« Obama’s Jobs Speech—Posner | Main | Market Failure Compared to Government Failure -Becker »

09/18/2011

Comments

Feed You can follow this conversation by subscribing to the comment feed for this post.

Mitchell K.

One of Posner's claims is that paternalistic seatbelt laws either lack economic justification or are justified only "because of the existence of other unjustified government interventions, such as subsidies for the medical expenses of people injured because they don’t fasten their seatbelts." His claim is too strong.
No good mechanism exists for discriminating against people who are injured because they don't fasten their seatbelts by denying them subsidies for medical expenses (even if for no other reason than the fact that it is difficult to ascertain with any certain which injuries would have been prevented by the use of a seatbelt). Furthermore, someone who does not wear a seatbelt may not be internalizing all the costs (including non-pecuniary ones such as the grief he may cause to his loved ones) associated with his behavior.
It is also not difficult to see how a seatbelt law is (plausibly) economically justifiable by considering the extreme case of police intervention in cases of attempted suicide. Doesn't an economic justification exist for selective intervention in these limit cases?
Seatbelt and motorcycle helmets laws are largely paternalistic, but their paternalism doesn't warrant them being lumped in with, for example, a law that bans incandescent light bulbs.

Jimbino

Posner didn't mention the most expensive gummint subsidy that dwarfs all others: deduction of employee medical and health insurance expenses by businesses.

Eddie

Good post. Posner does not go far enough. While saying that regulation is sometimes necessary, he does not point out the inefficiencies and poor results that come out of the private sector just as much as they come out of the public sector.

What I find ironic is that Becker sees competition in economic markets as always arriving at the "best" solution. Then why don't they see competition in the political markets as coming up with "best" solutions too?

Somehow, whatever is the result of government is bad; whatever is the result of the private sector is good. Somehow the principal agent problem in private industry does bring forth calls to get rid of private industry; in the public sector however this implies we should get rid of regulation.

MrTurtle

Posner writes, but does not explicitly support with evidence the assertion that:"the ... operation of economic enterprises (the Post Office, air traffic control, toll roads, TVA)... would be more efficiently operated as private firms". Nonetheless, were we to accept, for the sake of argument, that private firms are capable (presumably given an environment of adequate competition) of operating these enterprises at lower dollar cost (which, is, I assume what Posner means by efficiency), it does not necessarily follow that the operation of such enterprises would be best left in the hands of private industry. This is for the simple reason that dollar cost (per unit of service, or whatever) is not the only conceivable or even most defensible measure of utility (although to be sure economists tend to think so). It also bears mentioning that cost efficiency can come at the expense of utility as measured by these other criteria.

Let us take some of his examples. First, the Post Office. It is certainly true that other commercial postal services do a fine job, at least in those places they choose to operate. But this is the rub: a private firm is free to choose where and when it will and where it will not provide service, and so can feel free to close unprofitable offices and sites for delivery (and thus gain that vaunted cost efficiency). But a US postal service delivers the mail (or used to anyway) wherever people were; it is an institution that literally binds Americans together, *no matter far apart they are*, or how unprofitable their mail happens to be. And the price is democratic. Don't expect so much from UPS or FedEx.

How about air traffic control? Sure, I'm sure it can be handled fine...until a private firm tries to cut so many corners that safety is sacrificed (ohhhh the Deep Water Horizon...yeah). But to stop that, you need a whole bunch of loathsome regulation...but sh-t, the regulators get captured anyway, right?

Toll-roads/toll-bridges? Well, for a lot of people, there's not much choice in which roads they can take, and so there isn't much room for competition. That means high prices, unless prices are regulated by law.

Anyway, on another note...I agree with Posner's characterization of seat belt laws as paternalistic. What I'm shocked about is that, the way his piece is written, he puts environment pollution and discrimination regulation in the same category! Disgusting!

Let me tell you: a local business destroyed our ground water with brine, and now we have to pump our water from the canal at almost twice the cost. That shouldn't have happened, and its not being a busy-body nanny keeping that kind of stuff from happening.

prada

Thank you, reproduced!!

an observer

this entire discussion is a crock, for more fundamental forces are at work

human institutions are human--their short comings and failures come from human short comings, not because they are "gov't" or private.

