Reel Privilege-Seeking

Not just in New Mexico — it happens everywhere:

My son and I were watching a TV show and at the end there was a blurb about it being made in Georgia.  I said to him “I guarantee that “filmed in Georgia” translates to “subsidized by Georgia.”  He did not believe me, and could not understand why anyone would subsidize film production.  After all, we can argue about whether any government subsidized jobs make sense or just cannibalize investment in other areas, but film jobs are the most temporary and fleeting of all jobs.

Turns out I was right.

Incentives Matter — Endangered Species Act Edition

Last Thursday former Governor Richardson praised the Endangered Species Act for the way that “best available science” has informed decisions (and his role in them) based on the Act.

While I agree that species conservation is important to all of us, the former Guv overstates the Act’s effectiveness and includes nary a word about its cost. He cites three species (Gila trout, Aplomado falcons and Mexican gray wolves) that have benefited from the act. To that I ask, “compared to what?” Would they be extinct absent the Act or some other form of the Act?

He also says “the Act has prevented the extinction of 99 percent of the more than 1,400 species placed under its care.” Really? Without the Act (or some other form of the Act) more than 1,390 listed species would now be extinct!?

Professor Jonathan Adler’s scholarship suggests that the Act could be made more effective and its costs reduced. His testimony before congress is here. His reasons:

Private land owners have incentives that are counterproductive to the the Act’s stated intent. “the Act effectively penalizes the owners of land upon which endangered species depend.” Moreover, “regulatory provisions of the act can discourage the discovery and collection of needed scientific information about potentially imperiled species” by private land owners.

Decisions are often the result interest group conflicts, making them more politically based than scientifically based:

The listing of individual species, the designation of critical habitat and the implementation of conservation measures often prompt fierce legal and political battles. Sound science is often a casualty in these conflicts as the combatants twist and manipulate the available scientific evidence to support predetermined policy preferences. Activists on all sides claim that “sound science” supports their respective positions, and scoff at the “junk science” relied upon by the other side. In actual fact, what often divides the respective camps is not a devotion to science, but sharply divergent policy preferences dressed up in scientific garb.

Once a scientifically based prognosis is given for an endangered specie, we still need to determine what, if anything, to do about it. Science itself should play a pivotal role but it should not dictate policy. We need to estimate the costs (tradeoffs) involved. Are they worth it? That is the question we should answer for policy.

Only 22 species of the approximately 2000 listed as endangered or threatened since 1973 have been categorized as having recovered. The Endangered Species Act has met only one percent of its goal in 40 years — a far cry from Governor Richardson’s hyperbole.

The Endangered Species Act has ignored the incentives of those reacting to it. Shouldn’t an examination of those incentives be part of the science needed to improve the Act?

Privilege Seeking within Government

Charles Murray is unhappy with Frederick County Maryland’s interference with parents’ attempt to implement their new charter school (a school designed to emphasize a “classical curriculum”).

From the beginning, the administrators of the Frederick County Public Schools (FCPS) were openly hostile to the idea of a classical curriculum and threw up one frivolous bureaucratic roadblock after another. Now, in the last months before the school is finally scheduled to open this fall, the FCPS has informed these parents that they can’t hire the nine teachers that they had selected after vetting 300 applications. Instead, under Maryland law, the school can be forced to accept teachers on the county’s “to be placed list”—in other words, teachers who the FCPS would otherwise let go. Furthermore, the parents running the school cannot even interview them—nor learn their names, nor have any other way to get an idea whether these teachers have any understanding of the classical curriculum or the ability or motivation to teach it. The FCPS can simply force placement of the teachers it can’t use in any of its other schools.

