Brink Lindsey and Steve Teles push liberaltarianism

the point of convergence is where anti-statism and egalitarianism meet

That is from their new book, The Captured Economy. They discuss four areas in which public policy exacerbates inequality: housing finance subsidies, intellectual property protection, occupational licensing, and urban land-use regulation. Thus, these are four areas in which a libertarian preference for less government and a progressive preference for less inequality can be served by the same policy changes–hence the “convergence.”

I found much to like in the book, particularly the discussion of the financial crisis, which puts more of the blame where I think it belongs and less on the places where I think it does not belong. In fact, I found the discussion so congenial that I did a search for “Kling” to see if I was in the footnotes somewhere, but I wasn’t.

I quibble when they write,

Of the four case studies we examined, only with respect to financial regulation do we see the usual left-right debate of bigger versus smaller government.

As an anecdote, early in the Trump Administration I attended a three-hour session on financial regulation at the Treasury Department, with about 50 economists in the room, predominantly on the right of course. At one point, the official running the session asked for a show of hands on the question of whether banks were required to hold too much capital, not enough capital, or the right amount. Overwhelmingly, our hands went up for “not enough capital.” So I think that Teles and Lindsey are wrong to imply that the reason that we are stuck with the financial policy we have is that the left and the right cannot agree.

Among economists, left and right agree that it would be good policy to require banks to be less levered. Just as we agree that it would be good policy to build more housing in high-income cities.

Lindsey and Teles are quite aware that on these issues where economists mostly agree, there are public-choice problems. That is what they mean by the title “captured economy.” In the latter part of the book, they talk about ways of getting around these public-choice problems. They reject both the libertarian solution (shrink government) and the progressive solution (regulate campaign finance).

I would describe their suggested alternative political approaches as scenarios rather than as solutions. I am not very optimistic that their scenarios can be realized.

Laws to reduce ambiguity

In a podcast with Russ Roberts, Gillian Hadfield says,

it’s precisely the pressure and the creation of ambiguity in what the rules are, that we think generates the demand for, and then the production of, institutions that perform that role, where everybody knows, everybody knows, ‘That the institution.’ We can argue about it, but we’ve now we’ve now set up a country system. Or, we’ve designated a smart member of the community, whoever–an arbitrator–

She argues that laws serve to reduce ambiguity. I assume that she means written laws.

I am reading Bruno Leoni’s thoughts on law. He believed that common law is comparable to market activity. He believed that legislation is comparable to central planning, with all of its defects. Do we need legal central planning to reduce ambiguity?

Leoni argued that legal central planning, rather than reducing uncertainty, actually creates it, because legislation can suddenly change the rules.

Infrastructure for self-driving cars

Marty Padgett writes,

The infrastructure needed to support completely self-driving cars won’t be ready any time soon. If and when it does happen, that infrastructure is at least decades away–and it will come with a multi-billion-dollar pricetag.

Pointer from James Pethokoukis.

I think it’s worth it. Look at all the money spent creating HOV lanes. My guess is that lanes for self-driving cars would have much more social value. If you could use your car in self-driving mode on the major commuting highways and then drive it yourself when you get off that would be a nice improvement.

It irks me to see money spent creating bike lanes when instead money could be spent on making places ready for smart cars.

Todd Zywicki on Consumer Finance Regulation

He writes,

Market-replacing regulatory strategies seek to limit choice and competition through prohibitions or restrictions. . .A market-reinforcing regulatory strategy, by contrast, seeks to promote competition and choice

That is from his essay in the compendium, Reframing Financial Regulation.

Think of the government as giving guidance to consumers. This could be justified for financial products, for medical care, or for nearly any product or service that poses cognitive challenges for consumers. Market-replacing regulation provides guidance in the form of prohibition. Market-reinforcing regulation is intended to provide guidance in the form of disclosure.

It strikes me that one approach might be for the government to create an artificial intelligence program to advise consumers in these areas. You could make a phone call to the advisory service, speak in natural language, and get advice. Once you get the advice, you can take it or leave it.

This advisory service need not be perfect. The question is whether it could be better than market-replacing regulation or with other imperfect attempts at market-reinforcing regulation.

