Monday, March 27, 2017

A Helpful Reminder: Environmental Regulations Are Regressive

President Donald Trump promised to loosen energy and environmental regulations during his campaign, and he’s already taken some steps to fulfill this pledge.
Earlier this month, Trump announced that he was reviewing the aggressive auto fuel-economy standards put in place by the Obama Administration. Now, Reuters is reporting that Trump will sign a new executive order this week to relax regulations on the fossil fuel industry.
Even without getting into the details, we all know how the political battle lines will be drawn on this issue. Democrats and progressives will be opposed to the regulatory cutbacks while Republicans and conservatives will be pleased. The left will decry the implications for climate change and the right will cheer it as a boon to economic growth.
But what often goes unmentioned in this debate is the distributive impact of environmental regulations. The fact is that most environmental regulations are economically regressive*–that is, they harm the poorest people more than everyone else.
Defining Regressivity
As a quick primer, regressivity and progressivity are concepts that are generally used in the context of taxes. The terms describe how the tax rate changes for people with higher incomes. For this purpose, the tax rate that matters is the effective income tax rate–which is calculated simply as the amount of tax paid over the amount of income earned.
We would say that a tax is regressive in nature if the effective income tax rate decreases as income rises. A tax is progressive in nature if the effective income tax rate increases as income rises. And if the effective tax rate stays the same as income rises and falls, then the tax would be proportional, also known as a “flat tax”.
Based on these definitions, the US federal income tax system is theoretically progressive in nature–it is designed such that richer people pay a higher share of their income than poor people. (In extreme cases, loopholes might flip this result, but this is the intent.)
Meanwhile, a sales tax on groceries would tend to be regressive in nature. Rich people and poor people both spend a somewhat similar amount each month on groceries, they would also pay a similar amount in sales tax. The richer person may pay more tax in absolute terms. But if we divided the tax paid by each person by their respective incomes, we would find that the poor person is paying a greater share of their income than the rich person. Thus, it’s regressive.
While the terms regressive and progressive are most commonly used for taxes, they can be applied to other policies as well. Any policy that harms poor people more than rich people could be appropriately described as regressive.
Why Environmental Regulations Are Regressive
Environmental regulations are often described in very positive terms: energy efficiency, clean energy, fuel-economy, and so on. At least superficially, these ideas seem silly to oppose. Oh, so you’re against efficiency, huh? What’s wrong with you?
The problem is that these terms obscure the underlying costs to consumers. Let’s take the Clean Power Plan (CPP) as an example. And before we get into details, note that the following economic analysis applies regardless of one’s position on climate change.
The CPP required a 32% reduction in US carbon dioxide emissions through 2030, using 2005 as a baseline year. These reductions were to be achieved substantially through carbon dioxide emission limits on existing power plants.
To the Obama Administration’s credit, the CPP did not mandate, in detail, how states were to achieve this goal. Instead, it gave them flexibility to determine how it would be done–a few suggestions included building more renewable energy, building nuclear power plants, or investing in carbon capture technology, commonly branded as “clean coal”.
The common characteristic of each of these options is that they would cost more money than the status quo. Market costs of renewable energy options like solar and wind have come down recently, but they are still more expensive than carbon dioxide-emitting alternatives. Similarly, retrofitting or rebuilding a coal power plant with carbon capture technology is naturally more expensive than using the plant that already exists today.
It follows that, whatever the CPP’s intention, it would have the effect of making energy more expensive than it otherwise would be. In this way, it has the same net effect as a sales tax that only applies to energy. The way the cost increases is different, but the end-consumer is still paying more.
We can also safely assume that energy usage among different people does not vary as widely as income varies. In general, a family earning $200k a year is not going to use 10 times the energy of a family living off $20k per year. Thus, if we adopt a policy that increases everyone’s energy cost, we have a regressive outcome–poor people get harmed more than rich people as a share of their income.
This same basic analysis would hold for fuel-economy standards, energy efficiency, and others. Boiled down, the mechanism is straightforward. Regulations force businesses to invest additional resources to create a compliant product. Since it costs more to produce, part of the cost will be passed on to the consumer in the form of prices that are higher than they would be otherwise. And since environmental regulations tend to affect the prices of basic necessities where rich and poor alike spend a somewhat fixed amount, the price increase is more impactful to the poor people. So by themselves, environmental regulations are generally regressive.
For conservatives and libertarians, the fact that environmental regulations tend to be regressive is just one more reason to keep them at a bare minimum (and getting rid of many that are on the books today).
But for progressives, it is a more complicated picture. The fact that environmental regulations happen to be regressive does not automatically mean progressives would oppose them. There are high-profile cases, such as Philadelphia’s recent soda tax, where left-leaning politicians adopted a plainly regressive tax in pursuit of ostensibly more important goals–funding pre-K education and improving health. For many progressives, climate change might warrant a similar treatment–perhaps poor people will have to bear a lower standard of living in order to cap emissions?
Wherever you come down on that, the key is to recognize that trade-offs do exist. Environmental regulation is a case where two progressive priorities will often come into direct conflict: helping poor people live a better life right now or protecting the environment from climate change in the long run.
As the debate and bipartisan grandstanding around environmental regulation heats up, it’s worth keeping the underlying economics in mind.
*If the environmental regulation in question amounts to the enforcement of basic property rights, this regressive outcome would not hold. For instance, a law that prevents other people people from dumping waste on your property without your consent could possibly be viewed as an environmental regulation, but it would not have the same economic implications explained here.