The WH in the hands of Roosevelt or Truman, albeit different, were very effective organizations. Take the same institution and put it in the hands of Carter or Obama and it is a CF.

Contrary to what Posner charges, the Post Office is a hell of a service that no private company could provide. If asked, what would you pay to have someone deliver a letter in CA, from NY ----

The same principle is true of NGOs, or state or local governments.

As for business, contrast Buffett and Munger with all the thugs on Wall Street. It is about the people, not the structure

If markets are so great, then why don't firms operate on market principles, internally. We know that operate in just the opposite fashion. In most businesses, managers micro manage (which is really gov't power) down to when you can pass gas how many wipes one takes on the throne

This debate is a false one. It is merely rent and profit seeking from those who can profit, in the short run, by trick and dishonesty, if they can prevent effective gov't regulation.

The killer is Posner admits that his Republican party of fraudsters has misused the debate. Posner writes, "Regulation had got a worse name than it deserved because of a tendency to conflate it with other, more questionable government activities." Conflate means propaganda from the Right.

Where was Posner when RR said "Government is the problem?" Answer: He had his head stuck in the same hole as when Cheney said, "Deficits don't matter." Hang out with fraudsters and liars and you become one.

Dick

The Post Office may or may not be efficient but do we need it or can we afford it anymore? Most mail is junk mail. The Post Office might have made some sense in the physical letter-writing world of days past but today it makes very little sense. The Federal Reserve eliminated most of it's physical check-handling facilities in short order, we need to consider doing the same for the Post Office.

Michael F. Martin

"But the fact that there is a great deal of unsound or questionable regulation is not a good argument for leaving all economic activity to the Darwinian processes of the market."

I wonder whether Judge Posner has seen the MS for the new book by Robert Frank due out later this week?

http://press.princeton.edu/chapters/s9509.pdf

Highly recommended.

Michael F. Martin

"Regulation had got a worse name than it deserved because of a tendency to conflate it with other, more questionable government activities—the actual operation of economic enterprises (the Post Office, air traffic control, toll roads, TVA), all of which would be more efficiently operated as private firms,"

The more things change...

http://en.wikipedia.org/wiki/Solyndra

The more they stay the same...

http://en.wikipedia.org/wiki/Society_for_the_Establishment_of_Useful_Manufactures

NEH

The "Nirvana Fallacy" I like that. :) Much like the "Invisible Hand" being elevated to the position of God and the "Free Market" as the High Alter. And guess who are the High Priests? The reality is much more like the "Economic Scale" I mentioned under Becker's Post. Political Economics is a much more complex process/phenomena and requires a much more complex analysis and action to get it right. Not just a simplistic ideologically approach. So the question becomes, "Does Society and Government exist for the many, or just the few"? The answer, will determine which ideological approach required.

an observer

Exhibit 1 that Posner is a Fascist:

Judge worries recording police will lead to excessive "snooping around"
By Timothy B. Lee | Published 3 days ago
Judge Richard A. Posner isn't known for his genteel treatment of parties whose arguments he doesn't agree with. When an attorney for the American Civil Liberties Union began to make his opening statement at a Tuesday oral argument, Posner cut him off after 14 words. "Yeah, I know," he said dismissively. "But I'm not interested, really, in what you want to do with these recordings of peoples' encounters with the police."

The topic was the constitutionality of the unusually strict Illinois wiretapping law, which makes it illegal to record someone without his consent even if the recording is done openly and in a public place. The ACLU was asking a panel of three judges from the US Court of Appeals for the Seventh Circuit to strike down the law on First Amendment grounds.

But Judge Posner wasn't having it. "Once all this stuff can be recorded, there's going to be a lot more of this snooping around by reporters and bloggers," he said.

He was particularly worried that allowing recording would impact police work. "I'm always suspicious when the civil liberties people start telling the police how to do their business," he said. He speculated that gangs would love the ACLU's argument because recordings would make it easier to discover and retaliate against informants.

Posner may find himself on the losing side of the argument. Both of Posner's fellow Seventh Circuit judges seemed more receptive to the ACLU's argument. They reserved most of their fire for the government's attorney. "The statute criminalizes any audiotaping without regard to expectations of privacy, even if those events that are being audiotaped occur in the open, in public, for anyone to see and hear and otherwise observe," one of the judges said. "It's extremely broad."

