Cure Demosclerosis with a Government Jubilee

One of the big problems with Democracy, as practiced in the United States, was outlined thirteen years ago by Jonathan Rauch and called Demosclerosis.  Excellent excerpts are below, but the basic problem is that democratic government can only grow; there is no natural impetus to eliminate any government program.

A straightforward cure for Demosclerosis might be a Constitutional Jubilee: A rule that no government law or act can live for more than 50 years.  Couple this with a constitutional “Read the Bills Act” that all laws must be read (perhaps aloud to prevent cheating) by every legislator voting for them.  In that case government would not be able to grow any more complex than the amount of law that a typical legislator can comfortably recite over the course of fifty years.  And every government activity would have to stand up to explicit scrutiny at least twice a century.

QOTD: What is a Hedge Fund?

From New York magazine’s amusing set on hedge funds:

According to Cliff Asness of AQR Capital, “Hedge funds are investment pools that are relatively unconstrained in what they do. They are relatively unregulated (for now), charge very high fees, will not necessarily give you your money back when you want it, and will generally not tell you what they do. They are supposed to make money all the time, and when they fail at this, their investors redeem and go to someone else who has recently been making money. Every three or four years, they deliver a one-in-a-hundred-year flood.”

A Recipe for Mass Murder

The most astonishing thing about yesterday’s mass murder at Virginia Tech, based on what we presently know, is that a lone homicidal terrorist armed only with two semiautomatic handguns managed to actually kill 32 people.

It’s not easy to kill a person with 9mm or .22 caliber handgun rounds.  For example, one study of gang-related shootings in Los Angeles found that only 9% of shooting victims ultimately died.  CDC statistics indicate that only about 20% of victims of intentional gun wounds actually die.  This suggests that the shooter had an extraordinarily long time to roam Norris Hall and fire his weapons with impunity, presumably at close ranges.

Why would so many people passively submit to protracted mass murder by a lone psychopath?  To answer this question I would point to a small episode reported at the same university two years ago: A student, licensed to carry a concealed firearm, was removed from class and disciplined for violating the school’s ban on weapons.

Most public colleges in Virginia ban or restrict guns on campus.

“I think it’s fair to say that we believe guns don’t belong in the classroom,” [Virginia Tech spokesman Larry] Hincker said. “In an academic environment, we believe you should be free from fear.”

Did banning guns on campus lead to an environment free from fear?  I suspect that the only person who was free from fear yesterday was the terrorist.

People deprived of the means of self defense will always live in fear.

QOTD: Tax Tyranny of the Majority

From Ari Fleischer’s sweeping review of just how absurdly progressive and redistributive our current tax system is:

Perhaps we’re already reaching that point, where most people won’t have a serious stake in what the government does because they don’t pay for it. They want services and benefits, but they don’t pay the price. That’s a formula for runaway spending and no accountability. In other words, a system that looks a lot like the one we already have.

Expand the AMT

Alex Tabarrok over at Marginal Revolution offers the following clever summary:

We shouldn’t get rid of the AMT we should expand it.  The AMT is a flat tax, it’s broad-based (few loopholes), it doesn’t allow for deduction of state and local taxes (which only increases the incentive of states and localities to raise taxes) and it’s simple.

Indeed, the AMT is a much more attractive tax system than our baseline income tax code — in terms of offering easier compliance and fewer distorting incentives.  If more people knew that they would have to pay the AMT, they could ignore the regular tax system — and presumably the AMT’s currently high marginal rates could be lowered and still result in the same total revenue.

Though in practice I fear these benefits would be ephemeral:  After all, ever since the adoption of the 16th Amendment our political tendencies have been to abuse the prevailing tax code to impose increasing numbers of incentives (deductions, credits, loopholes) and policies (progressive rates, marriage penalties, implied welfare payments to low earners).

The real solution evidently requires some strict Constitutional qualifications on how taxes can be structured and how the revenue can be used.  But until we can muster another amendment I would gladly accept an expansion of the AMT as a temporary purge of the currently impossibly bloated tax code.

Current Tax Policy Inhibits Saving

Henry Blodget suggests that current tax policy makes it surprisingly hard for individuals to preserve their purchasing power through regular savings and investment:

[G]iven current tax policy, it’s no wonder we’re not saving anything.  How could we fix this?

For starters, we could do the same thing for regular savers as we do for real-estate investors: Change the definition of a “realized gain.” Real-estate investors can take advantage of a “1031 Exchange,” which allows them to take gains from the sale of one property and reinvest them in another without triggering a tax event. The same system should apply to other investments: If you own a stock or fund that has doubled, you shouldn’t be forced to hang onto it just to avoid triggering a taxable gain. Instead, you should be able to sell it and invest the proceeds in another stock or fund. Gains should only be “realized” when you take the money out of your investment account and spend it.

Second, to avoid encouraging too much risk-taking, we should treat interest earned in long-term savings accounts as capital gains, not income. This would remove the tax-disadvantages associated with owning safe, income-generating assets as compared to more volatile stocks.

QOTD: Green with Coercion

From the WSJ editorial on the environmentalist campaigns to ban incandescent lightbulbs:

What’s … illuminating is that the environmentalists can’t make their case through argument and persuasion. Instead, they immediately resort to state coercion — even when it is, as here, superfluous.

Are We Missing Incentives for Consumer Market Efficiency?

