Randall G. Holcombe – Political Capitalism: How Political Influence Is Made and Maintained

Posted on June 20, 2019 | Comments Off on Randall G. Holcombe – Political Capitalism: How Political Influence Is Made and Maintained

Randall G. Holcombe – Political Capitalism: How Political Influence Is Made and Maintained

Excellent, though probably a difficult read for a layman. Most people have a two-axis view of politics—most countries are some blend of capitalism and socialism. Holcombe argues that there is a distinct third system, which he calls political capitalism. It has characteristics of market capitalism, such as private property and usually democratic political institutions. But political capitalism also features heavy control by elites. Because votes count for very little in any decent-sized election and because voters typically have low information, it is naturally easier for elites to control public policies with relatively little public accountability.

An underappreciated key point, first made by Mancur Olson, is that small groups have lower transaction costs than larger groups. A small group is easier to form, and it is easier to monitor members so they don’t shirk on the rest of the group.

Another point is that principled legislators have almost no chance of being influential under political capitalism. If a politician is known for sticking to their principles, other legislators will not bother trying to win their vote on bills. If they support a bill, they’ll vote for it no matter what. If they oppose it, their support cannot be bought, so it’s not worth spending resources on.

That means principled legislators aren’t offered choice committee assignments, fundraising assistance, or get introduced to powerful social connections. Principled legislators are doomed to ineffectiveness.

It is well known that political office naturally attracts certain undesirable personality types. Holcombe demonstrates that institutional structures actually reward them, so there is a natural selection process to put the worst on top.

Holcombe also makes several valuable contributions to the theory of rent-seeking. I wish I had known about these when Fred Smith and I were working on our 2015 rent-seeking paper, which would have greatly benefited from his insights. I will definitely be citing this book in the future.

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Posted in Books, Economics, Political Animals, Public Choice, Uncategorized

Peter Wallison – Judicial Fortitude: The Last Chance to Rein In the Administrative State

Posted on June 19, 2019 | Comments Off on Peter Wallison – Judicial Fortitude: The Last Chance to Rein In the Administrative State

Peter Wallison – Judicial Fortitude: The Last Chance to Rein In the Administrative State

The main insight I took from this book is probably not the one Wallison intended, though it is one he makes several times. America’s founders did not foresee the rise of political parties, and this was their biggest mistake. They set up the federal government with checks and balances so that the different branches would compete against each other, not different parties. Having distinct federal and state levels of government provided an additional level of non-party competition.

This system does not work so well when powerful political parties exist. If one party controls both Congress and the presidency, those two branches do not compete with each other, they collude.

The first-past-the-post electoral system the founders established is also naturally conducive to a two-party system—and the two parties which usually oppose each other will cooperate to prevent rule changes that would allow additional competing parties.

This probably doesn’t matter so much; Europe’s experience with proportional representation has shown that most people coalesce around two polar ideologies, and most political parties represent various points on the spectrum between those two poles—meaning proportional representation doesn’t differ much from the U.S. system in terms of policy outcomes, muting its appeal. It merely has higher transaction costs for building coalitions, a separate issue well outside of Wallison’s subject matter. In the U.S. case, the dominant parties oppose proportional systems for their own organizations’ sake, rather than to promote conservative or progressive values.

The primary point Wallison does make is also compelling—judicial restraint and judicial activism are both ineffective safeguards against a regulatory state that lacks transparency and democratic accountability. A passive judiciary lets Congress and the executive make and enforce all sorts of crazy laws and regulations. This is a rather obvious problem. Legislation from the bench is also a problem; besides offending democratic sensibilities, repeal of judicial policy mistakes is extremely difficult.

Wallison instead prefers a judiciary with the fortitude to tell Congress what’s what when it passes unconstitutional legislation. More importantly, executive branch agencies issue thousands of regulations, guidance documents, and other regulatory “dark matter” outside of required legal processes. These policies lack transparency, democratic accountability, and in many cases are unconstitutional. The judiciary needs to gain the fortitude to strike such policies down when cases present the opportunity. Wallison also draws heavily on my colleague Wayne Crews’ research in developing this argument, which is a plus.

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Posted in Books, Economics, Law, regulation, Uncategorized

Manu Saadia – Trekonomics: The Economics of Star Trek

Posted on June 18, 2019 | Comments Off on Manu Saadia – Trekonomics: The Economics of Star Trek

Manu Saadia – Trekonomics: The Economics of Star Trek

Saadia wrestles with some interesting questions, such as how people would behave in a world without scarcity, how an economy could work without currency, and more. But he comes up a little short, both in terms of economic analysis and some ideological narrowmindedness.

