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Posts Tagged ‘government’

Air Force General Gone Wild

Our podcast “Government Employees Gone Wild” was about The Encyclopedia of Ethical Failure, a guide published by the U.S. Department of Defense that details the true stories of big screw-ups by government employees. We are guessing that this story of Air Force general Michael Carey‘s trip to Moscow will make it into next year’s edition. From The Washington Post:

The Air Force has just released its official report on its investigation into Maj. Gen. Michael Carey’s July trip to Moscow, which got him fired in October. Carey oversaw three wings of nuclear-armed intercontinental ballistic missiles, with 450 ICBMs in all. At the time, the dismissal was reportedly over personal misconduct during the official trip. But “misconduct,” it turns out, does not even come close.


A 12-Step Program for Fuel Subsidy-aholics

Back when blog posts were composed with reed styluses on clay tablets, I put up a couple of posts (here and here) on fuel subsidies in the developing world. These are generally 1) fiscally ruinous; 2) terrible for the environment and traffic congestion;  3) highly regressive with regard to wealth distribution; and 4) market-distorting by artificially promoting fuel-guzzling industries. So I made the case that this is a pretty foolish public policy, in fact one of the worst I can think of. It’s up there with tobacco subsidies, the Concorde, pretty much everything the North Korean government has ever done, and our government’s failure in spending a paltry $615,000 taxpayer dollars for UC Santa Cruz students to digitize priceless Grateful Dead photographs, t-shirts and concert tickets.

Given the problems with fuel subsidies, I promised a third post on what to do to eliminate them. But since I have a day job, and being a professor is much more difficult than it looked when I was undergrad, I’ve procrastinated on putting this last post up. However, engineering student Kishore from India wrote asking where part three is, and customer satisfaction is a goal here at Freakonomics. Besides, no doubt governments around the world have been waiting impatiently for my post before they start dismantling their fuel subsidies, so here it is.

Given the damning case against fuel subsidies, and a rising swell of opinion that they are counterproductive on many levels, why don’t these policies go away? The IMF (see this) and I offer several reasons:


What the President Does — and, Importantly, Doesn't — Do

Between the N.S.A./Merkel mess and the ObamaCare mess, it seems a good time to ask a question we’ve asked in the past: just how much does the President of the United States really matter? Our original podcast on the topic came out in 2010; we overhauled the episode in 2012, adding interviews with Donald Rumsfeld and Austan Goolsbee.

As Jon Stewart puts it so well in the video below, if the President is out of the loop on Merkel eavesdropping and his namesake healthcare law, just what loops is he in? I do not mean to cast aspersions on President Obama himself (although you are free to cast away). I mean to highlight the possibility that we assign way too much weight to the role of the President generally.

What are the odds that you agree with my argument? Who knows. What are the odds that, even if you do agree, you will disagree once it’s time to elect the next President, and we get caught up once again in our Great Man Theory of Voting? 


The Folly of Eminent Domain Takings of Failing Mortgage Loans

University of Arizona economist Price Fishback, who has been on this blog before, is one of the leading scholars of the economics of the New Deal. He has a great new set of insights to share on the U.S. mortgage mess. He’s also the co-author of the forthcoming book Well Worth Saving: How the New Deal Safeguarded Home Ownership, with Jonathan Rose and Kenneth Snowden.

 

The Folly of Eminent Domain Takings of Failing Mortgage Loans
By Price Fishback

Several cities around the country are considering using eminent domain to take control of troubled mortgages in their cities.  An Associated Press example of how the proposal will work calls for the city to use eminent domain to force the lender to accept $150,000 for a $300,000 mortgage on a home that has a current market value of $200,000.  The city would then refinance the loan while cutting the principal owed by the borrower to $190,000.    

Eminent domain requires a public purpose for the taking of an asset.   The public purpose claimed here is that property values and property tax revenues can be boosted by preventing a mass of foreclosure sales.  Real estate studies do show that increasing numbers of foreclosure sales are associated with lower housing values in nearby neighborhoods.  However, the spillover benefits of preventing foreclosures, tend to be focused on houses in nearby neighborhoods. 


Dismantling the Social Safety Net

One of the major complaints of right-wing politicians against the Affordable Care Act (Obamacare) is its imposed mandates that individuals obtain health insurance and that larger businesses offer health insurance to employees.  The professed opposition is to the mandates, per se.  It ignores the mandates that both employers and workers pay taxes for Social Security coverage—old-age, disability, Medicare, and unemployment compensation.  Mandates are not new—nor is “government interference” in private choices about private insurance.