The government lawyer gamely argued that limiting recording actually protected speakers' First Amendment rights by allowing them to control who heard their speech. But he may be swimming against the tide.

Last month, the United States Court of Appeals for the First Circuit handed down a unanimous ruling in the Simon Glik case. That case held that Glik had a "clearly-established" First Amendment right to record the actions of the police on the Boston Common, and that police officers should have known this when they arrested him. Civil libertarians are hoping a second ruling in Illinois will help cement the principle that audio recording is an activity protected by the First Amendment.

an observer

I anticipate all the Right Wingers here springing to his defense

Jack

How do "we" define "efficiency" these days? In the case of the Post Office "inefficiency" the issues that get discussed are:

Cutting service

Doing "something" about a perhaps flawed (overly conservative) retirement policy and with more than a few favoring

Hammering down wages.

So do "we" think privatization will just "more efficiently" accomplish these debatable goals?

If, in the real world of the moment the PO magically was "privatized" with hatchet man Jack Welch of GE at the helm, perhaps and only perhaps, the bottom line would be improved, service would more quickly be cut back, and perhaps those tens of thousands existing management favors firing would be added to the back end of a very long unemployment line yet faster.

I suppose........ a "good libertarian" in the name of "efficiency" would favor letting 'em starve or beg on the streets, but the decency that IS America is not likely to let that happen. So....... we've "increased efficiency" at the PO, lessened service, maintained the lowest priced postage in the developed world (maybe?? for a time?) and put more folks on the government dole. Great?

Jack

Posner sez: "Many of these regulations have no economic justification; they are paternalistic, as in the case of seatbelt laws—or if justified, are justified only because of the existence of other unjustified government interventions, such as subsidies for the medical expenses of people injured because they don’t fasten their seatbelts."

......... Let's substitute "democratic" for "paternalistic" as we have no "father" other than ........... us. Does Posner claim "no economic justification" because putting $100 worth of seat belts in millions of cars tallies up to more than 43,000 lives a year and who knows how many maimed and injured is "uneconomic?"

If so......... so be it. THE reason seatbelts (and safer dashbords etc) were belatedly mandated is because of political action in an era when auto companies "thought" competing on safety would give rise to people thinking driving was inherently unsafe.

And......"justified........." by decreasing the amount of "unjustifiable" medical subsidies? Am I reading this right? That in the name of "pure Chi school Libertarianism we'd leave those foolish enough not to have proof of insurance to die in their wreck? regardless of fault or non-fault?

But then Posner seems to "get it" for a moment with acknowledging:

"Competition forces businesses to ignore external costs and benefits (that is, costs and benefits not borne by the creator of them)"

......... so he is aware of all sorts of gaps and chinks in "pure capitalism" that must be plugged........... somehow? It's not only "external costs" but the fact that cut throat competition often means company A can't "afford" to raise wages, unless competitor B does so first. Indeed........ which gives rise to the EPA, the SEC (are they back from vacation yet?) collective bargaining and yes, government (US! again!) work and safety rules.

But again? Chi school? worse? "If either sort of externality is great enough, there is a strong case for regulation, provided the benefits of regulation can be shown to be highly likely to exceed the costs."

........... therein lies the rub. This week it seems that after being "approved" 20 years ago, a silted in mediocre hydropower dam in Washington will begin being torn down, a process that will take three years, and perhaps 30 to fully restore the habitat and increase the very small number of salmon that still try to return to their natal streams to a run of 300,000 or so. The value of the hydropower is easily ascertained........ but the wild habitat? and the economic???? (spiritual?) worth of the salmon run that was interrupted for a century? Tough one.

Going back to some government issues that can and should be better justified by "making the highest and best use of scarce capital" for a minute. I live only a stone's throw from one of the two silliest "Bridges to Nowhere" projects with the close one having not yet died a decent and deserving death.

On the other hand I'm a strong believer in tackling the $2 trillion of delayed maintenance and upgrades to our infrastructure during this decade of construction biz being slow to even slower.

But I have to admit the government process is far more prone to Pork than Bang for the Buck. Would an "Infrastructure bank" be something that would improve the expenditure of a trillion or two? Will that fix the crumbling bridge in a "secure" "red or "blue" state with a newbie Rep? against a B T Nowhere scheme put forth by a Transportation Chair as "our" Don Young was when the utterly worthless Bridges to Nowhere were funded?

