A challenge for @GarethMorgannz on disagreement in public policy making
21 Apr 2016 Leave a comment
in applied price theory, comparative institutional analysis, constitutional political economy, politics - New Zealand, Public Choice, rentseeking Tags: action bias, conjecture refutation, motivated reasoning, The fatal conceit, The pretense to knowledge
SPECIFIC TYPES OF IRRATIONALITY THAT CAUSE GOVERNMENT FAILURE
21 Apr 2016 Leave a comment
in applied price theory, comparative institutional analysis, constitutional political economy, economics of bureaucracy, economics of information, Public Choice Tags: behavioural public choice, growth of government, rational irrationality, size of government
Source: Gary Lucas and Slavisa Tasic‘s "Behavioral Public Choice and the Law" (West Virginia Law Review, 2015) via Bryan Caplan
Thinking about The Great Leap Forward | Econbrowser
19 Apr 2016 Leave a comment
in applied price theory, applied welfare economics, comparative institutional analysis, development economics, economic growth, economic history, growth disasters, industrial organisation, law and economics, Marxist economics, Public Choice, rentseeking Tags: China, economics of planning, extreme poverty, famine, Great Leap Forward
Solution aversion and the anti-science Left
11 Mar 2016 1 Comment
in applied price theory, applied welfare economics, comparative institutional analysis, constitutional political economy, economics of regulation, energy economics, environmental economics, global warming, health economics, law and economics, politics - Australia, politics - New Zealand, politics - USA, property rights, Public Choice Tags: antiscience left, climate alarmism, geo-engineering, GMOs, growth of knowledge, gun control, motivated reasoning, nuclear power, political persuasion, solar power, solution aversion, wind power
Climate science is the latest manifestation of solution aversion: denying a problem because it has a costly solution. The Right does this on climate science, the Left does it on gun control, GMOs, and plenty more. Cass Sunstein explains:
It is often said that people who don’t want to solve the problem of climate change reject the underlying science, and hence don’t think there’s any problem to solve.
But consider a different possibility: Because they reject the proposed solution, they dismiss the science. If this is right, our whole picture of the politics of climate change is off.
Some psychologists wasted grant money on lab experiments to show that people that think the solution to a problem is costly tend to rubbish every aspect of the argument. Any politician will tell you you do not concede anything. Sunstein again:
Campbell and Kay asked the participants whether they agreed with the IPCC. And in both, about 80 percent of Democrats did agree; the policy solutions made no difference.
Republicans, in contrast, were far more likely to agree with the IPCC when the proposed solution didn’t involve regulatory restrictions…
Here, then, is powerful evidence that many people (of course not all) who purport to be skeptical about climate science are motivated by their hostility to costly regulation.
The Left is equally prone to motivated readings. For example, it was found that those on the left are much more concerned about home invasions when gun control can reduce them rather than increase them.
The Left picks and chooses which scientific consensus as it accepts. The overwhelming consensus among researchers is biotech crops are safe for humans and the environment. This is a conclusion that is rejected by the very environmentalist organisations that loudly insist on the policy relevance of the scientific consensus on global warming.
Previously the precautionary principle was used to introduce doubt when there was no doubt. But when climate science turned in their favour, environmentalists wanted public policy to be based on the latest science.
The Right is welcoming of the science of nuclear energy or geo-engineering. The Left rejects it point-blank. Their refusal to consider nuclear energy as a solution to global warming is a classic example of solution aversion. Let he who is without sin cast the first stone.
Monopolies and patents can breed deadweight loss and market inefficiencies
11 Mar 2016 Leave a comment
in applied price theory, applied welfare economics, comparative institutional analysis, law and economics, politics - Australia, politics - New Zealand, politics - USA, property rights Tags: intellectual monopolies, patents and copyright
Negative Externalities and the Coase Theorem
06 Mar 2016 Leave a comment
in applied price theory, applied welfare economics, comparative institutional analysis, history of economic thought, law and economics, property rights Tags: Coase theorem
Why are conspiracy theorists so trusting of citizen initiated binding referendums?
04 Mar 2016 Leave a comment
in comparative institutional analysis, constitutional political economy, politics - New Zealand, Public Choice
After reflecting far more than I should on some conspiracy laden testimony at Parliament yesterday, one of the things I recall was a demand that the approval of the TPPA be put to binding referendum. The conspiracy theorist at hand was deeply concerned about how that treaty was encroaching on New Zealand’s sovereignty.
Why did this conspiracy theorist assume that a binding referendum will go his way and that opposing conspiracy theorists will not put up their own binding referendums in which he will lose?

