Limited Government, Government Workers

I thought I would share my comments on a current debate that I am having with friends over whether limited government supporters are hypocrites for taking government handouts. Here is what I had to say:

“The issue at hand on whether or not taking government benefits is hypocritical, while criticizing government to me can be explained through public choice economics.  Gordon Tullock from George Mason (University), who should have won the Nobel Prize in Economics with James Buchanan, wrote a very interesting article that relates to this subject. It is entitled “The Paradox of Revolution.” He uses an interesting example…

“Ruritania is governed by a vicious, corrupt, oppressive, and inefficient government. A group of pure-hearted revolutionaries are currently attempting to overthrow the government, and we know with absolute certainty that if they are successful they will establish a good, clean, beneficial, and efficient government. What should an individual Ruritanian do about this matter? He has three alternatives: He can join the revolutionaries, he can join the forces of the repression, or he can remain inactive.”

He then comes to the conclusion that the benefit of revolution is public good, while an individual joining would have a near-zero chance of changing the outcome. But also, if the revolutionary forces win, he will benefit from the public good even if he does nothing. And doing nothing decreases his chance of jail, injury, or death if he joins and the government wins or puts up a good fight.

Therefore, economically, his incentive is not to join the revolution as the low probability of success combined with the large punishment for failure is much higher then the public good that he himself cannot influence but in the .00001 percentage.

A comparable example would be what if in a presidential popular vote election your chance of dying was 1 out of 10 and your chance of changing the election is 1 in a million. The individual would not vote even though he knows if his candidate wins the country will be better off.

So how does this relate?

Any individual who benefits from the government whether its a politician, a farmer who gets subsidies, or an government bureaucrat has no individual incentive to quit his job even if his believes are that his job shouldn’t exist say for example. The government bureaucrat knows that even though the public good would be better off without the existence of his job, does not mean that him quitting would change anything at all. More than likely the government would hire someone else and would spend more money doing so.

One government bureaucrat quitting their job, or in the case above one Congresswoman refusing her government health care is not going to change the outcome of government health care. All it does is impose costs on the individual and benefits to no one.

So folks, this is exactly why big government exists.

We assumed in the example above that we knew with 100% certainty that the new government would be the best government the world had ever seen. And that is a big assumption. Most revolutions that occur in the world are merely trading one dictator for another. One could argue that, in fact, the American revolution is one of the only examples in history (maybe the Roman revolution from kings to republic) is the only non-example of this.

Limited government is filled with public goods, while big government is filled with individual handouts and this is why every limited government in the history of the world has turned into big government.”

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Published in: on March 17, 2011 at 8:58 pm  Comments (1)  
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Rent Seeking during Wartime: A Smithian View of Military Action

This from the Wall Street Journal:

“Lockheed Martin Corp. spent nearly twice as much on lobbying during the first quarter of 2009 as it did during the previous three months as it aggressively campaigned to save key weapons programs ahead of a budget shakeup in April.

Lockheed — the Pentagon’s biggest contractor by sales — spent $6.41 million during the first quarter, up 97% from the prior quarter’s $3.26 million, according to company filings analyzed by the non-partisan Center for Responsive Politics”

Adam Smith believed that British Imperialism was bankrupting the country. He believed that most of the time the cost of the action was much higher than the benefit for the public. This is an area of research I have done a lot in. Scholars from Hobbes, Sumner, Cobden, and Schumpeter have all concluded at one time or another the companies that benefit from war either foreign or abroad will lobby the government for the exclusive contract. This is no different than domestic lobbying from teachers unions to Department of Education. The lobbying will allow the politicians who support more war actions to stay put in place. This is likely why the Democrats have not been as strong in their actions as they have been in their rhetoric.

Lockheed Martin gains a lot of money from military action. It is in their best interest to do so. This is not to put complete blame upon the Corporations. They would not have the power to do this if their wasn’t a politicial system willing to allow this. This is why many Republicans will not talk about this. They are too afraid of abanding their business and corporate roots.