Even in a superabundant world like Star Trek with replicators, teleporters, and the like, scarcity still exists. Even if people enjoy a place high atop the pyramid of Maslow’s hierarchy of needs, they will still find things to want and aspire to. One of the first things economics students are taught is the non-satiation principle. This opens the door to a fruitful discussion of relative versus absolute abundance, and all the implications that has for social stability, the reason technological progress continues, and more. Saadia instead focuses more on making ideological arguments in favor of flat income distributions—focusing on ratios, rather than people (see Iain Murray’s and my 2016 paper, “People, Not Ratios,” for a more constructive view on the subject).

As for currency, it tends to spontaneously emerge. It cannot be successfully abolished. The transaction cost savings of using currency are too great for people to pass it up—especially since even in Star Trek’s mostly moneyless universe, people are well aware of the concept. Whether gold, paper, cowrie shells, cigarettes, credit, or digital data, currency’s superiority over barter holds, even in Star Trek’s world of superabundance.

This opens the door to a discussion of spontaneous order and how that works, but Saadia again declines the invitation. That said, he offers some interesting discussions of the money that does eventually appear in the Star Trek: Deep Space Nine series in the form of gold-pressed latinum, as well as the Ferengi merchant race that is the rare example of greed and commerce in the series. Regrettably, they are sometimes also a thinly-veiled Jewish stereotype, though some episodes give the characters some depth and empathy.

There is still a lot to like in here. Just don’t expect it to have the depth that the best of science fiction and of economic thought have to offer.

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Posted in Books, Economics, Uncategorized

Introducing Antitrust Basics

Posted on June 17, 2019 | Comments Off on Introducing Antitrust Basics

Often, a drips-and-drabs approach to learning an issue over a period of time is as effective as a single intense cram session. To that end, this post inaugurates a series to familiarize readers over time with the basics of antitrust regulation. This is important because the current antitrust revival is reaching a fever pitch. This could have multi-billion dollar consequences in the next few years for everything from the future of 5G networks to online retail to the structure of social networks.

The Justice Department and the Federal Trade Commission recently carved out their respective turf for upcoming investigations of tech companies. Justice will handle Google and Apple, and the FTC will handle Amazon and Facebook. Congress is also launching its own investigation. At the state level, somewhere from 12 to 20 state attorneys general are mulling their own joint investigation. Other industries from hospitals to concert tickets are also on some target lists.

Progressives have spent years advocating a neo-Brandeisian approach of more active antitrust enforcement. Now they are gaining unexpected conservative allies in President Trump and a newly visible right-wing populist movement. There has not been a major antitrust case since the late-1990s Microsoft case, but given current political winds, that may soon change.

Oscar Wilde observed that “The emotions of man are stirred more quickly than man’s intelligence.” Fortunately, it will likely be more than a year before any of the just-announced investigations result in court cases—if they do at all. That will hopefully be enough time for passions to cool, and more reasoned analysis to prevail. Part of that process is taking some time to study the main principles, history, and applications of antitrust policy.

To that end, Wayne Crews and I recently wrote a paper, “The Case against Antitrust Law: Ten Areas Where Antitrust Policy Can Move on from the Smokestack Era.” Our colleagues Jessica Melugin and Iain Murray are offering regular antitrust analysis as well. CEI also maintains a microsite, antitrust.cei.org, that collects our antitrust scholarship in one place.

This series will start with the big picture and progressively narrow down to more specific issues. Initial posts will sketch out broader themes of antitrust regulation and the main sides of the debate. After that, the series will go through a “Terrible Ten” list of failed antitrust policies that should be abolished.

Larger themes in upcoming posts include the relevant market fallacy; the importance of treating competition as a spectrum rather than an on/off switch; regulatory uncertainty; the Brandeis-era big-is-bad standard vs. the consumer welfare standard; and antitrust enforcement’s tendency to entrench incumbent companies and increase rent-seeking; and the importance of thinking long-term.

From there, we will apply those themes and principles to specific policy areas that Congress and regulators should reform. In case after case, antitrust regulation protects incumbent companies from competition, encourages rent-seeking, erodes the rule of law, and slows innovation. This is a high price to pay for a policy that also works against its advocates’ goals regarding concentrated power, economic inequality, democracy, and other values.

