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Why pay to do when others will pay you? – Part II September 5, 2012

Posted by federalist in Government Spending.
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Government seems to have a penchant for paying for services that could be provided for free, or even for revenue.

My first example of this was Air Marshals (“Why Pay Air Marshals When Others Would Pay To Do the Job?”), but I believe there are many more examples waiting to be discovered.

Today’s example comes from the NSSF:

TWO MUNICIPAL DEER-CONTROL PROGRAMS CONTRAST SHARPLY . . . Two news reports show a marked difference in cost between municipalities managing deer with commercial sharp shooters or doing it with hunters and, at the same time, providing recreational opportunities to its citizens. A hunter-participation program in Bernards Township, N.J., has seen car-deer collisions in the township drop from 289 in 2000-01 to a record low of 89 in 2011-12. Total expenses for the coordinated sportsmen hunting program that culled 357 deer in 2011-12 were $20,747, averaging out to $58 per deer. In contrast, Solon, Ohio, implemented a commercial sharp shooter program at a cost to taxpayers of $183,353. Some 300 deer were culled, at an average cost of $611.18.

Farm Subsidies Plumb New Depths May 21, 2010

Posted by federalist in Diplomacy, Economic Policy, Government Spending, Markets, Special Interests, Uncategorized.
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Commodity farmers are a tenacious special interest, and the federal government seems to have no shame in pandering to them.

The Obama administration would rather subsidize foreign farmers than reduce domestic subsidies that violate our trade agreements:

Rather than reduce the U.S. subsidies to American cotton farmers that are the cause of the trade fight, the Administration is proposing that U.S. taxpayers also compensate Brazilian cotton farmers for the harm done by the U.S. subsidies. Thus the absurd U.S. cotton program would dip into the Commodity Credit Corporation to pay what is a bribe to Brazil so it won’t retaliate.

Are Government and Union Employees Overpaid? May 12, 2010

Posted by federalist in Government Spending, Human Markets, Special Interests, Uncategorized, Unions.
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In a free market the concept of an “overpaid employee” is not a serious concern: If employment contracts are voluntary, and employers pay wages from their own resources, then it is hard to argue that any employee is overpaid, since evidently his employer believes he is worth his cost.

Union and government employees break this link. Unionized government employees seem to be a double-whammy! Updating a trend that has been increasingly evident, Gary Shilling explains:

Years ago, there was an informal “social contract”—public employees generally received lower wages than private-sector workers, and in return they got earlier retirement and generous pensions, allowing them to catch up. That arrangement has long since gone by the boards. The result is a remarkable trend. State and local government employees for years have received pay increases in excess of inflation, and BLS figures show they now have wages that are 34% higher on average than in the private sector.

Of course, unions vociferously deny any such assessments. But I don’t think we need to get into comparative statistical arguments to prove that union employees are overpaid. The labor market itself gives us two simple tests:

  • Do union employees voluntarily quit their jobs at rates significantly lower than similar non-union employees?
  • Are there significantly more qualified applicants for new union jobs than for similar private-sector jobs?

If the answer to either or these questions is yes (and it does appear to be so), then the market has spoken: Union employees are relatively overcompensated. Their excess rents come at the expense of employers, customers, and labor market competitors.

What’s the Justification for the Prompt Global Strike Program? April 27, 2010

Posted by federalist in Government Spending, Open Questions, Uncategorized.
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The White House requested $250MM for research next year into hypersonic engines that could support a “Prompt Global Strike” (PGS) weapon system later this decade. Air Force General Chilton explains the need for PGS as follows:

Today we can present some conventional options to the president to strike a target anywhere on the globe that range from 96 hours to maybe four, five, six hours. If the president wants to act faster than that, the only thing we have that goes faster is a nuclear response.