War is very costly. If the political system was not set up in a way in which allowed the benefits to be concentrated while the costs were spread out, we wouldn’t have this problem. Corporations, at stand alone, do not go to war with each other. We never see Coca-cola buying mercenaries to fight Pepsi. This is because they then have to face both the costs and the benefits. As long as their is a politicial system like this, there will be a chance of rent seeking to benefit from war.

The rest of the article is here.

~PCCapitalist

Published in: on May 14, 2009 at 12:33 pm  Leave a Comment  
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The Mafia has gone Green too

This from the Financial Times:

“Anti-Mafia magistrates in Sicily have opened a sweeping investigation into the wind power sector where local officials, entrepreneurs and crime gangs are suspected of collusion in the construction of lucrative wind farms before their eventual sale to multinational companies.

Italian and EU subsidies for the building of wind farms and the world’s highest guaranteed rates, €180 ($240, £160) per kwh, for the electricity they produce have turned southern Italy into a highly attractive market exploited by organised crime.

An earlier investigation into a case near Trapani in western Sicily resulted in eight arrests in February, leading to accusations of a suspected nexus between a leading Mafia family that offered money and votes in exchange for permits to construct wind farms.”

I am not sure what is illegal here but the Mafiais going to be in trouble for this. It seems that they are just trying to get on the good side of local officials and get these windmills put in place. Now of course if they are using force to get people to give their property or whatever over to them then that would be bad. All I see is that they gave money and votes in exchange for the permits. In the United States, we call this rent-seeking.

My favorite sentence of all:” Sicily’s Cosa Nostrais evolving and finding new business opportunities, including the renewable energy sector…”

The rest is here.

~PCCapitalist

Published in: on May 6, 2009 at 12:32 pm  Leave a Comment  
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How Public Choice Economists are different…

This is somewhat of a following up from my previous post “How are Libertarians different?” Like libertarianism people often throwaway the explanations of Public Choice Economics when it is offered to them. Public Choice Economics is often offered to people as “looking at politicians as rational self-interest people.” The next phase is that people look at you and kind of go “duh.” It is much deeper in that. They also study institutions and the incentives politicians face.

Often times when you talk to Conservatives and Liberal (even some libertarians) the most important thing is getting the right person elected to office. What they end up doing is getting new people elected and fighting the fake Liberals and Conservatives who are already in place. Since they are usually unsuccessful with dethroning the fake Liberals and Conservatives, they often do this over a long time horizon and it becomes a neverending cycle.

What the Public Choice challenge is, is how can you arrange the incentives so that any President good or bad will not completely disrupt the system. Other Public Choice Economists come to the conclusion is that you can in fact never get the incentive structures changed. Further more there are other Public Choice Economists believe that a competitive system which prevents an identity from becoming a monopoly on force.

This may be hard to imagine without an example. If you think about the current political system we are faced with. The politicians that get elected are going to be the people who find the best ways to spread the costs and concentrate the benefits. This means pleasing special interests. They will also be the best at making political deals and saying things without saying anything at all. We all know this because we see it every election cycle. What we want is the straight talking, dudley do the right thing politician. The problem is that the incentive structure favors those who do the opposite.

Electing saints is what most regular people do, while Public Choice is more concerned with having institutions that protect us even if we elect a devil.

~PCCapitalist

Should the GOP give up it’s Corporate Affairs?

GOP Senator Jim DeMint wrote and article for the Washington Times saying that the Republican party should end it’s affairs with corporate elites. Here are a few portions from this piece:

“Earlier this month, the United States Chamber of Commerce handed out its annual “Spirit of Enterprise” awards to those members of Congress who voted with the Chamber 70 percent of the time on its most important legislative initiatives of 2008. The only four Republican senators who did not receive the award were Jon Kyl, Jeff Sessions, Jim Inhofe and me – four of the most conservative members of the Senate.

What were the conservative offenses? We opposed the failed bailouts and stimulus. Which explains why many liberal Democrats scored higher, including Barack Obama and Hillary Rodham Clinton.

The Republican who scored lowest of all – that is, the Republican lawmaker supposedly least aligned with the nation’s business community – was Ron Paul, a strong constitutionalist famous for his strict adherence to a free- enterprise libertarian philosophy.”