Given antitrust regulation’s lack of redeeming qualities, we favor abolishing it outright. Short of that, regulators and courts should defend the consumer welfare standard against neo-Brandeisian and Trumpian populism. In the current political climate, preserving the consumer welfare standard may be the best possible near-term outcome.

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Posted in Antitrust, Economics, regulation, Uncategorized

This Week in Ridiculous Regulations

Posted on June 17, 2019 | Comments Off on This Week in Ridiculous Regulations

Last week, a Canadian team won the NBA championship for the first time, while an American team won the Stanley Cup. This week brings us the Competitive Enterprise Institute 35th Anniversary Dinner and Reception. Meanwhile, agencies published new regulations ranging from Segelflugzeugbau to e-cigarettes.

On to the data:

  • Last week, 43 new final regulations were published in the Federal Register, after 56 the previous week.
  • That’s the equivalent of a new regulation every 3 hours and 54 minutes.
  • Federal agencies have issued 1,197 final regulations in 2019. At that pace, there will be 2,603 new final regulations. Last year’s total was 3,367 regulations.
  • Last week, agencies published 447 notices, for a total of 9,893 in 2019. At that pace, there will be 21,507 new notices this year. Last year’s total was 22,205.
  • Last week, 1,164 new pages were added to the Federal Register, after 1,241 pages the previous week.
  • The 2019 Federal Register totals 27,905 pages. It is on pace for 60,664 pages. The 2018 total was 68,082 pages. The all-time record adjusted page count (which subtracts skips, jumps, and blank pages) is 96,994, set in 2016.
  • Rules are called “economically significant” if they have costs of $100 million or more in a given year. One such rule has been published this year. Six such rules were published in 2018.
  • The running compliance cost tally for 2019’s economically significant regulations currently ranges from $139.1 million to $175.8 million. The 2018 total ranges from $220.1 million to $2.54 billion, depending on discount rates and other assumptions.
  • Agencies have published 31 final rules meeting the broader definition of “significant” so far this year. 2018’s total was 108 significant final rules.
  • So far in 2019, 216 new rules affect small businesses; 11 of them are classified as significant. 2018’s totals were 660 rules affecting small businesses, with 29 of them significant.

Highlights from last week’s new final regulations:

For more data, see “Ten Thousand Commandments” and follow @10KC and @RegoftheDay on Twitter.

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Posted in regulation, Uncategorized

Vernon Smith and Bart Wilson – Humanomics: Moral Sentiments and the Wealth of Nations for the Twenty-First Century

Posted on June 14, 2019 | Comments Off on Vernon Smith and Bart Wilson – Humanomics: Moral Sentiments and the Wealth of Nations for the Twenty-First Century

Vernon Smith and Bart Wilson – Humanomics: Moral Sentiments and the Wealth of Nations for the Twenty-First Century

This is on my shortlist of best books of the year. Smith and Wilson combine insights from their experimental economics research with Adam Smith’s Wealth of Nations and especially his 1759 book The Theory of Moral Sentiments. Not only are the two systems compatible, they make each other stronger. Adam Smith’s insights into how empathy drives human behavior turn out to be confirmed by empirical lab experiments. Neither Adam nor Vernon Smith nor Wilson) is much on the fictional hyper-rational Homo economicus who lives in textbook perfect competition models. They are more interested in Homo sapiens, a much more subtle and demanding subject.

This book isn’t the easiest read for a layman. While Smith and Wilson do provide some brief explanations, a working knowledge of the more common game theory games is helpful, especially the Prisoner’s Dilemma and the Ultimatum and Dictator games. What the lab experiments find is that people, as they actually are, tend to be both happier and wealthier when they can make their own plans, rather than when they attempt to fulfill other people’s plans from above.

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Posted in Books, Economics

Fyodor Dostoevsky – Crime and Punishment

Posted on June 13, 2019 | Comments Off on Fyodor Dostoevsky – Crime and Punishment

Fyodor Dostoevsky – Crime and Punishment

The plot is simple—a young man commits murder basically for thrills, then deals with the anguish of what he has done. None of the characters are sympathetic, and the overall sensibility is constant tension, suffocation, isolation, and despair, with few letups. In other words, perfect beach reading.

