her candidacy (thankfully) fully flames out.

Tuesday, September 3, 2019

Partial List of (additional) Low-Hanging Public Policy Fruit

These are addenda to The Big Five

While The Big Five were largely federal issues, these (2/3) are largely state and local issues.

They are based on simple principles allowing for straightforward application if we would be so bold. Alas, the incumbent, vested interests would resist with every fiber of their selfish being. 

But I for one will keep fighting the good fight with hope that reason and justice will prevail. 

Sunday, December 20, 2015

Highly Linkable

Let's start with a trip out of town. Got your playlist ready? Sherman, to the Way Back Machine!

Read Jeffrey Tucker's sensible, thoughtful perspective on terrorism and its two great horrors.

Speaking of terrorism, here comes Adam to ruin everything. (HT: KPC)

A top candidate for the most disruptive technological breakthrough of the the next two decades is driverless (or less human driven) cars. The Atlantic has a good discussion of the two approaches driving this disruption.

Scott Sumner summarizes much of what is misunderstood in thinking about monetary economics. This is a bit wonkish, but keep in mind this: getting monetary policy correct is very probably VASTLY more important for your well-being than who wins the next presidential election. The combination of [insert the major candidate you are most opposed to] and good monetary policy is >>> [insert your favorite major candidate] and bad monetary policy. It is not even close.

The Market is a beautiful wonder, and the benefits of free exchange are truly immense. Consider as Cato at Liberty's Chelsea German points out discussing Andy George's projects how expensive a suit or perhaps a simple sandwich would be if we didn't have market exchange. When we limit The Market, we should do so with careful concern and minimal impact.

Assuming we cannot find a strongly compelling reason to prohibit an exchange, a good rule is: If you may do it for free, you may do it for money as Jason Brennan and Peter Jaworski point out. This would include some outcomes that we might at first glance find troublesome but upon further inspection would analyze to be quite beneficial (albeit counterintuitive) as Liberty Street Economics points out when considering payday lending.

One of the key ways the market works its magic is through the price system. An effective market needs an effective price system. It is a remarkable method of capturing cost. Substitutes for that system are quite inferior as in the case Arnold Kling points out discussing locavorism.

Sunday, January 4, 2015

Highly Linkable

Visit these 18 fabulous libraries.
Go there (someday) in a "windowless" airplane.
Ask if you can fly a drone around inside to potentially produce videos as cool as these.
If they'll let you, film it for a week so it can get on prime-time Norwegian TV. Those guys plus the drones are getting close to my ideas.

Barry Ritholtz shares his basic simple truths of investing. These are highly recommended. Make sure you read the whole (short) list as the last two are as important as any.

Once you've got your investing house in order, better get to work on correcting these misconceptions about exercise--many of these are no surprise to loyal readers of MM.

Before leaving the body, don't fall for any detox nonsense in your New Year's Resolutionating.

John Cochrane goes all Principal Max Anderson in reviewing Ken Rogoff's proposal to eliminate physical currency. I fully am with Cochrane but I did want to quibble with his confusion about how this would actually affect monetary policy. You or I can immunize our own exposure to the negative interest rate, but we cannot all jointly eliminate it--the burden can only be transferred. I believe Scott Sumner has this criticism nailed.

We are repeatedly reminded that the overwhelming majority of NCAA athletes will go pro in something other than sports. For those the depressing fact is their degree wasn't worth that much. That doesn't surprise David Berri who also notes how the NBA age-limit rule (friendly for the NCAA) harms players while helping colleges and coaches.

Lot of count-ups and downs in this link fest. Here are 20 reasons the wind industry's case is (motionless) hot air.

Tim Harford reminds us in this post that most ventures are failures and we can learn from the losers.

If you were looking for a succinct list of arguments against price controls (ceilings specifically) in the face of disasters, you can relax--Don Boudreaux has provided it.

David Henderson reflects on one of his more memorable times questioning the powerful. If only more of us were so courageous as to continually question the military leadership.

Thursday, October 30, 2014

The Trouble With Not Working For Profit

Arnold Kling writes:
For-profit firms ultimately are accountable to customers, while nonprofit enterprises are only accountable to donors. As a result, consumers are consistently over-charged and ill-served in sectors that are dominated by nonprofits....
The intention heuristic is to evaluate at an action, person, or institution in terms of its stated intention: if the intention is good, then it is good. Instead, we ought to evaluate outcomes. If you do that, then you will find that the small-business sector produces more socially desirable outcomes than the large nonprofit sector....
We should not elevate nonprofits to a higher pedestal than that of for-profit firms. We should stop telling our children that working for a nonprofit is in any way morally superior to working for a profit-seeking enterprise.
Read the whole thing. Over the years reading Kling has served to strengthen my position against a favored status for nonprofit organizations. While Rand gave me a moral position to question their status altogether, this is a more economically founded reasoning that I believe many more will find persuasive.