Which brings us to the title of this post. Should the Republican Party give up it’s Corporate Affairs? Ethically, this would be yes. It is obvious that DeMint is right and that the politicians are being rewarded for handing out taxpayer money. This is known in Public Choice Economics as rent-seeking, defined as when a politician hands out benefits to a small group while dispersing the costs upon the whole.

As this sounds like a good idea, is it practical? No. Politicians get elected by maximizing votes. They maximize votes by handing out favors to special interests. Corporations are special interest. The politicians will not get elected if they continually hold back from receiving legalized bribes and handing out favors. This may seem nuts to most people but it is not. These politicians and corporations are simply reacting to the incentives that they are faced with.

What politician doesn’t want to get elected? I haven’t met one. They are simply using the most efficient way to get elected in a political market. What special interest does not want to recieve money? I do not know of any. They are simply using the most efficient way to get money. As DeMint’s rhetoric sounds nice and he is rousing people like us, he will not beable to gain a large amount of followers who’s seats will not be put in jeopardy by such a move.

The rest is here.

~PCCapitalist

Infrastructure Madness by Jack Shafer

Today’s article of the day comes from Slate Magazine:

Whenever the government and the construction industry start squawking to the press about the horrors of our aging, crumbling, decaying, decrepit infrastructure, and warn that we must spend hundreds of billions or even trillions of dollars on waterworks, bridges, and roads, please observe this three-step safety procedure:

1) Place your hand firmly on your wallet,
2) slip your B.S. detector over your ears and fasten tightly,
3) and read all the fine print before you take your hand off your wallet.

Why such extreme vigilance? Because it takes little to convince reporters that our infrastructure has rusted to hell and that tens of billions must be spent now on construction products lest both our economy and our bridges collapse.

The current round of infrastructure madness finds the New York Times reporting earnestly (Jan. 28) and the Los Angeles Times (Sept. 14, 2008) editorializing frightfully about the crisis contained in the fact that one-quarter of the nation’s bridges are “structurally deficient” or “functionally obsolete.” A Boston Globe editorial (Oct. 28, 2008) bemoans the fact that “150,000 US bridges [are] rated as deficient.” And Time magazine’s coverage (Nov. 4, 2008) likewise warns of “more than 150,000 structurally deficient bridges” and declares that “America’s infrastructure is broken.”

The scary-sounding phrases structurally deficient and functionally obsolete combined with those big numbers are enough to make you bite your nails bloody every time you drive over a river or beneath an underpass. Yet if any of the cited pieces paused to define either inspection term, you’d come away from the alarmist stories with a yawn. As a 2006 report by U.S. Department of Transportation’s Federal Highway Administration puts it (very large PDF):

Structural deficiencies are characterized by deteriorated conditions of significant bridge elements and reduced load carrying capacity. Functional obsolescence is a function of the geometrics of the bridge not meeting current design standards. Neither type of deficiency indicates that the bridge is unsafe. [Emphasis added.]

A “structurally deficient” bridge can safely stay in service if weight limitations are posted and observed and the bridge is monitored, inspected, and maintained. A bridge designed in the 1930s could be deemed “functionally obsolete” because it’s narrower than modern standards dictate or because its clearance over a highway isn’t up to modern snuff, not because it’s in danger of tumbling down. (The Department of Transportation’s 2004 inventory found 77,796 U.S. bridges structurally deficient and 80,632 functionally obsolete, for a totally of 158,428 deficient bridges.)

None of this is to suggest that we needn’t worry about repairing or maintaining bridges, only to observe that the state of the nation’s bridges ain’t as dire as the press makes it out. If you’ve read this far, you like the scent of my Web page or your care about infrastructure, so I’ll continue. Let’s say the federal government spends billions in stimulus cash both to bring 1930s bridges up to 2009 standards and to rescue other bridges from their deficiencies. What are the chances that the states that handle some that money will spend it in an accountable fashion? Not good.

In a Nov. 17, 2007, memorandum, Inspector General Calvin L. Scovel III of the Department of Transportation wrote that the Federal Highway Administration “is unable to determine how much of the funding provided to states is actually spent on structurally deficient bridges because its financial management system does not differentiate between spending on structurally deficient bridges and other bridge-related expenditures.”

So credulous is press coverage that reporters almost never ask whether some Rust Belt bridges might be redundant or economically superfluous because industry and population have moved on. And just because a bridge occupied a place on the traffic grid once shouldn’t give it a right to eternal service.

As Tom G. Palmer wrote in the February 1983 Inquiry magazine (disclosure: I worked there), “it is no accident that while the rhetoric is repair, the reality is new construction.” He continues:

Highway-improvement politics differs little from military hardware procurement. Rather than keeping old systems in good repair, money flows into flashy new structures where millions can be lavished on consultants, research, and planning.

Big construction projects deliver political rewards, not well-executed maintenance projects, Palmer holds. “Nobody ever held a ribbon cutting-ceremony for the painting of a bridge,” he observes this week.

For those of us who track infrastructure madness in the press, the current round is mighty familiar. As deplorable as our bridges may be, they’re better than they were a generation ago. Today, the government classifies about 25 percent of U.S. bridges as structurally deficient or functionally obsolete. An April 18, 1982, New York Times article headlined “Alarm Rise Over Decay in U.S. Public Works” cites government statistics that classify 45 percent of U.S. bridges deficient or obsolete.

Infrastructure madness has already spread from the bridges to America’s waterworks, where the New York Times pegged an April 18 story about the fragility of America’s water system to the fact that the town of Chelan, Wash., still has some wood pipes. Not until you reach the story’s end do you learn that Chelan is a resort town (summer population 3,860) and that its remaining wood pipes are not an infrastructure problem. Chelan’s director of public works is replacing the last 500-foot section before it fails because repairing wood pipe requires expertise he doesn’t have.

Jack Shafer is Slate‘s editor at large.

Published in: on April 22, 2009 at 6:31 pm  Leave a Comment  
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The Future of the Internet and Economics

Sometimes on this blog, I like to take a step away from current events and talk about what is on my mind.

Economics is a growing discipline that seems to be invading all other disciplines. For example, the title of this blog comes from Public Choice Economics, which was a direct invasion into political science. At the same time, I have taken a class at George Mason University called the Economics of Religion. Both of these topics are of great interest to me along with many of the classic microeconomic problems we deal with everyday.

What is curious to me is how will the new social internet application be analyzed by Economics. Even though many Economists have blogs and are networking sites, we would imagine that it would take a while for Economists to get a full grasp on what is going on. One of the sub-disciplines I have always been interested in is the Economics of Dating and Relationships. All these sub-disciplines do is apply rational choice and methological individualism as a framework to analyze these certain areas. They also attempt to take models or simple laws of supply and demand and apply them to various things.

The internet is it’s own market. There are advertisements, spam, efficient ways to order stuff, and searches that will bring you to various producers you never knew existed. I mean the Economics of Spam would be a very interesting topic all in itself. I believe that 100% of the time the laws of supply and demand work, but if anything has ever brought doubt to my mind it is spam. Who buys stuff off of spam emails? After doing a quick search I found those guys over at Marginal Revolution have talked about it. But this proves my point the internet has revolutionized research and it will revolutionize Economics.

On a worse note, Economics has made a turn towards the math. I, in fact, could possibly be barred from being and economist due to my weakness in math (as I was rejected by the GMU Ph.d Program). With Economics’s turn towards math will that reinforce the view of the economist as a savior not as a person who studies how man acts? I, of course, believe we should move more towards the latter, but only time will tell.

~PCCapitalist

Self-Governance vs. Government (Available for Mac)

This from Wired.com:

“A colleague once defined “work” as “that which you accomplish while not distracted by the internet,” and he was onto something. Anyone who works on a computer  understands how easily personal communication (e-mail, instant messaging, social networks) can distract from the task at hand.