Opposition to the ACA mandates is really just a stalking horse for the eventual dismantling of the American social safety net. If the new mandates were to be dropped (unlikely, thank goodness), I would expect that their opponents would quickly move on to removing mandates for other programs that have been in effect for 70+ years.


Rent at Public Markets

At the Queen Victoria Market, an immense city-run collection of stalls and shops in Melbourne, Australia, a fishmonger at a prime corner is paying $5,500 per month to the City to operate there.  Since other fishmongers pay less, much of this payment is economic rent — payment for the visibility/access at this corner. But is the City extracting all the rent, or is it giving the fishmonger a good deal? 

This fishmonger has been in business at this location for a very long time.  That fact suggests that at most the City is not overcharging him, and perhaps it isn’t even extracting all the rent.  Whenever many public lessees in competitive businesses stay in business a long time, the public agency is probably granting them excess profits — at the public’s expense.


A Model of Government Efficiency (Not a Typo)

Ray Fisman and Tim Sullivan use the example of New York City’s surprisingly efficient passport office to explore an interesting question: “Why do some government offices perform well and others poorly, even when they’re providing the same services and working with comparable resources?” Fisman and Sullivan think it’s all about the management:

There’s an emerging body of research that chalks up these productivity gaps to the all-too-human ways that different companies (and divisions within a single organization) are managed. The fact that management matters—a lot—shouldn’t come as a shock to anyone who has ever worked under a good manager and also a bad one: Good managers coach, listen, support, and make their employees feel like they’re making progress. Bad ones don’t—often in uniquely horrible ways. And if this is true at for-profit companies, why wouldn’t it be true for branches of the government?

At the Hudson Street New York Passport Office, the management is Michael Hoffman:


The Quants and the Airlines Versus the Public

Baggage fees are a small part of the misery of American air travel. There’s also connecting flights, which, to paraphrase the Nuremberg judgment, contain within themselves the accumulated evil of the whole. For if air travel were pleasant, who would mind changing planes and spending more time in the system?

Instead, the airlines make us pay to avoid the extra hours — giving airlines an incentive to make air travel less pleasant. But once in a while you can beat the system.

For a memorial service at short notice, I once had to fly with my 2-year-old daughter to New York (and throw away our return flight to Boston). The price of a nonstop, one-way flight from Phoenix, Arizona to Newark, New Jersey: $1200 (for two people).

But what if I flew slightly farther, allegedly changed planes in Newark, but just left the airport? So I went back to airline’s website and asked for a one-way flight to Manchester, New Hampshire. It was only $400 (for two people). Not only did the flight connect in Newark, but the Phoenix–Newark leg was the same flight that cost $1200 nonstop!


What Will the Sequester Do to Education Spending in Your State?

With the sequester looming large, Business Insider has created a  set of interactive maps to demonstrate which states will be hit the hardest by cuts to the education budget. “The report [from the National Education Association] claims that, if the cuts kick in, 7.4 million students would be affected — which means that either the quality of education they receive will go down or be eliminated entirely. The funding cuts could also lead to 49,365 potential job losses,” writes Lisa Mahapatra. “But not all states will feel the hit equally. With more than $100 million cuts to their education budget, the states that will be most affected by the sequester are California, Texas, Illinois, New York and Florida.”


Who Controls the Switch on a Geoengineering Machine?

Most discussions about geoengineering start out with the tricky scientific issues but eventually get to the even trickier issue of governance. As we wrote in SuperFreakonomics:

As of this writing, there is no regulatory framework to prohibit anyone — a government, a private institution, even an individual — from putting sulfur dioxide in the atmosphere. (If there were, many of the world’s nearly eight thousand coal-burning electricity units would be in a lot of trouble.) Still, [Nathan] Myhrvold admits that “it would freak people out” if someone unilaterally built the thing.


The Benefits of the Safety Net

A new working paper (abstract; PDF) by Hilary W. Hoynes, Diane Whitmore Schanzenbach, and Douglas Almond examines the effects of in utero and childhood access to the social safety net, specifically food stamps:

A growing economics literature establishes a causal link between in utero shocks and health and human capital in adulthood. Most studies rely on extreme negative shocks such as famine and pandemics. We are the first to examine the impact of a positive and policy-driven change in economic resources available in utero and during childhood. In particular, we focus on the introduction of a key element of the U.S. safety net, the Food Stamp Program, which was rolled out across counties in the U.S. between 1961 and 1975. We use the Panel Study of Income Dynamics to assemble unique data linking family background and county of residence in early childhood to adult health and economic outcomes.