Principles-Based Regulation

Philip K. Howard writes,

Hundreds of federal safety specifications for factory equipment could be encompassed within one general principle: “Tools and equipment shall be reasonably suited for the use intended, in accordance with industry standards.” Is there room for disagreement? Yes, but only at the margins. Instead of wasting regulatory resources on foot faults that don’t matter, the safety agency could redeploy its resources to finding workplaces that are actually unsafe.

I think that principles-based regulation would have a few problems but many advantages. One problem is that there would be a zone of uncertainty about what constitutes compliance.

One advantage is that Congress could spell out the principles, because principles-based regulation would not require technocratic expertise. That would restore better Constitutional balance. Another advantage is that it would force whoever writes the regulations to think in broad terms about the aims of regulation. You would not be mindlessly piling on regulations with high costs and low benefits.

However, the main advantage is as Howard describes it. Most people want to do the right thing, especially if you respect their autonomy. If you spell out in broad terms what the “right thing” means, people will use their creativity to achieve that. Instead if you spell out do’s and don’ts in detail, they will use their creativity to achieve compliance with the letter but not with the spirit of the regulation.

Recall my essay on principles-based regulation.

Who Needs the FCC?

The WaPo reports,

Many of the FCC’s existing functions could be farmed out, Jamison wrote in the blog post. Subsidies for phone and Internet service could be handled by state governments, while the Federal Trade Commission could handle consumer complaints and take action against abuses by companies. There are some details that were not addressed in the blog post due to time constraints, Jamison said Tuesday, such as the possible need for new state-level powers to address broadband monopolies.

The story refers to Mark Jamison, an adviser to President-elect Trump.

I think it would be a great idea to reconstitute the FCC for the 21st century. Recall my essay, Sidestep the FCC and the FDA. There, I argue for replacing the FCC’s spectrum licensing system (which Jamison would retain) with an arbitration board to deal with disputes among spectrum users.

Unlike the FCC, the arbitration board would presume that any spectrum could be used for any purpose. The board would set ground rules for users to deal with one another to resolve potential conflicts. These ground rules might specify which user has priority until an agreement can be reached. The ground rules might set expectations for how negotiations ought to be conducted and resolved. If parties are unable to resolve disputes, then the board would rule on that specific dispute.

My thinking reflects a view of spectrum that I encountered over 15 years ago, which says that there really is no such thing as “interference” if you have the right hardware, software, and protocols in place.

Regulation and Sustainability

Concerning a new EPA regulation, Jennifer Ko writes,

many industry and environmental groups have failed to address one important aspect of biofuel regulations—the effect that increased ethanol use will have on dwindling water supplies in the United States. Jay Famiglietti, a senior water scientist at the U.S. National Aeronautics and Space Administration, questions the prudence of policy decisions that drain stressed water supplies to irrigate water-intensive crops. Many of the nation’s top ethanol producing states sit in the “breadbasket” of America where farmers irrigate crops, such as corn, using water from underground aquifers. In Kansas, the main source of water—the largest basin of freshwater in the United States—is dwindling rapidly, in part due to the water used up by massive acres of crops earmarked for ethanol production.

If policymakers fail to consider the relationship between energy and water, Famiglietti warns that “consequences will be huge.”

Pointer from Mark Thoma.

In Specialization and Trade, I argue that market prices tend to do a better job than environmentalist intuition at indicating sustainability. Water tends to be under-priced, in part because agricultural interests lobby for low prices. They also lobby for higher ethanol mandates. And the EPA, which is supposedly here to protect the environment, helps the agricultural interests.

What Socialism Looks Like in America

New York state legislature effectively bans airbnb. It does so by imposing a $7500 fine on anyone who so much as advertises a short-term rental.

“The bill says: You can’t advertise an illegal activity,’” Assemblywoman Deborah Glick, a Manhattan Democrat who supported the bill, told the Wall Street Journal in June. “I don’t know what the big confusion is.”

Actually, those of us who favor free speech probably should argue that you should be able to advertise to sell heroin or any other illegal good or service. Prosecution should take place for the sale, not for the advertisement.

My larger point is that people who favor socialism here seem to think that it will somehow turn out to be pristine and un-corrupt. Instead, as Milton Friedman pointed out, the attempt to regulate markets eventually undermines every other form of freedom.