"Privatize?" So there are only bridges where the return is fat with little to no political input?

NEH

Observer, What's Illinois's "Wiretapping" Laws have to do with the Nirvana Fallacy?

Just as an aside, You do realize that by allowing recordings of communications, even in public, opens the floodgates on all communications. Not just those construed as "in public". In fact those communications construed as "in private" can actually then be construed as "public" and hence recordable. With that occuring, what happens to the Privacy Protections under the Illinois "Wiretapping" Law? The ACLU position is rather strained. We're here to guarantee your Civil Liberties by taking away your Civil Liberties. Me thinks "Double Think" perhaps.

Jack

NEH... that's my take. Kinda fuzzy; while those addressing the public, and recording police actions ought to be allowed to be recorded, we'd want to protect speech meant to be private from today's invasive tech.

an observer

NEH

you ask, what does this have to do?

nothing and everything

goes to Posner's like of judgment incentive caused bias.

The Illinois law makes it illegal to video a crime in progress, a public speech, a sporting event, or the next time you are stopped in an illegal speed trap.

TANSTAAFL

By and large, the comments above demonstrate the Framers' wisdom in giving judges like Posner life tenure.

Ryan W.

Jack says: "And......"justified........." by decreasing the amount of "unjustifiable" medical subsidies? Am I reading this right? That in the name of "pure Chi school Libertarianism we'd leave those foolish enough not to have proof of insurance to die in their wreck? regardless of fault or non-fault?"


I suspect you misunderstand Posner's claim. The laws requiring hospital staff to treat injured parties do all the work there is in preventing the deaths of those in wrecks. If the party is insured (and Posner's comment makes no assumption that they are not), their insurance company would reimburse the hospital and its staff for most or all of their costs. If uninsured, the hospital would bill the injured party directly, who in turn may file a claim against whatever other parties might have been responsible for causing the accident. If the bill is more than the injured party is capable of paying, rendering him judgement proof, he may have to file for bankruptcy or reach some other sort of agreement that resolves the issues that arise between broke persons and their creditors. While it is likely we can find some subset of the above possibilities that *might* justify *any* governement subsidies to those injured in accidents of various sorts, it is certainly not true *in general* that taxpayers, disinterested third parties in the matter, are better suited to absorbing these costs than are hospitals, their staffs, medical insurers and/or the injured party.

NEH

Obsever, "The Illinois "Wiretap" Law makes it illegal to video a crime in progress"? You're not about to get me too trip into that one. ;)

This is Hometown Chicago, where we practice, "The police aren't here to preserve "Order" they're here to preserve "Disorder". And as we said at the last DNC in Chicago, "Remember, we kicked your old man's butt in "68" and now it's your turn. BTW, Welcome to Chicago." ;)

TANSTAAFL

"Infrastructure bank" = mechanism for doling out patronage.

Jack

Ryan..... a fairly muddled issue:

"Many of these regulations have no economic justification; they are paternalistic, as in the case of seatbelt laws—or if justified, are justified only because of the existence of other unjustified government interventions, such as subsidies for the medical expenses of people injured because they don’t fasten their seatbelts."

As you point out, in our country, (despite what the loud rhetoric of the "right" appears to want) our hospitals do take in the wounded or critically ill and perhaps extend a very costly first aid to those who've no other access to our, creaking, H/C system. So I "guess?" Posner's "government subsidy" to those not "wearing seat belts" goes to government mandate that hospitals DO accept all who show up at their ER???

As for the subsidy itself, you accurately depict the efforts our nation goes to, to connect a medical bill to the "injured party" and/or those who may be at fault in causing the injury, and as you also point out lead to the bankruptcy of the patient as is the Number One cause of personal bankruptcy in the US.

In addition to spending nearly twice what the civilized nations expend on H/C we, also bear the costs of our courts (taxpayers covering the buildings, judges, staffing etc) with us all in one way or another bearing the costs of insurance companies (those "deciding" who and what is "covered") legions of lawyers determining who gets the bill, and, of course, the overall social costs of bankruptcy, mortgage default et al.

