Thursday, June 6, 2013

If you're paying, I'll have top sirloin

This brilliant Russ Roberts essay, copied from here, explains why costs don't go down once government is involved in an industry - Education, Healthcare, Defense, Infrastructure, or anything else. 

Because if you're paying, and I don't know you, and I'm not likely to ever meet you, I'm having top sirloin.  And a loaded baked potato with two appetizers.  And let's bring out that pint of Crown Royal to chase it with, shall we?  Here's Mr. Roberts:

As Congress prepares to try to cut spending, I am reminded of an evening last fall at the St. Louis Repertory Theater, our local company. Before the curtain rose, the company's director appeared and encouraged us to vote against a ballot proposition to limit state taxes. He feared it would lead to reduced funding for the company.
I turned to the woman sitting next to me and asked her if she felt guilty knowing that her ticket was subsidized by some farmer in the "boot-heel" of Missouri. No, she answered, he's probably getting something, too. She seemed to be implying that somehow, it all evened out.

I left her alone, but I wanted to say, no it doesn't even out. If it "evened out" for everybody, then government spending would really be depressing: all that money shuffled around, all those people working at the IRS, all those marginal tax rates discouraging work effort just to get everybody to get the same deal.

Here in St. Louis we recently completed Metrolink, a light rail system. It cost $380 million to build. We locals contributed zero out of pocket. It was paid for by the rest of the country. Shouldn't we feel guilty making people in Kentucky, Mississippi and Maine pay for our trips to the hockey arena downtown? No, say the beneficiaries. After all, we paid for BART in San Francisco and MARTA in Atlanta and all the other extraordinarily expensive, underutilized public transportation systems whose benefits fall far short of their costs. It's only fair we get our turn at the trough.

This destructive justification reminds me of a very strange restaurant.

When you eat there, you usually spend about $6—you have a sandwich, some fries and a drink. Of course you'd also enjoy dessert and a second drink, but that costs an additional $4. The extra food isn't worth $4 to you, so you stick with the $6 meal.

Sometimes, you go to the same restaurant with three friends. The four of you are in the habit of splitting the check evenly. You realize after a while that the $4 drink and dessert will end up costing you only $1, because the total tab is split four ways. Should you order the drink and dessert? If you're a nice person, you might want to spare your friends from having to subsidize your extravagance. Then it dawns on you that they may be ordering extras financed out of your pocket. But they're your friends. They wouldn't do that to you and you wouldn't do that to them. And if anyone tries it among the group, social pressure will keep things under control.

But now suppose the tab is split not at each table but across the 100 diners that evening across all the tables. Now adding the $4 drink and dessert costs only 4¢. Splurging is easy to justify now. In fact you won't just add a drink and dessert; you'll upgrade to the steak and add a bottle of wine. Suppose you and everyone else each orders $40 worth of food. The tab for the entire restaurant will be $4000. Divided by the 100 diners, your bill comes to $40. Here is the irony. Like my neighbor at the theater, you'll get your "fair share." The stranger at the restaurant a few tables over pays for your meal, but you also help subsidize his. It all "evens out."

But this outcome is a disaster. When you dine alone, you spend $6. The extra $34 of steak and other treats are not worth it. But in competition with the others, you've chosen a meal far out of your price range whose enjoyment falls far short of its cost.

Self-restraint goes unrewarded. If you go back to ordering your $6 meal in hopes of saving money, your tab will be close to $40 anyway unless the other 99 diners cut back also. The good citizen feels like a chump.

And so we read of the freshman Congressman who comes to Congress eager to cut pork out of the budget but in trouble back home because local projects will also come under the knife. Instead of being proud to lead the way, he is forced to fight for those projects to make sure his district gets its "fair share."

Matters get much worse when there are gluttons and drunkards at the restaurant mixing with dieters and teetotalers. The average tab might be $40, but some are eating $80 worth of food while others are stuck with a salad and an iced tea.

Those with modest appetites would like to flee the smorgasbord, but suppose it's the only restaurant in town and you are forced to eat there every night. Resentment and anger come naturally. And being the only restaurant in town, you can imagine the quality of the service.

Such a restaurant can be a happy place if the light eaters enjoy watching the gluttony of those who eat and drink with gusto. Many government programs generate a comparable wide range of support. But many do not. How many Americans other than farmers benefit from the farm subsidy programs? How many Americans other than train riders derive benefit from the Amtrak subsidy?

People who are overeating at the expense of others should be ashamed. That shame will return when others are forced to cut back too. This requires deep cuts and an end to the government smorgasbord where the few benefit at the expense of the many.

TANSTAAFL.  There ain't no such thing as a free lunch.  And thanks for paying!! 