Now I think hypersonic engines are as cool as the next geek, but PGS is going to consume many billions of dollars to produce a capability that we have had for half a century: Intercontinental ballistic missiles (ICBMs) can reach any point on earth in under an hour. Yes, today they may all be tipped with nuclear warheads. But it would be a lot cheaper to recommission ICBMs with precision conventional warheads than to build a maneuvering hypersonic cruise missile. And the proposed PGS doesn’t solve any of the strategic problems posed by conventional ICBMs: Russia and China are already protesting that PGS is as destabilizing as our strategic nuclear arsenal.

“Seniors Living on Fixed Incomes” March 14, 2010

Posted by federalist in Government Spending, Pensions, Retirement.

“Senior citizens living on fixed incomes” is a common refrain of the powerful pensioners’ special interest groups, and it seems to never go rebutted. It’s practically the slogan of The Most Selfish Generation: The Baby Boomers who are willing to pile debt upon their children and grandchildren in order to enjoy 30+ years of healthy and unproductive “retirement.”

For the record: None of us working citizens has unlimited income, and unlike retirees we don’t have guaranteed fixed incomes from the federal government in the form of social security, medicare, and (in many cases) government-backed pensions. Nor do we have disposable time that we could devote to earning extra income to make up a shortfall, as do retirees.

State Interposition, Nullification, and Secession September 3, 2009

Posted by federalist in Federalism, Government Spending, Taxation.

Interposition, nullification, and secession.  These are the means by which a state can check the power of a federation.

That is how American federalism was supposed to work. The three branches of the central government would check each other, but it would be up to the sovereign States to keep the central government itself in check. The Constitution was to be enforced through political action of the States not by the legalism of nine unelected Supreme Court justices.

That’s from Donald Livingston’s excellent essay at the Tenth Amendment Center.

“Interposition” brought to mind the recent gestures by several state governors to reject federal “stimulus” funds.  Those gestures were viewed as symbolic, empty, and perhaps silly because rejecting the federal money would not have had any real effect on federal power or spending.  They would have had real consequence had the governors truly interposed against what they claimed was unconstitutional federal spending: I.e., the concomitant gesture to rejecting the federal funds should have been the recovery and return to their states’ taxpayers all federal taxes that were supposedly being spent unconstitutionally.

The Problem with Government Healthcare August 31, 2009

Posted by federalist in Government Spending, Healthcare.
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The WSJ gave Betsy McCaughey half of their opinion page on Thursday to expose the views of Ezekiel Emanuel (“Obama’s Health Rationer-in-Chief“).  The disapproving essay concludes with a question, “Is this what Americans want?” and seems to presume that Emanual’s principles for allocating scarce medical resources are so horrifying that simply describing them is sufficient to reject them.

However this did not reduce my enthusiasm for Emanuel’s philosophy.  McCaughey’s citations show Emanual raising essential issues, making excellent ethical arguments, and providing solutions that make perfect sense for government spending on individual welfare.

The problem with this debate is that it is about two separate but sometimes correlated questions:

  1. How much healthcare should government provide?
  2. Should government healthcare usurp private markets for the same goods and services?

What is both reasonable and necessary for government healthcare would be unethical for free market medical services: Namely, a system for rationing finite resources that considers cost and benefits in a social, not individual, context.  Government can’t pretend that it has unlimited resources.  And in this debate I have not yet heard an explicit argument in favor of the default method for allocating scarce resources: queues.

Government needs some socialist basis for (A) taking money from some people (via taxes) and (B) giving it to others (via medical services).  Of course a major part of the debate pertains to (A), i.e., the degree and manner in which government is justified in coercing some people to contribute towards the health of others.  But given some level of government-sponsored healthcare Emanual offers an ethical framework — indeed, the only coherent one I have encountered — for part (B): disbursement of finite resources

The second question raised above is more difficult, but insofar as a rationing system is employed to problem 1A it need not interfere with private markets.  I.e., Govenrment should not encumber private commerce in medical goods and services even if it does itself engage in socialized medicine.

American Politics Confronts the Ugly Reality of Fascism August 11, 2009

Posted by federalist in Government Spending, Healthcare.
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If the government is going to provide medical services with finite resources then it is going to have to make difficult choices: It can’t take a spare-no-expense approach to treating every single person.