This is a perfect example of the problem of interest groups, this time the teachers’ union, receiving special privileges via political process. See my study of privilege-seeking in political process and how it affects prosperity along New Mexico’s border. By guaranteeing a monopoly “privilege to government’s resource providers,” “provision of core functions (are) more costly than they otherwise would be.” (p.7)

Murray concludes with an indictment of our loss of liberty that should wake us up. This example:

is representative of the kind of naked display of power that increasingly happens throughout government—in the schools, the regulatory agencies, the tax authorities, at the county, state and federal levels alike. Americans who are acting in ways our civic culture has traditionally celebrated—harming no one, just trying make a living or build a business or, in this case, collaborate to educate their children—find themselves balked, forbidden, and in some cases prosecuted, by bureaucracies that increasingly exist to protect themselves and their own interests, and have gathered unto themselves the power to do so. This is not a partisan issue. It represents a betrayal of what America is supposed to be about.


Incentives Matter — Regulatory Edition II

From Don Boudreaux at Cafe Hayek:

Free markets are extraordinarily – tightly – ceaselessly – impressively regulated.  And nearly all of this regulation is spontaneous; it’s the result of the competitive market order.  Unlike that species of regulation called “government regulation,” the kind of regulation that remains dominant in markets is not designed by government officials; it doesn’t amplify collective manias; it doesn’t treat consumers, workers, or business people as morons; and it’s not able to be captured and corrupted by special-interest groups.

Don’s post includes a link to his opinion piece in Pittsburgh Tribune-Review.

The unceasing rivalry that produces spontaneous regulation is not “perfect.” Untoward outcomes will go unanticipated. But once they occur they become anticipated, and market rivals react quickly to preserve their reputations.

My study of how prosperity is reduced when privilege-seeking interest groups gain ever greater footholds via political process is here. Assuming we want to prosper, it is process of competition, not politics, that is the regulator we can trust.

The Real Problem in Bangladesh

The always perceptive Sheldon Richman weighs in on the Bangladesh tragedies. He starts by summarizing the status of the resulting debate over whether or not international standards on building safety should be enforced against Bangladeshi manufacturers:

“Proponents of standards argue that the costs would be small and the benefits great,” and “Opponents of government regulation argue that artificially raising the costs of manufacturing in poor countries would harm intended beneficiaries by destroying jobs.”

Then he identifies the real problem:

Unfortunately, the debate is unnecessarily narrow. What needs discussing — and radical changing — is the country’s political-economic system, which benefits elites while keeping the mass of people down. The economists are correct that under the status quo, imposing safety standards would raise costs, cause unemployment, and aggravate poverty. But we can’t leave the matter there. We must go on to examine how the political-economic system constricts people’s employment opportunities, including self-employment, and otherwise stifles their efforts to improve their lives. Thus, a debate over whether garment factories should be subject to safety regulations, while the status quo goes largely undisturbed, misses the point.

What Bangladesh needs is much more economic freedom. A system now controlled by landed elites stifles opportunity for the masses. Fix the problem of successful predation by privileged elites and Bangladesh would prosper quickly, including making voluntary improvements in building safety.

For evidence of how successful privilege-seeking reduces prosperity along New Mexico’s border look here.

Some Good News for Oil Production

From the constantly observant Mark Perry:

New Mexico and its neighbors have begun to enjoy the shale oil boom.

EIA attributed the production increase to the application of horizontal drilling and hydraulic fracturing technology to low-permeability rocks to the growth in U.S. oil production. Enhanced oil recovery techniques such as carbon dioxide injection also are boosting production from conventional reservoirs.

So, what is it, peak oil or peak idiocy? Take your pick.

Peddling Economic Ignorance

Under the guise of “public awareness” the Center for Civic Policy has been calling legislators to complain about their support of the recent “tax package:”

A New Mexico nonprofit has launched a “public awareness” campaign highlighting the votes of state lawmakers on a massive tax package approved on the final day of this year’s 60-day legislative session.

They’re correct to criticize the haste and secrecy with which the “tax package” (the main feature of which was to reduce the corporate income tax rate from 7.6% to 5.9%) was put together at the end of the session. But did anyone happen to see if they made similar criticism of the way the (Un)Affordable Care Act was put together with the similar haste and secrecy? It would be nice if political process was open, careful and informative. But, unfortunately politicians, having incentives like the rest of us, act like politicians. It’s time we all recognized that as a fact of life.