If we need a "make work" economy this is all great, lots of employment for lawyers, insurance employees, med clerks, and, of course, POOR H/C outcomes for those having to rely on the costly ER for H/C "coverage" that increasing numbers, over 50 million today, up from 30 million during the "Hillarycare" ........ ummm, debate? But if we favor the efficiency, say of our agricultural industry that has made food very cheap in our nation, what we're doing is beyond insane.

We KNOW the mess came about via economic "accident" during WWII price/wage controls, but we don't know how to rid ourselves of now that improving efficiency will come at some cost to those making up the 17% of our GDP.

But..... I've strayed, truth is I don't know WHAT Posner was trying to say. IS lessening "subsidized health care costs" major reasons for OUR having mandated seatbelts and other belated safety improvements in our cars??????? Today there are still 40,000 deaths per year, but the deaths and injuries per mile driven are FAR lower than when we sat there without even knowing we should have seatbelts in front of a steering wheel with a spear like rod extending to just behind the bumper.

My take? If this is to be OUR primary means of transport it is up to US (not those whose primary intent is to make a profit on the cars or roads) to see to it that it is reasonably safe.

Jack

Tans, another bumper sticker? So far I don't know what is included in an "infrastructure bank", but once many years ago I did apply for and get an SBA loan. The process was much like a bank, but with a few extra hoops and, perhaps slower.

Today, how is it decided which bridge is to be built? or which aging building should have a new roof? Well, living hard by the two most foolish "Bridge to Nowhere" projects, it seems it's the old patronage system that used to inflict complete incompetency on our government as the pals of whichever pol won shooing out those of the other just as they MIGHT be learning the job.

In an era when DEBT is THE issue........ how do we carry these projects on our books? While a toll road outfit would have the debt in their asset column and the asset in the other column all justified by an income stream, it appears we have no such mechanism at the Fed level. Instead it's all lumped in with the cost of the last junket or knee-jerk warmongering event.

Perhaps that's why we've an estimated $2 trillion in delayed maintenance and needed upgrades, that, I would suggest, is a larger drag on our economy than some piddly tax rate change. Is the work shorted because a powerful Senator or, in Alaska's case, something of a fool finally got the seniority to be Transportation Chair and wanted a bridge named "Young's Way" instead of funding far more crucial transportation needs that our still developing state needs.

Would a "bank" put some order to such a mess? I don't know, but I'd certainly like to see a report put together by those not facing re-election, that helped us select the most worthy projects, while Congress would retain the now simpler task of funding the bank.

Most public infrastructure has something like a 50 year life span to return value to our nation, while a House member has just two years to "bring home....." some notable hunk of pork, in the most egregious cases like TWO utterly foolish Bridges to Nowhere" one of which is still wasting "study" millions" prior to dying a decent death.

Do you prefer the current Pork ladling process?

an observer

A second economist who gets it, Umair Haque, from Harvard Business Review

http://blogs.hbr.org/haque/2011/03/the_capitalists_paradox.html

NEH

As for the Infrastructure problems confronting this Nation, this is due to an old, old Budgetary procedure known as "Robbing Peter to pay Paul". Essentially, you forgo Maintenance and Repairs on Capital and Infrastructure for period. This then gives you extra finances to use as you so desire. This is a short term, not long term budgetary fix. If it is tried in the longterm, Capital and Infrastructure reach a critical state where Maintenance and Repairs must be made or the Capital and Infrastructure fails, sometimes catastrophically, and becomes scrap. Dragging the Nation or Industry down Economically. This is where we are at today. Nationally, at the State and County level and Locally. We have been robbing Peter to pay Paul far too long and it is now time to ante up.

There will be those who say that we cannot afford it given the current economic realities. My response is, "Vital maintenance and repairs to the Infrastructure and core Industries is affordable as long as we can find the Political Will to do so".

Verify your Comment

Previewing your Comment

This is only a preview. Your comment has not yet been posted.

Working...
Your comment could not be posted. Error type:
Your comment has been posted. Post another comment

The letters and numbers you entered did not match the image. Please try again.

As a final step before posting your comment, enter the letters and numbers you see in the image below. This prevents automated programs from posting comments.

Having trouble reading this image? View an alternate.

Working...

Post a comment

Become a Fan

May 2014

Sun Mon Tue Wed Thu Fri Sat
        1 2 3
4 5 6 7 8 9 10
11 12 13 14 15 16 17
18 19 20 21 22 23 24
25 26 27 28 29 30 31