Borrowing from Kling, my view is that not-for-profit firms should only exist where for-profit firms won't but should--where there is a true, absolute positive externality and little to no internalizable benefits. If the positive externality is strongly believed to be real but there is also a profitable firm(s) operating in that space, then simply subsidize the for-profit firms to get more of what is desired.

A big problem with nonprofits is that they tend to live on past the point when they should. We seem to have an urge to keep inefficient, undesirable nonprofit entities in existence. Part of the problem is the intuitive but incorrect viewpoint that because they don't generate profits, nonprofits need extra help. But a larger part is simply that nonprofits lack the feedback mechanism that for profits have that reveals when resources are being wasted. This poor incentive structure is at work throughout these organizations from the day-to-day operations up through to the overall mission.

Another important difference is that for-profits must pay taxes while nonprofits do not pay taxes giving them an advantage that has deadweight loss implications. This has a vicious-cycle effect to it as the conferred advantage favors the firms not using resources most prudently. Since they can distribute the profits to the owners (presumably when reinvestment would not be in the owners and hence society's best interest), for-profits have built-in incentives to use resources well. Nonprofits must reinvest their profits (proceeds in excess of cost) into their operations even if this is not desirable (further investment would be wasted resources).

A firm should not be advantaged in practice or in esteem because of how it uses the fruits of its endeavors. A rose by any other name would smell as sweet--so too, a profit for any ultimate use.

Saturday, April 26, 2014

What Basketball Strategy Can Tell Us About the Growth of Government

I believe there is a fundamental flaw in the U.S. Constitution and federal government structure. As foresightful as the founders were, they failed to appreciate the tenacity and momentum of government's reach for power. Allow me to illustrate with an analogy:

Some time ago basketball coaches realized there was a strategy they could employ to give them a systematic edge over opponents. What they realized was that while physical contact to gain an advantage over the opponent is generally prohibited in basketball, not all fouls as such were called. What's more, the referees exhibited reluctance to call fouls beyond a certain threshold. So a game with 100 fouls in it would only result in perhaps 40 fouls being called (40%) whereas a game with 50 fouls in it might result in as many as 30 fouls being called (60%). Therefore, a team that was naturally more aggressive would have an advantage as aggression escalated--sure they'd be called for fouls more often, but they would also get away with more fouls and they would create a more disruptive environment more suited to their style of play. To take the strategy further these aggressive teams would be built to accommodate the more aggressive style having athletes with more strength than finesse. As a result the officiating landscape of college basketball shifted to the favor of the aggressive teams. Because this was an emergent and unforeseen development, it can be said the rulemakers in basketball failed to appreciate the risk of this.

Similarly, the founders failed to appreciate how more and more government would overrun the checks and balances system created to prevent undesired government growth. Ultimately it is the role of the Supreme Court to prevent government behavior that is prohibited by the spirit or letter of the Constitution. And generally the hallmark cases brought to and decisions made by the court have been to limit government encroachment of freedom. But as the landscape of legislative spending and action and executive regulatory zeal has developed in favor of more not less, liberty has given ground. To wit, when we are debating if Obamacare imposes a fee or a tax, we have already lost.

The implications of this are sobering. We cannot depend on the Supreme Court to undo that which we as a society have evolved to allow--that is, a belief that government rightly and pragmatically provides solutions. Reversing the tide of government growth requires both changing our understanding of the role of government as well as recognizing that stronger impediments to government growth are needed.

Cross posted at

PS. This topic dovetails with the highly recommended recent Econtalk with Steven Teles discussing the "Kludgeocracy".

Wednesday, March 5, 2014

A Little Whine

Me: "Look what just came in the mail!"

Me: "Wow! $100 off a case of wine. I really like wine. I'll put this to good use."

William Jennings Bryan: "I'm sorry, but you cannot use that voucher."

Me: "Why? Is it a fraud?"

WJB: "No, it is entirely legitimate."

Me: "Excellent! I think I'll start shopping right away."

WJB: "That will do you no good."

Me: "Is the Internet down?"

WJB: "No, the Internet is working fine. But the wine cannot be shipped to you."