Back in February a WSJ article on Lasik noted what looks like a critical market failure.

A closer look at Lasik, plastic surgery and other procedures suggest[s] formidable barriers to informed shopping in even the most developed consumer medical markets.  In a report published in Health Affairs … researchers found that despite heavy competition and mass marketing, comparison shopping is limited.

In many ways, Lasik … looks ideal for consumer shopping.  It is an elective procedure that most consumers can research at their leisure, even obtaining price quotes over the phone.

If the markets can’t get this right for purely elective medical procedures like laser and plastic surgery, what hope is there for the broader market for healthcare?  Andrew Baker in a WSJ letter to the editor explains,

Mr. Goodman’s compelling call for entrepreneurship in health care alludes to the vital role consumer information on quality and cost will play in enhancing efficiency. Indeed, most consumer markets are shaped by buyers’ perceptions of such “value” trade-offs. But the current trend toward consumer-directed care, in which the responsibility for the patient’s own good health is influencing treatment and payment policies, will succeed only if a critical information gap between doctors and patients is filled.

Physicians do not expect, and are therefore not prepared, to have conversations with patients about cost-quality trade-offs and health-care value. Patients and their families, however, view doctors as the most trusted source of information on both quality and costs. Consumers certainly do not consider their health plan or the government as credible alternative sources. This information disconnect must be reconciled by a trusted source — perhaps an academic consortium or a health-care consumer organization.

Granted, we aren’t looking at a complete failure:

• Castle Connolly is a for-profit service providing independent and useful consumer information on doctors and healthcare.
• Consumers Union has been a good (even if lately leftward-biased) independent, non-profit source of general consumer information for over seventy years.
• Consumers’ Checkbook does the same at a more local level in select regions.
• Of course there are plenty of great online information sources like http://consumersearch.com/

But I am still left wondering if buyers and sellers aren’t missing a more rigorous approach to independent evaluation clearinghouses that could enhance market efficiency.  It is in the interest of both parties, since consumers are more likely to find (and eagerly purchase) goods and services that will most reliably meet their needs, and sellers of quality products will certainly make more sales — and perhaps even maintain stronger profit margins for.

Retirees: Get Out of the Way

I’m not a big fan of the concept of retirement, but a question for those who subscribe to the lifestyle: Why don’t you get out of the way?  (And I mean that in the most gracious possible tone.)

Except perhaps for proximity to family, there is no reason for retirees to be clogging urban arteries and hogging real estate that is close to job centers or desirable schools.  Is this simply a problem of inertia, or transaction costs?  Aren’t the savings that can be gained by moving to a lower cost-of-living area sufficient to subsidize these costs?

Can’t retirees stay away from banks around lunchtime and stores on weekends?  I.e., given that workers are largely constrained from commerce during working hours, can’t the retirees get out of the way during non-working hours?  What incentivizes retirees to pay (and add to) the extra queuing costs during these high-demand periods when they can have things all to themselves any other time?

WSJ has a few articles that reveal some attractive alternatives for the fully-retired:

1. Lifestyle communities — where people dedicated to a hobby like golfing, racing, or shooting, join with like-minded fanatics to pursue their interests with zeal.

2. Overseas retirement — where people are discovering you can live in a better climate and get a lot more bang-for-your-buck.  (E.g., even first-rate healthcare is often ten times cheaper than in developed countries.)

Why Don’t We Prioritize Charity?

Sheryl Sandberg makes an excellent point in her WSJ essay, “The Charity Gap.”  We generally think of charity as altruistic aid rendered to our needy fellow man.  The IRS thinks of charity as spending that cannot provide a direct financial benefit to the giver or related parties.  In either case, why is so little tax-deductible charity spent on the most compelling and urgent cases?

[A]nalysis, carried out by the Center on Philanthropy at Indiana University, concluded that only 8% of donations provide food, shelter or other basic necessities. At most, an additional 23% is directed to the poor — either providing other direct benefits (such as medical treatment and scholarships) or through initiatives creating opportunity and empowerment (such as literacy and job training programs). It’s just not true, in other words, that the major beneficiaries of charity and philanthropy are the disadvantaged.

The most generous estimate shows that only 8% of U.S. individual donations supports international causes of any kind. Though … small amounts of money can make an enormous difference in the lives of individuals and communities in poor countries, the world’s poorest are virtually ignored by the philanthropic giving of citizens of the world’s wealthiest nation.

Frankly, I am baffled by donors who give millions to universities, museums, and other establishments that could potentially survive as for-profit enterprises serving well-endowed consumers — especially when the same money judiciously spent in the neediest locales could have an enormously positive impact on many human lives that would otherwise be wasted.

[2011 Update: Just added to my blogroll two organizations that evaluate charities for effectiveness: Poverty-Action and GiveWell.]

Enhance Your Senses

Could you be more productive with prosthetic faculties?

The FDA has approved a decent arsenal of pharmaceutical enhancements — e.g., tailored stimulants that can increase our focus and help us control when we sleep.

An article in this month’s Wired notes that we are just beginning to explore the ways in which artificial sensors can interface with our natural senses, giving us superhuman perceptual capabilities.

The brain, it turns out, is dramatically more flexible than anyone previously thought, as if we had unused sensory ports just waiting for the right plug-ins. Now it’s time to build them.

Could this be the next revolution in human productivity?