The major drawback of citizen initiated referendums is any bunch of people can put them up much to the annoyance of those who will be a victim of the law to be passed.

Just as rotation of power is inherent to Parliamentary democracy, the ability of the crazies to the either the left or the right of you to initiate their own binding citizen initiated referendums. The first referendum is likely to be on one of the following:
- decriminalising marijuana,
- banning smoking,
- voluntary euthanasia,
- a living wage,
- life means life in prison,
- same-sex marriages,
- marriage is between a man and a woman,
- entrenching the Treaty of Waitangi,
- abolishing the Maori seats,
- entrenching the Maori seats,
- stop school closures,
- capital punishment; and
- future referendums not be binding.
Binding referenda are unworkable. Parliament can’t amend them later as we learn from the implementation of the law and unintended consequences arise. Every new law is riddled with unintended consequences and blow-backs.
Do you really want to have to have another referendum to undo a binding referendum that turned out to be a bit of a mistake? One of the few redeeming features of the Parliament that is sovereign – a parliament for can make or unmake any law whatsoever – is it can repeal its mistakes quickly.
The first citizens initiated referendum was held on 2 December 1995. The question was
Should the number of professional fire-fighters employed full-time in the New Zealand Fire Service be reduced below the number employed in 1 January 1995?
Turnout was low as the referendum was not held in conjunction with a general election, and the measure was voted down easily, with just over 12% voting “Yes” and almost 88% voting “No”.
The key to constitutional design is not empowering you and yours – it is how to restrain those crazies to the Left or the Right of you, as the case may be, when they get their hands on the levers of power, as they surely will in three, six or nine years’ time.
The one inevitability of democracy is power rotates – unbridled power and binding referenda lose their shine when you must share that power with the opposing side of politics who put up their own referendum question.
Constitutions are brakes, not accelerators. Much of constitutional design is about checks and balances and the division of power to slow the impassioned majority down.
Conspiracy theorists that pretty much sore losers. The last thing they want is a binding referendum on a topic on which they are going to vote no.

The problem of constitutional design was ensuring that government powers would be effectively limited. The constitutions were designed and put in place by the classical liberals to check or constrain the power of the state over individuals.
The motivating force of the classical liberals was never one of making government work better or even of insuring that all interests were more fully represented. Built in conflict and institutional tensions were to act as constraints on the power and the size of government.
Modern democracy is government subject to electoral checks. Citizens do have sufficient knowledge and sophistication to vote out leaders who are performing poorly or contrary to their wishes. Modern democracy is the power to replace governments at periodic elections.
The power of the electorate to turn elected officials out of office at the next election gives elected officials an incentive to adopt policies that do not outrage public opinion and administer the policies with some minimum honesty and competence.
Too many want to remake democracy with the faculty workshop as their model. Such deliberation has demanding requirements for popular participation in the democratic process, including a high level of knowledge and analytical sophistication and an absence, or at least severe curtailment, of self-interested motive. The same goes for citizen initiated binding referendums.
The rotation of power is common in democracies, and the worst rise to the top, so it is wise to design constitutional safeguards to minimise the damage done when those crazies to the right or left of you get their chance in office, as they will.
State power was something that classical liberals feared, and the problem of constitutional design is insuring that such power would be effectively limited. Conspiracy theorists lose all their fear of power by drinking on the heady wine of citizens initiated referendum. Be careful for what you wish for.
Data chauvinism versus the 1st law of public policy development
25 Feb 2016 Leave a comment
in applied welfare economics, comparative institutional analysis, economics of bureaucracy, Public Choice
I learnt at the Australian Productivity Commission that the first law of public policy development is plagiarise, plagiarise, plagiarise. Why be original? Copy the successes of others, improve upon them, but do not repeat their failures, just learn from them.
I developed this policy insight from my experience at the Productivity Commission with a smart-arse Commissioner – that was the chairman’s private description of him in a conversation with me, not mine.
This Commissioner with whom I had countless arguments would respond to the many US studies I had marshalled by always asking for Australian evidence – what is the Australian evidence?
He knew that there was no Australian data or studies so he could slow the whole policy process down through this appeal to data chauvinism. The Americans are swimming in data and that is before you get to their cross-sectional data with 50 states.
Ever since then, I regarded data chauvinism – the request for Australian evidence and studies or New Zealand evidence and studies – as a stalling tactic designed either to defend the status quo.
By and large, all the local evidence shows when it augments the US studies is how a local regulation or tax screws things up further. Local evidence rarely served the interests of my opponents who were fighting against deregulation or privatisation.

