Our Utterly Corrupt Politics

“Vote for me, and I will take money from somebody else for your purposes.”  We have allowed our federal system of government to degenerate into civilized mob rule.  The only difference between modern American democracy and Communist rule is that Americans demand that more than one political party conspire to rob minorities to cement their power.  This is surely not the American dream.

Amity Shlaes reminds us of an excellent essay by William Graham Sumner entitled, “The Forgotten Man.”

The type and formula of most schemes of philanthropy or humanitarianism is this: A and B put their heads together to decide what C shall be made to do for D. The radical vice of all these schemes, from a sociological point of view, is that C is not allowed a voice in the matter, and his position, character, and interests, as well as the ultimate effects on society through C’s interests, are entirely overlooked. I call C the Forgotten Man. For once let us look him up and consider his case, for the characteristic of all social doctors is, that they fix their minds on some man or group of men whose case appeals to the sympathies and the imagination, and they plan remedies addressed to the particular trouble; they do not understand that all the parts of society hold together, and that forces which are set in action act and react throughout the whole organism, until an equilibrium is produced by a re-adjustment of all interests and rights. They therefore ignore entirely the source from which they must draw all the energy which they employ in their remedies, and they ignore all the effects on other members of society than the ones they have in view. They are always under the dominion of the superstition of government, and, forgetting that a government produces nothing at all, they leave out of sight the first fact to be remembered in all social discussion – that the State cannot get a cent for any man without taking it from some other man, and this latter must be a man who has produced and saved it.

Worth reading in full.

Lazy Law

Tim Wu delves into fascinating examples of what I would call lazy law: The legislature passes all sorts of laws, but the executive only enforces the ones that are generally palatable, or in which the public has particular interest at a particular point in time. There are adherents to the philosophy of prosecutorial discretion but to me this system seems upside down.

The problem is that this system leaves our legal landscape littered with laws that lie in wait like landmines. Anyone who steps on them is at the mercy of the prosecutorial authority. If the authority is looking to score political points (e.g., Spitzer, Nifong) or is being pressured by a special interest, or is simply in a bad mood, then a hapless citizen following a well traveled path gets blown up.

Our system of government is not designed to impose an appropriate level of accountability on prosecutors who enjoy such discretion.

If we had a strong culture of jury nullification perhaps this could work. (This would in effect reduce to a system of Common Law, like the one advocated by John Hasnas.)

The Public Pension Pay Problem

The WSJ outlines a predicament facing public pension funds: With many billions of dollars in assets, the effect of the fund managers on this public welfare can be enormous.  But government entities have a hard time paying the going rate for financial talent — successful private fund managers with billions in assets will certainly make seven figures each year, but the highest public-sector salaries are traditionally in the low six figures (often customarily bounded by the salary paid to the governor).

My philosophy is that government shouldn’t be in the business of money management.  Pension liabilities should be outsourced to insurance and investment management companies.  After all, it’s a competitive private industry.  There’s no reason to think that government could do it better (and there’s bountiful evidence that political meddling drives performance down).  And there is no reason for taxpayers to shoulder the risk of underfunded defined-benefit liabilities, which occurs frequently in public pension systems.

Of course, governments will pay for good money management one way or another.   If they outsource it the politically unpalatable salaries will be disguised behind management fees, but they will still be there.

Don’t Give Your Rebate To Your Realtor

I have written before about grotesque inefficiencies in the market for real estate brokerage. Rent exhaustion, illegal cartels, unethical behavior and conflicts of interest. All of these industry features have only grown with the explosion in real estate values.

On my other blog I outline a solution to the hazards facing consumers that fits almost entirely within the present paradigm of the brokerage industry.

Mysterious Charity Utility Functions, Part II

I have touched on this question here, and here. But by far the best treatment was offered last month by Clive Thompson, which I just found here. Highlights:

I’ve been reading the fascinating work of Paul Slovic, a psychologist who runs the social-science think tank Decision Research. He studies a troubling paradox in human empathy: We’ll usually race to help a single stranger in dire straits, while ignoring huge numbers of people in precisely the same plight. We’ll donate thousands of dollars to bring a single African war orphan to the US for lifesaving surgery, but we don’t offer much money or political pressure to stop widespread genocides in Rwanda or Darfur.

You could argue that we’re simply callous, or hypocrites. But Slovic doesn’t think so. The problem isn’t a moral failing: It’s a cognitive one. We’re very good at processing the plight of tiny groups of people but horrible at conceptualizing the suffering of large ones.

We tend to think that the way to address disease and death is to have more empathy. But maybe that’s precisely wrong. Perhaps we should avoid leaders who “feel your pain,” because their feelings will crap out at, you know, eight people.

Moral Hazards in Life Insurance: The Suicide Exclusion

I was surprised to discover that life insurance policies cover suicide after a two-year “exclusion” period.  (I.e., after two years of paying premiums an insured can kill himself and the insurance company will pay out the full benefit.)  I was even more surprised to discover that nobody writes life insurance with a total suicide exclusion.  A few observations:

  • Obviously the fact that life insurance covers suicide creates a tremendous moral hazard.  People with active life insurance have a financial incentive to commit suicide!  There is ample evidence that this incentive has a real effect, as detailed in Samuel Hsin-yu Tseng’s paper, “The Effect of Life Insurance Policy Provisions on Suicide Rates.”
  • As far as I can tell, the exclusion period stems from a majority of state regulations.  Life insurance is regulated at the state level, and (as of 2005, ibid. page 4) 36 states require life insurers to cover suicide after no more than two years of the policy being active.
  • As a consumer I would like to be able to buy insurance contracts that don’t pay a suicide benefit.  Such policies would be substantially cheaper.
  • The irony: Our government forbids anyone from being compensated for donating organs to save the lives of others (supposedly because of the moral hazard of such an incentive), yet it requires insurers to create an incentive to commit suicide!