Return to Sender: What Can Postal Behavior Tell Us About a Nation?

I am not sure this is as meaningful as the authors think, but still it is an interesting experiment. From a new working paper called “Letter Grading Government Efficiency” by Alberto Chong, Rafael La Porta, Florencio Lopez-de-Silanes, and Andrei Shleifer:

We mailed letters to non-existent business addresses in 159 countries (10 per country), and measured whether they come back to the return address in the U.S. and how long it takes.  About 60% of the letters were returned, taking over 6 months, on average.  The results provide new objective indicators of government efficiency across countries, based on a simple and universal service, and allow us to shed light on its determinants.  The evidence suggests that both technology and management quality influence the quality of government.

I am happy to read that final sentence but surprised it needed to be said. This paper may tickle your memory with thoughts of Stanley Milgram‘s “small-world experiment” (better known as “six degrees of separation“) and Judith Kleinfeld‘s reassessment of that experiment as told in Duncan Watts‘s excellent book Six Degrees.


How Will California's Parks Do Under Private Management?

California embarked this week on a grand experiment in common property resource management when, in order to help close a gaping budget hole, it turns over dozens of state parks to private firms and community coalitions.

Seventy of the state’s 278 parks were set to close July 1. But a last-minute change to the state budget will keep all but five open, though many will not be managed by the state. At least six parks will remain open under corporate contracts with firms like American Land and Leisure, which operates campgrounds in 12 states. Dozens more have been rescued, at least temporarily, by local municipalities, private donors, and non-profit organizations.

Economists have long-held that the tragedy of the commons — any individual has too little incentive to protect from exploitation a non-excludable resource he holds in common with potentially countless others — could only be overcome by state intervention or private ownership.


The Economics of For-Profit Prisons

The Times-Picayune reports on Louisiana’s prison ecosystem — and the perverse incentives for sheriffs to keep inmate numbers high:

Louisiana’s incarceration rate is nearly triple Iran’s, seven times China’s and 10 times Germany’s.

The hidden engine behind the state’s well-oiled prison machine is cold, hard cash. A majority of Louisiana inmates are housed in for-profit facilities, which must be supplied with a constant influx of human beings or a $182 million industry will go bankrupt.

Several homegrown private prison companies command a slice of the market. But in a uniquely Louisiana twist, most prison entrepreneurs are rural sheriffs, who hold tremendous sway in remote parishes like Madison, Avoyelles, East Carroll and Concordia. A good portion of Louisiana law enforcement is financed with dollars legally skimmed off the top of prison operations.


The Train, The Train! Federal Transportation Legislation: Be Careful What You Wish For

Hi all! Sorry I haven’t been writing much of late; I’ve been dealing with the minor matters of filing a dissertation and finding myself gainful employment. The first step is complete: I get to call myself a doctor now, though it is a source of considerable disappointment to my friends that after almost eight years of study I’m not the kind of doctor who can prescribe them medical marijuana. The second step is complete too: I’ll be joining the faculty at Clemson University in South Carolina as an assistant professor in the fall. I’m thrilled to be going to Clemson as I think very highly of the department, the setting, and winning college football.

Anyway, I’m going to try to get back in the habit of writing more regularly, this time about my dreams for transportation—which are turning out to be nightmares. Like one of those stories where a genie gives you three wishes and every one of them boomerangs. Or even better, a bad episode of Fantasy Island:


Solar Subsidies

We are installing over 30 solar panels on our roof. The City of Austin currently offers a rebate up to $15,000 of 60 percent of the cost, and the federal government gives a 30 percent credit on the remainder.  With those subsidies the rate of return on our own investment is 17 percent, making this is a superb deal for us.

A neighbor in the Netherlands has 4 solar panels on his roof, a strangely small number.  I asked why.  His answer:  The Dutch government pays up to €1500 if you install a solar installation.  Each solar panel costs him €450, with a fixed cost of about €200 for the installation. Thus his average rate of return on his 4 panels is about 25 percent, a great investment. 


Acemoglu and Robinson Answer Your Questions

Last week, we solicited your questions for economist Daron Acemoglu and political scientist Jim Robinson, who just published a new book called Why Nations Fail: The Origins of Power, Prosperity, and Poverty and are now blogging on a variety of interesting development topics.

Their thoughtful responses below cover everything from robber barons to the artificial construction of African nations to whether the race of a country’s leaders determines its success.  A big thanks to Daron, Jim, and all our readers for another great Q&A.  