Eyebeam Lab’s Steve Lambert, creator of Add-Art and co-creator of the New York Times spoof, released an application over the weekend that solves the problem: SelfControl, a simple open source program for Mac OS X that prevents you from resorting to well-worn procrastination techniques by blocking access to websites and e-mail servers.”

Some people may not understand this and say why would one want to restrict your own freedom? The answer lies in what Nobel Prize Winning Economist James Buchanan talked about. This is a social contract. The founding fathers created the Constitution to restrain the government enough to protect it’s rights but not to take them away. Buchanan sees this as a risky but necessary institution to ensure freedom. So what does this have to do with Mac Software? James Buchanan would called this the “alarm clock” on Robinson Crusoe’s island. In other words, Robinson does not have to worry about anyone else but yet he still uses the clock to restrain him. As I agree with James Buchanan in a lot of ways, the problem lies in that we cannot always renew and create social contracts and often we are born in them without any input.

The second part to take away from this software is that it gives a good example of governance versus government. Government does not allow you to exit. In Buchanan’s world, people agreed to it unanimously and thus there is no reason to exit. In the software’s case a person agrees to the restrain unanimously and may exit at any time. Government does not allow you to do this. For example, if they were to not allow you to check your email from the hours of midnight and 4 am. People often do not see the distinction between governance and government and it is as simple as taxes are not voluntary, the software above is.

The rest is here.

~PCCapitalist

Dick Armey on Keynes and Hayek

This is a great piece in The Wall Street Journal written by Dick Armey. He shows great understanding of the field of Economics and how to apply it to the real world. Below I will put some of my favorite excerpts and you should read the rest:

“A father of public choice economics, Nobel laureate James Buchanan, argues that the great flaw in Keynesianism is that it ignores the obvious, self-interested incentives of government actors implementing fiscal policy and creates intellectual cover for what would otherwise be viewed as self-serving and irresponsible behavior by politicians. It is also very difficult to turn off the spigot in better economic times, and Keynes blithely ignored the long-term effects of financing an expanded deficit.

It’s clear why Keynes’s popularity endures in Congress. Intellectual cover for a spending spree will always be appreciated there. But it’s harder to see any justification for the perverse form of fiscal child abuse that heaps massive debts on future generations.

….

What everyone should agree on is that the money has to come from somewhere, either through higher taxes, borrowing or printing.

If the government borrows the money for the stimulus, then it will either have to print money later or raise taxes to pay it back. If the government raises taxes to pay for the stimulus, it will, in effect, be robbing Peter to pay Paul. If the government prints the money, it will increase inflation, which will decrease the value of the dollar. That would, in effect, rob Paul to pay Paul back with devalued currency.”

I couldn’t have said it any better. These are the exact things I have been saying all along. Of course, one person saying them a few times isn’t enough. We need people to continue and carry this message. A fiscal stimulus will always be popular for politicians so what we need is to educate the populous of all of this.

The rest is here.

~PCCapitalist

Welcome to Redtape, America: California Gas Regulations

This from the Pasadena Star-News:

Dozens of gas stations around California are choosing to shut down rather than comply with a state mandate that would require owners to purchase new equipment to reduce vapor emissions at the pump.The requirement, known as Phase II in the state’s Enhanced Vapor Recovery Program, is set to go into effect in April. It requires gas station owners to individually purchase tens of thousands of dollars of equipment designed to prevent harmful vapors from escaping into the air when gasoline is pumped.

But smaller retailers say that the requirement puts an unfair burden on businesses that don’t sell enough gasoline to offset the extra cost – and that don’t contribute much to the problem in the first place.”

This is the thing that people do not understand. As it sounds good to have this bill on the book and it makes people feel good about the environment, all they really are doing is creating massive red tape and putting someone out of business. All of this is during a time in when people are already losing their jobs.

The Public Choice side of is that no only is the state raising the costs and therefore the prices, but they are reducing competition. I am sure he big business gas stations love this because it puts the little local gas stations out of business. Now environmentalists are usually against corporations, but little do they know they are contributing to a state granted monopoly.

The rest is here.

~PCCapitalist

Published in: on February 2, 2009 at 2:05 pm  Leave a Comment  
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