“Health Insurance” Is Not a Crisis

I wrote about this before, but Democrats are not being taken to task like they should for their assertion that health insurance is one of the biggest crises facing America today.

Since they have so few positive ideas to offer, I guess they have to attack something. But if we’re going to pick something that a large minority of Americans don’t have, why pick health care? What about life insurance? Or credit insurance? Let’s dig up sob stories of people who couldn’t afford to pay their credit card debt. Oh, the humanity!

What does health insurance offer? Nothing more than a safety net. Liberals mention the uninsured in the same breath as the poor and the sick, but people without health insurance are not necessarily poor or sick. They are not 40 million citizens hobbling the streets on makeshift crutches and dirty bandages.

Human beings do not need health insurance the way they need food and shelter. Sure, nobody would turn down free insurance, and most people sleep better at night knowing they’re insured against catastrophic accidents and emergencies they couldn’t pay for. But nobody has a natural right to be protected against every bad thing that could possibly happen to them.

Why don’t we cut to the end and imagine the Democrats’ final solution? After universal health insurance, universal defined-benefit pensions, and universal welfare, nobody will go sick, hungry, or homeless, and nobody will have to work when they’re old. Which would let us move on to safety nets for the few suckers who continue to work to fund this welfare state: We’ll have to setup an unemployment system that continues to pay people their highest achieved salary in the event that they lose their jobs.

The digital-divide will be closed with universal telephone, cable, and internet access.  Then we will move on to the transportation divide, which prevents millions of Americans from owning luxury cars with all of the latest safety features. We will finally desegregate vacation destinations and gated communities by ensuring that impoverished Americans have access to the same mansions and luxury travel opportunities as everyone else, giving new shades to the slogan, “No one left behind!”

With all of these social divides and gaps closed we will finally be able to address the fundamental concern that any individual American may have been born with a below-average endowment. Talent-insurance will ensure that everyone gets to go to the best schools and earn the highest grades, regardless of how inherently smart or hard-working you are.  The genetic lottery will not short-change any American.  (And students will no longer suffer performance anxiety related to exams or school admissions processes!) Talent-insurance will also ensure that nobody has to lose in sports, no matter how unfortunate they were in their birth or upbringing. What a wonderful world: Government will ensure that nobody has to work, and everybody is above average. Why didn’t the Republicans think of it first?

A Standard for Regulating Private Property

I actually found a reasonable person who is more libertarian than me. (I would almost call him an anarchist, but he chafes at that term, and he does reason from Natural Law, so I’ll say he’s libertarian.) While discussing the legitimacy of registering and licensing motor vehicles traveling on public roads, I found myself referring back to ideas I initially expounded on the subject of private weapon ownership.

I think I have a cleverly simple regime for regulating dangerous devices of every kind — so simple that it could satisfy both the most coddling regulator and (maybe even) the more die-hard libertarians.

The interesting thing about this subject is that the nature of the question has changed substantially over the last 200 years. When the great thinkers of the eighteenth century were addressing natural rights, an individual man could not himself wield much more power than could be exercised through a steel blade, flintlock firearm, horse, or barrel of black powder. An accident or aggression by an individual could only result in very limited damage to the lives and property of others. In contrast, modern motor vehicles and high explosives enable an individual to exercise destructive power far out of proportion to anything a man can naturally repay.* Hence the demands on government to restrict the rights of individuals to own dangerous and destructive property.

Our present government takes an ad hoc approach to this problem. Passenger cars are regulated in a rather costly and inefficient fashion. And still we find people on the road who probably should not be allowed to drive, or who don’t carry enough insurance to cover the damage they cause in accidents. Meanwhile less dangerous items, like switchblades and certain firearms, are absolutely prohibited from even the most competent private citizen.

From a government perspective it should not matter whether a destructive device is a vehicle or a weapon: The ultimate question is how much damage it could cause if accidentally or intentionally used against another person or his property. Science gives us a useful way of measuring destructive power, and my proposal would be to standardize registration and insurance requirements on this basis.

For example, a young child or certifiably insane person should not be allowed to own or operate any MegaWatt-class device. Any responsible person should be allowed to operate any destructive device so long as they post bond or insurance against its misuse (accidental or intentional). For example, a modern passenger car is roughly a 10MW device, and should require a $100k bond. I was surprised to discover that even many handguns are 10MW devices, but that’s the way the numbers go. Fortunately, we don’t need a separate regulatory regime for higher-grade devices. Commercial trucks and large-bore firearms could rate up to 100MW. Light jets are around 500MW. Grenades and pyrotechnics are up to 1 GigaWatt. Heavy jets are up to 50GW. Detonators might be effectively TeraWatt devices, since many common chemicals can be detonated in large quantities. I don’t particularly like the way these numbers pan out, since our present regulatory regime leaves plenty of loopholes. But at least this would offer a consistent and principled basis for regulation, instead of political caprice.

*I know I’m crossing thin ice here, since one of the classic objections to the Second Amendment is that the Founding Fathers didn’t contemplate modern weapons. Suffice it to say that this argument is meant to help libertarians accept a basis for government regulation, not to provide an argument for discriminatory regulation. If you don’t believe that human beings have a natural right to keep and bear arms for the individual defense of life and property, then I just hope you always end up on the short end of the Nanny State.