Is the government inefficient? Sunday, Jan 3 2010 

I found this passage somewhere on the Internet, unknown author:

This morning I was awoken by my alarm clock powered by electricity generated by the public power monopoly regulated by the U.S. Department of Energy. I then took a shower in the clean water provided by the municipal water utility. After that, I turned on the TV to one of the FCC-regulated channels to see what the National Weather Service of the National Oceanographic and Atmospheric Administration determined the weather was going to be like using satellites designed, built, and launched by the National Aeronautics and Space Administration. I watched this while eating my breakfast of the U.S. Department of Agriculture-inspected food and taking the drugs which have been determined safe by the Food and Drug Administration.

At the appropriate time as regulated by the U.S. Congress and kept accurate by the National Institute of Standards and Technology and the U.S. Naval Observatory, I get into my National Highway Traffic Safety Administration-approved automobile and set out to work on the roads built and maintained by the local, state, and federal departments of transportation, possibly stopping to purchase additional fuel of quality level determined by the Environmental Protection Agency, using legal tender issued by the Federal Reserve System. On the way out the door, I deposit any mail I have to be sent out via the U.S. Postal Service and drop the kids off at the public school.

After work, I drive my NHTSA car back home on the DOT roads, to a house that has not burned down in my absence because of the state and local building codes and fire marshal’s inspection, and which has not been plundered of all its valuable thanks to the local police department.

I then log on to the Internet, which was developed by the Defense Advanced Research Projects Administration and post on freerepublic.com and FOX News forums about how SOCIALISM in medicine is BAD because government can’t do anything right.

What this passage is getting at is the myriad functions that government serves— sometimes unbeknown to the general public—and it only begins to scratch the surface. It would, I think, be pretty safe to say government is responsible for or at least crucially linked to the development of modern society, not free markets. That’s just a descriptive statement, and I believe the main point of the quoted passage. There are some, like those “on freerepublic.com and FOX News forums,” who bemoan government and its supposed inefficiency, yet take for granted all the things it provides them (like roads and police protection).

The question, really, is an economic one. One issue that arises concerns what are called public goods. In technical terms, a public good is any “good that is non-rivalrous and non-excludable.” All non-rivalrous means is that when one person uses that good another person is not restricted from also using that good (e.g., when I log on to the Internet, this does not preclude you from doing the same). All non-excludable means is that no one wanting access to the good can be reasonably denied access to that good. A decent example might lighthouse beams that provide light to ships, regardless of which ship it might be (that is, it’s difficult to exclude other people from seeing this light). As the Wikipedia article points out, “there may be no such thing as an absolutely non-rivaled and non-excludable good; but economists think that some goods approximate the concept closely enough for the analysis to be economically useful.” (The economic idea of public goods, by the way, was developed by Paul Samuelson, the pioneering Nobel laureate who died just three weeks ago.)

The problem that arises is that public goods are not produced efficiently in “free markets.” They’re under-produced. This causes what is called market failure; the market does not operate efficiently. The reason for this is because you can’t make a profit off of it, or not very much the closer the good approaches the concept of a public good. If a good produces a benefit to society that the creator of the good cannot profit from, there’s little economic incentive to produce such a good. That’s standard neoclassical economic theory, anyway. The idea is tied to what are called externalities. A positive externality is something people benefit from, e.g. clean air, but those who benefit from it don’t necessarily have to pay for it. An example I get from Milton Friedman, the great free-market thinker, is that when I plant a pretty garden in my front yard, other people get to experience the benefit of it without having to pay or do any work for it. Again, these are under-produced in free markets, according to standard theory, because there is not enough economic incentive to produce these things.

Well, one solution has been to have the government produce goods for public use, which is where the entire passage quoted above comes from. The result is that we all get to benefit from government involvement in the market place. I get the ability to tell the precise time because the government has taken the initiative to keep accurate account of time—something theory tells us profit-maximizing corporations would be unwilling to do.

At the same time, however, as the story above illustrated, people still bemoan government and its attempts to provide for the public good. The market is great, it will provide us all the things we need, and it will do so efficiently, they might say. The socialist might respond by pointing out that this is not necessarily true, and point to things like externalities and asymmetric information, which exist nearly everywhere, and conclude the market rarely works efficiently. For this reason, we need the government to provide for the public good, particularly when the unfettered market cannot. The right-winger (if they’re not Austrian) might concede that things like externalities and asymmetric information exist but posit that the government still ought not get involved because that would constitute an abridgment of our freedom, is coercive, evil, etc. The question becomes harder. Indeed, for many the question is not only economic but also ethical. At this point, I think most people begin to ask what the right balance is between market forces and government involvement. The question is left unanswered and, in mind, the answer remains to be seen.

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Funny tidbit Monday, Sep 28 2009 

Here’s a short little tidbit that satires the debate on health care reform (which I’ve written a little on, e.g. here). In it includes Will Farrell and others arguing, sarcastically obviously, for not forgetting about health insurance executives who have been getting such a bad rap:

Behavioral economics, taxes, and health care Sunday, Sep 20 2009 

In my previous post (Keynes vs. the Chicago school of economics), I posted a link to an article written by Paul Krugman regarding the current state of macroeconomics and its salient failures. One thing I pointed out is Krugman’s advocacy for a higher reliance on behavioral economics, which is a branch of economics that “applies scientific research on human and social, cognitive and emotional factors” to economic decisions. Essentially, it’s a combination of economics and psychology.

One thing behavioral economics helps us do is find differences in assumed, theoretical economic behavior and actual economic behavior. For example, in a recent paper by Congdon, Kling, and Mullainathan, the authors write, “Behavioral economists have now accumulated several decades of findings indicating that the standard economic assumptions about individual behavior are not accurate, that people do not act rationally, that they are not perfectly self-interested, and that they hold inconsistent preferences. Moreover, and especially in recent years, policy economists have increasingly come to see that these deviations from the standard assumptions about behavior matter for economic policy.” The authors point out that while such faulty assumptions about human behavior are used in modern economic theory, some justify it on the basis that they are simple and useful for modeling purposes and crafting new theories. However, write the authors, “behavioral economics argues that the standard assumptions are so consistently violated as to be neither literally true nor useful as modeling assumptions.” (Emphasis mine.) What this tentatively suggests is that some of our assumptions about economic decisions are so fundamentally disconnected from reality that they serve no relevant purpose in economic models that use such assumptions. This might also suggest that Krugman is correct that macroeconomics has a long way to go yet (and that perhaps behavioral economics should play an important role in crafting future theories).

This paper specifically deals with behavioral economics as it relates to taxes. On this, the authors declare, “Behavioral economics stresses that individuals are not, in practice, perfectly self-interested.” In fact, “They care about the welfare of others and they care about the fairness of the process that generates outcomes.” And this, I think, relates to some comments I made in a SCSU Scholars post regarding health care reform. The point I try to make is that I think there are some goods and services that we can call essential, that we can reasonably say no person should have to go without (at least in a highly developed, industrialized, and wealthy country such as the United States). For example, I think most people would agree policing, firefighting, and defense under law are all reasonably essential and that people should be entitled to such things even if they cannot afford them. My argument is that health care is something we can reasonably say people deserve to have even if they can’t afford it.

Now, I concede that this might just require taxes in the same way taxes are used to fund police protection, firefighting, and public defenders. Some people may say taxes are a “road that leads to slavery.” I don’t like taxes either, but I won’t go that far; the question isn’t whether there are taxes, per se. What we should ask ourselves instead is, To what end does this taxation go and does it represent what most Americans want? As the authors of the paper point out, people do actually care about the welfare of others and how welfare is achieved. So I think in answering the two questions I asked, and as someone who believes strongly in democratic principles, I think a tax in this case can be justified. For example, poll after poll show the American public favor a public health care system (and by wide margins). And it’s been like that for decades. Of course, if this were a functioning democracy, I think that would be the case by now.

Obama on health care in Minneapolis Sunday, Sep 13 2009 

On Saturday, President Obama came to Minneapolis to give a rally speech on his proposed health care reform. I was going home to St. Paul for the weekend so I thought I would try to go. I was lucky enough to get in and see the president (the first time I’ve seen one in person).

It was being held at the Target Center at 12:30 P.M. and doors opened at about 9:30 A.M., but lining up was allowed as early as 6:30. I’m not sure what time people started lining up to see the President speak because I didn’t get there until about 9:25 A.M., but by then the streets were already packed with lines spanning several blocks. There were, of course, a few protesters, some with interesting signs; there were no large quarrels between the Obama supporters and the detractors, though, and I actually saw some people have civilized debate while I waited in line. There were anti-protesters too, holding signs of their own (“Competition is good. So let the government compete” or “Death panels already exist. They are the insurance companies,” for example), who drew loud cheers from people waiting outside the Target Center.

As I said, I got there at about 9:30 and I didn’t get in until about 10:45, seeing as how everyone had to go through airport-like security. Once inside, I was greeted with even more lines to get into the seats. Anyone familiar with the Target Center knows you pretty much go around in a circle on whatever level you’re on until you get to the section of seats you want to get to. I was told to keep going left until I got to the end of the line, but by the time I reached the end of the line I was already exactly where I began (i.e. the start of the line). Not cool. So I just went in whatever section everyone else was going in. I got decent seats the first time around–facing the President directly–but I was behind the camera stand for the media outlets, so I tried to find better seats. I was got pretty lucky on my second try, and I found seats about 50 yards or so from where Obama was speaking sort of to his right. I could see him fairly well so that was pretty cool. Surprisingly, everything started on time. During the wait, the crowd (about 15,000 people, apparently) did the wave for several minutes (fun to watch) and went through several chants. Not as boring as I thought it would be, as I barely got to read the book I brought for the three hour wait.

So what did President Obama have to say? I took a few notes but not many, so I’ll try to remember (I’m sure the speech is somewhere on YouTube). He started humorously by saying he needed to get to the important things first and mentioned the Gophers game going on later that night in opening their new stadium. They were playing Air Force, so he said he had to be careful what he said because they were flying him back later on. He then made an obvious jab at FOX by saying, “You may have watched So You Think You Can Dance, but I gave a speech to Congress a few days ago…” (Fox decided to air the reality dance show rather than his address to Congress on health care reform.) I thought it was funny (as did the crowd). Obama made the point that while is not the first president to champion health care reform, he is dedicated to be the last.

I’m not exactly being chronological here, but it seems to me his main goals he pointed out were to make it illegal for insurance companies to to deny or cut coverage for people with “pre-existing conditions,” to water down coverage when people get sick or need it the most, or put caps on coverage over a period of time. That’s all well and fine, I think. He said neither government bureaucrats nor insurance company bureaucrats should decide when to cut coverage. He said we should end subsidies to insurance HMOs that don’t improve health care. He pointed to Minnesota as a leader in health care, citing the Mayo Clinic as an example. His dismissed his Republican critics who he said were playing politics and were bickering; he said Social Security and Medicare were criticized as “socialism” too when they were introduced. He then said there should be mandatory screenings for things like breast and colon cancer because it will save money (because it will catch it earlier). That seems dubious, because now you’ve got to screen everyone who doesn’t have the cancer, and that costs a lot of money; but if it increases detection, that’s a good thing. Even more dubiously, he said he won’t pass any bill that adds a dime to the deficit or debt. I’m guessing whatever kind of reform he wants to see is going to cost a lot of money. Surprisingly to me, he mentioned the public option, which he said made sense. He compared it to public universities (like SCSU), saying it increased competition and created affordable and good results without pricing private universities out of the market. He then ended with a personal story about being “fired up” and “ready to go,” and asking Minnesotans if they were fired up and ready to go on reforming health care.

In all, I thought it was a great speech. President Obama is truly a great orator, and this is apparent when you see him speak live. He motivates the audience and he reacts to them too; his speech did not seem obviously canned. There were some things I might have questioned, but I think for the most part he provided some very good points. I think it’s fairly obvious there are things that need to be changed, whether we agree with the President or not. Making something as essential as health care more affordable is, I think, a very important objective that America must meet.

Does Bill Maher have a point? Saturday, Aug 1 2009 

Recently, Bill Maher has written an article for The Huffington Post decrying some aspects of capitalism. Bill Maher is a comedian, movie maker (Religulous), writer, host of HBO’s Real Time with Bill Maher (though he’s probably better known for hosting Politically Incorrect), and a social commentator. Though he describes himself as a libertarian, some people have doubted this and have called him a liberal. I wouldn’t say I agree with everything Maher says, but there are some pertinent things I do agree with him on.

In this recent article, Maher argues, “Not everything in America has to make a profit. It used to be that there were some services and institutions so vital to our nation that they were exempt from market pressures. Some things we just didn’t do for money.” He criticizes war profiteers, the prison-industrial complex, corporate media (which I’ve discussed here), and for-profit health care. Maher asks, “When did the profit motive become the only reason to do anything? When did that become the new patriotism?”

I think Maher may be more or less correct: the only obligation a corporation is supposed to have is to maximize self-interest (i.e. maximize profits). This is the argument that is made by free marketers such as Milton Friedman and is based on the moral theory of ethical egoism. They call this the moral economy, which I’ve criticized a bit on this blog. If the only obligation, moral or otherwise, that a corporation has is it to itself (i.e. shareholder profits), then we’re likely to end up with decidedly immoral business practices (which we hear about on the news on a daily basis). Now, there is nothing that says corporations must operate within this egoist context since they are socially constructed, but absent any change in this model then there is reason to worry about the corporatization of things like war, news, or medicine.

Should some things simply not be done for profit? Should corporations have some obligations to other stakeholders in addition to their shareholders? Are there some moral obligations that individuals and corporations have that take precedence over maximizing profits? These are questions that should be answered if we are to take seriously the issue of corporatism and the corporatization of particular social functions and institutions.

Health care for dummies Wednesday, Jul 29 2009 

With the health care system so convoluted, I’m glad there’s at least one champion out there who can make things simple for us. Enjoy.