I addressed the question of how to rationally distribute life-saving resources three years ago.  Any coherent allocation of these resources will be fascist, which makes government healthcare even more politically unpalatable in a culturally libertarian country like the United States.

Amusingly, the Obama administration is under attack because its healthcare policy advisor, Ezekial Emanuel, earlier this year published “Principles for Allocation of Scarce Medical Interventions” reminiscent of mine.  It may not help that he gave his proposal the vaguely orwellian name, “The Complete Lives System.”

Let’s Shift Funding From NASA to NOAA July 20, 2009

Posted by federalist in Government Spending.
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I’ve railed against lavish government funding for NASA before.  Apparently the space agency’s publicity machine is having a hard time keeping up its inspiring vision: A report today is entitled, “Space Program Struggles for Direction.”

This reminds me of a good question raised by Robert Ballard a few months ago when he appeared on The Colbert Report: Why does NASA have a budget over one thousand times the size of NOAA’s?  Investment in oceanic research and development today will have generate returns orders of magnitude greater than investments in outer space.

Granted, I don’t believe our government should currently be funding either endeavor.  In past generations there were some plausible arguments for government sponsorship of NASA, but given that the Department of Defense now has its own vast budget for the exploitation of space, and given the competitive markets for both private and foreign space launch capacity, these earlier premises are no longer valid.

The Case for Government Investment March 28, 2009

Posted by federalist in Economic Policy, Government Spending, Markets, Taxation, Transportation.
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As a libertarian I like to believe that anything worth doing will be done by for-profit entities.  But we know that in practice there are many public goods and services worth providing that will not be provided in anarchy — typically because they suffer from at least one of three characteristics:

  1. They require more up-front or concentrated capital than private entities can reasonably provide.
  2. Potential returns are too risky or distant, rendering the risk/reward calculus untenable for a profit-seeker.
  3. Returns are too difficult to capture for a non-government entity (practically by definition of a public good).

If public infrastructure investment can reliably increase economic activity, then not only can government capture returns on the investment through constant-rate taxes on a growing economy, but it would even be reasonable to fund the investment with government debt.  This is, in broadest terms, the premise for a large amount of the Obama administration’s proposed deficit spending.  Robert Reich today presents a reasonable argument based on this premise:  He suggests that the United States grows and competes internationally based on its productivity, and that public goods like a ready base of strong human capital and infrastructure are critical to growing productivity.

Only those Americans whose parents can afford to give them a high-quality private education and health care, and who can situate themselves in locations with excellent infrastructures of telecommunication, transportation, public health and safety, have been able to link up with global capital on more positive terms. But not even they are entirely secure economically, because they face growing shortages of talented people they can rely on within easy reach, and can’t entirely avoid the disadvantages of a deteriorating public infrastructure, such as ever more congested roads and airports.

Obamanomics recognizes that the only resource uniquely rooted in a national economy is its people — their skills, insights, capacities to collaborate, and the transportation and communication systems that link them together. Public investment is the key to attracting long-term private investment so that a nation’s people can prosper.

Let Profit Guide Government Spending (and Bailouts) January 23, 2009

Posted by federalist in Economic Policy, Energy, Finance, Government Spending.

How can we avoid turning a government bailout into a political boondoggle?  As I suggested yesterday on Rick Bookstaber’s blog:

The expectation of profit is the only way to prevent politics from perverting market interventions. If government can interfere at times and in ways in which it does not expect to make a profit then you may as well tell special interests to grab their sacks and form a line to have them filled with taxpayer money.

But if there is a true financial crisis then, by definition, there is an objective opportunity for a liquidity provider to realize excess profits in the distressed markets.

If we insist that government can only intervene in times and ways in which it can expect a long-run profit (without abusing its power to “change the facts on the ground”), then we take most of the political hazard out of the equation. Instead of the current debate we see — are Paulson and Frank just funneling tax revenue to their friends and cronies in NYC? — the only debate would be on whether the long-run fair value of assets being bought by the government is clearly above the price at which the government can buy them.