First, a note from Daron and Jim: “We thank everybody for these excellent questions and comments. We had to pick a few to be able to provide detailed answers.


Tax Deductions or Tax Expenditures?

Chances are, you’re going to spend tonight finalizing your taxes, making sure that you ferret every last deduction. And probably pretty pleased to be getting these deductions; but when you dig in a bit deeper, you may not be so sure — at least that’s what Betsey Stevenson and I argue in our latest column.

In fact, tax breaks are no different from either government handouts, or federal mandates, whether evaluated in terms of your finances, the government’s finances, or incentives:

Instead of looking at all the breaks for mortgage interest, health care, retirement savings and so on as deductions, picture the government writing you a check for each item. This equivalence between tax deductions and government spending leads economists to call them “tax expenditures.” Reformers have hit on an even more pointed description: spending through the tax code.


The Retirement Robbery

Since putting email back in its corral, I’ve turned some recovered time to reading actual books in print — the latest being Retirement Heist: How Companies Plunder and Profit from the Nest Eggs of American Workers by Ellen E. Schultz. If a nation of sheep shall beget a government of wolves, then the lesson from Retirement Heist is that today the shears are sharpened with numbers.

Retirement Heist is, as one blurb describes, a “meticulously researched and gripping as a crime thriller.” Each chapter explains, with detailed research data and outrage-generating examples, yet another method corporations use to steal retirement benefits and mask the theft behind accounting shenanigans. It is one of the few books (since Cadillac Desert) to describe outrageous behavior so well that I threw it across the room.


Wondering Why Nations Fail? Bring Your Questions for Daron Acemoglu and James Robinson

When it comes to economic ideas, Daron Acemoglu never thinks small. Widely acknowledged as one of the most insightful economists alive, Daron seems to have brilliant things to say about any and all things economic.

When you have that sort of gift, you might as well go after the biggest problems imaginable.  Thus his latest book, Why Nations Fail, written with Harvard political scientist James Robinson.

It is an awesome piece of work.  So full of ideas and wisdom, but still so easy to read.  I just love it.  Daron and Jim have agreed to take your questions about their new book, so please leave them in the comments section below.  To get you started, here’s the table of contents:


Ed Glaeser Argues Against Food Stamps

Over at Bloomberg View, Ed Glaeser argues that the shift in government aid from cash payments to in-kind transfers like food stamps is a mistake:

We should ask for two things from any redistribution system. It should do as much as possible for society, especially the poor. It should do as little as possible to encourage permanent poverty. And, whenever possible, it should help poor Americans find a path toward self-sustaining prosperity.


Freakonomics Quorum: Can Amtrak Ever Be Profitable?

Amtrak’s ridership and revenue has been steadily increasing over the last 10 years, and 2011 set a new ridership record with 30.2 million passengers, and $1.9 billion in ticket revenue. But, even though it took in $1.42 billion from Congress last year, it still manages to lose $1 billion annually. This is hardly a new development. Amtrak has a long and storied history of functioning at a loss despite government subsidies.

So, as we enter what appears to be a new era (maybe?) of government austerity, it seems worth asking if Amtrak can ever turn a profit without government help. We rounded up some people who pay attention to this issue and asked for their ideas to fix Amtrak, if it can be fixed at all.


An Inequality Tax Trigger: The Brandeis Ratio Explained

On Monday, Aaron Edlin and I published a cri de coeur op-ed in the New York Times calling for a Brandeis tax, an automatic tax that would put the brakes on income inequality. This is the second in a series of posts (the first post is here) explaining more about our rationale and providing more details on how a Brandeis tax might be implemented.

An Inequality Tax Trigger
By Ian Ayres and Aaron Edlin

A central idea behind our Brandeis tax proposal was to have a tax that is triggered by increases in inequality. Our Brandeis tax does not target excessive income per se; it only caps inequality. Billionaires could double their current income without the tax kicking in — as long as the median income also doubles. The sky is the limit for the rich as long as the “rising tide lifts all boats.” Indeed, the tax gives job creators an extra reason to make sure that corporate wealth does in fact trickle down.


Horizontal vs. Vertical: An International Comparison of Teaching Methods

A new study released by NBER from authors Yann Algan, Pierre Cahuc and Andrei Shleifer takes a look at how teaching practices affect social capital. It’s long and detailed, so we’ll only give you the highlights: in a nutshell, there are major differences between societies that teach vertically (like a teacher lecturing) and societies that teach horizontally (with students working together in groups.)

