Simple but hard

What governments should and should not do is an old question. Adam Smith had his say.  "Little else is requisite to carry a state to the highest degree of opulence from the lowest barbarism but peace, easy taxes, and a tolerable administration of justice: all the rest being brought about by the natural course of things."  But this is hard because of the great urge by officials to be expansive -- and to get re-elected.

What about cities?  Keep the streets safe, pick up the trash, remove the snow, patch the pavement, etc. Get the basics right. Do few things but do them well.  But here again, the impulse is to do too many things -- and end up doing them badly.  In the interests of "economic development," we gets sports stadia and and a thousand other such projects that feed the local corporatism.

Ray Avent is astute about these questions. He discusses modern American cities and ends this way:  "And so one thing society might want to discuss is whether leaving land-use decisions mostly in the hands of a metropolitan area's local, rich elite is likely to produce the best outcomes or is maybe just a recipe for inefficiency and rent-seeking on a jaw-dropping scale."  It's a simple idea but seemingly very hard to execute

Little else is requisite to carry a state to the highest degree of opulence from the lowest barbarism but peace, easy taxes, and a tolerable administration of justice: all the rest being brought about by the natural course of things.
Read more at http://www.brainyquote.com/quotes/quotes/a/adamsmith408719.html#Tii8xh7HKzXqz1i8.99

Little else is requisite to carry a state to the highest degree of opulence from the lowest barbarism but peace, easy taxes, and a tolerable administration of justice: all the rest being brought about by the natural course of things.
Read more at http://www.brainyquote.com/quotes/quotes/a/adamsmith408719.html#Tii8xh7HKzXqz1i8.99

Exotic and/or sinister

What can economists contribute to public policy discussions?  Job #1 would be to introduce markets and/or pricing where there isn't any.  Greg Mankiw's "Pigou Club" advances the idea but it has been around for a long time (at least since Pigou).  Countless papers and books argue for the pricing of road access, parking spaces, airport landing slots and any other facility where rationing by price is feasible.  If price does not ration something else will. The alternatives, crowding and congestion spring to mind, are usually frowned on. Teachers and textbook authors usually present the basic story with slam-dunk logic and finality.

If you do not like pricing administered this way, consider allowing markets where there aren't any and let them find a price.  Cap-and-trade have practically made it into mainstream discussions.

But it is not that simple.  look at portions of this op-ed from this morning's WSJ:

You know an agency has gone off the rails when its rules make the Ninth Circuit Court of Appeals look like a beacon of sanity. So it goes at the Department of Health and Human Services, where a proposed rule-making is seeking to override the court's decision to allow bone-marrow donors to be compensated for their donations.In 1984, Congress passed the National Organ Transplant Act banning the purchase or sale of organs like livers and lungs for transplants. The intention was to prevent the exploitation of poor donors or self-mutilation for profit (think drug addicts). Swept up in the ban was bone marrow, which produces blood cells and is critical to the immune system.Organs are unique and specialized groups of cells, but bone marrow is a connective tissue that regenerates naturally in a healthy body. In 1984 the typical bone marrow transplant was relatively complicated. Today, you can donate bone marrow through an outpatient procedure called apheresis. A donor receives a series of shots and then is hooked up to a machine that draws blood and collects marrow cells, much like blood donation.

The default non-price rationing here is death.  Many sick people die waiting for a donor.  Altruism is not enough (unfortunately) and introducing (permitting) markets will save lives.  

Here is the rest of the story:

In 2009, the Institute for Justice sued on behalf of Maine resident Doreen Flynn, whose three children have a disease called Fanconi anemia and will most likely need bone marrow transplants to survive. In 2012's Flynn v. Holder, the Ninth Circuit agreed, noting that new technology and the ease of marrow donation put the ban wholly out of step with the purpose of the organ donation law.The Justice Department petitioned for rehearing en banc, insisting that marrow transplants should "not be subject to market forces." When the Ninth Circuit declined to rehear the case, the Administration mobilized HHS, which has proposed a rule that would overturn the Ninth Circuit and define marrow extracted from the bloodstream as an organ. The purpose, says the rule, is to "ban the commodification" of bone marrow used in transplants, "encourage altruistic donations, and decrease the likelihood of disease transmission resulting from paid donations."