(Profit is the same criterion I previously proposed for managing the Strategic Petroleum Reserve.)

Deficits: The Best Restraint on Government December 16, 2008

Posted by federalist in Government Spending, Unions.

Is your government running a deficit?  Perhaps you should be grateful.  After all, representative government only knows two regimes: Deficit, and surplus.  And in only one of those regimes is the taxpayer’s interest a serious consideration.

When government has a surplus of revenue it cannot say no to more spending.  When money is sitting on the ledger:

  • Government employees know it.  Anyone who has worked with government knows that the first rule of budgeting is to spend all your money.  Bureaucrats don’t make a lot of friends by returning unneeded funds to the treasury.  Government employees are the first to see a surplus coming and so they are also the first to try to expand their obligations and cook their books to soak it up in advance. 
  • Unions know it.  It is practically impossible to turn down a raise to public employees during a surplus: No administrator will piss off a union unless taxpayers are threatening his livelihood.  And since the surplus has already been taken from the taxpayers, the cost to the administrator of giving it away is nothing.
  • Lobbyists know it.  They inundate politicians with lists of things to which they can’t possibly say no.  Again, taxpayers already handed over the money, so politicians can now placate special interests for free.

Only facing a deficit can politicians even begin to question government spending.  Only then do they have to choose between raising the burden on their constituents and the cost of buying peace with the pigs feeding at the public trough.

For taxpayers government surpluses are like rainbows: Only occasionally seen, and never able to be grasped.  Perhaps this is ultimately the fault of the taxpayers, who tolerate constant tax rates and only seem to notice their burden when it is increased.

Priorities From the Copenhagen Consensus June 7, 2008

Posted by federalist in Economic Policy, Energy, Government Spending, Social Politics.
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Philanthropists, activists, big charities, governments — there are many entities with lots of time and money and ideas for spending their resources to improve the world.  They frequently do a very poor job of it.

I have applauded the Copenhagen Consensus Center before.  The results of their latest panel, ranking the expenditures that will produce the greatest economic good in the world, should be studied by all of the aformentioned entities.  At the top of the list: Nutritional supplements, free trade, and vaccinations.

Government Mismanages the Strategic Petroleum Reserve November 13, 2007

Posted by federalist in Economic Policy, Finance, Government Spending, Taxation.
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Here’s another way government can replace taxes with the astute stewardship of public assets: David Henderson notes that the U.S. government is in a unique position to arbitrage commodities market. Since it stockpiles massive quantities of commodities it could take risk-free profits in a backwardated market — while helping to mitigate a transient supply crunch (which is what a backwardated market indicates). For example, right now it can sell oil from the Strategic Petroleum Reserve at $96/barrel, while buying contracts to refill the SPR in one year at only $87/barrel.

My cynical side suspects that this is such an obvious win for both commodities consumers and taxpayers that we can almost guarantee it won’t happen.  [Sure enough, Nov 14, WSJ notes, “Last week, the Department of Energy announced plans to continuing buying crude oil to fill the 694-million-barrel Strategic Petroleum Reserve, noting that the reserve’s purpose is to cope with oil supply disruptions — not to manipulate prices.”  So if a backwardated market doesn’t indicate a supply disruption, what does?]

Why Pay Air Marshals When Others Would Pay To Do the Job? May 24, 2007

Posted by federalist in Government Spending, Open Questions, Transportation.
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The Federal Air Marshals budget this year is $700MM.  In exchange for that we get teams of Air Marshals hogging first class seats on roughly 5% of commercial flights.

As I recently settled into my first class seat on an overseas flight I realized that I am willing to pay quite a bit for the privilege of flying up front.  There are probably a lot of people like me who feel the same way: Law enforcement and military professionals with government clearances and firearms training who, in the normal course of their travels, would be happy to carry guns on board as a deterrent to terrorists.

