What 3 skills do public policy analysts need?

I used to argue that the quality of public policy making would double if public policy analysts remembered the first 6 weeks of microeconomics 101 but on reflection more than that is required.

I picked up my initial insight out when working as a graduate economist in the Australian Department of Finance. That was a few years ago.

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I am now concluded that policy analysts also need to know the basics of the economics of tax incidence. Who pays the tax depends on the elasticities of supply and demand rather than who writes the check to the taxman.

The number of times that I have read media and public policy analysis saying who pays the tax is the writer of the cheque to the taxman is beyond counting.

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There is also what to do about unemployment and inflation. Do not just do something, sit there might be good advice on most occasions. As Tim Kehoe and Gonzalo Fernandez de Cordoba explain in the context of first do no harm:

Looking at the historical evidence, Kehoe and Prescott conclude that bad government policies are responsible for causing great depressions.

In particular, they hypothesize that, while different sorts of shocks can lead to ordinary business cycle downturns, overreaction by the government can prolong and deepen the downturn, turning it into a depression.

Sir Humphrey on how to discredit a report without reading it

SPECIFIC TYPES OF IRRATIONALITY THAT CAUSE GOVERNMENT FAILURE

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Source: Gary Lucas and Slavisa Tasic‘s "Behavioral Public Choice and the Law" (West Virginia Law Review, 2015) via Bryan Caplan

George Plunkitt of Tammany Hall on the difference between honest and dishonest political graft

In the book Plunkitt of Tammany Hall William Riordan published many of George Washington Plunkitt’s thoughts about government and about big city machines.  In the link below, you can find the passage that explains the difference between honest and dishonest graft.

Honest graft is using your connections and knowledge as a government official to enrich yourself.  It is essentially what we would now call “insider trading.” 

Honest graft is when a goverment official goes out (for example) and buys up land because he knows a city project will need that land and he will be able to make a lot of money by buying the land now while no one else knows that it is about to be bought by the city.  He can buy it cheap and then sell it at a higher price to the city.

Dishonest graft consists of doing things like blackmailing people who are doing illegal or semi-illegal things.  It can also consist of actually taking money directly from the city treasury. 

It is more of what you would expect mobsters to do–things like forcing prostitutes to pay money to police in order to be allowed to work in a given area rather than being arrested.

Source: How does George Plunkitt define “honest/dishonest graft”?   | eNotes.

Americans used to be much more trusting of government

@JulieAnneGenter tax havens underwrite The Great Escape from extreme poverty in developing countries

Tax havens and offshore financial centres are vital to the economic development of poor countries. There are plenty of countries, poor countries, where the ability to move funds offshore is fundamental to successful investment. That is missed in the reporting of the Panama Papers:

Consider the big names that have shown up so far on the list. With the notable exception of Iceland, these are not countries I would describe as “capitalist”: Russia, Pakistan, Iraq, Ukraine, Egypt.  They’re countries where kleptocratic government officials amass money not through commerce, but through quasi-legal extortion, or siphoning off the till. This is an activity that has gone on long before capitalism, and probably before there was money.

Tax havens and offshore financial centres offer a way in which entrepreneurs can make an honest investment, secure a return and put it aside safely from the reach of the minister’s cousin who wants to muscle in once the business succeeded.

A major problem in poor countries is short time horizons for investment. Entrepreneurs must make their money quickly.

Many years ago there is a survey of entrepreneurs in Russia and Poland. It was in the early 1990s. Each was asked whether an investment project that doubled their money in two years was worth the risk. The Russian entrepreneurs mostly said no, the Polish entrepreneur said yes.

So insecure are the returns from investment in Russia at that time that the phenomenal returns were required before an investment was made. They would only invest if they could double the money in two years.

Many years ago, Mancur Olson wrote an insightful book about prosperity and dictatorships. He introduced the concept of rights intensive production.

As countries become more and more developed, investment horizons lengthen and depends more and more upon the enforcement of contract and property rights in a tolerably honest way.

Instead of being the first entrepreneur to introduce the most basic technologies and profit handsomely, entrepreneurs are introducing a product upgrade or new product that is a minor improvement on current offerings. Such investments will take time to pay off.

In many developing countries, China as an example, property rights are insecure. One way to secure your investment is to take the proceeds offshore to a tax haven. If everything goes wrong, at least you got some nest egg overseas.

As many developing countries have corrupt politicians and dishonest courts, the way to secure gains from honest investments is to move some of the profits offshore. That is why tax havens are essential to poor countries growing richer.

One of the sources of Hong Kong prosperity was investors would deal with a Hong Kong-based company with the requisite political and economic links to China. They could enforce their contracts in China against their Hong Kong assets because the contract was based in Hong Kong under British law.

If the local legal system is inadequate, entrepreneurs well look overseas for mechanisms to force contracts and secure their returns on investments against confiscation.

Murray Rothbard vs. EU 1989!

The explosion of lead in the saddlebags of trade agreements @KennedyGraham @DavidShearerMP #TPPANoWay

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Source: CONVERSABLE ECONOMIST: A Fundamental Shift in the Nature of Trade Agreements

@toddmcclaymp #MFAT hasn’t heard of trade diversion? @DavidShearerMP #TPPANoWay @KennedyGraham

Trade diversion occurs when preferential trading agreements cause imports to shift from low cost countries to higher cost countries. Rather than gaining tariff revenue from inexpensive imports from world markets, a country may import expensive products from member countries but not gain any tariff revenue. An example of trade diversion is when Britain closed its doors to New Zealand agricultural exports after joining the common market.

Preferential trading agreements are trade agreements between countries in which they lower tariffs for each other but not for the rest of the world. The mass media mislabel them free trade agreements.

Under trade diversion, the partner country benefits from this change as an exporter, but the importing country loses due to this higher cost, as does the third country whose exports fall.

The loss to the importing country is not visible to consumers, who find the higher-cost product cheaper due to the absence of tariff. The country as a whole loses, with that loss being lost tariff revenue – lost to cover the cost of the higher cost imports from a member of the new preferential trading agreement.

Source: Key Graph 10 Trade Diversion versus Trade Creation in Joining a Trade Bloc: US Market for Imported Compact Cars.

It does not take much trade diversion to make a preferential trading agreement welfare reducing because of this switch to high cost producers.

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The New Zealand Minister of Trade and the Ministry of Foreign Affairs and Trade did not discuss this major risk even from the simplest preferential trading agreement in recent policy analysis of the TPPA as my Official Information Act request has revealed. The term trade version does not appear in any of their analysis.

Adherents of the natural trading partner hypothesis argue that preferential trade agreements are more likely to improve welfare if participating countries already trade disproportionately with each other. Opponents of the hypothesis claim that the opposite is true: welfare gains are likely to be greater if participating countries trade less with each other. The powerful critique by Bhagwati and Panagariya (1996) is now widely accepted and one hears little justification of on preferential trading agreements on the grounds of the natural trading partners hypothesis

This @amprog conservative antipoverty dictionary does not add up

The only alternative offered by the Centre for American Progress is send them on a course. This response, which is the standard policy response to any labour market crisis, will not solve poverty, mush less inequality.

Why did communism fall in the USSR?

I find many explanations of the fall of the USSR disappointing because many want to believe in people power and popular rebellions.

The rise and fall of mercantilism view of the USSR put forward by Pete Boettke will be the foundation of better explanations. By analysing communism as a rent-seeking society, the process of social and political evolution can be embedded into the history of the rise and fall of mercantilism.

More freedom in Russia and China came as an unintended by-product of a constitutional struggle over who would control the rules under which the economy prospered (or failed to prosper) and the sharing within the elite.

After the death of Stalin, the Soviet Nomenklatura used both co-option and political repression to encourage loyalty to the communist regime. As Grossman noted:

Under Stalin’s leadership the nomenklatura, after initially emphasizing a strategy of co-option, then experimented with political repression as a substitute for co-option, and finally, in response to the threats posed by German militarism and the onset of the Cold War, employed a combination of intense political repression and co-option. As a result, membership in the CPSU increased rapidly, then decreased sharply, before increasing rapidly again. After Stalin was gone the nomenklatura, having learned the cost of Stalin’s repressive excesses, adopted a policy that combined more co-option with less intense political repression. As a result, membership in the CPSU increased steadily, then levelled off, until the rapprochement between the United States and China, the emergence of Islamic fundamentalism, and the escalation of the cold war arms race resulted in yet more co-option and in the final episode of growth in party membership.

More and more of the general public in Russia and China were co-opted into the winning circle through peacefully adaptations when threats of revolution were minimal.

The cost of co-opting people into the Communist Party was a decrease in the standard of living of members of the Nomenklatura, whereas the cost of political repression was the danger that members of the Nomenklatura would themselves be victimized.

These successive minor reforms were mutual beneficial constitutional exchanges as suggested by Roger Congleton’s brilliant recent book on his king-and-council template and in Herschel Grossman’s earlier paper on co-option in the communist party from 1953 to 1989.

The USSR broke apart as the result of an internal power struggle within a new generation of leaders who grew up in a climate of corruption and high living.

Perestroika and glasnost should be viewed as nothing much more than the usual system reforms and rotations of patronage that were launched after the appointment of all previous Soviet leaders. As Anderson and Boettke explain

…upon closer examination, the succession of Gorbachev in general and the perestroika/glasnost “reform” program in particular bear a close resemblance to other, earlier Soviet government policy adjustments which followed shifts in the top leadership. Gorbachev’s behaviour as a “reformer” over the period 1985 to 1989 can be explained by reference to the incentives facing the dictator of a socialist state based on the distribution of economic privilege and political patronage… Gorbachev’s period of “reform” was not an extraordinary example of the role of ideology or vision in human affairs, but a more routine episode of rent-seeking in action.

Political and economic power was devolved to the 15 republics in the old USSR because this is the only way to operate a mercantilist state.

These local leaders formed their own alliances and declared succession from the USSR when the centre was too weak to fight. Local military units defected with them to a new rent-seeking coalition.

The fall of soviet communism led to a drawn out struggle for access to patronage and state monopolies and a new and better paid manifestation of the old mercantilism but ex-KGB owned and run under Putin.

Bring back @RusselNorman to save the planet from @NZGreens MPs carbon footprint @DBSeymour

Living the clean, green lifestyle means more than just buying carbon-offs in the same way that indulgences for sins were sold by the mediaeval Catholic Church. Russell Norman was an MP for 9 of the 12 months covered by this chart. He consistently had one of the smallest carbon footprints of a Green MP even when he was still co-leader of the Greens and not just a backbench MP.

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Source: New Zealand Parliament – Members’ expense disclosure from 1 October to 31 December 2015.

New Zealand MP travel expenses 1 October – 31 December 2015 @DBSeymour

10 of the 14 green MPs have above-average air travel expenses – have an above average carbon footprint for a member of the New Zealand Parliament. It is not easy to be Green.

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Source: New Zealand Parliament – Members’ expense disclosure from 1 October to 31 December 2015.

Solar powered parking meters

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The Philippines since martial law

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