Friday, March 24, 2017

GOP Chair of House Intel Committee Shocked to Learn What the NSA Does

Earlier this week, GOP Congressman Devin Nunes poured new gasoline on the Trump Wiretap saga when he told the press that Donald Trump and his associates were subjected to “incidental” surveillance by the US government during the transition period.
In reality, it’s virtually certain that some of Trump’s and his team’s communications, just like communications from other Americans, were swept by the US intelligence agencies. This is basically the official US policy–as plainly reported in such obscure, fringe media outlets as The Washington Post and The Guardian in the UK. In the words of The Washington Post, the goal of the National Security Agency (NSA) is to ‘Collect it all‘–that is, all of the communications of Americans and foreigners alike.
Now, they probably–thankfully–do not succeed in this goal, and there appear to be some minor residual legal constraints that still limit what they can collect on US citizens. My understanding is that they can’t intentionally collect communications that are strictly between American citizens within the US. But if those communications ever pass outside of the country–as Internet traffic is likely to do routinely–then it would be subject to collection. Thus, as a practical matter, the NSA has the ability and the goal of sweeping up a substantial portion of the communications made by even regular Americans.
Trump and his team would be no exception to this general practice, so it should not be surprising that their communications would also be picked up. That is the default.
This has been publicly reported in very established sources ever since the summer of 2013, when whistleblower Edward Snowden released documents that illustrated this fact.
And yet, to Rep. Nunes–who is the Chair of House Permanent Select Committee on Intelligence (!)–this appears to be a major discovery.
As absurd as this sounds, I’m convinced he really didn’t understand how this works until now–and perhaps he still doesn’t. Because if he did know how this worked, then he (and other Republicans) could have used this explanation to substantiate / justify the Trump Wiretap story from the beginning. It’s not technically a wiretap, perhaps, but it’s consistent with how that phrase is used informally. (And President Trump is not known for his careful or precise use of language.)
While substantiating the ‘wiretap’ story would have been useless in terms of any particular policy goal, it would have been useful politically by quickly dominating headlines with an argument that bolstered the president. The fact that Nunes and others didn’t use this argument earlier would seem to suggest they hadn’t thought of it.
Thus, we are drawn to a preposterous but delightful possibility–that the GOP Chair of the House intelligence committee, after being a reliable apologist for the NSA for some time, just now figured out what it is the NSA actually does. And he was shocked that it might be turned against his team, even though it’s been turned against regular Americans for years.

Thursday, March 23, 2017

Trumpcare: Bad Policy, Even Worse Politics

The Obamacare replacement plan offered by President Trump and Paul Ryan is scheduled for a vote in the House today. Even though the Republicans have a significant majority in the House, the vote is expected to be a close call as several GOP Members have opposed the legislation.
Indeed, this gets at perhaps the most impressive aspect of the Trumpcare proposal: that it manages to disappoint on almost every criteria imaginable. It’s bad policy and bad politics at the same time. Failures of this magnitude don’t just happen; it takes planning and hard work. And for that, House Speaker Paul Ryan deserves a lot of credit. Not praise mind you, just credit (or blame, if you prefer).
I digress.
In honor of today’s vote, it’s worth quickly highlighting some of its worst aspects.
Bad Policy
The Affordable Care Act is a fundamentally unsustainable program. The reason for this is that it requires–and expects–insurance companies to behave in a way that they can’t possibly behave. It destroys insurance in the name of saving it.
This is achieved through three interlocking components of the plan:
  • Price controls: Insurance companies are effectively prohibited from pricing their insurance according to the risk of the applicant.
  • Essential health benefits: The government mandates (and sets a fairly high bar) for what types of treatments and services must be covered by insurance plans
  • Guaranteed issue: People with expensive medical conditions cannot be denied coverage.
The way these provisions work together is best illustrated by imagining what happens when someone with an expensive medical condition seeks insurance. For our purposes, suppose it’s a person with diabetes.
  • Price controls: The insurance company knows it will cost more money to cover a diabetic than the average applicant, but they can’t charge them different premiums.
  • Essential health benefits: The insurance package provided must provide coverage for things diabetics need.
  • Guaranteed issue: The insurance company cannot deny coverage to the applicant because they are diabetic.
The way the ACA hopes / assumes insurance companies will respond in this scenario is by raising prices for everyone. This would then result in the relatively healthy subsidizing the relatively sick–which, to be fair, is what health insurance is designed to do. Even better yet, since the ACA required healthy people to get coverage (the individual mandate), perhaps insurance companies would have enough healthy people joining that they wouldn’t have to raise premiums at all.
Like I said, in theory, that’s how the ACA was supposed to work. However, one of the things many people do not realize is that insurance companies also have a second option. Instead of raising premiums so they can afford to cover the diabetic patient in our example, they could also just find subtle ways to discourage diabetic patients from joining their plan. That is, if they offer uniquely bad healthcare options to diabetic patients–while still nominally complying with the essential health benefits part of the ACA–then fewer diabetic patients will join and the insurance companies will make more money (or lose less money).
In practice, health insurance companies have been choosing both options. They raised premiums and they embarked on what has been aptly termed the “race to the bottom” in coverage for expensive conditions. The result is a lose-lose situation for consumers and the damage will continue to worsen over time. Premiums will keep rising and the quality of care provided–especially for unique or expensive conditions–will continue to deteriorate.
Yes, it’s easy to vilify health insurance companies for engaging in these practices. But they are following the incentives that were created by the ACA policy. And good policy can’t rely on individuals and for-profit companies ignoring the incentives placed in front of them.
Of course, it should go without saying that we want a system where diabetics and healthy people alike have access to quality healthcare. The point is that the ACA is not that system. In the not-so-long run, it succeeds in sabotaging everyone–people that are healthy, people with severe conditions, and the insurance companies themselves.
Why do I raise these features of the Affordable Care Act in an article about Trumpcare? Because Trumpcare keeps all of them, with minimal modifications. The same core features that doomed the ACA to crescendo into chaos are preserved in Trumpcare. And that’s why Trumpcare, at least as currently written, is destined to arrive at the same unpleasant end.
Worse Politics
All of which is why the politics surrounding Trumpcare are so confusing. It is not a radical reform and there’s no reason to believe it would change the trajectory of the ACA and the US healthcare system. In all probability, premiums would continue rise and the incentivized race to the bottom in the coverage would proceed in earnest, even after Trumpcare.
Politically, these would be clearly toxic outcomes for the Republicans. They have invested a significant amount of political capital into disparaging Obamacare, and rightly so. But if the system they devise as a replacement then produces the same outcomes, it seems certain they would lose whatever credibility they have left at this point.
There are many policy areas where the politicians that support bad policies will suffer no political repercussions for the harm caused. These are areas where the relationship between cause and effect is sufficiently complicated or indirect that the average won’t really understand why the negative outcome occurred. Indeed, in many cases, supporting bad policies is actually an excellent strategy politically.
But healthcare is not one of those cases. It has too high of a profile at this point for failure to go unnoticed. Additionally, the failure is readily identifiable by regular voters in the form of higher premiums, fewer choices, etc. So if TrumpCare passes and then subsequently fails, there will be little doubt who’s responsible.
Incredibly, Trump told the Republican opponents of the bill that would suffer politically if they don’t pass this bill, “I honestly think that many of you will lose your seats in 2018 if you don’t get this done.” He has it exactly and obviously wrong.
Ultimately, we should hope that the more libertarian-leaning Members of the House will be able to kill this bill today. There’s only going to be one good chance at reforming or eliminating the ACA. If Republicans get it wrong–as this bill clearly does–the US will be well on its way to getting a single-payer system a few years down the road.

Monday, March 20, 2017

Help That Hurts: The Case of US Food Aid

President Trump’s discretionary budget proposal includes a $182 million cut to the McGovern-Dole Food for Education program, eliminating the program entirely. Whatever else one thinks of Trump’s budget, this is a good idea.
It will save taxpayers a small amount of money, which is nice. But far more importantly, canceling the program will also likely help the former recipients.
This may sound like a surprising claim. How could eliminating aid be a good thing for the people that get the aid? It’s a reasonable question with a complicated answer. Let’s go through it.
Free Stuff Is Good
At the risk of stating the obvious, free stuff is good. It’s true for individuals and it’s true for countries as well.
Suppose some government decides to give me a loaf of bread out of the kindness of their bureaucracy. Assuming I’m not allergic to wheat or on a strict paleo diet, I’m better off as a result. Some of the money I was going to spend on bread or food is now available to be saved or spent on something else I want. That is, as a result of the aid, I reallocate my resources to their next best use once my bread needs are taken care of.
The same general process would take place with countries as well.
Suppose the country of Laos receives $50 million of rice from the benevolent US government. Assuming the people of Laos are willing to eat rice, this makes them better off. Approximately $50 million that the population would have spent on rice is now freed up for other purposes–savings, investment, consuming other goods, etc.
That said, this story is undeniably bad news for the rice farmers of Laos. They can’t compete with free, so their business is harmed by the aid. The amount of the harm depends on the size of the shipment. If the injection of aid is small compared to the size of the market, the effect will be to simply lower prices and profits somewhat. If the injection of aid is a substantial portion of the market, the farmers might have to sell the crop at a significant loss or even let the crops perish.
This harm could be mitigated if the farmers had easy access to global export markets, the price on which would be largely unchanged by the aid shipment. But since aid is primarily given to very poor, developing countries–and a common characteristic of such countries is that do not have sufficient access to the global markets–this channel will probably offer limited relief.
Should Government Protect the Farmers?
The plight of the rice farmers described above is not entirely unique to foreign aid. Aid is an extreme case because they are forced to compete against free goods of comparable quality. But a similar result occurs anytime an industry or business starts competing against a competitor who can provide  a comparable product for less money (or a better product for the same money).
This superior competition could emerge due to many different factors, from the liberalization of trade policy to the introduction of new technologies. For example, the invention of the automobile and its subsequent mass production put the horse-drawn carriage industry largely out of business. No doubt, this was an unpleasant development for the carriage-drivers and, at least in the short-run, reduced their standard of living. Meanwhile, the advent of the affordable automobile meant a massive increase in the average standard of living for society at large.
The net result of the automobile, at least as described so far, appears the same as what occurred with the foreign aid to Laos. A small number of producers and workers lose (carriage-drivers and rice farmers, respectively), but the full population of consumers benefits.
If we were to apply a utilitarian analysis to either situation, we would find that that the net benefit to consumers outweighed the losses. Additionally, there is no inherent right to have paying customers. Thus, the fact that some of those customers might freely choose an alternative, however unfortunate for the businesses and workers involved, does not constitute a violation of anyone’s rights.
Given these facts, both a utilitarian and rights-based analysis would recommend the same general economic policy response–basically nothing. That is, don’t inhibit competition and don’t protect industries that can no longer compete.
The people in those old industries will have to find a new line of work since there is less demand for their old work. Seen from a 30,000-foot view, we would observe the productive resources of the country being reallocated from the previous industry (horse-drawn transportation or rice farming) to other industries that are in higher demand. The end result is that the society produces more than it did before and average standards of living rise. Once the adjustment period occurs, everyone is better off.
What I’ve described above is a textbook story of how competition works in the economy and the ideal political response to dislocated industries. This story can also fit with the common sense insight that free stuff is good.
Until now, we’ve assumed that introducing foreign aid has basically the same effect as introducing a really efficient competitor in the market. Unfortunately, this assumption does not hold up in practice. And this is where a major harm of foreign aid kicks in.
Aid Isn’t Like The Automobile
In our automobile example, it went without saying that the supply of automobiles in the future would be reliable and predictable. Of course it would be. Ford, oil companies, mechanics, and others stood to make a fortune by facilitating the rise and widespread adoption of the automobile. So there was little doubt that cars would be produced and that businesses would spring up to serve car owners. The possibility of profits ensured it.
Accordingly, there was little harm from moving away from horse-drawn transportation. A better alternative existed and it was going to be around for years to come.
These same beneficial conditions do not apply to foreign aid, however. Instead of being driven by predictable, and enduring self-interests, distribution of foreign aid is dictated by arbitrary political decisions. What is granted one year may not be available the next–or it may be twice as large.
Bringing it back to our rice farms in Laos, let’s suppose there’s an aid shipment $50 million worth of rice in the first year. If a similarly-sized aid shipment were going to continue into perpetuity, we would have no issues. The effects on the market would be similar to that of the automobile–some rice farmers would necessarily transition to other lines of work and the whole society would have more production and higher standards of living.
However, let’s consider the more likely case that the aid shipments are not consistent. Suppose the aid to Laos is $50 million in rice in the first year as before. But then suppose it gets cut off after that–perhaps because the aid gets sent to a different country instead. What would be the effect now?
Well, in that first year, $50 million in aid is still likely to wreak a bit of havoc on the rice farmers. Prices will drop significantly as the market gets flooded with free rice, and the local farmers suffer a heavy loss. Further, given that they live in a poor, developing country, many of these farmers probably do not have significant savings. So, we would expect these losses to bankrupt some of them. And upon going bankrupt, the former farmers would have to find another line of work. Thus, the number of rice farmers in the country decreases and the country’s overall capacity to produce rice is reduced.
The next year comes and the rice aid gets diverted. Now, since there are fewer rice farmers than before in Laos, the country finds itself with a shortage of rice and prices spike up. While the consumers struggle with unexpectedly high prices, the remaining farmers actually have a great year this time. Indeed, their profits are so high that more Laotians may be enticed to get back into rice farming.
The problem here is that these adjustments are not costless and they are not instantaneous. It’s great that the price system will encourage more people to start farming again and thus lower prices next year. But they will need to invest in new equipment, buy the land, develop their skills at farming, etc. All of that takes time and resources–time and resources which had already been invested by the rice farmers that got put out of business last year. This is not a positive outcome.
Moreover, the uncertainty introduced by the possibility of aid in the future creates problems as well. Will people be willing to jump back into the rice industry knowing that benevolent US aid might return to crush their business a few years hence? Maybe, maybe not. Either way, the likely end result is that the aided country has a less robust and reliable agricultural sector than they would have had in the absence of aid. And perversely, this occurs even though a typical stated goal of this aid is to increase food security.
Back To McGovern-Dole
Above, we have told a general economics story of why granting food aid can actually do more harm than good. And we have been careful to stress that the problem is not really the aid itself, but the unpredictability that often comes with it.
To assess whether the McGovern-Dole Food for Education program targeted in Trump’s budget might bring these same problems, we have to look at its consistency over time. The results are not encouraging.
From the US Department of Agriculture website, here are the grant allocations in the twomost recent years:
Aside from the slightly annoying change of denominations, what stands out in the above charts is that, remarkably, none of the recipient countries overlap.
Now, the actual implementation of the program probably isn’t quite this sporadic. This resource on the program notes that the aid agreements often span multiple years, and the USDA website indicates that some current McGovern-Dole grants from as far back as 2011 are still active. That said, the programs still do end. And when they do, they will leave the recipient countries with a hole in their agricultural market that cannot be immediately or costlessly replenished and that didn’t have to exist in the first place.
Foreign food aid is one of the many areas where good intentions often do not produce good outcomes. Even assuming no malice or corruption on the part of any of the actors involved, foreign food aid is still likely to serve as a destructive force by unpredictably disrupting developing economies. This is not the purpose, but it is one of the consequences
Notably, this harm won’t occur in all cases. As we have seen, the harm occurs when aid inconsistently disrupts the normal economic system in these developing countries. If this system has already been significantly disrupted–say, due to a major natural disaster, the outbreak of war, etc.–then emergency food aid could provide value without instigating distortions. Similarly, if aid was given in the form of a product that had no domestic supplier (perhaps AIDS medications, for example), this would also avoid the disruptive effects outlined above.
However, in the more common case of food aid being provided during normal times, real economic harm can be done. Uncertainty is introduced and fleeting distortions make the recipient economy less efficient and stable than it would be otherwise.
As with medicine, a good rule of thumb for economic policy is “First, do no harm.” Unfortunately, many foreign food aid programs, like McGovern-Dole, don’t appear to meet this standard. They should be opposed accordingly–for the sake of the US taxpayer and for the sake of the countless would-be victims in developing countries.
Note: For more discussion of the unintended consequences of foreign aid (as well as aid from non-governmental organizations), I’d highly recommend this EconTalk interview between economist Russ Roberts and Michael Matheson Miller, the creator of an excellent documentary on this topic called Poverty, Inc. The discussion is very interesting and does an excellent job of explaining the relevant economic forces at work in this area.

Monday, March 13, 2017

Why Almost Everything Matters More Than the Russia Allegations

We are nearly two months into the Trump Administration, and allegations about Russia are still dominating the headlines. Unless you happen to be a fan of Trump’s agenda, this is a problem.
In fact, nearly everything about the Trump Administration warrants more concern and attention than the Russia scandal. There are a couple key reasons for this. Let’s go through them.
Still Unproven
First off, it’s not actually proven that the Russian government was responsible for leaking the DNC or Podesta emails. The US government has asserted that Russia was behind these breaches, but the publicly released evidence has failed to substantiate this. This reality was even acknowledged, if quietly, by The New York Times in its own coverage of the recent 25-page assessment released in early January 2017, saying “the declassified report contained no information about how the agencies had collected their data or had come to their conclusions.”
This doesn’t necessarily mean that Russia wasn’t involved. It simply means it hasn’t been proven, and there is still plenty of room for reasonable doubt.
The same thing can be said for the claims about the Trump Administration’s ties to Russia. There have been many assertions, but little in the way of substantive evidence.
For the present discussion, it doesn’t matter whether one believes these various allegations are true or not. But, politically, it matters immensely that they have not been proven.
This is because the main political end to be achieved by promoting the Russia allegations is the eventual impeachment of President Trump.
It should be easy to see why Trump’s opponents would desire this outcome. But it should be equally clear that the Russia story cannot possibly provide the ammunition needed as long as the underlying accusations remain unproven. Republicans hold a substantial majority in the House. They are going to need something concrete to cross a president who remains popular with many of their voters.
Unless and until that proof is offered, each new Russia headline accomplishes very little for Trump’s opponents.
Motive Matters Less Than You Think
The allegation that Russia hacked the Democrats is obviously a major issue on its own terms. If true, it would mark a further deterioration in the US-Russia relationship and the US response would likely bring the two nations to the brink of war, or worse.
But recently, most of the Russian stories have shifted focus from hacking to the alleged ties between Trump Administration officials and Russia. The purpose of these stories is to suggest that the Trump Administration has been secretly in league with the Russians all along, and show that Trump really is “Putin’s puppet,” just like Secretary Clinton said.
In other words, these stories are ultimately about motive. They are implying that Trump will put Russia’s interest ahead of America’s.
For the sake of argument, let’s suppose that President Trump really is trying to implement policies to fulfill Russia’s interests. Even if we assume this to be true, we still have to judge the policies on their own merits.
Imagine that Trump’s Russia affinity will lead him to negotiate further reductions of the US and Russian nuclear weapons arsenals. This is in Russia’s interest because they lack the ability and desire to engage in an arms race with a much wealthier adversary in the US. However, it also happens to be in America’s (and humanity’s) interest. Even if Trump embarked on such a policy solely to please Vladimir Putin, it would still be worth supporting.
Conversely, suppose that Trump wants to outright ally with Russia to conduct a joint invasion and occupation of Iraq and Syria and crush the remaining insurgencies. Russia might consider this to be in their interest since they have already been heavily involved fighting the radical-dominated insurgency in Syria. However, it would clearly not be in the US’s interest. Occupation has been part of our strategy for much of the 15-year-long War on Terror. It ends a lot of lives, but it doesn’t end terrorism. Such a policy should be opposed. And importantly, it should be opposed regardless of the motive behind it–whether it’s serving Putin or fighting evil or raising domestic approval ratings by escalating a war.
In both of the above cases, the motive is irrelevant. You might have a different opinion on each of the policies described. You might also want to hear more pros and cons about why each is a good or bad idea. But you don’t need to know the underlying motive in order to take a position.
It’s actually a relief that motive does not matter. Because in the real world, it’s very difficult to know what a politician’s motivation actually is. You’ll know what their stated motivation is, but of course, politicians are not well-known for honesty. Moreover, sometimes politicians might have genuinely good intentions and support harmful legislation out of ignorance. All these reasons make motive useless for judging individual policies.
Motive is only helpful for predicting a politician’s future decisions. In the present, it tells us virtually nothing at all about the policies being proposed and implemented.
In this light, Trump’s alleged loyalty to Russia is irrelevant. When Trump does propose policies relevant to Russia, they will have to be judged on their own merits. The motivation behind them will not matter. Similarly, if Trump has his attention focused on other issues besides Russia, his alleged loyalties still do not matter.
Squandering Outrage
All of which brings us to the real problem. There is a finite amount of attention and outrage that Americans have to spend on political controversies. Time and concern allocated to Russia is time not allocated to the other troubling things on Trump’s agenda.
The result is that the Russia stories, in many respects, actually serve as a useful distraction for the Trump Administration.
Take the recent controversy over Attorney General Jeff Sessions as an example. The main allegation against Sessions is that he met with a Russian Ambassador (in his capacity as a Senator) but failed to inform the Senate about it during his confirmation hearings. The controversy largely comes down to a matter of semantics–Sessions was asked a narrow question and gave a narrow response. It could be argued that he should have volunteered more information, but it is definitely not a slam dunk case.
So that’s the Russia angle on Sessions. But meanwhile, Sessions also has many more unsavory features, such as his hard-line position against marijuana. Recently, the White House announced that it may start enforcing marijuana prohibition even in states that have legalized it. This would be a very harmful policy–and one that is ripe for opposition from many different groups.
But instead of focusing on this real and terrible policy suggestion of the Trump Administration, the focus goes to Russia. As journalist Michael Tracey correctly observes, the result is that a “Trump official’s least egregious quality ends up being portrayed as his most egregious quality.” (Emphasis in original.)
So far, this pattern has played out for Michael Flynn and Jeff Sessions. In a broader sense, it’s also mostly true about the Trump Administration. Many legitimately worrying policy ideas from escalating drone strikes to sending more troops to Syria, all get downplayed because Russia takes priority.
This works out reasonably well for Trump. He can easily anticipate most of the criticism he’ll receive, and he has a mostly free hand to do what he wants so long as it doesn’t relate to Russia.
But for the rest of us, who would prefer to see much of Trump’s agenda stopped dead in its tracks, this is a bad outcome.
There are many compelling reasons to be concerned about President Trump. We need to prioritize.
Currently, Russia allegations are still dominating the news. But focusing on unproven accusations of Russian involvement serves no useful purpose. It’s not going to convince a Republican Congress to impeach their own president. And it’s not even relevant to assessing the policies Trump proposes.
It just serves as a distraction.
Instead of concentrating on what harm Trump might cause in the future as “Putin’s puppet,” let’s focus on the harm he’s already causing as America’s president.

Monday, March 6, 2017

Why Education Is Not a Public Good

Today, government provides many goods and services that used to be addressed by private means. Public education is one of the most salient examples.
Government stepped into education with the best of intentions. Yet it goes without saying that many people remain dissatisfied with the current outcome. Polls have shown a steady decline of confidence in public schools over time, and it is frequently one of the key issues in US politics. Because the government has been involved for so long, people naturally look to government for the solution.
If you suggest that the private sector could offer a better remedy, you will quickly encounter all sorts of conventional reasons why the market is ill-suited to the task. You might hear that the market is only good at producing a commodity and cannot provide the customization needed in education. Or perhaps you will hear that the market is incapable of providing the level of quality required. Moreover, since there’s no profit to be made in serving the poor, the market won’t work for them. And so on.
These types of objections have two important characteristics in common. First, they all sound like plausible economic arguments for government to intervene. And second, they have nothing to do with economics.
In economics, the question of government intervention is much more narrow. It does not matter whether the product involved is a good or a service, whether it is standardized or customized, or whether it is essential or frivolous. The main thing that matters is whether the good or service involved is a “public good”. If it is a public good, government intervention of some form may be necessary. If it’s not a public good, we would expect the private market to work just fine.
So the question then becomes, what is a public good?
Public goods are defined by two characteristics: they are nonrival and nonexcludable.
Nonrival means that my enjoyment of something does not interfere with your enjoyment of that thing. For example, clean air would be nonrival in consumption. You and I could both live in a city with clean air and enjoy the benefits of breathing clean air at the same time. By contrast, almond milk would be rival in consumption. If you drink a glass of almond milk, I cannot drink that same glass of almond milk.
Nonexcludable means it is difficult or impossible to exclude people from enjoying a given benefit. For most things, it is easy to exclude people. If you don’t pay for an orange at the grocery store, you don’t get to eat the orange. But if it were, say, a fireworks show, it would be hard to exclude people from enjoying it. If they looked up at the sky without paying, then we’d have what’s referred to as “the free-rider problem”.
These criteria explain why national defense is considered a public good. To see why, it’s helpful to set any foreign policy objections aside and keep things theoretical here.
If the military exists and makes us safe from external aggression, we would all benefit from this security. One person benefiting from security doesn’t reduce the security enjoyed by others; thus, it is nonrival. And since everyone in the borders would get the benefit by default, it’s also nonexcludable with respect to everyone that lives here. Thus, national defense is a classic public good. Provided they aren’t anarchists, most economists would say government has some role to play in providing a military and national defense. The nonrival and nonexcludable nature of national defense would make it more difficult for a private market solution to work.
However, when we try to apply these same public goods criteria to education, we arrive at a different answer. Education is rival in consumption–because one can only have so many students in a classroom before the learning experience deteriorates. Education is also excludable; people that don’t pay could be blocked from attending class, getting their transcripts, etc. until they do pay.
From the above, we would not consider education to be a public good. And thus, we would generally assume the market would be able to provide this service effectively.
The way people get around this conclusion is by claiming that we all benefit from living in an educated society. And since this benefit is both nonrival and nonexcludable, suddenly, education becomes a public good. Government should do it after all!
This kind of argument may sound plausible at first. But we should be skeptical because it can be applied to almost anything. For example:
“We all benefit from living in a society with fast computers.”
“We all benefit from living in a society that has diverse, quality music.”
Both of the above may be true, but it does not follow that I want the government engaged in producing laptops or EDM.
So it is with education. Education is ultimately a private good, and the private sector, for-profit and not-, is likely to excel at providing it.