At present the Transportation Stupidity Administration is spending roughly $350k per year per marshal to field a group of unhappy officers who almost never have to do anything.

Marshals have made 59 arrests since 2001 and drawn their weapons only twice — once shooting a man dead. In the end, none of the incidents were found to be related to terrorism.

Meanwhile, the same agency has done all it can to stymie the Federal Flight Deck Officer program, which is capable of arming pilots on nearly every flight.  (Even so, there are now more armed pilots than air marshals flying.)

Full-time Air Marshals are a stupid and wasteful idea.  Since the only requirement is to deter terrorists and restrain belligerents until an aircraft can be brought to the ground we do not need a cadre of specialists dedicated fulltime to such extremely rare emergencies.  An Air Marshal should be any government officer willing and able to carry firearms in the air.  And since Air Marshals typically sit in first class, I believe officers in the normal course of their work and vacation travels would pay out of their own pockets for the privilege of defending our skies.

QOTD May 8, 2007

Posted by federalist in Economic Policy, Government Spending.
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Courtesy of Stephen Dubner, quotes from Tyler Cowen’s Discover Your Inner Economist:

A good intuitive economist approaches a practical problem by asking “What is the relevant scarcity hindering a better outcome?” If we haven’t posed this query, and assembled at least the beginnings of an answer, we may founder. For instance, we might make the mistake of throwing more money at a problem, when money is not what is needed. By identifying the relevant scarcity, we learn where to direct the incentives.

Also today, Will Wilkinson illuminates the forces that keep our government running up debt for (non-investment) entitlement spending.  The long and short of it: Old people are an overwhelming political force, and they don’t mind holding a party for themselves that others will have to pay for after they’re dead.

Department of Unintended Consequences – Part I January 10, 2007

Posted by federalist in Government Spending, Regulation.
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Why does government have such a chronic inability to anticipate the consequences of its schemes to tax, spend, and regulate?

  • Subsidizing tuition with low-interest loans, grants, and tax breaks — intended to make college more affordable — instead makes college more expensive in absolute terms.  (Oops … guess we need to work on increasing the supply of the service instead of the supply of its consumers!)
  • Regulating public capital markets — intended to increase the efficiency, liquidity, or safety of the markets — just squeezes capital into less regulated areas, like private and foreign capital markets.
  • Increasing taxes — intended to raise government revenue — actually increases incentives to evade taxes and avoid taxable activities (typically, productive ones), often causing revenue to actually decline.
  • Criminalizing goods or services — intended to discourage vices — generally produces or shores up a black-market for that behavior, along with all the negative accoutrements and externalities of black markets.
  • And as David Henderson notes today in his essay on “Terminatorcare”:

Why doesn’t increased government power tend to solve the problem of the uninsured? There are two main reasons. First, when government provides health insurance, many people who take advantage of it drop their own privately provided health insurance. In a 1996 article in the Quarterly Journal of Economics, Harvard economists David M. Cutler and Jonathan Gruber found a 50% “crowding-out effect.” As the federal Medicaid program expanded, for every two people who gained insurance through Medicaid, one dropped private health insurance. Although this is a net addition of one, the costs to taxpayers are much higher than expected because now half of the newly covered, instead of paying their own way as they previously did, become wards of the state.

This is such a frequent theme I’ll just start cataloging examples under this title.

Replace Taxes with Sales of Public Goods January 3, 2007

Posted by federalist in Economic Policy, Government Spending, Taxation.

Today’s breaking views notes that the Pennsylvania Turnpike could be worth as much as $30BB in a lease to private firms. Contrast this to annual state revenue of $12BB, which comes from taxing productive activities like Personal Income, Sales, and Corporate Profits.