Me: "Why? Is there some act of God preventing delivery of packages to my area?"

WJB: "No, the shipping companies are operating. They just cannot deliver wine to individuals in Oklahoma."

Me: "Why are they picking on Okies?"

WJB: "They are not. They would love to deliver the wine to you."

Me: "Is Zagat picking on Okies?"

WJB: "Oh, no. They would love to sell the wine to you."

Me: "Then who is behind this?"

WJB: "Okies. Well, Oklahoma law to be precise."

Me: "But wait, isn't Oklahoma part of America? Or did we get swept up by a twister and delivered to Oz?"

WJB: "Of course you're still in America. In fact there are several states that prohibit the direct distribution of alcohol to individuals who do not have a distributor's license."

Me: "Prohibit? I thought alcohol prohibition ended decades ago."

WJB: "Sadly at the federal level it did. But the states were reserved the right to limit it as they saw fit."

Me: "And the way they see fit is to prevent anyone without a license from having wine delivered to their address? That doesn't sound very consumer friendly. Why would they want to create a monopsony/monopoly situation?"

WJB: "It's great for the distributors. Plus, it's for your own good."

Me: "How is it for my own good?"

WJB: "How would you know the wine being delivered is wine without a licensed distributor verifying it by having it delivered to and promptly delivered out of his warehouse?"

Me: "Well, I could trust the people at Zagat and then when it arrives I could taste it."

WJB: "Oh simple citizen, imagine the chaos if every Larry, Moe, and Curly were having things shipped to their home for direct consumption. We must have licensed professionals as part of the process."

Me: "But we do have thousands of things via Amazon . . ."

WJB: "And what if your children were to go on this Internet and order wine? They could be dead drunk before you knew what happened."

Me: "Like if they got into the wine I have in my house that I purchased at an Oklahoma liquor store but not a grocery store because that is illegal in Oklahoma and not that I purchased on a Sunday because that is illegal and then they drank it all up . . . Do I need a state-licensed person perhaps to have a key to my liquor cabinet to make sure only authorized people consume my wine?"

WJB: "Interesting idea . . ."

Me: "Sigh . . ."

Tuesday, December 17, 2013

The Regulator's Dilemma

Imagine two rooms: one is a group of consumers and one is a group of producers. For now the rooms are completely isolated from one another. As they are labeled, these two groups will interact in trade.

Now imagine a regulator whose job is to, well, to do something. The regulator has imperfect information but is guided by a few beliefs about the job to be done. The first is a belief that the job exists somewhere along the dimension of necessity, which extends from anti-necessary to necessary. At the extreme of necessary the regulatory job is required for a good outcome. Anti-necessary is not the same as unnecessary; rather it means the job of regulation is in fact destructive—that the execution of the regulatory job brings a clear net harm.

The second belief is about where the need exists. Is it the consumers or the producers who need "help"? Let's call this dimension need.

The third belief is that he as the regulator will do a good job of fulfilling the regulatory mission. Let's call this dimension effectiveness. This dimension obviously extends from positive to negative meaning he does a good job or a bad job regulating.

The regulator has limited resources in addition to imperfect information. He must make tradeoffs. The interaction of where his beliefs land on the three-dimensional grid of necessity, need, and effectiveness will determine how he approaches the job of regulator (of course, it may not just be his beliefs that guide that decision, but he is a good proxy for the fact that something guides those beliefs).

For example he can concentrate his efforts on the group of consumers. In this case he surveys the room of consumers with the underlying belief that 'there are people in this room who can't be trusted to make good decisions even if there is no fraud involved. I must protect those idiots from themselves.' Call this option 1.

Alternatively he can concentrate on the producers thinking 'there are people in this room who can't be trusted to act ethically. I must stop those crooks.' Call this option 2.

And of course there is the more likely option that he divides his efforts between both groups. Call this option 3.

Here are my thoughts:

  • We unfortunately tend to view the job of regulation and regulators as highly necessary and highly effective. This means they punch hard and with impunity. The only thing left to decide is where they punch.
  • Option 1 can be a realistic point of view or it can be a disgusting point of view. People do make poor choices—all the time, every day. But the magnitude of those poor choices matters. So does the incentive arrangement—who is in the best position to benefit from a good choice and hurt but learn from a bad choice. At the extreme this point of view relies on a paternalistic philosophy that assumes the best way to make decisions is through a poorly incentivized and poorly informed regulator. Free market processes are highly superior to a regulator if option 1 is our focus for regulation.
  • Option 2 is the best case that can be made for regulation. There will be fraud and with it real blood. But again the role of the regulator can and should be limited here. The regulator can be a blunt and poor instrument for discovering and preventing fraud in all its forms including unintentional harm. Liability law via common law and contract law (both emergent processes) can be equal or better regulators than a pure regulator himself.
  • Option 3 is where most regulation tends to land from the SEC to the FDA. And think about how the more dynamic real world plays out. The rooms aren’t actually isolated from one another nor are the groups mutually exclusive. Everyone is in one big room wearing multiple labels. The imperfectly informed regulator is going to look for the help of the relatively informed producers to help guide his attempts at helping consumers. He is asking people, some of whom are crooks and many of whom have ulterior motives, to structure and enforce option 1. He will also look to define fraud from the point of view of the “victim”. The relatively injured consumers (who will self-select among those who have suffered a harm—happy people don’t complain) will help guide the regulator. He is asking people, some of whom are notoriously making bad decisions but not bearing the full burden of those choices, to structure and enforce option 2. This is a formula for regulation that is anti-necessary, ineffective at all the wrong times, and fulfilling mythical needs.

Sunday, September 29, 2013

Highly linkable

Back from bi-coastal travel with a backlog of blogs to write. Let's start with some links to get us caught up:

What is probably most amazing about this is that we don't find it as amazing as it is. (HT: Steven Landsburg)

Art Carden is demanding action "FOR THE CHILDREN" a la, Helen Lovejoy, in this first of what will perhaps become an on-going series (there have been three posts in this meme so far).

The United States is incredibly and perhaps paradoxically wealthy.

Caplan shows how Game of Thrones makes the case for pacifism.

The EA Sports proposed settlement in the on-going legal battle between college players and the NCAA cartel is a both a win for the players as well as a win for consumers as pointed out by Sports Law Blog's Rick Karcher. Probability of a strike or other work-stoppage demonstration is rising. A couple of years ago it was rumoured that a team in the NCAA March Madness tournament was planning on a demonstration including perhaps refusal to play if they made the Final Four. The team was eliminated in the Elite Eight round.

Posts like this one make me understand why I relate to Scott Sumner. Perhaps I should discount somewhat my agreement with his views on monetary policy fearing I have an unconscious bias.

Is the magnitude of U.S. gun violence evidence of civil war warranting international intervention? I think not so much. This article is hyperbolic and the arguments within fallacious I believe.  I found the biggest problem with the lumping of suicide deaths by firearms, accident deaths, and violent crime deaths. Those are quite different subjects. Attacking firearms is attacking the particular method and not the underlying conditions. Crimes aided by guns and accidents are the cost side. The benefit side, crimes reduced or prevented (including government-committed) and the joy of gun ownership, is completely ignored. But the article was thought-provoking, nonetheless.

Sunday, May 19, 2013

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.

Wednesday, March 20, 2013

Elizabeth Warren suggested what?

A $22 per hour minimum wage might be reasonable.

Here is a telling passage from the full article on Huffington Post:
"If we started in 1960 and we said that as productivity goes up, that is as workers are producing more, then the minimum wage is going to go up the same. And if that were the case then the minimum wage today would be about $22 an hour," she said, speaking to Dr. Arindrajit Dube, a University of Massachusetts Amherst professor who has studied the economic impacts of minimum wage. "So my question is Mr. Dube, with a minimum wage of $7.25 an hour, what happened to the other $14.75? It sure didn't go to the worker."
It seems she basically believes that employers wouldn't pay workers without people like her making them. Now that is dumb. She also severely confuses average worker productivity with marginal worker productivity. Claiming that the minimum-wage worker in 1960 grown at the rate of productivity growth is the equivalent to the minimum-wage worker in 2013 is 1 + 2 = 7. That is dumber. Has nothing else changed since 1960? Job descriptions, labor pools, employer compliance with regulations, et al. all the same? Are we really sure the worker who should be earning the MINIMUM wage today is equal to the worker in 1960 who should have been earning the MINIMUM wage plus the AVERAGE growth in worker productivity?

Think about this simplified thought experiment that ignores A LOT of other changes: A grill cook with little capital equipment at a fast-food burger joint in 1960 can produce 200 burgers per hour. A grill cook with lots of capital equipment at a fast-food burger joint in 2013 can produce 500 burgers per hour. Should the worker in 2013 be paid a full 2.5x more than the worker in 1960, or should the guy who bought the capital equipment be paid something, which eats into the 2.5x for the worker?