Market forces are viewed as exotic and/or sinister in some quarters. "Commodification" is how we get our food.  In fact, absent food "commodification", people starve.  That's been the case in all too many places where "food policy" has banned or discouraged markets.

In the bone marrow case, given the chance to let market forces save lives, the administration intervenes to try and stop them.

"Havoc"?

Would you give up internet use for life for a million dollars? It only costs you pennies a day. It's a great question and Michael Cox's way of illustrating what economists call consumer surplus, the difference between price and how much the item is valued.

We also know that consumer surplus is not in GDP.  And we know that accountants measure what they can.

But people take their economic stats very seriously.  Data releases move markets almost daily.  No doubt the people laboring at the various statistical agencies are smart and hard working, but they have a difficult task -- one that is becoming harder all the time.

So official GDP reports must be taken with at least a grain of salt. And GDP is likely to become a more difficult concept as we get ever more satisfaction from "free" stuff.  These simple observations are a challenge to the increasingly popular stagnation narratives.

This is nicely summarized in the latest James Surowiecki column in the New Yorker (Gross Domestic Freebie.) He adds that these new-economy effects are unevenly spread. What is not? He also mentions "havoc" but that too is inherent in a dynamic economy.  Who really wants to go back to "the good old days?"  Almost no one who is seriously informed.  I usually have two words for anyone who pines this way: "medical science."

ADDED

Same theme but more vivid.

Cosmos and Taxis

David Andersson introduces us to a new journal, Cosmos and Taxis.  The lead essay in the linked issue is by Gus diZerega and lays some of the groundwork, introducing readers to the various themes to be developed.  These include spontaneous orders and spontaneous networks.  The latter includes Jane Jacobs' insights into how cities work: "At a time when many believed cities could be planned and reorganized through directives chosen by experts ... Jacobs argues that cities are too complex to respond predictably to such planning ..."  Read the whole thing.

Johanna Palmberg elaborates the story in another essay. Note that she elaborates the urban agglomeration theme of the spontaneous co-location of complementary firms (as they judge the complementarity and as they see fit).  I have previously stressed the co-location of households and firms -- as workers and their employers behave strategically and also as retailers and shoppers do the same.  Households produce and consume knowledge and can be treated as "firms" in this context.

Questions not asked

David Theroux sends us to this bizarre Obamacare interview with Nancy Pelosi.  Nevertheless, many writers are trying to be charitable. Here is Gerald Seib, who writes that the ACA we got is the most plausible left-right health care compromise in light of current U.S. politics. The resulting complexity of the compromise is the Achilles heel. Here is Arnold Kling also being charitable.

But it's hard to blot out the Pelosi performance; she has long been one of the ACA's most passionate sponsors and defenders. Note how many times she defends herself by touting the ACA's feature that pre-existing conditions are not grounds for insurers' screening or rejection.

But that's not insurance. I could, for example, have the pre-existing condition of multiple DUI convictions and I expect that this would impact an auto insurer's decision of whether or not to offer me a policy. ACA defenders go repeatedly unchallenged (as in the Pelosi interview) when they tout this great reform feature.

The argument for "reform" and  ACA-type legislation often hinges on the poor U.S. showing ("U.S. Ranks Below 16 Other Rich Countries In Health Report") when health care spending is compared to longevity and other health outcomes.  But the health (and unhealthy) habits of many Americans are not addressed by these approaches.  

"Many people might be surprised to learn, for instance, that for more than half the males who die before age 50, the cause of death has nothing to do with disease — and is therefore not amenable to reduction through medical care."

In all of today's health care discussions, most do even mention this elephant in the room.

Most Americans have their health care paid by third parties (private as well as public insurance).  This explains high levels of demand and treatment and also high prices (and costs). But this links to a bigger problem.  In his very readable and informed discussion, Angus Deaton (The Great Escape, p 146-7) points out that most people do not see that the current arrangement lowers their wages; they do not blame slow growth in take-home pay on how they buy health insurance.

One cannot even imagine an interviewer pitching these questions at the Pelosi we see on the video.

Where we are

Media and others have coined the term Abenomics to describe the economic policies of Japanese PM Shinzo Abe.  There are seemingly three prongs:  more fiscal stimulus, more monetary stimulus and "reform".  We hear of late that the third one has stalled.