Government could claim a lot more legitimacy if it derived its revenue from public goods instead of confiscating private property and enterprise. Consider the extensive and valuable public goods that can be tapped for public revenue:

  • Radio Spectrum
  • Fisheries
  • Logging on public land
  • Fossil fuels and minerals

At present there is some public revenue derived from these resources, but if such commons were a significant source of funds for government operations — and traditional taxes were correspondingly lowered or abolished — they could certainly generate a lot more money. For example, we know from Europe that people can adapt to paying $4/gallon in gasoline taxes. If people were freed from sales and income taxes they may readily assent to paying many times more for raw materials and cell phone bandwidth. Especially since it seems more morally parsimonious to charge for access to limited public goods than to arbitrarily tax private property.

Government could also create public revenue by auctioning off naming rights to public works and public places — which could include everything from streets to parks to hard currency. For example, maybe Ted Turner wants to make a substantial contribution to the federal government in exchange for his portrait appearing on the $20 bill. Maybe San Francisco would agree to go by the name “Cisco” if Cisco Systems funded their police and roads.

Another opportunity is to establish premium levels of access to public goods in exchange for payments to the public purse. For example, there is some number of people who would pay almost any amount of money for an exclusive speed lane for commuting, airport security, etc.

Auctioning off public goods in this fashion has the added benefit of economically optimizing their allocation. Consider public roads as an example: Right now they are essentially rationed by queue. People or corporations who would be willing to pay significant sums to jump the queue have no way of paying others to get out of their way. If access to a restricted express lane were sold on commuting highways it could very well pay for the entire road, thereby subsidizing all the other users who do not want or need to pay a premium for unfettered travel.

[Addendum: It probably would have been more accurate here to use the term public assets, not public goods.  Public goods need to be produced, and conventional wisdom suggests that only government can reliably produce public goods.  However, Alex Tabarrok proves that Assurance Contracts are a plausible mechanism for enabling profit-seeking entrepreneurs to efficiently provide public goods.]

NASA Boldly Goes Nowhere December 5, 2006

Posted by federalist in Energy, Government Spending.
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There’s something inspiring in the bureaucratic zeal of NASA’s bid to rejuvinate itself by proclaiming a new lunar project.  I imagine I would feel similar emotions watching a former Olympic medalist, now senile and wheelchair-bound, declaring that he will not only walk again but that he will set a new record.  Part of me would swell up in pride at this manifestation of the indefatigable human spirit, and part of me would want to “put him to sleep” to end the madness.  With tens of billions of our tax dollars on the line, the latter inclination definitely dominates.

We can’t blame them for trying.  After all, there are plenty of bureaucrats, scientists, and government contractors milking our national pride at having stayed in the space race without falling apart like the Soviet Union finally did.  NASA can claim it helped to win the Cold War.  But fifteen years on, American taxpayers have become nothing more than reluctant enablers of a psychotic, bureaucratic struggle for life.

A great technological challenge can be a tremendous force for economic development, technological progress, and national unity.  But what are we doing now?  Every so often the President or some Agency chief floats the idea of getting a man to Mars and back, or establishing a permanent lunar station.  These are gargantuan projects that would require hundreds of billions of dollars in consistent commitments, and returns that are ambiguous at best.  No reasonable person looks at the opportunity costs of such public expenditures and thinks they constitute a realistic vision.

Certainly not now, when there is so much fantastic science to be done on the ground.  Certainly not when near-earth space has been fully commercialized.  And certainly not when the cost of energy — perhaps the biggest cost in orbiting the materiel needed to send manned expeditions out of low earth orbit — is actually climbing.

NASA, like many federal entities, is an overfunded agency with an obsolete mission and no real vision.  There will come a day when we have developed an energy source so cheap that it will be reasonable to push manned space exploration back to the moon and beyond.  Until then, NASA’s latest delusional stirrings make it clear that it is time to put this agency to sleep.

Government Interference and Unintended Consequences in Higher Education November 19, 2006

Posted by federalist in Economic Policy, Education, Government Spending.
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Larry Arnn, President of Hillsdale College, came out with an excellent essay detailing the havoc wrought by the federal government’s foray into the market for higher education.  Worth reading in full, but highlights are excerpted here: