Category Archives: Public Choice

No Due Date Book Club Notes: James Buchanan, Week 2

I recently joined Liberty Fund’s No Due Date economics book club, where over the next year, participants will read one book per month selected by GMU economics professor Peter Boettke. Pete will also lead group discussions and provide other resources. January’s selection is the first volume of James Buchanan’s collected works, The Logical Foundations of Constitutional Liberty, which collects many of his better-known papers from throughout his career. Buchanan was one of the cofounders of public choice theory, and won the 1986 economics Nobel.

This post, the second of three, collects my notes from those readings. I’m posting them here mostly for my benefit, so I can easily find them during the discussions, and can refer back to them later if I cite them in the future. Readers new to Buchanan or curious about the major themes of his work might benefit from skimming these notes, though I highly recommend reading the primary source. I may or may not do this for future months’ readings, depending on how useful it is.

Note that I copied and pasted these notes unedited from a Word document I kept open while reading. These notes do not always distinguish between as-is descriptions of Buchanan’s arguments, and my opinions and original thoughts about them. Reader beware.

WEEK 2: PUBLIC FINANCE IN THE DEMOCRATIC PROCESS

“Individual Choice in Voting and the Market” (Journal of Political Economy, 1954), pp. 75-88.

-Buchanan builds a model of individuals making decisions. They just happen to be voting decisions. For simplification, it’s a direct democracy model without representatives.

-In markets, consumers get what they want. This is not guaranteed in voting markets. There is uncertainty. This affects voter behavior.

-People might vote to signal values, knowing it might not cost them personally. Hence the people who vote for Prohibition, then visit their bootlegger.

-Mises: people bear less personal responsibility for their voting choices than their market choices. So their political choices are more corruptible than their market choices.

-p. 81: “Choice implies that alternatives are mutually conflicting; otherwise, all would be chosen, which is equivalent to saying that none would be chosen.”

-Market choices are unbundled, and less mutually exclusive than political choices, which are take-it-or-leave-it bundles. P. 82: “As a result of this difference, individual choice in the market can be more articulate than in the voting booth.”

-Market decisions are among actual alternatives; political decisions are among potential choices. If the voter loses, they don’t get their preferred choice. Even if they do, there is no guarantee the political process will operationalize it. (he doesn’t seem to make this last point, but would likely agree with it.)

-Market “voters” can be overruled in the sense that, say, their favorite store ot product will go out of business if they don’t get enough “co-voters.”

-All of these differences would remain true under complete economic equality. Objections that “one dollar, one vote” in the marketplace is unfair is not an objection to the points Buchanan is actually making.

-Market choices are not more rational than political choices. The individuals making them are the same. Their differences are in incentives and institutions, not in rationality.

-Section VII, on when to use ballot box instead of the market, is a bit muddled. Institution-level changes gain their legitimacy through the ballot box. Political choices should be made when private choices harm the goals of a majority, or when they are obviously inferior—and it is worth the tradeoffs in choice and liberty to use political means. I would add in something about transaction costs.

-A language problem: current language does not differentiate between market freedom and market power. This semantic point leads to a lot of avoidable confusion.

“Social Choice, Democracy, and Free Markets” (Southern Economics Journal, 1954), pp. 89-102.

-Reaction to Kenneth Arrow’s Possibility Theorem’s philosophical implications. His major argument is that cyclical majorities, which are a product of the intransitive democratic preferences that Arrow’s theorem predicts, provide a bulwark against the tyranny of the majority, and allow for ongoing policy experimentation, rather than setting the initial, “rational” result in stone.

-This highlight’s Buchanan’s subjectivism. He isn’t terribly concerned with this or that policy. He is concerned with the larger system-level processes. Normatively, he seeks to avoid tyranny and stasis, and that’s about it.

-This rests in turn on the core Buchanan theme of methodological individualism. Societies don’t reason or have preferences, individuals do.

-Arrow misuses the word “process,” which has caused confusion in both Arrow and his debaters.

-Buchanan argues that Arrow’s theorem applies to how a welfare function is derived—but not the decision-making process that reacts to that function.

-That doesn’t matter for voting behavior, but it does for market behavior, according to Buchanan. Arrow’s theorem is useful for analyzing voting, but not for markets.

-Methodological individualism: the concept of “social rationality” is incoherent. Societies do not reason, individuals do.

-Interesting side point from Buchanan: utilitarians are individualists, and are therefore philosophically inconsistent whenever they leave the individual and speak of social utility. I add that interpersonal utility comparisons are also impossible.

-Because individuals are rational and the concept of rationality does not apply to societies, we can observe intransitive “preferences” and cyclical majorities in democracies. Also, these inconsistencies can be useful as a check on power and on tyrannies of the majority.

-Cyclical majorities also allow for ongoing experimentation with new policies. The status quo is never set in stone.

-Buchanan invokes near-unanimity as a benchmark of true collective choice, prefiguring The Calculus of Consent, which would appear eight years later.

-Market decisions to tend to obey the transitive property, since they are made solely at the individual level. They are not public choices. Buchanan does allow that this is true only to the extent that an individual’s preferences are, in fact, transitive. Anyone who has spent time with a small child knows that real-life human preferences are not always transitive.

“The Pure Theory of Government Finance: A Suggested Approach” (Journal of Political Economy, 1949), pp. 119-132.

-Buchanan contrasts individualist and collectivist (organismic) approaches to costs and benefits of taxes and spending.

-It was standard practice at the time to count only the costs of government, and not the benefits. Buchanan argues that both matter, and benefits should be counted as well. Later in his career, he would have taken this in a more explicitly public choice direction—the implications for concentrated benefits and diffused costs are obvious. Here, he hints at it, but doesn’t go very far in that direction of analysis.

-One problem with the collectivist/organismic approach is that it thinks in aggregates, rather than in terms of separate individuals. Since interpersonal utility comparisons are impossible, so are accurate societal cost-benefit calculations.

-A price theory point Buchanan does not make: the technical difficulties of separating individual costs is “expensive” in terms of effort and complexity for economists. This is why they choose the “cheaper” option of thinking in aggregates. While rational from a price theory standpoint, this leads to unrealistic analysis.

-Buchanan argues that the aggregate cost of the state should equal its aggregate benefits, in which seems a fairly straightforward Marshallian calculation at the margin. He is agnostic about how those costs and benefits are distributed. That’s for the political process to decide.

-This article clearly reflects his recent study of Italian political economists. He quotes several.

-One of them raises a good point: if political benefits were to be equally spread out, a capita tax would be fair. Since that is not what most people want the state to do, that is why government costs are not equally distributed, nor its benefits.

-The “fiscal residuum” is the difference between a government’s costs and benefits. These will vary from person to person. The goal is for it to equal zero for society as a whole (Buchanan ignores transaction costs and political waste here, but for this simple model’s purposes, that is fine). A progressive tax and benefit system would have a negative residuum for rich individuals, and a positive residuum for poor individuals.

-(Not Buchanan’s point) In practice, democracies often have positive residuums for the middle class, which has the largest number of voters, and negative residuums for the rich and poor. This is for public choice reasons—politicians know want to maximize votes more than they want to maximize any distributional fairness norms they may have.

“Positive Economics, Welfare Economics, and Political Economy” (Journal of Law and Economics, 1959), pp. 191-209.

-Economic theory was developed by utilitarians, and the discipline has been taken over by positivists. Even Milton Friedman is a positivist. This is where Paretian welfare economics comes from. Most economists are not content to describe what is; part of their job is advising policymakers on what should be. Buchanan doesn’t like this.

-Clever insight about Pareto optimality: it avoids the cardinal no-no of interpersonal utility comparisons. Individuals make their own decisions about what makes them better off and worse off, so no interpersonal comparisons are needed. Kaldor and Hicks took Pareto’s approach and developed the new welfare economics.

-A newer development in welfare economics, headlined by Paul Samuelson and others, rejects Kaldor and Hicks. Samuelson, et al rely on a “social welfare function,” and thus commit the non-no of interpersonal utility comparisons.

-Welfare economists, especially of the Samuelsonian variety, assume omniscience of the observer or policymaker. Buchanan says this is unrealistic, and should not guide policymaking. It gives too much power to policymakers to make decisions on others’ behalf.

-Revealed preferences as fatal to the omniscience assumption: We don’t know other people’s preferences until they reveal them through their actions.

-An economist should not decide upon changes, because he has no way to know society’s preferences; the very concept is incoherent. Instead, an economist should present a menu of changes, upon which individuals can decide on, either individually or through the political process.

-This is another example of Buchanan’s subjectivity. His ideological priors are liberal in the sense that he cares about individual consent. But he’s neutral about which policies individuals consent to.

-A rough analogy to Buchanan’s job description for economists is as medical diagnosticians. The patient has a problem, the economist uses their tools to diagnose it and prescribe possible remedies. But ultimately the patient chooses what action to take—though in this case through political consensus, not individual choice.

-Compensation for externalities, such as pollution: Buchanan sees payment for externalities not as an ethical concern for policymakers, but as necessary for an an honest prices system, so individuals can make their own accurate decisions about Pareto-optimal changes. His subjectivity shows up again.

-A political economist’s job is to suggest possible gains from trade, not to impose them against people’s wills—the economist doesn’t know people’s preference functions, and could make non-Pareto-optimal mistakes.

-Good question on p. 203: “Unless the relevant choices are to be made by some entity other than individuals themselves, why is there any need to construct a “social” value scale?”

-Buchanan exposes the vulnerabilities of his own argument—this is the mark of a good scholar. His argument depends on people being reasonable; this is not always true. His argument depends on a contract theory of the state; many people object to this. And no large group of people will be unaminous in decisionmaking, which is the ideal. Some “relative unanimity” benchmark short of that will have to do in real-world political systems, such as a majority vote, a 2/3 majority, or whatever rule people decide on. Buchanan is agnostic on which relative unanimity rule is best.

-If a policy doesn’t gain unanimous consent, is it Pareto optimal? Tough question. Real-world societies will nearly always have to settle for something short of that ideal.

-Which also makes a society progressively more vulnerable to tyrannies of the majority, the closer the adoption rule moves to a 50-percent-plus-one majority.

-A bit of game theory: economists must think at least one move ahead. Don’t recommend what people want right now, recommend what people will want after a proposal goes through the political process.

No Due Date Book Club Notes: James Buchanan, Week 1

I recently joined Liberty Fund’s No Due Date economics book club, where over the next year, participants will read one book per month selected by GMU economics professor Peter Boettke. Pete will also lead group discussions and provide other resources. January’s selection is the first volume of James Buchanan’s collected works, The Logical Foundations of Constitutional Liberty, which collects many of his better-known papers from throughout his career. Buchanan was one of the cofounders of public choice theory, and won the 1986 economics Nobel.

This post, and the following two, collect my notes from those readings. I’m posting them here mostly for my benefit, so I can easily find them during the discussions, and can refer back to them later if I cite them in the future. Readers new to Buchanan or curious about the major themes of his work might benefit from skimming these notes, though I highly recommend reading the primary source. I may or may not do this for future months’ readings, depending on how useful it is.

Note that I copied and pasted these notes unedited from a Word document I kept open while reading. These notes do not always distinguish between as-is descriptions of Buchanan’s arguments, and my opinions and original thoughts about them. Reader beware.

January – James Buchanan, The Logical Foundations of Constitutional Liberty: Collected Works, Vol. 1

WEEK 1 of 3: WHAT SHOULD ECONOMISTS DO?

“What Should Economists Do?” (Southern Economics Journal, 1964), pp. 28-42.

-They should seek understanding of Smith’s propensity to truck, barter, and exchange.

-They should do catallactics, not oikonomia

-Methodological individualism. Societies don’t have ends in mind, individuals do.

-Lionel Robbins and Max U. as adversaries.

-Don’t posit things as problems; that implies a solution—and a solver, usually the economist or some politician. The real world is far more complicated than that.

-Subtle point, but important: A Max U. robot doesn’t really make choices among alternatives. It follows a pre-determined program.

-“Symbiotics” is Buchanan’s preferred term for economics, even over catallactics. It captures the inherently social nature of what economists study. It is a social science. There is no economics or symbiotics in studying Robinson Crusoe until Friday joins him.

-Another subtle point from Frank Knight: in perfect competition, there is no competition, and no trade as we understand the terms.

-Equilibrium through the perfect competition lens is harmful to understanding. When equilibrium does happen it’s an emergent process. Both of those words matter. Nobody designs it, and the process never ends. Something can always change.

-Markets are institutions and processes, not Max U.s achieving societal goals.

-Politics is also exchange. Economists should study it that way.

-Market exchanges are between equals; political exchanges are between superiors and subordinates.

-Public choice, properly done, is not normative. He expects pushback on this point.

“Politics without Romance” (Lecture, Institute for Advanced Studies, Vienna, Austria, 1979), pp. 45-59.

-Don’t fall for the Nirvana approach. Compare realistic alternatives when looking at institutional arrangements.

-Public choice is supposed to be positive, not normative. First figure out what is, which does not vary from person to person, before proceeding to the should part, which does vary from person to person.

-Pre-constitutional political exchange precedes market exchange.

-Political exchange affects the whole public; hence the name “public choice.” Market exchange affects only the individuals involved (ignoring externalities, which Buchanan does not mention).

-Tension: where does legitimacy come from? Buchanan says it comes from contracts, not rights. But contracts themselves depend on consent. A tension in his thought?

-A “productive state” can emerge to provide public goods by solving transaction cost problems, at least to some extent.

-Cyclical majorities tend to happen in democracies under certain rules. Arrow was on to something, though he tended to ignore institutions.

-Duncan Black and the median voter theorem also have explanatory power in how political exchange works.

-Most people are multi-issue voters, which makes modeling all but impossible, and can result in cyclical majorities.

-Good analogy: people vote on the temperature they want. Then we see if the heating and cooing system is capable of delivering it.

-In a representative democracy, representatives’ incentives are not the same as their voters’ incentives.

-Marginalism does not exist in political goods. They are all-or-nothing bundles. Marginalism does exist in market goods. Consumers can choose a little more or less of each product as they choose.

-Public choice is for something, not just against the romantic view of politics. It is for enabling human cooperation, and avoiding the Hobbesian trap. It sees institutional design as the method that can accomplish this as best people are able.

“Keynesian Follies” (Book chapter contributed to a Nobel conference volume, The Legacy of Keynes, 1987), pp. 164-178.

-Keynes was an artist, not a scientist. His goal was to change the perception og his economist peers. This was one reason he changed his mind so often.

-The depth of Keynesian follies are from Keynes’ followers more than the man himself.

-Keynes was aware of the importance of institutions; less so his followers. Keynes built a model to get people to think that monetary policy mattered less than fiscal policy. The trouble began when this was taken as scientific, rather than a goading to move scholarship in a certain direction.

-Keynes was responsible for people to concentrate on employment as a policy objective, and therefore neglect monetary and market institutions.

-Thought: Is Buchanan getting the arrow of causality wrong? And I have my doubts that people were ever as institution-minded as Buchanan seems to argue.

-Buchanan argues for a full employment impossibility theorem, taught by Henry Simons and C.O. Hardy. Closed market economies have three possible characteristics, of which only two are simultaneously possible at a time: 1) full employment, 2) stable money, and 3) noncompetitive labor markets.

-Keynes’ theory was of its time, but didn’t work in the 1940s and later. Possible implication (would Buchanan go there?) Institutions, if not timeless, are at least more long-term oriented.

-Monetary policy has much stronger effects than fiscal policy. Why then, Buchanan asks, are most Keynesians (asidE from Lerner) focused instead on fiscal policy? One possibility is an ideological preference for a larger public sector.

-Keynesians should have known that fiscal fine-tuning (surplus during booms, deficits during busts) is impossible for public choice reasons. Politicians don’t work that way.

-Keynes the artist of 1936 intended to persuade people to take extraordinary policy actions during extraordinary times, when the normal political rules didn’t necessarily apply. The Keynes of a more stable era would likely have given different advice, but his disciples didn’t seem to realize that.

-Buchanan closes by asking if many Keynesian follies could have been avoided by widespread use of a commodity standard. My answer is maybe, but would the tradeoffs have been worth it?

Sen. Klobuchar’s Half-Baked Antitrust Bill

famous scene in the 1990s comedy movie Half Baked has a young Jon Stewart musing about how different everyday activities can be while one is high on cannabis. “I love Al Pacino, man. You ever see Scent of a Woman?” “Yup,” his dealer says. “You ever seen Scent of a Woman—ON WEED? That’s the way to see it, man!” Stewart continues: “You ever see the back of a $20 bill, man?” “No, I don’t know you,” says the now-wary dealer. “You ever see the back of a $20 bill—ON WEED?! There’s some weird shit in there, man!”

This scene may well have inspired Sen. Amy Klobuchar’s (D-MN) new antitrust bill, the American Innovation and Choice Online Act. The Senate version, to be introduced next week, joins an already-introduced House version (H.R. 3816), which would ban online retailers from giving preferential treatment to their private brand products.

Sure, you buy store brand products all the time at the grocery store and from Costco, but have you ever bought store brand products—ONLINE?! The distinction between in-person commerce and online commerce is silly. It’s 2021. Nearly every business, big or small, has at least some online presence, and they have for a while.

Sellers sell and buyers buy. Whether in person, by phone, by mail, or online, all are just different means to the same end. People tend to use whichever method has the lowest transaction costs to get together and make transactions. That’s it. The rest is details, like the man in the bushes on the back of Jon Stewart’s $20 bill, who may or may not have a gun.

Klobuchar and her eight Senate cosponsors have an average age of 66, so most of them may not get even my own dated cultural reference to Half Baked. In fact, the only two sponsors under age 60 are Josh Hawley (R-MO), 41, and Cory Booker (D-NJ), 52. No wonder nearly every congressional hearing on tech issues has at least one “series of tubes” or “Senator, we run ads” moment. Whatever one’s feelings about the tech industry, one should think carefully before giving politicians the power to regulate what they do not understand.

For more tech-savvy members, maybe they are grasping at straws for reasons to regulate companies they dislike, and this was the best they could find.

Whatever the case, the online-offline distinction does not matter for consumers, and it gets blurrier every year. Amazon is opening more brick-and-mortar stores, while Walmart and Target are expanding their online offerings. Sen. Klobuchar’s bill would freeze in time a false dichotomy, and cause consumer harm right in the middle of a difficult economic recovery.

How would the bill work in practice? It would not ban online companies from selling their private brand products, but it would ban them from giving their own products special treatment. Google, for example, would probably not be able to show Google Maps in its search engine, or at least not as a leading search result, which could lead to a lot of frustrated drivers. Amazon’s Prime program might go away entirely. At the very least, Amazon’s house brands would become harder to find and might not qualify for free shipping. There would be plenty of consumer aggravation, and no consumer benefits.

Meanwhile, house brands at physical stores would remain untouched. For decades, store brands such as Costco’s Kirkland have benefited from discounted prices, preferential marketing, and prominent shelf space. Those markets have remained highly competitive, but now that this same business practice is happening online, it is somehow different?

Nobody has yet offered a convincing explanation of why that is the case, let alone why commerce at a physical store is fundamentally different from commerce on a website or app, and therefore should be regulated differently.

The American Innovation and Choice Online Act is clearly not about consumer protection. For progressives, it allows them to express an ideological distaste for big businesses and pursue antitrust-unrelated issues like income inequality. For conservatives, it gives them a way to express their culture war grievances against tech companies—which is about as antitrust-unrelated as it gets.

The bill is also a golden opportunity for rent-seekers. For traditional retailers, it is a way for government to hobble their competitors. That might not be what antitrust advocates intend, but that is how antitrust works in in the real world. The American Innovation and Choice Online Act is only the latest instance of a long tradition of regulatory capture in antitrust policy.

For antitrust policy ideas that are more than half-baked, see CEI’s dedicated antitrust website and Wayne Crews’ and my paper “The Case against Antitrust Law.”

IRS Licensing of Tax Preparers Is Ripe for Abuse

Roughly a quarter of all jobs in America now require some sort of occupational license. Sixty years ago, it was about one job in 20. Should tax preparers join the list? The Taxpayer Protection and Preparer Proficiency Act of 2021 (H.R. 4184), introduced by Rep. Jimmy Panetta (D-CA), is the latest legislative attempt to do so. CEI signed onto a coalition letter this week, led by the Institute for Justice, opposing the idea.

The bill is being marketed as a consumer protection measure that would ensure that taxpayers are guaranteed quality service by a knowledgeable tax preparer. In practice, it would harm both consumers and small tax preparers. Like many occupational licensing requirements, licensing of tax preparers is economic protectionism. It would favor big accounting firms over small preparers, while raising consumer prices. The IRS’ ability to approve and deny licenses would give it an additional tool to threaten tax preparers and abuse taxpayers. And it would potentially open black markets for unaccountable “ghost preparers” who work outside the system.

First, the rent-seeking argument. H&R Block and other big firms can afford the time and expense it would take to get their employees licensed. But thousands of individual tax preparers who work part-time to help make ends meet, cannot. They would go out of business, and their customers would have no choice but to turn to the big firms. Actions speak louder than words.

Second, the power to grant licenses is also the power to take them away. If the IRS believes that a tax preparer advocates a little too hard for her clients and saves them too much money, it can put that preparer out of business. Under the bill, the IRS only needs to show in a hearing—which it convenes, for which it sets the procedures, and where the participating personnel are on its payroll—that a preparer is “incompetent” or “disreputable.” These terms are defined so vaguely under 31 U.S. Code § 330 that the IRS can use them almost any way it wishes. Penalties include fines to the preparer and her client, censure, and loss of license.

Third, licensing requirements would open up black markets for “ghost preparers.” Licensing is not free, and businesses pass their increased costs on to consumers. That means people can get cheaper tax preparation services by going to unlicensed “ghost preparers” who do not sign their name onto clients’ returns. While this might save some money, it also lets ghost preparers escape liability for mistakes. That is the opposite of consumer protection.

At the very least, Rep. Panetta should withdraw his bill. But the best long-term reform would be to treat the root of the problem: a 70,000-page tax code that is too complicated for most people to navigate without professional help. The Tax Foundation estimated in 2016 that federal tax compliance alone costs 8.9 billion hours of paperwork and $409 billion. This does not include state and local tax compliance. Those figures have likely gone up in the last five years. There are better uses for those resources, especially during a tough economic recovery.

A simpler tax code would address most of the IRS’ complaints about tax avoidance and save taxpayers time, money, and hassle—and do so in a revenue-neutral way. Big accounting firms, their lobbyists, and their political allies’ losses would be more than offset by the gains to nearly everyone else.

The coalition letter is here. Back in 2010, Caleb O. Brown and I wrote in Investor’s Business Daily about a similar proposal that ultimately failed.

John Stuart Mill on Lawyers

The exorbitantly-paid profession of lawyers, so far as their work is not created by defects in the law, of their own contriving, are required and supported principally by the dishonesty of mankind.

-John Stuart Mill, Principles of Political Economy, Book 1, chapter VII.5, p. 110.

The Progressive Playbook? Thoughts on a Slippery Slope

Is there a master plan behind the blunders of governments? Or are politicians just making it up as they go along? The cabal model is tempting. A lot of people tend to believe that it is not enough for their opponents to wrong; they must also have bad intentions. But usually, less sinister explanations, such as fallible politicians responding to incentives, are a better guide to fixing today’s political mess.

For example, President Biden recently announced that he is asking the Federal Trade Commission to consider using antitrust enforcement to fight rising gas prices. The economist Jeff Eisenach tweeted in response:

The Progressive Play Book: Step 1: Use regulations to restrict supply. Step 2: Blame the oil companies for rising prices. Step 3: Invoke antitrust. Step 4: See e.g., CITCO, Pemex. We are at Step 3.

One should not read too deeply into tweets. They lack enough space either to explain nuances or to define terms clearly enough to prevent misunderstandings. Sometimes, people are just making a snarky point, and they don’t have room for a disclaimer in a 280-character tweet.

Any or all of these situations could be the case here, but Eisenach’s playbook theory tweet has a clear—and common—slippery-slope logic that is worth a closer look. This is not to single out Eisenach, but to highlight a tendency among people of all political persuasions: to assume bad motives and master plans where there probably aren’t any.

Progressives often favor adding new economic regulation, and rarely favor rolling them back. So, it makes sense that progressives would respond to rising gas prices—largely caused by regulations—with more regulations. In Eisenach’s playbook model, this story presumably repeats until the energy sector is nationalized, as with Pemex, which is owned by the Mexican government, and Citgo, in which the Venezuelan government has a stake (though it cannot benefit from Citgo’s U.S. holdings because of sanctions).

This isn’t entirely drawn from thin air. Sen. Bernie Sanders (D-VT) really has proposed nationalizing the energy industry. The Green New Deal may not be a serious proposal, but it really was introduced as legislation.

But is the slippery slope really so deliberate? Just like the GOP’s own populist extremists, the Democratic party’s progressive wing has a high decibel level, but lower numbers and influence. Yes, progressivism touts lofty ideals, such as economic equality, democracy, and environmental protection, but in practice, progressive policies tend to be less lofty and more concrete.

If some people are having trouble making ends meet, pass a law raising the minimum wage. If other people have too much money, raise their taxes. If rents are too high, use price controls or impose a moratorium on evictions. President Biden’s antitrust threat against oil producers is similarly direct. Gas prices are going up, so do something about it. Such moves don’t involve much abstract thought about long-term competitive processes, tradeoffs, unintended consequences, or rent-seeking—what economist Thomas Sowell calls thinking beyond stage one.

If anything, President Biden’s proposal mixes a layman’s misunderstanding of the 1970s oil shock from early in his career with today’s hottest political trends, such as inflation and antitrust. Availability bias is a far likelier driver for his proposal than a playbook to eventually nationalize the energy industry.

Inflation and high gas prices were important issues in the 1970s. The two are linked together in a lot of peoples’ minds to this day. Today, inflation is back over 5 percent and gas prices going up again. In his speech, President Biden even singled out OPEC, which is long past its prime as a global economic villain.

Another factor that makes the current gas price increase appear even starker is that prices are rising from a low starting point. On April 23, 2020,  gas prices averaged $1.77 per gallon, the lowest since the 2008 financial crisis. Since then, gas prices haves been on an upward trajectory, rising to $3.17 per gallon by August 16, 2021. While that is a sharp increase, thanks in large part to that low starting point, gas is still cheaper than it was for almost all of the period between 2011 and 2014.

Inflation is also not the main driver of rising gas prices. Inflation is what happens when the supply of money gets out of whack with the supply of goods and services. If it isn’t monetary, it isn’t inflation. Today’s inflation is likely responsible for about 10 cents per gallon of the price increase, out of roughly $1.40. Most of the rest comes from a mix of supply, demand, and bad regulations.

The Jones Act of 1920, which is essentially a Buy American bill for the maritime shipping industry, makes shipping domestic gas artificially expensive and increases reliance on imported oil. Both of these make gas prices higher and more volatile. The Biden administration’s decisions to deny drilling and pipeline permits and to raise some regulatory burdens are also raising prices and squeezing supply. These are not inflation, but they are raising prices.

Coincidentally, higher prices and restricted supply are the same indicators used in finding consumer harm in antitrust cases, adding potential confusion to any antitrust cases stemming from Biden’s proposal. His recently proposed carbon tariffs on imported oil would further worsen the problem.

Repealing existing regulations and walking back proposed burdens would do more to lower gas prices than adding new restrictions—but that would require admitting mistakes. Politicians generally prefer to shift the blame and then publicly punish some supposed bad guys. That is not a conspiracy; it is rational political behavior.

The state of politics is unhealthy. There are lot of changes needed at the cultural, institutional, and policy levels. While conspiratorial allegations of political playbooks and slippery slopes are tempting as explanations, a lot of bad policy simply involves politicians responding to the incentives they face with the limited knowledge they have—the same as everyone else does.

The economic recovery and the continuing long-run rise in living standards would be better served if reformers would focus their scarce resources on these, rather than on exposing sinister narratives that aren’t really there.

Restoring Separation of Powers and Improving Resilience with the USA Act

Separation of powers is a core principle of American government. But things haven’t gone quite as planned. Congress, the first branch, has increasingly taken a back seat to the second branch, headed by the president. This is not a partisan problem, but a systemic one.

The Framers designed a system of checks and balances in the belief that the different branches of government would compete against each other. They were mistaken. It turned out that it is parties, not branches, that compete against each other. This institution-level problem requires an institution-level fix.

To that end, Rep. Cathy McMorris Rodgers (R-WA) recently reintroduced the Unauthorized Spending Accountability (USA) Act, which seeks to rebalance a tilted scale by reasserting Congress’ power of the purse. It would reengage Congress in policy making, regardless of who runs which branch at any given time.

Only Congress has the power of the purse, yet a long list of unauthorized executive branch programs continue to operate—971 in all as of 2019, at a cost of more than $306 billion. That is roughly a quarter of discretionary federal spending.

The USA Act would automatically cut an unauthorized program’s budget to 90 percent of its previously authorized level in its first unauthorized year, and to 85 percent in the second unauthorized year. Programs would sunset altogether after a third unauthorized year.

The Trump administration displayed less respect for the limits on its power than any previous administration, including the “pen-and-phone” Obama administration. President Biden is unlikely to suddenly show a restraint that no one in his office has in decades. That bodes poorly for the COVID-19 recovery effort, which cannot be planned from Washington, let alone from one individual’s office. Congress needs to reassert itself as a check and a balance on the executive.

The USA Act would require Congress to own up to its budgeting responsibilities, while simultaneously making the executive branch more accountable. The reform is much needed.

As it stands now, there are programs currently operating that Congress has not authorized since the 95th Congress, which was in session from 1977 to 1979. In fact, when Rep. McMorris Rodgers introduced the first version of the USA Act in 2016, entire cabinet-level departments, such as the State Department, had not been congressionally authorized since 2003. The Justice Department was last authorized by Congress in 2009. Other agencies, such as the Bureau of Land Management, have operated for roughly 25 years without congressional authorization.

There is more. The USA Act’s automatic budget cuts and sunsets apply only to programs classified as discretionary spending. Roughly three quarters of federal spending is classified as mandatory, including major programs such as Social Security and Medicare. While Congress has the power to change these programs at any time, they do not require congressional reauthorization, and can continue indefinitely on autopilot.

To address mandatory spending, the USA Act would create a Spending Accountability Commission to examine mandatory spending programs and make them more accountable to Congress. It is especially crucial to make those programs more efficient and fairer, given the coming entitlement crunch. The Commission would also assist Congress in creating a schedule for sunsetting unauthorized programs.

Restoring a proper separation of powers is a tall order. The USA Act is no panacea, but it would mark an important step in crucial area of reform. With a difficult recovery from both COVID-19 and a recession ahead, the time to act is now.

Abraham Lincoln on the Separation of Campaigning and Legislating

Abraham Lincoln, when he was a member of the House of Representatives from the Whig party, supported Zachary Taylor’s 1848 presidential candidacy. This was in part because he thought Taylor would be a weak executive. As David Herbert Donald writes on p. 127 of his 1994 biography Lincoln:

The proper Whig policy ought to be one of “making Presidential elections, and the legislation of the country, distinct matters; so that the people can elect whom they please, and afterwards, legislate just as they please, without any hindrance [from the Chief Executive], save only so much as may guard against infractions of the Constitution, undue haste, and want of consideration.”

Lincoln would change his tune when he became president himself. There is also more to successful executive restraint than this. And there is need for stricter legislative restraints, too. But on the whole, this is a healthier vision of executive power and the president’s proper role than what we have endured over the last few decades.

New President, Same Bad Policies

The Trump administration’s trade war gave economics teachers countless real-world examples of bad policy they can use in the classroom. A new open letter encourages President Biden to provide a similar service by becoming the “climate president.” Signees include prominent business leaders and activists such as Jeff Bezos, Leonardo DiCaprio, and Bill Ford.

Here are a few basic lessons of economics and politics they should have considered before signing on:

  • Green policies are Trump’s trade war in fancier packaging. This is an important, but overlooked, theme in the new administration. The climate doesn’t care if new technologies or business models come from America, Europe, Asia, or Africa. But politicians and their donors sure do. This is why President Biden is continuing President Trump’s “Buy American” policies. The main difference is that Biden is adding a green label to the nationalist branding. Businesses see climate legislation as a weapon against foreign competitors, the same as Trump’s tariffs. Politicians see ways to do favors for these companies, harm enemies, and appeal to voters’ patriotism, all at the same time. But this would raise consumer prices and leave supply networks less resilient—not a good idea during a pandemic and amidst a still-reeling economy.
  • Rent-seeking is a thing. Rent-seeking is the technical term for getting special favors from government. Political connections are often less risky and more profitable than gambling on a new technology. Solyndra was not an isolated incident. When Washington puts millions of dollars up for grabs, many companies will compete in Washington rather than in the marketplace. This leaves fewer resources available for developing new technologies. It also shifts priorities toward what Washington wants, rather than what might actually work.
  • Policy is made by the government we have, not the government we want. It is naïve to believe that Congress, with people like Mitch McConnell and Josh Hawley on one side, and Charles Schumer and Nancy Pelosi on the other, would actually pass climate legislation with the public interest as their top priority. That’s not the way real-world politics works. They’re going to jam in climate-unrelated pork and special interest giveaways. They will lock in today’s technologies so innovators who are less politically connected don’t displace them, as nearly happened with CFL light bulbs and LEDs. In Washington, even the best-meaning policies—especially the best-meaning policies—will not pass in anything resembling their intended form.
  • Green jobs aren’t new jobs on net. They replace other jobs. Putting a million dollars into one project means taking away a million dollars from somewhere else, as Frédéric Bastiat’s broken window parable points out. Calling a project green does not change this. Some green projects are worthwhile. Some are not. But Congress and the president are in a poor position to be able to determine which ones are which—not all the way from Washington, and not without prices and supply and demand giving them feedback. Nor do legislators have any incentive to listen to these signals, with 2022 and 2024 election preparations already underway.
  • There are better ways to address the issue. Even without a carbon tax and a Green New Deal, pre-COVID carbon emissions in the U.S. had been declining for several years. This is because entrepreneurs, wherever they are allowed to, are figuring out how to do more with less. New farming technologies are reducing the need for farmland, leaving more left over for wildlife. Smartphones and tablets are replacing music players, paper maps, VCRs, cameras, newspapers, compasses, metronomes, and more. This dematerialization is reducing demand for metals, plastics, paper, and other resource-intensive materials. As a result, the economy has already passed “peak stuff” for many resources, as Andrew McAfee points out in his recent book More from Less. As CEI founder Fred Smith likes to say, you don’t have to teach grass to grow, but you do have to take the rocks off of it. Congress and President Biden will achieve more of their environmental goals by removing regulatory rocks than with top-down planning, taxes, and subsidies.

The open letter signers’ hearts are in the right place. But no president can do what they ask. Our political structures cannot deliver those things. The letters’ signees would be better off putting their talents and resources to use exploring bottom-up solutions than in a top-down political system that is structurally unable to deliver on its promises. Bottom-up processes are messy, and filled with trial, error, and failures. They also don’t look as good at press conferences. As we’ve already seen with America’s declining carbon emissions and dematerialization, it works. But it will only continue if Washington lets it.

James Madison on Why Politics Ruins Everything

Politics has a way of ruining everything. Even kind and intelligent people go through an instant metamorphosis when the conversation changes to politics. Their body language tenses up. Their word choices include more intensifiers. They say horrible things about strangers they would never say in a different context. Their mental processes change to in-group-vs.-out-group mode, as though we were hunter-gatherers again.

And this sudden intensity can turn on and off almost instantly, like a light switch, as the conversation veers from topic to topic. It’s certainly unpleasant, and possibly unhealthy.

This very human foible may be what inspired James Madison to write in Federalist No. 55, “Had every Athenian citizen been a Socrates, every Athenian assembly would still have been a mob.”

The median voter is not a wise person, at least about politics. But even if he was, the effects partisan politics has on the brain can shut down rational thought in even the best and brightest.

Happy Election Day, everyone.