It is a good public policy – you are much more likely to implement a proposal or act on a particular empirical study – if there are half a dozen to a dozen overseas studies preferably in several different countries showing much the same thing. Beware the man of one study. Milton Friedman (1957) rightly preferred to emphasize the congruence of evidence from a number of different sources and with due attention to the quality of the data:
I have preferred to place major emphasis on the consistency of results from different studies and to cover lightly a wide range of evidence rather than to examine intensively a few limited studies.
The role of empirical evidence is to resolve disagreements – to bring people closer together. One study in one country rarely does that. Many studies in many countries about the same topic of controversy is far more persuasive.
Save Our Parks! How to Keep National Parks Open
25 Feb 2016 Leave a comment
in applied price theory, comparative institutional analysis, environmental economics, law and economics, property rights, resource economics Tags: contracting-out, free market environmentalism, national parks, privatisation
@GarethMP proves the case for privatisation when arguing against privatisation
24 Feb 2016 Leave a comment
in applied price theory, comparative institutional analysis, economics of bureaucracy, industrial organisation, politics - New Zealand, Public Choice, public economics Tags: anti-market bias, New Zealand Greens, privatisation, rational irrationality, state owned enterprises

Green MP Gareth Hughes today nailed the case as to why governments should never run businesses. Too many MPs simply do not understand what dividends represent and what the profits from asset sales represent.
Hughes was reported today saying that taxpayers lost nearly $1 billion in dividends since the recent privatisations of power companies. He is the Green party spokesman on state owned enterprises.
Source: Asset sales cost hits $1 billion | Green Party of Aotearoa New Zealand.
Does the Green Party understand that an asset sells for a price equal to its risk-adjusted discounted net present value of the stream of dividends. When you sell a financial asset, you cash out the net present value of the stream of dividends that might have come from those assets.
The Greens, who are prissy about government transparency and dishonesty of their opponents, did not mention the $4.7 billion in revenue from the asset sale. Taxpayers now receiving more in dividends as a part owner of the privatised power companies than they did as a full owner.
Hughes had the cheek to complain about the politicisation of those privatisations such as favourable terms for small share buyers. That inability of governments to even sell an asset competently is a strong reason why governments should never run businesses in the first place.
If an asset cannot be sold in the full light of day – a major issue in an election campaign and a referendum – without the sale price that is politicised, what is the chance of good management of any state-owned enterprise when it is not the central focus of opposition scrutiny?
It is been many years since dividends from the state-owned enterprise portfolio has been a net positive cash flow for the taxpayer, as the chart below shows.
Source: New Zealand Treasury – data released under the Official Information Act.
KiwiRail and Solid Energy gobbled up whatever dividends came out of the power companies. Aside from power companies, state-owned enterprises not really offer much in the way of dividends to the taxpayer as the chart again shows.
Note from @paulkrugman to @BernieSanders @JeremyCorbyn and their supporters
23 Feb 2016 Leave a comment
in applied price theory, comparative institutional analysis, constitutional political economy, economic history, economics of media and culture, economics of regulation, labour economics, macroeconomics, Marxist economics, politics - USA Tags: 2016 presidential election, antiforeign bias, antimarket bias, British politics, Leftover Left, make-work bias, rational ignorance, rational irrationality, renegade Left, Twitter left



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