And because everyone loves international comparisons, the difference between horizontal and vertical countries breaks down as follows:

Students work in groups more in Nordic countries (Denmark, Norway, Sweden) and Anglo-Saxon countries (Australia, United States and to a lesser extent Great Britain). This teaching practice is less common in East European countries and the Mediterranean (Greece, Cyprus, Portugal and, to a lesser extent, Italy). In contrast, in East European and Mediterranean countries, teachers spend more timing lecturing.


Taking Risks to Improve Government: Kenya and Georgia

McKinsey is out with a new report on government innovation in Kenya and the Republic of Georgia. It’s basically the story of how developing countries can harness technology to circumvent entrenched bureaucracy and make government both cheaper and more efficient.
Here are both cases in a nutshell, with a couple snippets from each:
Kenya:

Challenge: Nearly 40% of Kenyans live on less than $2 a day, and corruption is still cited as an ongoing challenge for citizens and businesses. The World Bank has reported, however, that if Kenya can sustain its recent growth rate, it’s on track to become a lower-middle-income country in the next decade. And a new constitution establishes the citizen’s right to access government information—a right that must now be implemented.


Your End of Days: Would Life-Length Testing Save the Government Money?

A Spanish company announced this summer that it can help determine when people will die by using a blood sample, a $700 test, and research that earned three American geneticists the Nobel Prize in medicine in 2009. Though the test has its critics, and though it won’t offer an exact date for one’s death, it does promise to reduce uncertainty about longevity by examining a tiny part of DNA that reveals biological age as opposed to chronological age. Successive generations of the test are likely to improve in predictive power.
Our ignorance about an individual’s longevity is the source of a number of problems. Many of them are personal, but some have implications for society writ large, and taxpayers in particular. So one wonders: if the government can make you confront the calorie content of your diet, can it also make you confront your mortality?
If the government were to mandate “life length” testing, it could help resolve the intractable lifetime savings problem. Pervasive under-saving among households is a result of our impatience, to be sure, but it is certainly also a consequence of the fact that no one knows how long his savings need to last. Save too much and you miss out on having fun when you’re alive. Save too little and you end up broke and reliant on the social safety net that taxpayers fund.


Give Me Liberty, or Give Me Steps

James Barron and Sydney Ember write in the New York Times about the upcoming closure of the crown of the Statue of Liberty. If you are skeptical of how the government spends money, this article will fuel your fire.
Barron and Ember write:

Interior Secretary Ken Salazar says it [the crown of the Statue of Liberty] needs a $27.25 million renovation for additional safety improvements that he promised in 2009.

My guess is that, even by government standards, this is a project where the safety benefit per dollar spent is miniscule, or non-existent.


Is the Debt Cap Unconstitutional? A "Thought Experiment" from 1998

Recent discussions of whether the Fourteenth Amendment’s Public Debt Clause would allow the president to ignore the debt limit reminded me of a paper on the topic that a former student of mine, Michael Abramowicz, wrote under my supervision almost fifteen years ago. Michael has since become a prolific scholar on other topics, and this year he had the rare distinction of publishing articles in both the Harvard Law Review (here) and the Yale Law Journal (here). Meanwhile, he and I have recently coauthored twice, on randomizing law (also with my colleague Yair Listokin) and on using bonds as commitment devices. I tried to find Michael’s old article with Google and couldn’t, so I wrote to him asking about it. With his permission, I include here his reply:


Government Safety Regulation: Kind Mother or Big Brother?

Jeff Mosenkis, a freelance producer with Freakonomics Radio, holds a Ph.D. in psychology and comparative human development.
Government Safety Regulation: Kind Mother or Big Brother?
By Jeff Mosenkis
On the same day last week, news stories broke about two different parts of government demonstrating two different ideological approaches to regulating consumer safety. In the first, the FDA came out with rules standardizing the labeling of sunscreen, after 33 years of deliberation.
Presumably, the reasoning behind making sure the claims on sunscreens are clear and uniform across different products (like the standardized nutrition information on food packaging) is to allow consumers to make better decisions for themselves. Let’s call this the Kind Mother approach.We are given information that strongly hints at which is the right choice, but ultimately are still able to decide for ourselves.
At the same time, the Consumer Product Safety Commission (CPSC) has directed its staff to draft regulations governing the safety of table saws. An estimated 40,000 people are injured every year when hands, fingers or other body parts find their way into the path of a table saw blade.