But this is true almost everywhere.  It is easiest for politicians to turn on the fiscal and the monetary stimulus -- and less easy to somehow turn them off.  "Austerity" is widely disparaged.  Reform means taking on the special interests and that's much harder than spending money.

I mention all this because Kevin Warsh does a fine job of summarizing U.S. policy challenges in his "Finding Out Where Janet Yellen Stands."

I had previously posted some reactions to Edmund Phelps' fine new book, Mass Flourishing. But now, listening to Phelps discuss it with Russ Roberts at econtalk, I get the impression that he is more pessimistic than I had thought when I read the book. Phelps worries about a decline in U.S. productivity growth and is seemingly perplexed about where we go from here.

If we adopt the shorthand of three possible policy prongs, it seems clear that politicians rely on the ones that are easy (spend more money, print more money) but these have almost nothing to do with the problems that they are addressing.  Structural problems are bigger.  The schooling establishment, for example, has a lock on political support and also produces product that badly fits the requirements of the labor market. In that case, all of the monetary and fiscal stimulus will not do much for unemployment rates.  That is where we are and where we have been for some years.

ADDED

Lindsey on Phelps

Off topic: caption contest

I expect that most people have seen the delightful Nov. 11 cover of the New Yorker. But the weekly magazine that most people buy for its caption contest, passed up the opportunity to link a caption contest to this cover.

Let's see. "Fatal conceit" is taken. "Ignorant arrogance" is clunky.  "Arrogant ignorance" is not much better. "Social engineering is hard work" is too long. "Central planning is hard work" is not any better. "Hope and change" is rubbing it in. "If you like your current plan ..." is too painful. “But we have to pass the [health care] bill so that you can find out what’s in it....” is actually pretty good but a bit long.

Full disclosure: I have entered the actual caption contest a few times but never even made the best three. Time to move on.

ADDED

On a serious note, Keith Hennessey cites all the unforced errors.

"More commuters go it alone ..."

In 1997, Loren Lomasky published "Autonomy and Automobility."  He articulated what we all knew, that nothing beats the freedom and mobility of the private auto. This is not about "car-crazy Californians" or such. Look abroad; as people begin to earn, guess what they want. Or, as we used to say, "Ask any teenager."

Today's WSJ includes "More Commuters Go It Alone ... Americans Increasingly Ride Solo or Work From Home; Carpooling Now Below 10%. ... Meanwhile, just about every other way of getting to work has either languished or declined. Carpooling has tanked—falling from about 20% in 1980, when gasoline prices were soaring from the oil shock of the late 1970s, to under 10% in 2012. Public transportation accounted for just over 6% of daily commutes in 1980 and is now 5%. A category the Census calls 'other means'—which includes biking—stands at 2%, largely unchanged over the past decade. These commuting trends come despite efforts to get people to use public transportation or other alternatives. ..."  The writer could have added that there are no signs that these efforts are even being re-thought.

None of this is news. It highlights the power of the Bootleggers and Baptists insight. Once a coalition forms that includes those who feed at the trough (favored construction interests in this case) holding hands with greens who will support any program that might challenge automobility, it is game-over. This is a much more powerful public policy analysis than all the silly stuff about "evidence-based" policy and serious cost-benefit accounting.

Bad fixes

Pre-ObamaCare health care in America had many critics. Daniel McFadden referred to that "system" as "A Dog's Breakfast." I have kept that clipping around since it appeared in 2007 as a useful classroom conversation starter.

McFadden's essay must be recalled in light of what the apologists are now reaching for as it became apparent that many Americans will not be able to keep their health plans. This morning's NY Times editorialized that those were "Policies Not Worth Keeping". The President just "misspoke".

One could say that the last refuge of a political scoundrel is the rhetorical device of a false choice. The Dog's Breakfast vs. Obamacare. Various state legislatures have been in bed with various insurance companies and assorted lobbyists for years. We get restricted competition (including barriers to inter-state buying and selling of policies) as well as a heap of mandated coverages. We also have favorable tax treatments of insurance plans as long as long as they are employer provided. On top of that we have Medicare and Medicaid which weigh in with their own requirements. Both the private and the public insurers invite price discrimination that pundits routinely see as some sort of fraud

All of this is well known and better explained by health care scholars. Here are five common sense reforms that (sad to say) both political parties have shied away from. It is the old story of bad policies prompting a demand for fixes by way of more bad policy.