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Posted in Books, Literature

Neil Shubin – Your Inner Fish: A Journey into the 3.5-Billion-Year History of the Human Body

Posted on June 12, 2019 | Comments Off on Neil Shubin – Your Inner Fish: A Journey into the 3.5-Billion-Year History of the Human Body

Neil Shubin – Your Inner Fish: A Journey into the 3.5-Billion-Year History of the Human Body

Animals all come from the sea. Spinal cords, backbones, bones themselves, our familiar trunk-and-limb anatomical structure, all evolved from fish. Even today, human embryos briefly have gills early in development, which is something to think about the next time you touch the side of your neck. Lungs and swim bladders are evolutionary cousins, and fish could not have made the move to land without them. Eyes first developed back in our seafaring days, and our lenses are still better adapted to seeing through water than air. As distant and diverse as life can be on Earth, we have more in common than we think. Shubin makes that point as well as anyone, sometimes in amusing fashion.

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Posted in Books, Science, Uncategorized

James S.A. Corey – Nemesis Games: The Expanse, Book 5

Posted on June 11, 2019 | Comments Off on James S.A. Corey – Nemesis Games: The Expanse, Book 5

James S.A. Corey – Nemesis Games: The Expanse, Book.5

This book turns inward, as if in acknowledgement of each previous volume’s rapidly increasing scale and scope. After returning from their three-year journey to Ilus, and with the Rocinante in for several months of repairs, the crew members go their own ways for a while. This narrative device helps to develop the characters’ backstories, as well as show how different the social and political dynamics are on Earth, Mars, and in the Belt.

But with a colonization rush underway to the thousand new worlds reachable through the ring, each of the three governments are finding themselves increasingly irrelevant. Mars and Earth are both losing population, and the Belters’ very way of life is becoming obsolete—why live on a moon or a station when there are planets full of room with gravity, atmospheres, and real sunshine?

Suspicious events happening on each of the characters’ sojourns turn out to have common threads, climaxing in an extinction-level terrorist attack on Earth by a rogue Belter faction that kills billions. The Rocinante’s crew, after a series of individual adventures, reunites in haphazard fashion. The talk in chapter after chapter of how the crew have become each others’ family is overwrought to the point of annoyance, but the shoe fits. Roughly a decade has gone by in their lives since the beginning of the series. The characters are starting to get some gray hairs, they are often tired and weary, and have changed in ways they’ll never get back. About the only constant they’ve had is each other and the Rocinante.

Solar system politics have changed too, and like the characters, they can’t change back. The old days are gone. The book ends at this point, with everything set up for the big battle to come, presumably in volume 6 unless the authors find a way to milk this story arc for longer. As of this writing, The Expanse book series has 8 volumes. The 9th volume, due this year, is intended to be the finale.

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Posted in Books, Uncategorized

This Week in Ridiculous Regulations

Posted on June 10, 2019 | Comments Off on This Week in Ridiculous Regulations

While the administration is so far keeping to its one-in, two-out policy for proposed rules, new trade and antitrust policies are likely to increase net burdens by billions of dollars. The nation also celebrated National Donut Day, a Competitive Enterprise Institute favorite. Meanwhile, agencies published new regulations ranging from video calls to flying to Cuba.

On to the data:

  • Last week, 56 new final regulations were published in the Federal Register, after 41 the previous week.
  • That’s the equivalent of a new regulation precisely every 3 hours.
  • Federal agencies have issued 1,154 final regulations in 2019. At that pace, there will be 2,623 new final regulations. Last year’s total was 3,367 regulations.
  • Last week, agencies published 484 notices, for a total of 9,446 in 2019. At that pace, there will be 21,469 new notices this year. Last year’s total was 22,205.
  • Last week, 1,241 new pages were added to the Federal Register, after 1,128 pages the previous week.
  • The 2019 Federal Register totals 26,737 pages. It is on pace for 60,766 pages. The 2018 total was 68,082 pages. The all-time record adjusted page count (which subtracts skips, jumps, and blank pages) is 96,994, set in 2016.
  • Rules are called “economically significant” if they have costs of $100 million or more in a given year. One such rule has been published this year. Six such rules were published in 2018.
  • The running compliance cost tally for 2019’s economically significant regulations currently ranges from $139.1 million to $175.8 million. The 2018 total ranges from $220.1 million to $2.54 billion, depending on discount rates and other assumptions.
  • Agencies have published 31 final rules meeting the broader definition of “significant” so far this year. 2018’s total was 108 significant final rules.
  • So far in 2019, 208 new rules affect small businesses; 11 of them are classified as significant. 2018’s totals were 660 rules affecting small businesses, with 29 of them significant.

Highlights from last week’s new final regulations:

For more data, see “Ten Thousand Commandments” and follow @10KC and @RegoftheDay on Twitter.

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Posted in regulation