Wednesday, June 5, 2013

The IRS, The DOJ, The FDA, and Milton Friedman's Barking Cat

Why are people surprised that the IRS targeted groups that want a smaller IRS? 

Why do almost half of us think that Obama is lying when he says he didn't know that the IRS was targeting groups that want a smaller IRS? 

If you worked for the IRS, and had a great salary, would you want a larger IRS or a smaller IRS?  Would you use your power to intimidate people who wanted a smaller IRS?  Unless your name is Gandhi or Jesus, you would do exactly and precisely what the IRS did.  You would target your enemies. 
Almost half of Americans say President Barack Obama isn’t telling the truth when he says he didn’t know the Internal Revenue Service was giving extra scrutiny to the applications of small government groups seeking tax-exempt status.

.Forty-seven percent of Americans say they don’t believe Obama compared with 40 percent who say he is being truthful, according to a Bloomberg National Poll of 1,002 adults conducted May 31 through June 3.

More than half of political independents -- 53 percent -- say Obama’s explanation that he learned it from media reports is untrue, while 34 percent say they believe him.
Why is this even called a "scandal"?  It's.... what.... large.... powerful.... governments..... do. 

1) They protect themselves and their families. 
2) They protect their organization.
3) Then they look out for you. Maybe.  All other considerations are in a distant 3rd place. 

To expect an honest, selfless system of angelic revenue thieves is to demand what Milton Friedman called a "Barking Cat".  Friedman used the example of the FDA slowing down pharmaceutical advancement, but you can insert FBI, CIA, Tarrant Regional Water District, VA Hospital, or any other government organization that has the power to control others.
Friedman got a letter that began as follows: "In contrast to your opinion, I do not believe that the FDA should be abolished, but I do believe that its power should be" changed in (such and such a way)....

Friedman replied as follows: "What would you think of someone who said, " I would like to have a cat, provided it barked"? Yet your statement that you favor an FDA provided it behaves as you believe desirable is precisely equivalent. The biological laws that specify the characteristics of cats are no more rigid than the political laws that specify the behavior of governmental agencies once they are established. The way the FDA now behaves, and the adverse consequences are not an accident, not a result of some easily corrected human mistake, but a consequence of its constitution in precisely the same way that a meow is related to the constitution of a cat. As a natural scientist, you recognize that you cannot assign characteristics at will to chemical and biological entities, cannot demand that cats bark or water burn. Why do you suppose that the situation is different in the "social sciences?"

The error of supposing that the behavior of social organisms can be shaped at will is widespread. It is the fundamental error of most so-called reformers. It explains why they so often believe that the fault lies in the man, not the "system," that the way to solve problems is to "throw the rascals out" and put well-meaning people in charge. It explains why their reforms, when ostensibly achieved, so often go astray.

The harm done by the FDA does not result from defects in the men in charge-unless it be a defect to be human. Most are and have been able, devoted and public-spirited civil servants. What reformers so often fail to recognize is that social, political and economic pressures determine the behavior of the men supposedly in charge of a governmental agency to a far greater extent than they determine its behavior. No doubt there are exceptions, but they are exceedingly rare-about as rare as barking cats.
This is what Big Government organizations do.  They abuse their power.  They look out for themselves.  In economics, it's called "Public Choice".  I understand the theory better than I do the name. 
As James Buchanan artfully defined it, public choice is “politics without romance.” The wishful thinking it displaced presumes that participants in the political sphere aspire to promote the common good. In the conventional “public interest” view, public officials are portrayed as benevolent “public servants” who faithfully carry out the “will of the people.” In tending to the public’s business, voters, politicians, and policymakers are supposed somehow to rise above their own parochial concerns.

Public "servants" look out for themselves before they look out for you.  And cats don't bark. 
Well, Friedman acknowledged that some cats might rarely bark, but only when they think none of their co-workers are watching. 

Monday, June 3, 2013

Best quote ever on government-funded education

"The education of a free people, like their property, will always be directed more beneficially for them when it is in their own hands. When government interferes, it directs its efforts more to make people obedient and docile than wise and happy. It devises to control the thoughts, and fashion even the minds of its subjects; and to give into its hands the power of educating the people is the widest possible extension of that most pernicious practice which has so long desolated society, of allowing one or a few men to direct the actions, and control the conduct of millions. Men had better be without education—properly so called, for nature of herself teaches us many valuable truths—than be educated by their rulers; for then education is but the mere breaking in of the steer to the yoke; the mere discipline of a hunting dog, which, by dint of severity, is made to forego the strongest impulse of nature, and instead of devouring his prey, to hasten with it to the feet of his master." - Thomas Hodgskin, Mechanics' Magazine, 1823

The picture of a dog bringing a duck back to the feet of his master came from here.