Let’s clear up some of the Center’s economic confusion by briefly summarizing some basics of taxation related to NM’s corporate income tax:

Corporations may be legal entities responsible for the corporate income tax. But corporations don’t actually pay the tax, only people pay taxes. The actual tax is borne by the owners of the corporation and its customers.

Corporations are a source of prosperity in that they make up a potential supply side of voluntary exchanges between them and their customers. Those exchanges, voluntarily entered into, would not take place unless both parties to each exchange benefited. Onerous tax policies like NM’s corporate income tax reduce voluntary exchanges and prosperity.

New Mexico has the worst (or close to it) corporate income tax regime in the country. While the rate may now be a bit lower, its formula for determining the amount of income subject to the tax puts New Mexico corporations at a huge disadvantage compared to other states.

Since the corporate income tax is so awful, it’s quite possible that the reduction in its rate will actually increase revenue. That would certainly be the case with even lower rates and a more reasonable definition of income subject to the tax.

Further exacerbating the bleak tax picture for corporations is NM’s gross receipts tax. Since they pay gross receipts tax on many services that are inputs to production, they are at a disadvantage relative to other states where services are not taxed.

New Mexico needs further tax reductions by making the corporate income tax and gross receipts tax less onerous. But if the Center is really concerned about tax revenue (I’m not — government has already overreached), then they should be concerned about actually having someone to tax.


Why is she so upset?

The following comment from one Hazel Meade appeared at Marginal Revolution today re problems with the (Un)Affordable Care Act:

The banning of catastrophic-only plans infuriates me the most. Those are the only plans that are actually financially sensible for a healthy individual to purchase. Everything else on the market is a perverse by-product of the employer-based insurance system.

Worst case scenario with a catastrophic-only plan is you end up with $10,000 in debt. That’s a debt load many times smaller than what the Federal government thinks students should take out to get a college degree. We’ll let you borrow $100,000 to get a sociology degree but, we think that $10,000 is an unconscionable amount to pay for medical expenses? So unconscionable that we have to FORCE YOU to buy a plan with more extensive coverage?

Of course, we all know the real reason for this. it’s meant to force healthy young people to subsidize healthcare for older sicker people. Just force them to pay more for insurance than they ought to, and force them to buy more extensive coverage than is rational.

I’m a nice guy and I’m getting up in years (at least that’s what my wife tells me). Yes, Hazel’s birth control pills and treatment of tennis elbow may cost a bit more as part of her “insurance” premiums; but she should feel rewarded rather than infuriated! She’s helping fund my health care.

Aren’t you sure that the wise folks who passed and are implementing the (Un)Affordable Care Act understand the trade offs involved? They understand that younger folks like Hazel need a little nudge (okay, a shove) to provide for us nice old folks. And they truly understand that now we will get all the health care we need.

Oh, and a good many of us nice old folks forget to say this, thank you, Hazel.

Incentives Matter — Regulation Edition

Apropos of Paul’s January series on needed regulatory reforms (examples here and here), John Stossel’s blog has a nice summary of how counterproductive regulations emerge in political process.

Even when regulators mean well – when they worry about safety or whether customers get basic services – regulations are based on the old, familiar ways of doing things, simply because regulators don’t know anything else. That’s great for old, familiar firms – but bad for the innovative startup that wants to try something different. And bad for consumers who might have benefitted.

The late Mancur Olson explained how privilege-seeking interest groups successfully obtain government favors. His path breaking book may be found online here.

Assuming that government exists to maximize prosperity within its jurisdiction, the problem is how to change the incentives of legislators, bureaucrats and regulators so that they are more resistant to privilege seeking. That is a steep hill to climb. Their human capital is invested in the status quo.

Go here to read my explanation of how government overreach reduces prosperity along New Mexico’s border.